IMS - Open shipping fund

1. General situation

In spite of the recent market weakness shipping is in most of its trading areas an indispensable growth industry with manifold fields of activity in times of globalisation

In the past decades the well known "tax exemption model" has earned the German shipping an outstanding position in some sectors (f. i. container shipping). Lately however the increasing global competition has uncovered the inflexibility of this model molded by fiscal regulations frequently to a disadvantage for operators and investors alike.

Due to the changes in German fiscal legislation introduced in 1999 (tonnage tax) the fiscal advantages have on one hand shifted from the acquisition of the vessel to its actual operation (and thus to the intrinsic, entrepreneurial activity of the owner); on the other hand they now allow the owner a quicker response to changing market conditions, f. i. by a sale of vessel earlier than originally intended.

This new "tonnage tax model" is estimated by experts as being very positive for the economic prospects of German shipping, though momentarily it causes uncertainty in the shipping finance sector.

2. Basic idea

Within the framework of a small group of companies in Hamburg, which for more than a decade has specialized with good results on shipping activities and ship management in worldwide trade, these alterations in the law offering new opportunities will be exploited. Thus vessels shall be acquired and managed by a new shipping finance fund which will be set up for this purpose.

This fund shall not be limited to the acquisition and operation of a single vessel as up to now but, depending of the available equity and the market situation it will acquire possibly several vessels which will be operated within a pool, thus reducing risks and improving opportunities.

Specifically, the fund will take advantage from favourable buying opportunities on the international ship sales market for a most advantageous start, which will obviously require a corresponding ready availability of equity at short notice.

3. Implementation

The paid-up equity will be used for acquisition of tonnage offering the best actual prospects. This financial basis will be complemented by a specific vessel mortgage financing, which will be consolidated in a mortgage pool. Depending of the actual purchases and sales of vessels, this pool will be adapted flexibly to the financing requirements (increase with vessel acquisition, reduction with vessel sale).

Under the new tax provisions a vessel can now be sold at short notice depending of the market situation, thus yielding optimal results for the shareholders by profiting of favourable sales prices.

4. Investment policy

Considering the increasing volatility also in the shipping markets as well as the relatively long construction periods of vessels the fund will mainly invest in second hand tonnage for niche markets. The thereby possible quick purchase and sale allows to profit from the most favourable market conditions in each case.

Presently the long neglected market of the relatively conventional tweendecker appears to be specially promising, since there is still a good demand for this type of vessel in many not yet fully developed regions.

5. Opportunities and risks

For the investor the return opportunities in shipping will shift from the tax delaying effect of the "tax exemption model" as marketed up to now to the operational aspect of true economic yield. For obtaining such positive yields the new tonnage tax model offers best conditions, since it provides for a specifically favourable, minimal taxation of the entrepreneurial activity in shipping.

This activity continues to be submitted as before to the well known risks of shipping.

6. Fund

The fund will allow investors to participate in the shipping opportunities in the offing in an uncomplicated and well proven way, which results from the current changes in legislation. The legal set up is conceived as a GmbH & Co. KG.

The management will be effected by the shareholder with unlimited liability (MF Planungsgesellschaft mbH ?) at which the initiators are fully engaged.

They guarantee by their experience and contacts that the company will be managed in an absolutely professional way. Due to their many years of experience in the supply of crewing as well as in the technical management of vessels a high operating and safety standard is guaranteed.

7. Legal form and liability

The (MF Fund No.1 mbH & Co. KG ?) will be constituted according to German law for an indefinite period. The investors participate as limited partners. The liability is limited to the signed up share; a later capital call is excluded.

8. Equity

The fund equity is set to a range of between XEU 5 - 10 million. It can however be altered, depending of the market situation and the shareholders decisions. Increases respectively reductions can be requested for by the end of the accounts period.

9. Minimum participation

The minimum share is set to XEU 50.000 plus of a premium of 5%. Any higher equity share must be divisible by XEU 50.000.

10. Paying in of equity

At acceptance of the participation request 50% of the signed up amount plus 5% premium on the total signed up amount become due. Further tranches will be called up by the management according to requirement.

11. Management

The management of the Fund will be provided by the shareholder with unlimited liability (MF Planungsgesellschaft mbH ?), whose management will assure the overall management based on a management contract.

The fee herefore amounts to 3% p.a. (plus additional VAT if applicable), calculated on the equity in the books at the end of the year. Additionally the management company earns a result premium to the tune of 25% calculated on the net surplus after repatriation of and payment of interest on the equity of the investors.

12. Repayment of equity

Payoffs to the investors will take place up to the full repayment of their paid up equity, plus an interest of 8% p.a. on the equity still invested in the company.

Subsequently the (MF Planungsgesellschaft mbH ?) is entitled to a 3% p.a. management fee on the invested equity.

In the case of a duly established surplus the (MF Planungsgesellschaft mbH ?) obtains a results premium of 25% of the net surplus.

The remaining 75% will be distributed according to their existing participation to the investors.

