BlackRock North American Income Trust long-term conviction in U.S. stocks remains steadfast

BlackRock North American Income Trust plc (LON:BRNA) have provided its half yearly financial report for the six months ended 30 April 2020.

PERFORMANCE RECORD

FINANCIAL HIGHLIGHTS

	As at  30 April  2020	As at  31 October  2019	Change  %
Net assets (£’000)1	130,003	142,786	-9.0
Net asset value per ordinary share (pence)	160.09	182.13	-12.1
– with dividends reinvested2			-9.9
Ordinary share price (mid-market) (pence)	160.50	186.50	-13.9
– with dividends reinvested2			-11.7
Russell 1000 Value Index (with dividends reinvested)	1,163.57	1,313.68	-11.4
Premium to cum income net asset value2	0.3%	2.4%
	————–	————–	————–

	For the six  months ended  30 April  2020	For the six  months ended  30 April  2019	Change  %
Revenue
Net profit after taxation (£’000)	2,502	2,144	+16.7
Revenue earnings per ordinary share (pence)	3.10	3.06	+1.3
	————–	————–	————–
Interim dividends (pence)
1st interim	2.00	2.00	0.0
2nd interim	2.00	2.00	0.0
	————–	————–	————–
Total dividends paid	4.00	4.00	0.0
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1       The change in net assets reflects shares issued during the period, dividends paid and market movements.

2       Alternative Performance Measures, see Glossary in the half yearly report and financial statements.

ANNUAL PERFORMANCE SINCE LAUNCH ON 24 OCTOBER 2012 TO 30 APRIL 2020

	NAV	Russell 1000 Value Index	Share Price
2013#	17.1	27.4	16.5
2014	11.8	16.9	2.4
2015	4.9	4.1	4.7
2016	34.2	34.6	43.0
2017	11.4	8.3	6.3
2018	6.6	7.1	10.3
2019	8.5	9.8	15.0
2020*	-9.9	-11.4	-11.7

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

*     Performance for six month period ended 30 April 2020.

Sources: BlackRock and Datastream.

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

CHAIRMAN’S STATEMENT FOR THE SIX MONTHS ENDED 30 APRIL 2020

MARKET OVERVIEW
The past six months have proved extremely challenging for stock market investors. Whilst the end of 2019 and start of 2020 were rewarding and saw a combination of high returns and low volatility, in mid-February the outbreak of the COVID-19 pandemic, compounded by an unprecedented slump in the oil price, sent stock markets plummeting. Despite significant fiscal and monetary stimulus, the social distancing and lockdown measures required to combat the virus caused the U.S. economy to contract during the first quarter at its sharpest rate since the end of 2008. Although stock markets rallied in April, high market volatility is expected to remain until there is greater clarity on how long it will take for more accustomed levels of economic activity to resume, which in turn will depend on the extent to which the spread of COVID-19 can be contained.

PERFORMANCE
Against this difficult backdrop, over the six months to 30 April 2020, the Company’s net asset value per share (NAV) returned -9.9% compared with a return of -11.4% in the Russell 1000 Value Index. The Company’s share price returned -11.7% over the same period (all figures in sterling terms with dividends reinvested). Further information on investment performance is given in the Investment Manager’s Report.

Since the period end and up to close of business on 23 June 2020, the Company’s NAV has increased by 6.1% and the share price has fallen by 0.9% (both percentages in sterling with dividends reinvested), reflecting the shares moving to a discount over this period.

EARNINGS AND DIVIDENDS
The Company’s revenue return per share for the six months ended 30 April 2020 amounted to 3.10p compared with 3.06p for the corresponding period in 2019. On 20 March 2020 the Board declared the first quarterly dividend of 2.00p per share which was paid on 29 April 2020. A second quarterly dividend of 2.00p per share has been declared and will be paid on 3 July 2020 to shareholders on the register on 22 May 2020. These are in line with payments made in 2019.

In the latest Annual Report, the Board confirmed that it intended to continue with the established dividend policy of paying 2.00p per share for each quarter of the current financial year, and the Board intends to maintain this policy. One of the strengths of investment trusts over competing fund structures is their ability to draw on revenue and distributable capital reserves to maintain dividend pay-outs in periods of stress. One of the features of our approach is writing covered call options to enhance revenue and recent volatility has meant that the value obtained from writing option premia has increased. The outlook for dividends from the portfolio remains unusually uncertain and the Board will, as in previous years, review the current policy in the first quarter of the Company’s next financial year.

GROWTH IN THE COMPANY’S EQUITY
The Board is committed to growing the Company over time, which should improve liquidity for all shareholders.

Until mid-February, when there were large day-to-day moves in share prices, the Company’s shares continued to enjoy a premium rating with ongoing demand mainly from retail investors. In 2019, the Company ranked seventh overall for annual tap issuances in the investment trust sector relative to market capitalisation.

During the six months to 30 April 2020, the Company’s share price to NAV ranged between a discount of 21.8% and a premium of 3.4% and the Company reissued 2,805,000 ordinary shares from treasury at a premium to NAV. Since the period end and up to the date of this report, no further ordinary shares have been reissued.

OUTLOOK
The global spread of COVID-19 has rocked financial markets and the fall in U.S. stocks has followed a record long bull market and economic expansion. At the beginning of the year ongoing economic growth was the base case expectation but now we are contemplating a deep virus-induced economic downturn of unknown duration. Anecdotal evidence from China is encouraging with factories and stores already reopening, but a premature end to lockdowns could lead to a second wave of infections and delay a recovery.

Tailwinds from monetary and fiscal policy and subsequent stimulus measures should eventually promote stronger economic conditions once the virus threat recedes. We believe the Portfolio Managers’ focus on sustainability and companies with high quality balance sheets is even more important than ever in current conditions.

SIMON MILLER
24 June 2020

INVESTMENT MANAGER’S REPORT

MARKET OVERVIEW
For the six month period ended 30 April 2020, U.S. large-cap stocks, as represented by the S&P 500^® Index, declined by 3.2% (in U.S. dollar terms). The path was not a smooth ride and can be seen in three parts: the S&P 500^® Index increased by 6.8% during the final two months of 2019 before a sharp sell-off in February and March of 2020, which was followed by a swift rebound in April. Stocks began the year with positive returns, as prices climbed on the heels of upbeat earnings results, improving business sentiment and a Phase 1 U.S./China trade deal. Stock prices reached a peak on 19 February 2020 before beginning a swift reversal on the heels of the global spread of COVID-19. The pandemic prompted countries to adopt varying degrees of social distancing, self-quarantine and lockdown measures. Global economic activity declined at a historically high rate as non-essential businesses were forced to close indefinitely in many countries. Concern over the human and economic toll also fuelled measures from governments and central bankers globally. In summary, this chain of events brought the longest enduring U.S. bull market to a sudden end.

