UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
| Investment Company Act file number: | 811-21901 |
| Exact name of registrant as specified in charter: | Aberdeen Global Dynamic Dividend Fund |
| Address of principal executive offices: | 1900 Market Street, Suite 200 |
| Philadelphia, PA 19103 | |
| Name and address of agent for service: | Andrea Melia |
| Aberdeen Standard Investments Inc. | |
| 1900 Market Street, Suite 200 | |
| Philadelphia, PA 19103 | |
| Registrant’s telephone number, including area code: | 1-800-522-5465 |
| Date of fiscal year end: | October 31 |
| Date of reporting period: | October 31, 2020 |
Item 1. Reports to Stockholders.
Letter to Shareholders (unaudited)
Dear Shareholder,
We present this Annual Report, which covers the activities of Aberdeen Global 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 more than 50% of which qualifies as "qualified dividend income eligible" for the reduced Federal income tax rates created by the Jobs and Growth Tax Relief Reconciliation Act of 2003. 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* | -0.6% | |
| Market Price* | -4.4% | |
| 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 3) and Total Investment Returns (page 5).
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 | $10.16 | $8.58 | 15.55% | |||
| 10/31/2019 | $11.14 | $9.78 | 12.2% |
Throughout the fiscal year ended October 31, 2020, the Fund's NAV was within a range of $7.49 to $12.00 and the Fund's market price was within a range of $5.94 to $10.75. During the fiscal year ended October 31, 2020, the Fund's shares traded within a range of a discount of 9.0%% to 23.5%.
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 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.
Distribution Policy
Distributions to common shareholders for the twelve months ended October 31, 2020 totaled $0.78 per share. Based on the market price of $8.58 on October 31, 2020, the distribution rate over the twelve-month period ended October 31, 2020 was 9.1%. 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 would pay on November 30, 2020 and January 8, 2021, respectively, a distribution of U.S. $0.065 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 non-taxable 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 ACWorld Index (Gross Dividends) to the MSCI ACWorld 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 Global Dynamic Dividend Fund 1
Letter to Shareholders (unaudited) (concluded)
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.
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.
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.
Investor Relations Information
As part of Aberdeen Standard's commitment to shareholders, we invite you to visit the Fund on the web at www.aberdeenagd.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/cefinvestorcentf/contactus/email-services
Contact Us:
• Visit: https://www.aberdeenstandard.com/en-us/cefinvestorcenter;
• Email: [email protected]; 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.
2 Aberdeen Global Dynamic Dividend Fund
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 toward the end of the reporting period.
Fund Performance Review
Aberdeen Global Dynamic Dividend Fund returned -0.6% 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 its 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 sold the position 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 spin-off of its energy solutions company. 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 our position during the reporting period to capture profits. Shares of FedEx rallied as it reported strong result for the first quarter of its 2021 fiscal year. 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, we continued to hedge a portion of the Fund's currency exposure to the euro during the reporting period.
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
| * | 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. |
Aberdeen Global Dynamic Dividend Fund 3
Report of the Investment Adviser (unaudited) (concluded)
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 $0.78 per share.
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 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 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.
4 Aberdeen Global Dynamic Dividend Fund
Total Investment Returns (unaudited)
The following table summarizes the average annual Fund performance compared to the MSCI All Country (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") | -0.6 | % | 4.2 | % | 7.2 | % | 6.6 | % | ||
| Market Price | -4.4 | % | 0.9 | % | 7.3 | % | 4.6 | % | ||
| 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 at 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.aberdeenagd.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 1.36%. The net operating expense ratio, net of fee waivers, based on the fiscal year ended October 31, 2020 was 1.18%. The net operating expenses, net of fee waivers and excluding interest expense based on the fiscal year ended October 31, 2020 was 1.17%.
| * | 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 ACWorld Index (Gross Dividends) to the MSCI ACWorld 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. |
| Aberdeen Global Dynamic Dividend Fund 5 |
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") Sectors, expressed as a percentage of net assets as of October 31, 2020. As of October 31, 2020, the Fund held 99.2% of its net assets in equities, 0.3% in a short-term investment and 0.5% in assets in excess of other liabilities.
| Top Sectors | As a Percentage of Net Assets | |||
| Information Technology | 16.6% | |||
| Financials | 12.7% | |||
| Health Care | 12.4% | |||
| Industrials | 10.9% | |||
| Consumer Discretionary | 9.8% | |||
