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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811-08076 |
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Exact name of registrant as specified in charter: |
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Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
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Address of principal executive offices: |
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1735 Market Street, 32nd Floor |
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Name and address of agent for service: |
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Ms. Andrea Melia |
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Registrants 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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October 31 |
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Date of reporting period: |
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October 30, 2017 |
Item 1. Reports to Shareholders.
Aberdeens Investor Relations Services
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Letter to Shareholders (unaudited)
Dear Shareholder,
We present this Annual Report, which covers the activities of Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. (the Fund), for the fiscal year ended October 31, 2017. The Funds principal investment objective is to seek long-term capital appreciation. The Fund seeks to achieve this investment objective by investing primarily in equity securities of emerging market smaller company issuers.
Total Investment Return
For the fiscal year ended October 31, 2017, the total return to shareholders of the Fund based on the net asset value (NAV) and market price of the Fund compared to the Funds benchmark are as follows:
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NAV* |
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10.2% |
Market Price* |
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18.1% |
MSCI Emerging Markets Small Cap Index1 |
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21.1% |
*assuming the reinvestment of dividends and distributions
The Funds total return is based on the reported NAV on each financial reporting period end and may differ from what is reported on the Financial Highlights due to financial statement rounding or adjustments. For more information about Fund performance please see page 3 Report of the Investment Adviser.
NAV and Share Price
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NAV |
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Market Price |
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Discount |
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10/31/2016 |
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$14.43 |
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$12.23 |
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14.6% |
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10/31/2017 |
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$15.76 |
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$14.43 |
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8.4% |
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Open Market Repurchase Program
The Funds policy is to consider buying back Fund shares on the open market when the Fund trades at certain discounts to NAV and management believes such repurchases may enhance shareholder value. During the fiscal year ended October 31, 2017, the Fund repurchased 159,122 shares. During the fiscal year ended October 31, 2016, the Fund repurchased 90,827 shares.
Fund Consolidation
In light of increasingly challenging conditions for smaller closed-end funds, the Funds investment adviser presented a proposal to the Board in an effort to create a more sustainable fund with broader investment appeal, increased portfolio yield characteristics, a bigger fund with increased secondary market liquidity, and the potential for reduced overall expenses. In October 2017, the Funds Board of Directors and the boards of directors of seven other closed-end funds announced that they had each approved the consolidation of their respective
funds into one fund, subject to the receipt of necessary approvals by stockholders of each fund. The combined fund would be managed by the Funds investment adviser and otherwise serviced by the same service providers as currently serve the Fund. In the consolidation, the Fund would be reorganized into the Aberdeen Chile Fund, Inc. (the Acquiring Fund), which would, in connection with the consolidation, assuming requisite stockholder approvals are obtained, be renamed Aberdeen Emerging Markets Equity Income Fund, Inc. (the Combined Fund) and would invest in emerging market equity securities to seek to provide both current income and long term capital appreciation. The Combined Fund may use leverage to achieve its objective. It is anticipated that the Combined Funds benchmark would be the MSCI Emerging Markets Index and that the Combined Fund would trade on the NYSE American (formerly, NYSE MKT) under a new ticker symbol, expected to be AEF. The Combined Funds strategy will seek to capitalize on Aberdeens global emerging market equity capability by investing in a global portfolio of emerging market securities. Following the consolidation, it is anticipated that the Board of Directors of the Combined Fund will consider the approval of a tender offer at 99% of NAV. The tender offer size, in combination with estimated capital gains to be distributed, will be up to a maximum distribution of 50%, and not less than 40%, of the net assets of the Combined Fund. The price, size and terms of the offer will be determined by the Combined Funds board at a later date. The proposed consolidation is subject to several conditions, including approval by Fund stockholders of record on December 18, 2017, who will receive a prospectus/proxy statement describing the proposed consolidation and requesting their approval of the consolidation of the Fund into the Acquiring Fund. It is expected that a special meeting of the Funds stockholders to consider the consolidation will be held on or about March 16, 2018. It is currently anticipated that the proposed consolidation will occur prior to the end of April 2018, subject to all requisite regulatory and stockholder approvals. The proposed tender offer would be conducted as soon as practicable following the consolidation.
Merger of Aberdeen Asset Management PLC with Standard Life plc
The Funds investment adviser and administrator are each a subsidiary of Aberdeen Asset Management PLC (Aberdeen PLC). The merger of Standard Life plc and Aberdeen PLC was announced on March 6, 2017 and closed on August 14, 2017 (Merger). Aberdeen PLC became a direct subsidiary of Standard Life plc as a result of the Merger and the combined company changed its name to Standard Life Aberdeen plc. Shareholders of the Fund were not required to take any action as a result of the Merger. Following the Merger, the Funds investment adviser and administrator each became an indirect subsidiary of
1 The MSCI Emerging Markets Small Cap Index is a free float-adjusted market capitalization index that is designed to measure the equity market performance of the small-cap segment of global emerging markets. As of October 31, 2017, the MSCI Emerging Markets Small Cap Index consists of the following 24 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Korea, Malaysia, Mexico, Pakistan, Peru, Philippines, Poland, Qatar, Russia, South Africa, Taiwan, Thailand, Turkey and United Arab Emirates. No fees or expenses are reflected. You cannot invest directly in an index.
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Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
Letter to Shareholders (unaudited) (concluded)
Standard Life Aberdeen plc, but otherwise did not change. The investment advisory and administration agreements for the Fund, the services provided under the agreements, and the fees charged for services did not change as a result of the Merger. The portfolio management team for the Fund also has remained the same following the Merger.
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 Funds transfer agent as undeliverable), or a combination of both. If your Fund shares are categorized as unclaimed, your financial advisor or the Funds transfer agent will follow the applicable states 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 Funds transfer agent.
Portfolio Holdings Disclosure
The Funds complete schedule of portfolio holdings for the second and fourth quarters of each fiscal year are included in the Funds 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 on Form N-Q. The Funds Form N-Q filings are available on the SECs website at http://www.sec.gov and may be reviewed and copied at the SECs Public Reference Room in Washington, D.C. Information about the operation of the Public Reference Room may be obtained by calling 1-800-SEC-0330. The Fund makes the information on Form N-Q available to shareholders on the Funds website or 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 twelve months ended June 30 is available by August 31 of the relevant year: (i) upon request and without charge by calling Investor Relations toll-free at 1-800-522-5465; and (ii) on the SECs website at http://www.sec.gov.
Investor Relations Information
As part of Aberdeens commitment to shareholders, we invite you to visit the Fund on the web at www.aberdeenabe.com. Here, you can view monthly fact sheets, quarterly commentary, distribution and performance information, updated daily fact sheets courtesy of Morningstar®, portfolio charting and other Fund literature.
Enroll in Aberdeens email services today and be among the first to receive the latest closed-end fund news, announcements, videos and 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 cef.aberdeen-asset.us/en/cefinvestorcenter/contact-us/email.
Contact Us:
· Visit: cef.aberdeen-asset.us;
· Watch: www.aberdeen-asset.us/aam.nsf/usclosed/aberdeentv;
· Email: InvestorRelations@aberdeenstandard.com; or
· Call: 1-800-522-5465 (toll-free in the U.S.).
Yours sincerely,
/s/ Christian Pittard
Christian Pittard
President
Important Information
This letter is not intended to, and does not, constitute an offer to sell, or solicitation of an offer to buy, any securities, nor is this letter intended to solicit any vote from any stockholder in connection with the proposed transaction described under Fund Consolidation. Such solicitations will only be made by a final, effective registration statement, which includes a definitive proxy statement/prospectus (the Registration Statement), after the Registration Statement is declared effective by the SEC.
STOCKHOLDERS OF THE FUND ARE URGED TO READ THE REGISTRATION STATEMENT AND OTHER DOCUMENTS TO BE FILED WITH THE SEC CAREFULLY AND IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THESE DOCUMENTS WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED CONSOLIDATION AND RELATED MATTERS.
The Registration Statement will not constitute an offer to sell securities, nor will it constitute a solicitation of an offer to buy securities, in any state where such offer or sale is not permitted.
Security holders may obtain free copies of the Registration Statement and other documents filed with the SEC (when they become available) at the SECs web site at www.sec.gov. In addition, free copies of the Registration Statement and other documents filed with the SEC may also be obtained after effectiveness of the Registration Statement by calling 1-800-522-5465.
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
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Dividend Reinvestment and Direct Stock Purchase Plan (unaudited)
Computershare Trust Company, N.A. (Computershare), the Funds transfer agent, sponsors and administers a Dividend Reinvestment and Direct Stock Purchase Plan (the Plan), which is available to shareholders.
The Plan allows registered stockholders and first-time investors to buy and sell shares and automatically reinvest dividends and capital gains through the transfer agent. This is a cost-effective way to invest in the Fund.
Please note that for both purchase and reinvestment purposes, shares will be purchased in the open market at the current share price and cannot be issued directly by the Fund.
For more information about the Plan and a brochure that includes the terms and conditions of the Plan, please call Computershare at 1-800-647-0584 or visit www.computershare.com/buyaberdeen.
All amounts are U.S. Dollar unless otherwise stated.
Report of the Investment Adviser (unaudited)
Market/economic review
Shares of smaller companies in emerging stock markets, as measured by the MSCI Emerging Markets Small Cap Index, rose over the 12-month period ended October 31, 2017, rebounding from a lull early in the period in the wake of Donald Trumps unexpected U.S. presidential election victory in November 2016. While geopolitical tensions and a series of natural disasters threatened global risk appetite at times, higher-yielding assets remained in favor largely across the board. Investors were generally encouraged by signs of improvement in corporate earnings, buoyant economic signals across both developed and emerging markets and stabilizing oil prices.
European markets performed particularly well on growing optimism over the regions economic resilience, with Poland, the Czech Republic and Romania all reporting healthy growth. Russia returned to favor initially on hopes of a thaw in relations with the U.S. under the Trump presidency. While that did not materialize, investor sentiment remained supported by the oil price recovery and a return to economic growth in Russia for the first time in two years. Brazilian equities garnered notable gains due to positive economic signals, the central banks significant cut in interest rates and the governments plan to privatize state assets. However, the Brazilian market relinquished some gains late in the period when President Michel Temer was briefly hospitalized. In Asia, Chinese equities performed well on broadly positive corporate earnings reports, surprisingly robust economic growth and the rise of large domestic internet service companies.
