![img-0.jpeg](img-0.jpeg) # The North American Income Trust plc Annual Report 31 January 2023 Seeking resilient growth and rising income from North American equities northamericanincome.co.uk --- | ![img-1.jpeg](img-1.jpeg) | | | | --- | --- | --- | --- ![img-2.jpeg](img-2.jpeg) "The Board has declared a final dividend of 3.5p per share, resulting in total dividends for the year ended 31 January 2023 of 11.0p (2022 - 10.3p) – a 6.8% increase." Dame Susan Rice, Chair ![img-3.jpeg](img-3.jpeg) "The Company returned 9.6% on a NAV basis in sterling terms for the year ended 31 January 2023, outperforming the 8.5% return of its primary reference index, the Russell 1000 Value Index (total return)." Fran Radano, abrdn Inc. CVS Health is an American healthcare company that owns several healthcare brands and is one of the Company's Ten Largest Investments. THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt about the action you should take, you are recommended to seek your own financial advice from your stockbroker, bank manager, solicitor, accountant or other independent financial adviser authorised under the Financial Services and Markets Act 2000 (as amended by the Financial Services Act 2012) if you are in the United Kingdom or, if not, from another appropriately authorised financial adviser. If you have sold or otherwise transferred all your Ordinary shares in The North American Income Trust plc, please forward this document, together with the accompanying documents immediately to the purchaser or transferee, or to the stockbroker, bank or agent through whom the sale or transfer was effected for transmission to the purchaser or transferee. The North American Income Trust plc --- # Performance Highlights | Net asset value total return^{AB} +9.6% | Share price total return^{AB} +12.4% | | --- | --- | | 2022 +25.7% | 2022 +25.6% | | Revenue return per share 12.2p | Dividends per share 11.0p | | 2022 10.28p | 2022 10.30p | | Net asset value per Ordinary share 337.2p | Total assets^{C} £513.4m | | 2022 318.8p | 2022 £485.7m | | Dividend yield^{AD} 3.6% | Ongoing charges^{A} 0.93% | | 2022 3.6% | 2022 0.95% | A Considered to be an Alternative Performance Measure. See pages 89 to 91 for more information. B Includes dividends reinvested. C As defined on page 100. D Calculated as the dividend for the year divided by the year end share price. ![img-4.jpeg](img-4.jpeg) Net asset value per share At 31 January – pence ![img-5.jpeg](img-5.jpeg) Mid-market price per share At 31 January – pence ![img-6.jpeg](img-6.jpeg) Dividends per share Year ended 31 January – pence The North American Income Trust plc --- The North American Income Trust plc # Contents ![img-7.jpeg](img-7.jpeg) "Total revenue from portfolio's equity holdings over the period under review was £17.8 million (2022 - £15.0 million). This was against a background which saw most of the Company's equity holdings continue their established record of dividend growth." Dame Susan Rice, Chair ## Overview Financial Calendar, Dividends and Highlights 4 ## Strategic Report Chair's Statement 8 Overview of Strategy 12 Results 19 Performance 20 Discount 21 Investment Manager's Review 22 Manager's Approach to ESG Integration in Equities 25 ## Portfolio Ten Largest Investments 30 List of Investments 31 Geographical/Sector Analysis 33 Currency/Market Performance 34 Investment Case Studies 35 ## Governance Board of Directors 38 Directors' Report 41 Statement of Corporate Governance 44 Report of the Audit Committee 47 Directors' Remuneration Report 50 Statement of Directors' Responsibilities 54 Independent Auditor's Report to the Members of The North American Income Trust plc 55 ## Financial Statements Statement of Comprehensive Income 66 Statement of Financial Position 67 Statement of Changes in Equity 68 Statement of Cash Flows 69 Notes to the Financial Statements 70 Alternative Performance Measures 89 ## Corporate Information Information about the Investment Manager 93 Investor Information 95 Alternative Investment Fund Managers Directive Disclosures (unaudited) 98 Glossary of Terms 99 ## General Notice of Annual General Meeting 102 Contact Addresses 109 --- # Financial Calendar, Dividends and Highlights | Annual General Meeting (Edinburgh) | 8 June 2023 | | --- | --- | | Half year end | 31 July 2023 | | Payment dates of quarterly dividends for financial year ending 31 January 2024 | August 2023 October 2023 January 2024 May 2024 | | Financial year end | 31 January 2024 | ## Dividends | | Rate | xd date | Record date | Payment date | | --- | --- | --- | --- | --- | | 1st Interim dividend 2023 | 2.50p | 21 July 2022 | 22 July 2022 | 5 August 2022 | | 2nd Interim dividend 2023 | 2.50p | 6 October 2022 | 7 October 2022 | 28 October 2022 | | 3rd Interim dividend 2023 | 2.50p | 2 February 2023 | 3 February 2023 | 24 February 2023 | | Proposed final dividend 2023 | 3.50p | 4 May 2023 | 5 May 2023 | 12 June 2023 | | Total dividends 2023 | 11.00p | | | | | 1st Interim dividend 2022 | 1.90p | 22 July 2021 | 23 July 2021 | 6 August 2021 | | 2nd Interim dividend 2022 | 1.90p | 7 October 2021 | 8 October 2021 | 29 October 2021 | | 3rd Interim dividend 2022 | 2.50p | 3 February 2022 | 4 February 2022 | 25 February 2022 | | Final dividend 2022 | 4.00p | 5 May 2022 | 6 May 2022 | 13 June 2022 | | Total dividends 2022 | 10.30p | | | | The North American Income Trust plc --- Highlights | | 31 January 2023 | 31 January 2022 | % change | | --- | --- | --- | --- | | Total assets (as defined on page 100) | £513.4m | £485.7m | +5.7 | | Equity shareholders' funds | £472.9m | £448.5m | +5.4 | | Share price (mid market) | 306.00p | 283.00p | +8.1 | | Net asset value per Ordinary share | 337.21p | 318.79p | +5.8 | | Discount (difference between share price and net asset value)AB | (9.3%) | (11.2%) | | | Net gearing A | (2.9%) | (4.9%) | | Dividends and earnings | Revenue return per share | 12.21p | 10.28p | +18.8 | | --- | --- | --- | --- | | Dividends per share | 11.00p | 10.30p | +6.8 | | Dividend yield (based on year end share price)A | 3.6% | 3.6% | | | Dividend coverA | 1.11 | 1.00 | | Revenue reserves per share | Prior to payment of third interim and final dividends | 17.57p | 16.81p | | | --- | --- | --- | --- | | After payment of third interim and final dividends | 11.57p | 10.31p | | Operating costs | Ongoing chargesA | 0.93% | 0.95% | | --- | --- | --- | A Considered to be an Alternative Performance Measure. See pages 89 and 90 for further information. B Including undistributed revenue. The North American Income Trust plc --- # Strategic Report The North American Income Trust plc was launched in 1902. The objective of the Company is to provide investors with above average dividend income and long-term capital growth through active management of a portfolio consisting predominately of S&P 500 US equities. The North American Income Trust plc --- The North American Income Trust plc 7 ![img-8.jpeg](img-8.jpeg) Bristol-Myers Squibb is a global biopharmaceutical company committed to discovering, developing and delivering innovative medicines to patients with serious diseases and is one of the Company’s Ten Largest Investments. --- Chair's Statement # Market Review North American equity market indices fell significantly over the year ended 31 January 2023. A combination of higher interest rates and surging inflation caused North American share prices to fall sharply from early 2022 onwards. Overall, however, North American equities ended higher in sterling terms on a total return basis as the US dollar strengthened against the pound. Please refer to your Manager's Review on pages 22 to 24 for an in-depth review of the market. # Performance Over the year ended 31 January 2023, the Company's net asset value ("NAV") total return per share was 9.6% outperforming the 8.5% total return in sterling terms for the Russell 1000 Value Index, the Company's primary reference index, while the share price total return was 12.4%. The discount at which the share price traded relative to the NAV narrowed over the year from 11.2% to 9.3%. While it is pleasing to report outperformance, it is important to note that most of the absolute increase in the value of the portfolio can be ascribed to the strengthening of the US dollar by 12.2% year over year, which boosted the valuations on the balance sheet in sterling terms. By way of illustration, the Russell 1000 Value Index delivered a total return in US dollar terms of -0.4%. The outperformance was attributable mainly to stock selection in the materials and real estate sectors although allocation was a small negative in the latter. The Company's performance relative to the reference index was hampered by stock selection in the consumer discretionary and energy sectors although allocation within those segments partially offset the negative impact. A more detailed review of portfolio activity and performance can be found in the Manager's Review on pages 22 to 24. # Revenue Account Total revenue from portfolio's equity holdings over the period under review was £17.8 million (2022 - £15.0 million). This was against a background which saw most of the Company's equity holdings continue their established record of dividend growth and the US dollar strengthen from a weighted average of $1.37 to the pound in 2022 to a weighted average of $1.22 to the pound in the current year. During the year ended 31 January 2023, the Company received premiums totalling £4.2 million (2022 - £3.9 million) in exchange for entering into stock option transactions. This option income, the generation of which remains consistent with the Manager's company-focused investment process, represented 18.1% of total income (2022 - 19.8%). As the Company's exposure to corporate bonds has decreased over recent years, interest income from bonds was 0.5% of total income (2022 - 0.6%). Bond coupons and option premiums will remain secondary sources of income in the belief that dividends must remain the overwhelming source of income available for distribution. The resulting revenue return per Ordinary share rose by 18.8% to 12.2 pence per share for the year ended 31 January 2023 compared to 10.3 pence per share for the year ended 31 January 2022. This comprised an increase in the dividend income of 17.6% in sterling terms and an increase in option income of over 7.6%. Further details of the portfolio are shown on pages 31 to 32. # Dividend In light of the above, the Board has declared a final dividend of 3.5 pence per share, resulting in total dividends for the year ended 31 January 2023 of 11.0 pence per share (2022 - 10.3p) – a 6.8% increase. The proposed final dividend is payable on 12 June 2023 to shareholders on the register on 5 May 2023 (ex-dividend date: 4 May 2023). In reaching its decision, the Board balanced the wish to increase the amount distributed to shareholders with the recognition that most of the increase in revenue was due to the US dollar strengthening against the sterling during the year, a situation which could reverse at any time, with maintaining revenue reserves at the equivalent of one full year's dividend payout. The North American Income Trust plc --- The Board remains committed to its progressive dividend policy and extending its track record of twelve consecutive years of dividend growth. To that end, the Board intends, in the absence of any unforeseen developments, to pay three quarterly dividends of 2.6 pence per share for the financial year ending 31 January 2024, with the fourth interim dividend being determined once the full-year results are known. During the year the Board reviewed the schedule of dividend payments and has decided to put a resolution to the shareholders for them to approve the dividend policy in future, rather than approving the final dividend. The effect of this will be to allow the Board to accelerate the payment of the final distribution for the year and to make the quarterly payments more evenly spaced over the year, for the benefit of shareholders. If approved, the changes, illustrated by way of example in the table on page 9, will take effect for the year ending 31 January 2024. | Dividend Payment Date | | | | --- | --- | --- | | | Year to Jan 2023 | Year to Jan 2024* | | 1st interim | 5 August 2022 | 4 August 2023 | | 2nd interim | 28 October 2022 | 27 October 2023 | | 3rd interim | 24 February 2023 | 19 January 2024 | | Final / 4th interim | 12 June 2023 | 4 May 2024 | * indicative date only ## Management of Premium and Discount The Company's share price rose by 8.1% to 306.0 pence per share and ended the year at a 9.3% discount to total NAV, compared with a 11.2% discount at the end of the 2022 financial year. 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. Over the course of the year, the Company's shares mainly traded at discounts ranging between 6.0% and 10.0%. During the year, 441,185 shares were bought back and cancelled at a weighted average price of 281.90p and a weighted average discount of 11.7%. The total cost was £1.3 million. The Company has not bought back any additional Ordinary shares since 31 January 2023. ## Gearing The Board believes that sensible use of gearing should enhance returns to our shareholders over the longer term. In December 2020, the Company entered into a long-term financing agreement for US$50 million with MetLife comprising two loans of US$25 million with terms of ten and 15 years. As a result, net gearing at 31 January 2023 stood at 2.9% (2022: 4.9%). ## Promotional Activity The Board continues to promote the Company through the Manager's investment trust share plan, which provides a series of savings schemes through which savers can invest in the Company in a low-cost and convenient manner (see page 95). During the last year we have worked with our Manager to refine our messaging and provide clarity to shareholders around our investment objectives. This includes introducing a new descriptor line as seen on the front cover of this report: Seeking resilient growth and rising income from North American equities. Through our marketing efforts we aim to keep all shareholders informed and updated on their investments, particularly during periods of volatility. Updates include commentary, articles and videos allowing investors to hear directly from the Investment Manager on a regular basis – to understand both the outlook and the decisions being made within the portfolio itself. All of this communication can be found on the Company's website northamericanincome.co.uk and helps to inform shareholders' investment decisions to ensure they remain aligned with their individual needs. You can also follow 'abrdn Investment Trusts' on LinkedIn and Twitter or register for email updates here: northamericanincome.co.uk/signup The North American Income Trust plc --- 10 The North American Income Trust plc # Board Activity In April 2022, for the first time since 2019 due to the travel restrictions that the pandemic had placed upon us, the Board was pleased to travel to North America and meet with the Investment Manager and local experts face-to-face. The benefit of these meetings is evident in the engagement that follows. Since then, the Board has focused in particular on matters of sustainability and how they are perceived and approached by North American companies, as well as the economic pressures in the US, as distinct from those in the UK. We continue to monitor developments in these areas with interest. More information on the Manager's approach to ESG integration in its investment process can be found on pages 25 to 27. On 1 July 2022 Patrick Edwardson was appointed as an independent Non-Executive Director of the Company. Patrick has a wealth of investment management experience, including managing the Scottish American Investment Company plc for ten years, having worked for Baillie Gifford for 27 years. The Board is already benefitting from Patrick's experience. He will stand for election as a Director for the first time at the Company's Annual General Meeting ("AGM") in June 2023. Also, during the year, after my first AGM as Chair of the Company, I took the opportunity to meet with investors in the UK, on behalf of the Board, to gain a deeper understanding of their interests in the Company and address questions on a more informal basis. As usual, we encourage all shareholders to contact the Board with any queries using contact details on page 109 of this report. Towards the end of the year, the Board undertook its board evaluation. Whilst the Board does not consider it appropriate to utilise an external agent for this, due to the current size and composition of the Board, the Board does take a more thorough approach to its evaluation every other year. The results of the board evaluation are outlined in the Statement of Corporate Governance on pages 44 to 46. # Outlook The Federal Reserve (the "Fed") accompanied its rate hike at the start of December 2022 with a slightly less hawkish message around future policy, a near-term positive for equity markets. Indeed, a majority of policymakers are now forecasting an easing in the pace of future rate hikes. Also, following major central banks' rapid monetary tightening to combat high inflation, certain banks' balance sheets came under severe pressure in March 2023 as the value of their fixed income portfolios fell and customers withdrew deposits. Technology-focused Silicon Valley Bank (SVB), as well as cryptocurrency-industry lenders Signature Bank and Silvergate Capital, collapsed. SVB's demise was the largest banking failure since the Global Financial Crisis of 2007-2008. A consortium of US banks also injected $30 billion into regional lender First Republic Bank. In Europe, UBS mounted a $3.3 billion government-backed takeover of Credit Suisse after the latter ran into financial difficulties. These events, which led to major central banks boosting dollar liquidity to ease strains in funding markets, have caused fears of a global banking crisis and deep recession. While, as a result, investors have lowered their expectations of further monetary tightening, the Federal Open Market Committee remains determined to tame inflation, even if this comes at the cost of a recession. The continued strength of employment suggests that wage growth will continue to run at rates well in excess of those consistent with the Fed's inflation target. The strength of wage growth has clearly contributed to surging services inflation, alongside very aggressive increases in rent measures and rebounding services demand as Covid-19 headwinds fade and in March 2023, the Fed increased rates again by 25bps as inflation hit 6% year-on-year in February. Your Manager's view is that this will lead to further tightening by the Fed over the coming months as policy remains restrictive, adding to its conviction that the economy will enter a downturn in the middle of this year. --- # Chair's Statement Continued So, what does this mean for equity markets going forward? Despite the recent rise in markets, sentiment has remained under pressure due to the ongoing banking crisis, hawkish Federal Reserve comments and further negative macroeconomic readings, with equity levels still materially lower than their recent peak. The economic outlook, both in the US and abroad, remains challenging and earnings downgrades have continued to come through since the end of the third-quarter earnings season. Nonetheless, US equity levels now appear to have priced in a strong probability of slowing economic growth and that inflation has peaked. On that basis, your Manager is now seeing some target companies trading on attractive multiples and increasingly appealing valuation points for long-term investors, such as ourselves, and has, therefore, become cautiously optimistic on the outlook for US equities in particular as an asset class. ## Annual General Meeting ("AGM") and Online Shareholder Presentation ### AGM The AGM is scheduled to be held at 2:00 pm on 8 June 2023 at the offices of abrdn at 1 George Street, Edinburgh, EH2 2LL. We encourage all shareholders to complete and return the form of proxy enclosed with the Annual Report to ensure that your votes are represented at the meeting (whether or not you intend to attend in person). If you hold your shares in the Company via a share plan or a platform and would like to attend and/or vote at the AGM, then you will need to make arrangements with the administrator of your share plan or platform. For this purpose, investors who hold their shares in the Company via the abrdn Investment Plan for Children, Share Plan or ISA will find a Letter of Direction enclosed. abrdn Planholders are encouraged to complete and return the Letter of Direction in accordance with the instructions. The Notice of Meeting can be found on pages 102 to 106. ### Online Shareholder Presentation In order to encourage as much interaction as possible with our shareholders, there will also be an online shareholder presentation at 2:30 pm on 22 May 2023. At this event, you will receive a presentation from the Investment Manager and have the opportunity to ask questions of the Chair and the Investment Manager. The online presentation is being held ahead of the AGM to allow shareholders to submit their proxy votes prior to the meeting. Full details on how to register for this event will be available on the Company's website. Shareholders are also encouraged to submit questions in advance of the online shareholder presentation and the AGM at the following email address: northamericanincome@abrdn.com. If you are unable to attend the online event, the Investment Manager's presentation will be available on the Company's website shortly after the presentation. As usual, the Board strongly encourages all shareholders to exercise their votes in respect of the AGM in advance of the meeting, and to appoint the Chair of the meeting as their proxy, by completing the enclosed Form of Proxy (or Letter of Direction for those who hold shares through the abrdn savings plans). ![img-9.jpeg](img-9.jpeg) Dame Susan Rice Chair 4 April 2023 The North American Income Trust plc --- # 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 Board does not envisage any change in the Company's activity in the foreseeable future. ## Investment Objective and Purpose 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 indices, including the Russell 1000 Value Index (in sterling terms) and the S&P 500 Index (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 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 abrdn Fund Managers Limited ("aFML") to act as the alternative investment fund manager ("AIFM" or the "Manager"). 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 abrdn Inc. (the "Investment Manager") by way of a delegation agreement in place between aFML and abrdn Inc. 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. The North American Income Trust plc --- # 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 Russell 1000 Value and the S&P 500 (both in sterling terms). Performance graphs and tables are provided on pages 19 to 21. 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^{A} | 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 five years is provided on page 20. | | Share price discount/Premium to net asset value^{A} | 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 13. | | Ongoing charges ratio ("OCR")^{A} | The Board reviews the Company's operating costs carefully against its peer group of investment trusts with similar investment objectives. The Company's OCR is provided on page 90. | A Considered to be an Alternative Performance Measure. See pages 89 to 91 for more information # Principal Risks and Uncertainties There are a number of risks which, if realised, could have a material adverse effect on the Company and its business model, financial position, performance and prospects. The Board has in place a robust process to identify, assess and monitor the principal risks and uncertainties facing the Company and to identify and evaluate newly emerging risks, such as climate change and geopolitical developments. This process is supported by a risk matrix which identifies the key risks for the Company, including emerging risks, and covers strategy, investment management, operations, shareholders, regulatory and financial obligations and third party service providers. This risk matrix is reviewed on a regular basis. A summary of the principal risks and uncertainties facing the Company, which have been identified by the Board, is set out in the following table, together with a description of the mitigating actions it has taken. The principal risks associated with an investment in the Company's shares are published monthly in 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 North American Income Trust plc --- # Overview of Strategy # Continued | 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 currency 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, inflation liquidity and foreign currency risks and the controls in place to manage these risks are provided in note 18 to the financial statements. | | Major Market Event or Geopolitical Risk The Company is exposed to stockmarket volatility or illiquidity that could result from major market shock due to a national or global crisis such as a pandemic, war, natural disaster, geopolitical developments or similar. There could also be the resulting impact of disruption on the operations of the Company and its service providers, temporarily or for prolonged duration. | The Board is cognisant of the risks arising from recent bank failures, geopolitical developments such as Russia's invasion of Ukraine or tensions between US and China, including stockmarket instability and longer term economic effects or the potential impact on the operations of the third-party suppliers, including the Manager. The Manager assesses and reviews the investment risks arising from these macro developments on the companies in the portfolio, including but not limited to: employee absence, reduced demand, supply chain breakdown, balance sheet strength, ability to pay dividends, and takes the necessary investment decisions. The Manager communicates regularly with the underlying investee companies in order to navigate and guide the Company through the current challenges. The Manager has business continuity procedures and contingency arrangements in place to ensure that it is able to continue to service their clients, including investment trusts. The services from third parties, including the Manager, have continued to be supplied effectively during the current market environment. The Board will continue to monitor third party risk management through regular updates from the Manager. | | 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. The Company has built up its revenue reserves over recent years which provides flexibility in future years, should the dividend environment become challenging. | The North American Income Trust plc --- | Description | Mitigating Action | | --- | --- | | Operational The Company is reliant on services provided by third parties (in particular those of the Manager). Failure by any service provider to carry out its contractual obligations could expose the Company to loss or damage and have a detrimental impact on the Company, including disruption caused by information technology breakdown or other cyber-related issue. | Written agreements are in place defining the roles and responsibilities of all third party service providers. The Board reviews reports on the operation and efficacy of the Manager's risk management and control systems, including those relating to cyber-crime. The Board also reviews regular reports from internal audit as well as third party control reports. The Manager monitors the control environment and quality of services provided by other third party service providers through due diligence reviews, service level agreements, regular meetings and key performance indicators. The Board reviews reports on the Manager's monitoring of third party service providers on a periodic basis. | | Regulatory Risk Changes to, or failure to comply with, relevant regulations (including the Companies Act, The Financial Services and Markets Act, The Alternative Investment Fund Managers Directive, accounting standards, investment trust regulations, the Listing Rules, Disclosure Guidance and Transparency Rules and Prospectus Rules) could result in fines, loss of reputation, reduced demand for the Company's shares and potentially loss of an advantageous tax regime. | Directors are aware of the relevant regulations and are provided with information on changes by the Association of Investment Companies, as well as the Manager. The Manager provides six-monthly reports to the Audit Committee on its internal control systems, which monitor compliance with relevant regulations. In addition, the Board will use the services of its professional advisers when necessary, to monitor compliance with regulatory requirements. The Manager and depository provide reports to the Audit Committee on their operations to evidence that the AIFMD regulations