Annual Financial Report

RNS Number : 0877T

North American Income Trust (The)

24 March 2016

 

THE NORTH AMERICAN INCOME TRUST PLC

 

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 31 JANUARY 2016

 

 

INVESTMENT OBJECTIVE

To provide investors with above average dividend income and long term capital growth through active management of a portfolio consisting predominately of S&P 500 US equities. 

STRATEGIC REPORT 

1.         FINANCIAL RESULTS

Financial Highlights and Summary

Net asset value total return		Share price total return
2016	+3.2%	2016	-2.0%
2015	+18.9%	2015	+15.5%
Revenue return per share		Dividend per share
2016	35.74p	2016	33.00p
2015	32.71p	2015	30.00p
Dividend yield{A}
2016	4.0%
2015	3.5%
{A}Based on year end share price

	31 January 2016	31 January 2015	% change
Total assets	£323,679,000	£351,418,000	-7.9
Equity shareholders' funds	£280,644,000	£309,273,000	-9.3
Share price (mid market)	815.00p	865.00p	-5.8
Net asset value per share{A}	935.55p	938.92p	-0.4
Discount (difference between share price and net asset value)	12.9%	7.9%
Net gearing{B}	11.2%	10.6%
Dividends and earnings
Revenue return per share	35.74p	32.71p	+9.3
Dividends per share (including proposed final dividend)	33.00p	30.00p	+10.0
Dividend yield (based on year end share price)	4.0%	3.5%
Dividend cover	1.08	1.09
Revenue reserves per share:
Prior to payment of third interim dividend declared and proposed final dividend	35.84p	28.61p
After payment of third interim dividend declared and proposed final dividend	15.84p	11.02p
Operating costs
Ongoing charges {C}	1.03%	1.03%
{A}        Including undistributed revenue.
{B}        Calculated in accordance with AIC guidance "Gearing Disclosures post RDR" (see definition of "Net Gearing" on page 66 of the published 2016 Annual Report).
{C}        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.

	PERFORMANCE
		1 year return	3 year return{A}	5 year return{A}
Total return (Capital return plus dividends reinvested)		%	%	%
Share price		-2.0	+23.2	+47.6
Net asset value per share		+3.2	+34.9	+58.7
S&P 500 Index (in sterling terms)		+5.2	+54.1	+89.5
Russell 1000 Value Index		+0.6	+43.9	+78.6
{A} Cumulative return
The Company's investment objective changed on 29 May 2012 from a S&P 500 index-tracker trust to being actively managed. The three and five year performance figures shown reflect periods of time when the Company ran with these two different objectives.

DIVIDENDS

	Rate	xd date	Record date	Payment date
1st Interim dividend 2016	6.50p	2 July 2015	3 July 2015	31 July 2015
2nd Interim dividend 2016	6.50p	1 October 2015	2 October 2015	30 October 2015
3rd Interim dividend 2016	7.00p	21 January 2016	22 January 2016	19 February 2016
Proposed final dividend 2016	13.00p	12 May 2016	13 May 2016	7 June 2016
Total dividends 2016	33.00p
1st Interim dividend 2015	6.00p	2 July 2014	4 July 2014	1 August 2014
2nd Interim dividend 2015	6.00p	1 October 2014	3 October 2014	31 October 2014
3rd Interim dividend 2015	6.50p	22 January 2015	23 January 2015	13 February 2015
Final dividend 2015	11.50p	7 May 2015	8 May 2015	1 June 2015
Total dividends 2015	30.00p

2.         CHAIRMAN'S STATEMENT

Dividend

I am pleased to report that for the year ended 31 January 2016, the revenue return per Ordinary share rose by 9.3% from 32.71p to 35.74p. The Directors declared a third interim quarterly dividend of 7.0p per Ordinary share (increased from 6.5p), which was paid on 13 February 2016, and we are recommending a final dividend per Ordinary share of 13.0p (increased from 11.50p), which will take the total dividends for the year to 33.0p (2015 - 30.0p), an increase of 10.0%.  This leaves a balance of £1.2 million (equivalent to 4.3p per Ordinary share) which will be added to the revenue reserve, making a second consecutive annual increase in our reserve and gives the Company added flexibility for future years. The total dividend represents a yield of 4.0%, using the share price of 815.0p at the year-end, compared to the 2.2% yield from the S&P 500 index at that date.

Following the change of investment mandate in 2012, the annual dividend has increased from 9.4p to 33.0p and the revenue reserves at 31 January 2016 represented 15.8p per share compared to 5.4p four years ago.  

The proposed final dividend will be payable on 7 June 2016 to shareholders on the register on 13 May 2016.  The quarterly dividends are paid in August, November, February and June each year.

Portfolio

As of 31 January 2016, the portfolio consisted of 42 equity holdings and 12 other holdings including corporate bonds; the latter representing approximately 4.5% of total assets - its lowest level since the Company's change of investment objective - and providing 7.3% of our total income compared to last year's 9.5%. During the year, the Company received premiums totalling £2.8 million (2015 - £3.1 million) in exchange for entering into listed stock option transactions. This option income, the generation of which remains consistent with the Manager's company-focused investment process, represents 18.8% of total income (2015 - 21.7%). Bond income and option premiums will remain secondary sources of income for us in the belief that dividends must remain the main source of income available for distribution. Further details of the portfolio are shown on pages 18 to 20 of the published 2016 Annual Report.

The Company's net asset value per share rose by 3.2% on a total return basis, in sterling terms whilst our reference benchmark, the S&P 500, provided a total return of 5.2% in sterling terms and the Russell 1000 Value, which was incorporated as an additional measurement during the year (see below), returned 0.6%. It is good to note that since the end of our financial year, the Manager's value-oriented investment process in difficult markets has seen some recovery of the Company's previous underperformance. Between 1 February and 21 March, the NAV outperformed the S&P 500 and the Russell 1000 Value indices by 2.5% and 1.4% respectively on a total return basis.

The Company's share price fell by 5.8% to 815.0p and ended the year at a 12.9% discount to total net asset value, compared with a 7.9% discount at the end of the 2015 financial year. This is far from ideal and the Board continues to work with the Manager in both promoting the Company's benefits to a wider audience and providing liquidity to the market through the use of share buybacks. During the year 2.9 million shares were repurchased at a cost of £24.5 million. Since the year-end, a further 848,700 shares have been repurchased at a cost of £7.1 million and the discount as at 22 March 2016 was 10.8%.

Gearing

The Company continued to make use of a closed-ended vehicle's opportunity to gear through its £45.0 million facility with State Street. As a reminder, £30.0 million of the facility (equivalent to $51.0 million) was fixed in July 2014 for three years at an all-in rate of 2.18% and was fully drawn down. The remaining balance of the facility of £15.0 million is uncommitted, is repayable with no penalty and provides finance at a margin of 0.9% over Libor. At the start of the year, £8.2 million of the floating facility was drawn down, of which £1.5 million was repaid during the year. However, with sterling weaker against the dollar at the end of the financial year, the Company's net gearing position at the year-end increased marginally to £43.0 million (2015 - £42.1 million). Further details on rates can be found in the notes to the financial statements.

Market & Economic Review

The S&P 500 Index recorded a positive return over the reporting period, but not without several bouts of volatility. There was continued speculation regarding the US Federal Reserve's (Fed's) monetary policy, along with concerns about slowing economic growth in China and the ongoing global slump in oil and commodity prices. After many years of zero-interest rates, the Fed at last raised its benchmark rate by 25 basis points to a range of 0.25% to 0.50% in mid-December. Energy and materials notwithstanding, the US economy continued to show general signs of health as the labour market and US consumption data remained generally positive. With mixed signals from the economy, the path to higher interest rates has certainly become less certain since entering 2016.

US economic growth was uneven throughout the year, notably showing signs of a slowdown in the third and fourth quarters of 2015 due mainly to a reduction in consumer spending and downturns in non-residential fixed investment and exports - the latter of which was attributable to the negative impact of continued dollar strength. Despite this deceleration in US GDP growth and a commensurate correction in the markets, the current environment does not suggest a recession ahead, but rather a reflection of a slower global growth environment.

Further details can be found in the Manager's report.

Investment Manager

At the end of June 2015, Paul Atkinson, who was the Manager's head of North American Equities, left Aberdeen to return to Europe with his family, and the management of the portfolio was assumed by Ralph Bassett and Fran Radano. Both are experienced managers within Aberdeen's North American Equities team based in Philadelphia. Aberdeen's approach is team-based with a strong emphasis on the fundamentals of individual companies, and this continues with Ralph and Fran.

