苏格兰抵押投资信托 — 经理人回顾，截至2004年3月31日年报（詹姆斯·安德森）

Returns From Markets or the year ended 31 March 200. Geographical performance * agains benchmark in local currency "Managers' Overview It is pleasant to be able to report on a much improved year. This comes as a relief after the prolonged bear market but we are particularly pleased that we have been able to exceed the benchmark returns by a considerable margin. Part of our success stemmed from maintaining our gearing. It need scarcely be said that the experience of recent years has made us very conscious of both the dangers and opportunities inherent in long term borrowings. We have made significant improvements in our bond capabilities in recent years and this should allow us to handle our borrowing levels more effectively and consistently in the years ahead with the guidance of the Boara. Al a geographical asset allocation level we have continued to benefit from our rising exposure towards Asia and Emerging Markets.

We think that this reflects an historic shift in the global economy that will dominate the investment scene of the next 20 years. There will, of course, be interruptions to this process as politics, valuations and - above all - economic cycles play out and we will try to take account of these whilst keeping the strategic picture firmly in mind. For the third year in a row overall stock selection has been positive. UK performance continued its consistent record whilst the contributions from Asia and Emerging Markets selection were noteworthy and that from Europe a relief atter a period of poor pertormance. There were no maior areas of concern with both America and Japan performing in line with their regional indices. We regard all these figures with a degree of interest but it is far more important to consider the overall stock selection picture as we view the Trust's portfolio on an integrated global basis.

We have, for example, added significanily to our returns by moving our oil exposure away from the UK towards Emerging Markets. Our current view is that world economic growth will be strong in the year aheao and that corporate earnings are likely to continue to rise. We see some signs of renewed dividend growth which is refreshing. Whilst the global political scene remains of serious concern we think that the decisive issues in the year ahead will prove to be the sustainability of strong growth with low inflation. Britain is no exception to this issue but developments in America and China will be critical. We are cautiously optimistic. 1 Vodafone 2 Wolseley The huge popularity of picture Wolseley has seen strong demand messaging is helping grow in the US for its timber products revenues and profits at Vodafone. which are widely used in residential Picture courtesy of Vodafone. construction.

Picture courtesy of Wolseley. United Kingdom In common with other stockmarkets around the world, UK share prices staged a very welcome recovery in the year to 31 March. We believe this rise in share prices is well- founded. Though an important element of the recovery is the increased willingness of investors to own sometimes volatile assets, there has also been an improvement in profitability at many companies. We are also encouraged by the fact that, after a long period of rather paltry distributions, the average rate of dividend increase from UK companies has begun to accelerate. The performance of the Company's UK investments was strong in absolute terms and tolerably good when compared to the wider UK market - the Company's UK investments returned 32.4% which compares to the total return on the FTSE Ali-Share of 31.0%. Many holdings saw exceptional gains in their share prices, most notably the hedge fund manager Man Group, the building materials distributor Wolseley and the cruise-line operator Carnival.

It is particularly encouraging that these share price gains have been accompanied by operational performance that either met or exceeded our initial expectations. The Company also profited from additions to more cyclical stocks such as the electronics group Spirent and the publishing company United Business Media. 14 ANNNUAL REPORT 2004 Inevitably there were parts of the portfolio that shone less brightly. Where this was felt to reflect a fundamental disappointment in the business, the holding has been sold. However, we have been reluctant to dispose of long-standing investments which have performed well operationally simply because their share price has lagged the market during the last 12 months. Vodafone, for example, delivered a total return half that of the market but we believe the likely progress in its earnings will reward handsomely the patient investor and we have therefore increased the holding. Similarly, the number of shares held in Royal Bank of Scotland is higher now than a year ago.

The investments in tobacco companies which, in aggregate, lagged the market return have also been increased. The net effect of transactions though has been to reduce the Company's exposure to the UK market. Primarily, this has been a function of views on individual stocks and the fact that, whenever our enthusiasm for a particular UK-domiciled company waned, we did not automaticaily seek to reinvest the proceeds of any sale into other UK companies but instead looked to where that money can be most profitably invested regardless of geographic domicile. The clearest example of this effort is the transactions in the UK oil majors, BP and Shell. Having begun the period under review with some £34m invested in these stocks, Scottish Mortgage no longer has any money invested in either of the two companies. We are not persuaded that either company can provide the investor with a total return in excess of that offered by the wider UK market.

Instead, any enthusiasm for oil exposure has been channelled into other companies, often domiciled in developing countries, whose production prospects appear stronger and whose valuations are usually lower. The other aspect to the reduction in UK exposure, though less important an influence than stock specific views, is that the duration and extent of the earnings recovery in the UK may prove less than that in other markets. The British economy has been relatively robust in recent years and this means there is less scope for a cyclical rebound in earnings. The economy has also been supported by enthusiastic borrowing on the part of consumers. The gradual tightening of monetary policy that the Bank of England appears to have embarked on is likely to restrain this hitherto important contributor to growth. This MAN B&W Diesel two-stroke The revolutionary AZIPOD drive engine with a piston diameter of system is fitted to the outside of the 98 cm ranks among the largest ull of a ship, and can be rotates diesel engines in the world, being rough 360 degrees.

