Explanation of Terms

Preliminary charge
Many fund managers levy a preliminary charge (also known as a front-end load or initial fee) when an investor joins a fund, often at 5% or more of the investment. This is paid to the fund management house to cover marketing and other costs. We do not believe this is appropriate for Troy given the need to keep the cost of investing low.

Annual management charge (AMC)
The AMC, less any commission payable to intermediaries, is paid to the fund management house. At Troy the charge is 1.0% for ordinary investors and 0.75% for charities. The majority of Troy’s investors come to Troy directly. Certain investors who come to us through financial advisers may wish to remunerate their advisers with a higher fee. This is accommodated in the ‘I’ share class which allows for the payment of annual ‘trail’ commission to intermediaries (0.5%).

The AMC is deducted from the income of the Trojan Fund and the Trojan Capital Fund. For the Trojan Income Fund it is deducted from capital (this will increase the amount of income available for distribution but may constrain capital growth).

Total Expense Ratio (TER)
In addition to the AMC, funds absorb other costs including administration, regulatory and audit fees. These are of a fixed nature and therefore the larger the fund, the smaller they are as a percentage. The TER takes account of these additional charges. It is always worth looking at the TER when comparing different funds. Some structures such as ‘fund of funds’, where there is a layering of AMCs, may have very high TERs. The TER on each of Troy’s public funds is only modestly higher than the AMC.

Dilution levy
The dilution levy of 0.5% is charged on all fund purchases and sales. It is paid directly into the fund and does not benefit Troy Asset Management in any way. It is in place solely to protect the interests of existing and continuing investors who would otherwise bear all the dealing costs incurred when investors enter or leave the fund.

A dilution levy is a common feature of open-ended investment companies (OEICs) with a single price structure, such as the Trojan Funds. Under single pricing, investors enter and leave the fund at a price based on the mid-price of the underlying assets. This means that the costs of buying and selling the underlying assets are borne by the existing and continuing investors, unless a dilution levy is in place. For illustration:

Example
An investor investing £100 directly into equities would receive broadly £99 of equities after deduction of stamp duty, broker commission and the spread on the equity prices (he is buying at the offer rather than the mid-price). If he invested in an OEIC containing the same underlying equities, and with no dilution levy in place, he would receive broadly £100 of equities. The £1 benefit to the new investor in the OEIC is to the detriment of existing investors who are bearing his dealing costs. The same is true for investors leaving the fund - though here the benefit to the leaver is nearer 50p than £1, there being no stamp duty on sales.

Under dual pricing (the traditional structure for unit trusts) the issue is dealt with through the bid-offer spread on the fund units. For OEICs the solution is a dilution levy. In determining the levy at Troy we have tried to obtain a reasonable balance between investors’ interests - recognising that the funds are likely to have different weightings in equities, bonds and cash - while maintaining simplicity and transparency through an equal charge for investors entering and exiting the funds.

Performance fees
Certain funds charge performance fees to their investors if performance is above a certain threshold. At Troy we do not charge performance fees. This is consistent with Troy’s desire to keep the cost of investing low and also reflects a concern that performance fees can distort the way funds are run, encouraging managers to take excessive risks.

Fund turnover
Finally it is worth bearing in mind that frequent dealing within funds will push up costs. This will not be reflected in the total expense ratio. At Troy we aim to invest for the long term and to keep portfolio turnover to a minimum.

Note: ALL fund performance figures are stated after ALL costs