03 September 2010

Liquidity Offer Remains Open

Morgan Stanley Special Situations Fund III (MS SSFIII) through its subsidiary Project Junior Pte Ltd (PJPL) has today advised that their liquidity offer to Pacific First Mortgage Fund Unitholders remains open. Whilst one of the Approval Conditions was the passing of Resolution 1, PJPL have confirmed that they are neither waiving the Approval Condition nor withdrawing the offer and PJPL will continue to leave the offer open, reserving its rights to withdraw the Offer, until the closing date of 30 September 2010. If the Approval Condition is not waived on the close of the Offer all acceptances will be void.

Neither Trilogy nor Balmain Trilogy recommends that Unitholders either accept or reject the PJPL offer. However, the Liquidity offer does provide unitholders with a choice to exit the Fund immediately. Balmain Trilogy advises Unitholders to seek professional financial advice if any aspect of the offer is unclear to them.

02 September 2010

Balmain Trilogy receives 82% unitholder support, falls short of required 75% majority

The Unitholder meeting of the Pacific First Mortgage Fund (Fund) held in Brisbane yesterday was attended by over 680 Unitholders. Balmain Trilogy, the Investment Manager of the Fund, received the majority support of Unitholders in respect of Resolution 1, a resolution designed to enable full implementation of the proposed New Strategy for the Fund.

There were 3 resolutions put to Unitholders as follows:

Resolution 1 would have allowed changes to the Fund's constitution to enable:

• The development of selected fund assets to achieve a better outcome for all investors;
• The commencement of a Hardship Redemption Policy;
• Separate non-redeemable units in respect of recoveries from legal proceedings to ensure unitholders benefit from any litigation recoveries regardless of whether they accepted or declined future redemption offers and
• An amended management fee structure to better align the interests of the manager and the unitholders.

Resolution 2 enabled Unitholders to elect whether redemptions are to be made at either current value or issue price.

Resolution 3 was a resolution proposed by certain member of the Fund (and was not supported by Balmain Trilogy) which sought to reduce the manager's fee from 1.5% of the gross assets to 1.25% of the net assets of the fund.

Resolution 1 received the support of 82% of all unitholders by number and 67% of all units voted. Unfortunately, the voice of 82% of unitholders was not sufficient and the vote fell short of the required 75% majority needed to pass the Resolution. However, with 82% of unitholders voting in favour of Resolution 1, Balmain Trilogy believes that this confirms strong Unitholder support for the New Strategy.

Resolution 2 was conditional upon Resolution 1 being passed, hence was not effective and Resolution 3 was soundly defeated (see below vote results).

The consequences of Resolution 1 not being passed are as follows:

• Hardship payments cannot be made under the Fund's present constitution because a unit price based on underlying asset values cannot be struck. Balmain Trilogy is urgently seeking guidance as to how to commence Hardship payments;
• The management fee will remain at 1.5% and not be reduced to 1%
• There will be no introduction of performance/incentive fee for Balmain Trilogy to act as development manager in respect of some of the Fund's assets; and,
• Unitholders will be denied the individual choice as to whether they can accelerate or delay their exit by way of future redemptions from the Fund.

Balmain Trilogy confirms that, notwithstanding the failure of Resolution 1, it is committed to the following:

• Targeting to repay $295m, or 71% of the current assets of the Fund, to Unitholders prior to October 2012.
• A pro rata payment to all unitholders of $35m in October 2010;
• Returning any excess liquidity to Unitholders promptly and regularly;
• Will continue to act in the best interests of all Unitholders in maximizing the value of recoveries and no fire-sales will occur;
• Will continue to work to find ways to ensure the maximum returns from assets such as Asset 34 or Martha Cove are achieved. Trilogy and Balmain Trilogy will continue to act in the best interests of Unitholders and if that means developing assets, then Trilogy will appoint appropriately skilled development managers where it considers it to be in the best interests of Unitholders; and
• Will improve communications to all Unitholders.

Trilogy and Balmain Trilogy will continue to act in the best interests of Unitholders and will continue to both maximise the value of the Fund and minimise the time period for redemptions to occur.