| Communication Services | 9.0% | |||
| Consumer Staples | 7.9% | |||
| Utilities | 7.8% | |||
| Materials | 5.2% | |||
| Energy | 3.5% | |||
| Real Estate | 3.4% | |||
| Short-Term Investment | 0.3% | |||
| Other Assets in Excess of Liabilities | 0.5% | |||
| 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 | 44.9% | |||
| France | 6.3% | |||
| United Kingdom | 5.9% | |||
| Germany | 5.3% | |||
| Switzerland | 4.7% | |||
| China | 3.6% | |||
| Netherlands | 3.4% | |||
| Japan | 3.2% | |||
| Brazil | 3.1% | |||
| South Korea | 2.8% | |||
| Other | 16.8% | |||
| 100.0% | ||||
| 6 Aberdeen Global Dynamic Dividend Fund |
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% | |||
| Tower Bersama Infrastructure Tbk PT | 1.6% | |||
| GLP J-REIT | 1.6% | |||
| AbbVie, Inc. | 1.6% | |||
| RWE AG | 1.5% | |||
| Alphabet, Inc., Class C | 1.5% | |||
| Aberdeen Global Dynamic Dividend Fund 7 |
Portfolio of Investments
As of October 31, 2020
| Shares | Value | |||||||
| LONG-TERM INVESTMENTS—99.2% | ||||||||
| COMMON STOCKS—97.4% | ||||||||
| AUSTRALIA—1.0% | ||||||||
| Materials—1.0% | ||||||||
| Rio Tinto PLC, ADR | 22,215 | $ | 1,261,146 | |||||
| BRAZIL—3.1% | ||||||||
| Consumer Discretionary—0.6% | ||||||||
| Arezzo Industria e Comercio SA | 73,400 | 771,359 | ||||||
| Industrials—1.6% | ||||||||
| CCR SA | 679,200 | 1,321,007 | ||||||
| Cosan Logistica SA(a) | 240,000 | 685,541 | ||||||
| 2,006,548 | ||||||||
| Materials—0.9% | ||||||||
| Vale SA, ADR | 116,000 | 1,226,120 | ||||||
| Total Brazil | 4,004,027 | |||||||
| CANADA—2.8% | ||||||||
| Energy—1.5% | ||||||||
| Enbridge, Inc. | 69,400 | 1,912,664 | ||||||
| Materials—1.3% | ||||||||
| Barrick Gold Corp. | 61,250 | 1,637,212 | ||||||
| Total Canada | 3,549,876 | |||||||
| CHINA—3.6% | ||||||||
| Communication Services—1.2% | ||||||||
| Tencent Holdings Ltd. | 19,100 | 1,459,347 | ||||||
| Consumer Discretionary—1.3% | ||||||||
| Shenzhou International Group Holdings Ltd. | 98,400 | 1,712,098 | ||||||
| Financials—1.1% | ||||||||
| Ping An Insurance Group Co. of China Ltd., H Shares | 140,500 | 1,452,724 | ||||||
| Total China | 4,624,169 | |||||||
| FINLAND—0.7% | ||||||||
| Information Technology—0.7% | ||||||||
| Nokia OYJ(a) | 264,100 | 890,333 | ||||||
| FRANCE—6.3% | ||||||||
| Consumer Discretionary—1.1% | ||||||||
| LVMH Moet Hennessy Louis Vuitton SE | 3,000 | 1,406,243 | ||||||
| Energy—0.9% | ||||||||
| TOTAL SE(b) | 38,300 | 1,161,639 | ||||||
| Financials—1.1% | ||||||||
| AXA SA | 86,000 | 1,381,100 | ||||||
| Industrials—3.2% | ||||||||
| Alstom SA(a) | 30,202 | 1,349,407 | ||||||
| Bouygues SA | 41,900 | 1,374,045 | ||||||
| Schneider Electric SE | 11,100 | 1,348,721 | ||||||
| 4,072,173 | ||||||||
| Total France | 8,021,155 | |||||||
| 8 Aberdeen Global Dynamic Dividend Fund |
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 | 10,100 | $ | 1,488,270 | |||||
| Health Care—0.7% | ||||||||
| Bayer AG | 18,200 | 855,227 | ||||||
| Information Technology—0.9% | ||||||||
| Infineon Technologies AG | 41,400 | 1,152,625 | ||||||
| Materials—1.0% | ||||||||
| Linde PLC(a) | 5,700 | 1,249,241 | ||||||
| Utilities—1.5% | ||||||||
| RWE AG | 53,200 | 1,968,812 | ||||||
| Total Germany | 6,714,175 | |||||||
| HONG KONG—1.3% | ||||||||
| Financials—1.3% | ||||||||
| Hong Kong Exchanges & Clearing Ltd. | 33,500 | 1,605,277 | ||||||
| INDONESIA—2.6% | ||||||||
| Communication Services—2.6% | ||||||||
| Telekomunikasi Indonesia Persero Tbk PT | 7,397,500 | 1,309,800 | ||||||
| Tower Bersama Infrastructure Tbk PT | 20,000,000 | 2,022,925 | ||||||
| Total Indonesia | 3,332,725 | |||||||
| ITALY—1.2% | ||||||||
| Utilities—1.2% | ||||||||
| Enel SpA | 189,100 | 1,503,440 | ||||||
| JAPAN—3.2% | ||||||||
| Financials—0.7% | ||||||||
| Mitsubishi UFJ Financial Group, Inc. | 231,200 | 911,368 | ||||||
| Health Care—0.9% | ||||||||
| Shionogi & Co. Ltd. | 23,500 | 1,108,494 | ||||||
| Real Estate—1.6% | ||||||||
| GLP J-REIT | 1,300 | 2,004,142 | ||||||
| Total Japan | 4,024,004 | |||||||
| MEXICO—1.1% | ||||||||
| Utilities—1.1% | ||||||||
| Infraestructura Energetica Nova SAB de CV | 415,500 | 1,389,211 | ||||||
| NETHERLANDS—3.4% | ||||||||
| Consumer Staples—2.3% | ||||||||
| Heineken NV | 18,000 | 1,593,316 | ||||||
| Unilever NV | 23,500 | 1,324,783 | ||||||
| 2,918,099 | ||||||||
| Information Technology—1.1% | ||||||||
| ASML Holding NV | 3,800 | 1,374,851 | ||||||
| Total Netherlands | 4,292,950 | |||||||
| Aberdeen Global Dynamic Dividend Fund 9 |
Portfolio of Investments (continued)
As of October 31, 2020
| Shares | Value | ||||
| LONG-TERM INVESTMENTS (continued) | |||||
| COMMON STOCKS (continued) | |||||
| NORWAY—1.0% | |||||
| Communication Services—1.0% | |||||
| Telenor ASA | 86,200 | $ | 1,331,987 | ||
| SINGAPORE—0.9% | |||||
| Financials—0.9% | |||||
| Oversea-Chinese Banking Corp. Ltd. | 194,582 | 1,200,132 | |||
| SOUTH KOREA—1.0% | |||||
| Materials—1.0% | |||||
| LG Chem Ltd. | 2,300 | 1,254,146 | |||
| SPAIN—0.9% | |||||
| Industrials—0.9% | |||||
| Ferrovial SA | 53,873 | 1,166,757 | |||
| SWEDEN—1.3% | |||||
| Consumer Staples—0.8% | |||||
| Essity AB, Class B | 37,300 | 1,079,585 | |||
| Industrials—0.5% | |||||
| Atlas Copco AB, A Shares | 13,900 | 613,562 | |||
| Total Sweden | 1,693,147 | ||||
| SWITZERLAND—4.7% | |||||
| Consumer Staples—1.4% | |||||
| Nestle SA | 15,900 | 1,788,398 | |||
| Financials—1.2% | |||||
| Zurich Insurance Group AG | 4,500 | 1,494,655 | |||
| Health Care—2.1% | |||||
| Novartis AG | 15,100 | 1,176,631 | |||
| Roche Holding AG | 4,900 | 1,574,524 | |||
| 2,751,155 | |||||
| Total Switzerland | 6,034,208 | ||||
| TAIWAN—1.5% | |||||
| Information Technology—1.5% | |||||
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR | 22,300 | 1,870,301 | |||
| UNITED KINGDOM—5.9% | |||||
