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Important Notices
THIS DOCUMENT IS IMPORTANT
AND SHOULD BE READ IN ITS ENTIRETY
This is a Product Disclosure Statement (PDS) for
The Paulownia Tree Farming Project No.3
This is an important document and applicants should read the entire Product
Disclosure Statement for the purpose of making an informed assessment of the
project, your financial requirements and the performance and prospects of the
scheme and the rights and obligations attaching to the investment

This Product Disclosure Statement is dated 23 November 2005.

The Australian Securities and Investment Commission and its officers take no
responsibility for the contents of this Product Disclosure Statement.
All application money will be held by the Custodian in a bank account in trust for the
Applicants until the time of allotment.
The minimum subscription was reached under the Paulownia Tree Farming Project
No.1 and there is therefore no minimum subscription requirement under this Product
Disclosure Statement.
This Product Disclosure Statement is issued by Paulownia Farm Management
Australia Ltd (ACN 085 628 388) ("the Responsible Entity") (PFMA) and, except for
the preparation of those parts of the Product Disclosure Statement consisting of or
based on reports from independent experts, the Responsible Entity is responsible for
its contents.
Unless otherwise stated, items shown in this Product Disclosure Statement are not
assets of the Responsible Entity.
Potential investors should be aware that Growers have no right to require their
Interests in the Project be bought back by the Responsible Entity or any other person
associated with the Project, or to have their Interests in the Project redeemed or
repurchased.
This is not intended to be a short term venture and will be subject to the risks
generally associated with commercial plantation forestry.
The distribution of this Product Disclosure Statement in jurisdictions outside
Australia may be restricted by law, and persons who come into possession of this
Product Disclosure Statement should seek advice on and observe any of those
restrictions. Failure to comply with these restrictions may violate securities laws.
Investors who are resident in countries other than Australia should consult their
professional advisers as to whether any governmental or other consents are required
or whether any other formalities need to be considered and followed. This Product
Disclosure Statement does not constitute an offer, in any place in which, or to any
person to whom, it would not be lawful to make such an offer. No person or
corporation connected with the issue of this Product Disclosure Statement guarantees,
underwrites or warrants the performance of the scheme, or any investment offered
under this Product Disclosure Statement, and further no guarantee is given in relation
to the return of capital, payment of income distributions, tax refunds, or any other
returns to the investors in the scheme offered under this Product Disclosure
Statement.
The investment offered in this Product Disclosure Statement should be considered
speculative.
Information contained in this PDS may change from time to time. If the change will
be materially adverse, then, in accordance with the Corporations Act 2001 (the Act),
PFMA will issue a supplementary PDS. However, if the change will not be
materially adverse to the offer, then PFMA will not issue a supplementary PDS.
Updated information will be continually available from PFMA's website at

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www.paulowniamanagement.com.au. and upon request PFMA will provide you
with a paper copy of any updated information free of charge.
If after reading this Product Disclosure Statement you have any questions about, or
wish to express an interest in the offer, you should contact the advisor who provided
you with this Product Disclosure Statement. This PDS should not be regarded as
providing you with investment advice. An application for an interest in the Project
can only be made by completing the Application Form attached to this Product
Disclosure Statement

Website - Electronic Product Disclosure Statement

A copy of this Product Disclosure Statement can be downloaded from the website of
the Responsible Entity at www.paulowniamanagement.com.au. Any person
accessing the electronic version of this Product Disclosure Statement for the purpose
of making an investment in the Company must be an Australian resident and must
only access the Product Disclosure Statement from within Australia.

The Corporations Act prohibits any person passing onto another person an
Application Form unless it is attached to a hard copy of this Product Disclosure
Statement or it accompanies the complete and unaltered downloaded version of this
Product Disclosure Statement. Any person may obtain a hard copy of this Product
Disclosure Statement free of charge by contacting the Company.

Note: Photos used in this Product Disclosure Statement are not necessarily showing
assets that are owned by the Company.

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 Contents

PAGE

Important Notices 1
Contents 3
Chairmans Address 4
1. Project Summary 5
2. Details of the Offer 7
3. Opportunities for Paulownia in Australia 13
4. Paulownia Project Details 14
Paulownia Plantation Location Map 16
5. Projected Yields and Grower Expenditure 18
6. Project Management 24
7. Risks 28
8. Independent Paulownia Consultants Report 31
- Afforestation Pty Ltd
9. Financial Statements 39
10. Summary of Material Agreements 41
11. Statutory Information 53
12. Steps to Complete the Application Form 57
13. Completing your Application Form 58
Application Form
Power of Attorney
Payment Options
14. Glossary 66
Corporate Directory 68

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 CHAIRMANS ADDRESS

Dear Investor,

On behalf of the Board of Directors and following on from the successful implementation of
the first two Paulownia Projects, I am pleased to present to you an opportunity to participate
in this Paulownia Tree Farming Project No.3. Paulownia Farm Management Australia Ltd
was established to facilitate the development of tree husbandry Projects, including the growth,
harvesting, processing, promotion and sale of Paulownia timber.

Establishing a commercial Paulownia farm is for a term of 12 to 15 years and the project is
subject to the normal risks associated with commercial plantation forestry. We are committed
to minimising those risks and to producing timber profitably. A commercial Paulownia tree
farm is a physical asset that you can enjoy being involved in and to be able to watch the trees
growing over the years. Ideally we are seeking Growers who wish to invest in Paulownia
plantations in order to develop for themselves a valuable timber investment that will provide
rewarding returns in the future.

The Board of Directors have business, marketing and Paulownia project management
experience and a have a practical, commercial hands-on approach to business management.
We are committed to the ongoing success of the Project and its growth over time.

Paulownia Farm Management Australia Ltd was formed to create opportunities for the
production and sale of high quality Paulownia timber. Central to the Project will be the
plantation husbandry, maintenance and development we consider important for the total
realisation of the venture.

The Directors are committed to the establishment of a fully developed plantation project
involving the growing, harvesting, promotion and sale of high quality Paulownia timber.

This Product Disclosure Statement contains detailed information to help you decide whether
to apply for an Interest in this Paulownia Project No.3. Please read this Product Disclosure
Statement carefully before making that decision.

On behalf of the Board, I look forward to your participation.

David Peter Blackwell

Chairman of Paulownia Farm Management Australia Ltd.

23rd November 2005

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1.0 PROJECT SUMMARY

This section is a summary only. This Product Disclosure Statement should be read in
full and preferably a professional advisor consulted before an investment decision is
made.

1.1 Paulownia Trees

The most important attribute of Paulownia is its ability to produce stable quality timber in a
short time frame. The timber is by definition a hardwood, light but strong. It dries easily
without warping, has a straight grain, polishes to a satin finish and is easily worked.

Traditional uses include furniture making, fine cabinetwork, mouldings and paneling. More
recent uses include blind slats, plywoods, veneers and caskets and for use in the caravan
industry.

1.2 Demand for Wood

Increasing world population and improved living standards are expected to strengthen the per
capita consumption and total demand for wood. Plantation forests are likely to become more
important as Federal and State Governments implement the National Forest Policy Statement
(1995). The policy supports the conservation and management of old growth native forests
and places strong emphasis on the expansion of commercial plantations so as to meet the
domestic needs for wood based products and produce for export.

1.3 Purpose of the Issue

The Product Disclosure Statement provides you with the opportunity to participate in the
timber industry by acquiring an Interest in Project No.3 and becoming a Grower of Paulownia
trees in the Dandaragan region of Western Australia.

1.4 Form of the Investment

An Applicant whose application is accepted by the Responsible Entity is known as a Grower.
As a Grower you will:
hold a Sub-Lease over a separate and individually identifiable area of the Plantation
comprising one or more Timberlot(s) (each Timberlot is 0.10 hectares in size);
enter into a Lease and Management Agreement with the Responsible Entity and rural
Equities Ltd, the land owner, that specifies in detail the work which will be undertaken on
your behalf, including establishment, maintenance, harvesting and sale of timber; and
receive income when the Plantation is thinned at year eight and clearfelled at years 12, 13,
14 and 15 (unless delayed by the Responsible Entity for commercial reasons).

1.5 Investment Cost

The amounts, as set out below, are payable at the time of application for rent, planting and
management fees for the Initial Period in relation to the Timberlot for which each applicant
has applied. After the Initial Period a Grower must pay annual Management fees of $678.00
(inclusive of GST) and Lease fees of $22.00 (inclusive of GST) per Timberlot (increasing at
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the higher of 4% per annum or inflation, CPI indexed, which ever is the higher) pursuant to
the terms and conditions of the Lease and Management Agreement.

The amount payable for the Initial Period is $4,000 and consists of the following:

Amount Plus GST Total

Rent $ 20.00 $ 2.00 $ 22.00
Management Fee $3,616.36 $361.64 $3,978.00
Total $3,636.36 $361.64 $4,000.00

Initial Period- means the period from the 1 July 2006 to the 31st December 2006

1.6 Taxation
Acquiring an Interest in the Project may provide a tax advantaged method to participate in the
Paulownia timber industry by becoming a Grower. Those tax benefits will only become
available to the Growers if the Commissioner of Tax exercises his discretion under sections
35-55 of the Income Tax Assessment Act 1997 (ITAA).
An application for a Product Ruling has been lodged with the ATO by the Responsible Entity
but has not as yet been granted as at the date of this Product Disclosure Statement.

1.7 Returns
The Paulownia Tree Farming Project No.3 is a 15 year project. It is not possible to determine
with any certainty, the financial returns to Growers over the life of a 15 year forestry project.
this is primarily because it is not possible to calculate with accurate certainty the effect that a
large number of variables, many of which are beyond the control of the Responsible Entity,
may have on the project returns. Further, trying to anticipate events that affect returns, may
not occur as expected, whilst unanticipated events that affect returns may occur.

Under the Corporations Act 2001, the provision of Forecast Financial Returns must be
objectively and independently verified. As this is a 15 year project , it is impractical to
objectively confirm and verify some of the supporting information that is required to provide
and illustrate projected financial returns.

Whilst it is not possible for the Responsible Entity to provide financial forecasts, the
Responsible Entity does wish to provide sufficient information to assist you in making your
own assessment of the merits of investing in the Project. Some of the Factors that may assist
you in performing your own financial projections for this Project, are contained in sections 2,
3, 4, 5, 6, 8, 9 and 10 of this Product Disclosure Statement.

The Paulownia tree when given appropriate cultural treatment, grows faster than other species
of trees, producing stable timber at eight years of age. It also offers Growers the opportunity
to participate in the value adding activities of milling and producing sawntimber to meet the
end user demands.
Paulownia is already recognised world wide as a valuable useable timber with many uses.

You should consult your professional advisor, prior to making an investment decision in
relation to this Project.

1.8 Sales and Marketing

The Responsible Entity will act as the selling agent for the sale of the whole of the Paulownia
round logs at year eight and roughsawn timber produce at years12 to 15 from this Project for
what the Directors and Independent Consultant (Expert) believe to be commercial prices.

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1.9 The Responsible Entity
Paulownia Farm Management Australia Ltd (the Responsible Entity) will manage the
Project and the Timberlot(s) on behalf of each Grower during the 15 year term of the Project,
effective from the 30 June 2006, under the terms and conditions of the Constitution. The role
of the Responsible Entity includes establishing and cultivating the Paulownia trees and
harvesting, processing and marketing the timber. The Directors of the Responsible Entity
have several years experience in the financial and practical management aspects of the
Paulownia business. The Responsible Entity is remunerated by a fixed fee component, details
of which are set out in the Lease and Management Agreement. Refer to Section 6.0 of this
Product Disclosure Statement for details on Project management and to Section 5.13 for fees
payable to the Responsible Entity.

1.10 Independent Consultant

The Responsible Entity has also engaged the services of Afforestation Pty Ltd (ACN 008 733
926) as an Independent Consultant (Expert) on Paulownia trees and Paulownia plantations
pursuant to the Plantation Consultancy Agreement. Afforestation Pty Ltd will be actively
involved in overseeing the preparation for, and the implementation of, the planting. They will
also oversee the growing and maintenance of the Paulownia trees on the Project land and they
will act as a consultant to the Board of Directors on all matters concerning the farm
management aspects of the Project. Section 11 contains a summary of the Plantation
Consultancy Agreement.

1.11 Risks
Applicants should note that there are relevant risks associated with primary production and
commercial tree farming plantations. Refer to the list of risk factors set out in Section 7 of this
Product Disclosure Statement.

1.12 Risk Reduction

The Responsible Entity has been given a firm undertaking by the planting and maintenance
contractor, Goldzone Investments Pty Ltd, that should any seedlings die as a result of planting
then they will be replaced for up to two-years from the date of purchase.

1.13 Project Structure

The figure below, illustrates the project structure.

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2.0 DETAILS OF THE OFFER
This Product disclosure Statement offers the opportunity to participate in a long term,
fully managed commercial Paulownia tree farming plantation and timber business by
entering into a Lease and Management Agreement with Paulownia Farm Management
Australia Ltd, the Responsible Entity and Rural Equities Ltd, the land owner.

2.1 Important Notice

This section is not intended to provide all of the information for investors intending to
apply for Interests offered pursuant to this Product Disclosure Statement. This
Product Disclosure Statement should be read in its entirety.

Neither the Company nor any other person guarantees the performance of the
investments offered pursuant to this Product Disclosure Statement, or the performance
of the Scheme, or the return on any investment

2.2 Investment Cost

An amount as set out in Section 1.5 is payable upon application for each Interest applied for.
This amount will pay for the initial planting and management fees together with rent for the
Initial Period in relation to one Timberlot. In addition there are rental and management fees
payable throughout the term of the Project pursuant to the Lease and Management
Agreement.

See Section 5.12 for a full explanation of the costs to the Grower over the 15 year period.

2.3 Minimum Application

Each Applicant must apply for a minimum of one Interest in the Project. Should you acquire
an Interest in the project you will enter into a Lease and Management Agreement in relation
to one or more Timberlot(s), depending on your particular financial circumstances.

2.4 Minimum Subscription

There is no minimum subscription to be raised under this Product Disclosure Statement as the
minimum subscription of 100 Timberlots, required under Project No.1, has already been
complied with.

2.5 Over Subscription

This Product Disclosure Statement offers up to 1,250 Interests in the Project comprising up to
1,250 Timberlots. However, the Responsible Entity reserves the right to accept over-
subscriptions providing that the Lessor has suitable irrigated land available and subject to
approval by Afforestation Pty Ltd, the forestry consultants to the Responsible Entity.

2.6 Applying to Become a Grower

Subscribing to participate in this Project may only be made by completing the Application
Form attached to this Product Disclosure Statement and forwarding it to the Responsible
Entity with your cheque for the application money.

The Application Form is accompanied by a power of attorney, which should be signed by the
Applicant to enable the Responsible Entity to execute the Lease and Management Agreement
on behalf of the Applicant.

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The Responsible Entity will ensure that all applications received on or before the expiry of
this Product Disclosure Statement are processed in this financial year ending on the 30 June
2006. The Responsible Entity reserves the right to close the issue early.

Applicants seeking to borrow funds to participate in the Project must make their own
arrangements with financiers. Applicants who borrow to purchase an Interest should also seek
their own advice regarding the deductibility of interest payments from participation in this
Project.

Once your application is accepted you are known as a Grower and your rights and the
Responsible Entitys obligations to you are governed by the terms of the Lease and
Management Agreement and the Constitution. This agreement and the Constitution are
summarised in Section 10.

2.7 Timberlot Allotment

Timberlot(s) will be allotted by the Responsible Entity pursuant to this offer after receiving a
fully completed application form which is attached to this Product Disclosure Statement. The
Directors will allot the Timberlot(s) applied for as soon as practicable after the subscription is
received. The Directors may allot the Timberlot(s) applied for on the application form in full,
or allot any lesser number, or decline to accept any application. Where the number of
Timberlot(s) allotted is less than the number applied for, the surplus application money will
be refunded to the Applicant within seven days of allotment. Where no issue is made in
respect to any application, the whole of the application moneys will be returned in full not
later than seven days after the closing of the subscription.

A Growers Timberlot(s) will be individually identifiable on a Plantation Timberlot Plan. The

Responsible Entity at its sole discretion will allocate the Timberlots to the Growers. The
Responsible Entity will issue a certificate to each Grower within two months of receiving the
application, showing the Timberlot(s) number and location of the Growers Timberlot(s).

Growers may register their interests in their Timberlots with the Department of Land
Administration pursuant to a subject of claim caveat.

2.8 Electing Grower

Growers (the electing grower) may elect prior to 30 June 2008, to take their own produce
from their Timberlot(s) in lieu of having it harvested (in year eight) and having it harvested
and milled (years 12 to 15 only) and sold on their behalf by the Responsible Entity. In the
event that no election is made, the Responsible Entity will sell the timber on behalf of the
Growers under the terms and conditions of any Purchase Agreements that the Responsible
Entity may enter into.

2.9 What Do You Get For Your Investment?

A Lease over one or more Timberlot(s) which forms part of the Plantation for a period
of 15 years commencing from 30 June 2006. Each Timberlot will be planted with a
minimum of 100 Paulownia seedlings.
A Lease and Management Agreement that specifies in detail the rent, use of the leased
area and the work that will be undertaken on your behalf by the Responsible Entity
including establishment, maintenance, harvesting and sale of the Plantation timber.
You will receive income when the Plantation is thinned in year eight and again when
the Plantation is harvested in years 12 to 15. The income will be generated from the
sale of timber. The Responsible Entity will seek Purchase Agreements for the sale of
the timber for all of the Non Electing Growers.

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2.10 Management & Maintenance Fees
The application moneys of $4,000 (inclusive of GST) per Interest in the Project are
distributed as follows:
[$22 (inclusive of GST)] to the Lessor for rent in relation to a Timberlot for the Initial
Period, being the Initial rental fee period (1/7/2006 to 30/6/2007); and
[$3,978 (inclusive of GST)] to the Responsible Entity for management fees, being for
the Initial management fee period (1/7/2006 to 31/12/2006).

Lease and Management Fees will fall due each subsequent year during the term of the Lease
and Management Agreements, indexed at the higher of 4% per annum or the CPI index. For
example, in the second year, management fees are due and payable on or before the 30 June
2007 of $678.00 (inclusive of GST) and the lease fees will be $22.00 (inclusive of GST).

A program of payments due pursuant to the Lease and Management Agreement is set out in
Section 5.12.

