Annual Financial Report

RNS Number : 1463A

Scottish Mortgage Inv Tst PLC

24 May 2019

Scottish Mortgage Investment Trust PLC

Legal Entity Identifier: 213800G37DCS3Q9IJM38

Regulated Information Classification: Annual Financial and Audit Reports

Annual Financial Report

This is the Annual Financial Report of Scottish Mortgage Investment Trust PLC as required to be published under DTR 4 of the UKLA Listing Rules.

The financial information set out in this Annual Financial Report does not constitute the Company's statutory accounts for the years ended 31 March 2018 or 31 March 2019 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 will be delivered in due course. The auditor has reported on those accounts; the reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report other than the emphasis of matter - revision of disclosure note, included within the unqualified audit opinion for the year ended 31 March 2018, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

The Annual Report and Financial Statements for the year ended 31 March 2019, including the Notice of Annual General Meeting, has been submitted electronically to the National Storage Mechanism and will shortly be available for inspection at http://www.morningstar.co.uk/uk/NSM and is also available on Scottish Mortgage's page of the Baillie Gifford website at: www.scottishmortgageit.com

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

Baillie Gifford & Co Limited

Company Secretaries

24 May 2019

Chairman's Statement

Corporate Strategy

The Board and Managers focus on pursuing a truly distinctive global investment proposition, working to maximise the Company's competitive advantages. In a frantic world, obsessed with predicting the next 'thing' which might go wrong, Scottish Mortgage's consistent long term approach of patiently investing in outstanding growth businesses across the globe, whether those businesses are public or private, continues to set it apart.

Performance

The Managers and the Board believe strongly in the advantages of being very clear as to the investment proposition that Scottish Mortgage offers shareholders, to ensure everyone's time horizons are aligned. Scottish Mortgage is not intended to be all things for all people and is most suited to those who share its patient, long term approach to investment. We aim to report on Scottish Mortgage's results in a manner consistent with this approach, drawing on the lessons from the Managers themselves on the challenges of being long term shareholders and the dangers of short term distractions. I am delighted to say that the Company's long term progress remains impressive.

Long Term Returns

This table shows the five and ten year total returns for the Company to 31 March 2019, alongside the Association of Investment Companies (AIC) Global Sector average for comparison.
Total Return^*(%)	Five Years	Ten Years
NAV	152.7	647.4
Share Price	157.1	737.3
FTSE All-World Index	79.8	260.8
Global Sector Average - NAV	94.7	361.0
Global Sector Average - share price	110.8	442.5

Source: AIC/Refinitiv/Baillie Gifford. NAV after deducting borrowings at fair value^*.

* Alternative Performance Measure - see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

We report performance figures over the 12 month period within the Annual Report because of the nature of the document and, as it happens, once again these look attractive. However, granting these figures undue prominence is not particularly helpful for shareholders of this Company and I urge readers to pay little heed to them, whether they be good, bad or indifferent. They reveal little about the success or otherwise of the Company in pursuing its aims.

12 Months

Total Return^*(%)	12 Months
NAV	14.6
Share Price	16.5
FTSE All-World Index	10.7
Global Sector Average - NAV	9.9
Global Sector Average - share price	11.7

Source: AIC/Refinitiv/Baillie Gifford. NAV after deducting borrowings at fair value^*.

* Alternative Performance Measure - see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Progress this year

The considerable growth in the Company's assets over the last five years was predominantly a result of long-term investment performance, also augmented by the net new capital raised under the Company's long-standing liquidity policy'. I am pleased to say that, during this financial year, over £400 million in new capital has been generated in this way and there were no share buy-backs undertaken. The Board views this as indicative of the degree to which Scottish Mortgage's unique investment proposition continues to resonate with investors. The Board does not anticipate making any changes to the liquidity policy over the coming year.

Due to the growth in the assets over time, the Company has also raised additional long term borrowings; the Board authorised these in order to maintain what it views as the strategically appropriate level of gearing in the portfolio. The impact of growth on the level of gearing is clearly illustrated in the table of the ten year record of Capital on page 25. In June 2018, Scottish Mortgage raised a further £170 million through additional private placement agreements at very competitive rates of under 3% per annum. The Board believes this offers a potential source of additional value for shareholders over time. The Board will continue to keep the level of gearing under review.

Earnings and Dividend

Over the year, earnings per share for Scottish Mortgage rose to 1.64 pence, a significant increase of nearly 37% over last year (1.20 pence). However, this was due to the impact of the change in accounting treatment to allocate management and finance costs entirely to capital, highlighted in the previous Annual Report as well as this year's Interim Report. Previously 75% of the costs had been allocated against capital, with the remainder set against income. The basis was revised from the start of this financial year to reflect better the split of returns in the portfolio between capital and income. While the overall position for the Company is not affected, the new allocation policy does mean that more of the modest income from the portfolio becomes distributable earnings.

By now there can be few investors who seek a significant dividend yield from their shares in Scottish Mortgage. The Board has repeatedly highlighted that, while the formal investment objective is "to maximise total return … enabling the Company to provide capital and dividend growth" shareholders should anticipate that returns will primarily come through long term capital appreciation. One common characteristic of many of the businesses in the portfolio is the retention and investment of most if not all of their earnings to support future growth. This tends to result in a relatively low level of dividend income for Scottish Mortgage.

However the Board acknowledges that a significant number of shareholders value the modest level of income they do receive and has therefore maintained the policy of paying a small and growing dividend. The consistent application of this policy allows those shareholders to plan their own portfolio income. The Board has therefore decided not to change the current dividend policy. Those who do not require the income may elect to reinvest their cash dividend.

The Board proposes paying a final dividend of 1.74 pence which, together with the interim dividend, would give a total of 3.13 pence per share for the year. This is an increase of 2% over last year (3.07 pence). As the Company's revenue earnings for the year are insufficient to cover the entire dividend, the balance is paid from realised capital reserves. The Board believes this to be appropriate, given the relatively immaterial size of the element paid from capital, compared with the scale of the distributable capital gains over the long term.

The Board will continue to keep the dividend policy and use of realised capital reserves under review.

Low Cost

Scottish Mortgage has led the way in providing investors with access to great growth businesses at a highly competitive cost level. Through the twin advantages of the Company's own increasing scale and its enduring relationship with Baillie Gifford, we have brought the management and administrative costs down over time to one of the lowest levels available for an actively managed portfolio. This means that, as a shareholder, you keep more of the returns generated with your capital. Very unusually, Scottish Mortgage has also extended this low cost mantra to the unlisted area of the capital markets. This year I am pleased to report that the total 'Ongoing Charges Ratio' for Scottish Mortgage remains at a market leading rate of 0.37%. I am sure you will agree with the Board that this provides excellent long term value for shareholders.

Accessibility

Access to most of the private companies held by Scottish Mortgage came about as a result of the Managers' hard-won global reputation as genuine long term custodians of businesses and long established relationships with those at other companies in the portfolio, built over many years of supportive investment by the Managers. The Board believes that it would be very hard for others to replicate this distinguishing feature of Scottish Mortgage and that the importance of this competitive advantage is often underestimated. This year, the Managers made their largest single investment in a private company to date: Chinese financial services giant, Ant Financial. The opportunity came about as direct result of the long-standing investment in its parent company, Alibaba. Ant Financial has the potential to disrupt our own industry and it reminds us that all companies, including this one, must be prepared to adapt to the changes taking place.

Diversity and Board Independence

Ensuring that there is real diversity of thought informing the decisions taken for Company, both at a Board and operational level, remains just as vital for Scottish Mortgage as for any other business. Maintaining this will help Scottish Mortgage to continue to adapt to change so that it can progress through its second century.

Achieving diversity of thought cannot be reduced to ticking a selection of predefined boxes. However, the Board and Managers do consider it more likely to arise within discussions between a group of individuals who can bring together a mix of experiences, whether those arise through their variety of professional disciplines, cultural backgrounds, gender or other factors.

There are currently five Non-Executive Directors on the Board, three men and two women, none of whom has ever worked for Baillie Gifford. The Board believes each of the Directors to be independent of the Managers and considers this to be essential for the delivery of their individual responsibility to act in the best interests of shareholders.

Each Director brings a fresh perspective to the Board's central tasks. Current members include two economists, two chartered accountants and a professor of clinical medicine. The Board believes that this broad range of experience is particularly valuable. When considering any future recruitment requirements, the Board will seek to draw upon as diverse a pool of candidates as possible, including men and women from across all ethnic backgrounds, working in the fields of science and industry as well as finance, to ensure this remains the case.

Baillie Gifford has always carried out all of the executive functions of the Company and so Scottish Mortgage itself has no employees. Baillie Gifford similarly strives for diversity in its own business and reports on its progress in this area to the Board every year. The Board also encourages all major third-party suppliers to the Company to consider such issues and to report progress on this topic to the Board.

Just as with diversity, the Board does not believe the simple imposition of a hard limit on the tenure of individual members to be the best way to ensure ongoing diversity and Board refreshment. In determining the appropriate length of service for each Director, including the Chairman, the Board must judge the appropriate overall balance between the retention of the corporate memory and a suitable rate of refreshment at any given point in time. The Board also wishes to retain the flexibility to be able to recruit outstanding candidates when they become available, rather than simply adding new Directors based upon a predetermined timetable.

As the new Corporate Governance Code comes into effect over the course of this year, the Board will continue to monitor the development of best practice and align its policies in these related areas as appropriate, to include a formal statement of these policies.

This year we will be asking shareholders at the Annual General Meeting to approve an increase in the total permitted level of Board remuneration. The Board is not seeking to raise the current level of remuneration for existing Directors this year; the increase is to allow sufficient flexibility to recruit new Non-Executive Directors as and when the Board finds suitable candidates. It will also provide the necessary headroom to accommodate modest increases in the Directors' remuneration levels where appropriate in years to come to enable the Company to continue to recruit the best candidates.

Shareholders should be reassured that the Board remains mindful of Scottish Mortgage's low-cost focus and, in common with the Managers, the members of the Board remain committed to playing their part in ensuring the maintenance of this key competitive advantage for shareholders' benefit.

Just as the Managers do with the investee companies, so as a Board we aim to offer support and a discussion forum for ideas to help the Managers to maximise their competitive advantages within the strategic framework set by the Board and to resist the inevitable countervailing short term pressures of the public markets. As an independent Board, this is one of the most valuable tasks we can undertake for shareholders.

Future Prospects

The strengths of Scottish Mortgage's investment strategy tend to be recognised most clearly when markets focus their attentions on company fundamentals. However there will almost inevitably also be periods of broad-based swings in sentiment when that is not the case and short term views prevail in markets. The Board does not view such oscillations as a true investment risk for the patient investor who is prepared to hold steady; it is why we continually emphasise that this a long term investment.

The ability to cope with uncertainty is key to all investment. The best long-run risk mitigation strategy remains flexibility. Scottish Mortgage can invest in companies in any industry or geography. The overall approach remains consistent, although the reflection of this within the portfolio evolves through time as countries, industries and companies themselves change.

Today, Scottish Mortgage has perhaps become best known for its holdings in the tech giants but investors are cautioned that defining the portfolio in such terms gives too narrow a perspective on this Company's future prospects. The portfolio not only includes retail, advertising and media businesses but also a wide variety of companies in healthcare, manufacturing, transportation, financial services, food production and consumption. There will inevitably be some portfolio companies whose future progress does not match their ambitions. Yet while this is a clear investment risk, it is mitigated by the asymmetry of the capital exposure compared with the potential scale of returns from those which do succeed. As a Board a key task of ours is therefore to ensure the portfolio is sufficiently, but not overly, diversified.

The Board and Managers acknowledge the potential risk of changes to the regulatory environment for some of the larger portfolio holdings, but believe such risks are manageable as the likelihood, scope and impact of any such changes may be anticipated to a reasonable degree. There is also a range of macro level risks facing Scottish Mortgage, such as issues around global security and rising geopolitical tensions as a result of the Eastward shift of economic power and influence. Macro factors such as these have far reaching, interconnected consequences but are more properly considered general risks which all investors must acknowledge and accept. The Board predominantly focuses its efforts on analysing risk to the extent to which it is possible to predict the potential impact on individual companies and thereby the Scottish Mortgage portfolio.

Over time, the Board believes that it is likely that the winners and losers from the deep structural shifts taking place will become more apparent but that the transition period will likely be challenging and more volatile. Once again, shareholders are cautioned not to expect any attempt by the Board or Managers to mitigate short term market swings. Scottish Mortgage's advantages lie elsewhere. The Board will continue to stand resolutely behind the long term strategy.

