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: |
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811-05770 |
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| Exact name of registrant as specified in charter: |
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abrdn Emerging Markets Equity Income Fund, Inc. |
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| Address of principal executive offices: |
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1900 Market Street, Suite 200 |
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Philadelphia, PA 19103 |
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| Name and address of agent for service: |
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Sharon Ferrari |
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abrdn Inc. |
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1900 Market Street, Suite 200 |
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Philadelphia, PA 19103 |
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| Registrant’s telephone number, including area code: |
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1-800-522-5465 |
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| Date of fiscal year end: |
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December 31 |
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| Date of reporting period: |
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December 31, 2023 |
Item 1. Reports to Stockholders.
abrdn Emerging Markets
Equity Income Fund, Inc. (AEF)
Annual Report
December 31, 2023
Letter to Shareholders (unaudited)
Dear Shareholder,
We present the Annual Report,
which covers the activities of abrdn Emerging Markets Equity Income Fund, Inc. (the “Fund”), for the fiscal year ended December 31, 2023. The Fund’s investment objective is to seek to provide
both current income and long-term capital appreciation.
Total Investment Return1
For the fiscal year ended
December 31, 2023, the total return to shareholders of the Fund based on the net asset value (“NAV”) and market price of the Fund, respectively, compared to the Fund’s benchmark is as follows:
| NAV2,3
| 11.32%
|
| Market Price2
| 7.12%
|
| MSCI Emerging Markets Index (Net Daily Total Return)4
| 9.83%
|
For more information about
Fund performance, please visit the Fund on the web at www.abrdnaef.com. Here, you can view quarterly commentary on the Fund's performance, monthly fact sheets, distribution and performance information, and other Fund
literature.
NAV, Market Price and
Premium(+)/Discount(-)
The below table represents
comparison from current fiscal year end to prior fiscal year end of market price to NAV and associated Premium(+) and Discount(-).
|
|
|
|
|
|
| NAV
| Closing
Market
Price
| Premium(+)/
Discount(-)
|
| 12/31/2023
| $5.96
| $5.11
| -14.26%
|
| 12/31/2022
| $5.78
| $5.15
| -10.90%
|
During the fiscal year ended
December 31, 2023, the Fund’s NAV was within a range of $5.31 to $6.61 and the Fund’s market price traded within a range of $4.42 to $5.78. During the fiscal year ended December 31, 2023, the Fund’s
shares traded within a range of a
premium(+)/discount(-) of -9.09% to -17.55%.
During the fiscal year ended December 31, 2023 and 2022, the Fund made distributions of $0.39 and $0.44, respectively.
Distribution Policy
The Fund has a managed
distribution policy of paying quarterly distributions at an annual rate, set once a year, as a percentage of the rolling average of the Fund’s NAVs over the preceding three month period ending on the last day of
the month immediately preceding the distribution’s declaration date. In December 2023, the Board of Directors of the Fund (the “Board”) determined the rolling distribution rate to be 6.5% for the
12-month period commencing with the distribution payable in March 2024. This policy will be subject to regular review by the Board.
The policy is expected to
provide a steady and sustainable quarterly cash distribution to Fund shareholders that may help reduce any discount to NAV at which the Fund’s shares trade. There is no assurance that the Fund will achieve these
results.
The distributions will be
made from net investment income generated by dividends paid from the Fund’s underlying securities and return of capital. As net assets of the Fund may vary from quarter to quarter, the quarterly distribution may
represent more or less than one quarter of 6.5% of the Fund’s net assets at the time of distribution. Shareholders should not draw any conclusions about the Fund’s investment performance from the amount of
the distributions or the terms of the Fund’s policy.
Conditional Tender Offer
In May 2023 the Board adopted
a policy pursuant to which it will cause the Fund to conduct a one-time tender offer for twenty percent (20%) of its then issued and outstanding shares of common stock on or before December 31, 2025, if the Fund's
total return investment performance measured on a NAV basis does not equal or exceed the total return investment performance of the MSCI Emerging Markets Index (Net Daily Total Return) during the period commencing on
October 1, 2022 and ending on September 30, 2025. For the period
{foots1}
| 1
| Past performance is no guarantee of future results. Investment returns and principal value will fluctuate and shares, when sold, may be worth more or less than original cost. Current performance may be
lower or higher than the performance quoted. Net asset value return data include investment management fees, custodial charges and administrative fees (such as Director and legal fees) and assumes the reinvestment of
all distributions.
|
{foots1}
| 2
| Assuming the reinvestment of all dividends and distributions.
|
{foots1}
| 3
| 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.
|
{foots1}
| 4
| The MSCI Emerging Markets Index (Net Daily Total Return) (the "Index") captures large and mid-cap representation across 24 Emerging Markets (EM) countries. With 1,441 constituents, the Index covers
approximately 85% of the free float-adjusted market capitalization in each country. EM countries in the Index are: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea,
Kuwait, Malaysia, Mexico, Peru, Philippines, Poland, Qatar, Saudi Arabia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. The Index is calculated net of withholding taxes to which the Fund is
generally subject. The Index is unmanaged and has been provided for comparison purposes only. No fees or expenses are reflected. You cannot invest directly in an index. Index performance is not an indication of the
performance of the Fund itself. For complete Fund performance, please visit http://www.abrdnaef.com.
|
Letter to Shareholders (unaudited) (concluded)
October 1, 2022 to December 31, 2023, the
Fund's total return is 19.40% compared to the MSCI Emerging Markets Index (Net Daily Total Return) of 16.08%.
Credit Facility
On June 20, 2023, the Fund
renewed its revolving credit facility for a 1-year period with The Bank of Nova Scotia with a committed facility of $40,000,000. The outstanding balance on the loan as of December 31, 2023 was $35,000,000. Under
the terms of the loan facility and applicable regulations, the Fund is required to maintain certain asset coverage ratios for the amount of its outstanding borrowings. The Board regularly reviews the use of leverage
by the Fund.
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.
Open Market Repurchase Program
The Fund’s Board
approved an open market repurchase and discount management policy (the “Program”). 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. Such purchases may be made opportunistically at certain discounts to NAV per share in the reasonable judgment of management based on
historical discount levels and current market conditions. If shares are repurchased, the Fund reports repurchase activity on the Fund's website on a monthly basis. For the fiscal year ended December 31, 2023, the
Fund did not repurchase any shares through the Program.
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. These reports are available on the SEC’s website at http://www.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) upon request without charge by calling Investor Relations toll-free at 1-800-522-5465; and (2) on the SEC’s website at
http://www.sec.gov.
Investor Relations Information
As part of abrdn’s
commitment to shareholders, we invite you to visit the Fund on the web at www.abrdnaef.com. Here, you can view monthly fact sheets, quarterly commentary, distribution and performance information, and other Fund
literature.
Enroll in abrdn’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.abrdn.com/en-us/cefinvestorcenter/contact-us/preferences
Contact Us:
| •
| Visit: https://www.abrdn.com/en-us/cefinvestorcenter
|
| •
| Email: Investor.Relations@abrdn.com; or
|
| •
| Call: 1-800-522-5465 (toll free in the U.S.)
|
Yours sincerely,
/s/ Christian Pittard
Christian Pittard
President
{foots1}
All amounts are U.S.
Dollars unless otherwise stated.
Report of the Investment Adviser (unaudited)
Market review
Emerging market (EM)
equities, as measured by the Morgan Stanley Capital International (MSCI) Emerging Markets Index1, ended an extremely challenging year with positive returns, though they lagged developed markets, as represented by the MSCI World Index2. Sentiment was driven largely by interest rate expectations and China’s economic outlook. Successive interest rate hikes from the U.S. Federal
Reserve (Fed) to tame inflation initially sparked recession fears. As the year progressed, markets turned hopeful that interest rates might be nearing a peak, and that the U.S. economy was on track for a soft
landing3.
Meanwhile, optimism
surrounding China’s post-COVID reopening fizzled as economic data missed the market’s high expectations. Authorities rolled out proactive policies to help China’s economy, particularly the troubled
property sector. Green shoots4 for a prolonged economic recovery emerged as the measures filtered through, but investors remained on the sidelines, waiting for a more sustainable
and meaningful rebound. Chinese stocks ended the year as notable laggards, even as all other major emerging markets advanced.
Fund performance review
The abrdn Emerging Markets
Equity Income Fund returned 11.32%5 on a net asset value (NAV) basis for the 12-month reporting period ending December 31, 2023. The Fund outperformed the 9.83%6 return of its benchmark, the MSCI Emerging Markets Index (Net Daily Total Return).
The exposures to Brazil and
Mexico contributed significantly to outperformance. Positive market sentiment and strong domestic consumption supported our holdings. We also had growing expectations that global interest rates were nearing their
peak. Mexico further benefitted from nearshoring trends due to a global effort by companies to diversify their supply chains to reduce reliance on China. Mexican conglomerate Fomento Economico Mexicano and lender
Banorte rallied, while Brazilian e-commerce player MercadoLibre advanced on strong domestic consumption trends and competitive strength.
Elsewhere in Latin America,
Southern Copper rose amid growing optimism around higher copper prices as global supply continued to
disappoint. In this environment, we believe
the firm remains a reliable low-cost producer with strong cash generation. Digital solutions provider Globant climbed on solid results that beat its peers.
Also working in the
portfolio’s favor were our semiconductor holdings in ASM International, ASML Holding and Taiwan Semiconductor Manufacturing Co. Their share prices were lifted by a rally in artificial intelligence (AI)-driven
technology. There were also expectations of a broader technology recovery as the year progressed, particularly in the memory sector. The AI super cycle is an exciting theme that requires significant investment
in semiconductors and technology hardware to make possible, and it is part of a wider capital expenditure theme that we feel should support emerging markets.
Other major stock
contributors included India’s UltraTech Cement, which was buoyed by the ongoing public sector push for infrastructure development, and Power Grid Corporation of India, which outperformed on positive market
sentiment. The Netherlands-listed parcel locker firm InPost also fared well, backed by solid fundamentals.
The major drag on relative
returns was China, including the off-benchmark position in Hong Kong. Our domestic consumption-focused names sold off despite strong fundamentals, as investors rotated into large state-owned enterprises and value
names. China Tourism Group Duty Free was hurt by sluggish sales in Hainan, while luxury car dealer Zhongsheng Group faced pressure from weak consumer sentiment and lackluster car sales. WuXi Biologics shares slumped
towards the year-end after the company lowered its guidance due to soft biotechnology funding prospects and project delays. Our Hong Kong-listed holdings posted resilient quarterly earnings, but were not spared from
the sell-off, as weak investor sentiment carried over to the H-share market.
We remain constructive on
China as the market is oversold and there are signs that growth is stabilizing. We believe the Fund remains well positioned to take advantage of a gradual recovery in domestic consumption, with exposure to both
onshore and offshore names that are potential beneficiaries. Policy measures will likely remain accommodative and calibrated towards specific sectors.
At the stock level, South
African miner Anglo American Platinum detracted from relative performance due to the decline in spot prices
{foots1}
| 1
| The MSCI Emerging Markets Index is an unmanaged index considered representative of stocks of developing countries. Indexes are unmanaged and have been provided for comparison purposes only. No fees or expenses are
reflected. You cannot invest directly in an index.
|
{foots1}
| 2
| The MSCI World Index is an unmanaged index considered representative of stocks of developed countries.
|
{foots1}
| 3
| A
milder economic slowdown compared to a recession.
|
{foots1}
| 4
| "Green shoots" is a term used to describe signs of economic recovery or positive data during an economic downturn.
|
{foots1}
| 5
| Past performance is no guarantee of future results. Investment returns and principal value will fluctuate and shares, when sold, may be worth more or less than the original cost. Current performance may be lower or
higher than the performance quoted. Net asset value return data include investment management fees, custodial charges and administrative fees (such as Director and legal fees) and assumes the reinvestment of all
distributions.
|
{foots1}
| 6
| As
of December 31, 2023.
|
Report of the Investment Adviser (unaudited) (concluded)
for the platinum group of metals it produces
for most of the year. However, its share price rebounded in the last quarter on improving sentiment for precious metals, in particular platinum and palladium.
The quarterly distribution
reflects the Fund’s current policy to provide shareholders with a steady and sustainable cash distribution. This policy did not have a significant impact on the Fund’s investment strategy over the
reporting period. During the 12-month period ending December 31, 2023, the distributions comprised of dividend income and a return of capital. The Fund issued distributions totaling $0.39 per share for the 12-month
period ending December 31, 2023.
Outlook
The outlook for emerging
markets remains encouraging. With inflation near target levels in many parts of emerging markets, we anticipate that we are at the early stages of a monetary easing cycle—ahead of the Fed, which is widely
expected to start cutting rates in 2024.
More recently, economic data
around the world has started to look more positive. The US economy appears to be increasingly likely to avoid a significant slowdown, while China’s gradual consumption recovery is still underway. The
Chinese government remains committed to supporting growth through widespread policy support, including measures to stabilize the property sector and restore confidence.
Meanwhile, India continues to
be an emerging star, underpinned by a robust domestic economy which continues to show strong momentum following the initial reopening rebound. One potential risk to India this year is the upcoming general
parliamentary election.
However, it is expected that the incumbent
government will retain power, thus ensuring policy continuity. Now that inflation is under control in India it is expected that the central bank will soon start to cut interest rates after having kept them on hold for
the last year. This should further bolster domestic demand.
Broadly, emerging market
valuations remain attractive, both relative to history and versus the U.S. Our portfolio companies are, on the whole, delivering results, which we expect will be rewarded by the market. We expect our more
domestic-oriented positions in China, which weighed on performance in 2023, to perform better as the economy stabilizes and recovers. The portfolio remains focused on businesses with discernible quality
characteristics, including sustainable free cash flow generation and earnings growth, pricing power, and low debt levels.
Risk Considerations
Past performance is not an
indication of future results.
Foreign securities are more
volatile, harder to price and less liquid than U.S. securities. They are subject to different accounting and regulatory standards, and political and economic risks. These risks are enhanced in emerging markets
countries. 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.
abrdn Investments Limited
Total Investment Return (unaudited)
The following table summarizes
the average annual Fund performance compared to the Fund’s primary benchmark and Custom Index (as defined below) for the 1-year, 3-year, 5-year and 10-year periods ended December 31, 2023.
|
| 1 Year
| 3 Years
| 5 Years
| 10 Years
|
| Net Asset Value (NAV)
| 11.32%
| -7.72%
| 1.33%
| -0.03%
|
| Market Price
| 7.12%
| -8.06%
| 1.23%
| -0.61%
|
| MSCI Emerging Markets Index (Net Daily Total Return)
| 9.83%
| -5.08%
| 3.68%
| 2.66%
|
| Custom AEF Emerging Markets Index1
| 9.83%
| -5.08%
| 3.68%
| 0.74%
|
Performance of a $10,000
Investment (as of December 31, 2023)
This graph shows the change in
value of a hypothetical investment of $10,000 in the Fund for the periods indicated. For comparison, the same investment is shown in the indicated index.
All performance information
for the periods prior to April 30, 2018 are for the Aberdeen Latin American Equity Fund, Inc. (“LAQ”), the performance and accounting survivor of the reorganizations of seven closed-end funds into the
Fund. Performance information for periods prior to April 30, 2018 do not reflect the Fund’s current investment strategy. Returns prior to April 30, 2018 reflect the impact of any contractual waivers in effect
for LAQ, without which performance would be lower. Effective April 30, 2018, abrdn Investments Limited (formerly known as Aberdeen Asset Managers Limited) (the "Investment Adviser" or the "Adviser"), the Fund’s
Adviser, entered into an expense limitation agreement with the Fund that is effective through June 30, 2024. Without such waivers and limitation agreements, performance would be lower.
abrdn Inc. has entered into
an agreement with the Fund to limit investor relations services fees,without which performance would be lower if the Fund’s investor services fees exceeded such limit during the relevant period. This agreement
aligns with the term of the advisory agreement and may not be terminated prior to the end of the current term of the advisory agreement. See Note 3 in the Notes to Financial Statements.
{foots1}
| 1
| The Custom Index reflects the returns of the MSCI Emerging Markets Latin America Index (Net Daily Total Return) for periods prior to April 27, 2018 and the returns of the MSCI Emerging Markets Index
(Net Daily Total Return) for periods subsequent to April 30, 2018. The indices and time periods for the Custom Index align with the strategies utilized and benchmark for the Fund during the same time periods.
|
Total Investment Return (unaudited) (concluded)
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
sponsored by the Fund’s transfer agent. All return data at NAV includes fees charged to the Fund, which are listed in the Fund’s Statement of Operations under “Expenses.” Total investment
return at market value is based on changes in the market price at which the Fund’s shares traded on the New York Stock Exchange ("NYSE") American during the period and assumes reinvestment of dividends and
distributions, if any, at market prices pursuant to the dividend reinvestment program sponsored by the Fund’s transfer agent. The Fund’s total investment return is based on the reported NAV during the
fiscal year ended December 31, 2023. 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.abrdnaef.com or by calling 800-522-5465.
The total expense ratio
excluding fee waivers based on the fiscal year ended December 31, 2023 was 2.24%. The total expense ratio net of fee waivers based on the fiscal year ended December 31, 2023 was 2.14%. The total expense ratio net of
fee waivers and excluding interest expense based on the fiscal year ended December 31, 2023 was 1.20%.
Portfolio Summary (as a percentage of net assets) (unaudited)
As of December 31, 2023
The following table summarizes
the sector composition of the Fund’s portfolio, in S&P Global Inc.’s Global Industry Classification Standard (“GICS”) Sectors. Industry allocation is shown below for any sector
representing more than 25% of net assets.
| Sectors
|
|
| Information Technology
| 32.2%
|
| Semiconductors & Semiconductor Equipment
| 14.4%
|
| Technology Hardware, Storage & Peripherals
| 7.3%
|
| IT Services
| 5.4%
|
| Electronic Equipment, Instruments & Components
| 3.2%
|
| Communications Equipment
| 1.3%
|
| Software
| 0.6%
|
| Financials
| 24.2%
|
| Consumer Discretionary
| 11.7%
|
| Materials
| 8.8%
|
| Industrials
| 8.5%
|
| Consumer Staples
| 8.4%
|
| Communication Services
| 8.1%
|
| Energy
| 3.8%
|
| Utilities
| 2.5%
|
| Health Care
| 2.3%
|
| Real Estate
| 1.9%
|
| Private Equity
| 0.1%
|
| Short-Term Investment
| 1.3%
|
| Liabilities in Excess of Other Assets
| (13.8%)
|
|
| 100.0%
|
The following chart summarizes
the composition of the Fund’s portfolio by geographic classification.
| Countries
|
|
| India
| 18.1%
|
| Hong Kong
| 16.9%
|
| Taiwan
| 16.7%
|
| South Korea
| 11.8%
|
| China
| 8.5%
|
| Brazil
| 6.4%
|
| Mexico
| 4.7%
|
| Indonesia
| 4.2%
|
| United States
| 4.2%
|
| Saudi Arabia
| 3.0%
|
| Luxembourg
| 2.7%
|
| Vietnam
| 2.4%
|
| South Africa
| 2.3%
|
| Netherlands
| 2.2%
|
| Other, less than 2% each
| 8.4%
|
| Short-Term Investment
| 1.3%
|
| Liabilities in Excess of Other Assets
| (13.8%)
|
|
| 100.0%
|
Portfolio Summary (as a percentage of net assets) (unaudited) (concluded)
As of December 31, 2023
| Currency Composition
|
|
| Indian Rupee
| 18.1%
|
| Hong Kong Dollar
| 17.4%
|
| New Taiwan Dollar
| 16.7%
|
| South Korean Won
| 11.8%
|
| U.S. Dollar
| 11.2%
|
| Chinese Yuan Renminbi
| 8.0%
|
| Brazilian Real
| 6.4%
|
| Euro Currency
| 5.4%
|
| South African Rand
| 4.4%
|
| Indonesian Rupiah
| 4.2%
|
| Saudi Arabia Riyal
| 3.8%
|
| Viet Nam Dong
| 2.4%
|
| Mexican Peso
| 1.9%
|
| Polish Zloty
| 0.8%
|
| Russian Ruble
| -
|
| Short-Term Investment
| 1.3%
|
| Liabilities in Excess of Other Assets
| (13.8%)
|
|
| 100.0%
|
The following were the
Fund’s top ten holdings as of December 31, 2023:
| Top Ten Holdings
|
|
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR
| 10.1%
|
| Samsung Electronics Co. Ltd.
| 7.3%
|
| Tencent Holdings Ltd.
| 5.6%
|
| Alibaba Group Holding Ltd.
| 3.8%
|
| HDFC Bank Ltd.
| 3.4%
|
| SBI Life Insurance Co. Ltd.
| 2.5%
|
| Power Grid Corp. of India Ltd.
| 2.5%
|
| FPT Corp.
| 2.4%
|
| Bank Rakyat Indonesia Persero Tbk. PT
| 2.2%
|
| MediaTek, Inc.
| 2.1%
|
|
| Amounts listed as “–” are 0% or round to 0%.
|
Portfolio of Investments
As of December 31, 2023
|
| Shares
| Value
|
| COMMON STOCKS—101.6%
|
|
| AUSTRALIA—1.2%
|
| Materials—1.2%
|
|
|
|
| BHP Group Ltd.
|
| 103,781
| $ 3,572,557
|
| BRAZIL—4.7%
|
| Consumer Staples—1.8%
|
|
|
|
| Raia Drogasil SA
|
| 912,224
| 5,522,239
|
| Energy—0.9%
|
|
|
|
| PRIO SA
|
| 285,897
| 2,704,490
|
| Financials—1.4%
|
|
|
|
| B3 SA - Brasil Bolsa Balcao
|
| 1,370,841
| 4,101,515
|
| Information Technology—0.6%
|
|
|
|
| TOTVS SA
|
| 254,807
| 1,767,174
|
| Total Brazil
|
| 14,095,418
|
| CHILE—0.6%
|
| Industrials—0.6%
|
|
|
|
| Sociedad Quimica y Minera de Chile SA, ADR
|
| 29,360
| 1,768,059
|
| CHINA—8.5%
|
| Consumer Discretionary—2.1%
|
|
|
|
| China Tourism Group Duty Free Corp. Ltd., A Shares (Stock Connect)(a)
|
| 121,300
| 1,431,836
|
| China Tourism Group Duty Free Corp. Ltd., H Shares (Hong Kong)(b)
|
| 147,400
| 1,449,107
|
| Midea Group Co. Ltd., A Shares (Stock Connect)(a)
|
| 447,686
| 3,449,486
|
|
|
|
| 6,330,429
|
| Consumer Staples—1.9%
|
|
|
|
| Kweichow Moutai Co. Ltd., A Shares (Stock Connect)(a)
|
| 24,097
| 5,865,738
|
| Health Care—1.7%
|
|
|
|
| Shenzhen Mindray Bio-Medical Electronics Co. Ltd., A Shares (Stock Connect)(a)
|
| 122,555
| 5,025,347
|
| Industrials—2.8%
|
|
|
|
| Centre Testing International Group Co. Ltd., A Shares (Stock Connect)(a)
|
| 545,000
| 1,091,573
|
| NARI Technology Co. Ltd., A Shares (Stock Connect)(a)
|
| 1,259,011
| 3,961,152
|
| Sungrow Power Supply Co. Ltd., A Shares (Stock Connect)(a)
|
| 272,300
| 3,362,028
|
|
|
|
| 8,414,753
|
| Total China
|
| 25,636,267
|
| FRANCE—1.9%
|
| Energy—1.9%
|
|
|
|
| TotalEnergies SE
|
| 86,200
| 5,861,512
|
| HONG KONG—16.9%
|
| Communication Services—5.6%
|
|
|
|
| Tencent Holdings Ltd.
|
| 448,700
| 16,940,601
|
| Consumer Discretionary—6.1%
|
|
|
|
| Alibaba Group Holding Ltd.
|
| 1,185,500
| 11,419,370
|
| ANTA Sports Products Ltd.
|
| 167,000
| 1,623,123
|
| Li Auto, Inc., A Shares(c)
|
| 160,400
| 3,005,273
|
| Tongcheng Travel Holdings Ltd.(c)
|
| 889,600
| 1,647,582
|
| Zhongsheng Group Holdings Ltd.
|
| 332,000
| 795,217
|
|
|
|
| 18,490,565
|
| Consumer Staples—0.3%
|
|
|
|
| Budweiser Brewing Co. APAC Ltd.(b)
|
| 534,000
| 1,001,090
|
| Financials—3.0%
|
|
|
|
| AIA Group Ltd.
|
| 662,400
| 5,764,787
|
| Hong Kong Exchanges & Clearing Ltd.
|
| 94,832
| 3,252,762
|
|
|
|
| 9,017,549
|
| Health Care—0.6%
|
|
|
|
| Wuxi Biologics Cayman, Inc.(b)(c)
|
| 496,500
| 1,877,889
|
Portfolio of Investments (continued)
As of December 31, 2023
|
| Shares
| Value
|
| COMMON STOCKS (continued)
|
|
| HONG KONG (continued)
|
| Real Estate—1.3%
|
|
|
|
| China Resources Land Ltd.
|
| 1,051,500
| $ 3,772,803
|
| Total Hong Kong
|
| 51,100,497
|
| INDIA—18.1%
|
| Communication Services—0.7%
|
|
|
|
| Info Edge India Ltd.
|
| 36,435
| 2,244,838
|
| Consumer Discretionary—1.3%
|
|
|
|
| Maruti Suzuki India Ltd.
|
| 31,857
| 3,941,490
|
| Consumer Staples—1.9%
|
|
|
|
| Hindustan Unilever Ltd.
|
| 176,064
| 5,624,591
|
| Financials—7.5%
|
|
|
|
| Cholamandalam Investment & Finance Co. Ltd.
|
| 99,442
| 1,504,342
|
| HDFC Bank Ltd.
|
| 499,623
| 10,226,699
|
| Kotak Mahindra Bank Ltd.
|
| 151,356
| 3,460,499
|
| SBI Life Insurance Co. Ltd.(b)
|
| 441,925
| 7,602,768
|
|
|
|
| 22,794,308
|
| Information Technology—1.6%
|
|
|
|
| Infosys Ltd.
|
| 263,942
| 4,884,901
|
| Materials—2.0%
|
|
|
|
| UltraTech Cement Ltd.
|
| 47,704
| 6,006,057
|
| Real Estate—0.6%
|
|
|
|
| Godrej Properties Ltd.(c)
|
| 79,679
| 1,919,929
|
| Utilities—2.5%
|
|
|
|
| Power Grid Corp. of India Ltd.
|
| 2,602,985
| 7,397,005
|
| Total India
|
| 54,813,119
|
| INDONESIA—4.2%
|
| Communication Services—0.9%
|
|
|
|
| Telkom Indonesia Persero Tbk. PT
|
| 11,336,800
| 2,908,411
|
| Consumer Discretionary—0.1%
|
|
|
|
| Sepatu Bata Tbk. PT(c)(d)
|
| 36,207,500
| 331,575
|
| Financials—3.2%
|
|
|
|
| Bank Negara Indonesia Persero Tbk. PT
|
| 8,212,700
| 2,865,737
|
| Bank Rakyat Indonesia Persero Tbk. PT
|
| 18,025,186
| 6,699,379
|
|
|
|
| 9,565,116
|
| Total Indonesia
|
| 12,805,102
|
| KAZAKHSTAN—1.6%
|
| Financials—1.6%
|
|
|
|
| Kaspi.KZ JSC, GDR(b)
|
| 35,766
| 3,290,472
|
| Kaspi.KZ JSC, GDR
|
| 17,422
| 1,602,824
|
|
|
|
| 4,893,296
|
| LUXEMBOURG—2.7%
|
| Industrials—1.3%
|
|
|
|
| InPost SA(c)
|
| 285,970
| 3,959,390
|
| Information Technology—1.4%
|
|
|
|
| Globant SA(c)
|
| 17,345
| 4,127,763
|
| Total Luxembourg
|
| 8,087,153
|
| MEXICO—4.7%
|
| Consumer Staples—1.7%
|
|
|
|
| Fomento Economico Mexicano SAB de CV, ADR
|
| 39,737
| 5,179,718
|
| Financials—1.9%
|
|
|
|
| Grupo Financiero Banorte SAB de CV, Class O
|
| 568,743
| 5,730,636
|
Portfolio of Investments (continued)
As of December 31, 2023
|
| Shares
| Value
|
| COMMON STOCKS (continued)
|
|
| MEXICO (continued)
|
| Industrials—1.1%
|
|
|
|
| Grupo Aeroportuario del Centro Norte SAB de CV, ADR
|
| 39,941
| $ 3,380,207
|
| Total Mexico
|
| 14,290,561
|
| NETHERLANDS—2.2%
|
| Information Technology—2.2%
|
|
|
|
| ASM International NV
|
| 7,166
| 3,729,720
|
| ASML Holding NV
|
| 3,759
| 2,837,622
|
|
|
|
| 6,567,342
|
| PERU—0.6%
|
| Financials—0.6%
|
|
|
|
| Credicorp Ltd.
