AAFH QUANTUM LEAP FUND Product Disclosure Statement...Quantum Leap Fund (“Fund”) available for investment through this PDS. AAFH Capital Pty Ltd ACN 609 853 616 is the Manager

AAFH CAPITAL ACN 609 853 616 Level 3, 179 Queen Street, Melbourne, VIC 3000, Australia

WWW.AAFH.COM 03 9890 0059 [email protected]

AAFH QUANTUM LEAP FUND

Product Disclosure Statement

06 March 2018

AUSTRALIA | CHINA | HONG KONG | INDONESIA | MALAYSIA | SINGAPORE

AAFH QUANTUM LEAP FUND PRODUCT DISCLOSURE STATEMENT 2

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Fund Information

AAFH Quantum Leap Fund ARSN 623 226 611

Fund Manager AAFH Capital Pty Ltd

ACN 609 853 616 AFSL CAR No 1250219

Responsible Entity & Trustee

Melbourne Securities Corporation Ltd ACN 160 326 545, AFSL 428289

Custodian

Sandhurst Trustees Limited ACN 004 030 737

Compliance & Financial Auditor Moore Stephens ACN 386 983 833



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Important Notices

This Product Disclosure Statement (“PDS”) is dated 06 March 2018.

Melbourne Securities Corporation Ltd ACN 160 326 545 ("Trustee") holds an Australian Financial Services Licence ("AFSL"), number 428289, and is the Responsible Entity and Trustee of AAFH Quantum Leap Fund (“Fund”) available for investment through this PDS. AAFH Capital Pty Ltd ACN 609 853 616 is the Manager of the Fund ("Manager"). The Manager is an authorised representative (No: 1250219) of MSC Advisory Pty Ltd (ACN 607 459 441, AFSL 480649). The Trustee is the issuer of the PDS and the Units in the Fund. Units to which this PDS relates will only be issued on the receipt of a properly completed Application Form included in or accompanied by this PDS or obtained from the Trustee and any other required information as to an investor’s identity and the source of payment of the Application Money.

This PDS is not required to be, and has not been, lodged with the Australian Securities and Investments Commission (ASIC).

The Fund is subject to investment risk, including possible delays in repayment and loss of income and principal invested. None of the Fund, the Trustee, Manager or any of their associates or related bodies corporate, guarantees in any way the performance of the Fund, repayment of capital from the Fund, any particular return from, or any increase in, the value of the Fund. Any prospective financial information in the PDS is predictive in nature, may be affected by inaccurate assumptions or by known or unknown risks and uncertainties and may differ materially from the results ultimately achieved.

This PDS has been prepared without taking into account the investment objectives, financial situation or needs of any particular investor. Before deciding whether to make an investment decision you should carefully read all of this PDS and obtain professional advice about an investment in the Fund having regard to your particular investment needs, objectives and financial circumstances before investing.

Any information or representation not contained in this PDS must not be relied on as having been authorised by the Trustee or Manager.

The offer to which this PDS relates is only available to people receiving this PDS in Australia. This PDS does not constitute an offer or invitation in any place where, or to any person to whom, it would be unlawful to make such an offer or invitation.

The information in this PDS is current as at 06 March 2018. Information in this PDS may change from time to time. Unless the changed information is materially adverse to you, the Trustee may not always update or replace this PDS to reflect the changed information. Updated information can be obtained at www.aafh.com. A paper copy of this information is also available free of charge upon request from the Manager.

Terms used in this PDS are defined in the Glossary in Section 11.



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Contents

1. KEY FEATURES 6

2. BENCHMARKS FOR UNLISTED MORTGAGE SCHEMES 8

3. INVESTMENT OVERVIEW 12 3.1 Investment objective and target return 12 3.2 Additional Classes of Units 12 3.3 Benefits of the Fund 12 3.4 Fund structure 13 3.5 Investing in the Fund 14 3.6 Minimum investment amount 14 3.7 Unit Price 14 3.8 Cooling Off 14 3.9 Distributions 14 3.10 Withdrawals 14 3.11 Transfer of Units 14 3.12 Labour standards and environmental, social and ethical considerations 15

4. ABOUT THE MANAGER AND SERVICE PROVIDERS 16 4.1 AAFH Capital Pty Ltd 16 4.2 Management Agreement 16 4.3 Trustee 16 4.4 Custodian 17 4.5 AAFH Property Investment Fund 17

5. INVESTMENT OPPORTUNITIES 18 5.1 Mortgage Backed Security investment opportunities 18 (a) Analysis and evaluation 19 (b) Approval process and ongoing management 20 (c) Default management 20 5.2 Other Indirect Property Investment Opportunities 20 (a) Analysis and evaluation 21 (b) Approval process and ongoing management 22

6. RISKS 23 6.1 General risks 24 6.2 Mortgage-Backed Security investment risks 26 (a) Interest rate risk 26 (b) Counterparty and credit risk 26 (c) Default risk 26 (d) Related party risk 26 6.3 Indirect Property Investment risks 27

7. FEES AND OTHER COSTS 28 7.1 AAFH Quantum Leap Fund 28



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7.2 Example of annual fees and costs 29 7.3 Additional explanation of fees and costs 30

8. TAX CONSIDERATIONS 33 8.1 Tax Summary 33 8.2 Income Tax Provisions 33 8.3 Income Tax (AMIT Provisions) 33 8.4 Income Tax (Non-AMIT Provisions) 34 8.5 Disposal of Units 36 8.6 Non-Resident Members 36 8.7 Annual Reporting 37 8.8 Tax File Number (TFN) and Australian Business Number (ABN) 37 8.9 Goods and Services Tax (GST) 37 8.10 Stamp Duty 37 8.11 Foreign Account Tax Compliance Act (FATCA) 37 8.12 Common Reporting Standard (CRS) 38

9. ADDITIONAL INFORMATION 39 9.1 Winding up the Fund 39 9.2 Related party transactions 39 9.3 Privacy 39 9.4 Anti-Money Laundering and Counter-Terrorism Financing Laws 40 9.5 Limitations of Liability of Members 40 9.6 Constitution and the Trustee 40 9.7 Valuation of Fund assets and unit pricing 41 9.8 Supplementary PDS 41 9.9 Compliance Plan 42 9.10 Compliance Committee 42 9.11 Complaints 42 9.12 Continuous Disclosure Requirements 43

10. CORPORATE DIRECTORY 44 10.5 Enquiries 44

11. GLOSSARY 45



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1. KEY FEATURES

This Section of the PDS summarises key features of the investing in the Fund and provides references to other Sections of the PDS where you can find further information. You should read the entire PDS before deciding whether to invest in the Fund.

Topic Summary Where to find more information

Manager AAFH Capital Pty Ltd ACN 609 853 616 is the Manager of the Fund.

Section 4.1

Trustee Melbourne Securities Corporation Ltd ACN 160 326 545, AFSL 428289 is the Trustee of the Fund.

Section 4.3

Custodian Sandhurst Trustees Limited ACN 004 030 737 is the Custodian of the Fund.

Section 4.4

Investment objective The Fund provides investors the opportunity to obtain investment exposure to Mortgage Backed Securities and other Indirect Property Investments.

Section 3.1

Target Return The Fund will have a Target Return of 5% per annum (net of fees and expenses) on initial investment. Distributions and/or capital returns at any rate of return, including the Target Return referred to above, are not guaranteed.

Section 3.1

Fund structure An illiquid open unit trust that is registered with ASIC as a managed investment scheme. Members will be offered Units in the Fund.

Section 3.4

Term of the Fund The term of the Fund is 30 years.

Investing in the Fund

To invest in the Fund, you need to complete and submit the application form contained at the back of this PDS to become a Member.

Section 3.5

Minimum investments

The minimum investment in the Fund is $10,000. Each additional investment must be at least $5,000.

Section 3.6

Underlying assets The Fund will invest in securitisation vehicles and may make other Indirect Property Investments.

Section 5



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Distributions The Trustee intends to make bi-annual distributions of income received from the underlying assets net of expenses.

Section 3.9

Withdrawals Generally, you have no right to redeem units in the Fund until the end of the Term. However, the Trustee may be in a position to provide an ability to withdraw every 5 years after commencement of the Fund.

Section 3.10

Cooling off period There is no cooling off period. Section 3.8

Fees There are fees and costs payable in relation to the management of the Fund. Refer to Section 7 for further details about the Fees and costs that may be applicable.

Section 7



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2. BENCHMARKS FOR UNLISTED MORTGAGE SCHEMES

ASIC has developed 8 Benchmarks and Disclosure Principles designed to provide investors with key information about investing in mortgage funds. The Benchmarks and Disclosure Principles are contained in Regulatory Guide 45: Mortgage Schemes: Improving disclosures for retail investors. They are outlined below.

Details in the table below relate to the Class of Units offered under this PDS. Additional information about any other Classes will be included in the relevant Supplementary PDS for that Class.

Benchmarks and Disclosure Principles Statement

Benchmark and Disclosure Principle 1: Liquidity For a pooled mortgage scheme, the Trustee has cash flow estimates for the scheme that: (a) demonstrate the scheme’s capacity to meet its

expenses, liabilities and other cash flow needs for the next 12 months;

(b) are updated at least every three months and reflect any material changes; and

(c) are approved by the directors of the Trustee at least every three months.

