Annual Financial Report

RNS Number : 5750A

North American Income Trust (The)

22 March 2013

 



22 March 2013

THE NORTH AMERICAN INCOME TRUST PLC

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2013

 

INVESTMENT OBJECTIVE

The objective of the Company is to provide investors with above average dividend income and long term capital growth through active management of a portfolio consisting predominantly of S&P 500 US equities.

BENCHMARK

S&P 500 Index (in sterling terms) (the "Index").

INVESTMENT POLICY AND PROCESS

The Company will invest in a portfolio predominantly comprised of S&P 500 constituents. The Company may also invest in Canadian stocks and US mid and small capitalisation companies to provide for diversified sources of income. The Company may invest up to 20 per cent. of its gross assets in fixed income investments, which may include non-investment grade debt.

The Company's investment policy is flexible, enabling it to invest in all types of securities, including (but not limited to) equities, preference shares, debt, convertible securities, warrants, depositary receipts and other equity-related securities.

The maximum single investment will not exceed 10 per cent. of gross assets at the time of investment and it is expected that the portfolio will contain around 50 holdings (including fixed income investments), with an absolute minimum of 35 holdings.

The composition of the Company's portfolio is not restricted by minimum or maximum market capitalisation, sector or country weightings.

The Company may borrow up to an amount equal to 20 per cent. of its net assets.

Subject to the prior approval of the Board, the Company may also use derivative instruments for efficient portfolio management, hedging and investment purposes. The Company's aggregate exposure to such instruments for investment purposes (excluding collateral held in respect of any such derivatives) will not exceed 20 per cent. of the Company's net assets at the time of the relevant acquisition, trade or borrowing.  The Company does not generally intend to hedge its exposure to foreign currency.

The Company will not acquire securities that are unlisted or unquoted at the time of investment (with the exception of securities which are about to be listed or traded on a stock exchange). However, the Company may continue to hold securities that cease to be listed or quoted, if appropriate.

The Company may participate in the underwriting or sub-underwriting of investments where appropriate to do so.

The Company may invest in open-ended collective investment schemes and closed-ended funds that invest in the North American region. However, the Company will not invest more than 10 per cent., in aggregate, of the value of its gross assets in other listed investment companies (including listed investment trusts), provided that this restriction does not apply to investments in any such investment companies which themselves have stated investment policies to invest no more than 15 per cent. of their gross assets in other listed investment companies.

The Company will normally be substantially fully invested in accordance with its investment objective but, during periods in which changes in economic conditions or other factors so warrant, the Company may reduce its exposure to securities and increase its position in cash and money market instruments.

The Directors are responsible for determining the investment policy and the investment objective of the Company, while the day-to-day management of the Company's assets has been delegated to Aberdeen Asset Managers Limited (the "Manager" or "Aberdeen"). The Manager invests in a range of North American companies, following a bottom-up investment process based on a disciplined evaluation of companies through direct visits by its fund managers. Stock selection is the major source of added value, concentrating on quality first, then price. Top-down investment factors are secondary in the Manager's portfolio construction, with diversification rather than formal controls guiding stock and sector weights.

CHAIRMAN'S STATEMENT

Change of Investment Mandate

At the General Meeting held on 29 May 2012, shareholders approved the change in the investment policy of the Company which was set out in the circular to shareholders dated 27 April 2012. The new investment policy came into effect following the conclusion of the General Meeting.

The investment objective was changed to provide investors with an above average dividend income and long-term capital growth through investing predominantly in S&P 500 Index constituents.

Portfolio

The Company's portfolio was restructured in early June to implement the new investment policy. The majority of the stocks held under the previous policy were sold and the proceeds re-invested in a more concentrated portfolio of US and Canadian equities and bonds. As of 31 January 2013 the portfolio consisted of 42 equity holdings and 18 corporate bonds, the bonds representing approximately 11.4% of total assets. Further details of the portfolio are shown below.

During the year ended 31 January 2013, the Company's net asset value per share rose by 11.6% on a total return basis, whilst the S&P 500 Index produced a total return of 16.2%, both in sterling terms. The Company's share price rose by 11.7% from 660.5p to 738.0p. The discount to the net asset value per Ordinary share narrowed from 4.9% to 2.3%. No shares were bought back in the period.

Dividend

The revenue return per Ordinary share has risen by 110% from 9.39p to 19.72p. This is due to the new focus on higher yielding stocks and bonds and dividend increases from investee companies. There remains scope for materially higher returns in the new financial year, reflecting a full year of the new policy.

The Directors have recommended a final dividend of 13.0p per share (2012 - 4.50p) for the year to 31 January 2013 which will take the total dividends for the year to 19.50p (2012 - 9.40p). The final dividend is payable on 24 May 2013 to shareholders on the register on 26 April 2013. Following this payment to shareholders the Company intends to move to quarterly dividend payment cycles, in August, November, February and May as previously indicated in the circular to shareholders.

The Board expects the first interim dividend payment for the new financial year to be in excess of 5.25p per Ordinary share assuming no large unforeseen currency movements or deterioration in economic conditions.

Gearing

In late October the Manager drew down £15.8 million ($24 million) of the £30 million revolving bank facility arranged with State Street Bank & Trust Company and dated 11 October 2012. This is a three year uncommitted facility, repayable with no penalty, providing finance at a margin of 1.5% over Libor. Further details on rates can be found in the notes to the accounts.

Market Review

Despite a year full of uncertainty due to the nation's fiscal crisis, U.S. elections and concerns about the global economy, the broad U.S. stock market performed surprisingly well, posting double-digit gains.

The S&P 500 Index rallied 1.1% on the final trading day of 2012 amid signs that Democratic and Republican lawmakers were closing in on an 11th-hour deal to avoid the bulk of the so-called "fiscal cliff," propelling the index to a 10.9% gain for 2012.  For the Company's financial year, 12 months to 31 January 2013, this was extended to 16.2%.

During 2012 the U.S. economy started to show signs that it could start growing again at a more normal rate, witnessed by an increase of 3.1% in the third quarter of 2012, its fastest pace since the final three months of 2011 and its second-best quarter of growth since 2009.

Stocks received a boost from an improvement in the jobs market. In November, the unemployment rate dropped to 7.7%, far below its 10% peak in October 2009 and its lowest level since December 2008. The Federal Reserve also provided a floor under the stock market, reiterating its plans to keep short-term interest rates low until the job market strengthened significantly. It also launched a fresh round of purchases of U.S. Treasury bonds and mortgage-backed bonds, the policy known as quantitative easing which it launched four years ago, in an effort to keep borrowing costs low to support economic growth.

Marketing

The Board continues to market the Company through the Investment Manager's initiative which provides a series of savings schemes through which savers can invest in the Company in a low cost and convenient manner.

Up-to-date information about the company, including monthly factsheets, interviews with the Manager and the latest net asset value and price of the Ordinary shares may be found on the Company's website at www.northamericanincome.co.uk.

Outlook

To date, due to its status as the world's reserve currency, the U.S. has not yet experienced the market pressure to reduce its fiscal stimulus and tackle its mounting debt burden. Its economy is once again proving its resilience. The share price rally reflects the growing confidence of investors in the return of more buoyant economic conditions. Shares of US corporations trade at attractively low valuations with many companies operating with solid balance sheets and positive cash flows. Corporate profits continue to rise reflecting prior cost cutting measures, restructuring, limited capital investment and generally looser monetary policy.

The U.S. has entered an energy 'renaissance' with shale gas providing cheap energy and the distinct possibility that the country will become a net exporter of oil by 2020. The economy remains a highly innovative and increasingly competitive market as input costs decline. The manufacturing sector continues to show signs of recovery and employment is rising. Consumer confidence seems to be returning following a period of retrenchment and individual debt consolidation and repayment with debt payments as a percentage of disposable personal income lower than in 2000.

