acuity prospectus
DESCRIPTION
Design of Business ProspectusTRANSCRIPT
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AQUITY PROPERTY FUnd LTdACn 120 154 083
An OFFER OF A And B CLASS CUMULATIVE And PARTICIPATInG REdEEMABLE PREFEREnCE SHARES (“CPRPS”) AT $1 EACH
Prospectus Dated: 6 October 2006
Important Notice
This Prospectus is dated 6 October 2006 and was lodged with the Australian Securities and Investments Commission (“ASIC”) on 6 October 2006. ASIC and its officers take no responsibility for the content of this Prospectus. The expiry date of this Prospectus is 6 November 2007. No shares will be issued as allotted on the basis of this Prospectus later than the expiry date. Applications for Shares may only be made on the Application Form in or accompanying this Prospectus.
This is not intended to be a short-term investment and will be subject to the risks generally associated with a commercial venture. Neither, Acuity Property Fund Limited (“we”, “the Company” or “Acuity”) nor, any person, firm or corporation associated with Acuity Property Fund Limited guarantees, warrants or underwrites any dividend distributions, taxation deductions, capital invested or the performance of Acuity Property Fund Limited or the Cumulative and Participating Redeemable Preference Shares (“CPRPS”) on offer.
This Prospectus should be read in its entirety. If after reading this Prospectus you have any questions about the investment, you should contact your solicitor, accountant or other professional advisor and seek advice as to whether an investment of this type is appropriate to your circumstances.
Acuity Property Fund Limited has not authorised any person to make a statement about the Offer or about Acuity Property Fund Limited which is not contained in, or is inconsistent with, this Prospectus. Investors should not rely on such statements.
Certain terms and abbreviations used in this Prospectus have defined meanings as set out in the Glossary section. The photographs contained in this Prospectus are for illustrative purposes only and are not assets of the Company, unless stated otherwise.
Offers under this Prospectus will be made pursuant to arrangements between the Company and the holders of Australian Financial Services Licenses pursuant to Section 911A(2)(b) of the Act. The Company will only authorise the holder of an Australian Financial Services License to make offers to people to arrange the issue of CPRPS by the Company under this Prospectus and the Company will only issue CPRPS in accordance with such offers if they are accepted.
The Company will forward all application monies to Diversified Funds Management Limited (DFML) ACN 107 058 784 AFS Licence Number 247245 who will deal with all application monies and application forms received pursuant to this Prospectus.
The function performed by DFML Limited should not be considered as an endorsement of the Offer or a recommendation of the suitability of the Offer for any investor. DFML does not guarantee the success or performance of the Company or the returns, if any, to be received by Investors. DFML is not responsible for and did not cause the issue of this Prospectus.
The Offer in this Prospectus is only made to persons receiving this Prospectus in Australia, whether or not the Prospectus indicates it is available to persons in other countries. This Prospectus does not constitute an offer of CPRPS in any place in which, or to any person to whom it would not be lawful to do so.
The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law, and any person into whose possession this Prospectus comes (including nominees, trustees or custodians) should seek advice on, and observe those restrictions. No action has been taken to register the CPRPS or this Prospectus or otherwise permit in any jurisdiction outside Australia.
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COMPANY
ACUITY PROPERTY FUND LIMITED
ACN 120 154 083
REGISTERED OFFICE
Level 6
91 George Street
Parramatta NSW 2150
Phone 1300 886 250
Facsimile 1300 886 150
Email [email protected]
Web www.acuitypropertyfund.com.au
AUDITORS OF THE COMPANY
PJ VARLEY
Chartered Accountant
52 Parkinson Ave
Turramurra NSW 2074
Phone 02 9144 1835
Email [email protected]
LAWYERS FOR THE COMPANY
SOLOMON ALEXANDER LAWYERS
ABN 42 757 716 280
320 Adelaide Street
Brisbane Qld 4000
Phone (07) 3229 6696
Facsimile (07) 3319 6131
Email [email protected]
Web www.salawyers.com.au
FINANCIAL SERVICES LICENCE HOLDER
DIVERSIFIED FUNDS MANAGEMENT LTD
AFSL 247245
ACN 107 058 784
Suite 3 Level 11
320 Adelaide Street
Brisbane Qld 4000
Phone: (07) 3210 1601
Facsimile: (07) 3319 6649
Email [email protected]
Web www.dfml.com.au
DIRECTORS
Darren Chek
Michael Chin
Andrew Mah
Directory
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1 October 2006
Dear Investors,
I am very pleased and excited to present the Acuity Property Fund Limited (APF) investment offering to you for your consideration.
APF is an expansion of the established private finance operation run by the directors of APF, and amalgamates and compliments the functions of several associated companies.
For decades, the strength and stability of Australia’s property industry has provided, and will continue to provide, attractive investment opportunities. APF will focus on select property market niches, striving to be the best rather than the biggest and operates outside the traditional markets catered for by the banks and other major financial institutions. A prudent yet flexible approach to lending means that funds are deployed in a select and diverse range of quality loans.
All Investments are carefully selected according to well-established lending criteria and secured by appropriate types of security. Types of security that may be held for loans or investments include title to property, registered mortgages, personal guarantees and company charges.
An investment in APF Shares provides an outstanding opportunity and is ideal for self-funded retirees, trustees of superannuation funds, allocated pensions and indeed, any investor requiring a secure, stable source of income.
Paul ApplebyBoard of Advisors
Board of Advisors Letter
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1 October 2006
Dear Investors
As Managing Director I have great pleasure and excitement to present the launch of our newest product – Acuity Property Fund Limited (“APF” or “the Company”).
In today’s sophisticated investment market, investors are constantly being bombarded with a myriad of investment products and so -called wealth creation solutions.
We believe our newest product is one of the better opportunities available today, one that can genuinely give our investors an advantage in the market place. The product is the result of countless hours of market research, analysis and feedback on what today’s investors wanted.
I would like to highlight the additional benefits being offered to shareholders of the Company. Not only does an investment in the APF provide investors with stable and secure returns on their capital, but it also enables them unique access and leverage into the benefits of direct property investment & ownership via exclusive membership to “Acuity Property Plus”(“APP”).
APP provides its members with a wealth of knowledge; opportunities and superior benefits that can help kick start or build their property investment portfolio. The greatest benefit being its ‘Vendor finance coupon’ which allows members to purchase property with minimal cash outlay from their own pocket. Details of the benefits provided by APP and how it works are contained in the Prospectus.
Our Directors, Investment Review Committee and Investment Advisor Board stand firmly behind this offer and together bring to APF outstanding credentials, proven team work, and industry experience in finding and managing quality investment opportunities.
Thank you for your interest in our company. We look forward to a long and rewarding relationship with you.
Yours sincerely,
Michael ChinManaging DirectorAcuity Property Fund Limited
Managing Directors Letter
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Table of Contents
TABLE OF CONTENTS _________________________ 7
1 KEY FEATURES __________________________ 8
2 INVESTMENT OVERVIEW ________________ 10
2.1 The Corporate Strategy ___________________ 10
2.2 Investment Objectives ____________________ 10
2.3 Investment Model ________________________ 12
2.4 Capital Structure _________________________ 12
2.5 Dividend Policy And
The ‘Coupon Rate’ _______________________ 12
2.6 Redemption Or Selective
Buy Back _______________________________ 14
2.7 Early Redemption ________________________ 14
2.8 Service Providers ________________________ 14
2.9 Risk ____________________________________ 15
2.10 Dividend Reinvestment Plan _______________ 15
2.11 Additional Benefits _______________________ 15
2.12 Summary Information Only ________________ 16
3 APPLICATIONS FOR SHARES ____________ 17
3.1 Minimum Subscription ____________________ 17
3.2 Maximum Capital Raising _________________ 17
3.3 Minimum Investment _____________________ 17
3.4 How To Apply ____________________________ 17
3.5 Foreign Investors _________________________ 17
3.6 Applications _____________________________ 17
4 PROSPECTUS OBLIGATIONS
AND RIGHTS ____________________________ 18
4.1 Right To Withdraw Prospectus _____________ 18
4.2 Exposure Period And Processing
Of Applications __________________________ 18
5 ASSESSING LOAN APPLICATIONS _______ 19
5.1 Investment Selection Panel ________________ 19
5.2 Loan Criteria Model ______________________ 19
5.3 Investment Types ________________________ 20
5.4 Finance And Risk ________________________ 21
5.5 Loan Criteria Model Procedure
And Guidelines __________________________ 22
6 RISK AND RISK MANAGEMENT __________ 24
6.1 Investment Risk __________________________ 24
6.2 Risks Specific To This
Investment ______________________________ 24
6.3 General Investment Risks _________________ 25
6.4 Risk Management Through
Diversification ___________________________ 26
7 DIRECTORS & CORPORATE
GOVERNANCE __________________________ 27
7.1 Profile Of Directors _______________________ 27
7.2 Board Of Advisers ________________________ 27
7.3 Corporate Governance ____________________ 28
7.4 Remuneration Of Directors ________________ 28
8 MATERIAL AGREEMENTS _______________ 29
8.1 Role And Services Provided
By Diversified Funds
Management Ltd _________________________ 29
A. Role And Services Provided _______________ 29
B. Fees ____________________________________ 29
C. Costs ___________________________________ 29
8.2 Role And Services Provided
By Affinity Capital Pty Ltd _________________ 30
8.3 Role And Services Provided
By Acuity Property Plus (“APP”) ____________ 31
9 RELATED PARTIES ______________________ 32
9.1 Group Of Companies _____________________ 32
10 USE OF FUNDS, COSTS OF OFFER AND
ACCOUNTING POLICIES ________________ 33
10.1 Use Of Funds Raised _____________________ 33
10.2 Costs Associated With The Prospectus _____ 33
10.3 Costs Of Continued Operation _____________ 33
10.4 Underwriting And Commission _____________ 34
10.5 Financial Information _____________________ 34
10.6 Accounting Policy ________________________ 34
11 TAXATION OPINION _____________________ 35
12 ADDITIONAL INFORMATION _____________ 38
12.1 Constitution And Rights And
Liabilities Attaching To Shares _____________ 38
12.2 Directors’ Interests _______________________ 41
12.3 Directors’ Shareholdings __________________ 41
12.4 Interests Of Professionals
And Advisers ____________________________ 41
12.5 Consents And Disclaimers Of
Responsibility ____________________________ 42
12.6 Inspection Of Documents _________________ 42
12.7 Indemnity _______________________________ 42
12.8 No Litigation _____________________________ 42
13 INFORMATION IN REGARD TO
APPLICATIONS _________________________ 43
13.1 Privacy Notification _______________________ 43
13.2 Applications By Foreign Persons
And Minors ______________________________ 43
14 DIRECTORS’ STATEMENT _______________ 44
15 GLOSSARY _____________________________ 45
16 INSTRUCTIONS TO APPLICANTS ________ 48
16.1 To Applicants ____________________________ 48
17 APPLICATION FORM ____________________ 51
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Key Features
ISSUER OF THIS PROSPECTUS Acuity Property Fund Limited ACN 120 154 083
DATE OFFER OPENS 6 October 2006
DATE OFFER CLOSES 6 November 2007
SHARE TYPE A and B Class Cumulative and Participating Redeemable Preference Shares (CPRPS)
DIVIDEND ENTITLEMENTS- COUPON RATE
DIVIDEND ENTITLEMENTS The Company has the ability to declare additional dividends based on the Company declaring a profit. This entitlement is not guaranteed, warranted or predicted and entirely dependent on the discretion of the Directors and the Company declaring a profit. This right is described as a Participating preferential dividend. If there is sufficient profit and the Directors in their sole discretion declare a profit the rate of participation will be capped at rate determined by the Class of share subscribed for by the shareholder (refer Section 2.5 and the dividend entitlement risk enunciated at part 6.2).
DIVIDEND PAYMENTS It is the intention of the Directors to declare dividends on an annual basis, subject to the availability of profit and hence its ability to declare and pay dividends subject to the Act (refer section 2.5). The Company may elect a common date to declare dividends during the initial offer period and thereafter up until the redemption of shares. Prospective Investors must note that the distributions will not be franked.
ADDITIONAL BENEFITS All subscribers for either share in the Company will become members of Acuity Property Plus (“APP”) entitling them to the benefits enumerated in Section 5.6.
SUBSCRIPTION AMOUNT PER SHARE $1.00 each
- PARTICIPATING DIVDEND
A Class CPRPS shall have a Coupon Rate of 7% p.a.
B Class CPRPS shall have a Coupon Rate of 9% p.a.
on the basis of a preferential and cumulative dividend.
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MINIMUM INVESTMENT A Class CPRPS - $40,000 with increments of $1,000 thereafter.
B Class CPRPS - $50,000 with increments of $1,000 thereafter.
MINIMUM SUBSCRIPTION A minimum of $300,000 must be raised prior to issuing shares via this Prospectus.
USE OF FUNDS Funds raised under this offer will be loaned to both related and unrelated parties for predominantly real estate transactions. All applications must meet the requirements of the Loan Criteria Model. For liquidity purposes, funds may also be invested in liquid assets such as bank bills, term deposits and other forms of securities.
RETURN OF CAPITAL The Company will redeem all shares on the Maturity Date. The Company may redeem some or all of the Shares prior to the Maturity Date upon giving thirty (30) days notice to the Shareholder or otherwise agreed in writing between the Shareholder and the Company.
MATURITY DATE The redemption date for both A and B Class CPRPS shall be up to thirty six (36) calendar months after the date of issue of the CPRPS, or otherwise agreed in writing between the Shareholder and the Company.
RISKS The Company is subject to the risks as set out in Section 6 of the Prospectus. Whilst the directors have pointed out the benefits it urges prospective investors to note the risks and to carefully consider how these risks may influence the decision to purchase the Shares in the Company.
ENTRY AND EXIT FEES Entry fees – Nil (Up to 5% may be paid to your advisor. This will not be deducted from the value of your investment and will be met from the company’s marketing budget.)
Exit fees - Nil (Early redemptions if permitted by the Company may attract costs and losses as determined by the Directors from time to time.)
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2 Investment Overview 2.1 THE CORPORATE STRATEGY
Acuity Property Fund Limited (“the Company”, “we” or “APF”) manage all investment money on a pooled basis. Pooled funds are then invested primarily into property backed debt securities.
Funds may also be invested in interest bearing securities and cash. The investment into property backed debt securities is in the form of a loan to a Borrower against the security of the underlying property and in certain instances collateral security.
The strategy adopted by APF consists of two tiers.
1. The primary investment focus of APF is to provide funding to special purpose vehicles associated with APF that undertake real estate projects. The application for funding is done on an arms length basis and must satisfy the requirements of the Loan Criteria Model (refer Section 5.2).
2. The secondary investment focus of APF is to provide funding to any qualified non-associated entities whose application satisfies the requirements set out in the Loan Criteria Model described.
