Select Committee on Treasury Minutes of Evidence

Annex B (continued)

The Media and Income Trust PLC and Media Zeros PLC


June 2002


  The Group's investment objectives are to provide capital growth to repay Zero holders their full final capital entitlements, to provide Preferred Income Shareholders with growth to cover their predetermined capital entitlement and to provide them with an attractive income yield, with the opportunity for income growth and to provide Ordinary Sharholders with the potential for geared capital growth from the Group's investment portfolio as well as a high level of income with the opportunity of income growth.


  May was a mixed month for global media stocks, as better sector fundamental news in the US was offset by poor sentiment in the broader markets on the back of geopolitical concerns. Media, as a high beta sector, is vulnerable to the vicissitudes of the broader market despite a brighter intra-sector backdrop. Accordingly, the Dow Jones Stoxx 600 Media Index fell 4.1 per cent in local currency (down 1.2 per cent in Sterling terms) whilst the Bloomberg US Media Index rose 1.9 per cent in local currency (up 1.8 per cent in Sterling terms).

  The US media sector is providing the lead in terms of evidence of the beginnings of an advertising recovery. This is to be expected as the US led the sector into the advertising recession. Again, as would be expected, the sub-sectors that fell first, also appear to be recovering earliest. US radio, followed by network TV, and most recently, by billboard have all shown encouraging signs. The all-important "upfront" advertising negotiations for the year ahead went surprisingly well. As one commentator put it, "the buyers blinked first". As such, CPMs look 10 per cent higher than last year. Particular strength has been seen from auto, wireless and entertainment/movie buyers. Clear Channel, the radio and billboard group, reported a very encouraging set of Q1 figures.

  In Europe, the main development over the months was the release of the draft Communications Bill in the UK. This was surprising in its breadth of proposed changes to legislation, including allowing; joint ownership of national radio and TV licenses; joint ownership of regional TV and local radio licenses in the same area; ownership of C5 by newspaper publishers with >20 per cent of the national newspaper market. This removes all foreign ownership and cross-media restrictions on ownership, and effectively makes all UK radio companies, and the ITV companies, potential acquisition targets for international groups looking to diversify, or gain a foothold in Europe.

  In the short-term, the sector remains vulnerable to sentiment in the broader market. Geopolitical risk remains the key concern, and the sector would be clearly hit hard by further terrorist attacks, or war in the Middle East. These events are, by their nature, unforecastable, and as such we must continue to focus on the sectors fundamentals. On this basis, we see nothing that suggests that this is an atypical cycle. Advertising is a cyclical beast, and macro data and newsflow from the companies themselves, suggests that some recovery is being witnessed from the depressed levels of last year. Whilst we do not predict a "boom" recovery, we think the market is being too negative in its estimation of the effect of operational leverage on the earnings profile of cyclical companies in the sector. Just as earnings collapsed for these companies when advertising slumped, so they should see a good upswing, even on a relatively modest recovery. The exceptions are the advertising agencies, which owing to the fee-based nature of their business were somewhat protected on the downside, but equally should not benefit on the upside to the same extent as their more leveraged companies, the media owners.

The Technology and Income Trust Limited


August 2002


  The investment objective is to provide Income Shareholders with a preferred income and capital entitlement and to provide Ordinary Shareholders with a high income and the potential for capital growth from a portfolio invested in a combination of shares in companies involved in technology sector and preference, fixed interest and other high yielding securities.

  On 3 December 2001 the Technology and Income Trust Ltd made a recommended offer for the entire share capital of European Technology and Income Trust. The offers were declared unconditional in all respects subject to admission. Following admission of the New Securities issed in connection with the Offers made for The European Technology and Income Company Limited and the Placings, the Company has repaid £54.5 million of its loans from Bank of Scotland.


