LMWFMIF

Trilogy Funds is the Responsible Entity for the LM Wholesale First Mortgage Income Fund (LMWFMIF). This page provides updates relevant to its unitholders.

BDO Reports to Investors

Unitholder updates

18 May 2015

LM First Mortgage Income Fund Receivers application to Supreme Court
Annexure A is available for download below regarding a question that has arisen between the liquidators and Mr Whyte as to the extent of Mr Whyte’s powers.

18 September 2014

Unit price per class as at 30 June 2013 and 31 December 2013
Following the recent completion of the LM First Mortgage Income Fund’s (“FMIF”) management accounts (unaudited and prepared in accordance with Australian Accounting Standards) for the year ended 30 June 2013 and the period ended 31 December 2013, by BDO as Receiver, Trilogy Funds has been able to rely upon the value ascribed to the units in the FMIF for its determination of fair value for the LM Wholesale First Mortgage Income Fund (Scheme).  The Scheme’s unit price per class as at 30 June 2013 and 31 December 2013 are listed below. Please contact Investor Relations on 1800 230 099 or email should you have any questions in relation to your investment in the Scheme.

  30 Jun 2013 31 Dec 2013
APIR Unit Class $ Price per Unit
TGY0018AU Bond Extended AUD 1 Year Term 0.2421 0.2123
TGY0019AU Direct AUD 0 Month Term 0.1660 0.1456
TGY0021AU Global Portfolio Bond AUD 1 Year Term 0.2748 0.2410
TGY0022AU Global Portfolio Bond AUD 2 Year Term 0.2474 0.2170
TGY0023AU Global Portfolio Bond AUD 3 Year Term 0.2460 0.2157
TGY0024AU Global Portfolio Bond AUD 4 Year Term 0.2456 0.2155
TGY0020AU Global Portfolio Bond AUD 0 Month Term 0.2659 0.2332
LMI0008AU Wholesale AUD 1 Year Term 0.1660 0.1456
TGY0025AU Wholesale AUD 2 Year Term 0.1660 0.1456
LMI0007AU Wholesale AUD 0 Month Term 0.1660 0.1456

 

5 September 2014

Annual Financial Report – for the year ended 30 June 2013
Trilogy Funds has now finalised the Annual Financial Report for LM Wholesale First Mortgage Income Fund for the year ended 30 June 2013.

21 August 2014

Preparation of the 30 June 2013 Financial Report for the LM Wholesale First Mortgage Income Fund

Trilogy Funds is now in a position to finalise the 30 June 2013 Financial Report for the LM Wholesale First Mortgage Income Fund following the release of LMFMIF’s Management Accounts for the year ending 30 June 2013 (unaudited). We will be working with our auditors to finalise the report over the coming month. Once the report is complete, Trilogy Funds will issue unit prices to unitholders in the Fund.

4 June 2014

Unitholder update
It has come to our attention that a number of wrap administrators have been using prices for the LM Wholesale First Mortgage Income Fund’s (LMWFMIF) units at values determined prior to the release of BDO’s first report dated 4 December 2013, resulting in higher than necessary fees charged to investors. BDO in their recent report dated 2 May 2014 state that they estimate the return in the dollar for the LM First Mortgage Income Fund’s (LMFMIF) units will be between $0.12 and $0.18. This figure does not take into account any discount for the time to return the funds nor additional expenses that will be incurred in the Wholesale Fund and therefore expect the unit price for the LMWFMIF to be lower than this. As such we believe that wrap and bond administrators should not be using a value above 18 cents to calculate fees .

After continued promises from BDO, Trilogy Funds is still awaiting the 30 June 2013 financial report, which will enable unit prices to be determined on the LMWFMIF. If you have any queries in relation to your investment in the Fund, please contact Investor Relations on 1800 176 559 or alternatively email us at investorrelations@trilogyfunds.com.au.

26 May 2014

LM Wholesale First Mortgage Income Fund – court application for the approval of remuneration
Please click on the below link to view the court application for the approval of remuneration.

6 March 2014

Unitholder update
Please click on the below link to view the latest update regarding your investment in the LM Wholesale First Mortgage Income Fund (the ‘Wholesale Fund’).