|
| 12,526
| 1,878,023
|
| POLAND—0.8%
|
| Consumer Staples—0.8%
|
|
|
|
| Dino Polska SA(b)(c)
|
| 21,161
| 2,477,642
|
| RUSSIA—0.0%
|
| Energy—0.0%
|
|
|
|
| LUKOIL PJSC(d)(e)
|
| 106,851
| –
|
| Novatek PJSC(d)(e)
|
| 314,849
| –
|
|
|
|
| –
|
| Financials—0.0%
|
|
|
|
| Sberbank of Russia PJSC(d)(e)
|
| 730,234
| –
|
| Total Russia
|
| –
|
| SAUDI ARABIA—3.0%
|
| Energy—1.0%
|
|
|
|
| Saudi Arabian Oil Co.(b)
|
| 331,760
| 2,920,865
|
| Financials—2.0%
|
|
|
|
| Al Rajhi Bank
|
| 260,286
| 6,034,994
|
| Total Saudi Arabia
|
| 8,955,859
|
| SOUTH AFRICA—2.3%
|
| Financials—1.3%
|
|
|
|
| Sanlam Ltd.
|
| 959,001
| 3,816,606
|
| Materials—1.0%
|
|
|
|
| Anglo American Platinum Ltd.
|
| 57,333
| 3,009,248
|
| Total South Africa
|
| 6,825,854
|
| SOUTH KOREA—2.7%
|
| Industrials—2.7%
|
|
|
|
| HD Korea Shipbuilding & Offshore Engineering Co. Ltd.
|
| 34,586
| 3,234,818
|
| Samsung Engineering Co. Ltd.(c)
|
| 222,243
| 4,978,525
|
|
|
|
| 8,213,343
|
| TAIWAN—16.7%
|
| Information Technology—16.7%
|
|
|
|
| Accton Technology Corp.
|
| 238,000
| 4,045,234
|
| Chroma ATE, Inc.
|
| 637,000
| 4,410,277
|
| Delta Electronics, Inc.
|
| 190,000
| 1,937,702
|
| Hon Hai Precision Industry Co. Ltd.
|
| 998,000
| 3,395,430
|
| MediaTek, Inc.
|
| 193,000
| 6,372,841
|
| Taiwan Semiconductor Manufacturing Co. Ltd., ADR
|
| 1,591,000
| 30,501,917
|
|
|
|
| 50,663,401
|
| UNITED ARAB EMIRATES—0.8%
|
| Consumer Discretionary—0.8%
|
|
|
|
| Americana Restaurants International PLC
|
| 2,907,448
| 2,488,776
|
Portfolio of Investments (continued)
As of December 31, 2023
|
| Shares
| Value
|
| COMMON STOCKS (continued)
|
|
| UNITED KINGDOM—0.9%
|
| Materials—0.9%
|
|
|
|
| Mondi PLC
|
| 134,607
| $ 2,658,050
|
| UNITED STATES—4.1%
|
| Communication Services—0.9%
|
|
|
|
| Autohome, Inc., ADR
|
| 95,327
| 2,674,876
|
| Consumer Discretionary—1.3%
|
|
|
|
| MercadoLibre, Inc.(c)
|
| 2,482
| 3,900,562
|
| Materials—1.9%
|
|
|
|
| Southern Copper Corp.
|
| 67,673
| 5,824,615
|
| Total United States
|
| 12,400,053
|
| VIETNAM—2.4%
|
| Information Technology—2.4%
|
|
|
|
| FPT Corp.
|
| 1,856,905
| 7,349,180
|
| Total Common Stocks
|
| 307,401,064
|
| PREFERRED STOCKS—10.8%
|
|
| BRAZIL—1.7%
|
| Financials—1.7%
|
|
|
|
| Itausa SA(c)
|
| 2,428,085
| 5,177,658
|
| SOUTH KOREA—9.1%
|
| Information Technology—7.3%
|
|
|
|
| Samsung Electronics Co. Ltd., Preferred Shares
|
| 455,700
| 21,958,589
|
| Materials—1.8%
|
|
|
|
| LG Chem Ltd.
|
| 22,989
| 5,517,256
|
| Total South Korea
|
| 27,475,845
|
| Total Preferred Stocks
|
| 32,653,503
|
| PRIVATE EQUITY—0.1%
|
|
| GLOBAL*—0.0%
|
| Private Equity —0.0%
|
|
|
|
| Emerging Markets Ventures I LP, H Shares(c)(d)(f)(g)(h)(i)
|
| 11,723,413(j)
| 8,324
|
| ISRAEL—0.0%
|
| Private Equity —0.0%
|
|
|
|
| BPA Israel Ventures LLC(c)(d)(f)(g)(h)(i)(k)
|
| 3,349,175(j)
| 12,559
|
| UNITED STATES—0.1%
|
| Private Equity —0.1%
|
|
|
|
| Neurone Ventures II, L.P.(c)(d)(f)(g)(i)(k)
|
| 1,522,368(j)
| 17,233
|
| Telesoft Partners II LP(c)(d)(f)(i)(k)
|
| 2,400,000(j)
| 162,480
|
|
|
|
| 179,713
|
| Total Private Equity
|
| 200,596
|
| SHORT-TERM INVESTMENT—1.3%
|
|
| State Street Institutional U.S. Government Money Market Fund, Premier Class, 5.32%(l)
|
| 4,102,967
| 4,102,967
|
| Total Short-Term Investment
|
| 4,102,967
|
Total Investments
(Cost $351,228,352)—113.8%
| 344,358,130
|
| Liabilities in Excess of Other Assets—(13.8%)
| (41,857,299)
|
| Net Assets—100.0%
| $302,500,831
|
Portfolio of Investments (concluded)
As of December 31, 2023
| (a)
| China A Shares. These shares are issued in local currency, traded in the local stock markets and are held through either a Qualified Foreign Institutional Investor (QFII) license or the Shanghai or
Shenzhen Hong-Kong Stock Connect program.
|
| (b)
| Denotes a security issued under Regulation S or Rule 144A.
|
| (c)
| Non-income producing security.
|
| (d)
| Illiquid security.
|
| (e)
| Level 3 security. See Note 2(a) of the accompanying Notes to Financial Statements.
|
| (f)
| Fair Value is determined pursuant to procedures approved by the Fund’s Board of Trustees. Unless otherwise noted,
securities are valued by applying valuation factors to the exchange traded price. See Note 2(a) of the accompanying Notes to Financial Statements for inputs used.
|
| (g)
| Considered in liquidation by the Fund's Adviser.
|
| (h)
| As of December 31, 2023, the aggregate amount of open commitments for the Fund is $2,806,782.
|
| (i)
| Restricted security, not readily marketable. Notes to Financial Statements.
|
| (j)
| Represents contributed capital.
|
| (k)
| Fund of Fund investment.
|
| (l)
| Registered investment company advised by State Street Global Advisors. The rate shown is the 7 day yield as of December 31, 2023.
|
| *
| “Global” is the percentage attributable to the Fund’s holdings in a private equity fund which invests globally and is not categorized under
a particular country.
|
| ADR
| American Depositary Receipt
|
| GDR
| Global Depositary Receipt
|
| PLC
| Public Limited Company
|
See Notes to Financial
Statements.
Statement of Assets and Liabilities
As of December 31, 2023
| Assets
|
|
| Investments, at value (cost $347,125,385)
| $ 340,255,163
|
| Short-term investments, at value (cost $4,102,967)
| 4,102,967
|
| Foreign currency, at value (cost $155,055)
| 152,806
|
| Receivable for investments sold
| 53,178
|
| Interest and dividends receivable
| 541,422
|
| Tax reclaim receivable
| 53,107
|
| Prepaid expenses in connection with revolving credit facility (Note 7)
| 5,396
|
| Prepaid expenses
| 58,115
|
| Total assets
| 345,222,154
|
| Liabilities
|
|
| Revolving credit facility payable (Note 7)
| 35,000,000
|
| Distributions payable
| 4,567,660
|
| Deferred foreign capital gains tax (Note 2h)
| 2,098,719
|
| Investment advisory fees payable (Note 3)
| 633,202
|
| Director fees payable
| 59,062
|
| Administration fees payable (Note 3)
| 57,924
|
| Interest payable on revolving credit facility
| 43,734
|
| Investor relations fees payable (Note 3)
| 30,821
|
| Other accrued expenses
| 230,201
|
| Total liabilities
| 42,721,323
|
|
|
| Net Assets
| $302,500,831
|
| Composition of Net Assets
|
|
| Common stock (par value $0.001 per share) (Note 5)
| $ 50,752
|
| Paid-in capital in excess of par
| 401,622,695
|
| Accumulated loss
| (99,172,616)
|
| Net Assets
| $302,500,831
|
| Net asset value per share based on 50,751,778 shares issued and outstanding
| $5.96
|
See Notes to Financial
Statements.
Statement of Operations
For the Year Ended December 31, 2023
| Net Investment Income
|
|
| Investment Income:
|
|
| Dividends and other income (net of foreign withholding taxes of $1,110,811)
| $ 9,922,538
|
| Total investment income
| 9,922,538
|
| Expenses:
|
|
| Investment management fee (Note 3)
| 2,663,966
|
| Directors' fees and expenses
| 254,250
|
| Administration fee (Note 3)
| 241,396
|
| Custodian’s fees and expenses
| 188,189
|
| Legal fees and expenses
| 109,246
|
| Investor relations fees and expenses (Note 3)
| 101,438
|
| Independent auditors’ fees and tax expenses
| 76,110
|
| Reports to shareholders and proxy solicitation
| 72,485
|
| Insurance expense
| 62,729
|
| Transfer agent’s fees and expenses
| 33,425
|
| Miscellaneous
| 101,839
|
| Total operating expenses, excluding interest expense
| 3,905,073
|
| Interest expense (Note 7)
| 2,843,807
|
| Total operating expenses before reimbursed/waived expenses
| 6,748,880
|
| Expenses waived (Note 3)
| (284,122)
|
| Net expenses
| 6,464,758
|
|
|
| Net Investment Income
| 3,457,780
|
| Net Realized/Unrealized Gain/(Loss) from Investments and Foreign Currency Related Transactions:
|
|
| Net realized gain/(loss) from:
|
|
| Investment transactions (including $305,257 foreign capital gains tax) (Note 2h)
| (15,302,136)
|
| Foreign currency transactions
| (148,869)
|
|
| (15,451,005)
|
| Net change in unrealized appreciation/(depreciation) on:
|
|
| Investments (including change in deferred foreign capital gains tax of $788,515) (Note 2h)
| 41,122,663
|
| Foreign currency translation
| (2,641)
|
|
| 41,120,022
|
| Net realized and unrealized gain from investments and foreign currencies
| 25,669,017
|
| Change in Net Assets Resulting from Operations
| $29,126,797
|
See Notes to Financial
Statements.
Statements of Changes in Net Assets
|
| For the
Year Ended
December 31, 2023
| For the
Year Ended
December 31, 2022
|
| Increase/(Decrease) in Net Assets:
|
|
|
| Operations:
|
|
|
| Net investment income
| $3,457,780
| $6,144,846
|
| Net realized loss from investments and foreign currency transactions
| (15,451,005)
| (21,228,855)
|
| Net change in unrealized appreciation/(depreciation) on investments and foreign
currency translation
| 41,120,022
| (110,994,235)
|
| Net increase/(decrease) in net assets resulting from operations
| 29,126,797
| (126,078,244)
|
| Distributions to Shareholders From:
|
|
|
| Distributable earnings
| (3,046,603)
| (6,410,460)
|
| Return of capital
| (16,746,591)
| (15,920,323)
|
| Net decrease in net assets from distributions
| (19,793,194)
| (22,330,783)
|
| Change in net assets
| 9,333,603
| (148,409,027)
|
| Net Assets:
|
|
|
| Beginning of year
| 293,167,228
| 441,576,255
|
| End of year
| $302,500,831
| $293,167,228
|
See Notes to Financial
Statements.
Statement of Cash Flows
For the Year Ended December 31, 2023
| Cash flows from operating activities:
|
|
| Net increase/(decrease) in net assets resulting from operations
| $ 29,126,797
|
Adjustments to reconcile net increase in net assets resulting
from operations to net cash provided by operating activities:
|
|
| Investments purchased
| (88,449,074)
|
| Investments sold and principal repayments
| 124,915,351
|
| Increase in short-term investments, excluding foreign government
| (88,854)
|
| Increase in interest, dividends and other receivables
| (383,458)
|
| Decrease in prepaid expenses
| 19,125
|
| Decrease in interest payable on revolving credit facility
| (55,887)
|
| Increase in accrued investment advisory fees payable
| 131,544
|
| Decrease in other accrued expenses
| (43,440)
|
| Net change in unrealized appreciation of investments
| (41,122,663)
|
| Net change in unrealized depreciation on foreign currency translations
| 2,641
|
| Net realized loss on investments transactions
| 15,302,136
|
| Net cash provided by operating activities
| 39,354,218
|
| Cash flows from financing activities:
|
|
| Repayment of revolving credit facility
| (20,000,000)
|
| Distributions paid to shareholders
| (19,793,194)
|
| Net cash used in financing activities
| (39,793,194)
|
| Effect of exchange rate on cash
| (13,757)
|
| Net change in cash
| (452,733)
|
| Unrestricted and restricted cash and foreign currency, beginning of year
| 605,539
|
| Unrestricted and restricted cash and foreign currency, end of year
| $152,806
|
| Supplemental disclosure of cash flow information:
|
|
| Cash paid for interest and fees on borrowing
| $2,899,694
|
See Notes to Financial
Statements.
|
| For the Fiscal Years Ended December 31,
|
|
| 2023
| 2022
| 2021
| 2020
| 2019
|
| PER SHARE OPERATING PERFORMANCE(a):
|
|
|
|
|
|
| Net asset value per common share, beginning of year
| $5.78
| $8.70
| $9.41
| $8.66
| $7.37
|
| Net investment income
| 0.07
| 0.12
| 0.16
| 0.23
| 0.23
|
Net realized and unrealized gains/(losses) on
investments and foreign currency transactions
| 0.50
| (2.60)
| (0.34)
| 0.79
| 1.21
|
| Total from investment operations applicable to common shareholders
| 0.57
| (2.48)
| (0.18)
| 1.02
| 1.44
|
| Distributions to common shareholders from:
|
|
|
|
|
|
| Net investment income
| (0.06)
| (0.13)
| (0.22)
| (0.27)
| (0.17)
|
| Return of capital
| (0.33)
| (0.31)
| (0.31)
| –
| –
|
| Total distributions
| (0.39)
| (0.44)
| (0.53)
| (0.27)
| (0.17)
|
| Capital Share Transactions:
|
|
|
|
|
|
| Impact due to tender offer
| –
| –
| –
| –
| 0.02
|
| Net asset value per common share, end of year
| $5.96
| $5.78
| $8.70
| $9.41
| $8.66
|
| Market price, end of year
| $5.11
| $5.15
| $7.92
| $8.16
| $7.62
|
| Total Investment Return Based on(b):
|
|
|
|
|
|
| Market price
| 7.12%
| (29.76%)
| 3.27%
| 11.42%
| 22.80%
|
| Net asset value
| 11.32%
| (28.23%)
| (1.63%)
| 13.06%
| 20.25%
|
| Ratio to Average Net Assets/Supplementary Data:
|
|
|
|
|
|
| Net assets, end of year (000 omitted)
| $302,501
| $293,167
| $441,576
| $477,473
| $439,330
|
| Average net assets applicable to common shareholders (000 omitted)
| $301,746
| $335,898
| $492,593
| $390,881
| $442,354
|
| Total expenses, net of fee waivers
| 2.14%
| 1.65%
| 1.31%
| 1.44%
| 1.54%
|
| Total expenses, excluding fee waivers
| 2.24%
| 1.74%
| 1.27%
| 1.44%
| 1.57%
|
| Total expenses, excluding taxes and interest and revolving credit facility expenses, net of fee waivers
| 1.20%
| 1.20%
| 1.21%
| 1.27%
| 1.19%
|
| Net Investment income
| 1.15%
| 1.83%
| 1.61%
| 2.96%
| 2.92%
|
| Portfolio turnover
| 25%
| 32%
| 50%
| 21%
| 13%
|
| Senior securities (loan facility) outstanding (000 omitted)
| $35,000
| $55,000
| $55,000
| $40,900
| $40,900
|
| Asset coverage ratio on revolving credit facility at year end
| 964%
| 633%
| 903%
| 1,267%
| 1,174%
|
| Asset coverage per $1,000 on revolving credit facility at year end(c)
| $9,643
| $6,330
| $9,029
| $12,674
| $11,742
|
| (a)
| Based on average shares outstanding.
|
| (b)
| Total investment return based on market value is calculated assuming that shares of the Fund’s common stock were purchased at the closing market price as of the beginning of the period, dividends,
capital gains and other distributions were reinvested as provided for in the Fund’s dividend reinvestment plan and then sold at the closing market price per share on the last day of the period. The computation
does not reflect any sales commission investors may incur in purchasing or selling shares of the Fund. The total investment return based on the net asset value is similarly computed except that the Fund’s net
asset value is substituted for the closing market value.
|
| (c)
| Asset coverage ratio is calculated by dividing net assets plus the amount of any borrowings, for investment purposes by the amount of the Revolving Credit Facility.
|
Amounts listed as
“–” are $0 or round to $0.
See Notes to Financial
Statements.
Notes to Financial Statements
December 31, 2023
1. Organization
abrdn Emerging Markets
Equity Income Fund, Inc. (the “Fund”) was incorporated in Maryland on January 30, 1989 and commenced investment operations on September 27, 1989. The Fund is registered under the Investment Company Act of
1940, as amended (the “1940 Act”), as a non-diversified closed-end, management investment company. The Fund trades on the NYSE American under the ticker symbol “AEF”.
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. The accounting records of
the Fund are maintained in U.S. Dollars and the U.S. Dollar is used as both the functional and reporting currency.
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. Pursuant to Rule 2a-5 under the 1940 Act, the Board of Directors
(the "Board") designated abrdn Investments Limited (the "Adviser") as the valuation designee ("Valuation Designee") for the Fund to perform the fair value determinations relating to Fund investments for which
market quotations are not readily available or deemed unreliable.
In accordance with the
authoritative guidance on fair value measurements and disclosures under U.S. 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 or the official close 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.
Foreign equity securities
that are traded on foreign exchanges that close prior to the 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. 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 generally 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.
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 1940 Act, and has an objective, which is not guaranteed, to maintain a
Notes to Financial Statements (continued)
December 31, 2023
$1.00 per share 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 Valuation Designee, 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 Adviser 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
(unadjusted) in active markets for identical investments;
Level 2 - other significant observable
inputs (including valuation factors, quoted prices for similar securities, interest rates, prepayment speeds, and credit risk, etc.); or
Level 3 - significant unobservable inputs
(including the Fund’s own assumptions in determining the fair value of investments).
The Fund may also invest in
private equity private placement securities, which represented 0.1% of the net assets of the Fund as of
December 31, 2023. The private equity
private placement securities in which the Fund is invested are deemed to be restricted securities. In the absence of readily ascertainable market values, these securities are valued at fair value as determined in good
faith by, or under the direction of the Board, pursuant to valuation policies and procedures established by the Board. The Fund’s estimate of fair value assumes a willing buyer and a willing seller neither of
whom are acting under the compulsion to buy or sell. Although these securities may be resold in privately negotiated transactions, the prices realized on such sales could differ from the prices originally paid by the
Fund or the current carrying values, and the difference could be material. These securities are stated at fair value by utilizing the net asset valuations provided by the underlying funds as a practical expedient. In
determining the fair value of these investments, management uses the market approach which includes as the primary input the capital balance reported; however, adjustments to the reported capital balance may be made
based on various factors, including, but not limited to, the attributes of the interest held, including the rights and obligations, and any restrictions or illiquidity of such interests, and the fair value of these
private equity investments. No such adjustments were made to the NAVs provided by the underlying funds.
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 December 31, 2023 in valuing the Fund's investments and other financial instruments at fair value. The inputs or methodology 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
|
| Assets
|
|
|
| Investments in Securities
|
|
|
|
| Common Stocks
| $42,704,240
| $264,696,824
| $–
| $307,401,064
|
| Preferred Stocks
| –
| 32,653,503
| –
| 32,653,503
|
| Short-Term Investment
| 4,102,967
| –
| –
| 4,102,967
|
| Total
| $46,807,207
| $297,350,327
| $–
| $344,157,534
|
| Private Equity(a)
|
|
|
| 200,596
|
| Total Investments in Securities
|
|
|
| $344,358,130
|
Amounts listed as
“–” are $0 or round to $0.
| (a)
| Private Equity investments are measured at the net asset valuations provided by the underlying funds as a practical expedient and have not been classified in the
fair value levels. The fair value amounts presented are intended to permit reconciliation to the total investment amount presented in the Portfolio of Investments.
|
During the year ended December 31, 2023,
there have been no transfers between levels and no significant changes to the fair
valuation methodologies. Level 3 investments
held during and at the end of the year in relation to net assets were not significant (0.1% of
Notes to Financial Statements (continued)
December 31, 2023
total net assets) and accordingly, a
reconciliation of Level 3 assets for the year ended December 31, 2023 is not presented. The valuation technique used at December 31, 2023 was fair valuation at zero pursuant to procedures approved by the Board.
b. Restricted
Securities:
Restricted securities are
privately-placed securities whose resale is restricted under U.S. securities laws. The Fund may invest in restricted securities, including unregistered securities eligible for resale without registration pursuant to
Rule 144A and privately-placed securities of U.S. and non-U.S. issuers offered outside the U.S. without registration pursuant to Regulation S under the Securities Act of 1933, as amended (the "1933 Act"). Rule 144A
securities may be freely traded among certain qualified institutional investors, such as the Fund, but resale of such securities in the U.S. is permitted only in limited circumstances.
c. Foreign Currency
Translation:
Foreign securities,
currencies, and other assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the exchange rate of said currencies against the U.S. Dollar, as of the Valuation Time, as provided by
an independent pricing service approved by the Board.
Foreign currency amounts are
translated into U.S. Dollars on the following basis:
(i) market value of investment
securities, other assets and liabilities – at the current daily rates of exchange at the Valuation Time; and
(ii) purchases and sales of
investment securities, income and expenses – at the relevant rates of exchange prevailing on the respective dates of such transactions.
The Fund does not isolate
that portion of gains and losses on investments in equity securities due to changes in the foreign exchange rates from the portion due to changes in market prices of equity securities. Accordingly, realized and
unrealized foreign currency gains and losses with respect to such securities are included in the reported net realized and unrealized gains and losses on investment transactions balances.
The Fund reports certain
foreign currency related transactions and foreign taxes withheld on security transactions as components of realized gains for financial reporting purposes, whereas such foreign currency related transactions are
treated as ordinary income for U.S. federal income tax purposes.
Net unrealized currency gains
or losses from valuing foreign currency denominated assets and liabilities at period end exchange rates are reflected as a component of net unrealized appreciation/depreciation in value of investments, and translation
of other assets and liabilities denominated in foreign currencies.
Net realized foreign exchange gains or
losses represent foreign exchange gains and losses from transactions in foreign currencies and forward foreign currency contracts, exchange gains or losses realized between the trade date and settlement date on
security transactions, and the difference between the amounts of interest and dividends recorded on the Fund’s books and the U.S. Dollar equivalent of the amounts actually received.
Foreign security and currency
transactions may involve certain considerations and risks not typically associated with those of domestic origin, including unanticipated movements in the value of the foreign currency relative to the U.S. Dollar.
Generally, when the U.S. Dollar rises in value against foreign currency, the Fund's investments denominated in that foreign currency will lose value because the foreign currency is worth fewer U.S. Dollars; the
opposite effect occurs if the U.S. Dollar falls in relative value.
d. Rights Issues and
Warrants:
Rights issues give the
right, normally to existing shareholders, to buy a proportional number of additional securities at a given price (generally at a discount) within a fixed period (generally a short-term period) and are offered at the
company’s discretion. Warrants are securities that give the holder the right to buy common stock at a specified price for a specified period of time. Rights issues and warrants are speculative and have no value
if they are not exercised before the expiration date. Rights issues and warrants are valued at the last sale price on the exchange on which they are traded.
e. 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 is recorded on the ex-dividend date except for
certain dividends on foreign securities, which are recorded as soon as the Fund is informed after the ex-dividend date. Interest income and expenses are recorded on an accrual basis.
Certain distributions
received by the Fund could represent a return of capital or capital gain. The Fund determines the components of these distributions subsequent to the ex-dividend date, based upon receipt of tax filings or other
correspondence relating to the underlying investment. These distributions are recorded as a reduction of cost of investments and/or as a realized gain.
f. Distributions:
The Fund records dividends
and distributions payable to its shareholders on the ex-dividend date. The amount of dividends and distributions from net investment income and net realized capital gains are determined in accordance with federal
income tax regulations, which may differ from GAAP. These book basis/tax basis differences are either considered temporary or permanent in nature.
Notes to Financial Statements (continued)
December 31, 2023
To the extent these differences are
permanent in nature, such amounts are reclassified within the capital accounts based on their federal tax basis treatment; temporary differences do not require reclassification. Dividends and distributions which
exceed net investment income and net realized capital gains for tax purposes are reported as return of capital.
g. Federal Income Taxes:
The Fund intends to
continue to qualify as a “regulated investment company” by complying with the provisions available to certain investment companies, as defined in Subchapter M of the Internal Revenue Code of 1986, as
amended the ("Code"), 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 most recent fiscal year ended December 31, 2023 are subject to such review.
h. Foreign Withholding
Tax:
Dividend and interest
income from non-U.S. sources received by the Fund are generally subject to non-U.S. withholding taxes and are recorded on the Statement of Operations. The Fund files for tax reclaims for the refund of such
withholdings taxes according to tax treaties. Tax reclaims that are deemed collectible are booked as tax reclaim receivable on the Statement of Assets and Liabilities. In addition, the Fund may be subject to capital
gains tax in certain countries in which it invests. The above taxes may be reduced or eliminated under the terms of applicable U.S. income tax treaties with some of these countries. The Fund accrues such taxes when
the related income is earned.
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 Assets and Liabilities.
3. Agreements and Transactions with
Affiliates
a. Investment Adviser:
abrdn Investments Limited
serves as the Fund’s investment adviser with respect to all investments. The Adviser is an indirect wholly-owned subsidiary of abrdn plc. The Adviser receives an annual fee, calculated weekly and paid quarterly,
equal to 0.90% of the first $250 million, 0.80% of amounts $250-$500 million and 0.75% of amounts over $500 million. For the fiscal year ended December 31, 2023, the Adviser earned $2,663,966 for advisory services.
The Adviser renewed the
written contract, effective April 27, 2018, (the “Expense Limitation Agreement”) with the Fund that is effective through June 30, 2024. The Expense Limitation Agreement limits the total ordinary
operating expenses of the Fund (excluding any interest, taxes, brokerage fees, short sale dividend and interest expenses and non-routine expenses) from exceeding 1.20% of the average daily Net Assets of the Fund on an
annualized basis. Through December 31, 2023, the Adviser waived a total of $284,122 pursuant to the Expense Limitation Agreement. The Adviser may request and receive reimbursement 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 (the “Reimbursement Requirements”).
