Abrdn Di&g Regulatory News (ADIG)

ABERDEEN DIVERSIFIED INCOME AND GROWTH TRUST PLC

Legal Entity Identifier (LEI): 2138003QINEGCHYGW702

Information disclosed in accordance with Section 4.1.3 of the FCA's Disclosure Guidance and Transparency Rules ("DTR")

ANNUAL FINANCIAL REPORT FOR THE YEAR ENDED 30 SEPTEMBER 2018

COMPANY OVERVIEW

Aberdeen Diversified Income and Growth Trust plc (the "Company") is an investment trust with its Ordinary shares listed on the premium segment of the London Stock Exchange. The Company targets a total portfolio return of LIBOR (London Interbank Offered Rate) plus 5.5% per annum (net of fees) over rolling five-year periods.

The Company is governed by a board of directors, all of whom are independent, and has no employees. Like most other investment companies, the Company outsources its investment management and administration to an investment management group, the Aberdeen Group, and other third party providers. The Company does not have a fixed life.

FINANCIAL HIGHLIGHTS

CHAIRMAN'S STATEMENT

Our Proposition

The Board believes that your Company offers shareholders a compelling investment proposition, especially in the current investment climate of low yields and volatile markets.

The Company offers a combination of the potential for attractive long term returns, as recognised in our medium term objective to outperform LIBOR by 5.5% per annum net of fees over rolling five year periods; a strong yield, currently 4.2% in the financial year just ended; low volatility relative to equity markets; and low costs relative to many other investment trusts. We also operate a policy on discount management. The combination of these features, we believe, makes your Company very attractive to investors.

We are now about one third of the way through our first rolling five year period. For the period starting from our adoption of the new investment objective, that is from 31 March 2017, to 30 September 2018, the Company's share price total return was 15.4% whilst net asset value total return (calculated with debt at fair value) was 7.3% and LIBOR + 5.5% per annum (net of fees) was 9.3%. For context, benchmark returns for UK equities (FTSE All-Share Index) and UK gilts were 9.7% and -1.1%, respectively.

Since March 2017, returns to shareholders have been encouraging - enhanced in part by an improved rating on the shares relative to net asset value. The portfolio is behind the medium term objective quoted above, but this was expected in the early stages of the new portfolio's construction which included significant portfolio change and the deployment of the cash from Aberdeen UK Tracker Trust into several infrastructure, property and other unquoted asset types that have returns loaded towards the medium to longer term. The Investment Manager's Report discusses in more detail the reasons for this shorter term lagging of the medium term objective and outlines how the higher return, long term investments are expected to contribute to delivery of returns ahead of the objective over a rolling five year period. In particular, the report addresses how the current estimate of the fall in the value of the Company's investment in Markel CATCo, as a result of storms, tornadoes and hurricanes, detracted from an asset class which the Manager still believes will deliver a good diversified return over the longer term.

Total Return

Over the year ended 30 September 2018, the Company's NAV per share, with debt at fair value, rose 2.5% on a total return basis. The Company's share price ended the year at 124.50 pence, compared to 120.50 pence at 30 September 2017, resulting in a total return to shareholders over the year of 7.9%. By way of comparison, LIBOR + 5.5% per annum (net of fees) was equivalent to a total return of 6.2% for the year under review.

Earnings and Dividends

The Company's revenue return for the year ended 30 September 2018 was 6.15 pence per share, compared to 5.31 pence per share for the prior year, which represents an increase of 15.8%. This increase largely reflects the benefit of a full year of dividends from a number of new fund positions established during the spring and summer of 2017.

The portfolio includes exposure to a diverse range of asset classes, many of which deliver an attractive level of income. The Board reviews portfolio revenue forecasts at each Board meeting. Although the increase in revenue noted above was in part because of the timing issue mentioned, the level of revenue is currently viewed as a reasonable guide for the year ahead.

First, second and third interim dividends of 1.31 pence per share were paid to shareholders on 29 March 2018, 27 July 2018 and 12 October 2018. On 17 December 2018, the Board declared a fourth interim dividend of 1.31 pence per share to be paid on 25 January 2019 to shareholders on the register on 28 December 2018. The ex dividend date is 27 December 2018. This equates to a dividend yield of 4.2% based on the year end share price of 124.50 pence. Total dividends for the year are 5.24p per share, lower than the 5.89p per share paid in the prior year, reflecting the Company's rebasing of dividends as set out in the prospectus published in March 2017 (the "Prospectus").

For the year to 30 September 2019, the Board currently intends to declare four quarterly dividends of 1.34 pence per share or 5.36p per share in total. This represents an increase of 2.3% and compares to consumer prices inflation of 2.4% over the year ended 30 September 2018. The Company's policy, included in the Prospectus, is to "pay an attractive dividend consistent with the underlying portfolio yield".

As in previous years, the Board intends to put to shareholders at the next Annual General Meeting ("AGM") on 27 February 2019 a resolution in respect of its current policy to declare four interim dividends each year.

Changes in allocation of expenses between capital and income

The Company has in recent years charged 65% of the Company's management fee and loan stock financing costs to capital and 35% to revenue. After a review of recent actual and currently anticipated sources of return, the Board has changed the allocation to charge 60% to capital and 40% to revenue with effect from 1 October 2018.

Policy on Discount Management and Issuance of Shares or Sale of Shares from Treasury

It is pleasing to report that, as result of sustained demand in the market, the Company's shares moved from a discount of 3.1% at 1 October 2017 to a premium of 3.2% at 30 September 2018 (all figures calculated with debt at fair value and excluding income).

During the period 515,000 shares were repurchased in line with the Board's discount management policy which is, subject to normal market conditions, the prevailing gearing level, and the composition of the Company's portfolio, to seek to maintain the Company's share price discount to net asset value (ex income, with debt at fair value) at no wider than 5%. Since the year end, a total of 2,150,000 shares have been sold from treasury at prices above the prevailing net asset value per share.

The Board continues to monitor closely the Company's discount or premium and will undertake share buybacks, or consider further sales of shares from treasury, respectively, if such action is in shareholders' interests.

Gearing

The Company's net gearing, that is after taking account of cash balances, fell to 10.6% at 30 September 2018, from 12.8% at 30 September 2017.

Board Composition

Since the completion of the merger with Aberdeen UK Tracker Trust plc, in April 2017, the focus of the Board has been upon the change of the investment objective and adoption of a new investment policy involving significant reshaping of the portfolio under its new investment manager.

The Board has also undertaken a review of its skills mix, size and diversity, in preparation for the next phase of the Company's development and growth. As part of this review, the Board carefully noted the recommendations in the Financial Reporting Council's new Corporate Governance Code published in July 2018.

Accordingly, on 25 September 2018, the Company announced a detailed and comprehensive plan designed to ensure that, going forward, it has a Board that is demonstrably and appropriately skilled, diversified and sized.

As a first step in this succession process, it was confirmed that Ian Russell and Paul Yates would both retire on 31 October 2018 and that Kevin Ingram will retire at the AGM in 2019. Tom Challenor has become the Chairman of the Audit Committee following Ian's retirement. I undertook to oversee the refreshment of the Board's composition and the succession process, including the selection of my successor as Chairman and said that I would retire from the Board when this has been completed at, or before, the Company's AGM in 2020.