The Directors are confident that the approach used in qualifying investments together with the fundamentals of the industry in general, are such, that given reasonable economic conditions, the Company would be able to provide attractive and consistent returns for investors.
The Directors recognise that there are inherent risks associated (refer Section 6) with investment in this industry. As such, in recognising the opportunities, attempting to limit the constraints and in order to minimise the risk to investors, the Directors have adopted the following strategy:
• Apply the Company’s ‘Loan Criteria Model’ (refer section 5.2) to existing and potential projects in order to ascertain the feasibility of the project and the level and type of finance required;
• Release this Prospectus to raise funds (via the issue of CPRPS) to provide the capital with which to make appropriate loans and investments; and
• Offer a cumulative preferential dividend at the Coupon Rate and the right to participate in dividends recommended by the Board of Directors (refer section 2.5).
This strategy gives Directors the capacity to negotiate with applicants whilst ensuring that the ‘costs of funds’ invested by investors is offset to a certain extent.
Further, the Directors believe that once they have access to appropriate investment capital, this will enable them to rapidly proceed to secure borrowers that meet the Loan Criteria Model.
The Directors and consultants to the Company have done considerable work in identifying attractive investment opportunities. In doing their research they have been provided with information on a confidential basis from existing participants in the industry. From this research they have developed the loan and investment concepts included in this Prospectus.
2.2 INVESTMENT OBJECTIVES
Objectives
The investment objectives of APF, based on the investment policy set out below, are:
• To provide consistent and secure returns to investors; and
• To secure loans and investments by taking varying forms of security over the freehold property of the borrower.
Investment policy
APF has not made any loans at the date of this Prospectus. Loans will only be approved on the transactions where the following terms are met:
• The loan meets the requirements of the established ‘Loan Criteria Model’ (refer Section 5.2);
• APF is satisfied that the borrowers have the ability to meet all their financial obligations under the agreements entered into; and
• APF is satisfied that after all costs, it will be able to pay the Coupon Rate of return or capitalise the Coupon Rate of 7% to 9% per annum on the allotted CPRPS.
Montago, North Parramatta, NSW
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Income from loans
In section 5.2 the criteria that APF will use in assessing loan applications is set out.
While the terms and conditions of each loan will vary, an important concept consistent of all the loans will be that:
• They will have a fixed “base rate” of interest which the borrower will be obligated to pay based on the amount borrowed that may be capitalised or prepaid for the term of the loan;
• The Borrower must have a clearly defined exit strategy for repayment of the loan; and
• The Borrower must provide adequate security in the form of residential or commercial property that comfortably covers the amount being borrowed.
For both the primary and secondary investment focuses of APF, the strategy is to provide funding to special purpose vehicles associated with APF and/or third party non-associated entities that undertake residential and/or commercial projects, or who require short term bridging finance. The rate of interest applicable would be determined by the funding method applied for by the borrower (refer section 5.3 for the indicative rates of interest adherent to each style of funding).
If the borrower is granted mezzanine debt funding the applicable rate will be in excess of 25% per annum. This interest rate is applicable to the whole amount outstanding from the outset. Once funds have been
loaned to a borrower the first interest payment is due within 30 days of the advance, or in most instances is pre-paid in advance for the term of the loan. The borrower must repay the capital and interest in accordance with the conditions as contained in the standard loan agreement that the Company utilises.
The Company pays for its expenses and outlays in running the business from the interest and capital repayments received. If there is sufficient capital remaining then the Company will declare the Coupon Rate.
The Company will be able to continue and pay the distributions upon reaching the minimum subscription. Investors must note that the Company will be in a position to charge interest on the loans that are granted for the full period of the loan. This may include prepaid and capitalised interest.
The Board of APF will determine the type of funding required and the level of risk minimisation required for each project and loan. APF may loan funds for development projects in their initial stages requiring seed capital for deposits and development approval investigation costs. The interest rate charged to the borrower will be determined by the Board of APF, after considering the ‘Loan Criteria Model’ and the applicable minimum rates as disclosed in the Section 5.3.
On occasions, the return may also include a percentage of the net profit (‘Profit Participation’) of the development project.
Baulkham Hills Commercial Building, NSW
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Interest Secured Loans
Loan Processing and Loan Criteria Model
2.4 CAPITAL STRUCTURE
APF will have three classes of shares on issue as follows:
• 100 Ordinary Shares had been issued at the date of this Prospectus. (Entities associated with the directors of APF own 100% of these Ordinary Shares);
• 100,000 ‘H’ Class shares had been issued at the date of this Prospectus. (Entities associated with the directors of APF own 100% of these ‘H’ Class Shares); and
• A and B Class CPRPS each with a subscription value of $1 each.
The ‘CPRPS’ to be issued under this Prospectus shall fall within the classes of shares described in the Constitution of the Company as being ‘CPRPS1’ to ‘CPRPS 100,000,000’ shares. Each share issued under this Prospectus shall under the terms of the Constitution be a separate class of shares (Section 12.1).
2.5 DIVIDEND POLICY AND THE ‘COUPON RATE’
The Directors of APF have two main obligations under the Act, with respect to the payment of dividends. They are:
• That dividends may only be paid out of profits of the Company; and
• That as the dividend constitutes a debt of the Company once declared, that the declaration of a dividend does not prejudice the solvency position of APF and does not place in jeopardy the capacity of APF to meet its obligations as and when they fall due.
In determining the available profits for declaring a dividend, the Directors will give due consideration to all matters including:
• The accumulated profits in the accounts of the Company immediately prior to the distribution;
• The cash reserves of the Company immediately prior to distribution; and
• Any pending liabilities, including contingent liabilities.
CPRPS
Investors
Related Party & Unrelated Party Loans
Acuity Property PlusDividends & membership to
Acuity Property Plus
Auditors
AFS License Holder
2 Investment Overview 2.3 INVESTMENT MODEL
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APF has a financial year-end date of 30 June in each year. It is the policy of the Directors that, subject to APF being duly able to declare and pay dividends, declaration and payments of such dividends will be as follows:
• The Company may select a common date to declare dividends. Thereafter, the Company may declare further dividends on a common date in successive periods. As such depending on liquidity and profit level it is the intention of directors to pay the Coupon Rate on an annual basis.
• Cumulative dividend entitlement may be paid annually;
• Interim participating dividends may be paid annually, or where that day is not a business day on the business day immediately after that day or at such frequency dictated by the APF declaring interim profits as may be the case from time to time but subject to the obligations of the Act;
• A final participating dividend, in respect to the year ended 30 June, on that day, or where that day is not a business day on the business day immediately after that day; and
• Payment of all dividends will be made within one month of the declaration date.
The Directors of APF will determine available profit after the payment of any fees and expenses. The CPRPS carry the right to a cumulative preferential dividend at the Coupon Rate (‘cumulative dividend entitlement’) plus further dividends, if any, declared by the directors (‘participating dividend entitlement’).
The level of the participating dividend is at the discretion of the Directors subject to the Company declararing a profit and the powers ascribed in the Constitution and the Act. The current policy of the directors is to pay the 7% or 9% Cumulative Coupon Rate to the holders of A Class and B Class CPRPS respectively.
Under the Directors current policy CPRPS holders will obtain a further participating dividend based on the Company declaring a satisfactory profit. There is no guarantee that the Company will have ability to further declare the participating dividend. The participating dividend is not cumulative and does not bear the same rights and obligations as the cumulative dividend entitlement. The Directors have resolved that if a further participating dividend, based on the Company declaring a satisfactory profit is declared that this will not exceed 5% per annum.
The cumulative dividend at the Coupon Rate is only a right ascribed to the Share and should not be construed as a representation or guarantee that the Company will in fact have profits to be able to meet such dividend entitlement, or that the Company will have the capacity in the future to declare the dividend. This means that where there are insufficient profits in any one year, to fully pay the Cumulative Coupon Rate dividend, any shortfall shall carry forward to a successive period until declared and paid.
The Coupon Rate shall be a fixed per annum rate until the Share is redeemed or purchased by the Company under a selective buy-back scheme. The Coupon Rate shall be calculated on a simple interest basis on the amount paid for each share.
The holders of the CPRPS have priority and are entitled to be paid their cumulative dividend entitlement prior to payment of dividends to the holders of any other class of share not possessing equal rights. Therefore dividends shall be equally applied and apportioned amongst the holders of the CPRPS together with any other class of Share, if any, having equal priority to such dividends.
In the event the Company is wound up or undertakes a reduction of capital, the holders of CPRPS have priority to other classes of shares for payment of dividends. Such entitlement is contingent upon the Company declaring the dividends beforehand. Such dividends would include both the cumulative dividend entitlement and participating dividend entitlement.
Once duly declared as a final dividend, the rights to a dividend would constitute a debt of the Company and shareholders would have ordinary debt recovery options available to them for such a debt.
Prospective Investors should be aware that CPRPS are treated differently for tax purposes, and should note the Taxation Opinion in Section 11. In particular please note as the distributions are treated as interest for tax purposes, no franking credits will be attached to any investor.
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2.6 REDEMPTION OR SELECTIVE BUY BACK
The ‘CPRPS’ offered under this Prospectus are redeemable at the Redemption Date. The Redemption Date shall be thirty-six (36) months after the date of issue of the Shares or otherwise agreed in writing between the Shareholder and the Company.
Where the Company is unable to comply with Section 254K of the Act in regard to the redemption of shares, due to their being insufficient profits or proceeds from share issues issued for the purposes of enabling redemption of shares, the Company may as an alternative to redemption undertake a selective buy-back of the Shares.
Under Section 257A of the Act, a company may buy back its own shares if the buy-back does not materially prejudice the Company’s ability to pay its creditors and the Company follows the procedures set out in Division 2 Chapter 2J of the Act.
Under Section 256C of the Act a selective share buy-back may occur if it is approved by either:
• A special resolution passed at a general meeting of the Company, with no votes being cast in favour of the resolution by any person who is to receive consideration as part of the reduction or whose liability to pay amounts unpaid on shares is to be reduced, or by their associates; or
• A resolution is approved by all the ordinary shareholders of the Company.
Entities associated with the Directors of APF hold one hundred percent of the issued ordinary shares in APF.
It is therefore the intention that all shares will be redeemed, or acquired by the Company under a share buy-back mechanism, at the subscription amount of $1.00 per share or the paid-up capital on the Share, thus returning the full capital amount.
2.7 EARLY REDEMPTION
By Company
The Company may redeem some or all of the Shares of a class upon giving seven days notice in writing of its intention. Investors may also seek approval to redeem their shares. Such redemption may be allowed where no negative effect would befall APF or other shareholders.
Redemption will be affected by repayment of the subscribed or paid-up Share amount together with accrued dividends up to the day preceding the date of redemption.
By Shareholder
APF, while not under any obligation to comply with an investor’s requests for early redemption, will give due consideration to such requests, particularly in the case of hardship or death, where it considers such redemption would not prejudice other Shareholders.
If APF accedes to an investor’s request, it may deduct from the amount payable to the investor the costs and losses which it incurs. Requests for redemption should be in writing and lodged directly with the Company.
2.8 SERVICE PROVIDERS
DFML will act under its Australian Financial Services Licence Number 247245 and will deal with all application monies and application forms received pursuant to this Prospectus (Section 8.1).
Affinity Capital Pty Ltd will act as service provider to the Company pursuant to the agreement referred to in this Prospectus. (Section 8.2)
Acuity Property Plus Pty Ltd operates “Acuity Property Plus” and provide the membership to the shareholders entailing the benefits referred to in this Prospectus. (Section 8.3)
2 Investment Overview
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2.9 RISK
An investment in APF should be considered a medium term investment. As with any venture, there are certain risks inherent with such investments. Investors should be aware that an investment under this Prospectus is likely to involve exposure to risks specific to its operations. A more detailed description of some of the risk factors is contained in Section 6.2 and Section 6.3 of this Prospectus. Investors should read this Prospectus in its entirety, consider all risks and if necessary seek professional financial advice before investing.
2.10 DIVIDEND REINVESTMENT PLAN
The Company has the right to issue a Dividend Reinvestment Plan (‘DRP’) for holders of the Shares on the following terms:
Participation
Participation in the DRP is optional and open to all Members owning CPRPS, except that a Member having a registered address or being resident in a country other than Australia may not be able to participate in the DRP because of legal requirements applicable in that country. The Directors have the discretion to determine whether any such Member is excluded from participation in the DRP. Further, the Directors may refuse to permit any Member to participate if, amongst other things, the Member’s participation may breach a provision of the Constitution or may be contrary to any law, or if the Member elects to participate in respect of a number of Shares which is less than 40,000 (or such other number as the Directors may determine from time to time).
An application to participate can be indicated on the application form or must be in writing. Participation may be either full or partial. Full participation applies in respect of all Shares registered from time to time in the participant’s name (including Shares acquired under the DRP). Partial participation applies for a specific number of Shares nominated by the participant, with the participant receiving any other dividends in cash on the balance of the Shareholding in the normal way. Under partial participation, any Shares subsequently acquired by the participant (including under the DRP) will not participate in the DRP, unless the Member subsequently elects that such Shares are to participate. Participation may be varied or terminated at any time in accordance with the terms of the DRP.
Allotment
Participants under the DRP will be allotted Shares of the same class as those on which any dividend is paid. Those Shares will be acquired at a price
determined by the Directors from time to time and the Directors may set a different price for each class of Shares to be allotted to participants.
Calculation
Any dividend payable on Shares that are subject to the DRP (after deducting any amounts, such as withholding tax, that the Company is required or entitled to deduct) will be credited to a “DRP Account” maintained on behalf of the relevant participant and then applied on the participant’s behalf in subscribing for or acquiring additional Shares.
At the time of any dividend payment, the maximum whole number of additional Shares that can be acquired by each participant will be ascertained by dividing the amount in the participant’s DRP account by the relevant share price as calculated in the manner set out above. Any balance remaining in a participant’s DRP account after Shares have been allotted will be carried forward in the participant’s DRP account and added to the next dividend entitlement. No interest will accrue in respect of any balance in a DRP account.
Costs
No brokerage, commission or other transaction costs will be payable by participants on Shares acquired under the DRP. Under the present law, no stamp duty will be payable on the allotment of Shares under the DRP.
Dividends
Shares allotted under the DRP will, from the date of allotment, rank equally in all respects with all other Shares of the same class as those allotted under the DRP.
Variation
The DRP may be varied, suspended or terminated by the Directors at any time.
2.11 ADDITIONAL BENEFITS
The subscription for shares in the Company allows the Shareholder to become a member of Acuity Property Plus (“APP”) which is operated by Acuity Property Plus Pty Ltd.
Membership is not conditional on any further exercise of an investment decision. It is the Company’s intention to educate its shareholders without any further monetary input.
APP provides its members with a wealth of knowledge, opportunities and benefits that give them a unique advantage in the marketplace that will help kick start or build their property investment portfolio.