Although the Federal debt problem remains a concern, there are signs in the wider economy that selected, well managed companies will continue to improve and pay increased dividends. With interest rates remaining at close to zero such dividend income, plus the potential for capital growth in the longer term, still provides a compelling case for investing in the U.S.

Your Board therefore believes that there is ample justification for confidence in the prospects for the Company's future growth, both in terms of income and capital.

Annual General Meeting ("AGM")

The Company's AGM will be held at 11 a.m. on Wednesday 22 May 2013 at 40 Princes Street, Edinburgh. I hope that we shall see as many shareholders as possible. There will be a brief presentation on the investment outlook.

James Ferguson

Chairman

21 March 2013

MANAGER'S REPORT

Background/Portfolio Review

U.S. equity investors were rewarded with another year of sizeable gains that reflected economic and corporate progress both at home and abroad. One notable exception to this remains the worriesome growth of public sector debt.

Domestic economic conditions remain stable but tepid at best. The consumer continues to improve the quality of its balance sheet with the quantum of debt and the cost of servicing both attractively lower. Consumer confidence has been steady helped by an uptick in sales turnover and prices as well as a reduction in the threat of unemployment. Growth in real disposable incomes is positive but remains subdued with the so-called middle classes showing little inclination to divert from their long standing 'value for money' bias. The most recent payroll tax increases, a product of 'fiscal cliff' deliberations, will do little to re-ignite the consumer but we do not think this is a bad thing. Quite the contrary, the pre-financial crisis consumer was over-extended with a clear preference for cheap imported goods. What made sense for the consumer did not make sense for the broader economy. Less debt and a higher savings ratio represent a promising re-adjustment of consumer behaviour, one that is likely to make the economy stronger in the long term.

Corporate sector performance continues to be the bedrock of the economy. As noted in last year's Manager's Review, profit contribution to GDP remains stubbornly impressive with costs of goods and operating expenses currently facing few meaningful pressures. De-leveraging of the non-financial corporate sector has been necessary and beneficial. U.S. companies remain world leaders at using lean and flexible cost bases to turn low organic sales growth rates into attractive earnings streams that are the drivers of future re-investment and distribution policies. The benefits of cheap natural gas are beginning to be felt across the economy not least in the manufacturing sector. Dow Chemical, Chevron Phillips and Exxon Mobil are all expected to increase chemical plant capacity in the U.S. in part to capitalise on cheap natural gas supplies and attractive post-tax returns. A healthy manufacturing sector is important for the jobs it creates through extensive supply chains as well as being a positive contributor to the export sector. Exports of autos and trucks from U.S. and non-U.S. manufacturers based in the U.S. have risen sharply over the last three years not least to China where there is growing interest in U.S. made vehicles.

Public sector finances remain a persistent worry and the dollar's role as sole reserve currency will not last forever. Growth of Federal debt remains at unsustainably high levels and is inconsistent with super-power status. State and local government debt levels remain an additional burden that should not be overlooked. Dysfunctional politics are partly to blame. A bi-partisan agreement late last year bought time but no long-term solution. Manoeuverings on Capitol Hill have pushed back the deadline to May by which time we shall know whether automatic and indiscriminate cuts to expenditures or sequestration shall be replaced by more targeted cuts designed to bring the Federal deficit under long-term control. Regardless, the better companies, those with the means to think and act long-term, have become apt at managing uncertainty and those are the ones we prefer to invest in.

While it feels that uncertainty is receding in some sectors, healthcare remains a troubled exception. 'Obamacare', admirable in intent though it is, is bound to be disruptive with 30 million more people under insurance coverage. It has placed an open-ended cost and regulatory burden on corporate America which is not yet fully understood. These burdens will be felt in the small business sector and those companies that employ more than 50 full-time employees. Anecdotal reports that businesses are stalling on new hires in order to remain below the threshold for higher employee healthcare costs is worriesome but likely to have little direct impact on the profits of larger companies owned by the Trust. More positively, the certainty that U.S. taxes on dividends and capital gains for higher rate tax payers are now set at 23.8% and 25% respectively has been well received by income hungry investors and gives further encouragement to corporates to pursue progressive dividend policies.

Following the overwhelmingly positive vote at the last AGM in 2012, the Trust's S&P 500 holdings were transitioned in early June 2012 consistent with the Trust's new income with capital growth objectives. . In a far more concentrated portfolio, the forty or so equity holdings account for over 85% of the Trust's gross assets with the dividend yield on these individual equities ranging from 2% - 5%. Companies are U.S. and Canadian listed and represent all sectors of the economy. There is large-cap bias to the portfolio with less than 5% of our holdings having a market cap below $5 billion. No investments are made without first meeting a company's management team and asking direct questions of the business and its financial position. Once owned, a continuous series of meetings provide on-going due diligence that forms part of what we intend is a constructive long-term relationship with our investments.

In order to diversify and enhance income, the Trust currently holds approximately 12% of gross assets in a mix of investment grade and high yield bonds with no overlap between equity and bond issuers. Security selection is undertaken by the Manager's team of corporate and high yield specialists and, similar to equity selection, is driven by company fundamentals. Mindful of valuations, low yields and interest rate sensitivities, earlier this year we exited longer duration investment grade holdings and added Qwest Corp, a high yield bond with a call date in 2015.

Central to the Manager's approach to generating income and growth is the selection of companies with sustainable business models generating earnings growth from one cycle to the next and committed to progressive distribution policies. This leads us to hold a number of high quality consumer non-cyclical companies such as PepsiCo, Baxter and Paychex. Our holding in Heinz was recently subject to a takeover bid led by Warren Buffet at a 35% premium to our purchase price. In contrast, our reservations over the quality of some U.S. financial companies leads us to prefer Royal Bank of Canada over some of the U.S. alternatives that limped through the financial crisis having been deemed 'too big to fail.' Our financial holdings are well diversified and include CME Group, a toll-taker for the derivatives market and Aflac which is a unique U.S. company that is the lowest cost provider of supplementary life and health insurance policies to the Japanese consumer.

Our concentration on stable dividend growers does not preclude the Trust from owning companies that are more exposed to an economic upturn. The Trust is better balanced for owning industrial and materials companies like Emerson, Republic Services and Nucor that have also demonstrated a record of growing regular dividends. Our findings indicate that companies that can grow their dividends over time have generated higher and more stable total returns compared to companies that are unable to grow their dividends, pay no dividends or those forced to cut dividends.

Given the lack of coordinated global growth in recent years, cyclical and capital goods companies have suffered earnings set-backs and valuation compression. As a result, valuations are attractive if ever global growth and higher domestic economic growth returns. As confidence does pick-up , corporates will  begin to reinvest the billions of dollars they have accumulated over the last few years and that will be positive for a number of holdings that include technology giants Cisco, Intel and Microsoft. We do not expect to see our holdings embark on aggressive corporate takeovers. Rather we think the past lessons of ruinous mergers and acquisitions have been learnt and lie at the heart of today's more conservative corporate America.

The amount of cash on balance sheets, future cash generation and the desire to increase dividend payouts give confidence that the Trust can generate sustainable income with capital gains. Based on our own conservative estimates, earnings growth potential for the 12 months ahead is 5% with possible upside coming from a credible deal on Federal debt and / or China and the Euro-bloc delivering on 8% and above zero growth rates respectively. These tailwinds and continued good execution from our asset management teams on the ground in the U.S. should put the Trust in a good position to grow its dividend.

Lastly, we continue to maintain the policy of not formally hedging against foreign exchange risks but do convert dollar and Canadian dollar dividends and coupons into sterling once received.

