the scottish american invest co
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SAINTSF Inc an Gwt
Annual Report and Financial
Statements 31 December 2010
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Contents
1CompanySummary 2OneYearSummary 3FiveYearSummary 4ChairmansStatement 6DirectorsandManagement 8 ManagersReview12 PerormanceAttribution12DistributionoPortolio13 ThirtyLargestHoldings13 InvestmentChanges14 ClassifcationoInvestments
15ListoInvestments18 PropertyPortolio19TenYearRecord20DirectorsReport
28DirectorsRemunerationReport30StatementoDirectorsResponsibilities31IndependentAuditorsReport32IncomeStatement32 StatementoTotalRecognisedGainsandLosses33 BalanceSheet34 ReconciliationoMovementsinShareholdersFunds35 CashFlowStatement36 NotestoFinancialStatements49 PlansManagedbyBaillieGiord50 CommunicatingwithShareholders
51 FurtherShareholderInormation51 DividendDatesor201152AnalysisoShareholders53 NoticeoAnnualGeneralMeeting57 AppendixtotheNoticeoAnnualGeneralMeeting
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should takeyou should consult your stockbroker, bank manager, solicitor, accountant or other independent nancial advisor authorised under the FinancialServices and Markets Act 2000 immediately.
If you have sold or otherwise transferred all of your ordinary shares in The Scottish American Investment Company P.L.C., please forward thisdocument and the accompanying form of proxy as soon as possible to the purchaser or transferee or to the stockbroker, bank or other agentthrough whom the sale or transfer was or is being effected for delivery to the purchaser or transferee.
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THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. 1
CompANy SummAry
Company Summary
Company data at 31 December 2010Total assets Shareholders funds Market capitalisation
418m 331m 325mTotalnetassetsbeoredeductionodebenture.
ObjectiveSAINTSobjectiveistoincreasecapitalandgrowincomeinordertodeliverrealdividendgrowth.
Investment PolicySAINTSpolicyistoinvestexiblyandactivelyacrossabroadrangeoassetsandmarkets.Listedequities,bothUKandoverseas,ormthelargestpartotheportolio.Investmentsarealsomadeinbonds,propertyandotherassetclasses.FulldetailsotheCompanysinvestmentpolicyarecontainedwithintheBusinessReviewonpages20and21.
Company History
SAINTSwasoundedin1873.Around80%otheCompanyssharesareheldbyprivateindividuals.
BenchmarkTheportoliobenchmarkagainstwhichperormancehasbeenmeasuredis50%FTSEAll-ShareIndexand50%FTSEAll-WorldExUKIndex(insterlingterms).
IncomparingNAVperformancetothebenchmarktheCompanysassetsandliabilitiesaremeasuredatfairvalue.
Management DetailsBaillieGiord&CowereappointedasInvestmentManagersandSecretariestotheCompanywitheectrom1January2004.
Themanagementcontractcanbeterminatedonsixmonthsnotice.ThepropertyportolioismanagedbyOLIMLimited.Theagreementcanbeterminatedonthreemonthsnotice.
Management FeesBaillieGiord&Cosannualmanagementeeis0.45%ototalassetslesscurrentliabilities,excludingthepropertyportolio,calculatedonaquarterlybasis.
OLIMLimitedreceivesanannualeeo0.5%othevalueothepropertyportoliosubjecttoaminimumquarterlyeeo6,250.
Capital StructureAttheyearendtheCompanyssharecapitalconsistedo132,485,943ordinaryshareso25peachwhichwereissuedandullypaid.TheCompanyhasbeengrantedtheauthoritytobuybackalimitednumberoitsownshares.Longtermgearinghasbeensecuredby80million(nominalvalue)odebenturestock,whichwasissuedinthreetranchesbetweenApril1997andJanuary2001.
Saving VehiclesSAINTSsharescanbeheldthroughavarietyosavingsvehicles(seepage49ordetails).
AICTheCompanyisamemberotheAssociationoInvestmentCompanies.
NotesNoneotheviewsexpressedinthisdocumentshouldbeconstruedasadvicetobuyorsellaparticularinvestment.
InvestmenttrustsareUKpubliclistedcompaniesandassuchcomply
withtherequirementsotheUKListingAuthority.TheyarenotauthorisedorregulatedbytheFinancialServicesAuthority.
SAINTS aims to be a core investment for private investors seeking income.Its objective is to achieve capital and income growth in order to grow thedividend at a faster rate than ination. The focus of the portfolio is onlisted equities, both UK and overseas, but investments are also made inbonds, property and other asset types.
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2 ANNUAL REPORT 2010
oNe yeAr SummAry
31 December 31 December
2010 2009 % change
Totalassets(beoredeductionodebenture) 418.3m 365.1mDebenture(bookvalue) 87.5m 87.9mShareholdersunds 330.8m 277.2m
Netassetvalueperordinaryshare(debentureatairvalue) 242.5p 206.0p 17.7Netassetvalueperordinaryshare(debentureatbookvalue) 249.7p 209.2p 19.4Shareprice 245.5p 181.0p 35.6FTSEAll-ShareIndex 3,062.8 2,760.8 10.9FTSEAll-WorldExUKIndex(insterlingterms) 207.5 181.4 14.4Benchmarkcompositeindex* 12.7
Premium/(discount)debentureatairvalue 1.2% (12.1%)Discount(debentureatbookvalue) (1.7%) (13.5%)
Revenueearningsperordinaryshare 8.51p 9.05p (6.0)Dividendspaidandpayableinrespectotheyear 9.25p 9.05p 2.2Expenseratio 0.90% 1.02%
Year to Year to
31 December 2010 31 December 2009
Years high and low High Low High Low
Netassetvalue(debentureatairvalue) 247.2p 196.4p 208.3p 125.8pNetassetvalue(debentureatbookvalue) 253.8p 203.3p 211.2p 129.1pShareprice 245.5p 178.7p 185.0p 113.3p
Premium/(discount)debentureatairvalue 2.3% (12.1%) (4.3%) (14.7%)Premium/(discount)debentureatbookvalue (1.4%) (13.5%) (7.7%) (15.9%)
Year to Year to
31 December 2010 31 December 2009
Total return performance
Netassetvalue(debentureatairvalue) 22.8% 49.6%Netassetvalue(debentureatbookvalue) 24.3% 45.5%Shareprice 41.8% 47.3%Benchmarkcompositeindex* 15.8% 25.4%
Pastperormanceisnotaguidetoutureperormance.
One Year Summary
One Year Performance(fguresplottedonamonthlybasisrebasedto100at31December2009)
Share price
NAV (fair value)
Benchmark*
Dividends are not reinvested.
Source: Thomson Reuters Datastream/Baillie Gifford & Co
*The Companys benchmark index is: 50% FTSE All -ShareIndex and 50% FTSE All-World ex UK Index (in sterling terms).
2010
J F M A M J J A S O N2009
80
140
110
100
90
D D
120
130
150
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THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. 3
Five Year Summary
FIve yeAr SummAry
5 Year Total Return Performance(fguresrebasedto100at31December2005)
Relative Annual Net Asset Value andShare Price Total Returns (relative to
the benchmark* total return)
Premium/(discount) to Net Asset Value(plottedonamonthlybasis)
Dividend and RPI Growth Rate(fguresrebasedto100at31December2005)
Pastperormanceisnotaguidetoutureperormance.
*Witheectrom1January2009theportoliobenchmarkagainstwhichperormancehasbeenmeasuredis50%FTSEAll-ShareIndexand50%FTSEAll-WorldExUKIndex(insterlingterms).FortheearlieryearscoveredbytheabovegraphstheCompanysbenchmarkwas70%FTSEAll-ShareIndexand30%FTSEWorldExUKIndex(insterlingterms).Forthepurposesotheabovegraphsthereturnsonbothbenchmarksortheirrespectiveperiodshavebeenlinkedtoormasinglebenchmark.
20092005 2006 2007 200840
60
80
120
140
2010
160
100
Source: Thomson Reuters Datastream/Baillie Gifford & Co
Share price total return
NAV total return (book value)
Benchmark* total return
(CUMULATIVE TO 31 DECEMBER)
Source: Thomson Reuters Datastream/Baillie Gifford & Co
SAINTS premium/(discount) book value
SAINTS premium/(discount) fair value
The discount is the difference between SAINTS quotedshare price and its underlying net asset value.
YEARS TO 31 DECEMBER
2%
(4%)
20092005 2007 2008
(2%)
20102006
0%
(6%)
(8%)
(10%)
(12%)
(14%)
(16%)
Source: Thomson Reuters Datastream/Baillie Gifford & Co
NAV total return (fair value) relative tobenchmark* total return
Share price total return relative to benchmark*total return
YEARS TO 31 DECEMBER
20092006 2007 2008
20%
(20%)
(10%)
10%
0%
2010
30%
Source: Thomson Reuters Datastream
RPI
SAINTS dividend
(CUMULATIVE TO 31 DECEMBER)20092006 2007 2008
100
130
120
110
2010
140
150
160
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4 ANNUAL REPORT 2010
ChAIrmANS STATemeNT
Pastperormanceisnotaguidetoutureperormance.
Overview
Theglobaleconomycontinuedtorecoverduring2010andmostinvestmentmarkets,althoughvolatileromonemonthtothenext,deliveredgoodreturnsovertheyear.Manycompaniesreportedstronggrowthinproftsandstockmarketsaroundtheworldrecordedgains.SAINTSparticipatedullyinthisrally.
Performance
Thenetassetvaluetotalreturn(incomeandcapital),withthedebenturevaluedatitsairvalue,was22.8%.Thiscomparestoabenchmarktotalreturno15.8%.Thenetassetvaluepersharerose
rom206pto242.5p,ariseo17.7%.Theriseinthesharepricewasstrongerstill,rom181pto245.5p.This35.6%gainmeantthatthesharepricefnishedtheyearatasmallpremiumtonetassetvalue.
Revenues and Dividend
Totalincomewas16.4min2010comparedto17.2minthepreviousyear.Thisdeclineisexplainedbyaallinbondincome,itselaunctionotransactionsanddecliningmarketratesointerest.In2009,therevenueaccountalsobeneftedromexceptionalpaymentsrelatingtoVATamountingto1.6m.Thesewerenotrepeatedin2010.Thecombinedeectothesetwoactorshasmeantthat2010earningspersharewas8.51p,some6%lowerthanthe9.05precordedinthepreviousyear.Thisdeclinemasksamorepromisingunderlyingpicture.Strongcorporateproftabilityisencouragingquotedcompaniestoraisetheirdividends.Ourexpectationisthatthistrendwillcontinuein2011.
Thedeclineinearningspersharemeansthatourdividendthisyearwillnotbeullycoveredbyearnings.However,revenuereservesaresubstantial(10.6ppershare)andthis,alongsidetheexpectationorimprovinginvestmentincomeintheyearahead,allowsustoproposeanincreaseddividendor2010.
Threepaymentso2.3phavealreadybeenmadeandweproposetopayafnaldividendo2.35pmakingatotalo9.25portheyearasawhole.Thisisanincreaseo2.2%onlastyearsdividend.
Chairmans Statement
ThisrateoincreaseallsshortothecurrentrateoinationintheUK.However,weareconfdentthattheinvestmentportolioiscapableosupportingrealdividendgrowthinthemediumtermandlonger.Overthelastfveyears,thedividendhasrisen42%whichcomparestoanincreaseintheRetailPriceIndexo18%.
Borrowings
SAINTSborrowingstaketheormoasingledebenturedueorrepaymentinApril2022.Thebookvalueotheseborrowedundsis87.4m.However,sincethedebenturewasissuedatapremiumtoitsparvalue,thefnalrepaymentamountwillbe80m.
Atthestartotheyear,thebookvalueothedebenturewasequivalenttoapproximately32%oshareholdersunds.Formuchotheyear,thisborrowedmoneywasullydeployedinundingarangeoinvestmentsacrossbondmarketsandinUKcommercialproperty.Theseperormedwelland,togetherwithgainsontheequityportolio,contributedtoasignifcantriseinshareholdersundsduringtheyear.Thismeantthatattheyearendthedebenturesbookvaluehadallento26%oshareholdersunds.
Supply and Demand for the Companys Shares
Oneothemostnotableeaturesothelastyearhasbeenthestrongperormanceothesharepricerelativetoournetassetvalue.Atthestarto2010thediscounttonetassetvalue(debentureatairvalue)stoodat12.1%but,bytheendotheyear,a1.2%premiumhademerged.
