Final Results

RNS Number : 0724S

Polar Capital Technology Trust PLC

03 July 2015

POLAR CAPITAL TECHNOLOGY TRUST PLC

UNAUDITED PRELIMINARY RESULTS ANNOUNCEMENT FOR THE FINANCIAL YEAR TO 30 APRIL 2015

3 July 2015

THIS ANNOUNCEMENT CONTAINS REGULATED INFORMATION

Financial Highlights	As at 30 April 2015	As at 30 April 2014	Movement %
Total net assets	£793,019,000	£606,633,000	30.7%
Net assets per ordinary share	599.25p	458.40p	30.7%
Benchmark (see below)			29.5%
Price per ordinary share	592.00p	442.00p	33.9%

Ordinary shares in issue	132,336,159	132,336,159	-
Discount of ordinary share price to the net asset value per ordinary share	1.2%	3.6%	-

Key Data
	For the year to 30 April 2015
Benchmark Change	Local currency %	Sterling adjusted %
Dow Jones World Technology Index, total return, sterling adjusted with relevant withholding taxes removed	17.6	29.5
Other Indices (total return)
FTSE World	-	18.2
FTSE All-share	-	7.5
S&P 500 composite	13.0	24.3

Exchange rates	As at 30 April 2015	As at 30 April 2014
US$ to £	1.5368	1.6886
Japanese Yen to £	183.90	172.49
Euro to £	1.3714	1.2178
	For the year to 30 April
	2015	2014
Ongoing charges ratio	1.08%	1.15%
Ongoing charges ratio incl. performance fee	1.08%	1.15%

For further information please contact:
Ben Rogoff	Ed Gascoigne-Pees
Polar Capital Technology Trust PLC	Camarco
Tel: 020 7227 2700	Tel: 020 3757 4984

Chairman's Statement

Results

I am pleased to report on an excellent year for the global technology sector and for most world equity markets. In sterling terms the Dow Jones World Technology Index posted a total return of 29.5% versus 18.2% for the FTSE World Index and 24.3% for the S&P 500. Your trust has just completed its sixth financial year of consecutive increases in Net Asset Value (NAV) and share price, and it is gratifying to report that Ben and the team managed to outperform the benchmark with our NAV rising by 30.7% and the share price by 33.9% during the past financial year. The scale of the increase was partially attributable to a recovery from the final six week collapse in US technology shares which depressed our 2014 year end, and also a circa 10% increase in the dollar vs sterling. No performance fee is payable this year as the manager needs to catch up on the underperformance since the previous fee was paid in 2011. For new shareholders we have not paid a dividend since our inception in 1996 and, given our capital growth objective, we are unlikely to pay one in the future.

This year we have included the top ten stock contributors and detractors to our performance attribution and also the geographical contribution, as shown on page 28. The mega cap stocks still cast a very long shadow with, Apple, Microsoft and Google accounting for just shy of 28% of our benchmark, and a myriad of mid and small cap winners can be neutralised if we don't get the balance between young and old tech right. Our performance in the countries outside the USA is this year uniformly good, demonstrating that all members of the team are adding value.

Regulation

You will be relieved to read that this section is brief, but given the huge weight of legislation that we were obliged to adopt last year you at least deserve an update. The Board's decision to appoint Polar Capital as the AIFM and HSBC as our Depositary is running as well as can be expected, and we have no breaches or problems to report, and our registration with the IRS under FATCA has not caused any upset. In 2017 we will have to embrace a new EU directive called MIFID 2, sounding like a sequel to a scary science fiction movie. The contents of the directive will have far reaching consequences some of which threaten the provision of primary research from brokers, currently paid for out of dealing commissions.

Fraud

Towards the end of last year your board became aware from reports by shareholders that private shareholders were being targeted by fraudsters. The fraudsters sought a "commission payment" to facilitate shareholders participation in a so called takeover of your company. This led to me writing to the private shareholders to alert them of this and I am pleased to say that the message seems to have reached the fraudsters as the number of notifications of such approaches has dropped to zero. Recent research by "Which", the consumer group, found that 33% of over 55's surveyed said they had been approached by a company they were unsure about. We are all in the firing line of fraudsters whether by, letter, telephone, or online, and they are becoming more sophisticated. Shareholders who are registered in their own name are particularly vulnerable, so please be on your guard, and stall for time and ask a close relative or professional advisor if you are in any doubt about anything that sounds plausible, or too good to be true!

Directors

David Gamble retires from the board at the AGM on 9 September. He joined the board in 2002 a year after the Polar management company was formed and when the trust was still suffering from the delayed after shock of the TMT bubble. He has been an incredibly effective and influential board member capable of holding the manager and service providers feet to the fire. I am personally very grateful that he was willing to take on the role of audit chairman in 2011, something he has attacked with vigour. We all wish him well for the future and will miss his guiding hand.

We employed a specialist external search firm to find his replacement and all directors agreed that Charlotta Ginman was the most capable candidate. She joined the board in February 2015 in time to attend our strategy away-day. She has already made an impact and her varied experience in accountancy, investment banking, and technology operating companies will add to our diversity. She has agreed to chair the audit committee when David retires in September, and we welcome her to the board.

Every three years we have an external review of the Board and Chairman with the next one due to start in October, and we have agreed to appoint a different evaluation provider to the one contracted in 2012.

AGM and Manager Presentation

The AGM will be held at 2.30pm on 9 September 2015 at the RAC Club, Pall Mall, London, followed by tea. We will begin with a presentation by the manager followed by the formal business of the meeting. The formal business of the AGM is set out in the separate Notice of Meeting along with my detailed explanation of the resolutions. This year we have three extra resolutions, to elect Charlotta Ginman as a Director, a continuation vote which comes at five year intervals, and a vote to approve new articles to comply with the AIFMD. As you will see in my letter in the Notice of Meeting the Board is in favour of all the resolutions being proposed and I would ask shareholders to please vote in favour of all resolutions. The Board and management team look forward to meeting shareholders at what should be an exciting event. Ben's full AGM presentation, plus the proxy voting results will be posted on our upgraded website after the AGM.

Management Fee Change

The independent members of the Board have been keeping a weather eye on the fees charged by other specialist trusts both closed and open ended and the trend towards lower and simpler fee structures for more generalist funds. While lower fees are clearly attractive for shareholders it is necessary for specialist funds to have dedicated teams to invest their assets. We must therefore take into account the considerable costs of retaining and remunerating a large global team of experienced technology managers and analysts where the management company has a policy of limiting capacity of the strategies its investment teams manage to benefit the performance of its core clients. The independent directors also considered the Company's long term performance record in both bull and bear markets. While the current base fee of 1% of gross assets and an ongoing charges ratio of 1.08% remains competitive for the specialist sector, we have negotiated a new arrangement to bring us more in line with current best practice. The 1% base fee will in future be levied on net asset value, and net assets in excess of £800m will attract a reduced base fee of 0.85%. We have decided to leave the performance fee in place unchanged. The fee changes will take effect from the start of our current financial year and it is worth reminding shareholders that the fee covers all the administrative and compliance services from the management house used by the Company.

Outlook

An overload of UK politics moved me onto an old episode of "Top Gear" where the trio were asked to make economical stretched limos. For me this current equity market has morphed from a "stealth bull market " into a "stretched bull market" where the economic recovery in developed markets is so slow and muted that the business cycle is sustained for longer. Equity markets always enjoy early stages of recovery which is why Europe and Japan are the two most popular developed markets at present and also large beneficiaries of weaker oil and gas prices. In the US the economic recovery is well entrenched but the stronger dollar tends to postpone the need to raise interest rates. Whilst cash yields are zero (negative for the Swiss Franc and the Euro), and government bond yields remain at historic lows it is easy to see why savings continue to leak into equities, property, antiques, classic cars, farmland etc. I have no idea when this financial experiment will end but at least the upper reaches of the US equity market will provide liquidity which may prove to be a rare asset when the zero interest rate music stops.

To Ben and the specialist technology team, Neil our company secretary, Sarah who looks after our website, and Reg who covers all parts of the British Isles to spread the word about your trust; it has been an excellent year for shareholders, many thanks.

Michael Moule

Chairman

Investment Manager's Report

MARKET REVIEW

Global equity markets added convincingly to their multi-year gains during the fiscal year as PE expansion trumped downward revisions to global growth expectations due to sustained US dollar strength, remarkably weak energy prices and a faltering Chinese economy that weighed on forecasts. Concerns about an imminent US interest rate hike quickly gave way to renewed (misplaced) deflationary fears as sharply lower energy prices (oil -34% during the year) and US dollar strength drove headline inflation to post crisis lows causing sovereign yields to plummet across developed markets. However, aside from a short-lived sell-off during October, equity markets proved remarkably resilient as investors instead focused on the likely stimulus associated with lower energy prices, more encouraging core inflation trends and (near) record M&A activity. Most importantly, vast new quantitative easing (QE) programmes in both Europe and Japan designed to combat deflationary pressure acted as timely reminders of the continuing alignment of interests between policymakers and investors that has underpinned risk assets since 2009. Nowhere was the primacy of interest alignment over economic progress more apparent than in China where a more pronounced economic slowdown was met with decisive policy action (expected) and market liberalisation (unexpected) resulting in the Shanghai Composite rising an incredible +144% in sterling terms during the year. Overall equity returns were significantly enhanced by currency movements with Euro and Yen weakness (-11% and -6% versus sterling) more than offset by a resurgent US dollar that appreciated 10% against sterling and a (remarkable) 19% on a trade-weighted basis, helping the FTSE World total return index advance 18.2% during the fiscal year.

Developed markets once again led the running as disproportionate beneficiaries of policymaker intervention, weak energy prices and improved investor sentiment. Japanese stocks reversed their prior year losses as faltering economic progress was trumped by an enlarged QE programme and some genuinely exciting company-level progress. US equities also continued to deliver returns above underlying earnings growth with improved shareholder returns and elevated M&A supporting asset prices. European stocks fared less well until later in the year when weaker economic progress was met with QE with oil price weakness providing additional stimulus. As in prior years, emerging market returns proved more closely tied to global growth (+3.4% y/y) which once again trailed early expectations of c. 3.7%. Although this growth was led by developing economies (+4.6%), industrial retrenchment in China (+7.4%) was transmitted into commodities such as oil and iron ore weighing heavily on resource-dependent economies such as Brazil (+0.1%) and Russia (+0.6%) which also suffered from pronounced currency weakness. With adverse political developments further hindering progress in emerging markets (EM), recovery continued to lean more heavily on developed economies (+1.8%) where growth remained robust (if a little shy of early expectations) with solid improvement in the US (+2.4%) and progress in Europe (+0.9%) able to absorb disappointment in Japan (-0.1%).

Equities began the year in fine spirits as investors shrugged off negative revisions to global growth forecasts and weaker economic data that prompted the ECB to introduce a new Long-Term Refinancing Operation (LTRO) in May. US equity markets made new highs during the month despite greater geopolitical uncertainty with Islamic State (IS) making further gains while Argentina entered technical default. Geopolitical risk increased further following the Malaysian Airline tragedy, while the conflict in Gaza culminated in an Israeli ground assault. European markets bore the brunt of a short-term pullback with disappointing inflation data and the collapse of Portuguese bank Banco Espirito Santo adding to the regional gloom. In the US, more encouraging economic data was overshadowed by hawkish commentary from Federal Reserve chair Janet Yellen leading to some profit taking and a rotation away from small/mid caps. Economic news-flow took a turn for the worse during late summer with disappointing inflation readings in both the Eurozone and the UK driving ten-year German bund yields to a new all-time low and a sharp reversal in earlier sterling strength. While oil and other commodity price weakness suggested the slowdown was global in nature, European data was particularly weak. Remarkably, equities ended the summer on a high note with the S&P 500 closing above 2000 buoyed by a better than expected second-quarter earnings season and further M&A activity.