Aberdeen Asset Managers Limited

RESULTS

Performance

	1 year return	3 year* return	5 year* return
	%	%	%
Total return (Capital return plus dividends reinvested)
Share price	13.6%	43.7%	48.4%
Net asset value per share	11.6%	43.4%	43.6%
S&P Composite Index (in sterling terms)	16.2%	50.3%	52.4%

* Cumulative return

Financial Summary

	31 January 2013	31 January 2012	% change
Total assets	£257,207,000	£220,409,000	+16.7
Equity shareholders' funds	£242,069,000	£220,409,000	+9.8
Share price (mid market)	738.00p	660.50p	+11.7
Net asset value per share:
Including undistributed revenue for the year	769.00p	700.19p	+9.8
Excluding undistributed revenue for the year	755.76p	694.79p	+8.8
S&P 500 Index (in sterling terms)	944.91	831.67	+13.6
Discount (difference between share price and net asset value){A}	(2.3%)	(4.9%)
Dividends and earnings
Revenue return per share	19.72p	9.39p	+110.0
Dividends per share (including proposed final dividend)	19.50p	9.40p	+107.4
Dividend cover	1.01	1.00
Revenue reserves per share:
Prior to payment of proposed final dividend	18.70p	10.66p
After payment of proposed final dividend	5.70p	5.46p
Operating costs
Ongoing charges {B}	0.81%	0.39%
{A} Based on net asset value per share (excluding undistributed revenue for the period).
{B} The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC as the total of investment management fees and administrative expenses divided by the average cum income net asset value throughout the year. The figure for 2012 has been restated.

INVESTMENT PORTFOLIO AS AT 31 JANUARY 2013

Ten Largest Investments

		Valuation	Total	Valuation
	S&P 500 Index	2013	assets	2012
Company	industry classification	£'000	%	£'000
Johnson & Johnson
Johnson & Johnson manufactures health care products, pharmaceuticals, diagnostic equipment and surgical devices.	Pharmaceuticals	8,356	3.2	3,280
Microsoft
Microsoft manufactures and licenses software products for operating systems, applications, software development and internet services.	Systems Software	7,905	3.1	4,001
Telus
Telus is a telecommunications company providing voice, data, internet, and wireless services to businesses and consumers in Canada.	Diversified Telecommunication Services	7,668	3.0	-
Chevron
Chevron is an integrated energy company operating on a global basis. The company produces crude oil and natural gas and also refines and markets petroleum.	Oil, Gas & Consumable Fuels	7,482	2.9	3,750
CMS Energy
CMS is a utility company operating primarily in Michigan. The company provides electricity and/or natural gas to customers and also invests in power generation.	Multi-Utilities	7,289	2.8	-
Paychex
Paychex provides payroll, integrated human resources and employee benefits outsourcing for small and medium sized businesses in the United States.	IT Services	7,107	2.8	-
ConocoPhillips
ConocoPhillips is a global energy producer, and also has businesses in refining and transporting commodities.	Oil, Gas & Consumable Fuels	7,080	2.7	1,644
Verizon Communications
Verizon Communications is a telecommunications company that provides wireline, voice, data services, wireless services, and internet to government, business, and consumers.	Diversified Telecommunication Services	6,740	2.6	1,936
Intel
Intel designs, manufactures, and sells computer components and related products with these including microprocessors, chipsets, memory and graphics products among others.	Semiconductors & Semiconductor Equipment	6,681	2.6	2,443
Kraft Foods
Kraft Foods is focused on consumer packaged foods and beverages, predominately in North America.	Food Products	6,594	2.6	1,229
Ten largest equity investments		72,902	28.3

Other Equity Investments

		Valuation	Total	Valuation
	S&P 500 Index	2013	assets	2012
Company	industry classification	£'000	%	£'000
TransCanada	Oil, Gas & Consumable Fuels	6,129	2.4	-
Procter & Gamble	Household Products	5,919	2.3	3,146
Royal Bank Of Canada	Commercial Banks	5,884	2.3	-
Philip Morris	Tobacco	5,798	2.3	2,387
Pfizer	Pharmaceuticals	5,760	2.2	3,034
Cisco Systems	Telecommunications Equipment	5,691	2.2	1,918
Aflac	Insurance	5,617	2.2	-
Republic Services	Commercial Services & Supplies	5,546	2.2	-
CME Group	Investment Services	5,545	2.2	-
Baxter International	Healthcare Equipment & Supplies	5,514	2.1	-
Twenty largest equity investments		130,305	50.7
Digital Realty Trust	Real Estate Investment Trusts	5,354	2.1	-
Lockheed Martin	Aerospace & Defense	5,311	2.1	-
H.J. Heinz	Food Products	5,304	2.1	-
Staples	Specialty Retail	5,264	2.0	-
Healthcare Realty Trust	Real Estate Investment Trusts	5,205	2.0	-
Lorillard	Tobacco	5,138	2.0	-
Pepsico	Beverages	5,121	2.0	1,887
Kellogg	Food Products	4,475	1.7	-
Genuine Parts	Distributors	4,050	1.6	-
Sysco	Food & Staples Retailing	3,921	1.5	-
Thirty largest equity investments		179,448	69.8
Exxon Mobil	Oil, Gas & Consumable Fuels	3,916	1.5	7,286
Freeport-McMoRan Copper & Gold	Metals & Mining	3,902	1.5	-
Emerson Electric	Electrical Equipment	3,531	1.4	-
Blackrock	Capital Markets	3,487	1.4	-
Nucor	Metals & Mining	3,414	1.3	-
Bristol-Myers Squib	Pharmaceuticals	3,410	1.3	999
Dow Chemical	Chemicals	3,388	1.3	-
Kimberly-Clark	Household Products	3,278	1.3	-
Molson Coors Brewing	Beverages	3,235	1.3	-
Target	Multiline Retail	2,920	1.1	-
Forty largest equity investments		213,929	83.2
Southern Company	Electric Utilities	2,730	1.1	-
Colgate-Palmolive	Household Products	1,884	0.7	-
Total equity investments		218,543	85.0

Bonds

		Valuation	Total	Valuation
		2013	assets	2012
Company	Industry classification	£'000	%	£'000
HSBC Finance 6.676% 15/01/21	Consumer Finance	2,631	1.0	-
General Electric Capital 7.125% Non-Cum Perp Pref	Diversified Financial Services	2,561	1.0	-
Qwest 7.25% 15/10/35	Telephone Communications	2,477	1.0	-
First Data 7.375% 15/06/19	IT Services	2,318	0.9	-
Seagate HDD Cayman 7% 01/11/21	Computer & Office Equipment	2,145	0.8	-
Blackstone Holdings Finance 5.875% 15/03/21	Capital Markets	2,092	0.8	-
Bombardier 7.75% 15/03/20	Aerospace & Defense	1,833	0.7	-
Windstream 7.75% 01/10/21	Diversified Telecommunication Services	1,800	0.7	-
Cincinnati Bell 8.375% 15/10/20	Diversified Telecommunication Services	1,728	0.7	-
International Lease Finance Corp 6.25% 15/05/19	Diversified Financial Services	1,680	0.7	-
Ten largest bonds		21,265	8.3
Hilcorp Energy 8% 15/02/20	Oil, Gas & Consumable Fuels	1,614	0.6	-
Alpha Natural Resources 6.25% 01/06/21	Oil, Gas & Consumable Fuels	1,476	0.6	-
Nationwide Mutual Insurance 9.375% 15/08/39	Insurance	1,428	0.5	-
Taseko Mines 7.75% 15/04/19	Metals & Mining	1,053	0.4	-
Post Holdings 7.375% 15/02/22	Food Products	809	0.3	-
Tenneco 6.875% 15/12/20	Auto Components	695	0.3	-
Genon Energy 9.875% 15/10/20	Independent Power Producers & Energy Traders	583	0.2	-
Entergy Louisiana 6.3% 01/09/35	Electric Utilities	535	0.2	-
Total value of bonds		29,458	11.4
Total value of equity investments		218,543	85.0
Total value of investments		248,001	96.4
Net current assetsA		9,206	3.6
Total assetsA		257,207	100.0
A Excluding Bank loan of £15,1338,000

GEOGRAPHIC BREAKDOWN

	Equity	Bonds	Total
Country	%	%	%
Canada	9.1	-	9.1
USA	79.0	11.9	90.9
	88.1	11.9	100.0

DIRECTORS' REPORT

The Board has prepared this Business Review in accordance with the requirements of Section 417 of the Companies Act 2006.