Additional Reference Benchmark

The Board, with the agreement of the Manager, decided to include the Russell 1000 Value Index as an additional reference benchmark. We believe that this index better reflects the Trust's investment mandate and income objective.

Outlook

Recent performance of the market since the year end suggests that our Manager's value style is returning to favour.  Many of the excessively high premium growth stocks, which pay little or no dividend and which we therefore do not hold, are now coming under price pressure.  Stable-to-rising commodity prices including oil, monetary stimulus and an increase in inflation should be helpful for the type of value oriented companies that we own.  

We expect that the many contributing factors to the higher market volatility seen over the past six months will continue. As ever, higher volatility presents our Manager with challenges but also opportunities to add to holdings.

Dividend growth has been rapid and we expect that in the future it will moderate to reflect growth in earnings. We believe that our companies will continue to invest sensibly for the long term. They will continue to generate healthy levels of free cash flow, despite an environment where it is more difficult to increase margins.

Our Manager remains focused on investing in those companies which have disciplined and balanced capital allocation policies and good prospects for sustainable dividend growth.

Annual General Meeting ("AGM")

The Company's AGM will be held at 2.00 p.m. on Friday 3 June 2016, at 40 Princes Street, Edinburgh. I look forward to seeing shareholders then.

3.         MANAGER'S REVIEW

Market review

Major North American equity market indices experienced numerous periods of volatility over the 12-month period ended 31 January 2016. Markets were bolstered by increased clarity on the US Federal Reserve's (Fed's) monetary policy and generally positive US economic data reports, and conversely dragged down by concerns over slowing growth in China and declining oil prices. As relevant contexts to the NAIT portfolio, the US broader-market S&P 500 Index gained 5.2% in sterling terms over the period, while the Barclays U.S. Aggregate Bond Index, the US fixed income market benchmark, recorded a modest loss of -0.2% for the period.

Telecommunication services and consumer staples, both relatively defensive and higher dividend-paying sectors, were the strongest performers within the S&P 500 Index during the period. Conversely, energy and materials stocks were the most notable market laggards, posting double-digit losses amid the ongoing global slump in commodity and oil prices. Yields on US Treasuries moved higher, with the 10-year note and 30-year bond yields rising 26 and 50 basis points, respectively.

Monetary policy remained an important topic in the market during the period. There was continued speculation over the timing of any interest rate increases as the economy maintained its modest but steady recovery. The long awaited "lift-off" finally came in mid-December, when the Fed raised its benchmark interest rate by 0.25%. Mixed signals on both employment and inflation data compelled the Fed to leave interest rates unchanged in early 2016, noting that it was monitoring global economic and financial events.

GDP growth dipped to an annualised 1.0% in the fourth quarter, contrasting a strongly positive first three calendar quarters when GDP rose at least 2.0%. We do not believe that such a deceleration foretells a recession; rather, it is a reflection of a slower global growth environment in which US companies find themselves. This is consistent with what we hear broadly from management teams on our company visits. We also continue to see signs of a resilient and improving US economy. The US labour market continued on its path to improvement, with the unemployment rate dipping from 5.7% to 4.9% over the 12-month reporting period. Average wages rose 2.5% year-on-year to January 2016, outpacing the respective 0.7% and 2.1% increases for the Consumer Price Index (CPI) and the index for all items less food and energy - a measure of core inflation - for the 2015 calendar year.

Performance

Although the Company's equity portfolio underperformed the S&P 500 reference benchmark over the year, we are pleased to report that strong performance in the second half led to a significant narrowing of the performance gap we saw at the mid-year review. The equity portfolio returned 7.0% gross before expenses (in sterling terms) against a 2.6% return in the S&P 500 in the six months to 31 January 2016. The revenue account remained in good shape building upon the record established in prior years.

In keeping with the Board's recent decision to also use the Russell 1000 Value Index as a suitable reference benchmark, we are providing commentary on portfolio performance relative to this index. We are in full support of the use of this reference benchmark, which more appropriately reflects the objectives of the Company and more closely aligns with the index to which our closest peer funds are compared.

Against the Russell 1000 Value Index, the Trust equity portfolio returned an outperformance of 372 basis points. The largest contributor to relative performance was stock selection, mainly in the industrials, financials and consumer staples sectors. Our overweight allocations to consumer staples and telecoms also added to relative performance. The portfolio also benefited from stock-specific performance of beer brewer and distributor Molson Coors, enterprise software company Microsoft Corp and diversified chemicals company Dow Chemical, all of whom had a relatively eventful year of deal-making and good operational execution.

The largest detractors from relative performance were our overweight allocation to materials, which was weak during the year amid the rout in commodity and oil prices, and the underweight allocation to healthcare. Stock selection within materials was also weak, most notably fertiliser maker Potash Corp. of Saskatchewan, which continued to face tremendous pressure on its business as fertiliser prices crumbled during the year. Additionally, the holding in office products retailer Staples affected performance. The company's higher margins were offset by year-on-year declines in revenue over the period attributable mainly to weakness in its international business amid continued dollar strength. Staples also faced a steep regulatory hurdle in consummating its planned merger with rival Office Depot.

Portfolio activity

Equities

Equity investments remained consistent with our bottom-up, management-focused stock selection process. During the year, we saw value within financials and information technology sectors, as well as select subsets of the industrials space. After multiple visits with their respective management teams, we initiated equity positions in M&T Bank Corp. and Regions Financial Corp. based on our positive view of their long-term outlooks, dividend growth prospects and reasonable valuations against a backdrop of what should prove a more supportive environment for banks when interest rates rise. Other new positions included freight railroad operator Union Pacific and semiconductor manufacturer Texas Instruments.

We funded these initiations by some exits. Longstanding holding Baxter International executed upon its plans to split into two entities on 30 June 2015. Given changes to forward dividend policies, we made the decision to divest both positions given that these shifts in their capital strategies did not align with our income mandate. As well, in an effort to reduce and consolidate our overall energy exposure, we sold the small remaining position in Exxon Mobil. We continue to monitor the overall complexion of the portfolio's direct and indirect exposure to energy with the intention of seizing opportunities to both manage the allocation and upgrade the overall quality of our energy and materials holdings in order to better position the portfolio for the long term.

Earlier in the reporting period, we sold out of toy-maker Mattel as the business continued to be structurally challenged and we viewed its dividend unsustainable. We exited our positions in natural resources company Freeport-McMoRan on increasing corporate governance concerns and weakening fundamentals and in our holdings in Care Central Properties, the shares of which we received in a spin-off from current holding Ventas, a healthcare-related REIT. Finally, we also sold our shares in diversified industrial company Emerson Electric and industrial gas supplier Praxair.

A sector analysis chart of the portfolio can be found on page 21 of the published 2016 Annual Report.

Bonds

Within the Trust's corporate bond portfolio, our holding in First Data Corp 7.325% 06/15/2019 was redeemed by the issuer prior to maturity under the bond's call feature. We subsequently participated in another issue by First Data. We also exited our holding in GE Perpetual Preferred bonds after the company entered into a bond exchange related to its restructuring plans.

At period-end, the bond portfolio's average credit quality was BB. The average current yield stood at 6.55%, with duration moving up from 3.5 to 4.3 years. The portfolio's allocation to corporate bonds declined from 5.2% to 4.5%% of total assets over the 12-month period, as we continue to favour a low allocation to bonds for the present. We continue to work closely with Aberdeen's fixed income specialists to monitor credits and market conditions.

Options

As in prior years, the Trust continued to make selective use of its option writing program. Each month, typically five or so stocks had either call or put options written on them. This activity is a useful top up source of income but will always remain a relatively small proportion of the Trust's total income. This year, option premia contributed about 19% of the Trust's total income.

Dividend growth

Our holdings continue to build upon an established track record of dividend growth. Over 80% of our holdings raised their dividends over the past year, with a portfolio-weighted average increase of roughly 7%.  These increases are noticeably lower than in recent years, but we believe them to be appropriate as most companies have raised their payout ratios meaningfully since the financial crisis; we believe now that they are quite reasonable.  We remain focused on durable business models which generate robust cashflow sufficient to both invest in their own businesses and to return a material amount of earnings back to shareholders.  

