PRODUCT DISCLOSURE STATEMENT - REWARDS GROUP TEAK PROJECT 4 ARSN REWARDS GROUP TEAK LAND TRUST ARSN

Transcription

1 PRODUCT DISCLOSURE STATEMENT - REWARDS GROUP TEAK PROJECT 4 ARSN REWARDS GROUP TEAK LAND TRUST ARSN

2 CORPORATE DIRECTORY TEAK PROJECT 4 ARSN TEAK LAND TRUST ARSN RESPONSIBLE ENTITY OF THE TREE PROJECT AND THE LAND TRUST Rewards Projects Ltd ACN AFSL Ground Floor 50 Colin Street West Perth WA 6005 Tel Fax Freecall mail@rewardsgroup.com.au DIRECTORS OF RESPONSIBLE ENTITY Dr Andrew Radomiljac Mr Craig Anderson Mr David Humann MANAGER Rewards Management Pty Ltd ACN Ground Floor 50 Colin Street West Perth WA 6005 INDEPENDENT FORESTRY EXPERT Treetec Consulting Pty Ltd ACN PO Box 1920 Subiaco WA 6904 INDEPENDENT LAND VALUER Herron Todd White ACN Level 1, 258 Mulgrave Road Cairns QLD 4870 AUDITORS AND TAXATION ADVISERS KPMG Central Park ST Georges Terrace Perth WA 6000 SOLICITORS McMahon Clarke Legal 62 Charlotte Street Brisbane QLD 4000 DISCLAIMER This Product Disclosure Statement (PDS) is dated 13 January It relates to an offer by Rewards Projects Ltd for Interests (Woodlots) in the Rewards Group Teak Project 4 (Tree Project) and interests (Units) in the Rewards Group Teak Land Trust (Land Trust), which are registered managed investment schemes. This PDS is important and should be read in its entirety. If you are uncertain or have any doubts about subscribing to the Tree Project and/or the Land Trust, then you should consult your financial advisor, solicitor or accountant. Prospective investors are advised the contents of this PDS do not amount to advice relating to legal, taxation or investment matters. The Responsible Entity recommends prospective investors consult their own advisers before making a decision regarding an investment in the Tree Project and/or the Land Trust. This PDS does not take into account the financial circumstances or obligations of prospective investors. An investment to which this PDS relates should be considered a speculative investment. No person named in this PDS or any other person guarantees the success or performance of the Tree Project or the Land Trust or the payment of any return from an investment in either of them or the taxation consequences of any investment in the Tree Project or the Land Trust. Upon acceptance of an application, each Tree Project applicant will become responsible commercially for carrying on the business of growing teak for sale. This Tree Project is intended to be a long-term investment and will be subject to the risks generally associated with commercial plantation forestry. The Land Trust is also intended to be a long term investment in land suitable for commercial plantation forestry. Recipients of this PDS are encouraged to read the risks and analysis contained on pages 19 and 20 before subscribing to the Tree Project or the Land Trust. Capitalised terms in this PDS have the meaning given to them in the Glossary on page 58. ACCESS TO UPDATED INFORMATION Information in this PDS is subject to change from time to time. If a change occurs that Rewards Projects reasonably considers to be materially adverse to investors, then the information contained in this PDS will be updated by a supplementary PDS. If Rewards Projects reasonably considers prospective applicants will not consider the updated information to be materially adverse, then it will publish updated information on its website but will not issue a supplementary PDS. To find out if a supplementary PDS has been issued or updated information has been published please call A paper copy of any updated information will be sent to you, without charge on request.

3 KEY FEATURES This PDS relates to: An offer of 2,000 Woodlots of 0.2 hectares each at an issue price of 5,500 (inclusive of GST) per Woodlot in the Tree Project; An offer of 2,000 Units at an issue price of 1,200 per Unit in the Land Trust. The Interests in the Tree Project and the Units in the Land Trust are not stapled and you may invest in either of them. You do not have to invest in both. The Tree Project will result in the establishment and operation of an intensively managed Teak plantation in north Queensland. The Land Trust will own the land on which the Tree Project is established. The land will initially be leased to Rewards Projects Ltd as Responsible Entity for the Tree Project and in turn licensed to Growers participating in the Tree Project. The Land Trust will receive rent in the form of a proportion of net sale proceeds realised from Tree Project harvests. The Tree Project aims to produce teak poles and sawlogs. Teak is a premium quality tropical hardwood renowned for its strength, durability and weather resistant qualities. The market value of teak is greater than that of most other plantation timbers. The trade in teak logs and timber has occurred for centuries. Large established overseas markets for teak logs and timber creates a favourable market outlook. Rewards Projects Ltd has entered into legally binding off take agreements with six substantial global teak traders; Royal Global Exports Pte Ltd in Singapore, Huseinee Anik and Co. Pvt. Ltd., Regency Wood Products, Associate Lumbers Pvt. Ltd., Jawahar Saw Mills and Farouk Sodagar Darvesh & Co. in Mumbai, India. Subject to their terms, these agreements secure the sale of all teak poles and sawlogs produced from the Tree Project. The full term of the Tree Project is expected to be approximately 20 years, with the first harvest occurring when the trees are at least 6 years old. At least 1,250 teak trees per hectare will be planted. All plantings are to be configured to promote sawlog production. The Tree Project is supported by a professional management team. The plantations will be managed using recognised industry practice under a detailed Management Plan. The Tree Project will ease pressure on native teak supplies in Asia, help reduce soil degradation on farmland in north Queensland and create a sink for greenhouse gases. Tax deductions are available for expenditure incurred by Growers. Tax deductions are supported by Australian Taxation Office product rulings (PR 2005/1 and PR 2005/2). More information about the product rulings is set out on page 21 of the PDS. Terms payment or loan finance options are available for investments in the Tree Project and the Land Trust to approved applicants. Payment terms are offered for up to 7 years, including an interest only period for the first 3 years. Rewards Projects Ltd acts as the Responsible Entity to ensure the Tree Project and Land Trust are conducted in accordance with regulatory standards and in accordance with their respective compliance plans. All land to be acquired by the Land Trust for use in the Tree Project has been or will be independently assessed as suitable for plantation development and independently valued. REWARDS GROUP TEAK PROJECT 4 1

4 TREE PROJECT AND LAND TRUST SUMMARY Rewards Projects Ltd is offering the opportunity to participate in the Tree Project and in the Land Trust. As the Tree Project and Land Trust are not stapled investments you may invest in both the Tree Project and the Land Trust or either of them. 2 REWARDS GROUP TEAK PROJECT 4

5 REWARDS GROUP TREE PROJECT WHAT IS REWARDS PROJECTS LTD OFFERING IN THIS PDS? Rewards Projects Ltd is offering recipients the opportunity to participate in the Tree Project, pursuant to which each applicant who is issued an Interest will become a Grower. Growers will establish and maintain their own teak Woodlot(s) by - licensing from Rewards Projects Ltd identifiable Woodlots; engaging Rewards Projects Ltd to establish and manage the teak plantation on the Woodlots; and engaging Rewards Projects Ltd to arrange harvest and then sale of teak wood from the Woodlots for the best price it can obtain. The terms of these arrangements are contained in the Tree Project constitution, management agreement and licence agreement summarised in the Summary of material agreements section of this PDS. HOW MUCH WILL IT COST? An application fee of 5,500 (inclusive of GST) is payable on application. This covers the cost of management, site preparation and purchasing the tissue culture teak plants. An amount equal to 16.06% (inclusive of GST) of each Grower s share of the net sale proceeds of each harvest is payable to cover licence fees and ongoing plantation maintenance, management and administration. TABLE OF SIGNIFICANT FEES This table shows the fees that will be charged in relation to the Tree Project. With the exception of harvest fees, you must pay the fees to the Responsible Entity in consideration of work the Responsible Entity performs in relation to the Tree Project on your behalf. Harvest fees are deducted from returns from the sale of teak wood produced by the Tree Project before determining distributions to Growers. You should read all information about fees and charges, as it is important to understand their impact on your investment in the Tree Project. TAXATION BENEFITS Growers can obtain immediate taxation benefits. Under current Australian taxation laws, the fees are tax deductible in the financial year they are incurred (unless the grower is a Simplified Tax System Taxpayer and selects a terms payment option offered under this PDS). This is confirmed by PR 2005/1 and PR 2005/2 issued by the Australian Taxation Office in relation to the Tree Project. The Responsible Entity must conduct the Tree Project in accordance with the relevant ruling in order for it to be binding on the Commissioner of Taxation. HOW WILL THE PLANTATION BE ESTABLISHED? The Woodlots are established by planting tissue culture teak in rows in the normal planting months of the tropical wet season. The next year a survival count will be conducted and any necessary infilling will be undertaken at the cost of Rewards Projects Ltd. The overall number of surviving teak is expected to be about 1200 trees per hectare. HOW WILL THE PLANTATION BE MAINTAINED? The plantation will be monitored and maintained by the Manager, who will be appointed under contract by Rewards SIGNIFICANT FEES AMOUNT HOW & WHEN PAID Application fee - This fee covers land preparation, supply of tissue culture teak plants and management for the period from the date of subscription until the end of the following financial year. 5,500 Paid by Grower on application Maintenance fee - This is the fee charged by the Responsible Entity for maintaining the Grower s Woodlot. Licence fee - This is the fee charged by the Responsible Entity for the licence of each Woodlot. 8.36% of Grower s share of net sale proceeds (after harvesting, transport, loading and sale costs) of each harvest 7.70% of Grower s share of net sale proceeds (after harvesting, transport, loading and sale costs) of each harvest Responsible Entity deducts fee from the net harvest proceeds from sale of timber from each harvest Responsible Entity deducts fee from the net harvest proceeds from sale of timber from each harvest REWARDS GROUP TEAK PROJECT 4 3