| Communication Services—1.4% | |||||
| Cineworld Group PLC | 536,100 | 198,278 | |||
| Vodafone Group PLC, ADR | 120,200 | 1,623,902 | |||
| 1,822,180 | |||||
| Health Care—2.6% | |||||
| AstraZeneca PLC, ADR | 29,800 | 1,494,768 | |||
| Dechra Pharmaceuticals PLC | 39,300 | 1,777,842 | |||
| 3,272,610 | |||||
| Industrials—0.7% | |||||
| Melrose Industries PLC(a) | 589,966 | 915,195 |
| 10 | Aberdeen Global Dynamic Dividend Fund |
Portfolio of Investments (continued)
As of October 31, 2020
| Shares | Value | ||||
| LONG-TERM INVESTMENTS (continued) | |||||
| COMMON STOCKS (continued) | |||||
| UNITED KINGDOM (continued) | |||||
| Information Technology—1.2% | |||||
| Avast PLC(c) | 249,600 | $ | 1,533,854 | ||
| Total United Kingdom | 7,543,839 | ||||
| UNITED STATES—44.6% | |||||
| Communication Services—2.8% | |||||
| Activision Blizzard, Inc. | 22,000 | 1,666,060 | |||
| Alphabet, Inc., Class C(a)(b) | 1,200 | 1,945,212 | |||
| 3,611,272 | |||||
| Consumer Discretionary—6.8% | |||||
| Aptiv PLC(b) | 18,500 | 1,785,065 | |||
| Las Vegas Sands Corp. | 31,000 | 1,489,860 | |||
| Lowe's Cos., Inc.(b) | 13,900 | 2,197,590 | |||
| Target Corp.(b) | 12,400 | 1,887,528 | |||
| TJX Cos., Inc. (The)(b) | 25,000 | 1,270,000 | |||
| 8,630,043 | |||||
| Consumer Staples—3.4% | |||||
| Kraft Heinz Co. (The) | 43,400 | 1,327,606 | |||
| Mondelez International, Inc., Class A(b) | 31,300 | 1,662,656 | |||
| PepsiCo, Inc. | 9,700 | 1,292,913 | |||
| 4,283,175 | |||||
| Energy—1.1% | |||||
| Williams Cos., Inc. (The) | 70,600 | 1,354,814 | |||
| Financials—5.2% | |||||
| Bank of America Corp.(b) | 50,300 | 1,192,110 | |||
| Blackstone Group, Inc. (The), Class A | 18,200 | 917,644 | |||
| Charles Schwab Corp. (The) | 30,900 | 1,270,299 | |||
| Citigroup, Inc.(b) | 23,400 | 969,228 | |||
| Goldman Sachs Group, Inc. (The) | 6,500 | 1,228,760 | |||
| Huntington Bancshares, Inc. | 95,500 | 997,020 | |||
| 6,575,061 | |||||
| Health Care—6.1% | |||||
| AbbVie, Inc. | 23,296 | 1,982,490 | |||
| Bristol-Myers Squibb Co.(b) | 27,500 | 1,607,375 | |||
| Eli Lilly & Co. | 8,900 | 1,161,094 | |||
| Medtronic PLC(b) | 15,600 | 1,568,892 | |||
| UnitedHealth Group, Inc.(b) | 5,000 | 1,525,700 | |||
| 7,845,551 | |||||
| Industrials—4.0% | |||||
| FedEx Corp.(b) | 8,800 | 2,283,336 | |||
| Lockheed Martin Corp. | 3,700 | 1,295,481 | |||
| Norfolk Southern Corp. | 7,000 | 1,463,840 | |||
| 5,042,657 | |||||
| Aberdeen Global Dynamic Dividend Fund | 11 |
Portfolio of Investments (continued)
As of October 31, 2020
| Shares | Value | ||||
| LONG-TERM INVESTMENTS (continued) | |||||
| COMMON STOCKS (continued) | |||||
| UNITED STATES (continued) | |||||
| Information Technology—9.4% | |||||
| Apple, Inc.(b) | 35,900 | $ | 3,908,074 | ||
| Broadcom, Inc.(b) | 5,400 | 1,888,002 | |||
| Cisco Systems, Inc. | 33,300 | 1,195,470 | |||
| Fidelity National Information Services, Inc. | 9,200 | 1,146,228 | |||
| Intel Corp.(b) | 27,000 | 1,195,560 | |||
| Microsoft Corp.(b) | 13,400 | 2,713,098 | |||
| 12,046,432 | |||||
| Real Estate—1.8% | |||||
| Digital Realty Trust, Inc.(b) | 10,300 | 1,486,290 | |||
| GEO Group, Inc. (The), REIT | 90,500 | 801,830 | |||
| 2,288,120 | |||||
| Utilities—4.0% | |||||
| Clearway Energy, Inc., Class A | 40,800 | 1,069,368 | |||
| CMS Energy Corp.(b) | 19,500 | 1,234,935 | |||
| FirstEnergy Corp. | 36,100 | 1,072,892 | |||
| NextEra Energy, Inc.(b) | 24,400 | 1,786,324 | |||
| 5,163,519 | |||||
| Total United States | 56,840,644 | ||||
| Total Common Stocks | 124,147,649 | ||||
| PREFERRED STOCKS—1.8% | |||||
| SOUTH KOREA—1.8% | |||||
| Information Technology—1.8% | |||||
| Samsung Electronics Co. Ltd. | 52,700 | 2,344,354 | |||
| Total Preferred Stocks | 2,344,354 | ||||
| Total Long-Term Investments—99.2% (cost $113,656,638) | 126,492,003 | ||||
| SHORT-TERM INVESTMENT—0.3% | |||||
| UNITED STATES—0.3% | |||||
| State Street Institutional U.S. Government Money Market Fund, Premier Class, 0.03%(d) | 413,469 | 413,469 | |||
| Total Short-Term Investment—0.3% (cost $413,469) | 413,469 | ||||
| Total Investments—99.5% (cost $114,070,107)(e) | 126,905,472 | ||||
| Other Assets in Excess of Liabilities—0.5% | 606,834 | ||||
| Net Assets—100.0% | $ | 127,512,306 |
| 12 | Aberdeen Global Dynamic Dividend Fund |
Portfolio of Investments (concluded)
As of October 31, 2020
(a) Non-income producing security.
(b) All or a portion of the security has been designated as collateral for the line of credit.
(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 | 3,174,854 | EUR | 2,700,000 | $3,151,411 | $23,443 | ||||||
See Notes to Financial Statements.
| Aberdeen Global Dynamic Dividend Fund | 13 |
Statement of Assets and Liabilities
As of October 31, 2020
| Assets | |||||
| Investments, at value (cost $113,656,638) | $ | 126,492,003 | |||
| Short-term investments, at value (cost $413,469) | 413,469 | ||||
| Foreign currency, at value (cost $87,005) | 86,629 | ||||
| Interest and dividends receivable | 175,091 | ||||
| Unrealized appreciation on forward foreign currency exchange contracts | 23,443 | ||||
| Tax reclaim receivable | 529,318 | ||||
| Prepaid expenses | 4,392 | ||||
| Total assets | 127,724,345 | ||||
| Liabilities | |||||
| Investment management fees payable (Note 3) | 96,097 | ||||
| Investor relations fees payable (Note 3) | 9,495 | ||||
| Administration fees payable (Note 3) | 9,097 | ||||
| Other accrued expenses | 97,350 | ||||
| Total liabilities | 212,039 | ||||
| Net Assets | $ | 127,512,306 | |||
| Composition of Net Assets: | |||||
| Paid-in capital in excess of par | $ | 134,142,569 | |||
| Distributable accumulated loss | (6,630,263 | ) | |||
| Net Assets | $ | 127,512,306 | |||
| Net asset value per share based on 12,549,582 shares issued and outstanding | $ | 10.16 |
See Notes to Financial Statements.
