Final Results

RNS Number : 9811Z

Polar Capital Global Health Tst PLC

20 December 2017

POLAR CAPITAL GLOBAL HEALTHCARE TRUST PLC

Legal Entity Identifier: 549300YV7J2TWLE7PV84

AUDITED RESULTS ANNOUNCEMENT FOR THE YEAR ENDED

30 SEPTEMBER 2017

20 December 2017

CORPORATE HIGHLIGHTS

· Life of the Company extended to 2025 with an associated restructure of the portfolio

· 100% ordinary share tender offered; 21.8% accepted (26,299,042 ordinary shares)

· New issue and placing of 27,798,298 ordinary shares

· Launch of PCGH ZDP PLC and new issue of 32,128,437 ZDP shares

· Refresh of the Board

FINANCIAL HIGHLIGHTS

For the year to 30 September 2017

Performance
Net asset value per ordinary share (total return) (note 1)			0.60%
Benchmark index (MSCI ACWI/Healthcare Index (total return in Sterling with dividends reinvested))			8.60%
Expenses	2017	2016
Ongoing charges (note 2)	1.02%	1.01%

As at 30 September

Financials	2017	2016
Net asset value per ordinary share	203.77p	205.71p
Ordinary share price	198.00p	194.50p
Discount	-2.8%	-5.4%

Since inception

Total return for investors since inception (note 3)

145.96%

Note 1-The total NAV return per ordinary share for the period is calculated by reinvesting the dividends in the assets of the Company from the relevant payment date.

Note 2-Ongoing charges represent the total expenses of the Company, excluding finance costs, expressed as a percentage of the average daily net asset value, in accordance with AIC guidance issued.

Note 3-The total return for investors since Inception calculation is adjusted for dividends to have been reinvested on the payment date in ordinary shares at the prevailing share price and assumes that all investors have exercised their subscription rights.

Dividends

The Company has paid or declared the following dividends relating to the financial year ended 30 September 2017:

Pay date	Amount per ordinary share	Record date	Ex-date	Declared date
28 February 2017	0.75p	10 Feb 2017	9 Feb 2017	31 Jan 2017
9 June 2017	1.65p	19 May 2017	18 May 2017	5 May 2017
28 February 2018	1.00p	2 Feb 2018	1 Feb 2018	20 Dec 2017
Total (2016: 4.05p)	3.40p

All data sourced from Polar Capital/Bloomberg

For further information please contact:
Tracey Lago - Company Secretary	John Regnier-Wilson
Polar Capital Global Healthcare Trust plc	Polar Capital LLP
Tel: 020 7227 2700	Tel: 020 7227 2725

Chairman's Statement

Reconstruction and change in investment strategy

The past year has been a busy one. Following extensive consultations with our shareholders we decided to extend the life of the Company and change the investment objective from a capital and income mandate to one focusing on capital growth. The name of the Company was changed to reflect this.

The fixed life of the Company was extended from 2018 to 2025 and, consistent with the commitment made at the time of the IPO in 2010, we offered those shareholders who wished to exit a 100% cash tender for all their shares. In the event only 21.8% of the shares outstanding tendered their shares. We compensated for this by placing 27,798,298 New Ordinary Shares at 213.80p per share which raised slightly more than we had to pay out in the tender with the result that the net assets of the Company rose very slightly. Concurrent with this we also undertook a new issue of ZDP shares through a wholly-owned subsidiary which raised £32.1m of structural gearing at an effective interest rate of 3% per annum. At the year end the gross assets of the Company amounted to £284.8m with net assets of £250.1m.

Performance and Portfolio activity

Despite the change in our investment objective in June this year, the MSCI Global Healthcare Index remains our benchmark as we feel it is appropriate. The NAV total return for the year amounted to 0.6% compared to a rise in the benchmark of 8.6%. Meanwhile the share price total return was 3.4% reflecting a narrowing in our discount from 5.4% to 2.8%.

With the change in our investment objective we have seen considerable change in the underlying portfolio, the most notable of which has been the recent halving of our pharmaceutical weighting from 62.2% this time last year to 31.0% at 30 September 2017. This has been matched by an increase in our exposure to Managed Healthcare, Healthcare Equipment and Biotechnology. Performance over the past year has been disappointing but with the restructuring largely complete and the income bias of the portfolio removed, the Board now looks forward to a period of sustained outperformance by our Managers.

Dividends

We have paid out dividends of 2.4p in respect of the current financial year and we are declaring a further dividend of 1.0p which will be payable in February 2018. Total dividends for the current financial year therefore amount to 3.4p.

In future we will be paying dividends in August and February rather than quarterly as hitherto, reflecting our new investment objective. The new dividend policy will result in lower dividends in future given the focus on growth.

Board changes

The current Board of four Directors has been unchanged since the IPO in 2010. In line with corporate governance best practice we have decided to initiate a process of Board refreshment. John Aston and Antony Milford will step down at the forthcoming AGM in February 2018. John has been an excellent Chairman of the Audit and Management Engagement Committees and we shall miss his wise counsel as we will Antony whose investment knowledge has proved especially valuable. We wish both of them well.

Following a thorough search process, we decided to appoint Neal Ransome and Lisa Arnold, on 13 December 2017 and 1 February 2018 respectively. Neal is a former partner of PwC and was Head of PwC's Pharmaceutical and Healthcare M&A practice until 2013. Neal is also a Non-Executive Director of two venture capital trusts; he will become Chairman of the Audit Committee on the retirement of John Aston at the end of February. Lisa was a top-rated global pharmaceutical and healthcare analyst for many years and now has a number of pension trustee and investment committee roles. She is also a Non-Executive Director of PIMCO Europe Ltd, an investment management business. We are delighted that they have both agreed to join our Board.

MiFID II

The EU's ambitious regulatory reforms, known as MiFID II are coming into effect on 4 January 2018. This extensive piece of legislation, seven years in the making, already has more than 1.4million paragraphs of rules! Henceforth all trading will be dealt at 'Execution Only rates'. Not only will the payment for research become completely transparent but it is expected that the cost of research borne by clients such as us will fall as the spotlight is shone on the value of the product delivered by securities brokers.

Polar Capital compete in a global environment where a number of their (primarily) North American

competitors are not subject to the MiFID II regime and where the cost of research, which has historically been borne by their clients, will continue to be so.

We are currently in the throes of agreeing a research budget with Polar Capital which will confirm a maximum research spend for your Company in 2018. Any costs above the agreed threshold will be borne by Polar Capital. Your Board believes that actual expenditure on research in 2018 should be materially less than in previous years.

Outlook

The key drivers for our sector of demographics, innovation and the need for greater efficiency remain intact. Our Managers see many investment opportunities arising from ongoing structural change and have significant overweight positions in both US health insurers and medical technology.

Meanwhile valuations of the healthcare sector remain reasonable both in absolute terms and relative to stock markets as a whole, indicating that its superior mid to long term earnings growth prospects have yet to be discounted.

Annual General Meeting

The Company's seventh Annual General Meeting will take place at noon on Wednesday 28 February 2018 at the offices of our managers, Polar Capital, 16 Palace Street, London SW1E 5JD. The nearest tube and main line station is Victoria. A map of the location is contained in the separate Notice of Annual General Meeting. As usual our manager, Dr Dan Mahony will be making a presentation. Attendance at this meeting also provides a good opportunity to meet members of the Board and to ask any questions you might have, either of us or the manager.

A buffet lunch will be served at the conclusion of the meeting.

James Robinson

Chairman

20 December 2017

Investment Manager's Report - For the year ended 30 September 2017

Performance Review

For the fiscal year to 30 September 2017, the Company delivered a total return of 0.6%, well behind the benchmark (MSCI Global Healthcare Index) that recorded a total return of 8.6% over the same period. We are disappointed by our investment performance over the course of the fiscal year, which reflected a combination of three factors: poor stock selection, the sub-sector positioning driven by our investment mandate and one-off restructuring charges.

Following the shareholder vote in June, the life of the Company has been extended to 2025 and the portfolio was restructured with a new investment mandate focused on capital growth opportunities in the broader healthcare sector. The benefits of a broader healthcare mandate have not materialised in this fiscal period, but we are optimistic that we should be able to deliver good investment returns for shareholders over the life of the Company.

Markets

At the beginning of the fiscal year, global stock markets were weak ahead of the US Presidential elections but rallied strongly following the election of President Trump in November. Healthcare was initially a relative underperformer in the first few months of the fiscal year - more cyclical sectors were in favour on expectations that increased infrastructure spending and tax reform would boost the US economy and, therefore, the global economy. Healthcare performance has been stronger over the course of calendar 2017 as risk appetite has increased and investors have looked for growth.

With the Republican Party taking control of both the White House and the Congress, the major political headwind for healthcare has been the prospect of a repeal of the Affordable Care Act (ACA), often referred to as Obamacare. The Republican Party leadership made concerted efforts to garner support for a bill that would 'repeal and replace' the ACA. However, division between the moderate and conservative factions within the Republican Party have meant that these efforts have so far been unsuccessful.

President Trump has also been vocal about his desire to curb drug prices in the US although this has not resulted in any executive order or legislative action. This debate has put a spotlight on some of the inefficiencies in the drug distribution value chain and has raised investor concerns that the profit margins of pharmacy benefit managers and distributors could come under pressure.

The political rhetoric in the US has created volatility for a number of sub-sectors within healthcare over the course of the fiscal year. In particular, sub-sectors such as pharmaceuticals, healthcare distributors and healthcare services and facilities have been relative under-performers.

The best performing sub-sectors have been in areas where pricing pressure concerns are low and there is greater confidence in the growth outlook - these include health insurers, life sciences tools, medical equipment and biotechnology. Within the biotechnology sector, performance has been led by strong performance from some of the smaller capitalisation companies - especially by those companies that have made progress in their clinical development programmes.

Review of the Portfolio

Up until the restructuring of the Company's portfolio in June, we managed the portfolio according to the original growth and income investment mandate. 80% of the portfolio was invested in dividend-yielding stocks with a high weighting towards large pharmaceutical companies. The remaining 20% of the portfolio was diversified with investments in a number of biotechnology, medical devices, healthcare services and pharmaceutical companies.

Our original investment thesis, formulated in 2010, was focused on a recovery in the pharmaceutical sector. Over the last two years, it has become clear that this thesis has largely played out and we are entering a new phase for the healthcare industry. In particular, the drivers of demographics, innovation and the need for greater efficiency create a number of different investment opportunities across the healthcare sector. Importantly, structural change is set to affect all healthcare companies providing both products - drugs and devices - and services.

As part of the original mandate, we had to maintain a high weighting in the pharmaceutical sector until June. However, structural change is beginning to have an impact on large pharmaceutical companies - with some companies facing unexpected pricing and intensified competitive pressures - and has driven a much greater dispersion of returns. The high weighting in pharmaceutical companies helped to maintain the dividend yield of the Company but relative performance has been disappointing over the reporting period. Moreover, pharmaceutical stocks have become much more volatile and it has been difficult to identify a number of good long-term holdings in the pharmaceutical sector.

We see two strategies for investing in healthcare during this period of structural change - (a) focus on companies that can adjust to the ongoing challenges and deliver stable and predictable cash flow growth and (b) identify the 'innovators and disruptors' that are driving structural change. We broadly divide these companies into two categories - large cap consolidators and small/mid cap innovators.

Portfolio Post June 2017

In June 2017, shareholders approved a restructuring of the Company and a change to the investment mandate. A key part of the restructuring was the issuance of 32.1 million zero dividend preference shares (ZDPs) by our newly formed subsidiary thereby introducing some structural gearing into the portfolio. The ZDPs are due for repayment in June 2024 and were issued with a yield of 3%.

The new mandate is focused on capital growth by investing in a diversified global portfolio of investments in healthcare companies with no restriction on sub-sector weighting. We have continued to manage the portfolio as a single pool of investments but for operational purposes we have divided these investments into a growth portfolio and an innovation portfolio.

The majority of the Company's assets are allocated to the growth portfolio and it comprises 25-30 large cap healthcare stocks. All companies in the growth portfolio will have a market capitalisation greater than $5 billion at the time of investment.

The smaller innovation portfolio will provide exposure to healthcare companies with a market capitalisation less than $5 billion and will be invested in a range of biotechnology, medical device, healthcare services and digital health companies. This exposure may be achieved through direct investment and/or via a future fund managed by Polar Capital.

The Company's portfolio continues to have a heavy weighting towards large capitalisation companies but there has been a significant reduction in the weighting to pharmaceutical companies - from 62% at the beginning of the period to 31% at the end of the period. The portfolio is now more diversified across the different healthcare sub-sectors.

At the end of the reporting period, the growth portfolio accounted for 89% of the Company's gross assets with investments in 26 large companies while the innovation portfolio comprised 19 positions and accounted for 11% of gross assets.

Portfolio Performance Has Been Disappointing

We have been disappointed by the performance of the portfolio over the last financial year - the NAV for the Company increased by only 0.6%. The two major factors contributing to this performance were poor stock selection and sub-sector weighting within the portfolio while the restructuring resulted in some one-off costs that affected the NAV.

In terms of sub-sector weightings, our overweight position in pharmaceutical stocks, healthcare REITs and healthcare facilities - with investments in companies with good dividend yields - were significant detractors to performance relative to the benchmark. We were also underweight in some of the better performing sub-sectors such as biotechnology, life sciences tools and managed care. This was driven in part by the focus on dividend yielding stocks in the original investment mandate.

Our stock selection this year reflects some of the wide dispersion of returns that we have seen across the healthcare sector. The absolute performance of the top ten contributors was almost completely offset by losses from the top ten detractors.

