Baillie Gifford Funds N-CSRCertified annual shareholder report (management investment company)

Baillie Gifford China A Shares Growth Fund

Baillie Gifford China Equities Fund

Baillie Gifford Developed EAFE All Cap Fund

Baillie Gifford EAFE Plus All Cap Fund

Baillie Gifford Emerging Markets Equities Fund

Baillie Gifford Emerging Markets ex China Fund

Baillie Gifford Global Alpha Equities Fund

Baillie Gifford Global Stewardship Equities Fund

Baillie Gifford Health Innovation Equities Fund

Index

Baillie Gifford China A Shares Growth Fund

Market Conditions and Review of Performance during 2021

The Fund underperformed the MSCI China A Onshore Index by 7.01% for the year. As China focuses on its longer-term goals at the expense of short-term growth, the market has been affected by a tougher regulatory environment and a slowing economy impacted by power shortages and weakness in the real estate sector. When it comes to regulations, China's primary intentions are seemingly aligned with resolving issues of national security, data privacy and anti-trust regulations, albeit these are often conflated with worries about political motivations. In contrast to much of the market, we see much of the regulatory change as positive. These are global issues which, given the rapid innovation we have seen in China over that last decade, may not seem out of place in a longer term framework considering the need for robust structures around the protection and sustainability of consumer and state interests.

We aim to avoid broad generalizations and don't have a blanket view on China, but instead take a stock-by-stock approach as the issues faced by each can be very different. Although stock specifics typically drive Fund performance, this year was notable for a number of trends which drove returns, particularly in the second half of the year. Those sectors aligned with government policy and goals, such as renewable energy, industrial automation and semiconductors performed well. In contrast, the 'three mountains' of property, education and healthcare performed poorly given concerns over rising top-down regulation and pricing pressure. This is seen as part of President Xi Jinping's drive to support common prosperity and rising birth rates by reducing the costs of public services. The Fund has limited holdings in the property and education sectors but does have significant positions in the health care sector. We continue to believe that China is supportive of its domestic innovative healthcare businesses in a drive to achieve self-sufficiency and that it is the generic drug manufacturers who are most at risk.

CATL and Asymchem Laboratories were the top two positive contributors to performance over the 12-month period.

CATL, one of the world's leading electric vehicle battery suppliers, has continued to report strong operational results and its commitment to an ambitious capacity expansion plan. We believe this capacity expansion, on top of CATL's cost advantages and

Investment strategies used to manage the Fund

The Fund is a purely stock-driven, unconstrained equity strategy focused on investing in exceptional growth companies listed on the domestic stock markets in China (known as 'A' shares). The portfolio is benchmark agnostic. Our research framework is at the heart of our process. Every new idea in the portfolio must be passed through our research format to ensure we focus our investment analysis on the long-term fundamentals. The research framework comprises two separate approaches. A 10-question stock research framework considers both the scale and sustainability of the opportunity on a 5-10 year view. This framework encourages us to consider the scale of the opportunity for the company over the next decade along with the cultural and financial factors which will allow the company to capitalize on this opportunity. We have an additional due diligence checklist which helps focus further attention on governance, financials, ownership and potential risks. Our aim is to identify the exceptional

Baillie Gifford Developed EAFE All Cap Fund

Market Conditions and Review of Performance during 2021

What a year 2021 has been. It began with much market optimism but has ended with more uncertainty. The world's media has been gripped with headlines on COVID-19 variants, swings in economic growth and corporate earnings, and the challenges of navigating cyclical factors. More ingrained, and ever more apparent as the year progressed, has been a battle with inflation, supply chain pinch points, and global leaders at logger-heads. Meanwhile for the Fund, we remain removed from this maddening noise and from the market crowds. We are resolutely long-term in our approach to finding world-class companies, and continue to evolve and improve how we invest.

Supply chain bottlenecks including microchip shortages, backed-up container ships, lack of delivery trucks and truck drivers, and over-demand for many consumer goods have become increasingly familiar over the year. These bottlenecks are a persistent challenge for many of the Fund's holdings, and it's something we are constantly challenging ourselves on — how long will these problems last, is there something more material or structural behind them? Meanwhile inflation has been on the rise, both in the absolute sense and in the level of rhetoric. It appears the U.S. Federal Reserve and central banks the world over created far more liquidity than the pandemic-plagued economies turned out to need. Rightly so, many might argue. Afterall, there is no blueprint for navigating the once in a generation health crisis we have all endured. The challenge from here on out, though, is what to do next. What are the implications if excess liquidity is out there for too long? Rather than fixating on answering these questions now, we believe it is important to remain open-minded. When we turn to the Fund, most of the holdings are in a strong position with what we believe to be high quality business franchises, resilient balance sheets, high profit margins, and robust cashflows. These are the fundamental qualities that brought the companies into the Fund and we think they will help them navigate whatever challenges the next year brings.