| 14 | Aberdeen Global Dynamic Dividend Fund |
Statement of Operations
| For the Year Ended October 31, 2020 | ||||
| Net Investment Income: | ||||
| Income | ||||
| Dividends and other income (net of foreign withholding taxes of $446,814) | $10,313,236 | |||
| Interest and other income | 1,205 | |||
| Total Investment Income | 10,314,441 | |||
| Expenses: | ||||
| Investment management fee (Note 3) | 1,326,597 | |||
| Reports to shareholders and proxy solicitation | 89,068 | |||
| Administration fee (Note 3) | 81,916 | |||
| Investor relations fees and expenses (Note 3) | 67,951 | |||
| Independent auditors' fees and expenses | 44,716 | |||
| Trustee fees and expenses | 33,516 | |||
| Custodian's fees and expenses | 32,273 | |||
| Transfer agent's fees and expenses | 15,995 | |||
| Insurance expense | 11,372 | |||
| Legal fees and expenses | 10,810 | |||
| Miscellaneous | 68,999 | |||
| Total expenses before reimbursed/waived expenses | 1,783,213 | |||
| Interest expense (Note 6) | 16,287 | |||
| Total operating expenses before reimbursed/waived expenses | 1,799,500 | |||
| Less: Investor relations fee waiver (Note 3) | (1,617 | ) | ||
| Less: Expenses waived (Note 3) | (228,190 | ) | ||
| Net expenses | 1,569,693 | |||
| Net Investment Income | 8,744,748 | |||
| Net Realized/Unrealized Gain/(Loss) from Investments and Foreign Currency Related Transactions: | ||||
| Net realized gain/(loss) from: | ||||
| Investment transactions | (5,419,698 | ) | ||
| Forward foreign currency exchange contracts | (124,308 | ) | ||
| Foreign currency transactions | (7,336 | ) | ||
| (5,551,342 | ) | |||
| Net change in unrealized appreciation/(depreciation) on: | ||||
| Investment transactions | (5,758,741 | ) | ||
| Forward foreign currency exchange contracts | 61,434 | |||
| Foreign currency translation | 29,118 | |||
| (5,668,189 | ) | |||
| Net realized and unrealized (loss) from investments and foreign currency related transactions | (11,219,531 | ) | ||
| Net Decrease in Net Assets Resulting from Operations | $(2,474,783 | ) | ||
Amounts listed as "–" are $0 or round to $0.
See Notes to Financial Statements.
| Aberdeen Global Dynamic Dividend Fund | 15 |
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 | $ 8,744,748 | $ 9,523,348 | |||
| Net realized loss from investments, forward foreign currency exchange contracts and foreign currency transactions | (5,551,342 | ) | (1,843,190 | ) | |
| Net change in unrealized appreciation/(depreciation) on investments, forward foreign currency exchange contracts and foreign currency transactions | (5,668,189 | ) | 6,302,439 | ||
| Net increase/(decrease) in net assets resulting from operations | (2,474,783 | ) | 13,982,597 | ||
| Distributions to Shareholders from: | |||||
| Distributable earnings | (9,529,704 | ) | (9,788,674 | ) | |
| Tax return of capital | (258,970 | ) | – | ||
| Net decrease in net assets from distributions | (9,788,674 | ) | (9,788,674 | ) | |
| Change in net assets resulting from operations | (12,263,457 | ) | 4,193,923 | ||
| Net Assets: | |||||
| Beginning of year | 139,775,763 | 135,581,840 | |||
| End of year | $127,512,306 | $139,775,763 | |||
See Notes to Financial Statements.
| 16 | Aberdeen Global Dynamic Dividend Fund |
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 | $11.14 | $10.80 | $11.43 | $9.96 | $10.79 | ||||||
| Net investment income | 0.70 | (b) | 0.76 | (b) | 0.61 | (b) | 0.75 | 0.70 | |||
| Net realized and unrealized gains/(losses) on investments, forward foreign currency exchange contracts and foreign currency transactions | (0.90 | ) | 0.36 | (0.46 | ) | 1.50 | (0.75 | ) | |||
| Total from investment operations applicable to common shareholders | (0.20 | ) | 1.12 | 0.15 | 2.25 | (0.05 | ) | ||||
| Distributions to common shareholders from: | |||||||||||
| Net investment income | (0.76 | ) | (0.78 | ) | (0.77 | ) | (0.77 | ) | (0.75 | ) | |
| Tax return of capital | (0.02 | ) | – | (0.01 | ) | (0.01 | ) | (0.03 | ) | ||
| Total distributions | (0.78 | ) | (0.78 | ) | (0.78 | ) | (0.78 | ) | (0.78 | ) | |
| Capital Share Transactions: | |||||||||||
| Net asset value per common share, end of year | $10.16 | $11.14 | $10.80 | $11.43 | $9.96 | ||||||
| Market price, end of year | $8.58 | $9.78 | $9.25 | $10.64 | $8.42 | ||||||
| Total Investment Return Based on(c): | |||||||||||
| Market price | (4.43% | ) | 14.71% | (6.37% | ) | 36.68% | 1.61% | ||||
| Net asset value | (0.65% | ) | 11.91% | 1.76% | 24.13% | 1.04% | |||||
| Ratio to Average Net Assets Applicable to Common Shareholders/Supplementary Data: | |||||||||||
| Net assets applicable to common shareholders, end of year (000 omitted) | $127,512 | $139,776 | $135,582 | $143,431 | $124,996 | ||||||
| Net operating expenses, net of fee waivers | 1.18% | 1.21% | 1.19% | 1.21% | 1.14% | ||||||
| Net operating expenses, excluding fee waivers | 1.36% | 1.34% | 1.27% | – | (d) | – | (d) | ||||
| Net operating expenses, net of fee waivers and excluding interest expense | 1.17% | 1.16% | 1.16% | 1.17% | 1.14% | ||||||
| Net investment income | 6.59% | 7.06% | 5.20% | 6.87% | 6.90% | ||||||
| Portfolio turnover | 105% | 119% | 80% | 89% | 97% | ||||||
| Line of credit payable outstanding (000 omitted) | $– | $211 | $– | $2,920 | $– | ||||||
| Asset coverage ratio on revolving credit facility at year end | – | 66,335% | – | – | (e) | – | (e) | ||||
| Asset coverage per $1,000 on line of credit payable at year end | $– | $663,350 | $– | $48,124 | $– | ||||||
| (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) | 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. |
| (e) | The Fund did not disclose asset coverage ratio on line of credit payable in prior years. |
Amounts listed as "–" are $0 or round to $0.
See Notes to Financial Statements.
| Aberdeen Global Dynamic Dividend Fund | 17 |
Notes to Financial Statements
October 31, 2020
1. Organization
Aberdeen Global Dynamic Dividend Fund (the "Fund") is a diversified, closed-end management investment company. The Fund was organized as a Delaware statutory trust on May 11, 2006, and commenced operations on July 26, 2006. The Fund's primary investment objective is to seek high current dividend income, more than 50% of which qualifies for the reduced Federal income tax rates created by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund also focuses on long-term growth of capital as a secondary investment objective. 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.
| 18 | Aberdeen Global Dynamic Dividend Fund |
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 | $73,195,514 | $50,952,135 | $– | $124,147,649 | |||||||||
| Preferred Stocks | – | 2,344,354 | – | 2,344,354 | |||||||||
| Short-Term Investment | 413,469 | – | – | 413,469 | |||||||||
| Total | $73,608,983 | $53,296,489 | $– | $126,905,472 | |||||||||
| Other Financial Instruments | |||||||||||||
| Forward Foreign Currency Exchange Contracts | $– | $23,443 | $– | $23,443 | |||||||||
| Total Assets | $73,608,983 | $53,319,932 | $– | $126,928,915 | |||||||||
| Other Financial Instruments | |||||||||||||
Amounts listed as "–" are $0 or round to $0.
| Aberdeen Global Dynamic Dividend Fund | 19 |
Notes to Financial Statements (continued)
October 31, 2020
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.
b. 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 rate 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.
c. 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.
d. 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 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
20 Aberdeen Global Dynamic Dividend Fund
Notes to Financial Statements (continued)
October 31, 2020
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 | $23,443 | Unrealized
depreciation on forward foreign currency exchange contracts | $– | |||||
| Total | $23,443 | $– | |||||||
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 |
$23,443 | $– | $– | $23,443 | $– | $– | $– | $– | ||||
| (1) | In some instances, the actual collateral received and/or pledged may be more than the amount shown here due to overcollateralization. |
| (2) | Includes financial instruments (swaps and forwards) which are not subject to a master netting arrangement across funds, or other another similar arrangement. |
| (3) | Net amounts represent the net receivable/(payable) that would be due from/to the counterparty in the event of default. Exposure from financial derivative instruments can only be netted across transactions governed under the same master netting arrangements with the same legal entity. |
Aberdeen Global Dynamic Dividend Fund 21
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 |
$(124,308) | $61,434 |
| Total | $(124,308) | $61,434 |
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 | $3,016,201 |
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.
e. 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.
f. 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.
g. 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.
