Smartshares Limited Investment Statement

Transcription

1 Smartshares Limited 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) Click Here To view the investment statements for: Australian Property Index Trust - Aus Property Fund (ASP) Australian Dividend Index Trust - Aus Dividend Fund (ASD) Click Here To view the investment statements for: smarttenz - NZX 10 Fund (TNZ) smartmidz - NZX MidCap Index Fund (MDZ) smartfonz - NZX 50 Portfolio Index Fund (FNZ) smartmozy - NZX Australian MidCap Index Fund (MZY) smartozzy NZX Australian 20 Leaders Index Fund (OZY) Click Here To view the investment statements for: US 500 Trust (USF) Europe Trust (EUF) Asia Pacific Trust (APA) Emerging Markets Trust (EMF) Total World Trust (TWF) US Large Value Trust (USV) US Large Growth Trust (USG) US Mid Cap Trust (USM) US Small Cap Trust (USS) Click Here To view the investment statements for: Global Bond Trust New Zealand Bond Trust New Zealand Cash Trust Click Here To view the investment statements for: New Zealand Property Trust Click Here

2 Smartshares Limited Investment Statement AUSTRALIAN PROPERTY INDEX TRUST (Aus Property Fund) AUSTRALIAN DIVIDEND INDEX TRUST (Aus Dividend Fund) Investment Statement for the purposes of the Securities Act Dated 5 June 2015

3 Contents IMPORTANT INFORMATION 3 HOW DO I APPLY? 10 AUSTRALIAN PROPERTY INDEX TRUST (AUS PROPERTY FUND) 13 AUSTRALIAN DIVIDEND INDEX TRUST (AUS DIVIDEND FUND) 15 ANSWERS TO IMPORTANT QUESTIONS 18 What sort of investment is this? 18 Who is involved in providing it for me? 18 How much do I pay? 21 What are the charges? 23 What returns will I get? 25 What are my risks? 30 Can the investment be altered? 34 Amendments to an Investment Policy 35 Replacement of an index 35 How do I cash in my investment? 35 Who do I contact with inquiries about my investment? 36 Is there anyone to whom I can complain if I have problems with the investment? 37 What other information can I obtain about this investment? 37 GLOSSARY OF TERMS 40 2

4 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: What sort of investment is this? 18 Who is involved in providing it for me? 18 How much do I pay? 21 What are the charges? 23 What returns will I get? 25 What are my risks? 30 Can the investment be altered? 34 How do I cash in my investment? 35 Who do I contact with inquiries about my investment? 36 Is there anyone to whom I can complain if I have problems with the investment? 37 What other information can I obtain about this investment? 37 Page 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 Zealand s financial markets. The Financial Markets Authority s main objective is to promote and facilitate the development of fair, efficient, and transparent financial markets. For more information about investing, go to 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; 3

5 the services the adviser can provide you with; the products the adviser can advise you on. 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 You can also complain to the Financial Markets Authority if you have concerns about the behaviour of a financial adviser. NZX Main Board Listing & Quotation Units in the Funds have been accepted for quotation by the Special Division on the NZX Main Board and will be quoted on completion of allotment procedures. However, the Special Division accepts no responsibility for any statement in this Investment Statement. The NZX Main Board is a licensed market operated by NZX, a licensed market operator regulated under the Financial Markets Conduct Act. 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 Unitholder s 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. 4

6 KEY INFORMATION SUMMARY This section of the Investment Statement contains a summary of the key information relating to this offer. The rest of this Investment Statement contains important information. You should read all of it before deciding whether to invest. How do the Smartshares Funds work? This Investment Statement relates to the following Smartshares Funds: - AUSTRALIAN PROPERTY INDEX TRUST (Aus Property Fund); and - AUSTRALIAN DIVIDEND INDEX TRUST (Aus Dividend Fund). The basic concept Each Smartshares Fund is a unit trust, as defined in the Unit Trusts Act The beneficial interest in each Smartshares Fund is divided into Units with each Unit representing an equal interest in the assets of that Smartshares Fund but not conferring any interest in any specific asset of that Smartshares Fund. The objective of each of the Smartshares Funds is to provide a Return to Unitholders that closely matches the Return on a specific equity market index. An equity market index is a measure of the Return on a group of individual securities and is typically independently calculated by an index provider. To meet this objective, each Smartshares Fund aims to hold securities (Index Securities) of the entities that are part of the relevant index (Index Issuers) in proportions that match their weightings in the relevant index. This is called index tracking, and there is further information about it below on this page and on page 30, together with more specific comments about tracking performance for each of the Smartshares Funds in the descriptions of each individual Smartshares Fund from pages 13 to 17. Exchange traded funds Your Units are quoted on a stock exchange, in this case on the NZX Main Board. As quoted securities, Units can be traded like shares in Listed companies. 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 relevant Index Securities, you will not have any rights in relation to specific Index Securities held by a Smartshares Fund. There are also some differences between the Returns you will receive on the two investments. The principal differences are as follows: 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

7 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. Who is involved in providing the Smartshares Funds? Smartshares Limited (the Manager) is a wholly owned subsidiary of NZX Limited (NZX). Smartshares Limited offers a range of funds. 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, Custodian and the Unit Registrar. The other principal persons involved in providing the Smartshares Funds are: Trustees Executors Limited (the Trustee); BNP Paribas Fund Services Australasia Pty Ltd, acting through its New Zealand branch (the Administration Manager and the Custodian); and Link Market Services Limited (the Unit Registrar). 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. Particular Smartshares Funds The Smartshares Fund you choose to invest in is designed to give you Returns similar to the Returns on the index tracked by the relevant Smartshares Fund. The Manager buys and sells Index Securities to track the relevant index rather than making investment decisions based on its own assessment of the Index Issuers. This means the Smartshares Funds are what is commonly referred to as passive funds (as opposed to active funds, which involve a manager making its own judgement about where and when to invest and divest). 6

8 The Smartshares Funds are: Fund Name Index Description Aus Property Fund S&P/ASX 200 A-REIT Equal Weight Index Comprises around 16 of the largest real estate investment trusts listed on the ASX Aus Dividend Fund S&P/ASX Dividend Opportunities Index Comprises 50 of the highest yielding issuers listed on the ASX. 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. 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 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 ( 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 entity s 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

9 What types of risks are involved with the Smartshares Funds? In summary, some of the principal risks are: Risks arising because of investment in Index Securities 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. Risks arising because of investment through Smartshares Funds 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. There is further information about risks on pages 30 to 33. What charges do Unitholders pay directly? When Unitholders first subscribe for Units they will pay an application fee to the Manager, which will be deducted from their Subscription Amount. For Subscription Amounts of less than $20,000 this will be a flat fee of $30, and for Subscription Amounts equal to or greater than $20,000 the subscription fee will be 0.2% of the full Subscription Amount. This fee is not payable for subsequent Cash Applications, subscriptions under the Regular Savings Plan or the Distribution Reinvestment Plan, or in relation to a Basket application. (Basket applications are for large investors, and are discussed on page 22.) Unitholders lodging or withdrawing a Basket will be charged a fee by the Manager for each lodgement or withdrawal. The amount they are charged is set out in the table below: Basket Creation Basket Withdrawal $400 for Aus Property Fund $400 for Aus Property Fund 8

10 $800 for Aus Dividend Fund $800 for Aus Dividend Fund Fees are GST inclusive. 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. What charges do the Smartshares Funds pay? Each Smartshares Fund pays a management fee to the Manager. This is currently 0.54% per annum (inclusive of GST) of the relevant Smartshares Fund's NAV (for each of the Smartshares Funds), and is accrued daily and payable monthly in arrear. The management fee is currently used by the Manager to pay the Trustee, the Administration Manager, the Custodian, the Unit Registrar, any penalties and interest charged by the Inland Revenue and any bank fees, although the Manager reserves the right to have such amounts paid out of the Smartshares Funds. If the Manager does exercise its right to have such amounts paid out of the Smartshares Funds, it will first notify the Trustee and Unitholders but the Manager is not required to notify potential investors. Other expenses that arise, such as operating expenses that do not arise in the ordinary course of business, will be paid out of the Smartshares Funds. 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 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 pages 24 to 25. 9

