Monthly Update October 2002

Lindsell Train Investment Trust PLC
13 November 2002

The Lindsell Train Investment Trust PLC
As at 31st October 2002

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.

Share Price                            GBP 93.00
Net Asset Value                        GBP 94.10
Discount (Premium)                          1.2%
Market Capitalisation                 GBP 18.6mn

Source: Bloomberg; NAV - LTL

Performance
(based in GBP)                   Oct          Sep          Aug          YTD        Since Launch
NAV                             -1.7%        -1.1%        +3.6%        -8.8%          -5.9%
Share Price                     +4.5%        -2.7%        -5.2%        -21.5%         -7.0%
Source: Bloomberg. Based in GBP.


Top 10 Holdings                                     Industry Breakdown
                                       % NAV                                               % NAV
US Gov Treasury 6.25%                  15.5         Bonds                                  37.1
Lindsell Train Japan (Dist)            13.0         Preference Shares                      13.1
Lindsell Train Global Media (Dist)     12.5         Media                                   7.6
US Gov Treasury IL 3.875%               9.0         Banks & Investment Co.                  7.0
HBOS 6.125% Non Cum                     7.6         Leisure & Tourism                       7.5
21/2% Consolidated Loan Stock           7.1         Food & Beverage                        16.3
Cadbury Schweppes                       5.9         Investment Fund                        25.5
UK Treasury 2.5%                        5.5         Cash & Equivalent                     (14.1)
HBOS 9.25% Non Cum                      5.5         Total                                  100.0
Barr (AG)                               5.4

Geographical Breakdown                              Currency Exposure
                                         % NAV                                           % NAV
Bonds                                    37.1       USD                                   53.0
                 UK              12.6               JPY                                  (0.2)
                 US              24.4               EUR                                   2.2
Preference                               13.1       GBP                                   45.0
Shares                                   38.4       Total                                100.0
Equities         UK              28.7
                 US               3.9
                 Japan            3.6
                 Europe           2.2
                                         25.5
Funds            LT Japan        13.0
                 LT Global Media 12.5
                                        (14.1)
Cash &
Equivalent
Total                                    100.0