The Fund meets this benchmark. The Trustee prepares cash flow projections for the next 12 months, the projections are updated and are approved by the directors of the Trustee every three months and more frequently where material changes occur. The Fund will be illiquid and intends to make withdrawal offers only on a 5 yearly basis, in accordance with the expected maturity profile of its investments.

Benchmark and Disclosure Principle 2: Scheme borrowing The Trustee does not have current borrowings and does not intend to borrow on behalf of the scheme.

The Fund meets this benchmark. As at the date of the PDS, the trustee does not have current borrowings and does not intend to borrow on behalf of the Fund.

Benchmark and Disclosure Principle 3: Loan portfolio and diversification For a pooled mortgage scheme: (a) the scheme holds a portfolio of assets diversified

by size, borrower, class of borrower activity and geographic region;

(b) the scheme has no single asset in the scheme portfolio that exceeds 5% of the total scheme assets;

(c) the scheme has no single borrower who exceeds 5% of the scheme assets; and

The Fund meets this benchmark in respect of our mortgage-backed securities investments and requires any such investments to meet this benchmark. The Fund will not be exposed through those investments to any single borrower who exceeds 5% of the Fund assets and no single asset in the Fund will exceed 5% of the total Fund assets. The Fund may not meet aspect (d) of this benchmark in respect of its other property investments.



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(d) all loans made by the scheme are secured by first mortgages over real property (including registered leasehold title).

For more information on the Fund’s policy on investing in lending entities please refer to section 5.1 of this PDS.

Benchmark and Disclosure Principle 4: Related party transactions The Fund does not lend to related parties of the Trustee or to the Manager.

The Fund does not meet with this benchmark. The Fund's investment in Mortgage Backed Securities may be made through the AAFH Property Investment Fund, of which the Trustee is the trustee and the Manager is the manager. Nonetheless, the Trustee considers that the risks associated with the related party transactions are being appropriately managed. This investment will be on arms' length terms (except in relation to the rebating of fees, as described in section 7.3(g)). Risks associated with related party transactions are detailed in section 6.2(d)

Benchmark and Disclosure Principle 5: Valuation policy In relation to valuations for the scheme’s mortgage assets and their security property, the board of the Trustee requires: (a) a valuer to be a member of an appropriate

professional body in the jurisdiction in which the relevant property is located;

(b) a valuer to be independent; (c) procedures to be followed for dealing with any conflict

of interest; (d) the rotation and diversity of valuers; (e) in relation to security property for a loan, an

independent valuation to be obtained: (i) before the issue of a loan and on renewal:

(A) for development property, on both an ‘as is’ and ‘as if complete’ basis; and

(B) for all other property, on an ‘as is’ basis; and (ii) within two months after the directors form a view

that there is a likelihood that a decrease in the value of security property may have caused a material breach of a loan covenant.

We comply with this benchmark. The Fund will not hold any direct mortgage assets or security property. However, we will assess the valuation policy of any entities the Fund is investing into to make sure that it meets this benchmark.



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Benchmark and Disclosure Principle 6: Lending principles—Loan-to-valuation ratios If the scheme directly holds mortgage assets: (a) where the loan relates to property development—

funds are provided to the borrower in stages based on independent evidence of the progress of the development;

(b) where the loan relates to property development—the scheme does not lend more than 70% on the basis of the latest ‘as if complete’ valuation of property over which security is provided; and

(c) in all other cases—the scheme does not lend more than 80% on the basis of the latest market valuation of property over which security is provided.

The Fund does not directly hold mortgage assets. However, the mortgage-backed securities the Fund will invest into will comply with this benchmark by lending not more than 70% on the basis of the latest ‘as if complete’ valuation of property over which security is provided or more than 80% on the basis of the latest market valuation. The Fund invests a significant component of its assets in development loans. It is anticipated that the Fund will invest 25% of its assets in development loans.

Benchmark and Disclosure Principle 7: Distribution practices The Trustee will not pay current distributions from scheme borrowings.

The Fund meets this benchmark. Distributions will come from income made from the Fund’s investments. Distributions will be paid bi-annually at the end of June and December. Distributions may fall below the Target Return for a range of reasons, including as described in section 3.1. Returns above the Target Return will be retained by the Manager as a management fee (as described in section 7).

Benchmark and Disclosure Principle 8: Withdrawal arrangements

Liquid schemes For liquid schemes: (a) the maximum period allowed for in the constitution for

the payment of withdrawal requests is 90 days or less;

(b) the Trustee will pay withdrawal requests within the period allowed for in the constitution; and

(c) the Trustee only permits members to withdraw at any time on request if at least 80% (by value) of the scheme property is: (i) money in an account or on deposit with a bank

and is available for withdrawal immediately, or

The Fund will not be liquid. A registered scheme is liquid if liquid assets account for at least 80% of the scheme property. Property is only considered to be a liquid asset if the responsible entity expects that the property can be realised for its market value within the period specified in the Fund constitution. This will not be the case, as we anticipate that the Fund's assets will only comprise of Mortgage Backed Securities and Indirect Property



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otherwise on expiry of a fixed term not exceeding 90 days, during the normal business hours of the bank; or

(ii) assets that the Trustee can reasonably expect to realise for market value within 10 business days.

Investments which we do not anticipate will be liquid.

Non-liquid schemes For non-liquid schemes, the Trustee intends to make withdrawal offers to Members at least quarterly.

Our Fund does not meet this benchmark. As the Fund will be illiquid, investors will have limited ability to withdraw during the Term (if any). The Trustee intends to make withdrawal offers during the term every 5 years after commencement of the Fund. Any amounts not withdrawn at this point will be rolled over for a further 5 year period. The Fund expects to be in a position to make withdrawal offers on this basis by ensuring that the Mortgage Backed Securities investments to which it is exposed include a buy back obligation on the Mortgage Backed Securities note issuer after 5 years. The Fund may not be able to make a withdrawal offer if it does not have sufficient liquid assets, for example because the issuer of an Mortgage Backed Securities investment has not completed its buy back.



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3. INVESTMENT OVERVIEW

3.1 Investment objective and target return

The Fund provides investors the opportunity to obtain investment exposure to Mortgage Backed Securities and Indirect Property Investments.

The Fund may obtain exposure to Mortgage Backed Securities directly or through investing in units in the AAFH Property Investment Fund, of which the Trustee is also the trustee and the Manager is also the manager. The Fund, either directly or through the AAFH Property Investment Fund, will invest in securities backed by a pool of mortgages.

The Fund may also make other Indirect Property Investments.

The Fund has a Target Return of 5% per annum on initial investment. Please refer to Section 6 which outlines a range of factors which could have an impact on Distributions and/or capital returns. The Target Return is not guaranteed and actual returns will be based on future revenue, which may be materially lower than the Target Return.

3.2 Additional Classes of Units

In addition to the investment opportunity described in this PDS, the Fund may offer additional Classes of Units. These Classes may provide exposure to different investments, with different investment objectives and target returns.

In relation to any additional Classes, this PDS forms the first part of the disclosure you receive. Specific details about the investments of the additional Class, its fees and specific risks will be set out in a Supplementary PDS. You should consider the information in this PDS and the Supplementary PDS before investing in Units in any other Classes.

3.3 Benefits of the Fund

Indirect Exposure to Australian real estate assets.

The Fund allows investors the opportunity to acquire indirect exposure to Australian real estate assets via indirect property investments in property development or property holding entities. This allows Investors to profit from a property development, without having any managerial or operational responsibilities that a property developer would usually undertake. For more information please refer to section 5.2 Other Indirect Property Investment Opportunities.

Exposure to Mortgage Backed Securities investments

The Fund will invest into Mortgage Backed securities, in the form of Residential Mortgage Backed securities. Residential Mortgage Backed (RMBS) securities are a type of note or Bond that is secured by a pool of residential mortgages. Investing in RMBS provides Investors the ability to spread their investment risk across multiple assets. For more information please refer to section 5.1 Mortgage Backed Security Investment opportunities.



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Periodic distributions to your account

As an Investor, you will be receiving regular periodic distributions in the form of interest return from the Fund’s Mortgage Backed Securities Investments. Distributions occurs bi annually, at the end of June and December. Please refer to section 3.9 Distributions for more information.

Attractive rate of return on investment.

The Fund has a target return of 5% return per annum on initial investments net of fees and charges.

3.4 Fund structure

The Fund is a managed investment scheme which has been registered with ASIC under Chapter 5C of the Corporations Act. The Trustee and Responsible Entity of the Fund is Melbourne Securities Corporation Ltd ACN 160 326 545. The Trustee holds an Australian Financial Services Licence (AFSL No. 428289) which authorises it to operate the Fund.

The Trustee has engaged AAFH Capital Pty Ltd as the Manager of the Fund. Information about the Manager is contained in Section 4.1.

The Trustee has also engaged Sandhurst Trustees Limited as the Custodian. The Custodian will hold all assets of the Fund on behalf of the Trustee. The Custodian will hold all assets of the Trust. This ensures the Fund assets are segregated from the Trustee's own assets. The Custodian does not guarantee the obligations of the Trustee or carry out a supervisory function over the Trustee.