11 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 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: through a further Cash Application (for a minimum of $250); through the Regular Savings Plan; or through the Distribution Reinvestment Plan. These options are each described below. Alternatively you can purchase existing Units on market through an NZX Firm. Cash Application Investment As with the initial Cash Application, a Cash Application 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 application payment to Link Market Services Limited, PO Box 91976, Auckland 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). The Manager may suspend the acceptance of Cash Applications at any time by way of an Announcement to NZX. The Manager may also reject any application for any reason. The Regular Savings Plan You can currently make a regular monthly investment directly from your bank account with no transaction fees charged by the Manager. Every month for an amount you choose (minimum contribution $50 per month) the Manager will add Smartshares Units to your investment. Simply complete the Application Form and direct debit authority included in this Investment Statement. Your payments will then be automatically withdrawn from your nominated bank account on a monthly basis. In addition you can make additional lump sum deposits with your monthly direct debit at any time ($250 minimum value). 10

12 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 Smartshares Units in your Smartshares Fund(s) on or around the end of each month. The Unit Registrar will send you a statement each month confirming your new Smartshares Unit holding(s). To join the Smartshares Regular Savings Plan, you must already have the Minimum Holding of 100 Smartshares Units for the Smartshares Fund that you wish to invest in on a regular basis or you must make a Cash Application that, if accepted, would mean you held at least 100 Units in the fund you want to invest in. 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 Zero transaction cost no transaction fees charged by the Manager at present Affordable contributions from just $50 per month 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. The Distribution Reinvestment Plan Each Smartshares Fund may receive dividends from the Index Issuers in which it invests. These dividends and other income are retained in the Smartshares Fund (and reflected in the Current Unit Value) and the Smartshares Fund makes quarterly distributions to Unitholders, with each Unitholder s entitlement based on the Unitholder s holding as at the Record Date for that distribution. Your share of each distribution by the relevant Smartshares Fund will be automatically reinvested as additional Smartshares Units four times a year unless you choose to have distributions paid out to you by direct credit. By having these payments automatically reinvested, you are increasing your unitholding without having to do anything. Compounding distributions can work in your favour if you want to accumulate Smartshares Units over the longer term. See page 28 for more details. 11

13 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 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, Honours (first class) 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 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 an LLB (Hons) and a Bachelor of Commerce and Administration from Victoria University of Wellington and is both a barrister and solicitor. 12

14 AUSTRALIAN PROPERTY INDEX TRUST (Aus Property Fund) The Aus Property Fund gives investors exposure to entities listed on the ASX that are included in the S&P/ASX 200 Index (the index used as the primary gauge for the Australian market) and are classified as Australian Real Estate Investment Trusts. An Australian Real Estate Investment Trust ("REIT") is an entity that owns, and generally, operates income producing real estate. These investment vehicles must have most of their assets and income tied to real estate investment. Securities are classified using the Global Industry Classification Standard (GICS ). The Global Industry Classification Standard is designed to meet the needs of the investment community by categorising companies into sectors and industries that reflect a company s primary business model as determined by its financial performance. The S&P/ASX 200 A-REIT Equal Weight Index (the index tracked by the Aus Property Fund) is rebalanced quarterly with each constituent allocated a fixed, equal weight at the time of the rebalance. Additions to the index normally only take place at the quarterly rebalance. However, if a REIT replaces another REIT in the ASX200 it will enter the index immediately, assuming the weighting of the security it is replacing. A link to the index methodology for the S&P/ASX 200 A-REIT Equal Weight Index can be found at The methodology for constructing the index may be changed from time to time by the Index Administrator. As at 30 April 2015 the S&P/ASX 200 A-REIT Equal Weight Index had 16 constituents with a total market capitalisation of AUD $106,957 million. The number of constituents and the specific entities included in the index may change over time. At 30 April 2015 the following entities were included: Abacus Property Group BWP Trust Charter Hall Group Cromwell Property Group Charter Hall Retail REIT Dexus Property Group Federation Centres Goodman Group GPT Group Investa Office Fund Mirvac Group Novion Property Group Scentre Group Shopping Centres Australasia Property Group Stockland Westfield Corporation Aus Property Fund performance to 31 March 2015 Return to 31 March 2015 Fund Gross Return 6.65% Notes to the above table "Fund Gross Return" is the return on total fund net of management fees but including gross dividends reinvested on payment date. Return period is from the date funds were first received by the Fund, being 16 December 2014, to 31 March 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

15 Limited. Standard & Poor s and S&P are registered trademarks of Standard & Poor s 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

16 AUSTRALIAN DIVIDEND INDEX TRUST (Aus Dividend Fund) The Aus Dividend Fund gives investors exposure to 50 high yielding securities listed on the ASX, contained in the S&P/ASX 300 Index. The entities are those in the S&P/ASX Dividend Opportunities Index (the index tracked by the Aus Dividend Fund). Entities in the S&P/ASX Dividend Opportunities Index are selected taking into account their market capitalisation, dividend growth history and other filters as defined in the index methodology. To be eligible for inclusion in the index each entity must have a minimum float-adjusted market capitalisation of AUD 500 million, a six month average daily value traded of AUD 2 million or higher, positive earnings-per-share before extraordinary items, and growing or stable 3-year dividend per share growth. Securities classified as Real Estate Investment Trusts using the Global Industry Classification Standard (GICS ) are excluded. A link to the index methodology for the S&P/ASX Dividend Opportunities Index can be found at The methodology for constructing the index may be changed from time to time by the Index Administrator. As at 30 April 2015 the S&P/ASX Dividend Opportunities Index had 50 constituents with a total market capitalisation of AUD $1,141,085 million. The specific entities included in the index may change over time. At 30 April 2015 the following entities were included: Adelaide Brighton Ltd AGL Energy Ltd Asciano Ltd ALS Ltd Amcor Ltd AMP Ltd Ansell Ltd ANZ Banking Group APA Group ASX Ltd Aurizon Holdings Ltd Bendigo and Adelaide Bank Ltd BHP Billiton Ltd Brambles Ltd Commonwealth Bank Australia Coca-Cola Amatil Ltd Challenger Ltd Cochlear Ltd Computershare Ltd CSL Ltd Flight Centre Travel Group Ltd Fortescue Metals Group Insurance Australia Group Ltd IOOF Holdings Ltd Incitec Pivot Ltd JB Hi-Fi Ltd James Hardie Industries plc Lend Lease Group Macquarie Group Ltd Metcash Ltd National Australia Bank Ltd Origin Energy Ltd 15

17 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 Aus Dividend Fund performance to 31 March 2015 Return to 31 March 2015 Fund Gross Return 9.18% Notes to the above table "Fund Gross Return" is the return on total fund gross of management fees but including gross dividends reinvested on payment date. Return period is from the date funds were first received by the Fund, being 16 December 2014, to 31 March 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 & Poor s and S&P are registered trademarks of Standard & Poor s 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

18 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

19 ANSWERS TO IMPORTANT QUESTIONS Defined terms in this Investment Statement have the meaning set out in the Glossary of Terms on pages 40 to 42. What sort of investment is this? Each Smartshares Fund is a unit trust constituted under the Unit Trusts Act 1960 and, accordingly, the Units offered in this Investment Statement are units in a unit trust. Each Smartshares Fund was established on 1 December 2014 under the relevant Trust Deed. When you buy Smartshares Units you become a Unitholder in the relevant Smartshares Fund you have chosen to invest in. The Smartshares Funds are passively managed and their objective is to provide Returns that track the Return on the particular index that the Smartshares Fund tracks. Each Smartshares Fund owns a portfolio of securities in a proportion that is as close as possible to the weightings of the securities in the relevant index that the Smartshares Fund tracks. The Units in the Smartshares Funds are quoted on the NZX Main Board, therefore the Funds can be classified as exchange traded funds. Who is involved in providing it for me? Names of Smartshares Funds The names of the Smartshares Funds in which Units are offered in this Investment Statement are: AUSTRALIAN PROPERTY INDEX TRUST (Aus Property Fund); and AUSTRALIAN DIVIDEND INDEX TRUST (Aus Dividend Fund). 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 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 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: smartshares@smartshares.co.nz 18

20 The Manager's address may change from time to time. You can find up-to-date details at any time at 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 (Wellington) 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 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) Fax: (04) enquiries@trustees.co.nz The Trustee's address may change from time to time. You can find up-to-date details at any time at 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 A copy of the Trustee s licence, including the conditions on the licence, can be obtained at the FMA s website: by clicking on Help Me Comply, Trustees, Licensed Trustees and Statutory Supervisors, Trustees Executors Limited. Alternatively, a copy can be found on the Trustee s website: 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

