Supplementary Information Memorandum Zank Income Fund

Transcription

1 Supplementary Information Memorandum Zank Income Fund This supplementary information memorandum (Supplementary IM) is dated 26 April 2018 and has been prepared by Vasco Investment Managers Limited ACN , AFS licence no (Trustee) as trustee for the Zank Income Fund (Fund), in conjunction with the investment manager for the Fund, Zank & Company Pty. Ltd. ACN (Manager). The Manager is a corporate authorised representative of the Kehlmann Berleys Capital Pty Ltd (AR no This Supplementary IM contains important information that updates the Information Memorandum for the Fund dated May 2017 (IM). This Supplementary IM has been issued to provide updated information about the Fund including an income distributions cap and changes to the Fund s constitution. For the avoidance of doubt, the further information provided in this Supplementary IM does not contain any change to the commercial terms disclosed in the IM. Prospective Investors should consider the IM and this Supplementary IM in deciding whether to acquire Units in the Fund. Applications to invest in the Fund can only be made on an Application Form which accompanies this Supplementary IM. This Offer is only available to people receiving the IM and Supplementary IM (electronically or otherwise) in Australia. The information contained in the IM and Supplementary IM is general information only and has been prepared without taking into account your objectives, financial situations or needs. Therefore, in deciding whether to acquire an investment in the Fund, you should consider the IM and Supplementary IM and assess, with or without your financial or taxation adviser, whether the product fits your objectives, financial situation or needs. To the maximum extent permitted by law, neither the Trustee nor the Manager make any promise or representation or give any guarantees as to the success of the Fund, the payment or amount of any distributions or the amount you will receive on withdrawal or wind-up; or as to the amount or rate of any income or capital return or as to the taxation consequences of investing in the Fund. Words and expressions defined in the IM have the same meaning in this Supplementary IM. Except to the extent amended by this Supplementary IM and / or updated on our website, the IM remains in force. Change of trustee The Fund s trustee, Vasco Investment Managers Limited (Trustee), was appointed as trustee for the Fund on 1 November 2017 pursuant to a deed of appointment and retirement entered into with the Fund s previous trustee, Kehlmann Berleys Capital Pty Ltd. Appointment of Fund Administrator The Trustee has appointed Vasco Funds Management Pty Ltd to provide fund administration services to the Fund, including processing applications, fund accounting and unit registry maintenance, pursuant to a fund administration agreement. The Fund Administrator is a related party of the Trustee, and the fund administration agreement has been entered on arms length terms. Appointment of Custodian The Trustee has appointed AET Corporate Trust Pty Limited ABN AFSL as the Fund s custodian pursuant to a custodian agreement. The custodian s role is to hold the Fund s assets in its name and act on the direction of the Trustee to effect cash and investment transactions, including the Fund s bank accounts and mortgages. The Custodian has no supervisory role in relation to the operation of the Fund and has no liability or responsibility to a Unit Holder. Constitution The Trustee is proposing to replace the Fund s constitution, as set out in the letter accompanying this Supplementary IM. The replacement constitution contains the following key changes: Supplementary IM for Zank Income Fund (26 April 2018) Page 1 of 4

2 Registration The Fund is an unregistered managed investment scheme. One of the key features of the replacement constitution is that it is drafted such that the Fund can be registered as a managed investment scheme with ASIC in accordance with the Act. The Manager is of the view that registering the Fund as a retail fund will increase the pool of investors who can invest in the Fund and thereby enable the Fund to build a more diversified portfolio of loans. Trustee fee The Trustee is entitled to receive an ongoing trustee fee of 0.3% per annum of the gross value of the Fund s assets, subject to a minimum fee of $60,000 per annum. This fee is accrued daily and is payable monthly in arrears out of the Fund s assets. Administration fee The Trustee is entitled to receive an administration fee for providing fund administration services, calculated as follows: (a) Where the Fund has gross assets of less than $10 million and has less than 25 Unit Holders, then the Trustee is entitled to receive a trust administration fee of $25,000, payable monthly in arrears out of the Fund s assets. (b) Where the Fund has gross assets of greater than $10 million and the Fund has 25 Unit Holders or more, then the Trustee is entitled to receive a trust administration fee of $35,000, payable monthly in arrears out of the Fund s assets. The administration fee is subject to an annual increase of 5% on 1 January of each year. The Administration Fee will be paid to the Fund Administrator for providing fund administration services to the Fund. Retirement or removal fee If Vasco Investment Managers Limited retires or is removed as trustee for the Fund, then Vasco Investment Managers Limited will be entitled to a fee of $9,500. This fee will become due and payable on the date before the retirement or removal takes effect. Conversion fee The Trustee is entitled to receive a conversion fee of $33,000 for its work in converting the Fund from a wholesale managed investment scheme to a managed investment scheme registered with ASIC under the Act. Distributions Distributions of income from the Fund to Unit Holders will be now be calculated on a cents per unit days basis. This means Unit Holders will receive a pro-rata distribution for the distribution periods in which they acquire and dispose of their Units, as opposed to only paying the distribution to the Unit Holder registered on the day a distribution is declared. Unit days calculation is more appropriate and industrystandard for a mortgage investment like the Fund. More information on the calculation of distributions appears below. A copy of the constitution is annexed to this Supplementary IM. Manager s fees Ongoing management fee The Manager is entitled to receive an ongoing management fee of 1.5% per annum of the gross value of the Fund s assets. This fee accrues and is payable monthly in arrears out of the Fund s assets. Performance fee The Manager may be entitled to receive a performance fee. The performance fee (if any) is calculated and payable each quarter in arrears. The performance fee is calculated as 100% of all surplus income once the Trustee has satisfied all fees operating costs and expenses payable in accordance with the constitution, and Unit Holders have received a distribution of 10% per annum (net of fees). If, after payment of fees, operating costs and expenses and a distribution to Unit Holders there is no surplus income, then the Manager will not receive a performance fee. Fee rebates The Manager may negotiate with Unit Holders on an individual basis in relation to rebates of the fees payable to the Manager. In the event rebates are offered, they will be paid by the Manager (not the Trustee) and will not affect the fees paid by, or any distributions to, other Unit Holders. Distributions The Fund aims to generate quarterly distributions to Unit Holders, capped at 10% per annum (net of fees) (Target Rate). Since the Trustee was appointed as trustee of the Fund, distributions have been calculated on a quarterly basis, and if payable, will be paid within 10 Business Days of the end of each quarter (being each March, June, September and December) (Quarter). Supplementary IM for Zank Income Fund (26 April 2018) Page 2 of 4

3 Unit Holders should note the Target Return is not a forecast; rather it is an indication of what the Manager aims to achieve on the assumption that credit markets remain stable throughout the Investment Term and borrower s do not default on its financial obligations under a loan. Distributions are not guaranteed, nor is the return of your capital. Withdrawals Minimum Investment Period Unit Holders must hold their investment for at least 12 months before being eligible to withdraw their investment from the Fund (Minimum Investment Period). Withdrawal request Unit Holders who have held their Units for at least the Minimum Investment Period may complete a withdrawal request in respect of some or all of their Units by completing a withdrawal request form and lodging it with the Trustee. A withdrawal request form can be obtained by contacting the Trustee or is available from the Trustee s website at Minimum holding While there is no minimum withdrawal amount, Unit Holders must maintain a minimum investment of $500,000 in the Fund. The Trustee may, at its discretion, vary the size of any withdrawal request if it would otherwise mean that after being satisfied, the Unit Holder s remaining investment would be less than $500,000. Processing withdrawals The Trustee processes withdrawal requests on the last Business Day of each Quarter. Withdrawal requests must be received by the Trustee at least 10 Business Days before the end of a Quarter for the withdrawal request to be processed in that Quarter. If a withdrawal request is received within 10 Business Days before the end of a Quarter, then it will be processed in the following Quarter. Liquidity The Fund invests in illiquid assets and liquidity cannot be guaranteed. All withdrawal requests are subject to the Fund having sufficient liquidity at the time. Where the Fund does not have sufficient liquidity to meet all withdrawal requests received for the Quarter, then the Trustee will meet all withdrawal requests on a pro-rate basis. Early withdrawal fee An early withdrawal fee of 1% of the withdrawal amount is payable on redemptions of Units held for less than 12 months (Minimum Investment Period) where the Trustee has waived, in its absolute discretion, the Minimum Investment Period. The Trustee may waive the Minimum Investment Period in its sole and absolute discretion if (a) (b) a Unit Holder experiences hardship, and the Fund has sufficient liquidity to satisfy the withdrawal request. Registration of the Fund The Trustee, in conjunction with the Manager, intends to apply to ASIC to register the Fund as a managed investment scheme in accordance with the Act. If the Fund is registered, then withdrawal requests will be governed by the Act and may change depending on whether the Fund is liquid. If registration is approved, then Unit Holders will be notified. Privacy AET Corporate Trust Pty Limited (AET) may collect your personal information for primarily purpose of providing custodial services to the Trustee in its capacity as trustee for the Fund and for ancillary purposes detailed in the Privacy Policy. AET may disclose your personal information, such as, your name and contact details, along with your account information to its related bodies corporate, the Trustee, the Manager, professional advisers, the land titles office and/or as otherwise instructed by the Trustee. We are also permitted to collect and disclose your personal information when required or authorised to do so by law. AET is not likely to disclose your personal information to overseas recipients. Your personal information will be used in accordance with AET s Privacy Policy. The Privacy Policy contains information about how you may access or correct your personal information held by AET and how you may complain about a breach of the Australian Privacy Principles. You may obtain a copy of the Privacy Policy at Foreign tax compliance disclosure The Foreign Account Tax Compliance Act (FATCA) is United States (US) legislation that enables the US Internal Revenue Service to identify and collect tax from US residents that invest in assets through non-us entities. The OECD Common Reporting Standards for Automatic Exchange of Financial Account Information (CRS) is a similar global regime aimed at collecting and reporting on an investor s tax status. If you are a foreign resident for tax purposes, then you should note the Fund will comply with its FATCA Supplementary IM for Zank Income Fund (26 April 2018) Page 3 of 4

