Financial Highlights
|
For the
Six Months
Period Ended
April 30, 2020
(unaudited)
|
|
For the Fiscal Years Ended October 31,
|
|
|
|
2019
|
|
2018(a)
|
|
2017
|
|
2016
|
|
2015
|
|
PER SHARE OPERATING PERFORMANCE:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value per common share, beginning of period
|
|
$9.56
|
|
$9.33
|
|
$9.95
|
|
$8.69
|
|
$9.56
|
|
$9.92
|
|
Net investment income
|
|
0.33
|
(b)
|
0.64
|
(b)
|
0.64
|
(b)
|
0.68
|
|
0.65
|
|
0.69
|
|
Net realized and unrealized gains/(losses) on investments, forward foreign currency exchange contracts and foreign currency transactions
|
|
(1.22
|
)
|
0.27
|
|
(0.58
|
)
|
1.27
|
|
(0.83
|
)
|
(0.38
|
)
|
Total from investment operations applicable to common shareholders
|
|
(0.89
|
)
|
0.91
|
|
0.06
|
|
1.95
|
|
(0.18
|
)
|
0.31
|
|
Distributions to common shareholders from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
(0.35
|
)
|
(0.65
|
)
|
(0.67
|
)
|
(0.68
|
)
|
(0.66
|
)
|
(0.68
|
)
|
Tax return of capital
|
|
|
|
(0.04
|
)
|
(0.02
|
)
|
(0.01
|
)
|
(0.03
|
)
|
(0.00
|
)(c)
|
Total distributions
|
|
(0.35
|
)
|
(0.69
|
)
|
(0.69
|
)
|
(0.69
|
)
|
(0.69
|
)
|
(0.68
|
)
|
Capital Share Transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anti-Dilutive effect of share repurchase program
|
|
|
|
0.01
|
|
0.01
|
|
|
|
|
|
0.01
|
|
Total capital share transactions
|
|
|
|
0.01
|
|
0.01
|
|
|
|
|
|
0.01
|
|
Net asset value per common share, end of period
|
|
$8.32
|
|
$9.56
|
|
$9.33
|
|
$9.95
|
|
$8.69
|
|
$9.56
|
|
Market price, end of period
|
|
$7.21
|
|
$8.44
|
|
$7.94
|
|
$9.02
|
|
$7.37
|
|
$8.01
|
|
Total Investment Return Based on(d):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Market price
|
|
(10.71%
|
)
|
15.55%
|
|
(4.96%
|
)
|
32.78%
|
|
0.81%
|
|
0.07%
|
|
Net asset value
|
|
(9.03%
|
)
|
11.39%
|
|
1.24%
|
|
24.22%
|
|
(0.40%
|
)
|
4.39%
|
|
Ratio to Average Net Assets Applicable to Common Shareholders/Supplementary Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets applicable to common shareholders, end of period (000 omitted)
|
|
$877,613
|
|
$1,007,850
|
|
$994,556
|
|
$1,070,253
|
|
$934,580
|
|
$1,028,225
|
|
Net operating expenses, net of fee waivers
|
|
1.16%
|
(e)
|
1.22%
|
|
1.18%
|
|
1.19%
|
|
1.15%
|
|
1.16%
|
|
Net operating expenses, excluding fee waivers
|
|
1.18%
|
(e)
|
1.24%
|
|
1.19%
|
|
|
(f)
|
|
(f)
|
|
(f)
|
Net operating expenses, net of fee waivers and excluding interest expense
|
|
1.14%
|
(e)
|
1.18%
|
|
1.14%
|
|
1.15%
|
|
1.15%
|
|
1.15%
|
|
Net investment income
|
|
7.07%
|
(e)
|
6.94%
|
|
6.32%
|
|
7.03%
|
|
7.31%
|
|
6.74%
|
|
Portfolio turnover
|
|
32%
|
(g)
|
135%
|
|
77%
|
|
94%
|
|
98%
|
|
127%
|
|
Line of credit payable outstanding (000 omitted)
|
|
$
|
|
$
|
|
$15,401
|
|
$33,239
|
|
$
|
|
$
|
|
Asset coverage ratio on line of credit payable at period end
|
|
|
|
|
|
6,558%
|
|
|
(h)
|
|
(h)
|
|
(h)
|
Asset coverage per $1,000 on line of credit payable at period end
|
|
$
|
|
$
|
|
$65,576
|
|
$31,199
|
|
$
|
|
$
|
|
(a) Beginning with the year ended October 31, 2018, the Fund has been audited by KPMG LLP. Previous years were audited by different independent registered public accounting firms.
(b) Net investment income is based on average shares outstanding during the period.
(c) Less than $0.005 per share.
(d) Total investment return is calculated assuming a purchase of common stock on the first day and a sale on the last day of each reporting period. Dividends and distributions, if any, are assumed, for purposes of this calculation, to be reinvested at prices obtained under the Funds dividend reinvestment plan. Total investment return does not reflect brokerage commissions.
18
|
Aberdeen Total Dynamic Dividend Fund
|
|
Financial Highlights (concluded)
(e) Annualized.
(f) Effective May 4, 2018, the Fund entered into an expense limitation agreement with Aberdeen Asset Managers Limited, the Funds Investment Adviser. Prior to this, there was no such agreement in place.
(g) Not annualized.
(h) The Fund did not disclose asset coverage ratio on line of credit payable in prior years.
Amounts listed as - are $0 or round to $0.
See Notes to Financial Statements.
|
Aberdeen Total Dynamic Dividend Fund
|
19
|
Notes to Financial Statements (unaudited)
1. Organization
Aberdeen Total Dynamic Dividend Fund (the Fund) is a diversified, closed-end management investment company. The Fund was organized as a Delaware statutory trust on October 27, 2006, and commenced operations on January 26, 2007. The Funds principal investment objective is to seek high current dividend income primarily in equity securities, with a secondary objective of long-term growth of capital. The Board of Trustees (the Board) authorized an unlimited number of shares with no par value.
