Half-year Report

BlackRock Income Strategies Trust plc

Half Yearly Financial Report 31 March 2016

Financial Highlights

	31 March  2016	30 September  2015	Change  %
Net assets (£’000)1,2	361,246	374,832	-3.6
Net asset value per share (debt at fair value)1	126.50p	131.00p	-3.6
– with income reinvested	129.80p	131.00p	-0.9
Ordinary share price	121.00p	130.50p	-7.3
- with income reinvested	124.19p	130.50p	-4.8
(Discount)/premium to net asset value3	(3.10%)	0.90%
	--------	--------	--------
1              Before provision for the first quarterly dividend of 1.635p per share, paid on 8 April 2016. 2              The change in net assets reflects the market movements during the period and share buybacks. 3             The discounts to NAV in the table above have been calculated based on the ex-dividend NAV of 124.87   pence per share and 129.33 pence per share as at 31 March 2016 and 30 September 2015 respectively, and not the Company’s NAV per share as disclosed on the Company’s balance sheet and in the table above. This is because accounting standards do not permit interim quarterly dividends to be reflected in the accounts until they have been paid. As the first quarterly dividend for 2016 and the third quarterly dividend for 2015 had gone ex-dividend in the Company’s share price at 31 March 2016 and 30 September 2015 as disclosed in the table above, any share rating calculated based on this ex-dividend price also needs to be calculated using an ex-dividend NAV.

	Six months  ended  31 March  2016	Six months  ended  31 March  2015	Change  %
Revenue
Net revenue return after taxation (£’000)	5,615	7,883	-28.8
Revenue return per share	2.05p	2.73p	-24.9
Dividends:
First quarterly dividend	1.635p	1.500p	+9.0
Second quarterly dividend	1.635p	1.670p	-2.1
Total dividends declared in respect of the period	3.27p	3.17p	+3.2
	========	========	========

Chairman’s statement
for the six months ended 31 March 2016

KEY DEVELOPMENTS:

-  Reshaping of portfolio in light of market volatility and NAV performance

-  Total dividends of 3.27 pence per share paid in respect of the six months under review (+3.2% increase in dividends compared to the same period last year vs +0% increase in CPI)

-  Active management of capital base to execute zero discount policy

PERFORMANCE

The six months to 31 March have proved to be a challenging period for your Company and our resulting investment performance has been disappointing.

Concerns over slowing growth in China, uncertainty as to the strength and sustainability of US growth, uncertainty over the outcome of the forthcoming UK vote on whether or not to leave the European Union and the weakness of oil and other resource prices have all contributed to significant market volatility. Consistent with our multi-asset strategy, our Manager has actively managed the portfolio through these challenging times, materially changing the portfolio mix in pursuit of delivering against our stated investment objective.

The Company’s NAV fell by 0.9% over the period under review and the share price fell by 4.8%. Although this total return performance is, of course, disappointing, it is important to recognise that our investment objective is deliberately set over a five to seven year period and that we should expect periods of under and over performance, given the relatively high equity exposure of the portfolio. Further details on key contributors to performance and on changes in portfolio composition over the period are set out in the Manager’s report.

Since the period end, the Company’s cum income NAV (with debt at fair value) per share has fallen by 0.8% and the share price has fallen by 2.1% as at close of business on 10 June 2016.

REVENUE RETURN AND DIVIDENDS

The Company’s revenue return for the six months to 31 March 2016 amounted to 2.05 pence per share, compared to 2.73 pence per share for the comparable six month period to 31 March 2015. The decrease is primarily due to changes in portfolio composition as well as the timing of dividend flows from underlying holdings.

Your Board recognises that maintaining our commitment to the dividend is especially important for many of our shareholders. A first quarterly dividend of 1.635 pence per share was paid on 8 April 2016 to shareholders on the register on 11 March 2016; the Board is pleased to declare a second interim quarterly dividend of 1.635 pence per share, payable on 22 July 2016 to shareholders on the register on 24 June 2016. Total dividends for the six months ending 31 March 2016 thus total 3.27 pence per share, a 3.2% increase on the prior year which compares to a zero increase in inflation (as measured by the Consumer Price Index) over the same period.

Over the full year the Manager is confident that the Company’s current portfolio composition, coupled with the ability to use derivatives to generate income and to utilise reserves where necessary, will support an annual dividend in line with the Company’s policy.

ZERO DISCOUNT POLICY

The Board remains committed to a zero discount policy, which we believe will enhance the attractiveness of the Company to investors by increasing the liquidity of the shares and enhancing the Company’s ability to grow over time (thereby reducing the ongoing charges per share). This policy is being implemented through active management of the Company’s share capital via a combination of share buybacks at a narrow discount to NAV and the issue of new shares at a premium to NAV.

At the outset of this six month period, the shares were trading at almost a 3% premium to NAV. In order to manage the discount and to meet market demand, your Company issued 200,000 shares in October 2015. Subsequent trading conditions resulted in the Company’s share rating moving from a premium to a discount.  Accordingly, consistent with our zero discount policy, between 29 February and 31 March 2016 your Company bought back 1,730,000 shares (approximately 0.6% of issued share capital) at an average discount of 3.2% (based on the latest published cum income NAV (with debt at fair value) at the time of purchase).

As at the end of March, the discount to NAV was 3%, in part the result of the current uncertainty in the broader equity markets. Your Board will continue to monitor the discount and take the necessary measures, when appropriate, to support its stated zero discount policy. The Company’s shares were trading at a discount of 4.3% as at close of business on 10 June 2016 (based on the cum income NAV with debt at fair value).

The Board has shareholder approval to implement tender offers at its discretion for up to 20% of issued share capital. The Board views this as a valuable additional mechanism to support the zero discount policy, although it has not been necessary to use it thus far.

OUTLOOK

This has been a challenging period for your Company. However, we remain confident in our strategy and believe that the flexible and multi-asset approach to investing will enable the Company to achieve its investment objective.

James M Long
Chairman

13 June 2016

Interim management report and responsibility statement

The Chairman’s Statement and the Investment Managers’ 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:

-  Performance;

-  Gearing;

-  Income/dividend;

-  Regulatory;

-  Operational;

-  Market; and

-  Financial.

The Board reported on the principal risks and uncertainties faced by the Company in the Annual Report and Financial Statements for the year ended 30 September 2015. A detailed explanation can be found in the Strategic Report on pages 9 to 11 and in note 18 on pages 61 to 70 of the Annual Report and Financial Statements which are available on the website maintained by BlackRock at blackrock.co.uk/bist.

In the view of the Board, there have not been any changes to the fundamental nature of these risks since the previous report and these principal risks and uncertainties are equally applicable to the remaining six months of the financial year as they were to the six months under review.

GOING CONCERN

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 at least 12 months from the date of approval of this report and is financially sound. The Company has a portfolio of investments which are considered to be mostly readily realisable and is able to meet all of its liabilities from its assets and income generated from these assets. Ongoing charges (excluding interest costs and taxation) are approximately 0.7% of net assets. For these reasons, they continue to adopt the going concern basis in preparing the financial statements.

RELATED PARTY DISCLOSURE AND TRANSACTIONS WITH THE AIFM AND INVESTMENT MANAGER

BlackRock Fund Managers Limited (BFM) was appointed as the Company’s AIFM with effect from 27 February 2015. 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)). BFM and BIM (UK) are regarded as related parties under the Listing Rules. Details of the fees payable are set out in note 3 and note 11. The related party transactions with the Directors are set out in note 10.

