Annual Management Report of Fund Performance

Transcription

1 Annual Management Report of Fund Performance 10AUG The following is a report on the performance of Top 20 U.S. Dividend Trust (the Trust ) and contains financial highlights but does not contain the complete financial statements of the Trust. This report should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, Unitholders can request a copy of the annual financial statements at no cost by calling (416) , by writing us at 40 King St. West, Scotia Plaza, 26th Floor, Box 4085, Station A, Toronto, Ontario M5W 2X6, Attention: Top 20 U.S. Dividend Trust Investor Relations or by visiting our website located at or SEDAR at You may also contact us using one of these methods to request a copy of the Trust s proxy voting policies and procedures, proxy voting disclosure record, or quarterly portfolio disclosure. The Trust s voting disclosure record for the annual period ended June 30, 2017 is available on our website. Any references to net assets or net assets per Unit in this report are references to net assets attributable to Unitholders determined in accordance with IFRS as presented in the financial statements of the Trust. Additionally, any references to net asset value or net asset value per Unit are references to values determined for valuation and transactional purposes. There are no differences between net assets per Unit and net asset value per Unit. Investment Objectives and Strategies The Trust is a closed-end investment fund established as a trust to provide holders (the Unitholders ) of Class A units and Class U units (collectively, the Units and each a Unit ) of the Trust with investment exposure to an equally-weighted portfolio (the Portfolio ) comprised of the 20 highest yielding equity securities (the Portfolio Securities ) included in the Dow Jones Industrial Average (the Dow ). The Dow is a price-weighted average index consisting of 30 large and well-known U.S. blue-chip companies. The Trust s investment objectives are to: (i) provide Unitholders with stable monthly distributions and (ii) provide Unitholders with the opportunity for capital appreciation, in each case through investments in the Portfolio Securities. The distributions are funded from dividends generated by the Portfolio and supplemented by premiums received on writing options on a portion of the Portfolio Securities. The Trust does not have a fixed distribution but intends to pay monthly distributions based on dividends and other distributions received on the Portfolio and premiums received on writing covered call options less estimated expenses of the Trust. Monthly distributions are currently targeted to be $ per Class A Unit and US$ per Class U Unit ($0.50 and US$0.50 per annum, respectively). The net asset value for the Class A Units is calculated in Canadian dollars and for the Class U Units, in U.S. dollars. Substantially all of the value of the Portfolio attributable to the Class A Units is hedged back to the Canadian dollar. The Class U Units are designed for investors wishing to hold their investment in U.S. dollars. In order to meet its investment objectives and obtain economic exposure to the Portfolio, the Trust had entered into two forward purchase agreements (collectively, the Forward Agreement ) with The Bank of Nova Scotia (the Counterparty ). The Portfolio was held by TTU Trust, the reference fund of the Trust. As a result of the Forward Agreement, the distributions paid by the Trust and its Net Asset Value were based on net investment income received by TTU Trust and the value of its underlying Portfolio. The Trust partially pre settled the Forward Agreement in order to fund (i) monthly distributions on the Units; (ii) redemptions of Units from time to time; and (iii) operating expenses and other liabilities of the Trust. As a result of changes to the Income Tax Act (Canada), the Forward Agreement was settled on its scheduled termination date of October 10, 2017 (the Forward Date ). Following this, the Trust invests directly in the Portfolio previously held by TTU Trust. After the Forward Date, distributions made by the Trust no longer have the same tax-advantaged nature. The declaration of trust of the Trust was amended to remove the words tax-advantaged and references to the Forward Agreement from its investment objectives. The Manager (defined below) receives the same aggregate fees from the Trust or 0.50% per annum of the net assets of the Trust as had been paid by the Trust and TTU Trust prior to the Forward Date. Highstreet Asset Management Inc. (the Portfolio Manager and Options Advisor or Highstreet ) provides any investment and portfolio management services required by the Trust including currency hedging strategies and acts as the options advisor to execute and maintain the option writing strategy of the Trust. The Portfolio is reconstituted annually to include the top 20 highest yielding constituents included in the Dow and is re-balanced to an equal weight basis prior to the end of each calendar quarter. Highstreet writes covered call options from time to time in respect of not more than 33% of the Portfolio in order to earn income from option premiums to supplement dividends generated by the Portfolio. Highstreet will generally only write covered calls to the extent needed to increase the yield on the Portfolio to a targeted yield. This targeted yield will enable the Trust to pay the targeted distribution. The Trust will purchase Units under the mandatory market purchase program to the extent premiums generated from writing covered call options are in excess of amounts needed to fund the distribution. Top 20 U.S. Dividend Trust 1 Annual Management Report of Fund Performance