2. Summary of Significant Accounting Policies
The Fund is an investment company and accordingly follows the investment company accounting and reporting guidance of the Financial Accounting Standards Board (FASB) Accounting Standard Codification Topic 946 Financial Services-Investment Companies.
The following is a summary of significant accounting policies followed by the Fund in the preparation of its financial statements. The policies conform to generally accepted accounting principles (GAAP) in the United States of America. The preparation of financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of income and expenses for the period. Actual results could differ from those estimates.
a. Security Valuation:
The Fund values its securities at current market value or fair value, consistent with regulatory requirements. Fair value is defined in the Funds Valuation and Liquidity Procedures as the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants without a compulsion to transact at the measurement date.
In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the Fund discloses the fair value of its investments using a three-level hierarchy that classifies the inputs to valuation techniques used to measure the fair value. The hierarchy assigns Level 1, the highest level, measurements to valuations based upon unadjusted quoted prices in active markets for identical assets, Level 2 measurements to valuations based upon other significant observable inputs, including adjusted quoted prices in active markets for similar assets, and Level 3 the lowest level, measurements to valuations based upon unobservable inputs that are significant to the valuation. Inputs refer broadly to the assumptions that market participants would use in pricing the asset or liability, including assumptions about risk, for example, the risk inherent in a particular
valuation technique used to measure fair value including a pricing model and/or the risk inherent in the inputs to the valuation technique. Inputs may be observable or unobservable. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability, which are based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. A financial instruments level within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement.
Equity securities that are traded on an exchange are valued at the last quoted sale price on the principal exchange on which the security is traded at the Valuation Time subject to application, when appropriate, of the valuation factors described in the paragraph below. Under normal circumstances, the Valuation Time is as of the close of regular trading on the New York Stock Exchange (NYSE) (usually 4:00 p.m. Eastern Time). In the absence of a sale price, the security is valued at the mean of the bid/ask price quoted at the close on the principal exchange on which the security is traded. Securities traded on NASDAQ are valued at the NASDAQ official closing price. Closed-end funds and exchange-traded funds (ETFs) are valued at the market price of the security at the Valuation Time. A security using any of these pricing methodologies is determined to be a Level 1 investment.
Foreign equity securities that are traded on foreign exchanges that close prior to Valuation Time are valued by applying valuation factors to the last sale price or the mean price as noted above. Valuation factors are provided by an independent pricing service provider approved by the Board. These valuation factors are used when pricing the Funds portfolio holdings to estimate market movements between the time foreign markets close and the time the Fund values such foreign securities. These valuation factors are based on inputs such as depositary receipts, indices, futures, sector indices/ETFs, exchange rates, and local exchange opening and closing prices of each security. When prices with the application of valuation factors are utilized, the value assigned to the foreign securities may not be the same as quoted or published prices of the securities on their primary markets. A security that applies a valuation factor is determined to be a Level 2 investment because the exchange-traded price has been adjusted. Valuation factors are not utilized if the independent pricing service provider is unable to provide a valuation factor or if the valuation factor falls below a predetermined threshold; in such case, the security is determined to be a Level 1 investment.
20
|
Aberdeen Total Dynamic Dividend Fund
|
|
Notes to Financial Statements (unaudited) (continued)
Derivative instruments are valued at fair value. Exchange traded futures are generally Level 1 investments and centrally cleared swaps and forwards are generally Level 2 investments. Forward foreign currency contracts are generally valued based on the bid price of the forward rates and the current spot rate. Forward exchange rate quotations are available for scheduled settlement dates, such as 1-, 3-, 6-, 9- and 12- month periods. An interpolated valuation is derived based on the actual settlement dates of the forward contracts held. Futures contracts are valued at the settlement price or at the last bid price if no settlement price is available. Swap agreements are generally valued by an approved pricing agent based on the terms of the swap agreement (including future cash flows). When market quotations or exchange rates are not readily available, or if the Investment Adviser concludes that such market quotations do not accurately reflect fair value, the fair value of a Funds assets are determined in good faith in accordance with the Valuation Procedures.
Short-term investments are comprised of cash and cash equivalents invested in short-term investment funds which are redeemable daily. The Fund sweeps available cash into the State Street Institutional U.S. Government Money Market Fund, which has elected to qualify as a government money market fund pursuant to Rule 2a-7 under the
Investment Company Act as of 1940, as amended (the 1940 Act), and has an objective, which is not guaranteed, to maintain a $1.00 per share net asset value (NAV). Generally, these investment types are categorized as Level 1 investments.
In the event that a securitys market quotations are not readily available or are deemed unreliable (for reasons other than because the foreign exchange on which they trade closed before the Valuation Time), the security is valued at fair value as determined by the Funds Pricing Committee, taking into account the relevant factors and surrounding circumstances using valuation policies and procedures approved and established by the Board. A security that has been fair valued by the Funds Pricing Committee may be classified as Level 2 or Level 3 depending on the nature of the inputs.
The three-level hierarchy of inputs is summarized below:
Level 1 quoted prices in active markets for identical investments;
Level 2 other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk); or
Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments).
The following is a summary of the inputs used as of April 30, 2020 in valuing the Funds investments at fair value. The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Please refer to the Portfolio of Investments for a detailed breakout of the security types:
Investments, at Value
|
|
Level 1 Quoted
Prices ($)
|
|
Level 2 Other Significant
Observable Inputs ($)
|
|
Level 3 Significant
Unobservable Inputs ($)
|
|
Total ($)
|
|
Investments in Securities
|
|
|
|
|
|
|
|
|
|
Common Stocks
|
|
$544,446,975
|
|
$296,210,063
|
|
$
|
|
$840,657,038
|
|
Preferred Stocks
|
|
|
|
11,103,390
|
|
|
|
11,103,390
|
|
Short-Term Investment
|
|
19,360,248
|
|
|
|
|
|
19,360,248
|
|
Total
|
|
$563,807,223
|
|
$307,313,453
|
|
$
|
|
$871,120,676
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
Other Financial Instruments
|
|
|
|
|
|
|
|
|
|
Forward Foreign Currency Exchange Contracts
|
|
$
|
|
$(25,925
|
)
|
$
|
|
$(25,925
|
)
|
Amounts listed as are $0 or round to $0.
