Professional Documents
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Investment Statement
To view the investment statements for:
New Zealand Dividend Index Trust NZ Dividend Fund (DIV)
Australian Financials Index Trust - Aus Financials Fund (ASF)
Australian Resources Index Trust - Aus Resources Fund (ASR)
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Australian Property Index Trust - Aus Property Fund (ASP)
Australian Dividend Index Trust - Aus Dividend Fund (ASD)
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Europe Trust (EUF)
Asia Pacific Trust (APA)
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To view the investment statements for:
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Smartshares Limited
Investment Statement
AUSTRALIAN PROPERTY INDEX TRUST (Aus Property Fund)
AUSTRALIAN DIVIDEND INDEX TRUST (Aus Dividend Fund)
Contents
IMPORTANT INFORMATION
HOW DO I APPLY?
10
13
15
18
18
18
21
23
25
30
34
35
35
35
36
37
37
GLOSSARY OF TERMS
40
IMPORTANT INFORMATION
(The information in this section is required under the Securities Act 1978.)
Investment decisions are very important. They often have long-term consequences. Read all documents
carefully. Ask questions. Seek advice before committing yourself.
Choosing an investment
When deciding whether to invest, consider carefully the answers to the following questions that can be found
on the pages noted below:
Page
What sort of investment is this?
18
18
21
23
25
30
34
35
36
Is there anyone to whom I can complain if I have problems with the investment?
37
37
In addition to the information in this document, important information can be found in the current registered
prospectus for the investment. You are entitled to a copy of that prospectus on request.
The Financial Markets Authority regulates conduct in financial markets
The Financial Markets Authority regulates conduct in New Zealands financial markets. The Financial
Markets Authoritys main objective is to promote and facilitate the development of fair, efficient, and
transparent financial markets.
For more information about investing, go to http://www.fma.govt.nz.
Financial advisers can help you make investment decisions
Using a financial adviser cannot prevent you from losing money, but it should be able to help you make
better investment decisions.
Financial advisers are regulated by the Financial Markets Authority to varying levels, depending on the type
of adviser and the nature of the services they provide. Some financial advisers are only allowed to provide
advice on a limited range of products.
When seeking or receiving financial advice, you should check
A financial adviser who provides you with personalised financial adviser services may be required to give
you a disclosure statement covering these and other matters. You should ask your adviser about how he or
she is paid and any conflicts of interest he or she may have.
Financial advisers must have a complaints process in place and they, or the financial services provider they
work for, must belong to a dispute resolution scheme if they provide services to retail clients. So if there is a
dispute over an investment, you can ask someone independent to resolve it.
Most financial advisers, or the financial services provider they work for, must also be registered on the
financial service providers register.
You can search for information about registered financial service
providers at http://www.fspr.govt.nz.
You can also complain to the Financial Markets Authority if you have concerns about the behaviour of a
financial adviser.
Disclaimer
The Return on each Smartshares Fund is intended to closely match the Return on the index it tracks (the
Aus Property Fund tracks the S&P/ASX 200 A-REIT Equal Weight Index and the Aus Dividend Fund tracks
the S&P/ASX Dividend Opportunities Index). These indices rise and fall according to market events and
conditions. None of the Trustee, the Manager, the Custodian, the Administration Manager, NZX, nor any
other person guarantees the Return on the indices or the Return on each Smartshares Fund or investment in
either Smartshares Fund. No warranty expressed or implied is given as to the results to be obtained by the
Manager or each Smartshares Fund from the use of the indices or any data included in them, or as to the
liquidity of investment in each Smartshares Fund, Smartshares Units or the fitness of any Smartshares Fund
for any Unitholders purposes. The offer set out in this Investment Statement is only made in New Zealand.
No person may offer, sell or deliver Smartshares Units or distribute any documents in relation to the offer
(including any copy or extract from this Investment Statement) to any person in any jurisdiction other than in
compliance with any applicable laws and regulations.
Definitions
Defined terms in this Investment Statement have the meaning set out in the Glossary of Terms on pages 40
to 42.
Tracking differences The Manager aims to track the relevant index for a Smartshares Fund by
investing in the relevant Index Issuers in proportions that match their weightings in the relevant
index. However, there will inevitably be some differences. For example, the makeup of the relevant
index may be changed, and the Manager may not be able to exactly match the change by buying
and selling Index Securities because the prices it pays and receives for the Index Securities may not
exactly match the prices used to adjust the index. This means that the net asset value (NAV) of the
Index Securities held by the Smartshares Fund diverges over time from the value of the relevant
index (and therefore from the value of an equivalent direct investment in the Index Issuers).
Distribution differences An investor that invests directly in Index Securities will receive
distributions in relation to those Index Securities when they are paid by the relevant Index Issuers.
In contrast, distributions that are received by a Smartshares Fund from the relevant Index Issuers
will be held by that Smartshares Fund (and included in the Smartshares Fund's NAV) until a
quarterly Distribution Date. It is only on that quarterly Distribution Date that distributions received
during the previous three months will be paid out (or reinvested for you) in one lump sum.
Management fees Management fees are deducted before distributions are paid to you, meaning
you get less than the full distributions paid on the Index Securities the Smartshares Fund invests in.
Of course, it is unlikely that you would be able to invest in the Index Securities directly without also
paying
brokerage
and
potentially
other
investment
fees
to
third
parties.
5
Different market values Units trade at the market price for Units, which is unlikely to be exactly
the same as the Current Unit Value. One mechanism in place to reduce this difference is provision
for larger investors to be able to exchange Baskets of Index Securities for the equivalent Units and
vice versa. With this ability, larger investors are able to take advantage of any difference between
the market price of Units and the equivalent Index Securities. If they do take advantage of that
difference, it affects the demand and supply of Units in a way that is expected to align the market
price of Units more closely with the per Unit value of the relevant Index Securities. However, despite
this mechanism, the market price of the Units and the per Unit value of the relevant Index Securities
are not always closely aligned due to market forces that are outside the control of the Manager.
Distributions
Distributions to Unitholders are currently made directly from each Smartshares Fund within 20 Business
Days of each Record Date. The Record Date is currently on or around the last Business Day of each of
March, June, September and December in any year. These distributions comprise dividends or any other
income received by the Smartshares Fund, less fees and other expenses. Unitholders will automatically
have their distributions re-invested for Smartshares Units unless they elect to have them paid directly to a
nominated New Zealand bank account in New Zealand dollars.
There is further information about
distributions on page 26.
BNP Paribas Fund Services Australasia Pty Ltd, acting through its New Zealand branch (the
Administration Manager and the Custodian); and
None of the Manager, Trustee, Administration Manager, Custodian, Unit Registrar or NZX (as the parent
company of the Manager) provide any guarantee in relation to the Smartshares Funds.
There is further information about the persons involved in providing the Smartshares Funds on pages 18 to
20.
Index
Description
Aus Property
Fund
Aus Dividend
Fund
S&P/ASX Dividend
Opportunities Index
When the index that your Smartshares Fund tracks changes, your investment is designed to change with it.
The unit price of each Smartshares Unit (the Current Unit Value) reflects the value of the Index Securities
held in the relevant Smartshares Fund and the dividends and other income received or accrued by and held
in the relevant Smartshares Fund, less liabilities (such as tax, fees and expenses). As noted above, if you
sell your Units on the market, the price you receive may differ from the Current Unit Value.
Further information about the index tracked by each of the Smartshares Funds can be found in the
registered prospectus for the Smartshares Funds, and also on pages 13 to 17 of this Investment Statement.
Benefits of Smartshares
Spread your investment
When you invest in a Smartshares Fund, you get an indirect investment through the Smartshares Fund in
each entity in the index in which the Smartshares Fund invests. W ith one simple purchase you get an
investment in the issuers included in the relevant index, spreading your risk across a portfolio of securities,
which makes this a more diversified investment than an investment in a single issuer. Diversification may
reduce risk. This is because it is unlikely that all the entities in the Smartshares Fund will perform similarly at
the same time. For example, the losses from entities performing poorly may be balanced by the gains from
those performing well. However, each Smartshares Fund only allows diversification within the asset class,
investment type or Index Issuer industry represented in the index tracked by that specific Smartshares Fund.
Flexibility
Smartshares Funds provide the diversification of a fund investment while giving you similar transparency and
convenience to an investment in individual shares the ability to know the value of your investment at any
moment, and the flexibility to trade your investment quickly (subject to liquidity risk). This is because
Smartshares Units are expected to trade like individual shares, with their prices published in the newspapers
and on-line (www.nzx.com) so you can track the progress of your investment at any time. You are able to
trade your Smartshares Units on market at any point (subject to liquidity), just like a share in a Listed
company.
Smartshares makes contributing simple
Once you hold the Minimum Holding of 100 Units in a Smartshares Fund, you can make regular
contributions from as little as $50 per month by way of the Regular Savings Plan. And you can stop, restart,
increase or decrease your regular contributions whenever you like (subject to providing the Unit Registrar
with ten Business Days' notice prior to the 20th of a month and, unless you are completely stopping
contributions, maintaining a minimum contribution of $50 per month). You can also add to your investment
through the Distribution Reinvestment Plan where your distributions are automatically reinvested as
additional Smartshares Units or you can choose to have your distributions paid directly to you by direct
credit.
Lower Fees
Smartshares Funds are able to keep costs down because the Manager does not make active investment
decisions, which may require expensive research, analytical and trading expertise. Trading only occurs to
rebalance the Smartshares Funds' holdings to match the weighting of each entitys shares in the indices. By
contrast, actively managed funds, where the manager makes active investment decisions, generally incur
higher
costs
and
therefore
may
charge
a
higher
management
fee.
7
Market risk Fluctuations in the security price of, and distributions paid by, the Index Issuers will
lead to fluctuations in the Returns on Units in the Smartshares Funds. Such fluctuations could be
related to the circumstances of an individual Index Issuer and affect the share price or distributions
of that Index Issuer only, or could be related to circumstances with more widespread effects and
affect a number of, or all, Index Issuers or Index Issuers within a particular industry.
Tracking risk For a variety of reasons, including those described on page 5, the Manager will not
always manage to exactly track the relevant index for each Smartshares Fund. As a result of this,
the Index Securities held by a Smartshares Fund may, over time, not exactly match the composition
of the relevant index. Of course, investors investing directly in order to track an index are likely to
face the same issues as the Manager in trying to exactly track the relevant index. There is further
information about index tracking on page 30.
Operational risk Tracking an index is complex and, as a result, operational errors can occur.
Such errors could potentially affect Unitholders' Returns.
Passive management risk The Smartshares Funds are passive investments, which means the
Manager will not react to events that affect the value of particular Index Issuers unless and until
those events lead to a change in the composition of the relevant index.
Liquidity risk Investors are only able to cash in their investment by selling their Units on market
unless they have enough Units to redeem their Units through a Basket withdrawal. (Basket
withdrawals are described on page 35.) The market price per Unit may vary from the Current Unit
Value due to supply and demand factors. Units in each Smartshares Fund are quoted on the NZX
Main Board and, in the opinion of the Manager, a market will develop for sales of Units. However,
although the Smartshares Funds are listed on the NZX Main Board, the fact that investors can apply
to purchase Units directly from the Manager may mean there are fewer buyers of Units on the NZX
Main Board.
Foreign currency risk Because the Smartshares Funds invest in ASX listed entities, and so
therefore receive Returns in Australian dollars, these will be exposed to currency risk based on the
exchange rate between the Australian and New Zealand dollars. This is a risk because the Manager
does not currently take steps to hedge against currency fluctuations.
Regulatory and tax risk The Smartshares Funds are subject to an ongoing risk that regulatory or
tax law requirements may change, and that this may have an adverse effect on Unitholders' Returns.
Also, the Smartshares Funds are Portfolio Investment Entities (PIEs), with benefits for Unitholders,
and there is a risk that this status may be lost, as discussed on pages 26 to 28 below.
Basket Withdrawal
The application fees for initial Cash Applications and Baskets may be increased and an application fee for
subsequent Cash Applications may be added by the Manager by giving ten Business Days' notice of the
change to the Trustee. The other fees referred to above may be increased or imposed by the Manager by
giving three months' notice to the Trustee and, if the Manager determines in its reasonable discretion that
the increase or imposition is material, Unitholders of the relevant Smartshares Fund. All fees may be
decreased by the Manager by giving notice to the Trustee (and such decrease may have immediate effect).
There is no limit to the amount by which fees may be increased or imposed.
The Manager is also entitled to charge a Unitholder in respect of non-standard services requested by that
Unitholder.
Further information about charges for Unitholders can be found on pages 23 to 24.
HOW DO I APPLY?
How to get started with Smartshares
You can start your investment in a Smartshares Fund by making an initial Cash Application from as little as
$500. You can do this by completing the Application Form for new Units at the back of this Investment
Statement.
Alternatively you can obtain an investment in a Smartshares Fund by purchasing existing Units on market
through an NZX Firm.
If you are buying new Units, send in your completed Application Form, together with the full amount of the
application payment, to Link Market Services Limited, PO Box 91976, Auckland 1142. Alternatively, you can
send it to the Manager, an NZX Firm, or through any other channel approved by NZX (of which there are
currently none).
Make sure you read all the information contained in this Investment Statement before deciding whether to
invest and which Smartshares Fund to invest in. There is also additional information that you may find
helpful in the registered prospectus for the Smartshares Funds.
Before investing, you should consider seeking advice from a financial adviser. Using a financial adviser
cannot prevent you from losing money, but it should be able to help you make better investment decisions.
More information about financial advisers is set out on pages 3 and 4.
Further investments
Once you've made the initial investment, you can make further investments, either:
Flexible you can stop, restart, increase or decrease (subject to maintaining a minimum contribution
of $50 per month) your regular contributions
Investing regularly provides dollar cost averaging (which is described on page 21)
Helps you accumulate Smartshares Units every month you acquire additional Smartshares Units
automatically without needing to think about it.
11
BOARD OF DIRECTORS
The directors of the Manager are Bevan Miller (Chair), Tim Bennett and Kristin Brandon. The Smartshares
Funds operated by the Manager are passively managed funds or have their investment management
function outsourced. Consequently, the board has been constructed to provide a mix of operational,
financial and legal skills rather than specific funds management experience. Brief profiles for each of the
directors, detailing their experience and qualifications, are set out below.
Bevan Miller
Tim Bennett
Kristin Brandon
12
Return to 31
March 2015
6.65%
Unitholders are reminded to use care when considering past performance in making long-term decisions.
Past performance is not necessarily indicative of future Returns.
S&P Dow Jones Indices and the Australian Stock Exchange Disclaimer
The S&P/ASX 200 A-REIT Equal Weight Index (the Index) is a product of S&P Dow Jones Indices LLC, a part of
McGraw Hill Financial, Inc, (SPDJI) and ASX Operations Pty Ltd, and has been licensed for use by Smartshares
13
Limited. Standard & Poors and S&P are registered trademarks of Standard & Poors Financial Services LLC
(S&P); Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones) and ASX is a
trademark of ASX Operations Pty Ltd. The trademarks have been licensed to SPDJI and have been sublicensed for use
for certain purposes by Smartshares Limited. The Australian Property Index Trust is not sponsored, endorsed, sold or
promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, S&P Dow Jones Indices) or ASX
Operations Pty Ltd. Neither S&P Dow Jones Indices nor ASX Operations Pty Ltd make any representation or warranty,
express or implied, to the owners of the Australian Property Index Trust or any member of the public regarding the
advisability of investing in securities generally or in the Australian Property Index Trust particularly or the ability of the
S&P/ASX 200 A-REIT Equal Weight Index to track general market performance. S&P Dow Jones Indices and ASX
Operations Pty Ltd's only relationship to Smartshares Limited with respect to the Australian Property Index Trust is the
licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its
licensors. The S&P/ASX 200 A-REIT Equal Weight Index is determined, composed and calculated by S&P Dow Jones
Indices or ASX Operations Pty Ltd without regard to Smartshares Limited or the Australian Property Index Trust. S&P
Dow Jones Indices and ASX Operations Pty Ltd have no obligation to take the needs of Smartshares Limited or the
owners of the Australian Property Index Trust into consideration in determining, composing or calculating the S&P/ASX
200 A-REIT Equal Weight Index. Neither S&P Dow Jones Indices nor ASX Operations Pty Ltd are responsible for and
have not participated in the determination of the prices, and amount of the Australian Property Index Trust or the timing
of the issuance or sale of the Australian Property Index Trust or in the determination or calculation of the equation by
which the Australian Property Index Trust is to be converted into cash, surrendered or redeemed, as the case may be.
S&P Dow Jones Indices and ASX Operations Pty Ltd have no obligation or liability in connection with the administration,
marketing or trading of the Australian Property Index Trust. There is no assurance that investment products based on
the S&P/ASX 200 A-REIT Equal Weight Index will accurately track index performance or provide positive investment
returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is not a
recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment
advice.
NEITHER S&P DOW JONES INDICES NOR ASX OPERATIONS PTY LTD GUARANTEES THE ADEQUACY,
ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA RELATED THERETO OR
ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING
ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND ASX
OPERATIONS PTY LTD SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS,
OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND ASX OPERATIONS PTY LTD MAKE NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY SMARTSHARES
LIMITED, OWNERS OF THE AUSTRALIAN PROPERTY INDEX TRUST, OR ANY OTHER PERSON OR ENTITY
FROM THE USE OF THE INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING
ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR ASX
OPERATIONS PTY LTD BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL
DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR
GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN
CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY
AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND SMARTSHARES LIMITED,
OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
14
Orica Ltd
Platinum Asset Management Ltd
Ramsay Health Care Ltd
Rio Tinto Ltd
Seek Ltd
Sonic Healthcare Ltd
Santos Ltd
Suncorp Group Ltd
Sydney Airport
Transurban Group NPV
Telstra Corp Ltd
Toll Holdings Ltd Tatts
Group Ltd Westpac
Banking Corp
Wesfarmers Ltd
Worleyparsons Ltd
Woolworths Ltd
Woodside Petroleum Ltd
Return to 31
March 2015
9.18%
Unitholders are reminded to use care when considering past performance in making long-term decisions.
Past performance is not necessarily indicative of future Returns.
S&P Dow Jones Indices and the Australian Stock Exchange Disclaimer
The S&P/ASX Dividend Opportunities Index (the Index) is a product of S&P Dow Jones Indices LLC, a part of McGraw
Hill Financial, Inc, (SPDJI) and ASX Operations Pty Ltd, and has been licensed for use by Smartshares Limited.
Standard & Poors and S&P are registered trademarks of Standard & Poors Financial Services LLC (S&P); Dow
Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones) and ASX is a trademark of
ASX Operations Pty Ltd. The trademarks have been licensed to SPDJI and have been sublicensed for use for certain
purposes by Smartshares Limited. The Australian Dividend Index Trust is not sponsored, endorsed, sold or promoted by
SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively, S&P Dow Jones Indices) or ASX Operations Pty
Ltd. Neither S&P Dow Jones Indices nor ASX Operations Pty Ltd make any representation or warranty, express or
implied, to the owners of the Australian Dividend Index Trust or any member of the public regarding the advisability of
investing in securities generally or in the Australian Dividend Index Trust particularly or the ability of the S&P/ASX
Dividend Opportunities Index to track general market performance. S&P Dow Jones Indices and ASX Operations Pty
Ltd's only relationship to Smartshares Limited with respect to the Australian Dividend Index Trust is the licensing of the
Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors. The
S&P/ASX Dividend Opportunities Index is determined, composed and calculated by S&P Dow Jones Indices or ASX
Operations Pty Ltd without regard to Smartshares Limited or the Australian Dividend Index Trust. S&P Dow Jones
Indices and ASX Operations Pty Ltd have no obligation to take the needs of Smartshares Limited or the owners of the
Australian Dividend Index Trust into consideration in determining, composing or calculating the S&P/ASX Dividend
Opportunities Index. Neither S&P Dow Jones Indices nor ASX Operations Pty Ltd are responsible for and have not
participated in the determination of the prices, and amount of the Australian Dividend Index Trust or the timing of the
issuance or sale of the Australian Dividend Index Trust or in the determination or calculation of the equation by which the
Australian Dividend Index Trust is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow
Jones Indices and ASX Operations Pty Ltd have no obligation or liability in connection with the administration, marketing
or trading of the Australian Dividend Index Trust. There is no assurance that investment products based on the
S&P/ASX Dividend Opportunities Index will accurately track index performance or provide positive investment returns.
16
S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is not a
recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment
advice.
NEITHER S&P DOW JONES INDICES NOR ASX OPERATIONS PTY LTD GUARANTEES THE ADEQUACY,
ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE INDEX OR ANY DATA RELATED THERETO OR
ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING
ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND ASX
OPERATIONS PTY LTD SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS,
OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND ASX OPERATIONS PTY LTD MAKE NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES, OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY SMARTSHARES
LIMITED, OWNERS OF THE AUSTRALIAN DIVIDEND INDEX TRUST, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF
THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR ASX OPERATIONS PTY
LTD BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES
INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF
THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT,
STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR
ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND SMARTSHARES LIMITED, OTHER THAN THE
LICENSORS OF S&P DOW JONES INDICES.
17
The Manager
The Manager for the Smartshares Funds is Smartshares Limited, a wholly-owned subsidiary of NZX.
None of the Manager, any of its directors, any person associated with this offer, or NZX guarantees the
Smartshares Units, repayment of Smartshares Units, or the payment of any dividends or distributions on
Smartshares Units.
The principal activity of the Manager is to manage funds, including the Smartshares Funds. The Manager
led the development of index tracking funds in New Zealand with the launch of the NZX 10 Fund (formerly
The NZSE TeNZ Fund) in 1996. The NZX 10 Fund remains the longest standing exchange traded index
tracking fund listed on the NZX Main Board.
The Financial Markets Conduct Act 2013 requires managers who act as the manager of a registered scheme
to be licensed by the FMA before they can make offers under the new disclosure regime in the Financial
Markets Conduct Act 2013. The Manager intends to begin the application process with the FMA in 2015 in
order to obtain the necessary licence. Licences will be issued at the discretion of the FMA. As the Manager
does not yet hold a licence, it offers units under the Securities Act 1978, which will apply to this offer.
Address of the Manager
Smartshares Limited
NZX Centre
Level 1, 11 Cable Street
PO Box 2959
Wellington
Tel: 0800 80 87 80
Email: smartshares@smartshares.co.nz
18
The Manager's address may change from time to time. You can find up-to-date details at any time at
www.business.govt.nz/companies.
Directors of the Manager
As at the date of this Investment Statement, the directors of the Manager are:
Timothy Oliver Bennett (Wellington)
Kristin Anne Brandon (Wellington)
Bevan Keith Miller (W ellington)
The directors of the Manager may be contacted at the offices of the Manager.
The directors of the Manager, and their respective addresses, may change from time to time without notice
to you. You can find up-to-date details of the directors, and their respective addresses, at any time, at
www.business.govt.nz/companies. Profiles for each of the directors are set out on page 12.
The powers of the Manager are set out in the Summary of the Trust Deeds in the registered prospectus for
the Smartshares Funds.
Summary of Duties
The Manager is responsible for all adjustments to the Smartshares Funds portfolios of Index Securities,
including the purchase or sale of Index Securities in the event of any required adjustments as a result of
changes to the indices or corporate actions, the maintenance of accounting records of the Smartshares
Funds, communication with Unitholders, supervision of the Unit Registrar, the payment of distributions to
Unitholders and administration of any securities lending programme implemented for the Smartshares Funds
(see page 29 for further details). Some of these responsibilities are delegated to the Administration Manager,
Custodian and the Unit Registrar.
The Trustee
The Trustee is:
Trustees Executors Limited
Level 5, 10 Customhouse Quay
PO Box 3222
Wellington
Tel: (04) 495 0999
Fax: (04) 496 2952
Email: enquiries@trustees.co.nz
The Trustee has been granted a licence under section 16(1) of the Financial Markets Supervisors Act 2011
to act as a trustee in respect of debt securities, unit trusts, and KiwiSaver schemes, and as a statutory
supervisor for participatory securities, for a term expiring 16 January 2018.
A copy of the Trustees licence, including the conditions on the licence, can be obtained at the FMAs
website: www.fma.govt.nz by clicking on Help Me Comply, Trustees, Licensed Trustees and Statutory
Supervisors, Trustees Executors Limited. Alternatively, a copy can be found on the Trustees website:
www.trustees.co.nz. All conditions and reporting obligations have been duly satisfied by the required dates.
If you have any queries about the licence please contact the Trustee in the first instance.
19
The Administration Manager's address may change from time to time. You can find up-to-date details at any
time at www.business.govt.nz/companies.
The Administration Manager provides general fund administration services as delegated to it by the
Manager, including the calculation of the Current Unit Value and fund accounting.
The Custodian
The Custodian for the Smartshares Funds is:
BNP Paribas Fund Services Australasia Pty Ltd, New Zealand branch
Level 18, State Insurance Tower, 1 W illis Street
PO Box 3299, Wellington
www.securities.bnpparibas.com
The Custodian's address may change from time to time. You can find up-to-date details at any time at
www.business.govt.nz/companies.
The Custodian provides custodial services, including holding assets of the Smartshares Funds in custody for
safekeeping and separate from the personal assets of the Trustee or Manager.
Unit Registrar
The Unit Registrar for the Smartshares Funds is:
Link Market Services Limited
Level 7, Zurich House
21 Queen Street
Auckland 1010
Tel: (09) 375 5998
Fax: (09) 375 5990
Email: smartshares@linkmarketservices.co.nz
The Unit Registrar's address may change from time to time. You can find up-to-date details at any time at
www.business.govt.nz/companies.
None of the Trustee, the Administration Manager, the Custodian, the Unit Registrar nor any of their directors
nor any other persons associated with the offer guarantees the Smartshares Units, repayment of the
Smartshares Units, or the payment of any dividends or distributions on Smartshares Units.
Deeds see the "Summary of the Trust Deeds" section in the registered prospectus for the Smartshares
Funds.
1. Cash Applications
Subscriptions for Smartshares Units can be made by completing the Application Form attached to this
Investment Statement and sending it with the full amount of the application payment to Smartshares Limited
at the address of the Unit Registrar or to any NZX Firm.
The minimum cash Subscription Amount for investors who do not already have the Minimum Holding of 100
Smartshares Units in the Smartshares Fund that they wish to invest in is $500 (which includes a flat
application fee of $30 for amounts of less than $20,000 or 0.20% of the full Subscription Amount for
Subscription Amounts equal to or greater than $20,000, which is deducted from the application amount and
paid to the Manager).
For investors who already have the Minimum Holding in the Smartshares Fund they wish to invest in, the
minimum cash Subscription Amount is $250.
Subscription Amounts for Cash Applications need to be received by the Unit Registrar, Link Market Services,
by the 20th of the month so Smartshares Units can be priced at the end of the month by the Manager. There
is no maximum Subscription Amount. No interest will be paid to subscribers on Subscription Amounts.
The Manager will, at its discretion, use a Subscription Amount either to purchase Index Securities and then
issue new Units to the investor or to purchase existing Units on market through an NZX Firm and pass those
existing Units on to the investor. In either case, the Manager's purchase of Index Securities or Units with the
Subscription Amount will be made on or about the last Business Day of each month at current market prices.
Units will not be allocated until after the end of the month in which the Cash Application is received.
If the Manager decides that an investors application will not be accepted, the Subscription Amount will be
returned to the investor within 20 Business Days of making that decision (such decision to be made within
seven days after receiving the application). No interest will be paid on amounts refunded.
If Unitholders enter the Regular Savings Plan and then fail to make payments, no additional Smartshares
Units will be allocated to their investment. If Unitholders fail to make payments for three consecutive
months, their access to the Regular Savings Plan may be discontinued. Unitholders may at any time, by
giving the Unit Registrar ten Business Days' notice prior to the 20th of a month, cease their payments into
the Regular Savings Plan. The Manager will, at its discretion, use the Regular Savings Plan monies either to
purchase Index Securities and then issue new Units to the Unitholder or to purchase existing Units on
market and pass those existing Units on to the Unitholder. In either case, the Manager's purchase of Index
Securities or Units with Regular Savings Plan monies will be made on or about the last Business Day of
each month at current market prices. Units will not be allocated until after the end of the month in which the
subscription under the Regular Savings Plan is received.
Any interest earned on the Regular Savings Plan monies prior to the purchase of Smartshares Units or Index
Issuer securities each month will be retained by the Manager. These amounts will be used to cover the cost
of operating the Regular Savings Plan and other administrative costs. Any amount left over after this will go
to the Manager.
3. Basket Investments
For large investment amounts, Smartshares Units can be acquired by way of Basket creation. Baskets may
be created by way of delivery of the proportionate amounts of the securities of the Index Issuers (plus any
applicable Cash Amount). The Cash Amount is to ensure that each existing Unitholders proportionate
interest in the income held within that Fund prior to the issue of Smartshares Units to the Basket applicant, is
not diluted on a per unit basis by the creation of additional Smartshares Units issued to the Basket applicant.
This should result in the aggregate value of the Basket securities and the Cash Amount being equal to the
aggregate Current Unit Value of the Smartshares Units issued. The securities and Cash Amount are then
exchanged for Smartshares Units. Subscriptions for Smartshares Units by Basket creation may only be
made in multiples of 250,000.
Basket applications must be made directly to the Manager by delivery through an NZX Firm. Each delivery
of a Basket must be accompanied by a completed Basket Application Form (not attached to this Investment
Statement, but available from the Manager or any NZX Firm). Charges for Basket investments are explained
under the section entitled What are the charges? on page 23.
Minimum Holding
Unitholders should maintain a minimum number of Smartshares Units at all times (Minimum Holding). If you
fail to maintain the minimum number of Smartshares Units, the Manager reserves the right to purchase your
Units or instruct the Trustee to redeem them (provided that the exercise of that right would not breach the
Listing
Rules).
The
Minimum
Holding
of
Smartshares
Units
is
100.
22
Oversubscription
There is no limit on the total number of Smartshares Units that may be subscribed for and accordingly none
of the Smartshares Funds have a policy providing for oversubscription. However, the Manager may reject
an application for Units or require redemption of Units to maintain the Funds PIE status where there is a risk
that a Unitholder will exceed the maximum investor interest size requirement prescribed in the Tax Act (and
as set out in the PIE Eligibility section at page 27 below).
Refunds
The Trustee will not refund any Subscription Amount, except where the Trustee, on the advice of the
Manager, decides that an investors application will not be accepted. In such situations the Subscription
Amount will be returned to the investor within 20 Business Days of making that decision (such decision to be
made within seven days of receiving the application). No interest will be paid on amounts refunded.
No Cooling-off Period
There is no cooling-off period in respect of the Smartshares Units.
application.
$20,000, or 0.20% of the full Subscription Amount for Subscription Amounts equal to or greater than
$20,000. However, this application fee is not payable if you already hold the Minimum Holding of 100
Smartshares Units in the relevant Smartshares Fund. The application fee may be increased by the Manager
by giving ten Business Days' notice of the change to the Trustee. The application fee may be decreased by
the Manager by giving notice to the Trustee (and such decrease may have immediate effect). There is no
limit to the altered fee that may be charged.
The Manager may impose an application fee for subsequent Cash Applications, subscriptions under the
Regular Savings Plan or the Distribution Reinvestment Plan, or in relation to a Basket application by giving
ten Business Days' notice of the change to the Trustee and Unitholders of the relevant Smartshares Fund.
There is no limit to the fee that may be imposed.
If you buy or sell Smartshares Units via the NZX Main Board you may be charged a brokerage fee by the
NZX Firm with whom you are dealing. The brokerage fee is likely to vary between NZX Firms.
Basket Creation
Basket Withdrawal
The Basket creation fees may be increased by the Manager by giving ten Business Days' notice of the
change to the Trustee or the fees may be decreased by the Manager by giving notice to the Trustee (and
such decrease may have immediate effect). There is no limit to the altered fee that may be charged.
The Basket withdrawal fees may be increased by the Manager by giving three months' notice of the change
to the Trustee and, if the change is material (as determined by the Manager in its reasonable discretion), to
Unitholders of the relevant Smartshares Fund. The Basket withdrawal fees may be decreased by the
Manager by giving notice to the Trustee (and such decrease may have immediate effect). There is no limit
to the altered fee that may be charged.
There are no other entry or exit charges.
The Trustee receives fees for the services it provides. The Trustees fees are currently met by the Manager
out of the management fee and not from the assets of the Smartshares Funds. The Manager is entitled
however, in the future to seek to have the Trustee's fees charged to the Smartshares Funds. The Manager
would notify Unitholders if such a change was adopted. The amount of the fees payable to the Trustee shall
be agreed by the Manager and the Trustee.
Persons associated with the Manager are involved in the operation of the designated settlement system that
will provide services in relation to securities lending if a securities lending programme is implemented for a
Smartshares Fund, and these persons may receive fees and other remuneration in that capacity. The
services that these persons may provide include the holding of the relevant Smartshares Fund's Index
Securities in the central securities depository and the facilitation of securities lending. The Manager will not
pay those fees or remuneration from the relevant Smartshares Funds they will be paid from the
management fee.
The management fees cover the expenses for the ongoing operation of the Smartshares Funds. These
include reporting, custodian fees, administration fees, trustee fees, registry costs, brokerage fees for
purchasing securities in the Smartshares Funds and index licensing fees. The Manager reserves the right,
however, to have these amounts and any other expenses that arise paid from the Smartshares Funds.
By investing in the Smartshares Funds investors accept and authorise these deductions and fees to occur
and understand that these fees can be altered on the terms set out in this Investment Statement and the
Trust Deeds.
any change in the price of Smartshares Units at the time you sell, relative to the price at which you
bought on market, or subscribed if an application was made directly; and
(b)
the distribution of dividends or other income received by the Smartshares Fund. Smartshares Funds
distribute all income received (for example, dividends and tax credits) less liabilities (for example, tax
expenses and management fees). Please note that these examples of incom e and liabilities are not
exhaustive and other types of income may be received and liabilities incurred from time to time. You
will automatically have your distributions re-invested as Smartshares Units unless you elect to have
them paid directly to a nominated bank account.
25
Distributions
Distributions are currently made directly from each Smartshares Fund within 20 Business Days of the
Record Date and are paid to Unitholders whose names are on the register in respect of Units held on the
Record Date. The Record Date is on or around the last Business Day of each of March, June, September
and December in any year.
Unitholders who sell Units or redeem Units (via a Basket withdrawal) from a Smartshares Fund before a
Distribution Ex Date for a Record Date will not receive any distributions from that Smartshares Fund in
respect of that Record Date.
These distributions comprise dividends or any other income (including income from securities lending, if a
securities lending programme is implemented, which will be 50% of net revenue received by the Manager
from securities lending), less fees and other expenses. Income paid into a Smartshares Fund in foreign
currency will not be available for distribution to Unitholders until it has been exchanged for New Zealand
dollars. Unitholders will automatically have their distributions reinvested as Smartshares Units unless they
elect to have them paid directly to a nominated New Zealand bank account.
The Manager may, at its discretion, deduct from any distribution an amount of cash if, and to the extent that,
the Manager reasonably considers that such a deduction is required to meet any liabilities that become
payable in the next (or later) distribution period. Such deductions will be retained in the Fund.
The Manager receives and retains any interest earned on income held prior to distribution. The directors of
the Manager expect to continue with this distribution policy.
Taxation
The following comments are intended to be only a general summary and indication of the relevant New
Zealand and Australian tax law as at the date of this Investment Statement. There may be non-New Zealand
tax consequences which affect the Smartshares Funds or the Unitholders. Neither the Trustee nor the
Manager accepts any responsibility for the taxation consequences of an investment in the Smartshares
Funds. Unitholders who buy or sell Smartshares Units may have different taxation positions. Consequently,
each Unitholder should consider their own taxation position and if necessary seek professional advice before
investing in Smartshares Units.
Taxation may affect the Returns on the Smartshares Funds and each of the Smartshares Funds may have
varying tax implications. The taxation summary below is based on New Zealand and Australian tax law as at
the date of this Investment Statement.
The Smartshares Funds became portfolio investment entities (PIEs) that are Listed PIEs from the date that
they were Listed (16 December 2014). As Listed PIEs the Smartshares Funds pay tax on income derived by
the Funds at a rate of 28%.
New Zealand Taxation of investments of the Fund
The Smartshares Funds are not subject to tax on gains that they derive from the sale of shares in most New
Zealand resident companies and most companies resident in Australia that are listed on the ASX. Losses
incurred on the disposal of such shares are not deductible. Dividends from such shares are usually fully
taxable to the Smartshares Funds, with a credit allowed for any Imputation Credits attached (but not for any
Australian Franking Credits), and any withholding tax deducted from such dividends subject to certain limits.
Depending on the equities which constitute the index that the relevant Smartshares Fund tracks, any of the
Smartshares Funds may be subject to tax in respect of offshore portfolio equity investments. These rules
only apply to non-New Zealand and certain Australian quoted securities. In relation to the applicable
equities, the Funds will apply the fair dividend rate (FDR) method to calculate the amount of any taxable
income. Under the FDR method, the Smartshares Funds will generally have taxable income in each income
year (1 April to 31 March) in relation to the applicable equities calculated by reference to 5% of the average
daily opening market value of the applicable equities. Dividends or sales proceeds received by the
Smartshares Funds in relation to these shares should not be subject to further tax. The Smartshares Funds
may be entitled to a credit for any withholding tax paid on dividends received from the applicable equities
subject to certain limits. No tax deduction may be claimed for any losses in respect of the applicable equities
26
to 0% if the Unitholder holds 10% or more of the Smartshares Units in a Smartshares Fund; or
to a rate below 15% if the Unitholder is resident in a jurisdiction with which New Zealand has a
double tax agreement that permits a lower tax rate.
New Zealand also has a foreign investor tax credit regime whereby the impact of NRWT on dividends is
reduced by the payment of a supplementary dividend for investors holding less than 10% of the Smartshares
Units in a Smartshares Fund and if the NRWT rate is 15% or more. The Smartshares Funds intend to pay
supplementary dividends to non-resident Unitholders wherever possible, provided that payment meets the
Trust Deeds' requirements and does not disadvantage other Unitholders.
To the extent distributions are not fully imputed, non-resident Unitholders will not be taxed on such
distributions and no NRWT will be withheld by the Smartshares Funds.
Benefits of PIE
A benefit of the PIE regime is that Smartshares Funds will not be taxed on any gains derived from the sale of
most shares.
The other potential benefit is that tax payable on distributions made by a Smartshares Fund to Unitholders is
effectively capped at 28%. If you are currently paying tax at a rate less than 28% then the excess tax paid
by the Smartshares Funds can be used to reduce the tax liabilities of Unitholders in respect of other income
that they derive at the end of each income year by including the distributions from the Fund(s) in your tax
return.
PIE Eligibility
The Manager has the discretion to take any steps the Manager considers necessary or desirable to ensure
that each Smartshares Fund is eligible to be enrolled and remain as a PIE. This includes ensuring that any
27
one Unitholders unit holding does not exceed the maximum investor interest size requirement in the Tax
Act, which is a number of Smartshares Units not exceeding 20% of the total issued Smartshares Units of
each Smartshares Fund (for these purposes, the Smartshares Units held by the relevant Unitholders
associated persons that are not Exempt Investors and who, themselves, hold Smartshares Units
amounting to 5% or more of the units on issue will also be taken into account in determining whether the
20% threshold has been exceeded).
There is no investor interest size requirement for a Unitholder that is an Exempt Investor.
exempted Unitholder may hold up to 100% of the Smartshares Units in the Fund.
Any such
The Manager also has the ability to request any relevant information from Unitholders to endeavour to
ensure compliance with the PIE rules and the Trust Deeds. Additionally, the Manager has the ability to
rectify any breach of the PIE holding restrictions in accordance with the PIE rules and the Trust Deeds.
For further information regarding the eligibility of a Smartshares Fund to operate as a PIE within the PIE
requirements please refer to the Smartshares Funds' prospectus or contact the Manager.
Basket Investments
The tax status of some Unitholders may be such that they are liable for tax on profits derived from the
disposal of Index Securities. In the case of the Smartshares Funds, contributing securities in exchange for
Smartshares Units will constitute a realisation of the securities for tax purposes for those Unitholders.
New Zealand Taxation Treatment on Disposal of Units in the Smartshares Funds
The New Zealand tax treatment of profits realised or losses incurred on the disposal of Smartshares Units
will depend upon the tax position of the Unitholder. Generally speaking, profits from the disposal of
Smartshares Units will be subject to tax or a deduction will be allowed for losses incurred if:
the Unitholder acquired the Smartshares Units for the purpose of sale or other disposal; or
the Unitholder carries on a business involving dealing in the Smartshares Units or other similar
property; or
the disposal of the Smartshares Units occurs as an act done in the carrying on of a profit-making
scheme or undertaking.
As a general comment, most PIEs that invest in a Smartshares Fund should not be subject to tax on any
gains made on the disposal of Units in the Fund, and other Unitholders which are resident in a country with
which New Zealand has a double tax agreement may qualify for tax relief so that they are also not subject to
tax on any gains made on the disposal of Units in the Fund.
Reinvestment of distributions
28
Unitholders will automatically have their distributions reinvested in Smartshares Units unless they elect to
have them paid directly to a nominated New Zealand bank account. If not already a member of the
Distribution Reinvestment Plan, a Unitholder may elect to reinvest his or her distributions by returning the
Distribution Reinvestment Plan form to:
The Unit Registrar
Link Market Services Limited
PO Box 91976
Auckland 1142
Tel (09) 375 5998
Fax (09) 375 5990
Email: smartshares@linkmarketservices.co.nz
Notice of election for the Distribution Reinvestment Plan (forms are available from Smartshares Limited)
received by the Unit Registrar at least 10 Business Days prior to a quarterly Distribution Date will be effective
in respect of that distribution, otherwise such notice will be effective in respect of the next distribution. Once
you have elected to reinvest your distributions, reinvestment will continue until you advise the Unit Registrar
otherwise. Fees for the Distribution Reinvestment Plan are set out on page 23.
Securities Lending
The Manager currently does not operate a securities lending programme for the Smartshares Funds, but has
the power under the Trust Deeds to undertake securities lending for both Smartshares Funds, and the
possibility of a securities lending programme for the Smartshares Funds is (and is deemed to be) included in
the issue terms for the Smartshares Funds.
Securities lending involves the transfer of legal title and beneficial interest in the securities to a third party
borrower. Any Smartshares Fund that implements a securities lending programme will receive income
earned from securities lending following payment of the Managers costs of and fees for administering
securities lending.
Any Smartshares Fund that implements a securities lending programme will receive a cash payment for any
dividends (including any Imputation Credits) paid in respect of any loaned securities to the holder on the
record date for the payment of the dividend, so that the Smartshares Funds will receive the same Return
from the securities that they would have received had they held them directly.
The potential benefits of securities lending are two-fold:
Additional source of income: Securities lending should earn income (for example, by receiving a
share of interest received on cash collateral provided by borrowers) and, following payment of the
Managers costs of and fees for administering securities lending, should increase Returns to
Unitholders of Smartshares Funds that implement a securities lending programme.
Facilitates creation of Baskets: The creation and withdrawal of Baskets tends to assist the market
price of the Smartshares Units of Smartshares Funds that implement a securities lending
programme to more closely follow the value of the underlying securities. One of the constraints on
Basket trading is the lack of liquidity of some Index Securities. The ability to borrow these securities
may assist Market Participants to trade complete Baskets of underlying securities.
29
If the Manager was able to perfectly track an index, this relationship would continue. However, for the
reasons explained below, this is not always possible and so a difference between the number on the lefthand side and the number on the right-hand side develops over time. To measure its tracking performance:
(a)
First, the Manager calculates the difference between the left-hand side of the equation and the righthand side of the equation, with that difference being expressed as a positive number if the left-hand
1
side is greater and a negative number if the right-hand side is greater.
(b)
Next the Manager compares the difference calculated in (a) with the equivalent difference at the start
of the year to calculate the change in that difference over the year.
The number calculated in (b) is the Manager's measure of its tracking performance over the year. The closer
that number is to zero, the more closely the Manager has tracked the index during the year.
The principal reasons for imperfect tracking performance are as follows:
First, it may not be possible for the Manager to exactly match changes to the indices by buying and selling
Index Securities, because the prices it pays and receives for the Index Securities may not exactly match the
prices used to adjust the index. For example, there may be limited liquidity in relation to securities the
Manager is attempting to buy that pushes up the purchase price of those securities after an adjustment to an
index, but before the Manager can buy. In some cases the relevant adjustment to an index may even cause
such limited liquidity as it could affect the level of demand for the securities in the market place.
Second, tracking is a complex exercise, and errors may arise due to human or systems errors.
Some tracking imperfections mean the value of a Smartshares Fund's Index Securities increases in relation
to the value of the relevant index. This causes no detriment to Unitholders. However, some tracking
imperfections mean the value of a Smartshares Fund's Index Securities reduces in relation to the value of
the relevant index. W hen this is the case, the Return generated by the Smartshares Fund may be less than
the Return on the relevant index, which is detrimental to Unitholders.
Operational Risk
There is a risk that operational errors (including improperly analysing the effect of tax laws), fraud or
misconduct may cause a loss to the relevant Smartshares Fund or otherwise affect Unitholders' Returns. In
particular, tracking an index and assessing the reasons for tracking differences (that is, differences between
the NAV of a Smartshares Fund and the value of the relevant index) is very complex and some errors are
occasionally made.
In order to mitigate this risk the Manager has adopted a set of internal policies and procedures and also
outsources some aspects of its operations to the Administration Manager to draw on the Administration
Manager's systems and expertise. The Manager has also insured, subject to normal commercial excesses,
against losses arising from fraud and misconduct.
If at any time the Manager subdivides or consolidates Units, it will adjust the "1,000" referred to in the right-hand side of the
equation so that this action, which has nothing to do with tracking difference, does not affect the mathematical relationship. For
example, if the Manager subdivides all Units in two, which will halve the left-hand side of the equation, it will change the "1,000" to
"2,000"
to
also
halve
the
right-hand
side
of
the
equation.