4 and CRS obligations by collecting, retaining and reporting about certain investors to the ATO. Consent to be named AET has not withdrawn its consent to be named in this Supplementary IM as custodian of the Fund in the form and context in which it is named. AET does not make, or purport to make, any statement that is included in this Supplementary IM and there is no statement in this Supplementary IM which is based on any statement by AET. To the maximum extent permitted by law, AET expressly disclaims and takes no responsibility for any part of this Supplementary IM other than the references to its name. AET does not guarantee the repayment of capital or any particular rate of capital or income return. Questions If you have any questions in relation to this Supplementary IM, then please contact the Trustee or the Manager as follows: Trustee Vasco Investment Managers Limited Address Website Level 5, 488 Bourke Street Melbourne 3000 Victoria Phone Fax Manager Zank & Company Pty. Ltd. Address Website Level 2, 115 Collins Street Melbourne 3000 Victoria invest@zank.com.au Phone , v. 5 Supplementary IM for Zank Income Fund (26 April 2018) Page 4 of 4

5 Application Form Zank Income Fund Use this application form if you wish to invest in: Zank Income Fund This Supplementary Information Memorandum (SIM) dated 26 April 2018, and the current Information Memorandum (IM) dated May 2017, for the Zank Income Fund includes information about purchasing units in the Fund. Any person who gives another person access to the application form must also give the person access to the IM and SIM and any incorporated information. You should read the IM and SIM and any incorporated information before completing this application form. The trustee of the Fund is Vasco Investment Managers Limited (Vasco) ABN , AFSL Vasco or a financial adviser who has provided an electronic copy of the IM and SIM and any incorporated information, will send you a paper copy of the IM and SIM and any incorporated information and application form free of charge if you so request. Customer identification If you are a new investor, you are also required to complete the relevant Customer Identification Form (FSC/FPA forms) depending on what type of investor you are e.g. individual or super fund. The Customer Identification Forms are available on our website or by calling our Investor Services team on Australia's Anti-Money Laundering and Counter Terrorism Financing (AML/CTF) legislation obliges us to collect identification information and documentation from prospective investors. Investors are required to complete this Application Form together with the relevant Customer Identification Form and send these to us with the required identification documentation. We will not be able to process your Application without a correctly completed Customer Identification Form and the required identification documentation. Important Information for Financial Advisers When using this Customer Identification Form, please complete Sections 1 or 2 and 3. If you are a financial adviser who has identified and verified the investor, by completing this Customer Identification Form together with the verification procedure and in the consideration of Vasco Investment Managers Limited (Vasco) accepting the investor's application: you agree to identify and verify all new investors, using this Customer Identification Form or the industry standard FSC/FPA Identification Form for identifying new investors you agree to retain a copy of the completed forms and all identification documents received from the investor in the investor's file for seven (7) years after the end of your relationship with the investor you agree to advise Vasco in writing when your relationship with the investor is terminated and agree to promptly provide Vasco all identification documents and/or the record of identification received from the investor at this time, or as otherwise requested from Vasco, from time to time. Contact details Mail your completed application form and identity verification documents to: Vasco Investment Managers Limited Level 5, 488 Bourke Street Melbourne VIC 3000 If you have any questions regarding this form or the required Customer Identification requirements, please contact our Investor Services team on Checklist Before sending us your application please ensure you have: completed this form in full; for new investments, completed the relevant Identity Verification Form available on our website if paying via direct debit, completed section 10 ensuring ALL bank account signatories have signed; if paying via cheque, ensure cheque is made payable to AET Corporate Trust Pty Ltd ACF Zank Income Fund and attach it to this application form; and read the declaration and provided all relevant signatures. Zank Income Fund - 26 April

6 Application Form Zank Income Fund PLEASE USE BLOCK LETTERS AND BLACK INK TO COMPLETE THIS APPLICATION FORM 1. Investment details Is this a new investment or an additional investment? New investment Please proceed to section 2. Additional investment Existing account name 2. Investor type Existing account number Please proceed to section 6. If you provide any information in any other section, this will override any previous information provided. Individual investor or joint investors also complete Customer Identification Form Individuals and Sole Traders Sole Trader also complete Customer Identification Form Individuals and Sole Traders Super Fund also complete Customer Identification Form Superannuation Funds and Trusts Trust also complete Customer Identification Form Unregulated Trusts and Trustees Australian company also complete Customer Identification Form Australian Companies Foreign company also complete 'Customer Identification Form Foreign Companies' Other contact our Investor Services team on for other Customer Identification Forms. 3. Investor name Investor 1 3A. Individual investor/joint investors/sole trader Surname Full given name(s) Title (Mr/Mrs/Miss/Ms Date of birth Business name of sole trader (if applicable) Investor 2 Surname Full given name(s) Title (Mr/Mrs/Miss/Ms) Date of birth Name of entity 3B. Super fund/trust/australian company/foreign company/other Surname Full given name(s) 3C. Account designation (if applicable) Provide the name of the person for whom the investment is being made (if applicable). Please note we do not accept investments from people under 18 years of age; however, investments may be designated on their behalf. Title (Mr/Mrs/Miss/Ms) We are only required to act on instructions from the investors listed in 3A and 3B. Vasco is not bound to take any notice of any interest of any person listed in 3C. Zank Income Fund - 26 April

7 4. Contact details This is the address where all correspondence will be sent. Contact person Unit number Street number Street name Suburb State Postcode Country Phone (after hours) Phone (business hours) 5. Tax information Mobile Facsimile It is not against the law if you choose not to give your TFN or exemption reason, but if you decide not to, tax may be taken out of your distributions at the highest marginal tax rate (plus Medicare levy). 5a. Individual investor or entity 5b. Investor 2 (joint investors) TFN TFN Tax exemption Tax exemption ABN 5c. Non-residents If you are an overseas investor, please indicate your country of residence for tax purposes. 6. Investment allocation and payment options Please indicate how you will be making your new or additional investment and the amount you wish to invest. I/we are making my/our investment via: Direct Credit/EFT see below. Bank Cheque make cheque payable to AET Corporate Trust Pty Ltd ACF Zank Income Fund. Fund name Initial investment Zank Income Fund $,,. 0 0 The minimum initial investment is $500,000. Cheque Instructions: Bank Cheques or drafts must be made payable to AET Corporate Trust Pty Ltd ACF Zank Income Fund. Only cheques or drafts in Australian currency and drawn on an Australian bank will be accepted. Your cheque(s) should be crossed NOT NEGOTIABLE. Mail or deliver your completed Application Form with your cheque(s) to: Vasco Investment Managers Limited Level 5, 488 Bourke Street Melbourne, VIC, 3000 P F E info@vascofm.com Direct Credit / EFT Instructions Alternatively you can direct credit your application funds to: AET Corporate Trust Pty Ltd ACF Zank Income Fund St George Bank BSB Account number Please note the applicants name when transferring the funds. Please ensure all funds transferred are net of all bank charges. Zank Income Fund - 26 April

8 7. Annual report A copy of the annual report for the Fund will be provided on the Vasco website Please cross (7) this box if you wish to receive a paper copy of the annual report(s) for the Fund. If you choose to have an annual report mailed to you, it will be mailed to the address provided in section 4 or your current address on file for existing investors. For additional investments, a nomination in this section overrides any previous nominations. 8. Income distributions Please indicate how you would like your income distributions to be paid by crossing ( ) one box only. If this is a new investment and no nomination is made, distributions will be reinvested. A nomination in this section overrides any previous nominations. There may be periods in which no distribution is payable, or we may make interim distributions. We do not guarantee any particular level of distribution. Please reinvest my/our income distributions. Please credit my/our nominated bank account provided in section 10 with my/our income distributions. 9. Eligible Investor Qualification In order to participate in the Offer you must be an Eligible Investor. Please complete this section so that the Trustee can determine whether you are eligible to participate in the Offer. Part 1 Investor category Each Applicant must mark the box (X) which best describes the category of investor they are. (a) Sophisticated Investor Applicant 1 Applicant 2 (if joint application) (b) Professional Investor Applicant 1 Applicant 2 (if joint application) I am applying for $500,000 or more worth of Units. I have net assets of at least $2.5 million (please arrange for a Qualified Accountant to complete Part 2 of Section 8 of this Application Form). I have earned at least $250,000 per annum gross income for each of the last two financial years (please arrange for a Qualified Accountant to complete Part 2 of Section 8 of this Application Form). I have sufficient experience in investing in securities and managed investment schemes (please arrange for an AFSL holder to complete Part 3 of Section 8 of this Application Form). I have or control gross assets of at least $10 million (please arrange for a Qualified Accountant to compete Part 2 of Section 8 of this Application Form). I hold Australian Financial Services Licence No. (please provide AFSL no.) Part 2 To be completed by a Qualified Accountant Insert full name and address of Qualified Accountant Name Address Suburb State Postcode Country Phone (after hours) Phone (business hours) Mobile Facsimile Professional classification (eg. CPA) Membership No: Zank Income Fund - 26 April

9 9. Eligible Investor Qualification (continued) Declaration by Qualified Accountant I, the Qualified Accountant named above, certify that the following is true and correct: (a) I am a Qualified Accountant; (b) this certificate is given at the request of the Applicant described above in relation to the Units in the Fund to be issued by the Trustee; and (c) please indicate which option below applies by marking the relevant box for each Applicant: Option 1 Applicant 1 Applicant 2 (if joint application) The Applicant is known to me and for the purposes of section 761G (7)(c) of the Corporations Act, the Applicant either personally or in conjunction with a company or trust controlled by the Applicant, has: net assets of at least $2.5 million; or a gross income for each of the last two financial years of at least $250,000 a year. Option 2 Applicant 1 Applicant 2 (if joint application) The Applicant is a company or trust controlled by a person known to me for the purposes of section 761G (7)(c) Corporations Act, who has: net assets of at least $2.5 million; or a gross income for each of the last two financial years of at least $250,000 a year. Option 3 Applicant 1 Applicant 2 (if joint application) For the purposes of section 761G(7)(d) of the Corporations Act, the Applicant controls gross assets of at least $10 million (including any amount held by an associate or under trust that the Applicant manages). Signature of Qualified Accountant Date Part 3 To be completed by the Applicant and an Australian financial services licensee Applicant to sign this acknowledgment I/We, the Applicant(s) acknowledge that the financial services licensee named below has not given me/us: (a) a product disclosure statement as referred to in Part 7.9 of the Corporations Act in relation to the Offer to acquire Units in the Fund; and (b) any other document required to be given under Chapter 7 of the Corporations Act if the product were provided to the Applicant as a retail investor; and (c) the licensee does not have any other obligation to the Applicant under Chapter 7 of the Corporations Act that the licensee would have if the product were provided to the Applicant as a retail investor. Signature of Applicant 1 Date Signature of Applicant 2 Date Zank Income Fund - 26 April

