苏格兰抵押投资信托 — 经理人回顾，截至2010年3月31日年报（詹姆斯·安德森与汤姆·斯莱特）

The last 12 months have demonstrated the dangers of undue attention to annual performance data. Last year we seemed to be terrible investors. This year we appear brilliant. All this comes about with the same process, the same portfolio shape, overwhelmingly the same investments and the same people. We are not conscious that we have become any cleverer this year. Overall we are happy with the way that our companies have coped with the tough environment of the last two years (with sad but inevitable exceptions) but we think that much of their achievement was demonstrated at precisely the time that their share prices were under extreme pressure. Frequently markels are simply absurd. The notion that we should judge ourselves by endlessly benchmarking ourselves against their erratic behavior is one that we completely reject. Our task is to build wealth for shareholders over long periods of time with indices simply as a background guide to our basic competence over the decades.

Overall we think that we have done quite a reasonable job but this is for other shareholders to judge. Our principal investment contentions It may be worth repeating once more the three convictions that have dominated our stralegy over the last five years. Despite the fragile economic times and the frenetic activity in markets these have remained solid signposts for us. They are that; • The rise of China land to a lesser extent other emerging economies] is transforming the global economic scene. • Stock markets underestimate the power of technological change in exaggerated revulsion to the bubble of 1998-2000. • The Western financial systems are dangerously flowed It is, of course, dangerously easy to be sucked into seeing evidence that confirms the ideas that one is advocating and it is almost equally challenging to spot the point at which concepts that are fundamentally valid have simply been pushed too far by overblown market sentiment.

Nevertheless we see little reason to retreat from these three contentions. Indeed in each case we appear to hove underestimated their importance.

• 09 ANNUAL REPORT 2010

China It is on this topic that we feel most guilty of feebleness. We have grasped that the mean-reversion of China to a position of global economic leadership was probable. Yet we have underestimated both the owesome pace and scale of this development and the conclusions that this should have forced us towards in stack selection. Whilst we are generally more interested in economic exposures than in localion of corporate headquarters we feel this is insufficient excuse for this time last year having less than 6% of our portfolio in Chinese companies. The total has now risen to close to 9% which still seems modest by any measure apart from that of commonly used indices. This is not lo say that we have any desire to simply buy exposure to corporate China in general but it is lo point to the single most important mental shift that we have gone through in the last year.

It is that we think that China is now home lo an entrepreneurial fury that is leading to the creation of great individual businesses. In the years ahead we think it probable that individual privale Chinese ventures will provide much of the innovation in the world. There has already been a marked structural shift in our portfolio from state owned behemoths such as China Mobile towards youthful and ambitious companies such as Baidu and Tencent within the same telecom and internet space. New Oriental Education (the leading English language school), Ctrip (online travel) and Belle (shoe retailing) are other examples of companies with open-ended growth opporiunities, competitive strengths and focused siralegies that would have appealed to us wherever in the world they could be found over the last 100 years. We regularly review threats to continued Chinese progress. A year ago we thought the immediate challenge wos preventing the anti-crisis stimulus from seeping into speculation.

The domestic stock market has shown litle sign of this but the coastal housing market has plainly become loo buoyant. Forlunately, and in marked contrast to the West, the authorities are prepared both to call incipient bubbles and to counteract them so we are satisfied that common sense is likely to prevail. We do not believe that a consequent slowdown in the housing market would undermine the Chinese economy. Beyond this immediale concern the next stage of China's rise would be greatly assisted by the focus of growth shifting from the advanced Eastern provinces to encompass the interior as well as from exporis to domestic demand. We spent a fascinating three weeks touring China in March to invesligate such questions with a particular stress on provinces from Inner Mongolia to Sichuan that do not enjoy the historic coastal advantages and prejudices.

We returned more optimistic than when we left. It appears lo us thal demand has shifted decisively to domestic demand whilst growth in the rural interior seems to be both stronger and sounder than we had feared. We see no sign as yet that the Chinese Communist Party is either unpopular or that it has made major policy mistakes that are likely to prompt serious discontent. Both are entirely plausible causes of friction in the future. Emerging markets no more? We have always felt that China is of an importance that puts it in a calegory of its own. We are wary of generalizing about China let alone of incorporating it in a category defined as 'emerging markets! Indeed we now feel that the lime has come to abandon this phrase. The consequent gain in accuracy and clarity has investment benefits.

