FORESIGHT SMART BONDS FUND

Transcription

1 FORESIGHT SMART BONDS FUND INVESTOR MEMORANDUM AND APPLICATION FORM JULY 2017

2 Important notice This Investor Memorandum constitutes a financial promotion pursuant to section 21 of the Financial Services and Markets Act 2000 (FSMA) and is issued by Foresight Group LLP (Foresight Group) of The Shard, 32 London Bridge Street, London SE1 9SG. Foresight Group is authorised and regulated by the Financial Conduct Authority (FCA), under firm reference number This Investor Memorandum relates to the Foresight Smart Bonds Fund. If you are in any doubt about the content of this Investor Memorandum and/or any action that you should take, you should seek advice from an independent financial adviser authorised under the FSMA who specialises in advising on opportunities of this type. This promotion is only being distributed to individuals and entities who are classified as being: a) an existing client of a financial adviser regulated by the FCA; b) a person who meets the requirements for being a professional client in accordance with COBS rule 3.5; c) an entity that qualifies as an eligible counterparty in accordance with COBS 3.6; d) a person who qualifies as a certified high net worth individual in accordance with COBS rule 4.7.9; e) a person or entity who qualifies as a certified sophisticated investor in accordance with COBS rule 4.7.9; f) a person who qualifies as a selfcertified sophisticated investor in accordance with COBS rule 4.7.9; g) a person certified as a restricted investor within the meaning of COBS rule ; h) A High Net Worth Company (being a body corporate which has, or which is a member of the same group as an undertaking which has, a called-up share capital or net assets of not less than 500,000 if the body corporate has more than 20 members or 5 million if the body corporate has 20 members or fewer); or h) overseas persons where the promotion of this Investor Memorandum is permitted by applicable law and regulation. The Foresight Smart Bonds Fund is a managed service and an alternative investment fund (or AIF) for the purposes of the Alternative Investment Fund Managers Directive (2011/61/ EU) (AIFMD). Foresight Group is the alternative investment fund manager (AIFM) in respect of the Foresight Smart Bonds Fund for the purposes of AIFMD. 2 FORESIGHT SMART BONDS FUND Prospective investors are advised that Foresight Group is, as at the date of this Investor Memorandum, a small authorised UK AIFM. Therefore, prospective investors shall not, for the time being, benefit from the majority of the rights from AIFMD, nor will Foresight Group be obliged to comply with all of the obligations thereunder. The Foresight Smart Bonds Fund is classified as a Retail Investment Product and does not constitute a collective investment scheme under the FSMA. It should be noted, however, that Foresight Group is in the process of applying to the FCA to become authorised as a full-scope UK AIFM. If its application to become a full-scope UK AIFM is successful, Foresight Group will, amongst other obligations, be obliged to appoint a depositary to the Foresight Smart Bonds Fund. Any additional obligations to which Foresight Group will be subject, as well as any additional rights afforded to prospective investors as a result of Foresight Group becoming a full-scope UK AIFM, to the extent such obligations and/or rights do not already apply, will be disclosed to prospective investors accordingly. Your attention is drawn to the risk factors set out on pages 22 to 24 of this Investor Memorandum which should be carefully considered. Investing in unquoted loans by its nature involves a degree of risk greater than investment in companies listed and/or traded on a regulated market. Capital invested in loans made on your behalf through the Foresight Smart Bonds Fund is at risk and you may not get back all or part of the amount that you invested. The ability to recoup capital and deliver interest income on loans will be determined by the ability or willingness of the borrower to make payments, the financial position of the borrower, the underlying value of the borrower s assets and market conditions. Further, loans may be subject to transfer restrictions and it may be difficult to transfer or assign. Past performance is not a guide to future performance and may not be repeated and there is no guarantee that suitable investment opportunities will be available to meet the objectives of the Foresight Smart Bonds Fund. You should consider carefully the suitability of participating in the Foresight Smart Bonds Fund. An individual investor s application will be subject to their financial adviser certifying that their participation in the Foresight Smart Bonds Fund meets their objectives, that they have the expertise, experience and knowledge to understand the risks and that they are able to bear the associated risk involved in participating in the Foresight Smart Bonds Fund. If an individual investor does not have a financial adviser who will provide this confirmation then they may not be able to participate in the Foresight Smart Bonds Fund. Nothing in this Investor Memorandum should be regarded as constituting legal, taxation, investment or other advice and prospective investors are advised to consult their own professional advisers before contemplating any investment. Any decision to invest in the Foresight Smart Bonds Fund should be made on the basis of the information contained in this Investor Memorandum. For further information on our terms of business, please see our Application Forms ( Private Investors or Corporate/ Institutional Investors, as relevant) and Customer Agreement. Any reference to tax laws or levels in this Investor Memorandum is subject to change and is dependent on individual circumstances. Except to the extent permitted in the relevant jurisdiction, this Investor Memorandum and the information contained in it are not for publication or distribution to persons outside the UK. This promotion does not constitute a public offering in the UK. Foresight Group has taken all reasonable care to ensure that all the facts stated in this Investor Memorandum are true and accurate in all material respects and that there are no other material facts or opinions which have been omitted where the omission of such would render this Investor Memorandum misleading. All statements of opinion or belief contained in this Investor Memorandum and all views expressed and statements made represent Foresight Group s own assessment and interpretation of information available to them as at the date of this Investor Memorandum. No representation is made, or assurance given, that any statements, views or forecasts are correct or that the objectives of Foresight Smart Bonds Fund will be achieved. The information in this Investor Memorandum was produced in July 2017 and may not be current. Foresight Group is covered by the Financial Services Compensation Scheme (FSCS). The FSCS can pay compensation to qualifying investors in the event that investors have a claim against Foresight Group, and Foresight Group is unable to meet its obligations. The maximum sum of compensation payable under the FSCS is 50,000 per investor. Investors that are eligible counterparties and professional clients will not qualify for recourse to the FSCS.

