Guide to VCTs

8/12/2019 Guide to VCTs

1/13

2013/2014 Guide

To Venture CapitalTrusts (VCTs)

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0orvisitourwebsitewww.hl.co.uk/vct

Phone: 0117 900 9000 | Visit: www.hl.co.uk/vct

A tax efficient and speculative way to invest

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2/13

This VCT guide does not constitute advice andshould you have any doubt as to the suitabilityof an investment for your circumstances youshould seek advice, please contact our FinancialPractitioners. Neither capital nor income isguaranteed. Tax benefits can also change and theirvalue will depend on your circumstances. The value

of your VCT will fall as well as rise and you may notget back the amount invested. The prospectus willgive fuller details of the risks and the VCT. Thisinformation is correct as at December 2013.

IMPORT NT INVESTMENT NOTES

CONTENTS

PART 1: VCTs - the basics

What is a VCT?

The tax benefits

Who should consider VCTs?

What are the risks?

How to choose a VCT

RICHARD TROUEHEAD OF VCTRESEARCH

With interest rates close to zero, investors continue to search for

alternative sources of income. Interest rates tend to set the benchmark

for all income producing assets and with rates being close to zero,

returns have fallen across the board forcing investors to revisit their

strategy.

For more sophisticated investors Venture Capital Trusts (VCTs) are an

option. VCTs are often misunderstood, with investors associating them

with capital growth; or focusing on the tax breaks. While the tax breaks

are generous (see page 3 for an explanation) they should be seen as

the icing on the cake, not the main reason for investing. VCTs are

attractive, albeit high risk investments in their own right. Most aim to

generate healthy profits which are distributed to investors over the

long-term via tax-free dividends (any capital gains are also tax free).

As the VCT sector has evolved managers have become more diligent in

aiming to deliver consistent dividends. Deals are often structured in a

way that places an emphasis on generating a steady income for the

VCT. They do this by providing the majority of the investment to theunderlying company as a loan with a smaller amount in shares. The

repayments on the loan provide a regular income to the VCT while

loans also rank ahead of equity in the event the business fails; making

the deal less risky if the business has assets which can be sold.

Furthermore, VCTs continue to find themselves in a sweet spot. In the

current economic climate banks remain unwilling to lend, despite

various initiatives and pressure from the government. The economic

recovery remains fragile, but there are plenty of companies with the

ability to thrive if given the right support and funding. Many VCTs are

finding they have the ability to invest in high-quality smaller

companies at knock-down prices. VCTs are higher risk investments

which will fall as well as rise in value and dividends are not

guaranteed.

VCT managers vary considerably in terms of the length and quality of

their track record. We continue to believe focusing on established and

well-resourced VCT managers with good dividend and performance

records is a sensible strategy. This guide highlights all our favourite

VCT offers and contains details of many others available this year. As

usual we expect some of the more popular VCT offers to close early

while other offers will also become available. We will update this guide

from time to time to take account of any developments, so please visit

www.hl.co.uk/vctfor the latest version.

This guide is only designed to be a brief summary and investors should

read the relevant VCT prospectus prior to making any decision to

invest. Prospectuses, exclusive VCT factsheets and further information

on VCTs can be found on our website.

PART 2: 2013/14 VCT reviews

GeneralistMaven VCTs top-up offer

Mobeus VCTs top-offer

Albion VCTs top-up offer

Foresight VCT top-up offer

Octopus Titan VCTs 1-5 top-up offerProVen VCT top-up offer

AiMHargreave Hale AIM VCT 1 & AIM VCT 2

Unicorn AIM VCT top-up offer

SpecialistEdge Performance VCT H Share top-up offer

Ventus VCT 1 & 2 D Share offer

Limited LifePuma VCT 10

Foresight Solar VCT C Share offer

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VCTs: a dividend story

PART 3: Frequently asked questionsApplying for VCTs

Managing your VCTs

Introduction


3/13

What is a VCT?

A VCT is a company whose shares trade on the London

stock market and, rather like an investment trust, aims tomake money by investing in other companies. These are

typically very small firms which are looking for further

investment to help develop their businesses. The VCT rules

stipulate a maximum company size of 15 million and a

maximum number of employees of 250. These companies

make VCT investing very exciting, but as VCTs often invest

in companies at an early stage of development they are

higher risk. Therefore VCTs are aimed at wealthier,

sophisticated investors who can afford to take a long-term

view and accept falls in the value of their investment.