21 The Administration Manager The Administration Manager 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 The Administration Manager's address may change from time to time. You can find up-to-date details at any time at 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 The Custodian's address may change from time to time. You can find up-to-date details at any time at 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) Fax: (09) 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 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. Nature and duration of Smartshares Funds The Smartshares Funds are unit trusts constituted under the Unit Trusts Act The Smartshares Funds were established on 1 December 2014 under the Trust Deeds. For more information regarding the Trust 20

22 Deeds see the "Summary of the Trust Deeds" section in the registered prospectus for the Smartshares Funds. How much do I pay? There are four ways in which you can subscribe for Smartshares Units, and the method you choose affects how many Units you must subscribe for. 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 investor s 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. 2. Regular Savings Plan Once you have the Minimum Holding of 100 Smartshares Units, investing regularly can be a very effective way to accumulate Smartshares Units over the long term. Even small amounts saved on a regular basis have the potential to grow into a significant number of Smartshares Units over a number of years. 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. In theory, this reduces an investor's exposure to the risk of short term fluctuations in the price of Units, as it works to smooth out the market s ups and downs and helps 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 New Zealand bank account. Provided Unitholders hold the Minimum Holding, or if a they make a Cash Application that, if accepted, would mean they hold the Minimum Holding, they can choose to participate in the Regular Savings 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. 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). 21

23 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 Unitholder s 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 Distribution Reinvestment Plan Each Smartshares Fund receives dividends from the Index Issuers in which it invests. As described on page 26 these dividends and other income are retained within the relevant Smartshares Fund and then allocated to Unitholders for distribution. Such distributions are automatically reinvested (after the deduction of Distribution Reinvestment Plan fees (if any)) to provide you with additional Smartshares Units four times a year, unless you choose to have these paid out to you by direct credit. Four times a year, the Manager will, at its discretion, use the reinvestment monies for Unitholders who have their quarterly distributions reinvested either to purchase Index Securities and then issue new Units to those Unitholders or to purchase existing Units on market and pass those existing Units on to those Unitholders. In either case, the Manager's purchase of Index Securities or Units with reinvestment monies will be made at current market prices. 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 Financial Markets Conduct Act 2013 and Financial Markets Conduct Regulations 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

24 Smartshares Unit Issue Price Smartshares Units are issued at the Current Unit Value applying at the relevant time for Cash Applications, the Regular Savings Plan and the Distribution Reinvestment Plan. The Current Unit Value of a Smartshares Unit is determined by dividing the total value of the Smartshares Fund s NAV by the total number of Smartshares Units on issue. The Current Unit Value of a Smartshares Unit includes not only the value of the underlying Index Securities held in a Smartshares Fund, but also accrued income in relation to the portfolio (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. 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 Fund s 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). Suspension of Issues and Withdrawals The Manager is not obliged to issue Smartshares Units or redeem Units (via a Basket withdrawal) in a Smartshares Fund in the period from (and including) the date of the Announcement of a distribution to (and including) the Distribution Ex Date for that distribution. Refunds The Trustee will not refund any Subscription Amount, except where the Trustee, on the advice of the Manager, decides that an investor s 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. An investor may not withdraw their Manager may request information The Manager may request any Unitholder to provide information to the Manager to enable the Manager to determine whether a Smartshares Fund can continue to meet the PIE eligibility requirements (further details are provided in the "Taxation" section on page 26). 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. 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. What are the charges? Unless otherwise specified all fees are inclusive of GST. Entry and Exit charges If you buy Smartshares Units directly from the Manager through a Cash Application (as described on page 21 above) you pay a flat application fee to the Manager of $30 for Subscription Amounts of less than 23

25 $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 and withdrawal charges When subscribing for Units via Basket creation and redeeming Units via Basket withdrawal the following charges are payable to the Manager as at the date of this Investment Statement. Basket Creation Basket Withdrawal $400 for Aus Property Fund $400 for Aus Property Fund $800 for Aus Dividend Fund $800 for Aus Dividend Fund 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. Other management charges Management fees are charged to the Smartshares Funds and are currently 0.54% of the NAV of the relevant Smartshares Fund and 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 or 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 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. 24

26 The Trustee receives fees for the services it provides. The Trustee s 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. What returns will I get? Nature of the returns Any Returns you get from your Smartshares Units will be a combination of: (a) (b) 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 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. Key factors that determine returns for Smartshares Funds The Returns for the Funds are subject to the general fluctuations and direction of the Australian sharemarket, up or down, and the performance of the Index Issuers, which includes changes in their security prices and the value of any dividends or other distributions paid. Both of these factors are influenced by the Australian and global economies. In addition, currency fluctuations between the New Zealand and Australian dollar will impact on the Returns for the Smartshares Funds as the Manager does not currently take steps to hedge against currency fluctuations. Amount of the returns The amount of the Returns you get from your investment in Smartshares Units will vary from time to time, depending on the factors above. Returns cannot be predicted with any accuracy. None of the Manager, the Trustee, NZX, the Custodian and Administration Manager nor any other person guarantees a particular level of Return on your investment in Smartshares Units. No Returns are promised. 25

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 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

28 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. 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. 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. capital gains from the sale of investments) 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 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 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. To the extent that Imputation Credits are available, distributions to Unitholders will be fully imputed. 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 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

29 one Unitholder s 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 Unitholder s 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. Australian taxation treatment As the Smartshares Funds do not have a permanent establishment in Australia and will not hold at any time 10% or more of the issued shares in any Index Issuer, the Smartshares Funds should not be subject to Australian income tax in respect of any gains made on disposal. Where fully Franked dividends are paid by Australian resident companies to the Smartshares Funds, no Australian tax should be withheld at source in Australia. Where unfranked or partially Franked dividends are paid by Australian resident companies to the Smartshares Funds, it is likely that Australian tax will be withheld at source in Australia in relation to the unfranked portion of the dividend. Where the Smartshares Funds hold 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 Smartshares Funds net of any withholding tax paid to the Australian tax authorities. Please refer to the prospectus for the Smartshares Funds for information on stamp duty. Reinvestment of distributions 28

30 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 Auckland 1142 Tel (09) Fax (09) 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 Manager s 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 Manager s 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. Terms of Securities Lending The Trust Deeds permit the Manager to lend securities held by the Smartshares Funds only in accordance with certain terms. Liability to pay returns The Trustee is the person legally liable to pay Returns (if any). 29

31 What are my risks? The principal risks of an investment in a Smartshares Fund are: Risks arising because of investment in Index Securities Market Risk Smartshares Units are subject to the risks of an investment in a broadly based portfolio of securities, including the risk that the general level of security prices may decline, thereby adversely affecting the value of the investment in that Smartshares Fund. Securities are susceptible to general market fluctuations and to volatile increases and decreases in price due to changes in market confidence in, and investor perception of, the issuer of those securities. 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 and banking crises. This may result in a Unitholder 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 Property Fund, which will be exposed to fluctuations in the Australian property market. 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. Risks arising because of investment through Smartshares Fund Tracking Risk For a variety of reasons 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 in order to track an index are likely to face the same issues as the Manager in trying to exactly track the relevant index. The Manager measures its tracking performance as follows. On the date on which the Smartshares Funds are launched, there is a mathematical relationship between the NAV of the Index Securities held in each Smartshares Fund and the value of the relevant index, which can be expressed as: 30

32 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) (b) 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 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. 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. 31

33 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 Fund s 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 Unitholder s 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 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 the Smartshares Funds are quoted on the NZX Main Board and, in the opinion of the Manager, a market for sales of Units will develop. However, although the Smartshares 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. Foreign Currency Risk While Subscription Amounts and income for reinvestment are payable in New Zealand dollars, the Manager invests the proceeds for the Smartshares Funds in securities denominated in Australian dollars. In addition, Smartshares Units in the Smartshares Funds 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 Smartshares Funds, and amounts for reinvestment, either positively or negatively and hence the value or amount of the Smartshares Units 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 when it applies 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) its application 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 Office s application of those laws may change during the period of a Unitholder s investment in Smartshares Funds, in a way which has an adverse impact on the Returns to that Unitholder. 32

34 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 Unitholder s 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

