Questions and Answers

Below are archived Questions and Answers from the popular column in The Investor Magazine. If you have any questions you would like to see answered here, e-mail investor.magazine@goodbody.ie.

December 2006

What client communications should I expect to receive at end of year?

As part of our client communications, in January we will be issuing a number of reports to clients depending on your account type held with us. As part of the reporting provided on your account, we issue Holding Movements reports and / Valuations Reports depending on the status of your account. These may be issued together or as separate communications.

• Holding Movements Report - this report shows the opening position, closing position and any changes in the position over the 3 months October to December 31st 2006
• Valuations Report - if you receive a valuations report, it summarises the total value of assets held in your account at 31st December 2006.

In addition to this you may also receive a number of further reports such as:

• Safe Custody Statement - this report sets out the shares/funds held by Goodbody Stockbrokers on your behalf.
• Certificate of Deposit Interest - this details the interest applied to your account in 2006.
• Consolidated Tax Voucher - this is a schedule of Dividends/income, which you will need for tax purposes.
• Statement of Account - this report shows the cash balance and trading activity on your account.

I pay dividend withholding tax on my UK registered shares and also have to declare the net dividend amount received for income tax in Ireland. Is this double income taxation?

Under the terms of the Ireland-United Kingdom Double Taxation Agreement, dividends are taxed both in the country in which the recipient individual is resident and in the country of payment i.e. the country in which the company paying is resident. From 6 April 1999, dividends paid by UK corporations to Irish resident individuals are subject to UK withholding tax with no entitlement to the tax credit or to any credit against Irish tax on the dividend income. The individual is obliged to declare the net dividend for the purposes of their Irish income tax return and pay tax at their marginal tax rate if necessary.

What is the impact of oil prices on the financial markets?

We are seeing the impact of oil on financial markets beginning to wane and we appear to have survived intact. Currently the oil price is down 5% on a 12-month basis but the year over year increase has been over 70%. As expected, the move in the oil price pushed up headline inflation, in the Eurozone it reached 2.6%. Core inflation in the Eurozone moved from 1.3% to 1.6%. As the oil price has declined, the trend in headline inflation has reversed and has fallen all the way to 1.6% year on year.

There was a threat that rising energy bills would cause a significant slowdown in growth as both consumers and companies had to spend more on energy inputs. While the latter has certainly been the case, it has had no impact on the overall growth rate, indeed in the Eurozone growth actually accelerated from 1.8% in 2005 to 2.8% in 2006.

Oil shares in general have been under-performing this year, Total is unchanged year to date. It does appear that the significant rise in the oil price has had limited lasting effect on economies and its main impact is sector selection within equity markets.

September 2006

I bought Eircom shares when they floated. What is the situation?

In March 2004 Eircom floated for the second time on the Dublin and London Stock Exchanges at a price of €1.55.

In July 2005, Eircom announced, subject to approval by shareholders and regulators, its intentions to acquire Meteor, Ireland's third mobile operator for €420 million on a cash/debt free basis. A fully underwritten rights issue for €420 million financed the deal. Under the terms of the rights issue, shareholders who agreed to take up the rights were entitled to buy a further 5 shares for every 12 shares held at a subscription price of €1.35 per share.

In August 2006 Eircom shareholders approved its delisting from the Irish and London Stock Exchanges as a result of a takeover approach from Babcock & Brown.

Babcock & Brown made a cash offer of €2.20 per ordinary share which was accepted by a shareholder majority. The cash was distributed to shareholders on 25th August 2006.

Those who chose not to accept the cash offer will receive a Preference Share Alternative or "PSA". Those who elected for the PSA will receive four tranches of preference shares redeemable at future dates as follows.

TRANCHE A: PRICE EUR0.5892 Paid on 30/11/06
TRANCHE B: PRICE EUR0.5892 Paid on 30/06/07
TRANCHE C: PRICE EUR0.5108 Paid on 30/06/08
TRANCHE D: PRICE EUR0.5108 Paid on 30/06/09

Reminder:

Option 1 - €2.20 IN CASH (Please note that this is also the Default Option).
Option 2 - Preference Share Alternative.

What is the difference between scrip and drip dividends?

With scrip the terms are organised at the outset of the dividend process. Shares are issued to shareholders at a pre-agreed price, which is usually set at a discount to the market price. Shares are received by shareholders in lieu of the cash dividend on the dividend pay date. You are still liable to income tax even if you take shares instead of cash.

