Item 1. Reports to Stockholders.
Letter
to Shareholders (unaudited)
Dear
Shareholder,
We present
this Annual Report, which covers the activities of Aberdeen Total Dynamic Dividend Fund (the "Fund"), for the fiscal
year ended October 31, 2020. The Fund's investment objective is to seek high current dividend income. The Fund also focuses on
long-term growth of capital as a secondary investment objective.
Total
Investment Return
For the
fiscal year ended October 31, 2020, the total return to shareholders of the Fund based on the net asset value ("NAV")
and market price of the Fund are as follows:
NAV*
|
|
0.1%
|
|
Market
Price*
|
|
-5.5%
|
|
MSCI
All Country World Index (Net Dividends)1,2
|
|
4.9%
|
|
MSCI
All Country World Index (Gross Dividends)1
|
|
5.4%
|
|
* assuming the reinvestment of all dividends
and distributions
The Fund's
total return is based on the reported NAV for each financial reporting period end and may differ from what is reported on the
Financial Highlights due to financial statement rounding or adjustments. For more information about Fund performance, please see
the Report of the Investment Adviser (page 4) and Total Investment Returns (page 6).
NAV,
Market Price and Discount
The below
table represents comparison from current fiscal year end to prior fiscal year end of Market Price to NAV and associated Discount.
|
|
NAV
|
|
Closing
Market
Price
|
|
Discount
|
10/31/2020
|
|
$8.77
|
|
$7.31
|
|
16.6%
|
10/31/2019
|
|
$9.56
|
|
$8.44
|
|
11.7%
|
Throughout
the fiscal year ended October 31, 2020, the Fund's NAV was within a range of $6.55 to $10.34 and the Fund's market price was within
a range of $5.20 to $9.29. During the fiscal year ended October 31, 2020, the Fund's shares traded within a range of a discount
of 8.1% to 23.6%.
Portfolio
Management
The day-to-day
management of the Fund is the responsibility of the Global Equity team of Aberdeen Standard Investments3. The team
works
in a collaborative fashion, with all team members having both portfolio management and research responsibilities. Effective January
31, 2020, Dominic Byrne replaced Stephen Docherty a member of the team having the most significant responsibility for the day-to-day
management of the Fund's portfolio. This team also includes Josh Duitz, Martin Connaghan, Jamie Cummings and Bruce Stout.
Distribution
Policy
Distributions
to common shareholders for the twelve months ended October 31, 2020 totaled $0.69 per share. Based on the market price of $7.31
on October 31, 2020, the distribution rate over the twelve-month period ended October 31, 2020 was 9.4%. Since all distributions
are paid after deducting applicable withholding taxes, the effective distribution rate may be higher for those U.S. investors
who are able to claim a tax credit.
On November
10, 2020 and December 9, 2020, the Fund announced that it will pay on November 30, 2020 and January 8, 2021, respectively, a distribution
of U.S. $0.0575 per share to all shareholders of record as of November 20, 2020 and December 31, 2020, respectively.
The Fund's
policy is to provide investors with a stable monthly distribution out of current income, supplemented by realized capital gains
and, to the extent necessary, paid-in capital, which is a nontaxable return of capital. This policy is subject to an annual review
as well as regular review at the Board of Trustees of the Fund's (the "Board") quarterly meetings, unless market conditions
require an earlier evaluation.
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 Fund's investment adviser and subject to market conditions and investment considerations. The Fund reports repurchase activity
on the Fund's website on a monthly basis. For the fiscal year ended October 31, 2020, the Fund did not repurchase any shares through
the Program.
1
|
The
Morgan Stanley Capital International (MSCI) All Country (AC) World Index is an unmanaged index considered representative of developed
and emerging market stock markets. Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses
are reflected. You cannot invest directly in an index.
|
2
|
At
a meeting held on December 10, 2019, the Fund's Board of Trustees approved a change in the Fund's benchmark from the MSCI AC World
Index (Gross Dividends) to the MSCI AC World Index (Net Dividends). The change from a gross to a net dividend benchmark is in
line with industry practice and is more appropriate for the Fund, as the net dividend benchmark is calculated net of withholding
taxes, to which the Fund is generally subject with respect to its non-U.S. securities. The change in benchmark does not affect
the investment objective of the Fund, nor the way in which the portfolio is managed.
|
3
|
The
asset management business of the Fund's investment adviser's parent company, Standard Life Aberdeen plc, and its affiliates, operates
under the name and is herein referred to collectively as Aberdeen Standard Investments.
|
Aberdeen Total
Dynamic Dividend Fund
|
1
|
Letter
to Shareholders (unaudited)
Portfolio
Holdings Disclosure
The Fund's
complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year are included in the Fund's semi-annual
and annual reports to shareholders. The Fund files its complete schedule of portfolio holdings with the Securities and Exchange
Commission (the "SEC") for the first and third quarters of each fiscal year as an exhibit to its reports on Form N-PORT
(previously on Form N-Q). These reports are available on the SEC's website at sec.gov. The Fund makes the information available
to shareholders upon request and without charge by calling Investor Relations toll-free at 1-800-522-5465.
Proxy
Voting
A description
of the policies and procedures that the Fund uses to determine how to vote proxies relating to portfolio securities, and information
regarding how the Fund voted proxies relating to portfolio securities during the most recent 12 month period ended June 30 is
available by August 31 of the relevant year: (1) without charge, upon request, by calling Investor Relations toll-free at 1-800-522-5465;
and (2) on the SEC's website at sec.gov.
COVID-19
The illness
caused by a novel coronavirus (COVID-19) has resulted in a global pandemic and major disruption to economies and markets around
the world, including the United States. Financial markets have experienced extreme volatility and severe losses, and trading in
many instruments has been disrupted. Liquidity for many instruments has been greatly reduced for periods of time. Some interest
rates are very low and in some cases yields are negative. Some sectors of the economy and individual issuers have experienced
particularly large losses. These circumstances may continue for an extended period of time, and may continue to affect adversely
the value and liquidity of the Fund's investments. The ultimate economic fallout from the pandemic, and the long-term impact on
economies, markets, industries and individual issuers, including the Fund, are not known. Governments and central banks, including
the Federal Reserve in the United States have taken extraordinary and unprecedented actions to support local and global economies
and the financial markets. The impact of these measures, and whether they will be effective to mitigate the economic and market
disruption, will not be known for some time.
Unclaimed
Share Accounts
Please
be advised that abandoned or unclaimed property laws for certain states require financial organizations to transfer (escheat)
unclaimed property (including Fund shares) to the state. Each state has its own definition of unclaimed property, and Fund shares
could be considered "unclaimed property" due to account inactivity (e.g., no owner-generated activity for a certain
period), returned mail (e.g., when mail sent to a shareholder is returned to the Fund's transfer agent as undeliverable), or a
combination of both. If your Fund shares are categorized as unclaimed, your financial advisor or the Fund's transfer agent will
follow the applicable state's statutory requirements to contact you, but if unsuccessful, laws may require that the shares be
escheated to the appropriate state. If this happens, you will have to contact the state to recover your property, which may involve
time and expense. For more information on unclaimed property and how to maintain an active account, please contact your financial
adviser or the Fund's transfer agent.
LIBOR
Under
the revolving credit facility, the Fund is charged interest on amounts borrowed at a variable rate, which may be based on the
London Interbank Offered Rate ("LIBOR") plus a spread. In 2017, the head of the United Kingdom's Financial Conduct
Authority announced a desire to phase out the use of LIBOR by the end of 2021. There remains uncertainty regarding the future
utilization of LIBOR and the nature of any replacement reference rate. As such, the potential effect of a transition away
from LIBOR on the Fund's payment obligations under the revolving credit facility cannot yet be determined.
Investor
Relations Information
As part
of Aberdeen Standard's commitment to shareholders, we invite you to visit the Fund on the web at www.aberdeenaod.com. Here, you
can view monthly fact sheets, quarterly commentary, distribution and performance information, and other Fund literature.
Enroll
in Aberdeen Standard's email services and be among the first to receive the latest closed-end fund news, announcements, videos
and other information. In addition, you can receive electronic versions of important Fund documents, including annual reports,
semi-annual reports, prospectuses, and proxy statements. Sign up today at https://www.aberdeenstandard.com/en-us/cefinvestorcenter/contact-us/preferences
2
|
Aberdeen
Total Dynamic Dividend Fund
|
Letter to Shareholders
(unaudited)(concluded)
Contact Us:
•
|
Visit: https://www.aberdeenstandard.com/en-us/cefinvestorcenter;
|
•
|
Email: Investor.Relations@aberdeenstandard.com; or
|
•
|
Call: 1-800-522-5465 (toll free in the U.S.).
|
Yours
sincerely,
/s/
Christian Pittard
Christian Pittard
President
All
amounts are U.S. Dollars unless otherwise stated.
Aberdeen Total
Dynamic Dividend Fund
|
3
|
Report
of the Investment Adviser (unaudited)
Market/Economic
Review
Global
equities posted modest gains amid significant market volatility over the 12-month period ended October 31, 2020. Early in the
reporting period, trade tensions between the U.S. and China drove global equity markets, with the U.S. implementing punitive tariffs
as leverage in renegotiations. Thereafter, the 2019 calendar year ended on a positive note as both countries seemingly set aside
their differences and worked toward a preliminary trade agreement.
The start
of 2020, however, brought fresh woes in the form of the COVID-19 pandemic, which spread rapidly from China to nearly all parts
of the globe. This led many countries to shut their borders and impose draconian lockdowns in an effort to limit contagion. As
business activity ground to a halt, governments and central banks worldwide used fiscal and monetary tools in a bid to support
flagging economic growth in their countries. U.S. lawmakers enacted the US$2 trillion Coronavirus Aid, Relief, and Economic Security
(CARES) Act stimulus package, while the U.S. Federal Reserve cut its benchmark interest rate to nearly 0% and revised its approach
to managing inflation, signaling low interest rates for a protracted period. Across the Atlantic, the European Union agreed to
raise US$857 billion from financial markets in an effort to support member states and sectors most affected by the pandemic, while
the European Central Bank extended its US$1.6 trillion emergency bond purchase program to mid-2021.
As COVID-19
infection rates ebbed in the summer of 2020, governments worldwide eased social-distancing measures, eager to allow their economies
some respite. However, a resurgence of infections, particularly in the U.S. and Europe, subsequently forced many nations to reimpose
movement restrictions. This weighed heavily on global equity markets towards the end of the reporting period.
Fund
Performance Review
Aberdeen
Total Dynamic Dividend Fund returned 0.1% on a net asset value (NAV) basis for the 12-month period ended October 31, 2020, versus
the 4.9% return of its benchmark, the Morgan Stanley Capital International (MSCI) All Country (AC) World Index (Net Dividends).
At
the individual stock level, key detractors from the Fund's relative performance during the reporting period included a
position in British cinema company Cineworld Group plc, which is not a constituent of the benchmark MSCI AC World Index, an
absence of a holding in e-commerce giant Amazon.com Inc., and an overweight position in Standard Chartered plc, an
international banking group that offers a broad array of services, primarily in emerging market countries. Cineworld Group
operates 9,500 movie screens worldwide. With
movie theatres shutting down due to COVID-19, investors feared
the company would experience a liquidity crisis. The company still needs covenant* waivers for its debt and movie studios are
delaying the release of first-run films. The lack of exposure to Amazon.com weighed on Fund performance as Amazon shares
rallied sharply as COVID-19 accelerated growth of Amazon Prime. The pandemic drove Amazon Prime users to explore Prime perks
(video, music, Twitch, photo storage, etc.) and accelerated the shift to online buying. Standard Chartered shares performed
poorly given the combination of falling interest rates and strained U.S.-China trade relations. We exited the Fund's position
in Standard Chartered during the reporting period.
Conversely,
the largest contributors to Fund performance during the reporting period included overweight positions in LG Chem Ltd., one of
the largest chemical companies in the world, NortonLifeLock, Inc., a U.S.-based cybersecurity services company and FedEx Corp,
a U.S.-based delivery-services company. LG Chem's electric vehicle (EV) battery business turned profitable in 2020, given strong
demand. The company's chemical business also performed well given favorable spreads. In addition, LG Chem approved a split-off
of its energy-solutions business. NortonLifeLock's share price rallied after the completion of the sale of its enterprise security
business to Broadcom in November 2019. The company used a portion of the proceeds to pay a large special dividend in January 2020.
Furthermore, the current environment of employees working from home benefited NortonLifeLock's anti-virus products. We sold the
Fund's position in NortonLifeLock during the reporting period to capture profits. Shares of FedEx rallied as it reported strong
fiscal-first-quarter 2021 results. The company has benefited from elevated e-commerce activity amid the pandemic. In addition,
operating leverage from its express business was strong and it experienced robust revenue growth in its ground business given
tight capacity in the domestic package market. Furthermore, investors are anticipating a record peak holiday season.
Regarding
the use of derivatives in the Fund during the reporting period, we continued to hedge a portion of the Fund's currency exposure
to the euro.
The
Fund earns income through a combination of investing in companies that pay dividends and implementing a dividend-capture
strategy. In a dividend-capture trade, the Fund sells a stock on or shortly after the stock's ex-dividend date and reinvests
the sales proceeds into one or more other stocks that are expected to pay dividends before the next dividend payment on the
stock that it is selling. While employing this strategy, the Fund purchases companies that pay
regular and/or special dividends. Over the 12-month period ended October 31, 2020, the Fund issued total distributions of
$0.69 per share.
|
*
|
A
covenant is a financial agreement containing provisions that certain activities will or will not be carried out or that certain
thresholds will be met.
|
4
|
Aberdeen
Total Dynamic Dividend Fund
|
Report
of the Investment Adviser (unaudited) (concluded)
At a
meeting held on December 10, 2019, the Fund's Board of Trustees approved a change in the Fund's primary benchmark from the MSCI
AC World Index (Gross Dividends) to the MSCI AC World Index (Net Dividends). The change from a gross- to a net-dividend benchmark
is in line with industry practice and is more appropriate for the Fund, as the benchmark return is calculated net of withholding
taxes, to which the Fund is also generally subject with respect to its non-U.S. securities. The change in benchmark affects neither
the investment objective of the Fund nor the way in which the portfolio is managed.
Outlook
The world
remains in a state of uncertainty as the approaching winter in the Northern Hemisphere coincides with fresh waves of COVID-19
infections in Europe and the U.S. Many governments globally have reimposed social-distancing measures to contain the virus, delaying
prospects for a full economic recovery from the pandemic. To compound the matter, relations between the U.S. and China continue
to deteriorate, with the trajectory unlikely to be altered much by the recent U.S. presidential election, in our view. On a more
positive note, we believe that the continued infusion of massive monetary and fiscal stimuli to economies worldwide should continue
to support equity prices. In addition, the possibility of an approval and distribution of a vaccine has buoyed investor sentiment.
From
a Fund perspective, we are giving serious consideration to two key aspects: how normalized earnings will look as we move forward
in this
crisis, and whether companies are well-positioned for a post-COVID-19 world. In such times of uncertainty, we believe that sound
bottom-up analysis and stock-picking strategies are even more crucial. In our opinion, we have the advantage of a solid proprietary
research platform, along with a well-resourced and experienced team that has navigated many past crises. Amid the current market
volatility, we will continue to seek what we believe are good-quality companies at attractive valuations.
Aberdeen
Asset Managers Limited
Risk
Considerations
Past
performance is not an indication of future results.
Foreign
securities in which the Fund may invest may be more volatile, harder to price and less liquid than U.S. securities. They are subject
to risks associated with less stringent accounting and regulatory standards, the impact of currency exchange rate fluctuation,
political and economic instability, reduced information about issuers, higher transaction costs and delayed settlement. Equity
stocks of small- and mid-cap companies carry greater risk, and more volatility, than equity stocks of larger, more established
companies. Dividends are not guaranteed and a company's future ability to pay dividends may be limited. The use of leverage will
also increase market exposure and magnify risk.
Aberdeen Total
Dynamic Dividend Fund
|
5
|
Total
Investment Returns (unaudited)
The following table summarizes the average annual Fund performance
compared to Fund's benchmark, the MSCI AC World Index for the 1-year, 3-year, 5-year and 10-year periods ended October 31, 2020.
|
|
1
Year
|
|
3
Years
|
|
5
Years
|
|
10
Years
|
|
Net
Asset Value (NAV)
|
|
0.1%
|
|
4.1%
|
|
6.9%
|
|
6.7%
|
|
Market
Price
|
|
-5.5%
|
|
1.3%
|
|
6.8%
|
|
5.2%
|
|
MSCI
AC World Index (Net Dividends)*
|
|
4.9%
|
|
5.5%
|
|
8.1%
|
|
7.9%
|
|
MSCI
AC World Index (Gross Dividends)
|
|
5.4%
|
|
6.1%
|
|
8.7%
|
|
8.5%
|
|
Aberdeen Asset Managers Limited assumed responsibility for
the management of the Fund as investment adviser on May 7, 2018. Performance prior to this date reflects the performance of an
unaffiliated investment adviser.
Effective May 4, 2018, Aberdeen Asset Managers Limited entered
into a written contract with the Fund to waive fees or limit expenses. This contract may not be terminated before June 30, 2021.
Absent such waivers and/or reimbursements, the Fund's returns would be lower. See Note 3 in the Notes to Financial Statements.
Returns
represent past performance. Total investment return based on NAV is based on changes in the NAV of Fund shares and assumes reinvestment
of dividends and distributions, if any, at market prices pursuant to the dividend reinvestment program. All return data at NAV
includes fees and expenses charged to the Fund, which are listed in the Fund's Statement of Operations under "Expenses".
Total investment return based on market value is based on changes in the market price at which the Fund's shares traded on the
NYSE during the period and assumes reinvestment of dividends and distributions, if any, at market prices pursuant to the dividend
reinvestment program. The Fund's total investment return is based on the reported NAV or market price, as applicable, at the financial
reporting period end. Because the Fund's shares trade in the stock market based on investor demand, the Fund may trade at a price
higher or lower than its NAV. Therefore, returns are calculated based on both market price and NAV. Past performance is no
guarantee of future results. The performance information
provided does not reflect the deduction of taxes that a shareholder would pay on distributions received from the Fund. The current
performance of the Fund may be lower or higher than the figures shown. The Fund's yield, return, market price and NAV will fluctuate.
Performance information current to the most recent month-end is available at www.aberdeenaod.com or by calling 800-522-5465.
The net operating expense ratio, excluding fee waivers, based
on the fiscal year ended October 31, 2020 was 1.18%. The net operating expense ratio, net of fee waivers, based on the fiscal year
ended October 31, 2020 was 1.15%. The net operating expenses, net of fee waivers and excluding interest expense based on the fiscal
year ended October 31, 2020 was 1.14%.
*
|
At
a meeting held on December 10, 2019, the Fund's Board of Trustees approved a change in
the Fund's benchmark from the MSCI AC World Index (Gross Dividends) to the MSCI AC World
Index (Net Dividends). The change from a gross to a net dividend benchmark is in line
with industry practice and is more appropriate for the Fund, as the net dividend benchmark
is calculated net of withholding taxes, to which the Fund is generally subject with respect
to its non-U.S. securities. The change in benchmark does not affect the investment objective
of the Fund, nor the way in which the portfolio is managed.
|
6
|
Aberdeen
Total Dynamic Dividend Fund
|
Portfolio
Summary (unaudited)
The following table summarizes the sector composition of the Fund's
portfolio, in S&P Global Inc.'s Global Industry Classification Standard ("GICS"), expressed as a percentage of net
assets as of October 31, 2020. As of October 31, 2020, the Fund held 98.4% of its net assets in equities, 0.6% in a short-term
investment and 1.0% in assets in excess of other liabilities.
Top
Sectors
|
|
As a Percentage of Net Assets
|
|
Information
Technology
|
|
16.6%
|
|
Financials
|
|
12.8%
|
|
Health
Care
|
|
11.5%
|
|
Industrials
|
|
10.3%
|
|
Consumer
Discretionary
|
|
9.2%
|
|
Communication
Services
|
|
8.9%
|
|
Consumer
Staples
|
|
7.8%
|
|
Utilities
|
|
6.9%
|
|
Real
Estate
|
|
5.7%
|
|
Materials
|
|
5.3%
|
|
Energy
|
|
3.4%
|
|
Short-Term
Investment
|
|
0.6%
|
|
Other
Assets in Excess of Liabilities
|
|
1.0%
|
|
|
|
100.0%
|
|
The following chart summarizes the composition of the Fund's portfolio
by geographic classification expressed as a percentage of net assets as of October 31, 2020:
Countries
|
|
As a Percentage of Net Assets
|
|
United
States
|
|
47.1%
|
|
France
|
|
6.3%
|
|
Germany
|
|
5.3%
|
|
Switzerland
|
|
5.1%
|
|
United
Kingdom
|
|
4.4%
|
|
China
|
|
3.6%
|
|
Netherlands
|
|
3.4%
|
|
Japan
|
|
3.1%
|
|
South
Korea
|
|
2.8%
|
|
Canada
|
|
2.8%
|
|
Other
|
|
16.1%
|
|
|
|
100.0%
|
|
Aberdeen
Total Dynamic Dividend Fund
|
7
|
Top
Ten Equity Holdings (unaudited)
The following were the Fund's top ten equity holdings as of October
31, 2020:
Name
of Security
|
|
As a Percentage of Net Assets
|
|
Apple,
Inc.
|
|
3.1%
|
|
Microsoft
Corp.
|
|
2.1%
|
|
Samsung
Electronics Co. Ltd.
|
|
1.8%
|
|
FedEx
Corp.
|
|
1.8%
|
|
Lowe's
Cos., Inc.
|
|
1.7%
|
|
AbbVie,
Inc.
|
|
1.6%
|
|
RWE
AG
|
|
1.6%
|
|
Alphabet,
Inc., Class C
|
|
1.5%
|
|
Target
Corp.
|
|
1.5%
|
|
Enbridge,
Inc.
|
|
1.5%
|
|
8
|
Aberdeen
Total Dynamic Dividend Fund
|
Portfolio
of Investments
As of
October 31, 2020
|
Shares
|
|
Value
|
|
LONG-TERM
INVESTMENTS—98.4%
|
|
COMMON
STOCKS—96.6%
|
|
AUSTRALIA—1.0%
|
|
Materials—1.0%
|
|
Rio
Tinto PLC, ADR
|
|
161,482
|
|
$ 9,167,333
|
|
BRAZIL—2.0%
|
|
Industrials—1.0%
|
|
CCR
SA
|
|
4,929,338
|
|
9,587,294
|
|
Materials—1.0%
|
|
Vale
SA, ADR
|
|
834,500
|
|
8,820,665
|
|
Total
Brazil
|
|
|
18,407,959
|
|
CANADA—2.8%
|
|
Energy—1.5%
|
|
Enbridge,
Inc.(a)
|
|
503,500
|
|
13,876,460
|
|
Materials—1.3%
|
|
Barrick
Gold Corp.(a)
|
|
444,231
|
|
11,874,295
|
|
Total
Canada
|
|
|
25,750,755
|
|
CHINA—3.6%
|
|
Communication
Services—1.2%
|
|
Tencent
Holdings Ltd.
|
|
138,600
|
|
10,589,817
|
|
Consumer
Discretionary—1.3%
|
|
Shenzhou
International Group Holdings Ltd.
