Annual Financial Report

RNS Number : 7838J

Edinburgh Worldwide Inv Trust PLC

21 December 2015

 

Edinburgh Worldwide Investment Trust plc

Annual Financial Report

A copy of the Annual Report and Financial Statements for the year ended 31 October 2015 has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM.

The Annual Report and Financial Statements for the year ended 31 October 2015 including the Notice of Annual General Meeting are also available on Edinburgh Worldwide's page of the Baillie Gifford website at:http://www.edinburghworldwide.co.uk

The unedited full text of those parts of the Annual Report and Financial Statements for the year ended 31 October 2015 which require to be published by DTR 4.1 is set out on the following pages.

Neither the contents of the Managers' website nor the contents of any website accessible from hyperlinks on the Managers' website (or any other website) is incorporated into, or forms part of, this announcement.

Baillie Gifford & Co Limited

Company Secretaries

21 December 2015

Chairman's Statement

Performance

This was the Company's first full financial year since shareholders approved a broadening of the investment policy at the January 2014 Annual General Meeting. It is therefore pleasing to note that in the year to 31 October 2015 the Company's net asset value outperformed its comparative index by 6.5 percentage points. The Company's net asset value per share, when calculated at fair value, increased by 10.0% and the share price by 13.8%. The comparative index, the S&P Global Small Cap Index, increased by 3.5% in sterling terms during this period. Over the course of the year the discount to net assets at fair value averaged 7.3% and stood at 5.3% as at 31 October 2015.

The Company's financial year can be split into two distinct halves, with the first showing notable strength in returns followed by a second half where the Company retraced some absolute but not relative performance. Following the summer highs achieved by many indices, the reported slowdown of the Chinese economy appeared to catch many investors unaware. The subsequent Chinese devaluation of the currency led to broader concerns over the state of the global economy and growth in general, resulting in what appeared to be investor panic, with global equities seemingly sold indiscriminately due to broader concerns over global growth. Given this backdrop, the Company's results for the full year are encouraging and the Board and Managers remain convinced of the long term merits of the investment approach employed; equities are selected on their respective merits and periods of market volatility provide opportunities for long term discerning investors to invest in growth companies at attractive valuations. Greater detail on the performance of the underlying holdings in the portfolio can be found within the Managers' Review on pages 9 and 10 of the Annual Report and Financial Statements.

It should be noted that due to the nature of the investment process and focus on smaller companies at time of initial investment, the portfolio's lack of correlation to a benchmark, in accordance with the Company's policy, and the deployment of gearing, there will be periods when the portfolio underperforms its comparative index. However, such periods should be put into context against the longer period that Baillie Gifford has been managing the assets; over the past twelve years net asset value per share has increased by 219%, the share price by 276% and the comparative index by 153%*.

Unlisted Investments

At the Company's 2014 Annual General Meeting, shareholders granted the Company authority to invest up to 5% of total assets in unlisted equity investments in aggregate at time of acquisition. At its year end, the Company held two unlisted equity investments, Souq Group and Oxford Nanopore Technologies, accounting for 1.7% of total assets. The ability to invest in unlisted equities through a closed ended vehicle is one of the notable benefits of the investment trust structure and a differentiating factor versus open ended peers. The Board and Managers are excited by the business models of these two investments and their potential as long term investments within the portfolio. Further information on them and the Managers' strategy towards investing in unlisted equities are outlined in further detail on pages 9 and 10 of the Annual Report and Financial Statements.

Borrowings

The Managers invest in companies that are believed to have long term attractions and the Company will therefore typically be geared to equities to maximise potential returns. Equity gearing was maintained throughout the year and stood at 10% at the financial year end (2014 - 10%).

The Company has a five year fixed rate multi-currency loan from National Australia Bank Limited, expiring in September 2019. At present, drawings are €9.4 million, US$25.6 million and £7.5 million.

Earnings and Dividend

The Company's objective is that of generating capital growth. Consequently, the Managers do not invest in companies based on the level of income they may pay out as dividends.

As highlighted in my statement last year, the Board does not intend to draw on the Company's revenue reserve to pay or maintain dividends. This year the net revenue return per share was a deficit of 0.18p (2014: surplus of 0.14p), so the Board is recommending that no final dividend be paid. Should the level of underlying income increase in future years, the Board will seek to distribute the minimum permissible to maintain investment trust status by way of a final dividend.

The Board

I intend to stand down as Chairman and retire from the Board in a year's time, at the conclusion of the Company's 2017 Annual General Meeting. It is intended that Mr Henry Strutt will replace me as Chairman. The process for identifying a new Board member has commenced and the Board intends that a new Director will have been identified and appointed by this time next year. The appointment would then fall to be ratified by shareholders at the Company's 2017 Annual General Meeting.

Investment Outlook

The economic backdrop is one of uncertainty and polarisation between economies that are growing and those that are struggling to do so. The US Federal Reserve is seemingly close to raising rates for the first time since 2006 and there is some speculation that the Bank of England would be the next major central bank to follow suit. In contrast, it is more likely that rates will be coming down in Europe. Elsewhere, China's economy is slowing as it continues its shift to an innovation rather than investment led model with the focus on domestic consumption rather than exports. This mixed global picture is causing some investor schizophrenia, resulting in periods of notable market volatility from which very few companies are sheltered.

Immature, innovative, fast-growing businesses are not immune from exhibiting price volatility. However, the Board and Managers believe that business fundamentals ultimately prevail over the investment cycle. Successful smaller companies create and exploit their own long term opportunities despite the economic conditions at any given time. As mentioned last year, being able to identify the companies that value innovation, which have both a cultural acceptance of it and a means to develop commercial opportunities around it, is key to unearthing the market leaders of the future and is a key focus for the Managers.

An overview is provided by the Managers on pages 9 and 10 of the Annual Report and Financial Statements.

Annual General Meeting

The Annual General Meeting of the Company will be held at Baillie Gifford's offices in Edinburgh at 12 noon on Thursday 28 January 2016. The Company will once again be seeking to renew its share buyback, issuance and treasury share powers. Further information on these resolutions can be found on page 19 of the Annual Report and Financial Statements.

Douglas Brodie and John MacDougall, the portfolio's Manager and Deputy Manager, will give a presentation and answer any questions. The Board will also be available to respond to any questions that you may have. I hope that you will be able to attend.

David HL Reid

Chairman

10 December 2015

* MSCI All Countries World Index (in sterling terms) until 31 January 2014, thereafter the S&P Global Small Cap Index (in sterling terms). The index data has been chain linked to form one comparative index figure. Figures are total return with net asset value at par.

Past performance is not a guide to future performance.

Managers' Review

We are approaching the second anniversary of re-focusing Edinburgh Worldwide to the opportunity in innovative smaller companies. At the time we emphasised that our approach of identifying attractive growth companies earlier in their lifecycle, retaining ownership of successful companies as they grow and thrive, was one that required patience and a long term stance. Hence it should come as no surprise that 23 of the current 25 largest holdings, in aggregate comprising just over half the assets,

have been held since then.