Fund Manager's Comments

Earlier this month we added to our position in Nintendo. At the end of the month
our direct holding in the stock was 3.8% of NAV. Our effective exposure to it
was higher at 5.3% when we include, on a see-through basis, the weightings held
in the stock by both the Lindsell Train funds. This makes it our second biggest
equity holding and underlines the strategic importance of the position for the
Fund. As the stock has fallen by 49% this year, allowing us to accumulate these
positions, it is worth reviewing the investment case for it in some detail.
Nintendo's business is the creation of imaginative and amusing games that are
fun to play. They have been in this business for longer than you think 113
years. At the time they specialised in card games. Today they specialise in
video games played on consoles, Game Boy Advance (a hand-held device) and Game
Cube (plugged into the TV). This console 'hardware' is commissioned by Nintendo
but produced by others. Nintendo has no factories, manufacturing labour and no
costly capital expenditure. In fact Nintendo only employs 3,067 people
worldwide. Nintendo's value added is in producing the 'software', the games
themselves, which are sold as cartridges or compact discs and are played using
the hardware. Nintendo's creative team has an enviable record of developing some
of the best selling software in the industry. Most of the software is developed
around cartoon characters such as 'Mario' or 'Pokemon' whose allure and
recognition have created a following amongst game players that serves to
perpetuate and reinforce sales though customer loyalty. Developing game software
can be highly profitable if a sufficient number of games are sold. Development
and marketing costs are fixed and CD production costs are variable but a small
proportion of the revenues. Almost all other game software companies stick to
producing software for consoles sold by Nintendo, Sony (Playstation 1 or 2) or
Microsoft (XBox). For this they pay a hefty royalty to the consol maker which
adds to their costs and reduces their profitably. Average operating profit
margins for these companies (US and Japanese averaged over the last 10 years) is
less than 10% versus 23% for Nintendo.
The reason why Nintendo's share price has fallen so much this year relates to
concern about the sales of the Game Cube hardware and software. At the moment
Nintendo has sold approximately 7m Game Cube consoles, approximately the same as
Xbox and only one seventh of Sony's approximately 35mn Playstation 2's (Sony had
a 1 year head start). Being so far behind the market leader not only limits
sales of Nintendo software, as it can only be played on Nintendo hardware, but
also reduces the potential for royalties from other software companies whose
development activities are inevitably orientated towards the platform with the
larger installed base. We think that these concerns are misplaced and are giving
us a good opportunity to buy the shares at unusually cheap prices. We do not
think its necessary for Nintendo to dominate the consol market to succeed as a
business. After all the company made more money than Sony with its sales of the
old consol (N64) despite having a third of its market share. Importantly
Nintendo monopolises the hand held market with Game Boy Advance, which provides
the company with the richest stream of earnings from any of its products. We
would expect Nintendo to view Game Cube as a success so long as it outsold N64's
32mn units. It is early days and we may yet see evidence that Nintendo's
creative software itself generates further sales of hardware as has occurred in
the past.
If it becomes obvious that Nintendo will fail to achieve this target the company
may withdraw from the consol market choosing instead to develop software for
other platforms. This is because hardware, in its broadest sense just
facilitates distribution. Ultimately Nintendo does not need it. Without it the
company would not make the same high margins (as Nintendo would have to pay
royalties to another console maker) but if overall profits were higher because
Nintendo products were available to a far wider customer base using alternative
distribution channels the management are bound to consider it. Cost of
withdrawal would amount to writing off existing inventory (probably minimal) and
writing off any development costs for the next generation consol. As planning
for this will begin most likely in 2003/2004 the company will be forced to
assess the success or other wise of the consol platform at that point.
What really makes a difference for this company is its ability to generate
successful software. In our analysis we consider this to be the case and believe
that Nintendo has the capacity to continue to grow with the industry whatever
the outcome discussed above. Even without growth the stock is cheap. The average
free cash flow, subtracting interest earned from its cash pile, over the last 10
years was Y473. The share price was at the end of October Y11,800, of which
approximately Y6,650 was represented by cash in the balance sheet, leaving the
operating business worth Y5,150. Hence Nintendo trades on a 9% free cash flow
yield, which is a highly attractive valuation anywhere in the world let alone in
Japan where the discount rate tends to be lower. We might expect Nintendo to
trade at a lower free cash flow yield than the bond given its growth
characteristics, which could conservatively triple or more the value of the
operating business.
The analysis of Nintendo would not be complete without some discussion about the
cash pile. It will soon amount to Y1tn. Last year it generated returns of
approximately 2.5% p.a. yet the operating business returned 21%. Overall
investor's returns are constrained because of it, especially return on equity
that has fallen from 22% in 1993 to 11% today. In reality the Company will
always retain some cash in order to have the ready resources to drawn upon in
the event of new innovations threatening its business. The rest is surplus to
requirements. We suspect that the management is debating how best to deploy its
surplus cash. One convenient way would be to use it to buy their own shares held
by commercial banks as cross-shareholdings. If they were then cancelled it would
be highly accretive to shareholders and would substantially boost ongoing
investor returns. In due course the management will be forced to show their hand
as the problem will not go away. If they manage this as well as they have their
operating business over the last 20 years it should be worth waiting for.


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 on the 2
                                    Payment:   August                               1/2% Consolidated Loan Stock.
Sedol No                            Bloomberg
3001710                             LTI LN
The Board                           Management Fees                                 Registered Address
Rhoddy Swire                        Standard Fee: 0.65% p.a.                        Lindsell Train Investment Trust
Michael Mackenzie                   Performance Fee: 10% of annual                  77A High Street
Donald Adamson                      increase in the share price, plus dividend,     Brentwood
Michael Lindsell                    above the gross annual yield of                 ESSEX  DM14 4RR
                                    the 21/2% Consolidated Loan Stock.

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. [phone]  Fax. [phone]
                 [e-mail]  www.lindselltrain.com

                Lindsell Train Limited is regulated by the FSA.

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