Aggressive and coordinated monetary and fiscal policy measures helped to stabilise U.S. financial markets in the final two weeks of the first quarter. The Federal Reserve (the Fed) twice cut its benchmark interest rate in March to a current range of 0.0% to 0.25% for overnight bank lending. Furthermore, on 23 March 2020 the Fed declared an unlimited balance sheet expansion for the foreseeable future. These actions helped to improve market liquidity across credit markets, as many investors sought to reduce risk levels in their portfolios. Fiscal policy legislation also eased market fears, including the unprecedented U.S.$2 trillion stimulus package announced on 27 March 2020 to support individuals and businesses. This translates to roughly 10% of annual U.S. gross domestic product (i.e. the market value of all final goods and services produced in the country).

PORTFOLIO OVERVIEW
The largest contributor to relative performance was an elevated cash balance, which we have maintained as our preferred method of defensive exposure. Valuations remain stretched among traditional defensive sectors and we have used cash as a buffer against volatile equity markets. In consumer discretionary, stock selection in the multiline retail and household durables industries proved beneficial, as did our underweight to the hotels, restaurants and leisure industry. An underweight to real estate, most notably equity real estate investment trusts (REITs), also benefited relative performance during the period. Lastly, a combination of stock selection and an overweight to information technology boosted relative returns. Most notably, our overweight to the software industry and stock selection among technology hardware, storage and peripherals providers, positively impacted relative performance.

The primary detractor from relative performance was stock selection and allocation decisions in financials. Overweight exposure to banks was particularly harmful given the impact of starkly lower interest rates on portfolio holdings. In consumer staples, an underweight to the household products and food and staple retailing industries also weighed on relative returns. Lastly, stock selection and allocation decisions in health care hurt relative returns, primarily due to our underweight exposure to the biotechnology and life sciences tools and services industries.

As expected, writing covered call options slightly hindered relative performance during the final two months of 2019 amid rising stock prices. Conversely, writing covered call options benefited the portfolio amid dramatically declining U.S. stock prices during February and March of 2020. In summary, the covered call options contributed positively to absolute performance for the six-month period. 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 and overweight/underweight positions compared to the benchmark. At the end of the period, the portfolio’s cash position was 8.2%.

Financials: 2.8% overweight (23.7% of the portfolio)
Financials represent the Company’s largest sector allocation and we remain particularly bullish on the U.S. banks, insurers and insurance brokers. We believe the U.S. banks are safer and sounder investments today than before the financial crisis. They have stronger balance sheets (i.e. higher capital levels), revamped company cost structures and disciplined loan underwriting has contributed to benign credit trends. Bank valuations are compelling relative to other cyclical sectors (i.e. industrials) and potential tailwinds from deregulation and investor-friendly capital return policies also bode well for investors, in our view. A low interest rate environment is harmful to net interest income, but with lower exposure to regional banks, the Company is relatively less exposed to changes in interest rates. 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. AIG) taking capacity out of the market.

Health Care: 2.3% overweight (18.2% 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 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 & 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: 1.7% 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: 1.7% overweight (8.1% 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.

Communication Services: 1.2% underweight (7.1% of the portfolio)
We are underweight to communication services and our allocation remains concentrated in diversified telecommunication bellwether Verizon Communications (4.7% of the portfolio). Our stock-specific exposure in the sector is to companies that offer healthy dividend yields and opportunity for steady, longer-term growth.

Consumer Staples: 1.3% underweight (8.9% 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 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.

Consumer Discretionary: 1.4% underweight (4.2% of the portfolio)
We continue to maintain a degree of caution in consumer discretionary, as investors are sensitive to disruption and how new business models and technology can displace incumbent operators. We believe these disruptive forces are best avoided through identifying stock-specific investment opportunities that (1) are trading at discounted valuations or (2) are somewhat insulated from these disruptive pressures. For example, we believe companies such as General Motors (autos) and Newell Brands (household durables) offer investors exposure to underappreciated franchises at discounted valuations. Furthermore, retailers such as Dollar General (dollar store) and Lowe’s Companies (home improvement) provide us with exposure to companies that can compound earnings and are more immune to disruptive forces.

Industrials: 2.4% underweight (6.8% of the portfolio)
We are underweight to the industrials sector. Our selectivity is driven by relative valuations, which we view as expensive, in many cases, versus other cyclical segments of the U.S. equity market. We continue to maintain 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.

Materials: 2.6% underweight (1.7% of the portfolio)
Broadly speaking, we have found more attractive opportunities from which to source our portfolio’s cyclical exposure. Our exposure to the materials sector consists of two chemicals stocks – Corteva and DuPont De Nemours. Longer-term secular trends in global population growth can potentially benefit well-positioned companies in the agricultural chemical space.

Utilities: 2.7% underweight (4.5% 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), FirstEnergy (FE), Edison International (EIX), and NiSource (NI). PEG, EIX, and NI 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: 5.0% underweight (0.0% of the portfolio)
The real estate sector is our largest underweight position in the strategy. We maintain a 0% weighting in the sector due to our view that valuations are unattractive at current levels.

POSITIONING AND OUTLOOK
Our 2020 base case was for slow but positive U.S. economic growth and for U.S. stocks to grind higher on the back of a strong U.S. consumer and supportive monetary and fiscal policy. Stocks have tumbled amid the current global health crisis, a tail risk no one could have predicted a few short months ago. Volatility never feels good, but the foundation underlying it is important. Daily market moves in response to the COVID-19 outbreak have matched the scale of those seen during the global financial crisis. But this is not 2008. The COVID-19 shock is not one caused by a crisis in the core of the financial system and for this reason the U.S. economy is on a much stronger footing to endure the current economic disruption.

Make no mistake, the economic and earnings impact from the crisis are real. Trading volatility is likely to persist as investors recalibrate expectations for corporate earnings and global supply chains. However, our long-term conviction in U.S. stocks remains steadfast. It bears reminding that the value of a company is the net present value of its future cash flows. We expect earnings to be hard hit in 2020, but ultimately see COVID-19 as a transitory event. One or two quarters of lost earnings, although painful, should not materially change the long-term earnings power of our portfolio holdings.

Importantly, we are encouraged by the swiftness, magnitude and coordination of monetary and fiscal policy deployment. These efforts have helped to stabilise financial markets while governments pursue coronavirus containment measures. We are watching closely for visibility into the effectiveness of these containment efforts. The gradual reopening of economies is an important upcoming litmus test, with a second wave of infections a key outstanding risk to our market outlook.

TONY DESPIRITO, FRANCO TAPIA and DAVID ZHAO
BlackRock Investment Management LLC
24 June 2020

TEN LARGEST INVESTMENTS AS AT 30 APRIL 2020

1 = Verizon Communications (2019: 1st)
Communication Services
Market value: £5,623,000
Share of investments: 4.7% (2019: 4.5%)
One of the largest providers of wireline and wireless communications in the U.S., where 48 million access lines represent approximately one-third of market share. The company’s wireless customer base is very sizable and continues to grow. 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.

2 + Bank of America (2019: 5th)
Financials
Market value: £4,448,000
Share of investments: 3.7% (2019: 3.0%)
One of the largest financial institutions in the U.S. with lending operations in the consumer, small-business and corporate markets, in addition to asset management and investment banking divisions. Bank of America has delivered consistent results over the last year, with particular strength within their consumer bank division.

