Rights & Issues Share Discussion Threads

[davebowler] 28/4/2016 11:55

Westhouse;
The shareholder vote is scheduled for 2 June 2016.
We believe that a single share class structure is likely to increase the attractiveness of RIII. In
addition, the discount control mechanism proposed should ensure that the fund trades at a
significantly lower discount than what it has traded at over the last five years. If the
proposals of the Board are approved by shareholders we believe the fund should trade
relatively to close to its NAV for substantial periods of time, given the exceptionally strong
long-term performance of the fund, the low total expense ratio (0.48% for the year ending
December 2015) and the discount control mechanisms that would be in place.

[davebowler] 28/4/2016 11:09

''Each class will both gain and lose as a result of the Proposal in a manner which the Board considers is overall fair to both.

The mathematical effect of the Proposal on the Income Shareholders and Capital Shareholders would be as follows:

o Income Shareholders would see a reduction of 16.7% in their proportion of
income for 2016 balanced by a gain of 2.4% in their proportion of capital.''

[coolen] 27/4/2016 22:03

I hold the Caps ad a few Incs and would love to see both classes approve the buy-back scheme.

But why should Income holders wish to wave bye-bye to their accumulated "Dividend Equalisation" Funds built up over the years: or are these being paid out, or have I read it wrong ?

[mammyoko] 27/4/2016 18:10

Should be good for at least 10% upside once the new structure is in place

[davebowler] 27/4/2016 16:23

2016-04-27 12:22:46.701 GMT

RIGHTS AND ISSUES INVESTMENT TRUST PLC

Proposals for the conversion of Capital Shares to Income Shares and amendments to the Company’s articles of association.

On 4 April 2016 the Company announced that a Circular would be sent to shareholders setting out proposals for a restructuring of the Company’s capital. The Company has today issued the Circular to shareholders setting out inter-alia proposals as below, which will be put to shareholders for approval in general meeting and at class meetings of the holders of Capital Shares and Income Shares to be held on 2 June 2016.

Details of the Conversion of the Company’s Capital Shares into Income Shares

The Company currently has 1,640,000 Capital Shares and 2,460,000 Income Shares in issue. During the last five years, despite good performance, both the Capital Shares and the Income Shares have consistently traded at a discount of over 20 per cent. to their respective net asset values. The split capital structure of the Company, and in particular, the structural tension that is created by the differing rights of the holders of Capital Shares and Income Shares, creates opacity and inflexibility in the Company, which may itself be a reason contributing to the high level of the discount. More importantly this significantly impairs the ability of the Company to effectively employ a discount management policy with a view to limiting the discount. As such, in certain circumstances the dual capital structure and the rights of the Capital Shares may limit the Company's flexibility in pursuing its corporate objectives and the best interests of its shareholders as a whole.

The unique feature of the supplementary capital dividend has historically allowed Capital Shareholders to participate in the revenue growth of the Company without disadvantaging Income Shareholders. This may not be possible in the future as current sub-normal levels of interest rates threaten this relationship and, potentially, future sizeable increases in the supplementary capital dividend may have an adverse effect on Income Shareholders.

The Proposals seek to convert the Company’s Capital Shares to Income Shares on terms which are fair and reasonable so far as the holders of both classes of Share are concerned. In assessing the terms on which the conversion should be effected, the Board has taken account of the relative rights of the Capital Shares and Income Shares to participate in capital and income and to the ratios in which they participate in capital and income. Taking account of these rights the Board has concluded that as a result of the Conversion, the holders of Capital Shares should become holders of 4 Income Shares for each Capital Share currently held. Accordingly, as part of the Conversion process, in addition to the Income Share arising through the conversion of each Capital Share, the Board is proposing a bonus issue of three further New Income Shares to Capital Shareholders to create the aggregate of 4 Income Shares for each Capital Share currently held. Such bonus issue will be made free of charge and the shares will be paid up out of the Company’s Share Premium Account and Capital Reserve.

Subject to Conversion becoming unconditional no dividend will be declared or paid on the Capital Shares in respect of the period from 1 January 2016 to the time at which Conversion becomes effective, but the Board is proposing Special Dividend payments to Qualifying Shareholders of 22.5p per Capital Share and 22.5p per Income Share to be paid on 10 June 2016 to holders on the register at 27 May 2016 (ex-dividend 26 May 2016).

The Proposals are not intended to change the Company’s investment policy and following Conversion the Company’s investment policy will remain the same.

New Dividend Policy

After the conversion of Capital Shares, there will be 9,020,000 Income Shares in issue. It is the Board’s intention to rebase the level of dividends at 30p per Income Share in respect of 2016 comprising an interim dividend of 10p per Income Share payable in September and a final dividend of 20p per Income Share.

Discount Management Policy

Your Board intends that the Company will after Conversion implement annual share buy-back arrangements to encourage the level of discount to be not more than 10 per cent. The Board intends to use the authority granted by the Special Resolution to make market purchases of the Income Shares for this purpose. Accordingly, the Special Resolution will seek authority for the Company to purchase up to 1,352,098 of Income Shares, representing 14.99 per cent of the Income Shares in Issue following Admission. However, shareholders should note that the Board does not intend to purchase more than 10 per cent.
of the Income Shares in issue following Admission in the period to 31 December 2016.