As well as capital the VCT manager also provides advice

and expertise to help the chosen firms expand morequickly, aiming to increase their value and potentially

provide better returns for investors. Then, normally

between three and seven years after investment, the VCT

manager will look to sell the business and move on.

Generally, any profits are paid out to the VCT investors as

tax-free dividends (this is the primary source of return for

VCT investors) and the original capital is reinvested in the

next opportunity.

The tax benefits

In recognition of the risks and complexities of VCTs, and to

encourage investment in an area vital to the economy, the

government offers up to 30% income tax relief forsubscriptions in new VCT fundraisings. For example, if you

invest 10,000 you could either receive a cheque from the

taxman for 3,000 or an adjustment in the tax you pay.

Anyone can invest but note this is a tax rebate, so it is

restricted to the amount of income tax you pay. You can

invest up to 200,000 each tax year but if you have only paid

5,000 in income tax you would only receive a 5,000 tax

rebate. You must also hold onto the shares for five years to

permanently keep the tax rebate. This rebate is only available

when you invest in a new issue of shares in a VCT or a top-

up, not on any VCTs you buy on the open market. However,

it is worth noting that if you do buy VCTs on the secondary

market these count towards the 200,000 allowance for the

tax year in which you buy them, despite the fact you dont

get the income tax break.

When you eventually dispose of a VCT any gain will be

exempt from capital gains tax. Dividends paid by the VCT are

also tax free. These two reliefs also apply to shares bought

on the secondary market.

Although the tax benefits are generous it is important that

you only invest if you want exposure to the venture capital

market and not just for the tax breaks. The tax benefitsshould be the icing on the cake as opposed to the rationale

for investing. Please remember tax and VCT rules can

change, and the benefits will depend on your circumstances.

Examples of VCT tax savings

In the final example Mrs C has not paid enough income tax to reclaim the full 30% relief therefore she is entitled to only 16,200 which is the taxshe will pay.

All tax treatments are subject to change and so can be varied. The exact value will depend on your circumstances and you have to hold yourinvestment for at least five years to take advantage of the tax breaks. If the VCT Manager fails to meet the relevant investment rules, such as

investing 70% of the fund within three years, the tax benefits could be withdrawn retrospectively.

Mr A decides to invest 200,000 in a

VCT. In the 2013/2014 tax year heanticipates that he will pay 90,000 inincome tax.

EXAMPLEA

Investment 200,000

Tax rebate (60,000)

Effective net cost 140,000

Tax rebate as percentage 30%

Mrs B decides to invest 10,000 after 6

April 2013, she earns 30,000 per year,so is a basic rate tax payer, and will payapproximately 5,000 in income tax.

Please note Mrs B has a significantportfolio and this represents less than

10% in total.

EXAMPLEB

Investment 10,000

Tax rebate (3,000)


Tax rebate as percentage 30%

Mrs C wants to invest 100,000. She

earns 60,000 per year and is a higherrate tax payer. She has calculated thatshe will pay 16,200 in income tax in the

tax year 2013/2014.

EXAMPLEC

Investment 100,000

Tax rebate (16,200)


Tax rebate as percentage 16.2%


4/13

Who should consider VCTs?

VCTs are only really a consideration for sophisticated

investors with significant investment portfolios who can

afford to take a long-term view and are comfortable with therisks of investing in smaller companies. The FCA suggest

that a sophisticated investor is somebody with an annual

income in excess of 100,000 or investable assets of more

than 250,000. They are unlikely to be suitable for

mainstream investors who may need access to their money

in the short term, or for whom loss of the investment may

cause financial hardship. However, here we are acting as an

execution only broker not offering advice, Hargreaves

Lansdown allows you to make your own assessment of yourexpertise and the suitability of a VCT for your circumstances.

In choosing to do so you will be accepting full responsibility

for the appropriateness, so should you have any doubts you

should seek advice. As a rule of thumb, we believe VCTs

should not account for more than 5% to 10% of your equity

portfolio.

What are the risks?