Equity markets began to show signs of fatigue in September despite the ECB reducing its main refinancing and deposit rates as investors remained sceptical of its ability and willingness to embark on full-blown QE. The growth scare that triggered a late September sell-off broadened after German industrial production data that represented the steepest drop in activity for four years. Disappointing US data and alarming Ebola-related newsflow added to investor consternation, resulting in sharply lower equity markets, both the UK and the US correcting more than 10% from their mid-September highs while US sovereign yields breached 2% for the first time since 2013. Fortunately this 'risk-off' episode proved short lived with better US economic data and an encouraging start to third-quarter earnings season buttressing investor sentiment. However, with investor hopes firmly focused on the ECB, it was ironically the BoJ that 'saved the day' when it unexpectedly boosted its asset purchasing programme to ¥80tr. This, together with some positive Ebola developments allowed equity markets to close out our half-year at highs. Improved US economic data and Republican success in the US mid-term election saw stocks make further gains. Economic newsflow was less positive elsewhere with Japan officially entering recession while the European commission pared its 2015 growth expectations to just 1.1%. Once again, weaker economics were met with further intervention this time in China as the People's Bank of China (PBoC) delivered its first rate cut in two years. However, the greatest support - at least from a developed market perspective - came from plunging energy prices as OPEC ruled out a supply cut to counter earlier price weakness resulting in oil declining a further 18% in November alone. Crude continued its slump during December with the c.50% decline from summer highs prompting the Russian central bank to hike interest rates to 17% in order to stabilise the Rouble and prevent capital flight. Political turmoil in Greece also returned to the fore following snap presidential elections that failed to deliver the desired result triggering a January general election, an unwelcome development given anti-austerity party Syriza's lead in the polls.

2015 opened with a bang as the ECB finally announced its QE programme (€60 billion per month) designed to inject liquidity and stimulate economic activity. While European QE was anticipated, the Swiss National Bank decision to abandon the Euro/Swiss Franc 1.20 floor was not, resulting in the Euro depreciating as much as 29% intraday against the Swiss Franc. Weaker oil prices and escalation in Ukraine also saw the Rouble fall significantly against the US dollar. European QE also caused havoc in bond markets with German five year sovereign yields falling below zero, which was transmitted into the US Treasury market where ten year yields declined to a remarkable 1.68% in spite of constructive US data and expectations of impending rate hikes. The stronger US dollar further hindered energy prices while Greek elections late in January saw Syriza claim victory, leaving investors to fear the worst. January also marked the zenith of US market leadership as money rotated into regions and markets where asset prices looked better supported by central bank intervention. Some of January's remarkable volatility was ameliorated the following month aided by the Minsk II agreement and rebounding commodity prices. While US economic data remained robust, deterioration elsewhere together with falling energy prices (and their impact on headline inflation) saw many central banks cut interest rates. With the US adding a further 257,000 jobs during the month and Chinese Premier Li Keqiang targeting growth of "around 7%", in March markets began to worry about the timing of a US interest rate hike and slowing growth in China. US stocks continued to trail global equities as the strong dollar and weak energy prices began to show up in US economic data and downward revisions to S&P earnings expectations, a trend that continued into year-end. In contrast, a marked economic slowdown in China did nothing to derail a rampant local stock market as investors positioned for further stimulus while embracing the reformist intentions of the new leadership with enthusiasm spilling into Hong Kong. A sharp recovery in the oil price also saw sovereign yields begin to back up as investors began to reverse out earlier deflation fears associated with QE and plunging energy prices, a trend that has continued post year-end.

During the year, some of the strongest regional returns (taking into account the impact of foreign exchange movements) were generated in Japan (+30%) as earlier Yen weakness began to more meaningfully benefit in corporate earnings while asset prices were further supported by enlarged QE and greater focus on shareholder returns. Asia also performed very well (+30%) although returns were dominated by Chinese (+152%) and Hong Kong (+46%) stocks with larger markets such as Korea and Taiwan generating more modest returns. US (+24%) equities continued to comfortably outperform global equities, aided by a resurgent dollar while the weakest performance was reserved for European (+8%) stocks where much stronger second half returns were unable to offset pronounced currency weakness and a difficult start to the year.

TECHNOLOGY REVIEW

The technology sector continued to outpace the broader market during the fiscal year, the Dow Jones World Technology index rising 29.5% in sterling terms, outpacing the broader equity market (FTSE World index +18.2% TR). Although a significant portion of this outperformance was passive (reflecting relative US market and dollar strength) technology sector performance was driven by a combination of strong new cycle fundamentals, shareholder friendly capital return / M&A and additional PE expansion. After a disappointing 2013, IT budgets rebounded somewhat - increasing 2.3% y/y in 2014. This, together with better articulation of their own cloud strategies resulted in strong stock performances from a number of enterprise incumbents including Cisco (+37%) and Oracle (+17%) with returns primarily driven by multiple expansion, rather than earnings upside. One notable exception was IBM (-4%) as fundamental weakness finally caught up with the stock. PC companies benefited from further industry improvement during the first half of the year, which together with strong returns at Apple resulted in small-cap stocks trailing. However, this dynamic reversed during the second half of the year as the PC renaissance ran out of steam while encouraging next-generation fundamentals and a modest snapback in valuations resulted in small cap / growth outperformance. Regional returns largely mirrored broader markets led by Japan (+38%), closely followed by the US (+32%) where a number of remarkable large-cap performances from the likes of Apple, Cisco and Microsoft were augmented by US dollar strength. Asia (+28%) trailed the Benchmark due to weaker hardware trends, although this had negligible impact on Chinese / HK stocks that returned some of the strongest country level returns. Weakest regional performance was reserved for European stocks (+15%) largely reflecting the broader market / currency weakness.

Aside from a short-lived small-cap / growth rally early in the fiscal year, large-caps continued to dominate proceedings during the first half of the year driven by further progress in the PC market where demand continued to rebound from its Q1'13 nadir, aided by tailwinds associated with the end of support for Windows XP. This improvement allowed Intel to raise guidance in June (its first positive pre-anouncement since 2009) leading to some noteworthy PC-related performances during the first half of the fiscal year. PC market improvement naturally rubbed off on Microsoft whose new CEO Satya Nadella also captivated investors by more fully embracing the post PC / enterprise computing world with this strategic change of direction seemingly supported by early success with both Office 365 and Azure. Investor rapprochement peaked during the third quarter when rising inventories at Intel suggested that the boost from Windows XP replacement demand was waning before both Microsoft (Q4) and Intel (Q1) confirmed PC weakness by delivering poor earnings and/or guidance. This weighed heavily on PC stocks that had previously performed well on recovery hopes with deteriorating industry trends (that have continued post fiscal year end) making last year's 'stabilisation' look little more than an XP-related 'time out'.

Most smartphone incumbents also continued to struggle throughout the year amid slowing unit growth and intensifying price competition. Although smartphone units exceeded 1.2bn in 2014 this represented significant deceleration from the prior year with revenue growth impacted further by a c. 8% decline in average selling prices. As one might expect, this dynamic hurt marginal players but also caught up with both Samsung and Qualcomm whose strong market positions had insulated them from the competition that previously derailed HTC, Nokia and Research in Motion. As unit share leader, Samsung (+11%) always had the most to lose from a market slowdown but this dynamic was exacerbated by share losses to Apple at the high end and to Chinese (and Indian) vendors at the low end. Qualcomm (-5%) also experienced a difficult year with greater competition and lower smartphone ASPs resulting in the company lowering its long-term chipset operating margins at its analyst day in November while two months later it was forced to accept a lower royalty rate in China following an anti-monopoly investigation. Fortunately, the impact of these negative fundamental developments was ameliorated by a $10bn buyback announcement by Qualcomm in March (and a further $5bn in May) and a 40% dividend hike and its first buyback for seven years at Samsung.

Slowing smartphone growth did not extend to Apple (+63%) or its supply chain; Apple enjoyed an incredible renaissance driven by strong fundamentals and a well deserved re-rating. Having described Apple this time last year as 'a (very) special situation', this has proved an understatement as the company posted respectable earnings ahead of its smartphone refresh, responded favourably to shareholder activism, delivered the iPhone 6 and then made corporate history by posting the largest quarterly profit ever ($18bn) having sold 74.4m iPhones in Q4'14. By introducing a larger screen iPhone 6 plus, Apple significantly broadened its appeal in Asia which saw it generate revenues of $16.8bn from what it calls "greater China" in Q1 (+71% y/y). Despite some iPad cannibalisation, iPhone upside has translated into faster revenue growth (due to higher average selling prices of the new devices) and richer overall margins. Although the iPhone increasingly dominates its financials (c. 69% of revenues in Q1), Apple also continued to grow its PC share during the year while revealing its payment strategy (ApplePay) and the much awaited Apple Watch. In addition to strong fundamentals and a promising product pipeline, Apple also continued to return vast quantities of excess cash to shareholders via buybacks and dividends with the company recently expanding its capital return programme to a cumulative total of $200bn by the end of March 2017.

Strength at Apple helped the semiconductor industry enjoy another strong year, aided by a corporate PC refresh cycle, elevated demand for servers, increasing automotive semiconductor content and growing demand for sensors; industry revenues increased 7.9% in 2014 (2013: +5%). PC-related names led the running during the first half of the year with robust DRAM pricing helping memory stocks such as Micron, while Intel benefited from better PC and server demand. A favourable investment backdrop was challenged in October by a surprise profit-warning from Microchip that warned "another industry correction has begun" presaging the most dramatic one day correction in the Philadelphia Semiconductor Index (-6.9%) seen since the financial crisis. However, the sell-off proved short lived as lack of corroborating evidence of an industry downturn allowed stocks to rally substantially from lows before Microchip released its actual results that were not as bad as feared. While PC fortunes deteriorated during the second half of the fiscal year, the broader semiconductor industry continued to perform well with Apple-related strength more than offsetting deteriorating trends at Samsung. However, a profit warning in January from NAND flash vendor Sandisk shattered the calm and TSMC commented on an FX-related slowdown in March, raising fears of an inventory correction beyond PCs. This view was corroborated by disappointing results at a number of Samsung suppliers during Q1 and soft guidance from industry stalwart Texas Instruments.

While semiconductor newsflow became more mixed during the final third of the year, chip stocks continued to deliver strong returns throughout the year as continued progress on capital return (epitomised by KLA Tencor's $2.75bn leveraged recapitalisation in October) helped attract a new (generalist) audience. However, it was M&A activity that garnered most attention with average semiconductor deal values for 2014 reaching $621m (2013: $325m) as Analog Devices acquired Hittite for approximately $2bn in June and Cypress Semiconductor announced a $4bn merger with Spansion in December. The trend towards larger financially driven deals accelerated significantly in early 2015 with NXP and Freescale agreeing to a $40bn merger in March, the largest semiconductor transaction ever. Although Applied Materials and Tokyo Electron terminated their intended merger in April, semiconductor M&A roared back to life post year-end with Avago acquiring Broadcom for $37bn and Intel agreeing to buy Altera for $16bn.

Elevated M&A (together with increased buybacks and dividends) also helped support earnings and valuations beyond the semiconductor sub-sector. Higher profile transactions during the financial year included two in the software sector (SAP acquiring Concur Technology for $8.3bn and Oracle's $5.3bn purchase of point of sale systems company, Micros) while in April, Nokia announced it was merging with long-time telecom equipment rival Alcatel in an all-stock transaction worth €15.6 billion. In the IT services space, digital marketing company Sapient was acquired by Publicis while HP returned to M&A in March with its $3bn acquisition of Aruba Networks. Private equity buyers also remained active, accounting for 38% of technology deals in 2014, withdrawing a number of growth-challenged companies from the public domain, including Compuware, Informatica, Riverbed and TIBCO.