2 Risk There have been no material changes in the risk exposure of the Trust during the year. The value of the Units varies according to the value of the Portfolio. The value of the Portfolio is influenced by factors which are not within the control of the Trust including the financial performance of the 20 companies included in the Portfolio, interest rates and other financial market conditions. Accordingly, the value of the Units varies from time to time. For full disclosure of the risks associated with an investment in the Trust s Units, please refer to the Annual Information Form as filed on SEDAR. Report from Portfolio Manager and Options Advisor Overview Highstreet manages the option overlay strategy which involves selling covered call options on up to, but not more than, 33% of the Trust. The percentage of Portfolio Securities written on for each holding and the strike prices chosen are primarily a function of the Trust s income requirements. Highstreet may choose to close out option positions prior to their expiry, for options that are both out-of-the-money, and/or in-the-money, when prudent. Highstreet endeavours to avoid assignment, when possible, on any in-the-money positions. The overall investment objectives of the Trust are to provide targeted monthly cash distributions, to provide the opportunity for capital appreciation, and to provide lower overall volatility of portfolio returns than would otherwise be experienced from owning the equity securities on a stand-alone basis. Market Performance Equity markets globally delivered another year of robust performance, extending the bull market that has been in place since the financial crisis. Most major market indices finished the year in positive territory, posting high single digit or better performance. Equity markets remained buoyed by the continued improvement in economic indicators in most regions; the global synchronization of GDP growth; low to moderate inflation levels accompanied by continued central bank accommodation in Europe, Japan, Canada, and to a lesser extent the United States; generally positive consumer and business sentiment; and a low volatility environment. The year began with a carry-over of political uncertainty from 2016, which saw Britain vote to leave the European Union and the United States elect Donald Trump as its 45th President, who ran on an American First platform advocating a retrenchment from global trade pacts (TPP, NAFTA), a more isolationist immigration policy, tax reform, and a repeal of many Obama era policies and regulation. Both events seemed to suggest a shift in global sentiment from the more globally integrated free trade (globalization) approach that had been the dominant school of thought since the 1990s to one that was more nationalistic, more isolationist, and potentially more xenophobic. Elections in France in April and Britain in June bucked this trend as Emmanuel Macron defeated far-right leader Marine le Pen, while Theresa May s government was returned with a minority government, largely seen as a rebuke of its more hardline Brexit stance. Despite the lingering political uncertainty, markets began the year cautiously optimistic about US government policy proposals to repeal the Affordable Care Act (ObamaCare), to enact a broad based tax package, and to repeal or significantly limit government regulation across a wide range of industries; most notably the Financial Services sector. While Mr. Trump was unsuccessful in repealing ObamaCare in 2017, his government was able to pass the broader sweeping tax changes favoured by congressional Republicans that should see a significant amount of offshore earnings repatriated back to the US. In Europe, the election of Macron and the soft blow to Theresa May s government, renewed hopes for the European Union and quelled concern that Brexit may have become a lightning rod for further unwinding of the common market. Central bank policy action remained front of mind for markets through the year, with investors continuing to digest and interpret each central bank meeting and statement made. Monetary policy for 2017 remained accommodative but firmly on a path to rate normalization. The Federal Reserve raised policy rates three times, while the Bank of Canada surprised markets by being more hawkish than anticipated and raised twice before turning dovish, while the Bank of Japan and European Central Bank kept rates steady. Overall performance in the US was positive with 9 of 11 Global Industry Classification Sectors posting positive returns led by Information Technology (+38.8%) and Materials (+23.8%), while Energy ( 1.0%) and Telecommunication Services ( 1.3%) lagged. The broad market SP500 finished the year with a positive total return of 21.8% in US dollar terms. The Trust s benchmark, the Dow Jones Industrial Average, delivered a return over the year of 28.1%, while the Trust delivered a total return of 15.7%. Annual Management Report of Fund Performance 2 Top 20 U.S. Dividend Trust

