BRNA.L Regulatory News (BRNA)

BlackRock North American Income Trust Plc - Final Results

PR Newswire

London, February 11

BLACKROCK NORTH AMERICAN INCOME TRUST PLC

LEI: 549300WWOCXSC241W468

Annual results announcement for the year ended 31 October 2019

Performance record

1 The change in net assets reflects market movements, share issues and dividends paid during the year.

2 Alternative Performance Measures, see Glossary contained within the Company’s Annual Report for the year ended 31 October 2019.

ANNUAL PERFORMANCE SINCE LAUNCH ON 24 OCTOBER 2012 TO 31 OCTOBER 2019

# 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

OVERVIEWOver the year to 31 October 2019, the Company’s net asset value per share (NAV) returned 8.5%* and the share price 15.0%*. This compares with a rise of 9.8%* in the Russell 1000 Value Index. At the close of business on 10 February 2020, the Company’s NAV had increased by 6.3% since the year end.

During the year under review, the ongoing U.S./China trade tensions and geopolitical frictions became key drivers of the U.S. economy and markets. The trade war and associated uncertainty led to businesses becoming more cautious and holding back on capital expenditure. Similarly, earnings and jobs growth slowed. However, the record long U.S. economic expansion was supported by healthy household spending and monetary policy easing by central banks sustained the expansion.

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 5.96p, which compares with 5.16p per share for the previous year, an increase of 15.5%. Based on the final number of shares in issue at the year end, the EPS was 5.53p, an increase of 7.2%.

In line with the statement set out in the Annual Report for the year ending 31 October 2018, quarterly interim dividends of 2.00p per share were paid on 12 April 2019, 28 June 2019, 1 October 2019 and 3 January 2020. 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 4.3% 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 distribution, some of which has been met from reserves.

DISCOUNT CONTROL AND SHARE ISSUESThe Company’s shares have enjoyed a premium rating over the financial year and the uncertain market background has not prevented strong share issuance. In light of the continuing demand for shares, a general meeting was held on 28 August 2019 to renew the Directors’ authority to allot additional shares and/or sell shares out of treasury on a non-pre-emptive basis.

During the year, the Company reissued 9,525,000 shares from treasury at a premium to NAV for a total gross consideration of £17,252,000. Since the year end, and up to the date of this report, the Company has reissued a further 2,805,000 shares at an average price of 189.86p per share and an average premium to the estimated NAV of 1.7%. The shares were trading at a premium of 0.9% to NAV as at close of business on 10 February 2020 and the market capitalisation of the Company was £156.9 million.

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 2020 Annual General Meeting and resolutions will be put to shareholders seeking a renewal of these powers.

CORPORATE GOVERNANCEIn February 2019, the Association of Investment Companies (AIC) published the 2019 Code of Corporate Governance (the AIC Code) which was endorsed by the Financial Reporting Council (FRC) as being appropriate for investment companies. The AIC Code applies to accounting periods beginning on or after 1 January 2019. The Board has determined that, effective from the Company’s new financial year, it will comply with the recommendations of the 2019 AIC Code. This, in most material respects, is the same as the UK Code of Corporate Governance published in July 2018, save that there is greater flexibility regarding the tenure of office of the Chairman and membership of the Audit Committee.

OUTLOOKThe surge in protectionism and geopolitical tensions remain as ongoing risks. However, even as global uncertainties mount, including the disruption caused by the coronavirus, consumer spending and the housing market should continue to support U.S. economic growth during 2020, which, importantly, is also an election year for the U.S. President. Your Portfolio Managers remain positive on U.S. equities given reasonable valuations and the concentration of high-quality companies in the portfolio. Their views are set out in more detail in the Investment Manager’s Report below.

ANNUAL GENERAL MEETINGThe Annual General Meeting of the Company will be held at BlackRock’s offices at 12 Throgmorton Avenue, London EC2N 2DL on Friday, 20 March 2020 at 12.00 noon. Details of the business of the meeting are set out in the Notice of Annual General Meeting contained within the Company’s Annual Report for the year ended 31 October 2019. At the meeting, the Portfolio Managers will make a presentation to shareholders on the Company’s performance and the prospects for markets in the year ahead.