DIRECTORS’ RESPONSIBILITY STATEMENT

The Disclosure 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 UK Accounting Standard FRS 104 ‘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 FCA’s Disclosure and Transparency Rules.

This half yearly financial report has been reviewed by the Company’s auditor and their report is set out on pages 38 and 39 of the published Half Yearly Financial Report which can be found on the Company’s website at www.blackrock.co.uk/bist.

The half yearly financial report was approved by the Board on 13 June 2016 and the above responsibility statement was signed on its behalf by the Chairman.

James M Long

For and on behalf of the Board

13 June 2016

Investment manager’s report

Portfolio Analysis as a % of Shareholders Funds
Debt (2031 Bond 6.25%)	-16.5
UK Equities	42.2
Overseas Developed Market Equities	10.1
Emerging Market Equities	2.7
Volatility Strategies	-0.1
Listed Alternatives	7.6
Unlisted Alternatives	3.3
Fixed Income	33.7
Commodities	6.2
BlackRock’s Institutional Sterling Liquidity Fund	2.5
Net current assets	2.0
Cash and cash equivalents	2.5
Cash held to back Derivatives	3.8

1  Further definitions in relation to financial terminology used in the above graph and elsewhere in this report are given in the glossary on pages 43 to 47 of the Half Yearly Financial Report which is available on the Company’s website at www.blackrock.co.uk/bist.

2  In total, Cash and Cash Equivalents and Cash held to back Derivatives in the above chart equate to 6.3% of the Company’s net assets. In the investment listing, these amounts are held in the Cash and Cash Equivalents total of 7.7% and the Forward Currency Contracts of -1.4%. The level of cash held is linked to the multi-asset nature of the Company’s portfolio which means that the Company has the ability to obtain exposure to a range of investment strategies through derivative instruments. To the extent the Investment Manager has elected not to be geared through the use of such instruments, the Company will always hold a level of cash (or equivalent holding in an Institutional Cash Fund) on its balance sheet representative of the difference between the market value of the underlying shares to which the portfolio is exposed via the relevant derivative contract and the lower cost of using a derivative contract to gain exposure to these holdings. The Company is limited to any gearing through the use of derivative instruments such that net economic equity exposure will not exceed 120% of the Company’s net assets.

The last six months have been exceptionally challenging for all active investment managers given the very different market dynamics between the final quarter of 2015 and the first quarter of this year, and we have been no exception. The Company’s total return over the period has been a loss of 0.9%, which is clearly unsatisfactory. The frustration for us has been that although our generally cautious views about the global economy, and emerging markets in particular, have proven to be correct, we were wrong in our view that this would have limited impact on markets near-term given the ongoing support from central banks. As such, we started 2016 with too much equity exposure – something which had worked well in the latter part of 2015. Our role as investment manager is to dynamically alter the shape of the Company and its sensitivities to different markets and risks. As such, we have already made some changes to our portfolio construction to reduce the volatility, and to better reflect the greater economic uncertainties, in particular by increasing our exposure to gold and US Treasuries, whilst cutting our equity holdings in markets where we believe the fundamentals have deteriorated (Europe and Japan). In doing so, we reduced the equity beta (the portfolio sensitivity to stock market changes) quite meaningfully.

We have been cautious about the outlook for emerging markets for some time, but we expected reasonably robust economic data from the US and improvements in Europe to provide the necessary support for developed market equities and credit. Whilst our view on emerging markets turned out to be correct, and weakness in China weighed heavily on the majority of emerging market bond and equity markets in 2015, our developed market exposures did hurt performance. Indeed, in 2016, European stocks have behaved more like emerging markets with double-digit losses across equity markets due to slowing growth and a weak banking sector. We have therefore cut our European equity exposure significantly.

To position the portfolio for a positive but more volatile outlook, we have taken some decisive measures to rebalance risks across our investments over recent months, most notably reducing UK equities from 43% to 25% of the portfolio, and increasing fixed income from 25% to 36% of the portfolio (changes to the portfolio between 30 September 2015 and 31 March 2016 are set out in more detail in the portfolio analysis tables below). We were not surprised that the US central bank raised rates in 2015 (we were actually slightly frustrated that they waited so long to do it) but it is clear that the path of rate hikes is somewhat uncertain making us slightly more comfortable holding interest rate sensitive assets in the portfolio. In fact, many central banks around the world are so concerned about growth they are adopting a ‘negative interest rate policy’. The jury is certainly out on how effective this will be in stimulating growth and we have added to gold as a store of value. This has proved to be a profitable decision, and gold has been a key contributor to returns and a diversifier of risk in 2016.

Turning to the UK, the UK referendum on membership of the European Union has been at the forefront of news following David Cameron's deal with EU leaders and the referendum date set for 23 June 2016. The uncertainty surrounding “Brexit” has caused sterling to weaken which benefited overseas earners, which are strongly represented in the UK market. Our UK equity position has added value over the period, despite being increasingly volatile. Stock selection from Mark Wharrier has been robust; the biggest contributor to performance came from the holding in car insurance specialist Admiral, which reported record profits and produced a dividend increase of 16%. John Laing, the infrastructure developer and investor, reported a strong set of full year 2015 results which included a significant increase in their asset value, continuing the strong growth track record seen before its IPO.

As noted above, we feel the more defensive positioning is appropriate given the headwinds that face both emerging markets and commodities and the potential for more elevated levels of volatility over the coming months. That means we continue to have very limited exposure to emerging markets, and our sensitivity to equities is reduced. In the short-term, this means that we have gained little from the sharp rebound in commodities and other China-related assets that we have witnessed in the last few weeks. As longer-term investors, however, we continue to believe that excess debt in China and oversupply across commodity markets will weigh on the medium term outlook.

In previous commentaries I’ve kicked off with a musical reference as a light-hearted way of conveying some of the dynamics at play in financial markets. This time, however, I felt that the impact market turbulence has had on the Company should be addressed immediately. Adding to the sombre tone is the fact that we have witnessed the passing of two icons of late 20^th century music: David Bowie in January, and just recently Prince. Whilst I wouldn’t call myself an avid fan of either, on reflection I’m struck by their willingness to “do something different” in an industry full of trend chasers and “me too’s”. Their undoubted creative genius didn’t always result in commercial success, but the occasional failure didn’t stop either of them in their long-term pursuit of pushing their art-form forward rather than relying on past glory.

In a way this has echoes of what we are seeking to achieve: our differentiated approach to managing the Company (moving away from following a benchmark and instead focusing on an outcome) means that we are no longer one of the trend chasers but are instead focused on the long-term goals of our shareholders. This relies on us continually adapting the portfolio to the evolving environment, being willing to explore new ideas and markets, and never relying on past success. We won’t always get it right (and the start of 2016 is a case in point), but I would hope our shareholders would see this in a long-term context, where our hard work, creativity, and diligence should lead to a better financial outcome than simply being a “me too” investor.

Portfolio Composition as at 31 March 2016¹

	31 March 2016	30 September 2015
UK Equities	24.6%	42.9%
Overseas Developed Market Equities	7.5%	12.2%
Emerging Markets Equities	3.2%	2.8%
Volatility Strategies	8.9%	11.8%
Fixed Income	35.5%	25.3%
Alternatives (listed)	6.5%	4.0%
Alternatives (unlisted)	2.9%	–
Commodities	5.3%	–
Cash Equivalents	5.6%	1.0%

Fixed Income Portfolio	31 March 2016	30 September 2015
High Yield Bonds	13.7%	11.9%
Investment Grade Corporate Bonds	5.9%	5.5%
UK Government Bonds	3.9%	–
International Government Bonds	12.0%	7.9%

¹  All percentages reflect the value of each sector as a percentage of total investments as adjusted for the gross market exposure of derivative positions held to hedge each strategy.