We immediately commenced a formal process, utilising the services of an independent search consultancy, to find a new Director, and I am delighted to announce that Davina Walter will be joining the Board on 1 February 2019. Davina has been employed in the City of London since 1974, having spent over 11 years in US equity research at Cazenove & Co. and more than 16 years as an investment manager of US equity portfolios. Most recently she was a Managing Director at Deutsche Asset Management Limited. She has been involved in investment trusts since 1985 and is presently employed as an Investment Consultant. Davina is also Chairman of JPMorgan US Smaller Companies Investment Trust plc and brings strong investment trust board, leadership and investment management skills. I shall be proposing her election as a Director at the AGM.

My fellow Directors and I would like to record our sincerest thanks to Ian Russell and Paul Yates, who, as mentioned above, stood down in October, for their very valuable individual contributions to the Company, and, in particular for their diligence and insights over the period since the appointment of Aberdeen Standard Investments as Manager in February 2017. At the conclusion of the AGM we shall also bid farewell to Kevin Ingram, our Senior Independent Director. Kevin served as Chairman of Aberdeen UK Tracker Trust and his considerable positive impact throughout the merger process, as well as his constant wise guidance as we sought to reshape the newly merged company, are much appreciated by his colleagues.

Aberdeen Standard Investments Plans

Since April 2017 it has been possible to acquire shares in the Company via Aberdeen Standard Investments' Plan for Children, Investment Trust Share Plan and Investment Trust ISA.

AGM

This year's AGM, which will be held at the Manager's offices at Bow Bells House, 1 Bread Street, London EC4M 9HH from 12.30pm on 27 February 2019, provides shareholders with an opportunity to receive a presentation from the Manager and to ask any questions that they may have of both the Board and the Manager. The formal Notice of AGM may be found in the published Annual Report. I look forward to meeting shareholders and Aberdeen Standard Investments Planholders at the AGM.

Action to be Taken

Shareholders will find enclosed with this Annual Report a Form of Proxy for use in relation to the AGM. Whether or not you propose to attend the AGM, you are encouraged to complete the Form of Proxy in accordance with the instructions printed on it and return it in the prepaid envelope as soon as possible but in any event so that it might be received no later than 12.30pm on 25 February 2019. Completion of a Form of Proxy does not prevent you from attending and voting in person at the AGM if you wish to do so.

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 that hold their shares in the Company via the Aberdeen Standard Investments' Plan for Children, the Aberdeen Standard Investments' Share Plan and/or the Aberdeen Standard Investment Trust ISA will find a Letter of Direction enclosed. Shareholders are encouraged to complete and return the Letter of Direction in accordance with the instructions printed thereon.

Further details on how to attend and vote at Company Meetings for holders of shares via share plans and platforms can be found in the published Annual Report and at www.theaic.co.uk/shareholder-voting-consumer-platforms.

Replacement for LIBOR

The Company's investment objective contains a reference to LIBOR, the London Interbank Offered Rate. The FCA has announced that LIBOR will be phased out by 2021 and the Manager is in the process of identifying an alternative measure, consistent with the underlying choice of LIBOR, following which the Board will approach shareholders for approval of a resulting change to the investment objective.

Conclusion

The Investment Manager's Report gives more detail of your investments in these markets and the wide range of other asset classes that go to make up your portfolio. The Company's new financial year has started with a sharp fall in global equities and, inevitably, commentators are suggesting that the bull market is over. From 1 October 2018 to 9 January 2019, the MSCI World Index had fallen 8.1%, as compared to a decline in the Company's NAV of 5.9% with debt at fair value, both in total return terms.

The Board believes that, at times of great volatility such as these, the Company's diversified portfolio of assets, each with differing return drivers and risk characteristics, continues to offer a sound investment proposition for shareholders.

James M Long

Chairman

14 January 2019

STRATEGIC REPORT - OVERVIEW OF STRATEGY

Business Model

The Company is an investment trust with a premium listing on the London Stock Exchange.

Investment Objective

The Company targets a total portfolio return of LIBOR (London Interbank Offered Rate) plus 5.5% per annum (net of fees) over rolling five-year periods.

Investment Policy

The Company invests globally using a flexible multi-asset approach via quoted and unquoted investments. The Company has not set maximum or minimum exposures for any geographical regions or sectors and will achieve an appropriate spread of risk by investing in a diversified portfolio of securities and other assets. This includes, but is not limited to, achieving exposure to the following securities and asset classes:

- equity driven assets, comprising developed equity, emerging market equity and private equity;

- alternative diversifying assets including, but not limited to, high yield bonds and loans, emerging market debt, alternative financing, asset backed securities, property, social, economic, regulated and renewable infrastructure, commodities, absolute return investments, insurance linked, farmland and aircraft leasing; and

- low return assets such as gold, government bonds, investment grade credit and tail risk hedging.

Asset allocation is flexible allowing investment in the most attractive investment opportunities at any point in time whilst always maintaining a diversified portfolio.

The Company complies with the following investment restrictions, at the time of investment:

- no individual quoted company or transferable security exposure in the portfolio may exceed 15% of the Company's total assets, other than in treasuries and gilts;

- no other individual asset in the portfolio (including property, infrastructure, private equity, commodities and other alternative assets) may exceed 5% of the Company's total assets;

- the Company will not normally invest more than 5% of its total assets in the unquoted securities issued by any individual company; and

- no more than 15% of the Company's total assets may be invested in an individual regulated pooled investment fund, with the exception of a global equity UCITS pooled fund which may be no more than 35% of the Company's total assets. In aggregate the largest three investments in regulated pooled funds will not comprise more than 60% of the Company's total assets.

The Company may invest in exchange-traded funds provided they are quoted on a recognised investment exchange. The Company may invest in cash and cash equivalents including money market funds, treasuries and gilts.

No more than 10% of the Company's total assets may be invested in other listed closed-ended investment companies. This restriction does not apply to investments in any such listed closed-ended investment companies which themselves have published investment policies to invest no more than 15% of their total assets in other closed-ended investment companies.

The Company may use derivatives to enhance portfolio returns (of a capital or income nature) and for efficient portfolio management, that is, to reduce, transfer or eliminate risk in its investments, including protection against currency risks, or to gain exposure to a specific market.

The Company may use gearing, in the form of borrowings and derivatives, to enhance income and capital returns over the long term. The borrowings may be in sterling or other currencies. The Company's articles of association contain a borrowing limit equal to the value of its adjusted total of capital and reserves. However, borrowings would not normally be expected to exceed 20% of shareholders' funds. Total gearing, including net derivative exposure, would not normally be expected to result in a net economic equity exposure in excess of 120%.

The Company may invest from time to time in funds managed by the Manager.

Risk Diversification

It is the policy of the Company to invest no more than 15% of its gross assets in other listed investment companies and no more than 15% of its gross assets in any one company.

Gearing

The Board is responsible for determining the gearing strategy for the Company, with day-to-day gearing decisions being made by the Manager within the remit set by the Board. The Board has set its gearing limit at a maximum of 20% of the net asset value at the time of draw down. Gearing is used selectively to leverage the Company's portfolio in order to enhance returns where and to the extent considered appropriate.

Management and Delivering the Investment Objective

The Directors are responsible for determining the Company's investment objective and investment policy.

Day-to-day management of the Company's assets has been delegated to Aberdeen Standard Fund Managers Limited ("ASFML", the "AIFM" or the "Manager"). In turn, the investment management of the Company has been delegated by ASFML to Aberdeen Asset Managers Limited ("AAML" or the "Investment Manager"). Both companies are subsidiaries of Standard Life Aberdeen plc.

