INTRODUCTION

THE TARGET RETURN RATE IS 7.5% PER YEAR*

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

Zank Income Fund

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

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

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

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

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

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

Portfolio of Fund

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INVESTMENT APPROACH

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

LENDING GUIDELINES

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

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

RISKS

All investments involve varying degrees of risk.

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

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

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

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

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

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

APPLICATION

Application

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

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

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

Distribution

Distributions of income are expected to be calculated at the end of each calendar quarter and paid to Investors nominated account within 10 Business Days of this calculation date. The Responsible Entity envisions that distributions of income should be paid to Investors within 120 calendar days of the end of each Financial Year owing to additional time needed to finalise the Fund’s annual accounts. However, the Responsible Entity retains its discretion to pay distributions within three months of the calculation date in accordance with the Constitution.

Distributions will only be made from the income earned by the Fund.

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

The Responsible Entity may decide not to distribute amounts which it reasonably considers necessary to meet any outgoings or liabilities (actual or contingent) in respect of the Fund including any amounts required for tax withholdings.

Minimum Investment

The minimum investment in the Fund is $100,000, then in multiples of $10,000 thereafter.

Minimum Term

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

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

Withdrawals

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

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

Once the Minimum Term is reached, it is intended that Investors will be offered the opportunity to withdraw from the Fund subject to available liquidity and submitting a valid Withdrawal Request pursuant to a Withdrawal Offer.

The Responsible Entity expects to make Withdrawal Offers on a calendar quarterly basis, subject to available liquidity.

* This is a target return only and is not a forecast. Return of income and capital are not guaranteed. In particular, should the Fund not generate sufficient income, the actual return to Investors may be lower than the Target Return. Over the last 3 financial years from 1 July 2021 to 30 June 2024, the Fund achieved an average return of 6.3% per annum.