BRNA.L Regulatory News (BRNA)

BlackRock North American Income Trust Plc - Final Results

PR Newswire

London, December 12

BLACKROCK NORTH AMERICAN INCOME TRUST PLC

LEI: 549300WWOCXSC241W468

Annual results announcement for the year ended 31 October 2018

PERFORMANCE RECORD

1 The change in net assets reflects market movements during the year.

2 This is the difference between the share price and the NAV per share. 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. Further details are given in the glossary on pages 81 and 82 of the Annual Report.

3 This measures the Company’s share price and NAV total return, which assumes dividends paid by the Company have been reinvested. Further details of the calculation of performance with dividends reinvested are given in the glossary on page 82 of the Annual Report.

ANNUAL PERFORMANCE SINCE LAUNCH ON 24 OCTOBER 2012 TO 31 OCTOBER 2018 

Source: BlackRock.Performance figures have been calculated in sterling terms on a total return basis.

CHAIRMAN’S STATEMENT

PERFORMANCEIt has been a year of further progress for the Company. Over the period to 31 October 2018, the Company’s net asset value per share (NAV) rose 6.6%* and the share price 10.3%*. This compares with a rise of 7.1%* in the Russell 1000 Value Index. Further information is set out in the Investment Manager’s Report.

At the close of business on 14 December 2018, the Company’s NAV had decreased by 2.9% since the year end.

MARKET BACKGROUNDSince 2009 the U.S. equity market has experienced the second longest bull market on record. During 2018, U.S. economic growth hit a four year high and this was accompanied by strong earnings momentum helped by less regulation, corporate tax cuts and fiscal stimulus.

REVENUE EARNINGS AND DIVIDENDSThe Company’s revenue earnings per share for the year amounted to 5.16p, which compares with 5.41p per share for the previous year, a decrease of 4.6% as a consequence of a slight reduction in option premium income and overseas dividend income.

In line with the statement set out in the Annual Report for the year ending 31 October 2017, quarterly interim dividends of 2.00p per share were paid on 13 April 2018, 29 June 2018 and 1 October 2018. A fourth interim dividend of 2.00p per share has been declared and will be paid on 4 January 2019. This represents an increase of 61.6% on the payments made in the previous financial year (2017: 4.95p per share). Your Board considers that it remains appropriate to continue with the current dividend policy for the new financial year. The dividend paid represents a net yield of 4.7% at the year end.The Board continues to believe that this dividend policy will benefit shareholders.

DISCOUNT CONTROL AND SHARE ISSUESThe Directors recognise the importance to investors that the share price should not trade at a significant discount to the underlying NAV, and the Board monitors this closely. The discount has narrowed from 6.6% to 3.5% over the year to 31 October and the shares were trading at a premium of 2.1% to NAV as at close of business on 14 December 2018.

Since the year end and up to the date of this report, the Company has reissued 425,000 shares from treasury at an average price of 176.24p per share and a premium to estimated NAV.

The Directors have authority from shareholders to reissue up to 10% of the Company’s issued ordinary share capital and to buy back up to 14.99% of the Company’s issued ordinary share capital (excluding any shares held in treasury). The authorities to reissue and buy back shares expire at the conclusion of the 2019 Annual General Meeting and resolutions will be put to shareholders seeking a renewal of these powers.

OUTLOOKYour Portfolio Managers continue to be broadly positive on the outlook for the U.S. economy, although it considers the risks have increased. Their views are set out in more detail in the Investment Manager's Report.

CONTINUATION VOTEAt the 2016 Annual General Meeting, shareholders were given the opportunity to vote on the continuation of the Company as an investment trust and it was proposed that, if passed, similar resolutions would be put to shareholders at every third Annual General Meeting thereafter. Accordingly, an ordinary resolution that the Company should continue as an investment trust has been proposed as set out in the Notice of Annual General Meeting on page 77 of the Annual Report.

The investment trust structure, which includes the ability to use revenue reserves and capital profits to provide more predictable dividends, is particularly well suited to the equity income sector. U.S. equities represent approaching 62.4% of the MSCI World Index by market capitalisation and the Board is conscious that there are few UK closed end funds specialising in the sector. Your Board therefore believes that demand for investment trusts which provide an attractive dividend income from U.S. equities should appeal to a wide range of potential investors.