|
|
714,000
|
|
12,423,147
|
|
Financials—1.1%
|
|
Ping
An Insurance Group Co. of China Ltd., H Shares
|
|
1,018,000
|
|
10,525,788
|
|
Total
China
|
|
|
33,538,752
|
|
FINLAND—0.7%
|
|
Information
Technology—0.7%
|
|
Nokia
OYJ(b)
|
|
1,968,600
|
|
6,636,537
|
|
FRANCE—6.3%
|
|
Consumer
Discretionary—1.1%
|
|
LVMH
Moet Hennessy Louis Vuitton SE
|
|
21,900
|
|
10,265,575
|
|
Energy—0.9%
|
|
TOTAL
SE(a)
|
|
278,300
|
|
8,440,839
|
|
Financials—1.1%
|
|
AXA
SA
|
|
624,000
|
|
10,021,001
|
|
Industrials—3.2%
|
|
Alstom
SA(b)
|
|
220,919
|
|
9,870,529
|
|
Bouygues
SA
|
|
304,500
|
|
9,985,598
|
|
Schneider
Electric SE
|
|
80,800
|
|
9,817,718
|
|
|
|
29,673,845
|
|
Total
France
|
|
|
58,401,260
|
|
Aberdeen
Total Dynamic Dividend Fund
|
9
|
Portfolio of Investments (continued)
As of October 31, 2020
|
Shares
|
|
Value
|
|
LONG-TERM
INVESTMENTS (continued)
|
|
COMMON
STOCKS (continued)
|
|
GERMANY—5.3%
|
|
Financials—1.2%
|
|
Deutsche
Boerse AG
|
|
72,900
|
|
$ 10,742,072
|
|
Health
Care—0.7%
|
|
Bayer
AG
|
|
131,700
|
|
6,188,651
|
|
Information
Technology—0.9%
|
|
Infineon
Technologies AG
|
|
300,300
|
|
8,360,705
|
|
Materials—1.0%
|
|
Linde
PLC(b)
|
|
41,200
|
|
9,029,598
|
|
Utilities—1.5%
|
|
RWE
AG
|
|
388,500
|
|
14,377,511
|
|
Total
Germany
|
|
48,698,537
|
|
HONG
KONG—2.0%
|
|
Financials—1.3%
|
|
Hong
Kong Exchanges & Clearing Ltd.
|
|
245,100
|
|
11,744,875
|
|
Real
Estate—0.7%
|
|
Sino
Land Co. Ltd.
|
|
6,000,000
|
|
7,110,466
|
|
Total
Hong Kong
|
|
18,855,341
|
|
INDONESIA—1.0%
|
|
Communication
Services—1.0%
|
|
Telekomunikasi
Indonesia Persero Tbk PT
|
|
53,652,600
|
|
9,499,722
|
|
ITALY—1.2%
|
|
Utilities—1.2%
|
|
Enel
SpA
|
|
1,371,700
|
|
10,905,704
|
|
JAPAN—3.1%
|
|
Financials—0.7%
|
|
Mitsubishi
UFJ Financial Group, Inc.
|
|
1,722,400
|
|
6,789,536
|
|
Health
Care—0.9%
|
|
Shionogi
& Co. Ltd.
|
|
170,300
|
|
8,033,041
|
|
Real
Estate—1.5%
|
|
GLP
J-REIT
|
|
9,000
|
|
13,874,831
|
|
Total
Japan
|
|
28,697,408
|
|
NETHERLANDS—3.4%
|
|
Consumer
Staples—2.3%
|
|
Heineken
NV
|
|
131,900
|
|
11,675,465
|
|
Unilever
NV
|
|
170,600
|
|
9,617,359
|
|
|
21,292,824
|
|
10
|
Aberdeen
Total Dynamic Dividend Fund
|
Portfolio of Investments (continued)
As of October 31, 2020
|
Shares
|
|
Value
|
|
LONG-TERM
INVESTMENTS (continued)
|
|
COMMON
STOCKS (continued)
|
|
NETHERLANDS
(continued)
|
|
Information
Technology—1.1%
|
|
ASML
Holding NV
|
|
27,900
|
|
$ 10,094,300
|
|
Total
Netherlands
|
|
|
31,387,124
|
|
NORWAY—1.0%
|
|
Communication
Services—1.0%
|
|
Telenor
ASA
|
|
623,100
|
|
9,628,316
|
|
SINGAPORE—1.0%
|
|
Financials—1.0%
|
|
Oversea-Chinese
Banking Corp. Ltd.
|
|
1,426,971
|
|
8,801,195
|
|
SOUTH
KOREA—1.0%
|
|
Materials—1.0%
|
|
LG
Chem Ltd.
|
|
17,000
|
|
9,269,777
|
|
SPAIN—2.4%
|
|
Communication
Services—1.5%
|
|
Cellnex
Telecom SA(c)
|
|
211,600
|
|
13,582,806
|
|
Industrials—0.9%
|
|
Ferrovial
SA
|
|
391,106
|
|
8,470,393
|
|
Total
Spain
|
|
|
22,053,199
|
|
SWEDEN—1.3%
|
|
Consumer
Staples—0.8%
|
|
Essity
AB, Class B
|
|
272,200
|
|
7,878,364
|
|
Industrials—0.5%
|
|
Atlas
Copco AB, A Shares
|
|
101,100
|
|
4,462,671
|
|
Total
Sweden
|
|
|
12,341,035
|
|
SWITZERLAND—5.1%
|
|
Consumer
Staples—1.4%
|
|
Nestle
SA
|
|
114,500
|
|
12,878,719
|
|
Financials—1.2%
|
|
Zurich
Insurance Group AG
|
|
32,900
|
|
10,927,589
|
|
Health
Care—2.5%
|
|
Novartis
AG
|
|
135,700
|
|
10,574,094
|
|
Roche
Holding AG
|
|
38,000
|
|
12,210,591
|
|
|
|
|
22,784,685
|
|
Total
Switzerland
|
|
|
|
46,590,993
|
|
Aberdeen Total Dynamic Dividend Fund
|
11
|
Portfolio of Investments (continued)
As of October 31, 2020
|
Shares
|
|
Value
|
|
LONG-TERM
INVESTMENTS (continued)
|
|
COMMON
STOCKS (continued)
|
|
TAIWAN—1.5%
|
|
Information
Technology—1.5%
|
|
Taiwan
Semiconductor Manufacturing Co. Ltd., ADR
|
|
163,100
|
|
$ 13,679,197
|
|
UNITED
KINGDOM—4.4%
|
|
Communication
Services—1.4%
|
|
Cineworld
Group PLC
|
|
3,865,000
|
|
1,429,484
|
|
Vodafone
Group PLC, ADR
|
|
877,600
|
|
11,856,376
|
|
|
|
13,285,860
|
|
Health
Care—1.2%
|
|
AstraZeneca
PLC, ADR
|
|
215,400
|
|
10,804,464
|
|
Industrials—0.7%
|
|
Melrose
Industries PLC(b)
|
|
4,247,886
|
|
6,589,607
|
|
Information
Technology—1.1%
|
|
Avast
PLC(c)
|
|
1,565,500
|
|
9,620,385
|
|
Total
United Kingdom
|
|
|
40,300,316
|
|
UNITED
STATES—46.5%
|
|
Communication
Services—2.8%
|
|
Activision
Blizzard, Inc.
|
|
159,300
|
|
12,063,789
|
|
Alphabet,
Inc., Class C(a)(b)
|
|
8,600
|
|
13,940,686
|
|
|
|
26,004,475
|
|
Consumer
Discretionary—6.8%
|
|
Aptiv
PLC(a)
|
|
133,400
|
|
12,871,766
|
|
Las
Vegas Sands Corp.
|
|
225,400
|
|
10,832,724
|
|
Lowe's
Cos., Inc.(a)
|
|
100,900
|
|
15,952,290
|
|
Target
Corp.(a)
|
|
91,300
|
|
13,897,686
|
|
TJX
Cos., Inc. (The)(a)
|
|
182,400
|
|
9,265,920
|
|
|
|
62,820,386
|
|
Consumer
Staples—3.3%
|
|
Kraft
Heinz Co. (The)(a)
|
|
314,800
|
|
9,629,732
|
|
Mondelez
International, Inc., Class A(a)
|
|
227,500
|
|
12,084,800
|
|
PepsiCo,
Inc.
|
|
70,100
|
|
9,343,629
|
|
|
|
31,058,161
|
|
Energy—1.0%
|
|
Williams
Cos., Inc. (The)
|
|
512,300
|
|
9,831,037
|
|
Financials—5.2%
|
|
Bank
of America Corp.(a)
|
|
364,100
|
|
8,629,170
|
|
Blackstone
Group, Inc. (The), Class A
|
|
131,400
|
|
6,625,188
|
|
Charles
Schwab Corp. (The)
|
|
226,900
|
|
9,327,859
|
|
Citigroup,
Inc.(a)
|
|
169,800
|
|
7,033,116
|
|
Goldman
Sachs Group, Inc. (The)
|
|
47,000
|
|
8,884,880
|
|
Huntington
Bancshares, Inc.(a)
|
|
705,500
|
|
7,365,420
|
|
|
|
47,865,633
|
|
12
|
Aberdeen
Total Dynamic Dividend Fund
|
Portfolio of Investments (continued)
As of October 31, 2020
|
Shares
|
|
Value
|
LONG-TERM INVESTMENTS (continued)
|
COMMON STOCKS (continued)
|
UNITED STATES (continued)
|
Health Care—6.2%
|
AbbVie, Inc.
|
|
169,204
|
|
$ 14,399,260
|
|
Bristol-Myers Squibb Co.(a)
|
|
198,000
|
|
11,573,100
|
|
Eli Lilly & Co.
|
|
64,500
|
|
8,414,670
|
|
Medtronic PLC(a)
|
|
118,900
|
|
11,957,773
|
|
UnitedHealth Group, Inc.(a)
|
|
35,800
|
|
10,924,012
|
|
|
|
57,268,815
|
|
Industrials—4.0%
|
FedEx Corp.(a)
|
|
63,800
|
|
16,554,186
|
|
Lockheed Martin Corp.
|
|
26,700
|
|
9,348,471
|
|
Norfolk Southern Corp.(a)
|
|
51,700
|
|
10,811,504
|
|
|
|
36,714,161
|
|
Information Technology—9.5%
|
Apple, Inc.(a)
|
|
260,300
|
|
28,336,258
|
|
Broadcom, Inc.(a)
|
|
39,100
|
|
13,670,533
|
|
Cisco Systems, Inc.(a)
|
|
245,300
|
|
8,806,270
|
|
Fidelity National Information Services, Inc.
|
|
66,700
|
|
8,310,153
|
|
Intel Corp.(a)
|
|
197,400
|
|
8,740,872
|
|
Microsoft Corp.(a)
|
|
97,600
|
|
19,761,072
|
|
|
|
87,625,158
|
|
Real Estate—3.5%
|
American Tower Corp., REIT(a)
|
|
51,200
|
|
11,758,080
|
|
Apartment Investment & Management Co.,, Class A, REIT
|
|
109,727
|
|
3,473,257
|
|
Digital Realty Trust, Inc.(a)
|
|
74,700
|
|
10,779,210
|
|
GEO Group, Inc. (The), REIT(a)
|
|
708,000
|
|
6,272,880
|
|
|
|
32,283,427
|
|
Utilities—4.2%
|
Clearway Energy, Inc., Class C(a)
|
|
300,000
|
|
8,448,000
|
|
CMS Energy Corp.(a)
|
|
146,500
|
|
9,277,845
|
|
FirstEnergy Corp.(a)
|
|
264,700
|
|
7,866,884
|
|
NextEra Energy, Inc.(a)
|
|
176,000
|
|
12,884,960
|
|
|
|
38,477,689
|
|
Total United States
|
|
|
429,948,942
|
|
Total Common Stocks
|
|
|
892,559,402
|
|
PREFERRED STOCKS—1.8%
|
|
SOUTH KOREA—1.8%
|
|
Information Technology—1.8%
|
|
Samsung Electronics Co. Ltd.
|
|
382,300
|
|
17,006,573
|
|
Total Preferred Stocks
|
|
|
17,006,573
|
|
Total Long-Term Investments—98.4% (cost $804,638,030)
|
|
|
909,565,975
|
|
Aberdeen Total Dynamic Dividend Fund
|
13
|
Portfolio of Investments (concluded)
As of October 31, 2020
|
Shares
|
|
Value
|
|
SHORT-TERM INVESTMENT—0.6%
|
|
UNITED STATES—0.6%
|
|
State Street Institutional U.S. Government Money
Market Fund, Premier Class, 0.03%(d)
|
|
5,510,752
|
|
$ 5,510,752
|
|
Total Short-Term Investment—0.6% (cost $5,510,752)
|
|
|
5,510,752
|
|
Total Investments—99.0% (cost $810,148,782)(e)
|
|
|
915,076,727
|
|
Other Assets in Excess of Liabilities—1.0%
|
|
|
8,933,972
|
|
Net Assets—100.0%
|
|
|
$ 924,010,699
|
|
(a) All or a portion of the security has been designated
as collateral for the line of credit.
(b) Non-income producing security.
(c) Denotes a security issued under Regulation S or
Rule 144A.
(d) Registered investment company advised by State
Street Global Advisors. The rate shown is the 7 day yield as of October 31, 2020.
(e) See accompanying Notes to Financial Statements
for tax unrealized appreciation/(depreciation) of securities.
|
ADR
|
American Depositary Receipt
|
|
PLC
|
Public Limited Company
|
|
REIT
|
Real Estate Investment Trust
|
At October 31, 2020, the Fund's open forward foreign currency exchange contracts were as follows:
Sale
Contracts
Settlement Date*
|
|
Counterparty
|
|
Amount
Purchased
|
|
Amount
Sold
|
|
Fair
Value
|
|
Unrealized
Appreciation
|
|
United
States Dollar/Euro
|
|
02/01/2021
|
|
State
Street Bank and Trust
|
|
USD
|
28,808,859
|
|
EUR
|
24,500,000
|
|
$28,596,140
|
|
$212,719
|
|
See Notes to Financial Statements.
14
|
Aberdeen
Total Dynamic Dividend Fund
|
Statement
of Assets and Liabilities
As of
October 31, 2020
|
|
|
|
Assets
|
|
Investments,
at value (cost $804,638,030)
|
|
|
$ 909,565,975
|
|
|
Short-term
investments, at value (cost $5,510,752)
|
|
|
5,510,752
|
|
|
Foreign
currency, at value (cost $652,459)
|
|
|
649,555
|
|
|
Receivable
for investments sold
|
|
|
15,992,921
|
|
|
Interest
and dividends receivable
|
|
|
2,630,795
|
|
|
Unrealized
appreciation on forward foreign currency exchange contracts
|
|
|
212,719
|
|
|
Tax
reclaim receivable
|
|
|
4,979,553
|
|
|
Prepaid
expenses
|
|
|
31,669
|
|
|
Total
assets
|
|
|
939,573,939
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
Payable
for investments purchased
|
|
|
14,486,938
|
|
|
Investment
management fees payable (Note 3)
|
|
|
778,381
|
|
|
Administration
fees payable (Note 3)
|
|
|
63,238
|
|
|
Investor
relations fees payable (Note 3)
|
|
|
16,421
|
|
|
Other
accrued expenses
|
|
|
218,262
|
|
|
Total
liabilities
|
|
|
15,563,240
|
|
|
|
|
|
|
|
|
Net
Assets
|
|
|
$ 924,010,699
|
|
|
|
|
|
|
|
|
Composition of Net Assets
|
|
|
|
|
|
Paid-in
capital in excess of par
|
|
|
$1,012,150,556
|
|
|
Distributable
accumulated loss
|
|
|
(88,139,857
|
)
|
|
Net
Assets
|
|
|
$ 924,010,699
|
|
|
Net
asset value per share based on 105,430,999 shares issued and outstanding
|
|
|
$ 8.76
|
(a)
|
|
|
(a)
|
The
NAV shown above differs from the traded NAV on October 31, 2020 due to financial statement rounding and/or financial statement
adjustments.
|
See Notes
to Financial Statements.
|
Aberdeen Total Dynamic Dividend
Fund
|
15
|
Statement
of Operations
For
the Year Ended October 31, 2020
|
|
|
|
Net
Investment Income:
|
|
|
|
|
|
|
|
Income
|
|
|
|
|
|
Dividends
and other income (net of foreign withholding taxes of $3,100,179)
|
|
|
$ 77,945,533
|
|
|
Interest
income
|
|
|
23,641
|
|
|
Total
Investment Income
|
|
|
77,969,174
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
Investment
management fee (Note 3)
|
|
|
9,673,831
|
|
|
Administration
fee (Note 3)
|
|
|
598,032
|
|
|
Reports
to shareholders and proxy solicitation
|
|
|
216,656
|
|
|
Investor
relations fees and expenses (Note 3)
|
|
|
207,366
|
|
|
Custodian's
fees and expenses
|
|
|
111,170
|
|
|
Insurance
expense
|
|
|
83,178
|
|
|
Legal
fees and expenses
|
|
|
77,111
|
|
|
Trustee
fees and expenses
|
|
|
74,911
|
|
|
Independent
auditors' fees and expenses
|
|
|
74,841
|
|
|
Transfer
agent's fees and expenses
|
|
|
22,907
|
|
|
Miscellaneous
|
|
|
169,793
|
|
|
Total
expenses before reimbursed/waived expenses
|
|
|
11,309,796
|
|
|
Interest
expense (Note 6)
|
|
|
74,031
|
|
|
Total
operating expenses before reimbursed/waived expenses
|
|
|
11,383,827
|
|
|
Less:
Expenses waived (Note 3)
|
|
|
(292,209
|
)
|
|
Net
expenses
|
|
|
11,091,618
|
|
|
|
|
|
|
|
|
Net
Investment Income
|
|
|
66,877,556
|
|
|
|
|
|
|
|
|
Net Realized/Unrealized Gain/(Loss) from Investments
and Foreign Currency Related Transactions:
|
|
|
|
|
|
Net realized gain/(loss) from:
|
|
|
|
|
|
Investment
transactions
|
|
|
(35,975,807
|
)
|
|
Forward
foreign currency exchange contracts
|
|
|
(1,128,577
|
)
|
|
Foreign
currency transactions
|
|
|
(85,337
|
)
|
|
|
|
|
(37,189,721
|
)
|
|
Net change in unrealized appreciation/(depreciation)
on:
|
|
|
|
|
|
Investment
transactions
|
|
|
(41,542,913
|
)
|
|
Forward
foreign currency exchange contracts
|
|
|
557,448
|
|
|
Foreign
currency translation
|
|
|
205,931
|
|
|
|
|
|
(40,779,534
|
)
|
|
Net
realized and unrealized (loss) from investments and foreign currency related transactions
|
|
|
(77,969,255
|
)
|
|
Net
Decrease in Net Assets Resulting from Operations
|
|
|
$ (11,091,699
|
)
|
|
See Notes
to Financial Statements.
16
|
Aberdeen Total Dynamic Dividend
Fund
|
|
Statements
of Changes in Net Assets
|
|
For the
Year Ended
|
|
For the
Year Ended
|
|
|
|
October 31, 2020
|
|
October 31, 2019
|
|
|
|
|
|
|
Increase/(Decrease) in Net Assets:
|
|
|
|
|
|
|
|
|
|
Operations:
|
|
|
|
|
Net
investment income
|
|
$ 66,877,556
|
|
$ 68,105,125
|
|
Net
realized gain/(loss) from investments, forward foreign currency exchange contracts and foreign currency transactions
|
|
(37,189,721
|
)
|
4,645,626
|
|
Net
change in unrealized appreciation/(depreciation) on investments, forward foreign currency exchange contracts and foreign currency transactions
|
|
(40,779,534
|
)
|
22,733,439
|
|
Net
increase/(decrease) in net assets resulting from operations
|
|
(11,091,699
|
)
|
95,484,190
|
|
|
|
|
|
|
|
Distributions to Shareholders From:
|
|
|
|
|
Distributable
earnings
|
|
(70,708,888
|
)
|
(68,752,993
|
)
|
Tax
return of capital
|
|
(2,038,501
|
)
|
(4,119,667
|
)
|
Net
decrease in net assets from distributions
|
|
(72,747,389
|
)
|
(72,872,660
|
)
|
Repurchase
of common stock resulting in the reduction of 0 and 1,159,252 shares of common stock, respectively (Note 6)
|
|
–
|
|
(9,317,371
|
)
|
Change
in net assets from capital transactions
|
|
–
|
|
(9,317,371
|
)
|
Change
in net assets resulting from operations
|
|
(83,839,088
|
)
|
13,294,159
|
|
|
|
|
|
|
|
Net Assets:
|
|
|
|
|
Beginning
of year
|
|
1,007,849,787
|
|
994,555,628
|
|
End
of year
|
|
$ 924,010,699
|
|
$ 1,007,849,787
|
|
Amounts
listed as "–" are $0 or round to $0.
See Notes
to Financial Statements.
|
Aberdeen Total Dynamic Dividend
Fund
|
17
|
Financial
Highlights
|
|
For
the Fiscal Years Ended October 31,
|
|
|
2020
|
2019
|
2018(a)
|
2017
|
2016
|
PER SHARE OPERATING PERFORMANCE:
|
|
|
|
|
|
|
|
|
|
|
|
Net
asset value per common share, beginning of year
|
|
$9.56
|
|
$9.33
|
|
$9.95
|
|
$8.69
|
|
$9.56
|
|
Net
investment income
|
|
0.63
|
(b)
|
0.64
|
(b)
|
0.64
|
(b)
|
0.68
|
|
0.65
|
|
Net
realized and unrealized gains/(losses) on investments, forward foreign currency exchange contracts and foreign currency transactions
|
|
(0.74
|
)
|
0.27
|
|
(0.58
|
)
|
1.27
|
|
(0.83
|
)
|
Total
from investment operations applicable to common shareholders
|
|
(0.11
|
)
|
0.91
|
|
0.06
|
|
1.95
|
|
(0.18
|
)
|
Distributions to common shareholders from:
|
|
|
Net
investment income
|
|
(0.67
|
)
|
(0.65
|
)
|
(0.67
|
)
|
(0.68
|
)
|
(0.66
|
)
|
Tax
return of capital
|
|
(0.02
|
)
|
(0.04
|
)
|
(0.02
|
)
|
(0.01
|
)
|
(0.03
|
)
|
Total
distributions
|
|
(0.69
|
)
|
(0.69
|
)
|
(0.69
|
)
|
(0.69
|
)
|
(0.69
|
)
|
Capital Share Transactions:
|
|
|
Anti-Dilutive
effect of share repurchase program
|
|
–
|
|
0.01
|
|
0.01
|
|
–
|
|
–
|
|
Total
capital share transactions
|
|
–
|
|
0.01
|
|
0.01
|
|
–
|
|
–
|
|
Net
asset value per common share, end of year
|
|
$8.76
|
|
$9.56
|
|
$9.33
|
|
$9.95
|
|
$8.69
|
|
Market
price, end of year
|
|
$7.31
|
|
$8.44
|
|
$7.94
|
|
$9.02
|
|
$7.37
|
|
Total Investment Return Based on(c):
|
|
|
Market
price
|
|
(5.47%
|
)
|
15.55%
|
|
(4.96%
|
)
|
32.78%
|
|
0.81%
|
|
Net
asset value
|
|
0.00%
|
(d)
|
11.39%
|
|
1.24%
|
|
24.22%
|
|
(0.40%
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio to Average Net Assets Applicable to
Common Shareholders/Supplementary
Data:
|
|
|
Net
assets applicable to common shareholders, end of year (000 omitted)
|
|
$924,011
|
|
$1,007,850
|
|
$994,556
|
|
$1,070,253
|
|
$934,580
|
|
Net
operating expenses, net of fee waivers
|
|
1.15%
|
|
1.22%
|
|
1.18%
|
|
1.19%
|
|
1.15%
|
|
Net
operating expenses, excluding fee waivers
|
|
1.18%
|
|
1.24%
|
|
1.19%
|
|
–
|
(e)
|
–
|
(e)
|
Net
operating expenses, net of fee waivers and excluding interest expense
|
|
1.14%
|
|
1.18%
|
|
1.14%
|
|
1.15%
|
|
1.15%
|
|
Net
investment income
|
|
6.93%
|
|
6.94%
|
|
6.32%
|
|
7.03%
|
|
7.31%
|
|
Portfolio
turnover
|
|
115%
|
|
135%
|
|
77%
|
|
94%
|
|
98%
|
|
Line
of credit payable outstanding (000 omitted)
|
|
$–
|
|
$–
|
|
$15,401
|
|
$33,239
|
|
$–
|
|
Asset
coverage ratio on line of credit payable at year end
|
|
–
|
|
–
|
|
6,558%
|
|
–
|
(f)
|
–
|
(f)
|
Asset
coverage per $1,000 on line of credit payable at year 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 a different independent registered public accounting firm.
|
(b)
|
Net investment income is based on average shares outstanding during the
period.
|
(c)
|
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 Fund's dividend reinvestment plan. Total investment return
does not reflect brokerage commissions.
|
(d)
|
The total return shown above includes the impact of financial statement
adjustments to the NAV per share.
|
(e)
|
Effective on May 4, 2018, the Fund entered into an expense limitation
agreement with Aberdeen Asset Managers Limited, the Fund's investment adviser. Prior to this, there was no such agreement in place.
|
(f)
|
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.