Our rationale for targeting innovative smaller companies stems from our belief that such companies are playing an increasingly important role in shaping the world in which we live, either through disruption of incumbent businesses or creation of entirely new markets. We sense that the competitive playing field between small and large companies across many industries is becoming much more balanced with technology being the great leveller. Whilst technology is available for businesses to utilise, it's often the innovative, more nimble smaller businesses that are best positioned to exploit it; they tend to lack the bureaucracy and fixed mindset that often prevails in large businesses and they possess the incentive and drive to do things differently. Technology, in all its different guises, not only creates much of the opportunity for innovation, it also is having radical effects on the rate at which businesses can scale and globalise; digitisation bypasses much of the requirement for costly infrastructure and distribution, a trend that is seen in industries as diverse as retail, finance, transportation and healthcare. For those companies prepared to experiment and think big we believe the opportunity is as great as it has ever been.

While stock markets agonise over the (inevitable) ending of quantitative easing and timing of interest rate rises we think there is a danger that such myopic approaches are in danger of overlooking the bigger, much more structural theme; that of a deepening and broadening out of technology across all areas of business and our lives. These developments create a backdrop of immense opportunity and will drive a new age of innovation, business creation and disruption over the coming decades. The impacts of this will be profound; many industries will be forced into periods of accelerated evolution, incumbents will face severe challenges and new champions will be created. It's a backdrop that excites us and one which we believe to be well suited to our approach.

The underlying progress and application of technology observed thus far owes a huge debt to the silicon wafer and advances in computer processing power. Increasingly though we think such progress will synergise with advances in areas such as material sciences, sensors, robotics and our growing understanding of biology. It's the latter of these areas that intrigues us the most, not least because of the size of the opportunity in medicine but also we sense that the traditional serendipitous drug discovery approach is set to be replaced by one which emphasises rationally designed, highly targeted therapies that are much better at treating the root cause of a disease. The rise in the share prices of many biotechnology companies over the past three or so years has led some to speculate that a biotech bubble is forming. We find such generalisations difficult and often dangerous where the commonality between individual companies is often no higher than an index-centric sector definition. We concede that markets are beginning to recognise that healthcare innovation is accelerating but much of the biotech sectors rerating thus far relates to investors rediscovering a sector that, until comparatively recently, was viewed very unfavourably (all the inherent risk of drug discovery and development but without the diversification of a large pharmaceutical company). Advances in areas such as gene editing, DNA sequencing and protein engineering have created a readily accessible toolkit for scientists to experiment and explore. These tools, when used in conjunction with our increased molecular and cellular understanding of disease, create a wealth of new therapeutic opportunities and they are helping to lay the foundations of a healthcare revolution. Importantly, while the requirement for clinical trials will always mean that bringing a drug to market is a long cycle activity, the use of more rational, science-led approaches potentially has favourable effects on the risk-reward characteristics of drug development. Those companies that are successful at R&D will ultimately build out significant 'biological real-estate'; a land grab phase that we think has interesting parallels with early years of the internet (e.g. desire to be the dominant gene editing company versus the battle to be the dominant search engine). The Trust invests in many healthcare companies which we believe are building out highly relevant, potentially transformational, biological real-estate; we would highlight holdings in Alnylam (gene silencing), Cellectis (gene editing for cancer therapy), 4D Pharma (microbiome-based therapies) and Dexcom (real time blood glucose monitoring for diabetics).

Within the 12 months under review the healthcare holdings contributed strongly to performance. Encouraging clinical trial data was well received for two of our European biotechnology companies, Galapagos and Genmab. With regard to Genmab we are pleased to note that, post the Trust's year end, the company has received approval for its first-to-market antibody treatment for multiple myeloma. Whilst still early stage, we are highly encouraged by the progress made by the French biotechnology company Cellectis. The company has a well differentiated offering in the field of cell-based cancer treatment which feeds heavily off its world-leading expertise in gene editing. We would also highlight the progress made by 4D Pharma at identifying, and bringing towards the clinic, novel bacteria with a range of potential therapeutic applications. To our minds the notion that naturally occurring, gut based bacteria play an important role in health is intriguing and is a proposition where the supportive scientific

evidence is rapidly building.

Outside of the Trust's healthcare holdings we would also highlight a very strong contribution from MarketAxess, the US based electronic bond trading platform. The combination of increasing regulatory pressure and a desire to access liquidity will continue to push bond investors towards the MarketAxess platform and, in time, we think the company can broaden out geographically and into alternative investment instruments. On a less encouraging note, and as highlighted in the interim report, Stratasys reduced its shorter term earnings guidance as an increased level of investment in the business has coincided with weak demand for 3D printers. We are closely watching how the industry develops and our belief is that structural growth will prevail given the extent to which automation and additive manufacturing techniques are likely to transform how many products are made.

We acquired a number of new holdings in the period including positions in two unlisted companies, Oxford Nanopore Technologies and Souq. At the 2014 Annual General Meeting, shareholders granted the Company authority to invest up to 5% of total assets in unlisted equity investments in aggregate at time of acquisition. Our rationale for seeking this flexibility related to our observation that a number of companies with the attributes we seek were coming to equity markets at a later stage in their development than might have historically been the case. Oxford Nanopore is developing a novel system for direct and exquisitely sensitive electronic analysis of single molecules in real time. It's a business we have got to know over a number of years on account of it being one of the larger companies to emerge from IP Group, the intellectual property commercialisation business held by the Trust. We are excited by the progress Oxford Nanopore has made at applying its technology in the area of DNA sequencing where we feel the inherent advantages of their approach begin to open up sequencing to a much larger market opportunity than is currently the case. Souq operates Souq.com, an online market place that is one of the most popular websites in the Middle East. We are attracted to the broad e-commerce opportunity that Souq offers driven in part by the favourable wealth and population demographics within its key markets.

Within the listed area we would also highlight new holdings in Grubhub, an online food ordering and delivery service for take-away restaurants in the US, Puretech, a healthcare-focused holding company with strong links to many leading academics and an interesting portfolio of young high potential businesses, and Wayfair, a homeware and furniture focused e-commerce company.

Investment Philosophy

Most small businesses are destined to stay small given their limited scope for both structural growth and meaningful differentiation. Such businesses constitute the bulk of the smaller companies' universe yet are of no appeal to us. However, what is intriguing about the smaller companies' universe is that it contains a subset of immature but potentially high growth companies. By identifying attractive growth companies earlier we seek to benefit from growth at an earlier stage in a company's lifecycle and retain ownership of successful companies as they grow and thrive; we see our role as investing in what are potentially the larger companies of the future as opposed to the smaller companies of today.

We are looking to concentrate on the part of the market where we believe our analytical effort and the pursuit of genuinely transformational growth can be better exploited. The focus at time of initial investment is on younger, more immature companies that are global and exhibiting strong growth.

It is important to remember that big successful ideas typically start out as small, tentative and unproven. Early iterations are easy to dismiss as unworkable but experimentation with, and evolution of, an initially raw concept can, over time, yield huge commercial relevance. Our philosophy involves weighing up what is proven and tangible alongside what has promise and long term potential. Integral to this approach is recognising the role of innovation in business development; it provides the fuel for business creation, growth and long term competitive differentiation. Consequently, identifying companies that value innovation, having both a cultural acceptance of it and a means to develop commercial opportunities around it, is fundamental to our investment approach.