2.11 Other Expenses

Certain expenses may be incurred and are payable as follows. Where any taxes, duties,
government charges, transfer or registration fees, brokerage or other charges, or costs are
payable in connection with any transaction or dealing with a Lease and Management
Agreement, assignment, transmission application or other transaction or document on behalf
(or for the benefit or at the request) of a Grower, they are payable by the Grower.

In addition, the Responsible Entity is entitled to recover from a Grower costs incurred as a
result of a cheque or other order for payment not being met on presentation; costs incurred as
a result of any breach of the Constitution or any Lease and Management Agreement entered
into by the Grower, any amounts distributed to a Grower in excess of the Growers
entitlements; any amounts for which the Grower has agreed, in writing, to indemnify them; or
any amounts paid under any law, for or on account of or in respect of the Grower.

2.12 MARKETING FEES

The Responsible Entity will use its endeavours to maximise the yields from the Plantation to
obtain the best returns for the Growers.

Pursuant to the Lease and Management Agreement the Responsible Entity is entitled to be
paid a Marketing Fee by each Grower equivalent to five percent (5%) of any Gross Sale
Proceeds received from the sale of the Paulownia produce.

The 5% Marketing Fee payable from the Gross sale Proceeds is to cover the Responsible
Entity for its work involved with managing the thinning program and the final clearfell
program in the years 12 to 15. This fee is also intended as an incentive to the Responsible
Entity to increase the return to Growers by maximising the quantity of quality timber received
from the plantation, so as to achieve a higher yield per Timberlot, and there by receiving
higher sales revenue for the timber.

The Responsible Entity will therefore use its best endeavours to sell the timber produce on
behalf of the Growers at the best price possible.

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2.13 Sound Methods and Technology
The Responsible Entity will utilise sound timber plantation methods and technology on the
Plantation to achieve economic yields of quality Paulownia timber. All trees will be irrigated
and subject to a fertilizer program to ensure successful establishment and future growth. Row
width is sufficient to allow for the use of tractors, farm machinery and other mechanical
processes to be utilised.

2.14 Taxation Product Ruling

The Responsible Entity has received from the Australian Taxation Office a Product Ruling
PR1999/70 on behalf of the first Project.

The Responsible Entity has received from the Australian Taxation Office a Product Ruling
PR2000/92 on behalf of Project No.2.

The Responsible Entity has lodged an application with the Australian Taxation Office for a
Product Ruling in relation to Project No.3.

2.15 Transferring your Interests in the Project

There is no secondary market for your Interests in the Project. If you wish to sell your
Interest(s), you must comply with the requirements of Division 3A of Part 7.12 of the
Corporations Law.

Subject to those requirements, you may transfer your Interest(s) in the Project to another
person. If you wish to do so, you must comply with the terms of the Lease and Management
Agreement that deal with transfers.

2.16 Keeping you Informed

When applications are accepted, each Grower will receive a certificate for the Timberlot(s)
acquired which will be issued within two months from the receipt of the application. Growers
may also obtain a copy of the Paulownia Tree Farming Project Constitution on paying to the
Responsible Entity a fee of $66 (inclusive of GST) per copy.

The Responsible Entity will maintain a register of Growers, identifying the Timberlots held,
and Growers can inspect the register at the Responsible Entitys office during normal
business hours.

Each year, audited annual accounts will be prepared for the Responsible Entity and the
Project. At the end of the relevant financial year, Growers will receive copies of the annual
accounts for the Project.

On or before 30 September and 30 March in each financial year the Responsible Entity must
provide the relevant Grower with a report containing a review of operations of the relevant
Growers timber business during the relevant period. The report must include details of:-
the services provided by the Responsible Entity;
the health of the trees;
the quality and quantity of forest produce;
any unforeseen circumstances which may affect the relevant Growers timber business; and
inventory measurements for the forest produce.

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2.17 Cessation of the Project
Each Growers Lease will terminate after the final clearfell harvest of trees, which is expected
in year 15. The Responsible Entity reserves the right to extend the clearfell of timber past
year 15, for one year, should commercial considerations render the extension necessary.

2.18 The Effect of the Goods and Services Tax

The Government introduced its Goods and Services Tax legislation on 2 December 1998. The
GST is a broad-based indirect tax. It is a tax, which will be charged on the supply of goods
and services in Australia and on imported goods. The effect of the imposition of the GST on
the Project has been used in providing calculations and estimates throughout this Product
Disclosure Statement and is prepared to the best of our knowledge at the time of writing.

The Lease and Management Agreement provides that the goods and services tax payable in
respect of the rent, the management fee or any other payment or service provided pursuant to
the terms of the Lease and Management Agreement shall be paid by the relevant Grower.

The 10% GST applies to most supplies of goods and services consumed in Australia on or
after 1 July 2000. Income from property leases, including land, will generally attract GST.

Persons, who carry on an enterprise or business that has, or is, expected to have an annual
turnover of $50,000 or more are required to register and remit GST on their taxable supplies.
A registered person can claim a credit, known as an input tax credit, for any GST included in
the price of their business inputs. The difference between the GST payable on a persons
sales and the GST included in the purchase price of their business inputs is the amount that is
owed to or from the Australian Taxation Office (ATO). If a persons input tax credits exceed
the amount of GST payable, the ATO will refund the excess.

Registered persons will have to issue tax invoices and lodge returns (Business Activity
Statements (BAS)) with the ATO. For businesses with an annual turnover of less than $20
million per year, BASs can be lodged either monthly or quarterly. A BAS must be lodged
for each tax period, even if it is a nil report. GST registration is optional for a person who has
an annual turnover of less than $50,000. An unregistered person is not required to charge
GST on supplies made, however, they are unable to claim input tax credits in respect of their
business inputs.

Registration for GST purposes can be done electronically, either through the Business Entry
Point at www.business.gov.au or your tax agent can lodge the application through the
Electronic Lodgement System. Alternatively, a completed paper application can be sent to
the ATO. Persons intending to register should do so as soon as possible to ensure that their
applications are processed by the ATO allowing thereafter either a monthly or quarterly
Business Activity Statement (BAS) to be lodged at the appropriate time.

GST - Application to Growers

The ability for Growers to register for GST hinges on whether they are carrying on an
enterprise. That is, they are undertaking an activity or a series of activities in the form of an
adventure or concern in the nature of trade.

The process and timing of registration may give rise to issues in respect to claiming of input
tax credits.

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The costs of participation in the Project, as detailed in this Product Disclosure Statement,
includes GST. Registered Growers should be able to recover the GST component of the costs
by claiming an input tax credit. As a consequence, the net outlay for Registered Growers
should reduce by the amount of that GST component.

Registered Growers have to account for GST in respect to timber sale proceeds, as sales of
timber are not input taxed or GST free. Registered Growers should be able to claim input tax
credits in respect of the GST charged in relation to services associated with harvesting and
marketing the timber produce.

Unregistered Growers will not have an entitlement to claim input tax credits. Also,
Unregistered Growers will not have to deal with GST compliance matters. It may be
expected, however, that Unregistered Growers returns may not be as high as Registered
Growers returns due to the inability to claim input tax credits.

Registered Growers will not be able to claim input tax credits on financing and certain
associated expenses as these supplies are input taxed, and therefore not subject to GST.

Also, an input tax credit will apply in respect of the Growers subscription Moines paid prior
to 1 July 2006, as the services relating to this payment will be performed after 1 July 2000
and therefore GST is required to be charged.

Growers should seek their own professional advice in relation to the impact of the GST.

3.0 OPPORTUNITIES FOR PAULOWNIA IN AUSTRALIA

3.1 Market Opportunities

The current production and markets for Paulownia is the eastern Asian region, predominately
Japan, Korea, Taiwan and China, where it is extensively used in the manufacture of furniture
and items of cultural and religious significance. Market opportunities for Paulownia in
Australia are seen as substantial because it can substitute for natural forest timbers that are
currently imported. Some Paulownia is currently being imported into Australia to supply this
expanding local demand.

The major opportunity for Paulownia is in the supply of various Paulownia timber products to
the Australian furniture, building, moulding and paneling industries. The Independent
Paulownia Consultants Report in Section 8 should be referred to for more detailed
information on Paulownia.

3.2 Opportunity for Paulownia Tree Farming

Paulownia, are deciduous trees noted for their fast growth, deep rooting habit, ability to utilise
high levels of nutrients, production of quality timber and suitability for plantation cultivation.
Worldwide attention is currently focused on minimising the removal of timber from old
growth forests. To achieve this, and still meet the demand for timber and associated products,
it will be necessary to establish and cultivate plantations of appropriate trees. Paulownia
enjoys the unique status of being a tree that grows rapidly and produces a stable timber,
which can be milled and processed into a wide range of marketable products.

The Paulownia genus is indigenous to China and nearby regions of Asia, where it is widely
cultivated for multiple purposes. It has been naturalised in parts of North America. Timber
from regrowth forests is harvested and exported to Asia. In Australia, Paulownia has been
used for shade and shelter, being introduced by the Chinese during the 19th century gold
rushes.

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Paulownia provides an opportunity to develop a commercially viable tree plantation and
timber producing project as an integral part of land development and improvement.

Some important benefits from establishing Paulownia plantations are:

1. Contributing to the replacement of imported rain forest timbers. Currently these

timbers are being used in the Australian building and furniture industry.
2. Developing domestic and export markets for premium timber products.
3. Appeasing the strong representations of environmental groups to reduce the rate of
removal of natural rainforest timber.
4. Benefiting various land and environmental rehabilitation activities. For example,
Paulownia can be grown using wastewater from human and animal treatment systems
and also used to rehabilitate certain saline soils.

The technology developed over the past 10 years in Australia to grow selected cultivars,
which, with appropriate attention to land preparation, nutrition, pruning, irrigation and
drainage, should yield high quality timber.

The Australian timber industry is based on selected extraction from old growth forest and
cultivated plantations of exotic species. However, there is now significant public and political
intervention to reduce the availability of old growth forests for logging and to encourage the
establishment of cultivated plantations. This is being endorsed under the National
Afforestation Program.

Australia has approximately 40 million hectares of native and plantation forests with
emphasis being placed on achieving a position of self-sufficiency in forest products (not yet
achieved). Australia had a balance of trade deficit in forest products in 1997/98 in excess of
$1,200 million.

4.0 PAULOWNIA PROJECT DETAILS

4.1 Paulownia trees

The most important attribute of Paulownia is their ability to produce stable quality timber in a
short time frame. The timber is by definition a hardwood, light yet strong. It dries easily
without warping, has a straight grain, polishes to a satin finish and is easily worked.

Traditional uses include furniture making, fine cabinetwork, mouldings, paneling and light
weight framing. More recent uses include blind slats, plywoods, veneers, faced composite
board, packaging and wood wool for insulation.

Harvesting of high quality timber can take place from as early as six years after planting. The
established market for Paulownia timber in Japan, yields prices ranging from US$400 per
cubic metre for lower grades to more than US$5,000 per cubic metre for top quality slow
growth logs. While the industry in Australia is in its infancy, it is too early to quote a set
price per cubic metre for exports.

Paulownia can adapt to a wide range of temperatures. Paulownia, given adequate soil
moisture, can cope well with a summer maximum of 42 C. Species vary in their cold
0

resistance. The variety Paulownia fortunei being used for this project, for example, can
survive temperatures of around minus 10 C. In general the optimum temperature for growth
0

is around 30 C. The longer the optimum temperature is sustained the better the growth.
0

14
The climate, soil and cultivation requirements of Paulownia have been well documented.
There are a number of species, which have adapted to various climates from temperate to
tropical, over a latitude range of 22 to 40 . Selected areas in the Central West Region of
0 0

Western Australia meet the climatic and soil requirements for the production of Paulownia.

Paulownia is not simple to grow. These trees have special needs above those of the current,
commonly grown, plantation trees such as Pinus radiata (Pine trees) and Eucalyptus globulus
(Tasmanian Blue Gum.) For successful production of Paulownia, special attention needs to be
paid to the following environmental factors:-

4.1.1 Water
In their establishment phase, it is essential that Paulownia are well watered during the
warmer months. This will develop an extensive root system enabling them to become self
reliant as the root system penetrates to the water table.

To assist with the water requirements of the Paulownia trees under this Project the Head
Lessor will install irrigation systems on the Project Land to supply appropriate quantities
of irrigation water to the trees during the growing season.

4.1.2 Sunlight
Paulownias require full sun to achieve maximum growth. Experiments carried out at the
Chinese Academy of Forestry have shown that Paulownia will not tolerate situations of
70% shade.

4.1.3 Wind
Paulownia, particularly young plants, require protection from severe winds which can
break off or damage leaves and branches.

4.1.4 Soil
Soil can range from light clay to sands, preferably deep and well drained. Most species
tolerate pH levels in the range of 4.5 to 8.5. However a generally acceptable range for
Paulownia fortunei would be between 5.5 and 6.5. While Paulownia are quite salt
tolerant, growth is seriously impaired if the total salt content of the soil is greater than
3,000 parts per million.

4.1.5 Pests & Diseases

Generally Paulownia is resistant to most known Australian pests and diseases. However
cabbage white butterfly is attracted to its large succulent leaves. This is readily controlled
by commonly used soft chemicals such as Dipel. In water logged conditions Paulownia
succumbs to Phytophthora (Dieback) hence the selection of well drained land is
imperative. The Responsible Entity is ever mindful of the possibility of pest and disease
attacks and therefore will institute a comprehensive pest and disease monitoring program.

15
16
4.2 Project Land
4.2.1 Location
The Project will be established on the Project Land in the Dandaragan Shire in the Central
West region of Western Australia, near the town of Moora and approximately 180
kilometres from Perth. The site chosen is located on land adjacent to Agaton Road,
approximately 21 kilometres northwest of Moora.

4.2.2 Soil
The Plantation is to be established on land previously used for cropping activities and
alongside an existing Paulownia Plantation. There are significant benefits to be obtained
from utilising such land namely:
Previous cropping activities on the land involved regular applications of fertiliser. Not
all nutrients in the fertiliser are taken up by the shallow rooted crops. Over time they
are washed into the sub-soil layers where deep rooting Paulownia can feed on the
accumulated nutrients.
Afforestation of extensively cropped farmland has a beneficial affect upon the
environment by improving soil and water quality and helping to alleviate salinity by
preventing the rise of the water table.

The land available comprises 125 hectares of gently undulating, well-drained, yellow sand
plain soils with substantial volume of water extractable by bores from approximately 100
metres under the ground.

4.2.3 Irrigation
Under the Project Land is a major aquifer known as the Agaton Basin from which water
will be pumped to irrigate the Plantation. Appropriate licences have been obtained by the
Lessor to extract the water.

4.3 Climate
The Moora area experiences a temperate climate with temperatures and weather conditions
influenced by its proximity to the coast. Rainfall averages 550 mm per year with temperature
variations from 0 C to 45 C.
0 0

4.4 Continued Development

The Responsible Entity has engaged the Paulownia tree consultants, Afforestation Pty Ltd, to
ensure that development on the Plantation is continued so as to improve the final yields and
the production of quality timber. Refer to Section 8 for a summary of the Plantation
Consultants Agreement.

4.5 Structure
Pursuant to each Growers Lease and Management Agreement the Plantation will be planted
at 100 seedlings per Timberlot. The stock to produce the Paulownia trees is selected by the
Responsible Entity and their consultant, Afforestation Pty Ltd. Planting stock will be
propagated and cared for in nursery facilities approved by Afforestation Pty Ltd. Stock from
the nursery will be planted out into the Plantation at a density and planting arrangement
appropriate to achieve 100 trees per Timberlot.

4.6 Paulownia Timber Sales

The Project will, upon full subscription being reached, comprise approximately 125 hectares
of Paulownia trees planted at 100 per Timberlot.

17
The whole of the Paulownia timber from the Plantation will be offered for sale by the
Responsible Entity pursuant to the Growers Lease & management Agreement. This also
includes the timber from any over subscriptions accepted by the Responsible Entity. Pursuant
to the Lease and Management Agreement, there will be timber available for sales from the
eight-year-old thinnings and from the final clearfell at years 12 to 15, being the sale of
roughsawn timber.

5.0 PROJECTED YIELDS AND GROWER EXPENDITURE

5.1 Marketing
The local demand for Paulownia is growing and is currently being supplied by imported
timber and a small amount of locally grown timber. Apart from its unique and valued
characteristics for furniture making, Paulownia will compete with Western Red Cedar (an old
growth forest timber) sold in the Australian market as a general moulding and joinery timber.
The Responsible Entity considers that the domestic market will also become a principal
market.
Through this Project and subsequent projects, the Responsible Entity intends to create a
continual supply of timber from the year 2021.

5.2 Paulownia Timber Produce Sales

After eight years there will be a thinning harvest of up to 40% to 60% of the trees in each
Timberlot depending on the independent Paulownia experts opinion on the percentage of
trees that are suitable for harvesting.
The sale proceeds from the timber produce from year eight thinnings and years 12 to 15
clearfelling will be paid to the Custodian, and the Growers will be responsible for their
proportionate share of the costs of harvesting, milling, drying, transport and other associated
expenses. The Custodian will pay these costs direct to the Responsible Entity out of the sale
proceeds. All costs of harvesting, milling, transport and other associated expenses will be
payable by the Growers and audited.

Notwithstanding the above, Growers may elect, prior to 30 June 2008, to collect and market
their own timber produce by notifying the Responsible Entity in writing.

In consideration for its role in the marketing, harvesting and handling the timber produce
from all of the Growers Timberlots, the Responsible Entity is entitled to a fee being 5% of
Gross Sale Proceeds received for the Timber.

The Responsible Entity will harvest the timber and arrange for the milling and sale of the
roughsawn timber on behalf of each Grower under the terms and conditions of the Lease and
Management Agreement.

5.3 Plantation Yields

Although Paulownia trees are widely grown overseas, especially in China, large scale
Paulownia tree production is untested in Australia. The Responsible Entity considers that the
Project Land is well located for the growth of Paulownia trees and the Directors have been
advised by their consultants, Afforestation Pty Ltd, that yields obtained will be consistent
with plantations in other areas. Unknown factors may however influence growth rates and
yields.

