Product Disclosure Statement

Transcription

1 Product Disclosure Statement Kremnizer Mortgage Fund ARSN Dated 2 October 2017 Issued by Baccus Investments Limited ABN AFS Licence No: JHW/

2 Table of Contents CORPORATE DIRECTORY... iii Further Information... v SECTION 1:... 1 KEY FEATURES OF THE KREMNIZER MORTGAGE FUND... 1 SECTION 2:... 3 ASIC BENCHMARKS AND DISCLOSURE PRINCIPLES... 3 SECTION 3:... 8 INTRODUCTION TO THE FUND... 8 What is a Mortgage Investment?... 8 SECTION 4:... 9 INVESTING IN THE FUND... 9 Making an Investment in the Fund... 9 Cooling Off... 9 Investment of Application Moneys... 9 Additional Investments SECTION 5: Investment benefits and risks Investing Risks SECTION 6: FUND OVERVIEW Constitution of the Fund Operation of the Fund Fund Property Syndicate Property Accounts and Audit Termination of the Fund SECTION 7: MORTGAGE INVESTMENTS What Mortgage Investments are made available Borrowers and Lending Management of the Mortgage Investment Default Management Realisation and Enforcement of Mortgage Investments Termination of Syndicate Ethical and other Considerations SECTION 8: YOUR INVESTMENT IN THE FUND Investment Objectives Payment of Income Repayment of Investment Rights of Members Withdrawal Rights Transfer Rights Liability of Members Limitation on Members Reporting to Members Product Disclosure Statement i

3 Continuous disclosure and updated information Updated benchmark disclosures Meetings of Members Complaints and Dispute Resolution Privacy and personal information Anti-Money Laundering and Counter Terrorism Financing Foreign Tax Compliance Disclosure Taxation Goods and Services Tax SECTION 9: THE FUND DOCUMENTS The Constitution Amendment or Replacement of Constitution The Compliance Plan Administration Services Agreement SECTION 10: PARTIES INVOLVED IN THE FUND The Manager Disclosure Directors of the Manager Powers of the Manager Liability of the Manager Indemnity of Manager Compliance Committee Compliance Plan Auditor The Administrator SECTION 11: FEES AND OTHER COSTS Consumer Advisory Warning Fees and other costs Additional Explanation of Fees and Other Costs SECTION 12: GLOSSARY OF TERMS SECTION 13: HOW TO INVEST Application Form Product Disclosure Statement ii

4 CORPORATE DIRECTORY Manager BACCUS INVESTMENTS LIMITED ABN AFSL PO Box 191 DOUBLE BAY NSW 1360 Telephone: (02) Facsimile: (02) Registered Office Level New South Head Road DOUBLE BAY NSW 2028 Directors Auditor of Manager, Fund and Compliance Plan Robert Kremnizer Anthony Etzine David Bleier Pitcher Partners Level 22, MLC Centre 19 Martin Place SYDNEY NSW 2000 Telephone: (02) Facsimile: (02) Important Information Issuer The issuer of interests in the Kremnizer Mortgage Fund ARSN (Fund) is Baccus Investments Limited ABN (Manager). The Manager holds Australian Financial Services Licence No: Contact details for the Manager are set out above. Product Disclosure Statement This product disclosure statement (PDS) was prepared by the Manager on and is dated 2 October This PDS has not been lodged with the Australian Securities and Investments Commission (ASIC) and is not required by Corporations Act 2001 to be lodged with ASIC. None of the Manager, its directors or associates, guarantees the repayment of moneys invested or any particular rate of return. Offer only in Australia This PDS can only be used by investors receiving it (electronically or otherwise) in Australia. This PDS does not constitute and should not be construed as an offer, invitation or recommendation by the Manager to apply for interests in the Fund or in a Syndicate in any state, country, or jurisdiction where such offer, invitation or recommendation may not be lawfully made. Electronic copies of this PDS If an electronic copy of this PDS is printed all pages including the application form must be printed. If this PDS is made available to another person, they must be provided with the entire electronic file or printout including the application form. If you are unsure whether the electronic document you have received is complete, please contact the Manager. An electronic copy of the PDS may be downloaded from the Manager s website or alternatively a printed copy of this PDS (and any supplementary documents) can be obtained free of charge on request from the Manager or by contacting your financial adviser. Product Disclosure Statement iii

5 Updating Information The information in this PDS is up to date at the time of preparation. However, some information can change from time to time. The Manager may make available updated infromation in relation to this PDS. This may include matters that ASIC requires it to tell you about on a regular basis, such as disclosing against the benchmarks that apply to the Fund, which are referred to in section 2: ASIC Benchmarks and Disclosure Principles and any information that must be disclosed by the Manager to meet its continuous disclosure obligations. Investors may access this information at Alternatively you may request a paper copy of the information, free of charge, by calling the Manager on or by contacting your financial adviser. The information that the Manager will make available by way of these updates will not be information that is materially adverse to investors. If new information were materially adverse, it may need to be contained in a supplementary or replacement or new product disclosure statement. WARNING: In preparing this PDS and any supplementary product disclosure statement (Syndicate SPDS) (which relates to the relevant Mortgage Investment) the Manager has not taken into account your investment objectives, financial position or particular needs. Before making an investment decision on the basis of this PDS or any Syndicate SPDS, you need to consider or obtain advice about whether the investment is suitable in the light of your personal circumstances. Important investment considerations and risks are set out in section 5: Investment Benefits and Risks of this PDS. Investment in the Fund is subject to investment and other risks. These could result in delays in repayment of, or loss of, income or capital invested. Product Disclosure Statement iv