6 PLANTATION LAND Projects Ltd. The Manager s role includes weed and pest control, nutrient analysis, fertilising, fire control, and annual reporting. The Responsible Entity will set aside 480 per Woodlot out of funds received by it to secure performance of these ongoing maintenance obligations. WHEN IS THE PLANTATION HARVESTED? The teak trees will be progressively harvested between ages 6 and 18. The precise timing, number of trees per harvest, and number of harvests will be determined by Rewards Projects Ltd at the relevant time with the aim of achieving the best overall result for Growers. An indicative harvest schedule is set out in the Tree Project and Land Trust returns section of this PDS. HOW WILL THE TREES BE HARVESTED? The teak tree is cut at the base, near ground level, and the log is trimmed to remove branches. The whole log has use and value. The teak logs will be loaded onto trucks and transported to timber mills or to ports for export. HOW WILL THE TREES BE SOLD? Rewards Projects Ltd has entered into off-take agreements with six substantial global teak traders; Royal Global Exports Pte Ltd in Singapore, Huseinee Anik and Co. Pvt. Ltd., Regency Wood Products, Associate Lumbers Pvt. Ltd., Jawahar Saw Mills and Farouk Sodagar Darvesh & Co. in Mumbai, India. These agreements secure the sale of all teak poles and sawlogs produced from the Tree Project, subject to meeting the conditions precedent detailed in the summary of material agreements section of this PDS. The proceeds of each Woodlot will be pooled and each Grower will receive their proportionate share after deducting the applicable expenses. Pooling proceeds reduces a Grower s exposure to loss from fire, drought, disease and other risks. INSURANCE The terms of the Head Lease require Rewards Projects Ltd as Responsible Entity of the Tree Project to maintain insurance (to the extent it is available on reasonable commercial terms) to cover the risk of damage or destruction of your Woodlot by fire and other insurable risks for an amount equal to the replacement value of the trees as assessed by the Responsible Entity of the Land Trust. The terms of the Woodlot licence require Growers to pay each year, the total cost of maintaining this insurance. The cost of insurance will be at the Grower s expense and is tax deductible. HOW DO I SUBSCRIBE? To become a Grower, you must complete and deliver to Rewards Projects Ltd the attached application form and payment for the subscription monies or deposit (see the application form at the rear of the PDS). Applicants whose applications are received by 30 June should be eligible for taxation benefits for the financial year ending on that date. The Woodlots will be prepared for planting in the following year. Rewards Projects Ltd reserves the right to accept or reject applications in whole or in part at its discretion. The Land Trust offers Investors who become Unitholders the benefits of owning the land on which the Tree Project will be established. The Land Trust will receive rent equal to 7.70% (inclusive of GST) of the total net harvest proceeds of each harvest. After deducting GST and any other applicable costs or expenses the Responsible Entity will distribute the balance of this income to Unitholders. After the final harvest, it is intended that the Land Trust will sell or otherwise realise the land value for distribution to all Unitholders. Based on historical sales data, land values in the Tully / Innisfail region, Queensland, increased on average by approximately 4% per annum in the period from 1980 to Land values have increased by approximately 1.3% above the last 10 year average CPI, which has been 2.7%. Investors should note that past performance of land prices are not indicative of future performance and are included in the PDS only for information. Future performance is not implicit in these figures. The current average unencumbered value of land in the Tully/Innisfail region is estimated to be 6,000 per plantable hectare. The purchase price of a Unit in the Land Trust is 1,200, based on the Land Trust owning 0.2 plantable hectares of land per Unit. The above land values have been confirmed as fair and reasonable in the report provided by the Independent Land Valuer, Herron Todd White (see pages 40 and 41). Investors should note that while the plantation land to be acquired by the Land Trust will be selected in accordance with the land selection protocol determined by the Responsible Entity, the exact site of the land is at the discretion of the Responsible Entity and the land may consist of a number of separate parcels of land in the same region. If for any reason the Land Trust cannot provide sufficient land to accommodate all Growers wishing to participate in the Tree Project, Rewards Projects Ltd as Responsible Entity of the Tree Project may arrange to lease land on the terms of the Head Lease from other land owners in the region (including persons or companies related to or associated with the Responsible Entity). 4 REWARDS GROUP TEAK PROJECT 4

7 WHAT ARE THE TREE PROJECT PAYMENT OPTIONS? APPLICANTS MAY PAY THE FULL APPLICATION FEE BY CHEQUE OR CREDIT CARD* AT THE TIME OF THEIR APPLICATION. ALTERNATIVELY, THEY CAN APPLY TO REWARDS PROJECTS LTD TO PAY A DEPOSIT AND THE BALANCE OF THE APPLICATION FEE OVER TIME UNDER ONE OF THE TERMS PAYMENT OPTIONS DETAILED BELOW. APPLICATION FEE PAID IN FULL Payment of 5,500 (inclusive of GST) per Woodlot payable on application. TERMS PAYMENT OPTIONS Initial deposit of 550 (inclusive of GST) per Woodlot payable on application by cheque or credit card* Depending upon the terms option selected, one of the following monthly instalments by direct debit: Terms Option Number of instalments Amount Interest Rate per annum Terms: 1 year 12 monthly instalments Nil Terms: 2 years 24 monthly instalments % Terms: 5 years 60 monthly instalments % Terms: 7 years 84 monthly instalments % For details of the above terms payment options refer to the terms agreement summarised on pages 47 to 49. Under the terms agreement, payments are made over either a one, two, five or seven year term (dependent on which payment option is selected) commencing on the last business day of July following the acceptance of the application. Terms: 7 years (3 year interest only 36 monthly instalments & 4 year principal 48 monthly instalments and interest) 10.95% Rewards Projects Ltd will monitor the level of applications received under each of the terms payment options and is not obliged to accept any applications for terms. These payments cover the balance of the application fee, interest charges and a terms application fee of 50 per Woodlot (stamp duty and registration fees have not been included). *Credit card payments accepted by Rewards Projects Limited will attract a merchant fee equal to the amount incurred by Rewards Projects Limited in processing the payment. At the date of this PDS, the applicable merchant fees (inclusive of GST) are: - Bankcard, Visa or Mastercard 1.82% - American Express 3.52% - Diners Club 4.09% If merchant fees change Rewards Projects Limited will publish updated amounts on its website You may also call to confirm the current merchant fees. To apply for a terms payment option, the terms application, privacy consent, direct debit request and, if applicable, the guarantee and indemnity attached to this PDS should be completed and included with the application form. The terms payment is full recourse to the applicant. The Responsible Entity will obtain security for the terms facility by a mortgage over the Grower s Woodlot(s) the management agreement, and any Units in the Land Trust held by the Grower and any other contractual or other rights of the Grower in respect of the Tree Project. If the Grower is a corporate entity (including trustees), the directors of this entity will be required to guarantee the terms facility. REWARDS GROUP TEAK PROJECT 4 5

8 The land selection protocol has been prepared with the aim of maximising plantation yield and minimising plantation costs The Land Trust will own the land on which the Tree Project is established. 6 REWARDS GROUP TEAK PROJECT 4