For the six-month period ended April 30, 2020, there were no significant changes to the fair valuation methodologies.
|
Aberdeen Total Dynamic Dividend Fund
|
21
|
Notes to Financial Statements (unaudited) (continued)
b. Restricted Securities:
Restricted securities are privately-placed securities whose resale is restricted under U.S. securities laws. The Fund may invest in restricted securities, including unregistered securities eligible for resale without registration pursuant to Rule 144A and privately-placed securities of U.S. and non-U.S. issuers offered outside the U.S. without registration pursuant to Regulation S under the Securities Act of 1933, as amended (the 1933 Act). Rule 144A securities may be freely traded among certain qualified institutional investors, such as the Fund, but resale of such securities in the U.S. is permitted only in limited circumstances.
c. Foreign Currency Translation:
Foreign securities, currencies, and other assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the exchange rate of said currencies against the U.S. Dollar, as of the Valuation Time, as provided by an independent pricing service approved by the Board.
Foreign currency amounts are translated into U.S. Dollars on the following basis:
(i) market value of investment securities, other assets and liabilities at the current daily rates of exchange at the Valuation Time; and
(ii) purchases and sales of investment securities, income and expenses at the relevant rates of exchange prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments in equity securities due to changes in the foreign exchange rates from the portion due to changes in market prices of equity securities. Accordingly, realized and unrealized foreign currency gains and losses with respect to such securities are included in the reported net realized and unrealized gains and losses on investment transactions balances.
The Fund reports certain foreign currency related transactions and foreign taxes withheld on security transactions as components of realized gains for financial reporting purposes, whereas such foreign currency related transactions are treated as ordinary income for U.S. federal income tax purposes.
Net unrealized currency gains or losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation/depreciation on value of investments, and translation of other assets and liabilities denominated in foreign currencies.
Net realized foreign exchange gains or losses represent foreign exchange gains and losses from transactions in foreign currencies and forward foreign currency contracts, exchange gains or losses realized
between the trade date and settlement date on security transactions, and the difference between the amounts of interest and dividends recorded on the Funds books and the U.S. Dollar equivalent of the amounts actually received.
d. Security Transactions, Investment Income and Expenses:
Security transactions are recorded on the trade date. Realized and unrealized gains/(losses) from security and currency transactions are calculated on the identified cost basis. Dividend income and corporate actions are recorded generally on the ex-date, except for certain dividends and corporate actions which may be recorded after the ex-date, as soon as the Fund acquires information regarding such dividends or corporate actions. Interest income and expenses are recorded on an accrual basis.
e. Derivative Financial Instruments:
The Fund is authorized to use derivatives to manage currency risk, credit risk, and interest rate risk and to replicate, or use as a substitute for, physical securities. Losses may arise due to changes in the value of the contract or if the counterparty does not perform under the contract. The use of derivative instruments involves, to varying degrees, elements of market risk in excess of the amount recognized in the Statement of Assets and Liabilities.
Forward Foreign Currency Exchange Contracts:
A forward foreign currency exchange contract (forward contract) involves an obligation to purchase and sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. Forward contracts are used to manage the Funds currency exposure in an efficient manner. They are used to sell unwanted currency exposure that comes with holding securities in a market, or to buy currency exposure where the exposure from holding securities is insufficient to give the desired currency exposure either or in absolute terms. The use of forward contracts allows for the separation of investment decision-making between foreign securities holdings and their currencies.
The forward contract is marked-to-market daily and the change in market value is recorded by the Fund as unrealized appreciation or depreciation. Forward contracts prices are received daily from an independent pricing provider. When the forward contract is closed, the Fund records a realized gain or loss equal to the difference between the value at the time it was opened and the value at the time it was closed. These realized and unrealized gains and losses are reported on the Statement of Operations.
22
|
Aberdeen Total Dynamic Dividend Fund
|
|
Notes to Financial Statements (unaudited) (continued)
During the six-month period ended April 30, 2020, the Fund used forward contracts to hedge its currency exposure.
While the Fund may enter into forward contracts to seek to reduce currency exchange rate risks, transactions in such contracts involve certain risks. The Fund could be exposed to risks if the counterparties to the contracts are unable to meet the terms of their contracts and from unanticipated movements in exchange rates. Thus, while the Fund may benefit from such transactions, unanticipated changes in currency prices may result in a poorer overall performance for the Fund than if it had not engaged in any such transactions. Moreover, there may be imperfect correlation between the Funds portfolio holdings or
securities quoted or denominated in a particular currency and forward contracts entered into by the Fund. Such imperfect correlation may prevent the Fund from achieving a desired hedge, which will expose the Fund to the risk of foreign exchange loss.
Forward contracts are subject to the risk that a counterparty to such contract may default on its obligations. Since a forward foreign currency exchange contract is not guaranteed by an exchange or clearing house, a default on the contract would deprive the Fund of unrealized profits, transaction costs or the benefits of a currency hedge or force the Fund to cover its purchase or sale commitments, if any, at the market price at the time of default.
Summary of Derivative Instruments:
The Fund may use derivatives for various purposes as noted above.
The following is a summary of the fair value of derivative instruments, not accounted for as hedging instruments, as of April 30, 2020:
|
|
Asset Derivatives
|
|
Liability Derivatives
|
|
Derivatives Not Accounted For as
Hedging Instruments and Risk
Exposure
|
|
Statement of Assets and
Liabilities Location
|
|
Fair Value
|
|
Statement of Assets and
Liabilities Location
|
|
Fair Value
|
|
Forward foreign currency exchange contracts (foreign exchange risk)
|
|
Unrealized appreciation on forward foreign currency exchange contracts
|
|
$
|
|
Unrealized depreciation on forward foreign currency exchange contracts
|
|
$25,925
|
|
Total
|
|
|
|
$
|
|
|
|
$25,925
|
|
Amounts listed as are $0 or round to $0.