The Investment Manager continues the process of developing and enhancing its Equity Dividend platform, investing in both people and processes. The team supporting the Company has grown in size from five investment professionals to eighteen, including our three Portfolio Managers and fifteen research analysts. In the Board’s view the Investment Manager's strategy, to deliver above market returns through the cycle by investing in high quality, dividend paying companies, ensures the Company is well positioned to deal with the prevailing market conditions. Since the IPO of the Company, the shares have delivered a NAV total return of 118.9% to 31 October 2018.

Your Directors unanimously recommend that shareholders vote in support of the continuation of the Company as they intend to do so in respect of their own shares.

ANNUAL GENERAL MEETINGThe Annual General Meeting of the Company will be held at BlackRock’s offices at 12 Throgmorton Avenue, London EC2N 2DL on Tuesday, 5 March 2019 at 12.00 noon. Details of the business of the meeting are set out in the Notice of Annual General Meeting on pages 77 to 80 of the Annual Report. At the meeting, the Portfolio Managers will make a presentation to shareholders on the Company’s performance and the prospects for U.S. markets in the year ahead.

SIMON MILLER17 December 2018

* All percentages calculated in sterling terms with dividends reinvested.

STRATEGIC REPORT

The Directors present the Strategic Report of the Company for the year ended 31 October 2018. 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.

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 U.S. dollars and non-U.S. dollar currencies.

STRATEGY, BUSINESS MODEL AND 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 2018, there were 89 holdings in the Company’s portfolio.

The 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 BlackRock Fund Managers Limited (the Manager or BFM) 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.

Other service providers include the Depositary, The Bank of New York Mellon (International) Limited. The Manager delegates fund accounting services to the Investment Manager, which in turn sub-delegates these services to The Bank of New York Mellon (International) Limited. The Company delegates registration services to the Registrar, Computershare Investor Services PLC.

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 outside of the U.S. of companies exercising the predominant part of their economic activity in the U.S. will be excluded from this 20 per cent limit.)

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 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 in the Investment Managers’ Report. Further information regarding investment risk and activity throughout the year can be found in the Investment Managers’ Report.

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

INVESTMENT PHILOSOPHY AND PROCESSAn overview of the Investment Manager’s investment philosophy and process is set out below. The 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.

PERFORMANCEOver the year ended 31 October 2018, the Company’s net asset value returned 6.6% compared with a return of 7.1% in the Russell 1000 Value Index. The ordinary share price returned 10.3% (all percentages are calculated in sterling terms with dividends reinvested). The Investment Managers’ 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 £7,612,000 (2017: £12,313,000) of which the revenue return amounted to £3,556,000 (2017: £3,731,000) and the capital return amounted to £4,056,000 (2017: £8,582,000).

The Company pays dividends quarterly. Three quarterly interim dividends of 2.00p per share were paid on 13 April 2018, 29 June 2018 and 1 October 2018 and a further dividend of 2.00p per share will be paid on 4 January 2019. Total dividends of 8.00p per share were paid or declared in the year ended 31 October 2018 (2017: 4.95p).

KEY PERFORMANCE INDICATORSThe Board measures the development and success of the Company’s business through the Company’s investment objective, to provide an attractive and growing level of income return with capital appreciation over the long term, which is considered to be the most significant key performance indicator for the Company.

Performance measured against various indicesThe Board reviews and compares, at each meeting, the performance of the portfolio against the Russell 1000 Value Index, as well as the net asset value and share price for the Company and various indices. Information on the Company’s performance is given in the Chairman’s Statement and the Investment Manager's Report.

Share price discount to net asset value (NAV) per shareThe Company publishes a NAV per share figure on a daily basis through the official newswire of the London Stock Exchange. This figure is calculated in accordance with the Association of Investment Companies (AIC) formula. At each Board meeting, the Board monitors the level of the Company’s discount to NAV and reviews the average discount/premium for the Company’s relevant sector.

The Directors recognise the importance to investors that shares should not trade at a significant discount to their prevailing net asset value. Accordingly, the Board has concluded that the Company’s share buy back and share issuance powers will, in normal market conditions, be used to ensure that the share price does not trade at a significant discount or premium to the underlying net asset value per share. In the year under review, the Company’s shares have traded from a premium of 0.7% to a discount of 9.9% on a cum income basis and were trading at a premium of 2.1% as at close of business on 14 December 2018.

Further details setting out how the discount or premium at which the Company’s shares trade is calculated is included in the glossary on pages 81 and 82 of the Annual Report.

