Final Results

Scottish American Investment Co PLC 09 February 2007 THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. Results for the year to 31 December 2006 In 2006 SAINTS continued to outperform its benchmark and raise its dividend. The net asset value (NAV) total return1 was 16.1% compared to a benchmark2 return of 13.4%. An increase in the total dividend for the year of 13% has been recommended. 3 Year Performance Baillie Gifford & Co have been managers of SAINTS for 3 years. Over this period the net asset value total return has been 62% compared to a total return from the benchmark of 55%. If the final dividend for 2006 is approved, the dividend will have risen from 5.65p to 7.4p, a 31% increase over three years. 2006 Results During 2006, asset allocation was positive and the directly held property portfolio continued to make a significant contribution to returns. NAV per share with the debenture valued at market increased from 241.2p to 272.6p. Earnings per share rose from 6.80p to 7.55p. A final dividend of 2.00p is being recommended. If approved this will bring the total dividend for the year to 7.4p (2005 - 6.53p). Outlook While 2007 is expected to be another strong year for global economic growth allowing companies to increase profits and raise dividends, the emergence of inflationary pressures has led the Managers to reduce exposure to markets slightly compared to previous years. Patrick Edwardson , the Manager of SAINTS said: 'Since we took over the management of the SAINTS portfolio in 2004, the climate for equity investment has been favourable with profits and dividends generally advancing strongly. While I anticipate 2007 being another year of growth for economies and corporate earnings, expectations are already high and there is also some risk of rising inflation. Consequently I am prepared to take a slightly more cautious stance to markets if need be. It is a significant advantage of SAINTS' structure that asset allocation can be adjusted across equities, property, bonds and cash to match prevailing conditions.' Past performance is no guarantee of future performance. The value of an investment and any income from it is not guaranteed and may go down as well as up and investors may not get back the amount invested. This is because the share price is determined by the changing conditions in the relevant stockmarkets in which the Company invests and by the supply and demand for the Company's shares. Investment in investment trusts should be regarded as medium to long-term. You can find up to date performance information about SAINTS on the Baillie Gifford website at www.bailliegifford.com. 1 Net Asset Value with the debenture valued at market price and with net income reinvested. 2 70% FTSE All-Share Index and 30% FTSE World Index SAINTS aims to provide a valuable income that should grow steadily over time and at a faster rate than inflation, together with capital growth. It invests predominantly in the UK, including holdings in property, but also has a spread of international equities. Baillie Gifford & Co, the Edinburgh based fund management group with around £50 billion under management and advice, is appointed as investment managers and secretaries to SAINTS. 9 February 2007 - ends - For further information please contact: Patrick Edwardson, Manager, The Scottish American Investment Company P.L.C. 0131 275 2133 07812 537316 Robert O'Riordan, Baillie Gifford & Co 07730 412007 Mike Lord, Director, Broadgate Marketing 020 7726 6111 THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. Chairman's Statement I am pleased to report very satisfactory rises in your Company's net asset value, earnings per share and dividend per share over 2006. For the third year in a row, SAINTS portfolio has outperformed its benchmark. Results The net asset value total return, with the debenture valued at its market price, was 16.1%. This compares to a benchmark return of 13.4%. The benchmark is a composite index comprising 70% FTSE All-Share Index and 30% FTSE World Ex UK Index. Asset allocation was positive, with our commercial property portfolio producing a total return of 18.5%. In the equity portfolios, the contribution to return from stock selection was marginally negative this year. However, having now been with Baillie Gifford for three years, we are able to assess their choice of stocks over a more meaningful period than just twelve months and, since their appointment, stock selection has made a positive contribution to performance. We had a rewarding experience in fixed interest markets where, despite finding the general level of markets unattractive, we