12 February 2014

LM Wholesale First Mortgage Income Fund – Investor Update

16 December 2013

BDO report
The Directors of Trilogy Funds Management Limited as Responsible Entity for the LM Wholesale First Mortgage Income Fund have met to discuss BDO’s report dated 4 December 2013, which raises a number of significant issues for investors. The Directors have recommended the Scheme obtain professional advice as to whether a unit price can be reliably and accurately determined. We will update investors with further information in due course.

6 December 2013

BDO Report
The Court appointed Receiver of the LM First Mortgage Income Fund (BDO) has published a third investor report. This report contains important information which is relevant to investors in the LM Wholesale First Mortgage Income Fund. Trilogy is currently considering the information contained in this report and will update investors shortly.

7 November 2013

Unitholder update
Following the issue of BDO’s second report to LM First Mortgage Income Fund investors on 15 October 2013, Trilogy has prepared a detailed update for investors in the LM Wholesale First Mortgage Income Fund. Please click on the link below to download the update.

19 September 2013

Unitholder update
For further information regarding the LM First Mortgage Income Fund please go to the LM First Mortgage Income Fund website.

15 August 2013

Court orders wind up of LM First Mortgage Income Fund
As you are aware, there have been proceedings in the Supreme Court of Queensland (the Court) in relation to the future of the LM First Mortgage Income Fund (the Fund). On 8 August 2013, the Court ordered that the Fund be wound up and that Mr David Whyte of BDO be appointed Receiver of the Fund’s assets and Supervisor of the winding up. Previously, following the appointment of an Administrator to LM Investment Management Limited (LMIM) and the qualified suspension of its licence, a unitholder of the Fund applied to the Court to have a new, solvent Responsible Entity (Trilogy) appointed (consistent with ASIC’s guidelines). This was done to avoid the appointment of a receiver and the winding up of the Fund, an outcome which less than 1% of unitholders supported. Unfortunately, in spite of the wishes of unitholders or the fact that the Fund was solvent, ASIC was determined to have the Fund wound up and a receiver appointed. This is inconsistent with ASIC’s own guidelines, which requires REs to meet minimum capital adequacy standards in order to manage and wind up funds. By controlling the terms of the suspension of LMIM’s licence, ASIC prevented the Court from appointing a new RE and forced the appointment of a receiver to the Fund. This then caused Deutsche Bank (the secured creditor) to appoint its own receiver. As a result, a solvent fund is now managed by an insolvent RE with a court appointed supervisor/receiver and a secured creditor’s receiver.

Trilogy is disappointed in ASIC’s approach to this case and its disregard for unitholders’ interests, particularly as Trilogy believed it could restore some value to the Fund. Given the decision to appoint a receiver however, Trilogy supports BDO’s appointment and is pleased that LMIM (now in liquidation) is likely to have no significant role in the winding up of the Fund.

The impact of the Court’s decision
The winding up the Fund and the appointment of insolvency practitioners is likely to further damage the value of the Fund and ultimately, the return to unitholders. As there is no real prospect that Deutsche Bank can be refinanced, there are, for now, two sets of receivers over the Fund’s assets and an insolvent RE. The assets of the Fund will initially be sold off by McGrathNicol (the receivers appointed by Deutsche Bank) until the loan from Deutsche has been repaid. The remaining assets will be sold off by BDO with the proceeds (after fees and expenses) returned to unitholders. There is still uncertainty as to what fees will accrue and need to be paid by the Fund to LMIM and FTI Consulting (now the liquidators of LMIM) under the arrangements. LMIM may still be entitled to a significant management fee of up to 5% of the value of the Fund as it was not removed as RE. This will be charged on top of receivers’ fees.

The Court’s view of the June 2013 unitholder meeting
In relation to the unitholder meeting called by LMIM in June 2013, the Court vindicated Trilogy’s position that the meeting was invalidly called and found that FTI’s legal advisers were wrong. The Court found FTI had misled Fund members in respect of the meeting and criticised the material provided to members. The Court found the meeting was an extravagant use of members’ funds. The Court also criticised FTI and LMIM’s conduct of the litigation. The Court also found that LMIM (through FTI) was not acting in the interests of members but rather, in its own interests (a breach of the Corporations Act 2001). Finally, the Court found that FTI could not be trusted to deal with conflicts appropriately, which necessitated the appointment of receivers.

