Polar Capital Technology Trust Regulatory News (PCT)

POLAR CAPITAL TECHNOLOGY TRUST PLC

UNAUDITED PRELIMINARY RESULTS ANNOUNCEMENT FOR THE FINANCIAL YEAR TO 30 APRIL 2017

11 July 2017

Data supplied by Polar Capital LLP and HSBC Securities Services

Chairman's Statement

RESULTS

In my last year as Chairman I am pleased to report on an excellent year for the global technology sector and a banner year for Ben Rogoff, our portfolio manager and the investment team. They managed to add value in all geographical regions and across all capitalisation bands, with the only slight detractor of holding some cash, including sterling, in front of the Brexit vote. We ended our financial year with net assets of £1.25bn and the net assets per share rose by 56.1% versus a 53.4% total return for the benchmark in Sterling, but in local currency terms the benchmark rose by 35.5% due to its dollar weighting. Our share price mainly fluctuated in a discount range of 2% - 6% with short lived extremes of a 2.5% premium and a 13.5% discount. Towards the end of our financial year the shares were trading on a premium and we had the opportunity to issue just over 150,000 new shares. By ending the year very slightly above net asset value versus a 6.5% discount at the previous year end the share price increased by 67.3%. With our fairly recently tiered fee structure and spreading expenses over a larger asset base our ongoing charges ratio declined by 8.2% from 1.10% to 1.01%. Greater detail about our results including the impact of Brexit and President Trump can be found in the Manager's report.

REGULATION

I was hoping to bring you some positive news that the dreaded MiFID II had been abandoned or at least deferred for another year, but no such luck. This piece of EU led legislation is now scheduled to come into force at the start of January 2018. While it has the laudable objective of providing investors with greater transparency in the costs of their investments it is not of universal application and will not apply to asset managers in the USA, Switzerland et al, so could put European managers and investors at a disadvantage. Historically the cost of primary research, mainly provided by brokers, has been bundled into the commission rates paid when we transact business and included in the expenses borne by the Company. The good news is that equity commission rates have been steadily declining for many years and currently average 0.12% versus the 1.65% in 1966 when I was a blue button.

With the arrival of MiFID II in January 2018 the current arrangements of bundling best execution and research in to a single cost for buying and selling shares in the portfolio will end. After this date, the Company will only pay best execution for transactions and research will be an extra cost. We are in lengthy talks with the management company about how best to pay for it in the future. For a rapidly evolving sector like technology access to good research is vital so the team tend to pay a high rate for research, much of which is provided by US brokers. So there are several hurdles to surmount prior to January. Shareholders can see on page 94 the brokerage costs which are paid in US dollars, when translated in to Sterling at the exchange rates prevailing at the end of our financial years, show combined cost of purchases and sales was £2.3m (£2.7m in 2016) of which £1.5 was for research (£1.8m in 2016).

SHAREHOLDER COMMUNICATION

We are witnessing an accelerating move to digital communications in all aspects of our lives and thus we continue to spend money on improving your website. As digital forms of providing information to investors have improved, several companies have decided to stop printing their half year reports and instead are directing their shareholders to reading the results on their websites. We have decided to follow this example and so will not be printing our half year results for the 6 months to 31 October 2017 but these will be posted on the website. We will however continue to maintain the printed version of the annual report for those shareholders who wish to receive it, and the enclosed letter explains what you must do if you prefer to have a paper copy sent to you. I would encourage all shareholders to visit our website and look at the annual report as well as the monthly factsheets and other current information on your investment.

DIRECTORS

I am delighted to welcome Tim Cruttenden to the Board who joined us on 23 March when we held our annual strategy day. He has extensive experience in early, mid and late stage venture capital fund investing and consequently has exposure to the possible Apples, Facebooks and Googles of the future. He is the Chief Executive of VenCap International plc which specialises in investing globally in top-tier venture capital funds. The Board decided to advertise the position and engaged an online board level recruitment firm for this appointment and our thanks should go to Sarah Bates who suggested this route and volunteered to manage the process. Tim comes up for election at the AGM and I would urge shareholders to vote in favour as he will be a valuable addition to the Board.

Last year we had a thorough external review from Lintstock of the Directors, Chairman, SID and the work of the Board and its Committees. This year we reverted to our own internal review. There are no major negatives to report but we decided that all independent Directors would sit on all the Committees, the only exception being that the Chairman would not be a member of the Audit Committee. The continued appointment of Brian Ashford- Russell as a Director is reviewed each year as he is not considered independent of the Investment Manager, as he was the Investment Manager until 2006, and has been a Director since the formation of the Company in 1996. The independent Directors are unanimous in recommending that Brian should remain on the Board if he is willing to stand. His knowledge of the sector over many past cycles is difficult to match and he has a wealth of experience in how the sector performs within wider markets when it moves in and out of fashion.

By the time you receive this report I will have been on the Board for 10 years and six months, the last 6 years as Chairman and I intend to retire from the Board at the AGM in September. My elevation to Chairman in 2011 was, in hindsight, incredibly fortuitous as there has been an extended bull market fuelled ever since by post financial crisis Central Bank support and the Technology sector fulfilling the promise to transform our lives. However my thanks are due to Richard Wakeling, the former Chairman, who had to endure the aftermath of the TMT boom and invited me to join the Board in 2007. I am handing the reins to Sarah Bates who is very well qualified to look after shareholders' interests having recently been Chairman of two investment trusts. She is also Chairman of St James Place, a FTSE 100 company. I cannot promise her such benign equity markets but like me she loves being on this Board and I am so grateful that she has agreed to accept the Chair.

AGM AND MANAGER PRESENTATION

This year the AGM is being held at Trinity House, Trinity Square, London EC3N 4DH as our usual venue, the RAC, is refurbishing its main conference room. Trinity House is located opposite the Tower of London and beside the entrance to Tower Hill tube station. Many of you may know it from the other AGMs held there by investment trusts. The proceedings will start at 2.30pm on 7 September 2016 with the usual lively presentation by Ben Rogoff, our portfolio manager, followed by the formal business and afternoon tea. I urge shareholders not to miss this event, but if you do Ben's presentation will be published on our website shortly afterwards. Members of the technology team and all the Directors will be available to meet shareholders and answer questions after the AGM.

OUTLOOK

Global equity markets continue to grind upwards supported by modest growth, low inflation, ultra low interest rates, and a lack of highly liquid alternatives to earn a return on cash. As you would expect from a mature eight year old bull market, valuations look a bit stretched but still provide value relative to the return available on government bonds. In most cases, shareholders are kept sweet by dividend increases and share buybacks. Even the relative political earthquakes of Brexit and Trump have been digested and construed as positives. So I frankly have no idea when we will see another recession or global financial catastrophe and, with large and growing deficits and debt levels in most developed economies, politicians and central bankers are keen to keep interest rates and bond yields as low as possible. The technology sector continues to deliver both superior sales and earnings growth without the need for vast capital expenditure so the sector continues to be popular with general investors.

VALETE

I should like to thank shareholders, my fellow Directors both past and present and the excellent team at Polar for your support and patience over the past ten years. For me it has been a most enjoyable experience being a Director of this great investment trust and I send everyone concerned my best wishes for the future.

Michael Moule

Chairman

Investment Manager's Report

Market Review

Our fiscal year saw equity markets enjoy an outstanding year as the 'goldilocks' investment backdrop persisted with just enough growth and inflation to keep estimates (and hopes) alive while allowing policy to remain accommodative. The combination of earnings growth and ongoing valuation expansion (particularly post the Presidential election victory of Donald Trump) saw most major markets deliver strong performance during the period. Once again returns were supplemented by Sterling weakness following Britain's unexpected decision to leave the EU in its June referendum. While the Pound recovered from its nadir, it still ended the year 12%/7%/8% lower against the Dollar, Euro and Yen respectively. As a result, the FTSE World TR index advanced by 30.7% during the year, with currency accounting for C.1/2 of the total return. Developed markets continued to climb the proverbial 'wall of worry' as commodity price stabilisation, improving economic data and soothing commentary from the Federal Reserve about the pace of likely rate tightening ameliorated investor concerns about political risk and the rise of so-called populism.

The US market (+33.2% in Sterling terms) remained a strong relative performer despite headline GDP growth that fell 0.8% short of earlier expectations. Rather than worry about headwinds associated with lower energy prices and an inventory drawdown, investors instead focused on supportive corporate news flow with share buybacks and record M&A activity augmenting respectable earnings progress (ex. oil and gas). After a short-lived panic, the unexpected election outcome and Republican 'clean sweep' of Congress was welcomed by investors excited by the new President's pro-growth platform. Bond and equity markets diverged as yield curves steepened and forward earnings estimates were revised higher as the market attempted to size the new Administration's potential impact on growth. Sharply higher US Treasury yields presaged a dramatic rotation within the market away from growth and in favour of perceived beneficiaries of higher bond yields, lower taxes and infrastructure spending. While the dispersion between sectors associated with this so-called 'Trump trade' was the most extreme since 2005, the final third of the year saw it largely unwind following a number of failed attempts by the new President to enact change including Executive Order 13769 (the so-called 'travel ban') and the unsuccessful effort in March to repeal the Affordable Care Act which highlighted existing divisions within the Republican party.