Although some VCTs may be viewed as less speculative than

others, investors should remember that as a whole they are

exposed to substantially higher risks than mainstream

equities. Therefore they are only for experienced investors

who understand the complexities and can afford to shoulder

the risk.

Given that they invest in smaller, sometimes fledgling,

companies some could struggle or even fail altogether,

meaning losses for investors. The VCT manager may also

have trouble selling the underlying investments. Investors

should also be aware that VCT shares are illiquid. This

means they can be difficult to sell (and buy) on thesecondary market. Although shares are fully listed on the

London Stock Exchange, there might be only one market

maker for the shares, which means investors may have

difficulty selling at a price that fairly reflects the value of the

underlying holdings or, in extreme circumstances, at any

price.

A long-term horizon is essential with VCT investing. Aside

from limited life VCTs that look to wind up after a 5-7 year

time period, you should expect to invest for 10 years plus.

This is because it takes time for expanding businesses to

fully realise their potential and the primary source of returns

from VCTs is from dividends as the portfolio matures. In

addition, if you sell within five years, you will have to repay

any reclaimed tax.

Investors should also be aware of risks affecting specific

VCTs and VCT types. For instance, a further issue arises from

smaller VCT funds who fail to raise sufficient money at

launch. The resulting portfolio of investments may be more

concentrated and it could increase the risks and charges. It

is also worth noting that all VCTs tend to have higher

charges than other types of fund and usually includeperformance fees.

As well as investment risks, it is possible that HMRC could

withdraw the tax status of the VCT if it fails to meet the

requirements; if this happens any tax rebate may have to be

repaid. Each VCT will issue a prospectus at launch which

gives details of specific risks and you should read this

thoroughly before making any investment.


5/13

How to choose a VCT

There are several different types of VCT. The most common

(and the most popular with investors) are Generalist VCTs.

These are relatively broad-based, usually investing in arange of unquoted companies in a wide variety of sectors

and often in various stages of development. Limited Life

VCTs are designed to be lower risk and lower return than

other VCTs and aim to wind up and distribute assets to

shareholders after 5-7 years though there is no guarantee

they can meet their objectives and if the manager finds the

underlying investments difficult to sell this could extend

the life of the investment.

AIM VCTs as the name implies, primarily invest in

companies listed on the Alternative Investment Market

(AIM), the junior market of the London Stock Exchange.

These shares are usually readily tradable, so the

underlying portfolio is more akin to a smaller companies

unit trust, albeit with the restrictions imposed by the VCT

rules. Finally, Specialist VCTs invest in one sector or area

such as healthcare or infrastructure.

Each VCT manager has a different style. Some will

predominantly invest in companies that are earlier stage

looking for the best growth, whilst others insist investee

companies are profitable and more established. There are

also varying policies in the use of loan stock in the

portfolio. This is where rather than investing in the firms

equity, the VCT loans money to the business. Loan stockprovides a regular income into the VCT, which can help

pay dividends to VCT shareholders. It is also lower risk

than equity because holders are higher in the pecking

order of creditors in the event the company goes bust.

Often the loans are secured against particular assets of the

investee company such as property, especially in the case

of limited life VCTs. However, by reducing risk in this way

it does mean overall returns can be lower compared to

taking a higher equity stake.

At least 70% of the VCT's money must be invested in

qualifying companies. The other 30% can be invested in

alternative assets. This may serve to reduce or increase the

trust's risk, depending where the manager invests. When

a new VCT or VCT share class launches the portfolio will

largely be in cash as it takes time to make investments. This

means it generally takes longer for returns from

investments to come through. In contrast, top-up offers to

existing VCTs provide access to a more fully invested

portfolio often with companies at various stages of

development.

If you would like an expert to recommend a VCT suitable

for your personal circumstances our financial practitioners

offer this service to those transferring or investing total

portfolios of 100,000 or more. Our Advisory Helpdesk

(0117 317 1690) are able to provide more information on

our advisory service and arrange a free initial consultation

with a financial practitioner.

Assessing performance

The performance of a VCT is best shown through a

combination of:

1. The Net Asset Value will give you an accurate view of

how the underlying holdings have performed as opposed

to the market value.

