MACQUARIE CO-INVESTMENT FUND

Transcription

1 MACQUARIE CO-INVESTMENT FUND ISSUER: MACQUARIE INVESTMENT MANAGEMENT LIMITED ABN AFS LICENCE NUMBER ARSN PRODUCT DISCLOSURE STATEMENT Dated 16 May 2005

2 SUPPLEMENTARY PRODUCT DISCLOSURE STATEMENT (SPDS) Issuer: Macquarie Investment Management Limited ABN AFS Licence Number This SPDS, dated 24 June 2005, is supplemental to the Product Disclosure Statement (PDS) for the following Fund issued by Macquarie Investment Management Limited. The PDS and this SPDS should be read together. Fund ARSN PDS dated Macquarie Co-Investment Fund May 2005 EXTENSION OF OFFER PERIOD All references in the PDS to the Offer Period ending on 24 June 2005 shall instead be read as references to the Offer Period ending on 29 July The information in this SPDS is general information only and does not take into account your individual objectives, financial situation or needs. You should consider whether the Fund is appropriate for you in light of your objectives and circumstances.

3 Investments in the Macquarie Co-Investment Fund (the Fund) are not deposits with or other liabilities of Macquarie Bank Limited ABN or of any Macquarie Bank Group company and are subject to investment risk, including possible delays in repayment and loss of income and principal invested. Neither Macquarie Bank Limited nor any other member company of the Macquarie Bank Group guarantees the performance of the Fund or the repayment of capital from the Fund. Macquarie Investment Management Limited, as the issuer of this Product Disclosure Statement (PDS), invites you to invest in the the Fund. This offer is only open to persons receiving this PDS as a hard copy or electronically within Australia. This PDS amounts to general advice only and has been prepared without taking into account any investor's objectives, financial situation or needs. Investors should read the PDS carefully and assess whether the information is appropriate for them in respect of their objectives, financial situation and needs. We encourage investors to talk to a financial adviser before making an investment decision.

4 CONTENTS FUND FEATURES AT A GLANCE 4 MACQUARIE CO-INVESTMENT FUND - INVESTING DIRECTLY IN PRIVATE EQUITY INVESTMENTS 6 MACQUARIE S INVESTMENT APPROACH FOR CO-INVESTMENTS AND DIRECT SECONDARIES 10 MACQUARIE - A PRIVATE EQUITY SPECIALIST 13 RISKS 15 IMPORTANT INFORMATION ABOUT THE OFFER 17 FEES AND OTHER COSTS 20 ADDITIONAL INFORMATION 26 DEFINED TERMS 32 HOW TO COMPLETE THE APPLICATION FORM 33 APPLICATION FORM 35 CONTACT DETAILS 39 3

5 FUND FEATURES AT A GLANCE This is only a summary. Investors should read the entire PDS before making an investment decision. TOPIC SUMMARY PAGE NUMBER FOR FURTHER DETAILS Type of Fund Registered managed investment scheme. 27 Responsible Entity and Manager Macquarie Investment Management Limited. 13 Investment objective Types of investments The Fund aims to provide returns in excess of the S&P/ASX 300 Accumulation Index, after the payment of fees and expenses, primarily through capital growth over the ten year term of investment from exposure to private equity co-investments in Australia and, where available, direct secondary investments primarily in Australia The Fund will invest in the Wholesale Fund. The Wholesale Fund will invest in direct private equity investments alongside specialist private equity managers and direct secondary investments. 6 Offer Period 16 May 2005 to 24 June Unit price $1.00 per unit Minimum investment $20,000 payable in two instalments. Macquarie reserves the right to reduce this minimum Initial instalment 50% of your investment payable on application. 18 Second instalment 50% of your investment. 18 Timing of second instalment First anniversary of the end of the Offer Period. 18 Target minimum and maximum fund size $10 million 2 and $40 million of total committed capital Term of investment 10 years 3 18 Entry fee 3.3% of your committed capital, inclusive of GST 4 deducted from application monies. 20 Base management fee 1.65%pa of committed capital less return of capital and any written off capital (inclusive of GST), payable quarterly in advance from Fund assets. 20, These dates may be varied. We reserve the right to close the offer early or extend the closing date without prior notice. We reserve the right to reject applications and return application monies if total committed capital raised by the end of the offer period is less than $10 million dollars. We have the ability to extend the term to up to twelve years to allow for effective realisation of any remaining underlying investments. Your adviser may receive an upfront commission paid out of the entry fee of up to 3.3% of your committed capital, inclusive of GST.

