Arc Growth VCT

Offer closes 30 June 2008

The Arc Growth Company VCT hopes to raise a further £7.5m through a new C share issue. The trust mainly invests in small unquoted companies with the aim of achieving a gain through a trade sale, IPO listing or other suitable exit.

The issue will make a minimum of 7.5m shares available at £1 per share. The minimum investment will be £5000. Preliminary results to 28 February show the company's NAV at 123.5p per share, and at 31 August the unaudited NAV was 137.5p per share. Its performance ranks it first among generalist VCT funds and second against all VCT funds launched in the 2004-05 tax year.

Richard Hargreaves, chairman of Arc, said the extra capital would expand the trust's range of investment opportunities. Shares will be allotted each month.

If you would like us to forward you a copy of the prospectus and application form for this or any other VCT offering please email us at direct@arch-fp.co.uk and specify the name of the VCT.

Downing Protected VCTs VIII and IX

Offer still open - funds raised: £16.8m

This dual VCT offer aims to preserve capital, reducing the risks normally associated with VCTs, primarily through asset backing. The portfolios will be invested half in loans to qualifying companies, a quarter in ordinary shares in VCT qualifying companies and a quarter in fixed interest and property loans that are classed as non-qualifying investments.

Introducing the VCTs Allenbridge Tax Shelter Report Ewoud Karelse says: “These are the eighth and ninth Downing Protected VCTs to have launched, each aiming to provide investors with an opportunity in a VCT with a lower-risk, asset-backed, capital preservation strategy.”  Karelse believes advisers looking to diversify some of the inherent risks associated with managing large VCT portfolios for their clients may see this offer as part of de-risking these portfolios.  “As these VCTs are so-called limited-life VCTs they can also be used alongside the regular trusts and by people who wish to maximise their 30 per cent income tax rebates.  The focus of the VCTs will be to invest in asset-backed companies by providing these companies with a mix of two-thirds debt finance and one-thirds equity,” says Karelse.

He notes that the loan-stock provided will mature after five years allowing for a revenue stream to the investors.  “The equity will be kept in the company after year five and will be disposed of during year six and seven at the manager’s discretion. However, it is intended that a small capital growth should be achieved during this period.  As is customary with Downing Protected VCTs, the costs are lower compared to some of their counterparts. This is in line with the limited exposure to risk resulting from the way the investments will be structured,: says Karelse.

According to Karelse, the incentive scheme is also competitive; rewarding the management only if they have paid out a minimum of £1.06 for each £1 invested. “The aim for the manager is however to pay out at least 110 pence over the seven year lifespan, “ he adds.  Karelse regards the incentive scheme where the management has imposed a cap on the potential pay-out as an innovative feature. “We like this as it will encourage the managers to limit the VCTs exposure to unnecessary risk. Downing has a proven track record in identifying and investing in qualifying asset backed opportunities, and we expect the VCTs to perform according to plan,” says Karelse.

If you would like us to forward you a copy of the prospectus and application form for this or any other VCT offering please email us at direct@arch-fp.co.uk and specify the name of the VCT.

Edge Performance VCT

Offer closes 23 May 2008

Edge Investment Management is looking to raise up to £25m through a D share offer for the Edge Performance venture capital trust.  This VCT has raised £20m since launch in 2006. It invests in the live entertainment industry, concentrating on live music, theatre, sports, festivals trade shows, exhibitions and other events.  Edge performance aims for targeted returns of 160p for every 100p invested, with an emphasis on capital protection and enhanced liquidity. Its investment team includes high profile promoter Harvey Goldsmith, who was responsible for events such as Live Aid and Live 8, and Gordon Power who founded the private equity business of ProVen, now Beringea.
 
The directors say that the live music concert and festival market in the UK has risen steadily in the period from 1999 to 2006. Figures from Mintel show the estimated value of live music events at major venues has increased from £475m in 1999 to a forecast £743m in 2007.  The recent opening or refurbishment of key venues such as Wembley Stadium, O2 Arena and Royal Festival Hall has also increased the opportunities for live music performances in the directors’ view.  They also note that live music events for under 118s, which start and finish early, allow venues to fill what would otherwise be empty time.  At the other end of the age spectrum, established acts such as the Rolling Stones and U2 are attracting older fans who have the disposable income to attend.

Technology is another positive for the live events business, with the internet and mobile telephony making ticket sales more convenient.  The directors say live music and other events are characterised by immediacy, so it anticipates that returns will be generated quickly after an investment is made, then reinvested to enhance returns and liquidity.