Investment Process

The Investment Manager believes that many investors could materially improve their long-run returns and / or reduce risk by having a more diversified portfolio. The Investment Manager's aim is to build a genuinely diversified portfolio consisting of a wide range of assets, each with clear, fundamental performance drivers that will deliver an attractive return for the Company's shareholders. The Investment Manager engages all of its research capabilities, including specialist macro and asset class researchers, to identify appropriate investments. The approach, which incorporates a robust risk framework, is not constrained by a benchmark mix of assets. This flexibility ensures that the Investment Manager does not feel compelled to invest shareholders' capital in investments which they believe to be unattractive.

The Company's portfolio consists of investments from the widest range of asset classes. The portfolio may include equity-focused investments, alternative diversifying assets (including, but not limited to, high yield bonds and loans, emerging market debt, asset backed securities, property, infrastructure, commodities, absolute return investments, insurance linked, farmland, royalty-based investments and aircraft leasing) and low return assets such as gold, investment grade credit, tail risk hedging and government bonds. Detailed investment research (including operational due diligence for unquoted funds managed by third parties) is carried out on each potential opportunity by specialist teams within the Investment Manager.

The weighting ascribed to each investment in the portfolio reflects the perceived attractiveness of the investment case, including the contribution to portfolio diversification. The Investment Manager also ensures that the weighting is in keeping with their overall strategic framework for the portfolio based on the return and valuation analysis of the Investment Manager's Research Institute. The fundamental and valuation drivers of each investment are reviewed on an ongoing basis.

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 its progress in pursuing its investment policy. The primary KPIs are shown in the table below.

Principal Risks and Uncertainties

The Board has in place a robust process to assess and monitor the principal risks of the Company. A core element of this is the Company's risk controls self-assessment ("RCSA"), which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk, and the quality of the controls operating to mitigate the risk. A residual risk rating is then calculated for each risk based on the outcome of this assessment and plotted on a risk heat-map. This approach allows the effect of any mitigating procedures to be reflected in the final assessment which is within the risk appetite set by the Board.

The RCSA, its method of preparation and the operation of the key controls in the Manager's and third party service providers' systems of internal control are reviewed on a regular basis by the Audit Committee. In order to gain a more comprehensive understanding of the Manager's and other third party service providers' risk management processes, and how these apply to the Company's business, the Manager's internal audit department presents to the Audit Committee setting out the results of testing performed in relation to the Manager's internal control processes. The Audit Committee also periodically receives presentations from the Manager's compliance, internal audit and business risk teams, and reviews ISAE3402 reports from the Manager and from the Company's custodian (The Bank of New York Mellon (International) Limited). The custodian is appointed by the Company's Depositary and does not have a direct contractual relationship with the Company.

The Board has carried out a robust assessment of these risks, which include those that would threaten its business model, future performance, solvency or liquidity. The Board is confident that the procedures which the Company has in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the year ended 30 September 2018.

The principal risks associated with an investment in the Company's shares are published monthly in the Company's factsheet and they can also be found in the pre-investment disclosure document ("PIDD") published by the Manager, both of which are available on the Company's website. The following is a summary of the principal risks and uncertainties faced by the Company in relation to its day-to-day operations.

Promoting the Company

The Board recognises the importance of promoting the Company to prospective investors both for improving liquidity and enhancing the value and rating of the Company's shares. The Board believes an effective way to achieve this is through subscription to, and participation in, the promotional programme (the "Programme") run by Aberdeen Standard Investments on behalf of a number of investment trusts under its management. The Company's financial contribution to the Programme is matched by Aberdeen Standard Investments. Aberdeen Standard Investments regularly reports to the Board giving analysis of the promotional activities as well as updates on the shareholder register and any changes in the composition of that register. In addition, the Board has approved additional bespoke promotional activities by the Manager focusing on specific initiatives.

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

Board Diversity

In September 2018, the Board announced a succession plan designed to move its composition more in line with guidance contained in the UK Code on Corporate Governance published in July 2018, which is first applicable to the Company for the year ended 30 September 2019.

At 30 September 2018, there were seven Directors, prior to the retirement of Ian Russell and Paul Yates on 31 October 2018.

The Board recognises the benefits, and is supportive, of diversity and the importance of having a range of skilled, experienced individuals with relevant knowledge in order to allow it to fulfill its obligations. The Board initiated an independent search for a new Director following which Davina Walter was appointed a Director with effect from 1 February 2019.

Environmental, Social and Human Rights Issues

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

Socially Responsible Investment Policy

The Directors, through the Manager, encourage companies in which investments are made to adhere to best practice in the area of corporate governance and socially responsible investing. They believe that this can best be achieved by entering into a dialogue with company management to encourage them, where necessary, to improve their policies in both areas. The Manager's ultimate objective, however, is to deliver superior investment returns for its clients. Accordingly, whilst the Manager will seek to favour companies which pursue best practice in these areas, this should not be to the detriment of the return on the investment portfolio.

UK Stewardship Code and Proxy Voting as an Institutional Shareholder

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.

Modern Slavery Act

Due to the nature of the Company's business, being an investment 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 addition, 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.

Global Greenhouse Gas Emissions

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

Viability Statement

In accordance with the provisions of the UKLA's Listing Rules and the FRC's UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months required by the "Going Concern" provision. The Board conducted this review for the period up to the AGM in 2024, being a five year period from the date of shareholders' approval of this Report. The five year review period was selected because it is aligned with the medium term performance period of five years over which the Company is assessed in its objective of target returns of LIBOR +5.5% per annum (net of fees) over rolling five-year periods. 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 five years.

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

- the principal risks and uncertainties detailed above and the steps taken to mitigate these risks;

- the relevance of the Company's investment objective and investment policy, especially in the current low yield environment, which targets a truly diversified multi-asset approach to generate highly attractive long-term income and capital returns;

- the majority of the Company's investment portfolio is invested in securities which are realisable within a short timescale;

- the level of share buy backs carried out in the past have not resulted in significant reductions to the capital of the Company;

- although the Company's stated investment policy contains a gearing limit of 20% of the net asset value at the time of draw down, the Board's policy is to operate with a level of equity gearing and the financial covenants attached to the Company's borrowings provide for significant headroom;

- the continuation vote to be put to shareholders at the AGM in 2020 and at each subsequent AGM;

- the level of demand for the Company's shares.

In making its assessment, the Board is also aware that there are other matters that could have an impact on the Company's prospects or viability in the future, including a large economic shock or significant stock market volatility, and changes in regulation or investor sentiment.

The Board has also considered a number of financial metrics, including:

- the level of current and historic ongoing charges incurred by the Company;

- the share price premium or discount to NAV;

- the level of income generated by the Company;

- future income forecasts; and

- the liquidity of the Company's portfolio.

As an investment Company with a relatively liquid portfolio and largely fixed overheads which comprise a small percentage of net assets, the Board has concluded that, even in exceptionally stressed operating conditions, the Company would be able to meet its ongoing operating costs as they fall due.

Taking into account the Company's current position and the potential impact of its principal risks and uncertainties, the Directors have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due for a period of five years from the date of this Report, subject to shareholders' approval of the continuation vote at the AGM in 2020, and at each AGM thereafter.

Outlook

The Board's view on the general outlook for the Company can be found in the Chairman's Statement while the Investment Manager's views on the outlook for the portfolio are included in their report.

