The acquisition of one business or company by another, either on an agreed or hostile basis.

The susceptibility of a company to takeover depends on who controls the majority of shares in issue and which shares have the voting rights. Some companies have two classes of shares, one class with voting rights and the other not. In such a case, control of the company can rest with shareholders who don't have a majority of shares but do have a majority of votes.

Private companies can defend themselves relatively easy because their shares tend to be closely held. Public companies are more vulnerable because a predator can go out into the market and quietly build up its holding by buying shares. There are strict rules about the conduct and timing of a takeover bid:

• A shareholder who owns 30% or more of a company' shares has to offer to buy all the other shares at the highest price the shares have achieved in the previous 12 months. This is known as a mandatory bid.
• Otherwise, a predator can announce its intention to bid for a company, and if it does so, the takeover clock immediately starts running. They have 28 days to post their bid or offer document to shareholders. When the bid has been posted (Day 1 on the clock), the target has 14 days to post its defence document. Day 39 is the last day on which a target can publish new information about itself such as trading forecasts, profit or dividend forecasts, or assets values. Day 46 is the last day the bidder can announce new terms. And the bid must close on Day 60, unless a new bidder emerges in which case the clock goes back to the beginning.
• Note that the predator company does not have to follow through with its bid. In its bid document it can make its offer conditional on receiving a certain number of acceptances from shareholders, or on the bid not being referred to the Office of Fair Trading. But the bid must go unconditional by Day 60 (or it lapses altogether), and once a bidder has 50% acceptances it can declare the bid unconditional, giving shareholders who haven't yet responded 14 days to make up their minds.
• Once a bidder has over 90% of the shares in a company, it can compulsorily buy out the remaining 10% of shareholders in order to acquire full control, and those shareholders have no choice but to accept the offer.

Taper relief was introduced into the UK taxation regime with effect from 6th April 1998. Its purpose is similar to indexation, in that it aims to reduce the amount of capital gains tax you have to pay when you sell shares, to account for the effect of inflation.

But there is a critical difference. Whereas indexation works by increasing the base cost of an asset, taper relief works by reducing the gain by a 5% a year for every year it was held regardless of the base cost. This is significant because if the base cost of an asset was zero, indexation does not help. Taper relief, on the other hand, does.

• To qualify for taper relief, your shares have to be held for a minimum of 3 years. If you sell within that period, no taper relief will be available.
• For each whole year that you have held shares from the date of acquisition to the date of disposal, you can reduce the gain by 5%. The maximum relief available is 40%, after 10 years.
• Assets held on or before 17 March 1998 qualify for an additional year of taper relief, and the 'three year' requirement does not apply.

Example

• You buy 1,000 shares in Multimower plc in February 1998 for £2,000
• You sell the shares in August 2000 for £5,000
• You pre-taper gain is £3,000. Taper relief is available for three years (15%) = £750
• Your reduced gain is £2,250

Note that in the above example, taper relief was available even though the shares had not been held for three years, because they were owned on 17th March 1998.

Taper relief applies to each individual share acquisition, so if you dispose of a holding built up over a number of years after 5 April 1998 then the gain on each acquisition has to be calculated individually and taper relief applied to each one individually. The good news is that a holding which you had at 5 April 1998 can be treated as one element, as shown above.

• For people under 65: £5,035
• 65-74: £7,280
• 75+: £7,420

The personal allowances for elderly people are reduced if their total income exceeds £20,100, and the amount of the reduction is £1 for every £2 of the excess. So someone aged 68 with total income of £19,800 would get a personal allowance of £7,280 less £300 = £6,980.

Other allowances are:

• Married Couple's Allowance: only available to couples where one person is 65 or over
• Blind Person's Allowance: £1,660

• £1-£2,150: tax rate is 10% (starting rate)
• £2,151-£33,300: tax rate is 22% (basic rate)
• Over £33,300: tax rate is 40% (higher rate)

The rate is applied to each individual's taxable income which is calculated as:

Taxable income = Income - Reliefs - Allowances

The main reliefs are pension contributions and donations to charity. The main allowances are the 'personal allowance' which every individual has (£5,035 for people under 65 in 2006-2007) and the Married Couples Allowance for couples where one spouse is 65 or over.

The main allowance for UK taxpayers is the 'personal allowance'. In the tax year 2006-2007 the personal allowances are:

• For people under 65: £5,035
• 65-74: £7,280
• 75+: £7,420

The personal allowances for elderly people are reduced if their total income exceeds £20,100, and the amount of the reduction if £1 for every £2 of the excess. So someone aged 68 with total income of £19,800 would get a personal allowance of £7,280 less £300 = £6,980.