The Fund has transactions that may be subject to enforceable master netting agreements. A reconciliation of the gross amounts on the Statement of Assets and Liabilities as of April 30, 2020 to the net amounts by broker and derivative type, including any collateral received or pledged, is included in the following tables:
|
|
|
|
Gross Amounts Not Offset
in Statement of
Assets & Liabilities
|
|
|
|
Gross Amounts Not Offset
in Statement of
Assets and Liabilities
|
|
Description
|
|
Gross Amounts
of Assets
Presented in
Statement of
Financial Position
|
|
Financial
Instruments
|
|
Collateral
Received(1)
|
|
Net
Amount(3)
|
|
Gross Amounts
of Liabilities
Presented in
Statement of
Financial Position
|
|
Financial
Instruments
|
|
Collateral
Pledged(1)
|
|
Net
Amount(3)
|
|
|
|
Assets
|
|
Liabilities
|
|
Forward foreign currency(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State Street Bank and Trust
|
|
$
|
|
$
|
|
$
|
|
$
|
|
$25,925
|
|
$
|
|
$
|
|
$25,925
|
|
Amounts listed as are $0 or round to $0.
(1) In some instances, the actual collateral received and/or pledged may be more than the amount shown here due to overcollateralization.
(2) Includes financial instruments (swaps and forwards) which are not subject to a master netting arrangement across funds, or other another similar arrangement.
(3) Net amounts represent the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from financial derivative instruments can only be netted across transactions governed under the same master netting arrangements with the same legal entity.
Aberdeen Total Dynamic Dividend Fund
|
23
|
Notes to Financial Statements (unaudited) (continued)
The effect of derivative instruments on the Statement of Operations for the six-month period ended April 30, 2020:
Derivatives not accounted for as
Location of Gain or (Loss) on or (Loss) on
(Depreciation) on hedging instruments
|
|
Location of Gain or (Loss) on
Derivatives
|
|
Realized Gain
or (Loss) on
Derivatives
|
|
Change in
Unrealized
Appreciation/
(Depreciation) on
Derivatives
|
|
Forward foreign currency exchange contracts
(foreign exchange risk)
|
|
Realized/Unrealized Gain/(Loss) from Investments and Foreign Currency Transactions
|
|
$774,851
|
|
$318,804
|
|
Total
|
|
|
|
$774,851
|
|
$318,804
|
|
Information about derivatives reflected as of the date of this report is generally indicative of the type of activity for the six-month period ended April 30, 2020. The table below summarizes the weighted average values of derivatives holdings for the Fund during the six-month period ended April 30, 2020.
Derivative
|
|
Average Notional Value
|
|
Purchase Forward Foreign Currency Contracts
|
|
$
|
|
Sale Forward Foreign Currency Contracts
|
|
$27,233,178
|
|
Amounts listed as are $0 or round to $0.
The Fund values derivatives at fair value, as described in the Statement of Operations. Accordingly, the Fund does not follow hedge accounting even for derivatives employed as economic hedges.
f. Distributions:
The Fund intends to make regular monthly distributions of net investment income to holders of common shares. The Fund expects to pay its common shareholders annually all or substantially all of its investment company taxable income. In addition, at least annually, the Fund intends to distribute all or substantially all of its net capital gains, if any.
Distributions from net realized gains for book purposes may include short-term capital gains which are ordinary income for tax purposes. Distributions to common shareholders are recorded on the ex-dividend date.
Dividends and distributions to shareholders are determined in accordance with federal income tax regulations, which may differ from GAAP. These book-tax differences are considered either temporary or permanent in nature. To the extent these differences are permanent in nature, such amounts are reclassified within the capital accounts based on their federal income tax treatment. Temporary differences do not require reclassification. To the extent distributions exceed current and accumulated earnings and profits for federal income tax purposes they are reported to shareholders as return of capital.
g. Federal Income Taxes:
The Fund intends to continue to qualify as a regulated investment company (RIC) by complying with the provisions available to certain investment companies, as defined in Subchapter M of the Internal Revenue Code of 1986, as amended, and to make distributions of net
investment income and net realized capital gains sufficient to relieve the Fund from all federal income taxes. Therefore, no federal income tax provision is required.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is more likely than not to be sustained assuming examination by tax authorities. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Since tax authorities can examine previously filed tax returns, the Funds U.S. federal and state tax returns for each of the four fiscal years up to the most recent fiscal year ended October 31 are subject to such review.
h. Foreign Withholding Tax
Dividend and interest income from non-U.S. sources received by the Fund are generally subject to non-U.S. withholding taxes. In addition, the Fund may be subject to capital gains tax in certain countries in which it invests. The above taxes may be reduced or eliminated under the terms of applicable U.S. income tax treaties with some of these countries. The Fund accrues such taxes when the related income is earned.
In addition, when the Fund sells securities within certain countries in which it invests, the capital gains realized may be subject to tax. Based on these market requirements and as required under GAAP, the Fund accrues deferred capital gains tax on securities currently held that have unrealized appreciation within these countries. The amount of deferred capital gains tax accrued is reported on the Statement of Operations
24
|
Aberdeen Total Dynamic Dividend Fund
|
|
Notes to Financial Statements (unaudited) (continued)
as part of the Net Change in Unrealized Appreciation/Depreciation on Investments.
i. Equity Linked Notes
The Fund may invest in equity-linked structured notes. Equity-linked structured notes are securities which are specially designed to combine the characteristics of one or more underlying securities and their equity derivatives in a single note form. The return and/or yield or income component may be based on the performance of the underlying equity securities, and equity index, and/or option positions. Equity-linked structured notes are typically offered in limited transactions by financial institutions in either registered or non-registered form. An investment in equity-linked structured notes creates exposure to the credit risk of the issuing financial institution, as well as to the market risk of the underlying securities. There is no guaranteed return of principal with these securities and the appreciation potential of these securities may be limited by a maximum payment or call right. In certain cases, equity-linked structured notes may be more volatile and less liquid than complex securities or other types of fixed-income securities. Such securities may exhibit price behavior that does not correlate with other fixed income securities. The Fund did not hold equity-linked structured notes as of April 30, 2020.