This year, semiconductor manufacturer Texas Instruments boosted dividends by 12% and concurrently authorised a US$7.5 billion stock buyback programme.  Defence contractor Lockheed Martin, which has raised its dividend for 13 consecutive years, raised its dividends by 10% this year, and continues to generate significant cash flow and decent earnings despite an overall reduction in US government defence spending. In all, despite a year in which there was a general slowdown in dividend increases, we saw noteworthy double-digit dividend increases among the portfolio's holdings. Included in this group were Microsoft, asset manager BlackRock, Dow Chemical, brewer Molson Coors, diversified financial services company Wells Fargo, industrial gas supplier Praxair, regional bank Regions Financial, networking equipment maker Cisco Systems, and payroll services provider Paychex. 

After a period of outsized dividend growth that we have witnessed from many of our companies coming out of the recession, we now see what we consider more normalised levels of payout ratios both with our holdings within the Company portfolio and broadly across our investable universe. From here, we believe that future dividend increases will more closely track earnings growth. 

Outlook

At present, it is apparent that global markets and investors have become discouraged. The Band-Aid came off around the turn of the year and the haemorrhaging began.  The lowest point was seen in mid-February, when the Russell 1000 Value and S&P 500 indices saw falls of 16.1% and 12.7% respectively from their summer highs.  Markets subsequently made some recovery from these lows and current returns from the Russell 1000 Value and S&P 500 indices from the end of June are -3.6% and -0.6% respectively. 

Such correction is typically witnessed in a recessionary environment, not when monetary policy is on a tightening course as a reaction to economic strength. But this is not a typical business cycle. Central banks are not aligned on monetary policy, creating issues for exporters and foreign economies alike from the strengthened U.S. dollar. At the same time, sustained low energy and commodities prices are suggesting continued pressure for many companies, particularly those that carried leverage. These are not new issues, but time is testing patience.

The question now is whether markets are oversold or if there are indeed more potholes ahead. Many investors focus on valuation as a reason to become more constructive. On this measure alone, stocks now trade largely at parity with their historic forward price/earnings multiples. But we look at the world from the opposite perspective and would suggest that, in order to have confidence in valuations, we must first have conviction in forward profits and cash-generation of our companies. In other words, company fundamentals.

Over the past several quarters, we have seen some businesses deliver unexceptional results, but they are far from disastrous. Currency swings tended to be the main culprit, and of course those relegated to the commodity sectors. The focus of investors has hinged on the outlooks of management teams, which now have increasingly incorporated a dose of conservatism.

The biggest risk to companies we see ahead is Fed policy. This includes, first, whether future policy will account for the peripheral risks of a stronger U.S. dollar on trade and international economies; and secondly, whether the current macro contagion causes domestic businesses and the consumer to pause. Absent this, we maintain our high conviction that the domestic economy is reasonably healthy with near-full employment and low inflation.

What does this all mean for stocks? While we are prepared for volatility ahead, we remember that times which test our patience can provide opportunities for us as investors. In fact, we see more opportunity now than we have in a long time. Some businesses that we know well are trading at discounts to their intrinsic values under less fear-driven market environments.

Given recent volatility and the shunning of risk, we feel that some sectors have performed extremely well and, as a result, have become more fully valued, while those areas where share prices have fallen more sharply have become the fishing grounds for 'value.' That said, we are keenly aware that realising this value will remain contingent on factors that may not transpire in a straightforward manner. This includes reflation of oil and commodity prices that dictate the worth of energy and related companies, and similarly, that path of interest rates for most financial companies.

We have been adding to many of the Company's existing holdings amid recent share price weakness, but are pragmatic in ensuring that we maintain sufficient diversity across holdings and sectors and that we allocate incremental shareholder capital into stocks where we hold a high degree of conviction. Finally, amid market weakness, we have been finding opportunities in companies where we felt that valuations were previously too stretched, or alternatively where dividend yields were not quite as appealing - many of which are also in sectors which are not traditionally dividend-rich.

Aberdeen Asset Managers Inc.*

23 March 2016

*on behalf of Aberdeen Fund Managers Limited.  Both companies are subsidiaries of Aberdeen Asset Management PLC

4.         OVERVIEW OF STRATEGY

Introduction

The Company is an investment trust and its Ordinary shares are listed on the premium segment of the London Stock Exchange. The Company aims to attract long term private and institutional investors wanting to benefit from the income and growth prospects of North American companies.

The Directors do not envisage any change in the Company's activity in the foreseeable future. 

Investment Objective

To provide investors with above average dividend income and long term capital growth through active management of a portfolio consisting predominately of S&P 500 US equities.

Reference Index

The Board reviews performance against relevant factors, including the S&P 500 Index (in sterling terms) and the Russell Value Index 1000 (in sterling terms) as well as peer group comparisons. The aim is to provide investors with above average dividend income from predominantly US equities which means that investment performance can diverge, possibly quite materially in either direction, from these indices.

Investment Policy

The Company invests 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% 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% 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% 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% 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%, 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% 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.

Management

The Board has appointed Aberdeen Fund Managers Limited ("AFML" or "Manager") to act as the alternative investment fund manager ("AIFM").

The Directors are responsible for determining the investment policy and the investment objective of the Company.  The Company's portfolio is managed on a day-to-day basis by Aberdeen Asset Managers Inc. ("AAMI" or "Investment Manager") by way of a delegation agreement in place between AFML and AAMI.

The Investment 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 Investment Manager's portfolio construction, with diversification rather than formal controls guiding stock and sector weights.

Key Performance Indicators ("KPIs")

The Board uses a number of financial performance measures to assess the Company's success in achieving its objective and determining the progress of the Company in pursuing its investment policy.  The main KPIs identified by the Board in relation to the Company which are considered at each Board meeting are as follows:

KPI	Description
Net asset value and share price performance against the reference indices	The Board reviews the Company's NAV and share price total return performance against the reference indices, the S&P 500 and the Russell 1000 Value (both in sterling terms).  Performance graphs and tables are provided on pages 11 to 12 of the published 2016 Annual Report. The Board also reviews the performance of the Company against its peer group of investment trusts with similar investment objectives.
Revenue return and dividend yield	The Board monitors the Company's net revenue return and dividend yield through the receipt of detailed income forecasts.  A graph showing the dividends and yields over 5 years is provided on page 12 of the published 2016 Annual Report.
Discount/premium to net asset value	The discount/premium relative to the net asset value per share is closely monitored by the Board. A graph showing the share price discount/premium relative to the net asset value is shown on page 12 of the published 2016 Annual Report.
Ongoing charges	The Company's ongoing charges ratio (OCR) is provided above.  The Board reviews the OCR against its peer group of investment trusts with similar investment objectives.

Principal Risks and Uncertainties

There are a number of risks which, if realised, could have a material adverse effect on the Company and its financial condition, performance and prospects. The Board has identified the principal risks and uncertainties facing the Company at the current time in the table below together with a description of the mitigating actions it has taken. The Board has carried out a robust assessment of these risks, which include those that would threaten its business model, future performance, solvency or liquidity. The principal risks associated with an investment in the Company's shares are published monthly on the Company's factsheet or they can be found in the pre-investment disclosure document ("PIDD") published by the Manager, both of which are on the Company's website. The risks and uncertainties faced by the Company are reviewed annually by the Audit Committee in the form of a risk matrix and heat map and a summary of the principal risks is set out below.

