BRNA.L Regulatory News (BRNA)

BlackRock North American Income Trust Plc - Final Results

PR Newswire

London, February 3

BLACKROCK NORTH AMERICAN INCOME TRUST PLCLEI: 549300WWOCXSC241W468

Annual results announcement for the year ended 31 October 2020

PERFORMANCE RECORD

1 The change in net assets reflects market movements, shares issued/bought back and dividends paid during the year.

2 Alternative Performance Measures, see Glossary in the Company’s Annual Report for the year ended 31 October 2020.

ANNUAL PERFORMANCE SINCE LAUNCH ON 24 OCTOBER 2012 TO 31 OCTOBER 2020

# Since launch on 24 October 2012 to 31 October 2013.

Sources: BlackRock and Datastream.

Performance figures have been calculated in sterling terms with dividends reinvested.

CHAIRMAN’S STATEMENT

OVERVIEWDespite a promising start to the Company’s financial year, with all-time highs in global equities reached in February 2020, the subsequent COVID-19 pandemic has since clearly had an enormous impact on the global economy. The initial lockdown measures severely curtailed economic activity in most countries and, although economies slowly restarted over the summer, sharply rising infection rates prompted further restrictions in many countries over the autumn. In addition, concerns over renewed U.S.-China trade tensions, the risk of fading fiscal stimulus and the increasingly divisive election campaign weighed on U.S. equities as we approached our October year-end.

Throughout the COVID-19 outbreak the Board has had to adjust its mode of operation and, although it has continued to meet regularly, since March all scheduled meetings have been held by video conference. The Board has also worked closely with its Manager to ensure that the Company’s operations have not been adversely impacted, that BlackRock and key service providers have established business continuity plans, and a good level of service has and will be maintained.

PERFORMANCEOver the year to 31 October 2020, the Company’s net asset value per share (NAV) returned -8.9%1 and the share price -17.9%1. This compares with a fall of -7.5%1 in the Russell 1000 Value Index. Value stocks in general lagged the broader U.S. indices, as technology stocks soared. Our underperformance of the Russell 1000 Value Index in the year was a reflection of stock selection and a negative contribution from option writing.

At the close of business on 1 February 2021, the Company’s NAV had increased by 12.2% (with dividends reinvested) since the year end.

REVENUE EARNINGS AND DIVIDENDSThe Company’s revenue earnings per share (EPS), based on the weighted average number of shares in issue for the year, amounted to 6.65p (2019: 5.96p), an increase of 11.6%. Based on the final number of shares in issue at the year end, the EPS was 6.71p, an increase of 21.3% versus the previous year. Four quarterly interim dividends of 2.00p per share were paid on 29 April 2020, 3 July 2020, 1 October 2020 and 4 January 2021. This is in line with the payments made in the previous financial year.

Your Board considers that it remains appropriate to continue with the current dividend policy for the new financial year. The dividend paid represents a yield of 5.5% on the share price at the year end. The Board continues to believe that this dividend policy provides an attractive option for current and prospective shareholders who wish to achieve exposure to the U.S. equity market whilst at the same time receiving a competitive dividend.

SHARE ISSUES AND DISCOUNT CONTROLPrior to the COVID-19 pandemic, the Company’s shares had traded at a premium to the underlying NAV. From the beginning of November 2019 to the end of January 2020 the Company reissued 2,805,000 shares from treasury at an average price of 189.84p per share and an average premium to the estimated NAV of 1.5% for a total gross consideration of £5,325,000.

As the COVID-19 pandemic took hold and market conditions deteriorated in March 2020, the Company’s share price fell and the shares began trading at a discount. Consequently, 1,230,000 shares were purchased at an average price of 155.45p per share for a total consideration (including expenses) of £1,912,000. Subsequent to the year end and up to the date of this report, a further 190,000 shares have been purchased for a total consideration of £294,000. All shares purchased have been placed in treasury.

The Board will continue to use its authorities to issue and buy back shares when it considers it is in shareholders’ interests to do so. Resolutions to renew the authorities to issue and buy back shares will be put to shareholders at the forthcoming Annual General Meeting.

ESG AND SOCIAL RESPONSIBILITYAs a Board we are conscious that Environmental, Social and Governance (ESG) criteria have come to the forefront for a growing number of investors in the investment decision-making process. However, for your Company, they are a component of the investment process rather than the sole driver of decision making. Our Portfolio Managers do not look to exclude entire sectors from the portfolio on ESG grounds but engage with investee companies to encourage best practice within the sectors in which they operate. Your Board believes that it is important that our Company’s investee companies operate in a responsible and sustainable way having regard to the interests of all their stakeholders, as this will most likely lead to higher relative valuations and better returns for shareholders.

Our Manager, BlackRock, takes a rigorous approach to corporate governance, with the BlackRock Investment Stewardship team responsible for protecting and enhancing the value of clients’ assets through engagement with companies to encourage business and management practices that support sustainable financial performance over the long term. Further information on ESG and Socially Responsible Investment can be found in the Strategic Report and in the Corporate Governance Statement in the Company’s Annual Report.

OUTLOOKWorld equities appear to be on a firmer footing. There is increased optimism with the uncertainty of the U.S. election now over and with the distribution of COVID-19 vaccines. The current economic recovery in the U.S. could be faster than the one after the global financial crisis, as the upbeat news on the vaccine gives greater confidence that the economic re-start can accelerate further in 2021. There is a strong case that value stocks should now be well placed to outperform growth stocks as the economic picture brightens. The Portfolio Managers consider well capitalised companies with strong management teams and good cash generation are well placed in the current environment.

ANNUAL GENERAL MEETING (AGM)The AGM of the Company will be held at the offices of BlackRock at 12 Throgmorton Avenue, London EC2N 2DL on Tuesday, 23 March 2021 at 12 noon. Details of the business of the meeting are set out in the Directors’ Report in the Company’s Annual Report.

At the time of writing, various guidances have been issued by the UK, Scottish and Welsh governments, respectively, regarding measures to reduce the transmission of COVID-19 in the UK. These measures are, and will continue to be, subject to periodic amendment and currently impose rules on social distancing and limitations on, among other things, public gatherings.

Accordingly, in view of this guidance, the Board is changing the format of the AGM this year to follow the minimum legal requirements for an AGM. Only the formal business set out in the Notice will be considered, with no live presentation by the Portfolio Managers. A presentation from the Portfolio Managers will be made available on the Company’s website following the conclusion of the AGM. In line with this guidance, shareholders are strongly discouraged from attending the meeting and indeed entry will be refused if current UK Government guidance is unchanged. Shareholders are encouraged to check the Company’s website at www.blackrock.com/uk/brna for updates to the AGM arrangements as changes may well be required to comply with new guidance and/or government measures.

The Board of course welcomes questions from shareholders and, given the format and prevailing circumstances, I would ask that shareholders submit any questions they may have to the Board in advance of the AGM. The Board or the Investment Manager will respond to all questions received. Shareholders may submit questions to the Board before 23 March 2021 by email at: cosec@blackrock.com.

Notwithstanding these difficult circumstances, the Board looks forward to offering opportunities for shareholders to meet the Portfolio Managers at some safer stage in the future.

SIMON MILLERChairman5 February 2021

1 All percentages calculated in sterling terms with dividends reinvested.

INVESTMENT MANAGER’S REPORT

MARKET OVERVIEWFor the year ended 31 October 2020, U.S. large cap stocks, as represented by the S&P 500® Index, advanced by 9.7% in US dollar terms. In sterling terms, they appreciated by 9.7% for the performance period. Value stocks, as represented by the Russell 1000 Value Index, fell by 7.5% in sterling terms, illustrating the extreme divergence between ‘growth’ and ‘value’ stocks last year. The S&P 500® Index rallied strongly in the fourth quarter of 2019, as risk appetite was boosted by expectations for a U.S. and China trade deal, solid economic growth and easy monetary policy. U.S. stock prices continued to climb higher through early February 2020 following encouraging earnings results, better business sentiment and the first phase of a U.S.-China trade deal. U.S. equity markets reached a peak on 19 February 2020 before beginning a sharp correction as COVID-19 began to spread globally. The pandemic prompted countries to adopt varying degrees of social distancing, self-quarantine and lockdown measures. The global economy shrank at a historically high rate as non-essential businesses were forced to close in many countries. Concern over the human and economic toll also fuelled measures from governments and central bankers across the globe. This combination brought the longest enduring U.S. bull market to an abrupt end.

A combination of aggressive monetary and fiscal policy measures helped to stabilise U.S. financial markets in the final two weeks of March 2020. The Federal Reserve cut its benchmark interest rate twice to a current range of 0.00% - 0.25% for overnight bank lending and declared an unlimited balance sheet expansion for the foreseeable future. These steps helped to improve market liquidity across credit markets. An unprecedented U.S.$2 trillion stimulus package, roughly 10% of annual U.S. gross domestic product, to support individuals and businesses hardest hit by lockdown measures boosted sentiment. These coordinated policy efforts helped U.S. stocks to rebound swiftly from their March lows.

