Final Results

NEW STAR INVESTMENT TRUST PLC PRELIMINARY ANNOUNCEMENT OF ANNUAL RESULTS The Directors announce the unaudited statement of consolidated results for the year ended 30 June 2003 as follows: CONSOLIDATED STATEMENT OF TOTAL RETURN * (incorporating the revenue account) of the Group Year ended Year ended 30 June 2003 30 June 2002 Revenue Capital Total Revenue Capital Total £'000 £'000 £'000 £'000 £'000 £'000 Losses on investments - (4,947) (4,947) - (12,400) (12,400) Dividend and interest 730 - 730 2,643 - 2,643 income Losses on index futures contracts - (905) (905) - (2,791) (2,791) Investment management (180) - (180) (520) - (520) fees Other expenses (310) - (310) (398) - (398) Other exchange - (9) (9) - 17 17 (losses)/gains Return on ordinary activities before finance costs 240 (5,861) (5,621) 1,725 (15,174) (13,449) and taxation Interest payable and similar charges (9) - (9) - - Return on ordinary activities before taxation 231 (5,861) (5,630) 1,725 (15,174) (13,449) Taxation on ordinary (57) - (57) (424) (135) (559) activities Return on ordinary activities after taxation 174 (5,861) (5,687) 1,301 (15,309) (14,008) Dividends proposed in respect of equity shares (121) - (121) (1,977) - (1,977) Transfer to/(from) 53 (5,861) (5,808) (676) (15,309) (15,985) reserves * The revenue column of this statement is the consolidated Revenue Account of the Group. pence pence pence pence pence pence Return per ordinary 0.22 (7.31) (7.09) 1.18 (13.94) (12.76) share CONSOLIDATED BALANCE SHEET 30 June 2003 30 June 2002 £'000 £'000 Fixed assets Investments 54,363 89,210 Current assets Debtors 269 2,266 Cash at bank 747 2,985 1,016 5,251 Creditors: amounts falling due within one year (243) (2,747) Net current assets 773 2,504 Total assets less current 55,136 91,714 liabilities Capital and reserves: Called up share capital 710 1,098 Share premium account 21,573 21,573 Capital reserve (24,194) (18,333) Special reserve 56,908 87,290 Revenue reserve 139 86 Equity shareholders' funds 55,136 91,714 Net asset value per share Ordinary shares 77.63p 83.51p CONSOLIDATED STATEMENT OF CASHFLOWS Year ended Year ended 30 June 2003 30 June 2002 £'000 £'000 Net cash inflow from operating 1,875 481 activities Servicing of finance Interest paid (9) - Taxation Taxation paid (574) (341) Capital expenditure and financial investment Purchase of investments (5,652) (45,105) Disposal of investments 35,803 52,494 Losses on index futures contracts (905) (2,791) Revaluation of foreign currency (9) 17 Exchange losses on settlements (20) (64) Net cash inflow from capital 29,217 4,551 expenditure and financial investment Equity dividends paid (1,977) (2,416) Net cash inflow before financing 28,532 2,275 Financing Redemption of shares (30,770) - Net cash outflow from financing (30,770) - (Decrease)/increase in cash (2,238) 2,275 Returns per share The Group net revenue on ordinary activities after taxation amounted to £ 174,000 (2002: £1,301,000). The basic revenue return per Ordinary share is based on this figure and a total of 80,164,748 (2002: 109,820,026) shares, being the weighted average number of Ordinary shares in issue during the year. The capital return per Ordinary share is based on net capital losses for the year of £5,861,000 (2002: £15,309,000) and on 80,164,748 (2002: 109,820,026) shares, being the weighted average number of Ordinary shares in issue during the year. Dividend The Directors have declared a final dividend of 0.17p net (2002: interim dividend of 1.8p) per Ordinary share payable on 25 November 2003 to shareholders on the register at the close of business on 24 October 2003. The ex-dividend date is 22 October 2003. Net asset value per share The net asset value per share of 77.63p (2002: 83.51p) has been calculated by reference to net assets of £55,136,000 (2002: £91,714,000) and 71,023,695 (2002: 109,820,026) Ordinary shares, being the number of shares in issue at the end of the year. The above financial information for the year ended 30 June 2003 does not constitute statutory accounts as defined in Section 240 of the Companies Act 1985. This preliminary statement of results has been agreed with our auditors, Ernst & Young LLP. The comparative financial information is based on the statutory financial statements for the year ended 30 June 2002. Those financial statements, upon which the auditors issued an unqualified opinion, have been delivered to the Registrar of Companies. Statutory financial statements for the year ended 30 June 2003 will be delivered to the Registrar. The annual report will be sent to