2. The dividends paid to date.

In most cases both of these details can be obtained

directly from the VCT managers and are usually in the

annual report and accounts. They are also often shown

in the prospectus.


6/13

Mobeus has built a good track record by focusing on a tried

and tested formula of backing established, cash-generative,

profitable businesses. Most deals involve management buy-

outs (MBOs) where Mobeus provides funds to help the

existing management team buy the business from its current

owners. They aim to be conservative when structuring deals,

often using a high portion of loan stock or preference shares,

the interest from which can be used to fund dividends.

The team is currently reporting a strong pipeline of deals.

Recent investments included supporting the 15.9 million

MBO of Virgin Wines, a major UK wine retailer. They believe

the management team is of a high calibre and can capitalise

on the increasing tendency of consumers to buy wine online.

The business currently has turnover in excess of 35 million

a year, but Mobeus expected this to grow, helped by the

companys niche range of exclusive, boutique-quality wines

and innovative customer loyalty schemes.

This is a 24 million linked top-up offer across all four VCTs

managed by Mobeus and there is a minimum investment of

6,000.

These VCTs are managed by a strong and experienced team.

Investors in this offer will be gaining access to a mature

portfolio of investments with the potential for early dividends.

This offer could be considered by long-term investors seeking

a core VCT. In my view it is one of the standout offers this

season and I would expect it to be popular.

2013/2014 VCT Reviews

Maven focuses on later-stage, established businesses that havea track record of revenue and cash generation. They seek to

back entrepreneurial management teams with the ambition to

grow their business strongly. The team then looks to use its

experience and wide range of industry contacts to develop the

business, making operational improvements or growing sales,

for example.

The portfolios have a bias to oil & gas services companies,

Mavens area of expertise, but overall they are well-diversified.

Together they hold investments in over 50 private companies

with healthcare, consumer, telecoms, mining & resources, and

financial businesses included. The chart below shows the

sector breakdown across the six Maven VCTs:-

Recent deals have included a 5.5minvestment in Fletcher Shipping to fund the acquisition of

two new Platform Support Vessels for its fleet. The company

delivers goods to oil rigs to help them function 365 days a

year. Exits have also been strong. The Maven VCTs realised

the majority of their investments in esure, the insurer, when

it listed on the LSE in March 2013. The investment was

made in February 2010 and achieved a multiple of 2.8x cost

upon disposal.

This offer is a 20 million linked top-up into Mavens six

generalist VCTs. The intended split is 4 million each for

Maven Income and Growth VCTs 1 to 4; 3 million for

Maven Income and Growth VCT 5; and 1 million for Maven

Income and Growth VCT 6. The minimum investment is

5000 which will be split pro rata between the 6 VCTs (i.e.

20% in each of Maven Income and Growth VCTs 1 to 4; 15%

in Maven Income and Growth VCT 5; and 5% in Maven

Income and Growth VCT 6).

Mavens disciplined and relatively conservative approach

has delivered good results for investors over the long term.

These VCTs are managed by an experienced, well-resourced

team which I believe is worth backing for the long term.

OURCHOICE

Oil & Gas

Industrials

Basic Materials

Consumer Goods & Services

Healthcare

Telecommunications

Utilities

Financials

Other

Sector Breakdown

Source: Maven as at October 2013


7/13

This is a top-up across six VCTs. It is designed so investing

across all six should mean a monthly flow of dividends,

although this is not guaranteed. It could appeal to investorsseeking a regular income from a VCT investment.

The VCT portfolios contain a broad mix of holdings,

including property-backed investments such as hotels and

pubs; renewable energy projects; and traditional unquoted

venture capital investments in areas such as technology

and healthcare.

Overall, the portfolios are diverse, providing access to 75

unquoted businesses. Investors choosing to invest across

all six VCTs will be gaining exposure to the asset mix

detailed to the right:-

While the portfolios have similarities there are marked

differences between them which investors looking to select

specific funds should be aware of. Albion VCT has

comparatively more in asset-backed areas, for instance,

while Albion Technology & General has more traditional,

early-stage venture capital.

Investors can either invest equally across all six VCTs or

pick and choose one or more, providing 6000 is invested

in aggregate. This could be a good core VCT holding, but if

you are investing later in the tax year bear in mind you

might not get the selection you want as some could close

earlier than others.