Other developed markets also performed well with returns in Japan (+28.6% in Sterling terms) particularly robust, driven by GDP upside (1% vs. 0.5% forecast) and the end of negative interest rate policy (NIRP) which likely caused some rotation from bonds into equities. While European growth also modestly surprised to the upside, equity returns (+24.4% in sterling terms) trailed those elsewhere due to concerns over the Dutch and French elections that potentially threatened the survival of the European Union (EU), a concern that materially intensified following Brexit (which also weighed heavily on UK returns) and the resignation of Italian Prime Minister Renzi following his referendum defeat in December. Stabilising commodity prices and reacceleration in China following earlier intervention allowed emerging markets (EM) to outperform. While the Trump victory caused a brief wobble, the potential for a more protectionist agenda proved unable to derail EM momentum. Within Asia, the strongest performances were reserved for tech-heavy markets including Taiwan and Korea both of which benefited from sustained outperformance of semiconductor, display and other component stocks.

Our financial year began with US Dollar strength driven by improving US economic data and more hawkish commentary from the US Federal Open Market Committee (FOMC). While the first-quarter earnings season disappointed, this largely reflected weakness in energy and select retail stocks. In contrast, UK economic data was weak ahead of the 'Brexit' referendum, before fears were realised in June when Britain decided to leave the EU, surprising financial markets and pundits alike. Sterling plunged by more than 8% on the day (and considerably more in the weeks that followed) with cable revisiting levels last seen in the mid 1980s. The resignation of PM Cameron and the leadership contest that followed added further to the post-Brexit uncertainty resulting in a flattening of global yield curves and bank share weakness. The notion of 'lower for longer' was seemingly supported by muted second-quarter US economic growth, a third consecutive monthly fall in China's manufacturing PMI and a downward revision to global growth expectations by the World Bank. Rising risk aversion (masked by Sterling weakness) saw US ten-year Treasury yields hit all-time lows of 1.4% and 70% of all German sovereign debt trade with negative yields.

Equity markets initially rebounded during July on hopes of accommodative central bank policy (delivered in the UK as the BoE cut interest rates by 0.25% and announced a larger than expected round of QE). US interest rate expectations were also dampened following mixed economic data with Q2 GDP annualising at just 1.2%, impacted by an inventory drawdown. However, it was far from all doom and gloom as Chinese GDP increased by 6.7% in Q1, while post-Brexit concerns were further allayed by the unexpected early appointment of Theresa May as UK Prime Minister. Strengthening US economic data (including a notably strong payroll report) led to more hawkish commentary from the Federal Reserve, reiterated by Fed Chair Janet Yellen in August during her speech at Jackson Hole where she noted, 'the case for an increase in the federal funds rate has strengthened in recent months'. Economic improvement was also evident in China where real-time estimates of economic growth indicated around 7.8% in stark contrast to the C.5% recorded in January. This stabilisation helped emerging markets recover back towards trend growth while Japanese manufacturing production rose for the first time since February.

Although equity markets made limited further progress in local terms during the final two months of the first half, another leg down in Sterling drove strong returns following PM Theresa May's October announcement of her intention to trigger Article 50 before April 2017. September proved an eventful month for macroeconomic developments with three Central bank policy meetings taking place. While the ECB meeting was uneventful, and the Fed left rates unchanged, the Bank of Japan (BoJ) signalled a clear change of direction away from its negative interest rate policy (NIRP) by setting a goal to target ten-year bond yields at zero, designed to steepen the yield curve and improve bank profitability. A $14bn demand made by the US Department of Justice to Deutsche Bank (related to mis-selling of mortgage securities prior to the financial crisis) led to some short-lived weakness due to speculation over a potential capital shortfall. A relatively lacklustre third-quarter earnings season saw weakness extend into October ahead of the US Presidential election despite positive global economic data that saw Chinese factory output grow at the fastest rate in five years and Eurozone employment rise for the 23rd consecutive month. While Janet Yellen did her best to sound dovish, ten-year US Treasuries rose 23bps and the trade-weighted US Dollar rose more than 3%, driving a sharp rotation among sectors with rate sensitivity.

The second half of the fiscal year was dominated by an eventful US Presidential election with Donald Trump prevailing, confounding pollsters and pundits alike. After an initial 'panic', markets regained their poise as a Republican 'clean sweep' of Congress and a political agenda with fiscal stimulus and tax reform at its core was interpreted as pro-growth. Soaring risk appetite saw the trade-weighted US Dollar gain more than 3% during November alone with sharply higher sovereign bond yields triggering a 'reflation' led market rotation. Financials soared on hopes of easing bank regulation and a steeper yield curve while copper prices leapt C.19% as an anticipated beneficiary of future infrastructure spending. Positive momentum continued into December with growing hopes of widespread reform augmented by strengthening global economic data as the JP Morgan Global PMI hit an 11-month high while Chinese data was solid and Eurozone indicators signalled strong expansion. As such it was little surprise that the US Federal Reserve raised the target for its federal funds rate by 0.25% and signalled the likelihood of three further rate hikes during 2017, ahead of market expectations. This saw continuation of the so-called 'Trump trade' with higher US Treasury yields and the trade-weighted Dollar driving a pronounced equity market sector rotation. Not even the rejection of constitutional reform in Italy and the resulting resignation of Prime Minister Renzi could dampen burgeoning investor sentiment.

2017 began with a bang as newly inaugurated President Trump signed a total of 22 executive orders within his first two weeks in office. Despite this somewhat frenzied debut, markets added to their gains during January as investors remained focused on the underlying health of the US economy and the hope that the new President would ultimately deliver pro-growth policies including corporate tax reform, overseas cash repatriation, deregulation and fiscal stimulus. While fourth-quarter GDP came in at an annualised +1.9%, US industrial output rose at the fastest pace in more than two years. Robust economic growth continued into February driving markets higher during the month. US economic data was particularly encouraging with consumer prices rising at the fastest rate since 2012 and business optimism / hiring intentions spiking higher with NFIB surveys at twelve-year highs. Stronger data saw the Fed take on an increasingly hawkish tone with FOMC Vice Chair Bill Dudley stating that "the case for monetary tightening has become a lot more compelling". Global economic data was also robust during the month, the JP Morgan Global PMI rising for a fifth consecutive month. Economic expansion was fastest in developed markets driven by Eurozone growth - the Markit Flash PMI at the highest level since April 2011, and the largest monthly rise in Eurozone employment since 2007. Chinese economic data remained more mixed, a weak composite PMI more than offset by improving business confidence and new loans at their second highest ever level. The US reporting season proved an additional positive with both revenues and profits coming in modestly ahead of expectations.

Politics returned to the fore during March as UK Prime Minister Theresa May invoked Article 50 starting the two-year negotiation period of ending EU membership. In contrast, the outcome of Dutch elections represented an important setback to the populist movement that led to both Brexit and Donald Trump's unlikely US Presidential victory. Populism also took another blow in the form of a failed attempt to repeal the Affordable Care Act (aka 'Obamacare') with divisions in the Republican party raising questions about the new President's ability to deliver on other campaign pledges such as tax reform. Fortunately, improved sentiment appeared unaffected by the realpolitik with a number of indicators hitting multi-year highs during the month, epitomised by the NFIB Small Business Optimism index hitting its highest reading in 43 years. In contrast, 'hard' economic data remained more mixed which may have influenced the dovish commentary that accompanied the Fed's decision to raise short-term interest rates by 0.25%. A positive outcome in the first round of the French Presidential election, together with a strong start to Q1 earnings season saw markets rally during April, offset by US Dollar weakness. Economic data remained mixed; although US employment fell to a new cycle low (4.4%), there were some notable disappointments, not least the weakest Q1 GDP print in three years while a disappointing Manufacturing PMI pointed to the impact of earlier policy tightening in China. The end of April marked the 100th day of the new US Administration and coincided with the announcement of some broad tax reform plans but its limited impact on markets suggested few believed the bill would pass in its current form.

Technology Review

The technology sector enjoyed one of its strongest years of absolute and relative performance in recent memory, the Dow Jones World Technology index advancing a remarkable 53.4% in Sterling terms. While some of this outperformance was passive (reflecting the sector's disproportionate exposure to the US/US Dollar), the technology sector outperformed significantly in most major markets. Pronounced Sterling weakness added materially to overall performance, accounting for approximately C.one-third of our benchmark's return during the year. Technology outperformance was led by a valuation re-rating which began by reversing out early 2016 losses when a broader market 'growth scare' left next-generation valuations at levels rarely seen since 2009. This healing process was accelerated by the return of strategic M&A as suitors took advantage of the earlier hiatus. 2016 ended up as record year for technology M&A worth $467bn in aggregate. While software remained a focal point, the semiconductor industry also experienced another frenzied year of deal-making. Incumbents remained the most important group of buyers, accounting for the two seminal deals of the year - Microsoft buying LinkedIn for $26bn and Oracle acquiring rival Netsuite for $9.3bn. However, private equity was also very active as were non-traditional buyers such as GE, Siemens and Roper, epitomized by Softbank's acquisition of ARM Holdings during the aftermath of Brexit. This expanded universe of buyers, together with an accelerating pace of Cloud disruption likely explained the high deal premiums paid, with 40-50% achieved on average.

