Trusts guide - Tiscali

Jargon buster - unit and investment trusts

Confused by convertibles? In a daze of derivatives? Find Peps perplexing? The read our jargon-busting guide to the world of unit trusts.

Annual charge: An annual management fee, normally between 0.5 and 2.5 per cent pa on your unit or investment trust. This covers the cost of management and administration.

Annualised growth rate (AGR): This is a tool used to measure the consistency of a fund to give a reliable picture of its performance.It is calculated by the total returns over a number of years, averaged out to give an annual figure. These are given over five and ten years. In simple terms a five-year AGR is the total return over five years divided by five.

Assets: The trust's holdings. These may include shares, bonds or cash.

Authorised: Funds or individuals approved by the Financial Services Authority to operate in the UK.

Benchmarks: Something against which to judge the performance of your portfolio, for example the FTSE 100 index.

Bid-offer spread: The difference between the buying and selling price of your units in a unit trust. It includes an allowance for the initial charge.

Bid price: Selling price of units.

Blue chip: Blue-chip companies are large household-name businesses, with solid track records and large stock market valuations.

Bonds: Stocks, issued by governments and companies, that pay a fixed rate of interest. UK government gilt-edged stocks or gilts, are known as bonds. Not to be confused with investment bonds sold by insurance companies (see also corporate bonds).

Cancellation price: The lowest possible valuation of your units under FSA regulations on any one day. The actual selling or bid price is usually higher.

Capital: The amount of money you have as investments or savings.

Capital growth funds: Funds which concentrate on shares where the prospects for share price rises are good and which are less concerned about income from dividends.

Collective: Another name for a unit or an investment trust. Also called pooled investments, mutual funds and investment funds.

Compound growth: Growth in the value of an investment which benefits from growth in a previous period. Compound growth is, in effect, the calculated growth on growth together with growth on the original value of the asset.

Contract note: Confirmation of your trust purchase.

Convertibles: Corporate bonds or preference shares which can be converted into ordinary shares at a set price on set dates.

Corporate bond: Loan stock or "IOUs" issued by public companies to raise capital. The company promises to pay a certain sum of interest on a set date each year until redemption date, when it repays the loan.

Creation price: The highest possible buying price of your units under FSA regulations before the initial charge. The actual buying (bid) price is usually higher.

Derivatives: A general term for futures, options and warrants.

Designated account: A unit trust holder account.

Distributions: The income payment made by a trust.

Dividend: The income distribution made to shareholders.

Equities: Another word for shares. Also called securities.

Ex-dividend: The period before a trust pays out its income. If you buy a trust in this period, you do not get the income, but if yousell you do.

Exit charges: Instead of making an initial charge, some trust companies,(notably Pep managers) make a charge if an investorcashes-in within, say, five years.

Financial Services Act: The 1986 Act set out guidelines for unit and investment trust companies to follow and was established to protectinvestors.

Financial Services Authority: This is the City regulator that registers unit trusts and Oeics and lays down pricing and charging regulations.

Fixed-interest securities: Another term for "bond".

Gearing: The amount of money a trust borrows expressed as percentage of its net assets.

Gilts: Bonds issued by the UK Government.

Income fund: Funds which concentrate on buying shares in companies with generous dividend payments.

Initial charge: A charge, typically five per cent, that is paid to cover manager's expenses, such as commission, advertising, administration and dealing costs.

Investment funds: A general term for unit trusts and Oeics and their equivalents in other countries.

Investment trust: An investment fund which pools investors' money and invests it on their behalf, usually in shares. It is set up as a listed company with a limited number of shares that investors can buy or sell on the stock market. The trust's shares may trade at a price higher or lower than the value of its underlying assets, this is known as trading at a premium or discount.

Key features document: All potential investors are entitled to receive a copy from the management company. It explains the precise nature of the fund or funds they might want to chose.

Load: An investment or administration management fee. Manager's report: This is available every six months and details the exact position of the fund. For example it lists investments, the manager's investment commentary, and the performance of the portfolio.

Money-market funds: Funds which invest in bank deposits. Sometimes called cash funds.

Monthly income scheme: The facility to withdraw a fixed income every month. If the fixed income specified is not covered by dividend or interest payments, a sufficient number of units or shares may be sold to make up the amount, thereby reducing the capital value of your holding.

NAV: Net asset value. An investment trust company traditionally trades at a discount to the NAV.

Offer price: The price at which an investor buys units.

Oeic: Open-ended investment company, pronounced "oik". This is a fairly new type of investment fund which could replace unit and investment trusts over the long run. It is "open-ended" accepting any amount of investors' money on an ongoing basis, but is structured as a company with shares. Most importantly, the shares have a single price for both buying and selling.

Pep: Personal equity plans were first available on January 1 1987. UK tax payers over 18 could invest up to £6,000 in a general Pep, and £3,000 in a single-company Pep. The proceeds are free of capital gains tax and dividends received are not subject to incometax. Investment trusts can be put in a general Pep but not into asingle-company Pep. Peps disappeared in April 1999 to be replaced by individual savings accounts.

Portfolio: The spreads of investments held by an investor or assets held within a fund.

Preference shares: Shares with a high, fixed dividend. If the company runs into problems or becomes insolvent, preference shareholders are paid before ordinary shareholders.

Return: The amount by which your savings may increase due to a combination of interest and dividend income and capital growth.

Sectors: Investment funds are divided into a variety of categories to keep together funds of a similar type, for example "cash" funds, "European" funds, "North American" funds.

Split-capital trust: An investment trust with more than one class of share. Stock market indices: These show how a specified portfolio of share prices are moving in order to give an indication of market trades.

Tied agent: A financial adviser employed to sell the investment products of one company only. Most investment sales people in high street banks and building societies are tied agents.Independent financial advisers (IFAs) have freedom to recommend allproducts.

Tracker fund: An investment fund which invests mechanically to mirror the composition of an index measure. The performance of a tracker, or index, fund will track the performance of the chosen index.

Ucits: A term for a fund which can be marketed in all EU countries.

Unit: The measure for your share of a unit trust.

Unit trust: An "open-ended" investment fund that can accept any amount of investors' money on an ongoing basis, investing it in a wide range of shares, fixed-interest securities and property. The fund is divided into units which rise and fall in value in line with the value of the underlying assets.

Warrant: An option to buy investment trust shares at a specified future date.

Weight: The part of a portfolio given over to a particular investment or type of investment.

Yield: The amount of income generated by a fund's investments in relation to the price. It is usually quoted gross, ie before tax, after charges.

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