shareholders in October and will be available to members of the public from the Registered Office at 23 Cathedral Yard, Exeter EX1 1HB. The Annual General Meeting of the Company will be held on 19 November 2003 at 12 noon at 1 Knightsbridge Green, London SW1X 7NE. CHAIRMAN'S STATEMENT The total assets of your Company, after adjusting for the reconstruction in September 2002, fell by 7.0% to £55.1 million during the year to 30 June 2003. The net asset value per Ordinary share fell by 7.0%. This compares with a 12.9% fall in the FTSE All-Share Index over the same period. Since inception in May 2000 the net asset value has fallen 22.4% against a 34.8% fall in the FTSE All-Share Index. This out-performance was achieved initially by having a high weighting of gilts in the portfolio, reflecting a cautious stance. More recently your Company has been more fully exposed to global stock markets by investment in individual equities, mutual funds and hedge funds. Net revenue for the year under review was £174,000, which compares with £ 1,301,000 during the previous year. Your Directors are recommending the payment of a final dividend of 0.17p net per Ordinary share (interim dividend of 1.8p in 2002). This dividend should not be taken as indicative of future dividends as dividends do not play a central role in your Company's investment strategy. At the start of the year under review, the London stock market was experiencing weakness in response to a series of US corporate scandals. Share prices fell further during the summer and early autumn on fears of a double-dip US recession and concerns about the developing Iraq crisis. Despite a small rally briefly in October and November, share prices fell sharply from December and reached a new bear market low in March amid the confusion that preceded the Iraq war. As it became clear, however, that the US-led coalition was heading towards a swift victory, equity markets rallied and continued to recover in the late spring and early summer. By 30 June the FTSE All-Share Index had recovered 23.7% from its trough. In response to lacklustre economic growth and fears that Germany and the US might join Japan in deflation, the world's leading central banks cut interest rates in late 2002 and in the first half of 2003. While there was little evidence that such monetary loosening was having an immediate impact on the real economy, it did reawaken investors' appetite for risk and during the three months to June corporate bonds out-performed government bonds. Small and medium-sized companies also outperformed larger companies while sectors such as information technology, having experienced sharp falls during the bear market, out-performed defensive sectors. After nervousness over deflation fears in early 2003, investors grew more confident at the end of the period that stronger economic growth would resume in the second half of the year. Broad money growth had accelerated, government spending was rising, UK companies' finances had improved and exporters were benefiting from an exchange rate below its average for 2002. There were fears that consumers, who kept the economy growing during the long decline in capital investment, might curtail spending sufficiently to bring growth to a halt. Consumer confidence did, however, start to revive towards the end of the period amid expectations that interest rates would remain low for some time. In addition, the recovery in corporate finances suggested a shift from retrenchment to mild expansion and job creation while public sector employment continued to grow. After such a rapid rally, equities may be subject to some profit taking. The improving economic and geopolitical environment does, however, suggest that the recovery from the low point in March should be sustained in the medium term. The unaudited net asset value of your Company at 30 September 2003 was 84.7p. John L Duffield Chairman INVESTMENT MANAGER'S REPORT Equity investors suffered mixed returns in the year to 30 June 2003. In the United Kingdom, the FTSE All-Share Index fell 12.9% and Continental European markets, as measured by the FTSE Europe ex UK Index, fell 20.1%. In the US, however, the Standard & Poor's Composite fell just 1.5% and the technology-heavy Nasdaq Composite rose 10.9%. The most significant influences on markets during the year were the fears that the US would enter a double-dip recession and the developing crisis over Iraq. The low point for UK and mainland European equities came on 12 March as differences emerged between the US and the UK on one side and France and