The phrase has come lo be used to denote economic backwardness and high risk. This makes little current sense. We find it hard to see much of urban China as low in wealth (private of public). We think it unwise to think of China and Brazil as high risk when their balance sheets, trade positions and financial structures appear so much more solid than our own. It is a pleasing irony that one of the few countries in recent years to have been reclassified as 'developed' from emerging is Greece. Our own preference would be to assess individual companies, cilies and regions at best and individual countries al most. If the investment world demands generalizations then we would suggest a line running from 'rising (super) powers' to 'declining empires' as the most helpful in our work. Where the USA proves to be on this continuum will be critical in the years ahead 2 Ctrip.com Chinese travel operator that has successfully fended off international competition.

Technological innovation Where America has remained a land of opportunity in recent years has been in technological innovation. Whilst the British corporate sector has created little of new shareholder or social value over the last 30 years this sad state of affairs is far from true of America. That this is so is principally to the credit of the technology sector and in geographical terms of a small portion of the North-West Coast. All the arrogance of Harvard and greed of Wall Street cannot completely obscure this extraordinary achievement. On a more mundane but practical level it has also been critical to Scottish Mortgage. Two years ago we wrote that 'invesling in lechnology companies involves a willingness to accept both volatility and diverse returns in the search for a select band of companies that will prove to be persistent winners... but the rewards for doing so can be dramatic. ' Whilst we still need to be cautious in declaring that we have found persistent victors we have certainly had experiences of both diverse returns and apparent victories.

It may be coincidence but we have had more and greater victories when investing in (broadly defined) Silicon Valley and (so far) China than elsewhere in the world. Amazon has risen to be our largest holding after fine business and share price performance. This is the first time since 1983 that a US stock has been our largest holding. Our admiration for Amazon lies partly in the scale of the business opportunity but still more in the attitudes inculcated by management. This is a company with contempt for the quarterly earnings game, a commitment lo continuous innovation (however disruptive| and an intolerance of internal agendas and bureaucracies that makes future success more than normally likely. One of the most challenging issues for us is that the success of Amazon, Apple, Google, Nintendo and Baidu has been such that these giants are increasingly clashing with each other as there ore comparatively few other pools of profit left to destroy.

We are wary of coming to definitive views as to the likely course and consequences of these internecine struggles as we have great respect for the abilities of all involved. The combination of the increasing pace and complexity of technological change, the almost instant geographical reach of innovation and the highly appealing returns that the winning companies ear mean that we are willing to accept such clashes as an inevitable drawback of businesses with great growth opportunities. 1 Goranti Bankasi A leading retail bank in a country, Turkey. with exciting long term prospects. As already noted we have seen our technology investments spread into China but we also believe that we need to widen our interest beyond traditional sector boundaries. We suspect that the combination of scientific progress, venture capital interest, demographic demands and financial imperatives mean that healthcare will be a prime focus of tuture technological innovation.

We do not believe that that the traditional big pharmaceutical companies will lead this sweeping change. A good, if thus far rore, example of what we are looking for comes in our purchase of Intuitive Surgical which is the world leader in robotic surgery. It has thrived on scientific collaboration from Stanford, research support from the US armed forces, better clinical outcomes and a claim to reduce healthcare costs. It now has 90% of the world market for such systems. We hope that we will be able to report on more holdings of this type in future years. Western finance: still rotten? The machinations of the Western financial sector continue to trouble us. Last year we remarked that we saw no evidence of less complexity or reduced avarice.' Sadly this still appears to be the case in the investment banking world.

What improvements there have been seem to be coming from outside pressures. Capital requirements are somewhat less indulgent than in the past, the intellectual mood does appear to have shifted against extreme market fundamentalism and governmental and legal activism is at least plausible. We regard it is inevitable that any process of re regulation will have flaws but we still believe that this is a small price to pay if the systemic risks to the world economy posed by excessive gearing, ill-considered risk analysis and untrammelled greed in the financial sector can be brought under control. This is not populism. It is necessary for the proper functioning of our financial system. We will continue to have limited holdings in the Western financial syslem until this occurs and what we do have will be concentrated in those rare institutions (notably Banco Santander, Progressive Insurance and Berkshire Hathaway) in which we have faith in the ethics and seriousness of the management.