While M&A no doubt acted as a catalyst for technology stocks to recapture valuation ground previously lost, the sector also continued to attract new investors due to its ability to deliver (well) above average growth. This was particularly true within the Internet subsector where strong fundamentals at each of Facebook, Amazon, Netflix and Google (aka FANG) highlighted the structural attractions of Internet-based global platforms. Next-generation companies also performed well as most continued to deliver strong growth and (some) margin improvement despite ongoing macroeconomic uncertainty. This was in stark contrast to the fortunes of a number of legacy incumbents on the wrong side of Cloud and mobile technology trends. While twenty consecutive quarters of year over year negative growth make plain the challenge facing IBM, each of Cisco, Intel and Oracle also experienced their own travails during the year, likely due to accelerating Cloud adoption. The surprise Presidential election outcome resulted in a painful (for us) rotation from 'growth' to 'value' within our sector but thankfully this proved short-lived allowing the contrasting fortunes of technology 'winners' and 'losers' to be more fully reflected in share prices. While the so-called FANG stocks remain a core focus for investors (understandably so given that they capture the zeitgeist of the current cycle) technology strength permeated beyond the Internet and software subsectors. Smartphone-related assets performed surprisingly well with Apple (+77%) and Samsung (+108%) leading the charge albeit for different reasons. Expectations of an iPhone 8 super-cycle with significantly more content per device helped both Apple and its supply chain. Semiconductor stocks were also buttressed by favourable memory pricing, rising capital intensity and a tumult of interest in new areas including autonomous vehicles, machine learning and the Internet of Things.

Technology stocks began the year strongly with a number of next-generation companies delivering strong first-quarter earnings, augmented by the return of strategic M&A. Software-as-a-service leader Salesforce.com surprised to the upside with 31% y/y billings growth while Splunk delivered 41% licence growth. AMD guided positively, ahead of its new GPU architecture release and Universal Display benefited from speculation that Apple will adopt OLED display technology in late 2017. In addition, M&A activity picked up significantly with a shift in focus from value toward more strategic transactions as buyers took advantage of the earlier hiatus in next-generation valuations. These included private equity buyers who picked off three companies - Cvent (held), Marketo and SciQuest - during April and May. M&A activity stepped up significantly during June with the Trust directly benefitting from the acquisitions of Demandware, LinkedIn and QLIK Technology. Microsoft surprised Wall Street with its $26bn offer for LinkedIn. Salesforce.com agreed to buy Demandware for $3bn (at a 71% premium to its prior close) while QLIK Technologies was acquired by private equity firm Thoma Bravo. Tesla also announced the acquisition of SolarCity for $5.7bn in a move that was strategically questioned by both analysts and shareholders.

Relative sector strength persisted through July and August, supported by a strong second quarter earnings season and heightened M&A activity. Many of the most impressive Q2 results were delivered by Internet bellwethers; Facebook delivered 94% y/y earnings growth while Alphabet surpassed expectations with revenue growth accelerating to a remarkable 25% y/y in constant currency terms. Elsewhere next-generation fundamentals were in rude health with each of Criteo, Hubspot, Medidata, Proofpoint and Zendesk delivering strong Q2 reports, in stark contrast to faltering fortunes at a number of incumbents. M&A activity remained at elevated levels with Softbank making an audacious $32bn bid for ARM Holdings, Oracle agreeing to acquire next-generation rival Netsuite for $9.3bn while Linear Technology was acquired by long-time rival Analog Devices. July was also the month where Pokémon Go was unleashed on the world, the smartphone-based augmented reality game becoming a global phenomenon. Gaming remained in focus during August as both Electronic Arts and Activision beat expectations, the latter driven by its newest franchise Overwatch. AMD shares were also strong following the formal launch of its Zen chipset. On the negative side, both Salesforce.com and Palo Alto Networks reported lacklustre results reflecting deal slippage and an evolving IT security environment respectively. Apple also made the news when it was ordered by the European Commission to pay up to $14.5bn for illegal tax benefits in Ireland. Although both the company and the Irish government announced they would appeal, the decision raised the question around the sustainability of low international tax rates.

The final two months of our first half saw the technology sector extend its leadership, aided by supportive 'off-quarter' reports from Adobe, Accenture and Red Hat. Apple released the iPhone 7 with early demand better than feared given the incremental nature of the product. Cloud-related pressure saw Oracle report another mixed quarter, while a positive pre-announcement from Intel buoyed semiconductor stocks including Qualcomm which also rallied on speculation that it might bid for NXP Semiconductor. Third-quarter earnings season provided an additional boost with each of Alphabet, Facebook and Microsoft making all-time highs in October. Another upbeat quarter from Alphabet was accompanied by a new $7bn buyback programme while Microsoft benefited from strong Azure revenue growth (+121% y/y) and a 40% y/y increase in Office365 commercial monthly active users. Gross margin guidance took the shine off a reasonable quarter from Apple with iPhone unit sales (-5.3% y/y) in-line with expectations, although some may have hoped for upside following Samsung's decision to discontinue its Galaxy Note 7 following a series of issues with batteries catching fire. Next-generation results were generally positive, with ServiceNow (billings +46% y/y) and Proofpoint (40% revenue growth) both delivering stand-out numbers. In contrast, earnings season once again revealed the challenges facing legacy technology companies epitomised by IBM whose revenues contracted y/y for the eighteenth consecutive quarter. While Twitter shares fell sharply as various potential acquirers ruled out buying the company, M&A ended the period on a high note as AT&T agreed to acquire Time Warner Inc. for $85bn while Qualcomm bought NXP Semiconductor for $47bn in the largest semiconductor deal yet.

The surprise election victory of Donald Trump led to pronounced technology underperformance during the final months of 2016, exacerbated by a mixed conclusion to third-quarter earnings season. The so-called 'Trump trade' or 'reflation trade' saw investors embrace perceived beneficiaries of the new President and his agenda of less regulation, lower taxes and domestic renewal ('Make America Great Again'). This saw financials, industrials, small-caps and value outperform at the expense of large-cap growth, with technology additionally impacted by uncertainty around issues such as immigration and global trade. Style headwinds were exacerbated by outperformance of legacy / value companies within the technology subsector despite Cisco guiding to negative year over year growth due to UK / European weakness. A weak quarter from security high-flyer Palo Alto Networks did little to lift the fortunes of next-generation technology stocks. While Internet stocks were among the weakest relative performers, Thanksgiving weekend eCommerce sales increased C.18% y/y to $5.3bn. Amazon released a video of Amazon Go, a new grocery store format that leverages machine learning, computer vision and artificial intelligence (AI) to further disrupt retail. Tencent also revealed that its WeChat app boasted over 750m daily active users (DAU) with half of its users engaging with the app for at least 90 minutes per day. A meeting between Donald Trump and a group of US technology leaders in mid-December soothed nerves as the new President adopted a more conciliatory tone before appointing both the Tesla and Uber CEOs to his Strategic and Policy Forum.

Following the adverse post-Trump rotation, the technology sector ended up outperforming the broader market every month during the final third of our year. Once again, earnings season proved a positive catalyst with Internet companies demonstrating the strength and durability of the key structural trends underpinning their business models - ecommerce, digital advertising and cloud computing. Alibaba posted revenue growth ahead of expectations (+54% y/y) while Alphabet saw an acceleration of paid click growth to +43% y/y, remarkable given the scale of the business. Although Facebook confounded its critics with revenue growth of 51% y/y, Amazon delivered a relatively moribund report despite its cloud business AWS still growing 47% y/y. Next-generation stocks largely delivered ahead of expectations, while software names received an additional boost during January following news that Cisco would acquire AppDynamics for $3.7bn, one of the most expensive deals in recent history at 17.3x trailing EV/sales. Apple stock also performed well ahead of the upcoming iPhone 8 cycle, a dynamic that intensified during February as investors began to speculate on its new features which might include a glass/aluminium chassis, OLED screen, wireless / rapid charging and 3D sensing and the potential for a so-called super-cycle. Facebook rival Snapchat came public on a lofty multiple during the month; while the $2.6bn raised represented the largest IPO transaction since Alibaba in 2014, it was dwarfed by news that Softbank had almost closed its $100bn new tech fund.

Strong-off quarter reports from Tencent, Adobe and Red Hat propelled the technology sector higher in March while growing mobile dominance of worldwide Internet usage saw Android overtake Microsoft Windows as the Internet's most frequently used operating system. The hotly anticipated launch of the Nintendo Switch console also took place in early March with initial sales exceeding all previous Nintendo launches. Supporting our view of a strengthening economic backdrop, even Oracle and Accenture reported solid quarters while memory chipmaker Micron surpassed expectations driven by strong demand and tight supply. Technology M&A continued apace with Intel announcing the $15.3bn acquisition of Mobileye, a leader in computer vision for autonomous driving. New all-time highs at Alphabet, Apple, Amazon, Facebook and Microsoft drove the NASDAQ Composite index to a new high of its own in April. However, a positive first-quarter earnings season masked continued divergence in fortunes with IBM delivering its 20th consecutive quarter of negative y/y revenue declines. In contrast, each of the Internet behemoths continued to deliver strong growth; both Alphabet and Amazon posted 24% y/y constant currency (c/c) revenue growth while Facebook grew sales at a remarkable 49% in c/c terms. Next-generation software stocks also delivered strong results while semiconductor stocks underperformed following another disappointing quarter from Intel and a material escalation in the royalty dispute between Qualcomm and Apple.