ThisdevelopmentowesmuchtoSAINTSbeingabletooerarelativelyhighandgrowingdividendwhilstmanyotherormsosavinghaveseenincomereturnsall.TheBoardandtheManagershavealsoputmuchthoughtandeortintopromotingSAINTSasacost-eectivesavingsvehicleorprivateinvestors,particularlythoseseekingagrowingincomestream,whichhasledtoincreasingdemandortheshares.
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THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. 5
ChAIrmANS STATemeNT
Demandorregularandgrowingincomewillremainstrong.ShouldSAINTScontinuetobeneftromthisandthepremiumtonetassetvaluepersisttheBoardislikelytosubmitablocklistingapplicationtotheLondonStockExchange.Thiswouldallownewsharestobeissuedtothemarketaswellastomeetdemandorsharesromregularsaversinthevarioussavingsschemes.Shareswouldonlybeissuedatapremiumtonetassetvalue.SuchissuanceisbenefcialtoexistingshareholdersasitenhancesnetassetvalueandtheincreaseinthesizeotheCompany,althoughmodest,spreadstheburdenoitsadministrativecosts.
Notwithstandingtheabove,wealsointendtoseekshareholders
approvalatthisyearsAGMortherenewalotheCompanysauthoritytobuybackitsownsharesatadiscounttonetassetvalue.Althoughthishasnotbeenusedinrecentyears,theBoardbelievesthatbuybackscanbeuseulincertaincircumstancesorreducingvolatilityinthediscountandenhancingnetassetvalueorcontinuingshareholders.
Outlook
Financialmarketvaluationsreachedtheirlowestpointothe2007-2009fnancialcrisisduringthefrstquartero2009.Sincethen,marketshaveralliedstronglyasexceptionalfscalandmonetarypoliciesinmanycountrieshavestimulatedasubstantialrecoveryinglobaleconomicactivityandasignifcantriseininvestorconfdence.
WethinktheyearaheadwillbeoneourtherChinaledgrowthintheworldeconomy.Wealsoexpectthecorporatesectortoshowgoodgrowthinproftswhichshouldallowthecompaniesinwhichweareinvestedtoraisetheirdividends.Onthisbasis,weareexpectingourownrevenuepositiontoimprove.
However,signifcanteconomicriskspersistincludingimbalancesinworldtrade,risinginationandhighdebtlevelsinsomeothematureeconomies.RecentdevelopmentsinanumberoMiddleEastcountriesalsoremindusthatunexpectedeventscan,andwill,happen.Wethereorestartthisnewfnancialyearwithaslightlymorecautiousoutlookthanlastyear.
Annual General Meeting
AttheAGM,underSpecialBusiness,theCompanyisproposingtoadoptnewArticlesoAssociationtoreecttheimplementationothelastpartsotheCompaniesAct2006whichcameintoorceon1October2009.ItisalsoproposedthattheArticlesbeamendedtoincreasethelimitsontheDirectorsees.WhilstitisnottheBoardsintentiontoincreaseDirectorseesor2011,theeesarenearthecurrentlimitwhichallowslittlescopeoranincreaseinutureyears.Furtherinormationonthisresolutioncanbeoundonpage27intheDirectorsReportanddetailsothemainchangesproposedtotheArticlesaresetoutintheAppendixtotheNotice
otheAGMonpage57.AllotheDirectorsareseekingre-electionthisyearandwillcontinuetodosoonanannualbasis.
TheAGMwillbeheldat11amonThursday7AprilatBaillieGiordsofcesatCaltonSquare,1GreensideRow,Edinburgh(seemaponpage53).TheManagerswillmakeapresentationontheinvestmentportolio.TherewillalsobeanopportunitytoaskquestionsandtheDirectorsandManagerslookorwardtomeetingyouthere.
SirBrianIvory,CBEChairman18February2011
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6 ANNUAL REPORT 2010
dIreCTorS ANd mANAGemeNT
Directors and ManagementMembers of the Board come from a broad variety of backgrounds. The Board can draw on anextensive pool of knowledge and experience. Baillie Gifford & Co, a leading UK investmentmanagement rm established in 1908, have acted as Managers and Secretaries since 1 January 2004.
Directors
Sir Brian Ivory, CBE, CASirBrianjoinedtheBoardin2000andwasappointedChairmanin2001.HeisalsotheChairmanotheNominationCommittee.HeisadirectoroRemyCointreauSA,InsightInvestmentManagementLtdandoMarathonAssetManagement(Services)LtdandischairmanoRetecDigitalplcandArcusEuropeanInrastructureFundGPLLP.HewasormerlychairmanoHighlandDistillersPlcandotheTrusteesotheNationalGalleriesoScotlandandadirectoroHBOSPlc.
The Rt Hon Sir Menzies Campbell, CBE, QC, MPSirMenziesjoinedtheBoardinDecember2007.HewasLeaderotheLiberalDemocratpartyuntilOctober2007.HewaselectedasanMPin1987,andwasForeignAairsSpokesmanbeorebecomingDeputyLeaderohisparty.HequalifedasanadvocateinScotland,beingadmittedtotheFacultyoAdvocatesin1968andbecomingQueensCounselin1982.
Eric Hagman, CBE, CAMrHagmanjoinedtheBoardin2005andbecametheChairmanotheAuditCommitteeaterthe2009AGM.HejoinedArthurAndersenin1971andbecamethemanagingpartnerinScotlandin1982.Hespentthelastfveyearsuntil2002inLondonasamanagingpartnerontheUKLeadershipTeam.HeisadirectoroBritishPolytheneIndustriesplcandTheRoyalCollegeoArt.
HewasormerlyatrusteeotheNationalGalleriesoScotlandandadirectoroGlenGroupplc,ScottishFinancialEnterpriseandScottishEnterprise.
Lord Kerr of Kinlochard, GCMGLordKerrjoinedtheBoardin2002.HewaschairmanotheAuditCommitteeuntilhesteppeddownaterthe2009AGM.HewasHeadotheDiplomaticServicerom1997to2002,havingpreviouslybeenAmbassadortotheEuropeanUnionandthentotheUnitedStates.HeisdeputychairmanoRoyalDutchShellplc,adirectoroRioTintoPlcandScottishPowerandchairmanoImperialCollegeLondon.
Rachel LomaxMsLomaxjoinedtheBoardin2008.SheservedasDeputyGovernorotheBankoEnglandbetween2003and2008,havingpreviouslybeenPermanentSecretaryattheDepartmentorTransport,theDepartmentorWorkandPensionsandtheWelshOfce.ShewaspreviouslyChieoStatothePresidentotheWorldBank,HeadotheEconomicandDomesticSecretariatattheCabinetOfce.SheworkedormanyyearsatHMTreasury,whereshewasPrincipalPrivateSecretarytotheChancellorotheExchequeranddeputyChieEconomicAdviser.SheisadirectoroHSBCHoldings,BAALimited,theReinsuranceGroupoAmerica(RGS),theRoyal
NationalTheatre,ImperialCollegeLondon,theCentreorEconomicPolicyResearch(CEPR)andtheSupervisoryBoardoArcusEuropeanInrastructureFundGPLLPandisPresidentotheInstituteoFiscalStudies.
Peter MoonMrMoonjoinedtheBoardin2005.HewaschieinvestmentofcerotheUniversitiesSuperannuationSchemeLimitedundrom1992untilAugust2009.HeisadirectoroFirstPropertyplcandArdenPartnersplcandisaormerdirectoroMBNAEuropeandisaormerMemberotheNationalAssociationoPensionFundsInvestmentCommittee.PriortojoiningUniversitiesSuperannuationScheme,MrMoonmanagedinvestmentsattheBritishAirwaysPensionFundandtheNationalProvidentInstitution,whichhejoined
in1978.
David PriceMrPricejoinedtheBoardin1997andistheseniorindependentdirector.HeisadirectoroMelchiorJapanInvestmentTrustplcandStramongateAssetsPlc.HewasormerlydeputychairmanoMercuryAssetManagementGroupplcandchairmanoF&CManagementLimited.
AllDirectorsaremembersotheNominationandAuditCommittees.
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Managers and Secretaries
SAINTSismanagedbyBaillieGiord&Co,aninvestmentmanagementfrmormedin1927outothelegalfrmBaillie&Giord,WS,whichhadbeeninvolvedininvestmentmanagementsince1908.
BaillieGiord&CoareoneothelargestinvestmenttrustmanagersintheUKandcurrentlymanageeightinvestmenttrusts.BaillieGiord&CoalsomanageunittrustsandOpenEndedInvestmentCompanies, togetherwithinvestmentportoliosonbehalopensionunds,charitiesandotherinstitutionalclients,bothintheUKandoverseas.FundsunderthemanagementoradviceoBaillieGiord&Cototalaround70billion.BasedinEdinburgh,theyareoneotheleadingprivatelyownedinvestmentmanagementfrmsintheUK,with35partnersandastaoaround700.
ThemanageroSAINTSportolioisPatrickEdwardson,apartneroBaillieGiord&Co.PatrickisresponsibleorSAINTSequityinvestments,workingcloselywithalloBaillieGiordsequityinvestmentteams.SAINTSbondinvestmentsaremanagedbyspecialistsinBaillieGiordsfxedincometeam.ThepropertyinvestmentsaremanagedseparatelybyOLIMLimited,aspecialistpropertymanager.
ThefrmoBaillieGiord&CoisauthorisedandregulatedbytheFinancialServicesAuthority.
Fromlettoright:DavidPrice,TheRtHonSirMenziesCampbell,RachelLomax,SirBrianIvory,EricHagman,PeterMoon,LordKerroKinlochard
dIreCTorS ANd mANAGemeNT
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8 ANNUAL REPORT 2010
mANAGerS revIe
Overview
Theglobaleconomystrengthenedduring2010andmoststockmarketsrosebacktowardsthelevelsprevailingbeorethecollapseoLehmanBrothersandthefnancialcrisisinlate2008.Mostotherinvestmentmarketsalsodeliveredgoodreturnsalthoughgovernmentbondslostsomegroundtowardstheendotheyearasgrowthacceleratedandsomeconcernsemergedaboutination.
SAINTSreturned22.8%,astrongresult.Formostotheyearwewereullyinvested,mainlyinequitiesbutalsoinavarietyobondholdings,indirectlyheldUKcommercialpropertyandinlistedpropertyandorestryunds.Theproportioninvestedinequitieswas
alittlebelowwhatwewouldnormallyhavebutthiswasnotbecausewewerebearishonequities.Insteaditreectedaviewthatanumberoothermarketswerecapableogeneratingequallygoodinotbetterreturns.Creditmarketsinparticularoeredsomeveryappealingopportunities.
Chinawas,onceagain,themainengineogrowthintheworld.Togetherwithrapidgrowthinotherlowerpercapitaincomecountries,thismeantthat2010wasanotheryearinwhichthebalanceoeconomicandpoliticalpowershitedsouthandeast.Therewassomeimprovementinthedevelopedeconomies;ateraalteringrecoveryin2009,thegeneraltrendwasorstrongergrowthparticularlyintheUSandGermany.However,highdebtlevelsandweakbankingsystemsstillweighonmanyothese
economiesandwhatstrengththerewasowedmuchtosupportivemonetarypolicyandheavyborrowingbygovernments.
Thestronginvestmentreturnsmaskwhatwasanotheryearoconsiderablevolatilityinmarkets.Thefrsthalotheyear,andparticularlytheperiodbetweenAprilandJune,wasdominatedbyacrisisinEuropeangovernmentdebtmarketswhichwassufcientlygraveastoundermineconfdenceacrossabroadswatheoglobalmarkets.TheimmediateissuewastheabilityoGreecetorefnancecertainbondissuesbutthebroaderpointwasthedurabilityotheeuro-zoneinitscurrentormandthesustainabilityogovernmentdebtlevelsinsomeothesmallerEuropeancountries.
Inthesecondhalotheyear,economicandcorporatenewsincreasinglysupportedamoreupbeatassessmentoinvestment
prospects.FinancialmarketswerealsobuoyedbythedecisionotheUSFederalReservetoundertakeasecondroundoquantitativeeasingandanextensionogeneroustaxcutsbytheUSgovernment.
AlthoughmuchisrightlymadeothedecliningrelativeimportanceotheUS(aslarger,morepopulousnationssuchasIndiaandChinagrowinwealthandimportance),itremainsinabsolutetermsthesinglelargesteconomyintheworld.Itshealthandvitalitystillhaveaveryimportantbearingontheglobaleconomyandfnancialmarkets.Whilstthelongtermsustainabilityandimpactoitscurrentpoliciesareopentoquestion,theyappearorthetimebeingtohavebolsteredconfdenceinUSgrowthprospectsandaregivinginvestorscauseoroptimism.