On behalf of the Board

James M Long

Chairman

14 January 2019

STRATEGIC REPORT - RESULTS

FINANCIAL HIGHLIGHTS

TEN YEAR FINANCIAL RECORD

DIVIDENDS

STRATEGIC REPORT - INVESTMENT MANAGER'S REPORT

This Report marks the end of our first full financial year as managers of the Company. Last year, we described the journey that we had embarked upon - to deliver an attractive return to shareholders via a flexible, multi-asset investment approach - and the steps we had taken in order to reposition the portfolio. In the Half-Yearly Report, published in June 2018 (available on the Company's website), we provided shareholders with an update on the portfolio in four sections - equity, physical assets, fixed income & credit and other assets - with a particular focus on the longer term investments that are a key feature of our approach. In the sections below, we update this analysis of the portfolio.

As the Chairman observes in his Statement, although the portfolio delivered a positive return to shareholders over the year to 30 September 2018, this was behind our medium term performance objective. Different asset classes have contributed to portfolio returns over the period since the new performance objective was approved by shareholders in March 2017. Inevitably, some asset classes were a drag on performance - most notably, insurance linked securities and emerging market bonds - for reasons we go into below. Positive returns were achieved from a broader range of asset classes, with equities and asset backed securities to the fore. The contribution from a number of asset classes, such as property, real assets and special opportunities, is expected to grow over time as the initial long term investments we have made reach maturity and new opportunities are identified by the specialist managers to whom we have committed shareholder capital.

During the year under review, we added new investments in private equity, social infrastructure, primarily in Australia, and insurance linked securities. In addition, the Board has approved commitments to two funds investing in economic infrastructure in Europe and social infrastructure in Latin America. Specialist colleagues within Aberdeen Standard Investments are also researching third party managers in areas such as litigation finance and healthcare royalties. These investments each have different return drivers and risk characteristics but they share two things in common: they are specialist in nature and individual shareholders cannot easily access them. With many of these investments targeting double digit percentage annual returns, we expect them to be important contributors towards our delivery of the portfolio's performance objective over the medium term.

Equity (listed equity and private equity)

% of Net Assets reduced from 28.8% to 25.8%

Global equities delivered a positive return over the year to 30 September 2018. In the US, the continued recovery in the economy and strong growth in corporate earnings were the main drivers behind the particularly strong performance of the equity market. During the first part of the period, we reduced the portfolio's exposure to equities, largely on concerns over the high level of equity valuations. This reduction helped dampen the impact on portfolio performance of the 10% fall in global equity markets in the early part of 2018 when investors became fearful of an increased pace of monetary policy tightening in the US. Over the summer, sentiment in equity markets gradually improved, largely driven by the US for the reasons noted above. The period ended with the US equity market at an all-time high but, with US Treasury yields rising above 3%, our concerns over equity market over-valuation are reinforced, prompting us to maintain a relatively low exposure to the asset class.

Our holding in Aberdeen Global Smart Beta Low Volatility Global Equity Income Fund was a major contributor to the Company's NAV performance over the year. This actively managed portfolio, which consists of over 200 holdings selected for their exposure to factors such as quality, financial strength and value, is well diversified by geography and by sector. The table below shows the portfolio's top five equity exposures. In the UK, holdings include Vodafone, Centrica and Persimmon in preference to market heavyweights such as HSBC, Royal Dutch Shell and BP.

Aberdeen Global Smart Beta Low Volatility Global Equity Income Fund

As the name of the fund implies, our equity approach is designed to deliver a higher yield with lower volatility than a global equity benchmark. Over time, this approach is expected to deliver an attractive risk-adjusted exposure to equities. Indeed, over the first half of the reporting period, this proved to be the case but, as might be expected, during the stronger market conditions over the summer the fund lagged behind its benchmark.

Over the year as a whole, the fund delivered +11.8% compared to a benchmark return of +14.9% in sterling returns. Much of the underperformance stemmed from US equities and, in particular, the lack of exposure to very highly rated technology companies.

In private equity, we work closely with colleagues in the Aberdeen Standard Investments Private Equity team to identify attractive opportunities for the portfolio. They invest with a wide range of specialist managers and, to date, we have committed capital to three strategies identified by the team. Updates on these investments are given in the table below. Two of them have already returned capital to us. Maj Invest 4 was a notable contributor to performance over the period. It sold two businesses at substantial premiums to carrying value and, as a result, we received a distribution of £4.0m. Our stakes in the remaining investments in six businesses were valued at £3.0m at the latest quarterly valuation which means that we have earned a return of over 40% on our original investment of £4.9m. Half way through the financial year, we acquired holdings in a selection of funds managed by Harbourvest and Mesirow from an existing holder who wished to exit from private equity. These funds, which are approaching the end of their investment lives, have a focus on US private companies. The underlying portfolios are very widely diversified by strategy and in terms of industry. We receive a regular stream of distributions from these fund holdings as businesses are sold by the managers. Since we acquired these investments, £0.9m has been returned to us for redeployment in other investments. The initial investment was largely funded by the sale of Forward Partners, the UK-focussed venture capital fund, at a premium to the carrying value in the 30 September 2017 accounts.

Private Equity - Unlisted Summary

* For investments acquired via a secondary transaction from a previous investor, capital commitment includes any premium paid to book value at time of purchase.

Physical assets (property, infrastructure and real assets)

% of Net Assets increased from 11.9% to 19.7%

These asset classes are ideally suited to our investment approach in that they are long term in nature, offer attractive risk-adjusted returns and add considerably to portfolio diversification. The table gives a brief summary of progress made by each of the longer term investment funds as their managers identified suitable projects and we invested capital in line with the total commitment made to each fund. Given the timescales associated with bringing these investments to fruition, carrying values at 30 September 2018 are, in some cases, modestly behind the total amount invested to date. This partly reflects fees paid to the fund managers but, in the case of the Aberdeen European Residential Opportunities Fund, a small write down in one project was necessary following an increase in future development costs. Over time, we expect most of these long term investments to deliver double digit percentage annual returns, net of fees.

In infrastructure, we made a new long term investment in Aberdeen Global Infrastructure Partners II ("AGIP II"). As we noted in the Half-Yearly Report, this stake was acquired in a related party transaction from Aberdeen Asset Management PLC. The due diligence process included an independent third party review of the fund valuation. Our investment in AGIP II coincided with the completion and successful opening of the Perth Stadium in Australia. The stadium, which is being operated on behalf of the State Government in Western Australia for 25 years, has been written up in value by AGIP II following its completion. As a result, AGIP II has begun paying dividends to its investors.

In addition, the Board has approved commitments to new infrastructure funds managed by specialist teams within Aberdeen Standard Investments: €28.5m to SL Capital Infrastructure II, which will invest in economic infrastructure (utilities, transportation and energy) in Europe; and, $25m in Andean Social Infrastructure Fund I which will invest in social infrastructure projects in Latin America. These funds are respectively targeting net of fee returns to investors of 8-10% and 13-15% over periods of up to 15 years and 11 years. Both are expected to acquire their first projects shortly and have attractive deal pipelines.