The VCT will invest in event promoters that have negotiated an event licensing agreement with an established event promoter. These arrangements speed up access to events, artists, venues and ensure unnecessary risks are not taken with investors’ capital as guaranteed minimum returns often form part of the arrangements.  Initially, the money will be invested in a range of fixed income securities and cash managed by Rothschild Private Management.  Up to 30 per cent of the money will remain in this, while the rest will go into qualifying investments. Typically 30 per cent of each investment will be in equity and 70 per cent will be secured loan stock to reduce the risk.

The VCT will also pursue sponsorship, merchandising, DVDs and internet or mobile related opportunities.

If you would like us to forward you a copy of the prospectus and application form for this or any other VCT offering please email us at direct@arch-fp.co.uk and specify the name of the VCT.

Epic VCT
 
Offer still open

Epic Private Equity Limited – the institutional private equity fund manager has launched a new Venture Capital Trust.  The performance focused VCT will target annual dividends of at least 4 pence per share which it says are equivalent to a tax-free income of 9.5 per cent for higher rate taxpayers after taking into account the 30 per cent income tax relief.

Funds will be deployed into non-qualifying and fixed income and quoted mid-cap equity portfolios.  Funds will then be phased into three types of qualifying private equity opportunities each with distinct investment characteristics such as development capital, buy-outs and turnaround situations.

EPE Ltd chief executive, Giles Brand, said: "In the course of developing our VCT we found that IFAs were clearly disgruntled that the level of return shown by many VCTs was not commensurate with the risks.  Too much emphasis appears to have been placed on the tax breaks with too little focus on the coherence of the investment strategy.

"Investing in VCTs marketed as low risk purely for the tax breaks seems to have backfired for some investors, who could have achieved better post-tax returns from lower risk investments.m The EPIC VCT plc is first and foremost a private equity investment opportunity," he added.

The minimum investment is £5,000.

If you would like us to forward you a copy of the prospectus and application form for this or any other VCT offering please email us at direct@arch-fp.co.uk and specify the name of the VCT.

Octopus Titan VCT 1 and 2

Offer closes 16 May 2008

Octopus Investments has brought out a dual venture capital trust offer, Titan VCT 1 and 2.  The VCTs will invest in a portfolio of 20-25 early stage companies and those that need development or expansion capital.  They will typically invest £500,000-£2m in each company, focusing on those in the environmental, technology, media, telecommunications, consumer lifestyle and wellbeing sectors.  It is expected that 75-85 per cent of the money raised will be invested in qualifying investments within three years, while 15-25 per cent will remain in a combination of cash, money market securities and Oeics managed by Octopus.

The VCT will focus on businesses with the potential to achieve a high level of profitability.  These firms will have the potential to deliver services to new customers at a low cost and to generate repeat sales from customers.  They will also be able to expand into different areas through customer and distributor relationships, new product development and brand positioning.  Companies will also be able to charge high but reasonable prices due to intellectual property rights, a strong brand and dominant position in a market niche. It is also important that the people involved in the companies have a proven track record.

Octopus will regularly review the portfolio and each company will be assessed in terms of its commercial and financial progress. As each company matures, action plans are made to achieve a successful sale.

Alex Macpherson, chief executive of Octopus, said the team would hunt for companies that were well placed to benefit from market demand, and had strong management teams and sound financial discipline.

If you would like us to forward you a copy of the prospectus and application form for this or any other VCT offering please email us at direct@arch-fp.co.uk and specify the name of the VCT.

Dear Investor

Thinking of investing in a Venture Capital Trust?

It is in your interests to read this letter to make sure that you clearly understand the nature of an investment into a Venture Capital Trust (VCT).  We will in any case require you to sign and return the acknowledgement that follows this letter when you return the completed application form, which is part of the relevant securities note.

In summary, you should be aware that you should view a VCT as a high risk and long term investment.  The tax incentives being offered to investors should warn you that these are necessary because of the high risk of loss.  By ‘long term’ we mean at least five years, but you would be well advised to consider it as a seven to ten year investment.  The underlying assets in a VCT are by nature highly illiquid.  This means that you may have difficulty in selling your shares for anything like their underlying net asset value. 

Please make sure that you clearly understand each of the main risks of investing in VCTs:

•   VCTs invest in small UK companies

Investment in AIM (Alternative Investment Market) traded, PLUS (formerly OFEX) and other unquoted companies may involve greater risk than investment in companies traded on the main market of the London Stock Exchange.  VCTs invest in companies with gross assets of not more than £7 million prior to investment.  Such companies generally have a higher risk profile than larger ‘blue chip’ companies.  The spread between the buying and selling price of such companies’ shares may be wide and thus the mid-market price used for valuation may not be achievable in the event of sale.  Furthermore, the failure rate of these is typically much higher than that of larger companies.  Smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals.  Proper information for determining their value or the risks to which they are exposed may also not be available.  Smaller companies are less likely to have multinational markets for their products or services than large companies and, as a result, may be more exposed to national economic cycles rather than global economic cycles.

