Zero intolerance

SAVERS with money in zeros have seen the value of their investments tumble, thanks to the scandal surrounding these specialist shares, which were once sold as a lowrisk investment.

So far, panic has enveloped the market, and the result is that every zero has fallen dramatically in value. But, in fact, there are only a few rogue zeros infecting the market.

Zero dividend preference shares, so called because they pay no annual income but pay out rolled-up interest on maturity, were first sold as a low risk investment. But the opposite has proved true because some of the split capital investment trusts - the entities which issue zeros - decided to invest in the shares of other split trusts.

These cross-holdings have created a house of cards, which has collapsed under the strain of the general slump in share prices and aggravated losses. Some of these rogue zeros have lost 90% of their value. Other categories of shares issued - such as the more risky income or capital shares - are practically worthless.

Amazingly, even though private investors were encouraged into zeros, they are not an investment regulated by city watchdog the Financial Services Authority.

Shares in investment trusts - be they zeros or ordinary - are shares just like those issued by trading companies and are therefore covered by company, not investment, law.

The FSA has not published a consumer warning on these investments, nor does it plan to. There is an investigation under way, but this is looking into pricefixing and whether risks were properly explained. Compensation for investors' losses appears unlikely.

Part of the problem is that some trusts are yet to reveal exactly where they are invested, leading to confusion about how to price the shares.

Inevitably, all holdings (or suspicion of holdings) in other split trusts have been written off as worthless, bringing many zero prices down to under 10p.

Money Mail has, therefore, stepped in to fill the gap. But even our data, from analysts Fundamental Data, can only provide a guide. The data only shows the amount invested in other split trusts. It does not show whether the investment is in a trust which also has cross-holdings.

In addition, because the value of split trust shares is falling daily, they become a smaller part of the overall portfolio of a trust, so the figures shown here could quickly become out of date.

The Association of Investment Trust Companies has asked all split capital trusts to provide information on all holdings by the end of this month so it can apply a risk rating to each trust.

Richard Fairley invested £6,000 in the Legg Mason Investors Income & Growth investment trust in May 2000 and now has only £300 left.

He invested in income shares, which have been subject to the same downward pressure as zeros, but he has taken a bigger hit because these types of shares were always more risky.

Mr Fairley, 63, a retired accountant from Wokingham, near Reading, is angry that he was, he claims, never given any indication by the company that the shares had the potential to become virtually worthless. He says: 'I am amazed that so many highlyvalued fund managers have lost so much money. Where did they invest it? The market has gone back up since the September 11 tragedy, but these shares have collapsed.'