Although it also proved a record M&A year for the Internet sector (aggregate value of disclosed deals in 2014 reaching c. $50bn, more than 4x the previous year) this was less well received by investors who became increasingly concerned about negative earnings revisions due to increased levels of investment spending (and dilutive M&A activity) as incumbents looked to pivot towards mobile, move beyond their core markets or simply reaccelerate growth. With the strong dollar providing a significant additional headwind, last fiscal year proved a difficult one for the Internet sector despite the successful debut in September of Alibaba, the world's largest IPO to date. While foreign exchange headwinds showed up as early as the third-quarter - tripping up a number of companies including Amazon, Priceline and TripAdvisor - Google (+13%) also had to contend with calls for it to be 'broken up' (on anti-competitive grounds) by the European parliament. Weak third-quarter earnings reports from social media leaders (Facebook, LinkedIn and Twitter) were all reversed in Q4 while Alibaba delivered a strong debut quarter as a public company. Smaller companies fared less well - a trend that continued in Q1'15 - while both LinkedIn and Twitter delivered disappointing quarters. Among the relative gloom there were some positives as Facebook (+45%) continued to benefit from greater engagement and monetisation, Tencent (+83%) rose sharply on plans to better monetise WeChat and Amazon (+53%) unveiled financials for AWS (Amazon Web Services) for the first time, showing positive operating income for several quarters and 50% y/y revenue growth (on an annual run-rate of >$5bn).

Next-generation companies have fared considerably better than the Internet sub-sector as increased adoption of a number of new cycle technologies saw most deliver ahead of expectations. This was particularly true in cloud computing where the decision by a number of large incumbents to 'bless the Cloud' made its outcome as the default computing platform all but certain. In the software space, the transition to Software as a Service (SaaS) appeared also to gather pace following Microsoft's decision to embrace the on-demand model and SAP's acquisition of Concur. Despite a marked de-rating in SaaS valuations over the year, most pure-plays delivered ahead of expectations driving some strong returns from the likes of Logmein (+55%), ServiceNow (+66%) and Ultimate Software (+53%). Business intelligence and so-called 'big data' also remained a key area of focus (ranking #1 in many CIO surveys) allowing log analysis software vendor Splunk (+34%) and data visualisation software provider Tableau (+95%) to deliver results well ahead of expectations. Elsewhere, disruptive vendors such as Nimble significantly outgrew the underlying storage market while leading suppliers of sensors (Keyence, Omron) and robotic systems (Cognex, Harmonic Drive) benefited from new use cases that significantly expand their respective target markets. However, the strongest next-generation performances were generated within the security space where a significant increase in the number of cyber attacks and a series of high profile breaches at the likes of JPMorgan and Sony changed the investment backdrop. The combination of higher earnings and valuation multiples saw pure-plays such as Palo Alto Networks (+156%) and Prooftpoint (+133%) register some remarkable returns while strength in their security offerings helped drive upward revisions and some multiple expansion at a number of 'second liners' such as Akamai (+53%) and Radware (+58%).

In contrast, many technology incumbents delivered lacklustre growth which appeared to support our view that the new cycle had entered a more pernicious phase. While PC fundamentals remained robust during the first half of the fiscal year, Q3 was more challenging for enterprise incumbents as former software leaders Citrix and TIBCO (later acquired) both disappointing investors. However, the most significant mishap came from IBM who, after a series of lacklustre results, delivered a very poor quarter with revenue declining year-over-year in all segments and all geographic regions. Moreover, the company abandoned its $20 FY15 earnings target while admitting that its recent struggles "point to the unprecedented pace of change in our industry", in-line with our long-held new cycle thesis. New cycle deflation also took its toll on storage where incumbents EMC and Network Appliance delivered a series of earnings disappointments with neither company willing to really admit the role played by disruptive new technologies and vendors. Migration of workloads to the Cloud also caught up with former datacenter 'winners' such as Riverbed while the explosive growth of Hadoop continued to disrupt traditional data warehousing impacting Informatica (later acquired) and Teradata. IT service companies - an area where we have limited exposure due to concerns about the risk posed to application development and maintenance work by Cloud migration - also showed mixed progress with a number of Indian IT companies delivering disappointing results during the year.

OUR PERFORMANCE

Our total return performance came in ahead of our benchmark, our own net asset value per share rising 30.7% during the year versus a 29.5% increase for the sterling adjusted Benchmark. In the USA the most significant positive contributor to performance over the period was the sharp rebound in a number of our next-generation growth stocks including Splunk (+34%) and Tableau (+95%), together with strong performance of a number of our off-benchmark Internet positions including Amazon (+53%) and LinkedIn (+81%). However, strongest absolute returns were generated by Palo Alto Networks (+156%) and Proofpoint (+133%) both of which benefited greatly from increased security spending (and investor enthusiasm) following a slew of high-profile cyberattacks.

Outside of the USA we managed to add value in all regions with a particularly striking performance in Japan, where we were assisted by a strong market and our yen borrowings helped to soften the impact of currency weakness. Relative performance was also positively impacted by underweight positions in a number of large index constituents that delivered disappointing returns during the year, including Hewlett Packard, Samsung Electronics and Qualcomm while our zero exposure to IBM proved the most significant stock level contributor to relative performance as the stock fell 4% during a very strong year. The Trust also benefited from M&A activity with three of our positions - Concur Technology, Integrated Silicon Solutions and Sapient acquired during the year at healthy premiums. In terms of negatives, relative underperformance was generated by our large but underweight position in Apple and our decision to retain some liquidity plus a modest amount of S&P put protection, although the latter emboldened us to add significantly to our high growth / high PE exposure near lows. Trust performance was also hindered by an underweight position in Microsoft (+32%), which gained 16% during the final month of the year following better than expected first-quarter results.

ECONOMIC OUTLOOK

While the global recovery is likely to remain subpar this year, there is a good chance that - after years of continual downward revisions to growth - the global economy surprises to the upside this year. Current global growth forecasts of 3.5% reflect the positive impact of lower oil prices, more moderate fiscal adjustment and tighter labour markets in developed economies that are expected to grow 2.4% in 2015 (2014: 1.8%). However, slowing growth in China is likely to continue to ricochet through other emerging markets (EM) and the commodity complex. This, combined with US dollar strength and the precipitous decline in energy prices will likely result in an increasingly uneven global recovery, greater volatility (already evident in currency, commodity and bond markets) and a worrying political trend towards 'each man for himself'. However, there is much to be positive about with the US economy looking close to achieving 'escape velocity'. There are also signs of life elsewhere including in the UK and even in Europe and Japan; commentators' focus on faltering growth and deflation inadequately reflects some genuine 'green shoots'. The energy windfall should also add c. 1% to global growth in 2015. While weaker oil prices will continue to have a significant impact on headline inflation, the battle against deflation should remain well supported by remarkably accommodative policy and large QE programmes in Europe and Japan. China should also be able to avoid a 'hard landing' given its fiscal and monetary firepower.

As in previous years, an upbeat assessment of the US economy remains key to our relatively sanguine economic outlook. Following a period of disappointing data (primarily related to oil weakness / US dollar strength in our view) we are hopeful that the economy will reaccelerate, forcing the Federal Reserve to raise rates for the first time since 2006. Current forecasts of +3.1% in 2015 (2014: 2.4%) should see the US economy outgrow nearly every other developed market this year with labour market improvement continuing to underpin the recovery. The combination of wage growth and higher asset prices has allowed for significant balance sheet repair while lower interest rates have seen household debt service decline to a new low. This has resulted in improved consumer confidence, aided by an oil windfall equivalent to a tax rebate of just under $600 per household. Upside risk to growth could come from capital spending that has remained subdued and housing where activity has been constrained by tighter lending conditions and small business creation. In terms of headwinds, US dollar strength is the most obvious although the economy should prove relatively insulated as exports only account for c.13% of GDP. Instead it is oil price weakness that is most problematic because of its impact on US shale production recently worth as much as c. 1.1% of GDP. Lower energy prices are not an unequivocal positive for the US, a fact already evident in softer US economic data (further impacted by a West Coast port strike). Notwithstanding this current headwind, we expect the Federal Reserve to commence policy normalisation before too long because unemployment is fast approaching the Fed's full employment target. While this might ordinarily be a cause for investor concern, we expect the Fed to remain significantly (and intentionally) 'behind the curve' given the US output gap, global overcapacity, depressed inflation expectations and deflation-related scarring.

In contrast with the US, the recovery in Europe has remained muted with real GDP only recovering to c. 98% of where it stood in 2007, as compared to c. 109% in the US. While the reasons for this underperformance are beyond the remit of this paper, it is likely that the ECB's reluctance / unwillingness to deliver full-blown QE has been a significant factor. Indeed, the ECB's balance sheet had contracted by almost one-third since mid 2012 during which time the Fed's expanded by c. 50%. This juxtaposition changed dramatically following the ECB's $1.1 trillion QE announcement in January that will see it end up owning c. 20% of the eligible government bond market. Despite the recent plunge in short-dated sovereign yields, European macroeconomic data has been showing signs of improvement while the region remains one of the largest beneficiaries of cheap oil with net energy imports worth more than 2% of GDP. The UK looks like a relative bright spot (especially following the Conservative election victory) with growth pegged at 2.7% this year and oil price weakness likely to be more than offset by labour / financial market improvement. However, many of the structural issues that have plagued Europe remain far from resolved and are particularly acute in Greece where the economy has contracted by 25% post the financial crisis, unemployment is 25% and government debt is equivalent to 175% of GDP. At the time of writing we do not know the outcome of Greek brinkmanship but we remain hopeful that an agreement will be reached.

After two quarters of contraction brought on by the April 2014 consumption tax hike, Japan is beginning to recover with growth in 2015 forecast at 1.0% supported by a weaker Yen and lower oil prices. While the latter will inevitably weigh on headline inflation (recently forcing the Bank of Japan to lower its CPI forecast) it remains too early to pass judgement on Abenomics, particularly as policymakers remain committed to delivering on their 2% inflation goal, evidenced by the BoJ's decision in October to increase the size of its QE programme and Governor Kuroda's comments that the BoJ "will adjust policy without hesitation if we feel Japan is deviating from the path of achieving 2% inflation". Fiscal policy is also likely to remain supportive following PM Abe's landslide election victory in December while the strength of his mandate could see him more forcefully tackle vested interests by boosting "third arrow" reforms. As the largest developed market oil importer as a share of GDP, lower energy prices should provide a timely boost to growth - a 40% fall in oil costs is said to be worth at least 1.3% to real GDP after two years. Likewise, significant Yen weakness has left Japanese exporters "brutally competitive". With our interests as shareholders firmly aligned with policymakers and in light of the BoJ's burgeoning balance sheet we expect this year to prove a better one for Japan and its economy.

Growth in China has continued to slow with "economic rebalancing" resulting in the world's second largest economy narrowly missing its official annual growth target for the first time in fifteen years (7.4% vs. 7.5% targeted in 2014). Further deceleration looks inevitable with 2015 growth expectations of +6.8% likely at risk. Other indicators (such as electricity prices) suggest that the slowdown is already more severe than the GDP numbers suggest. While this should not come as any great surprise given the reform agenda articulated at the Third Plenum in November 2013, the new leadership's desire to cool the housing market, clean up shadow banking and improve the allocation of capital (with the reform of state-owned enterprises and reducing corruption at the top of the policy agenda) was always going to come with a near-term GDP cost. With growth slowing, focus has understandably shifted to China's structural imbalances and by extension, the prospects for a 'hard landing'. There is no question the Chinese credit boom has been extraordinary with the investment share of GDP the highest on record. Property remains at the epicentre of this investment boom with housing starts still outpacing units sold by more than 20%. Shadow banking - said to account for more than one-third of GDP and expanding at twice the rate of bank credit - represents another significant risk. However, while the risks of a hard-landing appear to have increased, the structural bear case is hardly new; instead we expect the economy to 'muddle through' with modest inflation (CPI averaging 2% in 2014), low levels of government debt and vast foreign currency reserves affording the government significant monetary and fiscal firepower to achieve the c. 7% growth said to be required to support urbanisation. Although the economy has clearly got off to a slow start this year, the PBOC has already shown its intent via interest rate cuts and liquidity injections while recent market liberalisation measures (that have propelled A and H-shares higher) demonstrate the government's intent to avoid a hard landing.