18
The yields set out below have been calculated on a per tree basis for trees harvested at eight
and at 12 to 15 years of age. The revenue for each Timberlot will be received from the sale of
timber and will be on the basis that 100 trees per Timberlot will be harvested during the life
of the Project, that is, 50 trees at year eight thinnings and 50 trees at clearfell, being the years
12 to 15. The Responsible Entity will endeavour to obtain a 100% harvest but Growers should
be aware that primary production always has some risks and over a period of 15 years there
could be a mortality rate of some trees which is not known at this stage.
To provide a basis for modelling the production and returns from the Project, the Directors
propose the following felling plan:

The best return on investment per Timberlot should be achieved by carrying out an initial
thinning process of 40% to 50% of the trees from May of year eight. The remaining trees
should benefit from the thinning process. The average gross round log volume per tree is
calculated to be 0.2 cubic metres at year eight.

The final Clearfelling process should commence in May of year 12 (after leaf fall and the
completion of that seasons growth) and continue until September (before the onset of new
growth). This clearfell is aimed at the production of quality knot free logs. With the use of
modern milling technology it is projected that a 12 to 15 year old log will yield 73% of its
gross volume in rough sawn timber. The gross volume per tree is estimated to be 0.73 cubic
metres after milling at years 12 to 15.

5.4 Production
The projected yields and production for each Timberlot is:
Volume per Tree Volume of Roughsawn
No. of Trees (after milling loss) Timber
Thinning
(Year 8) 50 0.20 m3 10 m3

Clearfell
(Year 12 to 15) 50 0.73 m3 36.5 m3

5.5 Processing
An appropriate processing plan will be developed by the Responsible Entity and will take
account of new technology and facilities available in the region at the time of harvest. In any
event there are suitable mills in Western Australia that are available for use at a cost which
should not materially affect the projected costs and yields from those contained in the
financial models used in the Project.

5.6 Pricing of Paulownia Timber Sales

Due to its appearance, properties and diverse application Paulownia timber commands
a premium price compared too many other plantation timbers grown in Australia. This
is because Paulownia timber provides an opportunity for higher end uses where
premium prices may be achievable. Uses for Paulownia include furniture,
cabinetwork, mouldings, paneling, blind slats, caravan fit outs (just to name a few),
which are all high end timber uses, compared to woodchipping or for paper
production. Furthermore, when given the appropriate silverculture treatment, the
Paulownia tree has the ability to grow faster than other species, producing stable
timber as early as eight years of age.

19
Prices for Paulownia vary according to the grade and age of the timber at harvest.
Therefore the current wholesale price per cubic metre of Paulownia timber, would be
in accordance with the grade of the timber. Prices for Paulownia are typically quoted
in US$ and as such, variances in the achievable sale price will occur due to variances
in the US$ to Australian dollar (AUD) exchange rates.

The Directors believe that a reasonable wholesale price for quality Paulownia timber
sold in Australia would be in the range of approximately $ 800 to $1,200 (AUS). It
should be noted that there has not been any significant sales of Paulownia timber from
plantations in Western Australia upon which they have been able to draw on to
provide any definite conclusion as the price and prospects of any sales of timber from
this project.

5.7 Forecast distributions to Growers

The Paulownia Tree Farming Project No.3 is a 15 year project. Therefore it is not possible to
determine with any certainty, the financial returns to Growers over the life of a 15 year
forestry project. This is primarily because it is not possible to calculate with accurate certainty
the effect that a large number of variables, many of which are beyond the control of the
Responsible Entity, may have on the project returns. Further, trying to anticipate events that
affect returns, may not occur as expected, whilst unanticipated events that affect returns may
occur.

Under the Corporations Act 2001, the provision of Forecast Financial Returns must be
objectively and independently verified. As this is a 15 year project, it is impractical to
objectively confirm and verify some of the supporting information that is required to provide
and illustrate projected financial returns.

Whilst it is not possible for the Responsible Entity to provide financial forecasts, the
Responsible Entity does wish to provide sufficient information to assist you in making your
own assessment of the merits of investing in the Project. Some of the Factors that may assist
you in performing your own financial projections for this Project, are contained in section 2
and this section of the Product Disclosure Statement.

The Paulownia tree when given appropriate cultural treatment, grows faster than other
species, producing stable timber at eight years of age. It also offers Growers the opportunity
to participate in the value adding activities of milling and producing sawntimber to meet the
end user demands. Paulownia is already recognised world wide as a valuable timber which
has many uses.

The projected net proceeds payable to Growers are dependent on yields per tree. Please refer
to Section 5.4 and 5.8 for further details.

The Responsible Entity is entitled to a marketing and handling fee of 5% (plus GST) of the
Gross Sale Proceeds payable to the Growers.

You should consult your professional advisor, prior to making an investment decision in
relation to this Project.

5.7 Expenditure
The Project will require considerable expenditure in the Initial Period. After that time there
will be ongoing expenses such as Custodian fees, management, administration, Paulownia
maintenance fees and Timberlot lease fees.

20
Details of Growers annual expenditure are contained in Section 5.12 of this Product
Disclosure Statement.

The overseeing of the harvesting and the processing of the timber resource is the
responsibility of the Responsible Entity who will be reimbursed by the Growers out of the
Gross Proceeds from the timber sales, for all of the costs associated with the harvesting and
processing of the trees.

The Responsible Entity will also be entitled to a fee, being 5% (plus GST) of Gross Sale
Proceeds of the thinning and clearfell harvest, in years eight (8) and years 12 to 15
respectively to cover the Responsible Entitys role arising from the extra work load in the
Marketing, administration and management during this process.

The fees that will be deductible from the Gross Sale Proceeds by the Responsible Entity are
as follows:

Year 8 Years 12 to 15
Responsible Entitys Fee 5% 5%
Estimated Harvesting, Milling, $110 $330
and Transport costs per cubic
metre (Inclusive of GST)

5.9 Insurance
Responsible Entitys Insurance
The Responsible Entity will take out public liability insurance over the Project Land (which
includes the Growers Timberlots) to a value of $1,000,000.

Growers Insurance
You are not obliged to insure your Timberlot(s). However, the Responsible Entity will
endeavor to arrange for a suitable general insurance policy to be made available to you should
there be sufficient demand. Should more than 50% of the growers in this Project No.3 require
insurance then the Responsible entity will endeavour to obtain such a policy. The policy if
arranged will be for the year commencing on the 1st July 2008
The policy will be a standard forestry insurance policy available through a licensed insurer.
As a minimum, the policy will cover property lost, destroyed or damaged by fire (except
through spontaneous combustion). The policy should also provide cover against loss by
lightning, hail and windstorms.
In order to insure against the loss of your Trees or Timberlot(s) from the risks covered by the
policy, we recommend that you advise the Responsible Entity in writing to take out insurance
(which is at your own expense) in respect of your Timberlot(s) each year. Subject to receiving
requests from more than 50% of the Growers then an application will be made to an insurer
for a policy that will cover the Growers trees.

Premiums should rise over the life of the Project as the value of the wood insured increases.
The amount of insurance premium, if obtained, will be invoiced to the Growers by the
Responsible Entity and paid annually with the lease and management fees. It is expected that
Growers electing to insure their Timberlot(s) will be invoiced each June commencing June
2008. You may claim the insurance cost as an income tax deduction.

Growers are advised to obtain their own advice on whether they should take out insurance
over their Timberlot(s). In doing so they may take the following points into consideration:

21
 The Responsible Entity has been able to put in place an arrangement with the Paulownia
seedling supplier and the sub-contractor for the replacement of trees that die, as a result of
planting, during the first two years from date of purchase. While the sub-contractor will
replace trees that are lost for up to a period of two years from the date of purchase this
only relates to mortality losses due to planting. Losses due to fire, hail etc. of any of the
trees on the timberlot are not covered under this arrangement.

While Paulownia are actively growing (in summer months when bushfire is highest), it is
very difficult to burn, therefore the risk of damage or total loss by bushfire is minimal;

Control measures undertaken in the initial years of the Project will greatly reduce a
potentially combustible undergrowth of weeds;

As the Paulownia trees grow they will reduce light infiltration to the ground, thus
reducing undergrowth to a minimum; and

Timberlot(s) are sectioned off in approximately 30 hectare blocks with firebreaks

intersecting and around the boundaries.

Should Growers wish to take out their own insurance in respect of their Timberlot(s), then
they must advise the Responsible Entity of their intention in writing.

Your notification to the Responsible Entity that you wish to insure, if available, can be made
by indicating your preference when completing the appropriate section on your application
form which is attached to this Product Disclosure Statement.

5.10 Indexation
All projected expenditures for the Growers have been calculated on an index adjusted basis
and are inclusive of GST. For the purposes of determining the investment cost and the
calculation of the Growers outgoings it has been assumed that all expenditure from the
2007/2008 financial year is subject to an indexation adjustment of 4% or CPI Index
(whichever is greater) per annum. Projections have not been made for revenue amounts, as we
have relied upon the estimated cubic metre of timber in the trees at harvest time to determine
if the project is commercially viable. There are a number of expenses that are dependent upon
revenues such as harvesting, processing and the Responsible Entitys fees of 5% of the Gross
Sale Proceeds. Such expenses therefore do not have an adjustment for inflation but will be
charged to Growers at actual cost for those services in the year expended. Nevertheless, the
projected costs are based on expectations of a 4% inflation rate in all years.

5.11 Income Tax Benefits to Growers

The Responsible Entity has lodged an application with the Australian Taxation Office for a
Product Ruling in relation to the Paulownia Tree Farming Project No.3. Investors are urged
to seek independent tax advice before making any tax claims for any of their expenditure in
this Project. If deductions are (for any reason) disallowed, Growers who receive amended
assessments may also be required, by the ATO, to pay penalties and interest. The Responsible
Entity does not guarantee the taxation consequences of your investment.
Should the Commissioner of Tax issue a product ruling in favour of Project No.3 then under
Section 8-1 of the new Income Tax Assessment Act 1997 (Section 51(1) of the old Act) 100%
of the total amount payable by each Grower under the Lease and Management Agreement
(i.e. $4,000 (inclusive of GST)) should be tax deductible.

22
 Subject to the Commissioner of Tax exercising his discretion under the non-commercial
losses provisions of the ITAA then in the first year (2005/2006) Growers may attract a 100%
income tax deduction from their investment in the year that the expenditure is incurred.
Subsequent years payments by the Growers may also be 100% income tax deductible.

5.12 Timberlot Expenditure per 0.10 hectare Timberlot

5.12 TIMBERLOT EXPENDITURE PER 0.10 HECTARE TIMBERLOT

ESTIMATE OF COSTS OF INVESTMENT (GST INCLUSIVE)

INPUT TAX
MANAGEMENT LEASE TOTAL CREDITS IF TOTAL NET
YEAR FEES FEES FEES APPLICABLE EXPENDITURE
A$ A$ A$ A$ A$
0 3978 22 4000 363.64 3636.36
1 678 22 700 63.64 636.36
2 705 23 728 66.18 661.82
3 733 24 757 68.83 688.17
4 763 25 787 71.58 715.42
5 793 26 819 74.45 744.55
6 825 27 852 77.42 774.58
7 858 28 886 80.52 805.48
8 892 29 921 83.74 837.26
9 928 30 958 87.09 870.91
10 965 31 996 90.57 905.43
11 1004 33 1036 94.20 941.80
12 1044 34 1078 97.97 980.03
13 1085 35 1121 101.88 1019.12
14 1129 37 1166 105.96 1060.04
15 1174 38 1212 110.20 1101.80

TOTAL 17554 463 18017 1637.86 16379.14

5.13 Project Parameters and Assumptions

Material assumptions used in the calculation of the Timberlot Expenditure Statement (Section
5.12) are as follows:
Full subscription of 1,250 Timberlots
125 hectares planted by 31st December 2006
Investment minimum subscription cost is $4,000 (inclusive of GST) per Timberlot,
being for the lease and management fee for the Initial Period.
Land rental is $22.00 (inclusive of GST) per Timberlot(s). For year two at $22.00
(inclusive of GST) and thereafter indexed at 4% or CPI Index (whichever is greater)
per annum for the life of the Project.
An initial thinning of 40% to 60% takes place after eight years and the clearfell harvest
takes place during years 12 to 15.
First commercial timber is expected in the year 2013/14
Yields of 0.20 cubic metres per tree in year eight and 0.73 cubic metres per tree in
years 12 to 15.
At year eight, a thinning yield per Timberlot of 10 cubic metres of timber.
At years 12 to 15, a clearfell yield per Timberlot of 36.5 cubic metres of timber.
Harvesting and processing costs are $110 (inclusive of GST) per cubic meter at year
eight thinnings and at years 12 to 15 clearfell $330 (inclusive of GST) per cubic metre
(these prices have not been adjusted for inflation).

23
 Management costs are indexed at the rate of 4% or CPI Index (whichever is greater)
per annum from year two of the Project onwards.
The Responsible Entity is entitled to a fee for marketing, additional administration,
management and handling costs of 5% of the Gross Sale Proceeds.

The Responsible Entity cannot give an absolute guarantee that a Growers liability is limited
in each and every case that could arise. A Growers liability is set out in the Lease and
Management Agreement and the Constitution. Liabilities of Growers are limited under the
terms of the Constitution. Investors should note that if a Grower is in breach of the Lease and
Management Agreement and their agreement is terminated, the Responsible Entity is entitled
to sell the Growers trees and any shortfall in costs shall constitute a personal debt by the
Grower to the Responsible Entity.

Many of the assumptions made are arbitrary. Should the timber yield of roughsawn
Paulownia Timber or the rate of inflation vary from those predicted, then projected costs and
the percentage of timber yields to investors could vary significantly.

Note: If the CPI inflation rate is greater than the 4% indexed then management fees and rent
will rise at the greater rate. The above parameters and assumptions should be read in
conjunction with any other relevant information set out in this Product Disclosure Statement.
Neither the Responsible Entity or the Lessor guarantee any returns to the investors in this
project.

6.0 PROJECT MANAGEMENT

6.1 The Responsible Entity

Paulownia Farm Management Australia Ltd (A.C.N. 085 628 388) (the Responsible Entity) was
incorporated on 17 December 1998 specifically to act as the Responsible Entity of the
Paulownia Tree Farming Projects. The Responsible Entity will act for the Paulownia Tree
Farming Project No.3 while also continuing to act for Paulownia Tree Farming Project No.1
and 2. The Responsible Entity has engaged the services of experienced experts and
contractors who have been involved in the growing and supplying of Paulownia trees in
Western Australia.

It has currently selected the land and resources which is owned by Rural Equities, that will
enable it to offer investment opportunities in the plantation. The project will be aimed at the
production of sawn logs of high quality hardwood timber for use in a wide range of quality
domestic and international markets.

6.1.1 Dealers Licence

The Responsible Entity has been issued with a Dealers Licence, which authorises the
company to:
a) operate the managed investment scheme known as the Paulownia Tree Farming
Project No.3, Dealers Licence Number 246892; and
b) carry on as a Licencee in its own right as the Responsible Entity for the Projects.

6.1.2 Compliance Plan

The Responsible Entity has prepared a Compliance Plan as required by the Corporations
Law to ensure that it meets its obligations as Responsible Entity and the rights of Growers
are protected. The Compliance Plan sets out the compliance obligations of the Responsible
Entity under the Corporations Law. The Compliance Plan also identifies any risks of non-
compliance and establishes measures designed to address these risks. A summary of the
Compliance Plan is contained in Section 10.

24
 The Constitution governs the operations of the Responsible Entity setting out its duties and
responsibilities in accordance with the Corporations Law.

6.1.3 Compliance Committee

The Responsible Entity has established a Compliance Committee as required by the
Corporations Law. The responsibilities of the Committee are to monitor how the
Responsible Entity complies with its Compliance Plan and to report any breaches to the
Directors of the Responsible Entity and if necessary in certain cases to the ASIC.

The Committee comprises two external members and one representative of the Responsible
Entity. The members of the Compliance Committee are;

Geoffrey John Coad L.L.B.

(External Member)
Geoffrey Coad graduated from the University of Western Australia in 1971 with a
Bachelor of Laws Degree. He was admitted to the Supreme Court of Western Australia as a
Barrister and Solicitor in 1973. Since 1975, Geoffrey has practiced law in Western
Australia in areas of commercial law, conveyencing, and civil litigation. Geoffrey is also a
director of a listed public company.

Geoffreys legal skills will be a valuable asset to the Compliance Committee.

John Lazberger
(External Member)
John Lazberger is a Certified Practising Accountant. John has extensive experience in
Corporations Law, business management and has a strong accounting background.

John's accounting and business skills will be a valuable asset to the Compliance
Committee.

David Monteleone
(Companys Representative)
David Montelone is the representative of the Responsible Entity on the Compliance
Committee. Davids details appear in Section 6.3.

6.2 Horticulturist and Consultant to the Responsible Entity

The Responsible Entity has engaged the services of Afforestation Pty Ltd (ACN 008 733
926), which under the direction of its principal tree-farming consultant, Mr Charles Peaty
(Managing Director), will be the technical adviser to the Responsible Entity.

Over the past 30 years, Mr Peaty has operated in both private and public sectors managing
commercial horticultural and plantation projects and education programs. For the past ten
years, Mr Peaty has been researching Paulownia and its suitability and potential for tree
plantations. He has developed agronomic principles and practices and quality assurance
standards for propagation, tree establishment and crop husbandry for plantations in various
Australian environments. He has conducted trials to test the optimum planting densities,
nutrient requirements, pruning techniques and management systems. The costing work and
research into the growth of Paulownia carried out by Afforestation Pty Ltd has been used to
develop the economic model for this Project.

Mr Peaty has previously developed and delivered training programs in agriculture,

horticulture and tree cropping and he will play a major role in training people to be employed
or engaged by the Responsible Entity.

25
Mr Peaty holds a Bachelor of Science Degree (Forestry) from the University of Wales and
through his Company, Afforestation Pty Ltd is qualified and skilled in horticulture,
silverculture, tree cropping and timber production and he will play a major role in this Project
with regard to overseeing the propagation, establishment and production of quality tree stock
on the Plantation. Refer to Section 10 of this Product Disclosure Statement for the summary
of the Plantation Consultancy Agreement.

6.3 Directors of the Responsible Entity

David Peter Blackwell - Director

David Blackwell has a background in personal finance, insurance, investment and real estate.
He has been a holder of Proper Authorities with various licensed dealers and currently holds
real estate licences in Queensland and Western Australia. He is also accredited with many
banking institutions.

Mr Blackwell has worked in the financial services and real estate industry for the last ten
years and has considerable experience in financial consulting and investment advice.

Mr Blackwell is the Managing Director of Springscene Pty Ltd, a successful financial

planning company specialising in financial and investment advice.