Portfolio Performance

Our total return performance came in ahead of our benchmark, our own net asset value per share rising 56.1% during the year versus a 53.4% gain in the Sterling adjusted benchmark. In the US, the most significant positive contributor to performance was Advanced Micro Devices (AMD), which advanced a remarkable 323% as the company unveiled and subsequently released its new Zen CPU product. In addition, the portfolio benefited from its off-benchmark exposure to computer gaming companies such as Electronic Arts (+73%) and Ubisoft (+85%) that continued to benefit from downloadable content and in-game monetisation. Nintendo (+106%) was particularly strong following the spectacular debut of Pokemon Go and a favourable reception to Switch, its new gaming platform. A resurgent Nintendo lifted mobile game partner DeNa which we sold on strength. Stock selection was positive across all geographies (and particularly strong in Asia / Japan) and across all market-capitalisation tiers. Relative performance was also positively impacted by underweight / zero positions in a number of large index constituents including IBM, Infosys, Nokia, Oracle and Qualcomm that delivered disappointing returns during the year.

M&A also contributed materially to performance with nine of our holdings- Arcam, ARM Holdings, Demandware, Linear Technology, LinkedIn, Netsuite, Mobileye, Nimble Storage, and QLIK Technologies acquired during the period at premiums that ranged between 26%-71%. The Trust's underweight position in Apple proved the largest negative detractor during the year as the stock materially re-rated ahead of the upcoming iPhone 8 cycle. Performance was also hindered by underweight positions in a number of positive index contributors such as memory chipmaker Micron and graphics processor leader Nvidia, together with a number of next-generation holdings that disappointed including Athenahealth, Palo Alto Networks and TripAdvisor. Our decision to hold a modest amount of liquidity also detracted from performance, exacerbated by the precipitous move in Sterling, our base currency.

Economic Outlook

While economic growth disappointed once again last year, current forecasts are looking for reacceleration this year and next, with global GDP pegged at 3.4% and 3.6% for 2017 and 2018 respectively. Indeed, the International Monetary Fund (IMF) upwardly revised its projection for global GDP growth in 2017, its "first upward revision to near-term growth since 2011" After a disappointing 2016 (and a subdued start to 2017) US growth is forecast to accelerate to 2.3% (2016:1.7%) even as the economy approaches full employment due to the reversal of oil-related weakness which has cost 2% of GDP growth over the prior two years, inventory rebuild and less restrictive fiscal policy which has taken 6.4% off GDP since 2011. With unemployment at 4.3%, wage growth should support consumption, while recession risk appears significantly diminished this year. Although Abenomics has thus far failed to shake the economy from its deflationary / full employment slumber, growth in Japan is also expected to accelerate this year to 1.2% (2016:1%) driven by Yen weakness / stronger exports.

Although progress in the Euro area is likely to remain uneven, current forecasts for 1.6% growth (2016:1.7%) are ahead of the 1.1% rate averaged between 2010-2016 and appear to capture some Brexit-related uncertainty given stronger domestic demand, underlying labour market improvement and Euro weakness. Although UK economic activity was relatively unaffected last year following the EU referendum, the significantly weaker Pound is likely to squeeze household incomes, putting current forecasts of 2% growth (2016:1.8%) at risk. Moreover, with Brexit negotiations about to commence, the degree of uncertainty around economic forecasts is "virtually without precedent". After a difficult 2016, developing economies are expected to reaccelerate to 4.5% this year (2016:4.1%) driven by better performance from commodity-sensitive countries and steady progress in China with growth forecast to be 6.6% (2016:6.7%). However, rising US interest rates and the spectre of protectionism represent material risks to this view. While India remains an economic bright-spot, growth expectations have been revised lower to C.7.2% (2016:6.8%) due to the reversal in energy prices and weaker consumption following its 'currency exchange initiative'.

With growth finally poised to accelerate this year, we are hopeful that economic improvement remains insufficient to spoil the current 'goldilocks' investment backdrop with global growth 'just about right' - enough to keep earnings estimates moving higher but insufficient to accelerate the pace of rate tightening and/or take the lustre off those companies able to deliver well above average growth. As such, investors should be cognisant of the risk that reflation represents to the bedrock of this bull market - the unusual alignment of interest between policymakers and investors that has existed since the financial crisis. Clearly much economic progress has been made, most apparent from unemployment rates in both the US and UK that are at or below 2007-8 lows while Euro-area unemployment has fallen to 9.5% in March, the lowest rate recorded since April 2009. Headline inflation (both PPI and CPI) has also picked up as energy and other commodity prices stabilise and/or rebound from their 2016 lows. As such, we expect US policy tightening (that began in October 2014 with the end of QE) to continue with one more rate hike possible this year.

While mindful of the historic relationship between the unemployment rate and wage inflation (particularly now that US unemployment has fallen below some estimates of the non-accelerating inflation rate of unemployment) we continue to believe that US monetary policy remains both accommodative and data dependent. This reflects the fact that "persistently soft wage growth suggests that the labour market is somewhat looser than the headline unemployment data might indicate" and a suspicion that technology has forever changed the labour/capital relationship (for instance, a human welder earns $25/hour compared to the operating cost of a robot of C.$8). More importantly, core inflation remains "completely becalmed" with US core PCE registering 1.5% in April, well below the Fed's 2% inflation target. The picture is similar across other advanced economies with core inflation "about half a percent below the 2% rate that central banks desire". Inflation expectations also remain subdued with 5yr / 5yr forward inflation expectations at just 1.8%. As such and given the limited monetary firepower available in the event of another deflationary shock, we continue to believe that "central bankers will be much more willing to tolerate a growth overshoot than the opposite". If so, policymakers are likely to remain 'behind the curve' with US rates increasing steadily towards 3% by 2019 while Polar estimates short-term rates are forecast to remain negative in the euro area through 2018 and for the foreseeable future in Japan.

Although we expect accommodative policy to persist, we must also acknowledge the upside risk to growth and rates represented by President Trump and the Republican 'clean sweep' of Congress. As discussed in our Interim report (when the 'Trump-trade' was in full swing) the Trump victory has raised the likelihood and magnitude of fiscal stimulus (which together with corporate tax reform and deregulation) is likely to prove pro-growth. However, "much of the hope for immediate change from Washington" has dissipated as the new President delivered very little apart from Executive Orders during his first hundred days in office. The failure to repeal and replace ACA ('Obamacare') was particularly telling while it is difficult to estimate the damage to the President's authority from the ongoing federal investigation into his Russian ties and (more recently) whether he attempted to pervert the course of justice. As such it seems likely that infrastructure spending (previously estimated at between $300-500bn over five years, equivalent to 0.3-0.5% to annual GDP) will be pushed into 2018. Likewise, tax cuts may now be tied to healthcare reform but $2tr of tax cuts over ten years could still raise the budget deficit by as much as 1% of GDP. While the timeline (and likelihood) of these potential programmes is unclear, the new President still represents upside to both growth (just as Reagan delivered 0.6% more annual GDP on average than Carter), budget deficits and interest rates.

As ever, there are myriad risks that threaten our sanguine outlook. Many of these relate to political developments that threaten the market friendly status quo, most of which can be linked to so-called 'populism'. As we have previously discussed, the uneven recovery has been an important driver of this political phenomenon with rampant asset inflation in stark contrast to US median real personal incomes that languish below 2007 levels. Sub-par growth has also made it harder to absorb record levels of net migration, intensified by the fallout from the so-called Arab Spring, the Syrian civil war and terror threats. Political correctness has also played a part, the attempt to "corral political debate… has created the conditions for insurgent figures" such as Nigel Farage and Donald Trump. These outsiders are able to champion causes beyond the pale of incumbents ('the establishment'). While some think we may be on the brink of a 1930s re-run, we believe the late 1970s / early 1980s is a more useful parallel when mainstream parties were able to neuter the rise of neo-fascism by absorbing some of the policies of local populist movements. While this may involve some railing against globalization (the accelerated pace of which has left societies increasingly polarized into 'winners' and 'losers' as the distribution of Brexit votes attests) this should prove a manageable risk. If so the Trump victory should prove the high watermark for populism, a view so far supported by the outcome of recent French and Dutch elections that saw mainstream parties prevail. However, continued failure by political establishments to 'listen' to voters will make a 1930s re-run significantly more likely. Moreover, Europe is likely to remain a key focal point given high youth unemployment and rapid demographic / social change with Brexit negotiations potentially playing an ongoing destabilizing role.

While we share the consensus (pro-growth) view on Donald Trump, there are a number of unique risks associated with the new President which could re-materialise if he is able to harness Republican control of Congress. The first relates to upside risk which results in sharply higher interest rates / inflation expectations forcing policymakers to bring forward the timeline of rate normalization. This would likely take its toll on equity valuations, bond proxies and emerging market currencies / external financing conditions. Reflation might also increase the risk of policy error due to increased uncertainty and an upward skew to neutral interest rates which may hinder the Fed's ability to 'feel its way' back to neutral. Although we believe that long-term interest rates have seen their nadir, upside risk looks containable for now. Furthermore, while higher rates could presage another style rotation we believe long-term Treasury yields would need to breach 4% in order to end the positive relationship between bond and equity markets. An untrammelled President Trump might also represent a significant downside risk to growth should he deliver on protectionism beyond rhetoric and restricting H1B visas. The new President has also committed to renegotiating long-standing trade agreements such as NAFTA which he called "one of the worst deals ever", a threat that looks more substantive following his recent decision to withdraw from the Paris climate pact. He could also use duties and tariffs to discourage the outsourcing of US jobs or accede to the Republican House Border Adjustment Tax (BAT) proposal. Any of these measures could potentially trigger a trade dislocation, a risk magnified by Trump's direct and acerbic approach. As ever, we expect worst-case scenarios to be avoided but uncertainty is likely to persist until actual policy becomes clearer.