9 REWARDS GROUP TEAK LAND TRUST THIS SECTION DETAILS AN OVERVIEW OF THE REWARDS GROUP TEAK LAND TRUST (LAND TRUST). STRUCTURE An investor becomes a Unitholder by acquiring Units in the Land Trust. The Land Trust will own the land upon which Growers establish the teak plantation. Land availablity for acquisition by the Land Trust within 9 months of allotment of Interests to Growers. Investors in the Land Trust may be allocated Class A Units or Class B Units, depending on the date on which their application is accepted. Unitholders whose applications are accepted on or before 30 June 2005 will be allocated Class A Units. Class A Unitholders will receive an undivided beneficial interest in any Land Trust property connected with Land owned by the Trust that is or will be leased to the Tree Project in connection with Woodlots granted or to be granted on or before 30 June Unitholders whose applications are accepted between 1 July 2005 and 30 June 2006 will receive Class B Units. Class B Unitholders will receive an undivided beneficial interest in any Land Trust property connected with Land owned by the Trust that is or will be leased to the Tree Project in connection with Woodlots granted or to be granted on or after 1 July 2005 and on or before 30 June Interests in Land Trust property conferred by Class A and Class B Units entitle Unitholders to an undivided interest in both the capital and income of the Land Trust, including the rent deducted from the Growers net harvest proceeds, attributable to the particular class of Units. It also entitles a Unitholder to a pro-rata share of the net realisation of land value after the completion of the Tree Project. The issue price for Units in the Land Trust reflects the market value of suitable land in the Tully/Innisfail region. The cost of each Unit in the Land Trust is 1,200 with a minimum subscription of one Unit per Unitholder. The above land values have been confirmed as fair and reasonable in the report provided by Herron Todd White (see pages 40 and 41). THE PROJECT LAND The Responsible Entity has established a detailed land selection protocol and land satisfying the protocol will be acquired by the Land Trust. The Responsible Entity will obtain an independent valuation before the Land Trust acquires any parcels of land. LAND SELECTION PROTOCOL The land selection protocol has been prepared with the aim of maximising plantation yield and minimising plantation costs. The protocol requires the Responsible Entity to assess the following factors when determining whether the land is suitable : Key site determinants, such as annual rainfall in excess of 1500mm, adequate soil depth, nutrient levels, drainage and site microclimate conditions Distance to processing centres and ports Risk exposure to natural catastrophe The Land Trust must acquire enough land to achieve a ratio of 0.2 plantable hectares of land for each Unit issued. RENT The land owned by the Land Trust will be leased to the Responsible Entity of the Tree Project. In turn, the Responsible Entity of the Tree Project grants a licence to each Grower in relation to their individual Woodlots. In general, the terms of the Head Lease are that the Land Trust grants the Responsible Entity of the Tree Project full access to the land to carry out the plantation activities. The Responsible Entity of the Tree Project is obligated to pay rent to the Land Trust at each harvest equal to 7.70% (inclusive of GST) of the net harvest proceeds. In addition to payment of rent the Responsible Entity of the Tree Project must meet all land tax, rates and other outgoings relating to the Tree Project land. The Responsible Entity of the Land Trust will, within 3 months of the end of the financial year in which it receives rent, distribute the rent and any other income of the Land Trust to Unitholders. Unitholders holding Units on the last day of the financial year will be entitled to receive the income of the Land Trust and must include as part of their taxable income for that financial year any distributions they receive from the Land Trust even though the distribution is not received until the next financial year. LAND AFTER FINAL HARVEST Upon final harvest the Grower and the Responsible Entity are obliged to rehabilitate the land such that it is in a clean and tidy condition. This obligation does not REWARDS GROUP TEAK PROJECT 4 7

10 include de-stumping. After remediation and any other obligations have been performed the licence is terminated. Following termination of the Head Lease, the Responsible Entity will endeavour to realise the land value and return the net proceeds to Unitholders. This may include selling the land, leasing the land for another Project, or any other means of realising value. The Land Trust must be woundup following the termination of the Head Lease unless 75% of Unitholders approve a later date for winding up the Land Trust. In deciding on an acceptable sale price the Responsible Entity will benchmark the price negotiated to market value as determined by a reputable independent land valuer. REPORTING Unitholders will receive the same reports as Growers. In addition to the Growers reports, upon final allocation of licences to Growers the Responsible Entity will issue a report outlining all the property held by the Land Trust. TAXATION The ATO has issued Product Rulings PR 2005/1 and 2005/2, for the Land Trust, these rulings confirm that subject to the assumptions and conditions set out in the relevant ruling: (a) a deduction should be available to Unitholders for the interest expense and loan application fee incurred in relation to borrowing money pursuant to the terms of the Land Trust loan agreement, and (b) the issue price paid to acquire Units in the Land Trust is a capital payment and is not deductible. LIQUIDITY Subject to any encumbrance created by a Unitholder, Units may be assigned or sold to a third party with the prior written consent of the Responsible Entity. To the extent permitted by law the Responsible Entity will maintain a register of interested parties either seeking to sell or buy Units. Participation in the Land Trust is long-term and there is currently no secondary market for trading of Units. Unitholders are advised to obtain their own tax advice when considering selling or assigning their Units. STAMP DUTY The Responsible Entity of the Land Trust has applied to the Queensland Government Office of State Revenue for the Land Trust to be provisionally treated as a widely held unit trust. Consequently, no stamp duty will apply to Units issued under this PDS as long as at the end of 12 months after the first issue of Units to the public, 50 or more persons are beneficially entitled to Units in the Land Trust and more than 20 persons are entitled to at least 75% of the Units in the Land Trust. If for any reason these conditions are not met, then stamp duty on the issue of units will be payable at the rate of between 1.50% and 3.75% of the value of underlying property held by the Land Trust. If the Land Trust is a widely held unit trust, then stamp duty will not apply to Unit transfers. 8 REWARDS GROUP TEAK PROJECT 4

11 WHAT ARE THE LAND TRUST UNIT PAYMENT OPTIONS? APPLICANTS MAY PAY FOR UNITS BY CHEQUE OR CREDIT CARD*. ALTERNATIVELY THEY CAN APPLY TO REWARDS PROJECTS LTD FOR A LOAN TO FINANCE THE PURCHASE OF UNITS UNDER ONE OF THE LAND TRUST LOAN PAYMENT OPTIONS DETAILED BELOW. ISSUE PRICE PAID IN FULL Payment of 1,200 per Unit payable on application. LAND TRUST LOAN PAYMENT OPTION Initial deposit of 120 per Unit payable on application by cheque or credit card* Depending upon the loan term selected, one of the following monthly loan repayments by direct debit: Terms Option Number of instalments Amount Interest Rate per annum Terms: 1 year 12 monthly instalments Nil Terms: 2 years 24 monthly instalments % Terms: 5 years 60 monthly instalments % Terms: 7 years 84 monthly instalments % For details of the above Land Trust loan options refer to the Land Trust loan agreement summarised on pages 54 and 55. Under the loan agreement, payments are made over either a one, two, five or seven year term (dependent on which repayment option is selected) commencing on the last business day of July following the acceptance of the application. Terms: 7 years (3 year interest only 36 monthly instalments & 4 year principal 48 monthly instalments and interest) 10.95% Rewards Projects Ltd will monitor the level of loan applications received in relation to Land Trust Units and is not obliged to accept loan applications. These payments cover the balance of the Unit issue price, interest charges and a loan application fee of 50 per Unit (stamp duty and registration fees have not been included). *Credit card payments accepted by Rewards Projects Limited will attract a merchant fee equal to the amount incurred by Rewards Projects Limited in processing the payment. At the date of this PDS, the applicable merchant fees are: - Bankcard, Visa or Mastercard 1.65% - American Express 3.20% - Diners Club 3.72% If merchant fees change Rewards Projects Limited will publish updated amounts on its website You may also call to confirm the current merchant fees. To apply for a Land Trust loan option, the statement of financial position, privacy consent, and direct debit request attached to this PDS must be completed and included with the application form. The loan is full recourse to the applicant. The Responsible Entity will obtain security for the loan facility by a mortgage over the Unitholders Unit(s) and where the Unitholder is also a Grower the Unitholders Woodlot(s) the management agreement, and any other contractual or other rights of the Grower in respect of the Tree Project. If the Unitholder is a corporate entity (including trustees), then the directors of this entity will be required to guarantee the loan facility. REWARDS GROUP TEAK PROJECT 4 9

12 FEES AND OTHER COSTS This table shows fees and other costs that you may be charged in relation to the Land Trust. These fees and costs may be deducted from your money or from the returns on your investment or from the assets of the Land Trust as a whole. You should read all of the information about fees and charges, as it is important to understand their impact on your investment in Units in the Land Trust. TYPE OF FEE OR COST FEES WHEN YOUR MONEY MOVES IN OR OUT OF THE LAND TRUST Establishment Fee: This is the fee to set up your initial investment Contribution Fee: This is the fee to set up your initial and every subsequent investment you make Withdrawal Fee: This is the fee for each withdrawal you make (including any instalment payments and your final payment) Termination Fee: This is the fee when you finally close your investment MANAGEMENT COSTS Administration Costs are the fees and costs for operating the Land Trust. They include administration fees and other charges charged by the product issuer, distribution costs and other expenses incurred in operating the Land Trust. Investment Costs are the fees and costs for investing the assets. They include fees charged by the product issuer, fees paid to external investment managers and other expenses incurred in investing the assets. ADDITIONAL SERVICE FEES Switching fee. This is the fee for when you switch between investment options Adviser service fee. This is the fee for extra advice from your adviser about your investment. (An adviser may also be paid other amounts as commission out of one or more of the fees listed above.) AMOUNT Nil Nil Nil Nil Nil Land purchase fees and charges 2.2% of the purchase price paid for land acquired by the Land Trust and stamp duty and other costs associated with the negotiation and settlement of the purchase. Land sale fees and charges 2.2% of the increase in the value of land sold by the Land Trust and all costs associated with negotiation and settlement of the sale. Management charges Nil Nil Nil HOW AND WHEN PAID Not applicable Not applicable Not applicable Not applicable All administration costs are met by the Responsible Entity out of its own resources. The land purchase fee will be paid to the Responsible Entity when land is acquired by the Land Trust. Purchase expenses include stamp duty, any real estate agents fees, costs of obtaining valuations, legal fees and settlement costs associated with the purchase of the land. The Responsible Entity intends to waive its entitlement to receive the land purchase fee or be reimbursed for property expenses to the extent necessary to ensure the Land Trust owns land with an average of at least 0.2 plantable hectares per Unit. The land sale fee will be paid to the Responsible Entity out of the sale proceeds received when land owned by the Land Trust is sold. Sale expenses including all real estate agents fees, costs of obtaining valuations, legal fees and settlement costs associated with the sale of the land will be deducted from the sale proceeds. During the anticipated course of the Land Trust the Responsible Entity is not entitled to receive annual management fees. Not applicable Not applicable 10 REWARDS GROUP TEAK PROJECT 4

