Contents

FINANCIAL SUMMARY 1

THE COMPANY 2

OUR TEN YEAR RECORD 3

DISTRIBUTION OF TOTAL ASSETS 3

CHAIRMAN'S STATEMENT 4

BOARD OF DIRECTORS 6

MANAGEMENT TEAM 7

MANAGEMENT REVIEW 8

PORTFOLIO REVIEWS 12

INVESTOR INFORMATION 20

DISTRIBUTION OF ASSETS BY SECTOR 23

DIRECTORS' REPORT 24

AUDITORS' REPORT 26

ACCOUNTING POLICIES 27

``Portencross'' c1930 STATEMENT OF TOTAL RETURN 28

Oil on canvas Private Collection BALANCE SHEET 29

George Houston 1869-1947 CASH FLOW STATEMENT 30

A contemporary of the NOTES TO THE FINANCIAL STATEMENTS 31 `Glasgow Boys', Houston is regarded as one of Scotland's LIST OF EQUITY INVESTMENTS 37 foremost landscape artists. He is best known NOTICE OF MEETING 39 for his wonderful paintings of the lowlands and west coast FINANCIAL CALENDAR 2001 40 of Scotland.

USEFUL ADDRESSES 40

THE SCOTTISH INVESTMENT TRUST PLC Financial Summary 1

2000 1999 % change

CAPITAL Equity investments »1,550,121,000 »1,338,695,000 +15.8 Net current assets 28,877,000 25,450,000

Total assets 1,578,998,000 1,364,145,000 +15.8 Less: borrowings 222,137,000 77,059,000

Stockholders' funds »1,356,861,000 »1,287,086,000 +5.4

Net asset value ANAV) per ordinary unit 538.9p 466.4p +15.5 Market price per ordinary unit 457.0p 393.5p +16.1 Discount 15.2% 15.6%

Benchmark index +10.8

INCOME Total income »29,775,000 »30,860,000 ^3.5 Earnings per ordinary unit 7.93p 8.34p ^4.9 Dividend per ordinary unit 6.90p 6.65p +3.8

Retail price index ARPI) +3.1

YEAR'S HIGH &LOW Year to Year to 31 October 2000 31 October 1999 High Low High Low NAV 567.5p 466.4p 466.8p 411.6p Market price 485.0p 396.0p 415.0p 330.0p Discount 17.6% 13.5% 16.7% 13.7%

Three Year Growth

SIT NAV AND BENCHMARK SIT NET DIVIDEND AND RPI

These charts cover the period since the present benchmark was adopted and have been rebased to 100 at 31 October 1997.

THE SCOTTISH INVESTMENT TRUST PLC 2 The Company

COMPANY DATA TOTAL ASSETS STOCKHOLDERS' FUNDS MARKET CAPITALISATION as at 31 October 2000 »1,579.0 million »1,356.9 million »1,150.8 million

POLICY and OBJECTIVES The Scottish Investment Trust ASIT) aims to provide investors with above average returns through a diversified portfolio of international equities and to achieve, over the long term, asset growth in excess of the company's stated benchmark and dividend growth ahead of UK inflation.

RISK SIT's portfolio is invested over a range of industries and is diversified on a geographical basis so that risk is lowered. It regularly employs borrowed money to invest in equities with the objective of improving overall returns. The use of borrowings magnifies market movements both up and down.

BENCHMARK The company's benchmark is made up of 50% FTSE Actuaries UK All-Share IndexTM and 50% FTSE World ex UK Index SeriesTM. This benchmark was changed in November 1997 from a purely UK index to reflect more fully the international spread of the company's investment activities.

MANAGEMENT The company is managed by its own employees led by Ian McLeish and Donald Ness who are responsible to the directors for all aspects of the day to day management of the company. No other funds are managed leaving the managers free to concentrate exclusively on the company's affairs.

CAPITAL STRUCTURE At 31 October 2000 the company had in issue 251,806,371 ordinary stock units and long term debt amounted to »222.1 million.

MANAGEMENT COSTS The total costs of managing the company's business last year were »4,568,000 equivalent to 0.35% of average stockholders' funds. Over the last five years these expenses have been relatively stable around this percentage and the directors believe this should continue for the foreseeable future.

ISA/PEP The ordinary units are fully eligible for both ISAs and PEPs. Details of the schemes run by the company are on page 20.

AITC The company is a member of The Association of Investment Trust Companies.

THE SCOTTISH INVESTMENT TRUST PLC Our Ten Year Record 3

YEAR TOTAL STOCKHOLDERS' TOTAL EARNINGS PER DIVIDEND NAV PER MARKET DISCOUNT NAV TO 31 ASSETS FUNDS EXPENSES ORDINARY PER ORDINARY PRICE PER % TOTAL OCTOBER »'000 »'000 »'000 UNIT ORDINARY UNIT ORDINARY RETURN NET PA1) UNIT NET P82) PA3) UNIT P %

1990 462,702 415,710 1,810 4.07 4.05 155.5 138.5 10.9 ^15.2

1991 555,997 524,247 1,932 4.52 4.40 196.1 170.5 13.1 28.9

1992 615,209 552,665 2,027 4.82 4.62 206.6 175.5 15.1 7.7

1993 776,960 712,767 2,100 5.48 4.90 266.2 224.5 15.7 31.2

1994 783,096 671,873 2,276 5.49 5.15 250.3 215.5 13.9 ^4.0

1995 913,287 801,040 2,602 5.84 5.67 282.6 242.5 14.2 15.2

1996 1,023,847 912,583 2,932 6.16 5.95 322.0 274.5 14.8 16.0

1997 1,101,239 1,020,680 3,310 6.29 6.25 360.1 306.0 15.0 13.8

1998 1,176,244 1,095,685 3,751 6.41 6.50 386.6 344.0 11.0 9.4

1999 1,364,145 1,287,086 4,467 8.34 6.65 466.4 393.5 15.6 22.4

2000 1,578,998 1,356,861 4,568 7.93 6.90 538.9 457.0 15.2 17.0

1 From 1 November 1999 the company has charged two-thirds of eligible expenses and finance costs to realised capital reserves. The figures for the year to 31 October 1999 have been restated to reflect this change. 2 Excluding non-recurring dividend of 0.75p in 1998. 3 NAV at 31 October 1995 has been adjusted to reflect the adoption of the Statement of Recommended Practice for investment trusts. NAV prior to 1995 has been adjusted to reflect the exercise in February 1995 of warrants to subscribe for ordinary units in SIT.

Distribution of Total Assets At 31 October 2000

Figures in brackets are as at 31 October 1999

THE SCOTTISH INVESTMENT TRUST PLC 4 Chairman's Statement

We believe that this has been a year of 4.63p making a total for the year of achievement reflecting successes on both 6.90p. This is an increase of 3.8% on last sides of our balance sheet. year and compares with UK inflation of 3.1%. We have increased our regular In the spring we decided that long gilt dividend level in each of the last seventeen yields in the UK were at a low point and years. that there was a compelling case for raising long term debt. We therefore In our last annual report we indicated issued »150m of 30 year secured bonds that our move into lower yielding growth 3 with a coupon of 5 Ù4% priced at »98.288 and overseas equities would have an per »100 nominal. After all expenses the effect on our level of income. This cost to the company is just under 6% per became apparent during the year and annum. Over the years we have achieved our total income declined by 3.5%. There a total return on stockholders' funds well has been a worldwide trend among in excess of the annual cost of this new companies to pay out less of their profits borrowing. We believe that over the long in dividends and to reward shareholders term we will be able to employ the in different ways such as special payments proceeds of the issue to the considerable and share buybacks. Over the years, the benefit of our ordinary stockholders. This proportion of returns derived from is now the largest investment trust bond investing in equities has been heavily in issue and has the lowest all-in cost weighted towards capital growth rather achieved in recent years. than dividends. In order to reflect these circumstances the board decided to The other feature of the year was our change accounting policy. As from good investment performance. As a result 1 November 1999 two-thirds of interest of that and our successful bond issue we and eligible expenses have been charged raised net asset value by 15.5%, the sixth to capital reserves and the comparative consecutive annual increase. This figures for last year restated accordingly. compares very well with our benchmark Previously all interest and expenses were index which rose by 10.8% over the year charged to revenue. This change will and the FTSE Actuaries UK All-Share preserve the company's dividend paying Index which rose by 6.0%. capacity and the ability to move between different geographical areas and to Over the last five years our share price has employ borrowings. appreciated by 88.5% reflecting the good progress of our net asset value. Adding Equity markets started our new financial reinvested net dividends the average year enthusiastically. Most markets rose annual return has been 15.4% before sharply over the first two months and any expenses of buying and selling. This peaked at the end of December. They compares well with other large entered the new millennium with a international investment trusts and is setback but another surge in the well ahead of the averages of fashionable technology, media and comparable equity based products such telecommunications sectors pushed the as unit trusts and insurance funds. The US, European and Japanese markets to benefits to investors of the relative new highs in February and March. The stability and flexibility of a carefully subsequent realisation by investors that diversified trust such as SIT have again these important sectors had become been highlighted by events. High volatility seriously overvalued led to sharp falls in in stockmarkets and rapid sector many such shares over succeeding movement over the last year have led to months. A side effect of the technology many investors being caught in the wrong boom was that ``old economy'' stocks areas. were sold heavily in the rush to buy into the ``new economy''. This situation The board has declared in lieu of a final changed round 180 degrees in the dividend a second interim dividend of second half of our year and recovery in

THE SCOTTISH INVESTMENT TRUST PLC Chairman's Statement 5 the lowly rated sectors broadly offset It is important that we are able to attract valuations have been restored to more weakness in technology in most markets non-executive directors of high calibre reasonable levels, but the unsettled with the notable exception of Japan. and that the fees reflect the increasing stockmarket behaviour over the last responsibilities of directors. A proposal to several weeks may continue until Over the year the US was the best increase directors' fees will be put before investors finally come to terms with performing market rising by 19.4% in the annual general meeting. recent reductions in profit forecasts. We sterling terms. However, most of this was are still operating in a disinflationary due to the strength of the dollar. SIT is a supporter of the marketing environment which is positive for European markets performed the best in campaign sponsored by the Association equities over the long term. local terms and produced a satisfactory of Investment Trust Companies to 14.6% increase in sterling terms while the promote the awareness and advantages UK could only manage a rise of 6.0%. of investment trusts to individual Japan registered a small decline while investors. This, combined with our own other Pacific markets rose by 1.9%. increased marketing efforts, has resulted in our sales of STOCKPLAN saving We had very good performances in our schemes and ISAs being well ahead of Sir Angus Grossart European, UK and Pacific Aex Japan) the previous year. Our redesigned website 18 December 2000 portfolios. In the US we missed out to Awww.sit.co.uk) on which we are now some extent on the first half technology publishing weekly net asset values, is boom but recovered most of this with a proving popular and our newsletters to very good performance in our second investors have been well received. We are half. The opposite was true in Japan. introducing a new charging structure for our ISA which will cap charges at a Our unlisted portfolio performed very maximum of only »30 p.a. This is a very strongly and several of the venture competitive rate which applies no matter capital partnerships in which we are how many years' ISAs an investor has invested were able to float a number of with SIT. their holdings. Over the year this portfolio appreciated by 41.5% and at OUTLOOK year end was valued at »73.0m equivalent Developments in the United States to 5.4% of stockholders' funds. This continue to drive the direction of global portfolio is well spread and is valued on financial markets. In response to higher a conservative basis. interest rates and oil prices, economic expansion and corporate profits growth During the year we took advantage of the are slowing to more moderate and sharp sell off in ``old economy'' stocks to sustainable rates. Underlying inflationary invest »114.3m of the proceeds of our pressures are muted providing support for bond issue in this area. »91.0m was a more relaxed monetary stance to be invested in the UK and »23.3m in the taken by the Federal Reserve next year. US. At our year end these portfolios were Similar trends are evident in other leading valued at »129.5m and in addition they nations. had generated income of »2.7m. We believe that the pronounced swing Over the year we took the opportunity to away from high priced ``new economy'' buy back 24.1m ordinary stock units at a sectors towards the more realistically discount to net asset value. This has valued traditional areas which began added an estimated 7.8p to our closing earlier this year has further to run. Our NAV. The company will continue to buy portfolios should benefit from this trend, in ordinary stock when there are particularly those that we have structured attractive opportunities to improve the with the proceeds from our bond issue. NAV for continuing investors and a Our perception of the growth which resolution to renew the buyback might be sought extends to opportunities authority will be put to stockholders at where the growth may be in share price as the annual general meeting. well as in economic terms. Overall equity

THE SCOTTISH INVESTMENT TRUST PLC 6 Board of Directors

*ÀSir Angus M M Grossart ÀHamish Leslie Melville A56) CBE LLD FRSE DL A63) was appointed to the board in has been chairman since 1975 and a November 1996. He is a managing director since 1974. He is chairman director senior advisor of Credit and managing director of Noble Suisse First Boston AEurope). He is Grossart, merchant bankers. He is chairman of Northern Recruitment also deputy chairman of Edinburgh Group and Old Mutual South Africa Fund Managers and a former Trust, and a director of other public chairman of the trustees of the companies. He is a former chairman National Galleries of Scotland. He is of The National Trust for Scotland. a vice-chairman of the Royal Bank of Scotland Group and a director of *Ian M Russell A47) other public companies. joined the board in November 1996. He is deputy chief executive *ÀSir George Mathewson of ScottishPower and previously CBE LLD FRSE A60) held senior positions with Mars, joined the board in 1981. He was Hongkong and Shanghai Banking chief executive of the Scottish Corporation and Tomkins. Development Agency until 1987. He then joined the board of The Royal ÀDouglas McDougall A56) Bank of Scotland Group and was was appointed to the board in appointed chief executive in January September 1998. He is chairman of 1992. Following the Group's The Law Debenture Corporation, acquisition of NatWest Sir George The Independent Investment Trust was appointed executive deputy and Foreign and Colonial Eurotrust. chairman in March 2000. He is also He is a former senior partner of chairman of Direct Line Group. Baillie Gifford & Co and former chairman of IMRO and of the Francis Finlay A57) Association of Investment Trust joined the board in November 1996. Companies. He is chairman of the New York based international fund manage- *Sir Paul Nicholson A62) ment firm Clay Finlay. Previously he joined the board in September 1998. held senior investment management He is Lord-Lieutenant of County positions with Lazard Fre©res and Durham, chairman of the Brewing Morgan Guaranty in Paris and New Research Foundation and a director York. of Steelite International plc. He was chairman of Vaux Group plc and the Tyne and Wear Development Corporation. He is a former chairman of Northern Investors, the Northern Region of the CBI and former president of the North East Chamber of Commerce.