The top three contributors over the reporting period were Sanofi, Abbott and Centene. Sanofi had very strong performance over the reporting period as expectations grew for its new atopic dermatitis drug, Dupixent, which was launched in mid-2017 and is expected to be a blockbuster. Sanofi continues to face pricing pressure and competition in its core diabetes business but Dupixent sales growth should help to offset this.

Abbott has also performed well over the reporting period as it has entered a new product cycle, enhanced by the recent acquisition of St Jude Medical, and now looks set for double digit earnings growth. The company has also exceeded expectations with its new glucose monitoring device, called Libre, which has had a good European launch with strong US sales growth expected in 2018.

Centene is a US managed care organisation that primarily focuses on the population that earns 400% of the poverty level or below. It is one of the leaders in providing Medicaid managed care services - Medicaid is a programme run by individual states for people on low incomes. Centene has consistently beaten earnings expectations over the last year and looks set for continued growth as it is one of the few health insurers that has managed to design profitable insurance products for the healthcare exchanges that were started under Obamacare.

The three largest detractors to performance were Teva, Astellas and Medtronic. Teva is the global leader in generic drugs but pricing pressure in the generics industry has put operating margins under pressure. We believed that Teva's acquisition of the Allergan generics business in 2016 would enable it to stabilise the business through improved economies of scale. This has not been the case and we exited the position in February with a substantial loss.

Astellas is a leading Japanese pharmaceutical company that we have held since 2011. Astellas' key growth driver has been a prostate cancer drug, Xtandi, and as sales growth has slowed the market has become more concerned by upcoming patent expirations of two of its other key drugs. As a result the shares have declined over the reporting period and we sold the position when we restructured the portfolio in June.

Medtronic is the global leader in medical devices and a stock we have held since 2014. We increased the position size substantially in June following the portfolio restructuring. Unfortunately, in July the company experienced some IT issues plus a delay in its diabetes business due to supply constraints. This caused it to negatively preannounce quarterly results and resulted in a downgrade to consensus estimates for FY2018 - the shares declined on the back of this news.

Structural Change as the Next Major Investment Trend in Healthcare

We believe that the healthcare industry has embarked on a period of major structural change driven by the need to improve the efficiency of healthcare systems. We see similar issues in different countries around the world, and in many ways the biggest perceived risks for healthcare - that current government spending is unsustainable and healthcare systems are at breaking point - could be the biggest catalysts for change. Healthcare systems around the world need to deliver better healthcare to more people for less money.

Major structural change in healthcare systems has two important implications for investors. The first is that large, incumbent companies in the industry may face significant headwinds, competitive pressures or permanent changes in their core businesses that they may find difficult to address or circumvent. Clearly, we need to avoid investing in such companies. Importantly, with information technology as the major force of disruption, change may come from unexpected places in unanticipated ways.

The second is that companies who are able to adapt and exploit the opportunities of structural change may enjoy multi-year revenue and earnings growth - an opportunity for both large and small companies. It is always easy to spot the winners with hindsight; the challenge is to identify who will be successful during a period of major change.

Ageing Population Puts a Strain on Healthcare Systems

A key concern for governments and health insurers around the world is how to manage the impact of an ageing population. There are two aspects of this with respect to healthcare spending - one is driven by demographics and the other stems from the use of new technology.

Healthcare costs per capita stratified by age suggest that the annualised cost for a 60-year-old is at least double that for a 40-year-old. Moreover, these per capita costs continue to grow as individuals advance into their 80s. Therefore, as the population in a country ages - especially the post-war baby boomer population that started retiring in the US in 2011 - the cost of healthcare will increase.

Technological innovation also plays a role as it can be argued that people aged 65 today are far healthier and more active than their parents' generation at the same age. New technology has played a critical part in healthy living but it comes with a cost. For example, products such as hip and knee implants and the use of stents for cardiovascular disease were not as widespread 30 years ago but are now standard procedures in all developed markets.

Information Technology is the Disruptive Catalyst

The information technology sector has been responsible for major disruption of a number of industries over the last decade but the impact on healthcare has, until recently, been modest by comparison. Advances in information technology, especially data analytics, are beginning to help governments and health insurers predict the healthcare needs of a population and to measure the value of a product or a service.

Most reimbursement systems have historically been based on a fee-for-service type of system with little regard for the quality of care that has been provided. This is already beginning to change as governments and insurers start to use data to measure value and clinical outcomes. For example, the US Centers for Medicare & Medicaid Services (CMS) has been set a target of converting 90% of fee-for-service payments to value-based purchasing by 2018.

Governments and Insurers are Driving Change in Healthcare Delivery and Management

While stock markets have remained focused on the political moves in the US to repeal and replace Obamacare, we think there is a broader trend emerging. Governments around the world realise that they need to take advantage of new technology to deliver better care to patients. The challenge is how to facilitate this given the constraints on government spending. Healthcare looks set to remain high on the political agenda and governments will continue to look to the healthcare industry for new technologies and modes of delivery that can improve the efficiency of healthcare systems.

Innovative Technology is Improving Clinical Success Rates

Over the last five years, it has become clear that the drug industry has embarked on a new wave of drug development. A number of new technologies, not least in the field of genomics, have enabled an advance in the understanding of the biology of diseases at the molecular level and so have helped to elucidate new ways of intervening with therapeutic agents.

More recently, we have seen emerging evidence that clinical success rates are beginning to increase - at least in Phase III clinical trials. A recent report by New Street Research suggests that over the last three years the success rate in Phase III trials has increased to 80% - historically, the industry average has been around 60%. This improvement is probably due to a number of underlying factors, driven by innovative technologies, which include a better understanding of the underlying disease, improved patient selection or advances in early drug development (to weed out compounds with unwanted side effects).

Moreover, recent comments by Scott Gottlieb, Commissioner of the Food and Drug Administration (FDA), suggest that he is looking to implement regulatory reforms that will reduce the costs of clinical development and accelerate the FDA approval pathway. The FDA is planning to invest in new technology that can assist in a faster and cheaper approach to drug development.

One important ramification is that investors are becoming much more confident of the potential of a drug candidate as soon as it delivers positive data from a Phase II trial. In general, we are seeing heightened expectations, and so valuations, much earlier in the drug development process than was historically the case. This is particularly evident for some of the smaller biotechnology companies where a single drug candidate is often the major driver of valuation.

While the increase in clinical success rates has increased investor confidence, and so had an impact on valuations and share prices, we believe that it will also precipitate an intensification in the competitive environment that may become more visible over the next year.

The accelerating pace of innovation means that the 'first mover' advantage is probably diminishing. For example, over the next two years we expect at least four companies to launch new migraine treatments that target the same mechanism - a new class of drugs called calcitonin gene-related peptide (CGRP) inhibitors. While high expectations of approval seem reasonable, we think investors may be over-estimating how much market share each company will take and the competitive pricing situation that may arise if a number of similar drugs are launched at the same time.

The improvement in clinical success rates is a double-edged sword. With many pharmaceutical companies chasing similar targets or diseases, the race is not necessarily to be the first to market but to show that a particular drug is differentiated from any potential competitors.

Grasping the Nettle of Value-Based Pricing

In prior reports, we have highlighted the move to value-based pricing, which has continued over the last year. The issue of product differentiation is critical when it comes to demonstrating value - not just for drug companies but for all healthcare product companies and service providers. Nevertheless, with drug pricing in the political spotlight, there has been a lot of investor focus on whether drug companies will adopt new pricing models that reward positive clinical outcomes.

Perhaps the most notable example of this has been Novartis' pricing decision on its breakthrough CAR-T therapy, Kymriah. The CAR-T technology is a novel approach where a cancer patient's T cells are isolated; genetically modified in the lab so that they can recognise the patient's tumour; and are then injected back into the patient so they can target and kill the tumour cells.

Kymriah was approved for the treatment of patients up to 25 years of age with a type of acute lymphoblastic leukaemia (ALL). In clinical trials, 83% of ALL patients treated with Kymriah went into complete remission. Novartis has priced Kymriah at $475,000 for a course of treatment but will receive payment only for those patients who respond to therapy by the end of the first month of treatment. Novartis is effectively offering a 'money back guarantee' based on a specific clinical outcome. It will be interesting to see if other companies adopt similar pricing strategies with novel therapeutic modalities such as gene therapy.

The transition to value-based pricing needs to be considered alongside the improvement in clinical success rates and the accelerating pace of innovation. It is not sufficient to show 'efficacy' in a clinical trial with little regard to reimbursement and potential pricing pressure. Drug developers need to start addressing reimbursement issues during the early stages of the clinical development process. In particular, this includes how the 'effectiveness' of a novel drug will be evaluated in a real-world setting - in terms of how this will be measured, how a drug compares to potential competitive therapies and whether a company is prepared to offer a rebate to payers based on clinical outcomes.

For investors, especially in the biotechnology sector, we think it is important to consider the commercial risks of a new drug - especially if the perceived clinical risk has diminished. We think pricing, value and competition are important factors to consider when evaluating the risk/reward of the shares in a pharmaceutical or biotechnology company.

Consolidation in Medical Technology Industry has Continued

Medical technology companies have not faced the same political scrutiny on pricing as the drug industry. However, unlike drugs, which are in general separately reimbursed in most countries, medical devices and equipment are purchased directly by healthcare service providers. Therefore, product differentiation has been critical for success in the medical device industry for many years. Nevertheless, with many healthcare providers facing value-based pricing for their services, the medical device industry is having to focus on how it adds value to its customers.

One trend that we have described previously is consolidation as a route to improving efficiency. In this way, companies can create economies of scale, broaden product portfolios, standardise products and processes, lower cost of goods, take market share and, most importantly, deliver cheaper solutions to their customers.

This consolidation trend has continued in the medical devices industry over the last year with the announcement of two large M&A transactions: Abbott's acquisition of St Jude Medical, which broadened its cardiology franchise to include pacemakers and implantable cardioverter defibrillators (ICDs), and Becton Dickinson's announcement to acquire CR Bard, which broadens significantly its product portfolio of hospital-based medical products.

Digital Health Market is Beginning to Evolve

Within medical technology and healthcare services, we see increasing interest and investment in the use of digital health - a broad term that describes a range of services and products arising from the convergence of information technology with healthcare. In particular, we are seeing more companies looking to use technology and data to monitor patients, manage chronic conditions and help medical professionals make better decisions. Ultimately, it is hoped that the use of data will improve clinical outcomes and so add 'value' to healthcare providers and improve the efficiency of the healthcare system.

While digital health is a new market opportunity, we think it is beginning to evolve with different types of applications and products for medical professionals and the consumer health space.

Perhaps the most dynamic area in this respect has been diabetes and blood sugar monitoring. The clear leader in this field for the last few years has been Dexcom, which pioneered the development and commercialisation of a continuous glucose monitoring (CGM) system that is used mainly by type 1 diabetic patients.

Abbott has now entered the CGM market with a new patch product, called Libre, which is arguably an inferior product from a technology perspective. However, Abbott intends to price the product at a significant discount to Dexcom when it launches in the US so that it can target the much larger type 2 diabetic population. Moreover, the product has already had considerable commercial success in Europe where many patients have been paying for Libre out-of-pocket.

In our view, Abbott is targeting what was a medical professional market and turning it into more of a consumer health market. This could prove to be the preferred business model for a number of digital health applications.

Robots and Artificial Intelligence Augmenting Not Replacing Doctors

The use of robots and artificial intelligence within healthcare has captured a lot of media attention. Within the surgical field, Intuitive Surgical has been the clear market leader for the last decade with its da Vinci system. It is also worth noting that Stryker has made excellent progress over the last year with its MAKO system for partial knee replacement and is clearly taking market share from some of the other players in the orthopaedic market.

The increased use of robotic surgery has helped to assuage physician concerns that robots or new technology will simply replace medical professionals. These technologies assist and augment the capabilities of a medical professional so that clinical outcomes for a patient can be more successful and reproducible.

In this respect, we are becoming optimistic about the use of artificial intelligence (AI) in medicine. From a market adoption perspective, we do not think that successful AI products will replace medical professionals. We are looking for companies that have developed products and technology that will adapt to existing workflows, assist medical professionals, increase efficiency and improve outcomes.

Medical imaging is an area where AI could have an important near-term impact. For example, we have seen product developments in the area of foetal ultrasound imaging as well as early cancer detection in colonoscopy - a medical professional still conducts the scan and is responsible for reporting the results but a machine assists in interpretation of the images.

In addition, we are seeing applications of AI in telehealth as well as in new approaches to improving patient compliance and management of chronic conditions. Some of the new holdings in our innovation portfolio, such as Teledoc and HMS Holdings, are developing products in this area.

Technology is Changing the Competitive Landscape for Insurers

Last year, further consolidation of the US health insurance industry seemed to be on the cards. Building scale allows health insurers to spread risk across a larger group of members and then negotiate with healthcare service providers to get lower costs in return for volume. However, at the beginning of 2017, the Federal Trade Commission (FTC) blocked two large proposed mergers - Humana/Aetna and Anthem/Cigna - on competitive grounds.

With major consolidation now less likely, the focus for the large health insurance companies seems to be changing. Most of the major companies are looking at ways that they can use data to drive down costs. For a couple of years, some of the larger companies have been analysing claims data to identify which hospitals may be outliers in terms of medical costs. This has now been extended to determine whether providers are delivering the appropriate standard of care and which service providers are producing the best clinical outcomes.

In addition, we are seeing the development of products and services to try and change the behaviour of members. This started a few years ago with the introduction of high deductible insurance plans, where patients are responsible for a larger proportion of initial medical costs. The use of high deductibles looks set to continue as it is clearly changing consumer behaviour. We estimate that more than a third of commercially insured members will have a high deductible plan next year.