A decline in U.S. COVID-19 cases in April and May, subsequent easing of lockdown measures and improving economic data in the second and third quarters also boosted investor sentiment. These factors culminated in an extended U.S. stock market rally from April 2020 through August 2020. Market leadership was carried by high growth companies which tapped into secular growth trends supercharged by the pandemic, including trends towards e-commerce, digitisation and enterprise spending on cloud infrastructure. Finally, U.S. stocks retraced lower in September and October as investors weighed the upcoming U.S. election cycle, stalled negotiations for a new fiscal stimulus package and ongoing COVID-19 uncertainties. Overall levels of economic activity continued to normalise higher through the end of the reporting period, while investors took a ‘wait and see’ approach to the upcoming election results and potential readouts on COVID-19 vaccine trials.

PORTFOLIO OVERVIEWThe primary detractor from relative performance was stock selection and allocation decisions in utilities. Stock selection in the electric utilities industry accounted for the majority of underperformance within the sector, although underweight exposure to the industry proved costly as well. In financials, an overweight exposure and stock selection among banks weighed on relative returns. Stock selection in the pharmaceuticals and health care equipment and supplies industries within health care proved detrimental, although our overweight exposure to the sector was beneficial. Lastly, stock selection and allocation decisions in consumer staples, industrials, materials and energy hampered relative performance.

The largest positive contributor to relative performance was allocation decisions in information technology. Within the sector, an overweight exposure to software and stock selection in technology hardware, storage and peripherals and IT services accounted for the majority of relative outperformance. A lack of exposure to real estate, most notably equity real estate investment trusts (REITs), also benefited relative performance during the year. Further, stock selection and allocation decisions in consumer discretionary boosted relative returns. Most notably, selection decisions in the household durables industry and a combination of overweight exposure and stock selection in multi-line retail positively impacted relative performance. Lastly, an elevated cash balance, which we have maintained as our preferred method of defensive exposure, contributed to relative performance during the year.

Writing covered call options benefited the portfolio amid dramatically declining U.S. stock prices during February and March of 2020. However, in aggregate, the covered call options detracted from absolute performance for the year. As designed, the Company’s option overwrite component enhanced the portfolio’s income during the year.

Distribution of investments as at 31 October 2020

Sources: BlackRock and Datastream.

Below is a comprehensive overview of our allocations (in pound sterling) at the end of the year.

Financials: 6.3% overweight (24.7% of the portfolio)Financials represent the Company’s largest sector allocation and we remain particularly bullish on the U.S. banks, insurers and insurance brokers. We believe the U.S. banks are safer and sounder investments today than before the financial crisis. They have stronger balance sheets (i.e. higher capital levels), revamped company cost structures, and disciplined loan underwriting has contributed to benign credit trends. Bank valuations are compelling relative to other cyclical sectors (i.e. industrials) and potential tailwinds from investor-friendly capital return policies also bode well for investors, in our view. A low interest rate environment is harmful to net interest income, but with lower exposure to regional banks, the Company is relatively less exposed to changes in interest rates. In regard to insurers and insurance brokers, we like these companies for their attractive valuations and relatively stable business models.

Energy: 2.7% overweight (6.6% of the portfolio)The portfolio maintains an overweight to the energy sector. We are overweight to quality in the sector and three points of focus for the investment team pertain to balance sheet, asset quality and capital allocation decisions. Strong balance sheets are critical to managing a business in the energy sector through commodity cycles. In terms of asset quality, companies with low operating costs per barrel of oil produced (i.e. operate with the lowest possible breakeven oil price) are much more attractive to us in this environment. Lastly, we target companies with positive free cash flow generation that have a clear asset allocation strategy. We tend to avoid companies that ‘chase growth’ by overinvesting during stronger commodity price environments. In summary, we believe companies with strong balance sheets and cash flows, production growth visibility, operating specialisation and pricing power at the industry level remain most desirable from an investment perspective.

Health Care: 2.7% overweight (16.9% of the portfolio)Secular growth opportunities in health care are a by-product of demographic trends. Older populations spend more on health care than younger populations. In the United States, a combination of greater demand for health care services and rising costs drive a need for increased efficiency within the health care ecosystem. We believe innovation and strong cost control can work hand-in-hand to address this need and companies that can contribute in this regard may be poised to benefit.

On the innovation front, there is a need for newer and more effective medicines and therapies. The Food and Drug Administration has made this a priority by increasing the volume and speed of drug approvals, which bodes well for pharmaceutical manufacturers that can deliver new drugs to the market. From an investment standpoint, we prefer pharmaceutical companies with a proven ability to generate high research and development productivity versus those that focus on one or two key drugs and rely upon raising their prices to drive growth.

From a cost perspective, health maintenance organisations (HMOs) have an economic incentive to drive down costs as they provide health insurance coverage to constituents. The HMOs have demonstrated a strong ability to manage costs by leveraging their scale and technology to drive efficiencies. Governments, in turn, are increasingly outsourcing to HMOs as a way to lower costs and balance their budgets. We prefer HMOs with diversified business units, exposure to faster-growing areas of government including Medicare and Medicaid and opportunities to enhance their profitability through controlling costs.

Information Technology: 2.4% overweight (11.7% of the portfolio)In the information technology (IT) sector, buzzwords such as ‘artificial intelligence’, ‘big data’ and ‘disruption’ are increasingly utilised to describe growth opportunities and the overall operating environment. Of course, a portion of IT still incubates companies similar to the nascent, high-flying and cash-poor innovators that ushered the U.S. equity market into the sharp rise and eventual tumble that is known as the dot-com bubble. However, the fundamental identity of the typical technology company is also changing. An increasing number of constituents in the IT sector are what we refer to as ‘industrial tech’. These firms are competitively insulated from disruptors, well-positioned to take advantage of long-term secular tailwinds and exhibit growth in earnings and free cash flow. A swelling number of companies in the sector have also adopted dividend payments to shareholders as a viable use of cash, rejecting the notion that IT firms can only add value to investors via their growth potential. We believe this trend is poised to continue, as many mature IT companies are flush with cash and shareholders are increasingly willing to reward management teams for return of capital.

Consumer Staples: 1.0% overweight (9.2% of the portfolio)The consumer staples sector is a common destination for the conservative equity income investor. Historically, many of these companies have offered investors recognisable brands, diverse revenue streams, exposure to growing end markets and the ability to garner pricing power. These characteristics, in turn, have translated into strong and often stable free cash flow and growing dividends for shareholders. In recent years some of these secular advantages have become challenged, in our view, due to changing consumer preferences, greater end market competition from local brands and disruption from the rapid adoption of online shopping. These challenges, combined with higher than historical valuations, have facilitated our more neutral stance in the sector. However, over the last year, the portfolio management team has increased exposure to the sector through niche opportunities, some of which are poised to benefit from a ‘return to normal’ post-pandemic. Notably, we prefer ownership of companies with underappreciated growth profiles (i.e. buy growth), sticky customer bases and the ability to cut costs and/or improve profit margins.

Utilities: 2.3% underweight (4.0% of the portfolio)Strong investor demand for equity income in recent years has resulted in elevated valuations for many high dividend yielding stocks, including utilities companies. Despite rich valuations at the sector level, we are finding pockets of opportunity in U.S. regulated utilities. These companies add a level of stability and defensiveness to the portfolio through their durable dividend profiles and healthy earnings growth potential. 2020 has provided the portfolio management team with a unique opportunity in the sector, as utilities have underperformed the broader market year-to-date in an environment where the opposite is expected. Thus, we have increased our exposure over the last year given attractive valuations.

Communication Services: 2.4% underweight (7.1% of the portfolio)We are underweight to communication services and our allocation remains concentrated in diversified telecommunication bellwether Verizon Communications (4.0% of the portfolio) and media provider Comcast (2.4% of the portfolio). Our stock-specific exposure in the sector is to companies that offer healthy dividend yields and opportunity for steady, longer-term growth.

Consumer Discretionary: 2.8% underweight (4.9% of the portfolio)We continue to maintain a degree of caution in consumer discretionary as investors are sensitive to disruption and how new business models and technology can displace incumbent operators. We believe these disruptive forces are best avoided through identifying stock-specific investment opportunities that are (1) trading at discounted valuations or (2) somewhat insulated from these disruptive pressures. For example, we believe companies such as General Motors (autos) (2.0% of the portfolio) and Newell Brands (household durables) (0.7% of the portfolio) offer investors exposure to underappreciated franchises at discounted valuations. Further, retailers such as Ross Stores (discount department stores) (1.0% of the portfolio), TJX Companies (discount retailers) (0.6% of the portfolio), and Lowe's Companies (home improvement) (0.8% of the portfolio) provide us with exposure to companies that can compound earnings and are more immune to disruptive forces.