31
32
There are tax risks that need to be managed in relation to the Smartshares Funds continuing to be eligible to
be PIEs, including (but not limited to):
If a Smartshares Fund fails to meet the required criteria and therefore ceases to be a PIE, it will not
be able to re-elect to be a PIE for the succeeding five years.
If a Unitholder who is not an Exempt Investor (including all associates) holds more than 20% of the
Smartshares Units in a Smartshares Fund, that Fund may not qualify to be a PIE.
Although the Manager has put processes in place designed to ensure that each Smartshares Fund complies
with all requirements to be a PIE, there is a risk that a Smartshares Fund could lose PIE status if there is a
breach of those requirements which is not remedied within the time permitted under the PIE Rules. If PIE
status of a Smartshares Fund is lost that Fund will be taxed as a company and distributions to Unitholders
will be dividends taxable at the Unitholders marginal tax rate and potentially will be subject to withholding
tax. No compensation will be paid to Unitholders in the event that PIE status is lost. For further information
on PIE Tax risk please refer to the Smartshares Funds' prospectus.
Custodian Risk
Legal title to the assets of the Smartshares Fund is held by the Custodian. That means there is a risk that if
the Custodian becomes insolvent, this could temporarily or permanently deprive the Smartshares Funds of
assets. This risk is managed by having the Custodian hold the assets of the Smartshares Funds as a bare
trustee and by keeping those assets separately identifiable from other assets it holds (for itself and others).
This should mean that, if the Custodian ever does become insolvent, the assets it is holding for the
Smartshares Funds will not form a part of the pool of assets to be liquidated for the benefit of the Custodian's
creditors.
Key Personnel Risk
The management of the Smartshares Funds is complex and many of the tasks associated with that
management require considerable experience in relation to exchange traded funds. Consequently, there is a
risk that if any of the Manager's key personnel leave, there is an increased risk of disruption and potential
calculation errors. Among other things, such calculation errors could lead to unintended tracking differences.
This risk is mitigated, to some extent, by the Manager's appointment of the Administration Manager to the
Smartshares Funds. As the Administration Manager will be responsible for the day to day administration of
the Smartshares Funds, this should minimise the risk of disruption if any of the Manager's key personnel
leave.
Unitholder Liability
No Unitholder shall be personally liable in respect of any debt or liability of the relevant Smartshares Fund,
nor be personally liable to indemnify the Trustee or the Manager in respect of any such debt or liability,
except for any tax liability paid by the Smartshares Funds that is attributable to that Unitholder. The Trustee
and Manager, except in the case of wilful default, wilful breach of trust or dishonesty, are indemnified out of
the assets of the relevant Smartshares Fund.
Consequences of Insolvency
Unitholders are not liable to make any payments to third parties upon the winding up of Smartshares Funds,
or as a result of the insolvency of the Manager or Trustee. However, in the event that a wind-up proves
necessary, the Manager and/or Trustee shall be entitled to recover from the relevant Smartshares Fund all
costs and expenses, which are incurred in connection with or arising out of the winding up of the Fund. This
will be done prior to distributing money (or assets) to Unitholders. Claims of Unitholders in respect of their
Smartshares
Units
will
rank
equally
among
themselves
in
such
circumstances.
33
Fees
The Manager is entitled to increase the amount of any fee (including by adding a fee not currently charged)
payable in respect of a Smartshares Fund. To do this it must:
(a)
give at least ten Business Days' prior notice of any such increase of any fee relating to applications
to the Trustee;
(b)
give at least three months' prior notice of any such increase of any fee not referred to in paragraph
(a) to the Trustee (including the Manager's fee); and
(c)
if such increase is material for Unitholders of a Smartshares Fund (as determined by the Manager in
its reasonable discretion), give at least three months' prior notice of any such increase of any fee not
referred to in paragraph (a) to all Unitholders of the relevant Smartshares Fund.
The Manager is entitled to decrease the amount of any fee payable in respect of a Smartshares Fund by
giving notice to the Trustee (and such decrease may have immediate effect).
(b)
(c)
if, at any time while the Units of a Trust are listed on an exchange, the same is requested or
recommended by that exchange because of a change to the rules of that exchange;
(d)
if the same is required or desirable because of any amendment or repeal and/or replacement of the
Unit Trusts Act 1960 or any other relevant legislation (including, without limitation, provisions of the
Financial Markets Conduct Act 2013, or regulations under that Act, which will become applicable to
the Smartshares Funds when the Manager opts into the Financial Markets Conduct Act regime before
the relevant statutory transition period ends on 1 December 2016 and may require changes to the
Trust Deed), or otherwise permitted or required under any relevant law; or
(e)
if in the opinion of the Trustee the same does not have a material adverse effect on Unitholders.
Following any alteration, modification, variation or addition to the provisions of a Trust Deed as set out
above, the Manager will notify the Unitholders in writing in summary form of all amendments made. This
notification will be sent to Unitholders within three months after the date the amendments are made and no
later than the time the Manager next mails information to Unitholders if that time falls no later than three
months after the date the amendments are made.
In addition, where the Trustee and the Manager agree that it is in the interests of the Unitholders to vary the
definition of Authorised Investments (as defined in the Trust Deeds) in respect of the relevant Smartshares
Fund then the proposed variation will be notified to all Unitholders no later than three months prior to the
variation
taking
effect.
34
Further details on the Trust Deeds and issue terms are provided in the registered prospectus for the
Smartshares Funds.
Replacement of an index
The Manager may, with the Trustee's prior written consent, replace an index with a different index that is
materially the same if the index that a Smartshares Fund tracks is discontinued or the index methodology is
changed in a way that means, in the Manager's opinion, continuing to track that index would materially
change an investment in Units in the relevant Smartshares Fund. In such circumstances, the Manager may,
with the Trustee's prior written consent, make any amendments to the Investment Policy that are necessary
or desirable in connection with the replacement of the index and must give ten Business Days' notice (or
such alternative notice period agreed with the Trustee) of such replacement to Unitholders of the relevant
Smartshares Fund. After the notice period has passed the index will be deemed to be so replaced.
1. Market sale
Units in each Smartshares Fund are quoted on the NZX Main Board and, in the opinion of the Manager, a
market will develop for sales of Units. Smartshares Units are able to be sold on market through NZX Firms
(no written redemption notice will be required). The market price per Smartshares Unit may vary from the
Current Unit Value due to supply and demand factors. The costs involved in a sale on the NZX Main Board
is normal sharemarket brokerage, which may vary between NZX Firms. The Manager may decline to
register a transfer of Smartshares Units if it would result in a transferee holding less than the Minimum
Holding (provided that doing so would not breach the Listing Rules).
2. Basket withdrawal
Basket withdrawals are for holdings in multiples of 250,000 Units in a Smartshares Fund.
A Unitholder can surrender Smartshares Units and receive equivalent Index Securities and a Cash Amount
representing any accrued income applicable from the relevant Index Securities of Index Issuers. All
withdrawal requests should be made through an NZX Firm to the Manager after completing a Basket
withdrawal notice. Charges in relation to Basket withdrawals are explained under What are the charges?
on page 23.
The Manager is not obliged to redeem Smartshares Units in any of the Smartshares Funds in response to a
Basket withdrawal request in the period from (and including) the Announcement of a distribution to (and
including) the Distribution Ex Date (as redemptions during that period could result in a decreased number of
Smartshares Units on issue, which would in turn result in an increase in the announced distribution on a per
unit basis).
If a Unitholder exceeds the investor interest size requirement prescribed in the Tax Act (the Breach) in
respect of a Smartshares Fund, the Manager may take the following steps to ensure that the Breach is
remedied:
(a)
as soon as practicable after the Manager becomes aware of the Breach, the Manager shall give
written notice to the relevant Unitholder(s) of the Breach, including details of the number of
Smartshares Units (the Excess Units) giving rise to the Breach;
(b)
the Unitholder shall have a period consisting of the grace period determined in accordance with the
Tax Act (the Remedy Period) less 30 days to remedy the Breach, but if the Manager becomes
aware of the Breach and determines that there are 30 days or less to remedy the Breach then the
Breach shall be deemed to have not been remedied; and
(c)
if the Breach has not been remedied upon expiry of the period referred to in (b) above, then the
Manager shall within the remaining 30 days of the Remedy Period, in its discretion, and only to the
extent permitted by the Listing Rules (or any ruling in respect of, or waiver from the Listing Rules),
sell, redeem, or repurchase the amount of the Excess Units in order to remedy the Breach, and:
(i)
the Manager shall account to the relevant Unitholder for the proceeds of any disposal of the
Excess Units after deduction of all expenses arising from such disposal; and
(ii)
neither the Manager nor the Trustee is required to maximise the Fund unit price for any
disposal and in any event, shall not be liable to any Unitholders for any loss on disposal.
36
Unit Registrar
Manager Smartshares
Smartshares Limited
Level 1, NZX Centre
11 Cable Street
PO Box 2959
WELLINGTON
Tel: 0800 80 87 80
Email: smartshares@smartshares.co.nz
Alternatively, you may lodge a complaint with the Managers or the Trustee's Dispute Resolution Scheme
provider. The Dispute Resolution Scheme provider for the Manager and the Trustee is Financial Services
Complaints Limited. They can be contacted at:
4th Floor, 101 Lambton Quay
Wellington
P O Box 5967
Wellington 6011
Tel: 0800 347 257
Fax: (04) 472 3727
There is no ombudsman to whom complaints may be made.
The latest annual report (including financial statements) of the Smartshares Funds (when prepared).
The latest annual report including financial statements will be available from the Manager free of charge at
www.smartshares.co.nz (when prepared). The prospectus and financial statements (when prepared) are
also filed with the Companies Office, and are available on the Companies Office website
(www.business.govt.nz/companies) under the Managers file reference, free of charge.
The Trust Deeds for the Smartshares Funds may be inspected, without fee, by any person at the registered
office of the Manager. A copy of the Trust Deeds will be sent (electronically where possible) to prospective
and
current
investors,
free
of
charge,
on
request
to
the
Manager.
37
A Unitholder (or his/her/its representative) may inspect that part of the register of Smartshares Units kept by
the Unit Registrar that relates to his/her/its Smartshares Units, except when the register is duly closed (and
subject to any reasonable restrictions that the Manager may impose so that not less than two hours in each
working day is allowed for inspection). A copy of that part of the register of Smartshares Units relating to a
Unitholder may be obtained on payment of a reasonable fee.
Up-to-date information on the performance of Smartshares Funds and the relevant indices is available in the
daily newspapers and on NZX's website (www.nzx.com).
Announcements to NZX, including
Announcements of the tracking differences for the Smartshares Funds can be found at www.nzx.com under
the ticker symbols "ASP" for the Aus Property Fund and "ASD" for the Aus Dividend Fund.
Request information
Investors may also request from the Manager, in accordance with section 54B of the Securities Act 1978 and
regulation 44 of the Securities Regulations 2009, the information required by those provisions to be made
available. A prescribed fee may be payable (but not for a copy of the registered prospectus, a copy of the
financial statements or a copy of any document extending the period during which allotments may be made
under the registered prospectus). Such a request may be made by contacting the Manager, on the contact
details as set out on page 18 above, and the Manager will be able to let Unitholders know what the fee is (if
any) prior to actioning their request.
The information that may be requested under regulation 44 is:
(a)
a copy of the most recent annual report of the Smartshares Funds (when prepared);
(b)
a copy of the most recent financial statements of the Smartshares Funds, together with a copy of the
auditor's report on those statements (when prepared);
(c)
(d)
a copy of the Smartshares Funds' prospectus, together with copies of any documents registered
under the Securities Act 1978 for the purpose of extending the period during which allotments may be
made under that prospectus;
(e)
a copy of the most recent investment statement relating to the Units (which, as at the date of this
Investment Statement is this document);
(f)
if prospective information about Returns on the Units is or was contained in any prospectus or
advertisement, a comparison (if practicable, in the same form and for the same period as the
prospective information) of the actual Returns against the prospective Returns; and
(g)
if prospective financial information about the Fund was contained in any prospectus or advertisement,
a comparison (if practicable, in the same form and for the same period as the prospective financial
information) of
the actual results against
the
prospective financial information.
38
Privacy
The Manager, through the Unit Registrar, collects and holds personal information about you for the purposes
of managing your investment and advising you of other investment opportunities. You may request access
to personal information held about you in relation to your investment. You may make such request by writing
to the Unit Registrar at:
Link Market Services Limited
PO Box 91976
Auckland 1142
or by telephoning the Unit Registrar on (09) 375 5998. Depending on the nature of any such request, the
Manager or the Unit Registrar reserves the right to impose a reasonable charge for providing access to
personal information.
The Unit Registrar's privacy policy is available on its website www.linkmarketservices.co.nz.
39
GLOSSARY OF TERMS
Administration Manager
Announcement
Application Form
the application
Statement.
ASX
Basket
Business Day
Cash Amount
form
attached
to
this
Investment
Custodian
Distribution Date
Distribution Ex Date
th
40
Distribution Reinvestment
Plan
Establishment Deed
Exempt Investor
FMA
Imputation Credit
Index Administrator
Index Issuer
Index Securities
Investment Policy
Investment Statement
Listed
Listing Rules
Manager
Smartshares Limited.
Market Participant
Minimum Holding
NAV
NZX
NZX Limited.
NZX Firm
41
PIE
Record Date
Return
Special Division
Subscription Amount
Tax Act
Trust Deed
Trustee
Unitholder
Unit Registrar
You
Terms described above in the singular include the plural and vice versa. All dates and times contained in the
Investment Statement refer to New Zealand time.
42
Smartshares Limited
Investment Statement
smartTENZ - NZX 10 FUND
smartMIDZ - NZX MIDCAP INDEX FUND
smartFONZ - NZX 50 PORTFOLIO INDEX FUND
smartMOZY - NZX AUSTRALIAN MIDCAP INDEX FUND
smartOZZY NZX AUSTRALIAN 20 LEADERS INDEX FUND
Contents
IMPORTANT INFORMATION
HOW DO I APPLY?
12
15
18
20
23
26
28
28
28
31
34
36
41
47
48
49
50
50
GLOSSARY OF TERMS
52
IMPORTANT INFORMATION
(The information in this section is required under the Securities Act 1978.)
Investment decisions are very important. They often have long-term consequences. Read all
documents carefully. Ask questions. Seek advice before committing yourself.
Choosing an investment
When deciding whether to invest, consider carefully the answers to the following questions
that can be found on the pages noted below:
Page
What sort of investment is this?
28
28
31
34
37
43
48
49
50
Is there anyone to whom I can complain if I have problems with the investment?
50
51
In addition to the information in this document, important information can be found in the
current registered prospectus for the investment. You are entitled to a copy of that
1
prospectus on request.
The Financial Markets Authority regulates conduct in financial markets
The Financial Markets Authority regulates conduct in New Zealands financial markets. The
Financial Markets Authoritys main objective is to promote and facilitate the development of
fair, efficient, and transparent financial markets.
For more information about investing, go to http://www.fma.govt.nz.
Financial advisers can help you make investment decisions
Using a financial adviser cannot prevent you from losing money, but it should be able to help
you make better investment decisions.
Financial advisers are regulated by the Financial Markets Authority to varying levels,
depending on the type of adviser and the nature of the services they provide. Some financial
advisers are only allowed to provide advice on a limited range of products.
Each of the funds discussed in this investment statement has its own registered prospectus.
A financial adviser who provides you with personalised financial adviser services may be
required to give you a disclosure statement covering these and other matters. You should
ask your adviser about how he or she is paid and any conflicts of interest he or she may have.
Financial advisers must have a complaints process in place and they, or the financial services
provider they work for, must belong to a dispute resolution scheme if they provide services to
retail clients. So if there is a dispute over an investment, you can ask someone independent
to resolve it.
Most financial advisers, or the financial services provider they work for, must also be
registered on the financial service providers register. You can search for information about
registered financial service providers at http://www.fspr.govt.nz.
You can also complain to the Financial Markets Authority if you have concerns about the
behaviour of a financial adviser.
Overseas Investors
The offer set out in this Investment Statement is only made to New Zealand residents.
Disclaimer
The Return on each Smartshares Fund is expressly intended to closely match the Return on
the Index it tracks (smartFONZ tracks the S&P/NZX 50 Portfolio Index, smartTENZ tracks the
S&P/NZX 10 Index, smartMIDZ tracks the S&P/NZX MidCap Index, smartMOZY tracks the
S&P/ASX MidCap 50 Index and smartOZZY tracks the S&P/ASX 20 Index). These indices
rise and fall according to market events and conditions. None of the Trustee or the Manager
of any of the Smartshares Funds referred to in this Investment Statement, NZX, nor any other
person associated with this offer guarantees the Return on the indices or the Return on each
Smartshares Fund or investment in any Smartshares Fund. No warranty expressed or
implied is given as to the results to be obtained by the Manager or each Smartshares Fund
from the use of the indices or any data included in them, or as to the liquidity of investment in
each Smartshares Fund, Smartshares Units or the fitness of any Smartshares Fund for any
Unitholders purpose. NZX does not guarantee the accuracy or continuity or completeness of
the Indices or any data included in them. No person may offer, sell or deliver Smartshares
Units or distribute any documents in relation to the offer (including any copy or extract from
this Investment Statement) to any person in any jurisdiction other than in compliance with any
4
endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of their respective affiliates (collectively,
S&P Dow Jones Indices) or ASX Operations Pty Ltd. Neither S&P Dow Jones Indices nor ASX
Operations Pty Ltd make any representation or warranty, express or implied, to the owners of the
Smartshares Limiteds Products or any member of the public regarding the advisability of investing in
securities generally or in Smartshares Limiteds Products particularly or the ability of the S&P/ASX
MidCap 50 Index and S&P/ASX 20 Index to track general market performance. S&P Dow Jones
Indices and ASX Operations Pty Ltd only relationship to Smartshares Limited with respect to the
S&P/ASX MidCap 50 Index and S&P/ASX 20 Index are the licensing of the Indices and certain
trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors. The
S&P/ASX MidCap 50 Index and S&P/ASX 20 Index are determined, composed and calculated by S&P
Dow Jones Indices or ASX Operations Pty Ltd without regard to Smartshares Limited or the
Smartshares Limiteds Products. S&P Dow Jones Indices and ASX Operations Pty Ltd have no
obligation to take the needs of Smartshares Limited or the owners of Smartshares Limiteds
Products into consideration in determining, composing or calculating the S&P/ASX MidCap 50 Index
and S&P/ASX 20 Index. Neither S&P Dow Jones Indices nor ASX Operations Pty Ltd are responsible
for and have not participated in the determination of the prices, and amount of Smartshares Limiteds
Products or the timing of the issuance or sale of Smartshares Limiteds Products or in the
determination or calculation of the equation by which Smartshares Limiteds Products are to be
converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices and ASX
Operations Pty Ltd have no obligation or liability in connection with the administration, marketing or
trading of Smartshares Limiteds Products. There is no assurance that investment products based on
the S&P/ASX MidCap 50 Index and S&P/ASX 20 Index will accurately track index performance or
provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor.
Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell,
or hold such security, nor is it considered to be investment advice.
NEITHER S&P DOW JONES INDICES NOR THIRD PARTY LICENSOR GUARANTEES THE
ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P/ASX MIDCAP
50 INDEX AND S&P/ASX 20 INDEX
OR ANY DATA RELATED THERETO OR ANY
COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION
(INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES
INDICES AND ASX OPERATIONS PTY LTD SHALL NOT BE SUBJECT TO ANY DAMAGES OR
LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES
AND ASX OPERATIONS PTY LTD MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND
EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY SMARTSHARES
LIMITED, OWNERS OF THE SMARTSHARES LIMITEDS PRODUCTS, OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF THE S&P/ASX MIDCAP 50 INDEX AND S&P/ASX 20 INDEX OR
WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE
FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES OR ASX
OPERATIONS PTY LTD BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR
CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING
LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBLITY
OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE.
THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS
BETWEEN S&P DOW JONES INDICES AND SMARTSHARES LIMITED, OTHER THAN THE
LICENSORS OF S&P DOW JONES INDICES.
Definitions
Defined terms in this Investment Statement have the meaning set out in the Glossary of
Terms on pages 52 to 54.
Tracking differences - The Manager aims to track the relevant index for a
Smartshares Fund, by which we mean that it aims to invest in the relevant Index
Issuers in proportions that match their weightings in the relevant index. However,
there will inevitably be some differences. For example, the makeup of the index may
be changed, and the Manager may not be able to exactly match the change by
buying and selling Index Securities because the prices it pays and receives for the
Index Securities may not exactly match the prices used to adjust the index. This
means that the net asset value (NAV) of the Index Securities held by the Smartshares
Fund diverges over time from the value of the relevant index (and therefore from the
value of an equivalent direct investment in the Index Issuers). This divergence is
often called tracking difference. Of course, investors investing directly are likely to
face the same issues as the Manager in trying to exactly track the Index. The
descriptions of each of the individual Smartshares Funds at pages 16 to 27 contain
performance information describing how accurately the Manager has tracked the
relevant index for each Smartshares Fund.
Management fees Management fees are deducted before distributions are paid to
you, meaning you get less than the full distributions paid on the Index Securities the
7
Smartshares Fund invests in. Of course, it is unlikely that you would be able to invest
in the Index Securities directly without also paying brokerage and potentially other
fees to third parties.
Different market values Units in Smartshares Funds trade at the market price for
Units, which is unlikely to be exactly the same as the NAV per Unit. The structure of
the Smartshares Funds includes a mechanism that is designed to move the market
price of Units closer to the per Unit value of the Index Securities held by the relevant
Smartshares Fund. This mechanism is the provision for larger investors to be able to
exchange baskets of Index Securities for the equivalent Units and vice versa. With
this ability, larger investors are able to take advantage of any difference between the
market price of Units and the equivalent Index Securities. If they do take advantage
of that difference, it affects the demand and supply of Units in a way that is expected
to move the market price of Units closer to the per Unit value of the relevant Index
Securities. However, despite this mechanism, the market price of the Units and the
per Unit value of the relevant Index Securities do not always closely track each other
due to market forces that are outside the control of the Manager.
Distributions
Distributions to Unitholders are currently made directly from each Smartshares Fund within 20
Business Days of each Record Date. The Record Date is currently on or around the last
Business Day of each March and September in any year. These distributions comprise
dividends or any other income received by the Smartshares Fund, less fees and other
expenses. Unitholders will automatically have their distributions re-invested for Smartshares
Units unless they elect to have them paid directly to a nominated New Zealand Dollar bank
account. There is further information about distributions on page 39.
The New Zealand Guardian Trust Company Limited, trustee for smartTENZ,
smartFONZ, and smartMOZY;
JB Were (NZ) Nominees Limited, the custodian for smartTENZ, smartFONZ, smart
MIDZ and smartMOZY;
BNP Paribas Fund Services Australasia Pty Ltd, acting through its New Zealand
branch (the Administration Manager for all Funds and the custodian for smartOZZY);
and
None of the Manager, Trustees, Custodian, Administration Manager, Unit Registrar or NZX
provide any guarantee in relation to the Smartshares Funds.
There is further information about the persons involved in providing the Smartshares Funds
on pages 30 to 32.
8
Index
Description
smartTENZ
S&P/NZX 10 Index
smartMIDZ
smartFONZ
smartMOZY
smartOZZY
S&P/ASX 20 Index
When the index that your Smartshares Fund tracks changes, your investment is designed to
change with it.
The unit price of each Smartshares Unit (the Current Unit Value) reflects the value of the
Index Securities held in the relevant Smartshares Fund and the dividends and other income
received or accrued by and held in the relevant Smartshares Fund, less liabilities (such as
tax, fees and expenses). As noted above, if you sell your Unit on the market, the price you
receive may differ from the Current Unit Value.
Further information about the index tracked by each of the Smartshares Funds can be found
in the registered prospectus for that Smartshares Fund, and also on pages 15 to 29 of this
Investment Statement.
Benefits of Smartshares
Diversification
When you invest in a Smartshares Fund, you get an indirect investment through the
Smartshares Fund in each entity in the index in which the Fund invests. With one simple
purchase you get an investment in a broad range of issuers, spreading your risk across a
diversified portfolio. Diversification typically reduces risk. This is because there is less
chance that all the entities in the Smartshares Fund will perform similarly at the same time.
The losses from entities performing poorly can often be balanced by the gains from those
performing well. However, each Smartshares Fund only allows diversification within the asset
class or investment type represented in the index tracked by that specific fund.
Flexibility
Smartshares Funds provide the broad exposure of a fund with the flexibility of shares, by
giving you similar transparency and convenience to an investment in individual shares the
ability to know the value of your investment at any moment, and the flexibility to get in and out
of your investment quickly. This is because Smartshares Units trade like individual shares,
and their prices are published in the newspapers and on-line (www.nzx.com) so you can track
9
the progress of your investment at any time. You can trade your Smartshares Units at any
point, just like a share in an NZX listed company.
Smartshares makes contributing simple.
Once you have made the initial minimum investment and hold a minimum holding, you can
make regular contributions from as little as $50 per month by way of the Regular Savings
Plan. And you can stop, restart, increase or decrease your regular contributions whenever
you like (subject to providing the Unit Registrar with ten Business Days notice prior to the 20th
of a month and, unless you are completely stopping contributions, maintaining a minimum
contribution of $50 per month). You can also boost your investment through the Distribution
Reinvestment Plan where your distributions are automatically re-invested as additional
Smartshares Units. Or you can choose to have your distributions paid directly to you by direct
credit.
Transparency
Smartshares Funds are transparent because the Smartshares Funds' holdings are always
known to the market. Investors know that whenever there is a change to the relevant index
(which will be announced by the index provider) the Manager will buy and sell the Index
Securities to adjust the Smartshares Funds holdings, with the intention of matching that
change.
Lower Fees
Smartshares Funds are able to offer lower fees because the manager does not make active
investment decisions, which may require expensive research, analytical and trading expertise.
Trading only occurs to rebalance the Smartshares Funds' holdings to match the weighting of
each entitys shares in the index. By contrast, actively managed funds, where the manager
makes constant investment decisions, generally incur higher costs and therefore may charge
a higher management fee.
Market risk - Fluctuations in the share price of, and distributions paid by, the Index
Issuers will lead to fluctuations in the Returns on Units in the Smartshares Funds.
Such fluctuations could be related to the circumstances of an individual Index Issuer
and affect the share price or distributions of that Index Issuer only, or could be related
to circumstances with more widespread effects and affect a number of, or all, Index
Issuers.
Tracking risk For a variety of reasons, including those described on page 7, the
Manager will not always manage to exactly track the relevant index for each
Smartshares Fund. As a result of this, the Index Securities held by a Smartshares
Fund may, over time, be less than a portfolio of securities that exactly matches the
composition of the relevant index. Of course, investors investing directly are likely to
face the same issues as the Manager in trying to exactly track the relevant index.
There is further information about index tracking on pages 42 and 43, and the
description of each of the individual Smartshares Funds at pages 16 to 27 contains
10
information about the Manager's tracking performance for each of the Smartshares
Funds.
Operational risk Tracking an index and assessing the reasons for tracking
differences (that is, differences between the NAV of a Smartshares Fund and the
value of the relevant index) is complex and, as a result, operational errors can occur.
Such errors could potentially affect Unitholders' Returns.
Liquidity Risk Investors are only able to cash in their investment by selling their
Units on market unless they have enough Units to do a Basket redemption. (Basket
redemptions are described on page 48.) The market price per Unit may vary from the
Current Unit Value due to supply and demand factors. Each Smartshares Fund is
listed on the NZX Main Board and, in the opinion of the Manager, there is an
established market for sales of Units. However, although the Smartshares Funds are
listed on the NZX Main Board, the fact that investors can apply to purchase Units
directly from the Manager may result in a reduced number of buyers of Units on the
NZX Main Board.
Regulatory and tax risk The Smartshares Funds are subject to an ongoing risk
that regulatory or tax law requirements may change, and that this may have an
adverse effect on Unitholders' Returns. Also, the Smartshares Funds are Portfolio
Investment Entities (PIEs), with benefits for Unitholders, and there is a risk that this
status may be lost, as discussed in the tax status question below.
Basket Redemption
All of these fees may be changed by the Manager by giving 6 months' notice of the change to
Unitholders and making an Announcement to NZX (or providing less notice, if the Manager is
reducing fees). There is no limit on the changes that the Manager may make.
Further information about charges for Unitholders can be found on pages 34 to 36.
11
Management Fee
smartFONZ
0.75% p.a.
smartMIDZ
0.75% p.a.
smartMOZY
0.75% p.a.
smartOZZY
0.60% p.a.
smartTENZ
0.60% p.a.
In addition to this management fee, the Manager may also receive payment for administering
securities lending on behalf of a Smartshares Fund. smartTENZ, smartFONZ and smartMIDZ
undertake securities lending, but the Manager has elected not to operate a securities lending
programme for smartOZZY and smartMOZY. The amount of the payment received by the
Manager for administering securities lending is currently 50% of the net revenue payable to
the relevant Smartshares Fund in respect of the securities of the Smartshares Fund lent.
The Manager is also entitled to interest on amounts held including in respect of distributions
and other income received by the Smartshares Funds and on subscription amounts (received
as Cash Applications or under the Regular Savings Plan or Distribution Reinvestment Plan)
between the date on which they are received and the date of issue of Units.
All of these fees may be changed by the Manager by giving 6 months' notice of the change to
Unitholders and making an Announcement to NZX (or providing less notice, if the Manager is
reducing fees). There is no limit on the changes that the Manager may make.
Further information about the Manager's fees can be found on pages 34 to 36.
HOW DO I APPLY?
How to get started with Smartshares
You can start your Smartshares investment by making an initial cash application from as little
as $500. You can do this by completing the application form for new Units at the back of this
Investment Statement, or by applying online at http://smartshares.co.nz/invest-now.
Alternatively you can obtain an investment in a Smartshares Fund by purchasing existing
Units on market through an NZX Firm.
If you are buying new Units, send in your completed application form, together with the full
amount of the application payment, to Link Market Services Limited, PO Box 91976, Auckland
1142. Alternatively, you can send it to the Manager, an NZX Firm, or through any other
channel approved by NZX (of which there are currently none). Investors can also apply online
at http://smartshares.co.nz/invest-now.
Make sure you read all the information contained in this Investment Statement before
deciding whether to invest and which Smartshares Fund to invest in. There is also additional
information that you may find helpful in the registered prospectus for each Smartshares Fund.
Before investing, you should consider seeking advice from a financial adviser.
Using a
12
financial adviser cannot prevent you from losing money, but it should be able to help you
make better investment decisions. More information about financial advisers is set out on
pages 3 and 4.
Further investments
Once you've made the initial investment, you can make further investments, either:
the Smartshares Fund that you wish to invest in on a regular basis (see page 31 for details of
the Minimum Holdings for each Smartshares Fund).
Smartshares Limited may open or close the Regular Savings Plan at any time by way of an
Announcement to NZX.
Key benefits of the Regular Savings Plan
Investing regularly provides dollar cost averaging (which is described on page 32)
Helps you accumulate Smartshares Units every month you acquire additional
Smartshares Units automatically without needing to think about it
14
BOARD OF DIRECTORS
The directors of the Manager are Tim Bennett, Kristin Brandon and Bevan Miller (Chair). The
funds operated by the Manager are passively managed funds or have their investment
management function outsourced. Consequently, the board has been constructed to provide
a mix of operational, financial and legal skills rather than specific funds management
experience.
Brief profiles for each of the directors, detailing their experience and
qualifications, are set out below.
Bevan Miller
Tim Bennett
Kristin Brandon
15
smartTENZ Objective
The objective of smartTENZ is to track the Return on the S&P/NZX 10 Index by investing in
the shares of the top 10 entities in the same weightings as they are represented in the index.
A link to the index methodology for the S&P/NZX 10 Index can be found at
http://us.spindices.com/indices/equity/sp-nzx-10-index. The methodology for constructing the
Index may change from time to time.
smartTENZ Holdings*
NZX Code
AIA
CEN
FBU
FPH
MEL
RYM
SKC
SKT
SPK
XRO
Index Issuer
Auckland International Airport Limited
Contact Energy Limited
Fletcher Building Limited
Fisher & Paykel Healthcare Corporation Limited
Meridian Energy Limited
Ryman Healthcare Limited
SKYCITY Entertainment Group Limited
Sky Network Television Limited
Spark New Zealand Limited
Xero Limited
* as at 31 August 2015.
Year to
31/03/2015
1.88%
Year to
31/03/2014
14.09%
Year to
31/03/2013
15.90%
16
Investor Return
5.83%
17.85%
20.12%
Fund Return
5.20%
18.57%
20.71%
0.18%
-0.39%
-0.09%
(c)
(d)
The "Capital Index" referred to in the first row is the value of the S&P/NZX 10 Index (Capital Series).
"Investor Return" shows the percentage difference between (i) the aggregate Current Unit Price of a
Unitholder's holding of smartTENZ Units one year earlier and (ii) the on market price of the holding of Units
that Unitholder would have on the relevant date if they reinvested all of their distributions received over the
year (after tax) in new Units. It is assumed that distributions would be reinvested on the Distribution Dates for
smartTENZ Fund in April and October of each year. The return is calculated after management fees and tax
are deducted.
"Fund Return" shows the percentage difference between (i) the aggregate Current Unit Price of a Unitholder's
holding of smartTENZ Units one year earlier and (ii) the aggregate Current Unit Price of the holding of Units
that Unitholder would have on the relevant date if they reinvested all of their distributions received over the
year (after tax) in new Units. It is assumed that distributions would be reinvested on the Distribution Dates for
smartTENZ Fund in April and October of each year. The return is calculated after management fees and tax
are deducted.
Change in tracking difference is the change in the tracking difference over the preceding year. Tracking
difference is the difference between the Capital Index/1,000 and the Current Unit Value. (SmartTENZ is
designed so that, if it is perfectly tracking the S&P/NZX 10 Index, the Current Unit Value will equal 1/1,000 of
the value of the S&P/NZX 10 Index.)
PERFORMANCE DISCLAIMER
Past performance is not indicative of future performance. Performance can be negative as well as positive.
17
smartMIDZ Objective
The objective of smartMIDZ is to track the Return on the S&P/NZX MidCap Index, by
investing in the shares of the MidCap entities in the same weightings as they are represented
in the index.
A link to the index methodology for the S&P/NZX MidCap Index can be found at
http://us.spindices.com/indices/equity/sp-nzx-midcap-index. The methodology for constructing
the Index may change from time to time.
smartMIDZ Holdings*
NZX Code
Index Issuer
AIR
ARG
ATM
CNU
DIL
DNZ
EBO
FRE
FSF
GMT
GNE
HNZ
IFT
KPG
KMD
MET
MFT
MPG
MRP
NPX
NZX
OHE
PCT
PEB
PFI
POT
RBD
SKL
STU
SUM
TME
TPW
TWR
VCT
VHP
WHS
ZEL
* as at 31 August 2015.
31/03/2014
10.83%
31/03/2013
27.21%
Investor Return
24.03%
13.14%
30.42%
Fund Return
24.35%
14.50%
32.04%
-0.01%
0.02%
0.41%
(c)
(d)
The "Capital Index" referred to in the first row is the value of the S&P/NZX MidCap Index (Capital Series).
"Investor Return" shows the percentage difference between (i) the aggregate Current Unit Price of a
Unitholder's holding of smartMIDZ Units one year earlier and (ii) the on market price of the holding of Units
that Unitholder would have on the relevant date if they reinvested all of their distributions received over the
year (after tax) in new Units. It is assumed that distributions would be reinvested on the Distribution Dates for
smartMIDZ Fund in April and October of each year. The return is calculated after management fees and tax
are deducted.
"Fund Return" shows the percentage difference between (i) the aggregate Current Unit Price of a Unitholder's
holding of smartMIDZ Units one year earlier and (ii) the aggregate Current Unit Price of the holding of Units
that Unitholder would have on the relevant date if they reinvested all of their distributions received over the
year (after tax) in new Units. It is assumed that distributions would be reinvested on the Distribution Dates for
smartMIDZ Fund in April and October of each year. The return is calculated after management fees and tax
are deducted.
Change in tracking difference is the change in the tracking difference over the preceding year. Tracking
difference is the difference between the Capital Index/1,000 and the Current Unit Value. (SmartMIDZ is
designed so that, if it is perfectly tracking the S&P/NZX MidCap Index, the Current Unit Value will equal
1/1,000 of the value of the S&P/NZX MidCap Index.)
PERFORMANCE DISCLAIMER
Past performance is not indicative of future performance. Performance can be negative as well as positive.
19
smartFONZ Objective
The objective of smartFONZ is to track the Return on the S&P/NZX 50 Portfolio Index by
investing in the shares of the top 50 entities in the same weightings as they are represented
in the index.
A link to the index methodology for the S&P/NZX 50 Portfolio Index can be found at
http://us.spindices.com/indices/equity/sp-nzx-50-portfolio-index.
The
methodology
for
constructing the Index may change from time to time.
smartFONZ Holdings*
NZX Code
AIA
AIR
ANZ
ARG
ATM
CEN
CNU
COA
DIL
DNZ
EBO
FBU
FPH
FRE
FSF
GMT
GNE
HNZ
Index Issuer
Auckland International Airport Limited
Air New Zealand Limited
Australia and New Zealand Banking Group Limited
Argosy Property Limited
A2 Corporation Limited
Contact Energy Limited
Chorus Limited
Coats Group PLC
Diligent Board Member Services INC
DNZ Property Fund Limited
Ebos Group Limited
Fletcher Building Limited
Fisher & Paykel Healthcare Corporation Limited
Freightways Limited
Fonterra Shareholders' Fund
Goodman Property Trust
Genesis Energy Limited
Heartland New Zealand Limited
20
IFT
KMD
KPG
MEL
MET
MFT
MPG
MRP
NPX
NZX
OHE
PCT
PEB
PFI
POT
RBD
RYM
SKC
SKL
SKT
SPK
STU
SUM
TME
TPW
TWR
VCT
VHP
WBC
WHS
XRO
ZEL
Infratil Limited
Kathmandu Holdings Limited
Kiwi Income Property Group Limited
Meridian Energy Limited
Metlifecare Limited
Mainfreight Limited
Metro Performance Glass Limited
Mighty River Power Limited
Nuplex Industries Limited
NZX Limited
Orion Health Group Limited
Precinct Properties New Zealand Limited
Pacific Edge Limited
Property For Industry Limited
Port of Tauranga Limited
Restaurant Brands New Zealand Limited
Ryman Healthcare Limited
SKYCITY Entertainment Group Limited
Skellerup Holdings Limited
Sky Network Television Limited
Spark New Zealand Limited
Steel & Tube Holdings Limited
Summerset Group Holdings Limited
Trade Me Group Limited
TrustPower Limited
Tower Limited
Vector Limited
Vital Healthcare Property Trust
Westpac Banking Corporation
The Warehouse Group Limited
Xero limited
Z Energy Limited
* as at 31 August 2015.
21
31/03/2014
31/03/2013
Capital Index
11.78%
11.41%
22.32%
Investor Return
16.07%
16.42%
28.25%
Fund Return
15.85%
15.32%
27.36%
0.20%
-0.03%
0.14%
(c)
(d)
The "Capital Index" referred to in the first row is the value of the S&P/NZX 50 Portfolio Index (Capital Series).
"Investor Return" shows the percentage difference between (i) the aggregate Current Unit Price of a
Unitholder's holding of smartFONZ Units one year earlier and (ii) the on market price of the holding of Units
that Unitholder would have on the relevant date if they reinvested all of their distributions received over the
year (after tax) in new Units. It is assumed that distributions would be reinvested on the Distribution Dates for
smartFONZ Fund in April and October of each year. The return is calculated after management fees and tax
are deducted.
"Fund Return" shows the percentage difference between (i) the aggregate Current Unit Price of a Unitholder's
holding of smartFONZ Units one year earlier and (ii) the aggregate Current Unit Price of the holding of Units
that Unitholder would have on the relevant date if they reinvested all of their distributions received over the
year (after tax) in new Units. It is assumed that distributions would be reinvested on the Distribution Dates for
smartFONZ Fund in April and October of each year. The return is calculated after management fees and tax
are deducted.
Change in tracking difference is the change in the tracking difference over the preceding year. Tracking
difference is the difference between the Capital Index/1,000 and the Current Unit Value. (SmartFONZ is
designed so that, if it is perfectly tracking the S&P/NZX 50 Portfolio Index, the Current Unit Value will equal
1/1,000 of the value of the S&P/NZX 50 Portfolio Index.)
PERFORMANCE DISCLAIMER
Past performance is not indicative of future performance. Performance can be negative as well as positive.
22
smartMOZY Objective
The objective of smartMOZY is to track the Return on the S&P/ASX MidCap 50 Index, which
is a capitalisation-weighted index covering the 50 entities ranked from 51 to 100 by market
capitalisation and liquidity on the ASX.
A link to the index methodology for the S&P/ASX MidCap 50 Index can be found at
http://us.spindices.com/indices/equity/sp-asx-midcap-50. The methodology for constructing
the Index may change from time to time.
smartMOZY Holdings*
ASX Code
ABC
ALL
ALQ
ANN
AST
AWC
BEN
BLD
BOQ
BSL
CAR
CGF
CIM
COH
CSR
DLX
DMP
DOW
DUE
EGP
FLT
FMG
FXJ
GNC
Index Issuer
Adelaide Brighton Ltd
Aristocrat Leisure Ltd
ALS Ltd
Ansell Ltd
Ausnet Services Ltd
Alumina Ltd
Bendigo and Adelaide Bank Limited
Boral Ltd
Bank of Queensland Ltd
Bluescope Steel Ltd
Carsales Com Limited
Challenger Limited
Cimic Group Limited
Cochlear Ltd
CSR Ltd
DuluxGroup Ltd
Dominos Pizza Enterprises Limited
Downer EDI Ltd
Duet Group
Echo Entertainment Group
Flight Centre Ltd
Fortescue Metals Group
Fairfax Media Limited
Graincorp Ltd A
23
HGG
HSO
HVN
IFL
ILU
IOF
JBH
MFG
MTS
NVT
ORA
PPT
PRY
QAN
REA
REC
RMD
SGH
SGM
SKI
TAH
TPI
TPM
TTS
TWE
WOR
* as at 31 August 2015.
31/03/2014
31/03/2013
Capital Index
12.00%
-7.41%
3.99%
Investor Return
14.46%
-5.52%
10.83%
Fund Return
14.22%
-5.33%
6.45%
0.17%
0.14%
-1.04%
(c)
(d)
The "Capital Index" referred to in the first row is the value of the S&P/ASX MidCap 50 Index (Capital Series).
"Investor Return" shows the percentage difference between (i) the aggregate Current Unit Price of a
Unitholder's holding of smartMOZY Units one year earlier and (ii) the on market price of the holding of Units
that Unitholder would have on the relevant date if they reinvested all of their distributions received over the
year (after tax) in new Units. It is assumed that distributions would be reinvested on the Distribution Dates for
smartMOZY Fund in April and October of each year. The return is calculated after management fees and tax
are deducted.
"Fund Return" shows the percentage difference between (i) the aggregate Current Unit Price of a Unitholder's
holding of smartMOZY Units one year earlier and (ii) the aggregate Current Unit Price of the holding of Units
that Unitholder would have on the relevant date if they reinvested all of their distributions received over the
year (after tax) in new Units. It is assumed that distributions would be reinvested on the Distribution Dates for
smartMOZY Fund in April and October of each year. The return is calculated after management fees and tax
are deducted.
Change in tracking difference is the change in the tracking difference over the preceding year. Tracking
24
difference is the difference between the Capital Index/1,000 and the Current Unit Value. (SmartMOZY is
designed so that, if it is perfectly tracking the S&P/ASX MidCap 50 Index, the Current Unit Value will equal
1/1,000 of the value of the S&P/ASX MidCap 50 Index.)
PERFORMANCE DISCLAIMER
Past performance is not indicative of future performance. Performance can be negative as well as positive.
25
smartOZZY Objective
The objective of smartOZZY is to track the Return on the S&P/ASX 20 Index by investing in
the shares of the top 20 entities in the same weightings as they are represented in the index.
A link to the index methodology for the S&P/ASX 20 Index can be found at
http://au.spindices.com/indices/equity/sp-asx-20. The methodology for constructing the Index
may change from time to time.
smartOZZY Holdings*
ASX Code
AMP
ANZ
BHP
BXB
CBA
CSL
IAG
MQG
NAB
ORG
QBE
RIO
SCG
SUN
TLS
WBC
WES
WFD
WOW
WPL
Index Issuer
AMP Ltd
ANZ Banking Group
BHP Billiton Ltd
Brambles Industries Ltd
Commonwealth Bank Australia
CSL Ltd
Insurance Australia Group Ltd
Macquarie Group Ltd
National Australia Bank Ltd
Origin Energy Ltd
QBE Insurance Group Ltd
Rio Tinto Ltd
Scentre Group Ltd
Suncorp Group Ltd
Telstra Corp Ltd
Westpac Banking Corp
Wesfarmers Ltd
Westfield Corporation
Woolworths Ltd
Woodside Petroleum Ltd
* as at 31 August 2015.
26
31/03/2014
31/03/2013
Capital Index
3.53%
-4.98%
16.89%
Investor Return
7.20%
-2.93%
23.40%
Fund Return
6.87%
-2.56%
20.60%
-0.18%
-0.35%
0.08%
(c)
(d)
The "Capital Index" referred to in the first row is the value of the S&P/ASX 20 Index (Capital Series).
"Investor Return" shows the percentage difference between (i) the aggregate Current Unit Price of a
Unitholder's holding of smartOZZY Units one year earlier and (ii) the on market price of the holding of Units
that Unitholder would have on the relevant date if they reinvested all of their distributions received over the
year (after tax) in new Units. It is assumed that distributions would be reinvested on the Distribution Dates for
smartOZZY Fund in April and October of each year. The return is calculated after management fees and tax
are deducted.