As of December 31, 2023, to
the extent the Reimbursement Requirements are met, the cumulative potential reimbursements to the Adviser for the Fund, based on expenses reimbursed by the Adviser, including adjustments described above, would be:
| Amount Fiscal Year 2022 (Expires 12/31/25)
|
| $309,304
|
| Amount Fiscal Year 2023 (Expires 12/31/26)
|
| $284,122
|
| Total*
|
| $593,426
|
| *
| Amounts reported are due to expire throughout the respective 3-year expiration period presented above.
|
b. Fund Administration:
abrdn Inc., an affiliate of
the Adviser, is the Fund’s Administrator, pursuant to an agreement under which abrdn Inc. receives a fee paid by the Fund, at an annual fee rate of 0.08% of the Fund’s average monthly net assets. For the
fiscal year ended December 31, 2023, abrdn Inc. earned $241,396 from the Fund for administration services.
c. Investor Relations:
Under the terms of the
Investor Relations Services Agreement, abrdn Inc. provides and/or engages third parties to provide investor relations
Notes to Financial Statements (continued)
December 31, 2023
services to the Fund and certain other funds
advised by the Adviser 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 abrdn Inc. 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 abrdn Inc.
During the fiscal year ended
December 31, 2023, the Fund incurred investor relations fees of approximately $101,438. For the fiscal year ended December 31, 2023, abrdn Inc. did not contribute to the investor relations fees for the Fund because
the Fund’s contribution was below 0.05% of the Fund’s average weekly net assets on an annual basis.
4. Investment Transactions
Purchases and sales of
investment securities (excluding short-term securities) for the fiscal year ended December 31, 2023, were $87,284,888 and $125,206,979, respectively.
5. Capital
The authorized capital of
the Fund is 100 million shares of $0.001 par value per share of common stock. As of December 31, 2023, there were 50,751,778 shares of common stock issued and outstanding.
6. Open Market Repurchase
Program
The Board approved an open
market repurchase and discount management policy (the “Program”). 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. Such purchases may be made opportunistically at certain discounts to NAV per share in the reasonable judgment of management based on historical
discount levels and current market conditions.
On a quarterly basis, the
Fund’s Board will receive information on any transactions made pursuant to this policy during the prior quarter and management will post the number of shares repurchased on the Fund’s website on a monthly
basis. Under the terms of the Program, the Fund is permitted to repurchase up to 10% of its outstanding shares of common stock in the open market during any 12 month period.
For the fiscal year ended
December 31, 2023, the Fund did not repurchase any shares through this program.
7. Credit Facility
On June 20, 2023, the Fund
renewed its revolving credit facility for a 1-year period with The Bank of Nova Scotia with a committed facility
of $40,000,000. Previously the committed
facility amount was $65,000,000. The outstanding balance on the loan as of December 31, 2023 was $35,000,000. During the fiscal period ended December 31, 2023 the average daily balance outstanding and the average
interest rate on the loan facility was $44,315,068 and 6.35%, respectively. The interest expense is accrued on a daily basis and is payable to The Bank of Nova Scotia on a monthly basis. The Fund uses leverage for
investment purposes. In the event of a general market decrease 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. Non-recurring expenses in connection with the implementation of the loan facility will reduce the Fund’s performance.
The Fund’s leveraged
capital structure creates special risks not associated with unleveraged funds having similar investment objectives and policies. The funds borrowed pursuant to the loan 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. The Fund is not permitted to declare dividends or other distributions in the event of default
under the loan facility. In the event of a default under the loan facility, the lenders 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 liquidation of the Fund’s collateral assets in an event of default, or a voluntary paydown of the loan facility in
order to avoid an event of default, would typically involve administrative expenses and sometimes penalties. Additionally, such liquidations often involve selling off of portions of the Fund’s assets at
inopportune times which can result in losses when markets are unfavorable. The loan facility has a one year term and is not a perpetual form of leverage; there can be no assurance that the loan facility will be
available for renewal on acceptable terms, if at all. Bank loan fees and expenses included in the Statement of Operations include fees for the loan facility as well as commitment fees for any portion of the loan
facility not drawn upon at any time during the period. During the fiscal year ended December 31, 2023, the Fund incurred fees of approximately $65,445.
The credit agreement
governing the loan facility includes usual and customary covenants for this type of transaction. These covenants impose on the Fund asset coverage requirements, Fund composition requirements and limits on certain
investments, such as illiquid investments, which are more stringent than those imposed on the Fund by the 1940 Act. The covenants or guidelines could impede the Investment Adviser from fully managing the Fund’s
portfolio in accordance with the Fund’s investment objective and policies. Furthermore, non-compliance with such covenants or the occurrence of other events could lead to the cancellation of the loan
facility.
Notes to Financial Statements (continued)
December 31, 2023
8. Private Equity
Investments
Certain of the Fund’s
investments, listed in the chart below, are restricted as to resale and are valued at NAV as a practical expedient.
| Security(a)
| Acquisition
Date(s)
| Commitment
| Cost
| Fair
Value at
December 31, 2023
| Percent
of Net
Assets
| Cumulative
Distributions
Received(b)
|
| BPA Israel Ventures LLC(c)
| 10/05/00-12/09/05
| $4,600,000
| $1,670,809
| $12,559
| 0.01
| $844,787
|
| Emerging Markets Ventures I LP(c)
| 01/22/98-01/10/06
| 13,100,000
| 3,935,953
| 8,324
| 0.00
| 12,787,187
|
| Neurone Ventures II, L.P.
| 11/24/00-12/21/10
| 1,500,000
| 5,407
| 17,233
| 0.01
| 1,616,842
|
| Telesoft Partners II LP
| 07/14/00-03/01/10
| 2,400,000
| 871,987
| 162,480
| 0.05
| 1,694,311
|
Amounts listed as
“–” are $0 or round to $0.
| (a)
| Telesoft Partners II QP, L.P. is still considered an active investment by the Fund’s Adviser. Neurone Ventures II, L.P., BPA Israel Ventures, LLC, and Emerging Markets
Ventures I, L.P. are in liquidation.
|
| (b)
| Cumulative Distributions include distributions received from Income, realized gains or return of capital. Distributions from return of capital will reduce the cost basis of the
security.
|
| (c)
| BPA Israel Ventures LLC has open commitments of $1,250,825. Emerging Markets Ventures I, L.P. has open commitments of $1,555,957. These investments are in
liquidation status, as indicated on the Portfolio of Investments. As such, future contributions are expected to be limited.
|
The Fund may incur certain costs
in connection with the disposition of the above securities.
9. Portfolio Investment
Risks
a. China Risk:
The economy of China differs from the U.S.
and other more established economies in such respects as structure, general development, government involvement, wealth distribution, rate of inflation, growth rate, allocation of resources and capital reinvestment,
and some of these differences are unfavorable to investors. Therefore, investing in China involves a high degree of risk and special considerations not typically associated with investing in other more established
economies or securities markets. Exposure to China may be gained through investments in securities that are economically tied to China or, in some cases, through direct investment in China securities. The Fund
invests in China A shares. China A shares are shares in mainland China-based companies that trade on Chinese stock exchanges and are usually only available to foreign investors through a quota license or by purchasing
Shanghai and Shenzhen Stock Exchange-listed securities via brokers in Hong Kong through the Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect programs (collectively, "Stock Connect”).
Investing in China A shares may involve special risk considerations such as volatility in the China A share market and uncertainty regarding taxation.
The Fund’s ability to
freely trade in China A shares as a foreign investor through the quota license or Stock Connect may be limited by quota and repatriation restrictions, and utilizing Stock Connect is subject to trading, clearance and
settlement procedures in China that are relatively new and untested.
The Fund may also gain exposure to companies
based or operated in China by investing through legal structures known as variable interest entities (VIEs). Instead of directly owning the equity securities of a Chinese company, a VIE enters into service and other
contracts with the Chinese company. Although the VIE has no equity ownership of the Chinese company, the contractual arrangements permit the VIE to consolidate the Chinese company into its financial statements. The
Chinese government could intervene with respect to VIEs, which could significantly affect the Chinese company's performance and the enforceability of the VIE's contractual arrangement with the Chinese company.
b. 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 shareholders' claims is subordinated to that of preferred stock and debt securities upon the bankruptcy of the issuer.
Notes to Financial Statements (continued)
December 31, 2023
c. Illiquid Securities Risk:
Illiquid securities are
assets that the Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the asset.
An inability to sell a portfolio position can adversely affect the Fund’s value or prevent the Fund from being able to take advantage of other investment opportunities. Illiquid securities are relatively less
liquid securities may also be difficult to value.
d. 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 services. In an increasingly interconnected financial market, the
adverse changes in the financial conditions of one issuer may negatively affect other issuers.
e. 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.
f. 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.
g. 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, public health
emergencies and natural/environmental disasters. Such events can negatively impact the securities markets and cause the Fund to lose value.
Policy and legislative
changes in countries around the world are affecting many aspects of financial regulation, and governmental and quasi-governmental authorities and regulators throughout the world have previously responded to serious
economic disruptions with a variety of significant fiscal and monetary policy changes.
The impact of these changes
on the markets, and the practical implications for market participants, may not be fully known for some time. In addition, economies and financial markets throughout the
world are becoming increasingly
interconnected. As a result, whether or not the Fund invests in securities of issuers located in or with significant exposure to countries or sectors experiencing economic and financial difficulties, the value and
liquidity of the Fund’s investments may be negatively affected by such events.
h. Mid-Cap Securities
Risk:
Securities of medium-sized
companies tend to be more volatile and less liquid than securities of larger companies.
i. 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.
j. Risks Associated with
Foreign Securities and Currencies:
Investments in securities
of foreign issuers carry certain risks not ordinarily associated with investments in securities of U.S. issuers. These risks include future political and economic developments, and the possible imposition of exchange
controls or other foreign governmental laws and restrictions. In addition, with respect to certain countries, there is the possibility of expropriation of assets, confiscatory taxation, and political or social
instability or diplomatic developments, which could adversely affect investments in those countries. Foreign securities may also be harder to price than U.S. securities.
Notes to Financial Statements (continued)
December 31, 2023
Certain countries also may impose
substantial restrictions on investments in their capital markets by foreign entities, including restrictions on investments in issuers of industries deemed sensitive to relevant national interests. These factors may
limit the investment opportunities available and result in a lack of liquidity and high price volatility with respect to securities of issuers from developing countries.
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.
k. Risks Associated with
Emerging Markets:
The emerging countries'
securities markets are substantially smaller, less liquid and more volatile than the major securities markets in the United States. A high proportion of the securities of many companies in emerging countries may be
held by a limited number of persons, which may limit the number of securities available for investment by the Fund. The limited liquidity of emerging country securities markets may also affect the Fund's ability to
acquire or dispose of securities at the price and time it wishes to do so.
l. Risks Associated with
Restricted Securities:
The Fund, subject to local
investment limitations, may invest up to 30% of its assets (at the time of commitment) in illiquid equity securities, including securities of private equity funds (whether in corporate or partnership form) that invest
primarily in emerging markets. When investing through another investment fund, the Fund will bear its proportionate share of the expenses incurred by that underlying fund, including management fees. Such securities
are expected to be illiquid and may involve a high degree of business and financial risk and may result in substantial losses. Because of the current absence of any liquid trading market for these investments, the
private equity funds may take longer to liquidate than would be the case for publicly traded securities. Although these securities may be resold in privately negotiated transactions, the prices realized on such sales
could be substantially less than those originally paid by the Fund or the current carrying values and these differences could be material. Further, companies whose securities are not publicly traded may not be subject
to the disclosures and other investor protection requirements applicable to companies whose securities are publicly traded.
m. Russia/Ukraine Risk:
In February 2022, Russia
commenced a military attack on Ukraine. The outbreak of hostilities between the two countries and the threat of
wider spread hostilities could have a severe
adverse effect on the region and global economies, including significant negative impacts on the markets for certain securities and commodities, such as oil and natural gas. In addition, sanctions imposed on Russia by
the United States and other countries, and any sanctions imposed in the future, could have a significant adverse impact on the Russian economy and related markets. The price and liquidity of investments may fluctuate
widely as a result of the conflict and related events. How long the armed conflict and related events will last cannot be predicted. These tensions and any related events could have a significant impact on Fund
performance and the value of the Fund's investments. As of December 31, 2023, the Fund holds 3 Russian securities that are all valued at zero.
n. 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.
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. Information technology companies face intense competition, both domestically and internationally, which may have an adverse effect on their profit margins. Like other
technology companies, information technology companies may have limited product lines, markets, financial resources or personnel. The products of information technology companies may face obsolescence due to rapid
technological developments, frequent new product introduction, unpredictable changes in growth rates and competition for the services of qualified personnel. Companies in the information technology sector are heavily
dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies.
Financial Sector Risk. To the extent that the financial sector represents a significant portion of the Fund's investments, 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
Notes to Financial Statements (continued)
December 31, 2023
and technology malfunctions and failures have
become increasingly frequent in this sector and have caused significant losses.
o. 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.
p. Valuation Risk:
The price that the Fund
could receive upon the sale of any particular portfolio investment may differ from the Fund's valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using a
fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon the sale of an investment may be less than the value
ascribed by the Fund, and the Fund could
realize a greater than expected loss or lower 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.
10. 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.
11. Tax
Information
The U.S. federal
income tax basis of the Fund's investments (including derivatives, if applicable) and the net unrealized depreciation as of December 31, 2023, were as follows:
Tax Cost of
Securities
| Unrealized
Appreciation
| Unrealized
Depreciation
| Net
Unrealized
Appreciation/
(Depreciation)
|
| $348,305,559
| $63,520,597
| $(67,468,026)
| $(3,947,429)
|
The tax character of
distributions paid during the fiscal years ended December 31, 2023 and December 31, 2022 was as follows:
|
| December 31, 2023
| December 31, 2022
|
| Distributions paid from:
|
|
|
| Ordinary Income
| $3,046,603
| $6,410,460
|
| Return of Capital
| 16,746,591
| 15,920,323
|
| Total tax character of distributions
| $19,793,194
| $22,330,783
|
As of December 31,
2023, the components of accumulated earnings on a tax basis were as follows:
| Undistributed Ordinary Income
| $-
|
| Undistributed Long-Term Capital Gains
| -
|
| Total undistributed earnings
| $-
|
| Capital loss carryforward
| $(93,129,392)*
|
| Other currency gains
| -
|
| Other Temporary Differences
| -
|
| Unrealized Appreciation/(Depreciation)
| (6,043,224)**
|
| Total accumulated earnings/(losses) – net
| $(99,172,616)
|
Amounts listed as
“–” are $0 or round to $0.
| *
| On December 31, 2023, the Fund had a net capital loss carryforward of $(93,129,392) 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:
|
Notes to Financial Statements (concluded)
December 31, 2023
| Amounts
| Expires
|
| $28,908,994
| Unlimited (Short—Term)
|
| 64,220,398
| Unlimited (Long—Term)
|
**The difference between book-basis and
tax-basis unrealized appreciation/(depreciation) is attributable to tax deferral of wash sales, passive foreign investment company gain/(loss) and partnership adjustments.
GAAP requires that certain
components of net assets be adjusted to reflect permanent differences between financial and tax reporting. Accordingly, the table below details the necessary reclassifications,
which are a result of permanent differences
primarily attributable to post available-for-sale (AFS) return of capital. These reclassifications have no effect on net assets or NAVs per share.
Paid-in
Capital
| Distributable
Earnings/
(Accumulated
Loss)
|
| $1,996
| $(1,996)
|
12. 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 December 31, 2023.
Report of Independent Registered Public Accounting
Firm
To the
Shareholders and Board of Directors
abrdn Emerging Markets Equity Income Fund, Inc.:
Opinion on the Financial
Statements
We have audited the
accompanying statement of assets and liabilities of abrdn Emerging Markets Equity Income Fund, Inc. (the Fund), including the portfolio of investments, as of December 31, 2023, the related statements of operations and
cash flows 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 five-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
December 31, 2023, the results of its operations and its cash flows 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 five-year period then ended, in conformity with U.S. generally accepted accounting principles.
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 December 31, 2023, by correspondence with custodians and brokers; when replies were not received from brokers, we performed other
auditing procedures. 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 abrdn investment companies since 2009.
Philadelphia, Pennsylvania
February 28, 2024
Federal Tax Information: Dividends and
Distributions (Unaudited)
Designation Requirements
Of the distributions paid by the
Fund from ordinary income for the year ended December 31, 2023, 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
38.86%
Qualified Dividend Income
5.60%
The above amounts are based on
the best available information at this time. In early 2024, the Fund notified applicable shareholders of final amounts for use in preparing 2023 U.S. federal income tax forms.
Additional Information Regarding the
Fund (Unaudited)
Recent Changes
The following information is
a summary of certain changes during the fiscal year ended December 31, 2023. This information may not reflect all of the changes that have occurred since you purchased the Fund.
During the applicable period,
there have been: (i) no material changes to the Fund’s investment objective 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; (iii) no changes to the persons primarily responsible for day-to-day management of the Fund; and (iv) no changes to the Fund’s charter or by-laws that would delay or prevent a
change of control that have not been approved by shareholders.
Investment Objective, Strategies and
Policies
Investment Objective. The Fund seeks to provide both current income and long-term capital appreciation. The Fund’s investment objective is not fundamental, and may be changed by the Fund’s Board
without shareholder approval.
Principal Investment
Strategy. The Fund invests at least 80% of its net assets (plus any borrowings for investment purposes) in emerging markets equity securities. If the Fund’s Board elects to change this 80%
policy, the Fund will provide shareholders with at least 60 days’ prior notice.
Emerging market countries for
purposes of this policy include every nation in the world except the United States, Canada, Japan, Australia, New Zealand, Hong Kong, Israel and Singapore and countries represented in the MSCI Europe Index.
The definition of equity
securities includes:
| •
| common stock and preferred stock (including convertible preferred stock),
|
| •
| stock purchase warrants and rights,
|
| •
| equity interests in trusts and partnerships, and
|
| •
| American, Global or other types of Depositary Receipts of emerging market
|
Determinations as to whether
a company is an emerging market company will be made by the Investment Adviser based on publicly available information and inquiries made to the company.
Emerging market securities
include securities that are issued by: (a) governments or government-related bodies of emerging market countries; and/or (b) companies or other issuers that (i) are organized under the laws of, or have their principal
office in, an emerging market country, (ii) have their principal securities trading market in an emerging market country, and/or (iii) derive a majority of their annual
revenue or assets from goods produced, sales made or services performed in emerging markets countries.
The Fund may also invest without limit in
those markets deemed by the Investment Adviser to be “Frontier” markets, which are investable markets with lower total market capitalizations and liquidity than the more developed emerging markets.
From time to time, the Fund
may have a significant amount of assets invested in securities of issuers of a single country or of a number of countries in a particular geographic region and therefore may be subject to a greater extent to risks
associated therewith. The Fund currently anticipates that it will invest a significant amount of its assets in securities economically tied to Mainland China equity and equity-related securities including through the
Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect program or by any other available means.
The Fund uses leverage as
part of its investment strategy through senior securities representing indebtedness. The Fund may use leverage through senior securities representing indebtedness up to 33 1/3% of its total assets (including the
amount obtained through leverage), although the Investment Adviser currently intends to utilize leverage generally in the amount of 5% – 15% of the Fund’s total assets and does not currently expect such
leverage to actively exceed 20% of total assets. The Fund is permitted to engage in other transactions, such as reverse repurchase agreements and issuance of debt securities or preferred securities, which have the
effect of leverage.
The Fund may invest in
securities of any market capitalization.
The Fund will not invest 25%
or more of its total assets in the securities of companies in the same industry, although the Fund may invest in U.S. government securities without regard to this limitation. In selecting industries and companies for
investment by the Fund, the Investment Adviser will consider factors such as overall growth prospects, competitive positions in domestic and export markets, technology, research and development, productivity, labor
costs, raw material costs and sources, profit margins, return on investment, capital resources, government regulation and management. This policy may only be changed upon the affirmative vote of the holders of a
majority of the Fund’s outstanding voting securities.
Although the Fund will not
invest 25% of more of its total assets in the securities of companies in the same industry, the Fund may invest in securities of any market sector and may hold a significant amount of securities of companies, from
time to time, within a single sector. Currently, the Fund expects to be heavily exposed to the financial and information technology sectors.
The Fund may invest up to 30%
of its total assets in private placements of equity securities. Securities that are not publicly traded in the United States but that can be sold to “qualified institutional buyers” pursuant to Rule 144A
under the Securities Act of 1933, as
Additional Information Regarding the
Fund (Unaudited) (continued)
amended (the “1933 Act”), will
not be subject to these percentage limitations if these securities are deemed liquid pursuant to procedures adopted by the Fund’s Board and delegated to the Investment Adviser. Rule 144A Securities (defined
below) and Regulation S Securities (defined below) may be freely traded among certain qualified institutional investors, such as the Fund, but their resale in the U.S. is permitted only in limited circumstances.
To the extent its assets are not
invested as described above, the Fund may invest the remainder of its assets in:
| •
| debt securities denominated in the currency of an emerging country or issued or guaranteed by an emerging country company or the government of an emerging country,
|
| •
| equity or debt securities of corporate or governmental issuers located in developed countries, and
|
| •
| short-term and medium-term debt securities of the type described below under “Temporary Investments.”
|
The Fund’s assets may
be invested in debt securities when the Investment Adviser believes that, based upon factors such as relative interest rate levels and foreign exchange rates, such debt securities offer opportunities to provide both
current income and long-term capital appreciation.
The Fund may invest in debt
securities that are rated no lower than A-2 by Standard & Poor’s Rating Group or P-2 by Moody’s Investor Services or the equivalent by another rating service or, if unrated, deemed to be of equivalent
quality by the Investment Adviser. The Fund may invest in securities of any maturity.
For cash management purposes,
the Fund may invest up to 25% of its net assets in certain short-term investments described below and, for temporary defensive purposes, may invest up to 100% of its assets in those short-term instruments.
The Fund’s income
distributions are supplemented by realized capital gains and, to the extent necessary, paid-in capital, which is a nontaxable return of capital.
Temporary Investments. During periods in which the Investment Adviser believes changes in economic, financial or political conditions make it advisable, the Fund may for temporary defensive purposes reduce its
holdings in equity and other securities and invest in certain short-term (less than twelve months to maturity) and medium-term (not greater than five years to maturity) debt securities or hold cash. Temporary
defensive positions may affect the Fund’s ability to achieve its investment objective.
The Fund may invest in the
following short-term instruments:
| •
| obligations of the U.S. Government, its agencies or instrumentalities (including repurchase agreements with respect to these securities),
|
| •
| bank obligations (including certificates of deposit, time deposits and bankers’ acceptances) of U.S. banks and foreign banks denominated in any currency,
|
| •
| floating rate securities and other instruments denominated in any currency issued by international development agencies, banks and other financial institutions, governments and their agencies and
instrumentalities, and corporations located in countries that are members of the Organization for Economic Cooperation and Development,
|
| •
| obligations of S. corporations that are rated no lower than A-2 by Standard & Poor’s Rating Group or P-2 by Moody’s Investor Services or the equivalent by another rating service or, if
unrated, deemed to be of equivalent quality by the Investment Adviser, and
|
| •
| shares of money market funds that are authorized to invest in short-term instruments described above.
|
Currency Transactions. The Investment Adviser generally does not seek to hedge against declines in the value of the Fund’s non-U.S. dollar-denominated portfolio securities resulting from currency
devaluations or fluctuations. If suitable hedging instruments are available on a timely basis and on acceptable terms, the Investment Adviser may, in its discretion, hedge all or part of the value of the Fund’s
non-U.S. dollar-denominated portfolio securities, although it is not obligated to do so. The Fund will be subject to the risk of changes in value of the currencies of the emerging countries in which its assets are
denominated, unless it engages in hedging transactions.
Depositary Receipts. The Fund may invest indirectly in securities of emerging markets country issuers through sponsored or unsponsored American Depositary Receipts (“ADRs”), Global Depositary
Receipts (“GDRs”) and other types of Depositary Receipts. Depositary Receipts may not necessarily be denominated in the same currency as the underlying securities into which they may be converted. In
addition, the issuers of the stock of unsponsored Depositary Receipts are not obligated to disclose material information in the United States and, therefore, there may not be a correlation between such information and
the market value of the Depositary Receipts. ADRs are Depositary Receipts typically issued by a U.S. bank or trust company which evidence ownership of underlying securities issued by a foreign corporation. GDRs and
other types of Depositary Receipts are typically issued by foreign banks or trust companies, although they also may be issued by U.S. banks or trust companies, and evidence ownership of underlying securities issued by
either a foreign or a U.S. corporation. Generally, Depositary Receipts in registered form are designed for use in the U.S. securities markets and Depositary Receipts in bearer form are designed for use in securities
markets outside the United States. For purposes of the Fund’s investment policies, the Fund’s investments in ADRs, GDRs and other types of Depositary Receipts will be deemed to be investments in the
underlying securities.
Additional Information Regarding the
Fund (Unaudited) (continued)
Portfolio Turnover Rate. The Fund does not engage in the trading of securities for the purpose of realizing short-term profits, but adjusts its portfolio as it deems advisable in view of prevailing or anticipated
market conditions to accomplish its investment objective.
Loans of Portfolio
Securities. The Fund’s investment policies permit the Fund to enter into securities lending agreements. Under such agreements, the Fund may lend to borrowers (primarily banks and broker-dealers)
portfolio securities with an aggregate market value of up to one-third of the Fund’s total assets when it deems advisable. Any such loans must be secured by collateral (consisting of any combination of cash,
U.S. government securities, irrevocable bank letters of credit or other high quality debt securities) in an amount at least equal, on a daily marked-to-market basis, to the current market value of the securities
loaned. If the Fund enters into a securities lending arrangement, it is expected that cash collateral will be invested by the lending agent in short-term instruments, money market mutual funds or other collective
investment funds, and income from these investments will be allocated among the Fund, the borrower and the lending agent. The Fund may terminate a loan after such notice period as is provided for the particular loan.
The Fund would receive from the borrower amounts equivalent to any cash payments of interest, dividends and other distributions with respect to the loaned securities, although the tax treatment of such payments may
differ from the treatment of distributions paid directly by the issuer to the Fund. The Fund would also have the option to require non-cash distributions on the loaned securities to be credited to its
account.
An investment in the Fund may
be speculative in that it involves a high degree of risk and should not constitute a complete investment program. See “Risk Factors.”
In rendering investment
advisory services, the Investment Adviser may use the resources of subsidiaries owned by abrdn plc. The abrdn plc affiliates have entered into a memorandum of understanding (MOU) and have adopted personnel sharing
procedures, pursuant to which investment professionals from the abrdn plc affiliates may render portfolio management, research and/or trade services to U.S. clients of the Investment Adviser. As such, in addition to
their own extensive resource and experience, the Fund’s portfolio management team can draw on the full global investment resources of abrdn plc.
In seeking to achieve the
Fund’s investment objective, the Investment Adviser invests in quality companies and are active, engaged owners. The Investment Adviser evaluates every company against quality criteria and build conviction using
a team-based approach and peer review process. The quality assessment covers five key factors: (1) durability of the business model, (2) the attractiveness of the industry, (3) the strength of financials, (4) the
capability of management, and (5) the most material Environmental, Social and
Governance (“ESG”) factors
impacting a company. Examples of ESG factors considered by the Investment Adviser include, but are not limited to, carbon emissions, climate risks, labor management, employee safety and corporate governance. The
specific factors considered may vary depending on the type of company being evaluated.
The Investment Adviser seeks
to understand what is changing in companies, industries and markets but isn’t being priced into the market or is being mispriced. Through fundamental research, supported by a global research presence, the
Investment Adviser seeks to identify companies whose quality is not yet fully recognized by the market.
The Investment Adviser may
sell a security when it perceives that a company’s business direction or growth potential has changed or the company’s valuations no longer offer attractive relative value.
Additionally, the Investment
Adviser may seek to enhance the yield of the Fund’s common stock by leveraging the Fund’s capital structure through the borrowing of money, or potentially the issuance of short term debt securities or
shares of preferred stock. The use of leverage also involves certain expenses and risk considerations. See “Risk Factors – Leverage Risk” and “Additional Investment Policies –
Leverage” in this section.
