苏格兰抵押投资信托 — 经理人回顾，截至2002年3月31日年报（詹姆斯·安德森）

Scolfish Mortgage performed almost in line with its benchmark in the last year. This obscures two very different six month periods. In the first halt of the year markets fell and our relative performance was also unsatisfaciory. Both these factors reversed in the second six months of the year. Given the overal weakness of markets the gearing of the Company was unhelpful and it was this that edged returns marginally below the index. Performance in UK equities was, however, consistently good throughout the year. The portfolio was underweight in telecommunications and profited from its heavy exposure to defensive growth areas such as beverage and tobacco stocks. The picture abroad is more complex. Over the course of the year performance in North America was leasing with good stock selection only marginally hindered by the underweight position in Americar assets. We were helped by the exposure of the portfolio to financials linked to the buoyant fortunes o the US housing market and by our general avoidance of the more troubled parts of the technology and telecommunications sectors. pan was the most problematic market for us this year.

The combination of our overweight positi id our stock selection caused the underperformance. Details can be found on page 16 of this repo n Europe the portfolio recovered in the second half of the year. The European holdings tend to be nore exposed than those in most other regions to both the economic cycle and the health of financia harkets so the Managers regard this area as being prone to volatile results. In Asia we endured ‹ oubled start to the year as an overweight exposure to Hong Kong and weak results in Australia too their toll but here too the second half was considerably more encouraging with help from our Korean assets. Our performance in bonds was disappointing. Exposure to the telecommunications sector was unhelpful. As noted in the Chairman's Statement Baillie Gifford is devoting considerable efforts to improving results in this area.

United Kingdom interest rate cuts and a swift prosecution of the war in Afghanistan. From its September low, the Ali-Share Index had risen 19% by the end of 2001. Since then, the market has been range bound. As in the previous twelve months, the result for the market as a whole masked a wide spread of returns at the sector level. In the first haif of the period, defensive sectors did well at the expense of cyclical sectors. In the second half, cyclical sectors recovered and defensive sectors were mixed. Banks produced a positive return for the whole year as did oil stocks. The pharmaceutical sector performed well between March and September before falling away. Telecommunications stocks again had a very poor yea. Against this difficult backdrop, the Company's UK stocks performed creditably. Changes made last year had introduced a more defensive slant to the portfolio and the general drift of transactions through this year reinforced it.

The largest overweight sector position throughout the year was in tobacco where two stocks were held. Galaher and Imperial Tobacco. They made an impressive contribution to performance with Gallaher rising 25% and Imperial over 70%. These gures exclude dividend payments which i oth cases are material. Alfhough viewed b many investors as an unattractive and low growth industry, tobacco manufacturing continues to generate substantial amounts of free cash which enables these companies to increase earnings per share either through share buy backs or selective acquisitions. Gallaher and Imperial Tobacco have both made large acquisitions in the last year which should enable them to maintain their enviable record of earnings growth. In the beverage sector, we purchased Diageo and increased the holding in Allied Domecg. Diageo is increasingly focused on premium spirits brands and through its acquisition of the Seagram drinks business has assumed a leading industry position.

This will have material benefits in terms of scale economies and in increasing its control of the distribution chain. Allied Domeca is also improving the quality of its drinks portfolio and its shares trade at a discount to the market despite better than average cash generation and earnings growth. Both companies saw their share prices make large gains. further share price appreciation. Pharmaceutical stocks traditionally provide a safe haven when market conditions are difficult. Unfortunately, this last year has proved an exception. GlaxoSmithkline had a parlicularly poor year. It is generating substantial cost sayings from the merger last year of Glaxo and Smithkline Beecham but the market has focused instead on temporary weakness in the product pipeline. Although index position, he holdir largest UK equity investment and the share rice fall was disappointing. We hope for etter in the year ahead Heightened tensions in the Middle East supported oil company valuations.

We had egun the year with an overweight position and this would have been beneficial were it when, just after the Company's year end, it agreed to a bid from Shell. Last year's report detailed how prospects for the telecommunications industry had worsened because of increasing financial costs and Our downbeat view on the price competition. telecommunications sector stocks proved correct and the underweight position was a major contributor to overall performance. Although modest additions were made to the this was fully offset by the Vodafone holding, complete sale of Cable and Wireless. Banana hand to hom in i bong companies. nare price gains, particularly the builder erchant Travis Perkins and the hous building stocks. With the housing market buoyant, these continue to look attractive. We One of P&O Princess Cruises' Ships, Oriana, enters Sydney harbour. Diageo is becoming a dominant force in the global spirits industry with leading brands such as Smirnoff.

Continental Europe Body expertise, the bodycare line by L'Oréal aris (Consumer Products division). 002 model year Porsche 911 Targa. total assets from 20.5% to reflect our doubts about the continental profit outlook. The European economy has slowed in the last year but is now showing signs of stabilisation. Within this general picture there have been significant national variations. Once again the weakness of the German economy has been revealed by a slowdown in international demand The domestic consumer has been unwilling to offset this impact and the burden of the former East Germany remains heavy. France has been less seriously affected by the international environment whilst the Italian economy is showing some signs of improved performance and Spain continues to thrive. The European Central Bank is still struggling to find the correct policy balance to confront sluggish growth and lingering inflation anxieties.