were able to invest in a small number of specific overseas opportunities which produced good returns. Dividend The capital performance of the portfolio has been matched by similar strength in the revenue account with the level of earnings per share rising from 6.80p last year to 7.55p in 2006. Consequently, SAINTS was able to pay quarterly dividends for the first three quarters of the year that were significantly higher than for the same period in 2005. We are recommending that the final dividend payment be set at 2p per share. If approved at the AGM, this would give a total dividend for 2006 of 7.4p, a 13% increase on the 2005 total. Discount At the start of 2006, SAINTS' share price was 218.75p and the net asset value per share (with the debenture at market value) was 241.2p. By the end of the year, the share price had risen to 241.25p and the net asset value per share to 272.6p . This means that the discount to net asset value (the difference between the share price and the net asset value per share) widened from 9.3% to 11.5% despite the strong capital performance and the dividend increase achieved in 2006. However, the underlying trend over the last three years has been for the discount to narrow reflecting SAINTS' success in delivering growth in both capital and income. Buy-backs and Treasury Shares The power to buy back shares was renewed at last year's Annual General Meeting. The Board is mindful of the enhancement to net asset value that can accrue to shareholders through use of buy-backs and of the desire of shareholders to avoid undue volatility in the discount. However, because the widening in the discount was modest, the Board chose not to buy back shares during 2006. The Board intends asking for the authority to be renewed at this year's AGM so that it is available should future circumstance make a buy-back more appropriate. Borrowings The Company's current borrowings are in the form of a single debenture due for repayment in April 2022, on which date £80m will be repaid to debenture holders (compared to its current book value of £89m). The debenture was issued in three tranches during the course of the 1990s. Because the general level of interest rates has fallen since then, the market price of longer dated bonds such as SAINTS' debenture has risen. This explains why the market value of the debenture, at £102m, is substantially higher than either the book value or the repayment amount. However, in 2006, the market value of the debenture fell from its prior year level, enhancing net asset value total returns for the year by two percentage points. This fall was reflective of a general move in the sterling bond market towards higher yields and lower prices as investors reassessed the likely path of future inflation and short term interest rates. It is also worth noting that, because of the sharp rise in the value of the investment portfolio, the size of borrowings relative to the size of shareholders' funds has fallen. If one goes back three years, the book value of the debenture was equivalent to some 35% of shareholders' funds. By the end of 2006, it had fallen to 24%. Property The Board has reviewed the level of exposure to property investments. In doing so, it has considered both the directly held portfolio of mainly high street properties outside London and the exposure in the quoted equity portfolios to UK, Japanese and European commercial property. The performance of the directly held portfolio has been exceptionally good since its inception with an average annual return of 14.5%. However, the Board is mindful of the historically low levels to which commercial property yields have fallen in the UK. It has therefore decided to reduce the directly held portfolio. Substantial reductions have also been made to the UK property exposure in the quoted equity portfolio. The Board and the AGM Dr Janet Morgan and Mr David Price, who have been on the Board for more than nine years, offer themselves for re-election at the AGM. The Board confirms that it considers Dr Morgan and Mr Price to be independent and recommends their re-election based on their experience, contribution and expertise. Mr Eric Hagman and I retire by rotation and offer ourselves for re-election. After a performance evaluation, the Board considers that we continue to be effective and remain committed to the Company and recommends our re-election. I hope that you will be able to attend the Annual General Meeting which will be held at Baillie Gifford's offices at Calton Square , 1 Greenside Row, Edinburgh on Thursday 5 April 2007 at 11:00am. There is a map with directions on page 49. The