13 ADDITIONAL INFORMATION: Additional fees The following fees may also be charged by the Responsible Entity: A fee of 100 for handling any deed of assignment relating to the transfer of Units. The charges permitted under the Corporations Act for allowing a person to inspect the register of Unitholders or to provide a copy of a document. The Responsible Entity may seek reimbursement for all expenses, costs, losses, liabilities and taxes in respect of the Land Trust incurred by the Responsible Entity in connection with any of the following: Valuing the Land Trust property Borrowing money for the Land Trust, including interest and associated fees and expenses Taxes and other costs incurred as a result of ownership of the land Building or constructing improvements on the land, and All amounts of reimbursements, fees, costs, disbursements, duties and charges and expenses payable under the document to the Responsible Entity, an agent, an adviser or a custodian, including any deferred payment and any costs payable to legal advisers and accountants. If the Responsible Entity is required or elects to manage the plantation situated on Land owned by the Land Trust then it will receive a harvest fee equal to 8.36% (inclusive of GST) of any harvest proceeds. REWARDS GROUP TEAK PROJECT 4 11

14 TEAK - A UNIQUE TROPICAL HARDWOOD AMONG TIMBERS, TEAK HOLDS A PLACE WHICH DIAMONDS MAINTAIN AMONG PRECIOUS STONES AND GOLD AMONG METALS Dr Dietrich Brandis, the First Inspector General of Forests, India. Teak (Tectona grandis) is an impressive, tall deciduous tropical hardwood tree with large leaves which form a dense canopy on mature trees. The name Tectona is derived from the Greek tekton; meaning a carpenter. The name grandis is Latin referring to the large size of the teak leaves. Teak is not only durable and attractive, it is easy to work with and seasons relatively quickly. Because of these attributes it is in high demand for: Teak timber is mellow in colour, ranging from golden to brown, with a fine grain and smooth texture. Compared with other industrial woods teak is a medium weight, strong wood of average hardness. Its heartwood is one of the most naturally durable woods in the world. An outstanding feature of teak is its strength and durability in all types of climatic conditions. In India and Myanmar, well-preserved beams of teak wood are found in buildings several centuries old. Furniture Shipbuilding Decorative building components (such as doors, window frames and flooring) Construction materials Railway sleepers Reconstituted products Teak does not easily warp or crack. It does not discolour when in contact with metals. It is resistant to rot as the wood contains a natural resinous substance called tectoquinone. Tectoquinone also repels termites, marine borers and other insects. 12 REWARDS GROUP TEAK PROJECT 4

15 THE OPPORTUNITY An excellent opportunity exists to establish an Australian plantation industry based on teak. With increased demand for high value teak furniture worldwide, government incentives for forestry projects, and environmental benefits, the development of teak tree crops on farmland in tropical Queensland makes sense. REWARDS GROUP TEAK PROJECT 4 13

16 SUPPLY AND DEMAND MARKETS FOR TEAK The international markets Teak is sold as logs, lumber and semi-finished or finished products (such as furniture and building components). The majority of teak produced is either consumed internally in the countries of origin or manufactured into export products for the Western market. The largest market for internationally traded teak logs and lumber is India. Even though India produces teak from its own native and plantation teak forests, this is not enough to meet the needs of the domestic market. India imports teak logs and timber to satisfy domestic demand. Other Asian nations such as Thailand, China, Taiwan and Laos import teak timber and manufacture it into semi-finished and finished teak products for domestic and international markets. The only Asian country self-sufficient in teak is Indonesia. To protect supplies, the government banned the export of teak logs in 1978 and since 1990, the export of sawn timber has also been restricted. It supplies the international markets with manufactured teak products, particularly furniture. Europe, the United States and Japan are the major markets for semi-finished and finished teak products such as high value interior furniture and exterior garden furniture, shipbuilding components, flooring, decorative panels, solid wood doors and carvings. The Australian market Timber harvesting from the native rainforests of northern Queensland ceased in 1998 following their World Heritage listing. The result was a major decline in the availability of rainforest cabinet timber for the Australian timber market. This has mostly been replaced by increased Australian imports of rainforest timbers, predominately from developing countries. SOURCES OF SUPPLY Approximately 3 million cubic metres of teak are harvested globally per annum. It comes from two sources: native forests and plantations. Native forests Of the four countries with naturally occurring teak trees, three (Thailand, Laos and India) have banned native teak logging following over exploitation of the native resource and widespread illegal cutting and smuggling. The fourth country, Myanmar (formerly Burma), is a major participant in the world export market for teak. The logging practices being used by the military government of Myanmar are potentially unsustainable and have attracted criticism from environmental bodies and forestry watchdogs. The native forests of Myanmar have historically been logged under a management system called the Myanmar Selection System. Properly implemented, this system has been successful in maintaining a high yield of top-quality timber with minimal environmental impact. However, since the military coup of 1962, the military has had significant control over the native teak forests in Myanmar. In order to generate royalties to finance its civil war, the government has granted huge concessions to foreign companies and the annual allowable cut under the Myanmar Selection System has been exceeded in most years. This raises concerns about Myanmar s future teak production capacity. The price for teak from native forests in Myanmar is generally higher than for plantation grown teak because the diameter of the logs and amount of heartwood is greater in the older native trees. 14 REWARDS GROUP TEAK PROJECT 4

17 Plantations There is a long history of teak plantations worldwide. Teak was introduced to Indonesia some years ago and into Sri Lankan plantations in Plantations have also been established in India, Thailand, Myanmar, Bangladesh, Sri Lanka, Tropical Africa and Tropical America. In 1990, over 90% of the total area of teak plantations was located in Asia. Due to competing land uses and the time it takes for teak to mature, there is little incentive for landowners to establish teak plantations in developing countries. Of plantations in countries where teak can be grown, only about 8% are teak. The output of teak plantations is small compared with world demand for teak, and it appears that the rate of new plantation establishment of teak in tropical countries has slowed notably since THE DEMAND OUTLOOK While supply is limited, the demand outlook for teak is positive for the following reasons: Not many plantation grown teak logs are traded internationally as most plantation grown teak in Asian countries is consumed domestically. THE SUPPLY OUTLOOK The market for teak is currently limited by the availability of teak in log and lumber form. It is not expected that there will be any significant increase in availability in the short to medium term because of the following factors: Apart from Myanmar, no Asian countries are inclined to export teak logs or lumber. Their priority is to supply domestic demand. Even with plantation grown timber, most Asian countries cannot meet their domestic demand. There is concern that Myanmar s teak harvesting practices are not sustainable. It has long been sought after in Asian, European and North American countries. These markets are well established and likely to grow, particularly as a result of population and economic growth in China and India. The unique presence of Tectoquinone in Teak which gives rise to its durability by repelling termites, marine bores and other insects. Demand for commercial plantation teak is likely to increase with the availability of consistent supply of quality teak from plantations. Plantation grown teak is becoming available, but not in large quantities relative to the size of the international market. REWARDS GROUP TEAK PROJECT 4 15

18 Large established overseas markets for teak logs and timber creates a favourable market outlook. The plantations will be managed using recognised industry practice under a detailed Management Plan 16 REWARDS GROUP TEAK PROJECT 4

19 TREE PROJECT AND LAND TRUST RETURNS THE CALCULATION OF INVESTMENT RETURNS INVOLVES THE CONSIDERATION OF A NUMBER OF VARIABLES, MANY OF WHICH ARE OUTSIDE THE CONTROL OF THE REWARDS GROUP. ACCORDINGLY, IT IS NOT POSSIBLE TO DETERMINE FINANCIAL RETURNS OVER THE LIFE OF A 20 YEAR PROJECT WITH ANY CERTAINTY. This section contains information which will assist Growers to make their own calculations of the returns which an investment in the Tree Project may generate over its 20 year term. As the amount of rent paid to the Land Trust will depend on the total value of harvest proceeds, the information in this section is also relevant to investors in the Land Trust. The potential returns Growers may achieve from the Tree Project and Unitholders may receive from the Land Trust may be affected by the matters listed below. These matters are not exhaustive. In the opinion of Rewards Projects Ltd the matters listed are reasonable. Where possible, they have been verified by independent experts. Investors are encouraged to read the experts reports which appear on pages 33 to 41. Returns are also subject to a Grower s/unitholder s individual taxation position, and the risk factors and safeguards that are set out in more detail at pages 19 and 20. In providing this information, no member of the Rewards Group or its directors guarantees returns to Growers or Unitholders. FACTORS AFFECTING RETURNS TREE PROJECT Factors affecting returns are as follows: YIELD Each Woodlot is estimated to yield 8 cubic metres of teak poles and logs at age 6 years, 14 cubic meters at 10 years, 13.2 cubic metres at age 14 years and 22.5 cubic metres at age 18 years. These estimates are best estimates based on a mean annual increment of 16 cubic meters per hectare per year and have been independently verified by Mr Anantha Padmanabha who concludes they are reasonable (refer to the International Teak Market Report on pages 33 to 36). The trees will be harvested on a progressive basis between ages 6 and 18 years. The precise timing, number of trees per harvest and number of harvests will be determined by Rewards Projects Ltd at the relevant time with the aim of achieving the best overall result for Growers. PRICE The current price for teak poles with a 10 to 15cm diameter and a length of four to five metres is up to A17 per pole. The current price for teak saw logs is between A783 to A3,024 per cubic metre. These prices have been independently verified by Mr Anantha Padmanabha (refer to the International Teak Market Report on pages 33 to 36). COSTS The subscription fee is 5,500 (GST inclusive) per Woodlot. Rewards Projects Ltd's maintenance fee is 8.36% (GST inclusive) of the net sales proceeds of each harvest. The licence fee is 7.70% (GST inclusive) of the net sales proceeds of each harvest. The current harvest and loading costs are between A15 and A22 per cubic metre. These costs have been independently verified by Dr Nicholas Malajczuk of Treetec Consulting Pty Ltd (refer to the Independent Forester s Report on pages 37 to 39 ). The current transport and loading costs are between A22 and A24 per cubic metre. These costs have been independently verified by Dr Nicholas Malajczuk of Treetec Consulting Pty Ltd (refer to the Independent Forester s Report on pages 37 to 39). Following the final harvest, Growers will also have to meet the costs of any further remedial work necessary to deliver the Woodlots in good repair, order and condition (including removing plant and equipment and any debris, branches, treetops, wire, ropes or other rubbish from the Woodlot). The Responsible Entity is not currently in a position to provide a meaningful estimate of the likely amount of these costs. GENERAL All Woodlots are anticipated to be allotted by 30 June of the same financial year of the acceptance of the application. On average, 250 trees are established per Woodlot. Trees which do not survive the initial 12 months are replaced by the Responsible Entity. REWARDS GROUP TEAK PROJECT 4 17

