Annual Financial Report

RNS Number : 8654A

Scottish Oriental Smlr Co Tst PLC

15 October 2009

 



THE SCOTTISH ORIENTAL SMALLER COMPANIES TRUST PLC

("Scottish Oriental")

Annual Financial Report for the year ended 31st August 2009 

Scottish Oriental is required under the UKLA's Disclosure and Transparency Rule 4.1 to make an announcement of the unedited full text of parts of its Annual Report and Accounts. The published Annual Report and Accounts, Notice of Annual General Meeting and Form of Proxy will be posted to shareholders and be available on the Scottish Oriental website (www.scottishoriental.com) in November 2009.  

Financial Highlights 

Performance  for the year ended 31 August 2009 (audited)
Net Asset Value	20.5%	MSCI AC Asia ex Japan Index (£) *	9.0%
Share Price	25.0%	MSCI AC Asia ex Japan Small Cap Index (£) *	19.2%
		FTSE All-Share Index (£) *	-8.2%
* Total return (capital return with dividends reinvested)

Summary Data at 31st August 2009 (audited)
Shares in issue	30,213,650	Shareholders' Funds	£113.86m
Net Asset Value per Share	376.85p	Market Capitalisation	£98.95m
Share Price	327.50p	Share Price Discount to Net Asset Value	13.1%

Investment Policy

• The Scottish Oriental Smaller Companies Trust PLC ("Scottish Oriental", "the Company" or "the Trust") aims to achieve long-term capital growth by investing in mainly smaller Asian quoted companies.
• The Trust invests mainly in the shares of smaller Asian quoted companies, that is companies with market capitalisations of below US$1,000m, or the equivalent thereof, at the time of first investment.
• The Trust may also invest in companies with market capitalisations of between US$1,000m and US$2,000m at the time of first investment, although not more than 20 per cent of the Trust's net assets at the time of investment will be invested in such companies.
• To enable the Trust to participate in new issues, it may invest in companies which are not quoted on any stock exchange, but only where the Investment Manager expects that the relevant securities will shortly become quoted.
• For investment purposes, the Investment Region includes China, India, Sri Lanka, Thailand, Malaysia, Singapore, Indonesia, Hong Kong, South Korea, Taiwan, Philippines, Pakistan and Vietnam. Countries in other parts of Asia may be considered with approval of the Board.
• With the objective of enhancing capital returns to shareholders, the Directors of the Trust will consider the use of long term borrowings up to a limit of 50 per cent of the net assets of the Trust at the time of borrowing. 
• The Trust invests no more than 15 per cent of its gross assets in other listed investment companies (including listed investment trusts).
• The Trust invests no more than 20 per cent of its total assets in the securities of any one company or group of companies at the time of investment.
• The Trust reserves the right to invest in equity-related securities (such as convertible bonds and warrants) of companies meeting its investment criteria. In the event that the Investment Manager anticipates adverse equity market conditions, the Trust may invest in debt instruments in any country or currency.
• The majority of the Trust's assets are denominated in Asian currencies or US dollars. The Trust reserves the right to undertake foreign exchange hedging of its portfolio. 

Investment Statement

• We aim to maximise the rate of return with due regard to risk. Risk is principally contained by focusing on soundly managed and financially strong companies, and by ensuring that the portfolio is reasonably well diversified geographically and by sector at all times. Quantitative analysis demonstrating the diversification of the Trust's portfolio of investments is contained in the country allocation and sector allocation analysis within the Portfolio Review.

• While cultural, political, economic and sectoral influences play an important part in the decision-making process, the availability of attractively-priced, good quality companies with solid long-term growth prospects is the major determinant of investment policy.

• Our country weightings bear no relationship to regional stock market indices. We do not consider ourselves obliged to hold investments in any individual market, sector or company.

• Existing holdings are constantly scrutinised to ensure that our corporate performance expectations are likely to be met, and that market valuations are not excessive. Where otherwise, disposals are made.

• Strong emphasis is placed on frequent visits to countries of the Region and on meeting the management of those companies in which the Trust is invested, or might invest.

Chairman's Statement

Last year I wrote about a disappointing performance and so it is pleasing to be able to report on a good year for Scottish Oriental. Smaller companies in general outperformed larger ones and the net asset value per share increased by 20.5 per cent over the 12 months. The MSCI AC Asia ex Japan Index rose by 9 per cent. The discount to net asset value narrowed during the year to 13.1 per cent and the share price rose by 25 per cent. 

Earnings per share have increased again, being 7.63p compared to 6.64p last year. This is partly as a result of the Finance Act 2009, which means that dividends and other distributions received from foreign companies on or after 1st July 2009 are largely exempt from corporation tax. In a full year Scottish Oriental's tax liability will be reduced considerably.

Investing for yield has never been a primary objective for our managers but it is interesting to note that dividend payments have become more generous in Asia and that the median dividend yield on our portfolio was just over 3 per cent at the end of the year. We are proposing a dividend of 6p net, an increase of 20 per cent (2008: 5p net). The undistributed balance of £494,000 will be added to the revenue reserve. It remains our intention at least to maintain this proposed level of dividend, using reserves if necessary to smooth fluctuations in income.

You will see from the Directors' Report that First State's investment management fee was increased from 0.5 per cent to 0.75 per cent per annum, which is still below the fee of 1% that existed until 2005 when the performance fee was introduced. So far the fee has not been earned in any year but it was always intended that the performance element should be hard to earn. The total expense ratio for the year was 1.04 per cent. 

We continue to believe that there is a strong long term case for international portfolios to have exposure to smaller companies in Asia. I rehearsed the reasons for this last year and concluded by giving the statistics for our portfolio at the end of September. The figures for this year are as follows with last year in brackets: prospective price earnings ratio 12x (9x), dividend yield 3.1 per cent (4.1 per cent) and price to book ratio 1.6x (1.3x). The portfolio is well spread with 89 holdings, the largest of which represents 2.6 per cent of shareholders funds. Our managers are still able to find companies that have good prospects at reasonable valuation. However, as this is written 6 per cent of shareholders' funds is in cash and there is no borrowing; this reflects our uncertainty about the short term outlook for Asian stock markets. 

James Ferguson 

Chairman

15th October 2009

Portfolio Manager's Report 

REVIEW

The performance of Asian equity markets was volatile for a second consecutive year. In the six months to February 2009, stockmarkets throughout the region fell sharply as the global credit crisis resulted in the collapse of economic growth rates.  From late March, however, share prices enjoyed a strong recovery as evidence emerged that the fiscal stimulus packages and loose monetary policies were beginning to have a positive impact on the global economy. The rebuilding of inventories was also a positive factor for several countries from February onwards.