SIMON MILLER12 February 2020

* All percentages calculated in sterling terms with dividends reinvested.

Investment manager’s report

MARKET OVERVIEWFor the year ended 31 October 2019, U.S. large cap stocks, as represented by the S&P 500® Index, advanced by 14.3% (in U.S. dollar terms). The S&P 500® Index concluded calendar year 2018 in a different manner than the previous nine calendar years, with negative returns. Throughout the majority of 2018, equity market optimism had been supported by broadly positive economic fundamentals and continued strength in corporate earnings. Equity market strength had persisted through the start of 2018, but a number of underlying factors contributed to a different experience through the final quarter of the year and the first two months of the Company’s financial 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 October and December, stocks regained their footing at the start of 2019 before May and August presented a risk-off environment for U.S. equities. Although the U.S. equity market ended the calendar year having produced very strong returns, 2019 has not been the ‘smooth ride’ that investors experienced earlier in this cycle. Macro influences such as monetary, fiscal and trade policy have dominated recent financial news. We reject the short-termism embedded within the 24 hour news cycle and the resulting ebb and flow of investor sentiment. Disciplined fundamental research continues to be the driving force used to inform our world view and portfolio construction decisions. Our base case for 2020 remains unchanged and on track – positive, albeit slowing, U.S. growth with the trajectory of corporate earnings being a key litmus test for the durability of this business cycle. We remain risk-on but believe higher valuations and an economic cycle approaching late stage argue for a focus on quality and selectivity in pursuit of portfolio resilience. Trade tensions and a looming U.S. election cycle are two factors we anticipate contributing to bouts of higher volatility in the months ahead.

PORTFOLIO OVERVIEWThe portfolio generated relative outperformance in six out of eleven GICS (Global Industry Classification Standard) sectors during the year, but narrowly underperformed the benchmark. At the sector level, the primary detractor from relative performance was a combination of stock selection and allocation decisions in utilities. Notably, selection decisions in the electric utilities industry proved to be costly, as was an underweight exposure to multi-utilities. Underweight exposure to the real estate sector also detracted from relative returns. We continue to avoid exposure to the real estate sector given our belief that valuations are unattractive at today’s levels. In communication services, stock selection among diversified telecom services providers proved detrimental, and in materials, selection among chemicals firms hampered relative results.

The largest contributor to relative performance was a combination of stock selection and allocation decisions in the energy sector. Stock selection among companies in oil, gas and consumable fuels names drove relative performance within the sector, as did underweight exposure to the energy equipment and services industry. In consumer discretionary, stock selection among multiline retail firms contributed to relative performance and our overweight exposure to the household durables industry proved beneficial. Stock selection decisions in the health care sector also boosted relative returns. Notably, selection in the pharmaceuticals industry contributed to relative results. Overweight exposure to information technology, specifically the software industry, proved a tailwind to relative performance, as did stock selection in both the financials and industrials sectors.

Writing covered call options in an equity environment that was at times volatile contributed modestly to performance during the year. 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 sterling) as at 31 October 2019. By the end of the year, the portfolio’s cash position was 9.2%, which would have dampened performance.

Distribution of investments as at 31 October 2019

Sources: BlackRock and Datastream.

Health Care: 4.0% overweight (16.6% 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 (IT): 2.5% overweight (8.6% 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 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.

Energy: 1.1% overweight (9.2% of the portfolio)The portfolio maintains a modest overweight to the energy sector. Within the sector, we 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.

Financials: 0.9% overweight (24.6% 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 deregulation and investor-friendly capital return policies also bode well for investors, in our view. With regard to insurers and insurance brokers, we like these companies for their attractive valuations and relatively stable business models. Over the last year, insurers and brokers have benefited from strong pricing power. Pricing power is reflective of low U.S. interest rates, two straight years of larger than expected catastrophe losses and large institutions (i.e. American International) taking capacity out of the market.