Insurers are also beginning to use new financial incentives to drive member behaviour. This started with simple concepts such as offering discounts on insurance premiums to members who use a wearable device or regularly visit the gym. We are now seeing digital technologies emerging that are intended to drive patient compliance with therapy and help manage chronic diseases more efficiently. We think this is consistent with the trend of consumers taking more responsibility for their own health. Insurers are looking to align incentives by developing products that can help customers reduce medical costs and save money for themselves and the insurer.

New Entrants Threaten Disruption in the Supply Chain

One aspect of the drug pricing debate that has received a lot of attention is who benefits from drug rebates. In a meeting with President Trump last January, leaders of the pharmaceutical industry highlighted the discrepancy between the list price of certain drugs and the actual net price that a drug company receives. The pharmacy benefit managers (PBMs), which develop formularies and negotiate drug pricing with pharmaceutical companies on behalf of insurance companies, make a margin on any rebate or discount on the list price that they can negotiate with the drug company.

We had initially considered this to be just a political risk for PBMs and were concerned that legislation could be framed that would create greater transparency on who benefits in the supply chain. However, a potential new entrant is now looming on the horizon in the shape of Amazon. While Amazon has yet to detail its plans to enter the healthcare market there are significant investor concerns that Amazon will disrupt both the distributor, pharmacy and PBM business models by creating greater transparency and taking market share.

In many ways, Amazon looming on the horizon validates our view that the healthcare industry has begun a process of major structural change. As with many other industries that have been disrupted by technology, the incumbents in healthcare may face competitive challenges not only from small start-ups but also from non-traditional, new entrants to the market.

Outlook

The process of structural change will create opportunities and risks for investors in healthcare. With the broader investment mandate, we have diversified the risk of the portfolio across the healthcare sub-sectors with investments in a number of large healthcare companies that we believe are recognising change and adapting their businesses to stay competitive.

The intention to 'repeal and replace' Obamacare has been high on the political agenda in the US since President Trump's inauguration but we think the political focus will change in the run up to the mid-term elections in 2018. The Republicans seem keen to pass legislation on tax reform before the elections and this is likely to be the political focus.

For healthcare companies, tax reform looks likely to be a big positive for domestic companies, such as hospitals or health insurers, who would benefit from a big cut in corporation tax. For companies with overseas operations, especially those that have placed intellectual property in lower tax jurisdictions, the situation may be more complicated depending on how the rules for taxing overseas profits and repatriation of foreign earnings are framed.

In terms of portfolio positioning, we have started the new fiscal year with significant overweight positions in both US health insurers and medical technology. We expect the strong operational performance of US health insurance companies to continue into 2018 as the revenue growth outlook remains positive - with growth opportunities in Medicare Advantage, Medicaid and the healthcare exchanges - while technology is improving risk and cost management.

Within the medical technology sector, a number of large companies are beginning to deliver on the innovation front with new product cycles that should drive good top- and bottom-line growth.

Across the broader healthcare services sub-sector, we are focused on individual companies rather than a general theme. Certain companies, such as drug distributors and PBMs, are facing some significant headwinds. However, we can find healthcare service companies that face no major headwinds with respect to reimbursement and, more importantly, look set to deliver growth in a value-based environment.

Within the pharmaceutical space, we think it is important to focus on company fundamentals and to regularly evaluate the risk/reward profile of stocks. The competitive dynamics within certain therapeutic areas, especially areas like oncology, are moving very rapidly as new clinical trial data are reported. In the biotechnology sector, we are more optimistic on some of the smaller names that are targeting areas of unmet medical need. We continue to believe that large companies will look to acquire small, innovative companies but also would not be surprised to see one or two major M&A transactions over the next year.

In summary, we remain positive on the outlook for healthcare as valuations seem reasonable, both on a relative and absolute basis, and we can see many investment opportunities arising from the ongoing structural change.

Daniel Mahony

Gareth Powell

James Douglas

Investment Managers

20 December 2017

Portfolio as at 30 September 2017 (Figures in brackets denote the comparative ranking as at 30 September 2016)

Ranking		Stock	Country	Market Value £'000		% of total net assets
2017	2016			2017	2016	2017	2016
1	(5)	Johnson & Johnson	United States	19,862	12,275	7.9%	5.0%
2	(3)	Novartis	Switzerland	14,040	17,595	5.6%	7.1%
3	(10)	Sanofi	France	13,693	8,778	5.5%	3.5%
4	(2)	Merck & Co	United States	11,929	17,768	4.7%	7.2%
5	(21)	Celgene	United States	11,410	2,414	4.6%	1.0%
6	-	Becton Dickinson	United States	10,953	-	4.4%	-
7	(23)	UnitedHealth	United States	10,945	2,156	4.4%	0.9%
8	(16)	Medtronic	Ireland	10,430	4,656	4.2%	1.9%
9	-	Bayer	Germany	10,391	-	4.1%	-
10	(51)	Fresenius Medical Care	Germany	9,626	1,344	3.8%	0.5%
Top 10 investments				123,279		49.2%
11	-	Danaher	United States	9,590	-	3.8%	-
12	-	HCA	United States	9,490	-	3.8%	-
13	-	Aetna	United States	9,481	-	3.8%	-
14	-	Alexion Pharmaceuticals	United States	9,410	-	3.8%	-
15	-	Anthem	United States	8,772	-	3.5%	-
16	(15)	Abbott	United States	8,352	4,882	3.3%	2.0%
17	(30)	Biomarin Pharmaceutical	United States	8,322	1,994	3.3%	0.8%
18	(13)	Takeda Pharmaceutical	Japan	8,225	5,497	3.3%	2.2%
19	-	Humana	United States	8,170	-	3.2%	-
20	-	Amgen	United States	7,638	-	3.1%	-
Top 20 investments				210,729		84.1%
21	(25)	Laboratory Corp of America	United States	7,313	2,117	2.9%	0.9%
22	(27)	Centene	United States	7,213	2,061	2.8%	0.8%
23	(57)	PerkinElmer	United States	5,949	1,080	2.4%	0.4%
24	-	Boston Scientific	United States	5,434	-	2.2%	-
25	(14)	Consort Medical	United Kingdom	5,143	5,072	2.1%	2.0%
26	-	Jazz Pharmaceuticals	Ireland	4,906	-	1.9%	-
27	-	Vertex Pharmaceuticals	United States	3,626	-	1.4%	-
28	-	HMS	United States	2,220	-	0.9%	-
29	-	Horizon Discovery	United Kingdom	2,128	-	0.9%	-
30	-	Portola Pharmaceuticals	United States	2,018	-	0.8%	-
Top 30 investments				256,679		102.4%
31	(55)	Revance Therapeutic	United States	1,894	1,149	0.8%	0.5%
32	(47)	Coltene Holding	Switzerland	1,807	1,390	0.7%	0.6%
33	(54)	Oxford Immunotec	United Kingdom	1,753	1,166	0.7%	0.5%
34	(37)	Newron Pharmaceuticals	Italy	1,699	1,738	0.7%	0.7%
35	(48)	NIB Holdings	Australia	1,660	1,385	0.7%	0.6%
36	-	Achaogen	United States	1,514	-	0.6%	-
37	-	Quotient	United Kingdom	1,434	-	0.6%	-
38	(39)	Summit Therapeutics	United Kingdom	1,434	1,603	0.6%	0.6%
39	(33)	Medical Facilities	Canada	1,318	1,916	0.5%	0.8%
40	-	Teladoc	United States	988	-	0.4%	-
Top 40 investments				272,180		108.7
41	(59)	Photocure	Norway	643	978	0.3%	0.4%
42	(62)	Primary Health Care	Australia	632	813	0.3%	0.3%
43	-	RHT Health Trust	Singapore	598	-	0.2%	-
44	(61)	Oxford Pharmascience	United Kingdom	413	826	0.2%	0.3%
45	(70)	Epistem Holdings	United Kingdom	50	83	-	-
Total Equities				274,516		109.7%
Other Net Liabilities				(24,387)		(9.7%)
Net Assets				250,129		100.0%

Geographical Exposure at	30 September 2017	30 September 2016
United States	72.8%	49.1%
Germany	7.9%	0.5%
Switzerland	6.3%	12.3%
Ireland	6.1%	-
France	5.5%	3.5%
United Kingdom	5.1%	13.2%
Japan	3.3%	6.3%
Australia	1.0%	3.1%
Italy	0.7%	-
Other	1.0%	11.4%
Other net (liabilities)/assets	(9.7%)	0.6%
Total	100.0%	100.0%
Sector Exposure at	30 September 2017	30 September 2016
Pharmaceuticals	35.0%	62.2%
Healthcare Equipment	20.7%	11.2%
Biotechnology	18.2%	8.1%
Managed Healthcare	17.8%	1.7%
Healthcare Services	7.4%	4.7%
Healthcare Facilities	4.3%	2.9%
Life Sciences Tools & Services	3.2%	0.5%
Healthcare Supplies	1.3%	1.4%
Healthcare Technology	0.9%	-
Life & Health Insurance	0.7%	0.5%
Healthcare Distributors	-	0.2%
Specialised Healthcare REITs	0.2%	6.0%
Other net (liabilities)/assets	(9.7)%	0.6%
Total	100.0%	100.0%

Market Cap at	30 September 2017	30 September 2016
Large (>US$5bn)	89.3%	79.7%
Medium (US$1bn - US$5bn)	2.7%	9.7%
Small (<US$1bn)	8.0%	10.6%
	100.0%	100.0%

Strategic Report

The Strategic Report Section of the Annual Report comprises the Chairman's Statement, the Investment Manager's Report, including information on the portfolio and this Strategic Report. It has been prepared solely to provide information to shareholders on the Company's strategies and potential for those strategies to succeed, including a fair review of the strategy and performance of the Company during the year ended 30 September 2017, including a description of the principal risks and uncertainties. The Strategic Report Section contains certain forward-looking statements. These statements are made by the Directors in good faith based on the information available to them at the time of their approval of this report and such statements should be treated with caution due to inherent uncertainties, including both economic and business risk factors underlying any such forward-looking information.

Business Model and Regulatory Arrangements

The Company and Group business model follows that of an externally managed investment trust and its investment objective is set out below. Its shares are listed on the London Stock Exchange. The Company is designated an Alternative Investment Fund ('AIF') under the Alternative Investment Fund Management Directive ('AIFMD') and, as required by the Directive, has contracted with Polar Capital LLP to act as the Alternative Investment Fund Manager ('AIFM') and HSBC Bank Plc to act as the Depositary.

Both the AIFM and the Depositary have responsibilities under AIFMD for ensuring that the assets of the Company are managed in accordance with the investment policy and are held in safe custody. The Board remains responsible for setting the investment strategy and operational guidelines as well as meeting the requirements of the applicable UK and European legislation including the Financial Conduct Authority (FCA) Listing Rules.

Statements from the AIFM and the Depositary can be found in the Annual Report.

The Company seeks to manage its portfolio in such a way as to meet the tests set down in Section 1158 and 1159 of the Corporation Tax Act 2010 (as amended by Section 49(2) of the Finance Act 2011) and continue to qualify as an investment trust. This qualification permits the accumulation of capital within the portfolio without any liability to UK Capital Gains Tax. Further information is provided in the Directors' Report.

The Company has no employees or premises and the Board is comprised of Non-Executive Directors. The day to day operations and functions of the Company have been delegated to third parties.

Developments

On 12 May 2017 a Circular was sent to shareholders with proposals to change the investment policy and extend the Company's life, issue new ordinary shares and, via a newly created wholly owned subsidiary, issue zero dividend preference ("ZDP") shares as well as offering shareholders the ability to tender their existing ordinary shares ("the reconstruction"). These proposals were approved at a general meeting of the Company on 1 June 2017 and implemented on 20 June 2017.

As part of the reconstruction new Articles of Association were adopted which require the Directors to put forward at the first Annual General Meeting to be held after 1 March 2025, a resolution for the voluntary winding up of the Company and the appointment of a liquidator. In the event of the resolution being proposed, those members voting in favour, whether in person or by proxy, shall collectively have sufficient votes, irrespective of number, to pass the resolution.

The Board remains positive on the outlook for healthcare and the Company will continue to pursue its new investment objective in accordance with the stated investment policy and strategy. Future performance is dependent to a significant degree on the world's financial markets and their reactions to economic events and other geo-political forces. The Chairman's Statement and the Investment Manager's Report comment on the business, outlook and threats.

The Board

As the day to day management of the Company is outsourced to service providers the Board focuses at each meeting on investment performance including the outlook, strategy and management of the services providers and the risks inherent in the various matters reviewed.

Service Providers

Polar Capital LLP has been appointed to act as the Investment Manager and AIFM as well as to provide or procure company secretarial services and administrative services, including accounting, portfolio valuation and trade settlement which it has arranged to deliver through HSBC Securities Services.

The Company also contracts directly with a number of third parties for the provision of specialist services:

• Panmure Gordon & Co as corporate broker;

• Equiniti Limited as the share registrars;

• PricewaterhouseCoopers LLP as independent Auditors; and

• Emperor as internet service provider including website design, designers and printers for shareholder communications.

Objective

The Company's investment objective is to generate capital growth by investing in a global portfolio of healthcare stocks across all four healthcare sub-sectors, being pharmaceuticals, biotechnology, medical technology and healthcare services.

Policy

The Company will seek to achieve its objective by investing in a diversified global portfolio consisting primarily of listed equities. The portfolio is diversified by factors such as geography, industry sub-sector and investment size. The portfolio will comprise a single pool of investments, but for operational purposes, the Investment Manager will maintain a growth portfolio and an innovation portfolio. Innovation companies are broadly defined by the Investment Manager as small/mid cap innovators that are driving disruptive change, giving rise not only to new drugs and surgical treatments but also to a transformation in the management and delivery of healthcare.