In addition to those outlined above, there are a number of additional risks that investors should consider, particularly with equity valuations at new highs. These include potential 'growth scares' - the most likely cause of equity market setbacks until focus shifts from deflation to inflation - with China, Europe and oil-sensitive countries likely focal points. The Fed's recent decision to begin unwinding its balance sheet is also worthy of mention given that it has expanded from C.$800bn in assets before the financial crisis to C.$4.5tr today. While we cannot know how much of an impact this might have, QE programmes in Europe, Japan and now the UK should keep aggregate monetary accommodation at record highs for now. China's 'One Belt, one Road' policy also represents an "unprecedented wave of Chinese liquidity" and a rarely discussed countervailing force. China itself represents a key source of risk although more recently 'hard landing' fears have receded with improved economic activity. However, these can easily resurface given questions about the sustainability of debt-driven growth with debt having risen from 147% of GDP in 2007 to 279% in 2016. As we have consistently argued, China should be able to avoid a financial shock due the self-funded nature of its growth, its current account / net foreign asset surpluses and plenty of fiscal firepower. Other risks include Brexit where the divorce from Europe 'could take the best part of a decade' and the challenge to nation states posed by Islamic extremism and rogue dictators.

Market Outlook

Although equity markets have enjoyed a strong start to 2017, we remain hopeful that they can add to their gains during the remainder of our financial year. Equity valuations have continued to trend higher, ameliorated by much improved earnings progress, the forward PE on the S&P 500 trading at 17.9x today, up from 17.3x twelve months ago. This compares unfavourably to five and ten-year averages of 15.3x and 14.0x respectively. International valuations have also rebounded from last year's brief reversion to mean - with most markets currently trading at/above historic averages. That said, we remain unconvinced by the relevance of longer-term averages that fail to capture the uniqueness of the current investment backdrop. Instead, we prefer to consider valuation against recent history and more importantly, the prevailing inflation rate which is broadly supportive of current equity valuations (with potential for further upside should inflation rise into the 2-3% sweet-spot). Nevertheless, with traditional measures of value above long-term averages, equities are likely to become increasingly dependent on underlying earnings (and dividend) growth. Fortunately, the US is experiencing its fastest pace of earnings growth in five years with S&P 500 earnings forecast to increase 10% this year (7% ex-energy) with potentially more to come in 2018 if the new Administration delivers on its tax reform pledge. Should a new 20% rate prevail, it could add between 7-12% to S&P earnings and substantially more to small and mid-caps due to their limited overseas exposure (C.35% and C.19% respectively).

Stocks also continue to look compelling against both cash and bonds with the Fed Model (which compares earnings and bond yields) suggesting that equities remain significantly undervalued. However, the post-Trump move in bond yields (even allowing for their recent partial unwind) means that the S&P 500 dividend yield (1.9%) is no longer in excess of ten-year Treasuries (2.3%). Given the relative move in US yields, equities appear more compelling internationally, with most major markets boasting dividends above long-term sovereign yields with $9.5tr of global sovereign debt trading at yields below zero. Equities should also continue to enjoy strong support from US balance sheets that boast C.$1.5tr of corporate cash augmented by debt issuance of just over $6.6tr in 2016, a new annual record. While a large portion of corporate cash remains 'trapped' overseas, it is widely expected that any tax reform will involve a repatriation window which could allow C.$1tr to return to the US at a low tax rate. As in 2004 (the last repatriation holiday) a large portion of this cash is likely to be deployed on buybacks and dividends. Buybacks are also becoming more supportive beyond the US too, with Japanese stock repurchases expected to total Y7.8tr for fiscal 2017. Although we expect a more normal IPO market after a turgid 2016 (the number of new issues and capital raised declining 16% and 33% y/y respectively), this should be more than offset by heightened M&A activity following a record year that saw S&P 500 companies spend nearly $400bn of cash on M&A and more than 368 deals > $1bn, the highest number since (at least) 1996.

We always expect our constructive view to be tested, but particularly when valuations and duration of this bull market already exceed long-term averages. We are also mindful of the slowing pace of share buybacks, given their contributions to earnings growth. While this may just be a lull ahead of cash repatriation, it could also reflect caution regarding current prices, greater corporate leverage and increased M&A activity. Although 'sub-trend recoveries tend to persist' the current bull market is now over 8 years old, more than twice the length of the median bull market since 1877. Other risks include the potential for higher interest costs that (as they have declined) are said to have been responsible for one quarter of US margin improvement since 2012. According to CSFB, a C.200bp increase in Baa yields would wipe out all the uplift associated with a 20% corporate tax rate. Higher interest rates may also make buybacks less attractive and could lead to additional US$ strength where every 2% increase in the trade-weighted Dollar equates to negative S&P 500 earnings revisions of C.1%. Then there are additional offsets that we can only speculate about today such as ending the tax deductibility of interest payments and a so-called border adjustment tax, both of which would substantially dilute any benefit associated with lower headline taxes. While these remain tail-risks at present, they are useful reminders that any future tax reform could result in the elimination of many deductions and loopholes, just as it did under President Reagan.

That said, we feel there is commensurate upside risk in line with our long-held view that bull markets tend to go out with a bang, not a whimper. After all, peaks in equity markets have been previously marked by some kind of excess - fads, sentiment, valuation or use of leverage. In terms of valuation, the post 2009 revaluation process has been meandering and punctuated by setbacks leaving PEs - after an eight-year bull-market - at above average but far from euphoric levels. In 2000, the S&P 500 traded at >29x trailing earnings at a time when UST yields were 6-7%. Bubble asset classes have traded significantly higher still, with the Nifty Fifty peaking at 42x earnings in 1972 and TMT at 60x in 2000. In contrast, the S&P today trades on zeitgeist of this reluctant bull market with long-only equity products accounting for only three of the top ten selling funds in the UK. Catalysts that might ignite the animal spirits include repatriation of overseas cash or tax reform just as it did in 1986 when the S&P 500 rallied 40% in nine months following Reagan's cuts. We should also consider the self-reinforcing nature of late-stage bull markets as equities prove a classic Veblen good. Finally, there is the potential for a 'Great Rotation' (from bonds to equities) because if we really are on the cusp of economic acceleration and reflation, then this could mark the end of the most remarkable bond bull market ever. In a world that remains positioned for deflation, rather than reflation, a return to more normal economic conditions could - at least for a while - make the myopic focus on what is the right price to pay for equities look completely wide of the mark given the potential for significant value destruction in bond markets in the years ahead.

Technology Outlook

Worldwide IT spending is expected to reach $3.5tr in 2017 (+1.4% y/y in US$ terms) an improvement from the zero-growth registered last year. In constant currency terms, the recovery is forecast to be +3.3% as compared to C.2% achieved during 2016. Once again, IT spending is expected to trail global GDP, consistent with our deflation / new cycle view. Limited budget growth remains entirely incompatible with an unprecedented rate of change, driving a reallocation of spending towards new areas such as business intelligence / analytics, Cloud and digitalisation / digital marketing (the top three IT priorities for 2017, according to Gartner) at the expense of legacy ones. While the US Dollar remains a wildcard (>50% of sales coming from overseas), stable operating margins and buybacks should support the 8.8% earnings growth expected from the technology sector this year. As with the broader market, estimates remain largely unaffected by potential tax reform. While the sector's effective tax rate is below average (ranging between 19-28% depending on sub-sector), we expect significant variation between winners, losers and loss-making non-participants.

As per the broader market, the technology sector has materially re-rated over the past year leaving it trading at a forward PE of 17.8x as compared to 15.2x prior year-end. This represents the highest level since 2008, and a modest premium to the broader market ignoring the sector's relative balance sheet strength. As in previous years, we do not expect the sector to materially re-rate versus the market over the coming year given lacklustre IT spending growth and ongoing Cloud disruption. While relative valuation downside should prove modest now that challenged incumbents have managed to attract a new shareholder base, expensive 'strategic' deals such as Cisco / AppDynamics, Intel / Mobileye and Oracle / Netsuite may begin to test the resolve of 'value' investors drawn to the so-called 'free cash flow' generation of legacy companies. For all but the largest incumbents, we expect struggling or recalcitrant companies to continue attracting private equity interest given the continued availability of cheap debt and large fund launches from the likes of Vista ($11bn), Silver Lake ($15bn) and of course, Softbank ($100bn).

At the heart of enterprise IT disruption lies public cloud computing which - as we have previously discussed - went mainstream in 2015 as companies such as GE began to evangelise the Cloud when it outlined its plan to migrate 60% of its workloads by 2020. Having addressed key barriers to adoption such as security and vendor lock-in, the Infrastructure as a Service (IaaS) market is today worth $25bn and is expected to nearly triple over the next five years, driven by enterprise cloud adoption for non-critical workloads. This is reflected in recent CIO surveys that reveal 'Cloud' as a key priority for 2017. While Amazon Web Services (AWS) continues to dominate the market today with "millions of active customers", C.51% market share and C.$15bn revenue run-rate both Microsoft Azure and Google Cloud have made progress as 80% of enterprises prepare to adopt a multi-vendor approach by 2019 as compared to 10% in 2015. Software as a Service (SaaS) has also continued to thrive exceeding $40bn and growing more than 40% y/y. According to Pacific Crest, the "second decade of SaaS" could see the market more than triple just as the second decade of client-server computing saw Oracle and Microsoft increase their revenues by ten and twenty-fold respectively. The nascent Platform as a Service (PaaS) market - worth less than $3bn today - is also expected to grow rapidly beyond 2018.

