C shares
A 'C' or ‘Conversion’ share issue has become the preferred alternative to the conventional rights issue as a way of enlarging a trust. This method involves the issue of new shares at a price which does not need to bear any relationship to the existing share price or net asset value. The proceeds of this issue are held in a separate pool to be invested into similar, but not necessarily identical investments to those in the existing portfolio. The 'C' shares will be separately quoted and have their own asset value.
After a given time period, or whenever the pool of new money is fully invested, the two portfolios are merged and the 'C' shares are exchanged for new shares (ranking parri passu with the existing shares) in the appropriate ratio to ensure an equalisation of asset value. If the asset value of the ‘C’ shares was 100p and the existing shares had a NAV of 300p, 'C' shareholders would receive one new share for every three 'C' shares.
The advantage of the 'C' share issue is that existing holders do not suffer any dilution if they do not take up new shares and will not have performance distorted by the cost of investing new money or a higher cash holding in the portfolio during the investment period. Furthermore the issue costs can all be born by the investors putting new money into the trust.
Capital gains tax
Capital gains tax (CGT) is the tax which you may have to pay if you sell shares at a profit. See Inland Revenue in useful links.
Capital shares
In a split capital investment company, capital shares are entitled to all of the surplus assets on the wind-up of the trust, after repayment of any prior charges. They are generally regarded as one of the highest risk types of investment company shares. See structural gearing.
Capital structure
The different amount and type of shares an investment company issues. Particularly important when considering split capital investment companies.
Cash equivalents
For an investment to qualify as a cash equivalent it must be readily convertible to a known amount of cash and be subject to an insignificant risk of changes in value. Therefore, an investment normally qualifies as a cash equivalent only when it has a short maturity of, say, three months or less from the date of acquisition. Equity investments are excluded from cash equivalents unless they are, in substance, cash equivalents, for example in the case of preferred shares acquired within a short period of their maturity and with a specified redemption date.
Closed-ended
A company with a fixed capital structure. Variations in demand for the shares of the company are reflected in movements in their market prices and not by an increase or decrease in the number of shares in issue. Opposite of an open-ended fund, such as a unit trust.
Conventional investment company
Investment companies which issue only one class of ordinary share are commonly known as conventional investment companies.
Convertible unsecured loan stock
Unsecured debenture that entitles the holder to exchange the debenture for another security at some future date.
Convertibles
Fixed interest loans or securities which may be converted into shares of the company at a specified date, usually at a specified price.
Corporation tax
The tax a company may have to pay on its profits for a year. Investment trust companies are exempt from corporation tax on their capital gains and also do not pay tax on any UK dividends. As they can also offset expenses against any taxable income, most investment trusts do not pay corporation tax and are therefore very tax efficient.
Crest
The system introduced in July 1996 by the securities industry through which transactions in securities are 'settled' (i.e. concluded) by the payment of cash or by the delivery of securities against payment.
Cumulative
When referring to loan stock or shares, cumulative means that, if the payment due for one period is missed, those securities must be given priority when the next payment is made, and arrears of the missed amounts must be paid before any dividend can be paid on the other shares in the trust structure.