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2.11 ADDITIONAL BENEFITS (CONTINUED)
Typically, what prevents most investors purchasing property is the lack of time, confidence or expertise involved in researching and sourcing the right property. This coupled with the inability to save for a deposit or concern over the rentability of their chosen investment property can often be enough to deter investors from taking that next crucial step.
APF through APP provides a solution to all these obstacles.
Researched Properties
All properties that are listed on the approved property list are built or sourced by Affinity Capital Development (ACD) and its associated companies. ACD spends countless hours and money on due diligence and market research, identifying the next potential boom suburbs or areas for growth. ACD understands that the capital growth of our properties is most critical to the wealth of our clients. That is why ACD takes its research seriously, incorporating the resources of key industry experts. Some of the criteria used in our due diligence process when assessing potential new development sites include projected growth rates, location, population, infrastructure, rental desirability and yields, vacancy rates to name just a few. Members have complete access to these Due Diligence reports and will be stepped through these reports prior to selecting their new investment property. ACD also stand behind our properties and research in that our Vendor Finance loan is not repayable by purchasers until their property grows by a minimum of 10%. ACD itself holds property in its own projects for the long term because of its belief in the quality of their product and its potential for strong capital growth.
Vendor Finance
Saving for a deposit to buy a property is often what stops potential investors entering the property market. This challenge is addressed by APP’s unique Vendor Finance Coupon. Vendor finance is an agreement where the owner of a property lends funds to the purchaser. APP has an agreement with each of its related property development entities to offer all APP members Vendor finance equal to an amount of 5% of the approved property’s purchase price. It is offered to Members at competitive interest rates and significantly, is not repayable until the property grows by at least 10%. This way, investors’ risks are mitigated as they are never forced into a position where they MUST repay the loan, but only when there is sufficient equity or capital growth in their property to allow them to do so.
Rental Guarantee
Rental guarantees take the worry out of renting your property. ACD will guarantee the rental income on any of its approved properties for periods between 12 to
48 months. This is done to demonstrate confidence in the rental ability of our properties giving the purchaser peace of mind on an investment and certainty with respect to the cash flow of the property. From the commencement of your Guarantee you will be able to plan and organise all financial undertakings confident in the knowledge that you will receive your rent on time, every time.
Vendor Finance Coupons
One Acuity Vendor Finance Coupon is issued to each APP member and entitles the member to the following benefits:-
• Interest capitalized for the term of loan;
• 5% Vendor Finance at interest rate of just
6.99% p.a.
• Loan Repayment is conditional on the purchased property rising by at least 10% as verified by a valuation fit for mortgage purposes;
• Nil establishment fees or annual fees;
• Nil early repayment fees;
• Client pays for legal fees and government charges;
• 12 month rental guarantee at market rate;
OR
The client can choose to nominate the following option with no vendor finance:
• Obtain a four year rental guarantee at market rate.
Another great benefit is that the Acuity Vendor Finance Coupons are saleable. That means you can offer these exclusive benefits to family members needing help to get ahead. These may include your children or grandchildren, or even friends.
Other Extra Benefits for members may include property and investment workshops, discounted quantity surveyor (QS) reports for taxation purposes, and monthly property news letters. Further information about APP can be found at section 8.3.
2.12 SUMMARY INFORMATION ONLY
This summary is not intended to provide full details of the investment opportunity. Investors must read this Prospectus in its entirety to make a fully informed investment decision.
2 Investment Overview
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3 Applications For Shares
3.1 MINIMUM SUBSCRIPTION
A minimum subscription of $300,000
3.2 MAXIMUM CAPITAL RAISING
The maximum capital raising for the thirteen (13) month life of this Prospectus is $30,000,000 however over-subscriptions can be accepted by the Company.
3.3 MINIMUM INVESTMENT
The minimum application for A Class CPRPS is 40,000 and 50,000 for B Class CPRPS at the Offer Price of $1.00 per share for a total minimum investment of $40,000 or $50,000 respectively. Applications for a higher number of shares must be in multiples of 1,000 shares. APF may waive the minimum application requirements or decline any application at it’s absolute discretion.
3.4 HOW TO APPLY
Applications for shares can only be made on the Application Form accompanying this Prospectus. The Application Form must be completed in accordance with the instructions set out in Section 16. All application monies are deposited on trust in an account established by DFML solely for the purpose of holding APF application funds pending the issue of the Shares.
Application Forms must be accompanied by a cheque, crossed “not negotiable” made payable to “Diversified Funds Management Ltd - APF Share Offer” and sent to:
3.5 FOREIGN INVESTORS
The offer of CPRPS is only made to persons receiving this Prospectus in Australia. The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law, and any person into whose possession this Prospectus comes (including nominees, trustees or custodians) should seek advice on, and observe those restrictions.
3.6 APPLICATIONS
APF reserves the right in its discretion to accept or refuse any application by an investor.
If APF accepts an application and it has received all relevant application monies, it will issue the investor a confirmation statement acknowledging indebtedness as soon as practicable after acceptance of the application.
The confirmation statement will be recorded on the register however please note that the confirmation statement is not a certificate of title and the register provides the only evidence of title. No shares will be issued until the minimum subscription is achieved.
Applications by trusts must be in the name of the trustee and signed by the trustee/s. APF will only recognise the trustee/s as the owner of the investment. If there is more than one investor, they will be deemed to hold the investment as joint tenants and all joint tenants must sign all relevant documents including the Application Form.
Diversified Funds Management Ltd APF Limited – Share OfferGPO Box 111 Brisbane Qld 4000
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4 Prospectus Obligations & Rights 4.1 RIGHT TO WITHDRAW PROSPECTUS
The Directors may at any time decide to withdraw this Prospectus and the Offer, in which case APF will return to applicants all application monies within 28 days of giving notice of its withdrawal.
4.2 EXPOSURE PERIOD AND PROCESSING OF
APPLICATIONS
Under the Act an exposure period applies to all Prospectuses. The exposure period is a 7 day period, which may be extended by ASIC to 14 days, following the lodgement of the Prospectus where the issuer is not permitted to process any applications received in relation to the CPRPS.
The Issuer must make this Prospectus generally available during the exposure period. A paper copy of this Prospectus will be made available on request and free of charge during the exposure period. If you wish to obtain a paper copy of the Prospectus please contact APF (details provided in the Directory). An electronic version of the Prospectus may also be requested by emailing [email protected].
In accordance with the Act:
• APF will not process any Applications received in relation to this Offer until the exposure period ends.
• No preference will be given to any Application received in the exposure period.
• Potential investors should note that:
o the purpose of the exposure period is to enable the Prospectus to be examined by market participants prior to the raising of funds;
o examination may result in the identification of deficiencies in the Prospectus; and
o in those circumstances, any application that has been received must be dealt with in accordance with Section 724 of the Act which sates that APF must either:
a) repay the monies received by applicants; or
b) give the applicants:
i ) a supplementary or replacement Prospectus that corrects the deficiency or changes the terms of the offer; and
ii ) one month to withdraw their application and be repaid; or
c) issue the Shares to the applicants and give them:
i ) a replacement Prospectus; and
ii ) one month to withdraw their applications and be repaid.
Atrium, Gosford, NSW
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5 Assessing Loan Applications5.1 INVESTMENT SELECTION PANEL
The APF business model involves the pooling of investors funds and investing them predominantly into property backed debt securities.
In order to ensure that APF has all requisite skills to qualify all prospective borrowers and their projects, the board of directors of APF have set up an ‘Investment Selection Panel’ that will consist of representatives from the Board of Directors. At all times the Investment Selection Panel will be constituted by no less than 3 Directors.
The Investment Selection Panel is required to implement and apply the Loan Criteria Model and accessory processes contained therein. The Investment Selection Panel assesses the proposed investment based on the prescriptions of the Loan Criteria Model.
If the Investment Selection Panel is satisfied that the applicant has presented a feasible request for funding then it certifies the suitability of the project.
The Investment Selection Panel then has to determine what type of funding is better suited to the circumstance and where applicable which rate of interest applies. In the event of related party transactions the Investment Selection Panel will employ the same procedures and guidelines and ensure that an arms length approach has been adopted (refer Section 5.2).
The functions of the Investment Selection Panel are to:
• establish and maintain a consistent and structured investment framework for the making of investment decisions for APF;
• assess, monitor and manage the investments of APF in accordance with the ‘Loan Criteria Model’ and with relevant statutory requirements; and
• ensure that any significant issues and breaches are reported and that they are handled in a timely and effective manner.
5.2 LOAN CRITERIA MODEL
While the terms and conditions for each transaction will vary, the basis for all investment decisions is derived from the ‘Loan Criteria Model’. The Loan Criteria Model is divided into two subsets the first being the Investment Criteria and the second the Loan Processing Guide.
The ‘Loan Criteria Model’ is essentially a set of guidelines developed by APF to assist the Investment Selection Panel in:
• making decisions on financing and investment opportunities of the Company;
• how the decisions are arrived at (the process); and
• the ongoing management of the loans and investments of the Company.
The salient issues which form the parameters set out in the Loan Criteria Model commonly include but are not limited to:
• Experience and character of prospective borrower;
• Return on investment for APF;
• Location of project;
• Minimum proofs and source documentation requirements;
• Relevant presale requirements;
• Loan Value Ratios;
• Exit strategy of the borrower;
• Equity participation levels;
• Security requirements;
• Loan and payment terms; and
• Correlation with APF strategies.
Whilst there is scope for the Investment Selection Panel to go outside the parameters of the Loan Criteria Model it must have justification and have the vote of the majority of the Investment Selection Panel in order to do so.
The second subset is the Loan Processing Guide. This Guide contains the process employed by the Investment Selection Panel to accredit a borrower and the processes in place to accommodate an application for funding.
The Loan Criteria Model and Loan Processing Guide are available to any investor in accordance with the process specified in Section 12.6.
Seascape, Hervey Bay, QLD
4 Prospectus Obligations & Rights
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5 Assessing Loan Applications5.3 INVESTMENT TYPES
General
The property finance industry raises and provides the necessary funds for developers and owners of property to undertake development projects.
There is a broad range of providers of finance to the property industry, including banks, superannuation funds, building companies, and individual investors (either in their personal capacity or as part of a larger syndicate of investors). In addition, developers themselves often wholly or partly finance development projects by investing their own funds in a particular development.
The forms of finance provided to a development each have varying rights, liabilities, exposure to the risks and potential for profitability. A development project may be funded by any combination of the following forms of finance:
Debt finance
This comprises funds loaned to a developer. The loan is generally secured by a mortgage over the assets of the particular development, often together with collateral security including guarantees from entities associated with the developer.
First Mortgage (Senior Debt)
This represents the lower risk component of total funding for a development project, as it has priority over the assets and proceeds of a particular development. For traditional first mortgage finance facilities, the amount funded is generally restricted to up to 80% of the project’s estimated end value.
The return on the funds loaned is an interest return, calculated as a percentage of funds invested. The return or interest rate for this form of finance investment is lower than other forms of finance, as it generally has the lowest risk profile of all forms of finance used in a development.
The first mortgage rate of interest would be in excess of the current bank market rates and can depending on the security be up to 15% per annum. The Company may negotiate more suitable rates if the period of the loan requirement is less than 12 months. This is due to the rate expressed being an annual rate.
Second Mortgage (Mezzanine Debt)
This is a higher risk component of project finance than first mortgage. Inclusive of first mortgage finance, the amount provided is generally set at 70% to 90% of the development’s estimated realisable value.
As mezzanine finance ranks behind first mortgage finance when allocating the disposal proceeds of the development and ahead of equity finance in the development, mezzanine finance can be considered as the ‘strip’ of funds between the first mortgage finance and the developer’s equity in the project.
Mezzanine finance carries a higher risk profile than a first mortgage investment; however, the greater risk is rewarded by a higher return required by the providers of this form of finance.
The Mezzanine rate of interest would be in excess of the current bank market rates and can depending on the security be in excess of 25% per annum. The Company may negotiate more suitable rates if the period of the loan requirement is less than 12 months. This is due to the rate expressed being an annual rate.
Debt Equity finance
Equity finance comprises funds employed in a development either by the developer or by other joint venture equity investors. When an external party provides the funds and the return paid by the developer is a fixed one, it may be called leveraged equity finance. In this instance, the term ‘leveraged’ refers to its performance being enhanced by the utilisation of prior ranking debt finance in the funding mix of a development project. Although leveraged equity finance is technically a debt instrument, it is perhaps best considered as a quasi-equity product.
It displays many of the characteristics of equity investments. While it is often secured by a second or following mortgage over the assets of a project and sometimes-collateral security, the value of this security is largely dependent upon the realisation of the expected success or performance of the development project.
The Debt Equity rate of interest would be in excess of the current bank market rates and can depending on the security be over 30% per annum with a commensurate level of equity participation in the profits of the project.
Montago, North Parramatta, NSW
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Seed Capital
Seed Capital is the initial injection of funds used to establish the project and progress it to a stage where the second phase of financing is sought, generally via First Lender or Mezzanine facilities.
The return on the investment can be in the form of equity participation in the project, a fixed rate of payable or capitalised interest or a combination of both. The essence of the transaction is generally such that it allows the development company to pay out the debt as quickly as practicable and prior to second phase finance.
At the time of Seed Capital investment there is normally little or no security available to the Seed investor. Due to the low level of security and short terms of these facilities, Seed Capital normally commands a higher rate of return than First Lender or Mezzanine.
The Seed Capital rate of interest would be in excess of the current bank market rates and can depending on the security be over 30% per annum with a commensurate level of equity participation in the profits of the project. The Company may negotiate more suitable rates if the period of the loan requirement is less than 12 months. This is due to the rate expressed being an annual rate.
Equity Finance
As mentioned above, equity finance comprises funds employed in a development either by the developer undertaking the project or by other joint venture equity investors. The equity finance usually receives a return directly based upon the profit or loss of the development project after all interest costs. The providers of equity finance generally rank behind providers of debt finance and unsecured creditors of the developer.
The Loan Criteria Model and Loan Processing Guide provides assistance to the Investment Selection Panel when determining the kind of finance that is to be granted and any maximum level of each type of finance. This is called the target allocation of the Company and is contained in section 4 of the Loan Criteria and Loan Processing Guide.
The guide describes the target allocation in the following terms;
Target Allocation of the Company
The Company has set a target asset allocation based on the table below. On some occasions the ranges may be breached if there is a change in the outlook for a particular asset range or where the Company decides to invest to take advantage of a particular opportunity.
In the initial two years, the table range may be breached until the Company is fully operational and has sufficiently addressed market and related issues.
Due to the target allocation 90% (combination of Mezzanine, Seed and Equity) of the loans will be secured by second and further mortgages. The consequence for the Company will be that the security will always be subordinate to the rights of the prime security holder. The Investment Selection Panel mandate is to always strive for the best possible security; this has to be tempered by the fact that the Loan Criteria Model focuses on the combined strength of each project rather than a collective policy restricted by the available security.
