Zeros can be particularly attractive for investors who do not
generally utilise their annual CGT allowances (£10,600 for 2011/12
tax year), since it will often be possible to obtain the return
'tax free'.
- AITC
-
The Association of Investment Trust Companies.
- Banking Covenant
-
Loan agreement between the investment trust and bank stipulating
the terms of the loan. It will generally impose some conditions on
the maximum permitted gearing.
- Bid Price
-
The price at which you can sell shares.
- Bid/Offer Spread
-
The difference between the bid and the offer price.
- Capital Cover
-
A measure of the capability of the underlying assets to meet the
redemption price of the zeros at any particular time (net assets of
the trust available to repay the zeros divided by the cost of
redeeming the zeros). Capital cover of less than 1 means that the
zeros are uncovered.
- Capital Shares
-
In a split-capital trust, the shares which receive little or no
income throughout the life of the company but which are entitled to
the benefit of all, or most, of the capitals appreciation on the
trust's portfolio once any other shares have been redeemed.
- Cover
-
See Capital Cover.
- Dual Capital Trust
-
Another term for a split-capital trust. Also can be referred to
as a Dual Purpose Trust.
- Geared Ordinary Shares
-
Class of share in a split-cap investment trust that combines the
merits of both Income and Capital Shares.
- Gearing
-
Level of borrowing in the underlying trust relative to total
assets.
- Hurdle Rate
-
The hurdle rate is the rate of growth required by the portfolio
in order for the zeros to be redeemed in full. Must take into
account any class of capital which holds a prior call on the assets
such as a bank loan and future management costs.
- Income Shares
-
The class of shares which is entitled to receive all or most of
the trust's income earned on the portfolio throughout the life of
the company plus a predetermined capital value on wind up.
- Leverage
-
US term for gearing becoming more popular in the
UK.
- Maturity Date
-
See Redemption Date
- Maximum Gearing
-
Amount of allowable debt in a trust as stipulated by the
Articles of Association.
- Offer Price
-
The price per share paid when purchasing an investment.
- Prior Charges
-
Any liabilities due to be paid before the zero dividend
preference shares have any call on the trust's assets.
- Redemption Date
-
The predetermined date upon which the zero will return the
redemption price. Also called the maturity date.
- Redemption Price
-
The predetermined price payable by the trust to share holders on
the redemption date.
- Redemption Yield
-
The compound annual return achieved by holding a zero to
maturity.
- Relevant Discounted Security
-
A Fixed interest security not based upon shares, with a pull to
redemption price of more than 0.5% per annum or more than 15% over
a 30+ term, in which case all returns are taxed to income tax.
However, Zeros are not treated as a relevant discounted security as
they are equity based and therefore the return on a zero is taxed
as capital gain.
- Roll-over Trust
-
An alternative to encashing a zero at maturity that is sometimes
offered by the managers. Can be used to avoid crystallising a gain
on the redemption date thereby avoiding potential CGT.
- Split Capital Investment Trust
-
An investment trust with a limited or determinable life, whose
equity capital is divided into various classes of share.
- Spread over Gilt
-
Additional yield on a zero when compared to a similarly dated
Gilt, this can be an indication of the riskiness of a Zero.
- Stamp Duty
-
A tax of 0.5% on the purchase of shares.
- Stepped Preference Shares
-
Similar to zeros in that they pay a predetermined redemption
price at the end of a fixed term. However, this share class is also
entitled to dividends rising in steps at a set annual rate during
the life of the trust. Rank behind zeros in a trust winding up.
- Winding Up
-
The process of terminating an investment trust by realising its
assets, paying off creditors and distributing the remaining assets
among shareholders, according to the correct order of priority.
- Zero Dividend Preference Shares (Zeros)
-
A share with no right to receive a dividend. It is entitled
instead to a fixed sum on repayment and usually has preference over
other share classes.