Turning to performance, it has again been an encouraging period in terms of underlying operational performance across the Fund, although it has been tougher on share price returns for some holdings. Luxury and technology companies have done well, especially in Europe. In terms of stock attribution, three of the top

ASOS is a leader in online fashion and seen as a disruptor for the apparel industry. Its performance has been mired in a series of operational hiccups, slowing growth, and management changes in the latter parts of the year. Like Zalando, ASOS has also seen market doubts about what long-term growth rates will prevail.

Investment strategies used to manage the Fund

Baillie Gifford is a growth manager with a bottom-up approach to stock picking. Bottom-up investing is an approach that focuses on the analysis of individual stocks and de-emphasizes the significance of economic and market cycles. We aim to invest in companies that we believe will generate sustainable earnings growth above the market over the long-term. In determining the potential of a company, we analyze industry background, competitive

Baillie Gifford EAFE Plus All Cap Fund

Market Conditions and Review of Performance during 2021

What a year 2021 has been. It began with much market optimism but has ended with more uncertainty. The world's media has been gripped with headlines on COVID-19 variants, swings in economic growth and corporate earnings, and the challenges of navigating cyclical factors. More ingrained, and ever more apparent as the year progressed, has been a battle with inflation, supply chain pinch points, and global leaders at logger-heads. Meanwhile for the Fund, we remain removed from this maddening noise and from the market crowds. We are resolutely long-term in our approach to finding world-class companies, and continue to evolve and improve how we invest.

Supply chain bottlenecks including microchip shortages, backed-up container ships, lack of delivery trucks and truck drivers, and over-demand for many consumer goods have become increasingly familiar over the year. These bottlenecks are a persistent challenge for many of the Fund's holdings, and it's something we are constantly challenging ourselves on — how long will these problems last, is there something more material or structural behind them? Meanwhile inflation has been on the rise, both in the absolute sense and in the level of rhetoric. It appears the U.S. Federal Reserve and central banks the world over created far more liquidity than the pandemic-plagued economies turned out to need. Rightly so, many might argue. Afterall, there is no blueprint for navigating the once in a generation health crisis we have all endured. The challenge from here on out, though, is what to do next. What are the implications if excess liquidity is out there for too long? Rather than fixating on answering these questions now, we believe it is important to remain open-minded. When we turn to the Fund, most of the holdings are in a strong position with what we believe to be high quality business franchises, resilient balance sheets, high profit margins, and robust cashflows. These are the fundamental qualities that brought the companies into the Fund and we think they will help them navigate whatever challenges the next year brings.

Turning to performance, it has again been an encouraging period in terms of underlying operational performance across the Fund, although it has been tougher on share price returns for some holdings. Luxury and technology companies have done well, especially in Europe. In terms of stock attribution, three of the top

Ubisoft is a leading games developer. Recently, results have been somewhat lackluster, and there have been further delays to two game releases, which has resulted in reduced guidance. We believe these issues will be short-term in nature and consider the gaming franchise to have strong long-term potential.

Investment strategies used to manage the Fund

Baillie Gifford is a growth manager with a bottom-up approach to stock picking. Bottom-up investing is an approach that focuses on the analysis of individual stocks and de-emphasizes the significance of economic and market cycles. We aim to invest in companies that we believe will generate sustainable earnings growth above the market over the long-term. In determining the potential of a company, we analyze industry background, competitive advantages, management capabilities, financial strength,

Baillie Gifford Emerging Markets Equities Fund

Market Conditions and Review of Performance during 2021

The Fund underperformed the MSCI Emerging Markets index for the year, by 6.39% for Class 5 shares. While our investment horizon remains five years, this short-term performance is disappointing. However, the Fund's turnover remains low, which reflects our ongoing conviction in the companies in which we invest on shareholders' behalf. When markets fixate on macro events, strong operational performance of individual companies often gets overlooked.

Perhaps unsurprisingly, the main performance detractors over 2021 were Chinese holdings, including Alibaba, Ping An Insurance and Tencent Music Entertainment. The regulatory environment has been challenging for online businesses during 2021. As it relates to China, we think the value we can add here is not in second guessing government policy, but instead in understanding the market reaction to this and where we might have a different view. Ultimately, we believe that much of the regulatory change as it relates to China is positive, especially if it is about improving the experience for customers, businesses and workers. The key question is then how this impacts the long-term growth potential for each company and we've been working through the upside case for your Chinese stocks incorporating the new regulatory changes.

Our initial work suggests quite different outcomes for a number of the Fund's holdings. The Fund's lack of exposure to property developers and education companies has not changed and is unlikely to do so imminently. The additions to the Fund's holdings of Tencent, Ping An and Meituan this year should be seen in this context but similarly we do think some platform businesses look less attractive under this new regulatory framework. Overall, however, we'd caution against the more melodramatic reactions to Chinese regulations. China looks far from 'uninvestable' to us, we think there is an abundance of growth opportunities to pick from.