* Member of audit committee À Member of remuneration committee

THE SCOTTISH INVESTMENT TRUST PLC Management Team 7

INVESTMENT MANAGERS ASSISTANT MANAGERS Investment team, Ian McLeish CA A55) Ian Anderson left to right was appointed manager in 1986, having Michael Dick ACIB Richard Doyle joined the company in 1973. He has John Kennedy MA AHons) ACIB MBA Mari Yamamoto overall responsibility for the UK and AIIMR Michael Dick Pacific Region portfolios. Hilary Vandore MA AHons) MBA Ian McLeish James Kinghorn Donald Ness CA A58) PORTFOLIO MANAGER Hilary Vandore joined the company in 1970. He was Mari Yamamoto BA ASIP Howard Kippax Donald Ness appointed manager in 1986 and has Ian Anderson overall responsibility for the US and ASSISTANT PORTFOLIO MANAGERS John Kennedy Continental European portfolios. James Kinghorn BSc MBA Howard Kippax MA AHons) The managers are responsible directly to the board for all aspects of the day to PORTFOLIO ASSISTANT day management of the company. Richard Doyle Sch BA AHons)

SECRETARY Iain Harding FCMA FCIS joined the company in 1978 and was appointed secretary in 1979.

ASSISTANT SECRETARY Alan Jamieson BA AHons) joined the company in 1997

THE SCOTTISH INVESTMENT TRUST PLC 8 Management Review

INVESTMENT PHILOSOPHY

To pursue a flexible invest- ment policy avoiding any permanent specialisation. To focus on fundamental value and move funds into those areas offering the most attractive returns. To invest in well managed companies in established stockmarkets around the world. To enhance performance in rising markets by prudent use of borrowed money. To provide simple, low cost dealing arrangements for investors.

Ian McLeish and Donald Ness, Managers

MARKET PERFORMANCES Year to 31 October 2000 Currency In local adjusted terms %% UK +6.0 +6.0 EUROPE Aex UK) +14.6 +24.9 USA +19.4 +5.7 JAPAN ^0.7 ^8.0 PACIFIC Aex Japan) +1.9 ^0.7

We achieved a good performance last PERFORMANCE ATTRIBUTION ANALYSIS Year to 31 October 2000 year with very positive results from our overall stock selection particularly in the Increase in NAV 15.5 UK and Europe supplemented by strong Increase in benchmark index 10.8 returns from our unlisted portfolio. This Contribution +4.7 was offset to some extent by a disappoint- Stock selection +2.8 ing result from our asset allocation where Asset allocation ^1.0 our underweight in the US, which was the Gearing +1.6 strongest of the major markets, held us Interest and expenses charged to capital less retained earnings ^0.4 back. Equity bought back +1.7 Contribution +4.7 During the year we employed our gearing capacity to good effect which increased The attribution analysis shows how the These figures refer to capital perfor- our NAV by 1.6% while buying back our overall performance of the company's mance only and make no allowance for own ordinary units at a discount to NAV NAV relative to the benchmark has been income. of around 15% made a similar contribu- achieved. tion.

THE SCOTTISH INVESTMENT TRUST PLC Management Review 9

We made no major changes to our broad CHANGES IN ASSET DISTRIBUTION geographical allocation over the year. Year to 31 October 2000 During the first half we realised »60.4m from the UK portfolio towards financing Net buybacks of our ordinary units. In April Opening Purchases Appreciation Closing Valuation ASales) ADepreciation) Valuation we raised a »150m secured bond and Listed equities »m »m »m »m invested »73.7m of the proceeds in a UK 643.3 12.8 71.1 727.2 number of UK companies whose share CONTINENTAL EUROPE 185.3 1.1 36.8 223.2 prices were at attractive values as inves- AMERICAS 285.0 14.3 51.2 350.5 tors sold them to buy into `new economy' JAPAN 130.3 A3.7) A6.8) 119.8 situations. PACIFIC Aex Japan) 46.6 2.2 7.6 56.4

Towards the end of our year we took 1,290.5 26.7 159.9 1,477.1 advantage of a subsequent setback to Unlisted Holdings 48.2 4.3 20.5 73.0* invest a further »40.6m of the bond Net current assets 25.5 0.8 2.6 28.9 proceeds into `value' shares in the US as well as the UK. Total Assets 1,364.2 31.8 183.0 1,579.0 Borrowings and Prior Charges A77.1) A145.0) 0.0 A222.1) As a result our gearing rose from 104.0% of stockholders' funds at the beginning of the year to 114.2% at year end. Our Stockholders' Funds 1,287.1 A113.2)À 183.0 1,356.9 potential gearing ratio if we were to invest all of our borrowings in equities is 116.4% A106.0%). * includes »16.0m of investments which are now listed À ordinary stock units repurchased and expenses apportioned to capital

This has been an excellent year for our unlisted portfolio which appreciated by 41.5% to »73.0m. Several of our venture capital partnerships were particularly successful as they took advantage of strength in the technology area to float a number of their investments early in the year. We were able to revalue our holding UNLISTED PORTFOLIO in the successful Wood Group based on a new financing in connection with the LARGEST UNLISTED HOLDINGS acquisition of a US oil services group. At 31 October 2000 »m Sprout Group Funds Venture capital, US 14.7 We value this portfolio on a conservative Boston Ventures Funds Venture capital, US 10.4 basis and, in particular, we take account Wood Group Oil service, UK 8.7 of diminution in value of any listed Thompson Clive holdings which our partnerships hold. Investments Alisted) Venture capital, UK 5.6 Such holdings are always carried at a 1818 Fund Growth capital, US 5.5 discount to market price. 44.9

At year end we had commitments to investment partnerships of »16.0m and we expect to make further commitments in the current year. In recent years our commitments have been met from dis- tributions from existing investments and we expect this to continue.

THE SCOTTISH INVESTMENT TRUST PLC 10 Management Review

PORTFOLIO TURNOVER HOLDINGS IN OTHER LISTED FUNDS Total purchases of investments amounted to »501.8m A1999 ^ »318.5m) and sales Our holdings include investments in other were »470.8m A»304.6m). Investment listed investment funds of »53.6m. These sales were 32.0% A24.0%) of average are held mainly to provide exposure to total assets. No use was made of invest- smaller companies in the UK A»32.9m) ment derivatives during the year. and Japan A»12.3m). In addition, »11.1m A currency hedge was put in place in of UK listed funds which specialise in January to protect against a potential unlisted investments are included in the decline in value of the Japanese yen unlisted portfolio valuation of »73.0m. equivalent to »30.0m. This was closed before year end at a loss of »1.4m.

SERVICES TO INVESTORS ANALYSIS OF STOCK REGISTER At 31 October 2000 We increased sales of our STOCKPLAN Category of holder Number Ordinary Capital savings scheme, PEPs and ISAs by over % 40% last year. We are promoting a new Individuals 32,449 45.9 Insurance Companies 51 28.4 ``saving for children'' product and intro- Pension Funds 50 10.7 ducing a very attractive capped charging Other 243 15.0 structure for our ISA. Over the last five years we have increased the number of individual investors in SIT by 31.6% to Total 32,793 100.0 over 32,000. Individuals now hold 45.9% of our stock compared to 36.2% five years ago.

5 YEAR DISCOUNT TO NAV

THE SCOTTISH INVESTMENT TRUST PLC Management Review 11

FUTURE STRATEGY We will be watching carefully for any further reversals in sentiment but we do Over recent months the two key determi- not expect an early return to favour for nants of stockmarket behaviour have TMT stocks. Many of these companies reversed roles. The monetary back- are sensitive to a cyclical slowdown as ground, previously a cause for concern, businesses curb their capital spending has become more relaxed, and looking after several years of heavy investment. into next year should become a positive Historical precedents from previous times force. In contrast, corporate profits have of market excess suggest that a significant been growing strongly but are now losing period can pass before confidence is momentum; further downgrades are restored in formerly exuberant areas of likely in the months ahead as global the market. We believe our portfolios, growth slows. Our belief is that in setting which have a bias towards companies the general direction of equity markets, with stable growth characteristics, are DEFINITIONS monetary influence is the more important positioned to perform well in the year and this supports our positive view of ahead. Total assets means total assets markets in the year ahead. Equity valua- less current liabilities. tions have improved as bond yields have fallen while corporate profits have con- Net Asset Value ANAV) is stated tinued to grow, albeit at a moderating after deducting borrowings at rate. book value.

The shift in sentiment away from the Discount is the difference technology, media and telecoms ATMT) between the ordinary stockmar- sectors has been very pronounced, and Ian McLeish ket price and the NAV expressed the move we made into value stocks Donald Ness as a percentage of the NAV. during 2000 has proved to be well timed. 18 December 2000

NAV AND STOCK PRICE RELATIVE TO BENCHMARK 3 years to 31 October 2000

110

105 The index quoted for UK performance comparisons is the FTSE Actuaries UK All-Share Index. For all other markets the constituents of the FTSE World 100 Index Series have been used. Unless otherwise stated, SIT and index per- formance figures have been adjusted for currency movements.

95 Unless otherwise stated, SIT ordinary stock performance figures are based on mid price to mid price before 90 expenses.

THE SCOTTISH INVESTMENT TRUST PLC 12 Portfolio Review

United Kingdom

LISTED EQUITIES »738.3m PRINCIPAL HOLDINGS »'000

VODAFONE 54,214 World's largest mobile telephone operator with the financial strength to support investment in new technology and growth markets.

BP AMOCO 43,545 Integration of acquisitions Atlantic Richfield and Burmah Castrol has improved oil and gas reserves and product range.

HSBC HOLDINGS 37,463 One of the leading international banks following acquisitions in Europe and the US.

GLAXO WELLCOME 35,484 The proposed merger with SmithKline should create a market leader in most therapeutic categories.

SHELL TRANSPORT 28,151 Continued attention to improving return on investment and the strong oil price will significantly lift profits.

ROYAL BANK OF SCOTLAND 22,257 The purchase of NatWest earlier this year provides opportunities to rationalise and to refresh a strong brand. Marconi's unique semiconductor LLOYDS TSB 22,218 wafer processing technology Aour The management has built a strong franchise holding valued at »18.1m) but seeks further expansion to become a The UK market should perform relatively leading European financial services well in the coming year. provider. Investing in the UK stockmarket last year SMITHKLINE BEECHAM 21,801 Merging with Glaxo Wellcome; expecting was a switchback affair. High volatility strong growth from new products and within the broad market indices was existing portfolio of drugs. accompanied by rapid rotation of leadership between major sectors. The BRITISH TELECOM 20,038 Taking full control of Cellnet and market rose to a new high at the end of developing internet capabilities for retail December 1999 in thin volume as trading and business customers highlights the almost ground to a halt in trepidation changing focus of the group over perceived millennium computer bugs. A sharp fall in the first few weeks BARCLAYS 18,083 Expanding with the acquisition of the of the New Year preceded another rise in Woolwich and the development of one of March driven by TMT stocks only to be the fastest growing internet bank operations. followed by yet another steep fall in April. While shares in the FTSE 100 index of TOTAL 303,254 largest companies demonstrated the greatest volatility, middle-range companies fared better by comparison, partly due to a high level of corporate activity.

Over the summer, the focus returned to TMT stocks driving the market up again. However, worries over the high debt

THE SCOTTISH INVESTMENT TRUST PLC Portfolio Review 13 incurred by the telephone operators in three 1/4% interest rate increases during buying third generation licences, and the year to reach a rate of 6%. Many profit warnings by a number of commentators believe that rates are near a American technology companies, peak and will fall slowly as we move into reversed the trend. Investment in these 2001. Persistent weakness of the euro has sectors has been exceptionally difficult. been unhelpful to British companies While our selection of media stocks and a exporting into our most important significant position in information trading market. While the substantial technology both contributed to increase in the oil price has had a performance, we were late in reducing negative impact on certain industries, as the telecom sector and lost part of the an oil producing nation this has not held profits which had been available. the UK economy back. Our large holdings in BP and Shell have both benefited. The FTSE All-Share finished only 6.0% higher over the twelve months. By a Economic growth has generated greater combination of sector balance and stock tax receipts than forecast and with the selection our portfolio rose by 9.2% in next General Election drawing closer comparison. Once again we have there are some concerns that the participated in the market strength in Chancellor will rekindle inflation in an smaller companies through our portfolio election giveaway. If his ``prudence'' of small company investment trusts prevails then the outlook for modest which we assembled over two years ago. growth and falling interest rates sets an We also benefited from the takeover of acceptable backdrop for a stockmarket middle capitalisation companies such that should perform relatively well in the as property developer MEPC and coming year. McKechnie, the engineering company.