3 + Citigroup (2019: 4th)
Financials
Market value: £4,022,000
Share of investments: 3.4% (2019: 3.6%)
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.

4 + Sanofi (2019: 60th)
Health Care
Market value: £3,197,000
Share of investments: 2.7% (2019: 0.5%)
Sanofi checks a lot of boxes that we look for in a pharmaceuticals investment – a company with a strong commercial business and an under-appreciated pipeline that is not reflected in the current valuation. Additionally, Sanofi is under-earning its potential and a new CEO with turn-around experience has begun to demonstrate a path to margin improvement. Low exposure to U.S. drug pricing regulatory risk is also attractive and the company is a potential sum-of-the-parts story as several of the company’s businesses including Vaccines and Consumer Health should trade at much higher multiples.

5 + Anthem (2019: 11th)
Health Care
Market value: £3,117,000
Share of investments: 2.6% (2019: 2.0%)
Anthem is a leading company in a high quality, stable U.S. managed care space whose relatively new CEO is taking the initiative to leverage the company’s market position and accelerate top and bottom-line growth. These initiatives include insourcing their Pharmacy Benefit Managers, expanding their Medicare offerings and leveraging their brand to offer ancillary products (dental benefits, Administrative Services Only arrangements, etc). Furthermore, at 10x 2021 price-to-earnings, Anthem trades near the low end of the group, despite having the highest projected earnings per share growth going forward.

6 = Medtronic (2019: 6th)
Health Care
Market value: £3,071,000
Share of investments: 2.6% (2019: 2.7%)
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 – Wells Fargo (2019: 3rd)
Financials
Market value: £2,904,000
Share of investments: 2.4% (2019: 3.9%)
A U.S. bank which operates in three segments including community banking, wholesale banking and wealth & investment management. Wells Fargo has a strong deposit franchise and we are encouraged by the company’s history of strong investment returns and prudent credit risk management. In our view, shares of the company are underappreciated today in an environment characterised by low credit losses and ample access to liquidity.

8 + Koninklijke Philips (2019: 9th)
Health Care
Market value: £2,777,000
Share of investments: 2.3% (2019: 2.1%)
The company trades at a deep discount to its medical technology peers despite offering better growth. The company is transforming into a pure-play health care company that, in our view, deserves a higher multiple. Philips is also meaningfully under-earning, with current margins that are well below management’s targets and those of its peers, indicating upside to profitability.

9 + Unilever (2019: 30th)
Consumer Staples
Market value: £2,725,000
Share of investments: 2.3% (2019: 1.3%)
Unilever has a strong portfolio of home and personal care brands and favourable exposure to emerging markets. Recent sales performance has disappointed, driving a relative derating. While margin may need to be rebased, that seems fully baked into expectations, trading at 19x 2020 price-to-earnings, a 20% discount to global staples peers. At this price, we believe there is optionality on a) better execution; b) macro improvement; c) disposals; and d) perhaps activist involvement.

10 + FirstEnergy (2019: 21st)
Utilities
Market value: £2,682,000
Share of investments: 2.2% (2019: 1.7%)
FirstEnergy is an integrated utility that services U.S. customers primarily in the Northeast and Midwest. Our investment thesis is predicated on valuation, as we believe the stock trades at a discount on a sum-of-the-parts basis. Additionally, we believe the company has manageable equity needs and offers investors steady 4% to 6% EPS growth annually.

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

All percentages reflect the value of the holding as a percentage of total investments. Percentages in brackets represent the value of the holding as at 31 October 2019.

Together, the ten largest investments represent 28.9% of the Company’s portfolio (31 October 2019: 30.5%).

PORTFOLIO ANALYSIS AS AT 30 APRIL 2020

Sectors	%  Canada	%  Denmark	%  France	%  Germany	%  Ireland	%  Japan	%  Netherlands	%  Norway	%  Switzerland	%  United Kingdom	%  United States	%  Cash	% Total  30.04.20	% Total  31.10.19
Financials	–	–	–	–	–	–	–	–	–	–	23.7	–	23.7	24.6
Health Care	–	–	2.4	1.8	2.4	–	2.1	–	0.9	1.7	6.9	–	18.2	16.6
Consumer Staples	–	–	–	1.0	–	–	2.1	–	1.1	0.2	4.5	–	8.9	6.9
Information Technology	0.2	–	–	–	–	–	0.5	–	–	–	7.9	–	8.6	8.6
Energy	–	–	0.4	–	–	–	–	0.5	–	1.3	5.9	–	8.1	9.2
Communication Services	–	–	–	–	–	–	–	–	–	–	7.1	–	7.1	6.6
Industrials	–	–	–	1.0	–	–	–	–	–	2.5	3.3	–	6.8	8.0
Utilities	–	–	–	–	–	–	–	–	–	–	4.5	–	4.5	2.4
Consumer Discretionary	–	–	–	–	–	–	–	–	–	–	4.2	–	4.2	6.1
Materials	–	–	–	–	–	–	–	–	–	–	1.7	–	1.7	1.8
Cash	–	–	–	–	–	–	–	–	–	–	–	8.2	8.2	9.2
	—————	—————	—————	—————	—————	—————	—————	—————	—————	—————	—————	—————	—————	—————
% Portfolio 30.04.20	0.2	–	2.8	3.8	2.4	–	4.7	0.5	2.0	5.7	69.7	8.2	100.0
	—————	—————	—————	—————	—————	—————	—————	—————	—————	—————	—————	—————	—————	—————
% Portfolio 31.10.19	0.6	0.3	1.1	2.6	2.8	1.6	3.5	0.3	1.8	6.3	69.9	9.2		100.0
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INVESTMENTS AS AT 30 APRIL 2020