3. Agreements and Transactions with Affiliates
a. Investment Adviser
AAML serves as the Funds Investment Adviser (the Adviser), pursuant to an investment advisory agreement (the Advisory Agreement) with the Fund. AAML is a wholly-owned indirect subsidiary of Standard Life Aberdeen plc (SLA plc). In rendering advisory services, the Adviser may use the resources of investment advisor subsidiaries of SLA plc. These affiliates have entered into procedures pursuant to which investment professionals from affiliates may render portfolio management and research services as associated persons of the Adviser.
As compensation for its services to the Fund, AAML receives an annual investment advisory fee of 1.00% based on the Funds average daily managed assets, computed daily and payable monthly. Managed
Assets means total assets of the Fund, including any form of investment leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to investment leverage obtained through (i) indebtedness of any type (including, without limitation, borrowing through a credit facility or the issuance of debt securities), (ii) the issuance of preferred stock or other similar preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the Funds investment objectives and policies, and/or (iv) any other means.
Effective May 4, 2018, AAML entered into a written contract (the Expense Limitation Agreement) with the Fund that is effective through June 30, 2021. The Expense Limitation Agreement limits the total ordinary operating expenses of the Fund (excluding any leverage costs, interest, taxes, brokerage commissions, and any non-routine expenses) from exceeding 1.14% of the average daily net assets of the Fund on an annualized basis. The total amount of the waiver for the six-month period ended April 30, 2020 pursuant to the Expense Limitation Agreement was $101,476.
AAML may request and receive reimbursement from a Fund of the advisory fees waived and other expenses reimbursed pursuant to the Expense Limitation Agreement as of a date not more than three years after the date when the Adviser limited the fees or reimbursed the expenses; provided that the following requirements are met: the reimbursements do not cause the Fund to exceed the lesser of the applicable expense limitation in the contract at the time the fees were limited or expenses are paid or the applicable expense limitation in effect at the time the expenses are being recouped by the Adviser, and the payment of such reimbursement is approved by the Board on a quarterly basis (the Reimbursement Requirements). Except as provided for in the Expense Limitation Agreement, reimbursement of amounts previously waived or assumed by AAML is not permitted.
As of April 30, 2020, to the extent the Reimbursement Requirements are met, the cumulative potential reimbursements to AAML from the Fund, based on expenses reimbursed by AAML, including adjustments described above, would be:
Amount
Fiscal Year 2018
(Expires in 10/31/21)
|
|
Amount
Fiscal Year 2019
(Expires in 10/31/22)
|
|
Amount
Six Months
Period 2020
(Expires in 4/30/23)
|
|
Total*
|
|
$23,591
|
|
$242,143
|
|
$101,476
|
|
$367,210
|
|
* Amounts reported are due to expire throughout the respective 3-year expiration period presented above.
|
Aberdeen Total Dynamic Dividend Fund
|
25
|
Notes to Financial Statements (unaudited) (continued)
b. Fund Administrator, Custodian and Fund Accounting Agent
State Street Bank and Trust Company (SSBT) serves as the administrator, custodian and fund accounting agent. The custodian is responsible for the safekeeping of the assets of the Fund and the fund accounting agent is responsible for calculating the Funds NAV. SSBT, as the Funds custodian and fund accounting agent, is paid on the basis of net assets and transaction costs of the Fund. SSBT also serves as the administrator for the Fund. SSBT, as the Funds administrator, is paid on the basis of net assets of the Fund. Effective June 1, 2020, ASII will become the Funds Administrator and SSBT will become the Funds Sub-Administrator.
c. Investor Relations
Under the terms of the Investor Relations Services Agreement, Aberdeen Standard Investments, Inc. (ASII), an affiliate of AAML, provides and/or engages third parties to provide Investor Relations Services to the Fund and certain other funds advised by ASII or its affiliates as part of an Investor Relations Program. Under the Investor Relations Services Agreement, the Fund owes a portion of the fees related to the Investor Relations Program (the Funds Portion). However, Investor Relations Services fees are limited by ASII so that the Fund will only pay up to an annual rate of 0.05% of the Funds average weekly net assets. Any difference between the capped rate of 0.05% of the Funds average weekly net assets and the Funds Portion is paid for by ASII.
Pursuant to the terms of the Investor Relations Services Agreement, ASII (or third parties hired by ASII), among other things, provides objective and timely information to shareholders based on publicly available information; provides information efficiently through the use of technology while offering shareholders immediate access to knowledgeable investor relations representatives; develops and maintains effective communications with investment professionals from a wide variety of firms; creates and maintains investor relations communication materials such as fund manager interviews, films and webcasts, published white papers, magazine articles and other relevant materials discussing the Funds investment results, portfolio positioning and outlook; develops and maintains effective communications with large institutional shareholders; responds to specific shareholder questions; and reports activities and results to the Board and management detailing insight into general shareholder sentiment.
During the six-month period ended April 30, 2020, the Fund incurred investor relations fees of approximately $108,921. For the six-month period ended April 30, 2020, ASII did not contribute to the investor
relations fees for the Fund because the Funds contribution was below 0.05% of the Funds average weekly net assets on an annual basis.
4. Investment Transactions
Purchases and sales of investment securities (excluding short-term securities) for the six-month period ended April 30, 2020, were $308,699,150 and $308,016,042, respectively.