Outside of China, Polish ecommerce company Allegro also detracted from performance over 2021 driven by concerns about increased competition from Amazon and SEA Ltd. Nonetheless, at the third quarter results, revenue grew 33% year-on-year. Encouragingly, active customers have also grown 6% year-on-year to 13.3 million, with gross merchandise value per buyer increased 25% year-on-year supported by rising SMART penetration (similar to

Emerging markets have been volatile throughout 2021, with a number of challenges for companies to navigate. We are of the view that much of the recent stock market performance has been driven by factors beyond the operational performance of individual companies though, and in truth short-term market performance doesn't tell us much about the long-term outcomes of the companies in which we have invested for you. Whilst volatility may last a while, experience has taught us to stick to our guns and ride out what we hope to be relatively short-term bouts in order to secure good long-term returns for shareholders.

Investment strategies used to manage the Fund

We are long-term, active growth investors and invest in companies that we believe have the most substantial long-term growth prospects. To do so, we look for businesses that enjoy sustainable competitive advantages and which we believe will grow their earnings significantly faster than the market average. As emerging markets investors, we operate in a different opportunity set to global or developed market investors: economic and industrial cycles are often shorter or sharper and information is frequently

Baillie Gifford Global Alpha Equities Fund

Market Conditions and Review of Performance during 2021

The long-term performance of the Fund remains strong. Over both the 3-year and 5-year period the Fund's Class 3 shares has outperformed the MSCI ACWI index by 3.96% on an annualized basis. Still, the latest calendar year has been a challenging one in performance terms for the Fund which was 11.32% behind the MSCI ACWI index for Class 3 shares following what was an exceptional year in terms of performance in 2020. The long-term performance track record of the Fund has been built upon patient, long-term investing, often through extremely uncomfortable periods of volatility and in some cases the stocks we hold may face significant share price drawdowns. As reward-seeking growth investors this comes with the territory — we have held on through peak to trough drawdowns of -34%, -26% and -52% in Amazon, Alphabet and Tesla, respectively. These holdings are among the largest contributors to the Fund's long-term outperformance and underpin the importance of backing our conviction and patience. We seek to exploit our advantages of clarity of purpose, a long time horizon, and a philosophy and company structure that support patient investing.

Indeed, to go a step further, we expect many of the businesses we invest in on your behalf to be a 'bumpy ride' in share price terms. The Fund has a meaningful exposure to companies we believe are driving fundamental change, often in sectors or industries which have been characterised by inertia. We have added to several holdings which have been weak in share price terms over the course of 2021.

A significant impact on the performance of the Fund in the past year has been its exposure to China, where share prices have materially fallen following the imposition of widespread regulation by the central government. Naspers was the largest detractor owing to its exposure to Tencent, China's largest internet business. We have sought to remain open-minded about the long-term implications for private enterprise in China. While many others have acted hastily, the only position we have sold directly owing to regulatory changes was telemedicine platform Ping An Healthcare and Technology. We believe that regulations banning the use of artificial intelligence and limiting its ability to generate prescriptions undermined the utility the platform sought to deliver. Elsewhere, valuations of fast-growing businesses such as Alibaba in e-commerce and cloud computing, and Meituan in food delivery, have moderated.

contributes little to the positive diversification effect of the portfolio. We have therefore decided to stop explicitly seeking Latent Growth opportunities for the Fund. In our endeavour to improve as investors it is important to recognise where we do not excel. Therefore, we believe it will be additive to sharpen our focus across the three other growth profiles, where we typically see the most attractive growth opportunities and have a strong track record of identifying winners.

Alongside this change, we have elected to refresh the titles of the growth profiles. These are intended to better reflect the way the businesses are likely to grow rather than the rate of growth. Therefore, 'Stalwart Growth' will become 'Compounders', 'Rapid Growth' will become 'Disrupters' and 'Cyclical Growth' will become 'Capital Allocators'. You will see little change to the underlying holdings in the portfolio — the current Latent Growth positions will be retained within the 'Capital Allocators' profile and reflected in our reporting and materials from early 2022.

Investment strategies used to manage the Fund

We aim to invest in companies that will generate sustainable earnings growth above the market over the

Bailie Gifford Global Stewardship Equities Fund

Market Conditions and Review of Performance during 2021

The investment backdrop in 2021 was again dominated by the ongoing impact of COVID-19. Widespread rollouts of coronavirus vaccines in numerous countries allowed many economies to resume some semblance of normality. Overall, this translated into a global economic recovery and contributed to a strong year for equity markets. However, the same recovery also triggered a sharp rise in inflation in the US and elsewhere as an upturn in demand combined with considerable supply constraints to push prices higher. As a result, many investors were focused on the potential for interest rate rises in 2022 and beyond, as well as their likely knock-on effects on the economy and financial markets.

The Fund underperformed its benchmark during the year. This follows exceptionally strong performance in 2020, with some of the Fund's holdings subject to 'profit taking' following considerable share price rises during the previous 12-month period. In addition, we believe Fund performance was impacted by a shift in market sentiment, as the jump in inflation and interest rate expectations led to reduced appetite for the rapid-growth, less-mature firms that the Fund typically favours.