"Fund Return" shows the percentage difference between (i) the aggregate Current Unit Price of a Unitholder's
holding of smartOZZY Units one year earlier and (ii) the aggregate Current Unit Price of the holding of Units
that Unitholder would have on the relevant date if they reinvested all of their distributions received over the
year (after tax) in new Units. It is assumed that distributions would be reinvested on the Distribution Dates for
smartOZZY Fund in April and October of each year. The return is calculated after management fees and tax
are deducted.
Change in tracking difference is the change in the tracking difference over the preceding year. Tracking
difference is the difference between the Capital Index/1,000 and the Current Unit Value. (SmartOZZY is
designed so that, if it is perfectly tracking the S&P/ASX 20 Index, the Current Unit Value will equal 1/1,000 of
the value of the S&P/ASX 20 Index.)
PERFORMANCE DISCLAIMER
Past performance is not indicative of future performance. Performance can be negative as well as positive.
27
28
The Trustee
The Trustee for smartTENZ, smartFONZ
and smartMOZY is:
The Trustee
smartOZZY is:
for
smartMIDZ
and
The Trustees have each been granted a licence under section 16(1) of the Securities
Trustees and Statutory Supervisors Act 2011 (the Act) to act as a trustee in respect of debt
securities, unit trusts, and KiwiSaver schemes, and as a statutory supervisor for participatory
securities, for a term expiring 16 March 2018 (in the case of The New Zealand Guardian Trust
Company Limited) and 16 January 2018 (in the case of Trustees Executors Limited).
A copy of each Trustees licence, including the conditions on the licence, can be obtained at
the FMAs website: www.fma.govt.nz and clicking on Compliance, Lists and registers,
Licensed Supervisors, The New Zealand Guardian Trust Company Limited / Trustees
Executors Limited or the Trustees website: www.guardiantrust.co.nz / www.trustees.co.nz.
All conditions and reporting obligations have been duly satisfied by the required dates. If you
have any queries about the licence please contact the Trustee in the first instance.
29
The Custodian
The Custodian for smartOZZY is:
BNP Paribas Fund Services Australasia Pty Ltd, New Zealand branch
Level 18, State Insurance Tower, 1 Willis Street
PO Box 3299, Wellington
www.securities.bnpparibas.com
The Custodian
smartMOZY is:
for
smartTENZ,
smartFONZ,
smartMIDZ
and
The Custodians' addresses may change from time to time. You can find up-to-date details at
any time at www.business.govt.nz/companies.
The Custodians provide custodial services, including holding assets of the relevant
Smartshares Funds in custody for safekeeping and separate from the personal assets of the
Trustee or Manager.
Unit Registrar
The Unit Registrar for the Smartshares Funds is:
Link Market Services Limited
Level 7, Zurich House
21 Queen Street
Auckland 1010
Tel: (09) 375 5998
Fax: (09) 937 5590
Email: smartshares@linkmarketservices.co.nz
None of the Trustees, the Custodian, the Administration Manager, the Unit Registrar nor any
of their directors nor any other persons associated with the offer guarantees the Smartshares
Units, repayment of the Smartshares Units, or the payment of any dividends or distributions
on Smartshares Units.
30
smartTENZ
7 May 1996
smartOZZY
20 January 1997
smartMIDZ
15 April 1997
smartMOZY
10 August 2004
smartFONZ
15 October 2004
1. Cash Applications
Subscriptions for Smartshares Units can be made by completing the application form
attached to this Investment Statement and sending it with the full amount of the application
payment to Smartshares Limited at the address of the Unit Registrar or to any NZX Firm.
Alternatively, investors can apply online at www.smartshares.co.nz/invest-now.
The minimum cash Subscription Amount for investors who do not already have a Minimum
Holding of Smartshares Units in the Smartshares Fund that they wish to invest in (see the
section entitled Minimum Holding on page 33 below for details of Minimum Holdings for
each Smartshares Fund) is $500 (which includes an application fee of $30 for amounts of less
than $20,000 or 0.20% for amounts equal to or greater than $20,000, which is deducted from
the application amount and paid to the Manager).
For investors who already have a minimum holding of Smartshares Units in the Smartshares
Fund they wish to invest in, the minimum cash Subscription Amount is $250. Subscription
Amounts for cash applications need to be received by the Unit Registrar, Link Market
Services, by the 20th of the month so Smartshares Units can be allocated and priced at the
end of the month by the Manager. There is no maximum Subscription Amount. No interest
will be paid to subscribers on Subscription Amounts.
The Manager will, at its discretion, use a Subscription Amount either to purchase Index
Securities and then issue new Units to the investor or to purchase existing Units on market
through an NZX Firm and pass those existing Units on to the investor. In either case, the
Manager's purchase of Index Securities or Units with the Subscription Amount will be made
on or about the last Business Day of each month at current market prices.
If the Manager decides that an investors application will not be accepted, the Subscription
Amount will be returned to the investor within 20 Business Days of making that decision. No
interest will be paid on amounts refunded.
31
Regular investment gives Unitholders the benefit of dollar cost averaging. Dollar cost
averaging is the investment technique of investing regularly over a period of time, which
effectively means that an average price over that period of time is paid. That reduces an
investor's exposure to the risk of short term fluctuations in the price of Units. Dollar cost
averaging can thus smooth out the markets ups and downs and help reduce the market risk
of investing.
The Regular Savings Plan lets Unitholders make a regular investment on or about the 20th of
each month, directly from their nominated bank account. Provided Unitholders have made an
initial lump sum investment of $500 and hold a Minimum Holding, they can choose to
participate in the Regular Saving Plan and start saving with contributions as low as $50 per
month. Simply complete the application form and direct debit authority included in this
Investment Statement, or apply online at http://smartshares.co.nz/invest-now. Unitholders
payments will be automatically withdrawn from their nominated bank account on a monthly
basis. Unitholders can add an additional lump sum payment ($250 minimum value), or
increase or decrease their contribution at any time (subject to providing the Unit Registrar with
ten Business Days notice prior to the 20th of a month and, unless contributions are being
completely stopped, maintaining a minimum contribution of $50 per month).
If Unitholders enter the Regular Savings Plan and then fail to make payments, no additional
Smartshares Units will be allocated to their investment. If Unitholders fail to make payments
for 3 consecutive months, their access to the Regular Savings Plan may be discontinued.
Unitholders may at any time, by giving 10 Business Days notice prior to the 20th of a month to
the Unit Registrar, cease their payments into the Regular Savings Plan. Unitholders initial
and subsequent investments to this point, however, will remain as long as they maintain the
Minimum Holding.
The Manager will, at its discretion, use the Regular Savings Plan monies either to purchase
Index Securities and then issue new Units to the Unitholder or to purchase existing Units on
market and pass those existing Units on to the Unitholder. In either case, the Manager's
purchase of Index Securities or Units with Regular Savings Plan monies will be made on or
about the last Business Day of each month at current market prices.
3. Basket Investments
For large investment amounts, Smartshares Units can be acquired by way of Basket creation.
Baskets may be created by way of delivery of the proportionate amounts of the securities of
the Index Issuers (plus any applicable Cash Amount). (The Cash Amount is to ensure that
each existing Unitholders proportionate interest in the income held within that fund prior to
the issue of Smartshares Units to the Basket applicant, is not diluted on a per unit basis by
the creation of additional Smartshares Units issued to the Basket applicant).
This should result in the aggregate value of the Basket securities and the Cash Amount being
equal to the aggregate Current Unit Value of the Smartshares Units issued. The securities
and Cash Amount are then exchanged for Smartshares Units. Subscriptions for Smartshares
Units by Basket creation may only be made in multiples of:
Basket applications must be made directly to the Manager by delivery through an NZX Firm.
Each delivery of a Basket must be accompanied by a completed Basket application form (not
attached to this Investment Statement, but available from the Manager or any NZX Firm).
Charges for Basket investments are explained under the section entitled What are the
charges?
32
Minimum Holding
Unitholders should maintain a minimum number of Smartshares Units at all times. If
Unitholders fail to maintain the minimum number of Smartshares Units, the Manager reserves
the right to instruct the Trustee, after giving prior notice to the Unitholder, to sell such
Smartshares Units and to account to the Unitholders for the proceeds of sale, after deduction
of reasonable sale expenses.
The minimum holding is 100 units for smartFONZ, smartTENZ, smartMIDZ, and smartOZZY,
and 50 units for smartMOZY (or such different amount as is determined by the Manager, or
the Trustee in respect of smartTENZ, in their sole discretion, from time to time) (Minimum
Holding).
Oversubscription
There is no limit on the total number of Smartshares Units that may be subscribed for and
accordingly none of the Smartshares Funds have a policy providing for oversubscription.
However, the Smartshares Funds may reject an application for Units or require redemption of
Units to maintain the Funds PIE status where there is a risk that a Unitholder will exceed the
maximum investor interest size requirement prescribed in the Tax Act (and as set out in the
PIE Eligibility section at page 41 below).
Refunds
The Trustee will not refund any Subscription Amount, except where the Trustee, on the
advice of the Manager, decides that an investors application will not be accepted. In such
situations the Subscription Amount will be returned to the investor within 20 Business Days of
making that decision. No interest will be paid on amounts refunded.
33
No Cooling-off Period
There is no cooling-off period in respect of the Smartshares Units. An investor may not
withdraw their application.
Basket Creation
Basket Redemption
The Basket creation fees and the Basket redemption fees may be altered by the Manager by
giving six months notice of the change to Unitholders and making an Announcement to NZX .
(or providing less notice, if the Manager is reducing this fee). There is no limit to the altered
fee that may be charged. There are no other entry or exit charges.
34
Smartshares Fund
Management Fee
smartFONZ
0.75% p.a.
smartMIDZ
0.75% p.a.
smartMOZY
0.75% p.a.
smartOZZY
0.60% p.a.
smartTENZ
0.60% p.a.
All fees are stated on a GST inclusive basis. Under current law some fees are wholly or partially exempt from GST.
The fee charged by the Manager may be altered by the Manager by giving six months notice
to Unitholders of the change and making an Announcement to NZX (or providing less notice,
if the Manager is reducing this fee). There is no limit to the altered fee that may be charged.
In addition to the management fee, the Manager is entitled to interest on amounts held in
respect of distributions and other income received by the Smartshares Funds, on cash
subscription amounts between the date on which they are received and the date of issue of
Units.
The Manager is also entitled to charge an investor in respect of non-standard services
requested by that investor.
The Manager is also entitled to receive fees for administering securities lending. The amount
of fees received by the Manager is currently 50% of the net revenue payable to the relevant
Smartshares Fund in respect of the securities of that Smartshares Fund lent. Cash payment
for any dividends (including any imputation credits) paid in respect of any loaned securities,
and any additional securities required to be returned to the Fund as a result of corporate
actions (for example a bonus issue), do not form part of the net revenue from which the
Manager is entitled to take a fee.
The Trustee for each Smartshares Fund receives fees for the services it provides. The
Trustees fees are currently met by the Manager out of the management fee and not from the
assets of the relevant Smartshares Fund. The Manager is entitled however, in the future to
seek to have each of the Trustee's fees charged to the Smartshares Funds. The Manager
would notify Unitholders if such a change was adopted. The amount of the fees payable to
each Trustee shall be agreed by the Manager and the relevant Trustee.
Persons associated with the Manager are involved in the operation of the designated
settlement system in which all of the Index Securities of smartFONZ, smartMIDZ and
smartTENZ are held and under which securities lending is undertaken, and these persons
may receive fees and other remuneration in that capacity. The services that these persons
provide include the holding of those Index Securities in the central securities depository and
the facilitation of securities lending. None of those fees or remuneration is paid from the
relevant Smartshares Funds they are paid from the management fee.
The above fees cover the expenses for the ongoing operation of the Smartshares Funds.
These include reporting, custodian fees, trustee fees, registry costs, brokerage fees for
purchasing securities in the Smartshares Funds and fees paid to the index providers to track
the relevant indices.
By investing in the Smartshares Funds investors accept and authorise these deductions and
fees to occur and understand that these fees can be altered.
Tracking levy
The Trust Deed allows the Manager to impose a tracking levy, which is essentially an amount
deducted from the income to be distributed to Unitholders from a Smartshares Fund, to
eliminate a tracking difference. The purpose of a tracking levy is to bring the current value of
35
the Index Securities held by a Smartshares Fund back in line with the value of the relevant
index by purchasing additional Index Securities with the amount deducted from income that
would otherwise be distributed.
The Manager has never imposed a tracking levy because it does not believe it improves the
position of Unitholders or the Return on Smartshares Funds.
any change in the price of Smartshares Units at the time you sell, relative to the price
at which you bought; and
(b)
Distributions
Distributions are currently made directly from each Smartshares Fund within 20 Business
Days of the Record Date. The Record Date is on or around the last Business Day of each
March and September in any year.
These distributions comprise dividends and any other income (including income from
securities lending, where relevant, which will be 50% of net revenue received by the Manager
from securities lending), less fees and other expenses, and, if necessary, amounts held for
the purpose of addressing current or anticipated tracking differences. Unitholders will
automatically have their distributions re-invested as Smartshares Units unless they elect to
have them paid directly to a nominated bank account.
36
The Manager may, at its discretion, deduct from any distribution an amount of cash if and to
the extent that the Manager reasonably considers that such a deduction is required to meet
any liabilities that become payable in the next (or later) distribution period. Such deductions
will be retained in the Fund.
The Manager does not issue Smartshares Units in any of the Smartshares Funds in the
period from (and including) the announcement of a distribution to (and including) the Ex Date
for that distribution.
The Manager receives and retains any interest earned on income held prior to distribution.
The directors of the Manager expect to continue with this distribution policy.
Taxation
The following comments are intended to be only a general summary and indication of the
relevant New Zealand tax law as at the date of this Investment Statement. There may be
non-New Zealand tax consequences which affects the Fund or the Unitholders. Neither the
Trustee nor the Manager accepts any responsibility for the taxation consequences of an
investment in Smartshares Funds. Unitholders who buy or sell Smartshares Units may have
different taxation positions. Consequently, each Unitholder should consider their own taxation
position and if necessary seek professional advice before investing in Smartshares Units.
Taxation may affect the Returns on the Smartshares Funds and each of the Smartshares
Funds may have varying tax implications. The taxation summary below is based on New
Zealand and Australian tax law as at the date of this Investment Statement.
The Smartshares Funds are Portfolio Investment Entities (PIEs). As listed PIEs the
Smartshares Funds will pay tax on taxable income derived by the Funds at a rate of 28%.
New Zealand Taxation of investments of the Fund
The Smartshares Funds are not subject to tax on gains that they derive from the sale of
shares in most New Zealand resident companies and most companies resident in Australia
that are listed under the ASX Market Rules. Dividends from such shares are usually fully
taxable to the Smartshares Funds, with a credit allowed for any Imputation Credits attached
(but not for any Australian Franking Credits), and any withholding tax deducted from such
dividends subject to certain limits.
Depending on the equities which constitute the index that the relevant Smartshares Fund
tracks, the Fund may be subject to tax in respect of offshore portfolio equity investments.
These rules only apply to non New Zealand and certain Australian quoted securities
(including any NZX listed securities consisting of shares in non-New Zealand resident
entities). In relation to the applicable equities, the Funds will apply the fair dividend rate
(FDR) method to calculate the amount of any taxable income. Under the FDR method, the
Smartshares Funds will generally have taxable income in each income year (1 April to 31
March) in relation to the applicable equities calculated by reference to 5% of the average daily
opening market value of the applicable equities. Dividends or sales proceeds received by the
Smartshares Funds in relation to these shares should not be subject to further tax. The
Smartshares Funds may be entitled to a credit for any withholding tax paid on dividends
received from the applicable equities subject to certain limits. No tax deduction may be
claimed for any losses in respect of the applicable equities under the FDR method.
New Zealand Liability of New Zealand resident investors - distributions
The following summarises the New Zealand taxation of distributions made by the
Smartshares Funds to Unitholders who are resident in New Zealand.
To the extent that Imputation Credits are available, the Smartshares Funds will fully impute
distributions to Unitholders by attaching Imputation Credits to the distribution at the maximum
permitted ratio.
37
To the extent that distributions are not fully imputed resident Unitholders will not be taxed on
distributions that they receive from the Smartshares Funds. The effect of this is that nontaxable income (e.g. capital gains from the sale of investments) derived by the Smartshares
Funds can be distributed to resident Unitholders free from tax.
Natural person Unitholders and trustee Unitholders (other than a trustee of a unit trust)
subject to a tax rate below the corporate tax rate (currently at 28%) may choose to treat
distributions that are fully imputed as assessable income by including that amount in their tax
return. This allows such Unitholders to use Imputation Credits attached to distributions in
excess of what is necessary to fully satisfy the income tax liability in relation to those
distributions, to offset against their other taxable income. How Unitholders should treat
distributions from the Smartshares Funds for tax purposes will depend on their personal tax
circumstances and as such it is recommended that all Unitholders should seek independent
tax advice.
New Zealand Taxation Liability of non-resident investors - distributions
The following summarises the New Zealand taxation of distributions made by the
Smartshares Funds to Unitholders who are not resident in New Zealand.
To the extent that Imputation Credits are available, distributions to Unitholders will be fully
imputed.
Non-resident withholding tax (NRWT) will be withheld at 15% from distributions which are
fully imputed. The NRWT rate on fully imputed distributions can be reduced:
to a rate below 15% if the Unitholder is resident in a jurisdiction with which New
Zealand has a Double Tax Agreement that permits a lower tax rate.
New Zealand also has a foreign investor tax credit regime whereby the impact of NRWT on
dividends is ameliorated by the payment of a supplementary dividend for investors holding
less than 10% of the Smartshares Units in a Fund and if the NRWT rate is 15% or more. The
Funds intend to pay supplementary dividends to non-resident Unitholders wherever possible,
provided that it meets the Trust Deed requirements and does not disadvantage other
Unitholders.
To the extent distributions are not fully imputed, non-resident Unitholders will not be taxed on
such distributions and no NRWT will be withheld by the Smartshares Funds.
Benefits of PIE
A benefit of the PIE regime is that Smartshares Funds are not expected to be taxed on any
gains derived from the sale of the securities that they trade.
The other potential benefit is that tax payable on distributions made by a Smartshares Fund to
Unitholders is effectively capped at 28%. If you are currently paying tax at a rate less than
28% then the excess tax paid by the Funds can be used to reduce the tax payable on other
income that you derive at the end of each income year by including the distributions from the
Fund(s) in your tax return.
PIE Eligibility
The Manager has the discretion to take any steps the Manager considers necessary or
desirable to ensure that a Fund is eligible to be enrolled and remain as a PIE. This includes
ensuring that any one investors unit holding does not exceed the maximum investor interest
size requirement in the Tax Act as follows:
(a)
for a Unitholder that has always held an interest of greater than 20% from 17 May
2006, a number of Smartshares Units up to but less than 40% of the total issued
Smartshares Units of each Fund; and
38
(b)
for all Unitholders not specified in (a) above, a number of Smartshares Units not
exceeding 20% of the total issued Smartshares Units of each Fund (for these
purposes, the Smartshares Units held by the relevant investors associated
persons that are not Exempt Investors and who, themselves, hold Smartshares
Units amounting to 5% or more of the units on issue will also be taken into account
in determining whether the 20% threshold has been exceeded).
There is no investor interest size requirement for a Unitholder that is an investor of the type
listed in the PIE regime in section HM 21(2) and Schedule 29 Parts A and B of the Tax Act, or
equivalent provision. Any such exempted Unitholder may hold up to 100% of the
Smartshares Units in the Fund.
The Manager also has the ability to request any relevant information from Unitholders to
endeavour to ensure compliance with the PIE rules and the Trust Deed, as well as to enable
the Manager to meet its requirements under the Anti-Money Laundering and Countering
Financing of Terrorism Act 2009. Additionally, the Manager has the ability to rectify any
breach of the PIE holding restrictions in accordance with the PIE rules and the Trust Deed.
For further information regarding the eligibility of a Fund within the PIE requirements please
refer to the relevant Smartshares Funds prospectus or contact the Manager.
Basket Investments
The tax status of some Unitholders may be such that they are liable for tax on profits derived
from the disposal of Index Securities. In the case of the Smartshares Funds, contributing
securities in exchange for Smartshares Units will constitute a realisation of the securities for
tax purposes for those Unitholders.
New Zealand Taxation Treatment on Disposal of units in the Smartshares Funds
The New Zealand tax treatment of profits realised or losses incurred on the disposal of
Smartshares Units will depend upon the tax position of the Unitholder. Generally speaking,
profits from the disposal of Smartshares Units will be subject to tax or a deduction will be
allowed for losses incurred if:
The Unitholder acquired the Smartshares Units for the purpose of sale or other
disposal; or
The disposal of the Smartshares Units occurs as an act done in the carrying on of a
profit-making scheme or undertaking.
As a general comment, PIEs that invest in a Smartshares Fund should not be subject to tax
on any gains made on the disposal of Units in the Fund, and other Unitholders which are
resident in a country with which New Zealand has a Double Tax Agreement may qualify for
tax relief so that they are also not subject to tax on any gains made on the disposal of Units in
the Fund.
the smartMOZY or smartOZZY Fund, it is likely that Australian tax will be withheld at source in
Australia in relation to the unfranked portion of the dividend. Where the smartMOZY or
smartOZZY Fund holds less than a 10% interest in each company that they invest in, the rate
of Australian withholding tax on unfranked dividends should be 15%. Any such unfranked
dividends would be paid to the smartMOZY or smartOZZY Fund net of any withholding tax
paid to the Australian tax authorities.
Please refer to the smartMOZY and smartOZZY prospectuses for information on stamp duty.
Withholding of distributions
Distributions may be withheld through the imposition of a tracking levy (as discussed on
pages 34 and 35). As noted above, the Manager has never imposed a tracking levy because
it does not believe it improves the position of Unitholders or the Return on Smartshares
Funds.
Reinvestment of distributions
Unitholders will automatically have their distributions reinvested as Smartshares Units unless
they elect to have them paid directly to a nominated bank account. If not already a member
of the Distribution Reinvestment Plan, a Unitholder may elect to reinvest his or her
distributions by returning the Distribution Reinvestment Plan form to:
The Unit Registrar
Link Market Services Limited
PO Box 91976
Auckland 1142
Tel (09) 375 5998
Fax (09) 937 5590
Email: smartshares@linkmarketservices.co.nz
Notice of election for the Distribution Reinvestment Plan (forms are available from
Smartshares Limited) received by the Unit Registrar at least 10 Business Days prior to a
semi-annual distribution date will be effective in respect of that distribution, otherwise such
notice will be effective in respect of the next distribution. Once you have elected to reinvest
your distributions, reinvestment will continue until you advise the Unit Registrar otherwise.
Fees for the Distribution Reinvestment Plan are set out on pages 35 and 36.
Securities Lending
The Manager has implemented a securities lending programme for certain Smartshares
Funds. The Manager has the power under the Trust Deeds to undertake securities lending
for the Smartshares Funds, and the possibility of a securities lending programme for the
Smartshares Funds is (and is deemed to be) included in the Issue Terms for the Fund.
Securities lending involves the transfer of legal title and beneficial interest in the securities to
a third party borrower, in some cases, against collateral, and in other cases under other
appropriate risk mitigation arrangements. There are additional risks associated with
securities lending. These risks are set out on pages 44 and 45. The Smartshares Funds
would receive income earned from securities lending following payment of the Managers
costs of and fees for administering securities lending.
When securities are lent, the Smartshares Funds will receive a cash payment for any
dividends (including any Imputation Credits) paid in respect of any loaned securities to the
holder on the record date for the payment of the dividend, so that the Smartshares Funds will
receive the same Return from the securities had they held them directly.
The potential benefits of securities lending are two-fold:
40
Additional source of income: Securities lending should earn income (for example, by
receiving a share of interest received on cash collateral provided by borrowers) and,
following payment of the Managers costs of and fees for administering securities
lending, should increase Returns to Unitholders.
Facilitates creation of Baskets: The creation and withdrawal of Baskets tends to assist
the market price of the Smartshares Units to more closely follow the value of the
underlying securities. One of the constraints on Basket trading is the lack of liquidity
of some Index Securities. The ability to borrow these securities may assist market
participants to trade complete Baskets of underlying securities.
42
First, it may not be possible for the Manager to exactly match changes to the indices by
buying and selling Index Securities, because the prices it pays and receives for the Index
Securities may not exactly match the prices used to adjust the index. For example, there may
be limited liquidity in relation to securities the Manager is attempting to buy that pushes up the
purchase price of those securities after an adjustment to an index, but before the Manager
can buy. In some cases the relevant adjustment to an index may even cause such limited
liquidity as it could affect the level of demand for it in the market place.
Secondly, tracking is a complex exercise, and errors occasionally arise due to human or
systems errors.
Thirdly, there is also potential for tracking difference during each distribution period as a result
of income being retained in the Smartshares Funds. The portfolio of Index Securities held by
each Smartshares Fund represents stocks held in proportion to the weightings in the index
tracked by that Smartshares Fund, and does not include any income received. As income
from those Index Securities is received in cash, which adds to the NAV of the Fund, a slight
tracking difference will occur during a distribution period. This tracking difference should
substantially correct at the Distribution Date when the cash is paid to Unitholders.
Some tracking differences, such as the third one described above that arises because of
income accruing in the relevant Smartshares Fund, mean the value of the Smartshares
Fund's assets are greater than the value of the index. There is no detriment to Unitholders
from such a difference. However, some differences mean the value of the Smartshares
Fund's assets is less than the value of the index. When this is the case, the Return generated
by the Smartshares Fund may be less than the Return on the relevant index, which is
detrimental to Unitholders.
The tracking difference for each Smartshares Fund is Announced to NZX on a daily basis.
Operational risk
There is a risk that the operational procedures adopted by the Manager could result in errors,
fraud or misconduct that cause a loss to the relevant Smartshares Fund or otherwise affect
Unitholders' Returns. In particular, tracking an index and assessing the reasons for tracking
differences (that is, differences between the NAV of a Smartshares Fund and the value of the
relevant index) is very complex and some errors are occasionally made.
In order to mitigate this risk the Manager follows a set of internal policies and procedures and
also outsources some aspects of its operations to the Administration Manager to draw on the
Administration Manager's systems and expertise. The Manager also insures against losses
arising from fraud and misconduct.
In 2013, an operational error occurred in relation to one of the Smartshares Funds
(smartMOZY) over a period of time that increased the tracking difference in that Fund. The
Manager's operational procedures have been rectified to ensure that the specific error cannot
recur.
Passive management risk
Traditional methods of investment management for an actively managed fund typically involve
deliberate changes to a portfolio of Index Securities based on judgement of economic,
financial and market conditions. No attempt will be made to manage Smartshares Funds in
the traditional sense, and the Manager and Trustee do not monitor the performance of Index
Issuers.
The adverse financial condition of an Index Issuer or the industry it is in will not be a reason
for Smartshares Limited to direct the relevant Trustee to cause a Smartshares Fund to
dispose of that Smartshares Funds investments in the Index Securities of that Index Issuer
unless the Index Issuer is removed from the relevant index. Nor will Index Securities held in
Smartshares Funds be disposed of as a result of fluctuations in the market unless they are
removed from the relevant index.
43
Market fluctuations and such adverse conditions may affect the value of a Unitholders
investment and/or any Returns relating thereto either positively or negatively. Neither the
Manager nor the Trustee may delay decisions to re-weight Smartshares Funds to reflect the
relevant Capital Index to enhance the Returns on particular Smartshares Units.
Liquidity Risk
Investors are only able to cash in their investment by selling their Units on market unless they
have enough Units to do a Basket redemption (Basket redemptions are described on page
48). The market price per Unit may vary from the Current Unit Value due to supply and
demand factors. Each Smartshares Fund is listed on the NZX Main Board and, in the opinion
of the Manager, there is an established market for sales of Units. However, although the
Smartshares Funds are listed on the NZX Main Board, the fact that investors can apply to
purchase Units directly from Smartshares may result in a reduced number of buyers of Units
on the NZX Main Board.
Regulatory Risk
Regulatory risk is the risk that Smartshares Funds may be adversely affected by future
changes in applicable laws, including tax laws.
Tax Risk
Taxation laws, their interpretation, or the Inland Revenue Departments application of those
laws may change during the period of an investors investment in Smartshares Funds, in a
way which has an adverse impact on the Returns to that investor.
There are tax risks that need to be managed in relation to the Smartshares Funds continuing
to be eligible to be PIEs, including (but not limited to):
If a Fund fails to meet the required criteria and therefore ceases to be a PIE, it will not
be able to re-elect to be a PIE for the succeeding five years.
If an investor (including all associates) holds more than 20% of the Smartshares Units
in a Smartshares Fund, that Fund may not qualify to be a PIE (or for an investor that
meets certain requirements, 40% of the Smartshares Units in that Fund).
Although the Manager has put appropriate processes in place designed to ensure that the
Fund complies with all requirements to be a PIE, there is a risk that the Fund could lose PIE
status if there is a breach of those requirements which is not remedied within the time
permitted under the PIE Rules. If PIE status is lost the Fund will be taxed as a company and
distributions to investors will be dividends taxable at the investors marginal tax rate and
potentially will be subject to withholding tax. No compensation will be paid to investors in the
event that PIE status is lost. For further information on PIE Tax risk please refer to the
relevant Smartshares Fund prospectus.
Securities Lending Risk
There are a number of possible risks associated with securities lending, including, but not
limited to, the following:
(a)
Borrower credit risk and settlement risk: There is a risk that a borrower of
securities could fail to deliver equivalent securities on termination of a loan or
encounter financial difficulties, for example, become insolvent. In this event there
could be delays in or failure in respect of redelivery of securities and the Smartshares
Funds may incur loss as a result.
For bilateral loans of securities to individual counterparties (which the Smartshares
Funds are not currently permitted to enter into (see page 41)) collateral in excess of
105% of the value of the securities lent will be required to be deposited with the
Trustee. This collateral will be used, if possible, to purchase replacement securities if
the borrower fails to deliver securities on the termination of a loan.
44
For loans settled through a central counterparty settlement system, the obligations of
the borrower to the Funds are unsecured, as collateral is managed by the settlement
system operator and is not directly provided to the Funds. However, this risk is
mitigated by any arrangements (including prudential arrangements and oversight by
the Reserve Bank) made for the management of risks associated with the operation
of the settlement system.
(b)
(c)
Legal risk: There is a risk that the contract relating to the lending will not be legally
enforceable or documented correctly, resulting for example in an inability to enforce
an obligation to re-transfer securities. This risk can be mitigated by the use of a
standard form contract based on industry standards.
In order to limit each Smartshares Funds exposure to the risk that may arise as a result of
securities lending, the Trustees and the Manager have agreed that at the time and
immediately after lending any securities in a Smartshares Fund no more than 50% of the
value of that Smartshares Fund or 50% of the aggregate value of a security within that
Smartshares Fund may be lent. Securities may not be lent if, as a result, either of those limits
is breached.
Custodian risk
The assets of the Smartshares Fund are legally held by the Custodian. That means there is a
risk that if the Custodian becomes insolvent, this could temporarily or permanently deprive the
Smartshares Funds of assets. This risk is managed by having the Custodian hold the assets
of the Smartshares Funds as a bare trustee and by keeping those assets separately
identifiable from other assets it holds. This should mean that, if the Custodian ever does
become insolvent, the assets it is holding for the Smartshares Funds will not form a part of the
pool of assets to be liquidated for the benefit of the Custodian's creditors.
Key personnel risk
The management of the Smartshares Funds is complex and many of the tasks associated
with that management require considerable experience in relation to exchange traded funds.
Consequently, there is a risk that if key personnel at the Manager leave at any time, there is a
heightened risk of disruption and potential calculation errors. Among other things, such
calculation errors could lead to unintended tracking differences. This risk is mitigated, to some
extent, by the Manager's appointment of the Administration manager to the Smartshares
Funds.
45
Unitholder Liability
No Unitholder shall be personally liable in respect of any debt or liability of the relevant
Smartshares Fund, nor be personally liable to indemnify the Trustee or the Manager in
respect of any such debt or liability, except for any tax liability paid by the Smartshares Funds
that is attributable to that Unitholder. The Trustee and Manager, except in the case of wilful
default, wilful breach of trust or dishonesty, are indemnified out of the assets of the relevant
Smartshares Fund.
Consequences of Insolvency
Unitholders are not liable to make any payments to third parties upon winding up of
Smartshares Funds, or as a result of the insolvency of the Manager or Trustee. However, in
the event a wind-up proves necessary, the Manager and/or Trustee shall be entitled to
recover all costs and expenses, which are incurred in doing so. This will be done prior to
distributing money (or assets) to Unitholders. Claims of Unitholders in respect of their
Smartshares Units will rank equally among themselves in such circumstances.
46
Fees
The fees charged by the Manager may be changed by the Manager by giving six months
notice of the change to Unitholders and making an Announcement to NZX (or providing less
notice, if the Manager is reducing these fees). There is no limit on the changes the Manager
may make.
(b)
during the three month notice period both of the following conditions are met:
i
Basket holders would have been able to redeem one or more Baskets on at least
20 Business Days during that notice period, at their Current Unit Value; and
ii
The reported weighted average price for sales of Smartshares Units in parcels of
less than a Basket, on at least 20 Business Days during that period, has been
higher than 1% below the Current Unit Value at the time of sale, or
the requirements in paragraph (a) are not met but the Trustee gives notice to
Unitholders informing them that it will, if required to do so by Unitholders, call a
meeting of Unitholders to consider whether to reject the amendment and either of the
following conditions are then met:
i.
the holders of 10% or more of the Units do not require the Trustee to call such a
meeting; or
ii.
the holders of 10% or more of the Units do require the Trustee to call such a
meeting, but at that meeting a proposed resolution to reject the amendment is
supported by less than 25% of the valid votes cast on the resolution.
Issue terms may be prescribed in a registered prospectus with effects specified in the Trust
Deed. They may change as described above when new prospectuses are issued. An
extraordinary resolution shall be binding on all Unitholders, and the Trustee and Manager
shall give effect to such a resolution.
Further details on the Trust Deed and issue terms are provided in the registered prospectus
47
1. Market sale
Smartshares Units can be sold on market through NZX Firms. In this case, no written
redemption notice is required. The market price per Smartshares Unit may vary from the
Current Unit Value due to supply and demand factors. The costs involved in a sale on the
NZX Main Board is normal sharemarket brokerage, which may vary between NZX Firms.
Each Smartshares Fund is listed on the NZX Main Board and, in the opinion of the Manager,
there is an established market for such sales of Smartshares Units. The Trustee may decline
to register a transfer of Smartshares Units if it would result in a transferee holding less than
the Minimum Holding.
2.Basket withdrawal
For holdings in multiples of:
a Unitholder can surrender Smartshares Units and receive equivalent Index Securities and a
cash amount representing any accrued income applicable from the relevant Index Securities
of Index Issuers. All withdrawal requests should be made through an NZX Firm to the
Manager after completing a Basket withdrawal notice. Charges in relation to Basket
withdrawals are explained under What are the charges? on page 34.
The Manager is not obliged to redeem Smartshares Units in any of the Smartshares Funds in
response to a Basket withdrawal request in the period from (and including) the announcement
of a distribution to (and including) the Ex Date for that distribution (as redemptions during that
period could result in an decreased number of Smartshares Units on issue, which would in
turn result in an increase in the announced distribution on a per unit basis).
as soon as practicable after the Manager becomes aware of the Breach, the Manager
shall give written notice to the relevant Unitholder(s) of the Breach, including details of
the number of Smartshares Units (the Excess Units) giving rise to the Breach;
(b)
the Unitholder shall have a period consisting of the grace period determined in
48
accordance with the Tax Act (the Remedy Period) less 30 days to remedy the
Breach, but if the Manager becomes aware of the Breach and determines that there
are 30 days or less to remedy the Breach then the Breach shall be deemed to have
not been remedied; and
(c)
if the Breach has not been remedied upon expiry of the period referred to in (b) above,
then the Manager shall within the remaining 30 days of the Remedy Period, in its
discretion, and only to the extent permitted by the NZX Main Board Listing Rules (or
any ruling in respect of, or waiver from the NZX Main Board Listing Rules), sell,
redeem, or repurchase the amount of the Excess Units in order to remedy the Breach,
and:
(i)
the Manager shall account to the relevant Unitholder for the proceeds of any
disposal of the Excess Units after deduction of all expenses arising from such
disposal; and
(ii)
neither the Manager nor the Trustee is required to maximise the Fund unit price
for any disposal and in any event, shall not be liable to any Unitholders for any
loss on disposal.
The Manager
Head of Business
Smartshares Limited
Level 1, NZX Centre, 11 Cable Street
PO Box 2959, Wellington
Tel: 0800 80 87 80
Email: smartshares@nzx.com
www.smartshares.co.nz
49
Unit Registrar
Alternatively, you may lodge a complaint with the Managers or the relevant Trustee's Dispute
Resolution Scheme provider. The Dispute Resolution Scheme provider for the Manager and
each Trustee is Financial Services Complaints Limited. They can be contacted at:
4th Floor, 101 Lambton Quay
Wellington
P O Box 5967
Wellington 6011
Tel: 0800 347 257
Fax: (04) 472 3727
There is no ombudsman to whom complaints may be made.
The latest annual report (including financial statements) of the Smartshares Funds.
The latest annual report (including financial statements) is available from Smartshares Limited
(free of charge) on www.smartshares.co.nz, or any NZX Firm. The prospectuses and
financial statements are also filed with the Companies Office, and are available on the
Companies Office website (www.business.govt.nz/companies) under the Managers file
reference, free of charge.
The Trust Deed for each Smartshares Fund may be inspected, without fee, by any person at
50
the registered office of the Manager. A copy of the Trust Deed will be sent (electronically
where possible) to prospective and current investors, free of charge, on request to the
Manager.
A Unitholder (or his/her/its representative) may inspect that part of the register of Smartshares
Units kept by the Unit Registrar that relates to his/her/its Smartshares Units, except when the
register is duly closed (and subject to any reasonable restrictions that the Manager may
impose so that not less than two hours in each working day is allowed for inspection). A copy
of that part of the register of Smartshares Units relating to a Unitholder may be obtained on
payment of a reasonable fee.
Up to date information on the performance of Smartshares Funds and the relevant indices is
available in the daily newspapers and on NZX's website (www.nzx.com). Announcements to
NZX, including Announcements of the tracking differences for the Smartshares Funds can be
found at www.nzx.com under the ticker symbols TNZ (for smartTENZ), MDZ (for smartMIDZ),
FNZ (for smartFONZ), OZY (for smartOZZY) and MZY (for smartMOZY).
Request information
Investors may also request from the Manager, in accordance with section 54B of the
Securities Act 1978 and regulation 44 of the Securities Regulations 2009, the information
required by those provisions to be made available. A prescribed fee may be payable (but not
for a copy of the registered prospectus, a copy of the financial statements or a copy of any
document extending the period during which allotments may be made under the registered
prospectus). Such a request may be made by contacting the Manager, on the contact details
as set out on page 30, above.
Privacy
The Manager, through the Unit Registrar, collects and holds personal information about you
for the purposes of managing your investment and advising you of other investment
opportunities. You may request access to personal information held about you in relation to
your investment. You may make such request by writing to the Unit Registrar at:
Link Market Services Limited
PO Box 91976
Auckland 1142
or by telephoning the Unit Registrar on (09) 375 5998. Depending on the nature of any such
request, the Manager or the Unit Registrar reserves the right to impose a reasonable charge
for providing access to personal information.
51
GLOSSARY OF TERMS
Announcement
Application Form
the application
Statement.
ASX
Basket
Business Day
Capital Index
Cash Amount
form
attached
to
this
Investment
Distribution Date
Distribution Ex Date
Distribution
Plan
Ex Date
Reinvestment
th
GIF
Imputation Credit
Index Issuer
Index Security
Issuer
Smartshares Limited.
Quoted
Manager
Smartshares Limited.
Market Participant
Minimum Holding
NAV
NZCL
NZDL
NZX
NZX Limited.
NZX Firm
PIE
Record Date
53
smartFONZ
smartMIDZ
smartMOZY
smartOZZY
smartTENZ
NZX 10 Fund.
Smartshares Funds
Subscription Amount
Tax Act
Trustee
Trust Deed
Unitholder
Unit Registrar
Terms described above in the singular include the plural and vice versa. All dates and times
contained in the Investment Statement refer to New Zealand time.
54
Smartshares Limited
Investment Statement
NEW ZEALAND DIVIDEND INDEX TRUST (NZ Dividend Fund)
AUSTRALIAN FINANCIALS INDEX TRUST (Aus Financials Fund)
AUSTRALIAN RESOURCES INDEX TRUST (Aus Resources Fund).
Contents
IMPORTANT INFORMATION
HOW DO I APPLY?
13
17
19
21
23
23
23
26
29
30
35
41
42
43
44
44
GLOSSARY OF TERMS
47
IMPORTANT INFORMATION
(The information in this section is required under the Securities Act 1978.)
Investment decisions are very important. They often have long-term consequences. Read all documents
carefully. Ask questions. Seek advice before committing yourself.
Choosing an investment
When deciding whether to invest, consider carefully the answers to the following questions that can be found
on the pages noted below:
Page
What sort of investment is this?
23
23
26
29
30
35
41
42
43
Is there anyone to whom I can complain if I have problems with the investment?
44
44
In addition to the information in this document, important information can be found in the current registered
prospectus for the investment. You are entitled to a copy of that prospectus on request.
The Financial Markets Authority regulates conduct in financial markets
The Financial Markets Authority regulates conduct in New Zealands financial markets. The Financial
Markets Authoritys main objective is to promote and facilitate the development of fair, efficient, and
transparent financial markets.
For more information about investing, go to http://www.fma.govt.nz.
Financial advisers can help you make investment decisions
Using a financial adviser cannot prevent you from losing money, but it should be able to help you make
better investment decisions.
Financial advisers are regulated by the Financial Markets Authority to varying levels, depending on the type
of adviser and the nature of the services they provide. Some financial advisers are only allowed to provide
advice on a limited range of products.
When seeking or receiving financial advice, you should check
A financial adviser who provides you with personalised financial adviser services may be required to give
you a disclosure statement covering these and other matters. You should ask your adviser about how he or
she is paid and any conflicts of interest he or she may have.
Financial advisers must have a complaints process in place and they, or the financial services provider they
work for, must belong to a dispute resolution scheme if they provide services to retail clients. So if there is a
dispute over an investment, you can ask someone independent to resolve it.
Most financial advisers, or the financial services provider they work for, must also be registered on the
financial service providers register. You can search for information about registered financial service
providers at http://www.fspr.govt.nz.
You can also complain to the Financial Markets Authority if you have concerns about the behaviour of a
financial adviser.
Disclaimer
The Return on each Smartshares Fund is intended to closely track the Return on the index it tracks (the Aus
Financials Fund tracks the S&P/ASX 200 Financials Ex-A-REIT Index, the Aus Resources Fund tracks the
S&P/ASX 200 Resources Index, and the NZ Dividend Fund tracks the S&P/NZX 50 High Dividend Index)
less certain costs (including tax) and fees of the Fund. These indices rise and fall according to market
events and conditions. None of the Trustee, the Manager, the Custodians, the Administration Manager,
NZX, nor any other person guarantees the Return on the indices or the Return on each Smartshares Fund or
investment in each Smartshares Fund. No warranty expressed or implied is given as to the results to be
obtained by the Manager or each Smartshares Fund from the use of the indices or any data included in
them, or as to the liquidity of investment in each Smartshares Fund, Smartshares Units or the fitness of any
Smartshares Fund for any Unitholders purposes. The offer set out in this Investment Statement is only
made in New Zealand. No person may offer, sell or deliver Smartshares Units or distribute any documents in
relation to the offer (including any copy or extract from this Investment Statement) to any person in any
jurisdiction other than in compliance with any applicable laws and regulations.
Limited. Smartshares Limiteds Products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones,
S&P, any of their respective affiliates (collectively, S&P Dow Jones Indices) or NZX Limited. Neither S&P Dow Jones
Indices nor NZX Limited make any representation or warranty, express or implied, to the owners of the Smartshares
Limiteds Products or any member of the public regarding the advisability of investing in securities generally or in
Smartshares Limiteds Products particularly or the ability of the S&P/NZX 50 High Dividend Index to track general
market performance. S&P Dow Jones Indices and NZX Limited only relationship to Smartshares Limited with respect
to the S&P/NZX 50 High Dividend Index is the licensing of the Index and certain trademarks, service marks and/or
trade names of S&P Dow Jones Indices and/or its licensors. The S&P/NZX 50 High Dividend Index is determined,
composed and calculated by S&P Dow Jones Indices or NZX Limited without regard to Smartshares Limited or the
Smartshares Limiteds Products. S&P Dow Jones Indices and NZX Limited have no obligation to take the needs of
Smartshares Limited or the owners of Smartshares Limiteds Products into consideration in determining, composing
or calculating the S&P/NZX 50 High Dividend Index. Neither S&P Dow Jones Indices nor NZX Limited are responsible
for and have not participated in the determination of the prices, and amount of Smartshares Limiteds Products or the
timing of the issuance or sale of Smartshares Limiteds Products or in the determination or calculation of the equation
by which Smartshares Limiteds Products are to be converted into cash, surrendered or redeemed, as the case may
be. S&P Dow Jones Indices and NZX Limited have no obligation or liability in connection with the administration,
marketing or trading of Smartshares Limiteds Products. There is no assurance that investment products based on the
S&P/NZX 50 High Dividend Index will accurately track index performance or provide positive investment returns. S&P
Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is not a recommendation by
S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
NEITHER S&P DOW JONES INDICES NOR THIRD PARTY LICENSOR GUARANTEES THE ADEQUACY,
ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P/NZX 50 HIGH DIVIDEND INDEX OR ANY
DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN
COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES
INDICES AND NZX LIMITED SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS,
OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND NZX LIMITED MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY SMARTSHARES LIMITED,
OWNERS OF THE SMARTSHARES LIMITEDS PRODUCTS, OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE S&P/NZX 50 HIGH DIVIDEND INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES
OR NZX LIMITED BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL
DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR
GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBLITY OF SUCH DAMAGES, WHETHER IN
CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY
AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND SMARTSHARES LIMITED,
OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
S&P Dow Jones Indices and the Australian Stock Exchange Disclaimer
The "S&P/ASX 200 Financials Ex-A-REIT Index and the S&P/ASX 200 Resources Index" are products of S&P Dow
Jones Indices LLC or its affiliates (SPDJI) and ASX Operations Pty Ltd, and has been licensed for use by
Smartshares Limited. Standard & Poors and S&P are registered trademarks of Standard & Poors Financial
Services LLC (S&P) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC (Dow Jones).