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
22 Aberdeen Global Dynamic Dividend Fund
Notes to Financial Statements (continued)
October 31, 2020
as part of the Net Change in Unrealized Appreciation/Depreciation on Investments.
h. Restricted Securities:
Restricted securities are privately-placed securities whose resale is restricted under U.S. securities laws. The Funds 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 Funds, but resale of such securities in the U.S. is permitted only in limited circumstances.
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 net assets, computed daily and payable monthly.
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 1.16% 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 $228,190.
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 10/31/2021) |
Amount Fiscal year 2019 (Expires 10/31/2022) |
Amount Fiscal year 2020 (Expires 10/31/2023) |
Total* |
| $115,457 | $174,660 | $228,190 | $518,307 |
* Amounts reported are due to expire throughout the respective 3-year expiration period presented above.
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 $44,454 from the Fund for administration services.
c. Investor Relations
Under the terms of the Investor Relations Services Agreement, ASII provides and/or engages third parties to provide investor relations
services to the Fund and certain other funds advised by AAML 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
Aberdeen Global Dynamic Dividend Fund 23
Notes to Financial Statements (continued)
October 31, 2020
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 $67,951. For the fiscal year ended October 31, 2020, ASII bore $1,617 of the investor relations cost allocated to the Fund because the investor relations fees were above 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 $137,491,467 and $137,474,314, respectively.
5. Capital
As of October 31, 2020, there were 12,549,582 shares of common stock issued and outstanding.
6. Line of Credit
On December 1, 2010, the Fund entered into a lending agreement with BNP Paribas Prime Brokerage International Ltd. ("BNPP PB"), which allows the Fund to borrow on an uncommitted and secured 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, uncommitted line of credit for the Fund where selected Fund assets are pledged against advances made to the Fund. The Fund has granted a security interest in all pledged assets used as collateral to the BNPP PB facility. The Fund is permitted to borrow up to the maximum allowable amount under the Investment Company Act of 1940, as amended, of the total assets for extraordinary or emergency purposes, which is generally 33.33% of total assets, but may exceed that under certain market conditions. Additionally, the Fund is permitted to borrow up to 10% of the total assets for investment purposes. On October 31, 2020, the amount available for investment purposes was $12,772,435. Either BNPP PB or the Fund may terminate this agreement upon delivery of written notice. During the fiscal year ended October 31, 2020, the average borrowing by the Fund was $1,769,716 with an average weighted interest rate on borrowings of 2.38%. During the fiscal year ended October 31, 2020, the maximum borrowing by the Fund was $5,927,453. Interest expense related to the
line of credit for the fiscal year ended October 31, 2020, was $16,287. As of October 31, 2020, there was no outstanding loan to the Fund under the 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.
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.
24 Aberdeen Global Dynamic Dividend Fund
Notes to Financial Statements (continued)
October 31, 2020
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.
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
Aberdeen Global Dynamic Dividend Fund 25
Notes to Financial Statements (continued)
October 31, 2020
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, 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) |
| $115,869,568 | $23,632,140 | $(12,596,236) | $11,035,904 |
| 26 | Aberdeen Global Dynamic Dividend Fund |
Notes to Financial Statements (concluded)
October 31, 2020
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 | $9,529,704 | $9,788,674 |
| Net long-term capital gains | – | – |
| Tax return of capital | 258,970 | – |
| Total tax character of distributions | $9,788,674 | $9,788,674 |
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 | (17,665,794 | )* |
| Other currency gains | – | |
| Other temporary differences | – | |
| Unrealized appreciation/(depreciation) | 11,035,531 | ** |
| Total accumulated earnings/(losses) – net | $(6,630,263 | ) |
| * | On October 31, 2020, the Fund had a net capital loss carryforward of $(17,665,794) 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 |
| $17,470,269 | Unlimited (Short-Term) |
| $195,525 | Unlimited (Long-Term) |
| ** | The difference between book-basis and tax-basis unrealized appreciation/(depreciation) is attributable to the difference between the tax deferral of wash sales, forward contracts, and passive foreign investment company gain/(loss). |
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.
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 $0.065 per share to all shareholders of record as of November 20, 2020 and December 31, 2020, respectively.
| Aberdeen Global Dynamic Dividend Fund | 27 |
Report of Independent Registered Public Accounting Firm
To
the Shareholders and Board of Trustees of
Aberdeen Global Dynamic Dividend Fund:
Opinion on the Financial Statements
We have audited the accompanying statement of assets and liabilities of Aberdeen Global 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
| 28 | Aberdeen Global Dynamic Dividend Fund |
Federal Tax Information: Dividends and Distributions (unaudited)
The following information is provided with respect to the distributions paid by Aberdeen Global Dynamic Dividend during the fiscal year ended October 31, 2020:
| Payable Date | Total Cash Distribution |
Long-Term Capital Gain |
Return of Capital |
Net Ordinary Dividend |
Foreign Taxes Paid(1) |
Gross Ordinary Dividend |
Qualified Dividends(2) |
Foreign Source Income |
| 11/29/19 | 0.065000 | 0.000000 | 0.000000 | 0.065000 | 0.000269 | 0.065269 | 0.031854 | 0.041366 |
| 1/10/20 | 0.065000 | 0.000000 | 0.000000 | 0.065000 | 0.000269 | 0.065269 | 0.031854 | 0.041366 |
| 1/28/20 | 0.065000 | 0.000000 | 0.002064 | 0.062936 | 0.001771 | 0.064707 | 0.043036 | 0.028870 |
| 2/28/20 | 0.065000 | 0.000000 | 0.002064 | 0.062936 | 0.001771 | 0.064707 | 0.043036 | 0.028870 |
| 3/31/20 | 0.065000 | 0.000000 | 0.002064 | 0.062936 | 0.001771 | 0.064707 | 0.043036 | 0.028870 |
| 4/30/20 | 0.065000 | 0.000000 | 0.002064 | 0.062936 | 0.001771 | 0.064707 | 0.043036 | 0.028870 |
| 5/29/20 | 0.065000 | 0.000000 | 0.002064 | 0.062936 | 0.001771 | 0.064707 | 0.043036 | 0.028870 |
| 6/30/20 | 0.065000 | 0.000000 | 0.002064 | 0.062936 | 0.001771 | 0.064707 | 0.043036 | 0.028870 |
| 7/31/20 | 0.065000 | 0.000000 | 0.002064 | 0.062936 | 0.001771 | 0.064707 | 0.043036 | 0.028870 |
| 8/31/20 | 0.065000 | 0.000000 | 0.002064 | 0.062936 | 0.001771 | 0.064707 | 0.043036 | 0.028870 |
| 9/30/20 | 0.065000 | 0.000000 | 0.002064 | 0.062936 | 0.001771 | 0.064707 | 0.043036 | 0.028870 |
| 10/30/20 | 0.065000 | 0.000000 | 0.002064 | 0.062936 | 0.001770 | 0.064707 | 0.043035 | 0.028870 |
| Total | 0.780000 | 0.000000 | 0.020636 | 0.759364 | 0.018244 | 0.777608 | 0.494063 | 0.371437 |
| (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 44.34%
Qualified Dividend Income 65.29%
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 | 9,934,481 | 1,263,119 |
| Martin Gilbert | 9,938,447 | 1,259,122 |
Trustees whose term of office continued beyond the Meeting are as follows: P. Gerlad Malone and John Sievwright
Aberdeen Global Dynamic Dividend Fund 29
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 Global Dynamic Dividend Fund ("AGD" 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 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.
