Holders of loan notes issued when Lex Service acquired the RAC's motoring services' business in July...
Holders of loan notes issued when Lex Service acquired the RAC's motoring services' business in July 1999 are being offered an opportunity to exchange them for units in the Dresdner RCM UK Growth unit trust.
Lex loan notes are a low risk investment but also have a low yield and no potential for capital growth. In addition, they have a limited life ending on July 2004 when they have to be redeemed at their original value, and, in the meantime, can only be redeemed on two set dates each year.
In aggregate, the loan notes are worth £150m with the value of the original offer to eligible RAC Club members being approximately £34,000 each. Holders can exchange all or a proportion of their loan notes for units in the fund with a 1.75% front end charge and the form of election must reach Dresdner by 2 October 2000.
One advantage of loan notes over cash is they allow investors to defer their CGT liability. Investors who switch into Dresdner unit trust will not incur CGT but continue deferring the liability. Simon White, director at Dresdner RCM Global Investors, said: "Extending the potential holding period also allows individuals to make maximum use of taper relief on capital gains."
The scheme is similar to that offered by Flemings earlier in the year when it allowed shareholders of Asda who had accepted Wal-Mart loan notes when the US chain acquired Asda. Flemings offered the opportunity to loan note holders to invest in either Fleming Managed Growth investment trust or S&P Premier Equity Growth unit trust. As a result some £32m worth of loan notes were switched for shares in the investment trust while £16m was invested in units of S&P Premier Equity Growth.
Dresdner RCM UK Growth, run by Justin Seagar, has performed well over the past three years. For the three years to 9 August it is ranked 15 out of 231 in the UK All Companies sector on an offer to bid basis. During the period it rose by 75.3% compared to an average rise in the sector of 37%.
Looking forward Dresdner is positive about the UK market.
White said: "We are close to the peak in the interest rate cycle, corporate profits have been good, productivity is improving and the UK looks good value from a international view point. We expect to see a rally in the forth quarter with good performance from large financials and interest rate sensitive stocks."
Last week Investment Week reported the departure of Dresdner's head of UK and European equities Stuart Fowler, to join Axa Investment Management as head of its UK equities.
Fowler was not named manager on any specific unit trust but was a key figure behind the strong performance figures generated on the two desks.
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