LoosemonetarypolicyintheUSalsoboostedgrowthinthedevelopingnations.Thedesireomanyothesecountriestofxor
managetheirexchangerates,principallyagainstthedollar,requiredthemtosetinterestratesatlevelswhich,whilstappropriateoradebt-burdenedUSeconomy,wereinappropriateorthem.Theresultwasoverheatingeconomies,risingdomesticpricesandsignifcantincreasesingloballytradedoodandcommodityprices.
Howcountriesreacttotheemergenceoinationarypressureswillbeanimportantinuenceoninvestmentreturnsintheyearahead.However,in2010stronggrowthandrisingpriceswereagoodcombinationorourcompanies,bothintermsotradingresultsandshareprices.Mostreportedrisingsalesandmanywereabletoclaimsatisyinglyhighproftmargins.Risingprofts,improvingcashowsandgenerallystrongbalancesheetsalsoencouragedquotedcompaniestostartraisingdividendsagain.Inthe2010revenueaccount,thisencouragingdevelopmentwasoutweighedbyadropinbondincomeandtheimpactodividendcutsannouncedinthepreviousyear.However,weareconfdentthatitwillbenefttherevenueaccountin2011.
Equities
Onaverageduringtheyear69%otheportoliowasinvestedinequities.Expressedasapercentageoshareholdersunds,thefgurewas89%.Thetotalreturnortheyearwas19.3%.
ThedirectionochangeinthegeographicdistributionotheportolioisstillawayromtheUKandtowardsoverseasmarkets,inparticularthedevelopingnations.However,thescaleochangeduring2010wasmodest.WemadereductionstoholdingsinsuchtraditionallyamiliarnamesasVodaone,BP,TescoandGlaxosmithKlineandoutrightsalesoseveralsmallerholdings.Asaresultothese,UKlistedstocksrepresentedlessthan30%oSAINTStotalportoliobytheendotheyear.Becauseotheirrelativelyhighyields,amoresubstantialreductionintheUKlistedholdingswouldhavehadanunhelpulimpactontherevenueaccountthisyear.
Managers Review
Pastperormanceisnotaguidetoutureperormance.
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THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. 9
mANAGerS revIe
Weappliedtheproceedsromthosesalestoavarietyoopportunitieslistedelsewhereintheworld.Itisworthrecordingthatthespurtobuyingaparticularstockisinvariablyitsstrengthsandprospectsasabusinessratherthanwhereithappenstobedomiciledorlisted.Nonetheless,theortunesoseveralholdingsthatenteredtheportolioorthefrsttimethisyeararecloselytiedtothelongtermdevelopmentotheemergingnations.ExamplesotheseincludeSouthAricanlistedStandardBank,theHongKongandBrazilianstockexchangesandatollroadoperatorinwesternChina,SichuanExpressway.
Closertohome,wetookholdingsinseveralEuropeanlisted
companies.SvenskaHandelsbankenisaremarkablysuccessulanddisciplinedSwedishbankthathaslongemphasisedorganicgrowthandcapitalstrength.Wethinktheseattributeswillbringitgoodortuneintheyearsahead.Asagoodexampleohowdomicileolistingmatterslittlenowadays,wepurchasedPortugueselistedoodretailerJeronimoMartinsbutdidsobecauseoitslargeandsuccessulPolishbusiness.WealsoboughtRoche,theSwisslistedpharmaceuticalscompany.Ourpositioninginthepharmaceuticalindustryissomewhatcautiousaswearewaryotheindustrysabilitytomaintaincurrentlevelsoproftability.HoweverwethinkRochemaybecapableogrowthandisonanundemandingrating.
MostoourothertransactionswereinUSstocks.TheUSmarketis,inourview,themostsusceptibletoabearishassessmentovaluationsbecausetheratiooUSstockmarketpricestoearnings,onceallowanceismadeortheupsanddownsotheeconomiccycle,issignifcantlyaheadoitslongrunaverage.ThisobservationpromptedageneralreviewoUSholdingswhich,alliedwithsomelossopatienceorconfdenceintheinvestmentcaseledtosalesoseveralstocksincludinginsuranceandinvestmentgroupBerkshireHathaway,vethospitalgroupVCAAntech,documentstoragecompanyIronMountainandswimmingpoolsupplierPoolCorporation.ThetransactionsintheUSwerenotallonewaythough.WeboughtMcDonalds,theeponymousburgerandastoodchain;wethinkitslongtermprospectsareexcellentasitrollsoutitsormatintothemanydevelopingnations.
Inabsoluteterms,virtuallyallpartsotheportoliodeliveredpositivereturnsduring2010.Incomparisontoourbenchmark,onwhichthereturnwas15.8%,webeneftedmostromourEuropeanandNorthAmericaninvestments.
ThesizeoourEuropeaninvestmentswasnotmuchgreaterthanthoseothebenchmarkindex,buttheirperormancewasconsiderablystrongerwitha29%gainduringtheyearcomparedto6%romthebenchmarksEuropeancomponent.TheSwedishengineeringholdingAtlasCopcowasparticularlyimportantbutwealsohadverysignifcantgainsonourholdingsintheaorementionedJeronimoMartins,litscompanySchindlerandSwissbasedprivateequitymanagerPartnersGroup.NorthAmericanstockmarketsenjoyedstronggains,helpedbyrecoveryintheUSeconomyandrisingoverseasearnings.Overall,ourholdingsperormedwell,notablyonlineretailerAmazon,insurancesotwareproviderSoleraandmortgagelenderNewYorkCommunityBank.Canadianlistedoil
companyPennWestalsoperormedwell,reectingstrengthinthepriceocrudeoil.
TheperormanceoourEmergingMarketinvestmentswasactuallylessgoodthantherelevantindicesorthosemarketsbutwehadasubstantiallylargerallocationthancontainedinSAINTSbenchmark(22%against8%).ThemainreasonsortheperormanceshortallweretherelativelylargeallocationtoChinesestocks(whichdespitethatcountryseconomicstrengthdeliveredsomewhatmutedreturns)andaholdinginBrazilianoilcompanyPetrobras(whichellovertheyearonconcernsaboutequityissuanceandgovernmentinvolvement).Morepositively,andincontrasttothegeneralperormanceotheChinesemarket,wehadstrikinggainsromaholdinginChineseinternetsearchcompanyBaidu(whichreturned
over140%).Oneoouremergingmarketretailers,SouthAricanbasedMassmart,alsobeneftedromabidapproach.
Lookingatourindustryexposureovertheyear,thestrongcontributionromindustrialstocksgivesagoodindicationohowthestrengtheningeconomicenvironmentdroveequityreturns.WehavealreadymentionedAtlasCopco,butUSlistedagriculturalmachinerycompanyDeeremadealmostaslargeacontribution.Variouscompaniesinvolvedinthedistributionogoodsthrougheconomiesalsoaredwell,notablyUSdeliveryfrmUPSandAustralianlistedpalletdistributorBrambles.Weownavariedselectionofnancialstocksandthesedidwellascreditmarketsandthewesternbankingsystemcontinuedtoheal.Ourretailingexposureisverymuchocusedonthedevelopingworldwhererisinglivingstandardsand
lowconsumerdebtburdenscontrastsharplywiththesituationacedbywesternconsumers.Wealsocontinuetobeimpressedbytherateotechnologicalchangeinthemodernworldandthewayin
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10 ANNUAL REPORT 2010
mANAGerS revIe
whichsomecompaniesareleadingthatchangeinaveryproftableway.Thelowdividendyieldstypicallyoeredbythesecompanieswillpreventusowningtheminaslargeasizeaswewouldideallylike.Theirsharepriceperormancecanalsobevolatileromoneyeartothenext.Nonetheless,ownershipocompaniessuchasinternetsearchcompaniesGoogleandBaiduandelectronicsmanuacturerSamsungElectronicsis,webelieve,likelytoprovearewardingexperienceinthelongrun.
Bonds
Bondmarketsagainpresenteduswithsomeveryappealinginvestmentopportunities,thebestevidenceorwhichisthe35.1%returnwhichourholdingsdeliveredduring2010.Thesewerealsosignifcantinvestmentsorus,onaveragetheymadeupjustover15%otheportolioequivalentto20%oshareholdersunds.
ThelargestsingleholdingwasinapooledundmanagedbyLondonbasedinvestmentfrmPrytania.WeinvestedintheirAthenaDebtOpportunitiesFundduring2008butthestructureddebtinstrumentsinwhichitspecialisessueredbadlyduringthecrisisthatenguledfnancialmarkets,andcreditmarketsinparticular,duringtheclosingmonthsothatyear.Thesemarketshavestagedasignifcantrecoverysincethen,particularlyoverthelasttwelvemonthsduringwhichtheAthenaundgainedover40%.Itsunitpricenowstandsapproximately10%higherthanwhenwemadeouroriginalinvestmentandwehavealsoreceivedsignifcantinterest
payments.
Thenextlargestholdingisinanindex-linkedbondissuedbythegovernmentoBrazil.Wehaveheldthisbondorfveyearsnow,attractedbyitshighrealyieldandtheprospectthatBrazilscurrencywouldappreciateagainststerling.Bothactorscamegoodin2010andthesterlingvalueotheholdingrosealmost30%.
ThesameimprovementincreditmarketswhichbolsteredtheAthenaundalsoledtolargegainsonmanyoourotherbondholdings.ThemostsignifcantothesewastheholdingintheBaillieGiordHighYieldFund.Thisundtypicallyinvestsinbondsissuedbymorehighlyindebtedcompaniesandwasanunsurprisingbenefciaryoimprovingconditionsoncreditmarketsandinthebroadereconomy.
Withtheenvironmentsosupportiveorourholdings,wemadeewchangesduringtheyear.Ourremaininginsurancelinkedsecuritiesmaturedandthistypeobond,whicheectivelyseestheinvestorprovidinginsurancetotheissueragainstspecifednaturalcatastrophes,nolongereaturesintheportolio.Ourexperiencewiththemwasproftableandwemaytakesimilarholdingsintheutureshouldthetermslookattractive.WesoldourholdingoabondissuedbyhedgeundmanagerManGroup(andswitchedthemoneyintoManGroupshares).WealsopurchasedaoatingratenotewhoseortunesaretiedtotherentalincomeonalargeportoliooGermanresidentialandsocialhousingunits.
Listed Investment FundsSAINTSownsanumberolistedinvestmentundswhichweuseasaconvenientwayogettingexposuretosomemarketsandassetclasses.Currentlyweownoneorestryundandseveralundsinvestedinoverseaspropertymarkets.Inaggregate,theserepresented5%otheportolioduring2010oralittleunder7%oshareholdersunds.Thereturnromtheorestryundwasadisappointing1.1%butthepropertyundsreturned42.2%.
TheorestryholdingisaUKlistedundcalledCambiumGlobalTimberland.ThisundownsorestryplantationsinvariouslocationsaroundtheworldincludingtheUnitedStates,BrazilandAustralia.Theinvestmentwasmadeinthefrsthalo2007at100ppershareanditisdisappointingthat,asattheendo2010,theshareprice
andtheundsnetassetvaluewerebothsignifcantlybelowthislevel(68pand80prespectively).
TheinvestmentsinlistedpropertyundsallowustoparticipateincommercialpropertymarketsinEurope,JapanandChina.Toalargeextent,thestrongreturnsdeliveredbythispartotheportolioreectarecoveryromdistressedvaluationsthesesameundslostconsiderablevalueduringthefnancialcrisisandlargegapsemergedbetweentheirsharepricesandtheirunderlyingnetassetvalues.Aswelookorward,webelievethereisscopeorthevaluationotheseundstorise,driveneitherbyanarrowingodiscountsorbygainsontheirunderlyingportolios.
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mANAGerS revIe
Direct Property
ThedirectinvestmentsinUKcommercialpropertyaremanagedbyOLIMLtd,aspecialistpropertymanager.Thetotalreturnor2010was12%whichcomparestothereturnontheIPDAllPropertyIndexoapproximately15%.
Twopropertiesweresoldduringtheyearandthreepurchased.Thesetransactions,alongwithasmallcapitalgainonpropertiesheldthroughouttheyear,tookthevalueothepropertyportolioto32mbytheyearend,approximately8%othetotalportolio.Sincetheyearend,anotherpropertyhasbeenpurchasedor3mandwemaymakeurtherinvestmentsisuitablecandidates
canbeound.WeandOLIMbelievethatcommercialpropertyvaluationsintheUKareattractive,bothinabsolutetermsandwhencomparedtoothermajorassetclassessuchasgiltsorequities.TheaverageyieldonthepropertiesthatSAINTSnowownis7.7%andwewouldexpectrentalincometogrowbroadlyinlinewithinationoverthemediumtolongterm.