ASX Operations Pty Ltds trademark is a registered trademark of ASX Operations Pty Ltd. The trademarks have
been licensed to SPDJI and have been sublicensed for use for certain purposes by Smartshares Limited.
Smartshares Limiteds Products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, any of
their respective affiliates (collectively, S&P Dow Jones Indices) or ASX Operations Pty Ltd. Neither S&P Dow Jones
Indices nor ASX Operations Pty Ltd make any representation or warranty, express or implied, to the owners of the
Smartshares Limiteds Products or any member of the public regarding the advisability of investing in securities
generally or in Smartshares Limiteds Products particularly or the ability of the S&P/ASX 200 Financials Ex-A-REIT
Index and S&P/ASX 200 Resources Index to track general market performance. S&P Dow Jones Indices and ASX
Operations Pty Ltd only relationship to Smartshares Limited with respect to the S&P/ASX 200 Financials Ex-A-REIT
Index and S&P/ASX 200 Resources Index are the licensing of the Index and certain trademarks, service marks and/or
trade names of S&P Dow Jones Indices and/or its licensors. The S&P/ASX 200 Financials Ex-A-REIT Index and
S&P/ASX 200 Resources Index are determined, composed and calculated by S&P Dow Jones Indices or ASX
Operations Pty Ltd without regard to Smartshares Limited or the Smartshares Limiteds Products. S&P Dow Jones
Indices and ASX Operations Pty Ltd have no obligation to take the needs of Smartshares Limited or the owners of
Smartshares Limiteds Products into consideration in determining, composing or calculating the S&P/ASX 200
Financials Ex-A-REIT Index and S&P/ASX 200 Resources Index. Neither S&P Dow Jones Indices nor ASX
Operations Pty Ltd are responsible for and have not participated in the determination of the prices, and amount of
Smartshares Limiteds Products or the timing of the issuance or sale of Smartshares Limiteds Products or in the
determination or calculation of the equation by which Smartshares Limiteds Products are to be converted into cash,
surrendered or redeemed, as the case may be. S&P Dow Jones Indices and ASX Operations Pty Ltd have no
obligation or liability in connection with the administration, marketing or trading of Smartshares Limiteds Products.
There is no assurance that investment products based on the S&P/ASX 200 Financials Ex-A-REIT Index and
5
S&P/ASX 200 Resources Index will accurately track index performance or provide positive investment returns. S&P
Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is not a recommendation by
S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
NEITHER S&P DOW JONES INDICES NOR THIRD PARTY LICENSOR GUARANTEES THE ADEQUACY,
ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P/ASX 200 FINANCIALS EX-A-REIT INDEX
AND S&P/ASX 200 RESOURCES INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION,
INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC
COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES AND ASX OPERATIONS PTY LTD
SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS
THEREIN. S&P DOW JONES INDICES AND ASX OPERATIONS PTY LTD MAKES NO EXPRESS OR IMPLIED
WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY SMARTSHARES LIMITED, OWNERS
OF THE SMARTSHARES LIMITEDS PRODUCTS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE
S&P/ASX 200 FINANCIALS EX-A-REIT INDEX AND S&P/ASX 200 RESOURCES INDEX OR WITH RESPECT TO
ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER
SHALL S&P DOW JONES INDICES OR ASX OPERATIONS PTY LTD BE LIABLE FOR ANY INDIRECT, SPECIAL,
INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS,
TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBLITY OF
SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD
PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES
AND SMARTSHARES LIMITED, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
Definitions
Defined terms in this Investment Statement have the meaning set out in the Glossary of Terms on pages 47
to 50.
Tracking differences The Manager aims to track the relevant index for a Smartshares Fund by
investing in the relevant Index Issuers in proportions that match their weightings in the relevant
index. However, there will inevitably be some differences. For example, the makeup of the relevant
index may be changed, and the Manager is unlikely to exactly match the change by buying and
selling Index Securities because the prices it pays and receives for the Index Securities may not
exactly match the prices used to adjust the index. This means that the net asset value (NAV) of the
Index Securities held by the Smartshares Fund diverges over time from the value of the relevant
index (and therefore from the value of an equivalent direct investment in the Index Issuers).
Distribution differences An investor that invests directly in Index Securities will receive
distributions in relation to those Index Securities when they are paid by the relevant Index Issuers.
In contrast, distributions that are received by a Smartshares Fund from the relevant Index Issuers
will be held by that Smartshares Fund (and included in the Smartshares Fund's NAV) until the next
Distribution Date. It is only on that Distribution Date that distributions received by the Smartshares
Fund during the months following the previous Distribution Date will be paid out (or reinvested for
you) in one lump sum. Currently, distributions received by the NZ Dividend Fund and Aus Financials
7
Fund are paid out quarterly and distributions received by the Aus Resources Fund are paid to
investors semi-annually.
Management fees Management fees are deducted before distributions are paid to you, meaning
you earn less than the full distributions paid on the Index Securities the Smartshares Fund invests in.
Of course, it is unlikely that you would be able to invest in the Index Securities directly without also
paying some management costs, taxes and fees such as brokerage to third parties.
Different market values Units trade at the market price, which is unlikely to be exactly the same
as the Current Unit Value. One mechanism in place to reduce this difference is provision for larger
investors to be able to exchange Baskets of Index Securities for the equivalent Units and vice versa.
With this ability, larger investors are able to take advantage of any difference between the market
price of Units and the equivalent Index Securities. If they do take advantage of that difference, it
affects the demand and supply of Units in a way that is expected to align the market price of Units
more closely with the per Unit value of the relevant Index Securities. However, despite this
mechanism, the market price of the Units and the per Unit value of the relevant Index Securities are
not always closely aligned due to market forces that are outside the control of the Manager.
Distributions
Distributions to Unitholders are currently made directly from each Smartshares Fund within 20 Business
Days of each Record Date. Currently, the Record Date for the NZ Dividend Fund and the Aus Financials
Fund is on or around the last Business Day of each of March, June, September and December in any year
and the Record Date for the Aus Resources Fund is on or around the last Business Day of each of March
and September. These distributions comprise dividends or any other income received by the Smartshares
Fund, less fees and other expenses. Unitholders will automatically have their distributions re-invested for
Smartshares Units unless they elect to have them paid directly to a nominated New Zealand bank account in
New Zealand dollars. There is further information about distributions on page 31.
Smartshares
The Manager is responsible for all adjustments to the Smartshares Funds' portfolios, the maintenance of
accounting records of the Smartshares Funds, communication with Unitholders, supervision of the Unit
Registrar, including the payment of distributions to Unitholders and the purchase or sale of Index Securities
as determined by the Smartshares Funds in the event of any required adjustments to the different indices
that the Smartshares Funds track. Some of these duties are delegated to the Administration Manager, the
relevant Custodian and the Unit Registrar.
The other principal persons involved in providing the Smartshares Funds are:
BNP Paribas Fund Services Australasia Pty Ltd, acting through its New Zealand branch (the
Administration Manager for all Funds and the Custodian for the Aus Financials Fund and Aus
Resources Fund);
JB Were (NZ) Nominees Limited (the Custodian for the NZ Dividend Fund); and
None of the Manager, Trustee, Administration Manager, Custodians, Unit Registrar or NZX (as the parent
company of the Manager) provide any guarantee in relation to the Smartshares Funds.
There is further information about the persons involved in providing the Smartshares Funds on pages 23 to
25.
Index
Description
NZ Dividend
Fund
Aus Financials
Fund
Aus
Resources
Fund
When the index that your Smartshares Fund tracks changes, your investment is designed to change with it.
The unit price of each Smartshares Unit (the Current Unit Value) reflects the value of the Index Securities
held in the relevant Smartshares Fund and the dividends and other income received or accrued by and held
in the relevant Smartshares Fund, less liabilities (such as tax, fees and expenses). As noted above, if you
sell your Units on market, the price you receive may differ from the Current Unit Value.
Further information about the index tracked by each of the Smartshares Funds can be found in the
registered prospectus for the Smartshares Funds, and also on pages 17 to 22 of this Investment Statement.
Benefits of Smartshares
Spread your investment
When you invest in a Smartshares Fund, you get an indirect investment through the Smartshares Fund in
each entity in the index in which the Smartshares Fund invests. With one simple purchase you get an
investment in the issuers included in the relevant index, spreading your risk across a portfolio of securities,
which makes this a more diversified investment than an investment in a single issuer. Diversification may
reduce risk. This is because it is less likely that all the entities in the Smartshares Fund will perform similarly
at the same time. For example, the losses from entities performing poorly may be balanced by the gains
from those performing well. However, each Smartshares Fund only allows diversification within the asset
class, investment type or Index Issuer industry represented in the index tracked by that specific Smartshares
Fund.
Flexibility
Smartshares Funds provide the diversification of a fund investment while giving you similar transparency and
convenience to an investment in individual shares the ability to know the value of your investment at any
moment, and the flexibility to trade your investment quickly (subject to liquidity risk). This is because
Smartshares Units are expected to trade like individual shares, with their prices published in the newspapers
9
and on-line (www.nzx.com) so you can track the progress of your investment at any time. The Special
Division has permitted the Manager to quote the Units on the NZX Main Board, so you are able to trade your
Smartshares Units on market (subject to liquidity), just like a share in a Listed company.
Smartshares makes contributing simple
Once you hold the Minimum Holding in the relevant Fund, you can make regular contributions from as little
as $50 per month by way of the Regular Savings Plan. And you can stop, restart, increase or decrease your
regular contributions whenever you like (subject to providing the Unit Registrar with ten Business Days'
notice prior to the 20th of a month and, unless you are completely stopping contributions, maintaining a
minimum contribution of $50 per month). You can also add to your investment through the Distribution
Reinvestment Plan where your distributions are automatically reinvested as additional Smartshares Units
or you can choose to have your distributions paid directly to you by direct credit.
Transparency
Smartshares Funds are transparent because the Smartshares Funds' holdings are always known to the
market. Unitholders will know that whenever there is a change to the relevant index (which will be
announced by the Index Administrator) the Manager will buy and sell the Index Securities to adjust the
relevant Smartshares Fund's holdings, with the intention of matching that change to the relevant index.
Lower Fees
Smartshares Funds are able to offer lower fees because the Manager does not make active investment
decisions, which may require expensive research, analytical and trading expertise. Trading only occurs to
rebalance the Smartshares Funds' holdings to match the weighting of each entitys shares in the indices. By
contrast, actively managed funds, where the manager makes active investment decisions, generally incur
higher costs and therefore may charge a higher management fee.
Market risk Fluctuations in the security price of, and distributions paid by, the Index Issuers will
lead to fluctuations in the Returns on Units in the Smartshares Funds. Such fluctuations could be
related to the circumstances of an individual Index Issuer and affect the share price or distributions
of that Index Issuer only, or could be related to circumstances with more widespread effects and
affect a number of, or all, Index Issuers or Index Issuers within a particular industry.
Tracking risk For a variety of reasons, including those described on page 7, the Manager will not
always manage to exactly track the relevant index for each Smartshares Fund. As a result of this,
the Index Securities held by a Smartshares Fund may, over time, not exactly match the composition
of the relevant index. Of course, investors investing directly in order to track an index are likely to
face the same issues as the Manager in trying to exactly track the relevant index. There is further
information about index tracking on page 36.
Operational risk Tracking an index is complex and, as a result, operational errors can occur.
Such errors could potentially affect Unitholders' Returns.
Passive management risk The Smartshares Funds are passive investments, which means the
Manager will not react to events that affect the value of particular Index Issuers unless and until
those events lead to a change in the composition of the relevant index.
Liquidity risk Investors are only able to cash in their investment by selling their Units on market
unless they have enough Units to do a Basket withdrawal. (Basket withdrawals are described on
page 42.) The market price per Unit may vary from the Current Unit Value due to supply and
demand factors. Each Smartshares Fund is listed on the NZX Main Board and, in the opinion of the
Manager, there is an established market for sales of Units. However, although the Smartshares
Funds are listed on the NZX Main Board, the fact that investors can apply to purchase Units directly
from the Manager may mean there are fewer buyers of Units on the NZX Main Board.
10
Foreign currency risk Because the Aus Financials Fund and Aus Resources Fund invest in ASX
listed entities, and therefore receive Returns in Australian dollars, these Funds will be exposed to
currency risk based on the exchange rate between the Australian and New Zealand dollar. This is a
risk because the Manager does not currently take steps to hedge against currency fluctuations. This
risk does not apply to the NZ Dividend Fund.
Regulatory and tax risk The Smartshares Funds are subject to an ongoing risk that regulatory or
tax law requirements may change, and that this may have an adverse effect on Unitholders' Returns.
Also, the Smartshares Funds are Portfolio Investment Entities (PIEs), with benefits for Unitholders,
and there is a risk that this status may be lost, as discussed on pages 31 to 33 below.
Basket Withdrawal
The application fees for initial Cash Applications and Baskets may be increased and an application fee for
subsequent Cash Applications may be added by the Manager by giving ten Business Days' notice of the
change to the Trustee. The other fees referred to above may be increased or imposed by the Manager by
giving three months' notice to the Trustee and, if the Manager determines in its reasonable discretion that
the increase or imposition is material to the Unitholders of the relevant Smartshares Fund. All fees may be
decreased by the Manager by giving notice to the Trustee (and such decrease may have immediate effect).
There is no limit to the amount by which fees may be increased or imposed.
The Manager is also entitled to charge a Unitholder in respect of non-standard services requested by that
Unitholder.
Further information about charges for Unitholders can be found on page 29 and 30.
lending on behalf of a Smartshares Fund. (Securities lending is explained on page 34 and 33.) Currently,
only the NZ Dividend Fund undertakes securities lending. The amount of the payment received by the
Manager for administering securities lending is currently 50% of the net revenue payable to the relevant
Smartshares Fund in respect of the securities of the Smartshares Fund lent.
All of these fees may be increased by the Manager by giving three months' notice of the change to the
Trustee and, if the change is material (as determined by the Manager in its reasonable discretion), to
Unitholders of the relevant Smartshares Fund or the fees may be decreased by the Manager by giving notice
to the Trustee (and such decrease may have immediate effect). There is no limit on the changes that the
Manager may make to fees charged.
The Manager is also entitled to interest on amounts held including in respect of distributions and other
income received by the Smartshares Funds and on Subscription Amounts (received as Cash Applications or
under the Regular Savings Plan or Distribution Reinvestment Plan) between the date on which they are
received and the date of issue of Units.
Further information about the Manager's fees can be found on page 29.
12
HOW DO I APPLY?
How to get started with Smartshares
You can start your investment in a Smartshares Fund by making an initial Cash Application from as little as
$500. You can do this by completing the Application Form for new Units at the back of this Investment
Statement, or by applying online at http://smartshares.co.nz/invest-now.
Alternatively you can obtain an investment in a Smartshares Fund by purchasing existing Units on market
through an NZX Firm, in which case the Managers application fees will not apply.
If you are buying new Units, send in your completed Application Form, together with the full amount of the
application payment, to Link Market Services Limited, PO Box 91976, Auckland 1142. Alternatively, you can
send it to the Manager, an NZX Firm and through any other channel approved by NZX (of which there are
currently none). Investors can also apply online at http://smartshares.co.nz/invest-now.
Make sure you read all the information contained in this Investment Statement before deciding whether to
invest and which Smartshares Fund to invest in. There is also additional information that you may find
helpful in the registered prospectus for the Smartshares Funds.
Before investing, you should consider seeking advice from a financial adviser. Using a financial adviser
cannot prevent you from losing money, but it should be able to help you make better investment decisions.
More information about financial advisers is set out on pages 3 and 4.
Further investments
Once you've made the initial investment, you can make further investments, either:
Flexible you can stop, restart, increase or decrease (subject to maintaining a minimum contribution
of $50 per month) your regular contributions
Investing regularly provides dollar cost averaging (which is described on page 26)
Helps you accumulate Smartshares Units every month you acquire additional Smartshares Units
automatically without needing to think about it.
Basket Application
On Market Purchase
Direct Application
14
Method of Sale
On Market Sale
Basket Redemption
15
BOARD OF DIRECTORS
The directors of the Manager are Bevan Miller (Chair), Tim Bennett, John Willliams and Guy Elliffe. The
Smartshares Funds operated by the Manager are passively managed funds or have their investment
management function outsourced. Consequently, the board has been constructed to provide a mix of
operational, financial and legal skills rather than specific funds management experience. Brief profiles for
each of the directors, detailing their experience and qualifications, are set out below.
Bevan Miller
Tim Bennett
John Williams
Guy Elliffe
16
18
20
22
The Manager
The Manager for the Smartshares Funds is Smartshares Limited, a wholly-owned subsidiary of NZX.
None of the Manager, any of its directors, any person associated with this offer, or NZX guarantees the
Smartshares Units, repayment of Smartshares Units, or the payment of any dividends or distributions on
Smartshares Units.
The principal activity of the Manager is to manage funds, including the Smartshares Funds. The Manager
led the development of index tracking funds in New Zealand with the launch of the NZX 10 Fund (formerly
The NZSE TeNZ Fund) in 1996. The NZX 10 Fund remains the longest standing exchange traded index
tracking fund listed on the NZX Main Board.
The Financial Markets Conduct Act 2013 requires managers who act as the manager of a registered scheme
to be licensed by the FMA before they can make offers under the new disclosure regime in the Financial
Markets Conduct Act 2013. Fund managers were able to submit an application for a licence from 1 April
2014. The Manager has applied to the FMA to obtain the necessary licence and the FMA is currently
considering the Managers application. Licences will be issued at the discretion of the FMA. As the Manager
does not yet hold a licence, it offers units under the Securities Act 1978, which will apply to this offer.
The Manager's address may change from time to time. You can find up-to-date details at any time at
www.business.govt.nz/companies.
Directors of the Manager
As at the date of this Investment Statement, the directors of the Manager are:
Timothy Oliver Bennett (Wellington)
Bevan Keith Miller (Wellington)
Guy Roulston Elliffe (Wellington)
Alister John Williams (Auckland)
The directors of the Manager may be contacted at the offices of the Manager.
The directors of the Manager, and their respective addresses, may change from time to time without notice
to you. You can find up-to-date details of the directors, and their respective addresses, at any time, at
www.business.govt.nz/companies. Profiles for each of the directors are set out on page 16.
The powers of the Manager are set out in the Summary of the Trust Deeds in the registered prospectus for
the Smartshares Funds.
Summary of Duties
The Manager is responsible for all adjustments to the Smartshares Funds portfolios of Index Securities,
including the purchase or sale of Index Securities in the event of any required adjustments as a result of
changes to the indices or corporate actions, the maintenance of accounting records of the Smartshares
Funds, communication with Unitholders, supervision of the Unit Registrar, the payment of distributions to
Unitholders and administration of any securities lending programme implemented for the Smartshares Funds
(see pages 34 and 35 for further details). Some of these responsibilities are delegated to the Administration
Manager, the relevant Custodian and the Unit Registrar.
The Trustee
The Trustee is:
Trustees Executors Limited
Level 5, 10 Customhouse Quay
PO Box 3222
Wellington
Tel: (04) 495 0999
Fax: (04) 496 2952
Email: enquiries@trustees.co.nz
The Trustee's address may change from time to time.
www.business.govt.nz/companies.
The Trustee has been granted a licence under section 16(1) of the Financial Markets Supervisors Act 2011
to act as a trustee in respect of debt securities, unit trusts, and KiwiSaver schemes, and as a statutory
supervisor for participatory securities, for a term expiring 16 January 2018.
A copy of the Trustees licence, including the conditions on the licence, can be obtained at the FMAs
website: www.fma.govt.nz by clicking on Compliance, Lists and registers, Licensed Supervisors,
Trustees Executors Limited. Alternatively, a copy can be found on the Trustees website:
www.trustees.co.nz. All conditions and reporting obligations have been duly satisfied by the required dates.
If you have any queries about the licence please contact the Trustee in the first instance.
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The Custodian
The Custodian for the Aus Financials Fund and Aus Resources Fund
is:
BNP Paribas Fund Services Australasia Pty Ltd, New Zealand branch
Level 18, State Insurance Tower, 1 Willis Street
PO Box 3299, Wellington
www.securities.bnpparibas.com
The Custodian for the NZ Dividend Fund is:
JB Were (NZ) Nominees Limited
Level 38, Vero Centre, 48 Shortland Street
PO Box 887, Auckland 1001
www.jbwere.co.nz
The Custodians' addresses may change from time to time. You can find up-to-date details at any time at
www.business.govt.nz/companies.
The Custodians provide custodial services, including holding assets of the relevant Smartshares Funds in
custody for safekeeping and separate from the personal assets of the Trustee or Manager.
Unit Registrar
The Unit Registrar for the Smartshares Funds is:
Link Market Services Limited
Level 7, Zurich House
21 Queen Street
Auckland 1010
Tel: (09) 375 5998
Fax: (09) 375 5990
Email: smartshares@linkmarketservices.co.nz
The Unit Registrar's address may change from time to time. You can find up-to-date details at any time at
www.business.govt.nz/companies.
None of the Trustee, the Administration Manager, the Custodians, the Unit Registrar nor any of their
directors nor any other persons associated with the offer guarantees the Smartshares Units, repayment of
the Smartshares Units, or the payment of any dividends or distributions on Smartshares Units.
25
1. Cash Applications
Subscriptions for Smartshares Units can be made by applying online at www.smartshares.co.nz/invest-now,
or by completing the Application Form attached to this Investment Statement and sending it with the full
amount of the application payment to Smartshares Limited at the address of the Unit Registrar or to any NZX
Firm. You can also buy Units on market via an NZX Firm, in which case the Managers application fees will
not apply.
The minimum cash Subscription Amount for investors who do not already have the Minimum Holding of 50
Smartshares Units in the Aus Financials Fund, or 100 Smartshares Units in the NZ Dividend Fund or Aus
Resources Fund, is $500 (which includes a flat application fee of $30 for amounts of less than $20,000 or
0.20% of the full Subscription Amount for Subscription Amounts equal to or greater than $20,000, which is
deducted from the application amount and paid to the Manager).
For investors who already have the Minimum Holding in the Smartshares Fund they wish to invest in, the
minimum cash Subscription Amount is $250.
Subscription Amounts for Cash Applications need to be received by the Unit Registrar, Link Market Services,
by the 20th of the month so Smartshares Units can be allocated and priced at the end of the month by the
Manager. There is no maximum Subscription Amount. No interest will be paid to subscribers on
Subscription Amounts.
The Manager will, at its discretion, use a Subscription Amount either to purchase Index Securities and then
issue new Units to the investor or to purchase existing Units on market through an NZX Firm and pass those
existing Units on to the investor. In either case, the Manager's purchase of Index Securities or Units with the
Subscription Amount will be made on a date selected by the Manager that is no more than ten Business
Days after the end of each month at current market prices or Current Unit Values.
If the Manager decides that an investors application will not be accepted, the Subscription Amount will be
returned to the investor within 20 Business Days of making that decision (such decision to be made within
seven days after receiving the application). No interest will be paid on amounts refunded.
month. Simply complete the Application Form and direct debit authority included in this Investment
Statement, or apply online at http://smartshares.co.nz/invest-now.
Unitholders payments will be
automatically withdrawn from their nominated bank account on a monthly basis. Unitholders can add an
additional lump sum payment ($250 minimum value), or increase or decrease their contribution at any time
(subject to providing the Unit Registrar with ten Business Days' notice prior to the 20th of a month and,
unless contributions are being completely stopped, maintaining a minimum contribution of $50 per month).
If Unitholders enter the Regular Savings Plan and then fail to make payments, no additional Smartshares
Units will be allocated to their investment. If Unitholders fail to make payments for three consecutive
months, their access to the Regular Savings Plan may be discontinued. Unitholders may at any time, by
giving the Unit Registrar ten Business Days' notice prior to the 20th of a month, cease their payments into
the Regular Savings Plan. The Manager will, at its discretion, use the Regular Savings Plan monies either to
purchase Index Securities and then issue new Units to the Unitholder or to purchase existing Units on
market and pass those existing Units on to the Unitholder. In either case, the Manager's purchase of Index
Securities or Units with Regular Savings Plan monies will be made on a date selected by the Manager that is
no more than ten Business Days after the last Business Day of each month at current market prices or
Current Unit Values.
Any interest earned on the Regular Savings Plan monies prior to the purchase of Smartshares Units or Index
Issuer securities each month will be retained by the Manager. These amounts will be used to cover the cost
of operating the Regular Savings Plan and other administrative costs. Any amount left over after this will go
to the Manager.
3. Basket Investments
For large investment amounts, Smartshares Units can be acquired by way of Basket creation. Baskets may
be created by way of delivery of the proportionate amounts of the securities of the Index Issuers (plus any
applicable Cash Amount). The Cash Amount is to ensure that each existing Unitholders proportionate
interest in the income held within that Fund prior to the issue of Smartshares Units to the Basket applicant, is
not diluted on a per unit basis by the creation of additional Smartshares Units issued to the Basket applicant.
This should result in the aggregate value of the Basket securities and the Cash Amount being equal to the
aggregate Current Unit Value of the Smartshares Units issued. The securities and Cash Amount are then
exchanged for Smartshares Units. Subscriptions for Smartshares Units by Basket creation may only be
made in multiples of 50,000 Smartshares Units for the Aus Financials Fund, 150,000 Smartshares Units for
the Aus Resources Fund and 250,000 Smartshares Units for the NZ Dividend Fund.
Basket applications must be made directly to the Manager by delivery through an NZX Firm. Each delivery
of a Basket must be accompanied by a completed Basket Application Form (not attached to this Investment
Statement, but available from the Manager or any NZX Firm). Charges for Basket investments are explained
under the section entitled What are the charges? on pages 29 and 30.
Minimum Holding
Unitholders should maintain a minimum number of Smartshares Units at all times (Minimum Holding). If you
fail to maintain the minimum number of Smartshares Units, the Manager reserves the right to purchase your
Units or instruct the Trustee to redeem them (provided that the exercise of that right would not breach the
Listing Rules). The Minimum Holding of Smartshares Units is 50 for the Aus Financials Fund, and 100 for
the NZ Dividend Fund and Aus Resources Fund (or such different amount as is determined by the Manager
in its sole discretion).
Oversubscription
There is no limit on the total number of Smartshares Units that may be subscribed for and accordingly none
of the Smartshares Funds have a policy providing for oversubscription. However, the Manager may reject
an application for Units or require redemption of Units to maintain the Funds PIE status where there is a risk
that a Unitholder will exceed the maximum investor interest size requirement prescribed in the Tax Act (and
as set out in the PIE Eligibility section at page 33 below).
Refunds
The Trustee will not refund any Subscription Amount, except where the Trustee, on the advice of the
Manager, decides that an investors application will not be accepted. In such situations the Subscription
Amount will be returned to the investor within 20 Business Days of making that decision (such decision to be
made within seven days of receiving the application). No interest will be paid on amounts refunded.
No Cooling-off Period
There is no cooling-off period in respect of the Smartshares Units. An investor may not withdraw their
application.
Basket Creation
Basket Withdrawal
The Basket creation fees may be increased by the Manager by giving ten Business Days' notice of the
change to the Trustee or the fees may be decreased by the Manager by giving notice to the Trustee (and
such decrease may have immediate effect). There is no limit to the altered fee that may be charged.
The Basket withdrawal fees may be increased by the Manager by giving three months' notice of the change
to the Trustee and, if the change is material (as determined by the Manager in its reasonable discretion), to
Unitholders of the relevant Smartshares Fund. The Basket withdrawal fees may be decreased by the
Manager by giving notice to the Trustee (and such decrease may have immediate effect). There is no limit
to the altered fee that may be charged.
There are no other entry or exit charges.
reduce the fee by giving notice to the Trustee (and such decrease may have immediate effect). There are
no limits to the Managers ability to alter its management fees.
In addition to the management fee, the Manager is entitled to interest on amounts held, including in respect
of distributions and other income received by the Smartshares Funds and on cash Subscription Amounts
(including amounts received under the Regular Savings Plan or Distribution Reinvestment Plan) between the
date on which they are received and the date of issue of Units.
The Manager is also entitled to charge a Unitholder in respect of non-standard services requested by that
Unitholder.
The Manager is also entitled to receive fees for administering securities lending (securities lending is
explained on pages 34 and 33.) Currently, only the NZ Dividend Fund undertakes securities lending. The
amount of fees received by the Manager is currently 50% of the net revenue payable to the relevant
Smartshares Fund in respect of the securities of that Smartshares Fund lent. Cash payment for any
dividends (including any Imputation Credits) paid in respect of any loaned securities, and any additional
securities required to be returned to the Fund as a result of corporate actions (for example a bonus issue),
do not form part of the net revenue from which the Manager is entitled to take a fee.
The Trustee receives fees for the services it provides. The Trustees fees are currently met by the Manager
out of the management fee and not from the assets of the Smartshares Funds. The Manager is entitled
however, in the future to seek to have the Trustee's fees charged to the Smartshares Funds. The Manager
would notify Unitholders if such a change was adopted. The amount of the fees payable to the Trustee shall
be agreed by the Manager and the Trustee.
Persons associated with the Manager are involved in the operation of the designated settlement system that
will provide services in relation to securities lending if a securities lending programme is implemented for a
Smartshares Fund, and these persons may receive fees and other remuneration in that capacity. The
services that these persons may provide include the holding of the relevant Smartshares Fund's Index
Securities in the central securities depository and the facilitation of securities lending. The Manager will not
pay those fees or remuneration from the relevant Smartshares Funds they will be paid from the
management fee.
The management fees cover the expenses for the ongoing operation of the Smartshares Funds. These
include reporting, the relevant custodian fees, administration fees, trustee fees, registry costs, brokerage
fees for purchasing securities in the Smartshares Funds and index licensing fees. The Manager reserves the
right, however, to have these amounts paid from the Smartshares Funds.
By investing in the Smartshares Funds investors accept and authorise these deductions and fees to occur
and understand that these fees can be altered on the terms set out in this Investment Statement and the
Trust Deeds.
any change in the price of Smartshares Units at the time you sell, relative to the price at which you
bought on market, or subscribed if an application was made directly; and
(b)
the distribution of dividends or other income received by the Smartshares Fund. Smartshares Funds
distribute all income received (for example, dividends and tax credits) less expenses (for example,
tax expenses and management fees). Please note that these examples of income and expenses
are not exhaustive and other types of income may be received and expenses incurred from time to
time. You will automatically have your distributions re-invested as Smartshares Units unless you
elect to have them paid directly to a nominated bank account.
30
Distributions
Distributions are currently made directly from each Smartshares Fund within 20 Business Days of the
Record Date and are paid to Unitholders whose names are on the register in respect of Units held on the
Record Date. The Record Date for the NZ Dividend Fund and the Aus Financials Fund is on or around the
last Business Day of each of March, June, September and December in any year and the Record Date for
the Aus Resources Fund is on or around the last Business Day of each of March and September.
Unitholders who sell Units or withdraw Baskets from a Smartshares Fund before a Distribution Ex Date for a
Record Date will not receive any distributions from that Smartshares Fund in respect of that Record Date.
These distributions comprise dividends or any other income (including income from securities lending, where
relevant, which will be 50% of net revenue received by the Manager from securities lending), less fees and
other expenses. Income paid into a Smartshares Fund in a foreign currency will not be available for
distribution to Unitholders until it has been exchanged for New Zealand dollars. Unitholders will automatically
have their distributions reinvested as Smartshares Units unless they elect to have them paid directly to a
nominated New Zealand bank account.
The Manager may, at its discretion, deduct from any distribution an amount of cash if, and to the extent that,
the Manager reasonably considers that such a deduction is required to meet any liabilities that may well
become payable in the next (or later) distribution period. Such deductions will be retained in the Fund.
The Manager receives and retains any interest earned on income held prior to distribution. The directors of
the Manager expect to continue with this distribution policy.
Taxation
The following comments are intended to be only a general summary and indication of the Managers
understanding of relevant New Zealand and Australian tax law as at the date of this Investment Statement.
There may be non-New Zealand tax consequences which affect the Smartshares Funds or the Unitholders.
Neither the Trustee nor the Manager accepts any responsibility for the taxation consequences of an
investment in the Smartshares Funds. Unitholders who buy or sell Smartshares Units may have different
taxation positions. Consequently, each Unitholder should consider their own taxation position and if
necessary seek professional advice before investing in Smartshares Units.
Taxation may affect the Returns on the Smartshares Funds and each of the Smartshares Funds may have
varying tax implications. The taxation summary below is based on the Managers understanding of New
Zealand and Australian tax law as at the date of this Investment Statement.
The Smartshares Funds are Listed PIEs. As Listed PIEs the Smartshares Funds pay tax on income derived
by the Smartshares Funds at a rate of 28%.
31
to 0% if the Unitholder holds 10% or more of the Smartshares Units in a Smartshares Fund; or
to a rate below 15% if the Unitholder is resident in a jurisdiction with which New Zealand has a
double tax agreement that permits a lower tax rate.
New Zealand also has a foreign investor tax credit regime whereby the impact of NRWT on dividends is
reduced by the payment of a supplementary dividend for investors holding less than 10% of the Smartshares
Units in a Smartshares Fund and if the NRWT rate is 15% or more. The Smartshares Funds intend to pay
supplementary dividends to non-resident Unitholders wherever possible, provided that payment meets the
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Any such
The Manager also has the ability to request any relevant information from Unitholders to endeavour to
ensure compliance with the PIE rules and the Trust Deeds. Additionally, the Manager has the ability to
rectify any breach of the PIE holding restrictions in accordance with the PIE rules and the Trust Deeds.
For further information regarding the eligibility of a Smartshares Fund to operate as a PIE within the PIE
requirements please refer to the Smartshares Funds' prospectus or contact the Manager.
Basket Investments
The tax status of some Unitholders may be such that they are liable for tax on profits derived from the
disposal of Index Securities. In the case of the Smartshares Funds, contributing securities in exchange for
Smartshares Units will constitute a realisation of the securities for tax purposes for those Unitholders.
New Zealand Taxation Treatment on Disposal of Units in the Smartshares Funds
The New Zealand tax treatment of profits realised or losses incurred on the disposal of Smartshares Units
will depend upon the tax position of the Unitholder. Generally speaking, profits from the disposal of
Smartshares Units will be subject to tax or a deduction will be allowed for losses incurred if:
the Unitholder acquired the Smartshares Units for the purpose of sale or other disposal; or
the Unitholder carries on a business involving dealing in the Smartshares Units or other similar
property; or
the disposal of the Smartshares Units occurs as an act done in the carrying on of a profit-making
scheme or undertaking.
As a general comment, most PIEs that invest in a Smartshares Fund should not be subject to tax on any
gains made on the disposal of Units in the Fund, and other Unitholders which are resident in a country with
which New Zealand has a double tax agreement may qualify for tax relief so that they are also not subject to
tax on any gains made on the disposal of Units in the Fund.
33
Reinvestment of distributions
Unitholders will automatically have their distributions reinvested in Smartshares Units unless they elect to
have them paid directly to a nominated New Zealand bank account. If not already a member of the
Distribution Reinvestment Plan, a Unitholder may elect to reinvest his or her distributions by returning the
Distribution Reinvestment Plan form to:
The Unit Registrar
Link Market Services Limited
PO Box 91976
Auckland 1142
Tel (09) 375 5998
Fax (09) 375 5990
Email: smartshares@linkmarketservices.co.nz
Notice of election for the Distribution Reinvestment Plan (forms are available from Smartshares Limited)
received by the Unit Registrar at least ten Business Days prior to a Distribution Date will be effective in
respect of that distribution, otherwise such notice will be effective in respect of the next distribution. Once
you have elected to reinvest your distributions, reinvestment will continue until you advise the Unit Registrar
otherwise. Fees for the Distribution Reinvestment Plan are set out on page 29.
Securities Lending
The Manager will administer a securities lending programme for the NZ Dividend Fund, under which
securities held by the NZ Dividend Fund may be loaned to a borrower.
The Manager has the power under the Trust Deeds to also undertake securities lending for the Aus
Financials Fund and Aus Resources Fund, and the possibility of a securities lending programme for those
Smartshares Funds is (and is deemed to be) included in the issue terms for each Smartshares Fund.
Securities lending involves the transfer of legal title and beneficial interest in the securities to a third party
borrower, in some cases, against collateral, and in other cases under other appropriate risk mitigation
arrangements. There are additional risks associated with securities lending. These risks are set out on page
38. The NZ Dividend Fund (and any other Smartshares Fund that implements a securities lending
programme) will receive income earned from securities lending following payment of the Managers costs of
and fees for administering securities lending.
When securities are lent the NZ Dividend Fund (and any other Fund that implements a securities lending
programme) will receive a cash payment for any dividends (including any Imputation Credits) paid in respect
of any loaned securities to the holder on the Record Date for the payment of the dividend, so that the
Smartshares Funds will receive the same Return from the securities that they would have received had they
held them directly.
34
Additional source of income: Securities lending should earn income and, following payment of the
Managers costs of and fees for administering securities lending, should increase Returns to
Unitholders of Smartshares Funds that have or implement a securities lending programme.
Facilitates creation of Baskets: The creation and withdrawal of Baskets tends to assist the market
price of the Smartshares Units of Smartshares Funds that have or implement a securities lending
programme to more closely follow the value of the underlying securities. One of the constraints on
Basket trading is the lack of liquidity of some Index Securities. The ability to borrow these securities
may assist Market Participants to trade complete Baskets of underlying securities.
being unable to recover the full amount or any of their investment and/or any Returns relating to such
investment in any of the Smartshares Funds.
An investment in Smartshares Funds should be made with the understanding of the risk inherent in an
investment in securities, including the risk that the financial condition of the Index Issuers may become
impaired or that the general condition of the market may deteriorate (either of which may cause a decrease
in the value of the Index Securities of the Index Issuers and thus in the value of Units).
The value of securities can also be affected by their liquidity. For smaller stocks, where there can often be
limited liquidity, a change in their weighting on an Index could have an effect on the level of demand in the
marketplace. This in turn may impact the price the relevant Smartshares Fund has to trade at to track the
relevant Index and the fluctuation in the price of the Index Securities may ultimately affect the Return an
investor receives.
Industry Risk
Industry risk is the risk that a particular industry may perform poorly, which may cause a decrease in the
value of the shares of the Index Issuers in that industry and thus in the value of the relevant Smartshares
Units. This will present a greater risk for funds that track industry based indices such as the Aus Resources
Fund, which will be exposed to fluctuations in the Australian resources market. Similarly, the Aus Financials
Fund will be exposed to fluctuations affecting the Australian financial sector.
Distributions Risk
The level of distributions that Unitholders receive is dependent on the level of distributions paid by Index
Issuers on the Index Securities. The Manager has no influence over the dividend policies of Index Issuers or
over anything else that may affect the level of distributions paid by them. Accordingly, there is no guarantee
of any particular level of distributions.
Index Issuer Risk
Index Issuer risk occurs where the individual assets of the Smartshares Funds fluctuate in value due to
circumstances specifically applicable to a particular Index Issuer.
If the Manager was able to perfectly track an index, this relationship would continue. However, for the
reasons explained below, this is not always possible and so a difference between the number on the lefthand side and the number on the right-hand side develops over time. To measure its tracking performance:
(a)
First, the Manager calculates the difference between the left-hand side of the equation and the righthand side of the equation, with that difference being expressed as a positive number if the left-hand
side is greater and a negative number if the right-hand side is greater.1
If at any time the Manager subdivides or consolidates Units, it will adjust the "1,000" referred to in the right-hand side of the
equation so that this action, which has nothing to do with tracking difference, does not affect the mathematical relationship. For
36
(b)
Next the Manager compares the difference calculated in (a) with the equivalent difference at the start
of the year to calculate the change in that difference over the year.
The number calculated in (b) is the Manager's measure of its tracking performance over the year. The closer
that number is to zero, the more closely the Manager has tracked the index during the year.
The principal reasons for imperfect tracking performance are as follows:
First, it may not be possible for the Manager to exactly match changes to the indices by buying and selling
Index Securities, because the prices it pays and receives for the Index Securities may not exactly match the
prices used to adjust the index. For example, there may be limited liquidity in relation to securities the
Manager is attempting to buy that pushes up the purchase price of those securities after an adjustment to an
index, but before the Manager can buy. In some cases the relevant adjustment to an index may even cause
such limited liquidity as it could affect the level of demand for the securities in the market place.
Second, tracking is a complex exercise, and errors may arise due to human or systems errors.
Some tracking imperfections mean the value of a Smartshares Fund's Index Securities increases in relation
to the value of the relevant index. This causes no detriment to Unitholders. However, some tracking
imperfections mean the value of a Smartshares Fund's Index Securities reduces in relation to the value of
the relevant index. When this is the case, the Return generated by the Smartshares Fund may be less than
the Return on the relevant index, which is detrimental to Unitholders.
Operational Risk
There is a risk that operational errors (including improperly analysing the effect of tax laws), fraud or
misconduct may cause a loss to the relevant Smartshares Fund or otherwise affect Unitholders' Returns. In
particular, tracking an index and assessing the reasons for tracking differences (that is, differences between
the NAV of a Smartshares Fund and the value of the relevant index) is very complex and some errors are
occasionally made.
In order to mitigate this risk the Manager has adopted a set of internal policies and procedures and also
outsources some aspects of its operations to the Administration Manager to draw on the Administration
Manager's systems and expertise. The Manager has also insured, subject to normal commercial excesses,
against losses arising from fraud and misconduct.
Passive Management Risk
Traditional methods of investment management for an actively managed fund typically involve deliberate
changes to a portfolio of securities based on judgement of economic, financial and market conditions. No
attempt will be made to actively manage Smartshares Funds in the traditional sense, and the Manager and
Trustee do not monitor the performance of Index Issuers.
The adverse financial condition of an Index Issuer or the industry it is in will not be a reason for the Manager
to direct the Trustee to cause a Smartshares Fund to dispose of that Smartshares Funds investments in the
Index Securities of that Index Issuer unless the Index Issuer is removed from the relevant index. Nor will
Index Securities held in Smartshares Funds be disposed of as a result of fluctuations in the market unless
they are removed from the relevant index.
Market fluctuations and such adverse conditions may affect the value of a Unitholders investment and/or
any Returns either positively or negatively. Neither the Manager nor the Trustee may delay decisions to reweight Smartshares Funds to reflect the relevant index to enhance the Returns on particular Smartshares
Units.
Liquidity Risk
Investors are only able to cash in their investment by selling their Units on market unless they have enough
Units to do a Basket withdrawal (Basket withdrawals are described on page 42). The market price per Unit
example, if the Manager subdivides all Units in two, which will halve the left-hand side of the equation, it will change the "1,000" to
"2,000" to also halve the right-hand side of the equation.
37
may vary from the Current Unit Value due to supply and demand factors. Each Smartshares Fund is listed
on the NZX Main Board and, in the opinion of the Manager, there is an established market for sales of Units.
However, although the Smartshares Funds are listed on the NZX Main Board, the fact that investors can
apply to purchase Units directly from the Manager may mean there are fewer buyers of Units on the NZX
Main Board.
Foreign Currency Risk for the Aus Financials Fund and Aus Resources Fund
While Subscription Amounts and income for reinvestment are payable in New Zealand dollars, the Manager
invests the proceeds for the Aus Financials Fund and Aus Resources Fund in securities denominated in
Australian dollars. In addition, Smartshares Units in the Aus Financials Fund and Aus Resources Fund are
quoted on the NZX Main Board in New Zealand dollars even though the assets underlying the value of those
Smartshares Units are denominated in Australian dollars.
Both of these situations give rise to currency risk that may affect the value of the Aus Financials Fund and
Aus Resources Fund, and amounts for reinvestment, either positively or negatively and hence the value or
amount of the Smartshares Units in those Smartshares Funds when considered in New Zealand dollar
terms. The Manager currently takes no steps to mitigate the Smartshares Funds foreign currency exposure.
Regulatory Risk
Regulatory risk is the risk that a Smartshares Fund may be adversely affected by future changes in
applicable laws, including tax laws, or by decisions taken by regulatory agencies enforcing those laws.
Among the regulatory risks that the Manager faces is the risk that its application for a market service licence
under the Financial Markets Conduct Act 2013 (described in more detail in the Prospectus for the
Smartshares Funds at section 20 of the statutory information section) is declined by the FMA or overly
stringent conditions are imposed on its licence.
Tax Risk
Taxation laws, their interpretation, or the New Zealand Inland Revenue Department or Australian Taxation
Offices application of those laws may change during the period of a Unitholders investment in Smartshares
Funds, in a way which has an adverse impact on the Returns to that Unitholder.
There are tax risks that need to be managed in relation to the Smartshares Funds continuing to be eligible to
be PIEs, including (but not limited to):
If a Smartshares Fund fails to meet the required criteria and therefore ceases to be a PIE, it will not
be able to re-elect to be a PIE for the succeeding five years.
If a Unitholder who is not an Exempt Investor (including all associates) holds more than 20% of the
Smartshares Units in a Smartshares Fund, that Fund may not qualify to be a PIE.
