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Isa on the cake for L&G

LEGAL & GENERAL

Distribution Trust

Type: Unit trust

Aim: Income and growth by investing in corporate bonds and equities

Minimum investment: Lump sum £500, monthly £25

Investment split: Investment-grade corporate bonds 54%, high-yield
bonds 15%, UK equities 30%, cash 1%

Isa link: Yes

Pep transfers: Yes

Yield: 4.9%

Commission: Initial 5%

Charges: Initial 5%, annual 1.25%

Special offer: Initial charge reduced to 4 per cent

Offer period: Until April 30, 2004

Tel: 020 7528 6773

Legal & General&#39s distribution trusts is a unit trust aims for income
and growth by investing in investment-grade corporate bonds,
high-yield bonds and UK equities.

According to Ronald Blue & Co managing director David Flowers, this
is a well-timed entry to the market. He says: “L&G has a good track
record in distribution funds and launching one that is two-thirds fixed
interest plays well for the Isa tax treatment changes in April 2004.

He thinks the 4.9 per cent yield is okay, but is not sure the fund
should be regarded as low-risk when nearly half of the fund is made
up of equities and high yield corporate bonds. He says: “There are a
few managed distribution funds around &#45 for example New Star has
recently launched one with a similar split. The competition will be
dictated by charges and marketing.”

One criticism Flowers makes of the L&G fund is that it is not cheap.
He explains: “It shows a reduction in yield of 2.1 per cent for a regular
savings &#45 so definitely not a CAT standard product. It would probably
be cheaper to select a good equity fund and a separate fixed-interest
fund.”

On a positive note, Flowers thinks the autoswitch facility, which
automatically invests £7,000 of investors&#39 money into L&G&#39s
distribution Isa each tax year, is useful. However, he adds that an IFA
would want to override the fund selection if they were giving
meaningful ongoing investment advice. He also likes the brochure,
which he describes as “a pleasantly cool blue” but finds fault with its
omission of how often the 4.9 per cent yield is paid.

Summing up Flowers says: “For investors with smaller amounts this
provides a good entry to a lower risk product that maintains tax
efficiency within the Isa wrapping and yet keeps some exposure to
potential equity-orientated returns.”

Suitability to market: Good
Investment strategy: Good
Charges: Average
Adviser remuneration: Average

Overall 6/10

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