Growth companies, especially those which are young and hard to model, are difficult businesses to value. The wide range of potential outcomes and profitability that is heavily skewed to future years is a combination of uncertainties that many investors struggle with. We do not have all the answers but by approaching the challenge with a genuine long term perspective, accepting a degree of uncertainty, backing robust innovation and entrepreneurial management, we believe we are well positioned to identify the smaller businesses most likely to shape the world in which we live. As technological advancements encroach into an increasing pool of opportunity, the rate and extent of growth that a small business can achieve, in a relatively short period of time, is almost unrecognisable to that of a few years ago. Innovative smaller businesses that are unburdened by the legacy of historic business practices, or those willing to adapt to change, are best positioned to harness this opportunity.

Portfolio and Equity Performance as at 31 October 2015

Name	Business	Fair value 2015 £'000	% of total assets	Performance†		Fair value 2014 £'000
				Absolute %	Relative %
IP Group	Intellectual property   commercialisation	11,698	4.5	15.8	9.8	8,631
MarketAxess	Electronic bond trading platform	10,905	4.2	63.6	55.2	6,673
Alnylam Pharmaceuticals	Therapeutic gene silencing	9,723	3.8	(4.0)	(8.9)	10,121
4D Pharma	Bacteria derived novel   therapeutics	8,039	3.1	135.2	123.1	3,900
Ocado	Online food retailer	6,764	2.6	51.4	43.6	3,965
Tesla Motors	Electric cars	6,017	2.3	(11.3)	(15.9)	6,784
TripAdvisor	Online travel review platform	5,994	2.3	(2.1)	(7.1)	6,123
EPAM Systems	Outsourced software and services	5,740	2.2	67.8	59.2	3,420
Stamps.com	Website for postage services	5,251	2.0	112.3	101.4	2,474
IPG Photonics	High-power fibre lasers	5,231	2.0	16.6	10.6	4,485
MonotaRO	Online business supplies	4,945	1.9	109.5	98.8	2,370
LinkedIn	Professional networking site	4,568	1.8	9.0	3.4	5,190
Temenos	Banking software	3,990	1.6	41.0	33.8	2,860
Financial Engines	Investment advisory firm	3,956	1.5	(15.7)	(20.0)	3,612
Dexcom	Real time blood glucose monitoring	3,932	1.5	91.7	81.9	4,887
Xeros Technology Group	Commercial laundry manufacturer	3,580	1.4	95.1	85.1	1,947
M3	Online medical database	3,541	1.4	23.5	17.1	2,876
Novadaq Technologies	Medical systems for intra-surgical   imaging	3,449	1.3	(13.5)	(17.9)	3,978
Imagination Technologies	Graphics semiconductor designer	3,363	1.3	16.4	10.4	2,888
Next	Provides online property    information	3,361	1.3	182.5	168.0	1,540
Cosmo Pharmaceuticals	Therapies for gastrointestinal   diseases	3,325	1.3	1.3	(3.9)	2,498
Zillow Class C	US online real estate portal	3,258	1.3	12.8*	15.8*	-
Genus	Animal breeding services	3,206	1.2	19.5	13.4	2,721
Wirecard	Internet payment and processing   services	3,157	1.2	50.7	43.0	2,684
Start Today	Internet fashion retailer	3,048	1.2	66.4	57.9	1,849
Seattle Genetics	Antibody conjugates based   biotechnology	3,047	1.2	17.2	11.2	3,106
Oxford Nanopore   Technologies ‡	Novel DNA sequencing technology	3,000	1.2	0.0*	2.8*	-
Xaar	Ink jet printing technology	2,915	1.1	87.3	77.7	1,594

Name	Business	Fair value 2015 £'000	% of total assets	Performance†		Fair value 2014 £'000
				Absolute %	Relative %
Splunk	Data diagnostics	2,817	1.1	(12.0)	(16.5)	3,199
ASOS	Online fashion retailer	2,772	1.1	22.8	16.5	2,258
Genmab	Therapeutic antibody company	2,695	1.1	126.7*	113.7*	-
Renishaw	Measurement and calibration   equipment	2,654	1.0	8.6	3.0	2,500
Rightmove	UK online property portal	2,647	1.0	82.9	73.5	1,899
Dialog Semiconductor	Analogue chips for mobile phones	2,572	1.0	12.4	6.6	3,791
Aerovironment	Small unmanned aircraft systems	2,566	1.0	(22.0)	(26.0)	3,292
Morphosys	Therapeutic antibodies	2,566	1.0	(32.1)	(35.6)	3,796
Xing	Professional networking	2,554	1.0	94.6	84.6	1,844
Puretech Health	IP commercialisation focused on    healthcare	2,543	1.0	(3.3)*	0.8*	-
Galapagos	Clinical stage biotechnology   company	2,430	0.9	247.4	229.6	1,459
SEEK	Online recruitment portal	2,369	0.9	(33.2)	(36.7)	3,642
Victrex	High-performance thermo-plastics	2,351	0.9	14.4	8.5	2,153
iRobot	Domestic and military robots	2,344	0.9	(12.7)	(17.2)	3,810
Abcam	Scientific reagent supplier	2,336	0.9	53.2	45.3	1,551
Wayfair	Online furniture and homeware   retailer	2,335	0.9	0.2*	(6.5)*	-
AAC Technologies	Miniature acoustic components	2,296	0.9	12.6	6.8	2,085
Cellectis	Biotech focused on genetic   engineering	2,231	0.9	113.8	102.9	1,045
Avacta Group	Analytical reagents and   instrumentation	2,173	0.8	81.8	72.5	682
National Instruments Corp	Instrumentation equipment used in   research and testing	2,157	0.8	2.4*	9.5*	-
Yoox Net-A-Porter	Online luxury fashion retailer	2,056	0.8	91.3	81.5	1,073
Kingdee International   Software	Enterprise management software	2,041	0.8	32.2	25.4	408
Faro Technologies	Designs and develops    measurement devices	2,028	0.8	(37.5)	(40.7)	3,252
Teradyne	Semiconductor testing equipment   manufacturer	1,895	0.7	11.1	5.4	1,725
Stratasys	3D printer manufacturer	1,892	0.7	(78.0)	(79.2)	7,641
SDL	Language translation services	1,858	0.7	(0.9)	(6.0)	1,882
Digital Garage	Internet business incubator	1,833	0.7	28.2	21.6	2,177
Zillow Class A	US online real estate portal	1,809	0.7	(13.7)	(18.1)	6,172
Basware	Software solutions for financial   transactions	1,800	0.7	(13.8)	(18.2)	1,558
hVIVO (formerly   Retroscreen Virology)	Outsourced pre-clinical analytical   services	1,717	0.7	2.1	(3.1)	1,710
Tissue Regenix	Regenerative medical devices	1,672	0.7	(20.3)	(24.4)	657
Xero	Cloud-based accounting software	1,659	0.6	(9.1)	(13.8)	1,843
Infomart Corp	Internet platform for restaurant   supplies	1,652	0.6	4.1*	10.8*	-
Noah	Distributes wealth management   products in China	1,632	0.6	77.0	67.9	922
Zumtobel	Commercial lighting	1,546	0.6	35.3	28.3	1,144
Foundation Medicine	Develops cancer diagnostic   technology	1,449	0.6	(10.3)	(14.9)	1,618
Barco	Designs and develops visualisation   Solutions	1,432	0.6	(5.0)	(9.9)	1,543
Nanoco	Quantum dot manufacturer	1,372	0.5	(57.8)	(60.0)	2,999
Power Integrations	Analogue integrated circuits	1,372	0.5	5.0	(0.4)	1,318
BitAuto	Chinese automotive website	1,371	0.5	(60.5)	(62.6)	3,474
Peptidream	Drug discovery platform	1,353	0.5	8.9*	6.8*	-
Exa	Simulation software and services	1,351	0.5	(1.3)	(6.4)	1,333
Bioamber	Bioengineering Co	1,339	0.5	(17.8)*	(12.3)*	-
Evola Holdings	Yeast-based industrial   biotechnology	1,324	0.5	(17.7)*	(11.5)*	-