| 30 | Aberdeen Global Dynamic Dividend Fund |
Supplemental Information (unaudited) (concluded)
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 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 for the Fund. 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 Board also considered the Adviser's risk management processes. The Board also 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 Trustees took into account the Adviser's investment experience. 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. |
| • | 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.
| Aberdeen Global Dynamic Dividend Fund | 31 |
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
Investment Objectives and Policies
Investment Objectives
The Fund's primary investment objective is to seek high current dividend income, more than 50% of which qualifies for the reduced federal income tax rates created by the Jobs and Growth Tax Relief Reconciliation Act of 2003. The Fund also focuses on long-term growth of capital as a secondary investment objective. 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 three research-driven investment strategies — dividend capture, value and growth — to maximize the amount of distributed dividend income that qualifies for reduced federal income tax rates (currently capped at 20%) 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's dividend capture strategy has two facets. The first facet is "rotation" strategy, in which the Fund would sell a stock on or shortly after the stock's ex-dividend date, provided that holding requirements are met that would permit the Fund to take advantage of the reduced federal tax rate, and use 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 practice, the Fund may receive more dividend payments over a given period of time than if it held a single stock. The second facet is to capture special dividends where a company decides to return large cash balances to shareholders as a one-time dividend payment, for instance due to a restructuring or recent strong operating performance.
The Fund invests at least 80% of its net assets in equity securities, primarily common stocks, issued by U.S. companies and qualified foreign corporations whose equity securities are readily traded on an established U.S. or foreign securities market, that pay dividends which qualify for federal tax rates similar to the rates applied to long-term capital gains. Under normal circumstances, the Fund intends to, although it is not required to, invest in the securities of issuers located in approximately 10 to 30 foreign countries, with foreign investments representing approximately 40% to 80% of the Fund's assets. 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. Although it is not the Fund's current intent, the Fund continues to be able to invest up to 100% of its total assets in the securities of non-U.S. issuers and is not restricted as to 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 25% of the Fund's total assets at any one time.
Under normal circumstances, the Fund invests at least 80% of its net assets in the equity securities of domestic and foreign corporations that pay dividends. The Board of Trustees may change this 80% policy on not less than 60 days' notice to shareholders. The Adviser believes
| 32 | Aberdeen Global Dynamic Dividend Fund |
Additional Information Regarding the Fund (unaudited) (continued)
that dividend paying stocks have the potential for superior total return performance, as compared to non-dividend paying stocks. Under normal circumstances, the Fund expects to invest in securities of issuers located in the United States and in approximately 10 to 30 foreign countries. 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, especially for companies domiciled in countries that have a tax treaty with the United States.
The Fund invests in equity securities issued by U.S. corporations, and foreign issuers whose equity securities are readily traded on an established U.S. or foreign securities market, that pay dividends, more than 50% of which qualify for reduced federal tax rates similar to the rates applied to long-term capital gains (referred to herein as "qualified dividends" or "tax-advantage 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. Qualified dividends generally include dividends received during the taxable year from domestic and qualified foreign corporation. A qualified foreign corporation is defined in the Internal Revenue Code of 1986 (the "Code") as any corporation that is incorporated in a possession of the United States or that is eligible for the benefits of a comprehensive income tax treaty with the United States. The equity securities in which the Fund invests include primarily common stocks. The Fund may, from time to time, also invest a portion of its assets in preferred stocks, REITs (real estate investment trusts), exchange-traded funds ("ETFs") and securities convertible into or exchangeable for common stocks, such as convertible debt. Dividends paid by REITs generally will not be eligible to be treated as qualified dividend income.
The Fund seeks dividend income that qualifies for favorable federal income tax treatment. Under federal income tax law tax-advantaged dividends received by individual shareholders are taxed at rates similar to long-term capital gain tax rates, which reach a maximum of 20%. Tax-advantaged dividends generally include dividends from domestic corporations and dividends from foreign corporations that meet certain specified criteria. The Fund generally can pass the tax treatment of tax-advantaged dividends it receives through to shareholders. Corporate shareholders of the Fund are not eligible for this favorable federal income tax treatment. In addition, a dividend will not be treated as a tax-advantaged dividend (whether received by the Fund or paid by the Fund to a shareholder) (1) if the dividend is received with respect to any share held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the date on which such share becomes ex-dividend with respect to such dividend (or fewer than 91 days during the associated 181-day period in the case of certain
preferred stocks), (2) to the extent that the recipient is under an obligation (whether as a short sale or otherwise) to make related payments with respect to positions in substantially similar or related property or (3) if the recipient elects to have the dividend treated as investment income for purposes of the limitation on deductibility of investment interest. The provisions of the Code applicable to tax-advantaged dividends are effective through 2010. Thereafter, higher tax rates will apply unless further legislative action is taken.
The Fund may borrow for investment purposes. The Adviser currently intends to limit leverage through borrowing to 10% of the Fund's total assets (calculated at the time of borrowing) and to borrow for investment purposes only when the Adviser believes that the potential return on additional investments acquired with the proceeds of leverage is likely to exceed the costs incurred in connection with the borrowings.
The Fund currently intends to use leverage through borrowing from a credit facility. The Fund is permitted to engage in other transactions, such as the issuance of debt securities or preferred securities, which have the effect of leverage, but currently has no intention to do so. 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 10% of the Fund's total assets for investment purposes. Additionally, the Fund is permitted to borrow up to the maximum allowable amount under the 1940 Act of the Fund's total assets 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.
Dividend Capture Strategy
The Fund's dividend capture strategy seeks to maximize the level of dividend income that the Fund receives by engaging in dividend capture trading and by identifying special dividend situations.
Rotation Strategy (Dividend Capture Trading). In a dividend capture trade, the Fund sells a stock on or shortly after the stock's ex-dividend date, provided that holding requirements are met that would permit the Fund to take advantage of the reduced federal tax rate, 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
| Aberdeen Global Dynamic Dividend Fund | 33 |
Additional Information Regarding the Fund (unaudited) (continued)
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. In order for dividends received by the Fund to qualify as tax-advantaged dividends, the Fund must comply with the holding period requirements described above. See "Risk Factors — Dividend Strategy Risks." Dividend capture trading by the Fund will take account of this consideration. 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.