Prospective Investors should note the risk associated with Subordinate Security and Associated Party transactions as outlined at Section 6.2
5.4 FINANCE AND RISK
Successful professional developers will identify the risk components of a development transaction. This risk is minimised as much as possible prior to commencing the development and any residual risk is allocated to the various parties involved. Some risk minimisation strategies include:
a. Gaining control of a site via the use of option agreements, conditional contracts and allowing the developer to ‘work-up’ the development site;
b. Obtaining local government and other development approvals prior to settlement of the purchase of the site;
c. Securing pre-sales in residential developments and pre-commitments from tenants in commercial developments prior to commencement of construction of improvements and sometimes prior to acquisition of the site, minimising sales and leasing risk; and
d. Entering into a fixed price construction contract with a reputable builder, minimising construction risk.
ASSET CLASS RANGE TARGET
Equity Participation 10-30% 10%
Seed Capital 10-30% 15%
Mezzanine Funding 20-70% 65%
First Mortgage Funding 10-50% 10%
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5 Assessing Loan ApplicationsAPF will adopt where appropriate risk minimisation strategies concerning its funding to achieve its primary and secondary investment focus.
The development risk is reduced after the packaging of a development in the above manner and the project is more appealing to external financiers, compared to a project developed on a purely speculative basis.
By undertaking these activities, the developer often creates ‘notional equity’ or ‘notional profit’ in a development and improves the project risk profile for external financiers.
The implementation of these risk reduction strategies helps the developer attract external finance. The external financier can attain a higher degree of comfort that the project’s development profit will be realised.
Accordingly, once the developer has undertaken these activities and the project forecasts an acceptable profit margin, the developer is able to formulate the optimal funding mix for the project.
There are benefits to the developer in utilising other forms of external finance in addition to first mortgage finance.
By attracting additional external finance, the amount of capital that must be provided by a developer in a particular project is reduced, thus enabling the developer to free up significant working capital for use in the investigation and assessment of further development opportunities.
For developers, mezzanine and debt equity finance are attractive forms of additional external finance (as opposed to equity finance) for the following reasons:
• The developer is able to retain control of the development project (subject to the terms of the finance agreement);
• The developer receives the whole amount of the additional profit or ‘up-side’ on the development project; and
• The development project can be structured and implemented relatively quickly and efficiently.
5.5 LOAN CRITERIA MODEL PROCEDURE AND
GUIDELINES
The Loan Criteria Model provides assistance to APF when dealing with Loan applications in terms of the procedure that is to be followed to accredit a particular loan application.
Based on this aspect APF has implemented a specific default procedure which is contained in section 7 of the Loan Criteria Model. It consists of several steps namely, Detecting the Arrears, Managing the arrears,
Investigating the cause of arrears, Informal work outs, Capitalising Arrears, Valuing the Security, Arrears Reporting, Appointing Insolvency Administrator, Mortgage Default, Obtaining Order for Possession, and Mortgagee Sale Procedure.
Of these, the following selected aspects require clarification especially in respect of a related party special purpose vehicle default on an interest or loan obligation.
Informal Work Outs
Informal work-outs occur where APF assists borrowers whose financial difficulties are temporary. Adoption of such a strategy may be seen as a better commercial alternative than a mortgagee sale or receivership, particularly where economic conditions may result in a poor result to shareholders. Work-outs are unlikely to be appropriate where there is a threat of dispersion of assets or the borrowers’ management is poor, and particularly where a work-out may lead to a reduction in the value of the security. Where an informal work-out is being followed, regular reports are to be submitted to the Investment Selection Panel. In all cases, the terms of any agreed work-out strategies, including information requirements and agreed review dates, must be confirmed in writing with the borrower and must be approved by the Investment Selection Panel. Where arrears are to be cleared from the sale of assets, the Investment Selection Panel must be satisfied that ongoing operation can adequately service the remaining debt.
Capitalising Arrears
Capitalisation of arrears is a special form of variation and involves capitalising existing arrears into a new loan facility structure. To be acceptable, an arrears re-financing proposal must be based on the same rigorous evaluation that would occur as if it were a proposal for a new borrower.
The need to re-finance arrears typically derives from:
• The amount of repayments exceeding the borrowers cash generation capacity; or
• Short-term aberrations caused by production, distribution, sales and marketing, or various other causes.
In either case AFP may be left with a continuing arrears balance, or even an increasing amount if the structure is inappropriate.
The arrears may be re-financed by establishing a new loan facility or by revising the structure of the existing facility to achieve any combination of an extension of the term, an increase in amount to enable the arrears to be capitalised and spread over the term, or a change in the repayment structure.
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Even when a request to provide a new or increased facility precedes an arrears situation, if the purpose is ostensibly to ensure an arrears situation is avoided, then the process constitutes re-financing arrears.
Proposals to capitalise arrears can only be approved by the Investment Selection Panel.
An arrears re-financing proposal must indicate that:
• The borrower is expected to perform on terms considered by the Investment Selection Panel to be similar to those for new debts with a similar risk; and
• No provisions are currently held against the exposure.
Mortgage Default
Where it has been established that a Borrower is not able to pay the interest on the due date then the loan should be regarded as non-performing and default proceedings must be commenced.
Obtaining Order for Possession
In the event that the mortgagor/borrower will not provide vacant possession of the security property then litigation may be required in order to obtain vacant possession.
In general terms the Directors have the overriding say as to the management of the Company. Based on the pretext of the Investment Selection Panel and Loan Processing Guide the Investment Selection Panel has an obligation to comply with the tasks that are specifically assigned to them in accordance with the Loan Criteria Model and Loan Processing Guide. Investors should note the risk of investing with a Company that engages in Associated Party lending (refer Section 6.2 Associated Parties Risk).
Atrium, Gosford, NSW
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6.1 INVESTMENT RISK
As with any offering, before applying for APF Shares, investors should determine whether this investment is suited to their own financial circumstances and whether the objectives of APF accord with their own investment objectives.
Prospective investors should consider carefully the following factors (amongst others) in making their investment decision. There can be no assurance that APF will be able to achieve its investment objectives or that investors will receive a return on their investment.
An investment of any kind has an inherent degree of risk and prior to investing, investors should be satisfied that they have fully understood and have assessed those risks. An investment in APF is an investment in shares and is only suitable to investors who fully understand and are capable of assessing the particular risks associated with an investment in shares and APF.
6.2 RISKS SPECIFIC TO THIS INVESTMENT
Pooling effect of investment
The investment is for a share in the Company of APF, and as such should the total income of the Fund be negatively impacted by the performance of one or more of the underlying investments it could impact on all shares.
Whilst difficult to offset, the risk management approach to this risk is to ensure that the Loan Criteria Model is a working document that is continuously developed and adhered to, in terms of compliance and further is adopted culturally within the Company in order to avoid emotion in the decision making process and minimise the risk of investing in an underperforming investment.
Early investment or loan repayment
If investment or loan recipients repay their debt early APF may not realise the full projected return of that mortgage. In this instance the return for APF will be decreased.
Whilst an early payout means a secured return it can adversely affect the return on capital. The insertion of clauses into loan documentation which penalise early re-payment can assist in alleviating this risk to some extent.
Decline in property values
In the instance where there is a decrease in the value of the properties over which APF hold mortgages or other security, the security held may not be sufficient to meet a default by a borrower.
APF has created the Investment Selection Panel consisting of members of the Board of Directors, Board of Advisors and external experts in the industry. The team will conduct market analysis in an endeavour to ensure APF understands the environment in which it is investing. The Loan Criteria Model used by the panel covers issues such and Loan to Value Ratios to offset the risk of declining property values. Diversification referred to in Section 6.4 also plays an important role in managing this risk.
Lack of suitable investments
APF may not be able to source suitable investments in which to invest within a reasonable time after the issue of the Shares. This may mean that the return APF makes from its investments may not be sufficient to meet Shareholders’ return entitlements.
This risk is managed through the diversification of marketing channels and the ability of APF management to structure attractive facilities whilst maintaining appropriate levels of risk.
Ability of investment or loan recipients to meet obligations
The borrowers to whom APF loan or invest funds with may, due to their financial situation, be unable to meet their mortgage expectation. In such circumstances APF may suffer losses.
The application of the Loan Criteria Model in collecting the appropriate levels and types of information regarding the project and the project owners in the Company’s due diligence stage together with loan documents that provide APF with alternative avenues of recourse is the key to managing this risk.
6 Risk And Risk Management
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Associated Party Investments
The investment is for a share in the Company of APF. APF may in its discretion and subject to the guidance of the Investment Selection Panel, decide to make Loans to associated parties, companies and entities within the guidelines of the Loan Criteria Model. APF will rely heavily on associated party transactions but will diversify by undertaking third party loans.
Whilst the perception may be that associated party loans are volatile and may create a perceived or real conflict of interest, APF has in place the Investment Selection Panel to ensure that these loans will be conducted on arms length basis and more importantly only in line with the Loan Criteria Model. The risk management approach to this risk is to ensure that the Loan Criteria Model is a working document that is continuously developed and adhered to in terms of compliance and further is adopted culturally within the Company in order to avoid emotion in the decision making process and minimise the risk of investing in underperforming investments due to the associated nature.
Subordinate Security
The Loan Criteria Model prescribes that the security the Company may rely upon will be second and further mortgages (subordinate security). Investments with the underlying security being subordinate security are high risk investments. This is due to the fact that the subordinate security stands second in place to any first mortgage (prime security). In the event of a default the prime security holder will have the right to recover their full capital, interest and costs. This invariably means that the security is depleted leaving no further amount to satisfy the subordinate security holder claim. Market influences may, in addition to the issues described, devalue a property and thus further negate the subordinate security value.
Prospective shareholders must note this risk as a prime threat to the value of the security and their investment. The Company cannot entirely alleviate this risk. Prospective shareholders should not rely on the security offered to the Company by borrowers as their prime reason for investing with the Company. The Company has tasked the Investment Selection Panel with assessing and selecting each investment based on the strength of each project, monitoring the performance of the underlying investments and to continually manage the process as mandated in the Loan Criteria Model.
Capital Repayment Priorities – Other Classes of Preference Shares
APF has the power under its Constitution and may in the future allot preference shares which have a priority or rank equal in priority upon a winding up, to the repayment of surplus capital of the Company, to that of the CPRPS.
Impediments for Redemption of Shares
Shares will not be redeemable in the event the Company is unable to satisfy the requirements of Section 254K of the Act due to their being insufficient profits, or not having proceeds from share issues issued for the purpose of redeeming preference shares.
The Company will also not be able to redeem the Shares through a selective share buy-back in the event that the ordinary shareholders of the Company do not approve the selective share buyback or the Board of Directors for the Company are of the view that the Share buy-back will materially prejudice the Company’s ability to pay its creditors.
Whilst Associate entities of the Board of Directors may hold all the ordinary shares in the Company as at the date of this Prospectus which may foster the selective share buy-back mechanism as part of a structural design, there can be no guarantee that the Board of Directors or any other holder of ordinary shares in the future will pass the necessary resolutions to enact a selective share buy-back.
Dividend Entitlements
Dividend payments to shareholders are subject to profits being available in accordance with Section 254T of the Act and the declaration of dividends by the Company. In the case of paying dividend entitlements upon a reduction of capital or a winding up of the Company, shareholders of CPRPS are only entitled, from Residual Surplus Assets of the Company, to dividends which have been declared by the Company.
There is no guarantee that the cumulative dividend entitlement and the further participating dividends will be declared or paid.
The three risks mentioned above are instilled in the Company via the constitution and cannot be managed other than by APF realising its goals through the application of internal systems based on the Loan Criteria Model and Loan Processing Guide.. Investors must assess their exposure given this facet of the Company in deciding the appropriateness of this investment.
6.3 GENERAL INVESTMENT RISKS
Management
The investments of APF will be chosen and managed exclusively by the Board of Directors and Investment Selection Panel of APF. Shareholders will not be able to make investment or other decisions regarding APF.
Accordingly, the success of APF will depend upon the ability of this management group to source, select and complete appropriate investments in order to realise the objectives of the fund and as such the return to investors.
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Economic and Political Risks
In the course of investing, APF will be exposed to the direct and indirect consequences of political, economic and social changes in the investment environment.
The investments could be affected adversely by; changes in the general economic climate or economic factors affecting a particular industry; changes in tax law or interest rate movements.
While APF intends to invest funds in a manner that will minimise its exposure to such risks, there can be no assurance that adverse political, economic or social changes will not cause APF to suffer loss.
Legal, Tax and Regulatory Risks
Legal, tax and regulatory changes in the Australian investment environment, or otherwise, may occur during the investment term which could have an adverse effect on the return to investors.
Investment Risks
Whilst the Company will invest in accordance with the Loan Criteria Model and take all reasonable precautions against losses, there can be no guarantees that any investment will not result in losses.
Time delays, building disputes, unforeseen litigation, planning and environment controls, loss of sales are just some of the problems which may confront a project or borrower in which the Company has an interest. Unforeseen developments in investments could impact on the ability of the Company to redeem shares or result in losses.
Liquidity Risk
There is no established secondary market for the Shares. Therefore an investors ability to convert there shares to cash is limited to APF declaring a dividend, redeeming or buying back the Shares or via the sourcing of another investor to who the Shares can be transferred.
General investment risks are inherent in all types of investing and exposure to them can vary given the environment in which the investment is made. As mentioned earlier investors must be able to fully understand and assess these risks in order to make an informed decision on whether or not to make an investment in APF.
6.4 RISK MANAGEMENT THROUGH
DIVERSIFICATION
The risk management procedures above mainly centre on the appropriateness and effectiveness of the systems developed by APF and the ability of APF management to implement those systems in a manner which results in the realisation of the Funds goals.
One of the most effective forms of risk management which forms part of APF’S systems, is diversification.
Diversification is relevant regardless of the type or size of investment. The implementation of a diversification strategy in an investment portfolio can provide a balance of risk and return and decrease exposure to the adverse impact from particular areas within the investment environment.
Diversification of Investment Type
As discussed earlier in Section 5.3, APF will invest in the areas of Seed Capital, Equity participation, Mezzanine Finance and First Lender.
By investing in a manner whereby the Company does not invest heavily in any one particular type of investment it can minimise it’s exposure to the risk of that investment type.
Diversification of Projects
APF aims to ensure that no one project is so heavily relied on that the occurrence of unexpected difficulties would see the total fund at risk.
Diversification of sector
APF intends to spread its investment across various sectors within its environment. The sectors APF will spread amongst are mainly, but not limited to the residential, retail, industrial and commercial sectors.
This will help limit exposure to and alleviate the adverse impact of a decline in the market of any one particular sector.
6 Risk And Risk Management
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7.1 PROFILE OF DIRECTORS
Darren Chek
Prior to becoming director of Acuity Property Fund Limited, Darren had extensive finance and banking experience with companies such as SingTel Optus and Westpac Banking Corporation.
