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Northern 2 tops Up

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Downing Corporate Finance and NVM are topping up the Northern 2 venture capital trust, the generalist VCT launched in 1999.

The trust will invest the proceeds from this offer in a portfolio of UK unquoted companies. As an established VCT, investors can see at the outset where their money will be invested. This differs from investing in a new VCT, where investors are relying on the manager’s ability to line up sufficient deals.

The VCT has a target tax-free dividend yield of 9.7 per cent a year through annual dividends of a t least 5.5p for each share. This tax-free yield is equivalent to a gross yield of 12.9 per cent a year for a 40 per cent taxpayer and 15 per cent a year for a 50 per cent taxpayer.

NVM, which has been investing in UK smaller companies since 1988, says annual dividends of at least 5.5p a share have been paid by this VCT over the last seven years, but future dividends cannot be guaranteed.

The portfolio is diversified across 43 companies in a range of sectors and NVM says many of these are trading successfully, with low bank borrowings and strong cash flow. Most of the firms in the portfolio are later stage companies, but around 10 per cent is invested in early stage companies to boost growth for investors.

The manager sees prospects for future growth despite the current economic gloom and says the mature portfolio provides the potential for investors to see earlier growth in their investments relative to new launch VCTs.

This top-up will take advantage of the gap left by the banks, who are less likely to lend money for small unquoted companies to expand. The track record of both the trust and its manager may appeal to advisers and clients who want the tax advantages of a VCT. However, the higher-risk nature of VCTs may make this unsuitable for others.

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