Malaysia was the best performing market during the period, as valuations for many companies remained attractive and corporate earnings were viewed as relatively defensive. Indonesia and the Philippines also outperformed, as their economies were more resilient owing to lower exposure to external demand. In contrast, Singapore and Taiwan underperformed because exports account for a larger portion of their economies. 

Scottish Oriental achieved a satisfactory performance over the year both in absolute terms and also relative to its benchmark. This was attributed to the outperformance of smaller companies, as seen by the relative strengths of the MSCI Asia ex Japan Small Cap Index over the period under review.  The cash position at year end was higher than normal, owing to the timing of a number of trades.

Greater China

The authorities in China were proactive in their response to the credit crisis. In November they announced a large fiscal stimulus package and lowered interest rates. Although economic growth slowed in the fourth quarter of 2008, owing to a decline in exports and a weak property market, it rebounded in subsequent quarters, supported by fixed asset investment.  Smaller companies significantly outperformed their larger counterparts over the year.

Hong Kong underperformed the region as its economy contracted in line with the decline in external demand. The corporate sector responded rapidly to the decline in sales by reducing costs. Domestic demand was weak owing to higher unemployment and lower incomes. In recent months the property market has recovered, supported by low interest rates and a robust banking sector.

In the fourth quarter of 2008, Taiwan's electronics manufacturers experienced an unprecedented decline in demand. The credit crisis forced companies throughout the supply chain to cut inventories. This resulted in higher unemployment, as companies cut costs, and a corresponding fall in domestic demand. The situation stabilised in March and orders for electronics products have gradually increased as companies rebuild inventories.  

South East Asia

Singapore also underperformed over the year as the economy suffered from its high exposure to exports, particularly technology related products. The marine sector was also weak as shipping rates fell sharply in line with a worsening of the demand/supply imbalance. The residential property market was surprisingly strong owing to low interest rates and availability of bank finance. 

Thailand's economy contracted in line with the region during the year. The appointment of a new coalition Government, led by the Democratic Party, was a positive development. This resulted in a more proactive policy to stimulate the domestic economy, including higher fiscal spending and low interest rates. 

Malaysia's economy was also negatively affected by the decline in exports. The appointment of a new Prime Minister had a limited impact on Government policy, which continued to favour loose fiscal and monetary policies. A key economic reform was the reduction in the minimum Bumiputra shareholding for listed companies.  

The Philippines' economy was in a better position to withstand the global credit crisis than in the past, given its high foreign currency reserves and robust remittances from overseas workers. Inflation fell in line with lower fuel and food prices. Smaller companies significantly outperformed their larger counterparts over the period.

The elections in Indonesia passed smoothly, with the incumbent Susilo Bambang Yudhoyono retaining the Presidency. Domestic consumption has been surprisingly strong, supported by historically low inflation and interest rates.  

Vietnam's economic growth and stockmarket levels peaked in 2007, as a result of the Government's measures to control inflation and control liquidity in the banking sector. Consequently, the impact of the global credit crisis on Vietnam has been less severe than for its regional peers.  

Indian Subcontinent

India's stockmarket fell sharply in the first half of the period, owing to concerns over high inflation and expensive valuations. It rebounded in response to the strong performance of the Congress Party in the Parliamentary elections, as this gave the new Government power to push through much needed economic reforms. Although this summer's monsoon was poor, the impact on the overall economy has been limited.

The Sri Lankan stockmarket rose sharply following the military defeat of the Liberation Tigers of Tamil Eelam (LTTE). The cost of supporting this military campaign over the year has resulted in high fiscal deficits and interest rates.  

South Korea

South Korea experienced high volatility in its currency and stockmarket over the period, both falling sharply on concerns over the collapse in external demand before rebounding as the global economic outlook improved. Domestic consumption was supported by relatively low interest rates.  

OUTLOOK

The short term outlook for Asian stockmarkets is uncertain. The strong momentum behind equity markets may result in further gains but at the risk of a harder correction in the future.  The positive impact from the inventory replenishment cycle will eventually come to an end, leaving orders and output dependent on consumer spending in Europe and the US. This is unlikely to have a sustained rebound as individuals in the West continue to suffer from substantial personal debt and high unemployment.

Exports, particularly consumer related products, are still a major contributor to the region's economic growth. This dependence should diminish over time as domestic consumption rises, supported by economic reforms, particularly those relating to employment and healthcare. The current environment of low inflation and interest rates is also a positive factor, encouraging individuals to spend. This is currently reflected in the strong demand for residential property in most Asian countries. 

There is a risk that the rate of inflation accelerates as a result of an extended period of quantitative easing by the European and US central banks. As a result interest rates in Asia would rise. Given the region's high savings rate, a moderate increase in interest rates should have a positive impact on individual consumption.

Scottish Oriental continues to have a substantial position in consumer related companies. Moreover, these are mainly exposed to longer term trends, such as the demand for modern retail formats and high quality healthcare services.  

Susie Rippingall

Scott McNab

Angus Tulloch

First State Investment Management (UK) Limited, Investment Manager

15th October 2009

Portfolio Review 

Scottish Oriental's portfolio of investments is well diversified not only by country but also by sector. The largest country exposure is Singapore with a 17.5 per cent position.  Financials accounted for 24.1 per cent of the portfolio, the largest sector weighting. As at 31st August 2009, Scottish Oriental was invested in 89 different companies, with the largest holding, Home Product Center, accounting for 2.6 per cent of the portfolio. The aggregate of the Trust's ten largest holdings was 18.2 per cent.

Country Allocation at 31st August 2009

Country/Region	Scottish Oriental	MSCI*	MSCI Small Cap†	Country/Region	Scottish Oriental	MSCI*	MSCI Small Cap†
	%	%	%		%	%	%
China	10.1	26.2	18.2	India	3.9	10.6	14.8
Hong Kong	8.7	11.5	8.6	Sri Lanka	3.8	-	-
Taiwan	8.0	16.3	22.2	Pakistan	-	-	-
Greater China	26.8	54.0	49.0	Indian sub-continent	7.7	10.6	14.8
Singapore	17.5	6.7	8.4	South Korea	10.5	19.3	17.1
Thailand	11.4	1.9	2.8
Malaysia Philippines	6.9 5.9	4.2 0.7	4.6 1.0	Net current  assets	7.7	-	-
Indonesia	5.1	2.6	2.3
Vietnam	0.5	-	-	Net assets	100.0	100.0	100.0
ASEAN countries	47.3	16.1	19.1
* Morgan Stanley Capital International AC Asia ex Japan Index
† Morgan Stanley Capital International AC Asia ex Japan Small Cap Index

Greater China

Scottish Oriental continues to have an underweight position in China-related companies because valuations are expensive and forecasts for corporate earnings appear optimistic. Many manufacturing companies continue to face high production costs and weak order books. The Government is likely to reduce its fiscal and monetary stimuli next year, given the recent acceleration in economic growth. 

