11 August 2009

BalmainTRILOGY and the
(City) Pacific First Mortgage Fund

INITIAL UPDATE

BalmainTRILOGY Investment Management Pty Limited (BalmainTRILOGY) is pleased to provide you with an initial update on the City Pacific First Mortgage Fund (Fund) and of the progress regarding the transfer of management of the Fund to BalmainTRILOGY.

Firstly we are pleased to advise that the transfer from City Pacific Limited (CPL) has now occurred. The ASIC register of the Fund confirms that Trilogy Funds Management Limited is the Responsible Entity of the Fund

We would like to thank you for your support and patience throughout this process which, as expected, was significantly extended through CPL's numerous Federal Court challenges to the validity resolution of the Members' Meeting to remove CPL. It was not until 20 July 2009 that the last of these actions was dismissed by the Federal Court. Since that date we have acted swiftly to transition the management of the Fund and commence implementation of our commitments to Members.

We advise of progress of the transition as follows:

Specific Issues

  • Books and Records - We are in receipt of the majority of the Books and Records of the Fund. We will continue to vigorously pursue the receipt of the balance of the requisite data.
  • Reduced Management Fee - The Constitution of the Fund has been amended to lower the maximum management fee payable to the Fund's manager to 1.5% p.a. of the assets of the Fund.
  • Name Change - The name of the Fund has been changed to the Pacific First Mortgage Fund.
  • Independent Custodian - Trust Company Fiduciary Services Limited, a subsidiary of the Trust Company Limited has been appointed the independent Custodian of the Fund.
  • Independent Registrar - BalmainTRILOGY is well progressed with the appointment of Computershare Fund Services Pty Limited as the independent registrar of the registry of investors.  We will advise you as soon as the set-up phase is completed (approximately mid August) and give you the contact details for enquiries such as unit holdings, change of address details, etc.   More urgent matters can be referred to us on the Client Service free call 1800 194 500. Alternatively we can be contacted by email on the BalmainTRILOGY website www.balmaintrilogy.com.au.
  • Asset Review -The asset review commenced immediately following the final Federal Court decision on 20 July 2009. Whilst BalmainTRILOGY has undertaken to Members that the results of this review will be available within 3 months (end of October 2009) we are attempting to expedite this process so the results can be included in the Fund Accounts for the financial year ending June 2009.
  • Legal Review - The review of the past conduct of the management of the Fund has also commenced. This will be completed once the myriad of transactions undertaken by the Fund are fully examined. We will then pursue such Court actions as deemed commercially viable.
  • Investor Committee - We have commenced establishment of the Investor Committee which will include both investors' representatives and management representatives. The independent Chairman is Mr Ken Atchison. Ken is a very experienced property and funds management consultant. The committee will meet quarterly and will update investors accordingly.

Other Matters

  • BalmainTRILOGY is in continuing dialogue with the Commonwealth Bank of Australia (CBA) regarding the Fund's loan facility. This has included a detailed submission on our capabilities, progress on management of the mortgage assets and the initial strategy for the management of those assets going forward. CBA has specified the content of a formal submission which will be delivered to the CBA prior to 20 August 2009.
  • BalmainTRILOGY is currently undertaking preparation of the Fund Accounts and RG45 disclosures (benchmark reports) relating to the Fund. We anticipate that all statutory reporting deadlines will be met.
  • KPMG will conduct the fund audit for the year ending 30 June 2009 and we are currently preparing a time line for preparation of tax statements that will allow completion of your tax returns for the 2008-2009 financial year.
  • We have posted a Media Release in respect of Centrelink entitlements from the Australian Government (dated 24 December 2008) on the BalmainTRILOGY website and we are currently seeking an update from Centrelink on your behalf regarding this matter. To download the letter click HERE.

What's Happening Next

As the CBA discussions and Asset Review proceed we will update you on the Fund situation and progress towards our dual objectives of being able to re-start modest levels of distributions and/or redemptions.

Recent Developments

PPB has been recently appointed as Receiver and Manager to both of CPL and CP1 Limited. We emphasize that this is not a receivership of the Fund. The impact on the Fund is by virtue of the large number of borrowers from the Fund (essentially all of the previous 'related party borrowers') which are now in receivership.

We believe that this is a positive outcome for the Fund. The previous related party borrowers are now independently and professionally managed by PPB. We have already met with executives of PPB and believe we will be able to work productively with them in respect of the affected loans.

No doubt you appreciate that the transfer of the Fund to BalmainTRILOGY is an enormous task and while we are pleased with the very substantial progress we have made to date, there are many issues that we are diligently addressing on your behalf. Some of these issues are complex and will take time to resolve, but we assure you we are working hard to drive the process of assessing the assets of the Fund and keeping you informed of progress.

Again we thank you for your support and we look forward to communicating with you further and regularly in the future.

Yours sincerely
BalmainTRILOGY

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