current interest rates mortgage by rickman2


									Fund Profile & Commentary                                                                                                                                          30 September 2008

Mortgage Income Fund
Issued by Colonial First State Investments Limited ABN 98 002 348 352, AFSL 232468. The investment information in this option profile is historical,
produced as at the date specified above. We may change asset allocation and securities within the option at any time. Past performance is not an
indicator of future performance for this option or any other option available from Colonial First State.

                                                             3 months                 1 year                 3 years            5 years             7 years            10 years           Inception
                                                                (%)                    (%)                   (%) pa             (%) pa              (%) pa              (%) pa              (%) pa
   Total                                                         1.77               6.20                       5.84               5.67                5.46                  -                 5.54
     Distribution Return                                         1.77               6.20                       5.84               5.67                5.46                  -                 5.54
     Growth Return                                               0.00               0.00                       0.00               0.00                0.00                  -                 0.00
   UBS Australian Bank Bill Index                                1.93               7.65                       6.69               6.25                5.82                  -

Returns are calculated on an annualised basis using exit price to exit price with distributions reinvested for investments, net of taxes payable, management but excluding contribution fees, member fees,
adviser service fees and individual taxes (if applicable) and plan services fees (For Employer Super only). The ‘distribution’ component represents the amount paid by the way of distribution, including ne
realised capital gains.

Investment objective
To provide a consistent monthly income, while minimising the risk of capital                                Key data
loss, by predominantly investing in a broad selection of Australian-based                                                                         Size of   Management    Date
mortgages, fixed interest investments and cash.                                                                                                 option ($m)    cost*   established
                                                                                                                                                  $912.52m              1.15%              Aug 1999
Investment strategy                                                                                      * Management costs include management fees, estimated performance fees (if applicable),
                                                                                                         investment expenses and custody fees but do not include contribution fees, transaction costs or
The fund’s strategy is to invest in a broad selection of Australian-based                                additional service fees which may also apply. Please refer to the PDS for full details of the
mortgages, fixed interest investments and cash, placing emphasis on                                      applicable fees and costs.
the management of credit risk. The fund does not purchase securities
that give rise to material currency risk and

                                                                                                            Special information
Investment category                                                                                  1
                                                                                                         Important change effective 24 October 2008
Fixed interest and cash                                                                              2
                                                                                                     3   Colonial First State has suspended applications, withdrawals and
                                                                                                     4   switches relating to this option. We are writing to investors about what this
                                                                                                         decision means for them. We will continue to make pension payments
Minimum suggested time frame                                                                         5
                                                                                                         and pay distributions to investors. Our intention is to process withdrawals
3 years                                                                                              6
                                                                                                         on a quarterly basis, from the available cash from the fund.
   Investment ranges                                                                                 8 This decision has nothing to do with the overall underlying strength and
                                                          Range               Benchmark              9 quality of the investments held by this option, which are unchanged.
Cash and fixed interest                                   0% - 100%                   100%          10

                                                                                                         Why take this action?

   Income distributions                                                                                  We have been prudently managing the option and, until Friday 24 October
                                         Cents per           Franking           Realised                 2008, have been well placed to process withdrawals and switches. This
                                           unit                level           capital gain              situation has changed suddenly as most funds in the market with
                                                                                                         mortgage investments suspended withdrawals.
   Total 07/08                               5.77              0.00%               0.00%
   Total 06/07                               5.72              0.00%               0.00%                 By suspending this option, we can take a measured approach to
                                                                                                         processing withdrawals. Colonial First State’s decision has been made in
   Investment Allocation                                                                                 the best interests of investors to ensure all investors are treated fairly.
                                                             Allocation            Value
Mortgages                                                      80.5%             $734.21m                If there is anything you would like to discuss please contact your financial
                                                                                                         adviser or call us on 13 13 36, Monday to Friday, 8am to 7pm, Sydney
Mortgage backed securities                                     19.0%             $173.56m

Fund Profile & Commentary                                                                                              30 September 2008