Slowing growth, industrial retrenchment in China and falling commodity prices are likely to continue to take their toll on emerging markets where the secular growth story has been all but buried. This looks set to continue with forecasts of +4.3% growth in 2015 (2014: 4.6%) representing the fifth consecutive year of economic deceleration. However, EM fortunes will differ considerably this year with oil / commodity exporters hit by price declines and adverse currency movements (epitomised by Russia whose economy is expected to contract by 3.8%) while energy importers should benefit greatly from lower input prices and reduced inflation / current account deficits, affording policymakers more room to adjust monetary policy if necessary. As one of the biggest beneficiaries of weak oil prices, India looks particularly promising given its powerful demographics (1.2bn people headed to 1.5bn with a declining age-dependency ratio) and new PM Narendra Modi who has made economic development the government's top priority.

As we have outlined in prior years, systemic risk has continued to diminish due to decisive intervention taken by policymakers, aided by a sustained US recovery. Although many of the structural imbalances that we have previously highlighted remain unaddressed, these are unlikely to flare up with interest rates and sovereign spreads at record lows. As previously discussed, Greece is the exception to this and as such represents a significant risk to our view, particularly as investors appear relaxed about the potential for contagion. Beyond Greece, political risk has diminished following the failed Scottish independence bid and Republican success in the US mid-term elections that will see President Obama serve out his final years as a 'lame duck'. However, governments will still have to tread a difficult path between delivering growth and austerity or risk increased political fragmentation and/or social unrest. While these risks have been largely contained to date, the longer that the recovery remains sub-par and uneven, the greater they will become. This dynamic also applies to the threat posed by currency wars, although recent US dollar strength has significantly ameliorated the risk posed by competitive devaluation. The one exception to this is China where a potential RMB devaluation represents a notable risk. Once again, geopolitical risk remains the most significant exogenous factor to consider, in particularly an increasingly belligerent Russia, the challenge to nation states posed by Islamic extremism in North Africa and the Middle East and Iran's pursuit of a nuclear capability while simultaneously fighting a proxy war with Saudi Arabia in Yemen.

MARKET OUTLOOK

Although markets have got off to a promising start, we are hopeful that equities will add to their gains during the remainder of the fiscal year. As in prior years, further improvements in investor sentiment and risk appetite have seen equity valuations expand yet further with the forward PE on the S&P 500 expanding to 17.6x today from 15.7x twelve months ago. Global equity valuations have also expanded significantly with the FTSE All World index trading at a slightly less demanding 15.4x forward earnings (2014: 14.6x). As a result, absolute valuations are no longer cheap with most traditional measures of value above longer-term averages. Rather than re-hash our healthy scepticism of the usefulness of long-term valuations given the uniqueness of the present investment backdrop, it is worth considering that - based on US data since 1871 - current PE valuations are entirely compatible with the prevailing inflation rate. Furthermore, a number of additional factors this year are likely to support above-average valuations including cheap oil and US dollar strength (both of which have empirically corresponded with equity market strength during non-recessionary periods), while the third year of the Presidential cycle has tended to be the strongest for equity market returns. More importantly, stocks continue to look attractive compared to most alternatives, particularly versus cash where negative real returns look all but guaranteed.

Five years of profit growth has left the S&P 500 with $3.6trillion in cash and equivalents, which - despite the market advance and cumulative buybacks - continues to represent c. 15% of market capitalisation. With much of this 'trapped' overseas, US companies have also become adept at topping up their domestic cash by taking advantage of remarkably low yields via bond sales that raised almost $1.28tr last year. As a result of this balance sheet strength, stock repurchases look set to continue at near-record levels with expectations that companies will return more than $1.0tr via buybacks and dividends in 2015. Likewise M&A activity should continue to prove supportive for stocks following a remarkable 2014 that saw activity increase 47% y/y reaching $3.5tr with Chinese companies entering the fray, announcing a record $46.8bn on outbound transactions, more than ten times the amount spent over the previous decade. If anything, deal momentum has further accelerated in 2015 with $243bn of US deals announced in May alone, inauspiciously besting the previous monthly records of $226bn in May 2007 and $213bn in January 2000. The continuing trend of mega mergers (such as Shell's proposed $70bn acquisition of BG and Avago's $37bn purchase of semiconductor rival Broadcom), M&A premiums that in the US averaged 29% in 2014, and a sharp increase in private equity activity should all continue to support equity valuations over the coming year.

Although our hopes for a second (albeit more muted) wave of bond to equity market rotation did not transpire last year, we remain confident that it will before the current equity bull market is over. Instead, 2014 (and early 2015) saw the bond market enter what may prove a final, 'melt-up' phase with sovereign yields across the world plunging due to pronounced energy price weakness (impacting headline inflation) and vast asset purchase programmes in Europe and Japan. In the US, during the last calendar year ten year US sovereign yields fell dramatically from 3.03% to 2.17%, the first time since 1982 that long-term Treasuries have outperformed stocks when the S&P has returned more than 10%. As a result, traditional valuations such as the 'Rule of 20' (which deducts CPI from 20 to generate a target PE) and the 'Fed Model' (which compares earnings and bond yields) are essentially unchanged from where they stood twelve months ago, continuing to strongly favour equities compared to bonds. This dynamic is hardly unique to the US: equities continue to look attractive relative to bonds in almost every market as a result of declining sovereign yields. As the global recovery extends and deflation fears subside (and are potentially replaced by nascent inflation concerns) the fear of losses and/or negative real returns should drive further reallocation into equities - an asset class that - lest we forget - has outperformed bonds two-thirds of the time since 1971. While lost on investors today, corporates appear to recognise the relative allure of equities with global bond sales at record levels while net buybacks accounted for c. 3.6% of market capitalisation last year.

Of course we expect our constructive view to be tested during the coming year given that valuations and the duration of the present bull market already exceed long-term averages. This year may prove more volatile than last because modest earnings progress in the US (primarily due to dollar strength and lower energy prices) will make it more difficult for companies to grow into their above-average valuations. However we believe investors are likely to consider these earnings headwinds 'one-time' in nature and - rather than selling positions that appear fully valued on current year earnings - are more likely to look into 2016 and discount back. The length of the current bull market does not overly concern us either because sub-trend recoveries "tend to persist". We also continue to see limited immediate risk to record margins as the mean-reversion view fails to acknowledge structural improvements associated with the superior growth and richer margins of large index constituents like Apple, Facebook and Google. However, we are mindful of the risk posed by higher interest rates (reversing the benefits of lower interest expense) while corporate tax reform remains a significant medium-term concern given that lower taxes are said to have accounted for c. one-quarter of margin improvement since 1990. While we know a number of indicators are approaching levels previously associated with previous market tops (especially relating to private equity / venture capital / M&A activity) these are largely coincident indicators and entirely consistent with a bull market mid-way through its seventh year.

That said, we are certainly alive to the fact that each year of above-average equity market returns (particularly when PE expansion plays such a crucial role) makes the next intrinsically less attractive. As stewards of your capital we will do our utmost to protect it should our long-held thesis play out or if the investment backdrop changes. With this in mind there are a number of potential negative catalysts that could require us to change course more materially. The first relates to the high-yield market because widening spreads have tended to precede equity bear markets. Our concern here relates to the c. 14% of the $1.3tr US high yield market accounted for by energy bonds but thus far there is limited evidence of contagion. Market breadth has also proven another useful forward indicator because "bull markets tend to end when leadership significantly narrows"; here we are encouraged by the fact that roughly half of the S&P500 outperformed in 2014. Responsible for the most painful bear markets, recession risk represents another key concern but here we are emboldened by the fact that (with very few exceptions) a recession has never followed a significant oil price decline. We are also relatively sanguine about what we might call 'recovery risk' - what happens to valuations and markets once investors genuinely start believing in a global recovery? While it is true that PE ratios have typically fallen following the first US interest rate hike we suspect that some good economic news would go a long way in a world fearing deflation and as such think this question may prove more pertinent for bond investors. Instead we remain most focused on the loss of policymaker support that has underpinned risk assets post the financial crisis. While we are confident that monetary policy will remain data dependent (and comfortably 'behind the curve'), wage inflation represents the most potent risk to the current alignment of interest between policymakers and investors. Rising wages could also signal a peak in profit margins, which have typically preceded stock market peaks by twelve to eighteen months

To be absolutely clear - we are not bearish. It just feels appropriate that as this bull market extends we spend a little more time thinking about what will help us ameliorate the impact of a setback (and communicate that to investors). To conclude this paragraph on a more typically upbeat note, we think that the present bull market is more likely to end following a powerful surge akin to what we have recently seen with bonds. Retail investor sentiment remains muted while US household equity ownership at c. 55.7% is well below the c. 63% achieved at 2000 highs. In a bull case, cheap oil delivers stimulus right on cue resulting in a global economic recovery that doesn't aggravate inflation, policymakers remain behind the curve and equities enter a self-fulfilling cycle of outperformance that ends with an explosive final phase. Amid all the fashionable talk of market 'bubbles', it is easy to forget that this bull market has been remarkably orderly and characterised by reluctance, rather than ebullience. Should the final years of this bull market end in a bubble, investors can 'look forward' to prices that, on average, move c. 4.4 standard deviations above their ten-year moving average as compared to just c.1.4 today.

TECHNOLOGY OUTLOOK

Although worldwide IT spending is expected to fall 1.3% in 2015, this decline reflects significant headwinds associated with US dollar strength. On a constant currency basis, IT budgets are somewhat healthier with growth more broadly inline with global GDP (3.1% vs. 3.5% respectively) this year. Whether or not an improved economic environment and less 'uncertainty' result in a pick up in capital spending remains a moot point. Dollar strength represents a significant incremental headwind this year because c. 56% of US technology sector sales come from overseas, more than any other sector except energy. However, nearly all semiconductor sales are conducted in dollars, which means that only c. 37% of US technology revenues will face direct headwinds from dollar strength. This is expected to generate a c. 4% drag on top-line growth. The sector's exposure to energy related spending (c. 10% of total IT spending) is an additional downside consideration given sharply lower oil prices and reduced capital spending intentions. In any event we continue to believe that low single digit IT spending growth remains entirely at odds with computing needs that are growing inexorably; this makes a further reallocation of budgets appear inevitable. As in prior years, this budget reallocation is likely to disproportionately benefit cheaper next-generation technologies and vendors with little to lose and much to gain.

As with the broader market, the technology sector re-rated modestly over the past year leaving it trading on a forward PE of 17.5x (2014: 16.7x) in line with longer-term averages (the median forward PE since 1976 averaging 15.3x). However, large-cap technology companies continue to boast some of the strongest balance sheets with cash equivalent to c. 8% of market capitalisation which - at par value - would reduce cash-adjusted valuations to an undemanding c. 14x forward EV/NOPAT. Unfortunately much of this cash is held (trapped) offshore and therefore would be subject to repatriation tax. As in previous years market-capitalisation weighted measures of value continue to be flattered by a number of cheap mega caps. On a relative basis, the technology sector continues to trade at/around 1.0x the market multiple (ignoring balance sheets) which suggests relative downside is limited but at the same time it is difficult to argue for a material re-rating given that overall IT spending is barely keeping pace with global GDP. Fortunately, most technology incumbents have now at least begun to acknowledge their slower growth profiles via greater capital return programmes in the form of both buybacks (the sector reducing its shares outstanding by c. 2% in 2014) and dividends. While the aggregates are somewhat flattered by Apple's remarkable $68bn capital return between Q1'14 and Q1'15, each of IBM, Intel, Oracle and Microsoft returned more than $10bn to shareholders over the same period. This trend looks set to continue given strong cashflow generation and over-capitalised balance sheets - with Apple, Microsoft, Cisco and Google combined holding $345bn in cash reserves, equivalent to 23% of total corporate cash reserves in the US.