With drip the dividend is declared in cash however shareholders are given the option of electing to take shares instead of cash. Should the shareholder wish to elect for shares, the Company buys stock in the market to the nearest equivalent value of the cash dividend. Drip schemes are subject to stamp duty.

What is Goodbody Mobile Markets?

Goodbody Mobile Markets is the convenient way to stay current with today's fast-moving markets. You can use your mobile phone to access the latest share prices, foreign exchange rates and market indices on demand. You can register online at www.goodbody.ie or talk to your Portfolio Manager.

June 2006

Is there an opportunity to invest my maturing SSIA in the Stock Market?

As SSIA's are now maturing, this presents an opportunity for first time investors to wet their feet in the Stock Market. Goodbody Stockbrokers offer an Online Sharedealing service which allows you to take charge of your investment decisions through the following options:

• Trading - buy and sell shares online.
• Valuation - monitor your portfolio on a daily basis
• Transaction History - view your orders and track the progress of your trades.
• Market Monitor - access share prices and keep up to date with the latest market news.
• Knowledge Centre - gain access to our recommendations, comprehensive coverage of the Irish economy and conduct your own in-depth research on companies and sectors.

A fully interactive online demonstration of the Goodbody Online service can be found at www.goodbody.ie For more information contact Goodbody Online on 1850 64 74 84 or email us at support@goodbody.ie.

Alternatively you could invest in the Goodbody Equity Fund, which allows you to participate in a pooled and diversified portfolio. The Goodbody Equity Fund would be considered an ideal unit linked investment product, a simple approach to stockmarket investment.

For more information contact Billy Stanbridge on +353 1 6419222 or email billy.j.stanbridge@goodbody.ie

What is a Safe Custody Statement?

A Safe Custody Statement shows the shares and funds (if applicable), held on your behalf by Goodbody Stockbrokers Nominees Ltd as at the statement date. Goodbody Stockbrokers Nominees Ltd. is the name in which securities are registered and held on behalf of our clients.

What is an IPO?

When a privately owned company needs to raise additional capital, it can either take on debt or sell partial ownership. If the company chooses to sell ownership to the public, it engages in an IPO - an “Initial Public Offering”. Partial ownership is generally arranged through a number of financial houses, for example, Goodbody Stockbrokers are currently arranging an IPO for Norkom Technologies.

Is it a good time to buy bonds?

Bond yields have risen significantly over the past nine months. The yield on the benchmark Irish 10yr bond has risen from a low of 3.06% in September
‘05 to the current level of 3.90%. Yield growth has been triggered by signs of recovery in the Euroland economy which prompted the ECB to begin increasing its base rate. While the market looks to have priced in the potential for higher ECB rates it is worth noting that bond markets have benefited
from flows out of equities in recent weeks. Based on this, a recovery in equity markets could prompt a reversal in these flows and provide a better bond
buying opportunity near term.

April 2006

What are the implications of the Finance Bill for pension investors?

The 2006 Finance Bill contains some of the most complex pension provisions ever introduced. The main changes for pension investors are:

• Increase in personal pension tax relief limit Indexation of €254,000 earnings limit
• Reduction in ten year service requirement to fund for 2/3rds pension in occupational pension schemes
• Current ARF investment restrictions now extended to occupational pension schemes
• ARF imputed distributions from January 2008 €5m pension fund limit, and €1.25m tax free lump sum limits, with indexation from 2007
• Tax credit incentive to transfer SSIA funds into a pension.
  The aforementioned are part of a complex process and pension investors should seek expert advice on how they

Where will interest rates be by year-end?

Along with raising interest rates twice over the past four months, the ECB has made it clear to the market that there is more to come. However, given the still fragile nature of the economic recovery in the eurozone, upcoming interest rises will be dependant on the incoming economic data. We expect two further interest rate rises to 3.0% by year end with the risks to this forecast on the upside. Odds are shortening that the next move may come as soon as the May meeting.

Why invest in a tracker product?

Trackers can offer security over a specified amount of initial capital invested, which is usually the full amount but different protected levels may be used to offer different terms to the investment. This gives a minimum value to an investment at the maturity of the product, which would typically have a set term of five to six years, and hence can lower the risk of both the specific investment and an overall portfolio. If 100% of capital is secure the main risk remaining is that the product will generate no return, or a return less than that received by a fixed deposit over the same period. A variety of underlying investments may be used within trackers, so it is important that the product fits into an investors existing or planned portfolio.