6 TOPIC SUMMARY PAGE NUMBER FOR FURTHER DETAILS Performance fee Expense recoveries Distributions Cooling off period Liquidity facility Level of risk Tax Availability 20% of total returns once both capital drawn and a preferred internal rate of return of 10%pa on invested funds have been distributed to investors. 20,22-24 Expenses reasonably and properly incurred in operating the Fund may be recovered from the Fund. 20,22 Any realised gains and returns of capital from underlying investments will usually be distributed after the quarter in which the realisation occurs. At a minimum, the Fund will distribute any taxable income, including realised capital gains, that it receives for each financial year. Distributions may be uncertain and irregular. 19 If the Fund is not suitable for you, you may request redemption of your units during the fourteen day cooling off period. 28 After the cooling off period, there is no right of redemption from the Fund. Investments in the Fund should be considered illiquid. 6 High. The capital invested may be lost and may not produce income. 15,16 A general description of the tax implications of investing in the Fund is provided in this PDS. We recommend that you obtain independent tax advice in relation to your particular circumstances. 26 The Fund can be accessed directly by investors. It may also be available on wrap and master trust platforms. 17 5

7 MACQUARIE CO-INVESTMENT FUND - PROVIDES ACCESS TO DIRECT PRIVATE EQUITY INVESTMENTS The Fund gives investors the opportunity to access direct private equity investments made alongside specialist managers. The Fund is managed by Macquarie. ABOUT THE FUND The Fund is a unit trust which pools the money of retail investors and acquires units in the Wholesale Fund. It will also hold some cash investments. The Wholesale Fund is a specialist investment vehicle formed for the purpose of making co-investments in Australian unlisted companies and assets across a range of industries, and making direct secondary investments, primarily in Australia, where available. The Fund is closed ended. This means the opportunity to subscribe for units is limited to the Offer Period and no facility for redemption of your units is available during the term of the Fund, excepting that you can have your units redeemed during the fourteen day cooling off period. As your investment will be illiquid, you should carefully consider whether an investment in the Fund is appropriate for you. Private equity is an alternative asset class that has the potential to deliver long term returns that are superior to those of traditional asset classes such as bonds, property and listed equities. However, private equity is riskier than these traditional asset classes and investors should consult their financial adviser before making an allocation to this asset class. WHAT IS A CO-INVESTMENT? Co-investments are where a private equity investor, such as Macquarie on behalf of the Wholesale Fund, invests directly alongside a specialist private equity manager in particular private equity transactions. This usually occurs when private equity managers do not have the capacity to finance large transactions on their own and approach other investors, with whom they have a relationship, to take a direct stake. This process may lower the cost to investors of obtaining private equity exposure, when compared to investing indirectly through a fund of funds structure. WHAT IS A DIRECT SECONDARY INVESTMENT? Direct secondaries are opportunities to acquire investments in unlisted companies from investors wishing to sell their stake in the company. These investments are usually acquired at a discount to their true value, as the interests of the sellers are generally different to those of an investor, such as Macquarie on behalf of the Wholesale Fund, with an objective of long term capital gains. Our aim in making these investments is to deliver returns to investors by eventually selling the stake in each company or asset via a public offering or trade sale. If investments are successful, returns are likely to be delivered by way of distributions of capital gains rather than income. 6

8 WHY INVEST IN PRIVATE EQUITY? Private equity is a broad term covering investments primarily in unlisted companies and assets at various stages of their development. The term is used to describe investments ranging from start-up capital (also known as venture capital), later stage development capital as well as management buy-outs. While riskier than traditional listed equity investing, it is during these phases - before the assets are taken to the public markets such as a listing on the Australian Stock Exchange - that the highest returns are often found. The early stage, or venture capital, part of the private equity landscape is probably the most well known sector, referring to investments in companies that are at an embryonic stage of developing their business. Private equity investors fund those businesses to enable them to commercialise new technology, ideas or innovation. For example a number of successful technology companies including Compaq, Sun and Apple in the US and ResMed, SirTex Medical and Looksmart in Australia were funded by venture capital companies in their early years. However, this is just one part of the wide range of investments that can be considered private equity. Other areas include service and industrial companies requiring capital to expand, or when management buy-outs are used to revive a mature business. Recent examples in Australia include JB Hi-Fi, Just Jeans, Bradken, Repco, Pacific Brands, and Wizard Home Loans. The companies named above are for illustrative purposes only. 7