Principal Activity and Status

The business of the Company is that of an investment trust and the Directors do not envisage any change in this activity in the foreseeable future. 

The Company's registration number is SC005218.

The Company is registered as a public limited company and is an investment company as defined by Section 833 of the Companies Act 2006. The Company has received approval of investment trust status from HM Revenue & Customs for the purposes of Section 1158 of the Corporation Tax Act 2010 for the year ended 31 January 2012.  The Company has been accepted as an approved investment trust company from 1 February 2013 subject to the Company continuing to satisfy the ongoing requirements of  Chapter 4 of Part 24 of the Corporation Tax Act 2010 and the Investment Trust (Approved Company) (Tax) Regulations 2011.

The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner in the future.

Investment Objective and Policy

The Company changed its investment objective from an index-tracker trust on 29 May 2012, following approval from shareholders.  The investment objective is to provide investors with above average dividend income and long term capital growth through active management of a portfolio consisting predominantly of S&P 500 US equities.

Review of Performance

An outline of the performance, market background, investment activity and portfolio strategy during the year under review, as well as the investment outlook, is provided in the Chairman's Statement and Manager's Review.

Principal Risks and Uncertainties

The Board has reviewed the key risks that affect its business. The principal risks are as follows:

· Market and performance risk: The Company is exposed to the effect of variations in share prices and movements in the US$/£ exchange rate due to the nature of its business.  A fall in the market value of its portfolio would have an adverse effect on shareholders' funds. The Board monitors the Company's performance compared to its benchmark index. 

· Gearing risk: As at 31 January 2013 the Company had £15.1 million of borrowings.  Gearing has the effect of exacerbating market falls and gains. In order to manage the level of gearing, the Board has set a maximum gearing ratio of 20%. 

· Discount volatility: The Company's share price can trade at a discount to its underlying net asset value. The Company may operate a share buyback programme when the level of discount is above 5%.

· Regulatory risk: The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Section 1158 of the Corporation Tax Act 2010, the UKLA Listing Rules and the Companies Acts, could lead to a number of detrimental outcomes and reputational damage. The Audit Committee monitors compliance with regulations by reviewing internal control reports from the Manager.

· Dividend: The ability of the Company to pay dividends in respect of the Shares and any future dividend growth will depend primarily on the level of income received from its investments (which may be affected by, amongst others, currency movements, exchange controls or withholding taxes imposed by jurisdictions in which the Company invests) and the timing of receipt of such income by the Company. Accordingly, there is no guarantee that the Company's dividend objective will continue to be met and the amount of the dividends paid to Ordinary Shareholders may fluctuate and may go down as well as up.

· Derivatives: The Company uses derivatives primarily to enhance the income generation of the Company.  The risks associated with such contracts are managed within guidelines set by the Board. 

· Debt securities:  Any debt securities that may be held by the Company will be affected by general changes in interest rates that will in turn result in increases and decreases in the market value of those instruments. When interest rates decline, the value of the Company's investments in fixed rate debt obligations can be expected to rise and, when interest rates rise, the value of those investments may decline. Adverse changes in the financial position of an issuer of debt securities or general economic conditions may impair the ability of the issuer to meet interest payments and repayments of principal. Accordingly, debt securities that may be held by the Company will also be subject to the inherent credit or default risks associated with the debt securities and there can be no assurance as to the levels of default and/or recovery that may be experienced by the Company with regard to such securities.

Further details on other risks relating to the Company's investment activities, including market price, liquidity and foreign currency risks, are provided in note 16 to the financial statements.

Monitoring Performance - Key Performance Indicators

At each Board meeting, the Directors consider a number of performance measures to assess the Company's success in achieving its objectives. The following key performance indicators (KPIs) have been identified by the Board for determining the progress of the Company:

· Net asset value (total return)

· Discount

· Dividend yield

· Ongoing charges

A record of these measures is disclosed in the Results section. 

Resource

The Company has no employees. The responsibility for the management of the Company has been delegated to Aberdeen Asset Managers Limited under the investment management agreement.

As an investment trust, the Company has no direct social, or community responsibilities. Details of the Company's policy on socially responsible investment are set out in the Statement of Corporate Governance.

Results and Dividends

An interim dividend of 6.5p per Ordinary share was paid to shareholders on 26 October 2012.  The Directors recommend that a final dividend per Ordinary share of 13.0p be paid on 24 May 2013 to shareholders on the register on 26 April 2013, making a total of 19.5p (2012 - 9.40p) per Ordinary share for the year ended 31 January 2013. The ex-dividend date is 24 April 2013.  A resolution in respect of the final dividend will be proposed at the Annual General Meeting.

Going Concern

In accordance with the Financial Reporting Council's guidance on Going Concern and Liquidity Risk issued in October 2009, the Directors have reviewed the Company's ability to continue as a going concern. The Company's assets consist of primarily a diverse portfolio of listed equities which, in most circumstances, are realisable within a short timescale.

After enquiry, the Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the accounts and are of the opinion that the Company will continue in operational existence for the foreseeable future.

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and Accounts in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with UK Accounting Standards and applicable law (UK Generally Accepted Accounting Practice).

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

· select suitable accounting policies and then apply them consistently;

· make judgments and estimates that are reasonable and prudent;

· state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and

· prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Directors' Report, Directors' Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors confirm that to the best of their knowledge:

· the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

· the Directors' Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

For The North American Income Trust plc

James Ferguson

Chairman

21 March 2013

INCOME STATEMENT (audited)

		Year ended 31 January 2013			Year ended 31 January 2012
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Net gains on investments	9	-	20,480	20,480	-	7,597	7,597
Net currency (losses)/gains	16	-	(171)	(171)	-	54	54
Income	2	8,338	-	8,338	4,532	-	4,532
Investment management fee	3	(515)	(851)	(1,366)	(435)	-	(435)
Administrative expenses	5	(605)	(254)	(859)	(399)	-	(399)
		______	______	_____	______	______	_____
Net return on ordinary activities before finance costs and taxation		7,218	19,204	26,422	3,698	7,651	11,349
Finance costs	4	(32)	(74)	(106)	-	-	-
Return on ordinary activities before taxation		7,186	19,130	26,316	3,698	7,651	11,349
Taxation	6	(978)	-	(978)	(652)	-	(652)
		______	______	_____	______	______	_____
Return on ordinary activities after taxation		6,208	19,130	25,338	3,046	7,651	10,697
		______	______	_____	______	______	_____
Return per share (pence)	8	19.72	60.77	80.49	9.39	23.60	32.99
		______	______	_____	______	______	_____
The total column of this statement represents the profit and loss account of the Company.
A Statement of Total Recognised Gains and Losses has not been prepared as all gains and losses are recognised in the Income Statement.
All revenue and capital items in the above statement derive from continuing operations.
The accompanying notes are an integral part of the financial statements.
Proposed final dividend
The Board is proposing a final dividend of 13.00p per share (£4,092,000), making a total dividend of 19.50p per share (£6,138,000) for the year to 31 January 2013 which, if approved, will be payable on 24 May 2013 (see note 7).
For the year ended 31 January 2012, the final dividend was 5.20p per share (£1,637,000) making a total dividend of 9.40p per share (£2,989,000).