We feel no need to be tempted by the morass of unreformed financial institutions. 2 America Latino Logistico Brazilian railway operator which is improving efficiency and taking share from road traffic. Conclusion and Outlook We are all aware of the shocks that the global economy has been prey lo in recent years. We doubt, however, that there has been sufficient rethinking of the investment landscape as a consequence of what we have seen and should have learnt. Our attitudes to and understanding of risk needs lo be rethought. This has transforming consequences. The idea that risk should be defined as volatility around an index and that it can be measured has always seemed exceedingly presumptuous. Nevertheless from heavily leveraged investment banks to the most siaid of investment trusts this has generally been the default position of risk managers and hence asser allocation.

This has led most equity portfolios to a concentration on large Western companies as the perceived safe default choice without much thought as to the underlying exposures of these entities (rather similar to the automatic trust in AAA rated mortgage debt that has so haunted the bond markets). We doubt that 'Western' or large' will prove synonyms for either 'safe' or 'wealth-creating' in the decades ahead. We are convinced though that the world offers a wealth of opportunities. We think that the global economy is more solidly based, indeed more exciting, and more capable of dragging untold millions out of poverty than at any slage in history. Naturally events and accidents can occur and stock markets will always be prone to vigorous oscillations but we end to see such occurrences as distractions from a fundamentally optimistic picture. If this is right and if the Managers carry out their task competently then the prospects for Scottish Mortgage shareholders ought to be bright indeed.

JAMES ANDERSON Manager of Scottish Mortgage Solo he dio to hops rough. ina giving it a market share of around 21 China Trip Note James and I recently returned from overlapping trips to China with our colleague, Wanyi Yao. We were trying to increase our understanding of the huge changes that are occurring in the region through meelings with companies, government officials, ocademics and entrepreneurs. We spent time in the megacities of Beijing and Shanghai as well as Iravelling to the western centres of Chongqing and Chengdu, the plains of Inner Mongolia and the provincial capitals of Anhui, Liaoning and Zhejiang. There is a lot of concern in financial markets that the Chinese economy is experiencing an unsustainable boom at present. We do not share these misgivings. We believe the poce of fixed asset investment is not the result of a housing bubble but a necessary consequence of the process of urbanisation.

In Beijing, for example, there is a requirement for huge further investment to ease congestion. Car ownership in Beijing is less than 20% of the level seen in the United States but it is quite clear to anyone who has spent o day there that the road network can barely support current usage. The subway system is to be expanded from the current six lines (which serve a municipal population of twenty two million people to nineteen lines by 2020. This necessary investment in mass transit is mirrored in at least ten As we drove along the expressway from Shanghai to Hangzhou, we could see the pillars that are being erected for the new high speed rail link between the two cities. The scale of this infrastruciure invesiment is astonishing, with concrele pillars standing fifteen meters tall supporting a concrete base for the track and stretching for thousands of kilometres.

In fact, seventeen thousand kilometres of high speed rail links are currently under construction. Such investment projects underpin our confidence in prospective demand for many of our global industrial holdings such as iron ore producer, Vale or engineering company, Ailas Copco. It is a popular misconception that the Chinese authorities are not concerned obout climate change. Il was quite clear from meetings with state controlled companies such as Shanghai Electric (which has been funding a rapidly growing wind turbine manufacturer) or Longyuan Power (China's largest windfarm operalor) that the Chinese government is taking this issue seriously. The tariff structure and investment incentives are being put in place to support a huge construction programme in green energy generation. A visit lo the University of Science and Technology in Hefei highlighted that funding is also flowing into research on the development of the electricity grid to cope with greater participation from renewable sources.

Perhaps even more importantly, a trip to one of the country's fifty four high lechnology zones showed that there is a clear understanding within government that Chinese companies have to increase research and development spending and move into higher value sectors of the econorny. Given the growth opportunity in their domeslic market. they see green energy as an area in which they can be world leaders. The desire to shift economic focus from commodity industries was articulated by many of the people we met. This was most noticeable in the financial sector where the pace of change seems to be accelerating. We were struck by the thoughtful and open manner of the government officials responsible for this. Perhaps one big difference from Western countries is that the brightest graduates are as likely to be attracted to a career in government as they are to private sector employment.