18
|
Aberdeen Total Dynamic Dividend
Fund
|
|
Notes
to Financial Statements
October 31, 2020
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 Fund's 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 Fund's 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 entity's 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 instrument's 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 Fund's 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.
Aberdeen Total Dynamic Dividend Fund
|
19
|
Notes
to Financial Statements (continued)
October 31, 2020
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 Adviser concludes that such market quotations
do not accurately reflect fair value, the fair value of the Fund's 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 of 1940, as
amended (the "1940 Act"), and has an objective, which is not guaranteed, to maintain a $1.00 per share net asset
value ("NAV"). Generally, these investment types are categorized as Level 1 investments.
In the event that a security's market quotations are not readily
available or are deemed unreliable (for reasons other than because the foreign exchange on which it trades closes before the Valuation
Time), the security is valued at fair value as determined by the Fund's Pricing Committee, taking into account the relevant factors
and surrounding circumstances using valuation policies and procedures approved by the Board. A security that has been fair valued
by the Fund's Pricing Committee may be classified as Level 2 or Level 3 depending on the nature of the inputs.
The three-level hierarchy of inputs is summarized below:
Level 1 – quoted prices in active markets for identical
investments;
Level 2 – other significant observable inputs (including
quoted prices for similar securities, interest rates, prepayment speeds, and credit risk); or
Level 3 – significant unobservable inputs (including the
Fund's own assumptions in determining the fair value of investments).
A summary of standard inputs is listed below:
Security
Type
|
|
Standard
Inputs
|
Foreign equities utilizing a fair value factor
|
|
Depositary receipts, indices, futures, sector indices/ETFs, exchange rates, and local exchange opening and closing prices of each security.
|
The following is a summary of the inputs used as of October 31,
2020 in valuing the Fund's investments at fair value. The inputs or methodologies used for valuing securities are not necessarily
an indication of the risk associated with investing in those securities. Please refer to the Portfolio of Investments for a detailed
breakout of the security types:
Investments, at Value
|
|
Level 1 – Quoted
Prices ($)
|
|
|
Level 2 – Other Significant
Observable Inputs ($)
|
|
|
Level 3 – Significant
Unobservable Inputs ($)
|
|
|
Total ($)
|
|
Investments in Securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stocks
|
|
|
$528,055,865
|
|
|
|
$364,503,537
|
|
|
|
$–
|
|
|
|
$892,559,402
|
|
Preferred Stocks
|
|
|
–
|
|
|
|
17,006,573
|
|
|
|
–
|
|
|
|
17,006,573
|
|
Short-Term Investments
|
|
|
5,510,752
|
|
|
|
–
|
|
|
|
–
|
|
|
|
5,510,752
|
|
Total
|
|
|
$533,566,617
|
|
|
|
$381,510,110
|
|
|
|
$–
|
|
|
|
$915,076,727
|
|
Other Financial Instruments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forward
Foreign Currency Exchange Contracts
|
|
|
$–
|
|
|
|
$212,719
|
|
|
|
$–
|
|
|
|
$212,719
|
|
Total Assets
|
|
|
$533,566,617
|
|
|
|
$381,722,829
|
|
|
|
$–
|
|
|
|
$915,289,446
|
|
Other
Financial Instruments
|
|
Amounts listed as "–" are $0 or round to $0.
During the fiscal year ended October 31, 2020, there were no significant
changes to the fair valuation methodologies for the type of holdings in the Fund's portfolio.
20
|
Aberdeen
Total Dynamic Dividend Fund
|
Notes to Financial Statements
(continued)
October 31, 2020
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
in 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 Fund's 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 Fund's 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 in absolute terms or relative to a particular benchmark or index. 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.
During the fiscal year ended October 31, 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
Aberdeen Total Dynamic Dividend Fund
|
21
|
Notes
to Financial Statements (continued)
October 31, 2020
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 Fund's
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 a forward 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 October 31, 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
|
|
|
$212,719
|
|
|
Unrealized depreciation
on forward foreign currency
exchange contracts
|
|
|
$–
|
|
Total
|
|
|
|
|
$212,719
|
|
|
|
|
|
$–
|
|
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 October 31, 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
|
|
|
$212,719
|
|
|
$–
|
|
|
$–
|
|
|
$212,719
|
|
|
$–
|
|
|
$–
|
|
|
$–
|
|
|
$–
|
|
|
(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.
|
22
|
Aberdeen Total Dynamic Dividend Fund
|
Notes
to Financial Statements (continued)
October
31, 2020
The effect
of derivative instruments on the Statement of Operations for the fiscal year ended October 31, 2020:
|
|
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
|
|
|
$(1,128,577
|
)
|
|
|
$557,448
|
|
Total
|
|
|
|
|
$(1,128,577
|
)
|
|
|
$557,448
|
|
Information
about derivatives reflected as of the date of this report is generally indicative of the type of activity for the fiscal year
ended October 31, 2020. The table below summarizes the weighted average values of derivatives holdings for the Fund during the
fiscal year ended October 31, 2020.
Derivative
|
Average
Notional Value
|
|
Purchase
Forward Foreign Currency Contracts
|
|
$–
|
|
Sale
Forward Foreign Currency Contracts
|
|
$27,369,228
|
|
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 (the "Code"), 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 Fund's U.S. federal and state tax returns for each of the most recent four fiscal years up to the fiscal year ended
October 31, 2020 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 and are recorded
on the Statement of Operations. The Fund files for tax reclaims for the refund of such withholdings taxes according to tax treaties.
Tax reclaims that are deemed collectible are booked as tax reclaim receivable on the Statement of Assets and Liabilities. 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.
Aberdeen Total Dynamic Dividend Fund
|
23
|
Notes
to Financial Statements (continued)
October
31, 2020
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 as part of the Net Change in Unrealized Appreciation/Depreciation on Investments.
3.
Agreements and Transactions with Affiliates
a.
Investment Adviser:
Aberdeen
Asset Managers Limited ("AAML" or the "Adviser") serves as the Fund's investment 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 Fund's 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 Fund's 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 fiscal year ended October 31, 2020 pursuant
to the Expense Limitation Agreement was $292,209.
AAML
may request and receive reimbursement from the 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
October 31, 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
Fiscal Year 2020
(Expires in 10/31/23)
|
|
Total*
|
$23,591
|
|
$242,143
|
|
$292,209
|
|
$557,943
|
* Amounts
reported are due to expire throughout the respective 3-year expiration period presented above.
|
24
|
Aberdeen
Total Dynamic Dividend Fund
|
Notes
to Financial Statements (continued)
October
31, 2020
b.
Fund Administrator:
Effective
June 1, 2020, Aberdeen Standard Investments Inc. ("ASII"), an affiliate of the Adviser, became the Fund's Administrator.
Pursuant to the Administration Agreement, ASII receives a fee paid by the Fund, at an annual fee rate of 0.08% of the Fund's average
daily net assets. Prior to June 1, 2020, State Street Bank and Trust Company ("SSBT") served as the Fund's Administrator.
SSBT became the Fund's Sub-Administrator effective June 1, 2020. For the period from June 1, 2020 to October 31, 2020, ASII earned
$324,092 from the Fund for administration services.
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 "Fund's 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 Fund's average weekly net
assets. Any difference between the capped rate of 0.05% of the Fund's average weekly net assets and the Fund's Portion is paid
for by ASII.
Pursuant
to the terms of the Investor Relations Services Agreement, ASII (or third parties engaged 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, publishes white papers, magazine articles
and other relevant materials discussing the Fund's 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 fiscal year ended October 31, 2020, the Fund incurred investor relations fees of approximately $207,366. For the fiscal year
ended October 31, 2020, ASII did not contribute to the investor relations fees for the Fund because the Fund's contribution was
below 0.05% of the Fund's average weekly net assets on an annual basis.
4.
Investment Transactions
Purchases
and sales of investment securities (excluding short-term securities) for the fiscal year ended October 31, 2020, were $1,098,617,432
and $1,083,255,750, respectively.
5.
Capital
As of
October 31, 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 LIBOR 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 October 31, 2020, the amount available for investment purposes was $93,957,394. 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 fiscal year
ended October 31, 2020, the average borrowing by the Fund was $9,327,312 with an average weighted interest rate on borrowings
of 2.53%. During the fiscal year ended October 31, 2020, the maximum borrowing by the Fund was $28,706,472. Interest expense related
to the line of credit for the fiscal year ended October 31, 2020, was $74,031. As of October 31, 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 Fund's investment adviser and subject to market conditions and investment considerations. The Fund reports repurchase activity
on the Fund's website on a monthly basis. For the fiscal year ended October 31, 2020, the Fund did not repurchase any shares through
the Program.
Aberdeen
Total Dynamic Dividend Fund 25
Notes
to Financial Statements (continued)
October
31, 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 Fund's emphasis on dividend paying stocks could
cause the Fund to underperform similar funds that invest without consideration of a company's 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:
The Fund
is subject to emerging market risk. This is 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 Fund's 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 issuer's goods or service.
g.
Leverage Risk:
The Fund
may use leverage to purchase securities. Increases and decreases in the value of the Fund's portfolio will be magnified when the
Fund uses leverage.
h.
Management Risk:
The Fund
is subject to the risk that the Adviser may make poor security selections. The Adviser and its 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 may select securities that underperform the
relevant market or other funds with similar investment objectives and strategies.
i.
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.
j.
Mid-Cap Securities Risk:
Securities
of medium-sized companies tend to be more volatile and less liquid than securities of larger companies.
k.
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.
l.
Qualified Dividend Income Tax Risk:
Favorable
U.S. federal tax treatment of Fund distributions may be adversely affected, changed or repealed by future changes in tax laws.
26 Aberdeen
Total Dynamic Dividend Fund
Notes
to Financial Statements (continued)
October
31, 2020
m.
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 the Fund's 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 the 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.
n.
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.
o.
Valuation Risk:
The price
that the Fund could receive upon the sale of any particular portfolio investment may differ from the Fund's 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 Fund's ability to value its investments may also be impacted by technological issues and/or errors
by pricing services or other third-party service providers.
p.
Passive Foreign Investment Company Tax Risk
Equity
investments by the Fund in certain "passive foreign investment companies" ("PFICs") could subject the Fund
to a U.S. federal income tax (including interest charges) on distributions received from the PFIC or on proceeds received from
the disposition of shares in the PFIC. The Fund may be able to elect to treat a PFIC as a "qualified electing fund"
(i.e., make a "QEF election"), in which case the Fund will be required to include its share of the company's
income and net capital gains annually. The Fund may make an election to mark the gains (and to a limited extent losses) in such
holdings "to the market" as though it had sold and repurchased its holdings in those PFICs on the last day of the Fund's
taxable year. Such gains and losses are treated as ordinary income and loss. Because it is not always possible to identify a foreign
corporation as a PFIC, the Fund may incur the tax and interest charges described above in some instances.
q.
Non-U.S. Taxation Risk
Income,
proceeds and gains received by the Fund from sources within foreign countries may be subject to withholding and other taxes imposed
by such countries, which will reduce the return on those investments. Tax treaties between certain countries and the United States
may reduce or eliminate such taxes.
If, at
the close of its taxable year, more than 50% of the value of the Fund's total assets consists of securities of foreign corporations,
including for this purpose foreign governments, the Fund will be permitted to make an election under the Code that will allow
shareholders a deduction or credit for foreign taxes paid by the Fund. In such a case, shareholders will include in gross income
from foreign sources their pro rata shares of such taxes. A shareholder's ability to claim an offsetting foreign tax credit or
deduction in respect of such foreign taxes is subject to certain limitations imposed by the Code, which may result in the shareholder's
not receiving a full credit or deduction (if any) for the amount of such taxes. Shareholders who do not itemize on their U.S.
federal income tax returns may claim a credit (but not a deduction) for such foreign taxes. If the Fund does not qualify for or
chooses not to make such an election, shareholders will not be entitled separately to claim a credit or deduction for U.S. federal
income tax purposes with respect to foreign taxes paid by the Fund; in that case the foreign tax will nonetheless reduce the Fund's
taxable income. Even if the Fund elects to pass through to its shareholders foreign tax credits or deductions, tax-exempt shareholders
and those who invest in the Fund through tax-advantaged accounts such as IRAs will not benefit from any such tax credit or deduction.
r.
LIBOR Risk:
Under
the revolving credit facility, the Fund is charged interest on amounts borrowed at a variable rate, which may be based on the
London Interbank Offered Rate ("LIBOR") plus a spread. Additionally,
Aberdeen
Total Dynamic Dividend Fund 27
Notes
to Financial Statements (continued)
October
31, 2020
the Fund
may invest in certain debt securities, derivatives or other financial instruments that utilize LIBOR as a "benchmark"
or "reference rate" for various interest rate calculations. In 2017, the head of the United Kingdom's Financial Conduct
Authority announced a desire to phase out the use of LIBOR by the end of 2021. There remains uncertainty regarding the future
utilization of LIBOR and the nature of any replacement reference rate. As such, the potential effect of a transition away from
LIBOR on the Fund's payment obligations under the revolving credit facility and on the Fund's investments that reference LIBOR
cannot yet be determined.
9.
Contingencies
In the
normal course of business, the Fund may provide general indemnifications pursuant to certain contracts and organizational documents.
The Fund's 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 Fund's investments (including derivatives, if applicable) and the net unrealized appreciation
as of October 31, 2020, were as follows:
Tax
Basis of Investments
|
Appreciation
|
Depreciation
|
Net
Unrealized
Appreciation/
(Depreciation)
|
$822,679,216
|
$181,554,401
|
$(89,156,891)
|
$92,397,510
|
The tax
character of distributions paid during the fiscal years ended October 31, 2020 and October 31, 2019 was as follows:
|
|
October 31, 2020
|
|
|
October 31, 2019
|
|
Distributions paid from:
|
|
|
|
|
|
|
Ordinary Income
|
|
$70,708,888
|
|
|
$68,752,993
|
|
Net long-term capital gains
|
|
–
|
|
|
–
|
|
Tax return of capital
|
|
2,038,501
|
|
|
4,119,667
|
|
Total tax character of distributions
|
|
$72,747,389
|
|
|
$72,872,660
|
|
As of
October 31, 2020, the components of accumulated earnings on a tax basis were as follows:
Undistributed ordinary income – net
|
|
|
$–
|
|
Undistributed long-term capital gains – net
|
|
|
–
|
|
Total undistributed earnings
|
|
|
$–
|
|
Capital loss carryforward
|
|
|
(180,534,461
|
)*
|
Other currency gains
|
|
|
–
|
|
Other temporary differences
|
|
|
–
|
|
Unrealized appreciation/(depreciation)
|
|
|
92,394,604
|
**
|
Total accumulated earnings/(losses) – net
|
|
|
$(88,139,857
|
)
|
*
|
On
October 31, 2020, the Fund had a net capital loss carryforward of $(180,534,461) which will be available to offset like amounts
of any future taxable gains. The Fund is permitted to carry forward capital losses for an unlimited period, and capital losses
that are carried forward will retain their character as either short-term or long-term capital losses. The breakdown of capital
loss carryforwards are as follows:
|
Amounts
|
Expires
|
$180,534,461
|
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, the realization of unrealized gains on forward contracts and passive foreign investment company gain/(loss).
|
28 Aberdeen
Total Dynamic Dividend Fund
Notes
to Financial Statements (concluded)
October 31, 2020
GAAP requires that certain components of net assets be adjusted
to reflect permanent differences between financial and tax reporting. Accordingly, the table below details the necessary reclassifications,
which are a result of permanent differences primarily attributable foreign currency gain(loss), non-taxable adjustments to income
and REIT investments. These reclassifications have no effect on net assets or net asset values per share.
|
Paid-in-Capital
|
|
Distributable
Earnings/
(Accumulated losses)
|
|
|
(1,656,763)
|
|
1,656,763
|
|
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 October 31, 2020, except as provided below.
On November 10, 2020 and December 9, 2020, the Fund announced
that it will pay on November 30, 2020 and January 8, 2021 a distribution of $0.0575 per share to all shareholders of record as
of November 20, 2020 and December 31, 2020, respectively.
Aberdeen Total Dynamic Dividend Fund 29
Report
of Independent Registered Public Accounting Firm
To the Shareholders and Board of Trustees of
Aberdeen Total Dynamic Dividend Fund:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities
of Aberdeen Total Dynamic Dividend Fund (the Fund), including the portfolio of investments, as of October 31, 2020, the related
statement of operations for the year then ended, the statements of changes in net assets for each of the years in the two-year
period then ended, and the related notes (collectively, the financial statements) and the financial highlights for each of the
years in the three-year period then ended. In our opinion, the financial statements and financial highlights present fairly, in
all material respects, the financial position of the Fund as of October 31, 2020, the results of its operations for the year then
ended, the changes in its net assets for each of the years in the two-year period then ended, and the financial highlights for
each of the years in the three-year period then ended, in conformity with U.S. generally accepted accounting principles. The financial
highlights for each of the years in the two-year period ended October 31, 2017 were audited by other independent registered public
accountants whose report, dated December 22, 2017, expressed an unqualified opinion on those changes in net assets and financial
highlights.
Basis for Opinion
These financial statements and financial highlights are the responsibility
of the Fund's management. Our responsibility is to express an opinion on these financial statements and financial highlights based
on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB)
and are required to be independent with respect to the Fund in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the
PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements
and financial highlights are free of material misstatement, whether due to error or fraud. Our audits included performing procedures
to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud,
and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding
the amounts and disclosures in the financial statements and financial highlights. Such procedures also included confirmation of
securities owned as of October 31, 2020, by correspondence with the custodian, brokers, or by other appropriate auditing procedures
when replied from brokers were not received. Our audits also included evaluating the accounting principles used and significant
estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights.
We believe that our audits provide a reasonable basis for our opinion.
We have served as the auditor of one or more Aberdeen investment
companies since 2009.
Philadelphia, Pennsylvania
December 29, 2020
30
Aberdeen Total Dynamic Dividend Fund
Federal
Tax Information: Dividends and Distributions (unaudited)
The following information is provided with respect to the distributions
paid by Aberdeen Total Dynamic Dividend during the fiscal year ended October 31, 2020:
Payable Date
|
Total
Cash
Distribution
|
|
Long-Term
Capital
Gain
|
|
Tax
Return of
Capital
|
|
Net
Ordinary
Dividend
|
|
Foreign
Taxes
Paid(1)
|
|
Gross
Ordinary
Dividend
|
|
Qualified
Dividends(2)
|
|
Foreign
Source
Income
|
|
11/29/19
|
|
$0.057500
|
|
$0.000000
|
|
$0.000000
|
|
$0.057500
|
|
$0.000000
|
|
$0.057500
|
|
$0.029861
|
|
$0.000000
|
|
1/10/20
|
|
0.057500
|
|
0.000000
|
|
0.000000
|
|
0.057500
|
|
0.000000
|
|
0.057500
|
|
0.029861
|
|
0.000000
|
|
1/28/20
|
|
0.057500
|
|
0.000000
|
|
0.001934
|
|
0.055567
|
|
0.001513
|
|
0.057080
|
|
0.036169
|
|
0.026410
|
|
2/28/20
|
|
0.057500
|
|
0.000000
|
|
0.001934
|
|
0.055567
|
|
0.001513
|
|
0.057080
|
|
0.036169
|
|
0.026410
|
|
3/31/20
|
|
0.057500
|
|
0.000000
|
|
0.001934
|
|
0.055567
|
|
0.001513
|
|
0.057080
|
|
0.036169
|
|
0.026410
|
|
4/30/20
|
|
0.057500
|
|
0.000000
|
|
0.001934
|
|
0.055567
|
|
0.001513
|
|
0.057080
|
|
0.036169
|
|
0.026410
|
|
5/29/20
|
|
0.057500
|
|
0.000000
|
|
0.001934
|
|
0.055567
|
|
0.001513
|
|
0.057080
|
|
0.036169
|
|
0.026410
|
|
6/30/20
|
|
0.057500
|
|
0.000000
|
|
0.001934
|
|
0.055567
|
|
0.001513
|
|
0.057080
|
|
0.036169
|
|
0.026410
|
|
7/31/20
|
|
0.057500
|
|
0.000000
|
|
0.001934
|
|
0.055567
|
|
0.001513
|
|
0.057080
|
|
0.036169
|
|
0.026410
|
|
8/31/20
|
|
0.057500
|
|
0.000000
|
|
0.001934
|
|
0.055567
|
|
0.001513
|
|
0.057080
|
|
0.036169
|
|
0.026410
|
|
9/30/20
|
|
0.057500
|
|
0.000000
|
|
0.001934
|
|
0.055567
|
|
0.001513
|
|
0.057080
|
|
0.036169
|
|
0.026410
|
|
10/30/20
|
|
0.057500
|
|
0.000000
|
|
0.001934
|
|
0.055567
|
|
0.001513
|
|
0.057080
|
|
0.036169
|
|
0.026410
|
|
TOTAL
|
|
$0.690000
|
|
$0.00000
|
|
$0.01934
|
|
$0.670670
|
|
$0.015130
|
|
$0.685800
|
|
$0.421412
|
|
$0.264100
|
|
(1)
|
The foreign taxes paid represent taxes incurred
by the Fund on interest received from foreign sources. Foreign taxes paid may be included in taxable income with an offsetting
deduction from gross income or may be taken as a credit for taxes paid to foreign governments. You should consult your tax advisor
regarding the appropriate treatment of foreign taxes paid.
|
(2)
|
The Fund hereby reports the amount indicated above
or the maximum amount allowable by law.
|
Designation
Requirements
Of the distributions paid by the Fund from ordinary income for
the year ended October 31, 2020, the following percentages met the requirements to be treated as qualifying for the corporate dividends
received deduction and qualified dividend income, respectively.
Dividends Received Deduction 42.91%
Qualified Dividend Income 61.45%
The above amounts are based on the best available information
at this time. In early 2021, the Fund will notify applicable shareholders of final amounts for use in preparing 2020 U.S. federal
income tax forms.