After years of coexistence, we believe that the public cloud-enabled cycle has entered a more pernicious phase now that 20% of workloads (units of compute) have migrated beyond the enterprise. Per the s-curve, Cloud adoption is likely to accelerate from here; by 2022, Gartner believe that on-premise compute will account for just C.20% of workloads from C.80% today. This is the 'beginning of the end for traditional IT' and its practitioners' know it, this year's AWS re:Invent conference attracted more than 30,000 attendees, up 68% y/y. As such we anticipate significantly greater disruption than we have witnessed thus far with over $1tr in IT spending shifting to new areas by 2020 as the Cloud captures virtually 'every' incremental workload. This is likely to prove highly deflationary as every US$1 spent at Amazon Web Services (AWS) is said to be equivalent to $4 lost to traditional IT. This impact has already been felt within hardware where the total cost of ownership (TCO) of compute and storage are C.60% and 70% lower in the Cloud than on-premise. As a result, the $21bn storage market has been contracting since 2014 despite annual data growth in excess of 35% while overall server growth has been anaemic with Cloud strength offset by weak enterprise demand. Indeed, Cloud substitution likely explains the apparent breakdown of the relationship between ISM new orders and hardware revenue growth

We expect this disruption to permeate well beyond storage / hardware fuelled by continuous innovation at the likes of Amazon (winner of FastCompany's most innovative company of 2017) akin to the experience of client-server computing in the late 1980s / early 1990s, the last "major application re-platforming cycle" which ended the dominance of the mainframe. Already apparent in packaged software, where SaaS accounted for C.22% of total enterprise application software spending in 2015 (and is expected to outgrow overall software spending by >2x between 2016-2020) we expect further disruption in infrastructure software as Cloud vendors move up the stack and open-source alternatives gain further traction. This dynamic has already impacted data warehousing (DW) with inexpensive Hadoop-based clusters replacing and/or augmenting expensive Teradata solutions. At some point, we would also expect similar fragmentation of the $40bn database market (currently dominated by Oracle, IBM, Microsoft and SAP) with NoSQL leading the open-source charge. Likewise, we expect lightweight (cheap) apps, shorter implementation times and less bespoke computing to catch up with the $800bn IT services industry which - at C.50% of overall spending - looks increasingly anachronistic.

As regular readers of our annual reports will know, we have leant on a plethora of different historical parallels to help us convey the magnitude of change we anticipated as our industry embraced a mass production utility model more familiar to George Eastman and Henry Ford than to most enterprise technology incumbents. As we hoped, the combination of smartphone proliferation and Cloud computing has allowed our industry to mirror the earlier experience of electricity by enabling widespread reinvention beyond traditional technology boundaries. Aided and abetted by millennials that 'engage with smartphones more than humans', today's technology winners are not peddlers of productivity dreams. They are the buyers, the mass producers of IT with which they deliver products and services that change user behaviour and expectations. Massive scale and R&D budgets create formidable entry barriers and future growth opportunities that are unavailable to embattled incumbents. At the same time - and following the experience of 19th century electricity - utility computing has eliminated many of the adoption barriers that previously disadvantaged smaller companies. Today, SMEs have access to the same cheap compute and best of breed software while being able to bypass traditional channels dominated by incumbents by engaging directly with their customers thanks to smartphones and Internet advertising. Having levelled the playing field, it should be no surprise that the Internet-fuelled disruption promised in the 1990s has finally arrived.

Unfortunately for incumbents, these new opportunities have little to do with them while Cloud coexistence appears to be becoming increasingly problematic. This view was supported by a revealing first-quarter earnings season which saw a number of legacy companies struggle to meet expectations and/or issue weak guidance in contrast with mostly positive results from next generation 'winners'. Despite this, many of these incumbents have enjoyed multiple expansion over the past year with the likes of Cisco, HP and Oracle each adding 1-3 multiple points to their PEs. Even IBM - a company where revenues have now declined y/y for 20 consecutive quarters, despite spending $5.5bn on 17 M&A deals during 2016 - saw its forward PE expand modestly during 2016. While an increased focus on profit (rather than revenue) maximisation probably warranted some revaluation, our sense is that it largely reflects the rising tide of equity valuations during this long bull market, which has lifted all boats apparently with limited regard for their long-term seaworthiness. It also reflects the odd reinvention success story with Microsoft's pivot to the Cloud acting as a rallying cry for many a 'cheap' incumbent.

With new cycle deflation likely to intensify from here, technology incumbents know they must reinvent themselves which is why they talk up their relevance while simultaneously embarking on ever greater M&A (making a mockery of free cash flow-based valuation, in our opinion). After a record 2016, most observers believe that the recovery in valuations and a hardening of attitude at CFIUS (committee on foreign investment in the US) regarding Chinese inbound M&A will result in a quieter 2017. However, we expect activity to remain at elevated levels reflecting massive sector cash balances, new buyers (private equity alone is said to have $120bn of buying power) and accelerating Cloud disruption. We may also see larger transactions should the likes of Cisco, Microsoft and Oracle repatriate their offshore cash. Both Apple and Alphabet represent M&A wildcards as both could look to large deals to accelerate their capability in content and Cloud respectively. High quality assets are likely to continue to command full premiums, evident from Intel's $15bn purchase of Mobileye and Cisco's acquisition of AppDynamics at 17.3x trailing EV/Sales

There are a number of risks specific to the technology sector that should be considered. One of the most important relates to the sector's perception as a loser from the Trump Administration, evidenced by its poor relative post-election performance. While the so-called Trump trade has recently reversed, sentiment could change again should the President look more able to deliver wholesale change. While we acknowledge the risks associated with tail outcomes such as a border adjustment tax or regulatory change, we do not regard the technology sector as a loser under the new President. Instead we see other sectors more directly benefiting from potentially lower tax rates and greater infrastructure spending while reflation may reduce our sector's lustre as growth becomes less scarce. However, we are encouraged that the new Administration's pro-growth platform has likely reduced the odds of a US recession. Improved new business creation should also be beneficial for our SME-exposed software and payment companies while a healthier financial sector is positive as it represents C.24% of total IT spending. As the only S&P sector with net cash, technology balance sheets should also insulate the sector against the rising cost of debt service while repatriation represents another potential benefit given the sector's disproportionate share of offshore cash. The two other risks worthy of mention relate to accounting, the trend away from the use of non-GAAP metrics (which will make technology companies optically appear more expensive) and ASC 606, a new FASB/IASB standard due to be implemented in January 2018 which may disproportionately impact the software sector.

After a sustained period of sector outperformance, it is understandable why some people have given in to the temptation to make a comparison between today and the late 1990s technology bubble. This follows strong performance of five mega-caps - Facebook, Apple, Amazon, Microsoft and Alphabet - which together account for C.13% of the S&P 500 but recently explained C.40% of its year-to-date returns. Furthermore, technology companies now account for eight of the top twenty global companies by market cap, up from 4 in 2001. Quite aside from the fact that bubbles tend to be accompanied by euphoria, rather than healthy scepticism, this time our sector's progress has been primarily driven by earnings rather than 'eyeballs', hope and late-cycle experimental business models. Our largest holding Alphabet is perhaps the best example of this as its earnings per share has increased 23-fold (from $1.46 in FY2004 to an estimated $33.90 this year) while its stock has increased 12-fold since its IPO. As such we see limited similarities between today and the late 1990s when the forward PE of the technology sector peaked at 48x in March 2000 (more than twice the market multiple) whereas today the sector trades at c, 18x, a very small premium ignoring its superior balance sheet. Likewise, technology shares accounted for C.one-quarter of the ACWI market cap in 2000, more than 10% higher than any other sector's percentage. Today it is C.17%, lower than financials and only 5% higher than consumer discretionary. Finally, estimates of technology's long-term earnings growth (LTEG) are today less than half of where they peaked in 2000 (12.7% vs. 28.9% respectively).

However, Amazon's recently announced acquisition of Whole Foods (an upmarket US grocery chain) is perhaps the best example of why we believe the 1990s parallel is too easy and ultimately fallacious. At the height of the Dotcom bubble, America Online (AOL) - then the world's leading Internet Service Provider (ISP) - acquired the venerable Time Warner for $182bn creating an "unparalleled powerhouse" of online and offline assets in a "deal that everyone will have to follow". At the time AOL boasted revenues of $4.8bn, 20m (mostly narrowband) subscribers and a market capitalisation of $163bn. While the market cap of Amazon ($480bn) and the $13.7bn purchase of a 'bricks and mortar' company by an online leader may rhyme with the late 1990s, Amazon today has 28x more revenues and 15x the user base than AOL at its peak. Amazon's Prime membership alone is said to be four times greater than AOL in 2000. Most telling is that AOL used stock to fund its deal which subsequently fell almost 90% over the coming years as the Internet bubble burst and AOL's business model imploded. In contrast, and in a sign of how far the Internet has come since the late 1990s, Amazon is paying cash.