Outlook
Atthistimelastyear,wewrotethatewinvestmentmarketsoeredcompellingvaluebutcontinuedimprovementintheglobaleconomyandstrengthincorporateproftsmightyetallowgoodinvestmentreturns.Itispossibletoargueasimilarcasenowandindeedour
centralexpectationisthatstockmarketswillfnishtheyearhigherthantheycurrentlyare.
Intheverynearterm,worldGDPgrowthislikelytobestrong.ThestructuralactorsunderpinninggrowthinChinaandtheotherdevelopingnationsremainfrmlyinplaceandtheircyclicalmomentumissubstantial.Growthinthedevelopedeconomiesmaybemorevariedbutshouldstillbepositive.
Webelievethiseconomicbackdropwillallowmanycompaniestoreportrisingproftsoverthenextyear.Thisshouldbeaccompaniedbyurthergrowthindividendpaymentsandmayalsoencourageapick-upinacquisitionactivityandincorporateinvestment.
However,theriseinstockmarketlevelsoverthelastyearhascapturedatleastsomeothisprospect.Wealsothinkthesustainabilityocurrenteconomicstrengthisopentoquestion.Anincreasingnumberothedevelopingnationsnowacerisinginationandsomehavealreadybeguntotightenmonetarypolicyinresponse.Asorthedevelopedeconomies,itisnotclearwhatunderlyingstrengthwillbeletoncethevariousfscalandmonetarystimulusprogrammesdeployedduringthefnancialcrisisarewithdrawn.
Wesuspectwearestillinwhatwillprovealongperiodoadjustmentandchangeintheworldeconomy.Thedevelopednationsborrowedtoomuchortoolongandmustnowadjustto
consuminglessandsavingmore.Thedevelopingnationswillcontinuetheirlongmarchtoeconomicdominancebasedontheiroverwhelmingpopulationadvantage,buttheymayhavetoproceedataslowerpacethantheywouldlikeitheyaretoavoidaseriousinationprobleminthenextewyears.
Adjustmentandchange,onthisglobalscaleatleast,rarelyproceedinastraight,orderlyashion.Asthisreportisbeingprepared,wearebeingservedapowerulreminder(inEgyptandotherMiddleEasterncountries)thatunexpectedeventshappen.Sometimestheirimpactwillbebenign,positiveeven.Onotheroccasions,theirimpactcanbemorecostly.Eitherway,theytendtoinvokevolatilityinmarketsandcanleadtolargeswingsininvestorconfdenceandmarketlevels.
Astohowthisimpactsourinvestmentstrategy,wethinkaslightlymorecautioustoneiswarranted.Westillexpectpositivereturns,butwouldbepleasantlysurpriseditheyapproachthelevelsenjoyedinthelasttwelvemonths.
PatrickEdwardsonBaillieGiord&Co.18February2011
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12 ANNUAL REPORT 2010
perFormANCe ATTrIBuTIoN ANd dISTrIBuTIoN oF porTFolIo
Distribution of Portfolio
Asset Allocation as at 31 December 2010 (2009) Quoted Equities* by Sector as at 31 December 2010 (2009)
Quoted FixedInterest
15.4% (14.6%)
Net Liquid Assets 1.2% (2.8%)
Quoted
Equities*70% (68.8%)
Unquoted0.4% (0.5%)
Quoted Equity
PropertyInvestments
2.9% (2.0%)
Direct Property7.7% (8.5%)
Quoted Equity ForestryInvestments2.4% (2.8%)
Basic Materials8.9% (7.4%)
Health Care4.1% (4.9%)
ConsumerGoods10.4% (10.9%)
Industrials13.9% (12.6%)
Financials23.8% (23.2%)
Telecommunications 2.4% (3.3%)
Consumer Services8.4% (6.7%)
Technology10.7% (11.2%)
Oil and Gas15.4% (17.6%)
Utilities2.0% (2.2%)
* Excludesquotedequitypropertyandorestryinvestments.
Average allocation Total returnSAINTS Benchmark SAINTS Benchmark
Portfolio breakdown % % % %
QuotedEquities* 89.3 100.0 19.3 15.8QuotedFixedInterest 20.1 35.1
DirectProperty 10.0 12.0QuotedEquityForestryInvestments 3.6 1.1QuotedEquityPropertyInvestments 3.2 42.2Unquoted 0.6 3.1Deposits 2.5 Debentureatbookvalue (29.3) (6.8)Portfolio Total Return (debenture at book value) 24.2 15.8Otheritems 0.1Fund Total Return (debenture at book value) 24.3 15.8Adjustmentorchangeinairvalueodebenture (1.5)Fund Total Return (debenture at fair value) 22.8 15.8
Theabovereturnsarecalculatedonatotalreturnsbasiswithnetincomereinvested.
Pastperormanceisnotaguidetoutureperormance.Source:BaillieGiord&Co.
* Excludesquotedequitypropertyandorestryinvestments.ThisincludesBaillieGiordandOLIMmanagementees,othercostsorunningthetrustsuchasmarketingexpenditureandaresidualitemwhicharisesbecauseoadisparitybetweentheNAVtotalreturnfgureandtheindividualassetclassportolioreturnnumbersascalculatedbyBaillieGiordsperormancemeasurementsystem(providedbyStatpro).
Performance Attribution for the Year to 31 December 2010
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THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. 13
ThIrTy lArGeST holdINGS ANd INveSTmeNT ChANGeS
2010 2009
Value % of Value
Name Classication Business 000 total assets 000
AthenaDebtOpportunitiesFund FixedInterest Debtopportunitiesund 22,063 5.3 14,501
BrazilCPILinked15/05/2045 FixedInterest Braziliangovernmentbond 18,780 4.5 14,487
BaillieGiordHighYieldBondFund FixedInterest Highyieldbondund 13,545 3.2 9,663BaillieGiordGreaterChinaFund Overseas Equityinvestmentund 10,338 2.5 9,075
CambiumGlobalTimberland QuotedEquityForestryInv Forestryinvestmentund 9,975 2.4 10,350
AtlasCopco Overseas Engineering 8,061 1.9 3,653
BritishAmericanTobacco UnitedKingdom Cigarettemanuacturer 7,459 1.8 6,104
RioTinto UnitedKingdom Mining 7,089 1.7 4,509
HolidayVillageinNewRomney DirectProperty Holidayvillage 6,800 1.6 6,500
BHPBilliton UnitedKingdom Mining 6,735 1.6 5,267
PennWestEnergyTrust Overseas Oilandnaturalgasincometrust 6,584 1.6 4,704
DBS Overseas Banking 6,158 1.5 5,851
Deere Overseas Farmmachinery 6,142 1.5 3,874
TaiwanSemiconductorManuacturing Overseas Semiconductormanuacturer 5,669 1.4 5,013
PhilipMorrisInternational Overseas Cigarettemanuacturer 5,574 1.3 4,444HSBC UnitedKingdom Banking 5,491 1.3 7,118
NewYorkCommunityBank Overseas Banking 5,466 1.3 4,079
CVRD Overseas Mining 5,428 1.3 4,318
NursinghomeinKenilworth DirectProperty Nursinghome 5,200 1.2 5,000
SamsungElectronics Overseas Electronicdevices 5,032 1.2 3,541
Canon Overseas Imagingdevices 4,907 1.2 3,849
RoyalDutchShell UnitedKingdom Integratedoil 4,865 1.2 4,165
Petrobras Overseas Integratedoil 4,817 1.2 5,789
ManGroup UnitedKingdom Hedgeundmanager 4,644 1.1 3,282
QuorumOilandGas UnitedKingdom Oilindustrytechnologyund 4,250 1.0 6,255
Massmart Overseas Foodretailer 4,249 1.0 2,255
JapanResidentialInvestmentCompany QuotedEquityPropertyInv Japaneseresidentialpropertyund 4,172 1.0 1,600
JeronimoMartins Overseas Discountretailer 4,169 1.0
Vodaone UnitedKingdom Mobiletelecommunicationservices 4,052 1.0 5,463
Aviva UnitedKingdom Lieassurance 4,048 1.0 4,079
211,762 50.8 168,788
Thirty Largest Holdings
Thefguresaboveortotalassetsaremadeupototalnetassetsbeoredeductionothedebenture.
*Excludesquotedequitypropertyandorestryinvestments.
Investment Changes
Valuation at Net acquisitions/ Appreciation/ Valuation at
31 Dec 2009 (disposals) (depreciation) 31 Dec 2010
000 000 000 000
UnitedKingdomQuotedEquities* 106,147 (12,296) 9,026 102,877OverseasQuotedEquities* 144,926 13,338 31,755 190,019
TotalQuotedEquities* 251,073 1,042 40,781 292,896DirectProperty 31,000 (172) 1,122 31,950QuotedEquityPropertyInvestments 7,548 1,750 3,015 12,313QuotedEquityForestryInvestments 10,350 (375) 9,975QuotedFixedInterest 53,198 (3,684) 14,705 64,219Unquoted 1,780 56 1,836
TotalInvestments 354,949 (1,064) 59,304 413,189NetLiquidAssets 10,118 (4,339) (699) 5,080
TotalAssets 365,067 (5,403) 58,605 418,269
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THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. 15
lIST oF INveSTmeNTS AS AT 31 deCemBer 2010
Value
Classication Name 000 %
UnitedKingdomQuotedEquities*
Oilandgasproducers BGGroup 3,033 BP 2,928 RoyalDutchShell 4,865 TullowOil 1,513
12,339 3.0Oilequipment,servicesanddistribution Amec 2,246 QuorumOilandGas 4,250 WellstreamHoldings 1,345 WoodGroup 2,792
10,633 2.5
Chemicals Victrex 2,924 0.7
Mining BHPBilliton 6,735 RioTinto 7,089
13,824 3.3
Generalindustrials Rexam 2,803 0.7
Industrialengineering LupusCapital 440 0.1Supportservices Capita 1,750 Hays 1,791
3,541 0.8
Tobacco BritishAmericanTobacco 7,459 ImperialTobacco 3,720
11,179 2.7
Pharmaceuticalsandbiotechnology GlaxoSmithKline 3,050 0.7
Foodanddrugretailers Tesco 2,584 0.6
Media ReedElsevier 1,983 0.5
Mobiletelecommunications Vodaone 4,052 1.0
Electricity Scottish&SouthernEnergy 3,185 0.8
Gas,waterandmulti-utilities NationalGrid 2,710 0.6
Banks Barclays 2,092 HSBC 5,491
7,583 1.8
Nonlieinsurance Amlin 2,307 Hiscox 1,135
3,442 0.8
Lieinsurance Aviva 4,048 1.0
Realestate TerraCatalystFund 3,302 0.8
Generalfnancial ManGroup 4,644 1.1
Equityinvestmentinstruments BlackrockLatinAmerican 1,724 DamilleInvestments 978 LevelEMayaFund 1,909
4,611 1.1
Total United Kingdom Quoted Equities* 102,877 24.6
*Excludesquotedequitypropertyandorestryinvestments.Comprisesaholdinginaconvertiblesecurity.
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lIST oF INveSTmeNTS AS AT 31 deCemBer 2010
Value
Classication Name 000 %
OverseasQuotedEquities*
Oilandgasproducers Gazprom 3,132 Lukoil 2,011 OGXPetroleo 1,228 PennWestEnergyTrust 6,584 Petrobras 4,817 Total 3,567
21,339 5.3
Chemicals Monsanto 1,401 0.3
Mining CVRD 5,428ImpalaPlatinum 2,328
7,756 1.9
Electronicandelectricalequipment Canon 4,907 1.2
Industrialengineering AtlasCopco 8,061 Deere 6,142 Schindler 3,789
17,992 4.3
Industrialtransportation SichuanExpressway 1,783 UnitedParcelService 2,549 ZhejiangExpressway 3,187
7,519 1.8
Supportservices Brambles 2,457 Meitec 1,026
3,483 0.8
Automobilesandparts HeroHondaMotors 2,479 0.6
Foodproducers Nestl 3,534 0.8
Leisuregoods Nintendo 2,121 0.5
Personalgoods LOral 2,520 0.6
Tobacco Altria 3,523 PhilipMorrisInternational 5,574
9,097 2.1
Pharmaceuticalsandbiotechnology JohnsonandJohnson 2,607 Novozymes 1,706 RocheHoldings 2,653 TevaPharmaceuticals 2,309
9,275 2.2
Foodanddrugretailers JeronimoMartins 4,169 Massmart 4,249 McDonalds 2,696 Walgreen 2,006
13,120 3.1Generalretailers Amazon.com 2,298 DutyFreeShops 930 eBay 1,403 Walmex 2,758
7,389 1.7
Mobiletelecommunications ChinaMobile 3,067 0.7
Banks DBS 6,158 ItauUnibanco 2,074 NewYorkCommunityBank 5,466 StandardBankGroup 2,632 SvenskaHandelsbanken 3,342
19,672 4.7
Nonlieinsurance Progressive 1,382 0.3
*Excludesquotedequitypropertyandorestryinvestments.