BALANCE SHEET (audited)

		As at	As at
		31 January 2013	31 January 2012
	Notes	£'000	£'000
Fixed assets
Investments at fair value through profit or loss	9	248,001	217,966
Current assets
Debtors and prepayments	10	843	240
Cash and short term deposits	16	9,238	2,402
		10,081	2,642
		________	________
Creditors: amounts falling due within one year
Bank loan	11	(15,138)	-
Other payables	11	(875)	(199)
		________	________
		(16,013)	(199)
		________	________
Net current (liabilities)/assets		(5,932)	2,443
		________	________
Net assets		242,069	220,409
		________	________
Capital and reserves
Called-up share capital	12	7,870	7,870
Share premium account		32,643	32,643
Capital redemption reserve		14,225	14,225
Capital reserve	13	181,444	162,314
Revenue reserve		5,887	3,357
		________	________
Equity shareholders' funds		242,069	220,409
		________	________
Net asset value per share (pence)	14	769.00	700.19
		________	________

RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (audited)

For the year ended 31 January 2013
		Share	Capital
	Share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 January 2012	7,870	32,643	14,225	162,314	3,357	220,409
Return on ordinary activities after taxation	-	-	-	19,130	6,208	25,338
Dividends paid (see note 7)	-	-	-	-	(3,678)	(3,678)
	_____	______	______	______	______	______
Balance at 31 January 2013	7,870	32,643	14,225	181,444	5,887	242,069
	_____	______	______	______	______	______
For the year ended 31 January 2012
		Share	Capital
	Share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 January 2011	8,275	32,643	13,820	164,822	3,295	222,855
Return on ordinary activities after taxation	-	-	-	7,651	3,046	10,697
Dividends paid (see note 7)	-	-	-	-	(2,984)	(2,984)
Purchase of own shares for cancellation	(405)	-	405	(10,159)	-	(10,159)
	_____	______	______	______	______	______
Balance at 31 January 2012	7,870	32,643	14,225	162,314	3,357	220,409
	_____	______	______	______	______	______
The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.
The accompanying notes are an integral part of the financial statements.

CASH FLOW STATEMENT (audited)

		Year ended		Year ended
		31 January 2013		31 January 2012
	Notes	£'000	£'000	£'000	£'000
Net cash inflow from operating activities	15		6,198		3,745
Servicing of finance
Interest paid			(102)		-
Taxation
Overseas withholding tax paid		(957)		(651)
		______		______
Net tax paid			(957)		(651)
Financial investment
Purchases of investments		(269,518)		(4,878)
Sales of investments		259,926		14,503
		______		______
Net cash (outflow)/inflow from financial investment			(9,592)		9,625
Equity dividends paid			(3,678)		(2,984)
			______		______
Net cash (outflow)/inflow before financing			(8,131)		9,735
Financing
Buy back of Ordinary shares (including expenses)		-		(10,159)
Drawdown of bank loan		15,138		-
		______		______
Net cash inflow/(outflow) from financing			15,138		(10,159)
			______		______
Increase/(decrease) in cash			7,007		(424)
			______		______
Reconciliation of net cash flow to movement in net (debt)/funds
Increase/(decrease) in cash as above			7,007		(424)
Drawdown of bank loan			(15,138)		-
Exchange movements			(171)		54
			______		______
Movement in net funds in the year			(8,302)		(370)
Opening net funds			2,402		2,772
			______		______
Closing net (debt)/funds	16		(5,900)		2,402
			______		______

NOTES TO THE FINANCIAL STATEMENTS

1.	Accounting policies
	A summary of the principal accounting policies, all of which, unless otherwise stated, have been consistently applied throughout the year and the preceding year is set out below.
	(a)	Basis of preparation and going concern
		The financial statements have been prepared under the historical cost convention, as modified to include the revaluation of investments and in accordance with the applicable UK Accounting Standards and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. They have also been prepared on the assumption that approval as an investment trust will continue to be granted.
		The directors have, at the time of approving the financial statements, a reasonable expectation that the Company have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the financial statements. Further detail is included in the directors' report (unaudited).
		The financial statements and the net asset value per share figures have been prepared in accordance with UK Generally Accepted Accounting Practice (UK GAAP).
	(b)	Income
		Income from investments (other than special dividends), including taxes deducted at source, is included in revenue by reference to the date on which the investment is quoted ex dividend. Special dividends are credited to capital or revenue, according to the circumstances.
		The fixed returns on debt securities are recognised on a time apportionment basis so as to reflect the effective yield on the debt securities and shares.
		Interest receivable from cash and short-term deposits and interest payable is accrued to the end of the year.
	(c)	Expenses
		All expenses are accounted for on an accruals basis and are charged to the Income Statement. Expenses are charged against revenue except as follows:
		transaction costs on the acquisition or disposal of investments are charged to the capital account in the Income Statement;
		expenses are charged to realised capital reserves where a connection with the maintenance or enhancement of the value of the investments can be demonstrated. In this respect, from 29 May 2013 the investment management fee has been allocated 30% to revenue and 70% (previously 100% to revenue) to realised capital reserves to reflect the Company's investment policy and prospective income and capital growth.
	(d)	Deferred taxation
		Deferred taxation is provided on all timing differences, that have originated but not reversed at the Balance Sheet date, where transactions or events that result in an obligation to pay more or a right to pay less tax in future have occurred at the Balance Sheet date, measured on an undiscounted basis and based on enacted tax rates. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the underlying timing differences can be deducted. Timing differences are differences arising between the Company's taxable profits and its results as stated in the accounts which are capable of reversal in one or more subsequent periods. Due to the Company's status as an investment trust company, and the intention to continue to meet the conditions required to obtain approval for the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation or disposal of investments.
	(e)	Investments
		All purchases and sales of investments are recognised on the trade date, being the date the Company commits to purchase or sell the investment. Investments are initially recognised and subsequently re-measured at fair value in the Income Statement. Transaction costs on purchases and sales are expensed through the Income Statement.
	(f)	Borrowings
		Monies borrowed to finance the investment objectives of the Company are stated at the amount of the net proceeds immediately after issue plus cumulative finance costs less cumulative payments made in respect of the debt. The finance costs of such borrowings are accounted for on an accruals basis using the effective interest rate method and are charged 30% to revenue and 70% to realised capital reserves to reflect the Company's investment policy and prospective income and capital growth.
	(g)	Dividends payable
		Interim and final dividends are recognised in the period in which they are paid.
	(h)	Capital reserve
		Gains or losses on realisation of investments and changes in fair values of investments which are readily convertible to cash, without accepting adverse terms, are transferred to the capital reserve. The costs of share buybacks are also deducted from this reserve.
	(i)	Foreign currency
		Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Balance Sheet date. Transactions involving foreign currencies are converted at the rate ruling on the date of the transaction. Gains and losses on the realisation of foreign currencies are recognised in the Income Statement and are then transferred to the capital reserve.
	(j)	Traded options
		The Company may enter into certain derivatives (e.g. options). Option contracts are accounted for as separate derivative contracts and are therefore shown in other assets or other liabilities at their fair value. The initial fair value is based on the initial premium, which is recognised upfront. The premium received and fair value changes in the open position which occur due to the movement in underlying securites are recognised in the revenue column, losses realised on the exercise of the contracts are recorded in the capital column of the Income Statement.
		In addition, the Company may enter into derivative contracts to manage market risk and gains or losses arising on such contracts are recorded in the capital column of the Income Statement.