9 TYPES OF PRIVATE EQUITY Private equity managers tend to specialise in investing at certain stages in a company's growth or in various industry segments. The main sectors of the private equity market that the Wholesale Fund will use to make its investments are described in more detail in the table below. PRIVATE EQUITY SECTOR Buy-out capital Expansion capital DESCRIPTION OF SECTOR Specialist buyout managers tend to invest in established businesses with reliable cash flows, low operational risk and a strong market position. These managers often use debt to fund their purchases and put in place new management structures designed to grow the value of the companies 5. Expansion capital managers in private equity typically provide additional capital to established companies that require funds and working capital to expand their product or service and reach their potential. Expansion capital is provided to firms at or near profitability to enable them to take another step on their expansion path. Most of these investments will be in industrial and service companies. EXAMPLES OF INVESTMENTS IN EACH SECTOR There have been a number of high profile buy-out transactions in the Australian market over the last five years. These include Just Group a retailer of casual apparel, Pacific Brands a manufacturer of branded consumer staples, B&D Doors a manufacturer of garage and other doors and frames, Austar a regional pay TV operator, and Affinity Health, previously the private hospitals division of Mayne Group. Some examples of expansion capital type investments in Australia include JB Hi-Fi, the now ASX listed retailer of audio visual equipment, Pumpkin Patch, the retailer of children's apparel now listed on the New Zealand stock exchange, The Reject Shop, a discount retailer now listed on the ASX and Austal, a now ASX listed Western Australian company that designs and builds high speed ferries and luxury yachts. Early stage or venture capital Early stage or venture capital managers, specialise in providing seed capital and have strengths in assessing and commercialising new technologies. These managers will typically be seeking to invest in a company in the information technology, biosciences and materials sciences areas and to use their expertise and networks to assist these companies to grow substantially. The companies named above are for illustrative purposes only. Some examples of early stage investments by Australian private equity managers include Looksmart, a pioneer in internet search engine technology, Pharmaxis a specialist pharmaceutical company developing therapies for chronic respiratory and auto-immune diseases, now listed on the ASX, Seek Limited, an internet job search company now listed on the ASX and Kinetic, the technology behind a wide range of commercially available shock absorbers. 5 The Wholesale Fund will not engage in borrowing to fund co-investments. 8

10 THE ROLE OF SPECIALIST PRIVATE EQUITY MANAGERS Macquarie intends to source co-investment opportunities through, and make co-investments alongside, specialist private equity managers with whom we have on-going relationships. Private equity managers invest by putting capital into a business to finance the development of new products and services, the expansion of established products or changes to ownership and management of a business. Private equity managers generally provide their capital, in the form of equity, debt or a mix of both, in exchange for a sizeable stake in the business. However they also invest their expertise - in management, finance, marketing, strategic direction and business and personal networks. By exercising some control through board representation and management agreements, private equity investors seek to protect and grow their investment 6. This alignment of interests and the ability to add value to the business often means that specialist private equity managers generate higher returns than those available from traditional 'hands-off' investment in listed shares, although the risks involved are higher (see Risks on page 15). If successful in their investments, private equity managers typically deliver returns by way of capital gains when they realise their investments through a listing on a stock exchange or by a sale to a trade buyer. The Wholesale Fund will seek to invest alongside these private equity managers in private equity transactions. 6 While the specialist managers with whom we co-invest may seek and exercise such control, it is not Macquarie s intention to do so on behalf of the Wholesale Fund s investments. 9

11 MACQUARIE S INVESTMENT APPROACH FOR CO-INVESTMENTS AND DIRECT SECONDARY INVESTMENTS The Fund aims to provide returns in excess of the S&P/ASX 300 Accumulation Index, after payment of fees and expenses, primarily through capital growth over the 10 year term 7 of investment, from exposure to private equity co-investments in Australia and, where available, direct secondary investments primarily in Australia. In pursuit of this objective, the Fund will pool the money of retail investors and acquire partly paid units in the Wholesale Fund. These units will be paid up to a small proportion initially. The Fund will invest its remaining cash in the Macquarie Treasury Fund (MTF). The Wholesale Fund will make further calls on these partly paid units as and when necessary to fund its investments. The Fund will pay these calls from the cash held in the cash fund, which will be further supplemented when the Fund receives the second 50% instalment of committed capital payable by investors in the Fund on the first anniversary of the end of the Offer Period. PORTFOLIO INVESTMENT PROCESS Our investment process can be described as follows. The Wholesale Fund will originate private equity investment opportunities across the broad private equity market, from buy-outs through expansion capital and venture capital investments. These investments will be sourced from over 15 private equity managers with whom we have ongoing relationships. Portfolio construction Establish desired portfolio allocation Ensure appropriate diversification Optimise portfolio construction Deal origination Maintain strong relationships with quality managers Source attractive deals through relationships Actively identify co-investment and direct secondaries opportunities Investment selection Effective due diligence across a number of broad factors Identify risk factors and mitigants Detailed due diligence to identify risks 10 7 Monitoring and research Monitor investments Ongoing market research Assistance in identifying appropriate exit options Manage risk/on-going due diligence We have the ability to extend the term to up to twelve years to allow for effective realisation of any remaining underlying investments.

12 PORTFOLIO CONSTRUCTION We will structure the Wholesale Fund s portfolio to ensure appropriate diversification across sector, stage and vintage (the year in which a specialist manager makes it investments). The indicative stage guidelines of the Wholesale Fund and expected number of investments, once the Wholesale Fund is fully invested, are shown in the following table 8. ALLOCATION GUIDELINES NUMBER OF INVESTMENTS Buy-out stage 30-50% 3-6 Expansion stage 30-50% 4-8 Venture Capital stage 10-30% Due to the illiquid nature of the investments, these indicative ranges are used as a guide to assist in diversification and are not strict limits. The allocation ranges are based on dollars committed to investments. ORIGINATION We will originate investments in a wide range of industries across a broad range of specialist private equity managers. We maintain on-going relationships with over 15 private equity firms, which we expect will provide the source of co-investment opportunities. Co-investment opportunities usually occur when private equity managers do not have the capacity to finance large investments through their own funds and approach other investors such as Macquarie, on behalf of the Wholesale Fund, to take a direct stake in an investment. Our relationships with private equity managers have developed largely through investments made by our private equity fund of funds vehicles in private equity funds managed by these managers. It is important to note that Macquarie makes independent assessments whether to make co-investments. The specialist managers with whom we may co-invest take no responsibility for our investment decisions. A co-investment does not give rise to any partnership, joint venture or similar legal relationship between the co-investors. The co-investors will each hold shares in the target company independently of each other but all shareholders will typically be bound by a shareholder agreement. The Wholesale Fund will have access to all co-investment opportunities generated by our private equity team. INITIAL INVESTMENT PERIOD During the initial period of investment consideration and selection, the Fund will incur costs. As returns are not yet being generated, the Fund may operate at a loss during this period. This situation would be expected to reverse as investments are added to the Fund. 11