3 Contents LETTER OF INTRODUCTION 4 THE ASSET CLASS 7 THE INVESTMENT OPPORTUNITY 9 THE ALTERNATIVES 12 INVESTMENT POLICY AND OBJECTIVE 14 FUNDRAISING TRANCHES 15 CHARGES 16 KEY FEATURES 17 ABOUT FORESIGHT 18 TAXATION 20 RISK FACTORS 22 CUSTOMER AGREEMENT 26 APPLICATION PROCEDURES (PRIVATE INVESTORS) 32 APPLICATION FORM (PRIVATE INVESTORS) 33 DEFINITIONS 37 FORESIGHT SMART BONDS FUND 3

4 Letter of Introduction July 2017 Dear Investor We are delighted to launch the Foresight Smart Bonds Fund, offering investors the opportunity to make investments in tranches of one, two and three year fixed rate term loans used to fund Smart Meters on long term rental agreements with UK energy suppliers. Smart Meters, unlike their predecessor dumb meters, include a meter and a communications module that enables the equipment to send consumption data to energy suppliers at frequent predetermined intervals, typically every 30 minutes. The UK Government has mandated the rollout of Smart Meters to over 30 million residential and commercial properties in the UK such that up to 53 million Smart Meters are expected to be installed to support the programme. The Smart Meter programme is the largest infrastructure programme of our generation*. The Foresight Smart Bonds Fund will lend to companies that own, operate and rent installed Smart Meters to UK energy suppliers. We believe there are five reasons why you might find this an attractive investment opportunity: 1. Attractive fixed returns - choose from one, two or three year loans and whether to receive fixed simple interest annually or at loan maturity the choice is yours. The interest rates available will vary by tranche. Details of the latest tranche and associated interest rates available can be found at EXAMPLE INTEREST RATES AVAILABLE WITH FORESIGHT SMART BONDS FUND APPLICABLE TO TRANCHE A Simple Interest Rate (% per annum) Loan Terms Interest Paid Annually Interest Paid at Loan Maturity 1 Year N/A 4.07% 2 Years 4.44% 4.55% 3 Years 4.59% 4.83% 2. Lower risk asset class loans will be made to Smart Meter asset providers who benefit from highly predictable, diversified, and long term contracted revenue streams with creditworthy UK energy suppliers including the Big 6 (British Gas, EDF Energy, E.ON, npower, Scottish Power and SSE). Considered by Foresight to be a lower risk asset class when compared with retail bonds, mini bonds and peer-to-peer lending alternatives. 3. Asset backed - security will be taken in the form of a legal charge over the portfolio of Smart Meters, which your loan is used to finance. Security will be either senior or junior ranking and confirmed on a tranche by tranche basis in the relevant Tranche Appendix. *(Source: en/about-smart-meters/what-is-asmart-meter). 4. Track record Foresight has arranged 49 separate tranches of loans to Smart Meter asset providers to date, used to finance 42,500 industrial and commercial smart meters, and all capital and interest has been fully repaid to investors with no defaults. 5. Foresight experience - Foresight manages funds on behalf of more than 22,000 private investors, and some of the major global financial institutions. Foresight has to date deployed more than 2 billion in energy infrastructure assets and has been an active financier of smart meter companies for the past five years. 4 FORESIGHT SMART BONDS FUND

5 I hope that you find this Investor Memorandum clear and easy to understand. If you require more details at any time please call us on We cannot provide tax, financial or investment advice and you should seek financial advice before you invest in the Foresight Smart Bonds Fund. When you are ready to invest, individual investors will find their Application Form at the end of the document, from page 33 onwards. Application forms for corporate/ institutional investors can be requested from Foresight Group or found at the Foresight Group website ( Choose from one, two or three year loans and whether to receive simple interest either annually or at maturity - the choice is yours Bernard Fairman Chairman, Foresight Group FORESIGHT SMART BONDS FUND 5

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7 The Asset Class The Foresight Smart Bonds Fund offers investors the opportunity to receive fixed simple interest on one, two and three year loans. Foresight Smart Bonds Fund will lend to companies which invest in, own and rent Smart Meters to UK energy suppliers. WHAT IS A SMART METER? Smart Meters are the new generation of gas and electricity meters being installed in every home and business in the UK. Unlike their predecessor dumb meters, a Smart Meter includes a communications hub that enables the equipment to send usage data back to the energy supplier at regular, predetermined intervals (typically every 30 minutes). Smart Meters come with an in-home display screen that shows consumers exactly how much energy they are using in pounds and pence, in near real time. There are three types of Smart Meters: Advanced Meters Used exclusively in industrial and commercial settings, they create a direct one-way communication channel between the meter and the energy supplier. They do away with the need for manual reading and estimated billing. SMETS 1 Smart Meters Used mostly in residential settings, these are a more sophisticated version of the Advanced Meter. They allow for two-way communication directly between the energy consumer and supplier. Energy consumers have a portable display that shows energy usage in pounds and pence. SMETS 1 (which stands for Smart Metering Equipment Technical Specification) Smart Meters must adhere to the UK Government s detailed requirements. SMETS 2 Smart Meters Similar to SMETS 1 Smart Meters, SMETS 2 additionally communicate with energy suppliers via the UK Government s national smart meter communications infrastructure, the Data Communications Company (DCC). Over time it is expected that SMETS 1 Smart Meters will be adopted into the DCC. HOW RELIABLE IS THE EQUIPMENT? Smart Meters are a proven technology that has been in existence for over ten years. As at the date of this document, circa five million Smart Meters have been installed in consumer and business premises across the UK. Historically, Smart Meter failure rates have been very low (less than 0.1% per annum)*. WHAT ARE THE BENEFITS OF SMART METERS? For consumers, Smart Meters: PUT AN END TO ESTIMATED ENERGY BILLS With a Smart Meter, consumers get an easy-tounderstand portable display that shows exactly what they are spending on gas and electricity in near real time. HELP CONSUMERS BECOME MORE ENERGY EFFICIENT Smart Meters make it easier for consumers to identify the situations where they use a lot of energy and to adjust their routines to make efficiencies. MAKE PRE-PAY TOP-UPS EASIER For pre-pay energy customers, a Smart Meter enables direct top-up online, or through an app, putting an end to key cards and time consuming trips to the shop. For energy suppliers, Smart Meters: ENABLE THE SMART GRID Energy suppliers can use the near real time data to plan and manage the UK s energy supply and demand more efficiently. REDUCE CUSTOMER QUERIES In countries where Smart Meters have already been rolled out, such as the United States, Canada, Italy and New Zealand, energy suppliers are benefiting from reduced customer billing queries and complaints. REDUCE COSTS Energy suppliers no longer need armies of meter readers to visit consumers at home to read and verify dumb meter readings. *(Source: Evaluation of Advanced Metering System Deployment in Texas commissioned by Public Utility Commission of Texas and independently produced by Navigant Consulting (PI) LLC). FORESIGHT SMART BONDS FUND 7