3 Portfolio Performance The Portfolio delivered a total return of 17.0% for the year comprised of: 10.5% of price change, 2.7% from dividends received and 3.8% from option premiums earned. Performance for each of the individual Portfolio Securities held during the year was as follows: Performance (1) Securities (%) Consumer Discretionary McDonald s Corp. 45.0% Consumer Staples Procter & Gamble Co. 12.7% The Coca-Cola Company 14.4% Wal-Mart Stores Inc. 46.5% Energy Chevron Corp. 10.6% Exxon Mobile Corp. 3.8% Financial Services JPMorgan Chase & Co. 26.7% Health Care Johnson & Johnson 24.4% Merck & Co Inc. 1.5% Pfizer Inc. 15.9% Industrials 3M Company 34.9% Caterpillar Inc. 75.0% General Electric Company 42.9% The Boeing Co. 94.8% United Technologies Corp. 19.1% Information Technology Cisco Systems, Inc. 31.3% Intel Corp. 30.8% International Business Machines Corp. 4.0% Microsoft Corp. 40.7% Telecommunications Verizon Communications Inc. 4.0% (1) Performance comprised of price change and dividends Option Activity For the year, call options were written on the Trust s Portfolio Securities raising $1.5 million in premiums or approximately 3.8% on the Portfolio. The average percentage written on the Portfolio was approximately 29.8% with an average strike percentage of 101.3%. Highstreet s proprietary option overlay model examines a number of factors, including short-term price change and momentum metrics, to determine a target level of call writing and level of strike for each holding in the underlying Portfolio. Targeted strike levels are preferably out-of-the-money to allow the opportunity to capture potential positive performance of the underlying stocks in addition to option premiums. Top 20 U.S. Dividend Trust 3 Annual Management Report of Fund Performance

4 Results of Operations Financial Performance The net assets attributable to Unitholders as at December 31, 2017 were $12.34 per Class A Unit and US$12.40 per Class U Unit as compared to $11.15 per Class A Unit and US$11.21 per Class U Unit at December 31, 2016, primarily reflecting appreciation in the fair value of the Portfolio. Pursuant to the mandatory market purchase program, the Trust may purchase any Units offered in the market at a price less than 98% of the latest net asset value per Unit. For the year ended December 31, 2017, 5,000 Class A Units ( ,700) were purchased under this program at an average price of $11.16 (2016 $10.23) per Class A Unit for a total purchase amount of $55,824 (2016 $160,684). Distributions For the year ended December 31, 2017, the Trust declared total distributions of $1.72 million (2016 $2.46 million) comprised of $1.41 million or $ per Class A Unit (2016 $2.05 million or $ per Class A Unit) and US$0.24 million or US$ per Class U Unit (2016 US$0.31 million or US$ per Class U Unit). Dividends earned on the Portfolio Securities and premiums received on writing covered call options on a portion of the Portfolio Securities funded the distributions and operating expenses of the Trust. For the year ended December 31, 2017, $1.73 million (2016 $2.44 million) was available for distribution comprised of dividends earned on the Portfolio Securities (including interest) of $1.20 million (2016 $1.69 million) and net option premiums received of $1.46 million (2016 $1.91 million) offset by total expenses (excluding transaction costs) and purchases under the mandatory market purchase program of $0.93 million (2016 $1.16 million). During 2017, the Trust realized a significant capital gain on the final settlement of the Forward Agreement. As a result, all of the Fund s cash distributions for 2017 were characterized as capital gains (2016 return of capital). The Trust also declared a Special Distribution (as defined below) in units of $2.60 per Class A Unit and US$2.60 per Class U Unit. The Fund s Declaration of Trust provides that a special distribution (the Special Distribution ) will automatically be payable on December 31 in each year where the Trust realizes net income for tax purposes, including net realized capital gains, which is in excess of any distributions paid to Unitholders during the year. The result for Unitholders of record on December 29, 2017 was the realization of a capital gain equal to the Special Distribution per Unit, received in Units. The Units received