Darren is also a Director of Affinity Capital Pty Ltd, a specialist finance company in the private finance industry. He now spends the majority of his time pursuing his passion for property and finance and is an expert in financial strategy, financial analysis and structuring of debt and equity transactions. Darren is a member of the MIAA and is fully accredited with the majority of major lending institutions in Australia.
Darren has been fundamental in establishing key contacts within the finance and property industries, in spearheading many transactions to completion, and in streamlining and focusing the direction of the Company.
Acuity Property Fund will utilize Darren’s skills and experience in sourcing, settling and managing mortgages advanced by the Fund as well as assisting with the coordination of the day to day business operations of the Company
Michael Chin
Michael has a Bachelor of Business with a focus on Accounting and Computer Science. He is also a member of the Australian Taxation and Management Accountants (ATMA).
He has over 10 year experience as a business advisor encompassing the areas of taxation law, business growth strategies and management systems, gained largely as a partner in a public accounting firm.
His prior experience includes consulting roles with an international company responsible for industry benchmarking and internal efficiencies. With this background, Michael understands the importance of strong internal control systems to ensure efficiency and accountability for both internal and external stakeholders.
Michael brings the skills and experience necessary to ensure the sound financial management and control of the Company, and is primarily responsible for the ongoing structure, compliance and resource management of the Acuity Property Fund.
Andrew Mah
Andrew comes from a strong finance background and has completed both undergraduate and postgraduate studies in Economics and Finance. His extensive experience in the Finance industry includes senior roles in both treasury and finance with the Commonwealth Bank and Citigroup, where he specialised in derivatives and other financial market instruments.
He brings to Acuity Property Fund an extensive network of affiliated partners and strategic alliances within the industries that provide ongoing and continual streams of business.
Andrew will focus primarily on Business Development for the Company and be active in the marketing and distribution of Acuity products.
7.2 BOARD OF ADVISERS
At the time of writing this Prospectus the Advisory Board member external to the Board of directors are Paul Appleby and Daniel Ku.
Paul Appleby
Paul is currently the Vice Chair of the Housing Industry Association (HIA) and has over 30 years experience in the property and Construction Industry. During this time he has completed over 25,000 dwellings and some $4.5 billion in construction including land subdivisions, commercial and industrial projects, private hospitals, nursing homes and retirement villages located throughout Australia.
Paul’s background includes senior positions at Meriton Apartments, Hooker Corporation, Walker Corporation and, most recently, Crown International Holdings Pty Ltd. In all of these organisations he was instrumental in their expansion and growth as companies and over the years has received various housing awards.
His wealth of knowledge, expertise and experience is unrivalled by many in the industry.
Paul will be a member of the Board of Advisors for this Prospectus, instrumental in performing due diligence and assessments of investment opportunities for the fund.
Daniel Ku
Daniel brings to Acuity Property Fund a sound foundation of business practices and a thorough knowledge and insight into the trends in the Finance and Property sectors.
His knowledge and expertise has been gained through many years of experience in business management, having owned and directed a number of successful companies in diverse fields including finance, retail, Information Technology, Physiotherapy, and Property Development.
7 Directors & Corporate Governance
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7.3 CORPORATE GOVERNANCE
The Board Mandate
The Board complies with the requirements of ASIC Policy Note 70 in that the directors collectively possess the experience required to manage the Company and its activities.
The Board is conscious of the need to perform its role effectively and efficiently, balancing its responsibilities to shareholders with the need to understand and take advantage of market opportunities. With this in mind, and having regard to best practice in the area of corporate governance, the Board has adopted principles, including:
• the Board should comprise at least 3 directors;
• the Directors should possess a broad range of skills, qualifications and experience;
• the board should meet on a regular basis; and
• all available information in connection with items to be discussed at a meeting of the Board shall be provided to each Director prior to that meeting.
The primary responsibilities of the Board include:
• the approval of the making of any loan to any borrower;
• the approval of all statutory reports and returns;
• the creation of long term goals and strategic plans to achieve those goals;
• ensuring that adequate systems of internal control along with appropriate monitoring of compliance activities are implemented and monitored; and
• reporting on the performance and results of APF on a quarterly basis.
The secondary responsibility of the Board is to act as the “Investment Selection Panel”.
The functions of the Investment Selection Panel are to:
• establish and maintain a consistent and structured investment framework for the making of investment decisions for APF;
• assess, monitor and manage the investments of APF in accordance with the ‘Loan Criteria Model’ and with relevant statutory requirements; and
• ensure that any significant issues and breaches are reported and that they are handled in a timely and effective manner.
Independent Professional Advice
With the prior approval of the Board, each Director has the right to seek independent legal and other professional advice at the expense of APF concerning any aspect of the operations or undertakings of APF in order to fulfill their duties and responsibilities as Directors.
Audit Committee
The audit committee, which will include at least one member of the Board of APF, will provide a forum for the effective communication between the Board of Directors of APF and the auditors. The audit committee will review:
• The annual and half-year financial report prior to their approval by the Board;
• Compliance with the Loan Criteria Model in regard to related party transactions;
• The effectiveness of management information systems and systems of internal controls; and
• The efficiency and effectiveness of the audit functions.
At all audit committee meetings the auditors will be invited to attend.
Risk Management
The Board is responsible for APF systems of internal control and is constantly monitoring operational and financial aspects of APF activities.
The Board of Directors ensures that recommendations made by the auditors and other external advisors are investigated and, where considered necessary, appropriate action is taken to ensure that APF has an appropriate internal control environment in place to manage the key risks identified.
In addition, the Board of Directors investigates ways of enhancing existing risk management strategies, including appropriate segregation of duties, the employment and training of suitably qualified and experienced personnel.
7.4 REMUNERATION OF DIRECTORS
The Constitution of APF provides that the Directors may collectively be paid remuneration for their services a fixed sum per annum. The amount and frequency of this payment is to be determined by APF at a general meeting.
It is not expected that the Directors’ will declare fees for services during the first ‘full’ year of operation being the year ended 30 June 2007.
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8.1 ROLE AND SERVICES PROVIDED BY
DIVERSIFIED FUNDS MANAGEMENT LTD
APF has entered into an Authorised Intermediary Agreement with DFML entitling APF to issue the Shares on offer under the provisions of Section 911A(2)(b) of the Act.
a. ROLE AND SERVICES PROVIDED
APF and DFML are parties to an agreement whereby DFML will act under its Australian Financial Services Licence as an Authorised Intermediary in order for APF to offer the Shares under this Prospectus. DFML currently holds an Australian Financial Services Licence (247245) issued by ASIC.
Under the agreement:
• APF has appointed DFML to make offers to people to arrange for the issue of the CPRPS by APF; and
• APF will issue those CPRPS in accordance with such offers, if the offers are accepted.
In this Prospectus, DFML offers to people receiving the Prospectus, to arrange for the issue of the CPRPS by APF. Application Forms for the CPRPS must be sent to DFML at the address set out in the Prospectus.
DFML must arrange for the issue of the CPRPS by APF by:
(1) Distributing to people in Australia copies of the Prospectus directly or through DFML authorised representatives;
(2) Appointing other holders of Australian Financial Services Licences to distribute copies of the Prospectus;
(3) Receiving the application forms from applicants; and
(4) Holding applications monies on trust until the Shares are issued.
APF will issue the CPRPS in accordance with DFML offers in this Prospectus, if such offers are accepted.
APF will pay to DFML the fees set out below on all shares issued whilst they act as Authorised Intermediary.
The agreement continues unless and until it is lawfully terminated in accordance with the provision of the agreement, which include where:
i. A party breaches a term of the agreement and the default involves either a rectifiable breach which is not rectified within 14 days of receipt by the other party of written notice of default, or a breach which is not rectifiable; or
ii. A party gives the other party one month notice of its intention to terminate.
b. FEES
Under the agreement APF must pay to DFML fees on a monthly basis being an amount equal to:
• 1% on total funds raised
c. COSTS
Under the agreement DFML is entitled to be reimbursed from the Company for all costs properly paid or incurred by DFML in relation to DFML providing to the Company the services under the agreement.
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8.2 ROLE AND SERVICES PROVIDED BY AFFINITY CAPITAL PTY LTD
APF and Affinity Capital Pty Limited ATF Affinity Capital Trust (ACPL) are parties to an agreement dated 25th September 2006
General
The agreement provides that, in consideration of ACPL:
• identifying, investigating and recommending appropriate lending opportunities to the Company;
• monitoring existing loans performance made by the Company; and
• providing administrative, secretarial and clerical services to the Company, the Company will:
(a) pay ACPL certain fees, and
(b) reimburse ACPL for certain costs, as set out in the agreement and explained below.
Appointment and performance of duties
ACPL is appointed by APF as an independent contractor. During the term of the agreement APF may not appoint another party to provide it with the services that ACPL provides under the agreement.
ACPL may sub-contract or delegate the exercise of the powers or the performance of the duties of ACPL under the agreement with prior written consent of APF.
Services relating to investments
ACPL will provide to APF the following services in relation to investments:
Investment criteria
ACPL will develop a range of policies and procedures that will be subject to approval by APF, to assist APF in assessing prospective investments based on a detailed acceptable criteria model.
Existing investment review and management
ACPL will develop a range of investment review and management practices and procedures that will be subject to approval by APF, detailing acceptable levels of investment management and criteria for reporting by ACPL to APF.
The policies and procedures will include, but not be limited to the following:
(a) Reports by ACPL to APF, including monthly, quarterly and annual reports;
(b) Capital expenditure approval levels;
(c) Management criteria for adequacy and audit of the Company;
(d) Financial modeling; and
(e) Management procedures in respect to problem investments.
ACPL will monitor and manage all investments in accordance with the policies and procedures approved by APF.
Financial management
ACPL will be responsible for developing and maintaining financial models for the purpose of projecting cash flow requirements and projected returns.
ACPL will, in conjunction with the management of the financial models, provide recommendations to APF in regard to the management of cash and surplus funds.
Reporting
If requested by APF, ACPL must provide to APF written reports on ACPL monitoring of existing investments.
Administrative, secretarial and clerical services
ACPL will provide to APF the following administrative, secretarial and clerical services:
(1) Maintain the books of account for APF, regularly prepare a full set of financial reports that will be given to APF, establish a set of audit trail criteria, which will be approved by APF, and keep the records in such form to enable efficient audit of the books of account.
(2) Reconcile bank accounts prepare the cheque requisitions, providing proper supporting information for all payments, and submit these to the officers of APF for signature.
(3) Establish a computerised compliance diary listing all dates that documents, returns, forms and other information must be lodged by APF with the various regulators.
(4) Prepare all taxation returns required to be lodged by APF and maintain proper working files that support all returns to ensure that all audit queries from the relevant taxation authorities can be efficiently dealt with.
(5) Prepare all documents that are required by law to be lodged by APF with the ASIC in respect of APF and maintain company secretarial registers for APF.
(6) Maintain an accurate and timely and compliant share registry and prepare all compliance information required for the registry function, including but not limited to, issue, dividends, revaluations, redemptions, conversions and transfers.
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(7) Assist APF in supervising and directing the audit of the APF books of account.
(8) Prepare preliminary drafts of all shareholder communications including, but not limited to, annual reports, half yearly reports, distribution notices and meeting notices.
(9) Prepare due diligence files.
(10) Provide word processing, typing and filing services and arranging the posting, faxing or couriering of correspondence.
(11) Assist APF to prepare a proposed budget of expenditure by APF for consideration and approval by the Directors of APF, and once a budget has been approved, report to the Directors on actual expenditure by APF and prepare reports comparing actual expenditure against budgeted expenditure.
Management Fee
Under the agreement APF must pay to ACPL a management fee being an amount up to 1% of Gross funds under management.
The term ‘Gross funds under management’ is defined in the agreement as the ‘total funds raised via the issue of redeemable preference shares’ by APF.
Payment and reimbursement of costs
Under the agreement ACPL is entitled to be reimbursed from the Company for all costs properly paid or incurred by ACPL in relation to ACPL providing to the Company the services under the agreement.
ACPL, may, at the election of ACPL, where for purposes of administrative simplicity or to support any short term funding needs of APF, pay costs on behalf of APF and recover these costs from APF at a later date.
ACPL may, at the election of ACPL, in any given year, waive the ACPL entitlement to:
(1) Recover any costs to which ACPL is entitled to be reimbursed from APF under the agreement; and
(2) Management Fees for any period that ACPL would be entitled to be paid by APF.
Where ACPL makes a waiver election, ACPL will have recourse to recover those costs at a later stage.
Fees and reimbursement of costs from others
ACPL may, in addition to fees received from, and costs reimbursed by, the APF, receive fees from Entities in regard to the establishment, management and administration of investments made by APF, and receive re-lease fees.
ACPL may recoup direct from Entities costs incurred or paid in regard to the establishment of an investment.
Duration and termination of the agreement
The duration of the agreement is 10 years unless terminated earlier in accordance with the agreement.
The Company can terminate the agreement after only 5 years provided that it compensates ACPL for early termination by paying to ACPL an amount equal to ACPL’s loss of profits for the remaining years.
A party may terminate the agreement if the other party breaches a term of the agreement and does not remedy the breach.
8.3 ROLE AND SERVICES PROVIDED BY ACUITY PROPERTY PLUS (“APP”)
APF and Acuity Property Plus (“APP”) are parties to an agreement dated 25th September 2006
General
The agreement provides that, in consideration of APP:
• Offering Membership to subscribers of APF; and
• All benefits associated with the Membership.
The Company will:
(a) pay APP certain fees; and
(b) reimburse APP for certain costs, as set out in the agreement and explained below.
Membership
APP Membership includes the benefits as described in Section 5.6 of this Prospectus.
APP may sub-contract or delegate the exercise of the powers or the performance of the duties of APP under the agreement with prior written consent of APF.
Fee
Under the agreement APP agrees to waive all Membership fees to subscribers of APF.
Payment and reimbursement of costs
Under the agreement APP is entitled to be reimbursed from the Company for all costs properly paid or incurred by APP in relation to APP providing to the Company the services under the agreement.
APP may, at the election of APP, in any given year, waive the APP entitlement to recover any costs to which APP is entitled to be reimbursed from APF under the agreement.
Where APP makes a waiver election, APP will have recourse to recover those costs at a later stage.
Duration and termination of the agreement
The duration of the agreement is for the term of each membership.
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9.1 GROUP OF COMPANIES
Associated company and entities of the Board of Directors hold one hundred percent of the issued ordinary shares in APF.
Companies referred to as being within ‘the group’ or ‘associated’, are any other entities owned or controlled by the Directors, or other entities in which the Directors have a direct or indirect interest.
Any companies within the group may contract on an arms length basis with APF. The Board of Directors, Investment Selection Panel and Audit committee will have in place systems to ensure that any dealings with such companies are on a purely arms length and transparent basis.