Asset-Backed

Growth & Tech

Cash

Hotels

Pubs

Other Leisure, Retail & Property

Education

Sector Breakdown

Source: Albion as at 30June 2013

Renewable Energy

Healthcare (assets)

Healthcare (Growth & Medtech)

Business Services

Travel

IT & Other Tech

Cash

This is a generalist VCT with a technology twist, drawing on

Foresights experience in both the technology and

renewable technology sectors. It is expected that between a

third and half the portfolio will generally be invested in

technology-related companies.

The focus of this VCT is on small, but established businesses

typically generating earnings between 500,000 and 3

million and with the ability to grow this strongly. A scalable

business model, strong competitive position, and

management teams with a proven track record are key

qualities they look for. They like businesses to have a high

visibility of future earnings through long-term contracts and

recurring revenues.

The current portfolio contains 17 companies and the team

is encouraged by the quality and quantity of potential new

investments they are uncovering. While there is a bias

towards technology a diverse range of sectors are

represented, including: business services, engineering,

defence, software, IT services, leisure, consumer and

healthcare.

This VCT offers something a little different and could

complement other generalists to diversify a portfolio. They

aim to maintain a core of mature investments which

generate a consistent dividend stream and achieve the

occasional big winner to boost returns, though this is also

higher risk. Foresight has taken steps to smooth dividend

flows in recent years, which I view as positive, and now

targets 5p a year. This is a 20 million top up and the

minimum investment is 3000.

Business Services

Consumer

Electronics & Advanced Engineering

Environmental

IT Services

SoftwareHealthcare

Sector Breakdown

Source: Foresight to 30/06/2013


8/13

A focus on younger, growth-oriented companies means thisis a higher risk VCT. A bias towards the digital media sector

differentiates it from some peers, but overall a broad range

of sectors are represented, including: media, technology,

food & beverages, and support services.

The fund is run by Beringea and as well has having a well-

resourced and experienced team in the UK they have a

7-strong US team. This can be a significant source of

opportunities, both for potential investments and helping

existing portfolio companies break into the US market.

The team looks for early-stage companies which already

have an established product or service that is gaining

traction in the market. Their aim is to help management

grow sales rapidly and expand the business. Recent

investments have included a follow-on investment in

Monica Vinader, a high-end fashion jewellery brand thatsells through department stores such as Selfridges and

Harrods, as well as its own shop. ProVens additional

investment of 1.5m will be used to accelerate growth

plans in the UK and internationally.

Historically, there was a focus on maximising dividends,

but recently steps have been taken to smooth dividend

flows while maintaining or slightly growing capital, which

I view as positive. Beringea is seeking an additional 20

million for this VCT and the minimum investment is 5000.

With an experienced team at the helm, a mature portfolio

that could generate early dividends, and reportedly strong

deal flow coming through this offer could be considered by

investors seeking to diversify a generalist VCT portfolio with

a higher risk option.

This is one of the few VCTs available which provides

investors with access to genuinely early stage investments.

This is venture capital investing in its true sense, with thepotential for high returns, but it comes with significant risk

even by VCT standards. The Ventures Team, which

manages the Titan VCTs, is experienced and well-

resourced. The VCTs themselves have a relatively short

track record, but the managers have demonstrated an

ability to back companies at an early stage which have gone

on to become successful brands.

Recent deals have included Decoholic, an online retailer of

home furniture; CertiVox, a web-security company; and

yplan, a mobile ticketing platform. The team also continues

to be encouraged by the progress of existing investments

such as Aframe, which provides content management

solutions to media companies, and is seeing strong revenue

growth. There have also been a number of successful exits

or partial exits recently, including well-known companies

such as Zoopla, the online property search engine; Secret

Escapes, the luxury travel website; and Graze, which

delivers healthy snacks through the post.

The team seeks to back talented people with an idea thatcould disrupt or change an entire industry. They then seek

to help them commercialise the idea with a view to the

company growing revenues strongly in a relatively short

space of time. They can invest in any sector, but there is a

bias towards technology; environment; media; and lifestyle

& wellbeing companies.