•   VCTs are inherently illiquid

There is currently no effective secondary market for VCT shares, primarily because the initial income tax relief is only available to those subscribing for newly issued shares.  Therefore, there will most likely be an illiquid market and investors may find it difficult to realise their investment, especially during the early years of the life of the fund.  The underlying investments are primarily in small companies, either unquoted or listed on AIM or PLUS.  The fact that a share is traded on AIM or PLUS does not guarantee its liquidity.  There may be fewer buyers and sellers of securities in smaller companies than of securities in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such securities.  This compounds the difficulties shareholders may encounter when attempting to sell VCT shares.  These investments may be extremely difficult for fund managers to realise at fair value, and therefore shareholders may not be able to dispose of shares at a price that reflects the value of the underlying assets.  Any buy-back policies in place are always subject to liquidity.  The future realisation of shares at, or close to net asset value can never be guaranteed by a VCT manager.

•   VCTs must be held for at least five years

If shares are sold within this period, the initial tax relief will be required to be repaid.  Whilst it is the intention of the Directors of a VCT that the fund will be managed so as to qualify as a VCT, there can be no guarantee that it will qualify, or that such status will be maintained.  A failure to meet the qualifying requirements could result in the fund losing the tax reliefs previously obtained, resulting in adverse tax consequences for investors including a requirement to repay the income tax relief.  VCT managers have three years from the issue of shares to invest 70% of the fund’s assets in qualifying companies.  If this is not achieved the fund’s status as a VCT is risked meaning investors could lose their tax relief.  There are also additional requirements that VCTs must meet - if these are not met HMRC may withdraw the fund’s status as a VCT and associated tax reliefs.  There can be no guarantee that the trust’s VCT status will be achieved within the three year limit.  Levels and bases of, and relief from, taxation are subject to change and their value depends on an investor’s individual circumstances.  Such changes could be retrospective.

1.   VCTs are long term investments

VCTs are designed to give shareholders their capital gain through a tax free dividend stream.  There is, however, no certainty that any dividends will be paid.  Although investors may be free to dispose of their holding after five years (in order to retain their initial income tax relief) investors should expect to retain their shares for no less than five years, and we recommend that investors expect to consider this as a seven to ten year investment.

1.   VCTs usually trade at a discount

VCTs are quoted on the stock exchange and, like investment trusts, usually trade at a discount to net asset value, which reflects the likely realisable value of the assets at any given time relative to the net value of the assets.

1.   VCTs may not have sufficient critical mass

Investors should be aware that a VCT usually requires assets of at least £10 million in order to achieve a spread of investments and thus lower company specific risk within the portfolio.  To the extent that a relatively small level of funds is raised by the particular VCT, the manager may not be able to diversify its portfolio sufficiently.  This in turn increases the risk and such a VCT is likely to prove more costly to manage.  There can be no guarantees that the VCT will meet its objectives or that suitable investment opportunities will be identified. 

1.   VCTs are complex investment products

The investment strategies employed by VCT managers differ enormously.  VCTs are complex investment products and are only suitable for sophisticated investors.  To understand the likely nature of the underlying investments, timeframe and return expectations, we strongly recommend individuals considering a VCT investment to contact us for independent advice. 

1.   Please also be aware that

There may be sudden and large falls with this type of investment.  There is a risk that investors might not get back any of their original investment.  The past performance of VCTs generally, or any one VCT in particular, cannot be taken as a guide to possible future performance.  The value of shares in a VCT and the income from them may fall as well as rise and investors may not get back the amount originally invested.  Investors should always read the full VCT Securities Notes and pay particular attention to the risk warning notices which they contain.

Arch Financial Planning Limited is authorised and regulated by the Financial Services Authority.  Our website is intended for use by UK investors only and the investments referred to are available only in the UK.

Yours faithfully

.

.

ARTHUR CHILDS
FCII  FPFS  APMI  AIFP Chartered Financial Planner
Managing Director

Personal Advice

Risk Factors

You should be aware that you should view a VCT as a high risk and long term investment.  The tax incentives being offered to investors should warn you that these are necessary because of the high risk of loss.  By ‘long term’ we mean at least 6 years, but you would be well advised to consider it as a 7 to 10 year investment.  The underlying assets in a VCT are by nature highly illiquid.  This means that you may have difficulty in selling your shares for anything like their underlying net asset value. 