are complied with. The Manager has implemented procedures to ensure compliance with the provisions of the Corporation Tax Act 2010 and reports results to the Board. | | 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 from the Manager on the Company's net gearing levels and its compliance with loan covenants. As at 31 January 2023 the Company had £40.5 million of borrowings and net gearing was 2.9% at the year end. More details are provided on page 90 of this report. | | Discount volatility Investment company shares can trade at discounts to their underlying net asset values, although they can also trade at premia. | In an effort to minimise the impact of share price volatility, where shares are trading at a significant discount, the Company operates a share buyback programme. The share price, NAV and discount are monitored daily by the Manager. The Board monitors the discount level of the Company's shares and will exercise discretion to undertake share buybacks, within shareholder authorities, when it is deemed to be in the best interest of shareholders. | | Derivatives The Company uses derivatives primarily to enhance the income generation of the Company. Derivatives are difficult to value and exposed to counterparty risk. | The risks associated with derivatives contracts are managed within guidelines and limits set by the Board. | The North American Income Trust plc --- # Overview of Strategy Continued | Description | Mitigating Action | | --- | --- | | Potential Impact of Environmental, Social and Governance ("ESG") Investment Principles Applying ESG and sustainability criteria in the investment process may result in the exclusion of assets in which the Company might otherwise invest. The Manager also monitors and responds to ESG and sustainability risks at portfolio companies as they evolve over time. This may have a positive or negative impact on performance. | The Board supports and encourages the ESG analysis incorporated by the Manager as part of its investment decision making process and understands that over the short-term companies with weak ESG compliance may appear to perform strongly. Over the long term the Board believes companies that carefully understand and proactively manage the ESG issues relevant to their businesses will prove more resilient and capture emerging opportunities for growth. The Manager also actively engages with investee companies in relation to ESG and sustainability issues that it deems material. | In addition to these risks, the Company is exposed to the impact of continued geopolitical tensions or changes, including recent banking failures, which could have an adverse impact on stockmarkets and the Company's portfolio. In all other respects, the Company's principal risks and uncertainties have not changed materially since the year end. ## Promoting the Success of the Company The Board is required to report on how it has discharged its duties and responsibilities under section 172 of the Companies Act 2006 (the "s172 Statement"). Under section 172, the Directors have a duty to promote the success of the Company for the benefit of its members as a whole, taking into account the likely long-term consequences of decisions, the need to foster relationships with the Company's stakeholders and the impact of the Company's operations on the environment. The Board comprises five Directors at the time of writing this report and the Company has no employees or customers in the traditional sense. As the Company has no employees, the culture of the Company is embodied in the Board of Directors. The Board seeks to promote a culture of strong governance and to challenge, in a constructive and respectful way, the Company's advisers and other stakeholders. The Board's principal concern has been, and continues to be, the interests of the Company's shareholders and potential investors. The Manager undertakes an annual programme of meetings with the largest shareholders and investors and reports back to the Board on issues raised at these meetings. The Investment Manager, who is based in the Manager's Philadelphia office, will attend such meetings. The Board encourages all shareholders to attend and participate in the Company's and can contact the Directors via the Company Secretary. Shareholders and investors can obtain up-to-date information on the Company through its website and the Manager's information services and have direct access to the Company through the Manager's customer services team or the Company Secretary. The Chairman also held a live webinar ahead of the 2022 AGM, taking questions with the Investment Manager. This was made available on the Company's website for shareholders to access. As an investment trust, a number of the Company's functions are outsourced to third parties. The key outsourced function is the provision of investment management services to the Manager and other stakeholders support the Company by providing secretarial, administration, depositary, custodial, banking and audit services. The North American Income Trust plc --- The Board undertakes a robust evaluation of the Manager, including investment performance and responsible ownership, to ensure that the Company's objective of providing sustainable income and capital growth for its investors is met. The Board typically visits the Manager's offices in the US on a periodic basis and last visited the Manager in April 2022. This enables the Board to conduct face to face review meetings with the fund management and research teams. The portfolio activities undertaken by the Investment Manager on behalf of the Company can be found on page 22 to 24 and details of the Board's relationship with the Manager and other third party providers, including oversight, is provided in the Statement of Corporate Governance on page 42. Key decisions and actions during the year ended 31 January 2023, which required the Directors to have greater focus on stakeholders included: ## Directorate The Board is mindful of the importance of having a well-considered and orderly succession plan for continuity of performance and delivery of the Company's strategy. The search process for a new director was concluded in the first half of 2022, resulting in the appointment of Patrick Edwardson in July 2022. The Board believes that its composition is well placed to promote the success of the Company and to oversee the Manager's activities. ## Marketing Strategy With the Board Changes last year, the Board considered it an opportune time to engage with investors directly. This included direct meetings with the Chair and the Company's first webinar in May 2022, where shareholders had a chance to ask questions prior to exercising their proxy votes for the 2022 AGM. In addition, the Board worked with the Manager to refine the Company's corporate narrative to provide clarity to shareholders around the Company's investment objectives. ## Dividends paid to shareholders During the year, the Board reviewed the dividend payment policy. It concluded that it would propose a revised dividend calendar, with quarterly interim dividend payment dates spread more evenly throughout the year, instead of three interim dividends and a final dividend. Subject to shareholder approval of the proposed dividend policy, four interim dividends will be proposed for the financial year ending 31 January 2024 (see page 9 for more details). The Board recognises the importance of dividends to shareholders and the importance of receiving a regular income. ## Management of the portfolio As in previous years, the Board focused on the performance of the Manager in achieving the Company's investment objective within an appropriate risk framework. As explained in more detail on page 46, during the year, the Management Engagement Committee decided that the continuing appointment of the Manager was in the best interests of shareholders. ## Duration The Company does not have a fixed winding-up date; however, shareholders are given the opportunity to vote on the continuation of the Company every three years at the AGM. The Company's continuation vote held in 2021 was supported by shareholders and the next continuation vote is scheduled at the AGM in 2024. ## 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 2023 the Board comprised two men and three women with diverse and relevant expertise and perspectives. ## Environmental, Social and Human Rights Issues The Company has no employees as the Board has delegated day to day management and administrative functions to aFML. There are therefore no disclosures to be made in respect of employees. Further information on socially responsible investment can be found on pages 25 to 27. ## Modern Slavery Act Due to the nature of the Company's business, being a company that does not offer goods and services to customers, the Board considers that it is not within the scope of the Modern Slavery Act 2015 because it has no turnover. The Company is therefore not required to make a slavery and human trafficking statement. In any event, the Board considers the Company's supply chains, dealing predominantly with professional advisers and service providers in the financial services industry, to be low risk in relation to this matter. The North American Income Trust plc 17 --- 18 The North American Income Trust plc # Overview of Strategy Continued ## Global Greenhouse Gas Emissions and Streamlined Energy and Carbon Reporting ("SECR") All of the Company's activities are outsourced to third parties. The Company therefore has no greenhouse gas emissions to report from the operations of its business other than directors' travel, nor does it have responsibility for any other emissions producing sources under the Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013. For the same reasons as set out above, the Company considers itself to be a low energy user under the SECR regulations and therefore is not required to disclose energy and carbon information. The Investment Manager has access to a range of ESG tools, two of which are climate-related. These tools allow the Company's Investment Manager to look at the overall carbon footprint of their portfolios and compare with the reference index. It also allows them to identify the highest carbon emissions stocks across portfolios. Furthermore, the carbon footprint tool has been used to help further guide the Investment Manager's engagement with companies (for example, including the top three carbon-emitting stocks in the priority engagement process). ## 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 ongoing relevance of the Company's investment objective in the current environment and recent feedback from the Company's brokers and shareholders, where available. - A resolution for the continuation of the Company was passed at the AGM in June 2021 showing ongoing support from shareholders for the Company's mandate. - The principal risks detailed in the strategic report on pages 13 to 16 and the steps taken to mitigate these risks. In particular, the Board has considered the operational ability of the Company to continue in the current environment, including the impact of geopolitical developments, and the ability of the key third party suppliers to continue to provide essential services to the Company. Third party services have continued to be provided effectively. - The Company is invested in readily realisable listed securities. Recent stress testing has confirmed that shares can be easily liquidated, despite the more uncertain and volatile economic environment. - 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 (see pages 2 and 4) which can be used to top up the dividend in tougher times. - The level of gearing is closely monitored by the Board and the Manager. Covenants are actively reviewed and there is adequate headroom in place. - The availability of long-term gearing facilities. The Company's gearing comprises $25 million of ten year loan notes (until December 2030) and $25 million of 15 year loan notes (until December 2035). Accordingly, taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Board has 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 stockmarket 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. Dame Susan Rice Chair 4 April 2023 --- Results ## Performance (total return) | Total return (Capital return plus dividends reinvested) | 1 year return % | 3 year return^{A} % | 5 year return^{A} % | | --- | --- | --- | --- | | Share price^{B} | +12.4 | +17.9 | +39.8 | | Net asset value per share^{B} | +9.6 | +30.0 | +43.7 | | Russell 1000 Value Index (in sterling terms) | +8.5 | +36.9 | +61.5 | | S&P 500 Index (in sterling terms) | 0.0 | +42.1 | +82.2 | A Cumulative return B Considered to be an Alternative Performance Measure. See page 91 for more information. ## Ten Year Financial Record | Year to 31 January | 2014 | 2015 | 2016 | 2017 | 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | | Per share (p) | | | | | | | | | | | | Net revenue return^{A} | 5.96 | 6.54 | 7.15 | 7.98 | 8.42 | 10.04 | 11.42 | 11.79 | 10.28 | 12.21 | | Dividends^{A} | 5.40 | 6.00 | 6.60 | 7.20 | 7.80 | 8.50 | 9.50 | 10.00 | 10.30 | 11.00 | | As at 31 January | | | | | | | | | | | | Net asset value per share^{A}(p) | 163.1 | 187.8 | 187.1 | 264.7 | 275.5 | 280.4 | 288.9 | 262.5 | 318.8 | 337.2 | | Shareholders' funds (£'000) | 271,952 | 309,273 | 280,644 | 379,101 | 391,649 | 398,657 | 413,948 | 375,416 | 448,463 | 472,891 | A Comparative figures have been restated due to the sub-division of each existing Ordinary share of 25p into five Ordinary shares of 5p each on 10 June 2019. The North American Income Trust plc --- Performance Dividend (p) and Company and Russell 1000 Value Index and the S&P 500 Index Yields (%) ![img-10.jpeg](img-10.jpeg) Total Return of NAV and Share Price vs Russell 1000 Value Index and the S&P 500 Index (reference indices in sterling terms) Five years to 31 January 2023 (rebased to 100 at 31 January 2018) ![img-11.jpeg](img-11.jpeg) The North American Income Trust plc --- The North American Income Trust plc # Discount ## Share Price Premium/ (Discount) to NAV Five years to 31 January 2023 ![img-12.jpeg](img-12.jpeg) Source: Morningstar 21 --- # Investment Manager's Review ## Market review North American equity market indices were volatile over the year ended 31 January 2023, however, ended higher in sterling terms on a total return basis as the US dollar strengthened against the pound, from a weighted average of $1.37 to the pound in 2022 to a weighted average of $1.22 to the pound in the current year. This inflated the valuations on the balance sheet in sterling terms. A combination of higher interest rates and surging inflation – due in part to a booming jobs market – caused North American share prices to fall sharply from early 2022 onwards. Growth-focused stocks, such as technology companies, which had been among the strongest stock market performers in the years leading up to 2022, were particularly hard hit. These stocks are more sensitive to higher interest rates. As US inflation hit a 40-year high, the Federal Reserve ("Fed") became increasingly aggressive in its response. It raised its main interest rate by 0.25% in March 2022, 0.50% in May 2022 and by 0.75% at each of its next four meetings. Signs of progress in the battle against inflation emerged in November 2022 when the annual consumer inflation figure (for the twelve months to October) showed an unexpected drop to 7.7%. Further falls in the annual consumer inflation rate increased investor confidence that price pressures in the US were subsiding. Accordingly, the Fed increased its main interest rate by a more measured 0.50% in December, down from the 0.75% rate hikes of previous months. The energy, materials and healthcare sectors were the strongest performers within the Russell 1000 Value index, the Company's primary reference index, while the information technology, communication services and real estate sectors were the primary market laggards for the period. ## Performance The Company returned 9.60% on a NAV basis in sterling terms for the year ended 31 January 2023, outperforming the 8.51% return of its primary reference index, the Russell 1000 Value Index (total return) in sterling terms. The revenue account remained in good shape, building upon the record established in prior years. At a sector level, the largest contributor to the Company's performance was information technology due to stock selection and, to a lesser extent, having an underweight exposure. The second-largest contributor was real estate, thanks to stock selection, which was partially offset by a small negative effect from being overweight in the sector. Looking at individual stock contributors to performance included real estate investment trust Gaming & Leisure Properties, its shares rerating higher after the company made some acquisitions of regional casinos. Pharmaceutical company Bristol-Myers Squibb was also a positive. Cash flows remained strong and there were some signs of early successes in the company's drugs pipeline. The pharmaceutical sector, where Bristol-Myers Squibb is our largest position, was rerated over the period. Oil refiner, Phillips 66, was also a positive for the Company. The diversified energy company benefited from extremely strong refining margins following Russia's invasion of Ukraine. Also, Phillips 66 completed two acquisitions that increased the company's exposure to a more stable part of the energy value chain while also growing the earnings power of the company. On the negative side, the main detractor from the Company's performance at a sector level was consumer discretionary, due to stock selection and, to a lesser extent, having an overweight exposure. The second-largest detractor was energy, with weaker stock selection that was partially offset by a positive effect from being overweight to the sector. The largest individual stock detractors from performance were clothing companies HanesBrands and VF Corporation. Shares in HanesBrands were weak due to a delay in the company's new management implementing changes during a period when excessive apparel inventories pressurised all stocks in the industry. Meanwhile, VF Corporation suffered from a continued lack of traction and a subsequent change of management at its important Vans brand. Also, China's strict 'zero-Covid' policy adversely affected both demand for VF Corporation's products and the company's supply chain. Canadian financial services company CI Financial was also a detractor over the period. Its shares de-rated as investors were worried about the company's increased leverage after its acquisition of several high-quality registered investment advisors. The North American Income Trust plc --- # Portfolio activity The investments in the Company's portfolio remained consistent with our investment process which aims to identify high-quality, cash generative companies. During the year, market volatility created opportunities to add quality companies into the portfolio at compelling prices. The changes in the portfolio are summarised below. We re-initiated a position in Home Depot as a best-in-class retailer, led by a high-quality management team. At the time that we re-initiated, the shares were caught in a collective market drawdown that meaningfully detached Home Depot's shares from their intrinsic value. The company has a strong real estate position from a location standpoint, best-in-class execution and a culture that has led to far superior sales per square foot metrics than its closest peer. Home Depot operates in a near duopoly with rational pricing. We believe that CVS Health ("CVS") is making significant improvements to the quality of the business, pivoting it towards more attractive, structurally growing areas of healthcare. The key strategic initiative is to lower the retail pharmacy footprint and invest in primary care delivery. In the latter area, there is a significant opportunity for growth as 30% of Americans do not have a primary care provider and the industry is moving towards value-based care, which offers more attractive returns. CVS can build on the existing range of basic services offered at its HealthHUBs and MinuteClinics to bring a more affordable model of care delivery. We believe PNC Financial Services ("PNC") can continue to take deposit and loan market share over time as the bank's scale gives it capacity to invest in technology as banking moves further into the digital world. In addition, we think there is a long runway for growth from PNC's BBVA acquisition that will create additional upside. PNC historically has a good underwriting track record and we believe it will hold up well relative to peers in a tough market environment. We initiated a position in Merck, with the view that its modest valuation captures concerns on both the potential to overpay for large scale M&A as well as the concentration in Keytruda, which will lose patent protection in 2028. We believe that Merck has other growth drivers that will help offset this view. For example, Gardasil's capacity expansion, beginning in 2023, will help as will additional M&A that capitalises on opportunities like the Acceleron deal. Further information on the company can be found in the case study on page 35. We sold the position in Nutrien after a rally in fertiliser prices drove the company's earnings to unsustainably high levels. We expect earnings to revert lower over time, along with the stock price. We disposed of the holding in Class I railroad operator Union Pacific given multiple quarters of mixed performance. The company has faced operational challenges, combined with a high relative valuation that embeds faster growth over the next year than we believe is attainable. Union Pacific remains a high-quality operator, but, at current valuations, better opportunities can be found elsewhere within cyclicals. We sold out of the holding in Genuine Parts Company, a high-quality distributor that focuses on two distinct segments – the automotive aftermarket parts and a broad industrial offering. The company's valuation expanded from a market multiple to a 30–40% premium on peak earnings. We sold the position in Huntington Bancshares on fears that consensus expense expectations for 2023 were too low and needed to be adjusted upwards. We disposed of the holding in Gilead Sciences on the view that the company's recent acquisitions will not provide quite the level of commercial upside that was originally hoped for. Therefore, upside is dependent on success in some clinical trials, where the outlook is more limited. While Gilead continues to execute reasonably well on its base business, this appears to be fairly well captured by the stock's current valuation. Gilead remains a solid, quality company, but M&A deals that were needed to rejuvenate interest in the stock may struggle to generate attractive returns. We sold the position in HanesBrands due to management's inability to improve the company's weakened operations given the demand drop that affected cash flows. While the company's turnaround plan to reduce complexity, focus on the most profitable products and grow the Champion brand had strong merits, the unwinding of demand tailwinds from the pandemic has proved to be too strong. We sold the holding, as the timing of any recovery did not justify the embedded risk of retaining a position. We sold the position in utility CMS Energy early in the period on valuation concerns but bought it back later on, as a pullback in the company's shares gave us the opportunity to re-establish a holding in a company that we regard as a best-in-class operator in its sector. The North American Income Trust plc 23 --- # Investment Manager's Review Continued ## Dividend growth The Company's strong track record of dividend growth continued over the review period. A number of holdings grew their dividends above our long-term average, with several announcing increases in the double digits. The highest increase was PNC Financial Services Group, which increased its dividend by 20%. Other notable increases came from home-improvement retailer Home Depot, which increased its dividend by 15%; oil refiner Philips 66, with a 12% increase; Broadcom, a provider of semiconductor and infrastructure software services, which increased the payout by 12% and telecommunications equipment firm Cogent Communications, which raised its dividend by 11%. Three other companies that increased dividends by 10% were CVS Health, the owner of several healthcare brands, Analog Devices, the semiconductor manufacturer, and Royal Bank of Canada. Additionally, one holding announced special payments to shareholders during the review period. Derivatives exchange operator CME Group declared an annual variable dividend of US$4.50 per share in December 2022. The company uses this approach to facilitate paying out all cash that it generates over the year beyond a minimum threshold. This compares favourably to the prior year variable dividend of $3.3. ## Outlook With major central banks, led by the Fed, continuing to tighten monetary policy in an effort to control inflation, the risk of an economic slowdown remains. However, the likelihood of a US recession seems to have fallen lately, helped by a relatively robust labour market. Although corporate earnings are still being revised down, we see some interesting investment opportunities at current levels and, as a result, have become more constructive on equities as an asset class. We continue to see improvement in supply chains globally and continued advancement on this front will be one component on reducing inflation. ![img-13.jpeg](img-13.jpeg) Fran Radano abrdn Inc. 4 April 2023 The North American Income Trust plc --- # Manager's Approach to ESG Integration in Equities ## Introduction from the Board of the Company Whilst Environmental, Social and Governance ("ESG") factors alone are not the over-riding criteria in relation to the investment decisions taken by the Manager for the Company, ESG is fully integrated across the Manager's investment process. The Company is not an ESG fund but the Board oversees the Manager's approach to ESG integration and is working with the Manager to understand both developments in the UK, as they apply to the Company, and developments in the US, as they apply to the companies in which the Company invests. This section of the report provides an overview of the way that ESG factors are considered by the Manager. Please note that these processes are reviewed regularly and are liable to change. The latest information, including the Manager's focus on climate change, is available at abrdn.com/europe/sustainable-investing. ## abrdn's core beliefs: why ESG is essential Considering and integrating ESG factors can offer informational, analytical and/or behavioural advantages. At abrdn, ESG factors are a component of how we think about and assess 'quality'. They also help us to identify and determine sustainable competitive advantages. | Informational advantage | By considering ESG factors, we obtain more information about the risk factors for different companies and gain a deeper understanding of the approach companies take to manage their business. We generate our own ESG assessment for each company, rather than relying on third-party data, which we believe gives us differentiated information. | | --- | --- | | Analytical advantage | We believe incorporating ESG factors into our company assessments gives us an analytical advantage. By engaging directly with companies and conducting our own ESG research, we believe we can capture the potential impact of these factors on the future outlook of the company. | | Behavioural advantage | We believe that ESG factors, and our insights on how companies manage these factors, can give us a better indication of the underlying quality of businesses. Having increased confidence in the quality of companies can give us a behavioural advantage. Deeper conviction in our investment case can make us more resilient to adverse changes in market sentiment and volatility. | "Material issues are those that are likely to affect the financial condition or operating performance of a company, and therefore are most important to an investor." Sustainability Accounting Standards Board (SASB) ## How we do it - a focus on material ESG factors Our analysts determine which ESG factors are financially material to form a forward-looking view of how the business will manage risks and capture opportunities. We focus on what we deem to be the most material ESG factors to understand their impact on a company's future business performance, financial position, and/or market perception. When identifying material ESG factors, we pay close attention to how they affect a business today (operations, earnings, and current valuation) and in the future (reputation and longer-term valuation). The North American Income Trust plc --- # Manager's Approach to ESG Integration in Equities Continued ## Integrating ESG factors into research We want to fully understand the equities in which we invest. This takes extensive, first-hand research of each company in our research universe. We rank stocks using systematic and globally applied ratings. This helps us compare companies, both regionally and against their peer group. Key questions we ask are: What is our view on the quality of corporate governance, oversight and management? What are the most material ESG and operational governance factors the company must manage and how are they being addressed? How will the most material ESG risks and opportunities affect the company's operational performance and valuation? What is our ESG quality rating and how does it factor into the investment conclusion? Does our view differ from external sources? ## Keeping score: from laggards to best in class As part of our research process, we rate a company's management of material ESG factors and the relevance to the investment case. This is a key part of our overall research process. There are five components of Quality assessed by abrdn's Analysts for all companies in the portfolio, which are assessed to develop an Analyst rating for the company. These are: ![img-14.jpeg](img-14.jpeg) The North American Income Trust plc --- The North American Income Trust plc # Working with companies: Integrating ESG factors into our engagement process ESG integration doesn't end with the investment research; engagement is a central part of our investment process. We actively engage with the companies in which we invest to understand more about a company's strategy and performance and to encourage best practice and drive change. We combine information and insights from these meetings with the insights of our investment managers, ESG equity analysts and central ESG resources. As part of our engagement, companies are encouraged to set clear targets or key performance indicators on all material ESG risks to enable performance monitoring. Engagement consists of four interconnected and equally important stages. | Monitor | Contact | Engage | Act | | --- | --- | --- | --- | | **Ongoing due diligence** • Business performance • Company financials • Corporate governance • Company's key risks and opportunities | **Frequent dialogue** • Senior executives • Board members • Heads of departments and specialists • Site visits | **Using our voice** • Attend AGM/EGMs • Always vote • Explain voting decisions • Maximise influence to drive positive outcomes | **Consider all options** • Increase or decrease our shareholding • Collaborate with other investors • Take legal action if necessary | # Integrating ESG into investment decisions: ESG factors are a core component of how we view the quality of a business, and they influence our research discussions. Portfolio meetings are where we review the outcomes of team-based sector reviews and discuss specific companies that meet the fund's mandate. Peer review provides oversight for all our investment analysis and ESG factors are no different. We have robust debates and challenge each other on our ESG analysis and its relevance to investment cases and decisions. We then construct a portfolio of Quality companies, having considered ESG factors and their impact on our different Quality outcomes. 