Stock-specific factors also contributed to the Fund lagging behind its benchmark during 2021, with the operational performance of some holdings weakening as COVID-19 abated. The US-based online education firm Chegg was the clearest example of this. The pandemic and related lockdowns in 2020 saw an acceleration in the adoption of the company's services as colleges were forced to move to virtual teaching. 2021 proved much tougher, with a notable, if understandable, deceleration in growth: following a 57 per cent rise in revenues in 2020, Chegg's third quarter 2021 update showed sales up by just 12 per cent year on year.

Moreover, Chegg has also provided a downbeat commentary on the prospects for a short-term recovery in its core market, noting lower enrollment in the US higher education segment post-pandemic. Rising wages are seemingly encouraging prospective students away from college and into the workplace. Despite this, the Fund continues to hold shares in Chegg. We met with the company's management team following the recent results announcement and were reassured that the problems faced by the company are cyclical rather than structural.

We are particularly excited by the seismic shifts which we believe are underway in energy, software and genomics. While this is not the usual definition of 'ESG', it is also notable that many companies in these areas are improving their credentials according to the more traditional 'environmental, social and governance' factors. Combined, we expect these forces to represent a significant opportunity for sustainable growth investors and therefore for the Fund.

Investment Strategies used to manage the Fund

Baillie Gifford is a growth manager with a bottom-up approach to stock picking. Bottom-up investing is an investment approach that focuses on the analysis of individual stocks and deemphasizes the significance of economic cycles and market cycles. We aim to invest in companies that will generate sustainable long-term earnings growth. In determining the potential of a company, we analyze industry background, competitive

Baillie Gifford International Alpha Fund

Market Conditions and Review of Performance during 2021

The COVID-19 pandemic overshadowed the past 12 months. Although revolutionary vaccines prevented thousands of deaths, these were unevenly distributed. The highly infectious Omicron variant emerged at the end of the year, which further underscored divergences in national COVID-19 policy and the lack of international co-operation in tackling the pandemic. Supply chains felt the pressure from localized epidemics and control measures, impacting companies' ability to deliver goods on time. Inflation, too, was on the rise as demand for goods shot up during lockdown and demand for services rebounded upon reopening. Meanwhile, the US Federal Reserve initially dismissed the notion of interest rate hikes, however we saw their tone shift towards the end of the year, while several European central banks initiated small rate rises in the second half of the year.

In China, President Xi Jinping ramped up his wide-ranging campaigns to promote equality, encourage competition and enhance national security. This manifested itself in a series of crackdowns against major Chinese corporations, with the goal of creating a more fair and equal China. Elsewhere, India overcame one of the worst COVID-19 situations at the beginning of the year to deliver strong economic growth in 2021, largely due to the government's responses to the pandemic.

Over the year the Fund underperformed its benchmark, which rose by 8.29% in 2021. Although interesting, we are not concerned with short-term headlines. We are focused on the long-term prospects of the individual holdings within the Fund. We seek opportunities to add value by finding the best names, seeing past short-term risks and seeing the longer-term prospects.

Over the past five years we have reduced the number of cyclical names in the Fund. As always, this is based on our assessment of the underlying growth prospects of individual holdings.

In what will not come as a surprise to you, China has been a feature among detractors to performance in 2021. The Chinese state engaged in a number of regulatory reforms in mid-2021, focused on improving the day to day lives of millions of Chinese people, specifically, on improved and affordable, healthcare, education and property. Subsequently a number of Chinese ADRs

Investment strategies used to manage the Fund

The investment strategy remains unchanged. The Fund invests in growth stocks based on bottom-up company analysis. In determining the potential of a company, we analyze industry opportunity, competitive advantage, management attitudes, financial strength, and valuation.

We also consider whether we have a different view from the market. We think that the market, in general, is too short-term and inward looking. Our ability to add value is derived from having a much longer time horizon and from our differentiated sources of information. We believe our patient investment approach, and reputation as a long-term investor, allows us to develop much deeper relationships with management teams and have more meaningful conversations with company leaders.

Baillie Gifford International Concentrated Growth Equities Fund

Market Conditions and Review of Performance during 2021

The International Concentrated Growth team ("ICG") takes a long-term view in finding the 20-35 most rapidly growing companies in international markets. Companies taking market share at scale by disrupting incumbents. Meanwhile, discussing market conditions and short-term performance risks pointing out the obvious, that there have been exogenous shocks around the world this year, and that societies have found those to be jarring. The market has accordingly experienced sentiment swings, as it can do. However, ICG has been investing since 2004, and as a firm we have been investing since 1908, and experience tells us that short-term disruptions come and go. What lasts is meaningful progress in societies and economies, which is most often driven by a small number of visionaries, leading a small number of exceptional companies.