Mortgage Income Fund
The Colonial First State Income option (“Option”) may have a significant     The following tables and graphs provide a summary of the mortgage
exposure to mortgage investments.                                            fund that the option invests into:
                                                                               Mortgage split by nature of development
What are Mortgage Investments?                                               Type                         Number of     Value ($m)         % of value
Mortgage investments are generally investments with an exposure to a         Construction                      5            $13.04           0.67%
portfolio of mortgages. The investment may be direct or indirect.            Improved Industrial              233           $501.21          25.93%
                                                                             Improved Office                  140           $515.67          26.68%
Industry and regulators have identified and developed a number of
                                                                             Improved Residential             53            $89.37           4.62%
benchmarks that apply to unlisted mortgage investments. Information on
these benchmarks is set out below.                                           Improved Retail                  232           $758.31          39.23%
                                                                             Pre-development Land              7            $37.10           1.92%
The benchmarks are as follows:                                               Specialised                       9            $17.33           0.90%
                                                                             Vacant Land                       1             $0.97           0.05%
                                                                                                    0%                        Construction
                                                                                             2%          1%
Liquidity                                                                                                                     Improved Industrial
                                                                                                                              Improved Office
An option uses cash to fund its operations including making loans,
meeting withdrawals and paying distributions. If sufficient cash is not             38%                                       Residential
available this may affect the ability to meet funding obligations,                                                            Improved Retail
withdrawals, operational costs and the level of distributions.
For the purposes of this benchmark, liquidity is the proportion of cash or                                                    Specialised
cash equivalents held by a fund/option. Generally, we endeavour to
manage these types of liquidity risk through the following processes:                                         27%             Vacant Land
• adopting liquidity risk measures and profiles including the terms of
redemption, changes in market liquidity conditions and funding provided        Mortgage split by type
to the fund;                                                                 Type                         Number of     Value ($m)         % of value
• managing the terms of agreements with lenders and investors to best
protect the fund’s interests;
• applying credit and lending principles and agreements including those      Residential                      53            $89.37           4.62%
terms which will impact funding and the overall risk of the fund including   Commercial                       140           $515.67          26.68%
hedging cash flows;                                                          Industrial                       233           $501.21          25.93%
• monitoring events which may increase liquidity risk; and                   Retail                           232           $758.31          39.23%
• reviewing alternative sources of funding.                                  Other                            22            $68.44           3.54%

Scheme borrowing                                                                            3.5%         4.6%

We generally do not borrow on a long term basis but may borrow on a                                                               Residential
short-term basis for settlement purposes or in unusual or extraordinary                                             26.7%         Commercial
                                                                                    39.2%                                         Industrial
Portfolio diversification                                                                                                         Other

We aim to ensure that we hold exposure to a sufficiently diversified pool
of mortgages to reduce the impact of any one group of mortgage
investments on risk or returns. These mortgages are diversified by                                         25.9%
geographic region and by property type/sector.

There are geographic limits (loan security property locations) for each
state as a maximum of the total Fund value. In addition there are limits
placed on the holdings in each of the various property sectors (ie
Industrial, Office, Retail and Residential).

The maximum size of any individual loan exposure is to be limited to the
lesser of $100m or 10% of the total fund value.

We currently do not invest in, nor do we have a policy of investing in,
unlisted mortgage schemes operated by other responsible entities.

The fund uses interest rate swaps to manage interest rate volatility.
Fund Profile & Commentary                                                                                                30 September 2008

Mortgage Income Fund
  Loans where interest has been capitalised                                   Proportion of total loan monies lent
                                 Number of       Value ($m)    % of value                                                Value ($m)        % of value
                                 mortgages                                  Largest borrower                               $69.25           3.58%
                                       6             $23.46      1.21%      Ten largest borrowers                          $449.12          13.84%