Description	Mitigating Action
Market risk The risks facing the Company relate to the Company's investment activities and include market risk (comprising interest rate risk and other price risk), liquidity risk and credit 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. 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 or decreases in the market value of those instruments.	The day-to-day management of the Company's assets has been delegated to the Manager under investment guidelines determined by the Board. The Board monitors these guidelines and receives regular reports from the Manager which include performance reporting.  The Board regularly reviews these guidelines to ensure they remain appropriate. Details on financial risks, including market price, liquidity and foreign currency risks and the controls in place to manage these risks are provided in note 16 to the financial statements.
Gearing Risk Gearing is used to leverage the Company's portfolio in order to enhance returns where and to the extent this is considered appropriate to do so. Gearing has the effect of accentuating market falls and market gains. The ability of the Company to meet its financial obligations, or an increase in the level of gearing, could result in the Company becoming over-geared or unable to take advantage of potential opportunities and result in a loss of value to the Company's shares.	In order to manage the level of gearing, the Board has set a maximum gearing ratio of 20% of net assets.  The Board receives regular updates on the actual gearing levels the Company has reached from the Manager together with the assets and liabilities of the Company and reviews these as well as compliance with the principal loan covenants at each Board meeting.  As at 31 January 2016 the Company had £42.1 million of borrowings. In addition, AFML, as alternative investment fund manager, has set an overall leverage limit of 2.0 X on a commitment basis (2.5 X on a gross notional basis) and includes updates in its reports to the Board.
Discount volatility Investment company shares can trade at discounts to their underlying net asset values, although they can also trade at premia.	In order to seek to minimise the impact of share price volatility, where the shares are trading at a significant discount, the Company has operated a share buy-back programme for a number of years. The Board monitors the discount level of the Company's shares and will consider share buybacks when the discount exceeds 5% for any significant period of time assuming normal market conditions.
Income and Dividend Risk The ability of the Company to pay dividends and any future dividend growth will depend primarily on the level of income received from its investments (which may be affected by 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 income 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.	The Board monitors this risk through the regular review of detailed revenue forecasts and considers the level of income at each meeting.
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, Companies Act 2006 and the Alternative Investment Fund Managers Directive, could lead to a number of detrimental outcomes and reputational damage.	The Manager has implemented procedures to ensure that the provisions of the Corporation Tax Act 2010 are not breached and the results are reported to the Board.     The Manager provides six-monthly reports to the Audit Committee on its internal control systems, which monitors compliance with relevant regulations.  In addition, the Board, when necessary will use the services of its professional advisers to monitor compliance with regulatory requirements. The Manager and depositary provide reports to the Audit Committee on their operations to ensure that the regulations under the AIFM are complied with.
Derivatives The Company uses derivatives primarily to enhance the income generation of the Company.	The risks associated with derivatives contracts are managed within guidelines set by the Board.

Promoting the Company

The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to and participation in the promotional programme run by the Aberdeen Group on behalf of a number of investment trusts under its management. The Company's financial contribution to the programme is matched by the Aberdeen Group.  The Aberdeen Group Head of Brand reports quarterly to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the make up of that register.

The purpose of the programme is both to communicate effectively with existing shareholders and to gain new shareholders with the aim of improving liquidity and enhancing the value and rating of the Company's shares. Communicating the long-term attractions of the Company is key and therefore the Company also supports the Aberdeen Group's investor relations programme which involves regional roadshows, promotional and public relations campaigns. 

Duration

The Company does not have a fixed winding-up date, but shareholders are given the opportunity to vote on the continuation of the Company every three years at the Annual General Meeting.  The next continuation vote will be at the AGM in 2018.

Board Diversity

The Board recognises the importance of having a range of skilled, experienced individuals with the appropriate knowledge in order to allow the Board to fulfil its obligations.  At 31 January 2016 the Board consisted of three males and one female.  

Environmental, Social and Human Rights Issues

The Company has no employees as the Board has delegated day to day management and administrative functions to Aberdeen Fund Managers Limited. There are therefore no disclosures to be made in respect of employees. The Company's socially responsible investment policy is outlined below.

Socially Responsible Investment Policy

The Board acknowledges that there are risks associated with investment in companies which fail to conduct business in a socially responsible manner and has noted the Aberdeen Group's policy on social responsibility. The Investment Manager considers social, environmental and ethical factors which may affect the performance or value of the Company's investments as part of its investment process.  In particular, the Investment Manager encourages companies in which investments are made to adhere to best practice in the area of corporate governance. It believes that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in this area. The Company's ultimate objective, however, is to deliver long term growth on its investments for its shareholders. Accordingly, whilst the Investment Manager will seek to favour companies which pursue best practice in the above areas, this must not be to the detriment of the return on the investment portfolio.

Global Greenhouse Gas Emissions

The Company has no greenhouse gas emissions to report from the operations of its business, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013.

Viability Statement

The Company does not have a formal fixed period strategic plan but the Board does formally consider risks and strategy on at least an annual basis. The Board considers the Company, to be a long term investment vehicle, but for the purposes of this viability statement has decided that a period of three years is an appropriate period over which to report. The Board considers that this period reflects a balance between looking out over a long term horizon and the inherent uncertainties of looking out further than three years.

In assessing the viability of the Company over the review period the Directors have focused upon the following factors:

-      The principal risks detailed in the strategic report and the steps taken to mitigate these risks.

-      The ongoing relevance of the Company's investment objective in the current environment.

-      The Company is invested in readily realisable listed securities.

-      The level of revenue surplus generated by the Company and its ability to achieve the dividend policy.  The Company has continued to deliver dividend growth whilst building up revenue reserves which can be used to top up the dividend in tougher times. 

-      The level of gearing is closely monitored.

Accordingly, taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of three years from the date of this Report. In making this assessment, the Board has considered that matters such as significant economic or stock market volatility, a substantial reduction in the liquidity of the portfolio, or changes in investor sentiment could have an impact on its assessment of the Company's prospects and viability in the future.

Future

Many of the non-performance related trends likely to affect the Company in the future are common across all closed ended investment companies, such as the attractiveness of investment companies as investment vehicles, the impact of regulatory changes (including MiFID II and the Packaged Retail Investment and Insurance Products regulations) and the recent changes to the pensions and savings market in the UK.  These factors need to be viewed alongside the outlook for the Company, both generally and specifically, in relation to the portfolio. The Board's view on the general outlook for the Company can be found in the Chairman's Statement whilst the Investment Manager's views on the outlook for the portfolio are included above.

James Ferguson

Chairman

23 March 2016

PORTFOLIO INVESTMENTS

Investment Portfolio - Ten Largest Equity Investments

As at 31 January 2016

		Valuation	Total	Valuation
		2016	assets	2015
Company	Industry classification	£'000	%	£'000
Molson Coors Brewing
Molson Coors Brewing Co. brews beer through breweries in the United States, Canada and Europe.	Beverages	14,033	4.3	7,145
Philip Morris
Philip Morris International Inc., through its subsidiaries, manufactures and sells cigarettes and other tobacco products.	Tobacco	12,691	3.9	11,940
Microsoft
Microsoft manufactures and licenses software products for operating systems, applications, software development and internet services.	Software	10,884	3.4	11,923
CME Group
CME Group Inc. operates a derivatives exchange that trades futures contracts and options on futures, interest rates, stock indexes, foreign exchange and commodities.	Diversified Financial Services	10,768	3.4	8,530
Verizon Communications
Verizon Communications Inc., through its subsidiaries, provides communications, information, and entertainment products and services to consumers, businesses, and governmental agencies worldwide.	Diversified Telecommunication Services	10,568	3.3	11,316
Rockwell Automation
Rockwell Automation, Inc. produces industrial automation products such as control systems, motor control devices, sensors and industrial control panels.	Electrical Equipment	10,106	3.1	-
Dow Chemical
The Dow Chemical Company is a diversified chemical company that provides chemical, plastic, and agricultural products and services to various consumer markets.	Chemicals	10,067	3.1	8,465
Pepsico
PepsiCo, Inc. operates worldwide beverage, snack and food businesses.	Beverages	9,801	3.0	8,039
Pfizer
Pfizer Inc. discovers, develops, manufactures, and sells healthcare products worldwide.	Pharmaceuticals	8,598	2.7	9,800
Lockheed Martin
Lockheed Martin Corp. is a global security company that primarily researches, designs, manufactures and integrates advanced technology and defense products and services.	Aerospace & Defense	8,181	2.5	6,199
Ten largest equity investments		105,697	32.7