Name	Business	Fair value 2015 £'000	% of total assets	Performance†			Fair value 2014 £'000
				Absolute %	Relative %
Horizon Discovery	Customised cell lines to aid drug   discovery	1,313	0.5	(15.9)	(20.3)		1,140
Souq Group ‡	Middle East e-commerce website	1,295	0.5	(1.3)*	4.9*		-
Ricardo	Automotive engineer	1,242	0.5	39.8	32.6		902
Oxford Instruments	Produces advanced   instrumentation equipment	1,159	0.5	(50.9)	(53.4)		2,408
Ilika	Discovery and development of   materials for mass market   applications	1,155	0.5	(2.0)*	1.2*		-
Fusionex	Software for data analytics	1,123	0.4	15.4*	15.3*		-
Senomyx	Developer of additives to amplify   certain flavours in foods	1,104	0.4	(35.3)	(38.6)		1,708
Suss Microtec	Fabrication and inspection   equipment	984	0.4	34.0	27.1		724
Medgenics	Therapeutic protein delivery   technology	970	0.4	40.8	33.5		674
Nanocarrier	Drug delivery technology	969	0.4	(21.7)*	(23.2)*		-
Acacia Research	Patent licenser	958	0.4	(60.5)	(62.5)		2,498
GrubHub	Online and mobile platform for   restaurant pick-up and delivery   orders	931	0.4	(25.1)*	(22.8)*		-
China Financial Services	Small and medium-sized enterprise   lending in China	907	0.4	30.4	23.7		716
Ceres Power Holding	Developer of fuel cell	821	0.3	2.2	(3.0)		821
Oisix	Organic food website	765	0.3	5.6	0.1		724
MakeMyTrip	Online travel services	763	0.3	(45.1)	(47.9)		2,336
Thin Film Electronics	Develops printed, rewritable   memory media	711	0.3	(20.5)	(24.6)		895
Digimarc	Digital watermarking technology	675	0.3	(31.6)*	(36.2)*		-
Ensogo	South East Asian e-commerce	647	0.3	(52.5)*	(50.3)*		-
Codexis	Manufacturer of custom industrial   enzymes	627	0.3	0.4*	3.0*		-
Sarine Technologies	Systems for diamond grading and   cutting	613	0.2	(49.0)		(51.7)	1,239
Intelligent Energy Holding	Developer of modular fuel cells	589	0.2	(52.5)		(54.9)	1,234
Summit Therapeutics	Drug discover and development	521	0.2	(1.1)		(6.2)	533
Foamix Pharmaceuticals	Drug reformulation technology	513	0.2	(37.6)*		(34.9)*	-
C4X Discovery Holdings	Rational drug design and   optimisation	465	0.2	(29.0)		(32.6)	651
Velocys	Gas to liquid technology	267	0.1	(64.5)		(66.3)	752
Applied Graphene Materials	Manufactures grapheme   nanoplatelets	208	0.1	(8.0)		(12.7)	228
GI Dynamics	Develops and markets medical   devices	19	0.0	(90.7)		(91.2)	207
China Lumena New Materials	Mines, processes and   manufactures natural thenardite   products	0	0.0	(100.0)		(100.5)	0
Total equities		250,178	96.9
Net liquid assets		7,977	3.1
Total assets at fair value #		258,155	100.0

†    Absolute and relative performance has been calculated on a total return basis over the period 1 November 2014 to 31 October 2015 (performance figures for investments bought during the period are part-period returns - see note below). Absolute performance is in sterling terms; relative performance is against S&P Global Small Cap Index (in sterling terms).

*     Figures relate to part-period returns where equity has been purchased during the period.

#    Before deductions of loan

‡    Denotes unlisted security.

Source: Baillie Gifford/StatPro.

Past performance is not a guide to future performance.

Geographical Distribution of Total Assets

					At 31 October 2015 %	At 31 October 2014 %
North America					39.3	47.0
		USA			39.3	45.2
		Canada			-	1.8
South America					-	0.5
	Mexico				-	0.5
Europe					43.3	34.9
	United Kingdom				29.2	22.8
	Eurozone				10.4	9.4
	Developed Europe (non euro)				3.7	2.7
Africa and Middle East					0.5	-
	U.A.E				0.5	-
						-
Asia					12.0	10.9
	Japan				8.3	4.8
	China				2.3	2.4
	Hong Kong				0.9	0.9
	India				0.3	1.4
	Indonesia				-	0.9
	Singapore				0.2	0.5
Australasia					1.8	2.4
	Australia				1.2	1.6
	New Zealand				0.6	0.8
Total equities					96.9	95.7
Net liquid assets					3.1	4.3
Total assets*					100.0	100.0

Sectoral Distribution of Total Assets

	At 31 October 2015 %	At 31 October 2014 %
Consumer Discretionary	15.8	16.9
Energy	0.1	0.3
Financials	11.2	8.6
Health Care	27.0	23.4
Industrials	7.9	9.1
Information Technology	32.2	35.7
Materials	2.7	1.7
Net Liquid Assets	3.1	4.3
Total assets*	100.0	100.0

* Total assets before deduction of loans

Investment Changes

	Valuation at 31 October 2014 £'000	Net acquisition/ (disposals) £'000	Appreciation/ (depreciation) £'000	Valuation at 31 October 2015 £'000
Equities:
North America
USA	107,071	(3,027)	(2,354)	101,690
Canada	4,392	(5,046)	654	-
South America
Mexico	1,228	(718)	(510)	-
Europe
United Kingdom	54,272	8,776	12,475	75,523
Eurozone	22,318	(7,837)	12,172	26,653
Developed Europe (non euro)	6,253	3,777	(797)	9,233
Africa and the Middle East
U.A.E.	-	1,311	(16)	1,295
Asia
Japan	11,536	2,403	7,528	21,467
China	5,520	1,888	(1,457)	5,951
Hong Kong	2,085	-	211	2,296
India	3,185	(774)	(1,648)	763
Indonesia	2,221	(2,248)	27	-
Singapore	1,239	-	(626)	613
Australasia
Australia	3,849	1,416	(2,230)	3,035
New Zealand	1,843	-	(184)	1,659
Total equities	227,012	(79)	23,245	250,178
Net current assets	10,212	(2,651)	416	7,977
Total assets	237,224	(2,730)	23,661	258,155

Distribution of Total Assets* by Industry

		Industry Analysis 31 October 2015 %		Portfolio Weightings (relative to comparative index†) at 31 October 2015 %
	Biotechnology	13.8		11.0
	Internet and Catalogue Retail	9.7		9.2
	Internet Software and Services	8.3		6.5
	Software	6.7		3.6
	Capital Markets	6.7		3.8
	Electronic Equipment, Instruments and Components	6.6		3.8
	Pharmaceuticals	4.6		3.0
	Semiconductors and Semiconductor Equipment	4.5		2.5
	Diversified Financial Services	4.2		3.1
	IT Services	4.2		1.7
	Health Care Equipment and Supplies	3.7		1.4
	Life Sciences Tools and Services	3.2		2.4
	Chemicals	2.7		(0.5)
	Automobiles	2.3		2.2
	Media	2.3		(0.4)
	Professional Services	2.2		1.0
	Computers and Peripherals	2.1		1.6
	Trading Companies and Distributors	1.9		0.6
	Machinery	1.6		(2.3)
	Health Care Technology	1.6		1.2
	Electrical Equipment	1.1		0.1
	Aerospace and Defence	1.0		(0.2)
	Household Durables	0.9		(0.8)
	Speciality Retail	0.5		(2.1)
	Consumer Finance	0.4		(0.2)
	Energy Equipment and Services	0.1		(1.1)
	Net Liquid Assets	3.1
Total assets		100.0
* Total assets before deduction of bank loan
† S&P Global Small Cap Index (in sterling terms). Weightings exclude industries where the Company has no exposure.