OFFICIAL VOTING RESULTS

Resolution 1	No. Units	%
Votes cast 'FOR' the motion	442,656,102	66.72
Votes cast 'AGAINST' the motion	220,790,190	33.28
TOTAL VOTES CAST	663,446,292	100.00

Resolution 2	No. Units	%
Votes cast 'FOR' the motion	434,400,751	65.73
Votes cast 'AGAINST' the motion	226,524,071	34.27
TOTAL VOTES CAST	660,924,822	100.00

Resolution 3	No. Units	%
Votes cast 'FOR' the motion	234,019,673	35.92
Votes cast 'AGAINST' the motion	417,515,523	64.08
TOTAL VOTES CAST	651,535,196	100.00

31 August 2010

Proposed Constitutional Amendments

Balmain Trilogy provides unitholders with an amended copy of the Fund's Consolidated Constitution incorporating the proposed amendments as contemplated in the Notice of Meeting and Explanatory Memorandum dated 5 August 2010.

31 August 2010

Request to Convene a Meeting of Unitholders

Balmain Trilogy Investment Management Pty Ltd (Balmain Trilogy) is in receipt of another requisition to call a meeting of unitholders. The requisitioning members represent only 1 % of unitholders, and are essentially the same group who requisitioned Balmain Trilogy to include Resolution 3 of the Notice of Meeting & Explanatory Memorandum relating to the 1 September meeting.

As with the statement accompanying the previous requisition, the current statement is again misleading, confused and ill-informed in several material respects. A copy of their requisition together with a table which sets out Balmain Trilogy's preliminary response is available by clicking on the below links.

As you can see the statement proposes for 12 separate resolutions to be considered regarding changes to the Fund's constitution. These 12 resolutions have been listed in an ad hoc fashion, and in some instances are not only demonstrates a lack of understanding of mortgage funds, but also basic economics. Further they add no benefit to unitholders over what is already proposed by the New Strategy. In fact, their proposals, if implemented would have a detrimental impact on the operation of the Fund and are not in unitholders' best interests. In our opinion, the proposals put forward by these minority members are not representative of the wider unitholder community.

As their second requisition was received well after the Notice of Meeting for the 1 September meeting was issued, it was only possible to deal with their first requisition in the Notice and not their second. As such a separate meeting of unitholders will need to be held to consider the second requisition. Unfortunately, despite the flawed and non representative nature of these proposals, theoretically this minority group could continue to requisition meetings and waste significant resources of the Fund. The cost of holding a meeting in the Fund is substantial. The fact that within a period of less than two months they have already requisitioned 2 meetings should cause unitholders concern as it suggests disorganisation and a disregard for Fund resources.

Balmain Trilogy welcomes the input of unitholders in determining the future of the Fund, as evidenced by the Investor Committee and the substantial soundings which took place in developing the new Strategy. However, in opinion, this group is wasting Fund resources and as such we hope that the requisitionists will withdraw their requisition.

26 August 2010

BT Caps Performance Fees at $30m

Balmain Trilogy (BT) has been advised by unitholders of "material" being distributed to unitholders that BT expects to earn $80m from Performance Fees in the event that the New Strategy is approved by unitholders at the upcoming unitholder meeting.

The Performance Fee is proposed to be calculated as 20% of any increase in the net value of the Fund above $415,000,000 indexed at the RBA Cash Rate. The introduction of a Performance Fee, combined with the reduction in the base management fee by 33% from 1.5% to 1.0%, provides for better alignment of goals between the manager and the unitholders and a 'win-win' situation if BT commits significant, additional resources to 'develop' certain assets of the Fund.

The estimate of $80m is wildly inaccurate. To avoid unnecessary confusion in refuting this outrageous claim Trilogy and Balmain Trilogy wish to advise that it will be amending the Performance Fee calculations to 'cap' the maximum Performance Fee payable to Trilogy at $30m. ie. Trilogy will only ever earn a maximum Performance Fee of $30m. This 'cap' will be entrenched in the constitution, so that it cannot be removed without the consent of a special resolution of unitholders.

The figure of $30m is at the very upper range of the likely value of the Performance Fee resulting from potentially achievable improvements in the net value of the Fund (indexed at the RBA Cash Rate) which Trilogy and Balmain Trilogy believes it can generate for the Fund from its expanded role of 'development' manager of the Fund. If this capped fee of $30m were to be the outcome for BT then unitholders would receive cash returns in excess of the indexed value of the Fund of not less than $120m or 13.5 cents per share.

The base management fee will still be reduced by 33% to 1%pa (from the current 1.5%pa).

For the sake of clarity, the performance fee cap of $30m applies to any performance fees earned from the improvement of assets and/or litigation recoveries.