Hong Kong's position as a financial and trading centre makes it highly sensitive to the slowdown in global economic growth.  The Trust acquired several new companies, such as Dickson Concepts and Tao Heung Holdings, which should benefit from their strong financial positions and exposure to the relatively resilient domestic economy.  

Although the Trust increased its exposure to Taiwan in the first half, given the very strong share price appreciation in recent months, this position has since been reduced. Although the long term prospects for some smaller technology related companies are still positive, given the uncertain outlook for 2010 corporate earnings, valuations are expensive. Relations with China continue to improve with the announcement of new measures relating to issues such as property investment and transport.

ASEAN Countries

Scottish Oriental's single largest country holding is Singapore. The holdings are diversified in terms of exposure with some, such as CSE Global and Ezion Holdings linked to global markets, while others, such as CDL Hospitality Trust and Raffles Medical, are more focused on the domestic economy. Despite the recent share price appreciation, there are a number of well-managed companies trading on attractive valuations.

The Trust retained its large position in Thailand.  Domestic consumption is expected to improve, given a more stable political environment and low interest rates. Valuations are attractive, with a number of the Trust's holdings, such as Aeon Thana Sinsap and Dynasty Ceramics, providing dividend yields of more than 6%.  

Exposure to Malaysia fell over the period as a number of holdings were sold after they reached the Manager's target valuation.  In the medium term, the economy is expected to benefit from a stabilisation in demand for exports and low interest rates. During the year, Scottish Oriental acquired an interest in Kossan Rubber Industries, which produces rubber gloves mainly for the healthcare industry.

Scottish Oriental's holdings in the Philippines are mainly focused on the domestic economy. SM Development, part of the well respected SM Group, is a middle income residential property developer that is enjoying strong demand for the presale of its apartments. 

The Trust's exposure to Indonesia was also reduced over the period. Although modest increases in inflation and interest rates are expected next year, domestic consumption should continue to improve. Additions have been made to Jaya Real Property and Pembangunan Jaya Ancol, given their attractive valuations and exposure to the improving residential property market. 

The Trust retains a small position in Vietnam.  Although the long term outlook remains positive, economic growth is below its recent historic average and corporate valuations are not compelling. Exposure is via the Vietnam Enterprise Fund.  

Indian Sub-Continent

Scottish Oriental continues to have a relatively small position in India, only a limited number of well managed, reasonably valued companies being available among the smaller listed companies.  One exception is Castrol (India), which manufactures and distributes automotive and industrial lubricants.  

The outlook for Sri Lanka's economy has certainly improved following the end of the civil war. However, the Government needs to come up with a sustainable policy for the re-construction and political assimilation of areas previously controlled by the Tamil Tigers. A number of well managed companies trade on attractive valuations.  

South Korea

The Trust increased its position in South Korea over the period. The additions were mainly to consumer related companies, such as Pacific Corporation, the holding company for Amorepacific, one of the country's largest cosmetics companies. Scottish Oriental also acquired shares in Yuhan Corporation, one of the leading local pharmaceutical companies. 

Sector Allocation at 31st August 2009

Sector	%
Consumer: discretionary	22.3
Consumer: staple	5.7
	28.0
Financial	24.1
Information Technology	12.7
Industrial	8.8
Healthcare	6.4
Materials	3.9
Telecommunications Services	3.3
Utilities	2.9
Energy	2.2
	92.3
Net current assets	7.7
Net Assets	100.0

Scottish Oriental continues to have a very high exposure to both the Consumer Discretionary and Consumer Staple sectors. Companies in these sectors should continue to benefit from the recovery in domestic consumption within the region and are less exposed to a slowdown in global growth than exporters. 

The Trust has a large position in Financials.  Included in this sector are property companies as well as banks and consumer finance companies. The outlook for property markets, particularly in South East Asia, remains positive over the longer term. 

Exposure to the Information Technology sector was reduced over the period as a number of companies reached the valuation target. The Trust's weighting in the Healthcare and Telecoms sectors increased, following the identification of a number of companies with attractive valuations and robust earnings.  

Scottish Oriental continues to have a very limited exposure to stocks in the cyclical Energy and Materials sectors which, as price-takers rather than price-setters, are vulnerable to a further slowdown in the global economy.  It also has a very low weighting in the Utilities sector, owing to the limited number of small, reasonably valued companies.