8 The Asset Class WHAT IS THE UK SMART METER PROGRAMME? The UK Government has mandated the rollout of Smart Meters to over 30 million residential and commercial properties in the UK such that up to 53 million Smart Meters are expected to be installed. The Smart Meter programme is recognised as the UK s largest national infrastructure project of our generation. It is estimated that 6 billion in capital funding is needed for Smart Meter equipment and installation to complete the roll-out of the UK s Smart Meter programme. WHAT IS A METER ASSET PROVIDER (MAP)? MAPs finance large portfolios of Smart Meters. They fund the purchase and installation of new Smart Meters and rent the installed equipment to energy suppliers over typically a year contracted term. MAPs enable energy suppliers to provide Smart Meters to their customers and spread the capital cost over many years. The MAP industry is well established in the UK, with MAPs also having financed a substantial proportion (more than 10 million) of dumb meters for energy suppliers. WHAT ARE A MAP S REVENUE STREAMS? MAPs receive revenue from the rental of Smart Meters to UK energy suppliers. The terms of the rental are set out in Master Rental Agreements (MRAs) between the MAP and energy suppliers. MAP revenues are characterised as: WHO ARE A MAP S COUNTERPARTIES? MAP counterparties are a diversified set of UK energy suppliers. The largest Big 6 blue-chip energy supplier counterparties account for approximately 80% of electricity and gas supply* and include British Gas, SSE, E.ON, EDF, Scottish Power and npower. In the unlikely event of an energy supplier defaulting there are regulatory provisions that minimise the impact on a MAP s revenues. The regulator for energy suppliers is Ofgem. Its Supplier of Last Resort (SOLR) provisions give it the power, in the event of an energy supplier s default, to rapidly (in a matter of days) mandate a replacement energy supplier. The replacement supplier is required to step in and take over the defaulting energy supplier s obligations, including the obligation to provide a smart meter. We are excited to offer investors the opportunity to earn attractive fixed interest from the UK s largest infrastructure programme. Jamie Richards Head of Infrastructure Funds Foresight Highly Predictable The rental due on each Smart Meter is agreed and contracted with the energy supplier at the point of installation. Diversified Revenues come from a large (typically more than 10,000 meters) portfolio of both electricity and gas Smart Meter assets, distributed nationally and rented to a diversified mix of UK energy suppliers. Long Term Smart Meters have an economic life of approximately 20 years. Technology Risk Mitigated Most MRAs stipulate that meter failure risk resides with the energy supplier and not the MAP. *(Source: Ofgem September 2016) 8 FORESIGHT SMART BONDS FUND

9 The Investment Opportunity WHAT IS THE FORESIGHT SMART BONDS FUND INVESTMENT OPPORTUNITY? The Foresight Smart Bonds Fund will lend to MAPs (or equivalent entities) that invest in, own and rent large portfolios of Smart Meters to UK energy suppliers. Foresight has an in-house MAP, Foresight Metering Limited, detailed on page 19. Loans from the Foresight Smart Bonds Fund may be used to fund meters owned by Foresight Metering Limited. WHAT WILL MAPS USE FORESIGHT SMART BONDS FUND LOANS FOR? The loans will be used by MAPs to refinance the equipment (which may be Advanced Meters, SMETS 1 Meters and SMETS 2 Meters) and cover installation costs of a specific UK located portfolio of Smart Meters. The Smart Meters will have already been installed, be operational and in good working order in both homes and businesses. WHAT TYPE OF SECURITY WILL THE FORESIGHT SMART BONDS FUND LOANS TAKE? A legal charge will be taken over the specific Smart Meters that the Foresight Smart Bonds Fund loans have funded. MAPs may use the Foresight Smart Bonds Fund loans alongside other debt finance (for example, from a bank) that may also have security over the assets. Such security may have priority to the security granted in respect of the Foresight Smart Bonds Fund loans. Prior to lending, Foresight Group will ensure that the total debt secured on the Smart Meter assets does not exceed 90% of the Smart Meter portfolio s value. WHAT ARE THE PRINCIPAL RISKS AND HOW ARE THEY MITIGATED? Overall, Smart Meters are considered a low risk asset class with many of the key risks effectively mitigated: Meter performance The energy supplier is liable for meter performance risk through the MRA. This means that, in the event of a Smart Meter failure, it is the responsibility of the energy supplier to maintain the equipment, with the revenues of the Smart Meter provider unaffected. Supplier failure SOLR is implemented by the regulator Ofgem, which guarantees supply to consumers, providing effective mitigation of this risk. MAP failure The energy supplier remains liable for the rental payments in the event of failure of the MAP. Customer changes energy supplier The MAP mitigates the risk of customer churn through a portfolio of rental agreements with energy suppliers. HOW DO MAPS REPAY THE FORESIGHT SMART BONDS FUND CAPITAL AT LOAN MATURITY? Underlying loans from the Foresight Smart Bonds Fund will have loan maturities of one, two and three years, with capital due back to investors at loan maturity. Revenues from Smart Meter rental to energy suppliers are expected to be sufficient to cover interest payments. MAPs will create liquidity for capital repayment of Foresight Smart Bonds Fund loans from a combination of rental revenue received during the course of the loans and one of the following four options: 1. Raising replacement capital from a new tranche of Foresight Smart Bonds Fund loans. 2. Raising replacement capital from an alternative debt provider. 3. Issuing new equity. 4. Selling the underlying Smart Meter equipment. FORESIGHT SMART BONDS FUND 9

10 The Investment Opportunity HOW DOES THE INVESTMENT PROCESS WORK?* DAY 0 Foresight Group publishes details of each available Tranche open for investment and specifies the relevant interest rates, Tranche closing date and target Tranche Investment Date on its website DAY 1 Mrs Collins and her authorised adviser complete the Application Form and send it to the Custodian (acting as receiving agent) with a 10,000 cheque, allowing sufficient time for it to be received before the relevant Tranche closing date. Mrs Collins has specified which Tranche she wishes to invest in, the loan term profile (either one, two or three years) and whether she wants interest paid annually or at maturity. ACCEPTANCE DAYS 3-5 OF RECEIPT The application is received and processed by the Custodian (acting as receiving agent). A letter is sent to Mrs Collins and her adviser confirming acceptance of the application. DAYS 5-19 DAYS Mrs Collins has 14 days to change her mind and cancel her investment without penalty. Provided the money has cleared, the Application Form has been accepted, the 14-day cancellation period has expired and the minimum fundraising limit in respect of the relevant Tranche (as determined by Foresight Group in its sole discretion) has been raised, Foresight Group invests Mrs Collins 10,000, less any upfront adviser charges, on the relevant Tranche Investment Date. Mrs Collins investment starts earning interest from the Tranche Investment Date. Foresight Group pays any upfront adviser charges to Mrs Collins adviser and sends a copy of the welcome pack correspondence to them by . Two days later Foresight Group sends a welcome pack to Mrs Collins, which includes a certificate of investment indicating the Tranche entered into, the Tranche Investment Date, the net investment amount and a schedule confirming when interest and capital repayments are due. *Investors should note that the above timescales are indicative only and the Tranche Investment Date may be later than indicated. 6 1 EVERY SIX MONTHS ANNUALLY AT MATURITY Foresight Group sends Mrs Collins a statement from the Tranche Investment Date until the investment s maturity. 10 FORESIGHT SMART BONDS FUND Interest arises on the anniversary of the Tranche Investment Date. Foresight Group will ensure that the basic rate of tax on any interest payments is withheld and paid directly to HMRC. Depending on Mrs Collins preference, Foresight Group will either pay the annual interest to her nominated bank account or accrue it so that it can be paid as a single payment when her investment matures. At either one, two or three years from the Tranche Investment Date depending on the loan term profile selected, all capital and interest received from underlying borrowers (less any deductions at source and interest already paid) in respect of Mrs Collins net investment amount will be paid to her. Foresight Group will, following final payment of capital and interest, also send Mrs Collins and her adviser a closing statement.