Although the Manager has put processes in place designed to ensure that each Smartshares Fund complies
with all requirements to be a PIE, there is a risk that a Smartshares Fund could lose PIE status if there is a
breach of those requirements which is not remedied within the time permitted under the PIE Rules. If PIE
status of a Smartshares Fund is lost that Fund will be taxed as a company and distributions to Unitholders
will be dividends taxable at the Unitholders marginal tax rate and potentially will be subject to withholding
tax. No compensation will be paid to Unitholders in the event that PIE status is lost. For further information
on PIE Tax risk please refer to the Smartshares Funds' prospectus.
Securities Lending Risk
There are a number of possible risks associated with securities lending (that the Manager undertakes for the
NZ Dividend Fund) which include, but are not limited to, the following:
(a)
Borrower credit risk and settlement risk: There is a risk that a borrower of securities could fail to
deliver equivalent securities on termination of a loan. For example, it may become insolvent and
therefore unable to acquire the relevant securities for delivery. A delay in, or failure in respect of,
redelivery of securities may cause the Smartshares Fund that lent the securities to incur a loss of
revenue and/or securities as a result.
38
For bilateral loans of securities to individual counterparties, collateral in excess of 105% of the value of
the securities lent will be required to be deposited with the Trustee. This collateral will be used to
purchase replacement securities if the borrower fails to deliver securities on the termination of a loan.
For loans settled through a central counterparty settlement system (such as the NZCDC Settlement
System), the obligations of the borrower to a Smartshares Fund are unsecured, as collateral is
managed by the settlement system operator and is not directly provided to that Smartshares Fund.
However, this risk is mitigated by arrangements (including prudential arrangements and oversight by
the New Zealand Reserve Bank) made for the management of risks associated with the operation of
the settlement system.
(b)
(c)
Legal risk: There is a risk that the Manager may enter into a contract relating to the securities lending
that will not be legally enforceable or not document the terms of the loan correctly. While this is a risk
with any contract, the consequences of such an error in relation to securities lending could be more
significant, because an inability to enforce an obligation to re-transfer securities could have a material
impact on the relevant Smartshares Fund's income. The Manager intends to minimise this risk by
using standard form contracts based on industry standards.
In order to limit a Smartshares Funds exposure to the risk that may arise as a result of securities lending,
the Trustee and the Manager have agreed that at the time and immediately after lending any securities in
that Smartshares Fund no more than 50% of the value of that Smartshares Fund and 50% of the aggregate
value of a security within that Smartshares Fund may be lent. Securities may not be lent if, as a result, either
of those limits will be breached.
Custodian Risk
Legal title to the assets of each Smartshares Fund is held by the relevant Custodian. That means there is a
risk that if the relevant Custodian becomes insolvent, this could temporarily or permanently deprive the
Smartshares Funds of assets. This risk is managed by having the relevant Custodian hold the assets of the
Smartshares Funds as a bare trustee and by keeping those assets separately identifiable from other assets
it holds (for itself and others). This should mean that, if the relevant Custodian ever does become insolvent,
the assets it is holding for the Smartshares Funds will not form a part of the pool of assets to be liquidated for
the benefit of the relevant Custodian's creditors.
Key Personnel Risk
The management of the Smartshares Funds is complex and many of the tasks associated with that
management require considerable experience in relation to exchange traded funds. Consequently, there is a
risk that if any of the Manager's key personnel leave, there is an increased risk of disruption and potential
calculation errors. Among other things, such calculation errors could lead to unintended tracking differences.
This risk is mitigated, to some extent, by the Manager's appointment of the Administration manager to the
Smartshares Funds. As the Administration Manager will be responsible for the day to day administration of
the Smartshares Funds, this should minimise the risk of disruption if any of the Manager's key personnel
leave.
39
Unitholder Liability
No Unitholder shall be personally liable in respect of any debt or liability of the relevant Smartshares Fund,
nor be personally liable to indemnify the Trustee or the Manager in respect of any such debt or liability,
except for any tax liability paid by the Smartshares Funds that is attributable to that Unitholder. The Trustee
and Manager, except in the case of wilful default, wilful breach of trust or dishonesty, are indemnified out of
the assets of the relevant Smartshares Fund.
Consequences of Insolvency
Unitholders are not liable to make any payments to third parties upon the winding up of Smartshares Funds,
or as a result of the insolvency of the Manager or Trustee. However, in the event that a wind-up proves
necessary, the Manager and/or Trustee shall be entitled to recover from the relevant Smartshares Fund all
costs and expenses, which are incurred in connection with or arising out of the winding up of the Fund. This
will be done prior to distributing money (or assets) to Unitholders. Claims of Unitholders in respect of their
Smartshares Units will rank equally among themselves in such circumstances.
40
Fees
The Manager is entitled to increase the amount of any fee (including by adding a fee not currently charged)
payable in respect of a Smartshares Fund. To do this it must:
(a)
give at least ten Business Days' prior notice of any such increase of any fee relating to applications
to the Trustee;
(b)
give at least three months' prior notice of any such increase of any fee not referred to in paragraph
(a) to the Trustee (including the Manager's fee); and
(c)
if such increase is material for Unitholders of a Smartshares Fund (as determined by the Manager in
its reasonable discretion), give at least three months' prior notice of any such increase of any fee not
referred to in paragraph (a) to all Unitholders of the relevant Smartshares Fund.
The Manager is entitled to decrease the amount of any fee payable in respect of a Smartshares Fund by
giving notice to the Trustee (and such decrease may have immediate effect).
(b)
(c)
if, at any time while the Units of a Trust are listed on an exchange, the same is requested or
recommended by that exchange because of a change to the rules of that exchange;
(d)
if the same is required or desirable because of any amendment or repeal and/or replacement of the
Unit Trusts Act 1960 or any other relevant legislation (including, without limitation, provisions of the
Financial Markets Conduct Act 2013, or regulations under that Act, which will become applicable to
the Smartshares Funds when the Manager opts into the Financial Markets Conduct Act regime before
the relevant statutory transition period ends on 1 December 2016 and may require changes to the
Trust Deed), or otherwise permitted or required under any relevant law; or
(e)
if in the opinion of the Trustee the same does not have a material adverse effect on Unitholders.
Following any alteration, modification, variation or addition to the provisions of a Trust Deed as set out
above, the Manager will notify the Unitholders in writing in summary form of all amendments made. This
notification will be sent to Unitholders within three months after the date the amendments are made and no
later than the time the Manager next mails information to Unitholders if that time falls no later than three
months after the date the amendments are made.
In addition, where the Trustee and the Manager agree that it is in the interests of the Unitholders to vary the
definition of Authorised Investments (as defined in the Trust Deeds) in respect of the relevant Smartshares
Fund then the proposed variation will be notified to all Unitholders no later than three months prior to the
variation taking effect.
41
Further details on the Trust Deeds and issue terms are provided in the registered prospectus for the
Smartshares Funds.
Replacement of an index
The Manager may, with the Trustee's prior written consent, replace an index with a different index that is
materially the same if the index that a Smartshares Fund tracks is discontinued or the index methodology is
changed in a way that means, in the Manager's opinion, continuing to track that index would materially
change an investment in Units in the relevant Smartshares Fund. In such circumstances, the Manager may,
with the Trustee's prior written consent, make any amendments to the Investment Policy that are necessary
or desirable in connection with the replacement of the index and must give ten Business Days' notice (or
such alternative notice period agreed with the Trustee) of such replacement to Unitholders of the relevant
Smartshares Fund. After the notice period has passed the index will be deemed to be so replaced.
1. Market sale
Each Smartshares Fund is listed on the NZX Main Board and, in the opinion of the Manager, there is an
established market for sales of Units. Smartshares units are able to be sold on market through NZX firms
(no written redemption notice is required). The market price per Smartshares Unit may vary from the Current
Unit Value due to supply and demand factors. The costs involved in a sale on the NZX Main Board is normal
sharemarket brokerage, which may vary between NZX Firms. The Manager may decline to register a
transfer of Smartshares Units if it would result in a transferee holding less than the Minimum Holding
(provided that doing so would not breach the Listing Rules).
2. Basket withdrawal
Basket withdrawals are for holdings in multiples of 50,000 Smartshares Units for the Aus Financials Fund,
150,000 Smartshares Units for the Aus Resources Fund and 250,000 Smartshares Units for the NZ Dividend
Fund.
A Unitholder can surrender Smartshares Units and receive equivalent Index Securities and a Cash Amount
representing any accrued income less accrued expenses applicable from the relevant Index Securities of
Index Issuers. All withdrawal requests should be made through an NZX Firm to the Manager after
completing a Basket withdrawal notice. Charges in relation to Basket withdrawals are explained under
What are the charges? on page 29.
The Manager is not obliged to redeem Smartshares Units in any of the Smartshares Funds in response to a
Basket withdrawal request in the period from (and including) the Announcement of a distribution to (and
including) the Distribution Ex Date (as redemptions during that period could result in a decreased number of
Smartshares Units on issue, which would in turn result in an increase in the announced distribution on a per
unit basis).
remedied:
(a)
as soon as practicable after the Manager becomes aware of the Breach, the Manager shall give
written notice to the relevant Unitholder(s) of the Breach, including details of the number of
Smartshares Units (the Excess Units) giving rise to the Breach;
(b)
the Unitholder shall have a period consisting of the grace period determined in accordance with the
Tax Act (the Remedy Period) less 30 days to remedy the Breach, but if the Manager becomes
aware of the Breach and determines that there are 30 days or less to remedy the Breach then the
Breach shall be deemed to have not been remedied; and
(c)
if the Breach has not been remedied upon expiry of the period referred to in (b) above, then the
Manager shall within the remaining 30 days of the Remedy Period, in its discretion, and only to the
extent permitted by the Listing Rules (or any ruling in respect of, or waiver from the Listing Rules),
sell, redeem, or repurchase the amount of the Excess Units in order to remedy the Breach, and:
(i)
the Manager shall account to the relevant Unitholder for the proceeds of any disposal of the
Excess Units after deduction of all expenses arising from such disposal; and
(ii)
neither the Manager nor the Trustee is required to maximise the Fund unit price for any
disposal and in any event, shall not be liable to any Unitholders for any loss on disposal.
The Manager
Head of Business
Smartshares Limited
Level 1, NZX Centre, 11 Cable Street
PO Box 2959, Wellington
Tel: 0800 80 87 80
Email: smartshares@smartshares.co.nz
www.smartshares.co.nz
43
Unit Registrar
Head of Business
Smartshares Limited
Level 1, NZX Centre
11 Cable Street
PO Box 2959
WELLINGTON
Tel: 0800 80 87 80
Email: smartshares@smartshares.co.nz
Alternatively, you may lodge a complaint with the Managers or the Trustee's Dispute Resolution Scheme
provider. The Dispute Resolution Scheme provider for the Manager and the Trustee is Financial Services
Complaints Limited. They can be contacted at:
4th Floor, 101 Lambton Quay
Wellington
P O Box 5967
Wellington 6011
Tel: 0800 347 257
Fax: (04) 472 3727
There is no ombudsman to whom complaints may be made.
The latest annual report (including financial statements) of the Smartshares Funds (when prepared).
The latest annual report including financial statements will be available from the Manager free of charge at
www.smartshares.co.nz (when prepared). The prospectus and financial statements (when prepared) are
also filed with the Companies Office, and are available on the Companies Office website
(www.business.govt.nz/companies) under the Managers file reference, free of charge.
The Trust Deeds for the Smartshares Funds may be inspected, without fee, by any person at the registered
office of the Manager. A copy of the Trust Deeds will be sent (electronically where possible) to prospective
and current investors, free of charge, on request to the Manager.
A Unitholder (or his/her/its representative) may inspect that part of the register of Smartshares Units kept by
44
the Unit Registrar that relates to his/her/its Smartshares Units, except when the register is duly closed (and
subject to any reasonable restrictions that the Manager may impose so that not less than two hours in each
working day is allowed for inspection). A copy of that part of the register of Smartshares Units relating to a
Unitholder may be obtained on payment of a reasonable fee.
Up-to-date information on the performance of Smartshares Funds is available through various sources,
including the daily newspapers and on NZX's website (www.nzx.com). Announcements to NZX, including
Announcements of the tracking differences for the Smartshares Funds can be found at www.nzx.com under
the ticker symbols "DIV" for the NZ Dividend Fund, "ASF" for the Aus Financials Fund and "ASR" for the Aus
Resources Fund.
Request information
Investors may also request from the Manager, in accordance with section 54B of the Securities Act 1978 and
regulation 44 of the Securities Regulations 2009, the information required by those provisions to be made
available. A prescribed fee may be payable (but not for a copy of the registered prospectus, a copy of the
financial statements or a copy of any document extending the period during which allotments may be made
under the registered prospectus). Such a request may be made by contacting the Manager, on the contact
details as set out on page 23, and the Manager will be able to let Unitholders know what the fee is (if any)
prior to actioning their request.
The information that may be requested under regulation 44 is:
(a)
a copy of the most recent annual report of the Smartshares Funds (when prepared);
(b)
a copy of the most recent financial statements of the Smartshares Funds, together with a copy of the
auditor's report on those statements (when prepared);
(c)
(d)
a copy of the Smartshares Funds' prospectus, together with copies of any documents registered
under the Securities Act 1978 for the purpose of extending the period during which allotments may be
made under that prospectus;
(e)
a copy of the most recent investment statement relating to the Units (which, as at the date of this
Investment Statement is this document);
(f)
if prospective information about Returns on the Units is or was contained in any prospectus or
advertisement, a comparison (if practicable, in the same form and for the same period as the
prospective information) of the actual Returns against the prospective Returns; and
(g)
if prospective financial information about the Fund was contained in any prospectus or advertisement,
a comparison (if practicable, in the same form and for the same period as the prospective financial
information) of the actual results against the prospective financial information.
45
Privacy
The Manager, through the Unit Registrar, collects and holds personal information about you for the purposes
of managing your investment and advising you of other investment opportunities. You may request access
to personal information held about you in relation to your investment. You may make such request by writing
to the Unit Registrar at:
Link Market Services Limited
PO Box 91976
Auckland 1142
or by telephoning the Unit Registrar on (09) 375 5998. Depending on the nature of any such request, the
Manager or the Unit Registrar reserves the right to impose a reasonable charge for providing access to
personal information.
The Unit Registrar's privacy policy is available on its website www.linkmarketservices.co.nz.
46
GLOSSARY OF TERMS
Administration Manager
Announcement
Application Form
the application
Statement.
ASX
Basket
Business Day
Cash Amount
form
attached
to
this
Investment
Custodian
Means:
(a) for the Aus Financials Fund and Aus Resources
Fund, BNP Paribas Fund Services Australasia Pty
Limited, acting through its New Zealand branch,
or any other custodian appointed (by the Trustee)
from time to time;
(b) for the NZ Dividend Fund, JB Were (NZ) Nominees
Limited or any other custodian appointed (by the
47
Distribution Date
Distribution Ex Date
Distribution Reinvestment
Plan
Establishment Deed
Exempt Investor
FMA
Imputation Credit
Index Administrator
Index Issuer
Index Securities
Investment Policy
Investment Statement
Listed
Listing Rules
Manager
Smartshares Limited.
Market Participant
Minimum Holding
NAV
NZCL
NZ Dividend Fund
NZDL
NZX
NZX Limited.
NZX Firm
PIE
Record Date
Return
Smartshares
Funds
Funds
or
Special Division
Subscription Amount
Tax Act
Trust Deed
Unitholder
Unit Registrar
You
Terms described above in the singular include the plural and vice versa. All dates and times contained in the
Investment Statement refer to New Zealand time.
50
Smartshares Limited
Investment Statement
-
US 500 TRUST
EUROPE TRUST
ASIA PACIFIC TRUST
EMERGING MARKETS TRUST
TOTAL WORLD TRUST
US LARGE VALUE TRUST
US LARGE GROWTH TRUST
US MID-CAP TRUST
US SMALL-CAP TRUST
Contents
IMPORTANT INFORMATION
HOW DO I APPLY?
14
21
21
22
25
27
29
32
38
39
40
41
41
GLOSSARY OF TERMS
44
IMPORTANT INFORMATION
(The information in this section is required under the Securities Act 1978.)
Investment decisions are very important. They often have long-term consequences. Read all documents
carefully. Ask questions. Seek advice before committing yourself.
Choosing an investment
When deciding whether to invest, consider carefully the answers to the following questions that can be found
on the pages noted below:
Page
What sort of investment is this?
21
22
25
27
29
32
38
39
40
Is there anyone to whom I can complain if I have problems with the investment?
41
41
In addition to the information in this document, important information can be found in the current registered
prospectus for the investment. You are entitled to a copy of that prospectus on request.
The Financial Markets Authority regulates conduct in financial markets
The Financial Markets Authority regulates conduct in New Zealands financial markets. The Financial
Markets Authoritys main objective is to promote and facilitate the development of fair, efficient, and
transparent financial markets.
For more information about investing, go to http://www.fma.govt.nz.
Financial advisers can help you make investment decisions
Using a financial adviser cannot prevent you from losing money, but it should be able to help you make
better investment decisions.
Financial advisers are regulated by the Financial Markets Authority to varying levels, depending on the type
of adviser and the nature of the services they provide. Some financial advisers are only allowed to provide
advice on a limited range of products.
When seeking or receiving financial advice, you should check
the type of adviser you are dealing with;
the services the adviser can provide you with;
3
Disclaimer
The Return on each Smartshares Fund is intended to closely track the Return on the Underlying Fund that
the Smartshares Fund invests in, subject to fluctuations in the value of the New Zealand dollar versus foreign
currencies and less certain costs and fees of the Smartshares Fund that are deducted. The Return on each
Underlying Fund will rise and fall according to market events and conditions. None of the Trustee, the
Manager, the Underlying Fund Manager, the Custodian, the Administration Manager, NZX, nor any other
person guarantees the Return on any Underlying Fund or Smartshares Fund. No warranty expressed or
implied is given as to the results to be obtained by the Manager or any Smartshares Fund from its
investment in an Underlying Fund, or as to the liquidity of an investment in any Smartshares Fund,
Smartshares Units or the fitness of any Smartshares Fund for any Unitholders purposes.
Information about the Underlying Funds is derived from each Underlying Fund's prospectus and the
Vanguard Index Funds' statement of additional information and Vanguard International Equity Index Funds'
statement of additional information and has not been independently verified by the Manager. The Manager
gives no warranty about the accuracy of such information.
The offer set out in this Investment Statement is only made in New Zealand. No person may offer, sell or
deliver Smartshares Units or distribute any documents in relation to the offer (including any copy or extract
from this Investment Statement) to any person in any jurisdiction other than in compliance with any
applicable laws and regulations.
4
These materials do not constitute an offer of securities for sale in the United States or to U.S. Persons (as
defined in Regulation S under the U.S. Securities Act of 1933) (U.S. Persons) and may not be sent or
disseminated, directly or indirectly, in the United States or to any U.S. Person in any place. The Units are not
and will not be registered under the U.S. Securities Act of 1933 (the U.S. Securities Act) or the securities
laws of any state of the United States and may not be offered, sold or otherwise transferred in the United
States or to, or for the account or benefit of, any U.S. Person except in compliance with the registration
requirements of the U.S. Securities Act and any other applicable state securities laws or pursuant to an
exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act
and applicable state securities laws.
Definitions
Defined terms in this Investment Statement have the meaning set out in the Glossary of Terms on pages 44
to 47.
US 500 TRUST;
EUROPE TRUST;
US SMALL-CAP TRUST.
The Return received by each Smartshares Fund, as a shareholder in a single Underlying Fund, is (after the
deduction of certain fees, costs and tax expenses) passed on to Unitholders. This means that Unitholders
receive Returns that are intended to closely track the Returns received by a person investing directly in the
relevant Underlying Fund less certain costs (including tax) and fees of the Smartshares Fund.
Each Underlying Fund is an index tracking fund. This means it is a fund that aims to provide a Return to its
shareholders (including the Smartshares Fund that has invested in it) that closely tracks the Return on an
index of securities (an Underlying Index) by investing in securities contained in the Underlying Index. There
are two different ways in which the Underlying Funds endeavour to achieve this objective, each of which is
described on page 21.
The Underlying Indices are made up of securities from various global markets, including North America, the
Asia Pacific Region, Africa, South America and Europe. By investing in Underlying Shares, the New
Zealand based Smartshares Funds give New Zealand investors' indirect access to the US listed Underlying
Funds, which in turn gives investors exposure to a range of international investments.
In this way, the Smartshares Funds give investors the opportunity to indirectly invest in a broad range of
overseas securities through one product. A description of the Underlying Funds and the Underlying Indices
that they track can be found on pages 18 to 19.
Exchange traded funds
Applications were made to the Special Division that regulates the Manager (in the place of NZX) for
permission to quote the Units on the NZX Main Board. These applications were accepted, and the Units are
quoted on the NZX Main Board. As quoted securities, Units can be traded like shares in Listed companies
(subject to liquidity). For most investors, trading their Units on market through an NZX Firm will be the only
way of redeeming their investment, because there is no general right to redeem Units.
Differences from direct investment
Although an investment in a Smartshares Fund is similar to a direct investment in the Index Securities held
by the relevant Underlying Fund, you will not have any rights in relation to those specific Index Securities,
nor any interest in the Underlying Fund itself. There are also some differences between the Returns you will
receive on the Smartshares Fund and the Returns on direct investments in Index Securities. The principal
differences are as follows:
Market price differences Units trade at the market price. The price at which they trade will be set by
market forces such as supply and demand relevant to their market rather than by direct reference to the
market price of the Index Securities. Consequently, while the market price of Index Securities (which will be
set by market forces relevant to Index Securities' markets) is likely to affect the market price of Units, the two
may not exactly correlate.
Liquidity differences Smartshares Units may be more or less liquid than Index Securities due to
differences in supply and demand (and other market forces). Accordingly, Units may be more difficult to sell
than some Index Securities. There is further information about liquidity risk on page 12.
Tracking differences The Manager expects each Underlying Fund to track the investment performance of
the relevant Underlying Index. However, the Underlying Fund Manager is unlikely to track the investment
performance of the relevant Underlying Index exactly. There is further information about tracking risk on
page 34.
Distribution differences An investor that invests directly in Index Securities will receive distributions in
relation to those Index Securities when they are paid by the relevant Index Issuers. In contrast, distributions
that are received by an Underlying Fund from the relevant Index Issuers will be held and distributed in
accordance with that Underlying Fund's distribution policy (as set out on page 20). Once those distributions
are received by the relevant Smartshares Fund from the Underlying Fund they will be held by that
Smartshares Fund (and be included in the Smartshares Fund's NAV) until the next Distribution Date. It is
only on that Distribution Date that distributions received during the months following the previous Distribution
Calculation Date will be reinvested for you (or paid out) in one lump sum. Any interest earned on
distributions received by the Smartshares Fund prior to the Distribution Date will be retained by the Manager.
Currently, distributions received by the Smartshares Funds are reinvested or paid to investors quarterly.
Management fees Management fees charged by the Manager and similar fees charged by the Underlying
Fund Manager are deducted before distributions are paid to you, meaning you receive less than the full
distributions paid on the Index Securities the Underlying Fund invests in. However, if you invested in the
Index Securities directly it is likely that you would have to pay some management costs, taxes and fees,
such as brokerage, to third parties (particularly given that the Index Securities are not currently, and are
unlikely to be, quoted on a New Zealand stock exchange).
Distributions
Distributions to Unitholders are currently made directly from each Smartshares Fund within 20 Business
Days of each Record Date. Currently, the Record Date is a day selected by the Manager on or about the
last Business Day in each of January, April, July and October in each year. These distributions comprise
distributions from an Underlying Fund received by the Smartshares Fund, less fees and other expenses.
According to the Underlying Funds' prospectuses, distributions received by the Smartshares Funds from the
Underlying Funds will be made in accordance with each Underlying Fund's distribution policy (a description
of which can be found on page 20) and will represent income that the Underlying Fund has received from its
holdings in the Index Issuers (such as dividends) less operating expenses (including management fees) and
transaction fees (such as trading and brokerage fees).
Unitholders will automatically have their distributions re-invested for Smartshares Units unless they elect to
have them paid directly to a nominated New Zealand bank account in New Zealand dollars. There is further
information about distributions on page 29.
The Manager invests in the relevant Underlying Fund. The stated objective of each Underlying Fund is to
buy and sell Index Securities to track the investment performance of the relevant Underlying Index, rather
than making investment decisions based on its own assessment of the Index Issuers. This means that each
Smartshares Fund and Underlying Fund is what is commonly referred to as a passive fund (as opposed to
an active fund, which involves a manager making its own judgement about where and when to invest and
divest).
The Smartshares Funds are:
Smartshares Fund Name
US 500 TRUST
Underlying Fund
Vanguard 500 Index Fund ETF
Shares
Underlying Index1
S&P 500 Index
EUROPE TRUST
US MID-CAP TRUST
US SMALL-CAP TRUST
The unit price of each Smartshares Unit (the Current Unit Value) reflects the market value of the Underlying
Shares held in the relevant Smartshares Fund and the distributions and other income received or accrued by
and held in the relevant Smartshares Fund, less outgoings from the Smartshares Funds (such as tax, fees
and expenses).
As noted above, if you sell your Units on market, the price you receive may differ from the Current Unit
Value.
Further information about the index tracked by each of the Underlying Funds can be found in the registered
prospectus for the Underlying Funds, and also on pages 18 to 19 of this Investment Statement.
The Underlying Indices are selected by the Underlying Fund Manager and may change from time to time without notification to
Unitholders or the Manager. For further information about the Underlying Fund Manager, please visit http://investor.vanguard.com.
Information contained on the website has not been independently verified by the Manager. The Manager gives no warranty about the
accuracy of such information.
9
of distributions paid by them. Returns on Index Securities may be affected by the circumstances of
individual Index Issuers (Index Issuer risk) or the circumstances of Index Issuers within a particular industry
or index (sector risk) or geographic area (regional risk) or by general sharemarket fluctuations or volatile
increases and decreases in the price of securities generally (general market risk). Accordingly, there is no
guarantee of any particular level of distributions.
Foreign currency risk
The Smartshares Funds acquire investments and receive returns in US dollars. Fluctuations in the value of
the New Zealand dollar versus the US dollar may affect the returns received by the Smartshares Funds,
because the value of the Underlying Shares and any distributions received in respect of the Underlying
Shares must be converted back into New Zealand dollars by the Smartshares Funds. The Smartshares
Funds do not hedge any of their indirect exposure to the US dollar or any other foreign currencies.
In addition, the Underlying Funds pay distributions in US Dollars and the Underlying Shares are
denominated in US Dollars. However, several of the Underlying Funds invest in foreign entities. These
Underlying Funds may be exposed to a currency risk based on the exchange rate between the currency the
Returns are received in by the Underlying Fund and the US dollar.
Tracking risk
The Underlying Shares are purchased by the Smartshares Funds at market prices. Although it is expected
that the market price of an Underlying Share will approximate its net asset value, there may be times when
the Smartshares Funds may pay more or less than the net asset value when buying Underlying Shares and
may receive more or less than the net asset value when selling Underlying Shares. In addition, the Manager
may be unable to trade Underlying Shares either temporarily or permanently because the Underlying Shares
are listed for trading on NYSE Arca (an exchange) and Trading in the Underlying Shares may be halted or
suspended or the Underlying Shares may be delisted. These circumstances could affect each Smartshares
Funds ability to provide Returns to Unitholders that closely track the Return of the relevant Underlying Index.
For a variety of reasons the Underlying Fund Manager is unlikely to track the relevant Underlying Index for
each Underlying Fund exactly. As a result of this, the investment performance of the Index Securities held
by each Underlying Fund may not, over time, track the investment performance of the relevant Underlying
Index exactly. Of course, investors investing directly in order to track an Underlying Index are likely to face
the same issues as the Underlying Fund Manager in trying to track the relevant Underlying Index.
Passive investment risk
The Smartshares Funds are passive investments and so the Manager will not react to events that affect the
value of its investments in the Underlying Funds (such as poor performance of Index Issuers in the
Underlying Indices that the Underlying Funds track) and will continue to hold and purchase the relevant
Underlying Shares.
The Underlying Funds are also passive investments, meaning that the Underlying Fund Manager does not
make active investment decisions in relation to the Index Issuers it invests in. The prospectus of each
Underlying Fund states that the Underlying Fund Manager aims to buy and sell Index Securities with the
intention of tracking the relevant Underlying Index. If an Index Issuer were to perform particularly well or
badly, the Underlying Fund Manager would not take any action, unless and until action would be required to
ensure that the Underlying Fund continues to track the relevant Underlying Index.
Operational risk
There is a risk that errors, fraud or misconduct may cause a loss to a Smartshares Fund or otherwise affect
Unitholders' Returns. The Manager has adopted policies and procedures to mitigate this risk, and the
Manager has also insured, subject to normal commercial excesses, against losses arising from fraud and
misconduct.
The Smartshares Funds rely on the Underlying Fund Manager to properly manage the Underlying Funds.
The Manager does not have control over the Underlying Fund Manager and so there is a risk that the
Underlying Fund Manager will not perform its functions properly (which the Manager may not immediately
become aware of). Such performance failures could have a material adverse effect on the value of a
Smartshares Fund's investment in an Underlying Fund, and thus on Unitholders. The Underlying Fund
Manager does not owe any obligations to Unitholders and only owes obligations to each Smartshares Fund
as a shareholder in the relevant Underlying Fund.
11
Liquidity risk
Except in limited circumstances, Unitholders are only able to cash in their investment by selling their Units
on market. The market price per Unit may vary from the Current Unit Value due to supply and demand
factors. Units are quoted on the NZX Main Board and, in the opinion of the Manager, there is an
established market for sales of Units. However, although the Units are quoted on the NZX Main Board, the
fact that investors can apply to purchase Units directly from the Manager may mean there are fewer buyers
of Units on the NZX Main Board.
Regulatory and Tax risk
The Smartshares Funds are subject to an ongoing risk that regulatory or tax law requirements may change,
and that this may have an adverse effect on Unitholders' Returns. For example, each Smartshares Fund is a
Portfolio Investment Entity (PIE), which has benefits for Unitholders, and there is a risk that this status may
be lost, as discussed on page 36 below.
The Underlying Funds are based in the United States and so there is a risk that US tax and other laws will
apply to the Smartshares Funds and/or investors in a way that the Manager did not anticipate or that such
laws change in a way that adversely affects the Underlying Funds, the Smartshares Funds and/or investors.
The Underlying Funds may be adversely affected by future changes in applicable laws, including tax laws, or
by decisions taken by regulatory agencies enforcing those laws, which may affect the net asset value of
Underlying Shares or distributions made to holders of Underlying Shares (including the relevant Fund).
There is further information about risks on pages 32 to 37.
12
13
HOW DO I APPLY?
How to get started with Smartshares
You can start your investment in a Smartshares Fund by making an initial Cash Application from as little as
$500. You can do this by applying online at www.smartshares.co.nz/invest-now, or by completing the
Application Form for new Units at the back of this Investment Statement.
Alternatively you can obtain an investment in a Smartshares Fund by purchasing existing Units on market
through an NZX Firm, in which case the Managers application fees will not apply.
If you are buying new Units, send in your completed Application Form, together with the full amount of the
application payment, to Link Market Services Limited, PO Box 91976, Auckland 1142. Alternatively, you can
send it to the Manager, an NZX Firm, or through any other channel approved by NZX (of which there are
currently none).
Make sure you read all the information contained in this Investment Statement before deciding whether to
invest and which Smartshares Fund to invest in. There is also additional information in the registered
prospectus for the Smartshares Funds.
Before investing, you should consider seeking advice from a financial adviser. Using a financial adviser
cannot prevent you from losing money, but it should be able to help you make better investment decisions.
More information about financial advisers is set out on pages 3 and 4.
Further investments
Once you've made the initial investment, you can make further investments, either:
through a further Cash Application (for a minimum of $250);
through the Regular Savings Plan (for a minimum contribution of $50 per month); or
through the Distribution Reinvestment Plan.
These options are each described below.
Alternatively you can purchase existing Units on market through an NZX Firm.
Direct Application
is applied for.
Method of Sale
On Market Sale
Basket Redemption
16
BOARD OF DIRECTORS
The directors of the Manager are Bevan Miller (Chair), Tim Bennett, John Willliams and Guy Elliffe. The
funds operated by the Manager are passively managed funds or have their investment management function
outsourced. Consequently, the board has been constructed to provide a mix of operational, financial and
legal skills rather than specific funds management experience. Brief profiles for each of the directors,
detailing their experience and qualifications, are set out below.
Bevan Miller
Tim Bennett
John Williams
Guy Elliffe
17
Underlying
Fund (The
Vanguard
Group, Inc.
Code)
Description
US 500 Trust
Vanguard 500
Index Fund ETF
Shares (VOO)
Europe Trust
Vanguard
European Stock
Index Fund ETF
Shares (VGK)
Asia Pacific
Trust
Vanguard Pacific
Stock Index
Fund ETF
Shares (VPL)
Annual
operating
expenses for
Underlying
Fund as at 13
November20152
0.05%
Management
fee for
Smartshares
Fund3
0.12%
0.45%
0.12%
0.45%
0.30%
The annual operating expenses are expressed to be a percentage of the net asset value of the Underlying Fund and do not
include transactions fees which are also paid out of the Underlying Fund. The impact of the operating expenses on Unitholders'
Returns will depend on timing and foreign exchange differences.
3
More information on the fees and charges that apply in relation to investing in a Smartshares Fund is set out on pages 26 and 27
of this document.
18
Emerging
Markets Trust
Vanguard
Emerging
Markets Stock
Index Fund ETF
Shares (VWO)
0.15%
0.45%
Total World
Trust
Vanguard Total
World Stock
Index Fund ETF
Shares (VT)
0.17%
0.45%
US Large
Value Trust
Vanguard Value
Index Fund ETF
Shares (VTV)
0.09%
0.45%
US Large
Growth Trust
Vanguard
Growth Index
Fund ETF
Shares (VUG)
0.09%
0.45%
US Mid-Cap
Trust
0.09%
0.45%
US SmallCap Trust
0.09%
0.45%
Fees and Expenses: The Underlying Fund Manager is entitled to charge its operating expenses (including
management fees) to the relevant Underlying Fund. The current annual operating expenses are set out
above (but may change without notification to Unitholders or the Manager). Transaction fees, such as
commissions when the Index Securities are bought and sold, are also paid out of the relevant Underlying
Fund.
Distributions Policy: The distribution policy for each Underlying Fund is to distribute to its shareholders
virtually all of its net income (interest and dividends, less expenses) as well as any net short-term or longterm capital gains realised from the sale of its holdings. Income dividends generally are distributed quarterly
and capital gains distributions (if any) generally occur annually.
Index Methodology: The methodology for constructing each Underlying Index is determined by the index
administrator and may change from time to time.
20
US 500 TRUST;
EUROPE TRUST;
ASIA PACIFIC TRUST;
EMERGING MARKETS TRUST;
TOTAL WORLD TRUST;
US LARGE VALUE TRUST;
US LARGE GROWTH TRUST;
US MID-CAP TRUST; and
US SMALL-CAP TRUST.
The Manager
The Manager for the Smartshares Funds is Smartshares Limited, a wholly-owned subsidiary of NZX.
None of the Manager, any of its directors, any person associated with this offer, or NZX guarantees the
Smartshares Units, repayment of Smartshares Units, or the payment of any dividends or distributions on
Smartshares Units.
The principal activity of the Manager is to manage funds, including the Smartshares Funds. The Manager
led the development of index tracking funds in New Zealand with the launch of the NZX 10 Fund (formerly
The NZSE TeNZ Fund) in 1996. The NZX 10 Fund remains the longest standing exchange traded index
tracking fund listed on the NZX Main Board.
The FMC Act requires managers who act as the manager of a registered scheme to be licensed by the FMA
before they can make offers under the new disclosure regime in the FMC Act. The Manager has applied to
the FMA for the necessary licence and the FMA is currently considering the Managers application. Licences
will be issued at the discretion of the FMA. As the Manager does not yet hold a licence, it offers the Units
under the Securities Act 1978, which will apply to this offer.
22
The Trustee
The Trustee is:
Trustees Executors Limited
Level 5, 10 Customhouse Quay
PO Box 3222
Wellington
Tel: (04) 495 0999
Fax: (04) 496 2952
Email: enquiries@trustees.co.nz
The Trustee has been granted a licence under section 16(1) of the Financial Markets Supervisors Act 2011
to act as a trustee in respect of debt securities, unit trusts, and KiwiSaver schemes, and as a statutory
supervisor for participatory securities, for a term expiring 16 January 2018.
A copy of the Trustees licence, including the conditions on the licence, can be obtained at the FMAs
website: www.fma.govt.nz by clicking on Help Me Comply, Trustees, Licensed Trustees and Statutory
Supervisors, Trustees Executors Limited. Alternatively, a copy can be found on the Trustees website:
www.trustees.co.nz. All conditions and reporting obligations have been duly satisfied by the required dates.
If you have any queries about the licence please contact the Trustee in the first instance.
23
The Custodian
The Custodian is:
BNP Paribas Fund Services Australasia Pty Ltd, New Zealand branch
Level 18, State Insurance Tower, 1 Willis Street
PO Box 3299, Wellington
www.securities.bnpparibas.com
The Custodian's address may change from time to time. You can find up-to-date details at any time at
www.business.govt.nz/companies.
The Custodian provides custodial services, including holding assets of the relevant Smartshares Funds in
custody for safekeeping and separate from the personal assets of the Trustee or Manager.
Unit Registrar
The Unit Registrar for the Smartshares Funds is:
Link Market Services Limited
Level 7, Zurich House
21 Queen Street
Auckland 1010
Tel: (09) 375 5998
Fax: (09) 375 5990
Email: smartshares@linkmarketservices.co.nz
The Unit Registrar's address may change from time to time. You can find up-to-date details at any time at
www.business.govt.nz/companies.
None of the Manager, the Trustee, the Administration Manager, the Custodian, the Unit Registrar nor any of
their directors nor any other persons associated with the offer guarantees the Smartshares Units, repayment
of the Smartshares Units, or the payment of any dividends or distributions on Smartshares Units.
1. Cash Applications
Subscriptions for Smartshares Units can be made by applying online at http://smartshares.co.nz/invest-now,
or by completing the Application Form attached to this Investment Statement and sending it with the full
amount of the application payment to Smartshares Limited at the address of the Unit Registrar or to any NZX
Firm. You can also buy Units on market via an NZX Firm, in which case the Managers application fees will
not apply.
The minimum cash Subscription Amount for investors who do not already have the Minimum Holding of
Smartshares Units in the Smartshares Fund that they wish to invest in is $500 (which includes a flat
application fee of $30 for amounts of less than $20,000 or 0.20% of the full Subscription Amount for
Subscription Amounts equal to or greater than $20,000, which is deducted from the application amount and
paid to the Manager).
For investors who already have the Minimum Holding in the Smartshares Fund they wish to invest in, the
minimum cash Subscription Amount is $250.
Subscription Amounts for Cash Applications need to be received by the Unit Registrar, Link Market Services,
by the 20th of the month so Smartshares Units can be priced at the end of the month by the Manager. There
is no maximum Subscription Amount. No interest will be paid to subscribers on Subscription Amounts.
The Manager will, at its discretion, use a Subscription Amount either to purchase the relevant Underlying
Shares and then issue new Units to the investor or to purchase existing Units on market through an NZX
Firm and pass those existing Units on to the investor. In either case, the Manager's purchase of Index
Securities or Units with the Subscription Amount will be made on or about the last Business Day of each
month at current market prices. Smartshares Units will not be allocated until after the end of the month in
which the Cash Application is received.
If the Manager decides that an investors application will not be accepted, the Subscription Amount will be
returned to the investor within 20 Business Days of making that decision (such decision to be made within
seven days after receiving the application). No interest will be paid on amounts refunded.
the Regular Savings Plan. The Manager will, at its discretion, use the Regular Savings Plan monies either to
purchase the relevant Underlying Shares and then issue new Units to the Unitholder or to purchase existing
Units on market and pass those existing Units on to the Unitholder. In either case, the Manager's purchase
of Underlying Shares or Units with Regular Savings Plan monies will be made on or about the last Business
Day of each month at current market prices. Smartshares Units will not be allocated until after the end of the
month in which the subscription under the Regular Savings Plan is received.
Any interest earned on the Regular Savings Plan monies prior to the purchase of Smartshares Units or the
relevant Underlying Shares each month will be retained by the Manager. These amounts will be used to
cover the cost of operating the Regular Savings Plan and other administrative costs. Any amount left over
after this will go to the Manager.
4. Basket Investments
The Manager may, at its sole discretion, allow some investors to subscribe for Smartshares Units in
exchange for a Basket or Baskets of Underlying Shares plus an additional Cash Amount (which will be
equivalent to income accrued in the relevant Smartshares Fund that will be attributable to the Units being
subscribed for).
The Manager will decide the number of Underlying Shares that constitute a Basket, the Cash Amount per
Basket and the number of Units that will be issued in exchange for a Basket at the time the Manager is
approached by an investor about making a Basket application. While the Manager has not set a minimum
Basket size, it anticipates that it will only allow investors to make a Basket application in limited
circumstances.
There is no Basket application fee.
Basket applications must be made through an NZX Firm on the Basket application form available from the
Manager or any NZX Firm. The Manager may, at its sole discretion, either refuse or accept a Basket
application request.
Minimum Holding
Unitholders should maintain a minimum number of Smartshares Units at all times (Minimum Holding). If you
fail to maintain the minimum number of Smartshares Units, the Manager reserves the right to purchase your
Units or instruct the Trustee to redeem them (provided that the exercise of that right would not breach the
Listing Rules). The Minimum Holding of Smartshares Units in the US 500 Trust is 50 Units, while the
Minimum Holding of Smartshares Units in all of the other Smartshares Funds (as defined) is 100 Units.
Oversubscription
There is no limit on the total number of Smartshares Units that may be subscribed for and accordingly none
of the Smartshares Funds have a policy providing for oversubscription. However, the Manager may reject
an application for Units or require redemption of Units to maintain the Smartshares Funds PIE status where
there is a risk that a Unitholder will exceed the maximum investor interest size requirement prescribed in the
Tax Act (and as set out in the PIE Eligibility section at page 31 below).
Refunds
The Trustee will not refund any Subscription Amount, except where the Trustee, on the advice of the
Manager, decides that an investors application will not be accepted. In such situations the Subscription
Amount will be returned to the investor within 20 Business Days of making that decision (such decision to be
made within seven days of receiving the application). No interest will be paid on amounts refunded.
No Cooling-off Period
There is no cooling-off period in respect of the Smartshares Units. An investor may not withdraw their
application.
Smartshares Units in the relevant Smartshares Fund. The application fee may be increased by the Manager
by giving ten Business Days' notice of the change to the Trustee. The application fee may be decreased by
the Manager by giving notice to the Trustee (and such decrease may have immediate effect). There is no
limit to the altered fee that may be charged.
The Manager may impose an application fee for subsequent Cash Applications, subscriptions under the
Regular Savings Plan or the Distribution Reinvestment Plan, or in relation to a Basket application by giving
ten Business Days' notice of the change to the Trustee and Unitholders of the relevant Smartshares Fund.
There is no limit to the fee that may be imposed.
If you buy or sell Smartshares Units via the NZX Main Board you may be charged a brokerage fee by the
NZX Firm with whom you are dealing. The brokerage fee is likely to vary between NZX Firms.
any increase in the price of Smartshares Units at the time you sell, relative to the price at which you
bought on market, or subscribed if an application was made directly; and
(b)
any distributions from the relevant Underlying Fund or other income received by the Smartshares
Fund.
Smartshares Funds distribute all income received (for example, Underlying Fund
distributions) less outgoings (for example, tax, expenses and management fees). Please note that
these examples of income and outgoings are not exhaustive and other types of income may be
received and outgoings incurred from time to time. You will automatically have your distributions reinvested as Smartshares Units unless you elect to have them paid directly to a nominated bank
account.
Distributions
Distributions are currently made directly from each Smartshares Fund within 20 Business Days of the
Record Date and are paid to Unitholders whose names are on the register in respect of Units held on the
Record Date. The Record Date is on or about the last Business Day in January, April, July and October in
each year.
Unitholders who sell Units or redeem Units (via Basket withdrawal) from a Smartshares Fund before a
Distribution Ex Date for a Record Date will not receive any distributions from that Smartshares Fund in
respect of that Record Date.
These distributions comprise Underlying Fund distributions or any other income, less fees and other
expenses. Income paid into a Smartshares Fund in foreign currency (which is expected to be all distributions
received from the Underlying Funds) will not be available for distribution to Unitholders until it has been
exchanged for New Zealand dollars. Unitholders will automatically have their distributions reinvested as
29
Smartshares Units unless they elect to have them paid directly to a nominated New Zealand bank account.
The Manager may, at its discretion, deduct from any distribution an amount of cash if, and to the extent that,
the Manager reasonably considers that such a deduction is required to meet any outgoings that become
payable in the next (or later) distribution period. Such deductions will be retained in the Smartshares Fund.
The Manager receives and retains any interest earned on income held prior to distribution. The directors of
the Manager expect to continue with this distribution policy.
Taxation
The following comments are intended to be only a general summary and indication of the Manager's
understanding of relevant New Zealand and United States tax law as at the date of this Investment
Statement. There may be other consequences which affect the Smartshares Funds or the Unitholders.
Neither the Trustee nor the Manager accepts any responsibility for the taxation consequences of an
investment in the Smartshares Funds.
The Underlying Funds are based in the United States. There is a risk that US tax and other laws will apply to
the Underlying Funds, the Smartshares Funds and/or investors in a way that the Manager did not anticipate
or that such laws change in a way that adversely affects the Underlying Funds, the Smartshares Funds
and/or investors.
Unitholders who buy or sell Smartshares Units may have different taxation positions. Consequently, each
Unitholder should consider their own taxation position and if necessary seek professional advice before
investing in Smartshares Units.