10 9. Eligible Investor Qualification (continued) Financial services licensee to complete this section I am the financial services licensee no. (a) (b) and certify that the following is true and correct: I am satisfied on reasonable grounds that the Applicant(s) have previous experience in investing in financial products that allows them to assess: (i) (ii) the merits of the Units; the value of the Units; (iii) the risks associated with holding the Units; (iv) their information needs; (v) the adequacy of the information given by the Trustee and me; and I have given the Applicant(s) a written statement of my reasons for being satisfied on these matters, as required by section 761GA(e) of the Corporations Act. Signature of financial services licensee Date Print name of person signing 10. Nominated bank account (must be an Australian financial institution) Unless requested otherwise, this will also be the bank account we credit any withdrawal proceeds and/or distributions if you requested these to be paid to you and not reinvested. By providing your nominated account details in this section you authorise Vasco to use these details for all future transaction requests that you make until notice is provided otherwise. For additional investments, a nomination in this section overrides any previous nominations. Financial institution Branch Account name Branch number (BSB) Account number 11. Declaration and applicant(s) signature(s) Please read the declarations below before signing this form. The signatures required are detailed at the bottom of this form. I/We declare that: all details in this application and all documents provided are true and correct and I/we indemnify the Trustee of the Fund against any liabilities whatsoever arising from acting on any of the details or any future details provided by me/us in connection with this application; I/we have received a copy of the current IM and SIM and all information incorporated into the IM and SIM to which this application applies and have read them and agree to the terms contained in them and to be bound by the provisions of the current IM and SIM (including the incorporated information) and current constitution (each as amended from time to time); I/we have legal power to invest in accordance with this application and have complied with all applicable laws in making this application; I/we have received and accepted this offer in Australia; the details of my/our investment can be provided to the adviser group or adviser named at the end of this form or nominated by them by the means and in the format that they direct; if this application is signed under Power of Attorney, the Attorney declares that he/she has not received notice of revocation of that power (a certified copy of the Power of Attorney should be submitted with this application unless we have already sighted it); sole signatories signing on behalf of a company confirm that they are signing as sole director and sole secretary of the company; I/we acknowledge that if Vasco reasonably believes an or facsimile communication it receives is from me/us Vasco is entitled to rely on that or facsimile communication and will not be liable for any loss it may suffer if it is later found the or facsimile communication was fraudulent. unless alternative authority for signature is notified to and accepted by Vasco, the person/persons that signs/sign this form is/are able to operate the account on behalf of the company and bind the company for future transactions, including in respect of additional deposits and withdrawals, including withdrawals by telephone and fax; I/we acknowledge that I/we have read and understood the information under the headings Privacy' in the relevant IM and SIM. I am/we are aware that until I/we inform Vasco otherwise, I/we will be taken to have consented to all the uses of my/our personal information (including marketing) contained under that heading and I/we have consented to my/our financial adviser providing such further personal information to Vasco as is required or reasonably deemed necessary by Vasco under applicable law; Zank Income Fund - 26 April

11 11. Declaration and applicant(s) signature(s) (continued) I/we understand that if I/we fail to provide any information requested in this application form or do not agree to any of the possible use or disclosure of my/our information as detailed on the IM and SIM, my/our application may not be accepted by Vasco and we agree to release and indemnify Vasco in respect of any loss or liability arising from its inability to accept an application due to inadequate or incorrect details having been provided; I/we acknowledge that none of Vasco, or any other member of Vasco or any custodian or investment manager, guarantees the performance of the Fund or the repayment of capital or any particular rate of return or any distribution; I/we are bound by the Constitution and that an application for Units is binding and irrevocable; I/we have not relied on statements or representations made by anybody, other than those made in the IM and SIM; I/we agree and acknowledge no cooling off period applies and I/we have had the opportunity to seek independent professional advice on subscribing for Units; I/we agree and acknowledge Vasco is required to comply with the anti-money laundering laws in force in a number of jurisdictions (including the Anti-Money Laundering and Counter-Terrorism Financing Act 2006) and I/we must provide Vasco with such additional information or documentation as Vasco may request of me/us, otherwise my/our Application for Units may be refused, Units I/we hold may be compulsorily redeemed, and any disposal request by me/us may be delayed or refused and Vasco will not be liable for any loss arising as a result thereof; I/we have provided a tax file number, and if not, I/we consent to Vasco withholding tax at the highest marginal tax rate; I/we acknowledge and agree to having read and understood the risks of investing in the fund as described in the Information Memorandum and understand that the risks associated with the Fund s investments may result in lower than expected returns or the loss of my/our investment. I/We also warrant and acknowledge that: All information contained in my/our Application is true and correct; I/we are not a Politically Exposed Person (PEP) as defined by the AML/CTF legislation; I/we are a wholesale client for the purposes of section 761G of the Corporations Act and relevant information has been provided to confirm this and by investing in this Fund I/we will not cause any breach of the Corporations Act by or for Vasco; if the Applicant is a SMSF, it is compliant and investing in this Fund complies with the Superannuation Industry Supervision Act 1993 (Cth); and I/we hold the appropriate authorisations to become an Investor in the Fund and that offer cannot be revoked. Refer to list of signatories on page 6 of this application form Investor 1 Signature Date Surname Given name(s) Capacity Sole Director Director Investor 2 (joint investors) (company investments only) Signature Date Surname Given name(s) Capacity Director Company Secretary (company investments only) Signing Authority Please tick to indicate signing requirements for future instructions (e.g. withdrawals, change of account details, etc.) Only one required to sign. All signatories must sign. PLEASE NOTE: All signatories must provide certified copies of their drivers license or passport in addition to any identification documents required by the Customer Identification Form required for the Investor. Zank Income Fund - 26 April

12 12. Adviser use only Office name Surname Given name(s) Title (Mr/Mrs/Miss/Ms Phone (business hours) Adviser group Adviser group AFSL Adviser Signature Date ADVISER STAMP Important notes This application must not be handed to any person unless the relevant IM and SIM and access to the information incorporated into the IM and SIM is also being provided. Vasco may in its absolute discretion refuse any application for Units. Persons external to Vasco or other entities who market Vasco products are not agents of Vasco but are independent investment advisers. Vasco will not be bound by representations or statements which are not contained in information disseminated by Vasco. Application monies paid by cheques from investment advisers will only be accepted if drawn from a trust account maintained in accordance with the Corporations Act. Signatories The table below provides guidance on completing the Declaration and applicant(s) signature s section of the application form. Before signing the application form please ensure you have read the declaration. Type of investor Names required Signature required TFN/ABN to be provided Individual and/or joint investors i. Full name of each investor (please do not use initials). Individual investor s; or each joint investor s Individual investor s; or each joint investor s Sole trader i. Full name of sole trader; and Sole trader s Sole trader s ii. Full business name (if any). Australian or i. Full company name as registered i. Sole director s; or Company s foreign company with the relevant regulator; and ii. Two directors ; or ii. Name of each director of the iii. One director s and company company; and secretary s iii. Full name of each beneficial owner* Trust/Superannuation fund If you are investing on behalf of a superannuation fund, we will assume the superannuation fund to be a complying fund under the Superannuation Industry (Supervision) Act. Account designation If the investment is being made under Power of Attorney (POA) Please ensure an original certified copy of the POA is attached to the application form. Each page of the POA must be certified. Zank Income Fund - 26 April 2018 i. Full trust/superannuation fund name (e.g. Michael Smith Pty Ltd ATF Michael Smith Pty Ltd Super Fund); and ii. Full name of the trustee(s) in respect of the trust/super fund. Where the trustee is an individual, all information in the 'Individual and Sole Traders' section must be completed. If any of the trustees are an Australian company, all information in the Australian company section must also be completed; and iii. Names of beneficiaries (if identified in Trust Deed). iv. Full name of the settlor** v. Full name of each beneficial owner Name of the responsible adult, as the investor. i. Full name of each investor(s) (as listed in section 3); and ii. Full name of person holding POA (underneath signature). Individual trustee(s) as trustee for If any of the trustees are an Australian company, the signatures set out in the Australian company section are also required. Adult(s) investing on behalf of the person/minor Person holding Power of Attorney In the case that the POA document does not contain a sample of the POA s (i.e. Attorney s) signature, please provide a certified copy of either the POA s driver s licence or passport containing a sample of their signature. Superannuation fund s or trust s Adult(s) Individual investor s; or each joint investor s * Beneficial owner means an individual who ultimately owns or controls (directly or indirectly) the investors. Owns mean ownership (either directly or indirectly) of 25% or more of the investor. **This is not required in some circumstances. 8

13 Kehlmann Berleys Capital Income Fund INFORMATION MEMORANDUM / 2017 Zank and Company Pty. Ltd. ABN Kehlmann Berleys Capital Pty Ltd ABN AFSL

14 Fund Manager Zank & Company Pty Ltd ABN CAR number Suite 1, Level Glenferrie Road Hawthorn VIC 3122 Fund Administrator and Trustee Kehlmann Berleys Capital Pty Ltd ABN AFS License No: Level Market Street Sydney NSW 2000 Investor Services : +61 (0) Investor Services: +61 (0) Important Information This Information Memorandum has been prepared by Kehlmann Berleys Capital Pty Ltd, the trustee (and Zank & Company Pty Ltd, the manager, us, we, our) and contains an offer to invest in units in the Kehlmann Berleys Capital Income Fund (the Offer). The Offer is made only to wholesale clients as defined by section 761G of the Corporations Act 2001 (Cth). The Information Memorandum and Constitution have not been, and will not be, lodged or registered with the Australian Securities and Investments Commission. Investment in the Fund is subject to investment risk. This means that none of Kehlmann Berleys Capital Pty Ltd or any of their related entities, officers or employees (collectively the Fund Providers) guarantee the repayment of capital, the payment or timeliness of income, or the performance of the Fund. None of the Fund Providers: make any recommendation regarding the Offer; are authorized to give any information or make any representation concerning the Offer which is not contained in the Information Memorandum, so that any information or representation not referred to in this Information Memorandum may not be relied upon; or make any representation, warranty or guarantee that a successful Application for investment in the Fund will lead to an investor obtaining a Significant Investor Visa or accept any liability for any loss or damage arising from you relying on an investment in the Fund as providing you with a Significant Investor Visa. Investors MUST review the Information Memorandum in full before deciding to invest in the Fund. Information in this Information Memorandum is general information and does not take into account an investor s specific needs or circumstances. We recommend Investors consult with professional advisers before participating in the Offer. The Offer is available to persons receiving the Information Memorandum in paper or electronic format within Australia. No offer or invitation is made by this Information Memorandum, directly or indirectly in any jurisdiction where the offer or invitation would breach the applicable laws or require the Information Memorandum or any other document to be lodged or registered. The information in this Information Memorandum may change from time to time. We will update this information by publishing changes on our website at Page 1