While the longer term investments are building up their project portfolios, we also maintain exposure to these asset classes via investments in a number of closed end funds. Over the year, our specialist property funds and renewable infrastructure funds generally performed in line with expectations but our social infrastructure investments are worthy of further comment. During the first half of the reporting period, we took advantage of share price weakness caused by heightened political uncertainty to acquire new shareholdings in two social infrastructure funds, HICL Infrastructure and John Laing Infrastructure Fund ("JLIF"). The collapse of one of their service partners, Carillion, caused further share price weakness at the beginning of 2018 and, encouraged by reassuring feedback on the fundamental health of the sector from a variety of sources, we added to these holdings and also acquired a new position in 3i Infrastructure. During the summer, JLIF received a take-over approach from two private infrastructure funds and an agreed cash offer, at a 24% premium to the closing share price prior to the approach, was completed at the beginning of the new reporting period.

Physical Assets - Unlisted Summary

* For investments acquired via a secondary transaction from a previous investor, capital commitment includes any premium paid to book value at time of purchase.

# Managed by Aberdeen Standard Investments

Fixed Income & Credit

% of Net Assets reduced from 52.5% to 46.9%

With most developed market bonds and investment grade corporate bonds continuing to offer very low yields, we retain our preference for alternative forms of credit such as emerging market ("EM") bonds, asset backed securities ("ABS") and global loans. ABS and loans are floating rate in nature and performed well over the year to 30 September 2018 as the US Federal Reserve's benchmark interest rate increased from 1.25% to 2.25%. By contrast, investor sentiment towards emerging market assets deteriorated sharply in the second half of the reporting period, primarily as a result of financial crises in Argentina and Turkey - the asset class was a notable drag on portfolio returns over the spring and summer.

As we have noted in previous updates, the economic fundamentals for a variety of emerging market countries remain positive. Our economists' "heat map" of financial indicators across the emerging markets complex shows that most countries are in much better health than at the time of previous crises. For example, currencies are not generally over-valued and many countries' debt levels are lower with less reliance on overseas currency funding. We retain our view that a diversified portfolio of local currency emerging market bonds offers an attractive yield over a medium term view. For example, Mexican 10 year bonds yielded over 8% at the period end. The table below updates our exposures to individual markets. During the period, we reduced our exposure to India, reflecting a steady pick up in its rate of inflation, driven, in part, by the rising oil price.

Currency exposure

As we have noted previously, our analysis shows that the funding currencies used to fund our EM weighting, which are often impacted adversely by any deterioration in the global economic outlook, can help offset the volatility associated with our EM bond position.

EM currency exposures are a key part of our expected return from the asset class. For other assets, our policy on currency hedging is generally to hedge exposures back to sterling so that the portfolio NAV is not unduly impacted by fluctuations in currency values. This is important for our globally diversified portfolio which has over 75% of its assets denominated in currencies other than sterling. Our policy means that the portfolio did not benefit materially from sterling's fall over the summer when Brexit uncertainty increased. However, the portfolio NAV would be largely insulated from the adverse impact of a sharp rally in sterling on the announcement of a favourable agreement. Towards the end of the period, we made a minor adjustment to our currency hedging policy: a portion of our US dollar assets is no longer hedged. This means that we would benefit from any "flight to safety" towards the dollar associated with a pick-up in global political uncertainty.

In ABS, TwentyFour Asset Backed Opportunities delivered a return of +5.3% over the period. The fund has a focus on medium-risk securities underpinned by diverse portfolios of mortgages and corporate loans from UK and European borrowers. The portfolio had a gross purchase yield of 5.3% at 30 September 2018. Marble Point Loan Financing, a new addition to the portfolio during the year, is aiming to deliver a higher income yield to investors: 8% per annum initially, rising to 10%. It is investing in a diversified portfolio of secured loans issued by over 300 US corporate borrowers.

Aberdeen Global Loans Fund performed in line with our expectations over the year to 30 September 2018. Like some of our ABS investments, it provides an additional means to access US corporate loans. Over the period, the premium on offer from US loans over Treasury bonds was squeezed by the increase in bond yields (mentioned earlier), prompting us to reduce our exposure to this asset class.

Other asset classes

% of Net Assets increased from 16.0% to 18.0%

This category includes a mix of different asset classes, mostly with return drivers which are not directly connected to financial market conditions.

We made a substantial addition to our exposure to insurance linked securities ("ILS") at the beginning of 2018 in order to take advantage of higher annual premiums being charged for catastrophe cover following record losses in 2017. We invested £25.3m in a new holding, the Markel CATCo 2018 Fund, which has an investment term ending in December 2020. This fund is not exposed to losses associated with 2017's hurricanes, earthquakes, wild fires and other catastrophe events which totalled close to $150bn. These events caused sharp share price falls in our existing ILS holdings at the end of 2017 and in the first half of 2018. In May 2018, the board of Blue Capital Alternative Income Fund held a shareholder consultation on the future of the fund and decided to wind it up. It delisted in July but remains in the portfolio as an unquoted holding. Capital will be returned to shareholders over the next year or so as the fund's existing insurance contracts expire.

Insured losses for 2018 have been at lower levels than 2017, with the autumn storms Florence, Michael and Jebi (which struck the Carolinas, northern Florida and Japan respectively), now expected to total around $30bn. However, after the financial year end, two wildfires in California, including the deadliest and most destructive ever seen, led to tens of fatalities and the destruction of over 20,000 buildings. To put this into context, the largest previous single fire in October 2017 destroyed 5,600 structures and prior to that no fire had destroyed more than 3,000 properties. Industry experts are predicting insured wildfire losses will likely be over $20bn.

In November, Markel CATCo, the manager of two of our ILS investments, declared that these losses would have a "material impact" on our holding in the Markel CATCo 2018 Fund. In line with the accounting policy on unlisted investments, the Company's daily NAV announcements to the London Stock Exchange between 22 November 2018 and 24 December 2018 included an adjustment to the carrying value of this fund prior to the formal publication of the 2018 fund's November NAV announcement.

The loss to the portfolio associated with these events is clearly very disappointing. Nevertheless, the asset class retains the potential to provide an attractive, diversifying return over the long term and also to contribute to portfolio income. As with any investment, we have regularly reviewed our analysis of the risk / return potential and have also been in frequent communication with the managers and boards as part of that process. As we have already noted, pricing is influenced by claims levels and 2019 is expected to see further increases over 2018. As things stand, we believe that the case for investing in insurance linked securities remains a valid one.

Elsewhere, we reduced our exposure to absolute return investments (by selling the "trend-following" investment, AQR Managed Futures after a strong period of positive performance in 2017). These holdings combine exposure to a range of investment strategies which target positive returns over time. However, their performance over shorter periods can be influenced - positively or negatively - by a range of factors including, for example, volatility in equity or foreign exchange markets. Over the spring / summer of 2018, performance was adversely impacted by the pick-up in emerging market currencies and persistently low equity market volatility.

Our special opportunities asset class includes investments in market place lending, aircraft leasing and healthcare royalties. These performed broadly in line with our expectations over the period. However, our commitment to a long term trade finance fund lapsed after the manager failed to secure suitable investments within the agreed time frame. New long term opportunities in litigation finance and healthcare royalties were approved for inclusion in the portfolio after the end of the year under review.

Portfolio positioning and outlook

As multi-asset investors in one of Europe's largest asset management companies, we are able to call upon our colleagues' specialist insights into the widest range of asset classes when we are building the Company's portfolio. Teams within Aberdeen Standard Investments manage funds and sub-portfolios for us, allowing the Company's shareholders access to investment opportunities that are not normally available to the retail investor. As at, at 30 September 2018, these investments accounted for 59.0% of the portfolio. In some asset classes, we invest via third party managers to ensure that shareholders have access to the widest range of opportunities. In addition, the market insights of our colleagues in Global Strategy and our economists in the Aberdeen Standard Investments Research Institute help us determine how to allocate shareholders' capital to the many opportunities available to us.