Ten Largest Equity Holdings at 31st August 2009

Company	Market		Value	% of Shareholders' Funds
Home Product Center	Thailand		£2.9m	2.6%
Home Product Center, part of the Land & Houses Group, operates a network of stores selling a wide range of home improvement products. These include electrical items, light fittings, construction materials, tools and furniture. The company has about 12% of the home improvement market in Thailand, significantly larger than the competition which tends to be 'mom and pop' stores. Management believe that same store sales growth of 10% per annum is sustainable over the medium term owing to consumers' preference for modern retailing environments. Management is experienced and well incentivised.
Yuhan Corp	South Korea		£2.7m	2.3%
Established in 1926, Yuhan Corp is Korea's second largest pharmaceutical company in terms of sales. The company is involved in five different businesses: prescription drugs, over-the-counter drugs, active pharmaceutical ingredients as well as household products and veterinary drugs. Yuhan Corp also has five subsidiaries and joint-ventures, all of which are profitable. The largest of these is Yuhan Kimberly which is the largest sanitary napkin and diaper supplier in Korea. This 30% owned joint-venture with Kimberly-Clark currently supplies 100% of Kimberly's diaper requirements in China. This is a professionally managed company which not only benefits from the strength of its existing brands but also has a history of successfully developing new products.
MobileOne	Singapore		£2.5m	2.2%
MobileOne is Singapore's third largest mobile operator and data communications service provider with a market share of about 25%. The local telecommunications market is mature and there will be limited growth in terms of subscribers. However, competition is expected to ease over the medium term, given that it had increased significantly following the recent introduction of mobile number portability. MobileOne is also expected to benefit from the development of the Next Generation Broadband Network as it will be able to offer 'bundled products'. The company's modest earnings growth is more than compensated by its high and sustainable dividend yield.
Raffles Medical Group	Singapore		£1.9m	1.7%
Raffles Medical Group operates a network of medical clinics throughout Singapore as well as Raffles Hospital which was opened in March 2001. This is a general hospital with key specialities such as oncology and orthopaedics. The company has also obtained the appropriate licenses and can now provide healthcare insurance products for individuals and companies. Future earnings growth will come from an increase in the number of hospital beds as well as further expansion of the network of medical clinics.
Aboitiz Power (AP)	Philippines		£1.9m	1.7%
AP is a holding company which invests in power generation and distribution assets throughout the Philippines. The company was listed in July 2007 and the major shareholder is Aboitiz Equity Ventures with 76% ownership. The generating assets are well diversified in terms of fuel with more than 50% of AP's capacity coming from hydro plants and the rest from diesel and coal. The company's generating capacity has increased significantly in recent years mainly due to acquisitions. Management is well regarded and has substantial experience in the Philippine power industry.
CSE Global	Singapore		£1.9m	1.6%
CSE Global provides control, automation and communication IT services for a range of industries, including oil/gas, power, water and mining. Since listing in 1999, the company has transformed itself from a traditional systems integration company in Singapore to a global IT services company with the majority of its revenues coming from the oil/gas industry. CSE Global has experienced strong orders in recent years with management attributing their success to the provision of 'one-stop solutions' and strong relationships with clients.
Security Bank	Philippines		£1.8m	1.6%
Established in 1959, Security Bank is an independent corporate bank with a strong position among the local affluent Chinese community. The Bank has recruited professional senior management with extensive experience. Security Bank is the 10th largest bank in the Philippines with about 3% share of the market by assets. Growth has come from the successful cross marketing of a range of innovative products, including corporate, consumer and investment banking services.
euNetworks	Singapore		£1.8m	1.5%
euNetworks was formed as part of a management buyout of most of the European assets of Metromedia Fiber. This was an American company that invested in fibre optic cables before obtaining protection from creditors, under Chapter 11 in 2002. The company then acquired half of Viatel's fibre assets in Europe which are predominantly inter-city. These assets enabled euNetworks to connect its metro network. The resulting network had an original build cost of more than €1billion and would cost considerably more to build today as the bulk of the investment is in civil works. The company's business strategy is focused on two areas; firstly providing offsite back-up services which can be done more efficiently via fibre and secondly the sale and lease of fibre optic cables to large organisations who want their own dedicated, secure network. Management has significant experience in this industry. Following a rights issue and investment from Columbia Capital, a US-based venture capital firm that specialises in technology investing, the company is now suitably capitalised.
Commercial Bank of Ceylon		Sri Lanka	£1.7m	1.5%
Commercial Bank of Ceylon is the leading private bank in Sri Lanka with more than 150 branches. One of the Bank's competitive advantages is its access to low cost deposits as well its focus on fee based income. Management is highly regarded and the Bank has been judged the best bank in Sri Lanka by 'Global Finance' magazine for several years.
Hana Microelectronics	Thailand		£1.7m	1.5%
Hana Microelectronics is an independent 'electronic manufacturing service' company with facilities in Thailand and China. The company's main businesses are the manufacture of printed circuit boards and integrated circuit packaging. Although the medium term outlook for certain electronics sectors is uncertain, this is reflected in the current valuation. Hana Microelectronics should be a long term beneficiary of the electronics outsourcing trend, given its low-cost production base and extensive offering of services to suit clients' needs.

Susie Rippingall

Scott McNab

Angus Tulloch

First State Investment Management (UK) Limited, Investment Manager

15th October 2009

  Ten Year Record 

Capital

			NAV		Price		Share (Discount)/Premium
Year ended 31st August	Market Capitalisation £m	Shareholders' Funds  £m	Diluted  (p)	Undiluted (p)	Ordinary (p)	Warrant (p)	Diluted  %	Undiluted %
2000	21.52	28.27	114.96	111.03	84.50	24.25	(26.5)	(23.9)
2001	23.43	28.20	112.55	110.72	92.00	30.00	(18.3)	(16.9)
2002	31.51	35.29	133.77	138.56	123.75	49.50	(7.5)	(10.7)
2003	39.73	44.55	163.94	174.91	156.00	67.50	(4.8)	(10.8)
2004	39.94	46.00	169.14	180.50	156.75	69.50	(7.3)	(13.2)
2005	54.23	61.57	219.95	241.56	212.75	112.50	(3.3)	(11.9)
2006	64.41	73.26	256.22	279.24	245.50	144.00	(4.2)	(12.1)
2007	94.87	104.14	344.67	344.67	314.00	-	(8.9)	(8.9)
2008	79.16	94.50	312.78	312.78	262.00	-	(16.2)	(16.2)
2009	98.95	113.86	376.85	376.85	327.50	-	(13.1)	(13.1)

Revenue 

Year ended 31st August	Gross Revenue £000	Available for ordinary shareholders £000	Earnings per share* p	Dividend per share(net) p	Total expense ratio %	Actual gearing †	Potential gearing ‡
2000	1,180	498	1.96	1.29	1.58	107	112
2001	1,387	654	2.56	1.81	1.43	100	112
2002	1,211	445	1.75	1.50	1.51	105	109
2003	1,314	496	1.95	1.50	1.28	100	109
2004	1,567	547	2.14	1.575	1.54	102	108
2005	2,262	960	3.77	2.60	1.48	93	105
2006	2,416	1,239	4.78	3.60	0.88	94	101
2007	3,379	1,812	6.35	4.60	0.83	94	101
2008	3,643	2,008	6.64	5.00	0.78	98	101
2009	3,744	2,307	7.63	6.00	1.04	94	101

* The calculation of earnings per share is based on the revenue from ordinary activities after taxation and the weighted average number of ordinary shares in issue. 

† Total assets (including all debt used for investment purposes) less all cash and fixed interest securities (excluding convertibles) divided by shareholders' funds. 

‡ Total assets (including all debt used for investment purposes) divided by shareholders' funds.

Cumulative Performance (taking 1999 as 100) 

Year ended 31st August	NAV per share	Price per share	Price per warrant	MSCI AC Asia ex Japan Index	FTSE All Share Index	Earnings per share	Dividend per share
1999	100	100	100	100	100	100	100
2000	112	111	103	104	112	181	152
2001	109	121	128	72	92	237	213
2002	130	163	211	73	75	162	176
2003	159	205	287	85	79	181	176
2004	164	206	296	86	87	198	185
2005	214	280	479	110	108	349	306
2006	249	323	613	131	126	443	424
2007	335	413	-	183	141	588	541
2008	304	345	-	167	129	615	588
2009	366	431	-	182	118	706	706

Principal Risks and Uncertainties

In the Directors' view, the description of the Company's development over the year and the identification of its key performance indicators are contained in the Financial Highlights, Ten Year Record, Chairman's Statement and Portfolio Manager's Report. The principal risks facing the Company relate to its investment activities and include market price risk and foreign currency risk. Further details of these risks are disclosed in note 15 of the Accounts and the Chairman's Statement. Information on the Company's internal controls is set out below.

