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Press Release - 24 December 2004

Jersey Financial Services Commission and firms announce details of split capital investment trust settlement


Since January 2003 the Jersey Financial Services Commission (the “JFSC”) has been conducting an investigation into the activities of certain Jersey based brokers and a fund manager (the “Jersey Firms”) and certain funds (the “Jersey Funds”) involved with the split capital investment trust (“Splits”) sector. The Jersey Firms are identified at the end of this statement.

Splits are investment trusts with different classes of share. The zero dividend preference shares (“Zeros”) did not provide an income return to investors but were designed to provide reliable capital returns and to be relatively low risk compared to the other share classes, which carried a more visible element of risk.

Private retail investors who invested in Zeros believing them to be a low risk financial product may have seen the value of their investment severely reduced, or in some cases lost.

The JFSC has reached agreement with the Jersey Firms and their parent companies to settle this matter. In reaching this agreement the JFSC has been closely involved in discussions with the Jersey Firms and their parent companies, the Guernsey Financial Services Commission (“GFSC”) and the Financial Services Authority (“FSA”) in the UK.

The FSA and GFSC have been conducting separate investigations and have also reached agreement with the firms and banks that they regulate. The list of those firms and banks that have reached agreement with the FSA, the GFSC and/or the JFSC (the “Firms”) appears at the end of this statement.


The Jersey Firms, or members of those firms’ groups, that are party to the contribution agreements with the JFSC, the GFSC and the FSA have agreed a package of approximately £194 million for investors. The Firms have agreed to contribute without admissions to a fund which will be available for distribution to eligible individuals who invested in Zeros and in a number of specified unit trusts and other financial products that invested in Zeros. The fund is in addition to specific amounts paid or estimated to be paid by specific Firms to their investors including the Aberdeen Progressive Growth Unit Trust Capital Uplift Plan.

An overview of who is eligible to seek a distribution from the fund, the basis on which distributions will be considered, the process for assessing distribution and the method of payment is covered under Next Steps below.

The Jersey Firms have agreed to the publication of this statement for the purposes only of this agreement and without any admissions. The JFSC has made no determination of regulatory breaches or imposed any penalties.

The JFSC considers that the agreement is in the best interests of investors, for the following reasons:

  1. The complexity caused by several features of this particular investigation, makes the outcome for many investors uncertain (even in the event of successful enforcement actions): the number of firms involved and their differing capacities and involvements; and the complexity of the matters under investigation. This agreement brings certainty for eligible investors in Zeros.
  2. In the event of enforcement proceedings the decision making process could take a number of years. This agreement will ensure that money is quickly available to eligible investors.
  3. It has resulted in the agreement of the Firms based in Jersey and Guernsey, the JFSC and the GFSC to the establishment of an adjudication scheme.

Investors who are offered the opportunity to obtain a distribution will, of course, have a choice whether to accept it or not. If they accept it, it will be in full and final settlement of any claims or any remedies they may consider they would otherwise have. If they do not accept the offer, they will remain able to pursue their own claims or remedies, including those arising under the adjudication scheme.

The United Kingdom’s Financial Ombudsman Service provides an alternative means of dispute resolution for those investors who acquired holdings in any class of share of a split capital investment trust from or through a UK authorised entity. There is no such Ombudsman scheme currently operating in Jersey or Guernsey. Certain firms active in Jersey, whose names are also listed at the end of this statement, have therefore agreed to the establishment of an independent adjudication scheme to provide an equivalent forum for resolving disputes over their Jersey-based activities in the splits sector so as to mirror, as fully as practicable, the scope of the UK Financial Ombudsman Service arrangements. The adjudication scheme is designed to ensure that investors in the splits sector who were clients of the Jersey firms identified at the end of this statement will have an alternative forum within which to pursue any complaints that they may have against the Jersey firms in relation to their investments in the splits sector. The adjudication scheme has also been agreed by GFSC as a term of its settlement and will be operated in accordance with principles and rules agreed between the JFSC, the GFSC and the firms identified at the end of this statement. The scheme will be in operation by 1 May 2005. Further information relating to the operation of the scheme will be posted on the JFSC website in due course. The JFSC retains its right to seek compensation on behalf of investors who invested in split capital investment trusts through Jersey firms not identified at the end of this statement.

The JFSC has also been investigating the role of a number of individuals. The JFSC has made no determination of regulatory breaches by these individuals. Certain individuals have voluntarily agreed terms regarding their future involvement in the financial services industry in Jersey with the JFSC.


During 2000 and 2001, several key events contributed to the start of the collapse of a number of splits. These events included the collapse of the value of technology stocks, a marked downturn in the FTSE 100 and a global fall in the value of shares following the events of September 11 in the United States. The impact of these events on the splits sector was affected by the existence of financial gearing and the level of cross-holdings within the sector.

The consequences of these events for the splits sector included a lack of new investor demand and a reduction in the cover available to meet the requirements under bank covenants.

Certain Firms sought to address these matters by embarking on a series of actions in what they viewed as (but which subsequently proved not to be) a short-term market downturn. These included:

  1. Undertaking new issues. It was recognised by some Firms that in view of the state of liquidity and demand in the market, the main potential purchasers of these new issues in significant amounts were splits themselves.
  2. Several splits fund managers invested in the issues of shares by other splits resulting in cross-holdings of shares between different splits.

    As a result of the lack of investor demand, the launching of new splits and the issuing of new shares by existing splits brought little new cash into the sector. The market capitalisation and gross assets of the splits sector was increased by a significantly larger amount than the amount of external cash coming into the sector.