He has worked in the horticultural industry and has knowledge of forestry cultivation and
nursery management.

William Leslie Fulcher - Director

B.Bus CPA

Mr Fulcher has many years' commercial experience as an accountant and has been the
principal of a Public Accounting practice for the last 10 years. He holds a bachelor of
Business, majoring in accounting, from the Western Australian College of Advanced
Education. Mr Fulcher is a member of the Australian Society of CPA's. Through his
accountancy practice his firm provides accounting, management and taxation consultancy to
clients in a diverse range of business and industries, Mr Fulcher provides corporate advisory
services to both public and private companies and is a Director and Company Secretary to
several private and unlisted public companies.

Mr Fulcher has also had extensive experience in the development and ongoing management
of Paulownia Hardwood Forestry Projects.

David Monteleone - Director

Mr Monteleone has been an adviser in the mortgage origination industry for the past 5 years.
He is also a Director of Paulownia Farm Management Australia Ltd, Goldzone Investments
Pty Ltd and Paulownia Centers Pty Ltd.

Mr Monteleone's knowledge and experience has allowed him to be instrumental in providing

reliable ongoing tree husbandry and long term farm management strategies for the Paulownia
plantation at Moora. He also has extensive experience in the operations of tax-advantaged
industry projects.

Mr Monteleone also has experience in the growing and management of Paulownia trees. As a
Director of Paulownia Farm Management Australia Ltd he has been involved in the hands-on
management of Paulownia trees under the Managed Investment Scheme on the Moora
property.

26
6.4 The Custodian
Huntley Custodians Limited (A.C.N. 082 237 241), a company based in New South Wales,
has been appointed as the custodian of this Project pursuant to the Agency Agreement, a
summary of which can be found in Section 10.

Huntley Custodians Limited provides managed investment services to investors, developers

and promoters of managed investments in Australia.

The Huntley Group holds an Australian Financial Services Licence, and acts as responsible
entity, custodian, trustee and/or manager for over 30 prescribed interest and managed
investment projects approved by the Australian Securities and Investments Commission and
regulated by the Corporations Act. In this capacity, The Huntley Group represents over
20,000 private investors.

These projects include residential property investments, commercial property syndicates and
trusts, mortgage investment and debenture programs, property development ventures,
resource and agricultural investment projects.

Staffed by lawyers, accountants, property professionals and specialist consultants, The

Huntley Group seeks to protect the interest of investors in these projects and provide
developers and promoters with assistance on regulatory issues relating to the raising and
management of capital from private investors.

The Directors of Huntley Custodians Limited are as follows:

John H Knox Chairman & Managing Director

John is a Chartered Accountant by profession and is a Fellow of the Institute of Chartered
Accountants. He practiced for twenty years specialising in the areas of business
development, management and tax consultancy. Following the sale of his practice in 1978
John ventured into commerce. He established and took equity interest in companies in
construction and property development as well as medical and pharmaceutical fields.

In 1983 John moved to England and subsequently was appointed as managing director of a
specialist advertising group that was suffering financial problems. Following a successful
restructure and restoration to profitability he moved to new assignments in Gibraltar and
Spain. Upon returning to Australia in the mid 90s John has been involved in management
consultancies, mainly assisting businesses in financial difficulties.

In more recent years he has become interested in Prescribed Interest Schemes and the
managed investments industry initially due to an appointment as managing director of a
substantial group that promoted Prescribed Interest Schemes. He successfully resolved many
of the companys financial and legal problems, including the sale of non-core assets and the
resolution of major litigation between shareholder groups. Following the sale of this business
John, together with his partner Stephen Law, established a specialist funds management group
providing consultancy services to clients in corporate governance and strategic issues, in
addition to advising on financing mechanisms for management investment funds.

Stephen Law Director and Company Secretary

Stephen holds a Diploma of Law and is admitted as a solicitor to the Supreme Court of New
South Wales. He is a Fellow of the Australian Insurance Institute.

He has had more than 20 years experience as a company secretary and corporate counsel
specialising in corporate and administrative management of small to medium sized listed
public companies. In addition to company secretarial functions, he has been widely involved

27
in the development of managed investment schemes and the preparation of Prospectuses and
Product Disclosure Statements for public offerings.

Graham Swain AM-Non Executive Director, Operations Agribusiness Project

Emeritus Professor Graham Swain AM is the retired Deputy Vice-Chancellor of the
University of Western Sydney and Chief Executive Officer UWS Hawkesbury.

He was formerly Principal of the Hawkesbury Agricultural College; foundation Dean of

Applied Science of Riverina College of Advanced Education; Associate Professor/Senior
Lecturer in Agronomy at University of New England and Research Supervisor/Research
Agronomist at Wollongbar Agricultural Research Station of NSW Department of Agriculture.
He was a Fulbright Scholar at the University of Maryland.

Graham was appointed a Member of The Order of Australia (AM) in 1991 and a Fellow of
the Australian Institute of Agricultural Science and Technology (FAIAST) in 1979. He is a
Fellow of the Australian Institute of Company Directors (FAICD). In May 2000 the
University of Western Sydney conferred on him a Doctor of Letters Honors Causa
(Hon.D.Lit.). In 1993 he was the first to be awarded the title of Emeritus Professor by the
Board of Governors of the University of Western Sydney. Since retirement he has served as a
director of three agricultural production companies.

Stanley Coupe Non Executive Director

Stanley Coupe is the former Managing Director of George Weston Foods Limited, where he
worked for 22 years, following his retirement he was appointed Chief Executive of F H
Faulding and Co. Pharmaceuticals in South Australia. He subsequently returned to Sydney
and established his own consultancy company concentrating in the property, architecture and
the Tea Tree Industry.

Though retired and with many other interests Stanley Coupe continues to assist as a non-
executive director on a number of Boards. His experience in managing major companies with
particular emphasis in manufacturing, marketing, strategic planning and communication
provides an enormous skill and knowledge base.

Bill Foxall General Manager

Prior to embarking on his corporate career, Bill was a senior officer in the Australian Army.
Since leaving the Army, he has held a number of senior management positions in the
managed investments industry. Bill has a degree in management and strategic studies and is a
Fellow of the Corporate Directors Association of Australia.

7.0 Project Risks

7.1 Project Risks

Participation in the Project should be viewed as being made for a fixed and specified term.
Interests in the Project are likely to be illiquid since it is unlikely that a secondary market will
exist for the sale of the Timberlots.

The material risk factors in relation to the investment in the Project are set out below,
however Applicants should examine the full contents of this Product Disclosure Statement
and consult their professional advisers before deciding to invest in the Project.

The Project is a long-term venture and is speculative. Consistent with its nature as a long-term
primary production activity the risks involved in participating in the Project include the long-
term nature of establishing, growing and harvesting commercial Paulownia timber.

The Responsible Entity has identified the following risks:

increased competition from other new world producers of Paulownia;

28
 physical risks, such as fire, other acts of God, insect infestation, disease, frost, flood,
hail, storm damage and drought;
changes in cost incurred in harvesting and milling Paulownia, or changes in money
values through inflation, changes in prices for the produce or exchange rates;
changes in government legislation which may affect the viability or profitability of the
Project;
access to infrastructure, including irrigation and transport;
any changes to the basis of taxation during the life of the project or any other
significant levies, taxes or imposts on the Project;
the effects of GST on the outcomes the project and the future economy in general after
the introduction of GST into Australian taxation on the 1 July 2000;
the ability of the Responsible Entity to meet its obligations;
payment by Growers of their annual contributions;
the inability of the Responsible Entity to be able to find a buyer for the timber produce;
default by the Plantation Contractor under the Plantation Sub-Contracting Agreement;
other normal or usual risks attaching to long-term agricultural projects;
default by Lessor of the head lease;
physical risks such as rabbits, foxes, birds, kangaroos, disease and herbicide damage;
changes in technology in the construction industry such as the replacement of timber by
steel or plastic;
both real and nominal movements in timber prices and growing and handling costs;
exchange rates and currency fluctuations;
downfall in residential, commercial and industrial construction industry;
native title claims over the Project Land;
the collapse of world markets for the product being produced;
force majeure events.

The profitability for the Grower is dependent on the success of the Project and the risks
specified above may affect the value of your investment in the Project.

The long-term nature of the Project makes this a speculative business that may be affected
adversely by events beyond the control of the Responsible Entity.

Growers have no right to require their Interests in the Project to be bought by the Responsible
Entity or any other person, or to have their Interests in the Project redeemed or repurchased.

The Responsible Entity has previously applied to the Australian Taxation Office for a Product
Ruling and was issued with PR.1999/70 in regard to the Paulownia Tree Farming Project
No.1.

The Responsible Entity also applied to the Australian Taxation Office for a Product Ruling
and was issued with PR.2000/92 in regard to the Paulownia Tree Farming Project No.2.

The Responsible Entity has currently applied to the Australian Taxation Office (ATO) for a
Product Ruling for this Project No.3. Growers should be aware that although the Responsible
Entity has taken all reasonable steps to ensure the tax deductibility of the expenses paid by the
Growers, it should be noted that if the deduction is disallowed by the ATO for any reason the
investors who receive amended assessments could also be required by the ATO to pay
penalties and interest.

Note: In any primary production venture there will always be risks due to unforeseen
circumstances, which may result in some of the trees dying. In order to minimise this factor at
the commencement of the project any of the trees that die as a result of planting on a
Growers Timberlot will be replaced by the Plantation Sub-Contractor for a period of two
years from the date of purchase. The first two years of the Project is the period with the
greatest loss potential in relation to the number of trees. The later years may also suffer a

29
greater financial loss per tree due to its age and the volume of timber per tree at the time of
the loss.

7.2 Title to the Land

The land being leased to the Growers by the Lessor was acquired by the land owning
company under a freehold title.

Much of Western Australia is covered by Native Title claims but to the best of the Directors
knowledge, there has been no traditional Aboriginal association with the land being owned by
the Lessor for many decades.

The directors of the Responsible Entity are not aware of any pending Native Title claim in
respect of the land, which the Lessor company has a right to use and is offering leases to the
Growers. Any native title to the land would be extinguished by the grant of a freehold title
and the Racial Discrimination Act of 1975 (RDA) would not invalidate the grant of the
freehold title as the grant occurred before RDA came into operation.

7.3 Borrowings
There are no borrowings required by the Responsible Entity in order to conduct its activities
associated with this Project.

Any borrowings that a Grower may enter into as a result of their involvement in this Project
are entirely their own decision. Intending investors should seek their own professional advice
on any loan arrangement that they may enter into.

30
AFFORESTATION PTY LTD 33c FREMANTLE VILLAGE
Charles Peaty COCKBURN SOUND
SOUTH FREMANTLE
Ph: (08) 9433 4442
Fax: (08) 9433 2992
cpeaty@bigpond.com.au
www.aoi.com.au/show/afforestation
5th July 2005

The Directors,
Paulownia Farm Management Australia Ltd.,
45 Roberts Street
OSBORNE PARK W.A. 6017.

PROJECT FORESTER'S PAULOWNIA PLANTATION TECHNICAL REPORT-

PAULOWNIA TREE FARMING PROJECT No. 3

This Report has been prepared by the undersigned and relates to a Product Disclosure
Statement inviting the public to participate as growers in the Paulownia Tree Farming
Project No.3 (Project). This will be additional to the two very successful Paulownia
plantations already growing on the land at Agaton Road some 21 kilometres
northwest of the town of Moora in the central west agricultural area of Western
Australia.

The purpose of the Project is to plant, and maintain Paulownia fortuni trees through
their growth period of 15 years and then, for the Responsible Entity, to harvest and
sell the Paulownia timber on behalf of the Growers.

INTRODUCTION

Paulownia is an attractive, fast growing deciduous tree with its origin in China and is
noted for its deep rooting habit and for the production of timber of excellent quality
and with beautiful figuring that makes it very suitable for use in furniture, interior
paneling, musical instruments and general house mouldings.

Covering a range of climates, from temperate to tropical in China, there exists some
10 species of Paulownia trees, out of which, that suited best to the Western Australia
climate and most suitable for timber production is known as Paulownia fortunei.
Some of the other Paulownia species are known for producing suitable animal fodder
from their very large leaves. There is now some two million hectares of cultivated
Paulownia in China which has been derived from the remaining small areas of natural
forest.

The climate, soil and cultivation requirements of Paulownia have been well
documented and suitable areas of the Central West Region of Western Australia have
met these where Paulownia can be shown to have grown excellently in the form
desired for the production of timber. The trees have a need for high levels of solar
radiation, and they respond well to irrigation and, under cultivation have the ability to
produce straight logs of quality timber reasonably quickly compared to other timbers.
These required conditions for growing Paulownia are all incorporated in the Agaton
Road land located in Moora.

31
THE SITE

The land chosen for this project lies on the western side of Agaton Road
approximately 21 klms northwest of the town of Moora. Two previous Paulownia
projects have been successfully grown on the site. The site section for this Project is
on land that is available within the confines of a larger property. The total size of
the property is approximately 3500 acres. The previous Paulownia Projects are doing
well and the new trees will share the expertise of the existing Paulownia farm
management team. The land has already been irrigated and has a dam and bore
servicing the water requirements for the trees along with the necessary infrastructure
and buildings necessary for the care of the trees.

The site is located directly over the water aquifer known as the Agaton Basin, for
which the appropriate water licenses have been obtained, with the one bore on the
property having a suitable capacity to sustain 260,000 litres per hour. The site is
undulating and consists of well drained deep yellow sand plain soils with the water
at a depth of approx 100 metres. The water is low in soluble salts but relatively
high in iron. The iron content can easily be alleviated by the construction of an
aeration channel running into a small settling pond, and then being siphoned into the
larger holding dam. By implementing this system between the bore and the irrigation
pump it has the effect of reducing the iron to an acceptable level and makes the
water suitable for the extensive trickle irrigation system.

By reviewing the existing trees, under the care and maintenance of the current farm
manager, it shows that sound silverculture practices have been given to the existing
trees on the first stages of the site. Based on this observation I am of the opinion that
the new plantation project should also do very well. I estimate the water needs
of a tree at the height of the summer to be around 30 litres per day which
can be attained with the existing bore, dams and irrigation systems.

It will be necessary to initiate and maintain a regular fertigation program (delivery of

fertilizer to the plants via irrigation water systems) for the trees with
phosphorous, copper and zinc, plus a supply of trace elements. The existing
pump house has all of the required plant and equipment for the application of the
required fertigation programs. Paulownia trees are gross feeders and by conducting
leaf analysis at regular intervals it enables a balanced fertilizer mix to be
formulated in order to maximise tree growth being obtained.

Paulownia is actually drought tolerant and can successfully survive the West
Australian
Summers without water, but in those conditions their growth becomes slow. To
offset these Western Australian climatic conditions it is necessary to consistently
maintain the formulated irrigation and fertigation programs. The irrigation is not
necessarily required in the normal winter months, being from June to October, during
the Paulownia trees leafless rest period

PLANTATION ESTABLISHMENT

The successful establishment of a Paulownia plantation is based on the attention paid

to the site preparation and cultivation, selection of good planting stock, and the
survival and management of the resultant trees take" into the rapid growth phase of
their development.

32
The new tree plantation stock is derived from rootlets" obtained from well-grown
and strong trees that have been carefully selected and dug up with the root system
complete. From these hand picked roots the rootlets are selected and are cut into
7.5cm lengths, up to 2 5cm thick. As soon as they are cut these "rootlets" are
kept moist and taken to the planting site and planted 9cm deep in a shallow
trench which has been previously prepared ready for the plantings. A small reserve
of trees will be hand planted into nursery trays or nursery suits, to serve as
refills in case some of the plantation trees fail. Failure is rare, but the nurseries
are established as a safety factor to ensure a full stocking of trees on each
Timberlot in the event of deaths occurring in the field. During the time that the
plantation trees are being established it is good practice to have a standby of trees
already growing and available to use for refill purposes. Any deaths that may have
occurred in the first year will be replanted from nursery stock.

Prior to planting - a shallow trench is dug out along the planting line. The planting
line, plus its surround area, is then freed of weeds with a herbicide. Depending on the
success rate this may have to be repeated again to ensure a clean weed free planting
site. Irrigation piping is then laid within the planting line trench with flushing
controls attached at each end. Drippers are inserted with spacings of 2.5m to service
the trees.

It is a characteristic of Paulownia to grow branchy after the initial planting. To

counteract this growth pattern, each tree is coppiced within a two-year period. This
operation requires that the tree be cut back to ground level just above the root collar,
usually in the second year. This is to ensure that the new growth will provide a trunk
of at least 4 - 5 metres one season's growing period. By coppicing, it also has the
added benefit of producing a more uniform crop than a plantation with varying sized
trees. The aim in growing plantation Paulownia for timber is to produce a branch free
trunk with a sufficient canopy to sustain its rapid growth pattern.

The trees are planted in a grid pattern of 2.5metres x 4metres (1000 trees per
hectare) with the intention of thinning them out to 500 metres per hectare
around year 8 thus halving the trees numbers per hectare to leave 500 in a grid
of 5metres x 4metres per hectare. These remaining trees will then be allowed to
grow on to maturity. This also gives the trees crown canopies the opportunity to
develop by occupying the air and space of the removed trees. More space allows
for more leaves in the crown which allows for more nutrients from both air and light
and the extra room for the roots equal more timber at maturity.

Providing the trees with the required amount of nutrients will allow for a crown of
sufficient size to produce the timber required for commercial uses.

LOSSES

Even with the care taken in growing the trees there is normally a few losses, but the
Responsible Entity has made an undertaking to Growers to replace any trees lost from
any cause whatsoever in the first two years. After two years the risk of losses is
slight but should one die the neighboring trees will utilise that space to produce an
increase in their size. After a certain period of time the replacement of trees that die
does not become worthwhile. The risks associated with total loss of trees through
fire, drought, weather, insect pests or diseases have not been quantified.
Another loss can occur from the situation whereby, the timber growing in the
plantation does not necessarily have the same volume exactly as that which results
from the log after being through the sawbench. These losses can be caused by lack
33
of trunk straightness, a loss in sawing and docking, a loss in shrinkage as the
timber dries, losses due to any pith in the center of the log and most of all,
conversion of a round log to a square product.

However Growers my be reassured that the Paulownia species is unique in its growth
pattern grown under plantation conditions, providing a straight stem, its uniqueness in
a long log length, its trunk being unbroken by branches and Paulownia timber can be
quickly dried to mitigate some of the losses incurred through shrinkage.