20 Expected plant losses due to mortality is 10 trees in years 1-6, leaving on average 240 commercial trees per Woodlot (refer to the Independent Forester s Report on pages 37 to 39). In calculating the possible tax implications, each Grower needs to take into consideration the Grower s marginal tax rate, and whether the Grower is registered for GST and is able to claim input tax credits in respect of any GST paid. The majority of payments made under the licence agreement and the management agreement will be tax deductible. If following the final harvest additional remedial work is required to deliver the land in good repair, order and condition (including removing plant and equipment and any debris, branches, treetops, wire, ropes or other rubbish from the land), there is a risk that under current taxation law Growers will not be entitled to claim a tax deduction for these expenses or only be entitled to claim tax deductions over a 5 year period. Inflation will have an impact on Tree Project returns. RENTAL INCOME The amount of rent paid to the Land Trust will depend on the total value of harvest proceeds and consequently investors in the Land Trust are exposed to similar risks to Growers (see pages 19 and 20). The Responsible Entity of the Land Trust does not intend to acquire land that cannot be leased to the Tree Project. The terms of the Head Lease require the tenant to maintain insurance to cover insurable risks affecting the plantation. However, if the plantation were destroyed or damaged through no fault of the Responsible Entity, then the Land Trust may not be entitled to receive any rent. Exchange rates will have an impact on Tree Project returns if the timber is exported. FACTORS AFFECTING RETURNS LAND TRUST Factors affecting returns are as follows: LAND VALUE The amount paid when the Land Trust acquires the land relative to its fair market value. Based on historical sales data, land values in Tully/Innisfail region increased on average by approximately 4% per annum in the period from 1980 to 2004 (approximately 1% above inflation). Investors should note that past performance of land prices are not indicative of future performance and are included in the PDS only for information. Future performance is not implicit in these figures. The future value of the land will be affected by a range of factors, including: - The future demand in the area for land suitable for commercial plantation forestry. - The general demand for land in the Tully/Innisfail region at the time of sale. - The amount of other land available in the area at the time of sale. - The rate of inflation. TRANSACTION COSTS The Land Trust will incur a range of costs associated with purchasing or selling land. The Responsible Entity estimates that the stamp duty and other costs associated with the purchase of land will be between 4% and 4.75% of the purchase price. The Responsible Entity is also entitled to charge a land purchase fee of up to 2.2% of the purchase price. The Responsible Entity intends to waive its entitlement to charge the land purchase fee or recover expenses associated with the purchase of the land to the extent necessary to ensure the Land Trust owns land with an average of at least 0.2 plantable hectares per issued Unit. Costs associated with the sale of land owned by the Land Trust may include Responsible Entity fees, real estate agent and valuation fees and legal fees and settlement costs. 18 REWARDS GROUP TEAK PROJECT 4

21 RISKS AND SAFEGUARDS RELATING TO THE TREE PROJECT AND THE LAND TRUST As with any investment in forestry, there are inherent risks. Some of these risks can be mitigated by the use of safeguards and appropriate systems and actions (see the Independent Forester s Report for further discussion), but many are outside the control of Rewards Projects Ltd or the Manager. There are a number of risk factors which applicants should consider before they make a decision to apply for Woodlots or Units. The principal factors include, but are not limited to, the following: PRIMARY PRODUCTION RISKS Limited history of teak plantations There is a limited history of plantation grown teak in Australia. No large-scale commercial plantations exist in Australia. However, several research experiments have been planted over the past 20 years. Commercial teak plantation were first established by Rewards Projects Ltd (formerly Forest Rewards Ltd) in 2001 (the Forest Rewards Teak Project 2001, ARSN ) and in 2002 and 2003 (the Rewards Group Teak Project 3, ARSN ). These projects are performing well, with good survival and growth rates. Teak is a well-known plantation species in other countries, from which establishment and management techniques can be adopted for teak plantations in Australia. The Tree Project must be considered in light of the risks and difficulties frequently encountered by pioneering projects. Although the Tree Project is based on published research following trial plantings, some aspects of the Tree Project may not have been exposed to all variables in the environment. Establishment risks The plantation will be established by planting tissue culture tube stock on cleared farmland during the normal planting months of the tropical wet season. To mitigate establishment risks, Rewards Projects Ltd, via the Manager will infill plant any areas necessary to achieve the desired stocking rate of teak trees. Establishment risks also apply to such infill planting. In the existing projects, performance has occurred in line with project Management Plans. However, historical performance is not indicative of the likely outcome of the Tree Project. Fire There is a fire risk in the Queensland tropics over the dry season months. Wildfire frequency is moderate and fire protection is an important element of plantation management. Rewards Projects Ltd will adopt a fire management plan for the plantation, including well-maintained firebreaks. It is a term of the Head Lease that insurance against fire and other insurable risks is maintained to the level nominated by the land owner which, in this case, will be the Land Trust. There has been no damaging wildfire in the plantations for the existing projects. Physical risks There are inherent physical agricultural risks such as drought, frost, hail, windstorms and other acts of god, disease, insects, grazing animals, and other pests that can affect the plantation. Teak is a hardy species that is grown in plantations in a number of countries. Rewards Projects Ltd, via the Manager, will monitor the plantation and where possible take remedial action to minimise these risks. General There are other agricultural risks such as nutrition, pests and diseases. Good forestry management practices are necessary to ensure weed control, land preparation, tube stock, planting technique, fertiliser application, pest control and general management are of a high standard. These practices are described in a Management Plan prepared by the Manager at the direction of Rewards Projects Ltd. The aim of the Management Plan is to achieve high standards and outcomes in this respect. Rewards Projects Ltd is satisfied with the management practices undertaken to date within respect to the existing teak plantations. Good forestry management is also important to the Land Trust as a failure in this regard may limit the future potential use or value of the Land. FINANCIAL RISKS The financial success of the Tree Project depends primarily on the growth rate of the teak trees, the costs of production, harvesting & marketing and the sale price of teak logs following the harvests. Ultimate outcomes are dependent upon future silvicultural and market factors that cannot be accurately predicted. The income generated by the Land Trust initially depends on the success of the Tree Project. The value of the land at the end of the Tree Project will depend upon the demand for the land and/or the suitability of participating in similar projects. Market risk There may be changes in supply or demand for teak during the term of the Tree Project affecting teak prices. Demand can be affected by many factors including domestic and overseas economic conditions, availability of substitutes, consumer taste, and the success of opening new markets for teak. Some of the factors that affect supply include the export policy of nations trading in teak, competitive plantation projects and private plantings. There is no guaranteed minimum price received for teak. REWARDS GROUP TEAK PROJECT 4 19