Materials: 2.7% underweight (2.1% of the portfolio)Broadly speaking, we have found more attractive opportunities from which to source our portfolio’s cyclical exposure. Our exposure to the materials sector consists of three chemicals stocks – Corteva (0.7% of the portfolio), DuPont de Nemours (0.9% of the portfolio) and PPG Industries (0.8% of the portfolio). Longer-term secular trends in global population growth can potentially benefit well-positioned companies in the agricultural chemical space.

Real Estate: 4.5% underweight (0.0% of the portfolio)The real estate sector is our largest underweight position in the strategy. We maintain a 0% weighting in the space due to our view that valuations are unattractive at current levels.

Industrials: 6.8% underweight (6.4% of the portfolio)We are underweight to the industrials sector. Our selection is driven by relative valuations, which we view as expensive, in many cases, versus other cyclical segments of the U.S. equity market. While we continue to maintain exposure to the industrial conglomerates and aerospace & defence industries, the portfolio’s exposure in the sector is comprised of select bottom-up opportunities as opposed to large scale themes.

POSITIONING AND OUTLOOKWe believe the long-term opportunity in U.S. stocks remains compelling. The U.S. offers us exposure to best-in-class businesses that are positioned to benefit from durable megatrends and investments in R&D and technology. In the short term, our views are more balanced. A look at the macro regime and valuations all point to trade-offs investors must weigh in the months ahead. For the reasons we lay out below, we advocate for a barbell approach to portfolio construction. This stance can align portfolios with sectors tapping into secular growth trends while also targeting high alpha opportunities in cyclical value sectors that have been temporarily hurt by COVID-19.

Macro Regime: The COVID-19 pandemic, through mass social distancing and the transition to working from home, has supercharged secular growth trends towards e-commerce, digitisation and enterprise spending on cloud infrastructure. A narrow subset of U.S. stocks has reaped the lion’s share of financial gains from this sudden shift. Many of these high growth companies have also benefited from a world characterised by lower nominal growth, lower interest rates and low inflation. First, a scarcity of growth has increased demand, and valuation multiples, for stocks that can potentially deliver high growth to investors. A collapse in interest rates has also pushed valuations higher, to the benefit of longer duration growth companies. A case in point, in financial models the net present value of future cash flows increases when the cost of debt financing (i.e. the discount rate) decreases. Finally, low inflation gives policymakers flexibility to keep the current macro regime intact (i.e. lower interest rates for longer). These factors have culminated in vastly different year-to-date investment returns across sectors, industries and investment styles. The bifurcation between COVID-19 winners and losers has also resulted in wide valuation spreads, which suggests there are ample stock-picking opportunities for investors.

Valuations: A glance at traditional valuation metrics, such as the price/ earnings (P/E) ratio, suggests U.S. stocks are richly priced versus history. However, U.S. stocks appear to be cheaply valued versus bonds in a low interest rate world, as measured by the equity risk premium. Further, as businesses are increasingly asset-light today, a company’s value is less determined by its tangible assets and more determined by its cash flows. This can make traditional valuation metrics less relevant. So, are stocks expensively valued or cheap today? We argue stock valuations can be both high and attractive, with the caveat that high valuations offer less of a buffer versus downside risks. With interest rates at historic lows and poised to stay there for some time, equities are a relative bargain and can be a compelling option for growth, value and income seekers.

As always, the strategy invests primarily in dividend paying companies and seeks to deliver capital appreciation and current income over time.

TONY DESPIRITO, FRANCO TAPIA AND DAVID ZHAOBLACKROCK INVESTMENT MANAGEMENT LLC5 February 2021

PORTFOLIO

TEN LARGEST INVESTMENTS

1 = Verizon Communications (2019: 1st)Communication ServicesMarket value: £4,797,000Share of investments: 4.0% (2019: 4.5%)

One of the largest providers of wireline and wireless communications in the U.S., where 48 million access lines represent approximately one-third of market share. The company’s wireless customer base is very sizable and continues to grow. The company remains in a strong financial position and exhibits a sustainable dividend yield above 4%. Going forward, we expect continued expansion in wireless, long distance and high-speed services to drive company growth.

2 + Bank of America (2019: 5th)FinancialsMarket value: £3,783,000Share of investments: 3.2% (2019: 3.0%)

One of the largest financial institutions in the U.S. with lending operations in the consumer, small-business and corporate markets, in addition to asset management and investment banking divisions. Bank of America has delivered consistent results over the last year, with particular strength within their consumer bank division.

3 + Citigroup (2019: 4th)FinancialsMarket value: £3,354,000Share of investments: 2.8% (2019: 3.6%)

A U.S. based money center bank with a global footprint. We believe the group is attractively valued on both a price-to-earnings and book value basis, has self-help opportunities within its consumer banking segment and offers the potential for dividend growth.

4 + Cognizant Technology Solutions (2019: 14th)Information TechnologyMarket value: £2,960,000Share of investments: 2.5% (2019: 1.9%)

After a period of share loss and earnings guide-downs, we do not believe Cognizant is structurally impaired and we see attractive turnaround opportunities under a new CEO. While there are certainly execution risks and near-term uncertainties, these are likely already priced in with the stock trading at a historical low valuation relative to the market and peers.

5 + Anthem (2019: 11th)Health CareMarket value: £2,928,000Share of investments: 2.5% (2019: 2.0%)

A leading company in a high quality, stable U.S. managed care space whose relatively new CEO is taking initiatives to leverage the company’s market position and accelerate top and bottom line growth. These initiatives include insourcing their Pharmacy Benefits Manager, expanding their Medicare offerings and leveraging their brand to offer ancillary products (dental benefits, administrative services only arrangements, etc.).

6 + American International (2019: 12th)FinancialsMarket value: £2,913,000Share of investments: 2.4% (2019: 2.0%)

American International has been a challenged company in recent years due to significant insurance reserve charges, poor prior management and a bad property and casualty insurance business. Management has spent the past three years fixing these issues by expanding margins, fixing the reserves, lowering expenses and managing catastrophe losses. Despite all this, the stock trades close to 10-year lows. Now management plans to IPO its life insurance business, which could also be very value additive.

7 + Comcast (2019: 10th)Communication ServicesMarket value: £2,896,000Share of investments: 2.4% (2019: 2.0%)

An American media conglomerate that provides video streaming, television programming, high-speed internet, cable television and communication services to its worldwide customer base. The company is a steady compounder, driven by a strong competitive position and structural growth in broadband internet. In our view, market fears around cord-cutting and capital allocation are overdone, providing an attractive opportunity.

8 + Samsung Electronics (2019: 18th)Information TechnologyMarket value: £2,883,000Share of investments: 2.4% (2019: 1.8%)

Samsung Electronics is returning to its roots as a component manufacturing powerhouse by aggressively pushing its technical lead in key emerging technologies: Organic Light Emitting Diode (OLED) displays and 3D NAND (the next generation flash storage technology). We believe that a combination of consistent earnings growth and increasing capital return will drive a re?rating of the company’s shares.

9 - Wells Fargo (2019: 3rd)FinancialsMarket value: £2,750,000Share of investments: 2.3% (2019: 3.9%)

A U.S. bank which operates in three segments including community banking, wholesale banking and wealth & investment management. Wells Fargo has a strong deposit franchise and we are encouraged by the company’s history of strong investment returns and prudent credit risk management. In our view, shares of the company are underappreciated today in an environment characterised by low credit losses and ample access to liquidity.

10 - Medtronic (2019: 6th)Health CareMarket value: £2,731,000Share of investments: 2.3% (2019: 2.7%)

The company trades at a deep discount to its medical technology peers despite offering better growth. The company is transforming into a pure-play health care company that, in our view, deserves a higher multiple. Medtronic is also meaningfully under-earning, with current margins that are well below management’s targets and those of its peers, indicating upside to profitability.

Market value amounts include the liability for written covered call options.

All percentages reflect the value of the holding as a percentage of total investments.

Percentages in brackets represent the value of the holding as at 31 October 2019.

Together, the ten largest investments represent 26.8% of the Company’s portfolio (31 October 2019: 30.5%).

INVESTMENTS AS AT 31 OCTOBER 2020

* Market value less than £1,000.

All investments are in ordinary shares unless otherwise stated. The number of holdings as at 31 October 2020 was 78 (31 October 2019: 89). The total number of individual open options as at 31 October 2020 was 171 (31 October 2019: 224).

The negative valuation of £348,000 in respect of options held represents the notional cost of repurchasing the contracts at market prices as at 31 October 2020 (31 October 2019: £482,000).

At 31 October 2020, the Company did not hold any equity interests comprising more than 3% of any company’s share capital.