27 --- # Portfolio The Company's portfolio is consistent with the Manager's focus on quality, dividend-paying companies with competitive advantage in attractive industries, strong management, financials and ESG factors. At 31 January 2023, the Company's portfolio consisted of 36 equity and 9 bond holdings. The North American Group of Companies --- The North American Income Institute 257 ![img-15.jpeg](img-15.jpeg) The Company has invested in The Home Depot, Inc., an American multinational home improvement retail corporation that sells tools, construction products, appliances, and services including fuel and transportation rentals. --- # Ten Largest Investments As at 31 January 2023 | | **Baker Hughes** Baker Hughes Company provides oilfield products and services. The Company engages in surface logging, drilling, pipeline operations, petroleum engineering, and fertilizer solutions, as well as offers gas turbines, valves, actuators, pumps, flow meters, generators and motors. Baker Hughes serves oil and gas industries worldwide. | | **CVS Health** CVS Health Corporation provides health care and retail pharmacy services. The Company offers prescription medications, beauty, personal care, cosmetics, and health care products as well as pharmacy benefit management, disease management and administrative services. | | --- | --- | --- | --- | | | **Merck & Co** Merck & Co., Inc. is a global health care company that delivers health solutions through its prescription medicines, vaccines, biological therapies, animal health, and consumer care products, which it markets directly and through its joint ventures. The Company has operations in pharmaceutical, animal health, and consumer care. | | **Bristol-Myers Squibb** Bristol-Myers Squibb Company is a global biopharmaceutical company. The Company develops, licenses, manufactures, markets, and sells pharmaceutical and nutritional products. | | | **MetLife** MetLife, Inc. provides individual insurance, employee benefits, and financial services with operations throughout the United States and the regions of Latin America, Europe, and Asia Pacific. | | **Comcast** Comcast Corporation provides media and television broadcasting services. The company offers video streaming, television programming, high-speed Internet, cable television and communication services. Comcast serves customers worldwide. | | | **Omega Healthcare Investors** Omega Healthcare Investors, Inc is a real estate investment trust (RBT). The Company invests in and provides financing to the long-term care industry. Omega operates healthcare facilities in the United States which are operated by independent healthcare operating companies. | | **Gaming & Leisure Properties** Gaming and Leisure Properties, Inc. owns and leases casinos and other entertainment facilities. | | | **Philip Morris** Philip Morris International Inc., through its subsidiaries, manufactures and sells cigarettes and other tobacco products. | | **Phillips 66** Phillips 66 is a downstream energy company. The Company's operations include oil refining, marketing and transportation. | The North American Income Trust plc --- List of Investments As at 31 January 2023 | Company | Industry classification | Valuation 2023 £'000 | Total assets % | Valuation 2022 £'000 | | --- | --- | --- | --- | --- | | Baker Hughes | Energy Equipment & Services | 23,204 | 4.5 | 13,294 | | CVS Health | Health Care Providers & Services | 21,498 | 4.2 | - | | Merck & Co | Pharmaceuticals | 20,939 | 4.1 | - | | Bristol-Myers Squibb | Pharmaceuticals | 20,654 | 4.0 | 20,797 | | MetLife | Insurance | 20,166 | 3.9 | 14,995 | | Comcast | Media | 19,178 | 3.8 | 19,561 | | Omega Healthcare Investors | Equity Real Estate Investment Trusts (REITs) | 19,131 | 3.7 | 14,078 | | Gaming & Leisure Properties | Equity Real Estate Investment Trusts (REITs) | 17,402 | 3.4 | 16,837 | | Philip Morris | Tobacco | 16,935 | 3.3 | 19,165 | | Phillips 66 | Oil, Gas & Consumable Fuels | 16,290 | 3.2 | 15,800 | | Ten largest investments | | 195,397 | 38.1 | | | American International | Insurance | 15,406 | 3.0 | 12,913 | | Analog Devices | Semiconductors & Semiconductor Equipment | 15,321 | 3.0 | 4,889 | | Citigroup | Banks | 14,846 | 2.9 | 19,415 | | Emerson Electric | Electrical Equipment | 14,657 | 2.9 | 13,707 | | L3 Harris Technologies | Aerospace & Defense | 13,959 | 2.7 | 12,480 | | Cogent Communications | Diversified Telecommunication | 13,924 | 2.7 | 11,853 | | Cisco Systems | Communications Equipment | 13,837 | 2.7 | 14,523 | | Medtronic | Health Care Equipment & Supplies | 13,596 | 2.6 | 15,427 | | FMC | Chemicals | 13,517 | 2.6 | 12,340 | | PNC Financial Services | Banks | 13,438 | 2.6 | - | | Twenty largest investments | | 337,898 | 65.8 | | | Restaurant Brands International | Hotels, Restaurants & Leisure | 13,048 | 2.5 | 8,344 | | CMS Energy | Multi-Utilities | 12,832 | 2.5 | 11,996 | | AbbVie | Biotechnology | 12,001 | 2.3 | 25,508 | | Broadcom | Semiconductors & Semiconductor Equipment | 11,880 | 2.3 | 6,550 | | TC Energy | Oil, Gas & Consumable Fuels | 10,470 | 2.1 | 15,388 | | CI Financial | Capital Markets | 9,707 | 1.9 | 9,701 | | OneMain | Consumer Finance | 8,760 | 1.7 | 9,626 | | VF | Textiles, Apparel & Luxury Goods | 8,168 | 1.6 | 11,665 | | JPMorgan Chase & Co. | Banks | 7,958 | 1.6 | 8,861 | | CME Group | Capital Markets | 7,892 | 1.5 | 6,842 | | Thirty largest investments | | 440,614 | 85.8 | | The North American Income Trust plc --- # List of Investments Continued As at 31 January 2023 | Company | Industry classification | Valuation 2023 £'000 | Total assets % | Valuation 2022 £'000 | | --- | --- | --- | --- | --- | | Air Products & Chemicals | Chemicals | 7,810 | 1.5 | 10,514 | | Royal Bank of Canada | Banks | 7,483 | 1.5 | 7,645 | | Coca-Cola | Beverages | 7,471 | 1.4 | 8,185 | | Texas Instruments | Semiconductors & Semiconductor Equipment | 5,758 | 1.1 | 6,020 | | Hannon Armstrong Sustainable | Mortgage Real Estate Investment Trusts (REITs) | 5,397 | 1.1 | 6,183 | | Home Depot | Specialty Retail | 5,266 | 1.0 | - | | CCO Holdings 4.75% 01/02/32 | Media | 1,447 | 0.3 | - | | Venture Global Calcasie 6.25% 15/01/30 | Oil, Gas & Consumable Fuels | 746 | 0.2 | - | | NRG Energy 3.625% 15/02/31 | Multi-Utilities | 726 | 0.2 | - | | Venture Global Calcasie 3.875% 01/11/33 | Oil, Gas & Consumable Fuels | 717 | 0.2 | - | | Forty largest investments | | 483,435 | 94.3 | | | Goodyear Tire & Rubber 5% 15/07/29 | Consumer Durables | 715 | 0.1 | 745 | | Howmet Aerospace 3% 15/01/29 | Aerospace & Defense | 709 | 0.1 | - | | Viatris 2.7% 22/06/30 | Pharmaceuticals | 706 | 0.1 | - | | Graphic Packaging 3.75% 01/02/30 | Packaging & Containers | 693 | 0.1 | - | | NCL 5.875% 15/02/27 | Consumer Discretionary | 682 | 0.1 | - | | Total investments | | 486,940 | 94.8 | | | Net current assets | | 26,494 | 5.2 | | | Total assets | | 513,434 | 100.0 | | The North American Income Trust plc --- # Geographical/Sector Analysis ## Geographic Analysis As at 31 January | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | Country | Equity % | Fixed interest % | Total % | Equity % | Fixed interest % | Total % | | Canada | 8.4 | - | 8.4 | 9.8 | - | 9.8 | | USA | 90.1 | 1.5 | 91.6 | 89.8 | 0.4 | 90.2 | | | 98.5 | 1.5 | 100.0 | 99.6 | 0.4 | 100.0 | ## Sector Analysis for Equity Portfolio As at 31 January 2023 ![img-16.jpeg](img-16.jpeg) The North American Income Trust plc 33 --- # Currency/Market Performance ## Currency Graph (exchange rate US$ to £) For the period 31 January 2021 to 31 January 2023 ![img-17.jpeg](img-17.jpeg) The North American Income Trust plc --- # Investment Case Studies ## Merck & Co Dividend yield: 2.8% Merck & Co (MRK) is a global biopharmaceutical company with strong leadership in the immuno-oncology space. It generated nearly $60 billion in sales in 2022 with a 37% operating margin resulting in very strong cash flow generation which has led to the company consistently growing its dividend by 5-6% in recent years. A key driver for these sales has been uptake of Keytruda with its impressive profile for use against an array of cancers. This drug generated $20 billion in sales in 2022 and is expected to grow until it loses patent protection in 2028. The position in Merck was taken when the multiple on future earnings post the 2028 patent loss on Keytruda appeared undemanding, while at the same time the expectations for other growth drivers had increased, which would bolster the post 2028 earnings stream. Since then, outstanding Phase 3 data for a drug in peripheral arterial hypertension has been presented that supports a multi-billion dollar opportunity. In addition, manufacturing capacity for Gardasil, an HPV vaccine that prevents certain cancers, will come online in 2023 for a product that has been capacity constrained for the last few years. Finally, excellent Phase 2b data for an oral cholesterol lowering drug supports the Phase 3 development and points to a multi-billion dollar opportunity as Merck expects to price the drug at a level that will optimize payer coverage. Confidence that Merck will generate longer term growth has increased, suggesting that efforts to improve margins by the company should be successful. Merck has a strong history where it has been on the forefront of efforts to enable patient access to drugs. The company focuses on developing drugs that can reach 75% of the world, with a view towards enabling access from developing countries and underserved populations in the US. Merck has targeted enabling 100 million people to gain access to its medicines by 2025 through a variety of strategies, solutions, and partnerships. And Merck is specifically trying to reach 30 million people from lower and middle income countries as well as underserved US populations with its social investments. The company provides annual updates to measure progress against these goals. ![img-18.jpeg](img-18.jpeg) The North American Income Trust plc 35 --- # Investment Case Studies Continued ![img-19.jpeg](img-19.jpeg) ## Analog Devices Dividend yield: 1.9% Analog Devices (ADI) is a semiconductor company focused on the analog market selling a wide range of products (over 75,000) into a diversified set of more than 125,000 customers. The analog semiconductor market is the most attractive part of the industry, as the products are in most cases designed specifically for particular end-customer products and add a significant part of the value of the end product but are a very small part of the end cost. This results in ADI's products typically having a long life cycle (over 7 years) and also pricing (as the cost is small and replacement is difficult). ADI's largest two end markets are industrial equipment and autos, both of which have structural growth drivers. In industrial equipment, newer generations of machinery have significantly more functionality built into them at the machine level (rather than the remote computer systems that control them), and in autos, the move towards Electric Vehicles is driving a step change in semiconductor content. These trends should drive 7-10% revenue growth per annum over the cycle, providing a supportive medium term revenue backdrop. Analog semiconductors have properties which do not require leading edge manufacturing capability, which enables ADI to have strong cash generation and attractive gross margins (74% in 2022). In addition, ADI has pioneered technology sharing arrangements with leading Taiwan based fabrication company, Taiwan Semiconductor Manufacturing Company (TSMC), such that ADI does around half of its own manufacturing and outsources the other half to TSMC. The manufacturing processes used are interchangeable, which enables ADI to take back a larger share of production in house in periods of weaker demand, hereby significantly lowering margin volatility over the cycle. We believe that ADI's strong margins and ongoing cash generation are sustainable and with strong medium term growth outlook driven by the structural drivers in its end markets. ADI has robust management of its main ESG risks, over a five year period the company reduced water usage by 7% despite 70% revenue growth, and management have targets to increase the rate of water recycling in its operations. It also targets 50% reduction in Greenhouse Gas emissions by 2025. The company also stands to benefit substantially from the ongoing growth in Electric Vehicles, which is a significant driver of increased semiconductor content in cars. The North American Income Trust plc --- # Governance The Company is committed to high standards of corporate governance and applies the principles identified in the UK Corporate Governance Code and the AIC Code of Corporate Governance. All Directors are considered by the Board to be independent of the Company and the Manager and free of any material relationship with the Manager. ![img-20.jpeg](img-20.jpeg) MetLife Inc, one of the Company's Ten Largest Investments, is a leading global life and health insurance company worldwide. The North American Income Trust plc 37 --- The North American Income Trust plc # Board of Directors ![img-21.jpeg](img-21.jpeg) ## Dame Susan Rice Independent Non-Executive Chair ### Length of service: 8 years, appointed a Director on 17 March 2015 and appointed Chair on 1 January 2022 ### Experience: A chartered banker with extensive experience as a non-executive director, as well as in financial services, retail, utilities, leadership and sustainability. Her previous roles include managing director of Lloyds Banking Group Scotland, chair and chief executive of Lloyds TSB Scotland, President of the Scottish Council for Development and Industry, a member of the Scottish First Minister's Council of Economic Advisors and chair of The Scottish Fiscal Commission. She has also held a range of non-executive directorships, including at the Bank of England, J Sainsbury plc and SSE plc. She is currently chair of the Financial Services Culture Board and Scottish Water and Business Stream. She also chairs the advisory board of the Global Ethical Finance Initiative and sits on the advisory group P-CAN, the UK Place-Based Climate Action network. Originally from the United States, her early career was at Yale and Colgate universities and then at NatWest Bancorp. ### Last re-elected: 8 June 2022 ### Committee membership: Management Engagement Committee (Chair) ### Contribution: The Board reviewed the contribution of Dame Susan Rice in light of her proposed re-election at the forthcoming AGM and concluded that she fosters a constructive relationship between the Board and Manager, encouraging open contributions from all. ![img-22.jpeg](img-22.jpeg) ## Karyn Lamont Independent Non-Executive Director and Chair of the Audit Committee ### Length of service: 4 years, appointed a Director on 18 September 2018 ### Experience: A chartered accountant and former audit partner at PricewaterhouseCoopers until December 2016. She has over 25 years' experience and provided audit and other services to a range of clients, including a number of investment trusts, across the UK's financial services sector, including outsourcing providers. She is the audit committee chair of Scottish Building Society, iomart Group plc, The Scottish American Investment Company plc and Ediston Property Investment Company plc. ### Last re-elected: 8 June 2022 ### Committee membership: Management Engagement Committee and Audit Committee (Chair) ### Contribution: The Board reviewed the contribution of Karyn Lamont in light of her proposed re-election at the forthcoming AGM and concluded that she continues to chair the Audit Committee effectively as well as bringing to the Board her extensive experience in accounting and investment companies. 38 --- ![img-23.jpeg](img-23.jpeg) # Patrick Edwardson Independent Non-Executive Director ## Length of service: 9 months, appointed a Director on 1 July 2022 ## Experience: An investment and financial services professional with over 30 years of experience. He joined Baillie Gifford in 1993 and became a partner in 2005. In a wide-ranging investment career, he managed bond, equity and multi-asset portfolios, was manager of the Scottish American Investment Company plc between 2004 and 2014 and led Baillie Gifford's multi-asset team until his retirement in 2020. He is currently a non-executive director on the boards of JPMorgan Multi Asset Growth and Income plc and Edinburgh Investment Trust plc. Patrick is also managing director of Atheian Ltd, a family investment office. ## Last re-elected: n/a ## Committee membership: Management Engagement Committee and Audit Committee ## Contribution: The Board reviewed the contribution of Patrick Edwardson in light of his proposed election at the forthcoming AGM and concluded that he provides objective insight and challenge to the investment process, through his experience of investment management. ![img-24.jpeg](img-24.jpeg) # Susannah Nicklin Independent Non-Executive Director ## Length of service: 4 years, appointed a Director on 18 September 2018 ## Experience: An investment and financial services professional with over 25 years of experience in executive roles at Goldman Sachs and Alliance Bernstein in the US, Australia and the UK. She has also worked in the private equity sector as former Senior Independent Director at Pantheon International plc and with Bridges Ventures, the Global Impact Investing Network and Impact Ventures UK. She is independent chair of Schroders BSC Social Impact Trust plc, senior independent director of Baronsmead Venture Trust plc and a non-executive director of Ecofin Global Utilities and Infrastructure Trust plc and Frog Capital LLC. She is a CFA® charterholder. ## Last re-elected: 8 June 2022 ## Committee membership: Management Engagement Committee and Audit Committee ## Contribution: The Board reviewed the contribution of Susannah Nicklin in light of her proposed re-election at the forthcoming AGM and concluded that she continues to provide insight and challenge to the investment process, through her experience of investment companies, with a particular interest in ESG reporting. The North American Income Trust plc 39 --- # Board of Directors Continued ![img-25.jpeg](img-25.jpeg) ## Charles Park Senior Independent Non-Executive Director **Length of service:** 5 years, appointed a Director on 13 June 2017 **Experience:** Over 30 years of investment management experience. He was a co-founder of Findlay Park Investment Management, a US boutique asset management house established in 1997, and deputy chief investment officer with joint responsibility for managing Findlay Park American Fund until his retirement from the firm in 2016. Prior to co-founding Findlay Park, Charles was an investment manager at Hill Samuel Asset Management and an analyst at Framlington Investment Management. He is a non-executive director of Polar Capital Technology Trust plc. **Last re-elected:** 8 June 2022 **Committee membership:** Management Engagement Committee and Audit Committee **Contribution:** The Board reviewed the contribution of Charles Park in light of his proposed re-election at the forthcoming AGM and concluded that he brings a wealth of investment management experience to the Board and expert knowledge of investment companies and governance matters in his role as Senior Independent Director. The North American Income Trust plc --- # Directors' Report The Company, which was incorporated in 1902, is registered as a public limited company and is an investment company within the meaning of Section 833 of the Companies Act 2006. The Company's registration number is SC005218. The Company has been accepted by HM Revenue & Customs as an investment trust subject to the Company continuing to meet the relevant eligibility conditions of Section 1158 of the Corporation Tax Act 2010 and the ongoing requirements of Part 2 Chapter 3 Statutory Instrument 2011/2999 for all financial years commencing on or after 1 February 2012. The Directors are of the opinion that the Company has conducted its affairs for the year ended 31 January 2023 so as to enable it to comply with the ongoing requirements for investment trust status. The Company has conducted its affairs so as to satisfy the requirements as a qualifying security for Individual Savings Accounts. The Directors intend that the Company will continue to conduct its affairs in this manner. ## Results and Dividends The audited financial statements for the year ended 31 January 2023 are contained on pages 66 to 88. Details of dividends for the year to 31 January 2023 can be found on page 4. ## Share Capital and Rights attaching to the Company's Shares At 31 January 2023, the Company's capital structure consisted of 140,234,749 Ordinary shares of 5p each (2022 - 140,675,934 Ordinary shares of 5p each). During the year to 31 January 2023, the Company bought back 441,185 Ordinary shares for cancellation. There were no Ordinary shares repurchased for cancellation subsequent to the year end. The Ordinary shares carry a right to receive dividends which are declared from time to time by an ordinary resolution of the Company (up to the amount recommended by the Board) and to receive any interim dividends which the Company may resolve to pay. On a winding-up, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings. On a show of hands, every shareholder present in person, or by proxy, has one vote and, on a poll, every Ordinary shareholder present in person has one vote for each share held and a proxy has one vote for every share represented. There are no restrictions concerning the holding or transfer of the Company's shares and there are no special rights attached to any of the shares. The Company is not aware of any agreements between shareholders which may result in restriction on the transfer of shares or the voting rights. The rules concerning amendments to the Articles of Association and powers to issue or buyback the Company's shares are contained in the Articles of Association of the Company and the Companies Act 2006. ## Significant Agreements The Company is not aware of any significant agreements to which it is a party that take effect, alter or terminate upon a change of control of the Company following a takeover and there are no agreements between the Company and its Directors concerning compensation for loss of office. Other than the management agreement with the Manager and the depositary agreement, further details of which are set out below, the Company is not aware of any contractual or other agreements which are essential to its business which ought to be disclosed in the Directors' Report. ## Directors Details of the Directors of the Company who were in office during the year and up to the date of this report are shown on pages 38 to 39. Patrick Edwardson was appointed on 1 July 2022. No contract or arrangement existed during the period in which any of the Directors was materially interested. No Director has a service contract with the Company. ## Directors' & Officers' Liability Insurance The Company maintains insurance in respect of Directors' and Officers' liabilities in relation to their acts on behalf of the Company for the year to 31 January 2023 and up to the date of this report. Each Director of the Company shall be entitled to be indemnified out of the assets of the Company to the extent permitted by law against any loss or liability incurred by him in the execution of his duties in relation to the affairs of the Company. These rights are included in the Articles of Association of the Company. ## Corporate Governance The Statement of Corporate Governance, which forms part of the Directors' Report, is shown on pages 44 to 46. The North American Income Trust plc --- # Directors' Report Continued ## Principal Agreements ### Management Agreement The Company has appointed abrdn Fund Managers Limited ("aFML" or the "Manager"), a wholly owned subsidiary of abrdn plc, as its alternative investment fund manager ("AIFM"). aFML has been appointed to provide the Company with investment management, risk management, administration, company secretarial services and promotional activities. The Company's portfolio is managed by abrdn Inc. (the "Investment Manager") by way of a delegation agreement in place between aFML and abrdn Inc. In addition, aFML has sub-delegated promotional activities to abrdn Investments Limited and administrative and secretarial services to abrdn Holdings Limited. Details of the management agreement, including notice period and fees paid during the year ended 31 January 2023 are shown in note 5 to the financial statements. ### Depositary Agreement The Company has appointed BNP Paribas Trust Corporation UK Limited ("BNPP") as its depositary. During the period, the Depositary was also BNP Paribas Securities Services, London Branch. The depositary agreement was novated to BNPP on 30 June 2022. ### Loan Note Agreement In December 2020, the Company entered into a long-term financing agreement for US$50 million with MetLife comprising two loans of US$25 million with terms of ten and 15 years at an all-in cost of 2.70% and 2.96% respectively, giving a blended rate for ten years of 2.83% (the "Long-Term Financing Agreement"). ## Substantial Interests As at 31 January 2023 the Company had received notification or was aware of the following interests in its Ordinary shares: | Shareholder | Number of shares held | % held | | --- | --- | --- | | Rathbone Brothers | 16,928,507 | 12.1 | | RBC Brewin Dolphin | 11,230,382 | 8.1 | | abrdn Retail Plans | 10,033,987 | 7.2 | | Interactive Investor | 6,742,141 | 4.8 | | Hargreaves Lansdown | 6,496,770 | 4.6 | | Canaccord Genuity Wealth Management | 6,296,642 | 4.5 | | Charles Stanley | 5,096,204 | 3.6 | | 1607 Capital Partners | 4,987,174 | 3.6 | | WM Thomson | 4,357,105 | 3.1 | | EFG Harris Allday | 4,306,065 | 3.1 | | Allspring Global Investments | 4,236,597 | 3.0 | As at the date of this Report, no changes to the above interests had been notified to the Company. ## Accountability and Audit The Directors who held office at the date of approval of this Directors' Report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor is unaware; and each Director has taken all the steps that he/she could reasonably be expected to have taken as a Director in order to make himself/herself aware of any relevant audit information and to establish that the Company's auditor is aware of that information. The Audit Committee has reviewed the services provided by the auditor during the year, together with the auditor's fees and procedures in connection with the provision of non-audit services. There were no non-audit service fees paid during the year. The Board remains satisfied that PricewaterhouseCoopers LLP's objectivity and independence is being safeguarded. The North American Income Trust plc --- The North American Income Trust plc # Going Concern The Company's assets consist substantially of securities in companies listed on recognised stock exchanges and in normal circumstances are realisable within a short timescale and which can be sold to meet funding commitments if necessary. The Board has set gearing limits and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. The Company undertakes a continuation vote every three years. The last continuation vote was passed at the AGM held in June 2021 with 98.6% of votes in favour. The Board has considered the impact of recent market events, such as geopolitical developments and believes that there will be a limited resulting financial impact on the Company's operational resources and existence. Given that the Company's portfolio comprises primarily "Level One" assets (listed on a recognisable exchange and realisable within a short timescale), and the Company's relatively low level of gearing, the Company has the ability to raise sufficient funds so as to remain within its debt covenants and pay expenses. Taking the above factors into consideration, the Directors have a reasonable expectation that the Company has adequate financial resources to continue in operational existence for the foreseeable future and for at least twelve months from the date of this Report. Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements. # Annual General Meeting The Notice of General Meeting is included at pages 102 to 106. Among the resolutions being put at the Annual General Meeting ("AGM") of the Company to be held on 8 June 2023 at 2.00pm, the following resolutions will be proposed as special business: ## (i) Section 551 Authority to Allot Shares Resolution 13, which is an ordinary resolution, seeks to renew the Directors' authority under section 551 of the Companies Act to allot shares (excluding treasury shares) up to an aggregate nominal amount of £2,313,873 or, if less, the number representing 33.33% of the issued Ordinary share capital of the Company as at the date of the passing of the resolution. This authority will expire on 31 July 2024 or, if earlier, at the conclusion of the AGM to be held in 2024 (unless previously revoked, varied or extended). The Directors will only exercise this authority if they believe it is advantageous and in the best interests of shareholders. There are no treasury shares in issue. ## (ii) Dis-application of Pre-emption Provisions Resolution 14, which is a special resolution, seeks to renew the dis-application of statutory pre-emption rights in relation to the issue of shares (or sale of shares out of treasury) up to an aggregate nominal amount of £701,174 or, if less, the number representing 10% of the issued Ordinary share capital of the Company as at the date of the passing of the resolution. This authority will expire on 31 July 2024 or, if earlier, at the conclusion of the AGM to be held in 2024. The Directors will only exercise this authority if they believe it is advantageous and in the best interests of shareholders. Ordinary shares would only be issued for cash at a price not less than the NAV per share. ## (iii) Share Repurchases Resolution 15, which is a special resolution, seeks to renew the Company's authority for the Company to make market purchases of its own Ordinary shares, up to a maximum of 14.99% of the issued Ordinary share capital of the Company as at the date of the passing of the resolution. Shares so repurchased will be cancelled or held in treasury. The principal reasons for share buybacks are: - to enhance net asset value for continuing shareholders by purchasing shares at a discount to the prevailing net asset value; and - to address any imbalance between the supply of and demand for the Company's shares that results in a discount of the quoted market price to the published NAV per share. # Recommendation The Directors believe that the resolutions to be proposed at the AGM are in the best interests of the Company and its shareholders as a whole and recommend that shareholders vote in favour of the resolutions, as the Directors intend to do in respect of their own beneficial shareholdings totalling, in aggregate, 47,718 Ordinary shares, and representing 0.03% of the existing issued Ordinary share capital of the Company. By order of the Board abrdn Holdings Limited Secretary, Edinburgh 4 April 2023 43 --- # Statement of Corporate Governance This Statement of Corporate Governance forms part of the Directors' Report which is shown on pages 41 to 43. ## Compliance The Company is committed to high standards of corporate governance. The Board is responsible for good governance and, as required by the Listing Rules of the UK Listing Authority, this statement describes how the Company applied the principles set out in the UK Corporate Governance Code published in July 2018 (the "UK Code"), which is available on the Financial Reporting Council's website: frc.org.uk. The Company is also a member of the Association of Investment Companies ('AIC'), which has published its own Code of Corporate Governance (the 'AIC Code'), published in 2019, that seeks to codify best practice of particular relevance to investment trusts. The AIC Code is available on the AIC's website: theaic.co.uk. The Board confirms that, during the year to 31 January 2023, the Company complied with the recommendations of the AIC Code and the relevant principles and provisions of the UK Code. The UK Code includes provisions relating to: 1. interaction with the workforce (provisions 2, 5 and 6) 2. the role of the chief executive (provision 14); 3. executive Directors' remuneration (provisions 33, 36 and 40); The Board considers that these provisions are not relevant to the position of the Company, being an externally managed investment company. In particular, all of the Company's day-to-day management and administrative functions are outsourced to third parties. As a result, the Company has no executive directors, employees or internal operations. The Company has therefore not reported further in respect of these provisions. Further details of the Company's compliance with Corporate Governance can be found on its website. ## The Board The Board currently consists of five Non-Executive Directors and is chaired by Dame Susan Rice. Charles Park is the Senior Independent Director. All Directors are considered by the Board to be independent of the Company and the Manager, and free of any material relationship with the Manager which could interfere with the exercise of their independent judgment. The Board takes the view that independence is not necessarily compromised by length of tenure on the Board, and this is consistent with the AIC Code. The Company benefits from a balance of Directors with different tenures, different backgrounds and a wide variety of experience, which the Board believes contributes significantly to its strength as a whole. The Board is mindful of the importance of having a suitable Board renewal process and succession plan. The Board has a succession plan and actively evaluates Director's performance annually to ensure up to date skills and capacity. The Board considers that the post of chief executive officer is not relevant for an investment trust company as this role has effectively been delegated to the Manager under the terms of the Management Agreement. Biographies of the Board members, including their relevant experience, appear on pages 38 to 40. These demonstrate that each Director has the requisite high level and range of business, investment and financial experience, and enables the Board to provide clear and effective leadership and proper stewardship of the Company. The Board has a schedule of matters reserved to it for decision, and the requirement for Board approval on these matters is communicated directly to the senior staff of the Manager. Such matters include strategy, performance, dividend policy, gearing policy, promotional, Board composition, communication with shareholders and corporate governance matters. ## Meetings The Board normally meets at least four times a year, and more frequently where business needs require. Full and timely information is provided to the Board in order to enable the Board to function effectively and to allow Directors to discharge their responsibilities. At each meeting the Board reviews the following: - Reports from the Manager covering stockmarket environment, portfolio activities, performance and investment outlook; - Company financial information including revenue forecasts, balance sheet and gearing position; - Shareholder analysis and relations; - Regulatory issues and industry matters; - Reports from other service providers such as brokers and depositary. The North American Income Trust plc --- The table below sets out the number of scheduled Board and Committee meetings attended by each Director during the year compared to the total number of meetings that each Director was entitled to attend. The Board adopts a zero tolerance approach to bribery and corruption and has implemented appropriate procedures designed to prevent bribery. It is the Company's policy to conduct all of its business in an honest and ethical manner. The Board monitors the direct and indirect interests of each Director on a regular basis and has concluded that there were no situations which gave rise to an interest of a Director which conflicted with the interests of the Company. | | Board | Audit Committee | Management Engagement Committee | | --- | --- | --- | --- | | Susan Rice 1 | 4/4 | 2/2 | 1/1 | | Patrick Edwardson2 | 2/2 | 1/1 | 1/1 | | Karyn Lamont | 4/4 | 2/2 | 1/1 | | Susannah Nicklin | 4/4 | 2/2 | 1/1 | | Charles Park | 4/4 | 2/2 | 1/1 | 1 Attended Audit Committee meetings as observer. 2 Appointed on 1 July 2022. # Performance Evaluation An appraisal of each Director, including the Chair, and of the operation of the Board and its Committees is undertaken on an annual basis. The process is based upon individual discussions between each Director and the Chair; the Chair's performance appraisal is led by the Senior Independent Director. Following these appraisals, the Board confirms that all Directors contribute to the effective running of the Company. The Board has also reviewed the Chair's and Directors' other commitments and is satisfied that the Chair and Directors are capable of devoting sufficient time to the Company. The Directors assessed the collective performance of the Board as a whole against the requirements of the Company's business and the need to have a balanced Board and concluded that their aggregate balance of abilities, perspective and experience is appropriate and secures the right measure of continuity for the Board as a whole. The Company is not required to undertake an external evaluation of the effectiveness of the Board as it is not a constituent of the FTSE 350. No external evaluation was conducted during the year as the Board concluded that it would not add value at this time. This approach will be kept under review. The Board is mindful of the importance of having a suitable mapped board succession and renewal process and has established a succession plan. An independent search agent, Trust Associates, was used for the search for an additional non-executive director and Patrick Edwardson was appointed on 1 July 2022. There are no separate Nominations or Remuneration Committees. In view of the size of the Board, Director appraisals, succession planning, new appointments, training and remuneration are considered by the Board as a whole. In line with the Company's strong commitment to its corporate governance responsibilities, the Board regularly reviews its performance and structure to ensure it has the correct mix of relevant skills, diversity and experience for the effective conduct of the Company's business to complement the existing composition of the Board whilst having due regard for the benefits of diversity, including gender, on the Board. New Board appointments are identified against the requirements of the Company's business and the need to have a balanced Board. A description of the required role for a new appointment is prepared and nominations of Directors are sought in the financial and investment sectors. External search consultants are used to ensure that a wide range of candidates can be considered. Appointments are made on merit, taking into account the benefits of diversity, including gender. However, the overriding priority is to appoint the person with the best mix of experience and skills to complement the existing composition of the Board. New Directors are given an appropriate induction from the Manager covering legal responsibilities, the Manager's operations and investment trust matters. All Directors are entitled to receive appropriate training as deemed necessary. Details of remuneration are contained within the Directors' Remuneration Report. The North American Income Trust plc --- # Statement of Corporate Governance Continued The Board has implemented the provisions of the UK Code whereby all Directors of the Company will stand for re-election on an annual basis. The Board has reviewed the skills and experience of each Director, and unanimously supports their re-election, and the election of Patrick Edwardson for the first time, at the AGM on 8 June 2023. There is an agreed procedure for Directors to take independent professional advice, if necessary, at the Company's expense. This is in addition to the access which every Director has to the advice and services of the company secretary, abrdn Holdings Limited, which is responsible to the Board for ensuring that Board procedures are followed, and that applicable rules and regulations are complied with. ## Audit Committee The Audit Committee Report is contained on pages 47 to 49. ## Management Engagement Committee The Board has a good and constructive working relationship with the Manager and continually reviews the policies and performance of the Manager. The Management Engagement Committee comprises all of the Directors and is chaired by the Company Chair. The Committee reviews the performance of the Manager, the investment process and risk controls and its compliance with the terms of the management and secretarial agreement. The terms of reference of the Management Engagement Committee, which are available on request and on the Company's website, are reviewed on an annual basis. The terms and conditions of the Manager's appointment, including an evaluation of performance and fees, are reviewed by the Committee on an annual basis. The Committee considers that the Manager, whose team is well-qualified and experienced, has fully met the terms of its agreement with the Company. Following a review of management fees and ongoing charges, the Committee believes these are reasonable and competitive. Taking these factors into account, the Committee and the Board believes that the continuing appointment of the Manager on the terms agreed is in the interests of shareholders as a whole. The Company benefits from the expertise of the Manager's team of investment professionals. The Board continues to keep this matter under review. ## Relations with Shareholders The Directors believe in good communication with shareholders. The annual and half yearly reports are widely distributed to other parties who have an interest in the Company's performance. Shareholders and investors may obtain up to date information on the Company through the Manager's freephone information service. The Board welcomes correspondence from shareholders addressed to the Company's registered office and responds to letters on an individual basis. The Manager maintains contact with institutional shareholders and feeds back shareholder views to the Board. The Company's annual and half yearly reports and other publications can be downloaded from the Company's website, northamericanincome.co.uk. The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the management group (either the Company Secretary or the Manager) in situations where direct communication is required. The notice of the AGM, included within this Annual Report and financial statements, is normally sent out at least 20 working days in advance of the meeting. Investors in the Manager's abrdn Savings Plans are encouraged to vote by means of a Letter of Direction enclosed with the Annual Report. All shareholders have the opportunity to put questions at the Company's AGM. Proxy voting figures for each resolution are announced to the meeting after voting on a show of hands. ## ESG Investing Details of the Manager's approach to ESG integration in Equities is provided on pages 25 to 27. ## The UK Stewardship Code and Proxy Voting The Company supports the UK's Stewardship Code and seeks to play its role in supporting good stewardship of the companies in which it invests. Responsibility for actively monitoring the activities of portfolio companies has been delegated by the Board to the Manager which has sub-delegated that authority to the Investment Manager. The full text of the Company's response to the Stewardship Code may be found on its website. The Board has also given discretionary powers to the Manager to exercise voting rights on resolutions proposed by the investee companies within the Company's portfolio. The Manager reports on a quarterly basis on stewardship (including voting) issues. The North American Income Trust plc --- # Report of the Audit Committee ## Membership and Responsibilities The Audit Committee is chaired by Karyn Lamont, who is a chartered accountant, and comprises all Directors, with the exception of the Company Chair, who attends meetings but is not a member. The Committee is satisfied that it has the necessary recent and relevant financial experience and competence relevant to the investment trust sector in order to fulfil its responsibilities. The Audit Committee meets at least twice a year and considers reports from the auditor and the Manager's internal audit, risk and compliance functions. The terms of reference of the Audit Committee, which are available on request and on the Company's website, are reviewed on an annual basis. The main responsibilities of the Audit Committee are: - to review the half yearly and annual financial statements of the Company, the accounting policies applied therein and to ensure compliance with financial and regulatory reporting requirements. - to assess whether the Annual Report, including the financial statements, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy. - to review and monitor the internal control systems and risk management systems on which the Company is reliant. - to consider annually whether there is a need for the Company to have its own internal audit function. - to develop and implement policy on the engagement of the auditor to supply non-audit services. - to review the arrangements in place within the Manager whereby staff may, in confidence, escalate concerns about possible improprieties in matters of financial reporting or other matters ('whistleblowing'). - to make recommendations to the Board in relation to the appointment of the auditor and to approve the remuneration and terms of engagement of the auditor. - to consider the auditor's reports, including the audit strategy and findings. - to review annually the auditor's independence, objectivity, effectiveness, resources and qualification. The respective responsibilities of the Directors and the auditor in connection with the financial statements appear on pages 61 and 62. ## Internal Control The Board is responsible for the Company's system of internal control and for reviewing its effectiveness. The Board confirms that there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. This process has been in place for the year under review and up to the date of approval of this Annual Report. It is regularly reviewed by the Board and accords with the Financial Reporting Council's Guidance. The Directors have delegated the investment management of the Company's assets to the Manager within overall guidelines, and this embraces implementation of the system of internal control, including financial, operational and compliance controls and risk management. Internal control systems are monitored and supported by the Manager's internal audit function which undertakes periodic examination of business processes, including compliance with the terms of the management agreement, and ensures that recommendations to improve controls are implemented. The Board has reviewed, through management reports, the effectiveness of the Company's risk management and internal control systems. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the Company and policies by which these risks are managed. The significant risks faced by the Company are set on pages 14 to 16. Risks are identified and documented through a risk management framework by each function within the Manager's activities. Risk is considered in the context of the Financial Reporting Council Guidance, and includes financial, regulatory, market, operational and reputational risk. This helps the internal audit risk assessment model identify those functions for review. Any weaknesses identified are reported to the Board, and timetables are agreed for implementing improvements to systems. The implementation of any remedial action required is monitored and feedback provided to the Board. In addition, the Board has adopted its own risk matrix which identifies the key risks for the Company and covers strategy, investment management, operations, regulatory and financial obligations and third party service providers (see pages 13 to 16). A monitoring system is undertaken whereby the controls to mitigate these risks, and the impact of the residual risks, are assessed on a regular basis. The risk matrix is formally reviewed on at least a six monthly basis in order to identify emerging risks which may arise. The North American Income Trust plc 47 --- # Report of the Audit Committee Continued Note 18 to the financial statements provides further information on risks. The key components designed to provide effective internal control are outlined below: - the Manager prepares forecasts and management accounts which allow the Board to assess the Company's activities and review its performance; the emphasis is on obtaining the relevant degree of assurance and not merely reporting by exception; - the Board and Manager have agreed clearly-defined investment criteria, specified levels of authority and exposure limits. Reports on these, including performance statistics and investment valuations, are regularly submitted to the Board and there are meetings with the Manager as appropriate; - the Manager's internal audit, risk and compliance departments continually review the Manager's operations and reports to the Audit Committee on a six monthly basis. The Manager's internal audit team has direct access to the Audit Committee at any time; - written agreements are in place which specifically define the roles and responsibilities of the Manager and other third party service providers; - an independent depositary, BNP Paribas Trust Corporation UK Limited, is appointed to safeguard the Company's investments, which are registered in the name of the depositary's nominee company; and - at its March 2023 meeting, the Audit Committee carried out an annual assessment of internal controls for the year ended 31 January 2023 by considering documentation from the Manager, including the internal audit, risk and compliance functions, and taking account of events since 31 January 2023. The Audit Committee continues to believe that the Company does not require an internal audit function of its own as the Company delegates its day-to-day operations and risk controls to the Manager which operates an internal audit function. The Committee receives appropriate reporting on internal controls and risk management from the Manager. Internal control systems are designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems are designed to manage, rather than eliminate, the risk of failure to achieve business objectives and, by their nature, can only provide reasonable and not absolute assurance, against material misstatement or loss. # Significant Accounting Issues The Committee specifically considered a number of matters related to the Company's financial statements during the year: - Valuation, existence and ownership of investments: The valuation of investments is undertaken in accordance with the stated accounting policies. All investments are in quoted securities in active markets, are considered to be liquid and have been largely categorised as Level 1 within FRS 102 fair value hierarchy. The portfolio holdings and their pricing is reviewed and verified by the Manager on a regular basis and management accounts, including a full portfolio listing, are prepared for each Board meeting. The Company used the services of an independent depositary (BNP Paribas Trust Corporation UK Limited) during the year under review to hold the assets of the Company. The investment portfolio is reconciled regularly by the Manager and the external audit includes independent verification of the valuation and existence of all investments. - Recognition of Investment Income: The recognition of investment income is undertaken in accordance with accounting policy note 2(b) to the financial statements on page 70. The Directors regularly review the Company's income, including income received, revenue forecasts and dividend comparisons. - Compliance with Sections 1158 and 1159 of the Corporation Tax Act 2010: Approval for the Company as an investment trust under Sections 1158 and 1159 for financial years commencing on or after 1 February 2012 has been obtained and ongoing compliance with the eligibility criteria is monitored on a regular basis. - Consideration of the Company to continue as a going concern: In addition to the usual considerations and the principal and emerging risks, relevant factors such as the Company's performance, discount history, current feedback and views from shareholders as well as historic experience of continuation vote were considered. The North American Income Trust plc --- The North American Income Trust plc # Review of Auditor The Audit Committee has reviewed the independence and the effectiveness of the auditor, PricewaterhouseCoopers LLP, as follows: - The auditor's report on an annual basis the steps it takes to ensure its independence and objectivity and confirms that it has complied with the relevant UK independence guidelines. The level of non-audit services provided by the auditors is assessed and for the year ended 31 January 2023 there were no non-audit services provided. - The Committee considers the experience, continuity and tenure of the audit team, including the audit partner. The audit team consists of suitably experienced staff with knowledge of the investment trust sector and there is a process in place for the rotation of the audit partner. PricewaterhouseCoopers LLP was appointed as the Company's auditor in June 2020 and therefore the year to 31 January 2023 was the third year served by PricewaterhouseCoopers LLP's senior statutory auditor, Shujaat Khan. - The Committee assesses the level of audit service annually. The audit plan is reviewed well in advance and subsequent audit findings are reported comprehensively in a timely manner and are resolved satisfactorily. The auditor has a constructive working relationship with both the Board and the Manager. The Committee was satisfied with the effectiveness and independence of PricewaterhouseCoopers LLP as auditor for the year ended 31 January 2023. Shareholders will have the opportunity to vote on the re-appointment of PricewaterhouseCoopers LLP as auditor at the forthcoming AGM on 8 June 2023. # Karyn Lamont Audit Committee Chair 4 April 2023 49 --- # Directors' Remuneration Report The Board has prepared this Remuneration Report in accordance with the regulations governing the disclosure and approval of Directors' remuneration. This Remuneration Report comprises three parts: i. A Remuneration Policy, which is subject to a binding shareholder vote every three years (or sooner if varied during this interval) – most recently voted on at