22 In purchasing any asset there is a risk that the purchase price may exceed the fair market value. The purchase price for all land acquisitions will be supported by a valuation from a qualified valuer. There is no guarantee that the land will be able to be sold by the Responsible Entity of the Land Trust at a price that reflects its fair market value. Plantation teak price discount Variation in teak prices is a major factor which will influence financial returns from the Tree Project. Current prices in the Tree Project returns section of this PDS are based on current international price information. Generally speaking, teak quality improves with age and as the tree height and diameter increases. To allow for this, any consideration of prices for the plantation teak to be produced by this Tree Project should take into account a discount to the current market prices being paid for native teak. Yield best estimates Variation in yields is a major factor which will influence the financial returns from the Tree Project. The teak yields in the Tree Project returns section of this PDS are estimates made on the basis of published yield data, research on trial plantings and the quality of the selected site (and site selection criteria). The trial plantings are located in various parts of Australia and are still at early stages of development. No commercial scale plantations of teak exist in Australia from which accurate yield data can be drawn. Harvest schedule changes The final harvest schedule as determined by the Responsible Entity will affect the timing, yield, and sale price ultimately achieved. No buy back right Investors in the Tree Project and/or the Land Trust have no right to require Rewards Projects Ltd to purchase their Interests or Units and there is no secondary market in the Interests or the Units. A person wishing to sell an Interest or Unit must locate a willing buyer and negotiate a sale of the Interest or Unit to the buyer. Any such sale must be done in accordance with the Scheme Documentation. At the end of the Head Lease, a 75% majority of Unitholders may extend the term of the Land Trust to allow a further Head Lease to be granted. Unitholders that are not in favour of the extension will be required to wait until the subsequent lease expires before receiving a return of their investment capital. General The value of the Tree Project and/or the Land Trust can be affected by various general financial factors such as economic conditions, inflation, exchange rates, regulatory changes and taxation changes. Force majeure Rewards Projects Ltd and the Manager can be excused from performing its obligations if it is prevented from doing so due to circumstances beyond its reasonable control (other than financial circumstances or circumstances arising from a breach of its obligations). Rewards Projects Ltd and the Manager must try to remedy and avoid any such circumstances. Operational and compliance risks If Rewards Projects Ltd were to become insolvent or default under the management agreement or the Head Lease giving it the power to grant licences to Growers, then the viability of the Tree Project may be temporarily affected. Under the terms of the constitutions, Growers and/or Unitholders can compel Rewards Projects Ltd to retire and appoint an alternative responsible entity in its place. In this case, some disruption and cost to the Tree Project and/or the Land Trust may occur. Similarly, if the Manager were to default under its operations agreement with Rewards Projects Ltd, then a replacement manager may need to be found. This may cause temporary disruption to the Tree Project. The Tree Project and the Land Trust are managed investment schemes established under the Corporations Act and in accordance with ASIC policy. Therefore, there are a number of compliance measures and procedures Rewards Projects Ltd has put in place and must maintain. Failure to do so may jeopardise its ability to operate the Tree Project and the Land Trust. If that occurred a temporary responsible entity may need to be appointed to operate the Tree Project and the Land Trust, which may be disruptive. Changes in taxation legislation The taxation implications of the Tree Project and the Land Trust are based on current tax legislation and taxation rulings, and ATO Product Rulings in respect of the Tree Project and the Land Trust. The legislation and interpretation of the taxation rulings could change. The ATO Product Rulings issued in respect of the Tree Project and the Land Trust will be binding on the Commissioner of Taxation. The tax benefits outlined in the ATO Product Rulings will be available to Growers provided the Tree Project is carried out in accordance with the description in the relevant ATO Product Ruling. Breach of licence by Licensor Rewards Projects Ltd has entered into or will enter into a Head Lease for the purposes of the Tree Project. As leesee under that Lease, it is entitled to grant Growers a licence with respect to their Woodlots. There is a risk of Rewards Projects Ltd, in its capacity as lessee, defaulting under the Head Lease and thereby placing the Growers right to occupy their Woodlots in jeopardy. The licences contain or will contain provisions enabling the Responsible Entity of the Tree Project or Growers to enforce the licences in the case of breach on the part of the Land Trust or Rewards Projects Ltd. The Head Lease between the Land Trust and Rewards Projects Ltd will be registered in the name of Rewards Projects Ltd. Financing Risk Applicants that enter into either the terms agreement or the loan agreement charge any interest they hold in the Tree Project and the Land Trust to secure all moneys due to Rewards Projects Limited. Failure to comply with the terms of either agreement may result in forfeiture of interests they hold in both the Tree Project and the Land Trust. 20 REWARDS GROUP TEAK PROJECT 4

23 TAXATION The Australian Taxation Office (ATO) has issued PR 2005/1 and PR 2005/2. In relation to the Tree Project, the ATO Product Rulings confirm that under current Australian taxation laws, the Tree Project application fee of 5,500 will be 100% tax deductible in the financial year in which it is incurred. This excludes the GST component (which is refundable for Growers registered for GST). Note that this will not apply if the Grower is a Simplified Tax System taxpayer who has selected a terms payment option offered under this PDS. In relation to the Land Trust, the Product Rulings confirm that, subject to the assumptions and conditions set out in the Product Rulings: (a) a deduction should be available to Unitholders for the interest expense and loan application fee incurred in relation to borrowing money pursuant to the terms of the Land Trust loan agreement, and (b) the issue price paid to acquire Units in the Land Trust is a capital payment and is not deductible. The product ruling is a ruling on the application of taxation law only and is in no way expressly or impliedly a guarantee or endorsement of the commercial viability of the Tree Project or the Land Trust, the soundness of the Tree Project or the Land Trust as an investment, or the reasonableness or commerciality of any of the fees charged. Each product ruling will be binding provided the Tree Project and the Land Trust are carried out in accordance with details provided to the Australian Taxation Office by Rewards Projects Ltd and described in the product ruling. A full copy of a product ruling is available from the Australian Taxation Office website at law.ato.gov.au or from the Responsible Entity on request. The terms of the Land Trust constitution provide the taxable income of the Trust must be distributed to Unitholders. This means the Land Trust will not be liable to income tax on its income. Any income distributed to Land Trust Unitholders must be included in the taxable income of the Unitholder. Where the Land Trust sells land it has held for at least 12 months then Unitholders should be entitled to the benefit of any discount that applies to their share of any capital gains realised by the Land Trust. At present a 50% discount applies to capital gains realised on the disposal of assets held for more than 12 months by individuals and trusts. A 33 1/3 % discount applies to superannuation funds. GOODS AND SERVICES TAX If you are registered for GST, then any GST paid in relation to the fees you pay will represent a GST input tax credit. If you are not registered for GST, then any GST paid in relation to the fees you pay will be a cost and will be deductible (but will not be recoverable as an input tax credit). If you choose to pay the application fee under terms payment options, then you will be entitled to claim the full amount of GST payable on the fees up front provided you are registered for GST and account for GST on an accruals basis. If you are registered and account for GST on a cash basis, then you will only be entitled to an input tax credit for the GST component of the fees actually paid. No GST is directly charged to Unitholders in relation to the Land Trust. Unitholders that are registered for GST are not entitled to claim any input tax credits in relation to their investment in the Land Trust. The Land Trust will be liable to pay GST (currently 10%) in relation to any rent it receives from the Tree Project. INDEPENDENT TAXATION ADVICE Prospective Growers should seek advice from their professional tax advisers to confirm their own position in respect of taxation in general and the impact of GST. The Responsible Entity is required to deduct tax at the highest marginal rate plus Medicare levy from income distributed to Unitholders that have not provided a tax file number (TFN), Australian business number (ABN) or claimed an exemption. It is not compulsory to provide a TFN or ABN and is not an offence to decline to provide them. Applicants may include these numbers when completing their application form. REWARDS GROUP TEAK PROJECT 4 21

24 This Tree Project will provide an alternative source of teak which is expected to reduce the pressure on depleting native forests Tree crops help reduce the net emission of greenhouse gases. 22 REWARDS GROUP TEAK PROJECT 4

25 ENVIRONMENTAL CONSIDERATIONS THE PLANTATION WILL HAVE A NUMBER OF ENVIRONMENTAL BENEFITS, THE DETAILS OF WHICH ARE OUTLINED BELOW AND THE RESPONSIBLE ENTITY HAS HAD AND WILL HAVE REGARD TO ENVIRONMENTAL AND ETHICAL CONSIDERATIONS WHEN ESTABLISHING AND OPERATING THE TREE PROJECT AND LAND TRUST. REDUCTION OF PRESSURE ON NATIVE FORESTS Along with other valuable tropical hardwoods, teak old growth forests have endured a long history of exploitation to meet worldwide demand. Teak only occurs naturally in Myanmar, India, Laos and Thailand. In India, almost 50% of the country s recorded forest area is degraded and much of its natural teak forest is now sterile bush. As a result, India remains a net importer of teak logs and timber. In Laos the native teak forest has been degraded as a result of population pressures and over-harvesting. Only about 50% of the remaining teak forest is considered commercial. By 1988, Thailand had lost 82% of its forests and was forced to ban logging. At about the same time, the military regime in neighbouring Myanmar needed funds for its battle against the country s democracy movement. Thailand was able to negotiate concessions to harvest Myanmar s forests. Myanmar has subsequently become the focus of campaigns by environmental groups against native forest destruction and unsustainable logging practices. Together with illegal felling of teak forests and the limited availability of suitable sites on which to establish teak plantations, exploitation pressures are continually placed on the remaining native teak forests. This Tree Project will provide an alternative source of teak which is expected to reduce the pressure on depleting native forests. GREENHOUSE GASES AND CARBON CREDITS Tree crops contribute to the absorption of carbon dioxide in the atmosphere. As a result, they help reduce the net emission of greenhouse gases. Australia, along with other industrialised nations, has pledged to reduce greenhouse gas emissions under the Kyoto Protocol to the United Nations Framework Convention on Climate Change held in late It was agreed at this conference that countries with high carbon emissions could balance their books by taking carbon out of the atmosphere via large-scale tree planting. A system is being developed so that when countries burn fossil fuel they can offset this incursion with a carbon credit by planting trees. Carbon polluters would pay tree planters to accommodate their carbon emission problems via trees that have the capacity to store carbon. Any carbon credits will accrue to the benefit of the Grower (80%) and the Responsible Entity (20%). Rewards Projects Ltd will consult Growers regarding opportunities to take advantage of carbon credits as and when such opportunities arise. REWARDS GROUP TEAK PROJECT 4 23

