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Downing tops up

Downing Corporate Finance is raising up to 1.104m for a top-up share issue of the Aim distribution trust. This is a venture capital trust which focuses on companies listed on the Alternative investment market.

The VCT was established in 1996 and to date has raised 16m. As at November last year the VCT was invested in 35 companies. New money is needed because although diversified across sectors, the portfolio currently has a bias towards technology and Rathbones, the manager, wants to broaden this into other sectors.

When selecting companies, the investment team looks mainly for Aim companies with good growth prospects and a strong management team. Although this is not unique, the company believes it is more attractive for investors to access these companies through an established VCT than a new one.

With the temporary enhancements to income tax relief driving demand for VCTs and fuelling a rush of new issues and top ups, there is a risk that a new VCT might not raise enough money to proceed in such a competitive market. Even if the reverse is true, this poses a problem there may be too much cash to invest in too few Aim companies which are being chased by all other Aim VCTs.

Through a relatively small top up, both problems are avoided, with the investment team not having to pour money into Aim companies simply to comply with VCT rules which state 70 per cent of the funds must be invested within three years.

Statistics from Trustnet show the Aim distribution fund has been improving its performance over the past year. It rose by 20.3 per cent over one year to January 25, 2005, compared with its 10.9 per cent fall over the past three years. These figures make it eighth out of 20 Aim funds over three years and third over one year.

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