It allow. constructed mainly by Asian large ships to manoeuvre in small licensees. Picture courtesy of MAN. spaces, making tugs unnecessary. Picture courtesy of ABB. Continental Europe European stocks rose sharply in the year under review. The European economy deserves very little credit for this as the global recovery was barely perceptible in continental data. Some of the responsibility for this depressing state of affairs lies with the appreciation of the Euro but it has been disappointing that previously relatively buoyant economies such as France have succumbed to the widespread stagnation and that even Ireland has shown only moderate growth. The strength of European markets was instead a reflection of the intense sensitivity of many continental companies to the progress of the global rather than regional economy. For many of the more successful companies this has allowed sales and profitability to benefit from the boom in Asia whilst for others falling global interest rates and risk premiums have allowed balance sheet restructuring and an end to threatened insolvency.

We have concentrated on the higher quality set of these companies but we have also profited from the marked recovery in troubled shares such as Ericsson. In combination this has enabled us to outperform the regional benchmark and to contribute to the overall performance of the Trust. Looking forward to the year ahead we see little evidence that European growth is likely to accelerate. We therefore intend to retain our focus on companies that have the geographical range and competitive globally. Long-standing examples of thi approach include the French hair car company Hermes. Perhaps less predictably we would make similar claims for severa European industrials. For instance, BMW and Porsche both seem to us to exemplity brand strengths that comfortably transceno the limitations of the German domestic market. Equally the manufacturing skills and broad international operations of Atlas Copco, MAN and a revived ABB appear to us to offer good earnings growth rates and low valuations.

SAP has thus far demonstrated the market leadership and growih potential to show that there are some areas of technology where Europe can compete but the faltering efforts of Nokia have disappointed us. Given the unpromising economic and political prospects we see little reason to expand our European holdings. We much prefer to focus on the small selection of companies that appear to us to be both globally competitive and attractively rated than to build an entire portfolio of stocks that gives broad exposure to continental equities and economies. We hope that this approach will again be successful in the year ahead. I I Wendy's 2 Iron Mountain The Tim Hortons Coffee Shop chain An Iron Mountain driver is owned by Wendy's International. on his rounds. Picture courtesy of Iron Mountain. Picture courtesy of Wendy s. North America The US economy grew rather faster than expected last year as tax cuts and mortgage refinancing boosted consumer spending.

The scope for further such stimulus appears limited - the budget deficit is approaching 5% of GDP and interest rates are expected to rise this year - and so we would expect to see ome slowing in personal consumptic owth in the medium terr It is therefore encouraging that the corporate sector is showing signs of life. Profits have now been rebounding for two and a half years and while executives' language remains cautious, their actions have become a little bolder - there has been a pick-up in mergers and acquisitions activity and advertising and capital spending are rising gently. There were a number of new purchases during the year. Iron Mountain is the dominant record management company in the US and UK. After a decade of heavy investment the business's strong and growing cashflows should increasingly be returned to shareholders. T Rowe Price is a conservatively run investment manager which is unusual among its listed peers in having grown largely without making acquisitions and which is currently taking share in the mutual fund market.

Mohawk is the leading US producer and distributor of floor coverings. In recent years it and a subsidiary of Berkshire Hathaway have consolidated the industry and now control 70% of the carpet market between them. Loblaw is a wellrun Canadian supermarket chain with attractive growih prospects. The most notable sale was of the semiconductor company, Analog Devices. Despite additions to the Company's remaining American tech stock, Microchip, this sale resulted in a further reduction in the Company's already limited exposure to the US technology sector. While technology demand continues to recover, we remain concerned about valuations: the technology sector is trading on a large premium to the rest of the market, particularly when options are expensed. The US market rallied strongly during the year as optimism over the economic and profit cycles grew. Despite having very little exposure to the most cyclical parts of the economy, the Company's North American portfolio marginally outperformed the market, thanks largely to very solid proti growth from large holdings like Golder West Financial, Wellpoint and Moody's.

In aggregate the Company's North American investments remain both considerably more profitable and no more expensive than the market as a whole and we expect them to continue to grow profits faster than the market over exiended periods. Whilst there will be further individual stock changes in the portfolio these characteristics should remain intact. 1 Canon 2 Asahi Glass Al Canon, demand for colour photocopiers is rising. Picture courtesy of Canon. Japan Japanese equities finally returned to form in the year under review with Tokyo offering the best return amongst developed market indices with a gain of 50% in loco currency terms. This followed a fall tha had taken the main equity indices to their lowest levels in nearly 20 years by March 2003. The relatively modest economic expansion that began in 2002 continued last year. Industrial production rose further, helped by export demand and rising private capital spending.