		2013	2012
2.	Income	£'000	£'000
	Income from overseas listed investments
	Dividends	6,749	4,532
	Interest income from investments	1,178	-
		______	______
		7,927	4,532
		______	______
	Other income from investment activity
	Traded option premiums	410	-
	Deposit interest	1	-
		______	______
		411	-
		______	______
	Total income	8,338	4,532
		______	______
	During the year, the Company was entitled to premiums totalling £410,000 (2012 - £nil) in exchange for entering into derivative transactions. This figure includes a mark to market on derivative contracts open at each year end. At the year end there were 4 open positions, valued at a liability of £226,000 (2012 - liability of £nil) as disclosed in note 11. Losses realised on the exercise of derivative transactions are disclosed in note 9.

		2013			2012
		Revenue	Capital	Total	Revenue	Capital	Total
3.	Investment management fee	£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fee	515	851	1,366	435	-	435
		______	______	______	______	______	______
	As of the 29 May 2012, the management fee payable to Aberdeen Asset Managers Limited ("Aberdeen") is 0.8% per annum of gross assets after deducting current liabilities and excluding commonly managed funds, payable quarterly. Previously, this was charged at 0.05% per quarter of the total assets of the Company after deducting current liabilities and excluding commonly managed funds.
	The management agreement between the Company and Aberdeen is terminable by either party on three months' notice. In the event of a resolution being passed at the AGM to wind up the Company the Manager shall be entitled to three months' notice from the date the resolution was passed. In the event of termination on not less than the agreed notice period, compensation is payable in lieu of the unexpired notice period.  The balance due to Aberdeeen at the year end was £488,000 (2012 - £110,000).

		2013			2012
		Revenue	Capital	Total	Revenue	Capital	Total
4.	Finance costs	£'000	£'000	£'000	£'000	£'000	£'000
	Bank loans	32	74	106	-	-	-
		______	______	______	______	______	______

		2013			2012
		Revenue	Capital	Total	Revenue	Capital	Total
5.	Administrative expenses	£'000	£'000	£'000	£'000	£'000	£'000
	Directors' fees	54	-	54	51	-	51
	Registrar's fees	44	-	44	61	-	61
	Custody and bank charges	64	-	64	33	-	33
	Secretarial fees	67	-	67	-	-	-
	Auditor's remuneration:
	fees payable to the Company's auditor for the audit of the annual accounts	15	-	15	15	-	15
	Contribution to the Investment Trust Initiative	106	-	106	73	-	73
	Printing, postage and stationery	29	-	29	22	-	22
	Fees, subscriptions and publications	37	-	37	35	-	35
	Standard & Poors' licence fee	4	-	4	22	-	22
	Professional fees	156	254	410	61	-	61
	Other expenses	29	-	29	26	-	26
		______	______	______	______	______	______
		605	254	859	399	-	399
		______	______	______	______	______	______
	The Company has an agreement with Aberdeen Asset Managers Limited ("Aberdeen") for the provision of secretarial and administration services. The fee is payable monthly in advance and based on an index-linked annual amount of £100,000 (2012 - £nil) and there was a accrual of £17,000 (2012 - £nil) at the year end. The agreement is terminable on three months' notice.
	The contribution to the Investment Trust Initiative is paid to the Manager in respect of marketing of the Company. At the year end £57,000 was due (2012 - £6,000 due) to the Manager.
	Professional fees related to the change in the investment mandate.

			2013			2012
			Revenue	Capital	Total	Revenue	Capital	Total
6.	Taxation		£'000	£'000	£'000	£'000	£'000	£'000
	(a)	Analysis of charge for the year
		Overseas tax suffered	978	-	978	652	-	652
			______	______	______	______	______	______
		Current tax charge for the year	978	-	978	652	-	652
			______	______	______	______	______	______
	(b)	Factors affecting the tax charge for the year
		The UK corporation tax rate was 26% until 31 March 2012 and 24% from 1 April 2012 giving an effective rate of 24.33% (2012 - effective rate of 26.33%). The tax assessed for the year is lower than the rate of corporation tax. The differences are explained below:
			2013			2012
			Revenue	Capital	Total	Revenue	Capital		Total
			£'000	£'000	£'000	£'000	£'000		£'000
		Net profit on ordinary activities before taxation	7,186	19,130	26,316	3,698	7,651		11,349
		Corporation tax at 24.33% (2012 - 26.33%)	1,748	4,654	6,402	974	2,014		2,988
		Effects of:
		Non taxable overseas dividends	(1,572)	-	(1,572)	(1,186)	-		(1,186)
		Unutilised management expenses	(176)	287	111	215	-		215
		Income taxable in different periods	-	-	-	(3)	-		(3)
		Overseas taxes	978	-	978	652	-		652
		Capital gains not taxable	-	(4,983)	(4,983)	-	(2,000)		(2,000)
		Currency gains not taxable	-	42	42	-	(14)		(14)
			______	______	______	______	______		______
		Current tax charge	978	-	978	652	-		652
			______	______	______	______	______		______
	(c)	Provision for deferred taxation
		No provision for deferred taxation has been made in the current year or in the prior year. The Company has not provided for deferred tax on capital gains or losses arising on the revaluation or disposal of investments as it is exempt from tax on these items because of its status as an investment trust company. The Company has an unrecognised deferred tax asset of £449,000 (2012 - £369,000) arising as a result of unutilised management expenses and loan relationship deficits of £1,872,000 (2012 - £1,418,000). Any excess management expenses will be utilised against any taxable income that may arise.

		2013	2012
7.	Dividends	£'000	£'000
	Amounts recognised as distributions to equity holders in the year:
	Final dividend for 2012 - 5.20p per share (2011 - 4.95p)	1,637	1,638
	Interim dividend for 2013 - 6.50p per share (2012 - 4.20p)	2,046	1,352
	Unclaimed dividends from previous years	(5)	(6)
		______	______
		3,678	2,984
		______	______
	The proposed final dividend for 2013 is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.
	The table below sets out the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of Sections 1158-1159 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £6,208,000 (2012 - £3,046,000).
		2013	2012
		£'000	£'000
	Interim dividend for 2013 - 6.50p per share (2012 - 4.20p)	2,046	1,352
	Proposed final dividend for 2013 - 13.00p per share (2012 - 5.20p)	4,092	1,637
	Unclaimed dividends from previous years	(5)	(6)
		______	______
		6,133	2,983
		______	______
	The amount payable for the proposed final dividend above is based on the Ordinary shares in issue at the date of this report (31,478,582) and this satisfies the investment trust status test.

		2013	2013	2012	2012
8.	Return per Ordinary share	£'000	p	£'000	p
	Based on the following figures:
	Revenue return	6,208	19.72	3,046	9.39
	Capital return	19,130	60.77	7,651	23.60
		______	______	______	______
	Total return	25,338	80.49	10,697	32.99
		______	______	______	______
	Weighted average number of Ordinary shares in issue		31,478,582		32,427,651

		2013	2012
9.	Investments	£'000	£'000
	Fair value through profit or loss:
	Opening fair value	217,966	219,994
	Opening investment holdings gains	(68,246)	(64,430)
		______	______
	Opening book cost	149,720	155,564
	Purchases at cost	269,518	4,878
	Sales - proceeds	(259,926)	(14,503)
	Sales - realised gains	52,431	3,781
	Amortisation of fixed income book cost	(37)	-
		______	______
	Closing book cost	211,706	149,720
	Closing investment holdings gains	36,295	68,246
		______	______
	Closing fair value	248,001	217,966
		______	______
	Listed on overseas stock exchanges	248,001	217,966
		______	______
		2013	2012
	Gains on investments	£'000	£'000
	Realised gains on sales	52,431	3,781
	Movement in investment holdings gains	(31,951)	3,816
		______	______
		20,480	7,597
		______	______
	{A}Includes losses realised on the exercise of traded options of £26,000 offset by premium received of £410,000 per note 2.
	Transaction costs
	During the year expenses were incurred in acquiring or disposing of investments classified as fair value through profit or loss. These have been expensed through capital and are included within gains on investments in the Income Statement. The total costs were as follows:
		2013	2012
		£'000	£'000
	Purchases	69	16
	Sales	71	3
		______	______
		140	19
		______	______