Although there is no denying that most growth-challenged incumbents have become better stewards of capital this has done nothing to alter our view that enterprise computing is looking increasingly anachronistic and our belief that the new technology cycle has entered a more disruptive phase where newer technologies will increasingly replace, rather than augment existing ones. Although budget reallocation and technology deflation may only appear marginal today - after all, leading public cloud company Amazon Web Services (AWS) boasts 'only' $5bn in annualised revenues versus total corporate IT spending of c. $1.7tr - it is likely already having a meaningful impact on incumbents because 'all' of the industry's incremental growth is being captured by new technologies and vendors. This likely explains why IBM was forced to abandon its long-term (financially engineered) earnings targets last year when it cited the "unprecedented pace of change" in the industry.

IBM's travails are likely to be more widely felt over the coming years as large legacy technology areas continue to slow and/or contract. Having grown at an average annual rate of 7.8% over the past ten years, PC unit growth turned negative in 2010 with the advent of tablets. After a terrible 2013 (where PC units fell 10% y/y) the PC market (2013: $202bn) stabilised last year due to developed market growth where the expiry of support for Windows XP helped drive a corporate replacement cycle. However, these tailwinds appear to have largely played out with current expectations for 5% unit declines in 2015 reflecting an increasingly commoditised, mature industry. The tablet (c. $80bn) market also looks increasingly mature with single digit unit growth expectations reflecting cannibalisation from larger-screen smartphones. Printing ($50bn) looks set to continue contracting with hardware and supplies expected to decline at an annual rate of 1.4% and 2-3% respectively though 2018. Servers (2013: $51bn) are likely to fare somewhat better (c. 4% growth this year) aided by Windows Server 2003 support expiration, offset by the trend of higher workload density. However, demand for UNIX servers (c. 10% of the overall market and dominated by IBM, Oracle and HP) is expected to decline 18% this year, having already contracted by 15% in 2014. Mainframes (2013: $4.7bn) have been a relative bright spot (especially for IBM which enjoys c. 71% market share and c. 60% margins) but the number of mainframe customers globally has fallen to 3,500 from 5,000 five years ago. Storage (2013: $35bn) has also fared relatively well with capacity growth of c. 26% in 2014 expected to accelerate to c.39% through 2018. However, price declines of c. 25% mean industry revenues are likely to grow under 4% through 2018. Incumbents such as EMC and Network Appliance will also have to contend with market fragmentation with converged, all-flash and hyper-converged alternatives (dominated by new vendors) growing at the expense of the traditional network (NAS) and storage attached (SAN) markets.

While deflation as an industry constant is well understood, over time its impact can be truly staggering. For instance, DRAM costs have dropped from c$80k/Mb in the 1970s to around 1c today, while HDD storage has declined from c$315/MB in the early 1980s to less than 1/10,000th of a cent today. Compute costs have also fallen precipitously with the same dollars buying more than 3000x the number of transistors today than they did in 1989. The impact of open-source infrastructure, upon which many of the webscale companies are built, is also likely to play an increasingly deflationary role going forwards. Fortunately, the same deflation that is causing havoc in legacy markets (where volume growth is insufficient to offset pricing) significantly increases the reach of technology - from 1m mainframes to 5bn mobile Internet users and, in time, 30bn connected devices. This makes it possible to 'reimagine' major global industries such as advertising, commerce, payments and travel. However these new opportunities have very little to do with legacy incumbents, explaining why they embark on M&A activity designed to offset the impact of the new cycle. As the current cycle becomes increasingly pernicious we expect this type of 'defensive' M&A activity (epitomised by SAP's $8.3bn acquisition of Concur at c.10x sales last year) to re-accelerate. Underlining this point, Hewlett Packard CEO Meg Whitman recently declared that one-time serial acquirer HP was "back in the M&A game" which should remind investors that free cash flow yields are a flawed measure of value when M&A is required to ameliorate the impact of a new cycle that - in the case of HP - has resulted in year over year sales declines in every one of its business divisions.

Despite more challenging fundamentals, many of the legacy companies in our sector are today trading at their highest relative price earnings ratios for years because of broader market PE expansion and their attraction to incremental buyers due to capital return programmes and/or the articulation of Cloud strategies. In contrast, most of our favoured next-generation companies with modest (if any) exposure to challenged areas - are materially cheaper today than eighteen months ago despite most having continued to deliver strong performance. While we have previously acknowledged that the valuation 'elastic' between the sector's 'winners' and 'losers' had become stretched in early 2014, the sentiment-driven readjustment that has persisted since then has been substantial. While we cannot know if the present reset will prove sufficient (or if it has already 'overshot'), at time of writing the relative valuation spread between legacy and next-generation assets is significantly less demanding that it was a year ago. We expect these respective growth profiles to continue to diverge as foreign exchange headwinds, slower EM growth and a weaker PC market will weigh disproportionately on incumbents.

As such we have used the relative de-rating to increase our exposure to our favoured names at the expense of increasingly anachronistic incumbents. We also expect M&A activity to support small / mid cap valuations although recent deals have involved large-cap peers combining using cheap debt to generate immediate financial synergies in the style of private equity which have been cheered by shareholders. One key risk to our new cycle thesis (beyond trying to establish appropriate premiums for next-generation assets) is whether or not strong cash generation / capital return can trump weak / negative organic growth. This question will be brought into sharper focus by increased shareholder activism as well as potential private equity activity. Other risks include a repatriation window, access to remarkably cheap debt / de-equitisation and equity flows that favour passive funds, all of which could dilute or even overwhelm our 'diverging fortunes' thesis.

NEW CYCLE UPDATE

The new technology cycle continues to be underpinned by three core themes: Internet infrastructure, broadband / Internet applications and mobility, with 'big data' playing a galvanising role. This view remains supported by a recent annual Gartner CIO survey which confirmed that 'analytics', infrastructure, Cloud and mobility occupy four of the top five priorities this year. Certainly cloud computing appears to be gathering momentum with companies said to have spent $56.6bn in 2014 while the cloud market grew 22%, six times faster than the overall IT industries. With the market set to expand to $127bn by 2018, it was only a matter of time before large incumbents threw in their lot and abandoned their former position that the Cloud was not suitable for important workloads. Microsoft epitomised this change of heart by embracing the Cloud across its entire computing stack. Large companies have already begun to embrace private clouds with c.12% of enterprises said to be building out their own last year, up from 7% in 2013. However, small and medium-sized business (SMBs), less constrained by the need to leverage legacy investments, are moving directly to public clouds - in our view, the truest form of cloud computing. By the end of 2015, SMBs are expected to have migrated more than 20% of their workloads, "a penetration level that typically coincides with growth acceleration". Although overall penetration remains lower, this is likely to accelerate sharply over the coming years. For now, cloud computing continues to rank strongly in CIO surveys while a recent UBS poll revealed that up to 25% of the IT budget would be spent on public and private cloud computing in 2015.

Today, public cloud computing is dominated by Amazon's Amazon Web Service (AWS) with an estimated 30% share of the cloud infrastructure market, which was worth more than $16bn in 2014 (+48% y/y). AWS' share of this fragmented market is greater than Microsoft, IBM and Google combined although competition is heating up. However, the six year head start enjoyed by AWS has allowed it to generate annualised revenues of $5bn, win some impressive customers including Netflix, Dropbox and the CIA and garner experience that allows it to run "every imaginable workload". Today, DNA sequencing company Illumina uploads its data directly to AWS, while police departments across the US backup their Taser wearable cameras on Amazon infrastructure. Despite the company's limited regard for short-term profits (as it invests in its infrastructure), Amazon's public cloud leadership explains why it remains one of our largest active portfolio holdings.

Like their hardware peers, software vendors have begun to 'pivot' their offerings / business models towards the Cloud. This essentially reflects the fact that nearly 30% of all applications are consumed as a service today. Mobility remains a key driver for migrating legacy applications to newer Cloud alternatives, designed to run on smartphones and tablets, as well as the PC. We have long argued that new technologies begin as complements but end as substitutes, a dynamic that appears to be playing out within the SaaS space today. Whereas early SaaS applications created new opportunities and/or threatened people-based processes, these have begun to be augmented by the migration of more critical applications such as email (enterprise cloud penetration expected to reach 25% by 2017 from c. 6% in 2012) and cloud office systems with penetration expected to reach 90% in both categories by 2027. Other applications also appear to be gaining traction including cloud storage led by the likes of Dropbox, accounting software and even critical enterprise resource planning (ERP) software, despite migration being described as akin to "elective heart transplant surgery", to paraphrase the CEO of Netsuite whose bookings accelerated to c. $646m last year. While both penetration and competition have increased, we continue to regard the SaaS space as one of the best ways to gain exposure to the Cloud due to its attractive underlying growth (20%+) and the likelihood of further M&A. Conversely, for incumbents, the transition to a SaaS business model is likely to cap organic revenue growth and reduce gross margins for the foreseeable future; this is best understood as an "unavoidable Faustian pact" given that the vast majority of new application installations are likely to be SaaS-based within the next five years.

Internet applications remain key beneficiaries of new cycle deflation although with developed world Internet penetration at saturation point (US, Japan and UK all approaching 90% of desktop usage while desktop minutes of use are relatively static y/y) growth has become increasingly smartphone / usage dependent. Fortunately, mobile trends remain positive with the world's 2.1bn smartphone users generating a 69% y/y increase in mobile data traffic during 2014. The ubiquity of smartphones and tablets (particularly once they are payment enabled) is likely to continue changing consumer consumption patterns. Together with positive demographic trends, this should support further online penetration in key categories such as Internet advertising and e-commerce. Having reached $126bn in 2014 (+17.3% y/y), the outlook for online advertising remains healthy and well-supported given that online accounts for c. 48% of US media consumption but just 31% of advertising budgets. However, this belies a marked shift from desktop to mobile usage which is creating both headwinds and opportunities for incumbents because 'search' (53% of total US advertising revenues) is less relevant in the mobile domain where c. 86% of time is spent inside apps (rather than in a browser). Social media companies look well positioned to benefit from this shift (and also from the growth in video traffic) with 'sponsored content' integrated into user feeds gaining user acceptance. While LinkedIn and Twitter should both benefit, Facebook continues to dominate the social media landscape with its 1.4bn monthly active users accounting for c. 23% of total mobile Internet usage with improved monetisation allowing the company to increase its share of total US online spending from 7% in 2013 to 10% in 2014. Although desktop-to-mobile cross currents are likely to persist (pressuring incumbents to reinvest in their mobile offerings) we expect the overall online advertising market to remain robust given growth in China (+40% y/y in 2014) and the fact that TV and print continue to represent c. 59% of US advertising spend but only 41% of media consumption.