Managers will make a short presentation and the Directors look forward to meeting you. Outlook We expect 2007 to be another strong year for the global economic growth. This should allow companies again to increase their profits and raise the dividends that they pay to their shareholders. Despite this upbeat assessment of growth and corporate profits, SAINTS begins the year with a slightly reduced exposure to equity markets compared to either of the last two years. Strong economic growth is leading to the re-emergence of some inflationary pressures and this will probably make for a less supportive environment than we have been used to in recent years. However, we do still expect equities to outperform other asset classes. We also have every confidence in our Managers who have delivered such good returns in the three years since they were appointed. We are therefore happy to remain fully invested for the time being. Managers' Overview Baillie Gifford & Co have now been managing SAINTS' investment portfolio for three years. The total return on net asset value over that period has been 62.3% which compares to a total return on SAINTS' benchmark of 55.2%. The global economy has grown very strongly over the last three years, corporate profits have increased significantly and low levels of interest rates and bond yields in many countries have allowed a high level of liquidity to support financial markets and asset prices. In short, it has been a very good period in which to be investing. These benign conditions continued throughout 2006 during which period SAINTS' net asset value total return was 16.1%, ahead of the 13.4% total return on the benchmark. The best returns were achieved on the property investments where the total return was 18.5%. Stock selection was marginally helpful to our UK equity returns but the 16.9% figure achieved for the year largely reflects a strong market performance. After a very strong year in 2005, the overseas equity returns were considerably lower this year at 4.6%. The main cause of this was the strength of the pound which caused good local currency returns to appear far more modest once translated back into sterling. Our choice of stocks in overseas markets also detracted slightly from returns, as did the decision to have an above benchmark weighting in such markets. However, our choice of fixed interest investments was more astute and the 7.2% return compares favourably to SAINTS' own borrowing costs for the year. With economic growth strong and profitability high in 2006, most quoted companies felt able to increase their dividend payments. This meant that SAINTS' income also increased, by 10% over the 2005 level which fed through to an 11% increase in earnings per share. Manager's Portfolio Review The Investment Portfolio SAINTS aims to achieve balanced growth in both income and capital in order to sustain a progressive dividend policy. The focus of the investment portfolio is on quoted equities and the starting position for the investment of shareholders' funds is to have 70% placed in UK equities and 30% in non-UK equities. The portfolio is actively managed which means that the total amount invested in quoted equities, the split between UK and overseas markets and the choice of individual stocks held will vary according to where we see the best opportunities. We will also look to exploit attractive investment opportunities in debt and property markets. SAINTS, like all investment trusts, is able to gear up shareholder returns by borrowing money. Current borrowings consist of a single debenture issue, the book value of which at the end of 2006 was a little under one quarter the size of shareholders' funds. During 2006 this borrowed money supported a range of profitable investments in equity, bond and property markets. UK Equities SAINTS' UK equity investments produced a total return of 16.9% in 2006, marginally ahead of the 16.8% return on the FTSE All-Share Index. The absolute level of this return is very satisfying and far higher than one can reasonably expect from equity markets in the long run. However, the very slender margin by which our stocks beat the market was frustrating. A particular feature of the UK market during 2006 was the high level of takeover activity and related speculation. We got some benefit from this trend through holdings such as RHM, the food producer, which was bid for by a rival and Lonmin, the precious metals miner, whose share price received regular support from takeover speculation. However, we also missed out on a number of stocks which saw takeover-related share price gains. Small and mid-sized companies