P 1800 230 099 | F (07) 3039 2829 | www.trilogyfunds.com.au | E investorrelations@trilogyfunds.com.au

Last year was a positive one for investors who participated in the two property trusts we had on offer. These consisted of the Cheltenham Office Syndicate which featured a $24 million commercial building leased to iSelect; and more recently the

QUARTERLY | AUTUMN EDITION 2015

WE KNOW PROPERTY

Inside Managing the impact of interest rates Finance between generations Structuring the role of trustee in your SMSF What does a good financial adviser do? 7 areas of your finance to consider this year

Ravenhall Office Trust which is a multi-tenant building purchased for $8.9 million. The year was also positive for the investors in the Trilogy Monthly Income Trust. The Trust experienced strong growth, and is now celebrating its ninth year of operation.

Trilogy Property Partners, part of the Trilogy Funds’ group, has secured control of three sites with the intention to develop these into childcare centres. The sites include 3,106 square metres in Sydney’s Gregory Hills; 3,750 square metres in Kilburn, Adelaide; and 2,100 square metres in Trinity Gardens, Adelaide. We have selected these locations

due to their population growth and high demand for childcare. The number of children in care increased by more than 33% between 2004 and 2012, which is just one of the factors that informed these strategic acquisitions by the group.

We are also pleased to announce Peter Arnold’s appointment to the role of Director and member of the Board. Peter will continue in his position as Head of Property Syndicates, a role he has held for four years. Peter contributes over 30 years’ experience in Australia’s commercial, industrial and retail property markets, and more than 20 years of funds management

expertise.Looking ahead,

global economic growth is expected to continue in 2015, but there are challenges on the horizon both internationally and for the Australian economy.

We are entering a period of tightening financial conditions, predicted increases in unemployment, low cash rates and declining investment in the mining sector. It is an interesting time to be an investor. We continue to assess opportunities in the market, and are currently evaluating the viability of several properties for managed investment schemes. There is the possibility of adding another mortgage-based

investment opportunity to our offerings this year. We will give you a preview prior to it coming to market.

This edition of Acumen touches on SMSF trustee options, the impact of low interest rates, the role of a good financial

adviser, and financially assisting your adult children. I trust these topics are timely and relevant for you.

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Welcome to our quarterly newsletter

Dear Investor,

If you have a mortgage, own a business, are an investor, or are retired, then the Reserve Bank of Australia’s interest rate decision each month affects you in some way. With interest rates at historically low levels such as the cash rate of 2.25 percent, thousands of homeowners are able to pay off their

mortgage faster, but interest rate movements mean different things to different people.

Low interest rates help to reduce the costs of personal and investment loans, credit cards and business financing.

However, low interest rates also cause returns on interest-bearing investments to diminish substantially, so investors certainly do not welcome interest

rate cuts.Depending on your

circumstances, a review of your mortgages, credit and other finance arrangements may be opportune.

• Homeowners: With variable rates remaining low do you use this as an opportunity to build a buffer against interest rates eventually rising? Or do you direct your spare cash to reducing debt, including credit cards or personal loans?

• Investors: This may be a good time to consider

starting a long-term investment strategy. Given that dividend yields and rents have changed in the past couple of years, it is worth another look to determine if potential investments are still applicable to your investment goals.

• Business owners: Overdrafts, car leasing and other business loans may benefit from a full review. In particular, any strategy to reduce debt should be revisited, and it may be a good

time to consider refinancing. You may be able to take advantage of a lower interest offer with another lender. But always balance the potential savings against any costs associated with taking your business to a new bank.

• Deposit holders: Dwindling returns on cash may have you considering alternatives. There are ways to boost your returns, but it is critical to read the fine print and understand the investment. Higher

returns usually attract higher risk, so ensure the extra risk is rewarded with appropriately higher returns, and that you can tolerate that risk.

Across the economy generally, a low interest rate environment often accompanies slower economic growth, uncertain job prospects and lower asset prices, but it will not last forever. Make an appointment with your financial adviser to discuss your circumstances and how you can take advantage of the current situation.

It is fascinating to look at the differences in behaviour and values when comparing different generations. The Baby Boomers are made up of children born into families recovering recovering after the end of WWII. This generation pioneered two-income families, and as a result they have lived in relative comfort and prosperity. It will be interesting to see how the prevalence of technology will affect the development of Generation Z (1995

– 2009) and

Generation A (2010 onwards). However, Generation Y (1980-1994), and how they are dealing with money, is an issue of interest.