Brexit

This year the Company is required to comment on the potential impact of 'Brexit' on its future prospects. I will refrain from general speculation or comment as to the political process itself, simply observing that there are very few UK companies in the portfolio (5 holdings representing around 3% of assets), most of which are global, rather than purely domestically focused businesses.

The greatest exposure of Scottish Mortgage to potential negative impacts from Brexit is through fluctuations in foreign currency exchange rates, which impact the sterling value of the Company's overseas assets. The following observations may therefore be helpful. The pound has already fallen considerably in recent years against a range of currencies, most notably the US dollar. A certain degree of pessimism is therefore already priced in. However if concerns over Brexit were to weigh further on sterling, this would actually benefit the portfolio due to its global nature. Conversely, if Brexit were to be resolved in a more constructive manner than is currently feared and sterling was to appreciate, this would be a headwind for our overseas assets; however, this would likely be offset to a degree by a corresponding improvement in sentiment and perhaps even in the actual business environment.

The Managers will not be turning their investment skills to attempting to predict the byzantine path of Brexit or to express any views on potential resulting currency market moves. The Board fully supports them in this and, as always, will encourage them to remain focused on the area where they have a deep competitive advantage: finding great businesses with long term growth prospects.

Shareholders may also wish to note that Scottish Mortgage already has a long term structural hedge in place for its largest foreign currency exposure, as it has both US dollar denominated assets and liabilities. Movements in the dollar/sterling exchange rate have opposing impacts on these, thereby helping to reduce the net impact of oscillations in this exchange rate. More broadly, the long-run impact of currency fluctuations is diversified by the nature of this portfolio, including as it does many global companies, listed in a wide range of countries.

Shareholder Engagement

In addition to urging all shareholders to read the Annual Report, I would also encourage all interested investors to take up the various opportunities to hear directly from the Managers. This can be done through the various digital sources which the Managers provide, as well as through attendance at one of the Scottish Mortgage Investor Forums which take place throughout the year. The details of these are available at the back of the Annual Report and at www.scottishmortgageit.com.

We hope to see as many shareholders as possible at the Scottish Mortgage AGM on 27 June. Please note that this year the meeting will be held at a new venue: The Royal College of Physicians of Edinburgh, 9 Queen Street, Edinburgh, EH2 1JQ.

Finally, I want to thank shareholders for their ongoing support of Scottish Mortgage and the Managers for all their efforts on shareholders' behalf. Scottish Mortgage's success very much depends on the patience of both. I would also like to thank my colleagues on the Board, our professional advisers and the teams at Baillie Gifford that provide the support necessary to best look after your interests as shareholders.

Fiona McBain

Chairman

15 May 2019

Past performance is not a guide to future performance.

See disclaimer at end of this document.

Managers' Review

It's been a year ruled by sound and fury. From trade wars to Brexit political arguments were rife and unedifying. By October it was thought that the US economy was overheating and that interest rates would therefore have to rise substantially. But by our March year end bond yields had reversed course and fallen sufficiently to provoke forecasts of imminent recession. Global stock markets have been equally emotional. We've moved from the worst December falls in American equity markets since 1931 to their best quarterly performance for a decade. Not to be outdone Chinese stocks have risen by almost a quarter in 2019, yet this leaves the Shanghai market below its level of twelve months ago.

It's far from evident that these levels of volatility signify much of significance. It may be that the last few months have provided a useful reminder that it's become hard for the western world to generate high and sustained nominal growth, let alone substantial inflation, in an era of technology driven deflation, economic inequality and demographic decay. It may be that signs of a revival in animal spirits in China hints that American antagonism will not reverse the return to Asian leadership that so preoccupies Washington. But these are but reminders of what has long appeared probable.

The Evolution of the Scottish Mortgage Portfolio

On the surface there has been little change in Scottish Mortgage's portfolio in the last twelve months. Of the top thirty holdings last year we still own 28. The two that we have sold, BASF and Svenska Handelsbanken, have been replaced because the opportunities opening up to us in the unquoted realm seem to offer more compelling growth potential rather than out of disappointment at their conduct of affairs. Amongst our top ten quoted stocks, which exert a crucial influence given that they sum to just over half of the assets, the sole change has been the rise of Netflix at the cost of Baidu. The former has been driven by stock outperformance whilst we have reduced Baidu as, for once, we share the market concern that the group is squandering broader opportunities in the Chinese internet in the desire for

unduly tight managerial controls.

But beneath the apparent stability there has been a step change in our commitment to venture capital which we believe matters considerably for our future prospects, deeply differentiates Scottish Mortgage from its peers and requires nuanced explanation. Given that the percentage of assets in our unquoted equities has only increased from 15% to 17% and the attention we paid to reporting on these assets at the half-year stage it may appear that we are becoming excessively focussed on this segment but this underestimates its structural importance. Currently 34% of the assets started out as investments in private companies, even if some of those are now public. Up until now we have been reluctant to stress this area too heavily because our own education in venture capital was incomplete. We have now become more convinced in our abilities and advantages in this comparatively new and different area. In fact we're thrilled with what we have learnt. Our opportunity is greater than we initially perceived. It's our responsibility to take advantage of this favourable combination of circumstances.

The starting point is that we have outstanding access to unquoted companies across the world. This may be illustrated by some of our new purchases in the last twelve months. The only unquoted holding amongst our top ten overall is Ant Financial, which amongst other attributes runs both Alipay, the largest global mobile payments platform and Yu'e Bao, the world's largest money market fund. Our access came about through our faithful ownership of Ant's parent Alibaba from the days it too was a private company. Similarly our recent purchase of a holding in Space X would have been unimaginable without our patient, controversial and unashamed backing of Tesla. Perhaps we need to move on from pride in being a rare truly global fund to embarrassment at being so limited in our ambitions.

But lest it be thought that our unquoted portfolio is solely a reflection of our committed ownership of public companies it may be worth citing another area where we have substantially increased our exposure in the past year. This is the crossover between genomics and large scale, but individual, data observation in healthcare. Although Flatiron, one of our initial forays in this direction, was purchased by Roche in early 2018 its continued progress illustrates the reality of clinical utility in this area. We've added holdings in Tempus and Recursion that are emblematic of accelerated efforts and medical hope through such techniques.

Our purpose in unquoted equities goes further than obtaining access to a new universe of opportunity for our shareholders. We are doing so at a cost that is structurally lower than that available elsewhere. We ask no higher fee for incorporating unquoted equities. The overall ongoing charges of 0.37% compares with a still normal level of 2% and 20% carried interest for venture capital funds. This matters to us and we hope to our shareholders.

Our appeal to companies is equally distinctive. Most venture capitalists demand an exit as their funds near the end of their ten year life. In turn many companies seek to go public to satisfy this need for liquidity. We feel no need to encourage companies to move to an Initial Public Offering prematurely. But if an IPO is the eventual outcome then our preference, subject to business progress, is to buy more shares at that stage both for Scottish Mortgage and frequently for other portfolios managed by Baillie Gifford that are unable to make investments until a company is public.

This willingness to own companies regardless of their status as private for the long term, on the verge of an IPO, or as fully fledged public companies is a cornerstone of our policy. We believe it is a damaging narrowing of the necessarily limited opportunity set of potentially great growth stocks to confine ourselves to public companies at a time when the necessity to be quoted is unclear and the pressures of being so all too evident. As owners we are structurally neutral as to the best status whilst listening to the arguments for each unique company in which we invest. Whatever the conclusion we try to bring attitudes more typical of venture capitalism to all our investments. We believe that patient support - especially at the inevitable moments of struggle - is better than hurried exit. We believe that our success in quoted as well as unquoted stocks will continue to be dependent on a small number of extreme winners rather than a parade of the slightly above average.

Growth Investing

Whilst we aspire to special, potentially unique, advantages in unquoted equities our approach to all our investing is consistent and in line with our Core Beliefs as set out once again on page 15 of the Annual Report and Financial Statements. Plainly these contentions are based on our convictions around extreme outcomes and the attractions of high growth investing.

It has been an investment commonplace for long decades that growth investing is a chimera. Value investing, especially as articulated by Warren Buffett, has risen to the status of the one true faith. Yet over the last decade growth indices have substantially outperformed their value counterparts. Moreover this trend has principally been driven by the shares of a cohort of major internet platforms that have defied all predictions of doom based on the strains of growth from an already large base or assumptions of a short competitive advantage period.

What is critical now is to analyse whether this pattern of the last decade is just a chance occurrence, defying eternal verities, or whether it is the outcome of structural changes in corporate affairs and economic structures that find their natural echo in stock markets. We contend that it is the latter. There were two central reasons why the broad genre of value investing outperformed growth in the past. The first was that for all the vicissitudes of cycles and products over time average companies survived and endured. Now they die. Their demise is usually at the hands of technologically driven business models.

Secondly, growing companies did not scale satisfactorily. Returns tended to decline as complexity and asset bases grew in search of increasingly marginal customers. Compounding growth was therefore both hard and dragged down profitability. But in increasing portions of the modern economy this is no longer true. Instead the pattern of increasing returns to scale is more and more evident. Ultimately this isn't hard to understand: for a software or internet company the initial product introduction is expensive and success uncertain but at scale each new customer is often close to costless after adoption and profitability surges. Gaining new customers frequently becomes easier as network effects prevail. In retrospect investors ought to have grasped the dawning of a new age as long as thirty years ago. This model was pioneered at ever increasing scale by Microsoft. It's yet to be destroyed there despite substantial managerial missteps or the extraordinary size of the company.

Far from increasing returns to scale being a temporary and limited facet of the economic conditions of today we suspect that such characteristics will persist and subsume ever increasing areas of the global economy. Healthcare and transportation may be the next sectors to be transformed in this manner as their own forms of data and software emerge. Traditional models will find it hard to cope with such revolutions. More and more of the traditional giants of the world economy and the value universe will therefore fail. They will not revert to the mean as has been the assumption.

Future Prospects

It's traditional to end reports such as this with a list of events and conundrums that preoccupy headline writers and then to move on to a prediction as to the market response over the next year.

We shouldn't be tempted by either habit. There will always be difficulties and uncertainties. Mostly they pass. They are then succeeded by others that appear equally worthy of fascinated minute by minute attention. But it is the underlying rhythm of scientific advance, of increased knowledge on a global scale and the associated development of great business models that ultimately powers sustainable increases in the prices of special equities. This process requires decades. In any twelve month period news flow and emotions will contribute to unknowable outcomes. If we are to be of use to our shareholders then we need to concentrate on the beneficial trends of decades not the specifics of the current preoccupations of the moment.

James Anderson

A Complexified World

There was a media frenzy earlier this year when Amazon CEO Jeff Bezos published details of an attempt to blackmail him with stolen photographs. In a blog post, Bezos suggested that his ownership

of the Washington Post was a 'complexifier' leading one critic to suggest he should have engaged an editor and that the word 'complicating' would have done. It is dangerous to criticise a

genius and it seems to me that Bezos' quixotic use of language was justified. The situation was not complicated. It was complex. I would like to explain the distinction and why it matters.

Complex systems are transforming our world and driving a process of accelerating change with big implications for investors. Companies that have relied on established market structures to extract high prices from their customers (for example broadcasters, consumer goods or oil companies) are likely to face great challenges. Those that earn their revenues by facilitating connections and taking a share of the value they create for their customers are in a much stronger position.

Complicated problems are hard to solve but often can be addressed with formulae, rules and processes. Many of today's hierarchical institutions were created to solve complicated problems. However, approaches that work for complicated problems don't work well with complex problems. Complex problems arise when a system has many connected parts which interact with one another. Our climate is a complex system, as is the human brain or our transportation network. Such systems involve too many unknowns and too many interrelated factors to be reduced to rules and processes. They behave in ways that are hard to predict even when you know a great deal about the individual components. Connections dramatically change the way the individual components of a network behave.

The explosion in the number of connected devices is leading to fundamental change in our society and our economy. This deeper level of connection makes us all part of a complex network. It is changing the way we behave as citizens, as consumers and as workers. Connection creates big new opportunities and we have seen phenomenal growth in social networks, ride-sharing companies and cloud computing. At the same time, it creates threats that our society is ill-equipped to counter from hacking and information theft through to terrorist infrastructure. The shape of our global network is evolving rapidly and there is still much that is unknown but those that understand and can influence this development are likely to possess significant advantage.

The networks we interact with on a daily basis accelerate the pace of our lives. In a networked world, having the closest and fastest connections is valuable. This creates a self-reinforcing drive towards ever greater speed. Our machines are always on. Ideas spread almost instantly and new movements grow and evolve in unexpected ways. The friction that has historically slowed our access to information is being removed and we are increasingly intolerant of barriers to speed.