UK Equities 24.6%

The portfolio’s UK equity holdings are predominantly made up of an allocation to BlackRock’s UK Equity Income strategy managed by Mark Wharrier. This portfolio is designed to generate a premium dividend yield to the UK market, dividend growth in excess of inflation over time and a total return exceeding that of the FTSE All-Share Index. Over the period, we have reduced the allocation to UK equities through hedging strategies, where we sell futures to reduce the exposure to the market. To reduce the allocation further, we have sold some UK equities to fund exposures across other asset classes such as overseas equities and alternatives. Despite the smaller allocation, we still view UK equities as a critical source of income and growth going forward.

Overseas Developed Market Equities 7.5%

Our developed market equity exposure has shifted to reflect a more globally diversified exposure with a preference for the US as well as specific macro-economic themes such as the expectation for oil prices to remain low. We have removed tilts to European equities over recent months due to concerns over weakening economic data and political uncertainty. The aggregate allocation has been reduced to fund positions within fixed income and alternatives. Whilst we believe equities have long term growth potential, we are concerned about volatility increasing and have therefore elected to reduce exposure across the portfolio.

Emerging Markets Equities 3.2%

We remain cautious on the outlook for emerging markets. The key factor driving this research view is the expectation for China to be a source of concern for investors over the medium-term. We have a small and diversified exposure to select emerging market equities but will wait for greater clarity on the ability of Chinese policy makers to assist sustainable economic growth.

Volatility strategies 8.9%

Volatility strategies focus on the direction of market volatility within asset classes such as equities. This makes them different to buying an index on equities or bonds where we are rewarded for price movements. We hold equity market strategies that typically look to generate returns by trading a number of aspects of equity market volatility. We have reduced exposure to these strategies in recent months as we expect moves in volatility to be more violent given the range of uncertainties across Europe, emerging markets and the US over the coming months. In addition to equity related ‘volatility strategies’, within this category we also include commodities related strategies that seek to exploit inefficiencies that exist between the spot price of commodities and the price of related futures contracts. All of the volatility strategies are held to provide long-term total returns.

Fixed Income 35.5%

To further diversify the sources of income within the portfolio, we have added to fixed income over the period. We have increased exposure to high yield, through an actively managed portfolio of securities. We have increased exposure to government bonds across the UK and the US where yields are low but diversification benefits exist, particularly as we believe rate hikes will be limited. We have also added to Australian bonds, which should be supported by a more challenging economic backdrop due to weakness in Chinese demand. To reduce exposure to European ‘risk assets’ we have cut our Portuguese bond holdings. We continue to avoid emerging market debt.

Alternatives 9.4%

To complement our exposure to traditional sources of income and growth, we have continued to build exposure to alternative investments. These holdings are a combination of listed alternatives where we hold exposure to private equity and credit markets, as well as unlisted alternatives that provide exposure to mortgages and venture capital. Given that expectations for growth and income across traditional asset classes are muted, we will continue to seek attractive opportunities within alternative investments.

Commodities 5.3%

We have initiated a position in gold. While it is hard to argue the benefits of a long-term allocation to an asset class that yields 0%, the tactical benefits can be significant. In 2016 a tactical opportunity for gold presented itself as the market became increasingly risk averse, and many central banks began adopting a negative interest rate policy. This combination of rising fear and supportive policy has provided the necessary conditions for the recent rally in gold prices.

Gearing and Cash

Gross gearing in the portfolio is 16.7%, implemented through the 6.25% Bonds maturing in 2031 which the Company issued 14 years ago. The Company was not geared through the use of derivatives as at the date of publication of this report but we will consider increasing exposure when suitable opportunities arise.

Adam Ryan
BlackRock Investment Management (UK) Limited

13 June 2016

Portfolio analysis

as at 31 March 2016
 

UK EQUITIES (Income & Growth)
Financials	32.7%
Consumer Services	19.1%
Consumer Goods	13.5%
Industrials	11.4%
Health Care	10.2%
Oil & Gas	5.8%
Telecommunications	4.2%
Technology	3.0%
UK Equity Hedging	0.1%

ANALYSIS OF PORTFOLIO1 (including net current assets)
UK Equities	36.2%
UK Equity Hedging	0.1%
Alternatives	9.4%
Emerging Market Equities	2.3%
Volatility Strategies	-0.1%
Fixed Income	28.9%
Overseas Developed Market Equities	8.7%
Commodities	5.3%
BlackRock’s Institutional Sterling Liquidity Fund	2.1%
Net current assets	1.7%
Cash & Cash Equivalents	1.7%
Cash held to back Derivatives	3.7%

FIXED INCOME
Europe (ex UK)	24.2%
United States	23.5%
BGF Global Corporate Bond Fund	20.2%
United Kingdom	17.9%
Australia	13.6%
Other	0.6%

ALTERNATIVES
Listed Alternatives	69.1%
Unlisted Alternatives	30.9%

Source:  BlackRock

¹ 24.4% of portfolio assets are invested in BlackRock managed funds, and any fees levied at the underlying fund level are related in full. This gives the Company access to these strategies for no additional cost over and above the arrangement fee of 40 basis points. Further details are given in note 11.

Performance
 

Ten largest equity investments

iShares Gold Trust: 5.7% (2015: Nil) The iShares Gold Trust seeks to reflect generally the performance of the price of gold. The fund is managed by BlackRock.

BSF Impact World Equity Fund: 3.6% (2015: Nil) seeks to achieve exposure to equity securities with a measurable positive societal impact. The Fund will seek to achieve this investment objective by taking long and synthetic long exposures. The Fund will seek to gain at least 80% of its investment exposure directly through equities and equity-related securities (including derivatives) of, or giving exposure to, companies domiciled in or exercising the predominant part of their economic activity in developed markets. The fund is managed by BlackRock.

BlackRock Throgmorton Trust plc: 2.5% (2015: 2.5%) is an investment trust company with an investment objective to provide shareholders with capital growth and an attractive total return by investing primarily in UK smaller companies and mid-capitalisation companies listed on the main market of the London Stock Exchange. The company’s benchmark is the Numis Smaller Companies excluding AIM (excluding Investment Companies) Index. The company has a contracts for difference portfolio of approximately 30% of net assets. The fund is managed by BlackRock.

MAS Mortgage Holdings*: 2.2% (2015: Nil) seeks to generate income through investments in UK residential mortgages. The fund is managed by BlackRock.

British American Tobacco: 2.2% (2015: 2.5%) is one of the world’s leading tobacco groups, with more than 200 brands in the portfolio selling in approximately 180 markets worldwide.

Lloyds Banking Group: 2.1% (2015: 2.0%) is a UK-based financial services company, providing a range of banking and financial services to individual and business customers.

Funding Circle SME Income Fund: 2.1% (2015: Nil) provides access to a diversified portfolio of loans originated through Funding Circle’s global geographies in the UK, USA, Germany, Spain and the Netherlands. The Fund buys up to 35% of loans originated through the Funding Circle marketplace. The target Net Asset Value total return is 8-9% per annum, and the annual target dividend yield is 6-7 pence per share.

AstraZeneca: 2.0% (2015: 2.4%) is a global pharmaceutical company, operating in the research, development, manufacture and marketing of pharmaceutical products.