15 MANAGING DIRECTOR S LETTER Dear Investors, Since the GFC in 2008, global borrowing and lending market has changed significantly. Due to the Basel III Accord, central banks have forced to increase their capital requirements by increasing bank liquidity and decreasing bank leverage. The Basel III capital framework has started to come into effect in Australia since 1 January Therefore, many Australian banks as traditional lenders have tightened their lending policy, even closed their doors for good quality borrowers. Meanwhile, many non-bank lenders have participated in the market to fill in the gap. In fact, Australia non-bank lenders have doubled their market share in the past two years. ZANK and company is one of the fastest growing non-bank lenders in the Australian market. We have a dedicated team with over 100 years of total experience in asset management and commercial lending industry. As a lender, we understand what borrowers like developers really needs, and we work with developers closely to provide efficient, non-coded, tailored lending solutions for those who really benefit the community. We also operate a managed investment scheme under Australian financial service license to present an opportunity for investors to participate in Australian lending marketplace. We have successfully delivered millions of dollars profit for our investors. And we aim to provide a reliable and transparent investment solution for our clients. On behalf of Zank & Company, the board of Directors, it is my pleasure to present the Kehlmann Berleys Capital Income Fund s information memorandum. Zank & Company is pleased to invite you to consider an investment in the Fund. Australia has entered a low interest rate environment and this has seen rates on deposits fall to historically low levels. We believe our interest rates remain attractive, we already are, and will continue to be, superior to many other attractive interest investment offerings. Our business remains profitable, and Kehlmann Berleys Capital Income Fund continues to offer you with: The backing of a pool of carefully selected mortgages secured over quality Australian real estate; and, An attractive return which has a superior interest to other investment. We are pleased to report a substantial improvement in overall loan quality which is a testament to our highly experienced senior management whose efforts confirm that our Fund will be in safe hands looking towards the future. Low interest rates generally correlate with an attractive property market, and with the current interest will expected to stay low, Zank believe this market will continue to provide us with strong deal flow and attractive lending opportunities during the term of this IM. Pleasingly, we continue to be recognized for our approach. Globally, we have been awarded for Best Australia- China capital Management Company by the Australia China Trade & Industry Promotion Council. As Chairman of Directors, I welcome your interest and investment in our Fund. Best Wishes Conghan Hu Managing Director Page 2

16 Contents Contents Key Features About the Fund... 7 Investment Objectives 7 Investor Suitability 7 Term of the Fund 7 Application 7 Adding to your investment 7 Investment Manager 8 Portfolio construction 8 Trustee and Licensee 8 Investment Committee 9 Fund Compliance 10 Fund Auditor 10 Key criteria for investment security issue Investment Structure Investment Strategy 11 Investment Parameters 11 Investment Process and Guidelines 12 Ongoing Monitoring 14 Defaulting Loans 14 Change in investment objective or parameters Distributions Distribution of Income 16 Withdrawals 16 Transfers 17 Unit Pricing Fees and costs Explanation of fees and costs 18 Fees and other costs Risks General risks 19 Fund specific risks Taxation information Taxation of the Fund 22 Taxation based on Country of Residence 22 Goods and Services Tax ( GST ) 22 Tax File Numbers and Australian Business Numbers Frequently asked questions Q1. What is a Mortgage Investment? 23 Q2, Who can invest? 23 Q3, How often will I be communicated with and what information will the Fund provide? 23 Q4, How can I invest? 23 Q5, How will distributions received from the Fund be taxed to Investors? 23 Q6, What are the tax consequences for Investors selling Units in the Fund? 24 Q7, What happen if I need my money in case of an emergency? 24 Q8, What happen if the borrower is late or fail to make payments? Additional Information Privacy Continuous disclosure 25 Page Page 3

17 9.3 Anti-money laundering Definitions Application Form and guide to completing the application form Page 4

18 1. Key Features The information in the table below provides a snapshot of the Trust. Please read the whole IM and seek any advice you need BEFORE DECIDING TO INVEST. FEATURE DETAILS FOR MORE INFORMATION, SEE Fund Name Kehlmann Berleys Capital Income Fund Section 2 Trustee Kehlmann Berleys Capital Limited A.C.N AFSL Section 2 Manager Zank & Company Pty Ltd A.B.N CAR Number Section 2 Type of Investment Wholesale managed investment scheme Section 3 Investment Objectives To invest in mortgage based loan opportunities in diverse Australian property sectors and aim to generate a stable income for investors Section 2 Investment Strategy The Fund will be invested in mortgage-backed loans secured by Australian real estate. Loans will be made to borrowers to use for business or investment purposes. The funds will be recycled, subject to withdrawals from the Fund, such that funds from loans that have matured and been repaid are reinvested Section 3 Issuance of Units Investors whose application and payment is received will be issued with units within 10 BUSINESS DAYS of their application being accepted Section 4 Investment Term Investors are required to hold units for a minimum term of 1 year (12 months) There is no planned end date for the Fund but the Fund must vest no later than 80 years after it was established Section 2 Target Fund Size 100 million AUD - Eligible Investors An individual, company, self-managed super fund or a trust can invest in the Fund, but you MUST BE a Wholesale Investor for the purposes of section 761G or 761GA of the Corporations Act Section 9 Investment Amount Minimum Investment: AUD $500,000 Minimum Incremental Investment: AUD $100,000 Section 2 Page 5

19 Redemption of Units 90 days notice Section 4 Distributions The Fund aims to generate a target rate of 12% per annum to our investors (before all costs and fees). Distributions are paid quarterly. Section 4 Early Redemption Fee No Early Redemption Fee if investment is held for over 12 month Early withdrawal on hardship ground: 1.00% of the amount redeemed Section 5 Management Fee Management fee is 1.5% p.a. of the investment amount for local investors (Australia Residency and PR investor) ; otherwise, 3.0% p.a. management fee for overseas investors. Trustee fee Trustee fee is 0.5% p.a. of the Fund s investment amount Section 5 Fund Expenses The Trustee and the Investment Manager have the right to claim expenses incurred by them in the proper performance of its duties in respect of the Fund. These are costs incurred in operating the Fund and include (but not limited to) accounting costs, legal costs, third-party service provider fees and administration costs. Expenses are deducted as and when they are incurred out of the Fund s assets Section 5 Security Your investment is secured by the first or second ranking charge that the Trustee holds over all of the Company s assets including cash and the portfolio as well as borrower s personal Guarantees Section 2 Key Risks Default risk: the risk that a borrower defaults on their payment obligations under the loan Security risk: the risk that the value of the underlying security is insufficient to cover the amount outstanding on a loan Liquidity risk: the risk that the Fund has insufficient liquidity to pay the redemption proceeds to a withdrawing investor Section 7 Reporting A detailed statement of quarterly market performance and asset commentary which will provide investors with full disclosure of matters relevant to Fund investments Audited annual accounts Annual tax reporting - Page 6

20 2. About the Fund The Fund aims to provide our investors with a reasonably stable and predictable income based on investing in a wide range of loans secured by first or second mortgages with geographic diversification across Australia. Investing in the Fund means you enjoy substantial diversification of investment in loans secured by mortgages. Investment Objectives The Fund aims to achieve regular income from a portfolio of mortgage-backed loans secured by Australian real estate that offer capital stability. Under normal circumstances, the Fund will aim to invest substantially all of its assets in Australian based first ranking mortgage-based loans and second ranking mortgage-based loans. Pending investment or re-investment in first ranking mortgage-based loans and second ranking mortgage-based loans, the Fund may hold cash on deposit or invest on a temporary basis in a range of high-quality debt securities and cash equivalent instruments. The Fund s mandate is to lend to profitable Australian businesses as well as property development companies. When making lending decisions, we focus on following fundamentals of the projects or companies: financial performance, operational execution, management and sustainable growth. Investor Suitability This Fund may be suitable for a wholesale investor who: Has a medium term to long term Investment period; Is seek regular Income returns; Term of the Fund The Fund may be terminated in some circumstances under its Constitution. The Fund terminates at the earlier of: the 80th anniversary of the day before the Commencement Date, or the date specified by the Manager in a notice given to Investors. Application Prospective Investors are encouraged to read this Information Memorandum carefully before investing in the Fund. Investors should fully understand the associated risks of the Fund before investing. The minimum initial investment amount is AUD $500,000. The minimum incremental investment is AUD $100,000. The Fund accepts various formats of payment for investment. Should you require financial institution details of the Fund, please contact the Fund Manager. To apply for units of the Fund, please complete the attached Application Form and attach your proof of monies transfer. Applications should either be delivered or mailed to the Fund Manager Zank & Company Pty Ltd. Adding to your investment Current Investors wishing to add to their investment can do so by completing an Additional investment application form. You may also request a copy from us. The minimum additional investment amount is $100,000. To ensure that you have up to date information about the Fund when making an additional investment, we suggest that you contact us and we will provide you with a copy of any new or supplemental product disclosure statement that has been issued. Page 7