What is a High Yield Fund?

A high yield fund invests predominately in a portfolio of equities which have a higher dividend yield than the overall market, and particularly those companies which display strong dividend growth. This is becoming an increasingly popular strategy in the current period of low bond yields as an alternative way of enhancing income. For investors who are looking to take regular income a high yield fund should generate greater annual income than an average equity portfolio, and this can be clearly identifiable from the overall yield on the portfolio. As the high yield and growing dividend may also underpin the share price, a high yield portfolio of stable companies can be less volatile than the overall equity markets.

December 2005

What are Exchange-Traded Funds?

Exchange-Traded Funds, or ETFs, are index funds that trade just like shares on major stock exchanges. All the major equity indices have ETFs based on them. There is an ETF covering the top 20 companies in the ISEQ. There are also ETFs covering bonds and some commodities. Pick an asset class
that is publicly available and there is a good bet that it is represented by an ETF or will be soon. ETFs are index funds at heart which downplay stock
picking in favour of buying the market. They are a relatively inexpensive way of tracking particular international markets, where buying individual shares would be prohibitively expensive. As these funds are not actively managed, but are
passive index trackers, they will fall with what they track as well as rise, as there won’t be a portfolio manager there to sell the individual components or
shares when they’re overvalued, unlike with a managed portfolio.

What are CFDs and who are they suited for?

Contracts for Difference (CFD) provide a mechanism for gaining exposure to shares and other securities using borrowed funds. A CFD is a derivative instrument which offers all the normal features of share ownership with the single exception of voting rights. CFDs, just like shares, do not have any fixed time period or expiry date. CFDs are most appropriate for high net worth
clients who are active and experienced investors. Such individuals typically have a short term investment horizon and should have a high risk tolerance. Investors who wish to apply for a CFD account must complete a detailed application form outlining their assets / liabilities, investmentexperience etc.

What is a Safe Custody Statement?

This is a statement that clients receive bi-annually as at end of December (and end of June). It shows the shares and funds (if applicable), held on the clients’ behalf by Goodbody Stockbrokers Nominees Ltd. as at 31/12/05. Goodbody Stockbrokers Nominees is the name in which securities are registered and held on behalf of our clients. The statement lists the holdings for each stock along with the cash balance on your account if applicable. If a client held stock at one stage during the year, but holds nothing as at 31/12/05 a statement will be printed stating no holdings.

September 2005

What market impact will the break between the Chinese Yuan and US dollar have?

China's change in exchange rate policy should be beneficial for markets. One of the big concerns has been the ballooning US trade deficit, much of which came from China. Going forward the Chinese currency will be able to appreciate reflecting China's superior competitiveness. A rising currency should mute export growth somewhat and thus act to curb the US trade deficit.

Chinese authorities should also benefit. In the past a strong export sector has led to inflationary pressures in China and the authorities have had to respond by raising interest rates. This dampened local demand but did little to cool export demand, the source of the inflationary pressure. With the currency now allowed to appreciate it will be able to limit export demand and thus inflationary pressure.

Overall the change in China's currency policy allows the global economy to respond to growing imbalances and thus should reduce the risk of investing.

What is the Irish tax treatment of dividends received from Ireland and the UK?

Dividends paid by Irish resident companies are liable to Dividend Withholding Tax ("DWT") at source at the standard rate of tax, which is currently 20%.

An individual would be subject to income tax on the grossed up or total amount of the dividend received at their marginal rate of income tax. A taxpayers marginal rate of income tax is the rate at which their next €1 of income is taxed. Effectively, an individual would be liable to income tax at 42% on the gross dividends if their income exceeds the standard income tax band.

The individual may claim a credit for the DWT suffered against their tax liability. Where the withholding tax exceeds the tax liability, the balance will be refunded. An individual who is not a chargeable person for income tax purposes may also claim a refund of the DWT deducted.

Shares received in lieu of dividends are treated in the same manner as cash dividends for tax purposes. The taxable amount is the full amount of the cash foregone and credit is given for the withholding tax paid at source.

Dividends paid by UK resident companies are subject to a withholding tax of 10% at source. The recipient is liable to Irish income tax at their marginal rate of income on the net dividend. There is no entitlement to a credit for the UK tax deducted.