Company	Country	Sector	Securities	Market  value  £’000		% of  total  portfolio
Verizon Communications	United States	Communication	Ordinary shares	5,649	}	4.7
		Services	Options	(26)
Bank of America	United States	Financials	Ordinary shares	4,501	}	3.7
			Options	(53)
Citigroup	United States	Financials	Ordinary shares	4,022		3.4
Sanofi	France	Health Care	Ordinary shares	3,197		2.7
Anthem	United States	Health Care	Ordinary shares	3,117		2.6
Medtronic	Ireland	Health Care	Ordinary shares	3,077	}	2.6
			Options	(6)
Wells Fargo	United States	Financials	Ordinary shares	2,904		2.4
Koninklijke Philips	Netherlands	Health Care	Ordinary shares	2,777		2.3
Unilever	Netherlands	Consumer	Ordinary shares	2,729	}	2.3
		Staples	Options	(4)
FirstEnergy	United States	Utilities	Ordinary shares	2,691	}	2.2
			Options	(9)
Cognizant Technology Solutions	United States	Information	Ordinary shares	2,683	}	2.2
		Technology	Options	(32)
Williams	United States	Energy	Ordinary shares	2,623	}	2.1
			Options	(59)
Comcast	United States	Communication	Ordinary shares	2,546	}	2.1
		Services	Options	(8)
Altria	United States	Consumer	Ordinary shares	2,522	}	2.1
		Staples	Options	(10)
Constellation Brands	United States	Consumer	Ordinary shares	2,474	}	2.0
		Staples	Options	(52)
Bayer	Germany	Health Care	Ordinary shares	2,287		1.9
JPMorgan Chase	United States	Financials	Ordinary shares	2,234	}	1.9
			Options	(9)
American International	United States	Financials	Ordinary shares	2,249	}	1.9
			Options	(27)
AstraZeneca	United Kingdom	Health Care	Ordinary shares	2,230	}	1.8
			Options	(76)
Morgan Stanley	United States	Financials	Ordinary shares	2,047	}	1.7
			Options	(19)
Microsoft	United States	Information	Ordinary shares	2,077	}	1.7
		Technology	Options	(50)
CVS Health	United States	Health Care	Ordinary shares	1,976		1.6
BAE Systems	United Kingdom	Industrials	Ordinary shares	1,838	}	1.5
			Options	(8)
Willis Towers Watson	United States	Financials	Ordinary shares	1,824	}	1.5
			Options	(5)
Public Service Enterprise Group	United States	Utilities	Ordinary shares	1,793	}	1.5
			Options	(19)
BP	United Kingdom	Energy	Ordinary shares	1,802	}	1.5
			Options	(55)
MetLife	United States	Financials	Ordinary shares	1,776	}	1.5
			Options	(31)
General Electric	United States	Industrials	Ordinary shares	1,744	}	1.4
			Options	(10)
Schwab (Charles)	United States	Financials	Ordinary shares	1,703	}	1.4
			Options	(14)
Samsung Electronics	United States	Information	Ordinary shares	1,631		1.4
		Technology
Lowe’s Companies	United States	Consumer	Ordinary shares	1,659	}	1.4
		Discretionary	Options	(29)
UnitedHealth Group	United States	Health Care	Ordinary shares	1,670	}	1.4
			Options	(41)
General Motors	United States	Consumer	Ordinary shares	1,531		1.3
		Discretionary
Visa	United States	Information	Ordinary shares	1,537	}	1.3
		Technology	Options	(8)
Raymond James	United States	Financials	Ordinary shares	1,500	}	1.2
			Options	(11)
Dollar General	United States	Consumer	Ordinary shares	1,476	}	1.2
		Discretionary	Options	(3)
DuPont De Nemours	United States	Materials	Ordinary shares	1,470	}	1.2
			Options	(48)
Nestlé	Switzerland	Consumer	Ordinary shares	1,401	}	1.2
		Staples	Options	(4)
Siemens	Germany	Industrials	Ordinary shares	1,366	}	1.1
			Options	(28)
Berkshire Hathaway	United States	Financials	Ordinary shares	1,324	}	1.1
			Options	(5)
Marathon Petroleum	United States	Energy	Ordinary shares	1,310		1.1
Arthur J.Gallagher & Co	United States	Financials	Ordinary shares	1,306	}	1.1
			Options	(3)
Cisco Systems	United States	Information	Ordinary shares	1,315	}	1.1
		Technology	Options	(14)
Henkel	Germany	Consumer	Ordinary shares	1,309	}	1.1
		Staples	Options	(13)
Fox Corp	United States	Communication	Ordinary shares	1,214	}	1.0
		Services	Options	(8)
Ferguson	United Kingdom	Industrials	Ordinary shares	1,203	}	1.0
			Options	(17)
Union Pacific	United States	Industrials	Ordinary shares	1,252	}	1.0
			Options	(80)
Alcon	Switzerland	Health Care	Ordinary shares	1,158	}	1.0
			Options	(4)
ConocoPhillips	United States	Energy	Ordinary shares	1,135	}	0.9
			Options	(39)
Edison International	United States	Utilities	Ordinary shares	1,089	}	0.9
			Options	(6)
Pfizer	United States	Health Care	Ordinary shares	1,064	}	0.9
			Options	(11)
McKesson	United States	Health Care	Ordinary shares	1,033		0.9
Motorola Solutions	United States	Information	Ordinary shares	1,021	}	0.8
		Technology	Options	(2)
Equitable Holdings	United States	Financials	Ordinary shares	1,014		0.8
Pioneer Natural Resources	United States	Energy	Ordinary shares	1,020	}	0.8
			Options	(26)
CME Group	United States	Financials	Ordinary shares	949	}	0.8
			Options	(7)
Lockheed Martin	United States	Industrials	Ordinary shares	913	}	0.8
			Options	(6)
Allstate	United States	Financials	Ordinary shares	736	}	0.6
			Options	(6)
Corteva	United States	Materials	Ordinary shares	737	}	0.6
			Options	(8)
Newell Brands	United States	Consumer	Ordinary shares	746	}	0.6
		Discretionary	Options	(29)
NXP Semiconductors	Netherlands	Information	Ordinary shares	709	}	0.6
		Technology	Options	(8)
Equinor ASA	Norway	Energy	Ordinary shares	675	}	0.6
			Options	(11)
Marathon Oil	United States	Energy	Ordinary shares	635	}	0.5
			Options	(33)
Total	France	Energy	Ordinary shares	571	}	0.5
			Options	(10)
FedEx	United States	Industrials	Ordinary shares	544	}	0.4
			Options	(5)
Pepsico	United States	Consumer	Ordinary shares	493	}	0.4
		Staples	Options	(1)
Kinder Morgan	United States	Energy	Ordinary shares	483		0.4
Oneok	United States	Energy	Ordinary shares	488	}	0.4
			Options	(13)
Conagra Brands	United States	Consumer	Ordinary shares	448	}	0.4
		Staples	Options	(2)
American Express	United States	Financials	Ordinary shares	420	}	0.3
			Options	(2)
US Bancorp	United States	Financials	Ordinary shares	378	}	0.3
			Options	(3)
British American Tobacco	United Kingdom	Consumer	Ordinary shares	332	}	0.3
		Staples	Options	(1)
Pentair	United Kingdom	Industrials	Ordinary shares	311	}	0.2
			Options	(6)
NiSource	United States	Utilities	Ordinary shares	256	}	0.2
			Options	(2)
Quest Diagnostics	United States	Health Care	Ordinary shares	264	}	0.2
			Options	(14)
Travelers Companies	United States	Financials	Ordinary shares	234	}	0.2
			Options	(1)
Constellation Software	Canada	Information	Ordinary shares	211		0.2
		Technology
Lear Corp	United States	Consumer	Ordinary shares	74		0.1
		Discretionary
Fidelity National Financial	United States	Financials	Ordinary shares	64		–
				————–		————–
Portfolio				119,621		100.0
				========		========
Comprising:
Equity investments				120,771		101.0
Derivative financial instruments – written options				(1,150)		(1.0)
				————–		————–
				119,621		100.0
				========		========

All investments are in ordinary shares unless otherwise stated. The number of holdings as at 30 April 2020 was 79 (31 October 2019: 89). The total number of individual open options as at 30 April 2020 was 208 (31 October 2019: 224).