21 Investment Manager Zank & Company Pty Limited is a fast growing asset manager with a mission to create a better financial future for its clients. Our team has excellent relationships with the Institutional, Private Equity, Family Office and High Net Worth investor base. We understand clients needs and investment goals in an ever-evolving marketplace. Our core focus is to increase investors' wealth by delivering investment returns via regular income distribution and wellstructured products. These investments offer strong security, stable high-income profile and a measurable credit risk exposure. Portfolio construction The Fund seeks to add value through loan selection and property industry sector rotation while maintaining a highly diversified portfolio of borrowers. To diversify the fund, the fund will: Lend to different projects Lend to different builders Lend to projects in various locations Target Identification Business Fundamentals Financial Performance Assessment Security/Risk Analysis Investment Decision The Fund uses bottom-up analysis to select individual investments and employs a conservative approach to credit selection, emphasizing protection of principal and a sufficient security buffer. Investments will be made in different property industry sectors and regions, diversified across a wide range of borrowers. Loan approvals are granted for a designated term. This term is selected by the borrower, and in the case of property development loans, takes into account an independently sourced forecast for any proposed construction period. Considering the nature of first ranking mortgage-based loans and second ranking mortgage-based loans, providing attractive returns for a finite period, a diversified fund structure is employed to ensure income is being derived from multiple sources, maturity profiles, and investment sectors. Sector specific requirements and parameters are in place and adhered to at each stage of the investment process. Under the terms of the Constitution, the following maximum loan to valuation ratios (LVR) apply to all loans made by the Fund: Commercial Property & Development: 70% The final portfolio reflects a rigorous fundamental approach to credit portfolio management. Trustee and Licensee Fund Administrator and Trustee Kehlmann Berleys Capital is the custodian of the assets and the Fund Administrator. Kehlmann Berleys Capital holds the assets of the Fund, determines their value, and keeps and administers Investor and Fund records. The Fund or Kehlmann Berleys Capital Pty Ltd may use services provided by companies related to the Manager on arm s length terms. Page 8

22 Fund Manager Zank & Company Pty Ltd ABN CAR number Suite 1, Level Glenferrie Road, Hawthorn VIC 3122 Fund Administrator and Trustee Kehlmann Berleys Capital Pty Ltd ABN AFS License No: Level Market Street, Sydney NSW 2000 Telephone: +61 (0) Investor Services: +61 (0) Investment Committee Investment committee is in charge of reviewing each mortgage case and making investment decisions one behalf of Zank & Company Pty Ltd. Dan Gallen As the Responsible Manager of Kehlmann Berleys AFSL, Dan Gallen helps Zank & Co. review and verify projects of Kehlmann Berleys Income Capital Fund, which helps ensure projects are subject to suitable risk controls and prudence. Dan can also provide independent analysis on project feasibilities. Up until 2015, Dan Gallen was a Partner at the Balmain Group which is one of the largest commercial mortgage originators in Australia. He has completed over $1 billion in property debt advisory mandates in the post GFC landscape earning him a reputation as one of Australia s leading real estate advisors. Clients have included ASX listed property groups and some of Australia s largest private investors and developers. Dan is RG146 Compliant, a Responsible Manager and holds degrees in Science, Finance, Economics and a Post Graduate Qualification in Property & Planning. Spyros Mitsopoulos As an investment committee member, Spyros will help Zank & Co. undertake a responsible investigation for each potential project of the Fund, and Spyros will give independent advice about whether or not to invest in each project. Spyros has 35 years experience in the mortgage industry. Currently, he is the Director of Commercial Funding Services Pty Ltd. Spyros is an award winning and highly experienced professional mortgage manager having helped hundreds of Australian development projects apply for their mortgage loans from private lenders. Wendy Fergie As an investment committee member, Wendy will offer her independent advice on Zank & Co s investment decision. Wendy has 20 years experience in the finance industry. She held the roles of the portfolio manager and credit analyst in the fixed income team at AXA and Alliance Bernstein, and debt investment director in ME Bank. She is a CFA charter holder was one of the founding members of CFA Society Melbourne being both Treasurer and Vice President. Conghan Hu Highly experienced Financial Services professional with a diverse range of skills, Conghan manages Kehlmann Berleys Income Capital Fund, undertakes independent due diligence and makes investment decisions. Conghan has seven years experience in Australian property development and in diversified investment in the global market- foreign exchange, stock index, property, and futures. Also, Conghan is Zank & Company s co-founder, senior risk-control analyst, and project manager. Xiaohu Liu Page 9

23 Highly experienced Financial Services professional with a diverse range of skills, Xiaohu manages Kehlmann Berleys Income Capital Fund, undertakes independent due diligence and makes investment decisions. Xiaohu has five years experience in diversified investment in the global market foreign exchange, stock index, property and futures, Xiaohu is Zank & Company s co-founder and senior financial analyst, who also was previous AIA investment consultant (Seoul Branch). Fund Compliance With plenty regulatory experience, the compliance team of Kehlmann Berleys Capital Income Fund takes responsible for monitoring and reviewing activities. Any breach will be reported and action will be taken if plan is breached. Fund Auditor Hanrick Curran Group Pty Ltd A.B.N Hanrick Curran is a leading multi-disciplined independent firm of Chartered Accountants. They provided quality accounting and consulting services across Queensland, Australia and into select international markets in coordination with their Alliott member firms represented in over 60 countries. They have been delivering high-quality value add services into our growing Corporate, Small to Medium Enterprise and Personal client base for 30 years. Key criteria for investment security issue The Fund seeks to add value through loan selection and property industry sector rotation while maintaining a highly diversified portfolio of borrowers. The following key criteria for each debt security issues is: All loans are approved at Executive Management level, after investment committee review. Investment decisions are made by the Fund s portfolio management staff specializing in structuring, documenting and negotiating commercial and property loans. Loan applications are assessed with a primary focus on the value of the mortgage security. All loans require valuation of security assets, not more than six months old at the date of the initial loan advance. In every case, we appoint a qualified independent valuer by experience with the particular category of the property being assessed. Valuers must hold membership with a professional body together with appropriate professional indemnity insurance. Valuers must be drawn from a panel approved by the Fund Instructions by the Fund to a valuer are specific to the property type and require particular valuation criteria to be met for all property categories. Combined debt LVR cannot exceed 70% About construction loan facilities, the Fund may require an amount of pre-sales at price levels which support the valuation obtained. For property development loans, the Fund will instruct a quantity surveyor to check and confirm that the cost to complete the project is feasible and incorporates adequate contingency. During the project, the Fund will verify that the quality of construction works are in line with building plans and overall specifications and that they comply with all building codes and the approvals granted by regulatory bodies. Mortgage loans are initially advanced for terms not exceeding two years. The Fund makes no loans to related parties. Internal procedures include ongoing monthly monitoring of default by any borrower in repayment of principal and interest. Page 10

24 3. Investment Structure Kehlmann Berleys Capital Income fund is a pooled mortgage fund which is structured as an open-ended unit trust. The Fund has specific terms of investment, including but not limited to the Minimum Investment Period, Target Rate and Minimum Investment. Our loan management strategy focuses on managing the loans in arrears with an overarching goal to maximize the recovery of the loan from all possible sources. The Loan s objective is to provide investors with a stable, low to medium risk investment (through mortgages in commercial property), with a focus on capital preservation. (However, where we believe it is in our best interest to do so we will exercise our rights under each loan agreement and security documents to ensure that our position is protected.) In some situations, this may result in the sale of the underlying security by the Fund, in the capacity as mortgagee. The Fund is structured as a managed investment scheme and is not, at the date of this IM, a Registered Scheme. Zank & Co. Pty Ltd (Investment Manager) Investors Funds invested by all investors are pooled and invested in accordance with the investment objective and strategy of the Fund. This means that if a borrower defaults under a particular loan, it will affect capital and income for all investors. Kehlmann Berleys Capital Pty Ltd (Trustee) KBC Income Fund (The Fund) Investment Strategy The Fund will be invested in mortgage-backed loans secured by Australian real estate. Loans will be made to borrowers to use for business or investment purposes. The funds will be recycled, subject to withdrawals from the Fund, such that funds from loans that have matured and been repaid are reinvested. The Fund s investment approach is based on providing a stable income return and protecting the capital that the investor has invested in the Fund. The Fund may also in the future invest in other types of loans where it does not change the risk profile of the Fund. Investment Parameters The following table sets out the key investment parameters for the selection of mortgage-backed loans for the Fund: Parameter Type of loan Comment All loans must be secured by a mortgage over real estate in Australia Loan to Valuation Ratio (LVR) Up to 70% Mortgage Security Registered mortgages, which may be first- or second-ranking mortgages Minimum Size of loan $100,000 Target Loan Term 3 Months 24 Months Page 11

25 Target Lending Rate Geography Types of real estate Varies based on loan scenario May be located in any geographic region in Australia Including but not limited to: Residential, commercial, rural, land and development Investment Process and Guidelines The Investment Manager adopts the following investment process and guidelines when selecting investments for the Fund: Investment Philosophy The Investment Manager believes that attractive and competitive income returns from mortgage-backed loans can be generated by: Ensuring the loans are properly documented and appropriately secured; Managing the inherent risks of any form of lending so that: The properties securing the loans have broad market appeal; The borrower s financial and operating capacity, capability and character have been scrutinized and found to be acceptable; and Loan repayment/recovery strategies have been considered and found to be acceptable; and Ensuring that lending rates and loan conditions have been appropriately structured to provide an appropriate risk/reward profile Analysis and Evaluation Asset Risk Geographic/Demographic suitability Capital expenditure required Permissible Usage Competition Market rental and sale rates Market demand Micro/macroeconomic issues Borrower Risk Business history Financial track record Financial exposure Loan size v.s. borrower s net worth Income from other sources Borrower reputation Servicing Risk Strength of tenants Lease terms and covenants Ability to replace tenants Capacity to service if owner occupied Micro/macro- economic issues Income from other sources Exit Risk Ability to refinance Appeal of asset in marketplace Ability to amortize Ability to repay from other sources Issues that may affect Value If the loan is for construction and development purposes, the Investment Manager also considers the counterparty risk associated with the transaction, including but not limited to the ability of the borrower, builder, project manager, etc. to complete the project on time and budget. Valuations Valuations of assets are to be prepared by an independent, qualified and registered valuer, who adheres to an industry code of conduct, before advancing loan funds against a property being offered as security. In all cases, the following criteria Page 12

