INTRODUCTION

THE TARGET RETURN RATE IS 7.5% PER YEAR*

From 1 April 2022 the Investment Manager is targeting a return to Investors of 7.5% per annum (pre-tax, after fees and expenses but before withholding tax payable by foreign resident Investors).

Zank Income Fund

The Fund is an open-ended unlisted registered managed investment scheme structured as a unit trust established by the Responsible Entity pursuant to the Constitution and is governed by Australian law. Prior to 17 December 2019, the Fund was an unregistered managed investment scheme that was open to investment by wholesale clients (as defined in section 761G of the Corporations Act) only. These current Investors will continue to hold Units that are issued on the same terms as the Units being offered under this PDS. The Fund provides Investors an opportunity to acquire Units in the Fund which entitles them to returns generated by the Fund.

The Fund aims to generate the Target Return by investing in business and investment loans predominantly secured by registered first mortgages. In some instances, the Fund may make loans secured by a second registered mortgage where the Investment Manager considers that the return is appropriate to the risk profile of the loan.

The objective of our Income Fund has long been to provide investors with a choice of capital stable and consistent income generating investments. Based on the accumulation comparison between other indicators’ performance, we find that the return of the ASX Australian Fixed Interest Index has consistently increased over time. As has the ME Bank Term Deposit.

Past performance is no guarantee of future performance.

The Zank Income Fund is not a bank deposit or liability of the issuer and is subject to a greater risk of loss of capital than a cash investment product. The Zank Income Fund has Target returns only. Returns are not guaranteed and there is a risk of negative returns. Zank Income Fund has outperformed most fixed income fund products as shown in the Quarterly Accumulation Comparison.

Although the mortgage fund is normally illiquid compare with stock market trading. It also brings less volatility to investors.

Portfolio of Fund

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FEATURES

The Investment Manager’s strategy is to make loans to borrowers for business and investment purposes with a low to medium risk profile, with a focus on capital preservation. Loans will not be used for personal, domestic or household purposes.

All loans will be secured by a registered first or second mortgage. Loans will be predominantly secured by registered first mortgages; however, the Fund may make loans secured by a second registered mortgage where the Investment Manager considers that the return is appropriate to the risk profile of the loan. Where considered appropriate by the Investment Manager, further types of security may be sought, including corporate or directors guarantees and general security agreements.

The Fund will not lend to any related party borrowers of the Investment Manager.

The Investment Manager will focus on managing arrears and defaults with an overarching goal to maximise the recovery of loans from all possible sources. In some situations, this may result in the sale of the underlying security held by the Fund by the Responsible Entity in the capacity as mortgagee.

The Investment Manager maintains a set of Lending Guidelines it uses for assessing prospective loans to recommend to the Responsible Entity on behalf of the Fund and for managing those loans once they are made. Below is a summary of some the key terms of the Lending Guidelines which may be adjusted from time to time depending on the Investment Manager’s risk assessment of the Fund’s existing portfolio of loans and prevailing market conditions.

INVESTMENT APPROACH

LENDING GUIDELINES

The following table provides a summary of the parameters within which each loan will be made.

Borrowers	Loans will be made to borrowers for business or investment purposes, including, but not limited to, residential, commercial, industrial and rural developments. Loans will not be used for personal, domestic or household purposes.
Security	All loans will be secured by a registered first or second ranking mortgage (Real Property Mortgage). Where considered appropriate by the Investment Manager, further types of security may be sought, including corporate or directors guarantees and general security agreements.
Minimum Amount	Loans will be for a minimum of $100,000.
Maximum Amount	There is no maximum amount that will be lent to any one borrower. However, the Investment Manager intends to spread lending across a range of borrowers to reduce the risk of a default negatively impacting Target Returns.
Term	Loans are expected to be made for a term of between 3 and 24 months – although loans may be made or extended beyond this.
Loan to value ratio (LVR)	For construction loans the maximum LVR is 70% of the “as-if-complete” value. For other loans, the maximum LVR is 70% of the “as-is” value. Should a loan be secured by a second mortgage, the maximum combined debt LVR will be 70%. The LVR for a loan secured by a first mortgage will not be on a combined debt basis. A valuation will be prepared by an independent valuer. A report from an independent quantity surveyor is required prior to each loan advance in respect of construction loans. Money advanced in respect of constructions loans will be lent on a cost-to-complete basis. The Responsible Entity maintains and complies with a written valuation policy. This policy may be updated from time to time and is available on the Responsible Entity’s website at www.vascofm.com. The actual LVR for each loan will vary depending upon the credit risk of a borrower and the nature of the property which is the subject of a Real Property Mortgage.
Default terms	Standard events of default including failure to pay amounts when due, breach of financial covenants and insolvency of a borrower.
Target lending rate	Varies based on loan scenario.
Other key requirements	Typical representations, warranties, undertakings and events of default, including restrictions on a borrower disposing of the security property (where relevant) or incurring additional financial indebtedness.
Use of receipts from borrowers	The Investment Manager will deal with payments made by borrowers under the terms of the loan agreement with a borrower in accordance with the instructions of the Responsible Entity. This may include using those payments to make additional loans to new borrowers.