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THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. 17
lIST oF INveSTmeNTS AS AT 31 deCemBer 2010
Value
Classication Name 000 %
OverseasQuotedEquitiescont.*
Generalfnancial BM&FBovespa 1,687 HongKongExchangesandClearing 2,135 Moodys 1,514 PartnersGroup 4,003
9,339 2.3Equityinvestmentinstruments BaillieGiordGreaterChinaFund 10,338 VisionOpportunitiesChinaFund 958
11,296 2.7
Sotwareandcomputerservices Baidu.com 2,232 Exact 2,261 Google 1,517 InspurInternational 793 Microsot 2,423 SAP 3,057 SoleraHoldings 2,092 TaiwanSemiconductorManuacturing 5,669
20,044 4.8
Technologyhardwareandequipment AsustekComputer 1,036 CiscoSystems 1,083 LinearTechnology 3,714 Pegatron 422 SamsungElectronics 5,032
11,287 2.7
Total Overseas Quoted Equities* 190,019 45.4
Total Quoted Equities* 292,896 70.0
DirectProperty
Directproperty Seetableoverlea 31,950 7.7
QuotedEquityPropertyInvestments
FukuokaREIT 3,506 InvistaEuropeanRealEstateTrust 909 JapanResidentialInvestmentCompany 4,172 TamarEuropeanIndustrialFund 1,050 TreasuryChinaTrust 2,676
Total Quoted Equity Property Investments 12,313 2.9
QuotedEquityForestryInvestments
CambiumGlobalTimberland 9,975 2.4
*Excludesquotedpropertyandorestryinvestments.Includesaholdinginpreerenceshares
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Value
Classication Name 000 %
lIST oF INveSTmeNTS ANd properTy porTFolIo AS AT 31 deCemBer 2010
2010 2009
Value % of Value
Location Type Tenant 000 total assets 000
Dundee PublicHouse JDWetherspoonPlc 1,050 0.3 1,100
Dunermline Shop WHSmithRetailHoldingsLtd 2,300 0.5 2,300Earley PublicHouse PunchPubCompany(Pubs)Ltd 2,800 0.7 2,800Kenilworth NursingHome TrinityCareLtd 5,200 1.2 5,000
MarketDeeping Warehouse AdvancedHandling 900 0.2 NewRomney HolidayVillage ParkResortsLtd 6,800 1.6 6,500Nottingham Soldin2010 3,500Oban Shop WHSmithRetailHoldingsLtd 1,600 0.4 1,550Otord PublicHouse PunchPubCompany(Pubs)Ltd 1,900 0.5 1,850Perth Bank BankoScotland 2,650 0.6 Portsmouth PublicHouse JDWetherspoonPlc 2,200 0.5 2,250Reading Restaurant BellaItaliaRestaurantsLtd 1,150 0.3 1,200
Redditch Warehouse WestonBodyHardware 1,150 0.3 Torquay PublicHouse Mitchells&ButlerRetailLtd 1,100 0.3 1,100Weybridge Soldin2010 700Winchester PublicHouse FullerSmith&TurnerPlc 1,150 0.3 1,150
31,950 7.7 31,000
Property Portfolio
QuotedFixedInterest
Sterlingdenominated BaillieGiordHighYieldBondFund 13,545 BarclaysBank14%2019 3,593 CQSRigFinanceFundC 612 Resolution6.5864%2016 2,657
20,407 4.8Eurodenominated GermanResidentialDFRN2016 1,502 SemperFinanceFRNSLP2015 1,467
2,969 0.8
USdollardenominated AthenaDebtOpportunitiesFund 22,063 5.3
Brazilianrealdenominated BrazilCPILinked15/05/2045 18,780 4.5
Total Quoted Fixed Interest 64,219 15.4
Unquoted 1,836 0.4
Net Liquid Assets 5,080 1.2
Total Assets 418,269 100.0
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THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. 19
Debenture Net asset Net asset Premium/ Premium/At Total stocks Shareholders value per value per Share (discount ) (discount) 31 December assets and loans funds share (book) * share (fair) * price (book) (fair)
000 000 000 p p p % %
2000 543,251 78,471 464,780 296.8 254.5 (14.3) 2001 422,850 90,274 332,576 225.7 192.3 (14.8)
2002 312,634 89,767 222,867 161.9 132.8 (18.0) 2003 340,546 89,260 251,286 185.8 181.9 149.3 (19.6) (17.9)2004 361,691 89,760 271,931 205.3 197.1 167.5 (18.4) (15.0)2005 426,021 89,430 336,591 254.1 241.2 218.8 (13.9) (9.3)2006 462,673 89,079 373,594 282.0 272.6 241.3 (14.4) (11.5)2007 460,094 88,708 371,386 280.3 272.7 240.0 (14.4) (12.0)2008 289,087 88,312 200,775 151.5 145.3 130.5 (13.9) (10.2)2009 365,067 87,892 277,175 209.2 206.0 181.0 (13.5) (12.1)2010 418,269 87,446 330,823 249.7 242.5 245.5 (1.7) 1.2
Capital
* Netassetvalueperordinarysharehasbeencalculatedaterdeductingthedebentureateitherbookvalueorairvalue. Premium/(discount)isthedierencebetweenSAINTSquotedsharepriceanditsunderlyingnetassetvalueateitherbookvalueorairvalue.
Available Earnings DividendYear to Gross for ordinary per ordinary per ordinary Expense Actual Potential31 December revenue shareholders share share (net) ratio gearing gearing
000 000 p p %
2000 13,346 7,794 4.87 5.53 0.41 103 1172001 12,551 8,337 5.46 5.57 0.20 100 1272002 12,075 7,932 5.64 5.61 0.23 99 1402003 11,412 7,913 5.82 5.65 0.13 103 1362004 13,707 8,379 6.30 6.00 0.96 106 1332005 13,986 9,000 6.80 6.53 0.80 110 1272006 15,326 10,002 7.55 7.40 0.78 105 1242007 17,751 11,345 8.56 8.25 0.80 105 1242008 20,901 13,905 10.50 8.80 0.84 100 144
2009 17,194 11,989 9.05 9.05 1.02 97 1322010 16,379 11,271 8.51 9.25 0.90 96 126
ThecalculationoearningsperordinaryshareisbasedontherevenuecolumnothereturnonordinaryactivitiesatertaxationintheIncomeStatementandtheweightedaveragenumberoordinarysharesinissue.
Ratioototaloperatingcoststoaverageshareholdersunds. Totalassets(includingalldebtusedorinvestmentpurposes)lesscash,fxedinterestsecurities(exconvertibles)andpropertydividedbyshareholdersunds. Totalassets(includingalldebtusedorinvestmentpurposes)dividedbyshareholdersunds.
Revenue Gearing Ratios
BaillieGiord&CowasappointedasInvestmentManagersandSecretariesotheCompanywitheectrom1January2004.OnthesamedatetheCompanyalsochangeditsbenchmarkrom65%FTSEAll-ShareIndexand35%FTSEWorldExUKIndexto70%FTSEAll-ShareIndexand30%FTSEWorldExUKIndex.Witheectrom1January2009,theCompanysbencharkbecame50%FTSEAll-ShareIndexand50%FTSEAll-WorldexUKIndex.Forthepurposesotheabovetablesthereturnsonthesebenchmarksortheirrespectiveperiodshavebeenlinkedtoormasinglebenchmark. Thefgurespriorto2004havenotbeenrestatedorthechangesinaccountingpoliciesimplementedin2005.
Pastperormanceisnotaguidetoutureperormance.
Net asset Net asset Share Benchmark Earnings Dividend per Retail
At value value Share price total total per ordinary ordinary price31 December per share total return price return Benchmark return share share (net) index
2000 100 100 100 100 100 100 100 100 1002001 76 78 76 77 85 86 112 101 1012002 55 57 52 55 62 65 116 101 1042003 63 68 59 65 73 79 120 102 1072004 69 78 66 76 79 88 129 108 1102005 86 99 86 103 94 108 140 118 1132006 95 112 95 117 104 123 155 134 1182007 94 115 94 120 108 131 176 149 1222008 51 64 51 68 77 97 216 159 1242009 70 94 71 101 93 121 186 164 1272010 84 118 96 143 105 140 175 167 133
Compound annual returns
5year (0.4%) 3.6% 2.3% 6.8% 2.1% 5.4% 4.6% 7.2% 3.3%10year (1.7%) 1.7% (0.4%) 3.6% 0.5% 3.5% 5.8% 5.3% 2.9%
Cumulative Performance (taking 2000 as 100)
TeN yeAr reCord
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20 ANNUAL REPORT 2010
Directors Report
TheDirectorshavepleasureinsubmittingtheirAnnualReporttogetherwiththeresultsotheCompanyortheyearto31December2010.
Business Review
Business and StatusTheCompanyisaninvestmentcompanywithinthemeaningosection833otheCompaniesAct2006.
TheCompanycarriesonbusinessasaninvestmenttrust.ItwasapprovedbyHMRevenue&Customsasaninvestmenttrustundersection842otheIncomeandCorporationTaxesAct1988ortheyearended31December2009,subjecttoanymattersthatmay
ariseromanysubsequentenquirybyHMRevenue&CustomsintotheCompanystaxreturn.IntheopinionotheDirectorstheCompanyhassubsequentlyconducteditsaairssoastoenableittocontinuetoseekapprovalundersection1158otheCorporationTaxAct2010(ormerlysection842ICTA1988)eachyear.
Objective and PolicySAINTSobjectiveistoincreasecapitalandgrowincomeinordertodeliverrealdividendgrowth.
SAINTSpolicyistoinvestexiblyandactivelyacrossabroadrangeoassetsandmarkets.Listedequities,bothUKandoverseas,ormthelargestpartotheportolio.Investmentsarealsomadeinbonds,propertyandotherassetclasses.
TheBoardbelievesthataexibleapproachtoinvestmentisimportant.Asmarketvaluationsacrossandwithindierentassetclassesvaryovertime,theabilitytoadjustassetallocationandportoliopositioninginresponsetothesevariationsisimportant.Therearenopre-defnedmaximumorminimumexposurelevelsorassetclasses,sectorsorregions.
TheBoardalsobelievesthatamediumtolongtermapproachislikelytoleadtothebestinvestmentreturns.SAINTSperormanceinanyoneyearislikelytodierromthatoitsbenchmarkindex,sometimesbyasignifcantamount.Financialmarketsarevolatile,particularlyovershorttimeperiods,buttheManagerisencouragedtoviewsuchvolatilityasgivingrisetoinvestmentopportunitiesrather
thanasarisktobeavoided.
Inordertoachieverealgrowthinthedividend,theincomegeneratedromSAINTSassetsneedstogrowoverthemediumtolongertermataasterratethanination.Consequently,theocusotheportolioisonlistedequities.Investmentsareregularlyconsideredandmadeinabroadrangeootherassettypesandmarkets.DerivativeandstructuredinstrumentsmayalsobeusedwithpriorBoardapproval,eithertohedgeanexistinginvestmentoracurrencyexposureortoexploitaninvestmentopportunity.
TheequityportolioconsistsoshareslistedbothintheUKandinoverseasmarkets.Theportolioisdiversifedacrossarangeoholdingswithlittleregardpaidtotheweightingoindividual
companiesinthecompositebenchmarkindex.Thenumberoindividualcompanieswillvaryovertimeandtheportolioismanagedonaglobalbasisratherthanasaseriesoregionalsub-portolios.
InvestmentsaremadeinmarketsotherthanlistedequitymarketswhenprospectivereturnsappeartobesuperiortothoseromequitymarketsorareconsideredlikelytoexceedSAINTSborrowingcosts.Thelistotheseotherinvestmentswillvaryromtimetotimeasopportunitiesareidentifedbutincludeinvestmentgradebonds,highyieldbonds,property,orestry,privateequityandotherassettypes.
Asaninvestmenttrust,SAINTSisabletoborrowmoneyanddoessowhentheBoardandManagershavesufcientconvictionthatthe
assetsundedbyborrowedmonieswillgenerateareturninexcessothecostoborrowing.Wheneverlongtermborrowingscannotbeullyinvestedinsuchmanner,theborrowedundsareusedtopurchaseadiversifedportolioosimilarmaturitybondstotheborrowings.Thishastheeectohedgingoutmuchotheinterestrateriskandremovingthemismatchbetweenborrowingcostsandassociatedinvestmentreturns.GearinglevelsarediscussedbytheBoardandManagersateveryBoardmeetingandmonitoredbetweenmeetings.TheBoardwillnottakeoutadditionalborrowingsithistakestheleveloeectivegearingbeyond130%.
