How are investment trusts regulated?
They are quoted companies listed on the London 'Stock Exchange' with Boards of Directors; they are subject to the listing rules of the UK Listing Authority established under the Financial Services and Markets Act. 'investment trusts' are also subject to the Companies Act 1985, as amended. The conduct of investment managers to promote packaged products 'ISA','PEP', Share Plans) with underlying investment trust investments are regulated by the FSA.

What is the difference between an onshore investment trust and an offshore investment company?
The main difference is that the Channel Islands registered companies are not subject to the Income and Corporation Taxes Act 1988. The main thrust of that Act is to restrict a single holding, at time of investment, to 15% of gross assets. They also require the trust not to retain in any one accounting period more than 15% of its income by way of securities which income in turn should be not less than 70% of total income. The Channel Islands companies are governed by the investment restrictions in their Articles of Association. Otherwise they are both closed end investments quoted on the London 'Stock Exchange' offering shareholders a specific investment objective from a diversified portfolio of investments. There are some differences in tax treatments: the Channel Islands based funds generally issue 'dividends' gross; whereas UK trusts, as equities, issue dividends net, but a 10% tax credit can be claimed within an 'ISA' or 'PEP' until April 2004. Both are eligible for an ISA and PEPs.

What is a multi-class or split capital investment trust?
A multi-class or split capital investment trust company is one with more than one class of share, each of which carries different rights to participate in income or capital returns.

What does gearing mean?
Unlike 'unit trusts','investment trusts' can borrow money and invest the proceeds. This will magnify returns to investors in a rising market (and vice versa in falling markets). This is known as financial gearing. Typically the 'gearing' is described as a ratio (of borrowing to assets) - a gearing factor of 120 means that on a trust with equity of £100 million it has £20 million of debt (bank borrowings). There is also structural gearing, which is normally a term applied to split capital trusts or multi-class trusts. Aberdeen manages several trusts with structural gearing. In a simple trust, typically each class of 'share' is entitled to either all the income from the underlying portfolio or all the capital growth. If each class of share was issued in a 50:50 proportion, the income share could be said to have double gearing. The AITC web site has a fact sheet on splits that explains this in more detail. Given that a rise in the portfolio would result in a disproportionate rise in the entitlement of each share class, the valuation tools used to analyse structurally geared trusts are different. Typically analysts on income shares look for hurdle rates (how much do the underlying assets have to grow each year for investors to get their stake back), and 'redemption yields' (annual yield on the trust to wind up). The AITC monthly report covers these ratios and is available to view at: www.aitc.co.uk

Why do some trusts have wind-up dates?
In most cases the whole fund has a wind-up date which coincides with the date when its zeros mature. At this point, shareholders generally vote to decide whether the trust should be wound up or rolled over. It used to be a requirement of a trust offering a zero that the whole fund had a wind up date which coincides with that of the zero. Nowadays this is not always the case. Other trusts without structural gearing may have a control mechanism so that shareholders can have an opportunity to get money back at a pre-determined date.

How likely are the trusts we have under management to wind up on the proposed dates?
Shareholders are generally offered a choice of rollover vehicle as well as a cash option. Many shareholders can prefer not to take cash. In 'splits', for example, some income shareholders prefer to continue to receive income (and also avoid crystallising capital gain). Zero holders typically take cash. Generally across the industry the trust does either wind up or shareholders get offered a rollover vehicle.

How many investments are held within an investment trust portfolio and how are they managed?
Typically anything from 50 to 100 shares. The 'Fund Manager' must have regard to the objective of the trust. To that end the underlying stocks are bought or sold to deliver either capital growth or income. For the newer multi-class structures we have discrete portfolios. Within those portfolios the managers will assess the stocks on a regular basis to ensure that they will deliver the objective, hopefully selling in advance of profit warnings or any other adverse market change that could impact on either the ability to deliver income or capital appreciation. Sometimes that can't be achieved; that's why 'investment trusts' have a spread of investments.