6 Product Disclosure Statement The product disclosure document issued by the Manager is in relation to an investment in the Fund and to investment in mortgage investments generally. The details of each particular Syndicate SPDS mortgage investment in which a member of the Fund may invest (Mortgage Investment) will be contained in a supplementary product disclosure statement (Syndicate SPDS) that relates to the particular Mortgage Investment. Information contained in this PDS This PDS contains the information that must be provided to potential investors in the Kremnizer Mortgage Fund (Fund) by the provisions of the Corporations Act 2001 and ASIC policy. For instance it tells you: at Section/page how the Manager discloses against the ASIC benchmarks and disclosure principles Section 2 who is the issuer offering an interest in the Fund Page iii Sections 6, 10 how you may contact the issuer Page iii what sort of investment is being offered and how to apply for an interest in the Mortgage Investment Sections 2, 7 how much do you pay for your investment Sections 4, 11 what returns you will get and when you may expect them Section 8 what fees and charges are payable Section 11 what are the significant benefits to you Sections 5, 8, 9 what are the significant risks to you Section 5 how you may complain if you have a problem with the investment Section 8 whether you may withdraw your investment and if so when Section 8 This PDS also contains other information that may be relevant to your investment. Certain words used in this PDS are given a particular meaning. A glossary of those terms is in section 12: Glossary of Terms. Further Information If after reading this PDS you require further information about the Fund you should contact your independent adviser or the Manager. The contact details of the Manager are set out in the Corporate Directory on page - iii- of this PDS. You may also ask the Manager to send you a copy of any document or policy of the Manager that is referred to in this PDS. A charge may be payable. Investment decisions are important. They often have long term consequences. You are urged to read this PDS, and the Syndicate SPDS relating to a particular Mortgage Investment, carefully consider it, ask questions, and seek independent advice. Product Disclosure Statement v

7 SECTION 1: KEY FEATURES OF THE KREMNIZER MORTGAGE FUND Application for Membership of the Fund In accordance with the application form that accompanies this PDS. Minimum application $1, Minimum additional investment Maximum investment Entry fees Exit fees Application for Membership of a Syndicate Mortgage Investments Loan to valuation ratio Term Income distribution How is distribution paid Interest rate In multiples of $1.00 Unlimited. Nil. Nil. However, if you exit before the maturity date of the Mortgage Syndicate of which you are a member, by way of a transfer to another person, a fee may be charged and the Manager reserves the right to pass on any costs or charges associated with your early exit. See section 11: Fees and Other Costs for details. In accordance with the application form that accompanies the relevant Syndicate SPDS. Investors will be offered the opportunity to invest in a range of mortgages offered by the Manager under various Syndicate SPDSs. Each Mortgage Investment will be secured against property which may comprise a single residential, commercial and industrial property or vacant land for residential, commercial or industrial purposes, or more than one property of the same type or a combination of different types of property. The relevant security property or properties for any particular Mortgage Investment is detailed in the relevant Syndicate SPDS. A summary of the Mortgage Investments made through the Fund as at 30 June 2017 appears in section 7: Mortgage Investments. It is the policy of the Manager that the maximum loan to valuation ratio (LVR) is 80.0%. See section 7: Mortgage Investments for details. The LVR of a particular mortgage is set out in the relevant Syndicate SPDS. This will usually be 12 or 24 months, but may be up to a maximum of 3 years. The term of a particular mortgage is as specified in the relevant Syndicate SPDS. Distributions of income to Members of a Syndicate are calculated monthly as at the same calendar day of each month as the day on which the Mortgage Investment is entered into. See section 8: Your Investment in the Fund and the relevant Syndicate SPDS for further details. Your distribution is paid directly into your nominated bank account. Interest rate applicable to a particular Mortgage Investment is detailed in the relevant Syndicate SPDS. Product Disclosure Statement page 1