5. Capital
As of April 30, 2020, there were 105,430,999 shares of common stock issued and outstanding
6. Line of Credit
On December 1, 2010, the Fund executed a Prime Brokerage Agreement with BNP Paribas Prime Brokerage International Ltd. (BNPP PB). On October 1, 2015 the Fund amended its Credit Facility Agreement which allows the Fund to borrow on a secured and committed basis. The maximum commitment amount is $300,000,000 however, the Fund may borrow up to 33.33% of its total assets on an uncommitted basis. The terms of the lending agreement indicate the rate to be the Federal Funds rate plus 0.85% per annum on amounts borrowed. The BNPP PB facility provides a secured, committed line of credit for the Fund where certain Fund assets are pledged against advances made to the Fund. On April 30, 2020, the amount available for investment purposes was $293,674,104. The Fund has granted a security interest in all pledged assets used as collateral to BNPP PB. The maximum amount of the line of credit available is the lesser of 33.33% of its total assets of the Fund or the amounts disclosed above, including the amount borrowed. During the six-month period ended April 30, 2020, the average borrowing by the Fund was $9,663,596 with an average rate on borrowings of 2.53%. During the six-month period ended April 30, 2020, the maximum borrowing by the Fund was $28,706,472. Interest expense related to the line of credit for the six-month period ended April 30, 2020, was $73,226. As of April 30, 2020, there was no outstanding loan to the Fund under this agreement.
7. Open Market Repurchase Program
On June 13, 2018, the Board approved a share repurchase program (Program) for the Fund. The Program allows the Fund to purchase, in the open market, its outstanding common shares, with the amount and timing of any repurchase determined at the discretion of the Funds investment adviser and subject to market conditions and investment considerations. The Fund reports repurchase activity on the Funds website on a monthly basis. For the six-month period ended April 30, 2020, the Fund did not repurchase any shares through the Program.
26
|
Aberdeen Total Dynamic Dividend Fund
|
|
Notes to Financial Statements (unaudited) (continued)
April 30, 2020
8. Portfolio Investment Risks
a. Dividend Strategy Risk:
There is no guarantee that the issuers of the stocks held by the Fund will declare dividends in the future or that, if dividends are declared, they will remain at their current levels or increase over time. The Funds emphasis on dividend paying stocks could cause the Fund to underperform similar funds that invest without consideration of a companys track record of paying dividends or ability to pay dividends in the future. Dividend-paying stocks may not participate in a broad market advance to the same degree as other stocks, and a sharp rise in interest rates or economic downturn could cause a company to unexpectedly reduce or eliminate its dividend. The Fund may hold securities for short periods of time related to the dividend payment periods and may experience loss during these periods.
b. Emerging Markets Risk:
A magnification of the risks that apply to foreign investments. These risks are greater for securities of companies in emerging market countries because the countries may have less stable governments, more volatile currencies and less established markets (see Foreign Securities Risk below).
c. Equity Securities Risk:
The stock or other security of a company may not perform as well as expected, and may decrease in value, because of factors related to the company (such as poorer than expected earnings or certain management decisions) or to the industry in which the company is engaged (such as a reduction in the demand for products or services in a particular industry). Holders of common stock generally are subject to more risks than holders of preferred stock or debt securities because the right to repayment of common stockholders claims is subordinated to that of preferred stock and debt securities upon the bankruptcy of the issuer.
d. Foreign Currency Exposure Risk:
The value of foreign currencies relative to the U.S. Dollar fluctuates in response to market, economic, political, regulatory, geopolitical or other conditions. A decline in the value of a foreign currency versus the U.S. Dollar reduces the value in U.S. Dollars of investments denominated in that foreign currency. This risk may impact the Fund more greatly to the extent the Fund does not hedge its currency risk, or hedging techniques used by the Adviser are unsuccessful.
e. Foreign Securities Risk:
Foreign countries in which the Fund may invest may have markets that are less liquid, less regulated and more volatile than U.S. markets. The value of the Funds investments may decline because of factors such as unfavorable or unsuccessful government actions, reduction of government or central bank support and political or financial instability. To the extent the Fund focuses its investments in a single country or only a few countries in a particular geographic region, economic, political, regulatory or other conditions affecting such country or region may have a greater impact on Fund performance relative to a more geographically diversified fund.
f. Issuer Risk:
The value of a security may decline for reasons directly related to the issuer, such as management performance, financial leverage and reduced demand for the issuers goods or service.
g. Management Risk:
The Fund is subject to the risk that the Adviser or Subadviser may make poor security selections. The Adviser, Subadviser and their portfolio managers apply their own investment techniques and risk analyses in making investment decisions for the Fund and there can be no guarantee that these decisions will achieve the desired results for the Fund. In addition, the Adviser or the Subadviser may select securities that underperform the relevant market or other funds with similar investment objectives and strategies.
h. Market Risk:
Deteriorating market conditions might cause a general weakness in the market that reduces the prices, or yield, of securities in those markets in which the Fund invests.
i. Mid-Cap Securities Risk:
Securities of medium sized companies tend to be more volatile and less liquid than securities of larger companies.
j. Portfolio Turnover Risk:
The Fund may engage in active and frequent trading of portfolio securities to achieve its investment objective. High portfolio turnover necessarily results in greater transaction costs which may reduce Fund performance. It may also result in greater realization of gains, which may include short-term gains taxable at ordinary income tax rates.
Aberdeen Total Dynamic Dividend Fund
|
27
|
Notes to Financial Statements (unaudited) (continued)
April 30, 2020
k. Qualified Dividend Tax Risk:
Favorable U.S. federal tax treatment of Fund distributions may be adversely affected, changed or repealed by future changes in tax laws.
l. Sector Risk:
To the extent that the Fund has a significant portion of its assets invested in securities of companies conducting business in a broadly related group of industries within an economic sector, the Fund may be more vulnerable to unfavorable developments in that economic sector than funds that invest more broadly.
Financial Sector Risk. To the extent that the financials sector represents a significant portion of a Funds holdings, the Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this sector. Performance of companies in the financials sector may be adversely impacted by many factors, including, among others, government regulations, economic conditions, credit rating downgrades, changes in interest rates, and decreased liquidity in credit markets. The impact of more stringent capital requirements, recent or future regulation of any individual financial company, or recent or future regulation of the financials sector as a whole cannot be predicted. In recent years, cyber attacks and technology malfunctions and failures have become increasingly frequent in this sector and have caused significant losses.