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10.1 USE OF FUNDS RAISED
Funds received from the issue of CPRPS under this Prospectus will be used to provide loans and to meet the costs associated with the Prospectus.
Loans may be made to associated parties. All loan applicants will be treated at arms length and all applications must meet the requirements of the Loan Criteria Model.
The checks and balances in order to ensure proper governance of related party loans is described in Section 5.
A minimum subscription level has been set at $300,000.
10.2 COSTS ASSOCIATED WITH THE PROSPECTUS
The cost associated with the preparation of this Prospectus will be paid by the service entity.
10.3 COSTS OF CONTINUED OPERATION
The Company will in accordance with its Loan Criteria Model make loans to borrowers for up to 3 years.
The rate of interest applicable would be determined by the funding method applied for by the borrower (refer section 5.3 for the indicative rates of interest adherent to each style of funding).
If the borrower is granted mezzanine debt funding or short term bridging finance the applicable rate including establishment and application fees will be in excess of 28% per annum. This rate is applicable to the whole amount outstanding from the outset.
Once funds have been loaned to a borrower the first interest payment is due within 30 days of the advance. The borrower must repay the capital and interest in accordance with the conditions as contained in the standard loan agreement that the Company utilises.
The Company pays for its expenses and outlays in running the business from the interest and capital repayments received. If there is sufficient capital remaining the Company may declare the Coupon Rate.
The Company will be able to continue and pay the distributions upon reaching the minimum subscription. Investors must note that the Company will be in a position to charge interest on the loans that are granted for the full period of the loan. This may include prepaid and capitalised interest.
As per the example set out below, after reaching the minimum subscription level, the subsequent application of these funds as loans to Borrowers will be sufficient for the fund to meet its commitment to shareholders and operating costs.
The following example has been compiled on the basis that the following transactions occur:
• The minimum subscription level of $300,000 is met;
• $10,000,000 is raised in the first twelve months via the issue of CPRPS fully paid;
• An average rate of 28% per annum has been applied below as the average rate at which funds are lent to Borrowers (refer section 5.3); and
• The maximum commission that will be paid to any form of introducing Agent will be 5%.
Example
FUNDS UNDER MANAGEMENT
$ $
300,000 10,000,000
INCOME
Interest Received 72,000 2,400,000
Establishment/
Application Fees 12,000 400,000
Total Income 84,000 2,800,000
OPERATING COSTS
Accounting and Audit 7,300 11,300
Commissions 15,000 500,000
Licensing Fees 3,000 100,000
Management Fee 16,000 113,000
Total Expenses 41,300 724,300
NET PROFIT 42,700 2,075,700
COUPON RATE
PAYABLE @ 8% 24,000 800,000
Surplus Profit 18,700 1,275,700
10 Use Of Funds, Costs Of Offer And Accounting Policies
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10.4 UNDERWRITING AND COMMISSION
The offer is not underwritten. Commissions may be paid to Financial Planners or Authorised Representative of FSR Licence holders by APF. Any commissions paid will be levied at no more than 5% of the investment amount, and will be paid as part of the operating expenses of APF and will not reduce the original capital value of the investment.
10.5 FINANCIAL INFORMATION
APF did not carry on business prior to this Prospectus. The Statement of Financial Position of APF at the date of this Prospectus is as follows:
Ordinary shares
100 Ordinary Shares at $1 per share
‘H’ Class Shares
100,000 H Class Shares at $0.01 per share
Represented by
Cash on hand $1,100
10.6 ACCOUNTING POLICY
As per the taxation opinion supplied in this Prospectus, in the books of APF the CPRPS will be treated as follows:
• all dividends paid will be treated as interest in the Statement of Financial Performance; and
• the issued CPRPS capital will be treated as a financial liability in the Statement of Financial Position.
Holders of CPRPS should note the following:
• for income tax purposes the dividends will be treated as interest; and
• for the Act purposes they are dividends.
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P J VARLEY
Chartered Accountant
52 Parkinson Avenue
Turramurra NSW 2074
7 September 2006
Tel (02) 9144 1835
Fax (02) 9144 1835
The Directors ABN 94 088 391 837
Acuity Property Fund Limited
Level 6, 91 George Street
Parramatta NSW 2150
Dear Sirs
ACUITY PROPERTY FUND LIMITED (ACN 120 154 083) -AUSTRALIAN TAX CONSEQUENCES OF INVESTING IN CUMULATIVE AND PARTICIPATING REDEEMABLE PREFERENCE SHARES
This letter has been prepared at your request for inclusion in a prospectus for the issue of ‘A’ Class and ‘B’ Class Cumulative and Participating, Redeemable Preference Shares (“CPRPS”’) by Acuity Property Fund Limited (APF) at a price of $1.00 each.
The purpose of this letter is to provide a broad summary of the taxation considerations applicable to investors in the CPRPS.
The information set out below is a general outline of the taxation consequences for investors in the CPRPS based on existing tax law, Australian Taxation Office (“ATO”) Interpretative Decisions and other available information as at the date of this letter.
The information below is concerned only with the current taxation consequences for Australian resident investors buying, holding and disposing of the CPRPS. It is not intended to apply to investors who are not Australian residents for income tax purposes or who are exempt from Australian income tax.
This information is a summary of tax implications and is not an exhaustive or authoritative statement on all tax issues that may arise. Intending investors should be aware that the ultimate interpretation of the taxation laws in Australia rests with the Courts, and that parliament may introduce new or amending legislation which could impact on the company or investors. Accordingly, future legal interpretation or legislative amendments may affect the advice contained in this report. All investors should seek their own independent
tax advice on the taxation implications of investing in the CPRPS because the circumstances for individual investors may vary.
Unless otherwise indicated, all reference in this letter to legislative provisions are to the provisions of the Income Tax Assessment Act 1936 and the Income Tax Assessment Act 1997 (collectively referred to as “the Tax Act”).
1. Background Information
Acuity Property Fund Limited was incorporated in Australia on 13 June 2006. We are informed that the company has not traded up to the date of this letter.
The offer for investors to acquire shares is made by way of a prospectus to be issued shortly. The company is seeking to raise a minimum of $10,000,000 up to a maximum of $100,000,000 by issuing Cumulative and Participating Redeemable Preference Shares at an issue price of $1.00 each.
The company’s capital structure will be, after issue:
• Ordinary shares (owned 100% by directors of the company or associated entities);
• “H” Class shares (owned 100% by directors of the company or associate entities);
• Cumulative and Participating Redeemable Preference Shares (the subject of the prospectus offer, described in the Constitution of the company as CPRPS 1to CPRPS 100,000,000 shares - Cash Box type).
Cumulative and Participating Redeemable Preference Shares have a distribution rate which, although may vary from time to time, is fixed for the term of the investment once the CPRPS are issued.
The CPRPS holders have right to a participation entitlement. This means the share confers on the holders the right to dividends that the directors recommend from time to time. If profits are not earned, or the company cannot finance the payment of dividends, the directors may not be in a position to declare dividends.
2. Taxation Treatment of Distributions Paid to CPRPS Holders
General
Investors should not assume that the acquisition of shares under this prospectus necessarily equates to a future income stream of potentially franked dividends.
The nature of financing instruments issued by a company for tax purposes does not automatically equate with their nature for Corporations Law purposes. Division 974 of the Tax Act specifies the nature of debt and equity interests issued by a company and the resulting tax treatment of the distributions paid on those interests.
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2.2 Debt and Equity Interests
In our view, based on the terms of the CPRPS as outlined in the prospectus, the CPRPS would satisfy the tests for a “debt interest” and, as such, would constitute a debt interest for the purposes of Division 974 of the Act.
Accordingly, “dividends” payable by Acuity Property Fund Limited to the holders in respect of the CPRPS will be treated as interest for income tax purposes.
As the CPRPS are classified as debt instruments for tax purposes, no franking credits will be applicable to the distribution.
2.3 Receipt of Interest by Holders
The tax treatment for different types of CPRPS holders is set out as follows.
Resident Individual
• If you are an individual taxpayer, you must include in your assessable income the interest received from Acuity Property Fund Limited.
• You will be taxed on the interest income at your marginal tax rate.
• As the distributions are treated as interest for tax purposes, no franking credits will be attached.
Resident Complying Superannuation Funds
• Generally speaking, superannuation funds treat the receipt of interest in the same way as an individual. However, they are subject to different tax rates to those of individuals.
• CPRPS holders that are superannuation funds, approved deposit funds, pooled superannuation trusts and statutory funds of life insurance companies which carry on a complying superannuation business will need to treat the interest received from Acuity Property Fund Limited as assessable income.
• Complying superannuation funds, currently, pay tax at the rate of 15% on taxable income.
• As the distributions are treated as interest for tax purposes, no franking credits will be attached.
Resident Company
• If the CPRPS holder is a company, it must include interest received from Acuity Property Fund Limited in its assessable income.
• Interest income will be taxed at the corporate tax rate, currently at 30%.
• As the distribution received is classified as interest income and no franking credits will be attached be franked, no entry is required in the company’s franking account.
Distributions through Trusts and Partnership
• As both partnerships and trusts are treated as flow through entities, tax is normally levied on the’ income distribution to the partners or beneficiaries. The amount of flow-on : distributions will be assessable to the partner or beneficiary where they are either an individual, company or superannuation fund. The treatment of such distributions to beneficiaries and partners is discussed above.
• In circumstances where a trustee receives a distribution from Acuity Property Fund Limited and it is not distributed or no beneficiary is presently entitled to the income, the trustee will be taxed at the highest marginal tax rate (46.5% from 1 July 2006).
• As the distributions are treated as interest for tax purposes, no franking credits will be attached.
3. Redemption of CPRPS
As detailed in the prospectus, it is intended that the CPRPS will be redeemed by way of a redemption payment of $1.00 per CPRPS in accordance with the investment period applicable to the class of share. More specifically, the redemption periods for CPRPS offered under this prospectus are:
• ‘A’ Class CPRPS – 3 year redemption period
• ‘B’ Class CPRPS – 3 year redemption period
As the redemption of CPRPS will be a disposal of the CPRPS, it creates a CGT event. Whether a capital gain or loan arises in dependent or whether the proceeds on redemption exceed the cost base. As the CPRPS are to be redeemed at $1.00 per CPRPS, no capital gain should occur.
If an investor requests early redemption and APF agrees to this request, APF may deduct from the amount payable an administration fee as specified in the prospectus.
If applied, this deduction would represent a capital loss to the investor.
4. Transfer of CPRPS
Holders of the CPRPS will have the right to transfer their holding, subject to the normal approval requirement of the Board of Acuity Property Fund Limited. However, there will be no established secondary’ market for the CPRPS. A shareholder would have to find a buyer, acceptable to the company, who would be willing to purchase the shares.
The transfer of CPRPS by the holder will trigger a CGT event. A capital gain will be made where the transfer price is greater than the cost base of the CPRPS. A transfer at less than the cost base would generate a capital loss available to be
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offset against other capital gains.
The taxation treatment of capital gains varies as summarised below:
• Individual Taxpayers
An individual taxpayer will be assessable on the capital gain derived at their marginal tax rate in the year of the CGT event. Individual taxpayers will be entitled to various CGT concessions such as the 50% discount of capital gain amounts in
respect of assets held for greater than twelve months. The entitlement to these concessions should be considered by investors with their personal taxation adviser. However, once the net capital gain is determined, the amount will be assessed at the taxpayer’s individual marginal taxation rate.
• Superannuation Funds
Complying superannuation funds are assessed on capital gains but are allowed a one-third discount on the amount of the gain in respect of assets held for greater than twelve months. In effect, a complying superannuation fund pays tax at the rate of 10% on the amount of a capital gain.
• Companies
Holders of CPRPS which are companies would be taxed on the full amount of the gain without the benefit of a discount on the gain at the corporate rate of 30%.
• Trust and Partnerships
As discussed above (in section 2.3) trusts and partnerships are treated as flow through entities. As a result, the CGT treatment for gains made on the transfer of CPRPS will be dependent on the position of the ultimate beneficiary or partner. A capital loss of a trust cannot however be passed on to a beneficiary.
5. Tax File Number and Australian Business Number
An investor should quote their tax file number (“TFN”) or Australian business number (“ABN”), when applying for CPRPS in Acuity Property Fund Limited, unless appropriate TFN exemption information is provided.
Under the PAYG Withholding regime (Taxation Administration Act 1953), Acuity Property Fund Limited will be required to withhold tax at the highest marginal tax rate (46.5% from 1 July 2006 including Medicare levy) from most payments or distributions paid to investors who have not provided a TFN or ABN by the time of such payment.
6. Changes to Tax Law
An exposure draft of a proposed bill, the Taxation Laws Amendment (Taxation of Financial Arrangements) Bill 2006 was released in December 2005. The current status of this proposal is still at the consultative stage. If this legislation is passed it will introduce a general framework for the taxation of financial arrangements. If the proposed Bill is enacted, it is not
expected to impact individuals or entities whose turnover is less than $20,000,000 particularly, if there is no significant deferral of return. However, it is possible that the finally enacted legislation may include provisions that impact the CPRPS and investors should take precautions and obtain specific advice on the status of the legislation.
7. General Matters
This report has been prepared by Peter Varley, a Fellow of the Institute of Chartered Accountants in Australia.
Peter Varley Chartered Accountants are not endorsing or recommending the investment offered under the prospectus. Neither party has any interest in the promotion of the prospectus, nor will they receive any benefit other than a fixed fee for the preparation of this opinion, as disclosed in this prospectus.
Yours faithfully
P.J. Varley FCA
Chartered Accountant
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12 Additional Information 12.1 CONSTITUTION AND RIGHTS AND LIABILITIES
ATTACHING TO SHARES
Set out below is a summary of:
• the general rules in the Constitution;
• the rights and liabilities attaching to Ordinary Shares; and
• the key terms of CPRPS.
The full rights and liabilities attaching to the Ordinary Shares and the terms of the Preference Shares are set out in the Constitution, as well as in statute law and in the common law. A full copy of the Constitution is available from the Company on request free of charge. For a definitive assessment of the rights and liabilities that attach to the Ordinary Shares or the Preference Shares in any specific circumstances, investors should seek independent legal advice.
GENERAL
Issue of shares
Subject to the Constitution, the Directors may issue, allot or grant options for or otherwise dispose of shares in the Company and decide to whom the Shares are issued, options granted, the terms and the rights and restrictions attached to the Shares and options.
In particular, the Directors may issue shares with preferred, deferred or special rights or restrictions in relation to dividends, voting, return of capital and participation in the property of the Company on winding up or otherwise as the Directors think fit.
The terms of the Preference Shares restrict the circumstances in which the Company can issue further shares. These restrictions are discussed below.
Directors
The minimum number of Directors is three and the maximum is ten unless the Company in general meeting determines otherwise. Currently, there are three (3) Directors. The Directors may appoint a Director either in addition to existing Directors or to fill a casual vacancy, who then holds office until the next annual general meeting.