BGF Emerging Markets Equity Income Fund: 1.8% (2015: 1.5%) is a diversified portfolio of predominantly emerging market equities selected for their ability to generate income from dividends. The fund can also hold developed market securities that have significant business operations in emerging markets. The fund is managed by BlackRock.

Unilever: 1.8% (2015: 1.3%) is a global consumer products group with strong market positions in emerging markets and a growing bias towards personal care.

Largest fixed income investments (included within top ten overall portfolio holdings)

BGF Global Corporate Bond Fund: 6.3% (2015: 5.8%) aims to maximise returns through a combination of capital growth and income from the Fund’s assets. The Fund invests globally, and at least 70% of its total assets are held in fixed income securities. These include bonds and money market instruments. At least 70% of the Fund’s total assets will be issued by companies and will be investment grade at the time of purchase. The fund is managed by BlackRock.

Australia 4.2% 21 April 2026: 4.2% (2015: Nil) is a debt security issued by the Australian Government, used to access Australian government bonds.

UK Government 2% 7 Sep 2025: 4.1% (2015: Nil) is a debt security issued by the United Kingdom Government, used to access UK government bonds.

US Treasury 0.375% 15 Jul 2025: 3.9% (2015: Nil) is a debt security issued by the United States of America Government, used to access US government bonds.

Blackstone GSO Loan Financing: 2.2% (2015: 2.4%) is a United Kingdom-based closed-ended investment company. The company’s investment objective is to provide shareholders with stable and growing income returns, and to grow the capital value of the investment portfolio by exposure predominately to floating rate senior secured loans directly and indirectly through collateralized loan obligation income notes. The Company invests in sectors, such as health care and pharma; business services; chemical, plastic and rubber; capital equipment; construction and building; broadcast and subscription; retail; beverage, food and tobacco; hotel, gaming and leisure, and banking and finance.

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 30 September 2015. Together, the ten largest equity investments represent 26.0% of the Company’s portfolio (ten largest investments at 30 September 2015: 24.5%).

*    Unquoted holding.

Portfolio valuation

as at 31 March 2016

Company	Sector	Market  value  £’000	Market value  as a % of  net assets	Gross  market  exposure1  £’000
Equities
UK Equities
Blackrock Throgmorton Trust*	Financials	9,907	2.7	9,907
British American Tobacco	Consumer Goods	8,578	2.4	8,578
Lloyds Banking Group	Financials	8,433	2.3	8,433
AstraZeneca	Health Care	7,727	2.1	7,727
Unilever	Consumer Goods	7,147	2.0	7,147
BT Group	Telecommunications	6,362	1.8	6,362
Royal Dutch Shell 'B'	Oil & Gas	5,591	1.5	5,591
RELX	Consumer Services	5,534	1.5	5,534
Wolseley	Industrials	4,932	1.4	4,932
Aviva	Financials	4,773	1.3	4,773
Sky	Consumer Services	4,703	1.3	4,703
Carnival	Consumer Services	4,353	1.2	4,353
GlaxoSmithKline	Health Care	4,334	1.2	4,334
Legal & General Group	Financials	4,277	1.2	4,277
Intercontinental Hotels Group	Consumer Services	3,760	1.0	3,760
HSBC Holdings	Financials	3,579	1.0	3,579
Imperial Brands	Consumer Goods	3,558	1.0	3,558
Rentokil Initial	Industrials	3,481	1.0	3,481
Shire	Health Care	3,432	1.0	3,432
Admiral Group	Financials	3,423	0.9	3,423
Remaining 19 UK Equity investments		44,583	12.3	44,583
		--------	--------	--------
Total		152,467	42.1	152,467
		--------	--------	--------
UK Equity Hedges		162	0.1	(48,763)
		--------	--------	--------
Total		152,629	42.2	103,704
		--------	--------	--------
Overseas Developed Market Equities
BSF Impact World Equity Fund*		14,180	3.9	14,180
Scottish Mortgage Investment Trust	Financials	4,947	1.4	4,947
Sanofi	Health Care	3,691	1.0	3,691
Altria Group	Consumer Goods	3,439	1.0	3,439
Compagnie Financiere Richemont	Consumer Goods	1,661	0.4	1,661
Accenture 'A'	Industrials	247	0.1	247
Pitney Bowes	Technology	241	0.1	241
Fedex	Industrials	239	0.1	239
Ienergizer	Industrials	235	0.1	235
Fluor	Industrials	233	0.1	233
Remaining 46 Overseas Developed Market Equity investments		9,339	2.5	9,339
Overseas Developed Market Hedges		(1,977)	(0.6)	(6,649)
		--------	--------	--------
Total		36,475	10.1	31,803
		--------	--------	--------
Emerging Market Equities
BGF Emerging Markets Equity Income Fund*		7,130	2.0	7,130
BGF ASEAN Leaders Fund*		2,160	0.6	2,160
Emerging Market Hedges		234	0.1	3,980
		--------	--------	--------
Total		9,524	2.7	13,270
		--------	--------	--------
Total Equities		198,628	55.0	148,777
		======	=====	======

Company		Market  value  £’000	Market value  as a % of  net assets	Gross  market  exposure1  £’000
Volatility Strategies
Equity Volatility Premium Strategies
CBOE SPX Call Option 18/05/16 23		179	0.0	755
CBOE SPX Call Option 18/05/16 30		(151)	0.0	(695)
		--------	--------	--------
Commodity Strategies
TRS - Goldman Sachs Volatility Carry Basket		(297)	(0.1)	4,846
TRS - ML Commodity Volatility Carry Strategy		113	0.0	4,941
USD SGD Put Option		11	0.0	1,350
USD SGD Put Option		(3)	0.0	254
		--------	--------	--------
Other
Euro Stoxx Utilities Index Put Options @ 235		(161)	0.0	2,453
EUR CZK Call Option		2	0.0	167
EUR CZK Call Option		6	0.0	670
TRS - BAML Vortex Strategy		464	0.1	10,060
TRS - Deutsche Bank V2X/VIX Strategy		(536)	(0.1)	15,187
		--------	--------	--------
Total Volatility Strategies		(373)	(0.1)	39,988
		=====	=====	======

Company		Market  value  £’000	Market value  as a % of  net assets	Gross  market  exposure1  £’000
Fixed Income
International Government Bonds		50,574	14.0	50,574
Hedging Strategies (Euro and USD Put Options)		-	-	(30,755)
		--------	--------	--------
Total		50,574	14.0	19,819
		--------	--------	--------
UK Government Bonds		16,194	4.5	16,194
Investment Grade Corporate Bonds		24,874	6.9	24,874
High Yield Bonds		29,963	8.3	57,786
		--------	--------	--------
Total Fixed Income		121,605	33.7	118,673
		======	=====	======

Company	Market  value  £’000	Market value  as a % of  net assets	Gross  market  exposure1  £’000
Alternatives
Listed Alternatives
Funding Circle SME Income Fund	8,263	2.3	8,263
Foresight Solar Fund	4,663	1.3	4,663
iShares UK Property*	4,517	1.3	4,517
JP Morgan Global Convertibles Income Fund	3,656	1.0	3,656
NB Distressed Debt Investment Fund	3,195	0.9	3,195
Woodford Patient Capital Trust	3,022	0.8	3,022
	--------	--------	--------
Total	27,316	7.6	27,316
	--------	--------	--------
Unlisted Alternatives
MAS Mortgage Holdings*	8,774	2.4	8,774
Forward Partners	3,417	0.9	3,417
	--------	--------	--------
Total	12,191	3.3	12,191
	--------	--------	--------
Total Alternatives	39,507	10.9	39,507
	======	=====	======