Germany on the other over the means of dealing with Saddam Hussein. At that point the FTSE All-Share Index was standing 52.6% below its peak, reached on 31 December 1999. This decline was greater than during the 1987 bear market although not as extreme as the mid-1970s decline. The speed and ease with which the US led coalition conquered Iraq proved a turning point, however, and shares moved higher in the final three months of the year under review amid expectations that economic growth would pick up after the anaemic activity levels experienced in the six months to June. One reason for expectations of firmer economic growth was the activist approach taken by the world's central banks, led by the US Federal Reserve, amid concerns that the US and Germany could follow Japan into deflation. The Fed reduced interest rates by half a percentage point in November to 1.25% and cut again to 1% in June. At the same time, the US authorities' deliberate neglect of the dollar put pressure on the European Central Bank to cut rates despite the persistence of inflation in parts of the Continent. ECB rates were cut three times during the period, taking them down from 3.25% to 2%. In the UK, base rates were reduced by a quarter percentage point in February 2003 and by a further quarter point shortly after the year end to leave rates at 3.5%, their lowest level since 1955. Such cuts were made to boost industrial confidence despite the fact that underlying inflation, excluding mortgage interest, rose from 1.5% in June 2002 to 2.8% a year later, having spent more than half the period at above the Bank of England's 2.5% target rate. During the year under review the sector trends that had characterised the bear market, with basic industries and services out-performing the new economy areas of technology, media and telecommunications, began to unwind. The FTSE Techmark Index did better than the overall market, falling only 10.8%, while telecom services was the strongest out-performer among the big sectors, rising 16.8%. Software and computer services, down 12.4%, also marginally out-performed after a sharp rally in the final quarter. Among the losers, steel fell 82.1% as a result of the crisis at Corus, the Anglo-Dutch group, while fears about civil aviation prospects left aerospace and defence down 35.2% and Imperial Chemical Industries' problems led chemicals to fall by 29%. Small and medium-sized companies did best as a result of strong out-performance in the final quarter as investors recovered their appetite for risk. The FTSE Small Cap Index fell 9.1%, the FTSE mid 250 Index fell 9.7% but the heavyweight FTSE 100 Index fell 13.4%, over the period under review. Your Company's strategy continues to be to invest in undervalued listed companies but mainly in pooled funds and hedge funds managed by New Star Asset Management. During the year under review, positive returns were produced from holdings in hedge funds such as the New Star Hedge Fund and the New Star European Hedge Fund. Pooled fund holdings that produced gains included the New Star Select Opportunities Fund, which achieved top decile returns within its sector, and the New Star Global Financials Fund. During the year additional shares were purchased in the Global Financials Fund as was a holding in the New Star Convertible Opportunities Hedge Fund. Among individual stocks, strong performers included Abbey National in banking, Granada in media and ebookers, the online travel agency, where a holding was acquired during the year, while a profit was taken on Amersham, the healthcare company. At the year-end, 19% of the portfolio was invested in UK equities, 26% in hedge funds, 48% in pooled funds, 5% in unlisted securities and 2% in cash. Even after the rally that followed the Iraq victory equities in the UK, mainland Europe and the Far East still remained modestly valued at the end of the year under review. In the UK, price earnings multiples were below their long term averages and dividend yields remained relatively high despite the low inflation, low interest rate environment and the fact that the earnings of cyclical companies were at bottom-of-the-cycle levels. A particular indicator of value was the increasing venture capitalist interest in taking public companies private. Such interest and a growing appetite among investors for risk should underpin share values and lead to further growth in your Company's net asset value as evidence builds of economic recovery. New Star Asset Management 16 October 2003

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