Internal Controls

The Directors are ultimately responsible for the internal controls of the Company which aim to ensure that proper accounting records are maintained, the assets are safeguarded and the financial information used within the business and for publication is reliable. The Directors are required to review the effectiveness of the Company's system of internal control. The Code states that the review should cover all material controls, including financial, operational and compliance controls and risk management systems. Operational and reporting systems are in place to identify, evaluate and monitor the operational risks potentially faced by the Company and to ensure that effective internal controls have been maintained throughout the period under review and up to the date of approval of this Annual Report. The Board confirms that, in accordance with the guidance "Internal Control: Guidance for Directors on the Combined Code", there is an ongoing process for identifying, evaluating and managing the significant risks faced by the Company. A full review of all internal controls is undertaken annually and the Board confirms that it has reviewed the effectiveness of the system of internal control. These controls include:

• reports at regular Board Meetings of all security and revenue transactions effected on the Company's behalf. These transactions can only be entered into following appropriate authorisation procedures determined by the Board and the Investment Manager;

• Custody of the Company's assets has been delegated to JP Morgan Chase. The records maintained by JP Morgan Chase permit the Company's holdings to be readily identified. The Investment Manager carries out regular reconciliations with the custodian's records of the Company's cash and holdings;

• The Investment Manager's compliance and risk department monitors compliance by individuals and the Investment Manager's operations with the rules of the Financial Services Authority and provides regular reports to the Board;

• A risk matrix is prepared which identifies the significant risks faced by the Company and the Investment Manager's controls in place to manage these risks effectively.

These systems are designed to manage rather than eliminate risk and can, however, only provide reasonable and not absolute assurance against material misstatement or loss.

Related Party Transactions

First State Investment Management (UK) Limited has been appointed as Investment Manager and Secretary under an agreement dated 20th March 1995 (as amended by supplemental agreements dated 23rd and 31st July 1998, 28th October and 22nd November 2005, 27th September 2006 and 24th March 2009) ("the Agreement"). The terms of the Agreement provide for payment of a base fee of 0.75% per annum of the Company's net assets payable quarterly in arrears. In addition an annual performance fee may be payable to the Investment Manager. These fees are capped, in aggregate, at an amount not exceeding or equal to 5% of the lower of (1) the gross asset value of the Company and (2) its market capitalisation, in each case at the relevant 31st August year end.

The performance fee is based on the Company's Share Price Total Return ("SPTR"), taking the change in share price and dividend together, over a three year period. If the Company's SPTR exceeds the SPTR of the Company's benchmark index (the MSCI AC Asia ex Japan Index) over the three year period plus ten percentage points then a performance fee is payable to the Investment Manager. The objective of the performance fee is to give the Investment Manager ten per cent of the additional value generated for shareholders by such outperformance. If the Company's SPTR for the relevant period is not positive then the performance fee will be nil. The fourth period for calculation of the performance fee ended on 31st August 2009 with no performance fee being payable to the Investment Manager. Any performance fee payable would be charged to capital.

A secretarial fee, initially based on £35,000 per annum until 31st March 1996 and subsequently increased in line with the UK Retail Prices Index annually, is also payable to the Investment Manager. 

The Investment Manager's appointment as investment manager is subject to termination on one year's notice. Its appointment as Secretary is subject to termination by not less than six months' notice. The Company is entitled to terminate the Investment Manager's appointment as investment manager and secretary on less than the specified notice period subject to compensation being paid to the Investment Manager for the period of notice not given. The compensation in the case of the Investment Manager's termination as investment manager is based on 0.75% of the value of the Company's net assets up to the date of termination on a pro rata basis. In addition a termination performance fee amount may be due to the Investment Manager based on the Company's three year performance up to the date of termination and paid on a pro rata basis. In the case of the Investment Manager's appointment as Secretary the compensation is based on the secretarial fee for the last full year prior to termination and paid on a pro rata basis.  Details of the investment management fee are set out in Note 2 of the Accounts. 

Statement of Directors' Responsibilities

The Directors are responsible for preparing the Directors' Report and the financial statements

in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year.

Under that law the Directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that period. In preparing these financial statements, the Directors are required to:

• select suitable accounting policies and then apply them consistently;

• make judgments and accounting estimates that are reasonable and prudent;
  

• state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements;

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors confirm that suitable accounting policies, applied consistently and supported by reasonable and prudent judgements and estimates, have been used in the preparation of the accounts and that applicable accounting standards have been followed.

The financial statements are published on the Company's website www.scottishoriental.com which is maintained by the Company's Investment Manager, First State Investment Management (UK) Limited. The maintenance and integrity of the corporate and financial information relating to the Company is the responsibility of the Investment Manager. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of this website and, accordingly, the Auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. Visitors to the website need to be aware that legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

The Directors confirm that to the best of their knowledge:

• the financial statements, prepared in accordance with applicable United Kingdom accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and

• the Directors' Report includes a fair view of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

By order of the Board 

James Ferguson

Chairman

15th October 2009

Income Statement for the year ended 31 August 2009 (audited) 

                        

                                                                                     2009                                                    2008

	Revenue £'000	Capital £'000	Total* £'000	Revenue £'000	Capital £'000	Total* £'000
Gains/(losses) on investments	-	18,754	18,754	-	(10,366)	(10,366)
Income from investments [Note 1]	3,726	-	3,726	3,480	-	3,480
Other income [Note 1]	18	-	18	163	-	163
Investment management fee [Note 2]	(591)	-	(591)	(512)	-	(512)
Currency (losses)/gains [Note 12]	-	(160)	(160)	-	111	111
Other administrative expenses [Note 3]	(306)		(306)	(310)	-	(310)
Net return before finance costs and taxation	2,847	18,594	21,441	2,821	(10,255)	(7,434)
Finance costs of borrowing [Note 4]	(1)	-	(1)	-	-	-
Return on ordinary activities before taxation	2,846	18,594	21,440	2,821	(10,255)	(7,434)
Tax on ordinary activities [Note 5]	(539)	(29)	(568)	(813)	-	(813)
Return attributable to equity shareholders	2,307	18,565	20,872	2,008	(10,255)	(8,247)
Net Return per ordinary share [Note 7]	7.63p	61.45p	69.08p	6.64p	(33.94)p	(27.30)p

* The total column of this statement is the Profit and Loss Account of the Company.