The Fund will offer investors the opportunity to obtain investment exposure to Mortgage Backed Securities and other Indirect Property Investments.



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3.5 Investing in the Fund

To invest in the Fund, you need to complete and submit the application form contained at the back of this PDS to become a Member. The Trustee can accept or reject your application in its discretion. If your application is accepted, you will become a Member of the Fund and you will be issued with Units.

The Trustee has the discretion to reject part or all of an application, without giving reason for doing so. If the Trustee rejects an application for Units it must give you written notice of the rejection and repay the Application Money (less any Taxes and bank fees incurred by the Fund or the Trustee in connection with the application) back to you. Any interest earned on the application account will be retained by the Manager.

3.6 Minimum investment amount

The minimum investment is $10,000, and then in increments of $5,000.

The Trustee may, in its absolute discretion, accept lesser amounts and may change these amounts from time to time.

3.7 Unit Price

Units will be issued at $1.00 per Unit.

3.8 Cooling Off

Members do not have cooling-off rights under the Corporations Act. Once you have invested in the Fund, you will only be able to withdraw your investment as described in Section 3.10 below.

3.9 Distributions

Distributions will be paid bi-annually within 10 Business Days after the end of June and December to your nominated bank account.

3.10 Withdrawals

You cannot withdraw your investment Fund before the end of the investment term, unless permitted by the Trustee, in its discretion, subject to the Constitution and the Corporations Act. The Trustee may be in a position to provide an ability to withdraw every 5 years after commencement of the Fund. While the Fund is not liquid, withdrawals may only be made in accordance with the provisions of the Corporations Act. Additional information about investor's ability to withdraw during the Term is included in section 2 in relation to Benchmark 8.

Withdrawal proceeds will be paid to the Member's nominated account.

3.11 Transfer of Units

A Member may transfer the ownership of their Units at any time provided that the transferee meets the requirements of a Member in the Fund and has been approved by the Trustee.



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Under the Constitution, the Trustee has the discretion to refuse the transfer of Units and is not obliged to accept a transfer of Units. Please note that a transfer of Units may have taxation consequences (see Section 8).

There will not be an established secondary market for the sale of Units.

3.12 Labour standards and environmental, social and ethical considerations

The Trustee and the Manager do not take into account labour, environmental, or social or ethical standards for the purpose of selecting, retaining or realising the investments of the Fund.



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4. ABOUT THE MANAGER AND SERVICE PROVIDERS

4.1 AAFH Capital Pty Ltd

The Trustee has delegated responsibility for the management of the Fund to the Manager, AAFH Capital Pty Ltd. AAFH Capital Pty Ltd ACN 609 853 616 is the Fund Manager of the Fund (“Manager”). The Manager is an authorised representative (No: 1250219) of MSC Advisory Pty Ltd (ACN 607 459 441, AFSL 480649).

AAFH Capital Pty Ltd is a member of the Aus. Asia Finance Hub (AAFH) group of companies. Founded in 2009, AAFH is a financial group specializing in residential, commercial and development funding.

We have a team of dedicated accounting, banking, mortgage and finance experts who have the capability to provide an in-depth assessment of property investments.

With a network of service points across Asia Pacific, we provide a safe and reliable platform for Australian and foreign investors. AAFH Capital Pty Ltd was established to provide our high net worth individuals, wholesale investors and institutional investors access to Australian property investments.

Key personnel

Nolan Leo – Director of AAFH Capital Pty Ltd

Nolan Leo is the Director of AAFH and AAFH Capital Pty Ltd with extensive experience in banking and finance. Following successful employment with American Express, Westpac and ANZ, Nolan launched his own boutique finance firm, Aus Asia Finance Hub. Under his directorship, AAFH has managed over $600 million worth of deals within the first 6 years of operation.

Mona Abou Zeid – Director of AAFH Capital Pty Ltd

Mona has over 20 years of lending with Commonwealth Bank and Westpac banking Corporation. She has an extensive credit knowledge and is also very experienced in dealing with Development Lending and establishing investment portfolios for overseas investors.

4.2 Management Agreement

The Trustee's engagement of the Manager occurs under a Management Agreement.

The key duties of the Manager under the Management Agreement are:

• Assist in the administration of the Fund; and • Assist the Trustee in exercising their duties under the Constitution.

4.3 Trustee

Melbourne Securities Corporation Limited ACN 160 326 545 is the Trustee of the Fund and the issuer of this Product Disclosure Statement.



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Melbourne Securities Corporation Limited is licensed by the Australian Securities & Investments Commission ("ASIC") under Australian Financial Services Licence No. 428289 ("AFSL"). The Trustee is required to meet strict financial guidelines as set out in the Corporations Act and under its AFSL, including holding adequate professional indemnity insurance, a minimum net tangible assets and it must produce regular cash flow projections to ensure it has the financial resources to meet its obligations on an ongoing basis. The main responsibilities of the Trustee are to operate the Fund and ensure compliance as legislated by the Corporations Act and governed by ASIC. In exercising its powers and duties, the Trustee will:

• act honestly and in the best interests of Unitholders at all times; • appoint and monitor the performance of the Manager; • exercise a reasonable degree of care and diligence; • treat each class of Unitholders equally and fairly; • not make use of information obtained to gain an improper advantage or cause detriment to

unitholders; • comply with the Fund’s Compliance Plan and governing documentation and all applicable

laws; • ensure Fund property is separated from the property of and other schemes operated by the

Trustee or Manager; • ensure the Fund is conducted in accordance with the Constitution, the Corporations Act and

all other applicable legislation. In adherence with Corporations Act requirements, Melbourne Securities Corporation is subject to independent financial audit. It is also subject to independent compliance audit on a minimum annual basis. For further information, please refer to www.melbournesecurities.com.au 4.4 Custodian

The Custodian of the Fund is Sandhurst Trustees Limited ACN 004 030 737, Sandhurst Trustees Limited is engaged by the Trustee as a third-party Custodian to hold the assets of the Fund. Sandhurst Trustees ltd is an experienced independent custody provider and is Custodian of other investment funds managed by the Trustee.

4.5 AAFH Property Investment Fund

The Fund may obtain exposure to Mortgage Backed Securities directly or through subscribing for units in the AAFH Property Investment Fund.

The Trustee is the trustee of the AAFH Property Investment Fund and the Manager is also the manager of the AAFH Property Investment Fund.



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5. INVESTMENT OPPORTUNITIES

The Fund will invest in Mortgage Backed Securities investments and other Indirect Property Investments.

5.1 Mortgage Backed Security Investment Opportunities

This section contains a summary of the Mortgage Backed Securities investment opportunities that will be pursued by the Fund. It also provides general information on how the Trustee and the Manager will make and manage those investments.

5.1.1 Key terms

The following table provides a summary of the key terms the Manager will be seeking in an Mortgage Backed Securities investment: Mortgage-Backed Security Investment Generally, the Manager will be concentrating on

Residential Mortgage Backed Securities (RMBS). However, it is possible that other Mortgage Backed Securities investments, including commercial mortgage-backed securities, may be made.

Expected life Anticipated to be between 5 and 30 years, however the Manager will use reasonable endeavours to put in place mechanisms (such as buy back arrangements with Mortgage Backed Securities issuers) to enable liquidation of an investment after a 5 year period.

Jurisdiction Australian dollar denominated and issued by Australian issuers. The Borrowers may be located in or outside Australia.

Terms of Mortgage Backed Securities Investments

The terms of each Mortgage Backed Securities will be determined by the issuer of the security and must be consistent with the Manager’s investment strategy, as described below.

5.1.2 What is an Mortgage Backed Securities?

A Mortgage-Backed Security is a type of security where the value of the security and income payments under the security are derived from and secured (or “backed”) by a specific pool of mortgages.

Primarily, the Manager will focus on RMBS, which is a type of Mortgage Backed Securities secured by a pool of residential mortgages. The key feature of RMBS structures is ‘tranching’, which transforms the mortgage pool into a range of securities (the RMBS notes), each with a different risk and maturity profile. The RMBS notes usually make periodic payments of principal and interest that



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are funded from the payments of principal and interest made on the underlying mortgage collateral by the borrowers.

An RMBS transaction will usually be issued in two or more separate tranches. This establishes the relative order in which the RMBS notes are paid principal and interest and the priority in which losses are allocated between holders of the RMBS notes. For example, a tranche of notes referred to as "senior notes" will receive principal and interest payments in priority to another tranche referred to as "junior notes".

The risk rating of each tranche is usually determined by an accredited credit rating agency.

A typical RMBS transaction includes an option for the issuer to buy back the RMBS at face value once the underlying mortgage pool is repaid down to an agreed percentage (often 10%) of the original pool size. The RMBS notes in which the Fund will invest, and hence the underlying mortgages have a maximum term of up to 30 years. The expected life is determined based on forecast mortgage discharge speeds and issuer buy back action. The weighted average life of an RMBS investment held by the Fund is anticipated to be between 3 and 5 years. If discharge speeds are slower than forecast and if the RMBS issuer does not buy back the RMBS at the agreed percentage then the life could be longer than expected and up to the maximum term of 30 years.