Therefore those responsible for financial regulation may be better placed to identify and prevent industry excess. One of the lessons that the Chinese have taken from the recent crisis is that the financial sector has to serve the real economy and that the connection between the two must be maintained as they grow. Therefore they are happy to encourage the development of new financial products but only if they support the development of new and strategically important industries. Perhaps this is a lesson which we have not yet fully understood here in the UK. Whilst consumption remains a relalively small part of the China's economy, there is little evidence that as Chinese sociery becomes wealthier, the propensity to spend will be lower than anywhere else. Because the overall population is large, even having a small proportion of people with meaningful disposable incomes already translates into huge spending power.

We had an interesting meeting with Gucci China lo subsidiary of the fund's holding in Pinault- Printemps Redoute) and the development of their business illustrates lhis well. Gucci now generates 15% of global revenues in China having entered the market in 1997. One of the interesting facets of the market is that consumers appear to be much more loyal to individual brands and the corollary of this may well be that successful brands have a larger opportunity in China. The scale of demand for luxury products appears to be leading to higher prices than elsewhere in the world. SCOTTISH MORTGAGE INVESTMENT TRUST PICKE in thui Province he font of Hungshan Whilst in Beijing, we met the former leader of Google China, who left to start up an incubator fund focused on technology companies. In some areas, such as Internet gaming, the Chinese are the pioneers of new business models and this was an opportunity to see whether this reflects a growing culture of innovation and start-up investment in technology.

It quickly became clear that there is no shortage of new ideas and the interest that this particular venture has generated suggests greal potenticl enthusiasm. For example, the fund has had over one hundred thousand CVs over the few months since its formation, suggesting that many potential employees have been looking for a way into this industry. As the entrepreneurial ecosystem starts to build and capital becomes more readily available, we think the creativity that is unleashed will form the foundation of many exciting new businesses. After visiting a local hospital and health bureau in north eastern Chino, we met the senior researcher of the State Council who drafted Chino's Healthcare Reform White Paper. Over the next three years, the government will invest the equivalent of £85bn in healthcare, aiming to provide basic health insurance lo oil (it was interesting to discover that healthcare insurance coverage is already over 90% in urban China).

These headline figures are likely to understate the true level of investment as they do not capture the spending of local government. Whilst we have yet to find aitractive polential investments in this area, a visit lo an unlisted pharmaceutical company in Chengdu, which is seeing explosive volume growth in the drugs it sells, was illusirative of the opportunilies which are being created. The huge commitment to healthcare and the associated increase in spending levels will be an important new driving force for the Chinese economy. The increase in healthcare infrastructure investment will directly promote economic growth and the implementation of reform will improve the health of citizens and social security, thereby stimulating consumption and sustaining economic growth in the long-run. 2 James Anderson, Tom Slater and their colleague Wanyi Yao in China this year With questions about rural reform in mind, we travelled westwards to one of the largest and most populous agricultural provinces - Sichuan.

Whilst rural development has been ongoing since the 1970s, this time he direction is quite different and the success (or olherwise! of the policy will have far-reaching consequences. State sponsored land privatisation in selecied villages in Sichuan is underway which should create wealth for rural inhabitants as well as increasing agricultural productivity through a move to large-scale farming One consequence of this ray be an increase in the number of migrant workers relocating to urban areas, which has positive implications for produclivity growth. Sichuan already exports over twenty million migrant workers to the coastal provinces of eastern China. However, as further urbanisation takes place, megacities are reaching saturation point and therefore the strategie development of smaller cities and lowns is of increasing importance. From an investment point of view we are questioning whether large banks with existing rural networks are the best way to facilitate rural reform and benefit from these changes.

There are implications for a wide range of businesses from the domestic real estate developers to our holding in John Deere, the farm machinery business. In summary, we remain very enthusiastic about the prospects for growih in Chinese infrastructure investment and domestic consumption. A great deal of progress is being made in fields as disparate as renewoble energy, financial services, healthcare, agricultural reform and early stage technology investment. We believe markets continue to underestimale the importance of the changes that are taking place and this is throwing up many exciting opportunities for us as long TOM SLATER Deputy Manager of Scottish Mortgage 6 May 2010