GROWTH RATES

The actual yield will depend on the growing site, the plantation management, and the
climate consistency during periods of variation from the normal weather patterns and
the effect from sunlight and rain, and, of course, the impact from the appearance of
any sudden pestilence.

To date, with there being no actual record of Paulownia clear felling in Western
Australia, the figures from Queensland Paulownia plantations have been used in
order to ascertain the usual recovery criteria. This indicates that at least 50% of
the stem is recoverable with possibly more if the correct thin band saw is
used. Using such a Lucas saw to initially break down the log, followed by a another
1.5mm bandsaw to produce planks it is possible to obtain rough sawn timber from the
Paulownia plantation in Western Australia giving a yield of up to 75% of the log
which will provide usable timber which would be suitable for the domestic furniture
market.

Past sawmilling results in Western Australia have absolutely nothing to do with the
modern bandsawing technique which was designed for furniture making. Today it
is possible to produce thin veneers of attractive wood to cover fill-in composite that
provides a finish that is the same as solid real wood, having been made from timber
as its base material.

From the Paulownia point of view there are two aspects to this depending on
particular taste - the production of high-class furniture from the solid real
Paulownia wood or - a lesser quality veneer timber. Both propositions utilize timber
and the market for each is starting to become huge, both here and in Europe
where, especially, the light colour of Paulownia has more appeal against the red
colour of traditional Jarrah and red gum timbers. There are emerging markets for
both aspects in Australia, Europe and Asia where the increasing wealth and hunger
for modern goods is continuing to increase.

THINNING

At 7 to 8 years of age it is proposed to thin out 50% of the trees to relieve the pressure
for nutrients on the remaining trees. Depending on the size of the trees these
thinnings may be used for poles, posts and rails and the yields are estimated to
represent 0.2 metres per tree. Enquiry and comparison with other thinnings
indicate a likely return of about $300 a cubic metre. If the poles and posts are treated
the returns could be higher. Various tests have shown that Paulownia seems to be
termite resistant and once this is understood by contractors an expanded market
for thinnings may well result for temporary fences and poles at a premium price.

34
CLEARFELL

Clearfell should commence about years 12-15 after the leaf fall and completion of the
year's growth. The clearfell process is aimed at the production of quality, knot free
logs with a butt length to the first stem variation of around 4-5 metres, above
this will be a second length of 3m followed possibly by a third length of 2
metres. The gross volume of millable timber will depend on the type of mill used
but 1 metre a tree with 75% of sawn timber is the aim. Obviously the size
of the product at the time of clearfell is relevant to yields, with small sizes requiring
more cuts, resulting in additional sawdust loss.

YIELD

Thus a typical Grower's Timberlot of 100 trees which is thinned in year 8 and
clearfelled
in years 12-15 is estimated to yield the following:

Year 8: 50 trees sold as round logs at average saleable volume of 0.20 cubic metres
per
tree = 10 cubic metres per Timberlot.

Years 12-15: 50 trees sold as 75% average saleable volume of 0.76 cubic metres per
tree
= 38 cubic metres per Timberlot.

These estimates make no allowance for natural disasters, bird damage to trees from
perching on the top and nibbling the attractive bark, irrigation breakdown and
so on. These are things that can unpredictably occur and therefore the volumes have
been
reduced by 25%, which still leaves the hectare production high at 75 cubic
metres(year 8) and 285 cubic metres (year 12 to 15) respectively.

If, further, one assumes an average of 60% utilization of the mature log you get 171
cubic metres of timber for sale per hectare at years 12 to 15 or an average of
17.1 cubic metres per Timberlot. These anticipated returns (plus the thinnings of 60
cubic metres per hectare) should be considered a good return for this Project.

PRICE:

The size of the Paulownia plantation Project, taking into account the increase in trees
from Projects 1 and 2, should provide some certainty that a local sawmill will do
the conversion to timber, at least to the primary breakdown stage on the property,
so as to minimizes the cost of transport. The estimated cost of the felling,
trimming and haulage to mill followed by the sawmilling will be in the
vicinity of $300 per cubic metre per Timberlot (Department of Primary Industries,
Queensland).

According to the Department of Primary Industries the likely sale value of such
timber is in the region of $680 - $980 cubic metre rough sawn which equates
to $1040 - 1600 cubic metre retail. It is my experience with local timbers that the
more exotic they are the greater the demand ( experience with Ecomill Sawmills
in Fremantle over two years) and if they are properly displayed and promoted
then the market comes to you.

35
This means the average Timberlot of 100 trees will earn 76 cu metres x $680 =
$51,680
(and at the higher price could return 76 cm x $980 =$74,480) if all goes well over the
fifteen years, plus the Grower will also receive any earning from the thinnings at year
8.

GENERAL

The older forests in Western Australia have largely been shut down and stopped from
producing, in order to preserve them for the future, and as a consequence of this
the timber industry in has had to rethink its role. Plantations are rapidly
becoming the future source of wood that will be required to feed the demand from the
up to date sawmills. The worlds consumers are already clamoring for all sorts of
wood simply because the human taste is so varied and the result from this demand
will continue to put further pressure on native forests.

Paulownia fits into this picture very well because it has a very fine figuring, is
extremely
light in weight, requires minimal drying to stabilize it, works well, finishes
well and has general uses as well as specialized uses for the making of quality
furniture and purpose built wall paneling and fit outs.

Paulownia timber should appeal to users because it has the following characteristics:

Dimensionally stable, clear and easy to work and gives a silky finish, slices and peels
Easily, producing excellent veneers. It has little tendency to crack or twist. It is also
suitable for moulding and turning work. It has an air-dry density of 0.30 and is
relatively strong.

Excellent for furniture, cabinet making, moulding, model building, general building
products such as cupboard doors, window frames, cladding and panels and
making musical instruments.

Thus, its major opportunity in Western Australia is in its comparison with the
hardness
of many local timbers, Paulownia is relatively soft, relatively strong, easy to work
and lightweight.

Paulownia is a suitable timber that can meet the general supply imbalance which is
requiring local timbers to try and meet the increasing demand whilst the imported
timbers struggle against an adverse exchange rate.

As with any commodity in a long-term project it is not possible to predict with

certainty
future demand levels or future prices. A number of factors will directly impact on
price levels; the growth rates of natural forests; the growth rates of timber usage and
development of cheaper alternative products. It has to be said that, in the lifetime
of the writer, there has always been an undercurrent stating that timber
products will be replaced by alternatives eg: plastic. However this has not come
about and if anything the reverse has occurred - people have become used to
plastics and a cheep product, while the demand for timber has increased as wood is
still seen as a quality product. Also peoples taste has moved away from the dark
local woods like Jarrah and Tuart to the lighter coloured timbers which have the
effect of creating light and bright interiors and finishes.
36
DEMAND AND SUPPLY OF SAWNWOOD.

About 60% of sawn timber is used in dwelling construction which includes houses
and
extensions, with the remaining 40% used for replacement repairs and furniture.
Australian production of sawnwood is around 4 million cubic metres a year (ABARE
Paper of Nov 2004) and imports are generally in excess of 1 million cubic metres,
mainly from North America and New Zealand but with tropical timber Meranti and
other timber species being brought in from Indonesia and other near pacific
countries.

So far our own Radiata pine has been too young to supply the timber for building
purposes but this is changing rapidly as plantations mature fast. No longer do
builders insist on Jarrah for supporting roofs but utilize the cheaper and lighter pine.
Paulownia fits into the window frames, and paneling category for lightness and speed
of work and also increasing demand from the furniture trade where people are also
looking for lightness.

These factors illustrate the changing public taste and together with the arrival of more
immigrants it will ensure that the present sawntimber consumption of 5 million
cubic meters will increase to the projected 7 million cubic metres per annum by
2030.

Plantation establishment is currently occurring, to supply Asia with paper supplies

and
to start to supply Australia with the resources needed to supply the demand for
building and furniture needs. According to ABARE (Australian Bureau of
Agricultural and Resource Economics) sawlog production will continue, NOT to
be met from homegrown supplies , but will have to be augmented by imports.
This shortfall in the demand for timbers is put at around one million cubic metres per
annum by 2030.

LONG TERM PROJECTIONS PAULOWNIA.

In eastern Australia, Paulownia is being harvested in modest quantities with the

sawlogs
being milled and processed into boards and jointed panels. These products are
being manufactured into high value moulded products, like cupboard doors,
furniture, door and window frames, panels and household fittings and has been
acceptance by the local joinery and cabinet-making trade as being an excellent
wood to work with.

The C.I.F. price for 15 year old roughsawn Paulownia timber, imported into
Australia from China has averaged AUD$ 913 per cubic metre. This is not to say
that there has not been an initial resistance to the new timber when first
introduced into Western Australia but this is now being overcome as its value
is appreciated.

37
SALES AND MARKETING

The Responsible Entity for this Product Disclosure Statement will sell the timber on
behalf of the Growers on a best price basis.

PLANTATION SUB-CONTRACTOR

The plantation sub-contractor, engaged by the Responsible Entity, also manages the
two previous Paulownia plantation projects and has been able to developed those
projects using first class silverculture skills developed over several years, both in
the nursery and in the field. The plantation sub-contractor has been ably supported
by staff that are
experienced with irrigation, fertigation and raising new Paulownia stock in
the nursery. It is therefore, my opinion, that these people will do everything
necessary to ensure the success of the project and, indeed, work within the time
frame forecast for the Project.

SUMMARY

The need for plantations is now recognized world wide with two thirds of the worlds
native forests already destroyed. To the north of Western Australia lie two huge
populations that are only just beginning to realise their quickly expanding market
possibilities, yet they are very short of timber so they must look elsewhere for it. In
my opinion their demands are going to grow fast and may well look to Australian
supply, taking everything we have to offer.

This will have a major affect on our home market also. Therefore, I have little doubt
that the Responsible Entity will find a demand at home and overseas for the
Paulownia timber. Planting now should produce timber in 12 15 years which, by
that time will be in great demand. Against this, one cannot predict what will
happen to inflation or the rate at which the demand for timber will expand, but all of
the present indications show that the demand for timber will continue to grow and
that as resource it will continue to decline.

DISCLAIMER

Afforestation Pty Ltd believes that, after reviewing the proposed Project, the
Paulownia plantation should succeed and should provide a return to the Growers but
the Company does not give any assurances or guarantees as to the returns on the
capital invested the future viability or sale prices received on the sale of the timber.

Charles Peaty Bachelor of Science (Forestry)

Independent Forester.

38
SECTION 9 FINANCIAL ACCOUNTS
Introduction
This section of the Product Disclosure Statement presents extracts of the financial
reports to 31st May 2005 for the Responsible Entity. The Responsible Entity is a
public company, and is required to prepare audited accounts for each financial year. A
full copy of the financial statements, including all notes to accounts, is available on
request, from the Responsible Entity at 45 Roberts Street Osborne Park WA 6017.

Financial Accounts of the Responsible Entity

Extract of Audited Statement of Financial Performance
For the year ended 30st June 2005
30th 30th
June June
2005 2004
$ $
Operating Revenues from Ordinary Activities 2,605,968 926,622

Operating Expenses 1,285,763 452,690

Borrowing Costs 0 0
Administrative Expenses 572,850 446,162
Profit/(Loss) from Ordinary Activities
before Income Tax 39,782 27,770

Income Tax Benefit/(Expense) 12,391 7,245

Profit/(Loss) from ordinary activities
after Income Tax 27,391 20,525

Total changes in equity other than those

resulting from transactions with owners
as owners 0 0

39
Extract of Audited Statement of Financial Position
For the Year Ended 30th June 2005

30th June 30th June

2005 2004
$ $
Current Assets
Cash assets 32,847 343,984
Receivables 1,824,890 497,349
Other 0 0
Total Current Assets 1,857,737 841,333

Non-Current Assets
Property, plant and equipment 23,353 2,626
Loans to Related Entities 1,100 1,000
Total Non-Current Assets 24,453 3,626
Total Assets 1,882,190 844,959

Current Liabilities
Payables 1,755,107 745,267
Unearned income 0 0
Interest Bearing Liabilities 0 0
Income Tax Liabilities 0 0
Provisions 0 0
Total Current Liabilities 1,755,107 745,267
Non Current Liabilities
Interest Bearing Liabilities 0 0
Income Tax Liabilities 0 0
Total Non Current Liabilities 0 0
Total Liabilities 1,755,107 745,267
Net Assets 127,083 99,692

Equity
Contributed Equity 50,000 50,000
Retained Profits 77,083 49,692
Total Equity 127,083 99,692

40
10.0 SUMMARY OF MATERIAL AGREEMENTS
This section contains summaries of the principal terms of material documents which relate to
the Project.

The material documents are:

Constitution of the Paulownia Tree Farming Project No.3.
Compliance Plan of the Paulownia Tree Farming Project No.3.
Lease and Management Agreement
Custodian's Agency Agreement
Forestry Experts Consultancy Agreement
Plantation Sub-Contracting Agreement

The whole of the provisions of these agreements are not repeated in this Product Disclosure
Statement. Copies of the agreements are available for inspection free of charge at the
registered office of the Responsible Entity during normal business hours.

The Constitution of the Paulownia Tree Farming Project No.3

The Constitution is dated 23 May 2005 and operates as a deed binding on all of the Growers
and the Responsible Entity. The Constitution for the Scheme Project is the document which
establishes a Managed Investment Scheme known as the Paulownia Tree Farming Project
No.3 (ARSN 115 342 713). In compliance with the Corporations Law the Constitution has
made adequate provision for those matters referred to in Section 601GA of the Corporations
Law.

The Constitution provides as follows:

The Responsible Entity

The Responsible Entity is appointed and agrees to act as responsible entity of the Project
known as the Paulownia Tree Farming Project No.3.

Application Price
To acquire an Interest in the Project and become a Grower an Applicant must pay the
application price (being $4,000 including GST, per Interest).

Creating the Funds

The Responsible Entity must create an application fund (to hold application monies) and a
proceeds fund (to hold the proceeds from the sale of timber).

Scheme Property
The Responsible Entity must appoint a custodian as agent to hold scheme property.

Power of Investment
Subject to the Constitution and the Corporations Law the Responsible Entity may direct the
Custodian to invest all or part of the application fund or the proceeds fund in authorised
investments.

Complaints
The Responsible Entity has appointed a complaints handling officer to deal with
complaints made by Growers. Any Grower may make a complaint about any aspect of the
Project. The Responsible Entity must within five business days after receiving the
complaint, write to the complainant either to acknowledge the complaint or respond to the
complainant in respect of the complaint made.

41
The Responsible Entity must attempt to respond fully to the complainant within 10
business days after acknowledgment of the complaint is made by the Responsible Entity.
The Responsible Entity must treat all complaints seriously and deal with them in a timely
manner having regard to the nature of the complaint. If a complaint cannot be resolved to
the satisfaction of the complainant then the complainant may proceed under the resolution
procedures contained in the Constitution, lodge a complaint with an external complaints
resolution body of which the Responsible Entity is a member or take whatever action is
open to the complainant under the general law.

Winding Up
The Responsible Entity must wind up the Project No.3 in any of the following
circumstances:
on the direction of the Growers;
if the Responsible Entity considers the purpose of the Project has been accomplished or
cannot be accomplished;
a court orders the Project No.3 to be wound up; or
in any other circumstance provided for under the Corporations Law.

To wind up the Project No.3 the Responsible Entity must convert to money all scheme
property, deduct all proper costs and then divide the balance amongst Growers according to
each Growers proportional share. During the winding up of the Project No.3 the
Responsible Entity may terminate any other agreements or arrangements it has entered into
with the Growers which relate to the Project No.3. Once the Responsible Entity believes
the winding up is complete, the Responsible Entity must engage a registered company
auditor to audit the final accounts of the Project No.3.

Fees and Expenses

The Responsible Entity is entitled to be paid from scheme property those fees provided for
in the Constitution and any Lease and Management Agreement by way of remuneration for
carrying out its duties and obligations under the Constitution or any Lease and Management
Agreement. The Responsible Entity is entitled to be paid from, or reimbursed from scheme
property for all costs, charges and expenses which are incurred by the Responsible Entity in
the proper performance of its duties in establishing, administering or winding up the Project
No.3.

Indemnity
The Responsible Entity has a right of indemnity out of the scheme property in respect of
any liability incurred by the Responsible Entity in the performance of its duties in respect of
the Project and all fees payable to and costs recoverable by the Responsible Entity under the
Constitution or the Lease and Management Agreement. The rights of the Responsible
Entity for indemnity out of the Project No.3 scheme property are available only in relation
to the proper performance of the Responsible Entitys duties.

Power to Borrow
The Responsible Entity does not have power to borrow for the purpose of the Project.

Withdrawal Rights
There are no withdrawal rights available to Growers under the Constitution.

Applications
The Responsible Entity must not invite persons to enter into Lease and Management
Agreements pursuant to the Constitution unless the Responsible Entity has issued, and there
is then current, a Product Disclosure Statement. The Responsible Entity, in its absolute
discretion, may accept or refuse any application to enter into a Lease and Management
Agreement with any Applicant for any reason and will not be required to provide a reason
for refusal to the Applicant.

42
Application Moneys
All application monies are to be paid by Applicants directly to the Custodian who must
place those monies in the application fund.

Lease and Management Agreements

The Responsible Entity shall execute a Lease and Management Agreement for itself, shall
procure the Lessor to execute the Lease and Management Agreement and will execute the
Lease and Management Agreement on behalf of the Applicant pursuant to the Power of
Attorney granted to the Responsible Entity by the Applicant.

Releasing Application Moneys

Prior to releasing any application monies held by the Custodian, the Responsible Entity
must be reasonably satisfied that:
the Lease and Management Agreement has been duly completed and executed by all
parties;
the Lessor has the capacity to grant the lease;
the property the subject of the lease is not subject to any encumbrance or restriction
which detrimentally affects the interests of the Applicant and which is not disclosed in
the Product Disclosure Statement;
there are no outstanding material breaches of any of the provisions of the Constitution
detrimental to the interests of Applicants; and
the minimum subscription requirements set out in the Product Disclosure Statement
have been obtained.

Upon being satisfied of the matters listed above the Responsible Entity must direct the
Custodian to release the application monies and apply them in payment of the fees payable
under the Lease and Management Agreement.

Power and Duties

The Responsible Entity has all the powers of a natural person and all powers that are
reasonably necessary for it to carry out its functions and duties under the Constitution.