8 Management Costs A fee is payable to the Manager for its management as responsible entity of the Fund and as manager of each Mortgage Investment expressed as a percentage per annum of the value of the aggregate of the Fund property held on trust and of the Mortgage Investments, calculated and payable monthly in arrears is payable to the Manager. As at the date of this PDS, it will charge a maximum of 3.225% (inclusive of GST, less RITCs). Other fees may be payable to the Manager in certain circumstances. See section 11: Fees and Other Costs for details. The Manager is also entitled to a fee equal to any fee or charges charged to a borrower in connection with a Mortgage Investment. The fees payable in relation to a particular Mortgage Investment are specified in the relevant Syndicate SPDS. Generally, the day to day expenses in operating the Fund (to the extent that they are not paid by borrowers) are paid by the Manager from its own resources, not by Members. Brokerage and Adviser fees All mortgage brokerage fees trail fees or commission are payable by the borrowers, not by Members. Adviser fees are payable by the relevant Member as agreed with their adviser. See section 11: Fees and Other Costs and the relevant Syndicate SPDS for further details. Investment risks Investors should be aware that there are risks in investing in mortgages. Refer to section 2: ASIC Benchmarks and Disclosure Principles and section 5: Investment Benefits and Risks. Not Capital protected Reporting Complaints Taxation advice Investment advice An investment in the Fund and in a particular Mortgage Investment is not an investment in a bank deposit. It is not capital guaranteed in any way. There is no guarantee of the investment result, the return of capital, or the amounts payable to investors. Members will receive a confirmation of investment and an annual taxation statement for taxation purposes. A copy of the Fund s annual report, which will be available on the website at will be sent on request, by or by post. The Manager has a procedure to deal with complaints from Members. The application of tax law depends on your individual circumstances. This PDS is provided as a general statement of disclosure and does not take into consideration your personal circumstances. You should therefore consult your financial adviser or tax accountant, as to the likely taxation implications of an investment. The Manager does not provide any financial product advice, whether in the nature of personal advice or general advice, as to the suitability of an investment in the Fund. It therefore does not advise potential investors. Investors should seek their own independent investment advice before making an investment in the Fund or in a Mortgage Investment. How to contact us to obtain further information Please refer to the Corporate Directory on page iii- of this PDS. Product Disclosure Statement page 2

9 SECTION 2: ASIC BENCHMARKS AND DISCLOSURE PRINCIPLES Disclosure against the ASIC RG 45 benchmarks and disclosure principles is as at 30 June 2017, unless otherwise stated, and may change during the currency of this PDS. These disclosures will be updated at least 6 monthly and if there is a significant adverse change. Updated disclosures will be provided with each Syndicate SPDS, each PDS that is obtained from us and during the currency of this PDS will become available on our website at Benchmarks. The table below sets out briefly: the benchmark; how and to what extent the Manager complies with the benchmark and if not, why not; and where additional information is to be found in this PDS. ASIC benchmark Meeting the benchmark Section Benchmark 1: Liquidity This benchmark does not apply to the Fund. Benchmark 2: Scheme borrowing The responsible entity does not have current borrowings and does not intend to borrow on behalf of the Fund. The Manager meets this benchmark The Manager does not have current borrowings and does not intend to borrow on behalf of the Fund. Benchmark 3: Loan Portfolio and Diversification This benchmark does not apply to the Fund. Benchmark 4: Related party transactions The Manager does not lend to related The Manager meets this benchmark parties of the Manager or to the Loans may not be made by the Fund to parties Fund s investment manager. associated with the Manager. The Manager has not appointed an investment manager but if it were do so, the Manager would not make a loan to that person. Section 10 Benchmark 5: Valuation policy In relation to valuations for the scheme s mortgage assets and their security property, the board of the responsible entity requires: a. a valuer to be a member of an appropriate professional body in the jurisdiction in which the relevant property is located; b. a valuer to be independent; c. procedures to be followed for dealing with any conflict of interest; d. the rotation and diversity of valuers; e. in relation to security property for a loan, an independent valuation to be obtained: i. before the issue of a loan and The Manager does not meet this benchmark The Manager meets all aspects of this aspect other than a. On occasions it may instruct a valuer who is not a member of a professional body in the relevant jurisdiction, provided among other requirements the valuer has not less than 10 years experience valuing properties for mortgage purposes in the jurisdiction in which the relevant property is located. Further details of the Manager s Valuation Policy are provided below at Disclosure principle 5: Valuation Policy. Section 7 Product Disclosure Statement page 3

10 ASIC benchmark Meeting the benchmark Section on renewal: A. for development property, on both an as is and as if complete basis; and B. for all other property, on an as is basis: and ii within two months after the directors form a view that there is a likelihood that a decrease in the value of security property may have caused a material breach of loan covenant. Benchmark 6: Lending principles loan to valuation ratios As the Fund directly holds mortgage assets: a. where the loan relates to property development funds are provided to the borrower in stages based on independent evidence of the progress of the development; b. where the loan relates to property development the Fund does not lend more than 70% of the latest as if complete valuation of property over which security is provided; and c. in all other cases the Fund does not lend more than 80% of the latest market valuation of property over which security is provided. The Manager meets this benchmark The lending policies of the Manger include that: for all loans secured by a first mortgage, the loan to valuation ratio (LVR) must not exceed 80.00% of the valuation of the security property as at the date of the valuation report; and for all loans secured by a second mortgage, the amount of the loan, when aggregated with other prior or equal ranking mortgages, must not exceed 80.0% of the valuation of the security property as at the date of the valuation report. For further details see Disclosure principle 6: Lending principles Loan to valuation ratios below. Section 7 Benchmark 7: Distribution practices The responsible entity will not pay current distributions from scheme borrowings. The Manager meets this benchmark The Manager will not pay current distributions from scheme borrowings. Section 8 Benchmark 8: Withdrawal arrangements This benchmark does not apply to the Fund. Disclosure Principles The table below sets out: the disclosure principle; the relevant disclosures of the Manager; and where additional information is to be found in this PDS. ASIC disclosure principle Manager s disclosure Section Disclosure principle 1: Liquidity This disclosure principle does not apply to the Fund. Product Disclosure Statement page 4