The growth portfolio is expected to comprise a majority of the Company's assets; for this purpose, once an innovation stock's market capitalisation has risen above US$5 billion, it will ordinarily then be treated as a growth stock.

The relative ratio between the two portfolios may vary over the life of the Company due to factors such as asset growth and the Investment Manager's views as to the risks and opportunities offered by investments in each pool and across the combined portfolio. While there is no restriction on geographical exposure, it is expected that the majority of the companies in the initial growth portfolio will be US listed or traded and/or headquartered in the US, although this may change over the life of the Company.

The combined portfolio will be made up of interests in up to 50 companies, with no single investment accounting for more than 10% (or 15% in the case of an investment in another fund managed by the Investment Manager) of the Gross Assets at the time of investment. The innovation portfolio may include stocks which are neither quoted nor listed on any stock exchange but the exposure to such stocks, in aggregate, will not exceed 5% of Gross Assets at the time of investment.

In the event that the Investment Manager launches a dedicated healthcare innovation fund, the Company's exposure to innovation stocks may be achieved in whole or in part by an investment in that fund. In any event, the Company will not, without the prior consent of the Board, acquire more than 15% of any such healthcare innovation fund's issued share capital.

Strategy

The Investment Manager's investment process is primarily based on bottom-up fundamental analysis. The Investment Manager uses a qualitative filter consisting of six key criteria to build up a watch-list of securities that is monitored on a regular basis. Due diligence is then carried out on the individual securities on the watch-list.

Each individual holding is assessed on its own merits in terms of risk/reward. While the Company expects normally to be fully or substantially invested, the Company may hold cash or money market instruments pending deployment in the portfolio. In addition, it will have the flexibility, when the Investment Manager perceives there to be actual or expected adverse equity market conditions, to maintain cash holdings as it deems appropriate.

Gearing

Following the restructure of the Company in June 2017, the Company maintains long-term structural gearing in the form of a loan from the wholly owned subsidiary PCGH ZDP Plc. No short-term borrowings have been made and there are no arrangements made for any bank loans.

The Articles of Association provide that the Company may borrow up to 15% of its Net Asset Value at the time of drawdown, for tactical deployment when the Board believes that gearing will enhance returns to shareholders.

Benchmark

The Company will measure the Investment Manager's performance against the MSCI ACWI Healthcare Index total return, in Sterling with dividends reinvested. The portfolio may diverge substantially from the constituents of this index. Although the Company has a benchmark, this is neither a target nor an ideal investment strategy. The purpose of the Benchmark is to set a reasonable return for shareholders above which the Investment Manager is entitled to a share of the extra performance it has delivered.

Performance and Key Performance Objectives

The Board appraises the performance of the Company and the Investment Manager as the key supplier of services to the Company against key performance indicators (KPIs). The objectives comprise both specific financial and shareholder related measures.

KPI

Control process

Outcome

The provision of investment returns to shareholders measured by long- term NAV total return relative to the Benchmark Index.

The Board reviews at each meeting the performance of the portfolio and considers the views of the Investment Manager.

The Board also considers the value delivered to shareholders through NAV growth and dividends paid.

The Company's NAV total return, over the year ended 30 September 2017, was 0.6% while the Benchmark Index over the same period increased by 8.6%. The underperformance is explained in the Investment Manager's Report. Since inception the NAV total return is 157.81% compared with benchmark performance of 196.35% over the same period.

The achievement of the dividend policy.

Financial forecasts are reviewed to track income and distributions.

Three dividends have been paid or are payable in respect of the year to 30 September 2017 totalling 3.40p per share (2016: 4 dividends totalling 4.05p) representing a decrease in line with the change of investment mandate in the restructure of the Company.

Monitoring and reacting to issues created by the discount or premium of the ordinary share price to the NAV per ordinary share with the aim of reduced discount volatility for shareholders.

The Board receives regular information of the composition of the share register including trading patterns and discount/premium levels of the Company's ordinary shares. The Board discusses and authorises the issue or buy back of shares when appropriate.

A daily NAV per share, calculated in accordance with the AIC guidelines is issued to the London Stock Exchange.

The discount of the ordinary share price to the NAV per ordinary share at the year ended 30 September 2017 was -2.8% (2016: -5.4%).

Full details of the share movements in association with the Company's restructure are given in the Report of the Directors in the Annual Report. Subsequent to the reconstruction the Company has issued 775,744 shares out of those held in treasury. This brought the number of shares in issue at the year end to 124,149,256 of which 1,399,256 were held in treasury.

To continue to meet the requirements for Sections 1158 and 1159 of the Corporation Tax

Act 2010.

The Board receives regular financial information which discloses the current and projected financial position of the Company against each of the tests set out in Sections 1158 and 1159.

Investment trust status was granted to the Company in respect of subsequent periods from 1 October 2014, prior to which certification was requested and granted annually, subject to the Company continuing to satisfy the conditions of Section 1158 of the Corporation Taxes Act 2010 and other associated ongoing requirements.

The Directors believe that the conditions and other ongoing requirements have been met in respect of the year ended 30 September 2017 and they believe that the Company will continue to meet the requirements.

Ongoing charges

The Board receives regular financial information which discloses expenses against budget.

Ongoing charges for the year ended 30 September 2017 were 1.02%, compared to 1.01% the previous year

Principal Risks and Uncertainties

The Board is responsible for the management of risks faced by the Company in delivering long-term returns to shareholders. The identification, monitoring and appraisal of the risks, any mitigation factors and control systems is crucial.

The Board maintains a Risk Map which seeks to record the principal risks in four main risk categories, Business, Portfolio Management, Infrastructure and External. The Risk Map details each identified risk and any factors, both internal and external, that could provide mitigation, as well as recording a reporting structure to monitor and mitigate as far as practical such risks.

The Risk Map is regularly considered to monitor existing principal risks and identify new risks or developments and additions to the controls and reporting environment. The risk map was extensively reviewed following the reconstruction becoming effective on 20 June 2017.

Principal Business Risks and Uncertainties

Management of Risks through Mitigation & Controls

Business

• Failure to achieve investment objective.

• Investment performance below agreed benchmark objective or market/industry average.

Such failures could lead to:

• Possible loss of liquidity in shares and shrinkage in assets.

• Loss of portfolio manager or other key staff.

• Persistent excessive share price discount to NAV.

The Board seeks to mitigate the impact of such risks through the regular reporting and monitoring of the investment performance against its peer group, benchmark and other agreed indicators of relative performance.

For months when the Board is not scheduled to meet they receive a monthly report containing financial information on the Company including gearing and cash balances.

Performance and strategy are reviewed throughout the year at regular Board meetings where the Board can challenge the Investment Manager. They also receive a monthly commentary from the Investment Manager published in the factsheets for all the healthcare funds.

The Management Engagement Committee undertakes the year-end consideration of suitability of Investment Manager on the basis of performance and other services provided.

In consultation with its advisors, including the corporate stock broker, the Board regularly considers the level of premium and discount of the share price to the NAV and the Board reviews ways to enhance shareholder value including share issuance and buy backs. The Board is committed to a clear communication programme to ensure shareholders understand the investment strategy. This is maintained through the use of monthly factsheets which have a market commentary from the Investment Manager as well portfolio data, an informative website as well as annual and half year reports.

Windup date in 2025 should help to limit discount volatility.

The Chairman regularly engages with the senior management of the Investment Manager.

Portfolio Management

• While the portfolio is diversified across a number of stock markets worldwide, the investment mandate is focused on healthcare and thus the portfolio will be more sensitive to investor sentiment and the commercial acceptance of healthcare developments than a general investment portfolio.

• As the Company's assets comprise mainly listed equities the portfolio is exposed to risks such as market price, credit, liquidity, foreign currency and interest rates.

• The portfolio is actively managed. The Investment Manager's style focuses primarily on the investment opportunity of individual stocks and, accordingly, may not follow the makeup of the Benchmark. This may result in returns which are not in line with the Benchmark.

• The degree of risk which the Investment Manager incurs in order to generate the investment returns.

The Board has set appropriate investment guidelines and monitors the position of the portfolio against exposures to certain investment markets and sectors. The Board discusses with the Investment Manager at each Board meeting developments in healthcare and drug pipelines.

At each Board meeting the composition and diversification of the portfolio by geographies, sectors and capitalisations are considered along with sales and purchases of investments. Individual investments are discussed with the Investment Manager as well as the Investment Manager's general views on the various investment markets and the healthcare sector in particular.

Analytical performance data and attribution analysis is presented by the Investment Manager.

The policies for managing the risks posed by exposure to market prices, interest rates, foreign currency exchange rates, credit and liquidity are set out in note 26 to the financial statements.

• Gearing, either structural gearing through the issue of ZDP shares by the wholly owned subsidiary PCGH ZDP Plc or through bank debt or the use of derivatives may be utilised from time to time. Whilst the use of gearing is intended to enhance the NAV total return, it will have the opposite effect when the return on the Company's investment portfolio is negative.

The Board considered the benefits and drawbacks of introducing structural debt at a market competitive rate of 3% pa as part of the restructuring. In association with its advisers it concluded that the ability to lock-in an effective interest rate of 3% for the next 7 years would be beneficial to investment returns. The asset cover necessary to repay the ZDP shares is reviewed at each Board meeting.

If any flexible gearing is contemplated the Board agrees the overall levels of gearing with the AIFM. The arrangement of bank facilities and drawing of funds under such arrangements are controlled by the Board. Derivatives are considered as being a form of gearing and a policy for their use has been agreed by the Board. The deployment of borrowed funds (if any) is based on the Investment Manager's assessment of risk and reward.

• The ability to fund dividend due to exposure to currency risk, is impaired.

· Income less than expected due to currency exposure underlying the portfolio.

· Level of dividend lower than intended or previously paid.

Board monitors exposure through monthly management accounts and discussion and currency hedging takes place if appropriate.

Investors have sight of the entire portfolio and geographic exposure to investments.

Infrastructure

• There are risks from the failure of, or disruption to, operational and accounting systems and processes provided by the Investment Manager including any subcontractors to which the Investment Manager has delegated a task as well as directly appointed suppliers.

• The mis-valuation of investments or the loss of assets from the custodian or sub custodians which affect the NAV per share or lead to a loss of shareholder value.

• There is taxation risk that the Company may fail to continue as an investment trust and suffer Capital Gains tax or recover as fully as possible withholding taxes on overseas investments.

• The legal and regulatory risks include failure to comply with the FCA's Prospectus Rules, Listing Rules and Transparency and Disclosure Rules; not meeting the provisions of the Companies Act 2006 and other UK, European and overseas legislation affecting UK companies and not complying with accounting standards. Further risks arise from not keeping abreast of changes in legislation and regulations which have in recent years been substantial.

At each Board meeting there is an administration report which provides details on general corporate matters including legislative and regulatory developments, changes in substantial shareholdings and within the share register.

There is an annual review of suppliers and their internal control reports which includes the disaster recovery procedures of the Investment Manager.

The Investment Manager reports on cyber security for its own systems and comments where appropriate on 3rd party suppliers risks.

Regular reporting from the Depositary on the safe custody of the Company's assets and the operation of control systems related to the portfolio reconciliation are monitored.

Specialist advice is sought on taxation issues as and when required. The Audit Committee has oversight on such work.

Information and guidance on legal and regulatory risks is managed by using the Investment Manager or professional advisers where necessary and the submission of reports to the Board for discussion and, if required, any remedial action or changes considered necessary.

As an investment company, the Company is dependent on a framework of tax laws, regulation (both UK and EU) and Company law.

The Board monitors new developments and changes in the regulatory environment and seeks to ensure that their impact on the Company is understood and complied with although the Board has no control over such legislative changes and such changes may be intended to affect the Company, or we may suffer unintended consequences from changes designed to affect others.

External

• There is significant exposure to the economic cycles of the markets in which the underlying investments conduct their business operations as well as the economic impact on investment markets where such investments are listed. The fluctuations of exchange rates can also have a material impact on Shareholder returns.

The Board regularly discusses the general economic conditions and developments.

The impact on the portfolio from Brexit and other geo- political changes including the US presidential election were reviewed and discussed. While it is difficult to quantify the impact of such changes they were not believed to fundamentally impact the business of the Company or to make healthcare investing any less desirable.

Note 26 describes the impact of changes in foreign exchange rates.

Management Company and Management of the Portfolio

As the Company is an investment vehicle for shareholders, the Directors have sought to ensure that the business of the Company is managed by a leading specialist investment management team and that the investment strategy remains attractive to shareholders. The Directors believe that a strong working relationship with Polar Capital LLP (the Investment Manager) will achieve the optimum return for shareholders and the Board and Investment Manager operate in a supportive, co-operative and open environment.

The Company has an Investment Management Contract with the Investment Manager to act as Investment Manager and AIFM of the Company. The Investment Manager has responsibility for the discretionary management of the Company's assets (including uninvested cash) and sole responsibility to take decisions as to the purchase and sale of individual investments. The Investment Manager also has responsibility for asset allocation and sector selection within the limits of the investment policy and guidelines established and regularly reviewed by the Board. The activities of the Investment Manager are subject to the overall control and supervision of the Board.

The Investment Manager has other investment resources which support the investment team and has experience in managing and administering other investment trust companies. The Investment Manager also provides or procures accountancy services, company secretarial and day to day administrative services including the monitoring of third party suppliers which are directly appointed by the Company. The Investment Manager has, with the consent of the Directors, delegated the provision of certain of these administrative functions to HSBC Securities Services and to Polar Capital Secretarial Services Limited. The fees of HSBC Securities Services in providing such services, are for the account of the Company.