35 Can the investment be altered? Regular Savings Plan Unitholders may at any time initiate, cease or alter (subject to maintaining a minimum contribution of $50 per month unless contributions are being completely stopped) the monthly Regular Savings Plan payments by giving ten Business Days notice to the Unit Registrar prior to the Direct Debit Date. Distribution Reinvestment Plan Unitholders may at any time initiate or cease the Distribution Reinvestment Plan by notifying the Unit Registrar. However, Unitholders will need to give the Unit Registrar at least 10 Business Days' notice prior to the quarterly Distribution Ex Date to enable the change to be made for that distribution period. 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) (b) (c) give at least ten Business Days' prior notice of any such increase of any fee relating to applications to the Trustee; 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 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). Amendments to the relevant trust deed and issue terms The Manager and the Trustee may amend the relevant Trust Deed for a Smartshares Fund in any of the following cases: (a) (b) (c) if the same is authorised by an extraordinary resolution of Unitholders; if the same is required or recommended by the FMA; 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) (e) 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 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

36 Further details on the Trust Deeds and issue terms are provided in the registered prospectus for the Smartshares Funds. Amendments to an Investment Policy The Investment Policy of each Smartshares Fund may be amended or replaced from time to time by the Manager in consultation with the Trustee. If the Manager proposes to amend or replace an Investment Policy in a manner that materially affects existing Unitholders, the Manager shall, prior to effecting any such amendment or replacement, give at least 30 days' written notice to the Unitholders and if such notice is required, the relevant amendment or replacement shall not be effective until such notice period has expired. 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. How do I cash in my investment? Smartshares Units can be cashed up in two ways: 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). Sale to retain PIE status In some circumstances the Manager may be required to take action to ensure that the Smartshares Funds retain their PIE status. The Manager has been granted a waiver by the Special Division to enable it to do so. For further information about the waiver see the registered prospectus for the Smartshares Funds. 35

37 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) (b) (c) 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; 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 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) (ii) 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 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. Winding up of Smartshares Funds The Manager has the power to wind up any Smartshares Fund (after giving three months notice to the Trustee). The Trustee shall give Unitholders notice that the Trustee has received a notice from the Manager terminating the relevant Smartshares Fund. The Trustee shall then distribute the balance, after payment of any costs, charges, expenses, claims and liabilities (including tax and contingent liabilities) incurred in connection with the relevant Smartshares Fund, or arising out of the liquidation of the Fund, amongst the Unitholders in proportion to the number of Units held by them. The Trustee shall retain such amount as the Manager considers necessary or appropriate to meet all the above costs, charges, expenses, claims and liabilities (including contingent liabilities and tax) that are not paid prior to distribution. Who do I contact with inquiries about my investment? If you require any information about your investment in Smartshares Units, you should first contact: The Unit Registrar The Manager Link Market Services Limited Manager Smartshares Level 7, Zurich House Smartshares Limited 21 Queen Street Level 1, NZX Centre, 11 Cable Street AUCKLAND 1010 PO Box 2959, Wellington Tel: (09) Tel: Fax: (09) smartshares@smartshares.co.nz smartshares@linkmarketservices.co.nz 36

38 Is there anyone to whom I can complain if I have problems with the investment? Complaints can be made to any of the following: The Manager Manager Smartshares Smartshares Limited Level 1, NZX Centre 11 Cable Street PO Box 2959 WELLINGTON Tel: smartshares@smartshares.co.nz Unit Registrar Link Market Services Limited Level 7, Zurich House 21 Queen Street AUCKLAND 1010 Tel: (09) Fax: (09) smartshares@linkmarketservices.co.nz Trustee Trustees Executors Limited Level 5, Maritime Tower 10 Customhouse Quay PO Box 3222 WELLINGTON Tel: (04) Fax: (04) enquiries@trustees.co.nz Alternatively, you may lodge a complaint with the Manager s 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: Fax: (04) There is no ombudsman to whom complaints may be made. What other information can I obtain about this investment? Further information about the Smartshares Funds, and Smartshares Limited, is contained in or referred to in: The latest registered prospectus for the Smartshares Funds 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 (when prepared). The prospectus and financial statements (when prepared) are also filed with the Companies Office, and are available on the Companies Office website ( under the Manager s 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

39 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 ( Announcements to NZX, including Announcements of the tracking differences for the Smartshares Funds can be found at under the ticker symbols "ASP" for the Aus Property Fund and "ASD" for the Aus Dividend Fund. Information to the Unitholder The annual report and half year report is made available to every investor on the Smartshares website within 90 days of the end of the relevant period. Notification of the availability of this annual report is sent to all investors by mail and a hard copy of the report can be posted to any Unitholder, if requested. Investors will also receive a distribution notice four times a year, as well as confirmation of Smartshares Units allocated if they are members of the Distribution Reinvestment Plan. Unitholders who are members of the Regular Savings Plan will receive a monthly statement confirming the price and number of Smartshares Units allocated for each contribution made. Information in relation to the value of your investment and trading history can be obtained via the Registry Investor Service Centre web site at 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) (b) (c) (d) (e) (f) (g) a copy of the most recent annual report of the Smartshares Funds (when prepared); 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); a copy of the Trust Deeds; 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; a copy of the most recent investment statement relating to the Units (which, as at the date of this Investment Statement is this document); 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 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

40 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 Auckland 1142 or by telephoning the Unit Registrar on (09) 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 39

41 GLOSSARY OF TERMS Administration Manager Announcement BNP Paribas Fund Services Australasia Pty Limited, acting through its New Zealand branch, or any other administration manager appointed from time to time. a market announcement to NZX that can be viewed on nzx.com under the ticker symbols "ASP" for the Aus Property Fund and "ASD" for the Aus Dividend Fund (and Announce and Announced have corresponding meanings). Application Form the application form attached to this Investment Statement. ASX Aus Dividend Fund Aus Property Fund Basket Business Day Cash Amount Cash Application Current Unit Value Custodian Direct Debit Date Distribution Date Distribution Ex Date the Australian Stock Exchange. the Australian Dividend Index Trust. the Australian Property Index Trust. a proportionate amount of the securities of the Index Issuers determined from time to time by the Manager as equivalent to 250,000 Smartshares Units. a day on which the NZX Main Board is open for usual business. a cash amount determined by the Manager as being equal to: (a) in relation to a person subscribing for Units via Basket creation, a proportionate share of the income accrued and held in the particular Smartshares Fund that will be attributable to the Smartshares Units issued to the Basket applicant; and (b) in relation to a person redeeming Units via Basket withdrawal, the income accrued and held in the particular Smartshares Fund that is attributable to the Units being redeemed. an application for Units that is made for cash and is not made under the Regular Savings Plan or the Distribution Reinvestment Plan. the market value of all securities held by the relevant Smartshares Fund (plus any received and accrued income) less liabilities or provisions (including accrued liabilities and expenses) properly to be taken into account in determining the NAV of the relevant Smartshares Fund, divided by the number of Units on issue for that 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. on or about the 20 th of every month. each date on which distributions are paid to Unitholders, which will be within 20 Business Days after each Record Date. in relation to a distribution, the date on which NZX quotes the Units on an "ex" basis under the NZX Participant Rules. 40

42 Distribution Reinvestment Plan Establishment Deed Exempt Investor FMA Franked or Franking Credit Imputation Credit Index Administrator Index Issuer Index Securities Investment Policy Investment Statement Listed Listing Rules Manager Market Participant Master Trust Deed means the plan currently provided for in the prospectus for the Smartshares Funds under which Unitholders may automatically invest their dividends and other distributions in the relevant Smartshares Fund quarterly. an establishment deed establishing a Smartshares Fund between the Manager and the Trustee. a Unitholder that is an investor of the type listed in section HM 21(2) of the Tax Act (including Parts A and B of Schedule 29 of that act), or equivalent provision. the Financial Markets Authority. the Australian tax credit which is attached to the dividend, distributed in accordance with Australia's dividend imputation system. imputation credit as defined in section YA 1 of the Tax Act. S&P Dow Jones Indices. in respect of either Smartshares Fund, an issuer whose securities are included from time to time in the index which that Smartshares Fund tracks. securities issued by an Index Issuer that are held or to be acquired by a Smartshares Fund. an investment policy that is developed by the Manager in accordance with the relevant Trust Deed (and which may not be inconsistent with the index tracking objective for the relevant Smartshares Fund set out in the relevant Establishment Deed) and sets out how the Manager will invest on behalf of the relevant Smartshares Fund. this investment statement. listed on the NZX Main Board. the NZX Main Board listing rules that regulate issuers listed on the NZX Main Board. Smartshares Limited. any entity approved by NZX pursuant to the NZX Participant Rules to participate in any market provided by NZX. the master trust deed between the Manager and the Trustee dated 24 June Minimum Holding the minimum number of Smartshares Units in a Smartshares Fund that a Unitholder must hold at all times. Currently this is 100 Smartshares Units. NAV NZX NZX Firm NZX Main Board the net asset value of the relevant Smartshares Fund. NZX Limited. a Market Participant accredited by NZX pursuant to the NZX Participant Rules to provide advice and trade on behalf of a client or as a principal (a list of which can be found on the main board equity security market operated by NZX. 41