11 ASIC disclosure principle Manager s disclosure Section Disclosure principle 2: Scheme borrowing If the Fund has borrowings, it must disclose various details: The Manager confirms that it has no borrowings and no borrowings are intended by it or for the Fund. a. as to the borrowings. b. why the responsible entity has borrowed the money, including whether the borrowed funds will be used to fund distributions or withdrawal requests; c. any material loan covenant breaches; d. the fact that amounts owing to lenders and other creditors of the scheme rank before an investor s interests in the scheme; and e. the risks associated with the scheme s borrowing and credit facility maturity profile. Disclosure principle 3: Loan Portfolio and Diversification This disclosure principle does not apply to the Fund. Disclosure principle 4: Related party transactions Disclose details of any related party transactions including: a. the value of the financial benefit; b. the nature of the relationship; c. whether the arrangement is on arm s length terms and is reasonable remuneration; d. whether member approval for the transaction has been sought and, if so, when; e. the risks associated with the related party arrangements; and f. the policies and procedures that the responsible entity has in place for entering into related party transactions, including how compliance with these policies and procedures is monitored. The Fund has not made any loan to any related party of the Fund. This includes the Directors and shareholders of the Manager, or any associated entity of any of them. As part of its management of conflicts of interest policy, no borrowing is permitted by a related party of the Fund. The Manager has engaged the Administrator to provide certain administration services to the Fund. This includes services relating to the management of the Mortgage Investments. The Administrator is a related party of the Manager and the appointment under the Administration Services Agreement is a related party transaction. Details of this agreement, which is on arm s length terms, are given in the PDS. Section 10 Disclosure principle 5: Valuation policy The responsible entity must disclose: a. where investors may access the scheme s valuation policy; b. the processes that the directors employ to form a view on the value of the security property; c. the frequency of valuations of security property; and d. any material inconsistencies between any current valuation over the security property and the scheme s valuation policy. The Valuation Policy is available on the website at A copy will be provided on request at no charge. The processes that the directors use for a view on the value of the security property are described in the Valuation Policy and in this PDS. The Manager relies on independent valuations to form a view on the value of the security property. Section 7 The frequency with which a security property must be valued, and the times at which it may also be revalued are as stated in the Valuation Policy and in this PDS. Importantly, the security property must be valued: Product Disclosure Statement page 5

12 ASIC disclosure principle Manager s disclosure Section prior to loan approval; prior to the renewal or rollover of a loan for a period of more than 6 months; before commencing the marketing of the sale of a security property where the loan is in default; and within 2 months after the directors form a view that there is a likelihood that a decrease in the value of security property may have caused a material breach of loan covenant. There are no material inconsistencies between any current valuations and the Valuation Policy. Disclosure principle 6: Lending principles loan to valuation ratios As the Fund directly holds mortgage assets the responsible entity must disclose: a. The maximum and weighted average loan-to-valuation ratios for the scheme as at the date of reporting; and b. Where funds are lent for property development: i. the criteria against which the funds are drawn down; ii. the percentage (by value) of the completion of any property that is under development as at the date of reporting; and iii. the loan-to-cost ratio of each property development loan as at the date of reporting. Disclosure principle 7: Distribution practices As the responsible entity makes distributions from the Fund it must disclose: a. the source of the current and forecast distributions (e.g. from income earned in the relevant distribution period, operating cash flow, financing facility, capital, application money); b. if the distribution is not solely sourced from income received in the relevant distribution period, the reasons for making those distributions and the risks associated with such distributions; c. if the distribution is sourced other than from income, whether this is sustainable over the next 12 months; and d. when the responsible entity will pay distributions and the frequency of payment of distributions. It is the policy of the Manager that the amount of the loan for a first Mortgage Investment will not exceed 80.00%% of the valuation of the security property. In the case of a second mortgage, the amount of the loan must not, when aggregated with the amount secured under a prior or equal ranking mortgage, exceed 80.0% of the valuation. Information as to the average LVR for Mortgage Investments made through the Fund, as at 30 June 2017 is provided in the PDS. The Fund does not lend funds for property development. All distributions of monthly returns to the members of a Mortgage Syndicate are made solely from the income received from borrowers from the Fund in respect of that Mortgage Investment. The Manager does not anticipate that this will change in the future. The Manager has no present intention to borrow or otherwise obtain funds from which it will make income distributions to Investors. Section 7 Section 8 Disclosure principle 8: Withdrawal Arrangements The responsible entity must disclose Members of the Fund have no ability to withdraw from Section 8 Product Disclosure Statement page 6