appeared to benefit most fully from the takeover speculation., We chose not to do so at the start of last year because their valuations appeared stretched after a long period of outperformance against larger stocks. This view turned out to be wrong and mid-caps again performed more strongly than their larger brethren. However, this now leaves them at a substantial valuation premium compared to the larger companies that dominate our portfolio and it is difficult to foresee earnings growth being sufficient to sustain this premium. We have identified some prospects that look appealing - stocks such as tile retailer Topps Tiles, flooring manufacturer Low and Bonar and the motor insurance company Highway Insurance - but we remain cautious about prospects for the mid-cap sector as a whole. Our preference for large caps is most easily seen in our holdings of financial sector stocks, particularly banks. After underperforming significantly in 2005, it was pleasing to see the bank holdings perform well in 2006 with the share prices of Northern Rock and Barclays especially strong. However, we think the valuations of our UK bank holdings are still too low given our expectations for their earnings growth and they therefore remain a prominent feature of the portfolio. Our other financial stocks also did well, notably hedge fund manager Man Group which produced another splendid operational result. The positions in insurance stocks also proved profitable, particularly those of Amlin and Hiscox. The share prices of property stocks such as British Land and DTZ rose very sharply, driven up by rising commercial property values in the UK and market enthusiasm for the creation of real estate investment trusts. Most of those stocks which gave exposure to the UK property market have now been sold but we have been enthusiastic buyers of UK listed property companies exposed to the European and Japanese property markets. We had mixed success with our investments in the mining sector. Lonmin, mentioned earlier, was one of our best performing UK stocks but the position in Rio Tinto made a negative contribution. We remain favourably inclined toward mining companies, largely because of a bullish view on world economic growth, and have increased the exposure by buying an instrument that gives high yielding exposure to the BHP Billiton share price. Our underweight position in oil helped relative performance. . Our one utility holding, Scottish and Southern Energy, did very well, so much so that valuation arguments persuaded us to sell it before the end of the year. In aggregate though we were underweight in utilities and this proved a mistake. In short, rather a mixed bag for the year. But, at the year end, the companies in which we were invested typically offered a premium yield to the wider market and the valuations on which they traded put them on a discount to the market multiple despite them having, in our estimation, strong growth prospects. We believe this is a firm foundation for outperforming the market in the years to come. Global Equities The return on the global equity portfolio was low, just 4.6%. It was also behind the 5.6% return on the FTSE World Ex-UK Index. The main reason for such low returns from overseas markets was the strength of sterling, particularly against the US dollar. In 2006, overseas stock selection detracted 0.4% from overall performance. This is disappointing but the deliberately concentrated nature of the portfolio (it numbers just forty stocks) means that performance is likely to be volatile over short periods. The best illustration of this is that despite underperforming in two of the three years since we were appointed as manager, the aggregate performance of the overseas portfolio over the full three year period is well ahead of the benchmark. On average through the year we had an amount equal to 35% of shareholders' funds invested in overseas stocks, five percentage points more than the benchmark weighting. This asset allocation decision made a small negative contribution to performance because the appreciation of the pound meant that good local market returns were much reduced once translated back into sterling. The above benchmark weighting in overseas markets during 2006 was a reflection of the number of individual stock opportunities that we encountered rather than a particular view of regional growth or exchange rate movements. We believe strongly that as global trade increases, and the barriers between individual economies and markets break down, it will become ever more important to approach investment from a global perspective. We are happy to continue with