Taxation may affect the Returns on the Smartshares Funds and investing in each of the Smartshares Funds
may have varying tax implications. The taxation summary below is based on the Manager's understanding
of New Zealand tax law as at the date of this Investment Statement.
The Smartshares Funds are Listed PIEs. As Listed PIEs the Smartshares Funds pay tax on income derived
by the Smartshares Funds at a rate of 28%.
New Zealand Taxation of investments of the Smartshares Fund
The Smartshares Funds will apply the fair dividend rate (FDR) method to calculate the amount of the
taxable income in relation to their investment in the Underlying Funds. Under the FDR method, each
Smartshares Fund will have taxable income in each income year (1 April to 31 March) calculated with
reference to 5% of the average daily opening market value of the Underlying Shares held by the relevant
Smartshares Funds.
Distributions received by the Smartshares Funds in relation to these Underlying Shares should not be
subject to further tax. The Smartshares Funds may be entitled to a credit for any withholding tax paid on
distributions received from the Underlying Funds subject to certain limits. No tax deduction may be claimed
for any losses in respect of the applicable equities under the FDR method.
New Zealand Taxation Liability of New Zealand resident investors - distributions
The following summarises the New Zealand taxation of distributions made by the Smartshares Funds to
Unitholders who are resident in New Zealand for New Zealand income tax purposes.
The Smartshares Funds will attach Imputation Credits to distributions to Unitholders to the extent that
Imputation Credits are available.
To the extent that distributions are not fully imputed New Zealand resident Unitholders will not be taxed on
distributions that they receive from the Smartshares Funds. The effect of this is that non-taxable income
(e.g. income that a Smartshares Fund receives in excess of the amount of the taxable income as calculated
under the FDR method) derived by the Smartshares Funds can be distributed to such Unitholders free from
tax.
Natural person Unitholders and trustee Unitholders (other than a trustee of a unit trust) subject to a tax rate
30
below the corporate tax rate (currently 28%) may choose to treat distributions that are fully imputed as
assessable income by including that amount in their tax return. This allows such Unitholders to use
Imputation Credits attached to distributions in excess of what is necessary to fully satisfy the income tax
liability in relation to those distributions, to offset against the tax on their other taxable income. How
Unitholders should treat distributions from the Smartshares Funds for tax purposes will depend on their
personal tax circumstances and as such it is recommended that all Unitholders should seek independent tax
advice.
New Zealand Taxation Liability of non-resident investors - distributions
The following summarises the New Zealand taxation of distributions made by the Smartshares Funds to
Unitholders who are not resident in New Zealand for New Zealand income tax purpose.
The Smartshares Funds will attach Imputation Credits to distributions to Unitholders to the extent that
Imputation Credits are available.
Non-resident withholding tax (NRWT) will be withheld at the rate of 15% from distributions which are fully
imputed. The NRWT rate on fully imputed distributions can be reduced:
to 0% if the Unitholder holds 10% or more of the Smartshares Units in a Smartshares Fund; or
to a rate below 15% if the Unitholder is resident in a jurisdiction with which New Zealand has a double
tax agreement that permits a lower tax rate.
New Zealand also has a foreign investor tax credit regime whereby the impact of NRWT on dividends is
reduced by the payment of a supplementary dividend for investors holding less than 10% of the Smartshares
Units in a Smartshares Fund and if the NRWT rate is 15% or more. The Smartshares Funds intend to pay
supplementary dividends to non-resident Unitholders wherever possible, provided that payment meets the
Trust Deeds' requirements and does not disadvantage other Unitholders.
To the extent distributions are not fully imputed, non-resident Unitholders will not be taxed on such
distributions and no NRWT will be withheld by the Smartshares Funds.
Benefits of PIE
A benefit of the PIE regime is that tax payable on distributions made by a Smartshares Fund to Unitholders
is effectively capped at 28%. If you are currently paying tax at a rate less than 28% then the excess tax paid
by the Smartshares Funds can be used to reduce the tax liabilities of Unitholders in respect of other income
that they derive at the end of each income year by including the distributions from the Smartshares Fund(s)
in your tax return.
PIE Eligibility
The Manager has the discretion to take any steps the Manager considers necessary or desirable to ensure
that each Smartshares Fund is eligible to be enrolled and remain as a PIE. This includes replacing an
Underlying Fund with a fund that is materially the same if the Smartshares Fund can no longer invest in the
Underlying Fund without compromising its PIE status or ensuring that any one Unitholders unit holding does
not exceed the maximum investor interest size requirement in the Tax Act, which is a number of
Smartshares Units not exceeding 20% of the total issued Smartshares Units of each Smartshares Fund (for
these purposes, the Smartshares Units held by the relevant Unitholders associated persons that are not
Exempt Investors and who, themselves, hold Smartshares Units amounting to 5% or more of the units on
issue will also be taken into account in determining whether the 20% threshold has been exceeded).
There is no investor interest size requirement for a Unitholder that is an Exempt Investor.
exempted Unitholder may hold up to 100% of the Smartshares Units in the Smartshares Fund.
Any such
The Manager also has the ability to request any relevant information from Unitholders to endeavour to
ensure compliance with the PIE rules and the Trust Deeds. Additionally, the Manager has the ability to
rectify any breach of the PIE holding restrictions in accordance with the PIE rules and the Trust Deeds.
For further information regarding the eligibility of a Smartshares Fund to operate as a PIE within the PIE
requirements please refer to the Smartshares Funds' prospectus or contact the Manager.
31
the Unitholder acquired the Smartshares Units for the purpose of sale or other disposal; or
the Unitholder carries on a business involving dealing in the Smartshares Units or other similar
property; or
the disposal of the Smartshares Units occurs as an act done in the carrying on of a profit-making
scheme or undertaking.
As a general comment, most PIEs that invest in a Smartshares Fund should not be subject to tax on any
gains made on the disposal of Units in the Smartshares Fund, and other Unitholders which are resident in a
country with which New Zealand has a double tax agreement may qualify for tax relief so that they are also
not subject to tax on any gains made on the disposal of Units in the Smartshares Fund.
Reinvestment of distributions
Unitholders will automatically have their distributions reinvested in Smartshares Units unless they elect to
have them paid directly to a nominated New Zealand bank account. If not already a member of the
Distribution Reinvestment Plan, a Unitholder may elect to reinvest his or her distributions by returning the
Distribution Reinvestment Plan form to:
The Unit Registrar
Link Market Services Limited
PO Box 91976
Auckland 1142
Tel (09) 375 5998
Fax (09) 375 5990
Email: smartshares@linkmarketservices.co.nz
Notice of election for the Distribution Reinvestment Plan (forms are available from Smartshares Limited)
received by the Unit Registrar at least 10 Business Days prior to a Distribution Date will be effective in
respect of that distribution, otherwise such notice will be effective in respect of the next distribution. Once
you have elected to reinvest your distributions, reinvestment will continue until you advise the Unit Registrar
otherwise. Fees for the Distribution Reinvestment Plan are set out on page 27.
Underlying Funds, others arise due to the nature of the Underlying Funds themselves.
Market risk
The Underlying Funds invest in broadly based portfolios of securities and there is a risk that the general level
of the securities prices may decline, thereby adversely affecting the value of such an investment. The level
of distributions that the Smartshares Funds receive from the Underlying Funds is dependent on the level of
distributions paid by Index Issuers (because distributions paid by Index Issuers to each Underlying Fund are
passed on to holders of the relevant Underlying Shares (including the relevant Smartshares Fund) less
certain fees and costs). The Manager has no influence over the dividend policies of Index Issuers or the
Underlying Funds or over anything else that may affect the level of distributions paid by them. Accordingly,
there is no guarantee of any particular level of distributions.
Securities are susceptible to general sharemarket fluctuations and to volatile increases and decreases in
price as market confidence in and perceptions of issuers change. These investor perceptions are
unpredictable and may be based on various factors including expectations regarding government, economic,
monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or
regional political, economic, banking or financial market crises.
The value of securities can also be affected by their liquidity. For smaller stocks, where there can often be
limited liquidity, a change in their indices weightings could have an effect on the level of demand in the
market place. This in turn may impact the price an Underlying Fund has to trade at to track the relevant
Underlying Index and the fluctuation in the price of the security may ultimately affect the Return received by
the relevant Smartshares Fund.
Returns on Index Securities and thereby the Units may also be affected by sector risks, regional risks and
index issuer risk.
Sector Risk
Other than the Vanguard Total World Stock Index Fund ETF Shares, each of the Underlying Funds invests in
a particular market sector (either a subset of the United States stock market or a particular international
region). That sector may be more volatile and less liquid than the market as a whole.
Country / Regional Risk
This is the risk that world events, such as political upheaval, financial troubles or natural disasters, will
adversely affect the value of securities issued by companies in certain countries or regions. Most of the
Underlying Funds have heavy exposure to certain countries or regions and will face a higher degree of
country risk than that of a more geographically diversified international fund.
The Vanguard Emerging Markets Stock Index Fund ETF Shares and the Vanguard Total World Stock Index
Fund ETF Shares are susceptible to emerging markets risk. This means there is a chance that the value of
the securities of companies located in emerging markets will be substantially more volatile, and substantially
less liquid, than the securities of companies located in more developed markets because, among other
factors, emerging markets can have greater custodial and operational risks, less developed legal, regulatory
and accounting systems and greater political, social and economic instability than developed markets.
Index Issuer Risk
Index Issuer risk occurs where the individual assets of an Underlying Fund fluctuate in value due to
circumstances specifically applicable to a particular Index Issuer. This risk is mitigated to an extent because
the Underlying Funds invest in a number of Index Issuers across a number of industries (and in some cases
countries and regions) at approximately their relevant index weight. Therefore, the fluctuation in value of a
single Index Issuer has a diluted effect on overall performance.
Shares must be converted back into New Zealand dollars by the Smartshares Funds. The Smartshares
Funds do not hedge any of their indirect exposure to the US dollar or any other foreign currencies.
The Underlying Funds pay distributions in US Dollars and the Underlying Shares are denominated in US
Dollars. However, several of the Underlying Funds invest in entities domiciled outside of the US. These
funds may be exposed to a currency risk based on the exchange rate between the currency the returns are
received in and the US dollar.
Tracking risk
Managers ability to acquire Underlying Shares
Each Smartshares Fund may not always be able to provide a return to Unitholders that closely tracks the
Return on the Underlying Index. The Underlying Shares are listed for trading on NYSE Arca (an exchange)
and are bought and sold by the Manager on the secondary market at market prices. Although it is expected
that the market price of an Underlying Share typically will approximate its net asset value, there may be
times when the market prices and the net asset value differ. Accordingly, the Smartshares Funds may pay
more or less than the net asset value when buying Underlying Shares and may receive more or less than the
net asset value when selling Underlying Shares. Trading in the Underlying Shares may also be halted or
suspended or the Underlying Shares may be delisted which may mean the Manager is unable to trade
Underlying Shares either temporarily or permanently.
Underlying Fund Managers ability to track Underlying Index
For a variety of reasons the Underlying Fund Manager is unlikely to track the Underlying Indices exactly. As
a result of this, the Index Securities held by an Underlying Fund may, over time, not exactly track the
investment performance of the Underlying Index that the Underlying Fund tracks.
Even where the Underlying Fund uses index replication to track an Underlying Index (described on page 21
and used by all Underlying Funds other than the Vanguard Emerging Markets Stock Index Fund ETF Shares
and the Vanguard Total World Stock Index Fund ETF Shares), it is likely that the Underlying Fund Manager
will not be able to exactly track changes to the Underlying Indices by buying and selling Index Securities,
because the prices it pays and receives for Index Securities may not exactly track the prices used to
calculate an Underlying Index. For example, there may be limited liquidity in relation to securities the
Underlying Fund Manager is attempting to buy that pushes up the purchase price of those securities after an
adjustment to the relevant Underlying Index, but before the Underlying Fund Manager can buy.
Where the Underlying Fund uses index sampling to track an Underlying Index (described on page and used
by the Vanguard Emerging Markets Stock Index Fund ETF Shares and the Vanguard Total World Stock
Index Fund ETF Shares), there is a risk that the Index Securities selected by the Underlying Fund Manager
(using its computer programs) will not provide the same investment performance as the Underlying Index.
There is also a risk that tracking errors arise due to human or systems errors, as index tracking is a complex
exercise.
Some tracking errors may result in the net asset value of an Underlying Fund's Index Securities increasing in
relation to the value of the relevant Underlying Index. However, other tracking errors may result in the net
asset value of an Underlying Fund's Index Securities reducing in relation to the value of the Underlying
Index. When the latter is the case, the Return generated by the Underlying Fund may be less than the
Return on the relevant Underlying Index.
that the Underlying Fund Manager does not make active investment decisions in relation to the Index Issuers
it invests in. The prospectus of each Underlying Fund states that the Underlying Fund Manager aims to buy
and sell Index Securities in order to track the relevant Underlying Index, rather than making judgments about
Index Issuers or wider market conditions. If an Index Issuer (or Index Issuers generally) were to perform
poorly, the Underlying Fund Manager would not take any action, unless and until action would be required to
ensure that the Underlying Fund continues to track the relevant Underlying Index.
Operational Risk
There is a risk that errors (including improperly analysing the effect of tax laws), fraud or misconduct may
cause a loss to a Smartshares Fund or otherwise affect Unitholders' Returns. In order to mitigate this risk the
Manager has adopted a set of internal policies and procedures and also outsources some aspects of its
operations to the Administration Manager to draw on the Administration Manager's systems and expertise.
The Manager has also insured, subject to normal commercial excesses, against losses arising from fraud
and misconduct.
Third Party Operational Risk
As noted above, the Manager manages some of its operational risk by outsourcing some functions, such as
the calculation of Current Unit Values, to the Administration Manager. However, while that gives the
Smartshares Funds the benefit of the Administration Manager's expertise, it also creates some risk because
it means the Manager has less direct control and oversight of those functions. The Manager has satisfied
itself of the reliability and expertise of the Administration Manager, but there is still a risk that the
Administration Manager may not perform its functions properly (which the Manager may not immediately
become aware of), or may become unable to perform these functions (for example because of its
insolvency). Such a failure could have a material adverse effect on Unitholders.
Underlying Fund Operational Risk
The Smartshares Funds rely on the Underlying Fund Manager to properly manage the Underlying Funds and
accurately track the Underlying Indices. The Manager does not have control over the Underlying Fund
Manager's functions or direct oversight of the Underlying Fund Manager's tracking performance. There is a
risk that the Underlying Fund Manager will not perform its functions properly (which the Manager may not
become aware of). In particular, tracking an index and assessing the reasons for imperfect tracking
performance is very complex and some errors may occasionally be made. Such performance failures could
have a material adverse effect on the value of a Smartshares Fund's investment in an Underlying Fund, and
thus Unitholders. The Underlying Fund Manager does not owe any obligations to Unitholders and only owes
obligations to each Smartshares Fund as a shareholder in the relevant Underlying Fund.
Liquidity Risk
Unitholders are only able to cash in their investments by selling their Units on market (although the Manager
reserves the right to, at its sole discretion, allow large Unitholders to redeem Units via Basket withdrawal,
which is described on page 39. The market price per Unit may vary from the Current Unit Value of a
Smartshares Fund due to supply and demand factors. Applications were made to the Special Division that
regulates the Manager (in the place of NZX) for permission to quote the Units on the NZX Main Board.
These applications were accepted, and Units in the Smartshares Funds are quoted on the NZX Main Board.
In the opinion of the Manager, there is an established market for sales of Units. However, although the Units
are quoted on the NZX Main Board, the fact that investors can apply to purchase Units directly from the
Manager may result in a reduced number of buyers of Units on the NZX Main Board.
Tax Risk
Taxation laws, their interpretation, or the Inland Revenue Departments application of those laws may
change during the period of an investors investment in a Smartshares Fund, in a way which has an adverse
impact on the Returns to that investor.
Each Smartshares Fund is registered as a PIE, and as such there are tax risks that need to be managed in
relation to the Smartshares Funds continuing to be eligible to be a PIE, including (but not limited to):
If a Smartshares Fund fails to meet the required criteria and therefore ceases to be a PIE, it will not
35
Regulatory Risk
Regulatory risk is the risk that a Smartshares Fund may be adversely affected by future changes in
applicable laws or by decisions taken by regulatory agencies enforcing those laws. Among the regulatory
risks that the Manager faces is the risk that the Managers application for a market services licence under the
FMC Act (described below in more detail in paragraph 20 of the statutory information) is declined by the FMA
or overly stringent conditions are imposed on its licence.
The Underlying Funds may be adversely affected by future changes in applicable laws, including tax laws, or
by decisions taken by regulatory agencies enforcing those laws, which may affect the value of Underlying
Shares or distributions made to holders of Underlying Shares (including the relevant Smartshares Fund).
US Legal Risk
The Underlying Funds are based in the United States. There is a risk that US tax and other laws will apply to
the Smartshares Funds and/or investors in a way that the Manager did not anticipate or that such laws
change in a way that adversely affects the Underlying Funds, the Smartshares Funds and/or investors.
Custodian Risk
Legal title to the assets of each Smartshares Fund is held by the Custodian. That means there is a risk that
if the Custodian becomes insolvent, this could temporarily or permanently deprive the Smartshares Funds of
their assets. This risk is managed by having the Custodian hold the assets of each Smartshares Fund as a
bare trustee and keep each Smartshares Fund's assets separately identifiable from each other's assets and
other assets it holds. This should mean that, if the Custodian ever does become insolvent, the assets it is
holding for each Smartshares Fund will not form a part of the pool of assets to be liquidated for the benefit of
the Custodian's creditors.
36
Unitholder Liability
No Unitholder shall be personally liable in respect of any debt or liability of the relevant Smartshares Fund,
nor be personally liable to indemnify the Trustee or the Manager in respect of any such debt or liability,
except for any tax liability paid by the Smartshares Funds that is attributable to that Unitholder. The Trustee
and Manager, except in the case of wilful default, wilful breach of trust or dishonesty, are indemnified out of
the assets of the relevant Smartshares Fund.
Consequences of Insolvency
Unitholders are not liable to make any payments to third parties upon the winding up of Smartshares Funds,
or as a result of the insolvency of the Manager or Trustee. However, in the event that a wind-up proves
necessary, the Manager and/or Trustee shall be entitled to recover from the relevant Smartshares Fund all
costs and expenses, which are incurred in connection with or arising out of the winding up of the
Smartshares Fund. This will be done prior to distributing money (or assets) to Unitholders. Claims of
Unitholders in respect of their Smartshares Units will rank equally among themselves in such circumstances.
In the event that an Underlying Fund is wound up, its winding-up (and therefore any distributions that may be
made to the relevant Smartshares Fund as an investor in the Underlying Fund) will be governed by US law.
37
Fees
The Manager is entitled to increase the amount of any fee (including by adding a fee not currently charged)
payable in respect of a Smartshares Fund. To do this it must:
(a)
give at least ten Business Days' prior notice of any such increase of any fee relating to applications
to the Trustee;
(b)
give at least three months' prior notice of any such increase of any fee not referred to in paragraph
(a) to the Trustee (including the Manager's fee); and
(c)
if such increase is material for Unitholders of a Smartshares Fund (as determined by the Manager in
its reasonable discretion), give at least three months' prior notice of any such increase of any fee not
referred to in paragraph (a) to all Unitholders of the relevant Smartshares Fund.
The Manager is entitled to decrease the amount of any fee payable in respect of a Smartshares Fund by
giving notice to the Trustee (and such decrease may have immediate effect).
(b)
(c)
if, at any time while the Units of a Trust are listed on an exchange, the same is requested or
recommended by that exchange because of a change to the rules of that exchange;
(d)
if the same is required or desirable because of any amendment or repeal and/or replacement of the
Unit Trusts Act 1960 or any other relevant legislation (including, without limitation, provisions of the
FMC Act, or regulations under that Act, which will become applicable to the Smartshares Funds when
the Manager opts into the FMC Act regime before the relevant statutory transition period ends on 1
December 2016 and may require changes to the Trust Deed), or otherwise permitted or required
under any relevant law; or
(e)
if in the opinion of the Trustee the same does not have a material adverse effect on Unitholders.
Following any alteration, modification, variation or addition to the provisions of a Trust Deed as set out
above, the Manager will notify the Unitholders in writing in summary form of all amendments made. This
notification will be sent to Unitholders within three months after the date the amendments are made and no
later than the time the Manager next mails information to Unitholders if that time falls no later than three
months after the date the amendments are made.
In addition, where the Trustee and the Manager agree that it is in the interests of the Unitholders to vary the
definition of Authorised Investments (as defined in the Trust Deeds) in respect of the relevant Smartshares
Fund then the proposed variation will be notified to all Unitholders no later than three months prior to the
variation taking effect.
38
Further details on the Trust Deeds and issue terms are provided in the registered prospectus for the
Smartshares Funds.
1. Market sale
Each Smartshares Fund is listed on the NZX Main Board and, in the opinion of the Manager, there is an
established market for sales of Units. Smartshares units are able to be sold on market through NZX firms
(no written redemption notice is required). The market price per Smartshares Unit may vary from the Current
Unit Value due to supply and demand factors. The costs involved in a sale on the NZX Main Board is normal
sharemarket brokerage, which may vary between NZX Firms. The Manager may decline to register a
transfer of Smartshares Units if it would result in a transferee holding less than the Minimum Holding
(provided that doing so would not breach the Listing Rules).
2. Basket withdrawal
The Manager may, at its sole discretion, allow some investors to redeem Units by withdrawing a Basket of
Underlying Shares and a Cash Amount (which is the income accrued in the relevant Smartshares Fund that
is attributable to the Units being redeemed).
The Manager will decide the number of Underlying Shares that constitute a Basket, the Cash Amount per
Basket and the number of Units that will be redeemed in exchange for a Basket at the time the Manager is
approached by an investor about making a Basket withdrawal. While the Manager has not set a minimum
Basket size, it anticipates that it will only allow investors to make a Basket withdrawal in limited
circumstances.
There is no Basket withdrawal fee.
Basket withdrawal requests must be made through an NZX Firm on the Basket application form available
from the Manager or any NZX Firm. The Manager may, at its sole discretion, either refuse or accept a
Basket withdrawal request.
For further information about the waiver see the registered prospectus for the Smartshares Funds.
If a Unitholder exceeds the investor interest size requirement prescribed in the Tax Act (the Breach) in
respect of a Smartshares Fund, the Manager may take the following steps to ensure that the Breach is
remedied:
(a)
as soon as practicable after the Manager becomes aware of the Breach, the Manager shall give
written notice to the relevant Unitholder(s) of the Breach, including details of the number of
Smartshares Units (the Excess Units) giving rise to the Breach;
(b)
the Unitholder shall have a period consisting of the grace period determined in accordance with the
Tax Act (the Remedy Period) less 30 days to remedy the Breach, but if the Manager becomes
aware of the Breach and determines that there are 30 days or less to remedy the Breach then the
Breach shall be deemed to have not been remedied; and
(c)
if the Breach has not been remedied upon expiry of the period referred to in (b) above, then the
Manager shall within the remaining 30 days of the Remedy Period, in its discretion, and only to the
extent permitted by the Listing Rules (or any ruling in respect of, or waiver from the Listing Rules),
sell, redeem, or repurchase the amount of the Excess Units in order to remedy the Breach, and:
(i)
the Manager shall account to the relevant Unitholder for the proceeds of any disposal of the
Excess Units after deduction of all expenses arising from such disposal; and
(ii)
neither the Manager nor the Trustee is required to maximise the Smartshares Fund unit price
for any disposal and in any event, shall not be liable to any Unitholders for any loss on
disposal.
The Manager
Manager Smartshares
Smartshares Limited
Level 1, NZX Centre, 11 Cable Street
PO Box 2959, Wellington
Tel: 0800 80 87 80
Email: smartshares@smartshares.co.nz
www.smartshares.co.nz
40
Unit Registrar
Manager Smartshares
Smartshares Limited
Level 1, NZX Centre
11 Cable Street
PO Box 2959
WELLINGTON
Tel: 0800 80 87 80
Email: smartshares@smartshares.co.nz
Alternatively, you may lodge a complaint with the Managers or the Trustee's Dispute Resolution Scheme
provider. The Dispute Resolution Scheme provider for the Manager and the Trustee is Financial Services
Complaints Limited. They can be contacted at:
4th Floor, 101 Lambton Quay
Wellington
P O Box 5967
Wellington 6011
Tel: 0800 347 257
Fax: (04) 472 3727
There is no ombudsman to whom complaints may be made.
the Unit Registrar that relates to his/her/its Smartshares Units, except when the register is duly closed (and
subject to any reasonable restrictions that the Manager may impose so that not less than two hours in each
working day is allowed for inspection). A copy of that part of the register of Smartshares Units relating to a
Unitholder may be obtained on payment of a reasonable fee.
Up-to-date information on the performance of Smartshares Funds is available through various sources,
including the daily newspapers and on NZX's website (www.nzx.com). Announcements to NZX can be
found at www.nzx.com under the ticker symbols "USF" for the US 500 Trust, "EUF" for the Europe Trust,
"APA" Asia Pacific Trust, "EMF" for the Emerging Markets Trust, "TWF" for the Total World Trust, "USV" for
the US Large Value Trust, "USG" for the US Large Growth Trust, "USM" for the US Mid-Cap Trust and
"USS" for the US Small-Cap-Trust.
Request information
Investors may also request from the Manager, in accordance with section 54B of the Securities Act 1978 and
regulation 44 of the Securities Regulations 2009, the information required by those provisions to be made
available. A prescribed fee may be payable (but not for a copy of the registered prospectus, a copy of the
financial statements or a copy of any document extending the period during which allotments may be made
under the registered prospectus). Such a request may be made by contacting the Manager, on the contact
details as set out on page 22 above, and the Manager will be able to let Unitholders know what the fee is (if
any) prior to actioning their request.
The information that may be requested under regulation 44 is:
(a)
a copy of the most recent annual report of the Smartshares Funds (when prepared);
(b)
a copy of the most recent financial statements of the Smartshares Funds, together with a copy of the
auditor's report on those statements (when prepared);
(c)
(d)
a copy of the Smartshares Funds' prospectus, together with copies of any documents registered
under the Securities Act 1978 for the purpose of extending the period during which allotments may be
made under that prospectus;
(e)
a copy of the most recent investment statement relating to the Units (which, as at the date of this
Investment Statement is this document);
(f)
if prospective information about Returns on the Units is or was contained in any prospectus or
advertisement, a comparison (if practicable, in the same form and for the same period as the
prospective information) of the actual Returns against the prospective Returns; and
(g)
if prospective financial information about the Smartshares Fund was contained in any prospectus or
advertisement, a comparison (if practicable, in the same form and for the same period as the
prospective financial information) of the actual results against the prospective financial information.
42
Privacy
The Manager, through the Unit Registrar, collects and holds personal information about you for the purposes
of managing your investment and advising you of other investment opportunities. You may request access
to personal information held about you in relation to your investment. You may make such request by writing
to the Unit Registrar at:
Link Market Services Limited
PO Box 91976
Auckland 1142
or by telephoning the Unit Registrar on (09) 375 5998. Depending on the nature of any such request, the
Manager or the Unit Registrar reserves the right to impose a reasonable charge for providing access to
personal information.
The Unit Registrar's privacy policy is available on its website www.linkmarketservices.co.nz.
43
GLOSSARY OF TERMS
Administration Manager
Announcement
Appendix 7 Date
Application Form
the application
Statement.
Basket
form
attached
to
this
Investment
Cash Amount
Cash Application
Custodian
Distribution Date
Distribution Ex Date
Distribution Reinvestment
Plan
Establishment Deed
Exempt Investor
FMA
FMC Act
Imputation Credit
Index Issuer
Index Securities
Investment Policy
Investment Statement
Listed
Listing Rules
Manager
Smartshares Limited.
Market Participant
Minimum Holding
Small-Cap Trust.
NAV
NZX
NZX Limited.
NZX Firm
PIE
Record Date
Return
Smartshares Funds
Special Division
Subscription Amount
Tax Act
Trust Deed
Trustee
Underlying Fund
Underlying Index
Underlying Shares
Unitholder
Unit Registrar
US
US Dollar or USD
You
Terms described above in the singular include the plural and vice versa. All dates and times contained in the
Investment Statement refer to New Zealand time.
47
Smartshares Limited
Investment Statement
GLOBAL BOND TRUST
NEW ZEALAND BOND TRUST
NEW ZEALAND CASH TRUST
Contents
IMPORTANT INFORMATION
10
HOW DO I APPLY?
16
20
20
20
23
26
27
31
35
36
37
38
38
GLOSSARY OF TERMS
41
IMPORTANT INFORMATION
(The information in this section is required under the Securities Act 1978.)
Investment decisions are very important. They often have long-term consequences. Read all documents
carefully. Ask questions. Seek advice before committing yourself.
Choosing an investment
When deciding whether to invest, consider carefully the answers to the following questions that can be found
on the pages noted below:
Page
What sort of investment is this?
20
20
23
26
27
31
35
36
37
Is there anyone to whom I can complain if I have problems with the investment?
38
38
In addition to the information in this document, important information can be found in the current registered
prospectus for the investment. You are entitled to a copy of that prospectus on request.
The Financial Markets Authority regulates conduct in financial markets
The Financial Markets Authority regulates conduct in New Zealands financial markets. The Financial
Markets Authoritys main objective is to promote and facilitate the development of fair, efficient, and
transparent financial markets.
For more information about investing, go to http://www.fma.govt.nz.
Financial advisers can help you make investment decisions
Using a financial adviser cannot prevent you from losing money, but it should be able to help you make
better investment decisions.
Financial advisers are regulated by the Financial Markets Authority to varying levels, depending on the type
of adviser and the nature of the services they provide. Some financial advisers are only allowed to provide
advice on a limited range of products.
When seeking or receiving financial advice, you should check
A financial adviser who provides you with personalised financial adviser services may be required to give
you a disclosure statement covering these and other matters. You should ask your adviser about how he or
she is paid and any conflicts of interest he or she may have.
Financial advisers must have a complaints process in place and they, or the financial services provider they
work for, must belong to a dispute resolution scheme if they provide services to retail clients. So if there is a
dispute over an investment, you can ask someone independent to resolve it.
Most financial advisers, or the financial services provider they work for, must also be registered on the
financial service providers register. You can search for information about registered financial service
providers at http://www.fspr.govt.nz.
You can also complain to the Financial Markets Authority if you have concerns about the behaviour of a
financial adviser.
Disclaimer
None of the Trustee, the Manager, the Custodian, the Administration Manager, the Investment Managers,
NZX, nor any other person guarantees the Return on Smartshares Units or investment in each Smartshares
Fund. No warranty expressed or implied is given as to the results to be obtained by the Manager or any
Smartshares Fund, or as to the liquidity of an investment in any Smartshares Fund or the fitness of any
Smartshares Fund for any Unitholders purposes. The offer set out in this Investment Statement is only
made in New Zealand. No person may offer, sell or deliver Smartshares Units or distribute any documents in
relation to the offer (including any copy or extract from this Investment Statement) to any person in any
jurisdiction other than in compliance with any applicable laws and regulations.
S&P Dow Jones Indices and NZX Disclaimer
The "S&P/NZX A-Grade Corporate Bond Index" is a product of S&P Dow Jones Indices LLC or its affiliates (SPDJI)
and NZX Limited, and has been licensed for use by Smartshares Limited. Standard & Poors and S&P are
registered trademarks of Standard & Poors Financial Services LLC (S&P) and Dow Jones is a registered trademark
of Dow Jones Trademark Holdings LLC (Dow Jones). NZX Limiteds trademark is a registered trademark of NZX
Limited. The trademarks have been licensed to SPDJI and have been sublicensed for use for certain purposes by
Smartshares Limited. Smartshares Limiteds products are not sponsored, endorsed, sold or promoted by SPDJI, Dow
Jones, S&P, any of their respective affiliates (collectively, S&P Dow Jones Indices) or NZX Limited. Neither S&P Dow
Jones Indices nor NZX Limited make any representation or warranty, express or implied, to the owners of the
Smartshares Limiteds products or any member of the public regarding the advisability of investing in securities
generally or in Smartshares Limiteds products particularly or the ability of the S&P/NZX A-Grade Corporate Bond Index
to track general market performance. S&P Dow Jones Indices and NZX Limited only relationship to Smartshares
Limited with respect to the S&P/NZX A-Grade Corporate Bond Index is the licensing of the Index and certain
4
trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors. The S&P/NZX A-Grade
Corporate Bond Index is determined, composed and calculated by S&P Dow Jones Indices or NZX Limited without
regard to Smartshares Limited or the Smartshares Limiteds products. S&P Dow Jones Indices and NZX Limited have
no obligation to take the needs of Smartshares Limited or the owners of Smartshares Limiteds products into
consideration in determining, composing or calculating the S&P/NZX A-Grade Corporate Bond Index. Neither S&P Dow
Jones Indices nor NZX Limited are responsible for and have not participated in the determination of the prices, and
amount of Smartshares Limiteds products or the timing of the issuance or sale of Smartshares Limiteds products or in
the determination or calculation of the equation by which Smartshares Limiteds products are to be converted into cash,
surrendered or redeemed, as the case may be. S&P Dow Jones Indices and NZX Limited have no obligation or liability
in connection with the administration, marketing or trading of Smartshares Limiteds products. There is no assurance
that investment products based on the S&P/NZX A-Grade Corporate Bond Index will accurately track index performance
or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a
security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it
considered to be investment advice.
NEITHER S&P DOW JONES INDICES NOR THIRD PARTY LICENSOR GUARANTEES THE ADEQUACY,
ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE S&P/NZX A-GRADE CORPORATE BOND INDEX
OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR
WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P
DOW JONES INDICES AND NZX LIMITED SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY
ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND NZX LIMITED MAKES NO
EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY SMARTSHARES
LIMITED, OWNERS OF THE SMARTSHARES LIMITEDS PRODUCTS, OR ANY OTHER PERSON OR ENTITY FROM
THE USE OF THE S&P/NZX A-GRADE CORPORATE BOND INDEX OR WITH RESPECT TO ANY DATA RELATED
THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW
JONES INDICES OR NZX LIMITED BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR
CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST
TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBLITY OF SUCH DAMAGES,
WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY
BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND
SMARTSHARES LIMITED, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
Definitions
Defined terms in this Investment Statement have the meaning set out in the Glossary of Terms on pages 41
to 43.
What is this?
Each Smartshares Fund is a unit trust. Your money will be pooled with other investors money and invested
in various investments. The Manager will invest your money and charge you a fee for its services. The
Returns you receive are dependent on the investment decisions of the Manager and of the relevant
Investment Manager and the performance of the investments. The value of those investments may go up or
down. The types of investments and the fees you will be charged are described in this document.
Investment Objective
Risks
Fees
Fund charges
Contribution fees
Withdrawal fees
Investment Objective
Risks
Fees
Fund charges
Contribution fees
Withdrawal fees
Investment Objective
Risks
Fees
Fund charges
Contribution fees
Withdrawal fees
Timetable
Opening of the Offer
Smartshares anticipates that the public will be able to subscribe for Units from
Thursday 12 November 2015.
For Cash Contributions Units will be allotted after the end of each month. This
is further described on page 23.
An application for quotation of the Units has been made to the Special
Division. While Smartshares has complied with all necessary steps as at the
date of this Investment Statement it cannot give a set date for quotation of the
Units, although it is expected to be 12 November 2015.
Payments of Distributions
Note: this timetable is indicative only and may be changed at Smartshares' discretion.
INVESTMENT POLICIES
Global Bond Trust
Description
Investment Objective
Authorised
Investments
Investment
Guidelines and
Constraints
A- Rating
-
Concentration
Limit*
5%
2%
10%
15%
10%
10%
5%
5%
10%
15%
Investment Objective
Authorised
Investments
Investment
Guidelines and
Constraints
Fund exposure
range*
Maximum
exposure *
issuer
12
AAA
AA- to AA+
A- to A+
BBB- to BBB+
BB+ and lower
Investment
NZ Government
NZ Local
Government
Funding Agency
10 100%
0 100%
0 80%
0 60%
0%
12.5%
10.0%
7.5%
5.0%
0%
10-70%
70.0%
15.0%
Range
10 70%
0 70%
0 50%
0 50%
0 30%
13
Investment Objective
To outperform the NZX 90-Day Bank Bill Index over a rolling oneyear period.
Authorised
Investments
Range
0 100%
0 50%
0 80%
0 80%
0 20%
14
15
HOW DO I APPLY?
How to get started with Smartshares
You can start your investment in a Smartshares Fund by making an Establishment Contribution of as little as
$500. If you wish to make an Establishment Contribution, send in your completed Application Form, together
with the full amount of the Establishment Contribution, to Link Market Services Limited, PO Box 91976,
Auckland 1142. Alternatively, you can send it to the Manager, an NZX Firm, or you can apply online at
www.smartshares.co.nz/invest-now or through any other channel approved by NZX (of which there are
currently none).
The Manager may suspend the acceptance of applications to make Establishment Contributions at any time
by way of an Announcement to NZX. The Manager may also reject any application for any reason. If the
Manager decides that an investors application to make an Establishment Contribution will not be accepted,
the Establishment Contribution will be returned to the investor within 20 Business Days of making that
decision (such decision to be made within seven days after receiving the application). No interest will be
paid on amounts refunded.
Alternatively following quotation of the Units, you can invest in a Smartshares Fund by purchasing existing
Units on market through an NZX Firm.
Make sure you read all the information contained in this Investment Statement before deciding whether to
invest and which Smartshares Fund to invest in. There is also additional information in the registered
prospectus for the Smartshares Funds.
Before investing, you should consider seeking advice from a financial adviser. Using a financial adviser
cannot prevent you from losing money, but it should be able to help you make better investment decisions.
More information about financial advisers is set out on pages 3 and 4.
Further investments
Once you've made the initial investment, you can make further investments, either:
through the Regular Savings Plan (for a minimum contribution of $50 per month);
Cash Contributions
As with Establishment Contributions, a Cash Contribution for further Units can be made by completing the
Application Form attached to the back of this Investment Statement and sending it with the full amount of the
Cash Contribution to Link Market Services Limited, PO Box 91976, Auckland 1142. Alternatively, you can
send it to the Manager, an NZX Firm, or you can apply online at www.smartshares.co.nz/invest-now or
through any other channel approved by NZX (of which there are currently none).
The Manager may suspend the acceptance of applications to make Cash Contributions at any time by way
of an Announcement to NZX. The Manager may also reject any application for any reason. If the Manager
decides that an investors application to make a Cash Contribution will not be accepted, the Cash
Contribution will be returned to the investor within 20 Business Days of making that decision (such decision
to be made within seven days after receiving the application). No interest will be paid on amounts refunded.
16
Flexible you can stop, restart, increase or decrease (subject to maintaining a minimum
Contribution of $50 per month) your regular Contributions
Helps you accumulate Smartshares Units every month you acquire additional Smartshares Units
automatically without needing to think about it.
Manager
or
any
NZX
Firm
or
by
applying
online
at
The Manager may suspend the acceptance of applications to make Institutional Investor Contributions at any
time by way of an Announcement to NZX. The Manager may also reject any application for any reason.
18
BOARD OF DIRECTORS
The directors of the Manager are Bevan Miller (Chair), Tim Bennett and Kristin Brandon. The funds
operated by the Manager are passively managed funds or have their investment management function
outsourced (like the Funds). Consequently, the board has been constructed to provide a mix of operational,
financial and legal skills rather than specific funds management experience. Brief profiles for each of the
directors, detailing their experience and qualifications, are set out below.
Bevan Miller
Bevan is the Chief Financial Officer of NZX. He has extensive financial experience in
both the corporate and accounting sectors, previously working as CFO for Acurity
Health Group Limited. Prior to that Bevan held a number of senior finance roles at
Telecom New Zealand, now Spark, having started his career in the audit division of
global accounting firm KPMG. Bevan is a Chartered Accountant and holds a Bachelor
of Commerce and Administration with Honours from Victoria University of Wellington.
Tim Bennett
Tim is the Chief Executive Officer of NZX. He has extensive capital markets and
commodity market development experience in Asia, the Middle East and North
America. Prior to joining NZX, Tim was a partner at Oliver Wyman in Singapore, and
previously was a partner with the Boston Consulting Group in Asia and Australia. Tim
holds an MBA in Strategy and Finance from Wharton School, University of
Pennsylvania, and a Bachelor of Commerce and Administration in Computer Science
and Business Administration from Victoria University of Wellington.
Kristin Brandon
Kristin is Head of Compliance at NZX and has worked at NZX since 2007. Kristin has
significant legal experience working at Chapman Tripp Wellington and Dechert LLP
London where she specialised in company and securities law, including advising in
relation to capital raisings, mergers and acquisitions and acting for fund managers.
Prior to joining NZX, Kristin was Assistant Company Secretary at Telecom New
Zealand Limited (now Spark). Kristin holds a Bachelor of Laws with Honours and a
Bachelor of Commerce and Administration from Victoria University of Wellington and
is both a barrister and solicitor.
It is intended that the composition of the board of directors will change prior to the quotation date of the
Smartshares Units. The Manager will make an Announcement as to the persons to be appointed to the
Smartshares board on the date of quotation of the Smartshares Units.
19
The Manager
The manager of the Smartshares Funds is Smartshares Limited, a wholly-owned subsidiary of NZX.
None of the Manager, any of its directors, any person associated with this offer, or NZX guarantees the
Smartshares Units, repayment of Smartshares Units, or the payment of any distributions on Smartshares
Units.
The principal activity of the Manager is to manage funds, including the Smartshares Funds. The Manager
led the development of exchange traded funds in New Zealand with the launch of the NZX 10 Fund (formerly
The NZSE TeNZ Fund) in 1996. The NZX 10 Fund remains the longest standing exchange traded fund
listed on the NZX Main Board.
The FMC Act requires managers who act as the manager of a registered scheme to be licensed by the FMA
before they can make offers under the new disclosure regime in the FMC Act. The Manager has begun the
application process with FMA to obtain the necessary licence. Licences will be issued at the discretion of the
FMA. As the Manager does not yet hold a licence, it offers the Units under the Securities Act 1978, which will
apply to this offer.
Address of the Manager
Smartshares Limited
NZX Centre
Level 1, 11 Cable Street
PO Box 2959
Wellington
Tel: 0800 80 87 80
Email: smartshares@smartshares.co.nz
The Manager's address may change from time to time. You can find up-to-date details at any time by
searching "Smartshares" at www.business.govt.nz/companies.
20
The Trustee
The Trustee is:
Trustees Executors Limited
Level 5, 10 Customhouse Quay
PO Box 3222
Wellington
Tel: (04) 495 0999
Fax: (04) 496 2952
Email: enquiries@trustees.co.nz
The Trustee's address may change from time to time. You can find up-to-date details at any time by
searching "Trustee Executors" at www.business.govt.nz/companies.
The Trustee has been granted a licence under section 16(1) of the Financial Markets Supervisors Act 2011
to act as a trustee in respect of debt securities, unit trusts, and KiwiSaver schemes, and as a statutory
supervisor for participatory securities, for a term expiring 16 January 2018.
A copy of the Trustees licence, including the conditions on the licence, can be obtained at the FMAs
website: www.fma.govt.nz by clicking on Compliance, Lists and registers, Licensed Supervisors,
Trustees Executors Limited. Alternatively, a copy can be found on the Trustees website:
www.trustees.co.nz. All conditions and reporting obligations have been duly satisfied by the required dates.
If you have any queries about the licence please contact the Trustee in the first instance.
21
The Administration Manager's address may change from time to time. You can find up-to-date details at any
time by searching "BNP" at www.business.govt.nz/companies.
The Administration Manager provides general fund administration services as delegated to it by the
Manager, including the calculation of the Current Unit Value and fund accounting.
The Custodian
The Custodian for the Smartshares Funds is:
BNP Paribas Fund Services Australasia Pty Ltd, New Zealand branch
Level 18, State Insurance Tower, 1 Willis Street
PO Box 3299, Wellington
www.securities.bnpparibas.com
The Custodian's address may change from time to time. You can find up-to-date details at any time by
22
Unit Registrar
The Unit Registrar for the Smartshares Funds is:
Link Market Services Limited
Level 7, Zurich House
21 Queen Street
Auckland 1010
Tel: (09) 375 5998
Fax: (09) 375 5990
Email: smartshares@linkmarketservices.co.nz
The Unit Registrar's address may change from time to time. You can find up-to-date details at any time by
searching "Link" at www.business.govt.nz/companies.
None of the Trustee, the Investment Managers, the Administration Manager, the Custodian, the Unit
Registrar nor any of their directors nor any other persons associated with the offer guarantees the
Smartshares Units, repayment of the Smartshares Units, or the payment of any distributions on Smartshares
Units.
1. Cash Contributions
Cash Contributions for Smartshares Units can be made by completing the Application Form attached to this
Investment Statement and sending it with the full amount of the Cash Contribution to Smartshares Limited at
the address of the Unit Registrar or to any NZX Firm.
Investors can also apply online at
www.smartshares.co.nz/invest-now.
The minimum Establishment Contribution is $500 (which includes the Establishment Contribution fee, which
is deducted from the Establishment Contribution and paid to the Manager).
For all other Cash Contributions, the minimum Cash Contribution is $250.
Cash Contributions need to be received by the Unit Registrar, Link Market Services, by the 20th of the month
so Smartshares Units can be priced at the end of the month by the Manager. There is no maximum Cash
Contribution. No interest will be paid to investors on their Cash Contributions.
The Manager will, at its discretion, use a Cash Contribution either to purchase Authorised Investments and
then issue new Units to the investor or to purchase existing Units on market through an NZX Firm and pass
those existing Units on to the investor. In either case, Smartshares Units will be issued to the investor at the
NAV per Smartshares Unit determined by the Manager on or about the last Business Day of the month.
Smartshares Units will not be allocated until after the end of the month in which the Cash Contribution is
received.