Commencing in the spring we took advantage of depressed valuations among shares which had been left behind in the headlong rush into TMT, Ian G. Anderson investing »91.0m of the proceeds of our bond issue in sound companies such as Abbey National, Great Universal Stores and Powergen. Other `value' purchases included the life companies Allied Zurich and Sun Life both of which were subsequently acquired by their parent companies. At our year end this portfolio was valued at »104.8m, an appreciation of 15.2% on cost, and we also generated income of »2.7m. These gains were in addition to the good performance of the main UK portfolio.

During the year »78.2m was realised from the UK, primarily towards the re- purchase of SIT shares. The opportunity was taken to eliminate a number of consumer stocks suffering from a lack of pricing power in a low inflation environment.

The economy has continued along a modest growth, low inflation path and the Bank of England announced only

THE SCOTTISH INVESTMENT TRUST PLC 14 Portfolio Review

Continental Europe

LISTED EQUITIES »223.2m PRINCIPAL HOLDINGS »'000

NOKIA AFinland) 10,479 Renowned for its innovative mobile phones, Nokia is the global market leader and a prominent player in mobile network infrastructure.

NESTLEè ASwitzerland) 8,089 International food giant now focused on a select number of thriving business lines.

SOCIEè TEè GEè NEè RALE AFrance) 7,521 Attractively valued French bank with core activities of domestic retail banking, corporate and investment banking and asset management.

AXA AFrance) 7,326 A leading international insurer and asset manager which has established strong global positions.

TOTALFINAELF AFrance) 6,631 A product of a Franco-Belgian merger, this oil producer and refiner is now regarded as German pharmaceutical group Schering one of the world's supermajors. has leading franchises in therapeutic and diagnostic treatments Aour holding valued Longer term, European markets can make ALLIANZ AGermany) 6,524 at »5.3m) good progress based on the scope for raising A leading global insurer and asset manager productivity levels. at the heart of the European finance sector and poised to benefit from German tax reforms. Of the major markets Continental Europe provided the strongest returns in local UBS ASwitzerland) 6,302 terms over the year, rising 24.9%. Swiss banking group with leading asset However, the well-publicised weakness management, investment banking and private banking operations. of the euro saw that return reduced in sterling terms to 14.6%. The strongest AVENTIS AFrance) 6,202 performances came from Italy, France One of Europe's pharmaceutical majors, the and Germany but there was greater result of a merger between Rhone Poulenc and Hoechst. variation among the smaller markets. For the third consecutive year, our ROYAL DUTCH PETROLEUM European portfolio outperformed the ANetherlands) 5,707 Europe Aex UK) index, rising 19.4% in Benefiting from both cost cutting and the sterling. strong oil price.

TELEFONICA ASpain) 5,583 Our year began with the European Spanish telecommunications giant building markets breaking out of a narrow strong positions in European mobile and trading range to start a dramatic rally Latin American fixed and mobile telephony. which, between mid October and early TOTAL 70,364 March, saw a rise of 34.2% in sterling terms. This was attributable to the extraordinary performance of the TMT sectors. Investor conviction over the potential for growth in the new economy sectors drove these stocks to remarkable heights.

THE SCOTTISH INVESTMENT TRUST PLC Portfolio Review 15

Between March and October, the market Other recent new purchases were Swiss remained within a trading range as the watch company Swatch, Peugeot and TMT sectors became overpriced and several medium sized companies with investors sought value on a broader basis. good growth prospects including German pharmaceutical group Altana Over the year, expectations of GDP and French services group Penauille growth in the euro-zone for 2000 were Polyservices. revised upward to 3.5% as the region benefited from the strong global economy Among sizeable holdings sold because of and the stimulus to exports from the diminishing prospects were Roche and weak currency. The European Central AstraZeneca Apharmaceuticals), German Bank AECB) remained in a quandary over industrials Bayer and DaimlerChrysler, the decline of the euro which has fallen and Electrolux. considerably against the dollar since launch in January 1999. Headline The European market has been range- inflation, which is running at around bound over recent months during which 2.8% year on year, exceeds the ECB's time the large supply of new equity policy target of 2%. The main response overhanging the market has eased and has been steadily to increase interest rates TMT valuations have adjusted to more from 2.5% last October to the current realistic levels. Value in the European intervention rate level of 4.75%. Much of market as a whole is currently reasonable. the rise in price inflation is related to the Following an advance in corporate jump in oil prices since core inflation is earnings of around 17% this year, running at only 1.4%. One of the other forecasts point to another good year main events of the year was the passing in with growth of 15%. However, slowing Germany of widespread tax reform economies in 2001 and a possible modest legislation which has positive long-term revival in the euro could see earnings implications for the German corporate growth nearer 10% next year. Longer sector. term, there is good reason to believe European markets can make good Part of the strong portfolio performance progress based on the scope for raising stemmed from good positioning ahead capital returns and productivity levels of the TMT sector rally. Large profits nearer to those of the United States. were later realised in a number of media holdings, particularly French television group TF1. Other media stocks which performed well and were sold into the sector rally included French advertiser Havas Advertising, German John Kennedy television group ProSieben and Italian publisher Seat Pagine Gialle. Excellent profits were realised on our holding in Mannesmann, which was acquired by UK's Vodafone early in the year. The single largest gain in the portfolio resulted from our large holding in Nokia, another stock reduced heavily near the sector peak.

Significant new holdings include Ger- man pharmaceutical group Schering, Nestle¨ and Swedish bank Svenska Handelsbanken, all of which made material contributions to performance.

THE SCOTTISH INVESTMENT TRUST PLC 16 Portfolio Review

Americas

LISTED EQUITIES »355.4m PRINCIPAL HOLDINGS »'000

GENERAL ELECTRIC 14,986 The largest multi-industry company in the US with leading market positions in its many businesses including financial services.

AMERICAN INTERNATIONAL GROUP 12,708 A major international insurance group with a long record of delivering consistent earnings growth.

CITIGROUP 11,959 One of the largest financial services groups in the US focusing on three main businesses; global consumer, asset management and international banking.

MICROSOFT 11,052 The world's largest producer of software with strong new product potential linked to the growth in internet technology.

INTEL 10,537 The leading manufacturer of The Pembroke refinery of Texaco, one of the world's major oil companies Aour holding microprocessors serving the personal valued at »4.3m) computer market.

MERCK 10,529 The overall market is looking much better Leading research driven pharmaceutical value. company with a good pipeline of new drugs and a history of steady earnings The US stockmarket rose by 19.4% in Over the year the US portfolio rose by growth. sterling terms over our year but the bulk 17.4%. We underperformed the market of this gain related to dollar strength with over the first four months of our year BANK OF AMERICA 8,937 Major bank holding company formed by the the underlying market only advancing when technology stocks rose to excessive merger of NationsBank with BankAmerica. 5.7%. Up to March the market rose valuations. Although we had added to strongly, led by the technology sector, technology we were still underweight and INTERNATIONAL BUSINESS but the NASDAQindex Apredominantly this was costly over that period. Since MACHINES 8,900 Is now emphasising software and service technology) peaked that month and since then the portfolio has outperformed its revenues which are expanding rapidly. then there has been a more broadly based, benchmark strongly as we benefited from though still very volatile, market. having heavy positions in a number of EMC 8,525 sectors which did well, including energy, Leading producer of storage products for mainframe and open computer systems with The economy has again been strong with financials, healthcare and utilities. We strong earnings growth potential. GDP expected to be up 5% in 2000. The remained actively invested in energy for unemployment rate is very low but six rises the full year, believing that oil prices EXXON MOBIL 8,414 in short term interest rates implemented would stay high and push up earnings After the merger with Mobil Oil, Exxon is growth. We built up an overweight the world's largest oil group benefiting from by the Federal Reserve since June 1999 substantial merger synergies and high oil have begun to impact the economy. In position in utilities, which was the best prices. fact, like the stockmarket, the economy performing sector of the market. The US has been split into the high growing needs to increase its power provision and TOTAL 106,547 technology sector and the slower growing Duke Energy and Enron have been manufacturing sector. Strong corporate innovative and aggressive in increasing earnings growth has been concentrated their market share. They outperformed into two sectors, technology and energy, the market by 45% and 94% respectively. where earnings for 2000 are forecast to rise Our healthcare holdings, Cardinal Health by 36% and 94% respectively. Inflation and Medtronic, rose strongly and has increased modestly but does not appear defensive stocks, Walgreen, a pharmacy to be a threat. However, the trade deficit chain, PepsiCo, and Sysco, a food has widened further. distributor, also performed well.

THE SCOTTISH INVESTMENT TRUST PLC Portfolio Review 17

At present there is a tug of war between those who are negative, expecting a recession or at least a hard landing, and those who expect a slowdown with interest rates soon peaking. Our own view is tilted towards the latter. High energy prices and unrest in the Middle East contribute to the bear case for the market. The credit outlook has also worsened with increasing default rates. However, many of the excesses of recent years have been squeezed out and the overall market is looking much better value on a forward price earnings ratio at a level not seen for three years. Pessimism in the market is rising as nearly 80% of stocks in the NASDAQindex are down by more than 20% from their highs, and This VAIO notebook pc incorporates a network connector as well as Sony's unique Jog dial 45% are off more than 50%. Towards control Aour holding valued at »4.9m) our year end we took advantage of this pessimism, investing »23.3m of our bond There are some good technology proceeds in a selection of growing Japan companies in Japan. companies on relatively modest valuations. LISTED EQUITIES »119.8m PRINCIPAL HOLDINGS »'000 Japan's gradual economic recovery has continued and GDP growth for the fiscal Investment has been flowing into money TAKEDA CHEMICAL market funds where assets have grown by INDUSTRIES 8,525 year to March 2001 is expected to meet 22% year on year to $1.8 trillion and This top Japanese pharmaceutical company the government's target of 1.5%. cash levels at mutual equity funds are at a continues to expand into USA and Europe However, performance is very patchy with a range of innovative drugs. high level. This means that there is plenty and while industrial production, capital investment and exports are quite buoyant of liquidity that could go into the market ROHM 8,409 when sentiment changes. On the Leading manufacturer of customised IC consumer demand remains depressed. economic front, while growth is slowing, chips for mobiles, computers and other electronic goods. the government has accumulated a budget The Japanese stock market started our year well and rose by 12.6% in yen terms surplus of a record $237bn, creating the INVESCO GT JAPAN best conditions for public finances since ENTERPRISE FUND 6,909 to a peak in February as investors the 1950s. This should provide comfort to continued to push up the valuations of FLEMING JAPANESE the Federal Reserve even if a new the fashionable technology and telecoms SMALLER COMPANIES companies. We performed very well over administration is tempted to cut taxes INVESTMENT TRUST 5,373 and increase government spending. These two funds specialise in smaller this period. These sectors then fell from Productivity gains are still being companies in the technology and service favour and there have been no other sectors with future growth potential. achieved and latest economic reports major areas showing sufficient growth within the Japanese economy to point to modest growth and fairly stable NTT DOCOMO 5,056 core inflation. We remain cautiously Japan's leading cellular operator now compensate for their weakness. As a optimistic. starting international expansion following result the market has declined steadily success of `i-mode' mobile internet function since February and over our full year it in Japan. fell by 8.0% in local terms, although the strength of the yen reduced this fall to TOTAL 34,272 0.7% in sterling terms. Our portfolio Hilary Vandore declined by 5.5% Ain sterling).