11 The Investment Opportunity WHY FORESIGHT? Foresight is highly experienced in the UK energy sector having deployed over 2 billion in energy related infrastructure assets since Foresight has extensive experience in the Smart Meter sector having invested 74 million of debt and equity in the rollout of 155,000 Smart Meters over the past five years. EXAMPLE As an example, between , Foresight managed funds lent 10 million to Utility Funding Limited, a MAP, to finance a UK portfolio of Smart Meters. The loans were made in 49 separate monthly tranches to match meter installation rates. The loans were secured against the financed portfolio of industrial and commercial Smart Meters. Utility Funding Limited rented these Smart Meters to over 50 energy suppliers, mostly on ten year MRAs. The example demonstrates the resilience of MAP revenues, even in the face of counterparty failure. All 49 loan tranches have now been fully repaid, with Foresight achieving no defaults and no loss of capital During the loans, one of Utility Funding Limited s energy supplier counterparties, GB Energy Supply who was renting some of the Foresight financed Smart Meters, went into administration. Ofgem reacted quickly and the next day appointed Co-op Energy as the new energy supplier for all of GB Energy s customers. Co-op Energy now rents these Smart Meters without interruption to the MAPs revenues. Penetration of Foresight Smart Meters KEY High density Medium density Low density Source: Foresight Group FORESIGHT SMART BONDS FUND 11

12 The Alternatives In today s ultra-low interest rate environment, investors keeping money in instant access cash accounts for extended periods face the near certainty that their cash will devalue in real terms as inflation takes hold. Until now, investors have had the choice between fixed rate deposits, retail bonds, mini bonds and peer to peer lending as alternatives to instant access cash accounts. The Foresight Smart Bonds Fund is positioned to provide investors with significantly higher returns than fixed rate deposits with lower levels of uncertainty that come from investing in retail bonds, mini bonds and peer to peer lending alternatives. The Foresight Smart Bonds Fund is intended for those investors who: are seeking attractive fixed returns from a highly risk mitigated asset class; and are willing to commit their capital for between one to three years. LOWER RISK Fixed Rate Deposits Foresight Smart Bonds Fund A type of bank savings account that lasts for a set period of time. Interest payments are fixed at point of investment. Investors choose from one, two or three year loans and whether to receive fixed simple interest annually or at loan maturity. The Foresight Smart Bonds Fund will lend to companies that own, operate and rent installed Smart Meters to UK energy suppliers. Key Considerations Higher interest rates available than with instant access bank accounts. The counterparty is the issuing bank. Counterparty risk is mitigated by Financial Services Compensation Scheme (FSCS) deposit protection. Early withdrawal available but often means an interest forfeit. Key Considerations Higher interest rates available compared to fixed rate deposits and instant access bank accounts. The counterparty is one or more MAPs. Ultimate counterparties are a diversified set of UK energy suppliers. Counterparty risk is mitigated by security taken in the form of a legal charge over the portfolio of Smart Meters that loans are used to finance. Not covered by the FSCS deposit protection scheme but covered by the FSCS investment protection scheme (for qualifying investors only). Investments potentially transferable with early liquidity subject to an interest forfeit. The above summary is intended as a guide only and is not exhaustive. Such information should not be taken as a recommendation or relied upon by investors in making investment decisions in respect of an overall investment portfolio. Investors should take appropriate advice from an independent financial adviser authorised under the FSMA who specialises in advising on opportunities of this type. An investment in the Foresight Smart Bonds Fund may not be suitable for all investors. 12 FORESIGHT SMART BONDS FUND

13 The Foresight Smart Bonds Fund is positioned to provide investors with significantly higher returns than fixed rate deposits HIGHER RISK Retail Bonds Mini Bonds Peer to Peer A retail bond is a debt instrument issued by a corporation to an investor. An investor lends the company money and in return the company pays the debtor interest on that loan. Retail bonds can be traded like shares on the London Stock Exchange s Order Book of Retail Bonds (ORB). Like retail bonds, mini bonds are a debt instrument issued by a company to an investor. Unlike retail bonds, mini bonds cannot be traded like shares and must be held until maturity. Peer to peer websites connect individual borrowers with lenders, cutting out traditional banks. The concept is that lenders receive more interest than from the bank and borrowers pay less interest than on a bank loan. Key Considerations Higher interest rates available than with instant access bank accounts. Counterparty is an individual corporate borrower. Counterparty risk is generally not mitigated with asset backed security. Not covered by the Financial Services Compensation Scheme. Liquidity is available by trading bonds on ORB. Key Considerations Generally higher interest rates available than with instant access and fixed rate deposit bank accounts. Considered higher risk than retail bonds. Counterparty is a single corporate borrower. Not covered by the Financial Services Compensation Scheme. Not transferable and no early liquidity available. Key Considerations Interest rates vary greatly by issuer. Counterparties can be both corporate and individual borrowers. Underlying asset class exposure and security available varies. Peer to peer lending industry is in its relative infancy with the risks of investing untested over time. Investments not generally covered by the Financial Services Compensation Scheme. Investments are transferable and potentially liquid on a peer to peer provider secondary market. FORESIGHT SMART BONDS FUND 13