43 NZX Participant Rules PIE Record Date Regular Savings Plan Return Smartshares Funds or Funds Smartshares Unit or Unit Special Division Subscription Amount means the rules regulating Market Participants of NZX. Portfolio Investment Entity under the Tax Act. in relation to a distribution to Unitholders, the time and date fixed by the Manager for the determination of the Unitholders to whom a distribution will be paid, which is currently on or about the last Business Day in March, June, September and December in each year. the scheme under which Unitholders may make monthly payments of at least NZ$50 to the Smartshares Funds in order to purchase further Smartshares Units on an ongoing basis. in relation to Units and other securities means the amounts distributed to holders of them together with any increase in their capital value and, in relation to an index, means the amounts that would be distributed to a person that held the Index Securities used to calculate the value of the relevant Index and any increase in the value of such a holding. the Aus Dividend Fund and the Aus Property Fund. a unit in one of the Smartshares Funds. Tax Act the Income Tax Act means the division of the NZ Markets Disciplinary Tribunal constituted under the NZ Markets Disciplinary Tribunal Rules, that regulates the Manager (in the place of NZX), for compliance with the NZX Main Board Listing Rules. the amount of money that is being provided for investing in Smartshares Funds (which includes the application fee). Trust Deed Trustee Unitholder Unit Registrar You in respect of any particular Smartshares Fund, the Master Trust Deed and the relevant Establishment Deed (as may be supplemented or amended by any supplementary deeds or deeds of modifications). Trustees Executors Limited. a holder of Smartshares Units. Link Market Services Limited. A potential investor or a Unitholder. 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

44 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 Investment Statement for the purposes of the Securities Act Dated 17 September 2015

45 Contents IMPORTANT INFORMATION 3 HOW DO I APPLY? 12 THE NZX 10 FUND (SMARTTENZ) 15 THE NZX MIDCAP INDEX FUND (SMARTMIDZ) 18 THE NZX 50 PORTFOLIO INDEX FUND (SMARTFONZ) 20 THE NZX AUSTRALIAN MIDCAP INDEX FUND (SMARTMOZY) 23 THE NZX AUSTRALIAN 20 LEADERS INDEX FUND (SMARTOZZY) 26 ANSWERS TO IMPORTANT QUESTIONS 28 What sort of investment is this? 28 Who is involved in providing it for me? 28 How much do I pay? 31 What are the charges? 34 What returns will I get? 36 What are my risks? 41 Can the investment be altered? 47 How do I cash in my investment? 48 Who do I contact with inquiries about my investment? 49 Is there anyone to whom I can complain if I have problems with the investment? 50 What other information can I obtain about this investment? 50 GLOSSARY OF TERMS 52 2

46 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: What sort of investment is this? 28 Who is involved in providing it for me? 28 How much do I pay? 31 What are the charges? 34 What returns will I get? 37 What are my risks? 43 Can the investment be altered? 48 How do I cash in my investment? 49 Who do I contact with inquiries about my investment? 50 Is there anyone to whom I can complain if I have problems with the investment? 50 What other information can I obtain about this investment? 51 Page 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. 1 The Financial Markets Authority regulates conduct in financial markets The Financial Markets Authority regulates conduct in New Zealand s financial markets. The Financial Markets Authority s main objective is to promote and facilitate the development of fair, efficient, and transparent financial markets. For more information about investing, go to 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. 1 Each of the funds discussed in this investment statement has its own registered prospectus. 3

47 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; the products the adviser can advise you on. 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 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. NZX Main Board Listing & Quotation Units in the Smartshares Funds were accepted for quotation on the NZX Main Board by NZX Limited (NZX) (the NZX Main Board is a licensed market operated by NZX, and NZX is a licensed market under the Financial Markets Conduct Act 2013) and Units are quoted on the NZX Main Board. However, the Special Division of the NZ Markets Disciplinary Tribunal that regulates Smartshares Limited accepts no responsibility for this offer. 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 Unitholder s 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

48 applicable laws and regulations. S&P Dow Jones Indices and NZX Disclaimer The "S&P/NZX 50 Portfolio Index, S&P/NZX 10 Index and S&P/NZX MidCap Index" are products of S&P Dow Jones Indices LLC or its affiliates ( SPDJI ) and NZX Limited, and has been licensed for use by Smartshares Limited. Standard & Poor s and S&P are registered trademarks of Standard & Poor s Financial Services LLC ( S&P ) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ( Dow Jones ). NZX Limited s 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 Limited s 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 Limited s Products or any member of the public regarding the advisability of investing in securities generally or in Smartshares Limited s Products particularly or the ability of the S&P/NZX 50 Portfolio Index, S&P/NZX 10 Index and S&P/NZX MidCap 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 Portfolio Index, S&P/NZX 10 Index and S&P/NZX MidCap 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/NZX 50 Portfolio Index, S&P/NZX 10 Index and S&P/NZX MidCap Index are determined, composed and calculated by S&P Dow Jones Indices or NZX Limited without regard to Smartshares Limited or the Smartshares Limited s Products. S&P Dow Jones Indices and NZX Limited have no obligation to take the needs of Smartshares Limited or the owners of Smartshares Limited s Products into consideration in determining, composing or calculating the S&P/NZX 50 Portfolio Index, S&P/NZX 10 Index and S&P/NZX MidCap 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 Limited s Products or the timing of the issuance or sale of Smartshares Limited s Products or in the determination or calculation of the equation by which Smartshares Limited s 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 Limited s Products. There is no assurance that investment products based on the S&P/NZX 50 Portfolio Index, S&P/NZX 10 Index and S&P/NZX MidCap 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 PORTFOLIO INDEX, S&P/NZX 10 INDEX AND S&P/NZX MIDCAP 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 LIMITED S PRODUCTS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE S&P/NZX 50 PORTFOLIO INDEX, S&P/NZX 10 INDEX AND S&P/NZX MIDCAP 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 MidCap 50 Index and S&P/ASX 20 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 & Poor s and S&P are registered trademarks of Standard & Poor s Financial Services LLC ( S&P ) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ( Dow Jones ). ASX Operations Pty Ltd s 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 Limited s Products are not sponsored, 5

49 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 Limited s Products or any member of the public regarding the advisability of investing in securities generally or in Smartshares Limited s 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 Limited s 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 Limited s 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 Limited s Products or the timing of the issuance or sale of Smartshares Limited s Products or in the determination or calculation of the equation by which Smartshares Limited s 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 Limited s 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 LIMITED S 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. 6

50 KEY INFORMATION SUMMARY This section of the investment statement contains a summary of the key information relating to this offer. The rest of this investment statement contains important information. You should read all of it before deciding whether to invest. How do the Smartshares Funds work? The basic concept The objective of each of the Smartshares Funds is to provide a Return to Unitholders that closely matches the Return on a specific equity market index. An equity market index is a measure of the return on a group of individual securities and is typically independently calculated by an exchange, such as NZX, or an index provider, such as Standard & Poor's. To meet this objective, each Smartshares Fund aims to hold securities (Index Securities) of the entities that are part of the relevant index (Index Issuers) in proportions that match their weightings in the relevant index. This is called index tracking, and there is further information about it below on this page and on pages 42 and 43, together with more specific comments about tracking performance for each of the Smartshares Funds in the descriptions of each individual Smartshares Fund from pages 16 to 27. Exchange traded funds The Smartshares Funds are exchange traded funds (ETFs), which means your Units are quoted on a stock exchange, in this case on the NZX Main Board. As quoted securities, Units can be traded like shares in listed companies. For most investors, trading their Units on market through an NZX Firm will be the only way of redeeming their investment. Differences from direct investment Although an investment in a Smartshares Fund is similar to a direct investment in the relevant Index Securities, you will not have any rights in relation to specific Index Securities held by a Smartshares Fund. There are also some differences between the Returns you will receive on the two investments. The principal differences are as follows: 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. 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 Securities issuers. In contrast, distributions that are received by a Smartshares Fund from the relevant Index Securities issuers will be held by that Smartshares Fund (and included in the Smartshares Fund's NAV) until a semi-annual Distribution Date. It is only on that semi-annual Distribution Date that distributions received during the previous six 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 7