Supplemental
Information (unaudited)
Results
of Annual Meeting of Shareholders
The Annual Meeting of Shareholders was held virtually on May 6,
2020. The description of the proposal and number of shares voted at the meeting are as follows:
1. To elect two Class III Trustees to the Board of Trustees, to serve a term of three years until the 2023 Annual Meeting and until their successors have been duly elected and qualify:
|
Votes
For
|
|
Votes
Withheld
|
|
Nancy Yao Maasbach
|
|
79,516,541
|
|
16,263,300
|
|
Martin Gilbert
|
|
79,569,275
|
|
16,210,275
|
|
Trustees whose term of office continued beyond the Meeting are
as follows: P. Gerlad Malone and John Sievwright
Aberdeen Total Dynamic Dividend Fund 31
Supplemental
Information (unaudited) (continued)
Board
of Trustees' Consideration of Advisory Agreement
At a regularly scheduled quarterly meeting (the "Quarterly
Meeting") of the Board of Trustees (the "Board") of Aberdeen Total Dynamic Dividend Fund ("AOD" or the
"Fund") held on June 16, 2020, the Board, including a majority of the Trustees who are not considered to be "interested
persons" of the Fund (the "Independent Trustees") under the Investment Company Act of 1940, as amended (the "1940
Act"), approved for an annual period the continuation of the Fund's investment advisory agreement (the "Advisory Agreement")
with Aberdeen Asset Managers Limited (the "Adviser"). Pursuant to relief granted by the U.S. Securities and Exchange
Commission (the "SEC") in light of the COVID-19 pandemic (the "Order") and a determination by the Board that
reliance on the Order was appropriate due to circumstances related to the current or potential effects of COVID-19, the Quarterly
Meeting was held via teleconference. In addition, the Independent Trustees of the Fund held a separate telephonic meeting on June
10, 2020 to review the materials provided and the relevant legal considerations (together with the Quarterly Meeting held on June
16, 2020, the "Meetings").
In connection with their consideration of whether to approve the
continuation of the Fund's Advisory Agreement, the Board members received and reviewed a variety of information provided by the
Adviser relating to the Fund, the Advisory Agreement and the Adviser, including comparative performance, fee and expense information,
and other information regarding the nature, extent and quality of services provided by the Adviser under the Advisory Agreement.
The materials provided to the Board generally included, among other items: (i) information on the investment performance of the
Fund and the performance of peer groups of funds and the Fund's performance benchmark; (ii) information on the Fund's advisory
fees and other expenses, including information comparing the Fund's expenses to those of a peer group of funds and information
about any applicable expense limitations; (iii) information about the profitability of the Advisory Agreement to the Adviser; (iv)
a report prepared by the Adviser in response to a request submitted by the Independent Trustees' independent legal counsel on behalf
of such Trustees; and (v) a memorandum from the Independent Trustees' independent legal counsel on the responsibilities of the
Board in considering for approval the investment advisory arrangements under the 1940 Act and Delaware law. The Board, including
the Fund's Independent Trustees, also considered other matters such as: (i) the Fund's investment objective and strategies; (ii)
the Adviser's financial results and financial condition; (iii) the Adviser's investment personnel and operations; (iv) the procedures
employed to value the Fund's assets; (v) the resources devoted to, and the record of compliance with, the Fund's investment policies
and restrictions, policies on personal securities transactions and other compliance policies; (vi) the allocation of the Fund's
brokerage, if any, including, if applicable, allocations to brokers affiliated with the Adviser and the use, if any, of "soft"
commission dollars to pay Fund expenses and to pay for research and other similar services; and (vii) possible conflicts of interest.
Throughout the process, the Board had the opportunity to ask questions of and request additional information from the Adviser.
In addition to the materials requested by the Trustees in connection
with their annual consideration of the continuation of the Advisory Agreement, the Trustees received and reviewed materials in
advance of each regular quarterly meeting of the Board that contained information about the Fund's investment performance and information
relating to the services provided by the Adviser.
The Independent Trustees were advised by separate independent
legal counsel throughout the process and consulted in executive sessions with their independent legal counsel regarding their consideration
of the renewal of the Advisory Agreement. In considering whether to approve the continuation of the Advisory Agreement, the Board,
including the Independent Trustees, did not identify any single factor as determinative. Individual Trustees may have evaluated
the information presented differently from one another, giving different weights to various factors. Matters considered by the
Board, including the Independent Trustees, in connection with its approval of the continuation of the Advisory Agreement included
the factors listed below.
Investment performance of the Fund and the Adviser. The
Board received and reviewed with management, among other performance data, information that compared the Fund's return to comparable
investment companies. The Board also received and considered performance information compiled by Strategic Insight Mutual Fund
Research and Consulting, LLC ("SI"), an independent third-party provider of investment company data as to the Fund's
total return, as compared with the funds in the Fund's Morningstar category (the "Morningstar Group"). In addition, the
Board received and reviewed information regarding the Fund's total return on a gross and net basis and relative to the Fund's benchmark,
the impact of foreign currency movements on the Fund's performance and the Fund's share performance and premium/discount information.
The Board also received and reviewed information on the Fund's total return for the period since the Adviser assumed responsibility
for management of the Fund effective May 4, 2018, as compared with the total returns of its Morningstar Group average, and other
comparable Aberdeen-managed funds. The Board took into account information about the Fund's discount/premium ranking relative to
its Morningstar Group and considered
32
Aberdeen Total Dynamic Dividend Fund
Supplemental
Information (unaudited) (continued)
management's discussion of the Fund's performance. Additionally,
the Trustees considered management's discussion of the factors contributing to differences in performance, including differences
in the investment strategies of each of these other funds and accounts.
The Board also considered the Adviser's performance and reputation
generally, the historical responsiveness of the Adviser to Trustee concerns about performance, and the willingness of the Adviser
to take steps intended to improve performance.
Fees and expenses. The Board reviewed with management the
effective annual fee rate paid by the Fund to the Adviser for investment management services. The Board also received and considered
information compiled at the request of the Fund by SI that compared the Fund's effective annual management fee rate with the fees
paid by a peer group consisting of other comparable closed-end funds (each such group, a "Peer Group"). The Trustees
took into account the management fee structure, including that advisory fees for the Fund were based on the Fund's total managed
assets, whether attributable to common stock or borrowings, if any. The Trustees also considered information from management about
the fees charged by the Adviser to other U.S. clients investing primarily in an asset class similar to that of the Fund. The Board
reviewed and considered additional information about the Adviser's fees, including the amount of the management fees retained by
the Adviser after payment of the advisory fees. The Board considered the fee comparisons in light of the differences in resources
and costs required to manage the different types of accounts.
The Board also took into account management's discussion of the
Fund's expenses, including the factors that impacted the Fund's expenses.
Economies of Scale. The Board considered management's discussion
of the Fund's management fee structure and determined that the management fee structure was reasonable. The Board based this determination
on various factors, including how the Fund's management fee compared to its Peer Group at higher asset levels.
The nature, extent and quality of the services provided to
the Fund under the Advisory Agreement. The Board considered, among other things, the nature, extent and quality of the services
provided by the Adviser to the Fund and the resources dedicated to the Fund by the Adviser. The Trustees took into account the
Adviser's investment experience. The Board also considered the Adviser's risk management processes. The Board considered the background
and experience of the Adviser's senior management personnel and the qualifications, background and responsibilities of the portfolio
managers primarily responsible for the day-to-day portfolio management services for the Fund. The Board also considered information
regarding the Adviser's compliance with applicable laws and SEC and other regulatory inquiries or audits of the Fund and the Adviser.
The Board considered that they received information on a regular basis from the Fund's Chief Compliance Officer regarding the Adviser's
compliance policies and procedures and considered the Adviser's brokerage policies and practices. Management reported to the Board
on, among other things, its business plans and organizational changes. The Trustees took into account their knowledge of management
and the quality of the performance of management's duties through Board meetings, discussion and reports during the preceding year.
After reviewing these and related factors, the Board concluded
that the nature, extent and quality of the services provided supported the renewal of the Advisory Agreement.
The Trustees also considered other factors, which included but
were not limited to the following:
|
•
|
whether the Fund has operated in accordance with its
investment objective and the Fund's record of compliance with its investment restrictions, and the compliance programs of the
Adviser. The Trustees also considered the compliance-related resources the Adviser and its affiliates were providing to the Fund.
|
|
•
|
the effect of any market and economic volatility on the
performance, asset levels and expense ratios of the Fund.
|
|
•
|
so-called "fallout benefits" to the Adviser
and its affiliates, including indirect benefits. The Trustees considered any possible conflicts of interest associated with these
fallout and other benefits, and the reporting, disclosure and other processes in place to disclose and monitor such possible conflicts
of interest.
|
Aberdeen
Total Dynamic Dividend Fund 33
Supplemental
Information (unaudited) (concluded)
|
•
|
the nature, quality, cost and extent of administrative
services provided by Aberdeen Standard Investments Inc. ("ASII"), an affiliate of the Adviser, under a separate agreement
covering administrative services.
|
Based on their evaluation of all factors that they deemed to be
material, including those factors described above, and assisted by the advice of independent counsel, the Trustees, including the
Independent Trustees, concluded that renewal of the Advisory Agreement would be in the best interest of the Fund and its shareholders.
Accordingly, the Board, including the Board's Independent Trustees voting separately, approved the Fund's Advisory Agreement for
an additional one-year period. Pursuant to the SEC Order, the Board determined that the Trustees, including the Independent Trustees,
voting separately, would ratify their approval at the next in-person Board meeting.
34
Aberdeen Total Dynamic Dividend Fund
Additional
Information Regarding the Fund (unaudited)
Recent
Changes
The
following information is a summary of certain changes during the fiscal year ended October 31, 2020. This information may not
reflect all of the changes that have occurred since you purchased the Fund.
Changes
to Persons Responsible for Day-to-Day Management of the Fund
The
Fund is managed by Aberdeen Standard Investments' Global Equity team. The team works in a collaborative fashion, with all team
members having both portfolio management and research responsibilities. The team is responsible for day-to-day management of the
Fund. Effective January 31, 2020, Dominic Byrne replaced Stephen Docherty as a member of the team having the most significant
responsibility for the day-to-day management of the Fund's portfolio. This team also includes Josh Duitz, Martin Connaghan, Jamie
Cummings and Bruce Stout. Below is Mr. Byrne's previous business experience:
Mr.
Byrne is the Head of the Global Equity Team and he is also co-manager of the SLI Global Equity Impact SICAV at Aberdeen Standard
Investments. Dominic joined Standard Life in 2000 as part of our UK Equity Team. In December 2008, he joined the Global Equity
Team and has managed a range of global equity strategies. In 2018, Dominic was appointed Deputy Head of Global Equity at Aberdeen
Standard Investments. Dominic graduated with a MEng in Engineering Science and is a CFA charterholder.
Other
than as noted above, during the applicable period, there have been: (i) no material changes to the Fund's investment objectives
and policies that constitute its principal portfolio emphasis that have not been approved by shareholders, (ii) no material changes
to the Fund's principal risks that have not been approved by shareholders, (iii) no changes to the persons primarily responsible
for day-to-day management of the Fund; and (iv) no changes to the Fund's charter or by-laws that would delay or prevent a change
of control.
Investment
Objectives and Policies
Investment
Objectives
The
Fund's primary investment objective is to seek high current dividend income. The Fund also focuses on long-term growth of capital
as a secondary investment objective. The Fund expects to invest at least 80% of its net assets plus amounts borrowed for investment
purposes in the equity securities of domestic and foreign corporations that pay dividends. The Fund seeks to provide dividend
income without regard to whether the dividends qualify for the reduced federal income tax rates applicable to qualified dividends
under the Code.. There is no assurance that the Fund will achieve its investment objectives. The Fund's investment objectives
and some of its investment policies are
considered
fundamental policies and may not be changed without shareholder approval.
Investment
Strategies
The
Fund combines four research-driven investment strategies – growth, value, special dividends and dividend capture rotation
– to maximize the amount of distributed dividend income and to identify companies globally with the potential for dividend
increases and capital appreciation. The Fund uses a multi-cap, multi-sector, multi-style approach to invest in the securities
of issuers of any capitalization level (small, mid or large) and in any sector of industry.
The
Fund invests at least 80% of its net assets plus amounts borrowed for investment purposes in equity securities, primarily common
stocks, issued by domestic and foreign companies whose equity securities are readily traded on an established U.S. or foreign
securities market and pay dividends. The Board of Trustees may change this 80% policy on not less than 60 days' notice to shareholders.
Although it is not the Fund's current intent, the Fund may invest up to 100% of its total assets in the securities of non-U.S.
issuers and is not restricted on how much may be invested in the issuers of any single country, provided the Fund limits its investments
in countries that are considered emerging markets to no more than 35% of the Fund's total assets at any one time. Under normal
circumstances, however, the Fund invests 35-80% of its total assets in the securities of non-U.S. issuers and among the securities
of issuers located in approximately 10 to 30 countries. Allocation of the Fund's assets to issuers outside of the U.S. and among
countries outside of the U.S. is dependent on the economic outlook of those countries and the dividend yields available in their
markets. The Adviser believes that this flexibility will allow it to continuously pursue high current dividend income in countries
where the Adviser perceives the best opportunities to exist.
The
Adviser believes that dividend paying stocks have the potential for superior total return performance, as compared to non-dividend
paying stocks. The Adviser believes that global diversification may provide to investors in the Fund the benefit of generally
higher dividend yields in some countries outside the United States.
The
Fund invests in equity securities issued by U.S. issuers, and foreign issuers whose equity securities are readily traded on an
established U.S. or foreign securities market, that pay dividends. The Fund screens the U.S. and foreign companies in which it
considers investing using the same criteria, including, generally, high dividend yield, sufficiently liquid
trading in an established market, and also its judgment that the issuer may have good prospects for earnings growth or may be
undervalued. The equity securities in which the Fund invests include primarily common stocks. The Fund may, from time to time,
also invest
Aberdeen Total Dynamic Dividend Fund
|
35
|
Additional
Information Regarding the Fund (unaudited)
(continued)
a
portion of its assets in preferred stocks, REITs (real estate investment trusts), master limited partnerships, exchange-traded
funds ("ETFs") and securities convertible into or exchangeable for common stocks, such as convertible debt.
The
Fund may from time to time engage in short sales of securities, for investment or for hedging purposes. Short sales are transactions
in which the Fund sells a security it does not own. To complete the transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund is then obligated to replace the security borrowed by purchasing the security at the market price at the
time of replacement. In the event that the Fund elects to pursue such a strategy, the Fund expects it would sell shares of portfolio
securities short through a pair trade system, where it would maintain a long position in a basket of dividend-paying stocks and
a short position in a security or securities replicating an index, which the Fund expects to be outperformed by the dividend-paying
stocks it owns. The Fund may also sell short individual stocks that the Fund expects to underperform other stocks which the Fund
holds. For hedging purposes, the Fund may purchase or sell short futures contracts on global equity indexes.
The
Fund anticipates that it will generally not make a short sale if, after giving effect to such sale, the market value of all securities
sold short by the Fund exceeds 20% of the value of its total assets. See "Investment Objectives and Policies – Investment
Techniques – Short Sales" and "Risk Factors – Short Sale Risk."
The
Fund intends to use leverage through borrowing from a credit facility. The Fund is permitted to engage in other transactions,
such as reverse repurchase agreements and issuance of debt securities or preferred securities, which have the effect of leverage,
but currently has no intention to do so. The Adviser believes that the use of leverage may provide positive absolute return in
the long term and potentially increased income and would thereby be beneficial to shareholders. The portfolio management team
anticipates using leverage in an aggregate amount up to 33 1/3% of its total assets (including the amount obtained from leverage),
under normal market conditions. The Fund's portfolio management team may use leverage opportunistically and seek to reduce the
Fund's leverage usage during times of heightened market volatility. Depending on market conditions, the portfolio management team
may choose not to use any leverage or may instead borrow up to 33 1/3% of the Fund's total assets. The Fund also may borrow money
as a temporary measure for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities
transactions, which otherwise might require untimely dispositions of Fund securities. As of October 31, 2020, the Fund did not
have any borrowings outstanding.
The
Fund may, from time to time, take temporary defensive positions that are inconsistent with the Fund's principal investment strategies
in attempting to respond to adverse market, economic, political or other conditions. During such times, the Fund may temporarily
invest up to 100% of its assets in cash or cash equivalents, including money market instruments, prime commercial paper, repurchase
agreements, Treasury bills and other short-term obligations of the U. S. Government, its agencies or instrumentalities. In these
and in other cases, the Fund may not achieve its investment objectives.
Generally,
securities are purchased or sold by the Fund on national securities exchanges and in the over-the-counter market. From time to
time, securities may be purchased or sold in private transactions, including securities that are not publicly traded or that are
otherwise illiquid. The Adviser does not expect investments in illiquid securities to comprise more than 10% of the Fund's total
assets (determined at the time the investment is made).
The
Adviser may invest the Fund's cash balances in any investments it deems appropriate, including, without limitation and as permitted
under the 1940 Act, money market funds, repurchase agreements, U.S. Treasury and U.S. agency securities, municipal bonds and bank
accounts. Any income earned from such investments is ordinarily reinvested by the Fund in accordance with its investment program.
Many of the considerations entering into the Adviser's recommendations and the portfolio managers' decisions are subjective.
Certain
of the Fund's investment strategies may not qualify for the reduced federal income tax rates applicable to qualified dividend
income under the Code. As a result, there can be no assurance as to what portion of the Fund's distributions will be designated
as qualified dividend income.
Growth
Strategy
The
Fund's growth strategy seeks to identify issuers with lower, but still attractive, current dividend yields, that have the potential
for higher earnings growth through capital appreciation or increasing dividend payments.
Value
Strategy
In
managing the assets of the Fund, the Adviser generally pursues a value-oriented approach. The Adviser seeks to identify investment
opportunities in equity securities of dividend paying corporations that it believes are undervalued relative to the market and
to the securities' historical valuations, including turnaround opportunities with a catalyst, depressed earnings that may be poised
to recover or where a restructuring or major corporate action may add value. The Fund invests in stocks among all capitalization
levels (small, mid and large),
|
36
|
Aberdeen
Total Dynamic Dividend Fund
|
Additional
Information Regarding the Fund (unaudited)
(continued)
using
a multi-cap, multi-sector, multi-style approach when selecting the stocks of companies in which the Fund invests. The average
capitalization of issuers is not intended to be static and varies over time. Factors that the Adviser considers include fundamental
factors such as earnings growth, cash flow and historical payment of dividends. The Fund's investments in common stocks will emphasize
stocks that (at the time of purchase) pay dividends and have capital appreciation potential.
Special
Dividend Strategy
The
Fund's special dividend strategy seeks to maximize the level of dividend income that the Fund receives by identifying special
dividend situations. Special dividend situations may include those where companies decide to return large cash balances to shareholders
as one-time dividend payments (e.g. due to a restructuring or recent strong operating performance). Other special dividends may
arise in a variety of situations.
Dividend
Capture Rotation Strategy
The
Fund's dividend capture rotation strategy seeks to maximize the level of dividend income that the Fund receives by engaging in
dividend capture trading. In a dividend capture trade, the Fund sells a stock on or shortly after the stock's ex-dividend date
and uses the sale proceeds to purchase one or more other stocks that are expected to pay dividends before the next dividend payment
on the stock being sold. Through this rotation practice, the Fund may receive more dividend payments over a given period of time
than if it held a single stock. Receipt of a greater number of dividend payments during a given time period could augment the
total amount of dividend income the Fund receives over this period. For example, during the course of a single year it may be
possible through dividend capture trading for the Fund to receive five or more dividend payments with respect to Fund assets attributable
to dividend capture trading where it may only have received four quarterly payments in a hold only strategy. The use of dividend
capture strategies will expose the Fund to increased trading costs and potential for capital loss or gain, particularly in the
event of significant short-term price movements of stocks subject to dividend capture trading.
The
Fund's dividend capture trading strategy may limit the Fund's ability to meet certain holding period requirements for dividends
that it receives to qualify for the reduced federal income tax rates applicable to qualified dividends under the Code. As a result,
there can be no assurance as to what portion of the Fund's distributions will be reported as qualified dividend income.
Portfolio
Investments
Common
Stocks
The
Fund invests primarily in common stocks. Common stocks represent an ownership interest in an issuer. While offering greater potential
for long-term growth, common stocks are more volatile and more risky than some other forms of investment. Common stock prices
fluctuate for many reasons, including adverse events, such as an unfavorable earnings report, changes in investors' perceptions
of the financial condition of an issuer or the general condition of the relevant stock market, or when political or economic events
affecting the issuers occur. In addition, common stock prices may be sensitive to rising interest rates as the costs of capital
rise and borrowing costs increase.
Preferred
Stocks
Preferred
stock, like common stock, represents an equity ownership in an issuer. Generally, preferred stock has a priority of claim over
common stock in dividend payments and upon liquidation of the issuer. Unlike common stock, preferred stock does not usually have
voting rights. Preferred stock in some instances is convertible into common stock. Although they are equity securities, preferred
stocks have characteristics of both debt and common stock. Like debt, their promised income is contractually fixed. Like common
stock, they do not have rights to precipitate bankruptcy proceedings or collection activities in the event of missed payments.
Other equity characteristics are their subordinated position in an issuer's capital structure and that their quality and value
are heavily dependent on the profitability of the issuer rather than on any legal claims to specific assets or cash flows.
Distributions
on preferred stock must be declared by the board of directors of the issuer and may be subject to deferral, and thus they may
not be automatically payable. Income payments on preferred stock may be cumulative, causing dividends and distributions to accrue
even if not declared by the issuer's board of directors or otherwise made payable, or they may be non-cumulative, so that skipped
dividends and distributions do not continue to accrue. There is no assurance that dividends on preferred stocks in which the Fund
invests will be declared or otherwise made payable. The Fund may invest in non-cumulative preferred stock, although the Adviser
would consider, among other factors, their non-cumulative nature in making any decision to purchase or sell such securities.
Shares
of preferred stock have a liquidation value that generally equals the original purchase price at the date of issuance. The market
values of preferred stock may be affected by favorable and unfavorable changes impacting the issuers' industries or sectors, including
companies in the utilities and financial services sectors, which are
Aberdeen Total Dynamic Dividend Fund
|
37
|
Additional
Information Regarding the Fund (unaudited)
(continued)
prominent
issuers of preferred stock. They may also be affected by actual and anticipated changes or ambiguities in the tax status of the
security and by actual and anticipated changes or ambiguities in tax laws, such as changes in corporate and individual income
tax rates, and in the dividends received deduction for corporate taxpayers or the lower rates applicable to certain dividends.
Because
the claim on an issuer's earnings represented by preferred stock may become onerous when interest rates fall below the rate payable
on the stock or for other reasons, the issuer may redeem preferred stock, generally after an initial period of call protection
in which the stock is not redeemable. Thus, in declining interest rate environments in particular, the Fund's holdings of higher
dividend-paying preferred stocks may be reduced and the Fund may be unable to acquire securities paying comparable rates with
the redemption proceeds.
Foreign
Securities
Although
it is not required to, under normal circumstances, the Fund invests 35-80% of its total assets in securities of issuers located
in foreign countries. The Fund invests in foreign securities, including direct investments in securities of foreign issuers and
investments in depository receipts (such as American Depository Receipts) that represent indirect interests in securities of foreign
issuers. The Fund is not limited in the amount of assets it may invest in such foreign securities. These investments involve risks
not associated with investments in the United States, including the risk of fluctuations in foreign currency exchange rates, unreliable
and untimely information about the issuers and political and economic instability. These risks could result in the Adviser's misjudging
the value of certain securities or in a significant loss in the value of those securities.
The
value of foreign securities is affected by changes in currency rates, foreign tax laws (including withholding tax), government
policies (in the United States or abroad), relations between nations and trading, settlement, custodial and other operational
risks. In addition, the costs of investing abroad are generally higher than in the United States, and foreign securities markets
may be less liquid, more volatile and less subject to governmental supervision than markets in the United States. As an alternative
to holding foreign-traded securities, the Fund may invest in dollar-denominated securities of foreign companies that trade on
U.S. exchanges or in the U.S. over-the-counter market (including depositary receipts as described below, which evidence ownership
in underlying foreign securities, and ETFs as described above).
