MPF Redemption Problems in 2009

www.LMaustralia.com

20 May 2011

Dear (Name withheld at investors request),

Re: LM Managed Performance Fund Update and Progress Report

The LM Managed Performance Fund is an income fund with active equity-like participation in Australian property assets, which are structured as loans. There is a sound supply of assets available to the fund. Australian property, in general, has been more robust than that of any other developed country. A lack of credit within the sector slowed sales activity within the non-home owner property sector.

Whilst not yet back to pre-credit crunch levels, we report that recently we have seen an increase in both sales activity and credit available to the sector.

As you are aware, the fund’s asset strategy focuses on development opportunities, particularly in the Australian residential sector where there is a well-documented housing undersupply, and where the finance is available for those purchasing the end development product. Some of these assets have completed their acquisition phases, and are progressing to the next stages of development or construction.

As credit re-enters the market, we continue to ensure that we remain competitive on the asset pricing side of the fund, whilst continuing to provide appropriate returns to investors.

Conservative Cash Flow Management to Protect Capital and Value

As is the nature of property assets, from time to time there may be delays in achieving certain development steps, and for these and other external market reasons, cash may need to be directed to the assets first. This measure protects investor and asset value and when necessitated, it may affect the timing of payments of investor withdrawals. This occurred during the financial crisis, when the fund received high levels of withdrawal requests and highly conservative cash flow management had to be directed to fund assets, whilst extending the timeframes for investor withdrawal payments. Conservative cash flow management of the fund remains necessary, due also to the increasing value in the Australian dollar and the resultant requirement for further cash to be applied towards the net margin held by the fund’s foreign exchange provider.

Cash flow has been managed with investor withdrawals being paid over extended timeframes, and with income being paid as usual and uninterrupted.

At the end of last year and the beginning of this year, we saw consistency in cash flow variables, including some stabilisation with respect to the value of the Australian dollar. That allowed some good progress with investor withdrawal payments.

In the past couple of months, the cash flow has tightened again on the back of further spikes in the Australian dollar value and the cash need that creates for the foreign exchange provider. Many forecasters are predicting that it may continue to increase in value, at least over the next couple of months.

Redemptions/Investor Withdrawal Progress

We have initiated a sales campaign on two of the fund’s assets, as part of the strategy to see the investor redemption payments resume more usual payment timeframes. We provide more information on this below.

All the fund’s cash flow variables have an impact on the timing of payments from the fund.

The redemption trend itself stabilised several months ago, as the nervousness first created for investors by the financial crisis subsided. The initial spike the fund saw in the redemption trend has returned to the more usual pre-financial crisis trend. This has meant that the overall quantum of redemptions due to be paid has remained well within the capacity of the fund, and is manageable over longer payment timeframes.

New investments have remained fairly consistent and steady.

The most inconsistent/volatile variable to be managed within the cash flow of the fund over the past several months has been increasing value in the Australian dollar.

The volatility of the external factors that influence the fund’s cash flow make it difficult to provide a timeframe for the fund to resume normal timeframes around the investor withdrawal payments.

We are working on a plan to bring that about in this calendar year.

Sales Action – Part of the Plan to See Redemptions Back to Normal Payment Timeframes

Two of the fund’s assets are now being marketed for sale. We believe that the market should provide acceptable pricing, and achieving sales on these properties will assist in easing cash flow management and will bring investor withdrawal payments back to normal timeframes.

Asset Number One

Type: Oceanside Land with Going Concern Tenant

Location: Wollongong, New South Wales

Finals terms have been agreed with the purchaser on these parcels of land and we are expecting contracts to be exchanged shortly. Full settlement is forecast to be completed by August 2011.

Asset Number Two

Type: 20 Residential Apartments

Location: Barwon Heads, Victoria (coastal township close to Geelong)

2011 has seen increased sales activity in the area at acceptable price points. Our marketing strategy will be to progressively bring the assets to market, commencing with four apartments currently listed for sale. We will continue to monitor the market, and as sales occur, manage the sales on the remaining 16 apartments. The apartments are a mix of two and three bedrooms in the “affordable” pricing range starting at AUD350,000 up to AUD500,000.

The fund is approximately AUD237.7 million in size and consists of 16 assets. Investor withdrawal requests have settled down, and resumed normal pre-financial crisis trend with consistency. The issue to be managed is one of timing as it relates to cash flow.

The sale of the properties outlined above, together with the stabilisation of the cash flow variables discussed will see timing of the payment of investor withdrawals return to normal. We will be able to provide timeframes once we have contracts in place on these properties, and when the cash flow variables stabilise.

We thank you for your patience and will continue to provide updates.

Kind Regards,

LM Investment Management Ltd

LM the global pathway to Australian investment solutions