Increasing smartphone usage is also continuing to support e-commerce - worth $1.5tr in 2014 and c. 5% of worldwide retail sales - with mobile commerce growing at three times the rate of e-commerce and accounting for 20% of online purchase volume worldwide. This helped overall e-commerce to maintain a mid-teens growth profile with online sales reaching $305bn in the US alone (+15.4% y/y) and accounting for c. 9% of total US retail sales. While many are concerned that slowing smartphone adoption will weigh on e-commerce growth, we think growth is more likely to accelerate as new location-based smartphone applications change consumer behaviour and expectations. This dynamic is well underway already with more than 1.5m apps currently available on Google Play while Apple's app store has delivered 86bn cumulative downloads since its launch in 2008. In terms of changing user behavior, one need look no further than messaging, which today accounts for six of the ten most popular apps globally with WhatsApp's 800m active users sending more than 30bn messages/day, a full 50% more than the 20bn sent daily by SMS. Whereas the first generation of e-commerce companies were focused on products, the current focus (and the next wave of market expansion) is on services with next-generation companies optimising for mobile, on-demand delivery and the trend towards 'instant'. These new apps have also enabled consumer-to-consumer (C2C) rental and lending, creating a new industry known as the 'sharing economy'. Epitomised by two private companies, AirBnB and Uber, the sharing economy is focused on monetising underutilised capacity. AirBnB helps users monetise vacant rooms and properties and is today the world's largest short-term vacation rental site boasting 30m cumulative guests. Uber has almost become a verb due to the success of its taxi hailing service that is disrupting incumbents and changing user behavior in 300 cities worldwide. With more than 60% of Uber drivers using the income to supplement another job (and 72% of AirBnB hosts in New York City relying on rental income to pay rents or mortgages) these new applications are not just expanding the reach of e-commerce; they are empowering individuals like never before.

Mobility remains our third core theme but - as highlighted in prior years - we have continued to de-emphasise smartphones within the portfolio. With global smartphone penetration estimated at 65-70% of new phones sold, units are expected to grow just 10% annually between 2014 and 2018 with revenues trailing due to lower average selling prices (ASPs). In the years ahead, unit growth will be increasingly dependent on emerging markets which are expected to add 880m subscribers over the next seven years as compared to only 56m new additions in developed markets. While China remains the largest smartphone market globally (and likely to generate c. 60% of incremental units this year), India is also experiencing rapid adoption of low-priced smartphones. Unfortunately for incumbent suppliers, emerging market smartphones carry significantly lower ASPs ($135 in 2014) than the worldwide average of c. $297, which - because of this dynamic - is expected to decline to c. $241 by 2018.

Samsung has been one of the greatest casualties of a smartphone market that is bifurcating into one characterised by high-end devices (increasingly dominated by Apple) and ultra-cheap low-end smartphones. The rise of Xiaomi in China (today the third largest smartphone maker with 5.2% global share in Q3'14) has been repeated elsewhere with new budget brands such as Micromax said to have overhauled Samsung in India in late 2014. Fragmentation in EM markets ('other' vendors beyond the top five accounting for 49% of units last year) has clearly hurt Samsung at the low end while Apple's larger form factor devices have seen it greatly expand its share of the high-end smartphone market, particularly in Asia. As a result a key consideration this year is 'what does Samsung do next?' because its decision to replace Qualcomm's application processor with its own silicon (Exynos) was a "momentous decision". This capped a difficult year for Qualcomm (a position we have reduced significantly) as its share of the LTE applications processor market fell to 80% in Q3'14 from 95% a year earlier, exacerbating slowing unit growth and declining ASPs. In time, the Samsung decision may prove just part of a process of greater internalisation of its component needs, which would seriously hurt the wider smartphone supply chain given Samsung currently boasts its own CMOS sensors solutions, TV controllers, LCD drivers and WiFi / GPS capabilities, in addition to its leadership position in memory chips.

In contrast to both Samsung and Qualcomm, Apple has continued to 'defy the s-curve' by appealing to a mass affluent audience which is apparently agnostic to cheaper alternatives because the premium is irrelevant (relative to above average incomes), warranted (a better product) or illusory (high residuals reducing the actual cost of ownership). Or it might be simply that a $200 premium over two years represents good value for users who spend more than 30 hours per month on their smartphone. Last year, we acknowledged Apple's special status and that it clearly understood the need to maintain its premium-pricing model at the expense of unit share growth. A year on, the company has managed to grow its device ASPs while selling more than 74.4m iPhones in Q4'14. At the heart of the Apple story is a luxury goods company that enjoys premium pricing, aided by a leasing model that allows customers to finance the premium over two years at zero cost while retaining the residual value at the end of the contract. As a result, Apple's 14% smartphone unit share allows it to capture 30% of industry revenues (and a significantly higher share of profits). And - unlike its luxury good 'peers', Apple's pricing and residuals have held despite much higher unit share than the likes of Porsche or Rolex whose premium prices come at the cost of miniscule market shares (we believe 0.2% and 0.05% of their markets respectively). While one might argue that Apple's status is likely to prove less enduring than these examples in either the automotive or watch industries, it is worth considering that Apple has just launched its own Watch, while recent reports suggest that the company is seriously looking at the electric vehicle market following Tesla's early success.

The idea of Apple as a luxury / mass affluent consumer goods company is well supported by its increasing share of the mature PC industry with premium priced products. More importantly, Apple is said to have captured more than 50% of PC industry profits with just 7% unit share - similar to the Swiss watch industry whose c. 2.4% unit share is said to garner c. 54% of worldwide watch revenues. Of course, what connects Swiss watches, German sports cars and Apple is obvious - their (affluent) customers. On Black Friday last year, Apple users accounted for nearly 4x the quantity of online sales than their Android counterparts with only 40% of the US smartphone market. Using US online sales per head as an imperfect proxy this implies that the Apple customer base -- is nearly 6x as valuable as the Android equivalent. However - once the iPhone 6/6S upgrade cycle has played out - investors will have to consider how a company forecast to generate more than $230bn of revenues will manage to grow. Here we are less certain although we are excited about Apple Pay - a mobile payments system that enables 'one-touch checkout' using a combination of near-field communication (NFC) and biometric authentication. While payment monetisation will barely move the needle (Apple receiving just 15c per transaction) mobile payments could obsolete the entire iPhone installed base, which could be as many as 400m phones (less those iPhone 6/6s already sold). A second important growth driver is the Apple Watch, which - if it sells 12-15m units in 2015 - could add more than $4.5bn to Apple's revenues. While we are unsure whether the current product will meet expectations, the longer-term opportunity remains vastly larger than anyone is currently forecasting because it isn't a watch, in the same way that the smartphone isn't a phone. While payments could yet prove the 'killer-app' for wearables, so too could health monitoring or home automation - two potentially huge standalone markets crying out for Apple to standardise and simplify.

In addition to our constructive view on Apple we remain excited about a number of smartphone / mobility sub-themes that should be able to withstand slowing unit growth and falling ASPs. These include wireless charging (now that standards have been agreed) and LTE content as the number of commercially available LTE (4G) networks is set to increase from 256 in 97 countries today to more than 500 in 128 countries over the next four years. However, the most promising of these related themes relates to mobile payments, which should directly benefit suppliers of near-field communication (NFC) chips as smartphones become increasingly payment-capable. Fingerprint sensor suppliers should also benefit from greater smartphone adoption aided by efforts by FIDO (Fast Identity Online Alliance) trying to establish security standards for the "post password" world. More broadly, payments represent a huge opportunity for the technology sector to capture a portion of transaction revenues worth $425bn in 2013. Mobile payment adoption looks set to accelerate due to widespread smartphone usage and tokenisation, the technology behind Apple Pay that allows users to make payments via fingerprint verification rather than providing card numbers or account details. In establishing tokenisation, Visa and Mastercard have positioned themselves at the centre of mobile payments innovation while turning would-be disruptors into partners. Tokenisation will also open up new opportunities including better serving the 2.5bn unbanked people worldwide while the iPhone 6 / Apple Pay revival of NFC coincides with payments networks incentivising retailers and issuers to adopt EMV chip payments with liability for card fraud shifting from banks to those retailers who have not upgraded their point of sale (POS) terminals to accept EMV-enabled payments ('chip and pin' to us in Europe) by October 2015.

As a result of the growing ubiquity of smartphones, application migration to the Cloud and the pervasiveness of the Internet (a network whose topology was never designed with security in mind) computing has become increasingly heterogeneous. This has created a multitude of new attack vectors and a fertile backdrop for security - an important theme within the portfolio. After an eventful year that saw the number of detected cyber-attacks increase by 48% y/y and a clutch of high profile 'mega-breaches' elevate the security issue into the boardroom, companies have responded by increasing spending to help defend, mitigate and where necessary, disclose cybercrime. While there were a plethora of high-profile attacks in 2014, the year was almost defined by mega-breaches at JPMorgan (where information relating to 76m households and 7m small businesses was compromised) and Sony Pictures (alleged North Korean hackers accessing c. 100 terabytes of internal data). The growing use of zero threat and advanced persistent threat (APT) malware - able to evade signature-based detection techniques - revealed a dramatic increase in hacker sophistication. Increasingly potent attacks also reflect the fact that stolen information is becoming more valuable (hackers graduating from credit card data to medical identity theft) and a changing foe, a recent survey revealing an 86% y/y increase in respondents experiencing attacks by nation states. Growing concerns about the possibility of an attack on national infrastructure has prompted a strong US government response with President Obama calling for a $14bn boost to US cybersecurity spending in his 2016 budget and establishing a new agency to coordinate cyber threat assessments. Over time, this greater governmental focus is likely to push corporations to do even more to prevent and disclose data loss, with some industry experts suggesting that Sarbanes-Oxley-type legislation is just a matter of time. In the meantime, it is clear that the cost has risen dramatically evidenced by losses at Target and Sony said to be $148m and $100m respectively. As such the current year is likely to prove another strong one for security spending with Gartner forecasting 8% growth to $71bn with pure play, next-generation vendors likely to grow substantially faster. As in prior years we expect M&A activity and strong underlying growth to support above-average sector valuations.

Although we have taken some profits following a strong 2014, the portfolio retains a healthy exposure to the semiconductor sector where slowing growth and 'Moore's Stress' (the term used to describe the increasing difficulty faced by the semiconductor industry in keeping to 'Moore's Law') have introduced some long overdue capital discipline and industry consolidation. 2014 saw the desire to combine / extend beyond the memory space with the likes of RF Microdevices and Infineon consolidating smaller peers to exploit cost synergies and increase scale. More recently this trickle has become a flood with would-be buyers taking advantage of remarkably cheap debt (or large cash balances earning very little) to fashion hugely accretive deals applauded by both sets of shareholders. While the NXP / Freescale merger will create an automotive semiconductor powerhouse, the recent Avago / Broadcom ($37bn) and Intel / Altera ($16bn) deals are much less obvious combinations - they are financially, rather than strategically, driven. While activity must slow from current frenzied levels, we would be surprised if others did not follow suit for fear of falling further behind in the consolidation game. We have a number of smaller positions in the portfolio which - as well as providing exposure to preferred themes - would also make attractive acquisitions. One of these - Integrated Silicon Solutions - is currently the subject of a bidding war between long-term US rival Cypress Semiconductor and a consortium of Chinese buyers. This unusual situation reflects another key sub-sector driver - China's semiconductor ambitions with the government keen to develop the domestic industry in order to deliver more sustainable growth and capital deepening while reducing China's dependence on imported semiconductor products that in 2013 exceeded the value of imported crude oil. As a result of the significant technology gap between local players and global peers that exists today, the government is likely to continue to provide strong support via funding for both acquisitions and R&D, with the aim of achieving a 20% compound average growth rate by 2020.

In addition to these key areas, we have a number of other important themes that we have exposure to within the portfolio including robotics where demand for industrial robots (traditionally used in automotive manufacturing) is growing as they are increasingly being applied to electronic manufacturing due to labour cost inflation and new materials which cannot be processed by traditional moulding and injection machines. Improved designs utilising sensors and cameras to form vision systems means that these robots can operate in close proximity to humans making hybrid production lines possible for the first time. New applications such as minimally invasive surgery and fulfilment systems are also driving rapid demand for service and logistic robots, while the market for unmanned aerial vehicles ('drones') has received significant attention following trials by Amazon and Google to use technology once reserved for military applications for package delivery.