13 INVESTMENT CRITERIA FOR CO-INVESTMENTS We will focus on a number key investment criteria when assessing potential co-investment opportunities: Strong Management Skills. We believe the most important factor in assessing private equity investments is the quality of the target company s management team, particularly the CEO. While the private equity firm involved in originating the investment will spend considerable time assessing management, we will also review management with a view to identifying the relative strength of the management team against peers in the company's particular industry and sector. Recurring Revenue. We will prefer companies with strong recurring revenue streams, rather than revenue generated from one-off sales. Financial Analysis. We will assess the company's ability to generate future cash flow. We believe that primary research, through review and in-depth due diligence, is critical in identifying appropriate investment opportunities. Market Leadership. We will target businesses that are leaders in their particular market segment or those with a high likelihood of achieving leadership or near leadership in the future. Market Attractiveness. We will assess any proposed investment s position relative to its suppliers and customers, the level of competition, market entry and exit barriers and regulatory risk. Exit Alternatives. Emphasis will be placed on the quality and quantity of exit opportunities available for the investment. Pricing & Terms The pricing and terms of the investment will be compared to our assessment of the investment opportunity. Quality of Co-Investor. Of paramount importance is the quality of the co-investor. We will attempt to invest alongside only those firms that are strongly regarded in their particular segment of the private equity market. DIRECT SECONDARY INVESTMENTS Direct secondaries are opportunities to acquire investments in unlisted companies from disengaged or disenfranchised investors. These opportunities generally arise, owing to: government and non-government institutions wishing to divest due to short-term cash requirements; founders and management that are no longer involved in the day-to-day management of the business wishing to sell their stakes; investors wishing to sell where there has been a change in their investment or corporate strategy, or investors where regulatory change results in a desire or requirement to sell private equity investments (e.g. banks). These investments are usually acquired at a discount to their true value, as the interests of the sellers are generally different to those of an investor, such as the Wholesale Fund, with an objective of long-term capital gains. The Fund may complete international investments arising through acquisition of a portfolio of direct secondary investments. International investments will be limited to less than 20% of the Fund s net assets. REALISATION OF INVESTMENTS We will seek to exit investments held by the Wholesale Fund, in conjunction with the lead private equity manager when company progress and market conditions are appropriate. The realisation of these investments may be by way of initial public offering on a stock exchange, trade sale or sale to another private equity manager. Proceeds from any realisation will be distributed to the Fund s investors on a quarterly basis. 12

14 MACQUARIE - A PRIVATE EQUITY SPECIALIST Macquarie began managing private equity investments in 1996 for the clients of our diversified funds. We currently manage private equity investment portfolios for a range of institutional and retail clients. As at 31 March 2005, we managed, or advised on, approximately $1.6bn of commitments to private equity investments. ABOUT MACQUARIE The Fund is managed by Macquarie Investment Management Limited, which is part of Macquarie Funds Management, a division of the Macquarie Bank Group. Macquarie are a full service fund manager with expertise in all major asset sectors and over 20 years funds management experience. Our strong client focus, disciplined investment processes and dedication to innovation have established our reputation as one of Australia's leading fund managers. No member of the Macquarie Bank Group guarantees the performance of the Fund or the Wholesale Fund or the repayment of capital from the Fund or the Wholesale Fund. Macquarie currently manages or advises on, approximately $1.6 billion in private equity programs for a wide range of institutional and retail clients. These private equity programs cover an investment universe that spans Australian and international private equity investments, including secondary investments and co-investments. The Alternative Assets team within Macquarie will manage the underlying portfolio of investments. We will also call upon the expertise of senior members of the broader funds management team in the management of the Fund, including in-house specialists in accounting, legal, compliance and tax. 13