Unemployment fell, although private consumption has been steady rather than buoyant over the last year. In addition, nominal GDP growth is not yet clearly positive, as price levels have continued to fall in certain areas. The outlook for prices is one of the more interesting issues for Japan at the moment. Over the past decade, and particularly in recent years, falling prices have depressed profitability and exacerbated the banking sector's troubles. Recent trends in some property prices and consumer prices suggest that downward pricing pressure has eased, although it is too early to onfidently project a sustained perio frisina price The situation in the banking sector remains phil. Certions or chang ingrowing dramatically over the course of the year to the considerable benefit of our holding in UFJ. The effective bailout of Resona by the government in the spring of 2003 was critical, and the larger banks have also made some progress in increasing their profitability.

A reduction in debt levels at the most highly geared companies have also contributed to an improvement in the quality of the banking sector's loan porttolios. The remainder of the Trust's investments are mainly concentrated in Japanese companies that boast a record of successful expansion. These include holdings in companies with globally competitive businesses, such as Canon and Toyota Motor, or in those with very strong domestic positions, such as consumer products manufacturer Kao. However, changes in management style are widespread, and provide opportunities to invest in businesses with latent strengihs but erratic track records. For example, we purchased a holding for the Trust in Tokyu Corporation, a collection of operating businesses with a private railway company its core. The value of these assets is being enhanced by various management improvements, although the better environment is acting as a tailwind.

We will continue to look for similar situations, whatever path the economy takes next. 1 BHP Billiton 2 CNOOC BHP Billiton is one of three CNOOC has a unique position in dominant global players in the Chinese oifshore oil industry. iron ore. Picture courtesy of Picture courtesy of CNOOC. BHP Billiton. Asia Pacific and ' Other Emerging I Markets It has been a remarkable period in the Asia Pacitic region and the other emerging markets. For the firsi time markets have begun to recognise the full impact of Chinese growth. 2004 may also turn out to be the year in which the crippling deflation in some Asian economies, most notably Hong Kong, finally comes to an end. Elsewhere declining risk premiums and improved economic management have allowed India, Russia and Brazil to prosper. The most notable feature of markets globally has been the accrual of pricing power to producers of raw materials and energy, as Chinese demand has surged.

Our portfolio has benefited from this powerful trend through holdings such as Petrobras, Lukoil, Norilsk Nickel and BHP Billiton. A note of caution may be due now, as the current high returns in these industries are bound to attract substantial new supply. Nevertheless, we think that a substantial position in certain energy and commodity stocks may be warranted for some considerable time. We have made some increases to our direct Chinese investments, for instance with new purchases of Zhejiang Expressway and Sinotrans, the freight forwarder. Although there is some risk of slowing activity over the next year, we believe that some of the most exciting individual long term growth stocks are becoming apparent as Chinese companies develop the management capabilities to exploit the inherent growth of their markets. We have continued to be encouraged by the growih that India is now producing.

We have replaced our successful holding in the State Bank with Oil and Natural Gas Corporation on price grounds. Comfortably our largest individual holding in the region is in Samsung Electronics. Once again this company has exceeded forecasts and has prospered in each of its major business segments. We continue to add to our position as despite its excellent stock price performance the rating still seems abnormally cheap in We will be surprised if the year ahead offers such smooth progress as we have recently enjoyed. A period of nerves over Chinese economic overheating or Russian politics is probably overdue, whilst rising global interest rates are seldom helpful to volatile assets in Asia and Emerging Markets. We intend to use any such periods of nervousness to add to our exposure to these regions as we strongly believe that the economic and corporate opportunities available are still highly attractive in the years ahead.

1 Avio 2 Messer Griesheim Avio is part of the Arianespace Messer Griesheim, the German consortium, the world's largest ndustrial gases company, was satellite launcher. Picture courtesy acquired by its larger, better rated of Avio. competitor Air Liquide. Picture courtesy of Air Liquide. Fixed Interest The general economic and financial climate was beneficial for Scottish Mortgage's bond portfolio in the year to 31 March and we are pleased to report a 12.5% return on the Trust's portfolio. Growth was stronger than anticipated almost everywhere but the slack in the economy and the impact of Asian production kept a lid on inflation. This mix of improved growth and low inflation is perfect for corporate bonds. It allows companies to enhance their credit ratings without inflationary fears hurting bond markets. Our preference through the year has been to buy bonds with a positive exposure to economic recovery.

For example we have invested in insurance companies' bonds which have benefited both from the recovery in equity markets and an increased focus on risk management after recent painful episodes. We have also invested in a selection of high yield bonds which have performed very well due to institutional investors' shift into higher yielding assets and the sharp decline in the default rate. Our focus on companies which are expected to reduce indebtedness has also led to several success stories. For example BSkyB, Stagecoach, Castle Transmission and Messer Griesheim have all either been upgraded to investment grade or redeemed their bonds early at a premium. Our expectation is that interest rates will continue to rise in the next 12 months in the UK and US but that this is largely reflected in bond prices. European bonds look less susceptible and we continue to favour this market.

However the risk is that inflation rises more than anticipated and we will guard against this. Higher company profitability will likely be sustained and there should be ample opportunity to find companies which are reducing indebiedness in both investment grade and high yield markets. While we would be surprised to see the returns of the past two years matched, Scottish Mortgage's bond portfolio should continue to meet its objective of generating income to help offset borrowing costs while also proving an attractive investment in its own right.