the AGM on 2 June 2020; ii. An annual Implementation Report which provides information on how the Remuneration Policy has been applied during the year and which will be subject to an advisory vote; iii. An Annual Statement. The law requires the Company's auditor to audit certain of the disclosures provided in the Remuneration Report. Where disclosures have been audited, they are indicated as such. The auditor's opinion is included in the report on pages 55 to 63. The principles remain the same as for previous years. There have been no changes to the Directors' Remuneration Policy during the period of this Report nor are there any proposals for the foreseeable future, except for the level of Directors' fees, as set out in the Implementation Report below. ## Remuneration Policy This part of the Remuneration Report provides details of the Company's Remuneration Policy for Directors of the Company. This policy takes into consideration the principles of the UK Corporate Governance Code and the AIC's recommendations regarding the application of those principles to investment companies. No shareholder views were sought in setting the Remuneration Policy although any comments received from shareholders would be considered on an ongoing basis. As the Company has no employees and the Board is comprised wholly of non-executive Directors and given the size and nature of the Company, the Board has not established a separate Remuneration Committee. Directors' remuneration is determined by the Board as a whole. The Remuneration Policy will be put to shareholder vote at the AGM on 8 June 2023. ## Directors' Fees The Directors' fees are set within the limits of the Company's Articles of Association which limit the aggregate fees payable to the Board of Directors per annum, currently £175,000. Subject to this overall limit, the Board's policy is that the remuneration of non-executive Directors should reflect the nature of their duties, responsibilities and the value of their time spent and be fair and comparable to that of other investment trusts that are similar in size, have a similar capital structure and have a similar investment objective. Fee rates are established by taking advice from external sources as to current market levels. Fees for the years commencing 1 February 2023 and 1 February 2022 are shown below. | | 1 February 2023 £ | 1 February 2022 £ | | --- | --- | --- | | Chair | 38,500 | 35,500 | | Chair of Audit Committee | 31,000 | 28,500 | | Director | 28,500 | 26,000 | ## Appointment - The Company only appoints non-executive Directors. - All the Directors are non-executive appointed under the terms of Letters of Appointment. - Directors must retire and be subject to election at the first AGM after their appointment and at least every three years thereafter. - New appointments to the Board will be placed on the fee applicable at the time of appointment. - No incentive or introductory fees will be paid to encourage a Directorship. - The Directors are not eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits. - The Company indemnifies its Directors for all costs, charges, losses, expenses and liabilities which may be incurred in the discharge of duties, as a Director of the Company. - The Directors are entitled to be re-imbursed for out-of-pocket expenses incurred in connection with performing their duties including travel expenses. The North American Income Trust plc --- The North American Income Trust plc # Performance, Service Contracts, Compensation and Loss of Office - The Directors' remuneration is not subject to any performance related fee. - No Director has a service contract. - No Director was interested in contracts with the Company during the period or subsequently. - The terms of appointment provide that a Director may be removed without notice. - Compensation will not be due upon leaving office. - No Director is entitled to any other monetary payment or any assets of the Company. - Directors' & Officers' liability insurance cover is maintained by the Company on behalf of the Directors. The Directors' Remuneration Policy was last approved by shareholders on 2 June 2020. # Implementation Report ## Directors' Fees The Board carried out a review of the level of Directors' fees during the year, with reference to external sources on market rates, and concluded that they should be increased, as shown in the table on page 50, with effect from 1 February 2023. The Board considered the increase necessary in order to attract and retain directors of a suitable calibre for the non-executive director role. It is also considered appropriately commensurate with inflation as well as the time commitment required of Directors to adequately discharge their responsibilities, taking into account increasingly complex and onerous legal and regulatory requirements. The last increase in fees was effective from 1 February 2022. There are no further fees to disclose as the Company has no employees or executive directors. # Company Performance During the year the Board carried out a review of investment performance. The following graph shows the share price and NAV total return (assuming all dividends are reinvested) to Ordinary shareholders compared to the total return from the Russell 1000 Value and S&P 500 indices (in sterling terms) for the ten year period to 31 January 2023 (rebased to 100 at 31 January 2013). These indices were chosen for comparison purposes, as they are the reference indices used for investment performance measurement purposes. ![img-26.jpeg](img-26.jpeg) # Statement of Voting at General Meeting At the Company's last AGM, held on 8 June 2022, shareholders approved the Directors' Remuneration Report (excluding the Directors' Remuneration Policy) in respect of the year ended 31 January 2022: 99.4% of proxy votes were in favour of the resolution, 0.4% were against, and 0.2% abstained. At the AGM held on 2 June 2020, shareholders approved the Directors' Remuneration Policy with 99.0% of proxy votes in favour of the resolution, 0.7% against and 0.3% abstained. 51 --- # Directors' Remuneration Report Continued ## Audited Information ### Spend on Pay As the Company has no employees, the Directors do not consider it appropriate to present a table comparing remuneration paid to Directors with distributions to shareholders. However, for ease of reference, the total fees paid to Directors are shown in the table below while dividends paid to shareholders are set out in note 9. ### Fees Payable The Directors who served in the year received the following fees which exclude employers' NI and any VAT payable: | Director | 2023 £ | 2022 £ | | --- | --- | --- | | Susan Rice^{1} | 35,500 | 24,750 | | Patrick Edwardson^{2} | 15,167 | n/a | | Karyn Lamont | 28,500 | 26,500 | | Susannah Nicklin | 26,000 | 24,000 | | Charles Park | 26,000 | 24,000 | | James Ferguson^{3} | - | 30,250 | | Total | 131,167 | 129,500 | 1. Appointed Chair on 1 January 2022 2. Appointed on 1 July 2022 3. Retired on 31 December 2021 Fees are pro-rated where a change takes place during a financial year. All fees are at a fixed rate and there is no variable remuneration. There were no payments to third parties from the fees referred to in the table above and none of the Directors received taxable benefits. ## Annual Percentage Change in Directors' Remuneration The following table sets out the annual percentage change in Directors' fees over the last three years. | Director | 2023 | 2022 | 2021 | | --- | --- | --- | --- | | Susan Rice^{1} | 43.4% | 10.0% | 0% | | Patrick Edwardson^{2} | n/a | n/a | n/a | | Karyn Lamont | 7.5% | 6.0% | 0% | | Susannah Nicklin | 8.3% | 6.7% | 0% | | Charles Park | 8.3% | 6.7% | 0% | | James Ferguson^{3} | n/a | -2.4% | 0% | 1. Appointed Chair on 1 January 2022 2. Appointed on 1 July 2022 3. Retired on 31 December 2021 ## Relative Importance of Spend on Pay The table below shows the actual expenditure during the year in relation to Directors' remuneration and distributions to shareholders. | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Remuneration paid to all Directors | 131 | 129 | | Distribution to shareholders – by way of dividend^{1} | 16,138 | 14,495 | | Share buybacks | 13 | 117 | 1. See note 9 on page 76 for further details A resolution to receive and adopt the Directors' Remuneration Report (excluding the Directors' Remuneration Policy) in respect of the year ended 31 January 2023 will be proposed at the AGM. The North American Income Trust plc --- The North American Income Trust plc # Directors' Interests in the Company The Directors are not required to have a shareholding in the Company. The Directors (including connected persons) at 31 January 2023 and 31 January 2022 had no interest in the share capital of the Company other than those interests, all of which are beneficial interests, shown in the table below. | | 31 Jan 2023 No. Ord 5p | 31 Jan 2022 No. Ord 5p | | --- | --- | --- | | Susan Rice | 675 | 675 | | Patrick Edwardson¹ | 30,000 | n/a | | Karyn Lamont | 3,000 | - | | Susannah Nicklin | 3,043 | 3,043 | | Charles Park | 11,000 | 11,000 | ¹ Appointed on 1 July 2022 There have been no changes to the Directors' share interests since the year end. # Annual Statement In accordance with Part 2 of Schedule 8 of the Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013, the Board confirms that the above Directors' Remuneration Report summarises, as applicable, for the year ended 31 January 2023: - the major decisions on Directors' remuneration; - any substantial changes relating to Directors' remuneration made during the year; and - the context in which the changes occurred and decisions have been taken The Directors' Remuneration Report was approved by the Board of Directors and signed on its behalf by: **Dame Susan Rice** Chair 4 April 2023 53 --- # Statement of Directors' Responsibilities The Directors are responsible for preparing the Annual Report in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law they are required 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 its profit or loss 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 accounting 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; - assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and - use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so. 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 its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and 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 Corporate Governance Statement that complies with that law and those regulations. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the company's website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. ## Responsibility statement of the Directors in respect of the annual financial report We confirm that to the best of our knowledge: - the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and - the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face. We consider this Annual Report, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy. ## For and on behalf of The North American Income Trust plc Dame Susan Rice Chair 4 April 2023 The North American Income Trust plc --- # Independent Auditor's Report to the Members of The North American Income Trust plc ## Report on the audit of the financial statements ### Opinion In our opinion, The North American Income Trust plc's financial statements: - give a true and fair view of the state of the Company's affairs as at 31 January 2023 and of its return and cash flows for the year then ended; - have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, including FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and applicable law); and - have been prepared in accordance with the requirements of the Companies Act 2006. We have audited the financial statements, included within the Annual Report, which comprise: the Statement of Financial Position as at 31 January 2023, the Statement of Comprehensive Income, the Statement of Changes in Equity and the Statement of Cash Flows for the year then ended; and the notes to the financial statements, which include a description of the significant accounting policies. Our opinion is consistent with our reporting to the Audit Committee. ### Basis for opinion We conducted our audit in accordance with International Standards on Auditing (UK) ("ISAs (UK)") and applicable law. Our responsibilities under ISAs (UK) are further described in the Auditors' responsibilities for the audit of the financial statements section of our report. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. ### Independence We remained independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, which includes the FRC's Ethical Standard, as applicable to listed public interest entities, and we have fulfilled our other ethical responsibilities in accordance with these requirements. To the best of our knowledge and belief, we declare that non-audit services prohibited by the FRC's Ethical Standard were not provided. We have provided no non-audit services to the Company in the period under audit. The North American Income Trust plc 55 --- # Independent Auditor's Report to the Members of The North American Income Trust plc ## Continued ## Our audit approach ### Context The North American Income Trust plc is an Investment Trust Company listed on the London Stock Exchange and invests predominantly in US equities. The operations of the Company are located in the UK. We focus our audit work primarily on the valuation and existence of investments and income from investments. ### Overview #### Audit scope - The Company is a standalone Investment Trust Company and engages abrdn Fund Managers Limited (the "AIFM") to manage its assets. - We conducted our audit of the financial statements using information from the AIFM and the Administrator to whom the AIFM has engaged to provide certain administrative services. - We tailored the scope of our audit taking into account the types of investments within the Company, the involvement of the third parties referred to above, the accounting processes and controls, and the industry in which the Company operates. - We obtained an understanding of the control environment in place at both the AIFM and the Administrator and adopted a fully substantive testing approach using reports obtained from the AIFM and the Administrator. #### Key audit matters - Accuracy, completeness and occurrence of investment income - Valuation and existence of investments #### Materiality - Overall materiality: £4,728,000 (2022: £4,484,000) based on 1% of Net Assets. - Performance materiality: £3,546,000 (2022: £3,363,000). ### The scope of our audit As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. ### Key audit matters Key audit matters are those matters that, in the auditors' professional judgement, were of most significance in the audit of the financial statements of the current period and include the most significant assessed risks of material misstatement (whether or not due to fraud) identified by the auditors, including those which had the greatest effect on: the overall audit strategy; the allocation of resources in the audit; and directing the efforts of the engagement team. These matters, and any comments we make on the results of our procedures thereon, were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. This is not a complete list of all risks identified by our audit. The North American Income Trust plc --- The key audit matters below are consistent with last year. | Key audit matter | How our audit addressed the key audit matter | | --- | --- | | **Accuracy, completeness and occurrence of investment income** | | | Refer to the Report of the Audit Committee, Accounting Policies and Notes to the Financial Statements. | We assessed the accounting policy for income recognition for compliance with accounting standards and the AIC SORP and performed testing to check that income had been accounted for in accordance with this stated accounting policy. We found that the accounting policies implemented were in accordance with accounting standards and the AIC SORP, and that income has been accounted for in accordance with the stated accounting policy. | | We focused on the accuracy, occurrence and completeness of investment income as incomplete or inaccurate income could have a material impact on the company's net asset value. | | | We also focused on the accounting policy for income recognition and its presentation in the Statement of Comprehensive Income as set out in the requirements of The Association of Investment Companies Statement of Recommended Practice (the 'AIC SORP') as incorrect application could indicate a misstatement in income recognition. | The gains/losses on investments held at fair value comprise realised and unrealised gains/losses. For unrealised gains/losses, we tested the valuation of the portfolio at the year-end, together with testing the opening to closing reconciliation of investments. For realised gains/losses, we tested a sample of disposal proceeds by agreeing the proceeds to bank statements and we re-performed the calculation of a sample of realised gains/losses. | | | In addition, we tested the accuracy of dividend receipts by agreeing the dividend rates from investments to independent market data. | | | We tested occurrence by testing that all dividends recorded in the year had been declared in the market and we traced a sample of dividends received to bank statements. | | | We also tested the allocation and presentation of income between the revenue and capital return columns of the Statement of Comprehensive Income in line with the requirements set out in the AIC SORP by assessing the treatment applied in the context of the underlying facts and circumstance of the dividend or written option. | | | No material misstatements were identified from this testing. | | **Valuation and existence of investments** | | | Refer to the Report of the Audit Committee, Accounting Policies and Notes to the Financial Statements. | We tested the valuation of all listed investments by agreeing the prices used in the valuation to independent third-party sources. | | The investment portfolio at 31 January 2023 comprises listed investments of £487 million. We focused on the valuation and existence of investments because investments represent the principal element of the net asset value of the Company as disclosed in the Balance Sheet in the financial statements. | We tested the existence of all investments by agreeing the holdings of all investments to an independent confirmation from the Depositary, BNP Paribas Securities Services as at 31 January 2023. | | | No material misstatements were identified from this testing. | The North American Income Trust plc 57 --- # Independent Auditor's Report to the Members of The North American Income Trust plc ## Continued ### How we tailored the audit scope We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion on the financial statements as a whole, taking into account the structure of the company, the accounting processes and controls, and the industry in which it operates. As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we looked at where subjective judgements are made, for example in respect of classification of special dividends and option premium received. ### The impact of climate risk on our audit In planning our audit, we made enquiries of the Directors to understand the extent of the potential impact of climate change risk on the company's financial statements. The Directors concluded that the impact on the measurement and disclosures within the financial statements is not material because the company's investment portfolio is largely made up of level 1 quoted securities which are valued at fair value based on market prices. We found this to be consistent with our understanding of the company's investment activities. We also considered the consistency of the climate change disclosures included in the Strategic Report with the financial statements and our knowledge from our audit. ### Materiality The scope of our audit was influenced by our application of materiality. We set certain quantitative thresholds for materiality. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures on the individual financial statement line items and disclosures and in evaluating the effect of misstatements, both individually and in aggregate on the financial statements as a whole. Based on our professional judgement, we determined materiality for the financial statements as a whole as follows: | Overall Company materiality | £4,728,000 (2022: £4,484,000). | | --- | --- | | How we determined it | 1% of Net Assets | | Rationale for benchmark applied | We have applied this benchmark, a generally accepted auditing practice for investment trust audits, in the absence of indicators that an alternative benchmark would be appropriate and because we believe this provides an appropriate and consistent year-on-year basis for our audit. | We use performance materiality to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds overall materiality. Specifically, we use performance materiality in determining the scope of our audit and the nature and extent of our testing of account balances, classes of transactions and disclosures, for example in determining sample sizes. Our performance materiality was 75% (2022: 75%) of overall materiality, amounting to £3,546,000 (2022: £3,363,000) for the company financial statements. In determining the performance materiality, we considered a number of factors - the history of misstatements, risk assessment and aggregation risk and the effectiveness of controls - and concluded that an amount at the upper end of our normal range was appropriate. We agreed with the Audit Committee that we would report to them misstatements identified during our audit above £236,400 (2022: £224,000) as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons. The North American Income Trust plc --- # Conclusions relating to going concern Our evaluation of the Directors' assessment of the Company's ability to continue to adopt the going concern basis of accounting included: - Obtaining evidence to support the key assumptions and forecasts driving the Directors' assessment. This included reviewing the Directors' assessment of the Company's financial position and forecasts, their assessment of liquidity and loan covenant compliance as well as their review of the operational resilience of the Company and oversight of key third party service providers. Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually or collectively, may cast significant doubt on the company's ability to continue as a going concern for a period of at least twelve months from when the financial statements are authorised for issue. In auditing the financial statements, we have concluded that the directors' use of the going concern basis of accounting in the preparation of the financial statements is appropriate. However, because not all future events or conditions can be predicted, this conclusion is not a guarantee as to the Company's ability to continue as a going concern. In relation to the directors' reporting on how they have applied the UK Corporate Governance Code, we have nothing material to add or draw attention to in relation to the directors' statement in the financial statements about whether the directors considered it appropriate to adopt the going concern basis of accounting. Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this report. # Reporting on other information The other information comprises all of the information in the Annual Report other than the financial statements and our auditors' report thereon. The directors are responsible for the other information. Our opinion on the financial statements does not cover the other information and, accordingly, we do not express an audit opinion or, except to the extent otherwise explicitly stated in this report, any form of assurance thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If we identify an apparent material inconsistency or material misstatement, we are required to perform procedures to conclude whether there is a material misstatement of the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report based on these responsibilities. With respect to the Strategic report and Directors' Report, we also considered whether the disclosures required by the UK Companies Act 2006 have been included. Based on our work undertaken in the course of the audit, the Companies Act 2006 requires us also to report certain opinions and matters as described below. The North American Income Trust plc --- # Independent Auditor's Report to the Members of The North American Income Trust plc Continued ## Strategic report and Directors' Report In our opinion, based on the work undertaken in the course of the audit, the information given in the Strategic report and Directors' Report for the year ended 31 January 2023 is consistent with the financial statements and has been prepared in accordance with applicable legal requirements. In light of the knowledge and understanding of the company and its environment obtained in the course of the audit, we did not identify any material misstatements in the Strategic report and Directors' Report. ## Directors' Remuneration In our opinion, the part of the Directors' Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. ## Corporate governance statement The Listing Rules require us to review the directors' statements in relation to going concern, longer-term viability and that part of the corporate governance statement relating to the company's compliance with the provisions of the UK Corporate Governance Code specified for our review. Our additional responsibilities with respect to the corporate governance statement as other information are described in the Reporting on other information section of this report. Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit, and we have nothing material to add or draw attention to in relation to: - The directors' confirmation that they have carried out a robust assessment of the emerging and principal risks; - The disclosures in the Annual Report that describe those principal risks, what procedures are in place to identify emerging risks and an explanation of how these are being managed or mitigated; - The directors' statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the Company's ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; - The directors' explanation as to their assessment of the company's prospects, the period this assessment covers and why the period is appropriate; and - The directors' statement as to whether they have a reasonable expectation that the company will be able to continue in operation and meet its liabilities as they fall due over the period of its assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions. The North American Income Trust plc --- Our review of the directors' statement regarding the longer-term viability of the Company was substantially less in scope than an audit and only consisted of making inquiries and considering the directors' process supporting their statement; checking that the statement is in alignment with the relevant provisions of the UK Corporate Governance Code; and considering whether the statement is consistent with the financial statements and our knowledge and understanding of the company and its environment obtained in the course of the audit. In addition, based on the work undertaken as part of our audit, we have concluded that each of the following elements of the corporate governance statement is materially consistent with the financial statements and our knowledge obtained during the audit: - The directors' statement that they consider the Annual Report, taken as a whole, is fair, balanced and understandable, and provides the information necessary for the members to assess the company's position, performance, business model and strategy; - The section of the Annual Report that describes the review of effectiveness of risk management and internal control systems; and - The section of the Annual Report describing the work of the Audit Committee. We have nothing to report in respect of our responsibility to report when the directors' statement relating to the company's compliance with the Code does not properly disclose a departure from a relevant provision of the Code specified under the Listing Rules for review by the auditors. ## Responsibilities for the financial statements and the audit ### Responsibilities of the directors for the financial statements As explained more fully in the Statement of Directors' Responsibilities, the directors are responsible for the preparation of the financial statements in accordance with the applicable framework and for being satisfied that they give a true and fair view. The directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the company or to cease operations, or have no realistic alternative but to do so. The North American Income Trust plc 61 --- # Independent Auditor's Report to the Members of The North American Income Trust plc Continued ## Auditors' responsibilities for the audit of the financial statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors' report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design procedures in line with our responsibilities, outlined above, to detect material misstatements in respect of irregularities, including fraud. The extent to which our procedures are capable of detecting irregularities, including fraud, is detailed below. Based on our understanding of the company and industry, we identified that the principal risks of non-compliance with laws and regulations related to breaches of section 1158 of the Corporation Tax Act 2010, and we considered the extent to which non-compliance might have a material effect on the financial statements. We also considered those laws and regulations that have a direct impact on the financial statements such as the Companies Act 2006. We evaluated management's incentives and opportunities for fraudulent manipulation of the financial statements (including the risk of override of controls), and determined that the principal risks were related to posting inappropriate journal entries to increase revenue or to overstate the value of investments and increase the net asset value of the Company. Audit procedures performed by the engagement team included: - Discussions with the directors, the AIFM and Company Secretary including consideration of known or suspected instances of non-compliance with laws and regulations and fraud; - Reviewing relevant meeting minutes, including those of the Audit Committee and Board of Directors; - Assessment of the Company's compliance with the requirements of section 1158 of the Corporation Tax Act 2010, including recalculation of numerical aspects of the eligibility conditions; - Identifying and testing higher risk manual journal entries posted during the preparation of the financial statements; - Assessing the judgement applied in respect of special dividends and option premiums received; and - Designing audit procedures to incorporate unpredictability around the nature, timing or extent of our testing of expenses. There are inherent limitations in the audit procedures described above. We are less likely to become aware of instances of non-compliance with laws and regulations that are not closely related to events and transactions reflected in the financial statements. Also, the risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one resulting from error, as fraud may involve deliberate concealment by, for example, forgery or intentional misrepresentations, or through collusion. The North American Income Trust plc --- Our audit testing might include testing complete populations of certain transactions and balances, possibly using data auditing techniques. However, it typically involves selecting a limited number of items for testing, rather than testing complete populations. We will often seek to target particular items for testing based on their size or risk characteristics. In other cases, we will use audit sampling to enable us to draw a conclusion about the population from which the sample is selected. A further description of our responsibilities for the audit of the financial statements is located on the FRC's website at: frc.org.uk/auditorsresponsibilities. This description forms part of our auditors' report ## Use of this report This report, including the opinions, has been prepared for and only for the company's members as a body in accordance with Chapter 3 of Part 16 of the Companies Act 2006 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. ## Other required reporting ### Companies Act 2006 exception reporting Under the Companies Act 2006 we are required to report to you if, in our opinion: - we have not obtained all the information and explanations we require for our audit; or - adequate accounting records have not been kept by the company, or returns adequate for our audit have not been received from branches not visited by us; or - certain disclosures of directors' remuneration specified by law are not made; or - the financial statements and the part of the Directors' Remuneration Report to be audited are not in agreement with the accounting records and returns. We have no exceptions to report arising from this responsibility. ## Appointment Following the recommendation of the Audit Committee, we were appointed by the Directors on 2 June 2020 to audit the financial statements for the year ended 31 January 2021 and subsequent financial periods. The period of total uninterrupted engagement is three years, covering the years ended 31 January 2021 to 31 January 2023. ### Shujaat Khan (Senior Statutory Auditor) for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Edinburgh 4 April 2023 The North American Income Trust plc --- # Financial Statements The Company invests in PNC Financial Services Groups Inc., an American bank holding company and financial services corporation. The North American Income Trust plc --- The Board has declared a final dividend of 3.5p per share, resulting in a total dividend for the year to 31 January 2023 of 11.0p which is covered by revenue earnings and represents a 6.8% increase. The North American Income Trust p. --- # Statement of Comprehensive Income | | Year ended 31 January 2023 | | | | Year ended 31 January 2022 | | | | --- | --- | --- | --- | --- | --- | --- | --- | | | Note | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | | Net gains on investments | 11 | - | 28,105 | 28,105 | - | 81,766 | 81,766 | | Net currency losses | 3 | - | (1,557) | (1,557) | - | (558) | (558) | | Income | 4 | 22,295 | 731 | 23,026 | 19,040 | 604 | 19,644 | | Investment management fee | 5 | (947) | (2,209) | (3,156) | (910) | (2,123) | (3,033) | | Administrative expenses | 7 | (854) | - | (854) | (735) | - | (735) | | Return before finance costs and taxation | | 20,494 | 25,070 | 45,564 | 17,395 | 79,689 | 97,084 | | Finance costs | 6 | (354) | (825) | (1,179) | (316) | (737) | (1,053) | | Return before taxation | | 20,140 | 24,245 | 44,385 | 17,079 | 78,952 | 96,031 | | Taxation | 8 | (3,014) | 447 | (2,567) | (2,522) | 363 | (2,159) | | Return after taxation | | 17,126 | 24,692 | 41,818 | 14,557 | 79,315 | 93,872 | | Return per Ordinary share (pence) | 10 | 12.21 | 17.60 | 29.81 | 10.28 | 56.00 | 66.28 | 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 on pages 70 to 88 are an integral part of the financial statements. Proposed final dividend. The Board is proposing a final dividend of 3.50p per share (£4,908,000), making a total dividend of 11.00p per share (£15,426,000) for the year to 31 January 2023 which, if approved, will be payable on 12 June 2023 (see note 9). For the year ended 31 January 2022, a final dividend of 4.00p per share was paid (£5,609,000) making a total dividend of 10.30p per share (£14,495,000). The North American Income Trust plc --- # Statement of Financial Position | | Note | As at 31 January 2023 £'000 | As at 31 January 2022 £'000 | | --- | --- | --- | --- | | Non-current assets | | | | | Investments at fair value through profit or loss | 11 | 486,940 | 470,974 | | Current assets | | | | | Debtors and prepayments | 12 | 2,675 | 5,712 | | Cash and short term deposits | | 26,699 | 13,875 | | | | 29,374 | 19,587 | | Creditors: amounts falling due within one year | | | | | Other creditors | 13 | (2,880) | (4,907) | | | | (2,880) | (4,907) | | Net current assets | | 26,494 | 14,680 | | Total assets less current liabilities | | 513,434 | 485,654 | | Creditors: amounts falling due after more than one year | | | | | Senior Loan Notes | 14 | (40,543) | (37,191) | | Net assets | | 472,891 | 448,463 | | Capital and reserves | | | | | Called up share capital | 15 | 7,012 | 7,034 | | Share premium account | | 51,806 | 51,806 | | Capital redemption reserve | | 15,604 | 15,582 | | Capital reserve | | 373,828 | 350,388 | | Revenue reserve | | 24,641 | 23,653 | | Total shareholders' funds | | 472,891 | 448,463 | | Net asset value per Ordinary share (pence) | 16 | 337.21 | 318.79 | The financial statements on pages 66 to 88 were approved and authorised for issue by the Board on 4 April 2023 and were signed on its behalf by: Dame Susan Rice Director The accompanying notes on pages 70 to 88 are an integral part of the financial statements. The North American Income Trust plc --- # Statement of Changes in Equity For the year ended 31 January 2023 | | Share capital £'000 | Share premium account £'000 | Capital redemption reserve £'000 | Capital reserve £'000 | Revenue reserve £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | | Balance at 1 February 2022 | 7,034 | 51,806 | 15,582 | 350,388 | 23,653 | 448,463 | | Buyback of Ordinary shares | (22) | – | 22 | (1,252) | – | (1,252) | | Return after taxation | – | – | – | 24,692 | 17,126 | 41,818 | | Dividends paid (see note 9) | – | – | – | – | (16,138) | (16,138) | | Balance at 31 January 2023 | 7,012 | 51,806 | 15,604 | 373,828 | 24,641 | 472,891 | For the year ended 31 January 2022 | | Share capital £'000 | Share premium account £'000 | Capital redemption reserve £'000 | Capital reserve £'000 | Revenue reserve £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | --- | | Balance at 1 February 2021 | 7,151 | 51,806 | 15,465 | 277,403 | 23,591 | 375,416 | | Buyback of Ordinary shares | (117) | – | 117 | (6,330) | – | (6,330) | | Return after taxation | – | – | – | 79,315 | 14,557 | 93,872 | | Dividends paid (see note 9) | – | – | – | – | (14,495) | (14,495) | | Balance at 31 January 2022 | 7,034 | 51,806 | 15,582 | 350,388 | 23,653 | 448,463 | The accompanying notes on pages 70 to 88 are an integral part of the financial statements. The North American Income Trust plc --- # Statement of Cash Flows | | Note | Year ended 31 January 2023 £'000 | Year ended 31 January 2022 £'000 | | --- | --- | --- | --- | | Operating activities | | | | | Net return before taxation | | 44,385 | 96,031 | | Adjustments for: | | | | | Net gains on investments | 11 | (27,997) | (81,710) | | Net losses on foreign exchange transactions | | 1,557 | 558 | | (Increase)/decrease in dividend income receivable | 12 | (54) | 265 | | (Increase)/decrease in fixed interest income receivable | 12 | (134) | 66 | | Increase/(decrease) in derivatives | 13 | 240 | (120) | | (Increase)/decrease in other debtors | 12 | (146) | 1 | | Increase/(decrease) in other creditors | 13 | 129 | (828) | | Tax on overseas income | 8 | (2,567) | (2,159) | | Amortisation/(accretion) of senior loan note expenses | 6 | 5 | (1) | | Accretion of fixed income book cost | 11 | (1) | (2) | | Net cash inflow from operating activities | | 15,417 | 12,101 | | Investing activities | | | | | Purchases of investments | | (186,765) | (193,847) | | Sales of investments | | 199,772 | 206,909 | | Net cash generated from investing activities | | 13,007 | 13,062 | | Financing activities | | | | | Equity dividends paid | 9 | (16,138) | (14,495) | | Buyback of Ordinary shares | | (1,252) | (6,330) | | Net cash used in financing activities | | (17,390) | (20,825) | | Increase in cash and cash equivalents | | 11,034 | 4,338 | | Analysis of changes in cash and cash equivalents during the year | | | | | Opening balance | | 13,875 | 9,239 | | Effect of exchange rate fluctuation on cash held | 3 | 1,790 | 298 | | Increase in cash as above | | 11,034 | 4,338 | | Closing balance | | 26,699 | 13,875 | The accompanying notes on pages 70 to 88 are an integral part of the financial statements. The North American Income Trust plc --- # Notes to the Financial Statements For the year ended 31 January 2023 ## 1 Principal activity The Company is a closed-end investment company, registered in Scotland No. SC005218, with its Ordinary shares being listed on the London Stock Exchange. ## 2 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, the Companies Act 2006 and with the Statement of Recommended Practice ‘Financial Statements of Investment Trust Companies and Venture Capital Trusts’ issued in July 2022. 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. **Going concern.** The Company’s assets consist substantially of securities in companies listed on recognised stock exchanges and in normal circumstances are realisable within a short timescale and which can be sold to meet funding commitments if necessary. The Board has set gearing limits and regularly reviews actual exposures, cash flow projections and compliance with banking covenants. The Company replaced its Long-Term Financing Agreement in December 2020. The Company undertakes a continuation vote every three years. The last continuation vote was passed at the AGM held in June 2021 with 98.6% of votes in favour. The Board has considered the impact of recent market events, such as geopolitical developments and believes that there will be a limited resulting financial impact on the Company’s operational resources and existence. Given that the Company’s portfolio comprises primarily “Level One” assets (listed on a recognisable exchange and realisable within a short timescale), and the Company’s relatively low level of gearing, the Company has the ability to raise sufficient funds so as to remain within its debt covenants and pay expenses. Taking the above factors into consideration, the Directors have a reasonable expectation that the Company has adequate financial resources to continue in operational existence for the foreseeable future and for at least twelve months from the date of this Report. Accordingly, the Board continues to adopt the going concern basis in preparing the financial statements. **Significant estimates and judgements.** Disclosure is required of judgements and estimates made by management in applying the accounting policies that have a significant effect on the financial statements. There are no significant estimates or judgements which impact these financial statements. (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. The fixed returns on debt instruments are recognised using the time apportioned accruals basis and the discount or premium on acquisition is amortised or accreted on a straight line basis. Interest receivable from cash and short-term deposits is recognised the time apportioned accruals basis. (c) **Expenses.** All expenses are accounted for on an accruals basis and are charged to the Statement of Comprehensive Income. Expenses are charged against revenue except as follows: - transaction costs on the acquisition or disposal of investments are charged to capital in the Statement of Comprehensive Income; - expenses are charged to capital 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 capital to reflect the Company’s investment policy and prospective income and capital growth. The North American Income Trust plc --- (d) Taxation. The tax payable is based on the taxable profit for the year. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible (see note 8 for a more detailed explanation). The Company has no liability for current tax. Deferred taxation is provided on all timing differences, that have originated but not reversed at the Statement of Financial Position 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 Statement of Financial Position 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 financial statements which are capable of reversal in one or more subsequent periods. Owing 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. The Company has chosen to apply the recognition and measurement provisions of IAS 39 Financial Instruments: Recognition and Measurement and investments have been designated upon initial recognition at fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned, and are initially measured at fair value. Subsequent to initial recognition, investments are measured at fair value. For listed investments, this is deemed to be bid market prices. Gains and losses arising from changes in fair value and disposals are included as a capital item in the Statement of Comprehensive Income and are ultimately recognised in the capital reserve. (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 capital 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 5p. This reserve is not distributable. 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. This reserve is not distributable. 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 for treasury are also deducted from this reserve. This reserve is distributable although the amount that is distributable is complex to determine and is not necessarily the full amount of the reserve as disclosed within these financial statements. The North American Income Trust plc 71 --- # Notes to the Financial Statements Continued 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. The amount of the revenue reserve as at 31 January 2023 may not be available at the time of any future distribution due to movements between 31 January 2023 and the date of distribution. (i) Foreign currency. Assets and liabilities in foreign currencies are translated at the rates of exchange ruling on the Statement of Financial Position 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 Statement of Comprehensive Income and are then transferred to the capital reserve. (j) Traded options. The Company may enter into certain derivative contracts (e.g. writing traded 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 received/paid on inception. The premium is recognised in the revenue column over the life of the contract period. Losses on any movement in the fair value of open contracts at the year end realised and on the exercise of the contracts are recorded in the capital column of the Statement of Comprehensive Income. For written options, where exercised, losses are treated as a realised loss, including where it is a component of the cost paid to acquire underlying securities on a written contract 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. (k) Cash and cash equivalents. Cash and cash equivalents comprise cash at bank. ## 3. Net currency losses | | 2023 | 2022 | | --- | --- | --- | | | £'000 | £'000 | | Gains on cash held | 1,790 | 298 | | Losses on Senior Loan Notes | (3,347) | (856) | | | (1,557) | (558) | The North American Income Trust plc --- The North American Income Trust plc # 4. Income | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Income from overseas listed investments | | | | Dividend income | 15,570 | 13,424 | | REIT income | 2,816 | 2,218 | | Interest income from investments | 167 | 112 | | | 18,553 | 15,754 | | Other income from investment activity | | | | Traded option premiums | 4,170 | 3,890 | | Deposit interest | 303 | - | | | 4,473 | 3,890 | | Total income | 23,026 | 19,644 | During the year, the Company was entitled to premiums totalling £4,170,000 (2022 - £3,890,000) in exchange for entering into option contracts. At the year end there were 5 (2022-2) open positions, valued at a liability of £264,000 (2022 - liability of £24,000) as disclosed in note 13. Losses realised on the exercise of derivative transactions are disclosed in note 11. # 5. Investment management fee | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | | Investment management fee | 947 | 2,209 | 3,156 | 910 | 2,123 | 3,033 | Management services are provided by abrdn Fund Managers Limited ("aFML"). With effect from 1 May 2021 the management fee has been charged at 0.75% of net assets up to £250 million, 0.6% between £250 million and £500 million, and 0.5% over £500 million, payable quarterly. Prior to this the management fee was charged at 0.75% of net assets up to £350 million, 0.6% between £350 million and £500 million and 0.5% over £500 million, payable quarterly. Net assets equals gross assets after deducting current liabilities and borrowings and excluding commonly managed funds. The balance due to aFML at the year end was £810,000 (2022 - £773,000). The fee is allocated 30% to revenue and 70% to capital (2022 - same). The management agreement between the Company and the Manager 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. 73 --- # Notes to the Financial Statements Continued ## 6. Finance costs | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | | Bank interest paid | 1 | 2 | 3 | 2 | 5 | 7 | | Senior Loan Notes | 351 | 819 | 1,170 | 313 | 730 | 1,043 | | Amortised Senior Loan Note issue expenses | 2 | 4 | 6 | 1 | 2 | 3 | | | 354 | 825 | 1,179 | 316 | 737 | 1,053 | ## 7. Administrative expenses | | 2023 | 2022 | | --- | --- | --- | | | £'000 | £'000 | | Directors' fees | 131 | 129 | | Registrar's fees | 104 | 51 | | Custody and bank charges | 25 | 27 | | Secretarial fees | 129 | 120 | | Auditor's remuneration: | | | | - fees payable to the Company's auditor for the audit of the annual report | 40 | 31 | | Promotional activities | 215 | 177 | | Printing, postage and stationery | 29 | 31 | | Fees, subscriptions and publications | 57 | 51 | | Professional fees | 37 | 55 | | Depositary charges | 46 | 43 | | Other expenses | 41 | 20 | | | 854 | 735 | Secretarial and administration services are provided by abrdn Fund Managers Limited ("aFML") under an agreement which is terminable on three months' notice. The fee is payable monthly in advance and based on an index-linked annual amount of £129,000 (2022 - £120,000). The balance due at the year end was £22,000 (2022 - £20,000). During the year £215,000 (2022 - £177,000) was paid to aFML in respect of promotional activities for the Company and the balance due at the year end was £72,000 (2022 - £18,000). With the exception of Auditor's remuneration for the statutory audit, all of the expenses above include irrecoverable VAT where applicable. The Auditor's remuneration for the statutory audit excludes VAT amounting to £8,000 (2022 - £6,000). The North American Income Trust plc --- # 8. Taxation | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | | (a) Analysis of charge for the year | | | | | | | | UK corporation tax | 292 | - | 292 | 152 | - | 152 | | Double tax relief | (292) | - | (292) | (152) | - | (152) | | Overseas tax suffered | 2,458 | 109 | 2,567 | 2,067 | 91 | 2,158 | | Tax relief to capital | 556 | (556) | - | 454 | (454) | - | | Corporation tax prior year adjustment | - | - | - | 1 | - | 1 | | Total tax charge for the year | 3,014 | (447) | 2,567 | 2,522 | (363) | 2,159 | (b) Factors affecting the tax charge for the year. The UK corporation tax rate is 19% (2022 - 19%). The tax charge for the year is lower (2022 - lower) than the corporation tax rate. The differences are explained in the following table. | | 2023 | | | 2022 | | | | --- | --- | --- | --- | --- | --- | --- | | | Revenue £'000 | Capital £'000 | Total £'000 | Revenue £'000 | Capital £'000 | Total £'000 | | Net return before taxation | 20,140 | 24,245 | 44,385 | 17,079 | 78,952 | 96,031 | | Corporation tax at 19% (2022 - 19%) | 3,827 | 4,607 | 8,434 | 3,245 | 15,001 | 18,246 | | Effects of: | | | | | | | | Non-taxable overseas dividends | (2,958) | (139) | (3,097) | (2,550) | (115) | (2,665) | | Irrecoverable overseas withholding tax | 2,458 | 109 | 2,567 | 2,067 | 91 | 2,158 | | Expenses not deductible for tax purposes | - | - | - | 1 | - | 1 | | Double tax relief | (293) | - | (293) | (152) | - | (152) | | Corporation tax prior year adjustment | - | - | - | 1 | - | 1 | | Excess management expenses | (20) | 20 | - | (90) | 90 | - | | Non-taxable gains on investments | - | (5,340) | (5,340) | - | (15,536) | (15,536) | | Non-taxable currency losses | - | 296 | 296 | - | 106 | 106 | | Total tax charge | 3,014 | (447) | 2,567 | 2,522 | (363) | 2,159 | The North American Income Trust plc --- # Notes to the Financial Statements Continued (c) Provision for deferred taxation At the period end there is no unrecognised deferred tax asset (2022 – £nil) in relation to surplus management expenses. ## 9. Dividends | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Amounts recognised as distributions to equity holders in the year: | | | | 3rd interim dividend for 2022 of 2.5p per share (2021 – 1.9p) | 3,517 | 2,718 | | 4th interim dividend for 2022 of 4.0p per share (2021 – 4.5p) | 5,609 | 6,408 | | 1st interim dividend for 2023 of 2.5p per share (2022 – 1.9p) | 3,506 | 2,693 | | 2nd interim dividend for 2023 of 2.5p per share (2022 – 1.9p) | 3,506 | 2,676 | | | 16,138 | 14,495 | The third interim dividend and proposed final dividend were unpaid at the year end. Accordingly, neither have 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 £17,126,000 (2022 – £14,557,000). | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | 1st interim dividend for 2023 of 2.5p per share (2022 – 1.9p) | 3,506 | 2,693 | | 2nd interim dividend for 2023 of 2.5p per share (2022 – 1.9p) | 3,506 | 2,676 | | 3rd interim dividend for 2023 of 2.5p per share (2022 – 2.5p) | 3,506 | 3,517 | | Proposed final dividend for 2023 of 3.5p per share (2022 – 4.0p) | 4,908 | 5,609 | | | 15,426 | 14,495 | The cost of the proposed final dividend for 2023 is based on 140,234,749 Ordinary shares in issue, being the number of Ordinary shares in issue at the date of this report. The North American Income Trust plc --- # 10. Return per Ordinary share | | 2023 | | 2022 | | | --- | --- | --- | --- | --- | | | £'000 | p | £'000 | p | | Based on the following figures: | | | | | | Revenue return | 17,126 | 12.21 | 14,557 | 10.28 | | Capital return | 24,692 | 17.60 | 79,315 | 56.00 | | Total return | 41,818 | 29.81 | 93,872 | 66.28 | | Weighted average number of Ordinary shares in issue | | 140,284,541 | | 141,265,873 | # 11. Investments at fair value through profit or loss | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Investments at fair value through profit or loss | | | | Opening book cost | 425,863 | 395,289 | | Opening investment holdings gains | 45,111 | 8,972 | | Opening fair value | 470,974 | 404,261 | | Analysis of transactions made during the year | | | | Purchases at cost | 184,369 | 195,379 | | Sales proceeds received | (196,401) | (210,378) | | Gains on investments^A | 27,997 | 81,710 | | Accretion of fixed income book cost | 1 | 2 | | Closing fair value | 486,940 | 470,974 | | Closing book cost | 438,891 | 425,863 | | Closing investment holdings gains | 48,049 | 45,111 | | Closing fair value | 486,940 | 470,974 | | Listed on overseas stock exchanges | 486,940 | 470,974 | | Net gains on investments | | | | Gains on investments^A | 27,997 | 81,710 | | Investment holding gains on traded options^B | 108 | 56 | | | 28,105 | 81,766 | The North American Income Trust plc --- # Notes to the Financial Statements Continued The Company received £196,401,000 (2022 - £210,378,000) from investments sold in the year. The book cost of these investments when they were purchased was £171,343,000 (2022 - £164,807,000). These investments have been revalued over time and until they were sold any unrealised gains/losses were included in the fair value of the investments. 