Monthly Briefing April 2003

Lindsell Train Investment Trust PLC 14 May 2003 The Lindsell Train Investment Trust PLC As at 30th April 2003 Fund Objective To maximise long-term total returns subject to the avoidance of loss of absolute value and with a minimum objective to maintain the real purchasing power of Sterling capital, as measured by the annual average yield on the 2.5% Consolidated Loan Stock. Net Asset Value GBP 91.87 Share Price GBP 95.50 Premium (Discount) 4.0% Market Capitalisation GBP 19.1mn Source: Bloomberg; NAV - LTL Performance (based in GBP) Apr Mar Feb YTD Since Launch NAV +1.1% -0.6% +1.9% -2.6% -8.1% Share Price +0.0% +0.0% +0.0% +0.5% -4.5% Source: Bloomberg. Based in GBP. Top 10 Holdings % NAV Industry Breakdown % NAV US Gov Treasury 6.25% 16.5 Bonds 36.7 Lindsell Train Japan (Dist) 13.0 Preference Shares 13.1 Lindsell Train Global Media (Dist) 10.7 Media 7.7 HBOS 6.125% Non Cum 7.6 Banks & Investment Co. 4.9 US Gov Treasury IL 3.875% 7.2 Leisure & Entertainment 7.2 21/2% Consolidated Loan Stock 7.2 Food & Beverage 19.1 Barr AG 6.8 Investment Fund 23.7 UK Treasury 2.5% 5.8 Cash & Equivalent (12.4) Glenmorangie plc A&B 5.7 Total 100.0 Cadbury Schweppes 5.6 Geographical Breakdown % NAV Currency Exposure % NAV Bonds 36.7 USD 54.1 UK 13.0 JPY (0.8) US 23.7 EUR 0.1 Preference 13.1 GBP 46.8 Shares 38.9 Total 100.0 Equities UK 29.5 US 4.4 Japan 2.9 Europe 2.1 23.7 Funds LT Japan 13.0 LT Global Media 10.7 (12.4) Cash & Equivalent Total 100.0 Fund Manager's Comments This proved to be another frustrating month for the performance of the Company. Where we made gains from the recovery in the price of some of our equity holdings these were offset by the renewed weakness of the US dollar versus Sterling. The NAV rose by 1.1%. Unusually for us we began to sell one of our equity holdings. We reduced the holding in HBOS to 1.7% of net assets from 3.2% at the end of March. Subject to achieving a slightly better price for the remainder we plan to eliminate it entirely. This may seem an odd decision as we only bought the shares two years ago, the company has delivered and more on the expectations we had for it then (it has raised its dividend by 5% versus inflation of 3%) and we think is likely that the company will continue to grow its dividend in advance of inflation as far as the eye can see. As the share yields approximately the same as our cost of debt why would we want to sell it? The reason is to control risk. At the same time as our purchase of the HBOS shares in 2001 we unearthed the Halifax and HBOS preference shares, issues that we had previously been unaware of, and subsequently invested 13% of the Company's assets (as at 30th April 2003) in these two issues. We bought these on yields of approximately 7%, in the case of the HBOS issue, to perpetuity. Although there is no prospect of these dividends rising there is materially less chance of them falling, as preference shareholders have priority over ordinary shareholders for payment of dividends. As we expect long-term interest rates to fall to unusually low levels we think investors in search of yield and duration will come to value these issues more highly. At the same time HBOS has and will continue a strategy of expanding its balance sheet by taking share in the mortgage market. This strategy has some risks if you think, like we do, that average property prices could decline materially from their recent peak. If we are proven correct there may be fears for rising bad debts as those in difficulty are unable to pay the interest on their mortgages and as collateral values fail to provide adequate enough cover to back-up the value of the loans. Whether these fears actually cause bad debt provisions to rise enough to halt the progress of HBOS dividend increases, let alone force them to be cut is another matter. We think this scenario is most unlikely. However reality alone is not the only thing that affects share prices. Should this fear materialise we think there is a risk that the yield on the ordinary shares may well rise (as the share price falls) to a level where it exceeds that of the preference shares. With 16% of the Company invested in HBOS group securities we felt it was a risk we need not take. Since discovering the preference shares we curtailed our accumulation of the ordinary and more recently have looked for an opportunity to sell them. We chose the recent rally in the shares, following the payment of the dividend as a suitable starting point. We think that the recent statement from the Federal Open Market Committee (FOMC) meeting was notable in that it cautioned that inflation may fall too far. That must be the first time we have heard that concern for 40 