The Responsible Entity shall:

manage the business, investments and affairs of the Paulownia Tree Farming Project
No.3; and
ensure that all services which are reasonably required by Growers under the Lease and
Management Agreement are performed in a proper and efficient manner.

The Responsible Entity is at liberty to establish and act as the responsible entity in relation
to other Managed Investment Schemes.

Limitation of Liability
To the extent permitted by law the Responsible Entity is not liable for any loss or damage to
any person arising out of any matter where, in respect of that matter:
it relied in good faith on the services of or advice from any person appointed by it;
it acted as required by any law; or
it relied in good faith upon any signature, marking of documents.

However, nothing will have the effect of exempting the Responsible Entity from, or
indemnifying the Responsible Entity against, liability for breach of trust where the
Responsible Entity fails to show the degree of care and diligence imposed under the
Corporations Law and the Constitution.

Transfer and Transmission

Assignment of a Lease and Management Agreement is governed by Clause 25 of the Lease
and Management Agreement. Clause 21 of the Constitution contains details of certain
administrative procedural matters relating to assignment. Clause 22 of the Constitution
43
 deals with transmission of Growers interests and provides that the legal personal
representative of a deceased Grower will be the only person recognised by the Responsible
Entity as having any title to or interest in the Growers Interest.

Retirement and Removal

The Responsible Entity may only retire as responsible entity of the Project in accordance
with Section 601FL of the Corporations Law. The Responsible Entity may only be
removed as Responsible Entity of the Project in accordance with Section 601FM of the
Corporations Law.

Register
The Responsible Entity must keep an up-to-date register of Growers in accordance with
Clause 26 of the Constitution.

Meetings
Meetings of Growers shall be held in accordance with the provisions of Part 2G.4 of the
Corporations Law.

Accounts
At the end of each financial year the Responsible Entity must prepare or cause to be
prepared all reports required to be prepared by Part 2M of the Corporations Law and must
send copies of those reports to all Growers.

Modification of Constitution
Subject to Section 601GC of the Corporations Law the Constitution may be modified by the
Responsible Entity or by special resolution of Growers.

Lease and Management Agreement

The parties to the Lease and Management Agreement are the Responsible Entity, the Lessor
and the relevant Grower. The Lease and Management Agreement is divided into three parts
being:
a lease of one or more Timberlots,
establishment of the relevant Growers Paulownia Plantation.
management of the relevant Growers Paulownia plantation, and
general provisions.

THE LEASE:
Grant of the lease
The Lessor grants to the relevant Grower, and the relevant Grower takes from the Lessor, a
lease of the leased area (comprising one or more Timberlots), together with any fixtures for
the term.
The Lessor reserves the right to:
install, maintain, use, alter and replace the fixtures leading through, over or into, or as
situated upon the leased area;
to convey gas, water, nutrients, herbicides, pesticides, electricity and other power
through, over or into or upon the leased area; and
to pass over the leased area at any time to gain access to the land adjoining the leased
area.

Rent
Rent for the Initial Period (the period commencing on the 1 July 2006 date and ending on 30
June 2007) is $22.00 per Timberlot and is paid out of the relevant Growers application
money. In respect of each financial year after year one the rent per Timberlot increases by
4% per annum or the CPI, whichever is the higher.

Use of The Leased Area

The relevant Grower covenants that it will:

44
 not use or permit any other person to use the leased area for any purpose other than for
commercial silviculture;
not erect any building, construction (whether temporary or permanent) on the leased
area, except with approval from the Lessor and for the purpose of commercial
silviculture;
not use or permit any other person to use the leased area for residential, recreational or
tourist purposes;
plant, establish, cultivate and manage trees on the leased area and from time to time
harvest (or harvest and process) the trees and sell the trees harvested (or harvested and
processed);
use all reasonable measures to keep the leased area free of vermin, noxious weeds and
pests;
do all things necessary to prevent the outbreak or spread of fire and will comply with
all reasonable directions of the Lessor in relation to the prevention and control of fire;
and
give the Lessor prompt notice in writing of any accident to, or defect or want of repair
of any fixtures, plant or machinery on the leased area and of any circumstances causing
or likely to cause any danger, risk or hazard to the leased area or to any other part of
the Plantation.

Maintenance, Repair and Alterations

The relevant Grower will at all times keep the leased area and fixtures in good and
substantial repair, order and condition. The Lessor may, without notice, enter upon the
leased area to view the state of repair, order and condition thereof.

Yield up
The relevant Grower will at the expiration or sooner determination of the term, peaceably
surrender and yield up to the Lessor the leased area and fixtures, free and clear of rubbish
and in good condition.

Lessors Covenants
The Lessor covenants that:
subject to the relevant Grower duly and punctually observing the Growers covenants,
the relevant Grower may peaceably possess and enjoy the leased area during the term
without any interruption or disturbance from the Lessor or any other person lawfully
through the Lessor;
the relevant Grower may use common areas in common with the Lessor and other
persons entitled to use the common areas for purposes incidental to the use of the
leased area for commercial silviculture;
there are no mining claims or tenements over the leased area which will adversely
effect the interests of the relevant Grower; and
the Lessor will at the Lessors expense, prior to the commencement date for planting,
fully reticulate the leased area in accordance with silvicultural standards applicable to
Responsible Entitys requirement for the Paulownia plantation.

General
The Lessor covenants that any leasehold interest granted by the Lessor in respect of any
part of the Plantation will be to the effect of the Lease and Management Agreement.

Unless precluded by law, the relevant Grower has an express right to register the lease and a
subject-to-claim caveat.

Subject to the relevant Grower not defaulting in any manner, the relevant Grower has full
right, title and interest in the forest produce.

45
Except for the payment of rent, the Responsible Entity agrees to duly and punctually perform
the Growers covenants contained in the lease.

MANAGEMENT OF THE LEASED AREA:

Appointment of Responsible Entity

The relevant Grower appoints the Responsible Entity to perform the services and the
Responsible Entity accepts the appointment. The Responsible Entity must complete the
management services for the Initial Period before the 31st December 2006.

Services
The Responsible Entity must perform the services in a prompt and efficient manner in
accordance with the generally accepted silviculture practices. The services comprise the
following:
from the commencement date, being the 1st July 2006, plant Paulownia trees on the
leased area at a rate of 100 per Timberlot;
cultivate, train, fertilise and otherwise care for the trees;
use reasonable measures to keep the area free from vermin, pests and disease;
establish and maintain adequate fire breaks;
replace any trees that fail to establish or die during the first two years of the
Project;
maintain and manage the Paulownia plantation on behalf of the grower for a period of
15 years; and
harvest and process the trees in accordance with the terms of the agreement.

Reports
On or before 31 July and 31 January in each financial year the Responsible Entity must
provide the relevant Grower with a report containing a review of operations of the relevant
Growers timber business during the relevant period. The report must include details of:
the services provided by the Responsible Entity;
the health of the trees;
the quality and quantity of forest produce;
any unforeseen circumstances which may affect the relevant Growers timber business;
and
inventory measurements for the forest produce.

Recommendations
The relevant Grower may give written notice to the Responsible Entity setting out the opinion
or recommendations of the relevant Grower with respect to the services.
The Responsible Entity covenants to give:
due consideration to the opinions and recommendations contained in any relevant
Growers notice; and
to use its best endeavours to carry out any recommendation contained in that relevant
Growers notice.

Calling a Meeting With The Responsible Entity

The relevant Grower has an express right to call a meeting with the Responsible Entity, at a
time suitable to the Responsible Entity, to discuss any element of the relevant Growers
timber business.

Delegation
The Responsible Entity may in its subsequent discretion delegate all or any of the duties or
obligations to be performed and observed by it under the Lease and Management Agreement.

46
Harvesting
The Responsible Entity must during year eight, harvest between 40% and 60% of the trees,
unless the Responsible Entity reasonably believes it would be in the best interest of the
relevant Grower to defer harvesting.

The Responsible Entity must during the years 12 to 15, harvest and process all of the trees,
unless the Responsible Entity reasonably believes it would be in the best interests of the
relevant Grower to defer harvesting to a later date.

The Responsible Entity shall be paid 5% of the Gross Sale Proceeds of sale in consideration
for Marketing of the Paulownia timber and the management and administration associated
with harvesting and processing.

Option to Collect
On or before the expiration of two years from the commencement date the relevant Grower
may notify the Responsible Entity that it elects to collect the relevant Growers proportional
share of forest produce. The Responsible Entity must advise the relevant Grower of:
the time and place the forest produce will be available for collection;
any amount then due and payable by the relevant Grower; and
the relevant Growers share of the costs of harvesting and processing.

The relevant Grower must pay to the Responsible Entity amounts due and payable not less
than one week prior to collection.

Sale of Forest Produce

If the relevant Grower does not elect to collect forest produce, the relevant Grower is deemed
to have irrevocably appointed the Responsible Entity as the relevant Growers agent for the
purpose of marketing and selling the forest produce.

Proceeds of Sale
The Manager must deposit the gross sale proceeds from the sale of forest produce into the
proceeds fund with the Custodian.

Payment from the "Gross Sale Proceeds" Fund.

Within ten business days of receiving the gross sale proceeds as cleared funds, the Custodian
must pay to the Responsible Entity (and where applicable the Lessor) out of the proceeds
fund:
the 5% of the Gross Sale Proceeds
the relevant Growers proportional share of harvesting and processing costs and costs
of sale; and
any amounts owed to the Manager or Lessor by the relevant Grower.

Having made these payments the Custodian will pay 100% of the balance to the relevant
Growers.

Insurance
The Responsible Entity is obliged to obtain public risk insurance in respect of the Plantation
for an amount of not less than $1 million for the term.

If requested by the relevant Grower the Responsible Entity must use its best endeavours to
arrange insurance of the trees on the leased area on behalf of the relevant Grower. Insurance
premiums will be borne, in the case of public risk insurance applicable to the Plantation, by
the Responsible Entity, and in the case of the insurance applicable to the plantation on the
leased area, by the relevant Grower. The Responsible Entity will apply the interests of the
relevant Grower in any insurance proceeds obtained as a result of a successful claim made
under a policy of insurance in the following priority, firstly in the payment of any annual
contribution payable by the relevant Grower which is due and unpaid, secondly in the
payment of any amounts payable by the relevant Grower under the Lease and Management

47
Agreement or any provision of the Constitution and finally, paying the balance to the relevant
Grower.

Destruction of Trees
If all or substantially all of the trees on the leased area are destroyed or in the opinion of the
Manager damaged so as to render them unsuitable for further cultivation the Lease and
Management Agreement will terminate with effect from the time of the event causing this
destruction or damage. If a number of the trees on the leased area are destroyed or in the
opinion of the Manager damaged so as to render them unsuitable for further cultivation the
Lease and Management Agreement will continue to apply in respect of that part of the leased
area on which the remaining trees stand.

Remuneration
In consideration of the Responsible Entity performing the services the relevant Grower agrees
to pay to the Manager the management fee and bonus fee.

The management fee for the Initial Period is $3,978 (inclusive of GST) per Timberlot and is
payable from the relevant Growers application moneys. Thereafter the management fee is
$678.00 (inclusive of GST) per annum per Timberlot indexed at 4% or the CPI, per annum,
whichever is higher.

The Marketing and Harvesting Fee is 5% of the Gross Sale Proceeds attributable to forest
produce when sold.

Annual Contributions
The relevant Grower must pay to the Responsible Entity the annual contribution on or before
30 June in each year. The annual contribution comprises:
rent payable to the Lessor;
the management fee payable to the Responsible Entity; and
if applicable, the insurance premiums payable by the relevant Grower.

The Responsible Entity may apply the gross sale proceeds in payment of any annual
contribution due and payable.

Default
The relevant Grower hereby agrees that if it fails to pay any amount due from the relevant
Grower to any party under the Lease and Management Agreement by the due date of
repayment the relevant Grower must pay interest on the outstanding amount.

The relevant Grower hereby agrees that if it fails to pay the outstanding amount and interest
thereon, on or before expiry of a default notice the Manager may:-
pay the outstanding amount from its funds and issue proceedings against the relevant
Grower to recover the amount paid and for damages for breach of contract;
recover the outstanding amount from the gross sale proceeds; or
terminate the Lease and Management Agreement.

On termination of the Lease and Management Agreement in accordance with the above:-
the relevant Grower will cease to have any further claim or rights in relation to the
Project and the trees on the leased area.
all of the interests of the relevant Grower in the forest produce will be deemed to have
been assigned and transferred by the relevant Grower to the Responsible Entity; and
the Responsible Entity will be responsible for the costs of maintaining the trees.
the Responsible Entity will be responsible for payment of rent to the Lessor.

The relevant Grower hereby agrees that if it commits any breach or default in the due and
punctual observance of any covenants and fails to remedy that breach or default within a time
specified by the Responsible Entity, the Responsible Entity may terminate the Lease and
Management Agreement.
48
Assignment, Transfer
The relevant Grower may assign the relevant Growers interest under the Lease and
Management Agreement with the prior written consent of the Lessor and the Responsible
Entity, which the Lessor and Responsible Entity may in their absolute discretion withhold. In
the event that the consent is granted, then any such assignment must be in writing and must
include a covenant on the part of the assignee that the assignee will duly observe the relevant
Growers covenants and a provision under which the relevant Grower releases the Lessor and
the Responsible Entity from all claims by the relevant Grower in respect or in any way arising
from the Lease and Management Agreement.

THE GENERAL PROVISIONS OF THE LEASE AND MANAGEMENT

AGREEMENT PROVIDE AS FOLLOWS:
Term
The agreement will commence upon the date of execution and end on the earlier of:
the date on which the Constitution is terminated;
with respect to an electing Grower, the date of collection of the forest produce;
with respect to a non-electing Grower, the date of final payment from the proceeds
fund.

Power of Attorney
The relevant Grower irrevocably appoints the Responsible Entity as its attorney to do and
execute all matters, things and documents which are necessary, or which the Responsible
Entity considers expedient for the relevant Grower to do or execute (amongst other matters)
for the purpose of complying with any duty or obligation imposed on the relevant Grower by
the Lease and Management Agreement.

Retirement of Responsible Entity

The Responsible Entity may retire upon giving three months notice to the relevant Grower,
provided it has first nominated another corporation or person to be the new manager.

Payment of Stamp Duty and Registration Fees

The Responsible Entity will pay all legal costs but the Stamp Duty, registration fees payable
in respect of the Lease and Management Agreement are to be paid by the Grower, unless the
parties agree otherwise.

Tax
Any tax or impost (including without limitation on goods and services tax (GST)) payable in
respect of the rent, management fee or any other payment or service provided pursuant to the
terms of the Lease and Management Agreement, shall be paid by the relevant Grower.

Compliance Plan of the Paulownia Tree Farming Project No.3

The Responsible Entity has prepared a Compliance Plan as required by the Corporations Law
to ensure that it meets its obligations as a Responsible Entity and the rights of the Growers are
protected. In preparing the Compliance Plan the Responsible Entity:
undertook a structured and systematic process which considered the Responsible
Entitys obligation under the Corporations Law and the Constitution;
identified the risks of non-compliance; and
established measures designed to meet those risks.

Part 5C of the Corporations Law states that the compliance plan of a registered scheme must
set out adequate measures that a responsible entity is to apply in operating the scheme to
ensure compliance with the Corporations Law and the constitution of the scheme.

The Compliance Plan includes arrangements for:

ensuring scheme property is clearly identified as scheme property and held separately
from property of the Responsible Entity and property of any other scheme;
ensuring that the compliance committee functions properly;
49
 ensuring that the scheme property is valued at regular intervals appropriate to the
nature of the property;
ensuring that compliance with the plan is audited; and
ensuring that adequate records of the Project are kept.

It is a requirement of Part 5C of the Corporations Law that the arrangements listed above are
specifically dealt with.

In addition, the Compliance Plan sets out procedures in relation to:

the appointment of a compliance officer and the duties and reports to be prepared by
the compliance officer;
selecting, monitoring and replacing a custodian;
the marketing of the Project;
conduct of business issues (such as procedures in relation to compliance with Lease
and Management Agreements, insurance, financial requirements, register of Growers,
distribution of income to Growers and fees and expenses);
procedures in relation to application money and the transfer of money from the
application fund;
auditing of the Compliance Plan;
dealing with related party issues;
appointing and monitoring external service providers;
the training, recruitment and experience of staff; and
internal review of compliance by the Directors.

Custodians Agency Agreement

On 7th July 2005 the Responsible Entity entered into the Agency Agreement with Huntley
Custodians Limited (Custodian).

Pursuant to the terms of the Agreement the Responsible Entity appointed the Custodian to act
as its agent within the scope and on the terms set out in the Agreement and the Custodian
accepted the appointment.

The role of the Custodian is to hold the scheme property as agent for the Responsible Entity.
Scheme property is defined as the scheme property of the Project from time to time as
determined in accordance with the definition of scheme property contained in Section 9 of the
Corporations Law.

The term of the Agreement will commence on the date of this Product Disclosure Statement
for the Project and will continue until the earlier of:
termination as provided under the Agreement; or
the winding up of the Project.

The Custodian agrees with the Responsible Entity to hold the scheme property as agent for
the Responsible Entity. The Custodian must:
hold the scheme property in a proper and safe manner;
not profit out of holding the scheme property other than by way of remuneration as
provided for as in the Agreement;
observe and carry out the instructions and directions given by the Responsible Entity in
respect of the scheme property; and
promptly forward to the Responsible Entity any notices, correspondence, accounts and
other documents received by the Custodian in relation to the scheme property.

The Custodian must maintain appropriate procedures to ensure it complies with the standards
imposed by ASIC from time to time for the holding of scheme property. The Custodian must
continue to comply with those standards during the term of the Agreement. If the Custodian
no longer complies with any of the standards it must immediately notify the Responsible

50
Entity. The Responsible Entity and the Custodian must then meet with a view to ensuring
either:
the Custodian complies with those standards as soon as reasonably practicable; or
the Custodian resigns.

The Custodian must provide regular reports to the Responsible Entity on all matters relevant
to the Custodians holding of the scheme property. These reports must be provided no less
frequently than twice a year.

The Responsible Entity must do all things reasonably necessary to place the scheme property
into the custody and control of the Custodian. The Responsible Entity indemnifies the
Custodian in respect of any liability incurred by the Custodian by reason of acting in
accordance with any directions or instructions given by the Responsible Entity or performing
its other duties under the Agreement as the Responsible Entitys agent. The indemnity does
not apply where there has been any negligence, deceit, breach of duty or fraud on the part of
the Custodian.