Consequently, our political and military institutions are creaking. They are failing to address the implications of vast connected networks for nationalism and geopolitics, inequality of every kind, terrorism or climate change. Many of the large corporate institutions in which billions of pounds of savings are invested face similar threats as they fail to comprehend the rapidly changing expectations of their users and partners.

It is not just humans who are being connected. Billions of sensors are giving our computer networks an innate awareness of what is going on in the world around them. The power of connected computers has ushered in a new era of Artificial Intelligence, allowing machines to turn awareness into actionable insights. The applications of such collective intelligence will have profound effects on our society and we must absorb these changes at ever faster speeds. The next ten years will bring self-driving cars. Drones will take on many roles now carried out by human workers. Computational biology will transform our understanding of disease. We will synthesise biology and use it in our manufacturing processes. More work must be done to understand the consequences of this progress and also to limit the less appealing aspects.

An inherent feature of a complex system is that there is no permanent equilibrium. The state of the system is constantly changing. We can no longer expect that market structures will endure indefinitely, that corporate advantages will persist or that consumers will behave in a predictable way. Instead a position of advantage within the network becomes a more important source of competitive edge, as does the institutional ability to adapt quickly to a changing environment. We are often asked about Scottish Mortgage's exposure to Technology or to Emerging Markets (both unhelpful groupings advanced by the manufacturers of stock market indices). When 1.4bn Chinese consumers and entrepreneurs are milliseconds away it surely makes little sense to segregate the world by geography? Similarly, networks affect every company, not just the subset that are deemed to be 'Technology Companies'. It is far more relevant to distinguish between those that have understood network power and those that have not.

It is obvious that a small handful of internet companies have understood the power of networks. Microsoft, Alphabet and Facebook between them have bought and built twelve products with more than a billion users. Tencent and Alibaba are not far behind. These products become more appealing to each user as the total number of users grows. This makes rival services unlikely. The companies have become more profitable and often grown faster as they have got bigger. They are gatekeepers to networks which allows them to build any number of profitable and useful services. We think the potential of several such companies is still only dimly perceived and a long way from being reflected in valuations. Regulators across the globe are scrambling to understand but until they grasp the network-centric nature of these companies' market position they will find it hard to exert influence.

There are many other implications of a networked society and we spend much of our time trying to understand the entrepreneurs and businesses that are shaping its development. Our holdings in Airbnb and Lyft are demonstrating the power of this model in reconstructing the accommodation and transportation markets. So too are Delivery Hero, Grubhub and Meituan in the food industry. Transferwise matches buyers and sellers of currency through its network avoiding the need for money to cross borders and incur the associated fees. Most of the new successful businesses we look at are harnessing network effects to create new markets or disrupt existing industries.

It isn't necessary to be a young company to encounter and exploit the opportunities presented by a connected world. When established businesses have leadership and vision the results they can achieve are remarkable. Kering is a fine example. Its Gucci subsidiary has doubled sales in the past two years through careful attention to its brand and the way it uses technology to build deep connections with its customers. Conversely, for those that get it wrong, the consequences are immediate and can be hugely damaging.

The impact of greater complexity and the power of networks is all around us. Mr Bezos understood this long before most people. As investors, we must simultaneously absorb and understand the implications of accelerating connectedness whilst stepping back from it to seek space for reflection. We can see the malign consequences of ever-faster networks in our stock markets and the shortening time-horizons this inflicts on corporate management teams. Our aim remains patiently to support the companies we think can navigate this complex world over the long term.

Tom Slater

Thirty largest holdings and twelve month performance at 31 March 2019

Name	Business	Fair value 31 March 2019 £'000	% of total assets	Absolute performance^† %	Contribution to absolute performance^# %	Fair value 31 March 2018 £'000
Amazon.com	Online retailer and cloud computing	778,843	9.6	32.4	3.0	661,339
Illumina	Biotechnology equipment	613,045	7.5	41.5	2.3	433,312
Alibaba Group^P	Online retailing and financial services	532,441	6.5	7.0	1.0	497,643
Tencent Holdings	Internet services	531,946	6.5	(4.9)	(0.1)	500,986
Tesla Inc	Electric cars, autonomous driving and solar energy	428,304	5.3	13.2	0.9	324,503
Kering	Luxury goods producer and retailer	299,236	3.7	41.4	1.7	231,740
Netflix	Subscription service for TV shows and movies	254,115	3.1	30.0	1.0	195,159
Ferrari	Luxury automobiles	246,825	3.0	21.2	0.7	195,553
ASML	Lithography	233,003	2.9	3.5	0.1	207,437
Ant International Limited^u	Online financial services platform	191,858	2.4	3.0^‡	0.1	-
Inditex	Global clothing retailer	178,783	2.2	4.0	0.3	239,840
Spotify Technology SA^P	Online music streaming service	176,293	2.2	24.4	0.1	62,505
Baidu	Online search engine	141,665	1.7	(20.5)	(0.5)	265,268
Ctrip.com	Travel agent	138,253	1.7	0.9	0.1	137,095
Alphabet	Holding company for Google and associated ventures	132,109	1.6	22.6	0.4	128,777
Delivery Hero	Online food delivery service	124,960	1.5	(19.1)	(0.6)	67,124
Workday	Enterprise information technology	124,657	1.5	63.4	0.8	93,244
Bluebird Bio Inc	Provider of biotechnological products and services	123,604	1.5	(0.8)	0.1	124,535
Nvidia	Visual computing	119,284	1.5	(16.3)	(0.5)	143,346
Zalando	International online clothing retailer	116,867	1.4	(22.9)	(0.4)	151,205
Intuitive Surgical	Surgical robots	106,974	1.3	48.9	0.6	89,464
Facebook	Social networking site	105,764	1.3	11.8	0.2	130,886
Transferwise Ltd^u*	Online money transfer services	93,173	1.1	124.0	0.6	41,601
Housing Development Finance Corporation	Indian mortgage provider	92,568	1.1	10.4	0.2	84,710
Lyft Inc^P	Ridesharing services	92,448	1.1	116.1	0.6	35,708
NIO Inc^P	Designs and manufacturers electric and autonomous vehicles	87,726	1.1	22.0	(0.2)	17,822
Kinnevik	Investment company	84,359	1.1	(15.9)	(0.2)	108,283
Indigo Agriculture Inc^u*	Analyses plant microbiomes to increase crop yields	77,425	1.0	124.3	0.4	24,950
Atlas Copco	Engineering	71,839	1.0	(5.9)	(0.1)	106,975
Meituin Dianping^P	Local services aggregator	67,254	0.9	27.1	-	26,774
		6,365,621	78.3

^†Absolute performance (in sterling terms) has been calculated on a total return basis over the period 1 April 2018 to 31 March 2019. For a definition of the total return see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

^#Contribution to absolute performance (in sterling terms) has been calculated to illustrate how an individual stock has contributed to the overall return. It is influenced by both share price performance and the weighting of the stock in the portfolio, taking account of any purchases or sales over the period.

^‡ Figures relate to part period returns where the investment has been purchased in the period.

* Multiple lines of stock held. Holding information represents the aggregate of all lines of stock.

^u Denotes unlisted investment.

^P Denotes listed security previously held in the portfolio as an unlisted security.

Source: Baillie Gifford/StatPro and underlying data providers. See disclaimer at the end of this announcement.

Past performance is not a guide to future performance.

Long Term Investment

Portfolio Holding Periods as at 31 March 2019

More Than 5 Years		2-5 Years		Less Than 2 Years
Name	% of total assets	Name	% of total assets	Name	% of total assets
Amazon.com¹⁰	9.6	Netflix	3.1	Ant International^u	2.4
Illumina	7.5	Spotify Technology SA^P	2.2	Delivery Hero	1.5
Alibaba Group^P	6.5	Bluebird Bio Inc	1.5	Lyft Inc^P	1.1
Tencent Holdings¹⁰	6.5	Nvidia	1.5	NIO^P	1.1
Tesla Inc	5.3	Zalando	1.4	Indigo Agriculture^u	1.0
Kering¹⁰	3.7	Transferwise^u	1.1	Carbon^u	0.7
Ferrari	3.0	Meituan Dianping*^P	0.9	Zipline^u	0.7
ASML	2.9	Tableau Software	0.8	Rubius Therapeutics^P	0.6
Inditex	2.2	Grail^u	0.8	Uptake Technologies^u	0.6
Baidu¹⁰	1.7	Orchard Therapeutics^P	0.8	Tanium^u	0.6
Ctrip.com	1.7	Anaplan^P	0.7	Vir Biotechnology^u	0.6
Alphabet¹⁰	1.6	Rocket Internet	0.7	Space Exploration Technologies^u	0.6
Workday	1.5	Denali Therapeutics^P	0.7	Shopify	0.5
Intuitive Surgical	1.3	You & Mr Jones^u	0.6	Tempus Labs Inc^u	0.5
Facebook	1.3	Essence Healthcare^u	0.6	Heartflow^u	0.5
Housing Development Finance Corporation¹⁰	1.1	Ginkgo Bioworks^u	0.5	Pinduoduo	0.5
Housing Development Finance Corporation¹⁰	1.1	Funding Circle^P	0.5	Recursion Pharmaceuticals^u	0.4
Kinnevik	1.1	HelloFresh^P	0.4	The Production Board^u	0.4
Atlas Copco¹⁰	1.0	JAND Inc (Warby Parker)^u	0.4	Bolt Threads^u	0.4
Renishaw	0.7	Auto1^u	0.4	Eventbrite^P	0.3
Alnylam Pharmaceuticals	0.3	Thumbtack^u	0.3	Full Truck Alliance^u	0.3
Innovation Works Development Fund^u	0.3	SurveyMonkey^P	0.3	Affirm^u	0.3
Innovation Works Development Fund^u	0.3	Palantir Technologies^u	0.3	Grubhub	0.3
WI Harper Fund VII^u	0.1	CureVac^u	0.3	Clover Health^u	0.2
Level E Maya Fund	0.1	Airbnb^u	0.3	KSQ Therapeutics^u	0.2
		Unity Biotechnology^P	0.2	Slack Technologies^u	0.1
		Intarcia Therapeutics^u	0.2	Sana Biotechnology^u	0.1
		ZocDoc^u	0.1	ARCH Ventures Fund X^u	<0.1
		Udacity^u	0.1	ARCH Ventures Fund X Overage^u	<0.1
		Sinovation Fund III^u	0.1
		ARCH Ventures Fund IX^u	0.1
		WI Harper Fund VIII^u	0.1
		Home24^P	0.1
Total	61.0	Total	22.1	Total	16.5

^u Denotes unlisted security.

^P Denotes listed security previously held in the portfolio as an unlisted security.

¹⁰Denotes security held for more than 10 years.

* Previously known as Internet Plus Holdings.

Net liquid assets represent 0.4% of total assets. See Glossary of Terms and Alternative Performance Measures on pages at the end of this announcement.