Comments:

1. The herein mentioned designations ("MF Planungsgesellschaft", etc.) are provisional working terms.

2. Similarly all indicated numbers are provisional data.


		MF-Concept (draft) "Open shipping fund"
	1. General situation In spite of the recent market weakness shipping is in most of its trading areas an indispensable growth industry with manifold fields of activity in times of globalisation In the past decades the well known "tax exemption model" has earned the German shipping an outstanding position in some sectors (f. i. container shipping). Lately however the increasing global competition has uncovered the inflexibility of this model molded by fiscal regulations frequently to a disadvantage for operators and investors alike. Due to the changes in German fiscal legislation introduced in 1999 (tonnage tax) the fiscal advantages have on one hand shifted from the acquisition of the vessel to its actual operation (and thus to the intrinsic, entrepreneurial activity of the owner); on the other hand they now allow the owner a quicker response to changing market conditions, f. i. by a sale of vessel earlier than originally intended. This new "tonnage tax model" is estimated by experts as being very positive for the economic prospects of German shipping, though momentarily it causes uncertainty in the shipping finance sector. 2. Basic idea Within the framework of a small group of companies in Hamburg, which for more than a decade has specialized with good results on shipping activities and ship management in worldwide trade, these alterations in the law offering new opportunities will be exploited. Thus vessels shall be acquired and managed by a new shipping finance fund which will be set up for this purpose. This fund shall not be limited to the acquisition and operation of a single vessel as up to now but, depending of the available equity and the market situation it will acquire possibly several vessels which will be operated within a pool, thus reducing risks and improving opportunities. Specifically, the fund will take advantage from favourable buying opportunities on the international ship sales market for a most advantageous start, which will obviously require a corresponding ready availability of equity at short notice. 3. Implementation The paid-up equity will be used for acquisition of tonnage offering the best actual prospects. This financial basis will be complemented by a specific vessel mortgage financing, which will be consolidated in a mortgage pool. Depending of the actual purchases and sales of vessels, this pool will be adapted flexibly to the financing requirements (increase with vessel acquisition, reduction with vessel sale). Under the new tax provisions a vessel can now be sold at short notice depending of the market situation, thus yielding optimal results for the shareholders by profiting of favourable sales prices. 4. Investment policy Considering the increasing volatility also in the shipping markets as well as the relatively long construction periods of vessels the fund will mainly invest in second hand tonnage for niche markets. The thereby possible quick purchase and sale allows to profit from the most favourable market conditions in each case. Presently the long neglected market of the relatively conventional tweendecker appears to be specially promising, since there is still a good demand for this type of vessel in many not yet fully developed regions. 5. Opportunities and risks For the investor the return opportunities in shipping will shift from the tax delaying effect of the "tax exemption model" as marketed up to now to the operational aspect of true economic yield. For obtaining such positive yields the new tonnage tax model offers best conditions, since it provides for a specifically favourable, minimal taxation of the entrepreneurial activity in shipping. This activity continues to be submitted as before to the well known risks of shipping. 6. Fund The fund will allow investors to participate in the shipping opportunities in the offing in an uncomplicated and well proven way, which results from the current changes in legislation. The legal set up is conceived as a GmbH & Co. KG. The management will be effected by the shareholder with unlimited liability (MF Planungsgesellschaft mbH ?) at which the initiators are fully engaged. They guarantee by their experience and contacts that the company will be managed in an absolutely professional way. Due to their many years of experience in the supply of crewing as well as in the technical management of vessels a high operating and safety standard is guaranteed. 7. Legal form and liability The (MF Fund No.1 mbH & Co. KG ?) will be constituted according to German law for an indefinite period. The investors participate as limited partners. The liability is limited to the signed up share; a later capital call is excluded. 8. Equity The fund equity is set to a range of between XEU 5 - 10 million. It can however be altered, depending of the market situation and the shareholders decisions. Increases respectively reductions can be requested for by the end of the accounts period. 9. Minimum participation The minimum share is set to XEU 50.000 plus of a premium of 5%. Any higher equity share must be divisible by XEU 50.000. 10. Paying in of equity At acceptance of the participation request 50% of the signed up amount plus 5% premium on the total signed up amount become due. Further tranches will be called up by the management according to requirement. 11. Management The management of the Fund will be provided by the shareholder with unlimited liability (MF Planungsgesellschaft mbH ?), whose management will assure the overall management based on a management contract. The fee herefore amounts to 3% p.a. (plus additional VAT if applicable), calculated on the equity in the books at the end of the year. Additionally the management company earns a result premium to the tune of 25% calculated on the net surplus after repatriation of and payment of interest on the equity of the investors. 12. Repayment of equity Payoffs to the investors will take place up to the full repayment of their paid up equity, plus an interest of 8% p.a. on the equity still invested in the company. Subsequently the (MF Planungsgesellschaft mbH ?) is entitled to a 3% p.a. management fee on the invested equity. In the case of a duly established surplus the (MF Planungsgesellschaft mbH ?) obtains a results premium of 25% of the net surplus. The remaining 75% will be distributed according to their existing participation to the investors. Comments: 1. The herein mentioned designations ("MF Planungsgesellschaft", etc.) are provisional working terms. 2. Similarly all indicated numbers are provisional data.