The negative valuation of £1,150,000 in respect of options held represents the notional cost of repurchasing the contracts at market prices as at 30 April 2020 (31 October 2019: £482,000).

At 30 April 2020, the Company did not hold any equity interests comprising more than 3% of any company’s share capital.

Interim management report and responsibility statement

The Chairman’s Statement and the Investment Manager’s Report give details of the important events which have occurred during the period and their impact on the financial statements.

PRINCIPAL RISKS AND UNCERTAINTIES
The principal risks faced by the Company can be divided into various areas as follows:

• Counterparty;
• Investment performance;
• Legal & Compliance;
• Market;
• Operational;
• Financial; and
• Marketing.

The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 31 October 2019. A detailed explanation can be found in the Strategic Report on pages 26 to 29 and in note 14 on pages 75 to 84 of the Annual Report and Financial Statements which are available on the website maintained by BlackRock at blackrock.com/uk/brna.

In the view of the Board, the outbreak of an infectious respiratory illness caused by a novel coronavirus known as COVID-19, first detected in China in December 2019 and has developed into a global pandemic, has fundamentally altered the nature of the risks reported in the Annual Report and Financial Statements. COVID-19 has resulted in travel restrictions, closed international borders, enhanced health screenings at ports of entry and elsewhere, disruption of and delays in healthcare service preparation and delivery, prolonged quarantines, cancellations, supply chain disruptions and lower consumer demand, as well as general concern and uncertainty. The impact of COVID-19 has adversely affected the economies of many nations across the entire global economy, individual issuers and capital markets, and could continue with extents that cannot necessarily be foreseen. In addition, the impact of infectious illnesses in emerging market countries may be greater due to generally less established healthcare systems. Public health crises caused by the COVID-19 outbreak may exacerbate other pre-existing political, social and economic risks in certain countries or globally. The duration of the COVID-19 outbreak and its effects cannot be determined with certainty.

GOING CONCERN
The Board is mindful of the uncertainty surrounding the potential duration of the COVID-19 pandemic and its impact on the global economy, the Company’s assets and the potential for the level of revenue derived from the portfolio to reduce versus the prior year. The Directors, having considered the nature and liquidity of the portfolio, the Company’s investment objective and the Company’s projected income and expenditure, are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and is financially sound. The Board believes that the Company and its key third party service providers have in place appropriate business continuity plans and will be able to maintain service levels through the COVID-19 pandemic.

The Company has a portfolio of investments which are considered to be readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. Based on the above, the Board is satisfied that it is appropriate to continue to adopt the going concern basis in preparing the financial statements. Ongoing charges (excluding finance costs, direct transaction costs, custody transaction charges, non-recurring charges and taxation) were approximately 1.09% of net assets for the year ended 31 October 2019.

CORPORATE GOVERNANCE
The Board noted the votes against two resolutions at the spring Annual General Meeting by a significant shareholder and has subsequently sought to understand its reasons for so doing. This shareholder is supportive of the objectives of the Company but indicated its frustration  with the limited scale (and, in their view, limited growth) of the Company in recent years and their perception that the Portfolio Managers had not used the benefits of the closed end structure to the full (by, for example deploying gearing or investing in less liquid assets). The Board appreciates this feedback and wishes to confirm that expanding the Company is an important objective as it leads to greater liquidity and lower fixed charges. The Board has requested that the Portfolio Managers are more active in deploying leverage when they consider it is in shareholders’ interests to do so.

RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE MANAGER
BlackRock Fund Managers Limited (BFM) was appointed as the Company’s AIternative Investment Fund Manager (AIFM) with effect from 2 July 2014. 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)). Both BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the fees payable are set out in note 4 and note 10.

The related party transactions with the Directors are set out in note 11.

DIRECTORS’ RESPONSIBILITY STATEMENT
The Disclosure Guidance and Transparency Rules (DTR) of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.

The Directors confirm to the best of their knowledge that:

• the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with applicable International Accounting Standard 34 – ‘Interim Financial Reporting’; and
• the Interim Management Report, together with the Chairman’s Statement and Investment Manager’s Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the Financial Conduct Authority’s Disclosure Guidance and Transparency Rules.This half yearly financial report has not been audited or reviewed by the Company’s auditors.The half yearly financial report was approved by the Board on 24 June 2020 and the above responsibility statement was signed on its behalf by the Chairman.SIMON MILLER
  For and on behalf of the Board
  24 June 2020

FINANCIAL STATEMENTS

STATEMENT OF COMPREHENSIVE INCOME FOR THE SIX MONTHS ENDED 30 APRIL 2020

	Notes	Revenue £’000	Capital £’000	Total £’000
Six months ended	Year ended  31.10.19  (audited)	Six months ended	Year ended  31.10.19  (audited)	Six months ended	Year ended  31.10.19  (audited)
30.04.20  (unaudited)	30.04.19  (unaudited)	30.04.20  (unaudited)	30.04.19  (unaudited)	30.04.20  (unaudited)	30.04.19  (unaudited)
Income from investments held at fair value through profit or loss	3	1,949	1,718	3,488	–	–	–	1,949	1,718	3,488
Other income	3	1,307	1,029	2,180	–	–	–	1,307	1,029	2,180
		————–	————–	————–	————–	————–	————–	————–	————–	————–
Total revenue		3,256	2,747	5,668	–	–	–	3,256	2,747	5,668
		————–	————–	————–	————–	————–	————–	————–	————–	————–
Net (loss)/profit on investments and options held at fair value through profit or loss		–	–	–	(17,509)	2,414	6,772	(17,509)	2,414	6,772
Net profit/(loss) on foreign exchange		–	–	–	462	(160)	(110)	462	(160)	(110)
		————–	————–	————–	————–	————–	————–	————–	————–	————–
Total		3,256	2,747	5,668	(17,047)	2,254	6,662	(13,791)	5,001	12,330
		————–	————–	————–	————–	————–	————–	————–	————–	————–
Expenses
Investment management fee	4	(131)	(114)	(250)	(393)	(343)	(752)	(524)	(457)	(1,002)
Other operating expenses	5	(208)	(188)	(403)	(10)	(10)	(21)	(218)	(198)	(424)
		————–	————–	————–	————–	————–	————–	————–	————–	————–
Total operating expenses		(339)	(302)	(653)	(403)	(353)	(773)	(742)	(655)	(1,426)
		————–	————–	————–	————–	————–	————–	————–	————–	————–
Net profit/(loss) on ordinary activities before taxation		2,917	2,445	5,015	(17,450)	1,901	5,889	(14,533)	4,346	10,904
Taxation		(415)	(301)	(677)	75	65	143	(340)	(236)	(534)
		————–	————–	————–	————–	————–	————–	————–	————–	————–
Profit/(loss) for the period		2,502	2,144	4,338	(17,375)	1,966	6,032	(14,873)	4,110	10,370
		————–	————–	————–	————–	————–	————–	————–	————–	————–
Earnings/(loss) per ordinary share (pence)	7	3.10	3.06	5.96	(21.53)	2.81	8.28	(18.43)	5.87	14.24
		========	========	========	========	========	========	========	========	========

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 disposed of during the period. All income is attributable to the equity holders of the Company.