14 Investment policy and objective The investment objective of the Foresight Smart Bonds Fund is to provide attractive fixed simple interest on one, two and three year term loans invested by Foresight Group through the Foresight Smart Bonds Fund on behalf of investors. Loans will be made to companies that rent Smart Meters to UK energy suppliers (or similar smart infrastructure operators), either exclusively or alongside other institutional debt providers, with security taken in the form of a legal charge over the underlying Smart Meter assets. In respect of each loan made through the Foresight Smart Bonds Fund, Foresight Group will adhere to the following investment criteria: Borrowers are UK domiciled accredited MAPs (or equivalent entities), which may be Affiliates of Foresight Group. Loans are secured against a diversified portfolio of Smart Meters (typically 10,000+ individual Smart Meters) located in the UK. Borrowers must be able to provide evidence that Smart Meters are operational, accredited and in good working order. Borrowers must provide evidence, on initial installation, that each Smart Meter asset is attached to an MRA with a UK energy supplier. Foresight Group will value the Smart Meter assets and not provide loans beyond such a level that the total debt secured (whether co-investing or otherwise) against underlying assets exceeds 90% of their value. For these purposes value is the present value of the future rental income of the Smart Meter. The following sets out a worked example for how Foresight Group will assess loan to value: 1. Foresight Group identifies a tranche of 25,000 Smart Meters owned by a MAP that are installed, operational and attached to MRAs with UK energy suppliers and require funding Foresight Group values the portfolio of Smart Meters based on the net present value of their future rental incomes. In this example Foresight values the portfolio at 5.0 million. Foresight Group deducts a 10% equity cushion from the total value of the Smart Meter assets to determine the maximum amount of debt that can be raised against the Portfolio. In this example the maximum debt capacity is limited to 4.5 million. 4. Foresight Group deducts any other debt used to part fund the portfolio to assess the maximum amount of funding from the Foresight Smart Bonds Fund that can be used. In this example 3 million of other debt exists so the maximum funding that can come from Foresight s Smart Bonds Fund is capped at 1.5 million. KEY High density Medium density Low density Foresight Group Loan to Value Assessment Example GBP, % of Net Present Value of Smart Meters Future Cash Flows 0.5M (10%) 5.0M (100%) 4.5M (90%) Net Present Value of Smart Meter Future Cash Flows Equity Cushion Maximum Debt to Value Ratio 3.0M (60%) Institutional Debt 1.5M (30%) Maximum amount of Foresight Smart Bonds Fund loans advanced 14 FORESIGHT SMART BONDS FUND

15 Fundraising tranches Foresight Group intends to raise funds for the Foresight Smart Bonds Fund in separate tranches that can be invested quickly on behalf of investors. Participation in the Foresight Smart Bonds Fund, including investments made on behalf of investors, will be subject to the terms of the relevant Tranche (including any Tranche options selected) for which investors are accepted as detailed on the investor s Application Form. The interest rates available will vary by Tranche and depend on the option selected regarding timing of interest payments (with elections for payment of interest on maturity receiving a more preferential interest rate). Details relating to each Tranche will be published in a separate appendix (Tranche Appendix) covering the following: Tranche Designation Tranche name, for example Tranche A Fundraising Amount Minimum/maximum amount to be raised under the relevant Tranche (if a Tranche is subject to a minimum limit that is not reached then (unless otherwise decided by Foresight Group in its sole discretion) application monies will be returned to you) Opening Date The date on which the relevant Tranche becomes available for applications Closing Date The date by which applications to participate in the relevant Tranche must be received Options available for the lending criteria for loans to be made, including: Term of the loans: one, two or three years Lending Criteria Options Interest coupon: specified rate depending on option selected Option to receive interest annually or to accrue interest and be repaid at the end of the term Security The form of security and whether it will be a primary or subordinated security depending on the existing financial arrangements of a borrower Other Information Any other information or options relating to the relevant Tranche The Tranche available at the current time will be made available to investors and published on the Foresight Group website ( Multiple Tranches may be made available at the same time. If investors are unsure as to which Tranche(s) is (are) available at the time of submitting an Application Form, please contact Foresight Group on FORESIGHT SMART BONDS FUND 15

16 Charges FORESIGHT GROUP CHARGES Initial Charges and Exit Fees: Participation in the Foresight Smart Bonds Fund is not subject to any initial Foresight Group charges. In addition there are no Foresight Group exit fees in respect of any repayments or other realisation of loans advanced to a company. Transaction Arrangement Fees: In respect of each loan advanced to a company through the Foresight Smart Bonds Fund, Foresight Group will charge the company an arrangement fee of up to 3% of the principal amount of the loan (plus applicable VAT). As this fee is paid by the company, it does not impact the amount that will be invested through the Fund. For example, if you invest 10,000 into the Fund, the rate of interest that you receive will be calculated on your 10,000 investment (assuming there are no adviser charges). Annual Charges: There is no additional Foresight Group annual management charge in respect of any loans advanced to a company. Fees for custody and administration of investments will be met out of the transaction arrangement fees. Each company may, however, be charged for (or otherwise required to meet) administration services for administering interest and capital payments and facilitating ongoing adviser charges. Foresight Group and its Affiliates may also be entitled to gains, profits and fees from such companies as set out in clause 4.7 of the Customer Agreement on page 27. Interest rates available are quoted net of all fees. ADVISER CHARGES Initial Adviser Charge: Investors can specify on the Application Form the amount of any initial adviser charge agreed with a financial adviser in connection with participation in the Foresight Smart Bonds Fund. Foresight Group will deduct such agreed charge from the amount subscribed and facilitate payment to the financial adviser. Ongoing Adviser Charges: An investor can also specify on the Application Form the amount of any ongoing charges agreed with a financial adviser in connection with participation in the Foresight Smart Bonds Fund. Ongoing adviser charges will be paid out of interest and/or capital payments on the loans made on behalf of the investor through the Foresight Smart Bonds Fund. Ongoing adviser charges will be paid at the same time as interest and/or capital repayments and will be based on a fixed annual percentage of the investment amount. If an investor chooses interest to be paid on maturity, rather than annually, annual adviser charges will be paid by the borrower and deducted from interest and/or capital repayments due to the investor on maturity. TERMINATION Waiver of Interest: If an investor were to terminate their participation in the Foresight Smart Bonds Fund in respect of a relevant Tranche before the first anniversary of any loan made on behalf of that investor, they will not be entitled to any interest payments in relation to that loan. If an investor terminates their participation in the Foresight Smart Bonds Fund in respect of a relevant Tranche after the first anniversary of any loan made on behalf of that investor, they will not be entitled to any interest payments in relation to that loan for the 12 months immediately prior to date of termination, and any future interest payments in relation thereto. Such interest payments will be automatically waived for the benefit of the company to which the loan(s) has been advanced. Expenses and Charges: Termination in respect of a relevant Tranche will be subject to any expenses or charges necessarily incurred by Foresight Group in terminating an investor s investment in the Foresight Smart Bonds Fund in respect of such Tranche and realising, transferring or assigning the investments made on the investor s behalf in respect of that Tranche. To protect investors from fees eroding their investment, the Foresight Smart Bonds Fund is not subject to initial or annual management charges, or any Foresight Group exit fees 16 FORESIGHT SMART BONDS FUND