Because
foreign companies are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements
comparable to those applicable to U.S. companies, there may be less
publicly
available information about a foreign company than about a domestic company. Volume and liquidity in most foreign debt markets
are less than in the United States and securities of some foreign companies are less liquid and more volatile than securities
of comparable U.S. companies. There is generally less government supervision and regulation of securities exchanges, broker-dealers
and listed companies than in the United States. Mail service between the United States and foreign countries may be slower or
less reliable than within the United States, thus increasing the risk of delayed settlements of portfolio transactions or loss
of certificates for portfolio securities. Payment for securities before delivery may be required. In addition, with respect to
certain foreign countries, there is the possibility of expropriation or confiscatory taxation, political or social instability,
or diplomatic developments which could affect investments in those countries. Moreover, individual foreign economies may differ
favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital
reinvestment, resource self-sufficiency and balance of payments position. Foreign securities markets, while growing in volume
and sophistication, are generally not as developed as those in the United States, and securities of some foreign issuers (particularly
those located in developing countries) may be less liquid and more volatile than securities of comparable U.S. companies.
The
Fund may purchase American Depository Receipts ("ADRs"), European Depository Receipts ("EDRs") and Global
Depository Receipts ("GDRs"), which are certificates evidencing ownership of shares of foreign issuers and are alternatives
to purchasing directly the underlying foreign securities in their national markets and currencies. However, such depository receipts
continue to be subject to many of the risks associated with investing directly in foreign securities. These risks include foreign
exchange risk as well as the political and economic risks associated with the underlying issuer's country. ADRs, EDRs and GDRs
may be sponsored or unsponsored. Unsponsored receipts are established without the participation of the issuer. Unsponsored receipts
may involve higher expenses, they may not pass-through voting or other shareholder rights, and they may be less liquid. Less information
is normally available on unsponsored receipts.
Dividends
paid on foreign securities may not qualify for the reduced federal income tax rates applicable to qualified dividend income under
the Code. As a result, there can be no assurance as to what portion of the Fund's distributions attributable to foreign securities
will be designated as qualified dividend income.
Emerging
Market Securities
The
Fund may invest up to 35% of its assets in securities of issuers located in emerging markets. The Fund uses the MSCI Emerging
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Markets
Index methodology to determine which countries are considered emerging markets. The risks of foreign investments described above
apply to an even greater extent to investments in emerging markets. The securities markets of emerging countries are generally
smaller, less developed, less liquid, and more volatile than the securities markets of the United States and developed foreign
markets. Disclosure and regulatory standards in many respects are less stringent than in the United States and developed foreign
markets. There also may be a lower level of monitoring and regulation of securities markets in emerging market countries and the
activities of investors in such markets and enforcement of existing regulations has been extremely limited. Many emerging countries
have experienced substantial, and in some periods extremely high, rates of inflation for many years. Inflation and rapid fluctuations
in inflation rates have had and may continue to have very negative effects on the economies and securities markets of certain
emerging countries. Economies in emerging markets generally are heavily dependent upon international trade and, accordingly, have
been and may continue to be affected adversely by trade barriers, exchange controls, managed adjustments in relative currency
values, and other protectionist measures imposed or negotiated by the countries with which they trade. The economies of these
countries also have been and may continue to be adversely affected by economic conditions in the countries in which they trade.
The economies of countries with emerging markets may also be predominantly based on only a few industries or dependent on revenues
from particular commodities. In addition, custodial services and other costs relating to investment in foreign markets may be
more expensive in emerging markets than in many developed foreign markets, which could reduce the Fund's income from such securities.
In
many cases, governments of emerging countries continue to exercise significant control over their economies, and government actions
relative to the economy, as well as economic developments generally, may affect the Fund's investments in those countries. In
addition, there is a heightened possibility of expropriation or confiscatory taxation, imposition of withholding taxes on interest
payments, or other similar developments that could affect investments in those countries. There can be no assurance that adverse
political changes will not cause the Fund to suffer a loss of any or all of its investments.
Dividends
paid by issuers in emerging market countries will generally not qualify for the reduced federal income tax rates applicable to
qualified dividends under the Code.
Real
Estate Investment Trusts
The
Fund may invest in real estate investment trusts ("REITs"). REITs are financial vehicles that pool investors' capital
to purchase or finance
real
estate. The market value of REIT shares and the ability of REITs to distribute income may be adversely affected by numerous factors,
including rising interest rates, changes in the national, state and local economic climate and real estate conditions, perceptions
of prospective tenants of the safety, convenience and attractiveness of the properties, the ability of the owners to provide adequate
management, maintenance and insurance, the cost of complying with the Americans with Disabilities Act, increasing competition
and compliance with environmental laws, changes in real estate taxes and other operating expenses, adverse changes in governmental
rules and fiscal policies, adverse changes in zoning laws, and other factors beyond the control of the issuers. In addition, distributions
received by the Fund from REITs may consist of dividends, capital gains and/or return of capital. As REITs generally pay a higher
rate of dividends than most other operating companies, to the extent application of the Fund's investment strategy results in
the Fund investing in REIT shares, the percentage of the Fund's dividend income received from REIT shares will likely exceed the
percentage of the Fund's portfolio that is comprised of REIT shares.
Dividends
paid by REITs will generally not qualify for the reduced federal income tax rates applicable to qualified dividends under the
Code.
Master
Limited Partnerships
A
master limited partnership ("MLP") is a publicly traded company organized as a limited partnership or limited liability
company and treated as a partnership for federal income tax purposes. MLPs may derive income and gains from the exploration, development,
mining or production, processing, refining, transportation (including pipelines transporting gas, oil, or products thereof), or
the marketing of any mineral or natural resources. MLPs generally have two classes of owners, the general partner and limited
partners. When investing in an MLP, the Fund intends to purchase publicly traded common units issued to limited partners of the
MLP. The general partner of an MLP is typically owned by one or more of the following: a major energy company, an investment fund,
or the direct management of the MLP. The general partner may be structured as a private or publicly traded corporation or other
entity. The general partner typically controls the operations and management of the MLP through an up to 2% equity interest in
the MLP plus, in many cases, ownership of common units and subordinated units. Limited partners own the remainder of the partnership,
through ownership of common units, and have a limited role in the partnership's operations and management.
MLPs combine the tax
advantages of a partnership with the liquidity of a publicly traded stock. MLP income is generally not subject to
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entity-level
tax. Instead, an MLP's income, gain, loss, deductions and other tax items pass through to common unitholders.
MLPs
are typically structured such that common units and general partner interests have first priority to receive quarterly cash distributions
up to an established minimum amount ("minimum quarterly distributions" or "MQD"). Common and general partner
interests also accrue arrearages in distributions to the extent the MQD is not paid. Once common and general partner interests
have been paid, subordinated units receive distributions of up to the MQD; however, subordinated units do not accrue arrearages.
Distributable cash in excess of the MQD paid to both common and subordinated units is distributed to both common and subordinated
units generally on a pro rata basis. The general partner is also eligible to receive incentive distributions if the general partner
operates the business in a manner which results in distributions paid per common unit surpassing specified target levels. As the
general partner increases cash distributions to the limited partners, the general partner receives an increasingly higher percentage
of the incremental cash distributions. A common arrangement provides that the general partner can reach a tier where it receives
50% of every incremental dollar paid to common and subordinated unit holders. These incentive distributions encourage the general
partner to streamline costs, increase capital expenditures and acquire assets in order to increase the partnership's cash flow
and raise the quarterly cash distribution in order to reach higher tiers. Such results benefit all security holders of the MLP.
MLP
common units represent limited partnership interests in the MLP. Common units are listed and traded on U.S. securities exchanges,
with their value fluctuating predominantly based on prevailing market conditions and the success of the MLP. The Fund intends
to purchase common units in market transactions. Unlike owners of common stock of a corporation, owners of common units have limited
voting rights and have no ability annually to elect directors. In the event of liquidation, common units have preference over
subordinated units, but not debt or preferred units, to the remaining assets of the MLP. The Fund intends to invest in MLPs only
to an extent and in a manner consistent with the Fund's qualification as a regulated investment company under the Code.
Exchange
Traded Funds (ETFs)
The
Fund may invest in ETFs, which are investment companies that seek to track or replicate a desired index, such as a sector, market
or global segment. ETF shares are traded on a national exchange. ETFs do not sell individual shares directly to investors and
only issue their shares in large blocks known as "creation units." The investor purchasing a creation unit may sell
the individual shares on a secondary market.
Therefore,
the liquidity of ETFs depends on the adequacy of the secondary market. There can be no assurance that an ETF's investment objective
will be achieved, as ETFs based on an index may not replicate and maintain exactly the composition and relative weightings of
securities in the index. ETFs are subject to the risks of investing in the underlying securities. The Fund, as a holder of the
securities of the ETF, will bear its pro rata portion of the ETF's expenses, including advisory fees. These expenses are in addition
to the direct expenses of the Fund's own operations.
Convertible
Securities
The
Fund may invest in convertible securities. Convertible securities include fixed income securities that may be exchanged or converted
into a predetermined number of shares of the issuer's underlying common stock at the option of the holder during a specified period.
Convertible securities may take the form of convertible preferred stock, convertible bonds or debentures, units consisting of
"usable" bonds and warrants or a combination of the features of several of these securities. The investment characteristics
of each convertible security vary widely, which allows convertible securities to be employed for a variety of investment strategies.
The
Fund will exchange or convert convertible securities into shares of underlying common stock when, in the opinion of the Adviser,
the investment characteristics of the underlying common shares will assist the Fund in achieving its investment objectives. The
Fund may also elect to hold or trade convertible securities. In selecting convertible securities, the Adviser evaluates the investment
characteristics of the convertible security as a fixed income instrument, and the investment potential of the underlying equity
security for capital appreciation. In evaluating these matters with respect to a particular convertible security, the Adviser
considers numerous factors, including the economic and political outlook, the value of the security relative to other investment
alternatives, trends in the determinants of the issuer's profits, and the issuer's management capability and practices.
Corporate
Bonds, Government Debt Securities and Other Debt Securities
The
Fund may invest in corporate bonds, debentures and other debt securities. Debt securities in which the Fund may invest may pay
fixed or variable rates of interest. Bonds and other debt securities generally are issued by corporations and other issuers to
borrow money from investors. The issuer pays the investor a fixed or variable rate of interest and normally must repay the amount
borrowed on or before maturity. Certain debt securities are "perpetual" in that they have no maturity date.
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The
Fund invests in government debt securities, including those of U.S. issuers, emerging market issuers and of other non-U.S. issuers.
These securities may be U.S. dollar-denominated or non-U.S. dollar-denominated and include: (i) debt obligations issued or guaranteed
by foreign national, provincial, state, municipal or other governments with taxing authority or by their agencies or instrumentalities;
and (ii) debt obligations of supranational entities. Government debt securities include: debt securities issued or guaranteed
by governments, government agencies or instrumentalities and political subdivisions; debt securities issued by government owned,
controlled or sponsored entities; interests in entities organized and operated for the purpose of restructuring the investment
characteristics issued by the above-noted issuers; or debt securities issued by supranational entities such as the World Bank
or the European Union. The Fund may also invest in securities denominated in currencies of emerging market countries. Emerging
market debt securities generally are rated in the lower rating categories of recognized credit rating agencies or are unrated
and considered to be of comparable quality to lower rated debt securities. A non-U.S. issuer of debt or the non-U.S. governmental
authorities that control the repayment of the debt may be unable or unwilling to repay principal or interest when due, and the
Fund may have limited resources in the event of a default. Some of these risks do not apply to issuers in large, more developed
countries. These risks are more pronounced in investments in issuers in emerging markets or if the Fund invests significantly
in one country.
The
Fund will not invest more than 20% of its total assets in debt securities rated below investment grade (i.e., securities
rated lower than Baa by Moody's Investors Service, Inc. ("Moody's") or lower than BBB by Standard & Poor's Rating
Services, a division of The McGraw-Hill Companies, Inc. ("S&P")), or their equivalent as determined by the Adviser.
These securities are commonly referred to as "junk bonds." The foregoing credit quality policy applies only at the time
a security is purchased, and the Fund is not required to dispose of securities already owned by the Fund in the event of a change
in assessment of credit quality or the removal of a rating.
Illiquid
Securities
Illiquid
securities are securities that are not readily marketable. Illiquid securities include securities that have legal or contractual
restrictions on resale, and repurchase agreements maturing in more than seven days. Illiquid securities involve the risk that
the securities will not be able to be sold at the time desired or at prices approximating the value at which the Fund is carrying
the securities. Where registration is required to sell a security, the Fund may be obligated to pay all or part of the registration
expenses, and a considerable period may elapse between the decision to sell and the time the Fund may be permitted
to
sell a security under an effective registration statement. If, during such a period, adverse market conditions were to develop,
the Fund might obtain a less favorable price than prevailed when it decided to sell. The Fund may invest up to 10% of the value
of its net assets in illiquid securities. Restricted securities for which no market exists and other illiquid investments are
valued at fair value as determined in accordance with procedures approved and periodically reviewed by the Board of Trustees.
Rule
144A Securities
The
Fund may invest in restricted securities that are eligible for resale pursuant to Rule 144A under the Securities Act of 1933,
as amended, (the "1933 Act"). Generally, Rule 144A establishes a safe harbor from the registration requirements of the
1933 Act for resale by large institutional investors of securities that are not publicly traded. The Adviser determines the liquidity
of the Rule 144A securities according to guidelines adopted by the Board of Trustees. The Board of Trustees monitors the application
of those guidelines and procedures. Securities eligible for resale pursuant to Rule 144A, which are determined to be liquid, are
not subject to the Fund's 10% limit on investments in illiquid securities.
Warrants
The
Fund may invest in equity and index warrants of domestic and international issuers. Equity warrants are securities that give the
holder the right, but not the obligation, to subscribe for equity issues of the issuing company or a related company at a fixed
price either on a certain date or during a set period. Changes in the value of a warrant do not necessarily correspond to changes
in the value of its underlying security. The price of a warrant may be more volatile than the price of its underlying security,
and a warrant may offer greater potential for capital appreciation as well as capital loss.
Warrants
do not entitle a holder to dividends or voting rights with respect to the underlying security and do not represent any rights
in the assets of the issuing company. A warrant ceases to have value if it is not exercised prior to its expiration date. These
factors can make warrants more speculative than other types of investments. The sale of a warrant results in a long- or short-term
capital gain or loss depending on the period for which the warrant is held.
Other
Investments
The
Fund may use a variety of other investment instruments in pursuing its investment programs. The investments of the Fund may include
fixed income securities, sovereign debt, options on foreign currencies and forward foreign currency contracts.
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Investment
Techniques
The
Fund may, but is under no obligation to, from time to time employ a variety of investment techniques, including those described
below, to hedge against fluctuations in the price of portfolio securities, to enhance total return or to provide a substitute
for the purchase or sale of securities. Some of these techniques, such as purchases of put and call options, options on stock
indices and stock index futures and entry into certain credit derivative transactions, may be used as hedges against or substitutes
for investments in equity securities. Other techniques such as the purchase of interest rate futures and entry into transactions
involving interest rate swaps, options on interest rate swaps and certain credit derivatives are hedges against or substitutes
for investments in debt securities. The Fund's ability to utilize any of the techniques described below may be limited by restrictions
imposed on its operations in connection with obtaining and maintaining its qualification as a regulated investment company under
the Code. Additionally, other factors (such as cost) may make it impractical or undesirable to use any of these investment techniques
from time to time.
Short
Sales
The
Fund may from time to time engage in short sales of securities, for investment or for hedging purposes. Short sales are transactions
in which the Fund sells a security it does not own. To complete the transaction, the Fund must borrow the security to make delivery
to the buyer. The Fund is then obligated to replace the security borrowed by purchasing the security at the market price at the
time of replacement. The Fund may be required to pay a fee to borrow particular securities and is often obligated to pay over
any payments received on such borrowed securities. In the event that the Fund elects to pursue such a strategy, the Fund expects
it would sell shares of portfolio securities short through a pair trade system, where it would maintain a long position in a basket
of dividend-paying stocks and a short position in a security or securities replicating an index, which the Fund expects to be
outperformed by the dividend-paying stocks it owns.
The
Fund may also sell short individual stocks that the Fund expects to underperform other stocks which the Fund holds. For hedging
purposes, the Fund may purchase or sell short futures contracts on global equity indexes.
The
Fund's obligation to replace the borrowed security will be secured by collateral deposited with the broker-dealer, usually cash,
U.S. government securities or other liquid securities. The Fund will also be required to designate on its books and records similar
collateral with its custodian to the extent, if any, necessary so that the aggregate
collateral
value is at all times at least equal to the current market value of the security sold short. Depending on arrangements made with
the broker-dealer from which it borrowed the security regarding payment over of any payments received by the Fund on such security,
the Fund may not receive any payments (including interest) on its collateral deposited with such broker-dealer.
If
the price of the security sold short increases between the time of the short sale and the time the Fund replaces the borrowed
security, the Fund will incur a loss; conversely, if the price declines, the Fund will realize a gain. Any gain will be decreased,
and any loss increased, by the transaction costs described above. Although the Fund's gain is limited to the price at which it
sold the security short, its potential loss is unlimited.
The
Fund may also sell a security short if it owns at least an equal amount of the security sold short or another security convertible
or exchangeable for an equal amount of the security sold short without payment of further compensation (a short sale against-the-box).
In a short sale against-the-box, the short seller is exposed to the risk of being forced to deliver stock that it holds to close
the position if the borrowed stock is called in by the lender, which would cause gain or loss to be recognized on the delivered
stock. The Fund expects normally to close its short sales against-the-box by delivering newly acquired stock.
Purchasing
securities to close out the short position can itself cause the price of the securities to rise further, thereby exacerbating
the loss. Short-selling exposes the Fund to unlimited risk with respect to that security due to the lack of an upper limit on
the price to which an instrument can rise. Although the Fund reserves the right to utilize short sales, and currently intends
to utilize short sales, the Adviser is under no obligation to utilize short sales at all. The Fund currently intends to close
out each short position prior to the underlying issuer's ex-dividend date, if any, to avoid the Fund incurring any dividend expense
in connection with such short position.
The
Fund anticipates that it will generally not make a short sale if, after giving effect to such sale, the market value of all securities
sold short by the Fund exceeds 20% of the value of its total assets.
Options
on Securities
In
order to hedge against adverse market shifts, the Fund may utilize up to 10% of its total assets (in addition to the 10% limit
applicable to options on stock indices described below) to purchase put and call options on securities. The Fund will also, in
certain situations, augment its investment positions by purchasing call options, both on specific equity securities, as well as
securities representing exposure to equity sectors or indices and fixed income indices. In addition, the Fund may
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seek
to increase its income or may hedge a portion of its portfolio investments through writing (i.e., selling) covered put
and call options. A put option embodies the right of its purchaser to compel the writer of the option to purchase from the
option holder an underlying security or its equivalent at a specified price at any time during the option period. In
contrast, a call option gives the purchaser the right to buy the underlying security or its equivalent covered by the option
or its equivalent from the writer of the option at the stated exercise price. Under interpretations of the SEC currently in
effect, which may change from time to time, a "covered" call option means that so long as the Fund is obligated as
the writer of the option, it will own (1) the underlying instruments subject to the option, (2) instruments convertible or
exchangeable into the instruments subject to the option or (3) a call option on the relevant instruments with an exercise
price no higher than the exercise price on the call option written.
Similarly,
the SEC currently requires that, to "cover" or support its obligation to purchase the underlying instruments if a put
option is written by the Fund, the Fund must (1) deposit with its custodian in a segregated account liquid securities having a
value at least equal to the exercise price of the underlying securities, (2) continue to own an equivalent number of puts of the
same "series" (that is, puts on the same underlying security having the same exercise prices and expiration dates as
those written by the Fund), or an equivalent number of puts of the same "class" (that is, puts on the same underlying
security) with exercise prices greater than those it has written (or, if the exercise prices of the puts it holds are less than
the exercise prices of those it has written, it will deposit the difference with its custodian in a segregated account) or (3)
sell short the securities underlying the put option at the same or a higher price than the exercise price on the put option written.
The
Fund will receive a premium when it writes put and call options, which increases the Fund's return on the underlying security
in the event the option expires unexercised or is closed out at a profit. By writing a call, the Fund will limit its opportunity
to profit from an increase in the market value of the underlying security above the exercise price of the option for as long as
the Fund's obligation as the writer of the option continues. Upon the exercise of a put option written by the Fund, the Fund may
suffer an economic loss equal to the difference between the price at which the Fund is required to purchase the underlying security
and its market value at the time of the option exercise, less the premium received for writing the option. Upon the exercise of
a call option written by the Fund, the Fund may suffer an economic loss equal to the excess of the security's market value at
the time of the option exercise over the price at which the Fund is required to sell the underlying security less the premium
received
for writing the option. Thus, in some periods the Fund might receive less total return and in other periods greater total return
from its hedged positions than it would have received from leaving its underlying securities unhedged.
The
Fund may purchase and write options on securities that are listed on national securities exchanges or are traded over the counter,
although it expects, under normal circumstances, to effect such transactions on national securities exchanges.
As
a holder of a put option, the Fund will have the right to sell the securities underlying the option and as the holder of a call
option, the Fund will have the right to purchase the securities underlying the option, in each case at their exercise price at
any time prior to the option's expiration date. The Fund may choose to exercise the options it holds, permit them to expire or
terminate them prior to their expiration by entering into closing sale transactions. In entering into a closing sale transaction,
the Fund would sell an option of the same series as the one it has purchased. The ability of the Fund to enter into a closing
sale transaction with respect to options purchased and to enter into a closing purchase transaction with respect to options sold
depends on the existence of a liquid secondary market. There can be no assurance that a closing purchase or sale transaction can
be effected when the Fund so desires. The Fund's ability to terminate option positions established in the over-the-counter market
may be more limited than in the case of exchange-traded options and may also involve the risk that securities dealers participating
in such transactions would fail to meet their obligations to the Fund.
In
purchasing a put option, the Fund will seek to benefit from a decline in the market price of the underlying security, while in
purchasing a call option, the Fund will seek to benefit from an increase in the market price of the underlying security. If an
option purchased is not sold or exercised when it has remaining value, or if the market price of the underlying security remains
equal to or greater than the exercise price, in the case of a put, or remains equal to or below the exercise price, in the case
of a call, during the life of the option, the option will expire worthless. For the purchase of an option to be profitable, the
market price of the underlying security must decline sufficiently below the exercise price, in the case of a put, and must increase
sufficiently above the exercise price, in the case of a call, to cover the premium and transaction costs. Because option premiums
paid by the Fund are small in relation to the market value of the instruments underlying the options, buying options can result
in large amounts of leverage. The leverage offered by trading in options could cause the Fund's net asset value to be subject
to more frequent and wider fluctuation than would be the case if the Fund did not invest in options.
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Options
on Stock Indices
The
Fund may utilize up to 10% of its total assets (in addition to the 10% limit applicable to options on securities) to purchase
put and call options on domestic stock indices to hedge against risks of market-wide price movements affecting its assets. The
Fund will also, in certain situations, augment its investment positions by purchasing call options, both on specific equity securities,
as well as securities representing exposure to equity sectors or indices and fixed income indices. In addition, the Fund may write
covered put and call options on stock indices. A stock index measures the movement of a certain group of stocks by assigning relative
values to the common stocks included in the index. Options on stock indices are similar to options on securities. Because no underlying
security can be delivered, however, the option represents the holder's right to obtain from the writer, in cash, a fixed multiple
of the amount by which the exercise price exceeds (in the case of a put) or is less than (in the case of a call) the closing value
of the underlying index on the exercise date. The advisability of using stock index options to hedge against the risk of market-wide
movements will depend on the extent of diversification of the Fund's investments and the sensitivity of its investments to factors
influencing the underlying index. The effectiveness of purchasing or writing stock index options as a hedging technique will depend
upon the extent to which price movements in the Fund's securities investments correlate with price movements in the stock index
selected. In addition, successful use by the Fund of options on stock indices will be subject to the ability of the Adviser to
predict correctly changes in the relationship of the underlying index to the Fund's portfolio holdings. No assurance can be given
that the Adviser's judgment in this respect will be correct.