the weighting for as long as we have confidence in the underlying stocks. Prior to 2006, the global equity portfolio focused on companies with high organic growth prospects and which consequently tended to have a low dividend yield. This year we purchased a number of stocks which, in addition to the potential for capital growth, also offer a more attractive level of immediate income. Initial results of this move are encouraging and we shall continue to develop this aspect of the portfolio. The concentrated nature of the portfolio usually ensures that each individual holding has a noticeable impact on the overall performance and 2006 was no exception. The oil stocks Petrobras, Gazprom and Lukoil made material positive contributions. Infosys Technologies, an Indian software company purchased during the year, was a strong performer. Shares listed on European markets did well, with Swedish engineering firms Atlas Copco and Sandvik enjoying a very prosperous year both in terms of share price performance and the progress of their businesses; the share price of Porsche, the German car manufacturer, rose sharply despite its decision to invest significantly in the less impressive Volkswagen group. We benefited from a takeover of one of our stocks when Golden West, the US mortgage bank was acquired. However, the negative performances outweighed the positive ones. US listed stocks were the worst offenders, largely because of the move in the dollar-sterling exchange rate: on-line auction stock eBay, photographic image company Getty Images and web-based retailer Amazon each detracted from relative performance, the slowdown in the US housing market took its toll on floorings manufacturer Mohawk Industries and housebuilder Pulte Homes and a selection of other US holdings all saw double digit declines in the sterling value of their share prices. Exchange rate factors also explain the negative returns from Meitec Corporation and Fukuoka Real Estate Investment Trust, two of our three Japanese stocks. Fixed Interest As a percentage of the overall portfolio, the allocation to bonds changed only slightly through the course of 2006, beginning the year at 4% of gross assets and finishing at 5%. However, the nature of these investments changed significantly. At the start of the year, our bond holdings were the result of our policy of investing unused debenture proceeds in a portfolio of sterling-denominated, investment grade bonds the return on which would broadly match the cost of the debenture. By the end of the year, this matching portfolio had been sold and the exposure was to three specific investment opportunities. We first identified a short-dated bond issued by the Ford Motor Company which, when initially purchased, was priced at a level consistent with Ford's sub-investment grade credit rating. Our research suggested that the repayment of this bond, due in 2008, was guaranteed by a much more highly rated financial institution and consequently the bond deserved to trade at a much higher price. Second, we purchased index-linked bonds issued by the Brazilian government, the real yield on which was approximately 9% at the time of our first purchase. We saw this as anomalously high given the significant recent improvement in the macroeconomic fundamentals of the Brazilian economy. Third, we also invested in bonds (Bay Haven 'B' and 'C') where our return will effectively depend on the frequency and size of insurance industry losses arising from a number of weather and seismic related events across various geographies over the next three years. Here the opportunity, as we saw it, arose from the market's unfamiliarity with this new type of investment, causing it to be priced at a level we considered very attractive when viewed alongside established risk models. Commercial Property The direct investments in commercial property are managed by OLIM Ltd, a specialist in property investment. The portfolio consists of 16 individual properties and these are listed on page 13 of this report. No new properties were acquired during the year but a small incremental investment was made at the Romney Sands property. The low level of bond yields, the willingness of lenders to provide financing for property purchases and enthusiastic buying by investors combined to produce another very strong year for the UK commercial property market. Once again, SAINTS' property portfolio benefited from this very supportive backdrop and produced a total return of 18.5%, a combination of a capital gain of approximately 12.5 % and rental income equivalent to 6% of the portfolio's value. Unquoted Investments SAINTS has