Therefore, while this note comments on 2021 performance of 0.74% for the Fund's Class K shares (compared to 8.29% for the benchmark), it is in the best interest of clients that we stay focused on what matters, which is finding that small number of companies that are disrupting sectors of the economy and are taking massive market share as a result.

The top contributors to Fund performance over 2021 were ASML and Moderna.

ASML is the world's largest manufacturer of equipment used in the creation of semiconductors, which means they make progress in microchips possible. Microchips are of course at the heart of many sectors. ASML has made outstanding operational progress over many years, and this continued through 2021. ASML is comfortably the largest manufacturer of this high-end equipment which means they're well placed to meet ongoing record demand. We believe management decision making and execution over 30 years has been excellent, and results have yet again been strong. Management note that this reflects increasing demand for leading edge chips and the company's plans to build even more Extreme Ultraviolet (EUV — next generation lithography technology) machines to meet this.

Moderna is a North American based biotechnology company, which uses a cutting-edge platform to exploit Messenger Ribonucleic Acid (mRNA) to transform the potential of immunology and therapeutic medicines. Moderna has potential to revolutionize healthcare and is already demonstrating this with vaccine success. In so

challenges with a joint venture in Asia. But we do not believe any of these are closely related to M3's ability to take market share over the long-term by offering a better way of marketing pharmaceuticals. We remain enthused.

Investment strategies used to manage the Fund

The Fund invests in growth stocks based on bottom-up company analysis. In determining the potential of a company, we conduct a process of Idea Generation, Initial Research, Investment Decision and Ownership. Within Initial Research, we consider questions on exceptional growth potential, durable edge, stewardship, financial strength and perspective.

We think that the market, in general, is too short-term and inward looking. Our ability to add value is derived from having a much longer time horizon, from being

Baillie Gifford International Growth Fund

Market conditions and review of performance during 2021

2021 was another eventful year. It began with some sector rotation to value stocks after the very strong performance of growth companies in 2020. Then in the summer, we experienced rapid progression in regulatory scrutiny in China. In the second half of the year, we witnessed growing inflation concerns driven notably by higher energy prices, and supply chain bottlenecks continued negatively to impact many companies' activities. At the end of the year, worries over the omicron COVID-19 variant intensified. Despite all this, International equity markets delivered positive returns. The MSCI ACWI (ex U.S.) Index, one of the Fund's two comparative benchmarks, rose by 8.29% over the 12-month period.

The Fund underperformed its benchmarks with a return of -9.40% for Class 2 shares over the 12-month period. The Fund's significant exposure to Chinese stocks, and continued ownership of the rapid growth companies that had performed so well in 2020, both turned into headwinds during 2021. At the stock level, negative performers included Japanese healthcare group M3, Chinese after-school tuition company TAL Education and German online fashion distributor Zalando. Positive contributors included Dutch semiconductor equipment manufacturer ASML, German biopharmaceutical equipment maker Sartorius and Australian logistics software provider Wisetech.

One stock in the Fund's portfolio that particularly struggled in 2021 was TAL Education. It is a leading Chinese provider of after-school tuition to children aged 4 to 18. Its stock price fell by 93% over the year. The bulk of the decline occurred at the end of July as tougher-than-expected Chinese education rules were issued by Chinese regulators. According to the new rules, institutions offering tutoring on the school curriculum will not be allowed to operate as profit-seeking companies. The government crackdown is seemingly designed to address the acknowledged problem of education inequality in China.

M3's stock price fell nearly 50% in 2021, following a rise of more than 200% in 2020. The group continues to perform well operationally and is investing for future growth, actively hiring sales reps and spending money on training to strengthen its core medical platform. This led to some short-term margin compression which the market did not appreciate. We take a contrary view and see the heavy level of investment as positive for the long-term. We believe M3 is well positioned to benefit from numerous

We have been analysing the recent progression in regulation in China and the potential implications for the Fund, at our portfolio oversight meetings. We have also been reviewing some of our Chinese holdings in our research meetings. Our review of Alibaba, Tencent and Meituan is ongoing. One aspect we need to analyse further is the cloud opportunity in China in terms of both growth and returns. Given the pressure on the large platform companies, it is likely that in the future we may have more Chinese holdings but at smaller weights.

Investment strategies used to manage the Fund

As active bottom-up stock pickers, our ability to add value is derived from patient ownership of exceptional growth companies. Our investment process is designed to identify a sufficient number of rare businesses and own them in size for the long-term.

In determining the potential of a company, we consider its competitive advantage, its culture, its management approach and financial strength. We use scenario analysis to explore the scale and probability of different outcomes.

We are interested in two types of growth companies: those that are able to grow very rapidly, and those with

Baillie Gifford International Smaller Companies Fund

Market Conditions and Review of Performance during 2021

During 2021 the Fund returned 6.49% for Class K shares compared to a benchmark return of 13.36%.