  Nature of security for loans                                                Undrawn loan commitments
Nature of security               Number of       Value ($m)    % of value   Nature of security              Number of    Value ($m)        % of value
                                 mortgages                                                                  mortgages
First mortgage                      680          $1,933.00      100.00%     Approved but not advanced          2           $57.63           2.98%
Second mortgage                        0             $0.00       0.00%      Funding commitments in
                                                                                                               6            $3.06           0.16%
Other                                  0             $0.00       0.00%

  Proportion of loans in default or arrears                                   Maturity profile
Duration                         Number of       Value ($m)    % of value   Time to maturity                Number of    Value ($m)        % of value
                                 mortgages                                                                  mortgages
< 30 days                              5              $5.95      0.31%      < 1 year                          102          $246.42          12.75%
< 30-60 days                           3             $25.37      1.31%      1 – 2 years                       163          $497.16          25.72%
< 60-90 days                           3             $62.72      0.32%      2 – 3 years                       194          $479.38          24.80%
90+ days                               8             $31.42      1.63%      3 – 4 years                       150          $416.33          21.54%
                                8.7%                                        4 – 5 years                       69           $293.08          15.16%
                                                                            > 5 years                          2            $0.64           0.03%

                                                                                                      0%     12.7%
                                                          < 30 days                        15.2%
   45.7%                                                  < 30-60 days                                                          < 1 year
                                                          < 60-90 days                                                          1 – 2 years
                                             36.7%                                                                              2 – 3 years
                                                          90+ days
                                                                                                                                3 – 4 years
                                                                                    21.5%                            25.7%
                                                                                                                                4 – 5 years
                                                                                                                                > 5 years

  LVR for loans
LVR                              Number of       Value ($m)    % of value
                                 mortgages                                    Mortgage split by geographic region
0% – 10%                            11             $0.21         0.01%      State                           Number of    Value ($m)        % of value
10% – 20%                            9             $2.87         0.15%                                      mortgages
20% – 30%                           21            $23.38         1.21%      NSW                               354         $1,080.05         55.87%
30% – 40%                           39            $89.89         4.65%      Vic                               130          $361.66          18.71%
40% – 50%                           70            $123.98        6.41%      Qld                               175          $395.68          20.47%
50% – 60%                           105           $288.40        14.92%     WA                                 7           $39.44           2.04%
60% – 70%                           338          $1,009.94       52.25%     SA                                 5           $17.84           0.92%
70% – 80%                           87            $394.34        20.40%     Tas                                4            $4.36           0.23%
80% – 90%                            0             $0.00         0.00%      ACT                                4           $32.95           1.70%
90% – 100%                           0             $0.00         0.00%      NT                                 1            $1.02           0.05%
                           0%    0.2% 1.2%                                                            0.2% 1.7%
                      0%                                  0% – 10%                             0.9%
                 0%                        4.7%                                                              0.1%                    NSW
                                              6.4%        10% – 20%                                                                  Vic
                                                          20% – 30%                       20.5%                                      Qld
                                               14.9%                                                                                 WA
                                                          30% – 40%
                                                          40% – 50%                                                                  Tas
                                                                                                                        55.9%        ACT
                                                          50% – 60%
                                                          60% – 70%
                                                          70% – 80%
Fund Profile & Commentary                                                                                                     30 September 2008