STRATEGIC REPORT

The Directors present the Strategic Report of the Company for the year ended 31 October 2020. The aim of the Strategic Report is to provide shareholders with the information to assess how the Directors have performed their duty to promote the success of the Company for the collective benefit of shareholders.

The Chairman’s Statement together with the Investment Manager’s Report form part of this Strategic Report. The Strategic Report was approved by the Board at its meeting on 5 February 2021.

PRINCIPAL ACTIVITYThe Company carries on business as an investment trust and its principal activity is portfolio investment. Investment trusts are pooled investment vehicles which allow exposure to a diversified range of assets through a single investment, thus spreading investment risk.

OBJECTIVEThe Company’s objective is to provide an attractive and growing level of income return with capital appreciation over the long term, predominantly through investment in a diversified portfolio of primarily large-cap U.S. quoted equities with a focus on companies that pay and grow their dividends. The Company may invest through an active options overlay strategy utilising predominantly covered call options and may also hold other securities from time-to-time including, inter alia, convertible securities, fixed interest securities, preference shares, non-convertible preferred stock and depositary receipts. The Company may also invest in listed large-cap equities quoted on exchanges outside the U.S., subject to the restrictions set out below, and in securities denominated in US dollars and non-US dollar currencies.

STRATEGY, BUSINESS MODEL AND INVESTMENT POLICYStrategyThe Company invests in accordance with the objective given above. The Board is collectively responsible to shareholders for the long-term success of the Company and is its governing body. There is a clear division of responsibility between the Board and BlackRock Fund Managers Limited (the Manager), the Company's Alternative Investment Fund Manager (AIFM). Matters reserved for the Board include setting the Company’s strategy, including its investment objective and policy, setting limits on gearing, capital structure, governance, and appointing and monitoring of performance of service providers, including the Manager.

Business modelThe Company’s business model follows that of an externally managed investment trust. Therefore, the Company does not have any employees and outsources its activities to third-party service providers including the Manager who is the principal service provider. The management of the investment portfolio and the administration of the Company have been contractually delegated to the Manager who in turn (with the permission of the Company) has delegated certain investment management and other ancillary services to BlackRock Investment Management (UK) Limited (the Investment Manager or BIM (UK)). The Manager, operating under guidelines determined by the Board, has direct responsibility for the decisions relating to the day-to-day running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company.

The Company delegates fund accounting services to the Investment Manager, which in turn sub-delegates these services to The Bank of New York Mellon (International) Limited (BNYM) and also sub-delegates registration services to the Registrar, Computershare Investor Services PLC. Other service providers include the Depositary (also BNYM). Details of the contractual terms with the Manager and the Depositary and more details of sub-delegation arrangements in place governing custody services are set out in the Directors’ Report in the Company’s Annual Report.

Investment policyTo achieve the Company’s investment objective, the Investment Manager adopts a stock specific approach in managing the Company’s portfolio, selecting investments that it believes will both increase in value over the long term and provide income. The Company does not invest in companies which are not listed, quoted or traded at the time of investment, although it may have exposure to such companies where, following investment, the relevant securities cease to be listed, quoted or traded. Typically, it is expected that the investment portfolio will comprise of between 80 and 120 securities (excluding its active options overlay strategy). As at 31 October 2020, there were 78 holdings in the Company’s portfolio.

The Company may invest through derivatives for efficient portfolio management and may, for investment purposes, employ an active options overlay strategy utilising predominantly covered call options. Any use of derivatives for efficient portfolio management and options for investment purposes is based on the same principles of risk spreading and diversification that apply to the Company’s direct investments. For the avoidance of doubt, the Company does not enter into physical or synthetic short positions or write any uncovered options.

Portfolio risk is mitigated by investing in a diversified spread of investments. In particular, the Company observes the following investment restrictions: no single investment (including for the avoidance of doubt, any single derivative instrument) will, at the time of investment, account for more than 10% of the gross assets; no more than 20% of the gross assets, at the time of investment, will be invested in securities issued outside of the U.S.*; no more than 35% of the gross assets, at the time of investment, will be exposed to any one sector; and no more than 20% of the Company’s portfolio will be under option at any given time. (*Securities issued by certain companies organised outside the United States may not be deemed to be foreign securities (but rather deemed to be U.S. securities) if: (i) the company’s principal operations are conducted from the U.S.; (ii) the company’s equity securities trade principally on a U.S. stock exchange; (iii) the company does a substantial amount of business in the U.S.; or (iv) the issuer of securities is included in the Company’s primary U.S. benchmark index.)

The Company’s foreign currency investments are not hedged to sterling as a matter of general policy. However, the investment team may employ currency hedging, either back to sterling or between currencies (i.e. cross-hedging of portfolio investments).

In order to comply with the current Listing Rules, the Company also complies with the following investment restrictions (which do not form part of the Company’s investment policy): the Company will not conduct any trading activity which is significant in the context of its group as a whole; and the Company will not invest more than 10% of its gross assets in other listed closed-ended investment funds, whether managed by the Manager or not, except that this restriction shall not apply to investments in listed closed-ended investment funds which themselves have stated investment policies to invest no more than 15% of their gross assets in other listed closed-ended investment funds.

The Company may borrow up to 20% of its net assets (calculated at the time of draw down), although the Board intends only to utilise borrowings representing up to 10% of net assets at the time of draw down. Borrowings may be used for investment purposes. The Company has entered into a multi-currency overdraft facility with its Custodian (BNYM) for this purpose. The Company may enter into interest rate hedging arrangements.

Information regarding the Company’s investment exposures is contained within the schedule of investments above. Further information regarding investment risk and activity throughout the year can be found in the Investment Manager’s Report.

No material change will be made to the investment policy without the approval of shareholders by ordinary resolution.

ENVIRONMENTAL IMPACTThe direct impact of the Company’s activities is minimal as it has no employees, premises, physical assets or operations either as a producer or a provider of goods or services. Neither does it have customers. Its indirect impact occurs through the investments that it makes and this is mitigated through BlackRock’s environmental, social and governance policies.

INVESTMENT PHILOSOPHY AND PROCESSThe Investment Manager seeks to offer a stable foundation for investors to protect and grow their assets through disciplined application of value investment principles. The Investment Manager believes a portfolio of attractively valued, quality companies with histories of dividend growth can potentially deliver strong risk-adjusted returns over the long term.

The Investment Manager’s investment process has three main elements including idea generation, investment research and portfolio construction. The investment process is continuous and forms a virtuous circle that ensures the best investment ideas are reflected in the portfolio at all times.

The Investment Manager derives new investment ideas from the bottom-up fundamental research generated by its research analysts and from its quantitative screens. The Investment Manager’s research analysts derive investment ideas from their existing knowledge of industry and company trends and developments. The Investment Manager’s quantitative screens utilise both quality and value factors with the goal of highlighting potentially attractive opportunities that the analysts may have otherwise missed. The Investment Manager’s Directors of Research collaborate with the research analysts to prioritise research ideas and ensure research best practices. The Investment Manager’s research analyst team conducts fundamental research. This research includes traditional financial statement analysis, meetings with company managements, discussions with industry experts and collaboration with investors across BlackRock.

Final investment decisions result from the Investment Manager’s bottom-up, company specific research. Portfolio allocations are a reflection of the investment opportunities the Investment Manager is identifying in the current environment.

INVESTMENT RESEARCH: ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)ESG is not the overriding consideration for investment decisions which are primarily based on an assessment of a stock's future performance prospects. However, ESG factors can be very useful and relevant indicators for investment purposes and can help the Portfolio Managers with their decision making through identifying potentially negative events or corporate behaviour. The Portfolio Managers work closely with BlackRock’s Investment Stewardship team to assess the governance quality of companies and investigate any potential issues, risks or opportunities. The Portfolio Managers use ESG information when conducting research and due diligence on new investments and again when monitoring investments in the portfolio.

The Portfolio Managers assess a variety of economic and financial indicators, including ESG issues, to make investment decisions that align with clients’ objectives. To facilitate this analysis, they review information in their research templates using a tool (the Fundamental Active Equity Risk Window) which supplements investment decisions by identifying potential ESG risks associated with a given company. Further research and engagement with companies helps to assess each risk. Combining this additional insight with the Portfolio Managers’ in-depth fundamental approach broadens the total set of information available for use in decision-making processes and positions the investment team to evaluate ESG issues and the impact they could potentially have on an investment.

PERFORMANCEOver the year ended 31 October 2020, the Company’s net asset value returned -8.9% compared with a return of -7.5% in the Russell 1000 Value Index. The ordinary share price returned -17.9% (all percentages are calculated in sterling terms with dividends reinvested). The Investment Manager’s Report includes a review of the main developments during the year, together with information on investment activity within the Company’s portfolio.

