lsg - set for much higher levels, page-22

Pooled Development Fund (PDF)

Lion Selection Group Limited registered as a Pooled Development Fund (PDF) on 2 May 1997. The PDF program was established by the Federal Government in 1993 to encourage the provision of patient equity capital to small and medium-sized Australian enterprises (SME's).

To maintain its status as a PDF, a company must comply with the regulations imposed by the Pooled Development Funds Act 1992. The main areas of compliance in relation to Lion Selection Group's investment activities are:

A PDF must invest 65% of its raised capital within five years of the raising.
A PDF may only invest in new shares in Australian companies.
A PDF must take a minimum 10% equity in the investee company.
Investee companies must have less than A$50 million in total assets.
The funds invested by a PDF must be used to establish an eligible business, to substantially expand production capacity or to substantially expand existing markets of an eligible business.
To encourage investors, concessional tax treatment is available for both the PDF company and its shareholders:

A PDF company pays a corporate tax rate of 15% on PDF investment income and 25% on other income.
Any capital gains made on PDF shares are not taxable, no matter when the shares were purchased.
Any dividends paid by a PDF to its shareholders are tax exempt for the shareholder, but may be franked if applicable.
A number of changes to the PDF Program were announced in the Federal Budget in May 1999. The amendments came into effect in July 1999 and allow:

PDF companies to buy back their own shares
Widely held complying superannuation funds and similarly regulated overseas pension funds to wholly own a PDF company (ownership was previously limited to a 30% interest)
PDF companies to make loans to equity investees subject to a maximum of 20% of the PDF's capital base.