What does the meteor deal mean for eircom?

In July, eircom announced that it is, subject to approval by shareholders and regulators, to acquire Meteor, Ireland's third mobile operator, for €420m on a cash/debt free basis. It intends to finance the transaction via a fully underwritten rights issue for €420m at a subscription price of €1.35 per share (5 new shares for 12 existing shares). In terms of valuation multiples, the purchase looks reasonably priced relative to recent transactions in the sector based on revenue multiples. While it appears more expensive on EBITDA multiples, the higher valuation reflects that eircom is acquiring a fast-growing third operator in one of the most lucrative markets in Europe.
The rationale for the deal is that it should transform eircom from being a pure fixed-line player, dependent on cost-cutting to drive earnings growth, to become an integrated operator with improved revenue and earnings growth prospects. In relation to the dividend, the company intends to ensure that the dividend yield (based on the "theoretical ex-rights" price) is maintained at approximately 6%.

Note: Goodbody Stockbrokers is an advisor to eircom Group on the Meteor transaction.

December 2004

How can trackers be used in a portfolio with direct equities?

Trackers can offer 100% capital security. This means that they have a lower risk than investing in direct equities. Hence they can lower the overall risk of the portfolio. Their term can often be between 4-6 years so they can be used to achieve higher potential returns than fixed term deposits. The risk with 100% capital secure trackers is that they generate no return or a return less than that received by a fixed deposit over the same period. However with the continuing low interest rates the amount at risk is a lot less than the possible returns that could be achieved.

What has caused Dollar weakness?

The weakness of the US dollar has been a concern for euro-denominated investors since early-2002. The dollar has fallen by 17% on a trade-weighted basis since then, with the euro appreciating more than other currencies (due to Japanese intervention restricting the appreciation of the yen and the Chinese authorities' refusal to allow any revaluation of the Renminbi). This dollar decline accelerated after the US election once the authorities signalled their comfort with further dollar weakness. The extent of the US budget and current account deficits means that the US has become increasingly reliant on attracting foreign buying of US securities and foreign direct investment to maintain the status quo for its currency. They are thought to need net inflows of US$2.5 billion per day and have failed to attract these amounts of late.

The current account deficit of 6% of US GDP has increased the risks for the US economy (risk of overseas investors becoming less willing to re-cycle their current account surpluses via buying US securities/companies etc.).

Why might the US want a lower dollar?

This makes US exports more competitive and imports more expensive and should assist in reducing the current account deficit. It also increases pressure on Japan, Germany etc. to re-structure their economies such that they play a greater role in generating economic growth.

What are the effects of a high Euro?

Given that exports have been one of the few bright spots for European companies, the higher euro makes their exports less competitive and reduces the earnings from their US operations. However, the impact is less where the effect is a translation effect (e.g. the effect on the earnings for a company such as CRH where the costs incurred for their US sales are in dollars) than where it is a transaction effect (e.g. the larger effect on the earnings for a company such as Waterford Wedgwood where manufacturing takes place in Europe with a large portion of sales in the US i.e. euro cost base and dollar revenues).

What prospects for the dollar?

We believe there is an element of speculation built into the current dollar/euro exchange rate, somewhat akin to the speculation in the oil price in late-October. Whilst the outlook for the dollar for 2005 does not currently look very positive, we believe there is a reasonable chance of a "bounce" in the dollar in the short-term.

September 2004

What are Exchange Traded Funds (ETFs)?

An ETF is a type of Investment Company whose objective is to achieve the same return as a particular market index. It will invest in the securities of companies that are included in a selected market index. Essentially they are passively managed portfolios and can vary in geography, asset class and sector. An ETF can be traded like any other stock. As there is full transparency and knowledge of the holding of each fund, there tends to be only a small variance between the share price and the net asset value. The first ETF created was the Standard and Poor's Deposit Receipt (SPDR, pronounced "Spider") in 1993. SPDRs gave investors an easy way to track the S&P 500 and they soon became popular. QQQ allows investors to invest in all of the stocks that make up the Nasdaq 100.

How do hedge funds compare to investment funds?

Hedge funds differ from investment funds in that Hedge funds seek to achieve a positive, absolute return rather than measuring their performance against an equity index or other benchmark. Investment funds on the other hand attempt to outperform a benchmark index. Secondly, unlike investment funds which only buy and sell assets, a hedge fund engages in a range of strategies and invests in a wider variety of financial instruments. Strategies employed by hedge funds include short selling (selling an asset with the intention of repurchasing it at a lower price), trading in derivative instruments like options and using leverage (borrowing) to enhance the risk/reward profile of their investments.