We diversified our holdings away from a heavy dependence on technology and telecoms through reductions in holdings such as Matsushita Communications Industrial Amobile handsets), Advantest Asemiconductor manufacturing equip-

THE SCOTTISH INVESTMENT TRUST PLC 18 Portfolio Review

ment) and Nippon Telegraph & Pacific 8ex Japan) Prospects for Singapore, Hong Kong and Telephone ANTT) all of which had been China remain positive. very successful investments for us. The Listed Equities »56.4m proceeds were used to start new positions Principal Holdings »'000 The buoyancy of world economies has in domestic growth companies such as been reflected in strong intra-Asian trade HUTCHISON WHAMPOA 3,417 with area GDP growth close to 7% for Chugai Pharmaceutical, Amada Amachine AHong Kong) 2000. While most regional stockmarkets tools) and Fast Retailing. Expansion by the world's largest port operator in Europe and China has rose over our first two months a sharp Apart from its world class technology accompanied strategic repositioning of setback followed the bursting of the mobile telecoms interests. companies, investors in Japan have been global technology bubble. Hong Kong/ China, Singapore and Australia recovered attracted to the potential for corporate CHEUNG KONG HOLDINGS 2,780 restructuring. There are some high profile AHong Kong) some ground later to maintain a positive examples, such as the nine major banks Expectations of an upturn in the residential trend despite rising interest rates. Our property market during 2001 complements and city banks that are merging into four concentration in these markets was the value of a 49.9% holding in Hutchison rewarded with a 16.1% increase in large groups to meet global competition; Whampoa. and many companies are introducing portfolio value for the year. Meanwhile early retirement schemes and closing CHINA MOBILE 2,640 growing uncertainties in the more factories. But despite these encouraging AChina) peripheral areas of Taiwan, Korea and Shareholder value is being enhanced Thailand, where markets plumbed twenty signs change is slower than expected. through a major asset acquisition in the After ten years of miserable economic lowly penetrated but fast growing wireless month lows, restricted the regional index growth there is still a distinct lack of market. to an increase of just 1.9%. Our strong urgency. outperformance continued the trend of SWIRE PACIFIC 2,472 recent years. AHong Kong) In the meantime bankruptcies are on the A beneficiary of improving demand for increase. Sogo, a nationwide store chain, office and investment property; major China provided a positive impetus, was a spectacular failure in July and since interest in Cathay Pacific airline achieving 32.0% growth in exports and experiencing strong traffic growth. then three medium sized life assurance 13.0% for fixed asset investment. Ongoing reforms, spurred by imminent companies have gone under. While this DAO HENG BANK 2,209 weeding out process is painful in the AHong Kong) World Trade Organisation membership, short run it is necessary to achieve a Hong Kong's fourth largest bank has are liberating areas of an economy soundly based long term recovery. invested heavily in IT systems for its growing at 8.2% this year. China's growing retail, mortgage and credit card relative immunity to external problems franchises. Within the stockmarket the supply/ has been reflected in the performance of demand situation is unhelpful. Changes TOTAL 13,518 Hong Kong with stocks like Hutchison in accounting rules are encouraging Whampoa benefiting from trade and companies to reduce cross holdings in telecom-related activities. We heavily each other and this is likely to be a overweighted Hong Kong all year and continuing feature. Supply is rising with outperformed the local index additional stock coming to the market in significantly, led by holdings in China the form of new flotations, the recent Mobile Atelecoms), Dao Heng Bank and government sale of a further tranche of its HSBC Abanking). holding in NTT, and a likely fundraising from that company's subsidiary, Singapore's heavy reliance on electronics NTT DoCoMo. exports will partially outweigh its traditional regional trading strengths. Despite these negatives there are some Corporate restructuring continues and good companies in Japan, particularly in growth is reviving in the banking and the technology area, which are continuing real estate sectors. Our holdings in to grow and are now on reasonable Overseas Union Bank and Keppel Land ratings. Better share price performance benefited from these trends. from these may have to await a revival of interest in technology in the US. In the Despite a continued strong economic meantime we will continue to keep a performance, market sentiment in strong representation in this sector. Australia has been affected by a radical mid-year tax package, anticipation of a slowdown in world growth and demand Mari Yamamoto for commodities. The currency has fallen

THE SCOTTISH INVESTMENT TRUST PLC Portfolio Review 19

PetroChina ^ optimising its crude oil and natural gas exploration and development activities Aour holding valued at »1.3m)

to an all-time low with local equities Though a slower pace of economic and increasingly seen as ``old economy'' rather export growth will occur in 2001 and than of the high technology, new investors require remedial action in the paradigm age. Yet services now account troubled economies, the prospects for for 80% of GDP and while reducing our Singapore, Hong Kong and China commitment in favour of Hong Kong/ remain positive and are beneficiaries of China, we reinvested in leading energy likely lower world interest rates. China's utility AGL. equity base is broadening and the country is moving towards greater integration We recognised that investor confidence in with the developed world. These the region was being eroded by the failure markets have retraced to levels seen in in a number of the fringe economies to May, due mainly to external factors, yet resolve endemic problems left behind by earnings growth is strong and investment the 1997/8 stockmarket and economic ratings undervalue the prospects. setback. These include the highly indebted Accordingly we anticipate further and troubled Korean conglomerates, progress from our portfolio. political risks in the Philippines and Indonesia and financial instability in Taiwan and Thailand. Malaysia has yet to restructure its corporate sector and retains a 10% investment exit tax. Michael Dick Sharply higher oil prices reduce the growth prospects of an import- dependent area. Meanwhile weakening orders for electronic components are adverse for the regional outsource beneficiaries of leading US and European manufacturers.

THE SCOTTISH INVESTMENT TRUST PLC 20 Investor Information

Left to right: Iain Harding, Alan Jamieson, Sherry-Ann Sweeting and Sarah Monaco.

THE SCOTTISH INVESTMENT The Scottish Investment Trust can be used SIT's tax-free individual savings account ^ TRUST for a number of savings requirements such The SIT ISA ^ is again one of the most The Scottish Investment Trust is one of as helping to pay off your mortgage or to competitive schemes available. There is no the largest investment trusts in the UK. supplement your retirement income. initial charge, no charges are incurred for Launched in 1887, it is one of the few Furthermore, it is an ideal way for closure or for withdrawals Aproviding the trusts which have remained independently investing on behalf of a child with a view remaining balance is »500 or more) and managed, thus allowing the management to providing a nest egg for the child's there is no annual management fee until to follow a focused approach to investing. future. Investing in SIT can also be used to 6 April 2001 when it will be just 0.6% This has enabled SIT to provide a help save for expenses ^ such as school capped at »30 A+ vat) p.a. Both Mini and consistently good performance for its and university fees, a deposit on a first Maxi equity ISAs are available. investors ^ with an average annual return home, a wedding or a business start up. over the last fifty years of 16.9%. SIT's Personal Equity Plan ^ The SIT PEP SIT SAVINGS PRODUCTS ^ also has one of the lowest charging WHY INVEST IN SIT? SIT's wholly-owned subsidiary, SIT Sav- structures available, with an annual fee of Over the past five years SIT has out- ings Limited, offers investors access to our only »30 A+ vat). This annual fee remains performed the average investment trust, ordinary stock units through a number of fixed regardless of the number of PEPs equity unit trust and building society. cost effective plans: held. Although PEPs are now ring-fenced, and no further investment is allowed, The Scottish Investment Trust provides SIT's savings scheme^STOCKPLAN^has existing investments may continue to investment products for a wide range of amongst the lowest charges of any invest- grow tax-free and transfers between investors. These have the flexibility to ment trust savings schemes on offer. Unlike qualifying PEP managers are allowed. accommodate investors' requirements ^ many other schemes, there is no initial There is no entry charge for transferring be it a large lump sum or a small charge, no annual management fee and, an existing general PEP to the Scottish amount saved on a regular basis or a with a selling charge of only »10 + vat, it Investment Trust in order to benefit from combination of both. The PEP Transfer provides a very cost effective investment The SIT PEP's low costs and consistent and the Mini and Maxi ISAs facilitate plan. There is considerable flexibility built performance. tax free savings. into the scheme, allowing any combination of minimum regular investments from only All schemes provide automatic »25 per month or lump sum investments reinvestment of dividends, but also allow from »250. There is no maximum invest- for dividends to be taken as income if ment limit and you can stop and start at required. any time.

THE SCOTTISH INVESTMENT TRUST PLC Investor Information 21

TWENTY YEAR TOTAL RETURN How an investment in SIT has performed relative to UK inflation and UK house prices.

PERFORMANCE COMPARISONS How an investment in SIT has performed relative to other forms of collective investment.

Notes 1 1 NAV/share price with net income reinvested based on AITC figures adjusted for notional expenses of 2 Ù2%. 2 Offer to bid, net income reinvested. Source: AITC. 3 Offer to bid, net income reinvested. Source: Money Management December 2000. The figures show the total return on »100 invested at the beginning of the period including net income reinvested and allowing for notional expenses of buying and selling.

THE SCOTTISH INVESTMENT TRUST PLC 22 Investor Information

SHARE EXCHANGE FACILITY STOCKPLAN, PEP and ISA investors are For written details on any SIT scheme or SIT Savings offers a low cost share also entitled to attend and vote but, as product offer please visit our web site: exchange facility through which most their holdings are registered in the name www.sit.co.uk or contact: UK equities and gilts may be exchanged of a nominee, they need to forward their into STOCKPLAN or The SIT ISA. instructions in writing to the relevant SIT Investor Relations administratoröBank of Scotland for SIT Savings Limited HOW CAN I MONITOR MY PEP and ISA investors, The Bank of Freepost EH882 INVESTMENT? New York Europe Limited for STOCK- Edinburgh EH2 0BR SIT's share price, together with perfor- PLAN investorsöto arrive no later than Telephone: 0800 42 44 22 mance information and product details seven working days before the meeting. Facsimile: 0131 226 3663 can be found on SIT's web site: The administrators' addresses can be E-mail: [email protected] www.sit.co.uk found on page 40.

The price of ordinary stock units is also PERSONAL TAXATION published daily in most quality broad- Income Tax sheet newspapers and is available on Currently, all UK dividends are paid to the FT Cityline telephone service stockholders net of a tax credit of 10%. 0336 433953 or 0891 433953. Share Changes to the tax regime mean that from price information is also available on April 1999 non tax payers are no longer Ceefax page 231 and Teletext page able to reclaim the tax credit. It is 537, listed as Scot.IT. A number of currently only reclaimable by PEP and financial web sites, such as the FT ISA managers on behalf of their investors web site www.ft.com and Trustnet on dividends paid before April 2004. Non www.trustnet.co.uk also carry share ISA and PEP stockholders liable to higher price information. rates of tax will be assessed for any additional tax through their annual The Scottish Investment Trust issues returns. weekly net asset value information on its web site. An interim report is issued in Capital Gains Tax 8CGT) June of each year, with the annual report Investment trusts currently pay no CGT being distributed to all investors in late on gains made within the portfolio. When January. investors sell all or part of their holdings, they may be liable to CGT. Currently the STOCKPLAN, PEP and ISA investors first »7,200 pa of such gains from all receive twice yearly statements of their sources is exempt. holdings, and SIT's investor newsletter is issued twice yearly. Up to 5 April 1998 the cost of invest- ments for CGT purposes was adjusted to Investors who hold ordinary stock in their allow for inflation. However from 6 April own name on SIT's share register can 1998 this indexation was replaced by a check their holding, as well as access taper relief, and from this date chargeable some administrative facilities, at our gains will be reduced in line with the Registrars' web site www.cshare.co.uk length of time the investment has been or computershare.com or through the held. link on our web site. Please note that to For investors who purchased stock prior access this facility investors will need to to 31 March 1982 the cost for CGT quote the reference number shown on purposes may be based on the price on their stock certificate. Dividends can be that date of 41.472p. automatically reinvested by joining our dividend reinvestment plan. Details are Investors who are in any doubt as to their Please remember that we are unable to available from the company's Registrar liability for CGT should seek professional offer individual investment or taxation on telephone number 0870 702 0010. advice. advice. If you require such advice, you should consult your professional adviser. STOCKHOLDERS' MEETINGS ISA and PEP investments will continue to SIT Savings Limited is regulated by the Investors whose names appear on the remain exempt from CGT. Personal Investment Authority PIA). main stock register are entitled to attend Past performance is no guarantee of future returns and the capital value of and vote at the AGM and other general Further details units and the income from them) may meetings without taking any further Existing investors with administrative fall as well as rise and is not guaranteed. action. Notices of meetings and proxy queries can contact the relevant ad- An investor may not get back the amount cards are sent to their registered ministrator direct by using the helpline originally invested. addresses. numbers listed on page 40.

THE SCOTTISH INVESTMENT TRUST PLC Distribution of Assets by Sector 23

Based on total assets at 31 October 2000 of »1,579.0m October October United Continental Pacific 2000 1999 Kingdom Europe Americas Region Total Total %%%%% % Equities Resources 5.5 1.1 1.4 0.3 8.3 9.0 Mining 0.4 0.0 0.0 0.1 0.5 0.4 Oil & Gas 5.1 1.1 1.4 0.2 7.8 8.6 Basic Industries 1.7 0.2 0.5 0.8 3.2 3.4 Chemicals 0.2 0.0 0.3 0.5 1.0 1.5 Construction & Building Materials 1.4 0.2 0.0 0.3 1.9 1.5 Forestry & Paper 0.1 0.0 0.2 0.0 0.3 0.4 General Industrials 1.3 1.4 1.6 1.5 5.8 7.6 Aerospace & Defence 0.8 0.0 0.0 0.1 0.9 0.5 Diversified Industrials 0.0 0.4 0.4 0.6 1.4 1.3 Electronic & Electrical Equipment 0.2 0.7 1.0 0.7 2.6 3.5 Engineering & Machinery 0.3 0.3 0.2 0.1 0.9 2.3 Cyclical Consumer Goods 0.0 0.7 0.1 0.8 1.6 2.1 Automobiles 0.0 0.5 0.1 0.3 0.9 1.4 Household Goods & Textiles 0.0 0.2 0.0 0.5 0.7 0.7 Non-cyclical Consumer Goods 6.3 1.9 4.7 1.4 14.3 12.7 Beverages 0.9 0.0 0.8 0.1 1.8 1.1 Food Producers & Processors 0.0 0.9 0.5 0.0 1.4 1.9 Health 0.3 0.0 1.2 0.0 1.5 0.4 Packaging 0.0 0.0 0.0 0.2 0.2 0.4 Personal Care & Household Products 0.0 0.0 0.2 0.2 0.4 0.3 Pharmaceuticals 4.6 1.0 2.0 0.9 8.5 8.1 Tobacco 0.5 0.0 0.0 0.0 0.5 0.5 Cyclical Services 7.1 0.7 1.3 1.2 10.3 13.4 Distributors 0.4 0.0 0.0 0.2 0.6 1.1 General Retailers 1.0 0.0 0.6 0.1 1.7 2.4 Leisure, Entertainment & Hotels 0.3 0.0 0.2 0.3 0.8 1.5 Media & Photography 2.3 0.3 0.3 0.3 3.2 4.1 Restaurants, Pubs & Breweries 1.0 0.0 0.0 0.0 1.0 0.8 Support Services 0.5 0.4 0.2 0.0 1.1 2.0 Transport 1.6 0.0 0.0 0.3 1.9 1.5 Non-cyclical Services 6.4 1.4 2.3 1.0 11.1 12.2 Food & Drug Retailers 0.6 0.2 0.6 0.1 1.5 1.0 Telecommunication Services 5.8 1.2 1.7 0.9 9.6 11.2 Utilities 2.3 0.4 1.1 0.1 3.9 3.0 Electricity 1.1 0.4 0.6 0.0 2.1 2.0 Gas Distribution 0.0 0.0 0.5 0.1 0.6 0.1 Water 1.2 0.0 0.0 0.0 1.2 0.9 Information Technology 3.2 1.5 5.2 1.2 11.1 7.0 IT Hardware 2.0 1.3 3.6 1.1 8.0 4.5 Software & Computer Services 1.2 0.2 1.6 0.1 3.1 2.5 Financials 14.4 4.8 6.5 2.9 28.6 27.7 Banks 7.6 2.8 1.8 0.9 13.1 12.4 Insurance 0.0 1.1 0.8 0.1 2.0 2.2 Life Assurance 2.0 0.6 0.4 0.0 3.0 2.6 Investment Companies 3.6 0.3 2.5 0.9 7.3 6.9 Real Estate 0.5 0.0 0.1 0.6 1.2 1.3 Speciality & Other Financials 0.7 0.0 0.9 0.4 2.0 2.3 Total Equities 48.2 14.1 24.7 11.2 98.2 98.1 Net Current Assets 1.6 0.3 0.0 80.1) 1.8 1.9 Total Assets 49.8 14.4 24.7 11.1 100.0 100.0

Total equities include convertibles »8,744,000 = 0.6% A1999 ^ »9,300,000 = 0.7%).