The Special Resolution will specify the minimum and maximum prices which may be paid for any Income Shares purchased under this authority. The authority will expire at the conclusion of the Company's 2017 annual general meeting at which point the Board intends to renew the authority on appropriate terms.

The Company may either cancel any Income Shares it purchases under this authority or transfer them into treasury.

Additionally, it is proposed that the Company’s Articles of Association be amended to provide for periodic tender offers by the Company to repurchase at least 10 per cent. of the issued share capital of the Company then in issue at an offer price of at least 90 per cent. of the net asset value per Income Share. The first such offer will be made within 30 days after the publication of the Company’s audited financial statements for the accounting period ending
31 December 2018 and further tender offers will be made for each accounting period ending on the third anniversary of the accounting reference date by reference to which the most recent Tender offer shall have been made by the Company in accordance with the Articles (as described below).

However, the Company shall not be required to make tender offers as provided above, if:

1. the average bid price for an Income Share in the relevant accounting
period is at least 90% of thenet asset value per Income Share (calculated
by reference to the bid price for an Income Share and the net asset value
per Income Share on the last Business Day of each calendar month during
that accounting period); or

2. the average bid price for an Income Share in the last 3 months of the
relevant accounting period is at least 95 per cent. of the net asset value
per Income Share (calculated by reference to the bid price for an Income
Share and the net asset value per Income Share on the last Business Day of
each calendar month in the last 3 months of that accounting period); or

3. the tender offer has not been authorised in accordance with section 701 of
the Companies Act 2006.

In the event that the number of Income Shares in respect of which a tender offer is accepted exceeds the number of Income Shares in respect of which such offer was made (which shall be determined by the Directors but shall be not less than 10 per cent. of the number of Income Shares then in issue) by more than 5 per cent. of the number of Income Shares in issue at the date of the tender offer, the Company will be required to make a further tender offer within 30 days after the publication of the Company’s next audited financial statements.

Removal of references in the Articles of Association to Capital Share, Capital Reserve and a Revaluation Reserve

The Special Resolution will also amend the Articles of Association by removing references to the Capital Shares. The Special Resolution will also remove the provisions for a Capital Reserve, a Revaluation Reserve and a Dividend Equalisation Reserve, which will not be relevant once the Capital Shares cease to exist.

Effects of the Proposal on Income and Capital Shareholders

Each class will both gain and lose as a result of the Proposal in a manner which the Board considers is overall fair to both.

The mathematical effect of the Proposal on the Income Shareholders and Capital Shareholders would be as follows:

o Income Shareholders would see a reduction of 16.7% in their proportion of
income for 2016 balanced by a gain of 2.4% in their proportion of capital.

o Capital Shareholders would see a rise of 10.8% in their proportion of
income for 2016 balanced by a loss of 0.9% in their proportion of capital.

The Company considers that the effects of these changes over the next five years for both classes will be broadly neutral; and shareholders will benefit from the new discount management policy.

Benefits of the Proposal

The Board believes that the Proposals will establish appropriate policies and structures for the Company and in particular have the following benefits for
Shareholders:

o provide the Company with greater flexibility in pursuing its investment
objectives in a more uncertain investment climate; and

o remove the risk that future supplementary capital dividend increases
impact Income Shareholders; and

o enable Shareholders to take advantage of future share buy-back
opportunities; and

o simplify the capital structure of the Company; and

o achieve a more transparent capital structure thereby enabling current and
future investors to have better visibility of the relationship between the
assets of the Company and the value of its shares.

Expected timetable of principal events

Latest time and date for receipt of forms of proxy 11.00am on 31 May 2016
for the separate class meeting of holders of Capital Shares
Latest time and date for receipt of forms of proxy 11.01am on 31 May 2016
for the separate class meeting of holders of Income Shares
Latest time and date for receipt of forms of proxy 11.02am on 31 May 2016
for the General Meeting
Separate class meeting of holders of Capital Shares 11.00am on 2 June 2016
Separate class meeting of holders of Income Shares 11.01am on 2 June 2016
General Meeting 11.02am on 2 June 2016
Conversion to Income Shares record date and 6.00pm on 3 June 2016
disablement of Capital Shares ISIN in CREST
Conversion of Capital Shares to Income Shares 6 June 2016
Admission of Income Shares arising on conversion of 6 June 2016
Capital Shares
Allotment of New Income Shares 6 June 2016
Admission of New Income Shares 6 June 2016
Special Dividend payments to Qualifying Shareholders 10 June 2016
Certificates despatched for Income Shares arising on 13 June 2016
conversion of Capital Shares and New Income Shares

This announcement does not contain all of the information contained in the Circular and shareholders are strongly advised to read the Circular in order that they can make informed decisions on the Board’s proposals.

Dr D M Bramwell

Chairman

27 April 2016

Enquiries:

George Bayer / Duncan Hayes - telephone: [phone]

Maitland Administration Services Limited

(formerly Phoenix Administration Services Limited)

[coolen] 05/4/2016 23:14

Voting control on liquidation is with the Capital shares.