What does this mean for Wholesale Fund investors?
As the Wholesale Fund’s main asset is units in the Fund, the Wholesale Fund is largely dependent on what the receivers do with the assets of the Fund. Trilogy will remain in contact with BDO on matters concerning the sale of the assets. During the Court process a potential conflict was raised between the Fund and the Wholesale Fund due to differential distributions made on the Feeder Funds units (as allowed for in the Fund’s Constitution) as against other unitholders. While this was raised no further comment was made as to whether LMIM acted unfairly in making these distributions. Capital payments will be made to investors of the Wholesale Fund as proceeds from the sale of assets are distributed by the Fund, and once remaining liabilities have been extinguished.

Should you require clarification regarding this letter, please emailenquiry@trilogyfunds.com.au or phone Client Services on 1800 176 559 (within Australia) or +61 7 3039 2888 (outside Australia).

10 July 2013

Second installment of unpaid distributions
On 24 June 2013 LM Investment Management (LM) paid $766,199.21 to the LM Wholesale First Mortgage Income Fund (the Fund). Please note that LM had previously reported on 25 April and again on 7 June that the Fund would receive $844,695.05. We have contacted LM to determine the reason behind the discrepancy between these amounts. At this time we are still awaiting a response. On 28 June 2013 Trilogy applied all of these proceeds against the balance of distributions that remain unpaid from various periods during the 2010 and 2011 financial years.

Proceeds received from LM $766,199.21
Total paid to unitholders $766,199.21

Please note that only Class A unitholders received proceeds from these monies as Class B unitholders’ distributions were rolled up into the unit price at the time the distributions were declared. A transaction statement for the quarter ended 30 June 2013 has been despatched to all unitholders in the Fund. The unit price per class of unit will be finalised upon completion of the audit in October 2013. Capital returns to unitholders will commence once the remaining liabilities of the Fund have been extinguished.

Should you require clarification, please email enquiry@trilogyfunds.com.au or phone Client Services on 1800 176 559 (within Australia) or +61 7 3039 2888 (outside Australia).

29 May 2013

Take no action in respect to the purported 30 May 2013 meeting of investors in the LM First Mortgage Income Fund (Fund) – Now adjourned to 13 June 2013

Court proceedings
As you are aware, there are current proceedings on foot in the Supreme Court of Queensland which seek to remove LM Investment Management Limited (LM) as responsible entity of the Fund and have Trilogy Funds Management Limited (Trilogy) appointed as temporary responsible entity (Proceedings). The Proceedings have been brought by some of your fellow investors because of concerns held about LM continuing to be responsible entity of the Fund. These concerns include:

  • The restrictions which have been placed on LM’s Australian Financial Services Licence (AFSL) by ASIC. According to the restrictions, LM is only entitled to provide financial services which are “reasonably necessary for, or incidental to, the transfer to a new responsible entity, investigating or preserving the assets and affairs of, or winding up of” the Fund.
  • That LM does not meet the legislative requirements to continue as responsible entity in that it does not appear to have the necessary assets and cash required by the legislation to be the responsible entity.
  • That LM, as the existing responsible entity will not investigate its own conduct and put a proof of debt in the administration of LM (or any subsequent liquidation) and a new responsible entity will investigate the potential claims against LM on behalf of the Fund and lodge any necessary proof of debt for any such claim.

The Meeting
Following the issue of the Proceedings and after the first hearing of the Proceedings, the Administrators of LM convened a meeting of the members of the Fund by Notice of Meeting dated 26 April 2013 (Notice). You will have received that Notice. That meeting was originally scheduled to take place on 30 May 2013 (Meeting) but has now been adjourned to 13 June 2013, and requires any proxy to be returned by 11 June 2013. The proceedings had been on foot for approximately two weeks before the Notice was sent and the Administrators seem to accept that the Meeting will not be determinative as to whether LM could remain as responsible entity as they have indicated that they will use the outcome of the Meeting vote in the Proceedings. Trilogy was not consulted by the Administrators prior to the issuing of the Notice and at no time have the Administrators sought Trilogy’s consent to being appointed as responsible entity of the Fund pursuant to the resolutions set out in the Notice and to be voted on at the Meeting. Had they done so, Trilogy would have advised the Administrators that it did not want to be seen to circumvent the Court proceedings and would not give its consent to be appointed other than by the Court as the resolutions would not be determinative as to whether LM could remain responsible entity.