17 Key features Investment Type: Investment Duration: Interest Repayment: Investment Sector: Fixed rate term loans. Investors can choose from one, two and three year fixed term loans. Investors can choose to receive fixed simple interest either annually or at maturity. The Foresight Smart Bonds Fund will lend to companies that own, operate and rent installed Smart Meters to UK energy suppliers. Minimum Investment: 10,000 then increments of 1,000. Maximum Investment: Additional Contributions: There is no maximum per individual investor. For each Tranche there is a maximum fundraising amount. Where total investor applications exceed a particular Tranche s maximum fundraising amount, investments will be accepted on a first come, first served basis. Apply early to avoid disappointment. Additional contributions are not permitted. However, investors will be able to invest in future Tranches as they become open for investment should they wish to increase their holdings through the Foresight Smart Bonds Fund. Target Investor Returns Interest options available will vary by Tranche and duration selected (see Tranche A below as an example): Simple Interest Rate (% per annum) Loan Terms Interest Paid Annually Interest Paid at Loan Maturity 1 Year N/A 4.07% 2 Years 4.44% 4.55% 3 Years 4.59% 4.83% Details of the latest Tranches available can be found at the Foresight Group website ( Liquidity: Reporting: Investments in the Foresight Smart Bonds Fund are for a fixed period of either one, two or three years. Investments are not intended to be immediately realisable. Investors can request early redemption, which Foresight Group will endeavour to arrange but cannot guarantee. Early withdrawals result in the last 12 months of accrued interest, and any future interest automatically being waived. Investors will receive statements in respect of each Tranche within their portfolio. The statements will be provided bi-annually in respect of each six month period commencing on the Tranche Investment Date. FORESIGHT SMART BONDS FUND 17

18 About Foresight Foresight is a leading independent infrastructure and private equity investment manager that has been managing investments for institutional investors and private individuals for more than 30 years. Founded in 1984, initially as an early stage technology investor, Foresight now manages assets in excess of 2.6 billion for more than 22,000 private investors and some of the world s leading financial institutions, Government organisations, pension funds and insurance companies. Continuing to specialise in its private equity heartland, investing growth capital in SMEs across the UK, Foresight has diversified its activities into infrastructure, with a specialist focus on renewable energy generation, enabling and energy management projects including solar, waste, flexible power generation, battery storage and smart metering. Foresight has more than 160 employees with headquarters in London, regional UK offices in the Midlands and North West and operations in Italy, USA and Australia. Foresight s vision is to invest in trends ahead of the market, offering investors a diversity of risk and reward. By listening and responding to investors and their advisers, Foresight continues to deliver innovative solutions designed to meet investors needs. This is achieved through the expertise of its investment teams and by applying core values of flexibility, innovation, problem solving and a commitment to attract and retain the best professionals in the industry. Foresight s investment teams operate on a collaborative basis with a pro-active and pragmatic investment style. MORE THAN 2.6 BILLION ASSETS UNDER MANAGEMENT 1GW OF RENEWABLE GENERATION CAPACITY GENERATING ENOUGH CLEAN ENERGY FOR 600,000 UK HOMES NAMED INFRASTRUCTURE FINANCIER OF THE YEAR IN THE 2017 GREEN INNOVATION & FINANCE AWARDS REGIONAL GROWTH FUNDS BASED OUT OF OFFICES IN THE MIDLANDS AND NORTH WEST 18 FORESIGHT SMART BONDS FUND

19 SMART METERING Foresight has pioneered innovative funding solutions for the roll out of Smart Meters and has funded the installation of electricity Smart Meters in the commercial sector across the UK over the past five years. In 2016, Foresight launched a subsidiary, Foresight Metering Limited, to provide low cost capital to energy distributors to help finance the roll out of Smart Meters across the UK. In late 2016, Foresight Metering acquired Utility Funding Limited, a specialist MAP with more than 150,000 meter assets in commercial and residential properties across the UK. Through this acquisition, Foresight considers that it is well positioned to participate in the 6 billion UK roll-out of Smart Meters, which the UK Government has mandated should be in every commercial and residential property across the UK. FORESIGHT SMART BONDS FUND 19

20 Taxation The following information relating to taxation is based on current UK law and practice, is subject to changes therein, is given by way of general summary and does not constitute legal or tax advice. The information assumes that an investor participating in the Foresight Smart Bonds Fund is resident and domiciled in the UK and holds loans through the Foresight Smart Bonds Fund as an investment. An investor s precise tax treatment will depend on the investor s particular circumstances and the law and practice in force at the relevant time (which is subject to change). Investors in any doubt about their tax position, or who may be subject to a tax in a jurisdiction other than the UK, should consult their financial adviser. UK tax legislation requires corporate borrowers to withhold basic rate tax on interest payments made on loans if such interest arises in the UK and constitutes yearly interest (which broadly means that the parties intend that the loan will be in existence for a year or more). Foresight Group anticipates that all of the loans made by the Foresight Smart Bonds Fund will meet these conditions. In circumstances where interest is paid to a UK-resident company acting as nominee for the person beneficially entitled to interest, the legal obligation to withhold tax applies both to the borrower and the nominee. In practice, HMRC expects the nominee to receive interest gross and to be responsible for deducting tax and accounting for it to HMRC. Foresight Group will ensure that the nominee to whom the loans are issued or the borrower deduct Basic Rate Tax from all interest payments to investors and pay this to HMRC. INDIVIDUAL INVESTORS If an investor is only subject to basic rate tax, there should be no further liability to pay any income tax on interest payments. If an investor is not normally subject to UK tax, an investor may be entitled to reclaim from HMRC any Basic Rate Tax deducted. If an investor is a Higher Rate Tax payer or an Additional Rate Tax payer then there will be additional tax to pay which may require the submission of a self-assessment tax return and investors should take advice accordingly. CORPORATE INVESTORS For UK resident corporate investors, it will be their responsibility to provide information about their jurisdiction of residence for the purposes of interest being paid gross. Foresight Group will assist, to the extent possible, in arranging for the nominee or borrower to make gross payments. Corporate investors will be liable for UK corporation tax on interest as it accrues to the investor. Income tax liability may arise under the accrued income scheme should any loans be transferred or assigned at a value in excess of the principal amount of capital outstanding. Foresight Group will provide investors with details of the gross interest payment, the amount of Basic Rate Tax (or such other rate applicable to the investor) deducted by borrowers and the net interest payment paid to investors in bi-annual statements. No liability to UK capital gains tax should arise on loans made on behalf of investors through the Foresight Smart Bonds Fund or on subsequent repayment of capital on such loans. No stamp duty or stamp duty reserve tax will be payable on loans made on behalf of investors through the Foresight Smart Bonds Fund or on the subsequent transfer or assignment of such loans. Investments through the Foresight Smart Bonds Fund are not, at present, capable of being held through an ISA and form part of an investor s estate for inheritance tax purposes. ILLUSTRATIVE RETURN (NET OF TAX) ON A 100,000 1 YEAR 4.5% FIXED INTEREST LOAN*: Gross Interest Received (1 year at 4.5%) Basic Rate Tax Payer Higher Rate Tax Payer Additional Rate Tax Payer UK-Resident Corporate Tax Payer 4,500 4,500 4,500 4,500 Gross Annual Effective Rate 4.50% 4.50% 4.50% 4.50% 20% Basic Rate Tax Deducted at Source n/a Additional Tax in Tax Return Net Interest 3,600 2,700 2,475 3,645 Net Annual Effective Rate 3.60% 2.70% 2.48% 3.65% * Returns set out in the table above (which exclude any initial and ongoing adviser charges) are illustrative, are not a reliable indicator of future performance and do not relate to a specific Tranche. Interest rates available on each Tranche will be published in a separate Tranche Appendix. 20 FORESIGHT SMART BONDS FUND