Information Technology Sector Risk. To the extent that the information technology sector represents a significant portion of a Fund, the Fund will be sensitive to changes in, and its performance may depend to a greater extent on, factors impacting this sector. Performance of companies in the information technology sector may be adversely impacted by many factors, including, among others, overall economic conditions, short product cycles, rapid obsolescence of products, competition and government regulation.
m. Small-Cap Securities Risk:
Securities of smaller companies are usually less stable in price and less liquid than those of larger, more established companies. Therefore, they generally involve greater risk.
n. Valuation Risk:
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the Funds valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than expected loss or lesser than expected gain upon the sale of the investment. The Funds ability to value its investments may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
o. Leverage Risk:
The Fund may use leverage to purchase securities. Increases and decreases in the value of the Funds portfolio will be magnified when the Fund uses leverage.
9. Contingencies
In the normal course of business, the Fund may provide general indemnifications pursuant to certain contracts and organizational documents. The Funds maximum exposure under these arrangements is dependent on future claims that may be made against the Fund, and therefore, cannot be estimated; however, the Fund expects the risk of loss from such claims to be remote.
10. Tax Information
The U.S. federal income tax basis of the Funds investments (including derivatives, if applicable) and the net unrealized appreciation as of April 30, 2020, were as follows:
Tax Basis of Investments
|
|
Appreciation
|
|
Depreciation
|
|
Net
Unrealized
Appreciation/
(Depreciation)
|
|
$850,775,466
|
|
$147,901,030
|
|
$(127,555,820
|
)
|
$ 20,345,210
|
|
28
|
Aberdeen Total Dynamic Dividend Fund
|
|
Notes to Financial Statements (unaudited) (concluded)
April 30, 2020
The tax character of distributions paid during the fiscal years ended October 31, 2019 and October 31, 2018 was as follows:
|
|
October 31, 2019
|
|
October 31, 2018
|
|
Distributions paid from:
|
|
|
|
|
|
Ordinary Income
|
|
$68,752,993
|
|
$71,690,124
|
|
Net long-term capital gains
|
|
|
|
|
|
Tax return of capital
|
|
4,119,667
|
|
2,490,759
|
|
Total tax character of distributions
|
|
$72,872,660
|
|
$74,180,883
|
|
Amounts listed as are $0 or round to $0.
As of October 31, 2019, the components of accumulated earnings/(deficit) on a tax basis were as follows:
Undistributed ordinary income net
|
|
$
|
|
Undistributed long-term capital gains net
|
|
|
|
Total undistributed earnings
|
|
$
|
|
Capital loss carryforward
|
|
(137,445,650
|
)*
|
Other currency gains
|
|
|
|
Other temporary differences
|
|
|
|
Unrealized appreciation/(depreciation)
|
|
129,449,617
|
**
|
Total accumulated earnings/(deficit) net
|
|
$(7,996,033
|
)
|
Amounts listed as are $0 or round to $0.
*
|
On October 31, 2019, the Fund had a net capital loss carryforward of $(137,445,650) which will be available to offset like amounts of any future taxable gains. Under the Regulated Investment Company Modernization Act of 2010, the Fund is permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. Post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short term as under previous law. The breakdown of capital loss carryforwards are as follows:
|
Amounts
|
|
Expires
|
$137,445,650
|
|
Unlimited (Short-Term)
|
**
|
The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable to the difference between the tax deferral of wash sales and straddles and the realization of unrealized gains forward contracts.
|
11. Subsequent Events
Management has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. Based on this evaluation, no disclosures and/or adjustments were required to the financial statements as of April 30, 2020, except as provided below.
On May 11, 2020 and June 9, 2020, the Fund announced that it will pay on May 29, 2020 and June 30, 2020 a distribution of $0.0575 per share to all shareholders of record as of May 21, 2020 and June 19, 2020, respectively.
Effective June 1, 2020 Aberdeen Standard Investments Inc. (ASII) serves as the Funds Administrator. ASII is a wholly-owned indirect subsidiary of Standard Life Aberdeen plc (SLA plc) and will receive 0.08% as compensation for services. ASII has also entered into an agreement with State Street as sub-administrator to the Fund.
Aberdeen Total Dynamic Dividend Fund
|
29
|
Dividend Reinvestment and Optional Cash Purchase Plan (unaudited)
The Fund intends to distribute to stockholders substantially all of its net investment income and to distribute any net realized capital gains at least annually. Net investment income for this purpose is income other than net realized long-term and short-term capital gains net of expenses. Pursuant to the Dividend Reinvestment and Optional Cash Purchase Plan (the Plan), stockholders whose shares of common stock are registered in their own names will be deemed to have elected to have all distributions automatically reinvested by Computershare Trust Company N.A. (the Plan Agent) in the Fund shares pursuant to the Plan, unless such stockholders elect to receive distributions in cash. Stockholders who elect to receive distributions in cash will receive such distributions paid by check in U.S. Dollars mailed directly to the stockholder by the Plan Agent, as dividend paying agent. In the case of stockholders such as banks, brokers or nominees that hold shares for others who are beneficial owners, the Plan Agent will administer the Plan on the basis of the number of shares certified from time to time by the stockholders as representing the total amount registered in such stockholders names and held for the account of beneficial owners that have not elected to receive distributions in cash. Investors that own shares registered in the name of a bank, broker or other nominee should consult with such nominee as to participation in the Plan through such nominee and may be required to have their shares registered in their own names in order to participate in the Plan. Please note that the Fund does not issue certificates so all shares will be registered in book entry form. The Plan Agent serves as agent for the stockholders in administering the Plan. If the Directors of the Fund declare an income dividend or a capital gains distribution payable either in the Funds common stock or in cash, nonparticipants in the Plan will receive cash and participants in the Plan will receive common stock, to be issued by the Fund or purchased by the Plan Agent in the open market, as provided below. If the market price per share (plus expected per share fees) on the valuation date equals or exceeds NAV per share on that date, the Fund will issue new shares to participants at NAV; provided, however, that if the NAV is less than 95% of the market price on the valuation date, then such shares will be issued at 95% of the market price. The valuation date will be the payable date for such distribution or dividend or, if that date is not a trading day on the New York Stock Exchange, the immediately preceding trading date. If NAV exceeds the market price of Fund shares at such time, or if the Fund should declare an income dividend or capital gains distribution payable only in cash, the Plan Agent will, as agent for the participants, buy Fund shares in the open market, on the New York Stock Exchange or elsewhere, for the participants accounts on, or shortly after, the payment date. If, before the Plan Agent has completed its purchases, the market price exceeds the NAV of a Fund share, the average per share purchase price
paid by the Plan Agent may exceed the NAV of the Funds shares, resulting in the acquisition of fewer shares than if the distribution had been paid in shares issued by the Fund on the dividend payment date. Because of the foregoing difficulty with respect to open-market purchases, the Plan provides that if the Plan Agent is unable to invest the full dividend amount in open-market purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent will cease making open-market purchases and will receive the uninvested portion of the dividend amount in newly issued shares at the close of business on the last purchase date.