Amid this environment, investors largely shrugged off the downgrade of Chinas credit rating by Standard & Poors1 on increased risk from prolonged credit growth. Conversely, Indonesian stocks saw weak performance, while the Philippine market also came under pressure.
Fund performance review
The Fund underperformed its benchmark, the MSCI Emerging Markets Small Cap Index, on a net asset value basis over the reporting period. The Funds overall positioning in Turkey was a key detractor from performance as the deteriorating lira weighed on U.S. dollar returns, with shares of soft-drink bottler Coca-Cola Icecek coming under particular pressure as its balance sheet is largely U.S.-dollar funded. Stock selection and underweight allocation to Taiwan also weighed on Fund performance as the performance of the countrys smaller companies, which are heavily slanted towards the technology sector, rose in anticipation of increased demand for their products that are used in the new iPhones.
The Funds holding in Indonesian confectionary producer Delfi hindered performance as the company experienced lackluster sales growth and profitability in an environment of subdued consumer demand, while Jordanian drug-maker Hikma Pharmaceuticals stock price declined after management cut its revenue forecasts due to the delayed launch of a new high-profile generic drug, as well as increased pricing pressure in the U.S. In China, traditional medicine manufacturer Tong Ren Tang Technologies results over the reporting period generally
1 Standard & Poors credit ratings express the agencys opinion about the ability and willingness of an issuer, such as a corporation or state or city government, to meet its financial obligations in full and on time. Typically, ratings are expressed as letter grades that range, for example, from AAA to D to communicate the agencys opinion of relative level of credit risk. Ratings from AA to CCC may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major rating categories.
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Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
Report of the Investment Adviser (unaudited) (concluded)
did not meet expectations, attributable to subdued sales of core products amid heightened competition. In addition, Peruvian infrastructure firm Grana Y Monteros shares fell sharply after it became embroiled in a corruption scandal. However, Grana Y Monteros stock price began to recover later in the period on investors increased confidence in its ability to surmount the allegations.
Conversely, the Funds underweight allocation to Korea relative to the benchmark mitigated losses as the market corrected amid growing concerns over the political brinkmanship of neighboring North Korea as well as the continued sell-off in shares of biotechnology companies, which were a key driver of the Korean small-cap market performance in 2016. Fund performance also benefited from an overweight allocation to Brazil, as the market was supported by an improving outlook for corporate earnings as well as the broader economy. Footwear retailer Arezzo was a top contributor to Fund performance following its robust results for the second quarter of its 2017 fiscal year.
Additionally, the Funds holding in Chinese industrial gas company Yingde Gases contributed to performance after it became a takeover target. We sold the Funds shares in Yingde Gases to private equity firm PAG Capital at HK$6 (roughly US$0.77) per share. In India, the positon in conglomerate Piramal Enterprises bolstered Fund performance as its share price rose sharply on the back of an improving outlook for its financing business, given the companys willingness to raise capital to support growth.
During the period, we initiated a position in Medy-Tox, a Korean maker of botulinum toxin, when its valuation turned more reasonable following broader weakness in the Korean healthcare sector. The company has a 40% share of the Korean market and is one of only eight makers of botulinum toxin globally. We also initiated holdings in: Taiwanese retail chain Poya, which is taking market share from smaller rivals with its large stores and diverse products; leading South Korean home-furnishing franchise Hanssem, which has an asset-light business model, reputable brand and solid track record, in our view; airport operator Shenzen Airport, which we believe to be of high quality; Chinese car dealership franchise Zhongsheng Group, as we believe it has an attractive valuation, healthy operations and a decent
business outlook; leading Polish supermarket chain Dino Polksa; and large African financial institution Guaranty Trust Bank. Separately, we participated in Pilipinas Shell Petroleums initial public offering, as well as Maple Leaf Cements rights issue.2
Conversely, in addition to selling the Funds shares of Yingde Gases as previously noted, we exited the Funds positions in Dah Sing Banking Group, IT services provider Sonda and Hong Kong Aircraft Engineering Co. to fund what we viewed as better opportunities elsewhere. We also sold the Funds shares in BNK Financial Group as we believed that it had deteriorating prospects.
Outlook
In our opinion, the synchronized global economic recovery should continue to underpin further gains in the emerging markets, which outperformed their developed-market counterparts for the first 10 months of 2017. We think that Chinese economic growth may moderate, given the governments focus on regulatory tightening and supply-side reform, but a sharp downturn seems unlikely as economic drivers appear resilient and both fiscal and monetary policy remain accommodative. However, political risks remain, including Kurdish separatism exacerbating Middle Eastern tensions, and unresolved domestic political crises in South Africa and Brazil. Elections in various developing countries over 2018 could add further uncertainty, in our view. Nevertheless, most emerging-market economies are benefiting from an improved global macroenvironment, with recovering growth supported by moderate inflation and healthy trade flows. While we believe that major global central banks monetary policy normalization and tighter liquidity could cause some concerns, we believe that the banks well-telegraphed changes should ensure stability. Emerging-market companies also have sustained earnings improvement due to stronger corporate fundamentals and consumers rising spending capacity. We think that the expansion of long-term trends such as the semiconductor super-cycle and rise of e-commerce provides an additional boost for several Fund holdings. We are cautiously optimistic, and will remain disciplined in our approach and diligent in engaging the management teams of the Funds holdings in an effort to maintain the quality of the Funds portfolio.
Aberdeen Asset Managers Limited
2 A rights issue provides a companys existing shareholders with the opportunity to buy additional shares directly from the company in proportion to their existing holdings, within a fixed time period.
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
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Total Investment Return (unaudited)
The following table summarizes the average annual Fund total investment return compared to the MSCI Emerging Markets (EM) Small Cap Index, the Funds benchmark, for the 1-year, 3-year, 5-year and 10-year periods as of October 31, 2017.(1)
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1 Year |
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3 Years |
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5 Years |
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10 Years |
Net Asset Value (NAV) |
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10.2% |
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1.2% |
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1.1% |
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-1.1% |
Market Price |
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18.1% |
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1.8% |
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1.5% |
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-1.4% |
MSCI EM Small Cap Index |
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21.1% |
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5.2% |
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5.9% |
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1.7% |
Aberdeen Asset Managers Limited, the Funds investment adviser, has entered into a written contract with the Fund to waive certain fees without which total return performance would be lower. See Note 3 in the Notes to Financial Statements. This contract 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. 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 Funds transfer agent. All return data at NAV includes fees charged to the Fund, which are listed in the Funds Statement of Operations under Expenses. Total investment return at market value is based on changes in the market price at which the Funds shares traded on the NYSE American (formerly, NYSE MKT) during the period and assumes reinvestment of dividends and distributions, if any, at market prices pursuant to the dividend reinvestment program sponsored by the Funds transfer agent. The Funds total investment return is based on the reported NAV on the financial reporting period ended October 31, 2017. Because the Funds 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 Funds yield, return, market price and NAV will fluctuate. Performance information current to the most recent month-end is available at www.aberdeenabe.com or by calling 800-522-5465.
The total expense ratio, excluding fee waivers, based on the fiscal year ended October 31, 2017 was 1.57%. The total expense ratio, net of fee waivers, based on the fiscal year ended October 31, 2017 was 1.52%.
(1) Effective March 15, 2013, the Funds investment strategy changed from an infrastructure focus to a global emerging markets smaller company issuer focus. In connection with the strategy change, the Funds benchmark changed from the MSCI Emerging Markets Infrastructure Index to the MSCI EM Small Cap Index. The Funds performance information for periods that include performance prior to March 15, 2013, such as, five- and ten-year performance information, includes periods when the Fund was managed with an infrastructure focus. In light of this, a comparison of that performance to the MSCI EM Small Cap Index may not provide useful information to investors evaluating long-term Fund performance.
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Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
Portfolio Summary (unaudited)
The following table summarizes the sector composition of the Funds portfolio by geographic classification expressed as a percentage of net assets as of October 31, 2017.
Region |
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As a Percentage of Net Assets |
Asia |
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54.4% |
Latin America |
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15.0% |
Europe |
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14.3% |
Africa |
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8.2% |
North America |
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4.7% |
Middle East |
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2.2% |
Short-Term Investment |
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0.9% |
Global |
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0.7% |
Liabilities in Excess of Other Assets |
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(0.4)% |
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100.0% |
The following table summarizes the composition of the Funds portfolio, in Standard & Poors Global Industry Classification Standard (GICS) sectors, expressed as a percentage of net assets. The GICS structure consists of 11 sectors, 24 industry groups, 68 industries and 157 subindustries. As of October 31, 2017, the Fund did not have more than 25% of its assets invested in any industry. The sectors, as classified by GICS, are comprised of several industries.