Other allowances are:

• Married Couple's Allowance: only available to couples where one person is 65 or over
• Blind Person's Allowance: £1,660

Amounts which you can deduct from your annual income to reduce the amount on which you have to pay tax. For instance, if your income before deduction of reliefs is £20,000, and you made pension contributions in the year of £1,000, you could deduct £1,000 from £20,000 to produce a total income of £19,000. That is because pension contributions are payments on which the Inland Revenue allows you to get relief.

From total income, you would also deduct any allowances, including your personal allowance of £5,035 in the year 2006-2007 for people under 65, to produce your taxable income.

• Taxable earnings = Income - Reliefs - Allowances

The main reliefs are pension contributions and donations to charity. The main allowances are the 'personal allowance' which every individual has (£5,035 for people under 65 in 2006-2007) and the Married Couples Allowance for couples where one spouse is 65 or over.

So someone with Income of £20,000 who has made pension contributions in the year of £1,000 will have Total Income of £19,000, and his Taxable Income will be £19,000 less a personal allowance of £5,035 = £13,965.

The amount of tax he has to pay will be determined by the tax bands in operation in the year in question. For 2006-2007, the bands are:

• £1-£2,150: tax rate is 10% (starting rate)
• £2,151-£33,300: tax rate is 22% (basic rate)
• Over £33,300: tax rate is 40% (higher rate)

The amount of an individual's annual income on which tax is payable defined as:

• Taxable income = Income - Reliefs - Allowances

The main reliefs are pension contributions and donations to charity. The main allowances are the 'personal allowance' which every individual has (£5,035 for people under 65 in 2006-2007) and the Married Couples Allowance for couples where one spouse is 65 or over.

So someone with Income of £20,000 who has made pension contributions in the year of £1,000 will have total income of £19,000, and his taxable income will be £19,000 less a personal allowance of £5,035 = £13,965.

The amount of tax he has to pay will be determined by the tax bands in operation in the year in question. For 2006-2007, the bands are:

• £1-£2,150: tax rate is 10% (starting rate)
• £2,151-£33,300: tax rate is 22% (basic rate)
• Over £33,300: tax rate is 40% (higher rate)

• Taxable pay = Income - Reliefs - Allowances

The main reliefs are pension contributions and donations to charity. The main allowances are the 'personal allowance' which every individual has (£4,895 for people under 65 in 2005-2006) and the Married Couples Allowance for couples where one spouse is 65 or over.

So someone with income of £20,000 who has made pension contributions in the year of £1,000 will have Total Income of £19,000, and his Taxable income will be £19,000 less a personal allowance of £4,895 = £14,105.

The amount of tax he has to pay will be determined by the tax bands in operation in the year in question. For 2005-2006, the bands are:

• £1-£2,090: tax rate is 10% (starting rate)
• £2,091-£32,400: tax rate is 22% (basic rate)
• Over £32,400: tax rate is 40% (higher rate)

An index launched in 1999 with a base figure of 2,300 points by the London Stock Exchange to reflect the growth at that time in internet and technology stocks. To be included, a company must be listed on the exchange, and must be committed to technological innovation. It includes biotechnology companies as well as net stocks and software companies.

There are in fact two TechMARK indices. The TechMARK all-share which has about 220 members. More closely followed is the TechMARK 100 which has an upper market cap limit of £4 billion (thus excluding large caps like Vodafone Airtouch) and which is slanted towards mid-cap and smaller company stocks.

More details are available from the techMARK helpline 020 7797 2000 or on http://www.londonstockexchange.com.

Technical analysis is a method of investing which focuses on past price movements and attempts to identify trends that indicate future price movement. The successful technical analyst buys and sells on the basis of his preferred technical indicators, and hopes to make a profit when the share price fulfils his predictions.

Underpinning technical analysis are three core principles which are central to the TA faith:

1. Share prices move in patterns
2. Patterns repeat themselves
3. If you anticipate a pattern correctly, you can profit from it

Different technical analysts use different techniques, but for the most part they rely on the same raw data:

• Price (whether share prices, commodity prices or option prices)
• Volume (the number of shares or other instrument traded per day)

Using historical data of these two variables, the analyst creates a chart (usually on a computer using special software), identifies patterns, and trades on the basis of what they tell him.

• If a trend indicates that the price of a share is due to go up, he buys shares or call options.
• If a trend indicates that the price of a share is due to go down, be sells shares or buys put options.

When a company decides to list its shares on the Stock Exchange, it can either offer its shares to the public at a price which it stipulates, or it can make an 'offer by tender'.

Put simply, it invites the public to bid for the shares, and when all the tenders are in, it sells them to the highest bidders, thus raising the maximum amount of capital. Sometimes, the issue of shares will be subject to a reserve price.

Offers by tender are less common than offers for sale.

The annual announcement which the Chancellor of the Exchequer makes once a year to outline his government's taxation and spending plans for the forthcoming financial year.

Pre-Budget announcements are made in November, with the real Budget in March of each year. Budgets are given Parliamentary authority by the Finance Act which is passed each year.