Ongoing chargesThe ongoing charges are based on actual costs incurred in the year as being the best estimate of future costs. The Board reviews the Company’s ongoing charges and monitors expenses to ensure that the total costs incurred by shareholders in the running of the Company remain competitive when measured against peer group funds. An analysis of the Company’s costs, including the management fee, Directors’ fees and general expenses, is submitted to each Board meeting. The management fee is reviewed at least annually. A definition setting out in detail how the operating charges ratio is calculated is included in the glossary on page 81 of the Annual Report.

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 those reported by other investment trusts, are set out in the following table.

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.

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 interest and transaction costs as a % of average shareholders’ funds.

# Refer to the glossary on pages 81 and 82 of the Annual Report.

Performance is assessed on a total return basis for the NAV, share price and the benchmark.

The Board monitors the above KPIs on a regular basis. Additionally, it regularly reviews a number of indices and ratios to understand the impact on the Company’s relative performance of the various components such as asset allocation and stock selection. The Board also assesses the performance of the Company against its peer group of investment trusts with similar investment objectives.

PRINCIPAL RISKSThe Company is exposed to a variety of risks and uncertainties. The Board has put in place a robust process to assess and monitor these risks. A core element of this process is the Company’s risk register which identifies the risks facing the Company, the likelihood and potential impact of each risk and the quality of the controls operating to mitigate it. A residual risk rating is then calculated for each risk based on the outcome of this assessment. This approach allows the effect of any mitigating procedures to be reflected in the final assessment. Risks are assessed and the risk environment in which the Company operates is also monitored and regularly appraised. New risks are added to the register as they are identified which ensures that the document continues to be an effective risk management tool.

The risk register, its method of preparation and the operation of key controls in the Manager’s and other 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 the Manager’s and other third party service providers’ risk management processes and how these apply to the Company’s business, the Audit and Management Engagement Committee periodically receives internal control reports from the Company’s service providers.

In relation to the 2016 UK Corporate Governance 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 Board will continue to assess the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity, on an ongoing basis.

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

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

VIABILITY STATEMENTIn accordance with provision C.2.2 of the 2016 UK Corporate Governance Code, the Directors have assessed the prospects of the Company over a longer period than the 12 months referred to by the ‘Going Concern’ guidelines. The Board conducted this review for a period of three years. In its assessment of the viability of the Company the Directors have noted that:

the Company invests in highly liquid, large listed companies so its assets are readily realisable;

the Company is not exposed to any one investment or sector because it sets parameters for its investments;

the Company has limited gearing and no concerns around facilities, headroom or covenants; and

the business model should remain attractive for much longer than three years, unless there is significant economic or regulatory change.

As noted in the Chairman’s Statement, the Company will undertake a continuation vote at the forthcoming Annual General Meeting in 2019 and the Board has reviewed the potential impact that this may have on the Company’s viability. The Board is confident that the continuation vote will be passed and has prepared the viability statement under this assumption.

The Directors have also reviewed:

the Company’s principal risks and uncertainties as set out above;

the impact of a significant fall in U.S. equity markets on the value of the Company’s investment portfolio;

the ongoing relevance of the Company’s investment objective, business model and investment policy in the current environment; and

the level of demand for the Company’s shares.

The Directors have also considered the Company’s revenue and expense forecasts and the fact that expenses and liabilities are relatively stable. The Directors reviewed the assumptions and considerations underpinning the Company’s existing going concern assertion which are based on:

processes for monitoring costs;

key financial ratios;

evaluation of risk management and controls;

compliance with the investment objective;

portfolio risk profile;

share price discount;

gearing; and

counterparty exposure and liquidity risk.

These were extended forward for three years and based on the results of this analysis the Directors have concluded that there is a reasonable expectation that the Company will continue in operation and be able to meet its liabilities as they fall due over the period of their assessment.

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 on page 35 of the 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 2018, all of whom held office throughout the year, are set out in the Governance Structure and Directors’ Biographies on page 22 of the Annual Report. The Board consists of three male Directors and one female Director. The Company does not have any employees; therefore there are no disclosures to be made in that respect.

The Chairman’s Statement and the Investment Managers’ Report and the portfolio analysis forms part of this Strategic Report. The Strategic Report was approved by the Board at its meeting on 17 December 2018.