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

STATEMENT OF CHANGES IN EQUITY FOR THE SIX MONTHS ENDED 30 APRIL 2020

	Note	Called  up share  capital  £’000	Share  premium  account  £’000	Capital  redemption  reserve  £’000	Special  reserve  £’000	Capital  reserves  £’000	Revenue  reserve  £’000	Total  £’000
For the six months ended 30 April 2020 (unaudited)
At 31 October 2019		1,004	42,596	1,460	36,373	58,113	3,240	142,786
Total comprehensive income:
Net (loss)/profit for the period		–	–	–	–	(17,375)	2,502	(14,873)
Transactions with owners, recorded directly to equity:
Ordinary shares reissued from treasury		–	1,937	–	3,386	–	–	5,323
Share issue costs		–	–	–	(8)	–	–	(8)
Dividends paid1	6	–	–	–	–	(1,209)	(2,016)	(3,225)
		————–	————–	————–	————–	————–	————–	————–
At 30 April 2020		1,004	44,533	1,460	39,751	39,529	3,726	130,003
		————–	————–	————–	————–	————–	————–	————–
For the six months ended 30 April 2019 (unaudited)
At 31 October 2018		1,004	36,774	1,460	24,943	54,249	2,515	120,945
Total comprehensive income:
Net profit for the period		–	–	–	–	1,966	2,144	4,110
Transactions with owners, recorded directly to equity:
Ordinary shares reissued from treasury		–	–	–	5,510	–	–	5,510
Share issue costs		–	–	–	(27)	–	–	(27)
Dividends paid2		–	–	–	–	(1,047)	(1,745)	(2,792)
		————–	————–	————–	————–	————–	————–	————–
At 30 April 2019		1,004	36,774	1,460	30,426	55,168	2,914	127,746
		————–	————–	————–	————–	————–	————–	————–
For the year ended 31 October 2019 (audited)
At 31 October 2018		1,004	36,774	1,460	24,943	54,249	2,515	120,945
Total comprehensive income:
Net profit for the year		–	–	–	–	6,032	4,338	10,370
Transactions with owners, recorded directly to equity:
Ordinary shares issued from treasury		–	5,822	–	11,507	–	–	17,329
Share issue costs		–	–	–	(77)	–	–	(77)
Dividends paid3		–	–	–	–	(2,168)	(3,613)	(5,781)
		————–	————–	————–	————–	————–	————–	————–
At 31 October 2019		1,004	42,596	1,460	36,373	58,113	3,240	142,786
		========	========	========	========	========	========	========

1     4th interim dividend of 2.00p per share for the year ended 31 October 2019, declared on 7 November 2019 and paid on 3 January 2020 and 1st interim dividend of 2.00p per share for the year ending 31 October 2020, declared on 20 March 2020 and paid on 29 April 2020.

2     4th interim dividend of 2.00p per share for the year ended 31 October 2018, declared on 1 November 2018 and paid on 4 January 2019 and 1st interim dividend of 2.00p per share for the year ending 31 October 2019, declared on 5 March 2019 and paid on 12 April 2019.

3     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.

Costs relating to the acquisition and disposal of investments amounted to £45,000 and £17,000 respectively for the six months ended 30 April 2020 (six months ended 30 April 2019: £31,000 and £12,000; year ended 31 October 2019: £75,000 and £26,000).

The share premium account and capital redemption reserve are not distributable profits under the Companies Act 2006. The special 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. In accordance with the Company’s Articles of Association, net capital reserves may be distributed by way of the repurchase by the Company of its ordinary shares and for payment as dividends.

STATEMENT OF FINANCIAL POSITION AS AT 30 APRIL 2020

	Notes	30 April  2020  £’000  (unaudited)	30 April  2019  £’000  (unaudited)	31 October  2019  £’000  (audited)
Non current assets
Investments held at fair value through profit or loss		120,771	118,384	130,525
Current assets		————–	————–	————–
Other receivables		905	257	844
Cash and cash equivalents		10,747	11,069	13,207
		————–	————–	————–
		11,652	11,326	14,051
		————–	————–	————–
Total assets		132,423	129,710	144,576
		————–	————–	————–
Current liabilities
Other payables		(1,270)	(1,314)	(1,308)
Derivative financial liabilities held at fair value through profit or loss		(1,150)	(650)	(482)
		————–	————–	————–
		(2,420)	(1,964)	(1,790)
		————–	————–	————–
Net assets		130,003	127,746	142,786
		========	========	========
Equity attributable to equity holders
Called up share capital	8	1,004	1,004	1,004
Share premium account		44,533	36,774	42,596
Capital redemption reserve		1,460	1,460	1,460
Special reserve		39,751	30,426	36,373
Capital reserves		39,529	55,168	58,113
Revenue reserve		3,726	2,914	3,240
		————–	————–	————–
Total equity		130,003	127,746	142,786
		========	========	========
Net asset value per ordinary share (pence)	7	160.09	177.30	182.13
		========	========	========

CASH FLOW STATEMENT FOR THE SIX MONTHS ENDED 30 APRIL 2020

	Six months  ended  30 April  2020  £’000  (unaudited)	Six months  ended  30 April  2019  £’000  (unaudited)	Year  ended  31 October  2019  £’000  (audited)
Operating activities
Net (loss)/profit before taxation	(14,533)	4,346	10,904
Net loss/(profit) on investments and options held at fair value through profit or loss (including transaction costs)	17,509	(2,414)	(6,772)
Net (profit)/loss on foreign exchange	(462)	160	110
Sales of investments held at fair value through profit or loss	62,649	46,164	95,699
Purchases of investments held at fair value through profit or loss	(69,736)	(46,973)	(104,461)
Increase in other receivables	(37)	(96)	(105)
(Decrease)/increase in other payables	(277)	(18)	183
(Increase)/decrease in amounts due from brokers	(574)	11	1
Increase in amounts due to brokers	244	574	328
	————–	————–	————–
Net cash (outflow)/inflow from operating activities before taxation	(5,217)	1,754	(4,113)
Taxation paid	(350)	(233)	(503)
	————–	————–	————–
Net cash (outflow)/inflow from operating activities	(5,567)	1,521	(4,616)
	————–	————–	————–
Financing activities
Proceeds from ordinary shares reissued from treasury	5,878	5,510	16,774
Share issue costs paid	(8)	(27)	(77)
Dividends paid	(3,225)	(2,792)	(5,781)
	————–	————–	————–
Net cash inflow from financing activities	2,645	2,691	10,916
	————–	————–	————–
(Decrease)/increase in cash and cash equivalents	(2,922)	4,212	6,300
Effect of foreign exchange rate changes	462	(160)	(110)
	————–	————–	————–
Change in cash and cash equivalents	(2,460)	4,052	6,190
Cash and cash equivalents at start of period/year	13,207	7,017	7,017
	————–	————–	————–
Cash and cash equivalents at end of period/year	10,747	11,069	13,207
	————–	————–	————–
Comprised of:
Cash at bank	10,747	11,069	13,207
	========	========	========