Simon Knott has effective control through the Capital shares but desires to close the discount in order to deter agitators.

The Income shares have a claim over the so-far undistributed revenue reserves and Income holders may well wish to preserve their prior rights to 75% of the trust's future income. So agreement between the classes on an internal reconstruction might be tricky.

A bid from a rival small company specialist trust must be a possibility. If nothing else, holders would see their shares valued at near NAV and obtain capital gains tax rollover relief. Best of both worlds.

[robizm] 05/4/2016 22:14

The spread on buying shares is huge as well

[topvest] 05/4/2016 21:08

Interesting. Probably would help lower the discount. Does anyone really understand the over-complicated share structure here. One class of shares would be better. Good time to do it after such a good run.

This share has been an absolutely fantastic performer for me since 2009 when I bought.

What I like about this trust is that it invests very successfully in small companies that are not in sectors where I have much expertise. I focus on the financial sector largely. This is a great play on their knowledge of certain UK sectors.

[davebowler] 05/4/2016 15:08

At the AGM for Rights & Issues they said there is going to be a capital restructure and that the manager has £17m cash currently.

[coolen] 10/5/2015 21:26

Which gets us back to the views of Mr Lewis in respect of any continuation vote.

And was this the guy stirring in the recent continuation vote at Aurora Investment Trust, or was that the other Nick Lewis ?

[topvest] 10/5/2015 16:56

Thanks - Nicolas Lewis? The trust is still under water I believe because of the redeembale preference shares. It's already taken 10 years + and still underwater. Owns 13.7% of the income and 4.4% of the capital shares here, so quite a big holder.

[coolen] 10/5/2015 14:49

Dartmoor was a quoted investment trust which collapsed as a result of the "splitcap" scandal which involved a group of quoted trusts which invested in either the same 3rd party stocks or in each other.

All were hugely geared, using split capital classes including zero coupon prefs and bank loans.

The present owner of Dartmoor bought up the zero coupon prefs for pennies after the crash, cancelled the share quote and has since successfully restored some wealth to Dartmoor. His names escapes me, but not to be confused with another fund manager of identical name.

It is because of Dartmoor that there are now restrictions on trusts investing in each other.

[topvest] 10/5/2015 12:38

Small company trusts often trade on a discount despite their better performance. The discount here is somewhat larger because of the large family holding. It is a tad unjustified given their strong performance over the years. I bought both classes of shares in 2009 and they have performed very well. Will add more at some point as the manager has a good record and this trust is somewhat neglected by the wider investment community. Dartmoor Investment Trust always intrigues me given it is a private company with a complex capital structure. Anyone know how that trust got to the odd position its in?

[coolen] 09/5/2015 22:07

Agreed.

Also, I'm intriqued by the last share stake RNS which appears to show (the potentially aggressive) Dartmoor Trust upping its stake, but seemingly with no change in shareholding.

What do you guys make of their arithmetic and why has nobody noticed the ambiguity ?

[davebowler] 08/5/2015 14:45

Top NAV performer over 1,3 and 6 months and 2nd best out of 14 Trusts over 5 years in the Small Co's sector yet on a 27% discount to NAV.
The top performer over 5 years is on a 2% discount.
Daft!

[topvest] 02/3/2015 20:00

There may be, but no doubt shareholders will continue to vote for great results continuing!

[coolen] 02/3/2015 11:30

No policy yet, but is there not a "continuation" vote next year ?

[mozy123] 28/2/2015 23:07

Large discount is appealing here. Im taking it they dont have an active discount policy?

One to tuck away for retirement i think!

[coolen] 28/2/2015 21:31

Well said, Topvest. Dad and son have indeed done well !

[topvest] 28/2/2015 15:41

This is a great little trust.
Since 1984 and Simon Knott being manager total returns are 55 fold for the capital shares and 36 fold for the income shares.
Haven't worked out the annual return % but it must be close to 20% or similar to Warren Buffett.
No interest in these though. They are a bit of a hidden gem. Will add more at some point on a hold forever basis.

[coolen] 27/5/2014 16:09

Good spot there Dave.

Interesting, given that Miton have bought a couple of trusts in recent years.

Against that, that they seem to share Westhouse as advisers, so presumably any possible corporate action between the two trusts would have happened by now if it was going to.

[davebowler] 27/5/2014 13:45

Thats a good question which summarises the high discount situation.
Meanwhile Nick Greenwood , manager of Miton Worldwide Opps says in Professionaladviser mag that he is 'focused on (buying) Rights and Issues -on a wide discount because of its difficult to understand capital structure'!

[coolen] 16/5/2014 21:29

Dave, thanks for the updates.

Is the discount HIGH because the Caps give their income to the Income shares, or should the discount be LOW because those Income shareholders provide low-cost gearing for the benefit of the Capital shareholders ?

[davebowler] 15/5/2014 12:25

From Trustnet;Discount to NAV 19%
RIGHTS & ISSUES INVESTMENT TRUST CAP UNIT price 4687p 14-May-2014 Disc-19.23 NAV 5803p
Gearing 136% Div yield 1.78%