51 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. Who is involved in providing the Smartshares Funds? Smartshares Limited (the Manager) is a wholly owned subsidiary of NZX Limited (NZX). Smartshares Limited offers a range of index tracking funds (the Smartshares Funds). The Manager, either on its own or on behalf of the Trustees, 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, 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. The other principal persons involved in providing the Smartshares Funds are: The New Zealand Guardian Trust Company Limited, trustee for smarttenz, smartfonz, and smartmozy; Trustees Executors Limited, trustee for smartmidz and smartozzy; 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 Link Market Services Limited (the Unit Registrar). 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

52 Particular Smartshares Funds The Smartshares Fund you choose to invest in is designed to give you Returns similar to the Returns on the index tracked by the relevant Smartshares Fund. The Manager buys and sells Index Securities to track the relevant index rather than making investment decisions based on its own assessment of the Index Issuers. This means the Smartshares Funds are what is commonly referred to as passive funds (as opposed to active funds, which involve a manager making its own judgement about where to invest). The Smartshares Funds are: Fund Name Index Description smarttenz S&P/NZX 10 Index Comprises 10 of the largest listed New Zealand Issuers (Capital Index) smartmidz smartfonz smartmozy smartozzy S&P/NZX MidCap Index S&P/NZX 50 Portfolio Index S&P/ASX MidCap 50 Index S&P/ASX 20 Index Comprises mid sized listed New Zealand Issuers (Capital Index) Comprises 50 of the largest listed New Zealand Issuers (Capital Index) Comprises mid sized listed Australian Issuers (Capital Index) Comprises 20 of the largest listed Australian Issuers (Capital 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 ( so you can track 9

53 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 entity s 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. What types of risks are involved with the Smartshares Funds? In summary, some of the principal risks are: Risks arising because of investment in Index Securities 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. Foreign currency risk Because the smartozzy and smartmozy Smartshares Funds invest in ASX listed entities, and so receive Returns in Australian dollars, these will be exposed to a 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. This risk does not apply to the other Smartshares Funds. Risks arising because of investment through Smartshares Funds 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

54 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. Passive management risk The Smartshares Funds are passive investments, which means the Manager will not be able to 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 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. There is further information about risks on pages 41 to 45. What charges do Unitholders pay directly? When Unitholders first subscribe for Units they will pay an application fee to the Manager, which will be deducted from their subscription amount. For subscription amounts of less than $20,000 this will be a flat fee of $30, and for subscriptions equal to or greater than this amount the subscription fee will be 0.2% of the subscription amount. This fee is not payable for subsequent Cash Applications, subscriptions under the Regular Savings Plan, the Distribution Reinvestment Plan, or in relation to a Basket application. (Basket Applications are for large investors, and are discussed in page 34.) Unitholders lodging or withdrawing a Basket of Units will be charged a fee by the Manager for each lodgement or withdrawal. The amount they are charged is set out in the table below: Basket Creation Basket Redemption $250 for smartfonz and smartmozy $250 for smartfonz and smartmozy $250 for smarttenz $500 for smarttenz $400 for smartmidz $400 for smartmidz $300 for smartozzy $300 for smartozzy 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

55 What charges do the Smartshares Funds pay? Each Smartshares Fund pays a management fee to the Manager. This is a percentage per annum of the relevant Smartshares Fund's NAV (for each of the Smartshares Funds), and is accrued daily and payable monthly. That percentage is as follows: Smartshares Fund smartfonz smartmidz smartmozy smartozzy smarttenz Management Fee 0.75% p.a. 0.75% p.a. 0.75% p.a. 0.60% p.a. 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 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 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 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

56 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; or through the Distribution Reinvestment Plan. These options are each described below. Alternatively you can purchase existing Units on market through an NZX Firm. Cash Application Investment As with the initial cash application, a cash application 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 application payment to Link Market Services Limited, PO Box 91976, Auckland 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 Smartshares Limited may open or close the offer for cash applications at any time by way of an Announcement to NZX. The Regular Savings Plan You can currently make a regular monthly investment directly from your bank account with no transaction fees charged by the Manager. Every month for an amount you choose (minimum contribution $50 per month) the Manager will add Smartshares Units to your investment. Simply complete the application form and direct debit authority included in this Investment Statement. Your payments will then be automatically withdrawn from your nominated bank account on a monthly basis. To apply, fill out the application form at the back of this Investment Statement and complete the direct debit form, which can also be found at the back of this Investment Statement. Investors can also apply online at And, 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, keeping in mind that you can stop, restart, increase or decrease (subject to maintaining a minimum contribution of $50 per month unless you are completely stopping contributions) your contributions at any time by contacting the Unit Registrar. (The Unit Registrar will require notice to change contributions by at least 10 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 converted into Smartshares Units in your Smartshares Fund(s) at the end of each month. The Unit Registry will send you a statement each month confirming your new Smartshares Unit holding(s). To join the Smartshares Regular Savings Plan, you must already have a minimum holding for 13

57 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 Zero transaction cost no transaction fees charged by the Manager Affordable from just $50 per month 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 32) Helps you accumulate Smartshares Units every month you acquire additional Smartshares Units automatically without needing to think about it The Distribution Reinvestment Plan Each Smartshares Fund may receive dividends from the Index Issuers in which it invests. These dividends and other income are retained in the Smartshares Fund (and reflected in the Current Unit Value) and the Smartshares Fund makes six-monthly distributions to Unitholders, with each Unitholder s entitlement based on the Unitholder s holding as at the Record Date for that distribution. Your proportionate share of each distribution by the relevant Smartshares Fund will be automatically reinvested as additional Smartshares Units twice a year unless you choose to have them paid out to you by direct credit. By having these payments automatically reinvested, you are increasing your unitholding without having to do anything. Compounding of distributions can work in your favour if you want to accumulate Smartshares Units over the longer term. 14

58 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 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, Honours (first class) 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 B Comm 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 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 an LLB (Hons) and a Bachelor of Commerce and Administration from Victoria University of Wellington. Kristin is a barrister and solicitor of the High Court of New Zealand. 15

59 THE NZX 10 FUND (smarttenz) What is smarttenz? smarttenz is listed on the NZX Main Board. The objective of smarttenz is to provide a Return that closely matches the Return on the S&P/NZX 10 Index. The S&P/NZX 10 Index comprises 10 of the largest entities listed on the NZX Main Board, meaning that your investment is effectively diversified across 10 of the largest entities listed on the NZX Main Board. When you invest in smarttenz, you buy exposure to all the Index Issuers in the S&P/NZX 10 Index. Together these entities made up around 41.08% of the value of the NZX Main Board by full market capitalisation as at 31 August This makes smarttenz a relatively diversified sharemarket investment compared with investing in individual Index Securities. smarttenz was New Zealand s first ETF and was launched in May The Manager has implemented a securities lending programme for smarttenz. Please refer to page 41 for further information on securities lending. 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 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 smarttenz Performance Over Last 3 Years Year to 31/03/2015 Year to 31/03/2014 Year to 31/03/2013 Change in Capital Index 1.88% 14.09% 15.90% 16

60 Investor Return 5.83% 17.85% 20.12% Fund Return 5.20% 18.57% 20.71% Change in tracking difference year on year 0.18% -0.39% -0.09% Notes on above table (a) (b) (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

61 THE NZX MIDCAP INDEX FUND (smartmidz) What is smartmidz? smartmidz is listed on the NZX Main Board. The objective of smartmidz is to provide a Return that closely matches the Return on the S&P/NZX MidCap Index. The S&P/NZX MidCap Index comprises a broad range of medium sized New Zealand entities listed on the NZX Main Board, meaning that your investment is effectively diversified across that broad range of medium sized New Zealand entities. When you invest in smartmidz, you buy exposure to all the Index Issuers in the S&P/NZX MidCap Index all of the entities in the S&P/NZX 50 Index, excluding entities for which their NZX listing is not their primary listing and excluding entities that are in the S&P/NZX 10 Index. smartmidz entities are a diverse group, covering almost every sector of New Zealand business and comprising around 42.6% of the total value of the NZX Main Board by market capitalisation as at 31 July Many of these entities are leaders in their field and cover industry sectors such as Consumer, Energy and Finance and Other Services. The Manager has implemented a securities lending programme for smartmidz. Please refer to page 41 for further information on securities lending. 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 The methodology for constructing the Index may change from time to time. smartmidz Holdings* NZX Code AIR ARG ATM CNU DIL DNZ EBO FRE FSF GMT GNE HNZ IFT KPG KMD MET MFT MPG MRP Index Issuer Air New Zealand Limited Argosy Property Limited A2 Corporation Limited Chorus Limited Diligent Board Member Services INC DNZ Property Fund Limited Ebos Group Limited Freightways Limited Fonterra Shareholders Fund Goodman Property Trust Genesis Energy Limited Heartland New Zealand Limited Infratil Limited Kiwi Income Property Group Limited Kathmandu Holdings Limited Metlifecare Limited Mainfreight Limited Metro Performance Glass Limited Mighty River Power Lmited 18