a small number of unquoted investments with a total value of £3.1m. £2.9m of this is an investment in a high coupon loan note issued by International Mezzanine Investment N.V. and an ordinary shareholding in the same fund. IMI is a fund that was established in 1995 to invest in the mezzanine debt and equity of companies undergoing leveraged buy-outs or capital reconstructions. It is now gradually being liquidated as opportunities arise to sell the underlying investments. Two repayments of capital on the loan note were received in 2006. Outlook Although interest rates are now rising in many countries, it seems to us that monetary policy in most parts of the world is still more likely to stimulate than restrict growth. We therefore expect 2007 to be another year of strong growth in the global economy with corporate earnings rising again. Ordinarily, this assessment would support a distinctly bullish investment stance for the portfolio. But this time we see several reasons for caution. First, consensus earnings forecasts for most companies and markets suggest higher corporate earnings are already anticipated. There is therefore less scope for a positive surprise. Second, the last three or four years have been characterised by an unusually strong appetite for risk. Any negative surprise might see this decline. Finally, we are concerned that inflation could prove a more widespread and stubborn problem than is commonly thought. It is important to be clear that we do not envisage a return to the very high levels of inflation that prevailed twenty or thirty years ago, but we do think it possible that upward pressure on prices will become more widespread than in the last five years or so. If we are correct in this view, interest rates around the world will move higher than currently forecast. We therefore start 2007 with a slightly lower level of gearing to equity markets than in either of the two previous years and are prepared to adopt a more cautious stance still should conditions justify. THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. The following is the unaudited preliminary statement for the year to 31 December 2006 which was approved by the Board on 8 February 2007. The Board of The Scottish American Investment Company P.L.C. is recommending to the Annual General Meeting of the Company to be held on 5 April 2007 the payment of a final dividend of 2.00p (1.70p last year) per ordinary share making a total of 7.40p (6.53p last year) paid and proposed for the year ended 31 December 2006. INCOME STATEMENT (unaudited*) For the year ended For the year ended 31 December 2006 31 December 2005 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Gains on investments - securities - 35,285 35,285 - 63,771 63,771 Currency gains/(losses) - 44 44 - (691) (691) Income (note 1) 15,326 - 15,326 13,986 - 13,986 Management fees (991) (991) (1,982) (812) (812) (1,624) Other administrative expenses (800) - (800) (796) - (796) Net return before finance costs and taxation 13,535 34,338 47,873 62,268 74,646 12,378 Finance costs of borrowings (3,027) (3,025) (6,052) (3,035) (3,035) (6,070) Return on ordinary activities before taxation 10,508 31,313 41,821 9,343 59,233 68,576 Tax on ordinary activities (506) 412 (94) (343) 205 (138) Return on ordinary activities after taxation 10,002 31,725 41,727 9,000 59,438 68,438 Return per ordinary share (note 2) 7.55p 23.95p 31.50p 6.80p 44.86p 51.66p STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES (unaudited) For the year ended For the year ended 31 December 2006 31 December 2005 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Return on ordinary activities after taxation 10,002 31,725 41,727 9,000 59,438 68,438 Gains on investments - property - 4,682 4,682 - 4,728 4,728 Total recognised gains for the year 10,002 36,407 46,409 9,000 64,166 73,166 Total recognised gains per ordinary share (note 2) 7.55p 27.48p 35.03p 6.80p 48.43p 55.23p * The total column of the Income Statement is the profit and loss account of the Company. All revenue and capital items in this statement derive from continuing operations. THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. SUMMARISED BALANCE SHEET (unaudited) At 31 December 2006 At 31 December 2005 £'000 £'000 Fixed Assets Investments - securities 418,026 386,748 Investments - property 43,700 38,700 461,726 425,448 Current Assets Debtors 1,621 1,393 Cash and deposits 1,414 1,095 3,035 2,488 Creditors Amounts falling due within one year (2,088) (1,915) Net Current Assets 947 573 Total Assets Less Current Liabilities 462,673 426,021 Creditors Amounts falling due after more than one year (note 