The Investment Manager is responsible for ensuring that the risk profile of each loan is appropriate having regard to the quality and value of the loan, the underlying security property and the Investment Manager’s risk analysis process.

RISKS

All investments involve varying degrees of risk.

While there are many factors that may impact on the performance of any investment, the section below summarises some of the major risks that prospective investors should be aware of when investing in the Fund.

Before investing, prospective investors should consider whether the Fund is a suitable investment, having regard to their personal investment objectives, financial position, particular needs and circumstances.

Prospective investors should also consider and take into account the level of risk with which they are comfortable, the level of returns they require, as well as their frequency and nature and their investment time horizon. Prospective investors should seek professional advice in setting their investment objectives and strategies.

The risks described below are not exhaustive and whether a risk is specifically referred to in this section or not, that risk may have a material effect on the performance and value of the Fund.

Importantly, prospective investors should note that the value of an investment in the Fund, and income received by investors, may rise or fall and, consequently, Investors may suffer losses (including the loss of all of their capital investment in the Fund).

The Zank Income Fund is a Mortgage Fund that makes loans predominantly to borrowers for the purpose of financing the development of a property. The chief risks to which investors are exposed to:

• Default Risk: This is the risk that a borrower may not be able to meet its financial obligations under a loan. Where a borrower defaults on their financial obligations, investors may receive income distributions less than the Target Rate or no income distributions.
• Security Risk: This is the risk that the value of the underlying secured property is insufficient to cover the amount outstanding on a loan.
• Valuation Risk: Valuation risk is the risk that the valuation of the secured property obtained by the Fund is not reflective of current market property values. Incorrect valuation may affect the amount the Fund can recover at the time of loan default.
• Construction and Development Risk: Funds advanced under loans may be used for property construction projects. There are specific risks associated with this type of loan. These risks include:
  • construction or development costs can exceed budgeted costs, and the borrower may be unable to complete the construction project unless the borrower can obtain further funds, and
  • a change in market conditions could result in the project’s value on completion being worth less than anticipated, or in lower sale rates and prices than expected.

For more detailed information on the risks and management of the Fund, please read the PDS.

APPLICATION

Application

It is intended that Units will be issued on a monthly basis, within ten Business Days following the end of the month in which a completed Application Form (accompanied by payment of application money in cleared funds) is received.

Units will be issued at the Unit Price, calculated in accordance with the Constitution. The Unit Price is calculated by dividing the net asset value of the Fund by the number of Units on issue.

The Unit Price is calculated monthly (or on or about the date of issue or at such other interval as the Responsible Entity determines), based on a valuation of the investments of the Fund at the close of business (or 5.00pm) on the last Business Day of the calendar month (or at such other interval as the Responsible Entity determines).

Distribution

Distributions of income are expected to be calculated at the end of each calendar quarter and paid to Investors nominated account within 10 Business Days of this calculation date. However, the Responsible Entity retains its discretion to pay distributions within three months of the calculation date in accordance with the Constitution.

Distributions will only be made from the income earned by the Fund over the course of the preceding quarter from interest earned on loans.

The Responsible Entity reserves the right the make distributions more or less frequently in its absolute discretion.

Minimum Investment

$100,000 then in multiples of $10,000. Any subsequent investment will trigger a new Minimum Term before Investors can withdraw that part of their investment.

Minimum Term

There is a Minimum Term of 12 months before Investors can request a withdrawal from the Fund.

The Responsible Entity retains the discretion to allow Investors to withdraw prior to the end of their Minimum Term and charge an Early Withdrawal Fee of 1% of the Investor’s withdrawal amount. This Early Withdrawal Fee is paid directly to the Investment Manager.

Withdrawals

Given the nature of the Fund’s investments, an investment in the Fund should be considered an illiquid investment.

Investors will have no rights to withdraw from the Fund prior to the end of their Minimum Term.

Once the Minimum Term is reached, Investors will be able to withdraw from the Fund pursuant to Withdrawal Offers made by the Responsible Entity, which are expected to be made on a quarterly basis.

Where there are insufficient funds to satisfy all Withdrawal Requests pursuant to any Withdrawal Offer, they will be satisfied pro-rata and carried over to subsequent Withdrawal Offers.

* This is a target return only and is not a forecast or a guaranteed return. There is a risk that you may lose some or all of your capital invested. The Target Return Rate is net of all fees and expenses of the Fund. Indicative rate of return based on historic data of the past performance of the fund. Please note past performance may not be indicative of future performance.