List of investments at 31 March 2019

Name	Business	Fair Value at 31 March 2019 £'000	% of total assets	Contribution to absolute performance^* %	Notes	Fair value 31 March 2018 £'000
Amazon.com	Online retailer and cloud computing	778,843	9.6	3.0		661,339
Illumina	Biotechnology equipment	613,045	7.5	2.3		433,312
Alibaba Group^P	Online retailing and financial services	532,441	6.5	1.0		497,643
Tencent Holdings	Internet services	531,946	6.5	(0.1)		500,986
Tesla Inc	Electric cars, autonomous driving and solar energy	428,304	5.3	0.9	Significant addition	324,503
Kering	Luxury goods producer and retailer	299,236	3.7	1.7		231,740
Netflix	Subscription service for TV shows and movies	254,115	3.1	1.0		195,159
Ferrari	Luxury automobiles	246,825	3.0	0.7		195,552
ASML	Lithography	233,003	2.9	0.1		207,437
Ant International Limited Class C Ord.^u	Online financial services platform	191,858	2.4	0.1	New purchase	-
Inditex	Global clothing retailer	178,783	2.2	0.3	Significant reduction	239,840
Spotify Technology SA^P	Online music streaming service	176,293	2.2	0.1	Significant addition following IPO	62,505
Baidu	Online search engine	141,665	1.7	(0.5)	Significant reduction	265,268
Ctrip.com	Travel agent	138,253	1.7	0.1		137,095
Alphabet	Google search engine and associated ventures	132,109	1.6	0.4		128,777
Delivery Hero	Online food delivery service	124,960	1.5	(0.6)	Significant addition	67,124
Workday	Enterprise information technology	124,657	1.5	0.8	Significant reduction	93,244
Bluebird Bio Inc	Provider of biotechnological products and services	123,604	1.5	0.1		124,535
Nvidia	Visual computing	119,284	1.5	(0.5)		143,346
Zalando	International online clothing retailer	116,867	1.4	(0.4)		151,205
Intuitive Surgical	Surgical robots	106,974	1.3	0.6	Significant reduction	89,464
Facebook	Social networking site	105,764	1.3	0.2	Significant reduction	130,886
Transferwise Ltd Series D Pref.^u	Online money transfer service	45,327	0.6	0.3		20,238
Transferwise Ltd Series Ord.^u	Online money transfer service	19,266	0.2	0.1		8,602
Transferwise Ltd Series A Pref.^u	Online money transfer service	10,542	0.1	0.1		4,707
Transferwise Ltd Series B Pref.^u	Online money transfer service	9,588	0.1	0.1		4,281
Transferwise Ltd Series E Pref.^u	Online money transfer service	5,482	0.1	-		2,448
Transferwise Ltd Series Seed Pref.^u	Online money transfer service	2,565	<0.1	-		1,145
Transferwise Ltd Series C Pref.^u	Online money transfer service	403	<0.1	-		180
		93,173	1.1	0.6		41,601
Housing Development Finance Corporation	Indian mortgage provider	92,568	1.1	0.2		84,710
Lyft Inc^P	Ridesharing services	92,448	1.1	0.6	Significant addition following IPO	35,708
NIO Inc^P	Designs and manufactures electric and autonomous vehicles	87,726	1.1	(0.2)	Significant addition following IPO	17,822
Kinnevik	Investment company	84,359	1.1	(0.2)		108,283
Indigo Agriculture Inc Series D Pref.^u	Analyses plant microbiomes to increase crop yields	55,273	0.7	0.4	Participated in additional funding round	24,950
Indigo Agriculture Inc Series E Pref.^u	Analyses plant microbiomes to increase crop yields	22,152	0.3	-		-
		77,425	1.0	0.4		24,950
Atlas Copco	Engineering	71,839	1.0	(0.1)	Sold shares in Epiroc received following spin-off	106,975
Meituin Dianping^P	Local services aggregator	67,254	0.9	-	Significant addition following IPO	26,774
Tableau Software	Analytics software	67,133	0.8	0.4	Significant addition	33,609
Grail Inc Series B Pref.^u	Clinical stage biotechnology company	66,768	0.8	0.2		53,485
Orchard Therapeutics^P	Gene therapy for rare diseases	64,778	0.8	0.5	Participated in additional funding round and increased holding following IPO	16,076
Carbon Inc Series D Pref.^u	Manufactures and develops 3D printers	36,796	0.4	0.1		28,514
Carbon Inc Series E Pref.^u	Manufactures and develops 3D printers	23,023	0.3	-	Participated in additional funding round	-
		59,819	0.7	0.1		28,514
Zipline International Inc Series D Pref.^u	Logistics company that designs, manufactures and operates drones to deliver medical supplies	30,697	0.4	-		-
Zipline International Inc Series C Pref.^u	Logistics company that designs, manufactures and operates drones to deliver medical supplies	26,209	0.3	0.2		-
		56,906	0.7	0.2	New purchase	-
Anaplan Inc Common^P	Enterprise planning software	56,535	0.7	0.6		14,677
Rocket Internet	Internet start-up factory	54,691	0.7	(0.1)		61,456
Renishaw	Electronic equipment	53,663	0.7	(0.1)		65,218
Denali Therapeutics^P	Biotechnology	51,851	0.7	0.1		40,800
You & Mr Jones Class A Units^u	Digital advertising	50,650	0.6	0.2		34,538
Space Exploration Technologies Corp Series J Pref.^u	Designs, manufactures and launches rockets and spacecraft	50,502	0.6	-	New purchase	-
Rubius Therapeutics Inc^P	Biotechnology	47,558	0.6	0.2		28,863
Uptake Technologies Inc Series D Pref.^u	Designs and develops enterprise software	47,427	0.6	(0.2)		60,814
Tanium Inc Class B Common^u	Provides security and systems management solutions	46,813	0.6	-	New purchase	-
Essence Healthcare Series 3 Pref.^u	Cloud-based health provider	46,105	0.6	0.2		27,837
Vir Biotechnology Inc Series A Pref.^u	Biotechnology company developing anti-infective therapies	30,697	0.4	0.3		7,200
Vir Biotechnology Inc Series B Pref.^u	Biotechnology company developing anti-infective therapies	15,349	0.2	-	Participated in additional funding round	-
		46,046	0.6	0.3		7,200
Ginko Bioworks Inc Series D Pref. ^u	Bio-engineering company	22,796	0.3	-		20,853
Ginko Bioworks Inc Series C Pref. ^u	Bio-engineering company	21,867	0.2	-		21,444
		44,663	0.5	-		42,297
Funding Circle^P	Facilitates loans to small and medium enterprises	42,748	0.5	-	Significant addition following IPO	25,218
Shopify	Cloud-based commerce platform provider	41,338	0.5	0.2	New purchase	-
Tempus Labs Inc Series E Pref. ^u	Offers molecular diagnostics tests for cancer and aggregates clinical oncology records	40,849	0.5	0.1	New purchase	-
Heartflow Inc Series E Pref. ^u	Develops software for cardiovascular disease diagnosis and treatment	40,065	0.5	-		37,423
Pinduoduo Inc	Chinese e-commerce	39,711	0.5	0.1	New purchase	-
Recursion Pharmaceuticals Inc Series C Pref. ^u	Uses image recognition/machine learning and automation to improve drug discovery	38,372	0.4	-	New purchase	-
HelloFresh^P	Grocery retailer	33,661	0.4	(0.3)	Significant addition	44,416
JAND Inc (Warby Parker) Series D Pref. ^u	Online and physical glasses retailer	17,087	0.2	-		16,844
JAND Inc (Warby Parker) Series A Common ^u	Online and physical glasses retailer	11,019	0.1	-		10,862
JAND Inc (Warby Parker) Series E Pref. ^u	Online and physical glasses retailer	4,220	0.1	-		4,094
		32,326	0.4	-		31,800
The Production Board Series A-2 Pref.^u	Holding company for food technology companies	31,925	0.4	-	New purchase	-
Auto1 Group GmbH Series E Pref. ^u	Online retailer of used cars	31,269	0.4	0.1		21,918
Bolt Threads Inc Series D Pref. ^u	Natural fibres and fabrics manufacturer	31,182	0.4	0.1		24,950
Thumbtack Inc Series G Pref. ^u	Online directory service for local businesses	25,791	0.3	-		24,963
SurveyMonkey^P	Online surveys	24,732	0.3	0.2	Significant addition following IPO	10,920
Eventbrite Inc^P	Online ticketing service	23,924	0.3	-		17,822
Alnylam Pharmaceuticals	Biotechnology	23,459	0.3	(0.1)		27,763
Palantir Technologies Inc Series J Pref.^u	Data integration software and service provider	23,394	0.3	-		22,573
Full Truck Alliance Ltd Series A-15 Pref.^u	Freight-truck matching platform	23,023	0.3	-	New purchase	-
Innovation Works Development Fund ^u	Venture capital fund	22,300	0.3	0.1		19,784
Affirm Inc Series F Pref. ^u	Online platform which provides lending and consumer credit services	21,872	0.3	-	New purchase	-
CureVac AG Series B Pref. ^u	Biotechnology	21,542	0.3	-		21,918
Grubhub	US online food services	20,797	0.3	(0.2)	New purchase	-
Airbnb Inc Series E Pref. ^u	Online market place for travel accommodation	20,648	0.3	-		20,750
Unity Biotechnology^P	Clinical stage biotechnology company	20,003	0.2	(0.3)	Significant addition following IPO	25,836
Intarcia Therapeutics Inc Convertible Bond ^u	Implantable drug delivery system	11,511	0.1	-	Additional investment	-
Intarcia Therapeutics Inc Series EE Pref.^u	Implantable drug delivery system	8,039	0.1	(0.1)		16,705
		19,550	0.2	(0.1)		16,705
Clover Health Investments Series D Pref.^u	Healthcare insurance provider	19,190	0.2	(0.1)		20,714
KSQ therapeutics Inc Series C Pref ^u	Biotechnology company	19,186	0.2	-	New purchase	-
ZocDoc Inc Series D-2 Pref.^u	Online platform for searching for doctors and booking appointments	17,492	0.1	-		16,900
Slack Technologies Inc Series H Pref.^u	Enterprise messaging platform	10,338	0.1	-	New purchase	-
WI Harper Fund VII^u	Venture capital fund	9,885	0.1	-		7,806
Udacity Inc Series D Pref.^u	Online education	9,606	0.1	-		10,155
Sinovation Fund III^u	Venture capital fund	8,256	0.1	-	Additional investment	5,320
ARCH Ventures Fund IX^u	Venture capital fund to invest in biotech start-ups	8,242	0.1	-	Additional investment	2,575
WI Harper Fund VIII ^u	Venture capital fund	6,970	0.1	-	Additional investment	5,171
Sana Biotechnology Inc Series A-2 Pref.^u	Biotechnology company creating and delivering engineered cells as medicine	6,395	0.1	-	New purchase	-
Home24 AG^P	Online furniture retailer	5,593	0.1	(0.3)		29,936
Level E Maya Fund	Artificial intelligence based algorithmic trading	4,846	0.1	-		5,174
ARCH Ventures Fund X^u	Venture capital fund to invest in biotech start-ups	413	<0.1	-	New purchase	-
ARCH Ventures Fund X Overage^u	Venture capital fund to invest in biotech start-ups	397	<0.1	-	New purchase	-
Total Investments		8,098,819	99.6
Net Liquid Assets		34,572	0.4
Total Assets		8,133,391	100.0

Listed

equities

Unlisted

Securities #

Unlisted

Bonds

Net liquid

Assets

Total

31 March 2019

82.2

17.3

0.1

0.4

100.0

31 March 2018

84.6

15.0

0.4

100.0

Figures represent percentage of total assets.

* Contribution to absolute performance has been calculated on a total return basis over the period 1 April 2018 to 31 March 2019. For the definition of total return see Glossary of Terms and Alternative Performance Measures at the end of this announcement.

† Significant additions and reductions to investments have been noted where the transaction value is at least a 20% movement from the value of the holding at 31 March 2018. The change in value over the year also reflects the share price performance and the movement in exchange rates.

^u Denotes unlisted security.

^P Denotes listed security previously held in the portfolio as an unlisted security.

# Includes holdings in preference shares and ordinary shares.

The following investments were completely sold during the period: BASF, Dropbox, Marketaxess Holdings, Prudential, Rolls-Royce Group, Svenska Handelsbanken and Under Armour. The following investments were taken over during the period: Flatiron Health, Flipkart and Mobike.

Source: Baillie Gifford/StatPro.

Distribution of Assets

		At 31 March 2019 %	At 31 March 2018 %
North America		52.8	48.1
Europe		24.2	27.7
	United Kingdom	3.5	2.9
	Eurozone	16.6	19.9
	Developed Europe (non euro)	4.1	4.9
Asia		23.0	24.2
	China	21.9	22.5
	India	1.1	1.7
		100.0	100.0

Key Performance Indicators

The key performance indicators (KPIs) used to measure the progress and performance of the Company over time are established industry measures and are as follows:

¾ the movement in net asset value per ordinary share (after deducting borrowings at fair value);

¾ the movement in the share price;

¾ the movement of net asset value and share price performance compared to the Benchmark;

¾ the premium/discount (after deducting borrowings at fair value);

¾ the ongoing charges ratio;

¾ revenue return; and

¾ dividend per share.

An explanation of these measures can be found in the Glossary of Terms and Alternative Performance Measures (APM) at the end of this announcement.

The one, five and ten year records of the KPIs are shown on pages 5, 6 and 25 of the Annual Report and Financial Statements.

In addition to the above, the Board considers performance against other companies within the AIC Global Sector.

Future Developments of the Company

The outlook for the Company is set out in the Chairman's Statement and the Managers' Report above.

Related Party Transactions

The Directors' fees for the year and Directors' interests are detailed in the Directors' Remuneration Report on pages 38 and 39 in the Annual Report and Financial Statements.

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

Management Fee Arrangements

Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretaries. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co. Dealing activity and transaction reporting has been further sub-delegated to Baillie Gifford Overseas Limited.