26 August 2010

New CBA Loan Agreement

Balmain Trilogy (BT) has struck a deal with the CBA that will allow redemptions to start flowing to Pacific First Mortgage Fund unitholders in October in accordance with the New Strategy.

The loan agreement with CBA replaces the existing facility to the Fund. The new loan has been extended for two years to 31 August 2012, and will be moved from CBA's "intensive care" loan management unit to its mainstream banking operations. This now removes the last hurdle to restarting the redemption program that will begin with a $35m redemption in October and a total targeted return to unitholders of $295 million before October 2012.

Although the facility is subject to documentation, an agreement between BT and the CBA regarding the essential terms of the loan was finalised on 25 August 2010. The essential terms of the facility were reached following BT performance to reduce the Funds debt facility over the last year from more than $90 million to $30 million. No further debt reductions from the $30 million will be required until the debt exceeds 10% of the gross assets of the Fund which means that that the bulk of the Fund's current liquidity of $42m can be used for redemptions immediately.

25 August 2010

Unitholders Questions Answered

Does BT hope that less unitholders will redeem their units under a Current Value Redemption facility (than under an Issue Price Redemption facility) which will lead to a higher cash balance, a higher value of assets and consequently higher management fee to BT? If not, why is BT in favour of Current Value Redemption Facility?

BT will be distributing every dollar of excess liquidity under ANY redemption scheme. Whether redemptions are based on Current Value or Issue Price the remaining assets of the Fund will be the same. In the unlikely event that there is an insufficient quantity of redemption offers accepted by unitholders to "use up" the available excess liquidity in the Fund then further redemptions will be made proportionately to all unitholders as soon as possible. BT will not retain any excess cash in the Fund.

BT recommends that unitholders vote in favour of a Current Value Redemption facility because this is the optimal redemption facility for the Fund. This is because a Current Value Redemption facility allows for individual unitholder choice to accelerate or delay their respective exit from the Fund. If an Issue Price Redemption facility is chosen by a majority of unitholders it will deny all unitholders this individual unitholder choice and all unitholders will be forced to redeem proportionately without any ability to accelerate or delay. Notwithstanding this we have still provided unitholders the option to vote on their preferred redemption programme. We recommend, hope and trust that unitholders elect for Current Value Redemptions.

By way of example I can speak with detailed knowledge of two significant unitholders in the Fund. Mr A wants to "get out" ASAP (and would support a fire sale to accelerate this) and Mr B wants to "hang in there" to see what additional value BT can extract from the development of some of the Fund's assets.

So what strategy should BT adopt? Should BT wind-up the Fund to keep Mr A happy (fire-sale, fast return of the proceeds, etc) or should BT develop certain assets of the Fund (to attempt to create additional value) to keep Mr B happy?

Whatever strategy BT adopts, under a Issue Price Redemption facility, both Mr A and Mr B will have to "live with" whichever strategy BT elects. Consequently BT would either have to explain to Mr A that he will not see the fast returns of capital that Mr A wants, or conversely explain to Mr B that we are winding-up the Fund and we will not be seeking to create the additional value that Mr B wants.

To allow both Mr A to leave faster and Mr B to leave slower, Mr A must be able to redeem a higher proportion of his unitholding than Mr B. This can only happen under a Current Unit Price redemption programme otherwise Mr B will have the value of his "un-redeemed" units destroyed. No manager of any fund could properly allow this to occur.

In summary the New Strategy effectively adopts Mr B's preferred strategy (partial development where significant value may be able to be recovered) which consequently allows Mr B to "hang in there" knowing that BT is trying to add value. Mr A, meanwhile, is free to accept all redemption offers made to him and exit the Fund at a faster rate than Mr B.

Whilst Mr A may not get his money back as fast as from a wind-up, nor Mr B benefit from unlimited development of the Fund's assets, both Mr A and Mr B are closer to achieving their objectives than would be possible under an Issue Price Redemption facility.

Any view that BT hopes that unitholders may be too scared to redeem units under a Current Value Redemption facility (which may result in a higher value of assets and higher fees to BT) is completely incorrect. Under either redemption facility the Fund will redeem the same dollar amount and under either redemption facility all excess cash in the Fund will be used to redeem units.

24 August 2010

Liquidity Offer

Unitholders in the Pacific First Mortgage Fund (PFMF) now have the option to exit the fund immediately.