13 ASIC disclosure principle Manager s disclosure Section certain matters in connection with the right to withdraw from the Fund. These matters include*: the Fund. As stated in the PDS: a. the scheme s withdrawal policy and any rights that the when Application Moneys are invested into a responsible entity has to change the policy; Mortgage Investment, members may not withdraw from that investment b. the ability of investors to withdraw from the scheme if the term of a loan is to be extended, or rolled c. Any significant risk factors or limitations that may affect the ability of investors to withdraw from the scheme; over, this must be agreed to by the Syndicate Members. The PDS also describes how and when members of d. how investors can exercise their withdrawal rights, including any conditions on exercising these rights; the Fund receive back investment moneys. e. if the withdrawals from the scheme are to be funded from an external liquidity facility, the material terms of this facility, including any rights the provider has to suspend or cancel the facility; f. any rights the responsible entity has to refuse or suspend withdrawal requests. * For a full list of the matters to be disclosed, contact the Manager. Product Disclosure Statement page 7

14 SECTION 3: INTRODUCTION TO THE FUND The purpose of this Product Disclosure Statement (PDS) is to provide you with an opportunity to invest in a Mortgage Investment through the Kremnizer Mortgage Fund (Fund). You will from time to time be offered the opportunity to invest in a specific Mortgage Investment as set out in the Syndicate SPDS that applies to that Mortgage Investment. The Fund is managed by Baccus Investments Limited (Manager). The Fund seeks to provide investors with a selection of Mortgage Investments in order to provide regular income from the interest payments received. The Fund operates as a contributory mortgage scheme where the Member or investor selects to invest in one or more of the Mortgage Investments offered to the Member by the Manager. What is a Mortgage Investment? A Mortgage Investment through the Fund is any loan or debt, secured by a legal mortgage over real property. The type of loan may include advances in relation to residential, commercial and industrial properties. The mortgage is registered with the relevant State Authority and provides the investor with a power of sale over the property and with priority over subsequent registered and unregistered mortgages and any other non-secured creditors of the borrower. The Manager must operate within the approved and prudent guidelines in terms of investment selection (credit assessment), the valuation of security and the management of the investment. These guidelines, and the method in which the Manager operates, are detailed in one or more of the following documents: this PDS; the relevant Syndicate SPDS, which will contain matters such as the details of the borrower, the credit assessment, the amount of the loan, the repayments terms, the duration of the loan, the security and the LVR; the Constitution, which is further described in The Constitution in section 9: The Fund Documents; and the Compliance Plan, which is further described in The Compliance Plan in section 9: The Fund Documents. The purpose of these guidelines is to ensure the Fund provides Members/investors with Mortgage Investments that conform to the Manager s approved lending criteria which aim to ensure the investment has acceptable levels of credit risk and appropriate security. The extent to which the creditworthiness of the borrower is assessed and if it is, the basis of the assessment, are set out in section 7: Mortgage Investments of this PDS. To ensure investors are provided with a level of comfort that the Manager conducts its business in a proper and efficient manner the Manager is legally required to comply with its Australian financial services licence, and the Fund s Constitution and Compliance Plan as well as with all applicable financial services laws, and the policies of ASIC. Product Disclosure Statement page 8

15 SECTION 4: INVESTING IN THE FUND Making an Investment in the Fund How do you apply If after reading this PDS and obtaining your independent advice you wish to invest in the Fund you should: complete the application form that accompanies this PDS in accordance with the instructions in section 13: How to Invest of this PDS; and send the application form together with any additional documentation required as set out in the form or in this PDS to the Manager with your Application Moneys. If you are already a member of the Fund the information in Additional Applications in section 13 is relevant. How much do you pay The minimum initial investment is $1,000 and additional investments may be made in multiples of $1.00. There is no maximum amount set by the Manager. There are no entry fees payable by the investor. How do you pay You should pay your Application Moneys by electronic funds transfer (EFT) or by cheque. If you wish to pay in some other way you should contact the Manager first to ensure that your proposed method of payment is acceptable to it. Any interest in the Fund issued against Application Moneys paid other than in cleared funds, is void if the funds are not subsequently cleared within 1 month after the receipt of the application. How do you become a Member The Manager has the right to accept or reject your application in whole or in part. If the Manager accepts your application, in whole or in part: you will become a Member of the Fund; and the Manager will send you written confirmation of your application within 21 business days after your initial and each additional investment. You may also request investment statements at any time. If your Application Moneys are received by the Manager but there is a delay in their acceptance for any reason, the Manager must nevertheless deposit the Application Moneys in a trust account, in accordance with the Corporations Act 2001, on trust for you. This account is called the Application Moneys Account. If any interest is earned in respect of the amounts so deposited then the interest is sent to you, less any fees and charges that the bank charges in accordance with its standard terms and conditions (which can vary over time) relating to these moneys. Application for membership of a Syndicate, that is, in a particular Mortgage Investment, is made in accordance with the application form that accompanies the relevant Syndicate SPDS. The Manager has no obligation to issue to you any certificate in respect of any interest of an investor, whether as a Member of the Fund or of a particular Syndicate, but will issue written transaction confirmations. If the Manager rejects all or part of your application it will return the relevant part of your Application Moneys as soon as is practicable. Cooling Off Under the Corporations Act 2001 retail investors, as defined by the legislation, have the right to a cooling off period of 14 days during which they may request the repayment of their Application Moneys, unless those provisions do not apply. Investors in the Fund should note that the cooling off rights DO NOT apply if the managed investment scheme is not a liquid scheme, as defined in the Corporations Act 2001, at the relevant time. The Fund is not a liquid scheme and accordingly investors do not have any cooling off rights. Investment of Application Moneys The Application Moneys paid by a Member of the Fund and accepted by the Manager must be applied to the Mortgage Investment selected by the Member under the relevant Syndicate SPDS, Product Disclosure Statement page 9