The Investment Management Agreement sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Investment Management Agreement is terminable on not less than six months' notice. The annual management fee for the year to 31 March 2019 was 0.30% on the first £4 billion of total assets less current liabilities (excluding short term borrowings for investment purposes) and 0.25% on the remaining assets.

2019

Revenue

£'000

2019

Capital

£'000

2019

Total

£'000

2018

Revenue

£'000

2018

Capital

£'000

2018

Total

£'000

Investment management fee

21,879

4,495

13,484

17,979

During the year to 31 March 2019, as reported in the 2018 Chairman's Statement, the Board determined it more appropriate to revise the allocation of management and borrowing costs to reflect better the split of returns between capital and income.

The investment management fee for the year to 31 March 2019 was charged 100% to capital (year to 31 March 2018 - 25% to revenue and 75% to capital).

Principal Risks

As explained on page 34 of the Annual Report and Financial Statements there is a process for identifying, evaluating and managing the risks faced by the Company on a regular basis. The Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. A description of these risks and how they are being managed or mitigated is set out below:

Financial Risk - the Company's assets consist mainly of listed securities and its principal financial risks are therefore market related and include market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. An explanation of those risks and how they are managed is contained in note 18 to the Financial Statements on pages 61to 67 of the Annual Report and Financial Statements. To mitigate these risks, the Board considers at each meeting various metrics including portfolio concentration, regional and industrial sector weightings, top and bottom stock contributors to performance and contribution to performance by industrial sector. The Managers provide the rationale for stock selection decisions and both the investment strategy and portfolio risk are formally considered in detail at least annually.

Unlisted Investments - the Company's risk could be increased by its investment in unlisted investments. These assets may be more difficult to buy or sell, so changes in their prices may be greater than for listed investments.

To mitigate this risk, the Board considers the unlisted investments in the context of the overall investment strategy and provides guidance to the Managers on the maximum exposure to unlisted investments. The investment policy limits the amount which may be invested in unlisted companies to 25 per cent. of the total assets of the Company, measured at time of purchase.

Investment Strategy Risk - pursuing an investment strategy to fulfil the Company's objective which the market perceives to be unattractive or inappropriate, or the ineffective implementation of an attractive or appropriate strategy, may lead to reduced returns for shareholders and, as a result, a decreased demand for the Company's shares. This may lead to the Company's shares trading at a widening discount to their net asset value. To mitigate this risk, the Board regularly reviews and monitors the Company's objective and investment policy and strategy, the investment portfolio and its performance, the level of discount/premium to net asset value at which the shares trade and movements in the share register.

Discount Risk - the discount/premium at which the Company's shares trade relative to its net asset value can change. The risk of a widening discount is that it may undermine investor confidence in the Company. To manage this risk, the Board monitors the level of discount/premium at which the shares trade and the Company has authority to buy back its existing shares when deemed by the Board to be in the best interests of the Company and its shareholders. The Liquidity Policy is set out on page 7 of the Annual Report and Financial Statements.

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

Custody and Depositary Risk - safe custody of the Company's assets may be compromised through control failures by the Depositary, including cyber security incidents. To mitigate this risk, the Board receives six monthly reports from the Depositary confirming safe custody of the Company's assets held by the Custodian. Cash and portfolio holdings are independently reconciled to the Custodian's records by the Managers. The Custodian's audited internal controls reports are reviewed by Baillie Gifford's Business Risk Department and a summary of the key points is reported to the Audit Committee and any concerns investigated.

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

Leverage Risk - the Company may borrow money for investment purposes. If the investments fall in value, any borrowings will magnify the impact of this loss. If borrowing facilities are not renewed, the Company may have to sell investments to repay borrowings. To mitigate this risk, all borrowings require the prior approval of the Board and leverage levels are discussed by the Board and Managers at every meeting. Covenant levels are monitored regularly. The majority of the Company's investments are in quoted securities that are readily realisable. Further information on leverage can be found on page 73 of the Annual Report and Financial Statements and the Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Political Risk - Political developments are closely monitored and considered by the Board. The Board continues to monitor developments as they occur regarding the Government's intention that the UK should leave the European Union and to assess the potential consequences for the Company's future activities. Whilst there remains considerable uncertainty, the Board believes that the Company's global portfolio, with no significant exposure to the United Kingdom, positions the Company to be suitably insulated from Brexit-related risk (see Chairman's Statement above).

Viability Statement

In accordance with provision C2.2 of the UK Corporate Governance Code that the Directors assess the prospects of the Company over a defined period, the Directors have elected to do so over a period of 10 years. The Directors continue to believe this period to be appropriate as the investment objective of the Company is aimed at investors with a 5 to 10 year investment horizon and, subject to the assumptions detailed below, the Directors do not expect there to be any significant change to the current principal risks facing the Company nor to the adequacy of the controls in place to effectively mitigate those risks.

Furthermore, the Directors do not reasonably envisage any change in strategy or any events which would prevent the Company from operating over a 10 year period. The Board has considered the uncertainty arising from the UK's ongoing negotiations to leave the EU and does not envisage any outcome that would significantly affect the viability or going concern status of the Company.

Assumption 1

There is no significant adverse change to the regulatory environment and tax treatment enjoyed by UK investment trusts.

Assumption 2

The Company does not suffer sustained inadequate relative investment performance with the current or any successor fund managers such that the Company fails to maintain a supportive shareholder base.

Using the long term expectations of shareholders as the main determinant of the chosen assessment period, the Directors have conducted a robust assessment of the principal risks and uncertainties facing the Company (above) and, in particular, the impact of market risk where a significant fall in global equity markets would adversely impact the value of the investment portfolio. In reviewing the viability of the Company, the Directors have considered the key characteristics of the Company which include an investment portfolio that takes account of different degrees of liquidity, with moderate levels of debt and a business model where substantially all of the essential services required are outsourced to third party providers; this outsourcing structure allows key service providers to be replaced at relatively short notice where necessary.

The Directors have also considered the Company's leverage and liquidity in the context of fixed term debentures, the existing and additional private placement loan notes issued during the year and short term bank loans, the revenue projections, the readily realisable nature of the listed portfolio which could be sold to provide funding if necessary and its stable closed ended structure. Specific leverage and liquidity stress testing was conducted during the year. The leverage stress testing identified the impact on leverage in scenarios where gross assets fall by 25% and 50%, reflecting a range of market conditions that may adversely impact the portfolio. The liquidity stress testing identified the reduction in the value of assets that can be liquidated within one month that would result in the value of those assets falling below the value of the borrowings. The stress testing did not indicate any matters of concern.

The Directors have concluded that these sustainable long term characteristics provide a high degree of flexibility to the Company and afford an ability to react so as to mitigate both controllable and most external uncontrollable risks and events in order to ensure the long term prosperity of the business.

Based upon the Company's processes for monitoring operating costs, share price premium/discount, the Managers' compliance with the investment objective, the portfolio risk profile, leverage, counterparty exposure, liquidity risk and financial controls, the Board believes that the prospects of the Company are sound and the Directors are able to confirm that they have a reasonable expectation that it will continue in operation and meet its liabilities as they fall due over a period of at least 10 years.

Going Concern

In accordance with The Financial Reporting Council's guidance on going concern and liquidity risk, the Directors have undertaken a rigorous review of the Company's ability to continue as a going concern.

The Company's principal risks are market related and include market risk, liquidity risk and credit risk. An explanation of these risks and how they are managed is contained in note 18 to the Financial Statements. The Company's assets, the majority of which are investments in quoted securities which are readily realisable, exceed its liabilities significantly. All borrowings require the prior approval of the Board. Gearing levels and compliance with borrowing covenants are reviewed by the Board on a regular basis. The Company has continued to comply with the investment trust status requirements of section 1158 of the Corporation Tax Act 2010 and the Investment Trust (Approved Company) Regulations 2011.

Accordingly, the Financial Statements have been prepared on the going concern basis as it is the Directors' opinion, having assessed the principal risks and other matters set out in the Viability Statement below which assesses the prospects of the Company over a period of 10 years, that the Company will continue in operational existence for a period of at least 12 months from the date of approval of these Financial Statements.

Financial Instruments

As an investment trust, the Company invests in listed and unlisted securities and makes other investments so as to achieve its investment objective to maximise total return from a portfolio of long term investments chosen on a global basis enabling it to provide capital and dividend growth. In pursuing its investment objective, the Company is exposed to various types of risk that are associated with the financial instruments and markets in which it invests.

These risks are categorised here as market risk (comprising currency risk, interest rate risk and other price risk), liquidity risk and credit risk. The Board monitors closely the Company's exposures to these risks but does so in order to reduce the likelihood of a permanent loss of capital rather than to minimise the short term volatility. Risk provides the potential for both losses and gains and in assessing risk, the Board encourages the Managers to exploit the opportunities that risk affords.

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

Market Risk

The fair value of future cash flows of a financial instrument or other investment held by the Company may fluctuate because of changes in market prices. This market risk comprises three elements - currency risk, interest rate risk and other price risk. The Board reviews and agrees policies for managing these risks and the Company's Investment Managers both assess the exposure to market risk when making individual investment decisions and monitor the overall level of market risk across the investment portfolio on an ongoing basis. Details of the Company's investment portfolio are shown in note 9 and on pages 21 to 24 of the Annual Report and Financial Statements.

Currency Risk

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

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

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

Exposure to currency risk through asset allocation, which is calculated by reference to the currency in which the asset or liability is quoted, is shown below.

As at 31 March 2019	Investments £'000	Cash and cash equivalents £'000	Loans, loan notes and debentures £'000	Other debtors and creditors £'000	Net exposure £'000
US dollar	5,761,829	28,147	(280,112)	(16,854)	5,493,010
Euro	1,346,429	-	-	159	1,346,588
Hong Kong dollar	599,200	-	-	-	599,200
Swedish krona	156,199	-	-	-	156,199
Indian rupee	92,568	-	-	-	92,568
Canadian dollar	41,338	-	-	-	41,338
Total exposure to currency risk	7,997,563	28,147	(280,112)	(16,695)	7,728,903
Sterling	101,256	7,440	(423,349)	(16,680)	(298,973)
	8,098,819	35,587	(703,461)	(1,015)	7,429,930

As at 31 March 2018	Investments £'000	Cash and cash equivalents £'000	Loans, loan notes and debentures £'000	Other debtors and creditors £'000	Net exposure £'000
US dollar	4,235,597	25,986	(231,679)	(690)	4,029,214
Euro	1,335,236	-	-	159	1,335,395
Hong Kong dollar	500,986	-	-	-	500,986
Swedish krona	333,306	3,798	-	-	337,104
Indian rupee	84,710	-	-	162	84,872
Total exposure to currency risk	6,489,835	29,784	(231,679)	(369)	6,287,571
Sterling	156,180	5,190	(254,036)	(7,149)	(99,815)
	6,646,015	34,974	(485,715)	(7,518)	6,187,756

Currency Risk Sensitivity

At 31 March 2019, if sterling had strengthened by 5% in relation to all currencies, with all other variables held constant, total net assets and total return on ordinary activities would have decreased by the amounts shown below. A 5% weakening of sterling against all currencies, with all other variables held constant, would have had an equal but opposite effect on the Financial Statement amounts. The analysis is performed on the same basis for 2018.

	2019 £'000	2018 £'000
US dollar	274,651	201,461
Euro	67,329	66,770
Hong Kong dollar	29,960	25,049
Swedish krona	7,810	16,855
Indian rupee	4,628	4,244
Canadian dollar	2,067	-
	386,445	314,379

Interest Rate Risk

Interest rate movements may affect directly:

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

¾ the level of income receivable on cash deposits;

¾ the fair value of the Company's fixed-rate borrowings; and

¾ the interest payable on the Company's variable rate borrowings.

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

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

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

The Company finances part of its activities through borrowings at approved levels. The amount of such borrowings and the approved levels are monitored and reviewed regularly by the Board. Movements in interest rates, to the extent that they affect the market value of the Company's fixed rate borrowings, may also affect the amount by which the Company's share price is at a discount or a premium to the net asset value at fair value.

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

Financial Assets

	2019			2018
	Fair value £'000	Weighted average interest rate	Weighted average period until maturity*	Fair value £'000	Weighted average interest rate	Weighted average period until maturity*
Cash and short-term deposits:
Other overseas currencies	28,147	-	n/a	29,784	-	n/a
Sterling	7,440	0.3%	n/a	5,190	0.3%	n/a

* Based on expected maturity date.

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

Financial Liabilities

The interest rate risk profile of the Company's bank loans and debentures (at amortised cost) and the maturity profile of the undiscounted future cash flows in respect of the Company's contractual financial liabilities at 31 March are shown below.