15 TRACK RECORD Macquarie commenced managing private equity investments in 1996, initially for the clients of the diversified funds established by Macquarie, through the Macquarie Select Opportunities Trust (SOT). We first raised institutional capital in 1998 with the launch of the Macquarie Alternative Investment Trust (MAIT). Since then, two further private equity funds have been raised - MAIT II in 2001 and MAIT III in The track record of Macquarie s private equity funds is shown in the following table. Performance is compared to listed Australian equities. TO 30 APRIL 2005 INCPT. 3 YRS 5 YRS 7YRS SINCE AUSTRALIAN DATE % PA %PA %PA INCEPTION EQUITIES* SINCE %PA INCEPTION %PA MAIT I 9 02/ MAIT II 9 07/ SOT 9 10/ The table demonstrates Macquarie s experience in managing private equity investment funds over a number of years. However, note that past performance 10 of these funds is no indicator of likely future performance of the Fund. Macquarie has completed twelve co-investments since 1996, investing approximately $13.5 million. These investments have generated $24.9 million in realised gains and $1.3 million in unrealised gains. The gross internal rate of return (IRR) on these investments is 42.6% per annum. CAPITAL REALISED UNREALISED MULTIPLE GROSS TO 30 APRIL 2005 INVESTED PROCEEDS VALUE OF IRR $M $M $M CAPITAL %PA TOTAL CO-INVESTMENTS 11 $13.5 $24.9 $ X 42.6% THE POTENTIAL BENEFITS OF THE FUND INCLUDE: Access to expertise across a broad range of private equity sectors through specialist private equity managers. The Fund allows an investor to invest alongside specialist private equity managers across the broad range of sectors of the private equity market, including management buy-outs, expansion capital and venture capital (including biotechnology and technology specialisations). 9 Access to Macquarie s broad deal origination capability. By investing in the Fund, an investor can access private equity transactions through our strong ongoing relationships with over 15 specialist private equity managers. Ability to adjust strategy. The Fund will have a high degree of flexibility to adapt its investment strategy to those sectors where we can identify undervalued investment opportunities. Potentially lower management fees. By investing on a co-investment basis, the Fund may reduce the level of management fees payable by the investor in private equity when compared to investing indirectly through a fund of funds structure. Provision of management expertise. The Fund will benefit from Macquarie s private equity expertise - we have been an investor in private equity markets since Performance is reported after fees and expenses, but before tax. The Macquarie Alternative Investment Trusts (MAIT and MAIT II) are two private equity investment funds managed on behalf of a range of institutional investors, mainly large superannuation funds. The performance of MAIT and MAIT II reflect money weighted (or internal) rates of return based on the amount and timing of cash inflows and outflows of an investor in each of these funds, plus the unrealised value of their investments. The performance of the Macquarie Select Opportunities Trust (SOT) reflects time weighted returns including the unrealised value of investments. There can be no assurance that the unrealised investments will be realised at or above the value used in the above performance calculations. The performance of MAIT III is not shown as it does not yet have a performance history of at least twelve months. Source Macquarie Investment Management Limited. * S&P/ASX 300 Accumulation Index. Source Datastream. 10 The performance history relates to funds which may have very different underlying investments to the Fund. In addition, market conditions may have changed significantly since the time at which the above funds made investments. 11 Based on the 12 private equity investments made by Macquarie alongside specialist managers since September This has involved $13.5 million of invested capital. Performance reflects a money weighted (or internal rate) of return incorporating the cash inflows and outflows and the Manager s valuation of investments with unrealised capital gains. After fees but before taxes. These co-investments have been made intermittently over the period since September 1996 and do not represent a portfolio of assets but rather a series of transactions. For this reason no annualised performance numbers for periods less than the since inception period (when the first co-investment was made) is shown. Source Macquarie Investment Management Limited. 14

16 RISKS There are risks associated with any investment. Generally, the higher the expected return on an investment, the higher the risk and the greater the variability of returns. Macquarie's risk management objective is to deliver risk/return outcomes in line with our clients' expectations, however we cannot provide assurances or guarantees on future profitability and Fund returns, distributions and return of capital. This section provides a summary of some of the main risks associated with your investment. However, because of the diversity of the Fund's underlying private equity investments which it will ultimately acquire, these risks cannot be exhaustively categorised. Investors should obtain independent financial and taxation advice before investing in the Fund. Given the nature of the Fund s underlying investments, investors are advised to regard any investment in the Fund as speculative. Liquidity risk: Your investment is illiquid. Your capital is committed for the long term. After the cooling off period, you cannot redeem your investment during the ten year life of the Fund. Generally, units are non-transferable. In any event, any transfer of units requires our written consent. Neither Macquarie or any of the Macquarie Bank Group companies are required to facilitate the sale or transfer of your units, although we may, at our discretion, assist with such sale or transfer. Investment realisation risk: Unlike shares of publicly listed companies, there is no ready secondary market in which to sell the shares of private unlisted companies. The ability to generate liquidity within the Fund depends on a number of factors, in particular the state of the initial public offer market and the level of corporate activity. Early repayment risk: The Fund may sell all its assets and return the proceeds to investors before the expiry of the investment term of the Fund. In this case the return on your investment may be diminished, and you may not be able to reinvest into a similar yielding investment. Availability of investments: The success of the Fund depends on the availability of appropriate investment opportunities, and the ability to identify and invest in underlying co-investments. Should suitable investments not be available, the potential return opportunity will be lost. Performance risk: Neither Macquarie nor any of the Macquarie Bank Group companies guarantees you any level of return or repayment of capital from the investment. By its nature, private equity is high risk and some investments may fail, resulting in loss of capital. Past performance of previous private equity funds cannot be taken as an indication of future performance of this Fund. Given the expected timeframe on realisation of investments, the Fund may operate at a loss with no distributions to investors in the initial years of the investment or possibly longer. This may result in a net asset value of less than $1.00 per unit. In order to reduce performance risk, Macquarie s aim will be to invest in assets that exhibit a sustainable competitive advantage, add value to investments through active management and return funds to investors once investments have been successfully divested. We also aim to invest across a range of vintages and private equity types. 15