BY ORDER OF THE BOARDCAROLINE DRISCOLLFOR AND ON BEHALF OFBLACKROCK INVESTMENT MANAGEMENT (UK) LIMITEDCompany Secretary17 December 2018

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 on pages 23 and 24 of the Annual Report.

The investment management fee due for the year ended 31 October 2018 amounted to £895,000 (2017: £868,000). At the year end, £462,000 was outstanding in respect of the management fee (2017: £868,000).

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 2018 amounted to £25,000 excluding VAT (2017: £37,000). Marketing fees of £25,000 excluding VAT (2017: £22,000) were outstanding as at the year end.

The Board consists of four 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. For the year ended 31 October 2018, the Chairman received an annual fee of £36,000, the Chairman of the Audit and Management Engagement Committee received an annual fee of £30,000 and each of the other Directors received an annual fee of £25,000.

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 on pages 30 and 31 of the Annual Report. At 31 October 2018 £10,000 (2017: £10,000) was outstanding in respect of Directors’ fees.

INVESTMENT MANAGER'S REPORT

MARKET OVERVIEWFor the Company’s financial year ending 31 October 2018, the Company's NAV total return was modestly below that of the benchmark, the Russell 1000 Value Index. Over the same period, U.S. large cap stocks, as represented by the broader S&P 500 Index, advanced by 7.34% (in U.S. dollar terms). The S&P 500 Index concluded 2017 with its ninth straight year of positive returns, and for the first time in its history delivered gains in each month of the year. A near-perfect outcome was supported by broadly positive economic fundamentals and continued strength in corporate earnings. Equity market strength persisted through the start of 2018, but a number of underlying factors have contributed to a very different outcome through the first ten months of the year. While U.S. economic fundamentals continued to confirm the narrative of a healthy and expanding domestic economy, investors struggled to weigh a constructive economic environment against a growing list of headline risks. After broad-based sell-offs in February and March, stocks rallied and remained resilient through the second and third quarters of 2018 before October presented a risk-off environment for U.S. equities. Measures of business and consumer confidence remained buoyant, and manufacturing and consumer spending trends reflected robust demand for goods and services. That being said, trade tensions, continued interest rate tightening, and concerns in some quarters that the end of the economic cycle is approaching have weighed on sentiment as market positives and risks appear more balanced today than in the recent past. Going forward, the widened range of potential outcomes suggests cautious optimism is warranted. The U.S. is operating at full employment with the unemployment rate now standing at 3.7%, and despite the implications for corporate margins in a tighter labour market, a number of underappreciated tailwinds provide U.S. equity investors with opportunities to consider.

PORTFOLIO OVERVIEWThe portfolio generated relative outperformance in nine out of eleven GICS (Global Industry Classification Standard) sectors during the year. The largest contributor to relative performance was the above benchmark exposure to the health care sector, in particular health care providers and the health services industry. A heightened exposure to pharmaceuticals was also beneficial, as was stock selection in the industry. In energy, stock selection among oil, gas & consumable fuels firms contributed to relative performance, and our general avoidance of energy equipment & services companies proved beneficial. Stock selection decisions in the consumer staples sector also boosted relative returns. Notably, selection in the beverages industry contributed to relative results. Stock selection in information technology, specifically the software industry, proved beneficial to relative performance, as did stock selection in communication services.

At the sector level, the primary detractor from relative performance was stock selection in financials. Notably, selection decisions in the insurance and capital markets industries proved to be costly, as was the below benchmark exposure to the diversified financial services industry. Stock selection in the materials sector also detracted from relative returns, although our below benchmark exposure to the sector was beneficial. At the industry level, selection among chemicals firms and our decision to hold exposure to the construction materials industry proved detrimental.

As expected, writing covered call options in a rising equity environment capped upside returns during the period and therefore detracted modestly from absolute performance. As designed, the Company’s option overwrite component enhanced the portfolio’s income during the period.

Below is a comprehensive overview of our allocations (in GBP) at the end of the period.

DISTRIBUTION OF INVESTMENTS AS AT 31 OCTOBER 2018 

Source: BlackRock.

Health Care: 3.9% overweight (19.2% 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 eco-system. 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.