Portfolio of Investments
The Fund may invest in, among
other things, the types of instruments described below:
Common Stock
Common stock is issued by
companies to raise cash for business purposes and represents a proportionate interest in the issuing companies. Therefore, the Fund participates in the success or failure of any company in which it holds stock. The
market value of common stock can fluctuate significantly, reflecting the business performance of the issuing company, investor perception and general economic or financial market movements. Smaller companies are
especially sensitive to these factors and may even become valueless. Despite the risk of price volatility, however, common stocks also offer a greater potential for gain on investment, compared to other classes of
financial assets such as bonds or cash equivalents. The Fund may also receive common stock as proceeds from a defaulted debt security held by the Fund or from a convertible bond converting to common stock. In such
situations, the Fund will hold the common stock at the Investment Adviser’s discretion.
Convertible Securities
Convertible securities are
generally debt securities or preferred stocks that may be converted into common stock. Convertible securities typically pay current income as either interest (debt security
Additional Information Regarding the
Fund (Unaudited) (continued)
convertibles) or dividends (preferred
stocks). A convertible security’s value usually reflects both the stream of current income payments and the value of the underlying common stock. The market value of a convertible security performs like that of
a regular debt security; that is, if market interest rates rise, the value of a convertible security usually falls. Since it is convertible into common stock, the convertible security also has the same types of market
and issuer risk as the underlying common stock. A convertible debt security is not counted as an equity security for purposes of the Fund’s 80% policy.
Illiquid Securities
Illiquid securities are
assets which may not be sold or disposed of in the ordinary course of business within seven days at approximately the price at which a fund has valued the investment on its books and may include such securities as
those not registered under. U.S. securities laws or securities that cannot be sold in public transactions.
Preferred Stock
Preferred stock is a class of
stock that often pays dividends at a specified rate and has preference over common stock in dividend payments and liquidation of assets. Preferred stock may be convertible into common stock.
Private Placements and Other
Restricted Securities
Private placement and other
restricted securities include securities that have been privately placed and are not registered under the 1933 Act, such as unregistered securities eligible for resale without registration pursuant to Rule 144A
(“Rule 144A Securities”) and privately placed securities of U.S. and non-U.S. issuers offered outside of the U.S. without registration with the U.S. Securities and Exchange Commission pursuant to
Regulation S (“Regulation S Securities”).
Private placement securities
typically may be sold only to qualified institutional buyers (or, in the case of the initial sale of certain securities, such as those issued in collateralized debt obligations or collateralized loan obligations, to
accredited investors (as defined in Rule 501(a) under the 1933 Act)), or in a privately negotiated transaction or to a limited number of purchasers, or in limited quantities after they have been held for a specified
period of time and other conditions are met pursuant to an exemption from registration. Rule 144A Securities and Regulation S Securities may be freely traded among certain qualified institutional investors, such as
the Fund, but their resale in the U.S. is permitted only in limited circumstances.
Private placements typically
are subject to restrictions on resale as a matter of contract or under federal securities laws. Because there may be relatively few potential purchasers for such securities, especially under adverse market or economic
conditions or in the event of adverse changes in the financial condition of the issuer, the Fund could find it more difficult to sell such securities when it may be
advisable to do so or it may be able to sell
such securities only at prices lower than if such securities were more widely held. At times, it also may be more difficult to determine the fair value of such securities for purposes of computing the Fund’s net
asset value due to the absence of a trading market.
Private placements and
restricted securities may be considered illiquid securities, which could have the effect of increasing the level of the Fund’s illiquidity. Additionally, a restricted security that was liquid at the time of
purchase may subsequently become illiquid.
Rights Issues and Warrants
Rights issues give the right,
to existing shareholders, to buy a proportional number of additional securities at a given price (generally at a discount) within a fixed period (generally on a short term period) and are offered at the
company’s discretion. Warrants are securities that give the holder the right to buy common stock at a specified price for a specified period of time. Warrants are speculative and have no value if they are not
exercised before the expiration date.
Additional Investment Policies
The Fund has adopted certain
policies as set forth below:
Leverage
The Fund may utilize leverage
primarily for investment purposes through senior securities representing indebtedness from a bank, although it may engage in other transactions, such as reverse repurchase agreements and issuance of debt securities or
preferred securities, which have the effect of leverage. The 1940 Act generally prohibits the Fund from engaging in most forms of leverage representing indebtedness other than preferred shares unless immediately after
such incurrence the Fund’s total assets less all liabilities and indebtedness not represented by senior securities (for these purposes, “total net assets”) is at least 300% of the aggregate senior
securities representing indebtedness (i.e., the use of leverage through senior securities representing indebtedness may not exceed 33 1/3% of the Fund’s total net assets (including the proceeds from leverage)).
Additionally, under the 1940 Act, the Fund generally may not declare any dividend or other distribution upon any class of its capital shares, or purchase any such capital shares, unless at the time of such declaration
or purchase, this asset coverage test is satisfied. The portfolio management team anticipates using leverage of 5% to 15% of the Fund’s total assets and does not currently expect such leverage to actively exceed
20% of total assets. With respect to asset coverage for preferred shares, under the 1940 Act, the Fund is not permitted to issue preferred shares unless immediately after such issuance the value of the Fund’s
total net assets (as defined above) is at least 200% of the liquidation value of the outstanding preferred shares and the newly issued preferred shares plus the aggregate amount of any senior securities of the Fund
representing
Additional Information Regarding the
Fund (Unaudited) (continued)
indebtedness (i.e., such liquidation value
plus the aggregate amount of senior securities representing indebtedness may not exceed 50% of the Fund’s total net assets). In addition, the Fund is not permitted to declare any cash dividend or other
distribution on its Common Shares unless, at the time of such declaration, the value of the Fund’s total net assets (determined after deducting the amount of such dividend or other distribution) satisfies the
above-referenced 200% coverage requirement. Although the Fund has the ability to issue debt securities and preferred stock, it does not currently anticipate issuing any debt securities or preferred stock, which would
be subject to approval by the Fund’s Board. The Fund’s use of leverage does not impact the fees paid to the Investment Adviser for investment advisory and management services because the Investment Adviser
is paid on net assets not total assets.
Other Investment Strategies
Debt Securities
The Fund’s assets may
be invested in debt securities when the Investment Adviser believes that, based upon factors such as relative interest rate levels and foreign exchange rates, such debt securities offer opportunities for total return
from long-term capital appreciation and/or income. The debt securities in which the Fund may invest include:
| •
| bank deposits and bank obligations (including certificates of deposit, time deposits and bankers’ acceptances),
|
| •
| repurchase agreements, and
|
| •
| assignments of loans and loan participations.
|
The Fund may in the future
employ new or additional investment strategies and hedging instruments if those strategies and instruments are consistent with the Fund’s investment objective and are permissible under applicable regulations
governing the Fund.
Risk Factors
General
The Fund is a
non-diversified, closed-end investment company designed primarily as a long-term investment and not as a trading tool. An investment in the Fund’s shares may be speculative and involves a high degree of risk.
The Fund should not be considered a complete investment program. Due to the uncertainty in all investments, there can be no assurance that the Fund will achieve its investment objective.
Investment and Market Risk
Deteriorating market
conditions might cause a general weakness in the market that reduces the prices of securities in that market.
Developments in the stock market could also
adversely affect the Fund by reducing the relative attractiveness of stocks as an investment. Also, to the extent that the Fund emphasizes stocks from any given industry, it could be hurt if that industry does not do
well.
Additionally, the Fund could
lose value if the individual stocks in which it maintains long positions and/or the overall stock markets on which the stocks trade decline in price. Stocks and stock markets may experience short-term volatility
(price fluctuation) as well as extended periods of price decline or increase. Individual stocks are affected by many factors, including:
| •
| market trends, including investor demand for a particular type of stock, such as growth or value stocks, small or large stocks, or stocks within a particular industry.
|
Stock markets are affected by
numerous factors, including interest rates, the outlook for corporate profits, the health of the national and world economies, national and world social and political events, and the fluctuation of other stock market
around the world.
Market Events Risk
The market values of
securities or other assets will fluctuate, sometimes sharply and unpredictably, due to changes in general market conditions, overall economic trends or events, governmental actions or intervention, actions taken by
the U.S. Federal Reserve or foreign central banks, market disruptions caused by trade disputes or other factors, political developments, investor sentiment and other factors that may or may not be related to the
issuer of the security or other asset. Economies and financial markets throughout the world are increasingly interconnected. Economic, financial or political events, trading and tariff arrangements, arrangements,
actual or threatened wars or other armed conflicts (such as the Russia/Ukraine and Israel/Hamas conflicts), terrorism, natural disasters and other circumstances in one country or region could have profound impacts on
global economies or markets. As a result, whether or not the Fund invests in securities of issuers located in or with significant exposure to the countries directly affected, the value and liquidity of the Fund's
investments may be negatively affected. 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.
Russia/Ukraine Risk. In
February 2022, Russia commenced a military attack on Ukraine. The outbreak of hostilities between the two countries and the threat of wider spread hostilities could have a
Additional Information Regarding the
Fund (Unaudited) (continued)
severe adverse effect on the region and
global economies, including significant negative impacts on the markets for certain securities and commodities, such as oil and natural gas. In addition, sanctions imposed on Russia by the United States and other
countries, and any sanctions imposed in the future, could have a significant adverse impact on the Russian economy and related markets. The price and liquidity of investments may fluctuate widely as a result of the
conflict and related events. How long the armed conflict and related events will last cannot be predicts. These tensions and any related events could have a significant impact on Fund performance and the value of the
Funds' investments.
Europe Related Risk. A number of countries in Europe have experienced severe economic and financial difficulties. Many non-governmental issuers, and even certain governments, have defaulted on, or been forced
to restructure, their debts; many other issuers have faced difficulties obtaining credit or refinancing existing obligations; financial institutions have in many cases required government or central bank support, have
needed to raise capital, and/or have been impaired in their ability to extend credit; and financial markets in Europe and elsewhere have experienced extreme volatility and declines in asset values and liquidity. These
difficulties may continue, worsen or spread within and outside Europe. Responses to the financial problems by European governments, central banks and others, including austerity measures and reforms, may not work, may
result in social unrest and may limit future growth and economic recovery or have other unintended consequences. Further defaults or restructurings by governments and others of their debt could have additional adverse
effects on economies, financial markets and asset valuations around the world.
Conflicts of Interest Risk
The portfolio managers'
management of “other accounts” may give rise to potential conflicts of interest in connection with their management of a Fund'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 Fund. 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 believes 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.
In some cases, another account managed by
the same portfolio manager may compensate abrdn based on the performance of the portfolio held by that account. The existence of such a performance-based fee may create additional conflicts of interest for the
portfolio manager in the allocation of management time, resources and investment opportunities.
Another potential conflict
could include instances in which securities considered as investments for the Fund also may be appropriate for other investment accounts managed by the Adviser or its affiliates. Whenever decisions are made to buy or
sell securities by the Fund 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 it believes to be equitable under the circumstances. As a result of the allocations, there may be instances where the Fund 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 Fund from time to time, it is the opinion of the Investment Adviser that the
benefits from the policies outweigh any disadvantage that may arise from exposure to simultaneous transactions. The Trust 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.From time to time, the Investment Adviser may seed proprietary accounts for the purpose
of evaluating a new investment strategy that eventually may be available to clients through one or more product structures. Such accounts also may serve the purpose of establishing a performance record for the
strategy. The management by the Investment Adviser of accounts with proprietary interests and nonproprietary client accounts may create an incentive to favor the proprietary accounts in the allocation of investment
opportunities, and the timing and aggregation of investments. The Investment Adviser's proprietary seed accounts may include long-short strategies, and certain client strategies may permit short sales. A conflict of
interest arises if a security is sold short at the same time as a long position, and continuous short selling in a security may adversely affect the stock price of the same security held long in client accounts. The
Investment Adviser have adopted various policies to mitigate these conflicts.
In addition, the 1940 Act
limits the Fund's ability to enter into certain transactions with certain affiliates of the Investment Adviser. As a result of these restrictions, the Fund may be prohibited from buying or selling any security
directly from or to any portfolio company of a fund managed by the Investment Adviser or one of their affiliates. Nonetheless, the Fund may under certain circumstances purchase any such portfolio company's loans or
securities in the secondary market, which could create a conflict for the Investment Adviser
Additional Information Regarding the
Fund (Unaudited) (continued)
between the interests of the Fund and the
portfolio company, in that the ability of the Investment Adviser to recommend actions in the best interest of the Fund might be impaired. The 1940 Act also prohibits certain “joint” transactions with
certain of the Fund's affiliates (which could include other abrdn-managed Funds), which could be deemed to include certain types of investments, or restructuring of investments, in the same portfolio company (whether
at the same or different times). These limitations may limit the scope of investment opportunities that would otherwise be available to the Fund. The Board has approved policies and procedures reasonably designed to
monitor potential conflicts of interest. The Board will review these procedures and any conflicts that may arise. The Investment Adviser or their respective members, officers, directors, employees, principals or
affiliates may come into possession of material, non-public information. The possession of such information may limit the ability of the Fund to buy or sell a security or otherwise to participate in an investment
opportunity. Situations may occur where the Fund could be disadvantaged because of the investment activities conducted by the Investment Adviser for other clients, and the Investment Adviser will not employ
information barriers with regard to its operations on behalf of its registered and private funds, or other accounts. In certain circumstances, employees of the Investment Adviser may serve as board members or in other
capacities for portfolio or potential portfolio companies, which could restrict the Fund's ability to trade in the securities of such companies.
Foreign Securities Risk
Investing in foreign
securities involves certain special considerations that are not typically associated with investments in the securities of U.S. issuers. Foreign issuers are not generally subject to uniform accounting, auditing and
financial reporting standards and may have policies that are not comparable to those of domestic issuers. As a result, there may be less information available about foreign issuers than about domestic issuers.
Securities of some foreign issuers may be less liquid and more volatile than securities of comparable domestic issuers. There is generally less government supervision and regulation of securities markets, brokers and
issuers than in the United States. In addition, with respect to certain foreign countries, there is a possibility of expropriation or confiscatory taxation, political and social instability, or diplomatic
developments, which could affect the value of investments in those countries. These risks are heightened under adverse economic, market, geopolitical and other conditions. The costs of investing in foreign countries
frequently are higher than the costs of investing in the United States. Although the investment adviser endeavors to achieve the most favorable execution costs in portfolio transactions, trading costs in non-U.S.
securities markets are generally higher than trading costs in the United States.
Investments in securities of foreign issuers
often will be denominated in foreign currencies. Accordingly, the value of the Fund’s assets, as measured in U.S. dollars, may be affected favorably or unfavorably by changes in currency exchange rates and in
exchange control regulations. The Fund may incur costs in connection with conversions between various currencies. See “Currency Exchange Rate Fluctuations.”
The Fund generally holds its
foreign securities and cash in foreign banks and securities depositories approved by State Street Bank and Trust Company, the Fund’s Foreign Custody Manager (as that term is defined in Rule 17f-5 under the 1940
Act). Some foreign banks and securities depositories may be recently organized or new to the foreign custody business. There may be limited or no regulatory oversight over their operations. Also, the laws of certain
countries may put limits on the Fund’s ability to recover its assets if a foreign bank, depository or issuer of a security, or any of their agents, goes bankrupt. In addition, it is often more expensive for the
Fund to buy, sell and hold securities in certain foreign markets than in the United States. The increased expense of investing in foreign markets reduces the amount the Fund can earn on its investments and typically
results in a higher operating expense ratio for the Fund than for investment companies invested only in the United States.
Certain foreign governments
levy withholding or other taxes on dividend and interest income. Although in some countries a portion of these taxes are recoverable, the non-recovered portion of foreign withholding taxes will reduce the income
received from investments in such countries.
From time to time, the Fund
may have invested in certain sovereign debt obligations that are issued by, or certain companies that operate in or have dealings with, countries that become subject to sanctions or embargoes imposed by the U.S.
government and the United Nations and/or countries identified by the U.S. government as state sponsors of terrorism.
Investments in such countries
may be adversely affected because, for example, the credit rating of the sovereign debt security may be lowered due to the country’s instability or unreliability or the company may suffer damage to its
reputation if it is identified as a company which operates in, or has dealings with, such countries. As an investor in such companies, the Fund will be indirectly subject to those risks.
Developing and Emerging Markets
Risk
Investing in the securities
of issuers located in developing and emerging market countries (and to a certain extent non-U.S. developed market countries) involves special considerations not typically associated with investing in the securities of
U.S. issuers and other developed market issuers, including heightened risks of
Additional Information Regarding the
Fund (Unaudited) (continued)
expropriation and/or nationalization, armed
conflict, confiscatory taxation, restrictions on transfers of assets, lack of uniform accounting and auditing standards, difficulties in dividend withholding reclaims procedures, less publicly available financial and
other information and potential difficulties in enforcing contractual obligations. International trade barriers or economic sanctions against foreign countries, organizations, entities and/or individuals in response
to geopolitical tensions or conflicts may adversely affect the value of the Fund’s foreign holdings. The type and severity of sanctions and other similar measures are difficult to measure or predict.
The economies of individual
developing and emerging market countries may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, capital reinvestment,
resource self-sufficiency and balance of payments position. Governments in emerging markets countries are often less stable and more likely to take extra-legal action with respect to companies, industries, assets, or
foreign ownership than those in more developed markets. Governments of many developing and emerging market countries have exercised and continue to exercise substantial influence over many aspects of the private
sector. In some cases, the government owns or controls many companies, including some of the largest in the country.
Accordingly, government
actions could have a significant effect on economic conditions in a developing or emerging market country and on market conditions, prices and yields of securities in the Fund’s portfolio. Moreover, the
economies of developing and emerging market countries generally are heavily dependent upon international trade and, accordingly, have been and may continue to be adversely affected 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. These economies also have been and may continue to be adversely
affected by economic conditions in the countries with which they trade. Many developing and emerging market economies are considered to be more politically volatile than the developed markets. Investments in
securities of issuers in countries other than the U.S. may involve greater political risk, including in some countries, the possibility of nationalization of assets, expropriation or confiscatory taxation,
restrictions on repatriation, and the establishment of foreign exchange controls, political changes, government regulation, overburdened and obsolete or unseasoned financial systems, environmental problems, less
developed legal systems, economic or social instability or diplomatic developments (including war) which could affect adversely the economies of such countries or the value of the Fund’s investments in those
countries. Central authorities also tend to exercise a high degree of control over the economies and in many cases have ownership over core productive assets.
The legal, accounting and financial
reporting systems in many developing and emerging market countries are less developed than those in more developed countries, which may reduce the scope or quality of financial information available to investors.
Furthermore, the administration of laws and regulations often may be subject to considerable discretion. Non-U.S. markets may offer less protection to investors than U.S. or other developed markets. It also may be
difficult for investors to bring litigation or to obtain and enforce a judgment against issues in emerging markets or for U.S. regulators to bring enforcement actions against such issuers.
Due to their strong reliance
on international trade, most developing and emerging market economies tend to be sensitive both to economic changes in their own region and to changes affecting their major trading partners. These include changes in
growth, inflation, foreign exchange rates, current account positions, government policies, taxation and tariffs. Additionally, the economies of some emerging markets may be particularly exposed to or affected by a
certain industry or sector, and therefore issuers and/or securities of such emerging markets may be more affected by the performance of such industries or sectors.
China Securities. In addition to the risks listed above under “Foreign Securities Risk” and “Developing and Emerging Markets Risk,” investing in certain countries, such as China,
including Hong Kong, may present additional risks. Exposure to China may be gained through investments in securities that are economically tied to China or, in some cases, through direct investment in Chinese
securities. An economic downturn in China or geopolitical tensions involving China could adversely impact investments in Chinese or Chinese-related issuers because, among other possibilities, certain Chinese issuers
may be sanctioned by the U.S. government in the event of a geopolitical tension.The Fund invests in Chinese domestic securities markets primarily via Stock Connect Programs (defined below). Other than risks involved
in investments on an international basis and in emerging markets, as well as other risks of investments generally as described within this section which are applicable to investments in China, investors should also
note the additional specific risks below.
Chinese authorities may
intervene in the China securities market and halt or suspend trading of securities for short or even longer periods of time. The China securities market has experienced considerable volatility and been subject to
relatively frequent and extensive trading halts and suspensions. These trading halts and suspensions have, among other things, contributed to uncertainty in the markets and reduced the liquidity of the securities
subject to such trading halts and suspensions, which could include securities held by the Fund.
In recent years, non-Chinese
investors, such as the Fund, has been permitted to make investments usually only available to foreign investors through a quota license or by purchasing from specified
Additional Information Regarding the
Fund (Unaudited) (continued)
brokers in Shanghai or other locations that
have stock connect programs. China Stock Exchange-listed securities are available via brokers in Hong Kong through the Shanghai-Hong Kong Stock Connect program, through the Shenzhen-Hong Kong Stock Connect Program,
and may be available in the future through additional stock connect programs as they are developed in different locations (collectively, “Stock Connect Programs”). Investing in China A shares through Stock
Connect Programs may be limited by quota and repatriation restrictions. Additionally, investments through Stock Connect Programs are subject to various risks, including liquidity risk, currency risk, legal and
regulatory uncertainty risk, execution risk, operational risk, tax risk, counterparty risk and credit risk.
The Fund may also gain
exposure to companies based or operated in China by investing through legal structures known as variable interest entities (VIEs). Instead of directly owning the equity securities of a Chinese company, a VIE enters
into service and other contracts with the Chinese company. Although the VIE has no equity ownership of the Chinese company, the contractual arrangements permit the VIE to consolidate the Chinese company into its
financial statements. The Chinese government could intervene with respect to VIEs, which could significantly affect the Chinese company’s performance and the enforceability of the VIE’s contractual
arrangement with the Chinese company.
Frontier Market Securities.
The risks associated with investments in frontier market countries include all the risks described for investments in the sections entitled “Foreign Securities” and
“Emerging Markets Securities,” although the risks are magnified for frontier market countries. Because frontier markets are among the smallest, least mature and least liquid of the emerging markets,
investments in frontier markets generally are subject to a greater risk of loss than are investments in developed markets or traditional emerging markets. Frontier market countries have smaller economies, less
developed capital markets, greater market volatility, lower trading volume, more political and economic instability, greater risk of a market shutdown and more governmental limitations on foreign investments than are
typically found in more developed markets.
Equity Risk
The value of equity
securities, including common stock, preferred stock and convertible stock, will fluctuate in response to factors affecting the particular company, as well as broader market and economic conditions. Moreover, in the
event of the company’s bankruptcy, claims of certain creditors, including bondholders, will have priority over claims of common stock holders and are likely to have varying types of priority over holders of
preferred and convertible stock.
As an investment company that holds
primarily common stocks, the Fund’s portfolio is subject to the possibility that common stock prices will decline over short or even extended periods. The Fund may remain substantially fully invested during
periods when stock prices generally rise and also during periods when they generally decline. Moreover, as a holder of common stock, the Fund’s rights to the assets of the companies in which it invests will be
subordinated to such companies’ holders of preferred stock and debt in the event of a bankruptcy, liquidation or similar proceeding. Accordingly, if such an event were to occur to such a company in which the
Fund invests, the Fund would be entitled to such a company’s assets only after such company’s preferred stockholders and debt holders have been paid. Risks are inherent in investments in equities, and Fund
shareholders should be able to tolerate significant fluctuations in the value of their investment in the Fund.
Inflation Risk
Inflation risk is the risk
that the purchasing power of assets or income from investment will be less in the future as inflation decreases the value of money. To the extent that inflation occurs, it will reduce the real value of dividends paid
by the Fund and the Fund’s common stock. Most emerging market countries, in particular, have experienced substantial, and in some periods extremely high and volatile, rates of inflation. Inflation and rapid
fluctuations in inflation rates have had and may continue to have very negative effects on economies and securities markets globally. In an attempt to control inflation, wage and price controls have been imposed at
times in certain countries.
Management Risk
The Fund is subject to
management risk because it is an actively managed portfolio. The Fund's successful pursuit of its investment objective depends upon the Investment 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 Investment Adviser to fulfill the Fund's investment objective. The Investment 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
Investment Adviser, the Investment 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 objective.
Additional Information Regarding the
Fund (Unaudited) (continued)
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.
Currency Exchange Rate
Fluctuations
The Fund’s securities
will be subject to the risk that some holdings may lose value because of a decline in the value of the foreign currency or adverse political or economic events in such foreign country or elsewhere. Currency exchange
rates can fluctuate significantly over short periods and can be subject to unpredictable changes based on a variety of factors, including political developments and currency controls by foreign governments. The Fund
will normally hold many of its assets in foreign currencies. Accordingly, a change in the value of a foreign currency in which the Fund hold securities against the U.S. dollar will generally result in a change in the
U.S. dollar value of the Fund’s assets. Such a change may thus decrease the Fund’s net asset value.
The currencies of developing
and emerging markets, in particular, have experienced periods of steady declines or even sudden devaluations relative to the U.S. dollar. Some developing and emerging market currencies may not be internationally
traded or may be subject to strict controls by local governments, resulting in undervalued or overvalued currencies. Some developing and emerging markets have experienced balance of payment deficits and shortages in
foreign exchange reserves. Governments have responded by restricting currency conversions. Future restrictive exchange controls could prevent or restrict a company’s ability to make dividend or interest payments
in the original currency of an obligation (often U.S. dollars). Even though the currencies of some developing and emerging markets may be convertible into U.S. dollars, the conversion rates may be artificial to their
actual market values.
In addition, although much of
the Fund’s income will be received or realized in foreign currencies, the Fund will be required to compute and distribute its income in U.S. dollars. Therefore, for example, if the exchange rate for the foreign
currency declines after the Fund’s income has been accrued and translated in U.S. dollars, but before the income has been received or converted into U.S. dollars, the Fund could be required to liquidate
portfolio securities to make distributions. Similarly, if the exchange rate declines between the time the Fund incurs expenses in U.S. dollars and the time such expenses are paid, the amount of the foreign
currency required to be converted into U.S. dollars in order to pay those expenses will be greater than the foreign currency equivalent of those expenses at the time they were incurred.
Currency exchange rate
fluctuations can decrease or eliminate income available for distribution or, conversely, increase income
available for distribution. For example, in
some situations, if certain currency exchange losses exceed net investment income for a taxable year, the Fund would not be able to make ordinary income distributions, and all or a portion of distributions made before
the losses were realized but in the same taxable year would be recharacterized as a return of capital to shareholders for U.S. federal income tax purposes, thus reducing shareholders’ cost basis in their Fund
shares, or as a capital gain distribution, rather than as an ordinary income dividend.
Illiquid Securities Risk
The Fund’s investments
in illiquid securities may restrict its ability to dispose of its investments in a timely fashion and at a price approximating the value at which the Fund carries the securities on its books.
The Fund may invest in
illiquid securities. Illiquid securities are securities that are not readily marketable. The prices of such securities may change abruptly and erratically, and investment of the Fund’s assets in illiquid
securities may restrict the ability of the Fund to dispose of its investments in a timely fashion and at a price approximating the value at which the Fund carries the securities on its books, as well as restrict its
ability to take advantage of market opportunities. The risks associated with illiquidity will be particularly acute in situations in which the Fund’s operations require cash, such as when the Fund repurchases
shares or pays dividends or distributions, and could result in the Fund borrowing to meet short-term cash requirements or incurring capital losses on the sale of illiquid investments. Further, companies whose
securities are not publicly traded are not subject to the disclosure and other investor protection requirements that would be applicable if their securities were publicly traded.
Market Discount Risk
Shares of closed-end
investment companies frequently trade at a discount from NAV. Continued development of alternative vehicles for investing in essential asset companies may contribute to reducing or eliminating any premium or may
result in the Fund's common shares trading at a discount. The risk that the Fund's common shares may trade at a discount is separate from the risk of a decline in the Fund's NAV as a result of investment
activities.
