6th June 2007

Dear Investor,

Know who you are investing with

Does a rotten apple really ruin the whole barrel or does it provide the invaluable lesson to choose wisely when picking the fruit before placing it in your basket?

Unfortunately, like many issues under scrutiny by the media, many generalisations can occur. So, with the collapses of Westpoint, Fincorp and most recently Australian Capital Reserve (“ACR”), what are the differences that keep your investment secured in a regulated and complying managed investment scheme such as the La Trobe Australian Mortgage Fund (“the Fund”)?

Here are some of the major differences:
  1. Loans to related entities.
    Many debenture* companies and similar types of structures often lend funds to related entities and the transactions are not at arm’s length. This was a common theme with Westpoint, Fincorp and ACR, and this significantly increases the risk involved in the loan, often leading to higher leveraging of invested funds.

    La Trobe’s difference
    Neither La Trobe nor the Fund permits lending to related entities, or to directors or staff of La Trobe.



  2. Over-exposure to development projects
    Lending for construction and property development is potentially riskier than other types of property loans. Companies such as Westpoint, Fincorp and ACR had a large, if not total, exposure to construction and property development projects.

    La Trobe’s difference
    La Trobe has a tightly managed approach to construction and development projects, with the percentage of the Fund exposed to property development projects currently standing at only 12.06%†.



  3. High loan to valuation ratios
    A common practice with high yield debenture companies is to use a high loan to valuation ratio (“LVR”), often exceeding 80%, and draw downs are made on the basis of the value of the completed project, rather than the “as is” value at the time of the drawdown. This distorts the exposure of investors and gives rise to particular risks if the project has to be sold prior to completion.

    La Trobe’s difference
    The La Trobe Fund rarely exceeds an LVR of 66% and the current average LVR for all loans across the Fund is 58.64%††. La Trobe initially assesses a loan for a property construction project on the basis of an “on completion” valuation. However, the initial drawdown is based on an “as is” valuation and we only advance further funds progressively, following satisfactory valuer inspections and we usually hold 100% of the cost to complete.



  4. No track record
    A common theme with many debenture companies is that they do not have a long track record and have not experienced troubled times, such as was seen in the 1980s and early 1990s.

    La Trobe’s difference
    La Trobe has been operating since 1952 and has lent over $6 billion to over 93,000 individual borrowers.



  5. Hidden fees and commissions
    Companies such as Westpoint, Fincorp and ACR often paid financial planners hidden fees and commissions which are not disclosed to investors. This may mean that investments were recommended on the basis of the fees and commissions paid, rather than on the basis of the merits of the investment. In the case of Westpoint, commission payable was as high as 22%.

    La Trobe’s difference
    La Trobe neither accepts nor pays hidden fees and commissions. All fees charged to investors are fully disclosed in the Fund’s PDS and the Supplementary Product Disclosure Statement, and ongoing commissions to financial planners is generally limited to 0.5% p.a.



*Debenture - A loan raised by a company, paying a fixed rate of interest and secured on the assets of a company.

† Current construction and development exposure as at 30 April 2007


Best regards,
Chris Andrews

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Chris Andrews
Head of Funds Management

t  +61 3 8610 2811
e  candrews@latrobefinancial.com.au

Chris Andrews is the Head of Funds Management for the La Trobe Group and has responsibility for the La Trobe Australian Mortgage Fund.
Read full profile here.










La Trobe is one of Australia's leading independent specialist mortgage Financiers. Its business includes residential mortgages, commercial mortgages, and investment services operating one of Australia's largest Mortgage Funds under AFSL 222213. It employs over 115 staff and has raised over AUD$10Billion to assist over 100,000 customers since inception in 1952.

Copyright 2010 La Trobe Financial. All rights reserved. No portion of this may be reproduced, copied, or in any way reused without written permission from La Trobe Financial. Disclaimer



* La Trobe Financial Asset Management Limited ABN: 27 007 332 363 and AFSL No: 222213 is the issuer and manager of the La Trobe Australian Mortgage Fund. It is important for you to read the Product Disclosure Statement for the Fund before you make any investment decision. You can get a copy of the PDS by calling 1800 818 818. You should consider carefully whether or not investing in the Fund is appropriate for you.
(1) The rates of return from the Fund are not guaranteed and are determined by future revenue of the Fund, and may achieve lower than expected returns. Past performance is no guarantee of future performance. Investors risk losing some or all of their principal investment.
(2) Withdrawal rights are subject to liquidity and may be delayed or suspended.
(3) As at 30/11/10 the La Trobe Australian Mortgage Fund had received a Morningstar RatingTM of 5 stars. The Morningstar Rating is an assessment of a fund's past performance - based on both return and risk - which shows how similar investments compare with their competitors. A high rating alone is insufficient basis for an investment decision. © 2010 Morningstar, Inc. All rights reserved. Neither Morningstar, nor its affiliates nor their content providers guarantee the above data or content to be accurate, complete or timely nor will they have any liability for its use or distribution. Any general advice has been prepared by Morningstar Australasia Pty Ltd ABN: 95 090 665 544, AFSL: 240892 (a subsidiary of Morningstar, Inc.), without reference to your objectives, financial situation or needs. You should consider the advice in light of these matters and, if applicable, the relevant product disclosure statement, before making any decision. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/fsg.pdf
(4) 3.75 star rating out of a possible 5 star rating indicates that Adviser Edge believes that La Trobe has performed in line with its peers and exceeded its peers on some fronts.
(5) The Standard and Poors rating of 4 out of 5 stars indicates that S + P has high conviction that La Trobe Financial will consistently generate risk-adjusted fund returns in excess of its relevant investment objectives and relative to its peers.
(6) The award was given to the La Trobe Australian Mortgage Fund, Pooled Mortgages Option.
Research Ratings are subject to change. To view the latest research information please visit www.adviseredge.com.au or www.standardandpoors.com.au. Ratings issued by Adviser Edge Investment Research AFS Licence No. 236783 and Standard & Poors Information Services (Australia) Pty Ltd AFS Licence No. 258896 are solely statements of opinion and not statements of fact or recommendations to purchase, hold, or sell any securities or make any other investment decisions. The ratings are only one factor to be taken into account in deciding to invest. Research Houses receive a fee from La Trobe for rating the product. The Adviser Edge rating is generally a measure of the rated entity's capacity to meet its repayment obligations in all market circumstances.
IMPORTANT: This message, together with the La Trobe Financial website (www.latrobefinancial.com.au) and all its contents have been prepared for general information only and should not be taken as legal or financial advice, and as such the specific needs, investment objectives or financial situation of any particular user have not been taken into consideration. Individuals should therefore talk with their financial planner or advisor before acting on any information present on this message or the La Trobe website.