Financials: 3.5% overweight (26.4% of the portfolio)Financials represent the Company’s largest sector allocation and we remain particularly optimistic about U.S. bank stocks. We believe the U.S. banks are safer and sounder investments today than before the financial crisis. They have stronger balance sheets, revamped company cost structures, and disciplined loan underwriting has contributed to benign credit trends. Further, interest rate hikes could also drive improvement in bank profitability through net interest margin expansion. This business architecture has historically enabled the banks to act as a potential hedge against rising interest rates and inflation risks. Potential tailwinds from deregulation and investor-friendly capital return policies also bode well for investors, in our view. Lastly, bank valuations are compelling relative to other cyclical sectors.

Information Technology: 1.8% overweight (11.3% of the portfolio)In the technology 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 part of the IT sector 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.

Energy: 2.0% overweight (12.0% of the portfolio)The portfolio maintains a modest overweight to the energy sector. We favour oil-weighted companies over those levered to natural gas and prefer exposure to large-cap integrated oil and independent oil & gas producers. From a quality standpoint we seek to own companies with experienced management teams, disciplined capex spending plans and exposure to lower cost resource assets. From a valuation standpoint we seek to own companies with free cash flow generation and margin capture stories that are underappreciated by the street. 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.

Consumer Staples: 0.6% underweight (7.2% 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. 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: 0.8% underweight (5.2% 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 such as Public Service Enterprise Group (PSEG) (1.0% of the portfolio), NextEra Energy (NEE) (1.0% of the portfolio), and FirstEnergy (FE) (1.4% of the portfolio). PSEG and NEE add a level of stability and defensiveness to the portfolio through their durable dividend profiles and healthy earnings growth potential. Alternatively, FE offers us exposure to a company with good underlying regulated franchises.

Industrials: 0.7% overweight (8.2% of the portfolio)We have reduced our exposure to the industrials sector over the last year. 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. The aerospace and defence industry is a good case study in this regard. From a fundamental and operating model standpoint, we continue to like the profiles of the large-cap aerospace & defence firms. Many of these companies have strong balance sheets, good visibility into sales and earnings, and historically have demonstrated shareholder friendly capital return policies. Further, the three year outlook for defence spending looks strong, thanks to the recently passed 2018-2019 Department of Defense budget. However, stock valuations are on the expensive side (i.e. earnings expectations reflect investor optimism) and we have pared back our overall exposure to the industry as a result. Notable portfolio positions in the sector include Honeywell International (1.2% of the portfolio), 3M (0.6% of the portfolio) and Johnson Controls International (0.8% of the portfolio).

Communication Services: 0.7% underweight (6.4% of the portfolio)We are underweight to communication services and our allocation remains concentrated in diversified telecommunication bellwether Verizon Communications (4.2% of the portfolio) and Comcast Corporation (2.0% of the portfolio) a low cost provider of high speed data services. Our stock-specific exposure in the sector is to companies that offer healthy dividend yields and opportunity for steady, longer term growth.

Materials: 1.9% underweight (2.0% of the portfolio)Our exposure to the materials sector consists of three stocks, including DowDuPont (chemicals) (1.0% of the portfolio), CRH (building materials) (0.7% of the portfolio) and International Paper (paper & packaging) (0.3% of the portfolio). Longer term secular trends in global population growth can potentially benefit well positioned companies in the agricultural chemical space. We believe DowDuPont, with scale and high-quality assets, is well positioned to deliver future earnings and dividend growth.

Consumer Discretionary: 3.2% underweight (2.1% of the portfolio)The balance sheet for U.S. consumers has improved in recent years, aided by a recovering domestic housing market, strong jobs growth, and accelerating wages. These factors have also contributed to an increase in consumer confidence. Until recently, these positive tailwinds have failed to translate into stronger retail sales for many bricks and mortar stores as changing consumer preferences, technological innovation and new competitors threaten traditional business models. Despite improved retail sales in 2018, we remain cautious within the sector given these disruptive forces. Our positioning in the sector reflects stock-specific opportunities that, in our view, are (1) trading at discounted valuations or (2) somewhat insulated from these disruptive pressures. For example, we are positive on Lowe’s Companies (0.8% of the portfolio), a home improvement retailer.

Real Estate: 4.7% underweight (0.0% of the portfolio)The real estate sector is our largest underweight position in the Company. We maintain a 0% weighting in the space due to our view that valuations are unattractive at current levels. Further, the returns of real estate stocks relative to the returns of Long Treasury Bonds are highly correlated today. Therefore, we believe the prospects for higher interest rates in the U.S. are a potential headwind for the sector as well.