were then automatically consolidated with a corresponding increase in the Unitholders adjusted cost base per Unit equal to the Special Distribution per Unit. Related Party Information For its services to the Trust, which includes portfolio and cash management, accounting and tax administration, Scotia Managed Companies Administration Inc. ( SMCAI or the Manager ), a wholly-owned subsidiary of Scotia Capital Inc. ( SCI ) which in turn is a wholly-owned subsidiary of The Bank of Nova Scotia, is entitled to receive a management fee equal to 0.50% per annum of the net asset value of the Trust (prior to Forward Date 0.25%). SMCAI is responsible for paying fees to Highstreet. The total management fee paid or payable to SMCAI for the year ended December 31, 2017, was $140,181 (2016 $147,815). The ongoing management fee is calculated and accrued weekly and is payable quarterly in arrears. Up to the Forward Date, the Trust paid to the Counterparty an additional amount, calculated weekly and payable quarterly in arrears, of 0.45% per annum of the notional amount of the Forward Agreement being the net asset value of the Trust. The total fees paid or payable to The Bank of Nova Scotia relating to the Forward Agreement for the year ended December 31, 2017, were $144,607 (2016 $228,280). The Portfolio Manager and Options Advisor is responsible for managing the purchase and sale of Portfolio Securities and writing covered call options as required to meet investment objectives and operating policies of the Trust. Such transactions may be carried out using the services of SCI on an agency basis for which transaction costs of $4,182 for the year ended December 31, 2017 (2016 $981) were incurred. At December 31, 2017, the Trust had accrued liabilities of $23,000 (2016 $98,269) payable to SMCAI and had cash on deposit with SCI and The Bank of Nova Scotia of $80,742 (2016 $35,796). For the year ended December 31, 2017, transaction costs of $100 (2016 $314) were paid to SCI under the mandatory market purchase program. Annual Management Report of Fund Performance 4 Top 20 U.S. Dividend Trust

5 Recent Developments The Bank of Nova Scotia previously announced that Marquest Asset Management Inc. agreed to acquire SMCAI, the administrator to the Trust. That transaction will no longer occur, and SMCAI remains part of the Scotiabank group of companies. Extension On October 5, 2017, the Unitholders of the Units of the Trust approved a proposal to extend the Trust that involved (i) the extension of the originally scheduled redemption date to October 31, 2022, (ii) the Trust adopting the current investment objectives, strategies and restrictions of TTU Trust, (iii) combining the aggregate management fees currently charged to the Trust and TTU Trust into a single, consolidated management fee, and (iv) the creation of a special retraction right on October 31, 2017 on the same terms as originally contemplated. On October 17, 2017, having met all required conditions, the term of the Trust was extended for an additional five years to October 31, Following the scheduled maturity of the Forward Agreement on the Forward Date, TTU Trust was terminated and the Trust commenced holding the Portfolio directly. In connection with the extension, a special retraction right was offered, whereby 590,324 Class A Units and 112,700 Class U Units were tendered to the Trust for retraction on October 31, The holders of the remaining 2,332,518 Class A Units and 372,890 Class U Units continued their investment beyond the scheduled termination date of October 31, Independent Review Committee The Manager has established an Independent Review Committee (the IRC ) which acts as an impartial and independent committee to review and provide recommendations or, in certain cases, approvals respecting any conflict of interest referred to it by the Manager. The Manager and the Trust relied on standing instructions from the IRC in respect of proxy voting, banking services, trading under the mandatory market purchase program and purchases of related party securities by the Portfolio Manager and Options Advisor. In addition, the IRC approved the inter-fund transfer relating to the extension being the purchase of the investment portfolio of TTU Trust by the Trust. Financial Highlights The following tables show selected key financial information about the Trust and are intended to help you understand the Trust s financial performance since inception. This information is derived from the Trust s audited financial statements. For the Years Ended December Class A Class U Class A Class U Class A Class U Class A Class U Class A Class U CAD USD CAD USD CAD USD CAD USD CAD USD Net assets per Unit, beginning of year $11.15 $11.21 $10.58 $10.63 $11.31 $11.33 $10.96 $10.95 $ 9.10 $ 9.07 Increase (decrease) from operations: Total income (0.01) Total expenses (1)... (0.17) (0.13) (0.11) (0.08) (0.11) (0.08) (0.10) (0.09) (0.09) (0.09) Realized gains (losses) on forward agreement for the year Unrealized gains (losses) on