THE SCOTTISH INVESTMENT TRUST PLC 24 Directors' Report

DIVIDEND November 1998. Sir Angus Grossart and ments and ensuring adequate financial The directors have declared in lieu of a Sir George Mathewson do not have reporting. There is a formal schedule of final dividend a second interim dividend service contracts with the company. All matters reserved for the board. of 4.63p per ordinary stock unit payable directors are subject to re-election in All seven members of the current board on 9 February 2001 which, with the rotation by stockholders. Except as pro- are non-executive and are independent of interim dividend of 2.27p already paid, vided below, no contract or arrangement the company's management. Day to day makes a total of 6.90p for the year. The entered into by the company in which any management is in the hands of the total dividend absorbs »17,318,000 director is interested has subsisted during company's two managers who report leaving »3,348,000 to be transferred to the year. directly to the board. revenue reserve. The company maintained liability insur- All directors appointed after 1995 are ance for its directors and officers through- appointed for fixed terms of three years. BUSINESS AND TAX STATUS out the year. The business of the company is that of Each year at the annual general meeting an investment trust and it is registered as one third of the board retires and is an investment company within the mean- DIRECTORS' FEES eligible for re-election. ing of the Companies Act 1985. A review The following resolution will be included of the company's business during the year as part of the ordinary business of the Prior to each board meeting directors are is given in the chairman's statement on annual general meeting: `Until altered by provided with a comprehensive set of page 4 and the management review on the company in general meeting the fees papers giving detailed information on the page 8. of the directors shall not exceed »17,250 company's transactions, financial posi- per annum per director except in the case tion and performance. There is a proce- The company has continued the pro- of the chairman whose fee shall not dure for directors to seek independent gramme of ordinary stock buybacks exceed »28,500.' professional advice at the expense of the authorised by stockholders in April company and training is available to 1999 and January 2000. During the year 53Ù % SECURED BONDS DUE directors as required. 24,146,629 ordinary stock units, repre- 4 17/4/2030 senting 8.8% of the issued ordinary stock There is a nomination committee com- On 17 April 2000 the company issued at 31 October 1999, were repurchased at prising the whole board for the purpose »150m of 30 year secured bonds with a a cost of »104,864,000. 3 of selecting and appointing new directors. coupon of 5 Ù4 % priced at »98.288 per The Inland Revenue has approved the »100 nominal. The net proceeds company for the purposes of S842, amounted to »144,987,000. Allowing Remuneration Income and Corporation Taxes Act for the amortisation of the discount and The board has appointed a remuneration 1988 up to the accounting period ending expenses associated with the issue the committee to recommend pay and condi- 31 October 1999. The company has overall financing cost to the company is tions for the board and employees. subsequently continued to satisfy the just under 6.0% per annum. The issue Directors' fees are set with a view to conditions for such approval. The `close expenses included a fee of »100,000 plus attracting individuals of appropriate company' provisions of the 1988 Act do VAT to Noble Grossart Limited of which calibre and experience and taking into not apply to the company. Sir Angus Grossart is chairman and account the level of fees paid by similar managing director. The company has throughout the year met investment trusts. No other benefits are the requirements for full qualifying status provided to directors. Fees recommended under the Personal Equity Plan legislation. CORPORATE GOVERNANCE by the remuneration committee are It is the directors' present intention to The Committee on Corporate Govern- subject to approval by the board and continue to meet these requirements. ance published its report on the principles stockholders. of good governance and code of best practice entitled ``The Combined Code'' Since all directors are non-executive the DIRECTORS in June 1998 and this was incorporated company is not required to comply with The directors who held office during the into the Listing Rules of The UK Listing principles B1, 2 and 3 of the Combined financial year and their interests in the Authority in January 1999. Code which relate to executive directors. company's capital are shown on page 36. Sir Angus Grossart, Mr Francis Finlay The board has considered the principles With regard to the company's employees, and Mr Douglas McDougall retire by set out in the Combined Code and believes the company aims to provide levels of rotation from the board of directors at the that the way the company is governed is remuneration in line with similar organi- annual general meeting but are eligible for consistent with those principles. sations and to reward responsibility and re-election. Mr Francis Finlay, Mr Ham- achievement. Basic salaries are compared ish Leslie Melville and Mr Ian Russell The principles of good governance annually with those of equivalent employ- were appointed directors for fixed terms Directors ees in a group of comparable fund of three years in November 1996 which The board meets monthly throughout the management organisations operating in were renewed in November 1999 for year and deals with important aspects of Scotland. Remuneration consists of basic a further three years. Mr Douglas the company's affairs including setting salary, a performance-related bonus and McDougall and Sir Paul Nicholson were and monitoring strategy, reviewing per- benefits including a contributory pension appointed for fixed terms of three years in formance, the making of major invest- scheme.

THE SCOTTISH INVESTMENT TRUST PLC 25

Relations with stockholders ment or loss. The board confirms that the compelling case for having a senior The company recognises the value of effectiveness of the company's internal independent director. good communications with its stock- financial controls is reviewed by the audit holders. The managers meet regularly committee every six months. The com- The Turnbull guidance on internal con- with the company's major institutional pany has only 25 employees and the audit trol requires to be adopted in full for stockholders and all attendees at the committee considers that an internal audit accounting periods ending on or after AGM have an opportunity to ask ques- function is not required. This is reviewed 23 December 2000. tions of the board and management. every year. Newsletters are sent to stockholders The board has considered the Turnbull The audit committee also reviews on an during the year. Proxy voting figures guidance and has carried out a compre- annual basis the scope and results of the for each resolution are announced to the hensive review of the company's internal external audit and the company's rela- meeting after voting on a show of hands. controls. As a result it has established tionship with the auditors. Separate items of business are proposed the procedures to ensure full compliance as separate resolutions including the with Turnbull for the year commencing receipt of the report and accounts. The Directors' responsibilities 1 November 2000. annual report is sent to stockholders at Company law requires the directors to As permitted by the UK Listing Authority least twenty working days before the prepare financial statements for each the company has complied with provision AGM. financial year which give a true and fair view of the state of affairs of the company D 2.1 of the Combined Code by reporting and of the revenue and cash flows for that on internal financial control in accor- Accountability and audit dance with the guidance for directors on The respective responsibilities of the year. In preparing those financial state- ments, the directors are required to:^ internal control and financial reporting directors and the auditors in respect of that was issued by the Rutteman Working the financial statements are given on õ select suitable accounting policies and Group in December 1994. pages 25 and 26. then apply them consistently; The audit committee, which meets three SUBSTANTIAL STOCKHOLDINGS times per year, has written terms of õ make judgements and estimates that are At 18 December 2000 the company had reference. Its duties include the approval reasonable and prudent; been notified of the following holdings in of published financial statements prior to excess of 3% of its ordinary stock. approval by the full board. õ state whether applicable accounting Ordinary % of standards have been followed subject stock units issue The directors continue to believe that the to any material departures disclosed AXA Group 24,602,910 9.8 financial statements should be prepared and explained in the financial state- on a going concern basis as the assets of ments; Equitable Life the company consist mainly of readily Assurance realisable securities. õ prepare the financial statements on the Company 20,331,213 8.1 going concern basis unless it is inap- The board is responsible for ensuring that Standard Life propriate to presume that the company the company has in place an effective Assurance will continue in business. system of internal financial controls Company 12,211,125 4.8 designed to maintain the integrity of accounting records and safeguard the The directors are responsible for keeping ST Partners 7,757,000 3.1 company's assets. proper accounting records which disclose with reasonable accuracy at any time the ANNUAL GENERAL MEETING Detailed procedures are in place to ensure financial position of the company and Resolutions relating to the following that:^ enable them to ensure that the financial items of special business will be proposed statements comply with the Companies õ all transactions are accounted for accu- at the forthcoming annual general meet- Act 1985. They have general responsi- rately and reported fully to the board; ing:^ bility for taking such steps as are reason- õ the management observes the author- ably open to them to safeguard the assets Repurchase of the company's own isation limits set by the board; of the company and to prevent and detect ordinary stock fraud and other irregularities. At the annual general meeting of the õ there is a clear segregation of duties so company held on 28 January 2000 that no investment transaction can be stockholders passed a resolution giving completed by one person; COMPLIANCE the company authority to make pur- The company has complied with the õ control activities are regularly checked; chases of up to 40,664,572 ordinary provisions of the Combined Code except stock units, being 14.99% of the then õ compliance procedures are in place for that non-executive directors appointed issued ordinary stock of the company. legal and regulatory obligations. prior to 1996 have not been appointed The authority is due to expire on for specific terms and there is no senior 27 July 2001. The board recognises that such systems independent director. The directors con- can only provide reasonable, not guaran- sider that, where all directors are inde- Resolution number 5 set out in the notice teed, assurance against material misstate- pendent and non-executive, there is no of annual general meeting seeks to renew

THE SCOTTISH INVESTMENT TRUST PLC 26

the authority to repurchase ordinary to clarify the authority for the purchase As the company has no trade creditors, no stock until 22 August 2002. The principal by the company of its own ordinary disclosure can be made of creditor days at reasons for such repurchases are to stock. the year end. enhance the net asset value of the ordinary stock by repurchasing ordinary AUDITORS DONATIONS stock at prices which, after allowing for A resolution will be proposed at the During the year the company made costs, represent a discount to the prevail- annual general meeting to re-appoint charitable donations totalling »10,000. ing net asset value and also to address any Arthur Andersen as auditors and to No political donations were made. imbalance between the supply of and authorise the directors to fix their remu- By order of the board demand for ordinary stock. neration.

In connection with the repurchases of PAYMENT OF CREDITORS ordinary stock there will also be special It is the company's policy to agree in I M Harding resolution number 6 amending article 16 advance terms of business with suppliers Secretary of the company's Articles of Association and then to abide by those terms. 18 December 2000

Auditors' Report

TO THE STOCKHOLDERS OF Rules regarding directors' remunera- It also includes an assessment of the THE SCOTTISH INVESTMENT tion and transactions with the com- significant estimates and judgements TRUST PLC pany is not disclosed. made by the directors in the prepara- tion of the financial statements and We review whether the corporate We have audited the financial state- of whether the accounting policies governance statement on pages 24 ments on pages 27 to 36 which have are appropriate to the circumstances and 25 reflects the company's been prepared under the historical of the company, consistently applied compliance with the seven provi- cost convention as modified by the and adequately disclosed. revaluation of certain fixed assets sions of the Combined Code speci- and the accounting policies set out fied for our review by the Financial We planned and performed our audit on page 27. Services Authority, and we report so as to obtain all the information if it does not. We are not required and explanations which we consid- to consider whether the board's ered necessary in order to provide us RESPECTIVE RESPONSIBILITIES statements on internal control cover with sufficient evidence to give rea- OF DIRECTORS AND AUDITORS all risks and controls, or form an sonable assurance that the financial The directors are responsible for pre- opinion on the effectiveness of the statements are free from material paring the Annual Report including, company's corporate governance misstatement, whether caused by as described on page 25, preparing procedures or its risk and control fraud or other irregularity or error. the financial statements in accordance procedures. In forming our opinion we also with applicable United Kingdom law evaluated the overall adequacy of We read the other information con- and accounting standards. Our res- the presentation of information in tained in the Annual Report, includ- ponsibilities, as independent auditors, the financial statements. ing the corporate governance are established in the United Kingdom statement, and consider whether it by statute, the Auditing Practices is consistent with the audited finan- Board, the Listing Rules of the Finan- OPINION cial statements. We consider the cial Services Authority, and by our In our opinion the financial state- implications for our report if we profession's ethical guidance. ments give a true and fair view of the become aware of any apparent state of affairs of the company at We report to you our opinion as to misstatements or material incon- 31 October 2000 and of its total whether the financial statements give sistencies with the financial return and cash flows for the year a true and fair view and are properly statements. then ended and have been properly prepared in accordance with the prepared in accordance with the Companies Act. We also report to Companies Act 1985. you if, in our opinion, the directors' BASIS OF AUDIT OPINION report is not consistent with the We conducted our audit in accor- financial statements, if the company dance with Auditing Standards Arthur Andersen has not kept proper accounting issued by the Auditing Practices Chartered Accountants and records, if we have not received all Board. An audit includes examin- Registered Auditors the information and explanations we ation, on a test basis, of evidence 18 Charlotte Square require for our audit, or if informa- relevant to the amounts and dis- Edinburgh EH2 4DF tion specified by law or the Listing closures in the financial statements. 18 December 2000