What is the impact of rising oil prices on financial markets?

When oil prices start increasing it puts upward pressure on inflation but this only becomes a problem if the higher rate of inflation feeds into higher rates of inflation in the future. Currently this does not look like it is going to happen as inflation rates have started heading down in Europe and US as we have passed the point where the year on year increase in the oil price was at its highest. Hence we have seen no falls in the bond market which is the main barometer of inflation fears. The other impact of higher oil prices is to depress growth rates modestly for countries that are importers of oil, which includes the US and the vast bulk of Europe. If consumers have to spend more on fuel they have less to spend on other things. One could view the impact as similar to a tax increase in an economy and the impact this has on general consumption. This is what financial markets are most focussed on and why equities have been under pressure and bonds doing well as oil price fears mounted. However while oil is an important product one should not over-estimate its importance. The US is a relatively large consumer of fuel in all its forms, but even here it only makes up 4% of personal consumption. There are sector implications also. Obviously the rising oil price is good news for the oil sector and is bad news for the transport sector (a heavy user of oil products). We have seen this in the Irish market with Ryanair and ICG particularly weak over the last three months. The move in the oil price has been a major cause of this. Any weakness in the oil price will see these shares rebound sharply.

May 2004

Why would you want to trade in Contracts for Difference (CFDs) rather than trade the shares?

Margin trading: CFDs are a financial product designed for investors who want extra leverage in their share trading. Instead of paying for the contract value in full, you deposit a "margin" as collateral. Initial margin will be calculated as a percentage of the contract value. In the event that the initial margin is set at 20%, you can buy or sell a CFD worth €100,000 and deposit just €20,000, gaining five times leverage. The initial margin is returned to you when you close out your trade, plus or minus your profit or loss.

Long or short: You can trade CFDs long or short, depending on whether you take a positive or negative view of the stock. If you decide to go long (i.e. buy) stock, you buy a CFD contract as an opening trade, with the intention of profiting from a rise in the share price, and sell as a closing trade. Equally, it is possible to go short on a CFD. In this case you sell a contract as an opening trade, with the intention of profiting from a fall in the share price, and that profit would be crystallised by buying back the contract (to close) at a lower price. It is not necessary to own the shares in order to go short on a CFD.

How do I carry out self-assessment of Capital Gains Tax for quoted shares?

Capital Gains Tax - is a tax arising on gains from the disposal of capital assets and this includes part-disposal. The current rate of CGT tax is 20%. In the eyes of the Irish Revenue, in calculating your potential CGT, you must use the "First In First Out (FIFO)" method of calculating the shares' base cost.

Example
12 January 2003
Purchased 100 AIB @ €10 per share = €1,000

14 March 2003
Purchased 100 AIB @ €12 per share = €1,200

21 July 2003
Sold 100 AIB @ €14 per share = €1,400

CGT Liability
€1,400 - €1,000 = €400 @ 20% = €80

Should you have a previous crystallised loss, you can use this loss to offset the above gain. Remember, the onus for CGT is on the investor to make a self-assessment declaration to the Revenue Commissioners. As always, for comprehensive advice contact a tax advisor.

December 2003

What is my original investment in eircom worth?

• An initial shareholder with 6,544 eircom shares, paid €25,522.
• In July 2000, providing the shareholder retained the holding for 12 months from the orginal flotation, they will have received bonus shares (One for every 25 eircom share held).
• This shareholder would have received 261 bonus shares
• The shareholder then held 6,805 eircom shares (6,544 + 261).
• eircom was taken over by Valentia Holdings in November 2001. Each shareholder received €1.335 per eircom share held. This shareholder would have received €9,085 (6,805 x €1.335).
• At the same time, with the Eircell demerger our shareholder would have received 0.9478 shares in Vodafone for every 2 eircom shares held i.e. 6805/2 x 0.9478 = 3,224 Vodafone shares.
  At this point the shareholder held
  €9,085 and 3,224 Vodafone shares.
• At time of printing, the value of the Vodafone shares at a current market price of £1.35 was equivalent to €6,224.
• Dividends will also have been issued on these eircom and Vodafone holdings, worth approximately €1,000.