When
the Fund writes an option on a stock index, it will establish a segregated account with its custodian in which the Fund will deposit
liquid securities in an amount equal to the market value of the option, and will maintain the account while the option is open.
Portfolio
Turnover
The
Fund may engage in short-term trading strategies, and securities may be sold without regard to the length of time held when, in
the opinion of the Adviser, investment considerations warrant such action. These policies, together with the ability of the Fund
to effect short sales of securities and to engage in transactions in options and futures, may have the effect of increasing the
Fund's annual rate of portfolio turnover. It is expected that the annual portfolio turnover rate of the Fund will likely exceed
100%. A high turnover rate (100% or more) necessarily involves greater trading costs to the Fund and may result in the realization
of net short term capital gains. If securities are not held for the applicable holding periods, dividends paid on them will not
qualify for the advantageous federal tax rates.
Foreign
Currency Transactions
The
Fund may engage in foreign currency exchange transactions in connection with its investments in foreign securities. The Fund will
conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in the foreign
currency exchange market or through forward contracts to purchase or sell foreign currencies, including the payment of dividends
and the settlement of securities transactions which otherwise might require untimely dispositions of Fund securities.
Forward
Foreign Currency Exchange Contracts
The
Fund may enter into forward foreign currency exchange contracts in order to protect against possible losses on foreign investments
resulting from adverse changes in the relationship between the U.S. dollar and foreign currencies. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number
of days (usually less than one year) from the date of the contract agreed upon by the parties, at a price set at the time of the
contract. These contracts are traded in the interbank market conducted directly between currency traders (usually large commercial
banks) and their customers. A forward contract generally has a deposit requirement, and no commissions are charged at any stage
for trades. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference
(the spread) between the price at which they are buying and selling various currencies. However, forward foreign currency exchange
contracts may limit potential gains which could result from a positive change in such currency relationships. The Fund does not
speculate in foreign currency.
Except
for cross-hedges, the Fund will not enter into forward foreign currency exchange contracts or maintain a net exposure in such
contracts when it would be obligated to deliver an amount of foreign currency in excess of the value of its portfolio securities
or other assets denominated in that currency or, in the case of a "cross-hedge," denominated in a currency or currencies
that the Adviser believes will tend to be closely correlated with that currency with regard to price movements. At the consummation
of a forward contract, the Fund may either make delivery of the foreign currency or terminate their contractual obligation to
deliver the foreign currency by purchasing an offsetting contract obligating it to purchase, at the same maturity date, the same
amount of such foreign currency. If the Fund chooses to make delivery of the foreign currency, it may be required to obtain such
currency through the sale of portfolio securities denominated in such currency or through conversion of other assets of the Fund
into such currency. If the Fund engages in an offsetting transaction, the Fund will
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incur
a gain or loss to the extent that there has been a change in forward contract prices.
It
should be realized that this method of protecting the value of the Fund's portfolio securities against a decline in the value
of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange
which can be achieved at some future point in time. Additionally, although such contracts tend to minimize the risk of loss due
to a decline in the value of the hedged currency, at the same time they tend to limit any potential gain which might result should
the value of such currency increase. Generally, the Fund will not enter into a forward foreign currency exchange contract with
a term longer than one year.
Foreign
Currency Options
The
Fund may purchase and write options on foreign currencies to protect against declines in the U.S. dollar value of foreign securities
or in the U.S. dollar value of dividends or interest expected to be received on these securities. These transactions may also
be used to protect against increases in the U.S. dollar cost of foreign securities to be acquired by the Fund. Writing an option
on foreign currency is only a partial hedge, up to the amount of the premium received, and the Fund could be required to purchase
or sell foreign currencies at disadvantageous exchange rates, thereby incurring losses. The Fund may not purchase a foreign currency
option if, as a result, premiums paid on foreign currency options then held by the Fund would represent more than 10% of the Fund's
total assets.
A
foreign currency option provides the option buyer with the right to buy or sell a stated amount of foreign currency at the exercise
price on a specified date or during the option period. The owner of a call option has the right, but not the obligation, to buy
the currency. Conversely, the owner of a put option has the right, but not the obligation, to sell the currency. When the option
is exercised, the seller (i.e., writer) of the option is obligated to fulfill the terms of the sold option. However, either the
seller or the buyer may, in the secondary market, close its position during the option period at any time prior to expiration.
A
call option on a foreign currency generally rises in value if the underlying currency appreciates in value, and a put option on
a foreign currency generally rises in value if the underlying currency depreciates in value. Although purchasing a foreign currency
option can protect the Fund against an adverse movement in the value of a foreign currency, the option will not limit the movement
in the value of such currency. For example, if the Fund was holding securities denominated in a foreign currency that was appreciating
and had purchased a foreign currency put to hedge against a decline in the value of the currency, the Fund would not have to exercise
its put option. Likewise, if the
Fund
were to enter into a contract to purchase a security denominated in foreign currency and, in conjunction with that purchase, were
to purchase a foreign currency call option to hedge against a rise in value of the currency, and if the value of the currency
instead depreciated between the date of purchase and the settlement date, the Fund would not have to exercise its call. Instead,
the Fund could acquire in the spot market the amount of foreign currency needed for settlement.
Futures
Contracts and Options on Futures Contracts
Futures
contracts are standardized, exchange-traded contracts that provide for the sale or purchase of a specified financial instrument
or currency at a future time at a specified price. An option on a futures contract gives the purchaser the right (and the writer
of the option the obligation) to assume a position in a futures contract at a specified exercise price within a specified period
of time. A futures contract may be based on particular securities, foreign currencies, securities indices and other financial
instruments and indices. By using foreign currency futures contracts and options on such contracts, the Fund may be able to achieve
many of the same objectives as it would through the use of forward foreign currency exchange contracts and may be able to achieve
these objectives more effectively and at a lower cost by using futures transactions instead of forward foreign currency exchange
contracts. The Fund may engage in futures transactions on U.S. and foreign exchanges.
The
Fund may purchase and sell futures contracts, and purchase and write call and put options on futures contracts, to increase total
return or to hedge against changes in interest rates, securities prices, currency exchange rates, or to otherwise manage its term
structure, sector selection and duration in accordance with its investment objectives and policies. The Fund may also enter into
closing purchase and sale transactions with respect to such contracts and options. The Fund has claimed an exclusion from the
definition of the term "commodity pool operator" under the Commodity Exchange Act (the "CEA") and, therefore,
is not subject to registration or regulation as a commodity pool operator under the CEA.
The
Fund must segregate liquid assets, or engage in other appropriate measures to "cover" open positions with respect to
its transactions in futures contracts and options on futures contracts. In the case of futures contracts that do not cash settle,
for example, the Fund must segregate liquid assets equal to the full notional value of the futures contracts while the positions
are open. With respect to futures contracts that do cash settle, however, the Fund is permitted to segregate liquid assets in
an amount equal to the Fund's daily marked-to-market net obligations (i.e., the Fund's daily net liability) under the futures
contracts, if any, rather than their full notional value. The Fund
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reserves
the right to modify its asset segregation policies in the future to comply with any changes in the positions from time to time
articulated by the SEC or its staff regarding asset segregation. By segregating assets equal to only its net obligations under
cash-settled futures contracts, the Fund will have the ability to employ leverage to a greater extent than if the Fund were required
to segregate assets equal to the full notional amount of the futures contracts.
Defensive
Positions
During
periods of adverse market or economic conditions, the Fund may temporarily invest all or a substantial portion of its assets in
cash or cash equivalents. The Fund will not be pursuing its investment objectives in these circumstances. Cash equivalents are
highly liquid, short-term securities such as commercial paper, time deposits, certificates of deposit, short-term notes and short-term
U.S. government obligations.
Equity-Linked
Securities
The
Fund may invest in equity-linked securities, including, but not limited to, participation notes, certificates, and equity swaps.
Equity-linked securities are privately issued securities whose investment results are designed to correspond generally to the
performance of a specified stock index or "basket" of stocks, or a single stock. To the extent that the Fund invests
in equity-linked securities whose return corresponds to the performance of a foreign security index or one or more foreign stocks,
investing in equity-linked securities will involve risks similar to the risks of investing in foreign securities. See "Investment
Objectives & Policies – Portfolio Investments – Foreign Securities" and "Risk Factors – Foreign
Securities Risk." In addition, the Fund bears the risk that the counterparty of an equity-linked security may default on
its obligations under the security. If the underlying security is determined to be illiquid, the equity-linked security would
also be considered illiquid and thus subject to the Fund's restrictions on investments in illiquid securities.
Participation
notes, also known as participation certificates, are issued by banks or broker-dealers and are designed to replicate the performance
of foreign companies or foreign securities markets and can be used by the Fund as an alternative means to access the securities
market of a country. The performance results of participation notes will not replicate exactly the performance of the foreign
companies or foreign securities markets that they seek to replicate due to transaction and other expenses. Investments in participation
notes involve the same risks associated with a direct investment in the underlying foreign companies or foreign securities markets
that they seek to replicate. There can be no assurance that the trading price of participation notes will equal the underlying
value of the foreign companies or foreign
securities
markets that they seek to replicate. Participation notes are generally traded over-the-counter. Participation notes are subject
to counterparty risk, which is the risk that the broker-dealer or bank that issues them will not fulfill its contractual obligation
to complete the transaction with the Fund. Participation notes constitute general unsecured contractual obligations of the banks
or broker-dealers that issue them, the counterparty, and the Fund is relying on the creditworthiness of such counterparty and
has no rights under a participation note against the issuer of the underlying security. Participation notes involve transaction
cost. If the underlying security is determined to be illiquid, participation notes may be illiquid and therefore subject to the
Fund's percentage limitation for investments in illiquid securities. Participation notes offer a return linked to a particular
underlying equity, debt or currency.
Equity
swaps allow the parties to a swap agreement to exchange the dividend income or other components of return on an equity investment
(for example, a group of equity securities or an index) for a component of return on another non-equity or equity investment.
An equity swap may be used by the Fund to invest in a market without owning or taking physical custody of securities in circumstances
in which direct investment may be restricted for legal reasons or is otherwise deemed impractical or disadvantageous. Equity swaps
may also be used for hedging purposes or to seek to increase total return. The Fund's ability to enter into certain swap transactions
may be limited by tax considerations. The counterparty to an equity swap contract will typically be a bank, investment banking
firm or broker/dealer.
Equity
swap contracts may be structured in different ways. For example, a counterparty may agree to pay the Fund the amount, if any,
by which the notional amount of the equity swap contract would have increased in value had it been invested in particular stocks
(or an index of stocks), plus the dividends that would have been received on those stocks. In these cases, the Fund may agree
to pay to the counterparty a floating rate of interest on the notional amount of the equity swap contract plus the amount, if
any, by which that notional amount would have decreased in value had it been invested in such stocks. Therefore, the return to
the Fund on the equity swap contract should be the gain or loss on the notional amount plus dividends on the stocks less the interest
paid by the Fund on the notional amount. In other cases, the counterparty and the Fund may each agree to pay the other the difference
between the relative investment performances that would have been achieved if the notional amount of the equity swap contract
had been invested in different stocks (or indices of stocks). The Fund will generally enter into equity swaps on a net basis,
which means that the two payment streams are netted out, with the
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Fund
receiving or paying, as the case may be, only the net amount of the two payments. Payments may be made at the conclusion of an
equity swap contract or periodically during its term.
Equity
swaps are derivatives and their value can be very volatile. Equity swaps normally do not involve the delivery of securities or
other underlying assets. Accordingly, the risk of loss with respect to equity swaps is normally limited to the net amount of payments
that the Fund is contractually obligated to make. If the counterparty to an equity swap defaults, the Fund's risk of loss consists
of the net amount of payments that the Fund is contractually entitled to receive. Because some swap agreements have a leverage
component, adverse changes in the value or level of the underlying asset, reference rate, or index can result in a loss substantially
greater than the amount invested in the underlying asset without the use of leverage. In addition, the value of some components
of an equity swap (such as the dividends on a common stock) may also be sensitive to changes in interest rates. To the extent
that the Adviser does not accurately analyze and predict the potential relative fluctuation of the components swapped with another
party, the Fund may suffer a loss. Because equity swaps are normally illiquid, the Fund may be unable to terminate its obligations
when desired. When entering into swap contracts, the Fund must "set aside" liquid assets, or engage in other appropriate
measures to "cover" its obligation under the swap contract.
Inasmuch
as these transactions are entered into for hedging purposes or are offset by segregated cash or liquid assets to cover the Fund's
exposure, the Fund and the Adviser believe that transactions do not constitute senior securities under the 1940 Act and, accordingly,
will not treat them as being subject to the Fund's borrowing restrictions.
RISK
FACTORS
An
investment in the Fund's common shares is subject to risks. The value of the Fund's investments will increase or decrease based
on changes in the prices of the investments it holds. This will cause the value of the Fund's shares to increase or decrease.
You could lose money by investing in the Fund. By itself, the Fund does not constitute a balanced investment program. You should
consider carefully the following risks before investing in the Fund. There may be additional risks that the Fund does not currently
foresee or consider material. You may wish to consult with your legal or tax advisors, before deciding whether to invest in the
Fund.
Investment
and Market Risk. An investment in common shares is subject to investment risk, including the possible loss of the entire
principal amount invested. An investment in common shares represents an indirect investment in the securities owned by the Fund,
which are generally traded on a securities exchange or in the over-the-counter
markets.
The value of these securities, like other market investments, may move up or down, sometimes rapidly and unpredictably. The value
of your common shares at any point in time may be less than the value of your original investment, even after taking into account
any reinvestment of dividends and distributions.
Issuer
Risk. The value of an issuer's securities that are held in the Fund's portfolio may decline for a number of reasons which
directly relate to the issuer, such as management performance, financial leverage and reduced demand for the issuer's goods and
services.
Dividend
Strategy Risks. The Fund's pursuit of its investment objectives depends upon the Adviser's ability to anticipate the dividend
policies of the companies in which it chooses to invest. It is difficult to anticipate the level of dividends that companies will
pay in any given timeframe. The Fund's strategies require the Adviser to identify and exploit opportunities such as the announcement
of major corporate actions, such as restructuring initiatives or a special dividend, that may lead to high current dividend income.
These situations are typically not recurring in nature or frequency, may be difficult to predict and may not result in an opportunity
that allows the Adviser to fulfill the Fund's investment objective. In addition, the dividend policies of the Fund's target companies
are heavily influenced by the current economic climate and the favorable federal tax treatment afforded to dividends. Challenging
economic conditions, affecting either the market as a whole or a specific investment in the Fund's portfolio, may limit the opportunity
to benefit from the current dividend policies of the companies in which the Fund invests or may cause such companies to reduce
or eliminate their dividends. In addition, a change in the favorable provisions of the federal tax laws may limit your ability
to benefit from dividend increases or special dividends, may effect a widespread reduction in announced dividends and may adversely
impact the valuation of the shares of dividend-paying companies. The use of dividend capture strategies will expose the Fund to
increased trading costs and potential for capital loss or gain, particularly in the event of significant short-term price movements
of stocks subject to dividend capture trading.
Qualified
Dividend Income Tax Risk. There can be no assurance as to what portion of the distributions paid to the Fund's shareholders
will consist of tax-advantaged qualified dividend income or long-term capital gains or what the tax rates on various types of
income will be in future years. The favorable U.S. federal tax treatment may be adversely affected, changed or repealed by future
changes in tax laws at any time. In addition, it may be difficult to obtain information regarding whether distributions by non-U.S.
entities in which the Fund invests should be regarded as qualified dividend income. Furthermore, to receive qualified dividend
income treatment, the Fund must meet
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holding
period and other requirements with respect to the dividend paying securities in its portfolio, and the shareholder must meet holding
period and other requirements with respect to the common shares of the Fund.
Common
Stock Risk. The Fund invests primarily in common stocks. Although common stocks have historically generated higher average
returns than fixed income securities over the long term, common stocks also have experienced significantly more volatility in
returns. Common stocks may be more susceptible to adverse changes in market value due to issuer specific events or general movements
in the equities markets. A drop in the stock market may depress the price of common stocks held by the Fund. Common stock prices
fluctuate for many reasons, including changes in investors' perceptions of the financial condition of an issuer or the general
condition of the relevant stock market, or the occurrence of political or economic events affecting issuers. For example, an adverse
event, such as an unfavorable earnings report, may depress the value of common stock in which the Fund has invested; the price
of common stock of an issuer may be particularly sensitive to general movements in the stock market; or a drop in the stock market
may depress the price of most or all of the common stocks held by the Fund. Also, common stock of an issuer in the Fund's portfolio
may decline in price if the issuer fails to make anticipated dividend payments because, among other reasons, the issuer of the
security experiences a decline in its financial condition. The common stocks in which the Fund invests are structurally subordinated
to preferred securities, bonds and other debt instruments in a company's capital structure, in terms of priority to corporate
income and assets, and therefore will be subject to greater risk than the preferred securities or debt instruments of such issuers.
In addition, common stock prices may be sensitive to rising interest rates, as the costs of capital rise and borrowing costs increase.
Foreign
Securities Risk. The Fund has substantial exposure to foreign securities. The Fund's investments in securities of foreign
issuers are subject to risks not usually associated with owning securities of U.S. issuers. These risks can include fluctuations
in foreign currencies, foreign currency exchange controls, social, political and economic instability, differences in securities
regulation and trading, expropriation or nationalization of assets, and foreign taxation issues. In addition, changes in government
administrations or economic or monetary policies in the United States or abroad could result in appreciation or depreciation of
the Fund's securities. It may also be more difficult to obtain and enforce a judgment against a foreign issuer. Any foreign investments
made by the Fund must be made in compliance with U.S. and foreign currency restrictions and tax laws restricting the amounts and
types of foreign investments. The Fund has no other investment restrictions with respect to investing in foreign issuers. Dividends
paid
on
foreign securities may not qualify for the reduced federal income tax rates applicable to qualified dividends under the Code.
As a result, there can be no assurance as to what portion of the Fund's distributions attributable to foreign securities will
be designated as qualified dividend income.
Emerging
Market Securities Risk. The Fund may invest up to 35% of its total assets in securities of issuers located in "emerging
markets." Because of less developed markets and economies and, in some countries, less mature governments and governmental
institutions, the risks of investing in foreign securities can be intensified in the case of investments in issuers domiciled
or operating in emerging market countries. These risks include high concentration of market capitalization and trading volume
in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial
intermediaries; lack of liquidity and greater price volatility due to the smaller size of the market for such securities and lower
trading volume; political and social uncertainties; national policies that may restrict the Fund's investment opportunities including
restrictions on investing in issuers or industries deemed sensitive to relevant national interests; greater risks of expropriation,
confiscatory taxation and nationalization; over-dependence on exports, especially with respect to primary commodities, making
these economies vulnerable to changes in commodity prices; overburdened infrastructure and obsolete or unseasoned financial systems;
environmental problems; and less developed legal systems; less reliable custodial services and settlement practices. Dividends
paid by issuers in emerging market countries will generally not qualify for the reduced federal income tax rates applicable to
qualified dividends under the Code.
Small
and Medium Cap Company Risk. Compared to investment companies that focus only on large capitalization companies, the Fund's
share price may be more volatile because it also invests in small and medium capitalization companies. Compared to large companies,
small and medium capitalization companies are more likely to have (i) less information publicly available, (ii) more limited product
lines or markets and less mature businesses, (iii) fewer capital resources, (iv) more limited management depth and (v) shorter
operating histories. Further, compared to large cap stocks, the securities of small and medium capitalization companies are more
likely to experience sharper swings in market values, be harder to sell at times and at prices that the Adviser believes appropriate,
and offer greater potential for gains and losses.
Portfolio Turnover Risk. The techniques and strategies contemplated
by the Fund might result in a high degree of portfolio turnover. The Fund cannot accurately predict its securities portfolio turnover
rate,
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but
anticipates that its annual portfolio turnover rate will likely exceed 100% under normal market conditions, although it could
be materially higher under certain conditions. Higher portfolio turnover rates could result in corresponding increases in brokerage
commissions and may generate short-term capital gains taxable as ordinary income.
Defensive
Positions. During periods of adverse market or economic conditions, the Fund may temporarily invest all or a substantial
portion of its assets in cash or cash equivalents. The Fund would not be pursuing its investment objectives in these circumstances
and could miss favorable market developments.
Market
Price of Shares. The shares of closed-end management investment companies often trade at a discount from their net asset
value, and the Fund's common shares may likewise trade at a discount from net asset value. The trading price of the Fund's common
shares may be less than the public offering price. The returns earned by the Fund's shareholders who sell their common shares
below net asset value will be reduced. The Fund may utilize leverage, which magnifies the market risk.
Management
Risk. The Fund is subject to management risk because it is an actively managed portfolio. The Fund's successful pursuit
of its investment objectives depends upon the Adviser's ability to find and exploit market inefficiencies with respect to undervalued
securities and identify companies experiencing a change in dividend policy, including the announcement of restructuring initiatives
or special dividends. Such situations occur infrequently and sporadically and may be difficult to predict, and may not result
in a favorable pricing opportunity that allows the Adviser to fulfill the Fund's investment objectives. The Adviser's security
selections and other investment decisions might produce losses or cause the Fund to underperform when compared to other funds
with similar investment goals. If one or more key individuals leave the employ of the Adviser, the Adviser may not be able to
hire qualified replacements, or may require an extended time to do so. This could prevent the Fund from achieving its investment
objectives.
Leverage
Risk. Leverage creates three major types of risks for shareholders:
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the
likelihood of greater volatility of net asset value and market price of common shares because changes in value of the Fund's portfolio
(including changes in the value of any interest rate swap, if applicable) are borne entirely by the common shareholders;
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•
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the
possibility either that share income will fall if the interest rate on any borrowings or the dividend rate on any preferred shares
issued rises, or that share income and distributions will fluctuate because the interest rate on any borrowings or the dividend
rate on any preferred shares issued varies; and
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•
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if
the Fund leverages through issuing preferred shares or borrowings, the Fund may not be permitted to declare dividends or other
distributions with respect to its common shares or purchase its capital stock, unless at the time thereof the Fund meets certain
asset coverage requirements.
|
Leverage
involves certain additional risks, including the risk that the cost of leverage may exceed the return earned by the Fund on the
proceeds of such leverage. The use of leverage will increase the volatility of changes in the Fund's net asset value, market price
and distributions. In the event of a general market decline in the value of assets in which the Fund invests, the effect of that
decline will be magnified in the Fund because of the additional assets purchased with the proceeds of the leverage.
In
addition, funds borrowed pursuant a credit facility may constitute a substantial lien and burden by reason of their prior claim
against the income of the Fund and against the net assets of the Fund in liquidation. In the event of an event of default under
a loan facility, lenders may have the right to cause a liquidation of the collateral (i.e., sell portfolio securities and other
assets of the Fund) and, if any such default is not cured, the lenders may be able to control the liquidation as well. A leverage
facility agreement may include covenants that impose on the Fund asset coverage requirements, Fund composition requirements and
limits on certain investments, such as illiquid investments or derivatives, which are more stringent than those imposed on the
Fund by the 1940 Act. However, because the Fund's use of leverage is expected to be relatively modest and flexible in approach
and the Fund generally is not expected to engage in derivatives transactions, the Adviser currently does not believe that these
restrictions would significantly impact its management of the Fund.
The
Adviser in its best judgment nevertheless may determine to maintain the Fund's leveraged position if it deems such action to be
appropriate in the circumstances. During periods in which the Fund is using leverage, the fees paid to the Adviser for investment
advisory services will be higher than if the Fund did not use leverage because the fees paid will be calculated on the basis of
the Fund's total assets, including proceeds from borrowings, which may create an incentive to leverage the Fund.