THE SCOTTISH INVESTMENT TRUST PLC Accounting Policies 27

A summary of the principal accounting the directors the inclusion of these items 8e) Finance costs policies is set out in paragraphs Aa) to Ai) in the profit and loss account would be Finance costs, including dividends and below. All have been applied consistently misleading, would obscure and distort other finance costs of non-equity shares, throughout the current and the preceding both the revenue and capital performance are accounted for on an accruals basis, year except as follows: of the company and would not show and in accordance with the provisions of 1 Interest and expenses clearly revenue profits distributable as FRS 4 `Capital Instruments'. Following a change in accounting policy dividends. The directors therefore con- The discount and expenses of issue on the effective from 1 November 1999, eligible sider that these departures from the secured bonds due 17/4/2030 have been investment expenses and interest payable specific provisions of Schedule 4 of the included in the financing costs of the issue are charged one-third to revenue, two- Companies Act, and the departures from which are being amortised over the life of thirds to realised capital reserves in line accounting standards, are necessary to the bonds. with the directors' expectations of the give a true and fair view. They have no nature of long term future returns from effect on the balance sheet or total return. 8f) Taxation the company's investments. 8b) Valuation of investments Deferred taxation is provided on all timing differences expected to crystallise Tax relief applicable to those charges is Listed investments are valued at closing or in the foreseeable future using the liability allocated between revenue and capital in last traded prices according to the recog- method. The provision is calculated using the same proportion as the charges nised convention of the markets on which the rate at which the tax is expected to be themselves using the company's effective they are quoted. Where trading in the payable. rate of corporation tax for the period. securities of an investee company is suspended, the investment is valued at The effect of the change in accounting 8g) Foreign currency the board's estimate of its net realisable policy is to increase the revenue return on Transactions denominated in foreign value. The directors have adopted the ordinary activities after tax by currencies are recorded in the local guidelines issued by the British Venture »8,326,000 A1999 ^ »5,060,000) and to currency at actual exchange rates Capital Association for the valuation of decrease capital returns by the same as at the date of the transaction or, unlisted investments. Heritable property amount. The total return figures have where appropriate, at the rate of is included at a professional valuation. been restated and there has been a exchange in a related forward contract. Depreciation is not charged on heritable transfer between capital and revenue Monetary assets and liabilities denomi- property as it is not material. reserves at 31 October 1999 to take nated in foreign currencies at the year account of the change. Realised surpluses or deficits on the end are reported at the rates of exchange 2 Taxation disposal of investments and permanent prevailing at the year end. Any gain or The company has adopted FRS 16, impairments in the value of investments loss arising from a change in exchange Current Tax, for the year under review are taken to capital reserve ^ realised, and rates subsequent to the date of the and the comparative figures have been unrealised surpluses and deficits on the transaction is included as an exchange restated accordingly. FRS 16 requires UK revaluation of investments are taken to gain or loss in capital reserve or in the dividend income to be stated net of tax capital reserve ^ unrealised as explained in revenue account depending on whether credit. In the year to 31 October 2000 note Ah) below. the gain or loss is of a capital or revenue gross income and taxation are reduced Year end exchange rates are used to nature respectively. equally by »1,833,000 A1999 ^ translate the value of investments which »2,419,000). Net returns to stockholders are denominated in foreign currencies. 8h) Capital reserves are unaffected. Capital Reserve ^ Realised 8c) Income The following are accounted for in this 8a) Basis of accounting Dividends receivable on quoted equity reserve: The financial statements are prepared shares are brought into account on the under the historical cost convention, ex-dividend date. Dividends receivable on ^gains and losses on the realisation of modified to include the revaluation of equity shares where no ex-dividend date is investments investments and in accordance with quoted are brought into account when the ^realised exchange differences of a capital applicable accounting standards. The company's right to receive payment is nature company's accounting policies comply established. ^realised gains and losses and related with the Statement of Recommended Fixed returns on non-equity shares are income on transactions undertaken to Practice ASORP) `Financial statements of recognised on a time apportionment basis hedge an exposure of a capital nature investment trust companies'. so as to reflect the effective yield on the ^the funding of ordinary stock True and fair override shares. Other returns on non-equity repurchases During part of the year under review the shares are recognised when the right to company was not an investment company the return is established. The fixed return ^expenses and interest charged to within the meaning of s266, Companies on a debt security is recognised on a time capital. Act 1985. However, it continued to apportionment basis so as to reflect the conduct its affairs as an investment trust effective yield on the debt security. Capital Reserve ^ Unrealised for taxation purposes under s842, Income Where the company has elected to receive The following are accounted for in this and Corporation Taxes Act 1988 and the its dividends in the form of additional reserve: company's Articles of Association prevent shares rather than in cash, the amount of ^increases and decreases in the valuation the distribution of capital profits as the cash dividend is recognised as income. of investments held at the year end dividends. In these circumstances the Any excess in the value of the shares directors consider that it is appropriate received over the amount of the cash is ^unrealised exchange differences of a to present the accounts in accordance recognised in capital reserves. capital nature with the SORP. Under the SORP, the ^unrealised gains and losses and related 8d) Expenses financial performance of the company is income on transactions undertaken to All expenses are accounted for on an presented in the statement of total return hedge an exposure of a capital nature. accruals basis. Expenses are charged as in which the revenue column is the profit described in paragraph 1 except as fol- and loss account of the company. The 8i) Pensions lows: revenue column excludes certain capital The amount charged to the statement of items which the Companies Act and FRS3 ^expenses which are incidental to the total return in respect of pension costs is would require to be shown by a company acquisition of an investment are included the estimated regular cost of providing the which is not an investment company: within the cost of the investment benefits accrued in the year, adjusted to gains on realisation of investments of ^expenses which are incidental to the reflect variations from that cost. »133,352,000 A1999 ^ »105,380,000) disposal of an investment are deducted The regular cost is calculated so that it and realised currency losses of »794,000 from the disposal proceeds of the represents a substantially level percentage A1999 ^ »5,368,000). In the opinion of investment. of current and future payroll.

THE SCOTTISH INVESTMENT TRUST PLC 28 Statement of Total Return FOR THE YEAR TO 31 OCTOBER 2000 incorporating the revenue account*)

1999 2000 ARestated) Notes Revenue Capital Total Revenue Capital Total »'000 »'000 »'000 »'000 »'000 »'000

Net gains on investments and currencies 15 ^ 179,618 179,618 ^ 220,618 220,618

Income 1 29,775 ^ 29,775 30,860 ^ 30,860

Expenses 2 82,423) 82,145) 84,568) A2,314) A2,153) A4,467)

Net Return before Finance Costs and Taxation 27,352 177,473 204,825 28,546 218,465 247,011

Interest payable 5 83,918) 87,837) 811,755) A2,230) A4,459) A6,689)

Return on Ordinary Activities before Tax 23,434 169,636 193,070 26,316 214,006 240,322

Tax on ordinary activities 6 82,768) 1,655 81,113) A2,652) 1,552 A1,100)

Return on Ordinary Activities after Tax 20,666 171,291 191,957 23,664 215,558 239,222

Dividends on preferred and `A' preference stocks 7 ^^^ A95) ^ A95)

Return attributable to Equity Stockholders 20,666 171,291 191,957 23,569 215,558 239,127

Dividends on ordinary stock 7 817,318) ^ 817,318) A18,516) ^ A18,516)

Transfer to Reserves 15 3,348 171,291 174,639 5,053 215,558 220,611

Return per Ordinary Stock Unit 7.93p 65.72p 73.65p 8.34p 76.28p 84.62p

Weighted average number of Ordinary Stock Units outstanding during the year 260,627,599 282,586,405

*The revenue column of this statement is the profit and loss account of the company. The accompanying notes are an integral part of this statement.

THE SCOTTISH INVESTMENT TRUST PLC Balance Sheet AS AT 31 OCTOBER 2000 29

2000 1999 Notes »'000 »'000

Fixed Assets Equity investments 8 1,550,121 1,338,695

Current Assets Debtors 11 11,076 7,117 Cash 36,591 34,128

47,667 41,245 Creditors: amounts falling due within one year 12 818,790) A15,795)

Net Current Assets 28,877 25,450

Total Assets less Current Liabilities 1,578,998 1,364,145

Creditors: amounts falling due after more than one year 13 Long term borrowings 8222,137) A77,059)

Net Assets 1,356,861 1,287,086

Capital and Reserves Called-up share capital 14 62,951 68,988 Share premium account 15 39,922 39,922 Other reserves 15 Capital redemption reserve 7,909 1,872 Capital reserve ^ realised 709,597 695,282 Capital reserve ^ unrealised 515,587 468,528 Revenue reserve 20,895 12,494

Total Stockholders' Funds 16 1,356,861 1,287,086

Net Asset Value per Ordinary Stock Unit 17 538.9p 466.4p

Number of Ordinary Stock Units outstanding at year end 251,806,371 275,953,000

The financial statements on pages 27 to 36 were approved by the board of directors on 18 December 2000 and were signed on its behalf by:

Sir Angus Grossart, Director

The accompanying notes are an integral part of this balance sheet.

THE SCOTTISH INVESTMENT TRUST PLC 30 Cash Flow Statement FOR THE YEAR TO 31 OCTOBER 2000

2000 1999 Notes »'000 »'000

Net Cash Inflow from Operating Activities 23,106 25,471

Servicing of Finance Interest paid 811,309) A6,689) Preference dividends paid ^ A95)

Net cash outflow from servicing of finance 811,309) A6,784)

Taxation ACT paid 218 A821) UK corporation tax recovered/Apaid) ^ 80 Overseas tax recovered 496 213

Net cash inflow/Aoutflow) from taxation 714 A528)

Investing Activities Purchases of investments 8499,171) A320,004) Disposals of investments 465,570 299,843

Net cash outflow from investing activities 833,601) A20,161)

Equity dividends paid 817,939) A20,691)

Net cash outflow before use of liquid resources and financing 839,029) A22,693)

Management of Liquid Resources AIncrease)/decrease in short term deposits 85,441) 51,526

Financing Issue of secured bonds 144,987 ^ Share buybacks 14 8104,864) A29,101) Preferred and preference stock repaid ^ A3,610)

Net cash inflow/Aoutflow) from financing 40,123 A32,711)

Decrease in Cash 18 84,347) A3,878)

Reconciliation of Net Revenue before Finance Costs and Taxation to Net Cash Inflow from Operating Activities Net revenue before finance costs and taxation 27,352 28,546 Expenses charged to capital 82,145) A2,153) Scrip dividends 8548) A107) AIncrease)/decrease in accrued income 839) 659 Increase in other creditors 309 264 Decrease/Aincrease) in other debtors 22 A36) Tax on investment income 81,845) A1,702)

Net Cash Inflow from Operating Activities 23,106 25,471

The accompanying notes are an integral part of this statement.

THE SCOTTISH INVESTMENT TRUST PLC Notes to the Financial Statements FOR THE YEAR TO 31 OCTOBER 2000 31

1. INCOME 2000 1999 ARestated) »'000 »'000 Income from investments: UK franked investment income 16,495 18,091 Overseas dividends 9,397 8,761 Overseas interest 5 6 Foreign income dividends ^ 426 Scrip dividends 548 107 Other 171 448 26,616 27,839 Other income Deposit interest 3,146 3,003 Underwriting commission 13 16 Stock lending fees ^ 2 3,159 3,021 Total income 29,775 30,860 Total income comprises: Dividends including special dividends of »926,000 A1999 ^ »2,204,000) 26,547 27,694 Interest 3,215 3,148 Other income 13 18 29,775 30,860 Income from investments: Listed UK 16,818 18,750 Listed overseas 9,691 8,655 Unlisted 107 434 26,616 27,839

2. EXPENSES 2000 1999 »'000 »'000 Staff costs ANote 3) 1,790 2,054 Auditors' remuneration for audit 19 18 Other expenses 2,045 1,813 AITC its campaign 714 582 4,568 4,467

Since 1 November 1999 eligible expenses have been charged one-third to revenue and two-thirds to capital. Auditors' remuneration for non-audit services totalled »51,000 A1999 ^ nil).

3. STAFF COSTS 2000 1999 »'000 »'000 Salaries 1,353 1,190 Social security costs 152 123 Pensions and post-retirement benefits 285 741 1,790 2,054 The average monthly number of persons employed during the year was: 2000 1999 Number Number Investment 10 10 Administration 15 15 25 25 Directors' remuneration: Fees for services as directors »114,750 »114,750 Chairman and highest paid director »24,750 »24,750 Other directors ^ number in range »10,001 ^ »15,000 6 6

THE SCOTTISH INVESTMENT TRUST PLC 32 Notes to the Financial Statements FOR THE YEAR TO 31 OCTOBER 2000

4. PENSION SCHEME The company provides for its employees a defined benefit pension scheme based on final salary. The assets of the scheme are held separately from those of the company. The fund is under the control of trustees and is administered by a life assurance company.