Whether shareholders will
realize a gain or loss for federal income tax purposes upon the sale of their common shares depends upon whether the market value of the common shares at the time of sale is above or below the shareholder's basis in
such common shares, taking into account transaction costs, and it is not directly dependent upon the Fund's NAV. Because the market price of the Fund's common shares will be determined by factors such as the relative
demand for and supply of the shares in the market, general market conditions and
Additional Information Regarding the
Fund (Unaudited) (continued)
other factors beyond the Fund's control, the
Fund cannot predict whether its common shares will trade at, below or above the NAV, or at, below or above the public offering price for the Fund's common shares.
Non-Diversified Status
The Fund is classified as a
“non-diversified” management investment company under the 1940 Act. This means that the Fund is not subject to limits under the 1940 Act as to the proportion of its assets that may be invested in the
securities of a single issuer. As a non-diversified investment company, the Fund may therefore invest its assets in securities of a smaller number of issuers, or may invest a larger portion of its assets in a single
issuer than a diversified fund, and, as a result, would be more susceptible than a diversified fund to any single corporate, political, geographic, or regulatory occurrence than would a fund with a diversified
investment portfolio. Although the Fund must comply with certain diversification requirements in order to qualify as a regulated investment company under the Code, the Fund may be more susceptible to any single
economic, political or regulatory occurrence than would be the case if it had elected to diversify its holdings sufficiently to be classified as a “diversified” management investment company under the 1940
Act. The Fund, however, intends to comply with the diversification requirements imposed by the Code for qualification as a regulated investment company.
Private Placements and Other
Restricted Securities Risk
Private placement and other
restricted securities include securities that have been privately placed and are not registered under the Securities Act of 1933 (“1933 Act”), such as unregistered securities eligible for resale without
registration pursuant to Rule 144A (“Rule 144A Securities”) and privately placed securities of U.S. and non-U.S. issuers offered outside of the U.S. without registration with the U.S. Securities and
Exchange Commission pursuant to Regulation S (“Regulation S Securities”). Since the offering is not registered with the SEC, investors in a private placement have less protection under the federal
securities laws against improper practices than investors in registered securities.
Private placement securities
typically may be sold only to qualified institutional buyers (or, in the case of the initial sale of certain securities, such as those issued in collateralized debt obligations or collateralized loan obligations, to
accredited investors (as defined in Rule 501(a) under the 1933 Act)), or in a privately negotiated transaction or to a limited number of purchasers, or in limited quantities after they have been held for a specified
period of time and other conditions are met pursuant to an exemption from registration. Rule 144A Securities and Regulation S Securities may be freely traded among certain qualified institutional investors, such as
the Funds, but their resale in the U.S. is permitted only in limited circumstances.
Private placements typically are subject to
restrictions on resale as a matter of contract or under federal securities laws. Because there may be relatively few potential purchasers for such securities, especially under adverse market or economic conditions or
in the event of adverse changes in the financial condition of the issuer, the Fund could find it more difficult to sell such securities when it may be advisable to do so or it may be able to sell such securities only
at prices lower than if such securities were more widely held. At times, it also may be more difficult to determine the fair value of such securities for purposes of computing the Fund’s net asset value due to
the absence of a trading market.
Private placements and
restricted securities may be considered illiquid securities, which could have the effect of increasing the level of the Fund’s illiquidity. Additionally, a restricted security that was liquid at the time of
purchase may subsequently become illiquid.
Many private placement
securities are issued by companies that are not required to file periodic financial reports, leading to challenges in evaluating the company’s overall business prospects and gauging how the investment is likely
to perform over time. The more limited financial information and lack of publicly available prices likely require the Fund to determine a fair value for such investments. The fair valuation process involves a
significant amount of judgment and the fair value prices determined for the Fund could differ from those of other market participants because there is less reliable objective data available.
Anti-Takeover Charter
Provisions
The Fund’s charter and
by-laws contain several provisions that may be regarded as “anti-takeover” because they have the effect of maintaining continuity of management.
Foreign Custody
The Fund’s custodian
generally holds the Fund’s non-U.S. securities and cash in non-U.S. bank sub-custodians and securities depositories. Regulatory oversight of non-U.S. banks and securities depositories may differ from that in the
U.S. Additionally, laws applicable to non-U.S. banks and securities depositories may limit the Fund’s ability to recover its assets in the event the non-U.S. bank, securities depository or issuer of a security
held by the Fund goes bankrupt.
Convertible Securities Risk
Convertible securities
generally offer lower interest or dividend yields than non-convertible securities of similar quality. As with all debt securities, the market values of convertible securities tend to decline as interest rates increase
and, conversely, to increase as interest rates decline. However, when the market price of the common stock underlying a convertible security exceeds the conversion price, the convertible security tends to reflect the
market price of the
Additional Information Regarding the
Fund (Unaudited) (continued)
underlying common stock in varying degrees.
Depending on the relationship of such market price to the conversion price in the terms of the convertible security, convertible securities are also subject to the same types of market and issuer risks that may
negatively affect the pricing of the underlying common stock. As the market price of the underlying common stock declines, the convertible security tends to trade increasingly on a yield basis and thus may not decline
in price to the same extent as the underlying common stock. Convertible securities rank senior to common stock in an issuer’s capital structure and consequently entail less risk than the issuer’s common
stock. A convertible debt security is not counted as an equity security for purposes of the Fund’s 80% policy.
Country/Regional Focus Risk
Focusing on a single country
or geographical region involves increased currency, political, regulatory and other risks. Market swings in the targeted country or geographical region likely will have a greater effect on portfolio performance than
they would in a more geographically diversified fund.
Depositary Receipts
Depositary receipts are
typically issued by a bank or trust company and represent the ownership of underlying securities that are issued by a foreign company and held by the bank or trust company. American Depositary Receipts
(“ADRs”) are usually issued by a U.S. bank trust or trust company and traded on a U.S. exchange. Depositary receipts may or may not be jointly sponsored by the underlying issuer. The issuers of unsponsored
depositary receipts are not obligated to disclose information that is, in the United States, considered material. Therefore, there may be less information available regarding these issuers and there may not be a
correlation between such information and the market value of the depositary receipts. Certain depositary receipts are not listed on an exchange and therefore may be considered to be illiquid securities. In addition,
the issuers of depositary receipts may discontinue issuing new depositary receipts and withdraw existing depositary receipts at any time, which may result in costs and delays in the distribution of the underlying
assets to the Fund and may negatively impact the Fund’s performance.
Event Risk
Event risk is the risk that a
corporate event such as a restructuring, merger, leveraged buyout, takeover, or similar action may cause a decline in market value or credit quality of the issuer’s stocks or bonds due to factors including an
unfavorable market response or a resulting increase in the issuer’s debt. Added debt may significantly reduce the credit quality and market value of an issuer’s bonds.
Leverage Risk
The Fund uses leverage as
part of its investment strategy through borrowing from a credit facility. The Fund is not permitted to incur indebtedness unless immediately thereafter the Fund will have an asset coverage of at least 300%. In
general, the term “asset coverage” for this purpose means the ratio which the value of the total assets of the Fund, less all liabilities and indebtedness not represented by senior securities, bears to the
aggregate amount of senior securities representing indebtedness of the Fund. In addition, the Fund may be limited in its ability to declare any cash distribution on its capital stock or purchase its capital stock
unless at the time of such declaration or purchase, the Fund has an asset coverage (on its indebtedness) of at least 300% after deducting the amount of such distribution or purchase price, as applicable. Under the
1940 Act, certain short-term borrowings (such as for cash management purposes) are not subject to these limitations if (i) repaid within 60 days, (ii) not extended or renewed and (iii) not in excess of 5% of the total
assets of the Fund. The Fund may also enter into certain transactions that create leverage, such as reverse repurchase agreements, which are not subject to the asset coverage requirements set out above.
The Fund may engage in
leverage through the issuance of preferred stock. Under the 1940 Act, the Fund is not permitted to issue preferred stock unless immediately after such issuance the Fund will have an asset coverage of at least 200%. In
general, the term “asset coverage” for this purpose means the ratio the value of the total assets of the Fund, less all liabilities and indebtedness not represented by senior securities, bears to the
aggregate amount of senior securities representing indebtedness of the Fund plus the aggregate of the involuntary liquidation preference of the preferred stock. The involuntary liquidation preference refers to the
amount to which the preferred stock would be entitled on the involuntary liquidation of the Fund in preference to a security junior to it. Leverage involves certain additional risks, including that the cost of
leverage may exceed the return earned by the Fund on the proceeds of such leverage. 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
Additional Information Regarding the
Fund (Unaudited) (continued)
imposed on the Fund by the 1940 Act. The
covenants or guidelines could impede the Fund’s Investment Adviser from fully managing the Fund’s portfolio in accordance with the Fund’s investment objective and policies; however, because the
Fund’s use of leverage is expected to be relatively modest and the Fund generally is not expected to engage in derivatives transactions, the Fund’s Investment Adviser currently does not believe that such
restrictions would significantly impact its management of the Fund.
Mid-Cap Securities Risk
Securities of medium-sized
companies tend to be more volatile and less liquid than securities of larger companies. Compared to larger companies, mid-cap securities tend to have analyst coverage by fewer Wall Street firms and may trade at prices
that reflect incomplete or inaccurate information. Medium-sized companies may have a shorter history of operations, less access to financing and a less diversified product line and be more susceptible to market
pressures and therefore have more volatile prices and company performance than larger companies. During some periods, securities of medium-sized companies, as an asset class, have underperformed the securities of
larger companies.
Preferred Stock
The Fund may invest in
preferred stock. Preferred stock is a class of stock that often pays dividends at a specified rate and has preference over common stock in dividend payments and, to the extent proceeds are available after paying any
more senior creditors, liquidation of assets. Preferred stock may be convertible into common stock.
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.
Financials Sector Risk. To the extent that the financials sector continues to represent 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 financials sector may be adversely impacted by many factors, including, among others, government regulations, economic conditions, credit
rating downgrades, changes in interest rates, decreased liquidity in credit markets, and bank failures. The impact of more stringent capital requirements, recent or future failure 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. Information technology companies face intense competition, both domestically and internationally, which may have an adverse effect on their profit margins. Like other
technology companies, information technology companies may have limited product lines, markets, financial resources or personnel. The products of information technology companies may face obsolescence due to rapid
technological developments, frequent new product introduction, unpredictable changes in growth rates, competition for the services of qualified personnel, and reduced availability of financing options. Companies in
the information technology sector are heavily dependent on patent and intellectual property rights. The loss or impairment of these rights may adversely affect the profitability of these companies.
Small-Cap Securities Risk
In general, securities of
small-cap companies trade in lower volumes and are subject to greater or more unpredictable price changes than larger cap securities or the market overall. Small-cap companies may have limited product lines or
markets, be less financially secure than larger companies, or depend on a small number of key personnel. If adverse developments occur, such as due to management changes or product failure, the Fund’s investment
in a small-cap company may lose substantial value. Investing in small-cap companies requires a longer term investment view and may not be appropriate for all investors.
Valuation Risk
The price the Fund could
receive upon the sale of any particular portfolio investment may differ from the Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using a
fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon the sale of an investment may be less than the value ascribed by the Fund, and the Fund could
realize a greater than expected loss or lesser than expected gain upon the sale of the investment. Pricing services that value fixed-income securities generally utilize a range of market-based and security-specific
inputs and assumptions, as well as considerations about general market conditions, to establish a price. Pricing services generally value fixed- income securities assuming orderly transactions of an institutional
round lot size and the strategies employed by the Adviser generally trade in round lot sizes. In certain circumstances, fixed income securities may be held or transactions may be conducted in smaller, odd lot sizes.
Odd lots may trade at lower or, occasionally, higher prices than institutional round lots. The Fund’s ability to value its
Additional Information Regarding the
Fund (Unaudited) (continued)
investments may also be impacted by
technological issues and/or errors by pricing services or other third-party service providers.
In addition, since foreign
exchanges may be open on days when the Fund does not price its shares, the value of the securities in the Fund’s portfolio may change on days when shareholders are not be able to purchase or sell the
Fund’s shares on the NYSE American.
Cybersecurity Risk
Cybersecurity incidents may
allow an unauthorized party to gain access to Fund assets, customer data (including private shareholder information), or proprietary information, or cause the Fund, the Investment Adviser and/or its service providers
(including, but not limited to, Fund accountants, custodians, sub-custodians, transfer agents and financial intermediaries) to suffer data breaches, data corruption or lose operational functionality. Furthermore, the
Fund may be an appealing target for cybersecurity threats such as hackers and malware.
Fundamental Investment
Restrictions
The following restrictions
are fundamental policies, which cannot be changed without the approval of the holders of a majority of the Fund’s outstanding voting securities. In the event that the Fund issues preferred shares, changes in
investment restrictions would also require approval by a majority of the outstanding preferred shares, voting as a separate class. If a percentage restriction on investment or use of assets set forth below is adhered
to at the time a transaction is effected, later changes in a percentage resulting from changing values will not be considered a violation.
The Fund may not:
| 1.
| Invest 25% or more of the total value of its assets in a particular industry. This restriction does not apply to investments in United States government securities.
|
| 2.
| Borrow money or issue senior securities, except that the Fund may enter into reverse repurchase agreements and may otherwise borrow money and issue senior securities as and to the extent permitted by
the 1940 Act or any rule, order or interpretation thereunder.
|
| 3.
| Lend money to other persons except through the purchase of debt obligations and the entering into of repurchase agreements in the United States or Chile consistent with the Fund’s investment
policies.
|
| 4.
| Make short sales of securities or maintain a short position in any security.
|
| 5.
| Purchase securities on margin, except such short-term credits as may be necessary or routine for the clearance or settlement of transactions and the maintenance of margin with respect to forward
contracts or other hedging transactions.
|
| 6.
| Underwrite securities of other issuers, except insofar as the Fund may be deemed an underwriter under the Securities Act of 1933, as amended, in selling portfolio securities.
|
| 7.
| Purchase or sell commodities or real estate, except that the Fund may invest in securities secured by real estate or interests in real estate or in securities issued by companies, including real estate
investment trusts, that invest in real estate or interests in real estate, and may purchase and sell forward contracts on foreign currencies to the extent permitted under applicable law.
|
In addition to the foregoing
restrictions, the Fund is subject to investment limitations, portfolio diversification requirements and other restrictions imposed by certain emerging countries in which it invests.
Effects of Leverage
The following table is
furnished in response to requirements of the SEC. It is designed to, among other things, illustrate the effects of leverage through the use of senior securities, as that term is defined under Section 18 of the 1940
Act, on Common Share total return, assuming investment portfolio total returns (consisting of income and changes in the value of investments held in a Fund’s portfolio) of -10%, -5%, 0%, 5% and 10%. The table
below reflects the Fund’s continued use of the revolving credit facility as of December 31, 2023 as a percentage of total managed assets (including assets attributable to such leverage) and the annual return
that the Fund’s portfolio must experience (net of expenses) in order to cover such costs. The information below does not reflect the Fund’s use of certain other forms of economic leverage achieved through
the use of other instruments or transactions not considered to be senior securities under the 1940 Act, such as covered reverse repurchase agreements, covered credit default swaps or other derivative instruments, if
any.
The assumed investment
portfolio returns in the table below are hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced or expected to be experienced by the Fund. Your actual returns may be
greater or less than those appearing below. In addition, actual borrowing expenses associated with borrowings used by the Fund may vary frequently and
Additional Information Regarding the
Fund (Unaudited) (concluded)
may be significantly higher or lower than the
rate used for the example below.
Assumed
annual
returns on
the Fund's
portfolio
(net of
expenses)
| (10%)
| (5%)
| 0%
| 5%
| 10%
|
Corresponding
return of
shareholder
| (11.9%)
| (6.4%)
| (0.8%)
| 4.8%
| 10.4%
|
Based on estimated
indebtedness of $35,000,000 (representing approximately 10.4% of the Fund’s Managed Assets as of December 31, 2023), and an average annual interest rate of 6.80% (effective interest rate as of December 31,
2023), the Fund’s investment portfolio at fair value would have to produce an annual return of approximately 0.7% to cover annual interest payments on the estimated debt.
Share total return is
composed of two elements – the distributions paid by the Fund to holders of shares (the amount of which is largely determined by the net investment income of the Fund after paying
dividend payments on any preferred shares
issued by the Fund and expenses on any forms of leverage outstanding) and gains or losses on the value of the securities and other instruments the Fund owns. As required by SEC rules, the table assumes that the Fund
is more likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0%, the Fund must assume that the income it receives on its investments is entirely offset by losses
in the value of those investments. This table reflects hypothetical performance of the Fund’s portfolio and not the actual performance of the Fund’s shares, the value of which is determined by market
forces and other factors.
Should the Fund elect to add
additional leverage to its portfolio, any benefits of such additional leverage cannot be fully achieved until the proceeds resulting from the use of such leverage have been received by the Fund and invested in
accordance with the Fund’s investment objective and policies. As noted above, the Fund’s willingness to use additional leverage, and the extent to which leverage is used at any time, will depend on many
factors, including, among other things, the Adviser’s assessment of the yield curve environment, interest rate trends, market conditions and other factors.
Dividend Reinvestment and Optional Cash Purchase
Plan (Unaudited)
The Fund intends to distribute to
shareholders 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”), shareholders 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 shareholders
elect to receive distributions in cash. Shareholders who elect to receive distributions in cash will receive such distributions paid by check in U.S. Dollars mailed directly to the shareholder by the Plan Agent, as
dividend paying agent. In the case of shareholders 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 shareholders as representing the total amount registered in such shareholders’ 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 shareholders 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 NYSE
American, 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 NYSE American 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 the 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 wait up to three business days after receipt of a check or electronic funds transfer to ensure it receives good funds. Following confirmation of
receipt of good funds, 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 shareholder accounts in the Plan and furnishes written confirmations of all transactions in an account, including information needed by shareholders 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 shareholder’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 presented to complete this transaction. Market Order sales may only
Dividend Reinvestment and Optional Cash Purchase
Plan (Unaudited) (concluded)
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 43006, Providence, RI 02940-3078.
Management of the Fund (Unaudited)
As of December 31, 2023
The names, years of birth and
business addresses of the Board Members and officers of the Fund as of the most recent fiscal year end, their principal occupations during at least the past five years, the number of portfolios each Board Member
oversees and other directorships they hold are provided in the tables below. Board Members 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 or the Fund's Adviser are included in the table below under the heading “Interested Board Members.” Board Members who are not interested persons, as described above, are
referred to in the table below under the heading “Independent Board Members.” abrdn Inc., its parent company abrdn plc, and its advisory affiliates are collectively referred to as “abrdn” in
the tables below.
Name, Address and
Year of Birth
| Position(s) Held
with the Fund
| Term of Office
and Length of
Time Served
| Principal Occupation(s)
During at Least the Past Five Years
| Number of Registered
Investment Companies
("Registrants") consisting
of Investment Portfolios
("Portfolios") in
Fund Complex*
Overseen by
Board Members
| Other
Directorships
Held by
Board Member**
|
| Independent Board Members
|
|
|
|
|
|
C. William Maher
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1961
| Class II Director
| Term expires 2025; Director since 2018
| Mr. Maher is a Co-founder of Asymmetric Capital Management LLC from May 2018 to September 2020. Formerly Chief Executive Officer of Santa Barbara Tax Products Group
from October 2014 to April 2016.
| 7 Registrants
consisting of
7 Portfolios
| None.
|
Rahn K. Porter
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1954
| Class I Director
| Term expires 2024; Director since 2018
| Mr. Porter is the Principal at RPSS Enterprises (consulting and advisory) since 2019 and is an independent director for Centurylink Investment Management Company. He
was the Chief Financial and Administrative Officer of The Colorado Health Foundation from 2013 to 2021. Mr. Porter was formerly the CFO of Telenet, Inc. and Nupremis, Inc. He also served as Treasurer of Qwest
Communications, Inc. and MediaOne Group. Mr Porter was previously a board member and audit chair for BlackRidge Financial Inc., and Community First Bancshares, Inc.
| 2 Registrants
consisting of
20 Portfolios
| Director of CenturyLink Investment Management Company since 2006, Director of BlackRidge Financial Inc. from 2004 to 2019.
|
Steven N. Rappaport
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1948
| Chair of the Fund; Class III Director
| Term expires 2026; Director since 2003
| Mr. Rappaport has been a Partner of Lehigh Court, LLC (private investment firm) and RZ Capital LLC (private investment firm) since 2004.
| 1 Registrant
consisting of
1 Portfolio
| Director of iCAD, Inc. (a surgical and Medical instruments and apparatus company) from 2006 to 2018; Director of Credit Suisse Funds (9) since
1999; Director of Credit Suisse Asset Management Income Fund, Inc. since 2005; and Director of Credit Suisse NEXT Fund since 2013; and Director of Credit Suisse Park View Fund until 2016.
|
Management of the Fund (Unaudited) (continued)
As of December 31, 2023
Name, Address and
Year of Birth
| Position(s) Held
with the Fund
| Term of Office
and Length of
Time Served
| Principal Occupation(s)
During at Least the Past Five Years
| Number of Registered
Investment Companies
("Registrants") consisting
of Investment Portfolios
("Portfolios") in
Fund Complex*
Overseen by
Board Members
| Other
Directorships
Held by
Board Member**
|
Nancy Yao
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1972
| Class I Director
| Term expires 2024; Director since 2018
| Ms. Yao is a lecturer on accounting and governance at Yale University. She is also a strategic consultant. Ms. Yao was the President of the
Museum of Chinese in America from 2015 until 2023. Prior to that, she served as the executive director of the Yale-China Association and managing director of the corporate program at the Council on Foreign
Relations. Prior to her work in non-profit, Ms. Yao launched the Asia coverage at the Center for Financial Research and Analysis (currently known as RiskMetrics), served as the inaugural director of policy research of
Goldman Sachs’ Global Markets Institute, and was an investment banker at Goldman Sachs (Asia) L.L.C. Ms. Yao is a board member of the National Committee on U.S.-China Relations, a member of the Council on
Foreign Relations.
| 8 Registrants
consisting of
8 Portfolios
| None.
|
| *
| As of the most recent fiscal year end, the Fund Complex has a total of 18 Registrants with each Board member serving on the Boards of the number of Registrants listed. Each Registrant in the Fund
Complex has one Portfolio except for two Registrants that are open-end funds, abrdn Funds and abrdn ETFs, which each have multiple Portfolios. The Registrants in the Fund Complex are as follows: abrdn Asia-Pacific
Income Fund, Inc., abrdn Global Income Fund, Inc., abrdn Australia Equity Fund, Inc., abrdn Emerging Markets Equity Income Fund, Inc., The India Fund, Inc., abrdn Japan Equity Fund, Inc., abrdn Income Credit
Strategies Fund, abrdn Global Dynamic Dividend Fund, abrdn Global Premier Properties Fund, abrdn Total Dynamic Dividend Fund, abrdn Global Infrastructure Income Fund, abrdn National Municipal Income Fund, abrdn
Healthcare Investors, abrdn Life Sciences Investors, abrdn Healthcare Opportunities Fund, abrdn World Healthcare Fund, abrdn Funds (19 Portfolios), and abrdn ETFs (3 Portfolios).
|
| **
| Current directorships (excluding Fund Complex) as of December 31, 2023 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 “1934 Act”) or (3) any company subject to the requirements of Section 15(d) of the Exchange Act.
|
Management of the Fund (Unaudited) (continued)
As of December 31, 2023
Officers of the Fund
Name, Address and
Year of Birth
| Position(s) Held
with the Fund
| Term of Office*
and Length of
Time Served
| Principal Occupation(s) During at Least the Past Five Years
|
Joseph Andolina**
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1978
| Chief Compliance Officer & Vice President – Compliance
| Since 2017
| Currently, Chief Risk Officer – Americas for abrdn Inc. and serves as the Chief Compliance Officer for abrdn Inc. Prior to joining the Risk and Compliance
Department, he was a member of abrdn Inc.'s Legal Department, where he served as US Counsel since 2012.
|
Katherine Corey**
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1985
| Vice President
| Since 2023
| Currently, Senior Legal Counsel, Product Governance US for abrdn Inc. Ms. Corey joined abrdn Inc. as U.S. Counsel in 2013.
|
Sharon Ferrari**
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1977
| Treasurer and Chief Financial Officer
| Treasurer and Chief Financial Officer Since 2023; Fund Officer Since 2011
| Currently, Director, Product Management for abrdn Inc. Ms. Ferrari joined abrdn Inc. as a Senior Fund Administrator in 2008.
|
Katie Gebauer**
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1986
| Vice President
| Since 2023
| Currently, Chief Compliance Officer—ETFs and serves as the Chief Compliance Officer for abrdn ETFs Advisors LLC. Ms. Gebauer joined abrdn Inc. in 2014.
|
Alan Goodson**
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1974
| Vice President
| Since 2009
| Currently, Executive Director and Head of Product & Client Solutions – Americas for abrdn Inc., overseeing Product Management & Governance, Product
Development and Client Solutions for registered and unregistered investment companies in the U.S., Brazil and Canada. Mr. Goodson is Director and Vice President of abrdn Inc. and joined abrdn Inc. in 2000.
|
Heather Hasson**
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1982
| Vice President
| Since 2012
| Currently, Senior Product Solutions and Implementation Manager, Product Governance US for abrdn Inc. Ms. Hasson joined the company in November 2006.
|
Robert Hepp**
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1986
| Vice President
| Since 2022
| Currently, Senior Product Governance Manager – US for abrdn Inc. Mr. Hepp joined abrdn Inc. as a Senior Paralegal in 2016.
|
Joanne Irvine**
c/o abrdn Investments Limited
280 Bishopsgate
London, EC2M 4AG
Year of Birth: 1968
| Vice President
| Since 2009
| Currently, Deputy Head of Global Emerging Markets Equity Team at abrdn. Ms. Irvine joined the company in 1996 in a group development role.
|
Devan Kaloo**
c/o abrdn Investments Limited
280 Bishopsgate
London, EC2M 4AG
Year of Birth: 1972
| Vice President
| Since 2009
| Currently, Global Head of Equities for abrdn. Mr. Kaloo joined abrdn in 2000 as part of the Asian equities team in Singapore.
|
Management of the Fund (Unaudited) (concluded)
As of December 31, 2023
Name, Address and
Year of Birth
| Position(s) Held
with the Fund
| Term of Office*
and Length of
Time Served
| Principal Occupation(s) During at Least the Past Five Years
|
Megan Kennedy**
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1974
| Vice President and Secretary
| Since 2009
| Currently, Senior Director, Product Governance for abrdn Inc. Ms. Kennedy joined abrdn Inc. in 2005.
|
Andrew Kim**
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1983
| Vice President
| Since 2022
| Currently, Senior Product Governance Manager – US for abrdn Inc. Mr. Kim joined abrdn Inc. as a Product Manager in 2013.
|
Brian Kordeck**
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1978
| Vice President
| Since 2022
| Currently, Senior Product Manager – US for abrdn Inc. Mr. Kordeck joined abrdn Inc. as a Senior Fund Administrator in 2013.
|
Michael Marsico**
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1980
| Vice President
| Since 2022
| Currently, Senior Product Manager – US for abrdn Inc. Mr. Marsico joined abrdn Inc. as a Fund Administrator in 2014.
|
Christian Pittard**
c/o abrdn Investments Limited
280 Bishopsgate
London, EC2M 4AG
Year of Birth: 1973
| Chief Executive Officer and President
| Since 2009
| Currently, Head of Closed End Funds & Managing Director - Corporate Finance. Mr. Pittard joined abrdn from KPMG in 1999.
|
Nick Robinson**
c/o abrdn Investments Limited
280 Bishopsgate
London, EC2M 4AG
Year of Birth: 1978
| Vice President
| Since 2011
| Currently, Senior Investment Director on the Global Emerging Markets Equity team at abrdn since 2016. Previously, Mr. Robinson was a Director and Head of Brazilian
Equities, of abrdn’s operations in Sao Paulo, Brazil from 2009 to 2016.
|
Lucia Sitar**
co abrdn Inc.
1900 Market Street
Suite 200
Philadelphia, PA 19103
Year of Birth: 1971
| Vice President
| Since 2009
| Currently, Vice President and Head of Product Management and Governance for abrdn Inc. since 2020. Previously, Ms. Sitar was Managing U.S.