    —  Gilts strong particularly shorter maturities

    —  High yield bonds weak

    —  Sterling strong

    —  Income shares collapse

  An extraordinary month in the securities markets with extreme volatility in equity markets and a flight to quality in bond markets. Gilts were notably strong in shorter dates as a continuation of historically low base rates seems more likely despite the buoyancy of the housing market. Investment grade corporate bonds were more subdued not matching the gilt strength and displaying volatility on company specific news. High yield bonds were generally very nervous on worries about the overall economic background. In currency markets sterling was surprisingly strong gaining nearly 2 per cent versus the dollar and over 3 per cent versus the euro.

  Equities were very weak and volatile in the absence of serious buying interest. Over the month the FTSE 100 Index lost nearly 9 per cent, however the fall was nearly 20 per cent at one stage before a late rally. Income shares in the troubled split capital sector could find no support in the face of the poor market background and actual insolvency of a number of trusts.

  The market continued its downward trend in July, the Nasdaq Composite Index falling 9.2 per cent in US dollar terms but 11.3 per cent in sterling terms, as the US dollar weakened substantially during the month. The market has become unnerved because of a number of issues highlighted below.

  Firstly the US consumer, who up until now has proved relatively resilient, is indicating some nervousness as evidenced by poor consumer confidence statistics. Also, GDP for the second quarter came in at 1.1 per cent YoY, well below the expected value of 2.3 per cent, whilst prior GDP estimates were also substantially reduced. Accounting issues continue to plague the market, whilst there is a growing acceptance that US stock options will have to be expensed in some form, which would have negative effect on reported earnings.

  In terms of company specific news, Taiwan Semiconductor have cut their capital expenditure plans by 20 per cent. This was partly due to a big decline in volumes from their largest customer Nvidia, but also due to a more general malaise in the semiconductor market, where utilisation rates have fallen to around 75 per cent. The company is regarded as a proxy for the industry, and the reduction in their spending plans took its toll on semiconductor equipment vendors who were amongst the worst performers of the month.

  On a positive note, having shunned technology stocks, Warren Buffett has invested $500 million in Level 3 Communications, a telecom services provider. The cash injection has enabled Level 3 to make an offer to buy competitor Williams Communications. This consolidation is an encouraging sign and hopefully there will be more M&A from the technology sector, and an interesting call from a deep value investor.

  The bulk of US companies reported second quarter earnings during July. These were largely in line with expectations, but guidance for next quarter (which is seasonally weak) has been cautious, whilst few companies have been willing to project estimates for 2003. The gaming sector which includes Activision, Electronic Arts, Sony & Nintendo have remained resilient, whilst the storage stocks have also guided relatively positively, indicating that there are potential opportunities for the patient, long-term investor.

St. David's Investment Trust PLC


August 2002


  The St. David's Investment Trust PLC aims to provide high quarterly income with potential for capital and income growth principally through investment in UK blue-chip and investment trust income shares and euro denominated securities.


  Following poor performance in June, the stockmarket continued in its downward trend in July posting a further negative total return of—10.4 per cent. Fears that US economic recovery was faltering, amidst the concerns of poor accounting practices hit investor confidence sharply.

  For the first time in a long while Telecom Services outperformed the markets, largely owing to the continued rotational sector selling. Insurance stocks remained weak on fears of weak solvency ratios and mining stocks in particular fell sharply on fears of a future divestment of South African assets in support of Black Empowerment.

  During the month, your Board continued discussions with its bankers who have been very supportive of the Company during the latest stockmarket falls. It has been agreed that the St. David's Trust will repay debt to the value of £30 million thus reducing the gearing of the Company. St. David's shareholders should be aware that, currently, as a result of the decline in the portfolio asset values and the level of bank debt and associated swap breakage costs, particularly since 31 May 2002, the Company's Zero Dividend Preference Shares 2003, Zero Dividend Preference Shares 2008 and Preferred Annuity Shares do not have any value attributable to them.

Jove Investment Trust PLC


August 2002


  The aim of the Company is to achieve a long-term capital and income growth from a portfolio of high yielding securities.