Sectors |
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As a Percentage of Net Assets |
Industrials |
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18.4% |
Consumer Staples |
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17.3% |
Consumer Discretionary |
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15.6% |
Materials |
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11.5% |
Information Technology |
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10.2% |
Real Estate |
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9.9% |
Health Care |
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7.9% |
Financials |
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6.4% |
Energy |
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1.3% |
Private Equity |
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1.0% |
Short-Term Investment |
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0.9% |
Liabilities in Excess of Other Assets |
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(0.4)% |
|
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100.0% |
Top Ten Equity Holdings (unaudited)
The following were the Funds top ten holdings as of October 31, 2017:
Name of Security |
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As a Percentage of Net Assets |
Parque Arauco SA |
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3.5% |
Godrej Consumer Products Ltd. |
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3.5% |
Jollibee Foods Corp. |
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3.0% |
Ace Hardware Indonesia Tbk PT |
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2.8% |
Pacific Basin Shipping Ltd. |
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2.7% |
AKR Corporindo Tbk PT |
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2.7% |
Grupo Aeroportuario del Centro Norte SAB de CV, ADR |
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2.7% |
ASM International NV |
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2.6% |
Container Corp. of India Ltd. |
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2.6% |
Ramco Cements Ltd. (The) |
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2.5% |
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
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Portfolio of Investments
As of October 31, 2017
Shares |
|
Description |
|
Industry and Percentage of Net Assets |
|
Value |
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LONG-TERM EQUITY SECURITIES IN EMERGING MARKET COUNTRIES92.1% | |||||||
COMMON STOCKS91.0% | |||||||
BRAZIL10.6% | |||||||
166,961 |
|
Arezzo Industria e Comercio SA |
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Textiles, Apparel & Luxury Goods1.7% |
|
$ 2,579,977 |
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267,155 |
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Iguatemi Empresa de Shopping Centers SA |
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Real Estate Management & Development2.1% |
3,142,519 |
| |
104,272 |
|
Localiza Rent a Car SA |
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Road & Rail1.2% |
|
1,844,594 |
|
481,595 |
|
Odontoprev SA |
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Health Care Providers & Services1.6% |
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2,317,215 |
|
193,845 |
|
TOTVS SA |
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Software1.3% |
|
1,930,569 |
|
165,537 |
|
Valid Solucoes e Servicos de Seguranca em Meios de Pagamento e Identificacao SA |
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Commercial Services & Supplies0.6% |
|
927,044 |
|
239,471 |
|
Wilson Sons Ltd., BDR |
|
Transportation Infrastructure2.1% |
|
3,074,552 |
|
|
|
|
|
|
|
15,816,470 |
|
CHILE3.5% |
|
|
|
|
| ||
1,791,700 |
|
Parque Arauco SA |
|
Real Estate Management & Development3.5% |
5,177,054 |
| |
CHINA4.4% |
|
|
|
|
| ||
1,085,092 |
|
Shenzhen Airport Co. Ltd., A Shares (Stock Connect)(a)(b) |
|
Transportation Infrastructure1.0% |
|
1,444,776 |
|
1,172,000 |
|
Tong Ren Tang Technologies Co. Ltd., H Shares(b) |
|
Pharmaceuticals1.1% |
|
1,647,188 |
|
2,119,100 |
|
Yanlord Land Group Ltd.(b) |
|
Real Estate Management & Development1.8% |
2,784,610 |
| |
342,000 |
|
Zhongsheng Group Holdings Ltd.(b) |
|
Specialty Retail0.5% |
|
702,960 |
|
|
|
|
|
|
|
6,579,534 |
|
EGYPT1.1% |
|
|
|
|
| ||
133,914 |
|
Edita Food Industries SAE, GDR |
|
Food Products0.4% |
|
535,656 |
|
2,247,692 |
|
Juhayna Food Industries(b) |
|
Food Products0.7% |
|
1,123,363 |
|
|
|
|
|
|
|
1,659,019 |
|
INDIA15.7% |
|
|
|
|
| ||
235,000 |
|
Castrol (India) Ltd.(b) |
|
Chemicals1.0% |
|
1,451,951 |
|
180,000 |
|
Container Corp. of India Ltd.(b) |
|
Road & Rail2.6% |
|
3,837,860 |
|
358,744 |
|
Godrej Consumer Products Ltd.(b) |
|
Personal Products3.5% |
|
5,173,097 |
|
450,000 |
|
Kansai Nerolac Paints Ltd.(b) |
|
Chemicals2.4% |
|
3,592,841 |
|
204,185 |
|
Mphasis Ltd.(b) |
|
Information Technology Services1.4% |
|
2,175,192 |
|
82,500 |
|
Piramal Enterprises Ltd.(b) |
|
Pharmaceuticals2.3% |
|
3,490,044 |
|
341,000 |
|
Ramco Cements Ltd. (The)(b) |
|
Construction Materials2.5% |
|
3,783,438 |
|
|
|
|
|
|
|
23,504,423 |
|
INDONESIA8.5% |
|
|
|
|
| ||
45,278,000 |
|
Ace Hardware Indonesia Tbk PT |
|
Specialty Retail2.8% |
|
4,189,780 |
|
7,286,300 |
|
AKR Corporindo Tbk PT |
|
Trading Companies & Distributors2.7% |
|
4,002,428 |
|
22,277,147 |
|
Bank Permata Tbk PT(b)(c) |
|
Banks0.7% |
|
1,067,381 |
|
2,170,000 |
|
Delfi Ltd. |
|
Food Products1.6% |
|
2,356,100 |
|
17,142,800 |
|
Holcim Indonesia Tbk PT(b)(c) |
|
Construction Materials0.7% |
|
1,043,396 |
|
|
|
|
|
|
|
12,659,085 |
|
JORDAN0.8% |
|
|
|
|
| ||
75,317 |
|
Hikma Pharmaceuticals PLC(b) |
|
Pharmaceuticals0.8% |
|
1,164,175 |
|
KENYA1.1% |
|
|
|
|
| ||
701,800 |
|
East African Breweries Ltd. |
|
Beverages1.1% |
|
1,657,263 |
|
|
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
Portfolio of Investments (continued)
As of October 31, 2017
Shares |
|
Description |
|
Industry and Percentage of Net Assets |
|
Value |
|
MALAYSIA4.9% |
|
|
|
|
| ||
4,537,900 |
|
Aeon Co. (M) Bhd(b) |
|
Multiline Retail1.5% |
|
$ 2,219,370 |
|
170,000 |
|
Heineken Malaysia Bhd |
|
Beverages0.5% |
|
762,159 |
|
790,200 |
|
Oriental Holdings Bhd(b) |
|
Automobiles0.8% |
|
1,222,314 |
|
2,064,065 |
|
SP Setia Bhd Group |
|
Real Estate Management & Development1.1% |
1,594,306 |
| |
240,000 |
|
United Plantations Bhd |
|
Food Products1.0% |
|
1,554,458 |
|
|
|
|
|
|
|
7,352,607 |
|
MEXICO2.7% |
|
|
|
|
| ||
98,676 |
|
Grupo Aeroportuario del Centro Norte SAB de CV, ADR |
|
Transportation Infrastructure2.7% |
|
3,986,510 |
|
NIGERIA1.8% |
|
|
|
|
| ||
4,370,209 |
|
Guaranty Trust Bank PLC |
|
Banks0.3% |
|
509,858 |
|
3,090,909 |
|
Guinness Nigeria PLC |
|
Beverages0.6% |
|
862,278 |
|
19,437,011 |
|
Zenith Bank PLC |
|
Banks0.9% |
|
1,375,708 |
|
|
|
|
|
|
|
2,747,844 |
|
PAKISTAN0.8% |
|
|
|
|
| ||
1,951,937 |
|
Maple Leaf Cement Factory Ltd. |
|
Construction Materials0.8% |
|
1,242,487 |
|
PERU0.9% |
|
|
|
|
| ||
303,354 |
|
Grana y Montero SAA, ADR(c) |
|
Construction & Engineering0.9% |
|
1,365,093 |
|
PHILIPPINES4.3% |
|
|
|
|
| ||
915,080 |
|
Jollibee Foods Corp.(b) |
|
Hotels, Restaurants & Leisure3.0% |
|
4,418,797 |
|
1,650,000 |
|
Pilipinas Shell Petroleum Corp. |
|
Oil, Gas & Consumable Fuels1.3% |
|
1,989,588 |
|
|
|
|
|
|
|
6,408,385 |
|
POLAND1.9% |
|
|
|
|
| ||
99,589 |
|
Dino Polska SA(b)(c)(d) |
|
Food & Staples Retailing1.3% |
|
1,872,061 |
|
96,115 |
|
Eurocash SA |
|
Food & Staples Retailing0.6% |
|
971,990 |
|
|
|
|
|
|
|
2,844,051 |
|
REPUBLIC OF SOUTH KOREA3.3% |
|
|
|
|
| ||
11,000 |
|
Hanssem Co. Ltd. |
|
Household Durables1.1% |
|
1,674,030 |
|
5,200 |
|
Medy-Tox, Inc.(b) |
|
Biotechnology1.3% |
|
1,968,358 |
|
6,000 |
|
Shinsegae, Inc. |
|
Multiline Retail0.9% |
|
1,226,403 |
|
|
|