26 need to be met (amongst other things): the valuer must be a member of an appropriate professional body in the state or territory where the mortgaged property is situated; the valuer must be independent of the borrower and Zank&Co; no one valuer conducts more than one-third of the total valuation work undertaken for the Trust calculated by the number of the security properties; the report must comment as to whether the mortgaged property represents satisfactory security for mortgage purposes as appropriate; valuers must include a statement in their valuation reports as to whether the valuation complies with all relevant industry standards and codes; the valuer must be instructed to prepare the valuation report in a format which clearly sets out the primary methodology used and, if so requested, a secondary check valuation methodology, by the instructions; valuations for construction projects and completed buildings should state a replacement value in the valuation for the purpose of determining the amount of insurance required; and Where a loan is for development or construction purposes, the valuer must assess the property on both an as-is and as if complete basis. All other property loans are valued on an as is basis. Regarding when valuations must be obtained: The valuations must are no more than six months old at the date of approval of the loan (initial loan advance). Where there is a significant fall in the value of the property due to for example a change in property market conditions or the condition of the property, the property will be revalued appropriately as determined by the Investment Manager in its absolute discretion. Quantity Surveyors In respect of construction and development loans, the Investment Manager may retain independent quantity surveyors. A report from a quantity surveyor is required before each loan advance. This certified report contains, at a minimum, a detailed assessment of: Costs including the original estimate provided along with any authorized variations; The construction or development works completed to the date of the report; Works previously certified and any current claims to be made; and Costs to complete the project including any remaining contingency allowances and variations. Loan approval process and loan settlement The preliminary step in the loan approval process involves collecting the following information: The borrower completes loan application form and provides supporting documentation. The supporting documents are: Clear copy of photo ID Rates notice for the security property showing the borrower s home address Three months worth of recent mortgage statements (if a 1st mortgage is secured against the security property) Where the loan involves a construction project, the Investment Manager considers the full details of all projected costs, cash flows, and all ancillary documents to assess the ability of the borrower to complete the project on a timely basis. Where deemed necessary, the Investment Manager will require a certified quantity surveyor s report before any loan advance is made to the borrower. The Investment Manager s credit assessment team reviews documents. Once the loan application has been assessed and found to be acceptable a submission process is undertaken: A Conditional Offer is issued by the Investment Manager on behalf of the Fund. Page 13

27 A Conditional Offer is a document that sets out the terms of loan, costs, fees, interest and any conditions that may apply. Where the loan is to be secured by a second-ranking mortgage, the borrower must send a Loan Balance Request Form requesting balance on the first-ranking mortgage to the financial institution which holds the first-ranking mortgage over the property. The completed form is then sent directly back to the Investment Manager. The borrower accepts and returns signed a copy of Conditional Offer, and pays a loan Application Fee. A detailed credit submission is prepared for formal approval by the Investment Manager for the benefit of the Fund. The credit submission will include the following details: The borrower and any guarantors The amount of the loan The address of the security property to be mortgaged Title reference Valuation The loan to valuation ratio Fees payable by borrower(s) The interest rate payable by the borrower (which is usually fixed for the life of the loan) The term of the loan The date when the loan is scheduled to be repaid Any special provisions in the mortgage Once the loan Application Fee payable by the borrower is cleared, lawyers prepare complete loan contracts which are then issued to the borrower s nominated solicitor for signing. The borrower then signs the loan contracts in the presence of a lawyer and has 100 points of ID certified by that lawyer. Once this is all done, the contracts are then returned to the Investment Manager s lawyers or the Trustee for execution on behalf of the Fund. Once executed, the Investment Manager lodges the caveat or mortgage on the title of the security property to secure the debt in the name of the Fund, and the Fund advances the funds to the borrower s nominated bank account. Ongoing Monitoring The Investment Manager is responsible for the active and ongoing management of each loan. The Investment Manager will monitor that loan conditions are being satisfied, and interest on loans are paid on time, and instigate remedial action where necessary. The Investment Manager will also track early risk indicators which include macro environment, market dynamics for mortgage-backed loan assets and financing, loan performance vs. projections, loan arrears, loan losses, rating upgrade/downgrades, material changes to a borrower s financials, changes to a borrower s management, and changes to servicing platform. Defaulting Loans The performance of all Loans is actively and regularly monitored by Kehlmann Berleys Funds on timely payment of interest, adherence to ongoing reporting requirements and specific Loan covenants. The Fund Managers and Investment Committee is responsible for monitoring any loans in default/arrears. Default relates to non-adherence to the conditions of the loan agreement, such as the need to have adequate insurance in place. Arrears relate to non-payment of principal or interest after the due date for payment. In the case of late payment of interest, non-repayment of principal, or non-adherence to agreed Terms and Conditions of any loan, Kehlmann Berleys fund will implement the following process: Penalty Interest In the case of late payment of interest, a penalty interest rate will immediately accrue. Penalty interest will continue to accrue until the loan is paid out in full. Notice period Page 14

28 Kehlmann Berleys fund will send a notice advising the borrower of a missed interest payment or default and request it be rectified within 14 Business Days (Notice Period). If the default has not been rectified within the Notice Period, Kehlmann Berleys fund reserves the right to, without further notice, deem the entire outstanding balance of the loan as payable immediately. Debt recovery policy Following the expiry of seven (7) days after the notice period, a Final Demand Notice will be issued, giving the borrower a further seven (7) days in which to complete payment. Legal proceedings Following the expiry of seven (7) days after the Final Demand Notice, a letter will be served by legal counsel acting for the Trustee of the Fund. At this time, the Trustee will exercise its rights against the borrower, and recover principle, interest and penalty interest from the sale of security assets. If multiple assets have been offered as collateral to support the loan, then those deemed of greatest realizable value will be liquidated first. Change in investment objective or parameters Depending on the market conditions and investment opportunities which are available, the Investment Manager - subject to the approval of the Trustee - reserves the right to change the investment objective, investment strategy, and investment parameters. Changes may be made to take advantage of investment opportunities or to minimize risk to the Fund. In this event, at least one month s prior notice will be provided to investors. Page 15

29 4. Distributions Distribution of Income Each investor will receive a distribution of income the beginning Business Day of every quarter during which the investor is invested in the Fund. The Target Rate is the rate of return targeted for investments in the Fund. The Target Rate is applied as a simple interest rate, and returns are not compounded. The Target Rate is the indicative rate of return on investment. There may be insufficient income from the assets of the, for example where a borrower defaults on an interest payment. In this event, investors may receive no income distribution for that quarter or may receive income distributions less than the Target Rate for that quarter. Any penalty interest paid by a borrower as a result of late interest payments or principal repayments will not result in investors receiving returns above the Target Rate in the quarter which the penalty interest is paid. Investors may choose to reinvest distributions by nominating to do so on the application form, speak to the Investment Manager for more information. Withdrawals While an Investor holds units, the Investor may make a withdrawal from the Fund by applying in the Trustee for withdrawal of all or some of the units held. There is no minimum amount for withdrawal. However, the Investor must maintain a minimum investment of $500,000 in the Trust to remain invested. The withdrawal price for units is The Net Trust Value/ Units on Issue per unit each. Income entitlement will also be paid. Any withdrawal is subject to compliance with the notice period and the Trust s liquidity, The Fund s targeted investment market is not considered a liquid market. Accordingly, Unit holder liquidity cannot be guaranteed. The Trustee s intention is that withdrawal requests will be dealt with on a best endeavors basis and in date received the order, and be satisfied with Fund income, liquidated investments, and newly raised funds. Notice period A 90 days notice period is currently required for withdrawals. The Trustee, at its discretion, may waive or reduce this period. Any waive or reduction is contingent on sufficient liquidity in the Fund at the time of the request. The Trustee may increase the 90 days notice period by giving you not less than 30 days prior notice. How to make a withdrawal Investors who wish to make a withdrawal, a request in writing is required to be lodged at the address listed below: S1, L1, Glenferrie Rd, Hawthorn VIC Level 35, 31 Market Street, Sydney, NSW 2000 Please advise the following: your account name; your account number: the amount of the withdrawal (either in dollars or Units); and your payment instructions (e.g.,. cheque or EFT) Withdrawal requests must be signed by all holders signatories to the account. Proceeds of withdrawals will only be made payable in the name of the registered holder(s) and will only be credited to the bank account stated on the Unit Application form. Withdrawal requests should either be delivered or mailed to the Fund Manager Zank & Company Pty Ltd. Please note, the Fund s targeted investment market is not considered a liquid market. Accordingly, Unit holder liquidity cannot be guaranteed. The Trustee s intention is that withdrawal requests will be dealt with on a best endeavors basis and in date received the order, and be satisfied with Fund income, liquidated investments, and newly raised funds. The Trustee processes (and accepts or rejects) withdrawals on the last Business Day of each month. If the Trustee approves the withdrawal, payment of withdrawal proceeds will be made within 30 days of the date which the withdrawal is accepted. Page 16

30 There are circumstances where the Trustee may delay payment for up to 60 days of the date which the withdrawal is accepted. For example, where the Trustee does not consider it to be in the best interests of the Unit Holders to realize sufficient assets to satisfy the withdrawal request. The Trustee may also refuse or suspend withdrawals at any time without prior notice to the Unit holder. For example, the Trustee will do so where there are insufficient liquid assets to satisfy a withdrawal request. Withdrawal before the end of the Minimum Investment Period may be possible only if a suitable replacement investor approved by the Investment Manager is found (i.e. a transfer of Units). The Trustee and Investment Manager have no obligation to assist an investor to find a replacement investor. The Minimum Investment Period does not reset when a Unit is transferred. Early redemptions will be considered by the Trustee on a case by case basis. An early exit fee may apply. Transfers Units may be transferred with the approval of the Trustee. The replacement investor must meet all the eligibility requirements under this IM. The Trustee may refuse to transfer Units at its discretion without giving any reason. No fee is payable for transfers. Unit Pricing Units in the Fund are priced on a quarterly basis and whenever an application for Units or withdrawal of Units from the Fund is processed. The price of a Unit is based on the Net Asset Value of the class of the Fund divided by the number of Units in the class. The Unit price will increase or decrease depending on the value of assets in the Fund. For example, the Unit price will decrease if a borrower defaults on repayment of the principal amount. There are certain circumstances where the Investment Manager may also reduce the value of a loan to calculate the Net Asset Value of the Fund. This may occur where a borrower becomes bankrupt, where there is a significant decrease in the value of the secured property or where there has been a default on a loan interest payment. The reduction in value will be to account for the discrepancy between the loan s book value and the loan s market value as a result of the adverse circumstance. Unit price may decrease below $1.00 per Unit. Where the Unit price decreases below $1.00, the Trustee may, at its absolute discretion, consolidate and re-divide the Units in the Fund to bring the Unit price back to $1. The number of Units held by each investor will decrease if this occurs. Page 17