Participants have the option of making additional cash payments of a minimum of $50 per investment (by check, one-time online bank debit or recurring automatic monthly ACH debit) to the Plan Agent for investment in the Funds common stock, with an annual maximum contribution of $250,000. The Plan Agent will use all such funds received from participants to purchase Fund shares in the open market on the 25th day of each month or the next trading day if the 25th is not a trading day.
If the participant sets up recurring automatic monthly ACH debits, funds will be withdrawn from his or her U.S. bank account on the 20th of each month or the next business day if the 20th is not a banking business day and invested on the next investment date. The Plan Agent maintains all stockholder accounts in the Plan and furnishes written confirmations of all transactions in an account, including information needed by stockholders for personal and tax records. Shares in the account of each Plan participant will be held by the Plan Agent in the name of the participant, and each stockholders proxy will include those shares purchased pursuant to the Plan. There will be no brokerage charges with respect to common shares issued directly by the Fund. However, each participant will pay a per share fee of $0.02 incurred with respect to the Plan Agents open market purchases in connection with the reinvestment of dividends, capital gains distributions and voluntary cash payments made by the participant. Per share fees include any applicable brokerage commissions the Plan Agent is required to pay.
Participants also have the option of selling their shares through the Plan. The Plan supports two types of sales orders. Batch order sales are submitted on each market day and will be grouped with other sale requests to be sold. The price will be the average sale price obtained by Computershares broker, net of fees, for each batch order and will be sold generally within 2 business days of the request during regular open market hours. Please note that all written sales requests are always processed by Batch Order. ($10 and $0.12 per share). Market
30
|
Aberdeen Total Dynamic Dividend Fund
|
|
Dividend Reinvestment and Optional Cash Purchase Plan (unaudited) (concluded)
Order sales will sell at the next available trade. The shares are sold real time when they hit the market, however an available trade must be presented to complete this transaction. Market Order sales may only be requested by phone at 1-800-647-0584 or using Investor Center through www.computershare.com/buyaberdeen. ($25 and $0.12 per share).
The receipt of dividends and distributions under the Plan will not relieve participants of any income tax that may be payable on such dividends or distributions. The Fund or the Plan Agent may terminate the Plan as applied to any voluntary cash payments made and any dividend or distribution paid subsequent to notice of the termination sent to
members of the Plan at least 30 days prior to the record date for such dividend or distribution. The Plan also may be amended by the Fund or the Plan Agent, but (except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission or any other regulatory authority) only by mailing a written notice at least 30 days prior to the effective date to the participants in the Plan. All correspondence concerning the Plan should be directed to the Plan Agent by phone at 1-800-647-0584, using Investor Center through www.computershare.com/buyaberdeen or in writing to Computershare Trust Company N.A., P.O. Box 505000, Louisville, KY 40233-5000.
|
Aberdeen Total Dynamic Dividend Fund
|
31
|
[THIS PAGE INTENTIONALLY LEFT BLANK]
Trustees
Martin Gilbert
Nancy Yao Maasbach
P. Gerald Malone, Chairman
John Sievwright
Investment Adviser
Aberdeen Asset Managers Limited
Bow Bells House
1 Bread Street
London, United Kingdom
EC4M 9HH
Custodian
State Street Bank and Trust Company
1 Lincoln Street
Boston, MA 02111
Transfer Agent
Computershare Trust Company, N.A.
P.O. Box 505000
Louisville, KY 40233
Independent Registered Public Accounting Firm
KPMG LLP
1601 Market Street
Philadelphia, PA 19103
Legal Counsel
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019
Administrator
Aberdeen Standard Investments Inc.
1900 Market Street, Suite 200
Philadelphia, PA 19103
Investor Relations
Aberdeen Standard Investments Inc.
1900 Market Street, Suite 200
Philadelphia, PA 19103
1-800-522-5465
Investor.Relations@aberdeenstandard.com
Aberdeen Asset Managers Limited
The Financial Statements as of April 30, 2020, included in this report were not audited and accordingly, no opinion is expressed thereon
Notice is hereby given in accordance with Section 23(c) of the Investment Company Act of 1940, as amended, that the Fund may purchase, from time to time, shares of its common stock in the open market.
Shares of Aberdeen Total Dynamic Dividend Fund are traded on the NYSE under the symbol AOD. Information about the Funds net asset value and market price is available at www.aberdeenaod.com.
This report, including the financial information herein, is transmitted to the shareholders of Aberdeen Total Dynamic Dividend Fund for their general information only. It does not have regard to the specific investment objectives, financial situation and the particular needs of any specific person. Past performance is no guarantee of future returns.