Related Party Transactions

The Directors' fees for the year are detailed in the Directors' Remuneration Report on page 26 of the Annual Report and Financial Statements.

No Director has a contract of service with the Company. During the year no Director was interested in any contract or other matter requiring disclosure under section 412 of the Companies Act 2006.

Management Fee Arrangements

In order to comply with the Alternative Investment Fund Managers Directive ('AIFMD'), the Company has appointed Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, as its Alternative Investment Fund Manager ('AIFM') with effect from 1 July 2014. Baillie Gifford & Co Limited was also appointed Company Secretaries with effect from the same date. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co.

The Investment Management Agreement sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Management Agreement is terminable on not less than three months' notice. Compensation fees would only be payable in respect of the notice period if termination by the Company were to occur sooner. The Board is of the view that calculating the fee with reference to performance would be unlikely to exert a positive influence on performance. The annual management fee payable is 0.95% on the first £50m of net assets and 0.65% on the balance. Management fees are calculated and payable on a quarterly basis.

The details of the management fee are as follows:

	2015 £'000		2014 £'000
Investment management fee	1,660		1,447
Secretarial fee	-		-
	1,660		1,447

Principal Risks and Uncertainties

As an Investment Trust, the Company invests in equities and makes other investments so as to meet its investment objective of achieving long term capital growth. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests.

These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise the short term volatility.

The risk management policies and procedures outlined in this note have not changed substantially from the previous accounting period.

Market Risk

The fair value or future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board of Directors reviews and agrees policies for managing these risks and the Company's Investment Managers both assess the exposure to market risk when making individual investment decisions and monitor the overall level of market risk across the investment portfolio on an ongoing basis.

(i) Currency Risk

Certain of the Company's assets, liabilities and income are denominated in currencies other than sterling (the Company's functional currency and that in which it reports its results). Consequently, movements in exchange rates may affect the sterling value of those items.

The Investment Managers monitor the Company's exposure to foreign currencies and report to the Board on a regular basis. The Investment Managers assess the risk to the Company of the foreign currency exposure by considering the effect on the Company's net asset value and income of a movement in the rates of exchange to which the Company's assets, liabilities, income and expenses are exposed. However, the country in which a company is listed is not necessarily where it earns its profits. The movement in exchange rates on overseas earnings may have a more significant impact upon a company's valuation than a simple translation of the currency in which the company is quoted.

Foreign currency borrowings can limit the Company's exposure to anticipated future changes in exchange rates which might otherwise adversely affect the value of the portfolio of investments.

Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown on page 44 of the Annual Report and Financial Statements.

At 31 October 2015	Investments £'000		Cash and deposits £'000		Bank Loan £'000		Other debtors and creditors* £'000		Net exposure £'000
US dollar	107,264		2,647		(16,576)		482		93,817
Yen	21,467		-		-		1,894		23,361
Euro	23,328		-		(6,723)		2,598		19,203
Swiss franc	8,639		-		-		-		8,639
Hong Kong dollar	5,244		-		-		-		5,244
Australian dollar	3,035		-		-		-		3,035
Danish krone	2,695		-		-		-		2,695
New Zealand dollar	1,659		-		-		-		1,659
Indian rupee	-		-		-		726		726
Norweigian krone	711		-		-		-		711
Singapore dollar	613		-		-		-		613
Indonesian rupiah	-		-		-		-		-
Mexican peso	-		-		-		-		-
Total exposure to   currency risk	174,655		2,647		(23,299)		5,700		159,703
Sterling	75,523		87		(7,500)		(457)		67,653
	250,178		2,734		(30,799)		5,243		227,356

* Includes net non-monetary assets of £17,000.

At 31 October 2014	Investments £'000		Cash and deposits £'000		Bank Loan   £'000		Other debtors and creditors* £'000		Net exposure £'000
US dollar	118,195		10,575		(16,001)		(29)		112,740
Yen	11,536		-		-		10		11,546
Euro	22,318		-		(7,361)		54		15,011
Swiss franc	5,358		-		-		-		5,358
Hong Kong dollar	3,209		-		-		-		3,209
Australian dollar	3,849		-		-		-		3,849
Danish krone	-		-		-		-		-
New Zealand dollar	1,843		-		-		-		1,843
Indian rupee	849		-		-		-		849
Norweigian krone	895		-		-		-		895
Singapore dollar	1,239		-		-		-		1,239
Indonesian rupiah	2,221		-		-		-		2,221
Mexican peso	1,228		-		-		-		1,228
Total exposure to currency risk	172,740		10,575		(23,362)		35		159,988
Sterling	54,272		20		(7,500)		(418)		46,374
	227,012		10,595		(30,862)		(383)		206,362

* Includes net non-monetary assets of £10,000.

Currency Risk Sensitivity

At 31 October 2015, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the financial statement amounts. The analysis is performed on the same basis for 2014.

	2015 £'000		2014 £'000
US dollar	4,691		5,637
Yen	1,168		577
Euro	960		751
Swiss franc	432		268
Hong Kong dollar	262		160
Australian dollar	152		192
Danish krone	135		-
New Zealand dollar	83		92
Indian rupee	36		43
Norwegian Krone	35		45
Singapore dollar	31		62
Indonesian rupiah	-		111
Mexican peso	-		61
	7,985		7,999

(ii) Interest Rate Risk

Interest rate movements may affect directly:

¾  the fair value of investments in fixed interest rate securities;

¾  the level of income receivable on cash deposits;

¾  the fair value of fixed-rate borrowings; and

¾  the interest payable on any variable rate borrowings.

Interest rate movements may also impact upon the market value of the Company's investments outwith fixed income securities. The effect of interest rate movements upon the earnings of a company may have a significant impact upon the valuation of that company's equity.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment decisions and when entering borrowing agreements.

The Board reviews on a regular basis the amount of investments in cash and fixed income securities and the income receivable on cash deposits, floating rate notes and other similar investments.

The Company finances part of its activities through borrowings at approved levels. The amount of such borrowings and the approved levels are monitored and reviewed regularly by the Board.

The interest rate risk profile of the Company's financial assets and liabilities at 31 October is shown below:

Financial Assets

The Company's interest rate risk exposure on its financial assets at 31 October 2015 amounted to £2,734,000 (2014 - £10,595,000), comprising of its cash and short term deposits.