Investment Portfolio - Other Equity Investments
As at 31 January 2016
		Valuation	Total	Valuation
		2016	assets	2015
Company	Industry classification	£'000	%	£'000
Chevron	Oil, Gas & Consumable Fuels	8,059	2.5	9,026
Telus	Diversified Telecommunication Services	7,887	2.5	8,263
Target	Multiline Retail	7,570	2.3	12,312
M&T Bank	Banks	7,379	2.3	-
Intel	Semiconductors & Semiconductor Equipment	7,253	2.2	3,805
Kraft Heinz	Food Products	7,154	2.2	8,883
Potash Corporation of Saskatchewan	Chemicals	6,895	2.1	7,058
Nucor	Metals & Mining	6,886	2.1	10,144
CMS Energy	Multi-Utilities	6,852	2.1	9,128
Johnson & Johnson	Pharmaceuticals	6,847	2.1	6,601
Twenty largest equity investments		178,479	55.1
Ventas	Real Estate Investment Trusts (REITs)	6,825	2.1	7,519
Republic Services	Commerical Services & Supplies	6,701	2.1	10,151
WEC Energy	Multi-Utilities	6,584	2.1	-
TransCanada	Oil, Gas & Consumable Fuels	6,580	2.0	8,907
Wells Fargo	Banks	6,207	1.9	9,171
Sonoco Products	Containers & Packaging	6,202	1.9	4,432
ConocoPhillips	Oil, Gas & Consumable Fuels	5,930	1.8	5,703
National Oilwell Varco	Energy Equipment & Services	5,762	1.8	9,104
Cisco Systems	Communications Equipment	5,753	1.8	8,110
Regions Financial	Banks	5,724	1.8	-
Thirty largest equity investments		240,747	74.4
Digital Realty Trust	Real Estate Investment Trusts (REITs)	5,645	1.7	7,693
Starwood Hotels & Resorts	Hotels, Restaurants & Leisure	5,592	1.7	10,777
Blackrock	Capital Markets	5,539	1.7	4,602
Paychex	IT Services	5,365	1.7	4,888
Texas Instruments	Semiconductors & Semiconductor Equipment	5,164	1.6	-
Royal Bank of Canada	Banks	4,797	1.5	5,749
Genuine Parts	Distributors	4,738	1.5	-
Sysco	Food & Staples Retailing	4,673	1.5	10,713
Union Pacific	Road & Rail	4,568	1.4	-
Procter & Gamble	Household Products	4,319	1.3	6,314
Forty largest equity investments		291,147	90.0
Staples	Specialty Retail	4,223	1.3	4,219
Meredith	Media	2,983	0.9	-
Total equity investments		298,353	92.2

Investment Portfolio - Other Investments
As at 31 January 2016

Qwest 7.25% 15/10/35	Telecommunications	2,550	0.8	2,552
HSBC Finance 6.676% 15/01/21	Diversified Financial Services	2,149	0.7	2,181
Onemain Financial Holdings 6.75% 15/12/19	Diversified Financial Services	2,099	0.7	2,070
International Lease Finance Corp 6.25% 15/05/19	Diversified Financial Services	1,777	0.5	1,766
First Data 6.75% 01/11/20	Software	1,117	0.3	-
Cincinnati Bell 8.375% 15/10/20	Telecommunications	1,086	0.3	1,060
HCA 5.875% 15/02/26	Healthcare Services	1,081	0.3	-
Post Holdings 7.375% 15/02/22	Food	857	0.3	781
Corrections Corporation of America 4.625% 01/05/23	Real Estate Investment Trusts (REITs)	698	0.2	666
Nationstar 6.5% 01/06/22	Diversified Financial Services	609	0.2	576
Ten largest other investments		14,023	4.3
Seagate HDD Cayman 4.75% 01/06/23	Computers	607	0.2	712
General Electric Cap Corp 4% FRN Perp	Misc Manufacture	-	-	-
Total other investments		14,630	4.5
Total equity investments		298,353	92.2
Total investments		312,983	96.7
Net current assetsA		10,696	3.3
Total assetsA		323,679	100.0
A Excluding bank loans of £7,050,000.

Geographical Analysis

As at 31 January 2016

	Equity	Fixed interest	Total
Country	%	%	%
Canada	8.3	-	8.3
USA	87.0	4.7	91.7
	________	________	________
	95.3	4.7	100.0
	________	________	________

STATEMENT OF DIRECTORS' RESPONSIBILITIES

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

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law the Directors have elected to prepare the Financial Statements in accordance with UK Accounting Standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland. 

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 judgements 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 Strategic Report, Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance 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.

Responsibility statement of the Directors in respect of the annual financial report

The Directors, being, persons responsible, hereby confirm to the best of their knowledge, that:

-       the Financial Statements have been prepared in accordance with applicable accounting standards and give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company taken as a whole; and

-       in the opinion of the Directors, the Annual Report taken as a whole, is fair, balanced and understandable and it provides the information necessary to assess the Company's position and performance, business model and strategy; and

-       the Strategic Report and Directors' Report include 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 and on behalf of the The North American Income Trust plc

James Ferguson

Chairman

23 March 2016

GOING CONCERN

The Company's assets comprise mainly readily realisable securities which can be sold to meet funding commitments if necessary. The Company has a credit facility in place which is available until July 2017. The Board considers that the Company has adequate financial resources to continue in operational existence for the foreseeable future. Accordingly, the Directors believe that it is appropriate to prepare the financial statements on a going concern basis.

FINANCIAL STATEMENTS

STATEMENT OF COMPREHENSIVE INCOME (audited)

		Year ended 31 January 2016			Year ended 31 January 2015
		Revenue	Capital	Total	Revenue	Capital	Total
	Notes	£'000	£'000	£'000	£'000	£'000	£'000
Net (losses)/gains on investments	9	-	(2,201)	(2,201)	-	43,182	43,182
Net currency losses	17	-	(1,515)	(1,515)	-	(2,295)	(2,295)
Income	2	14,902	-	14,902	14,531	-	14,531
Investment management fee	3	(687)	(1,603)	(2,290)	(709)	(1,654)	(2,363)
Administrative expenses	5	(671)	-	(671)	(672)	-	(672)
		______	______	_____	______	______	_____
Return on ordinary activties before finance costs and taxation		13,544	(5,319)	8,225	13,150	39,233	52,383
Finance costs	4	(256)	(598)	(854)	(183)	(427)	(610)
		______	______	_____	______	______	_____
Return on ordinary activities before taxation		13,288	(5,917)	7,371	12,967	38,806	51,773
Taxation	6	(2,058)	440	(1,618)	(2,090)	443	(1,647)
		______	______	_____	______	______	_____
Return on ordinary activities after taxation		11,230	(5,477)	5,753	10,877	39,249	50,126
		______	______	_____	______	______	_____
Return per share (pence)	8	35.74	(17.43)	18.31	32.71	118.05	150.76
		______	______	_____	______	______	_____
The total column of this statement represents the profit and loss account of the Company.
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 (£3,789,000), making a total dividend of 33.00p per share (£9,982,000) for the year to 31 January 2016 which, if approved, will be payable on 7 June 2016 (see note 7).
For the year ended 31 January 2015, the final dividend was 11.50p per share (£3,719,000) making a total dividend of 30.00p per share (£9,857,000).

STATEMENT OF FINANCIAL POSITION (audited)

		As at	As at
		31 January 2016	31 January 2015
	Notes	£'000	£'000
Fixed assets
Investments at fair value through profit or loss	9	312,983	342,722
		________	________
Current assets
Debtors and prepayments	10	743	712
Cash and short term deposits	17	11,685	9,231
		________	________
		12,428	9,943
		________	________
Creditors: amounts falling due within one year
Bank loan	11/12	(7,050)	(8,158)
Other payables	11	(1,732)	(1,247)
		________	________
		(8,782)	(9,405)
		________	________
Net current assets		3,646	538
		________	________
Total assets less current liabilities		316,629	343,260
Creditors: amounts falling due after more than one year
Bank loan	11/12	(35,985)	(33,987)
		________	________
Net assets		280,644	309,273
		________	________
Capital and reserves
Called-up share capital	13	7,499	8,235
Share premium account		48,467	48,467
Capital redemption reserve		15,061	14,325
Capital reserve	14	198,866	228,822
Revenue reserve		10,751	9,424
		________	________
Equity shareholders' funds		280,644	309,273
		________	________
Net asset value per share (pence)	15	935.55	938.92
		________	________

STATEMENT OF CHANGES IN EQUITY (audited)

For the year ended 31 January 2016
		Share	Capital
	Share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 January 2015	8,235	48,467	14,325	228,822	9,424	309,273
Buyback of Ordinary shares	(736)	-	736	(24,479)	-	(24,479)
Return on ordinary activities after taxation	-	-	-	(5,477)	11,230	5,753
Dividends paid (see note 7)	-	-	-	-	(9,903)	(9,903)
	_____	______	______	______	______	______
Balance at 31 January 2016	7,499	48,467	15,061	198,866	10,751	280,644
	_____	______	______	______	______	______
For the year ended 31 January 2015
		Share	Capital
	Share	premium	redemption	Capital	Revenue
	capital	account	reserve	reserve	reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000
Balance at 31 January 2014	8,335	48,467	14,225	193,047	7,878	271,952
Buyback of Ordinary shares	(100)	-	100	(3,474)	-	(3,474)
Return on ordinary activities after taxation	-	-	-	39,249	10,877	50,126
Dividends paid (see note 7)	-	-	-	-	(9,331)	(9,331)
	_____	______	______	______	______	______
Balance at 31 January 2015	8,235	48,467	14,325	228,822	9,424	309,273
	_____	______	______	______	______	______
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.