There is no doubt Gen Y, the children of Baby Boomers, are the driver of the next economy. Currently in their 20s and early 30s, Gen Y’s tend to be highly educated, tech-savvy and content to delay marriage, children or a traditional career until later in life.

Gen Y have been referred to as ‘KIPPERS’ (Kids in Parents’ Pockets Eroding Retirement

Savings), with the latest Australian census data showing that nearly a third of young adults are still living with their parents.

Extended tertiary education and high living costs are contributing factors, and a significant proportion of Gen Y are seemingly happy for their parents to support their lifestyles. But the primary issue for Gen Y is soaring property prices, with International Monetary Fund data reporting that Australia had the third highest house price-to-income ratio in the world in 2014.

Furthermore, it now takes first home buyers an average of 3.8 years to save for a home deposit for a median priced property in Brisbane, and an average of 4.8 years in Sydney. It is due to this lack of affordability that many young people are either staying at home longer, or asking their parents for assistance in fulfilling their home ownership dreams.

There are a number of ways Baby Boomer parents can assist their children to enter the property market. These include:

• Giving their child the deposit This is often sufficient for the child to obtain finance; they then take responsibility for loan repayments.

This method is popular as

parents are not part of

any

contractual agreements.

• Acting as Guarantor on a loan This involves using the parents’ asset as security for all or part of their child’s home loan. It also allows a parent to assist their child without gifting them the money, but involves extensive documentation.

• Buying the property together This involves sharing the cost of the mortgage and property.

Each strategy has its own advantages and disadvantages, which need to be evaluated carefully.

Helping your children might seem like the right thing to do, but it is also important to encourage economic independence and responsibility. Your financial adviser can help you to explore the available options to ensure that you find the solution that best suits your family’s circumstances.

Managing the impact of interest rates

Finance between generations

Some people think a financial adviser’s role is to forecast the direction of the share market and invest client money accordingly. This is not the reality, of course. Investments are only one small part of what a financial adviser can provide for you, and there can be a wide range of other benefits.

Knowledge is power There is a huge amount of information available, whether you prefer books, websites, broadcast media, blogs or social media channels. Whether it is the latest share market activity, economic news or the constantly changing tax and superannuation rules, an adviser can answer your questions.

Time is money Sometimes the benefit you receive from a financial adviser can be spelt out in dollar terms. It might be the income tax you have saved by restructuring your salary, or a new concession from the Australian Tax Office or Centrelink, which you did not realise you were eligible for.

There is a lot to be said for leaving unfamiliar topics to the experts, and focusing on what you excel in. How do you choose the best superannuation fund, investment options or insurance cover? There are some helpful comparison websites, but the information they share often features a great deal of jargon, and it can still be hard to compare options.

With all this to consider, it is no wonder many important financial decisions stay in the “too-hard basket”. Advisers deal with these issues on a daily basis, and are in a good position to explain everything you need to know, and simplify your options.

Personalised advice The finance section of your newspaper or magazine probably includes a regular advice column. By law, these columns must warn readers that the advice does not take into account your personal situation or needs, and you should consider its appropriateness before acting.

Financial advisers will not use this general advice warning, because

they will take your personal circumstances into account. A good financial adviser will gather account statements and data from all areas of your finances, and will analyse these thoroughly before making any recommendations. A good financial adviser will tailor your investment portfolio, your super contribution strategies, your savings plans and your insurance advice to your personal needs, goals, and tolerance to risk.

As the years go by, some of your financial strategies will need adjusting due to changes in the broader environment or something closer to home. Whatever the case, they are there to help you make the most of the good times and the bad.

Self-Managed Superannuation Funds (SMSFs) are popular and in a large part this is due to the level of control they offer. SMSFs enable members to have full control over investment decisions, fees and retirement savings. However, this control comes with added responsibility. Trustees are required to comply with superannuation, tax and corporations legislation.

During 2014 a number of rules were changed, therefore trustees need to be aware of these or risk penalty. The Australian Tax Office has the power to make a fund non-compliant, disqualify trustees, or instigate civil and/or criminal charges for more

severe breaches. Should a fund be deemed non-complying, it will be subject to tax at the highest marginal tax rate. In light of this, choosing the appropriate structure for the role of trustee is a crucial decision.

Individual or Corporate Trustee? When deciding on trustees for a fund, there are two options available: individual trustees or a corporate trustee. To date, approximately 70% of SMSFs in Australia have individual trustees. When making a trustee nomination, due regard should be given to the following issues:

Individual TrusteeAdvantages:• Reduction

in reporting requirements – having an individual trustee can avoid additional paperwork and ASIC reporting requirements required of corporate entities.