16 within 90 days after the receipt of the Application Moneys by the Manager. A Member s Application Moneys becomes an asset of the Fund for the period between its acceptance and its application to the chosen Mortgage Investment. During the period between its acceptance and its application, a Member s Application Moneys are held on trust for the Members by the Manager in the Fund Account. The Manager may invest the Application Moneys in investments authorised by the Constitution before the money is applied to the chosen Mortgage Investment. The Member is entitled to any interest that may be earned on the Application Moneys held for the Member in the Fund Account operated by the Manager after deduction of any fees payable to the Manager. For further details of the management costs and fees payable to the Manager see section 11: Fees and Other Costs of this PDS. Additional Investments If you are a current member of the Fund and want to make an additional investment you must complete an additional investment form that you may obtain from the Manager. If you are a current Member of the Fund and a Member of a Syndicate, you may wish to invest in a new Mortgage Investment. To do this you will need to sign the relevant Syndicate SPDS. To ensure you have up to date information about the Fund when making an additional investment, the Manager will ensure you receive or have access to the current PDS and each supplementary PDS. You should keep your copy of the current PDS and any supplementary PDS, as well as any reports that the Manager provides to you, so that you may refer to these when deciding to make a further investment through the Fund. Product Disclosure Statement page 10

17 SECTION 5: INVESTMENT BENEFITS AND RISKS Important Notes: In preparing this PDS and any Syndicate SPDS, the Manager has not taken into account your investment objectives, financial position or particular needs. Before making an investment decision on the basis of this PDS or any Syndicate SPDS, you need to consider or obtain advice about whether this investment is suitable in light of your personal circumstances. As indicated above, an investment in the Fund is subject to investment and other risks. They could result in delays in the repayment of, or loss of, income or capital invested. Investors should also note: an investment in a Mortgage Investment is an equity investment, not an investment in a bank deposit: There is a higher risk of losing some or all of their investment than is the case with a bank deposit the Manager is not a bank and investors do not have the benefit of any government guarantee of the amounts invested. None of the Manager, its directors or associates, or any of the parties providing services to the Fund, guarantees the investment. Investing Benefits The Fund seeks to provide to its investors a regular and fixed income for a fixed period, with the capital risk minimised by the repayment of the moneys advanced to the borrower being secured by way of a registered mortgage. Further, the structure of the Fund also gives to an investor the opportunity to make its own choice as to whether its Application Moneys are applied to a particular loan secured over a particular property. The performance or characteristics of other Mortgage Investments made through the Fund, which may not suit the investor s particular objectives or tolerance for risk, do not impact on the investors in any other Mortgage Investments. Members of the Fund have the benefit of the experienced team of the Manager who have been managing mortgages over a considerable period of time. Investing Risks Investors should be aware that investment in the Fund may be subject to a number of risks. These are of 4 basic types: those that may apply to a particular Mortgage Investment; those that are specific to the Fund; and those that are specific to an investor. General Mortgage Lending Risks The Fund intends to arrange for the Members to lend to persons involved in a wide variety of industries and activities. While some borrowers are those who have had credit difficulties with other financial institutions, as at the date of this PDS, they are mostly borrowers who are looking for short-term finance to fund their business or investment activities. They are typically companies or individuals who operate their own business or who wish to borrow for investment purposes. It is the current policy of the Manager not to approve a loan secured over residential real estate where the borrower is a natural person. In general, the Manager will approve a loan secured by residential property where the borrower is a company and a natural person is on title. Commercial and industrial property will be accepted as security for any new loan whether the borrower is a natural person or a company. those that relate to the lending on mortgages generally; The ability of borrowers to meet mortgage interest payments and to repay the amount borrowed may be influenced by factors over which the Manager Product Disclosure Statement page 11