Consumer Discretionary: 0.1% overweight (6.1% 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. We remain selective within the sector, however, as changing consumer preferences, technological innovation and new competitors threaten traditional business models. We believe these disruptive forces are best avoided through identifying stock-specific investment 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 retailers Dollar General (dollar store) and Lowe’s Companies (home improvement), as well as auto manufacturer General Motors.

Industrials: 1.6% underweight (8.0% 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. Notable portfolio positions in the sector include Lockheed Martin, FedEx and Northrop Grumman. We continue to maintain meaningful exposure to the aerospace & defence industry. 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.

Communication Services: 1.6% underweight (6.6% of the portfolio)We are underweight to communication services. Within the sector, the portfolio is overweight to the diversified telecom services industry, with our allocation concentrated in bellwether Verizon Communications. The portfolio is underweight to the entertainment industry (0% exposure) and modestly overweight to the media industry. Within media, we hold positions in Comcast and Fox Corp. We view Comcast as a steady earnings compounder driven by a strong competitive position and structural growth in broadband internet, while Fox Corp boasts pricing power in its cable news segment that is in our view significantly underappreciated.

Consumer Staples: 2.1% underweight (6.9% 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 underweight positioning in the sector. Notably, we prefer ownership of companies with underappreciated growth profiles, sticky customer bases and the ability to cut costs and/or improve profit margins.

Materials: 2.5% underweight (1.8% of the portfolio)Our exposure to the materials sector consists of three chemicals stocks, one building materials company and one packaging firm – Corteva, Dow, DuPont De Nemours, CRH and International Paper. Longer-term secular trends in global population growth can potentially benefit well positioned companies in the agricultural chemical space. Further, we like CRH due to ageing European and U.S. infrastructure and the potential for acceleration in construction and infrastructure spending over time.

Utilities: 4.5% underweight (2.4% 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 (PEG), NextEra Energy (NEE), and FirstEnergy (FE). PEG 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 a good underlying regulated franchise with some near-term uncertainties (i.e. merchant business bankruptcy). This uncertainty, in our view, creates opportunity for patient long-term investors that are willing and capable of doing deep analysis on complex investment issues.

Real Estate: 5.5% underweight (0.0% of the portfolio)The real estate sector is our largest underweight position in the portfolio. We maintain a 0% weighting in the sector due to our view that valuations are unattractive at current levels.

POSITIONING AND OUTLOOKOur read on market fundamentals is a story in two parts. The U.S. consumer remains a bright spot. We expect the positive tone to continue: the household savings rate is well above the pre-crisis level seen in 2007 and jobs and wages are growing but not at an untenable pace. The industrial side, meanwhile, is showing hints of recession. Purchasing managers’ indices are slowing globally, partly as a result of the trade war. North American industrial demand figures are softening, with some categories recording negative growth for the first time since the last industrial recession in 2015 to 2016. In hindsight, 2016 was a classic mid-cycle slowdown. Today shows many parallels and we believe stocks can grind on, supported by a strong U.S. consumer. We concede this time could be riskier, however, as the cycle is older and the economy has less slack to offer a buffer.

Our largest exposures are in the financials, health care and energy sectors. In recent months, notable portfolio changes included increasing our allocation to the industrials and consumer discretionary sectors and reducing our exposure to the information technology and consumer staples 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 LLC12 February 2020

Ten largest investments

1 + 2018 2ndVerizon CommunicationsCommunication ServicesMarket value £5,844,000Share of investments 4.5% (2018: 4.2%)is one of the largest providers of wireline and wireless communications in the U.S., where 48 million access lines represent approximately 1/3 of market share. Verizon’s wireless customer base is very sizeable and continues to grow. Verizon remains in a strong financial position and exhibits a sustainable dividend. Going forward, we expect continued expansion in wireless, long distance and high-speed services to drive company growth.