Thematic Update

In addition to cloud computing -the kernel of our new cycle thesis and already covered in some detail - there are a number of other core themes that are captured within the portfolio. As we have previously articulated, Internet platforms have been the greatest beneficiaries of smartphone ubiquity and cheap, plentiful bandwidth with more than 3.4bn people worldwide accessing the Internet today, C.46% of the world's population. 2016 saw more balanced returns across different market capitalisations while both Facebook and Alphabet experienced multiple compression despite delivering impressive operational performance. For many large-cap Internet stocks, investors worried about the sustainability of growth and the 'law of large numbers'. As such many of the Internet giants continue to look attractively valued relative to their positioning and prospects. The outlook for online advertising remains resilient and we expect ongoing market share gains from offline traditional media, with global online advertising forecast at $185bn in 2016, +18% y/y and expected to surpass TV advertising within the next six months The US continues its domination of Internet advertising spending with online accounting for C.38% of the total in 2016 with Facebook and Google accounting for C.84% of incremental spending, a welcome reminder of Metcalf's Law. Penetration continues to grow in China too with online advertising growing 30% y/y to $40bn, equivalent to 15% of total spend last year. Social media is growing its share of advertising dollars and time spent online with Facebook the undisputed global leader with 1.9bn monthly active users (MAU) and 1.2bn daily active users (DAU). Chat apps remain the fastest growing product within social media and Facebook once again dominates via its ownership of Whatsapp and Facebook Messenger which boast 1.2bn and 1.0bn MAUs respectively. In China, Tencent's WeChat remains the market leader in China with 846m MAU with half of users spending more than 90 minutes a day in the app.

Trends within e-commerce remain equally strong with online spending likely to account for 8.7% of worldwide retail sales this year. Despite being already worth $1.9tr, e-commerce penetration is accelerating its share of overall retail spending, driven by mobile commerce ('m-commerce') as smartphones and tablets become integral parts of the shopping experience. This helped US e-commerce growth reaccelerate to 15% y/y in 2016 adding to the woes of traditional retailers with store closures this year expected to exceed those during the Great Recession. As incremental improvements take place in both payment and delivery methods the friction and barriers to purchasing online only recede further, Cowen predicting that e-commerce will achieve 12% penetration by 2020. Amazon's proposed acquisition of retailer Whole Foods reflects a pragmatic approach designed to accelerate the penetration of large underserved categories such as grocery and home furnishings. While many of the early horizontal marketplace innovators are seeing their businesses disrupted by larger platforms, vertical and lead generation marketplaces strengthened their positions during 2016 epitomised by Uber (transportation), AirBnB (travel), Grubhub / Just Eat (food delivery) and HomeAdvisor, part of IAC (home services). China e-commerce continues to grow at a significantly faster rate with gross merchandise value (GMV) reaching $681bn last year (+24%) with mobile accounting for 71% of overall spending.

Subscription models also continue to prove a popular and successful method for monetising media content as demonstrated by pioneers Netflix and Spotify. Within music streaming, Spotify crossed 40m paying subscribers during 2016 (accounting for a remarkable 20% of global music industry revenues) while Netflix has exceeded 90m video subscribers and is truly global with availability in more than 200 countries. Amazon's own subscription service - Prime - is now believed to have amassed 80m subscribers. What began in 2005 as free two-day shipping has expanded into online video, e-books and music alongside free next-day shipping on prime eligible items and is today one of the most powerful membership clubs / loyalty schemes currently in existence. New platforms and content are changing behaviour with one in every four hours spent watching digital video content as the disruption of traditional linear TV continues, particularly among younger people. More than 1bn hours of video is consumed on YouTube per day, a ten-fold increase since 2012 while Netflix has increased its monthly minutes delivered by 669% since 2011. In contrast, the top five US TV networks have seen their aggregate monthly minutes delivered fall 10% over the same timeframe.We also remain excited about online payments where - over time - we expect the smartphone to replace the physical wallet, epitomised by Uber where payment is subsumed into its app. China remains at the forefront of this theme with $4.4tr of mobile payments made in 2016 (almost 50x more than in the US) while WeChat users sent a record 46bn digital red packets over Chinese New Year (+43% y/y). While micro transactions have been most embraced by the gaming sector, beyond Asia it has been the App stores that have benefited from in-app gaming transactions, Apple's App Store generating more than $28bn revenues in 2016

As we expected, 2016 proved another year of smartphone deceleration with unit growth just 3% y/y to 1.5bn while prices continued to erode as mix shifted towards emerging markets. However, smartphone stocks fared better than expected due to positive demand (4G upgrade cycle) robust iPhone 7 sales and aggressive US carrier promotions. While the strongest performance was reserved for companies with increased content in the iPhone 7, Apple itself registered three negative quarters of year over year unit growth but still managed to grow its installed base by C.100m and end the calendar year with ASPs at $695 despite the iPhone 7 having 'virtually no major external design changes'. With smartphone penetration at C.66% globally (and at 88% and 81% in the US and UK respectively) unit growth is likely to remain sluggish and back-end loaded as consumers await the iPhone 8 upgrade expected in September. Chinese competition is intensifying with local vendors accounting for C.25% of global units while Samsung and Apple continue to dominate the high end (>$400 devices), said to account for 54% of industry revenues and "most if not all of the industry profits'. As such, the overall smartphone market remains extremely challenging - HTC, Lenovo and LG all make losses while Blackberry and Nokia (Microsoft) both exited the market during 2016. With industry ex-Apple / Samsung profits under severe pressure, adverse IPR trends have worsened with Apple now challenging the basis of Qualcomm's royalty. This trend is unlikely to improve as industry sales continue to gravitate towards Chinese vendors and OEMs with their own intellectual property.

Despite this increasingly challenging backdrop, we remain relatively constructive on Apple as we have long believed it is best understood as a mass-affluent / luxury goods company whose brand / customer base / ecosystem / multi-product compute advantage allow it to capture 90-103% of industry profits with just 14% smartphone unit share. The value of this C.600m / 1bn device installed base has seen Apple become the second largest global watch company by revenues (behind Rolex) within two years. Over time we expect Apple's valuation to tend towards other leading consumer companies (such as Coca-Cola) that also boast durability and pricing power, aided by an ongoing shift towards recurring revenue / services ($28bn gross, +24% y/y). However, recent stock strength has less to do with our long-term bull case and more to do with growing excitement ahead of the iPhone 8 launch. Marking the ten-year anniversary of the first iPhone, the 8 (or potentially 'X') is likely to be completely redesigned (edge to edge curved OLED display, glass and aluminium casing) and include a host of new features (including enhanced touch, wireless / fast charging, 3D sensing for facial recognition and gesture control. A new form factor, together with an ageing installed base (31% of the Apple installed base will be >2 years old, compared to 23% into iPhone 6) increase the likelihood of a so-called super cycle with C.250m iPhone units (+15% y/y) forecast for 2018E. Although the stock has re-rated materially over the past year, we have been adding to our holding ahead of what we hope will prove an exciting product refresh. However, our large but underweight position reflects our view that beyond the iPhone 8, stock returns will likely be driven by private equity expansion rather than earnings growth that will be hampered by developed market smartphone penetration, extending replacement cycles and the slower pace of innovation.

Although industry growth proved modestly disappointing in 2016, semiconductor stocks delivered stellar performance (+39%) driven by a further sector re-rating. Investor perception continued to improve as a number of industry participants demonstrated pricing power and reduced earnings volatility despite sluggish end markets. Elevated M&A activity provided additional support, although activity shifted from cheap second tier vendors to high-quality companies with vertical expertise such as NXP and Linear Technology as incumbents looked to bulk up in preferred areas (e.g. automotive). Non-semi companies also increased their interest in the rapidly consolidating industry, epitomised by Softbank's $31bn acquisition of ARM. Semiconductor equipment vendors also delivered strong returns as the Wafer Fab Equipment (WFE) market grew 8% in 2016 to $34bn, mainly driven by 3D NAND spending. Given low penetration of SSD (27% of total drives), 3D NAND spending growth is expected to continue during 2017. Moreover, as a result of higher capital intensity in every migration (slowing overall wafer capacity additions) we expect the WFE market to continue to see diminished volatility that should greatly support valuations. 2017 should see semiconductor industry growth accelerate to over 7% due to memory demand / pricing and growing opportunities in Cloud, automotive and artificial intelligence (AI) / machine learning (ML). While we continue to favour SPE stocks, our largest over-weights are reserved for faster growers with unique technologies such as AMD (potential for significant share gains in CPU and GPU due to new design architecture) and Xilinx (datacentre acceleration). We also hold meaningful positions in Samsung, SK Hynix and SK Materials as beneficiaries of a strong memory market that may persist longer than investors expect.

In contrast, software stocks endured a difficult year as many of our favoured next-generation stocks experienced multiple compression. However, software remains a large and critical part of our portfolio as it continues to grow its share of IT budgets while the Software as a Service (SaaS) delivery model is expanding the total addressable market by lowering barriers to adoption. In addition, two sub-themes particularly excite us. The first is machine learning/AI and its potential to enrich software, allowing it to provide far more value to customers. Companies with vertical domain expertise, access to proprietary databases and Cloud delivery appear in poll position. Bill Gates summarised the overall opportunity when he said "a breakthrough in machine learning could be worth 10 Microsofts". Secondly, the imperative for enterprise digitization continues: a recent Gartner survey showed digitization will capture 28% of IT budget spend in 2018, up from 18% today. This budget reallocation plays well into the strengths of next-generation software vendors and increasingly disqualifies legacy players from new investment decisions. Although investors struggled with the valuation instability during 2016, acquirers stepped-up to fill the void with more than thirty $1bn+ software acquisitions and over $100bn in deal volume. We look forward to another bumper M&A harvest in 2017 and a reopening of the IPO market which will help us refresh our pipeline of emerging winners. For now, we continue to invest in what we believe are 'winning platforms' (e.g. Salesforce.com, ServiceNow), key enablers (e.g. Pegasystems, Red Hat, Splunk) strong product cycles (e.g. Hubspot, Zendesk), rising SaaS penetration (e.g. New Relic) and/or market share gainers.