Special Dividends. Special dividend situations may include those where companies decide to return large cash balances to shareholders as one-time dividend payments, for instance due to a restructuring or recent strong operating performance. Other special dividends may arise in a variety of situations.
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), 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.
Growth Strategy
The Fund's growth strategy seeks to identify issuers with lower, but still attractive, current dividend yields, but that have the potential for higher earnings growth through capital appreciation or increasing dividend payments.
In addition to investing in stocks that pay tax-advantaged dividends, the Fund may also invest a portion of its assets in stocks and other securities that generate fully taxable ordinary income. For any year, so long as the Fund's fully taxable ordinary income and net realized short-
term gains are offset by expenses of the Fund, all of the Fund's income distributions would be characterized as tax-advantaged dividends. There can be no assurance that a portion of the Fund's income distributions will not be fully taxable as ordinary income. 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 hold certain securities for less than the 61 days described above and, as a result, shareholders may be unable to take advantage of the reduced federal tax rates applicable to any qualifying dividends otherwise attributable to such securities. In addition, 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 and the Fund may not pay tax-advantaged dividends.
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.
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.
| 34 | Aberdeen Global Dynamic Dividend Fund |
Additional Information Regarding the Fund (unaudited) (continued)
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 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 a significant portion of its assets in securities of issuers located in approximately ten to thirty foreign countries (in addition to the United States). The Fund invests in foreign securities, including direct investments in securities of foreign issuers and investments in depository receipts (such as American Depositary Receipts ("ADRs")) 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
| Aberdeen Global Dynamic Dividend Fund | 35 |
Additional Information Regarding the Fund (unaudited) (continued)
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 ADRs, European Depositary Receipts ("EDRs") and Global Depositary 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 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
The Fund may invest up to 25% of its assets in securities of issuers located in emerging markets. The Fund uses the MSCI Emerging 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
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Additional Information Regarding the Fund (unaudited) (continued)
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. REIT income distributions received by the Fund generally will not be treated as tax-advantaged dividends.
Exchange Traded Funds
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.
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
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Additional Information Regarding the Fund (unaudited) (continued)
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 objectives. The investments of the Fund may include fixed income securities, sovereign debt, options on foreign currencies and forward foreign currency contracts.
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.
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 seek to increase its income or may hedge a portion of its portfolio investments through writing (i.e., selling) covered put and call options.
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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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Additional Information Regarding the Fund (unaudited) (continued)
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. The 1940 Act currently requires that the Fund have 300% asset coverage with respect to all borrowings other than temporary borrowings.
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
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Additional Information Regarding the Fund (unaudited) (continued)
currency. If the Fund engages in an offsetting transaction, the Fund will 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
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Additional Information Regarding the Fund (unaudited) (continued)
futures contracts, if any, rather than their full notional value. The Fund 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 hold certain securities for less than the 61 days described above and, as a result, shareholders may be unable to take advantage of the reduced federal tax rates applicable to any qualifying dividends otherwise attributable to such securities. In addition, during such times, 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. During such market circumstances, the Fund may not pay tax-advantaged dividends.
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.
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Additional Information Regarding the Fund (unaudited) (continued)
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 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.
Qualified Dividend Tax Risk. No assurance can be given as to what percentage of the distributions paid on the common shares, if any, 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 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.
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
| Aberdeen Global Dynamic Dividend Fund | 43 |
Additional Information Regarding the Fund (unaudited) (continued)
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.
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 Risk. The Fund may invest up to 25% of its total assets in securities of issuers located in "emerging markets." Investing in securities of issuers based in underdeveloped emerging markets entails all of the risks of investing in securities of foreign issuers to a heightened degree. These heightened risks include: (i) greater risks of expropriation, confiscatory taxation, nationalization, and less social, political and economic stability; (ii) the smaller size of the market for such securities and a lower volume of trading, resulting in lack of liquidity and in price volatility; and (iii) national policies that may restrict the Fund's investment opportunities including restrictions on investing in issuers or industries deemed sensitive to relevant national interests.
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, 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
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Additional Information Regarding the Fund (unaudited) (continued)
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 hold certain securities for less than the 61 days described above and, as a result, shareholders may be unable to take advantage of the reduced federal tax rates applicable to any qualifying dividends otherwise attributable to such securities. In addition, during such times, 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 and the Fund may not pay tax-advantaged dividends.
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.
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:
| • | 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; |
| • | 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 |
| • | 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.
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,
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Additional Information Regarding the Fund (unaudited) (continued)
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.
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.
Short Sale Risk. If the Fund transacts 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.
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 shorted security.
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, repurchased agreements, high quality commercial paper and long equity positions) for collateral needs thus reducing its overall assets available for trading purposes.
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
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Additional Information Regarding the Fund (unaudited) (continued)
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 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,
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Additional Information Regarding the Fund (unaudited) (continued)
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.
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.
Borrowing Risk. If the Fund borrows money, it would experience greater volatility of net asset value and market price of the common shares. If the income from the securities purchased with such funds were not sufficient to cover the cost of any such borrowing, the return on the Fund would be less than if borrowing had not been used, and therefore the amount available for distribution to the Fund's shareholders as dividends and other distributions would be reduced and might not satisfy the level dividend rate distribution policy set by the Board of Trustees.
Risks of Derivative Investments. The Fund may invest in derivative instruments as described in the Fund's prospectus and the 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. The use of derivatives 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
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Additional Information Regarding the Fund (unaudited) (continued)
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 Risk. Beginning in the first quarter of 2020, the illness COVID-19 caused by a novel coronavirus 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. 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 prospectus, including:
| • | significant mark-downs in the fair value of the Fund's investments and decreases in 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
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Additional Information Regarding the Fund (unaudited) (concluded)
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 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. 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 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). |
| (9) | Sell a security short if, as a result of such sale, the current value of securities sold short by that Fund would exceed 10% of the value of that Fund's total assets; provided, however, if the Fund owns or has the right to obtain securities equivalent in kind and amount to the securities sold short (i.e., short sales "against the box"), this limitation is not applicable. The Fund has no current intention to take short positions in securities. However, if the Fund does take any short positions, it will maintain sufficient segregated liquid assets to cover the short position. |
| 50 | Aberdeen Global Dynamic Dividend Fund |
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
| Aberdeen Global Dynamic Dividend Fund | 51 |
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.
| 52 | Aberdeen Global Dynamic Dividend Fund |
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***
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
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
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. | ||||||
| Aberdeen Global Dynamic Dividend Fund | 53 |
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
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 Adviser. 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**
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**
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**
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. |
| 54 | Aberdeen Global 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 | |||
| 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 | Currently 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. |
| Aberdeen Global Dynamic Dividend Fund | 55 |
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. |
| 56 | Aberdeen Global Dynamic Dividend Fund |
Corporate Information
| Trustees | Independent Registered Public Accounting Firm |
| Martin Gilbert | KPMG LLP |
| Nancy Yao Maasbach | 1601 Market Street |
| P. Gerald Malone, Chairman | Philadelphia, PA 19103 |
| John Sievwright | |
| Legal Counsel | |
| Investment Adviser | Dechert LLP |
| Aberdeen Asset Managers Limited | 1900 K Street, N.W. |
| Bow Bells House | Washington, DC 20006 |
| 1 Bread Street | |
| London, United Kingdom | Administrator |
| EC4M 9HH | Aberdeen Standard Investments Inc. |
| 1900 Market Street, Suite 200 | |
| Custodian | Philadelphia, PA 19103 |
| State Street Bank and Trust Company | |
| 1 Lincoln Street | Investor Relations |
| Boston, MA 02111 | Aberdeen Standard Investments Inc. |
| 1900 Market Street, Suite 200 | |
| Transfer Agent | Philadelphia, PA 19103 |
| Computershare Trust Company, N.A. | 1-800-522-5465 |
| P.O. Box 505000 | [email protected] |
| Louisville, KY 40233 |
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 Global Dynamic Dividend Fund are traded on the NYSE under the symbol "AGD". Information about the Fund's net asset value and market price is available at www.aberdeenagd.com.