This represents a current value of €16,310 (9,085 + 6,224 + 1,000) for the original investment of €25,522 - a loss of 36% for those who have remained wholly invested.

From a Capital Gains tax perspective to determine the original cost of the various holdings, 56.44% of the original cost should be attributed to Vodafone with the balance of 43.56% attributed to eircom.

What is IFSRA?

The Irish Financial Services Regulatory Authority (Financial Services Regulator) was established on 1 May 2003. The Financial Services Regulator is responsible for the regulation of all financial services firms in Ireland. Their mandate is to protect consumers by helping them to make informed financial decisions in a safe and fair market, with sound financial institutions.

What does 'bid, 'offer' and 'spread' mean?

If you want to buy or sell a stock on the open market, you normally trade via agents on the market who specialise in that particular stock. Basically the Stockbroker stands ready to sell you a stock for some asking price (the "offer") if you would like to buy it. Or, if you own the stock already and would like to sell it, they will buy the stock from you for some price (the "bid"). The bid is always lower than the offer. The difference between the bid and offer is called the spread. Stocks that are heavily traded tend to have very narrow spreads (as little as a cent), but stocks that are lightly traded can have spreads that are significant, even as high as several euro.

What is a "Bed & Breakfast"?

Bed & Breakfast refers to a transaction, which enables a shareholder to realise a capital gain in a tax year to make use of his/her annual capital gains tax allowance (currently €1,270 per individual per tax year) without affecting the holding of shares. The shares are sold and repurchased at the current market price on 2 consecutive days. N.B. "Bed & Breakfast" cannot be used to realise a capital loss.

June 2003

What type of bond offers best value?

Government and corporate bonds have performed very well over the last twelve months. This has pushed the yield on Euro denominated, ten year government paper, down from 5.3% in March last year to 4.1% at present. Corporate bonds, those issued by companies, have also been strong and typically pay a higher yield than government issues. Yields have fallen because of weak economic conditions, which in turn have caused the authorities to cut short-term interest rates. Bonds have also been seen as a safe haven from falling equity markets. However with government bond yields close to their lowest levels in very many years we see little upside here. We would prefer to look at good quality corporate bonds where yields of over 5% offer a better alternative.

What are high yielding stocks?

These are stocks, which pay a large portion of their earnings to shareholders in the form of dividends. While no strict definition exists, stocks with a dividend yield (annual dividend divided by the current share price) in excess of 4% are generally considered high yield. With deposit rates and bond yields so low at present, high yielding stocks are very much in vogue. However selectivity when choosing which yield stock to buy is important. Sometimes, high yields can be reflective of fundamental problems within the business and the prospect of a dividend cut, rather than the potential to earn attractive and stable returns.

January 2003

What are my responsibilities in terms of Capital Gains Tax (CGT)?

In general, gains resulting from the sale of shares are liable to CGT at the standard rate of 20%. In calculating whether you have realised a gain you may need to consider the following factors:-

• Indexation, an allowance in the book cost of your shares to allow for inflation
• Whether rights or bonus issues were received
• Any share splits and scrip dividends.
• You may also need to bear in mind that where the gain is as a result of the sale of part of a holding, the first acquired shares are deemed to be the first sold.

Shareholders should also be aware that if they transfer shares to third parties (including family members) at nil or below market value, the Revenue will deem them to have made a disposal at market value and a tax liability may result. Individuals are entitled to an annual Capital Gains Tax allowance of €1,270.

What is Range Trading?

Range trading is a concept designed to capitalise on the pattern whereby a particular share has tended to trade between a clearly identified upper and lower value, i.e. trades in a band/range. The upper value is referred to as the resistance level, and the lower value as the support level. A number of factors will cause a company's share price to fluctuate within this range, including general stockmarket movements, sector-specific issues and news-flow related directly to the particular stock. Having identified a suitable stock, investors adopting this strategy wait for an opportunity to purchase the stock towards the lower end of its range, with the expectation of selling it again once a 10% - 20% increase in the share price has been achieved.

What are PRSA's?

The Government will introduce Personal Retirement Savings Accounts (PRSAs) from early 2003. These are a new form of pension, which it hopes will dramatically increase pension coverage over the coming years. They have introduced limits to the charging structure and fund choice allowed for these type of pensions and have proposed certain obligations for employers to help attain increased pension coverage.