A Statement of Total Recognised Gains and Losses has not been prepared as any gains or losses are recognised in the Income Statement.

          The Board is proposing a dividend of 6.00p per share for the year ended 31st August 2009 (2008: 5.00p per share) which, if approved, will be payable on 29th January 2010.

All revenue and capital items derive from continuing operations.

Summary Balance Sheet as at 31 August 2009 (audited)

	2009			2008
	£'000	£'000	£'000		£'000
Total investments [Note 8]		105,054			91,574
Current Assets:
Debtors [Note 9]	1,588		611
Cash and deposits	8,222		2,865
	9,810		3,476
Current Liabilities  (due within one year)
Creditors [Note 10]	(1,002)		(429)
	(1,002)		(429)
Net Current Assets		8,808			3,047
Total Assets less Current Liabilities		113,862			94,621
Provision for liabilities and charges
Deferred tax [Note 5]		-			(120)
Equity shareholders' funds		113,862			94,501
Represented by
Capital and reserves
Ordinary share capital [Note 11]		7,554			7,554
Share premium account [Note 12]		21,337			21,337
Warrant reserve [Note 12]
exercised		1,319			1,319
Capital Reserves [Note 12]		78,736			60,171
Revenue Reserve [Note 12]		4,916			4,120
		113,862			94,501
Net asset value per share [Note 13]		376.85p			312.78p

Reconciliation of Movements in Shareholders' Funds (audited)
For the year ended 31 August 2009
	Share Capital	Share  Premium  Account	Warrant Reserve Exercised	Capital Reserve	Revenue Reserve	Total
	£000	£000	£000	£000	£000	£000
Balance at 31st August 2008	7,554	21,337	1,319	60,171	4,120	94,501
Realised gains on investments	-	-	-	6,546	-	6,546
Currency loss	-	-	-	(160)	-	(160)
Unrealised appreciation on investments in the year	-	-	-	12,208	-	12,208
Indian Capital Gains Tax	-	-	-	(29)	-	(29)
Income retained in the year	-	-	-	-	2,307	2,307
Dividend paid in the year	-	-	-	-	(1,511)	(1,511)
Balance at 31st August 2009	7,554	21,337	1,319	78,736	4,916	113,862

Reconciliation of Movements in Shareholders' Funds (audited)

For the year ended 31 August 2008

	Share Capital	Share  Premium  Account	Warrant Reserve Exercised	Capital Reserve	Revenue Reserve	Total
	£000	£000	£000	£000	£000	£000
Balance at 31st August 2007	7,554	21,337	1,319	70,426	3,502	104,138
Realised gains on investments	-	-	-	14,233	-	14,233
Currency gain	-	-	-	111	-	111
Unrealised depreciation on investments in the year	-	-	-	(24,599)	-	(24,599)
Income retained in the year	-	-	-	-	2,008	2,008
Dividend paid in the year	-	-	-	-	(1,390)	(1,390)
Balance at 31st August 2008	7,554	21,337	1,319	60,171	4,120	94,501

Summary Cash Flow Statement for the year ended 31 August 2009 (audited)

	2009 £'000	2008 £'000
Net cash inflow from operating activities	3,078	2,767
Interest paid on borrowings	(1)	-
Taxation	(802)	(856)
Net cash inflow /(outflow) from capital expenditure and financial investment	4,593	(4,533)
Equity dividend paid	(1,511)	(1,390)
Increase/(decrease) in cash	5,357	(4,012)

Accounting Policies

These accounts have been prepared in accordance with applicable accounting standards and under the historical cost convention modified to include the revaluation of investments, the Companies Act 2006 and the Statement of Recommended Practice "Financial Statements of Investment Trust Companies and Venture Capital Trusts" (issued in January 2009 and adopted early) except for certain illiquid stocks which have been valued at the last traded price, as has been the Company's practice. The Directors consider the last traded price for such stocks to be the best estimate of fair value. 

The early adoption of the SORP had no effect on the financial statements of the Company, other than the requirement to separately disclose capital reserves that relate to the revaluation of investments held at the reporting date.  These are disclosed in Note 12. This new requirement replaces the previous requirement to disclose the value of the capital reserve that was unrealised.  Also the requirement to present tax reconciliations based on the total column of the Income Statement rather than the revenue column as was previously recommended. The reconciliation is disclosed in Note 5.

The accounts have also been prepared on the assumption that approval as an investment trust will continue to be granted.

The financial statements, and the net asset value per share figures, have been prepared in accordance with UK Generally Accepted Accounting Practice ('UK GAAP').

The functional and reporting currency of the Company is pounds sterling as most investors in the Company are based in the United Kingdom. 

(a) Dividends on securities are brought into account on the date on which the security is quoted "ex dividend'' on the stock exchange in the country in which the security is listed. Interest on securities is accounted for on a time appointed basis. Foreign dividends include any withholding taxes payable to the tax authorities.

(b) Overseas income is recorded at rates of exchange ruling at the date of receipt.

(c) Bank interest receivable, interest payable and expenses of management are dealt with on an accruals basis.

(d) In accordance with FRS 19, deferred taxation is provided using the liability method on all timing differences, calculated at the rate at which it is anticipated the timing differences will reverse. Deferred tax assets are recognised only when, on the basis of available evidence, it is more likely than not that there will be taxable profits in the future against which the deferred tax asset can be offset.

Due to the Company's status as an investment trust, and the intention to continue to meet the conditions required to obtain approval in the foreseeable future, the Company has not provided deferred tax on any capital gains and losses arising on the revaluation of investments.

(e) Investment management and secretarial fees have been charged in full to the Income Account.

(f) Equities include ordinary shares and warrants.

(g) Valuation of Investments

Listed investments have been designated upon initial recognition as fair value through profit or loss. Investments are recognised and de-recognised at trade date where a purchase or sale is under a contract whose terms require delivery within the time frame established by the market concerned, and are initially measured at cost. Subsequent to initial recognition, investments are valued at fair value which for listed investments is deemed to be bid market or last traded prices. Gains and losses arising from changes in fair value are included as a capital item in the Income Statement and are ultimately recognised in the capital reserve. In accordance with the guidance given in the AIC SORP issued in January 2009 the Capital Reserve is not separated into realised and unrealised.