Octopus is seeking 50 million to be split equally across

the five Titan VCTs. The minimum investment is 5000 and

any investment will be divided equally across the Titan

range.

I tend to prefer VCTs investing in more mature businesses;

paying steady, attractive dividends; and with longer track

records. For investors seeking a higher octane VCT to add

some spice to a portfolio, but with higher risk, this top-up

offer could be worth considering. I would suggest a time

horizon of at least 10 years.


9/13

Unicorn has built a strong track record managing AIM and

smaller company investments. As well as managing this

VCT they have a number of successful OEIC funds which

are managed using a similar philosophy.

Lead manager on the VCT is Chris Hutchinson, who seeks

profitable companies capable of delivering strong growth.

Ideally, he prefers those leading the market in their field

and with an experienced management team whose

interests are aligned to grow the business strongly.

Recurring revenues, through long-term contracts, for

example, and little or no debt are also qualities he looks for.

In contrast he tends to avoid businesses overly reliant on

public sector spending.

Chris Hutchinson is currently positive on Abcam, a leading

global supplier of protein research tools. It is debt free; cash

generative; and the strong management team has a record

of driving growth in the business. Anpario, a manufacturer

of natural feed additives for the global agriculture market,

is also held in the portfolio. Attractions include significant

overseas earnings, a strengthening position in a growing

market, and no debt.

At around 69 million in size this is the largest AIM VCT in

the market and Unicorn is seeking an additional 20

million to grow it further. They believe an improving UK

economy will be positive for AIM and expect to find plenty

of opportunities to deploy funds raised. The minimum

investment is 2000.

I like Unicorns approach of focusing on quality companies

capable of strong growth and backing the management

team over the long term. For investors seeking an AIM VCT

I believe this could be a good choice.

Finding good-quality investments on AIM can be difficult.

Giles Hargreave, principal manager of these VCTs, has an

enviable track record in smaller company and AIM investing.He is supported by a well-resourced investment team and I

believe their experience helps them stand out from the

crowd. AIM and smaller company investing is higher risk and

some companies will inevitably struggle and others fail

losing investors some or all of their investment.

The team aims to invest the core of the portfolios in high-

quality, profitable businesses with the potential for strong

earnings growth. The portfolios hold a selection of

businesses diversified by industry sector (see below).

Quixant is an example of a typical holding. It supplies

gaming software and hardware to casinos. It is a leader in a

heavily regulated industry where it is difficult for competitors

to break in and take market share. The company made 5.8

million profit on 26 million of revenue in its last financial

year.

There is a target yield of 5% of NAV on both VCTs and to date

they have provided a good flow of dividends, though this is

not guaranteed to continue and dividends will vary

according to market conditions.

This is a linked top-up offer into two established AIM VCTs.

A total of 20 million is being sought, 10 million for each

of Hargreave Hale AIM VCT1 and Hargreave Hale AIM VCT

2. Investors are free to choose which VCT they invest in

subject to a minimum of 2500 in each and a minimum

aggregate investment of 5000. The differences between the

two are subtle and I believe splitting an investment between

them could be sensible for most investors.

The results to date in the VCTs have been more mixed than

with some of the teams other funds, partly due to having

more concentrated, less frequently traded portfolios and

holding more cash. However, I believe they are adept at

finding winning companies and over the long-term they

could achieve strong results for more adventurous investors.

AIM VCTs can add spice and diversification to a VCT portfolio

and the Hargreave Hale AIM VCTs are our preferred choice.

OURCHOICE

Source: Hargreave Hale (as at 30/06/2013 and 31/08/2013)

35

30

25

20

15

10

5

0

%

IT Consumer

HealthcareIndustrials

MaterialsEnergy

Other

AIM VCT 1

AIM VCT 2


10/13

Edge focuses on finding companies operating in creative

industries, particularly those in the media and

entertainment sectors. These sectors are characterised bycreativity and rapid innovation, lending them to venture

capital investing.

The Edge team seeks business at a reasonably early stage

of their development. They like to invest with management

teams that have a proven track record and a product or

service that has shown some evidence of success. Investee

companies must be revenue generating, but they do not

necessarily have to be profitable.

This is an evergreen portfolio, with no fixed life, and

represents a departure from the lower-risk limited life

approach Edge has traditionally taken. Since launching the

H share in April 2012 four investments have been made.