years, if not more. It says something about the disinflationary forces around today that despite a booming economy in the late 1990's and unprecedented levels of monetary stimulus since, the risk of inflation falling is higher than it rising. We have anticipated for some time that investors would come to recognize that inflation would be effectively zero and as result invested a large proportion of the Company (more than 50%) in long duration fixed interest assets of sound credits at a weighted average interest rate of 6%. For this risk we were earning approximately 4% above the near term inflation rate and perhaps as much as 6% above future inflation. If average real yields on long term fixed interest fell to 3% (their norm over time) and inflation declined to zero the yield would fall to this level and reward us with an approximate 100% capital gain. So far the weighted average yield has fallen to 5.2%. There is plenty more to look forward to. A part of the positive view we have on long term fixed interest relates to the dynamics of the savings industries. From 1965 to 1980 the savings industry allocated its assets to equities to avoid the worst ravages of inflation. From 1982 to 2000 this trend continued more as part of a virtuous cycle as anything else as a combination of falling inflation and growth was deemed better for equities than any other asset class. Now the savings industry, weighed under by the losses exposed by the flaws of the last strategy is belatedly becoming fixated with matching the duration of their liabilities with assets. They do this by investing in long term fixed interest. If enough of them do this at the same time there is a good chance that there may not be enough of it to go around which may create an extraordinary demand for fixed interest assets with duration. The longer the duration the better. This is why we prefer to hold irredeemable issues where we can. This is why what the FOMC said is so important for our view. It provides another, official reason for those entrusted with long term savings to question the wisdom of their current equity biased, short duration fixed interest strategy. It's a week now since the FOMC met and 'our' US conventional long bond has fallen by 0.2% in yield already. This looks promising. Fund Manager Launch Date Denominated Currency Nick Train 22 January 2001 GBP Year End Dividend Benchmark 31st March Ex-date: June The annual average yield Payment: August on the 21/2% Consolidated Loan Stock. The Board Management Fees Registered Address Rhoddy Swire Standard Fee: 0.65% p.a. Lindsell Train Investment Michael Mackenzie Performance Fee: 10% of annual Trust Donald Adamson increase in the share price, plus 77A High Street Michael Lindsell dividend, Brentwood above the gross annual yield of ESSEX DM14 4RR the 21/2% Consolidated Loan Stock. Sedol No Bloomberg 3197794 LTI LN Disclaimer The contents in this document is solely for information purposes only. The information contained herein does not constitute an offer or invitation to buy or subscribe any securities or funds in any jurisdiction in which such distribution is not authorised. Nothing in this document constitutes investment, legal, tax or other advice and cannot be relied upon in making any investment decision. Applications to invest in some of the funds must only be made on the basis of offer documents which may only be available for private circulation. The information contained in this document is published in good faith and neither Lindsell Train Limited nor any other person so connected assumes any responsibility for the accuracy or completeness of such information as provided. No representation is made or assurance given that any statements made, views, projections or forecasts are correct or that objectives will be achieved. Lindsell Train and/or persons connected with it may have an interest in the Fund. The value of investments and the income from them may go down as well as up and are not guaranteed. Past performance is no guarantee of future performance. You may not get back the amount you invested. Foreign exchange rates may cause the value of investments to go up or down. Investments may be subject to higher volatility in certain funds and the investment value may fall suddenly and substantially. Lindsell Train Limited 35 Thurloe Street, London SW7 2LQ Tel. +44 20 7225 6400 Fax. +44 20 7225 6499 info@lindselltrain.com www.lindselltrain.com Lindsell Train Limited is regulated by the FSA. -------------------------------------------------------------------------------- This information is provided by RNS The company news service from the London Stock Exchange
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