5.1.3 Investment Strategy

The Manager intends for the Fund to receive Mortgage Backed Securities exposure through the AAFH Property Investment Fund. The Manager will ensure at all times that the risk / reward profile of each Mortgage Backed Securities investment is appropriate having regard to the quality and value of the Mortgage Backed Securities, the credit performance of the underlying mortgage pools (such as arrears levels), prepayment speeds, associated market mispricing from time to time and the risk analysis process. The Manager intends to allocate 70 - 100% of the Fund to Mortgage Backed Securities investments, more information can be found in section 3.4 Fund Structure.

5.1.4 Mortgage Backed Securities selection and assessment process

The Manager, as manager of the AAFH Property Investment Fund, will be responsible for undertaking the assessment of any Mortgage Backed Securities investments proposed to be made by the Fund or the AAFH Property Investment Fund.

(a) Analysis and evaluation

The Manager will assess the merits of an Mortgage Backed Securities and the associated risks. The analysis takes into account a set of criteria in accordance with the investment strategy. The risks can be described in three broad categories as follows:

(i) Counterparty risk—the Manager must assess the capacity of the Mortgage Backed Securities issuer to meet its financial commitments and susceptibility to adverse effects in change of circumstances and economic conditions.

(ii) Servicing risk—the ability of the underlying Borrowers to meet loan commitments, which focusses on the loan-to-valuation ratios and income and cash flow sources of the underling borrowers.



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(iii) Saleability—the exit strategy of the Mortgage Backed Securities investment, which may be longer than expected if the issuer does not buy back the security at the agreed percentage.

(b) Approval process and ongoing management

After an Mortgage Backed Securities investment is made, the Manager is responsible for the day-to-day and ongoing management of that investment. It will provide reports to the Trustee in relation to the investment including in respect of payment and collection of interest and principal and the credit performance of the underlying mortgage pools.

(c) Default management

Whether principal and interest is paid on an Mortgage Backed Securities note partly depends on whether the underlying Borrowers default on the loans to which the Mortgage Backed Securities notes relate. If an underlying Borrower does default on its loan, the steps which may be taken by the issuer include the following.

Possession taken of the residential property. Sale of the residential property. Any shortfall is submitted as a claim to mortgage insurers (if any). If there is no mortgage insurance or if the mortgage insurers are unable to pay the

claim (for example deteriorated financial capacity arising from extreme adverse financial conditions) then the shortfall would be absorbed by the net interest margin of the Mortgage Backed Securities trust.

If the net interest margin is insufficient then the cash reserve, if any, would be used to meet the short fall.

If the cash reserve is insufficient then the principal of the lowest tranche of notes is reduced.

If the lowest tranche of notes is insufficient then the principal of the next lowest tranche of notes is reduced and so on.

The highest tranche of notes will have a lower interest rate because of their security position at the top of the principal and interest priority order. The lower tranche of notes will have a higher interest rate because of their security position in the principal and interest priority order.

To mitigate against default risks, the Fund will invest only in Mortgage Backed Securities with underlying loan pools with an average loan-to-value ratio of less than 80%. The Fund may invest in senior or junior tranches of notes.

5.2 Other Indirect Property Investment Opportunities

This section contains a summary of the equity investment opportunities that will be pursued by the Fund through other Indirect Property Investments.

5.2.1 Key terms:



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The following table provides a summary of the key terms the Manager will be seeking in an equity investment: Indirect Property Investment Generally, the Manager will be concentrating on

preference shares that rank ahead of ordinary shares for distributions of both income and capital. However, it is possible that an ordinary shares may be made.

Use of equity funds Equity investments required for residential or commercial developments or passive property holdings will be considered with a focus on townhouse developments.

Location of projects Across Australia, with a main focus on Brisbane, Sydney and Melbourne.

Terms of investment Between 2 to 3 years. However, the terms of each equity investment might differ depending on the specific funding needs of the relevant project.

5.2.3 Investment strategy

The Manager intends for the Fund to invest in Indirect Property Investments through one or more third party property funds (such as registered and unregistered managed investment schemes).

The Manager will conduct a feasibility analysis to ensure at all times that the risk/reward profile of each Indirect Property Investment through such property funds is appropriate and in the best interest of the Fund.

The Manager will seek out property development funds focusing on the following:

- Australian Major Capital cities and Metro Area properties. - Apartment, Land subdivision and Townhouse developments. - Experienced Developers with a minimum of 2 completed projects. - Within 30 Km of a Major City (Melbourne, Brisbane, Sydney, Gold Coast).

The Manager intends to allocate 10% - 30% of the Fund to Indirect Property Investments.

5.2.4 Selection and assessment process

The Manager will be responsible for undertaking the assessment of any equity investments proposed to be made by the Fund.

(a) Analysis and evaluation



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The Manager will assess the merits of any third-party property fund. The analysis takes into account a set of criteria in accordance with the investment strategy.

The assessment includes and not limited to:

Previous projects/investments. The Manager will assess the third-party property fund’s previous investments, Analysing the rate of return it achieved, the duration of the project/investment, the location of the property and if their investment parameters match in accordance with the Fund’s investment strategy. Experience of the Property Development Company The property developer’s experience is a major aspect of the Manager’s analysis and evaluation prior to indirectly investing into the property investments. The Manager will look at how many projects the development company is currently undertaking, the directors of the development company, the size of each projects (in terms of number of units, townhouses, etc) and the size of the team of the development company. By assessing these criteria, the Manager will have a better understanding and determine if the development company is capable of delivering the projects that they have set out to achieve.

Experience of the Investment Company The Manager will analyse the parties involved within the investment company. The combined number of experience between all members, any certification/education/training each member has received and the number of investments/ third party funds, the investment company is currently undertaking to ensure that the Fund’s best interest are met in accordance with the investment strategy. (b) Approval process and ongoing management

After an Indirect Property Investment is made through a third-party property fund, the Manager is responsible for the day-to-day and ongoing management of that investment.

After conducting analysis and evaluation of the third-party property fund, the Managers will conduct a meeting to approve the third party property fund and include it as part of the fund’s allocated investments. The Manager is responsible for the day-to-day and ongoing management of that investment such as receiving and distributing project update reports to investors, managing the investor’s funds and accounts and liaise with the third party on behalf of the investors.



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6. RISKS

All investments involve risk and there can be no guarantee against loss resulting from an investment in the Fund, nor can there be any assurance that the Fund's investment objectives will be achieved or that any Member will get any of their money back. There are a number of risk factors that could affect the performance of the Fund and the repayment of Member’s capital. Many risk factors fall outside of the Trustee and the Manager’s control and cannot be completely mitigated.

The Fund's ability to generate the Target Return could be impacted by a range of factors, including the following:

Factors Risk of changes Sensitivity analysis

Defaults by Borrowers Low - Medium The Fund's sensitivity to Borrower defaults is managed by ensuring exposure to particular borrowers is limited.

Counterparty risk Low - Medium The Fund manages this risk through careful selection of Mortgage Backed Security issuers and Indirect Property Funds.

Property market risks Medium Adverse events in the property market have the potential to impact the Fund's Mortgage Backed Securities and Indirect Property Funds.

The following is a non-exhaustive list of the main risks that could be associated with investment in the Fund. The risks that will apply to your investment in the Fund will depend upon the Class in which you invest. In general, the potential risks of investing in the Fund can be broken into the following three broad categories:

1. General risks—The main risks associated with any investment in the Fund.

2. Mortgage Backed Security investments risks—The main risks associated with an investment in Mortgage Backed Securities investments.

3. Property investments—The main risks associated with an indirect investment in real property, including property development projects.

Members should consider and weigh the risks up carefully and make their own assessment as to whether they are comfortable with them. Members should also seek professional, legal, tax and investment advice before proceeding.



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6.1 General risks

(a) Manager risk

The Manager is responsible for providing investment management services to the Fund and for managing the Fund’s investments on a day to day basis. By investing in Mortgage Backed Securities, the Fund is also exposed to risks associated with the managers of the underlying securitisation vehicles and any other investment vehicles in which it invests.

If the Manager or any manager of an investment vehicle fails to provide their services effectively, then this could negatively affect the Fund’s performance. In particular, there is a risk that a manager may fail to anticipate movements in the property market, fail to manage the investment risks appropriately or fail to properly execute the Fund’s investment strategy. These factors could have an adverse impact on the financial position and performance of the Fund.

(b) Risks associated with the solvency and financial position of the Manager

If the Manager either becomes insolvent or encounters financial difficulties, which mean that it is unable to perform its role under the Management Agreement, then the Trustee will most likely need to terminate the Management Agreement. If that were to occur, then the Trustee would either need to find a replacement investment manager or wind up the Fund. This could result in you suffering a loss or a diminished return on your investment in the Fund.

(c) Limited operating history risk

The Fund is newly formed with no operating history upon which investors can evaluate its likely performance. Accordingly, there can be no assurance the Fund will achieve its investment objective. The past investment performance of the Trustee or Manager or their key persons is not a reliable indicator of future performance or results of an investment in the Fund.

(d) Counterparty risk

The Fund will invest in Mortgage Backed Securities and other debt and property investments. The performance of the Fund depends on the performance of these underlying investments. The Fund is therefore also dependent on all of the entities involved in operating the underlying investments properly performing their obligations and on any external service providers they engage.