RESULTS AND DIVIDENDSThe results for the Company are set out in the Statement of Comprehensive Income. The total return for the year, after taxation, was a loss of £13,315,000 (2019: a profit of £10,370,000) of which the revenue return amounted to a profit of £5,367,000 (2019: a profit of £4,338,000) and the capital return amounted to a loss of £18,682,000 (2019: a profit of £6,032,000).

The Company pays dividends quarterly. Four quarterly interim dividends of 2.00p per share were paid on 29 April 2020, 3 July 2020, 1 October 2020 and 4 January 2021. Total dividends of 8.00p per share were paid or declared in the year ended 31 October 2020 (2019: 8.00p).

FUTURE PROSPECTSThe Board’s main focus is to provide an attractive and growing level of income return with capital appreciation over the long term and the future of the Company is dependent upon the success of the investment strategy. The outlook for the Company in the next twelve months is discussed in both the Chairman’s Statement and in the Investment Manager’s Report.

SOCIAL, COMMUNITY AND HUMAN RIGHTS ISSUESAs an investment trust with no employees, the Company has no direct social or community responsibilities or impact on the environment. However, the Company believes that it is in shareholders’ interests to consider human rights issues and environmental, social and governance factors when selecting and retaining investments. Details of the Company’s policy on socially responsible investment are set out in the Corporate Governance Statement in the Company’s Annual Report.

MODERN SLAVERY ACTAs an investment vehicle the Company does not provide goods or services in the normal course of business and does not have customers. Accordingly, the Directors consider that the Company is not required to make any slavery or human trafficking statement under the Modern Slavery Act 2015. 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.

DIRECTORS, GENDER REPRESENTATION AND EMPLOYEESThe Directors of the Company on 31 October 2020 are set out in the Directors’ Biographies in the Company’s Annual Report. The Board consists of three male Directors and two female Directors. The Company does not have any executive employees.

KEY PERFORMANCE INDICATORSAt each Board meeting, the Directors consider a number of performance measures to assess the Company’s success in achieving its objectives. The key performance indicators (KPIs) used to measure the progress and performance of the Company over time and which are comparable to other investment trusts are set out below. As indicated in the footnote to the table, some of these KPIs fall within the definition of ‘Alternative Performance Measures’ under guidance issued by the European Securities and Markets Authority (ESMA) and additional information explaining how these are calculated is set out in the Glossary in the Company’s Annual Report.

Additionally, the Board regularly reviews the performance of the portfolio, as well as the net asset value and share price of the Company and compares this against various companies and indices. The Board also reviews the performance of the portfolio against the Russell 1000 Value Index. Information on the Company’s performance is given in the Chairman’s Statement.

1 This measures the Company’s share price and NAV total return, which assumes dividends paid by the Company have been reinvested.

2 Russell 1000 Value Index, total return basis.

3 This is the difference between the share price and the NAV per share with debt at par. It is an indicator of the need for shares to be bought back or, in the event of a premium to NAV per share, issued.

4 Ongoing charges represent the management fee and all other operating expenses excluding finance costs, direct transaction costs, custody transaction charges, VAT recovered, taxation and certain non-recurring items as a % of average daily net assets.

PRINCIPAL RISKSThe Company is exposed to a variety of risks and uncertainties. As required by the 2018 UK Corporate Governance Code (the UK Code), the Board has put in place a robust ongoing process to identify, assess and monitor the principal risks and emerging risks facing the Company.

A core element of this process is the Company’s risk register which identifies the risks facing the Company and assesses the likelihood and potential impact of each risk and the quality of controls operating to mitigate it. A residual risk rating is then calculated for each risk based on the outcome of the assessment.

The risk register, its method of preparation and the operation of key controls in BlackRock’s and third-party service providers’ systems of internal control, are reviewed on a regular basis by the Audit and Management Engagement Committee. In order to gain a more comprehensive understanding of BlackRock’s and other third-party service providers’ risk management processes and how these apply to the Company’s business, BlackRock’s internal audit department provides an annual presentation to the Audit Committee chairmen of the BlackRock investment trusts setting out the results of testing performed in relation to BlackRock’s internal control processes. The Audit and Management Engagement Committee also periodically receives and reviews internal control reports from BlackRock and the Company’s service providers.

The Board has undertaken a robust assessment of both the principal and emerging risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The COVID-19 pandemic has given rise to unprecedented challenges for businesses across the globe and the Board has taken into consideration the risks posed to the Company by the crisis and incorporated these into the Company’s risk register. The threat of climate change has also reinforced the importance of more sustainable practices and environmental responsibility. Emerging risks are considered by the Board as they come into view and are incorporated into the existing review of the Company’s risk register. Additionally, the Manager considers emerging risks in numerous forums and the Risk and Quantitative Analysis team produces an annual risk survey. Any material risks of relevance to the Company identified through the annual risk survey will be communicated to the Board.

The Board will continue to assess these risks on an ongoing basis. In relation to the UK Code, the Board is confident that the procedures that the Company has put in place are sufficient to ensure that the necessary monitoring of risks and controls has been carried out throughout the reporting period.

The principal risks and uncertainties faced by the Company during the financial year, together with the potential effects, controls and mitigating factors are set out in the following table.

In the view of the Board, there have not been any changes to the fundamental nature of these risks and these principal risks and uncertainties are equally applicable for the current financial year.

VIABILITY STATEMENTIn accordance with provision 31 of the 2018 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the twelve months referred to by the ‘Going Concern’ guidelines.

The Board is cognisant of the uncertainty surrounding the potential duration of the COVID-19 pandemic, its impact on the global economy and the prospects for many of the Company’s portfolio holdings. Notwithstanding this crisis, and given the factors stated below, the Board expects the Company to continue for the foreseeable future and has therefore conducted this review for a period of three years. This is generally the investment holding period investors consider while investing in the North American sector. The Company also undertakes a continuation vote every three years. The next continuation vote will take place at the Annual General Meeting in 2022.

In its assessment of the viability of the Company, the Directors have noted that:

The Directors have also reviewed:

The Board has also considered a number of other factors, including:

Based on the results of their analysis, the Directors have concluded that there is a reasonable expectation that the Company will continue in operation and meet its liabilities as they fall due over the period of their assessment.

SECTION 172 STATEMENT: PROMOTING THE SUCCESS OF THE COMPANYNew regulations (The Companies (Miscellaneous Reporting) Regulations 2018) require directors of large companies to explain more fully how they have discharged their duties under section 172(1) of the Companies Act 2006 in promoting the success of their companies for the benefit of members as a whole. This includes the likely consequences of their decisions in the longer term and how they have taken wider stakeholders’ needs into account.

The enhanced disclosure that follows covers how the Board has engaged with and understands the views of stakeholders and how stakeholders’ needs have been taken into account, the outcome of this engagement and the impact that it has had on the Board’s decisions. The Board considers the main stakeholders in the Company to be the Manager, Investment Manager and the shareholders. In addition to this, the Board considers investee companies and key service providers of the Company to be stakeholders; the latter comprise the Company’s Custodian, Depositary, Registrar and Broker.

BLACKROCK’S SUSTAINABILITY AND ESG POLICIESEnvironmental, social and governance (ESG) issues can present both opportunities and threats to long-term investment performance. These ethical and sustainability issues cannot be ignored, and BlackRock is committed to applying the highest standards of ESG practice. Effective engagement with management is, in most cases, the most constructive way of driving meaningful change in the behaviour of investee company management. This is particularly true given the extent of its shareholder engagement (BlackRock held 3,040 engagements with 2,020 companies based in 54 markets for the year to 30 June 2020). As well as the influence afforded by its sheer scale, BlackRock is well placed as Manager to fulfil these requirements due to the integration of ESG into its investment processes, the emphasis it places on sustainability, its collaborative approach in its investment stewardship activities and its position in the industry as one of the largest suppliers of sustainable investment products in the global market. More information on BlackRock’s approach to sustainability is set out below.

RESPONSIBLE OWNERSHIP – BLACKROCK’S APPROACHAs a fiduciary to its clients, BlackRock has built its business to protect and grow the value of clients’ assets. From BlackRock’s perspective, business-relevant sustainability issues can contribute to a company’s long-term financial performance and thus further incorporating these considerations into the investment research, portfolio construction and stewardship process can enhance long-term risk adjusted returns. By expanding access to data, insights and learning on material ESG risks and opportunities in investment processes across BlackRock’s diverse platform, BlackRock believes that the investment process is greatly enhanced. The Company’s Portfolio Managers work closely with BlackRock’s Investment Stewardship team to assess the governance quality of companies and investigate any potential issues, risks or opportunities. The Portfolio Managers use ESG information when conducting research and due diligence on new investments and again when monitoring investments in the portfolio.