23
If the Manager decides that an investors application to make a Cash Contribution will not be accepted, the
Cash Contribution will be returned to the investor within 20 Business Days of making that decision (such
decision to be made within seven days after receiving the application). No interest will be paid on amounts
refunded.
with additional Smartshares Units, unless you choose to have these paid out to you by direct credit.
On each Distribution Date, the Manager will, at its discretion, use the reinvestment monies for Unitholders
who have their distributions reinvested either to purchase Authorised Investments and then issue new Units
to those Unitholders or to purchase existing Units and pass those existing Units on to those Unitholders. In
either case, Smartshares Units will be issued to the investor at the NAV per Smartshares Unit.
The Distribution Reinvestment Plan described in the prospectus for the Smartshares Funds constitutes the
description of the "dividend reinvestment plan" for the purposes of the FMC Act and Financial Markets
Conduct Regulations 2014.
Minimum Holding
Unitholders should maintain a minimum of 100 Smartshares Units at all times (Minimum Holding). If you fail
to maintain the Minimum Holding, the Manager reserves the right to purchase your Units or instruct the
Trustee to redeem them (provided that the exercise of that right would not breach the Listing Rules).
Oversubscription
There is no limit on the total number of Smartshares Units that may be subscribed for and accordingly none
of the Smartshares Funds have a policy providing for oversubscription. However, the Manager may reject
an application for Units or require redemption of Units to maintain the Funds PIE status where there is a risk
that a Unitholder will exceed the maximum investor interest size requirement prescribed in the Tax Act (and
as set out in the PIE Eligibility section at page 30 below).
Refunds
The Trustee will not refund any Contribution, except where the Trustee, on the advice of the Manager,
decides that an investors Contribution will not be accepted. In such situations the Contribution will be
returned to the investor within 20 Business Days of making that decision (such decision to be made within
seven days of receiving the application). No interest will be paid on amounts refunded.
No Cooling-off Period
There is no cooling-off period in respect of the Smartshares Units. An investor may not withdraw their
application to make a Contribution.
The Manager may also ask a Unitholder to provide any other information that the Manager reasonably
requires in order to manage its obligation to comply with any laws or regulations in New Zealand or any other
country in relation to the Smartshares Funds, including in relation to the Anti-Money Laundering and
Countering of Financing Terrorism Act 2009.
If the Manager requests a Unitholder to provide information to the Manager, the Unitholder must supply such
information within 14 days after the request. The Manager may also request such information from any other
person who the Manager understands has an interest in the Units held by a Unitholder.
Smartshares Fund
$800
$800
$400
$400
$250
$250
The Institutional Investor Contribution fees may be increased by the Manager by giving ten Business Days'
notice of the change to the Trustee or the fees may be decreased by the Manager by giving notice to the
Trustee (and such decrease may have immediate effect). There is no limit to the altered fee that may be
charged.
The Institutional Investor Withdrawal fees may be increased by the Manager by giving three months' notice
of the change to the Trustee and, if the change is material (as determined by the Manager in its reasonable
discretion), to Unitholders of the relevant Smartshares Fund. The Institutional Investor Withdrawal fees may
be decreased by the Manager by giving notice to the Trustee (and such decrease may have immediate
effect). There is no limit to the altered fee that may be charged.
There are no other entry or exit charges.
26
Management charges
Management fees are charged to the Smartshares Funds. The management fee for each Fund is currently:
Global Bond Trust
New Zealand Bond Trust
New Zealand Cash Trust
These management fees are accrued daily and payable monthly. The Manager may agree payments to
individual Unitholders that are the equivalent of management fee rebates (in the form of additional
Smartshares Units or cash, as agreed between the Manager and the Unitholder).
The fee charged by the Manager may be increased by the Manager by giving three months notice of the
change to the Trustee and, if the change is material (as determined by the Manager in its reasonable
discretion), to Unitholders of the relevant Smartshares Fund. The fee may be decreased by the Manager by
giving notice to the Trustee (and such decrease may have immediate effect). There is no limit to the altered
fee that may be charged.
In addition to the management fee, the Manager is entitled to interest on amounts held including in respect of
distributions and other income received by the Smartshares Funds and on cash Contributions between the
date on which they are received and the date of issue of Units.
The Manager is also entitled to charge a Unitholder in respect of non-standard services requested by that
Unitholder.
The Trustee receives fees for the services it provides. The Trustees fees are currently met by the Manager
out of the management fee and not from the assets of the Smartshares Funds. The Manager is entitled
however, in the future to seek to have the Trustee's fees charged to the Smartshares Funds. The Manager
would notify Unitholders if such a change was adopted. The amount of the fees payable to the Trustee shall
be agreed by the Manager and the Trustee.
The management fees cover the expenses for the ongoing operation of the Smartshares Funds (excluding
brokerage fees for purchasing Authorised Investments, which are paid from the relevant Smartshares Fund).
These include reporting, the custodian fees, investment management fees, administration fees, trustee fees
and registry costs. The Manager reserves the right, however, to have these amounts, and any other
expenses that arise, paid from the Smartshares Funds.
By investing in the Smartshares Funds investors accept and authorise these deductions and fees to occur
and understand that these fees can be altered on the terms set out in this Investment Statement and the
Trust Deeds.
any increase in the price of Smartshares Units at the time you sell, relative to the price at which you
purchased the Smartshares Units (whether through a Contribution or on market); and
(b)
any distributions or other income received by the Smartshares Fund. Smartshares Funds distribute
all income received (for example, interest and tax credits) less liabilities (for example, tax expenses
and management fees). Please note that these examples of income and liabilities are not
exhaustive and other types of income may be received and liabilities incurred from time to time. You
will automatically have your distributions re-invested as Smartshares Units unless you elect to have
them paid directly to a nominated bank account.
27
Distributions
Distributions are currently made directly from each Smartshares Fund within 20 Business Days of the
Record Date and are paid to Unitholders whose names are on the register in respect of Units held on the
Record Date. The Record Date for the Smartshares Funds is on or around the last Business Day of each of
March, June, September and December in any year. However, the Manager may choose not to make
distributions for a quarter if it considers that the income received by the relevant Smartshares Fund in that
quarter is not substantial enough to distribute. In such circumstances, such income will be held in the
relevant Smartshares Fund until the Distribution Date for the following quarter, at which point it will be
distributed to Unitholders along with any further income received by the Smartshares Fund during that
following quarter. This is most likely to occur in December 2015, because the Smartshares Funds will, at that
point, have been accruing income for less than a full quarter.
Unitholders who sell Units or redeem Units (via Institutional Investor Withdrawals) from a Smartshares Fund
before a Distribution Ex Date for a Record Date will not receive any distributions from that Smartshares Fund
in respect of that Record Date.
These distributions comprise income of the relevant Smartshares Fund, less fees and other expenses.
Amounts that the Smartshares Fund receives when an investment matures are not considered income for
this purpose and will be reinvested in Authorised Investments rather than distributed to Unitholders. Income
paid into a Smartshares Fund in foreign currency will not be available for distribution to Unitholders until it
has been converted into New Zealand dollars. Unitholders will automatically have their distributions
reinvested as Smartshares Units unless they elect to have them paid directly to a nominated New Zealand
bank account.
The Manager may, at its discretion, deduct from any distribution an amount of cash if, and to the extent that,
the Manager reasonably considers that such a deduction is required to meet any liabilities that become
payable in the next (or later) distribution period. Such deductions will be retained in the Smartshares Fund.
The Manager receives and retains any interest earned on income held prior to distribution. The directors of
the Manager expect to continue with this distribution policy.
Taxation
The following comments are intended to be only a general summary and indication of the Manager's
understanding of the relevant New Zealand tax law as at the date of this Investment Statement. There may
be non-New Zealand tax consequences which affect the Smartshares Funds or the Unitholders. Neither the
Trustee nor the Manager accepts any responsibility for the taxation consequences of an investment in the
Smartshares Funds. Unitholders who buy or sell Smartshares Units may have different taxation positions.
Consequently, each Unitholder should consider their own taxation position and if necessary seek
28
Imputation Credits attached to distributions in excess of what is necessary to fully satisfy the income tax
liability in relation to those distributions, to offset against the tax on their other taxable income. How
Unitholders should treat distributions from the Smartshares Funds for tax purposes will depend on their
personal tax circumstances and as such it is recommended that all Unitholders should seek independent tax
advice.
Benefits of PIE
A potential benefit is that tax payable on distributions made by a Smartshares Fund to Unitholders is
effectively capped at 28%. If you are currently paying tax at a rate less than 28% then the excess tax paid
by the Smartshares Funds can be used to reduce the tax liabilities of Unitholders in respect of other income
that they derive at the end of each income year by including the distributions from the Fund(s) in your tax
return.
PIE Eligibility
The Manager has the discretion to take any steps the Manager considers necessary or desirable to ensure
that each Smartshares Fund is eligible to be enrolled and remain as a PIE. This includes ensuring that any
one Unitholders unit holding does not exceed the maximum investor interest size requirement in the Tax
Act, which is a number of Smartshares Units not exceeding 20% of the total issued Smartshares Units of
each Smartshares Fund (for these purposes, the Smartshares Units held by the relevant Unitholders
associated persons that are not Exempt Investors and who, themselves, hold Smartshares Units
amounting to 5% or more of the units on issue will also be taken into account in determining whether the
20% threshold has been exceeded).
There is no investor interest size requirement for a Unitholder that is an Exempt Investor.
exempted Unitholder may hold up to 100% of the Smartshares Units in the Fund.
Any such
The Manager also has the ability to request any relevant information from Unitholders to endeavour to
ensure compliance with the PIE rules and the Trust Deeds. Additionally, the Manager has the ability to
rectify any breach of the PIE holding restrictions in accordance with the PIE rules and the Trust Deeds.
For further information regarding the eligibility of a Smartshares Fund to operate as a PIE within the PIE
requirements please refer to the Smartshares Funds' prospectus or contact the Manager.
Contributions of Authorised Investments
The tax status of some Unitholders may be such that they are liable for tax on profits derived from the
disposal of Authorised Investments. In the case of the Smartshares Funds, contributing Authorised
Investments in exchange for Smartshares Units will constitute a realisation of the securities for tax purposes
for those Unitholders.
New Zealand Taxation Treatment on Disposal of Units in the Smartshares Funds
The New Zealand tax treatment of profits realised or losses incurred on the disposal of Smartshares Units
will depend upon the tax position of the Unitholder. Generally speaking, profits from the disposal of
Smartshares Units will be subject to tax or a deduction will be allowed for losses incurred if:
the Unitholder acquired the Smartshares Units for the purpose of sale or other disposal; or
the Unitholder carries on a business involving dealing in the Smartshares Units or other similar
property; or
the disposal of the Smartshares Units occurs as an act done in the carrying on of a profit-making
scheme or undertaking.
As a general comment, most PIEs that invest in a Smartshares Fund should not be subject to tax on any
gains made on the disposal of Units in the Fund, and other Unitholders which are resident in a country with
which New Zealand has a double tax agreement may qualify for tax relief so that they are also not subject to
tax on any gains made on the disposal of Units in the Fund.
30
Reinvestment of distributions
Unitholders will automatically have their distributions reinvested in Smartshares Units under the Distribution
Reinvestment Plan unless they elect to have them paid directly to a nominated New Zealand bank account.
A Unitholder may opt out of (or if not currently a member of the Distribution Reinvestment Plan because the
Unitholder previously opted out, elect to join) the Distribution Reinvestment Plan by returning the applicable
form (forms are available from the Manager) to:
The Unit Registrar
Link Market Services Limited
PO Box 91976
Auckland 1142
Tel (09) 375 5998
Fax (09) 375 5990
Email: smartshares@linkmarketservices.co.nz
Notices of election out of or into the Distribution Reinvestment Plan received by the Unit Registrar at least 10
Business Days prior to a Distribution Date will be effective in respect of that distribution, otherwise such
notice will be effective in respect of the next distribution. Fees for the Distribution Reinvestment Plan are set
out on page 26.
These risks are relevant to all of the Smartshares Funds, but the risk of events in a particular country or
region affecting the Smartshares Funds has varying significance for each Smartshares Fund. The New
Zealand Bond Trust and the New Zealand Cash Trust invest primarily in New Zealand, so are likely to be
materially affected by events in New Zealand (although events in another country, region or a global event
may materially affect the New Zealand market and therefore these Funds). The Global Bond Trust's
investments will be geographically diversified and events in any number of countries or regions (including
countries or regions in which the Fund does not invest) may adversely impact the total returns of that Fund.
However, the geographical diversification also means that events in a single country or region are likely to be
less material.
Interest Rate Risk
All of the Smartshares Funds will invest in some products that pay a return based on interest rates.
In some cases the products that a Smartshares Fund has invested in will have floating interest rates.
Floating interest rates can change due to general market conditions or conditions specific to a particular
industry sector or issuer, and such changes could affect the returns on such products and thereby affect the
value of the relevant Smartshares Units.
In other cases the products that a Smartshares Fund has invested in will have fixed interest rates. Although
the returns paid on such products stay fixed, the value of an investment in fixed interest products is not fixed,
and will fluctuate as a result of movements in market interest rates. For example, if market interest rates
rise, an existing fixed interest rate investment may become less valuable (or in the case of declining market
interest rates; more valuable). This is because a fixed interest product becomes less desirable (and
therefore less valuable) when other products with higher interest rates become available.
Factors that affect market interest rates include global and domestic governments economic, monetary and
fiscal policies (including decisions made by the Reserve Bank of New Zealand, or another jurisdictions
central bank), inflation, economic expansion or contraction, liquidity and crises including political and
banking.
Liquidity of Authorised Investments
There may be times when a Smartshares Fund is unable to sell certain underlying securities or is required to
do so at a value that is lower than expected. This may be due to low levels of liquidity of an underlying
security, by virtue of having limited time available to sell an underlying security, or a change in market
conditions. These circumstances may result in a decline in value of the Smartshares Fund or an inability for
the Smartshares Fund to make payments to investors as required.
Derivatives Risk
Derivatives are contracts between two parties that usually derive their value from the amount or value of an
underlying asset, rate or index. Derivatives may be used by a Smartshares Fund to gain, reduce or modify
exposure to foreign currency, interest rates or credit. The use of such products to gain exposure is often a
leveraged investment, and may cause a Smartshares Fund to incur significant gains or losses in proportion
to the value of the investment, thereby causing Returns to become more volatile and increasing the risk of
any loss.
the Smartshares Funds Investment Policy. These objectives differ for each Smartshares Fund and can be
found on page 10. As the investment objectives of the Smartshares Funds are to outperform benchmark
indices, this could incentivise active investment decisions that mirror the benchmark index even where the
index is performing poorly.
Liquidity of Units
Investors are only able to cash in their investment by selling their Units on market unless they have enough
Units to redeem their Units through an Institutional Investor Withdrawal (described on page 36). The market
price per Unit may vary from the Current Unit Value due to supply and demand factors. Units in each
Smartshares Fund are expected to be quoted on the NZX Main Board and, in the opinion of the Manager, a
market will develop for sales of Units. However, although the Smartshares Funds are expected to be listed
on the NZX Main Board, the fact that investors can apply to purchase Units directly from the Manager may
mean there are fewer buyers of Units on the NZX Main Board.
Operational Risk
There is a risk that the operational procedures adopted by the Manager, the Investment Manager or the
Custodian could result in errors, fraud or misconduct that cause a loss to a Smartshares Fund or otherwise
affect Returns. In order to mitigate this risk the Manager, the relevant Investment Manager and the
Custodian each follow a set of internal policies and procedures. Some aspects of the Managers operations
are also outsourced to the Administration Manager to draw on the Administration Managers systems and
expertise. The Manager has also insured, subject to normal commercial excesses, against losses arising
from fraud and misconduct.
Custodian Risk
The assets of each Smartshares Fund are legally held by the Custodian. That means there is a risk that if
the Custodian becomes insolvent, this could temporarily or permanently deprive a Smartshares Fund of
assets. This risk is managed by having the Custodian hold the assets of the Smartshares Fund on trust and
by keeping those assets separately identifiable from other assets it holds. This should mean that, if the
Custodian ever does become insolvent, the assets it is holding for the Smartshares Fund will not form a part
of the pool of assets to be liquidated for the benefit of the Custodians creditors.
Foreign Currency Risk
The Smartshares Funds may invest in underlying securities denominated in foreign currencies. Fluctuations
in a foreign currency relative to the New Zealand dollar may increase or decrease the value of a
Smartshares Fund. An Investment Manager may or may not hedge a security's foreign currency exposure
and there is therefore a risk that changes to foreign currencies affect your Return.
This risk is greater for the Global Bond Trust than for the other Smartshares Funds, because the Global
Bond Trust is expected to extensively invest in investments that are not denominated in New Zealand
dollars. In contrast, the other Smartshares Funds are only permitted to invest in New Zealand denominated
investments, so direct foreign currency exposures are unlikely.
Key Personnel Risk
If key personnel at the Manager or the relevant Investment Manager leave at any time, there is an increased
risk of disruption or loss of investment professionals that may negatively impact the performance of the
Smartshares Funds. This risk is mitigated, to some extent, by the Manager's appointment of the
Administration Manager to the Smartshares Funds. As the Administration Manager will be responsible for
the day-to-day administration of the Smartshares Funds, this should minimise the risk of disruption if any of
the Manager's key personnel leave.
Any changes to an Investment Manager or its key personnel can also affect Returns.
33
Regulatory Risk
Regulatory risk is the risk that a Smartshares Fund may be adversely affected by future changes in
applicable laws or regulations, including tax laws, or by decisions taken by regulatory agencies enforcing
those laws.
Among the regulatory risks that the Manager faces is the risk that when it applies for a market services
licence under the FMC Act its application is delayed, declined by the FMA or overly stringent conditions are
imposed on its licence. The Funds are required to have a manager with a market services licence by 30
November 2016 at the latest, and so the Manager will need to be replaced as manager of the Funds if it is
not able to obtain a licence on acceptable terms by that date.
Tax Risk
Taxation laws, their interpretation, or the IRDs application of those laws may change during the period of an
investors investment in a Smartshares Fund, in a way that has an adverse impact on the Returns to that
investor.
There are tax risks that need to be managed in relation to the Smartshares Funds continuing to be eligible to
be PIEs, including (but not limited to):
If a Smartshares Fund fails to meet the required criteria and therefore ceases to be a PIE, it will not
be able to re-elect to be a PIE for the succeeding five years.
If an investor who is not an Exempt Investor (including all associates) holds more than 20% of the
Units in a Fund, that Fund may not qualify to be a PIE.
Although the Manager has put processes in place designed to ensure that each Smartshares Fund complies
with all requirements to be a PIE, there is a risk that a Smartshares Fund could lose PIE status if there is a
breach of those requirements which is not remedied within the time permitted under the PIE Rules. If PIE
status of a Smartshares Fund is lost that Smartshares Fund will be taxed as a company and distributions to
investors will be dividends taxable at the investors marginal tax rate and potentially will be subject to
withholding tax to the extent that there are insufficient imputation credits generated by tax payments made
by the Fund. No compensation will be paid to investors in the event that PIE status is lost.
Unitholder Liability
No Unitholder shall be personally liable in respect of any debt or liability of the relevant Smartshares Fund,
nor be personally liable to indemnify the Trustee or the Manager in respect of any such debt or liability,
except for any tax liability paid by the Smartshares Funds that is attributable to that Unitholder. The Trustee
and Manager, except in the case of wilful default, wilful breach of trust or dishonesty, are indemnified out of
the assets of the relevant Smartshares Fund.
Consequences of Insolvency
Unitholders are not liable to make any payments to third parties upon the winding up of Smartshares Funds,
or as a result of the insolvency of the Manager or Trustee. However, in the event that a wind-up proves
necessary, the Manager and/or Trustee shall be entitled to recover from the relevant Smartshares Fund all
costs and expenses, which are incurred in connection with or arising out of the winding up of the
Smartshares Fund. This will be done prior to distributing money (or assets) to Unitholders. Claims of
Unitholders in respect of their Smartshares Units will rank equally among themselves in such circumstances.
34
Fees
The Manager is entitled to increase the amount of any fee (including by adding a fee not currently charged)
payable in respect of a Smartshares Fund. To do this it must:
(a)
give at least ten Business Days' prior notice of any such increase of any Contribution fee to the
Trustee;
(b)
give at least three months' prior notice of any such increase of any fee not referred to in paragraph
(a) to the Trustee (including the Manager's fee); and
(c)
if such increase is material for Unitholders of a Smartshares Fund (as determined by the Manager in
its reasonable discretion), give at least three months' prior notice of any such increase of any fee not
referred to in paragraph (a) to all Unitholders of the relevant Smartshares Fund.
The Manager is entitled to decrease the amount of any fee payable in respect of a Smartshares Fund by
giving notice to the Trustee (and such decrease may have immediate effect).
(b)
(c)
if, at any time while the Units of a Trust are listed on an exchange, the same is requested or
recommended by that exchange because of a change to the rules of that exchange;
(d)
if the same is required or desirable because of any amendment or repeal and/or replacement of the
Unit Trusts Act 1960 or any other relevant legislation (including, without limitation, provisions of the
FMC Act, or regulations under the FMC Act, which will become applicable to the Smartshares Funds
when the Manager opts into the FMC Act regime before the relevant statutory transition period ends
on 30 November 2016 and may require changes to the Trust Deed), or otherwise permitted or
required under any relevant law; or
(e)
if in the opinion of the Trustee the same does not have a material adverse effect on Unitholders.
Following any alteration, modification, variation or addition to the provisions of a Trust Deed as set out
above, the Manager will notify the Unitholders in writing in summary form of all amendments made. This
notification will be sent to Unitholders within three months after the date the amendments are made and no
later than the time the Manager next mails information to Unitholders if that time falls no later than three
months after the date the amendments are made.
In addition, where the Trustee and the Manager agree that it is in the interests of the Unitholders to vary the
definition of authorised investments (as defined in the Trust Deeds) in respect of the relevant Smartshares
Fund then the proposed variation will be notified to all Unitholders no later than three months prior to the
variation taking effect.
35
Further details on the Trust Deeds and issue terms are provided in the registered prospectus for the
Smartshares Funds.
1. Market sale
Applications have been made to the Special Division that regulates the Manager (in the place of NZX) for
permission to quote the Units on the NZX Main Board and all the requirements of the Special Division
relating thereto that can be complied with on or before the date of this Investment Statement have been duly
complied with. However the Special Division accepts no responsibility for any statement in this Investment
Statement.
Once the applications made to the Special Division for permission to quote the Units on the NZX Main Board
are accepted, Units in each Smartshares Fund will be quoted on the NZX Main Board and, in the opinion of
the Manager, a market will develop for sales of Units. Then Smartshares Units will be able to be sold on
market through NZX Firms (no written redemption notice will be required). The market price per
Smartshares Unit may vary from the Current Unit Value due to supply and demand factors. The costs
involved in a sale on the NZX Main Board is normal sharemarket brokerage, which may vary between NZX
Firms. The Manager may decline to register a transfer of Smartshares Units if it would result in a transferee
holding less than the Minimum Holding (provided that doing so would not breach the Listing Rules).
If a Unitholder exceeds the investor interest size requirement prescribed in the Tax Act (the Breach) in
respect of a Smartshares Fund, the Manager may take the following steps to ensure that the Breach is
remedied:
(a)
as soon as practicable after the Manager becomes aware of the Breach, the Manager shall give
written notice to the relevant Unitholder(s) of the Breach, including details of the number of
Smartshares Units (the Excess Units) giving rise to the Breach;
(b)
the Unitholder shall have a period consisting of the grace period determined in accordance with the
Tax Act (the Remedy Period) less 30 days to remedy the Breach, but if the Manager becomes
aware of the Breach and determines that there are 30 days or less to remedy the Breach then the
Breach shall be deemed to have not been remedied; and
(c)
if the Breach has not been remedied upon expiry of the period referred to in (b) above, then the
Manager shall within the remaining 30 days of the Remedy Period, in its discretion, and only to the
extent permitted by the Listing Rules (or any ruling in respect of, or waiver from the Listing Rules),
sell, redeem, or repurchase the amount of the Excess Units in order to remedy the Breach, and:
(i)
the Manager shall account to the relevant Unitholder for the proceeds of any disposal of the
Excess Units after deduction of all expenses arising from such disposal; and
(ii)
neither the Manager nor the Trustee is required to maximise the Smartshares Fund unit price
for any disposal and in any event, shall not be liable to any Unitholders for any loss on
disposal.
The Manager
Manager Smartshares
Smartshares Limited
Level 1, NZX Centre, 11 Cable Street
PO Box 2959, Wellington
Tel: 0800 80 87 80
Email: smartshares@smartshares.co.nz
www.smartshares.co.nz
37
Unit Registrar
Manager Smartshares
Smartshares Limited
Level 1, NZX Centre
11 Cable Street
PO Box 2959
WELLINGTON
Tel: 0800 80 87 80
Email: smartshares@smartshares.co.nz
Alternatively, you may lodge a complaint with the Managers or the Trustee's Dispute Resolution Scheme
provider. The Dispute Resolution Scheme provider for the Manager and the Trustee is Financial Services
Complaints Limited. They can be contacted at:
4th Floor, 101 Lambton Quay
Wellington
P O Box 5967
Wellington 6011
Tel: 0800 347 257
Fax: (04) 472 3727
There is no ombudsman to whom complaints may be made.
The latest annual report (including financial statements) of the Smartshares Funds (when prepared).
The latest annual report including financial statements will be available from the Manager free of charge at
www.smartshares.co.nz (when prepared). The prospectus and financial statements (when prepared) are
also filed with the Companies Office, and are available on the Companies Office website
(www.business.govt.nz/companies) under the Managers file reference, free of charge.
The Trust Deeds for the Smartshares Funds may be inspected, without fee, by any person at the registered
office of the Manager. A copy of the Trust Deeds will be sent (electronically where possible) to prospective
and current investors, free of charge, on request to the Manager.
A Unitholder (or his/her/its representative) may inspect that part of the register of Smartshares Units kept by
38
the Unit Registrar that relates to his/her/its Smartshares Units, except when the register is duly closed (and
subject to any reasonable restrictions that the Manager may impose so that not less than two hours in each
working day is allowed for inspection). A copy of that part of the register of Smartshares Units relating to a
Unitholder may be obtained on payment of a reasonable fee.
Up-to-date information on the performance of Smartshares Funds and the relevant indices is available in the
daily newspapers and on NZX's website (www.nzx.com).
Announcements to NZX, including
Announcements of the tracking differences for the Smartshares Funds can be found at www.nzx.com under
the ticker symbols "GBF" for the Global Bond Trust, "NZB" for the New Zealand Bond Trust and "NZC" for
the New Zealand Cash Trust.
Request information
Investors may also request from the Manager, in accordance with section 54B of the Securities Act 1978 and
regulation 44 of the Securities Regulations 2009, the information required by those provisions to be made
available. A prescribed fee may be payable (but not for a copy of the registered prospectus, a copy of the
financial statements or a copy of any document extending the period during which allotments may be made
under the registered prospectus). Such a request may be made by contacting the Manager, on the contact
details as set out on page 20 above, and the Manager will be able to let Unitholders know what the fee is (if
any) prior to actioning their request.
The information that may be requested under regulation 44 is:
(a)
a copy of the most recent annual report of the Smartshares Funds (when prepared);
(b)
a copy of the most recent financial statements of the Smartshares Funds, together with a copy of the
auditor's report on those statements (when prepared);
(c)
(d)
a copy of the Smartshares Funds' prospectus, together with copies of any documents registered
under the Securities Act 1978 for the purpose of extending the period during which allotments may be
made under that prospectus;
(e)
a copy of the most recent investment statement relating to the Units (which, as at the date of this
Investment Statement is this document);
(f)
if prospective information about Returns on the Units is or was contained in any prospectus or
advertisement, a comparison (if practicable, in the same form and for the same period as the
prospective information) of the actual Returns against the prospective Returns; and
(g)
if prospective financial information about the Smartshares Fund was contained in any prospectus or
advertisement, a comparison (if practicable, in the same form and for the same period as the
prospective financial information) of the actual results against the prospective financial information.
39
Privacy
The Manager, through the Unit Registrar, collects and holds personal information about you for the purposes
of managing your investment and advising you of other investment opportunities. You may request access
to personal information held about you in relation to your investment. You may make such request by writing
to the Unit Registrar at:
Link Market Services Limited
PO Box 91976
Auckland 1142
or by telephoning the Unit Registrar on (09) 375 5998. Depending on the nature of any such request, the
Manager or the Unit Registrar reserves the right to impose a reasonable charge for providing access to
personal information.
The Unit Registrar's privacy policy is available on its website www.linkmarketservices.co.nz.
40
GLOSSARY OF TERMS
Administration Manager
Announcement
Appendix 7 Date
Application Form
Authorised Investments
Business Day
Cash Contribution
Contribution
Custodian
Distribution Date
Distribution Ex Date
Establishment Contribution
Establishment Deed
Exempt Investor
FMA
FMC Act
Imputation Credit
Institutional Investor
Contribution
Institutional Investor
Withdrawal
Investment Management
Agreement
Investment Manager
Investment Policy
Investment Statement
Listed
Listing Rules
the NZX Main Board listing rules that regulate issuers listed
on the NZX Main Board.
Manager
Smartshares Limited.
Market Participant
the master trust deed between the Manager and the Trustee
dated 24 June 2014.
Minimum Holding
NAV
NZX
NZX Limited.
NZX Firm
PIE
PIMCO
Record Date
Return
the Global Bond Trust, New Zealand Bond Trust and the New
Zealand Cash Trust.
Special Division
Tax Act
Trust Deed
Trustee
Unitholder
Unit Registrar
You
Terms described above in the singular include the plural and vice versa. All dates and times contained in the
Investment Statement refer to New Zealand time.
43
Smartshares Limited
Investment Statement
Contents
IMPORTANT INFORMATION
HOW DO I APPLY?
11
14
15
15
15
17
20
21
24
29
30
31
32
32
GLOSSARY OF TERMS
35
IMPORTANT INFORMATION
(The information in this section is required under the Securities Act 1978.)
Investment decisions are very important. They often have long-term consequences. Read all documents
carefully. Ask questions. Seek advice before committing yourself.
Choosing an investment
When deciding whether to invest, consider carefully the answers to the following questions that can be found
on the pages noted below:
Page
What sort of investment is this?
15
15
17
20
21
24
29
30
31
Is there anyone to whom I can complain if I have problems with the investment?
32
32
In addition to the information in this document, important information can be found in the current registered
prospectus for the investment. You are entitled to a copy of that prospectus on request.
The Financial Markets Authority regulates conduct in financial markets
The Financial Markets Authority regulates conduct in New Zealands financial markets. The Financial
Markets Authoritys main objective is to promote and facilitate the development of fair, efficient, and
transparent financial markets.
For more information about investing, go to http://www.fma.govt.nz.
Financial advisers can help you make investment decisions
Using a financial adviser cannot prevent you from losing money, but it should be able to help you make
better investment decisions.
Financial advisers are regulated by the Financial Markets Authority to varying levels, depending on the type
of adviser and the nature of the services they provide. Some financial advisers are only allowed to provide
advice on a limited range of products.
When seeking or receiving financial advice, you should check
A financial adviser who provides you with personalised financial adviser services may be required to give
you a disclosure statement covering these and other matters. You should ask your adviser about how he or
she is paid and any conflicts of interest he or she may have.
Financial advisers must have a complaints process in place and they, or the financial services provider they
work for, must belong to a dispute resolution scheme if they provide services to retail clients. So if there is a
dispute over an investment, you can ask someone independent to resolve it.
Most financial advisers, or the financial services provider they work for, must also be registered on the
financial service providers register. You can search for information about registered financial service
providers at http://www.fspr.govt.nz.
You can also complain to the Financial Markets Authority if you have concerns about the behaviour of a
financial adviser.
Disclaimer
The Return on the Fund is intended to closely match the Return on the S&P/NZX Real Estate Select Index
(the Index). The Index rises and falls according to market events and conditions. None of the Trustee, the
Manager, the Custodian, the Administration Manager, NZX, or any other person guarantees the Return on
the Index or the Return on Units or investment in the Fund. No warranty expressed or implied is given as to
the results to be obtained by the Manager or the Fund from the use of the Index or any data included in it, or
as to the liquidity of investment in the Fund, Units or the fitness of the Fund for any Unitholders purposes.
The offer set out in this Investment Statement is only made in New Zealand. No person may offer, sell or
deliver Units or distribute any documents in relation to the offer (including any copy or extract from this
Investment Statement) to any person in any jurisdiction other than in compliance with any applicable laws
and regulations.
S&P Dow Jones Indices and NZX Disclaimer
The "S&P/NZX Real Estate Select Index" is a product of S&P Dow Jones Indices LLC or its affiliates (SPDJI) and NZX
Limited, and has been licensed for use by Smartshares Limited. Standard & Poors and S&P are registered
trademarks of Standard & Poors Financial Services LLC (S&P) and Dow Jones is a registered trademark of Dow
Jones Trademark Holdings LLC (Dow Jones). NZX Limiteds trademark is a registered trademark of NZX Limited.
The trademarks have been licensed to SPDJI and have been sublicensed for use for certain purposes by Smartshares
Limited. Smartshares Limiteds products are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones,
S&P, any of their respective affiliates (collectively, S&P Dow Jones Indices) or NZX Limited. Neither S&P Dow Jones
Indices nor NZX Limited make any representation or warranty, express or implied, to the owners of the Smartshares
Limiteds products or any member of the public regarding the advisability of investing in securities generally or in
Smartshares Limiteds products particularly or the ability of the S&P/NZX Real Estate Select Index to track general
4
market performance. S&P Dow Jones Indices and NZX Limited only relationship to Smartshares Limited with respect
to the S&P/NZX Real Estate Select Index is the licensing of the Index and certain trademarks, service marks and/or
trade names of S&P Dow Jones Indices and/or its licensors. The S&P/NZX Real Estate Select Index is determined,
composed and calculated by S&P Dow Jones Indices or NZX Limited without regard to Smartshares Limited or the
Smartshares Limiteds products. S&P Dow Jones Indices and NZX Limited have no obligation to take the needs of
Smartshares Limited or the owners of Smartshares Limiteds products into consideration in determining, composing
or calculating the S&P/NZX Real Estate Select Index. Neither S&P Dow Jones Indices nor NZX Limited are
responsible for and have not participated in the determination of the prices, and amount of Smartshares Limiteds
products or the timing of the issuance or sale of Smartshares Limiteds products or in the determination or calculation
of the equation by which Smartshares Limiteds products are to be converted into cash, surrendered or redeemed, as
the case may be. S&P Dow Jones Indices and NZX Limited have no obligation or liability in connection with the
administration, marketing or trading of Smartshares Limiteds products. There is no assurance that investment
products based on the S&P/NZX Real Estate Select Index will accurately track index performance or provide positive
investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is
not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be
investment advice.
NEITHER S&P DOW JONES INDICES NOR NZX LIMITED GUARANTEES THE ADEQUACY, ACCURACY,
TIMELINESS AND/OR THE COMPLETENESS OF THE S&P/NZX REAL ESTATE SELECT INDEX OR ANY DATA
RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN
COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES
INDICES AND NZX LIMITED SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS,
OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES AND NZX LIMITED MAKES NO EXPRESS OR
IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY SMARTSHARES LIMITED,
OWNERS OF THE SMARTSHARES LIMITEDS PRODUCTS, OR ANY OTHER PERSON OR ENTITY FROM THE
USE OF THE S&P/NZX REAL ESTATE SELECT INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO.
WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES
OR NZX LIMITED BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL
DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR
GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBLITY OF SUCH DAMAGES, WHETHER IN
CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY
AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND SMARTSHARES LIMITED,
OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
Definitions
Defined terms in this Investment Statement have the meaning set out in the Glossary of Terms on pages 35
to 37.
Tracking differences The Manager aims to track the Index by investing in the Index Issuers in
proportions that match their weightings in the Index. However, there will inevitably be some
differences. For example, the makeup of the Index may be changed, and the Manager may not be
able to exactly match the change by buying and selling Index Securities because the prices it pays
and receives for the Index Securities may not exactly match the prices used to adjust the Index.
This means that the net asset value (NAV) of the Index Securities held by the Fund diverges over
time from the value of the Index (and therefore from the value of an equivalent direct investment in
the Index Issuers).
Liquidity differences Units may be more or less liquid than Index Securities due to differences in
supply and demand (and other market forces). Accordingly, Units may be more difficult to sell than
some Index Securities. There is further information about liquidity risk on page 26.
Distribution differences An investor that invests directly in Index Securities will receive
distributions in relation to those Index Securities when they are paid by the Index Issuers. In
contrast, distributions that are received by the Fund from the Index Issuers will be held by the Fund
(and included in the Fund's NAV) until the next Distribution Date. It is only on that Distribution Date
that distributions received during the months following the previous Distribution Calculation Date will
be reinvested for you (or paid out) in one lump sum. Any interest earned on distributions prior to the
6
Distribution Date will be retained by the Manager. Currently, distributions received are automatically
reinvested for you or you may elect to have them paid out quarterly.
Management fees Management fees charged by the Manager are deducted before distributions
are paid to you, meaning you get less than the full distributions paid on the Index Securities the Fund
invests in. However, if you invested in the Index Securities directly it is likely that you would have to
pay the equivalent of some or part of these fees, such as brokerage and potentially other investment
fees, to third parties.
Market price differences Units trade at the market price for Units. The price at which they trade
will be set by market forces such as supply and demand relevant to their market rather than by direct
reference to the market price of the Index Securities. Consequently, while the market price of Index
Securities (which will be set by market forces relevant to Index Securities' markets) is likely to affect
the market price of Units, the two may not exactly correlate.
Distributions
Distributions to Unitholders are currently made directly from the Fund within 20 Business Days of each
Record Date. Currently, the Record Date is on or around the last Business Day of each of March, June,
September and December in any year. However, the Manager may choose not to make distributions for a
quarter if it considers that the income received by the Fund in that quarter is not substantial enough to
distribute. In such circumstances, such income will be held in the Fund until the Distribution Date for the
following quarter, at which point it will be distributed to Unitholders along with any further income received by
the Fund during that following quarter.
These distributions comprise dividends or any other income received by the Fund, less fees and other
expenses. Unitholders will automatically have their distributions re-invested for Units unless they elect to
have them paid directly to a nominated New Zealand bank account in New Zealand dollars. There is further
information about distributions on page 22.
Smartshares
The Manager is responsible for all adjustments to the Fund's portfolios, the maintenance of accounting
records of the Fund, communication with Unitholders, supervision of the Unit Registrar, and payment of
distributions to Unitholders. Some of these duties are delegated to the Administration Manager, the
Custodian and the Unit Registrar.
The other principal persons involved in providing the Fund are:
BNP Paribas Fund Services Australasia Pty Ltd, acting through its New Zealand branch (the
Administration Manager and the Custodian); and
None of the Manager, Trustee, Administration Manager, Custodian, Unit Registrar or NZX (as the parent
company of the Manager) provide any guarantee in relation to the Fund.
There is further information about the persons involved in providing the Fund on pages 15 to 17.
Benefits of Smartshares
Flexibility
The Fund provides the diversification of a fund investment while giving you similar transparency and
convenience to an investment in individual shares the ability to know the value of your investment at any
moment, and the flexibility to trade your investment quickly (subject to liquidity risk). This is because the
Units are expected to trade like individual shares; with their prices published in the newspapers and on-line
7
(www.nzx.com) so you can track the progress of your investment at any time. Application has been made to
the Special Division for permission to quote the Units on the NZX Main Board. If the application is accepted,
you will be able to trade your Units on market at any point (subject to liquidity), just like a share in a Listed
company.
Smartshares makes contributing simple
Once you hold the Minimum Holding of 100 Units in the Fund, you can make regular contributions from as
little as $50 per month by way of the Regular Savings Plan. And you can stop, restart, increase or decrease
your regular contributions whenever you like (subject to providing the Unit Registrar with ten Business Days'
notice prior to the 20th of a month and, unless you are completely stopping contributions, maintaining a
minimum contribution of $50 per month). You can also add to your investment through the Distribution
Reinvestment Plan where your distributions are automatically reinvested as additional Units or you can
choose to have your distributions paid directly to you by direct credit.
Transparency
The Fund is transparent because the Fund's holdings are always known to the market. Unitholders will know
that whenever there is a change to the Index (which will be announced by the Index Administrator) the
Manager will buy and sell the Index Securities to adjust the Fund's holdings, with the intention of matching
that change to the Index.
Lower Fees
The Fund is able to offer lower fees because the Manager does not make active investment decisions, which
may require expensive research, analytical and trading expertise. Trading only occurs to rebalance the
Fund's holdings to match the weighting of each entitys shares in the Index. By contrast, actively managed
funds, where the manager makes active investment decisions, generally incur higher costs and therefore
may charge a higher management fee.
Spread your investment
When you invest in the Fund, you get an indirect investment in a range of issuers, providing you with a more
diversified investment than an investment in a single issuer. Diversification may reduce risk. This is
because it is unlikely that all the entities in the Fund will perform similarly at the same time. For example, the
losses from entities performing poorly may be balanced by the gains from those performing well. However,
the Fund only allows diversification within the asset class (property) represented in the Index. The issuers
that would have been included in the Index as at 30 September 2015 are set out on page 14.
Market risk Fluctuations in the security price of, and distributions paid by, the Index Issuers will
lead to fluctuations in the Returns on Units. Such fluctuations could be related to the circumstances
of an individual Index Issuer and affect the share price or distributions of that Index Issuer only, or
could be related to circumstances with more widespread effects and affect a number of, or all, Index
Issuers.
Property market risk The Index Issuers are all investors in the New Zealand property market.
Consequently, conditions that adversely affect the New Zealand property market are likely to
adversely affect the Fund.
Tracking risk For a variety of reasons, including those described on page 6, the Manager will not
always manage to exactly track the Index for the Fund. As a result of this, the Index Securities held
by the Fund may, over time, not exactly match the composition of the Index. Of course, investors
investing directly in order to track an index are likely to face the same issues as the Manager in
trying to exactly track the Index. There is further information about index tracking on page 25.
Operational risk Tracking an index is complex and, as a result, operational errors can occur.
Such errors could potentially affect Unitholders' Returns.
Passive management risk The Fund is a passive investment, which means the Manager will not
react to events that affect the value of particular Index Issuers unless and until those events lead to
a change in the composition of the Index.
Liquidity risk Investors are only able to cash in their investment by selling their Units on market
unless they have enough Units to do a Basket withdrawal. (Basket withdrawals are described on
page 30.) The market price per Unit may vary from the Current Unit Value due to supply and
demand factors. An application has been made to the Special Division for permission to quote the
Units of the Fund on the NZX Main Board. Once the application has been accepted, Units in the
Fund will be quoted on the NZX Main Board and, in the opinion of the Manager, a market will
develop for sales of Units. However, although the Fund is expected to be listed on the NZX Main
Board, the fact that investors can apply to purchase Units directly from the Manager may mean there
are fewer buyers of Units on the NZX Main Board.
Regulatory and tax risk The Fund is subject to an ongoing risk that regulatory or tax law
requirements may change, and that this may have an adverse effect on Unitholders' Returns. In
particular, there is a risk that when the Manager applies for a market services licence under the FMC
Act its application is delayed, declined by the FMA or overly stringent conditions are imposed on its
licence. Also, the Fund is a Portfolio Investment Entity (PIE), with benefits for Unitholders, and there
is a risk that this status may be lost, as discussed on pages 22 to 24 below.
the change is material (as determined by the Manager in its reasonable discretion), to Unitholders or the fees
may be decreased by the Manager by giving notice to the Trustee (and such decrease may have immediate
effect). There is no limit on the changes that the Manager may make to fees charged.
The Manager is also entitled to interest on amounts held including in respect of distributions and other
income received by the Fund and on Subscription Amounts (received as Cash Applications or under the
Regular Savings Plan or Distribution Reinvestment Plan) between the date on which they are received and
the date of issue of Units.
Further information about the Manager's fees can be found on pages 21.
Timetable
Opening of the Offer
Smartshares anticipates that the public will be able to subscribe for Units from
Thursday 12 November 2015.
For Cash Applications Units will be allotted just after the end of the month in
th
which the application is received, unless it is received on or after the 20 of the
month, in which case Units may not be allotted until just after the end of the
following month.
An application for quotation of the Units has been made to the Special
Division. While Smartshares has complied with all necessary steps as at the
date of this Investment Statement it cannot give a set date for quotation of the
Units, although it is expected to be 12 November 2015.
Payments of Distributions
Note: this timetable is indicative only and may be changed at Smartshares' discretion.
10
HOW DO I APPLY?
How to get started with Smartshares
You can start your investment in the Fund by making an initial Cash Application from as little as $500. You
can do this by completing the Application Form for new Units at the back of this Investment Statement, or by
applying online at http://smartshares.co.nz/invest-now.
Alternatively following quotation of the Units, you can obtain an investment by purchasing existing Units on
market through an NZX Firm.
If you are buying new Units, send in your completed Application Form, together with the full amount of the
application payment, to Link Market Services Limited, PO Box 91976, Auckland 1142. Alternatively, you can
send it to the Manager, an NZX Firm, through any other channel approved by NZX (of which there are
currently none), or investors can also apply online at http://smartshares.co.nz/invest-now.
Make sure you read all the information contained in this Investment Statement before deciding whether to
invest in the Fund. There is also additional information that you may find helpful in the registered prospectus
for the Fund.
Before investing, you should consider seeking advice from a financial adviser. Using a financial adviser
cannot prevent you from losing money, but it should be able to help you make better investment decisions.
More information about financial advisers is set out on pages 3 and 4.
Further investments
Once you've made the initial investment, you can make further investments, either:
In addition you can make additional lump sum deposits with your monthly direct debit at any time ($250
minimum value).