(e) Liquidity

As the Fund will be illiquid, Members cannot withdraw from the Fund during the investment term unless the Trustee makes a withdrawal offer. While the Trustee intends to make withdrawal offers every 5 years after commencement of the Fund, the Fund may not be in a position to do so if it does not have sufficient assets. Additional liquidity risks are described in section 2 in relation to Benchmark 8.

There is also no established external secondary market for the sale of Units. Members may arrange for their own private sale and the Trustee, without obligation, may assist in that process. There is no right for Members to require these Units to be purchased by the Manager, the Trustee or by any other person, or to have their Units redeemed. The Trustee retains the right to provide some liquidity to Members, and will advise Members of its intention to do so and its policy for redemptions if it is able to or elects to provide liquidity.



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The Fund will not be listed on the ASX or any other exchange.

(f) Return risk

The Fund is designed for investors seeking a return greater than the interest paid on basic deposit and saving products offered by an Authorised Deposit-taking Institution ("ADI").

Any target return provided in this PDS is not a forecast. The Fund may not be successful in meeting this objective. Returns are not guaranteed.

Members should note that an investment in the Fund is not an investment in an ADI (such as a bank) regulated by APRA and an investment in the Fund carries more risk than an investment in a bank.

(g) Market risk

Market risk is a generic term to describe the risk factors affecting the securities markets generally that could adversely affect the value of investments in the Fund. These factors include inflation rate increases, real or perceived unfavourable market conditions, investor behaviour, economic cycles and climate, movements in interest rates and foreign exchange rates, changes in domestic and international economic conditions which generally affect business earnings, political and natural events and changes in governments monetary policies, taxation and other laws and regulations.

(h) Operational risk

There is a risk of loss resulting from inadequate or failed internal processes, people and systems, or from external events. Adverse impacts may arise internally through human error, technology, or infrastructure changes, or through external events such as third party failures or crisis events. The Trustee and the Manager have procedures in place to manage these risks and, as much as possible, monitor the controls within these procedures to ensure operational risks are adequately managed.

The loans to which the Mortgage Backed Securities relate may be regulated by the National Credit Code and the National Consumer Credit Protection Act. Returns may be impacted by any breaches of the National Credit Code.

(i) Concentration risk

Generally, the more diversified a portfolio, the lower the impact that an adverse event affecting one investment will have on the income or capital value of the portfolio.

The Fund will be invested primarily in Mortgage Backed Securities. However, the Fund may also be exposed to other debt and property investments.

(j) Regulatory and economic risk

There is the risk that the value of an investment may be affected by changes in domestic or international policies, regulations or laws (including taxation laws). There is also a risk that a downtown in domestic or international economic conditions may adversely affect investments.

These factors are outside the control of the Trustee and the Manager but they may have a negative impact upon the operation and performance of the Fund.



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(k) Taxation risk

The returns to Members may be affected by changes to taxation legislation. Changes to taxation legislation may necessitate a change to the Fund’s structure to ensure Member interests are protected.

(l) Fund risk

The Fund could terminate, or the fees and expenses paid from the assets of the Fund could change. There is also the risk that investing in the Fund may give different results than investing in the underlying assets directly because of the income or capital gains accrued in the Fund and the consequences of investment and withdrawal by other Members.

6.2 Mortgage-Backed Security investment risks

(a) Interest rate risk

The capital value or income of the Fund's Mortgage Backed Security investments may be adversely affected when interest rates rise or fall. In particular, the income of an mortgage back security can fluctuate significantly in reaction to changes in interest rates. Interest is typically floating rate in nature. The capital value of Mortgage Backed Securities can fluctuate significantly in reaction to changes in fixed margins available in the market.

(b) Counterparty and credit risk

The Fund may incur loss when investing in a mortgaged backed security if a counterparty, such as the trustee or manager of the securitisation vehicle, or any of their service providers, fails to deliver on its contractual obligations or experiences financial difficulties. Credit risk ratings are an assessment of the issuer’s ability to meet its financial obligations. If credit risk ratings change, this may reduce the value of the Mortgage Backed Securities which may in turn reduce the overall value of the Fund.

(c) Default risk

If underlying Borrowers default on the loans made by a securitisation vehicle in which the Fund invests, this would reduce the principal and interest paid on the Fund's Mortgage Backed Security investment. The Fund may incur loss and this may in turn reduce the overall value of the Fund. The Manager seeks to manage this risk through a requirement that the Fund may invest only in Mortgage Backed Securities with underlying loan pools with an average loan-to-value ratio of less than 80%.

(d) Related party risk

The Fund will invest through the AAFH Property Investment Fund, of which the Trustee is the trustee and the Manager is the manager. When dealing with related parties, there is a risk that there will be insufficient supervision and monitoring. Investment by the Fund into the AAFH Property Investment Fund will be on arms' length terms and the Trustee will supervise the actions of the Manager in its capacity as manager of the AAFH Property Investment Fund in the same way as if those activities were performance in respect of the Fund. Any other related party transactions will be carried out with the same rigour and independence as unrelated transactions.



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6.3 Indirect Property Investment risks

The Fund may also make Indirect Property Investments in property, including in property development projects.

In general, the risks associated with investment in property include, but are not limited to—

(a) a downturn in the value of the property, and in the property market in general, which can be caused or exacerbated by many factors, including restrictions on the availability of credit (both locally and globally)

(b) counterparty risk associated with the trustee or manager of the third party property fund through which the Fund invests

(c) development risk

(d) a downturn in the economy (either locally or globally, or both), and

(e) changes to laws or government policy having a detrimental effect on the Fund or the property.



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7. FEES AND OTHER COSTS

The Corporations Act requires the Trustee to include the following standard consumer advisory warning in this PDS. The information in the consumer advisory warning is standard across PDSs and is not specific to information on fees and other costs associated with an investment in the Fund.

Did you know?

Small differences in both investment performance and fees and costs can have a substantial impact on your long term returns.

For example, total annual fees and costs of 2% of your investment balance rather than 1% could reduce your final return by up to 20% over a 30 year period (for example, reduce it from $100,000 to $80,000).

You should consider whether features such as superior investment performance or the provision of better member services justify higher fees and costs.

You may be able to negotiate to pay lower contribution fees and management costs where applicable. Ask the Fund or your financial adviser.

To find out more

If you would like to find out more or see the impact of fees based on your own circumstances, the Australian Securities and Investments Commission (ASIC) website (www.moneysmart.gov.au) has a managed investment fee calculator to help you check out different fee options.

This document shows fees and other costs that you may be charged. These fees and other costs may be deducted from your money, from the returns on your investment or from the Fund’s assets as a whole.

Information about taxes is set out in Section 8 of this PDS.

You should read all information about fees and costs because it’s important to understand their impact on your investment.

7.1 AAFH Quantum Leap Fund

Type of fee or cost Amount How and when paid

Fees when your money moves in or out of the Fund

Establishment fee The fee to open your investment

Nil No establishment fee is charged

Contribution fee 1.50% Payable upon investment into the Fund.



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The fee on each amount contributed to your investment

Withdrawal fee The fee on each amount you take out of your investment

Nil No withdrawal fee is charged.

Exit fee The fee to close your investment

Nil No exit fee is charged.

Management costs1

The fees and costs for managing your investment

4.5% per annum This is only an estimate. This estimate is dependent on the performance of the fund. Please refer to section 7.3(b) for more information.

This fee is calculated daily and will accrue and is payable to the Fund Manager monthly in arrears from the assets of the fund.

Service fees

Switching fee The fee for changing investment options

Nil No switching fee is charged.

Early redemption fee The fee to redeem your Units early

Nil No early redemption fee is charged.

7.2 Example of annual fees and costs

This table gives an example of how the fees and costs for this managed investment product can affect your investment over a 1-year period. You should use this table to compare this product with other managed investment products.

EXAMPLE BALANCE OF $50,000 WITH A CONTRIBUTION OF $5,000 DURING YEAR

1 See Section 7.3(c) "Management Costs" for further details.



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Contribution Fees 1.50% For every additional $5,000 you put in you will be charged $75.

PLUS Management costs 4.5% per annum.

And for every $50,000 you have in the AAFH Quantum Leap Fund you will be charged $2,250 each year.

EQUALS Cost of AAFH Quantum Leap Fund

If you put in $5,000 during the year and your balance was $50,000, then for that year you will be charged a minimum fees of $2,3252

7.3 Additional explanation of fees and costs

(a) Interest on Cash

The Manager retains as a fee any interest earned on Cash whilst it is held in the Fund’s bank account by the Custodian. The Manager and Trustee at their discretion may decide to pass on the interest to the Members from time to time.

(b) Management Costs

The management costs include the Manager’s management fees, the fees paid to the Trustee, the Trustee's estimated operating expenses in relation to the Fund. Management costs will differ between Classes.

Management fee

For providing the services under the Management Agreement, the Manager is entitled to receive a management fee equal to the difference between:

• the net income received by the Fund from its investments in Equity or Mortgage-Backed Securities (after payment of other fees and expenses); and

• the Target Return of the Fund, being 5% per annum,

subject to a minimum of 2% per annum of the net asset value of the Fund.

This fee is calculated daily and will accrue and is payable to the Manager monthly in arrears from the assets of the Fund.

2 For illustrative purposes, the above example assumes that management costs were calculated on a balance of $50,000 being maintained throughout the year. Fees will depend on whether the additional investment was at the start or end of the year.



