The meeting resolved, with 56.8% of units on issue voting in favour, to remove the Responsible Entity (RE) LM Investment Management Limited and replace them with Trilogy Funds Management Ltd. 

The change is effective from the date Trilogy is recorded on the ASIC Register as the new RE.  This should occur within the next 7 days. 

Trilogy Chairman, Rodger Bacon, thanked the investors and advisors who had supported the vote for change.  He also confirmed that they will continue their strategy on behalf of concerned investors and their advisers to bring about a change of RE in the LM Currency Protected Australian Income Fund and ultimately the LM First Mortgage Income Fund.

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Reflecting strong support Trilogy has delivered to LM proxy votes FOR the resolutions which comfortably exceed 50% of the total units on issue.

In the case of the LM Currency Protected Fund (“CPF”) Trilogy has also been encouraged by the support it has received.  Despite the low response rate (less than 20%) the votes received by Link Market Services were 85% for Trilogy replacing LM.

The low response rate was due to very significant mail delays which occurred, especially in New Zealand where the majority of unitholders in the CPF reside.

The situation was exacerbated by LM announcing as recently as last Friday that they would not accept proxies that were voted on-line. 

Also LM have still not published the Currency Fund or the First Mortgage Income Fund accounts for the FY 2012 which would allow for a more considered view of a member’s investment. 

While LM accepts that such delays occur, they would not agree with Trilogy to defer the meeting to give investors and their advisers more time to consider the proposals and send in their proxies.  

As a result the Convening Members Agent has today cancelled the proposed CPF meeting for 11.30 a.m. on 1st November 2012.   Trilogy also announced that it will notify CPF unitholders that a new meeting will be held as soon a possible after the CPF accounts have been published which LM has stated will be “mid November.”  This meeting will consider and vote on the matter of replacing LM with TFM as the RE of the Currency Fund.

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LM is the RE for the LM Wholesale First Mortgage Income Fund (Wholesale Fund), the LM Currency Protected Australian Income Fund (Currency Fund), both of which are “feeder funds” of the LM First Mortgage Income Fund (Main Fund). 

The Wholesale Fund and Currency Fund hold 20% and 24%, respectively, of the Main Fund, which, at 31 December 2011, had gross assets of $418 million, making it a mid-tier mortgage fund. Other unitholders hold the remaining 56% in the Main Fund.

Trilogy Group Chairman Rodger Bacon says: “We were initially approached by a significant group of investors, this time from overseas (mostly New Zealand), to call meetings to vote on a change of the funds’ RE. 

“Following this overseas initiative, two Australian institutions joined forces to support calling these meetings. All these investors want LM out; they want openness, a simple, professional wind-down of the funds and return of their capital.” 

Bacon says Trilogy is well placed to bring about the RE change with institutional investors holding more than 48% of the units in the Wholesale Fund supporting resolutions to remove LM as the RE. 

Meetings to replace LM as the RE of the two feeder funds – the Wholesale Fund and the Currency Fund – will be held on 1 November in Sydney, with a meeting for the Main Fund to be held later in November at a date to be advised. 

He says Trilogy’s proposal to unitholders is straightforward. “What we suggest is an orderly wind-down (but no fire sale) of the Main Fund’s assets and then capital distributions to investors in the Main Fund and through it to the two feeder funds – the Wholesale Fund and Currency Fund.

“It is easy to understand why unitholders have become so embittered with LM. The Main Fund has been frozen for close to three years, the value of its units has fallen from $1 to $0.73, and 89% of the loans are in default. 

“There has been no update of the asset position (RG45) for more than a year – a clear breach of ASIC regulations. 

“At the same time LM has taken out an extraordinary level of fees. In 2011 alone this amounted to 2.5% of funds under management in the Main Fund and over 2.4% in each of the two other funds (that is almost 5% in total for each feeder fund).  Trilogy has committed to a fee of 1.5% a year of the Main Fund and ultimately nil fees for the feeder funds. 

“Unitholders are also concerned with LM’s management of conflicts of interest with respect to related party lending between the Main Fund and the Managed Performance Fund (another LM fund).” 

Retail unitholders should also gain confidence in supporting the resolutions given the strong support from the institutions.

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