Counsel for abrdn Inc. She joined abrdn Inc. as U.S. Counsel in 2007.
|
| *
| Officers hold their positions with the Fund until a successor has been duly elected and qualifies. Officers are elected annually at a meeting of the Fund Board.
|
| **
| Each officer may hold officer position(s) in one or more other funds which are part of the Fund Complex.
|
Further information about the
Fund's Board Members and Officers is available in the Fund's Statement of Additional Information, which can be obtained without charge by calling (800) 522-5465.
[THIS PAGE INTENTIONALLY LEFT BLANK]
Directors
Steven N. Rappaport, Chair
C. William Maher
Rahn Porter
Nancy Yao
Investment Adviser
abrdn Investments Limited
10 Queen's Terrace
Aberdeen, AB10 1XL
Scotland, United Kingdom
Administrator
abrdn Inc.
1900 Market Street, Suite 200
Philadelphia, PA 19103
Custodian
State Street Bank and Trust Company
One Congress Street, Suite 1
Boston, MA 02114-2016
Transfer Agent
Computershare Trust Company, N.A.
P.O. Box 43006
Providence, RI 02940-3078
Independent Registered Public
Accounting Firm
KPMG LLP
1601 Market Street
Philadelphia, PA 19103
Legal Counsel
Dechert LLP
1900 K Street N.W.
Washington D.C. 20006
Investor Relations
abrdn Inc.
1900 Market Street, Suite 200
Philadelphia, PA 19103
1-800-522-5465
Investor.Relations@abrdn.com
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 abrdn Emerging
Markets Equity Income Fund, Inc. are traded on the NYSE American under the symbol “AEF”. Information about the Fund’s net asset value and market price is available at www.abrdnaef.com.
This report, including
the financial information herein, is transmitted to the shareholders of abrdn Emerging Markets Equity Income Fund, Inc. 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 results.
Item 2. Code of Ethics.
| (a) |
As of December 31,
2023, abrdn Emerging Markets Equity Income Fund, Inc. (the “Fund” or 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”). |
| (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 Directors has determined
that C. William Maher, a member of the Board of Directors’ Audit 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. Maher as the Audit Committee’s financial expert. Mr. Maher is considered to be an “independent”
director, 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 Fees1 | | |
(b)
Audit-Related Fees2 | | |
(c)
Tax Fees3 | | |
(d)
All Other Fees4 | |
| December 31, 2023 | |
$ | 68,500 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
| Percentage approved pursuant to pre-approval exception5 | |
| 0 | % | |
| 0 | % | |
| 0 | % | |
| 0 | % |
| December 31, 2022 | |
$ | 67,370 | | |
$ | 0 | | |
$ | 0 | | |
$ | 0 | |
| Percentage approved pursuant to pre-approval exception5 | |
| 0 | % | |
| 0 | % | |
| 0 | % | |
| 0 | % |
1
“Audit Fees” are the aggregate fees billed for professional services for the audit of the Fund’s annual financial statements
and services provided in connection with statutory and regulatory filings or engagements.
2
“Audit Related Fees” are the aggregate fees billed for assurance and related services reasonably related to the performance
of the audit or review of financial statements that are not reported under “Audit Fees”. These fees include offerings related
to the Fund’s common shares.
3
“Tax Fees” are the aggregate fees billed for professional services for tax advice, tax compliance, and tax planning. These
fees include: federal and state income tax returns, review of excise tax distribution calculations and federal excise tax return.
4
“All Other Fees” are the aggregate fees billed for products and services other than “Audit Fees”, “Audit-Related
Fees” and “Tax Fees”.
5
Pre-approval exception under Rule 2-01 of Regulation S-X. The pre-approval exception for services provided directly to the Fund waives
the pre-approval requirement for services other than audit, review or attest services if: (A) the aggregate amount of all such services
provided constitutes no more than 5% of the total amount of revenues paid by the Fund to its accountant during the fiscal year in which
the services are provided; (B) the Fund did not recognize the services as non-audit services at the time of the engagement; and (C) the
services are promptly brought to the Audit Committee’s attention, and the Committee (or its delegate) approves the services before
the audit is completed.
| (e)(1) |
The Registrant’s Audit Committee (the “Committee”) has adopted a Charter that provides that the Committee shall annually select, retain or terminate, and recommend to the Independent Directors 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 (the “Adviser”) or any sub-adviser, and to receive the independent auditor’s specific representations as to their independence, delineating all relationships that may affect the independent auditor’s independence, including the disclosures required by 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 Adviser that the Registrant, the 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. “Permissible non-audit services” include any professional services, including tax services, provided to the Registrant by the independent auditor, other than those provided to the Registrant in connection with an audit or a review of the financial statements of the Registrant. Permissible non-audit services may not include: (i) bookkeeping or other services related to the accounting records or financial statements of the Registrant; (ii) financial information systems design and implementation; (iii) appraisal or valuation services, fairness opinions or contribution-in-kind reports; (iv) actuarial services; (v) internal audit outsourcing services; (vi) management functions or human resources; (vii) broker or dealer, investment adviser or investment banking services; (viii) legal services and expert services unrelated to the audit; and (ix) any other service the PCAOB determines, by regulation, is impermissible. Pre-approval by the Committee of any permissible non-audit services is not required so long as: (i) the aggregate amount of all such permissible non-audit services provided to the Registrant constitutes not more than 5% of the total amount of revenues paid by the Registrant to its auditor during the fiscal year in which the permissible non-audit services are provided; (ii) the permissible non-audit services were not recognized by the Registrant at the time of the engagement to be non-audit services; and (iii) such services are promptly brought to the attention of the Committee and approved by the Committee or its Delegate(s) prior to the completion of the audit.
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. Any pre-approval determination of a Delegate shall be presented to the full Committee at its next meeting. Pursuant to this authority, the Registrant’s Committee delegates to the Committee Chair, subject to subsequent ratification by the full Committee, up to a maximum amount of $25,000, which includes any professional services, including tax services, provided to the Registrant by its independent registered public accounting firm other than those provided to the Registrant in connection with an audit or a review of the financial statements of the Registrant. 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. |
The following table shows the amount of fees that KPMG LLP
billed during the Fund’s last two fiscal years for non-audit services to the Registrant, and to the Adviser, and any entity controlling,
controlled by or under common control with the Adviser that provides ongoing services to the Fund (“Affiliated Fund Service Provider”):
| | |
| | |
| | |
| | |
| |
| Fiscal Year Ended | |
Total
Non-
Audit Fees
Billed to Fund | | |
Total Non-Audit Fees
billed to Adviser and
Affiliated Fund Service
Providers (engagements
related directly to the
operations and financial
reporting of the Fund) | | |
Total Non-Audit Fees
billed to Adviser and
Affiliated Fund Service
Providers (all other
engagements) | | |
Total | |
| December 31, 2023 | |
$ | 0 | | |
$ | 0 | | |
$ | 1,171,994 | | |
$ | 1,171,994 | |
| December 31, 2022 | |
$ | 0 | | |
$ | 0 | | |
$ | 1,108,929 | | |
$ | 1,108,929 | |
“Non-Audit Fees billed to Fund” for both fiscal years represent
“Tax Fees” and “All Other Fees” billed to Fund in their respective amounts from the previous table.
Item 5. Audit Committee of Listed Registrants.
| (a) |
The Registrant has a separately-designated standing Audit Committee established in accordance with Section 3(a)(58)(A) of the Exchange Act (15 U.S.C. 78c(a)(58)(A)). |
As of the fiscal year ended December 31,
2023, the Audit Committee members were:
Rahn Porter
Nancy Yao
C. William Maher
Steven Rappaport
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 Adviser, provided that the Registrant's Board
of Directors has the opportunity to periodically review the 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 Adviser are included as Exhibit (d).
Item 8. Portfolio Managers of Closed-End Management Investment Companies.
(a)(1) PORTFOLIO MANAGER BIOGRAPHIES
The
Fund is managed by abrdn’s Global Emerging Markets Equity team. The Global Emerging Markets Equity team works in a truly
collaborative fashion; all team members have both portfolio management and research responsibilities. The team is responsible for the
day-to-day management of the Fund. As of the date of filing this report, the following individuals have primary responsibility for the
day-to-day management of the Fund’s portfolio:
| Individual &
Position |
Past Business Experience |
|
Nick Robinson
Senior Investment Director – Global Emerging
Markets |
Nick Robinson is a Senior Investment Director on the Global Emerging Markets Equity Team at abrdn. Nick joined the company in 2000 and spent eight years on the North American Equities team, including three years based in the company‘s US offices. In 2008 he joined the Global Emerging Markets Equity team. Nick relocated to São Paulo in 2009 to start abrdn’s operations in Brazil. In 2016 he returned to London. Nick graduated with an MSc in Chemistry from Lincoln College, Oxford and is a CFA charterholder. |
|
Kristy Fong
Senior Investment Director – Asian
Equities |
Kristy Fong is a Senior Investment Director on the Asian equities team. Kristy joined the company in 2004 from UOB KayHian Pte Ltd where she was an Analyst. Kristy graduated with a BA (Hons) in Accountancy from Nanyang Technological University, Singapore and is a CFA charterholder. |
(a)(2) OTHER ACCOUNTS
MANAGED BY PORTFOLIO MANAGERS.
The following chart summarizes information regarding
other accounts for which each portfolio manager has day-to-day management responsibilities. Accounts are grouped into the following three
categories: (1) registered investment companies; (2) other pooled investment vehicles; and (3) other accounts. To the extent
that any of these accounts pay advisory fees that are based on account performance (“performance-based fees”), information
on those accounts is provided separately. The figures in the chart below for the category of “registered investment companies”
include the Fund. The “Other Accounts Managed” represents the accounts managed by the teams of which the portfolio manager
is a member. The information in the table below is as of December 31, 2023.
Name of
Portfolio Manager | |
Type of Accounts | |
Other
Accounts
Managed | | |
Total Assets ($M) | | |
Number of
Accounts
Managed for
Which
Advisory
Fee is Based
on
Performance | | |
Total Assets for
Which
Advisory Fee is
Based on
Performance ($M) | |
| Nick Robinson1 | |
Registered Investment Companies | |
7 | | |
$ | 4,105.89 | | |
0 | | |
$ | 0 | |
| | |
Pooled Investment Vehicles | |
18 | | |
$ | 6,591.76 | | |
0 | | |
$ | 0 | |
| | |
Other Accounts | |
20 | | |
$ | 7,401.50 | | |
0 | | |
$ | 0 | |
| Kristy Fong2 | |
Registered Investment Companies | |
11 | | |
$ | 4,948.84 | | |
0 | | |
$ | 0 | |
| | |
Pooled Investment Vehicles | |
68 | | |
$ | 22,776.93 | | |
0 | | |
$ | 0 | |
| | |
Other Accounts | |
60 | | |
$ | 20,149.94 | | |
0 | | |
$ | 0 | |
1 Includes
accounts managed by the Global Emerging Markets Equity team, of which the portfolio manager is a
member.
2 Includes
accounts managed by the Global Emerging Markets Equity team and Asian Equities team,
of which the portfolio manager is a member.
POTENTIAL CONFLICTS OF INTEREST
The Adviser and its affiliates (collectively referred
to herein as “abrdn”) serve as investment advisers 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 Adviser believes 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 Adviser has adopted trade allocation procedures that require equitable allocation of trade orders
for a particular security among participating accounts.
In some cases, another account managed by the
same portfolio manager may compensate Aberdeen based on the performance-based fees with qualified clients. The existence of such a performance-based
fee may create additional conflicts of interest for the portfolio manager in the allocation of management time, resources and investment
opportunities.
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
Adviser 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 Adviser may aggregate the purchases and sales of the securities and will allocate the securities transactions in a
manner that it believes 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
Adviser that the benefits from the policies 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 (including UMA accounts) and discretionary SMA accounts, abrdn Inc. will utilize a third party service provider to deliver model
portfolio recommendations and model changes to the Sponsors. abrdn Inc. seeks to treat clients fairly and equitably over time, by delivering
model changes to our service provider and investment instructions for our other 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 when-traded, randomized
full rotation schedule. All Sponsors will be included in the rotation schedule, including SMA and UMA.
UMA Sponsors will be responsible for determining
how and whether to implement the model portfolio or model changes and implementation of any client specific investment restrictions. The
Sponsors are solely responsible for determining the suitability of the model portfolio for each model delivery client, executing trades
and seeking best execution for such clients.
As it relates to SMA accounts, abrdn Inc. will
be responsible for managing the account on the basis of each client’s financial situation and objectives, the day to day investment
decisions, best execution, accepting or rejecting client specific investment restrictions and performance. The SMA Sponsors will collect
suitability information and will provide a summary questionnaire for our review and approval or rejection. For dual contract SMAs, abrdn
Inc. will collect a suitability assessment from the client, along with the Sponsor suitability assessment. Our third party service provider
will monitor client specific investment restrictions on a day to day basis. For SMA accounts, model trades will be traded by the Sponsor
or may be executed through a “step-out transaction,”- or traded away- from the client’s Sponsor if doing so is consistent
with abrdn’s obligation to obtain best execution. When placing trades through Sponsor Firms (instead of stepping them out), we will
generally aggregate orders where it is possible and in the client’s best interests. In the event we are not comfortable that a Sponsor
can obtain best execution for a specific security and trading away is infeasible, we may exclude the security from the model.
Trading costs are not covered by the Wrap Program
fee and may result in additional costs to the client. In some instances, step-out trades are executed without any additional commission,
mark-up, or mark-down, but in many instances, the executing broker-dealer may impose a commission or a mark-up or mark-down on the trade.
Typically, the executing broker will embed the added costs into the price of the trade execution, making it difficult to determine and
disclose the exact added cost to clients. In this instance, these additional trading costs will be reflected in the price received for
the security, not as a separate commission, on trade confirmations or on account statements. In determining best execution for SMA accounts,
abrdn Inc. takes into consideration that the client will not pay additional trading costs or commission if executing with the Sponsor.
While UMA accounts are invested in the same strategies
as and may perform similarly to SMA accounts, there are expected to be performance differences between them. There will be performance
dispersions between UMAs and other types of accounts because abrdn does not have discretion over trading and there may be client specific
restrictions for SMA accounts.
abrdn may have already commenced trading for its
discretionary client accounts before the model delivery accounts have executed abrdn'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. abrdn 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.
(a)(3)
DESCRIPTION OF COMPENSATION STRUCTURE
abrdn’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 abrdn’s clients and shareholders. abrdn operates in a highly
competitive international employment market, and aims to maintain its strong track record of success in developing and retaining talent.
abrdn’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 is composed of a mixture
of cash and a deferred award, the portion of which varies based on the size of the award. Deferred awards are by default abrdn plc
shares, with an option to put up to 50% of the deferred award into funds managed by abrdn. Overall compensation packages are designed
to be competitive relative to the investment management industry.
Base Salary
abrdn’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 abrdn 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.
abrdn has a deferral policy which is intended to
assist in the retention of talent and to create additional alignment of executives’ interests with abrdn’s sustained performance
and, in respect of the deferral into funds managed by abrdn, to align the interest of portfolio 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 abrdn, 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, abrdn 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 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, abrdn 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 abrdn environment. Additionally, if any of
the aforementioned undue risks were to be taken by a portfolio manager, such trend would be identified via abrdn’s dynamic compliance
monitoring system.
In rendering investment management
services, the Adviser may use the resources of additional investment adviser subsidiaries of abrdn 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 abrdn 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, 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)
Dollar Range of Equity Securities in the
Registrant Beneficially Owned by the Portfolio
Manager as of December 31, 2023 |
|
| Nick Robinson |
|
None |
| Kristy Fong |
|
None |
(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 December 31, 2023, there were no material
changes to the procedures by which shareholders may recommend nominees to the Registrant’s Board of Directors.
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 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. Recovery of Erroneously Awarded Compensation
Not appliable
Item 14. 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.
abrdn Emerging Markets Equity Income Fund, Inc.
| By: |
/s/ Christian Pittard |
|
| |
Christian Pittard, |
|
| |
Principal Executive Officer of |
|
| |
abrdn Emerging Markets Equity Income Fund, Inc. |
|
| |
|
| Date: March 11, 2024 |
|
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 |
|
| |
abrdn Emerging Markets Equity Income Fund, Inc. |
|
| |
|
| Date: March 11, 2024 |
|
| By: |
/s/ Sharon Ferrari |
|
| |
Sharon Ferrari, |
|
| |
Principal Financial Officer of |
|
| |
abrdn Emerging Markets Equity Income Fund, Inc. |
|
| |
|
| Date: March 11, 2024 |
|
Exhibit 99.CODEETH
CODE OF ETHICS (SOX)
(Principal Executive Officer/President and Principal
Financial Officer/Treasurer)
| I. |
Purpose of the Code/Covered Officers |
Pursuant to Section 406
of the Sarbanes-Oxley Act of 2002, the Securities and Exchange Commission (“SEC”) has adopted rules requiring annual
disclosure of an investment company’s code of ethics applicable to its principal executive, principal financial and principal accounting
officers. The Funds have adopted this Code of Ethics (the “Code”) pursuant to these rules. The Code applies to the series
(each a “Fund”). The Code specifically applies to each Fund’s President/Principal Executive Officer and Treasurer/Principal
Financial Officer (“Covered Officers”) for the purpose of promoting:
| |
· |
honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
| |
· |
full, fair, accurate, timely and understandable disclosure in reports and documents that are filed with, or submits to, the SEC and in other public communications made by the Funds; |
| |
· |
compliance with applicable laws, rules and regulations; |
| |
· |
an environment that encourages disclosure of ethical and compliance related concerns; |
| |
· |
the prompt internal reporting of violations of the Code to an appropriate person or persons identified in the Code without fear of reprisal; and |
| |
· |
accountability for adherence to the Code. |
The Covered Officers are integral
to the Funds’ goal of creating a culture of high ethical standards and commitment to compliance. In their roles, the Covered Officers
will refrain from engaging in any activity that may compromise their professional ethics or otherwise prejudice their ability to carry
out their duties to the Funds.’ They will act in good faith, with due care, competence and diligence, without misrepresenting material
facts or allowing their independent judgment to be subordinated.
| II. |
Actual and Apparent Conflicts of Interest |
Overview: A
“conflict of interest” occurs when a Covered Officer’s private interest interferes with the interests of, or service
to, the Funds. For example, a conflict of interest would arise if a Covered Officer, or a member of his or her family, receives improper
benefits as a result of his or her position with the Funds.
Certain conflicts of interest
arise out of the relationship between Covered Officers and each Fund and already are subject to conflict of interest provisions in the
Investment Company Act of 1940 (the “1940 Act”) and the Investment Advisers Act of 1940 (the “Advisers Act”).
For example, Covered Officers may not individually engage in certain transactions (such as the purchase or sale of securities or other
property) with the Funds because of their status as “affiliated persons” of the Funds. Each Fund’s Adviser and Sub-adviser
(the “adviser(s)”) have adopted and implemented respective compliance programs and procedures that are designed to prevent,
or identify and correct, violations of these provisions. This Code does not, and is not intended to repeat or replace these programs and
procedures, and such conflicts fall outside of the parameters of this Code. Each Covered Officer should be sensitive to situations that
may give rise to actual as well as apparent conflicts of interest and should encourage his or her colleagues who provide service to the
Funds, whether directly or indirectly, to do the same.
Although typically not presenting
an opportunity for improper personal benefit, conflicts arise from, or as a result of, the contractual relationship between each Fund
and the investment adviser (and distributor to the Aberdeen open-end funds) of which the Covered Officers are also officers or employees.
As a result, this Code recognizes that the Covered Officers will, in the normal course of their duties (whether formally for the Fund
or the investment adviser or for both), be involved in establishing policies and implementing decisions that will have different effects
on the investment adviser, distributor and the Funds. The participation of the Covered Officers in such activities is inherent in the
contractual relationship between the Funds and the Adviser and is consistent with the performance by the Covered Officers of their duties
as officers of each Fund. Thus, if performed in conformity with the provisions of the 1940 Act and the Advisers Act, such activities will
be deemed to have been handled ethically. In addition, it is recognized by the Funds’ Board that the Covered Officers may also be
officers or employees of the Funds.
Other conflicts of interest
are covered by this Code, even if such conflicts of interest are not subject to provisions in the 1940 Act and the Advisers Act. The overarching
principle is that the personal interest of a Covered Officer should not be placed improperly before the interest of the Funds. A defining
question is, “What is the long term interest of current shareholders?” The following list provides examples of conflicts of
interest under this Code, but Covered Officers should keep in mind that these examples are not exhaustive.
Each Covered Officer must:
| |
· |
not use his or her personal influence or personal relationships improperly to influence investment decisions or financial reporting by the Funds whereby the Covered Officer would directly or indirectly benefit personally to the detriment of the Funds; |
| |
· |
not cause the Funds to take action, or fail to take action, for the individual personal benefit of the Covered Officer rather than the benefit of the Funds; |
| |
· |
not use material non-public knowledge of Fund transactions made or contemplated for the Funds to trade personally or cause others to trade personally in contemplation of the market effect of such transactions; |
| |
· |
report at least annually affiliations or other relationships related to conflicts of interest covered by the Funds’ Directors and Officers Questionnaire. |
Any activity or relationship
that would present a conflict for a Covered Officer would likely also present a conflict for the Covered Officer if a member of the Covered
Officer’s family engages in such activity or has such a relationship. There are some conflict of interest situations that should
always be discussed with the Compliance Officer prior to their occurrence, or if foreseen, as soon as reasonably possible after discovery.
Examples of these include:
| |
· |
service on the board of any public company; |
| |
· |
any outside business activity that detracts from the ability of a Covered Officer to devote appropriate time and attention to his or her responsibilities as a Covered Officer of the Funds; |
| |
· |
the receipt of any non-nominal gifts in excess of $100.00; |
| |
· |
the receipt of any entertainment from any company with which the Funds has current or prospective business dealings unless such entertainment is business-related, reasonable in cost, appropriate as to time and place, and not so frequent as to raise any question of impropriety; |
| |
· |
any ownership interest in, or any consulting or employment relationship with any of the Funds’ service providers, other than its investment adviser, investment sub-adviser, principal underwriter, administrator or any affiliated person thereof; |
| |
· |
a direct or indirect financial interest in commissions, transaction charges or spreads paid by the Funds for effecting Fund transactions or for selling or redeeming shares other than an interest arising from the Covered Officer’s employment, such as compensation or equity ownership. |
(A) “Covered
Officer” with respect to a Fund means the principal executive officer of the Fund and senior financial officers of the Fund,
including the principal financial officer, controller or principal accounting officer, or persons performing similar functions, regardless
of whether these persons are employed by the Fund or a third party.
(B) “Executive
Officer” of a Fund has the same meaning as set forth in Rule 3b-7 under the Securities Exchange Act of 1934, as amended.
Subject to any changes in that rule, the term “executive officer,” when used in the Code, means the president, any vice president,
any officer who performs a policy making function, or any other person who performs similar policy making functions for a Fund.
(C) “Waiver”
means the approval by a Fund’s CCO of a material departure from a provision of the Code. “Waiver” includes
an “Implicit Waiver,” which is a Fund’s failure to take action within a reasonable period of time regarding
a material departure from a provision of this Code that has been made known to an Executive Officer of the Fund.
| IV. |
Disclosure and Compliance |
Each Covered Officer:
| |
· |
should familiarize himself with the disclosure requirements generally applicable to the Funds; |
| |
· |
should not knowingly misrepresent, or cause others to misrepresent, facts about the Funds to others, whether within or outside the Funds, including the Funds’ Board and auditors, and to governmental regulators and self-regulatory organizations; |
| |
· |
should, to the extent appropriate within his or her area of responsibility, consult with other officers and employees of the Funds and the Advisers with the goal of promoting comprehensive, fair, accurate, timely and understandable disclosure in reports and documents the Funds file with, or submit to, the SEC and in other public communications made by the Funds; |
| |
· |
should cooperate with the each Fund’s independent accountants, regulatory agencies, and internal auditors in their review of the Funds and its operations; |
| |
· |
should ensure the establishment of appropriate policies and procedures for the protection and retention of accounting records and information as required by applicable law, regulation, or regulatory guidelines and establish and administer financial controls that are appropriate to ensure the integrity of the financial reporting process and the availability of timely, relevant information for the Funds’ safe and sound operation; and |
| |
· |
has the responsibility to promote compliance with the standards and restrictions imposed by applicable laws, rules and regulations. |
| V. |
Reporting and Accountability |
Each Covered Officer must:
| |
· |
upon adoption of this Code (or thereafter as applicable, upon becoming a Covered Officer), affirm in writing that he has received, read, and understands this Code; |
| |
· |
annually thereafter affirm that he has complied with the requirements of this Code; |
| |
· |
not retaliate against any other Covered Officer or any employee of the Adviser, or their affiliated persons, or any other employee of a private contractor that provides service to the Funds, for reports of potential violations that are made in good faith; and |
| |
· |
notify the Funds’ CCO promptly if he or she knows or suspects that a violation of applicable laws, regulations, or of this Code has occurred, is occurring, or is about to occur. Failure to do so is itself a violation of this Code. |
See Exhibit A for
the form of PEO/PFO certification.
The Funds’ CCO is responsible
for applying this Code to specific situations in which questions are presented under it and has the authority to interpret this Code in
any particular situation. However, any approvals or Waivers sought by the President will be considered by the Funds’ Audit Committee.
The Funds will follow these
procedures in investigating and enforcing this Code.
| |
· |
The Funds’ Compliance Officer will take all appropriate action to investigate any potential violations reported to him/her. |
| |
· |
If, after such investigation, the Compliance Officer believes that no violation has occurred, he or she is not required to take any further action. The Compliance Officer is authorized to consult, as appropriate, with the chair of the Audit Committee and Counsel to the Independent Board, and is encouraged to do so after consultation with each Fund’s President when, in the Compliance Officer’s opinion such consultation will not increase the risk to shareholders. |
| |
· |
Any matter that the Compliance Officer believes is a violation will be reported to the Audit Committee (the “Committee”). |
| |
· |
If the Committee concurs that a violation has occurred, it will inform and make a recommendation to the full Board, which will consider appropriate action, which may include review of and appropriate modifications to, applicable policies and procedures; notification to appropriate personnel of the Adviser or its Board; or a recommendation to dismiss the Covered Officer. |
| |
· |
Each Fund’s Board will be responsible for granting Waivers, as appropriate. |
| |
· |
Any changes to or Waivers of this Code will, to the extent required, be disclosed as provided by the SEC rules. |
The matters covered in the
Code are of the utmost importance to the Funds and their stockholders and are essential to each Fund’s ability to conduct its business
in accordance with its stated values. Each Covered Officer and each Executive Officer is expected to adhere to these rules (to the
extent applicable) in carrying out his or her duties for the Funds. The conduct of each Covered Officer and each Executive Officer can
reinforce an ethical atmosphere and positively influence the conduct of all officers, employees and agents of the Funds. A Fund will,
if appropriate, take action against any Covered Officer whose actions are found to violate the Code. Appropriate sanctions for violations
of the Code will depend on the materiality of the violation to the Fund.
Sanctions may include, among
other things, a requirement that the violator undergo training related to the violation, a letter or sanction or written censure by the
Board, the imposition of a monetary penalty, suspension of the violator as an officer of a Fund or termination of the employment of the
violator. If a Fund has suffered a loss because of violations of the Code, the Fund may pursue remedies against the individuals or entities
responsible.
| VII. |
Other Policies and Procedures |
This Code shall be the sole
code of ethics adopted by the Funds for the purposes of Section 406 of the Sarbanes-Oxley Act and the rules and forms applicable
to registered investment companies thereunder. Insofar as other policies or procedures of the Funds, the Adviser, principal underwriter,
or other service providers govern or purport to govern the behavior or activities if the Covered Officers who are subject to this Code,
they are superseded by this Code to the extent that they overlap or conflict with the provisions of this Code. The Funds’ and Adviser’s
code of ethics under Rule 17j-1 under the Investment Company Act of 1940 are not part of this Code.
Any amendments to this Code
must be approved or ratified by a majority vote of the each Fund’s Board, including a majority of Independent Board members.
All reports and records prepared
or maintained pursuant to this Code will be considered confidential and shall be maintained and protected accordingly. Except as otherwise
required by law or this Code, such matters shall not be disclosed to anyone other than the appropriate Board and its Counsel.