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The Trustee estimates that the management costs for the first 12 months of the Fund's operation will be 4.5% of the net asset value of the Fund.

The management costs includes fees charged to the AAFH Property Investment Fund by the Trustee in its capacity as trustee of the AAFH Property Investment Fund.

Fees paid to the Trustee

The Constitution provides that the Trustee may be paid a fee of up to 0.25% per annum, subject to a minimum of $24,000 per annum. The Trustee may charge this fee to the Fund, however, whilst it is paid by the Manager out of the management fee, the Trustee will not charge this fee to the Fund.

(c) Expense recoveries

Under the Constitution, in addition to the Trustee fee, the Trustee is entitled to be indemnified for all expenses which are incurred when properly performing or exercising any of its powers under duties or rights in relation to the Fund, including costs associated with operating the Fund such as administration, custody, management and compliance. The Constitution does not impose a limit on the amount that the Trustee can recover from the Fund as expenses provided they are properly incurred in operating the Fund.

Expenses that can be properly referrable to a Class will be paid out of the assets of the relevant Class. In all other cases, expenses will be payable from the assets of each Class on a pro rata basis.

(d) Referral arrangements

The Manager or Trustee may pay fees to third parties who refer them suitable investments for the Fund or Members.

The Fund does not pay commissions. However, the Manager may agree to pay a third party commissions and if so, such commissions will be disclosed to the Member.

(e) Taxation and GST

Unless otherwise noted, all fees and management costs specified in this PDS (including in the worked example above) are GST inclusive, net of any input tax credits (including reduced input tax credits) available to the Fund. However, if expenses are recovered from the Fund, and the Trustee is required to pay GST or similar taxes in respect of that expense, the Trustee may recover an amount equal to the GST or other tax from the assets of the Fund.

Please also refer to Section 8 of this PDS below for more information about taxation of the Fund.

(f) Increases or Alterations to Fees

Should there be a decision to increase fees and expenses, Members will be given 30 days prior notice.

(g) Waiver, deferral or rebate of fees

The Trustee may, in its absolute discretion, accept lower fees and expenses than it is entitled to receive, or may defer payment of those fees and expenses for any time. If payment is deferred, then the fee will accrue until paid. In addition, the Manager or Trustee may waive, negotiate or rebate their



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fees, for example, in the case of a large investment amount. Differential fee arrangements may be negotiated with wholesale clients. Such arrangements will not adversely affect the fees paid or to be paid by other Members.

Where the Fund invests in Mortgage Backed Securities through the AAFH Property Investment Fund, any fees paid out of the AAFH Property Investment Fund to the Manager or the Trustee which relate to an investment by the Fund in the AAFH Property Investment Fund will be rebated.



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8. TAX CONSIDERATIONS

8.1 Tax Summary

The following provides a summary of the general tax implications for an investment by an Australian resident individual Member who holds their Units on capital account. Each Member’s taxation position will depend on their individual circumstances and accordingly this summary is necessarily general in nature.

This summary is based on the taxation laws as at the date of this Product Disclosure Document. Investing in a registered Managed Investment Scheme (“MIS”) is likely to have tax consequences. However, it is noted that taxation laws can change at any time, which may have adverse taxation consequences for Members concerned.

Each Member must take full and sole responsibility for the associated taxation implications arising from an investment in the Fund including any change in the taxation implications arising during the term of their investment. It is recommended that Members obtain their own professional and independent taxation advice before investing in the Fund.

8.2 Income Tax Provisions

Provisions that apply The income tax treatment of the Fund and its Members will depend on whether the Trustee elects, and is eligible to apply, the Attribution Managed Investment Trust (“AMIT”) provisions. The AMIT provisions are an elective income tax regime for qualifying managed investment trusts (“MIT”). Where the AMIT provisions do not apply, the ordinary Fund taxation provisions will apply to the Fund. While the AMIT provisions are not expected to materially change the way in which Members would be taxed (as compared to the ordinary trust taxation provisions), the AMIT provisions are intended to provide more certainty on the application of the income tax provisions to the Fund and its Members.

The Trustee is considering making an irrevocable election to apply the new AMIT provisions. However, there is no guarantee that the Fund will qualify to apply the new provisions in any particular year of income. Therefore, the section below outlines both the general income tax treatment where the AMIT provisions do not apply and the general income tax treatment where the AMIT provisions do apply.

8.3 Income Tax (AMIT Provisions)

(a) About the regime

The AMIT provisions contain specific income tax rules dealing with the income tax treatment of the Fund and its Members, as described below. The provisions can apply where the Fund qualifies as an AMIT for the whole of the income year and where the Fund makes an irrevocable election to apply the new regime.

In order to qualify as an AMIT for an income year, the trust must qualify as a MIT for income tax purposes for that income year and the Members must have clearly defined rights to income and capital.



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The Fund believes that it should be in a position to qualify as an AMIT for taxation purposes in order to make the appropriate election.

(b) Income tax treatment of the Fund

Where the AMIT provisions apply to the Fund, the Fund will effectively be treated as a flow-through vehicle for income tax purposes irrespective of whether income or capital is distributed to Members. The Trustee should not be liable to pay Australian income tax on the taxable income derived by the Fund. This is on the condition that the Fund will not be taxed as a company under the public trading trust provisions (discussed below).

(c) Income tax treatment of Members

The AMIT provisions require the taxable income of the Fund to be attributed to Members on a fair and reasonable basis, having regard to their income and capital entitlements in accordance with the constituent documents. The Trustee will seek to allocate taxable income having regard to the Units held by Members, entitlements to income and capital, as well as cash distributions made to such Members during the relevant period.

Where the Fund qualifies as an AMIT for the whole year, the Fund intends to elect to make the irrevocable class election. Where the Fund has multiple Classes, the AMIT regime also allows the Trustee to make an irrevocable “class election”, whereby each class of Units can be treated as a separate AMIT for income tax purposes. The purpose of this election is to quarantine the income tax calculation on a class by class basis. This can allow income, deductions and tax losses referable to a class of Units to be quarantined in that class, so that they are not spread to Members holding other classes of Units.

Under the AMIT provisions, a Member may be taxable on their share of the Fund’s taxable income prior to receiving distributions from the Fund.

(d) Tax deferred distributions

Under the AMIT provisions, a Member’s cost base in their Units held is increased where taxable income is allocated to them (inclusive of any tax free component of a discount capital gain). The cost base is decreased where cash distribution entitlements are made to the Member in respect of their Units, irrespective of whether the amounts distributed are classified as income or capital. Additional reductions are made for certain tax offsets (such as the franking credit tax offset and foreign income tax offset).

The net annual tax cost base adjustment amount will be detailed in an AMMA tax statement, which will be sent annually to Members after year-end.

8.4 Income Tax (Non-AMIT Provisions)

(a) General

A Member’s investment in the Fund will comprise of Units in a Unit Trust. While it is possible for Units in a Fund to be considered as debt or securities for income tax purposes, the Trustee believes that the Units in the Fund will not meet this classification. Accordingly, each Member will be regarded as a beneficiary of the Fund and both the Fund and the Members will apply the trust taxation provisions, as outlined below.



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(b) Income tax treatment of the Fund

As the Fund is a Unit Trust, the Fund will effectively be treated as a flow-through vehicle for income tax purposes provided that the Fund distributes all of its income to the Fund’s Members on an annual basis. The Trustee should therefore not pay Australian income tax on the taxable income derived by the Fund. This is on the condition that the Fund will not be taxed as a company under the public trading trust provisions (discussed below).

(c) Income Tax treatment of Members

Provided that the Fund is treated as a flow-through vehicle, Members will be assessed on the taxable income derived by the Fund, based on their proportionate share of the annual income of the Fund that is distributed to them in that income year. The Fund’s Members will be required to include their share of taxable income in their tax return.

Unlike the AMIT provisions, the ordinary trust taxation provisions do not allow income and deductions of the Fund to be quarantined to each Class of Units. This can result in all of the tax deductions and tax losses of the Fund being spread against a Member’s share of taxable income of the Fund. Accordingly, a tax deduction that is referable to the assets of one Class could be applied against the taxable income of another Class. This can result in tax deferred distributions to certain Members (see below).

(d) Tax deferred distributions

Tax-deferred distributions may occur where the Fund distributes an amount of cash that exceeds the taxable income allocated to a Member. A tax-deferred distribution may occur on a return of capital, where expenses of the Fund (e.g. bad debts) are offset against taxable income, or where there are timing differences. Certain tax-deferred distributions that are not assessable to a Member result in a reduction in the cost base of the Units held by the Member. A capital gain will arise where those tax-deferred distributions exceed the cost base of the Units.

(e) Accruals taxation

It is possible that the Fund may derive assessable income prior to those amounts being received. Accordingly, Members may be required to include amounts in their taxable income prior to receiving a distribution of those amounts from the Fund.

(f) Public trading trust provisions

It is noted that a Unit Trust that is a public trust can be taxed as a company where it carries on (or controls another entity that carries on) trading activities other than eligible investment business activities (“the public trading trust provisions”).

Eligible investment business activities include passive activities, such as investing or trading in secured or unsecured loans, financial securities and arrangements.