Interest Rate Risk Profile

The interest rate risk profile of the Company's financial liabilities at 31 March was:

		2019 £'000	2018 £'000
Floating rate	- US$ denominated	280,112	231,679
Fixed rate	- Sterling denominated	423,349	254,036
		703,461	485,715

The interest rates of the financial liabilities are disclosed in notes 11 and 12 on pages 58 and 59 of the Annual Report and Financial Statements.

Maturity Profile

The maturity profile of the Company's financial liabilities at 31 March was:

	2019			2018
	Within 1 year £'000	Between 1 and 5 years £'000	More than 5 years £'000	Within 1 year £'000	Between 1 and 5 years £'000	More than 5 years £'000
Repayment of loans, debentures and loan notes	280,112	95,000	325,675*	231,679	95,000	155,675*
Accumulated interest on loans, debentures and loan notes to maturity date	24,680	79,369	184,090	18,799	62,141	91,284
	304,792	174,369	509,765	250,478	157,141	246,959

* Includes £675,000 irredeemable debenture stock.

Interest Rate Risk Sensitivity

An increase of 100 basis points in bond yields as at 31 March 2019 would have had no significant impact on the net assets or net return after taxation (2018 - £nil) and would have increased the net asset value per share (with borrowings at fair value) by 7.68p (2018 - increased by 2.69p). A decrease of 100 basis points would have had an equal but opposite effect.

Other Price Risk

Changes in market prices other than those arising from interest rate risk or currency risk may also affect the value of the Company's net assets.

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

Other Price Risk Sensitivity

Fixed asset investments are valued at bid prices which equate to their fair value. A full list of the Company's investments is given on pages 21 to 24 of the Annual Report and Financial Statements. In addition, a geographical analysis of the portfolio, an analysis of the investment portfolio by broad industrial sector and a list of the 30 largest investments by their aggregate market value are contained above.

89.9% (2018 - 91.2%) of the Company's net assets are invested in quoted investments. A 3% increase in quoted companies equity valuations at 31 March 2019 would have increased net assets and net return after taxation by £200,405,000 (2018 - £169,276,000). A decrease of 3% would have had an equal but opposite effect.

19.1% (2018 - 16.2%) of the Company's net assets are invested in unlisted investments. The fair valuation of the unlisted investments is influenced by the estimates, assumptions and judgements made in the fair valuation process (see 1(b) on page 51 of the Annual Report and Financial Statements). A sensitivity analysis is provided below which recognises that the valuation methodologies employed involve different levels of subjectivity in their inputs. The sensitivity analysis below applies a wider range of input variable sensitivity to the multiples methodology as it involves more significant subjective estimation than the recent transaction method (the risk of over or under estimation is higher due to the greater subjectivity involved, for example, in selecting the most relevant measure of sustainable revenues and identifying appropriate comparable companies).

As at 31 March 2019

Impact

Valuation Technique	Fair Value of Investments £'000	Key variable input*	Variable Input Sensitivity (%)	£'000†	% of net assets
Recent transaction/ Adjusted recent transaction	1,047,125	Selection of appropriate benchmark Selection of comparable companies Probability estimation of liquidation event‡ Application of valuation basis	±10	±104,713	±1.4
Multiples	315,048	Estimated sustainable earnings Selection of comparable companies Application of illiquidity discount Probability estimation of liquidation event‡ Application of valuation basis	±20	±63,010	±0.8
Net Asset Value#	56,463	Application of valuation basis	±10	±5,646	±0.1
Total	1,418,636			±173,369	±2.3

As at 31 March 2018

Impact

Valuation Technique	Fair Value of Investments £'000	Key variable input*	Variable Input Sensitivity (%)	£'000†	% of net assets
Recent transaction/ Adjusted recent transaction	748,271	Selection of appropriate benchmark Selection of comparable companies Probability estimation of liquidation event‡ Application of valuation basis	±10	±74,827	±1.2
Multiples	214,568	Estimated sustainable earnings Selection of comparable companies Application of illiquidity discount Probability estimation of liquidation event‡ Application of valuation basis	±20	±42,914	±0.7
Net Asset Value#	40,656	Application of valuation basis	±10	±4,066	±0.1
Total	1,003,495			±121,807	±2.0

† Impact on net assets and net return after taxation.

^# Unlisted fund investments held at net asset values produced by the relevant fund administrators using appropriate fair valuation principles.

‡ A liquidation event is typically a company sale or an initial public offering ('IPO')

* Key Variable Inputs

The variable inputs applicable to each broad category of valuation basis will vary dependent on the particular circumstances of each unlisted company valuation. An explanation of each of the key variable inputs is provided below and includes an indication of the range in value for each input, where relevant. The assumptions made in the production of the inputs are described in note 1(b) on page 51 of the Annual Report and Financial Statements.

Selection of appropriate benchmarks

The selection of appropriate benchmarks is assessed individually for each investment. The industry and geography of each company are key inputs to the benchmark selection, with either one or two key indices or benchmarks being used for comparison.

Selection of comparable companies

The selection of comparable companies is assessed individually for each investment at the point of investment, and the relevance of the comparable companies is continually evaluated at each valuation. The key criteria used in selecting appropriate comparable companies are the industry sector in which they operate, the geography of the company's operations, the respective revenue and earnings growth rates and the operating margins. Typically, between 4 and 10 comparable companies will be selected for each investment, depending on how many relevant comparable companies are identified. The resultant revenue or earnings multiples derived will vary depending on the companies selected and the industries they operate in and can vary in the range of 1x to 10x.

Probability estimation of liquidation events

The probability of a liquidation event such as a company sale, or alternatively an initial public offering ('IPO'), is a key variable input in the transaction-based and multiples-based valuation techniques. The probability of an IPO versus a company sale is typically estimated from the outset to be 50:50 if there has been no indication by the company of pursuing either of these routes. If the company has indicated an intention to IPO, the probability is increased accordingly to 75% and if an IPO has become a certainty the probability is increased to 100%. Likewise, in a scenario where a company is pursuing a trade sale the weightings will be adjusted accordingly in favour of a sale scenario, or in a situation where a company is underperforming expectations significantly and therefore deemed very unlikely to pursue an IPO.

Application of valuation basis

Each investment is assessed independently, and the valuation basis applied will vary depending on the circumstances of each investment. When an investment is pre-revenue, the focus of the valuation will be on assessing the recent transaction and the achievement of key milestones since investment. Adjustments may also be made depending on the performance of comparable benchmarks and companies. For those investments where a trading multiples approach can be taken, the methodology will factor in revenue, earnings or net assets as appropriate for the investment, and where a suitable correlation can be identified with the comparable companies then a regression analysis will be performed. Discounted cash flows will also be considered where appropriate forecasts are available.

Estimated sustainable earnings

The selection of sustainable revenue or earnings will depend on whether the company is sustainably profitable or not, and where it is not then revenues will be used in the valuation. The valuation approach will typically assess companies based on the last twelve months of revenue or earnings, as they are the most recent available and therefore viewed as the most reliable. Where a company has reliably forecasted earnings previously or there is a change in circumstance at the business which will impact earnings going forward, then forward estimated revenue or earnings may be used instead.

Application of illiquidity discount

The application of an illiquidity discount will be applied either through the calibration of a valuation against the most recent transaction, or by application of a specific discount. The discount applied where a calibration is not appropriate is typically 10%, reflecting that the majority of the investments held are substantial companies with some secondary market activity.

Liquidity Risk

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

Liquidity risk is potentially significant but the majority of the Company's assets are investments in quoted securities that are believed to be readily realisable. The Board provides guidance to the Investment Managers as to the maximum exposure to any one holding and to the maximum aggregate exposure to substantial holdings.

The Company has the power to incur borrowings, which give it access to additional funding when required.

Credit Risk

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

This risk is managed as follows:

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

¾ the Board regularly receives information from the Investment Managers on the credit ratings of those bonds and other securities in which the Company has invested (if any);

¾ the Depositary is liable for the loss of financial instruments held in custody. The Depositary will ensure that any delegate segregates the assets of the Company. The Depository delegated the custody function to The Bank of New York Mellon SA/NV for the period to 3 April 2018 and, following the internal reorganisation at The Bank of New York, the custody function was also undertaken by The Bank of New York Mellon (International) Limited. Bankruptcy or insolvency of the custodian may cause the Company's rights with respect to securities held by the custodian to be delayed. The Investment Manager monitors the Company's risk by reviewing the custodian's internal control reports and reporting its findings to the Board;

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

¾ transactions involving derivatives, and other arrangements wherein the creditworthiness of the entity acting as broker or counterparty to the transaction is likely to be of continuing interest, are subject to rigorous assessment by the Managers of the creditworthiness of that counterparty. The Company's aggregate exposure to each such counterparty is monitored regularly by the Board; and

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

The Company owns a number of unquoted preference share securities. Some of these may have been classified as debt by the issuer. There are no material amounts past due in relation to these securities. As these instruments (alongside the ordinary share securities) have been recognised at fair value through profit and loss, the fair value takes into account credit, market and other price risk.

Credit Risk Exposure

The maximum exposure to direct credit risk at 31 March was:

	2019 £'000	2018 £'000
Fixed interest investments	11,511	-
Cash and short term deposits	35,587	34,974
Debtors and prepayments	27,892	2,764
	74,990	37,738

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

Fair Value of Financial Assets and Financial Liabilities

The Directors are of the opinion that the financial assets and liabilities of the Company are stated at fair value in the Balance Sheet with the exception of long term borrowing. Long term borrowings in relation to debentures are included in the accounts at the amortised amount of net proceeds after issue, plus accrued finance costs in accordance with FRS 102. The fair value of bank loans is calculated with reference to government bonds of comparable maturity and yield. A comparison with the fair value (closing offer value) is as follows:

	2019			2018
	Par/nominal £'000	Book £'000	Fair £'000	Par/nominal £'000	Book £'000	Fair £'000
8-14% stepped interest debenture stock 2020	20,000	20,448	23,335	20,000	20,704	25,339
6.875% debenture stock 2023	75,000	74,858	86,400	75,000	74,821	85,629
6-12% stepped interest debenture stock 2026	50,000	52,842	79,944	50,000	53,093	81,177
4.5% irredeemable debenture stock	675	675	736	675	675	713
Total debentures	145,675	148,823	190,415	145,675	149,293	192,858
£30 million 2.91% 2038	30,000	29,960	30,339	-	-	-
£50 million 2.94% 2041	50,000	49,933	50,422	-	-	-
£45 million 3.05% 2042	45,000	44,896	46,082	45,000	44,890	47,762
£30 million 3.30% 2044	30,000	29,929	31,882	30,000	29,927	31,696
£30 million 3.12% 2047	30,000	29,929	31,003	30,000	29,926	31,819
£90 million 2.96% 2048	90,000	89,879	90,490	-	-	-
Total unsecured loan notes	275,000	274,526	280,218	105,000	104,743	111,277
Floating rate loans		280,112	280,112		231,679	231,679
Total borrowings		703,461	750,745		485,715	535,814

All short term floating rate borrowings are stated at fair value, which is considered to be equal to their par value.

Deducting long term borrowings at fair value would have the effect of reducing the net asset value per share from 504.0p to 500.8p. Taking the market price of the ordinary shares at 31 March 2019 of 512.0p, this would have given a premium to net asset value of 2.2% as against a premium of 1.6% on a debt at book basis. At 31 March 2018 the effect would have been to reduce the net asset value from 443.5p to 439.9p. Taking the market price of the ordinary shares at 31 March 2018 of 442.2p, this would have given a premium to net asset value of 0.5% as against a discount of 0.3% on a debt at book basis.

Deducting long term borrowings at par value would have the effect of increasing the net asset value per share from 504.0p to 504.2p. Taking the market price of the ordinary shares at 31 March 2019 of 512.0p, this would have given a premium to net asset value of 1.5% as against a premium of 1.6% on a debt at book basis. At 31 March 2018 the effect would have been to increase the net asset value from 443.5p to 443.7p. Taking the market price of the ordinary shares at 31 March 2018 of 442.2p, this would have given a discount to net asset value of 0.3% as against a discount of 0.3% on a debt at book basis.