Markets experienced significant short-term volatility during 2021. This was not entirely unjustified, as participants wrestled with economies attempting to reopen, concerns around rising inflation and mutations of COVID-19 rearing their heads in different geographies. However, short-term volatility is not the same as risk and, as long-term investors, our sights are set further out onto the horizon.

Two main themes have loomed large in the past year — the aforementioned threat of rising inflation, and a potential rotation from 'growth' investing to 'value' investing. The latter ebbed and flowed — more noticeably, though, we have witnessed a jostling between so-called 'COVID beneficiaries' and companies that prosper as the world economy reopens. After several rounds, no clear winner has emerged yet... The best mitigation against the former, we believe as long-term investors, are the likely unstoppable structural forces of technology and innovation, which show no signs of slowing.

The strongest contributor to performance was Aspeed, a Taiwanese company that designs server management chips. These Baseboard Management Chips (BMCs) allow the remote monitoring and control of server functions, and Aspeed's market dominance in the area is so substantial that its name has become almost synonymous with this type of chip. Aspeed has had a very strong 2021 with its share price doubling in the past year. This has been driven by an earnings upgrade and a rerating of the company's prospects. However, structurally and operationally, the company is performing as we would hope. Its key edge, in our opinion, is that its expertise — BMCs — are considered to be critical, failsafe technology. Aspeed's dominance in its core server market is comforting, and future growth drivers such as edge computing and 5G offer a tantalizing opportunity for further progress. We reduced the position slightly off the back of this very strong share price performance, although Aspeed remains one of the largest positions in the Fund.

Addtech, which comprises around 140 niche engineering companies operating primarily in the Nordics, was another strong performer following a successful year.

Investment strategies used to manage the Fund

The investment strategy used to manage the Fund is unchanged over the year. The Fund employs bottom-up, fundamental research to build a portfolio of growing companies. The Fund is constructed with an awareness of the asset class; the Fund seeks to invest in companies with below $2 billion in market capitalization at time of purchase, there are restrictions on adding to a position once its value increases beyond $5 billion, and the Fund currently defines "a smaller company" as one whose market capitalization does not exceed $10 Billion. International smaller companies present a vast and incredibly diverse investment universe. This Fund seeks to find the exceptional businesses within that universe, companies with the potential to deliver strong returns for our clients, while also acknowledging that these companies can do so in different ways. Our edge in this comes from our portfolio managers, who bring a range of experiences in managing small and all-cap portfolios across different geographies, and our ability to employ a longer-term investment horizon than most of the market. This long-termism is fundamental to how we exploit the asymmetry available in equity returns.

Baillie Gifford Long Term Global Growth Fund

Market Conditions and Review of Performance during 2021

During 2021 several companies experienced share price weakness following a very strong run in 2020. This could have been driven by a mix of profit-taking, fears over inflation and potential rising interest rates. In addition, several of our Chinese holdings have experienced share price weakness, as uncertainty surrounding the regulatory environment has weighed on market confidence. As a result, the Fund delivered a return of 2.50% for Class 2 shares during the period (16.54% behind the Fund's benchmark). However, we believe that short-term share price movements are not a good measure of a company's long-term value. Our focus is, as always, on the business fundamentals of companies over five to ten years and beyond.

Looking back on 2021, Nvidia, Moderna and Tesla were among the top positive contributors to the Fund's relative performance during the year.

2021 was a strong year for Nvidia as a result of its robust fundamentals. The most recent quarterly results reported record revenue of $7 billion, an increase of 50% from the previous year, driven by its Data Centre and Gaming segments. The pandemic has accelerated the demand for computing requirements and gaming has become an increasingly important part of modern culture. As virtual reality continues to move into the mainstream, Nvidia has created its own 'omniverse' platform that has been built for virtual collaboration and real-time physically accurate simulation, potentially transforming industries such as architecture, engineering, construction and manufacturing.

Moderna's share price was volatile in 2021, but despite this it increased by more than 130%. This growth has mostly been driven by the success of the COVID-19 vaccine. For a company that has only been publicly listed since December 2018, that hasn't partnered with any large pharmaceutical companies, the pace at which the business has scaled is impressive. Moderna has positioned itself as a highly scalable technology platform, leading in the development of Messenger Ribonucleic Acid (mRNA) as a therapy to deliver personalised medicine for the four 'big killers': cardiovascular disease, cancer, infectious disease and autoimmune diseases. The broad research pipeline has approximately 37 drug candidates progressing through trials. If the company can continue to deliver, it has the

'Common Prosperity' to the group's list of core corporate responsibilities, stressing its commitment to society and the environment. Zhang also announced that Alibaba will invest over $15 billion by 2025 to help reduce the Chinese wealth gap, which will include making digital technology more inclusive and easier for rural communities to benefit from.