18 has no control, such as a lack of creditworthiness of a borrower or the state of the Australian economy generally. Adverse economic conditions, such as economic recession or depression, could adversely affect property values. Other factors such as the movement in interest rates, changes in taxation policies, the imposition of new statutory requirements, or changes in judicial interpretation and application of the law, may impact on the return that investors may receive from their investment in a Syndicate, or the enforceability of a Mortgage Investment, when compared with other possible investments. Specific Mortgage Investment Risks As indicated above, the failure of the borrower to pay interest on a timely basis, or at all, may arise from a number of reasons. These may include a refusal to pay. The Manager s policy as to the assessment of the creditworthiness of a borrower is set out in Section 7: Mortgage Investments. Investors should note that as at the date of this PDS it is the practice of the Manager to obtain credit checks of borrowers and guarantors. If the borrower does not pay within the time provided by the mortgage, the borrower is required to pay interest at a higher rate. If the Manager receives payment at the higher rate of interest, the Manager will pay the higher rate of interest to the Members of the relevant Syndicate. The specific risks associated with an investment in a Syndicate include the possibility of: - default by the borrower A Member of a Syndicate (or its nominee) holds, with other Members of that Syndicate, a registered mortgage over the mortgaged property and, generally, there is minimal capital risk to the Member of a Syndicate. If the borrower has defaulted and the mortgaged property is sold, there may be a delay in the repayment of the capital, even if no loss is sustained. There is also a risk that the borrower does not repay the loan (or the interest) and the sale of the property secured by the mortgage does not realise sufficient funds to repay the mortgage and the borrower is unable to, or fails, to make sufficient further payment. Further, given that the underlying security is property that is relatively illiquid, or changes in economic conditions or the creditworthiness of the borrower pose refinancing difficulties, there is a risk that substantial delays could occur between the loan going into default and the sale of the property. This delay could be increased should the borrower elect to contest the sale through the courts. Notwithstanding that interest, at the higher rate would continue to accrue during the above process, interest may not be paid to the Manager and in these circumstances would not be available for distribution to Syndicate Members. Defaults are managed in accordance with the procedures described in section 7: Mortgage Investments. The level of defaults as at the date of this PDS is also stated in that section. There may also be delays in receiving interest payments if the borrower does not pay within the time provided by the mortgage. - overstated valuation Further, if a borrower defaults on the payment of interest required under the Mortgage Investment, and the Syndicate Members direct the Manager to enforce the Mortgage Investment, the Members of a Syndicate could incur a capital loss if the property value is wrong or has significantly decreased since the date of the valuation of the property taken for the purposes of the Mortgage Investment. There is also a risk that even if a valuation is negligent or otherwise defective, liability may be denied by the valuer s insurer. This risk is minimised by the policy referred to in the Constitution that money lent to a borrower on a mortgage must not exceed 80.0% of the value of the mortgaged property at the valuation date as required under the Constitution for the purpose of making the Mortgage Investment. - second mortgages Investors should also be aware that in general terms an investment in a second mortgage may carry risks higher than an investment in a first mortgage. This is because the first lender s rights of repayment take priority over those of the second lenders. Second mortgages usually carry higher interest rates than first mortgages. It is important to keep in mind one of the main rules of investing: the higher the potential reward, the higher the risk of losing money. The Manager seeks to reduce any higher risk for a second Mortgage Investment by requiring that the aggregate of the amounts lent on both the first and the second mortgages does not exceed 80.0% of the valuation of the security property. - inadequate insurance There may be a shortfall where no insurance cover is held over the improvements to the security or where insurance cover is held but Product Disclosure Statement page 12

19 proves to be insufficient to recover the full amount invested in the Syndicate. Investors must also be aware that if the loan is in default and the Manager enters into possession of the security property for the Syndicate, insurance may not be obtainable at a commercially acceptable rate. If this occurs, the Manager will seek the directions of the Syndicate Members. This may include that the Syndicate Members effect insurance in their own names. - mortgage insurance Loans made to borrowers through the Fund are not mortgage insured. Investors should note that this means that no mortgage insurance policy proceeds are available to meet any shortfall in the payment of interest or the repayment of the loan principal. - documentation risk There is a risk of deficiency in the accuracy of documentation, including the mortgage documentation entered into for the Syndicate, which could, in certain circumstances, adversely affect the recoverability of monies invested by the Syndicate and reduce the value of your investment. There is also the risk of unauthorised dealing with documents of title. Subject to land titles office requirements in different Australian states and territories, the title deeds and security documents are held by the Manager in safe custody, until the loan is fully repaid. - litigation risk This is the risk that any lender faces when it takes legal action to enforce the mortgage by the sale of the security property. Borrowers may defend the enforcement proceedings successfully in whole or in part, in light of judicial interpretation of the borrowing and enforcement arrangements, which may vary over time. In addition, Courts are vested with wide discretionary powers, and these may be exercised in favour of the borrower. - National Consumer Credit Protection Act (NCCP Act) Regulated loans The Manager is not, and has no present intention to be in the future, licensed to make loans that are regulated under the NCCP Act. Nevertheless, a court may for some reason hold that a loan is so regulated. In such a case, the actions that the Manager must take in enforcing such a loan are more demanding, and may take longer to implement, than in respect of unregulated loans. In general terms, there are limits on the amount of default interest that may be charged and the actions that the Manager may have to take in enforcing a mortgage regulated by the NCCP Act are more demanding and may take longer to implement. In addition, the terms of the loan may be changed if the borrower is having or will have trouble making payments by reason of financial hardship caused by illness, unemployment or other reasonable cause. - External dispute resolution risk The Manager is a member of an ASIC approved external dispute resolution scheme (EDR scheme), in accordance with its obligations in respect of the Members. Such an EDR scheme may, in addition to considering complaints by Members, also consider any complaint that is lodged by a borrower from the Fund, even if the borrower does not have a NCCP Act regulated loan. There is now the additional risk that either during the course of a loan, or more typically when the Manager seeks to enforce the loan, the borrower lodges a complaint with the EDR scheme that has the effect of freezing any enforcement action that is being taken or delaying any enforcement action that may be taken, while the EDR scheme considers the complaint. Investors should note the information as to the possible termination of a Syndicate in Section 7: Mortgage Investments. If the Manager has identified any risks that are specific to a particular Mortgage Investment these will be stated in the Syndicate SPDS that applies to that Mortgage Investment. Fund risks These are the risks that an investor faces, from having invested in a Mortgage Investment through the Fund, which are in addition to those that it may face if it made the loan to the borrower directly. They include: - operational risk Operational risk includes the possibility of fraud, systems failure, regulatory requirements, documentation risk, legal issues and other unforeseen circumstances. - conflicts of interest No loans may be advanced to parties related to the Manager or its associates. However, persons related to the Manager or its associates may be Members of the Fund. Product Disclosure Statement page 13