A year ago, we were broadly optimistic about the global economic outlook. Since then, the US economy has performed especially well. However, America's more belligerent policy on trade and its tightening of monetary policy have been reflected in growth disappointments in a number of economies outside the US. This has led us to reduce modestly our forecast of global GDP growth to 3.4% in 2019 and 3.2% in 2020. In the UK, we expect growth of around 1.4% in each year, assuming a smooth exit from the European Union. We expect short term interest rates to rise to around 3% in the US in 2020 and to 1.5% in the UK. With inflation forecast to be just over 3% globally and around 2% domestically for the next 2 - 3 years, the economic backdrop appears fairly benign.

The Company's year ended with US equity markets at an all-time high amid newspaper reports of "the longest bull market in history". It is nearly ten years since the end of the global financial crisis and it is therefore not surprising that many investment commentators regularly advise caution. Indeed, a year ago, US / North Korean tensions were deemed worthy of a mention in this report and, over the short term, investment market sentiment is often led by such events and news flow. Over the year ahead, the UK's exit from the European Union will undoubtedly keep our economists and strategists busy. It is worth highlighting that the portfolio has relatively low direct exposure to Brexit risks: UK equities account for only 1.3% of net assets via the global equity fund and our market place lending investments would also be impacted. Other investments, such as social infrastructure and specialist property holdings, would be likely to experience some share price volatility, especially in the short term.

However, over the longer term - which remains the focus of most serious investors - our Global Strategy team observe that "one of the most robust and important findings in finance research is that today's valuation levels predict long-term returns." The team's Long Term Investment Outlook builds upon their assessment of the fundamental drivers and valuation levels of each asset class in order to assess expected investment returns. Their latest forecasts provide the foundation for our portfolio construction process.

Valuations in the US market, which accounts for over 60% of global equities, now seem stretched. Profit margins have most likely reached their cycle peak and more sluggish earnings growth should be expected. A slower but still solid global growth outlook may provide support for equities in the near term, but worries persist about risks resulting from tighter monetary policy and slower growth in China, as well as political uncertainties and threats of trade wars. This has been reflected in the return of -11.3% from global equities in Sterling terms over the three months ended 31 December 2018.

If investors are cautious on the outlook for equities, then traditional safe havens, such as developed market bonds and investment grade credit, may not provide attractive alternatives. Government bond yields remain near historical lows in developed markets, with the exception of the US. Low starting yields make for low long-term bond returns: the Manager's 10-year forecast is just under 1% per annum in the UK, and no better in Europe and Japan. Much better value is on offer from less familiar forms of credit such as asset-backed securities and emerging market government bonds. The former benefits from any increase in short term interest rates and offers higher returns than high yield bonds. Emerging market government bonds have experienced a difficult year. The recent crises in Turkey and Argentina have deterred many investors but markets already reflect the negative news flow. Emerging market currencies have depreciated sharply over recent years and so the combination of high yields and cheap currencies means that this asset class offers good value for long-term investors.

The Company's investment mandate is deliberately designed to offer considerable flexibility. This allows us to access specialist asset classes via funds which aim to deliver premium returns over longer time frames as noted in the sections above. As we build our exposure to these investments - which are likely to account for around one third of the portfolio - this will enable us to deliver on our return objective: Libor + 5.5% per annum net of fees over rolling five year periods.

There will inevitably be bumps along the way - in 2018, insurance linked securities and emerging market bonds provided two noticeable ones - and double digit percentage target returns, underpinned by a high level of income in several cases, clearly necessitate a degree of risk-taking: there can be no guarantee that we will meet our investment objective. Nevertheless, the risks we take are identifiable and, in many cases, are not correlated. There is no connection between, for example, sales of individual pharmaceutical products which underpin healthcare royalty income, returns from catastrophe insurance investments or the successful completion of infrastructure development projects. As the Chairman has commented, this has been reflected in relative resilience of the portfolio during periods of equity market weakness in the middle and after the end of this reporting period.

Many of the Company's shareholders that we meet already have exposure to more mainstream risks - via their holdings of UK equity-focussed funds, for example - which are complemented by those risks built into the Company's portfolio. Our experience shows that, over time, our approach can deliver a more attractive risk-adjusted return to shareholders.

Mike Brooks

Tony Foster

Aberdeen Asset Managers Limited

Investment Manager

14 January 2019

DIRECTORS' REPORT

The Directors present their report and the audited financial statements for the year ended 30 September 2018.

Results and Dividends

The financial statements for the year ended 30 September 2018 are set out below. The Company's revenue return for the year ended 30 September 2018 was 6.15p per share compared to 5.31p per share in the previous year.

First, second and third interim dividends, each of 1.31p per Ordinary share, were paid on 29 March 2018, 27 July 2018 and 12 October 2018 respectively.

On 18 December 2018, the Directors declared a fourth interim dividend of 1.31p per Ordinary share payable on 25 January 2019 to shareholders on the register on 28 December 2018. The ex-dividend date is 27 December 2018. The Company intends to continue to declare and pay four interim dividends each year and, in line with corporate governance best practice, a resolution in respect of this dividend policy will be put to shareholders at each Annual General Meeting.

Investment Trust Status

The Company is registered as a public limited company (registered in Scotland No. SC3721) and is an investment company within the meaning of Section 833 of the Companies Act 2006. The Company has been approved by HM Revenue & Customs as an investment trust subject to it 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. The Directors are of the opinion that the Company has conducted its affairs for the year ended 30 September 2018 so as to enable it to comply with the ongoing requirements for investment trust status.

Individual Savings Accounts

The Company has conducted its affairs in such a way 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.

Capital Structure and Voting rights

The issued Ordinary share capital at 30 September 2018 consisted of 328,551,705 Ordinary shares (2017 - 329,066,705) with voting rights and 36,859,169 Ordinary shares (2017 - 36,344,169) held in treasury. A total of 515,000 Ordinary shares were bought back into treasury during the year ended 30 September 2018. A total of 2,150,000 Ordinary shares were sold from treasury between 1 October 2018 and the date of approval of this Annual Report resulting in 330,701,705 Ordinary shares in issue, with voting rights, and 34,709,169 Ordinary shares in treasury.

Each Ordinary share (excluding treasury shares) holds one voting right and shareholders are entitled to vote on all resolutions which are proposed at general meetings of the Company. The Ordinary shares, excluding treasury shares, carry a right to receive dividends. On a winding up or other return of capital, after meeting the liabilities of the Company, the surplus assets will be paid to Ordinary shareholders in proportion to their shareholdings.

There are no restrictions on the transfer of Ordinary shares in the Company other than certain restrictions which may from time to time be imposed by law.

Management Agreement

The Company has appointed Aberdeen Standard Fund Managers Limited ("ASFML") (formerly Aberdeen Fund Managers Limited), a wholly-owned subsidiary of Standard Life Aberdeen plc, as its alternative investment fund manager.

ASFML has been appointed to provide investment management, risk management, administration and company secretarial services as well as promotional activities. The Company's portfolio is managed by Aberdeen Asset Managers Limited ("AAML") by way of a group delegation agreement in place between ASFML and AAML. In addition, ASFML has sub-delegated administrative and secretarial services to Aberdeen Asset Management PLC and promotional activities to AAML.