BLACKROCK’S APPROACH TO SUSTAINABLE INVESTINGConsiderations about sustainability have been at the centre of BlackRock’s investment approach for many years and the firm offers more than 200 sustainable products and solutions. BlackRock believes that climate change is now a defining factor in companies’ long-term prospects and that will have a significant and lasting impact on economic growth and prosperity. BlackRock believes that climate risk now equates to investment risk and this will drive a profound reassessment of risk and asset values as investors seek to react to the impact of climate policy changes. This in turn is likely to drive a significant reallocation of capital away from traditional carbon intensive industries over the next decade.

In January 2020, with this transition in mind, BlackRock announced that it would accelerate its sustainable investing efforts and make a number of enhancements to its investment management and risk processes, including the following:

INVESTMENT STEWARDSHIPBlackRock also places a strong emphasis on sustainability in its stewardship activities and has engaged with companies on sustainability-related questions for a number of years. This year BlackRock made an explicit ask that companies align their disclosures to the Task Force on Climate-Related Financial Disclosures (TCFD) framework and the Sustainability Accounting Standards Board (SASB) standards. This includes each company's plan for operating under a scenario where the Paris Agreement's goal of limiting global warming to less than two degrees is fully realised, as expressed by the TCFD guidelines. To this end, BlackRock joined Climate Action 100+, a natural progression in its work to advance sustainable business practices aligned with TCFD. BlackRock has aligned its engagement and stewardship priorities to UN Sustainable Development Goals (including Gender Equality and Affordable and Clean Energy). BlackRock is committed to voting against management to the extent that they have not demonstrated sufficient progress on sustainability issues.

BlackRock is committed to transparency in terms of disclosure on its engagement with companies and voting rationales. Last year, BlackRock voted against or withheld votes from 5,130 directors at 2,809 different companies driven by concerns regarding director independence, executive compensation, insufficient progress on board diversity and overcommitted directors, reflecting its intensified focus on sustainability risks. More details about BlackRock’s investment stewardship process can be found on BlackRock’s website at www.blackrock.com/corporate/about-us/investment-stewardship. In terms of its own reporting, BlackRock believes that the SASB provides a clear set of standards for reporting sustainability information across a wide range of issues, from labour practices to data privacy to business ethics. For evaluating and reporting climate-related risks, as well as the related governance issues that are essential to managing them, the TCFD provides a valuable framework.

BlackRock recognise that reporting to these standards requires significant time, analysis, and effort. BlackRock's own SASB-aligned disclosure is available on its website at www.blackrock.com/corporate/literature/continuous-disclosure-and-important-information/blackrock-2019-sasb-disclosure.pdf and BlackRock published a detailed TCFD-aligned report on its 2020 activities. More information on BlackRock’s policies on Corporate Sustainability can be found on BlackRock’s website at www.blackrock.com/corporate/sustainability.

BY ORDER OF THE BOARDCAROLINE DRISCOLLFOR AND ON BEHALF OFBLACKROCK INVESTMENT MANAGEMENT (UK) LIMITEDCompany Secretary5 February 2021

RELATED PARTY TRANSACTIONS

BlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months’ notice. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors’ Report of the Company’s Annual Report.

The investment management fee due for the year ended 31 October 2020 amounted to £1,001,000 (2019: £1,002,000). At the year end, £725,000 was outstanding in respect of the management fee (2019: £546,000).

In addition to the above services, BlackRock has provided marketing services. The total fees paid or payable for these services for the year ended 31 October 2020 amounted to £46,000 excluding VAT (2019: £26,000). Marketing fees of £31,000 excluding VAT (2019: £23,000) were outstanding as at the year end.

The Board consists of five non-executive Directors, all of whom are considered to be independent of the Manager by the Board. None of the Directors has a service contract with the Company. With effect from 1 April 2019, the Chairman received an annual fee of £42,000, the Chairman of the Audit and Management Engagement Committee received an annual fee of £35,000 and each of the other Directors received an annual fee of £29,000.

Disclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report of the Company’s Annual Report. At 31 October 2020 £14,000 (2019: £14,000) was outstanding in respect of Directors’ fees.

STATEMENT OF DIRECTORS’ RESPONSIBILITIES IN RESPECT OF THE ANNUAL REPORT AND FINANCIAL STATEMENTS

The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable United Kingdom 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 under international accounting standards in conformity with the requirements of the Companies Act 2006.

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 as at the end of each financial year and of the profit or loss of the Company for that period.

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

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are also responsible for preparing the Strategic Report, Directors’ Report, the Directors’ Remuneration Report, the Corporate Governance Statement and the Report of the Audit and Management Engagement Committee in accordance with the Companies Act 2006 and applicable regulations, including the requirements of the Listing Rules and the Disclosure Guidance and Transparency Rules. The Directors have delegated responsibility to the Manager for the maintenance and integrity of the Company’s corporate and financial information included on the BlackRock website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names are listed in the Directors’ biographies on pages 27 to 29 of the Company’s Annual Report, confirm to the best of their knowledge that:

The 2018 UK Corporate Governance Code also requires Directors to ensure that the Annual Report and Financial Statements are fair, balanced and understandable. In order to reach a conclusion on this matter, the Board has requested that the Audit and Management Engagement Committee advise on whether it considers that the Annual Report and Financial Statements fulfil these requirements. The process by which the Committee has reached these conclusions is set out in the Audit and Management Engagement Committee’s report in the Annual Report. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 31 October 2020, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s position, performance, business model and strategy.

FOR AND ON BEHALF OF THE BOARDSIMON MILLERChairman5 February 2021

FINANCIAL STATEMENTS

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 OCTOBER 2020

The total column of this statement represents the Company’s Statement of Comprehensive Income, prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies (AIC). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the year. All income is attributable to the equity holders of the Company.

The Company does not have any other comprehensive income/(loss). The net profit/(loss) for the year disclosed above represents the Company’s total comprehensive income/(loss).

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 OCTOBER 2020

1 4th interim dividend of 2.00p per share for the year ended 31 October 2019, declared on 7 November 2019 and paid on 3 January 2020; 1st interim dividend of 2.00p per share for the year ended 31 October 2020, declared on 20 March 2020 and paid on 29 April 2020; 2nd interim dividend of 2.00p per share for the year ended 31 October 2020, declared on 5 May 2020 and paid on 3 July 2020; and 3rd interim dividend of 2.00p per share for the year ended 31 October 2020, declared on 6 August 2020 and paid on 1 October 2020.

2 4th interim dividend of 2.00p per share for the year ended 31 October 2018, declared on 1 November 2018 and paid on 4 January 2019; 1st interim dividend of 2.00p per share for the year ended 31 October 2019, declared on 5 March 2019 and paid on 12 April 2019; 2nd interim dividend of 2.00p per share for the year ended 31 October 2019, declared on 8 May 2019 and paid on 28 June 2019; and 3rd interim dividend of 2.00p per share for the year ended 31 October 2019, declared on 6 August 2019 and paid on 1 October 2019.

For information on the Company’s distributable reserves please refer to note 9 below.

STATEMENT OF FINANCIAL POSITION AS AT 31 OCTOBER 2020

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2020

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 OCTOBER 2020

1. PRINCIPAL ACTIVITYThe principal activity of the Company is that of an investment trust company within the meaning of Section 1158 of the Corporation Tax Act 2010. The Company was incorporated in England and Wales on 30 August 2012.

2. ACCOUNTING POLICIESThe principal accounting policies adopted by the Company have been applied consistently, other than where new policies have been adopted, and are set out below.

(a) Basis of preparationThe financial statements have been prepared under the historic cost convention modified by the revaluation of financial assets and financial liabilities held at fair value through profit or loss and in accordance with international accounting standards (IFRS) and IFRS Interpretations Committee interpretations (IFRIC) in conformity with the requirements of the Companies Act 2006. All of the Company’s operations are of a continuing nature.

Insofar as the Statement of Recommended Practice (SORP) for investment trust companies and venture capital trusts issued by the Association of Investment Companies (AIC) in October 2019, is compatible with international accounting standards in conformity with the requirements of the Companies Act 2006, the financial statements have been prepared in accordance with the guidance set out in the SORP.

The revised SORP issued in October 2019 is applicable for accounting periods beginning on or after 1 January 2019. As a result, the loss on disposals of investments of £617,000 (2019: gain of £7,588,000) and loss on revaluation of investments of £17,669,000 (2019: loss of £816,000) have now been combined, as shown in note 9 to the financial statements in the Company’s Annual Report. The result of this change in presentation has no impact on the net asset value or total return for both the current year and prior year. No other accounting policies or disclosures have changed as a result of the revised SORP.

Substantially all of the assets of the Company consist of securities that are readily realisable and, accordingly, the Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. Consequently, the Directors have determined that it is appropriate for the financial statements to be prepared on a going concern basis. The Directors have considered any potential impact of the COVID-19 pandemic and the mitigation measures which key service providers, including the Manager, have in place to maintain operational resilience on the going concern of the Company. The Directors have reviewed income and expense projections and the liquidity of the investment portfolio in making their assessment.