STATEMENT OF CASHFLOWS (audited)

		Year ended	Year ended
		31 January 2016	31 January 2015
	Notes	£'000	£'000
Operating activities
Net return before finance costs and taxation		8,225	52,383
(Decrease)/increase in accrued expenses		(148)	292
Overseas withholding tax		(1,611)	(1,588)
Interest income		(2)	(2)
Dividend income		(11,007)	(9,996)
Fixed interest income		(1,093)	(1,386)
Income from traded options		(2,800)	(3,147)
Realised gains on foreign exchange transactions		2,390	4,185
Interest received		1	2
Dividends received		10,973	9,956
Fixed interest income received		1,093	1,595
Income received from traded options		2,806	3,147
Interest paid		(1,037)	(388)
Losses/(gains) on investments		2,201	(43,182)
Amortisation of fixed income book cost		49	51
(Increase)/decrease in other debtors		(9)	9
		______	______
Net cash flow from operating activities		10,031	11,931
Investing activities
Purchases of investments		(109,335)	(115,392)
Sales of investments		136,824	94,811
		______	______
Net cash flow from /(used in) investing activities		27,489	(20,581)
		______	______
Financing activities
Equity dividends paid	7	(9,903)	(9,331)
Buyback of Ordinary shares		(23,663)	(3,474)
Repayment of loan		(1,500)	-
Drawdown of bank loan		-	23,357
		______	______
Net cash (used in)/from financing activities		(35,066)	10,552
		______	______
Increase in cash and cash equivalents		2,454	1,902
		______	______
Analysis of changes in cash and cash equivalents during the year
Opening balance		9,231	7,329
Increase in cash as above		2,454	1,902
		______	______
Closing balance		11,685	9,231
		______	______

NOTES TO THE FINANCIAL STATEMENTS

For the year ended 31 January 2015

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 in accordance with Financial Reporting Standard 102 and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies and Venture Capital Trusts'. The financial statements are prepared in sterling which is the functional currency of the Company and rounded to the nearest £'000. They have also been prepared on a going concern basis and on the assumption that approval as an investment trust will continue to be granted.
		The financial statements are the first since FRS 102 (The Financial Reporting Standard applicable in the UK and Republic of Ireland) came into effect for accounting periods beginning on or after 1 January 2015. An assessment of the impact of adopting FRS 102 has been carried out and found that no restatement of balances as at the transition date, 1 January 2014, or comparative figures in the Statement of Financial Position or the Statement of Comprehensive Income is considered necessary. The Company has early adopted Amendments to FRS 102 - Fair value hierarchy disclosures issued by issued by the Financial Reporting Council in March 2016.
		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) on page 26 of the published 2016 Annual Report.
		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, 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.
		Fixed returns on debt securities are recognised on a time apportionment basis so as to reflect the effective yield on the debt securities.
		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, the investment management fee is allocated 30% to revenue and 70% 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)	Nature and purpose of reserves
		Share premium account
		The balance classified as share premium includes the premium above nominal value from the proceeds on issue of any equity capital comprising ordinary shares of 25p.
		Capital redemption reserve
		The capital redemption reserve is used to record the amount equivalent to the nominal value of any of the Company's own shares purchased and cancelled in order to maintain the Company's capital.
		Capital reserve
		This reserve reflects any gains or losses on realisation of investments in the period along with any changes in fair values of investments held that have been recognised in the Statement of Comprehensive Income. The costs of share buybacks are also deducted from this reserve.
		Revenue reserve
		This reserve reflects all income and costs which are recognised in the revenue column of the Statement of Comprehensive Income. The revenue reserve represents the amount of the Company's reserves distributable by way of dividend.
	(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 securities are recognised in the revenue column, losses realised on the exercise of the contracts are recorded in the capital column of the Statement of Comprehensive Income as they arise.
		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 Statement of Comprehensive Income.

		2016	2015
2.	Income	£'000	£'000
	Income from overseas listed investments
	Dividend income	10,327	9,292
	REIT income	680	704
	Interest income from investments	1,093	1,386
		______	______
		12,100	11,382
		______	______
	Other income from investment activity
	Traded option premiums	2,800	3,147
	Deposit interest	2	2
		______	______
		2,802	3,149
		______	______
	Total income	14,902	14,531
		______	______
	During the year, the Company was entitled to premiums totalling £2,800,000 (2015 - £3,147,000) 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 2 open positions, valued at a liability of £66,000 (2015 - liability of £65,000) as disclosed in note 11. Losses realised on the exercise of derivative transactions are disclosed in note 9.

		2016			2015
		Revenue	Capital	Total	Revenue	Capital	Total
3.	Investment management fee	£'000	£'000	£'000	£'000	£'000	£'000
	Investment management fee	687	1,603	2,290	709	1,654	2,363
		______	______	______	______	______	______
	For the year ended 31 January 2016 management services were provided by Aberdeen Fund Managers Limited ("AFML"). The fee is at an annual rate of 0.8% of gross assets after deducting current liabilities and borrowings and excluding commonly managed funds, payable quarterly. The balance due at the year end was £566,000 (2015 - £624,000). The fee is allocated 30% (2015 - 30%) to revenue and 70% (2015 - 70%) to capital.
	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.

		2016			2015
		Revenue	Capital	Total	Revenue	Capital	Total
4.	Finance costs	£'000	£'000	£'000	£'000	£'000	£'000
	Bank loans	256	598	854	183	427	610
		______	______	______	______	______	______

		2016	2015
5.	Administrative expenses	£'000	£'000
	Directors' fees	78	54
	Registrar's fees	54	65
	Custody and bank charges	29	27
	Secretarial fees	104	103
	Auditor's remuneration (excl. irrecoverable VAT):
	Fees payable to the Company's auditor for the audit of the annual accounts	16	16
	Fees payable to the Company's auditor for other services:
	Contribution to the Investment Trust Initiative	212	212
	Printing, postage and stationery	25	28
	Fees, subscriptions and publications	43	41
	Professional fees	52	71
	Depositary charges	38	22
	Other expenses	20	33
		______	______
		671	672
		______	______
	For the year ended 31 January 2016 secretarial and administration services were provided by Aberdeen Fund Managers Limited ("AFML"). The fee is payable monthly in advance and based on an index-linked annual amount of £104,000 (2015 - £103,000) and there was an accrual of £17,000 (2015 - £17,000) at the year end. the agreement is terminable on three months' notice.
	During the year £212,000 (2015 - £212,000) was paid to AFML in respect of promotional activities for the Company through Aberdeen's Investment Trust Initiative and the balance due at the year end was £71,000 (2015 - £71,000).

			2016			2015
			Revenue	Capital	Total	Revenue	Capital	Total
6.	Taxation		£'000	£'000	£'000	£'000	£'000	£'000
	(a)	Analysis of charge for the year
		UK corporation tax	676	(444)	232	784	(507)	277
		Overseas tax suffered	1,382	4	1,386	1,306	-	1,306
			______	______	______	______	______	______
		Current tax charge for the year	2,058	(440)	1,618	2,090	(507)	1,583
		Deferred taxation	-	-	-	-	64	64
			______	______	______	______	______	______
		Total tax	2,058	(440)	1,618	2,090	(443)	1,647
			______	______	______	______	______	______
	(b)	Factors affecting the tax charge for the year
		The UK corporation tax rate was 21% until 31 March 2015 and 20% from 1 April 2015 giving an effective rate of 20.17% (2015 - effective rate of 21.33%). The tax assessed for the year is lower than the rate of corporation tax. The differences are explained below:
			2016			2015
			Revenue	Capital	Total	Revenue	Capital	Total
			£'000	£'000	£'000	£'000	£'000	£'000
		Net profit on ordinary activities before taxation	13,288	(5,917)	7,371	12,967	38,806	51,773
			______	______	______	______	______	______
		Corporation tax at 20.17% (2015 - 21.33%)	2,680	(1,194)	1,486	2,766	8,277	11,043
		Effects of:
		Non taxable overseas dividends	(2,004)	-	(2,004)	(1,982)	-	(1,982)
		Unutilised management expenses	-	-	-	-	(63)	(63)
		Irrecoverable overseas withholding tax	1,382	-	1,382	1,306	-	1,306
		Capital gains/(losses) not taxable	-	449	449	-	(9,211)	(9,211)
		Non-taxable exchange losses	-	305	305	-	490	490
			______	______	______	______	______	______
		Current tax charge	2,058	(440)	1,618	2,090	(507)	1,583
			______	______	______	______	______	______
	(c)	Provision for deferred taxation
		No provision for deferred taxation has been made in the current year due to the Company fully utilising the losses brought forward from the previous year (2015 - £nil). 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.