PRSAs are an alternative to pension plans and they offer a new choice for people who want to save for their retirement. Employees can save with monthly premiums. Tax relief is available and the money they save will become available when they retire. These benefits can be taken in the same way as current personal pensions.

What are Covered Warrants?

Covered Warrants are a new form of investment product issued on the Irish Stock Market for the first time in October 2002. Warrants are options sold as securities and traded on a registered stock exchange. They are able to amplify the movements in the underlying stock on which the warrant is based. Warrants are speculative investments and can be used by investors to modify their risk profiles. There are two types - Call and Put Warrants. Call Warrants give the buyer the right but not the obligation to buy the underlying share at a fixed price on a future date. Put Warrants give the buyer the right but not the obligation to sell the underlying share at a fixed price on a future date. The Irish Covered Warrants are issued on AIB, BOI, Anglo Irish Bank, CRH and Ryanair.

October 2002

Would you recommend that I invest additional funds in the market at the moment?

It is true that a number of our existing private clients are strategically positioning their equity portfolios by purchasing further blue-chip companies at attractive prices using recently introduced new funds.

While global stock markets are not risk-free, we believe that equities do appear undervalued with current valuations back to much more acceptable levels. As evidence of this, the market is seeing an increasing number of share buybacks in addition to company directors purchasing their own shares.

To our knowledge these private clients do not possess a ‘crystal ball’ but they are aware that historically, equities have been the best performing asset class over the long term. If striving to achieve above average returns means purchasing quality blue chip companies at attractive prices using additional funds, then now could be an appropriate time.

Can I backdate a personal pension contribution to the last tax year?

Yes, if you have unused tax relief allowances, contributions made in the current year can be backdated to the tax year ending 31 December 2001. However this contribution must be completed before the 31 October deadline for self-assessment Revenue Comissioner returns.

What is the difference between share certificates in my own name and those held in a nominee account?

In the case of own name certificates, the stock is registered in the name of the shareholder and all paperwork relating to share dealing, dividends, etc. must be filled out by the individual. Where shares are held in a nominee account, the broker undertakes all paperwork on behalf of the client. There are two principal advantages to this for the individual, namely faster settlement and a reduced administrative burden. This is the preferred option for shareholders trading on a regular basis.

I am self-employed. How much of my net relevant earnings (NRE) can I contribute to my Personal Retirement Portfolio and gain tax relief?

The limit for tax relief varies with age and is related to your NRE as follows

The net relevant earnings ceiling is capped at €254,000. It should be noted that these limits are for tax relief only. Any excess can be carried forward to a subsequent tax year.

July 2002

Investing in UK Property has attracted a lot of attention. What are the attractions of this market from an investor point of view and how accessible is the market?

Over recent years Irish investors have been active in purchasing UK property both residential and commercial. Annualised returns of 12% have been achieved from UK Commercial property over the last five years. These returns have attracted investors together with the similarity between the UK and Irish legal, tax and stamp duty regimes. UK base interest rates are currently at 4% which historically is extremely low . Low interest rates when compared against typical rental yields of 7% to 8.5% are a further positive factor. This gap allows investors to fund their interest cost from rental income. Purchasers of commercial property will normally ‘gear up’ to a maximum amount. This involves obtaining a comfortable level of debt from a bank to finance the property purchase. The level of debt approved depends on the individual circumstance of each borrower. Borrowing against property can improve the returns to investors. Given the high value of commercial property transactions it is often difficult for private individuals to gain access to this market. This can be overcome in a number of ways such as through investment in a managed property fund. Another effective method is for groups of investors to pool their resources and invest in property through private companies. The company then arranges financing and purchases the property. Investors will continue to look for opportunities in the UK particularly if the UK decides to join The EMU. As ever, investors should always seek professional advice and consider the possible downside risks. Tax advice on the most appropriate structure to hold the property is also an important consideration.

Given recent accounting scandals in the US (Enron and Worldcom), should investors be concerned about the same thing happening in Ireland?