(h) Gains and losses arising on realisation of investments are shown in the Capital Reserve. 

(i) Exchange rate differences on capital items are included in the Capital Reserve, and on income items in the Revenue Reserve.

(j) All assets and liabilities denominated in foreign currencies have been translated at year end exchange rates.

(k) Interest costs incurred on long-term borrowings are charged to income on a time
apportioned basis over the life of the liability. Breakage costs are charged to capital.

  NOTES ON THE ACCOUNTS (audited):

(1) Income

Income from investments relates to dividends from overseas listed companies.

Other income relates to bank deposit interest and £11,000 interest on repayment of VAT.

(2) Investment Management Fee

	2009 £000	2008 £000
Investment Management Fee	591	512

In 2007 the European Court of Justice ruled that investment management fees should be exempt from VAT. Since then, HMRC has accepted the Manager's repayment claims for 2001 to 2007. During the period the Company received a reimbursement of £60,000 being recognised in the current period together with interest thereon of £11,000. An additional claim has been made to HMRC for 1995 to 1996, the amount and probability of economic benefit is uncertain therefore no asset has been recognised. 

(3) Other Administrative Expenses

Auditors' remuneration		10	10
Directors' fees		62	71
Secretarial fees		50	49
Bank, custodial and other expenses		124	180
		246	310

Since 1st July 2009 Directors' fees have been as follows:

Chairman of the Board              £21,000 per annum

Each other Director                   £15,000 per annum

Prior to 1st July 2009 Directors' fees were as follows:

Chairman of the Board              £18,500 per annum

Each other Director                   £13,500 per annum

(4) Finance Costs of Borrowing

Bank overdraft interest

1

-

(5) Taxation

		2009			2008
(a) Analysis of charge in period	Income £000	Capital £000	Total £000	Income £000	Capital £000	Total £000
Current tax:
Corporation tax	612	-	612	806	-	806
Double tax relief	(145)	-	(145)	(188)	-	(188)
Overseas tax	192	29	221	188	-	188
	659	29	688	806	-	806
Deferred tax:
Origination and reversal of timing    differences	(120)	-	(120)	7	-	7
	539	29	568	813	-	813

(b) Factors affecting the tax charge for the period

The tax assessed for the period is different from that calculated when corporation tax is applied to the total return. The differences are explained below: 

	2009 £000	2008 £000
Net gains/(losses) on investments during the period	18,754	(10,366)
Other (losses)/gains	(160)	111
Net investment income before tax	2,846	2,821
Total return for the period before taxation	21,440	(7,434)
Total return for the period before taxation multiplied by the effective rate of corporation tax of 28% (2008: 28%)	6,003	(2,081)
Effect of:
Capital returns not subject to corporation tax	(5,207)	2,871
Prior year adjustment	-	1
Non-taxable income	(276)	-
Overseas tax	77	(1)
Income taxable in different periods	91	(16)
Adjustment due to tax rate change	-	32
Current tax charge for the period	688	806
Under changes enacted in the Finance Act 2009, dividends and other distributions received from foreign companies from 1st July 2009, are largely exempt from corporation tax.
(c) Provision for deferred tax
Income taxable in different periods	-	120
Provision at start of period	120	113
Deferred tax charge in period	(120)	7
Provision at end of period	-	120
The deferred tax provision has been released in full as a consequence of the UK legislative change to the taxation of foreign dividends paid on or after 1st July 2009.

(6) Dividends

	2009	2008
Dividends paid in the period:	£000	£000
Dividend of 5.00p per share (2008 - 4.60p)
paid 28th January 2009	1,511	1,390

The proposed dividend is subject to approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements.

We note below the proposed dividend in respect of the financial year, which is the basis upon which the requirements of Section 842 of the Income and Corporation Taxes Act 1988 are considered.

Income available for distribution	2,307	2,008
Proposed dividend for the year ended 31st August 2009 - 6.00p
(2008 - 5.00p) payable 29th January 2010	(1,813)	(1,511)
Retained Income for section 842 ICTA 1988 purposes	494	497

            (7) Return per Ordinary Share

		2009			2008
	Income p	Capital p	Total p	Income p	Capital p	Total p
Net Return "per ordinary" share	7.63	61.45	69.08	6.64	(33.94)	(27.30)
					2009	2008
Revenue return					2,307,000	2,008,000
Capital return					18,565,000	(10,255,000)
Weighted average ordinary shares  in issue					30,213,650	30,213,650
There are no dilutive or potentially dilutive shares in issue.

(8) Equity Investments	Equities £000
Cost at 31st August 2008	89,898
Unrealised appreciation	1,676
Valuation at 31st August 2008	91,574
Purchases at cost *	32,081
Sales - proceeds *	(37,355)
Sales - realised gains on sales	6,546
Unrealised appreciation on investments in the year	12,208
Valuation at 31st August 2009	105,054
Cost at 31st August 2009	91,170
Closing unrealised appreciation	13,884
All investments are listed on recognised stock exchanges. * These figures include the following charges. Purchases £000 Transaction Costs Sales £000 Total £000 Stamp duty Brokerage Other Fees 11 76 6 55 91 9 66 167 15 93 155 248

	2009	2008
(9) Debtors	£000	£000
Sales awaiting settlement	1,062	36
Accrued income	413	517
Overseas tax recoverable	112	56
VAT recoverable	1	2
	1,588	611

	2009	2008
(10) Creditors (amounts falling due within one year)	£000	£000
Purchases awaiting settlement	532	-
Corporation tax	222	309
Other creditors	248	120
	1,002	429

(11)     Share Capital

The authorised capital is £8,190,058 (2008: same) represented by 32,760,234 ordinary shares of 25p each (2008: same). The allotted capital is £7,553,412 (2008: £7,553,412) represented by 30,213,650 ordinary shares of 25p each (2008: 30,213,650).

The Board monitors and reviews the broad structure of the Company's capital on an ongoing basis. This will include:

- the level of equity shares in issue;

- the extent to which revenue in excess of that which is required to be distributed should be retained.

The Company does not have any externally imposed capital requirements. The capital of the Company is the ordinary share capital as detailed above. It is managed in accordance with its investment policy in pursuit of its investment objective.

(12) Reserves	Share premium account	Warrant Reserve Exercised	Capital Reserve	Revenue Reserve
	£000	£000	£000	£000
Balance at 31 August 2008	21,337	1,319	60,171	4,120
Realised gain on investments	-	-	6,546	-
Indian Capital Gains Tax	-	-	(29)	-
Currency loss	-	-	(160)	-
Unrealised appreciation on investments in the year	-	-	12,208	-
Income retained in the year	-	-	-	2,307
Dividend paid in the year	-	-	-	(1,511)
Balance at 31 August 2009	21,337	1,319	78,736	4,916

The capital reserve includes investment holding gains amounting to £13,884,000 (2008: £1,676,000), as detailed in Note 8. 