Capital Management

The capital of the Company is its share capital and reserves as set out in notes 13 and 14 of the Annual Report and Financial Statements together with its borrowings (see notes 11 and 12 of the Annual Report and Financial Statements). The objective of the Company is to maximise total return from a portfolio of long term investments chosen on a global basis, enabling the Company to provide capital and dividend growth. The Company's investment policy is set out on page 7 of the Annual Report and Financial Statements. In pursuit of the Company's objective, the Board has a responsibility for ensuring the Company's ability to continue as a going concern and details of the related risks and how they are managed are set out above. The Company has the authority to issue and buy back its shares (see page 7 of the Annual Report and Financial Statements) and changes to the share capital during the year are set out in notes 13 and 14 of the Annual Report and Financial Statements. The Company does not have any externally imposed capital requirements other than the covenants on its loans, loan notes and debentures which are detailed in notes 11 and 12 of the Annual Report and Financial Statements.

Subsequent Events

Unlisted investments:

Further to the commitment to invest a further US$41.67m in Series A-2 preference shares of Sana Biotechnology Inc (see note 17 on page 61 of the Annual Report and Financial Statements), the Company purchased a further US$1.6m of Series A-2 preference shares on 3 May 2019.

Alternative Investment Fund Managers (AIFM) Directive

In accordance with the AIFM Directive, information in relation to the Company's leverage and the remuneration of the Company's AIFM, Baillie Gifford & Co Limited, is required to be made available to investors.

AIFM Remuneration

In accordance with the Directive, the AIFM remuneration policy is available at www.bailliegifford.com or on request (see contact details on the back cover of the Annual Report and Financial Statements) and the numerical remuneration disclosures in respect of the AIFM's relevant reporting period are available at www.bailliegifford.com.

Leverage

The Company's maximum and actual leverage levels (see Glossary of Terms and Alternative Performance Measures at the end of this announcement) at 31 March 2019 are shown below:

Gross

method

Commitment

method

Maximum limit

2.50:1

2.00:1

Actual

1.09:1

1.10:1

Investments

As at 31 March 2019	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Equities/funds	6,680,183	-	-	6,680,183
Unlisted ordinary shares	-	-	268,956	268,956
Unlisted preference shares†	-	-	1,138,169	1,138,169
Unlisted convertible note	-	-	11,511	11,511
Total financial asset investments	6,680,183	-	1,418,636	8,098,819

As at 31 March 2018	Level 1 £'000	Level 2 £'000	Level 3 £'000	Total £'000
Equities/funds	5,604,854	37,666	-	5,642,520
Unlisted ordinary shares	-	-	168,083	168,083
Unlisted preference shares	-	-	835,412	835,412
Total financial asset investments	5,604,854	37,666	1,003,495	6,646,015

^†The investments in preference shares are not classified as equity holdings as they include liquidation preference rights that determine the repayment (or multiple thereof) of the original investment in the event of a liquidation event such as a take-over.

Investments in securities are financial assets designated at fair value through profit or loss on initial recognition. In accordance with Financial Reporting Standard 102, the preceding tables provide an analysis of these investments based on the fair value hierarchy described below, which reflects the reliability and significance of the information used to measure their fair value.

Fair Value Hierarchy

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

Level 1 - using unadjusted quoted prices for identical instruments in an active market;

Level 2 - using inputs, other than quoted prices included within Level 1, that are directly or indirectly

observable (based on market data); and

Level 3 - using inputs that are unobservable (for which market data is unavailable).

The valuation techniques used by the Company are explained in the accounting policies on page 52 of the Annual Report and Financial Statements.

During the year investments with a book cost of £284,681,000 (2018 - £72,494,000) were transferred from Level 3 to Level 1 on becoming listed and investments with a book cost of £nil (2018 - £16,292,000) were transferred from Level 3 to Level 2 on becoming listed. Investments with a book cost of £16,292,000 were transferred from Level 2 to Level 1 following conversion to a different share class (2018 - £nil).

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

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

Company law requires the Directors to prepare Financial Statements for each financial year. Under that law they are required to prepare the Financial Statements in accordance with UK accounting standards, including FRS 102 The Financial Reporting Standard applicable in the UK and Republic of Ireland.

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

¾ select suitable accounting policies and then apply them consistently;

¾ make judgements and estimates that are reasonable and prudent;

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

¾ assess the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern; and

¾ use the going concern basis of accounting unless they either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that its Financial Statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is necessary to enable the preparation of Financial Statements that are free from material misstatement, whether due to fraud or error, and have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.

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

The Directors have delegated responsibility to the Managers for the maintenance and integrity of the corporate and financial information included on the Company's website. Legislation in the UK governing the preparation and dissemination of Financial Statements may differ from legislation in other jurisdictions.

Responsibility Statement of the Directors in Respect of the Annual Financial Report

We confirm that to the best of our knowledge:

¾ the Financial Statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

¾ the Strategic Report includes a fair review of the development and performance of the business and the position of the issuer, together with a description of the principal risks and uncertainties that they face.

We consider the Annual Report and Accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company's position and performance, business model and strategy.

On behalf of the Board

Fiona McBain

15 May 2019

Income Statement

	For the year ended 31 March 2019			For the year ended 31 March 2018
	Revenue £'000	Capital £'000	Total £'000	Revenue £'000	Capital £'000	Total £'000
Gains on investments	-	923,535	923,535	-	1,203,348	1,203,348
Currency (losses)/gains	-	(12,180)	(12,180)	-	21,129	21,129
Income (note 2)	28,187	-	28,187	30,663	-	30,663
Investment management fee	-	(21,879)	(21,879)	(4,495)	(13,484)	(17,979)
Other administrative expenses	(4,342)	-	(4,342)	(3,929)	-	(3,929)
Net return before finance costs and taxation	23,845	889,476	913,321	22,239	1,210,993	1,233,232
Finance costs of borrowings	-	(29,866)	(29,866)	(5,490)	(16,471)	(21,961)
Net return before taxation	23,845	859,610	883,455	16,749	1,194,522	1,211,271
Tax	(176)	-	(176)	(48)	-	(48)
Net return after taxation	23,669	859,610	883,279	16,701	1,194,522	1,211,223
Net return per ordinary share (note 4)	1.64p	59.58p	61.22p	1.20p	85.80p	87.00p

The total column of this statement is the profit and loss account of the Company. The supplementary revenue and capital return columns are prepared under guidance published by the Association of Investment Companies.

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

A Statement of Comprehensive Income is not required as all gains and losses of the Company have been reflected in the above statement.

Balance Sheet

	At 31 March 2019 £'000	At 31 March 2018 £'000
Fixed assets
Investments held at fair value through profit or loss	8,098,819	6,646,015
Current assets
Debtors	27,892	2,764
Cash and cash equivalents	35,587	34,974
	63,479	37,738
Creditors
Amounts falling due within one year (note 6)	(309,019)	(241,961)
Net current liabilities	(245,540)	(204,223)
Total assets less current liabilities	7,853,279	6,441,792
Creditors
Amounts falling due after more than one year (note 6)	(423,349)	(254,036)
	7,429,930	6,187,756
Capital and reserves
Share capital	73,713	71,086
Share premium account^†	710,569	352,375
Capital redemption reserve	19,094	19,094
Capital reserve^†	6,602,885	5,741,352
Revenue reserve	23,669	3,849
Shareholders' funds	7,429,930	6,187,756
Net asset value per ordinary share (after deducting borrowings at book)*	504.0p	443.5p
Ordinary shares in issue^† (note 8)	1,474,255,880	1,395,363,209

† Excluding treasury shares.

* See Glossary of Terms and Alternative Performance Measures at the end of this announcement.

Statement of Changes in Equity

For the year ended 31 March 2019

	Share capital £'000	Share premium account^† £'000	Capital redemption reserve £'000	Capital Reserve^# £'000	Revenue reserve^# £'000	Shareholders' funds £'000
Shareholders' funds at 1 April 2018	71,086	352,375	19,094	5,741,352	3,849	6,187,756
Net return after taxation	-	-	-	859,610	23,669	883,279
Ordinary shares sold from treasury (note 8)	-	91,044	-	42,069	-	133,113
Ordinary shares issued (note 8)	2,627	267,150	-	-	-	269,777
Dividends paid during the year (note 5)	-	-	-	(40,146)	(3,849)	(43,995)
Shareholders' funds at 31 March 2019	73,713	710,569	19,094	6,602,885	23,669	7,429,930

For the year ended 31 March 2018

	Share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital Reserve^†# £'000	Revenue reserve^# £'000	Shareholders' funds £'000
Shareholders' funds at 1 April 2017	71,086	216,808	19,094	4,537,789	28,814	4,873,591
Net return after taxation	-	-	-	1,194,522	16,701	1,211,223
Ordinary shares bought back into treasury (note 8)	-	-	-	(62,951)	-	(62,951)
Ordinary shares sold from treasury (note 8)	-	135,567	-	71,992	-	207,559
Dividends paid during the year (note 5)	-	-	-	-	(41,666)	(41,666)
Shareholders' funds at 31 March 2018	71,086	352,375	19,094	5,741,352	3,849	6,187,756

The Capital Reserve balance at 31 March 2019 includes investment holding gains of £3,964,387,000 (31 March 2018 - gains of £3,392,070,000).

# The Revenue Reserve and the Capital Reserve (to the extent it constitutes realised profits) are distributable.

Cash Flow Statement

	Year to 31 March 2019 £'000 £'000		Year to 31 March 2018 £'000 £'000
Cash flows from operating activities
Net return before taxation	883,455		1,211,271
Gains on investments	(923,535)		(1,203,348)
Currency losses/(gains)	12,180		(21,129)
Finance costs of borrowings	29,866		21,961
Overseas withholding tax refunded	2,978		316
Overseas withholding tax incurred	(1,488)		(2,128)
Changes in debtors and creditors	1,448		4,295
Cash from operations		4,904		11,238
Interest paid		(28,162)		(20,972)
Net cash outflow from operating activities		(23,258)		(9,734)
Cash flows from investing activities
Acquisitions of investments	(1,248,097)		(938,385)
Disposals of investments	707,123		800,627
Net cash outflow from investing activities		(540,974)		(137,758)
Equity dividends paid (note 5)	(43,995)		(41,666)
Ordinary shares bought back into treasury and stamp duty thereon	(67)		(62,884)
Ordinary shares sold from treasury	133,113		212,687
Ordinary shares issued	269,776		-
Bank loans repaid	(28,221)		(132,775)
Bank loans drawn down and loan notes issued	226,207		136,921
Net cash inflow from financing activities		556,813		112,283
Decrease in cash and cash equivalents		(7,419)		(35,209)
Exchange movements		8,032		(6,460)
Cash and cash equivalents at start of period*		34,974		76,643
		35,587		34,974

* Cash and cash equivalents represent cash at bank and short term money market deposits repayable on demand.

Notes to the Financial Statements

1.	The Financial Statements for the year to 31 March 2019 have been prepared in accordance with FRS 102, 'The Financial Reporting Standard applicable in the UK and Republic of Ireland' on the basis of the accounting policies set out in the Annual Report and Financial Statements which are unchanged from the prior year and have been applied consistently.
2.	Income		Year to 31 March 2019 £'000			Year to 31 March 2018 £'000
	Income from investments		27,252			30,283
	Other income		935			380
			28,187			30,663
3.	Baillie Gifford & Co Limited, a wholly owned subsidiary of Baillie Gifford & Co, has been appointed as the Company's Alternative Investment Fund Manager ('AIFM') and Company Secretaries. Baillie Gifford & Co Limited has delegated portfolio management services to Baillie Gifford & Co. Dealing activity and transaction reporting has been further sub-delegated to Baillie Gifford Overseas Limited. The Investment Management Agreement sets out the matters over which the Managers have authority in accordance with the policies and directions of, and subject to restrictions imposed by, the Board. The Investment Management Agreement is terminable on not less than six months' notice. The annual management fee for the year to 31 March 2019 was 0.30% on the first £4 billion of total assets less current liabilities (excluding short term borrowings for investment purposes) and 0.25% on the remaining assets. With effect from 1 April 2018 the investment management fee is charged 100% to capital.
4.	Net Return per Ordinary Share		Year to 31 March 2019 £'000			Year to 31 March 2018 £'000
	Revenue return on ordinary activities after taxation		23,669			16,701
	Capital return on ordinary activities after taxation		859,610			1,194,522
			883,279			1,211,223
	Weighted average number of ordinary shares in issue		1,442,733,808			1,392,180,470
	Net return per ordinary share figures are based on the above totals of revenue and capital and the weighted average number of ordinary shares (excluding treasury shares) in issue during the year. There are no dilutive or potentially dilutive shares in issue.
5.	Ordinary Dividends	2019		2018	2019 £'000		2018 £'000
	Previous year's final (paid 2 July 2018)	1.68p		1.61p	23,766		22,264
	Interim (paid 30 November 2018)	1.39p		1.39p	20,229		19,402
		3.07p		3.00p	43,995		41,666
	Also set out below are the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 1158 of the Corporation Tax Act 2010 are considered. The revenue available for distribution by way of dividend for the year is £23,669,000 (2018 - £16,701,000).