We are also tremendously excited about opportunities in the automotive market as technology is allowing the car to be broadly reinvented. While early efforts are focused on 'infotainment' systems, digital dashboards and growing semiconductor content per vehicle, we are most excited about advanced driver assistance systems (ADAS) that use sensors to constantly monitor the surrounding environment, provide warnings and take mitigating action if required. Not only is the addressable market huge - 90m consumer vehicles sold each year - but the regulatory backdrop is supportive and, in time, the ADAS-enabled vehicle will evolve into a semi-autonomous one.

Within the portfolio we also have exposure to a number of exciting emerging themes. We expect these to become more significant - both in terms of their real-world and portfolio importance - over the coming years. These include (but are certainly not limited to) 3D printing, augmented and virtual reality, drones, electric and autonomous vehicles, the Internet of Things, mobile / connected health, personalised medicine, renewable energy and wearable computing. This year - rather than providing historical parallels to illuminate the change we see occurring in our sector, we have chosen to instead highlight a number of the most exciting, landscape altering themes that we expect to emerge over the next five years.

Ben Rogoff

HISTORIC PERFORMANCE FOR THE YEARS ENDED 30 APRIL

	2005	2006	2007	2008	2009	2010	2011	2012	2013	2014	2015
Total Assets less current liabilities(£m)	236.4	358.2	335.5	300.4	274.2	398.6	468.7	503.3	528.8	606.6	793.0
Share price (pence)	165.5	245.0	228.0	190.8	183.0	306.8	373.5	387.0	398.5	442.0	592.0
NAV per share (pence)
- undiluted for warrants which expired in 2005	205.0	n/a	n/a	n/a	n/a	n/a	n/a	n/a	n/a	n/a	n/a
- diluted for warrants which expired 2005¹	189.8	255.9	239.7	226.7	216.8	315.1	368.7	392.6	412.4	458.4	599.2
Indices of Growth²
Share price	100.0	148.0	137.8	115.3	110.6	185.4	225.7	233.8	240.8	267.1	357.7
NAV per share³	100.0	134.8	126.3	119.4	114.2	166.0	194.3	206.9	217.3	241.5	315.7
Dow Jones World Technology Index ⁴	100.0	132.1	129.4	131.3	124.2	173.4	181.5	196.6	208.4	235.6	305.0

The Company commenced trading on 16 December 1996 and the share price on the first day was 96.0p per share and the NAV per share was 97.5p.

Notes:

1 There is no dilution to the NAV per share as the result of the subscription share conversion

2 Rebased to 100 at 30 April 2005.

3 The net asset value per share growth is based on NAV per share as adjusted for warrants. From 2005 onwards the total net assets figures have been calculated in accordance with IFRS, with investments valued at market bid price. Prior to 2005 investments were valued at market mid price.

4 Dow Jones World Technology Index, total return, sterling adjusted and from April 2013 with withholding taxes removed.

All data sourced from Polar Capital LLP

Market Capitalisation of underlying investments
	<£1bn	$1bn-$10bn	>$10bn
% of invested assets as at 30 April 2015	5.1%	22.4%	72.5%
(as at 30 April 2014)	9.0%	20.6%	70.4%

Breakdown of Investments by Geographic Region		As at April 30 2015	As at April 30 2014
North America		70.6%	68.8%
Europe		7.5%	7.7%
Asia (incl. Middle East) & Pacific		19.1%	19.9%
Cash		2.8%	3.6%

CLASSIFICATION OF INVESTMENTS AS AT 30 APRIL 2015


	North America %	Europe %	Asia & Pacific %	Total 30 April 2015 %	Total 30 April 2014 %
Internet Software & Services	16.5	0.5	5.7	22.7	20.7
Software	16.9	1.3	1.9	20.1	20.0
Semiconductors & Semiconductor Equipment	8.3	3.4	6.7	18.4	20.5
Computers & Peripherals	12.4	-	0.7	13.1	12.5
Communications Equipment	6.3	0.5	0.8	7.6	8.3
Internet & Catalog Retail	3.8	-	0.4	4.2	2.5
Electronic Equipment, Instruments & Components	1.0	0.7	1.6	3.3	3.7
IT Services	1.7	-	-	1.7	3.5
Health Care Technology	1.4	-	-	1.4	1.0
Machinery	0.1	0.4	0.6	1.1	1.5
Life Sciences Tools & Services	0.9	-	-	0.9	0.4
Other	-	0.7	-	0.7	0.5
Household Durables	0.5	-	-	0.5	0.3
Media	-	-	0.4	0.4	0.6
Chemicals	-	-	0.3	0.3	0.3
Aerospace & Defence	0.3	-	-	0.3	0.1
Wireless Telecommunications Services	0.3	-	-	0.3	-
Automobiles	0.2	-	-	0.2	-

Total investments	70.6	7.5	19.1	97.2	96.4
Other net assets (excluding loans)	1.1	2.1	1.3	4.5	7.3
Loans	(0.5)	-	(1.2)	(1.7)	(3.7)
Grand total (net assets of £793,019,000)	71.2	9.6	19.2	100.0	-
At 30 April 2014 (net assets of £606,633,000)	69.0	12.1	18.9	-	100.0

Statement of Comprehensive Income (uNAUDITED)

for the year ended 30 April 2015

	Notes	Year ended 30 April 2015			Year ended 30 April 2014
	Notes	Revenue return £'000	Capital return £'000	Total return £'000	Revenue return £'000	Capital return £'000	Total return £'000
Investment income		6,018	-	6,018	7,161	-	7,161
Other operating income		5	-	5	3	-	3
Gains on investments held at fair value		-	191,422	191,422	-	60,662	60,662
Loss on derivative contracts		-	(3,263)	(3,263)	-	-	-
Other currency gains/(losses)		-	1,165	1,165	-	(1,657)	(1,657)
Total income		6,023	189,324	195,347	7,164	59, 005	66,169
Expenses
Investment management fee		(7,033)	-	(7,033)	(6,026)	-	(6,026)
Other administrative expenses		(739)	-	(739)	(717)	-	(717)
Total expenses		(7,772)	-	(7,772)	(6,743)	-	(6,743)
(Loss)/profit before finance costs and tax		(1,749)	189,324	187,575	421	59,005	59,426
Finance costs		(302)	-	(302)	(411)	-	(411)
(Loss)/profit before tax		(2,051)	189,324	187,273	10	59,005	59,015
Tax		(887)	-	(887)	(796)	-	(796)
Net (loss)/profit for the year and total comprehensive income	4	(2,938)	189,324	186,386	(786)	59,005	58,219
(Loss)/earnings per ordinary share (basic) (pence)	4	(2.22)	143.06	140.84	(0.61)	45.78	45.17

The Total columns of this statement represents the 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.

All items in the above statement derive from continuing operations.

The Company does not have any other comprehensive income.

Statements of Changes in Equity (UNAUDITED)

for the year ended 30 April 2015

	Share capital	Capital redemption reserve	Share premium	Special non-distributable reserve	Capital reserves	Revenue reserve	Total
	£'000	£'000	£'000	£'000	£'000	£'000	£'000
Total equity at 1 May 2013	32,306	12,588	123,378	7,536	424,010	(70,973)	528,845
Total comprehensive income:
Profit/(loss) for the year to 30 April 2014	-	-	-	-	59,005	(786)	58,219
Transactions with owners, recorded directly to equity:
Issue of ordinary shares	175	-	3,121	-	-	-	3,296
Issue of ordinary shares on exercise of subscription shares	817	-	15,456	-	-	-	16,273
Cancellation of subscription shares	(214)	214	-	-	-	-	-
Total equity at 30 April 2014	33,084	12,802	141,955	7,536	483,015	(71,759)	606,633
Total comprehensive income:
Profit/(loss) for the year to 30 April 2015	-	-	-	-	189,324	(2,938)	186,386
Total equity at 30 April 2015	33,084	12,802	141,955	7,536	672,339	(74,697)	793,019

Balance Sheet (UNAUDITED)

AT 30 April 2015

	30 April 2015	30 April 2014
	£'000	£'000
Investments held at fair value through profit or loss	770,353	584,799
Current assets
Receivables	14,575	7,229
Overseas tax recoverable	103	96
Cash and cash equivalents	33,815	54,950
	48,493	62,275
Total assets	818,846	647,074
Current liabilities
Payables	(12,288)	(17,668)
Bank loans	(13,539)	(22,773)

	(25,827)	(40,441)
Net assets	793,019	606,633

Equity attributable to equity shareholders
Share capital	33,084	33,084
Capital redemption reserve	12,802	12,802
Share premium	141,955	141,955
Special non-distributable reserve	7,536	7,536
Capital reserves	672,339	483,015
Revenue reserve	(74,697)	(71,759)
Total equity	793,019	606,633
Net asset value per ordinary share (pence)	599.25	458.40

Cash Flow STATEMENT (UNAUDITED)

for the year ended 30 April 2015

	2015	2014
	£'000	£'000
Cash flows from operating activities
Profit before tax	187,273	59,015
Adjustment for non-cash items:
Foreign exchange gains/(losses)	(1,165)	1,657
Adjusted profit before tax	186,108	60,672

Adjustments for:
Increase in investments	(185,554)	(73,842)
(Increase)/decrease in receivables	(7,346)	2,653
(Decrease)/increase in payables	(5,380)	12,093
	(198,280)	(59,096)

Net cash (used in)/generated from operating activities before tax	(12,172)	1,576

Overseas tax deducted at source	(894)	(857)

Net cash (used in)/generated from operating activities	(13,066)	719

Cash flows from financing activities
Issue of share capital	-	19,569
Loans matured	(25,634)	(6,171)
Loans drawn	13,649	11,638

Net cash (used in)/generated from financing activities	(11,985)	25,036

Net (decrease)/increase in cash and cash equivalents	(25,051)	25,755

Cash and cash equivalents at the beginning of the year	54,950	33,271
Effect of foreign exchange rate changes	3,916	(4,076)

Cash and cash equivalents at the end of the year	33,815	54,950

NOTES TO THE FINANCIAL STATEMENTS

FOR the year ended 30 April 2015

1.	General Information
	The 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 reporting under IFRS and IFRSIC guidance. The Company's presentational currency is Pounds Sterling. Pounds sterling is also the functional currency of the Company because it is the currency which is most relevant to the majority of the Company's shareholders and creditors and the currency in which the majority of the 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 inclusion 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 January 2009 is consistent with the requirements of IFRS, the directors have sought to prepare the financial statements on a basis compliant with the recommendations of the SORP. The financial position of the Company as at 30 April 2015 is shown in the balance sheet. As at 30 April 2015 the Company's total assets exceeded its total liabilities by a multiple of over 32. The assets of the Company consist mainly of securities that are held in accordance with the Company's investment policy and these securities are readily realisable. The Directors consider that the Company has adequate financial resources to enable it to continue in operational existence for the foreseeable future. Accordingly, the Directors believe that it is appropriate to continue to adopt the going concern basis in preparing the Company's accounts.