62 NPX NZX OHE PCT PEB PFI POT RBD SKL STU SUM TME TPW TWR VCT VHP WHS ZEL 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 Skellerup Holdings Limited Steel & Tube Holdings Limited Summerset Group Holdings Limited Trade Me Group Limited TrustPower Limited Tower Limited Vector Limited Vital Healthcare Property Trust The Warehouse Group Limited Z Energy Limited * as at 31 August smartmidz Performance Over Last 3 Years* 31/03/ /03/ /03/2013 Change in Capital Index 19.24% 10.83% 27.21% Investor Return 24.03% 13.14% 30.42% Fund Return 24.35% 14.50% 32.04% Change in tracking difference year on year Notes on above table -0.01% 0.02% 0.41% (a) (b) (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

63 THE NZX 50 PORTFOLIO INDEX FUND (smartfonz) What is smartfonz? smartfonz is listed on the NZX Main Board. The objective of smartfonz is to provide a Return that closely matches the Return on the S&P/NZX 50 Portfolio Index. The S&P/NZX 50 Portfolio Index comprises 50 of the largest entities listed on the NZX Main Board by market capitalisation and liquidity, meaning that your investment is effectively diversified across 50 of the largest entities listed on the NZX Main Board. When you invest in smartfonz, you buy exposure to all the Index Issuers in the S&P/NZX Portfolio 50 Index. Together the entities in this index comprise around 85.8% of the total value of the NZX Main Board by full market capitalisation as at 31 July Currently included in smartfonz are entities you may have contact with everyday such as Spark, Fletcher Building, Contact Energy and Sky Television. These may change over time. smartfonz also gives you a portfolio that is diversified across a range of sectors. The Manager has implemented a securities lending programme for smartfonz. Please refer to page 41 for further information on securities lending. 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 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

64 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

65 smartfonz Performance Over Last 3 Years* 31/03/ /03/ /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% Change in tracking difference year on year Notes on above table 0.20% -0.03% 0.14% (a) (b) (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

66 THE NZX AUSTRALIAN MIDCAP INDEX FUND (smartmozy) What is smartmozy? smartmozy is listed on the NZX Main Board. The objective of smartmozy is to provide a Return that closely matches the Return on the S&P/ASX MidCap 50 Index. The S&P/ASX MidCap 50 Index comprises 50 entities ranked from 51 to 100 by market capitalisation and liquidity on the ASX, meaning your investment is effectively diversified across 50 medium sized Australian entities listed on the ASX. When you invest in smartmozy you buy exposure to all the Index Issuers in the S&P/ASX MidCap 50 Index. This provides exposure to a broad range of industry segments. Many of the names of entities that are currently included are well known to New Zealanders and have businesses that are active on both sides of the Tasman, like Harvey Norman, and Flight Centre. Together the entities in this index comprise around 11% of the total value of the ASX market by full market capitalisation as at 31 July 2015 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 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

67 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 Henderson Group PLC Healthscope Limited Harvey Norman Hldgs Ltd Ioof Holdings Ltd Iluka Resources Limited Investa Office Fund JB Hifi limited Magellan Financial Group Metcash Ltd Navitas Limited Orora Limited Perpetual Limited Primary Health Care Ltd Qantas Airways Ltd REA Group Ltd Recall Holdings Limited ResMed Inc Slater & Gordon Limited Sims Metal Management Ltd Spark Infrastructure Trust Tabcorp Hldgs Ltd Transpacific Industries Group Ltd TPG Telecom Limited Tatts Group Limited Treasury Wine Estates WorleyParsons Limited * as at 31 August smartmozy Performance Over Last 3 Years 31/03/ /03/ /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% Change in tracking difference year on year Notes on above table 0.17% 0.14% -1.04% (a) (b) (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

68 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

69 THE NZX AUSTRALIAN 20 LEADERS INDEX FUND (smartozzy) What is smartozzy? smartozzy is listed on the NZX Main Board. The objective of smartozzy is to provide a Return that closely matches the Return on the S&P/ASX 20 Index. The S&P/ASX 20 Index comprises 20 of the largest entities listed on the ASX market, meaning that your investment is effectively diversified across 20 of the largest entities listed on the ASX. When you invest in smartozzy, you buy exposure to all the Index Issuers in the S&P/ASX 20 Index. Together, these entities currently make up around 46% of the value of the ASX market by full market capitalisation as at 31 July This makes smartozzy a diversified sharemarket investment compared with investing in individual Index Securities. 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 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

70 smartozzy Performance Over Last 3 Years* 31/03/ /03/ /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% Change in tracking difference year on year Notes on above table -0.18% -0.35% 0.08% (a) (b) (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

71 ANSWERS TO IMPORTANT QUESTIONS Defined terms in this Investment Statement have the meaning set out in the Glossary of Terms on pages 52 to 54. What sort of investment is this? Smartshares Funds are exchange traded funds that are listed on the NZX Main Board. Each Smartshares Fund is constituted as a Group Investment Fund under its trust deed and the Trustee Companies Act When you buy Smartshares Units you become a Unitholder in the Smartshares Funds you have chosen to invest in. Each Smartshares Fund owns a portfolio of securities in a proportion that is as close as possible to the weightings of the securities in the specific index that the Smartshares Fund tracks. Smartshares Funds are passively managed and their objective is to provide investment Returns that track the Return on the particular index that the Smartshares Fund tracks. Names of Smartshares Funds The names of the Smartshares Funds offered in this Investment Statement are: NZX 10 FUND ( smarttenz ) NZX MIDCAP INDEX FUND ( smartmidz ) NZX 50 PORTFOLIO INDEX FUND ( smartfonz ) NZX AUSTRALIAN MIDCAP INDEX FUND ( smartmozy ) NZX AUSTRALIAN 20 LEADERS INDEX FUND ( smartozzy ) Who is involved in providing it for me? The Manager The Manager for the Smartshares Funds is Smartshares Limited, a wholly-owned subsidiary of NZX Limited (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 the Smartshares Funds. The Manager led the development of index funds in New Zealand with the launch of the NZX 10 Fund (formerly The NZSE TeNZ Fund ) in SmartTENZ remains the longest standing ETF listed on the NZX Main Board. Address of the Manager Smartshares Limited NZX Centre Level 1, 11 Cable Street PO Box 2959 Wellington Tel: smartshares@nzx.com 28

72 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 (Wellington) 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 Profiles for each of the directors are set out on page 15. The powers of the Manager are set out in the Summary of the Trust Deed in the registered prospectus for each of the Smartshares Funds. Summary of Duties The Manager, either on its own or on behalf of the Trustee, 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, including the payment of distributions to Unitholders and administration of any securities lending programme implemented for the Funds (see page 41 for further details). The Trustee The Trustee for smarttenz, smartfonz and smartmozy is: The New Zealand Guardian Trust Company Limited Level 14, 191 Queen Street Auckland 1010 Tel: (09) Fax: (09) ct-auckland@nzgt.co.nz The Trustee for smartmidz and smartozzy is: Trustees Executors Limited Level 5, 10 Customhouse Quay PO Box 3222 Wellington Tel: (04) Fax: (04) enquiries@trustees.co.nz 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 Trustee s licence, including the conditions on the licence, can be obtained at the FMA s website: and clicking on Compliance, Lists and registers, Licensed Supervisors, The New Zealand Guardian Trust Company Limited / Trustees Executors Limited or the Trustee s website: / 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