  A split-capital trust. The ZDPs are entitled to a fixed rate of growth whereby the asset value of 50p per ZDP rises by monthly increments to 100p at redemption on 1 November 2004. Income shareholders are entitled to all the available income and to repayment of 50p/sh after the repayment of the ZDP, plus retained earnings when the Company is wound up. Capital shareholders get the remaining assets. A Geared Equity Unit comprises one income share and one capital share. The Capital shares currently have an NAV per share of 0p, and the Income share asset value per share is also 0p.


  July was another weak month for UK Equities, with the FTSE All Share index falling by 9.2 per cent on the month. Concern over global liquidity, US corporate governance and fears over double dip recession in the US were behind this weakness. Within the market capitalisation ranges of the UK equity market, blue chip stocks outperformed both Mid Cap and Small Cap indices.

  In general, defensive sectors outperformed and those companies more exposed to global economic growth struggled. The most striking performance of the month was the resurgence of the telecommunications sector. The banking sector performed better through the month, reflecting strong yield attractions and relative profit security. Industrial stocks continued to suffer from ongoing sterling strength.

  The UK yields fell through July with the curve exhibiting a bull steepening at the short end over the coure of the month. The yield on the 2 year Gilt ended the month at 4.044 per cent whereas the yield on the 10 Gilt ended the month at 4.852 per cent. The 2's to 30's yield spread increased from +10bp to +70bp over the course of the month.

  The continued weakness in split capital markets during July has seen a further deterioration in performance of the sector. This has led to a number of trusts with assets of close to or less than their debt. In this situation a number of investment trust boards have decided to suspend the trading in their shares. The sector has continued to see dividend cuts/suspensions and repayments of debt. Liquidity is very limited and sentiment very negative.

Allocation of Expenses and Interest at 31 July 2002

Capital %
Revenue %


Capital Structure at 31 July 2002

Income shares25,487,543
Capital shares25,487,543
Zero Dividend Preference shares16,991,695
Geared Equity Units*[11,327,796]

* Comprising one Income and one Capital share.

Source: Aberdeen Asset Managers Ltd.

Year end28 February
Accounts publishedJune
Annual General MeetingJune
Dividend paidn/a
Launch dateJanuary 1972
Winding up dateNovember 2004
SEAQ Page51526 cap
SEAQ Page51527 inc
SEAQ Page51531 geared unit
SEAQ Page48168 zdp
Topic page21332/21333/111
Reuters/Bloomberg CodeJOVC/JOVI/JOVU/JOVZS
tockbrokerOld Mutual

  The following announcement was declared to the Stock Exchange on 14 March 2002.

  As anticipated in the Chairman's Statement with the Annual Report and Financial Statements dated 4 May 2001 the Board of Jove Investment Trust plc has declared a ninth interim dividend for the year ended 28 February 2002 of 1p per income share. It is not the Board's intention to recommend any further dividend for that year. The total of the nine interim dividends paid is 11p per income share (year to 28 February 2001: the same).

  The ninth interim dividend will be paid on 25 May 2002 to shareholders on the register at the record date of 22 March 2002 (with a provisional ex-dividend date of 20 March 2002).

  Due to the unusual uncertainty of the amount of income likely to be received from the Company's portfolio in the current year just begun, the directors have decided to revert to the payment of quarterly dividends with effect from 1 March 2002. The first quarterly dividend payable for the current year to 28 February 2003 will therefore be declared in August 2002. The Board will be reviewing the level of dividend distribution for the year ending 28 February 2003 in the light of the circumstances at that time.

  It is the intention of the Board to distribute available earnings and the Company's revenue reserves over the period until the planned wind-up date of the Company in November 2004.

  The following announcement was declared to the stock exchange on 28 June 2002.

  The Board of Jove Investment Trust PLC was today (28 June 2002) declared a first interim dividend for the quarter ended 31 May 2002 in respect of the year ending 2003 of 1p net per income share. The fund interim dividend will have a record date of 12 August 2002 and will be paid on 31 August 2002 to shareholders on the registration at record date.

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Prepared 17 October 2002