Mortgage Income Fund
  Fixed rate                                                                 Security properties are valued on the following basis:
Interest rate                   Number of      Value ($m)     % of value
                                mortgages                                    - ‘as is’ basis – all valuations;
                                                                             - ‘as if complete’ basis for construction loans in addition to the ‘as is’
>9.00                                15          $31.34         1.62%
8.51-9.00                            14          $70.23         3.63%        - ‘vacant possession’ basis for owner occupied properties.
8.01-8.50                            34         $126.08         6.52%
7.51-8.00                            44         $104.17         5.39%        Lending Principles
7.01-7.50                            86         $232.72         12.04%
6.51-7.00                            30         $154.22         7.98%        We only provide loans which meet the following general criteria:
<6.50                                2           $27.18         1.41%
                                                                             • mandatory registered first mortgage security over real property is held;
  Variable rate                                                              • borrower has a demonstrated ability to meet loan obligations;
Interest rate                   Number of      Value ($m)     % of value     • a satisfactory valuation is carried out by one of the qualified and
                                mortgages                                    independent Colonial First State panel valuers ;
>9.00                               299         $579.90         30.00%       • due diligence review of loan funding proposal inclusive of full financial
8.51-9.00                           141         $551.81         28.55%       analysis/assessment, credit reference checks, review of security property
8.01-8.50                                                                    valuation/s.
                                    15           $55.36         2.86%
7.51-8.00                            0           $0.00          0.00%
                                                                             On establishment of a new mortgage, the applicable maximum loan-to-
7.01-7.50                            0           $0.00          0.00%        valuation ratios (LVRs) will generally apply:
6.51-7.00                            0           $0.00          0.00%        - 75% for improved property;
<6.50                                0           $0.00          0.00%        - Maximum LVR of 70% will apply for construction type lending (based on
                                                                             lesser of hard cost or end valuation ‘upon completion’);
                                                                             - Maximum 60% for any owner occupied property transactions.

                                                                             Distribution Practices
                                                        Fixed rate
                                                        Variable rate        An investor’s entitlement to distributions will be based on the income
        61.4%                                                                which is earned. Our policy is to only distribute income that has been
                                                                             earned. We do not forecast distributions.

                                                                             Withdrawal Arrangements

                                                                             Withdrawal requests are generally processed within seven working days.
Related Party Transactions                                                   Generally, a further period of up to 60 days is allowed for withdrawals
                                                                             under the managed investment scheme Constitution . In some
                                                                             circumstances the maximum period allowed for withdrawals may be
We may be involved in related party transactions. Any related party
                                                                             extended for up to a further 28 days.
transactions are completed on an arms length basis and are assessed
against the market to ensure that they are completed on commercial
                                                                             Withdrawal requests made for a non-superannuation or non-pension
terms. We may put in place arm’s length commercial arrangements with
                                                                             investment option which is illiquid can only be made in accordance with
major banks or financial institutions to purchase mortgage assets from us.
                                                                             the Corporations Act. This restricts your ability to withdraw from the
                                                                             managed investment scheme option. If the option becomes illiquid we will
                                                                             inform you in writing.
Valuation Policy
                                                                             An option may experience difficulty in selling an asset for cash without an
We use a panel of external valuers to provide sworn valuations over          adverse impact on the price received. This risk may particularly affect
security property. Appointment to the panel is subject to defined primary    your ability to withdraw your investment from a fund/option that has
criteria based upon minimum qualifications, experience, references,          significant investments in mortgages.
minimum professional indemnity insurance cover etc. Valuations are
dated no longer than three months prior to the advance of any loan funds.
                                                                             Where a fund or option is suspended, restricted or terminated we may not
We aim to spread the valuations between valuers dependent upon               process withdrawal requests and your regular withdrawal plan from this
location and specialty of the valuer/firm (e.g. large retail). When          fund or option will stop. Any decisions whether to process withdrawals or
mortgages are renewed we prefer to rotate the valuer if possible so that     partial withdrawals will be made in the best interests of investors as a
consecutive valuations are not obtained from the same valuer.                whole, and if any payment is to be made, then the exit price used to
                                                                             calculate this payment will be the one determined at the time payment is
Sworn property valuations from panel valuers are instructed (under           made.
comprehensive defined formal instruction) and obtained at the inception
of each loan (dated within three months at the date of funds being
                                                                             Credit Risk
advanced) and again when each loan is assessed at the time of loan term      Mortgage investments are also exposed to credit risk. This is the risk that
expiry/renewal.                                                              a party to a credit transaction fails to meet its obligations such as when a
                                                                             borrower defaults in payment under a mortgage, mortgage backed
Outside of these times, if we consider it warranted, we obtain additional    security or a fixed interest security.
valuations which would normally be at the expense of the borrower.
                                                                             Further information to help you understand credit risk and mortgage
                                                                             investment risk is outlined in the Understanding Investment Risk section
                                                                             in Part 1 of the PDS.
Fund Profile & Commentary                                                                                                         30 September 2008