The Company’s financial statements are presented in sterling, which is the functional currency of the Company and the currency of the primary economic environment in which the Company operates. All values are rounded to the nearest thousand pounds (£’000) except where otherwise indicated.

IFRS standards that have recently been adopted:IFRS 16 – LeasesThe Company adopted IFRS 16 as of the date of initial application of 1 November 2019. IFRS 16 specifies accounting for leases and removes the distinction between operating and finance leases. This standard is not applicable to the Company as it has no leases.

IFRIC 23 – Uncertainty over Income Tax TreatmentsThe Company adopted IFRIC 23 as of the date of initial application of 1 November 2019. IFRIC 23 seeks to provide clarity on how to account for uncertainty over income tax treatments and specifies that an entity must consider whether it is probable that the relevant tax authority will accept each tax treatment, or group of tax treatments, that it plans to use in its income tax filing. The interpretation also requires companies to reassess the judgements and estimates applied if facts and circumstances change. The interpretation requires the Company to recognise uncertain tax positions which are more than probable within its financial statements and it could potentially require the Company to recognise tax reclaims filed with HMRC if their recoverability becomes more than probable. The adoption of this interpretation has had no impact on the financial statements of the Company.

IFRS standards that have yet to be adopted:Amendments to IFRS 3 - definition of a business (effective 1 January 2020). This amendment revises the definition of a business. According to feedback received by the International Accounting Standards Board, application of the current guidance is commonly thought to be too complex and it results in too many transactions qualifying as business combinations. The standard has been endorsed by the European Union (the EU). This standard is unlikely to have any impact on the Company.

Amendments to IAS 1 and IAS 8 - definition of material (effective 1 January 2020). The amendments to IAS 1, ‘Presentation of Financial Statements’, and IAS 8, ‘Accounting Policies, Changes in Accounting Estimates and Errors’, and consequential amendments to other IFRSs require companies to:

(i) use a consistent definition of materiality throughout IFRSs and the Conceptual Framework for Financial Reporting;

(ii) clarify the explanation of the definition of material; and

(iii) incorporate some of the guidance of IAS 1 about immaterial information.

This standard has been endorsed by the EU. This standard is unlikely to have any impact on the Company.

Amendments to IFRS 9, IAS 39 and IFRS 7 - interest rate benchmark reform (effective 1 January 2020). These amendments provide certain reliefs in connection with the interest rate benchmark reform. The reliefs relate to hedge accounting and have the effect that the Inter Bank Offer Rate (IBOR) reform should not generally cause hedge accounting to terminate. However, any hedge ineffectiveness should continue to be recorded in the income statement. Given the pervasive nature of hedges involving IBOR based contracts, the reliefs will affect companies in all industries.

This standard has been endorsed by the EU. This standard is unlikely to have any significant impact on the Company.

IFRS 17 - insurance contracts (effective 1 January 2021). This standard replaces IFRS 4, which currently permits a wide variety of practices in accounting for insurance contracts. IFRS 17 will fundamentally change the accounting by all entities that issue insurance contracts and investment contracts with discretionary participation features. The standard has not been endorsed by the EU. This standard is unlikely to have any impact on the Company as it has no insurance contracts.

(b) Presentation of the Statement of Comprehensive IncomeIn order to better reflect the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and a capital nature has been presented alongside the Statement of Comprehensive Income.

(c) Segmental reportingThe Directors are of the opinion that the Company is engaged in a single segment of business being investment business.

(d) IncomeDividends receivable on equity shares are recognised as revenue for the year on an ex-dividend basis. Where no ex-dividend date is available, dividends receivable on or before the year end are treated as revenue for the year. Provision is made for any dividends not expected to be received. Special dividends, if any, are treated as a capital or a revenue receipt depending on the facts or circumstances of each dividend. The return on a debt security is recognised on a time apportionment basis so as to reflect the effective yield on the debt security.

Options may be purchased or written over securities held in the portfolio for generating or protecting capital returns, or for generating or maintaining revenue returns. Where the purpose of the option is the generation of income, the premium is treated as a revenue item. Where the purpose of the option is the maintenance of capital, the premium is treated as a capital item.

Option premium income is recognised as revenue evenly over the life of the option contract and included in the revenue column of the Statement of Comprehensive Income unless the option has been written for the maintenance and enhancement of the Company’s investment portfolio and represents an incidental part of a larger capital transaction, in which case any premia arising are allocated to the capital column of the Statement of Comprehensive Income.

Deposit interest receivable is accounted for on an accruals basis.

Where the Company has elected to receive its dividends in the form of additional shares rather than in cash, the cash equivalent of the dividend is recognised as revenue. Any excess in the value of the shares received over the amount of the cash dividend is recognised in capital.

(e) ExpensesAll expenses, including finance costs, are accounted for on an accruals basis. Expenses have been charged wholly to the revenue column of the Statement of Comprehensive Income, except as follows:

(f) TaxationThe tax expense represents the sum of the tax currently payable and deferred tax. The tax currently 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 expenses that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company’s liability for current tax is calculated using tax rates that were applicable at the balance sheet date.

Where expenses are allocated between capital and revenue, any tax relief in respect of expenses is allocated between capital and revenue returns on the marginal basis using the Company’s effective rate of corporation tax for the accounting period.

Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the financial reporting date, where transactions or events that result in an obligation to pay more taxation in the future or right to pay less tax in the future have occurred at the financial reporting date. 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 temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise.

(g) Investments held at fair value through profit or lossIn accordance with IFRS 9, the Company classifies its investments at initial recognition as held at fair value through profit or loss and are managed and evaluated on a fair value basis in accordance with its investment strategy and business model.

All investments are measured initially and subsequently at fair value through profit or loss. Purchases of investments are recognised on a trade date basis. Sales of investments are recognised at the trade date of the disposal.

The fair value of the financial investments is based on their quoted bid price at the financial reporting date, without deduction for the estimated selling costs. This policy applies to all current and non current asset investments held by the Company.

Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Statement of Comprehensive Income as Profits or losses on investments held at fair value through profit or loss. Also included within the heading are transaction costs in relation to the purchase or sale of investments.

For all financial instruments not traded in an active market, the fair value is determined by using various valuation techniques. Valuation techniques include market approach (i.e., using recent arm’s length market transactions adjusted as necessary and reference to the current market value of another instrument that is substantially the same) and the income approach (e.g., discounted cash flow analysis and option pricing models making use of available and supportable market data where possible). See note 2(o) below.

(h) OptionsOptions are held at fair value through profit or loss based on the bid/offer prices of the options written to which the Company is exposed. The value of the option is subsequently marked-to-market to reflect the fair value through profit or loss of the option based on traded prices. Where the premium is taken to revenue, an appropriate amount is shown as capital return such that the total return reflects the overall change in the fair value of the option. When an option is exercised, the gain or loss is accounted for as a capital gain or loss. Any cost on closing out an option is transferred to revenue along with any remaining unamortised premium.

(i) Other receivables and other payablesOther receivables and other payables do not carry any interest and are short term in nature and are accordingly stated on an amortised cost basis.

(j) Dividends payableUnder IFRS, final dividends should not be accrued in the financial statements unless they have been approved by shareholders before the financial reporting date. Interim dividends should not be accrued in the financial statements unless they have been paid.

Dividends payable to equity shareholders are recognised in the Statement of Changes in Equity.

(k) Foreign currency translationTransactions involving foreign currencies are converted at the rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities and non monetary assets held at fair value are translated into sterling at the rate ruling on the financial reporting date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income as a revenue or capital item depending on the income or expense to which they relate. For investment transactions and investments held at the year end, denominated in a foreign currency, the resulting gains or losses are included in the profit/(loss) on investments held at fair value through profit or loss in the Statement of Comprehensive Income.

(l) Cash and cash equivalentsCash comprises cash in hand and on demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value.

(m) Bank borrowingsBank overdrafts are recorded as the proceeds received. Finance charges, including any premium payable on settlement or redemption and direct issue costs, are accounted for on an accruals basis in the Statement of Comprehensive Income.

(n) Share repurchases and re-issuesShares repurchased and subsequently cancelled – share capital is reduced by the nominal value of the shares repurchased, and the capital redemption reserve is correspondingly increased in accordance with Section 733 of the Companies Act 2006. The full cost of the repurchase is charged to the special reserve.

Shares repurchased and held in treasury – the full cost of the repurchase is charged to the special reserve.

Where treasury shares are subsequently reissued

(o) Critical accounting estimates and judgementsThe Company makes estimates and assumptions concerning the future. The resulting accounting estimates and assumptions will, by definition, seldom equal the related actual results. Estimates and judgements are regularly evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Directors do not believe that any accounting judgements or estimates have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities within the next financial year. There are no critical accounting estimates or judgements.