|
|
|
|
4,868,791 |
|
ROMANIA1.7% |
|
|
|
|
| ||
807,000 |
|
BRD-Groupe Societe Generale SA |
|
Banks1.7% |
|
2,540,253 |
|
RUSSIA1.0% |
|
|
|
|
| ||
133,150 |
|
Beluga Group PJSC(c) |
|
Beverages1.0% |
|
1,440,106 |
|
SOUTH AFRICA5.3% |
|
|
|
|
| ||
893,654 |
|
African Oxygen Ltd. |
|
Chemicals1.0% |
|
1,548,547 |
|
106,384 |
|
City Lodge Hotels Ltd. |
|
Hotels, Restaurants & Leisure0.6% |
|
947,985 |
|
204,900 |
|
Clicks Group Ltd.(b) |
|
Food & Staples Retailing1.5% |
|
2,294,980 |
|
181,276 |
|
JSE Ltd. |
|
Capital Markets1.2% |
|
1,718,941 |
|
121,735 |
|
SPAR Group Ltd. (The) |
|
Food & Staples Retailing1.0% |
|
1,432,364 |
|
|
|
|
|
|
|
7,942,817 |
|
SRI LANKA1.9% |
|
|
|
|
| ||
2,689,150 |
|
John Keells Holdings PLC |
|
Industrial Conglomerates1.9% |
|
2,783,237 |
|
TAIWAN1.8% |
|
|
|
|
| ||
209,070 |
|
Poya International Co. Ltd.(b) |
|
Multiline Retail1.8% |
|
2,681,272 |
|
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
|
Portfolio of Investments (continued)
As of October 31, 2017
Shares |
|
Description |
|
Industry and Percentage of Net Assets |
|
Value |
|
THAILAND6.0% |
|
|
|
|
| ||
2,600,100 |
|
BEC World PCL, Foreign Shares(b) |
|
Media0.9% |
|
$ 1,361,883 |
|
190,000 |
|
Bumrungrad Hospital PCL, Foreign Shares(b) |
|
Health Care Providers & Services0.8% |
|
1,258,278 |
|
800,000 |
|
Central Pattana PCL, Foreign Shares(b) |
|
Real Estate Management & Development1.3% |
|
1,914,509 |
|
1,679,000 |
|
Hana Microelectronics PCL, Foreign Shares(b) |
|
Electronic Equipment Instruments & Components1.7% |
|
2,463,915 |
|
238,399 |
|
Siam City Cement PCL, Foreign Shares(b) |
|
Construction Materials1.3% |
|
2,002,811 |
|
|
|
|
|
|
|
9,001,396 |
|
TURKEY7.1% |
|
|
|
|
| ||
1,537,000 |
|
Aksigorta AS(b)(c) |
|
Insurance0.8% |
|
1,269,442 |
|
240,745 |
|
AvivaSA Emeklilik ve Hayat AS |
|
Insurance0.8% |
|
1,189,272 |
|
703,784 |
|
Cimsa Cimento Sanayi VE Ticaret AS(b) |
|
Construction Materials1.8% |
|
2,660,880 |
|
359,391 |
|
Coca-Cola Icecek AS(b) |
|
Beverages2.5% |
|
3,663,610 |
|
114,491 |
|
Logo Yazilim Sanayi Ve Ticaret AS(c) |
|
Software1.2% |
|
1,810,826 |
|
|
|
|
|
|
|
10,594,030 |
|
|
|
|
|
|
|
136,015,902 |
|
PRIVATE EQUITY 1.0% |
|
|
|
|
| ||
GLOBAL0.7%* |
|
|
|
|
| ||
7,248,829 |
(e) |
Emerging Markets Ventures I, L.P.(b)(c)(f)(g)(h)(i) |
|
Private Equity0.1% |
|
112,067 |
|
2,400,000 |
(e) |
Telesoft Partners II QP, L.P.(b)(c)(f)(g)(j) |
|
Private Equity0.6% |
|
918,336 |
|
|
|
|
|
|
|
1,030,403 |
|
ISRAEL0.3% |
|
|
|
|
| ||
1,674,587 |
(e) |
BPA Israel Ventures, LLC(b)(c)(f)(g)(h)(i) |
|
Private Equity0.1% |
|
153,375 |
|
72,640 |
|
Exent Technologies Ltd. Preferred A1 Shares(b)(c)(f)(g)(j)(k) |
|
Private Equity % |
|
|
|
62,304 |
|
Exent Technologies Ltd. Preferred C Shares(b)(c)(f)(g)(j)(k) |
|
Private Equity % |
|
|
|
15,716 |
|
Exent Technologies Ltd. Warrants A1(b)(c)(f)(g)(j)(k) |
|
Private Equity % |
|
|
|
46,856 |
|
Flash Networks Ltd. Ordinary Shares(b)(c)(f)(g)(j)(k) |
|
Private Equity % |
|
|
|
12 |
|
Flash Networks Ltd. Series C Preferred(b)(c)(f)(g)(j)(k) |
|
Private Equity % |
|
|
|
23,264 |
|
Flash Networks Ltd. Series C-1 Preferred(b)(c)(f)(g)(j)(k) |
|
Private Equity % |
|
|
|
13,526 |
|
Flash Networks Ltd. Series D Preferred(b)(c)(f)(g)(j)(k) |
|
Private Equity % |
|
|
|
9,952 |
|
Flash Networks Ltd. Series E Preferred(b)(c)(f)(g)(j)(k) |
|
Private Equity % |
|
|
|
22 |
|
Flash Networks Ltd. Warrants C(b)(c)(f)(g)(j)(k) |
|
Private Equity % |
|
|
|
52 |
|
Flash Networks Ltd. Warrants Ordinary(b)(c)(f)(g)(j)(k) |
|
Private Equity % |
|
|
|
2,750,000 |
(e) |
Giza GE Venture Fund III, L.P.(b)(c)(f)(g)(i) |
|
Private Equity0.1% |
|
55,220 |
|
761,184 |
(e) |
Neurone Ventures II, L.P.(b)(c)(f)(g)(j) |
|
Private Equity0.1% |
|
200,618 |
|
16,287 |
|
Vidyo, Inc. Trust A (Preferred)(b)(c)(f)(g)(j)(l) |
|
Private Equity % |
|
|
|
7,766 |
|
Vidyo, Inc. Trust B (Preferred)(b)(c)(f)(g)(j)(l) |
|
Private Equity % |
|
|
|
6,610 |
|
Vidyo, Inc. Trust B1 (Preferred)(b)(c)(f)(g)(j)(l) |
|
Private Equity % |
|
|
|
3,432 |
|
Vidyo, Inc. Trust C (Preferred)(b)(c)(f)(g)(j)(l) |
|
Private Equity % |
|
|
|
2,075 |
|
Vidyo, Inc. Trust C1 (Preferred)(b)(c)(f)(g)(j)(l) |
|
Private Equity % |
|
|
|
41,436 |
|
Vidyo, Inc. Trust Common(b)(c)(f)(g)(j)(l) |
|
Private Equity % |
|
|
|
1,357 |
|
Vidyo, Inc. Trust D (Preferred)(b)(c)(f)(g)(j)(l) |
|
Private Equity % |
|
|
|
|
|
|
|
|
|
409,213 |
|
|
|
|
|
|
|
1,439,616 |
|
PREFERRED STOCK0.1% |
|
|
|
|
| ||
MALAYSIA0.1% |
|
|
|
|
| ||
767,512 |
|
SP Setia Bhd Group, Preferred Shares(c)(m) |
|
Real Estate Management & Development0.1% |
190,360 |
| |
|
|
|
|
|
|
190,360 |
|
|
|
Total Long-Term Equity Securities in Emerging Market Countries92.1% (cost $142,055,409) |
137,645,878 |
|
|
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
Portfolio of Investments (concluded)
As of October 31, 2017
Shares |
|
Description |
|
Industry and Percentage of Net Assets |
|
Value |
|
LONG-TERM EQUITY SECURITIES IN DEVELOPED MARKET COUNTRIES7.4% |
|
|
| ||||
COMMON STOCK7.4% |
|
|
|
|
| ||
HONG KONG2.7% |
|
|
|
|
| ||
17,839,000 |
|
Pacific Basin Shipping Ltd.(b)(c) |
|
Marine2.7% |
|
$ 4,073,516 |
|
NETHERLANDS2.7% |
|
|
|
|
| ||
59,000 |
|
ASM International NV(b) |
|
Semiconductors & Semiconductor Equipment2.7% |
|
3,953,826 |
|
UNITED STATES2.0% |
|
|
|
|
| ||
33,162 |
|
EPAM Systems, Inc.(c) |
|
Information Technology Services2.0% |
|
3,022,716 |
|
|
|
|
|
|
|
11,050,058 |
|
PRIVATE EQUITY0.0% |
|
|
|
|
| ||
UNITED STATES0.0% |
|
|
|
|
| ||
1,952,000 |
(e) |
Technology Crossover Ventures IV, L.P.(b)(c)(f)(g)(h)(i) |
|
Private Equity % |
|
2,050 |
|
|
|
|
|
|
|
2,050 |
|
|
|
Total Long-Term Equity Securities in Developed Market Countries7.4% (cost $7,119,118) |
11,052,108 |
| |||
SHORT-TERM INVESTMENT0.9% |
|
|
|
|
| ||
UNITED STATES0.9% |
|
|
|
|
| ||
1,412,497 |
|
State Street Institutional U.S. Government Money Market Fund, Institutional Class, 0.96%(n) |
|
1,412,497 |
| ||
|
|
|
|
|
|
1,412,497 |
|
|
|
Total Short-Term Investment0.9% (cost $1,412,497) |
|
1,412,497 |
| ||
|
|
Total Investments100.4% (cost $150,587,024)(o) |
|
150,110,483 |
| ||
|
|
Liabilities in Excess of Other Assets(0.4)% |
|
(589,932 |
) | ||
|
|
Net Assets100.0% |
|
$ 149,520,551 |
|
(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) |
Fair Valued Security. Fair Values are determined pursuant to procedures approved by the Funds Board of Directors. 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. |
(c) |
Non-income producing security. |
(d) |
Denotes a security issued under Regulation S or Rule 144A. |
(e) |
Represents contributed capital. |
(f) |
Restricted security, not readily marketable. See Note 8(c) of the accompanying Notes to Financial Statements. |
(g) |
Illiquid security. |
(h) |
As of October 31, 2017, the aggregate amount of open commitments for the Fund is $1,524,584. |
(i) |
In liquidation. |
(j) |
Active private equity investments. |
(k) |
Exent Technologies Ltd. and Flash Networks Ltd. were securities received from the dissolution of Concord Fund I Liquidating Main Trust. See Note 6 of the accompanying Notes to Financial Statements. |
(l) |
Vidyo, Inc. Trust was a spinoff from SVE Star Ventures IX. See Note 6 of the accompanying Notes to Financial Statements. |
(m) |
Redeemable Convertible Preferred security. |
(n) |
Registered investment company advised by State Street Global Advisors. The rate shown is the current yield as of October 31, 2017. |
(o) |
See accompanying Notes to Financial Statements for tax unrealized appreciation/(depreciation) of securities. |
* |
Global is the percentage attributable to the Funds holdings in a private equity fund which invests globally and is not categorized under a particular country. |
ADR |
American Depositary Receipt |
BDR |
Brazilian Depositary Receipt |
GDR |
Global Depositary Receipt |
PLC |
Public Limited Company |
See Notes to Financial Statements.