Please make sure that you clearly understand each of the main risks of investing in VCTs:

•   VCTs invest in small UK companies - Investment in AIM traded and other unquoted companies may involve greater risk than investment in companies traded on the main market of the London Stock Exchange.  VCTs invest in companies with gross assets of not more than £7 million prior to investment.  Such companies generally have a higher risk profile than larger ‘blue chip’ companies. The spread between the buying and selling price of such companies’ shares may be wide and thus the mid-market price used for valuation may not be achievable in the event of sale. Furthermore, the failure rate of these is typically much higher than that of larger companies.  Smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals.  Proper information for determining their value or the risks to which they are exposed may also not be available.  Smaller companies are less likely to have multinational markets for their products or services than large companies and, as a result, may be more exposed to national economic cycles rather than global economic cycles.
•   VCTs are inherently illiquid - There is currently no effective secondary market for VCT shares, primarily because the initial income tax relief is only available to those subscribing for newly issued shares.  Therefore, there will most likely be an illiquid market and investors may find it difficult to realise their investment, especially during the early years of the life of the fund.  The underlying investments are primarily in small companies, either unquoted or listed on AIM (Alternative Investment Market) or OFEX.  The fact that a share is traded on AIM or OFEX does not guarantee its liquidity.  There may be fewer buyers and sellers of securities in smaller companies than of securities in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such securities.  This compounds the difficulties shareholders may encounter when attempting to sell VCT shares. These investments may be extremely difficult for fund managers to realise at fair value, and therefore shareholders may not be able to dispose of shares at a price that reflects the value of the underlying assets.  Any buy-back policies in place are always subject to liquidity.  The future realisation of shares at, or close to net asset value can never be guaranteed by a VCT manager.
•   VCTs must be held for at least 5 years - If shares are sold within this period, the initial tax relief will be required to be repaid.  Whilst it is the intention of the Directors of a VCT that that the fund will be managed so as to qualify as a VCT, there can be no guarantee that it will qualify, or that such status will be maintained. A failure to meet the qualifying requirements could result in the fund losing the tax reliefs previously obtained, resulting in adverse tax consequences for investors including a requirement to repay the income tax relief.  VCT managers have three years from the issue of shares to invest 70% of the fund’s assets in qualifying companies. If this is not achieved the fund’s status as a VCT is risked meaning investors could lose their tax relief.  There are also additional requirements that VCTs must meet - if these are not met HMRC may withdraw the fund’s status as a VCT and associated tax reliefs.  There can be no guarantee that the trust’s VCT status will be achieved within the three year limit. Levels and bases of, and relief from, taxation are subject to change and their value depends on an investor’s individual circumstances.  Such changes could be retrospective.
•   VCTs are long term investments - VCTs are designed to give shareholders their capital gain through a tax free dividend stream.  There is, however, no certainty that any dividends will be paid. Although investors may be free to dispose of their holding after 5 years (in order to retain their initial income tax relief) investors should expect to retain their shares for no less than 6 years, and we recommend that investors expect to consider this as a 7 to 10 year investment.
•   VCTs usually trade at a discount - VCTs are quoted on the stock exchange and, like investment trusts, usually trade at a discount to net asset value, which reflects the likely realisable value of the assets at any given time relative to the net value of the assets.
•   VCTs may not have sufficient critical mass - Investors should be aware that a VCT usually requires assets of at least £10 million in order to achieve a spread of investments and thus lower company specific risk within the portfolio. To the extent that a relatively small level of funds is raised by the particular VCT, the manager may not be able to diversify its portfolio sufficiently.  This in turn increases the risk and such a VCT is likely to prove more costly to manage.  There can be no guarantees that the VCT will meet its objectives or that suitable investment opportunities will be identified. 
•   VCTs are complex investment products - The investment strategies employed by VCT managers differ enormously.  VCTs are complex investment products and are only suitable for sophisticated investors. To understand the likely nature of the underlying investments, timeframe and return expectations, we strongly recommend individuals considering a VCT investment to contact us for independent advice.
•   Please also be aware that: There may be sudden and large falls with this type of investment.  There is a risk that investors might not get back any of their original investment.  The past performance of VCTs generally, or any one VCT in particular, cannot be taken as a guide to possible future performance.  The value of shares in a VCT and the income from them may fall as well as rise and investors may not get back the amount originally invested.  Investors should always read the full VCT Securities Notes and pay particular attention to the risk warning notices which they contain.
•   Important Notes. Please note that these notes are simply designed as an introduction for you to venture capital trusts.  They cannot cover ever possible aspect of investing in VCTs and are not meant to be exhaustive. These notes are not meant to be seen as giving advice, or promoting any particular product.  These notes are intended as a guide only and do not replace the full product details that accompany each investment recommendation. Information given relating to tax legislation is based on our understanding of legislation and practice currently in force.  Whilst we believe our interpretation of current law and practice to be correct in these areas, we cannot be responsible for the effects of any future legislation or any change in interpretation or treatment. In particular you are warned that levels of tax and tax reliefs are subject to alteration and, in any case, the value of such reliefs and benefits may depend on an individual’s circumstances.