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Thestartingpositionorinvestmentoshareholderundsis100%exposuretoequitymarkets.TheallocationtoequitymarketsatanypointintimewillreecttheBoardsandManagersviewson
prospectivereturnsromequitiesandtheullrangeoalternativeinvestmentopportunitiesbut,inbroadterms,SAINTSwillgearupthroughtheuseoborrowingsiequitymarketslookundervaluedandwillholdcashorinvestinnon-equityassetswhenequitymarketslookovervalued.
Theexposuretolistedequitiesissetwithinarangeo75%to125%oshareholdersundsinnormalcircumstances.Thenumberoindividualequitiesheldwillvaryovertimebut,inordertodiversiyrisk,willtypicallybeinarangebetween50and100.
TheBoardmonitorstheaggregateexposuretoanyoneentityacrossthewholeinvestmentportolio.Themaximumexposureattimeoinvestmenttoanyoneentityis15%ototalassets.TheBoardis
notifedinadvanceoanytransactionthatwouldtakeanindividualequityholdingabove5%oshareholdersunds.SAINTSdoesromtimetotimeinvestinotherUKlistedinvestmentcompanies.Themaximumpermittedinvestmentinsuchcompaniesis15%ogrossassets.
AdetailedanalysisotheCompanysinvestmentportolioissetoutonpages12to18.
Board OversightWhenassessingtheperormanceotheCompanyandtheManagers,theBoardlooksatdividendgrowthandatnetassetvaluetotalreturnsrelativetothebenchmarktotalreturn.TheBoardbelievesitisappropriatetomakethisassessmentoveramediumto
longtermtimerame,atleastthreetofveyears,inaccordancewiththemediumtolongtermapproachtakentoinvestment.
TheBoardmonitorscloselytheactivitiesotheManagers,thecompositionotheinvestmentportolioandthelevelogearingtoensuretheseexposuresareidentifedandtojudgewhetherornotprospectiveinvestmentreturnsarecommensuratewiththenatureandsizeotheseexposures.
TheBoardsetsanumberoguidelinesandplaceslimitsandrestrictionsontheManagersinordertominimisetheriskopermanentlossocapital.Withintheseconstraints,theBoardencouragestheManagertomaximiselongtermcapitalandincomegrowthratherthanminimiseshorttermvolatilityinthecapitalvalue
otheinvestmentportolio.ThemainsourceobothlongtermreturnandshorttermvolatilityintheSAINTSportolioislikelytobetheinvestmentsinlistedequities.
TheBoardalsomonitorsSAINTSrevenuepositionandreceivesregularestimatesromtheManagersolikelyincomegrowth.Thelevelodividendinanyoneyearissetaterassessingtheincomegeneratedbytheportoliointhatyear,thelevelorevenuereservesandlongtermtrendsinincome.
Discount/PremiumTheBoardhaspowerstobuybackitsownsharesatadiscounttonetassetvalueandtoholdsuchsharesintreasuryaswellastoissuenewsharesandre-issuetreasurysharesatapremiumtonetassetvalue.
Buy-backpowershavebeenusedinthepastincircumstanceswhenlargelinesostockcannotbeabsorbedbythemarket.Thediscount,inabsolutetermsandrelativetoothersimilarinvestmenttrustcompanies,andthecompositionotheshareregisterisdiscussedateveryBoardmeeting.WhilethereisnodiscounttargettheBoardisawarethatdiscountvolatilityisunwelcometomanyshareholdersandthatsharepriceperormanceisthemeasureusedbymostinvestors.TheBoardoverseestheManagersmarketingprogrammewhichisdesignedtostimulatedemandortheCompanysshares,provideeectivecommunicationtoexistingandpotential
shareholdersandmaintaintheprofleotheCompany.PerformanceAteachBoardmeeting,theDirectorsconsideranumberoperormancemeasurestoassesstheCompanyssuccessinachievingitsobjectives.
Thekeyperormanceindicators(KPIs)usedtomeasuretheprogressandperormanceotheCompanyovertimeareestablishedindustrymeasuresandareasollows:
themovementinnetassetvalueperordinaryshare(aterdeductingdebenturesatairvalue)comparedtothebenchmark;
themovementintheshareprice;
thediscount(aterdeductingdebenturesatairvalue);
thetotalexpenseratio;
earningspershare;and
dividendpershare.
Ahistoricalrecordothesemeasuresisshownonpages2,3and19.
Inadditiontotheabove,theBoardconsiderspeergroupcomparativeperormance.
ResultsThenetassetvaluepersharerose17.7%,comparedtoariseinthebenchmarko12.7%,dividendsincreasedby2.2%to9.25ppershareandtheCompanyssharepricemovedromadiscounto12.1%toapremiumo1.2%.
DividendsTheBoardrecommendsafnaldividendo2.35pperordinarysharewhich,togetherwiththeinterimdividendsalreadypaid,makesatotalo9.25portheyear.
Iapproved,therecommendedfnaldividendontheordinaryshareswillbepaidon11April2011toshareholdersontheregisteratthecloseobusinesson11March2011.Theex-dividenddateis9March2011.TheCompanysRegistraroersaDividendReinvestmentPlan(seepage52)andthefnaldateorelectionsorreinvestmentothisdividendis21March2011.
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Review of the Year and Future TrendsAreviewotheyearandtheinvestmentoutlookiscontainedintheChairmansStatementandtheManagersReview.
Principal Risks and UncertaintiesTheCompanysassetsconsistmainlyolistedsecuritiesanditsprincipalrisksarethereoremarketrelatedandincludemarketrisk(comprisingcurrencyrisk,interestrateriskandotherpricerisk),liquidityriskandcreditrisk.Anexplanationothoserisksandhowtheyaremanagediscontainedinnote19tothefnancialstatementsonpages44to48.
OtherrisksacedbytheCompanyincludetheollowing:
Regulatory RiskailuretocomplywithapplicablelegalandregulatoryrequirementscouldleadtosuspensionotheCompanysStockExchangeListing,fnancialpenaltiesoraqualifedaudit
report.Breachosection1158otheCorporationTaxAct2010(ormerlysection842ICTA1988)couldleadtotheCompanybeingsubjecttotaxoncapitalgains.TheManagersmonitorinvestmentmovementsandtheleveloorecastincomeandexpendituretoensuretheprovisionsosection1158arenotbreached.BaillieGiordsHeadsoBusinessRisk&InternalAuditandRegulatoryRiskprovideregularreportstotheAuditCommitteeonBaillieGiordsmonitoringprogrammes.
Operational/Financial Risk ailureotheManagersaccountingsystemsorthoseootherthirdpartyserviceproviderscouldleadtoaninabilitytoprovideaccuratereportingandmonitoringoramisappropriationoassets.TheBoardreviewstheManagersReportonInternalControlsandthereportsbyotherkeythirdpartyproviders
arereviewedbytheManagersonbehalotheBoard.Discount VolatilitythediscountatwhichtheCompanyssharestradecanwiden.TheBoardmonitorsthelevelodiscountandtheCompanyhasauthoritytobuybackitsownshares.
Gearing RisktheCompanymayborrowmoneyorinvestmentpurposes(sometimesknownasgearing).Itheinvestmentsallinvalue,anyborrowingswillmagniytheextentothisloss.Iborrowingacilitiesarenotrenewed,theCompanymayhavetosellinvestmentstorepayborrowings.
AllborrowingsrequirethepriorapprovalotheBoardandgearinglevelsarediscussedbytheBoardandManagersateverymeeting.ThemajorityotheCompanysinvestmentsareinquotedsecurities
thatarereadilyrealisable.
EmployeesTheCompanyhasnoemployees.TheexecutiveresponsibilityorinvestmentmanagementhasbeendelegatedtoBaillieGiord&Co.
Social and Community IssuesAsaninvestmenttrust,theCompanyhasnodirectsocialorcommunityresponsibilities.TheCompanyhoweverbelievesthatitisinshareholdersintereststoconsiderenvironmentalsocialandgovernanceactorswhenselectingandretaininginvestments.DetailsotheCompanyspolicyonsociallyresponsibleinvestmentcanbeoundunderCorporateGovernanceandStewardshiponpage25.
Corporate Governance
TheBoardiscommittedtoachievinganddemonstratinghigh
standardsoCorporateGovernance.ThisstatementoutlineshowtheprinciplesoTheCombinedCodeonCorporateGovernance,publishedin2008(theCombinedCode)wereappliedthroughoutthefnancialyear.
ComplianceTheBoardconfrmsthattheCompanyhascompliedthroughouttheyearunderreviewwiththerelevantprovisionsotheCombinedCode.TheAssociationoInvestmentCompanies(AIC)haspublisheditsownCodeoCorporateGovernancewhichprovidesarameworkobestpracticeorinvestmentcompanies.TheBoardisotheopinionthattheCompanyhascompliedwiththerecommendationsotheAICCode.
The BoardTheBoardhasoverallresponsibilityortheCompanysaairsandithassetoutanumberomattersthataresubjecttoBoardapprovalincludingstrategy,investmentpolicy,currencyhedging,gearing,treasurymatters,dividendandcorporategovernancepolicy.Aseparatemeetingdevotedtostrategyisheldeachyear.TheBoardalsoreviewsthefnancialstatements,investmenttransactions,revenuebudgetsandperormance.FullandtimelyinormationisprovidedtotheBoardtoenabletheBoardtounctioneectivelyandtoallowDirectorstodischargetheirresponsibilities.
TheBoardcurrentlycomprisessevenDirectorsallowhomarenon-executive.TheexecutiveresponsibilityorinvestmentmanagementhasbeendelegatedtotheCompanysManagersandSecretaries,
BaillieGiord&Co,and,inthecontextoaBoardcomprisedentirelyonon-executiveDirectors,thereisnochieexecutiveofcer.TheseniorindependentdirectorisDavidPrice.
TheDirectorsbelievethattheBoardhasabalanceoskillsandexperiencewhichenablesittoprovideeectivestrategicleadershipandpropergovernanceotheCompany.InormationabouttheDirectors,includingtheirrelevantexperience,canbeoundonpage6.
ThereisanagreedprocedureorDirectorstoseekindependentproessionaladviceinecessaryandattheCompanysexpense.
Terms of AppointmentLetterswhichspeciythetermsoappointmentareissuedtonew
Directors.Thelettersoappointmentareavailableorinspectiononrequest.
ADirectorappointedduringtheyearisrequiredtoretireandseekelectionbyshareholdersatthenextAnnualGeneralMeeting.TheBoardhasagreedtogobeyondtheminimumrequirementsotheCompanysArticlesoAssociationandTheCombinedCodeandhasresolvedthatallotheDirectorswillretireateachAnnualGeneralMeetingand,iappropriate,oerthemselvesorre-election.
Independence of DirectorsAllDirectorsareconsideredbytheBoardtobeindependentotheManagersandreeoanybusinessorotherrelationshipwhichcouldintererewiththeexerciseotheirindependentjudgement.
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SirBrianIvoryandMrDavidPricehaveservedontheBoardormorethannineyears,althoughtherehasonlybeenarelationshipwiththeManagersorsevenyearsasBaillieGiordwereappointed
in2004.TheDirectorsrecognisetheimportanceosuccessionplanningorcompanyboardsandreviewtheBoardcompositionannually.HowevertheBoardisotheviewthatlengthoservicewillnotnecessarilycompromisetheindependenceorcontributionoDirectorsoaninvestmenttrustcompany,wherecontinuityandexperiencecanbeabenefttotheBoard.TheBoardconcurswiththeviewexpressedintheAICCodethatlong-servingDirectorsshouldnotbepreventedrombeingconsideredindependent.Followingaormalperormanceevaluation,theBoardhasconcludedthat,notwithstandingtheirlengthoserviceSirBrianIvoryandMrDavidPriceremainindependent.TheiractionsanddecisionshaveconfrmedtheirindependenceandtheDirectorsbelievetheirlengthoservicehasbeenabenefttotheBoard.
MeetingsThereisanannualcycleoBoardmeetingswhichisdesignedtoaddress,inasystematicway,overallstrategy,reviewoinvestmentpolicy,investmentperormance,marketing,revenuebudgets,dividendpolicyandcommunicationwithshareholders.TheBoardconsidersthatitmeetssufcientlyregularlytodischargeitsdutieseectively.ThetableonthispageshowstheattendancerecordortheBoardandCommitteemeetingsheldduringtheyear.AllDirectorsattendedtheAnnualGeneralMeeting.