The Manager charges a monthly fee at the rate of one-twelfth of 0.50% on the first £300 million of NAV and 0.45% of NAV in excess of £300 million. In calculating the NAV, the 6.25% bonds due 2031 are valued at fair value. The value of any investments in ETFs, unit trusts, open ended and closed ended investment companies and investment trusts of which the Manager, or another company within the Standard Life Aberdeen plc group is the operator, manager or investment adviser, is deducted from net assets. Details of the management fee charged during the year are included in note 4 to the financial statements.

The management agreement is terminable on not less than six months' notice subject to a minimum notice period which expires no earlier than 11 February 2019. In the event of termination by the Company on less than the agreed notice period, compensation is payable to the Manager in lieu of the unexpired notice period.

Corporate Governance

The Statement of Corporate Governance, which forms part of the Directors' Report, may be found in the published Annual Report.

Directors

As at 30 September 2018, the Board comprised seven non-executive Directors. Subsequent to the year end, Ian Russell and Paul Yates retired from the Board on 31 October 2018. Kevin Ingram will retire from the Board at the AGM on 27 February 2019.

The names and biographies of each of the current Directors are shown in the published Annual Report and indicate their range of skills and experience as well as length of service.

Each Director has the requisite high level and range of business and financial experience which enables the Board to provide clear and effective leadership and proper governance of the Company.

The Directors attended scheduled meetings of the Board, Audit Committee and Nomination Committee during the year ended 30 September 2018 as follows (with their eligibility to attend the relevant meetings in brackets):

A James Long, as Chairman of the Board, is not a member of the Audit Committee

The Directors meet more regularly when business needs require.

Since the end of the year, the Board has announced that Davina Walter was appointed as an independent non-executive Director with effect from 1 February 2019. The Board considers Ms Walter, whose biographical details are contained in the Chairman's Statement, to possess the range of skills and experience to complement those of the other Directors and the Board therefore recommends her election as a Director at the AGM.

In line with best practice in corporate governance, all Directors, other than Kevin Ingram, offer themselves for re-election at each AGM and, accordingly, James Long, Tom Challenor, Jim Grover and Julian Sinclair retire and, being eligible, each submit themselves for re-election at the AGM. The Board believes that all current Directors remain, and all Directors during the year ended 30 September 2018 were, independent of the Manager and free from any relationship which could materially interfere with the exercise of their judgement on issues of strategy, performance, resources and standards of conduct. In addition, the Board confirms that each Director demonstrates commitment to the role and their performance remains effective. In particular, the Board recognises the tenure of James Long as exceeding corporate governance guidance but notes, for the reasons set out in the Chairman's Statement on Board Composition, the Chairman's role in overseeing the refreshment of the Board and his stated intention to step down no later than the AGM in 2020.

The Board therefore recommends to shareholders the individual re-elections of Tom Challenor, Jim Grover, Julian Sinclair and James Long as Directors at the AGM.

Board Committees

The Board has appointed a number of Committees, as set out below. Copies of their terms of reference, which define the responsibilities and duties of each Committee, are available on the Company's website, or upon request from the Company. The terms of reference of each of the Committees are reviewed and re-assessed by the Board for their adequacy on an ongoing basis.

Audit Committee

The Audit Committee's Report is contained in the published Annual Report.

Management Engagement Committee

The Management Engagement Committee consists of all the Directors and was chaired by James Long throughout the year. 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 also keeps the resources of the Standard Life Aberdeen Group under review, together with its commitment to the Company and its investment trust business. In addition, the Committee conducts an annual review of the performance, terms and conditions of the Company's main third party suppliers. The Management Engagement Committee fulfilled its duties, in relation to the year ended 30 September 2018, at a meeting in December 2018.

The Board remains satisfied with the capability of Standard Life Aberdeen plc to deliver satisfactory investment performance, that its investment screening processes are thorough and robust, and that it employs a well-resourced team of skilled and experienced fund managers. In addition, the Board is satisfied that Standard Life Aberdeen plc has the secretarial, administrative and promotional skills required for the effective operation and administration of the Company. Accordingly, the Board believes that the continuing appointment of the Manager on the terms agreed is in the interests of shareholders as a whole.

Nomination Committee

The Nomination Committee consists of all the Directors and was chaired by James Long throughout the year. The Committee reviews the effectiveness of the Board, succession planning, Board appointments, appraisals, training and the remuneration policy. As stated in the Directors' Remuneration Report in the published Annual Report, the full Board determines the level of Directors' fees and there is no separate Remuneration Committee.

Governance

Further to the changes to the composition of the Board, and the ongoing independent search for a new Director announced in September 2018, the Committee, led by the Chairman, expects to arrange an annual, formal appraisal of each Director and the performance of the Board as a whole in 2019, following the reconstitution of the Board. An appraisal of the Chairman shall be led by the Senior Independent Director. An externally facilitated evaluation of the Board was undertaken in 2016 and, as the intention is that this should be repeated every three years, the next evaluation will also fall due in 2019.

Potential new Directors are identified against the requirements of the Company's business and the need to have a balance of skills, experience, independence, diversity and knowledge of the Company within the Board.

Directors' and Officers' Liability Insurance

The Company maintains insurance in respect of Directors' and Officers' liabilities in relation to their acts on behalf of the Company. Each Director is 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.

Management of Conflicts of Interest

The Board has a procedure in place to deal with a situation where a Director has a conflict of interest. As part of this process, each Director prepares a list of other positions held and all other conflict situations that may need to be authorised either in relation to the Director concerned or his or her connected persons. The Board considers each Director's situation and decides whether to approve any conflict, taking into consideration what is in the best interests of the Company and whether the Director's ability to act in accordance with their duties is affected. Each Director is required to notify the Company Secretary of any potential, or actual, conflict situations that will need authorising by the Board. Authorisations given by the Board are reviewed at each Board meeting.

No Director has a service contract with the Company although all Directors are issued with letters of appointment. There were no contracts during, or at the end of the year, in which any Director was interested.

The Board takes a zero-tolerance approach to bribery and has adopted appropriate procedures designed to prevent bribery. The Manager also takes a zero-tolerance approach and has its own detailed policy and procedures in place to prevent bribery and corruption.

Going Concern

The Financial Statements of the Company have been prepared on a going concern basis. The forecast projections and actual performance are reviewed on a regular basis throughout the period and the Directors believe that this is the appropriate basis and that the Company has adequate resources to continue in operational existence for the foreseeable future (being a period of twelve months from the date that these financial statements were approved) and is financially sound. The Company is able to meet all of its liabilities from its assets including its ongoing charges. The Company's longer term viability is considered in the viability statement in the Strategic Report.

Accountability and Audit

Each Director confirms that, so far as he is aware, there is no relevant audit information of which the Company's auditor is unaware, and they have taken all the steps that they could reasonably be expected to have taken as Directors in order to make themselves aware of any relevant audit information and to establish that the Company's auditor is aware of that information.

Regulatory Changes

Investors should be aware that 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 regulation. The figures in the KID may not reflect the expected returns for the Company and anticipated performance returns cannot be guaranteed.

The Criminal Finances Act 2017 has introduced a new corporate criminal offence of "failing to take reasonable steps to prevent the facilitation of tax evasion". The Board has confirmed that it is the Company's policy to conduct all of its business in an honest and ethical manner. The Board takes a zero tolerance approach to facilitation of tax evasion, whether under UK law or under the law of any foreign country.