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
|
Statement of Assets and Liabilities
As of October 31, 2017
Assets |
|
|
| |
|
|
|
| |
Investments, at value (cost $149,174,527) |
|
$ |
148,697,986 |
|
Short-term investments, at value (cost $1,412,497) |
|
1,412,497 |
| |
Cash |
|
33,189 |
| |
Foreign currency, at value (cost $21,424) |
|
21,415 |
| |
Interest and dividends receivable |
|
105,995 |
| |
Tax reclaim receivable |
|
1,742 |
| |
Prepaid expenses |
|
25,390 |
| |
Total assets |
|
150,298,214 |
| |
|
|
|
| |
Liabilities |
|
|
| |
Deferred foreign capital gains tax |
|
491,971 |
| |
Investment advisory fees payable (Note 3) |
|
136,328 |
| |
Administration fees payable (Note 3) |
|
10,193 |
| |
Payable for investments purchased |
|
7,138 |
| |
Investor relations fees payable (Note 3) |
|
5,591 |
| |
Director fees payable |
|
5,000 |
| |
Other accrued expenses |
|
121,442 |
| |
Total liabilities |
|
777,663 |
| |
|
|
|
| |
Net Assets |
|
$ |
149,520,551 |
|
|
|
|
| |
Composition of Net Assets: |
|
|
| |
Common stock (par value $.001 per share) (Note 5) |
|
$ |
9,485 |
|
Paid-in capital in excess of par |
|
161,092,470 |
| |
Accumulated net investment income |
|
333,136 |
| |
Accumulated net realized loss from investment and foreign currency transactions |
|
(10,945,807 |
) | |
Net unrealized (depreciation) on investments and other assets and liabilities denominated in foreign currencies |
|
(968,733 |
) | |
Net Assets |
|
$ |
149,520,551 |
|
Net asset value per share based on 9,484,813 shares issued and outstanding |
|
$ |
15.76 |
|
See Notes to Financial Statements.
|
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
|
Statement of Operations
For the Year Ended October 31, 2017
Net Investment Income |
|
|
| |
|
|
|
| |
Income |
|
|
| |
Dividends and other income (net of foreign withholding taxes of $274,585) |
|
$ |
2,914,097 |
|
|
|
2,914,097 |
| |
|
|
|
| |
Expenses |
|
|
| |
Investment advisory fee (Note 3) |
|
1,521,025 |
| |
Directors fees and expenses |
|
130,500 |
| |
Custodians fees and expenses |
|
126,074 |
| |
Administration fee (Note 3) |
|
111,951 |
| |
Independent auditors fees and expenses |
|
54,500 |
| |
Investor relations fees and expenses (Note 3) |
|
50,157 |
| |
Legal fees and expenses |
|
45,196 |
| |
Reports to shareholders and proxy solicitation |
|
40,272 |
| |
Insurance expense |
|
39,663 |
| |
Transfer agents fees and expenses |
|
24,220 |
| |
Miscellaneous |
|
47,232 |
| |
Total expenses |
|
2,190,790 |
| |
Less: Fee waivers (Note 3) |
|
(62,046 |
) | |
Net expenses |
|
2,128,744 |
| |
|
|
|
| |
Net Investment Income |
|
785,353 |
| |
|
|
|
| |
Net Realized/Unrealized Gain/(Loss) from Investments and Foreign Currency Related Transactions: |
|
|
| |
Net realized gain/(loss) from: |
|
|
| |
Investment transactions(a) |
|
(2,211,483 |
) | |
Foreign currency transactions |
|
(24,809 |
) | |
|
|
(2,236,292 |
) | |
Net change in unrealized appreciation/(depreciation) on: |
|
|
| |
Investments (including $491,971 change in deferred capital gains tax) |
|
14,913,820 |
| |
Foreign currency translation |
|
55 |
| |
|
|
14,913,875 |
| |
Net realized and unrealized gain from investments |
|
12,677,583 |
| |
Net Increase in Net Assets Resulting from Operations |
|
$ |
13,462,936 |
|
(a) Includes realized gain portion of distributions from underlying private equity investments of $0.
See Notes to Financial Statements.
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
|
Statements of Changes in Net Assets
|
|
|
|
|
| ||
|
|
For the |
|
For the |
| ||
|
|
|
|
|
| ||
Increase/(Decrease) in Net Assets |
|
|
|
|
| ||
|
|
|
|
|
| ||
Operations: |
|
|
|
|
| ||
Net investment income |
|
$ |
785,353 |
|
$ |
1,370,276 |
|
Net realized loss from investment and foreign currency related transactions |
|
(2,236,292 |
) |
(11,812,830 |
) | ||
Net change in unrealized appreciation/(depreciation) on investments and foreign currency translation |
|
14,913,875 |
|
22,519,431 |
| ||
Net increase in net assets resulting from operations |
|
13,462,936 |
|
12,076,877 |
| ||
|
|
|
|
|
| ||
Distributions to Shareholders from: |
|
|
|
|
| ||
Net investment income |
|
(1,226,386 |
) |
(970,048 |
) | ||
Net decrease in net assets from distributions |
|
(1,226,386 |
) |
(970,048 |
) | ||
|
|
|
|
|
| ||
Common Stock Transactions: |
|
|
|
|
| ||
Repurchase of common stock from open market repurchase program (159,122 and 90,827 shares, respectively) (Note 7) |
|
(1,879,769 |
) |
(1,043,716 |
) | ||
Change in net assets from capital transactions |
|
(1,879,769 |
) |
(1,043,716 |
) | ||
Change in net assets resulting from operations |
|
10,356,781 |
|
10,063,113 |
| ||
|
|
|
|
|
| ||
Net Assets: |
|
|
|
|
| ||
Beginning of year |
|
139,163,770 |
|
129,100,657 |
| ||
End of year (including accumulated net investment income of $333,136 and $765,324, respectively) |
|
$ |
149,520,551 |
|
$ |
139,163,770 |
|
See Notes to Financial Statements.
|
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
|
Financial Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Fiscal Years Ended October 31, |
| ||||||||
|
|
2017 |
|
2016 |
|
2015 |
|
2014 |
|
2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
PER SHARE OPERATING PERFORMANCE(a): |
|
|
|
|
|
|
|
|
|
|
|
Net asset value per common share, beginning of year |
|
$14.43 |
|
$13.26 |
|
$15.69 |
|
$22.69 |
|
$22.95 |
|
Net investment income |
|
0.08 |
|
0.14 |
|
0.11 |
|
0.18 |
|
0.23 |
|
Net realized and unrealized gains/(losses) on investments and foreign currency transactions |
|
1.35 |
|
1.11 |
|
(2.34 |
) |
(0.93 |
) |
(0.10 |
) |
Total from investment operations applicable to common shareholders |
|
1.43 |
|
1.25 |
|
(2.23 |
) |
(0.75 |
) |
0.13 |
|
Distributions to common shareholders from: |
|
|
|
|
|
|
|
|
|
|
|
Net investment income |
|
(0.13 |
) |
(0.10 |
) |
(0.21 |
) |
(0.30 |
) |
(0.39 |
) |
Net realized gains |
|
|
|
|
|
|
|
(5.73 |
) |
|
|
Total distributions |
|
(0.13 |
) |
(0.10 |
) |
(0.21 |
) |
(6.03 |
) |
(0.39 |
) |
Capital Share Transactions: |
|
|
|
|
|
|
|
|
|
|
|
Impact due to capital shares issued from stock distribution |
|
|
|
|
|
|
|
(0.22 |
) |
|
|
Impact due to open market repurchase program (Note 7) |
|
0.03 |
|
0.02 |
|
0.01 |
|
|
|
|
|
Total capital share transactions |
|
0.03 |
|
0.02 |
|
0.01 |
|
(0.22 |
) |
|
|
Net asset value per common share, end of year |
|
$15.76 |
|
$14.43 |
|
$13.26 |
|
$15.69 |
|
$22.69 |
|
Market value, end of year |
|
$14.43 |
|
$12.33 |
|
$11.55 |
|
$14.15 |
|
$20.47 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Investment Return Based on(b): |
|
|
|
|
|
|
|
|
|
|
|
Market value |
|
18.09% |
|
7.60% |
|
(17.08% |
) |
1.00% |
|
1.04% |
|
Net asset value |
|
10.21% |
|
9.69% |
|
(14.15% |
) |
1.03% |
|
0.77% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratio to Average Net Assets Applicable to Common Shareholders/Supplementary Data: |
|
|
|
|
|
|
|
|
|
|
|
Net assets applicable to common shareholders, end of year (000 omitted) |
|
$149,521 |
|
$139,164 |
|
$129,101 |
|
$153,216 |
|
$187,147 |
|
Average net assets applicable to common shareholders (000 omitted) |
|
$139,938 |
|
$130,330 |
|
$140,522 |
|
$151,939 |
|
$190,084 |
|
Net operating expenses, net of fee waivers |
|
1.52% |
|
1.55% |
|
1.52% |
|
1.61% |
|
1.47% |
|
Net operating expenses, excluding fee waivers |
|
1.57% |
|
1.60% |
|
1.57% |
|
1.66% |
|
1.52% |
|
Net investment income |
|
0.56% |
|
1.05% |
|
0.79% |
|
1.12% |
|
0.99% |
|
Portfolio turnover |
|
16.79% |
|
13.89% |
|
9.08% |
|
9.88% |
|
99.18% |
|
(a) Based on average shares outstanding.
(b) Total investment return based on market value is calculated assuming that shares of the Funds 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 Funds 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 Funds net asset value is substituted for the closing market value.
Amounts listed as are $0 or round to $0.
See Notes to Financial Statements.
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
|
Notes to Financial Statements
October 31, 2017
1. Organization
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. (the Fund) was incorporated in Maryland on October 12, 1993. The Fund is registered under the Investment Company Act of 1940, as amended (the 1940 Act), as a closed-end diversified management investment company. The Fund trades on the NYSE American (formerly, NYSE MKT) under the ticker symbol ABE.
The Funds investment objective is to seek long-term capital appreciation.
As a fundamental policy, under normal market conditions, at least 80% of the Funds net assets, plus any borrowings for investment purposes, will be invested in equity securities of emerging market smaller company issuers. An emerging market country is one with an emerging market economy. Aberdeen Asset Managers Limited, the Funds investment adviser (AAML or the Adviser), considers factors such as the countrys credit rating, its political and economic stability and the development of its financial and capital markets in determining whether a country has an emerging markets economy. Emerging market countries for purposes of this policy can include every nation in the world except the U.S., Canada, Japan, Australia, New Zealand and most countries located in Western Europe. Smaller companies for the purposes of this policy can be companies that, at the time of purchase, have a market capitalization of less than $5 billion.
Fund Consolidation
In October 2017, the Funds Board of Directors and the boards of directors of seven other closed-end funds announced that they had each approved the consolidation of their respective funds into one fund, subject to the receipt of necessary approvals by stockholders of each fund. In the consolidation, the Fund would be reorganized into the Aberdeen Chile Fund, Inc. (the Acquiring Fund), which would, in connection with the consolidation, assuming requisite stockholder approvals are obtained, be renamed Aberdeen Emerging Markets Equity Income Fund, Inc. (the Combined Fund) and would invest in emerging market equity securities. The Combined Fund may use leverage to achieve its objective. The proposed consolidation is subject to several conditions, including approval by Fund stockholders, who will receive a prospectus/proxy statement describing the proposed consolidation. The Letter to Shareholders contains further information about the Fund Consolidation.