This report, including the financial information herein, is transmitted to the shareholders of Aberdeen Global 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.
AGD ANNUAL
Item 2. Code of Ethics.
| (a) | As of October 31, 2020, the Registrant had adopted a Code of Ethics that applies to the Registrant’s principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions, regardless of whether these individuals are employed by the Registrant or a third party (the “Code of Ethics”). |
| (b) | Definitional. |
| (c) | There have been no amendments, during the period covered by this report, to a provision of the Code of Ethics. |
| (d) | During the period covered by this report, there were no waivers to the provisions of the Code of Ethics. |
| (f) | A copy of the Code of Ethics has been filed as an exhibit to this Form N-CSR. |
Item 3. Audit Committee Financial Expert.
The Registrant's Board of Trustees has determined that John Sievwrght, a member of the Board of Trustees’ Audit and Valuation Committee, possesses the attributes, and has acquired such attributes through means, identified in instruction 2 of Item 3 to Form N-CSR to qualify as an “audit committee financial expert,” and has designated Mr. Sievwright as the Audit and Valuation Committee’s financial expert. Mr. Sievwright is considered to be an “independent” tustee, as such term is defined in paragraph (a)(2) of Item 3 to Form N-CSR.
Item 4. Principal Accountant Fees and Services.
(a) – (d) Below is a table reflecting the fee information requested in Items 4(a) through (d):
| Fiscal Year Ended | (a) Audit Fees | (b) Audit-Related Fees | (c)1 Tax Fees | (d) All Other Fees | |||||||||||||
| October 31, 2020 | $ | 34,671 | $ | - | $ | 8,120 | $ | - | |||||||||
| October 31, 2019 | $ | 34,299 | $ | - | $ | 8,250 | $ | - | |||||||||
| (1) | Services include tax services in connection with the Registrant’s excise tax calculations and review of the registrant’s applicable tax returns. |
| (e)(1) | The Registrant’s Audit and Valuation Committee (the “Committee”) has adopted a Charter that provides that the Committee shall annually select, retain or terminate, and recommend to the Independent Trustees for their ratification, the selection, retention or termination, the Registrant’s independent auditor and, in connection therewith, to evaluate the terms of the engagement (including compensation of the independent auditor) and the qualifications and independence of the independent auditor, including whether the independent auditor provides any consulting, auditing or tax services to the Registrant’s investment adviser or any sub-adviser, and to receive the independent auditor’s specific representations as to their independence, delineating all relationships between the independent auditor and the Registrant, consistent with the PCAOB Rule 3526 or any other applicable auditing standard. PCAOB Rule 3526 requires that, at least annually, the auditor: (1) disclose to the Committee in writing all relationships between the auditor and its related entities and the Registrant and its related entities that in the auditor’s professional judgment may reasonably be thought to bear on independence; (2) confirm in the letter that, in its professional judgment, it is independent of the Registrant within the meaning of the Securities Acts administered by the SEC; and (3) discuss the auditor’s independence with the audit committee. The Committee is responsible for actively engaging in a dialogue with the independent auditor with respect to any disclosed relationships or services that may impact the objectivity and independence of the independent auditor and for taking, or recommending that the full Board take, appropriate action to oversee the independence of the independent auditor. The Committee Charter also provides that the Committee shall review in advance, and consider approval of, any and all proposals by Management or the Registrant’s investment adviser that the Registrant, the investment adviser or their affiliated persons, employ the independent auditor to render “permissible non-audit services” to the Registrant and to consider whether such services are consistent with the independent auditor’s independence. The Committee may delegate to one or more of its members (“Delegates”) authority to pre-approve permissible non-audit services to be provided to the Registrant. Any pre-approval determination of a Delegate shall be presented to the full Committee at its next meeting. The Committee shall communicate any pre-approval made by it or a Delegate to the Adviser, who will ensure that the appropriate disclosure is made in the Registrant’s periodic reports required by Section 30 of the Investment Company Act of 1940, as amended, and other documents as required under the federal securities laws. |
| (e)(2) | None of the services described in each of paragraphs (b) through (d) of this Item involved a waiver of the pre-approval requirement by the Audit Committee pursuant to Rule 2-01 (c)(7)(i)(C) of Regulation S-X. |
| (f) | Not applicable. |
| (g) | Non-Audit Fees |
For the fiscal years ended October 31, 2020 and October 31, 2019, respectively, KPMG billed $365,345 and $620,687 for aggregate non-audit fees for services to the Registrant and to the Registrant’s Investment Adviser.
| (h) | Not applicable. |
Item 5. Audit Committee of Listed Registrants.
| (a) | The Registrant has a separately-designated standing Audit and Valuation Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)). |
For the fiscal year ended October 31, 2020, the Audit Committee members were:
Nancy Yao Maasbach
P. Gerald Malone
John Sievwright
| (b) | Not applicable. |
Item 6. Schedule of Investments.
(a) Included as part of the Report to Shareholders filed under Item 1 of this Form N-CSR.
(b) Not applicable.
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 Adviser, provided that the Registrant's Board of Trustees has the opportunity to periodically review the 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 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 Based on |
| 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 | ||
| Dominic Byrne | $0 | ||
| Bruce Stout | $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.
Item 11. Controls and Procedures.
| (a) | The Registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940 (the “Act”) (17 CFR 270.30a-3(c)) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the Act (17 CFR 270.30a3(b)) and Rule 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d15(b)). |
| (b) | There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR 270.30a-3(d))) that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies
Not applicable
Item 13. Exhibits.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Aberdeen Global Dynamic Dividend Fund | ||
| By: | /s/ Christian Pittard | |
| Christian Pittard, | ||
| Principal Executive Officer of | ||
| Aberdeen Global Dynamic Dividend Fund | ||
| Date: January 8, 2021 | ||
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| By: | /s/ Christian Pittard | |
| Christian Pittard, | ||
| Principal Executive Officer of | ||
| Aberdeen Global Dynamic Dividend Fund | ||
| Date: January 8, 2021 | ||
| By: | /s/ Andrea Melia | |
| Andrea Melia, | ||
| Principal Financial Officer of | ||
| Aberdeen Global Dynamic Dividend Fund | ||
| Date: January 8, 2021 | ||