Trilogy Funds Management Limited and Balmain Trilogy Investment Management Pty Ltd (BT) have been pursuing the strategy of providing unitholders with maximum possible choice regarding the future of their participation in the PFMF. Balmain Trilogy can announce that Project Junior Pte Ltd (PJPL), an entity owned by Morgan Stanley Real Estate Special Situations Fund III, has made a offer to purchase up to 49% of the units in the PFMF for $0.26 per unit. The offer is conditional on certain events, details of which can be found in the letter to Unitholders and offer booklet (see links below).

Whilst the timing of the offer, coming as it has during the notice period of the upcoming unitholders meeting, is by no means ideal, some Unitholders may welcome the opportunity to exit the Fund immediately. Trilogy nor Balmain Trilogy recommends that you either accept or reject the PJPL offer.

 It is important that Unitholders understand that Balmain Trilogy targets to return $295 mill by October 2012 (or 33 cents per unit) with the residue of the Funds assets to be realised and proceeds distributed two years after that. The PJPL Offer at 26 cents represents a significant discount to these projected redemptions.

Unitholders are under no compulsion to accept this offer, however it does provide unitholders with further choice. Balmain Trilogy advises Unitholders to seek professional financial advice if any aspect of the offer is unclear to them.

21 August 2010

Clarification of Matters Contained in the Notice of Meeting & Explanatory Memorandum

Proposed Litigation and Treatment of Proceeds/Costs from Proposed Litigation
The Notice of Meeting and Explanatory Memorandum set out that, in the event that Resolution 1 is passed by unitholders to approve the proposed New Strategy, there will be a separate entitlement created for the benefit of all unitholders in respect of the proceeds from successful litigation. This entitlement cannot be redeemed by the Fund but remains an "asset" of each unitholder until such time as the litigation is completed and the proceeds (if any) are distributed.

The carriage of these proceedings will be directly handled by Trilogy and Balmain Trilogy in their respective capacity as responsible entity and investment manager of the Fund. The management of this process is a significant undertaking which may well extend over several years. Maurice Blackburn Solicitors has been retained by Trilogy to act as the Funds legal representatives.

At this stage Maurice Blackburn Pty Limited are seeking leave from ASIC to conduct examinations (in much the same way as would be conducted by a liquidator) of the examinable affairs of City Pacific Limited in its capacity as the previous responsible entity of the Fund. Leave was sought from ASIC on 27 May 2010 and Maurice Blackburn have been addressing ASIC's queries since that date. We have not received any advice from ASIC as to when our application will be determined.

The reason for the decision to use a litigation funder (IMF) to fund 100% of the cost of the proposed litigation (and to be liable for any adverse costs orders from failed litigation) was two-fold. Firstly to protect the Fund from significant losses in the event that the litigation is not successful (which, as advised by our independent advisors, we estimate could be in the order of $20-30m) and secondly to improve the liquidity of the Fund (from not having to set $20-30m aside as a contingency for the litigation not being successful) which would enable redemptions to unitholders to be increased significantly (i.e. by $20-30m).

The "price" that the Fund is paying for IMF to fund 100% of ALL of the Fund's expenses in bringing the proceedings and being liable for 100% of any adverse costs orders made against the Fund is 26% of the proceeds from any litigation (i.e. $0 if net proceeds are nil and $2.6m if proceeds are $10m). IMF receives no fee or other recompense unless the proceedings are successful.

On page 20 of the Explanatory Memorandum, it states that "In the event that the collective proceeds from legal actions are insufficient to meet the costs incurred in conducting those legal actions, then these costs will be recoverable from the remaining Assets of the Fund (and which, if this were to occur, would have an adverse impact on the value of the Ordinary Units)". This will only be applicable if the arrangement with IMF were to come to an end and BT continued with any action that had already commenced or if BT commences any litigation outside the scope of the IMF agreement.

In consideration for Balmain Trilogy undertaking the significant process of managing these proceedings over the coming years Balmain Trilogy's "fee" is incorporated in to the Performance Fee (i.e. 20% of the net proceeds after deduction of IMF's fee). In a similar manner to IMF, if the proceedings are NOT successful Balmain Trilogy will receive NO fee.

We believe that this is appropriate remuneration given that the fee is conditional on success, is in no way guaranteed, and will involve considerable exertion and expertise from Balmain Trilogy over the coming years.