17 Concentration risk: In certain circumstances, we may concentrate investments in a small number of investments. This concentration means that a loss arising in a single investment will cause a proportionally greater loss in the Fund than if a larger number of investments were made. Manager risk: The risk that Macquarie will not achieve its performance objectives or not produce returns that compare favourably against its peers. The performance of the Fund will depend significantly upon the ability of the Manager to select profitable investments. Market risk: Market risk relates to the state of listed markets vis-à-vis exit strategies for private equity investments. If investors are pessimistic about the condition of the share market, they are less likely to be enthusiastic about taking up an initial public offering of a private company, which in turn affects price and liquidity for private equity investments. It should be noted that an initial public offering is one of a number of exit strategies for private equity managers. Management buy-outs and trade sales are other common strategies. Forfeiture risk: If you do not pay the second instalment of your committed capital on the first anniversary of the end of the Offer Period and the amount owed remains unpaid ten days after we have given you written notice of your default, you will forfeit all your units in the Fund. Private equity sector risk: As an increasing number of investors seek to gain exposure to the private equity sector, so demand increases, and the price that has to be paid for investments may also increase. This could potentially adversely affect the Fund's performance. Valuation risk: The price ultimately realised when exiting an investment may differ from the value attributed to it prior to the sale. This variation in valuations is due to the nature of private equity investments, and may affect the performance of the Fund. Macquarie is reliant on information it receives from external private equity managers regarding the value of each underlying investment. Macquarie will use this information to determine the net asset value of the Fund. If this information is materially incorrect, or the realisable value of these investments is less than the external manager s valuation, there is a risk that the value of the Fund could be adversely affected. Currency risk: is the risk that fluctuations in exchange rates between the Australian dollar and foreign currencies may cause the value of the Fund's investments to decline. The Fund will not hedge any foreign currency exposure, however the Fund's non- Australian dollar denominated investments are limited to 20% of the Fund's size. Documentation Risk: is the risk that unlisted or structured transactions are imperfectly executed or poorly documented. 16

18 IMPORTANT INFORMATION ABOUT THE OFFER The Fund is open to subscriptions for a limited period only until 24 June 2005, unless extended by Macquarie and may close before 24 June 2005 should the Fund be oversubscribed. The Fund is a closed-end fund with an objective of raising between $10 and $40 million. The opportunity to subscribe for units is limited to the Offer Period. Early applicants will be given preference in the allocation of units. All units will have an initial value of $1.00 and will be partly paid. The minimum commitment is A$20,000. We have the absolute discretion to accept or reject all or part of any applications received. If the total committed capital raised by the end of the Offer Period is less than $10 million, we reserve the right to reject applications and return all application monies to investors without interest. Investing in this Fund can be done in one of two ways, depending on whether you are an indirect or direct investor. Investors should keep a copy of the current Product Disclosure Statement and any supplementary documents for future reference. Product Disclosure Statements are available from our Sydney office free of charge. INDIRECT INVESTORS If investing through a master trust or wrap account, you are known as an indirect investor. These are types of "investor directed portfolio services", or IDPS, an investment or reporting service provided by an operator. Other types of IDPS are some types of nominee or custody services. Investors gaining exposure to this Fund through a master trust or wrap account are indirect investors and do not themselves become investors in the Fund. Instead it is the operator of the master trust or wrap account that invests for you that has the rights of a direct investor, and they may choose to exercise these rights in accordance with their arrangements with you. Indirect investors will need to complete the application form provided by the master trust or wrap account operator, and will receive reports and other information from that operator. Any enquiries should be directed to them. DIRECT INVESTORS To invest directly, you need to complete the application form that accompanies this Product Disclosure Statement and return it to us with your initial instalment. Initial instalments made directly must be for a minimum of $10,000 (being 50% of the $20,000 minimum committed capital) with the remaining $10,000 instalment payable on the first anniversary of the end of the Offer Period. APPLICATION PRICE The initial application unit price will be $1.00. Calls of the unpaid amount will be made on the first anniversary of the end of the Offer Period of the Fund. The end of the Offer Period is 24 June 2005 or as otherwise determined by Macquarie. Applications will be accepted, at the application price, at Macquarie's Sydney office prior to 5pm Sydney time on that business day. Cheques and application forms received after the cut-off time may be accepted at Macquarie s discretion or will be returned to the investor. The Fund will initially invest drawn capital in the MTF until called by the Wholesale Fund. Payments can be made by cheque, real time gross settlement (RTGS), Austraclear and bank transfer. Cheque payments should be made out to MIML - Macquarie Co-Investment Fund for (applicant's name). ISSUE OF UNITS Applications for units will only be accepted by Macquarie at the end of the Offer Period if the target minimum fund size of $10 million total committed capital has been reached. If your application is accepted in whole or in part, your units will be issued on the last day of the Offer Period. Pending the issue of units, all application monies will be held in a separate account. The number of units issued will be calculated by first deducting the applicable entry fee from your committed capital and then dividing the result by the $1.00 application price. 17

