ZDP Share redemption option
Gartmore Monthly Income Tst PLC
8 February 2002
8 February 2002
Gartmore Monthly Income Trust PLC ('Gartmore Monthly')
and GMIT Securities PLC ('GMIT Securities')
(together the 'Group')
Proposals relating to the option of holders of
GMIT Securities ZDP Shares to elect
for redemption in April 2002
Introduction
The board of Gartmore Monthly ('Board' or 'Directors') has despatched a circular
to holders of Gartmore Monthly ordinary shares ('Ordinary Shareholders')
containing proposals to enable holders of ZDP Shares ('ZDP Shareholders') in
Gartmore Monthly's subsidiary, GMIT Securities, to exercise their right to elect
to have their ZDP Shares redeemed in whole or in part on or around 30 April 2002
at their capital entitlement of 109.37p per share. GMIT Securities has also
despatched a circular today to its ZDP Shareholders regarding these proposals
together with a redemption notification form. These circulars explain the
potential consequences for the Group of the exercise of that right of
redemption.
The Board believes that it would be in the best interests of the holders of
Ordinary Shares in Gartmore Monthly for the proportion of ZDP Shareholders who
choose to remain invested in GMIT Securities beyond April 2002 to be maximised.
Accordingly, it is proposed to offer ZDP Shareholders an additional opportunity
to redeem their ZDP Shares in April 2004.
The circular sent to Gartmore Monthly Ordinary Shareholders also contains a
notice convening an extraordinary general meeting of the Company. At this
meeting an ordinary resolution will be proposed to authorise the Directors to
vote the Company's shareholding in GMIT Securities so as to give those ZDP
Shareholders who remain invested in GMIT Securities the additional right to
redeem their ZDP Shares (the capital entitlement of which will continue to
accrue at an annualised rate equivalent to 9.56 per cent.) on or around 30 April
2004, at their then accrued capital entitlement of 131.30p per ZDP Share.
The Board believes that it is in the best interests of Ordinary Shareholders to
grant the approval sought by voting in favour of the ordinary resolution to be
proposed at the Extraordinary General Meeting. This resolution requires approval
by a simple majority of votes cast. The Directors have discussed the proposals
with the major Ordinary Shareholders and have received indications to vote in
favour of the proposals from Ordinary Shareholders holding or representing
approximately 33.0 per cent. of the Ordinary Shares.
Full details of the proposals, including the proposed additional ZDP Share
redemption right and the financial effects of various levels of ZDP Share
redemptions are set out in the circulars, referred to above, despatched to
shareholders.
Timetable
The Extraordinary General Meeting of Ordinary Shareholders, at which approval
will be sought for the addition of the April 2004 redemption date has been
convened for 25 February 2002. Following this EGM, ZDP Shareholders will be
advised in writing on or around 26 February 2002 (which is 11 days prior to the
final date for the receipt of redemption notifications) whether the introduction
of the 2004 redemption date has been approved.
ZDP Shareholders must return their redemption notification form by no later than
3.00 p.m. on 8 March 2002 and it is anticipated that the Directors will announce
the result of the ZDP Shareholder redemption elections on or around 11 March
2002.
Following the receipt of ZDP Share redemption elections, the Board will consider
the Group's prospects, portfolio composition and its ongoing viability. The
Board expects, on or around 25 April 2002, to write to Ordinary Shareholders to
report the outcome of its review of the Group's ongoing viability and to either
advise Ordinary Shareholders of the prospects for the future of the Group
(including, among other things, the revised dividend policy, anticipated
portfolio composition and capital structure) or report that, having taken all
relevant factors into consideration, the Board has concluded that the ongoing
Group is not viable. In the latter case, the Board will put proposals to
Shareholders which may include a winding-up or a reconstruction of the Group.
Risk factors
General
The market value of both Ordinary Shares and ZDP Shares can fluctuate and may
not always reflect its underlying net asset value (which may be higher than the
actual realisation level of the investments comprising the Group's assets).
Investors may not get back the full amount invested and in certain circumstances
investors could lose all of their investment. There can be no guarantee that the
Group's investment objectives will be achieved, and past performance is not
necessarily a guide to future performance.
Viability of the Group
Ordinary Shareholders and ZDP Shareholders should be aware that the continued
viability of the Group will depend, inter alia, on the aggregate level of ZDP
Share redemption elections received, market movements in the value of the
Group's underlying investments and the ability of the Group to dispose of
sufficient investments at prices close to the quoted mid-market price to fund
both the redemption of those ZDP Shares elected for redemption and the
prepayment of a sufficient amount of the Bank Facility to ensure compliance with
the financial covenants contained therein.