21 Foresight funds manage a portfolio of solar and energy from waste assets totalling more than 1GW of capacity, generating enough electricity annually to power 600,000 UK homes FORESIGHT SMART BONDS FUND 21

22 Risk Factors This Foresight Smart Bonds Fund might not be suitable for all investors and we recommend investors seek independent tax and financial advice before participating. Foresight Group is not able to provide advice about whether this investment opportunity is suitable for any particular investor. The risks and uncertainties described below are not the only ones investors who participate in the Foresight Smart Bonds Fund will face. Additional risks not currently known to Foresight Group, or which Foresight Group currently believes are not material, may also adversely affect the performance of investments made through the Foresight Smart Bonds Fund. It is important that investors read and fully understand the risks involved with participating in the Foresight Smart Bonds Fund to decide whether it s right for them. Investors should not invest any more than they can afford to lose. GENERAL INVESTMENT RISKS Investing in unquoted securities by its nature involves a greater degree of risk than investment in companies listed and/or traded on a regulated market. As a result there may not be a market for investments if an investor decides to terminate the Customer Agreement. The Foresight Smart Bonds Fund is an investment not a deposit. Capital invested in loans made on an investor s behalf through the Foresight Smart Bonds Fund is at risk and an investor may not get back all or part of the amount invested. Investments through the Foresight Smart Bonds Fund will involve loans being made on an investor s behalf to corporate borrowers. An investor will not become a shareholder, nor have any ownership stake in, any borrower. Investors will instead, subject to the risks set out below, receive interest payments on the loans made and, at the end of the term of a loan, the original capital (and any outstanding accrued interest) back. Loans made on behalf of investors through the Foresight Smart Bonds Fund and related security will be managed by Foresight Group on their behalf and will be held by the Nominee. Foresight Group may, without the consent of an investor, agree to certain modification of, or to the waiver of or approval of, certain breaches or proposed breaches of the provisions of a loan (or related security) or determine without the consent of an investor that any event of default shall not be treated as such. Subject to the terms of the Customer Agreement, Foresight Group may provide for the substitution of an alternative borrower as principal debtor in respect of a loan in place of the original borrower. Investments through the Foresight Smart Bonds Fund are for a fixed period of either one, two or three years. Investments are not intended to be immediately realisable. Investors can request early redemption which Foresight Group will endeavour to arrange but cannot guarantee. Early withdrawals result in the previous 12 months of accrued interest, and any future interest, automatically being waived. It may not be possible to effect a realisation of investments when requested and the process for returning monies could be much longer than anticipated. In particular, there is no formal secondary market in place, the investments are not listed and investors should assume that they will need to hold investments for the full term selected. In addition, it may not be possible to transfer or assign the legal title to, and/or beneficial interest in, investments into an investor s name and a buyer willing to acquire the beneficial interest in such investment through their own participation in the Foresight Smart Bonds Fund may need to be secured. Loans made on behalf of investors through the Foresight Smart Bonds Fund may be solely to one borrower or to borrowers in the same group (and may be an Affiliate of Foresight Group). In such circumstances, there will be a reduced diversification of risk. An investment made through the Foresight Smart Bonds Fund should, therefore, only form part of a wider investment portfolio. The Financial Services Compensation Scheme (FSCS) deposit protection does not apply to the Foresight Smart Bonds Fund. Under the FSCS investment protection scheme there may be circumstances in which qualifying investors can claim up to 50,000 of compensation where Foresight Group is unable or unlikely to honour legally enforceable obligations against it (e.g. claims of fraud or misrepresentation). However qualifying investors will not be able to claim under the FSCS simply because loans fail to repay capital or interest. For more details on the FSCS and its eligibility criteria please visit PERFORMANCE RISKS Past performance of investments made by Foresight is not a guide to future performance of the Foresight Smart Bonds Fund and may not be repeated and there is no guarantee that suitable investment opportunities will be available to meet the objectives of the Foresight Smart Bonds Fund. Foresight Group cannot guarantee any targeted level of returns on investments or a specific loan. Where Foresight Group has made estimates, forecasts or projections of anticipated revenues, asset values, costs, or inflation these are based on what Foresight Group believes to be reasonable at the date of this document. These statements may involve known or unknown risks, uncertainties and other important factors, which could cause actual performance to differ from those Foresight Group expects. While Foresight Group believes that any predictions or forecasts given are reasonable and based on reasonable assumptions supported by objective data, they may be affected by risk and other factors not set out in this document and they are not reliable indicators of future performance. 22 FORESIGHT SMART BONDS FUND