19 UNIT PRICING The Fund s unit price will vary to reflect the value of its units held in the Wholesale Fund and MTF. As the value of the underlying assets rises and falls, the unit price of the Fund will also rise and fall correspondingly. If capital is called or returned to you the unit price will also rise and fall correspondingly. We will report the unit price to you at least quarterly. The unit price is equal to the value of the Fund s assets, less liabilities divided by the number of units in issue. The Fund s unit price will reflect the value of the underlying investments and liquid assets held. These will be valued by Macquarie at their fair value using a valuation method capable of being verified independently by an expert valuer independent of Macquarie. Notwithstanding the changing unit price, the units you hold in the Fund are illiquid (see Risks on page 15). The unit prices are also published on our web site at funds/unit_prices.dyn WHEN ARE INSTALMENTS PAYABLE? The first instalment (being 50% of your committed capital) is payable when you make your application. The second instalment (being the remaining 50% of your committed capital) is payable on the first anniversary of the end of the Offer Period. We will give you at least 21 days written notice of the second instalment payment date and the amount of the instalment. Please see below for information about defaults. WHAT HAPPENS IF YOU DO NOT PAY THE SECOND INSTALMENT? We must receive payment of the entire second instalment by the instalment payment date specified in the notice. If we do not receive your entire second instalment at our Sydney office prior to 5pm on that date, you will have committed a default in respect of that instalment. If you default we may charge you default interest on the full amount of the relevant instalment (even if you made a part payment) at the default rate. The default rate is equal to the Bank Bill Rate plus 5% per annum. You will be given written notice of the default and 10 days in which to remedy it. You will not be entitled to receive distributions from the Fund or otherwise be entitled to exercise any rights such as voting rights attached to your units until your default is remedied in full. Additionally, we may satisfy any amount owing by you from distributions otherwise payable to you. If after ten days of receiving notice of default, any amount owed by you remains unpaid, you will forfeit all your units in the Fund and cease to have all entitlements and rights in respect of those units. Upon forfeiture, we may attempt to sell the units that represent your investment in the Fund. We reserve the right to purchase those units but are not obliged to do so. If we do not, we will ordinarily accept the first genuine offer to purchase the forfeited units that we receive after notifying you of the forfeiture. We will then pay you the proceeds of sale (less any costs incurred in selling the forfeited units, any expenses incurred in connection with the forfeiture and any action taken by us to recover unpaid calls, and payments of all calls, including interest). In any case we will give you written notice of forfeiture. If an amount remains outstanding after forfeiture, you will still be liable to pay us that amount including interest, while the amount remains outstanding, at the Bank Bill Rate plus 5% per annum. WINDING UP The Fund is a closed-end fund. This means that the Fund will terminate (wind up) after ten years and we will distribute realised capital and income, after fees and expenses, to investors in proportion to their unit holdings; we reserve the right to extend the life of the Fund by two periods of one year each to allow for effective realisation of remaining underlying investments; if an asset cannot be realised before the wind up of the Fund, it will be placed in a separate Fund for liquidation; if at the end of the Offer Period we have not received capital commitments of at least $10 million we have the right to return funds to you without interest; Macquarie, in its sole discretion, may elect at any time to terminate the Fund on written notice to investors. TRANSFER OF UNITS IN THE FUND Generally, units are non-transferable. In any event, any transfer of units requires our written consent. Neither Macquarie or any of the Macquarie Bank Group companies are required to facilitate the sale or transfer of your units, although we may, at our discretion assist with such sale or transfer. 18

20 DISTRIBUTIONS The Fund may make distributions on a quarterly basis at the end of March, June, September and December. The possibility exists that in some years the Fund may not make any distributions. Distributions, if any, may comprise return of capital, realised capital gains, and/or income and will generally be made when we receive distributions from the MTF and/or Wholesale Fund. Earnings from the Wholesale Fund will be distributed to investors when private equity investments either pay income to the Wholesale Fund or are sold. Distributions may be uncertain, deferred and irregular. We reserve the right to distribute at our discretion or retain distributions to meet your instalment obligations. We will advise you in writing if we do so. All distributions will be made in proportion to your paid-up capital. Distributions from the Fund that are subject to tax are taxable in the hands of unit holders in the year to which they relate. Distributions can only be made to an Australian bank account or a Macquarie Cash Management Trust (CMT) account and cannot be paid by cheque. 19