Company		Market  value  £’000	Market value  as a % of  net assets	Gross  market  exposure1  £’000
Commodities
iShares Gold Trust*		22,536	6.2	22,536
Gold Call Option 26/04/16 1300		(58)	0.0	(2,438)
		--------	--------	--------
Total Commodities		22,478	6.2	20,098
		======	=====	======

	Market  value  £’000	Market value  as a % of  net assets
Total Forward Currency Contracts	(5,037)	(1.4)
	======	=====
BlackRock's Institutional Sterling Liquidity Fund	9,011	2.5
Add: Forward Currency contracts	5,037	1.4
Add: Derivatives	1,660	0.4
	--------	--------
Total investments	392,516	108.6
	======	=====
Cash and cash equivalents	27,820	7.7
Net other liabilities	(59,090)	(16.3)
	--------	--------
Net assets	361,246	100.0
	======	=====

1  Gross market exposure is the market value of the underlying shares to which the portfolio is exposed via the contract.

*  Denotes a BlackRock managed product.

Income statement

for the six months ended 31 March 2016

	Notes	Revenue £’000			Capital £’000			Total £’000
		Six  months  ended  31.03.16  (unaudited)	Six  months  ended  31.03.15  (unaudited)	Year  ended  30.09.15  (audited)	Six  months  ended  31.03.16  (unaudited)	Six  months  ended  31.03.15  (unaudited)	Year  ended  30.09.15  (audited)	Six  months  ended  31.03.16  (unaudited)	Six  months  ended  31.03.15  (unaudited)	Year  ended  30.09.15  (audited)
Gains/(losses) on investments held at fair value through profit or loss	2	–	–	–	2,525	6,524	(33,380)	2,525	6,524	(33,380)
(Losses)/gains on foreign exchange		–	–	–	(8,830)	(1,438)	4,306	(8,830)	(1,438)	4,306
Income from investments held at fair value through profit or loss	2	6,977	9,315	23,024	–	–	–	6,977	9,315	23,024
Other income	2	17	72	96	–	–	–	17	72	96
		--------	--------	--------	--------	--------	--------	--------	--------	--------
Total income		6,994	9,387	23,120	(6,305)	5,086	(29,074)	689	14,473	(5,954)
		--------	--------	--------	--------	--------	--------	--------	--------	--------
Expenses
Investment management fee	3	(262)	(343)	(624)	(486)	(639)	(1,159)	(748)	(982)	(1,783)
Operating expenses	4	(403)	(478)	(957)	(16)	(2)	(24)	(419)	(480)	(981)
		--------	--------	--------	--------	--------	--------	--------	--------	--------
Total operating expenses		(665)	(821)	(1,581)	(502)	(641)	(1,183)	(1,167)	(1,462)	(2,764)
		--------	--------	--------	--------	--------	--------	--------	--------	--------
Net profit/(loss) on ordinary activities before finance costs and taxation		6,329	8,566	21,539	(6,807)	4,445	(30,257)	(478)	13,011	(8,718)
Finance costs		(699)	(732)	(1,410)	(1,298)	(1,342)	(2,616)	(1,997)	(2,074)	(4,026)
		--------	--------	--------	--------	--------	--------	--------	--------	--------
Net profit/(loss) on ordinary activities before taxation		5,630	7,834	20,129	(8,105)	3,103	(32,873)	(2,475)	10,937	(12,744)
Taxation		(15)	49	34	–	–	–	(15)	49	34
		--------	--------	--------	--------	--------	--------	--------	--------	--------
Net profit/(loss) on ordinary activities after taxation		5,615	7,883	20,163	(8,105)	3,103	(32,873)	(2,490)	10,986	(12,710)
		--------	--------	--------	--------	--------	--------	--------	--------	--------
Return per ordinary share	6	2.05p	2.73p	7.07p	(2.95p)	1.08p	(11.52p)	(0.90p)	3.81p	(4.45p)
		========	========	========	========	========	========	========	========	========

The total column of this statement represents the Company’s Profit and Loss Account. 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 and no operations were acquired or discontinued during the period. All income is attributable to the equity holders of BlackRock Income Strategies Trust plc.

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

Statement of changes in equity

for the six months ended 31 March 2016

	Called  up  share  capital  £’000	Capital  redemption  reserve  £’000	Capital  reserves  £’000	Revenue  reserve  £’000	Total  £’000
For the six months ended 31 March 2016 (unaudited)
At 30 September 2015	72,778	15,563	249,811	36,680	374,832
Total comprehensive income:
(Loss)/profit for the period	–	–	(8,105)	5,615	(2,490)
Transactions with owners, recorded directly to equity:
Ordinary shares issued from treasury	–	–	270	–	270
Ordinary shares purchased into treasury	–	–	(2,106)	–	(2,106)
Tender mechanism costs	–	–	(8)	–	(8)
Dividends paid (a)	–	–	–	(9,252)	(9,252)
	--------	--------	--------	--------	--------
At 31 March 2016	72,778	15,563	239,862	33,043	361,246
	--------	--------	--------	--------	--------
For the six months ended 31 March 2015 (unaudited)
At 30 September 2014	72,778	15,563	302,990	35,534	426,865
Total comprehensive income:
Profit for the period	–	–	3,103	7,883	10,986
Transactions with owners, recorded directly to equity:
Ordinary shares purchased into treasury	–	–	(1,237)	–	(1,237)
Dividends paid (b)	–	–	–	(9,893)	(9,893)
	--------	--------	--------	--------	--------
At 31 March 2015	72,778	15,563	304,856	33,524	426,721
	--------	--------	--------	--------	--------
For the year ended 30 September 2015 (audited)
At 30 September 2014	72,778	15,563	302,990	35,534	426,865
Total comprehensive income:
(Loss)/profit for the year	–	–	(32,873)	20,163	(12,710)
Transactions with owners, recorded directly to equity:
Ordinary shares purchased into treasury	–	–	(20,256)	–	(20,256)
Tender offer costs	–	–	(50)	–	(50)
Dividends paid (c)	–	–	–	(19,017)	(19,017)
	--------	--------	--------	--------	--------
At 30 September 2015	72,778	15,563	249,811	36,680	374,832
	--------	--------	--------	--------	--------

(a)  Third quarterly interim dividend of 1.67p per share for the year ended 30 September 2015, paid on 9 October 2015. Final dividend of 1.70p per share for the year ended 30 September 2015, paid on 29 January 2016.

(b)  Third quarterly interim dividend of 1.53p per share for the year ended 30 September 2014, paid on 10 October 2014. Final dividend of 1.895p per share for the year ended 30 September 2014, paid on 30 January 2015.

(c)  Third quarterly interim dividend of 1.53p per share for the year ended 30 September 2014, paid on 10 October 2014. Final dividend of 1.895p per share for the year ended 30 September 2014, paid on 30 January 2015. First quarterly interim dividend of 1.50p per share for the year ended 30 September 2015, paid on 10 April 2015. Second quarterly interim dividend of 1.67p per share for the year ended 30 September 2015, paid on 10 July 2015.

The transaction costs incurred on the acquisition and disposal of investments are included within the capital reserves and amounted to £284,000 for the six months ended 31 March 2016 (six months ended 31 March 2015: £987,000; year ended 30 September 2015: £1,486,000).

