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Annual Report and Accounts 2000

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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.
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