These have included Coolabi, which owns and develops

intellectual property assets for childrens TV; and MirriAd,

which has developed a technology to digitally place brandsand products into TV and video shows at the point of

transmission.

Edge is confident there is a strong pipeline of opportunities

in this sector and is seeking a top-up of 7.5 million to take

advantage of this. The minimum investment is 5,000.

This VCT certainly offers investors something different,

though its specialist focus and concentrated portfolio

makes it high risk even by VCT standards. The Edge team

is highly experienced and has plenty of connections in this

area, placing them in a good position to identify attractive

opportunities. This VCT might appeal to long-term investors

seeking a higher octane VCT to diversify their portfolio.

The Ventus VCTs invest in companies which construct and

operate wind farms and hydroelectricity projects. They

target those where planning permission and grid

connection agreements are in place. The funds provided by

the VCTs are then used to construct the projects and getthem operational.

Once operational the wind farms and hydroelectricity

plants generate revenue partly from government subsidies

(which usually continue for twenty years from the date the

project is constructed) and from selling the electricity

generated in the open market. For wind farms

approximately half of revenue is generated from

government subsidies and for hydroelectricity plants the

proportion is greater.

The team managing the VCTs believes they have identified

an attractive pipeline of opportunities and believe they can

invest the proceeds of this offer within 12 months

(assuming the full 20 million is raised). They believe the

portfolio will be income generating by its second year from

which point they will target an annual dividend of 5 pence

per share, plus some capital growth, although there are no

guarantees these targets can be met.

Since taking over management of these VCTs in September

2011 Temporis Capital has refocused them solely on wind

and hydroelectricity assets after Ventus 2 VCT suffered,

partly as a result of poor investments made in more esoteric

renewable energy schemes such as biomass and landfill

gas. The initial results are encouraging and performance

has improved, but it is still early days.

I view this as a more specialist investment that could appeal

to long-term VCT investors seeking to add to a well-

diversified portfolio and looking for a bias to

income-generating assets. The minimum investment is

5,000.


11/13

This offer is for a new class of shares in Foresight Solar VCT.

The existing share class was launched two years ago and is

so far performing strongly off the back of generous UK

government feed-in tariffs for renewable energy generated

and supplied into the grid. However, these tariffs have nowbeen scaled back, and companies benefiting from them are

now no longer eligible for inclusion in VCTs. Therefore this

class of share will invest in solar power generating

companies in the UK that are eligible for European tariffs

known as ROCs or Renewable Obligation Certificates.

These are less profitable, but arguably have greater

certainty as they are enshrined in European law.

We thought we had seen the back of solar VCTs when Feed-

in Tariff businesses became an excluded activity. I have

mixed feelings about their return. Whilst there is now apartial track record to go on (which in Foresights case is

impressive despite an apparent lack of sunshine last year),

returns are likely to be lower for new investors and the VCT

exit route is still yet to be tested. Foresight has a large and

experienced team dedicated to this area, so in my view they

are the right manager to back in this space.

This VCT is similar to previous offers from Shore Capital,

manager of the Puma VCTs. It is a limited life VCT

designed to wind up in its sixth year, giving investors afuture exit point. They are seeking 30 million for Puma

VCT 10 and the minimum investment is 5000.

Investments are sought across a variety of sectors, but the

team looks to control risk by structuring much of the

investment as a loan which pays the VCT a regular income.

The loan is also generally secured against assets of the

company, usually property, which can be sold to recover

some losses for the VCT should the company fail. This

approach offers less upside, but does reduce the likelihood

of capital loss.

Bank lending to smaller businesses remains scarce and the

team managing the Puma VCTs believe their strategy is

well-placed to capitalise. Presently, they are reporting

strong deal flow with attractive yields available from

advancing loans to businesses requiring capital, even aftersome downside protection has been built in.

Shore Capital has a good track record of making and

realising investments in this area, although there are no

guarantees this will continue. In the wake of the financial

crisis returns were lower than expected, but the team

successfully sheltered capital during a volatile period for

smaller companies. They are now confident an improved

economic environment and lack of bank funding will

generate opportunities. For investors seeking a limited life

VCT I believe this is a team worth backing.