Short
Sale Risk. When transacting a short sale, the Fund must borrow the security sold to make delivery to the buyer. The Fund
is then obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. The price
at such time may be higher or lower than the price at which the security was sold by the Fund.
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A
short sale will be successful if the shorted security price decreases. However, if the underlying security goes up in price during
the period during which the short position is outstanding, the Fund will realize a loss. The risk on a short sale is unlimited
because the Fund must buy the shorted security at the higher price to complete the transaction. Therefore, short sales may be
subject to greater risks than investments in long positions. With a long position the maximum sustainable loss is limited to the
amount paid for the security plus the transaction costs, whereas there is no maximum attainable price of the security sold short.
The
Fund also incurs increased transaction costs associated with selling securities short. In addition, if the Fund sells securities
short, it must maintain a segregated account with its custodian containing cash or high-grade securities equal to (i) the greater
of the current market value of the securities sold short or the market value of such securities at the time they were sold short,
less (ii) any collateral deposited with the Fund's broker (not including the proceeds from the short sales). The Fund may be required
to add to the segregated account as the market price of a shorted security increases. As a result of maintaining and adding to
its segregated account, the Fund may maintain higher levels of cash or liquid assets (for example, U.S. Treasury bills, repurchase
agreements, high quality commercial paper and long equity positions) for collateral needs thus reducing its overall assets available
for trading purposes.
REIT
Risk. If the Fund invests in REITs, such investment will subject the Fund to various risks. The first, real estate industry
risk, is the risk that the REIT share prices will decline because of adverse developments affecting the real estate industry and
real property values. In general, real estate values can be affected by a variety of factors, including supply and demand for
properties, the economic health of the country or of different regions, and the strength of specific industries that rent properties.
REITs often invest in highly leveraged properties. The second risk is the risk that returns from REITs, which typically are small
or medium capitalization stocks, will trail returns from the overall stock market. The third, interest rate risk, is the risk
that changes in interest rates may hurt real estate values or make REIT shares less attractive than other income producing investments.
Qualification
as a REIT under the Code in any particular year is a complex analysis that depends on a number of factors. There can be no assurance
that the entities in which the Fund invests with the expectation that they will be taxed as a REIT will qualify as a REIT. An
entity that fails to qualify as a REIT, would be subject to a corporate level tax, would not be entitled to a deduction for dividends
paid to its shareholders and would not pass through to its shareholders the character of income earned by the entity. If the Fund
were to invest in
an
entity that failed to qualify as a REIT, such failure could drastically reduce the Fund's yield on that investment.
Dividends
paid by REITs will not generally qualify for the reduced federal income tax rates applicable to qualified dividends under the
Code.
The
Fund does not expect to invest a significant portion of its assets in REITs, but does not have any investment restrictions with
respect to such investments.
MLP
Risk. An investment in MLP units involves some risks that differ from an investment in the common stock of a corporation.
Holders of MLP units have limited control and voting rights on matters affecting the partnership. Although common unitholders
are generally limited in their liability, similar to a corporation's shareholders, creditors typically have the right to seek
the return of distributions made to such unitholders if the liability in question arose before the distribution was paid. This
liability may stay attached to the common unitholder even after the units are sold. Investing in MLPs involves certain risks related
to investing in the underlying assets of the MLPs and risks associated with pooled investment vehicles. MLPs holding credit-related
investments are subject to interest rate risk and the risk of default on payment obligations by debt issuers. MLPs that concentrate
in a particular industry or a particular geographic region are subject to risks associated with such industry or region. Investments
held by MLPs may be relatively illiquid, limiting the MLPs' ability to vary their portfolios promptly in response to changes in
economic or other conditions. MLPs may have limited financial resources, their securities may trade infrequently and in limited
volume, and they may be subject to more abrupt or erratic price movements than securities of larger or more broadly based companies.
MLP
Tax Risk. Certain diversification requirements imposed by the Code limits the Fund's ability to invest in MLP securities.
In addition, the Fund's ability to meet its investment objectives may depend in part on the level of taxable income and distributions
and dividends received from the MLP securities in which the Fund invests, a factor over which the Fund has no control. The benefit
derived from the Fund's investment in MLPs is largely dependent on the MLPs being treated as partnerships for federal income tax
purposes. If an MLP were classified as a corporation for federal income tax purposes, the amount of cash available for distribution
would be reduced and distributions received by us would be taxed entirely as dividend income. Sale of MLPs may result in the Fund
realizing significant amounts of taxable ordinary income even for MLP positions sold at an overall loss with such amounts of taxable
ordinary income being very difficult for the Fund to estimate or accrue for, and the tax reporting being significantly delayed,
subject to dramatic revisions, and depending on the MLP issuers so reporting.
50
|
Aberdeen
Total Dynamic Dividend Fund
|
Additional
Information Regarding the Fund (unaudited)
(continued)
Deferred
Tax Risks of MLPs. As a limited partner in the MLPs in which the Fund invests, the Fund receives a pro rata share of income,
gains, losses and deductions from those MLPs. Historically, a significant portion of income from such MLPs has been offset by
tax deductions. The Fund's common shareholders will incur a current tax liability on the portion of an MLP's income and gains
that is not offset by tax deductions and losses. The percentage of an MLP's income and gains that is offset by tax deductions
and losses will fluctuate over time for various reasons.
Investments
in Undervalued Securities. The Fund's investment strategy includes investing in securities, which, in the opinion of the
Adviser, are undervalued. The identification of investment opportunities in undervalued securities is a difficult task and there
is no assurance that such opportunities will be successfully recognized or acquired. While investments in undervalued securities
offer opportunities for above-average capital appreciation, these investments involve a high degree of financial risk and can
result in substantial losses.
Special
Risks Associated with Foreign Currency Options. Buyers and sellers of foreign currency options are subject to the same
risks that apply to options generally, as described below. In addition, there are certain additional risks associated with foreign
currency options. The Fund's ability to establish and close out positions on such options is subject to the maintenance of a liquid
secondary market. Although the Fund will not purchase or write such options unless and until, in the opinion of the Adviser, the
market for them has developed sufficiently to ensure that the risks in connection with such options are not greater than the risks
in connection with the underlying currency, there can be no assurance that a liquid secondary market will exist for a particular
option at any specific time. In addition, options on foreign currencies are affected by most of the same factors that influence
foreign exchange rates and investments generally.
The value
of a foreign currency option depends upon the value of the underlying currency relative to the U.S. dollar. As a result, the price
of the option position may vary with changes in the value of either or both currencies and may have no relationship to the investment
merits of a foreign security. Because foreign currency transactions occurring in the interbank market involve substantially larger
amounts than those that may be involved in the use of foreign currency options, investors may be disadvantaged by having to deal
in an odd lot market (generally consisting of transactions of less than $1 million) for the underlying foreign currencies at prices
that are less favorable than for round lots.
There
is no systematic reporting of last sale information for foreign currencies or any regulatory requirement that quotations available
through dealers or other market sources be firm or revised on a timely basis. Available quotation information is generally representative
of
very
large transactions in the interbank market and thus may not reflect relatively smaller transactions (i.e., less than $1 million)
where rates may be less favorable. The interbank market in foreign currencies is a global, around-the-clock market. To the extent
that the U.S. option markets are closed while the markets for the underlying currencies remain open, significant price and rate
movements may take place in the underlying markets that cannot be reflected in the options markets until they reopen.
Risk
Characteristics of Options and Futures. Options and futures transactions can be highly volatile investments. Successful
hedging strategies require the anticipation of future movements in securities prices, interest rates and other economic factors.
When a fund uses futures contracts and options as hedging devices, the prices of the securities subject to the futures contracts
and options may not correlate with the prices of the securities in a portfolio. This may cause the futures and options to react
to market changes differently than the portfolio securities. Even if expectations about the market and economic factors are correct,
a hedge could be unsuccessful if changes in the value of the portfolio securities do not correspond to changes in the value of
the futures contracts. The ability to establish and close out futures contracts and options on futures contracts positions depends
on the availability of a secondary market. If these positions cannot be closed out due to disruptions in the market or lack of
liquidity, losses may be sustained on the futures contract or option.
Special
Risks Associated with Foreign Currency Futures Contracts and Related Options. Buyers and sellers of foreign currency futures
contracts are subject to the same risks that apply to the use of futures generally, as described above. In addition, there are
risks associated with foreign currency futures contracts and their use as a hedging device similar to those associated with options
on foreign currencies, as described above.
Options
on foreign currency futures contracts may involve certain additional risks. The ability to establish and close out positions
on such options is subject to the maintenance of a liquid secondary market. To reduce this risk, the Fund will not purchase
or write options on foreign currency futures contracts unless and until, in the opinion of the Adviser, the market for such
options has developed sufficiently that the risks in connection with such options are not greater than the risks in
connection with transactions in the underlying foreign currency futures contracts. Compared to the purchase or sale of
foreign currency futures contracts, the purchase of call or put options on futures contracts involves less potential
risk to the Fund because the maximum amount at risk is the premium paid for the option (plus transaction costs). However,
there may be circumstances when the purchase of a call or put option on a futures contract would result in a loss of up
to
Aberdeen
Total Dynamic Dividend Fund 51
Additional
Information Regarding the Fund (unaudited)
(continued)
the amount
of the premium paid for the option, such as when there is no movement in the price of the underlying currency or futures contract.
Preferred
Securities Risk. In addition to credit risk, investment in preferred securities carries risks including deferral risk,
redemption risk, limited voting rights, risk of subordination and lack of liquidity. Fully taxable or hybrid preferred securities
typically contain provisions that allow an issuer, at its discretion, to defer distributions for up to 20 consecutive quarters.
Traditional preferreds also contain provisions that allow an issuer, under certain conditions to skip (in the case of "noncumulative
preferreds") or defer (in the case of "cumulative preferreds"), dividend payments. If the Fund owns a preferred
security that is deferring its distributions, the Fund may be required to report income for tax purposes while it is not receiving
any distributions. Preferred securities typically contain provisions that allow for redemption in the event of tax or security
law changes in addition to call features at the option of the issuer. In the event of a redemption, the Fund may not be able to
reinvest the proceeds at comparable rates of return. Preferred securities typically do not provide any voting rights, except in
cases when dividends are in arrears beyond a certain time period, which varies by issue. Preferred securities are subordinated
to bonds and other debt instruments in a company's capital structure in terms of priority to corporate income and liquidation
payments, and therefore will be subject to greater credit risk than those debt instruments. Preferred securities may be substantially
less liquid than many other securities, such as U.S. government securities, corporate debt or common stocks. Dividends paid on
preferred securities will generally not qualify for the reduced federal income tax rates applicable to qualified dividends under
the Code.
Interest
Rate Risk. Interest rate risk is the risk that preferred stocks paying fixed dividend rates and fixed-rate debt securities
will decline in value because of changes in market interest rates. When interest rates rise, the market value of such securities
generally will fall. The Fund's investment in preferred stocks and fixed-rate debt securities means that the net asset value and
price of the common shares may decline if market interest rates rise. Interest rates are currently low relative to historic levels.
There can be no assurance that rates will remain at these levels. During periods of declining interest rates, an issuer of preferred
stock or fixed-rate debt securities may exercise its option to redeem securities prior to maturity, forcing the Fund to reinvest
in lower yielding securities. This is known as call risk. During periods of rising interest rates, the average life of certain
types of securities may be extended because of slower than expected payments. This may lock in a below market yield, increase
the security's duration, and reduce the value of the security. This is known as extension risk.
The value
of the Fund's common stock investments may also be influenced by changes in interest rates.
Convertible
Securities Risk. The value of a convertible security is a function of its "investment value" (determined by
its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege)
and its "conversion value" (the security's worth, at market value, if converted into the underlying common stock). The
investment value of a convertible security is influenced by changes in interest rates, with investment value declining as interest
rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors may also have an
effect on the convertible security's investment value. The conversion value of a convertible security is determined by the market
price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible
security is governed principally by its investment value. Generally, the conversion value decreases as the convertible security
approaches maturity. To the extent the market price of the underlying common stock approaches or exceeds the conversion price,
the price of the convertible security will be increasingly influenced by its conversion value. A convertible security generally
will sell at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying
common stock while holding a fixed income security.
A convertible
security may be subject to redemption at the option of the issuer at a price established in the convertible security's governing
instrument. If a convertible security held by the Fund is called for redemption, the Fund will be required to permit the issuer
to redeem the security, convert it into the underlying common stock or sell it to a third party. Any of these actions could have
an adverse effect on the Fund's ability to achieve its investment objectives.
Illiquid
Securities Risk. Restricted securities and other illiquid investments of the Fund involve the risk that the securities
will not be able to be sold at the time desired by the Adviser or at prices approximating the value at which the Fund is carrying
the securities. Where registration is required to sell a security, the Fund may be obligated to pay all or part of the registration
expenses, and a considerable period may elapse between the decision to sell and the time the Fund may be permitted to sell a security
under an effective registration statement. If, during such a period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided to sell. Restricted securities for which no market exists and other
illiquid investments are valued at fair value as determined in accordance with procedures approved and periodically reviewed by
the Board of Trustees of the Fund.
52 Aberdeen
Total Dynamic Dividend Fund
Additional
Information Regarding the Fund (unaudited)
(continued)
Inflation
Risk. Inflation risk is the risk that the purchasing power of assets or income from investment will be worth less in the
future as inflation decreases the value of money. As inflation increases, the real value of the common shares and distributions
thereon can decline. In addition, during any periods of rising inflation, dividend rates of any preferred shares of the Fund would
likely increase, which would tend to further reduce returns to common shareholders.
Risks
of Derivative Investments. The Fund may invest in derivative instruments as described in the Fund's Prospectus and Statement
of Additional Information. Investments in derivative instruments may be for both investment and hedging purposes. Losses from
investments in derivative instruments can, among other things, result from a lack of correlation between changes in the value
of derivative instruments and the portfolio assets (if any) being hedged, the potential illiquidity of the markets for derivative
instruments, the failure of the counterparty to perform its contractual obligations, or the risks arising from margin requirements
and related leverage factors associated with such transactions. The use of these investment techniques also involves the risk
of loss if the Adviser is incorrect in its expectation of the timing or level of fluctuations in securities prices, interest rates
or currency prices. Investments in derivative instruments may be harder to value, subject to greater volatility and more likely
subject to changes in tax treatment than other investments. For these reasons, the Adviser's attempts to hedge portfolio risks
through the use of derivative instruments may not be successful, and the Adviser may choose not to hedge certain portfolio risks.
Using derivative instruments for investment purposes is considered a speculative practice and presents even greater risk of loss.
Anti-Takeover
Provisions. The Fund's Declaration of Trust includes provisions that could have the effect of inhibiting the Fund's possible
conversion to open-end status and limiting the ability of other entities or persons to acquire control of the Fund or the Board
of Trustees. In certain circumstances, these provisions might also inhibit the ability of shareholders to sell their shares at
a premium over prevailing market prices.
Market
Events Risk.
Markets
are affected by numerous factors, including interest rates, the outlook for corporate profits, the health of the national and
world economies, the fluctuation of other stock markets around the world, and financial, economic and other global market developments
and disruptions, such as those arising from war, terrorism, market manipulation, government interventions, defaults and shutdowns,
political changes or diplomatic developments, including unfavorable international trade policies or developments, public health
emergencies
and natural/environmental
disasters. In addition, any spread of an infectious illness, public health threat or similar issue could reduce consumer demand
or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on
the world economy, which in turn could adversely affect the Fund's investments. Such events can negatively impact the securities
markets and cause the Fund to lose value. These events can also impair the technology and other operational systems upon which
the Fund's service providers rely and could otherwise disrupt the Fund's service providers' ability to fulfill their obligations
to the Fund.
Policy
and legislative changes in the United States and in other countries are affecting many aspects of financial regulation, and governmental
and quasi-governmental authorities and regulators throughout the world have responded to serious economic disruptions with a variety
of significant fiscal and monetary policy changes, including but not limited to, direct capital infusions into companies, new
monetary programs and dramatically lower interest rates. The impact of these policies and legislative changes on the markets,
and the practical implications for market participants, may not be fully known for some time. A reversal of these policies, or
the ineffectiveness of these policies, could increase volatility in securities markets, which could adversely impact the Fund's
investments. The current market environment could make identifying investment risks and opportunities especially difficult for
the Adviser.
The current
contentious domestic political environment, as well as political and diplomatic events within the United States and abroad, such
as presidential elections in the U.S. or abroad or the U.S. government's inability at times to agree on a long-term budget and
deficit reduction plan, has in the past resulted, and may in the future result, in a government shutdown or otherwise adversely
affect the U.S. regulatory landscape, the general market environment and/or investor sentiment, which could have an adverse impact
on the Fund's investments and operations. Additional and/or prolonged U.S. federal government shutdowns may affect investor and
consumer confidence and may adversely impact financial markets and the broader economy, perhaps suddenly and to a significant
degree.
Economies
and financial markets throughout the world are becoming increasingly interconnected. As a result, whether or not a Fund invests
in securities of issuers located in or with significant exposure to countries experiencing economic and financial difficulties,
the value and liquidity of the Fund's investments may be negatively affected by such events.
COVID-19.
Beginning in the first quarter of 2020, the illness COVID-19 caused by a novel coronavirus has resulted in a global pandemic
and
Aberdeen
Total Dynamic Dividend Fund 53
Additional
Information Regarding the Fund (unaudited)
(continued)
major
disruption to economies and markets around the world, including the United States. Financial markets have experienced extreme
volatility and severe losses. Some sectors of the economy and individual issuers have experienced particularly large losses. These
circumstances may continue for an extended period of time, and as a result may affect adversely the value and liquidity of the
Fund's investments. To the extent the impacts of COVID-19 continue, the Fund may experience negative impacts to its business that
could exacerbate other risks described in the Fund's prospectus, including:
|
•
|
significant
mark-downs in the fair value of the Fund's investments and decreases in net asset value (NAV) per share;
|
|
•
|
the
Fund's investments may require a workout, restructuring, recapitalization or reorganizations that involve additional investment
from the Fund and/or that result in greater risks and losses to the Fund;
|
|
•
|
operational
impacts on and availability of key personnel of the Adviser, custodian, and/or any of the Fund's other third-party service providers,
vendors and counterparties as they face changed circumstances and/or illness related to the pandemic;
|
|
•
|
difficulty
in valuing the Fund's assets in light of significant changes in the financial markets, including difficulty in forecasting discount
rates and making market comparisons, and circumstances affecting the Adviser, and the Fund's service providers' personnel during
the pandemic;
|
|
•
|
significant
changes to the valuations of pending or prospective investments; and
|
|
•
|
limitations
on the Fund's ability to make distributions or dividends, as applicable, to the Fund's common shareholders.
|
The rapid
development and fluidity of this situation precludes any prediction as to the ultimate adverse impact of COVID-19 on economic
and market conditions, and, as a result, present uncertainty and risk with respect to the Fund and the performance of its investments
and ability to pay distributions. The full extent of the impact and effects of COVID-19 will depend on future developments, including,
among other factors, the duration and spread of the outbreak, along with related travel advisories, quarantines and restrictions,
the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the impact of government
interventions, and uncertainty with respect to the duration of the global economic slowdown.
Fundamental
Investment Restrictions
The following
investment restrictions of the Fund are designated as fundamental policies and as such may not be changed without the
approval
of a majority of the Fund's outstanding common shares, which as used in this SAI means the lesser of (a) 67% of the shares of
the Fund present or represented by proxy at a meeting if the holders of more than 50% of the outstanding shares are present or
represented at the meeting or (b) more than 50% of outstanding shares of the Fund. As a matter of fundamental policy, the Fund
may not:
|
(1)
|
Borrow
money, except as permitted by the 1940 Act. The Fund may borrow money for investment purposes, commonly referred to as leverage,
and for extraordinary or emergency purposes, including the payment of dividends and the settlement of securities transactions
which otherwise might require untimely dispositions of Fund securities. The 1940 Act currently requires that any indebtedness
incurred by a closed-end investment company have an asset coverage of at least 300%. The Fund may not pledge, mortgage, hypothecate
or otherwise encumber its assets, except to secure permitted borrowings and to implement collateral and similar arrangements incident
to permitted investment practices;
|
|
(2)
|
Issue
senior securities, as defined in the 1940 Act, other than (a) preferred shares which immediately after issuance will have asset
coverage of at least 200%, (b) indebtedness which immediately after issuance will have asset coverage of at least 300% or (c)
the borrowings permitted by investment restriction (1) above. The 1940 Act currently defines "senior security" as any
bond, debenture, note or similar obligation or instrument constituting a security and evidencing indebtedness, and any stock of
a class having priority over any other class as to distribution of assets or payment of dividends. Debt and equity securities
issued by a closed-end investment company meeting the foregoing asset coverage provisions are excluded from the general 1940 Act
prohibition on the issuance of senior securities;
|
(3) Purchase
securities on margin (but the Fund may obtain such short-term credits as may be necessary for the clearance of purchases and sales
of securities). The purchase of investment assets with the proceeds of a permitted borrowing or securities offering will not be
deemed to be the purchase of securities on margin;
|
(4)
|
Underwrite
securities issued by other persons, except insofar as it may technically be deemed to be an underwriter under the Securities Act
in selling or disposing of a portfolio investment;
|
|
(5)
|
Make
loans to other persons, except by (a) the acquisition of loan interests, debt securities and other obligations in which the Fund
is authorized to invest in accordance with its investment objectives and policies and (b) entering into repurchase agreements;
|
|
(6)
|
Purchase
or sell real estate, although it may purchase and sell securities which are secured by interests in real estate and
|
54
Aberdeen Total Dynamic Dividend Fund
Additional
Information Regarding the Fund (unaudited)
(concluded)
securities
of issuers which invest or deal in real estate. The Fund reserves the freedom of action to hold and to sell real estate acquired
as a result of the ownership of securities;
(7) Purchase
or sell physical commodities or contracts for the purchase or sale of physical commodities. Physical commodities do not include
futures contracts with respect to securities, securities indices, currencies, interest or other financial instruments; and
(8) With
respect to 75% of its total assets, invest more than 5% of its total assets in the securities of a single issuer or purchase more
than 10% of the outstanding voting securities of a single issuer, except obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities and except securities of other investment companies; or invest 25% or more of its total assets
in any single industry or group of industries (other than securities issued or guaranteed by the U.S. government or its agencies
or instrumentalities).
Aberdeen
Total Dynamic Dividend Fund 55
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 Fund's 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 Fund's 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 Fund's 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 stockholder's 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 Agent's 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 Computershare's 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 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
56
Aberdeen Total Dynamic Dividend Fund
Dividend
Reinvestment and Optional Cash Purchase Plan (unaudited)
(concluded)
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 57
Management
of the Fund (unaudited)
The names
of the Trustees and Officers of the Fund, their addresses, years of birth, and principal occupations during the past five years
are provided in the tables below. Trustees that are deemed "interested persons" (as that term is defined in Section
2(a)(19) of the Investment Company Act of 1940, as amended) of the Fund Adviser are included in the table below under the heading
"Interested Trustees." Trustees who are not interested persons, as described above, are referred to in the table below
under the heading "Independent Trustees."
Name,
Address and
Year of Birth
|
|
Position(s)
Held
with the Fund
|
|
Term
of Office
and Length of
Time Served
|
|
Principal
Occupation(s)
During Past Five Years
|
|
Number
of
Funds in
Fund Complex*
Overseen by
Trustee
|
|
Other
Directorships
Held by
Trustee**
|
Interested
Trustee
|
Martin J. Gilbert***
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1955
|
|
Class
III Trustee
|
|
Term
as Trustee expires 2023; Trustee since 2018
|
|
Mr.
