Common use of Investment trusts Clause in Contracts

Investment trusts. An investment trust is a company that is listed on the London Stock Exchange and that has been formed for the purposes of investing in shares (and which, therefore, gives its investors the opportunity to invest in shares on a pooled basis). In that respect, they are similar to open-ended collective investment schemes (see the “Collective Investment Schemes” section below) but, unlike an open-ended collective investment scheme, an investment trust is closed-ended. This means there are a set number of shares available, and (in the absence of a formal increase in capital) this will remain the same no matter how many investors there are. The price of the investment trust shares depends on two main factors:  the value of the underlying investments (in this respect it works in the same way as open- ended collective investment schemes); and  the popularity (or unpopularity) of the investment trust shares in the market. The second factor is relevant because an investment trust is closed-ended – it has (in the absence of new issues) a fixed number of shares. The laws of economics say that if there is a high demand for something, but limited supply, then the price goes up. So, if you own some investment trust shares and there are lots of people who want to buy them, then you can sell them for more money. On the other hand, if nobody seems to want them, then you will have to drop the price until someone is prepared to buy. The result is that investment trust shares do not simply reflect the value of the underlying investments, they also reflect their demand in the market. This feature may make them more volatile than other pooled investments (such as open ended collective investment schemes) assuming the same underlying investments. Investment trusts can borrow money to invest. This is called gearing. Gearing improves a trust's performance when its investments are doing well. On the other hand, if its investments do not do as well as expected, gearing lowers performance. An investment trust that is geared is a higher risk investment than one which is not geared (assuming the same underlying investments). Venture Capital Trusts Venture capital trusts (“VCT”s) were introduced by the UK government in 1995 to encourage investment in smaller unquoted companies. They provide a source of capital for small companies and help the UK economy to develop. A VCT is a company, run by a fund manager, which invests in other companies that are not quoted on a stock exchange but may be listed on the Alternative Investment Market (AIM). VCTs themselves are listed on the London Stock Exchange, with strict limits laid down by HM Revenue and Customs on the assets in which they can invest. There are tax advantages offered to UK investors in new VCTs. However, they are complex products which carry a certain level of risk. VCTs should be considered as long- term investments and it is important that you understand the risks before investing in them, which are:  there may be a limited secondary market for shares – this may make them hard to sell. To partially address this issue, some VCT managers offer a buy back facility, normally at a discount to the net asset value.  VCTs are designed to provide capital for small companies and each VCT will invest in a number of companies. There is a risk that these companies may not perform as hoped and in some circumstances may fail completely.  typically, those of the VCT’s assets that are (in accordance with the limits referred to above) not invested in venture capital investments, are invested in money market securities/gilts/cash deposits etc. Some, however, invest part of these assets in more risky investment vehicles which may raise the overall risk profile of the fund still further.  if certain criteria are not met, the initial tax advantages might be withdrawn.  the levels of charges for VCTs may be greater than for other investments, and you may also be charged performance fees.  as with any asset-backed investment, the value of a VCT depends on the performance of the underlying assets, so you may get back less than you originally invested, even taking into account the tax breaks (if applicable).

Investment trusts. An investment trust is a company that is listed on the London Stock Exchange and that has been formed for the purposes of investing in shares (and which, therefore, gives its investors the opportunity to invest in shares on a pooled basis). In that respect, they are similar to open-ended collective investment schemes (see the “Collective Investment Schemes” section below) but, unlike an open-ended collective investment scheme, an investment trust is closed-ended. This means there are a set number of shares available, and (in the absence of a formal increase in capital) this will remain the same no matter how many investors there are. The price of the investment trust shares depends on two main factors:  − the value of the underlying investments (in this respect it works in the same way as open- ended collective investment schemes); and  − the popularity (or unpopularity) of the investment trust shares in the market. The second factor is relevant because an investment trust is closed-ended – it has (in the absence of new issues) a fixed number of shares. The laws of economics say that if there is a high demand for something, but limited supply, then the price goes up. So, if you own some investment trust shares and there are lots of people who want to buy them, then you can sell them for more money. On the other hand, if nobody seems to want them, then you will have to drop the price until someone is prepared to buy. The result is that investment trust shares do not simply reflect the value of the underlying investments, they also reflect their demand in the market. This feature may make them more volatile than other pooled investments (such as open ended collective investment schemes) assuming the same underlying investments. Investment trusts can borrow money to invest. This is called gearing. Gearing improves a trust's performance when its investments are doing well. On the other hand, if its investments do not do as well as expected, gearing lowers performance. An investment trust that is geared is a higher risk investment than one which is not geared (assuming the same underlying investments). Venture Capital Trusts Venture capital trusts (“VCT”s) were introduced by the UK government in 1995 to encourage investment in smaller unquoted companies. They provide a source of capital for small companies and help the UK economy to develop. A VCT is a company, run by a fund manager, which invests in other companies that are not quoted on a stock exchange but may be listed on the Alternative Investment Market (AIM). Page 62 of 141 VCTs themselves are listed on the London Stock Exchange, with strict limits laid down by HM Revenue and Customs on the assets in which they can invest. There are tax advantages offered to UK investors in new VCTs. However, they are complex products which carry a certain level of risk. VCTs should be considered as long- term investments and it is important that you understand the risks before investing in them, which are:  − there may be a limited secondary market for shares – this may make them hard to sell. To partially address this issue, some VCT managers offer a buy back facility, normally at a discount to the net asset value.  − VCTs are designed to provide capital for small companies and each VCT will invest in a number of companies. There is a risk that these companies may not perform as hoped and in some circumstances may fail completely.  − typically, those of the VCT’s assets that are (in accordance with the limits referred to above) not invested in venture capital investments, are invested in money market securities/gilts/cash deposits etc. Some, however, invest part of these assets in more risky investment vehicles which may raise the overall risk profile of the fund still further.  − if certain criteria are not met, the initial tax advantages might be withdrawn.  − the levels of charges for VCTs may be greater than for other investments, and you may also be charged performance fees.  − as with any asset-backed investment, the value of a VCT depends on the performance of the underlying assets, so you may get back less than you originally invested, even taking into account the tax breaks (if applicable).