NOTES TO THE FINANCIAL STATEMENTS FOR THE SIX MONTHS ENDED 30 APRIL 2020

1. PRINCIPAL ACTIVITY
The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010.

2. BASIS OF PRESENTATION
The half yearly financial statements for the period ended 30 April 2020 have been prepared in accordance with the Disclosure Guidance and Transparency Rules sourcebook of the Financial Conduct Authority and with International Accounting Standard 34 (IAS 34), ’Interim Financial Reporting’, as adopted by the European Union (EU). The half yearly financial statements should be read in conjunction with the Company’s Annual Report and Financial Statements for the year ended 31 October 2019, which have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU and as applied in accordance with the provisions of the Companies Act 2006 and in accordance with IAS 34 Interim Financial Reporting.

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

The revised SORP issued in October 2019 is applicable for accounting periods beginning on or after 1 January 2019, therefore the Company has adopted the new SORP for the accounting year beginning 1 November 2019. As a result, there will be an amended presentation of movements in investments held at fair value through profit or loss in the notes to the financial statements, which will be included as part of the 2020 Annual Report and Financial Statements. As this note is not included as part of the Interim Report and Financial Statements, there is no impact on the Interim Report and Financial Statements as a result of the adoption of the revised SORP.

Adoption of new and amended standards and interpretations
IFRS 16 Leases
The Company adopted IFRS 16 as of the date of initial application of 1 November 2019. IFRS 16 specifies accounting for leases and removes the distinction between operating and finance leases. This standard is not applicable to the Company as it has no leases.

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

IFRS standards that have yet to be adopted
Amendments to IFRS 3 – definition of a business (effective 1 January 2020). This amendment revises the definition of a business. According to feedback received by the International Accounting Standards Board, application of the current guidance is commonly thought to be too complex and it results in too many transactions qualifying as business combinations. The standard has not been endorsed by the EU. This standard is unlikely to have any impact on the Company.

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

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

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

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

This standard has not been endorsed by the EU. This standard is unlikely to have any impact on the Company.

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

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

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

3. INCOME

	Six months  ended  30 April  2020  £’000  (unaudited)	Six months  ended  30 April  2019  £’000  (unaudited)	Year  ended  31 October  2019  £’000  (audited)
Investment income:
UK dividends	145	154	312
Overseas dividends	1,804	1,550	3,162
Overseas special dividends	–	14	14
	————–	————–	————–
	1,949	1,718	3,488
	————–	————–	————–
Other income:
Deposit interest	72	92	212
Option premium income	1,235	937	1,968
	————–	————–	————–
	1,307	1,029	2,180
	————–	————–	————–
Total income	3,256	2,747	5,668
	========	========	========

During the period, the Company received premiums totalling £1,350,000 (six months ended 30 April 2019: £917,000; year ended 31 October 2019: £2,016,000) for writing covered call options for the purposes of revenue generation. Option premiums of £1,235,000 (six months ended 30 April 2019: £937,000; year ended 31 October 2019: £1,968,000) were amortised to revenue. All derivative transactions were based on constituent stocks in the Russell 1000 Value Index. At 30 April 2020 there were 208 open positions with an associated liability of £1,150,000 (six months ended 30 April 2019: 237 open positions with an associated liability of £650,000; year ended 31 October 2019: 224 open positions with an associated liability of £482,000).

Dividends and interest received in cash during the period amounted to £1,626,000 and £72,000 (six months ended 30 April 2019: £1,620,000 and £92,000; year ended 31 October 2019: £2,944,000 and £212,000) respectively.

No special dividends have been recognised in capital during the period (six months ended 30 April 2019: £nil; year ended 31 October 2019: £nil).

4. INVESTMENT MANAGEMENT FEE

	Six months ended  30 April 2020  (unaudited)	Six months ended  30 April 2019  (unaudited)	Year ended  31 October 2019  (audited)
Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000
Investment management fee	131	393	524	114	343	457	250	752	1,002
	———–	———–	———–	———–	———–	———–	———–	———–	———–
Total	131	393	524	114	343	457	250	752	1,002
	======	======	======	======	======	======	======	======	======

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

5. OTHER OPERATING EXPENSES

	Six months  ended  30 April  2020  £’000  (unaudited)	Six months  ended  30 April  2019  £’000  (unaudited)	Year  ended  31 October  2019  £’000  (audited)
Allocated to revenue:
Custody fee	3	3	5
Auditors’ remuneration
– audit services	15	15	29
Registrar’s fee	14	13	32
Directors’ emoluments	81	60	133
Broker fees	20	20	40
Depositary fees	7	6	13
Legal and professional fees	8	8	29
Marketing fees	17	14	26
Printing fees	8	10	22
Other administration costs	35	39	74
	———-	———-	———-
	208	188	403
	———-	———-	———-
Allocated to capital:
Custody transaction charges	10	10	21
	———-	———-	———-
	218	198	424
	======	======	======

6. DIVIDENDS
The Directors have declared a second quarterly interim dividend of 2.00p per share. The dividend will be paid on 3 July 2020 to shareholders on the Company’s register on 22 May 2020. This dividend has not been accrued in the financial statements for the six months ended 30 April 2020, as under IFRS interim dividends are not recognised until paid. Dividends are debited directly to reserves.

Dividends paid on equity shares during the period were:

	Six months ended 30 April 2020 (unaudited)
Revenue  £’000	Capital  £’000	Total  £’000
Fourth interim dividend for the year ended 31 October 2019 of 2.00p per ordinary share paid on 3 January 2020	1,001	600	1,601
First interim dividend for the year ending 31 October 2020 of 2.00p per ordinary share paid on 29 April 2020	1,015	609	1,624
	———–	———–	———–
	2,016	1,209	3,225
	———–	———–	———–
Second interim dividend for the year ending 31 October 2020 of 2.00p per ordinary share payable on 3 July 2020*	1,624	–	1,624
	———–	———–	———–
	3,640	1,209	4,849
	======	======	======

*     Based on 81,204,044 ordinary shares in issue on 21 May 2020 (the ex-dividend date).