Ans ersistent strength in oil prices would complicate their task severely. Just as the French economy has proved to be relatively resilient so we have also found most of our new purchases in the Paris market over the last year. We have been impressed by the quality of earnings and potential for further growth demonstrated by a surprisingly large range of French equities. We have bought Sanofi-Synthelabo, which seems to us to have one of the most promising pipelines in the global pharmaceutical sector and L'Oreal, which continues to demonstrate an unrivalled leadershiP we the international cosmetics industry. have also purchased a holding in the luxury goods company Hermes. Here too earnings prospects are bright and consistent despite the troubles of the important Japanese market. We have even found some opportunities in the more cyclical parts of the French market.

BNP Paribas has maintained its credit quality and management poise despite the hallenges of the international economy and its own merger process to become one of the most appealing European banking franchises. Publicis too seems to have coped with the challenges of icquisitions and weak demand to turt neglinal adveri and efecive presence operating conditions in the global automobile industry and we think that its new models and customer focus will enable it to repeat this achievement in the future. Qiagen is a supplier of DNA to the biotechnology sector with an enviable dominance of its niche and a level of profitability that is both high and potentially rising. Of our older holdings in Germany we would note that we still believe in the opportunities offered by the financial services provider MLP despite the decline in the share price over the period and we would note the solid results that the company has reported.

In contrast we have been pleased by the strong performance of SAP in the struggling sottware sector and think that SAP is rebuilding its global leadership after a challenging product transition phase. The most depressing feature of the year has been the inability of the European telecommunications industry to rebound from its severe downturn. This has forced us to reduce our exposure to both the operators and their equipment suppliers once again. A good example of this trend has been Orange. We admire the ability of Orange to dominate the French mobile market but we have sold the stock as the potential involvement of the company in Germany appears to us to be damaging to both returns and balance sheet. Until there is evidence that consumer demand for 3rd generation mobile services is substantial we will retain a sceptical attitude to telecommunications investments.

The £157m net reduction in European holdings in the last two years has brought our exposure to a level with which we are now more comfortable. The European corporate sector in aggregate has performed more impressively over long periods of time than it is usually given credit for by investors. We see encouraging evidence that strong market positions and impressive product pipelines will enable this to be the case in the coming years too. We are therefore likely to refain our current weighting despite the inevitable nerves that the current real but hesitant economic recovery will provoke. North America performance was all the more noteworthy given the unexpected and tragic events of September 11. Recent economic data suggests that a steady, if undramatic, recovery has now begun. While an economic recession was avoided, the profit recession continued for the bulk of the corporate sector.

Technology and telecom companies were the hardest hit for a second year. Non- recurring charges for the companies in the S&P 500 Composite Index were huge - equivalent to two thirds of the total for the previous two decades. But even ignoring these charges profits were down sharply in 2001. Nonetheless we believe that we are now near the low point of the profit cycle. American companies have been quick to implement substantial cost cuts and so profits should be leveraged to even a modest economic recovery. only the most publicised. The downturn has also focused wider attention on the extent o which many companies' "true" earning are significantly lower than their reporte portfolio outperformed the S&P 500 which sterling terms over the year. As foreshadowed in last year's annual exceeded sales by £.40m, taking the Company's North American stake to 24.7% of total assets.

One notable feature of the sales was the elimination of the portfolio's exposure to the telecoms equipment sector where prospects continued to deteriorate throughout the year, earnings quality is poor and valuations remain high. The new names in the portfolio can be characterised as offering robust franchises, high quality earnings streams and usually some economic sensitivity. Automatic Data Processing (payrolls), State Street (custodian services) and DST (mutual fund records) are all involved in outsourced processing services and are leading players in their respective niches. Moody's is a bond rating agency, operating in what is close to a duopoly market. Eli Lilly is one of the few pharmaceulical companies with a strong product pipeline. We also increased exposure to the financial sector during the year as interest rates fell. We would anticipate making further modest additions to the American stake in the coming year.

1 A Walgreen Store in Atlanta, one of 30 recently opened in the area. 2 Brown-Forman's Jack Daniel's whiskey is the top selling American whiskey in the world. MANAGERS' PORTFOLIO REVIEW yota's Lexus brand continues to gain US arket share. One of Fuji Photo's digital cameras. Japan position in Japan was inappropriate we reduced exposure significantly. With net disinvestment of £9.7m, the Japanese weighting dipped from 7.5% to 4.4% over the period. Our relative performance has been disappointing this year. The blame for this lies with individual company decisions rather than the balance of the porfolio. In particular we have suffered from the weak results of Fast Retailing, the previously successful clothing retailer, Konami (video games) and Nippon Electric Glass (where pricing has collapsed). We have sold all hese three stocks. We retain a holdina in Promise (speciality finance) as we are more hopeful of a return to growth in this case.

