City Pacific Income Fund
Important Notice
29 July 2008
CITY PACIFIC INCOME FUND (INCOME FUND)
Economic Environment
As you may be aware, the sub-prime and credit crisis which emanated from the USA has had a far reaching impact on the global economy. Despite Australia's strong resources sector providing a partial shield against the full effect of this downturn the Australian economy and many Australians have felt the effect of this through rising interest rates, fuel prices and living costs.
Effect on the Income Fund
The Income Fund invests in stable interest investments and indirectly in loans secured by registered first mortgages over real property via the City Pacific First Mortgage Fund (First Mortgage Fund).
The effect of the above issues on the Income Fund were initially felt when the Directors of City Pacific resolved to defer the payment of redemptions from the First Mortgage Fund for up to 180 days on 3 March 2008. As a result the Income Fund was not able to redeem its investments from the First Mortgage Fund and was also required to defer the payment of redemptions for up to 180 days.
On 28 July 2008 the Directors of City Pacific announced the further deferral of redemptions from the First Mortgage Fund for a period of up to 180 days, bringing the total deferral period to up to 360 days.
The Board sought legal advice on the impact that the further deferral by the First Mortgage Fund would have on the Income Fund. Consistent with the legal advice, the Board resolved that the Income Fund should be classified as a 'non-liquid' registered managed investment scheme. This resolution only affects how and when redemptions are paid and does not affect the solvency or day to day operations of the Income Fund.
What This Means for Investors
As a result of the Income Fund now being classified as a 'non-liquid' registered managed investment scheme, the Corporations Act sets out a different method that must be used when offering redemptions. The changed redemption process means that all redemption requests received to date are not able to be processed as investors are required to await an offer for redemption from the Income Fund.
City Pacific expects the Income Fund to continue paying distributions in accordance with the terms of the Constitution and the PDS.
Capital Return for Investors
The Directors are aware that this change may place a financial burden on those investors who require access to their funds.
To assist investors the Board has resolved to pay a capital return to the value of 20 cents per unit. This return of capital will be paid using existing cash assets of the Income Fund and will be paid via cheque or electronic transfer to investors on 15 August 2008. This return of funds represents a reduction in the capital value of each unit by 20 cents and will not reduce the number of units held by each investor.
By way of example an investor who currently has 10,000 units (or $10,000) invested in the Income Fund, will receive a capital repayment of $2,000 (being 10,000 units x 20 cents). The investor will then continue to hold 10,000 units in the Income Fund.
The Board will consider the Income Fund's ability to make further capital repayments or offer redemptions once the investments in the First Mortgage Fund can be realised.
About the First Mortgage Fund
In a time of severe volatility in global markets and where the value of many superannuation funds have been decimated, it is City Pacific's priority to ensure that the First Mortgage Fund's loan portfolio continues to be effectively managed in order to preserve the value of the assets under management.
The First Mortgage Fund holds a registered first mortgage as security for every property in the Fund's loan portfolio. This means for investors that the First Mortgage Fund invests only in bricks and mortar assets focusing mainly on properties in the leisure and lifestyle sector of the Australian property market located in areas supported by population growth.
Security is Priority
City Pacific has made every effort to reassure investors that our priority remains to preserve the quality and value of the assets in the Income Fund and First Mortgage Fund.
We will continue to keep you informed about the Income Fund and we ask that you contact our Client Relations Team on 13 47 69 should you have any questions.
CITY PACIFIC LIMITED
Phil Sullivan
Managing Director & CEO
For an update on the Income Fund's financial information please view the Fund Update.