The Redemption Process and Liquidity of the Fund
It is Trilogy's expectation that at all times the Fund will remain liquid for the purposes of the Corporations Act. As such Trilogy does not anticipate a situation where the redemption facility would not be carried out in accordance with its terms.

However, even if the Fund were illiquid (which is not anticipated will occur) then during that period, Trilogy (in accordance with the constitution and Notice of Meeting) could suspend the redemption arrangement. Alternatively Trilogy could return capital on a pro rata basis (without redemptions) under the existing provisions of the constitution.

Nevertheless, to address any residual concerns, we propose to put in the constitution a further provision to the effect that the responsible entity will be appointed as each unitholder's agent and attorney to complete any documents as is necessary to give effect to the relevant redemption facility. This would allow the redemption facility to be effected when the Fund is illiquid. Such a provision is quite common (e.g. in redemption based schemes of arrangement).

How Does the Indexation Work?
The Performance Fee is calculated on the extent to which the net value of the assets can be improved above $415m plus indexation in accordance with the RBA cash rate. This was done to clearly indicate to all unitholders that if Trilogy simply 'did nothing for a few years and hoped for a general growth in property values from inflation' that Trilogy would not benefit from any Performance Fee related to asset growth by inflation as opposed to Trilogy's exertion and expertise.

There is no index for properties of the types that the Fund has as its assets (large land-banks, distressed sites and half-completed developments, etc). Indices exist for shopping centres, residential property, and other classes of real estate but these classes bear no relation to the assets of the Fund. Other mortgage funds are currently yielding in the order of 5%* although these funds generally benefit from significantly better assets which are producing income. To use an index of other mortgage funds' returns would be too volatile. We believe that the RBA cash rate is a fair approximation for returns from performing mortgage funds and, given that the Fund has effectively no performing loans, is a fair, if not generous, assumption of expected returns.

Consequently we believe that the RBA cash rate is a fair "proxy" for a return on a non-performing mortgage fund.

21 August 2010

Response to misleading and deceptive material provided to some unitholders

The Board of Balmain Trilogy Investment Management Pty Ltd (Balmain Trilogy) has become aware of a letter that has been produced by Allan Garnham and circulated to some, but not all, unitholders in the Pacific First Mortgage Fund (Fund). The letter concerns the upcoming unitholder meeting that is to be held on September 1 2010 (Meeting) and purports to critique elements of Resolutions 1 and 2 in respect of which Unitholders will vote at that meeting.

The Board of Balmain Trilogy consider the claims, statements, inferences and assertions contained in Mr Garnham's letter to be defective in significant and material respects and that the author/s of the letter have made these claims, statements, inferences and assertions without appropriate consideration (or understanding) of the information provided to unitholders by Trilogy Funds Management Limited (Trilogy) and Balmain Trilogy. Additionally Mr Garnham has made no effort to discuss any of these matters with Trilogy to improve his understanding of the Fund. Further, we have received legal advice that these claims, statements, inferences and assertions are misleading and deceptive.

The opinions expressed in the letter are indicative of the author/s lack of any qualification, experience or knowledge of the workings of the Fund or even cursory knowledge of the mortgage funds management industry in general. Whilst the author/s are entitled to their opinion, they have failed to present an accurate or balanced view in respect of the proposed New Strategy prepared by Trilogy and Balmain Trilogy. Trilogy and Balmain Trilogy are concerned that the litany of misleading and illogical statements will deceive and confuse Unitholders.

The below link allows unitholders to view a series of statements that have been extracted from Mr Garnham's letter along with our specific comments in relation to those statements.

Your vote is yours alone. It is important that you are able to exercise that vote with a solid understanding of the material presented and not be deceived by misleading information.

The independent directors of Trilogy and directors of Balmain Trilogy again reaffirm their recommendation that you vote in favour of Resolution 1 (New Strategy), in favour of Resolution 2 (Current Value Redemption Facility) and against Resolution 3.

21 August 2010

Unitholders Questions Answered

Question 1:
[In respect of your letter to Unitholders of 25 May 2010 (BT's Letter) as appears on Balmain Trilogy's website, (www.balmaintrilogy.com.au/Default.aspx#redemption)] what is manifestly unfair about the payment of $100m to one investor as a result of [an issue price redemption] … offer?