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

	Six months  ended  30 April  2020  (unaudited)	Six months  ended  30 April  2019  (unaudited)	Year  ended  31 October  2019  (audited)
Net revenue profit attributable to ordinary shareholders (£’000)	2,502	2,144	4,338
Net capital (loss)/profit attributable to ordinary shareholders (£’000)	(17,375)	1,966	6,032
	—————	—————	—————
Total (loss)/profit attributable to ordinary shareholders (£’000)	(14,873)	4,110	10,370
	—————	—————	—————
Equity shareholders’ funds (£’000)	130,003	127,746	142,786
	—————	—————	—————
The weighted average number of ordinary shares in issue during the period on which the earnings per ordinary share was calculated was:	80,690,446	70,051,946	72,835,622
	—————	—————	—————
The actual number of ordinary shares in issue at the end of each period on which the net asset value per ordinary share was calculated was:	81,204,044	72,049,044	78,399,044
	—————	—————	—————
Earnings per share
Revenue earnings per share (pence)	3.10	3.06	5.96
Capital (loss)/earnings per share (pence)	(21.53)	2.81	8.28
	—————	—————	—————
Total (loss)/earnings per share (pence)	(18.43)	5.87	14.24
	=========	=========	=========

There were no dilutive securities at the period end (six month ended 30 April 2019: nil, year ended 31 October 2019: nil).

	As at  30 April  2020  (unaudited)	As at  30 April  2019  (unaudited)	As at  31 October  2019  (audited)
Net asset value per ordinary share (pence)	160.09	177.30	182.13
	———–	———–	———–
Ordinary share price (pence)	160.50	181.50	186.50
	======	======	======

8. CALLED UP SHARE CAPITAL

(unaudited)	Ordinary  shares in  issue  (number)	Treasury  shares  (number)	Total  shares  (number)	Nominal  value  £’000
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 1 pence each:
At 31 October 2019	78,399,044	21,962,261	100,361,305	1,004
Ordinary shares reissued from treasury in the period	2,805,000	(2,805,000)	–	–
	—————–	—————–	—————–	—————–
At 30 April 2020	81,204,044	19,157,261	100,361,305	1,004
	==========	==========	==========	==========

During the period to 30 April 2020, 2,805,000 ordinary shares were reissued from treasury for a total gross consideration of £5,323,000 (period ended 30 April 2019: 3,175,000 ordinary shares for a total gross consideration of £5,510,000; year ended 31 October 2019: 9,525,000 ordinary shares for a total gross consideration of £17,252,000).

No treasury shares were cancelled during the period (six months ended 30 April 2019: nil; year ended 31 October 2019: nil).

Since 30 April 2020 and up to the date of this report, no ordinary shares have been reissued from treasury.

9. VALUATION OF FINANCIAL INSTRUMENTS
Financial assets and financial liabilities are either carried in the Statement of Financial Position at their fair value (investments 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) as set out in the Company’s Annual Report and Financial Statements for the year ended 31 October 2019.

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 markets
A financial instrument is regarded as quoted in an active market if quoted prices are regularly and readily 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 inputs
This 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 inputs
This 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 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.

The table below sets out fair value measurements using the IFRS 13 fair value hierarchy.

Financial assets/(liabilities) at fair value through profit or loss at 30 April 2020 (unaudited)	Level 1  £’000	Level 2  £’000	Level 3  £’000	Total  £’000
Assets:
Equity investments	120,771	–	–	120,771
Liabilities:
Derivative financial instruments – written options	–	(1,150)	–	(1,150)
	————–	————–	————–	————–
	120,771	(1,150)	–	119,621
	========	========	========	========

Financial assets/(liabilities) at fair value through profit or loss at 30 April 2019 (unaudited)	Level 1  £’000	Level 2  £’000	Level 3  £’000	Total  £’000
Assets:
Equity investments	118,384	–	–	118,384
Liabilities:
Derivative financial instruments – written options	–	(650)	–	(650)
	————–	————–	————–	————–
	118,384	(650)	–	117,734
	========	========	========	========

Financial assets/(liabilities) at fair value through profit or loss at 30 October 2019 (audited)	Level 1  £’000	Level 2  £’000	Level 3  £’000	Total  £’000
Assets:
Equity investments	130,525	–	–	130,525
Liabilities:
Derivative financial instruments – written options	–	(482)	–	(482)
	————–	————–	————–	————–
	130,525	(482)	–	130,043
	========	========	========	========

There were no transfers between levels for financial assets and financial liabilities during the period/year recorded at fair value as at 30 April 2020, 30 April 2019 and 31 October 2019. The Company did not hold any Level 3 securities throughout the financial period under review or as at 30 April 2020, 30 April 2019 and 31 October 2019.

10. RELATED PARTY DISCLOSURE
The Board consists of five non-executive Directors all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. With effect from 1 November 2019, the Chairman receives an annual fee of £42,000, the Chairman of the Audit & Management Engagement Committee receives an annual fee of £35,000 and each of the Directors receives an annual fee of £29,000. At 30 April 2020, an amount of £14,000 (six months ended 30 April 2019: £10,000; year ended 31 October 2019: £14,000) was outstanding in respect of Directors’ fees.

At 30 April 2020, interests of the Directors in the ordinary shares of the Company are as set out below:

	Six months  ended  30 April  2020  (unaudited)	Six months  ended  30 April  2019  (unaudited)	Year  ended  31 October  2019  (audited)
Simon Miller (Chairman)	38,094	38,094	38,094
Christopher Casey	19,047	19,047	19,047
Andrew Irvine	38,094	38,094	38,094
Alice Ryder	9,047	9,047	9,047
Melanie Roberts	–	n/a	–
	========	========	========

Since the period end and up to the date of this report there have been no changes in Directors’ holdings.

11. TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGER
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 on page 32 of the Directors’ Report in the Company’s Annual Report and Financial Statements for the year ended 31 October 2019.

The investment management fee due to BFM for the six months ended 30 April 2020 amounted to £524,000 (six months ended 30 April 2019: £457,000; year ended 31 October 2019: £1,002,000). At the period end £247,000 was outstanding in respect of the investment management fee (six months ended 30 April 2019: £456,000; year ended 31 October 2019: £546,000).

In addition to the above services, BlackRock has provided the Company with marketing services. The total fees paid or payable for these services for the period ended 30 April 2020 amounted to £17,000 excluding VAT (six months ended 30 April 2019: £14,000; year ended 31 October 2019: £26,000). Marketing fees of £40,000 excluding VAT (period ended 30 April 2019: £39,000; year ended 31 October 2019: £23,000) were outstanding as at 30 April 2020.

12. CONTINGENT LIABILITIES
There were no contingent liabilities at 30 April 2020 (six months ended 30 April 2019 and year ended 31 October 2019: nil).

13. PUBLICATION OF NON STATUTORY ACCOUNTS
The financial information contained in this half yearly financial report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 30 April 2020 and 30 April 2019 has not been audited.

The information for the year ended 31 October 2019 has been extracted from the latest published audited financial statements which have been filed with the Registrar of Companies. The report of the auditors on this financial statements contained no qualifications or statement under sections 498(2) or 498(3) of the Companies Act 2006.

14. ANNUAL RESULTS
The Board expects to announce the annual results for the year ending 31 October 2020 in late January 2021.

Copies of the annual results announcement can be obtained from the Secretary on 0207 743 3000 or cosec@blackrock.com. The Annual Report and Financial Statements should be available by the beginning of February 2021 with the Annual General Meeting being held in March 2021.

Discover more about the BlackRock North American Income Trust plc at blackrock.com/uk/brna