2 - 2018 1stJPMorgan ChaseFinancialsMarket value £5,361,000Share of investments 4.1% (2018: 4.3%)is a U.S. based diversified financial services company. JPMorgan’s capital base is one of the strongest in the banks 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.

3 + 2018 4thWells FargoFinancialsMarket value £5,131,000Share of investments 3.9% (2018: 3.6%)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.

4 + 2018 5thCitigroupFinancialsMarket value £4,716,000Share of investments 3.6% (2018: 3.5%)is a U.S. based 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.

5 + 2018 6thBank of AmericaFinancialsMarket value £3,938,000Share of investments 3.0% (2018: 3.1%)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.

6 + 2018 20thMedtronicHealth CareMarket value £3,538,000Share of investments 2.7% (2018: 1.5%)is one of the world’s largest medical device companies. The firm generates the majority of its sales and profits from the United States, but is headquartered in the Republic of Ireland. The company offers an attractive innovation pipeline in its cardiovascular, diabetes and robotics businesses. We believe that Medtronic should be able to reliably grow revenue and earnings in a meaningful way going forward, leading to multiple expansion relative to peers.

7 + 2018 26thWilliamsEnergyMarket value £3,141,000Share of investments 2.4% (2018: 1.3%)is an American energy company. Its core business is natural gas processing and transportation, but the company possesses additional petroleum and electricity generation assets. In our view, Williams remains a low-risk midstream company that is making steady progress from a highly-levered and commodity-sensitive past to a safe, cash-generative business.

8 + 2018 11thBPEnergyMarket value £2,890,000Share of investments 2.2% (2018: 2.2%)is a UK-based integrated oil & gas company. The stock screens attractively on a valuation basis and we anticipate BP’s cash flow inflecting higher from a combination of new project start-ups and a decline in payments related to the Deepwater Horizon oil spill. Paired together, these elements should help to fund BP’s dividend organically.

9 + 2018 14thKoninklijke PhilipsHealth CareMarket value £2,776,000Share of investments 2.1% (2018: 2.0%)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. Philips is also meaningfully under-earning with current margins that are well below management’s targets and those of peers, indicating upside to profitability.

10 + 2018 13thComcastCommunication ServicesMarket value £2,615,000Share of investments 2.0% (2018: 2.0%)is 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.

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 2018.

Together, the ten largest investments represent 30.5% of the Company’s portfolio (31 October 2018: 33.5%).

Investments as at 31 October 2019

* Market value less than £1,000.

All investments are in ordinary shares unless otherwise stated. The number of holdings as at 31 October 2019 was 89 (31 October 2018: 89). The total number of individual open options as at 31 October 2019 was 224 (31 October 2018: 195).

The negative valuation of £482,000 in respect of options held represents the notional cost of repurchasing the contracts at market prices as at 31 October 2019 (31 October 2018: £334,000).

At 31 October 2019, 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 2019. 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 2019, 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.

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 Fund Accountant or BNYM). The Company delegates registration services to the Registrar, Computershare Investor Services PLC. Other service providers include the Depositary, The Bank of New York Mellon (International) Limited. Details of the contractual terms with these service providers are set out in the Directors’ Report contained within Company’s Annual Report for the year ended 31 October 2019.

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 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.

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.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE (ESG)ESG factors can be 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. Below is a summary of the Fundamental Active Equity Investment Process.

BlackRock Fundamental Active Equity Investment ProcessESG information is not the sole consideration for investment decisions; instead, 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.

Further information on BlackRock’s approach to ESG and Socially Responsible Investing can be found in the Corporate Governance Report contained within the Company’s Annual Report for the year ended 31 October 2019.

PERFORMANCEOver the year ended 31 October 2019, the Company’s net asset value returned 8.5% compared with a return of 9.8% in the Russell 1000 Value Index. The ordinary share price returned 15.0% (all percentages are calculated in sterling terms with dividends reinvested). The Investment Manager’s Report above 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 below. The total return for the year, after taxation, was £10,370,000 (2018: £7,612,000) of which the revenue return amounted to £4,338,000 (2018: £3,556,000) and the capital return amounted to £6,032,000 (2018: £4,056,000).