forward agreement for the year (2)... (4.19) (4.48) (1.98) (0.74) 0.38 (0.85) Total increase (decrease) from operations (0.23) (0.20) Distributions: From return of capital... (0.50) (0.50) (0.50) (0.50) (0.50) (0.50) (0.50) (0.50) (0.50) (0.50) Total Distributions (3)... (0.50) (0.50) (0.50) (0.50) (0.50) (0.50) (0.50) (0.50) (0.50) (0.50) Net assets per Unit, end of year... $12.34 $12.40 $11.15 $11.21 $10.58 $10.63 $11.31 $11.33 $10.96 $10.95 Based on the weighted average number of Units during the year except for the net assets and distributions wherein the actual number of Units outstanding at the relevant time are used. (1) Total expenses include forward fees of $144,607 (2016 $228,280, ,400, 2014 $455,114, 2013 $535,000). (2) In 2017 adjustments of $0.06 per Class A Unit and USD $0.11 per Class U Unit (2016 $(0.05) per Class A Unit and USD $0.05 per Class U Unit, 2015 $(0.02) per Class A Unit and nil per Class U Unit, 2014 $(0.05) per Class A Unit and USD$(0.03) per Class U Unit, 2013 $0.01 per Class A Unit and USD$0.02 per Class U Unit) were made to reconcile the basis of calculation of per Unit amounts between the weighted average and the end of year number of Units. (3) All distributions were paid in cash. Top 20 U.S. Dividend Trust 5 Annual Management Report of Fund Performance

6 Ratios and Supplemental Data (based on Net Asset Value) Class A Class U Class A Class U Class A Class U Class A Class U Class A Class U CAD USD CAD USD CAD USD CAD USD CAD USD Net asset value (000 s) (1)(2)... $ 28,769 $ 4,622 $ 32,121 $ 5,952 $ 42,284 $ 7,506 $ 66,801 $ 9,992 $ 84,419 $ 13,618 Number of Units outstanding (1) 2,331, ,890 2,880, ,740 3,994, ,153 5,909, ,303 7,705,712 1,243,363 Management expense ratio (3) % 1.67% 1.46% 1.33% 1.29% 1.15% 1.27% 1.23% 1.21% 1.19% Trading expense ratio (4) % 0.03% 0.08% 0.08% 0.06% 0.06% 0.04% 0.04% 0.05% 0.05% Portfolio turnover rate (5) % 13.79% 20.29% 20.29% 34.91% 34.91% 38.44% 38.44% 42.60% 42.60% Net asset value per Unit (1)... $ $ $ $ $ $ $ $ $ $ Market value per Unit...$ N/A $ N/A $ N/A $ N/A $ N/A (1) This information is provided as at December 31st of the years shown. (2) Net asset value is equal to net asset value per Unit multiplied by the number of Units outstanding. (3) Management expense ratio ( MER ) is based on total expenses of the Trust and TTU Trust for the stated year. The ratio is expressed as an annualized percentage of the weekly average net asset value during the year. (4) The trading expense ratio represents total commissions and other portfolio transaction costs expressed as an annualized percentage of weekly average net asset value during the year. (5) The portfolio turnover rate indicates how actively the Portfolio Manager manages the portfolio investments. A portfolio turnover rate of 100% is equivalent to the Trust buying and selling all of the securities in its Portfolio once in the course of the year. Past Performance Year by Year Returns The following charts show the performance of the Trust s Units based on net asset value since inception, indicating in percentage terms, how much an investment in Units made on the first day of each financial year would have grown or decreased by the last day of the financial year and assumes that distributions are reinvested in additional Units at net asset value. Past performance is not an indication of how the Units will perform in the future. The calculation of returns based on net asset value follows the requirements of NI As an investor cannot purchase or sell the Units at net asset value, the following is an indication of the performance of the assets of the Trust rather than returns available to Unitholders. Returns based on market value are also presented for the Class A Units in narrative form below as indication of returns actually available to Class A Unitholders. 32.0% 28.0% 24.0% 20.0% 16.0% 12.0% 8.0% 4.0% 0.0% -4.0% -8.0% -12.0% Class A 26.6% 15.7% 10.4% 7.9% -2.0% -8.4% For the years ended December 31, 2012 to MAR % 28.0% 24.0% 20.0% 16.0% 12.0% 8.0% 4.0% 0.0% -4.0% -8.0% -12.0% Class U (in USD) 26.9% 16.2% 10.5% 8.2% -1.7% -8.8% For the years ended December 31, 2012 to MAR The Class A Units are listed for trading on the Toronto Stock Exchange ( TSX ) while the Class U Units are not but may be converted into Class A Units on a weekly basis. Accordingly, the market value return for the Class A Units was 10.3%, 23.8%, 10.8%, 2.9%, 10.3% and 18.7% for the years ended December 31, 2012 through 2017, respectively. This performance from inception reflects payment of upfront cost related to the establishment of the Trust and assumes that distributions are reinvested in additional Units at the then market price on the TSX which price may reflect a premium or discount to net asset value. Annual Management Report of Fund Performance 6 Top 20 U.S. Dividend Trust