Such a payment is manifestly unfair as the redeeming unitholder will be receiving $1.00 for each of his/her redeemed units, which is more than the current value of each unit. This means that the value of the Fund per unit for the remaining unitholders will reduce. In the example given, the remaining unitholders will now own units which have a reduced value of $0.40. The BT Letter clearly states, in some detail, that UNITHOLDERS CAN ONLY BE GIVEN CHOICE AS TO WHETHER THEY ACCELERATE OR DELAY THEIR EXIT FROM THE FUND UNDER CURRENT VALUE REDEMPTION FACILITY

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Question 2:
Is a manager of a non-liquid fund permitted to pay one investor at the expense of all other investors (NTA drop from $0.47/unit to $0.40/unit)?

No. No manager of any Fund is properly able to discriminate between unitholders.

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Question 3:
Would you as a manager of such a fund make such an offer and payment?

No. This would be in breach of our fiduciary responsibilities

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Question 4:
Wouldn't it be the case, that in the circumstances, pro-rata payments (without 'opt in' and 'opt out') would be made?

If we properly understand your question (which we assume is, "Under what circumstances can the Fund redeem at the issue price of $1.00?") then you are correct in saying that an issue price redemption facility can only be fairly implemented if all unitholders receive pro-rata payments AND HAVE NO ABILITY TO CHOOSE WHETHER OR NOT TO PARTICIPATE (I.E. THERE IS NO CHOICE WHETHER TO ACCELERATE OR DELAY THEIR EXIT FROM THE FUND). It is for this reason that Trilogy and Balmain Trilogy recommend that all unitholders vote in favour of the Current Value Redemption Facility as this gives unitholders a choice as to the level of their future involvement in the Fund.

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Question 5:
It seems that the expert (a firm of reputable accountants) is unable to specify precisely WHO will incur the 'performance' fee. Please be kind enough to specify exactly how the manager intends to apportion the 'performance' fee between members.

The performance fee will be paid out of the Fund. The change in the value of the Fund's assets will be reflected in the Fund's unit price. Similarly, where Trilogy believes a performance fee will be payable by the Fund (for example as a result of an increase in the value of the Fund's assets), the accounts of the Fund will be adjusted to reflect that potential liability (even though the fee may not be immediately payable). However, the Fund will not be liable to pay a performance fee until the Fund has performed at the appropriate level. Unitholders who accelerate their exit from the Fund and redeem their units prior to the accrual of a performance fee will receive a unit price for their units reflective of the fact that the Fund has not reached the relevant performance threshold (i.e. a unit price which is reflective of the Fund's assets being worth less than that required to satisfy the performance hurdle). Conversely, where a unitholder redeems their units after the performance fee has been accrued, they will receive a unit price reflective of the fact that the Fund has satisfied the relevant performance hurdle (in other words, they will receive a unit price reflective of the value of the Fund's assets being in excess of the relevant performance hurdle, adjusted for the payment of the associated performance fee). This means that where a current value redemption facility is adopted, neither unitholders who accelerate their exit from the Fund nor unitholders who seek to remain exposed to the performance of the Fund's assets will be treated unfairly or otherwise disadvantaged.

11 August 2010

Confirmation of Meeting time and date

BalmainTRILOGY would like to advise all Pacific First Mortgage Fund Unitholders of a typographical error on page 2 of the Notice of Meeting and Explanatory Memorandum. The word "Friday" in the first paragraph should read "Wednesday".

To remove any confusion, BalmainTRILOGY confirms that a meeting of Unitholders has been called for Wednesday 1 September 2010 at 11am AEST at Sofitel Brisbane Central, 249 Turbot Street, Brisbane.

9 August 2010

Pacific First Mortgage Fund Meeting
of Unitholders has been called for
Wednesday 1 September 2010

BalmainTRILOGY would like to advise all Pacific First Mortgage Fund Unitholders that the Meeting of Unitholders has been called for Wednesday 1 September 2010. The meeting will be held at the Sofitel Brisbane Central, 249 Turbot Street Brisbane, Queensland commencing at 11.00am.

All meeting documentation has now been distributed to all unitholders for their review and consideration including a proxy form. These documents are very important and we strongly suggest that you review all material that has been provided and seek independent financial advice if necessary. The meeting documentation includes:

• Letter from the Joint CEO's (Click here to view)
• Notice of Meeting & Explanatory Memorandum (Click here to view)
• Independent Expert Report provided by PKF Corporate Advisory
  (Click here to view)
• Proxy form and reply paid envelope

You are able to view the meeting documentation by clicking the links above.