The Company pays dividends quarterly. Four quarterly interim dividends of 2.00p per share were paid on 12 April 2019, 28 June 2019, 1 October 2019 and 3 January 2020. Total dividends of 8.00p per share were paid or declared in the year ended 31 October 2019 (2018: 8.00p).

KEY PERFORMANCE INDICATORSA number of key performance indicators (KPIs) are used to monitor and assess the Company’s success in achieving its objectives and to measure its progress and performance.

The principal KPIs are described below.

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

Share price premium/discount to 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 premium/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.

Further details setting out how the discount or premium at which the Company’s shares trade is calculated is included in the Glossary contained within the Company’s Annual Report for the year ended 31 October 2019.

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 ongoing charges ratio is calculated is included in the Glossary contained within the Company’s Annual Report for the year ended 31 October 2019.

The table that follows sets out the key KPIs for the Company.

Alternative Performance Measures (see Glossary contained within the Company’s Annual Report for the year ended 31 October 2019)

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 recurring operating expenses excluding finance costs, direct transaction costs, custody transaction charges and taxation, as a % of average net assets.

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

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 the principal risks. 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 the controls established for mitigation.

The risk register is regularly reviewed and the risks reassessed. 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, 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 periodically receives and reviews internal control reports from BlackRock and the Company’s custodian (The Bank of New York Mellon (International) Limited). The custodian is appointed by the Company’s Depositary and does not have a contractual relationship with the Company.

The Board has undertaken a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. Those principal risks have been described in the table that follows, together with how they are managed and mitigated. The Board will continue to assess these risks on an ongoing basis. 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.

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 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.

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.

EMPLOYEES, 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 pages 46 and 47 of the Company’s Annual Report for the year ended 31 October 2019.

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 2019 are set out in the Directors’ Biographies on pages 20 and 21 of the Company’s Annual Report for the year ended 31 October 2019. The Board consists of three male Directors and two female Directors. The Company does not have any employees; therefore there are no disclosures to be made in that respect.

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 12 February 2020.

BY ORDER OF THE BOARDCAROLINE DRISCOLLFOR AND ON BEHALF OFBLACKROCK INVESTMENT MANAGEMENT (UK) LIMITEDCompany Secretary12 February 2020

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 page 32 of the Annual Report.

The investment management fee due for the year ended 31 October 2019 amounted to £1,002,000 (2018: £895,000). At the year end, £546,000 was outstanding in respect of the management fee (2018: £462,000).

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 2019 amounted to £26,000 excluding VAT (2018: £25,000). Marketing fees of £23,000 excluding VAT (2018: £25,000) 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 on pages 38 and 39 of the Annual Report. At 31 October 2019 £14,000 (2018: £10,000) 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 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 in the biographies section of the Company’s annual report for the year ended 31 October 2019, 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 profit 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 contained within the Company’s Annual Report for the year ended 31 October 2019. As a result, the Board has concluded that the Annual Report and Financial Statements for the year ended 31 October 2019, 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 MILLERChairman12 February 2020

Statement of comprehensive income for the year ended 31 October 2019

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 2019

1 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.

2 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.

Statement of financial position as at 31 October 2019

Cash flow statement for the year ended 31 October 2019

Notes to the financial statements for the year ended 31 October 2019

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 seventh Annual Report.

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 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 February 2018 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 January 2019 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 yet to be adopted:IFRS 16 – Leases (effective 1 January 2019) 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 Treatments 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 is effective for annual reporting periods beginning on or after 1 January 2019. The interpretation would require the Company to recognise uncertain tax positions which are more than probable within its financial statements. The interpretation is unlikely to have any impact on the financial statements of the Company.