Nomination CommitteeTheNominationCommitteeconsistsothewholeBoardandtheChairmanotheBoardisChairmanotheCommittee.
TheCommitteemeetsonanannualbasisandatsuchothertimesasmayberequired.TheCommitteehaswrittentermsoreerencewhichincludereviewingtheBoard,identiyingandnominatingnewcandidatesorappointmenttotheBoard,Boardappraisal,successionplanningandtraining.TheCommitteealsoconsiderswhetherDirectorsshouldberecommendedorre-electionbyshareholders.TheCommitteeisresponsibleorconsideringDirectorspotentialconictsointerestandormakingrecommendationstotheBoardonwhetherornotthepotentialconictsshouldbeauthorised.TheCommitteestermsoreerenceareavailableonrequestromtheCompanyandromtheSAINTSpageontheManagerswebsitewww.saints-it.com.
Performance EvaluationAnappraisalotheChairman,eachDirectorandaperormanceevaluationandreviewotheBoardasawholeanditsCommitteeswascarriedoutduringtheyear.TheChairmanandeachDirectorcompletedaperormanceevaluationquestionnaireandeachDirectorhadaninterviewwiththeChairman.TheappraisalotheChairmanwasledbyMrDavidPrice.Theappraisalsandevaluationsconsidered,amongstothercriteria,thebalanceoskillsotheBoard,thecontributionoindividualDirectorsandtheoveralleectivenessotheBoardanditsCommittees.FollowingthisprocessitwasconcludedthattheperormanceoeachDirector,theChairman,theBoardanditsCommitteescontinuestobeeectiveandeachDirectorandtheChairmanremainscommittedtotheCompany.
AreviewotheChairmansandotherDirectorscommitmentswascarriedoutandtheNominationCommitteeissatisfedthattheyarecapableodevotingsufcienttimetotheCompany.TherewerenosignifcantchangestotheChairmansothercommitmentsduringtheyear.
Induction and TrainingNewDirectorsareprovidedwithaninductionprogrammewhichistailoredtotheparticularcircumstancesotheappointee.RegularbriefngsareprovidedonchangesinregulatoryrequirementsthatcouldaecttheCompanyandtheDirectors.Directorsreceiveotherrelevanttrainingasnecessary.
RemunerationAsalltheDirectorsarenon-executive,theprovisionsotheCombinedCodeinrespectoDirectorsremunerationarenotrelevanttotheCompanyexcepttotheextentthattheyrelatespecifcallytonon-executivedirectors.ConsequentlythereisnorequirementoraseparateRemunerationCommittee.DirectorseesareconsideredbytheBoardasawholewithinthelimitsapprovedbyshareholders.
TheCompanyspolicyonremunerationissetoutintheDirectorsRemunerationReportonpages28and29.
Internal Controls and Risk ManagementTheDirectorsacknowledgetheirresponsibilityortheCompanyssystemointernalcontrolsandorreviewingitseectiveness.Thesystemointernalcontrolsisdesignedtomanageratherthaneliminatetheriskoailuretoachievebusinessobjectivesandcanonlyprovidereasonableandnotabsoluteassuranceagainstmaterialmisstatementorloss.
TheBoardconfrmsthatthereisaprocessoridentiying,evaluatingandmanagingthesignifcantrisksacedbytheCompanyinaccordancewiththeguidanceInternalControl:RevisedGuidance
orDirectorsontheCombinedCode.TheDirectorsconfrmthattheyhavereviewedtheeectivenessothesystemointernalcontrolandtheyhaveproceduresinplacetoensureregularuturereviews.
Thepracticalmeasurestoensurecompliancewithregulationandcompanylaw,andtoprovideeectiveandefcientoperationsandinvestmentmanagement,havebeendelegatedtotheManagersandSecretaries,BaillieGiord&Co,underthetermsotheManagementAgreement.Thepracticalmeasuresinrelationtothedesign,implementationandmaintenanceocontrolpoliciesandprocedurestosaeguardtheassetsotheCompanyandtomanageitsaairsproperly,includingthemaintenanceo
eectiveoperationalandcompliancecontrolsandriskmanagementhavealsobeendelegatedtoBaillieGiord&Co.TheBoardacknowledgesitsresponsibilitiestosuperviseandcontrolthedischargebytheManagersandSecretariesotheirobligations.
Directors Attendance at Meetings
Audit Nomination
Board Committee Committee
Number of meetings 6 2 1
SirBrianIvory 6 2 1TheRtHonSirMenziesCampbell 6 2 1EricHagman 6 2 1LordKerroKinlochard 6 2 1RachelLomax 6 2 1PeterMoon 6 2 1DavidPrice 6 2 1
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TheBaillieGiord&CoHeadsoBusinessRisk&InternalAuditandRegulatoryRiskprovidetheAuditCommitteewithregularreportsonBaillieGiord&Cosmonitoringprogrammes.Thereporting
proceduresorthesedepartmentsaredefnedandormalisedwithinaservicelevelagreement.BaillieGiord&CoconductsanannualreviewoitssystemointernalcontrolswhichisdocumentedwithinaninternalcontrolsreportwhichcomplieswithTechnicalReleaseAAF01/06AssuranceReportsonInternalControlsoServiceOrganisationsmadeavailabletoThirdParties.ThisreportisindependentlyreviewedbyBaillieGiord&CosauditorsandacopyissubmittedtotheAuditCommittee.
TheCompanysinvestmentsaresegregatedromthoseoBaillieGiord&CoanditsotherclientsthroughtheappointmentoTheBankoNewYorkMellonasindependentcustodianotheCompanysinvestments.
Adetailedriskmapispreparedwhichidentifesthesignifcantrisks
acedbytheCompanyandthekeycontrolstomanagetheserisksareconfrmedasinplaceandoperatingeectively.
TheseproceduresensurethatconsiderationisgivenregularlytothenatureandextentotherisksacingtheCompanyandthattheyarebeingactivelymonitored.Wherechangesinriskhavebeenidentifedduringtheyeartheyalsoprovideamechanismtoassesswhetherurtheractionisrequiredtomanagetherisksidentifed.TheBoardconfrmsthattheseprocedureshavebeeninplacethroughouttheCompanysfnancialyearandcontinuetobeinplaceuptothedateoapprovalothisReport.
Internal AuditTheAuditCommitteecarriesoutanannualreviewotheneedoran
internalauditunction.TheCommitteecontinuestobelievethatthecomplianceandinternalcontrolsystemsandtheinternalauditunctioninplacewithintheInvestmentManagersprovidesufcientassurancethatasoundsystemointernalcontrol,whichsaeguardsshareholdersinvestmentandtheCompanysassets,ismaintained.Aninternalauditunction,specifctotheCompany,isthereoreconsideredunnecessary.
Accountability and AuditTherespectiveresponsibilitiesotheDirectorsandtheAuditorsinconnectionwiththeFinancialStatementsaresetoutonpages30and31.
Going Concern
InaccordancewithTheFinancialReportingCouncilsguidanceongoingconcernandliquidityriskissuedin2009,theDirectorshaveundertakenarigorousreviewotheCompanysabilitytocontinueasagoingconcern.
TheCompanysprincipalrisksaremarketrelatedandincludemarketrisk,liquidityriskandcreditrisk.Anexplanationotheserisksandhowtheyaremanagediscontainedinnote19tothefnancialstatements.TheCompanysassets,themajorityowhichareinvestmentsinquotedsecuritieswhicharereadilyrealisable,exceeditsliabilitiessignifcantly.AllborrowingsrequirethepriorapprovalotheBoard.GearinglevelsandcompliancewithborrowingcovenantsarereviewedbytheBoardonaregularbasis.TheCompanyhasnoshorttermborrowingsandtheredemption
dateortheCompanysDebentureisApril2022.Accordingly,thefnancialstatementshavebeenpreparedonthegoingconcernbasisasitistheDirectorsopinionthattheCompanywillcontinueinoperationalexistenceortheoreseeableuture.
Audit CommitteeAnAuditCommitteehasbeenestablishedconsistingoallDirectors.ItsauthorityanddutiesareclearlydefnedwithinitswrittentermsoreerencewhichareavailableonrequestromtheCompanyandontheSAINTSpageotheManagerswebsitewww.saints-it.com.EricHagmanischairmanotheAuditCommittee.TheCommitteesresponsibilities,whichweredischargedduringtheyear,include:
monitoringandreviewingtheintegrityothehal-yearlyand
annualfnancialstatementsandanyormalannouncementsrelatingtotheCompanysfnancialperormance;
reviewingstandardsointernalcontrolandriskmanagement;
makingrecommendationstotheBoardinrelationtotheappointmentotheexternalauditorsandapprovingtheremunerationandtermsotheirengagement;
developingandimplementingpolicyontheengagementotheexternalauditorstosupplynonauditservices;
reviewingandmonitoringtheindependence,objectivityandeectivenessotheexternalauditors;
reviewingthetermsotheInvestmentManagementAgreement;
reviewingthearrangementsinplacewithinBaillieGiord&Cowherebytheirstamay,inconfdence,raiseconcernsaboutpossibleimproprietiesinmattersofnancialreportingorothermattersinsoarastheymayaecttheCompany;and
consideringannuallywhetherthereisaneedortheCompanytohaveitsowninternalauditunction.
KPMGAuditPlcwereappointedtheCompanysAuditorsin2004.Havingconsideredtheexperienceandtenureotheauditpartnerandstaandtheleveloserviceprovided,theCommitteeremainssatisfedwiththeAuditorseectiveness.Theauditpartnersresponsibleortheauditarerotatedeveryfveyearsandthecurrentleadauditpartnerhasbeeninplaceortwoyears.TherearenocontractualobligationsrestrictingtheCompanyschoiceoexternalauditor.
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Directors Interests
Nature Ordinary 25p shares
Name of interest 2010 2009
SirBrianIvory Benefcial 31,000 31,000TheRtHonSirMenziesCampbell Benefcial 2,315 2,194EricHagman Benefcial 2,000 2,000LordKerroKinlochard Benefcial 59,991 54,187RachelLomax Benefcial 17,057 5,864PeterMoon Benefcial 10,000 10,000DavidPrice Benefcial 10,000 10,000
TheDirectorsattheyearend,andtheirinterestsintheCompanyat31December,wereasshownabove.Duringtheperiodrom1January2011to17February2011RachelLomaxadded247sharestoherbenefcialholdingasaresultomonthlyinvestmentintheBaillieGiordsavingsvehicles.
TherehavebeennootherchangesintimatedintheDirectorsinterestsupto17February2011.
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TheCommitteereceivesconfrmationromtheAuditorsthattheyhavecompliedwiththerelevantUKproessionalandregulatoryrequirementsonindependence.Nonauditeesortheyearto
31December2010were1,000andrelatedtothecertifcationofnancialinormationorthedebenturetrustee.TheCommitteedoesnotbelievethatthishasimpairedtheAuditorsindependence.
Relations with ShareholdersTheBoardplacesgreatimportanceoncommunicationwithshareholders.TheCompanysManagersmeetregularlywithshareholdersandreportshareholdersviewstotheBoard.TheChairmanisavailabletomeetwithshareholdersasappropriate.ShareholderswishingtocommunicatewithanymembersotheBoardmaydosobywritingtothemattheCompanysregisteredofce.
TheCompanysAnnualGeneralMeetingprovidesaorumorcommunicationwithallshareholders.Theleveloproxieslodgedor
eachresolutionisannouncedatthemeetingandispublishedontheSAINTSpageotheManagerswebsitesubsequenttothemeeting.ThenoticeperiodortheAnnualGeneralMeetingisatleasttwentyworkingdays.Shareholdersandpotentialinvestorsmayobtainup-to-dateinormationontheCompanyromtheSAINTSpageotheManagerswebsite,www.saints-it.com.
Corporate Governance and StewardshipTheCompanyhasgivendiscretionaryvotingpowerstotheinvestmentmanagers,BaillieGiord&Co.TheManagersvoteagainstresolutionstheyconsidermaydamageshareholdersrightsoreconomicinterests.
TheCompanybelievesthatitisintheshareholdersintereststo
considerenvironmental,socialandgovernance(ESG)actorswhenselectingandretaininginvestmentsandhaveaskedtheManagerstotaketheseissuesintoaccount.TheManagersdonotexcludecompaniesromtheirinvestmentuniversepurelyonthegroundsoESGactorsbutadoptapositiveengagementapproachwherebymattersarediscussedwithmanagementwiththeaimoimprovingtherelevantpoliciesandmanagementsystemsandenablingtheManagerstoconsiderhowESGactorscouldimpactlongterminvestmentreturns.TheManagersstatementocompliancewiththeUKStewardshipCodecanbeoundontheManagerswebsiteatwww.bailliegifford.com .TheManagerspolicyhasbeenreviewedandendorsedbytheBoard.