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 Statement of Comprehensive Income. The total costs were as follows: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Purchases | 44 | 81 | | Sales | 140 | 142 | | | 184 | 223 | The above transaction costs are calculated in line with the AIC SORP. The transaction costs in the Company's Key Information Document are calculated on a different basis and in line with the PRIIPs regulations. ## 12. Debtors and prepayments | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Dividends receivable | 603 | 549 | | Interest receivable | 166 | 32 | | Other debtors | 246 | 100 | | Amount due from brokers | 1,660 | 5,031 | | | 2,675 | 5,712 | ## 13. Creditors: amounts falling due within one year | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Amounts due to brokers | 1,444 | 3,840 | | Investment management fee payable | 810 | 773 | | Traded option contracts | 264 | 24 | | Interest payable | 131 | 120 | | Other creditors | 231 | 150 | | | 2,880 | 4,907 | The North American Income Trust plc --- # 14. Senior Loan Notes Creditors: amounts falling due after more than one year | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | 2.70% Senior Loan Notes – 10 years | 20,307 | 18,634 | | 2.96% Senior Loan Notes – 15 years | 20,307 | 18,634 | | Unamortised Loan Note issue expenses | (71) | (77) | | | 40,543 | 37,191 | On 21 December 2020 the Company issued a US$25 million 10 years Senior Loan Note at an annualised interest rate of 2.70% and a US$25 million 15 years Senior Loan Note at an annualised interest rate of 2.96%. The Loan Notes are unsecured and unlisted. Interest is payable in half yearly instalments in June and December and the Loan Notes are due to be redeemed at par on 21 December 2030 and 21 December 2035. The Company has complied with the Senior Loan Note Purchase Agreement covenant throughout the period since issue that the ratio of net assets to gross borrowings must be greater than 3.5:1, that net assets will not be less than £200,000,000, and that the total number of Listed Assets is to be more than 35. The total fair value of the Senior Loan Notes at 31 January 2023 was £38,579,000 (2022 - £41,348,000) comprising £19,278,000 (2022 - £20,065,000) in respect of the 10 years 2.70% Senior Loan Note and £19,301,000 (2022 - £21,283,000) in respect of the 15 years 2.96% Senior Loan Note. The fair value of the Senior Loan Notes has been determined by aggregating the expected future cash flows for that loan discounted at a rate comprising the borrower's margin plus an average of market rates applicable to loans of a similar period of time. # 15. Called up share capital | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | Allotted, called-up and fully paid: | | | | Opening balance | 7,034 | 7,151 | | Ordinary shares bought back in the year | (22) | (117) | | 140,234,749 (2022 – 140,675,934) Ordinary shares of 5p each | 7,012 | 7,034 | During the year 441,185 (2022 - 2,353,212) Ordinary shares of 5p each were repurchased by the Company at a total cost, including transaction costs, of £1,252,000 (2022 - £6,330,000). Subsequent to the year end, no Ordinary shares of 5p each have been repurchased by the Company. The North American Income Trust plc --- # Notes to the Financial Statements Continued ## 16. Net asset value per Ordinary share The net asset value per share and the net assets attributable to the Ordinary shareholders at the year end were as follows: | | 2023 | 2022 | | --- | --- | --- | | Net assets attributable | £472,891,000 | £448,463,000 | | Number of Ordinary shares in issue^{A} | 140,234,749 | 140,675,934 | | Net asset value per share | 337.21p | 318.79p | $^A$ 2022 Includes 66,395 Ordinary shares bought back prior to the year end which had not yet settled. ## 17. Analysis of changes in net debt | | At 1 February 2022 £'000 | Currency differences £'000 | Non-cash movement £'000 | Cash flows £'000 | At 31 January 2023 £'000 | | --- | --- | --- | --- | --- | --- | | Cash and short term deposits | 13,875 | 1,790 | - | 11,034 | 26,699 | | Debt due after more than one year | (37,191) | (3,347) | (5) | - | (40,543) | | | (23,316) | (1,557) | (5) | 11,034 | (13,844) | | | At 1 February 2021 £'000 | Currency differences £'000 | Non-cash movement £'000 | Cash flows £'000 | At 31 January 2022 £'000 | | --- | --- | --- | --- | --- | --- | | Cash and short term deposits | 9,239 | 298 | - | 4,338 | 13,875 | | Debt due after more than one year | (36,336) | (856) | 1 | - | (37,191) | | | (27,097) | (558) | 1 | 4,338 | (23,316) | A statement reconciling the movement in net funds to the net cash flow has not been presented as there are no differences from the above analysis. The North American Income Trust plc --- # 18. 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 4, the premium received in respect of options written in the year was £4,170,000 (2022 - £3,890,000). Positions closed during the year realised a loss of £6,511,000 (2022 - £3,250,000). The largest position in derivative contracts held during the year at any given time was £542,000 (2022 - £613,000). The Company had 5 (2022 - 2) open positions in derivative contracts at 31 January 2023 valued at a liability of £264,000 (2022 - £24,000) as disclosed in note 13. 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 5). 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 abrdn plc 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 of the risk management framework for the Company. The AIFM has delegated the day to day administration of the investment policy to abrdn Inc., which is responsible for ensuring that 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 AIFM 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 Chief Risk Officer, 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 ("SHIELD"). The Group's Internal Audit Department is independent of the Risk Division and reports directly to the Group's Chief Executive Officer 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 abrdn plc, 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 North American Income Trust plc 81 --- # Notes to the Financial Statements Continued 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 2023 are shown in note 14 on page 79. Interest risk profile. The interest rate risk profile of the portfolio of financial instruments at the Statement of Financial Position date was as follows: | At 31 January 2023 | Weighted average period for which rate is fixed Years | Weighted average interest rate % | Fixed rate £'000 | Floating rate £'000 | Non-interest bearing £'000 | | --- | --- | --- | --- | --- | --- | | Assets | | | | | | | Sterling | - | - | - | 4,599 | - | | US Dollar | 7.50 | 4.36 | 7,141 | 22,221 | 439,091 | | Canadian Dollar | - | - | - | (121) | 40,708 | | Total assets | | | 7,141 | 26,699 | 479,799 | | Liabilities | | | | | | | Loan Notes-US$25,000,000 | 7.89 | 2.70 | 20,272 | - | - | | Loan Notes-US$25,000,000 | 12.90 | 2.96 | 20,271 | - | - | | Total liabilities | | | 40,543 | - | - | The North American Income Trust plc --- | At 31 January 2022 | Weighted average period for which rate is fixed Years | Weighted average interest rate % | Fixed rate £'000 | Floating rate £'000 | Non-interest bearing £'000 | | --- | --- | --- | --- | --- | --- | | Assets | | | | | | | Sterling | - | - | - | 4,982 | - | | US Dollar | 8.00 | 7.00 | 1,642 | 8,711 | 423,051 | | Canadian Dollar | - | - | - | 182 | 46,281 | | Total assets | | | 1,642 | 13,875 | 469,332 | | Liabilities | | | | | | | Loan Notes- US$25,000,000 | 9.00 | 3.00 | 18,596 | - | - | | Loan Notes- US$25,000,000 | 14.00 | 3.00 | 18,595 | - | - | | Total liabilities | | | 37,191 | - | - | The weighted average interest rate is based on the current yield of each asset, weighted by its market value. 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. Financial Liabilities. The company has fixed rate borrowings by way of its senior loan notes, details of which can be found in note 14. 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. 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 2023 would increase/decrease by £267,000 (2022 - decrease/increase by £139,000). This is mainly attributable to the Company's exposure to interest rates on its floating rate cash balances. 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. The North American Income Trust plc --- # Notes to the Financial Statements Continued 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 14, are denominated in foreign currency. 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 94, 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 2023 would have increased/decreased by £48,694,000 (2022 - increase/decrease of £47,097,000) 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. (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 North American Income Trust plc --- - 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 Statement of Financial Position, the exposure to credit risk at 31 January 2023 was as follows: | | 2023 | | 2022 | | | --- | --- | --- | --- | --- | | | Statement of Financial Position £'000 | Maximum exposure £'000 | Statement of Financial Position £'000 | Maximum exposure £'000 | | Non-current assets | | | | | | Quoted bonds | 7,141 | 7,141 | 1,642 | 1,642 | | Current assets | | | | | | Amount due from brokers | 1,660 | 1,660 | 5,031 | 5,031 | | Dividends receivable | 603 | 603 | 549 | 549 | | Interest receivable | 166 | 166 | 32 | 32 | | Other debtors and prepayments | 246 | 246 | 100 | 100 | | Cash and short-term deposits | 26,699 | 26,699 | 13,875 | 13,875 | | | 36,515 | 36,515 | 21,229 | 21,229 | None of the Company's financial assets are secured by collateral or other credit enhancements. Credit ratings. The table below provides a credit rating profile using Standard and Poors credit ratings for the quoted bonds at 31 January 2023 and 31 January 2022: | | 2023 £'000 | 2022 £'000 | | --- | --- | --- | | B+ | 682 | - | | BB+ | 2,898 | - | | BB | 693 | 897 | | BB- | 2,162 | 745 | | BBB- | 706 | - | | | 7,141 | 1,642 | The North American Income Trust plc 85 --- # Notes to the Financial Statements Continued Fair values of financial assets and financial liabilities. The book value of cash at bank and bank loans and overdrafts included in these financial statements approximate to fair value because of their short-term maturity. Investments held as dealing investments are valued at fair value. The carrying values of fixed asset investments are stated at their fair values, which have been determined with reference to quoted market prices. For all other short-term debtors and creditors, their book values approximate to fair values because of their short-term maturity. ## 19. Capital management policies and procedures The investment objective of the Company is to provide investors with above average dividend income and long term capital growth through active management of a portfolio consisting predominately of S&P 500 US equities. The capital of the Company consists of bank borrowings and equity comprising issued capital, reserves and retained earnings. The Company manages its capital to ensure that it will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This review includes: - the planned level of gearing which takes into account the Investment Manager's views on the market; - the level of equity shares in issue; and - the extent to which revenue in excess of that which is required to be distributed should be retained. The Company's objectives, policies and processes for managing capital are unchanged from the preceding accounting period. Details of the Company's gearing facilities and financial covenants are detailed in note 14 of the financial statements. ## 20. 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 fair value hierarchy has 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 North American Income Trust plc --- 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: | As at 31 January 2023 | Note | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | | Financial assets at fair value through profit or loss | | | | | | | Quoted equities | a) | 479,799 | - | - | 479,799 | | Quoted bonds | b) | - | 7,141 | - | 7,141 | | | | 479,799 | 7,141 | - | 486,940 | Financial liabilities at fair value through profit or loss | Derivatives | c) | - | (264) | - | (264) | | --- | --- | --- | --- | --- | --- | | Net fair value | | 479,799 | 6,877 | - | 486,676 | | As at 31 January 2022 | Note | Level 1 £'000 | Level 2 £'000 | Level 3 £'000 | Total £'000 | | --- | --- | --- | --- | --- | --- | | Financial assets at fair value through profit or loss | | | | | | | Quoted equities | a) | 469,332 | - | - | 469,332 | | Quoted bonds | b) | - | 1,642 | - | 1,642 | | | | 469,332 | 1,642 | - | 470,974 | Financial liabilities at fair value through profit or loss | Derivatives | c) | - | (24) | - | (24) | | --- | --- | --- | --- | --- | --- | | Net fair value | | 469,332 | 1,618 | - | 470,950 | a) Quoted equities. The fair value of the Company's investments in quoted equities has been determined by reference to their quoted bid prices at the reporting date. Quoted equities included in Fair Value Level 1 are actively traded on recognised stock exchanges. b) Quoted bonds. The fair value of the Company's investments in quoted bonds has been determined by reference to their quoted bid prices at the reporting date. Investments categorised as Level 2 are not considered to trade in active markets. c) Derivatives. The Company's investment in exchange traded options have been fair valued using quoted prices and have been classified as Level 2 as they are not considered to trade in active markets. The fair value of the senior loan notes has been calculated as £38,579,000 (2022 - £41,348,000), determined by aggregating the expected future cash flows for that loan discounted at a rate comprising the borrower's margin plus an average of market rates applicable to loans of a similar period of time, compared to carrying amortised cost of £40,543,000 (2022 - £37,191,000). The North American Income Trust plc 87 --- # Notes to the Financial Statements Continued ## 21. Related party transactions Directors' fees and interests. 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 52. Transactions with the Manager. The Company has an agreement with the Manager for the provision of investment management, secretarial, accounting and administration and promotional activity services. Details of transactions during the year and balances outstanding at the year end are disclosed in notes 5 and 7. The North American Income Trust plc --- # Alternative Performance Measures Alternative performance measures are numerical measures of the Company's current, historical or future performance, financial position or cash flows, other than financial measures defined or specified in the applicable financial framework. The Company's applicable financial framework includes FRS 102 and the AIC 5ORP. The Directors assess the Company's performance against a range of criteria which are viewed as particularly relevant for closed-end investment companies. ## Discount to net asset value The discount is the amount by which the share price is lower than the net asset value per share with debt at fair value, expressed as a percentage of the net asset value with debt at fair value. | | | 2023 | 2022 | | --- | --- | --- | --- | | NAV per Ordinary share (p) | a | 337.21p | 318.79p | | Share price (p) | b | 306.00p | 283.00p | | Discount | (a-b)/a | 9.3% | 11.2% | ## Dividend cover Dividend cover measures the revenue return per share divided by total dividends per share, expressed as a ratio. | | | 2023 | 2022 | | --- | --- | --- | --- | | Revenue return per share | a | 12.21p | 10.28p | | Dividends per share | b | 11.00p | 10.30p | | Dividend cover | a/b | 1.11 | 1.00 | ## Dividend yield Dividend yield is calculated using the Company's annual dividend per Ordinary share divided by the share price, expressed as a percentage. | | | 2023 | 2022 | | --- | --- | --- | --- | | Annual dividend per Ordinary share (p) | a | 11.00p | 10.30p | | Share price (p) | b | 306.00p | 283.00p | | Dividend yield | a/b | 3.6% | 3.6% | The North American Income Trust plc --- # Alternative Performance Measures Continued ## Net gearing Net gearing measures total borrowings less cash and cash equivalents divided by shareholders' funds, expressed as a percentage. Under AIC reporting guidance cash and cash equivalents includes net amounts due to and from brokers at the period end as well as cash and short-term deposits. | | | 2023 | 2022 | | --- | --- | --- | --- | | Borrowings (£'000) | a | 40,543 | 37,191 | | Cash (£'000) | b | 26,699 | 13,875 | | Amounts due to brokers (£'000) | c | 1,444 | 3,840 | | Amounts due from brokers (£'000) | d | 1,660 | 5,031 | | Shareholders' funds (£'000) | e | 472,891 | 448,463 | | Net gearing | (a-b+c-d)/e | 2.9% | 4.9% | ## Ongoing charges ratio Ongoing charges ratio is considered to be an alternative performance measure. The ongoing charges ratio has been calculated in accordance with guidance issued by the AIC which is defined as the total of investment management fees and administrative expenses and expressed as a percentage of the average daily net asset values with debt at fair value published throughout the year. | | 2023 | 2022 | | --- | --- | --- | | Investment management fees (£'000) | 3,156 | 3,033 | | Administrative expenses (£'000) | 854 | 735 | | Less: non recurring charges a (£'000) | (8) | (10) | | Ongoing charges (£'000) | 4,002 | 3,758 | | Average net assets (£'000) | 458,929 | 429,283 | | Ongoing charges ratio (excluding look-through costs) | 0.87% | 0.88% | | Look-through costsb | 0.06% | 0.07% | | Ongoing charges ratio (including look-through costs) | 0.93% | 0.95% | a Professional services considered unlikely to recur. b Calculated in accordance with AIC guidance issued in October 2020 to include the Company's share of costs of holdings in investment companies on a look-through basis. The ongoing charges ratio provided in the Company's Key Information Document is calculated in line with the PRIIPs regulations which includes finance costs and transaction charges. The North American Income Trust plc --- # Total return NAV and share price total returns show how the NAV and share price has performed over a period of time in percentage terms, taking into account both capital returns and dividends paid to shareholders. Share price and NAV total returns are monitored against open-ended and closed-ended competitors, and the Reference Index, respectively. | Year ended 31 January 2023 | | NAV | Share Price | | --- | --- | --- | --- | | Opening at 1 February 2022 | a | 318.8p | 283.0p | | Closing at 31 January 2023 | b | 337.2p | 306.0p | | Price movements | c=(b/a)-1 | 5.8% | 8.1% | | Dividend reinvestment^{4} | d | 3.8% | 4.3% | | Total return | c+d | +9.6% | +12.4% | | Year ended 31 January 2022 | | NAV | Share Price | | --- | --- | --- | --- | | Opening at 1 February 2021 | a | 262.5p | 234.0p | | Closing at 31 January 2022 | b | 318.8p | 283.0p | | Price movements | c=(b/a)-1 | 21.5% | 20.9% | | Dividend reinvestment | d | 4.2% | 4.7% | | Total return | c+d | +25.7% | +25.6% | 4 NAV total return involves investing the net dividend in the NAV of the Company with debt at fair value on the date on which that dividend goes ex-dividend. Share price total return involves reinvesting the net dividend in the share price of the Company on the date on which that dividend goes ex-dividend. The North American Income Trust plc --- # Corporate Information ![img-27.jpeg](img-27.jpeg) The Company's Investment Manager, abrdn Inc. is a subsidiary of abrdn plc, whose group of companies as at 31 December 2022 had approximately £376 billion of assets under management and administration. ![img-28.jpeg](img-28.jpeg) The Company invests in American International Group, Inc. is an American multinational finance and insurance corporation with operations in more than 80 countries. The North American Income Trust plc --- # Information about the Investment Manager abrdn Fund Managers Limited ("aFML"), authorised and regulated by the Financial Conduct Authority, has been appointed as the alternative investment fund manager to the Company. aFML has in turn delegated portfolio management to abrdn Inc. aFML and abrdn Inc. are both subsidiaries of abrdn plc. # The Investment Team Senior Managers ![img-29.jpeg](img-29.jpeg) ## Josh Duitz Deputy Head of Global Equities Graduated with an MBA from The Wharton School, and holds a BA from Emory University. Joined abrdn in 2018 from Alpine Woods Capital Management, where he was a Portfolio Manager of its Global Dynamic Dividend and Global Infrastructure strategies. He is abrdn's Deputy Head of Global Equities and Head of Infrastructure (public markets). ![img-30.jpeg](img-30.jpeg) ## Fran Radano Investment Director - North American Equities Graduated with a BA in Economics from Dickinson College and an MBA in Finance from Villanova University and is a CFA® Charterholder. Joined abrdn in 2007 following the acquisition of Nationwide Financial Services. Previously worked at Salomon Smith Barney and SEI Investments. The North American Income Trust plc --- 94 The North American Income Trust plc # Information about the Investment Manager ## Continued ### The Investment Process #### Philosophy and Style The Manager's investment philosophy is that markets are not always efficient. The Manager believe that superior investment returns are therefore attainable by identifying good companies cheaply, defined in terms of the fundamentals that in their opinion drive share prices over the long-term. They undertake substantial due diligence before initiating any investment including company visits in order to assure themselves of the quality of the prospective investment. They are then careful not to pay too high a price when making the investment. Subsequent to that investment they then keep in close touch with the company, aiming to meet management at least twice a year. Given their long-term fundamental investment philosophy, one would not expect much change in the companies in which the Manager invests. They do, however, take opportunities offered to them by what they see as anomalous price movements within stockmarkets to either top up or top slice positions, which accounts for the bulk of the activity within the portfolio during the year under review. #### Risk Controls The Manager seeks to minimise risk by their in-depth research. They do not view divergence from a benchmark as risk – they view investment in poorly run expensive companies that they do not understand as risk. In fact where risk parameters are expressed in benchmark relative terms, asset – including sector – allocation constitutes a significant constraint on stock selection. Hence diversification of stocks provides our main control. The Manager's performance and investment risk unit independently monitors portfolio positions and reports monthly. As well as attributing performance it also produces statistical analysis, which is used by the Manager primarily to check the portfolio is behaving as expected, not as a predictive tool. ![img-31.jpeg](img-31.jpeg) --- # Investor Information Investors can buy and sell shares in the Company directly through a stockbroker or indirectly through a lawyer, accountant or other professional adviser. Alternatively, for retail clients, shares may be bought directly through abrdn Trust Share Plan, Individual Savings Account ("ISA") and Investment Plan for Children. ## Suitable for Retail/NMPI Status The Company's shares are designed for investors primarily in the UK (including retail investors), professional-advised private clients and institutional investors who seek income and capital growth from investment in North American markets and who understand and are willing to accept the risks of exposure to equities. Investors should consider consulting an independent financial adviser who specialises in advising on the acquisition of shares and other securities before acquiring shares. Investors should be capable of evaluating the risks and merits of such an investment and should have sufficient resources to bear any loss that may result. The Company currently conducts its affairs so that securities issued by The North American Income Trust plc can be recommended by a financial adviser to ordinary retail investors in accordance with the Financial Conduct Authority's (FCA) rules in relation to non-mainstream pooled investments (NMPIs) and intends to continue to do so for the foreseeable future. The Company's securities are excluded from the FCA's restrictions which apply to non-mainstream pooled investments because they are shares in an investment trust. ## abrdn Investment Plan for Children abrdn runs an Investment Plan for Children (the "Children's Plan") which covers a number of investment companies under its management, including The North American Income Trust plc. Anyone can invest in the Children's Plan, including parents, grandparents and family friends (subject to the eligibility criteria as stated within the terms and conditions). All investments are free of dealing charges on the initial purchase of shares, although investors will suffer the bid-offer spread which can, on some occasions, be a significant amount. Lump sum investments start at £150 per trust, while regular savers may invest from £30 per month. Investors simply pay Government Stamp Duty (currently 0.5%) on purchases. Selling costs are £10 + VAT. There is no restriction on how long an investor need invest in the Children's Plan, and regular savers can stop or suspend participation by instructing abrdn in writing at any time. ## abrdn Share Plan abrdn runs a Share Plan (the "Plan") through which shares in The North American Income Trust plc can be purchased. There are no dealing charges on the initial purchase of shares, although investors will suffer the bid-offer spread which can, on some occasions, be a significant amount. Lump sum investments start at £250, while regular savers may invest from £100 per month. Investors simply pay Government Stamp Duty (currently 0.5%) on purchases. Selling costs are £10 + VAT. There is no restriction on how long an investor need invest in a Plan, and regular savers can stop or suspend participation by instructing abrdn in writing at any time. ## abrdn Investment Trusts ISA An investment of up to £20,000 can be made in the tax year 2023/24. There are no brokerage or initial charges for the ISA, although investors will suffer the bid-offer spread, which can be a significant amount. Investors only pay Government Stamp Duty (currently 0.5%) on purchases. Selling costs are £15 + VAT. The annual ISA administration charge is £24 + VAT, calculated annually and applied on 31 March (or the last business day in March) and collected soon thereafter either by direct debit or, if there is no valid direct debit mandate in place, from the available cash in the Plan prior to the distribution or reinvestment of any income, or, where there is insufficient cash in the Plan, from the sale of investments held in the Plan. Under current legislation, investments in ISAs can grow free of capital gains tax. ## Dividend Tax Allowance The annual tax-free personal allowance on dividend income is £1,000 for the 2023/24 tax year. Above this amount, individuals will pay tax on their dividend income at a rate dependent on their income tax bracket and personal circumstances. The Company will continue to provide registered shareholders with a confirmation of dividends paid by the Company and this should be included with any other dividend income received when calculating and reporting to HMRC total dividend income received. It is the shareholder's responsibility to include all dividend income when calculating any tax liability. ## ISA Transfer You can choose to transfer previous tax year investments to us, which can be invested in The North American Income Trust plc while retaining your ISA wrapper. The minimum lump sum for an ISA transfer is £1,000 and is subject to a minimum per trust of £250. The North American Income Trust plc --- 96 The North American Income Trust plc # Investor Information ## Continued ### Nominee Accounts and Voting Rights All investments in abrdn trust products are held in nominee accounts and investors have full voting and other rights of share ownership. ### Note Please remember that past performance is not a guide to the future. Stockmarket and currency movements may cause the value of shares and the income from them to fall as well as rise and investors may not get back the amount they originally invested. As with all equity investments, the value of investment trusts purchased will immediately be reduced by the difference between the buying and selling prices of the shares, the market maker's spread. Investors should further bear in mind that the value of any tax relief will depend on the individual circumstances of the investor and that tax rates and reliefs, as well as the tax treatment of ISAs, may be changed by future legislation. ### Keeping You Informed The North American Income Trust plc's share price appears daily in the Financial Times. For internet users, detailed data on The North American Income Trust plc, including price, performance information and a monthly factsheet, is available on the Company's website (northamericanincome.co.uk) and the TrustNet website (trustnet.co.uk). Alternatively, you can call 0808 500 0040 for trust information. ### Registrar If you have an administrative query which relates to a direct shareholding, please contact the Company's Registrar, as follows: Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ Telephone: 0370 889 4084 Website: computershare.co.uk Email: www-uk.computershare.com/investor/contactus ### Customer Service For literature and application forms for the Company and the abrdn range of investment trust products, please telephone 0808 500 4000 or request from the website: invtrusts.co.uk/en/fund-centre#literature For information on the abrdn trust products please contact: abrdn Investment Trusts Administration PO Box 11020 Chelmsford Essex CM99 2DB Tel: 0808 500 0040 E-mail: inv.trusts@abrdn-asset.com Website: invtrusts.co.uk Terms and conditions for the abrdn Investment Trust products can be found under the literature section of the above website. ### Online Dealing providers and platforms There are a number of online dealing platforms for private investors that offer share dealing, ISAs and other means to invest in the Company, such as self-invested personal pension (SIPP). Real-time execution-only stockbroking services allow you to trade online, manage your portfolio and buy UK listed shares. These sites do not give advice. Some comparison websites also look at dealing rates and terms. ### Discretionary Private Client Stockbrokers If you have a large sum to invest, you may wish to contact a discretionary private client stockbroker. They can manage your entire portfolio of shares and will advise you on your investments. To find a private client stockbroker visit The Personal Investment Management & Financial Advice Association at: pimfa.co.uk. ### Financial Advisers To find an adviser who recommends on investment trusts, visit: unbiased.co.uk ### Regulation of Stockbrokers Before approaching a stockbroker, always check that they are regulated by the Financial