Adoption of new and amended standards and interpretations:IFRS 9 Financial InstrumentsThe classification and measurement requirements of IFRS 9 have been adopted retrospectively as of the date of initial application on 1 November 2018; however, the Company has chosen to take advantage of the option not to restate comparatives. Therefore, the 2018 comparative figures are presented and measured under IAS 39. All financial assets previously held at fair value continue to be measured at fair value and accordingly there has been no impact as a result of the adoption of IFRS 9. All financial assets that were classified as loans and receivables and measured at amortised cost continue to be so and there was no material impact of expected credit losses on financial assets and financial liabilities measured at amortised cost.

IFRS 15 Revenue from contracts with customersThe Company adopted IFRS 15 as of the date of initial application of 1 November 2018. IFRS 15 replaces IAS 18 Revenue and establishes a five-step model to account for revenue arising from contracts with customers. In addition, guidance on interest and dividend income has been moved from IAS 18 to IFRS 9 without significant changes to the requirements. Therefore, there was no impact of adopting IFRS 15 for the Company.

(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 to the financial statements contained within the Company’s Annual Report for the year ended 31 October 2019;

- 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) 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 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 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 as possible).

(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 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.

(n) Share repurchases and reissuesShares 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 –

- amounts received to the extent of the repurchase price are credited to the special reserve; and

- any surplus received in excess of the repurchase price is taken to the share premium account.

(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.

3. INCOME

During the year the Company received premiums totalling £2,016,000 (2018: £1,778,000) for writing covered call options for the purposes of revenue generation. Option premiums of £1,968,000 (2018: £1,714,000) were amortised to revenue. All derivative transactions were based on constituent stocks in the Russell 1000 Value Index. At 31 October 2019 there were 224 (2018: 195) open positions with an associated liability of £482,000 (2018: £334,000).

Dividends and interest received during the year amounted to £2,944,000 and £212,000 (2018: £2,935,000 and £79,000).

No special dividends have been recognised in capital (2018: £459,000).

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 (2018: 0.75%).

5. OTHER OPERATING EXPENSES

1 Alternative Performance Measure, see Glossary contained within the Company’s Annual Report for the year ended 31 October 2019.

For the year ended 31 October 2019, expenses of £21,000 (2018: £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. DIVIDENDS

The total dividends payable in respect of the year ended 31 October 2019 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 80,054,044 ordinary shares in issue on 28 November 2019 (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:

8. CALLED UP SHARE CAPITAL

During the year ended 31 October 2019 the Company issued 9,525,000 (2018: nil) shares from treasury for a total gross consideration of £17,252,000 (2018: nil).

Since 31 October 2019 2,805,000 shares have been reissued from treasury for a total gross consideration of £5,326,000.

9. RESERVES

Pursuant to a resolution of the Company passed on 7 September 2012 and following the Company application to the Court for cancellation of its share premium account, the Court approval was received on 12 December 2012, and £63,213,000 was transferred from the share premium account to a special reserve which is a distributable reserve.

10. VALUATION OF FINANCIAL INSTRUMENTS

Financial 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) 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. 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 2019 and 31 October 2018. The Company did not hold any Level 3 securities throughout the financial year or as at 31 October 2019 (2018: nil).

11. RELATED PARTY DISCLOSURE: DIRECTORS’ 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 contained within the Company’s Annual Report for the year ended 31 October 2019. At 31 October 2019 £14,000 (2018: £10,000) was outstanding in respect of Directors’ fees.

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 within the Directors’ Report contained within the Company’s Annual Report for the year ended 31 October 2019.

The investment management fee due for the year ended 31 October 2019 amounted to £1,002,000 (2018: £895,000). At the year end, £546,000 was outstanding in respect of the management fee (2018: £462,000). 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 2019 amounted to £26,000 excluding VAT (2018: £25,000). Marketing fees of £23,000 excluding VAT (2018: £25,000) were outstanding as at the year end.

13. CONTINGENT LIABILITIESThere were no contingent liabilities at 31 October 2019 (2018: 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 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 2019 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 2018, 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 Friday, 20 March 2020 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:BlackRockInvestmentTrusts@lansons.com

020 7490 882812 Throgmorton AvenueLondonEC2N 2DL