3.	Investment Income	Year ended	Year ended
		30 April 2015	30 April 2014
		£'000	£'000
	Franked: Listed investments
	Dividend income	51	1,282
	Unfranked: Listed investments
	Dividend income	5,967	5,879
		6,018	7,161

4.	Earnings per ordinary share	Year ended 30 April 2015			Year ended 30 April 2014
		Revenue return pence	Capital return pence	Total return pence	Revenue return pence	Capital return pence	Total return pence
The calculation of basic earnings per share is based on the following data:
	Net (loss)/profit for the year (£'000)	(2,938)	189,324	186,386	(786)	59,005	58,219
	Weighted average ordinary shares in issue during the year	132,336,159	132,336,159	132,336,159	128,889,051	128,889,051	128,889,051
	From continuing operations
	Basic - ordinary shares (pence)	(2.22)	143.06	140.84	(0.61)	45.78	45.17

Portfolio

	North America		Value of holding		% of net assets
		Classification	30 April	30 April	30 April	30 April
			2015	2014	2015	2014
			£'000	£'000	%	%
	Apple	Computer & Peripherals	84,441	46,722	10.6	7.7
	Google	Internet & Software Services	56,041	47,813	7.0	7.9
	Facebook	Internet & Software Services	30,914	22,543	3.9	3.7
	Microsoft	Software	24,991	27,875	3.2	4.6
	Cisco	Communications Equipment	21,230	10,128	2.7	1.7
	Amazon.com	Internet & Catalog Retail	17,289	10,764	2.2	1.8
	Oracle	Software	15,634	11,555	1.9	1.9
	Intel	Semiconductors & Semiconductor Equipment	14,609	13,015	1.8	2.1
	Salesforce.com	Software	11,074	7,101	1.3	1.2
	Red Het	Software	9,674	-	1.2	-
	LinkedIn	Internet Software & Services	8,846	2,450	1.1	0.4
	Western Digital	Computers & Peripherals	8,318	7,974	1.0	1.3
	Visa	IT Services	7,613	2,381	0.9	0.4
	Lam Research	Semiconductors & Semiconductor Equipment	7,409	2,714	0.9	0.4
	F5 Networks	Communications Equipment	7,298	4,768	0.9	0.8
	Texas Instruments	Semiconductors & Semiconductor Equipment	7,160	8,069	0.9	1.3
	Palo Alto Networks	Communications Equipment	6,928	2,259	0.9	0.4
	Qualcomm	Communications Equipment Equipment	6,861	13,153	0.9	2.2
	Akamai Technologies	Internet Software & Services	6,849	1,074	0.9	0.2
	TripAdvisor	Internet & Catalog Retail	6,828	2,984	0.9	0.5
	VMware	Software	6,773	5,648	0.9	0.9
	Illumina	Life Sciences Tools & Services	6,770	2,297	0.9	0.4
	Splunk	Software	6,736	6,535	0.8	1.1
	Nimble Storage	Computers & Peripherals	6,229	2,137	0.8	0.4
	Twitter	Internet Software & Services	6,076	-	0.8	-
	Mastercard	IT Services	6,059	3,627	0.8	0.6
	Micron Technology	Semiconductors & Semiconductor Equipment	6,053	6,077	0.8	1.0
	Verint Systems	Software	5,887	-	0.7	-
	Netsuite	Software	5,671	-	0.7	-
	Cavium	Semiconductors & Semiconductor Equipment	5,399	2,631	0.7	0.4
	Medidata Solutions	Health Care Technology	5,262	-	0.7	-
	Adobe	Software	5,153	4,556	0.6	0.8
	Workday	Software	4,871	-	0.6	-
	Proofpoint	Software	4,779	2,494	0.6	0.4
	Fortinet	Software	4,651	-	0.6	-
	LogMeIn	Internet	4,522	1,670	0.6	0.3
	Demandware	Internet	4,435	3,109	0.6	0.5
	Integrated Device Technology	Semiconductors & Semiconductor Equipment	4,415	-	0.6	-
	IAC Interactive	Internet Software & Services	4,397	-	0.6	-
	Synaptics	Semiconductors & Semiconductor Equipment	4,314	4,438	0.5	0.7
	Intuit	Software	4,131	3,453	0.5	0.6
	Athenahealth	Health Care Technology	4,062	2,098	0.5	0.3
	Harman International	Household Durables	3,945	1,636	0.5	0.3
	Silicon Labs	Semiconductors & Semiconductor Equipment	3,845	-	0.5	-
	Cognex	Electronic Equipment, Instruments & Components	3,809	-	0.5	-
	eBay	Internet Software & Services	3,544	2,321	0.4	0.4
	Cvent	Internet Software & Services	3,356	-	0.4	-
	Autodesk	Software	3,268	-	0.4	-
	Zendesk	Software	3,265	-	0.4	-
	Callidus Software	Software	3,071	1,222	0.4	0.2
	Applied Materials	Semiconductors & Semiconductor Equipment	3,052	4,998	0.4	0.8
	Electronic Arts	Software	3,049	-	0.4	-
	Analog Devices	Semiconductors & Semiconductor Equipment	3,041	-	0.4	-
	Priceline.com	Internet Catalog & Retail	2,901	922	0.4	0.2
	Tableau Software	Software	2,878	-	0.4	-
	Arista	Communications Equipment	2,767	-	0.3	-
	Varonis	Software	2,764	-	0.3	-
	Rukus Wireless	Communications Equipment	2,743	-	0.3	-
	J2 Global	Communications Equipment	2,649	-	0.3	-
	Plantronics	Software	2,566	-	0.3	-
	Vasco Data Security	Software	2,300	-	0.3	-
	Integrated Silicon Solutions	Semiconductors & Semiconductor Equipment	2,214	-	0.3	-
	Activision	Software	2,210	-	0.3	-
	Taser International	Aerospace & Defense	2,198	865	0.3	0.1
	Altera	Semiconductors & Semiconductor Equipment	2,089	-	0.3	-
	Ring Central	Wireless Telecommunications Services	2,001	-	0.3	-
	Aviligon	Electronic Equipment, Instruments & Components	1,991	-	0.3	-
	Sunpower	Semiconductors & Semiconductor Equipment	1,971	1,527	0.2	0.3
	Universal Display	Electronic Equipment, Instruments & Components	1,892	-	0.2	-
	Tesla Motors	Automobiles	1,722	-	0.2	-
	Mobileye	Software	1,665	-	0.2	-
	Cerner	Health Care Technology	1,313	1,062	0.2	0.2
	Yelp	Internet & Software Services	1,299	3,379	0.2	0.6
	Proto Labs	Machinery	723	2,708	0.1	0.4
	Ultimate Software	Software	634	3,978	0.1	0.7
	Model N	Software	545	-	0.1	-
	Marin Software	Internet & Software Services	354	1,068	-	0.2
	Cermetek Microelectronics	Other	1	-	-	-
	TOTAL North American Investments		560,287		70.6
Europe
			Value of holding		% of net assets
			30 April	30 April	30 April	30 April
			2015	2014	2015	2014
			£'000s	£'000s	%	%
ARM Holdings		Semiconductors & Semiconductor Equipment	10,152	3,745	1.3	0.6
SAP		Software	9,278	9,071	1.2	1.5
NXP Semiconductors		Semiconductors & Semiconductor Equipment	8,570	4,899	1.1	0.8
Herald Investment Trust		Other	5,436	-	0.7	-
Ingenico		Electronic Equipment, Instruments & Components	5,293	2,755	0.7	0.5
AMS		Semiconductors & Semiconductor Equipment	3,981	-	0.5	-
ASML		Semiconductors & Semiconductor Equipment	3,835	4,533	0.5	0.7
Criteo		Internet Software & Services	3,152	-	0.4	-
Arcam		Machinery	2,819	2,344	0.4	0.4
Ericsson		Communications Equipment	1,702	4,923	0.2	0.8
Telit Communications		Communications Equipment	1,584	2,022	0.2	0.3
Materalise		Software	1,064	-	0.1	-
Iomart		Internet Software & Services	800	-	0.1	-
Alcatel-Lucent		Communications Equipment	742	-	0.1	-
IQE		Semiconductors & Semiconductor Equipment	371	-	-	-
Herald Ventures Limited Partnership		Other	68	275	-	-
Herald Ventures Limited Partnership II		Other	270	219	-	-
Low Carbon Accelerator (in liquidation)		Other	-	-	-	-
Total European investments			59,117		7.5
Asia & Pacific
			Value of holding		% of net assets
			30 April	30 April	30 April	30 April
			2015	2014	2015	2014
			£'000s	£'000s	%	%
Tencent Holdings		Internet Software & Services	19,289	8,783	2.4	1.4
Samsung Electronics		Semiconductors & Semiconductor Equipment	14,882	15,462	1.9	2.5
Baidu		Internet Software & Services	12,456	8,249	1.6	1.4
Taiwan Semiconductor		Semiconductors & Semiconductor Equipment	11,988	8,997	1.5	1.5
Alibaba		Internet Software & Services	9,166	-	1.2	-
Check Point Software Technology		Software	6,721	4,582	0.8	0.8
Radware		Communications Equipment	6,163	4,460	0.8	0.7
SK Hynix		Semiconductors & Semiconductor Equipment	5,804	6,053	0.7	1.0
Keyence		Electronic Equipment, Instruments & Components	5,520	3,717	0.7	0.6
Nintendo		Software	5,279	-	0.7	-
Harmonic Drive Systems		Machinery	5,093	2,600	0.6	0.4
Disco Corporation		Semiconductors & Semiconductor Equipment	4,041	2,729	0.5	0.5
Mediatek		Semiconductors & Semiconductor Equipment	3,238	6,521	0.4	1.1
Allot Communications		Software	3,206	3,797	0.4	0.6
Himax Technologies		Semiconductors & Semiconductor Equipment	3,116	2,110	0.4	0.3
Silicon Motion Technology		Semiconductors & Semiconductor Equipment	3,056	-	0.4	-
Next		Media	2,874	3,669	0.4	0.6
Rakuten		Internet & Catalog Retail	2,870	-	0.4	-
Omron		Electronic Equipment, Instruments & Components	2,569	2,045	0.3	0.3
TDK		Electronic Equipment, Instruments & Components	2,528	-	0.3	-
Sohu.com		Internet Software & Services	2,429	-	0.3	-
Nitto Denko		Chemicals	2,168	-	0.3	-
Catcher Technology		Computer & Peripherals	2,041	-	0.3	-
Toyko Electron		Semiconductors & Semiconductor Equipment	1,785	-	0.2	-
Advanced Semiconductor		Semiconductors & Semiconductor Equipment	1,758	1,014	0.2	0.2
Hirose Electric		Electronic Equipment, Instruments & Components	1,726	3,957	0.2	0.7
Ememory Technology		Semiconductors & Semiconductor Equipment	1,614	-	0.2	-
Ardentec		Semiconductors & Semiconductor Equipment	1,602	-	0.2	-
Gigabyte		Computer & Peripherals	1,314	-	0.2	-
Quanta Computer		Computer & Peripherals	1,207	3,540	0.2	0.6
Sina		Internet Software & Services	1,113	903	0.1	0.1
Naver		Internet Software & Services	907	1,941	0.1	0.3
Silicon Precision Industries		Semiconductors & Semiconductor Equipment	783	2,317	0.1	0.4
Seeing Machines		Electronic Equipment, Instruments & Components	643	-	0.1	-
Unus Technologies		Communications Equipment	-	-	-	-
Total Asian investments			150,949		19.1

Status of announcement

The figures and financial information contained in this announcement do not constitute statutory accounts for the year ended 30 April 2015. The Financial Statements for the year ended 30 April 2015 will be finalised on the basis of the information presented to the Directors in this preliminary announcement. The Annual Report and financial statements for the year ended 30 April 2015 have not yet been delivered to the Registrar of Companies but will be following the Annual General Meeting of the Company on 9 September 2015.

The figures and financial information for 2014 are extracted from the published Annual Report and Financial Statements for the year ended 30 April 2014 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements for the year to 30 April 2014 has 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.

Annual Report and AGM

The Annual Report and Financial statements for the Year ended 30 April 2015 and a separate Notice of Meeting for the Annual General Meeting will be posted to shareholders in July 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 at www.polarcapitaltechnologytrust.co.uk

The AGM will be held on 9 September 2015 at 2:30pm at the Royal Automobile Club, 89 Pall Mall, London SW1Y 5HS.

Forward Looking Statements

Certain statements included in this announcement and in the Annual Report and Accounts 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 Business Review of the Annual Report and Accounts. No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in Polar Capital Technology 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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