		2013	2012
10.	Debtors: amounts falling due within one year	£'000	£'000
	Dividends receivable	314	191
	Interest receivable	475	-
	Other debtors and prepayments	45	40
	Overpayment of dividend	9	9
		______	______
		843	240
		______	______

			2013	2012
11.	Creditors: amounts falling due within one year		£'000	£'000
	(a)	Bank loan
		Bank loan	15,138	-
			______	______
		During the year the Company entered into a new £30 million multi-currency revolving loan facility with State Street Bank & Trust Company, which expires on 11 October 2015. At the year end the Company had drawn down US$24,000,000 (equivalent to £15,138,000) at an interest rate of 1.7017%, with a maturity date of 28 February 2013.
		At the date of signing this Report US$24,000,000 was drawn down to 28 March 2013 at an interest rate of 1.7037%.
		The terms of the loan facility contain covenants that gross borrowings should not exceed 25% of net assets and should not exceed 30% of adjusted assets.
			2013	2012
	(b)	Other payables	£'000	£'000
		Investment management fee payable	488	110
		Interest payable	4	-
		Traded option contracts	226	-
		Other creditors	157	89
			______	______
			875	199
			______	______

		2013	2012
12.	Called-up share capital	£'000	£'000
	Allotted, called-up and fully paid:
	Opening balance	7,870	8,275
	Shares bought back for cancellation	-	(405)
		______	______
	31,478,582 (2012 - 31,478,582) Ordinary shares of 25p each	7,870	7,870
		______	______
	During the year the Company bought back and cancelled nil Ordinary shares of 25p each (2012 - 1,621,236) for a total consideration of £nil (2012 - £10,159,000).
	There have been no buy-backs of Ordinary shares since the year end, leaving 31,478,582 Ordinary shares in issue at the date of this report.

		2013	2012
13.	Capital reserve	£'000	£'000
	At 1 February	162,314	164,822
	Movement in fair value gains	20,480	7,597
	Foreign exchange movements	(171)	54
	Purchase of own shares for cancellation	-	(10,159)
	Administrative expenses	(254)	-
	Finance costs of bank loan	(74)	-
	Investment management fees	(851)	-
		______	______
	At 31 January	181,444	162,314
		______	______
	The administration expenses of £254,000 relate to the change in investment policy.
	Included in the total above are investment holdings gains at the year end of £36,295,000 (2012 - £68,246,000).
	The Directors regard the total capital reserve as being available to fund share buy-backs.

14.	Net asset value per equity share
	The net asset value per share and the net assets attributable to the Ordinary shareholders at the year end were as follows:
		2013	2012
	Net assets attributable	£242,069,000	£220,409,000
	Number of Ordinary shares in issue	31,478,582	31,478,582
	Net asset value per share	769.00p	700.19p

15.	Reconciliation of net return before finance costs and taxation to	2013	2012
	net cash inflow from operating activities	£'000	£'000
	Return on ordinary activities before finance costs and taxation	26,422	11,349
	Adjustments for:
	Net gains on investments	(20,480)	(7,597)
	Foreign exchange movements	171	(54)
	Amortisation of fixed income book cost	37	-
	Increase in accrued income	(619)	(10)
	(Increase)/decrease in other debtors	(5)	51
	Increase in other creditors	672	6
		______	______
	Net cash inflow from operating activities	6,198	3,745
		______	______

		At			At
		1 February	Cash	Exchange	31 January
		2012	flow	movements	2013
16.	Analysis of changes in net (debt)/cash	£'000	£'000	£'000	£'000
	Cash and short term deposits	2,402	7,007	(171)	9,238
	Debt due within one year	-	(15,138)	-	(15,138)
		______	______	______	______
	Net (debt)/cash	2,402	(8,131)	(171)	(5,900)
		______	______	______	______
	A statement reconciling the movement in net debt to the net cash flow has not been presented as there are no differences from the above analysis.