The Meeting of Unit holders will allow unitholders to vote on the New Fund Strategy that will comprise a redemption program and allow for individual choice regarding participating in the future of the Fund.

If you believe that you may not be able to receive the documents at your registered mailing address there are alternatives available for you to receive these important documents. Please contact the Client Services Team on Freecall 1800 194 500 to discuss your options.

9 August 2010

PRESS RELEASE

The Pacific First Mortgage Fund (PFMF) is now in a position to commence paying redemptions to its 12,000 Unitholders.

The Investment Manager, BalmainTRILOGY (BT), aims to return $295 million to Unitholders by October 2012, with the first installment of $35 million to be paid in the December quarter of this year.

This achievement comes just on one year since BalmainTRILOGY was appointed as the new manager of PFMF. In that time BT has stabilised the Fund and recovered over $131m from the sale of assets that have been significantly enhanced in value' by BT. The proceeds have been used to reduce bank debt down from $92 million to $30 million and increase the cash in hand from $9 million to $42 million.

BT is of the opinion that PFMF was so decimated by the previous manager, including a raft of transactions where the previous manager lent money either to itself or other entities that it controlled, it will never be re-opened to new investment and must be intensively managed to optimally return money to the Unitholders.

The process of returning money to Unitholders concerns two primary matters: How quickly and how much. BT believes, given the nature of the PFMF assets, that the faster the return of money to Unitholders, then the lower the amount that will be returned. BT is also aware that Unitholders have differing views as to whether they would like to receive less money faster, or the potential for more money later.

For this reason BalmainTRILOGY has called a meeting of Unitholders to give them the opportunity to vote on two resolutions covering the PFMF strategy:

Resolution 1 will allow changes to the Fund's constitution to enable BT's recommended strategy for PFMF to be adopted which includes:

• The introduction of a new redemption program to return $295m of capital to Unitholders by October 2012 with payments commencing in October 2010 in the amount of $35m
• The introduction of a new unit entitlement to all current Unitholders to ensure that they share in proceeds from successful litigation whether or not their ordinary units have been previously redeemed by PFMF
• The PFMF assets to be sold after BT's value enhancement is completed (i.e. no fire sales) with additional development of a limited number of PFMF assets to increase the total capital payments to be made to Unitholders
• A new BT management fee structure which recognises the changing nature of PFMF from 'performing mortgage manager' to 'distressed asset manager and developer' and better aligns the interests of BT with the Unitholders¹
• Introduction of a hardship redemption policy

Resolution 2 will allow Unitholders to decide whether Unitholders prefer redemptions to be made at the Current Value Unit Price or the original Issue Price.

Both the Fund's independent Investor Committee and the report by the Independent Expert, PKF Corporate Advisory, support the passing of Resolution 1 and the use of current unit value in Resolution 2.

The meeting will be held in Brisbane on September 1. Unitholders can either vote by proxy or at the meeting.

Andrew Griffin, the Joint Chief Executive of the Fund, said: "This has been a difficult year for all Unitholders who are understandably disappointed that it has taken nearly a year for BT to produce a definitive strategy for the PFMF. We make no excuses for this. PFMF was mercilessly used by the previous manager to forward their own development ambitions at the cost of our Unitholders' money. To unravel the myriad schemes that were entered into by PFMF but were not for the benefit of Unitholders has been an arduous process. We could not attempt to provide any certainty to Unitholders until this process was fully completed. I am glad to say that this has now happened."

"We now ask Unitholders to again have their say. We are proposing a strategy for the Fund which we believe, without any doubt, provides the optimal solution to Unitholders and properly balances Unitholder's needs for optimal return of capital to them both from a timing and quantum perspective."

"If Unitholders accept our recommendations to vote in favour of Resolution 1 and choose Current Unit Value redemptions in respect of Resolution 2, then Unitholders will give themselves greater flexibility to either exit or stay in the Fund at their discretion. But by voting for the issue price value option, Unitholders will have no choice and will be forced to all exit at the same rate," Griffin said.

BalmainTRILOGY assumed management of the Fund after Unitholders of the City Pacific First Mortgage Fund – it has since been renamed the Pacific First Mortgage Fund – voted them in and they became registered as the new Responsible Entity in July 2009 in place of City Pacific. City Pacific has since gone into liquidation.

Since taking control, BalmainTRILOGY has got the fund off "life support" and to the point where a new, value-adding strategy can be implemented.

