Skip to main content
CANADA
 

About Aberdeen SCOTS Trust (TSX : SCO.UN)

Investment Objectives

The Trust's investment objectives are:

  • Provide unitholders with a stable stream of monthly distributions, presently $0.1042 per unit ($1.25 per annum or 5% on the original issue price);
  • Return the original issue price of the units ($25.00 per unit) to unitholders upon termination of the Trust on or about December 31, 2013; and
  • Preserve and potentially enhance the value of the managed portfolio to provide unitholders with capital appreciation above the original issue price upon termination of the Trust.

Following the sharp decline in equity markets in the third quarter 2001 through the second quarter 2002, the Trust determined that it would be prudent and in the best interest of unitholders to reduce its monthly distributions to protect the Trust's managed portfolio until market conditions improve. Aberdeen Asset Managers (C.I.) Limited, the investment manager of the Trust (the "Investment Manager"), has also decided to voluntarily reduce its management fee in direct proportion to the decline in the distribution rate, as further detailed below.

The Trust's ability to achieve its monthly distribution objective is dependent on a number of factors including the outlook for the performance of the Trust's managed portfolio, the composition of the managed portfolio, current market conditions and such other factors as the Investment Manager deems appropriate in respect of the investment performance of the Trust. In addition to dividends received by the Trust in respect of the stocks in its managed portfolio, the Trust depends on the receipt of option writing premiums and the realisation of capital gains in order to meet its distribution objective.

From the Trust's inception on June 18, 2001 to July 4, 2002, the MSCI World Index (the index from which the stocks in the managed portfolio are primarily selected) fell by over 20%. The decline in the value of the Trust's managed portfolio investments adversely affected the Trust by reducing the market value of the assets available to generate ongoing distributions. In addition, the volatility levels of the equity markets also decreased over the period from the Trust's inception to July 4, 2002, which had the effect of reducing the amount of cash generated from option writing. The combination of these two factors resulted in a significant decline in both the value of the Trust's managed portfolio and its operating flexibility.

As a consequence, on July 4, 2002 the Trust announced that in order to preserve the value of the Trust's managed portfolio and thereby increase the long term viability of sustainable distributions, the Trust would reduce the distributions on its units from 8.75% to 5% per annum, stated as a percentage of the original unit price of $25.00, commencing with the distribution payable on July 31, 2002 to unitholders of record of the Trust as of July 15, 2002 (resulting in a decrease in the annual distribution from $2.1875 to $1.25 per unit or, on a monthly equivalent basis, from $0.1823 to $0.1042 per unit.).

As well, effective July 1, 2002 the Investment Manager agreed to voluntarily reduce its annual management fee from 1.10% to 0.63% of the net asset value of the Trust, which represents a decrease in direct proportion to the decline in the distribution rate. Under the voluntary arrangement, if the Trust's annual distribution rate is subsequently increased or decreased, the Investment Manager will adjust its management fee proportionately, subject to a minimum annual management fee of 0.50% of the net asset value of the Trust.

Investment Strategy

In order to provide the Trust with the means to return the original issue price of the units to unitholders upon termination of the Trust on or about the December 31, 2013, the Trust entered into forward purchase and sale agreements with Canadian Imperial Bank of Commerce ("CIBC") and TD Global Finance ("TDGF") pursuant to which CIBC and TDGF will pay the Trust an amount equal to $25.00 for each unit outstanding upon the termination of the Trust in exchange for delivery of the Trust's fixed portfolio.

In order to achieve the Trust's monthly distribution and capital appreciation objectives, the balance of the net proceeds of the offering is invested in a diversified portfolio (the "managed portfolio") consisting principally of equity securities of companies selected from the MSCI World Index and the Dow Jones Global Titans Index each with a market capitalization in excess of US$5 billion.

In order to generate additional returns above the dividend income generated by the managed portfolio, the Trust may write covered call options in respect of all or part of the securities in the managed portfolio. From time to time, the Trust may hold a portion of its assets in cash equivalents, which may be utilized to provide cover in respect of the writing of cash covered put positions.

Investment Highlights

  • Diversified blue chip portfolio selected from the MSCI World Index and the Dow Jones Global Titans Index each with a market capitalization in excess of US$10 billion.
  • 100% repayment of the $25 issue price at termination (December 31, 2013), achieved by way of forward purchase and sale agreements with CIBC and TDGF.
  • Increase the managed portfolio's total return through covered call option writing during flat or declining markets.
  • Potential for additional returns from dividend growth and capital appreciation of the managed portfolio.
  • Additional liquidity via monthly redemption feature.
  • Eligible for RRSPs, DPSPs, and RRIFs as foreign content.
  • Toronto Stock Exchange listing.