An investing axiom that says the domestic inflation rate plus the P/E ratio of the stock market as a whole should equal 20.

If the sum of those two figures is less than 20, the market is cheap; if more, it's expensive.

1. An upward or downward movement in the price of a security.
2. The minimum price fluctuation of a futures or options contract.

1. The time value of money is the simple concept that money in your hand now is worth more than money in a year's time, because you can earn a return on money by lending it out. If, for instance, you are able to earn 10% interest on money, and you are offered £100 now or £109 in a year's time, you should take the £100 now because in a year's time you can have £110 (£100 + £10 interest). If you are offered £111 in a year's time, you should take that option.

   In valuing companies, stock analysts use the concept of the time value of money to discount back the estimated future earnings of a company to their present value. This is meant to enable comparison of different companies whose future earnings may come at different times. By discounting, the value of those earnings is assessed on their present value, so like can be compared with like.

2. In options, the time value is the amount by which an option's price exceeds its intrinsic value. Suppose the shares of XYZ are trading at 60p. There is an option to buy XYZ's shares before 1st December at 55p, and the price of that option is 8p.
   • The intrinsic value of this option is the difference between the exercise price (55p) and the share price (60p) = 5p
   • The time value is the difference between the option price (8p) and the intrinsic value (5p) = 3p

   Options have a time value to reflect the fact that, in the time until expiry (1st December) the option holder has the opportunity to make profits if the underlying share price moves in his favour. As that expiry date approaches, the time value will decrease until it reaches zero.

The gain or loss on an investment which is made up of two components:

1. Income: dividends or interest
2. Capital growth: increase in the share price or bond price

The investment trust and unit trust industry devises creates funds which aim either for income, or for growth, or for a balance of the two. As a private investor who is considering investing money in these funds, it is very important to find out beforehand what the stated objectives of the fund are, and how successful it has been in the past in meeting them.

A fund which aims to achieve the same returns as a chosen share index, and which does this by investing in all the companies in the index according to a market value weighting. Mathematically, this ensures that the fund achieves its aims.

Why would anyone invest in a fund that only tries to match the index rather than beat it? Proponents of tracker funds argue that:

• most active funds try to beat the index but the vast majority of them actually underperform it
• a fund which can guarantee that it will do as well as the index may not be the most ambitious, but its results will be better than most other more ambitious funds
• because a tracker fund invests in a programmatic way, it does not need and army of analysts and researchers backing up its portfolio selection, and the costs are therefore cheaper.

Critics of tracker funds argue that they are unsuitable for investors who want superior returns. They also argue that because of their internal rules, tracker funds which track an index like the FTSE 100, always have to buy into new entrants to the index at a 'top' price, and sell shares of companies exiting the index at the bottom.

A trend in a share price, whether upwards or downwards, which indicates an imbalance in the supply and demand for the share.

• when there are more sellers than buyers the trend will be downwards
• when there are more buyers than sellers the trend will be upwards
• if the number of buyers and sellers is roughly equal, the market will move sideways and the share price will stay within a 'trading range'

Once a trend comes to an end, it is usually reversed. So if a downward trend is broken then it usually means the beginning of an upwards trend and for technical analysts this is a signal to buy. Similarly if an upwards trend is broken, it is a signal to sell because the price is due to move downwards.

If this is not obvious to you, try to think of it in terms of buyers and sellers: a downwards trend is caused by there being more sellers than buyers. If that trend comes to an end, the inference is that there is no longer a surplus of sellers and demand is beginning to outstrip supply. With fewer sellers compared to buyers, the price will be expected to rise.

As well as being classified by direction (upwards, downwards), trends are also classified by duration:

• Minor trends - last from a few days to several weeks
• Intermediate trends - last from several weeks to several months
• Major trends - lasts for anything from several months to several years

A trust deed is a legal document for setting up a trust. In order for a unit trust to be authorised by the FSA, the trustees and fund managers must submit a draft trust deed and scheme particulars. The fund may only be promoted to the public once authorisation has been obtained.

The trust deed has certain mandatory content:

• It must contain the category and the name of the trust, which must reflect its objectives.
• It must state the law that applies to the trust (e.g. England and Wales).
• It must state the currency of the trust (e.g. sterling).
• It must contain a general statement that the scheme may invest in certain eligible markets.
• It must state that the trust deed is binding on the unitholders, trustees and managers and that the trust property is held by the trustees for the unitholders.
• It must state that unitholders have no further liabilities once they have paid the purchase price of the units.

Other optional detail includes any restricted investment powers or geographic limitations, charges, unit pricing formulas, the remuneration of trustees, auditing arrangements, the creation of a unitholders' register etc.

1. The volume of shares traded in a specific period (e.g. a day) either for the market as a whole or for a specific company.
2. A company's total sales figure for a year.