4) (89,079) (89,430) 373,594 336,591 Share Capital And Reserves Called-up share capital 33,121 33,121 Capital redemption reserve 22,781 22,781 Capital reserve - realised 200,533 172,099 Capital reserve - unrealised 103,050 95,077 Revenue reserve 14,109 13,513 Shareholders' funds 373,594 336,591 Net Asset Value Per Ordinary Share: (Debenture at fair value) 272.6p 241.2p Net Asset Value Per Ordinary Share: (Debenture at book value) 282.0p 254.1p Ordinary Shares In Issue (note 5) 132,485,943 132,485,943 THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS (unaudited) For the year ended 31 December 2006 Capital Capital Capital Total Share redemption reserve - reserve - Revenue shareholders' capital reserve realised unrealised reserve funds £'000 £'000 £'000 £'000 £'000 £'000 Shareholders' funds at 1 January 2006 33,121 22,781 172,099 95,077 13,513 336,591 Total recognised gains for the - - 28,434 7,973 10,002 46,409 year Dividends appropriated in the - - - - (9,406) (9,406) year Shareholders' funds at 31 December 2006 33,121 22,781 200,533 103,050 14,109 373,594 For the year ended 31 December 2005 Capital Capital Capital Total Share redemption reserve - reserve - Revenue shareholders' capital reserve realised unrealised reserve funds £'000 £'000 £'000 £'000 £'000 £'000 Shareholders' funds at 1 January 2005 33,121 22,781 165,912 37,098 13,019 271,931 Total recognised gains for the - - 6,187 57,979 9,000 73,166 year Dividends appropriated in the - - - - (8,506) (8,506) year Shareholders' funds at 31 December 2005 33,121 22,781 172,099 95,077 13,513 336,591 THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. SUMMARISED CASH FLOW STATEMENT (unaudited) Year to Year to 31 December 2006 31 December 2005 £'000 £'000 Net cash inflow from operating activities 12,629 11,665 Net cash outflow from servicing of finance (6,402) (6,400) Total tax paid (94) (120) Net cash inflow from financial investment 3,592 2,491 Equity dividends paid (9,406) (10,453) Increase/(decrease) in cash 319 (2,817) Reconciliation of net cash flow to movement in net debt Increase/(decrease) in cash 319 (2,817) Other non-cash charges 351 330 Movement in net debt in the year 670 (2,487) Net debt at 1 January (88,335) (85,848) Net debt at 31 December (87,665) (88,335) THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. ASSET ALLOCATION (unaudited) At 31 December At 31 December 2006 2005 % % UK Quoted Equities 57.0 56.6 Global (Ex UK) Quoted Equities 27.6 28.9 Unquoted 0.6 1.2 Quoted Fixed Interest 5.3 4.1 Properties 9.3 9.1 Net Liquid Assets 0.2 0.1 100.0 100.0 PERFORMANCE ATTRIBUTION for the year ended 31 December 2006 (unaudited) Average allocation Total return* SAINTS Benchmark SAINTS Benchmark Contribution Stock Asset to relative Selection Allocation return % % % % % % % UK Quoted Equities 70.0 70.0 16.9 16.8 0.2 0.2 - Global (ex UK) Quoted Equities 35.0 30.0 4.6 5.6 (0.8) (0.4) (0.4) Quoted Fixed Income 5.8 - 7.2 - (0.2) - (0.2) Properties 11.4 - 18.5 - 0.6 - 0.6 Unquoted 1.1 - (7.6) - (0.2) - (0.2) Deposits and Other Items 1.8 - - - 0.1 - 0.1 Debenture at book value (25.1) - 6.8 - 1.5 - 1.5 Portfolio Total Return (debenture at book value) 14.7 13.4 1.2 (0.2) 1.4 Adjustment for change in fair value of debenture 2.2 Portfolio Total Return (debenture at fair value) 16.9 13.4 3.1 Expenses (0.8) Fund Total Return (debenture at fair value) 16.1 Source: Baillie Gifford & Co * The above returns are calculated on a total return basis with net income reinvested. Past performance is no guarantee of future performance. THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. THIRTY LARGEST EQUITY HOLDINGS at 31 December 2006 (unaudited) 2006 Name Region Sector % of 2005 Value total Value £'000 assets £'000 Royal Bank of Scotland United Kingdom Banks 19,335 4.2 14,598 Barclays United Kingdom Banks 15,854 3.4 13,004 GlaxoSmithKline United Kingdom Pharmaceuticals and biotechnology 15,411 3.3 14,989 HSBC United Kingdom Banks 14,250 3.1 9,472 Petrobras Brazil Oil and gas producers 12,297 2.7 10,612 HBOS United Kingdom Banks 12,175 2.6 10,637 BP United Kingdom Oil and gas producers 10,619 2.3 9,117 Royal Dutch Shell United Kingdom Oil and gas producers 9,070 2.0 7,642 Rio Tinto United Kingdom Mining 8,933 1.9 6,093 Diageo United Kingdom Beverages 8,274 1.8 6,937 Aviva United Kingdom Life insurance 8,010 1.7 8,030 Lonmin United Kingdom Mining 7,505 1.6 4,020 Vodafone United Kingdom Mobile telecommunications 7,157 1.5 14,460 Atlas Copco Sweden Industrial engineering 6,947 1.5 6,117 Wolseley United Kingdom Support services 6,818 1.5 - Altria North America Tobacco 6,528 1.4 6,489 Prudential United Kingdom Life insurance 