Cybersecurity stocks also endured a difficult 2016, reflecting a moderation in spending after an exceptional 2014/15. We continue to believe that cyber-security remains a core investment theme, driven by the ever-expanding attack surface and an active, evolving threat landscape. This view was supported by the recent 'WannaCry' cyberattack which captured headlines globally, causing widespread panic and infecting computers in more than 150 countries. The NHS in the UK, FedEx and Telefonica were high profile victims of the ransomware (exploiting a vulnerability in the Windows operating system (OS) that Microsoft had released a critical patch for back in March). Although the overall cybersecurity market is expected to grow at a modest C.6%, high profile breaches such as these have the potential to drive additional spending while the upcoming European General Data Protection Regulation (GDPR) and potential for a US Cybersecurity Executive Order may serve as further catalysts. Our own exposure is to faster growth subsectors such as cloud email security, privileged account management, vulnerability management and security incident and event management (SIEM). While the Cloud may represent a longer-term risk (as more security features are subsumed into IaaS offerings) this risk feels balanced today by undemanding valuations and potential M&A activity.

We also continue to favour videogame companies as rare content beneficiaries of digital distribution made possible by the Internet. The gaming industry has also seen structural improvement, with market consolidation - the 'big 4' Western publishers estimated to have had >50% market share on consoles in 2016 - and strategic focus on creating fewer high end 'AAA' franchises, which provide greater scale and profitability together with reduced risk. More importantly, next-generation consoles have spurred the adoption of full game digital downloads and additional digital content, increasing ARPU and expanding margins. While full game downloads boost margins significantly, the real story is selling additional digital content (DLC) and micro-transactions which accounted for C.52% of PC/Console sales for the big 4 in 2016E with greater than 90% incremental gross margin. In addition, smartphone and tablet gaming - worth $37bn in 2016 - is expanding, rather than cannibalising the overall opportunity worth C.$100bn. eSports (competitive gaming as a spectator sport) represents an additional future growth avenue; in 2016 there were 148m eSports enthusiasts and a further 144m occasional viewers tuning in for big events. To put that into context ~31m people watched the NBA finals in 2016, versus ~36m who watched the League of Legends world finals in 2015. We are also excited about the longer-term opportunities associated with augmented reality (AR) following the Pokemon Go phenomenon that saw 45m people use smartphones to capture virtual 'monsters'. Virtual reality (VR) also has significant promise and is being fostered by a number of technology giants today. While gaming has been the primary application thus far, the technology could ultimately disrupt a number of existing markets including live events, real estate and education.

We are fascinated by the potential for automation and robotics as the evolution of advanced components such as machine vision, sensors and reduction gears have made highly accurate and repeatable movement possible. This is driving a significant market expansion as industrial robots - traditionally used for tasks unsuitable for humans to perform over sustained periods such as welding, painting and loading tasks - can today address consumer electronics assembly, healthcare, logistics and many other sectors. The robotics opportunity has also been advanced by e-commerce which is forcing a rethink of the whole supply chain while cobots (robots with enhanced safety control functions) are now able to operate alongside humans in a production line without a safety barrier. The arrival of human-robot collaboration is radically changing the way factories operate, making highly versatile production lines possible. Advances in control system and sensor technologies are also allowing predictive maintenance to be both affordable and precise, paving the way for manufacturers to achieve zero down time (ZDT) and avoid expensive unplanned work stoppages which are said to cost on average 5% of total output value. The vision is real-time information sharing across connected machines and cooperation between cyber-physical systems and humans. However, this will require a fundamental overhaul of how factories are built in order to enable real-time data collection, monitoring and analysis. The replacement opportunity is enormous with C.60m machines in factories globally of which 70% are more than fifteen years old and only 10% are currently connected. Furthermore, the layering in of artificial intelligence that enables predictive analytics and autonomous decision making will be game-changing and its impact far reaching. As such we have been adding to our overall exposure, primarily via key component suppliers such as Keyence (sensors), Harmonic Drive Systems (reduction gears) and Cognex (machine vision).

After years in the wilderness it is becoming increasingly clear that Artificial Intelligence (AI) and Machine Learning (ML) are emerging as the next great technology platforms. This back-end infrastructure designed to garner insight from Big Data has captured the imagination of Silicon Valley and Wall Street alike following high profile AI successes such as Google's AlphaGo (which in 2016 beat the world's best Go players) and Liberatus, AI created at Carnegie Mellon University that beat four human professional players at poker. AI is not a new concept - having been around since the 1950s and gaining popularity in the 1980s for pattern recognition (mainly used in weather forecasting) before achieving notoriety in the field of chess following the defeat of Gary Kasparov by IBM's Deep Blue in 1997. However, recent attention is mainly driven by vast data sets necessary to feed neural networks, the core framework of AI that is modelled loosely on the network of neurons in the human brain, and cheap parallel computing enabled by high performance GPU and storage. AI is therefore all about trying to identify relationships from vast datasets, which is why early adopters are largely data companies (search engine, social networks). Today, the main AI applications are still relatively simple tasks such as identifying faces in photos, recognising voice / text queries and improving search engine results. However, breakthrough consumer applications such as Amazon's Echo which deliver 'voice as a computing interface' demonstrate the early promise of artificial intelligence. Moreover, AI has broad applicability where large datasets are easily obtained and well defined. Within healthcare, virtual screening (conducting millions of tests and simulations on compounds to see which combination of molecules can have a particular effect) is being increasingly adopted to reduce the time and cost of drug discovery, Goldman Sachs estimating that AI might deliver $26bn of annual savings to the pharmaceutical industry alone by 2025. Like cloud computing, AI appears to have the potential to both transcend and transform the technology landscape over the coming years.

Ben Rogoff

HISTORIC PERFORMANCE FOR THE YEARS ENDED 30 APRIL

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

Notes:

1 Rebased to 100 at 30 April 2007.

2 The net asset value per share growth is based on NAV per share as adjusted for warrants and subscription shares.

3 Dow Jones World Technology Index, (total return, sterling adjusted) and from April 2013 with relevant withholding taxes removed.

PORTFOLIO

A full list of all portfolio holdings as at 30 April 2017 is available on the Coampany's website; www.Polarcapitaltechnologytrust.co.uk

All data sourced from Polar Capital LLP

CLASSIFICATION OF INVESTMENTS* AS AT 30 APRIL 2017

* The classifications are derived from the Benchamrk as far as possible. The categorisation of each investment is shown in the portfolio. Where a dash is shown for the Benchmark it means that the sector is not represented in the Benchmark. Not all sectors of the Benchmark are shown only those in which the Company has an investment.

Statement of Comprehensive Income (uNAUDITED)

for the year ended 30 April 2017

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

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

All items in the above statement derive from continuing operations.

The Company does not have any other comprehensive income.

Statements of Changes in Equity (UNAUDITED)

for the year ended 30 April 2017

 Balance Sheet (UNAUDITED)

AT 30 April 2017

Cash Flow STATEMENT (UNAUDITED)

for the year ended 30 April 2017

NOTES TO THE FINANCIAL STATEMENTS

FOR the year ended 30 April 2017

Status of announcement 

The figures and financial information contained in this announcement do not constitute statutory accounts for the year ended 30 April 2017. The Financial Statements for the year ended 30 April 2017 will be finalised on the basis of the information presented to the Directors in this preliminary announcement. The Annual Report and financial statements for the year ended 30 April 2017 have not yet been delivered to the Registrar of Companies but will be following the approval of the Annual Report and Financial Statements by the Board.

The figures and financial information for 2016 are extracted from the published Annual Report and Financial Statements for the year ended 30 April 2016 and do not constitute the statutory accounts for that year. The Annual Report and Financial Statements for the year to 30 April 2016 has been delivered to the Registrar of Companies and included the Report of the Independent Auditors which was unqualified and did not contain a statement under either section 498(2) or Section 498(3) of the Companies Act 2006.

Annual Report and AGM 

The Annual Report and Financial statements for the Year ended 30 April 2017 and a separate Notice of Meeting for the Annual General Meeting will be posted to shareholders in July and will be available thereafter from the company secretary at the Registered Office, 16 Palace Street, London SW1E 5JD or from the company's website at www.polarcapitaltechnologytrust.co.uk

The AGM will be held on 7 September 2017 at 2:30pm at Trinity House, Trinity Square, London EC3N 4DH.

Forward Looking Statements

Certain statements included in this announcement and in the Annual Report and Accounts contain forward-looking information concerning the Company's strategy, operations, financial performance or condition, outlook, growth opportunities or circumstances in the countries, sectors or markets in which the Company operates. By their nature, forward-looking statements involve uncertainty because they depend on future circumstances, and relate to events, not all of which are within the Company's control or can be predicted by the Company. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Actual results could differ materially from those set out in the forward-looking statements. For a detailed analysis of the factors that may affect our business, financial performance or results of operations, we urge you to look at the principal risks and uncertainties included in the Business Review of the Annual Report and Accounts. No part of these results constitutes, or shall be taken to constitute, an invitation or inducement to invest in Polar Capital Technology Trust plc or any other entity, and must not be relied upon in any way in connection with any investment decision. The Company undertakes no obligation to update any forward-looking statements.

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