1st April 2009

Dear Investor,

Not all mortgage funds are frozen

You may have read in the Press recently reports about the current situation with regard to mortgage funds. Much of what has been written applies to the mortgage fund industry in general terms, but many of the comments do not apply to the La Trobe Australian Mortgage Fund. In this Investment News, we want to note the points on which we agree, but also highlight the key points of difference between the mortgage fund industry as a whole and our mortgage fund.

Some basic facts

There are some basic facts on which we can all agree:

  • The mortgage fund sector manages about $17 billion in investors' funds.
  • There are about 270,000 investors in mortgage funds, many of whom are retirees looking for capital stability and consistent income returns.
  • Mortgage funds are now offering higher returns than deposit accounts. For example, La Trobe's Pooled Option is paying 6.95%1, net to investors.
  • The mortgage fund sector plays a 'niche' role in the provision of finance to a wide range of borrowers, particularly small business and property developers, often offering greater flexibility to borrowers than the major banks.

But there are two (2) significant points of difference.

La Trobe's redemptions are not frozen

Many mortgages funds in Australia, including the largest players, froze redemptions during 2008 and many still have restrictions on investors withdrawing their funds. However, funds that froze redemptions at the peak of the financial crisis are now allowing unitholders to reclaim some of their money.

AMP and AXA are permitting unitholders to claim only around 5 per cent of their total investment.

AMP spokeswoman Lara Daniels said that the AMP Capital Enhanced Yield Fund did not have sufficient cash available to meet all redemption requests submitted by unitholders at the end of January. This was because the Fund's assets are tied up in long term infrastructure projects, which were less able to be converted into cash.

Data collated by Aviva Australia shows that the largest mortgage fund in Australia, the Challenger Howard Wholesale Mortgage Fund, has capped redemptions at 11.2 per cent of unitholders' investments.

The country's second largest mortgage fund, the Perpetual Monthly Income Fund, is permitting unitholders to redeem as much as 30 per cent of their capital.

Perpetual's head of income products Richard Brandweiner said his fund had suffered a net outflow of more than $100 million in recent times but was able to meet higher claims for redemptions because it had relatively high cash reserves.

However, we at La Trobe at no time froze redemptions from our Fund, and investors were, and still are, able to access their funds in accordance with their investments' withdrawal provisions.3

La Trobe is still lending

Recently, the Chief Executive of the Investment and Financial Services Association, Richard Gilbert noted that "mortgage trusts have been providing finance for small business and property developers for almost 40 years", but "essentially lending by mortgage trusts has almost dried up." This is because mortgage funds have been preserving cash, in order to try and meet redemptions.

However, we at La Trobe are still receiving applications for finance from borrowers with quality proposals, across a range of sectors and geographical locations, and we continue to lend from both our mortgage fund and other long-term funding lines.

We are also receiving and processing applications from investors in volumes higher than during 2008, on our ordinary investment terms. All of our investors are enjoying typical investment performance, allowing them to benefit from the premium returns presently available in the market place as a result of the shortage of functioning competitors.

It is important in today's economic environment to look closely at the news of the day, and make sure that the comments apply to your particular circumstances.

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.