• Less onerous procedural requirements – trustee meetings are relatively flexible and not subject to the same requirements as meetings of a corporate entity which must satisfy constitutional requirements.

Disadvantages:• Costly to amend –

individual trustee arrangements are cheap and

easy to establish, however, they can have unforeseen costs, with changes to trustee arrangements being costly and time-consuming to undertake.

• Record keeping/clarity of ownership – with individual administration, there is a risk that personal assets can become intermingled with fund assets, and the threat of significant penalties.

Corporate TrusteeAdvantages:• Liability

management – having a corporate trustee can limit the liability of fund

members, with potential litigants having claim on corporate assets as opposed to the members’ personal assets.

• Succession and estate planning – corporate trustees enable smoother succession and estate planning as it is easier and more cost-effective to replace a director of the corporate trustee than change an individual trustee.

Disadvantages:• Set-up costs –

the process of establishing a corporate trustee at the outset can be significant.

• Structure – a

new proprietary limited company is required to be registered to act as the trustee. Company returns must be lodged with ASIC every year and an annual fee paid.

As outlined above, whilst establishing individual trustees may be the most cost-effective option at the outset, the opposite may be true over time. For more information about SMSFs and assistance in choosing the right trustee structure for your circumstances, speak with your licensed adviser.

P 1800 230 099 | F (07) 3039 2829 | www.trilogyfunds.com.au | E investorrelations@trilogyfunds.com.au

What does a good financial adviser do?

Structuring the role of trustee in your SMSF

P 1800 230 099 | F (07) 3039 2829 | www.trilogyfunds.com.au | E investorrelations@trilogyfunds.com.au

Disclaimer: While every effort is made to provide accurate and complete information, Trilogy Funds does not warrant or represent that the information in this newsletter is free from errors or omissions or is suitable for your intended use. Subject to any terms implied by law and which cannot be excluded, Trilogy Funds accepts no responsibility for any loss, damage, cost or expense (whether direct or indirect) incurred by you as a result of any error, omission or misrepresentation in information. Note: All figures are in Australian dollars unless otherwise indicated.

As we begin another year, many of us find ourselves thinking about our aspirations for the future.

Whether we are working or retired, we still need to take time to reflect on what we have achieved; where we want to go; and what we need to get there. These times of reflection are critical to our lives whether we run our own business, are employed or retired.

A financial checklist is an excellent tool to see you are progressing towards your goals and help identify any specific areas you might need to focus on in the immediate future.

Some key issues to consider are:

Home loan review If you’re still making repayments, is it time to revisit your progress? Are you able to increase your payment amounts or frequency to save on interest? With interest rates so low, should you refinance for a better deal?

Financial review When was the last time you reviewed your financial strategy and/or investment portfolio? Some important questions to ask yourself include:• Have your financial

objectives changed due to changed business, job or family circumstances?

• Does it look like you will meet your objectives for 2015? What adjustments are needed for

2015? What are your wider financial goals for 2015?

• Are you sufficiently protected against financial and personal risks?

Investment review• How have your

investments performed? Are they appropriate in the current market, or would adjusting your portfolio be a good option?

• If your financial objectives have changed, does that affect your investment strategy?

• Are you seeking regular monthly income from your investments or are you looking for capital growth?

• Are your investments providing you with sufficient cash flow

to meet your income needs?

• When was the last time you met with your financial adviser? If you aren’t currently using one, how confident do you feel making decisions about your investments? Is meeting with a financial adviser or accountant something worth thinking about?

• Have you identified any opportunities for diversification in 2015?

Savings• How much money

did you save this past year?

• Are you spending first and saving what’s left?

• If you are retired, were your expenses this year in line with

what you expected them to be?

Insurance When illness or accidents happen, many people are caught off-guard and are not protected as well as they thought they were or should have been. It is a good idea to regularly review your insurance policies to ensure you and your family have adequate cover.

Superannuation If you are still working, what is the current value of your retirement savings, including superannuation? If you don’t know, now is a good time to check. Are your savings and super working as hard as they should be? Are you on track or should you be putting more away?

Your will Making a will is not especially difficult or even terribly expensive. It is a fact of life that people get divorced, form new relationships or develop new interests. Any of these may result in a will being challenged through the legal system which can create animosity, anger, and considerable delay in finalising the estate. Estate planning matters should be regularly reviewed in addition to your will.

7 areas of your finance to consider this year