The pension cost charge for the period was »270,000 A1999 ^ »725,000). The pension cost charge is determined by a qualified actuary on the basis of triennial valuations. The charge for 2000 is based on a triennial valuation as at 1 August 1999. The attained age method was used. The most 1 1 significant assumptions were that the rate of return on investments would be 8 Ù2% and that the rate of increase of salaries would be 6 Ù2%. The actuarial value of the assets at 1 August 1999 represented 102% of the actuarial value of the accrued benefits. The accrued benefits include all benefits for pensioners and former members as well as benefits based on service completed to date for active members allowing for future salary rises. The market value of the scheme assets at 1 August 1999 was »5,672,000.

5. INTEREST PAYABLE 2000 1999 »'000 »'000 On debentures, bank loans, overdrafts and other loans: Repayable within 5 years, not by instalments 309 1 Repayable wholly or partly in more than 5 years 11,355 6,688 Amortisation of secured bond issue expenses 91 ^ 11,755 6,689

Since 1 November 1999 interest has been charged one-third to revenue and two-thirds to capital.

6. TAX ON ORDINARY ACTIVITIES 2000 1999 ARestated) »'000 »'000 UK corporation tax at 30% A1999 ^ 30.4%) ^ 140 Overseas taxation 1,798 1,783 Relief for overseas taxation 8679) A789) Deferred taxation 86) A34) 1,113 1,100 Tax relief credited to capital reserve 1,655 1,552 2,768 2,652

7. DIVIDENDS AND OTHER APPROPRIATIONS 2000 1999 »'000 »'000 Dividends on non-equity stock: ^ 3.5% cumulative preferred stock ^ 40 ^ 3.85% cumulative preferred stock ^ 20 ^ 4.55% `A' cumulative preference stock ^ 35 ^ 95 Dividends on equity stock: ^ ordinary - interim paid of 2.27p per unit A1999 ^ 2.20p) 5,797 6,236 ^ ordinary - second interim declared of 4.63p per unit A1999 ^ final 4.45p) 11,659 12,280 ^ 1999 final dividend on ordinary stock repurchased 8138) ^ 17,318 18,516

8. INVESTMENTS 2000 1999 »'000 »'000 Investments listed on a recognised investment exchange 1,493,084 1,299,974 Unlisted investments 56,934 38,709 Subsidiary undertakings ANote 9) 103 12 1,550,121 1,338,695

THE SCOTTISH INVESTMENT TRUST PLC 33

8. INVESTMENTS continued Listed Listed Unlisted Total in UK overseas 2000 »'000 »'000 »'000 »'000 Opening book cost 391,425 451,539 27,204 870,168 Opening unrealised appreciation 272,156 184,854 11,517 468,527 Opening valuation 663,581 636,393 38,721 1,338,695 Movements in the year: Purchases at cost 193,566 291,771 16,496 501,833 Sales ^ proceeds A181,154) A277,880) A11,784) 8470,818) ^ realised gains on sales 53,983 78,413 956 133,352 Increase in unrealised appreciation 18,352 13,994 14,713 47,059 Transfers ^ 2,065 A2,065) ^ Closing valuation 748,328 744,756 57,037 1,550,121

Closing book cost 457,820 545,908 30,807 1,034,535 Closing unrealised appreciation 290,508 198,848 26,230 515,586 748,328 744,756 57,037 1,550,121

2000 1999 »'000 »'000 Realised gains on sales 133,352 105,380 Increase in unrealised appreciation 47,059 114,469 Gains on investments 180,411 219,849

Stock lending details: 2000 1999 »'000 »'000 Aggregate value of securities on loan at year end ^ ^ Maximum aggregate value of securities on loan during the year ^ 2,820 Fee income Agross) from stock lending during the year ^ 2

A geographical analysis of the investment portfolio, an analysis of the investment portfolio by broad industrial or commercial sector, and a full list of investments by market value, are contained within the annual report.

Unlisted investments include the following: Aa) Heritable property valued at »700,000 A1999 ^ »700,000). The property was valued on an open market basis by Ryden, chartered surveyors, on 3 November 1998. Ab) Property loans totalling »100,000 A1999 ^ »100,000) in respect of the following related parties: Ian McLeish, Donald Ness and Iain Harding who form part of the key management of the company. Standard securities are held for all loans outstanding.

9. SUBSIDIARY UNDERTAKINGS The company has investments in the following subsidiary undertakings: Country of Proportion of nominal value Principal incorporation Description of of issued shares and voting Name of undertaking Activity and operation shares held rights held Hurtree Limited Investment UK Ordinary 100% SIT Savings Limited Investment products UK Ordinary 100% The accounts of these subsidiaries have not been consolidated with those of the parent company as, in the opinion of the directors, the amounts involved are not material. The directors are satisfied that the valuation of the subsidiaries reflects and does not exceed the value of the underlying assets.

THE SCOTTISH INVESTMENT TRUST PLC 34 Notes to the Financial Statements FOR THE YEAR TO 31 OCTOBER 2000

10. SIGNIFICANT INTERESTS Details of investments in which the company has an interest of 10% or more of the nominal value of the allotted shares of any class, or of the net assets, are as follows:

Aggregate Loss Country of Description capital and after tax incorporation of shares Percentage reserves for year Name of undertaking and operation held held »'000 »'000 Sprout Growth Limited Inc Cayman Islands ord shares of US$1 49.7 1,205 28 operating in USA part red pref shares of US$0.01 49.7

11. DEBTORS 2000 1999 »'000 »'000 Amounts due from brokers 7,206 2,359 Overseas tax recoverable 594 1,281 Prepayments and accrued income 2,673 2,656 ACT receivable 603 821 11,076 7,117

12. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR 2000 1999 »'000 »'000 Amounts due to brokers 3,378 1,541 UK corporation tax payable 97 1,063 Dividends 11,659 12,280 Other creditors 2,287 911 Bank overdraft 1,369 ^

18,790 15,795

13. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR 2000 1999 »'000 »'000 4% perpetual debenture stock 350 350 1 4 Ù4% perpetual debenture stock 700 700 5% perpetual debenture stock 1,009 1,009 7 10 Ù8% debenture stock 30/4/2019 25,000 25,000 3 7 Ù4% debenture stock 25/9/2013 50,000 50,000 3 5 Ù4% secured bonds due 17/4/2030 145,078 ^ 222,137 77,059

The debenture stocks and secured bonds are secured by a floating charge over the assets of the company.

14. CALLED-UP SHARE CAPITAL Authorised Issued 2000 1999 2000 1999 »'000 »'000 »'000 »'000 Ordinary stock units of 25p 85,500 85,500 62,951 68,988 Number of ordinary stock units in issue 251,806,371 275,953,000

24,146,629 ordinary stock units were repurchased in the stockmarket during the year to 31 October 2000 at a total cost of »104,864,000. No repurchases were made between 31 October and 31 December 2000.

THE SCOTTISH INVESTMENT TRUST PLC 35

15. RESERVES Share Capital Capital Capital premium redemption reserve ^ reserve ^ Revenue account reserve realised unrealised reserve »'000 »'000 »'000 »'000 »'000 Beginning of year 39,922 1,872 695,282 468,528 12,494 Exchange difference ^ ^ A794) ^ ^ Net gain on realisation of investments ^ ^ 133,352 ^ ^ Increase in unrealised appreciation ^ ^ ^ 47,059 ^ Ordinary stock repurchased ^ 6,037 A104,864) ^ ^ Interest and expenses charged to capital in current year ^ ^ A8,326) ^ ^ Adjustments for previous year's interest and expenses charged to capital ^ ^ A5,053) ^ 5,053 Transfer to reserves ^^^^3,348 End of year 39,922 7,909 709,597 515,587 20,895

16. RECONCILIATION OF MOVEMENTS IN STOCKHOLDERS' FUNDS 2000 1999 »'000 »'000 Opening equity stockholders' funds 1,287,086 1,095,685 Total recognised gains 191,957 239,127 Dividend payments 817,318) A18,516) Ordinary stock repurchases and premiums on repayment of preference stock 8104,864) A29,210) Closing equity stockholders' funds 1,356,861 1,287,086

17. NET ASSET VALUE PER ORDINARY STOCK UNIT Basic net asset value per ordinary stock unit is based on net assets after deducting long term borrowings at book value and on the number of ordinary stock units in issue at the year end.

Reconciliation of movement in NAV per ordinary stock unit: p Opening NAV 466.41 Total return per ordinary unit 73.65 Dividend per ordinary unit A6.90) Adjustments for 1999 final dividend on stock repurchased 0.05 Adjustment for change in issued ordinary stock during year 5.64 Closing NAV 538.85

18. ANALYSIS OF CHANGES IN NET DEBT DURING THE YEAR At 1 November Cash At 31 October 1999 flows 2000 »'000 »'000 »'000 Cash at bank 12,069 A2,978) 9,091 Bank overdraft ^ A1,369) 81,369) Short term deposits 22,059 5,441 27,500 Debt due after one year A77,059) A145,078) 8222,137) A42,931) A143,984) 8186,915)

THE SCOTTISH INVESTMENT TRUST PLC 36 Notes to the Financial Statements FOR THE YEAR TO 31 OCTOBER 2000

19. CONTINGENCIES, GUARANTEES AND FINANCIAL COMMITMENTS 2000 1999 »'000 »'000 Contingencies, guarantees and financial commitments of the company at the year end, which have not been accrued, are as follows: Commitments to provide additional funds to investees 15,961 14,061

20. FINANCIAL INSTRUMENTS In pursuing its investment policy the company holds certain financial instruments, comprising equity and non-equity shares, fixed income securities, interests in limited liability partnerships, cash and liquid resources. These are financed through stockholders' funds and long and short term borrowings. The risks faced by the company and the strategies for managing them are identified below.

õ Investment risk and market price risk. The holding of securities and investing activities involve certain inherent risks. Events may occur within the underlying investments which affect their value and they are also sensitive to movements in market levels. The company holds a portfolio which is well diversified across industrial and geographical areas to help minimise these risks. It may also use derivatives. Trading in derivatives is not within the normal activities of an investment trust nor is it the company's policy to trade in such instruments. However, from time to time the company may wish to use such instruments in order to protect against a specific risk or to facilitate a change in investment policy such as the movement of funds from one area to another. No such transaction may take place without the prior authorisation of the board and no such transaction took place during the year.

õ Interest rate risk. The company finances its operations through a combination of investment realisations, retained revenue reserves, bank credit facilities and debenture stocks. All of the existing debenture stocks are at fixed rates. The company has undrawn short term multicurrency line of credit facilities which can be drawn at variable rates of interest.

õ Liquidity risk. The majority of the company's assets comprise listed securities which represent a ready source of funds. In addition the company has access to short term borrowing facilities.

õ Foreign currency risk. Approximately half of the company's assets are invested overseas which gives rise to a currency risk. This risk is monitored by the managers on a daily basis and by the board monthly. From time to time specific hedging transactions are undertaken although none was in place at the year end. The company's overseas income stream is subject to currency movements which are not hedged.

21. FINANCIAL ASSETS The company's portfolio investments are listed on pages 37 and 38. A geographical distribution is given on page 3 and a sector distribution appears on page 23. Cash and deposits are held at fixed and floating rates in the following currencies:

Fixed Floating Total »'000 »'000 »'000 Sterling 27,500 2,512 30,012 Swiss francs ^ 2,493 2,493 Euro ^ 2,233 2,233 US dollar ^ 1,849 1,849 Other ^44 27,500 9,091 36,591

The maximum fixed period for deposits outstanding at the year end was one week.

22. FINANCIAL LIABILITIES The company's long term borrowings as detailed in note 13 are denominated in Sterling and carry interest at fixed rates. The secured bond and two debentures with fixed maturities have a weighted average life of 24.5 years and are stated in the balance sheet at book value. Restating them at estimated market value would have the effect of reducing the year end NAV per ordinary stock unit from 538.9p to 535.1p. Based on the market price of 457p the discount to NAV at the year end would be reduced from 15.2% to 14.6%.

23. DIRECTORS' INTERESTS The interests of the directors and their families in the company's capital are as follows: Ordinary stock units of 25p Beneficial interests 31 October 2000 1 November 1999 Sir Angus Grossart 7,920 7,862 Sir George Mathewson 364 360 F Finlay 10,000 10,000 I H Leslie Melville 10,000 10,000 I M Russell 15,984 8,402 D C P McDougall 10,000 10,000 Sir Paul Nicholson 3,000 3,000 There have been no changes in the directors' interests between 31 October and 31 December 2000.