The Fund will be regarded as a public unit trust if it either: (a) has 50 or more unit holders (directly or indirectly through other trusts); (b) makes an offer or invitation of its units to the public; or (c) has its units listed for quotation on a stock exchange.



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While the Trustee believes that the Fund will satisfy the definition of being a public unit trust, it intends to limit the activities of the Fund to eligible investment business activities so that the public trading trust provisions do not apply to the Fund.

8.5 Disposal of Units

To the extent that a Member disposes of their Units (e.g. by way of a transfer or withdrawal) a gain or loss may arise. A loss is likely to arise where the Fund does not collect amounts relating to referable Loan Notes. A Member that holds their Units on capital account will incur a capital loss.

In the ordinary case, a gain is unlikely to occur with respect to Units. However, to the extent that such a gain occurs (e.g. where there have been tax-deferred distributions or where Units are disposed of cum- distribution), the ATO may take the view that such gains are ordinary income and therefore are not subject to the CGT 50% discount.

8.6 Non-Resident Members

The taxation implications for Members that are not Australian residents for tax purposes (“non-resident Members”) are not considered as part of this Product Disclosure Document. However, this section provides a general outline of the Australian income tax withholding requirements of the Fund and a general outline on the Australian income tax consequences of a non-resident Member disposing of units in the Fund.

It is recommended that non-resident Members obtain their own professional and independent taxation advice before investing in the Fund.

(a) Withholding tax

Where a Member is a non-resident Member or provides details to the Fund that indicate that they are residing outside of Australia for tax purposes, withholding tax may be deducted on your distributions at the applicable rate. The rates may vary according to whether the Fund qualifies as a Withholding MIT, the residency or address of the Member and the components of the distribution. Non-resident Members may also be subject to tax in the country of their residence (but may also obtain a credit for Australian withholding tax paid).

(b) Interest

To the extent that the interest income is derived by the Fund from an Australian source (either directly or indirectly), the Trustee will generally be liable to withhold 10% as a final Australian withholding tax. Under certain Double Tax Agreements, the withholding rate may be reduced.

(c) Disposal of units

Capital gains realised upon the (direct or indirect) disposal or redemption of Units owned by non-resident Members will be subject to Australian capital gains tax if the Units are taxable Australian property. This will generally be the case where the relevant non-resident Member has a non-portfolio interest in the Fund (i.e. a greater than 10% interest) and more than 50% of the market value of the Fund’s assets are attributable to Australian real property.

Based on the assets to be held by the Fund, the Trustee does not believe that the Units will constitute taxable Australian property.



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8.7 Annual Reporting

The Fund will be required to provide distribution information (including tax components) to the ATO on annual basis by lodging the Annual Investment Income Report (AIIR).

The Fund will provide an annual tax distribution statement to Members in accordance with the ATO’s guidelines for MITs. The tax distribution statement will reconcile the cash distribution with the taxable distribution for the income year.

Where the Fund is an AMIT, the Fund will be required to provide an annual tax distribution statement in the form of an AMMA statement that complies with the ATO guidelines. The AMMA will reconcile the cash distribution with the taxable distribution for the income year. The AMMA will also provide details on the net tax cost base adjustment for the income year.

8.8 Tax File Number (TFN) and Australian Business Number (ABN)

As the Fund will be an investment body for income tax purposes, the Fund will be required to obtain a Tax File Number (TFN) or Australian Business Number (ABN) in certain cases from its members.

It is not compulsory for a trust’s member to quote a TFN, claim a valid exemption for providing a TFN, or (in certain circumstances) provide an ABN. However, failure to obtain an appropriate TFN or ABN from members will result in the Fund being required to withhold at the top marginal rate (currently 49%) with respect to distributions to the member (which may be creditable in their tax return).

8.9 Goods and Services Tax (GST)

The acquisition and disposal of units in the Fund by the Fund’s Members will not be subject to GST.

However, GST may apply if fees are charged to the Fund by the Trustee or the Manager. In such a case, the Fund may be eligible to claim a Reduced Input Taxed Credit of either 75 per cent or 55 per cent of the GST paid on some of the fees charged to the Fund, depending on the type of fee.

8.10 Stamp Duty

The issue, redemption, transfer or any other arrangement involving a change in the unitholding of the unit trust may result in Stamp Duty consequences (for example, if the change in unitholding occurs at a time when the unit trust holds dutiable property, such as real property, or certain debts in Queensland). Members should confirm the duty consequences of their dealings in units with their taxation advisers.

8.11 Foreign Account Tax Compliance Act (FATCA)

In compliance with the U.S income tax laws commonly referred to as the Foreign Account Tax Compliance Act (FATCA) and the Intergovernmental Agreement signed with the Australian Government in relation to FATCA, the Fund will be required to provide information to the ATO in relation to: (a) Members that are US citizens or residents; (b) entities controlled by US persons; and (c) financial institutions that do not comply with FATCA.

The Fund is intending to register for FATCA purposes and to conduct its appropriate due diligence (as required). Where the Fund’s Members do not provide appropriate information to the Fund, the Fund will also be required to report those accounts to the ATO.



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8.12 Common Reporting Standard (CRS)

The Common Reporting Standard (“CRS”) is the single global standard for the collection, reporting and exchange of financial account information of non-residents, which applies to calendar years ending after 1 July 2017. The CRS is similar to FATCA, whereby the Trustee will need to collect and report similar financial account information of all non-residents to the ATO. The ATO may exchange this information with the participating foreign tax authorities of those non-residents.



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9. ADDITIONAL INFORMATION

9.1 Winding up the Fund

The Constitution provides that the Fund will terminate on the earliest to occur of:

• a date specified by the Trustee as the date of termination of the Fund in a notice given to Members;

• the date determined by the Members by extraordinary resolution;

• the date the Members pass, in accordance with section 601FM of the Corporations Act, an extraordinary resolution to remove the Trustee but do not, at the same meeting, pass an extraordinary resolution choosing a company to be the new Trustee that consents to becoming the Fund's Trustee; and

• the date on which the Fund terminates in accordance with an order of the Court, any other provision of this Constitution or by Law.

9.2 Related party transactions

The Trustee may from time to time face conflicts between its duties to the Fund as trustee, its duties to other funds that it manages and its own interests. The Trustee will manage any conflicts in accordance with its conflicts of interest policy, the Constitution, ASIC policy and the law.

The Manager is not a related party of the Trustee. The contractual arrangements between the Trustee and the Manager are negotiated at arm’s length between the parties.

The Trustee may from time-to-time enter into transactions with related entities (including the AAFH Property Investment Fund). All transactions will be effected at market rates or at no charge.

9.3 Privacy

If you are an individual making an investment in the Fund, you agree to the Trustee and the Manager collecting personal information from you for the purposes of processing your application and providing you with information. If you choose not to provide the information required, we may not be able to supply your investments or services to you.

If you request, the Trustee will give you access to the personal information collected about you, unless it is entitled under the Privacy Act 1988 (Cth), and chooses, not to do so. The Trustee must give access to your information which is entered on the Fund’s registers to others as required by the Corporations Act or under relevant tax laws. The Trustee may also give your personal information to the Manager and other service providers of the Fund. The Trustee will not otherwise disclose your information to overseas recipients.

The Trustee or Manager may also use personal information collected about you to notify you of other products or services available from either entity. By completing and returning the Application Form, you consent, for the purposes of the Spam Act 2003 (Cth) to receiving commercial electronic messages from the Trustee or Manager.



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If you do not want your personal information to be used in this way, or if you require further information about the use of your personal information obtained in connection with investing in the Fund, please contact the Trustee at the contact details set out in Section 10 of this PDS.

The Trustee’s privacy statement and details on how you may access or update your personal information or make a complaint can be accessed at: www.melbournesecurities.com.au/privacy.html.

9.4 Anti-Money Laundering and Counter-Terrorism Financing Laws

The Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth) (“AML Act”) and other applicable anti-money laundering and counter terrorism laws, regulations, rules and policies which apply to the Trustee (“AML Requirements”), regulate financial services and transactions in a way that is designed to detect and prevent money laundering and terrorism financing. The AML Act is enforced by the Australian Transaction Reports and Analysis Centre ("AUSTRAC").

The Trustee and the Manager as its agent may request such information from you as is necessary to verify the identity of an Applicant and the source of the payment before such applications can be processed. In the event of delay or failure by the Applicant to produce this information, your application may be refused and the application monies relating to such application may be returned. Alternatively, the Trustee may suspend the payment of withdrawal proceeds if necessary to comply with AML Requirements. None of the Trustee, Manager or their delegates shall be liable to an Applicant for any loss suffered as a result of the rejection or delay of any application or a delay in the payment of withdrawal proceeds.

The Trustee has certain reporting obligations under the AML Requirements and is prevented from informing you that any such reporting has taken place. Where required by law, the Trustee may disclose the information gathered to regulatory or law enforcement agencies, including AUSTRAC. The Trustee is not liable for any loss you may suffer as a result of its compliance with the AML Requirements.

9.5 Limitations of Liability of Members

The Constitution seeks to limit the liability of Members by providing that a Member is not obliged to make any contribution to the Fund or to indemnify the Trustee, or any creditor of either or both of them, if there is a deficiency of the assets of the Fund. However, because this is a matter which can ultimately only be determined by the courts, none of the Trustee, or Manager, any related body corporate of any of them or any of their respective directors, officers or employees gives any assurance or guarantee to this effect.