Information is provided to the Directors in a timely manner covering all relevant management, regulatory and financial information. The Board has a report from the investment team at each meeting and also may ask representatives of the Investment Manager to attend Board meetings enabling the Directors to probe further on matters of concern or seek clarification on certain issues.

While the Board reviews the performance of the Investment Manager at each Board meeting and the Company's performance against the Benchmark and the investment objectives, the Management Engagement Committee formally carries out the annual review of the continued appointment of the Investment Manager.

Investment Team

The Investment Manager provides a team of healthcare specialists and the portfolio is managed by Dr. Daniel Mahony, the lead manager, Mr. Gareth Powell and Mr. James Douglas.

Termination Arrangements

The Investment Management Agreement is terminable by either the Investment Manager or the Company giving to the other not less than 12 months' written notice. The Investment Management Agreement may be terminated earlier by the Company with immediate effect on the occurrence of certain events, including: (i) if an order has been made or an effective resolution passed for the liquidation of the Investment Manager; (ii) if the Investment Manager ceases or threatens to cease to carry on its business; (iii) where the Company is required to do so by a relevant regulatory authority; (iv) on the liquidation of the Company; or (v) subject to certain conditions, where the Investment Manager commits a material breach of the Investment Management Agreement.

In the event the Investment Management Agreement is terminated before the expiry of the Company's fixed life then, except in the event of termination by the Company for certain specified causes, the base fee and the performance fee will be calculated pro rata for the period up to and including the date of termination.

Fee Arrangements

Management Fee

Under the terms of the Investment Management Agreement, the Investment Manager will be entitled to a management fee together with reimbursement of reasonable expenses incurred by it in the performance of its duties. The management fee is payable monthly in arrears and will be at the rate of 0.85% per annum of the lower of the Company's market capitalisation and the Company's Net Asset Value on the relevant day.

In accordance with the Directors' policy on the allocation of expenses between income and capital, in each financial year 80% of the management fee payable is charged to capital and the remaining 20% to income.

Performance Fee

The Investment Manager may be entitled to a performance fee. The performance fee was reset at the date of reconstruction of the Company and will be paid in cash at the end of the Company's expected life (except in the case of an earlier termination of the Investment Management Agreement). The performance fee will be an amount equal to 10% of the excess total return (based on the Adjusted Net Asset Value per ordinary share at that time) over the total return of the benchmark index (total return in sterling with net dividends reinvested) plus 1.5% per annum. No performance fee will be paid unless the Net Asset Value per ordinary share is higher than the Net Asset Value per ordinary share at the time of reconstruction being 215.9p per ordinary share.

For the purposes of calculating the performance fee, the Company's Adjusted Net Asset Value will be based on the Net Asset Value adjusted by the amount of any dividends paid by the Company deemed to have been reinvested on the date of payment in ordinary shares at their Net Asset Value (on such date) and the resulting amount added to the Company's Net Asset Value.

If at the end of the Company's expected life the amount available for distribution to shareholders is less than 215.9 pence per ordinary share, no performance fee will be payable. If the amount is more than 215.9 pence per ordinary share but payment of the performance fee in full would reduce it below that level, then the performance fee will be reduced such that shareholders receive exactly 215.9 pence per share.

No performance fee has been paid or accrued since inception and up to 30 September 2017.

Corporate Responsibility

Socially Responsible Investing and Exercising of Voting Powers

The Board has instructed the Investment Manager to take into account the published corporate governance of the companies in which they invest.

The Company has also considered the Investment Manager's Stewardship Code and Proxy Voting Policy. The Voting Policy is for the Investment Manager to vote at all general meetings of companies in favour of resolutions proposed by the management where it believes that the proposals are in the interests of shareholders. However, in exceptional cases, where it believes that a resolution could be detrimental to the interests of shareholders or the financial performance of the Company, appropriate notification will be given and abstentions or a vote against will be lodged.

The Investment Manager has voted at 62 company meetings over the year ended 30 September 2017 in each case following the recommendations of the management of that company on the casting of votes.

The Investment Manager reports to the Board, when requested, on the application of the Stewardship Code and Voting Policy. The Investment Manager's Stewardship Code and Voting Policy can be found on the Investment Manager's website (www.polarcapital.co.uk).

Environment

The Company's core activities are undertaken by its Investment Manager, which seeks to limit the use of non-renewable resources and to reduce waste where possible.

Diversity, Gender Reporting and Human Rights Policy

The Company has no employees. In the year under review the Board comprised four male Non-executive Directors. Following the Annual General Meeting the Board expects to have one female and three male Non-executive Directors .

In the event that new Directors are appointed, the Board would have regard to the benefits of diversity, including gender, when seeking to make any such appointment(s).

The Company has not adopted a policy on human rights as it has no employees or operational control of its assets.

As an investment company, the Company does not provide goods or services in the normal course of business and does not have any customers. Accordingly, it is considered that the Company is not required to make any slavery or human trafficking statements under the Modern Slavery Act 2015.

Greenhouse Gas Emissions

The Companies Act 2006 (Strategic Report and Directors' Reports) Regulations 2013 require companies listed on the Main Market of the London Stock Exchange to report on the greenhouse gas ('GHG') emissions for which they are responsible. The Company is an investment trust, with neither employees nor premises, nor has it any financial or operational control of the assets which it owns. Consequently, it has no GHG emissions to report from its operations nor does it have responsibility for any other emissions.

Approved by the Board on 20 December 2017

By order of the Board

T A Lago

Polar Capital Secretarial Services Limited

Company Secretary

Statement of Directors' Responsibilities

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

Company law requires the Directors to prepare the Group and Company Financial Statements for each financial year. Under that law the Directors have prepared the Group and Company Financial Statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

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

• select suitable accounting policies and then apply them consistently;

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

• state whether applicable IFRSs as adopted by the European Union have been followed, subject to any material departures disclosed and explained in the Financial Statements; and

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

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Company and enable them to ensure that the Group and Company Financial Statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group and Company Financial Statements, Article 4 of the IAS Regulations. They are also responsible for safeguarding the assets of the Group and Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors are responsible for the maintenance and integrity of the Company's website although day to day maintenance has been delegated to Polar Capital LLP. Legislation in the United Kingdom governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions. The work carried out by the Auditors does not involve consideration of these matters and, accordingly, the Auditors accept no responsibility for any changes that may have occurred to the Financial Statements since they were initially presented on the website.

The Directors consider that the Annual Report and Group and Company Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Group and Company's performance, business model and strategy.

Disclosure of Information to the Auditors

As far as the Directors are aware and to the best of their knowledge, having made enquiries, there is no relevant audit information of which the Auditors are unaware and the Directors have taken steps to make themselves aware of any relevant audit information and to establish that the Auditors are aware of such information.

Going Concern

The Board has, through the Audit Committee, considered the Group and Company's position as at 30 September 2017 and the factors impacting the forthcoming year are set out in the Chairman's Statement and the Investment Manager's Report and in the Strategic Review and in the Report of the Directors which incorporates the corporate governance statements within the Annual Report.

The financial position of the Group and Company, their cash flows, and their liquidity position are described in the Strategic Report. Note 26 to the Financial Statements includes the Group and Company's policies and process for managing their capital; their financial risk management objectives and details of financial instruments and hedging activities. Exposure to credit risk and liquidity risk are also disclosed.

The Group has a portfolio of investments listed and traded on stock exchanges around the world, the great majority of which can be sold within seven working days, providing considerable financial resources. After making enquiries, the Directors have a reasonable expectation that the Group and Company have adequate resources to continue in operational existence for the foreseeable future. Accordingly, the Directors continue to adopt the going concern basis in preparing the Annual Report and Financial Statements.

Longer-Term Viability

The Board through the Audit Committee considered and addressed the ability of the Company to continue to operate over a longer period. The work of the Audit Committee in looking at the longer-term viability is described in the Annual Report.

As an investment company with a liquid portfolio, the majority of which can be sold within seven working days, limited expenses which are modest in relation to the asset base of the Company, and no employees the Directors are of the opinion that the Company can continue in operation up to its wind up date expected to be in March 2025.

Responsibility Statement Under the Disclosure and Transparency Rules

Each of the Directors in office for the period under review of Polar Capital Global Healthcare Trust plc confirm that, to the best of their knowledge:

• the Financial Statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Company; and

• the Chairman's Statement, Investment Manager's Report, Strategic Review and Report of the Directors (together constituting the Management Report) include a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces.

The Financial Statements were approved by the Board on 20 December 2017 and the responsibility statements were signed on its behalf by James Robinson, Chairman of the Board.

James Robinson

Chairman

20 December 2017

Statements of Comprehensive Income - For the year ended 30 September 2017

	Note	Group			Company
		Year ended 30 September 2017			Year ended 30 September 2016
		Revenue return £'000	Capital return £'000	Total return £'000	Revenue return £'000	Capital return £'000	Total return £'000
Investment income	3	5,796	813	6,609	6,358	162	6,520
Other operating income	4	3	-	3	314	-	314
Gains on investments held at fair value	5	-	1,030	1,030	-	38,721	38,721
Other currency (losses)/gains	6	-	(1,192)	(1,192)	-	68	68
Total income		5,799	651	6,450	6,672	38,951	45,623
Expenses
Investment management fee	7	(428)	(1,713)	(2,141)	(361)	(1,444)	(1,805)
Other administrative expenses	8	(1,351)	-	(1,351)	(467)	(5)	(472)
Total expenses		(1,779)	(1,713)	(3,492)	(828)	(1,449)	(2,277)
Profit/(loss) before finance costs and tax		4,020	(1,062)	2,958	5,844	37,502	43,346
Finance costs	9	(1)	(277)	(278)	-	-	-


Profit/(loss) before tax		4,019	(1,339)	2,680	5,844	37,502	43,346
Tax	10	(709)	(7)	(716)	(681)	(7)	(688)
Net profit for the year and total comprehensive income/(expense)		3,310	(1,346)	1,964	5,163	37,495	42,658
Earnings/(loss) per ordinary share (pence)	12	2.74	(1.11)	1.63	4.28	31.07	35.35

The total column of this statement represents the Group and Company's Statement of Comprehensive Income, prepared in accordance with IFRS as adopted by the European Union.

The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

The Group and Company does not have any dilutive securities and therefore the Earnings per Share and the Diluted Earnings per share are the same.

The amounts detailed in the Statement of Comprehensive Income are all derived from continuing activities.

Statements of Changes in Equity - For the year ended 30 September 2017

	Note	Group and Company Year ended 30 September 2017
	Note	Called up share capital £'000	Capital redemption reserve £'000	Share premium reserve £'000	Special distributable reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total Equity £'000
Total equity at 1 October 2016		30,663	-	28,916	61,337	124,100	2,809	247,825
Total comprehensive (expense)/income:
(Loss)/profit and total comprehensive (expenses)/income for the year ended 30 September 2017		-		-	-	(1,346)	3,310	1,964
Transactions with owners, recorded directly to equity:
Issue of ordinary shares	17, 19, 20	6,949	-	51,769	1,229	-	-	59,947
Shares bought back from tender offer	17, 18, 20	(6,575)	6,575	-	(55,812)	-	-	(55,812)
Equity dividends paid	11	-	-	-	-	-	(3,795)	(3,795)
Total equity at 30 September 2017		31,037	6,575	80,685	6,754	122,754	2,324	250,129

	Note	Company Year ended 30 September 2016
	Note	Called up share capital £'000	Share premium reserve £'000	Special distributable reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total Equity £'000
Total equity at 1 October 2015		30,663	28,916	61,844	86,605	2,410	210,438
Total comprehensive income:
Profit and total comprehensive income for the year ended 30 September 2016		-	-	-	37,495	5,163	42,658
Transactions with owners, recorded directly to equity:
Shares bought back and held in treasury		-	-	(507)	-	-	(507)
Equity dividends paid	11	-	-	-	-	(4,764)	(4,764)
Total equity at 30 September 2016		30,663	28,916	61,337	124,100	2,809	247,825

Balance Sheets - As at 30 September 2017

	Note	Group	Company
	Note	30 September 2017 £'000	30 September 2017 £'000	30 September 2016 £'000
Non current assets
Investments held at fair value	13	274,516	274,516	246,381
Investment in subsidiary	13	-	50	-
Current assets
Receivables	14	8,967	8,967	665
Overseas tax recoverable		433	433	274
Cash and cash equivalents	24	856	806	7,367
		10,256	10,206	8,306
Total assets		284,772	284,772	254,687
Current liabilities
Payables	15	(2,218)	(2,218)	(6,852)
Bank overdraft	24	(25)	(25)	(10)
		(2,243)	(2,243)	(6,862)
Non current liabilities
Zero dividend preference shares	16	(32,400)	-	-
Loan from subsidiary		-	(32,400)	-
Total liabilities		(34,643)	(34,643)	(6,862)
Net assets		250,129	250,129	247,825
Equity attributable to equity shareholders
Called up share capital	17	31,037	31,037	30,663
Share premium reserve	19	80,685	80,685	28,916
Capital Redemption reserve	18	6,575	6,575	-
Special distributable reserve	20	6,754	6,754	61,337
Capital reserves	21	122,754	122,754	124,100
Revenue reserve	22	2,324	2,324	2,809
Total equity		250,129	250,129	247,825
Net asset value per ordinary share (pence)	23	203.77	203.77	205.71
Net asset value per ZDP share (pence)	23	100.85	-	-

The parent company has taken advantage of section 408 of the Companies Act 2006 and has not included its own income statement in the financial statements. The parent company's profit for the year was £3,310k (2016: £5,163k).

The financial statements were approved and authorised for issue by the Board of Directors on 20 December 2017 and signed on its behalf by James Robinson, Chairman.