The cash deposits generally comprise overnight call or short term money market deposits of less than one month which are repayable on demand. The benchmark rate which determines the interest payments received on cash balances is the bank base rate.

Financial Liabilities

		2015 £'000	2014 £'000
The interest rate risk profile of the Company's financial liabilities at 31 October was:
Fixed rate      - Sterling denominated		7,500	7,500
- US$ denominated		16,576	16,001
- Euro denominated		6,723	7,361
		30,799	30,862
The maturity profile of the Company's financial liabilities at 31 October was:
In less than one year
- accumulated interest	870		862
In more than one year, but not more than five years
- repayment of loan	30,799		30,862
- accumulated interest	2,538		3,377
	34,207		35,101

Interest Rate Risk Sensitivity

An interest rate risk sensitivity analysis has not been performed as the Company does not hold bonds and has borrowed funds at a fixed rate of interest.

(iii) Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets. The Company's exposure to changes in market prices relates to the fixed asset investments as disclosed in note 9.

The Board manages the market price risks inherent in the investment portfolio by ensuring full and timely access to relevant information from the Investment Managers. The Board meets regularly and at each meeting reviews investment performance, the investment portfolio and the rationale for the current investment positioning to ensure consistency with the Company's objectives and investment policies. The portfolio does not seek to reproduce the comparative index: investments are selected based upon the merit of individual companies and therefore performance may well diverge from the short term fluctuations of the comparative index.

Other Price Risk Sensitivity

Fixed asset investments are valued at bid prices which equate to their fair value. A full list of the Company's investments is given on pages 12 to 14. In addition, a geographical analysis of the portfolio and an analysis of the investment portfolio by broad industrial or commercial sector is given on pages 15 and 16.

108.1% (2014 - 110.0%) of the Company's net assets are invested in quoted equities. A 10% increase in quoted equity valuations at 31 October 2015 would have increased total assets and total return on ordinary activities by £24,588,000 (2014 - £22,701,000). A decrease of 10% would have had an equal but opposite effect.

Liquidity Risk

This is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities.

Liquidity risk is not significant as the majority of the Company's assets are investments in quoted securities that are readily realisable. The Board monitors the exposure to any one holding.

The Company has the power to take out borrowings, which gives it access to additional funding when required. The Company's borrowing facilities are detailed in note 12 in the Annual Report and Financial Statements.

Credit Risk

This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in the Company suffering a loss.

This risk is managed as follows:

¾  Where the Investment Managers make an investment in a bond or other security with credit risk, that credit risk is assessed and then compared to the prospective investment return of the security in question.

¾  The Board regularly receives information from the Investment Managers on the credit ratings of those bonds and other securities in which the Company has invested.

¾  The Depositary is liable for the loss of financial instruments held in custody. The Depositary will ensure that any delegate segregates the assets of the Company. The Depositary has delegated the custody function to Bank of New York Mellon SA/NV London Branch. Bankruptcy or insolvency of the Custodian may cause the Company's rights with respect to securities held by the Custodian to be delayed. The Investment Manager monitors the Company's risk by reviewing the Custodian's internal control reports and reporting its

findings to the Board

¾  Investment transactions are carried out with a large number of brokers whose creditworthiness is reviewed by the Investment Managers. Transactions are ordinarily undertaken on a delivery versus payment basis whereby the Company's custodian bank ensures that the counterparty to any transaction entered into by the Company has delivered on its obligations before any transfer of cash or securities away from the Company is completed.

¾  Transactions involving derivatives, and other arrangements wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of sustained interest, are subject to rigorous assessment by the Investment Managers of the creditworthiness of that counterparty.

¾  Cash is only held at banks that are regularly reviewed by the Managers.

Credit Risk Exposure

The maximum exposure to credit risk at 31 October was:

	2015 £'000	2014 £'000
Cash and short term deposits	2,734	10,595
Debtors and prepayments	5,801	130
	8,535	10,725

None of the Company's financial assets are past due or impaired.

Fair value of financial assets and financial liabilities

The Directors are of the opinion that the financial assets and liabilities of the Company are stated at fair value in the balance sheet with the exception of long term borrowings which are stated at amortised cost in accordance with FRS26.

	2015	2015		2014	2014
	Book £'000	Fair* £'000		Book £'000	Fair* £'000
Fixed rate loan	30,799	31,394		30,862	31,120
Total long term borrowings	30,799	31,394		30,862	31,120

*    The fair value of the bank loan is calculated with reference to government bonds of comparable yield and maturity.

Capital Management

The Company does not have any externally imposed capital requirements other than the loan covenants detailed in note 12 on page 41 of the Annual Report and Financial Statements. The capital of the Company is the ordinary share capital as detailed in note 13. It is managed in accordance with its investment policy in pursuit of its investment objective, both of which are detailed on page 7 of the Annual Report and Financial Statements. Shares may be issued and/or repurchased as explained on page 19 of the Annual Report and Financial Statements.

Investments

As at 31 October 2015	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Listed equities	245,883	-	-	245,883
Unlisted equities	-	-	4,295	4,295
Total financial asset investments	245,883	-	4,295	250,178

As at 31 October 2014	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Listed equities	227,012	-	-	227,012
Unlisted equities	-	-	-	-
Total financial asset investments	227,012	-	-	227,012

Investments in securities are financial assets designated at fair value through profit or loss on initial recognition.  In accordance with Financial Reporting Standard 29 'Financial Instruments: Disclosures', the preceding tables provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value.

Fair Value Hierarchy

The fair value hierarchy used to analyse the fair values of financial assets is described below. The levels are determined by the lowest (that is the least reliable or least independently observable) level of input that is significant to the fair value measurement for the individual investment in its entirety as follows:

Level 1:        investments with quoted prices in an active market;

Level 2:       investments whose fair value is based directly on observable current market prices or is indirectly being derived from market prices; and

Level 3:       investments whose fair value is determined using a valuation technique based on assumptions that are not supported by observable current market prices or are not based on observable market data.

The valuation techniques used by the Company are explained in the accounting policies on page 35 of the Annual Report and Financial Statements.

Alternative Investment Fund Managers (AIFM) Directive

In accordance with the AIFM Directive, information in relation to the Company's leverage and the remuneration of the Company's AIFM, Baillie Gifford & Co Limited, is required to be made available to investors. In accordance with the Directive, the AIFM remuneration policy is available from Baillie Gifford & Co Limited on request (see contact details on the back cover of the Annual Report and Financial Statements) and the numerical remuneration disclosures in respect of the AIFM's first relevant reporting period (year ended 31 March 2016) will be made available in due course.

The Company's maximum and actual leverage levels (see Glossary of Terms on page 57 of the Annual Report and Financial Statements) at 31 October 2015 are shown below:

Leverage

	Gross Method	Commitment Method
Maximum limit	2.50:1	2.00:1
Actual	1.14:1	1.14:1

Other Risks

Other risks faced by the Company include the following:

Financial Risk - the Company's assets consist mainly of listed securities and its principal risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in note 20 to the Financial Statements on pages 43 to 47 of the Annual Report and Financial Statements. To mitigate this risk, at each Board meeting the composition and diversification of the portfolio by geographies, sectors and capitalisation are considered along with sales and purchases of investments. Individual investments are discussed with the Managers as well as the Managers' general views on the various investment markets and sectors. A strategy meeting is held annually.