While we would love to be able to say no they could never happen here, the unsavoury truth is that fraud or irregular accounting can happen in any company or country if people are of a mind to perpetrate these practices and controls are lax enough to enable them to think they can get away with it. However, allowing for the above we believe the likelihood of such accounting scandals occurring in Ireland is less than in the US. The reason relates to the fundamental difference in accounting practices between Ireland (and UK) and the US. The US operates on a very rule based system known as GAAP Accounting (Generally Accepted Accounting Practices). Whereas the overarching principal of Irish accounting practice is that the accounts give ‘a true and fair view’ of the financial health of the company. As such there is a greater tendency in Ireland to look at ‘substance’ rather than ‘form’ whereas in the US, form or compliance with the GAAP rules, predominates. While it can be argued that the US system is more precise and subject to less ambiguity, the fact remains that the Irish practice provides auditors with greater scope to reject a company's accounting treatment of a particular issue when they have concerns that while compliant with an accounting standard in word, may not be compliant in spirit.

How can I buy shares for my children?

Current regulations allow you to purchase stock on behalf of a minor—children, nieces, etc.—under certain conditions. The first option is to register the stock in the name of one parent or guardian and attach a designation to indicate that they are held on behalf of a minor e.g. Joe Green A/C Denis. Alternatively some registrars (in the case of the Irish Permanent flotation) may accept details registering stock directly into the childs name, however the registration details will indicate that the stock is held by a minor e.g. Denis Green (minor). The stock must be held until the child reaches 18 years of age.

April 2002

What is a Dividend Withholding Tax Voucher?

A Dividend Withholding Tax Voucher is a record of the tax amount deducted at source. It details the company name and the quantity of shares, the name and address of the registered holder, relevant dates to the payment and the dividend amount per share. The voucher should be retained, as the Revenue Commissioners will accept it as evidence of withholding tax deducted in respect of any entitlement to repayment or relief.

What is a Rights Issue?

Companies issue new shares usually to finance expansion or reduce debt. Under Stock Exchange rules companies issuing new shares for cash must offer these first to existing shareholders as a right. This is normally done in proportion to the existing number of shares, e.g. one new share for every five. These new shares are usually offered at some discount to the market price to encourage shareholders to take them up.

Why might a company buy back its own shares?

Where a company has surplus cash on its balance sheet and does not wish to make acquisitions in the short-term, it might decide that a buy-back is the most efficient use of its cash resources. Assuming that earnings stay constant, the reduced number of shares will result in a higher earnings per share (EPS) which, all other things being equal, should result in a higher share price.

The buy-back should not be just a short-term fix to a weak share price but rather a rational use of its cash resources. A company may announce a share buy-back programme to take place over a period of up to several years. While this tends to help the share price in the short-term, what really counts is that the company actually buys back the shares. The shares bought back may be retired, thus reducing the number of shares outstanding and increasing eps. If they are not retired, they may be used in employee option and pension plans, held in the company treasury to defend against takeover bids, or used as ‘currency’ in the future when making acquisitions.

December 2001

eircom and Vodafone - how do I apportion original costs to my holdings?

After the Eircell demerger, each eircom shareholder received 0.9478 Vodafone shares for every two eircom shares. In terms of the cost, 56.44% of the original cost should be attributed to Vodafone with the balance 43.56% attributed to eircom.

Example:
If you held 6,544 eircom shares at an original total cost of IR£20,090.08, it would break down as follows:-

Vodafone shares:
6,544/2 x 0.9478 = 3,101 shares.
Cost of IR£20,090.08 x 56.44% = IR£11,338.84.

eircom shares:
6,544 shares (1:1).
Cost of IR£20,090.08 x 43.56% = IR£8,751.24.

What is the difference between scrip and drip dividends?

Scrip dividend terms are organised at the outset of the dividend process. Shares are issued to shareholders at a pre-agreed price, which is usually set at a discount to the market price. Shares are received by shareholders in lieu of the cash dividend on the dividend pay date.

With drip, the dividend is declared in cash however shareholders are given the option of electing to take shares instead of cash. Should the shareholder wish to elect for shares, the company buys stock in the market to the nearest equivalent value of the cash dividend. Drip schemes are subject to stamp duty.

What happens to my shares when I die?

Generally solicitors will send in a list of holdings to the broker for valuation at date of death. Thereafter the solicitor will submit a further list as an “inheritance valuation” which will be submitted to the Revenue Commissioners. This will determine the beneficiaries tax liability. The solicitor will extract probate.

The disposal of shares in a large portfolio can take some time as an original grant of probate and original death certificate must be sent to the registrar of each stock within the portfolio to have death noted. This must be done in advance of any disposal or transfer of stock under the will. Once death has been noted the executors are required to sign the appropriate documentation to transfer or sell the stock. Proceeds from the sale will be issued to the solicitor for distribution in the estate.