(13) Net Asset Value per Ordinary Share

Net assets per share are based on total net assets of £113,861,517 (2008: £94,501,029) divided by 30,213,650 (2008: 30,213,650) ordinary shares of 25p each in issue.

(14) Cash Flow Statement 

	2009 £'000 (audited)	2008 £'000 (audited)
(a) Reconciliation of total income to net cash inflow
from operating activities
Income	3,744	3,643
Administration expenses	(898)	(823)
Decrease in debtors	1	24
Decrease / (increase) in dividends accounted for but not yet received	103	(60)
Increase/ (decrease) in creditors	128	(17)
Net cash inflow from operating activities	3,078	2,767

         (b) Analysis of changes in cash and net debt during the year

	At the start of the Year £'000	Cash  Flows £'000	At the end of the Year £'000
Cash	2,865	5,357	8,222

(15) Risk Management, Financial Assets and Liabilities

The Company invests mainly in smaller Asian quoted companies. Other financial instruments comprise cash balances, short-term debtors and creditors. The Investment Manager follows the Investment process outlined in the section for Investment Policy at the beginning of this report with quarterly reviews of the portfolio by the Investment Management team. The Investment Manager's Risk & Compliance department monitors the Company's investment and borrowing powers to ensure that risks are controlled and minimised. Additionally, its Compliance and Risk Committee reviews risk management processes monthly.

The main risks that the Company faces from its financial instruments are market prices (comprising interest rate, currency and share price risks) and credit risk. As the Company's assets are mainly in readily realisable securities, other than in exceptional circumstances there is no significant liquidity risk. The Board, in conjunction with the Investment Manager, regularly reviews and agrees policies for managing each of these risks. The Investment Manager's policies for managing these risks are detailed below.

Market Risk

The fair value of or future cash flows from a financial instrument held by the Company will fluctuate because of changes in market prices. These valuations are deemed to represent the fair value of the investments.

Interest Rate Risk

As the Company does not invest in either fixed or floating rate securities at present interest rate risk exposure is restricted to interest receivable on bank deposits or interest payable on bank overdraft positions which will be affected by fluctuations in interest rates.

The possible effects on fair value and cash flows that could arise as a result of changes in interest rates are taken into account when making investment and borrowing decisions.

Foreign Currency Risk

All the Company's investment portfolio was invested in overseas securities as at 31st August 2009. The Balance Sheet therefore can be significantly affected by movements in foreign exchange rates. It is not the Company's policy to hedge this risk on a continuing basis but the Company reserves the right to undertake foreign exchange hedging of its portfolio. The revenue account is subject to currency fluctuation arising on dividends paid in foreign currencies. The Company does not hedge this currency risk.

Foreign Currency risk exposure by currency of denomination

	31 August 2009			31 August 2008
	Overseas investments £000	Net monetary assets  £000	Total currency exposure £000	Overseas investments £000	Net monetary assets  £000	Total currency exposure £000
Singapore dollars	18,923	5,119	24,042	13,547	1,760	15,307
Hong Kong dollars	21,144	562	21,076	19,257	279	19,535
Thai baht	12,867	87	12,954	8,933	62	8,995
Korean won	12,106	(61)	12,045	7,848	-	7,848
Taiwanese dollars	9,042	555	9,597	10,327	479	10,806
Malaysian ringgits	7,861	8	7,869	9,712	22	9,734
Philippine pesos	6,696	-	6,696	7,104	-	7,104
Indonesian rupiahs	5,755	(4)	5,755	6,298	-	6,298
Indian rupees	4,314	134	4,448	2,771	-	2,772
Sri Lankan rupees	4,438	-	4,438	3,331	15	3,346
US dollars	532	2,017	2,549	2,446	130	2,576
Australian dollars	1,376	691	2,067	-	-	-
Sterling	-	(300)	(300)	-	180	180
Total	105,054	8,808	113,862	91,574	2,927	94,501

Other Price Risk

Changes in market prices, other than those arising from interest rate or currency risk, will affect the value of quoted investments. It is the Board's policy to hold an appropriate spread of investments in the portfolio in order to reduce the risk arising from factors specific to a particular country or sector. The Investment Manager monitors market prices throughout the year and reports to the Board on a regular basis.

Other price risk sensitivity

If market values at the Balance Sheet date had been 10% higher or lower with all other variables remaining constant, the return attributable to Ordinary shareholders for the year ending 31 August 2009 would have increased/(decreased) by £11,386,000 (2008 increased/(decreased) by £9,450,000) and equity reserves would have increased/(decreased) by the same amount.

Credit Risk

This is the risk that a failure of a counterparty to a transaction to discharge its obligations under that transaction could result in a loss to the Company.

Investment transactions are carried out with a large number of approved brokers, whose credit-standing is reviewed periodically by the Investment Manager.

Cash exposures are carefully managed to ensure that money is placed on deposit with reputable counterparties meeting a minimum credit rating.

In summary, compared to the amounts in the balance sheet, the maximum exposure to credit risk at 31st August 2009 was as follows:

	2009		2008
	Balance Sheet	Maximum exposure	Balance  Sheet	Maximum exposure
Current assets	£000	£000	£000	£000
Receivables	1,588	1,588	611	611
Cash at bank	8,222	8,222	2,865	2,865
	9,810	9,810	3,476	3,476

The financial information contained within this Announcement does not constitute statutory accounts as defined in Sections 434 and 435 of the Companies Act 2006. The results for the years ended 31st August 2009 and 2008 are an abridged version of the statutory accounts for those years. The Auditors have reported on the 2008 and 2009 accounts, their reports for both years were unqualified and, for the 2008 Accounts, did not contain a statement under section 237(2) or (3) of the Companies Act 1985 and, for the 2009 Accounts, did not contain a statement under sections 495 to 498 of the Companies Act 2006. Statutory accounts for 2008 have been filed with the Registrar of Companies and those for 2009 will be delivered in due course.

The 2009 Annual Report will be posted to shareholders in November 2009 and copies will be available from the the Company's website www.scottishoriental.com and the Company's registered office at 23 St Andrew Square, Edinburgh, EH2 1BB.

Enquiries:	Gillian Davies / Bridgette McDonald First State Investments, Ph: 44 (0) 131 473 2200

15 October 2009

 

END

 

 

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