POSITIONING AND OUTLOOKWe believe a continuation of the current U.S. economic expansion is likely, although a growing list of risks has widened the range of potential outcomes. Previously, we have argued that targeting growth – while building resilience into a portfolio – bears attention in light of an evolving and ageing business cycle. We continue to hold this view – positive economic data and upbeat corporate earnings results support optimism, while monetary tightening, trade risks and late cycle markers (i.e. a pick-up in wage growth) justify a thoughtful approach to risk-taking. In regards to investment risks, we are monitoring the trajectory of inflation and interest rates for signs of economic overheating, as these factors could potentially pull forward the end of the current business cycle more quickly. We view the trade actions implemented so far as troublesome, yet limited. Further escalation, however, risks negatively impacting corporate confidence and investor sentiment.

Our largest exposures are in the financials, health care, and energy sectors. In recent months, notable portfolio changes have included increasing our allocation to the communication services and industrials sectors and reducing our exposure to the consumer staples and information technology sectors. As always, the strategy continues to emphasise investment in quality dividend paying companies with consideration toward balancing capital appreciation and current income over time.

TONY DESPIRITO, FRANCO TAPIA AND DAVID ZHAOBLACKROCK INVESTMENT MANAGEMENT LLC17 December 2018

TEN LARGEST INVESTMENTS AS AT 31 OCTOBER 2018

JPMorgan Chase: 4.3% (2017: 4.1%) is a U.S. based diversified financial company. JPMorgan’s capital base is one of the strongest in the banking industry and it provides a measure of safety and financial flexibility. Overall, JPMorgan is a well-managed, quality global franchise with above average organic growth and returns relative to industry peers.

Verizon Communications: 4.2% (2017: 1.5%) is one of the largest providers of wireline and wireless communications in the U.S., where 48 million access lines represent approximately 1/3 market share. The company’s wireless customer base is very sizeable and continues to grow. Verizon 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.

Pfizer: 4.1% (2017: 3.9%) is a diversified pharmaceutical firm based in the U.S. In our view, Pfizer trades at an attractive valuation, offers investors a healthy drug pipeline, and has the balance sheet flexibility to deliver long term shareholder value through a variety of avenues.

Wells Fargo: 3.6% (2017: 3.0%) is 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.

Citigroup: 3.5% (2017: 3.9%) is a U.S. based money center bank with a global footprint. We believe Citigroup 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.

Bank of America: 3.1% (2017: 4.0%) is 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.

Anthem: 3.0% (2017: 2.6%) is one of the largest health maintenance organisations in the U.S. with offerings in the commercial (large and small employer), Medicare, Medicaid and individual markets. We believe Anthem has an undervalued competitive position given their overall scale and investment in technology. These structural advantages have the potential to drive down costs and improve the company’s profitability.

Oracle: 2.8% (2017: 3.2%) is a vertically integrated software company that offers both applications and underlying database software. Oracle’s database and enterprise markets are sticky in terms of customer retention, which we like. Further, we are positive on Oracle’s ability to successfully convert customers from an on premise licensing model (i.e. customers pay for an upfront license and ongoing maintenance) to a higher margin, cloud based subscription model (i.e. delivery of software and services over the internet).

Microsoft: 2.5% (2017: 2.2%) is a global technology leader that is engaged in developing and licensing both software and hardware products & services. We view Microsoft as an attractive long term investment given the firm’s overall “ecosystem”, which historically has resulted in pricing power and efficient free cash flow generation over time. We are bullish on the stock given the firm’s dominant position in business and enterprise software, and the opportunity for greater client engagement and usage by shifting from on premise to a cloud distribution model (i.e. delivery of software and services over the internet).

Suncor Energy: 2.4% (2017: 2.0%) is an integrated energy company focused on developing the Athabasca oil sands basin in Canada. We believe the company has underappreciated oil assets, strong downstream assets, and a lower break-even cost than many of its integrated oil and gas peers.

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 2017. Together, the ten largest investments, represent 33.5% of the Company’s portfolio (31 October 2017: 31.3%).

INVESTMENTS AS AT 31 OCTOBER 2018

* Market value less than £1,000.

All investments are in ordinary shares unless otherwise stated. The number of holdings as at 31 October 2018 was 89 (31 October 2017: 90). The total number of individual open options as at 31 October 2018 was 195 (31 October 2017: 175).