Mortgage Income

                                                                                 Fund performance and outlook
Market Review
Key economic data released in Australia during the September                     Recent returns have been negatively affected by the financial
quarter indicated that in the 12 months to June 2008 inflation had               market volatility. Since the beginning of the year there has been a
moved up to 4.5% while economic growth had slowed from 4.2% to                   quite dramatic tightening in the property lending market, which has
2.7%. This prompted the Reserve Bank of Australia (RBA) to                       led to falls in the market value of mortgage-backed securities.
reduce interest rates from 7.25% to 7%, and they were
subsequently reduced to 6% in October.                                           Nevertheless, the investments continue to earn stable, reliable
                                                                                 interest income. The current interest rates on mortgage and
The RBA is forecasting that inflation will fall below 3% during 2010             mortgage-backed securities have risen to their highest levels since
despite firm commodity prices, job growth, wages growth, tax cuts                1995, and are currently averaging around 8% pa. This should mean
and infrastructure spending. It believes that high interest rates,               that clients can expect a higher level of income in the future, which
weak home lending, lower retail spending and the global financial                will more than compensate them for any short term capital losses.
crisis could slow demand. Consequently, the market is expecting                  These capital losses are temporary as at maturity the principal of
more rate cuts.                                                                  each bond will be repaid in full. Furthermore, any new inflows into
                                                                                 the fund will be used to buy new securities that deliver higher
                                                                                 interest, adding to future returns for the fund.
The sub-prime inspired credit crisis is still negatively affecting
short-term borrowing. Lenders remain wary about parting with their
                                                                                 The large mortgage portfolio comprises 680 individual loans for a
cash, and continue to demand higher interest rates than six or nine
                                                                                 total of $1.9 billion and remains highly diversified across the
months ago. Term deposits and other domestic bank accounts are
                                                                                 following sectors:
insufficient to provide Australia’s banks with the quantity of money
they need to meet their lending requirements. Consequently, they
                                                                                       o    Industrial                      25.93%
have to raise money via offshore borrowing, and offshore rates
                                                                                       o    Office                          26.68%
have increased dramatically due to the credit crisis.
                                                                                       o    Residential                      4.62%
                                                                                       o    Retail                          39.23%
In offshore markets, inflation concerns gave way to heightened
                                                                                       o    Construction                     0.67%
worries about global economic growth. Early in October, the US,
                                                                                       o    Pre-development Land             1.92%
UK and European central banks all cut rates by 0.5% in a co-
                                                                                       o    Specialised                      0.90%
ordinated global action.
                                                                                       o    Vacant Land                      0.05%
                                                                                 Currently 39% of the Fund’s mortgages are at a fixed rate with 61%
                                                                                 variable. To achieve our objective of low volatility all fixed rate
                                                                                 loans are swapped out to floating rates.


This document provides general advice only and is not personal advice. It does not take into account your individual objectives, financial situation or needs.
Product Disclosure Statements (PDSs) for all Colonial First State products are available at or by contacting Investor Services on 13
13 36 or from your financial adviser. You should read the relevant PDS and assess whether the information in it is appropriate for you, and consider talking to
a financial adviser before making an investment decision. Commonwealth Bank of Australia and its subsidiaries do not guarantee the performance of
Colonial First State’s products or the repayment of capital by the products. Investments in these products are not deposits or other liabilities of the
Commonwealth Bank of Australia or its subsidiaries and investment type products are subject to investment risk including loss of income and capital
invested. Information used in this publication, which is taken from sources other than Colonial First State is believed to be accurate. Information provided by
the Investment Manager are views of the Investment Manager only and can be subject to change. Subject to any contrary provision in any applicable law,
neither Colonial First State nor any of its related parties, their employees or directors, provides any warranty of accuracy or reliability in relation to such
information or accept any liability to any person who relies on it.

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