Cash Flow Statements - For the year ended 30 September 2017

		Group and Company
	Note	Year ended 30 September 2017 £'000	Year ended 30 September 2016 £'000
Cash flows from operating activities
Profit before finance costs and tax		2,958	43,346
Adjustment for non-cash items:
Gain on investments held at fair value through profit or loss		(1,030)	(38,721)
Adjusted profit before tax		1,928	4,625
Adjustments for:
Purchases of investments, including transaction costs		(226,076)	(84,266)
Sales of investments, including transaction costs		185,763	91,466
Decrease/(Increase) in receivables		210	(156)
Increase in payables		62	33
Overseas tax deducted at source		(875)	(750)
Net cash (used in)/generated from operating activities		(38,988)	10,952
Cash flows from financing activities
Proceeds from issue of share capital (net of issue costs)		59,947	-
Proceeds from ZDP share issue*		32,128	-
Shares bought back from tender offer		(55,812)	-
Cost of shares repurchased		-	(507)
Interest paid		(6)	-
Equity dividends paid	11	(3,795)	(4,764)
Net cash generated from/(used in) financing activities		32,462	(5,271)
Net (decrease)/increase in cash and cash equivalents		(6,526)	5,681
Cash and cash equivalents at the beginning of the year		7,357	1,676
Cash and cash equivalents at the end of the year	24	831	7,357

* Within the Company accounts this balance represents proceeds from the loan from its subsidiary

Notes to the Financial Statements - For the year ended 30 September 2017

1 General Information

The consolidated financial statements for the year ended 30 September 2017 comprise the financial statements of the Company and its wholly-owned subsidiary PCGH ZDP plc (together referred to as the 'Group').

The Group and Company financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), which comprise standards and interpretations approved by the International Accounting Standards Board (IASB) and International Accounting Standards Committee (IASC), as adopted by the European Union, and with those parts of the Companies Act 2006 applicable

to companies under IFRS.

The Group and Company's presentational currency is pounds sterling (rounded to the nearest £'000). Pounds sterling is also the functional currency of the Group and Company because it is the currency which is which is most relevant to the majority of the Group and Company's shareholders and creditors and the currency in which the majority of the Group and Company's operating expenses are paid.

2 Accounting Policies

The principal accounting policies which have been applied consistently for all years presented are set out below:

(a) Basis of Preparation

The financial statements have been prepared on a going concern basis under the historical cost convention, as modified by the revaluation of investments and derivative financial instruments at fair value through profit or loss.

Where presentational guidance set out in the Statement of Recommended Practice (SORP) for investment trusts issued by the Association of Investment Companies (AIC) in November 2014 (and updated in January 2017), is consistent with the requirements of IFRS, in so far as those requirements are applicable to the financial statements, the Directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP.

Basis of consolidation - The Group financial statements consolidate the Financial Statements of the Company and its wholly owned subsidiary, PCGH ZDP plc, drawn up to the same accounting date. The subsidiary is consolidated from the date of its incorporation.

The Company has taken advantage of the exemption under section 408 of the Companies Act 2006 and accordingly has not presented a separate parent company income statement.

(b) Presentation of the Statement of Comprehensive Income

In order to better reflect the activities of an investment trust company and in accordance with the guidance set out by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income. The results presented in the revenue return column is the measure the Directors believe appropriate in assessing the Company's compliance with certain requirements set out in section 1158 of the Corporation Tax Act 2010.

Dividends receivable from equity shares are recognised and taken to the revenue return column of the Statement of Comprehensive Income on an ex-dividend basis.

Special dividends are recognised on an ex-dividend basis and may be considered to be either revenue or capital items. The facts and circumstances are considered on a case by case basis before a conclusion on appropriate allocation is reached.

Income from US/Canadian REITs is initially taken to the revenue return column of the Statement of Comprehensive Income on an ex-dividend basis. An adjustment may then be made to reallocate a proportion of this income to capital, depending on the information announced by the REITs.

Where the Group and Company has received dividends in the form of additional shares rather than in cash, the amount of the cash dividend foregone is recognised in the revenue return column of the Statement of Comprehensive Income. Any excess in value of shares received over the amount of the cash dividend foregone is recognised in the capital return column of the Statement of Comprehensive Income.

Bank interest is accounted for on an accruals basis. Interest outstanding at the year end is calculated on a time apportionment basis using market rates of interest.

(d) Written Options

The Group and Company may write exchange-traded options with a view to generating income. This involves writing short-dated covered-call options and put options. The use of financial derivatives is governed by the Group and Company's policies, as approved by the Board.

These options are recorded initially at fair value, based on the premium income received, and are then measured at subsequent reporting dates at fair value. Changes in the fair value of the options are recognised in the capital return for the period.

The option premiums are recognised evenly over the life of the option and shown in the revenue return, with an appropriate amount shown in the capital return to ensure the total return reflects the overall change in the fair value of the options.

Where an option is exercised, any balance of the premium is recognised immediately in the revenue return with a corresponding adjustment in the capital return based on the amount of the loss arising on exercise of the option.

(e) Expenses

All expenses, including the management fee, are accounted for on an accruals basis and are recognised when they fall due.

All expenses have been presented as revenue items except as follows:

Expenses are charged to the capital column of the Statement of Comprehensive Income where a connection with the maintenance or enhancement of the value of investments can be demonstrated. In this respect the investment management fees have been charged to the Statement of Comprehensive Income in line with the Board's expected long-term split of returns, in the form of capital gains and income from the Group and Company's portfolio. As a result 20% of the investment management fees are charged to the revenue account and 80% charged to the capital account of the Statement of Comprehensive Income.

The performance fee (when payable) is charged entirely to capital as the fee is based on the out-performance of the Benchmark and is expected to be attributable largely, if not wholly, to capital performance.

Finance costs

The ZDP shares are designed to provide a pre-determined capital growth from their original issue price of 100p on 16 June 2017 to a final capital repayment of 122.99p on 19 June 2024. The initial capital will increase at a compound interest rate of 3% per annum. No dividends are payable on the ZDP shares. The provision for the capital growth entitlement of the ZDP shares is included as a finance cost and charged 100% to capital within the Statement of Comprehensive Income (AIC SORP paragraph 53 issued in November 2014 and updated in January 2017).

Overdraft interest costs are allocated 20% to revenue and 80% to capital in line with the Board's expected long term split of revenue and capital return from the Company's investment portfolio.

Share issue costs

Costs incurred directly in relation to the issue of shares in the subsidiary are borne by the Company and taken 100% to capital. Share issue costs relating to ordinary share issues by the Company are taken 100% to the share premium account.

Zero Dividend Preference (ZDP) shares

Shares issued by the subsidiary are treated as a liability of the Group, and are shown in the Balance Sheet at their redemption value at the Balance Sheet date. The appropriations in respect of the ZDP shares necessary to increase the subsidiary's liabilities to the redemption values are allocated to capital in the Statement of Comprehensive Income. This treatment reflects the Board's long-term expectations that the entitlements of the ZDP shareholders will be satisfied out of gains arising on investments held primarily for capital growth.

(f) Taxation

The tax expense represents the sum of the overseas withholding tax deducted from investment income, tax currently payable and deferred tax.

The tax currently payable is based on the taxable profits for the year ended 30 September 2017. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Group and Company's liability for current tax is calculated using tax rates that have been enacted or substantively enacted at the balance sheet date.

In line with the recommendations of the SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Statement of Comprehensive Income is the 'marginal basis'. Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Statement of Comprehensive Income, then no tax relief is transferred to the capital return column.

Deferred tax is the tax expected to be payable or recoverable on temporary differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. Deferred tax liabilities are recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised.

Investment trusts which have approval as such under section 1158 of the Corporation Taxes Act 2010 are not liable for taxation on capital gains.

The carrying amount of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised based on tax rates that have been enacted or substantively enacted at the balance sheet date.

Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

(g) Investments Held at Fair Value Through Profit or Loss

When a purchase or sale is made under contract, the terms of which require delivery within the timeframe of the relevant market, the investments concerned are recognised or derecognised on the trade date and are initially measured at fair value.

On initial recognition the Group and Company has designated all of its investments as held at fair value through profit or loss as defined by IFRS. All investments are measured at subsequent reporting dates at fair value, which is either the bid price or the last traded price, depending on the convention of the exchange on which the investment is quoted.

All investments, classified as fair value through profit or loss, are further categorised into the following fair value hierarchy:

Level 1: Unadjusted prices quoted in active markets for identical assets and liabilities.

Level 2: Having inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (ie as prices) or indirectly (ie derived from prices).

Level 3: Having inputs for the asset or liability that are not based on observable market data. Changes in fair value of all investments held at fair value and realised gains and losses on disposal are recognised in the capital return column of the Statement of Comprehensive Income.

In the event that a security held within the portfolio is suspended then judgement is applied in the valuation of that security.

(h) Receivables

Receivables are initially recognised at fair value and subsequently measured at amortised cost. Receivables do not carry any interest and are short-term in nature and are accordingly stated at their nominal value (amortised cost) as reduced by appropriate allowances for estimated irrecoverable amounts.

(i) Cash and Cash Equivalents

Cash comprises cash on hand and demand deposits. Cash equivalents are short-term, highly liquid investments that are readily convertible to known amounts of cash.

(j) Dividends Payable

Dividends payable to shareholders are recognised in the financial statements when they are paid or, in the case of final dividends, when they are approved by the shareholders.

(k) Payables

Other payables are not interest-bearing and are initially valued at fair value and subsequently stated at their nominal value (amortised cost).

(l) Foreign Currency Translation

Transactions in foreign currencies are translated into Sterling at the rate of exchange ruling on the date of each transaction. Monetary assets, monetary liabilities and equity investments in foreign currencies at the balance sheet date are translated into Sterling at the rates of exchange ruling on that date. Realised profits or losses on exchange, together with differences arising on the translation of foreign currency assets or liabilities, are taken to the capital return column of the Statement of Comprehensive Income.

Foreign exchange gains and losses arising on investments held at fair value are included within changes in fair value.

(m) Capital Reserves

Capital reserve arising on investments sold includes:

-gains/losses on disposal of investments

-exchange differences on currency balances

-transfer to subsidiary in relation to ZDP funding requirement

-other capital charges and credits charged to this account in accordance with the accounting policies above.

Capital reserve arising on investments held includes:

-increases and decreases in the valuation of investments held at the balance sheet date.

All of the above are accounted for in the Statement of Comprehensive Income.

Share issue costs

Costs incurred directly in relation to the offers for subscription and placings of Ordinary Shares and the subsidiary's ZDP shares together with additional share listing costs have been deducted from the share premium account.

(n) Repurchase of Ordinary Shares (Including Those Held in Treasury)

The costs of repurchasing Ordinary shares including related stamp duty and transaction costs are taken directly to equity and reported through the Statement of Changes in Equity as a charge on the special distributable reserve. Share repurchase transactions are accounted for on a trade date basis.

The nominal value of Ordinary share capital repurchased and cancelled is transferred out of called up share capital and into the capital redemption reserve.

Where shares are repurchased and held in treasury, the transfer to capital redemption reserve is made if and when such shares are subsequently cancelled.

(o) New and revised accounting Standards

No new IFRS, or amendments to IFRS, became applicable in the year which had any impact on the Group and Company's accounts.

At the date of authorisation of these financial statements, the following new IFRS that potentially impacts the Group and Company is in issue but is not yet effective and has not been applied in these accounts:

IFRS 9 (2014) Financial Instruments, effective for periods beginning on or after 1 January 2018.

The requirements of IFRS9 and its application to the investments held by the Group and Company were considered ahead of its adoption on 1 January 2018. All assets held by the Group and Company are currently recorded as fair value through profit and loss. The classification of all assets shall remain unchanged under IFRS 9 and all figures will be directly comparable to the existing basis of valuation. All other IFRS which are in issue but which are not yet effective, have been considered and will not have a significant effect on the Group and Company's accounts.

(p) Segmental Reporting

Under IFRS 8, 'Operating Segments', operating segments are considered to be the components of an entity about which separate financial information is available that is evaluated regularly by the chief operating decision maker in deciding how to allocate resources and in assessing performance. The chief operating decision maker has been identified as the Investment Manager (with oversight from the board).

The Directors are of the opinion that the Group and Company has only one operating segment and as such no distinct segmental reporting is required.

3 Investment Income

	Year ended 30 September 2017 £'000	Year ended 30 September 2016 £'000
Revenue:
Franked: Listed investments
Dividend income	750	1,308
Unfranked: Listed investments
Dividend income	5,046	5,050
Total investment income allocated to revenue	5,796	6,358
Capital:
Special dividends allocated to capital	509	-
Dividends from REITs allocated to capital	304	162
Total investment income allocated to capital	813	162

4 Other Operating Income

	Year ended 30 September 2017 £'000	Year ended 30 September 2016 £'000
Option premium income	-	311
Bank interest	3	3
Total other operating income	3	314

Option premium income for 2016 derived from writing short-dated covered-call options and put options in the expectation that the options will not be exercised or, in overall terms, any losses that may arise following exercise will be outweighed by the premiums received.

5 Gains on Investments Held at Fair Value

	Year ended 30 September 2017 £'000	Year ended 30 September 2016 £'000
Net gains on disposal of investments at historic cost	41,149	16,386
Less fair value adjustments in earlier years	(42,619)	(16,948)
Losses based on carrying value at previous balance sheet date	(1,470)	(562)
Valuation gains on investments held during the year	2,500	39,283
	1,030	38,721

6 Other Currency (losses)/gains

Year ended

30 September

2017

£'000

Year ended

30 September

2016

£'000

Exchange (losses)/gains on currency balances

(1,192)

7 Investment Management Fee

	Year ended 30 September 2017 £'000	Year ended 30 September 2016 £'000
Management fee
- charged to revenue	428	361
- charged to capital	1,713	1,444
Investment management fee payable to Polar Capital LLP	2,141	1,805

Management fees are allocated 20% to revenue and 80% to capital.