31 5. Fees and costs Explanation of fees and costs All fees and other costs disclosed in this IM are subject to change by the Trustee; we will give you 30 days advance notification of any fee changes and advise you of the date proposed for implementation of the revised fee, or introduction of a new fee. Normal Government charges will also apply to all Fund transactions. Fees and other costs This will be calculated based on the capital contribution of unitholders at the end of every quarter and is payable in arrears within seven days of the end of each quarter. The following table shows the fees and costs that you may be charged in this Fund. Type of fees Application Fee/Entry Fee: The fee to open your investment Withdrawal fee: The fee on each amount you take out of your investment Termination/Exit Fee: The fee to close your investment Amount Nil Nil if the investment is held over 12 months Early withdrawal on hardship ground: 1.00% fee of the amount redeemed Nil Performance Fee: Any return on top of target rate and all fees Management Fee: Trustee Fee: Service fee: Investment switching fee for changing investment options Management fee is 1.5% p.a. of the Fund s investment amount for local Investors; otherwise Management Fee is 3.0% p.a. for overseas investors. Trustee fee for investors is 0.5% p.a. of the Fund s net value. Calculated and payable monthly within 5 Business Days of the last Business Days of the calendar month. Nil Page 18

32 6. Risks As is the case with any form of investment, there are risks associated with the Fund. Cautious and diligent investment management is essential when dealing with investment risks. Before investing, you should consider whether the Fund is suitable for your investment objectives. Prospective Investors should read this Information Memorandum carefully to understand such risks fully. The Fund Manager recommends that Investors seek professional financial advice before making any investment decision. Set out below are some risk factors which we have identified as relevant to the Fund and a statement about how the Manager intends to manage those risks. Please note, the risks mentioned below are not intended to be an exhaustive list. General risks Type of risks Description Market Risk The market within which the Fund and the Trustee exist is affected by economic and open market variables. Changes in the Australian Macroeconomic variables such as interest rates, exchange rates, inflation, government policies and commodity prices may impact on Portfolio. Taxation Risk The after-tax returns from an investment in the Fund may be influenced by changes in taxation laws or their interpretation. Mitigation factor - By their nature, general risks are those associated with most investments similar to the Fund. It is therefore up to each Investor to assess the general risks of an investment in the Fund and determine whether those risks are acceptable to them. Fund specific risks Type of risks Default Risk Description This is the risk that a borrower may not be able to meet its financial obligations under a loan. This may be for a wide range of reasons, including: A change in the individual financial or other circumstances of the borrower; and A change in the economic climate that adversely affects all borrowers. Where a borrower defaults on their financial obligations, investors may receive income distributions less than the Target Rate or no income distributions. The Unit price may also fall. The Investment Manager takes steps to minimize this risk by: Using the combined experience of the directors and credit assessment team of the Investment Manager when assessing loans to invest in. Proactively monitoring all loans to ensure that the Investment Manager is aware of potential problems at the earliest opportunity. Having a process which identifies when a default has occurred and a set procedure to endeavor to remedy the default. Investments in the Fund are not capital guaranteed. During the life of a loan, factors such as economic cycles, government policy, and inflation, outside the control of the Trustee and the Investment Manager, can affect a borrower s ability to continue to service a loan. Default interest may also be charged up to the time of repayment of the loan. Page 19

33 Security Risk This is the risk that the value of the underlying secured property is insufficient to cover the amount outstanding on a loan (for example, where the security property is destroyed or damaged), or the risk that the underlying secured property cannot be sold or that there is a delay in the sale (particular where there is a downturn in the property market). This may affect the ability of the Fund to pay investors who are exiting from the Fund and may adversely affect the Net Asset Value of the Fund such that the value of each Unit in the Fund falls. Some of the mortgage-backed loans will be secured by second-ranking mortgages. This means that the Fund will rank second in priority after the first ranking mortgage. There is a higher risk, compared to first- ranking mortgages, which the value of the property will not cover the value of the amount borrowed in the event of default. The Investment Manager takes steps to minimize this risk by ensuring that all loans do not exceed the 70% LVR. Valuation Risk Valuation risk is the risk that the valuation of the secured property obtained by the Fund is not reflective of current market property values. Incorrect valuation may affect the amount the Fund can recover at the time of loan default. The Investment Manager takes steps to minimize this risk by outsourcing valuation to independent valuers, quantity surveyors, real estate agents, solicitors or other external service providers. The Investment Manager also revalues underlying property when appropriate. Bridging finance specific Risk Some of the loans which the Fund invests in will be bridging loans. These are used as interim financing, usually outside the ordinary course of obtaining finance and usually short term. Repayment of the loans is usually contingent on certain events occurring within a very specific period with little flexibility and buffer. Bridging finance is riskier than some other types of financing and in turn, pays a higher rate of interest. The Investment Manager manages this risk through its rigorous investment process and guidelines and by strictly adhering to the investment parameters. Construction and development Risk Funds advanced under loans may be used for property construction projects. There are specific risks associated with this type of loan. These risks include: construction or development costs can exceed budgeted costs, and the borrower may be unable to complete the construction project unless the borrower can obtain further funds, and a change in market conditions could result in the project s value on completion being worth less than anticipated, or in lower sale rates and prices than expected. Interest Rate Risk Fluctuations in market interest rates may impact the performance of the Fund. For example, falling interest rates may cause borrowers to accept a lower interest rate, which may affect the Investment Manager s ability to meet the Target Rate. Rising market interest rates may increase a borrower s interest costs, which will affect the borrower s ability to repay the loan where it is relying on obtaining alternative financing to repay the loan. The Fund does not intend to hedge interest rate risk. Page 20

34 Liquidity Risk This is the risk stemming from the lack of marketability of an investment that cannot be bought or sold quickly enough to prevent or minimize a loss or make a profit. There is no secondary market for the Units in the Fund. There are no rights to withdraw an investor s funds from a class before the expiry of the Minimum Investment Period or to require the Trustee to repurchase Units. Withdrawal before the end of the Minimum Investment Period may be possible only if a suitable replacement investor approved by the Investment Manager is found. When an investor does exit the Fund, it may be at an unfavorable price such that the investor does not receive all its capital back. Legal and regulatory risk The Fund s operations may be negatively affected by changes to government policies, regulations and taxation laws. Although unable to predict future policy changes, the Investment Manager intends to manage this risk by monitoring and reacting to any potential regulatory and policy changes. Interests are a wholesale product for sophisticated and institutional investors The Fund is a wholesale trust offered to wholesale clients and retail clients (subject to the Fund accepting no more than 20 retail clients investing in total no more than $2 million in a 12-month period). The Fund has not been registered with the Australian Securities and Investments Commission. A Product Disclosure Statement or another disclosure document governed by the Corporations Act has not been prepared. As such, an investment in the Fund does not provide investors with the protection afforded to a retail client investing in financial products under the Corporations Act. Limited operating history risk The Investment Manager has a limited operating history. There is a risk that the Fund s objectives will not be achieved. The Investment Manager s key personnel has extensive skills and experience in sourcing mortgage-backed loans, assessing the creditworthiness of borrowers and approving, structuring and managing loans. Manager risk The ability of the Fund to meet its investment objective is heavily reliant on the Investment Manager and its management of the investments of the Fund. There is no guarantee that the Investment Manager will attain any of the investment objectives stated in this IM. The Investment Manager may retire or be replaced and cease to manage the Fund. There is an Investment Management Agreement in place with the Trustee which provides for circumstances under which the Trustee may terminate the Investment Manager s appointment that is in line with industry practice. Prepayment Risk Target Rates are based on the assumption that an interest will be payable by the borrower for the term of the loan. Borrowers are entitled to prepay all or part of their loan at any time without penalty. If borrowers prepay their loan, then the returns may be different to those anticipated. Page 21

35 7. Taxation information Zank & Co. cannot give tax advice on investments in the Fund or relation to withdrawals from the Fund. Australian tax laws are complex and subject to change. The tax comments below are only in respect of Australian tax and are based on the current law in Australia as at the date of this IM; this summary is necessarily general in nature. Each Investor s tax liability will ultimately depend on their individual circumstances. Accordingly, it is important that Investors seek independent professional advice before investing or dealing with their investment in the Fund. The following tax information is limited to outlining the Australian tax consequences for Australian residents investing in the Fund on capital account. The taxation implications for Investors with different characteristics, such as non-resident Investors and Investors investing on revenue account, may differ substantially from that outlined in this summary. You are advised to seek your professional tax advice before investing in the Fund about the Application of Australian tax law and, if appropriate, foreign tax consequences, based on your particular circumstances. The information below is of a general nature and is not tax advice. Taxation of the Fund The Manager will not be liable for Australian income tax, provided that Investors are presently entitled to all of the distributable income of the Fund in each financial year. The taxation liability for the taxable income of the Fund rests with the Investors. The Fund may, however, be liable for income tax in any year where the requirements to be classed as either a public trading trust or a corporate unit trust are satisfied for that year. The Manager believes that the Fund is not likely to meet these requirements and so should not be taxable in its right. The requirements are ongoing so that the position of the Fund in any year will depend upon the actual operations in that year. Shortly after the end of each financial year, an Annual Taxation Summary will be sent to Investors (and persons who were Investors during only part of the year) advising of details for the financial year of their distributable income entitlements, their taxable income component, the type of income, capital gains. Taxation based on Country of Residence Australian resident Investors are assessed for tax on any income and capital gains generated by the Fund. If you are not an Australian resident, withholding tax will normally be deducted from distributions before they are paid to you. The tax rate will depend on the nature of the distribution and the country in which you reside. Capital gains on the disposal of units by non-residents are not liable to Australian capital gains tax, subject to certain indirect interests in real property. Distributions of income reinvested in further units are treated the same way as cash distributions. Distributions of capital may have tax consequences. Goods and Services Tax ( GST ) The Goods and Services Tax ( GST ) is not applied to the Application for or withdrawal of units in the Fund. However, it is included in the Fund management fees and expense costs. The Fund is entitled to claim Reduced Input Tax Credits from the Australian Tax Office for part of these costs. Tax File Numbers and Australian Business Numbers You are not required to quote your Tax File Number ( TFN ) or, if you have one, your Australian Business Number ( A.B.N ). However, if you are an Australian resident for taxation purposes and a TFN or ABN is not provided, or an exemption is not claimed, we are required to withhold tax at the highest marginal rate plus the Medicare levy from Fund distributions. Page 22