This Code is intended solely
for internal use by the Funds and does not constitute an admission, by or on behalf of the Funds, as to any fact, circumstance, or legal
conclusion. This Code is a statement of certain fundamental principles, policies, and procedures that govern the Covered Officers in the
conduct of each Fund’s business. It is not intended and does not create any rights in any employee, investor, supplier, creditor,
shareholder or any other person.
Exhibit A
CODE OF ETHICS
PURSUANT TO THE SARBANES-OXLEY ACT OF 2002
Initial and Annual Certification of Compliance
________________________________
Name (please print)
This is to certify that I have received a copy
of the Code of Ethics Pursuant to the Sarbanes-Oxley Act of 2002 (“Code”) for the following Funds:
List of Funds
I have read and understand the Code. Moreover, I
agree to promptly report to the Chief Compliance Officer any violation or possible violation of this Code of which I become aware. I understand
that violation of the Code will be grounds for disciplinary action or dismissal.
Check one:
Initial
¨ I
further certify that I am subject to the Code and will comply with each of the Code’s provisions to which I am subject.
Annual
¨ I
further certify that I have complied with and will continue to comply with each of the provisions of the Code to which I am subject.
| |
|
| Signature |
Date |
| |
|
| Received by (name and title): |
Date |
Exhibit 99.CERT
Certification
Pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act
I, Sharon Ferrari, certify that:
| 1. | I have reviewed this report on Form N-CSR of abrdn Emerging Markets Equity Income
Fund, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the
financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this
report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control
over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to
the filing date of this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during 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; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and
report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Date:
March 11, 2024
| /s/
Sharon Ferrari |
|
| Sharon
Ferrari |
|
| Principal
Financial Officer |
|
Certification
Pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act
I, Christian Pittard, certify that:
| 1. | I have reviewed this report on Form N-CSR of abrdn
Emerging Markets Equity Income Fund, Inc.; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to
state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not
misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report,
fairly present in all material respects the financial condition, results of operations, changes in net assets, and cash flows (if the
financial statements are required to include a statement of cash flows) of the registrant as of, and for, the periods presented in this
report; |
| 4. | The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control
over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to
be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries,
is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial
reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented
in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to
the filing date of this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the registrant’s internal control over financial reporting
that occurred during 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; and |
| 5. | The registrant’s other certifying officer(s) and I have disclosed to the registrant’s
auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over
financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and
report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant
role in the registrant’s internal control over financial reporting. |
Date:
March 11, 2024
| /s/ Christian Pittard |
|
| Christian Pittard |
|
| Principal Executive Officer |
|
Exhibit 99.906CERT
Certification
Pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act
Christian Pittard, Principal Executive Officer,
and Sharon Ferrari, Principal Financial Officer, of abrdn Emerging Markets Equity Income Fund, Inc. (the “Registrant”),
each certify that:
| 1. | The Registrant’s periodic report on Form N-CSR for the period ended December 31, 2023
(the “Form N-CSR”) fully complies with the requirements of Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934, as amended, as applicable; and |
| 2. | The information contained in the Form N-CSR fairly presents, in all material respects, the financial
condition and results of operations of the Registrant. |
PRINCIPAL EXECUTIVE OFFICER
abrdn Emerging Markets Equity Income Fund, Inc.
| /s/ Christian Pittard |
|
| Christian Pittard |
|
| Date: March 11, 2024 |
|
PRINCIPAL FINANCIAL OFFICER
abrdn Emerging Markets Equity Income Fund, Inc.
| /s/ Sharon Ferrari |
|
| Sharon Ferrari |
|
| Date: March 11, 2024 |
|
This certification is being furnished solely pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 and is not being filed as part of Form N-CSR or as a separate disclosure document.
A signed original of this written statement, or other document authenticating, acknowledging, or otherwise adopting the signature that
appears in typed form within the electronic version of this written statement required by Section 906, has been provided to the Registrant
and will be retained by the Registrant and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 99.14c
PROXY VOTING POLICY
I. Generally
Rules adopted by the
Securities and Exchange Commission (“SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”)
require the Funds to disclose publicly its proxy voting policies and procedures, as well as its actual proxy votes. The SEC rules also
permit the Funds to delegate its proxy voting responsibilities to the Funds’ Investment Manager, Investment Adviser, and Sub-advisers
(collectively “the Advisers”). In connection with this ability to delegate proxy voting responsibilities, the SEC has adopted
rules under the Investment Advisers Act of 1940, as amended, that require the Advisers to adopt and implement written proxy voting
policies and procedures that are reasonably designed to ensure that it votes proxies on behalf of its clients, when given such authority,
in the best interests of those clients.
Consistent with the SEC’s
requirements, the Funds have delegated responsibility for voting its proxy to the Funds’ Investment Manager, Investment Adviser
and Sub-advisers. The Advisers have adopted proxy voting policies and procedures to ensure the proper, and timely, voting of the proxies
on behalf of the Funds. Moreover, the Advisers will assist the Funds in the preparation of each Fund’s complete proxy voting record
on Form N-PX for the twelve-month period ended June 30, by no later than August 31 of each year.
II. Procedures
Each Fund shall ensure that
its investment manager, investment adviser and sub-advisers are compliant with applicable rules and regulations. These rules and
regulations require, in part, that each Fund disclose how it votes each proxy. The rules and regulations also require that the Advisers
disclose that they have (1) adopted and implemented proxy voting policies; and (2) adopted procedures regarding how each portfolio
security is voted in relation to each Fund. The Adviser must disclose that the procedures are the following:
| 2. | are reasonably designed to ensure that the adviser votes proxies in the best interest of the adviser’s
clients; |
| 3. | describe the adviser’s proxy voting procedures to the adviser’s clients and provides copies
of the adviser’s proxy voting procedures on request; |
| 4. | set forth the process by which the adviser evaluates the issues presented by a proxy and records the adviser’s
decision about how the proxy will be voted; |
| 5. | establish procedures for the identification and handling of proxies that involve material conflicts of
interest with the adviser’s clients; and |
| 6. | disclose to the adviser’s clients how the clients may obtain information on how the adviser voted
the clients’ proxies. |
The Funds also shall disclose
to shareholders the policies and procedures that are used to determine how to vote proxies. The Funds include in the Funds’ statement
of additional information appropriate summary disclosure regarding the proxy voting policies and procedures of the Funds’ adviser
and sub-advisers, and any third party retained by the Funds’ investment adviser or sub-adviser to determine how to vote proxies.
In addition, as required by the financial statements’ requirements of Form N-1A and N-2, the Funds’ financial statements
must include a statement that a description of the policies and procedures that the Funds use to vote proxies relating to portfolio securities
is available, without charge: (i) upon request, by calling a specified toll-free (or collect) telephone number; or (ii) on the
Funds’ website; and (iii) on the SEC website at www.sec.gov.
The Funds also shall file
with the SEC, on an annual basis, the complete proxy voting record of each Fund on Form N-PX for the twelve-month period ending June 30th,
by no later than August 31st of each year, which Report on Form N-PX shall be executed by the principal executive
officer of the each Fund. Each Fund’s proxy voting record on the Form N-PX Report shall be made available by each Fund, without
charge, upon request, by calling specified toll-free (or collect) telephone number (but is not available on the Funds’ website).
If a Fund receives a telephonic request for a proxy voting record, the Fund shall send the requested information disclosed in the Fund’s
most-recently filed Report on Form N-PX within three (3) business days of the receipt of the request for this information, by
first-class mail or other means designed to ensure equally prompt delivery.
Sub-advisers to the Funds
must have procedures and internal controls to ensure compliance with proxy voting regulations. Specifically, the sub-advisers must have
procedures for the reporting of proxy voting, and communicating changes in proxy voting policies to the Funds. Prior to Board approval
of new advisers, the Chief Compliance Officer (“CCO”) reviews the proxy voting policies and procedures of the sub-adviser.
The CCO ensures that any inadequate procedures or controls of a sub-adviser are reported to the Board and must be corrected in a timely
manner.
Exhibit 99.14d
U.S. Registered Advisers
Summary of Proxy Voting
Guidelines
as of October 26, 2022
Where clients appoint abrdn Inc. to vote proxies on their behalf, policies
have been established to vote these proxies in the best interests of our clients.
We employ ISS as a service provider to facilitate electronic voting.
We require ISS to provide recommendations based on our own set of parameters tailored to abrdn’s assessment and approach, but remain
conscious that all voting decisions are our own on behalf of our clients. We consider ISS’s recommendations and those based on our
custom parameters as input to our voting decisions. We make use of the ISS standard research and recommendations and those based on our
own custom policy as input to our voting decisions. Where our analysts make a voting decision that is different from the recommendations
based on our custom policy they will provide a rationale for such a decisions which will be made publicly available in our voting disclosures.
In order to make proxy voting decisions, an abrdn analyst assesses
the resolutions at general meetings in our active investment portfolios. This analysis will be based on our knowledge of the company,
but will also make use of the custom and standard recommendations provided by ISS as described above. The product of this analysis will
be a final voting decision instructed through ISS and applied to all funds for which abrdn have been appointed to vote. For funds managed
by a sub-adviser, we may delegate to the sub-adviser the authority to vote proxies; however, the sub-adviser will be required to either
follow our policies and procedures or to demonstrate that their policies and procedures are consistent with ours, or otherwise implemented
in the best interest of clients.
There may be certain circumstances where abrdn Inc. may take a more
limited role in voting proxies. We will not vote proxies for client accounts in which the client contract specifies that abrdn Inc. will
not vote. We may abstain from voting a client proxy if the voting is uneconomic or otherwise not in clients’ best interests. For
companies held only in passively managed portfolios, abrdn Inc. custom recommendations provided by ISS will be used to automatically apply
our voting approach; we have scope to intervene to test that this delivers appropriate results, and will on occasions intrude to apply
a vote more fully in clients’ best interests. If voting securities are part of a securities lending program, we may be unable to
vote while the securities are on loan. However, we have the ability to recall shares on loan or to restrict lending when required, in
order to ensure all shares have voted. In addition, certain jurisdictions may impose share-blocking restrictions at various times which
may prevent abrdn Inc. from exercising our voting authority.
We recognize that there may be situations in which we vote at a company
meeting where we encounter a conflict of interest. Such situations include:
| · | Where a portfolio manager owns the holding in a personal account. |
| · | An investee company that is also a segregated client. |
| · | An investee company where an Executive Director or Officer of our company
or that of abrdn plc or another affiliate is also a Director of that company. |
| · | An investee company where an employee of abrdn plc or an affiliate or subsidiary
is a Director of that company. |
| · | A significant distributor of our products. |
| · | Any other companies which may be relevant from time to time. |
We have adopted procedures within our proxy voting process to identify
where a conflict exists. These procedures are designed to ensure that our voting decisions are based on our client’s best interests
and are not impacted by any conflict.
The implementation of this policy, along with conflicts of interest,
will be reviewed periodically by the Active Ownership team. abrdn’s Global ESG Principles & Voting Policies are published
on our website.
Clients may obtain a free copy of abrdn Inc.’s proxy voting policies
and procedures and/or proxy voting records for their account by contacting us at (215) 405-5700. abrdn publishes ESG Principles &
Voting Policies, which describe our approach to investment analysis, shareholder engagement and proxy voting across companies worldwide.
There are published on our website.
Clients that have not granted abrdn Inc. voting authority over securities
held in their accounts will receive their proxies in accordance with the arrangements they have made with their service providers.
Listed Company ESG Principles & Voting Policies
February 2023
Introduction
Active Ownership and Environmental, Social & Governance (ESG)
considerations are a driver of our investment process, our investment activity, our client journey and our corporate influence.
Through engagement with the companies in which we invest, and by exercising
votes on behalf of our clients, we seek to improve the financial resilience and performance of our clients’ investments. Where we
believe change is needed, we endeavour to catalyse this through our stewardship capabilities.
Our expectations
As global investors, we are particularly aware that ESG structures
and frameworks vary across regions. Furthermore, what we expect of the companies in which we invest varies between different stages of
business development and the underlying history and nature of the company in question. We seek to understand each company’s individual
circumstances and so evaluate how it can best be governed and overseen. As such, we strive to apply the principles and policies set out
on these pages in response to the needs of that individual company at that particular time. Our heritage as a predominantly active
fund manager helps drive this bespoke approach to understanding good governance and risk management.
We have a clear perception of what we consider to be best practice
globally – as set out in this document. However we will reflect the nature of the business, our close understanding of individual
companies and regional considerations, where appropriate, in our approach to applying these policies, which are not exhaustive.
This document has received approval from the Head of Public Markets
and the Investment Vector’s Chief Sustainability Officer following consultation with various internal stakeholders.
Our approach to stewardship
We seek to integrate and appraise environmental, social and governance
factors in our investment process. Our aim is to generate the best long-term outcomes for our clients and we will actively take steps
as stewards and owners to protect and enhance the value of our clients’ assets.
Stewardship is a reflection of this bespoke approach to good governance
and risk management. We seek to understand each company’s specific approach to governance, how value is created through business
success and how investors’ interests are protected through the management of risks that materially impact business success. This
requires us to play our part in the governance process by being active stewards of companies, involved in dialogue with management and
non-executive directors where appropriate, understanding the material risks and opportunities – including those relating to environmental
and social factors and helping to shape the future success of the business.
We will:
| · | Take into consideration, in our investment process, the policies and practices
on environmental, social and governance matters of the companies in which we invest. |
| · | Seek to enhance long-term shareholder value through constructive engagement
with the companies in which we invest. |
| · | Actively engage with the companies and assets in which we invest where we
believe we can influence or gain insight. |
| · | Seek to exercise voting rights, where held, in a manner consistent with
our clients’ long-term best interests. |
| · | Seek to influence the development of high standards of corporate governance
and corporate responsibility in relation to environmental and social factors for the benefit of our clients. |
| · | Communicate our Listed Company ESG Principles and Voting Policies to clients,
companies and other interested parties. |
| · | Be accountable to clients within the constraints of professional confidentiality
and legislative and regulatory requirements. |
| · | Be transparent in reporting our engagement and voting activities. |
abrdn is committed to exercising responsible ownership with a conviction
that companies adopting improving practices in corporate governance and risk management will be more successful in their core activities
and deliver enhanced returns to shareholders. As owners of companies, the process of stewardship is a natural part of our investment approach
as we seek to benefit from their long-term success on our clients’ behalf.
Engagement
It is a central tenet of our active investment approach that we strive
to meet with the management and directors of our investee companies on a regular basis. The discussions we have cover a wide range of
topics, including: strategic, operational, and ESG issues and consider the long-term drivers of value. Engagement with companies on ESG
risks and opportunities is a fundamental part of our investment process. It is a process by which we can discuss how a company identifies,
prioritises and mitigates its key risks and optimises its most significant opportunities. As such, we regard engagement as:
| · | Important to understanding investee companies as a whole. |
| · | Helpful when conducting proper ESG analysis. |
| · | Useful to maintaining open dialogue and solid relationships with companies. |
| · | An opportunity to inflect positive change on a company’s holistic
risk management programme – be active with our holdings rather than activist. |
Proxy Voting
Proxy voting is an integral part of our active stewardship approach
and we seek to exercise voting rights in a manner in line with our clients’ best interests. We seek to ensure that voting reflects
our understanding of the companies in which we invest on behalf of our clients. We believe that voting is a vital mechanism for holding
boards and management teams to account, and is an important tool for escalation and shareholder action.
This document includes our process and overarching policy guidelines
which we apply when voting at general meetings. These policies are not exhaustive and we evaluate our voting on a case by case basis.
As a global investment firm we recognise the importance of adopting a regional approach, taking into account differing and developing
market practices. Where a policy is specific to one region this is denoted.
We endeavour to engage with companies regarding our voting decisions
to maintain a dialogue on matters of concern.
Voting Process
In line with our active ownership approach, we review the majority
of general meeting agendas convened by companies which are held in our active equity portfolios. Analysis is undertaken by a member of
our regional investment teams or our Active Ownership team and votes instructed following consideration of our policies, our views of
the company and our investment insights. To enhance our analysis we may engage with a company prior to voting to understand additional
context and explanations, particularly where there is deviation from what we believe to be best practice.
To supplement our own analysis we make use of the benchmark research
and recommendations provided by ISS, a provider of proxy voting services. In the UK we also make use of the Investment Association’s
(IA) Institutional Voting Information Service. We have implemented regional voting policy guidelines with ISS which ISS applies to all
meetings in order to produce customised vote recommendations. These custom recommendations help identify resolutions which deviate from
our expectations. They are also used to determine votes where a company is held only in passive funds. Within our custom policies, however,
we do specify numerous resolutions which should be referred to us for active review. For example we will analyse all proposals marked
by ISS as environmental or social proposals.
While it is most common for us to vote in line with a board’s
voting recommendation we will vote our clients’ shares against resolutions which are not consistent with their best interests. We
may also vote against resolutions which conflict with local governance guidelines, such as the IA in the UK. Although we seek to vote
either in favour or against a resolution we do make use of an abstain vote where this is considered appropriate. For example we may use
an abstention to acknowledge some improvement, but as a means to reserve our position in expectation that further improvement is needed
before we can vote in favour. Where we vote against a resolution we endeavour to inform companies of our rationale.
In exceptional circumstances we may attend and speak at a shareholder
meeting to reinforce our views to the company’s board.
We endeavour to vote all shares for which we have voting authority.
We may not vote when there are obstacles to do so, for example those impacting liquidity, such as share- blocking, or where there is a
significant conflict of interest. We use the voting platform of ISS to instruct our votes. Where we lend stock on behalf of clients, and
subject to the terms of client agreements, we hold the right to recall shares where it is in clients’ interests and we take the
view that it will impact the final vote to maintain full voting weight on a particular meeting or resolution.
Our votes are disclosed publicly on our website one day after a general
meeting has taken place.
Strategy
We invest in companies to create the best outcome for our clients.
Companies must be clear about the drivers of their business success and their strategy for maintaining and enhancing it. Investment is
a forward- looking process; we seek to understand the opportunity for a business and its scope for future value-creation over the long
term. In order to do this, we need clarity on past business delivery and its drivers, and on the effective track record of management;
we require honest and open reporting to build confidence in that track record. We seek confidence that companies and their management
can maintain their competitive positioning and operational performance and subsequently enhance returns for investors. A clear strategy
and clarity about the drivers of operational success provides the lens through which we will consider most corporate issues, not least
assessing performance and risk management.
| · | We will consider voting against executive or non-executive directors if
we have serious concerns regarding the oversight or implementation of strategy. |
Board of Directors
We believe effective board governance promotes the long-term success
and value creation of the company. The board should be responsible for establishing the company’s purpose and strategy, overseeing
management in their implementation of strategy and performance against objectives. The board should ensure a strong framework of control
and risk oversight, including material ESG risks. The board should assess and monitor culture and be engaged with the workforce, shareholders
and wider society.
Board Composition
Effective decision making requires a mix of skills around the table
and constructive debate between diverse and different-minded individuals. A range of skills, experience and perspectives should be drawn
together on the board. These include industry knowledge, experience from other sectors and relevant geographical knowledge. Independence
of thought plays a crucial role in the ability of a board to generate the debate and discussion that will challenge management, help enhance
business performance and improve decision-making. Board assessments will help the board ensure it has the necessary mix of skills, diversity
and quality of individuals to address the current risks and opportunities the company faces. Unitary boards should comprise an appropriate
combination of executive and non-executive directors such that no group of individuals dominates decision-making. We expect the size of
the board to reflect the size, nature and complexity of the business. We also expect regular internal and external board evaluations which
include an assessment of board composition and effectiveness.
Leadership
Running businesses effectively for the long term requires effective
collaboration and cooperation, with no individual or small group having unfettered powers. Nor should they have dominant influence over
the way a business is run or over major decisions about its operations or future. There should be a division of responsibility between
board leadership and executive leadership of the business. We believe that there should be a division of roles at the top of the organisation,
typically between a Chief Executive Officer (CEO) and an independent Chair.
| · | We will consider supporting the re-election of an existing Chair & CEO role combination, recognising
that this remains common in certain geographies. In reviewing on a case by case basis we will take account of the particular circumstances
of the company and consider what checks and balances are in place, such as the presence of a strong Senior Independent Director with a
clear scope of responsibility. |
| · | We will generally oppose any re-combination of the roles of CEO and Chair,
unless the move is on a temporary basis due to exceptional circumstances or other mitigating factors. |
| · | We will generally oppose any move of a retiring CEO to the role of Chair. |
Independence
Companies should be led and overseen by genuinely independent boards.
When looking at board composition we generally expect to see a majority of independent directors, with boards identifying their independence
classifications in the Annual Report. It is preferable to see an identified Senior Independent Director (SID) on the board, who will lead
the appraisal of and succession planning for the Chair. We expect SIDs to meet with investors and be a point of contact for escalating
concerns if required.
In assessing a director’s independence we will have due regard
for whether a director:
| (I) | Has
been an employee of the company within the last five years. |
| (II) | Has had within the last
three years a material business relationship with the company. |
| (III) | Has received remuneration in addition to director fees or participates in
the company’s option or variable incentive schemes, or is a member of the company’s pension scheme. |
| (IV) | Has close family ties with
any of the company’s advisers, directors or senior employees. |
| (V) | Holds cross-directorships
or has significant links with other directors through involvement in other companies or bodies. |
| (VI) | Represents a significant
shareholder. |
| (VII) | Has
served on the board for more than 12 years (or 9 for UK companies). |
| · | We will consider voting against the re-election of non-independent directors if the board is not majority
independent (excluding employee representatives). In doing so we will have regard for whether a company is controlled and the nature of
the non-independence – for example, we are unlikely to vote against shareholder representatives unless their representation is disproportionate
to their shareholding. |
Succession Planning & Refreshment
Regular refreshment of the non-executive portion of a board helps draw
in fresh perspectives, not least in the context of changes to business and emerging opportunities and risks. It also helps limit the danger
of group-think. Thoughtful and proactive succession planning is therefore needed for board continuity, to ensure that a board is populated
by individuals with an appropriate mix of skills, experience and perspective. We expect the board to implement a formal process for the
recruitment and appointment of new directors, and to provide transparency of this in the Annual Report.
| · | We will vote against non-executive directors where there are concerns regarding board refreshment or
excessive tenure. Where there are directors who have served for over 12 years on a board which has seen no refreshment in 3 years (2 in
UK), we will generally vote against their re-election. If a director has served for over 15 years we will generally vote against their
re-election. We will, however, consider the impact on board continuity and the company’s succession planning efforts prior to doing
so. We may not apply the tenure limit to directors who are founders or shareholder representatives. |
Diversity
We believe that companies that make progress in diversity and inclusion
(D&I) are better positioned for long-term sustainability and outperformance. Diversity of thought, paired with a culture of inclusion,
can help companies to tackle increasingly complex challenges and markets. We expect boards to report on how they promote D&I throughout
the business and believe that setting targets is important to addressing imbalances. We recognise the importance of adopting a regional
approach to diversity and inclusion, allowing us to press for progress with appropriate consideration for the starting point. We have
for several years, actively encouraged progress in gender diversity at all levels, and have expanded our scope in relation to diversity
and inclusion across geographies. In respect of ethnic diversity, this is coming increasingly into focus as we encourage boards to progress
in ensuring that their composition reflects their employee and customer bases.
Our regional specific policies are below. In determining
our votes we will take account of mitigating factors, such as the sudden departure of a female board member. We will also consider any
clear progress being made by the company on diversity and any assurance that diversity shortfalls will soon be addressed.
Gender Diversity
| · | UK: We will generally vote against the Nomination Committee Chair of FTSE 350 companies if the board is
not comprised of at least one third female directors. For smaller companies, we will take this action if the board does not include at
least one female director. |
| · | Europe: We will generally vote against the Nomination Committee Chair of LargeCap companies if the supervisory
board is not comprised of at least 30% female directors, or is not in line with the local standard if higher. For smaller companies, we
will take this action if the supervisory board does not include at least one female director. |
| · | Australia: We will generally vote against the Nomination Committee Chair
of ASX300 companies if the board is not comprised of at least 30% female directors. |
| · | North America: We will generally vote against the Nomination Committee Chair of LargeCap companies if
the board is not comprised of at least 30% female directors. For smaller companies, we will take this action if the board does not include
at least one female director |
Ethnic Diversity
| · | UK: We will generally vote against the Nomination Committee Chair at the
boards of FTSE 100 companies, if the board does not include at least one member from an ethnic minority background. This is in line with
targets set up by the Parker Review. |
| · | US: We will generally vote against the Nomination Committee Chair at the
boards of S&P 1500 & Russell 3000 companies if the board does not include at least one member from a racial or ethnic minority
background. |
Directors’ Time Commitment
Individual directors need sufficient time to carry out their role effectively
and therefore we seek to ensure that all directors maintain an appropriate level of overall commitments such that allows them to be properly
diligent.
| · | We will consider opposing the election or re-election of any director where
there is a concern regarding their ability to dedicate sufficient time to the role. In making this assessment we will have regard for
the ISS classification of ‘overboarding’. |
| · | We will generally oppose the re-election of any director who has attended fewer than 75% of board meetings
in two consecutive years. |
Board Committees
Boards should establish committees, populated by independent and appropriately
skilled non-executive directors, to oversee (as a minimum) the nomination, audit and remuneration processes. It may also be appropriate
for additional committees to be established, such as a risk or sustainability committee. These committees should report openly on an annual
basis about their activities and key decisions taken.
| · | We will consider voting against
committee members if we have concerns regarding the composition of a committee. |
Nomination Committee
This committee has responsibility for leading the process for orderly
non-executive and senior management succession planning and recruitment, and for overseeing the composition of the board including skillset,
experience and diversity. We expect the committee to be comprised of a majority of independent directors with an independent Chair.
| · | We will consider voting against the re-election of the Nomination Committee
Chair if we have concerns regarding the composition of the board or concerns regarding poor succession planning. |
Audit Committee
This committee has responsibility for monitoring the integrity of the
financial statements, reviewing the company’s internal financial controls and risk management systems, reviewing the effectiveness
of the company’s internal audit function and appointing auditors. While we prefer the committee to be wholly independent, at minimum
we expect the committee to be comprised of a majority of independent directors with an independent Chair and at least one member having
recent and relevant financial experience.
| · | We will generally vote against the re-election of the Audit Committee Chair
if at least one member of the Committee does not have recent and relevant financial experience. |
Remuneration Committee
This committee is responsible for determining the policy and setting
remuneration for executive and non-executive directors. The committee should ensure that remuneration is aligned with strategy and company
performance and should clearly demonstrate regard for the company’s employees, for wider society and be cognisant of the company’s
licence to operate when considering policy and the overall level of remuneration. We expect remuneration committees to be robust in their
approach to developing and implementing remuneration policies, with formal and transparent procedures for developing policies and for
determining remuneration packages. Remuneration committees should be comprised of a majority of independent directors with an independent
Chair and we expect members to have appropriate experience and knowledge of the business. No executive should be involved in setting their
own remuneration.
| · | Where we have significant concerns regarding the company’s remuneration
policy or reward outcomes we may escalate these concerns through a vote against the Chair or members of the Remuneration Committee. |
Director Accountability
We expect to be able to hold boards to account through engagement and
regular director re-elections and directors should feel that they are accountable to investors. We encourage individual, rather than bundled,
director elections. While our preference is for directors to be subject to re-election annually, we expect re-elections to take place
at least every three years. Lengthier board mandates, while not uncommon in some markets, risk divorcing directors from an appropriate
sense of accountability. Directors and management should make themselves available for discussions with major shareholders as we expect
to have open dialogue to share our perspectives and gain confidence that the individuals are carrying out their roles with appropriate
vigour and diligence. A further important element of director accountability to shareholders is that investors should have the right,
both formal and informal, to propose and promote individual directors to be considered for election to the board by all shareholders.
| · | We will generally oppose the re-election of non- independent NEDs who are
proposed for a term exceeding three years. We may not apply this to directors who are shareholder representatives. |
| · | Where we have significant concerns regarding a board member’s performance,
actions or inaction to address issues raised we may vote against their re-election. |
| · | We may vote against directors who decline appropriate requests for meeting
without a clear justification. |
| · | Where a director has held a position of responsibility at a company which
has suffered a material governance failure, we will consider whether we are comfortable to support their re-election at other listed companies. |
| · | We will generally support resolutions to discharge the supervisory board or management board members
unless we have serious concerns regarding actions taken during the year under review. Where there is insufficient information regarding
allegations of misconduct, we may prefer to abstain. In exceptional circumstances we may vote against the discharge resolution to reflect
serious ESG concerns if there is not another appropriate resolution. |
| · | We will not support the election of directors who are not personally identified
but are proposed as corporations. |
Reporting
A company’s board should present a fair, balanced and understandable
assessment of the company’s position and prospects – financial and non-financial – and of how it has fulfilled its responsibilities.