8 Other Administrative Expenses (Including VAT where appropriate)

	Year ended 30 September 2017 £'000	Year ended 30 September 2016 £'000
Directors' fees	115	115
Directors' NIC	11	11
Auditors' remuneration:
For audit of the Group and Company financial statements	24	22
Depositary fee	30	26
Registrar fee	32	19
Custody and other bank charges	32	26
UKLA and LSE listing fees	23	20
Legal & professional fees*	838	10
AIC fees	20	20
Directors' and officers' liability insurance	7	8
Corporate brokers fee	28	27
Marketing expenses	21	18
Shareholder communications	22	25
HSBC administration fee	129	119
Other expenses	19	1
	1,351	467
Transaction charges - allocated to capital	-	5
	1,351	472

* Includes costs relating to the share reconstruction allocated to revenue.

Ongoing charges represents the total expenses of the fund, excluding finance costs, expressed as a percentage of the average daily net asset value, in accordance with AIC guidance issued in May 2012.

The ongoing charges ratio for the year ended 30 September 2017 was 1.02% (2016: 1.01%).

9 Finance Costs

	Year ended 30 September 2017			Year ended 30 September 2016
	Revenue return	Capital return	Total return	Revenue return	Capital return	Total return
	£'000	£'000	£'000	£'000	£'000	£'000
Interest on overdrafts	1	5	6	-	-	-
Appropriation to ZDP shares	-	272	272	-	-	-
Total finance costs	1	277	278	-	-	-

10 Tax

	Year ended 30 September 2017			Year ended 30 September 2016
	Revenue return £'000	Capital return £'000	Total return £'000	Revenue return £'000	Capital return £'000	Total return £'000
a) Analysis of tax charge for the year:
Overseas tax	709	7	716	681	7	688
Total tax for the year (see note 10b)	709	7	716	681	7	688
b) Factors affecting tax charge for the year:
The charge for the year can be reconciled to the profit per the Statement of Comprehensive Income as follows:
Profit/(loss) before tax	4,019	(1,339)	2,680	5,844	37,502	43,346
Tax at the UK corporation tax rate of 19% (2016: 20%)*	382	(127)	255	1,169	7,500	8,669
Tax at the UK corporation tax rate of 20% (2016: 21%)*	402	(134)	268	-	-	-
Tax effect of non-taxable dividends	(1,055)	(159)	(1,214)	(1,143)	(32)	(1,175)
Gains on investments that are not taxable	-	32	32	-	(7,758)	(7,758)
Unrelieved current period expenses and deficits	116	335	451	-	290	290
Overseas tax suffered	709	7	716	681	7	688
Expenses not allowable	163	53	216	-	-	-
Tax relief on overseas tax suffered	(8)	-	(8)	(26)	-	(26)
Total tax for the year (see note 10a)	709	7	716	681	7	688

* The standard rate of corporation tax in the UK changed from 20% to 19% with effect from 1 April 2016. Accordingly, the Company's profits for this accounting period are taxed at an effective rate of 19.50%.

c) Factors that may affect future tax charges:

The Company has an unrecognised deferred tax asset of £1,377,000 (2016: £1,033,000) based on a prospective corporation tax rate of 17% (2016: 18%).

The deferred tax asset has arisen due to the cumulative excess of deductible expenses over taxable income. Given the composition of the Company's portfolio, it is not likely that this asset will be utilised in the foreseeable future and therefore no asset has been recognised in the accounts.

Given the Company's intention to meet the conditions required to retain its status as an Investment Trust Company, no provision has been made for deferred tax on any capital gains or losses arising on the revaluation or disposal of investments.

11 Amounts Recognised as Distributions to Ordinary Shareholders in the Year

Dividends paid in the year ended 30 September 2017

Payment date	No of shares	Pence per share	Year ended 30 September 2017 £'000
30 November 2016	120,475,000	0.75p	904
28 February 2017	120,475,000	0.75p	904
9 June 2017	120,475,000	1.65p	1,987
			3,795

The revenue available for distribution by way of dividend for the year is £3,310,000 (2016: £5,163,000).

The total dividends payable in respect of the financial year ended 30 September 2017 which is the basis on which the requirements of Section 1158 Corporation Tax Act 2010 are considered, is set out below:

Payment date	No of shares	Pence per share	Year ended 30 September 2017 £'000
28 February 2017	120,475,000	0.75p	904
9 June 2017	120,475,000	1.65p	1,987
28 February 2018	122,750,000	1.00p	1,228
			4,119

Dividends paid in the year ended 30 September 2016

Payment date	No of shares	Pence per share	Year ended 30 September 2016 £'000
27 November 2015	120,775,000	0.65p	785
29 February 2016	120,775,000	0.65p	785
3 June 2016	120,775,000	0.65p	785
31 August 2016	120,475,000	2.00p	2,409
			4,764

The total dividends payable in respect of the financial year ended 30 September 2016 which is the basis on which the requirements of Section 1158 Corporation Tax Act 2010 are considered, is set out below:

Payment date	No of shares	Pence per share	Year ended 30 September 2016 £'000
29 February 2016	120,775,000	0.65p	785
3 June 2016	120,775,000	0.65p	785
31 August 2016	120,475,000	2.00p	2,409
30 November 2016	120,475,000	0.75p	904
			4,883

All dividends are paid as interim dividends.

The dividend paid in November 2016 related to a dividend declared in respect of the previous financial year but paid in the 2016 accounting year.

12 Earnings per Ordinary Share

	Year ended 30 September 2017				Year ended 30 September 2016
	Revenue return	Capital return	Total return	Revenue return		Capital return	Total return
The calculation of basic earnings per share is based on the following data:
Net profit for the year (£'000)	3,310	(1,346)	1,964	5,163		37,495	42,658
Weighted average ordinary shares in issue during the year	120,996,259	120,996,259	120,996,259	120,693,033		120,693,033	120,693,033
Basic - ordinary shares (pence)	2.74	(1.11)	1.63	4.28		31.07	35.35

As at 30 September 2017 there were no potentially dilutive shares in issue.

13 Investments Held at Fair Value

(a) Movements on investments

	30 September 2017 £'000	30 September 2016 £'000
Cost brought forward	181,570	165,771
Valuation gains	64,811	42,476
Valuation brought forward	246,381	208,247
Additions at cost	221,380	90,879
Proceeds on disposal	(194,275)	(91,466)
Losses on disposal	(1,470)	(562)
Valuation gains	2,500	39,283
Valuation at 30 September	274,516	246,381
Cost at 30 September	249,824	181,570
Closing fair value adjustment	24,692	64,811
Valuation at 30 September	274,516	246,381

The following transaction costs, including stamp duty and broker commissions were incurred during the year:

	30 September 2017 £'000	30 September 2016 £'000
On acquisition	350	201
On disposal	251	115
	601	316

(b) Fair value hierarchy

30 September

2017

£'000

30 September

2016

£'000

Level 1 assets

274,516

246,381

Valuation at 30 September

274,516

246,381

All Level 1 assets are traded on a recognised Stock Exchange.

Company and business	Country of registration, incorporation and operation	Number and class of shares held by the Company	Holding
PCGH ZDP Plc	England and Wales	50,000 Ordinary shares of £1	100%

The Company is a public limited company with the sole purpose of issuing Zero Dividend Preference (ZDP) shares. The registered office is at Polar Capital, 16 Palace Street, London SW1E 5JD.

The investment is stated in the Company's Financial Statements at cost, which is considered by the Directors to equate to fair value.

The subsidiary is non trading and the value of the net assets have not changed since the acquisition of the ordinary share capital by the Company. The cost is therefore considered to equate to the fair value of the shares held.

14 Receivables

	30 September 2017 £'000	30 September 2016 £'000
Sales for future settlement	8,512	-
Accrued income	368	652
VAT recoverable	74	-
Prepayments	13	13
	8,967	665

15 Payables

	30 September 2017 £'000	30 September 2016 £'000
Purchases for future settlement	1,917	6,613
Accruals	301	239
	2,218	6,852

16 Zero Dividend Preference Shares ("ZDP Shares")

	30 September 2017 £'000	30 September 2016 £'000
ZDP shares - initial placing at 100p on 16 June 2017	32,128	-
Capital growth of ZDP shares	272	-
At 30 September	32,400	-

17 Called up Share Capital

(i) Ordinary shares	30 September 2017 £'000	30 September 2016 £'000
Allotted, Called up and Fully paid:
Ordinary shares of 25p each:
Opening balance of 120,475,000 (30 September 2016: 120,775,000)	30,119	30,194
Issue of 27,798,298 (2016: nil) ordinary shares from open offer	6,949	-
Issue of 775,744 (2016: nil) ordinary shares from treasury	194	-
Repurchase and cancellation of 26,299,042 (2016: nil) ordinary shares from tender offer	(6,575)	-
Repurchase of nil (2016: 300,000) ordinary shares, into treasury	-	(75)
Allotted, Called up and Fully paid: 122,750,000 (30 September 2016: 120,475,000) ordinary shares of 25p	30,687	30,119
1,399,256 (2016: 2,175,000) ordinary shares, held in treasury	350	544
At 30 September	31,037	30,663

In addition, 775,744 ordinary shares were issued from treasury at a cost of £1,636,000.

The ordinary shares held in treasury have no voting rights and are not entitled to dividends.

(ii) ZDP shares	30 September 2017 £'000	30 September 2016 £'000
Allotted, Called up and Fully paid:
ZDP shares of 1p each:
32,128,437 ZDP Shares issued from initial placing on 16 June 2017 at 100p each	32,128	-
	32,128	-
At 30 September	32,128	-

18 Capital Redemption Reserve

	30 September 2017 £'000	30 September 2016 £'000
At 1 October	-	-
Repurchase and cancellation of 26,299,042 (2016: nil) ordinary shares from tender offer	6,575	-
At 30 September	6,575	-

This reserve is not distributable.

19 Share Premium Reserve

	30 September 2017 £'000	30 September 2016 £'000
At 1 October	28,916	28,916
Issue of 27,798,298 ordinary shares at 213.80p each	52,483	-
Issue of 150,744 ordinary shares at 212.00p each	80	-
Issue of 100,000 ordinary shares at 213.25p each	54	-
Issue of 225,000 ordinary shares at 212.50p each	121	-
Issue of 100,000 ordinary shares at 210.50p each	52	-
Issue of 200,000 ordinary shares at 209.00p each	100	-
Issue costs	(1,121)	-
At 30 September	80,685	28,916

This reserve is not distributable.

20 Special Distributable Reserve

	30 September 2017 £'000	30 September 2016 £'000
At 1 October	61,337	61,844
Repurchase and cancellation of 26,299,042 ordinary shares	(55,812)	-
Issue of 775,744 (2016: nil) ordinary shares from treasury	1,229	-
Repurchase of nil (2016: 300,000) ordinary shares into treasury	-	(507)
At 30 September	6,754	61,337

Surpluses to the credit of the special distributable reserve can be used to purchase the Group and Company's own shares. In addition the Group and Company may use this reserve for the payment of dividends.

21 Capital Reserves

	30 September 2017 £'000	30 September 2016 £'000
At 1 October	124,100	86,605
Net losses on disposal of investments	(1,470)	(562)
Valuation gains on investments held during the year	2,500	39,283
Exchange (losses)/gains on currency balances	(1,192)	68
Capital dividends	813	162
Irrecoverable tax on special capital dividends	(7)	(7)
Overdraft interest allocated to capital	(5)	-
Transaction charges to capital	-	(5)
Investment management fee allocated to capital	(1,713)	(1,444)
Capital contribution to ZDP entitlement	(45)	-
ZDP appropriation	(227)	-
At 30 September	122,754	124,100

The balance on the capital reserve represents a profit of £24,692,000 (2016: £64,811,000) on investments held and a profit of £98,062,000 (2016: £59,289,000) on investments sold.

The balance on investments held comprises holding gains on investments (which maybe deemed to be realised and other amounts, which are unrealised. An analysis has not been made between the amounts that are realised (and may be distributed or used to repurchase the Group and Company's shares) and those that are unrealised.

The balance on investments sold are realised distributable capital reserves which may be used to repurchase the Group and Company's shares or be distributed as dividends.

22 Revenue Reserve

	30 September 2017 £'000	30 September 2016 £'000
At 1 October	2,809	2,410
Revenue profit	3,310	5,163
Interim dividends paid	(3,795)	(4,764)
At 30 September	2,324	2,809

The revenue reserve may be distributed or used to repurchase the Group and Company's shares (subject to being a positive balance).

23 Net Asset Value Per Share

(i) Ordinary shares	30 September 2017	30 September 2016
Net assets attributable to ordinary shareholders (£'000)	250,129	247,825
Ordinary shares in issue at end of year	122,750,000	120,475,000
Net asset value per ordinary share (pence)	203.77	205.71
Total issued ordinary shares	124,149,256	122,650,000
Ordinary shares held in treasury	1,399,256	2,175,000
Ordinary shares in issue	122,750,000	120,475,000

As at 30 September 2017 there were no potentially dilutive shares in issue.