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 in the United States of America (GAAP). 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.
a. Security Valuation:
The Fund values its securities at current market value or fair value, consistent with regulatory requirements. Fair value is defined in the Funds Valuation and Liquidity Procedures as the price that could be received to sell an asset or paid to transfer a liability in an orderly transaction between willing market participants without a compulsion to transact at the measurement date.
Equity securities that are traded on an exchange are valued at the last quoted sale price on the principal exchange on which the security is traded at the Valuation Time subject to application, when appropriate, of the valuation factors described in the paragraph below. The Valuation Time is as of the close of regular trading on the New York Stock Exchange (usually 4:00 p.m. Eastern Time). In the absence of a sale price, the security is valued at the mean of the bid/ask price quoted at the close on the principal exchange on which the security is traded. Securities traded on NASDAQ are valued at the NASDAQ official closing price. Closed-end funds and exchange-traded funds (ETFs) are valued at the market price of the security at the Valuation Time. A security using any of these pricing methodologies is determined to be a Level 1 investment.
Foreign equity securities that are traded on foreign exchanges that close prior to 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 approved by the Funds Board of Directors (the Board). These valuation factors are used when pricing the Funds portfolio holdings to estimate market movements between the time foreign markets close and the time the Fund values such foreign securities. These valuation factors are based on inputs such as depositary receipts, indices, futures, sector indices/ETFs, exchange rates, and local exchange opening and closing prices of each security. When prices with the application of valuation factors are utilized, the value assigned to the
Notes to Financial Statements (continued)
October 31, 2017
foreign securities may not be the same as quoted or published prices of the securities on their primary markets. A security that applies a valuation factor is determined to be a Level 2 investment because the exchange-traded price has been adjusted. Valuation factors are not utilized if the independent pricing service provider is unable to provide a valuation factor or if the valuation factor falls below a predetermined threshold; in such case, the security is determined to be a Level 1 investment.
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 $1.00 per share net asset value (NAV). Generally, these investment types are categorized as Level 1 investments.
In the event that a securitys market quotations are not readily available or are deemed unreliable (for reasons other than because the foreign exchange on which it trades closes before the Valuation Time), the security is valued at fair value as determined by the Funds Pricing Committee, taking into account the relevant factors and surrounding circumstances using valuation policies and procedures approved by the Board. A security that has been fair valued by the Funds Pricing Committee may be classified as Level 2 or Level 3 depending on the nature of the inputs.
The Fund may also invest in private equity private placement securities, which represented 1.0% of the net assets of the Fund as of October 31, 2017. 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 Funds 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 as determined by the Funds Pricing Committee 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 net asset values provided by the underlying funds.
In accordance with the authoritative guidance on fair value measurements and disclosures under GAAP, the Fund discloses the fair value of its investments using a three-level hierarchy that classifies the inputs to valuation techniques used to measure the fair value. The hierarchy assigns Level 1 the highest level, measurements to valuations based upon unadjusted quoted prices in active markets for identical assets, Level 2 measurements to valuations based upon other significant observable inputs, including adjusted quoted prices in active markets for similar assets, and Level 3 the lowest level, measurements to valuations based upon unobservable inputs that are significant to the valuation. Observable inputs are inputs that reflect the assumptions market participants would use in pricing the asset or liability, which are based on market data obtained from sources independent of the reporting entity. Unobservable inputs are inputs that reflect the reporting entitys own assumptions about the assumptions market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. A financial instruments level within the fair value hierarchy is based upon the lowest level of any input that is significant to the fair value measurement.
Level 1 quoted prices in active markets for identical investments;
Level 2 other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds, and credit risk); or
Level 3 significant unobservable inputs (including the Funds own assumptions in determining the fair value of investments).
The following is a summary of the inputs used as of October 31, 2017 in valuing the Funds investments and other financial instruments at fair value. The inputs or methodology used for valuing securities are
Notes to Financial Statements (continued)
October 31, 2017
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 |
|
Level 2 Other |
|
Level 3 Significant |
|
Total ($) |
|
Investments in Securities |
|
|
|
|
|
|
|
|
|
Common Stocks |
|
71,283,866 |
|
75,782,094 |
|
|
|
147,065,960 |
|
Preferred Stocks |
|
190,360 |
|
|
|
|
|
190,360 |
|
Short-Term Investment |
|
1,412,497 |
|
|
|
|
|
1,412,497 |
|
Total |
|
72,886,723 |
|
75,782,094 |
|
|
|
148,668,817 |
|
Private Equity(a) |
|
|
|
|
|
|
|
1,441,666 |
|
Total Investments |
|
|
|
|
|
|
|
150,110,483 |
|
Amounts listed as are $0 or round to $0.
(a) Private Equity investments are measured at the net asset valuations, as a practical expedient for fair value, and are not required to be classified in the fair value hierarchy as per Accounting Standards Update 2015-07. The fair value amounts presented are intended to permit reconciliation to the total investment amount presented in the Portfolio of Investments.
For movements between the levels within the fair value hierarchy, the Fund has adopted a policy of recognizing transfers at the end of each period. The utilization of valuation factors may result in transfers between Level 1 and Level 2. During the fiscal year ended October 31, 2017, the securities issued by Ace Hardware Indonesia Tbk PT, African Oxygen Ltd., AKR Corporindo Tbk PT, BRD-Groupe Societe Generale SA, Eurocash SA, Heineken Malaysia Bhd, JSE Ltd. and Shinsegae, Inc. transferred from Level 2 to Level 1 at the values of $4,189,780, $1,548,547, $4,002,428, $2,540,253, $971,990, $762,159, $1,718,941 and $1,226,403, respectively, because the securities were valued without the application of a valuation factor at October 31, 2017. During the fiscal year ended October 31, 2017, the securities issued by Clicks Group Ltd., Juhayna Food Industries, Oriental Holdings Bhd and Piramal Enterprises Ltd. transferred from Level 1 to Level 2 in the amounts of $2,294,980, $1,123,363, $1,222,314 and $3,490,044 because a valuation factor was applied at October 31, 2017. For the fiscal year ended October 31, 2017, there were no significant changes to the fair valuation methodologies.
b. Foreign Currency Translation:
Foreign securities, currencies, and other assets and liabilities denominated in foreign currencies are translated into U.S. Dollars at the exchange rate of said currencies against the U.S. Dollar, as of the Valuation Time, as provided by an independent pricing service approved by the Board.
Foreign currency amounts are translated into U.S. Dollars on the following basis:
(i) market value of investment securities, other assets and liabilities at the current daily rates of exchange; and
(ii) purchases and sales of investment securities, income and expenses at the rate of exchange prevailing on the respective dates of such transactions.
The Fund does not isolate that portion of gains and losses on investments in equity securities which is due to changes in the foreign exchange rates from that which is 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.
Notes to Financial Statements (continued)
October 31, 2017
Net realized foreign exchange gains or losses represent foreign exchange gains and losses from transactions in foreign currencies and forward foreign currency contracts, exchange gains or losses realized between the trade date and settlement date on security transactions, and the difference between the amounts of interest and dividends recorded on the Funds books and the U.S. Dollar equivalent of the amounts actually received.
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 Funds 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.
c. 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 companys 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.
d. Security Transactions, Investment Income and Expenses:
Security transactions are recorded on the trade date. Realized and unrealized gains/(losses) from security and currency transactions are calculated on the identified cost basis. Dividend income 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.
e. 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. 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.
f. 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, and to make distributions of net investment income and net realized capital gains sufficient to relieve the Fund from all federal income taxes. Therefore, no federal income tax provision is required.
The Fund recognizes the tax benefits of uncertain tax positions only where the position is more likely than not to be sustained assuming examination by tax authorities. Management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Since tax authorities can examine previously filed tax returns, the Funds U.S. federal and state tax returns for each of the four fiscal years up to the most recent fiscal year ended October 31 are subject to such review.
g. Foreign Withholding Tax:
Dividend and interest income from non-U.S. sources received by the Fund are generally subject to non-U.S. withholding taxes. In addition, the Fund may be subject to capital gains tax in certain countries in which it invests. The above taxes may be reduced or eliminated under the terms of applicable U.S. income tax treaties with some of these countries. The Fund accrues such taxes when the related income is earned.
In addition, when the Fund sells securities within certain countries in which it invests, the capital gains realized may be subject to tax. Based on these market requirements and as required under GAAP, the Fund accrues deferred capital gains tax on securities currently held that have unrealized appreciation within these countries. The amount of deferred capital gains tax accrued is reported on the Statement of Operations as part of the Net Change in Unrealized Appreciation/Depreciation on Investments.
h. Partnership Accounting Policy:
The Fund records its pro-rata share of the income/(loss) and capital gains/(losses) allocated from the private equity investments, which are classified as partnerships, and adjusts the cost of the underlying partnerships accordingly. These amounts are included in the Funds Statement of Operations.
Notes to Financial Statements (continued)
October 31, 2017
i. Repurchase Agreements:
The Fund may enter into a repurchase agreement under the terms of a Master Repurchase Agreement. It is the Funds policy that its custodian/counterparty segregate the underlying collateral securities, the value of which exceeds the principal amount of the repurchase transaction, including accrued interest. The repurchase price generally equals the price paid by the Fund plus interest negotiated on the basis of current short-term rates. To the extent that any repurchase transaction exceeds one business day, the collateral is valued on a daily basis to determine its adequacy. If the counterparty to a repurchase agreement defaults and the value of the collateral declines, or if bankruptcy proceedings are commenced with respect to the counterparty of the security, realization of the collateral by the Fund may be delayed or limited. Repurchase agreements are subject to contractual netting arrangements with the Funds repurchase agreement counterparty, Fixed Income Clearing Corp. To the extent the Fund enters into repurchase agreements, additional information on individual repurchase agreements is included in the Portfolio of Investments. As of and during the fiscal year ended, October 31, 2017, the Fund did not hold any repurchase agreements.