Directors are entitled to remuneration for their services as a director. The Directors will decide on the amount of remuneration for each Director but the total amount paid to all Directors must not exceed the amount fixed by the Company in general meeting. Directors are also entitled to be paid travelling and other expenses in relation to attending to the Company’s affairs.
Meetings of Directors
A Director may, whenever the Directors thinks fit, call a meeting of the Directors with not less than twenty-four (24) hours notice. No business may be transacted at a meeting of Directors unless a quorum of Directors is present at the time the business is dealt with. Questions arising at a meeting of Directors are decided by a majority of votes. The chairman has a casting vote.
Seascape, Hervey Bay, QLD
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Indemnity
To the full extent permitted by the law and to the extent not covered by insurance, the Company must indemnify each Director against all losses and liabilities incurred by the Director as a Director of the Company or of a related body corporate. Such other officers or auditors of the Company or its related body corporate may be indemnified as the Directors so determine.
Winding up
Subject to the rights or restrictions attached to any class of shares in the Company, if the Company is wound up, and the property of the Company is more than sufficient to pay all the debts and liabilities of the Company and the costs of winding up, the excess must be divided among the members of the Company in proportion to the number of shares held by them, irrespective of the amounts paid or credited as paid on the Shares. The rights attaching to CPRPS when the Company is wound up are set out below.
If the Company is wound up, the liquidator may, with the sanction of a special resolution, divide among the members of the Company the whole or any part of the property of the Company and determine how the division is to be carried out as between the members or different classes of members.
Alteration to the Constitution
The Constitution can only be amended by special resolution of the members of the Company.
Transfer of shares
Subject to the Constitution and the Act, shares are transferable by written transfer in any usual form or in any other form that the Directors approve. The Directors may decline to register a transfer of shares in accordance with the Constitution if the Shares are not fully paid or the Company has a lien on the Shares.
Variation of rights attached to shares
Unless otherwise stated, the rights attached to any class of shares may, unless their terms of issue state otherwise, be varied with the written consent of the holders of 75% of the Shares of the class, or by special resolution passed at a meeting of the holders of the class.
RIGHTS ATTACHING TO CPRPS (CASH BOX TYPE)
Voting rights
Each holder of an Ordinary Share has the right to vote at a general meeting. Meetings may be attended in person, by proxy or attorney or by a representative (for corporate shareholders). Voting on a resolution will, in the first instance, be by a show of hands, where each holder will have one vote unless a poll is properly demanded. On a poll, a holder will have one vote for each Ordinary Share held.
General meetings
Each holder of an Ordinary Share is entitled to receive notice of, attend and vote at general meetings of the Company in person, or by proxy or representative or attorney.
Holders of Ordinary Shares may requisition meetings in accordance with the Act.
Dividends
Under the Constitution, the Directors may pay any interim and final dividends to holders of Ordinary Shares as, in their judgment, the financial position of the Company justifies. The Directors may decide the manner and means of payment of the dividend. The Directors may rescind a decision to pay a dividend to holders if they decide that the financial position of the Company no longer justifies payment. The payment of a dividend does not require any confirmation by a general meeting.
The Directors may also capitalise and distribute profits otherwise available for distribution. The policy of the Board in relation to the payment of dividends is set out in Section 2.5 of this Prospectus.
Notices
Each holder of an Ordinary Share is entitled to receive all notices, accounts and other documents required to be sent to them under the Constitution and the Act.
RIGHTS ATTACHING TO PREFERENCE SHARES
Dividends
Under the Constitution, the Directors may pay any interim and final dividends to holders of Preference Shares in accordance with the terms of the Preference Shares, which are set out below.
The payment of any Dividend is at the discretion of the Directors and is subject to the Directors declaring or otherwise resolving to pay a Dividend and there being no impediment under the Act or any other law.
The entitlement of a Holder to the payment of a Dividend is cumulative. This means that should the cumulative dividend component at the Coupon Rate not be declared, the undeclared entitlements of the Shareholder are carried forward into the next succeeding period until declared.
The entitlement of a Holder to the payment of a Dividend is also participating. Thus the Share confers to the holder the right to payment of such dividends as the Directors may from time to time recommend. The level of the participating dividend is at the discretion of the Directors and the powers ascribed in the Constitution and the Act. The current policy of the directors is to pay the 7% or 9% Cumulative Coupon Rate to the holders of A Class and B Class CPRPS respectively.
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Under the Directors current policy CPRPS holders will obtain a further participating dividend based on the Company declaring a satisfactory profit. There is no guarantee that the Company will have ability to further declare the participating dividend. The participating dividend is not cumulative and does not bear the same rights and obligations as the cumulative dividend entitlement. The Directors have resolved that if a further participating dividend, based on the Company declaring a satisfactory profit is declared that this will not exceed 5% per annum.
The rights to the cumulative preference dividend at the Coupon Rate rank in priority to ordinary shares and any participating dividends rank equally in priority to any payment of dividend to the holders of the ordinary shares.
The Directors may determine to pay a Dividend to Holders at any time.
If the Directors determine to pay a Dividend the Holder is entitled on each CPRPS held to a Dividend in respect of the Dividend Period, calculated in accordance with the following formula:
where ND is:
• for a CPRPS on issue on the first day of the relevant Dividend Period, the number of days in the relevant Dividend Period; and
• for a CPRPS issued during the relevant Dividend Period, the number of days from the Issue Date for that CPRPS to the end of the relevant Dividend period, and
where Per Share Per Day Interim Dividend Amount is:
• the Available Profit divided by the Total Dividend Entitlement Days, and
where Total Interim Dividend Entitlement Days is the sum of:
• the number of CPRPS on issue on the first day of the relevant Dividend Period multiplied by the number of days in the relevant Dividend Period; and
• the number of CPRPS issued during the relevant Dividend Period multiplied by the number of days from the Issue Date of those CPRPS to the end of the relevant Dividend Period.
If the Directors determine to pay a Dividend, the Dividend will be payable in arrears on or before the Interim Dividend Payment Date to those persons entitled to that Dividend.
Return of capital on a winding up
If there is a return of capital on a winding-up of the Company, Holders will be entitled, in respect of each CPRPS held, to receive out of the assets of the Company available for distribution to all the members, a cash payment equal to the sum of:
• an amount equal to the subscription price paid for CPRPS; and
• the amount of any Cumulative Dividend owing to the Holder calculated using the Coupon Rate on a simple interest basis throughout the period from and excluding the last day of the preceding Dividend Period to the date of commencement of the winding-up, before any return of capital is made to holders of any other class of shares.
Issues, reconstructions etc
Until Redemption of all CPRPS, the Company must not issue any new securities above those issued prior to the first Issue Date, other than:
• further Preference Shares or preference shares which rank equally with the existing Preference Shares as to dividend and return of capital on winding up; or
• by special resolution in accordance with s254A(2) of the Act.
Voting rights
A CPRPS does not entitle the Holder to vote at any general meeting of the Company except in the event that:
• the matter to be decided is a proposal for the winding up of the Company or the sale or disposal of the Company’s main undertaking not in the ordinary course of business;
• a receiver or administrator is appointed in respect to the Company or upon the appointment of a liquidator or the entering of any arrangement under the Act;
• upon the lapse of the Redemption Date; or
• upon a resolution passed by the Board of Directors resolving that the holders of the “CPRPS 1” to “CPRPS 100,000,000” shares shall thereafter have voting rights at general meetings; which ever shall first occur.
If the Holder is entitled to vote on a resolution, on a show of hands that Holder has one vote and on a poll that Holder has one vote for each CPRPS held.
Interim DividendPer CPRPS
Per Share Per DayInterim Dividend
Amount x ND=
12 Additional Information
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Redemption
On the Maturity Date or as otherwise agreed between the Company and the Shareholder, the Company must redeem for the Redemption Amount any CPRPS.
Upon Redemption, the Company shall cancel CPRPS. The Company may require that the Holder deliver, prior to Redemption, evidence of title of CPRPS being redeemed that is reasonably acceptable to the Company.
Transfer
The Holders shall have an absolute discretion to transfer any or all of CPRPS, except for the period between the Final Dividend Entitlement Date and the Final Dividend Payment Date each year.
12.2 DIRECTORS’ INTERESTS
Other than set out elsewhere in this Prospectus:
a) No Director or proposed Director of APF, holds at the date of this Prospectus, or held at any time during the last two years, any interest in;
i ) The formation or promotion of APF; or
ii ) The Offer.
b) Other than disclosed, no amounts have been paid or agreed to be paid by any person and no benefits have been given, or agreed to be given by any person:
i ) to a Director or proposed Director of APF to induce him to become, or to qualify as, a Director of APF; or
ii ) for services provided by a Director or proposed Director of APF or a Professional or promoter of APF or a stockbroker or an underwriter to the issue in connection with the formation or promotion of APF or the Offer.
12.3 DIRECTORS’ SHAREHOLDINGS
Directors are not required under the Constitution of APF to hold any Ordinary Shares or any CPRPS. Associated companies and entities reserve the right to apply for CPRPS offered under this Prospectus.
At the date of this Prospectus associated company’s and entities of Directors hold 100 Ordinary Shares at $1 per share and 100,000 H Class Shares at $0.01 per share in APF.
12.4 INTERESTS OF PROFESSIONALS AND ADVISERS
Other than disclosed elsewhere in this Prospectus:
a) no professional or promoter of the APF issue holds at the date of this Prospectus, or held at any time during the last two years, any interest in:
i ) The formation or promotion of APF; or
ii ) property acquired or proposed to be acquired by APF in connection with its formation or promotion, or the Offer; or
iii ) the Offer; and
b) no amounts have been paid or agreed to be paid by any person and no benefits have been given or agreed to be given by any person for services provided by a professional or promoter of APF in connection with the formation or promotion of APF or the Offer.
PJ Varley has agreed to act as auditor of APF and has provided a taxation opinion that appears in Section 11. An amount of $5,000 will be paid in respect of these services. Any future work required will be charged at their standard hourly rate.
Solomon Alexander Lawyers and DFML have provided advice in respect to the preparation of this Prospectus. The cost of preparation and due diligence will be $40,000 and it will be paid by the Directors.
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12.5 CONSENTS AND DISCLAIMERS OF RESPONSIBILITY
PJ Varley has given and not withdrawn its written consent to the inclusion in this Prospectus of their report on Taxation considerations, and in any electronic version of this Prospectus.
PJ Varley, Solomon Alexander Lawyers and Diversified Funds Management Limited, Affinity Capital Pty Ltd and Acuity Property Plus Pty Ltd, Danny Ku and Paul Appleby have given, and not withdrawn, their written consent to be named in the Prospectus in the form and context in which it is named. They have not caused or authorised the issue of the Prospectus, nor been involved in any way in connection with the Offer, and do not accept responsibility for any other part of the Prospectus; and further have given, and not withdrawn, their written consents to be named in the Prospectus in the form and context in which they are named and they do not make any statement in this Prospectus nor is any statement based upon a statement by themselves respectively.
12.6 INSPECTION OF DOCUMENTS
Copies of the following documents are available for inspection during normal business trading hours at the registered office of APF for thirteen (13) months after the date of this Prospectus:
• Material Agreements referred to in this Prospectus (see Section 8);
• The constitution of APF;
• The Loan Criteria Model of APF; and
• The Loan Processing Guide;
12.7 INDEMNITY
APF, to the extent permitted by law, indemnifies every person who is an officer or auditor of APF for all losses or liabilities incurred by the person as an officer or auditor of APF or of a related body corporate including, but not limited to, liability for negligence or for reasonable costs and expenses incurred in defending civil or criminal proceedings in which the person is acquitted or judgement is given in favour of the person or in connection with an application in relation to such proceedings in which the Court grants relief to the person under the Act.
12.8 NO LITIGATION
APF is not and has not been involved in any legal or arbitration proceedings, nor are any such proceedings pending or threatened against APF or any of its Directors.
12 Additional Information
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13.1 PRIVACY NOTIFICATION
As a result of the Privacy Amendment (Private Sector) Act 2000 new laws regulate, among other matters, the way organisations collect, use, disclose, keep secure and give people access to their personal information.
By completing the Application Form attached to this Prospectus, you are providing personal information to us for the primary purpose of this offer to you. We may use the personal information contained in your application form for related purposes such as administration and providing services to you in relation to your investment in the APF. Administration includes monitoring, auditing, evaluating, modelling data, dealing with complaints and answering queries.
If you do not provide the information requested in the Application Form we may not be able to process or accept your application.
We may share your personal information for permitted related purposes with other member firms within the group of companies or with outsourced service providers. Some of these parties and circumstances include:
• Your financial adviser to provide you with financial advice and ongoing service;
• Companies for the purpose of issuing statements and handling mail;
• Market research companies for the purpose of analysing our customer base;
• Other companies where service may be more efficiently provided by outsourcing;
• Legal and accounting firms, auditors, consultants and other advisers for the purpose of administering the investment product;
• Government authorities when required by law; and
• Other related member firms within the group to provide you with information about the group and its suite of investment opportunities.
Accordingly you may request access to your personal information that we, another member of the Group, or an outsourced service provider hold in relation to your investment.
You can contact us to make such a request by telephoning the Company on the telephone numbers in the directory or writing to us.
We have published our Privacy Policy on our website www.acuitypropertyfund.com.au or you can request a copy by writing or phoning us.
13.2 APPLICATIONS BY FOREIGN PERSONS AND MINORS
The Offer contained in the Prospectus is made only to people receiving the Prospectus in Australia, whether or not the Prospectus indicates it is available to persons in other countries. This Prospectus does not constitute an offer of CPRPS in any place in which, or to any person to whom, it would not be lawful to do so. The distribution of this Prospectus in jurisdictions outside Australia may be restricted by law, and any person into whose possession this Prospectus comes (including nominees, trustees or custodians) should seek advice on, and observe those restrictions. No action has been taken to register the CPRPS or this Prospectus or otherwise permit in any jurisdiction outside Australia. If the applicant receives the Prospectus in Australia but is a “foreign person” under the Foreign Acquisitions and Takeovers Act then the applicant must write next to its name on the Application Form the words “FOREIGN PERSON”. If an applicant lodges an Application Form without the words “FOREIGN PERSON” written next to the applicant’s name then the applicant is taken to confirm to the Company that the applicant is not a “foreign person” within the meaning of the Foreign Acquisitions and Takeovers Act. Applications will not be accepted from minors.
13 Information In Regard To Applications
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The Directors state that they have made all reasonable inquiries and on that basis have reasonable grounds to believe that any statements made by the Directors in this Prospectus are not misleading or deceptive.
With respect to any statements made in the Prospectus other than by the Directors, the Directors have made reasonable inquiries and on that basis have reasonable grounds to believe that persons making those statements were competent to make such statements, those persons have given their consent to the statements being included in this Prospectus in the form and context in which they are included and have not withdrawn their consent before lodgement of this Prospectus.