6,198 1.3 4,878 Man Group United Kingdom General financial 6,195 1.3 5,839 Carnival United Kingdom Travel and leisure 5,243 1.1 - Rutley European Property United Kingdom Real estate 5,125 1.1 - Samsung Electronics South Korea Electronic and electrical equipment 5,074 1.1 5,730 Moody's North America General financial 4,912 1.1 8,080 BHP Billiton United Kingdom Mining 4,782 1.0 - Topps Tiles United Kingdom General retailers 4,585 1.0 - Yell Group United Kingdom Media 4,526 1.0 - Tesco United Kingdom Food and drug retailers 4,449 1.0 - eBay North America General retailers 4,434 1.0 2,845 SAP Germany Software and computer services 4,422 1.0 4,280 Canon Japan Electronic and electrical equipment 4,252 0.9 3,361 Low & Bonar United Kingdom Construction and materials 4,247 0.9 - 237,627 51.3 177,230 THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. NOTES 1. Income 2006 2005 £'000 £'000 Franked investment income 8,597 8,199 UK unfranked investment income 789 1,255 Overseas dividends 2,230 1,582 Overseas interest 954 290 Total income from investment securities 12,570 11,326 Rental income 2,511 2,491 Deposit income 230 155 Other income 15 14 15,326 13,986 2. Return per ordinary share Return per ordinary share is based on the return on ordinary activities after taxation figures in the Income Statement and on 132,485,943 ordinary shares of 25p, being the weighted average number of ordinary shares in issue during each year. Total recognised gains per ordinary share is based on the total recognised gains for the year in the Statement of Total Recognised Gains and Losses, and on 132,485,943 ordinary shares of 25p, being the weighted average number of ordinary shares in issue during each year. There are no dilutive or potentially dilutive shares in issue. 3. Ordinary dividends 2006 2005 2006 2005 £'000 £'000 Amounts recognised as distributions in the year: Previous year's final (paid 31 March 2006) 1.70p 1.59p 2,252 2,106 First interim (paid 30 June 2006) 1.70p 1.59p 2,252 2,106 Second interim (paid 29 September 2006) 1.85p 1.62p 2,451 2,147 Third interim (paid 29 December 2006) 1.85p 1.62p 2,451 2,147 7.10p 6.42p 9,406 8,506 We also set out below the total dividends paid and proposed in respect of the financial year, which is the basis on which the requirements of section 842 of the Income and Corporation Taxes Act 1988 are considered. The revenue available for distribution out of current year profits by way of dividend for the year is £10,002,000 (2005 - £9,000,000). 2006 2005 2006 2005 £'000 £'000 Dividends paid and proposed in the year: First interim (paid 30 June 2006) 1.70p 1.59p 2,252 2,106 Second interim (paid 29 September 2006) 1.85p 1.62p 2,451 2,147 Third interim (paid 29 December 2006) 1.85p 1.62p 2,451 2,147 Current year's proposed final dividend (payable 10 April 2007) 2.00p 1.70p 2,650 2,252 7.40p 6.53p 9,804 8,652 If approved the final dividend of 2.00p will be paid on 10 April 2007 to all shareholders on the register at the close of business on 16 March 2007. 4. The market value of the 8% Debenture Stock 2022 at 31 December 2006 was £101.6m (2005 - £106.4m). 5. At 31 December 2006, the Company had the authority to buy back 19,859,642 of its own shares. No shares were bought back during the year under review. THE SCOTTISH AMERICAN INVESTMENT COMPANY P.L.C. NOTES (cont'd) 6. Reconciliation of net return before finance costs and taxation to net cash inflow from operating activities 2006 2005 £'000 £'000 Net return before finance costs and taxation 47,873 74,646 Gains on investments - securities (35,285) (63,771) Currency (gains)/losses (44) 691 Changes in debtors and creditors 187 51 Other non-cash changes (102) 48 Net cash inflow from operating activities 12,629 11,665 7. The financial information set out above does not constitute the Company's statutory accounts for the year ended 31 December 2006. The financial information for 2005 has been extracted from the statutory accounts for 2005. The statutory accounts for 2005 have been delivered to the Registrar of Companies. The Auditors have reported on the 2005 accounts, their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for 2006 are unaudited and will be finalised on the basis of the financial information presented in this preliminary announcement. They will be delivered to the Registrar of Companies following the Company's Annual General Meeting. None of the views expressed in this document should be construed as advice to buy or sell a particular investment. This information is provided by RNS The company news service from the London Stock Exchange

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