Gilbert is Chairman of UK companies Revolut Limited (digital banking firm) and Toscafund Asset Management since 2020. He is
also a non-executive director of a number of non-U.S. companies, including Glencore plc (producer and marketer of commodities),
Saranac Partners (wealth management firm), Old Oak Holdings (Toscafund Asset Management's parent company) and PGA European
Tour. Martin is a member of the International Advisory Board of British American Business. Previously, he was Chairman of
the UK Prudential Regulation Authority's Practitioner Panel as well as a member of the International Advisory Panel of the
Monetary Authority of Singapore. Prior to his retirement from Standard Life Aberdeen plc in 2020, Mr. Gilbert served as Vice
Chairman of Standard Life Aberdeen plc and Chairman of Aberdeen Standard Investments Inc. since March 2019. He was a cofounder
(and former Chief Executive) of Aberdeen Asset Management PLC, having been a Director since 1983.
|
|
28
|
|
|
None.
|
Independent
Trustees
|
P. Gerald Malone
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1950
|
|
Chairman
of the
Board; Class II
Trustee
|
|
Term
expires 2022; Trustee since 2018
|
|
Mr.
Malone is, by profession, a lawyer of over 40 years. Currently, he is a non-executive director of a number of U.S. companies,
including Medality Medical (medical technology company) and Bionik Laboratories Corp. (US healthcare company) since 2018.
He is also Chairman of many of the open and closed end funds in the Fund Complex. He previously served as Independent Chairman
of UK companies Crescent OTC Ltd (pharmaceutical services) until February 2018; and fluidOil Ltd. (oil services) until June
2018; U.S. company Rejuvenan llc (wellbeing services) until September 2017 and as chairman of UK company Ultrasis plc (healthcare
software services company) until October 2014. Mr. Malone was previously a Member of Parliament in the U.K. from 1983 to 1997
and served as Minister of State for Health in the U.K. government from 1994 to 1997.
|
|
27
|
|
Director
of Bionik Laboratories Corporation (U.S. healthcare company) since 2018.
|
John
Sievwright
Ocean Club Residences and Marina
C3-1 Ocean Club Drive
Paradise Islands, Bahamas
Year of Birth: 1955
|
|
Class
I Trustee
|
|
Term
expires 2021; Trustee since 2018
|
|
Mr.
Sievwright is a Non-Executive Director of Burford Capital (financial) since May 2020. Previously he was a Non-Executive Director
for the following UK companies: NEX Group plc (2017-2018) (financial); and ICAP plc (2009-2016) (financial).
|
|
7
|
|
Director
of Burford Capital since 2020.
|
|
|
|
|
|
|
|
|
|
|
|
58 Aberdeen
Total Dynamic Dividend Fund
Management
of the Fund (unaudited)
(continued)
Name,
Address and
Year of Birth
|
|
Position(s)
Held
with the Fund
|
|
Term
of Office
and Length of
Time Served
|
|
Principal
Occupation(s)
During Past Five Years
|
|
Number
of
Funds in
Fund Complex*
Overseen by
Trustee
|
|
Other
Directorships
Held by
Trustee**
|
Nancy
Yao Maacbach
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1972
|
|
Class
III Trustee
|
|
Term
expires 2023; Trustee since 2018
|
|
Ms.
Maasbach is the President of the Museum of Chinese in America since 2015. Ms. Maasbach has also been a member of the Council
on Foreign Relations since 2015. Director of The Asia Tigers Fund, Inc. from 2016 to 2018.
|
|
7
|
|
|
None.
|
*
|
Aberdeen
Australia Equity Fund, Inc., Aberdeen Asia-Pacific Income Fund, Inc., Aberdeen Global Income Fund, Inc., Aberdeen Emerging
Markets Equity Income Fund, Inc., the Aberdeen Funds (which currently consists of 19 portfolios), Aberdeen Investment Funds
(which currently consists of 4 portfolios), Aberdeen Standard Investments ETFs (which currently consists of 2 portfolios),
Aberdeen Japan Equity Fund, Inc., The India Fund, Inc., Aberdeen Standard Global Infrastructure Income Fund, Aberdeen Global
Dynamic Dividend Fund, Aberdeen Total Dynamic Dividend Fund, Aberdeen Global Premier Properties Fund and Aberdeen Income Credit
Strategies Fund have the same Investment Manager and Investment Adviser as the Fund, or an investment adviser that is affiliated
with the Investment Manager and Investment Adviser and may thus be deemed to be part of the same "Fund Complex"
as the Fund.
|
|
|
**
|
Current
directorships held in (1) any other investment companies registered under the 1940 Act, (2) any company with a class of securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act") or (3)
any company subject to the requirements of Section 15(d) of the Exchange Act.
|
|
|
***
|
Mr.
Gilbert is deemed to be an interested person because of his affiliation with the fund's Investment Manager. Mr. Gilbert serves
as a Director of several Funds in the Fund Complex.
|
Information
Regarding Officers Who Are Not Trustees
Name,
Address and
Year of Birth
|
|
Position(s)
Held
with the Fund
|
|
Term
of Office*
and Length of
Time Served
|
|
Principal
Occupation(s) During Past Five Years
|
Joseph Andolina**
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1978
|
|
Chief
Compliance
Officer and
Vice President –
Compliance
|
|
Since
2018
|
|
Currently,
Chief Risk Officer – Americas for ASII and serves as the Chief Compliance Officer for ASII. Prior to joining the Risk
and Compliance Department, he was a member of ASII's Legal Department, where he served as US Counsel since 2012.
|
Martin Connaghan**
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1980
|
|
Vice
President
|
|
Since
2018
|
|
Currently
an Investment Director on the Global Equity Team at Aberdeen Standard Investments. Martin joined Aberdeen in 2001, via the
acquisition of Murray Johnstone.
|
Chris Demetriou**
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1983
|
|
Vice
President
|
|
Since
2020
|
|
Currently,
Chief Executive Officer – Americas for ASI. Mr. Demetriou joined ASII in 2013, as a result of the acquisition of SVG,
a FTSE 250 private equity investor based in London.
|
Aberdeen
Total Dynamic Dividend Fund 59
Management
of the Fund (unaudited)
(continued)
Name,
Address and
Year of Birth
|
|
Position(s)
Held
with the Fund
|
|
Term
of Office*
and Length of
Time Served
|
|
Principal
Occupation(s) During Past Five Years
|
Joshua Duitz**
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1970
|
|
Vice
President
|
|
Since
2018
|
|
Currently,
Senior Vice President in the Global Equities Team at ASII. He joined ASII in 2018.
|
Sharon Ferrari**
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1977
|
|
Assistant
Treasurer
|
|
Since
2018
|
|
Currently,
Senior Fund Administration Manager US for ASII. Ms. Ferrari joined ASII as a Senior Fund Administrator in 2008.
|
Alan Goodson**
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1974
|
|
Vice
President
|
|
Since
2018
|
|
Currently,
Head of Product & Client Solutions – Americas, overseeing Product Management, Product Development and Client Solutions
for ASII's registered and unregistered investment companies in the US, Brazil and Canada. Mr. Goodson joined ASII in 2000.
|
Bev Hendry**
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1953
|
|
Vice
President
|
|
Since
2018
|
|
Chairman
of Americas for Standard Life Aberdeen PLC since 2018. Mr. Hendry was Chief Executive Officer – Americas for Aberdeen
Asset Management PLC (2014-2018).
|
Heather Hasson**
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1982
|
|
Assistant
Secretary
|
|
Since
2018
|
|
Currently,
Senior Product Manager for ASII. Ms. Hasson joined Aberdeen Standard Investments Inc. as a Fund Administrator in 2006.
|
Matthew Keener**
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1976
|
|
Assistant
Secretary
|
|
Since
2020
|
|
Currently,
Senior Product Manager for Aberdeen Standard Investments Inc. Mr. Keener joined Aberdeen Standard Investments Inc. in 2006
as a Fund Administrator.
|
Megan Kennedy**
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1974
|
|
Vice
President
and Secretary
|
|
Since
2018
|
|
Currently,
Head of Product Management for ASII Ms. Kennedy joined ASII in 2005 as a Senior Fund Administrator.
|
60 Aberdeen
Total Dynamic Dividend Fund
Management
of the Fund (unaudited)
(concluded)
Name,
Address and
Year of Birth
|
|
Position(s)
Held
with the Fund
|
|
Term
of Office*
and Length of
Time Served
|
|
Principal
Occupation(s) During Past Five Years
|
Andrea Melia**
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1969
|
|
Treasurer
and
Principal Accounting Officer
|
|
Since
2018
|
|
Currently,
Vice President and Head of Fund Operations, Traditional Assets – Americas and Vice President for ASII. Ms. Melia joined
ASII in September 2009.
|
Jim O'Connor**
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1969
|
|
Vice
President
|
|
Since
2020
|
|
Currently,
Executive Director for Aberdeen Standard Investments Inc. Mr. O'Connor joined ASII in 2010.
|
Christian Pittard**
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1973
|
|
President
|
|
Since
2018
|
|
Currently,
Global Head of Product Opportunities for Aberdeen Asset Management PLC. Mr. Pittard joined Aberdeen from KPMG in 1999.
|
Lucia Sitar**
c/o Aberdeen Standard
Investments Inc.,
1900 Market Street,
Suite 200
Philadelphia, PA 19103
Year of Birth: 1971
|
|
Vice
President
|
|
Since
2018
|
|
Currently,
Vice President and Managing U.S. Counsel for ASII Ms. Sitar joined ASII in July 2007 as U.S. Counsel.
|
*
|
Officers hold
their positions with the Fund until a successor has been duly elected and qualifies. Officers are generally elected annually
by the Board.
|
|
|
**
|
Messrs. Andolina,
Connaghan, Demetriou, Duitz, Goodson, Hendry, Keener, O'Connor and Pittard and Mses. Ferrari, Hasson, Kennedy, Melia and Sitar
may serve as officers of one or more other funds in the Fund Complex.
|
Aberdeen
Total Dynamic Dividend Fund 61
Corporate
Information
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
Dechert
LLP
1900 K Street, N.W.
Washington, DC 20006
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
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 Fund's
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.
AOD ANNUAL
Item 7. Disclosure of Proxy Voting Policies and Procedures
for Closed-End Management Investment Companies.
Pursuant to the Registrant's
Proxy Voting Policy and Procedures, the Registrant has delegated responsibility for its proxy voting to its Investment Manager
and Investment Adviser, provided that the Registrant's Board of Trustees has the opportunity to periodically review the Investment
Manager's and Investment Adviser's proxy voting policies and material amendments thereto.
The proxy voting policies of
the Registrant are included herewith as Exhibit (c) and policies of the Investment Manager and Investment Adviser are included
as Exhibit (d).
Item 8. Portfolio Managers of Closed-End Management Investment
Companies.
(a)(1) The information in the table
below is as of January 8, 2021.
Individual & Position
|
Services Rendered
|
Past Business Experience
|
Dominic Byrne
Head of Global Equities
|
Responsible for global equity portfolio management
|
Currently, Head of the Global Equity Team. Dominic joined ASI in 2000 as part of the UK Equity Team at Standard Life. In December 2008, he joined the Global Equity Team and has managed a range of global equity strategies. In 2018, Dominic was appointed Deputy Head of Global Equity at ASI and in 2020 he became Head of Global Equity. Dominic graduated with a MEng in Engineering Science and is a CFA® charterholder.
|
Bruce Stout
Senior Investment Director
|
Responsible for global equity portfolio management
|
Currently a Senior Investment Director on the Global Equity Team. He joined Aberdeen in 2001, via the acquisition of Murray Johnstone. Bruce has held a number of roles including Investment Manager on the Emerging Markets Team. Bruce graduated with a BA in Economics from the University of Strathclyde and completed a graduate training course with General Electric Company UK.
|
Martin Connaghan
Investment Director
|
Responsible for global equity portfolio management
|
Currently an Investment Director on the Global Equity Team. Martin joined Aberdeen in 2001, via the acquisition of Murray Johnstone. Martin has held a number of roles including Trader and SRI Analyst on the Global Equity Team; he also spent two years as a Portfolio Analyst on the Fixed Income Team in London.
|
Josh Duitz
Senior Vice President, Global Equities
|
Responsible for global equity portfolio management
|
Currently a Senior Vice President, Global Equities for Aberdeen Standard Investments. He joined Aberdeen in 2018, from Alpine Woods Capital Investors, LLC where he served as a Portfolio Manager since February 2007. Prior to that he spent eight years at Bear Stearns, where Mr. Duitz was a Managing Director Principal who specialized in trading international equities.
|
(a)(2) The information in the table below is as of
October 31, 2020.
Name of Portfolio
Manager
|
|
Types of Accounts
|
|
Total
Number
of
Accounts
Managed
|
|
Total
Assets ($M)
|
|
|
Number of
Accounts
Managed for
Which
Advisory
Fee is Based
on
Performance
|
|
Total Assets for
Which
Advisory Fee is
Based on
Performance ($M)
|
|
Dominic Byrne
|
|
Registered Investment Companies
|
|
9
|
|
|
1,364.71
|
|
|
0
|
|
|
0
|
|
|
|
Pooled Investment Vehicles
|
|
35
|
|
|
3,745.11
|
|
|
0
|
|
|
0
|
|
|
|
Other Accounts
|
|
6
|
|
|
989.77
|
|
|
2
|
|
|
892.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bruce Stout
|
|
Registered Investment Companies
|
|
9
|
|
|
1,364.71
|
|
|
0
|
|
|
0
|
|
|
|
Pooled Investment Vehicles
|
|
35
|
|
|
3,745.11
|
|
|
0
|
|
|
0
|
|
|
|
Other Accounts
|
|
6
|
|
|
989.77
|
|
|
2
|
|
|
892.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Josh Duitz
|
|
Registered Investment Companies
|
|
9
|
|
|
1,364.71
|
|
|
0
|
|
|
0
|
|
|
|
Pooled Investment Vehicles
|
|
35
|
|
|
3,745.11
|
|
|
0
|
|
|
0
|
|
|
|
Other Accounts
|
|
6
|
|
|
989.77
|
|
|
2
|
|
|
892.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Martin Connaghan
|
|
Registered Investment Companies
|
|
9
|
|
|
1,364.71
|
|
|
0
|
|
|
0
|
|
|
|
Pooled Investment Vehicles
|
|
35
|
|
|
3,745.11
|
|
|
0
|
|
|
0
|
|
|
|
Other Accounts
|
|
6
|
|
|
989.77
|
|
|
2
|
|
|
892.12
|
|
Total assets are as of October 31, 2020 and have been
translated to U.S. dollars at a rate of £1.00 = $1.293.
The Investment Adviser serves as investment
manager for multiple clients, including the Registrant and other investment companies registered under the 1940 Act and private
funds (such clients are also referred to below as “accounts”). The portfolio managers’ management of “other
accounts” may give rise to potential conflicts of interest in connection with their management of the Registrant’s
investments, on the one hand, and the investments of the other accounts, on the other. The other accounts may have the same investment
objective as the Registrant. Therefore, a potential conflict of interest may arise as a result of the identical investment objectives,
whereby the portfolio manager could favor one account over another. However, the Investment Adviser believe that these risks are
mitigated by the fact that: (i) accounts with like investment strategies managed by a particular portfolio manager are generally
managed in a similar fashion, subject to exceptions to account for particular investment restrictions or policies applicable only
to certain accounts, differences in cash flows and account sizes, and similar factors; and (ii) portfolio manager personal trading
is monitored to avoid potential conflicts. In addition, the Investment Adviser has adopted trade allocation procedures that require
equitable allocation of trade orders for a particular security among participating accounts.
The Investment Adviser sometimes enters
into agreements for performance-based fees with qualified clients. The existence of such a performance-based fee may create conflicts
of interest in the allocation of management time, resources and investment opportunities between different strategies. Additionally,
collecting performance-based fees may result in instances in which a portfolio manager concurrently manages accounts with different
fee structures for the same strategy. This “side-by-side” active management of accounts by the Investment Adviser may
raise potential conflicts of interest. To address such potential conflicts of interest, ASI has adopted procedures and policies
designed to:
(1) Identify practices that may potentially
favor actively managed accounts in which the Investment Adviser has an ownership and/or a greater pecuniary interest over actively
managed accounts in which the Investment Adviser has no ownership and/or a lesser pecuniary interest; (2) prevent the Investment
Adviser and Covered Persons (as defined in the policies and procedures) from inappropriately favoring some clients over others;
(3) detect potential violations of such policies and procedures; (4) provide a process to review requests for waivers; and (5)
promptly resolve any actual violations detected.
Another potential conflict could include
instances in which securities considered as investments for the Registrant also may be appropriate for other investment accounts
managed by the Investment Manager or its affiliates. Whenever decisions are made to buy or sell securities for the Registrant and
one or more of the other accounts simultaneously, the Investment Adviser may aggregate the purchases and sales of the securities
and will allocate the securities transactions in a manner that they believe to be equitable under the circumstances. As a result
of the allocations, there may be instances where the Registrant will not participate in a transaction that is allocated among other
accounts. While these aggregation and allocation policies could have a detrimental effect on the price or amount of the securities
available to the Registrant from time to time, it is the opinion of the Investment Manager that the benefits achieved through economies
of scale from the Investment Adviser’s organization outweigh any disadvantage that may arise from exposure to simultaneous
transactions. The Registrant has adopted policies that are designed to eliminate or minimize conflicts of interest, although there
is no guarantee that procedures adopted under such policies will detect each and every situation in which a conflict arises.
With respect to non-discretionary model
delivery accounts, ASI may utilize a third party service provider to deliver model portfolio recommendations and model changes.
ASI seeks to treat clients fairly and equitably over time, by delivering model changes to our service provider and investment instructions
for our discretionary accounts to our trading desk, simultaneously or approximately at the same time. The service provider will
then deliver the model changes to each sponsor on a randomly generated rotation schedule.
ASI may have already commenced trading
for its discretionary client accounts before the model delivery accounts have executed ASI's recommendations. In this event, trades
placed by the model delivery clients may be subject to price movements, particularly with large orders or where securities are
thinly traded, that may result in model delivery clients receiving less favorable prices than our discretionary clients. ASI has
no discretion over transactions executed by model delivery clients and is unable to control the market impact of those transactions.
Timing delays or other operational factors
associated with the implementation of trades may result in non-discretionary and model delivery clients receiving materially different
prices relative to other client accounts. In addition, the constitution and weights of stocks within model portfolios may not always
be exactly aligned with similar discretionary accounts. This may create performance dispersions within accounts with the same or
similar investment mandate.
In facilitating trades with unaffiliated
brokers on behalf of our clients, each management team may use the resources of our Standard Life Aberdeen plc affiliates. These
affiliates have entered into a global trading agreement pursuant to which professionals from each affiliate may help to facilitate
trades on behalf of our clients with unaffiliated brokers. The use of advisory affiliates with respect to trading facilitation
under the global trading agreement does not alter or change the entity making investment decisions for the client accounts or the
Investment Manager’s duty to seek best execution of trades.
(a)(3)
ASI’s remuneration policies are designed
to support its business strategy as a leading international asset manager. The objective is to attract, retain and reward talented
individuals for the delivery of sustained, superior returns for ASI’s clients and shareholders. ASI operates in a highly
competitive international employment market, and aims to maintain its strong track record of success in developing and retaining
talent.
ASI’s policy is to recognize corporate
and individual achievements each year through an appropriate annual bonus scheme. The bonus is a single, fully discretionary variable
pay award. The aggregate value of awards in any year is dependent on the group’s overall performance and profitability. Consideration
is also given to the levels of bonuses paid in the market. Individual awards, which are payable to all members of staff, are determined
by a rigorous assessment of achievement against defined objectives.
The variable pay award comprises a mixture
of cash and a deferred award based on the size of the award. Deferred awards are by default Standard Life Aberdeen shares, with
an option to put up to 50% of deferral into funds. Overall compensation packages are designed to be competitive relative to the
investment management industry.
Base Salary
ASI’s policy is to pay a fair salary
commensurate with the individual’s role, responsibilities and experience, and having regard to the market rates being offered
for similar roles in the asset management sector and other comparable companies. Any increase is generally to reflect inflation
and is applied in a manner consistent with other ASI employees; any other increases must be justified by reference to promotion
or changes in responsibilities.
Annual Bonus
The Remuneration Committee determines the
key performance indicators that will be applied in considering the overall size of the bonus pool. In line with practices amongst
other asset management companies, individual bonuses are not subject to an absolute cap. However, the aggregate size of the bonus
pool is dependent on the group’s overall performance and profitability. Consideration is also given to the levels of bonuses
paid in the market. Individual awards are determined by a rigorous assessment of achievement against defined objectives, and are
reviewed and approved by the Remuneration Committee.
ASI has a deferral policy which is intended
to assist in the retention of talent and to create additional alignment of executives’ interests with ASI’s sustained
performance and, in respect of the deferral into funds, managed by ASI, to align the interest of asset managers with our clients.
Staff performance is reviewed formally
at least once a year. The review process evaluates the various aspects that the individual has contributed to ASI, and specifically,
in the case of portfolio managers, to the relevant investment team. Discretionary bonuses are based on client service, asset growth
and the performance of the respective portfolio manager. Overall participation in team meetings, generation of original research
ideas and contribution to presenting the team externally are also evaluated.
In the calculation of a portfolio management
team’s bonus, ASI takes into consideration investment matters (which include the performance of funds, adherence to the company
investment process, and quality of company meetings) as well as more subjective issues such as team participation and effectiveness
at client presentations through key performance indicator (KPI) scorecards. To the extent performance is factored in, such performance
is not judged against any specific benchmark and is evaluated over the period of a year - January to December. The pre- or after-tax
performance of an individual account is not considered in the determination of a portfolio manager’s discretionary bonus;
rather the review process evaluates the overall performance of the team for all of the accounts the team manages.
Portfolio manager performance on investment
matters is judged over all of the accounts the portfolio manager contributes to and is documented in the appraisal process. A combination
of the team’s and individual’s performance is considered and evaluated.
Although performance is not a substantial
portion of a portfolio manager’s compensation, ASI also recognizes that fund performance can often be driven by factors outside
one’s control, such as (irrational) markets, and as such pays attention to the effort by portfolio managers to ensure integrity
of our core process by sticking to disciplines and processes set, regardless of momentum and ‘hot’ themes. Short-terming
is thus discouraged and trading-oriented managers will thus find it difficult to thrive in the ASI environment. Additionally, if
any of the aforementioned undue risks were to be taken by a portfolio manager, such trend would be identified via ASI’s dynamic
compliance monitoring system.
In rendering investment management services,
the Adviser may use the resources of additional investment adviser subsidiaries of Standard Life Aberdeen plc. These affiliates
have entered into a memorandum of understanding (“MOU”) pursuant to which investment professionals from each affiliate
may render portfolio management, research or trading services to Aberdeen clients. Each investment professional who renders portfolio
management, research or trading services under a MOU or personnel sharing arrangement (“Participating Affiliate”) must
comply with the provisions of the Advisers Act, the 1940 Act, the Securities Act of 1933, as amended, (the “Securities Act”),
the Exchange Act, and the Employee Retirement Income Security Act of 1974, and the laws of states or countries in which the Adviser
does business or has clients. No remuneration is paid by the Fund with respect to the MOU/personnel sharing arrangements.
(a)(4)
Individual
|
|
Dollar Range of Equity Securities in the Registrant
Beneficially Owned by the Portfolio Manager as of
October 31, 2020
|
|
Stephen Docherty
|
|
$0
|
|
Bruce Stout
|
|
$0
|
|
Jamie Cummings
|
|
$0
|
|
Martin Connaghan
|
|
$0
|
|
Josh Duitz
|
|
$10,001-$50,000
|
|
(b)
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management
Investment Company and Affiliated Purchasers.
No such purchases were made by or on behalf of the Registrant
during the period covered by the report.
Item 10. Submission of Matters to a Vote of Security Holders.
During the period ended October 31, 2020, there were no material
changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Trustees.