TheManagersaresignatoriestotheUnitedNationsPrinciplesor
ResponsibleInvestmentandtheCarbonDisclosureProject.
Conicts of InterestEachDirectorsubmitsalistopotentialconictsointeresttotheNominationCommitteeonanannualbasis.TheCommitteeconsidersthemcareully,takingintoaccountthecircumstancessurroundingthemandmakesarecommendationtotheBoardonwhetherornotthepotentialconictsshouldbeauthorised.Boardauthorisationisoraperiodooneyear.HavingconsideredthelistsopotentialconictstherewerenosituationswhichgaverisetoadirectorindirectinterestoaDirectorwhichconictedwiththeinterestsotheCompany.
Investment Managers
AnInvestmentManagementAgreementbetweentheCompanyand
BaillieGiord&CosetsoutthemattersoverwhichtheManagershaveauthorityinaccordancewiththepoliciesanddirectionso,andsubjecttorestrictionsimposedby,theBoard.TheManagementAgreementisterminableonnotlessthansixmonthsnotice.CareulconsiderationhasbeengivenbytheBoardastothebasisonwhichthemanagementeeischarged.TheBoardconsidersthatmaintainingarelativelylowtotalexpenseratioisinthebestinterestoallshareholders.TheBoardisalsootheviewthatcalculatingtheeewithreerencetoperormancewouldbeunlikelytoexertapositiveinuenceoverthelongtermperormance.
DetailsotheeearrangementswithBaillieGiord&Coareshownonpage37.
TheBoardconsiderstheCompanysinvestmentmanagementand
secretarialarrangementsortheCompanyonanongoingbasisandaormalreviewisconductedannually.TheBoardconsiders,amongstothers,theollowingtopicsinitsreview:thequalityopolicyguidance;successoinvestmentstrategyandinvestmentperormance;theadministrativeservicesprovidedbytheSecretaries;qualityandcoverageoBoardpapers;themarketingeortsundertakenbytheManagers;comparativecosts;andcommunicationwithshareholders.FollowingthemostrecentreviewitistheopinionotheDirectorsthatthecontinuingappointmentoBaillieGiord&CoasManagers,onthetermsagreed,isintheinterestsoshareholdersasawhole.
Underaormalmanagementagreement,OLIMLimitedisappointed
managerotheCompanyspropertyportolio.Detailsoitseesareshownonpage37.Theagreementcanbeterminatedonthreemonthsnotice.Ontermination,OLIMisentitledtoaprorataproportionoitseestothedateotermination.ItistheBoardsviewthatthecontinuationoOLIMsappointmentonthetermsagreedisintheinterestoshareholdersasawhole.
Substantial Holdings in the Companys Shares
No. of ordinary
Name 25p shares held % of issue
BrewinDolphinLimited 6,660,412 5.0Legal&GeneralGroupPlc 5,240,223 3.9DCThomson&CoLtd 4,100,000 3.1
TheaboveinormationhasbeenintimatedtotheCompanyasat17February2011.
http://www.saints-it.com/http://www.saints-it.com/http://www.bailliegifford.com/pages/documentgateway.aspx?d=83068http://www.bailliegifford.com/pages/documentgateway.aspx?d=83068http://www.bailliegifford.com/pages/documentgateway.aspx?d=83068http://www.saints-it.com/ -
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dIreCTorS reporT
Directors
InormationabouttheDirectors,includingtheirrelevantexperience,
canbeoundonpage6.AsexplainedintheTermsoAppointmentsectiononpage22,theBoardhasagreedtogobeyondtheminimumrequirementsotheCompanysArticlesoAssociationandtheCombinedCodeandhasdecidedthatallDirectorsshouldseekre-electionannually.
AllDirectorswillthereoreberetiringattheAnnualGeneralMeetingandtheyalloerthemselvesorre-election.Followingormalperormanceevaluation,theirperormancecontinuestobeeectiveandtheyremaincommittedtotheCompany.TheBoardrecommendstheirre-electiontoshareholders.
Deeds of Indemnity and Insurance
TheCompanyhasenteredintodeedsoindemnityinavouroeach
oitsDirectors.Thedeedscoveranyliabilitiesthatmayarisetoathirdparty,otherthantheCompany,ornegligence,deaultorbreachotrustorduty.TheDirectorsarenotindemnifedinrespectoliabilitiestotheCompany,anyregulatoryorcriminalfnes,anycostsincurredinconnectionwithcriminalproceedingsinwhichtheDirectorisconvictedorcivilproceedingsbroughtbytheCompanyinwhichjudgementisgivenagainsthim.Inaddition,theindemnitydoesnotapplytoanyliabilitytotheextentthatitisrecoveredromanotherperson.
TheCompanymaintainsDirectorsandOfcersLiabilityInsurance.
Share Capital
Capital structureTheCompanyscapitalstructureconsistso132,485,943ordinaryshareso25peach(2009132,485,943ordinaryshares).TherearenorestrictionsconcerningtheholdingortranserotheCompanysordinarysharesandtherearenospecialrightsattachingtoanyotheshares.
DividendsTheordinarysharescarryarighttoreceivedividends.InterimdividendsaredeterminedbytheDirectors,whereastheproposedfnaldividendissubjecttoshareholderapproval.
Capital entitlementOnawindingup,atermeetingtheliabilitiesotheCompany,thesurplusassetswillbepaidtoordinaryshareholdersinproportion
totheirshareholdings.
VotingEachordinaryshareholderpresentinpersonorbyproxyisentitledtoonevoteonashowohandsand,onapoll,toonevoteoreveryshareheld.
Inormationonthedeadlinesorproxyappointmentscanbeoundonpage55.
Purchase of Own Shares
TheCompanysbuy-backauthoritywaslastrenewedattheAGMon8April2010inrespecto19,859,642shareso25peach(equivalentto14.99%oitsthenissuedsharecapital).Noshares
wereboughtbackduringtheyearunderreviewandnosharesareheldintreasury.
Theprincipalreasonsorsharebuy-backsare:
(i) toenhancethenetassetvalueorcontinuingshareholdersby
purchasingsharesatadiscounttotheprevailingnetassetvalue;and
(ii) toaddressanyimbalancebetweenthesupplyoanddemandortheSAINTSsharesthatresultsinadiscountothequotedmarketpricetothepublishednetassetvaluepershare.
TheDirectorsareseekingshareholdersapprovalattheAnnualGeneralMeetingtorenewtheauthoritytomakemarketpurchasesoupto14.99%otheCompanysordinarysharesinissueatthedateopassingotheresolution,suchauthoritytoexpireattheAnnualGeneralMeetingotheCompanytobeheldin2012.Anysuchsharespurchasedshalleitherbecancelledorheldintreasury.InaccordancewiththeListingRulesotheUKListingAuthority,themaximumprice(excludingexpenses)thatmaybepaidontheexerciseotheauthoritymustnotexceedthehighero:
(i) 5percentabovetheaverageclosingpriceontheLondonStockExchangeoanordinaryshareoverthefvebusinessdaysimmediatelyprecedingthedateopurchase;and
(ii) thehigherothepriceothelastindependenttradeandthehighestcurrentindependentbidontheLondonStockExchange.
Theminimumpricethatmaybepaidwillbe25ppershare.Purchasesoshareswillbemadewithinguidelinesestablished,romtimetotime,bytheBoard.TheCompanydoesnothaveanywarrantsoroptionsinissue.YourattentionisdrawntoResolution15intheNoticeoAnnualGeneralMeeting.
Share Issuance Authority
Resolution13intheNoticeoAnnualGeneralMeetingseekstorenewtheDirectorsgeneralauthoritytoissuesharesuptoanaggregatenominalamounto11,040,495.Thisamountrepresents33.33%otheCompanystotalordinarysharecapitalcurrentlyinissueandmeetsinstitutionalguidelines.NoissueoordinaryshareswillbemadepursuanttotheauthorisationinResolution13whichwouldeectivelyalterthecontrolotheCompanywithoutthepriorapprovaloshareholdersingeneralmeeting.
Resolution14,whichisproposedasaspecialresolution,seekstorenewtheDirectorsauthoritytoissuesharesorsellsharesheldin
treasuryonanon-pre-emptivebasisorcash(i.e.withoutfrstoeringsuchsharestoexistingshareholderspro-ratatotheirexistingholdings)uptoanaggregatenominalamounto3,312,148(representing10%otheissuedordinarysharecapitalotheCompanyasat17February2011).TheauthoritiessoughtinResolutions13and14willcontinueuntiltheconclusionotheAnnualGeneralMeetingtobeheldin2012orontheexpiryo15monthsromthepassingothisresolution,iearlier.
Suchauthoritieswillonlybeusedtoissuesharesorre-sellsharesromtreasuryatapremiumtonetassetvalueandonlywhentheDirectorsbelievethatitwouldbeinthebestinterestsotheCompanytodoso.
TheDirectorsconsiderthattheauthoritytoissue/sellsharesis
advantageousshouldthesharestradeatapremiumtothenetassetvalueandnaturalliquidityisunabletomeetdemand.
Noshareswereissuedduringtheyearto31December2010andnoshareswereheldintreasuryon17February2011.
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Amendment to the Articles of Association
ItisproposedinResolution16toadoptnewarticlesoassociation
(theNewArticles)inordertoupdatetheCompanyscurrentarticlesoassociation(theArticles)totakeaccountotheimplementationon1October2009othelastpartsotheCompaniesAct2006(the2006Act)inrespecto,amongstotherthings,theCompanysauthorisedsharecapital,itsmemorandumoassociationandtheabilityotheCompanytochangeitsname.TheCompaniesAct1985was,orallpracticalpurposesrepealedon1October2009.ItisalsoproposedtoamendtheArticlestoincreasethelimitsontheDirectorsees.WhilsttheBoardisnotproposinganincreaseineesor2011,theeesarenearthecurrentlimitwhichleaveslittlescopeoranincreaseinutureyears.
AsummaryothematerialchangesproposedtobebroughtaboutbytheadoptionotheNewArticlesissetoutintheAppendixtothe
NoticeotheAnnualGeneralMeetingonpage57.AcopyotheNewArticleswillbeavailableorinspectionattheofcesoDicksonMintoW.S.,BroadgateTower,20PrimroseStreet,LondonEC2A2EWduringnormalbusinesshoursonanyweekday(Saturdays,Sundaysandpublicholidaysexcepted)romthedateothenoticeotheAGMuntiltheconclusionotheAGM.AcopywillalsobeavailableattheplaceotheAGMor15minutesbeoreandduringtheAGM.
Creditor Payment Policy
ItistheCompanyspaymentpolicytoobtainthebesttermsorallbusiness.Ingeneral,theCompanyagreeswithitssuppliersthe
termsonwhichbusinesswilltakeplaceanditisitspolicytoabidebytheseterms.TheCompanyhadnotradecreditorsateither31December2009or31December2010.
dIreCTorS reporT
Disclosure of Information to Auditors
TheDirectorsconfrmthatsoaraseachotheDirectorsisaware
thereisnorelevantauditinormationowhichtheCompanysauditorsareunawareandtheDirectorshavetakenallthestepsthattheyoughttohavetakenasDirectorsinordertomakethemselvesawareoanyrelevantauditinormationandtoestablishthattheCompanysauditorsareawareothatinormation.
Independent Auditors
Theauditors,KPMGAuditPlc,arewillingtocontinueinofceandinaccordancewithsection489andsection491(1)otheCompaniesAct2006resolutionsconcerningtheirre-appointmentandremunerationwillbesubmittedtotheAnnualGeneralMeeting.
Recommendation
TheBoardunanimouslyrecommendsyoutovoteinavourotheresolutionstobeproposedattheAnnualGeneralMeeting.
ByorderotheBoardSIRBRIANIVORY18February2011
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dIreCTorS remuNerATIoN reporT
Directors Remuneration Report
TheBoardhaspreparedthisreport,inaccordancewiththerequirementsotheCompaniesAct2006.AnordinaryresolutionortheapprovalothisreportwillbeputtothemembersattheorthcomingAnnualGeneralMeeting.
ThelawrequirestheCompanysauditorstoauditcertainothedisclosuresprovided.Wheredisclosureshavebeenaudited,theyareindicatedassuch.Theauditorsopinionisincludedintheirreportonpage31.
Remuneration Committee
TheCompanyhassevenDirectors,allowhomarenon-executive.
ThereisnoseparateremunerationcommitteeandtheBoardasawholeconsiderschangestoDirectorseesromtimetotime.BaillieGiord&Co,whohavebeenappointedbytheBoardasManagersandSecretaries,provideadvicean