Though this commentary pertains to the year 2021, as ever our focus is on the much longer-term prospects for companies in the portfolio over 5-10 years and beyond. Our role as stock-pickers remains as relevant as ever. We are forever seeking to identify the small number of exceptional companies with the most compelling operational performance and opportunities for long-term growth. The trading undertaken for the portfolio in 2021 (as detailed in the table below) reflects our excitement in what we believe will be transformative growth companies over our investment horizon. We believe the potential for upside from here remains vast.

Baillie Gifford Positive Change Equities Fund

Market Conditions and Review of Performance during 2021

Throughout 2021 there continued to be a backdrop of uncertainty with the pandemic dominating lives, climate disasters becoming more prevalent and logistical challenges impacting global supply chains. Global markets were volatile but overall finished the year well into positive territory. The Ballie Gifford Positive Change Equities Fund also delivered positive returns over the period although behind those of the MSCI ACWI index.

Despite the volatility in price displayed by many of the shares held by the Fund, 2021 was a year in which the majority of holdings in the Fund continued to enjoy strong operational performance, providing good progress towards delivering on both our financial and positive change objectives over our 5 year time horizon. As we look to 2022 and beyond, we believe that there is reason for optimism as companies in the Fund continue to drive change and provide solutions to many of the world's most pressing challenges.

The largest contributors to financial performance over the year were Moderna and ASML.

It seems fitting that in a year where the headlines continued to be dominated by COVID-19 that Moderna was the top contributor to financial performance over the period. Moderna is a leader in the field of Messenger Ribonucleic Acid (mRNA) therapeutics, a new class of medicines that leverage the body's natural protein-production to treat diseases. It has delivered over 800m doses of its COVID-19 preventative vaccine in 2021. Moderna is investing in global capacity including areas that need it most — it plans to build a manufacturing facility in the African continent that is expected to produce up to 500 million vaccine doses annually (for COVID-19 and other conditions). Looking further ahead, Moderna continues to invest in research and development, notably with its COVID-19 vaccine (e.g. boosters), other vaccines (e.g. a preventative HIV vaccine) and in its other modalities (e.g. immuno-oncology). The success of its COVID-19 vaccine has significantly de-risked its technology platform, and we believe this translates into a higher probability of success in these other therapeutic areas.

ASML, is the world's leading developer and manufacturer of lithography equipment which is used in the semi-conductor manufacturing process. Over recent years it has consistently gained market share through

We believe that every company within the Fund has the potential to deliver positive impact as well as strong financial returns. As our key contributors to performance demonstrate, impact and investment progress often go hand in hand, but for more information on our impact objective please see our Impact Report which provides a comprehensive analysis of the impact of the holdings within the portfolio. The report combined bespoke metrics for individual companies along with the portfolio's overall contribution to the U.N. Sustainable Development Goals. A copy of our most recent Impact Report is available on our website at https://magazinebailliegifford.com/PositiveChangeImpactReport2020US/.

Investment strategies used to manage the Fund

The Fund seeks capital appreciation by investing in high quality growth businesses that deliver a positive social or environmental change in the following areas: social inclusion and education, healthcare, the environment, and that address basic needs and aspirations of the world's poorest populations.

The Fund applies Baillie Gifford's core approach to stock picking as well as inhouse, proprietary research on positive impact when considering holdings for the Fund.

Baillie Gifford U.S. Discovery Fund

Market Conditions and Review of Performance during 2021

It has been a challenging year for global stock markets, including ours. Societies worldwide continue to fight the biggest challenge of our modern history, still causing human tragedy and disruption of scale that few have experienced during their lifetime. Supply challenges remain. There are labor shortages across a growing number of economic activities. Inflation is the highest it's been over the last three decades. While the monetary and government interventions in the early days of the pandemic played an important role in minimizing complete economic and social collapse, the market focus today is largely on second guessing central bank moves facing these inflationary pressures and the timeline and quantum of interest rate increases. We have never claimed that our skill set lies in predicting macroeconomic variables. However, we understand that smaller, unproven companies with profitability and cash flow potential skewed towards the future are going to be most affected in this environment.

The Baillie Gifford U.S. Discovery Fund's performance has been volatile over 2021 as the market continues to grapple with higher order consequences from the pandemic. While this has undoubtedly been a difficult period for investors like us, the challenges of the past year have only strengthened our belief that innovation is the life blood of human progress, that science and new technology will continue to move the world forward. Many of the Fund's holdings (such as those in telemedicine or online education) saw a pull forward of demand as behavior changed, across consumers and enterprises alike. That accelerated demand has enabled companies to evolve their competitive advantage much faster and in ways in which less scale and less use wouldn't have allowed them to. These are now reporting results off extremely large bases and optically the trends may not always seem favorable. Failure to appreciate the operational progress by businesses as well as the evolving and strengthening competitive moat some of these are developing may present interesting opportunities for us to add to some of what we think might be emerging leaders.

The main detractor from the Fund's performance since it launched in May 2021 came from investment in oncology-focused medical device company, Novocure. Over the past couple of quarters, Novocure's shares have been gradually falling as the gap between market expectations and the company's more immediate

Asia Pacific which are at very different stages of development with insurance penetration ranging widely.