		2016	2015
7.	Dividends	£'000	£'000
	Amounts recognised as distributions to equity holders in the year:
	3rd interim dividend for 2015 - 6.5p per share	2,141	2,000
	Final dividend for 2015 - 11.5p per share (2014 - 10.0p)	3,679	3,334
	1st interim dividend for 2016 - 6.5p per share (2015 - 6.0p)	2,058	2,000
	2nd interim dividend for 2016 - 6.5p per share (2015 - 6.0p)	2,025	1,997
		______	______
		9,903	9,331
		______	______
	The proposed third interim dividend was unpaid at the year end and the final dividend for 2016 is subject to approval by shareholders at the Annual General Meeting. Accordingly, neither has 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 £11,230,000 (2015 - £10,877,000).
		2016	2015
		£'000	£'000
	1st interim dividend for 2016 - 6.5p per share (2015 - 6.0p)	2,058	2,000
	2nd interim dividend for 2016 - 6.5p per share (2015 - 6.0p)	2,025	1,997
	3rd interim dividend for 2016 - 7.0p per share (2015 - 6.5p)	2,110	2,141
	Proposed final dividend for 2016 - 13.0p per share (2015 - 11.5p)	3,789	3,719
		______	______
		9,982	9,857
		______	______
	Subsequent to the year end the Company has purchased for cancellation a further 848,700 Ordinary shares: therefore the amount reflected above for the cost of the proposed final dividend for 2016 is based on 29,149,034 Ordinary shares in issue, being the number of Ordinary shares in issue at the date of this report.

		2016		2015
8.	Return per Ordinary share	£'000	p	£'000	p
	Based on the following figures:
	Revenue return	11,230	35.74	10,877	32.71
	Capital return	(5,477)	(17.43)	39,249	118.05
		______	______	______	______
	Total return	5,753	18.31	50,126	150.76
		______	______	______	______
	Weighted average number of Ordinary shares in issue		31,424,506		33,249,205
			_________		_________

			2016	2015
9.	Investments		£'000	£'000
	Fair value through profit or loss:
	Opening fair value		342,722	279,010
	Opening investment holdings gains		(65,139)	(30,746)
			______	______
	Opening book cost		277,583	248,264
	Purchases at cost		109,335	115,392
	Sales - proceeds		(136,824)	(94,811)
	Sales - realised gains{A}		12,220	8,789
	Amortisation of fixed income book cost		(49)	(51)
			______	______
	Closing book cost		262,265	277,583
	Closing investment holdings gains		50,718	65,139
			______	______
	Closing fair value		312,983	342,722
			______	______
	Listed on overseas stock exchanges		312,983	342,722
			______	______
			2016	2015
	Gains on investments		£'000	£'000
	Realised gains on sales{A}		12,220	8,789
	Movement in investment holdings gains		(14,421)	34,393
			______	______
			(2,201)	43,182
			______	______
	{A} Includes losses realised on the exercise of traded options of £2,319,000 (2015 - £1,692,000). Premiums received from traded options totalled £2,800,000 (2015 - £3,147,000) 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:
		2016		2015
		£'000		£'000
	Purchases	107		117
	Sales	171		134
		______		______
		278		251
		______		______

		2016	2015
10.	Debtors: amounts falling due within one year	£'000	£'000
	Dividends receivable	474	446
	Interest receivable	209	208
	Taxation recoverable	4	11
	Other debtors and prepayments	39	38
	Overpayment of dividend	17	9
		______	______
		743	712
		______	______

		2016	2015
11.	Creditors	£'000	£'000
	Amounts falling due within one year:
	Bank loans (note 12)	7,050	8,158
	Investment management fee payable	566	624
	Interest payable	43	226
	Traded option contracts	66	65
	Amounts due to brokers relating to share buybacks	816	-
	UK corporation tax payable	55	151
	Other creditors	186	181
		______	______
		8,782	9,405
		______	______
		2016	2015
		£'000	£'000
	Amounts falling due after more than one year:
	Bank loan (note 12)	35,985	33,987
		______	______
		35,985	33,987
		______	______

			2016	2015
12.	Bank loans		£'000	£'000
	Bank loans repayable:
	within one year
	-	US$10,000,000 at 1.3265% - 25 February 2016	7,050	6,658
	-	£1,500,000 at 1.40163% - 24 February 2015	-	1,500
	in more than one year but no more than five years
	-	US$51,045,000 at 2.18% - 17 July 2017	35,985	33,987
			______	______
			43,035	42,145
			______	______
	At the year end, the Company's floating rate bank loan of US$10,000,000 (2015 - US$10,000,000 and £1,500,000) and fixed rate bank loan of US$51,045,000 (2015 - US$51,045,000) equivalent to a total of £43,035,000 (2015 - £42,145,000) were drawn down from the £45 million multi-currency revolving loan facility provided by State Street Bank and Trust Company. This facility was signed on 17 July 2014.
	At the date of signing this report, the Company's floating rate bank loan of US$10,000,000 was drawn down to 24 March 2016 at an interest rate of 1.3358%.
	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.

		2016	2015
13.	Called-up share capital	£'000	£'000
	Allotted, called-up and fully paid:
	Opening balance	8,235	8,335
	Shares bought back during the year	(736)	(100)
		______	______
	29,997,734 (2015 - 32,939,082) Ordinary shares of 25p each	7,499	8,235
		______	______
	During the year the Company bought back 2,941,348 (2015 - bought back 399,500) Ordinary shares of 25p each for a total cost of £24,479,000 (2015 - total cost of £3,474,000).
	Since the year end a further 848,700 Ordinary shares of 25p each have been bought back for a total cost of £7,110,000, leaving 29,149,034 Ordinary shares in issue at the date of this report.

		2016	2015
14.	Capital reserve	£'000	£'000
	At 1 February	228,822	193,047
	Movement in fair value gains	(2,201)	43,182
	Foreign exchange movements	(1,515)	(2,295)
	Tax relief to capital	440	507
	Deferred tax	-	(64)
	Costs of share buybacks	(24,479)	(3,474)
	Finance costs of bank loan	(598)	(427)
	Investment management fees	(1,603)	(1,654)
		______	______
	At 31 January	198,866	228,822
		______	______
	Included in the total above are investment holdings gains at the year end of £50,718,000 (2015 - £65,139,000).
	The Directors regard the total capital reserve as being available to fund share buy-backs.

15.	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:
		2016	2015
	Net assets attributable	£280,644,000	£309,273,000
	Number of Ordinary shares in issue	29,997,734	32,939,082
	Net asset value per share	935.55p	938.92p