How your Regular Savings Plan works
Think about how much you can afford to invest each month. Keep in mind that you can stop, restart,
increase or decrease (so long as you don't decrease your contribution to below $50 per month unless you
are completely stopping contributions) your contributions at any time by contacting the Unit Registrar.
Specify that amount in your application. The Unit Registrar will require notice to change contributions by at
least ten Business Days before the 20th of the month.
On or about the 20th of each month your bank account will be direct debited and the money will then be
invested in Units on or around the end of each month. The Unit Registrar will send you a statement each
month confirming your new Unit holding(s).
To join the Smartshares Regular Savings Plan, you must already have the Minimum Holding of 100 Units or
you must make a Cash Application that, if accepted, would mean you held at least 100 Units in the Fund.
The Manager may open or close the Regular Savings Plan at any time by way of an Announcement to NZX.
Key benefits of the Regular Savings Plan
Flexible you can stop, restart, increase or decrease (subject to maintaining a minimum contribution
of $50 per month) your regular contributions
Investing regularly provides dollar cost averaging (which is described on page 18)
Helps you accumulate Units every month you acquire additional Units automatically without
needing to think about it.
Basket applications
Units can also be acquired by way of Basket creation. Subscriptions for Units by Basket creation may only
be made in multiples of 250,000 Units.
Basket applications must be made directly to the Manager by delivery through an NZX Firm. Each delivery
of a Basket must be accompanied by a completed Basket Application Form (not attached to this Investment
Statement, but available from the Manager or any NZX Firm).
12
BOARD OF DIRECTORS
The directors of the Manager are Bevan Miller (Chair), Tim Bennett and Kristin Brandon. The funds
operated by the Manager are passively managed funds (like the Fund) or have their investment
management function outsourced. Consequently, the board has been constructed to provide a mix of
operational, financial and legal skills rather than specific funds management experience. Brief profiles for
each of the directors, detailing their experience and qualifications, are set out below.
Bevan Miller
Tim Bennett
Kristin Brandon
It is intended that the composition of the board of directors will change prior to the quotation date of the
Units. The Manager will make an Announcement as to the persons to be appointed to the Smartshares
board on the date of quotation of the Units.
13
14
The Manager
The Manager for the Fund is Smartshares Limited, a wholly-owned subsidiary of NZX.
None of the Manager, any of its directors, any person associated with this offer, or NZX guarantees the
Units, repayment of Units, or the payment of any dividends or distributions on Units.
The principal activity of the Manager is to manage funds, including the Fund. The Manager led the
development of index tracking funds in New Zealand with the launch of the NZX 10 Fund (formerly The
NZSE TeNZ Fund) in 1996. The NZX 10 Fund remains the longest standing exchange traded index
tracking fund listed on the NZX Main Board.
The Financial Markets Conduct Act 2013 requires managers who act as the manager of a registered scheme
to be licensed by the FMA before they can make offers under the new disclosure regime in the Financial
Markets Conduct Act 2013. The Manager has begun the application process with the FMA to obtain the
necessary licence. Licences will be issued at the discretion of the FMA. As the Manager does not yet hold a
licence, it offers units under the Securities Act 1978, which will apply to this offer.
Address of the Manager
Smartshares Limited
NZX Centre
Level 1, 11 Cable Street
PO Box 2959
Wellington
Tel: 0800 80 87 80
Email: smartshares@smartshares.co.nz
The Manager's address may change from time to time. You can find up-to-date details at any time by
searching "Smartshares" at www.business.govt.nz/companies.
15
The Trustee
The Trustee is:
Trustees Executors Limited
Level 5, 10 Customhouse Quay
PO Box 3222
Wellington
Tel: (04) 495 0999
Fax: (04) 496 2952
Email: enquiries@trustees.co.nz
The Trustee's address may change from time to time. You can find up-to-date details at any time by
searching "Trustees Executors" at www.business.govt.nz/companies.
The Trustee has been granted a licence under section 16(1) of the Financial Markets Supervisors Act 2011
to act as a trustee in respect of debt securities, unit trusts, and KiwiSaver schemes, and as a statutory
supervisor for participatory securities, for a term expiring 16 January 2018.
A copy of the Trustees licence, including the conditions on the licence, can be obtained at the FMAs
website: www.fma.govt.nz by clicking on Compliance, Lists and registers, Licensed Supervisors,
Trustees Executors Limited. Alternatively, a copy can be found on the Trustees website:
www.trustees.co.nz. All conditions and reporting obligations have been duly satisfied by the required dates.
If you have any queries about the licence please contact the Trustee in the first instance.
16
The Custodian
The Custodian for the Fund is:
BNP Paribas Fund Services Australasia Pty Ltd, New Zealand branch
Level 18, State Insurance Tower, 1 Willis Street
PO Box 3299, Wellington
www.securities.bnpparibas.com
The Custodian's address may change from time to time. You can find up-to-date details at any time by
searching "BNP" at www.business.govt.nz/companies.
The Custodian provides custodial services, including holding assets of the Fund in custody for safekeeping
and separate from the personal assets of the Trustee or Manager.
Unit Registrar
The Unit Registrar for the Fund is:
Link Market Services Limited
Level 7, Zurich House
21 Queen Street
Auckland 1010
Tel: (09) 375 5998
Fax: (09) 375 5990
Email: smartshares@linkmarketservices.co.nz
The Unit Registrar's address may change from time to time. You can find up-to-date details at any time by
searching "Link" at www.business.govt.nz/companies.
None of the Trustee, the Administration Manager, the Custodian, the Unit Registrar nor any of their directors
nor any other persons associated with the offer guarantees the Units, repayment of the Units, or the payment
of any dividends or distributions on Units.
17
1. Cash Applications
Subscriptions for Units can be made by completing the Application Form attached to this Investment
Statement and sending it with the full amount of the application payment to Smartshares Limited at the
address of the Unit Registrar or to any NZX Firm. Alternatively, investors can apply online at
www.smartshares.co.nz/invest-now.
The minimum cash Subscription Amount for investors who do not already have the Minimum Holding of 100
Units in the Fund is $500 (which includes a flat application fee of $30 for amounts of less than $20,000 or
0.20% of the full Subscription Amount for Subscription Amounts equal to or greater than $20,000, which is
deducted from the application amount and paid to the Manager).
For investors who already have the Minimum Holding in the Fund, the minimum cash Subscription Amount is
$250.
Subscription Amounts for Cash Applications need to be received by the Unit Registrar, Link Market Services,
by the 20th of the month so Units can be allocated and priced at or around the end of the month by the
Manager. There is no maximum Subscription Amount. No interest will be paid to subscribers on
Subscription Amounts.
The Manager will, at its discretion, use a Subscription Amount either to purchase Index Securities and then
issue new Units to the investor or to purchase existing Units on market through an NZX Firm and pass those
existing Units on to the investor. In either case, Units will be issued to the investor at the NAV per Unit
determined by the Manager on or about the last Business Day of the month.
If the Manager decides that an investors application will not be accepted, the Subscription Amount will be
returned to the investor within 20 Business Days of making that decision (such decision to be made within
seven days after receiving the application). No interest will be paid on amounts refunded.
Any interest earned on the Regular Savings Plan monies prior to the purchase of Units or Index Issuer
securities each month will be retained by the Manager. These amounts will be used to cover the cost of
operating the Regular Savings Plan and other administrative costs. Any amount left over after this will go to
the Manager.
3. Basket Investments
For large investment amounts, Units can be acquired by way of Basket creation. Baskets may be created by
way of delivery of the proportionate amounts of the securities of the Index Issuers (plus any applicable Cash
Amount). The Cash Amount is to ensure that each existing Unitholders proportionate interest in the income
held within the Fund prior to the issue of Units to the Basket applicant, is not diluted on a per unit basis by
the creation of additional Units issued to the Basket applicant.
This should result in the aggregate value of the Basket securities and the Cash Amount being equal to the
aggregate Current Unit Value of the Units issued. The securities and Cash Amount are then exchanged for
Units. Subscriptions for Units by Basket creation may only be made in multiples of 250,000 Units.
Basket applications must be made directly to the Manager by delivery through an NZX Firm. Each delivery
of a Basket must be accompanied by a completed Basket Application Form (not attached to this Investment
Statement, but available from the Manager or any NZX Firm). Charges for Basket investments are explained
under the section entitled What are the charges? on page 20.
Minimum Holding
Unitholders should maintain a minimum number of Units at all times (Minimum Holding). If you fail to
maintain the minimum number of Units, the Manager reserves the right to purchase your Units or instruct the
Trustee to redeem them (provided that the exercise of that right would not breach the Listing Rules). The
Minimum Holding of Units is 100.
Oversubscription
There is no limit on the total number of Units that may be subscribed for and accordingly the Fund does not
19
have a policy providing for oversubscription. However, the Manager may reject an application for Units or
require redemption of Units to maintain the Funds PIE status where there is a risk that a Unitholder will
exceed the maximum investor interest size requirement prescribed in the Tax Act (and as set out in the PIE
Eligibility section at page 23 below).
Refunds
The Trustee will not refund any Subscription Amount, except where the Trustee, on the advice of the
Manager, decides that an investors application will not be accepted. In such situations the Subscription
Amount will be returned to the investor within 20 Business Days of making that decision (such decision to be
made within seven days of receiving the application). No interest will be paid on amounts refunded.
No Cooling-off Period
There is no cooling-off period in respect of the Units. An investor may not withdraw their application.
to the Manager.
The Basket creation fees may be increased by the Manager by giving ten Business Days' notice of the
change to the Trustee or the fees may be decreased by the Manager by giving notice to the Trustee (and
such decrease may have immediate effect). There is no limit to the altered fee that may be charged.
The Basket withdrawal fees may be increased by the Manager by giving three months' notice of the change
to the Trustee and, if the change is material (as determined by the Manager in its reasonable discretion), to
Unitholders. The Basket withdrawal fees may be decreased by the Manager by giving notice to the Trustee
(and such decrease may have immediate effect). There is no limit to the altered fee that may be charged.
There are no other entry or exit charges.
any change in the price of Units at the time you sell, relative to the price at which you bought on
market, or subscribed if an application was made directly; and
(b)
the distribution of dividends or other income received by the Fund. The Fund distributes all income
received (for example, dividends and tax credits) less liabilities (for example, tax expenses and
management fees). Please note that these examples of income and liabilities are not exhaustive
and other types of income may be received and liabilities incurred from time to time. You will
21
automatically have your distributions re-invested as Units unless you elect to have them paid directly
to a nominated bank account.
Distributions
Distributions are currently made directly from the Fund within 20 Business Days of the Record Date and are
paid to Unitholders whose names are on the register in respect of Units held on the Record Date. The
Record Date is on or around the last Business Day of each of March, June, September and December in any
year. However, the Manager may choose not to make distributions for a quarter if it considers that the
income received by the Fund in that quarter is not substantial enough to distribute. In such circumstances,
such income will be held in the Fund until the Distribution Date for the following quarter, at which point it will
be distributed to Unitholders along with any further income received by the Fund during that following
quarter.
Unitholders who sell Units or withdraw Baskets from the Fund before a Distribution Ex Date for a Record
Date will not receive any distributions from the Fund in respect of that Record Date.
These distributions comprise dividends or any other income, less fees and other expenses. Unitholders will
automatically have their distributions reinvested as Units unless they elect to have them paid directly to a
nominated New Zealand bank account.
The Manager may, at its discretion, deduct from any distribution an amount of cash if, and to the extent that,
the Manager reasonably considers that such a deduction is required to meet any liabilities that become
payable in the next (or later) distribution period. Such deductions will be retained in the Fund.
The Manager receives and retains any interest earned on income held prior to distribution. The directors of
the Manager expect to continue with this distribution policy.
Taxation
The following comments are intended to be only a general summary and indication of the Manager's
understanding of the relevant New Zealand tax law as at the date of this Investment Statement. There may
be non-New Zealand tax consequences which affect the Fund or the Unitholders. Neither the Trustee nor
the Manager accepts any responsibility for the taxation consequences of an investment in the Fund.
Unitholders who buy or sell Units may have different taxation positions. Consequently, each Unitholder
should consider their own taxation position and if necessary seek professional advice before investing in
Units.
Taxation may affect the Returns on the Fund. The taxation summary below is based on the Managers
understanding of the New Zealand tax law as at the date of this Investment Statement.
The Fund will elect to become a PIE that is a Listed PIE from the date that the Fund is Listed. As a Listed
PIE the Fund pays tax on income derived by the Fund at a rate of 28%.
New Zealand Taxation of investments of the Fund
The Fund is generally not subject to tax on gains that it derives from the sale of shares in New Zealand
22
resident companies. Losses incurred on the disposal of such shares are not deductible. Dividends from
such shares are usually fully taxable to the Fund, with a credit allowed for any Imputation Credits attached,
and any withholding tax deducted from such dividends subject to certain limits. Most, if not all, of the shares
that the Fund invests in are expected to consist of this type of shares.
New Zealand Taxation Liability of New Zealand resident investors - distributions
The following summarises the New Zealand taxation of distributions made by the Fund to Unitholders who
are resident in New Zealand for New Zealand income tax purposes.
To the extent that Imputation Credits are available, the Fund will fully impute distributions to Unitholders by
attaching Imputation Credits to the distribution at the maximum permitted ratio.
To the extent that distributions are not fully imputed New Zealand resident Unitholders will not be taxed on
distributions that they receive from the Fund. The effect of this is that non-taxable income (e.g. capital gains
from the sale of investments) derived by the Fund can be distributed to such Unitholders free from tax.
Natural person Unitholders and trustee Unitholders (other than a trustee of a unit trust) subject to a tax rate
below the corporate tax rate (currently 28%) may choose to treat distributions that are fully imputed as
assessable income by including that amount in their tax return. This allows such Unitholders to use
Imputation Credits attached to distributions in excess of what is necessary to fully satisfy the income tax
liability in relation to those distributions, to offset against their other taxable income. How Unitholders should
treat distributions from the Fund for tax purposes will depend on their personal tax circumstances and as
such it is recommended that all Unitholders should seek independent tax advice.
Benefits of PIE
A benefit of the PIE regime is that the Fund is not expected to be taxed on any gains derived from the sale of
the securities that they trade.
The other benefit is that tax payable on distributions made by the Fund to Unitholders is effectively capped at
28%. If you are currently paying tax at a rate less than 28% then the excess tax paid by the Fund can be
used to reduce the tax payable on other income that you derive at the end of each income year by including
the distributions from the Fund in your tax return.
PIE Eligibility
The Manager has the discretion to take any steps the Manager considers necessary or desirable to ensure
that the Fund is eligible to be enrolled and remain as a PIE. This includes ensuring that any one Unitholders
unit holding does not exceed the maximum investor interest size requirement in the Tax Act, which is a
number of Units not exceeding 20% of the total issued Units of the Fund (for these purposes, the Units held
by the relevant Unitholders associated persons that are not Exempt Investors and who, themselves, hold
Units amounting to 5% or more of the units on issue will also be taken into account in determining whether
the 20% threshold has been exceeded).
There is no investor interest size requirement for a Unitholder that is an Exempt Investor.
exempted Unitholder may hold up to 100% of the Units in the Fund.
Any such
The Manager also has the ability to request any relevant information from Unitholders to endeavour to
ensure compliance with the PIE rules and the Trust Deed. Additionally, the Manager has the ability to rectify
any breach of the PIE holding restrictions in accordance with the PIE rules and the Trust Deed.
For further information regarding the eligibility of the Fund to operate as a PIE within the PIE requirements
please refer to the Fund's prospectus or contact the Manager.
Basket Investments
The tax status of some Unitholders may be such that they are liable for tax on profits derived from the
disposal of Index Securities. In the case of the Fund, contributing securities in exchange for Units will
constitute a realisation of the securities for tax purposes for those Unitholders.
23
the Unitholder acquired the Units for the purpose of sale or other disposal; or
the Unitholder carries on a business involving dealing in the Units or other similar property; or
the disposal of the Units occurs as an act done in the carrying on of a profit-making scheme or
undertaking.
As a general comment, most PIEs that invest should not be subject to tax on any gains made on the disposal
of Units in the Fund, and other Unitholders which are resident in a country with which New Zealand has a
double tax agreement may qualify for tax relief so that they are also not subject to tax on any gains made on
the disposal of Units.
Reinvestment of distributions
Unitholders will automatically have their distributions reinvested in Units under the Distribution Reinvestment
Plan unless they elect to have them paid directly to a nominated New Zealand bank account. A Unitholder
may opt out of (or if not currently a member of the Distribution Reinvestment Plan, because the Unitholder
previously opted, elect to join) the Distribution Reinvestment Plan by returning the applicable form (forms are
available from the Manager) to:
The Unit Registrar
Link Market Services Limited
PO Box 91976
Auckland 1142
Tel (09) 375 5998
Fax (09) 375 5990
Email: smartshares@linkmarketservices.co.nz
Notices of election out of or into the Distribution Reinvestment Plan received by the Unit Registrar at least 10
Business Days prior to a Distribution Date will be effective in respect of that distribution, otherwise such
notice will be effective in respect of the next distribution. Fees for the Distribution Reinvestment Plan are set
out on page 20.
general condition of the market may deteriorate (either of which may cause a decrease in the value of the
Index Securities of the Index Issuers and thus in the value of Units).
The value of securities can also be affected by their liquidity. For smaller stocks, where there can often be
limited liquidity, a change in their weighting on an Index could have an effect on the level of demand in the
marketplace. This in turn may impact the price the Fund has to trade at to track the relevant Index and the
fluctuation in the price of the Index Securities may ultimately affect the Return an investor receives.
Property market risk
The Index Issuers are all investors in the New Zealand property market. Consequently, conditions that
adversely affect the New Zealand property market are likely to adversely affect the Fund.
Distributions Risk
The level of distributions that Unitholders receive is dependent on the level of distributions paid by Index
Issuers on the Index Securities. The Manager has no influence over the dividend policies of Index Issuers or
over anything else that may affect the level of distributions paid by them. Accordingly, there is no guarantee
of any particular level of distributions.
Index Issuer Risk
Index Issuer risk occurs where the individual assets of the Fund fluctuate in value due to circumstances
specifically applicable to a particular Index Issuer. There are likely to be few Index Issuers, so circumstances
affecting one Index Issuer are likely to have a greater effect on the Fund than for a similar Fund with a larger
number of Index Issuers.
If the Manager was able to perfectly track the Index, this relationship would continue. However, for the
reasons explained below, this is not always possible and so a difference between the number on the lefthand side and the number on the right-hand side develops over time. To measure its tracking performance:
(a)
First, the Manager calculates the difference between the left-hand side of the equation and the righthand side of the equation, with that difference being expressed as a positive number if the left-hand
1
side is greater and a negative number if the right-hand side is greater.
(b)
Next the Manager compares the difference calculated in (a) with the equivalent difference at the start
of the year to calculate the change in that difference over the year.
The number calculated in (b) is the Manager's measure of its tracking performance over the year. The closer
1
If at any time the Manager subdivides or consolidates Units, it will adjust the "1,000" referred to in the right-hand side of the
equation so that this action, which has nothing to do with tracking difference, does not affect the mathematical relationship. For
example, if the Manager subdivides all Units in two, which will halve the left-hand side of the equation, it will change the "1,000" to
"2,000" to also halve the right-hand side of the equation.
25
that number is to zero, the more closely the Manager has tracked the Index during the year.
The principal reasons for imperfect tracking performance are as follows:
First, it may not be possible for the Manager to exactly match changes to the Index by buying and selling
Index Securities, because the prices it pays and receives for the Index Securities may not exactly match the
prices used to adjust the Index. For example, there may be limited liquidity in relation to securities the
Manager is attempting to buy that pushes up the purchase price of those securities after an adjustment to
the Index, but before the Manager can buy. In some cases the relevant adjustment to the Index may even
cause such limited liquidity as it could affect the level of demand for the securities in the market place. As the
Index is likely to have few constituents, difficulties in buying or selling a particular Index Security (such as
difficulties caused by a lack of liquidity) could have a significant effect. This is because, with so few
constituents, each individual Index Security is likely to make up a significant proportion of the Fund's assets
and distortions in its price could significantly affect the Manager's ability to adjust its holdings to match the
Index.
Second, tracking is a complex exercise, and errors may arise due to human or systems errors. Some
tracking imperfections mean the value of the Fund's Index Securities increases in relation to the value of the
Index. This causes no detriment to Unitholders. However, some tracking imperfections mean the value of
the Fund's Index Securities reduces in relation to the value of the Index. When this is the case, the Return
generated by the Fund may be less than the Return on the Index, which is detrimental to Unitholders.
Operational Risk
There is a risk that operational errors (including improperly analysing the effect of tax laws), fraud or
misconduct may cause a loss to the Fund or otherwise affect Unitholders' Returns. In particular, tracking an
index and assessing the reasons for tracking differences (that is, differences between the NAV of the Fund
and the value of the Index) is very complex and some errors are occasionally made.
In order to mitigate this risk the Manager has adopted a set of internal policies and procedures and also
outsources some aspects of its operations to the Administration Manager to draw on the Administration
Manager's systems and expertise. The Manager has also insured against losses arising from fraud and
misconduct.
Third Party Operational Risk
As noted above, the Manager manages some of its operational risk by outsourcing some complex functions,
such as the calculation of Current Unit Values to the Administration Manager. However, while that gives the
Fund the benefit of the Administration Manager's expertise, it also creates some risk because it means the
Manager has less direct control and oversight of those functions. The Manager has satisfied itself of the
reliability and expertise of the Administration Manager, but there is still a risk that the Administration Manager
may not perform its functions properly (which the Manager may not immediately become aware of). Such a
failure could have a material adverse effect on Unitholders.
Passive Management Risk
Traditional methods of investment management for an actively managed fund typically involve deliberate
changes to a portfolio of securities based on judgement of economic, financial and market conditions. No
attempt will be made to actively manage the Fund in the traditional sense, and the Manager and Trustee do
not monitor the performance of Index Issuers.
The adverse financial condition of an Index Issuer or the industry it is in will not be a reason for the Manager
to direct the Trustee to cause the Fund to dispose of that Funds investments in the Index Securities of that
Index Issuer unless the Index Issuer is removed from the Index. Nor will Index Securities held in the Fund
be disposed of as a result of fluctuations in the market unless they are removed from the Index.
Market fluctuations and such adverse conditions may affect the value of a Unitholders investment and/or
any Returns either positively or negatively. Neither the Manager nor the Trustee may delay decisions to reweight the Fund to reflect the Index to enhance the Returns on particular Units.
Liquidity Risk
26
Investors are only able to cash in their investment by selling their Units on market unless they have enough
Units to do a Basket withdrawal (Basket withdrawals are described on page 30). The market price per Unit
may vary from the Current Unit Value due to supply and demand factors. Application has been made to the
Special Division for permission to quote the Smartshares Units on the NZX Main Board. Once the
application has been accepted, Units will be quoted on the NZX Main Board and, in the opinion of the
Manager, a market for sales of Units will develop. However, although the Units are expected to be quoted
on the NZX Main Board, the fact that investors can apply to purchase Units directly from the Manager may
result in a reduced number of buyers of Units on the NZX Main Board.
Regulatory Risk
Regulatory risk is the risk that a Fund may be adversely affected by future changes in applicable laws or
regulations, including tax laws, or by decisions taken by regulatory agencies enforcing those laws.
Among the regulatory risks that the Manager faces is the risk that when it applies for a market services
licence under the FMC Act its application is delayed, declined by the FMA or overly stringent conditions are
imposed on its licence. The Funds are required to have a manager with a market services licence by 30
November 2016 at the latest, and so the Manager will need to be replaced as manager of the Funds if it is
not able to obtain a licence on acceptable terms by that date.
Tax Risk
Taxation laws, their interpretation, or the Inland Revenue Department's application of those laws may
change during the period of a Unitholders investment in the Fund, in a way which has an adverse impact on
the Returns to that Unitholder.
There are tax risks that need to be managed in relation to the Fund continuing to be eligible to be a PIE,
including (but not limited to):
If the Fund fails to meet the required criteria and therefore ceases to be a PIE, it will not be able to
re-elect to be a PIE for the succeeding five years.
If a Unitholder who is not an Exempt Investor (including all associates) holds more than 20% of the
Units in the Fund, then the Fund may not qualify to be a PIE.
Although the Manager has put processes in place designed to ensure that the Fund complies with all
requirements to be a PIE, there is a risk that the Fund could lose PIE status if there is a breach of those
requirements which is not remedied within the time permitted under the PIE Rules. If PIE status of the Fund
is lost then the Fund will be taxed as a company and distributions to Unitholders will be dividends taxable at
the Unitholders marginal tax rate and potentially will be subject to withholding tax. No compensation will be
paid to Unitholders in the event that PIE status is lost. For further information on PIE Tax risk please refer to
the Fund's prospectus.
Custodian Risk
Legal title to the assets of the Fund is held by the Custodian. That means there is a risk that if the Custodian
becomes insolvent, this could temporarily or permanently deprive the Fund of its assets. This risk is
managed by having the Custodian hold the assets of the Fund as a bare trustee and by keeping those
assets separately identifiable from other assets it holds (for itself and others). This should mean that, if the
Custodian ever does become insolvent, the assets it is holding for the Fund will not form a part of the pool of
assets to be liquidated for the benefit of the Custodian's creditors.
Key Personnel Risk
The management of the Fund is complex and many of the tasks associated with that management require
considerable experience in relation to exchange traded funds. Consequently, there is a risk that if any of the
Manager's key personnel leave, there is an increased risk of disruption and potential calculation errors.
Among other things, such calculation errors could lead to unintended tracking differences. This risk is
mitigated, to some extent, by the Manager's appointment of the Administration manager to the Fund. As the
Administration Manager will be responsible for the day to day administration of the Fund, this should
minimise the risk of disruption if any of the Manager's key personnel leave.
27
Unitholder Liability
No Unitholder shall be personally liable in respect of any debt or liability of the Fund, nor be personally liable
to indemnify the Trustee or the Manager in respect of any such debt or liability, except for any tax liability
paid by the Fund that is attributable to that Unitholder. The Trustee and Manager, except in the case of wilful
default, wilful breach of trust or dishonesty, are indemnified out of the assets of the Fund.
Consequences of Insolvency
Unitholders are not liable to make any payments to third parties upon the winding up of the Fund, or as a
result of the insolvency of the Manager or Trustee. However, in the event that a wind-up proves necessary,
the Manager and/or Trustee shall be entitled to recover from the Fund all costs and expenses, which are
incurred in connection with or arising out of the winding up of the Fund. This will be done prior to distributing
money (or assets) to Unitholders. Claims of Unitholders in respect of their Units will rank equally among
themselves in such circumstances.
28
Fees
The Manager is entitled to increase the amount of any fee (including by adding a fee not currently charged)
payable in respect of the Fund. To do this it must:
(a)
give at least ten Business Days' prior notice of any such increase of any fee relating to applications
to the Trustee;
(b)
give at least three months' prior notice of any such increase of any fee not referred to in paragraph
(a) to the Trustee (including the Manager's fee); and
(c)
if such increase is material for Unitholders (as determined by the Manager in its reasonable
discretion), give at least three months' prior notice of any such increase of any fee not referred to in
paragraph (a) to all Unitholders.
The Manager is entitled to decrease the amount of any fee payable by giving notice to the Trustee (and such
decrease may have immediate effect).
(b)
(c)
if, at any time while the Units of the Trust are listed on an exchange, the same is requested or
recommended by that exchange because of a change to the rules of that exchange;
(d)
if the same is required or desirable because of any amendment or repeal and/or replacement of the
Unit Trusts Act 1960 or any other relevant legislation (including, without limitation, provisions of the
Financial Markets Conduct Act 2013, or regulations under that Act, which will become applicable to
the Fund when the Manager opts into the Financial Markets Conduct Act regime before the relevant
statutory transition period ends on 30 November 2016 and may require changes to the Trust Deed),
or otherwise permitted or required under any relevant law; or
(e)
if in the opinion of the Trustee the same does not have a material adverse effect on Unitholders.
Following any alteration, modification, variation or addition to the provisions of a Trust Deed as set out
above, the Manager will notify the Unitholders in writing in summary form of all amendments made. This
notification will be sent to Unitholders within three months after the date the amendments are made and no
later than the time the Manager next mails information to Unitholders if that time falls no later than three
months after the date the amendments are made.
In addition, where the Trustee and the Manager agree that it is in the interests of the Unitholders to vary the
definition of Authorised Investments (as defined in the Trust Deed) then the proposed variation will be
notified to all Unitholders no later than three months prior to the variation taking effect.
Further details on the Trust Deed and issue terms are provided in the registered Prospectus.
29
Replacement of an index
The Manager may, with the Trustee's prior written consent, replace the Index with a different index that is
materially the same if the Index that the Fund tracks is discontinued or the Index methodology is changed in
a way that means, in the Manager's opinion, continuing to track that Index would materially change an
investment in Units. In such circumstances, the Manager may, with the Trustee's prior written consent, make
any amendments to the Investment Policy that are necessary or desirable in connection with the
replacement of the Index and must give ten Business Days' notice (or such alternative notice period agreed
with the Trustee) of such replacement to Unitholders. After the notice period has passed the Index will be
deemed to be so replaced.
1. Market sale
Application has been made to the Special Division that regulates the Manager (in the place of NZX) for
permission to quote the Units on the NZX Main Board and all the requirements of the Special Division
relating thereto that can be complied with on or before the date of this Investment Statement have been duly
complied with. However the Special Division accepts no responsibility for any statement in this Investment
Statement.
Once the applications made to the Special Division for permission to quote the Units on the NZX Main Board
are accepted, Units will be quoted on the NZX Main Board and, in the opinion of the Manager, a market will
develop for sales of Units. Units will then be able to be sold on market through NZX Firms (no written
redemption notice will be required). The market price per Unit may vary from the Current Unit Value due to
supply and demand factors. The costs involved in a sale on the NZX Main Board is normal share-market
brokerage, which may vary between NZX Firms. The Manager may decline to register a transfer of Units if it
would result in a transferee holding less than the Minimum Holding (provided that doing so would not breach
the Listing Rules).
2. Basket withdrawal
Basket withdrawals are for holdings in multiples of 250,000 Units.
A Unitholder can surrender Units and receive equivalent Index Securities and a Cash Amount representing
any accrued income applicable from the relevant Index Securities of Index Issuers. All withdrawal requests
should be made through an NZX Firm to the Manager after completing a Basket withdrawal notice. Charges
in relation to Basket withdrawals are explained under What are the charges? on page 20.
The Manager is not obliged to redeem Units in the Fund in response to a Basket withdrawal request in the
period from (and including) the Announcement of a distribution to (and including) the Distribution Ex Date (as
redemptions during that period could result in a decreased number of Units on issue, which would in turn
result in an increase in the announced distribution on a per unit basis).
(a)
as soon as practicable after the Manager becomes aware of the Breach, the Manager shall give
written notice to the relevant Unitholder(s) of the Breach, including details of the number of Units (the
Excess Units) giving rise to the Breach;
(b)
the Unitholder shall have a period consisting of the grace period determined in accordance with the
Tax Act (the Remedy Period) less 30 days to remedy the Breach, but if the Manager becomes
aware of the Breach and determines that there are 30 days or less to remedy the Breach then the
Breach shall be deemed to have not been remedied; and
(c)
if the Breach has not been remedied upon expiry of the period referred to in (b) above, then the
Manager shall within the remaining 30 days of the Remedy Period, in its discretion, and only to the
extent permitted by the Listing Rules (or any ruling in respect of, or waiver from the Listing Rules),
sell, redeem, or repurchase the amount of the Excess Units in order to remedy the Breach, and:
(i)
the Manager shall account to the relevant Unitholder for the proceeds of any disposal of the
Excess Units after deduction of all expenses arising from such disposal; and
(ii)
neither the Manager nor the Trustee is required to maximise the Fund unit price for any
disposal and in any event, shall not be liable to any Unitholders for any loss on disposal.
The Manager
Head of Business
Smartshares Limited
Level 1, NZX Centre, 11 Cable Street
PO Box 2959, Wellington
Tel: 0800 80 87 80
Email: smartshares@smartshares.co.nz
www.smartshares.co.nz
31
Unit Registrar
Head of Business
Smartshares Limited
Level 1, NZX Centre
11 Cable Street
PO Box 2959
WELLINGTON
Tel: 0800 80 87 80
Email: smartshares@smartshares.co.nz
Alternatively, you may lodge a complaint with the Managers or the Trustee's Dispute Resolution Scheme
provider. The Dispute Resolution Scheme provider for the Manager and the Trustee is Financial Services
Complaints Limited. They can be contacted at:
4th Floor, 101 Lambton Quay
Wellington
P O Box 5967
Wellington 6011
Tel: 0800 347 257
Fax: (04) 472 3727
There is no ombudsman to whom complaints may be made.
The latest annual report (including financial statements) of the Fund (when prepared).
The latest annual report including financial statements will be available from the Manager free of charge at
www.smartshares.co.nz (when prepared). The prospectus and financial statements (when prepared) are
also filed with the Companies Office, and are available on the Companies Office website
(www.business.govt.nz/companies) under the Managers file reference, free of charge.
The Trust Deed for the Fund may be inspected, without fee, by any person at the registered office of the
Manager. A copy of the Trust Deed will be sent (electronically where possible) to prospective and current
investors, free of charge, on request to the Manager.
A Unitholder (or his/her/its representative) may inspect that part of the register of Units kept by the Unit
Registrar that relates to his/her/its Units, except when the register is duly closed (and subject to any
32
reasonable restrictions that the Manager may impose so that not less than two hours in each working day is
allowed for inspection). A copy of that part of the register of Units relating to a Unitholder may be obtained
on payment of a reasonable fee.
Up-to-date information on the performance of the Fund and the Index is available in the daily newspapers
and on NZX's website (www.nzx.com). Announcements to NZX, including Announcements of the tracking
differences for the Fund can be found at www.nzx.com under the ticker symbol "NPF".
Request information
Investors may also request from the Manager, in accordance with section 54B of the Securities Act 1978 and
regulation 44 of the Securities Regulations 2009, the information required by those provisions to be made
available. A prescribed fee may be payable (but not for a copy of the registered prospectus, a copy of the
financial statements or a copy of any document extending the period during which allotments may be made
under the registered prospectus). Such a request may be made by contacting the Manager, on the contact
details as set out on page 15 above, and the Manager will be able to let Unitholders know what the fee is (if
any) prior to actioning their request.
The information that may be requested under regulation 44 is:
(a)
a copy of the most recent annual report of the Fund (when prepared);
(b)
a copy of the most recent financial statements of the Fund, together with a copy of the auditor's report
on those statements (when prepared);
(c)
(d)
a copy of the Fund's prospectus, together with copies of any documents registered under the
Securities Act 1978 for the purpose of extending the period during which allotments may be made
under that prospectus;
(e)
a copy of the most recent investment statement relating to the Units (which, as at the date of this
Investment Statement is this document);
(f)
if prospective information about Returns on the Units is or was contained in any prospectus or
advertisement, a comparison (if practicable, in the same form and for the same period as the
prospective information) of the actual Returns against the prospective Returns; and
(g)
if prospective financial information about the Fund was contained in any prospectus or advertisement,
a comparison (if practicable, in the same form and for the same period as the prospective financial
information) of the actual results against the prospective financial information.
33
Privacy
The Manager, through the Unit Registrar, collects and holds personal information about you for the purposes
of managing your investment and advising you of other investment opportunities. You may request access
to personal information held about you in relation to your investment. You may make such request by writing
to the Unit Registrar at:
Link Market Services Limited
PO Box 91976
Auckland 1142
or by telephoning the Unit Registrar on (09) 375 5998. Depending on the nature of any such request, the
Manager or the Unit Registrar reserves the right to impose a reasonable charge for providing access to
personal information.
The Unit Registrar's privacy policy is available on its website www.linkmarketservices.co.nz.
34
GLOSSARY OF TERMS
Administration Manager
Announcement
Application Form
the application
Statement.
Basket
Business Day
Cash Amount
form
attached
to
this
Investment
Custodian
Distribution Date
Distribution Ex Date
Distribution Reinvestment
Plan
Establishment Deed
Exempt Investor
FMA
Fund
Imputation Credit
Index
Index Administrator
Index Issuer
Index Securities
Investment Policy
Investment Statement
Listed
Listing Rules
Manager
Smartshares Limited.
Market Participant
Minimum Holding
NAV
NZX
NZX Limited.
NZX Firm
PIE
Record Date
Return
Unit
Special Division
Subscription Amount
Tax Act
Trust Deed
Trustee
Unitholder
a holder of Units.
Unit Registrar
You
Terms described above in the singular include the plural and vice versa. All dates and times contained in the
Investment Statement refer to New Zealand time.
37
SMARTSHARES APPLICATION
CHECKLIST
SMARTSHARES
a Member of the NZX Group
Please ensure that your application is completed in full and all relevant documentation is attached to enable your application to be processed successfully.
Please
where applicable
Your application needs to be received by Link Market Services Limited by the 20th of the month so that the units you receive can be
priced at that month end.
If you have any questions in relation to your application please contact Link Market Services by phone 09 375 5998 or email
smartshares@linkmarketservices.co.nz
SMARTSHARES
a Member of the NZX Group
BROKER STAMP
INVESTORS
First Name(s):
Family Name:
First Name(s):
Family Name:
First Name(s):
Family Name:
Mobile Telephone:
Daytime Telephone:
By supplying your mobile number you will enable the Registry, Link Market Services, to advise you by TXT Alerts (post-allotment) of
any changes on your holding balance, or if your bank account details or address on register change, or if a new / replacement
Authorisation Code (FIN) has been requested. This feature provides additional security to you as an investor.
Email Address:
By supplying your email address the Company will be able to deliver your investor correspondence to you electronically where
possible. This is a much more environmentally friendly, cost-effective and timely option than paper based investor mail outs.
OR
Please tick this box if you hold a RWT exemption certificate from the IRD and attach a copy of your RWT exemption certificate.
OR
Please tick this box if you are a non-resident for New Zealand tax purposes under the Income Tax Act 2007. You will be treated
as a New Zealand tax resident unless this box has been ticked
Please advise your country of residence for Tax purposes if not New Zealand
Cash Applications
SMARTLARGE
US 500 (USF)
Europe (EUF)
US Mid-Cap (USM)
TOTAL
SMARTMEDIUM
SMARTSMALL
US Small-Cap (USS)
SMARTSECTOR
SMARTDIVIDEND
SMARTINCOME
Choose only ONE of the payment options below. Please tick the box next to your selected option.
Option 1 -
New Zealand investors only. Please direct debit my bank account stated on the enclosed direct debit authority
for the fund I/we are investing in, for the amount applied for above (or any lesser amount as determined by the
Issuer). By ticking this box and signing this Application Form I agree that Smartshares is authorised to direct
debit my bank account for the full amount (applied for or any lesser amount as determined by the Issuer.)
Option 2 -
Name of Bank
Account Number
Bank
Branch
Account
Suffix
Are you a United States (US) citizen or resident for US tax purposes?
Investor 1
Yes
No
5.1.2
Please provide your US Taxpayer Identification Number (TIN) if you have ticked yes):
5.1.3
No
5.1.3.1
5.1.4
5.1.4.1
No
No
5.2.1.1
5.2.2
Is the investor a financial institution (a custodial or depository institution, an investment entity or a specified insurance
company for the Foreign Account Tax Compliance Act (FATCA) purposes)*?
Yes
5.2.2.1
No
Please provide the investor's Global Intermediary Identification Number (GIIN) or specify the status under the FATCA status*
if you have ticked "yes":
If you have ticked "no" to both Questions 5.2.1 and 5.2.2, please advise if the investor have one or more individuals who are
US citizens or residents for tax purposes who directly or indirectly:
5.3.1
5.3.2
No
No
If you have ticked yes to Question 5.2.2 please provide the following information about the US citizen or resident.
US Person 1
Full Name :
Postal Address :
TIN (if available) :
US Person 2
Full Name :
Postal Address :
TIN (if available) :
If there are more than 2 US Persons, please write their details on a separate page and attach to this form.
* Please visit the Inland Revenue's website (http://www.ird.govt.nz/taxagents/taxtechnical/fatca/) for more information regarding the
meaning of a "financial institution" or your FATCA status.
6. IDENTITY DOCUMENTS
The Financial Transactions Reporting Act 1996 and Anti Money Laundering and Countering Financing of Terrorism Act 2009 require
Smartshares to verify the identify of new investors. The following sets out suitable forms of identification as at the date of this Offer
Document. These may change from time-to-time and accordingly Smartshares reserves the right to require further information.
Please provide one of the following identity options plus proof of your residential address:
Identify Documents (must be certified copies*)
OPTION 1
OPTION 2
OPTION 3
When verifying your identity documents, a Trusted Referee must sight the original identity document before writing their name,
occupation, date and signature and a statement to the effect that, I certify this to be a true copy of the original document and confirm
that it represents the identity of (full name). Certification may only be valid for up to three months.
Identity verification when investing under Power of Attorney
If you are investing under a Power of Attorney for an applicant, we are required to verify the identity of the Power of Attorney as well
as the applicant. We also need to check that the person signing the application has Power of Attorney. Please provide:
Certified copies of:
The personal identity documents and proof of residential address for you, and
The personal identity documents and proof of residential address for the applicant;
Together with:
The Power of Attorney and a certificate of non-revocation.
Proof of Bank Account for Direct Debits
If you are setting up a direct debit you will need to provide one of the following in the name of the account holder:
A printed copy of an online bank statement dated within the last three months and showing the name of the bank account,
the bank account number and the name of the bank.
Additional documents when investing for a Company, Trust, Partnership, Incorporated Society or a Association
If you are investing on behalf of a Company, Trust, Partnership, Incorporated Society or Association, the following documents (where
applicable) must be submitted with your application:
If the trust is a discretionary trust, charitable trust or any type of trust that has more than 10 beneficiaries, please provide a
description of each class or type of beneficiary and for a charitable trust, the objects of the trust. For other trusts, please provide
the names and dates of births of all trust beneficiaries;
Partnership agreement;
7. PRIVACY POLICY
The personal information collected on this form and provided with your application will be used to:
evaluate and process your application;
administer the Smartshares funds;
maintain relevant statistical records; and
comply with any laws in New Zealand or overseas;
provide you with information about other products and services offered by Smartshares; and update other information held about you
by Smartshares and Link Market Services
In signing this application form you authorise the use of your personal information for these purposes.
The personal information will be held by Link Market Services New Zealand at Level 7, Zurich House, 21 Queen Street, Auckland. For more information
on the registry provider please contact Smartshares. Under the Privacy Act 1993 you have the right to access, and to request correction of
personal information about you held by Link Market Services by writing to Link Market Services at PO Box 91976, Auckland 1142 or by telephoning Link
Market Services on (09) 375 5998. Your personal information will only be disclosed to another party to the extent necessary for one or more of the
purposes set out above, where required by law, or as otherwise authorised by you. Smartshares may disclose information about you to any
government authority in New Zealand or overseas to comply with law in New Zealand or overseas or to determine what action Smartshares needs to
take to comply with the law in New Zealand or overseas.
Company Name
Address
Phone Number
9. INVESTOR(S) DECLARATION(S)
I/we have received and read the Investment Statement and I/we apply for units in the selected Smartshares Fund(s) and apply for
apply for them as described.
I/we appoint the Trustee(s) as my/our agent to acquire the assets required to obtain units in the selected Fund(s) and vest them in the
Trustee(s) as described in the Investment Statement, Prospectus and Trust Deed and thereafter to perform the duties set out in the
Trust Deed.
I/we agree that this offer to acquire Smartshares Units (or any lesser number allocated) may not be revoked.
I/we understand that the terms and conditions of the Investment Statement, Prospectus and Trust Deed as amended reinvestment
from time to time will bind all Unitholders.
I/we agree to accept the Smartshares Units allocated, including any Smartshares Units obtained as a result of reinvestment income.
I/we understand that by completing this Application Form I/we will be providing personal information about me/us which will be held
by the NZX Limited group of companies (the Group), as well as the Registrar, the Trustee and Custodian for the relevant Funds
and may be used to make available the full range of services offered by the Group. I/we have the right to access and correct this
information subject to the provisions of the Privacy Act 1993. This information may be used to update other information about me/us
held by the Group.
I/we appoint the Trustee(s) as my/our agent to hold and invest the funds and assets the subject of this application on trust on the
terms and conditions of the Trust Deed and authorise the Trustee(s) to invest such funds through, and transfer such assets to, the
Fund as if they were trust funds.
I/we direct that the powers conferred by the Trust Deed on the Trustee(s) are available to the Trustee(s) in respect of the funds and
assets the subject of this application, and that the Trustees appointment in the Trust Deed is authorised by me/us and is not to be
revoked other than in accordance with the Trust Deed.
Each Applicant must sign the Application Form. Applications made on behalf of a Company, Trust, Partnership, Incorporated Society or
Association must be signed by a properly authorised signatory. The Applicant only may sign the Application Form, unless another
person has been duly appointed as the attorney of the Applicant. If an attorney signs, he/she must complete section 10 on the bottom
of the application and enclose his/her power of attorney.
Signature of Applicant
Date
Signature of Applicant
Date
Signature of Applicant
Date
I,
Of,
Hereby Certify:
1. THAT by a Power of Attorney dated the
day of
The Donor,
Of,
appointment me his/her/its Attorney on the terms and conditions set out in the Power of Attorney.
2. THAT I have executed the application for Shares printed on this Application Form under that appointment and pursuant to the
powers thereby conferred on me.
3. THAT at the date of this certificate I have not received notice of any event revoking that Power of Attorney.
Signed at :
This
day of
Signature Of Attorney :
day of
The Donor,
Of,
appointment me his/her/its Agent on the terms and conditions set out in the Agreement.
2. THAT I have executed the application for Shares printed on this Application Form under that appointment and pursuant to the
powers thereby conferred on me.
3. THAT at the date of this certificate I have not received notice or information of the revocation of my Appointment as Agent.
Signed at :
This
Signature Of Agent :
day of