5.	Ordinary Dividends (Ctd)
		2019		2018	2019 £'000		2018 £'000
	Dividends paid and payable in respect of the year:
	Interim dividend per ordinary share (paid 30 November 2018)	1.39p		1.39p	20,229		19,402
	Proposed final dividend per ordinary share (payable 2 July 2019)	1.74p		1.68p	25,652		23,766
		3.13p		3.07p	45,881		43,168
	If approved the final dividend will be paid on 2 July 2019 to all shareholders on the register at the close of business on 7 June 2019. The ex-dividend date is 6 June 2019. The Company's Registrars offer a Dividend Reinvestment Plan and the final date for elections for this dividend is 11 June 2019.
6.	Creditors falling due within one year include drawings under the following borrowing facilities: Borrowing facilities at 31 March 2019 A 2 year US$85 million revolving loan facility has been arranged with The Royal Bank of Scotland plc. A 2 year US$200 million revolving loan facility has been arranged with National Australia Bank Limited. A 3 year US$80 million revolving loan facility has been arranged with The Royal Bank of Scotland plc. At 31 March 2019 drawings were as follows: The Royal Bank of Scotland plc US$80 million (revolving facility) at an interest rate (at 31 March 2019) of 3.629% per annum. US$85 million (revolving facility) at an interest rate (at 31 March 2019) of 3.410% per annum. National Australia Bank US$200 million (revolving facility) at an interest rate (at 31 March 2019) of 3.324% per annum. At 31 March 2018 drawings were as follows: The Royal Bank of Scotland plc US$40 million (revolving facility) at an interest rate (at 31 March 2018) of 2.255% per annum. US$85 million (revolving facility) at an interest rate (at 31 March 2018) of 2.764% per annum. National Australia Bank US$200 million (revolving facility) at an interest rate (at 31 March 2018) of 2.623% per annum. During the year the US$40 million 1 year revolving loan with The Royal Bank of Scotland plc ('RBS') was replaced with a US$80 million 3 year revolving loan with RBS. Additionally, the US$200 million 2 year revolving loan with National Australia Bank Limited ('NAB') was refinanced with a US$200 million 2 year revolving loan with NAB. The main covenants which are tested monthly are: ¾ The total borrowings shall not exceed 35% of the Company's adjusted net asset value. ¾ Total borrowings shall not exceed 35% of the Company's adjusted total assets. ¾ The Company's minimum net asset value shall be £1,000 million. ¾ The Company shall not change the investment manager without prior written consent of the lenders.
7.	The fair value of borrowings at 31 March 2019 was £750,745,000 (2018 - £535,814,000). Net asset value per share (after deducting borrowings at fair value) was 500.8p (2018 - 439.9p).
8.			2019 Number of Shares			2018 Number of shares
	Share capital: Ordinary shares of 5p each
	Allotted, called up and fully paid		1,474,255,880			1,395,363,209
	Treasury shares		-			26,367,671
	Total		1,474,255,880			1,421,730,880
	The Company's authority permits it to hold shares bought back 'in treasury'. Such treasury shares may be subsequently either sold for cash (at, or at a premium to, net asset value per ordinary share) or cancelled. In the year to 31 March 2019 no shares were bought back (2018 - 14,006,276 ordinary shares with a nominal value of £700,000 were bought back at a total cost of £62,951,000 and held in treasury). At 31 March 2019 the Company had authority to buy back 210,484,065 ordinary shares. Under the provisions of the Company's Articles the share buy-backs are funded from the capital reserve. In the year to 31 March 2019, the Company sold 26,367,671 ordinary shares from treasury at a premium to net asset value, with a nominal value of £1,318,000 raising net proceeds of £133,113,000 (31 March 2018 - 50,800,000 ordinary shares sold from treasury with a nominal value of £2,540,000 raising net proceeds of £207,559,000) and issued 52,525,000 ordinary shares, with a nominal value of £2,627,000, at a premium to net asset value raising proceeds of £269,777,000 (2018 - £nil). At 31 March 2019 the Company had authority to issue or sell from treasury a further 90,241,320 ordinary shares (no shares were held in treasury at 31 March 2019).
9.	Transaction costs on purchases amounted to £531,000 (2018 - £332,000) and transaction costs on sales amounted to £100,000 (2018 - £383,000).
10.	The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 March 2019 or 2018 but is derived from those accounts. Statutory accounts for 2018 have been delivered to the Registrar of Companies, and those for 2019 will be delivered in due course. The auditor has reported on those accounts; the reports were (i) unqualified, (ii) did not include a reference to any matters to which the auditor drew attention by way of emphasis without qualifying their report other than the emphasis of matter - revision of disclosure note, included within the unqualified audit opinion for the year ended 31 March 2018, and (iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.

Glossary of Terms and Alternative Performance Measures (APM)

Total Assets

Total assets less current liabilities, before deduction of all borrowings.

Net Asset Value

Also described as shareholders' funds. Net Asset Value (NAV) is the value of total assets less liabilities (including borrowings). The NAV per share is calculated by dividing this amount by the number of ordinary shares in issue (excluding treasury shares).

Net Asset Value (Borrowings at Book)/Shareholders' Funds

Borrowings are valued at adjusted net issue proceeds.

Net Asset Value (Borrowings at Fair Value) (APM)

Borrowings are valued at an estimate of their market worth. A reconciliation to Net Asset Value with borrowings at book value is provided below.

				31 March 2019	31 March 2018
	Net Asset Value per ordinary share (borrowings at book value)			504.0p	443.5p
	Shareholders' funds (borrowings at book value)			£7,429,930k	£6,187,756k
	Add: Book value of borrowings			£703,461k	£485,715k
	Less: fair value of borrowings			(£750,745k)	(£535,814k)
	Net Asset Value (borrowings at fair value)			£7,382,646k	£6,137,657k
	Shares in issue at year end (excluding treasury shares)			1,474,255,880	1,395,363,209
	Net Asset Value per ordinary share (borrowings at fair value)			500.8p	439.9p
	Net Asset Value (Borrowings at Par) (APM) Borrowings are valued at their nominal par value. A reconciliation to Net Asset Value with borrowings at book value is provided below.
				31 March 2019	31 March 2018
	Net Asset Value per ordinary share (borrowings at book value)			504.0p	443.5p
	Shareholders' funds (borrowings at book value)			£7,429,930k	£6,187,756k
	Add: allocation of interest on borrowings			£3,805k	£4,098k
	Less: expenses of debenture issue			(£1,131k)	(£1,198k)
	Net asset Value (borrowings at par value)			£7,432,604k	£6,190,656k
	Shares in issue at year end (excluding treasury shares)			1,474,255,880	1,395,363,209
	Net Asset Value per ordinary share (borrowings at par value)			504.2p	443.7p
Net Liquid Assets Net liquid assets comprise current assets less current liabilities, excluding borrowings. Discount/Premium (APM) As stockmarkets and share prices vary, an investment trust's share price is rarely the same as its NAV. When the share price is lower than the NAV per share it is said to be trading at a discount. The size of the discount is calculated by subtracting the share price from the NAV per share and is usually expressed as a percentage of the NAV per share. If the share price is higher than the NAV per share, this situation is called a premium. Ongoing Charges Ratio (APM) The total expenses (excluding borrowing costs) incurred by the Company as a percentage of the average net asset value (with debt at fair value). The ongoing charges have been calculated on the basis prescribed by the Association of Investment Companies. A reconciliation from the expenses detailed in the Income Statement is provided below.
			2019			2018
Investment management fee			£21,879k			£17,979k
Other administrative expenses			£4,342k			£3,929k
Total expenses		(a)	£26,221k			£21,908k
Average net asset value (with borrowings deducted at fair value)		(b)	£7,051,629k			£5,849,630k
Ongoing charges ((a) ÷(b) expressed as a percentage)			0.37%			0.37%

Gearing (APM)

At its simplest, gearing is borrowing. Just like any other public company, an investment trust can borrow money to invest in additional investments for its portfolio. The effect of the borrowing on the shareholders' assets is called 'gearing'. If the Company's assets grow, the shareholders' assets grow proportionately more because the debt remains the same. But if the value of the Company's assets falls, the situation is reversed. Gearing can therefore enhance performance in rising markets but can adversely impact performance in falling markets.

Gearing represents borrowings at book value less cash and cash equivalents (including any outstanding trade settlements) expressed as a percentage of shareholders' funds.

31 March 2019

31 March 2018

Borrowings (at book value)

£703,461k

£485,715k

Less: cash and cash equivalents

(£35,587k)

(£34,974k)

Less: sales for subsequent settlement

(£27,388k)

Add: purchases for subsequent settlement

£15,683k

Adjusted borrowings

(a)

£656,169k

£450,741k

Shareholders' funds

(b)

£7,429,930k

£6,187,756k

Gearing: (a) as a percentage of (b)

Potential gearing is the Company's borrowings expressed as a percentage of shareholders' funds.

31 March 2019

31 March 2018

Borrowings (at book value)

(a)

£703,461k

£485,715k

Shareholders' funds

(b)

£7,429,930k

£6,187,756k

Potential gearing: (a) as a percentage of (b)

Leverage (APM)

For the purposes of the Alternative Investment Fund Managers (AIFM) Directive, leverage is any method which increases the Company's exposure, including the borrowing of cash and the use of derivatives. It is expressed as a ratio between the Company's exposure and its net asset value and can be calculated on a gross and a commitment method. Under the gross method, exposure represents the sum of the Company's positions after the deduction of sterling cash balances, without taking into account any hedging and netting arrangements. Under the commitment method, exposure is calculated without the deduction of sterling cash balances and after certain hedging and netting positions are offset against each other.

Active Share (APM)

Active share, a measure of how actively a portfolio is managed, is the percentage of the portfolio that differs from its comparative index. It is calculated by deducting from 100 the percentage of the portfolio that overlaps with the comparative index. An active share of 100 indicates no overlap with the index and an active share of zero indicates a portfolio that tracks the index.

Total Return (APM)

The total return is the return to shareholders after reinvesting the net dividend on the date that the share price goes ex-dividend.

2019

NAV

(book)

2019

NAV

(fair)

2019

Price

2018

NAV

(book)

2018

NAV

(fair)

2018

Price

Closing NAV per share/share price

(a)

504.0p

500.8p

512.0p

443.5p

439.9p

442.2p

Dividend adjustment factor*

(b)

1.0067

1.0066

1.0063

1.0070

1.0077

1.0068

Adjusted closing NAV per share/share price

(c = a x b)

507.4p

504.1p

515.2p

446.6p

443.3p

445.2p

Opening NAV per share/share price

(d)

443.5p

439.9p

442.2p

358.7p

354.6p

366.1p

Total return

(c ÷ d) - 1

14.4%

14.6%

16.5%

24.5%

25.0%

21.6%

* The dividend adjustment factor is calculated on the assumption that the dividends of 3.07p (2018 - 3.00p) paid by the Company during the year were reinvested into shares of the Company at the cum income NAV/share price, as appropriate, at the ex-dividend date.

Third Party Data Provider Disclaimers

No third party data provider ('Provider') makes any warranty, express or implied, as to the accuracy, completeness or timeliness of the data contained herewith nor as to the results to be obtained by recipients of the data. No Provider shall in any way be liable to any recipient of the data for any inaccuracies, errors or omissions in the index data included in this document, regardless of cause, or for any damages (whether direct or indirect) resulting therefrom.

No Provider has any obligation to update, modify or amend the data or to otherwise notify a recipient thereof in the event that any matter stated herein changes or subsequently becomes inaccurate.

Without limiting the foregoing, no Provider shall have any liability whatsoever to you, whether in contract (including under an indemnity), in tort (including negligence), under a warranty, under statute or otherwise, in respect of any loss or damage suffered by you as a result of or in connection with any opinions, recommendations, forecasts, judgments, or any other conclusions, or any course of action determined, by you or any third party, whether or not based on the content, information or materials contained herein.

FTSE Index Data

FTSE International Limited ('FTSE')^© FTSE 2019. 'FTSE^®' is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under licence. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data and no party may rely on any FTSE indices, ratings and/or data underlying data contained in this communication. No further distribution of FTSE Data is permitted without FTSE's express written consent. FTSE does not promote, sponsor or endorse the content of this communication.

None of the views expressed in this document should be construed as advice to buy or sell a particular investment.

Regulated Information Classification: Annual financial and audit reports.

- ends

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