3. Agreements and Transactions with Affiliates
Merger of Aberdeen Asset Management PLC with Standard Life plc
The Funds investment adviser and administrator are each a subsidiary of Aberdeen Asset Management PLC (Aberdeen PLC). The merger of Standard Life plc and Aberdeen PLC was announced on March 6, 2017 and closed on August 14, 2017 (Merger). Aberdeen PLC became a direct subsidiary of Standard Life plc as a result of the Merger and the combined company changed its name to Standard Life Aberdeen plc. Shareholders of the Fund were not required to take any action as a result of the Merger. Following the Merger, the Funds investment adviser and administrator each became an indirect subsidiary of Standard Life Aberdeen plc, but otherwise did not change. The investment advisory and administration agreements for the Fund, the services provided under the agreements, and the fees charged for services did not change as a result of the Merger. The portfolio management team for the Fund has remained the same following the Merger.
a. Investment Adviser:
AAML serves as the Funds investment adviser with respect to all investments. AAML is an indirect wholly-owned subsidiary of Standard Life Aberdeen plc. AAML receives, as compensation for its advisory services from the Fund, an annual fee, calculated weekly and paid quarterly, equal to 1.25% of the first $100 million of the Funds average weekly market value or net assets (whichever is lower), 1.125% of the next $100 million and 1.00% of amounts in excess of $200 million. AAML has agreed to contractually waive 0.05% of its annual advisory
fee in an advisory fee waiver agreement (Waiver Agreement). The Waiver Agreement may not be terminated prior to the end of the current term of the advisory agreement without the prior approval of the Board, including a majority of the Directors of the Fund who are not interested persons, as such term is defined in the 1940 Act (the Independent Directors). For the fiscal year ended October 31, 2017, AAML earned $1,521,025 for advisory services, of which AAML waived $62,046.
b. Fund Administration:
Aberdeen Asset Management Inc. (AAMI) an affiliate of the Adviser, is the Funds Administrator, pursuant to an agreement under which AAMI receives a fee payable quarterly by the Fund, at an annual fee rate of 0.08% of the Funds average monthly Managed Assets. For the fiscal year ended October 31, 2017, AAMI earned $111,951.
c. Investor Relations:
Under the terms of the Investor Relations Services Agreement, AAMI provides and/or engages third parties to provide investor relations services to the Fund and certain other funds advised by AAML or its affiliates as part of an Investor Relations Program. Under the Investor Relations Services Agreement, the Fund owes a portion of the fees related to the Investor Relations Program (the Funds Portion). However, investor relations services fees are limited by AAMI so that the Fund will only pay up to an annual rate of 0.05% of the Funds average weekly net assets. Any difference between the capped rate of 0.05% of the Funds average weekly net assets and the Funds Portion is paid for by AAMI.
Pursuant to the terms of the Investor Relations Services Agreement, AAMI (or third parties engaged by AAMI), among other things, provides objective and timely information to shareholders based on publicly-available information; provides information efficiently through the use of technology while offering shareholders immediate access to knowledgeable investor relations representatives; develops and maintains effective communications with investment professionals from a wide variety of firms; creates and maintains investor relations communication materials such as fund manager interviews, films and webcasts, published white papers, magazine articles and other relevant materials discussing the Funds investment results, portfolio positioning and outlook; develops and maintains
effective communications with large institutional shareholders; responds to specific shareholder questions; and reports activities and results to the Board and management detailing insight into general shareholder sentiment.
During the fiscal year ended October 31, 2017, the Fund incurred investor relations fees of approximately $49,069. For the fiscal year ended October 31, 2017, AAMI did not waive any investor relations fees because the Fund did not reach the capped amount.
Notes to Financial Statements (continued)
October 31, 2017
d. Directors Purchase Plan:
Fifty percent (50%) of the annual retainer of the Independent Directors is invested in Fund shares and, at the option of each Independent Director, up to 100% of the annual retainer can be invested in shares of the Fund. During the fiscal year ended October 31, 2017, 3,146 shares were purchased pursuant to the Directors compensation plan. As of October 31, 2017, the Directors as a group owned less than 1% of the Funds outstanding shares.
4. Investment Transactions
Purchases and sales of investment securities (excluding short-term securities) for the fiscal year ended October 31, 2017, were $23,292,640 and $25,493,253, 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 October 31, 2017, there were 9,484,813 shares of common stock issued and outstanding.
6. Private Equity Investments
Certain of the Funds investments, listed in the chart below, are restricted as to resale and are valued at fair value as determined in good faith by, or under the direction of, the Board under procedures established by the Board in the absence of readily ascertainable market values.
Security (1) |
|
Acquisition Date(s) |
|
Total |
|
Cost |
|
Fair Value |
|
Percent |
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
BPA Israel Ventures, LLC(3) |
|
10/05/00 12/09/05 |
|
$2,300,000 |
|
$904,952 |
|
$153,375 |
|
0.10 |
|
$352,823 |
Emerging Markets Ventures I, L.P.(3) |
|
01/22/98 01/10/06 |
|
8,100,000 |
|
2,474,673 |
|
112,067 |
|
0.08 |
|
7,567,734 |
Exent Technologies Ltd. Preferred A1 Shares(4) |
|
11/29/15 |
|
|
|
118,799 |
|
|
|
|
|
|
Exent Technologies Ltd. Preferred C Shares(4) |
|
11/29/15 |
|
|
|
|
|
|
|
|
|
|
Exent Technologies Ltd. Warrants A1(4) |
|
11/29/15 |
|
|
|
|
|
|
|
|
|
|
Flash Networks Ltd. Ordinary Shares(4) |
|
11/29/15 |
|
|
|
109,226 |
|
|
|
|
|
|
Flash Networks Ltd. Series C Preferred(4) |
|
11/29/15 |
|
|
|
|
|
|
|
|
|
|
Flash Networks Ltd. Series C-1 Preferred(4) |
|
11/29/15 |
|
|
|
|
|
|
|
|
|
|
Flash Networks Ltd. Series D Preferred(4) |
|
11/29/15 |
|
|
|
|
|
|
|
|
|
|
Flash Networks Ltd. Series E Preferred (4) |
|
11/29/15 |
|
|
|
|
|
|
|
|
|
|
Flash Networks Ltd. Warrants C(4) |
|
11/29/15 |
|
|
|
|
|
|
|
|
|
|
Flash Networks Ltd. Warrants Ordinary(4) |
|
11/29/15 |
|
|
|
|
|
|
|
|
|
|
Giza GE Venture Fund III, L.P. |
|
01/31/00 11/23/06 |
|
2,750,000 |
|
1,674,005 |
|
55,220 |
|
0.05 |
|
928,289 |
Neurone Ventures II, L.P. |
|
11/24/00 12/21/10 |
|
750,000 |
|
121,786 |
|
200,618 |
|
0.13 |
|
533,564 |
Technology Crossover Ventures IV, L.P.(3) |
|
03/08/00 09/27/10 |
|
2,000,000 |
|
359,690 |
|
2,050 |
|
|
|
3,045,426 |
Telesoft Partners II QP, L.P. |
|
07/14/00 03/01/10 |
|
2,400,000 |
|
1,112,731 |
|
918,336 |
|
0.60 |
|
1,282,411 |
Vidyo, Inc. Trust A (Preferred)(5) |
|
10/24/12 |
|
|
|
29,796 |
|
|
|
|
|
|
Vidyo, Inc. Trust B (Preferred)(5) |
|
10/24/12 |
|
|
|
14,207 |
|
|
|
|
|
|
Vidyo, Inc. Trust B1 (Preferred)(5) |
|
10/24/12 |
|
|
|
12,092 |
|
|
|
|
|
|
Vidyo, Inc. Trust C (Preferred)(5) |
|
10/24/12 |
|
|
|
6,279 |
|
|
|
|
|
|
Vidyo, Inc. Trust C1 (Preferred)(5) |
|
10/24/12 |
|
|
|
3,796 |
|
|
|
|
|
|
|
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
|
Notes to Financial Statements (continued)
October 31, 2017
Security (1) |
|
Acquisition Date(s) |
|
Total |
|
Cost |
|
Fair Value |
|
Percent |
|
Cumulative |
|
|
|
|
|
|
|
|
|
|
|
|
|
Vidyo, Inc. Trust Common(5) |
|
10/24/12 |
|
|
|
1,648 |
|
|
|
|
|
|
Vidyo, Inc. Trust D (Preferred)(5) |
|
10/24/12 |
|
|
|
2,482 |
|
|
|
|
|
|
Total |
|
|
|
$18,300,000 |
|
$6,946,162 |
|
$1,441,666 |
|
0.96 |
|
$13,710,247 |
Amounts listed as are $0 or round to $0.
(1) Extent Technologies Ltd., Flash Networks Ltd., Neurone Ventures II, L.P., Telesoft Partners II QP, L.P. and Vidyo, Inc. Trust are still considered active investments by the Funds Adviser. BPA Israel Ventures, LLC, Giza GE Venture Fund III, L.P., Emerging Markets Ventures I, L.P. and Technology Crossover Ventures IV, L.P. are in liquidation.
(2) 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.
(3) BPA Israel Ventures LLC has open commitments of $625,413. Emerging Markets Ventures I, L.P. has open commitments of $851,171. Technology Crossover Ventures IV, LP has open commitments of $48,000.
(4) Exent Technologies Ltd. and Flash Networks Ltd. were securities received from the dissolution of Concord Fund I Liquidating Main Trust.
(5) Vidyo Inc., Trust was a spinoff from SVE Star Ventures IX. SVE Star Ventures IX reached the end of its term in 2012 and, accordingly, its entire portfolio was sold in a secondary transaction which closed on December 24, 2012. During the secondary transaction, the Funds pro rata holdings in Vidyo (and its affiliate Delta Vidyo) were excluded from the transaction, placed in trust and considered as a distribution-in-kind.
The Fund may incur certain costs in connection with the disposition of the above securities.
7. Open Market Repurchase Program
The Board has authorized, but does not require, Fund management to make open market purchases from time to time in an amount up to 10% of the Funds outstanding shares, in accordance with Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and other applicable federal securities laws. Such purchases may be made when, in the reasonable judgment of Fund management, such repurchases may enhance shareholder value. The Fund reports repurchase activity on the Funds website on a monthly basis. For the fiscal year ended October 31, 2017, the Fund repurchased 159,122 shares through this program. During the fiscal year ended October 31, 2016, the Fund repurchased 90,827 shares.