This past year marked the launch of the strategy and, despite the challenging market conditions, our experiences have increased our faith in the relevance of its philosophy. Throughout the challenges of the last two years, and the wild fluctuations seen in markets, technological innovation has displayed resiliency and continued apace. While as practitioners, we've been struck by the depth of the opportunity set and the variety of how companies are using innovation to solve problems. Going into the new year, these experience gives us distinct hope for the future, and fills us with enthusiasm and excitement about what our process might uncover.

Investment strategies used to manage the Fund

Baillie Gifford is a growth manager with a bottom-up approach to stock picking. Bottom-up investing is an investment approach that focuses on the analysis of individual stocks and deemphasizes the significance of

Baillie Gifford U.S. Equity Growth Fund

Market Conditions and Review of Performance during 2021

In an extraordinary year, 2021 saw the release of new vaccines and treatments that began to reverse the tide of COVID-19. As the world adapted to living with the virus, sentiment amongst investors seemed to swing back and forth. Some stocks which were favored most heavily in 2020 suddenly found less enthusiasm from stock market participants, and towards the year end inflation and the prospect of rising interest rates returned to the headlines. In this environment, the Fund delivered a return that was significantly behind the Russell 1000 Growth Index, one of the Fund's two comparative benchmarks.

In an uncertain time for everyone, we hold greater optimism about the future than ever before. Many old habits have been broken and new populations of innovative businesses are coming to public markets for the first time. Work patterns unimaginable to many prior to the pandemic are rapidly becoming the norm. Technological innovation in mobility too has progressed, and we now believe that electric vehicles are close to becoming the default for buyers of new cars. These are just two examples of a much broader set of changes. While the pace of this innovation inexorably rises, so too do societies' standards of living. This proven ability to succeed at tackling big problems with ever greater momentum bodes well for humanity. It also lays encouraging ground for growth investors who can look beyond short periods of volatility and focus instead on long-term opportunity.

Among such companies is Chegg, which was the largest single detractor from returns for the Fund in 2021. Chegg, a market leader in online textbooks, study guides and on-demand tutoring suffered from a reduction in college enrolments as more decided to go into immediate employment, attracted by higher wages, than previously expected. Our belief is that this trend is cyclical rather than structural. We believe that there is an opportunity to play a growing role in education by helping students to study more flexibly and at a lower cost. While substantial demand levels from early in the pandemic moderate, we expect the company to continue growing well. As it does so, the market opportunity for Chegg's services includes the approximately 40 million students in the USA, as well as adults learning new work-related skills. We believe that there is a further opportunity for Chegg to grow overseas in the coming years too, enabled by improved marketing

We are enthused by the long-term future of a select group of innovative and disruptive U.S. companies to transform entire industries. We believe that people's demand for convenience and flexibility will increase, while health and wellness as a means of disease prevention will take greater prominence. We also expect that companies like Tesla, which have proven their manufacturing and delivery capabilities through difficult operational conditions, will lead the way in a transport and energy revolution. While many trends like these may not bear out in the short term, we expect them to dominate in the next decade. We have plenty of reasons to be optimistic, and we will continue to engage in imaginative research, company by company, with the aim of placing the Fund on the right side of innovation.

Investment strategies used to manage the Fund

The Fund seeks to meet its objective by identifying exceptional growth businesses and owning them for long enough that the advantages of their business models and cultural strengths become the dominant drivers of their stock prices. The non-diversified and committed nature of the strategy means that we can and will deliver

As a shareholder of Baillie Gifford China A Shares Growth Fund, Baillie Gifford China Equities Fund, Baillie Gifford Developed EAFE All Cap Fund, Baillie Gifford EAFE Plus All Cap Fund, Baillie Gifford Emerging Markets Equities Fund, Baillie Gifford Emerging Markets ex China Fund, Baillie Gifford Global Alpha Equities Fund, Baillie Gifford Global Stewardship Equities Fund, Baillie Gifford Health Innovation Equities Fund, Baillie Gifford International Alpha Fund, Baillie Gifford International Concentrated Growth Equities Fund, Baillie Gifford International Growth Fund, Baillie Gifford International Smaller Companies Fund, Baillie Gifford Long Term Global Growth Fund, Baillie Gifford Positive Change Equities Fund, Baillie Gifford U.S. Discovery Fund and/or Baillie Gifford U.S. Equity Growth Fund, you incur two types of costs: (1) transactional costs and (2) ongoing costs, including advisory fees, administration and supervisory fees and other Fund expenses. This example is intended to help you understand your ongoing costs (in dollars) of investing in the Funds and to compare these costs with the ongoing costs of investing in other mutual funds.

The example is based on an investment of $1,000 invested at the beginning of the period and held for the entire period from July 1, 2021 to December 31, 2021.

Actual Expenses

The first line of each table provides information about actual account values and actual expenses. You may use the information in this line, together with the amount you