17.	Derivatives and other financial instruments
	Risk management
	The Company's financial instruments, other than derivatives, comprise securities and other investments, cash balances, loans and debtors and creditors that arise directly from its operations; for example, in respect of sales and purchases awaiting settlement, and debtors for accrued income.
	Subject to Board approval, the Company also has the ability to enter into derivative transactions, in the form of traded options, for the purpose of enhancing income returns and portfolio management.  During the year, the Company entered into certain derivative contracts. As disclosed in note 2, the premium received and fair value changes in respect of options written in the year was £410,000.  Positions closed during the year realised a loss of £26,000.  The Company had  open positions in derivative contracts at 31 January 2013 valued at a liability of £226,000 as disclosed in note 11.
	The Manager has a dedicated investment management process, which aims to ensure that the investment policy is achieved. Stock selection procedures are in place based on the active portfolio management and identification of stocks. The portfolio is reviewed on a periodic basis by a Senior Investment Manager and also by the Manager's Investment Committee.
	The Company's Manager has an independent Investment Risk department for reviewing the investment risk parameters of all core equity, fixed income and alternative asset classes on a regular basis. The department reports to the Manager's Performance Review Committee which is chaired by the Manager's Chief Investment Officer. The department's responsibility is to review and monitor ex-ante (predicted) portfolio risk and style characteristics using best practice, industry standard multi-factor models.
	Additionally, the Manager's Compliance department continually monitors the Company's investment and borrowing powers and reports to the Manager's Risk Management Committee.
	The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and other price risk), (ii) liquidity risk and (iii) credit risk.
	The Board regularly reviews and agrees policies for managing each of these risks. The Manager's policies for managing these risks are summarised below and have been applied throughout the year. The numerical disclosures exclude short-term debtors and creditors, other than for currency disclosures.
	(i)	Market risk
		The fair value or future cash flows of a financial instrument held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - interest rate risk, currency risk and other price risk.
		Interest rate risk
		Interest rate movements may affect:
		the fair value of the investments in fixed interest rate securities;
		the level of income receivable on cash deposits;
		interest payable on the Company's variable rate borrowings.
		The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.
		The Board reviews on a regular basis the values of the fixed interest rate securities.
		The Board imposes borrowing limits to ensure gearing levels are appropriate to market conditions and reviews these on a regular basis. Borrowings comprise fixed rate, revolving, and uncommitted facilities. Details of borrowings at 31 January 2013 are shown in note 11.
		Interest risk profile
		The interest rate risk profile of the portfolio of financial assets and liabilities at the Balance Sheet date was as follows:
			Weighted average		Weighted
			period for		average				Non-
			which rate is fixed		interest rate		Fixed rate	Floating rate	interest bearing
		At 31 January 2013	Years		%		£'000	£'000	£'000
		Assets
		Sterling	-		0.25		-	2,882	-
		US Dollar	8.39		5.91		26,897	6,306	201,423
		Canadian Dollar	-		-		-	50	19,681
			______		______		______	______	______
		Total assets					26,897	9,238	221,104
			______		______		______	______	______
		Liabilities
		Bank loans	0.08		1.70		(15,138)	-	-
			______		______		______	______	______
		Total liabilities					(15,138)	-	-
			______		______		______	______	______
			Weighted average		Weighted
			period for		average				Non-
			which rate is fixed		interest rate		Fixed rate	Floating rate	interest bearing
		At 31 January 2012	Years		%		£'000	£'000	£'000
		Assets
		Sterling	-		0.25		-	22	-
		US Dollar	-		-		-	2,380	217,966
			______		______		______	______	______
		Total assets					-	2,402	217,966
			______		______		______	______	______
		Liabilities
		Bank loans	-		-		-	-	-
			______		______		______	______	______
		Total liabilities					-	-	-
			______		______		______	______	______
		The weighted average interest rate is based on the current yield of each asset, weighted by its market value. The weighted average interest rate on bank loans is based on the interest rate payable, weighted by the total value of the loans. The maturity date of the Company's loan is disclosed in note 11.
		The floating rate assets consist of cash deposits at prevailing market rates.
		The non-interest bearing assets represent the equity element of the portfolio.
		Short-term debtors and creditors have been excluded from the above tables.
		Interest rate sensitivity
		The sensitivity analyses below have been determined based on the exposure to interest rates for both derivative and non-derivative instruments at the Balance Sheet date and the stipulated change taking place at the beginning of the financial year and held constant throughout the reporting period in the case of instruments that have floating rates.
		The rate of interest on the loan is the percentage rate per annum which is the aggregate of the applicable margin, adjusted LIBOR Offered Rate and mandatory cost if any.
		If interest rates had been 100 basis points higher or lower (based on current parameter used by Manager's Investment Risk Department on risk assessment) and all other variables were held constant, the Company's revenue return for the year ended 31 January 2013 would increase/decrease by £92,000 (2012 - increase/decrease by £24,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances. These figures have been calculated based on cash positions at each year end.
		In the opinion of the Directors, the above sensitivity analyses are not representative of the year as a whole, since the level of exposure changes frequently as part of the interest rate risk management process used to meet the Company's objectives. The risk parameters used will also fluctuate depending on the current market perception.
		Foreign currency risk
		The Company's portfolio is invested in US quoted securities and the Balance Sheet can be significantly affected by movements in foreign exchange rates. It is not the Company's policy to hedge this risk on a continuing basis.
		The revenue account is subject to currency fluctuation arising on overseas income.
		Foreign currency risk exposure by currency of denomination is detailed underInterest Risk Profile.
		Foreign currency sensitivity
		There is no sensitivity analysis included as the Company's significant foreign currency financial instruments are in the form of equity investments, and they have been included within the other price risk sensitivity analysis so as to show the overall level of exposure.
		Other price risk
		Other price risks (ie changes in market prices other than those arising from interest rate or currency risk) may affect the value of the quoted investments.
		It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular country or sector. The allocation of assets to international markets and the stock selection process both act to reduce market risk. The Manager actively monitors market prices throughout the year and reports to the Board, which meets regularly in order to review investment strategy. The investments held by the Company are listed on various stock exchanges.
		Other price risk sensitivity
		If market prices at the Balance Sheet date had been 10% higher or lower while all other variables remained constant, the return attributable to Ordinary shareholders for the year ended 31 January 2013 would have increased/decreased by £24,800,000 (2012 - increase/decrease of £21,797,000) and equity reserves would have increased/decreased by the same amount.
	(ii)	Liquidity risk
		This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.
		Liquidity risk is not considered to be significant as the Company's assets comprise mainly readily realisable securities, which can be sold to meet funding commitments if necessary. Short-term flexibility is achieved through the use of loan (note 11).
	(iii)	Credit risk
		This is failure of the counterparty to a transaction to discharge its obligations under that transaction that could result in the Company suffering a loss.
		The risk is not significant, and is managed as follows:
		where the Manager makes an investment in a bond, corporate or otherwise, the credit ratings of the issuer are taken into account so as to manage the risk to the Company of default;
		investments in quoted bonds are made across a variety of industry sectors so as to avoid concentrations of credit risk;
		transactions involving derivatives are entered into only with investment banks, the credit rating of which is taken into account so as to minimise the risk to the Company of default;
		investment transactions are carried out with a number of brokers, whose credit-standing is reviewed periodically by the Manager, and limits are set on the amount that may be due from any one broker;
		the risk of counterparty exposure due to failed trades causing a loss to the Company is mitigated by the review of failed trade reports on a daily basis. In addition, both stock and cash reconciliations to the custodian's records are performed on a daily basis to ensure discrepancies are investigated on a timely basis. The Manager's Compliance department carries out periodic reviews of the custodian's operations and reports its finding to the Manager's Risk Management Committee.
		cash is held only with reputable banks with acceptable credit quality. It is the Manager's policy to trade only with A- and above (Long Term rated) and A-1/P-1 (Short Term rated) counterparties.
		Credit risk exposure
		In summary, compared to the amounts in the Balance Sheet, the exposure to credit risk at 31 January 2013 was as follows:
				2013				2012
				Balance		Maximum		Balance	Maximum
				Sheet		exposure		Sheet	exposure
				£'000		£'000		£'000	£'000
		Debtors and prepayments		843		843		240	240
		Cash and short term deposits		9,238		9,238		2,402	2,402
				______		______		______	______
				10,081		10,081		2,642	2,642
				______		______		______	______

18.	Capital management policies and procedures
	The capital of the Company consists of equity, comprising issued capital, reserves and retained earnings. The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes the impact of share buybacks and the extent to which revenue should be retained. The Company is not subject to any externally imposed capital requirements.

19.	Fair value hierarchy
	FRS 29 'Financial Instruments: Disclosures' requires an entity to classify fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels:
	-       Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities;
	-       Level 2: inputs other than quoted prices included within Level 1 that are observable for the assets or liability, either directly (ie as prices) or indirectly (ie derived from prices); and
	-       Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
	The financial assets and liabilities measured at fair value in the Balance Sheet of financial position are grouped into the fair value hierarchy at 31 January 2013 as follows:
			Level 1	Level 2	Level 3	Total
		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities	a)	218,543	-	-	218,543
	Quoted bonds	b)	29,458	-	-	29,458
			______	______	______	______
	Net fair value		248,001	-	-	248,001
			______	______	______	______
	Financial liabilities at fair value through profit or loss
	Derivatives	c)	(226)		-	(226)
			______	______	______	______
	Net fair value		(226)	-		(226)
			______	______	______	______
	As at 31 January 2012
			Level 1	Level 2	Level 3	Total
		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities	a)	217,966	-	-	217,966
			______	______	______	______
	Net fair value		217,966	-	-	217,966
			______	______	______	______
	a) Quoted equities
	The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges.
	b) Quoted bonds
	The fair value of the Company's investments in quoted bonds has been determined by reference to their quoted bid prices at the reporting date. Bonds included in Fair Value Level 1 include Corporate Bonds.
	c) Derivatives
	The fair value of the Company's investments in exchange traded options has been determined using quoted prices on an exchange traded basis and therefore have been classed as Level 1.

Additional Notes to Annual Financial Report

The Annual Financial Report Announcement is not the Company's statutory accounts. The above results for the year ended 31 January 2013 have been agreed with the auditors and are an abridged version of the Company's full accounts, which have been approved and audited with an unqualified report. The 2013 and 2012 statutory accounts received unqualified reports from the Company's auditors and did not include any reference to matters to which the auditors drew attention by way of emphasis without qualifying the reports, and did not contain a statement under either section 498(2) or 498(3) of the Companies Act 2006. The financial information for 2012 is derived from the statutory accounts for 2011 which have been delivered to the Registrar of Companies. The 2013 accounts will be filed with the Registrar of Companies in due course. The Annual General Meeting will be held at 40 Princes Street, Edinburgh EH2 2BY on 22 May 2013 at 11.00am.

The Annual Report and Accounts will be posted to shareholders in April 2013 and copies will be available from the investment manager or from the Company's website, www.northamericanincome.co.uk*.

Please note that past performance is not necessarily a guide to the future and that the value of investments and the income from them may fall as well as rise and may be affected by exchange rate movements. Investors may not get back the amount they originally invested.

* Neither the Company's website nor the content of any website accessible from hyperlinks on the Company's website (or any other website) is (or is deemed to be) incorporated into, or forms (or is deemed to form) part of this announcement.

By Order of the Board

Aberdeen Asset Management PLC, Secretary

 

END

 

 

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