Balance sheet

as at 31 March 2016

	Notes	31 March  2016  £’000  (unaudited)	31 March  2015  £’000  (unaudited)	30 September  2015  £’000  (audited)
Fixed assets
Investments held at fair value through profit or loss		392,516	365,513	411,230
		--------	--------	--------
Current assets
Debtors		7,936	25,531	4,546
Derivative financial instruments		5,333	1,305	3,374
Collateral pledged with brokers		9,235	–	17,524
Cash and cash equivalents		27,820	98,627	14,678
		--------	--------	--------
		50,324	125,463	40,122
		--------	--------	--------
Creditors – amounts falling due within one year
Collateral received from brokers		(2,000)	–	(884)
Derivative financial instruments		(6,993)	(1,400)	(9,569)
Other creditors		(13,008)	(3,289)	(6,488)
		--------	--------	--------
		(22,001)	(4,689)	(16,941)
		--------	--------	--------
Net current assets		28,323	120,774	23,181
		--------	--------	--------
Total assets		420,839	486,287	434,411
Creditors – amounts falling due after more than one year	8	(59,593)	(59,566)	(59,579)
		--------	--------	--------
Net assets		361,246	426,721	374,832
		--------	--------	--------
Capital and reserves
Called up share capital	7	72,778	72,778	72,778
Capital redemption reserve		15,563	15,563	15,563
Capital reserves		239,862	304,856	249,811
Revenue reserve		33,043	33,524	36,680
		--------	--------	--------
Total shareholders’ funds	6	361,246	426,721	374,832
		--------	--------	--------
Net asset value per ordinary share (debenture at par value)	6	132.37p	147.96p	136.58p
		--------	--------	--------
Net asset value per ordinary share (debenture at fair value)	6	126.50p	142.08p	131.00p
		=======	=======	=======

Statement of cash flows

for the six months ended 31 March 2016

	Six  months  ended  31 March  2016  £’000  (unaudited)	Six  months  ended  31 March  2015  £’000  (unaudited)	Year  ended  30 September  2015  £’000  (audited)
Operating activities
(Loss)/profit before taxation	(2,475)	10,937	(12,744)
Finance costs	1,997	2,074	4,026
(Gains)/losses on investment	(2,525)	(6,524)	33,380
Net movement on foreign exchange	8,830	1,438	(4,320)
Sales of investments	237,426	445,899	602,681
Purchase of investments	(221,073)	(335,692)	(550,639)
(Increase)/decrease in debtors	(5,941)	(1,815)	2,525
Increase in other creditors	9,370	2,035	585
Net movement in collateral balances	9,405	–	(16,640)
Taxation withheld	17	49	–
	--------	--------	--------
Net cash generated from operating activities	35,031	118,401	58,854
	--------	--------	--------
Financing activities
Shares issued from treasury	270	–	–
Shares purchased to be held in treasury	(2,106)	(1,237)	(20,256)
Tender mechanism costs	(8)	–	(50)
Interest paid	(1,963)	(2,034)	(3,987)
Outflow from repayment of revolving loan facility	–	(19,962)	(19,962)
Dividends paid	(9,252)	(9,893)	(19,017)
	--------	--------	--------
Net cash used in financing activities	(13,059)	(33,126)	(63,272)
	--------	--------	--------
Increase/(decrease) in cash	21,972	85,275	(4,418)
	--------	--------	--------
Cash and cash equivalents at the beginning of the period/year	14,678	14,790	14,790
Effect of foreign exchange rate changes	(8,830)	(1,438)	4,306
	--------	--------	--------
Cash and cash equivalents at the end of period/year	27,820	98,627	14,678
	--------	--------	--------
Comprised of:
Cash at bank	27,820	98,627	14,678
	--------	--------	--------
	27,820	98,627	14,678
	=======	=======	=======

Notes to the financial statements

for the six months ended 31 March 2016
 

1. Principal activity and basis of preparation

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.

The Company is applying for the first time, for the year ending 30 September 2016, FRS 102, ‘The Financial Reporting Standard applicable in the UK and Republic of Ireland’, which forms part of revised Generally Accepted Accounting Practice (New UK GAAP) issued by the Financial Reporting Council (FRC) in 2012 and 2013 and which came into effect for accounting periods beginning on or after 1 January 2015. The last financial statements prepared under the previous UK GAAP were for the year ended 30 September 2015.

The condensed set of financial statements has been prepared on a going concern basis in accordance with FRS 102 and FRS 104 ‘Interim Financial Reporting’ issued by the FRC in March 2015 and the revised Statement of Recommended Practice – ‘Financial Statements of Investments Trusts Companies and Venture Capital Trusts’ (SORP) issued by the Association of Investment Companies (AIC) in November 2014.

As a result of the first time adoption of ‘New UK GAAP’ and the revised SORP, comparative amounts and presentation formats have been amended where required. The changes to accounting policies relate to the composition of cash and cash equivalents, change in the presentation of cash flows (see below) and fair value hierarchy of financial instruments (see note 9). There were no adjustments to either the Company’s Income Statement for the financial year ended 30 September 2015 or the total equity as at 1 October 2014 and 30 September 2015 between UK GAAP as previously reported and FRS 102 as a result of changes to accounting policies.

The Company’s Statement of Cash Flows reflects the presentation requirements of FRS 102, which is different to that prepared under FRS 1. In addition, the Statement of Cash Flows reconciles to cash and cash equivalents, whereas under previous UK GAAP the Statement of Cash Flows reconciled to cash. Cash and cash equivalents are defined in FRS 102 as ‘cash in hand and demand deposits, 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’ and the bank overdraft which forms an integral part of the Company’s cash management policy, whereas cash is defined in FRS 1 as ‘cash in hand and deposits repayable on demand with any qualifying institution, less overdrafts from any qualifying institution repayable on demand’.

The accounting policies applied for the financial statements with regard to measurement and classification are as set out in the Company’s Annual Report and Financial Statements for the year ended 30 September 2015. This reflects the Company’s application of Sections 11 and 12 of FRS 102, in relation to financial instruments, in full.

References to prior, individual Financial Reporting Statements (FRS) should now be taken as references to FRS 102 and FRS 104.

2. Income

	Six  months  ended  31 March  2016  £’000  (unaudited)	Six  months  ended  31 March  2015  £’000  (unaudited)	Year  ended  30 September  2015  £’000  (audited)
Investment Income:
UK listed dividends	3,131	6,549	10,619
Overseas listed dividends	1,039	1,355	3,522
Fixed interest income	1,354	1,043	2,566
Derivative income	1,453	368	6,317
	--------	--------	--------
	6,977	9,315	23,024
	--------	--------	--------
Other income:
Interest	17	53	77
Underwriting commission	–	19	19
	--------	--------	--------
	17	72	96
	--------	--------	--------
Total Income	6,994	9,387	23,120
	======	======	======

Dividends and interest received during the period amounted to £3,488,000 and £1,318,000 (six months ended 31 March 2015: £6,550,000 and £817,000; year ended 30 September 2015: £14,319,000 and £2,441,000) respectively.

