Enter split-capital trusts. Splits offer at least two types of share class - sometimes more - so that investors can buy shares tailor made for their needs. They also have a winding-up date, when the trust will sell its assets and distribute the proceeds to shareholders.
This focused structure is attractive. Income seekers can buy a split's income shares, for example, without worrying that the manager's strategy will be compromised in an attempt to produce capital growth.
However, be careful with splits. "I'm not sure investors always understand the risks," says Annabel Brodie Smith, of the Association of Investment Trust Companies.
Some split trusts' shares are pretty risky. When a split winds up, there is a pecking order which says who gets paid first. Investors at the front of the queue are at less risk of losing money. In return, they expect less exciting returns. Further down the ranks, investors hope for bigger bucks. They accept more risk.
Zero-dividend preference shares are the least risky type of split-capital trust share. They pay no income during the life of the split but shareholders get a fixed capital sum when the trust winds up. Mind you, there is a risk that the trust will not have enough assets when the time comes to meet this commitment. But zeros almost always have the first claim on what assets there are.
Zeros are popular with investors who need a certain capital sum on a certain date, to pay school fees, perhaps. Barring disaster, you can be sure the money will arrive. Moreover, since zeros pay no income, you do not pay income tax on the shares. You won't pay capital gains tax either, unless any profit you make takes you over your annual CGT allowance - pounds 6,800 from 6 April.
Stepped preference shares are also low risk, though they are becoming increasingly rare. Investors get a fixed capital sum when the trust winds up, paid once the zeros commitment has been met (occasionally before). Stepped preference shareholders also get fixed dividends each year, which rise at a guaranteed rate.
Income shareholders, meanwhile, usually get all the income generated by a split-capital trust after the stepped preference shareholders, if there are any, have been paid out. However, when the split winds up, income shareholders just receive the value of the shares at issue, but only if the trust has enough assets to meet this commitment once other shareholders have been paid.
There are two variations on the income-share theme. Annuity shares offer a high income but holders get a tiny sum back on wind-up. Investors in income and residual capital shares, sometimes called highly geared ordinary shares, get all the income from the split, after any prior charges, plus all the capital left at wind-up once all other shareholders have been paid.
Capital shares, which are never issued by a trust with highly geared ordinary shares, offer the highest risks. You get no income but all the capital when the split winds up, after all other shareholders have been paid. The worst-case scenario is that the split's investment performance is so bad there is nothing left to pay you on wind up. But if the split does well, capital shares offer potentially sizeable profits.
Some splits offer two share classes, others are more complicated. Split- capital trust managers quote hurdle rates for each class of their shares. These show the annual growth rate the split must achieve on its investments for investors to get their capital back on wind up. Compare hurdle rates carefully - the higher the rate, the riskier the share.
However, if you know what you are doing, split-capital trust shares are very useful because they produce specific types of return that are handy for financial planning. The key is the phrase "if you know what you're doing". Graham Hooper, of independent adviser Chase de Vere, warns: "People don't always understand the technicalities, so it's important to take advice before buying."
David Prosser is features editor of `Investors' Chronicle'.
The Association of Investment Trusts publishes factsheets on split-capital trusts. Call 0171-431 5222