9.6 Constitution and the Trustee

The Constitution is a unit trust deed dated 18 December 2017 (as amended), and executed by the Trustee. It binds the Trustee and all Members. A copy of the Constitution is available free of charge from the Trustee on request. Prospective investors should read the Constitution for all the rights and obligations of being a Member in the Fund.

The principal provisions in the Constitution include those dealing with:

• the duration of the Fund including termination;



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• duties and obligations of the Trustee;

• the Trustee’s powers;

• fees and recoverable expenses, and the limitation of the Trustee’s liability and indemnification;

• Members' meetings;

• the method by which complaints are dealt with;

• the payment of distributions;

• applications and withdrawals.

The Constitution may be amended by the Trustee at any time if the amendments are not adverse to the rights of Members. Otherwise, the approval of Members by special resolution must be obtained.

The Fund terminates on the earliest of the dates outlined at 9 On termination the Trustee will realise the assets and pay to Members their share of the net proceeds of realisation in accordance with the rights attaching to their Units.

Subject to the Corporations Act, the Trustee will not be liable to Members in excess of the assets of the Fund, except in the case of its own gross negligence, lack of good faith or breach of its obligations under Chapter 5C of the Corporations Act.

The Constitution may confer discretions on the Trustee. Where it does so, you may ask the Trustee to give you a copy, free of charge, of any policy that documents how the Trustee will exercise that discretion.

9.7 Valuation of Fund assets and unit pricing

The Trustee values the Fund’s assets in accordance with its valuation policy, which includes how to independently verify the valuation of assets that are exchange traded, non-exchange traded and interests in other funds. The Trustee's valuation policy provides for the use of the most recent market valuation available to the Trustee at the time of valuation, which is then applied consistently and in line with market practice. The policy may permit for input and direction by the Manager as to the appropriate valuation to be used for such assets. The valuation methodology is able to be independently verified. The Trustee's policies regarding asset valuation are available from the Trustee at no charge.

Unit prices for the fund are calculated on a monthly basis, on the basis of current asset valuations and accrued income and liabilities.

9.8 Supplementary PDS

Additional information about additional Classes of Units in the Fund will be included in Supplementary PDSs. The information in this PDS and the Supplementary PDS should be considered in full prior to making an investment in an additional Class.



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9.9 Compliance Plan

The Trustee has prepared and lodged a compliance plan for the Fund with ASIC. The plan describes the procedures used by the Trustee to comply with the Corporations Act and the Constitution. The compliance plan is audited annually and the audit report is lodged with ASIC.

A compliance committee with a majority of external representatives oversees the Trustee’s compliance with the compliance plan, the Constitution and the Corporations Act.

As part of the compliance plan, the Trustee operates a service provider monitoring program to ensure service providers are complying with their service agreement obligations.

9.10 Compliance Committee

A Compliance Committee has been appointed by the Trustee to monitor compliance and report to directors of Trustee on a regular basis regarding adherence in operation of the Fund with the Compliance Plan, the Corporations Act and other ASIC requirements. If any issues or breaches are not addressed by either the management or the Board of the Trustee, the Compliance Committee is obliged to report directly to ASIC.

The Compliance Committee is required to have a majority of independent, external members. The current Compliance Committee comprises two external members and one director of the Trustee

9.11 Complaints

AAFH Capital’s complaint handling process is designed to ensure that any concerns or feedback you may have are dealt with appropriately, promptly and fairly. Your concerns may be provided either verbally or in writing in strict confidence to AAFH Capital via:

Phone: 03 9890 0059

Email: [email protected]

Please provide the following information in your correspondence or discussion:

• Your contact details including name, address, telephone number and email; • Nature of the concern; • Relevant dates and parties involved; • The relevant remedy sought; and • Any other relevant information.

AAFH Capital will acknowledge your complaint within 5 business days of receipt and will endeavour to resolve the complaint within 45 days. If AAFH Capital has not resolved the complaint within 30 days, or you are dissatisfied with the outcome of our internal complaints process, you have the right to contact the Financial Ombudsman Service (FOS) about your complaint.

You may also raise your complaint directly with the Trustee, Melbourne Securities Corporation by calling 1300 798 790, or via email at [email protected].

mailto:[email protected]



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MSC is a member of the Financial Ombudsman Service, which is an external dispute resolution scheme that provides free advice and assistance to investors to help them in resolving complaints relating to financial services and products. If you are not satisfied with the way we or MSC respond to your complaint, you are entitled to take you complaint to them.

Financial Ombudsman Service Limited

GPO Box 3 Melbourne VIC 3001 Phone: 1800 367 287 Email: [email protected]

The FOS Member Number for the Trustee is: 31446

FOS’s role and terms of reference are specified in FOS’s Rules available from their website: www.fos.org.au.

9.12 Continuous Disclosure Requirements

Under the Corporations Act, where a registered scheme is a “disclosing entity”, it is subject to certain regular reporting and disclosure obligations. If the Fund becomes a disclosing entity, Members have a right to obtain a copy of the following documents:

• The annual financial report most recently lodged with ASIC by the Fund;

• Any half-year financial report lodged with ASIC by the Fund after the lodgement of that annual financial report and before the date of this PDS; and

• Continuous disclosure notices given by the Fund after the lodgement of that annual report and before the date of the PDS.

The above information will also be available at www.aafh.com or can be obtained free of charge by contacting the Trustee. In addition, copies of documents lodged with ASIC in relation to the Fund may be obtained from, or inspected at, an ASIC office.


http://www.fos.asn.au/



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10. CORPORATE DIRECTORY

10.1 Manager AAFH Capital Pty Ltd Level 3, 179 Queen Street MELBOURNE VIC 3000 Telephone: 03 9890 0059 Email: [email protected]

10.2 Trustee Melbourne Securities Corporation Ltd Level 2, Professional Chambers 120 Collins Street MELBOURNE VIC 3000 Telephone: 1300 798 790

10.3 Custodian 10.4 Compliance & Financial Auditor

Sandhurst Trustees Limited Level 5, 120 Harbour Esplanade Docklands, VIC 3008 Telephone: 03 8414 7859

Moore Stephens Level 18, 530 Collins Street, Melbourne, VIC 3000 Telephone: 03 9608 0100

10.5 Enquiries

AAFH Capital Pty Ltd Level 3, 179 Queen Street MELBOURNE VIC 3000 Telephone: 03 9890 0059 Email: [email protected]




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11. GLOSSARY

In this PDS, the following terms have the following meaning unless the context otherwise requires:

ABN Australian Business Number.

AFSL Australian Financial Services Licence.

AML Act Anti-Money Laundering and Counter-Terrorism Financing Act 2006 (Cth).

AML Requirements The AML Act and other applicable anti-money laundering and counter terrorism laws, regulations, rules and policies.

Applicant A person who completes, signs and submits an Application Form.

Application Form The application form available to be completed to apply for Units in the Fund, or such other form as the Trustee determines.

Application Money The amount received by the Trustee from an Applicant for an interest applied for in the Fund.

ASIC Australian Securities and Investments Commission.

AUD Australian dollars.

AUSTRAC Australian Transaction Reports and Analysis Centre.

Borrower A borrower under any securitisation vehicle or other investment vehicle in which the Fund invests.

Business Day Any day that is not a Saturday, a Sunday, a public holiday or a bank holiday in Melbourne, Australia.

Cash The assets of the Fund which consist of cash which has not been allocated to a Class.

CGT Capital gains tax.

Constitution The trust deed establishing the Fund dated 18 December 2017, as amended from time to time.

Corporations Act Corporations Act 2001 (Cth).

Custodian Sandhurst Trustees Limited ACN 004 030 737 or such other person appointed by the Trustee from time to time.

FOS Financial Ombudsman Service.



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Fund AAFH Quantum Leap Fund ARSN 623 226 611.

GST Goods and Services Tax.

Indirect Property Investment Indirect investments in property through a special purpose vehicle or other property development funds.

Management Agreement The agreement between the Trustee and the Manager under which the Manager is appointed to manage the Fund.

Manager, we, us AAFH Capital Pty Ltd ACN 609 853 616.

Mortgage Backed Security Refer to Section 5.1.1

Member, you A person appearing in the Trust's Fund's register as the holder of a Unit.

PDS This Product Disclosure Statement, dated 06 March 2018, as may be supplemented or replaced from time to time.

AAFH Property Investment Fund

The AAFH Property Investment Fund, established by a Constitution dated 01 December 2016 of which the Trustee is also the trustee.

Responsible Entity, Trustee Melbourne Securities Corporation Ltd ACN 160 326 545, AFSL 428289.

RMBS Residential mortgage-backed security.

Supplementary PDS A Supplementary Product Disclosure Statement which supplements and forms part of the PDS and contains specific details of a Class, including the underlying investment and its terms.

TFN Tax File Number.

Unit A unit in the Fund.

Documents

AAFH QUANTUM LEAP FUND Product Disclosure Statement...Quantum Leap Fund (“Fund”) available for investment through this PDS. AAFH Capital Pty Ltd ACN 609 853 616 is the Manager