21 FEES AND OTHER COSTS This table shows fees and other costs that you may be charged. These fees and costs may be deducted from the returns on your investment or from the Fund assets as a whole. Taxes are set out in the Taxation section of this document. You should read all of the information about fees and costs, as it is important to understand their impact on your investment. TYPE OF FEE OR COST AMOUNT HOW AND WHEN PAID Fees when your money moves in or out of the Fund Establishment fee Nil Not applicable. This is the fee to set up your initial investment. Contribution fee 3.3% of your Deducted from your This is the fee for the initial investment. committed capital, initial instalment and inclusive of GST 12 paid to your adviser (if any). ($33 per $1,000 of The amount of this fee can committed capital.) be negotiated. See Commission. Withdrawal fee Nil Not applicable. This is the fee for each withdrawal you make. Termination fee Nil Not applicable. This is the fee when you finally close your investment. Management costs Administration costs are the fees Expenses reasonably and Payable as and when and costs for operating the Fund. They include properly incurred in operating they arise, and are accrued administration and other fees charged by the the Fund and the Wholesale Fund in the unit price of the fund product issuer, distribution costs and other may be recovered from the in which the expense expenses incurred in operating the Fund. respective fund s assets. is incurred at the point we It is not possible to estimate the become reasonably certain amount of expense recoveries. that the expense will be incurred. Investment costs are the fees and costs for Macquarie will be entitled to Accrued daily, reflected in investing in the assets. They include fees a base management fee paid unit price and paid charged by the product issuer, fees paid from Fund assets of 1.65%pa quarterly in advance. to external investment managers and other inclusive of GST of committed expenses incurred in investing the asset capital less return of capital and (excluding transaction costs). any written off capital ($16.50pa per $1,000 of committed capital). In addition Macquarie will be Paid when incurred from entitled to receive a performance the proceeds of fee paid from Fund assets of 20% realisation of investments. inclusive of GST of total returns once both capital drawn and an internal rate of return (IRR) of 10%pa on invested funds have been distributed to investors. The Wholesale Fund may pay from Payable as and when they its assets to a private equity are invoiced. manager a fee for sourcing a co-investment. This may be in the form of a base management fee or performance fee. This fee is not included in Macquarie s base 20 management fee and performance fee described above. 12 This fee includes an amount payable to an adviser for advice about this product. See Commission.

22 TYPE OF FEE OR COST AMOUNT HOW AND WHEN PAID Additional service fees 13 Switching fee Nil Not applicable. This is the fee for when you switch between investment options. Adviser service fee Nil Any amounts that you This is the fee for extra advice from your agree to pay your adviser adviser about your investment. (An adviser may for financial advice are also be paid other amounts as commission out of one or more of the fees listed above). All fees include the net impact of GST. 13 See Additional Services for special request fees. separate to the fees we charge in respect of your investment in the Fund. We may pay amounts to the dealer group to which your adviser belongs. This is not an additional charge to you and it should be discussed with your adviser or consultant (see Commission section). 21

23 ADDITIONAL DISCLOSURE ITEMS Entry fee The maximum entry fee the Fund s constitution allows us to charge is 5% of your committed capital inclusive of GST. The actual entry fee described in the fee table will not be increased during the term of your investment. Base management fee The maximum base management fee the Fund s constitution allows us to charge is 5%pa inclusive of GST of committed capital less return of capital or written off capital. The actual base management fee described in the fee table will not be increased during the term of your investment. Investors should note that the level of committed capital on which the 1.65%pa inclusive of GST base fee will be charged will be reduced on a quarterly basis to reflect the amount of any capital returned to investors from previous distributions. As more capital is returned to investors the level of base fee will drop accordingly. Expense recovery Under the Fund s constitution we have the right to recover from the Fund all proper and reasonable expenses, and are entitled to be indemnified from the Fund for liabilities we properly incur in connection with the Fund. These may include costs associated with conducting due diligence on potential investments as well as certain extraordinary expenses, such as expenses in relation to unit holder meetings. There is no limit on the amount of expense recoveries allowed under the constitution. Performance fee Macquarie will be entitled to receive a performance fee of 20% inclusive of GST of total realised returns. Macquarie will not start to recover any of this performance fee until all drawn down capital and an internal rate of return (IRR) of 10% per annum on invested funds has been distributed to investors. Above this level of return distributions will be shared 50% to the investor, 50% to Macquarie until Macquarie has been paid a performance fee equal to 20% of total returns from the Fund. Once Macquarie has achieved its 20% share of total returns (i.e. at approximately 16.6%per annum), any further distributions will be paid 80% to investors and 20% to Macquarie by way of performance fee. The IRR is the rate of discount which needs to be applied to make the net present value of an investment equal to the price paid. The IRR calculation is a performance calculation that measures the amount of money invested, the amount of money returned to investors and the timing of these cashflows. The performance fee will be paid only from distributions from the Fund, and is based on realised investment returns. Performance fees will be payable under the following mechanism. 22