Gains/(losses) on investments held at fair value through profit or loss

	Six  months  ended  31 March  2016  £’000  (unaudited)	Six  months  ended  31 March  2015  £’000  (unaudited)	Year  ended  30 September  2015  £’000  (audited)
Realised (losses)/gains on sales	(25,696)	39,101	27,953
Movement in investment holding gains/(losses)	28,221	(32,577)	(61,333)
	--------	--------	--------
Total	2,525	6,524	(33,380)
	======	======	======

3. Investment management fee

	Six months ended 31 March 2016 (unaudited)			Six months ended 31 March 2015 (unaudited)			Year ended 30 September 2015 (audited)
	Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000	Revenue  £’000	Capital  £’000	Total  £’000
Investment management fee – BlackRock	262	486	748	56	116	172	337	636	973
Investment management fee – F&C	–	–	–	287	523	810	287	523	810
	--------	--------	--------	--------	--------	--------	--------	--------	--------
Total	262	486	748	343	639	982	624	1,159	1,783
	======	======	======	======	======	======	======	======	======

The investment management fee, which is levied at a rate of 0.4% per annum of the Company’s total assets less current liabilities (excluding loans) is allocated 35% to the revenue column and 65% to the capital column of the Income Statement.

BlackRock waived the management fees payable to the Company up to the level of transition and restructuring costs, which were estimated to be in the region of £762,000. The fees in the above table that are shown as accrued to BlackRock have been credited to a payables account on the Company’s balance sheet, offsetting amounts debited to the same account in respect of transition costs. As at 31 March 2016, £44,000 of transition costs were still outstanding. Adjustments to the waived total costs of £762,000 will be made as and when these accruals are cleared.

The Company also receives a rebate on the management fees levied on its underlying investments in other BlackRock managed funds in the normal course of business to ensure that no double counting occurs. These are recognised on an accruals basis and are treated as reduction in management fee expense and allocated between revenue and capital in accordance with the Company’s policy for allocation of management fees. Additional information is given in note 11.

4. Operating expenses

	Six  months  ended  31 March  2016  £’000  (unaudited)	Six  months  ended  31 March  2015  £’000  (unaudited)	Year  ended  30 September  2015  £’000  (audited)
Custody fees	18	(2)	12
Depositary fees	26	19	47
Amounts paid to the auditors	28	29	48
Registrar’s fees	42	47	98
Directors’ emoluments – fees for services to the Company	83	150	232
Marketing fees	68	45	107
Other administration costs	138	190	413
	--------	--------	--------
	403	478	957
	--------	--------	--------
Transaction costs to capital	16	2	24
	--------	--------	--------
Total	419	480	981
	======	======	======

5. Dividend

In accordance with FRS 102 Section 32 ‘Events After the End of the Reporting Period’, the interim dividend payable on ordinary shares has not been included as a liability in the financial statements, as interim dividends are only recognised when they have been paid.

The Board has declared a first interim dividend of 1.635p per share (2015: 1.500p per share), which was paid on 8 April 2016 to shareholders on the register as at 11 March 2016; the ex-dividend date was 10 March 2016. The total cost of this dividend, based on 273,887,282 shares in issue was £4,478,000 (2015: £4,326,000).

The Board has declared a second interim dividend of 1.635p per share (2015: 1.670p per share), which will be paid on 22 July 2016 to shareholders on the register as at 24 June 2016; the ex-dividend date will be 23 June 2016. The total cost of this dividend, based on 272,357,282 shares in issue (as at close of business on 10 June 2016) is £4,453,000 (2015: £4,816,000).

6. Return and net asset value per ordinary share

Revenue and capital returns per share are shown below and have been calculated using the following:

	Six  months  ended  31 March  2016  (unaudited)	Six  months  ended  31 March  2015  (unaudited)	Year  ended  30 September  2015  (audited)
Net revenue profit attributable to ordinary shareholders (£’000)	5,615	7,883	20,163
Net capital (loss)/profit attributable to ordinary shareholders (£’000)	(8,105)	3,103	(32,873)
	--------	--------	--------
Total (loss)/profit (£’000)	(2,490)	10,986	(12,710)
	--------	--------	--------
Equity shareholders’ funds (£’000)	361,246	426,721	374,832
	--------	--------	--------
The weighted average number of ordinary shares in issue during each period, on which the return per ordinary share was calculated, was:	274,440,234	288,566,128	285,283,310
	--------	--------	--------
The actual number of ordinary shares in issue at the end of the period, on which the net asset value was calculated, was:	272,907,282	288,412,282	274,437,282
	--------	--------	--------
Revenue return per ordinary share	2.05p	2.73p	7.07p
	--------	--------	--------
Capital return per ordinary share	(2.95p)	1.08p	(11.52p)
	--------	--------	--------
Total return per share	(0.90p)	3.81p	(4.45p)
	--------	--------	--------
Net asset value per share (debt at par value)	132.37p	147.96p	136.58p
	--------	--------	--------
Net asset value per share (debt at fair value)	126.50p	142.08p	131.00p
	========	========	========

7. Called up share capital and shares held in treasury

	Number  of  ordinary  shares  in  issue	Number  of  treasury  shares  in  issue	Total	Nominal  value  £’000
Allotted, called up and fully paid share capital comprised:
Ordinary shares of 25p each:
At 30 September 2015	274,437,282	16,675,000	291,112,282	72,778
Shares issued from treasury	200,000	(200,000)	–	–
Shares bought back and held in treasury	(1,730,000)	1,730,000	–	–
	--------	--------	--------	--------
At 31 March 2016	272,907,282	18,205,000	291,112,282	72,778
	========	========	========	========

Subsequent to the period end 550,000 shares were bought back into treasury at a cost of £665,000.

8. Creditors – amounts falling due after more that one year

	Six  months  ended  31 March  2016  £’000  (unaudited)	Six  months  ended  31 March  2015  £’000  (unaudited)	Year  ended  30 September  2015  £’000  (audited)
6.25% Bonds 2031	59,593	59,566	59,579
	=======	=======	=======

The fair value of the 6.25% Bonds using the last available quoted offer price from the London Stock Exchange as at 31 March 2016 was 126.02p per bond, a total of £75,609,000 (31 March 2015: 127.51p per bond, a total of £76,506,000; 30 September 2015: 124.84p per bond, a total of £74,904,000).

9. Valuation of financial instruments

The Company has early adopted the amendments to FRS 102 ‘Fair value hierarchy disclosure’ effective for annual periods beginning on or after 1 January 2017. These amendments improve the consistency of fair value disclosure for financial instruments compared with those required by EU adopted IFRS.

The Company classifies financial instruments measured at fair value using a fair value hierarchy. The fair value hierarchy has the following categories:

Level 1 – Quoted prices in active markets for identical instruments

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available 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 in active markets for similar instruments; 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 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 techniques used include inputs not based on 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 unobservable adjustments or assumptions are required to reflect differences between the instruments and instruments for which there is no active 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 in its entirety.

For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. 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” requires significant judgement by the investment manager. The investment manager considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The table below is an analysis of the Company’s financial instruments measured at fair value at the balance sheet date.