36 8. Frequently asked questions Q1. What is a Mortgage Investment? A Mortgage Investment is a form of fixed term investment. In general, the Fund makes loans to various borrowers, and these loans are secured by registered mortgages over real property in Australia. Q2, Who can invest? An individual, company, self-managed super fund or a trust can invest in the Fund, but you must be a Wholesale Investor. Q3, How often will I be communicated with and what information will the Fund provide? Information regarding the Fund performance will be sent to Unit Holders quarterly. Q4, How can I invest? Applications for the Fund can only be made on the Application Form accompanying this Information Memorandum, together with the Applicant s Eligibility Certificate. The Application Form must be completed by the instructions set out in the application guide. By lodging an Application Form and the Applicant s Eligibility Certificate, the applicant acknowledges that they have received and read the Information Memorandum. Q5, How will distributions received from the Fund be taxed to Investors? All taxable income of the Fund to which Investors become entitled during an income year (including reinvested income) forms part of their assessable income for that year, even though actual payment may not occur until a later time. For example, distributions for the quarter ending 30 June 2015 will not be paid until 28 July 2015 but must still be included in the Investor s assessable income for the tax year ending 30 June The tax impact arising from the receipt of a distribution depends on the categories of income which make up the distribution. The taxation of each category is discussed below. (a) Assessable income Part of the Fund s taxable income may include ordinary assessable income (such as interest income). Any distributions of such income by the Fund will be assessed as ordinary assessable income to the Investor. (b) Australian-sourced dividends The Fund may distribute income attributable to Australian-sourced dividends (possibly with franking credits attached). Such income is assessable to the Investor. Investors may be able to offset any attached franking credits against their income tax payable. The Investor's particular circumstances will be relevant to determine whether there is an entitlement to utilize the franking credits and in certain circumstances, whether they would be entitled to a refund of excess franking credits. (d) Tax deferred income The Fund may make distributions to Investors that include a tax-deferred component. An Investor will not be required to include the deferred tax component of a trust distribution in their assessable income. It should be noted, however, that the tax deferred component may progressively reduce the cost base of the Units in the Fund (which could lead to a greater capital gain or lesser capital loss on a subsequent sale of the Units). It may also give rise to an actual capital gain in certain circumstances (such as where the cost base of the Units is already nil). Such a gain may be eligible to be reduced by the 50 percent CGT discount. (e) Capital gains The Fund may also realize a capital gain (for example, on the disposal of a capital asset) and the Fund may distribute the net capital gain. Broadly, there are two types of capital gains, and they retain their character upon distribution to Investors. Discount capital gains Page 23

37 The Investors receiving a distribution with a discount capital gain component will be required to gross up (i.e., back to 100 percent) this component. The grossed-up amount is then used in calculating the net capital gain to be included in the Investor s assessable income. However, if the Investor has capital losses from other transactions or brought forward from prior years, these must be applied against the grossed up a component before the Investor can apply the general 50 percent CGT discount. If the Investor is a complying superannuation fund, the applicable CGT discount rate is 33 1/3 percent. The CGT discount concession is not available to companies. The Investors particular circumstances will determine whether they are eligible to apply the discount in respect of the capital gains distributed. The discount capital gain component of a distribution generally does not result in a reduction to the cost base of the Units. Other capital gains (non-discount capital gains) The Investor will be required to include this component in their assessable income. This component cannot be reduced by the general 50 percent CGT discount. If the Investor has capital losses from other transactions or brought forward from prior years, they may be able to apply those against this component. Q6, What are the tax consequences for Investors selling Units in the Fund? For most investors, the proceeds from the sale of the Units will be treated as capital proceeds under the CGT provisions. Where the capital proceeds exceed the cost base of the Units, a capital gain is made. The cost base is generally what was paid for the Units (including incidental costs) reduced by any tax-deferred income distributions. Alternatively, where the capital proceeds are less than the reduced cost base of the Units, a capital loss is made. A capital loss can only be offset against capital gains. Capital losses can be carried forward for potential offset against gains in future years. Where the proceeds are less than the cost base but more than the reduced cost base no capital gain or loss arises. If a capital gain is made, the Investor may be eligible to apply the general 50 percent CGT discount concession where the Units were held for 12 months or more before their disposal. If the Investor has capital losses from other transactions or brought forward from prior years, these must be applied against the gain before the general 50 percent CGT discount can be applied. If the Investor disposing of the Units is a complying Superannuation Fund, the applicable CGT discount rate is 33 1/3 percent. The CGT discount concession is not available to companies. Independent professional advice should be obtained about the availability of this concession. Q7, What happen if I need my money in case of an emergency? Mortgaged funds must be treated as fixed term investments. Zank & Co. is under no obligation to process requests for the return of your funds before the expiry of the agreed term of the Fund. This is in line with Zank & Co. s obligation as the manager of the Fund to maximize available returns to all investors. However, Zank & Co. may consider withdrawal requests in special circumstances. Q8, What happen if the borrower is late or fail to make payments? Borrowers are required to make payment on time and are encouraged to do so. We believe that it is prudent to start default procedures are early as possible to save time and to protect the value of your investment if the borrower fully defaults. At Zank & Co. s discretion, and taking into account all the circumstances of the case, including payment clearance periods and legal obligations to provide hardship assistance, a defaulting borrower may be required to pay interest at a higher mortgage default rate. Page 24

38 9. Additional Information 9.1 Privacy Kehlmann Berleys Capital Income Fund is committed to protecting the privacy of its investor. All personal information collected from you will be used and stored by us by our privacy policy, a copy of which is available on request. It is bound by the Privacy Act 1998 as amended from time to time (Privacy Act) and the principles and procedures to be adopted under that legislation. The Privacy Act regulates, among other things, the collection, storage and security, quality, management, correction, use and disclosure of and access to personal information. By applying to personal information being used by us for the purposes for which it was provided and for other purposes permitted under the Privacy Act. We collect information for the following reasons: to assess and process your Application; to establish and maintain the register of Investors; to monitor, audit, evaluate and otherwise administer your investment; and to communicate with you concerning your investment and transactions relating to your investment. We may disclose information we hold about you in the following circumstances: to companies that provide services on our behalf (for example printing statements which we send to you); if the disclosure is required or authorized by law; or if you consent to the disclosure. You are entitled to access, correct and update all personal information which we hold about you. You should contact use if you have any concerns about the completeness or accuracy of the information we have about you. If there are any changes to your personal details, or you find that information we hold about you is incorrect, please contact us. Any complaint you have as to how we have handled your personal information will be dealt with by our Privacy Policy. 9.2 Continuous disclosure If you wish to receive a copy of the latest audited accounts of the Fund in which you are an Investor, please contact the Responsible Entity. Funds intend to follow ASIC good practice guidance contained in Regulatory Guide 198 Unlisted disclosing entities: Continuous disclosure obligations to meet its continuous disclosure obligations. 9.3 Anti-money laundering The Responsible Entity is required to comply with the Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (AML/CTF Law). This means that the Responsible Entity will require you to provide personal information and documentation about your identity and that of any beneficial owners when you invest in the Fund. The Responsible Entity may need to obtain additional information and documentation from you to process your application or subsequent transactions or at other times during your investment. The obtaining of information will be under the AML/CTF program that has been adopted. The Responsible Entity may need to identify: Transferees of interests in the Trust. The Responsible Entity will not register a transfer until all relevant information has been received and you or your transferee s identity or that of its beneficial owners has been satisfactorily verified; Your estate. If you die while you are the owner of interest in the Trust, the Responsible Entity may need to identify your legal personal representative before transferring ownership or making any payments; and Anyone acting on your behalf, including under your power of attorney. In some circumstances, the Responsible Entity may need to re-verify this information and may request additional information. By applying to invest in the Trust, you also acknowledge that the Responsible Entity may decide to delay or refuse any request or transaction, if it is concerned that the request or transaction may breach any obligation of, or cause the Responsible Entity to commit or participate in an offence under, any AML/CTF Law, and the Responsible Entity or any of its related bodies corporate, affiliates, associates or officers will incur no liability to you if it does so. Page 25

39 10. Definitions Application: an application to participate in the Fund. Commencement Date: the date of the Constitution. Constitution: the deed under which the Fund was established. Corporations Act: the Corporations Act 2001 (Cth). Dollars: a reference to currency means Australian dollars. Fund: the Kehlmann Berleys Capital Income Fund. Fund value: the total value of assets held by the Fund. Gross Asset Value of the Fund: the total of the Market Value of all Fund assets and any provision the Manager considers appropriate for a fair and reasonable valuation, including the costs of acquiring or realising investments or for depreciation. Net Asset Value of the Fund: the total of Market Value of all Fund assets less Fund liabilities or any provision the Manager considers appropriate for a fair and reasonable valuation, including the costs of acquiring or realising investments or for depreciation. GST: the tax payable under A New Tax System (Goods and Services Tax) Act 1999 (Cth). Investor: a unit holder. Issue Price: for the initial issue of units, $1.00 per unit for the period of one month after the first day on which units are issued other than to the nominee of the Manager under the Constitution. For the subsequent issues of units, the Issue Price is the Unit Value most recently determined by the Manager prior to the issue date, adjusted for transaction costs. Manager: Zank & Company Pty Ltd. Market Value: the current market value of a Fund asset according to the valuer appointed by the Manager, or other value appropriate to the nature of the property. If units are withdrawn by an investor in return for the transfer of Fund property to them as payment of the Withdrawal Price, the valuation used will be a bank valuation obtained from one of the four major Australian banks. Minimum Investment Amount: AUD500, 000 dollars or a lesser amount determined by the Manager. Net return: The return to unit holders, less all expenses from the gross income of the Fund. Transaction costs: an amount paid into the Fund to cover the costs of buying or selling assets of the Fund. This includes any tax or duty or valuation required for Fund property to effect an acquisition or sale. Unit: a fully paid ordinary unit in the Fund. Unit holder: a person noted on the unit register as the holder of a unit, including persons jointly registered. Unit Value: the Net Asset Value of the Fund divided by the number of units on issue on the Valuation Date. Valuation Date: a date on which the Net Asset Value of the Fund is determined. Withdrawal Amount: an amount equal to the number of units to be withdrawn, multiplied by the Withdrawal Price on the Withdrawal Date. Withdrawal Date: the date determined by the Manager with effect from which a unit is to be withdrawn. Withdrawal Price: the Unit Value most recently determined by the Manager prior to the Withdrawal Date, adjusted for any transaction costs. Page 26

40 The Application Form originally attached to this Information Memorandum for the Zank Income Fund dated May 2017 is no longer applicable. Please complete the Application Form attached to the Supplementary Information Memorandum for the Zank Income Fund date 26 April 2018.

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