The Prospectus has been signed on the date of this Prospectus by Michael Chin, Managing Director of APF, pursuant to Section 351 of the Act.
Each director of Acuity Property Fund Limited consents to the lodgement of this Prospectus with ASIC.
Michael Chin Acuity Property Fund Limited Managing Director6 October 2006
14 Directors’ Statement
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In this Prospectus:
A reference to any legislation includes any statutory modification or re-enactment or any substituted provision and ordinances, by-laws, regulations and other statutory instruments issued thereunder; Words importing the singular include the plural (and vice versa) and words denoting a given gender include all other genders. Where the context permits a reference to the redemption of shares by the Company may also include an undertaking by the Company to engage in a selective share buy-back of shares in accordance with the Corporations Act 2001.
15 Glossary
Montago, North Parramatta, NSW
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Act The Corporations Act 2001 (Cth) for the time being in force together with the regulations of the Corporations Act.
A Class CPRPS Means the Class of CPRPS denoted by a minimum investment of $40,000.00 and entitling the holder to the benefits as described in Section 2.5
Acuity Property Plus or APP Means Acuity Property Plus Pty Ltd ACN 121 269 725
Advisors These people or organisations that consult to the Company
Affinity Capital Pty Ltd or ACPL Means Affinity Capital Pty Ltd ACN 064 308 514 ATF the Affinity Capital Trust
Applicant A person who has completed and lodged an application form (included in or accompanied by this Prospectus) and has paid the Application Money.
Application Money The money paid by an Applicant for Shares.
ASIC The Australian Securities and Investments Commission.
AUD or $ Means one Australian dollar.
B Class CPRPS Means the Class of CPRPS denoted by a minimum investment of $50,000.00 and entitling the holder to the benefits as described in Section 2.5
Board The board of directors of the Company.
Closing Date 6 November 2007 being the date the Directors expect to close this offer. Please note the offer may be closed early or extended at the discretion of the Directors.
Coupon Rate Means the Coupon Rate is based on the grossed up value of dividend returns. The Coupon Rate shall be7% per annum for A Class CPRPS and 9% per annum for B Class CPRPS.
Company, We, APF Acuity Property Fund Limited ACN 120 154 083.
Constitution The document establishing the Company and governing the relationship between Shareholders.
CPRPS, Cumulative and All shares and classes of shares to be issued by APF Ltd that fall withinParticipating Redeemable either the A or B Class CPRPS or Cash Box type of share as described in Preference Share, Cash the Constitution for the Company.Box Type Share
Director A director of the Company or a director of APF (as the context requires). Note: the directors of both the Company and APF are the same.
Electronic Transfer Transfer funds from one account to another through your banks internet service by using the BSB and Account number of the account you wish to transfer to.
Executive Directors The Directors nominated to be the Executive Directors of the Company as contained within the Constitution of the Company.
Joint Venture Any unincorporated joint venture in which the Company participates.
Licensed Authorised Any person licensed under a financial services license holder and authorised Representative to promote the offer.
Group of Companies Companies referred to as being within ‘the group’, are any other companies owned or controlled by the directors, or other companies in which the Directors have a direct or indirect interest in.
Member Means a person or entity who is given rights and privileges by Acuity Property Plus Pty Limited by purchasing CPRPS of the Company under this Prospectus.
15 Glossary
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Non-Executive Directors The Directors nominated to be the Non-Executive Directors of the Company as contained within the Constitution of the Company.
Offer The offer under this Prospectus to acquire Shares.
Project Means a development project in terms of which residential, industrial or commercial land is developed.
Prospectus This Prospectus, any supplementary or other disclosure document as defined in the Act, issued by the Company.
Redemption Date For the purposes of the offer under this Prospectus, the Redemption Date shall be thirty six (36) months after the date of issue of the Shares or otherwise agreed in writing between the Shareholder and the Company; or upon the Company giving seven days notice in writing of its intention to redeem the Shares, delivered or posted to the last known address of the registered holder of the Share together with the amount paid up in respect of shares to be redeemed together with any accrued cumulative dividends and such redemption shall take place immediately upon the expiry of seven days from the delivery or posting of the said notice of redemption and cheque.
Residual Surplus Capital Capital of the Company after the repayment rights of all the Shares having priority entitlements to Specified Projects upon a winding up, a share buy-back or a reduction in capital have been satisfied or discharged
Share certificate A certificate from Acuity Property Fund Limited evidencing the issue of the Share/s to the person named in the certificate.
Subscription Application Money in whole or in part that is made for the issue of Shares
Atrium, Gosford, NSW
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16 Instructions To Applicants
16.1 TO APPLICANTS
Correct Name
The type of entity you are using to acquire Shares will determine how you complete the attached application form. Please refer to the table below when completing the name of the Applicant.
TYPE OF APPLICANT CORRECT FORM INCORRECT FORM
Individual Use given names in full, not initials
CompanyUse full company name, not abbreviations
Minor (under 18 years of age) Use the name of the responsible adult with the minor in brackets, not just the name of the minor.
TrustsUse the name of the trustee with the name of the trust in brackets, not just the name of the trust
Superannuation FundsUse the name of the trustees with the name of the fund in brackets, not just the superannuation fund
PartnershipsUse the name of the partners and not the name of the firm or business
Peter Robert Smith
Smith Building Services Pty Ltd
Jane Elizabeth Smith<Jane Elizabeth Smith Jnr>
Peter Robert Smith<Smith Family Trust>
Jane Elizabeth Smith and Peter Robert Smith
<Smith Superannuation Fund>Or Smith Building Services Pty Ltd
<Smith Superannuation Fund>Peter Robert Smith
and John Smith<Smith Brothers>
P.R. Smith
SBS P/L or Smith Building Services
Jane Elizabeth Smith Jnr
Smith Family Trust
Smith Superannuation Fund
Smith Brothers
Minimum Investment
The minimum investment is for forty thousand (40,000) A Class CPRPS valued at $1.00 each ($40,000) and fifty thousand ($50,000) B Class CPRPS valued at $1.00 each ($50,000) respectively with additional investments to be made in multiples of 1,000 Shares ($1,000.) The Directors may accept subscriptions in smaller amounts from Applicants at their discretion.
Baulkham Hills Commercial Building, NSW
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Application Money
To apply for Shares, you must send the attached Application Form to the Company and your Application Monies in two (2) easy ways:
Paying by Cheque
To apply by Cheque simply send the attached Application Form to the Company and attach to it a cheque made payable to:
‘DIVERSIFIED FUNDS MANAGEMENT LIMITED – ‘APF SHARE OFFER’
Paying by Electronic Transfer
To apply by Electronically Transfer simply send the attached Application Form to the Company and a copy of your Electronic Transfer receipt. The receipt will help us to identify your Application Monies that were transferred direct to the Company bank account. The Electronic Transfer details are as follows:
Account Name: Diversified Funds Management Limited – APF Share OfferBank: WestpacBank Address: 260 Queen Street, Brisbane Qld 4000BSB: 034-002Account number: 421832Reference: “Applicant Name”
If you are applying as an individual
You or your attorney(s) must sign the application form personally. Joint applications must be signed by ALL applicants or their authorised attorney(s). Please also note the full names of the joint applicants must appear with the second name appearing as applicant #2 on the form. Where there is only one applicant for this form, then just complete the applicant #1 field on the application form. Where the application form is signed by an attorney, the application form must be accompanied by a copy of the power of attorney and a declaration of non-revocation of the power of attorney by the attorney.
If you are applying as a company
You need to sign the application form in the manner required by the Act. There is no need for you to apply a company seal.
If you are applying as a trust (family or unit trust, superannuation fund)
You need to apply in the name of the trustee and also note the full name of the trust on the application form. If the trustees are individuals, then the application form must be signed personally by the trustees or by their attorneys. If the trustee is a company then, you need to sign the application form in the manner required by the Act. There is no need for you to apply a company seal.
Tax File Number
You do not have to provide us with your Tax File Number (TFN). However, if you do not provide your TFN, then we may be required to deduct tax from any unfranked dividend income paid to you at the top marginal tax rate. You may be eligible for an exemption to provide your TFN, in which case you will need to state the reason in the application form in the space provided.
Acceptance of application form
Once you have signed and returned the application form you are bound to become a Shareholder, should the Board accept your application form. The Board may decide whether to accept or reject any application in whole or in part. Your application form may be rejected if the offer is oversubscribed, or for any other reason.
Lodging the application form
The completed Application Form and your Application Monies or receipt of transfer should be either delivered or mailed to the following address:
Diversified Funds Management LtdAPF Limited – Share Offer
GPO 111 BrisbaneBrisbane Qld 4001
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ACUITY PROPERTY FUND LIMITED C/o Diversified Funds Management LtdGPO 111 Brisbane Qld 4001
APPLICATION FORM
BEFORE COMPLETING THIS APPLICATION PLEASE READ ‘INSTRUCTIONS TO APPLICANTS’ (Section 16)
Name of applicant #1:
Full name(s)/company name (and ACN/ABN)/trust name (including full name of trustee)
Contact name (if Applicant is a company or trust)
Name of applicant #2:
Full name(s)/company name (and ACN/ABN)/trust name (including full name of trustee)
Contact name (if Applicant is a company or trust)
Mailing address:
Home Tel: ( ) Work Tel: ( )
Mobile: ( )
Email:
Tax File Number or Australian Business Number for Applicant #1:
Tax File Number or Australian Business Number for Applicant #2:
1 Application Money
I/we apply for ______
A Class CPRPS;
B Class CPRPS;
in Acuity Property Fund Limited at a subscription price of $1.00 per Share.
Total funds subscribed is calculated as:
_____________ Shares (A Class minimum 40,000 or B Class minimum 50,000) x $1.00 = $ ____________
Further purchases of Shares can be made in multiples of 1,000.
Do you want to participate in Dividend Reinvestment Plan (DRP) YES or NO
2 Dividend payments
Name of account:
Insert name of account which is to be credited
Bank: Branch:
BSB: Account no.
Dealers identification
License Number
Name of representative
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3 Acknowledgments
By completing and submitting this application you are doing the following:
(a) You are applying for Shares and as such you will be bound by the Constitution.
(b) You are acknowledging the following matters:
(i) I/we have read and understood the Prospectus.
(ii) The Company is not bound to accept my/our application, but may accept it in part or in whole.
(iii) I/we have had the opportunity to seek professional advice regarding all aspects of this investment.
(iv) I/we have not relied on any statements or representations made by any party prior to applying, other than those written representations made in the Prospectus.
(vi) I/we have made an offer to become a Shareholder which cannot be revoked.
4 Important Notice – this form must be accompanied by the Prospectus
(a) The securities offered under this Prospectus are Cumulative and Participating Redeemable Preference Shares (“CPRPS”) in the Company.
(b) The person who gives another person access to this application form must, at the same time and by the same means, give the other person access to this Prospectus. A complete copy of the paper form of this Prospectus, application form and any supplementary document will be sent to Applicants free of charge if requested prior to the Closing Date.
(c) The offer under this Prospectus is available to people receiving this Prospectus within Australia.
(d) This Prospectus is dated 6 October 2006 that is the date it was lodged with ASIC.
(e) It is advisable to read this Prospectus before applying for Shares because this Prospectus contains important information about the Acuity Property Fund Limited.
5 Signing the application form
I/ we have read the application form and hereby apply to become a Shareholder in the Company.
For individuals and partnerships: For companies/trusts/superannuation funds
Applicant # 2
Applicant # 1
Date / /
Signed in accordance with section 127 of the Corporations Act:
__________________________________________Director/Trustee
__________________________________________Director / Secretary/Trustee
(Delete this line if only single director company)
Date / /
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ACUITY PROPERTY FUND LIMITED C/o Diversified Funds Management LtdGPO 111 Brisbane Qld 4001
APPLICATION FORM
BEFORE COMPLETING THIS APPLICATION PLEASE READ ‘INSTRUCTIONS TO APPLICANTS’ (Section 16)
Name of applicant #1:
Full name(s)/company name (and ACN/ABN)/trust name (including full name of trustee)
Contact name (if Applicant is a company or trust)
Name of applicant #2:
Full name(s)/company name (and ACN/ABN)/trust name (including full name of trustee)
Contact name (if Applicant is a company or trust)
Mailing address:
Home Tel: ( ) Work Tel: ( )
Mobile: ( )
Email:
Tax File Number or Australian Business Number for Applicant #1:
Tax File Number or Australian Business Number for Applicant #2:
1 Application Money
I/we apply for ______
A Class CPRPS;
B Class CPRPS;
in Acuity Property Fund Limited at a subscription price of $1.00 per Share.
Total funds subscribed is calculated as:
_____________ Shares (A Class minimum 40,000 or B Class minimum 50,000) x $1.00 = $ ____________
Further purchases of Shares can be made in multiples of 1,000.
Do you want to participate in Dividend Reinvestment Plan (DRP) YES or NO
2 Dividend payments
Name of account:
Insert name of account which is to be credited
Bank: Branch:
BSB: Account no.
Dealers identification
License Number
Name of representative
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3 Acknowledgments
By completing and submitting this application you are doing the following:
(a) You are applying for Shares and as such you will be bound by the Constitution.
(b) You are acknowledging the following matters:
(i) I/we have read and understood the Prospectus.
(ii) The Company is not bound to accept my/our application, but may accept it in part or in whole.
(iii) I/we have had the opportunity to seek professional advice regarding all aspects of this investment.
(iv) I/we have not relied on any statements or representations made by any party prior to applying, other than those written representations made in the Prospectus.
(vi) I/we have made an offer to become a Shareholder which cannot be revoked.
4 Important Notice – this form must be accompanied by the Prospectus
(a) The securities offered under this Prospectus are Cumulative and Participating Redeemable Preference Shares (“CPRPS”) in the Company.
(b) The person who gives another person access to this application form must, at the same time and by the same means, give the other person access to this Prospectus. A complete copy of the paper form of this Prospectus, application form and any supplementary document will be sent to Applicants free of charge if requested prior to the Closing Date.
(c) The offer under this Prospectus is available to people receiving this Prospectus within Australia.
(d) This Prospectus is dated 6 October 2006 that is the date it was lodged with ASIC.
(e) It is advisable to read this Prospectus before applying for Shares because this Prospectus contains important information about the Acuity Property Fund Limited.
5 Signing the application form
I/ we have read the application form and hereby apply to become a Shareholder in the Company.
For individuals and partnerships: For companies/trusts/superannuation funds
Applicant # 2
Applicant # 1
Date / /
Signed in accordance with section 127 of the Corporations Act:
__________________________________________Director/Trustee
__________________________________________Director / Secretary/Trustee
(Delete this line if only single director company)
Date / /
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Level 6, 91 George Street, Parramatta NSW 2150Phone 1300 886 250 Fax 1300 886 150
ACN 120 154 083www.acuitypropertyfund.com.au