Data protection rights were harmonised across the European Union when the General Data Protection Regulation ("GDPR") - first adopted by the UK Parliament in April 2016 - applied in full from 25 May 2018. The Board has sought the appropriate assurances from its third party service providers to ensure compliance with the new regulations.

Substantial Interests

As at 30 September 2018, the following interests in the issued Ordinary share capital of the Company had been disclosed in accordance with the requirements of the FCA's Disclosure Guidance and Transparency Rules:

A Non-beneficial interest

B Based on 328,551,705 Ordinary shares in issue (excluding treasury shares) as at 30 September 2018

Relations with Shareholders

The Directors place a great deal of importance on communication with shareholders. Shareholders and investors may obtain up to date information on the Company through its website and the Manager's Customer Services Department.

The Board's policy is to communicate directly with shareholders and their representative bodies without the involvement of the management group (including the Company Secretary or the Manager) in situations where direct communication is required. In addition, the Company Secretary only acts on behalf of the Board, not the Manager, and there is no filtering of communication. At each Board meeting the Board receives full details of any communication from shareholders to which the Chairman responds personally as appropriate.

The notice of the Annual General Meeting is sent out at least 20 working days in advance of the meeting. All shareholders have the opportunity to put questions to the Board and Manager at the meeting.

Annual General Meeting

The Annual General Meeting will be held at Bow Bells House, 1 Bread Street, London EC4M 9HH on Wednesday 27 February 2019 at 12.30pm. Resolutions including the following business will be proposed:

Allotment of Shares

Resolution 11 will be proposed as an ordinary resolution to confer an authority on the Directors, in substitution for any existing authority, to allot up to 10% of the issued Ordinary share capital of the Company (excluding treasury shares) as at the date of the passing of the resolution (up to a maximum aggregate nominal amount of £8.3m based on the number of Ordinary shares in issue as at the date of this Report) in accordance with Section 551 of the Companies Act 2006. The authority conferred by this resolution will expire at the next Annual General Meeting of the Company or, if earlier, 31 March 2020 (unless previously revoked, varied or extended by the Company in general meeting).

The Directors consider that the authority proposed to be granted by resolution 11 is necessary to retain flexibility.

Limited Disapplication of Pre-emption Provisions

Resolution 11 will be proposed as a special resolution and seeks to give the Directors power to allot Ordinary shares or to sell Ordinary shares held in treasury (see below) (i) by way of a rights issue (subject to certain exclusions); (ii) by way of an open offer or other offer of securities (not being a rights issue) in favour of existing shareholders in proportion to their shareholdings (subject to certain exclusions); and (iii) to persons other than existing shareholders for cash up to a maximum aggregate nominal amount representing 10% of the Company's issued Ordinary share capital as at the date of the passing of the resolution (up to an aggregate nominal amount of £8.3m based on the number of Ordinary shares in issue as at the date of this Report), without first being required to offer such shares to existing shareholders pro rata to their existing shareholding.

This power will expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, 31 March 2020 (unless previously revoked, varied or extended by the Company in general meeting).

The Company may buy back and hold shares in treasury and then sell them at a later date for cash rather than cancelling them. Such sales are required to be on a pre-emptive, pro rata basis to existing shareholders unless shareholders agree by special resolution to disapply such pre-emption rights. Accordingly, in addition to giving the Directors power to allot unissued Ordinary share capital on a non pre-emptive basis, resolution 12 will also give the Directors power to sell Ordinary shares held in treasury on a non pre-emptive basis, subject always in both cases to the limitations noted above. Pursuant to this power, Ordinary shares would only be issued for cash, and treasury shares would only be sold for cash, at a premium to the net asset value per share (calculated after the deduction of prior charges at market value). Treasury shares are explained in more detail under the heading "Market Purchase of the Company's own Ordinary Shares" below.

Market Purchase of the Company's own Ordinary Shares

Resolution 13 will be proposed as a special resolution to authorise the Company to make market purchases of its own Ordinary shares. The Company may do either of the following things in respect of its own Ordinary shares which it buys back and does not immediately cancel but, instead, holds in treasury:

- sell such shares (or any of them) for cash (or its equivalent); or

- ultimately cancel the shares (or any of them).

Treasury shares may be resold quickly and cost effectively. The Directors therefore intend to continue to take advantage of this flexibility as they deem appropriate. Treasury shares also enhance the Directors' ability to manage the Company's capital base.

No dividends will be paid on treasury shares and no voting rights attach to them.

The maximum aggregate number of Ordinary shares which may be purchased pursuant to the authority is 14.99% of the issued Ordinary share capital of the Company as at the date of the passing of the resolution (approximately 49.6 million Ordinary shares). The minimum price which may be paid for an Ordinary share is 25p (exclusive of expenses). The maximum price (exclusive of expenses) which may be paid for the shares is the higher of a) 5% above the average of the middle market quotations of the Ordinary shares (as derived from the Daily Official List of the London Stock Exchange) for the shares for the five business days immediately preceding the date of purchase; and b) the higher of the price of the last independent trade and the highest current independent bid on the main market for the Ordinary shares.

This authority, if conferred, will expire at the conclusion of the next Annual General Meeting of the Company or, if earlier, on 31 March 2020 (unless previously revoked, varied or extended by the Company in general meeting) and will be exercised only if it would result in an increase in net asset value per Ordinary share for the remaining shareholders and if it is in the best interests of shareholders as a whole.

Holding General Meetings on less than 14 days' clear notice

Under the Companies Act 2006, the notice period for all general meetings of the Company is 21 clear days' notice. Annual general meetings will always be held on at least 21 clear days' notice but shareholders can approve a shorter notice period for other general meetings. Resolution 14 seeks the authority from shareholders for the Company to be able to hold general meetings (other than Annual General Meetings) on not less than 14 clear days' notice. The approval will be effective until the Company's next annual general meeting, when it is intended that a similar resolution will be proposed. The Company will also need to meet the requirements for electronic voting under the Companies Act 2006 (as amended by the Shareholders' Rights Regulations) before it can call a general meeting on 14 days' notice.

The Board believes that it is in the best interests of Shareholders to have the ability to call meetings on no less than 14 clear days' notice should an urgent matter arise. The Directors do not intend to hold a general meeting on less than 21 clear days' notice unless immediate action is required.

Recommendation

The Directors consider that the resolutions to be proposed at the Annual General Meeting are in the best interests of the Company and its shareholders and recommend that shareholders vote in favour of the resolutions as they intend to do in respect of their own beneficial shareholdings, amounting to 413,306 Ordinary shares, representing 0.1% of the issued share capital.

By order of the Board

Aberdeen Asset Management PLC

Company Secretary

7th Floor, 40 Princes Street

Edinburgh EH2 2BY

14 January 2019

STATEMENT OF DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing the Annual Report and the financial statements, in accordance with applicable law and regulations. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have elected to prepare the financial statements in accordance with UK Accounting Standards, including FRS 102 'The Financial Reporting Standard Applicable in the UK and Republic of Ireland'.

Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period.

In preparing these financial statements, the Directors are required to:

- select suitable accounting policies and then apply them consistently;

- make judgments and estimates that are reasonable and prudent;

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

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

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

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, Directors' Remuneration Report and Statement of Corporate Governance that comply 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 but not for any information on the website that has been prepared or issued by third parties. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

We confirm that to the best of our knowledge:

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

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

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

On behalf of the Board

James M Long

Chairman

14 January 2019

STATEMENT OF COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

STATEMENT OF CHANGES IN EQUITY