The Responsible Entity and the Custodian agree to liaise throughout the term of the
Agreement to enable the Responsible Entity to observe and assess the Custodians
performance of its obligations under the Agreement.

The Custodian must not assign or enter into a sub-agency in respect of its rights, interests and
obligations under the Agreement without the prior written consent of the Responsible Entity.

The Custodian is entitled to charge or be paid a remuneration for its services in respect of its
role as Custodian as follows:
a fee of $5,500 (inclusive of GST) payable upon execution of the Agreement;
for the first financial year of the Project an annual service fee of $16,500 (inclusive of
GST);
reimbursement of the reasonable legal costs incurred by the Custodian in relation to the
formation of the Project;
for each year after the first financial year of the Project the annual service fee will be
the amount paid in the previous financial year indexed to CPI;
to the extent that the Custodian is required to perform any additional work in
complying with its obligations under the Agreement, the fee for that work will be based
on the number of hours worked by executives, employees and consultants of the
Custodian calculated at normal and usual professional rates as negotiated from time to
time between the Custodian and the Responsible Entity.

In addition to the fees payable, the Custodian is also entitled to be paid or reimbursed all out
of pocket costs, charges and expenses incurred in holding the scheme property.

The Custodian may terminate the Agreement by notice in writing to the Responsible Entity if,
amongst other matters, the Responsible Entity defaults in paying any money due to the
Custodian and continues to be in default for a period of twenty-one days or more after receipt
by the Responsible Entity of a written notice.

The Responsible Entity may terminate the Agreement if, amongst other matters, the
Custodian is in default of any obligation under the Agreement and continues to be in default
for a period of twenty-one days or more after receipt of a written notice.

PLANTATION SUB-CONTRACTING AGREEMENT

On 11 July 2005 the Responsible Entity entered into the Plantation Sub-Contracting
Agreement with Goldzone Investments Pty Ltd (Sub-Contractor).

Pursuant to the terms of the agreement the Responsible Entity appointed the Sub-Contractor
to carry out the services for the term of the agreement being the dated execution of the
agreement to 30 June 2021. The following services are to be provided by the Sub-Contractor:
51
 establish, maintain, supervise and manage on a day to day basis, in accordance with
good commercial practice, all commercial forestry activities to be carried out on the
Plantation,
remove existing crops on the land, deep ripping and preparation of the surface for
intensive plantation requirements,
plant seedlings at the rate of 1,000 trees per hectare,
cultivate, prune, fertilise and otherwise care for the trees as and when required,
keep the plantation free from vermin and pests,
maintain the irrigation infrastructure, equipment and fences.

The Sub-Contractor must commence planting the trees by no later than 31 December 2006
and complete planting by no later than 30 June 2007 and must replant and replace, at the Sub-
Contractors expense, any trees that die within 2 years of the date of purchase.

In consideration of the Sub-Contractor performing the services the Responsible Entity has
agreed to pay standard commercial fees to the Sub-Contractor.

The Responsible Entity may terminate the appointment of the Sub-Contractor:

if the Sub-Contractor is placed into liquidation or official management;
if the Sub-Contractor is in default of the due and punctual observance of any of the
Sub-Contractors covenants.

The Sub-Contractor shall obtain insurance against public risk in respect of the Plantation of
an amount not less that $10 million for the term of the agreement. The Sub-Contractor shall
insure all plant and equipment used in the provision of the services at the Sub-Contractors
expense.

The Sub-Contractor warrants that all equipment provided to it by the Responsible Entity and
any other equipment used by the Sub-Contractor in the performance of the services shall be
operated and maintained at the Sub-Contractors expense in accordance with the
manufacturers recommendations.

In carrying out the services the Sub-Contractor shall:

be allowed full and free access to the Plantation,
not erect any structures or dwellings on the Plantation,
not store on the plantation, or use, inflammable, noxious or dangerous substance, and
use all reasonable care to avoid interference to the operation of the owner(s) or
occupier(s) of neighbouring land.

The Responsible Entity will pay all stamp duty and all other legal costs payable in respect of
the agreement.

FORESTRY EXPERT CONSULTANCY AGREEMENT

The Responsible Entity entered into the Forestry Expert Consultancy Agreement on 30th June
2005 with Afforestation Pty Ltd (Consultant) and Charles Peaty (Peaty).

Pursuant to the agreement the Responsible Entity has engaged the Consultant and Peaty and
the they have agreed to serve the Responsible Entity by providing the consultancy services for
the term of the agreement (30 June 2006 and expires on 30 June 2021).

In consideration of the provision of the consultancy services the Responsible Entity has
agreed to pay the Consultant standard commercial rates for the provision of such services.

The Responsible Entity shall reimburse the Consultant for all reasonable traveling and other
expenses properly incurred by the Consultant in the performance of its services.

During the term the Consultant shall provide consultancy services to the Responsible Entity
in order to assist the Responsible Entity in respect to matters relating to the planting,
52
establishment and maintenance of the Paulownia trees on the Plantation and to oversee all the
silviculture procedures performed by the Responsible Entity and in particular but without
limiting the generality of the foregoing:
supervise the production and provision of the Paulownia planting;
provide all technical details on the establishment and cultivation of the Paulownia
trees;
advise on the selection and provision of water supply and irrigation systems;
advise on tree monitoring, watering, plant nutrition and pruning services;
assist the Sub-Contractor; and
training relevant staff of the Responsible Entity and the Sub-Contractor in all relevant
Paulownia husbandry practices.

The Responsible Entity may terminate the appointment of the Consultant:

if the Consultant is placed in liquidation or official management,
if Peaty ceases to be a director of the Consultant or at any time in the reasonable
opinion of the Responsible Entity ceases to be involved in the day to day management
and running of the Consultant,
if the Consultant breaches any terms of the agreement and fails to rectify that breach.

Peaty covenants and agrees that during the term of the agreement he will at all times remain a
director of the Consultant and be responsible for the day to day management and running of
the Consultant.

The Consultant may engage, employ and make available Peaty as the Consultants
representative and all rights granted and obligations imposed upon the Consultant may be
enjoyed and performed by Peaty.

The Consultant warrants that it will meet all insurance, superannuation, annual leave, sick
leave and other outgoings in relation to Peaty.

11.0 STATUTORY INFORMATION

11.1 Consents
The following expert has given their written consent to the issue of this Product Disclosure
Statement with the inclusion of the information detailed below, in the form and context in
which that information is included, and have not withdrawn their consent before lodgment of
this Product Disclosure Statement with the ASIC:
Afforestation Pty Ltd and Charles Peaty - Independent Paulownia Consultants Report,
references to that report and statements which rely on the report contained in Sections
1.10, 2.5, 4.4, 4.5, 5.3, 6.2, 7.1 and 10.0.

The following parties have given and not before lodgment of this Product Disclosure
Statement with the ASIC withdrawn their written consent to being named in this Product
Disclosure Statement in the capacity stated below. For the purposes of the Corporations Law
the following parties were only involved in, and have only authorised or caused the issue of,
those parts of this Product Disclosure Statement described below and have not authorised or
caused the issue of any other part of this Product Disclosure Statement other than that
described below. In relation to the Corporate Directory and Sections 6.0 and 11.2 each
relevant party has only been involved in the preparation, and authorised or caused the issue of
that part to the extent that it refers to that party as follows:

Geoffrey Coad as an external Compliance Committee member - the Corporate

Directory and Section 6.1.3;
John Lazberger as an external Compliance Committee member - the Corporate
Directory and Section 6.1.3;
Huntleys Custodians Limited as Custodian - the Corporate Directory, Section 6.4, 10.0
and Section 11.2;
53
 Carlton & Partners as consultants to the Product Disclosure Statement - the Corporate
Directory and Section 11.2;
Moore Stephens as Auditors to the Responsible Entity and the Project - the Corporate
Directory;
Neil Pace - Moore Stephens as auditor to the Compliance Committee - the Corporate
Directory;
Rural Equities Ltd as Lessor - the Corporate Directory and section 11.0;

Afforestation Pty Ltd and Charles Peaty as Forester and Consultant to the Responsible
Entity- the Corporate Directory, Sections 1.10, 2.4, 4.4, 4.5, 5.3, 6.2 and 7.1 and 10.0.

11.2 Interests of Responsible Entity, Lessor or Experts

Other than as set out below and elsewhere in this Product Disclosure Statement, neither the
Responsible Entity nor any Director or proposed director of the Responsible Entity or any
promoter or expert has any interest now, or which existed in the period of two years before
lodgment of this Product Disclosure Statement with the ASIC, in the promotion, or in any
property proposed to be acquired for the purposes of the project in connection with its
formation or promotion and no Director or proposed director, promoter or expert is a partner
in any firm with such an interest. Other than as set out below and elsewhere in this Product
Disclosure Statement, no amounts have been paid or have agreed to be paid now or in the last
two years (other than the first Paulownia Tree Farming Project and The Paulownia tree
Farming Project No.2) to such persons or firm (in cash or otherwise) by any persons to
procure subscriptions for, or purchases of, interests in the project or, for services rendered in
connection with the promotion or inception of the project or for other services rendered in
accordance with the Constitution, or in the case of a Director, proposed director or otherwise
for services rendered by him or by any such firm in connection with the promotion or
inception of the project or, in the case of an expert, for services rendered by him or any such
firm in connection with the promotion or inception of the project.
the Responsible Entity is entitled to receive the project subscription moneys of $4,000
(inclusive of GST) per Timberlot which includes the annual management fees payable
by each of the Growers set out in this Product Disclosure Statement, as well as being
reimbursed for costs and expenses incurred as set out in this Product Disclosure
Statement;
the Responsible Entity may engage any parties associated with or related to the
Responsible Entity to assist the Responsible Entity or provide staff, plant, equipment or
other resources to the Responsible Entity, to enable the Responsible Entity to carry out
its functions and duties under the Constitution or the Lease and Management
Agreements in relation to the Constitution and the Project, and the Responsible Entity
may reimburse or pay those parties for providing such assistance or resources;
the directors of the Responsible Entity are entitled to be paid directors fees or other
expenses by the Responsible Entity or have an interest in the issued capital of the
Responsible Entity and the Directors or their associates are entitled to apply to be
allotted Timberlots under this Product Disclosure Statement;
the Responsible Entity is entitled to be paid a fee of 5% of the Gross Sale Proceeds
from the sale of the timber at years 8 and at clearfell during years 12 to 15.
the directors of the Custodian are entitled to be paid directors fees or other expenses
by the Custodian or have an interest in the issued share capital of the Custodian, and
the Custodian is entitled to the remuneration set out in this Product Disclosure
Statement, as well as being reimbursed for costs and expenses incurred as set out in this
Product Disclosure Statement;
the Lessor will receive rent per Timberlot as the rental payable by the Growers under
the Lease and Management Agreements at the annual rentals set out in Section 5.13.
The Lessor and the directors or their associates are entitled to apply to be allotted
Timberlots under this Product Disclosure Statement;
Afforestation Pty Ltd is entitled to be paid normal professional fees of $110 (inclusive
of GST) per hour for its services, in preparing the Independent Paulownia
Consultants Report and to receive fees for services rendered at the rate of $110

54
 (inclusive of GST) per annum for the first and second years and thereafter at an hourly
rate, to be mutually agreed with the RE from the 1 July 2009;
Moore Stephens will be entitled to be paid normal fees for their audit of the accounts of
the Responsible Entity and the Project and for Neil Pace of Moore Stephens to act as
auditor of the Compliance Plan;
Carlton & Partners any associated parties to Carlton & Partners will be entitled to be
paid normal fees for their professional accounting services to the Responsible Entity
and will also be paid normal professional fees of $66,000 (inclusive of GST) for their
services as consultants to the Directors and for their advice to the Directors for their
preparation of this Product Disclosure Statement. Carlton & Partners any associated
parties to Carlton & Partners will be paid fees not exceeding $100,000 (inclusive of
GST) for their services as project co-ordinators for the development and co-ordination
of the project for the year ending 30 June 2006. Carlton & Partners, Four
Developments Pty Ltd and Graeme Wovodich or their associated parties will also be
entitled to receive fees for their services throughout the life of the Project;
TFIS Total Finance and Investments Solutions (Springscene Pty Ltd) a company of
which David Blackwell is Managing Director will be entitled to commissions of no
more than 9% and marketing fees of no more than 4% on all subscriptions received for
Interests in the Project. TFIS Total Finance and Investment Solutions (Springscene Pty
Ltd) will also be entitled to recover any out of pocket expenses or payable for the
services of David Blackwell for the Promotion of the Product Disclosure Statement to
other Dealers throughout Australia for the year ended 30 June 2006;

11.3 Commission
The Manager may pay up to 9% of the subscription moneys received in respect of
applications for Interests under this Product Disclosure Statement, as commission to licensed
dealers in securities and proper authority holders who procure applications for Interests in the
Project. Also an amount not exceeding 4% of the subscription money may be paid to licensed
dealers in securities to compensate them for overhead costs and expenses incurred as a direct
result of marketing and the promoting of this Product Disclosure Statement. The amount
payable to other licensed dealers in respect of any applications lodged will be the subject of
an agreement between the Responsible Entity and the licensed dealer. The Responsible Entity
may also pay an amount not exceeding 4% of the subscription money to be payable to any
other eligible party, based on the applications received, to compensate them for overhead
costs and expenses incurred as a direct result of marketing and promoting of this Product
Disclosure Statement.

No amounts have been paid within the two years preceding the date of this Product
Disclosure Statement as commissions for subscribing, agreeing to subscribe, procuring or
agreeing to procure applications to acquire Interests in Project No.3 but commissions,
marketing expenses, and operating expenses have been paid in relation to the first Product
Disclosure Statement and the second Product Disclosure Statement being for the first two
Paulownia Tree Farming Projects.

11.4 Product Disclosure Statement Costs

The Costs of the Product Disclosure Statement are estimated to be $200,000 and will be paid
by the Directors of the Responsible Entity and the amount of actual expenditure, up to this
amount, is to be reimbursed to the Directors by the Responsible Entity when sufficient funds
are available.

11.5 Material Agreements

Certified copies of all material agreements and experts consents are available for inspection at
the registered office of the Responsible Entity being C/- Fulcher & Associates, 45 Roberts
Street Osborne Park WA 6017 during normal business hours.

55
11.6 Interests of Directors in The Issued Capital of The Responsible
Entity
David Peter Blackwell 45%

David Peter Blackwell is the Director of the following;

Paulownia Farm Management Australia Ltd
Goldzone Investments Pty Ltd
Rural Equities Ltd
Springscene Pty Ltd
Ballast Financial Management Pty Ltd

Ballast Financial management Pty Ltd is a FSR Licenced financial planning company, which
may receive commissions and fees for marketing this Product Disclosure Statement and Mr
Blackwell may be reimbursed for fees for his services.

11.7 No Litigation
There is no litigation pending or threatened which would significantly affect the Project or the
Responsible Entity.

11.8 Accounts
The Directors report that, after due enquiry by them in relation to the interval between the
date of the Auditors Report on the Company's accounts and the date of the Product Disclosure
Statement, they have not become aware of any circumstances that in their opinion have
materially affected or will affect the trading or profitability or the value of the assets of the
Project or the Responsible Entity.

Signed by the Directors of Paulownia Farm Management Australia Ltd.

David Peter Blackwell William Leslie Fulcher David Monteleone

Director - Chairman Director Director

Dated the 23 November 2005

56
12.0 STEPS TO COMPLETE THE APPLICATION FORM
1 Application form
Applicants should complete the application form on pages 60 to 65.
2 Election to Collect Timber
If a Grower does not wish to have the Growers timber produce sold by the
Responsible Entity on behalf of the Grower, then the Grower may complete
the election to collect the timber produce on the Application Form.
3 Signing
Applicants should sign the application form on page 64 in the presence of an
adult witness who must also sign the Application Form. If the applicant is a
company or corporation, the Corporate seal should be affixed in accordance
with its articles of association or constitution.
Joint applications must be signed by all applicants. Joint
applicants will be deemed to be holding their Timberlot(s) as joint tenants.
4 Payment Required on Application
You must send in a completed application form and a cheque for the total project
subscription moneys for each Timberlot(s) as set out below.
The application moneys payable with your application form for the Initial Period (A$)

Timberlot(s) comprising
Number of first years Rent and
Timberlot(s) Management fees
A$
1 4,000
2 8,000
3 12,000
4 16,000
5 20,000
6 24,000
7 28,000
8 32,000
9 36,000
10 40,000

5 Lodging your application

Please forward the completed application form, together with a cheque(s) made
payable to Huntley Custodians Limited - Trust Account Paulownia Tree Farming
Project 3 and crossed Not Negotiable, for the application moneys payable in
respect of the Timberlot(s) applied for, to your licensed securities dealer or directly to
the Responsible Entity:
Paulownia Farm Management Australia Ltd
45 Roberts Street,
OSBORNE PARK, WA 6017
or PO Box 185
OSBORNE PARK WA 6917

Please Note:
Please ensure that you complete the application form on pages 60 to 65; in
BLOCK LETTERS and SIGN on Page 64.

57
13.0 COMPLETING YOUR APPLICATION FORM
SECTION 1 - DETAILS OF APPLICANT(S)
How to Complete Section 1
All Applicants - please complete the name, address and contact details for each
Applicant.
Companies or Corporations - if any Applicant is a company or
Corporation, you must include its ACN ("Australian Company Number") or ARBN
("Australian Registered Body Number") after its name.
Trusts or Superannuation Funds - if the application is made by a trust or
superannuation fund, the application must be made by the Trustee(s) of the trust or
superannuation fund in their own name(s), and not in the name of the trust or fund
itself.
Australian Business Number ("ABN") - please provide your ABN in the
Application Form. If you have any questions on the use of the ABNs please contact
your local Tax Office or your advisor.
Tax file number(s) ("TFN") - please complete the details providing each applicant's
TFN, or give the appropriate exemption details. Collection of TFNs is authorised by
taxation laws. Quotation of your TFN is not compulsory and will not affect your
application but, if you do not quote a TFN or an exemption, taxation may be required
to be deducted from any income distribution entitlements, at the higher income tax
marginal rate plus Medicare levy (currently 48.5%). If you have any questions on the
use of TFNs or available exemptions please contact your local Australian Tax Office.
Country of Residence, for tax purposes - if any Applicant is not a resident of
Australia for taxation purposes, please provide details of their country of residence.
Please note that withholding tax or other tax payments may be required to be
deducted from distributions of income or other payments in the case of non-residents.
Non-residents are advised to seek their own taxation advice before investing.