THE SCOTTISH INVESTMENT TRUST PLC List of Equity Investments 37

UNITED KINGDOM CONTINENTAL EUROPE Holding »'000 Holding »'000 Holding »'000 Vodafone Group 54,214* Hilton Group 3,160 BELGIUM BP Amoco 43,545* Henderson Smaller Companies Fortis 3,819 HSBC Holdings 37,463* Investment Trust 3,098 DENMARK Glaxo Wellcome 35,484* Edinburgh Smaller Companies Tele Danmark 2,278 Shell Transport 28,151* Trust 2,933 Royal Bank of Scotland 22,257* Throgmorton Trust 2,674 FINLAND Lloyds TSB 22,218* Themis FTSE All-Small Index Nokia 10,479 SmithKline Beecham 21,801* Trust 2,425 Elisa Communications 2,273 British Telecom 20,038* Aberforth Split Level Trust 2,403 FRANCE Barclays 18,083* Edinburgh Fund Managers 2,274 Socie¨te¨ Ge¨ne¨rale 7,521 Marconi 18,053 P & O 2,272 AXA 7,326 Pearson 17,365 P & O Princess 2,166 TotalFinaElf 6,631 Cable & Wireless 15,600 3i Smaller Quoted Companies Aventis 6,202 AstraZeneca 15,575 Trust 2,044 Alcatel 5,037 Spirent 12,908 David S Smith 1,932 Peugeot 4,053 Bank of Scotland 12,487 Hewden Stuart 1,748 TF1 3,641 CGNU 11,384 Thus 622 St Gobain 3,167 Granada Compass 10,488 Low & Bonar 539 Danone 2,674 3i Group 10,219 Vivendi 2,653 Total UK Investments 738,334 Prudential 9,687 Penauille Polyservices 2,379 ScottishPower 9,335 *Ten largest holdings aggregate market value France Telecom 1,856 Exel 9,196 »303,254,000. Lagardere Groupe 1,562 Powergen 8,950 GERMANY CMG 8,890 United Utilities 8,316 Allianz 6,524 Close Brothers 8,085 Schering 5,293 Siemens 5,192 Hays 8,052 Aegis 7,850 BMW 4,966 Diageo 7,806 Altana 4,591 Fleming Mercantile Investment E.On 3,916 Linde 3,537 Trust 7,124 Abbey National 6,895 Deutsche Bank 3,267 Electrocomponents 6,880 SAP 2,548 Legal & General 6,860 HypoVereinsbank 2,468 Boots 6,094 ITALY BBA Group 5,845 Telecom Italia Mobile 4,796 Rio Tinto 5,798 San Paolo IMI 4,761 Scottish & Newcastle 5,758 Unicredito Italiano 4,100 Berkeley Group 5,622 Alleanza 3,698 Logica 5,593 ENI 3,467 TI Group 5,580 Acea 2,538 Thompson Clive Investments 5,577 NETHERLANDS Mercury Grosvenor 5,504 Royal Dutch Petroleum 5,707 Great Universal Stores 5,355 Aegon 5,300 BAE Systems 5,198 Ahold 3,578 United News & Media 5,175 Royal Numico 3,216 Gallaher Group 5,044 Royal Philips Electronics 2,703 Tesco 4,992 British Land 4,944 SPAIN EMAP 4,860 Telefonica de Espan¬ a 5,583 J Sainsbury 4,841 BSCH 4,173 Whitbread 4,821 Union Fenosa 3,460 Next 4,757 Banco Popular Espan¬ ol 3,045 Alliance Unichem 4,680 Repsol YPF 2,021 Aggregate Industries 4,622 Promotora de Infor 1,259 FI Group 4,612 SWEDEN Blue Circle Industries 4,445 Ericsson 5,000 FirstGroup 4,432 Svenska Handelsbanken 4,856 AWG 4,172 Investor 4,355 Wolseley 3,834 SWITZERLAND ICI 3,587 Rolls Royce 3,580 Nestle¨ 8,089 British American Tobacco 3,574 UBS 6,302 ABB 2,203 Britannic 3,524 Invensys 3,504 Baªloise-Holding 4,241 Severn Trent 3,418 Swatch Group 2,967 Pennon Group 3,380 Swisscom 2,754 Adecco 3,152 Meggitt 3,376 Land Securities 3,373 Total European Investments 223,177 Stagecoach 3,314

THE SCOTTISH INVESTMENT TRUST PLC 38 List of Equity Investments

AMERICAS JAPAN Holding »'000 Holding »'000 Holding »'000 General Electric 14,986 Takeda Chemical 8,525 Cathay Pacific Airways 1,000 American International Group 12,708 Rohm 8,409 Bank of East Asia 966 Citigroup 11,959 INVESCO GT Japan Enterprise Fund 6,909 China Unicom 724 Microsoft 11,052 Fleming Japanese Smaller Companies MTR Corporation 377 Intel 10,537 Investment Trust 5,373 Merck 10,529 NTT DoCoMo 5,056 SINGAPORE Bank of America 8,937 Sony 4,873 Overseas Union Bank 2,090 Keppel Land 1,984 IBM 8,900 Chugai Phamaceutical 4,754 EMC 8,525 Nintendo 4,343 Singapore Technologies Engineering 1,499 Exxon Mobil 8,414 Daito Trust Construction 4,178 Oversea-Chinese Banking Corp 1,318 SBC Communications 8,263 Asahi Chemical 4,157 Singapore Press Holdings 1,073 Singapore Airline 898 Pepsico 8,139 Nomura Securities 4,074 Alltel 8,032 Matsushita Communication Industrial 4,059 Natsteel Electronics 671 Medtronic 7,892 Fanuc 3,894 United Overseas Land 1 Duke Energy 7,857 Minebea 3,424 INDIA Bank of New York 7,809 Advantest 3,285 Indocam Himalayan Fund 1,205 American Home Products 7,565 Sanwa Bank 3,236 SOUTH KOREA Cisco Systems 7,420 Canon Sales 3,196 Korea Telecom 1,536 Enron 7,347 Sumitomo Bakelite 3,181 Automatic Data Processing 7,107 Ricoh 3,052 PHILIPPINES Sysco 7,051 Sumitomo Bank 2,908 JF Philippine Fund 362 Cardinal Health 7,031 Toyo Seikan Kaisha 2,847 OTHER ASIAN Tyco International 6,988 Nippon Telegraph & Telephone 2,781 INVESCO Asia NET Fund 893 Schering-Plough 6,621 Nippon Television Network 2,711 Hewlett Packard 6,533 Fujitsu 2,612 Total Pacific Region Investments 56,397 John Hancock Financial Services 6,316 Kirin Brewery 2,605 Telmex 6,300 Kuraray 2,554 Walgreen 6,127 Uni-Charm 2,474 Fannie Mae 6,072 Honda Motor 2,306 Omnicom 5,591 Amada 1,951 Ecolab 5,289 Acom 1,838 UNLISTED HOLDINGS Motorola 4,980 Suzuki Motor 1,690 Holding »'000 Halliburton 4,849 Fast Retailing 1,660 UNITED KINGDOM Oracle 4,545 Seven-Eleven Japan 851 John Wood Group 8,744 Worldcom 4,351 Morgan Grenfell Equity Partners II 4,135 Anheuser-Busch 4,348 Total Japanese Investments 119,766 Apax UK VI 3,500 Texaco 4,311 Close Investment 1997 Fund 2,403 American Express 4,132 Close Investment 1994 Fund 2,207 Pall 4,009 Heritable Property & Loans 1,079 Johnson & Johnson 3,933 Others Aunder »0.5m) 53 Target 3,881 PACIFIC 8ex Japan) Goldman Sachs 3,829 Holding »'000 Clorox 3,688 UNITED STATES Electronic Data Systems 3,459 AUSTRALIA Sprout Capital VIII 8,535 Telstra 1,811 Equifax 3,374 Boston Ventures V 7,046 Lowes Companies 3,335 Brambles Industries 1,785 Sprout Capital VII 5,802 Texas Instruments 3,311 WMC 1,778 1818 Fund III 5,523 Australian Gas Light 1,368 Supervalu 3,282 Cahill Warnock Strategic Partners 2,660 Carnival 2,939 Computershare 1,192 Boston Ventures VI 1,997 Bristol-Myers Squibb 2,812 Amcor 960 T Rowe Price Recovery II 1,460 Illinois Tool Works 2,755 Lend Lease 842 Boston Ventures IV 925 NRMA Insurance Group 824 International Paper 2,534 Others Aunder »0.5m) 874 Globespan 2,400 HONG KONG JAPAN Tellabs 2,270 Hutchison Whampoa 3,417 JF Japan Venture I 67 Equity Residential Properties Trust 2,074 Cheung Kong Holdings 2,780 CMS Energy 2,045 China Mobile 2,640 EUROPE Tosco 1,971 Swire Pacific 2,472 ECI Eurofund 27 Ford Motor 1,799 Dao Heng Bank 2,209 Total Unlisted Investments 57,037 Lucent Technologies 1,798 Sun Hung Kai Properties 2,153 Dollar General 1,716 Citic Pacific 2,128 Burlington Resources 1,686 HSBC Holdings 2,104 Scudder Latin America Investment Trust 1,575 China Petroleum & Chemical 1,946 INVESCO GT Healthcare Fund 1,443 South China Morning Post 1,700 Five Arrows Chile Investment Trust 942 PetroChina 1,303 Resource Bancshares 783 Henderson Land Development 1,151 Others Aunder »0.5m) 354 Wharf Holdings 1,123 Beijing Capital International Airport 1,094 Total Americas Investments 355,410 Cheung Kong Infrastructure 1,020

THE SCOTTISH INVESTMENT TRUST PLC Notice of meeting 39

Notice is hereby given that the one ferred shall expire on 22 August or their representatives are entitled to hundred and thirteenth annual general 2002, save that the Company may, attend the meeting. meeting of The Scottish Investment Trust prior to such expiry, enter into a PLC will be held at the Roxburghe Hotel, contract to purchase ordinary stock A statement giving details of all trans- Charlotte Square, Edinburgh, on units under such authority which will actions of each director and his family 23 February 2001 at 11.00 am, for the or might be executed wholly or partly interests in the ordinary stock of the purpose of transacting the following: after the expiration of such authority company during the twelve months to and may make a purchase of ordinary 31 December 2000 will be available for As ordinary business: stock pursuant to any such contract. inspection at the registered office of the 1. To receive and consider the directors' company during usual business hours on report and statement of accounts for the 6. To amend the Articles of Association any weekday ASaturdays and public year to 31 October 2000. of the Company by deleting the word holidays excepted) from the date of this ``No'' where it appears at the beginning of notice until 23 February 2001. 2. To set the directors' fees. Article 16 thereof and inserting in place thereof the following: Members are requested to notify the 3. Aa) To re-elect Sir Angus Grossart as a company's registrar of any change of ``Other than in relation to duly director. address. This report is sent to the address authorised purchases of any Shares in at present registered for communications. 3. Ab) To re-elect Mr Francis Finlay as a the Company Awhich purchases shall director. only be made in accordance with the STOCKPLAN, PEP and ISA investors: provisions of the Statutes) no'' please refer to note on stockholders' 3. Ac) To re-elect Mr Douglas McDougall meetings on page 22. as a director. All resolutions are ordinary resolutions except numbers 5 and 6 which are special 4. To re-appoint Arthur Andersen as resolutions. auditors and to authorise the directors to fix their remuneration.

As special business: By order of the board 5. To authorise the Company, in accor- dance with section 166 of the Companies Act 1985 Athe ``Act'') and in substitution I M Harding Secretary for any pre-existing such authority, to 17 January 2001 make market purchases Awithin the mean- ing of section 163A3) of the Act) of ordinary stock units of 25p each A``ordin- ary stock units''), provided that: Notes Aa) the maximum number of ordinary Registered stockholders whose names stock units hereby authorised to be appear on the company's register of purchased shall be 14.99% of the members at 11 am on 21 February 2001 issued ordinary stock on the date this are entitled to attend and vote at the resolution is passed; meeting in respect of ordinary stock Ab) the minimum price which may be registered in their names at that time. paid for an ordinary stock unit shall Changes to entries on the register of be 25p; members after that time shall be dis- regarded in determining the rights of any Ac) the maximum price Aexclusive of person to attend and vote at the meeting. expenses) which may be paid for an ordinary stock unit shall be 105% of A member entitled to attend and vote at the average of the middle market the meeting is entitled to appoint a proxy quotations Aas derived from the Daily to attend and, on a poll, to vote on his or Official List of the London Stock her behalf. Such proxy need not be a Exchange) for the ordinary stock units member of the company. Proxy forms for the five business days immediately must be lodged at the company's regis- preceding the date of purchase; and tered office, 6 Albyn Place, Edinburgh Ad) unless previously varied, revoked or EH2 4NL, not less than 48 hours before renewed, the authority hereby con- the meeting. Only ordinary stockholders

THE SCOTTISH INVESTMENT TRUST PLC 40 Financial Calendar 2001

DIVIDEND AND INTEREST PAYMENTS

Ordinary stock second interim 1999/2000 9 February Ordinary stock interim 2000/2001 July Secured bonds 17 April, 17 October Debenture stocks 30 April, 31 October

ANNOUNCEMENT OF RESULTS

NAV Weekly Interim figures May Preliminary final figures November Annual report & accounts January Annual general meeting 23 February 2001

Useful Addresses

Registered Office PEP and ISA Administrator 6 Albyn Place, Bank of Scotland, Edinburgh PEP and ISA Administration Centre, EH2 4NL PO Box No 17122, Registered no. SCO 01651 600 Gorgie Road, Telephone 0131-225 7781 Edinburgh Facsimile 0131-226 3663 EH11 3WA Brochure Request Line Helpline 0131-442 8271 0800 42 44 22 website www.sit.co.uk STOCKPLAN Administrator email [email protected] The Bank of New York Europe Limited, Investment Trust Administration Unit, Registrar 12 Blenheim Place, Computershare Services PLC, Edinburgh PO Box 435, EH7 5ZR Owen House, Helpline 0131-525 9839 8 Bankhead Crossway North, Edinburgh Association of Investment EH11 4BR Trust Companies Helpline 0870 702 0010 SIT is a member of the Association of website www.computershare.com Investment Trust Companies AAITC) which publishes a number of useful free Auditors booklets and explanatory leaflets for Arthur Andersen investors interested in investment trusts. 18 Charlotte Square Their address is: AITC, 3rd Floor, Edinburgh Durrant House, 8-13 Chiswell Street, EH2 4DF London EC1Y 4YY Telephone 020 7282 5555 Bankers website www.aitc.co.uk The Royal Bank of Scotland plc Brown Brothers Harriman & Co, The its marketing campaign has its own New York web site at www.itsonline.co.uk

THE SCOTTISH INVESTMENT TRUST PLC