Declining equity prices and a huge ongoing burden of bad loan write-offs have exposed the limited size and quality of the city banks' capital bases, ensuring that the equity market was haunted by the spectre of banking crisis. We feel that Japan's malfunctioning financial system, which is hampering both the efficient allocation of capital and eftective use of monetary policy s a major factor in its economic problems Banks themselves are at last becoming a little more active in addressing their difficulties, taking some steps to improve profitability, reduce risk assets and raise new capital. However, a more aggressive reform and recapitalisation programme is required and the government's lack of action on this crucial issue has been regrettable. Investors have been disappointed by the lack of policy initiatives since Prime Minister Koizumi came to power in April 2001, given his previous reputation as a retormer.

Anti-reform elements in the LDP coupled with bureaucratic inertia have been considerable obstacles to progress, and the tense international political situation diverted Diet attention towards defence issues. Koizumi's ublic approval ratings, his strongest asset ave also been hit by party scandals anc disputes, most notably his sacking of the popular foreign minister Tanaka. he Japanese economy suitered a maj owdown over the past year, as cuts capacity and labour, with unemployment rising beyond 5%. Deflation remains a erious problem, exacerbating the nomina alue of debts and postponing planner consumption. Many have called for more active monetary policy from the Bank of Japan in response. Recent data suggests that Japan's economy is reaching a cyclical bottom at last, but the timing and amplitude of any recovery is hard to predict. Despite disappointments on the political front there are still positive signs of improvement among Japanese companies, which are continuing to cut costs and refocus their operations.

On the key issue of shareholder returns we are starting to see some progress, partly thanks to increased foreign equity ownership and direct investment. We invested in Japan's first activist shareholder fund, an unquoted vehicle called M&A Consulting (MAC), which takes large stakes in companies with inefficient balance sheets and exerts pressure on them to improve shareholder returns. It is currently involved in a proxy battle, the first of its kind in Japan, with an apparel maker called Tokyo Style, to force the company to pay a special dividend rather than invest in more property. We reduced the weighting in financials considerably in further reflection of the sector's difficulties, selling the bank UFJ, securities house Nomura and non-life insurer Mitsui Sumitomo Insurance. We also sold technology related shares, such as SMC, Kyocera and Fanuc, where the valuation seemed to discount fully the likely pace of earnings recovery.

New holdings were ocused on domestic restructurina themes with the purchases of building materials suppliers MEW and Tostem Inax. Valuations in Japan are now more in line with international markets than they have been since the mid 1980s, and we remain optimistic about prospects for earnings and cash flow growth at the companies in which we invest. However, firmer signs of political reform and financial sector stabilisation will be required before we increase our overall weighting in the market. Asia Pacific and Other Emerging Markets relatively high dependence on export demand, particularly those industries where rapid inventory depletion followed by restocking caused unusual volatility in business orders, such as electronic goods and semiconductors. For this reason Korea and Taiwan were the best performing markets. The portfolio's poor performance during the year relative to its benchmark was principally caused by heavy exposure to Hong Kong and disappointing stock selection in Australia.

An example of our difficulties in Hong Kong was Li & Fung, a company which depends on North American markets, whose share price has been severely affected by the poor conditions in the US during the year but which has begun to recover with the American economy. We have also been disappointed by the performance of Legend, the Chinese PC manufacturer, which has seen some cyclical pressure on sales. Brambles, our largest holding in Australia, has underperformed as it has been experiencing unexpected difficulties in its pallet pool business, which we believe to be temporary. We reduced our exposure to Asia during the summer, primarily by cutting our Hong Kong holdings, but moved back into the markets in November, concentrating on Korea, Taiwan and India. We bought a large position in Samsung Electronics and repurchased a holding in Infosys, the Indian software company.

Both of these we have owned before and have regarded as being attractive investments for the long term but vulnerable to nearer term pressures. The weakness of markets in the autumn was therefore a welcome opportunity to buy them back, and Samsung in particular has since performed well. We have tended to keep faith with our Hong Kong investments in spite of their lack of performance. Looking forward we feel that the prospects for Asia are relatively good. Even a mild returning, as economies have paid off debt and investment excesses have been argely corrected. This may provide us with a more varied scope of potential investments. Other Emerging Markets During the year, exposure to other emerging markets fell to 2.6% of total assets after net disposals of £8m. The bulk of our stake is invested in Latin America, where stockmarkets had divergent returns over the year.

Argentina hit the headlines with the collapse of its currency board, economic implosion and the related political turmoil. However, the very strong performance of the Mexican market was more significant for our portfolio. Mexico continues to benefit from its economic convergence with the US and was particularly helped by signs of recovery in America in the final quarter of the year. Although the Brazilian market was weak over the period, the MSCI Latin American Index rose by 6.1% in sterling terms and our main holding, the Baillie Gifford Latin American Fund, performed significantly better than this. main volatile we have been encourage By the bit of the other datin emerican modestly in the future. Singapore Press Holdings' Straits Times dominates the newspaper market in Singapore. Picture do Singapore Press Holdings. 2 Russian oil giant Yukos is in the process modernising its production equipment.

Picture c/o Yukos.