Winding up of the Fund
The Administrators have determined to wind up the Fund and prepared a notice dated 6 May 2013 proposing to wind up the Fund. LM has not distributed that notice to investors as they gave an undertaking to the Supreme Court not to take any step to wind up the Fund until further order of the Court. That undertaking means that LM can only provide financial services which are reasonably necessary for, or incidental to, the transfer to a new responsible entity or for investigating or preserving the assets and affairs of the Fund. Trilogy and the investors who have brought the Proceedings hold the view that these restrictions mean that LM cannot properly continue as responsible entity. Further, Trilogy and the investors who have brought the Proceedings take the strong view that LM must be removed as responsible entity because it does not meet the requirements as to capital adequacy required by ASIC of those entities operating as responsible entities of registered managed investment schemes and as explained in the Explanatory Statement to ASIC Class Order 11/1140 (the Class Order). The stated purposes of the Class Order, set against the backdrop of “recent high-profile collapses of responsible entities where arguably the quantum of financial resources held by the responsible entity has made it difficult for the scheme to be wound up in an orderly fashion”, are to ensure that for responsible entities there are arrangements to meet operating costs throughout the life of the registered scheme, there is some level of assurance that, if the responsible entity does fail, there is money available for the orderly transition to a new responsible entity or to wind up the scheme, and there is an alignment of interests of responsible entities and scheme investors (by providing responsible entities with a real financial incentive to successfully manage scheme assets). In addition, ASIC gave some reasons when it put restrictions on LM’s AFSL. In its Statement of Reasons dated 9 April 2013, ASIC stated that the only reason that LM’s AFSL was suspended and not cancelled was the possibility that LM may cease to be an externally-administered body, that is, no longer in administration or liquidation. Trilogy believes that there is little prospect that LM will cease to be externally administered unless a deed of company arrangement is entered into with the likelihood that unitholders will miss out on claiming their rights against LM. ASIC filed an application with the Court to appoint a Receiver (Pricewaterhouse Coopers) to supervise the wind up of the Fund. Trilogy firmly believes that the appointment of a receiver to the Fund is not in the best interest of investors as it will add an additional layer of costs which are unnecessary and will only reduce the assets of the Fund and ultimately the return to investors. The Meeting will not and cannot address these matters and these issues will remain regardless of the outcome of the Meeting. The Court is the appropriate forum to determine these serious issues. Each member of the Fund is a party to the Proceedings and is entitled to have his/her or its voice heard through the Proceedings. Trilogy does not consider it to be appropriate to try to circumvent the Proceedings relating to the Fund by way of the Meeting. Trilogy also has concerns that the Meeting has not been validly convened under the provisions of the Corporations Act and that any voting undertaken will be invalidated. In any event, Trilogy believes the resolutions will not pass (notwithstanding that LM should not remain responsible entity because of its potential conflict, its financial position and the restrictions on its AFSL) because:

a) It is implicit in the constitution of the Fund that any failure by unitholders to vote is construed automatically as a “no” vote; and
b) The constitutions of the feeder funds (ie the LM Currency Protected Australian Income Fund and the LM Wholesale First Mortgage Income Fund) as amended by LM (without consultation with investors) provides for “see through” provisions so that if votes are not cast they count against the resolutions put to the meeting.
c) there are great difficulties in mobilising the investors to vote at all and that situation is even more acute given the uncertainty associated with the validity of the meeting; and
d) in the circumstances set out in the proceeding subparagraphs, those who abstain are highly likely to overshadow those who vote for the resolution.

Consequently, Trilogy considers that the Meeting is not in the best interests of the members of the Fund and a waste of money. Given that Trilogy takes the view that:

  • the Proceedings should not be circumvented;
  • there remain live issues in the Proceedings which the Meeting cannot resolve;
  • there is a question over the validity of the Meeting,

and because it has never consented to being appointed as responsible entity by way of resolutions to be voted on at the Meeting, Trilogy does not consent to be appointed as responsible entity of the Fund via the resolutions proposed in the Notice and to be voted on at the Meeting. Trilogy has advised LM of these matters and has demanded that the Administrators abandon the Meeting. We have received no satisfactory reply and accordingly recommend that: Investors take no action regarding the meeting of the Fund on 13 June 2013.

If you have any questions, please contact Trilogy on 1800 176 559 (within Australia), 021 675 244 (within New Zealand) or +61 7 3039 2888 (outside Australia and New Zealand).