26 THE REWARDS GROUP THE REWARDS GROUP WAS FOUNDED WITH THE VISION OF DEVELOPING NEW, NICHE AGRIBUSINESS PROJECTS USING FIRST CLASS TECHNICAL EXPERTISE. THERE IS A NEED FOR NEW INVESTMENT ALTERNATIVES IN THE AGRICULTURAL AND FORESTRY INDUSTRIES. The agribusiness investment industry represents a legitimate and appropriate vehicle to generate investment in commercial scale primary production projects. Rewards Projects Ltd aims to meet the need within this industry for investment alternatives backed by quality management. This year Rewards Projects Ltd intends offering three primary production projects, including the Rewards Group Teak Project 4. Product disclosure statements for each project will be made available when the managed investment schemes for those projects have been established, and, if applicable, registered. Rewards Projects Ltd may also offer, via these product disclosure statements, opportunities to invest in land owning entities. The Rewards Group observes important core values: Best practice management. Ongoing research and development of quality, alternative forestry and agribusiness products. Reasonably priced investment products, i.e. a fair deal between management and Growers. A dynamic and innovative approach to all aspects of its business. Awareness of project risks and processes to minimise such risks. Although pioneering new projects inevitably involves additional risks, Rewards Group seeks to minimise the risks by use of best expertise and best practice, combined with a flexible and innovative approach. This section contains extracts of the Group's audited accounts in respect of the period to 30 June A full set of the Group's financial statements including notes to the accounts is available on request. The financial data on the Group is included in this section to provide you with some background information on the Group. The assets and income mentioned in the financial data are not assets and income of the Tree Project or the Land Trust, and you will have no recourse against these assets and income if your investment in the Tree Project or the Land Trust performs poorly. 24 REWARDS GROUP TEAK PROJECT 4

27 REWARDS GROUP LTD AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 30 JUNE 2004 Current Assets Cash Assets 4,961,542 Receivables 17,439,850 Other 200,702 Total Current Assets 22,602,094 Non-current Assets Other Financial Assets 874,750 Property, plant and equipment 2,411,970 Woodlots 30,498 Deferred tax assets 2,243,568 Receivables 8,139,115 Deposit-maintenance funds 333,820 Total Non-current Assets 14,033,721 Total Assets 36,635,815 Current Liabilities Payables 12,107,521 Provisions 2,599,318 Current tax liabilities 4,428,683 Interest bearing liabilities 2,638,206 Total Current Liabilities 21,773,728 Non-current Liabilities Interest bearing liabilities 5,737,088 Total Non-current Liabilities 5,737,088 Total Liabilities 27,510,816 Net Assets 9,124,999 Contributed equity 5,700 Reserves 77,700 Retained earnings 9,041,599 Total equity 9,124,999 REWARDS GROUP LTD AND ITS CONTROLLED ENTITIES CONSOLIDATED STATEMENT OF FINANCIAL PERFORMANCE FOR YEAR ENDING 30 JUNE 2004 Total Revenue 27,333,444 Project expenses 10,463,762 Borrowing Costs 640,987 Administration and Professional Fees 1,285,766 Employee Costs 1,674,597 Marketing and Distribution costs 2,818,331 Other expenses 887,044 Profit from ordinary activities before related income tax expense 9,562,957 Income tax expense relating to ordinary activities (2,873,194) Net profit attributable to members of the parent entity 6,689,763 REWARDS GROUP TEAK PROJECT 4 25

28 MANAGEMENT DIRECTORS OF REWARDS PROJECTS LTD The directors of Rewards Projects Ltd as at the date of this PDS are: DR ANDREW RADOMILJAC - Managing Director Dr Radomiljac is a professionally qualified forester with a degree in forestry from Australian National University, a doctorate from Murdoch University and a MBA from the University of Western Australia. He co-founded Rewards Group in 2000 and has been Managing Director since incorporation. MR CRAIG ANDERSON - Managing Director Mr Anderson is a professionally qualified forester with a Bachelor of Science (Forestry) degree from the Australian National University and postgraduate business qualifications from the University of New England and the University of Western Australia. Mr Anderson has extensive experience in the agribusiness sector having worked for Timbercorp Ltd and Wesfarmers Bunnings Ltd for over 10 years. His role prior to joining Rewards Group was the General Manager (Forestry) of the large public listed agribusiness funds manager, Timbercorp Ltd. MR DAVID HUMANN - Non-executive Director Mr Humann is a Certified Practising Accountant and is a Fellow of the Institute of Chartered Accountants. Mr Humann has extensive experience in the role of a Non-Executive Director, having been appointed as a Non- Executive Director and Chairman for a number of mining, exploration and civil engineering companies. He is currently Chairman for Mincor Resources NL, Tethyan Copper Company Ltd and Matrix Metals Ltd. In addition, Mr Humann is a former partner of PriceWaterhouseCoopers and was a member of their World Management Committee and the World Board of Directors based in London and New York. OTHER DIRECTORSHIPS OF REWARDS GROUP COMPANIES Mr David Humann is also a director of Rewards Group Limited. Dr Andrew Radomiljac and Mr Craig Anderson are also directors of all other companies in the Rewards Group. Field Managers MR PETER GRIME Mr Grime was appointed Rewards Group s Senior Forester in 2000, having formerly worked for CALM in Western Australia. Over a period of 24 years with CALM, Mr Grime s experience includes field coordinator on the maritime pine planting project in the Wheatbelt, CALM coordinator in the Peel/Harvey Estuary tree planting project, area coordinator of the first commercial bluegum plantations for CALM Estate, and manager of CALM s nursery operations at Hamel, Western Australia. MR TONY STURRE Mr Sturre was appointed Rewards Group s Field Manager in 2002, having formerly worked for the Queensland Department of Primary Industries, Forestry. He has worked extensively in Hoop pine plantations and establishing Eucalypt and other tropical hardwood plantations in the Queensland wet tropics. He has an Associate Diploma of Applied Science (Forestry) and an Advanced Diploma in Conservation and Land Management. He is responsible for all aspects of teak land selection, plantation establishment and plantation maintenance activities. 26 REWARDS GROUP TEAK PROJECT 4

29 MANAGEMENT PLAN The Tree Project will be conducted in accordance with a detailed Management Plan. The Management Plan outlines the procedures to be followed to ensure that the Tree Project is carried out in accordance with the Queensland Code of Practice for Timber Plantations and in a manner designed to both mitigate the Tree Project risks and maximise the growth and yield of the teak plantation. It deals with the following aspects: Design of plantation Land preparation Weed control Planting Fertilising Pest control Fire control Pruning Plantation monitoring Reporting COMPLIANCE Compliance committee Rewards Projects Ltd has established a compliance committee consisting of two external members and one representative of Rewards Projects Ltd. Information about the external members is set out below: MR ROSS KESTEL Mr Kestel is both a Chartered Accountant and Certified Practicing Accountant and has been a director of the accounting practice Nissen Kestel Harford since July During that time, he has acted as a director and company secretary of a number of ASX listed public companies. Mr Kestel is chairman of the Audit Committee of Lowan Australia Ltd and also a member of the Compliance Committees for several managed investment schemes. Mr Kestel is also a Registered Company Auditor and a member of the Institute of Company Directors. MS ANNE THOUME Ms Thoume is a business consultant and promoter with a strong background in funds management. She has experience as a member of a number of compliance committees and has extensive knowledge of Trustee administration and compliance issues. Ms Thoume is also currently a director of a responsible entity. COMPLIANCE PLAN Rewards Projects Ltd has prepared separate compliance plans for the Tree Project and the Land Trust as required by law. This will assist protection of the rights of Growers and Unitholders. The plan identifies the various obligations under the constitution and other Scheme Documentation that affect Rewards Projects Ltd, identifies the risks of non-compliance and establishes measures designed to address these risks. In particular, the compliance plans address the following matters: Compliance with the provisions of the Corporations Act by Rewards Projects Ltd and its officers and employees Appointment of the compliance officer, establishment of the compliance committee, and regulation of the compliance committee s duties and functions, members meetings and activities Record keeping, financial reporting requirements and appointment of auditors of the Tree Project and the Land Trust (respectively) Conflicts of interests and complaints handling procedures Valuation of assets and compliance with the terms of contracts entered into on behalf of the Tree Project and the Land Trust Holding of Tree Project and Land Trust property Disclosure, conduct of business issues, external service providers and insurance The compliance plans will be audited annually by an independent auditor as required by law. REWARDS GROUP TEAK PROJECT 4 27