7 Annual Compound Returns The calculation of the annual compound returns based on net asset value follows the requirements of NI As an investor cannot purchase or sell the Units at net asset value, the following is an indication of the performance of the assets of the Trust rather than returns available to Unitholders. Returns based on market value are also presented for the Class A Units in narrative form below as an indication of returns actually available to Class A Unitholders. 1 yr 3 yr 5 yr From inception (1) Class A Unit % 7.8% 11.3% 9.0% Class U Unit (in USD) % 8.1% 11.6% 9.2% Dow Total Return Index (2) % 14.4% 16.4% 15.3% (1) The return is for the period October 15, 2012, date of inception, to December 31, 2017 based on issue price of $10.00 per Class A Unit and US$10.00 per Class U Unit. (2) The Dow Jones Industrial Average ( Dow ) is a price-weighted average index consisting of 30 large and well-known U.S. blue-chip companies. The annual compound returns based on market value for the Class A Units for the one-year period, three-year period, five-year period and from inception to December 31, 2017 are respectively as follows: 18.7%, 8.3%, 11.8% and 9.0%. Summary of Investment Portfolio Below is a summary of the Trust s investment Portfolio based on closing sale prices as at December 31, This summary may change due to ongoing portfolio transactions. Weekly updates are available on the internet at or by contacting investor relations at Investment portfolio, at market value... $33.9 million Consumer Discretionary, 5.1% Financials, 5.3% Telecommunication Services, 5.2% Industrials, 24.5% Energy, 10.0% Consumer Staples, 15.1% Information Technology, 20.7% Health Care, 14.1% 14MAR NI requires the Trust to disclose the Top 25 positions held. The Trust has not done so as it holds an approximately equally weighted portfolio of 20 securities. Top 20 U.S. Dividend Trust 7 Annual Management Report of Fund Performance

8 The Dow Jones Industrial Average SM is a product of S&P Dow Jones Indices LLC and has been licensed for use by the Trustee on behalf of the Fund. Standard & Poor s and S&P are registered trademarks of Standard & Poor s Financial Services LLC and Dow Jones is a registered trademark of Dow Jones Trademark Holdings, LLC ( Dow Jones ). These trademarks have been licensed to S&P Dow Jones Indices LLC and have been sublicensed for use for certain purposes by the Trustee. The Trust is not sponsored, endorsed, sold or promoted by Dow Jones, S&P, S&P Dow Jones Indices LLC, or their respective affiliates. Dow Jones, S&P, S&P Dow Jones Indices LLC, and their respective affiliates make no representation or warranty, express or implied, to the owners of the Fund or any member of the public regarding the advisability of trading in the Fund. Dow Jones, S&P s, S&P Dow Jones Indices LLC s, and their respective affiliates only relationship to the Trustee is the licensing of certain trademarks and trade names and of the Dow which is determined, composed and calculated by S&P Dow Jones Indices LLC (or its affiliates or licensors) without regard to the Trustee or the Fund. Dow Jones S&P, S&P Dow Jones Indices LLC, have no obligation to take the needs of the Trustee or the Unitholders of the Fund into consideration in determining, composing or calculating the Dow. Dow Jones, S&P, S&P Dow Jones Indices LLC, and their respective affiliates are not responsible for and have not participated in the determination of the timing of, prices at, or quantities of the Fund to be sold or in the determination or calculation of the equation by which the Fund is to be converted into cash. Dow Jones, S&P, S&P Dow Jones Indices LLC, and their respective affiliates have no obligation or liability in connection with the administration, marketing or trading of the Fund. There is no assurance that investment products based on the Dow will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an Index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice. DOW JONES, S&P, S&P DOW JONES INDICES LLC, AND THEIR RESPECTIVE AFFILIATES DO NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS, AND/OR THE COMPLETENESS OF THE DOW OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. DOW JONES, S&P, S&P DOW JONES INDICES LLC, AND THEIR RESPECTIVE AFFILIATES SHALL HAVE NO LIABILITY FOR ANY ERRORS, OMISSIONS, OR INTERRUPTIONS THEREIN. DOW JONES, S&P, S&P DOW JONES INDICES LLC, AND THEIR RESPECTIVE AFFILIATES MAKE NO WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY THE TRUSTEE, UNITHOLDERS OF THE FUND, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE DOW OR ANY DATA INCLUDED THEREIN. DOW JONES, S&P, S&P DOW JONES INDICES LLC, AND THEIR RESPECTIVE AFFILIATES MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE DOW OR ANY DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL DOW JONES, S&P, S&P DOW JONES INDICES LLC, OR THEIR RESPECTIVE AFFILIATES HAVE ANY LIABILITY FOR ANY LOST PROFITS OR INDIRECT, PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES OR LOSSES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES LLC AND THE TRUSTEE, OTHER THAN THIRD PARTY LICENSORS. Annual Management Report of Fund Performance 8 Top 20 U.S. Dividend Trust