Regulatory Risk - failure to comply with applicable legal and regulatory requirements such as the tax rules for investment companies, the UKLA Listing Rules and the Companies Act could lead to suspension of the Company's Stock Exchange listing, financial penalties, a qualified audit report or the Company being subject to tax on capital gains. To mitigate Baillie Gifford's Business Risk, Internal Audit and Compliance Departments provide regular reports to the Audit and Management Engagement Committee on Baillie Gifford's monitoring programmes. Major regulatory change could impose disproportionate compliance burdens on the Company. In such circumstances representation is made to ensure that the special circumstances of investment trusts are recognised. Shareholder documents and announcements, including the Company's published Interim and Annual Report and Financial Statements, are subject to stringent review processes, and procedures are in place to ensure adherence to the Transparency Directive with reference to inside information. During the year under review, the most significant change to legislation impacting the Company was the implementation of the AIFM Directive and the embedding of procedures to comply with the requirements of the legislation.

Custody and Depositary Risk - safe custody of the Company's assets may be compromised through control failures by the Depositary, including cyber hacking. To mitigate this risk, the Board receives six monthly reports from the Depositary confirming safe custody of the Company's assets. Cash and portfolio holdings are independently reconciled to the Custodians records by the Managers. In addition, the existence of assets is subject to annual external audit and the Custodian's audited internal controls reports are reviewed by Baillie Gifford's Internal Audit Department and a summary of the key points is reported to the Audit and Management Engagement Committee and any concerns investigated.

Small Company Risk -the Company has investments in smaller, immature companies which are generally considered higher risk as changes in their share prices may be greater and the shares may be harder to sell. Smaller, immature companies may do less well in periods of unfavourable economic conditions. To mitigate this risk, the Board reviews the investment portfolio at each meeting and discuss the merits and characteristics of individual investments with the Managers. A spread of risk is achieved by holding stocks classified across at least fifteen industries and six countries.

Operational Risk - failure of Baillie Gifford's accounting systems or those of other third party service providers could lead to an inability to provide accurate reporting and monitoring or a misappropriation of assets. To mitigate this risk, Baillie Gifford has a comprehensive business continuity plan which facilitates continued operation of the business in the event of a service disruption or major disaster. The Board reviews Baillie Gifford's Report on Internal Controls and the reports by other third party providers are reviewed by Baillie Gifford on behalf of the Board.

Discount/Premium Volatility - the discount/premium at which the Company's shares trade can widen. To mitigate this risk, the Board monitors the level of discount/premium and the Company has authority to buy back its own shares or issue shares (including authority to sell shares held in treasury) when deemed by the Board to be in the best interest of the Company and its shareholders.

Leverage Risk - the Company may borrow money for investment purposes. If the investments fall in value, any borrowings will magnify the extent of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. To mitigate this risk, all borrowings require the prior approval of the Board and gearing levels are discussed by the Board and Managers at every Board meeting. Covenant levels are monitored regularly. The majority of the Company's investments are in listed securities that are readily realisable. Further information on leverage can be found in note 21 on page 48 of the Annual Report and Financial Statements and the Glossary of Terms on page 57 of the Annual Report and Financial Statements. 

Viability Statement

In accordance with provision C.2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council in September 2014, the Directors have assessed the prospects of the Company over a minimum period of five years. The Directors believe this period to be appropriate as it is reflective of the longer term strategy of the Company, and over which, in the absence of any adverse change to the regulatory environment and the favourable tax treatment afforded to UK investment trusts, they do not expect there to be any significant change to the current principal risks and to the adequacy of the mitigating controls in place. Also the Directors do not envisage any change in strategy or objectives or any events that would prevent the Company from continuing to operate over that period.

In considering the viability of the Company, the Directors have conducted a robust assessment of each of the Company's principal risks and uncertainties detailed on pages 7 and 8 of the Annual Report and Financial Statements and in particular the impact of a significant fall in the global equity markets on the value of the Company's investment portfolio. All of the key operations required by the Company are outsourced to third party providers and alternative providers could be engaged at relatively short notice if necessary. The Directors have also considered the Company's leverage and liquidity in the context of the fixed rate loan which is due to expire in September 2019, the income and expenditure projections and the fact that the Company's investments comprise mainly ready realisable quoted equity securities which can be sold to meet funding requirements if necessary.

Based on the Company's processes for monitoring operating costs, share price discount, the Manager's compliance with the investment objective, asset allocation, the portfolio risk profile, gearing, counterparty exposure, liquidity risk and financial controls, the Directors have concluded that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next five years as a minimum.

Statement of Directors' Responsibilities in respect of the Annual Report and the Financial Statements

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they have elected to prepare the Financial Statements in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice).

Under company law the Directors must not approve the Financial Statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that year. In preparing these Financial Statements, the Directors are required to:

¾  select suitable accounting policies and then apply them consistently;

¾  make judgements and accounting estimates that are reasonable and prudent;

¾  state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

¾  prepare the Financial Statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

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

Under applicable laws and regulations, the Directors are also responsible for preparing a Strategic Report, Directors' Report, a Directors' Remuneration Report and a Corporate Governance Statement that complies with that law and those regulations.

The Directors have delegated responsibility to the Managers for the maintenance and integrity of the Company's page of the Managers' website. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Each of the Directors, whose names and functions are listed within the Directors and Management section, confirm that, to the best of their knowledge:

¾  the Financial Statements, which have been prepared in accordance with applicable law and UK Accounting Standards (UK Generally Accepted Accounting Practice), give a true and fair view of the assets, liabilities, financial position and net return of the Company;

¾  the Annual Report and Financial Statements taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's performance, business model and strategy; and

¾  the Strategic Report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

By order of the Board

David HL Reid

Chairman

10 December 2015

Income Statement

	For the year ended 31 October 2015			For the year ended 31 October 2014
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains/(losses) on investments	-	23,245	23,245	-	(3,952)	(3,952)
Currency gains	-	479	479	-	749	749
Income (note 2)	1,106	-	1,106	1,186	-	1,186
Investment management fee	(415)	(1,245)	(1,660)	(362)	(1,085)	(1,447)
Other administrative expenses	(498)	-	(498)	(428)	-	(428)
Net return before finance costs and taxation	193	22,479	22,672	396	(4,288)	(3,892)
Finance costs of borrowings	(220)	(660)	(880)	(195)	(584)	(779)
Net return on ordinary activities before taxation	(27)	21,819	21,792	201	(4,872)	(4,671)
Tax on ordinary activities	(63)	-	(63)	(133)	-	(133)
Net return on ordinary activities after taxation	(90)	21,819	21,729	68	(4,872)	(4,804)
Net return per ordinary share (note 4)	(0.18p)	44.52p	44.34p	0.14p	(9.94p)	(9.80p)

The total column of this statement is the profit and loss account of the Company.

All revenue and capital items in this statement derive from continuing operations.

A Statement of Total Recognised Gains and Losses is not required as all gains and losses of the Company have been reflected in the above statement.