20 The Manager also engages the services of the Administrator, which wholly owns all the shares in the Manager, and thus is related to the Manager. Any potential or perceived conflict of interest is addressed in accordance with the Manager s management of conflict of interest policy. Investors are referred to the information in Management of Conflicts of Interest and Related Party Transactions in Section 10: Parties involved in the Fund. - Fund borrowing and gearing risk These are the general risks that an investor in any scheme may face if the scheme were to borrow from a third party and secure the repayment against the assets of the scheme. The risk would include that loan facilities may not be renewed at maturity or would require the liquidation of assets to repay the loans. While the Manager has the power to borrow under the Fund Constitution, it has not done so as at the date of this PDS and has no current intention to do so. Specific investor risks Not every investor is the same. Some features of the Fund and of a Mortgage Investment may raise risks to some investors while not to other investors. These features include: - no right of withdrawal A Syndicate Member s funds advanced to a borrower are not generally available during the term of a specific loan, although the interest in a Syndicate may be transferred to another potential investor with the consent of the Manager. Investors should take this into account before deciding to become a Member of a Syndicate of the Fund. - diversification An investment in one Syndicate is entirely separate from an investment in another Syndicate. Accordingly, a default by a borrower under its loan will only impact on the Members of this Syndicate. Investors may diversify their risk by investing in a range of Mortgage Investments. Product Disclosure Statement page 14

21 SECTION 6: FUND OVERVIEW Constitution of the Fund The Kremnizer Mortgage Fund has been established by a deed (Constitution) made by the Manager, Baccus Investments Limited, and is a registered managed investment scheme. The Fund is operated by the Manager, as the responsible entity of the Fund. Operation of the Fund The operation of the Fund is governed by the requirements of the Corporations Act 2001, the Constitution and the Compliance Plan. The Fund operates as an umbrella mortgage fund under which an investor will become: a Member of the Fund; and a Member of a Syndicate. Thus, a person seeking to make an investment in a Mortgage Investment through the Fund will participate in the Fund in two stages: Stage I Membership of the Fund the property offered as the mortgage security; and the term of the mortgage and the rate of interest payable. It will also set out the aggregate amount to be contributed by Members wishing to be part of the Syndicate. Upon acceptance by the Member of the terms of the Syndicate SPDS, the Member s Application Moneys will be advanced to the borrower under the Mortgage Investment selected by the Member. The decision to invest in a particular Mortgage Investment is made by the investor, not the Manager. There may be: only a single Member of a Syndicate in the case where a single Member contributes the entire amount of the Mortgage Investment; or a number of Members who contribute to the same Mortgage Investment. When the Manager accepts the application, receives the Application Moneys in clear funds and has all of the identification information that it needs, the applicant has an interest in and becomes a Member of the Fund. This process is described in section 4: Investing in the Fund of this PDS. The rights that attach to this interest are set out in the Constitution and are summarised in section 8: Your investment in the Fund Rights of Members of this PDS. Stage II Membership of the Syndicate The Member will be offered the opportunity to invest in a Mortgage Investment through a separate Syndicate SPDS. Each Syndicate SPDS is issued as a supplementary document to this PDS and will set out details of the particular Mortgage Investment, such as: the amount that is to be advanced; A Member of the Fund becomes a Member of a Syndicate (Syndicate Member) by lodging with the Manager the application form that accompanies the Syndicate SPDS relevant to the Mortgage Investment that is described in the Syndicate SPDS. Fund Property The assets of the Fund, as distinct from the assets of Members, comprise: Product Disclosure Statement page 15 the Application Moneys of Members of the Fund, pending investment in the relevant Mortgage Investment; and income derived from the investment of the Application Moneys, as permitted under the Constitution, not applied to a Mortgage Investment. All Fund assets are held on trust for the Members by the Manager in accordance with the Corporations Act 2001 and the Constitution.