12/13

Applying for VCTs

How do I apply for a VCT offer?

You need to complete the application form found at theback of the prospectus. These are available to download by

visiting our website (www.hl.co.uk/vct) and clicking on

current offers; or by telephoning our Helpdesk on 0117

900 9000. You should read the prospectus fully before

investing.

When is the deadline for making my application?

VCT deadlines are specified in the individual VCT's

prospectus. Any early incentives or existing investor

discount deadlines are also included in the prospectus and

are often earlier than the final deadline for making an

application. Please note that popular VCT offers may raise

their full target amount before the deadline and close early.

When applying for VCTs through Hargreaves Lansdown we

normally need to receive applications at least one day

before the deadline published in a VCT prospectus. This

enables us to process the application and send it to the VCT

manager to ensure our discount is applied.

Who should my cheque be made payable to?

The cheque should be payable to the VCT as stated in the

prospectus, not Hargreaves Lansdown.

Can I use cash in one of my Vantage accounts to apply

for a VCT?It is possible to withdraw cash held in the Vantage Fund &

Share Account and the Vantage Stocks & Shares ISA to

subscribe to a VCT. To do this please include a signed letter

of instruction with your VCT application form. Remember,

if you withdraw money from your ISA it means the loss of

this part of your ISA allowance.

The cash must have settled in your Vantage Fund & Share

account or Stocks & Shares ISA and, to allow us time to

raise a cheque, we require your application form and letter

at least two days before the relevant published VCT

deadline.

It is not possible to use cash in the Vantage SIPP to

subscribe to a VCT.

Where do I send my application form?

Completed application forms should be sent to Hargreaves

Lansdown to ensure our discount is applied.

What happens when I have returned my application

form?

We will confirm receipt of your application by letter, stating

the discount applied. You will then receive the share

certificate and tax voucher directly from the VCT manager

or their agent. This can take several weeks as most VCTs

allot shares monthly or, sometimes, less frequently.

How is the discount applied to my investment?

VCT discounts are usually applied in the form of issuing

investors with additional shares.

The total discount is applied to the amount you invest and

the sum is divided by the VCT's Net Asset Value (including

the initial charge). Discounts can also be given by lowering

the price you pay for each share.

The total number of shares you have been allocated will be

shown on your VCT share certificate.


13/13

Managing your VCTs

How do I claim my tax relief?

HMRC make this easy. When you complete your tax return,there is a special VCT section for completion and you will

then be repaid the income tax by HMRC via your tax code,

as a lump sum rebate or, if self-employed, a reduction in

Schedule D tax.

Can I put my VCT shares in my Vantage Fund & Share

Account?

Yes. To arrange for VCT shares to be added to a Vantage

account please send the share certificates to us with a

completed Share Account Transfer form and a signed Crest

Transfer Form. Both of these forms can be requested on

0117 900 9000.

If you hold your VCT shares in your Vantage Fund & Share

account we are not able to reinvest dividends for you and

you will not receive the annual VCT Reports from the VCT

manager. Instead, dividends will be paid as cash to the

Vantage Fund & Share Account and the VCT reports should

be accessible on our website.

If you purchase your VCTs directly through your VantageFund & Share Account you will not receive the initial tax

relief.

How do I sell VCT shares?

You should not invest in a VCT with a view to selling the

shares. The net asset value and share price may differ

significantly. You should envisage getting your return

predominantly via the tax free distributions.

If you do need to sell, you have two options open to you.

The simplest and quickest way is to sell your shares via a

stockbroker. Hargreaves Lansdown can provide this

service. You should be aware that only one market maker

may be offering to buy the shares and this could have a

negative effect on the price. Alternatively the VCT company

may offer to buy the shares from you. It is always worth

investigating which is the most favourable option, as

market conditions may dictate which is the best at the time.

Please note there will be further VCT launches during this tax year and we intend to update this guide accordingly.

In addition some VCTs will close early when they raise the full amount they are seeking; therefore those listed heremay no longer be available. For more information about currently available VCT offers, including the prospectusesand details of our market leading discounts, please go to our website at www.hl.co.uk/vct where you can also

register to receive regular VCT new launch updates by email.

Documents

Guide to VCTs