How actively are investment portfolios managed?
Like our unit trusts, all 'investment trusts' portfolios are actively managed. The "portfolio turnover" varies from fund to fund. Turnover is generally defined as 50% of sales + purchases divided by fund value. Technology portfolios may get turned over more quickly than say a fund investing in convertibles. Sometimes investors ask about this to determine whether the manager has a long-term strategy.

Many of the terms, which are used in relation to the performance of investment trusts, are technical in nature. How do I find out more?
There are any number of formulae to analyse the value and characteristics of different share classes. The headline formula is normally the 'running yield' (dividend/share price as a percentage) for income shares. Beyond this, the hurdle rate is one of the most useful for income shares - it tells you how much the assets have to grow on an annual basis for investors to maintain their current price. Cover is arguably the key analytic for zeros, showing how secure the zero is, as well as the wind up date and the redemption yield (annual compound growth rate). Undiluted 'NAVs' are generally the pure measure of fund management performance. Diluted Net Asset Value shows the effect of warrants and debt on actual performance. Generally private investors are more interested in share price total return as that shows what happens to their real money. Aberdeen's new trust-specific web sites incorporate a glossary of terms used in the analytics for split capital trusts. To view the trust specific web sites, click here.

What is the spread for an investment trust and who actually sets this, also what is the standard spread? And does this spread include the government stamp duty or not?
The spread is set by the marketmakers. There is no standard spread, it depends on the 'liquidity' of a particular stock. It does not include government stamp duty.

What effect do warrants have on a trust's share price in the medium/long term and how do they affect the trust when exercised?
If the exercise price is below the NAV at the time of exercise the effect of exercising is dilutive i.e. the fully diluted NAV after exercise for all the remaining shareholders but particularly for existing shareholders is reduced. It is more than likely that the new shareholders from the exercise of warrants have made money depending on the price they paid for their 'warrants' - it would be unlikely they would exercise at a loss. Warrants are no longer common in new issues. Because they can be dilutive i.e. can reduce the return of existing shareholders, they are not now popular with institutions.

The yields as quoted in the Financial Times, which are the standard quoted on advertisements, how do they actually calculate them?
At its most basic it is 12 months - 'dividends' (historic) over mid price. When a dividend rate changes say from a capital raising exercise, we will be able to contact the FT and get them to show a prospective yield. The yields are always quoted over mid price.

What is the mid price?
It is the average of the closing buy and sell prices. The underlying investments of an Investment Trust are valued at the previous day's closing mid prices.

How are dividend dates and rates calculated and by whom?
Dates are set, ideally, to provide a regular spread of income and are most likely on a quarterly basis. When a trust is launched the accounting reference date is set i.e. its year end. To some extent that will determine the payment dates based on the quarterly accounting dates in the period to the accounting reference date. The amount of the 'dividends' will in the case of a new trust or after a fund raising be set by the investment manager in consultation with the brokers to the launch/issue based on the underlying portfolio and the objective of the trust.

Is the discount/ premium of a share calculated on the shares, mid price/bid price/ or offer price?
All are calculated with reference to the previous closing mid price.

Warrants are sometimes quoted with gearing and a fulcrum rate. What does this mean in relation to a warrant?
Warrant gearing is an expression of the ordinary share price divided by warrant price: a highly geared warrant will have a high number, one that is low indicates the opposite. Fulcrum rate is the amount the underlying share price has to grow in order for the warrant to outperform the ordinary share over the life of the warrant.

What service does the company secretary perform for an investment trust?
The company secretary has the responsibility for co-ordinating all aspects of the trust to ensure that it complies with its legal and financial reporting including any circulars etc., report and accounts, interim reports; convening board meetings, minutes and follow up there from, as well as liaison with the Board and external advisers.

What service does the Board of Directors for a trust perform?
The Board is responsible to shareholders; it oversees the external relationships, principally the fund management relationship, to ensure that the trust's objective is met.

What role do the Registrars perform?
Under the Companies Act all public companies must maintain a register of their shareholders and warrant holders to determine title to the security; to determine entitlement to dividends or capital distributions.

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