SECTION 2 - TIMBERLOT(S) APPLIED FOR;

Please complete the number of Timberlot(s) applied for, and the application moneys
enclosed with your application (see the table of application moneys payable with your
application, on page 57.)

SECTION 3 - ELECTION TO INSURE,

If you wish to insure the trees on your Timberlot(s) against damage or destruction by
fire, please tick the appropriate box.
The Responsible Entity will then endeavor, subject to the availability of suitable
insurance, to arrange insurance for all Growers who have elected to insure their trees
subject there being a request for insurance by more than 50% of the Growers in this
Project. Upon receipt of the premiums applicable to insurance each year the
Responsible Entity will notify the insurer of the number requiring insurance and
request that insurance cover be applied for those Growers. The Responsible Entity
will continue to advise all Growers electing to insure their trees of the availability of
suitable insurance and the amount of the insurance premium payable each year
throughout the course of the project.

SECTION 4 - ELECTION TO COLLECT TIMBER PRODUCE

If you intend to collect your timber produce on completion of harvesting, please tick
the appropriate box. You may make your election at any time prior to 30 June 2008
by notice in writing to the Responsible Entity, and the Responsible Entity will give
you reasonable notice before commencing any harvesting on your Timberlot(s).

58
If you do not elect to collect your timber produce, the Responsible Entity will pool
your produce with the produce of other non-electing Growers, sell it under the terms
and conditions of any Timber Sales Agreement, and the Custodian will account to you
for your share of Net Proceeds.

SECTION 5 - POWER OF ATTORNEY

By signing the application form you appoint the Responsible Entity as your attorney
to execute and complete a Lease and Management Agreement on your behalf.

SECTION 6 - SIGNING THE APPLICATION FORM

Your application form must be signed by each Applicant named in Section 1 of the
Application Form. Companies or corporations must execute the Application Form
under their common seal, in accordance with their articles of association or
constitution.

59
 APPLICATION FORM PAGE 1
PAULOWNIA TREE FARMING PROJECT
Important: Before signing this Application Form, applicants should read the Product
Disclosure Statement to which the Application Form relates. This Application Form
must not be issued, circulated or distributed unless attached to the Product Disclosure
Statement.
APPLICANTS MUST COMPLETE AND LODGE THIS FORM
COMPRISING 6 PAGES WITH THE RESPONSIBLE ENTITY

Paulownia Farm Management Australia Ltd Advisor/Dealer's Stamp

45 Roberts Road
Osborne Park WA 6017
OR
PO Box 185
Osborne Park WA, 6917

PLEASE USE BLOCK LETTERS WHEN COMPLETING THIS FORM

SECTION 1 - DETAILS OF APPLICANT(S)

Section 1 - Person(s) to be registered as Grower(s), on the Timberlot(s) applied for.

INDIVIDUAL/JOINT APPLICATION

Dr/Mr/Mrs/Ms
..
( USE BLOCK LETTERS) First Name(s) Surname

Dr/Mr/Mrs/Ms

(USE BLOCK LETTERS) First Name(s) Surname

All joint applicants will be registered as joint tenants, not as tenants in common
COMPANY OR CORPORATION
Name..
ACN/ARBN..
Contact Person.

ADDRESS FOR CORRESPONDENCE & TELEPHONE NUMBERS

Address ..

City/Town/Suburb Postcode
Telephone Nos Business Facsimile Email
TAX FILE NUMBER(S)OR EXEMPTION(S)& COUNTRY OF RESIDENCE
FOR TAX PURPOSES
I/We wish to quote:
TAX FILE NUMBER or EXEMPTION
I do/do not wish to quote a Tax File Number / Exemption
Country of residence, for tax purposes

60
 APPLICATION FORM PAGE 2
SECTION 2 - TIMBERLOT(S) APPLIED FOR
THE AMOUNT OF EACH TIMBERLOT APLIED FOR IS $4,000.00*
THE NUMBER OF TIMBERLOT(S) APPLIED FOR IS: _________
THE TOTAL APPLICATION MONIES ENCLOSED
WITH THIS APPLICATION IS $___________
All cheques must be made payable to "Huntley Custodians Limited - Trust Account
Paulownia Tree Farming Project No 3." and crossed "Not Negotiable".
Application moneys must be paid in full upon application.

SECTION 3 - ELECTION TO INSURE, ELECTION TO COLLECT TIMBER

PRODUCE
(SUBJECT TO THE AMOUNT OF THE PREMIUMS PAYABLE & THE
AVAILABILITY OF A SUITABLE INSURANCE POLICY)
I/WE WOULD LIKE TO INSURE the trees and produce on my/our Timberlot(s) and
request that the Responsible Entity acts on our behalf to provide an insurer for the
purpose of insuring the trees. YES/NO
I/WE ELECT to collect our share of timber produce from my/our Timberlot(s) on
the plantation. YES/NO
SECTION 4 - APPOINTMENT OF ATTORNEY
By signing the Application Form you appoint the Responsible Entity as your attorney
to sign the Lease and Management Agreement on your behalf.
4.1 APPOINTMENT OF ATTORNEY
In consideration of the issue of an Interest in the Paulownia Tree Farming Project
No.3, the Applicant hereby appoints Paulownia Farm Management Australia Ltd, of
45 Roberts Street Osborne Park WA 6017 (the "Attorney") as the attorney of the
Applicant.
4.2 POWERS OF THE ATTORNEY
The Applicant hereby grants the Attorney the following powers:
Execution of Lease and Management Agreement
To execute, date and complete any blanks in a Lease and Management
Agreement (and any duplicate) for the number of Timberlot(s) the Applicant
has applied for, in respect of which the Attorney has accepted the Applicant's
application.
Variation of Lease and Management Agreement
To amend any provision of the Lease and Management Agreement on the
Applicant's behalf in accordance with the prior written approval of the
Applicant PROVIDED that if such an amendment will adversely affect the
rights of other Growers, it must be approved by a resolution of Growers at a
meeting of Growers, duly convened and held AND the Attorney may initial
any amendment to the Lease and Management Agreement made under this
paragraph and execute any document which affects or evidences the
amendment.

Caveats and Registration

To do anything which in the opinion of the Attorney is necessary, expedient or
desirable:
(a) if the Attorney is requested to do so by the Grower in writing - to lodge a
caveat under the Transfer of Land Act claiming an interest (or relating to the
Applicant's Interest) in the Applicant's Timberlot(s), or to register the
Applicant's Lease and Management Agreement under that Act, as a lease; or

61
 APPLICATION FORM PAGE 3
(b) at the completion of the Project or on any prior termination of the Applicant's
Lease and Management Agreement- to discharge any caveat or deregister any
lease lodged or registered under the Transfer of Land Act in respect of the
Applicant's Lease and Management Agreement and the Attorney may instruct
its solicitor to do those acts for it and deduct the reasonable costs of doing so

(including all fees payable to the Department of Land Administration) from the
proceeds of sale of the Applicant's collectable produce.
4.3 BENEFIT OF ATTORNEY
The Attorney may exercise the powers conferred on it under this Deed,
notwithstanding any benefits that the Attorney may be entitled to as a result of the
exercise of those powers.
4.4 RATIFICATION AND INDEMNITY
The Applicant undertakes to ratify and confirm any act of the Attorney in exercise of
its powers under this Deed and agrees to indemnify the Attorney against all claims,
demands, costs, damages, losses and expenses however suffered or incurred by the
Attorney in respect of or as a result of the exercise of any of its powers under this
Deed.
4.5 REVOCATION
This power of attorney remains in full force and effect until notice of the death of the
Applicant or the revocation of the power of attorney is received by the Attorney.
4.6 DEFINITIONS AND INTERPRETATIONS
Terms used in this Deed have the same meaning as the meaning given to those terms
in the Constitution for the Paulownia Tree Farming Project.No.3. Where there is more
than one Applicant specified in the relevant Application, a reference to the Applicant
in this power of attorney is a reference to each of them severally and all of them
jointly.
This Power of Attorney is deemed to be executed as a deed by execution of the
Application Form of which this instrument forms part.

SECTION 5 - SIGNING THE APPLICATION FORM

I/We hereby acknowledge and agree:
That I/we have read the Product Disclosure Statement to which this
Application Form relates.
That I/we have sought appropriate financial planning advice before signing
this Application Form, and have received advice from a Tax Agent or
Investment Adviser as to whether I am a person/we are persons to whom a
deduction under Section 8-1 of the Income Tax Assessment Act 1997 is
applicable and can be utilised by me/us in relation to any of the application
moneys payable on making this Application.
That I/we have inspected or am/are aware of and agree to be bound by the
terms of the Constitution described in Section 11 (Summary of Material
Agreements).
That the Responsible Entity does not guarantee the success of the Project, the
repayment of capital invested or any particular rate of capital or income return
from the capital invested.
That an Interest in the Project, or in the Timberlot(s) that may be issued to
me/us under the Lease and Management Agreement and the terms of the
Product Disclosure Statement to which this Application relates is considered
to be speculative.
62
 APPLICATION FORM PAGE 4
(If signed under Power of Attorney): The Attorney states that no notice of revocation
of the Power of Attorney under which this Application Form is signed has
been received.

I/we hereby apply for Interest(s) in the Paulownia Tree Farming Project No.3 in
accordance with this Application, and hereby acknowledge and agree:
That the Responsible Entity has the right to accept or reject this Application
for Interest(s) in the Project, in whole or in part
That acceptance of this Application for Interest(s) in the Project will be
constituted by execution of the Lease and Management Agreement in relation
to one or more Timberlot(s) by the Responsible Entity on my/our behalf,
without communication of acceptance to me/us.
To be bound by the Lease and Management Agreement entered into by me/us.
To pay annual contributions in respect of the Timberlot(s) in accordance with
the Lease and Management Agreement entered into by me/us and the terms of
the Product Disclosure Statement to which this Application relates.
That the Custodian is to pay my/our share of the subscription moneys to the
Lessor and the Responsible Entity, after the
acceptance of this Application in accordance with the Constitution.

63
 APPLICATION FORM PAGE 5
SECTION 5 CONTINUED;

NOTE: THIS PAGE MUST BE COMPLETED AND EXECUTED BY ALL

APPLICANTS

EXECUTION
By my/our execution hereof I/we:
A) APPLY FOR TIMBERLOT(S) IN THE PROJECT No.3.
B) APPOINT THE RESPONSIBLE ENTITY AS MY/OUR ATTORNEY TO
EXECUTE THE LEASE AND MANAGEMENT AGREEMENT
Date:______________ 2005/2006.

INDIVIDUALS / JOINT APPLICANTS PLEASE SIGN HERE

Signed:Applicant
Print full name of signatory

Signed: Witness
Print full name of signatory

Signed:Applicant
Print full name of signatory

Signed: Witness
Print full name of signatory

CORPORATIONS: PLEASE COMPLETE COMPANY DETAILS AFFIX

SEAL AND SIGN
THE COMMON SEAL of )
.............................)
.........................)
.............................)
(ACN/ARBN ________________ )
was affixed pursuant to its )
Articles of Association in )
The presence of: )

Signed: Print full name of signatory

Director
Print full name of signatory
Director/Secretary
The Applicant ___ is ___ is not a single directorship corporation (please tick
one).

NOTE: This page must be completed and executed by all Applicants.

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 APPLICATION FORM PAGE 6
APLICATION FORM - PAYMENT OPTIONS
PLEASE TICK ONE AND FILL IN THE DETAILS

1. CHEQUE OR MONEY ORDER

MAKE CHEQUES PAYABLE TO HUNTLEY CUSTODIANS LIMITED-

TRUST ACCOUNT PAULOWNIA TREE FARMING PROJECT 3

2. CREDIT CARD

CREDIT CARD NUMBER

EXPIRY DATE

NAME ON CREDIT CARD

CREDIT CARD TYPE

BANK CARD MARSTER CARD VISA

SIGNATURE

3. BANK TRANSFER

NAME OF BANK: COMMONWEALTH BANK OF AUSTRALIA

ADDRESS: VICTORIA PARK WA 6100

Huntley Custodians Limited - Trust Account -

NAME OF ACCOUNT Paulownia Tree Farming Project 3

NATIONAL AUSTRALIA BANK

BSB NUMBER ACCOUNT NUMBER
0 8 2 0 8 8 5 9 3 6 4 8 8 0 5

IMPORTANT: ENTER YOUR DETAILS OF THE PAYER ON THE

ELECTRONIC TRANSFER FOR IDENTIFICATION PURPOSES

DESCRIPTION OF IDENTIFICATION USED BY YOU:

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GLOSSARY

"Applicant" - means a person who has lodged an Application with the Responsible
Entity.
"Application Form" - means the Application Form attached to this Product
Disclosure Statement, relating to the Project No.3.
"Application Monies" - means the issue price paid by the investor for the Initial
Period and paid initially to the Custodian
"ASIC" - means the Australian Securities and Investments Commission.
"Auditor" - means the auditor of the Company appointed under the Corporations and
Securities Legislation.
"Business Day" - means a weekday when trading banks are open for business in
Perth Western Australia.
"Constitution" - means the Constitution of the Project No.3 dated 18th July 2005.
"Corporations Act " - means the Corporations Act 2001 (Cth)
"Custodian" - means Huntley Custodians Ltd. (ACN 082 237 241) of level 3, 37
Bligh Street Sydney NSW 2000.
"Directors" - means the directors of the Responsible Entity.
"Financial year" - the period of 12 months ending on the 30th day of June in each
year.
"Forestry Expert and Consultant to the Responsible Entity" - means
Afforestation Pty Ltd (ACN 008 733 926) of 33c Fremantle Village, 1 Cockburne
Road South Fremantle WA 6162.
"Grower" - means a person who owns an Interest in the Project No.3 by entering
into a Lease and Management Agreement in relation to one or more Timberlot(s).
GST - means Goods and Services Tax or similar value added tax.
"Interest" - means a Grower's Interest in the Project No.3 represented by a Lease and
Management Agreement in relation to one Timberlot.
Initial Period means, for the management fee, the period from the 1st July 2006
to 31st December 2006
Initial Period means, for the rental fee, the period from the 1st July 2006 to 30th
June 2007
"IRR" - means internal rate of return
"Lease and Management Agreement" - means the agreement pursuant to which a
Grower obtains a sub-lease of any number of Timberlots from the Lessor and appoints
the Responsible Entity to manage the Grower's Paulownia plantation.
"Lessor" - means Rural Equities Ltd. (ACN 109 158 376) of 45 Roberts Street
Osborne Park WA 6017.
"Managed Investments Scheme" - means a Scheme under the provisions of Chapter
5C of the Corporations Law and any regulations made for the purpose of that Chapter.
"Managed Investment Act" - means an investment scheme that is regulated by the
Managed Investments Act.
"Management Agreement" - means that part of the Lease and Management
Agreement pursuant to which a Grower appoints the Responsible Entity as manager
of the Grower's one or more Timberlots.
"Plantation" - means the crop of Paulownia trees established or to be established on
the Project Land.
"Plantation Sub-Contractor" - means Goldzone Investments Pty Ltd. (ACN 104
677 607) of 45 Roberts Street Osborne Park WA 6017.
"Product Ruling" - means a ruling given by the Australian Taxation Office in
relation to the tax deductibility of the expenses incurred by an investor and the
operations of a particular Scheme or Project

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"Project" - means the managed investment scheme known as the Paulownia Tree
Farming Project No.3 (ARSN 115 342 713) established by the Constitution for
Project 3
"Project Land" - means the land, located 21 kilometres northwest of Moora being
Lot 11 and 12 of diagram 96540 Certificate of Title Volume 1671 Folio 025.
"Product Disclosure Statement" - means this Product Disclosure Statement.
"Responsible Entity" - means Paulownia Farm Management Australia Ltd. (ACN
085 628 388) of 45 Roberts Street Osborne Park WA 6017.
"Round log form" - means timber felled and not milled.
"Rough sawn timber" - means milled timber into assorted boards.
"Lease" - means that part of the Lease and Management Agreement pursuant to
which a Grower leases or sub-leases one or more Timberlot(s) from the Lessor.
"Timberlot" - means that specified part of the Project Land comprising 0.10 hectares
identified individually by a number, to be leased by a Grower pursuant to a Lease and
Management Agreement.

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 CORPORATE DIRECTORY
RESPONSIBLE ENTITY
Paulownia Farm Management Australia Ltd
(ACN 085 628 388)
45 Roberts Street
OSBORNE PARK WA 6000
Telephone: (08) 9201 8888
Facsimile: (08) 9201 8899
Email address: manager@paulowniafarm.com.au
Web Site: www.paulowniamanagement.com.au

DIRECTORS OF THE RESPONSIBLE ENTITY

David Peter Blackwell - Director (Chairman)
David Monteleone - Director
William Leslie Fulcher- Director

COMPLIANCE COMMITTEE
David Monteleone - Company Representative
Geoffrey Coad - Independent Member
John Lazberger - Independent Member

CONSULTANTS TO THE PRODUCT DISCLOSURE STATEMENT

Carlton & Partners
First Floor, 295A Lord Street
PERTH WA 6000
Telephone: (08) 9228 0722

LESSOR
Rural Equities Ltd
(ACN 109 158 376)
45 Roberts Street
OSBORNE PARK WA 6000
Telephone: (08) 9201 8888

THE CUSTODIAN
Huntley Custodians Limited
(ACN 082 237 241)
Level 3, 37 Bligh Street
SYDNEY NSW 2000
Telephone: (02) 9233 5444

AUDITORS OF THE RESPONSIBLE ENTITY AND THE PROJECT

Moore Stephens
Level 3, 12 Georges Tce
PERTH WA 6000
Telephone: (08) 9322 2244

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FORESTER AND CONSULTANT TO THE RESPONSIBLE ENTITY
Afforestation Pty Ltd
(ACN 008 733 926)
33c Fremantle Village
1 Cockburne Road
SOUTH FREMANTLE WA 6162
Telephone: (08) 9433 4442

AUDITOR OF THE COMPLIANCE PLAN

Neil Pace - (Moore Stephens )
Level 3, 12 St Georges Tce
PERTH WA 6000
Telephone: (08) 9322 2244

69