Conduct Authority: Tel: 0800 111 6768 or Website: fca.org.uk/firms/systems-reporting/register Email: register@fca.org.uk --- The North American Income Trust plc # PRIIPS (Packaged Retail and Insurance-based Investment Products) Investors should be aware that the PRIIPS Regulation requires the Manager, as PRIIP manufacturer, to prepare a key information document ("KID") in respect of the Company. This KID must be made available by the Manager to retail investors prior to them making any investment decision and is available on the Manager's website. The Company is not responsible for the information contained in the KID and investors should note that the procedures for calculating the risks, costs and potential returns are prescribed by the law. The figures in the KID may not reflect the expected returns for the Company and anticipated performance returns cannot be guaranteed. # Key Information Document The KID relating to the Company and published by the Manager can be found on the Manager's website at invtrusts.co.uk/en/fund-centre#literature # Investor Warning The Board has been made aware by abrdn ("abrdn") that some investors have received telephone calls from people purporting to work for abrdn, or third parties, who have offered to buy their investment trust shares. These may be scams which attempt to gain personal information with which to commit identity fraud or could be 'boiler room' scams where a payment from an investor is required to release the supposed payment for their shares. These callers do not work for abrdn and any third party making such offers has no link with abrdn. abrdn never makes these types of offers and does not 'cold-call' investors in this way. If investors have any doubt over the veracity of a caller, they should not offer any personal information, end the call and contact abrdn's investor services centre using the details provided below. The Financial Conduct Authority provides advice with respect to share fraud and boiler room scams: fca.org.uk/consumers/scams. The above information has been approved for the purposes of Section 21 of the Financial Services and Markets Act 2000 (as amended by the Financial Services Act 2012) by Aberdeen Standard Fund Managers Limited, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom 97 --- # Alternative Investment Fund Managers Directive Disclosures (unaudited) Abrdn Fund Managers Limited ("aFML") and the Company are required to make certain disclosures available to investors in accordance with the Alternative Investment Fund Managers Directive ("AIFMD"). Those disclosures that are required to be made pre-investment are included within a pre-investment disclosure document ("PIDD") the latest version of which can be found on the Company's website northamericanincome.co.uk. There have been no material changes to the disclosures contained within the PIDD since its most recent update in April 2023. The periodic disclosures as required under the AIFMD to investors are made below: - information on the investment strategy, geographic and sector investment focus and principal stock exposures is included in the Strategic Report; - none of the Company's assets are subject to special arrangements arising from their illiquid nature; - the Strategic Report on pages 8 to 27, Note 18 to the Financial Statements and the PIDD, together set out the risk profile and risk management systems in place. There have been no changes to the risk management systems in place in the period under review and no breaches of any of the risk limits set, with no breach expected; - there are no new arrangements for managing the liquidity of the Company or any material changes to the liquidity management systems and procedures employed by abrdn Fund Managers Limited ("the AIFM"); - authorised Alternative Investment Fund Managers are required to comply with the AIFMD Remuneration Code. In accordance with the Remuneration Code, the AIFM's remuneration policy is available from the Company Secretary, abrdn Holdings Limited on request (see contact details on page 98) and the remuneration disclosures in respect of the AIFM's reporting period for the year ended 31 December 2022 are available on the Company's website. ## Leverage The table below sets out the current maximum permitted limit and actual level of leverage for the Company: | | Gross Method | Commitment Method | | --- | --- | --- | | Maximum level of leverage | 2.50:1 | 2.00:1 | | Actual level at 31 January 2023 | 1.16:1 | 1.17:1 | There have been no breaches of the maximum level during the period and no changes to the maximum level of leverage employed by the Company. There is no right of re-use of collateral or any guarantees granted under the leveraging arrangement. Changes to the information contained either within this Annual Report or the PIDD in relation to any special arrangements in place, the maximum level of leverage which the AIFM may employ on behalf of the Company; the right of use of collateral or any guarantee granted under any leveraging arrangement; or any change to the position in relation to any discharge of liability by the Depositary will be notified via a regulatory news service without undue delay in accordance with the AIFMD. The information on this page has been approved for the purposes of Section 21 of the Financial Services and Markets Act 2000 (as amended by the Financial Services Act 2012) by abrdn Fund Managers Limited which is authorised and regulated by the Financial Conduct Authority in the United Kingdom. The North American Income Trust plc --- # Glossary of Terms ## abrdn abrdn ("abrdn") is a brand of abrdn plc. ## aFML or AIFM or Manager abrdn Fund Managers Limited (aFML) is a wholly owned subsidiary of abrdn plc and acts as the alternative investment fund manager (AIFM) for the Company. It is authorised and regulated by the Financial Conduct Authority. ## abrdn Inc. or Investment Manager abrdn Inc. (or "Investment Manager") is a subsidiary company of abrdn plc which has been delegated responsibility for the Company's day-to-day investment management. ## Alternative Performance Measures An alternative performance measure is a financial measure of historical or future financial performance, financial position, or cash flows, other than a financial measure defined or specified in the applicable financial reporting framework. ## AIC The Association of Investment Companies. ## AIFMD or the Directive The Alternative Investment Fund Managers Directive (AIFMD) is European legislation which created a European-wide framework for regulating managers of 'alternative investment funds' ("AIFs"). It is designed to regulate any fund which is not a UCITS fund and which is managed and/or marketed in the EU. The Company has been designated as an AIF. ## Asset Cover The value of a company's net assets available to repay a certain security. Asset cover is usually expressed as a multiple and calculated by dividing the net assets available by the amount required to repay the specific security. ## Closed-End Fund A collective investment scheme which has a fixed number of shares which are not redeemable from the fund itself. Unlike open-ended funds, new shares/units are not created by managers to meet demand from investors; instead, shares are purchased (or sold) only in the market. Closed-end funds are normally listed on a recognised stock exchange, such as the London Stock Exchange, and shares can be bought and sold on that exchange. ## Discount The amount by which the market price per share of an investment trust is lower than the net asset value per share. The discount is normally expressed as a percentage of the net asset value per share. ## Dividend Cover Earnings per share divided by dividends per share expressed as a ratio. ## Dividend Yield The annual dividend expressed as a percentage of the share price. ## ESG Environmental, Social and Governance ## FCA Financial Conduct Authority ## Investment Trust A type of Closed-End Fund which invests in other securities, allowing shareholders to share the risks, and returns, of collective investment. ## Key Information Document or KID The Packaged Retail and Insurance-based Investment Products ("PRIIPS") Regulation requires the Manager, as the Company's PRIIP 'manufacturer', to prepare a Key Information Document ("KID") in respect of the Company. This KID must be made available by the Manager to retail investors prior to them making any investment decision and is available via the Company's website. The Company is not responsible for the information contained in the KID and investors should note that the procedures for calculating the risks, costs and potential returns are prescribed by law. The figures in the KID may not reflect the expected returns for the Company and anticipated performance returns cannot be guaranteed. The North American Income Trust plc 99 --- 100 The North American Income Trust plc # Glossary of Terms ## Continued ### Leverage For the purposes of the Alternative Investment Fund Managers Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other. ### Net Asset Value ("NAV") The value of total assets less liabilities. Liabilities for this purpose included current and long-term liabilities. The net asset value divided by the number of shares in issue produces the net asset value per share. ### Net Gearing/Cash Net gearing/cash is calculated by dividing total borrowings less cash or cash equivalents, by shareholders' funds expressed as a percentage. ### Ongoing Charges Ratio of expenses as percentage of average daily shareholders' funds calculated as per the AIC's industry standard method. ### PIDD The pre-investment disclosure document made available by the AIFM in relation to the Company. ### Premium The amount by which the market price per share of an investment trust exceeds the net asset value per share. The premium is normally expressed as a percentage of the net asset value per share. ### Price/Earnings (P/E) Ratio The ratio is calculated by dividing the middle-market price per share by the earnings per share. The calculation assumes no change in earnings but in practice the multiple reflects the stockmarket's view of a company's prospects and profit growth potential. ### Prior Charges The name given to all borrowings including debentures, loan and short term loans and overdrafts that are to be used for investment purposes, reciprocal foreign currency loans, currency facilities to the extent that they are drawn down, index-linked securities, and all types of preference or preferred capital and the income shares of split capital trusts, irrespective of the time until repayment. ### Total Assets Total Assets as per the balance sheet less current liabilities (before deducting prior charges as defined above). ### Total Return Total Return involves reinvesting the net dividend in the month that the share price goes ex-dividend. The NAV Total Return involves investing the same net dividend in the NAV of the Company on the date to which that dividend was earned. --- # General ![img-32.jpeg](img-32.jpeg) The Company has a holding in Gaming & Leisure Properties, Inc. a real estate investment trust specialising in casino properties. The North American Income Trust plc 101 --- # Notice of Annual General Meeting Notice is hereby given that the Annual General Meeting ("AGM") of The North American Income Trust plc will be held at the offices of abrdn, 1 George Street, Edinburgh EH2 2LL on 8 June 2023 at 2.00 pm, for the following purposes: To consider and, if thought fit, pass the following resolutions, of which resolutions 1 to 13, inclusive, will be proposed as ordinary resolutions and resolutions 14 and 15 will be proposed as special resolutions. ## Ordinary Business 1. To receive and adopt the reports of the Directors and the auditor and the audited financial statements for the year ended 31 January 2023. 2. To receive and adopt the Directors' Remuneration Report (other than the Directors' Remuneration Policy) for the year ended 31 January 2023. 3. To approve the Directors' Remuneration Policy. 4. To approve a final dividend of 3.5p per share for the year ended 31 January 2023. 5. To approve the dividend policy to pay four quarterly interim dividends each year. 6. To re-elect Susan Rice as a Director of the Company. 7. To elect Patrick Edwardson as a Director of the Company. 8. To re-elect Karyn Lamont as a Director of the Company. 9. To re-elect Susannah Nicklin as a Director of the Company. 10. To re-elect Charles Park as a Director of the Company. 11. To re-appoint PricewaterhouseCoopers LLP as auditor of the Company. 12. To authorise the Directors to fix the remuneration of the auditor for the year ending 31 January 2024. ## Special Business 13. That, in substitution for any pre-existing power to allot or grant rights to subscribe for or to convert any security into shares in the Company, but without prejudice to the exercise of any such authority prior to the date of the passing of this resolution, the Directors be and are hereby generally and unconditionally authorised in accordance with Section 551 of the Companies Act 2006 to exercise all the powers of the Company to allot shares in the Company and to grant rights to subscribe for or to convert any security into shares in the Company ("securities") up to an aggregate nominal amount of £2,313,873 or, if less, the number representing 33.33% of the issued Ordinary share capital of the Company immediately following the conclusion of the AGM, such authority to expire on 31 July 2024 or, if earlier, at the conclusion of the AGM of the Company to be held in 2024, unless previously revoked, varied or extended by the Company in general meeting, save that the Company may, at any time prior to the expiry of such authority, make an offer or enter into an agreement which would or might require relevant securities to be allotted after the expiry of such authority and the Directors may allot relevant securities in pursuance of such an offer or agreement as if such authority had not expired. The North American Income Trust plc --- 14. That, subject to the passing of the resolution numbered 13, set out in the notice of this meeting ("Section 551 Resolution"), and in substitution for any existing authority under sections 570 and 573 of the Companies Act 2006 (the "Act") but without prejudice to the exercise of any such authority prior to the date of the passing of this resolution, the Directors of the Company be empowered pursuant to sections 570 and 573 of the Act to allot equity securities (within the meaning of section 560 of the Act) either pursuant to the authorisation conferred by the Section 551 Resolution or by way of a sale of treasury shares, in each case for cash as if section 561(1) of the Act did not apply to such allotment or sale, provided that this power shall be limited to the allotment or sale out of treasury of equity securities up to an aggregate nominal amount of £701,174 or, if less, the number representing 10% of the issued Ordinary share capital of the Company immediately following the conclusion of the AGM and such power shall expire at the earlier of the conclusion of the AGM of the Company to be held in 2024 or on 31 July 2024, but so that this power shall enable the Company to make offers, sales or agreements before such expiry which would or might require equity securities to be allotted or sold after such expiry and the Directors of the Company may allot or sell from treasury equity securities in pursuance of any such offer, sale or agreement as if such expiry had not occurred. 15. That, in substitution for any existing authority under Section 701 of the Companies Act 2006 (the "Act"), but without prejudice to the exercise of any such authority prior to the date of passing of this resolution, the Company be generally and unconditionally authorised, in accordance with Section 701 of the Act, to make market purchases (within the meaning of Section 693(4) of the Act) of fully paid Ordinary shares in the capital of the Company ("Ordinary shares") and to cancel or to hold in treasury such shares, provided that: a) the maximum aggregate number of Ordinary shares hereby authorised to be purchased is 21,021,188 Ordinary shares or, if less, the number representing approximately 14.99% of the issued Ordinary Share capital of the Company as at the date of the passing of this resolution; b) the minimum price which may be paid for an Ordinary share shall be 5 pence (exclusive of expenses); c) the maximum price (exclusive of expenses) which may be paid for an Ordinary share shall be the higher of (i) 105% of the average of the middle market quotations (as derived from the Daily Official List of the London Stock Exchange) for the Ordinary shares for the five business days immediately preceding the date of purchase and (ii) the higher of the price of the last independent trade and the highest current independent bid relating to an Ordinary share on the trading venue where the purchase is carried out; and d) unless previously varied, revoked or renewed, the authority hereby conferred shall expire on 31 July 2024 or, if earlier, at the conclusion of the AGM of the Company to be held in 2024, save that the Company may, at any time prior to such expiry, enter into a contract or contracts to purchase Ordinary shares under such authority which will or might be completed or executed wholly or partly after the expiration of such authority and may make a purchase of Ordinary shares pursuant to any such contract or contracts as if such authority had not expired. By order of the Board abrdn Holdings Limited Company Secretary 4 April 2023 Registered Office 1 George Street Edinburgh, EH2 2LL The North American Income Trust plc 103 --- # Notice of Annual General Meeting Continued ## Notes i. A member is entitled to appoint a proxy or proxies to exercise all or any of their rights to attend, speak and vote on their behalf. A proxy need not be a member of the Company. A member may appoint more than one proxy provided each proxy is appointed to exercise rights attached to different shares. A member may not appoint more than one proxy to exercise rights attached to any one share. If you wish your proxy to speak on your behalf at the Meeting you will need to appoint your own choice of proxy (not the Chairman of the meeting) and give your instructions directly to them. A proxy form which may be used to make such appointment and give proxy instructions accompanies this notice. If you do not have a proxy form and believe that you should have one, or if you require additional forms or would like to appoint more than one proxy, please contact the Company's Registrars, Computershare Investor Services PLC on 0370 889 4084. In the case of joint holders, where more than one of the joint holders purports to appoint a proxy, only the appointment submitted by the most senior holder will be accepted. Seniority is determined by the order in which the names of the joint holders appear in the Company's Register of Members in respect of the joint holding (the first-named being the most senior). A member present in person or by proxy shall have one vote on a show of hands and on a poll every member present in person or by proxy shall have one vote for every Ordinary share of which he/she is the holder. ii. A form of proxy for use by members is enclosed with this Notice of Meeting. Completion and return of the form of proxy will not prevent any member from attending the Meeting and voting in person. To be valid, the form of proxy should be lodged, together with any power of attorney or other authority (if any) under which it is signed or a notarially certified copy of such power or authority with the Company's Registrars, Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6ZY, so as to be received not less than 48 hours (excluding non-working days) before the time of the Meeting. iii. In accordance with Regulation 41 of the Uncertificated Securities Regulations 2001, to have the right to attend and vote at the Meeting a member must first have his or her name entered in the Company's register of members by not later than 6.00 pm on 6 June 2023 (or, in the event that the Meeting is adjourned, at 6.00pm on the day which is two business days before the time of the adjourned Meeting). Changes to entries on that register after that time shall be disregarded in determining the rights of any member to attend and vote at the Meeting. iv. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST Manual and by logging on to the website euroclear.com/CREST. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. v. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a "CREST Proxy Instruction") must be properly authenticated in accordance with Euroclear UK & Ireland Limited's specifications, and must contain the information required for such instruction, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or is an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the Company's Registrar (ID 3RA50) no later than 48 hours (excluding non-working days) before the time of the Meeting or any adjournment. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Application Host) from which the Company's Registrar is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. The North American Income Trust plc --- vi. CREST members and, where applicable, their CREST sponsors, or voting service providers should note that Euroclear UK & Ireland Limited does not make available special procedures in CREST for any particular message. Normal system timings and limitations will, therefore, apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member, or sponsored member, or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting system providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. vii. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. viii. The "vote withheld" option on the proxy form is provided to enable a member to abstain on any particular resolution. It should be noted that an abstention is not a vote in law and will not be counted in the calculation of the proportion of votes "for" or "against" a particular resolution. ix. The right to appoint a proxy does not apply to persons whose shares are held on their behalf by another person and who have been nominated to receive communications from the Company in accordance with Section 146 of the Companies Act 2006 ("nominated persons"). Nominated persons may have a right under an agreement with the member who holds the shares on their behalf to be appointed (or to have someone else appointed) as a proxy. Alternatively, if nominated persons do not have such a right, or do not wish to exercise it, they may have a right under such an agreement to give instructions to the person holding the shares as to the exercise of voting rights. The statement of the rights of members in relation to the appointment of proxies in notes i) and ii) above does not apply to Nominated Persons. The rights described in these notes can only be exercised by members of the Company. x. No Director has a service contract with the Company. Copies of the Directors' letters of appointment are available for inspection during usual business hours at the Company's registered office. The documents will also be available to view online at northamericanincome.co.uk from the date of this notice until close of the 2023 AGM. xi. As at close of business on 6 April 2023 (being the latest practicable date prior to publication of this document), the Company's issued share capital comprised 140,234,749 Ordinary shares of 5p each. The total number of voting rights in the Company as at 6 April 2023 was 140,234,749. xii. Any person holding 3% or more of the total voting rights in the Company who appoints a person other than the Chairman as his proxy will need to ensure that both he and such third party complies with their respective disclosure obligations under the UK Disclosure Guidance and Transparency Rules. xiii. Any corporation which is a shareholder can appoint one or more corporate representatives who may exercise on its behalf all of its powers as a shareholder provided that they do not do so in relation to the same shares. xiv. Under Section 527 of the Companies Act 2006 (the "Act"), shareholders meeting the threshold requirements set out in that section have the right to require the Company to publish on a website a statement setting out any matter relating to: (i) the audit of the Company's financial statements (including the auditor's report and the conduct of the audit) that are to be laid before the AGM; or (ii) any circumstance connected with an auditor of the Company ceasing to hold office since the previous meeting at which annual report and financial statements and were laid in accordance with Section 437 of the Act. The Company may not require the shareholders requesting any such website publication to pay its expenses in complying with Sections 527 or 528 of the Act. Where the Company is required to place a statement on a website under Section 527 of the Act, it must forward the statement to the Company's auditor not later than the time when it makes the statement available on the website. The business which may be dealt with at the AGM includes any statement that the Company has been required under Section 527 of the Act to publish on a website. xv. Information regarding the AGM, including information required by Section 311A of the Companies Act 2006, is available from the Company's website, northamericanincome.co.uk. The North American Income Trust plc 105 --- # Notice of Annual General Meeting Continued xvi. Under Section 319A of the Companies Act 2006, the Company must answer any question relating to the business being dealt with at the Meeting put by a member attending the Meeting unless: 1. answering the question would interfere unduly with the preparation for the meeting or involve the disclosure of confidential information; 2. the answer has already been given on a website in the form of an answer to a question; or 3. it is undesirable in the interests of the Company or the good order of the Meeting that the question be answered. xvii. Members who have general queries about the AGM should contact the Company Secretary in writing. Members are advised that, unless otherwise stated, any telephone number, website or e-mail address which may be set out in this notice of AGM or in any related documents (including the proxy form) is not to be used for the purposes of serving information or documents on, or otherwise communicating with, the Company for any purposes other than those expressly stated. xviii. There are special arrangements for holders of shares through the abrdn trust products. These are explained in the 'Letter of Direction' which such holders will have received with this report. The North American Income Trust plc --- The North American Income Trust plc 107 | General | Corporate Information | Financial Statements | Governance | Portfolio | Strategic Report | Overview | | --- | --- | --- | --- | --- | --- | --- | --- The North American Income Trust plc --- The North American Income Trust plc # Contact Addresses ## Directors Dame Susan Rice (Chair) Patrick Edwardson Karyn Lamont Susannah Nicklin Charles Park ## Manager, Secretary and Registered Office Alternative Investment Fund Manager abrdn Fund Managers Limited 280 Bishopsgate London EC2M 4AG (Authorised and regulated by the Financial Conduct Authority) Manager - Customer Services Department Telephone: 0808 500 0040 (Lines open 9.00 am to 5.00 pm, Monday to Friday) Email: inv.trusts@abrdn.com ## Investment Manager abrdn Inc. 1900 Market Street 2nd Floor Philadelphia PA 19103 (Authorised and regulated by the US Securities and Exchange Commission) ## Secretary and Registered Office abrdn Holdings Limited 1 George Street Edinburgh, EH2 2LL Email: northamericanincome@abrdn.com Website: northamericanincome.co.uk ## Company Registration Number Registered in Scotland with number SC005218 ## Registrar Computershare Investor Services PLC The Pavilions Bridgwater Road Bristol BS99 6ZZ Telephone: 0370 889 4084* Website: www-uk.computershare.com/investor E-mail is available via the above website *Lines are open Monday to Friday from 8.30am – 5.30pm, excluding bank holidays. Charges for calling telephone numbers starting with '03' are determined by the caller's service provider. Calls may be recorded and monitored randomly for security and training purposes. ## Independent Auditors PricewaterhouseCoopers LLP 144 Morrison St Edinburgh EH3 8EB ## Company Broker Winterflood Investment Trusts The Atrium Building Cannon Bridge House 25 Dowgate Hill London, EC4R 2GA ## Depositary BNP Paribas Trust Corporation UK Limited 10 Harewood Avenue London, NW1 6AA (During the period the Depositary was BNP Paribas Securities Services, London Brank. The depositary agreement was novated to BNP Paribas Trust Corporation UK Limited on 30 June 2022.) ## United States Internal Revenue Service FATCA Registration Number (GIIN) XYAARK.99999.SL.826 ## Legal Entity Identifier 5493007GCUW7G2BKY360 109 --- For more information visit **northamericanincome.co.uk** # abrdn.com