In the event that the Group is required to realise additional investments from
the Income Portfolio, its ability to do so at prices close to the quoted market
price may be limited as a result of weak demand and low liquidity. The Ordinary
Shares rank for a repayment of capital after the Group's other creditors, the
Bank Facility and the ZDP Shares. If the Board decides that the Group should be
wound up due to the level of ZDP Shares elected for redemption and/or the amount
of the Bank Facility which is required to be prepaid and/or movements in the
market or realisable value of the Group's investments, or for any other reason,
there may be insufficient assets to return any residual capital to Ordinary
Shareholders. Weak demand and liquidity constraints may also affect Ordinary
Shareholders who wish to dispose of a holding of Ordinary Shares in the stock
market other than in small amounts.
Ordinary Shares
The ability of the Company to maintain any dividend payments on the Ordinary
Shares and the level of such dividend payments, following any redemption of ZDP
Shares, will depend, inter alia, on the number of ZDP Shares elected for
redemption, the amount of the Bank Facility required to be prepaid, the post
redemption level of gearing on the Ordinary Shares and movements in the market
or realisable value of the Group's investments up to the date of such
redemption. There is no guarantee that the Group will be able to continue to pay
a dividend to Ordinary Shareholders, whether at a very substantially reduced
level, or at all, and, should this be the case, the Directors may consider
recommending the winding-up of the Group. The Ordinary Shares rank for payment
after the Bank Facility and the payment to holders of ZDP Shares of their
capital entitlement on a winding-up of the Group.
The use of gearing in the form of the Bank Facility and the ZDP Shares is likely
to lead to greater volatility in the net asset value of the Ordinary Shares in
that a relatively small movement in the value of the Group's total assets
results in a magnified movement, potentially unfavourable as well as favourable,
in such net asset value.
ZDP Shares
The ZDP Shares rank for repayment after the borrowings and other liabilities of
the Group but before any payment to Ordinary Shareholders. Assuming all ZDP
Shares are redeemed in April 2002, a fall of more than 9.7 per cent. in the
Group's total assets from 5 February 2002 to 30 April 2002 would result in ZDP
Shareholders, receiving a payment lower than the accrued capital entitlement of
109.37p per ZDP Share on or around 30 April 2002. In that event all of the ZDP
Shares would either be redeemed or repaid in a liquidation of the Company, in
either case on or around 30 April 2002, save to the extent that their holders
may have elected for any successor investment vehicle made available by the
Board.
Bank Loans
Prospective investors should be aware that, whilst the use of borrowings should
enhance the total return on the Ordinary Shares where the return on the Group's
underlying assets is high, it will have the opposite effect where the underlying
return is low, further reducing the total return on the Ordinary Shares.
Furthermore, should any fall in the underlying asset value of the Group due,
inter alia, to asset movements or ZDP redemption elections result in the Group
breaching the financial covenants contained in the Bank Facility, the Group may
be required to repay such borrowings in whole or in part together with any
attendant costs. This could adversely affect the capital and income returns to
Shareholders, particularly if assets can only be disposed of at a realisable
value which is below the market value.
Taxation
Any change in the Group's tax status or in taxation legislation or accounting
practice could affect the value of the investments held by the Group, the
Group's ability to provide returns to holders of Ordinary Shares and/or ZDP
Shares or alter the post-tax returns to such shareholders. The treatment of an
investment for tax purposes depends on the individual circumstances of
investors, who should consult independent advisers if in any doubt as to how the
Proposals may affect their tax position.
Investment in other investment funds
As at 5 February 2002, 29.8 per cent. of the Groups total assets were invested
in high yielding securities of other investment funds. Many of the shares of
these investment funds are geared by loan facilities that rank ahead of the
relevant shares both for payment of interest and return of capital. The net
asset value of such shares tends to be highly geared to the underlying
investment performance of the relevant fund. These shares represent a higher
investment risk as to their capital return, owing, principally, to the gearing.
Dividend cuts or suspensions by companies within the Group's portfolio could
result in the Ordinary Shares paying a lower level of dividend or no dividend at
all in future years. The investment funds in which the Group invests are
expected to be invested in part in high yielding shares of other such funds. A
failure of a fund in which the Group indirectly invests to meet its projected
dividend may have an adverse effect on the ability of the Group to pay
dividends. Investment by the Group in investment funds which themselves have
cross holdings in the same split capital or high income investment funds may be
considered to give rise to a systemic risk should there be failures within the
sector.
Enquiries:
Roger Wood 020 7782 2000
Chairman
Vivien Gould/Richard Prvulovich 020 7782 2000
Gartmore Investment Limited
Bob Cowdell/Ian Davis 020 7678 8000
Hoare Govett Limited
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