Some of the Firms continued actively to promote the shares in splits during the relevant period. The problems of the Split Capital Investment Trust sector adversely affected investor confidence in investor funds and had a significant negative impact on the investment trust sector, in particular.


The JFSC, FSA and GFSC have identified several areas where the investment industry must learn lessons, if investors are to renew their confidence in the investment sector and investment trusts in particular. The JFSC intends to work together in co-operation with the Jersey Firms and with the Boards of Directors of the Jersey Funds to ensure certain aspects are given full attention, in particular:

  1. Practices, which create misleading market information and impressions or conceal information, are not acceptable.
  2. The rights of different classes of shareholders must be clearly presented. Regard must be had to the suitability of investments for a specific fund.
  3. Firms must properly manage conflicts of interests. Where a firm manages or advises more than one investment fund, it must ensure that any transactions between such funds are conducted transparently, at arms-length and in the best interests of the investors in the funds affected.
  4. Material promoting investment products must properly disclose the specific and significant risks relevant to the product and/or the market at the time it is being promoted. Where the risk characteristics have changed markedly over time it is the responsibility of firms to reflect these changes in promoting the product.
  5. Investment decisions made by fund managers and advice given by brokers should be motivated by proper consideration of the best interests of the investment fund they advise and their investors.
  6. The board of directors of a fund should receive complete and timely information so that it can always take informed decisions and monitor the performance of the fund manager, the administrator and the custodian. Non-executive directors have a particular role to play in this respect.

The JFSC will take full account of these lessons in its future regulation of fund business in Jersey. It will work with firms and the Boards of Directors of Jersey funds to ensure that measures are taken where necessary to enhance corporate governance and internal procedures and controls.


A company, Fund Distribution Limited (“FDL”), has been set up to make distributions from the fund to eligible investors who invested in certain Zeros and in a number of specified unit trusts and other financial products that invested heavily in Zeros. Distributions will be focused upon private investors and their small investment vehicles that held the specified financial products at any time between July 2000 and June 2002. An eligible investor will only be entitled to receive a distribution if the amount assessed by FDL in relation to them is at least £250 across all of their specified financial products. Further information about the criteria to qualify for the fund, including the list of specified financial products, is posted on the FDL website referred to below.

FDL will publish further details in the first quarter of 2005, including the application deadline. Investors will then have to apply for a distribution from the fund by that deadline. FDL will then inform applicants of their possible distribution. Applicants will have the opportunity to accept or reject this offer.

The current intention is that applicants who accept the offer will receive an initial distribution from FDL in the fourth quarter of 2005. If there are still monies available, subsequent distributions may be made with an intention to complete the distribution by the end of 2005.

Investors who do not accept an offer from FDL will retain their rights to take alternative action, including making a referral to the Financial Ombudsman Service or to the adjudication scheme, referred to above, as appropriate, if they have jurisdiction.

Details of the adjudication scheme will be made available in due course.

FDL can be contacted by investors on any of the following:

Telephone: From UK: 0845 606 6389

From Overseas: +44 1224 857555


Investors can also contact the JFSC:

From Jersey, UK and Guernsey: 01534 822000

From Overseas: +44 1534 822000

By email on

Eligible investors in Aberdeen Progressive Growth Unit Trust ("Progressive") should shortly receive a letter from Aberdeen Unit Trust Managers Limited giving details of the Capital Uplift Plan. Investors in Progressive with any factual queries about the Capital Uplift Plan should call 0845 300 2890 between 9.00 am and 5.00 pm, Monday to Friday.


Notes to Editors:

1. The Firms are:

  • 1 Aberdeen Asset Managers Limited
  • 2 Aberdeen Asset Managers Jersey Limited*
  • 3 Aberdeen Private Wealth Management Limited*
  • 4 ABN AMRO Equities (UK) Limited
  • 5 Brewin Dolphin Securities Limited*
  • 6 Britannic Investment Managers Limited
  • 7 Collins Stewart (CI) Limited*
  • 8 Collins Stewart Limited
  • 9 Edinburgh Fund Managers Plc
  • 10 F&C Asset Management plc (formerly ISIS Asset Management Plc)
  • 11 Framlington Investment Management Limited
  • 12 Gartmore Investment Limited
  • 13 Govett Investment Management Limited (now called AIB Investment Management Limited)
  • 14 HSBC Investment Residuary Limited (formerly HSBC Investment Bank plc)
  • 15 Insinger de Beaufort (International) Limited*
  • 16 Jupiter Asset Management Limited
  • 17 Le Masurier James & Chinn Limited*
  • 18 Legg Mason Investments (Europe) Limited*
  • 19 Morley Fund Management Limited
  • 20 New Star Asset Management Limited
  • 21 Premier Fund Managers Limited
  • 22 Royal London Asset Management Limited
  • 23 UBS AG (formerly trading as UBS Warburg)

Firms who are also Jersey Firms are marked with an asterisk

2. The total package of approximately £194 million comprises the fund to be distributed by FDL of £143.03 million, the estimated cost of £43.30 million for the Capital Uplift Plan which Aberdeen Unit Trust Managers Limited has agreed to implement for investors in Aberdeen Progressive Growth Unit Trust who may otherwise have been eligible for a distribution from the fund and the estimated cost of £7.67 million in respect of payments that have been or are estimated to be made by the Firms to investors who may otherwise have been eligible for a distribution from the fund. The estimates are based on certain assumptions including that all offers made to eligible investors are accepted.

3. Members of the media with enquiries should contact:

Gary Godel – Director, Enforcement
Jersey Financial Services Commission

Tel: + 44 (0) 1534 822058
Fax: + 44 (0) 1534 822003

4. The press release issued by the FSA on this matter can be viewed at


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