Financial assets/(liabilities) at  fair value through profit or  loss at 31 March 2016	Level 1   Â£â€™000	Level 2  £’000	Level 3  £’000	Total  £’000
Equity investments	250,061	–	12,191	262,252
Fixed interest instruments	121,253	–	–	121,253
Options – Financial assets	–	3,043	–	3,043
Options – Financial liabilities	–	(3,670)	–	(3,670)
Forward – currency contracts – Financial assets	–	5,836	–	5,836
Forward – currency contracts – Financial liabilities	–	(10,873)	–	(10,873)
Futures – Financial assets	–	146	–	146
Futures – Financial liabilities	–	(530)	–	(530)
Total return swaps	–	(1,001)	–	(1,001)
Credit default swap	–	–	352	352
BlackRock’s Institutional Sterling Liquidity Fund	9,011	–	–	9,011
	--------	--------	--------	--------
Total	380,325	(7,049)	12,543	385,819
	========	========	========	========

Financial assets/(liabilities) at  fair value through profit or  loss at 31 March 2015	Level 1   Â£â€™000	Level 2  £’000	Level 3  £’000	Total  £’000
Equity investments	267,754	–	–	267,754
Fixed interest instruments	57,759	–	–	57,759
Options – Financial assets	–	1,305	–	1,305
Options – Financial liabilities	–	(1,268)	–	(1,268)
Forward – currency contracts – Financial assets	–	69	–	69
Forward – currency contracts – Financial liabilities	–	(1,903)	–	(1,903)
Total return swaps	–	(132)	–	(132)
BlackRock’s Institutional Sterling Liquidity Fund	40,000	–	–	40,000
	--------	--------	--------	--------
Total	365,513	(1,929)	–	363,584
	========	========	========	========

Financial assets/(liabilities) at  fair value through profit or  loss at 30 September 2015	Level 1   Â£â€™000	Level 2  £’000	Level 3  £’000	Total  £’000
Equity investments	269,239	–	–	269,239
Fixed interest instruments	84,354	–	–	84,354
Options – Financial assets	–	2,759	–	2,759
Options – Financial liabilities	–	(3,810)	–	(3,810)
Forward – currency contracts – Financial assets	–	418	–	418
Forward – currency contracts – Financial liabilities	–	(2,588)	–	(2,588)
Futures – Financial assets	–	305	–	305
Futures – Financial liabilities	–	(877)	–	(877)
Total return swaps	–	(4,251)	–	(4,251)
Credit default swap	–	–	(321)	(321)
BlackRock’s Institutional Sterling Liquidity Fund	57,637	–	–	57,637
	--------	--------	--------	--------
Total	411,230	(8,044)	(321)	402,865
	=======	======	======	=======

There were no transfers between levels for financial assets and financial liabilities during the period recorded at fair value as at 31 March 2016, 30 September 2015 and 31 March 2015.

As at 31 March 2016, the Level 3 investments were comprised of two Equity investments and a Credit Default Swap.

The Forward Partners investment of £3,417,000 (30 September 2015 and 31 March 2015: £nil) is valued using an independent external valuer and the MAS Mortgage Holdings investment of £8,774,000 (30 September 2015 and 31 March 2015: £nil) is valued using a model which reflects the mortgage market in general including default rates.

The iTraxx Xover Credit Default Swap investment of £352,000 (30 September 2015: £321,000, 31 March 2015: £nil) is valued using a model which reflects the prices of vanilla iTraxx Xover contracts and defaults in the particular Series held.

None of the valuation methods have changed in the period. (30 September 2015 and 31 March 2015: No changes).

10. Related party disclosure

The Board consists of six non-executive Directors, five of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £41,250, the Audit Committee Chairman receives £28,250, the Senior Independent Director receives £26,250 and each of the other Directors receive an annual fee of £24,250.

At the period end members of the Board held ordinary shares in the Company as set out below:

		Ordinary  shares  31 March 2016	Ordinary  shares  30 September 2015
James Long (Chairman from 26 February 2015)		37,879	29,802
		--------	--------
Jim Grover		27,500	27,500
		--------	--------
Lynn Ruddick3	beneficial non-beneficial	165,598  7,052	165,482  6,874
		--------	--------
Ian Russell (Audit Committee Chairman from 26 February 2015)		27,500	27,500
		--------	--------
Julian Sinclair		36,200	36,200
		--------	--------
Jimmy West (Senior Independent Director)		63,400	63,400
		--------	--------

11. Transactions with the AIFM and manager

BlackRock Fund Managers Limited (“BFM”) was appointed as the Company’s AIFM with effect from 27 February 2015. BFM has (with the Company’s consent) delegated certain portfolio and risk management services, and other ancillary services, to BIM (UK). Details of the fees payable to BIM (UK) and to BFM with effect from 27 February 2015 are set out in note 3.

The investment management fees due to the Investment Manager for the six months ended 31 March 2016 amounted to £748,000 (six months ended 31 March 2015: £982,000; year ended 30 September 2015: £1,783,000).

In addition to the above services, BlackRock provides the Company with marketing services. The total fees paid or payable for these services for the six month period ended 31 March 2016 amounted to £57,000, excluding VAT (six months ended 31 March 2015: £37,000 and year ended 30 September 2015: £89,000). Marketing fees of £134,000 excluding VAT were outstanding at 31 March 2016 (31 March 2015: £19,000, 30 September 2015: £89,000).

The Company also has investments in several funds managed by BlackRock and details of the amounts invested as at 31 March 2016, 31 March 2015 and 30 September 2015 are set out in the table below. As disclosed in note 3, management fees may be levied on some of these investments. To the extent that any such management fees have been charged in respect of these holdings, the Company is rebated these management fees on a regular basis to ensure that no double charging occurs. For the period from 1 October 2015 to 31 March 2016, fees of £155,000 were levied in respect of the iShares UK Property, iShares Gold Trust, BGF Emerging Markets Equity Income Fund, BGF Global Equity Income Fund, BlackRock Throgmorton Trust plc and the MAS Mortgage Holdings Fund, and were rebated in full to the Company

	Value  31  March  2016  £’000	Value  31  March  2015  £’000	Value  30  September  2015  £’000
Fund
BGF ASEAN Leaders Fund	2,160	10,081	1,760
BGF Asian Dragon Fund	–	4,996	4,076
BGF Emerging Markets Equity Income Fund	7,130	14,941	6,372
BGF Global Corporate Bond Fund	24,539	24,404	23,782
BGF Global Equity Income Fund	–	24,249	22,881
BlackRock’s Institutional Sterling Liquidity Fund	9,011	40,000	57,637
BlackRock Throgmorton Trust	9,907	–	10,315
BSF Impact World Equity Fund	14,180	–	–
iShares Gold Trust	22,536	–	–
iShares UK Property Fund	4,517	–	4,997
MAS Mortgage Holdings	8,774	–	–
	========	========	========

12. Contingent assets/liabilities

There were no contingent liabilities or assets at 31 March 2016, 31 March 2015 or 30 September 2015.

13. Publication of non statutory accounts

The financial information contained in this half yearly report does not constitute statutory accounts as defined in section 435 of the Companies Act 2006. The financial information for the six months ended 31 March 2016 and 31 March 2015 has not been audited.

The information for the year ended 30 September 2015 has been extracted from the latest published audited finanical statements, which have been filed with the Registrar of Companies. The report of the auditor on those accounts contained no qualification or statement under sections 498(2) or (3) of the Companies Act 2006.

14. Annual results

The Board expects to announce the annual results for the year ending 30 September 2016, as prepared under New UK GAAP, in December 2016. Copies of the annual results announcement can be obtained from the Secretary on 0207 743 3000. The Annual Report and Financial Statements should be available by late December 2016 with the Annual General Meeting being held in February 2017.

12 Throgmorton Avenue
London
EC2N 2DL

ENDS

The Half Yearly Financial Report will also be available on the BlackRock website atwww.blackrock.co.uk/bist. 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:

Mark Johnson, Managing Director, Investment Trusts, BlackRock Investment Management (UK) Limited
Tel: [phone]

Adam Ryan, BlackRock Investment Management (UK) Limited
Tel: [phone]

Press enquiries:

Lucy Horne, Lansons Communications – Tel:  [phone]
E-mail:  [e-mail]

13 June 2016
12 Throgmorton Avenue
London EC2N 2DL