23 Foresight Group has been appointed as the investment manager of the Foresight Smart Bonds Fund and is dependent on certain key individuals and on their business and financial skills. Therefore, the success of the Foresight Smart Bonds Fund will depend upon the ability of Foresight Group to retain such key individuals and to identify, source, select, complete, and monitor appropriate investment opportunities. MARKET RISKS A loan will pay interest at a fixed rate as opposed to a variable rate which changes during the life of the loan. Fixed rates are more certain than variable rates, however, they may become less attractive if interest rates available elsewhere go up whilst you are invested through the Foresight Smart Bonds Fund. In addition, increased inflation may adversely affect the amount and timing of anticipated returns. Any change of governmental, economic, fiscal, monetary or political policy (including as a result of Brexit), and in particular any spending cuts or material increases in interest rates could materially affect, directly or indirectly, the investment opportunities available and the returns achieved on investments made on behalf of investors through the Foresight Smart Bonds Fund. In addition, general economic factors in the UK or worldwide, including the general interest rate environment and collateral asset values, may affect borrower willingness to seek loans. RISKS RELATING TO BORROWERS Loans made to small and/or less well established companies will be more susceptible to market volatility and adverse changes in trading conditions. This will in turn impact on a borrower s financial condition and may mean that it is unable to comply with its payment obligations under the loan. The inability of a borrower to pay interest, principal or other amounts on, or in connection with, loans may occur for other reasons which may not be considered significant risks by Foresight Group based on information currently available to it or which it may not currently be able to anticipate. The ability to recoup capital and deliver interest income on a loan will be determined by the ability or willingness of the borrower to make payments in a timely manner, the financial position of the borrower, underlying value of the borrower s assets and market conditions. Return of capital and payment of interest will be subject to the borrower making repayments or, if the borrower defaults, the security granted in respect of the loan is sufficient to cover the outstanding payments. RISKS RELATING TO DEBT SECURITIES Where a borrower defaults, return of capital and payment of interest due may be subject to the collection efforts of Foresight Group and their designated agents. Collection efforts may incur fees and expenses which would reduce the amount recovered and consequently the amount returned to investors. Return of capital and payment of interest may be affected by fraud, misrepresentation or omission on the part of the borrower or by parties related to the borrower. Although loan agreements will contain provisions which require the loans to be repaid by the borrower on the occurrence of such event, such provisions do not protect against the insolvency of a fraudulent activity undertaken by a borrower. Such activity may adversely affect the value realisable on the loans or may adversely affect the ability to enforce contractual rights under the loan. Loans will not be insured by any third party nor will any loan be submitted to any rating agency to obtain an opinion or rating of the risk of timely payment of principal and/or interest. A borrower may decide to prepay all or part of a loan at any time with or without penalty. The degree to which a borrower prepays a loan may be affected by general business conditions, market interest rates, the borrower s financial condition and competitive conditions amongst lenders. In the event of a prepayment, further interest will not accrue and the targeted interest return on the loan may be reduced. RISKS RELATING TO SECURITY AND COLLATERAL Loans will be made based on Foresight Group s analysis of each investment opportunity and the ongoing value of the financial strength of the borrowers and the collateral underlying the loans. The collateral represents the security taken over the Smart Meter assets of a borrower funded from the loan made to that borrower. The value of collateral may diminish over the term of a loan, be misappropriated or destroyed and, in certain market circumstances, there could be little, if any, market for such assets. The value of the assets which can be realised in liquidation or otherwise may be substantially below the assessed value of the collateral. A loan and related collateral and security arrangements may be subordinated to a primary lender of the borrower (for example a bank or other financial institution). In such cases, the return of capital and payment of interest may be restricted by the primary lender in certain circumstances (for example if to make such payments would result in financial covenants being breached by the borrower). There may be further restrictions on enforcing contractual rights in relation to the loan and/or the related collateral and security arrangements and on any monies available for return required to be paid in priority to the primary lender. In the event of insolvency or a sale of a borrower, if the proceeds, less costs, were less than the total of the prior ranking debt then there would be no proceeds available to repay any interest or debt outstanding from the borrower to investors. The collateral and security arrangements in relation to a loan are subject to such security or collateral having been correctly created and perfected pursuant to any applicable legal or regulatory requirements. If a loan does not benefit from the expected collateral and security arrangements FORESIGHT SMART BONDS FUND 23

24 Risk Factors this may affect the amount of capital returned and interest paid. RISKS RELATING TO SMART METER ASSETS Although it is intended that Smart Meter assets funded through the Foresight Smart Bonds Fund will be secured against a specific set of Smart Meters, depending on the circumstances, the cost of enforcing security and any diminution in the value of the underlying Smart Meter assets may prove uneconomical and a lower rate of interest recovery, absence of any interest or inability of the borrower to repay capital may arise. There is a risk that the portfolio of Smart Meters applicable to each loan could be subject to (either partially, substantially or fully) customers switching to energy suppliers where there is no MRA in place and could subsequently be removed and returned to the borrower for redeployment if possible. As the borrower may not receive rental revenue in respect of any such meters, in the event of a substantial volume of such churn and an inability to redeploy the removed meters, the borrower would be unable to generate sufficient rental income and its ability to pay interest and/or repay capital could be impaired. The borrower may not be able to repay the capital at the end of the term. At the end of each loan s term, the borrower can repay the loan by either selling the portfolio of Smart Meters assets outright, raising new equity, trade sales of shares, or procuring a further loan. Any inability of the borrower to generate liquidity in any of the above manners would impair its ability to pay interest and/or repay capital. CONFLICTS It is likely that some or all of the borrowers will be an Affiliate of Foresight Group. In this instance, Foresight Group will comply with its internal conflicts policy and ensure, to the extent possible, that no employees responsible for managing the Foresight Smart Bonds Fund are involved in directing the affairs of the relevant Affiliate (where employees are shared by Foresight Group and the relevant Affiliate, the relevant employees will be well informed of the segregation of their responsibilities). Notably, any decisions concerning further borrowing arrangements by the relevant Affiliate will be entered into at arm s length from Foresight Group. In addition, loans may be made to borrowers alongside investment by other funds managed by Foresight Group and its Affiliates. Foresight Group will apply its internal conflicts policy in order to protect the interests of investors participating in the Foresight Smart Bonds Fund. TAXATION Statements in this Investor Memorandum regarding taxation are based on our interpretation of current UK legislation. This interpretation may not be correct. Tax legislation, rates of tax, tax benefits, reliefs and allowances are based on current legislation and HMRC practice which may change over time and are not guaranteed. Tax treatment will also depend on an investor s particular circumstances and investors should seek advice as to whether participating in the Foresight Smart Bonds Fund is suitable for their particular circumstances. In the event that Smart Meters were to suffer a technical failure and the warranty cover was found to be insufficient or was commercially unviable to pursue a claim and/or the meters had switched to an energy supplier with no MRA, the borrower would be unable to generate sufficient rental income and its ability to pay interest and/or repay capital could be impaired. 24 FORESIGHT SMART BONDS FUND

25 FORESIGHT SMART BONDS FUND 25