16.	Financial instruments and risk management
	The Company's investment activities expose it to various types of financial risk associated with the financial instruments and markets in which it invests. 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 £2,800,000. Positions closed during the year realised a loss of £2,319,000. The largest position in derivative contracts held during the year at any given time was £456,000 (2015 - £716,000). The Company had two open positions in derivative contracts at 31 January 2016 valued at a liability of £66,000 as disclosed in note 11.
	The Board has delegated the risk management function to the Manager under the terms of its management agreement with AFML (further details which are included under note 3). The Board regularly reviews and agrees policies for managing each of the key financial risks identified with the Manager. The types of risk and the manager's approach to the management of each type of risk, are summarised below. Such an approach has been applied throughout the year and has not changed since the previous accounting period. The numerical disclosures exclude short-term debtors and creditors.
	Risk management framework
	The directors of AFML collectively assume responsibility for AFML's obligations under the AIFMD including reviewing investment performance and monitoring the Company's risk profile during the year.
	AFML is a fully integrated member of the Aberdeen Asset Management PLC ("Aberdeen") group of companies (referred to as "the Group"), which provides a variety of services and support to AFML in the conduct of its business activities, including in the oversight off the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to AAML, which is responsible for ensuring the  Company is managed within the terms of its investment guidelines and the limits set out in FUND 3.2.2R (details of which can be found on the Company's website). The AIFM has retained responsibility for monitoring and oversight of investment performance, product risk and regulatory and operational risk for the company.
	The Manager conducts its risk oversight function through the operation of the Group's risk management processes and systems which are embedded within the Group's operations. The Group's Risk Division supports management in the identification and mitigation of risks and provides independent monitoring of the business. The Division includes Compliance, Business Risk, Market Risk, Risk Management and Legal. The team is headed up by the Group's Head of Risk, who reports to the Chief Executive Officer of the Group. The Risk Division achieves its objective through embedding the Risk management Framework throughout the organisation using the Group's operational risk management system ("SWORD").
	The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group CEO and the  Audit Committee of the Group's Board of Directors. The Internal Audit Department is responsible for providing an independent assessment of the Group's control environment.
	The  Group's corporate governance structure is supported by several committees to assist the board of directors of Aberdeen, its subsidiaries and the Company to fulfil their roles and responsibilities. The Group's Risk Division is represented on all committees, with the exception of those committees that deal with investment recommendations. The specific goals and guidelines on the functioning of those committees are described on the committees' terms of reference.
	Risk management
	The main risks the Company faces from its financial instruments are (i) market risk (comprising interest rate risk, currency risk and 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.
		Management of the risk
		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 2016 are shown in note 12.
		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
			period for		Weighted				Non-
			which		average	Fixed	Floating		interest
			rate is fixed		interest rate	rate	rate		bearing
		At 31 January 2016	Years		%	£'000	£'000		£'000
		Assets
		Sterling	-		0.20	-	2		-
		US Dollar	4.36		3.71	14,630	11,616		279,089
		Canadian Dollar	-		-	-	67		19,624
			______		______	______	______		______
		Total assets				14,630	11,685		298,713
			______		______	______	______		______
		Liabilities
		Bank loan - US$10,000,000	0.07		1.33	(7,050)	-		-
		Bank loan - US$51,045,000	1.46		2.18	(35,985)	-		-
			______		______	______	______		______
		Total liabilities				(43,035)	-		-
			______		______	______	______		______
			Weighted
			average
			period for		Weighted				Non-
			which		average	Fixed	Floating		interest
			rate is fixed		interest rate	rate	rate		bearing
		At 31 January 2015	Years		%	£'000	£'000		£'000
		Assets
		Sterling	-		0.51	-	1,420		-
		US Dollar	5.45		4.57	18,484	7,722		301,319
		Canadian Dollar	-		-	-	89		22,919
			______		______	______	______		______
		Total assets				18,484	9,231		324,238
			______		______	______	______		______
		Liabilities
		Bank loan - US$10,000,000	0.07		1.07	(6,658)	-		-
		Bank loan - £1,500,000	0.07		1.40	(1,500)	-		-
		Bank loan - US$51,045,000	2.46		2.18	(33,987)	-		-
			______		______	______	______		______
		Total liabilities				(42,145)	-		-
			______		______	______	______		______
		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 12.
		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 Statement of Financial Position 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 2016 would increase/decrease by £117,000 (2015 - increase/decrease by £92,000). 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 mainly in US quoted securities and the Statement of Financial Position can be significantly affected by movements in foreign exchange rates.
		Management of the risk
		It is not the Company's policy to hedge this risk on a continuing basis but the Company may, from time to time, match specific overseas investment with foreign currency borrowings. A significant proportion of the Company's borrowings, as detailed in note 12, in foreign currency as at 31 January 2016. Foreign currency risk exposure by currency denomination is detailed under Interest Risk Profile.
		The revenue account is subject to currency fluctuation arising on overseas income. The Company does not hedge this currency risk.
		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.
		Price risk
		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.
		Management of the risk
		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, as detailed on page 60 of the published 2016 Annual Report, 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.
		Price risk sensitivity
		If market prices at the Statement of Financial Position 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 2016 would have increased/decreased by £31,298,000 (2015 - increase/decrease of £34,272,000) 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.
		Management of the risk
		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 the loan facility (note 12).
	(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.
		Management of the risk
		·      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 2016 was as follows:
				2016			2015
				Balance		Maximum	Balance	Maximum
				Sheet		exposure	Sheet	exposure
				£'000		£'000	£'000	£'000
		Debtors and prepayments		743		743	712	712
		Cash and short term deposits		11,685		11,685	9,231	9,231
				______		______	______	______
				12,428		12,428	9,943	9,943
				______		______	______	______

17.	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.

18.	Fair value hierarchy
	FRS 102 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 Company has early adopted Amendments to FRS 102 - Fair value hierarchy disclosures issued by issued by the Financial Reporting Council in March 2016. The fair value hierarchy shall have the following classifications:
	Level 1: unadjusted quoted prices in an active market for identical assets or liabilities that the entity can access at the measurement date.
	Level 2: inputs other than quoted prices included within Level 1 that are observable (ie developed using market data) for the asset or liability, either directly or indirectly.
	Level 3: inputs are unobservable (ie for which market data is unavailable) for the asset or liability.
	The financial assets and liabilities measured at fair value in the Statement of Financial Position are grouped into the fair value hierarchy at the reporting date as follows:
				Level 1	Level 2	Level 3	Total
	As at 31 January 2016		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities		a)	298,353	-	-	298,353
	Quoted bonds		b)	14,630	-	-	14,630
				______	______	______	______
	Net fair value			312,983	-	-	312,983
				______	______	______	______
	Financial liabilities at fair value through profit or loss
	Derivatives		c)	(66)	-	-	(66)
				______	______	______	______
	Net fair value			(66)	-	-	(66)
				______	______	______	______
				Level 1	Level 2	Level 3	Total
	As at 31 January 2015		Note	£'000	£'000	£'000	£'000
	Financial assets at fair value through profit or loss
	Quoted equities		a)	324,238	-	-	324,238
	Quoted bonds		b)	18,484	-	-	18,484
				______	______	______	______
	Net fair value			342,722	-	-	342,722
				______	______	______	______
	Financial liabilities at fair value through profit or loss
	Derivatives		c)	(65)	-	-	(65)
				______	______	______	______
	Net fair value			(65)	-	-	(65)
				______	______	______	______
	a)	Quoted equities and preference shares
		The fair value of the Company's investments in quoted equities and preference shares has been determined by reference to their quoted bid prices at the reporting date. Quoted equities and preference shares 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 Government Bonds and Corporate Bonds.
	c)	Derivatives
		The fair value of the Company's investment in exchange traded options has been determined using quoted prices on an exchange traded basis and therefore have been classed as Level 1.

19.	Related party transactions
	Fees payable during the year to the Directors and their interests in shares of the Company are disclosed within the Directors' Remuneration Report on page 33 of the published 2016 Annual Report.

20.	Transactions with the Manager
	The Company has agreements with the Manager for the provision of investment management, secretarial, accounting and administration and promotional activity services.
	The management fee is calculated at a rate of 0.8% per annum of the total assets of the Company, after deducting current liabilities and borrowings and excluding the value of any commonly managed funds, payable quarterly. The balance due at the year end was £566,000 (2015 - £624,000). The fee is allocated 30% (2015 - 30%) to revenue and 70% (2015 - 70%) to capital.
	The management agreement between the Company and AFML 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 fee for secretarial and administrative services is payable monthly in advance and is based on an index-linked annual amount of £104,000 (2015 - £103,000) and there was an accrual of £17,000 (2015 - £17,000) at the year end.
	During the year £212,000 (2015 - £212,000) was paid to AFML in respect of promotional activities for the Company through Aberdeen's Investment Trust Initiative and the balance due at the year end was £71,000 (2015 - £71,000).

ADDITIONAL NOTES TO THE ANNUAL FINANCIAL REPORT

This Annual Financial Report announcement is not the Company's statutory accounts for the year ended 31 January 2016. The statutory accounts for the year ended 31 January 2016 received an audit report which was unqualified.

The statutory accounts for the financial year ended 31 January 2016 were approved by the Directors on 23 March 2016 but will not be filed with the Registrar of Companies until after the Company's Annual General Meeting which is to be held at 2.00 pm on 3 June 2016 at 40 Princes Street, Edinburgh EH2 2BY.

The Annual Report will be posted to shareholders in April 2016 and additional copies will be available from the Manager (Investor Helpline - Tel. [phone]) or by download from the Company's webpage

(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. Investors may not get back the amount they originally invested.

For The North American Income Trust plc

Aberdeen Asset Management PLC, Secretaries

 

END

 

 

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