Balance Sheet

	At 31 October 2015 £'000	At 31 October 2014 £'000
Fixed assets
Investments held at fair value through profit or loss	250,178	227,012
Current assets
Debtors	5,801	130
Cash and short term deposits	2,734	10,595
	8,535	10,725
Creditors
Amounts falling due within one year	(558)	(513)
Net current asset	7,977	10,212
Total assets less current liabilities	258,155	237,224
Creditors
Amounts falling due after more than one year (note 6)	(30,799)	(30,862)
Net assets	227,356	206,362
Capital and reserves
Called up share capital	2,450	2,450
Share premium	82,180	82,180
Special reserve	35,220	35,220
Capital reserve	106,625	84,806
Revenue reserve	881	1,706
Shareholders' funds	227,356	206,362
Net asset value per ordinary share (after deducting borrowings at fair value)	462.74p	420.58p
Net asset value per ordinary share (after deducting borrowings at par)	463.95p	421.11p
Ordinary shares in issue	49,004,319	49,004,319

Reconciliation of Movements in Shareholders' Funds

For the year ended 31 October 2015

	Called up share capital £'000	Share premium £'000	Special Reserve £'000	Capital* reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 November 2014	2,450	82,180	35,220	84,806	1,706	206,362
Net return on ordinary activities after taxation	-	-	-	21,819	(90)	21,729
Dividends paid during the year (note 5)	-	-	-	-	(735)	(735)
Shareholders' funds at 31 October 2015	2,450	82,180	35,220	106,625	881	227,356

For the year ended 31 October 2014

	Called up share capital £'000	Share premium £'000	Special Reserve £'000	Capital* reserve £'000	Revenue reserve £'000	Shareholders' funds £'000
Shareholders' funds at 1 November 2013	2,450	82,180	35,220	89,678	2,618	212,146
Net return on ordinary activities after taxation	-	-	-	(4,872)	68	(4,804)
Dividends paid during the year (note 5)	-	-	-	-	(980)	(980)
Shareholders' funds at 31 October 2014	2,450	82,180	35,220	84,806	1,706	206,362

*       The capital reserve as at 31 October 2015 includes investment holdings gains of £18,934,000 (2014 - gains of £4,008,000).

Cash Flow Statement

	For the year ended 31 October 2015		For the year ended 31 October 2014
	£'000	£'000	£'000	£'000
Net cash outflow from operating activities (note 9)		(974)		(700)
Servicing of finance
Interest paid	(879)		(773)
Net cash outflow from servicing of finance		(879)		(773)
Taxation
Overseas tax incurred	(66)		(133)
Total tax paid		(66)		(133)
Financial investment
Acquisitions of investments	(38,913)		(220,402)
Disposals of investments	33,290		218,714
Realised currency gain	416		156
Net cash outflow from financial investment		(5,207)		(1,532)
Equity dividends paid (note 5)		(735)		(980)
Net cash outflow before use of financing		(7,861)		(4,118)
Financing
Bank loan repaid	-		(28,971)
Bank loan drawn down	-		30,603
Net cash inflow from financing		-		1,632
Decrease in cash		(7,861)		(2,486)
Reconciliation of net cash flow to movement in net debt
Decrease in cash in the period		(7,861)		(2,486)
Increase in bank loan		-		(1,632)
Exchange movement on bank loan		63		593
Movement in net debt in the year		(7,798)		(3,525)
Net debt at 1 November of the previous calendar year		(20,267)		(16,742)
Net debt at 31 October		(28,065)		(20,267)

Notes

1.    

1.    

1.    

1.    

4.    

4.    

4.    

4.    

1.	The Financial Statements for the year to 31 October 2015 have been prepared on the basis of the accounting policies set out in the Company's Annual Financial Statements at 31 October 2014, which are unchanged from the prior year and have been applied consistently. In accordance with the Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern. The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. Gearing levels and compliance with borrowing covenants are reviewed by the Board on a regular basis. Accordingly, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion that the Company will continue in operational existence for the foreseeable future. The Directors consider the Company's functional currency to be sterling as the Company's shareholders are predominantly based in the UK and the Company and its investment manager, who are subject to the UK's regulatory environment, are also UK based.
2.	Income			2015 £'000			2014 £'000
	Income from investments			1,105			1,176
	Deposit interest			1			10
				1,106			1,186
3.	Baillie Gifford & Co Limited are appointed as Managers and Secretaries. The annual management fee is 0.95% on the first £50m of net assets and 0.65% on the remaining net assets, calculated and paid quarterly.
4.	Net return per ordinary share	Revenue	2015 Capital	Total	Revenue		2014 Capital		Total
	Net return on ordinary activities after taxation	(0.18p)	44.52p	44.34p	0.14p		(9.94p)		(9.80p)
	Revenue return per ordinary share is based on the revenue loss on ordinary activities after taxation of £90,000 (2014 - net revenue gain of £68,000) and on 49,004,319 ordinary shares, being the weighted average number of ordinary shares in issue during each year. Capital return per ordinary share is based on the net capital gain for the financial year of £21,819,000 (2014 - net capital loss of £4,872,000) and on 49,004,319 ordinary shares, being the weighted average number of ordinary shares in issue during each year. There are no dilutive or potentially dilutive shares in issue.
5.	Ordinary dividends			2015	2014		2015 £'000		2014 £'000
	Amounts recognised as distributions in the period:
	Previous year's final (paid 5 February 2015)			1.50p	1.50p		735		735
	Interim			-	0.50p		-		245
				1.50p	2.00p		735		980
	Also set out below are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. There is no revenue available for distribution by way of dividend for the year (2015 - revenue loss of £90,000; 2014 - reserve gain £68,000)
	Ordinary dividends			2015		2014		2015 £'000	2014 £'000
	Dividends paid and payable in respect of the year:
	Interim dividend per ordinary share			Nil		0.50p		Nil	245
	Proposed final dividend per ordinary share			Nil		1.50p		Nil	735
				Nil		2.00p		Nil	980
6.	The five year fixed rate facility with National Australia Bank Limited of €9.4m, US$25.6m and £7.5m, expires on 30 September 2019. The drawings were as follows: At 31 October 2015 and 31 October 2014 National Australia Bank Limited: €9,400,000 at an interest rate of 1,59% per annum US$25,600,000 at an interest rate of 3.14% per annum £7,500,000 at an interest rate of 3.12% per annum The main covenants relating to the loan facility with National Australia Bank Limited are: total borrowings shall not exceed 35% of the Company's adjusted gross assets and the minimum adjusted gross assets shall be £110m. The fair value of borrowings at 31 October 2015 was £31,394,000 (2014 - £31,120,000). Net asset value per share (after deducting borrowings at fair value) was 462.74p (2014 - 420.58p).
7.	The Company incurred transaction costs on purchases of £29,000 (2014 - £358,000) and on sales of £22,000 (2014 - £122,000).
8.	At the Annual General Meeting on 29 January 2015 the Company renewed its authority to purchase shares in the market, in respect of 7,345,747 ordinary shares (equivalent to approximately 14.99% of its issued share capital at that date). No shares were bought back during the years to 31 October 2015 or 2014. At 31 October 2015 the Company had authority to buy back 7,345,747 ordinary shares.
9.	Reconciliation of net return before finance costs and taxation to net cash outflow from operating activities 2015 £'000 2014 £'000 Net return before finance costs and taxation 22,672  (3,892) (Gains)/losses on investments (23,245) 3,952  Currency gains (479) (749) Decrease/(increase) in accrued income 13  (16) Decrease in debtors 21  23  Increase/(decrease) in creditors 44  (18) Net cash outflow from operating activities (974) (700)
None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

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