30 CORPORATE STRUCTURE 100% owned Rewards Group Ltd [Parent Company] 100% owned LEGEND Group ownership Agreement Flow of funds Rewards Management Pty Ltd [Manager] Operations Agreement Rewards Projects Ltd [Responsible Entity] Head Lease Responsible Entity of Land Trust Lease payments Annual outgoings and insurance Responsible Entity of Tree Project Land Trust Constitution Subscription money Income distribution Tree Project Constitution, Management Agreement, Licence Agreement and possibly Terms Agreement Application fee Maintenance fee (deferred) Licence fee (deferred) Net harvest proceeds Annual insurance Unitholders Growers REWARDS GROUP LIMITED - PARENT COMPANY Rewards Group Limited is the ultimate holding company of Rewards Projects Limited and Rewards Management Pty Ltd REWARDS PROJECTS LTD - THE RESPONSIBLE ENTITY Under the Corporations Act, the Tree Project and Land Trust each require a responsible entity to protect the interests of their respective Growers or Unitholders. Rewards Projects Ltd is the responsible entity and holds an Australian Financial Services Licence authorising it to operate the Tree Project and the Land Trust. The rights and responsibilities of Rewards Projects Ltd are set out in the Tree Project and Land Trust constitutions (see the Summary of Material Agreements section of this PDS on pages 42 to 44 and 51 to 53). Amongst other things, for the Tree Project it must receive and disburse money on behalf of the Growers and hold the Tree Project assets on behalf of the Growers. In relation to the Land Trust, Rewards Projects Ltd manages all the property of the Land Trust. REWARDS MANAGEMENT PTY LTD - THE MANAGER Growers will contract Rewards Projects Ltd to establish, maintain and manage the teak plantation, and arrange harvest and then sale of the timber. Rewards Projects Ltd in turn will contract these services to be performed to Rewards Management Pty Ltd who will use the services of a skilled management team and will undertake its duties in accordance with the management plan for the Tree Project. Rewards Management Pty Ltd will further subcontract some of the services to third parties. REWARDS PROJECTS LTD - THE LICENSOR Rewards Projects Ltd has entered or will enter into an agreement to lease, from the Land Trust, the land from which the plantations will be established. It will then grant licences in respect of Woodlots to Growers under the terms of the licence agreement. 28 REWARDS GROUP TEAK PROJECT 4

31 FURTHER DETAILS OF THE TREE PROJECT AND THE LAND TRUST LAND SELECTION The Responsible Entity has agreed to a detailed land selection protocol tailored to the required productivity targets for the Tree Project. The key assessment criteria include: Key determinants include annual rainfall in excess of 1500mm, adequate soil depth, nutrient levels, drainage and site microclimate conditions Distance to key product markets Risk exposure to natural catastrophe (key indicators include historical exposure of the region to fire, wind, disease or drought) Land suitable or available for acquisition by the Land Trust at a price per plantable hectare that is assessed by an independent valuer to be fair and reasonable and will provide for a ratio of 0.2 plantable hectares per Unit Rainfall Teak grows in areas that receive between 1000 to 3500 millimetres annual rainfall. The rainfall at the plantation site should average more than 1500 millimetres a year. Soil The suitability of the site will be determined by the Responsible Entity after evaluation of soil depth, fertility and moisture retention characteristics. Infrastructure The sites are not far from the timber processing centre of Ravenshoe and the ports of Cairns, Mourilyan and Townsville. Farmland The plantation will be established on previously cleared farmland, which ensures high fertility and minimises the development of competing woody weeds. PLANTING Teak is a plantation species that is planted in a number of countries. Tissue cultured teak will be planted on the site in the normal planting months of the tropical wet season. The teak is grown from tissue culture plantlets from select trees bred in teak breeding programs in South East Asia. In the year following planting, a survival count will be conducted and any necessary replanting will be done. The overall number of surviving teak will be about 240 plants per Woodlot. MAINTENANCE The plantation will be maintained in accordance with the Management Plan to ensure it performs to its potential. Maintenance will include weed and pest control, pruning, culling, nutrient analysis, fertilizing, fire control, site maintenance and annual reporting. Rewards Projects Ltd will retain 480 per Woodlot to secure performance of the ongoing maintenance obligations. This will be released in annual instalments over the first 10 years provided the Independent Forester is satisfied that Rewards Projects Ltd is performing its maintenance obligations. If for any reason maintenance is not undertaken, Rewards Projects Ltd may use the retained monies to pay another contractor to undertake the work. HARVEST AND SALE Harvesting The teak trees will be harvested on a progressive basis between ages 6 and 18. The precise timing, number of trees per harvest, and number of harvests will be determined by Rewards Projects Ltd at the relevant time with the aim of achieving the best overall result for Growers. The teak from the harvests will be transported to timber mills or to port facilities for export. Marketing and sale Rewards Projects Ltd has entered into agreements with six substantial global teak traders; Royal Global Exports Pte Ltd in Singapore, Huseinee Anik and Co. Pvt. Ltd., Regency Wood Products, Associate Lumbers Pvt. Ltd., Jawahar Saw Mills and Farouk Sodagar Darvesh & Co. in Mumbai. Subject to their terms, these agreements secure the sale of all teak poles and sawlogs produced from the Tree Project. The proceeds of each Woodlot will be pooled and each Grower will receive their proportionate share after deduction of applicable costs. HARVEST AND SALE COSTS Each Grower is responsible for their share of harvest, transport, storage, processing (if any) and sale costs. A Grower s share is the proportion, which the number of Woodlots held by the Grower bears to the total number of Woodlots. These costs will be REWARDS GROUP TEAK PROJECT 4 29

32 deducted from the sale proceeds. A maintenance fee of 8.36% (GST inclusive) of net harvest proceeds and a licence fee of 7.70% (GST inclusive) of net harvest proceeds will also be deducted from the sale proceeds. REPORTS TO AND VISITS BY GROWERS Rewards Projects Ltd will prepare and deliver to Growers, by mail or , annual reports comprising a summary of progress, growth and other matters specific to the plantation. Prior to each harvest Growers will receive a report detailing the proposed timing for harvest and expected yield. Growers will be entitled to visit and view their Woodlots and the plantation at any time, subject to giving reasonable notice. Safety regulations do not permit unsupervised site visits. INSURANCE In accordance with the terms of the Head Lease, Rewards Projects Ltd will arrange insurance (to the extent it is available on reasonable commercial terms) against destruction or damage to the Grower s Woodlot by fire and other insurable risks for an agreed amount equal to the replacement value of the trees as assessed by the Responsible Entity of the Land Trust. The Responsible Entity must also use best endeavours to arrange any further insurance requested by a Grower. The annual cost of the insurance will be borne by the Grower. The cost of insurance and the terms of the cover available will be determined by the state of the insurance market at the time the cover is sought. Insurance will cover damage or destruction of the Woodlot in certain circumstances, however it will not provide blanket protection against all damage or destruction of the Woodlot and may not protect Growers against loss of income resulting from damage or destruction. In the event that insurance is unavailable, or in the opinion of the Responsible Entity is uncommercial, the Responsible Entity will revert to the Unitholders and Growers for a resolution. The Responsible Entity will distribute the proceeds of any insurance claim to Growers affected by the insurance event. LIQUIDITY Subject to any encumbrance created by a Grower or Unitholder in favour of a lender, Woodlots or Units may be assigned or sold to a third party with the prior written consent of the Responsible Entity. If permitted by law the Responsible Entity may maintain a register of interested parties either seeking to sell or buy Units or Woodlots. Participation in the Tree Project and/or the Land Trust is long-term and there is currently no secondary market for trading of Units or Woodlots. Growers are advised to obtain their own tax advice when considering selling or assigning their Units or Woodlots. LAND AND OVERSUBSCRIPTIONS The site for the plantation will be near Tully in Queensland. Rewards Projects Ltd is in the process of identifying further land suitable for the Tree Project that meets the selection criteria described in this PDS and the approval of the Independent Forester. In the event that the number of applicants who subscribe to this offer exceeds the maximum number that can be accommodated on land identified by Rewards Projects Ltd at the time of acceptance, it may accept oversubscriptions to the extent of any further land it reasonably expects will become available within 9 months of acceptance. An instrument that confers the right to use the land for the purposes of the Tree Project will be lodged for registration under state land titles law either prior to or as soon as reasonably practicable after the issue of the Interest in the Tree Project and in any event within 9 months after allotment. If land is not secured within 9 months of allotment of an Interest to a Grower, Rewards Projects Ltd will within 14 days of receiving a written request from the Grower provide a full refund of the person s subscription money. APPLICATIONS AND ALLOTMENTS All applications should be sent to Rewards Projects Ltd. Rewards Projects Ltd has the discretion to accept or reject applications under this PDS in whole or in part. When Rewards Projects Ltd accepts an application relating to the Tree Project and allots one or more Woodlots, the Grower automatically becomes bound by the Tree Project constitution, the licence agreement, the management agreement, and, if applicable, the terms agreement. Similarly, when Rewards Projects Ltd accepts an application relating to the Land Trust and allots one or more Units, the Unitholder automatically becomes bound by the Land Trust constitution and if applicable, the loan agreement Rewards Projects Ltd holds the subscription money for Woodlots and Units on trust pending the allotment of Woodlots and Units. After the allotment of Woodlots, the subscription money may be released in payment of Tree Project fees in accordance with the licence agreement, management agreement and constitution. Rewards Projects Ltd also has the power to invest the subscription money in any authorised investment. After allotment of Units, Land Trust subscription moneys will be released to fund the acquisition of the land and associated expenses. MINIMUM SUBSCRIPTION There is no minimum subscription for participation in the Tree Project. The minimum subscription for participation in the Land Trust is 180,000. If for any reason the Land Trust does not own sufficient land for the Tree Project, Rewards Projects Ltd may lease land that is not owned by the Land Trust (including land owned by associates of the Responsible Entity). 30 REWARDS GROUP TEAK PROJECT 4

33 The market value of teak is greater than that of most other plantation timbers. Teak is a premium quality tropical hardwood renowned for its strength, durability and weather resistant qualities. REWARDS GROUP TEAK PROJECT 4 31