The negative valuation of £334,000 in respect of options held represents the notional cost of repurchasing the contracts at market prices as at 31 October 2018 (31 October 2017: £532,000).

At 31 October 2018, the Company did not hold any equity interests comprising more than 3% of any company’s share capital.

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 IFRS as adopted by the European Union.

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:

present fairly the financial position, financial performance and cash flows of the Company;

select suitable accounting policies in accordance with IAS 8: Accounting Policies, Changes in Accounting Estimates and Errors and then apply them consistently;

present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information;

make judgements and estimates that are reasonable and prudent;

state whether the financial statements have been prepared in accordance with IFRS as adopted by the European Union, subject to any material departures disclosed and explained in the financial statements;

provide additional disclosures when compliance with the specific requirements in IFRS as adopted by the European Union is insufficient to enable users to understand the impact of particular transactions, other events and conditions on the Company’s financial position and financial performance; and

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

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They 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 on page 22 of the Annual Report, confirm to the best of their knowledge that:

the financial statements, which have been prepared in accordance with IFRS as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and net return of the Company; and

the Strategic Report contained in the Annual Report and Financial Statements includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The 2016 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 on pages 37 to 40 of the Annual Report. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 31 October 2018, 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 MILLERChairman17 December 2018

STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 OCTOBER 2018

The total column of this statement represents the Company’s Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). 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. The net profit for the year disclosed above represents the Company’s total comprehensive income.

STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 OCTOBER 2018

* 4th interim dividend of 1.25p per share for the year ended 31 October 2017, declared on 2 November 2017 and paid on 5 January 2018; 1st interim dividend of 2.00p per share for the year ended 31 October 2018, declared on 6 March 2018 and paid on 13 April 2018; 2nd interim dividend of 2.00p per share for the year ended 31 October 2018, declared on 2 May 2018 and paid on 29 June 2018; and 3rd interim dividend of 2.00p per share for the year ended 31 October 2018, declared on 7 August 2018 and paid on 1 October 2018.

** 4th interim dividend of 1.20p per share for the year ended 31 October 2016, declared on 3 November 2016 and paid on 5 January 2017; 1st interim dividend of 1.20p per share for the year ended 31 October 2017, declared on 21 February 2017 and paid on 4 April 2017; 2nd interim dividend of 1.25p per share for the year ended 31 October 2017, declared on 3 May 2017 and paid on 30 June 2017; and 3rd interim dividend of 1.25p per share for the year ended 31 October 2017, declared on 8 August 2017 and paid on 6 October 2017.

STATEMENT OF FINANCIAL POSITION AS AT 31 OCTOBER 2018

CASH FLOW STATEMENT FOR THE YEAR ENDED 31 OCTOBER 2018

NOTES TO THE FINANCIAL STATEMENTS

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 on 30 August 2012, and this is the sixth Annual Report.

2. ACCOUNTING POLICIESThe principal accounting policies adopted by the Company are set out below.

(a) Basis of preparationThe financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union and as applied in accordance with the provisions 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 November 2014 and updated in January 2017, is compatible with IFRS, the financial statements have been prepared in accordance with the guidance set out in the 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 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.

A number of new standards, amendments to standards and interpretations are effective for the annual periods beginning on or after 1 November 2018 and have not been applied in preparing these financial statements (major changes and new standards issued are detailed below) as these are not expected to have any effect on the measurement of the amounts recognised in the financial statements of the Company.

IFRS standards that have been adopted during the year:Amendments to IAS 7 – Disclosure Initiative - Statement of Cash Flows (effective 1 January 2017). The amendments did not have a significant effect on the presentation of the Cash Flow Statement within the financial statements of the Company as the Company does not have any debt.

Amendments to IAS 12 – Recognition of deferred tax assets for unrealised losses (effective 1 January 2017). The amendment has had no significant effect on the measurement of amounts recognised in the financial statements of the Company.

IFRS standards that have yet to be adopted:IFRS 9 (2014) – Financial Instruments replaces IAS 39 and deals with a package of improvements including principally a revised model for classification and measurement of financial instruments, a forward looking expected loss impairment model and a revised framework for hedge accounting. In terms of classification and measurement, the revised standard is principles based depending on the business model and nature of cash flows. Under this approach, instruments are measured at either amortised cost or fair value. Under IFRS 9, equity and derivative investments will be held at fair value because they fail the ‘solely payments of principal and interest’ test and debt investments will be held at fair value because the business model is to manage them on a fair value basis. The standard is effective for periods beginning on or after 1 January 2018 with earlier application permitted. The Company does not plan to early adopt this standard. The standard is not expected to have any impact on the Company as all its investments are held at fair value through profit or loss.