3. INCOME

During the year, the Company received option premium income in cash totalling £2,919,000 (2019: £2,016,000) for writing covered call options for the purposes of revenue generation.

Option premium income is amortised evenly over the life of the option contract and accordingly, during the period, option premiums of £2,882,000 (2019: £1,968,000) were amortised to revenue.

At 31 October 2020, there were 171 open positions (2019: 224) with an associated liability of £348,000 (2019: £482,000).

All derivative transactions were based on constituent stocks in the Russell 1000 Value Index.

Dividends and interest received in cash during the year amounted to £3,411,000 and £72,000 (2019: £2,944,000 and £212,000).

No special dividends have been recognised in capital (2019: £nil).

4. INVESTMENT MANAGEMENT FEE

The investment management fee is payable in quarterly arrears, calculated at the rate of 0.75% of the Company’s net assets (2019: 0.75%). The investment management fee is allocated 75% to capital reserves and 25% to the revenue reserve. There is no additional fee for company secretarial and administration services.

5. OTHER OPERATING EXPENSES

1 No non-audit services were provided by the auditors.

2 Further information on Directors’ emoluments can be found in the Directors’ Remuneration Report in the Company’s Annual Report. The Company has no employees.

3 Alternative Performance Measure, see Glossary in the Company’s Annual Report.

For the year ended 31 October 2020, expenses of £21,000 (2019: £21,000) were charged to the capital column of the Statement of Comprehensive Income. These relate to transaction costs charged by the custodian on sale and purchase trades.

6. DIVIDENDS

The total dividends payable in respect of the year ended 31 October 2020 which form the basis of Section 1158 of the Corporation Tax Act 2010 and Section 833 of the Companies Act 2006, and the amounts declared, meet the relevant requirements as set out in this legislation.

1 Based on 79,804,044 ordinary shares in issue on 26 November 2020 (the ex-dividend date).

7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARETotal revenue and capital return per share and net asset value per share are shown below and have been calculated using the following:

There were no dilutive securities at the year end.

8. CALLED UP SHARE CAPITAL

During the year ended 31 October 2020, the Company issued 2,805,000 (2019: 9,525,000) shares from treasury for a total consideration including costs of £5,315,000 (2019: £17,252,000).

The Company also bought back and transferred 1,230,000 (2019: nil) shares into treasury for a total consideration including costs of £1,912,000 (2019: £nil).

Since 31 October 2020, 190,000 shares have been bought back and placed in treasury for a total consideration of £294,000.

9. RESERVES

The share premium account and capital redemption reserve are not distributable profits under the Companies Act 2006. In accordance with ICAEW Technical Release 02/17BL on Guidance on Realised and Distributable Profits under the Companies Act 2006, the special reserve and capital reserve may be used as distributable profits for all purposes and, in particular, for the repurchase by the Company of its ordinary shares and for payment as dividends. Accordingly, the total amount of distributable reserves at 31 October 2020 were £79,413,000.

10. VALUATION OF FINANCIAL INSTRUMENTSFinancial assets and financial liabilities are either carried in the Statement of Financial Position at their fair value (investment and derivatives) or at an amount which is a reasonable approximation of fair value (due from brokers, dividends and interest receivable, due to brokers, accruals, cash at bank and bank overdrafts). IFRS 13 requires the Company to classify fair value measurements using a fair value hierarchy that reflects the significance of inputs used in making the measurements. The valuation techniques used by the Company are explained in the accounting policies note 2(g) to the Financial Statements above.

Categorisation within the hierarchy has been determined on the basis of the lowest level of input that is significant to the fair value measurement of the relevant asset as follows.

The fair value hierarchy has the following levels:

Level 1 – Quoted market price for identical instruments in active marketsA financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency and those prices represent actual and regularly occurring market transactions on an arm’s length basis. The Company does not adjust the quoted price for these instruments.

Level 2 – Valuation techniques using observable inputsThis category includes instruments valued using quoted prices for similar instruments in markets that are considered less than active, or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Valuation techniques used for non-standardised financial instruments such as options, currency swaps and other over-the-counter derivatives include the use of comparable recent arm’s length transactions, reference to other instruments that are substantially the same, discounted cash flow analysis, option pricing models and other valuation techniques commonly used by market participants making the maximum use of market inputs and relying as little as possible on entity specific inputs.

Level 3 – Valuation techniques using significant unobservable inputsThis category includes all instruments where the valuation technique includes inputs not based on observable market data and these inputs could have a significant impact on the instrument’s valuation.

This category includes instruments that are valued based on quoted prices for similar instruments where significant entity determined adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active market. The Investment Manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement.

Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager.

Over-the-counter derivative option contracts have been classified as Level 2 investments as their valuation has been based on market observable inputs represented by the underlying quoted securities to which these contracts expose the Company.

Fair values of financial assets and financial liabilitiesThe below sets out fair value measurements using the IFRS 13 fair value hierarchy.

There were no transfers between levels for financial assets and financial liabilities during the year recorded at fair value as at 31 October 2020 and 31 October 2019. The Company did not hold any Level 3 securities throughout the financial year or as at 31 October 2020 (2019: nil).

11. RELATED PARTY DISCLOSUREDirectors’ emolumentsDisclosures of the Directors’ interests in the ordinary shares of the Company and fees and expenses payable to the Directors are set out in the Directors’ Remuneration Report in the Company’s Annual Report.

Significant holdingsThe following investors are:

a. funds managed by the BlackRock Group or are affiliates of BlackRock Inc. (Related BlackRock Funds); or

b. investors (other than those listed in (a) above) who held more than 20% of the voting shares in issue in the Company and are, as a result, considered to be related parties to the Company (Significant Investors).

As at 31 October 2020

As at 31 October 2019

12. TRANSACTIONS WITH THE INVESTMENT MANAGER AND AIFMBlackRock Fund Managers Limited (BFM) provides management and administration services to the Company under a contract which is terminable on six months’ notice. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BlackRock Investment Management (UK) Limited (BIM (UK)). Further details of the investment management contract are disclosed in the Directors’ Report in the Company’s Annual Report.

The investment management fee due for the year ended 31 October 2020 amounted to £1,001,000 (2019: £1,002,000). At the year end, £725,000 was outstanding in respect of the management fee (2019: £546,000).

In addition to the above services, BlackRock has provided marketing services. The total fees paid or payable for these services for the year ended 31 October 2020 amounted to £46,000 excluding VAT (2019: £26,000). Marketing fees of £31,000 excluding VAT (2019: £23,000) were outstanding as at the year end.

The ultimate holding company of the Manager and the Investment Manager is BlackRock, Inc. a company incorporated in Delaware USA. During the period, PNC Financial Services Group, Inc. (PNC) was a substantial shareholder in BlackRock, Inc. PNC did not provide any services to the Company during the financial year ended 31 October 2019 and the period up to the 11 May 2020, when PNC announced its intent to sell its investment in BlackRock, Inc. through a registered offering and related buyback by BlackRock, Inc.

13. CONTINGENT LIABILITIESThere were no contingent liabilities at 31 October 2020 (2019: nil).

14. PUBLICATION OF NON-STATUTORY ACCOUNTS

The financial information contained in this announcement does not constitute statutory accounts as defined in the Companies Act 2006. The Annual Report and Financial Statements for the year ended 31 October 2020 will be filed with the Registrar of Companies after the Annual General Meeting.

The figures set out above have been reported upon by the auditors, whose report for the year ended 31 October 2020 contains no qualification or statement under section 498(2) or (3) of the Companies Act 2006.

The comparative figures are extracts from the audited financial statements of BlackRock North American Income Trust plc for the year ended 31 October 2019, which have been filed with the Registrar of Companies. The report of the auditor on those financial statements contained no qualification or statement under section 498 of the Companies Act.

15. ANNUAL REPORT

Copies of the Annual Report and Financial Statements will be published shortly and will be available from the registered office, c/o The Company Secretary, BlackRock North American Income Trust plc, 12 Throgmorton Avenue, London EC2N 2DL.

16. ANNUAL GENERAL MEETING

The Annual General Meeting of the Company will be held at the offices of BlackRock, 12 Throgmorton Avenue, London EC2N 2DL on Tuesday, 23 March 2021 at 12.00 noon.

ENDS

The Annual Report will also be available on the BlackRock website at blackrock.com/uk/brna. Neither the contents of the Manager’s website nor the contents of any website accessible from hyperlinks on the Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.

For further information please contact:

Simon White, Managing Director, Investment Trusts, BlackRock Investment Management (UK) LimitedTel: 020 7743 5284Press enquiries:Ed Hooper, Lansons CommunicationsTel: 020 7294 3620E-mail: BlackRockInvestmentTrusts@lansons.com or EdH@lansons.com12 Throgmorton AvenueLondonEC2N 2DL5 February 2021