We support the principle of full disclosure of relevant and useful information, subject to issues of commercial confidentiality and prejudice.
Boilerplate disclosure should be avoided. We encourage companies to consider using the appropriate globally developed standards and would
particularly encourage the use of those created by the Taskforce for Climate related Financial Disclosure (TCFD), the International Integrated
Reporting Council (IIRC), the Sustainability Accounting Standards Board (SASB) and the Global Reporting Initiative (GRI). Audited reporting
and financial numbers should be published ahead of any relevant shareholder meetings. We continue to monitor the evolving reporting landscape
and consider new reporting developments as they emerge, either voluntary or regulatory.
| · | We may consider voting against
a company’s Annual Report & Accounts if we have concerns regarding timely provision or disclosure. |
Political Donations & Lobbying
Companies should be consistent in their public statements and not undermine
these in private commentary to market participants or to politicians and regulators. We welcome transparency from companies about their
lobbying activities and believe that good companies have nothing to hide in this respect. Similarly we encourage transparency of any political
donations that companies deem appropriate – and we expect a clear explanation of why such donations are an appropriate use of corporate
funds.
Risk & Audit
The board is responsible for determining the company’s risk appetite,
establishing procedures to manage risk and for monitoring the company’s internal controls. We expect boards to conduct robust assessments
of the company’s material risks and report to shareholders on risks, controls and effectiveness. The introduction of global accounting
standards has led to much greater investor confidence in the accounts produced by companies around the world. It has also assisted in
creating consistency of reporting across companies, enabling fairer comparisons between different operating businesses. We therefore encourage
companies seeking international investment to report under International Financial Reporting Standards (IFRS) or US GAAP. As a firm abrdn
supports the continued development of high quality global accounting standards.
An independent audit, delivered by a respected audit firm, is a required
element for investor confidence in reporting by companies. We strongly favour meaningful, transparent and informative auditor reports,
giving us additional insights into the audit process and accounting outcomes. Audit fees must be sufficient to pay for an appropriately
in-depth assurance process. We would be concerned if a company sought to make savings in this respect as the cost in terms of damage to
audit effectiveness and confidence in the company’s accounts would be much more substantial.
The independence of the auditor and the standard of their work, particularly
in challenging management, should be subject to regular assessment that is appropriately disclosed. Even when individuals carrying out
the audit are refreshed, we believe that the independence of the audit firm erodes over time and we will encourage a tender process and
change of audit firm where an engagement has lasted for an extended period. In order to demonstrate the level of independence, companies
should not have the same audit firm in place for more than 20 years.
The relationship with the auditor should be mediated through the audit
committee. Where we are significant shareholders, we expect to be consulted on plans to tender and replace auditors.
| · | We will generally vote against the re-election of an auditor which has a
tenure of 20 years or over, if there are no plans for rotation in the near term. |
| · | We will consider voting against the auditors if we have concerns regarding
the accounts presented or the audit procedures used. |
| · | We will vote against the approval of auditor fees if we have concerns regarding
the level of fees or the balance of non-audit and audit fees. |
Remuneration
Remuneration policies and the overall levels of pay should be aligned
with strategy, attracting and retaining talent and incentivising the decisions and behaviours needed to create long-term value. The component
parts of remuneration should be structured so as to link rewards to corporate and individual performance and they should be considered
in the context of the remuneration policies when taken as a whole. We recognise the benefits of simplicity in forming the policy, which
should clearly link outcomes and expectations for those receiving the remuneration, as well as external stakeholders. The structure should
be transparent and understandable.
A company’s annual report should contain an informative statement
of remuneration policy which communicates clearly to stakeholders how it has developed and evolved. This should include details of any
stress testing that may have been undertaken to understand the policy outcomes for different business scenarios. The remuneration committee
should provide a clear description of the application of policy and the outcomes achieved.
Base salary should be set at a level appropriate for the role and responsibility
of the executive. We discourage increases which are driven by peer benchmarking, and expect increases to be aligned with the wider workforce.
Consideration should also be given to the knock on impact to variable remuneration potential. Pension arrangements and benefits should
be clearly disclosed. We generally expect pension structures to be aligned with the wider workforce.
A company should structure variable, performance- related pay to incentivise
and reward management in a manner that is aligned with the company’s sustainable performance and risk appetite over the long term.
We expect all variable pay to be capped, preferably as a proportion of base salary. In the UK we expect variable pay to be capped as
a proportion of salary. In other markets, if variable pay is capped at a number of shares, we expect the value of grants to be kept under
review annually to ensure the value remains appropriate and is not excessive.
Performance metrics used to determine variable pay should be clearly
disclosed and aligned with the company’s strategy. A significant portion of performance metrics should seek to measure significant
improvements in the underlying financial performance of the company. We also encourage the inclusion of non-financial metrics linked to
targets which are aligned with the company’s progress on its ESG strategy. Where possible we expect these targets to be quantifiable
and disclosed.
Variable pay arrangements should incentivise participants to achieve
above-average performance through the use of challenging targets. We encourage sliding-scale performance measures and expect performance
target ranges to be disclosed to enable shareholders to assess the level of challenge and pay for performance alignment. We expect annual
bonus targets to be disclosed retrospectively and encourage the disclosure of long term incentive (LTI) targets at the beginning of the
performance period, but at minimum we expect retrospective disclosure. Where bonus or LTI targets are not disclosed due to commercial
sensitivity we expect an explanation of why the targets continue to be considered sensitive retrospectively and expect some detail regarding
the level of achievement vs target. Where a share price metric is being used, we expect this to be underpinned by a challenging measure
of underlying performance.
We encourage settlement of a portion of the annual bonus in shares
which are deferred for at least one year.
We expect settlement of long term incentives to be in shares, with
rationale provided for any awards settled in cash. Long term incentives should have a performance period of no less than three years.
In the UK we expect a further holding period of two years to be applied, and we encourage this in other markets.
We do not generally support restricted share schemes or value creation
plans. We will consider supporting the use of restricted share plans which have been structured consistent with the guidelines of the
Investment Association.
We expect appropriate malus and clawback provisions to be applied to
variable remuneration plans.
We expect shareholding guidelines to be adopted for executive directors
and encourage the adoption of post-departure shareholding guidelines.
We expect details of any use of discretion to be disclosed and its
use should be justifiable, appropriate and clearly explained. We would expect policies to be sufficiently robust so that discretion is
only necessary in exceptional circumstances. We do not generally support exceptional awards, and are particularly sensitive to such awards
being granted to reward a corporate transaction.
We expect executive service contracts to provide for a maximum notice
period of 12 months. We will consider local best practice provisions related to severance arrangements when voting.
Non-executive fees should reflect the role’s level of responsibility
and time commitment. We do not support NED’s participation in option or performance-related arrangements. However we do support
the payment of fees in shares, particularly where conservation of cash is an issue.
In the UK our expectations of companies are aligned with the Investment
Association’s Principles of Remuneration.
Where significant changes to remuneration arrangements are being considered,
we would expect remuneration committees to consult with their largest shareholders prior to finalising any changes. Where any increase
to variable remuneration is proposed, we would expect this to be accompanied by a demonstrable increase in the stretch of the targets.
Furthermore we expect any increases to remuneration to be subject to shareholder approval.
In response to the issues arising from the cost of living crisis being
experienced by many people in the UK, we expect companies to focus any additional help towards those members of the workforce who need
it most. We expect Remuneration Committees to take into account factors arising from the cost of living crisis when deliberating over
executive pay outcomes. We would be concerned by reputational issues arising from decisions made in these unusual circumstances and may
make this a factor in our voting decisions at relevant AGMs.
In line with the expectations set out above we will generally vote
against the appropriate resolution(s) where:
| · | We consider the overall reward potential or outcome to be excessive. |
| · | A significant increase to salary has been granted which is not aligned with
the workforce or is not sufficiently justified. |
| · | A significant increase to performance-related pay has been granted which
is not sufficiently justified, is not accompanied by an increase in the level of stretch required for achievement or results in the potential
for excessive reward. |
| · | There is no appropriate cap on variable incentive schemes. |
| · | Performance targets for annual bonus awards are not disclosed retrospectively
and the absence of disclosure is not explained. |
| · | Performance targets for long term incentive awards are not disclosed up
front and there is no compelling explanation regarding the absence of disclosure or a commitment to disclose retrospectively. |
| · | Performance targets are not considered sufficiently challenging, either
at threshold, target or maximum. |
| · | Relative performance targets allow vesting of awards for below median performance. |
| · | Retesting provisions apply. |
| · | Incentives that have been conditionally awarded have been repriced or performance
conditions changed part way through a performance period. |
| · | We have concerns regarding the use of discretion or the grant of exceptional
awards. |
| · | Pension arrangements are excessive. |
| · | Pension arrangements are not aligned with the wider workforce (UK). |
Investor Rights
The interests of minority shareholders must be
protected and any major, or majority, investor should not enjoy preferential treatment. The structure of ownership or control should minimise
the potential for abuse of public shareholders.
Corporate Transactions
Companies should not make significant changes to their structure or
nature without being fully transparent to their investors. Shareholders should have the opportunity to vote on significant corporate activity,
such as mergers and acquisitions. Where a transaction is with a related party, only independent shareholders should have a vote. Even
in markets where no vote is given to shareholders in these circumstances, investors need transparent disclosure of the reasons for any
such major change. Companies should expect that shareholders may want to discuss and debate proposed developments
Diversification beyond the core skills of the business needs to be
justified as it is more often than not a distraction from operational performance. All major deals need to be clearly explained and justified
in the context of the pre- existing strategy and be subject to shareholder approval.
We will vote on corporate transactions on a case by case basis.
Dividends
We will generally support the payment of dividends but will scrutinise
the proposed level where it appears excessive given the company’s financial position.
Share Capital
The board carries responsibility for prudent capital management and
allocation.
Share Issuance
We will consider capital raises which are proposed for a specific purpose
on a case by case basis but recognise that it can be beneficial for companies to have some general flexibility to issue shares to raise
capital. However we expect issuances to be limited to the needs of the business and companies should not issue significant portions of
shares unless offering these on a pro-rata basis to existing shareholders to protect against inappropriate dilution of investments.
| · | Where a company seeks a general authority to issue shares we generally expect this to be limited to
25% of the company’s share capital for pre- emptive issuances. In the UK we are aligned with the guidance of the Investment Association
Share Capital Management Guidelines. |
| · | Where a company seeks a general authority to issue shares we generally expect this to be limited to
10% of the company’s share capital for non-pre-emptive issuances. In the UK we are aligned with the guidance of the Investment Association
Share Capital Management Guidelines and those of the Pre-Emption Group. |
| · | We will not generally support share issuances at investment trusts unless
there is a commitment that shares would only be issued at a price at or above net asset value. |
When considering our votes we will, however, take account of the company’s
circumstances and any further detail regarding proposed capital issuance authorities prior to voting.
Following changes to the UK’s Pre-Emption
Group Guidelines in November 2022, which reflect an increase on previous limits, we will hold the Chair of the company accountable
for any perceived misuse of the increased flexibility through a vote against their re-election.
Buyback
We recognise that share buybacks can be a flexible means of returning
cash to shareholders.
| · | We will generally support buyback
authorities of up to 10% of the issued share capital. |
Related Party Transactions
The nature of relations – particularly any
related party transactions (RPTs) – with parent or related companies, or other major investors, must be disclosed fully. Related
party transactions must be agreed on arm’s length terms and be made fully transparent. Where they are material, they should be subject
to the approval of independent shareholders.
| · | We will vote against RPTs where there is insufficient transparency of the
nature of the transaction, the rationale, the terms or the views and assessment of directors and advisors. |
Article/Bylaw amendments
While it is standard to see proposals from companies to amend their
articles of association or bylaws, we will review these on a case by case basis. When doing so we expect full transparency of the proposed
changes to be disclosed.
| · | We will vote against amendments
which will reduce shareholder rights. |
Anti-Takeover Defences
There should be no artificial structures put in place to entrench management
and protect companies from takeover. The best defence from hostile takeover is strong operational delivery.
| · | We will generally vote against
anti-takeover/‘poison pill’ proposals. |
Voting Rights
We are strong supporters of the principle of ‘one share, one
vote’ and therefore favour equal voting rights for all shareholders.
| · | We will generally vote against proposals which seek to introduce or continue
capital structures with multiple voting rights. |
| · | We will consider voting against proposals to raise new capital at companies
with multiple share classes and voting rights. |
General Meetings
Shareholder meetings provide an important opportunity to hold boards
to account not only through voting on the proposed resolutions but also by enabling investors the opportunity to raise questions, express
views and emphasise concerns to the entire board. We may make a statement at a company’s AGM as a means of escalation to reinforce
our views to a company’s board.
We welcome the opportunity to attend meetings virtually, being of the
view that this can increase participation given obstacles such as location or meeting concentration. However we are not supportive of
companies adopting virtual-only meetings as we believe this format reduces accountability. Our preference is for a hybrid meeting format
to balance the flexibility of remote attendance with the accountability of an in-person meeting.
| · | We will generally support resolutions seeking approval to shorten the EGM
notice period to minimum 14 days, unless we have concerns regarding previous inappropriate use of this flexibility. |
| · | We will generally support proposals to enable virtual meetings to take place as long as there is confirmation
that the format will be hybrid, with physical meetings continuing to take place (unless prohibited by law). We expect virtual attendees
to have the same rights to speak and raise questions as those attending in-person. |
As part of strategic planning, boards need to have oversight of,
and clearly articulate, the key opportunities and risks affecting the sustainability of the business model. This includes having
a process for, and transparent disclosure of, potential and emerging opportunities and risks and the actions being taken to address them.
The effective management of risks extends to long-term issues that
are hard to measure and whose timeframe is uncertain and will include the management of environmental and social issues. We use the UN
Global Compact’s four areas of focus in assessing how companies are performing in this area.
Specifically we expect companies to be able to demonstrate how they
manage their exposures under the following headings.
The Environment
It is generally accepted that companies are responsible for the effects
of their operations and products on the environment. The steps they take to assess and reduce those impacts can lead to cost savings and
reduce potential reputational damage. Companies are responsible for their impact on the climate and they face increased regulation from
world governments on activities that contribute to climate change.
We expect that companies will
| · | Identify, manage and reduce their environmental impacts. |
| · | Understand the impact of climate change along the company value chain. |
| · | Develop group-level climate policies and, where relevant, set targets to
manage the impact, report on policies, practices and actions taken to reduce carbon and other environmental risks within their operations. |
| · | Comply with all environmental laws and regulations, or recognised international
best practice as a minimum. |
Where we have serious concerns regarding a board’s actions, or
inaction, in relation to the environment we will consider taking voting action on an appropriate resolution.
We will use the indicators within the Carbon Disclosure Project to
identify companies which are not fulfilling their climate commitments. Where appropriate we will take voting action to encourage better
practice among companies which we deem to be laggards.
Labour and employment
Companies that respect internationally recognised labour rights and
provide safe and healthy working environments for employees are likely to reap the benefits. This approach is likely to foster a more
committed and productive workforce, and help reduce damage to reputation and a company’s license to operate. We expect companies
to comply with all employment laws and regulations and adopt practices in line with the International Labour Organization’s core
labour standards. a minimum.
In particular, companies will:
| · | Take affirmative steps to ensure that they uphold decent labour standards. |
| · | Adopt strong health and safety policies and programmes to implement such
policies. |
| · | Adopt equal employment opportunity and diversity policies and a programme
for ensuring compliance with such policies. |
| · | Adopt policies and programmes for investing in employee training and development. |
| · | Adopt initiatives to attract and retain talented employees, foster higher
productivity and quality, and encourage in their workforce a commitment to achieving the company’s purpose. |
| · | Ensure policies are in place for a company’s suppliers that promote
decent labour standards, and programmes are in place to ensure high standards of labour along supply chains. |
| · | Report regularly on its policy and implementation of managing human capital. |
Where we have serious concerns regarding a board’s actions, or
inaction, in relation to labour and employment we will consider taking voting action on an appropriate resolution.
Human rights
We recognise the impact that human- rights issues can have on our investments
and the role we can play in stimulating progress. We draw upon a number of international, legal and voluntary agreements for guidance
on human-rights responsibilities and compliance. Our primary sources are the International Bill of Rights and the core conventions of
the International Labour Organisation (ILO), which form the list of internationally agreed human rights, and the UN Guiding Principles
on Business and Human Rights (UNGPs), which clarifies the roles of states and businesses. We encourage companies to use the UNGPs Reporting
Framework and encourage disclosure in line with this guidance.
We expect companies to:
| · | Continually work to understand their actual and potential impacts on human
rights. |
| · | Establish systems that actively ensure respect for human rights. |
| · | Take appropriate action to remedy any infringements on human rights. |
Where we have serious concerns regarding a board’s actions, or
inaction, in relation to human rights we will consider taking voting action on an appropriate resolution.
Business ethics
As institutions of wealth and influence, companies have a significant
impact on the prosperity of their local communities and the wider world. Having a robust code of ethics and ensuring professional conduct
mean companies operate more effectively, particularly when it comes to ethical principles governing decision- making. A company’s
failure to conform to internationally recognised standards of business ethics on matters such as bribery and corruption, can increase
its risk of facing investigation, litigation and fines. This could undermine its license to operate, and affect its reputation and image.
We expect companies to have policies in place to support the following:
| · | Ethics at the heart of the organisation’s governance. |
| · | A zero-tolerance policy on bribery and corruption.. How people are rewarded,
as pay can influence behaviour. |
| · | Respect for human rights. |
| · | Ethical training for employees. |
Where we have serious concerns regarding a board’s actions, or
inaction, related to business ethics we will consider taking voting action on an appropriate resolution.
We will review any resolution at company meetings which ISS has
identified as covering environmental and social factors.
The following will detail our overarching approach and expectations.
Our approach to vote analysis is consistent across active and quantitative
investment strategies
Review the resolution, proponent and board statements, existing disclosures, and external research.
Engage
with the company, proponents, and other stakeholders as required.
Involve thematic experts, regional specialists, and investment
analysts in decision-making to harness a wide range of expertise and include all material factors in our analysis.
Ensure consistency by using our own in-house guidance to frame
case-by-case analysis.
Monitor the outcomes of votes.
Follow-up with on-going engagement as required.
Given the nature of the topics covered by these resolutions we do not
apply binary voting policies. We adopt a nuanced approach to our voting research and outcomes and will consider the specific circumstances
of the company concerned. Our objective is not to vote in favour of all shareholder resolutions but to determine the best outcome for
the company in the context of the best outcome for our clients. There are instances where we are supportive of the spirit of a resolution
however there may be a reason which prevents our support for the proposal. For example, where the purpose of the resolution is unclear,
where the wording is overly prescriptive, when suggested implementation is overly burdensome or where the proposal strays too closely
to the board’s responsibility for setting the company’s strategy.
Management Proposals
We are supportive of the steps being taken by companies to provide
transparent, detailed reporting of their ESG strategies and targets. While shareholder proposals on environmental and social topics have
been common on AGM agenda for several years, an increasing number of companies are presenting management proposals, such as so called
‘say on climate’ votes, for shareholder approval. While we welcome the intention of accountability behind these votes, we
have reservations about the potential for them to limit the scope for subsequent investor challenge and diminish the direct responsibility
and accountability of the board and individual directors. We believe it is the role of the board and the executive to develop and apply
strategy, including ESG strategies, and we will continue to use existing voting items to hold boards to account on the implementation
of these strategies. As active investors we also regularly engage with investee companies on ESG topics and find this dialogue to be
the best opportunity to provide feedback.
We will review the appropriateness of ‘say on climate’
votes and consider if other voting mechanisms should be applied to ensure both Boards and Executives apply the appropriate rigour to initiate
and deliver strategies to support the climate transition.
Shareholder Proposals
The number of resolutions focused on environmental and social (E&S)
issues filed by shareholders continues to grow rapidly. The following provides an overview of some of the factors we consider when assessing
the most prevalent themes for shareholder proposals.
Climate Change
We are members of the Net Zero Asset Manager Initiatives and this is
reflected in our Active Ownership approach. We encourage the companies in which we invest to demonstrate a robust methodology underpinning
Paris aligned goals and targets and are supportive of resolutions that will help companies to achieve this. Once a credible climate strategy
is in place, we prioritise evidence of implementation over requests to re-draft strategies and targets after only a year or two.
A growing number of resolutions call on companies to increase the transparency
of their reporting on climate- related lobbying. These proposals typically encompass direct lobbying undertaken by the company and indirect
lobbying undertaken by trade associations and other organisations of which it is a member or supporter. Lobbying contrary to the objectives
of the Paris Agreement is effective in creating climate policy inertia and impeding the transition to net zero economies.
We do not evaluate resolutions in isolation. Our
approach recognises the links between corporate governance, strategy and climate approach. Where a company’s operational response
to climate change is inadequate, the effectiveness of board oversight and corporate governance may also be called into question.
We expect and encourage companies to:
| · | Demonstrate that a robust methodology underpins Paris aligned, net zero
goals and targets. |
| · | Set targets for absolute emission reduction, not just carbon intensity,
to show a clear pathway to net zero. |
| · | Report in alignment with the TCFD framework. |
| · | Link targets to remuneration and ensure they are reflected in capital expenditure
and R&D plans. |
| · | Carefully manage climate-related lobbying by ensuring appropriate oversight,
transparent disclosure of activities, and alignment of activities with the company’s strategy and publicly stated positions. |
Diversity & Inclusion
Diversity & Inclusion (D&I) is an important and growing
theme for shareholder resolutions. In recent years resolutions have focussed on racial equity audits, pay gap reporting, transparent disclosure
of D&I metrics and assessments of the efficacy of D&I programmes.
A racial equity audit is an independent analysis of a company’s
business practices designed to identify practices that may have a discriminatory effect. We are supportive of racial equity audits in
relation to internal and external D&I programmes. It is appropriate that these programmes should have KPIs and audit mechanisms in
place to measure and evaluate outcomes. Some proposals request racial equity audits of provision of services. We are aware that measuring
provision of service is challenging and gathering racial data on customers can be difficult and inappropriate. There are also multiple
different factors that can influence service provision and which could be misconstrued as being racially motivated. We will however,
support resolutions which are not unduly prescriptive and allow companies to carry out audits within a reasonable timeframe, at a reasonable
cost, and excluding confidential or proprietary information.
We consider standardised gender pay gap disclosure to be an important
tool for assessing how companies are addressing gender inequality. Reporting on gender pay gaps across global operations can help companies
to remain ahead of the regulatory curve. It also enables them to offer better opportunities and remuneration for women around the world.
We are therefore supportive of resolutions which are likely to deliver these benefits. Proposals must be carefully drafted to achieve
these outcomes. For instance, in the past we have been unable to support resolutions which called for global median gender and racial
pay gap reporting as it was unclear how this would reveal potential pay disparities at a local level and how it could be implemented by
companies with operations in jurisdictions where collection of racial identity data is illegal.
In the US market we support public disclosure of EEO- 1 forms by companies.
The EEO-1 form details a comprehensive breakdown of workforce by race and gender according to ten employment categories. The form is submitted
privately to the US Equal Employment Opportunity Commission on an annual basis. When publicly disclosed, it offers investors and other
stakeholders data in a standardised and comparable form. We have used our engagement programme to ask the companies in which we invest
to disclose this form for their US operations while making it central to our D&I voting approach and supporting resolutions that request
it.
Human rights
As a supporter of the UN Guiding Principles on Business and Human Rights
(UNGPs), we expect companies to demonstrate how human rights due diligence is conducted across operations, services, product use and the
supply chain. Companies can have a significant impact on human rights directly through operations and provision of services, and indirectly
through product use and the supply chain. In recent years the sale and end-use of controversial technologies, such as facial recognition
software, has emerged as a prominent theme.
We expect and encourage companies to:
| · | Have robust due diligence processes to assess the actual and potential human
rights impacts of their operations, services, product use and supply chain. |
| · | Conduct customer and supplier vetting processes commensurate with the risk
of human rights abuse. |
| · | Publicly disclose information about the operation of these processes and
utilise the UNGPs’ Reporting Framework. This will improve the standard and consistency of human rights reporting and enable more
informed investment decision making. |
Corporate Lobbying & Political Contributions
Corporate lobbying and political contributions are a recurrent theme
of shareholder resolutions, particularly in the US. These proposals typically encompass direct lobbying undertaken by the company and
indirect lobbying undertaken by trade associations and other organisations of which it is a member or supporter. Proposals may also request
the disclosure of more information regarding the process and rationale for political contributions. We expect companies to make transparent,
consolidated disclosures of direct and indirect lobbying and political expenditure. This disclosure should be underpinned by a coherent
policy that: explains public policy priorities and the rationale for associated expenditure, identifies the management positions responsible
for public policy engagement, and provides appropriate mechanisms for board oversight. These measures should mitigate the risks associated
with corporate lobbying and political contributions, protecting the interest of shareholders and other stakeholders.
Nuclear Energy
In the Japanese market nuclear energy is a recurrent theme of shareholder
resolutions. The Japanese government is seeking to reduce the nation’s reliance on coal and its energy strategy presents safe nuclear
power generation as an important source of base-load power. In this context, resolutions which seek to limit or cease the nuclear operations
of an individual company do not appear to be in the best interests of shareholders and other stakeholders. The health & safety
risks associated with nuclear energy are high, must be managed carefully across the industry, and are an important consideration in our
voting.
Important Information
This document is strictly for information purposes only and should
not be considered as an offer, investment recommendation, or solicitation, to deal in any of the investments or funds mentioned herein
and does not constitute investment research. abrdn does not warrant the accuracy, adequacy or completeness of the information and materials
contained in this document and expressly disclaims liability for errors or omissions in such information and materials.
Any research or analysis used in the preparation of this document
has been procured by abrdn for its own use and may have been acted on for its own purpose. The results thus obtained are made
available only coincidentally and the information is not guaranteed as to its accuracy. Some of the information in this document may
contain projections or other forward looking statements regarding future events or future financial performance of countries,
markets or companies. These statements are only predictions and actual events or results may differ materially. The reader must make
their own assessment of the relevance, accuracy and adequacy of the information contained in this document and make such independent
investigations, as they may consider necessary or appropriate for the purpose of such assessment. This material serves to provide
general information and is not meant to be investment, legal or tax advice for any particular investor. No warranty whatsoever is
given and no liability whatsoever is accepted for any loss arising whether directly or indirectly as a result of the reader, any
person or group of persons acting on any information, opinion or estimate contained in this document. abrdn reserves the right to
make changes and corrections to any information in this document at any time, without notice. This material is not to be reproduced
in whole or in part without the prior written consent of abrdn.
Applying ESG and sustainability criteria in the investment process
may result in the exclusion of securities within the universe of potential investments. The interpretation of ESG and sustainability criteria
is subjective meaning that products may invest in companies which similar products do not (and thus perform differently) and which do
not align with the personal views of any individual investor. Furthermore, the lack of common or harmonized definitions and labels regarding
ESG and sustainability criteria may result in different approaches by managers when integrating ESG and sustainability criteria into investment
decisions. This means that it may be difficult to compare strategies within ostensibly similar objectives and that these strategies will
employ different security selection and exclusion criteria. Consequently, the performance profile of otherwise similar vehicles may deviate
more substantially than might otherwise be expected. Additionally, in the absence of common or harmonized definitions and labels, a degree
of subjectivity is required and this will mean that a product may invest in a security that another manager or an investor would not.
abrdn plc is registered in Scotland (SC286832) at 1 George Street,
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