IFRS 15 Revenue from Contracts with Customers (effective for periods beginning on or after 1 January 2018) specifies how and when an entity should recognise revenue and enhances the nature of revenue disclosures. Given the nature of the Company’s revenue streams from financial instruments, the provisions of this standard are not expected to have an impact.

(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:

expenses which are incidental to the acquisition or sale of an investment are charged to the capital column of the Statement of Comprehensive Income. Details of transaction costs on the purchases and sales of investments are disclosed within note 9 of the Annual Report;

expenses are treated as capital where a connection with the maintenance or enhancement of the value of the investments can be demonstrated;

the investment management fee and finance costs have been allocated 75% to the capital column and 25% to the revenue column of the Statement of Comprehensive Income in line with the Board’s expectations of the long term split of returns, in the form of capital gains and income, respectively, from the investment portfolio.

(f) Taxation The 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 tax 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 loss The Company’s investments are designated upon initial recognition as held at fair value through profit or loss in accordance with IAS 39 – ‘Financial Instruments: Recognition and Measurement’ and are managed and evaluated on a fair value basis in accordance with its investment strategy.

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 equity 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 ‘Net 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.

(h) Options Options 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 payables Other receivables and other payables do not carry any interest and are short term in nature and are accordingly stated at their nominal value.

(j) Dividends payable Under 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 translation Transactions 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 equivalents Cash 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 borrowings Bank overdrafts are recorded as the proceeds received. Finance charges are accounted for on an accruals basis in the Statement of Comprehensive Income using the effective interest rate method and are added to the carrying amount of the instruments to the extent that they are not settled in the period in which they arise.

3. INCOME

During the year, the Company received premiums totalling £1,778,000 (2017: £1,947,000) for writing covered call options for the purposes of revenue generation. Option premiums of £1,714,000 (2017: £1,954,000) were amortised to revenue. All derivative transactions were based on constituent stocks in the Russell 1000 Value Index. At 31 October 2018, there were 195 (2017: 175) open positions with an associated liability of £334,000 (2017: £532,000).

Dividends and interest received in cash during the year amounted to £2,935,000 and £79,000 (2017: £3,032,000 and £36,000).

Special dividends of £459,000 have been recognised in capital (2017: £13,000).

4. INVESTMENT MANAGEMENT FEES

The investment management fee is payable in quarterly arrears, calculated at the rate of 0.75% of the Company’s net assets (2017: 0.75%).

5. OTHER OPERATING EXPENSES

For the year ended 31 October 2018, expenses of £16,000 (2017: £16,000) 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. DIVIDENDSDividends paid on equity shares:

The total dividends payable in respect of the year ended 31 October 2018 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.

* Based on 69,099,044 ordinary shares in issue on 29 November 2018.

7. EARNINGS AND NET ASSET VALUE PER ORDINARY SHARETotal revenue return, capital return 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 2018, the Company purchased nil (2017: 75,000) shares for a total consideration of £nil (2017: £119,000) including costs.

Since 31 October 2018, 425,000 shares have been reissued from treasury for a total gross consideration of £749,000.

9. RESERVES

The share premium account and capital redemption reserve are not 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.

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).

Categorisation within the hierarchy has been determined on the basis of the lowest level 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 market data and these inputs could have a significant impact on the instrument’s valuation.

This category also 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 determination of what constitutes ‘observable’ inputs requires significant judgement by the Investment Manager. 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. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 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 table 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 2018 and 31 October 2017. The Company did not hold any Level 3 securities throughout the financial year or as at 31 October 2018 (2017: nil).

11. CONTINGENT LIABILITIESThere were no contingent liabilities at 31 October 2018 (2017: nil).

12. 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 2018 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 2018 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 2017, 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.

13. 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.

14. 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, 5 March 2019 at 12.00 noon.

ENDS

The Annual Report will also be available on the BlackRock website at blackrock.co.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:Lucy Horne, Lansons Communications – Tel: 020 7294 3689E-mail: lucyh@lansons.com12 Throgmorton AvenueLondonEC2N 2DL

17 December 2018