Rodger Bacon, Joint Chief Executive, said: "To get this far has been a very difficult and time-consuming task. What it has involved included:

• Appointing independent service providers to the key roles of custodian and registrar to ensure fair treatment of Unitholders;
• Establishing an independent Investor Committee to give Unitholders a voice;
• Vigorously pursuing all borrowers, including parties related to the former manager, City Pacific, for monies owed to the Fund
• Steadily selling Fund assets at fair market value
• Extending the Funds finance facility
• Identifying Fund assets that can be developed to enhance the value of the Fund
• Pursuing litigation to recover losses."

"As responsible entity Trilogy has worked tirelessly to ensure that Unitholders are treated with the respect that they were denied by the previous manager. Whilst we wished we could have reached this stage sooner it was simply not possible, notwithstanding the commitment of the large team of people dedicated to managing the PFMF. We are thrilled that the first payments to Unitholders will soon be made and that we can restore some financial health to our Unitholders".

Unitholders will also be asked to vote a on a third resolution, proposed by minority group of 100 unitholders and opposed by BalmainTRILOGY. Resolution 3 seeks to reduce the 1.5% a year management fee on the gross assets to 1.25% a year on the net asset value of the Fund. However, if Resolution 1 is passed, BalmainTRILOGY will adopt the lower base fee of 1% of gross assets as set out in Resolution 1.

Both Trilogy and Balmain have very long experience in property and mortgage funds management. Trilogy's mortgage fund was one of the very few to remain open during the Global Financial Crisis, and both companies now have individual mortgage funds open to investors.

¹ This entails a reduction of the base management fee by 33% to 1% of gross assets (currently 1.5%) and the addition of a 'performance fee'. The performance fee equates to 20% of any capital returns to Unitholders that exceeds $415,000,000 (the value of the net assets as at December 2010) plus indexation in accordance with the RBA cash rate from 1 July 2010.

12 July 2010

Pacific First Mortgage Fund Meeting of Unitholders scheduled for August 2010

BalmainTRILOGY would like to advise all Pacific First Mortgage Fund Unitholders of a revised target date for the Meeting of Unitholders to vote on a New Strategy for the Fund. Due to the extensive preparatory work required, the meeting is scheduled to be held in late August in Brisbane, Queensland.

The actual date of the meeting will be announced later this month once the Notice of Meeting and Explanatory Memorandum (NoM & EM) has been issued to all unitholders. The Meeting of Unit holders will allow unitholders to vote on the New Strategy that will allow for individual choice. Accompanying the NoM & EM will be a detailed Independent Expert Report that has been undertaken to evaluate and assess the New Strategy.

If you believe that you may not be able to receive the NoM & EM when it is posted due to other commitments that you may have, we have alternatives available for you so please contact the Client Services Team on Freecall 1800 194 500 to discuss your options for voting.

31 May 2010

Clarification Statement

Three newspaper articles published at the weekend informed readers that shares in City Pacific Limited are now worthless, according to a report from the joint liquidators, Andrew Wily and David Hurst.

One of the stories, published in the Courier Mail (Saturday, 29 May 2010), also referred to the Pacific First Mortgage Fund (formerly the City Pacific First Mortgage Fund), and has unfortunately created some confusion among Pacific First Mortgage Fund Unitholders.

While the information in the article is accurate, it is important to understand that there is NO relationship between shares in City Pacific Limited and your units in the Pacific First Mortgage Fund. Units in the Fund are currently valued at $0.47 as at 31 December 2009.

The liquidators' report stating shares in City Pacific are now worthless certainly validates the decision made by Unitholders last year to sever all ties with City Pacific and appoint BalmainTRILOGY Manager of the Fund, eliminating the possibility of the Fund suffering further financial damage due to exposure to the collapsed City Pacific.

BalmainTRILOGY would like to take this opportunity to assure Unitholders that we are working hard on the preparation for the Unitholders Meeting and the strategy to commence payments to unitholders in the new financial year.

26 May 2010

Current Value Redemption or $1.00 Redemption

BalmainTRILOGY has been working on a new strategy for the Fund which will be voted on by unitholders in a meeting in mid/late July 2010.

One of the major components of the strategy is a voluntary redemption facility which would allow unitholders the option to have some of their units redeemed at the current value of the PFMF unit price.

There has been much discussion surrounding the current value redemption price so we thought it prudent to provide some clarification as to why this approach has been adopted as part of the strategy instead of a $1.00 redemption amount.