8. Portfolio Investment Risks
a. 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.
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. Foreign securities may also be harder to price than U.S. securities.
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.
b. 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 Funds ability to acquire or dispose of securities at the price and time it wishes to do so.
c. 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
Notes to Financial Statements (continued)
October 31, 2017
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.
d. Risks Associated with Focus on Emerging Markets Smaller Companies
The Fund focuses its investments in the equity securities of emerging markets smaller companies issuers. Securities of companies in emerging market countries are generally more volatile, harder to price and less liquid than U.S. securities, due to less stable governments, more volatile currencies and less established markets. Additionally, securities of smaller companies are usually less stable in price and less liquid than those of larger, more established companies. These risks will have a greater impact on the Funds NAV and will cause its shares to fluctuate more than if the Fund did not focus its investments in these types of securities.
e. 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. 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 Funds 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.
f. 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.
g. Valuation Risk
The price that the Fund could receive upon the sale of any particular portfolio investment may differ from the Funds valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using a fair valuation methodology or a price provided by an independent pricing service. As a result, the price received upon the sale of an investment may be less than the value ascribed by the Fund, and the Fund could realize a greater than expected loss or lower than expected gain upon the sale of the investment. The Funds ability to value its investments may also be impacted by technological issues and/or errors by pricing services or other third-party service providers.
9. Contingencies
In the normal course of business, the Fund may provide general indemnifications pursuant to certain contracts and organizational documents. The Funds maximum exposure under these arrangements is dependent on future claims that may be made against the Fund, and therefore, cannot be estimated; however, based on experience, the risk of loss from such claims is considered remote.
Notes to Financial Statements (concluded)
October 31, 2017
10. Tax Information
The U.S. federal income tax basis of the Funds investments and the net unrealized appreciation as of October 31, 2017 were as follows:
Tax Basis of Investments |
|
Appreciation |
|
Depreciation |
|
Net Unrealized |
$146,392,692 |
|
$34,494,123 |
|
$(30,776,332) |
|
$3,717,791 |
Income and capital gains distributions are determined in accordance with federal income tax regulations, which may differ from GAAP. The tax character of distributions paid during the fiscal years ended October 31, 2017 and October 31, 2016 was as follows:
|
|
October 31, 2017 |
|
October 31, 2016 |
Distributions paid from: |
|
|
|
|
Ordinary Income |
|
$1,226,386 |
|
$970,048 |
Net long-term capital gains |
|
|
|
|
Total tax character of distributions
|
|
$1,226,386 |
|
$970,048 |
As of October 31, 2017, the components of accumulated earnings on a tax basis were as follows:
Undistributed ordinary income net |
|
$704,833 |
|
Undistributed long-term capital gains net |
|
|
|
Total undistributed earnings |
|
$704,833 |
|
Capital loss carryforward |
|
(15,511,832) |
* |
Other currency gains |
|
|
|
Other temporary differences |
|
|
|
Unrealized appreciation/(depreciation) |
|
3,225,595 |
** |
Total accumulated earnings/(losses) net |
|
$(11,581,404) |
|
* As of October 31, 2017 the Fund has a capital loss carryforward available of $15,511,832, which consisted of $2,363,277 of short-term post RIC-Mod losses and $13,148,555 long-term post RIC-Mod losses with no expiration date. Under the Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period.
** The tax basis of components of distributable earnings differs from the amounts reflected in the Statement of Assets and Liabilities by temporary book/tax differences. These differences are primarily due to timing differences due to wash sales, partnerships and investments in passive foreign investment companies.
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 partnerships, investments in passive foreign investment companies and foreign currency gains and losses. These reclassifications have no effect on net assets or NAVs per share.
Accumulated Net |
|
Accumulated |
$8,845 |
|
$(8,845) |
11. Subsequent Events
Management has evaluated the need for disclosures and/or adjustments resulting from subsequent events through the date the financial statements were issued. Based on this evaluation, no disclosures and/or adjustments were required to the financial statements as of October 31, 2017, other than as noted below.
On December 19, 2017, the Fund announced that it will pay on January 8, 2018 a distribution of $0.07432 per share to all stockholders of record as of December 29, 2017.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc.:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, of the Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. (the Fund), as of October 31, 2017, and the related statement of operations, changes in net assets and the financial highlights for the year then ended. These financial statements and financial highlights are the responsibility of the Funds management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audit. The statement of changes in net assets for the year ended October 31, 2016 and the financial highlights for each of the years in the four-year period ended October 31, 2016 were audited by other independent registered public accountants, whose report thereon dated December 27, 2016, expressed an unqualified opinion on those financial statements and financial highlights.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). 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. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of October 31, 2017, by correspondence with the custodian and brokers or by other appropriate auditing procedures. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of the Fund as of October 31, 2017, the results of its operations, the changes in its net assets and the financial highlights for the year then ended, in conformity with U.S. generally accepted accounting principles.
Philadelphia, Pennsylvania
December 28, 2017
|
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
|
Federal Tax Information: Dividends and Distributions (unaudited)
The following information is provided with respect to the distributions paid by the Fund during the fiscal year ended October 31, 2017:
Payable |
|
Total Cash |
|
Long-Term |
|
Tax |
|
Net |
|
Foreign |
|
Gross |
|
Qualified |
|
Foreign |
|
7/31/2017 |
|
$0.12930000 |
|
$0.00000000 |
|
$0.00000000 |
|
$0.12930000 |
|
$0.02875990 |
|
$0.15805990 |
|
$0.12930000 |
|
$0.12862200 |
|
(1) The foreign taxes paid represent taxes incurred by the Fund on interest received from foreign sources. Foreign taxes paid may be included in taxable income with an offsetting deduction from gross income or may be taken as a credit for taxes paid to foreign governments. You should consult your tax advisor regarding the appropriate treatment of foreign taxes paid.
(2) The Fund hereby designates the amount indicated above or the maximum amount allowable by law.
Supplemental Information (unaudited)
Change In Independent Registered Public Accounting Firm
On June 13, 2017, the Board approved the dismissal of PricewaterhouseCoopers LLP (PwC) as the independent registered public accounting firm for the Fund, effective June 15, 2017. The Boards decision to approve the dismissal of PwC was recommended by the Audit Committee of the Board. On June 15, 2017, the Fund dismissed PwC. The reports of PwC on the Funds financial statements as of and for the fiscal years prior to the October 31, 2017 fiscal year end (in other words, the fiscal years ended October 31, 2016 and October 31, 2015 (the 2015 and 2016 fiscal years)) did not contain an adverse opinion or a disclaimer of opinion, and were not qualified or modified as to uncertainties, audit scope or accounting principles. During the Funds 2015 and 2016 fiscal years and the subsequent interim period through June 15, 2017, there were no disagreements between the Fund and PwC on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of PwC, would have caused it to make reference to the subject matter of the disagreements in its reports on the financial statements of the Fund for such years. During the Funds 2015 and 2016 fiscal years and the subsequent interim period through June 15, 2017, there were no reportable events (as defined in Item 304(a)(1)(v) of Regulation S-K under the Securities Exchange Act of 1934, as amended (the Exchange Act)).
On June 13, 2017, upon the recommendation of the Audit Committee, the Board approved the engagement of KPMG LLP (KPMG) as the independent registered public accounting firm for the Fund for the fiscal year ending October 31, 2017, effective June 15, 2017. During the Funds 2015 and 2016 fiscal years and the subsequent interim period through June 15, 2017, neither the Fund, nor anyone on its behalf consulted with KPMG, on behalf of the Fund, regarding the application of accounting principles to a specified transaction (either completed or proposed), the type of audit opinion that might be rendered on the Funds financial statements, or any matter that was either the subject of a disagreement, as defined in Item 304(a)(1)(iv) of Regulation S-K under the Exchange Act and the instructions thereto, or a reportable event, as defined in Item 304(a)(1)(v) of Regulation S-K under the Exchange Act.
|
Aberdeen Emerging Markets Smaller Company Opportunities Fund, Inc. |
Management of the Fund (unaudited)
The names of the Directors and Officers of the Fund, their addresses, year of birth, and principal occupations during the past five years are provided in the tables below. Directors 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 Adviser are included in the table below under the heading Interested Directors. Directors who are not interested persons, as described above, are referred to in the table below under the heading Independent Directors.
Board of Directors Information
Name, Address and |
|
Position(s) Held |
|
Term of Office |
|
Principal Occupation(s) |
|
Number of |
|
Other |
Independent Directors |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enrique R. Arzac Year of Birth: 1941 |
|
Chairman of the Board of Directors, Nominating Committee Chairman and Audit and Valuation Committee Member |
|
Since 1996; Chairman since 2005; current term ends at the 2019 annual meeting |
|
Mr. Arzac is currently a Professor Emeritus of Finance and Economics at the Graduate School of Business at Columbia University (education) since 2015. Previously, he was a Professor of Finance and Economics at the Graduate School of Business at Columbia University from 1971 to 2015. Director of Aberdeen Asia-Pacific Income Investment Company Limited. |
|
5 |
|
Director of Adams Diversified Equity Fund, Inc. (a closed-end investment company) since 1983; Director of Adams Natural Resources Fund, Inc. (a closed-end investment company) since 1987; Director of Mirae Asset Discovery Funds (4) since 2010; Director of Credit Suisse Funds (9) (1990-2016); Director of Credit Suisse High Yield Bond Fund, Inc. (2001-2016); Director of Credit Suisse Asset Management Income Fund, Inc. (1990-2016); Director of Epoch Holding Corporation (2006-2013). |
|
|
|
|
|
|
|
|
|
|
|
James Cattano Year of Birth: 1943 |
|
Director, Audit and Valuation Committee Chairman and Nominating and Cost Review Committee Member |
|
Since 1993; current term ends at the 2020 annual meeting |
|
Mr. Cattano has been the President of Costal Trade Corporation (international commodity trade) since October 2011. |
|
5 |
|
Director of Credit Suisse Asset Management Income Fund, Inc. since 2006 and Director of Credit Suisse High Yield Bond Fund since 2006. |
|
|
|
|
|
|
|
|
|