(ii) ZDP shares	30 September 2017	30 September 2016
Calculated entitlement of ZDP shareholders	£32,400,428	-
ZDP shares in issue at the end of the year	32,128,437	-
Net asset value per ZDP share (pence)	100.85	-

24 Cash and Cash Equivalents

	30 September 2017 £'000	30 September 2016 £'000
Cash at bank	264	6,872
Cash held at derivative clearing houses	542	495
Bank overdraft	(25)	(10)
Cash held at subsidiary	50	-
	831	7,357

25 Transactions with the Investment Manager and Related Party Transactions

(a) Transactions with the Manager

Under the terms of an agreement dated 26 May 2010 the Group has appointed Polar Capital LLP ('Polar Capital') to provide investment management, accounting, secretarial and administrative services. Details of the fee arrangement for these services are given in the Strategic Report. The total fees, paid under this agreement to Polar Capital in respect of the year ended 30 September 2017 were £2,141,000 (2016: £1,805,000) of which £198,000 (2016: £161,000) was outstanding at the year-end.

(b) Related party transactions

The Group and Company has no employees and therefore no key management personnel other than the Directors. The Group and Company paid £115,000 (2016: £115,000) to the Directors.

26 Derivatives and Other Financial Instruments

Risk management policies and procedures for the Group and Company

The Group and Company invests in equities and other financial instruments for the long term to further the investment objective set out in the Annual Report.

This exposes the Group and Company to a range of financial risks that could impact on the assets or performance of the Group and Company.

The main risks arising from the Group and Company's pursuit of its investment objective are market risk, liquidity risk and credit risk and the Directors' approach to the management of them is set out below.

The Group and Company's exposure to financial instruments can comprise:

- Equity and non-equity shares and fixed interest securities which may be held in the investment portfolio in accordance with the investment objective.

- Bank overdrafts, the main purpose of which is to raise finance for the Group and Company's operations.

- Cash, liquid resources and short-term receivables and payables that arise directly from the Group and Company's operations.

- Derivative transactions which the Group and Company enters into may include equity or index options, index futures contracts, and forward foreign exchange contracts.

The purpose of these is to manage the market price risks and foreign exchange risks arising from
the Group and Company's investment activities.

The overall management of the risks is determined by the Board and its approach to each risk identified is set out below. The Board and the Investment Manager co-ordinate the risk management and the Investment Manager assesses the exposure to market risk when making each investment decision.

(a) Market Risk

Market risk comprises three types of risk: market price risk (see note 26(a)(i)), currency risk (see note 26(a)(ii)), and interest rate risk (see note 26(a)(iii)).

(i) Market Price Risk

The Group and Company is an investment company and as such its performance is dependent on its valuation of its investments. Consequently, market price risk is the most significant risk that the Group and Company faces.

Market price risk arises mainly from uncertainty about future prices of financial instruments used in the Group and Company's operations.

It represents the potential loss the Group and Company might suffer through holding market positions in the face of price movements. A detailed breakdown of the investment portfolio is given in the Annual Report. Investments are valued in accordance with the accounting policies as stated in Note 2(g).

At the year end, the Group and Company did not hold any derivative instruments (2016: nil).

Management of the risk

In order to manage this risk it is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce both the statistical risk and the risk arising from factors specific to a particular healthcare sub sector. The allocation of assets to international markets, together with stock selection covering small, medium and large companies, and the use of index options, are other factors which act to reduce price risk. The Investment Manager actively monitors market prices throughout the year and reports to the Board which meets regularly in order to consider investment strategy.

Market price risks exposure

The Group and Company's exposure to changes in market prices at 30 September on its investments was as follows:

Year ended

30 September

2017

£'000

Year ended

30 September

2016

£'000

Non-current asset investments at fair value through profit or loss

274,516

246,381

274,516

246,381

Market price risk sensitivity

The following table illustrates the sensitivity of the return after taxation for the year and the value of shareholders' funds to an increase or decrease of 15% in the fair values of the Group and Company's investments. This level of change is considered to be reasonably possible based on observation of current market conditions and historic trends.

The sensitivity analysis is based on the Group and Company's investments at each balance sheet date, with all other variables held constant.

	Year ended 30 September 2017		Year ended 30 September 2016
	Increase in fair value £'000	Decrease in fair value £'000	Increase in fair value £'000	Decrease in fair value £'000
Statement of Comprehensive Income - profit after tax
Revenue return	(70)	70	(62)	62
Capital return	40,897	(40,897)	36,706	(36,706)
Change to the profit after tax for the year	40,827	(40,827)	36,644	(36,644)
Change to equity attributable to shareholders	40,827	(40,827)	36,644	(36,644)

(ii) Currency Risk

The Group and Company's total return and net assets can be significantly affected by currency translation movements as the majority of the Group and Company's assets and revenue are denominated in currencies other than sterling.

Management of the risk

The Investment Manager mitigates risks through an international spread of investments.

Settlement risk on investment trades is managed through short term hedging.

Foreign currency exposure

The table below shows, by currency, the split of the Group and Company's monetary assets, liabilities and investments that are priced in currencies other than sterling.

	Year ended 30 September 2017 £'000	Year ended 30 September 2016 £'000
Monetary Assets:
Cash and short term receivables
US dollars	9,125	3,290
Swiss francs	537	396
Euros	137	96
Japanese yen	107	191
Singapore dollars	44	-
Australian dollars	31	75
Canadian dollars	7	15
Danish krone	2	-
Monetary Liabilities:
Other payables
US dollars	(7,892)	(6,613)
Foreign currency exposure on net monetary items	2,098	(2,550)
Non-Monetary Items:
Investments at fair value through profit or loss that are equities
US dollars	201,015	130,753
Euros	33,710	17,762
Swiss francs	17,547	32,200
Japanese yen	8,225	15,649
Australian dollars	2,292	7,639
Canadian dollars	1,318	4,094
Norwegian krona	643	978
Singapore dollars	598	2,064
Danish krone	-	1,141
Total net foreign currency exposure	267,446	209,730

During the financial year, movements against sterling in the four major currencies noted above were:

US dollar depreciated by 3.3% (2016: appreciated by 14.2%),
Swiss franc depreciated by 3.1% (2016: appreciated by 14.9%),
Japanese yen depreciated by 14.8% (2016: appreciated by 27.5%),
Euro appreciated by 1.8% (2016: appreciated by 14.8%).

Foreign currency sensitivity

The following table illustrates the sensitivity of the profit after tax for the year and the value of equity attributable to shareholders in regard to the financial assets and financial liabilities and the exchange rates for the £/US dollar, £/Swiss francs, £/Japanese yen and £/Euro.

Based on the year end position, if sterling had depreciated by a further 15% (2016: 15%) against the currencies shown, this would have the following effect:

	Year ended 30 September 2017 £'000
	US Dollars	Swiss Francs	Japanese Yen	Euros
Statement of Comprehensive Income - profit after tax
Revenue return	1,610	95	19	24
Capital return	35,473	3,097	1,451	5,949
Change to the profit after tax for the year and to equity attributable to shareholders	37,083	3,192	1,470	5,973

	Year ended 30 September 2016 £'000
	US Dollars	Swiss Francs	Japanese Yen	Euros
Statement of Comprehensive Income - profit after tax
Revenue return	581	70	34	17
Capital return	23,074	5,682	2,762	3,134
Change to the profit after tax for the year and to equity attributable to shareholders	23,655	5,752	2,796	3,151

Based on the year end position, if sterling had appreciated by a further 15% against the currencies shown, this would have the following effect:

	Year ended 30 September 2017 £'000
	US Dollars	Swiss Francs	Japanese Yen	Euros
Statement of Comprehensive Income - profit after tax
Revenue return	(1,190)	(70)	(14)	(18)
Capital return	(26,219)	(2,746)	(1,073)	(4,397)
Change to the profit after tax for the year and to equity attributable to shareholders	(27,409)	(2,816)	(1,087)	(4,415)

	Year ended 30 September 2016 £'000
	US Dollars	Swiss Francs	Japanese Yen	Euros
Statement of Comprehensive Income - profit after tax
Revenue return	(429)	(52)	(25)	(13)
Capital return	(17,055)	(4,200)	(2,041)	(2,317)
Change to the profit after tax for the year and to equity attributable to shareholders	(17,484)	(4,252)	(2,066)	(2,330)

In the opinion of the Directors, while these are regarded as reasonable estimates, neither of the above sensitivity analyses are representative of the year as a whole since the level of exposure changes frequently as part of the currency risk management process used to meet the Group's objectives.

(iii) Interest Rate Risk

Although the majority of the Group and Company's financial assets are equity shares which pay dividends, not interest, the Group and Company will be affected by interest rate changes as interest is earned on any cash balances and paid on any overdrawn balances.

Given the interest rate risk exposure noted below, the impact of any interest rate change is not considered to be significant and as such, no sensitivity analysis has been provided. Interest rate changes will also have an impact on the valuation of equities, although this forms part of price risk, which has already been considered separately above.

Management of the risk

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.

Derivative contracts are not used to hedge against the exposure to interest rate risk.

Interest rate exposure

At the year-end, financial assets and liabilities exposed to floating interest rates were as follows:

	Year ended 30 September 2017 £'000	Year ended 30 September 2016 £'000
Cash at bank and at derivative clearing houses	806	7,367
Cash held at subsidiary	50	-
Bank overdraft	(25)	(10)
	831	7,357

The above year-end amounts may not be representative of the exposure to interest rates in the year ahead since the level of cash held during the year will be affected by the strategy being followed in response to the Board's and Manager's perception of market prospects and the investment opportunities available at any particular time.

(b) Liquidity Risk

Liquidity risk is the possibility of failure of the Group and Company to realise sufficient assets to meet its financial liabilities.

Management of the risk

The Group and Company's assets mainly comprise readily realisable securities which may be sold to meet funding requirements as necessary.

Liquidity risk exposure

At 30 September the financial liabilities comprised:

	30 September 2017 £'000	30 September 2016 £'000
Due within 1 month:
Other creditors and accruals	2,218	6,852
Bank overdraft	25	10
Due in more than 1 year
ZDP's entitlement	32,400	-
	34,643	6,862

The ZDP shares have a planned repayment date of 19 June 2024 in the amount of £39,514,000.

26 Derivatives and Other Financial Instruments continued

Credit risk is the exposure to loss from failure of a counterparty to deliver securities or cash for acquisitions or disposals of investments or to repay deposits.

Management of the risk

The Group and Company manages credit risk by using brokers from a database of approved brokers
and by dealing through Polar Capital. All cash balances are held with approved counterparties.

HSBC Bank plc is the custodian of the Group and Company's assets. The Group and Company's assets are segregated from HSBC's own trading assets and are therefore protected in the event that HSBC were to cease trading.

These arrangements were in place throughout the current and prior year.

Credit risk exposure

The maximum exposure to credit risk at 30 September 2017 was £1,224,000 (2016: £8,019,000) comprising:

	30 September 2017 £'000	30 September 2016 £'000
Accrued Income	368	652
Cash at bank	856	7,367
	1,224	8,019

All of the above financial assets are current, their fair values are considered to be the same as the values shown and the likelihood of a material credit default is considered low. None of the Group and Company's assets are past due or impaired. All deposits were placed with banks that had a rating of A or higher.

(d) Capital Management Policies and Procedures

The Group and Company's capital, or equity, is represented by its net assets which amounted to £250,129,000 for the year ended 30 September 2017 (2016: £247,825,000), which are managed to achieve the Group's and Company's investment objective set out in the Annual Report.

The Board monitors and reviews the broad structure of the Group's and Company's capital on an ongoing basis. This review includes:

(i) the need to issue or buy back equity shares for cancellation, which takes account of the difference between the net asset value per share and the share price (i.e. the level of share price discount or premium); and

(ii) the determination of dividend payments.

The Group and Company is subject to externally imposed capital requirements through the Companies Act with respect to its status as a public company. In addition, in order to pay dividends out of profits available for distribution by way of dividend, the Group and Company has to be able to meet one of two capital restriction tests imposed on investments by company law.

These requirements are unchanged since the previous year end and the Group and Company has complied with them.

Status of announcement

The figures and financial information contained in this announcement are extracted from the Audited Annual Report for the year ended 30 September 2017 and do not constitute statutory accounts for the period. The Annual Report and Financial Statements include the Report of the Independent Auditors which is unqualified and does not contain a statement under either section 498(2) or Section 498(3) of the Companies Act 2006. The Annual Report and Financial Statements for the year ended 30 September 2017 have not yet been delivered to the Registrar of Companies. The figures and financial information for the period ended 30 September 2016 are extracted from the published Annual Report and Financial Statements for the period ended 30 September 2016 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements for the period ended 30 September 2016 have been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or Section 498(3) of the Companies Act 2006.

The Directors' Remuneration Report and certain other helpful shareholder information has not been included in this announcement but forms part of the Annual Report which will be available on the Company's website and will be sent to shareholders in January 2018.

(www.polarcapitalhealthcaretrust.co.uk)

AGM

The Annual Report and separate Notice of Meeting for the Annual General Meeting will be posted to shareholders in January 2018 and will be available thereafter from the company secretary at the Registered Office, 16 Palace Street London SW1E 5JD or from the Company's website. The AGM will be held at 16 Palace Street, London SW1E 5JD at 12 noon on 28 February 2018.

Forward Looking Statements

Certain statements included in the Annual Report and Financial Statements contain forward-looking information concerning the Company's strategy, operations, financial performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in which the Company operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within the Company's control or can be predicted by the Company. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results could differ materially from those set out in the forward-looking statements. For a detailed analysis of the factors that may affect our business, financial performance or results of operations, we urge you to look at the principal risks and uncertainties included in the Strategic Report Section the Annual Report and Financial Statements.

No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in Polar Capital Global Healthcare Trust plc or any other entity, and must not be relied upon in any way in connection with any investment decision.

The Company undertakes no obligation to update any forward-looking statements.

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

This information is provided by RNS

The company news service from the London Stock Exchange

END

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Polar Capital Global Healthcare Trust (PCGH)

Friday, 22nd November 2024

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