73 The Administration Manager The Administration Manager 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 The Administration Manager's address may change from time to time. You can find up-todate details at any time at 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 smartozzy is: BNP Paribas Fund Services Australasia Pty Ltd, New Zealand branch Level 18, State Insurance Tower, 1 Willis Street PO Box 3299, Wellington The Custodian for smarttenz, smartfonz, smartmidz and smartmozy is: JB Were (NZ) Nominees Limited Level 38, Vero Centre, 48 Shortland Street PO Box 887, Auckland The Custodians' addresses may change from time to time. You can find up-to-date details at any time at 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) Fax: (09) 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

74 Nature and duration of Smartshares Funds The Smartshares Funds are Group Investment Funds constituted under the Trustee Companies Act The Smartshares Funds commenced operation on the following dates: smarttenz 7 May 1996 smartozzy 20 January 1997 smartmidz 15 April 1997 smartmozy 10 August 2004 smartfonz 15 October 2004 How much do I pay? There are four ways in which you can subscribe for Smartshares Units, and the method you choose affects how many Units you must subscribe for: 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 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 investor s 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. 2. Regular Savings Plan Once you have established a Minimum Holding, investing regularly can be a very effective way to accumulate Smartshares Units over the long term. Even small amounts saved on a regular basis have the potential to grow into a significant number of Smartshares Units over a number of years. 31

75 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 market s 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 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 Unitholder s 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: 500,000 units for smarttenz; 200,000 units for smartfonz and smartmidz; and 150,000 units for smartmozy and smartozzy. 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

76 4. Distribution Reinvestment Plan Each Smartshares Fund receives dividends from the Index Issuers in which it invests. These dividends and other income are retained within the Fund and automatically reinvested (after the deduction of distribution reinvestment plan fees (if any)) to provide you with additional Smartshares Units twice a year, unless you choose to have these paid out to you by direct credit. Twice a year, the Manager will, at its discretion, use the reinvestment monies for Unitholders who have their semi-annual distributions reinvested either to purchase Index Securities and then issue new Units to those Unitholders or to purchase existing Units on market and pass those existing Units on to those Unitholders. In either case, the Manager's purchase of Index Securities or Units with reinvestment monies will be made at current market prices. The Distribution Reinvestment Plan described in the relevant Prospectus for each of the Smartshares Funds constitutes the description of the dividend reinvestment plan for the purposes of the Financial Markets Conduct Act 2013 and Financial Markets Conduct Regulations 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). Smartshares Unit Issue Price Smartshares Units are issued at the Current Unit Value applying at the relevant time for cash applications, the Regular Savings Plan and the Distribution Reinvestment Plan. The Current Unit Value of a Smartshares Unit is determined by dividing the total value of the Smartshares Fund s NAV by the total number of Smartshares Units on issue. The Current Unit Value of a Smartshares Unit includes not only the value of the underlying Index Securities held in a Fund but also accrued income in relation to the portfolio (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. 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 Fund s 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 investor s 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

77 No Cooling-off Period There is no cooling-off period in respect of the Smartshares Units. An investor may not withdraw their application. What are the charges? Unless otherwise specified all fees are inclusive of GST. Entry and Exit charges If you buy Smartshares Units directly from Smartshares Limited through a cash application (as described on page 33 above) you pay an application fee to the Manager of $30.00 for amounts of less than $20,000, or 0.20% of the Subscription Amount for amounts equal to or greater than $20,000. However, this application fee is only payable if you do not already hold the Minimum Holding of Smartshares Units in the relevant Smartshares Fund. The application fee 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. If you buy or sell Smartshares Units via the NZX Main Board you will 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 and redemption charges When subscribing via Basket creation and withdrawing via Basket redemption the following charges are payable to the Manager as at the date of this Investment Statement. Basket Creation Basket Redemption $250 for smartfonz and smartmozy $250 for smartfonz and smartmozy $250 for smarttenz $500 for smarttenz $400 for smartmidz $400 for smartmidz $300 for smartozzy $300 for smartozzy 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. Distribution Reinvestment Plan Unitholders automatically have their twice-yearly distributions reinvested in additional Smartshares Units unless they elect to have these direct credited to a nominated bank account. Other management charges Management fees are charged to the Smartshares Funds and are a percentage of the value of the assets in the fund. The Manager may negotiate management fee rebates to individual Unitholders (in the form of additional Smartshares Units or cash, as agreed between the Manager and the Unitholder). The fee percentages for each of the Smartshares Funds are set out below: 34

78 Smartshares Fund smartfonz smartmidz smartmozy smartozzy Management Fee 0.75% p.a. 0.75% p.a. 0.75% p.a. 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 Trustee s 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

79 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. What returns will I get? Nature of the returns The Returns you get from your Smartshares Units will be a combination of: (a) (b) any change in the price of Smartshares Units at the time you sell, relative to the price at which you bought; and 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) and any amounts held for the purpose of addressing a current or anticipated tracking difference. 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. Unitholders will automatically have their distributions re-invested as Smartshares Units unless they elect to have them paid directly to a nominated bank account. Key factors that determine returns for Smartshares Funds The Returns are subject to the general fluctuations and direction of the New Zealand sharemarket (in the case of smarttenz, smartfonz and smartmidz) or the Australian sharemarket (in the case of smartmozy and smartozzy) up or down, and the performance of the Index Issuers, which includes changes in their security prices and the value of any dividends or other distributions paid. Both of these factors are influenced by the New Zealand, Australian and global economies. In addition, currency fluctuations between the New Zealand and Australian dollar will impact on the Returns on smartmozy and smartozzy as the Manager does not currently take steps to hedge against currency fluctuations. Amount of the returns The amount of the Returns you get from your investment in Smartshares Units will vary from time to time, depending on the factors above. Returns cannot be predicted with any accuracy. Neither the Manager, the Trustee nor any other person associated with the Offer guarantees a particular level of Return on your investment in Smartshares Units. No Returns are promised. 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

80 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

81 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 0% if the Unitholder holds 10% or more of the Smartshares Units in a 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 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 investor s 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

82 (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 investor s 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 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 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 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, 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. Australian taxation treatment As the smartmozy and smartozzy Funds do not have a permanent establishment in Australia and will not hold at any time 10% or more of the issued shares in any Index Issuer, those Funds will not be subject to Australian income tax in respect of any gains made on disposal. Where fully Franked dividends are paid by Australian resident companies to the smartmozy or smartozzy Fund, no Australian tax should be withheld at source in Australia. Where unfranked or partially Franked dividends are paid by Australian resident companies to 39

83 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 Auckland 1142 Tel (09) Fax (09) 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 Manager s 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

84 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 Manager s 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. Terms of Securities Lending The Trust Deeds permit the Manager to lend securities held by the Smartshares Funds only in accordance with certain terms, as set out in the appendix to the relevant Smartshares Fund s prospectus. The Manager relies on the Securities Act (Group Investment Index Funds) Exemption Notice 2002 ( Exemption Notice ). That Exemption Notice may only be relied on by a fund that conducts securities lending if it carries out that securities lending in accordance with the rules and requirements of a designated settlement system under section 156N of the Reserve Bank of New Zealand Act The Manager carries out its securities lending through the NZCDC Settlement System, which is a designated settlement system. The NZCDC Settlement System is operated by NZX through its subsidiaries. NZCL, a subsidiary of NZX, is the central counterparty for the clearing house for the NZCDC Settlement System, and will become the borrower in respect of all securities lent by the Smartshares Funds. It will also settle all securities loans in accordance with the rules of the NZCDC Settlement System. NZDL, another subsidiary of NZX, operates the depository for the NZCDC Settlement System, in which Index Securities of smartfonz, smartmidz and smarttenz are held, and administers securities lending. New Zealand Depository Nominee Limited, another subsidiary of NZX, holds the legal title to those Index Securities that are held in the depository. Therefore the entities which operate the NZCDC Settlement System used by the Manager, being ultimately wholly owned by NZX, are related parties of the Manager under the NZX Main Board Listing Rules. The Special Division of the NZ Markets Disciplinary Tribunal has granted the Manager a waiver from the NZX Main Board Listing Rules to allow the Manager to conduct securities lending through the NZCDC Settlement System. The Manager does not currently bilaterally lend securities held by a Smartshares Fund directly to NZX Market Participants. This is because the rules of the NZCDC Settlement System do not currently allow bilateral securities lending. However, if the rules are changed to allow bilateral lending, the Manager may conduct bilateral lending on the terms described in the appendix to the relevant prospectus. Liability to pay returns The Trustee is the person legally liable to pay returns (if any). What are my risks? The principal risks of an investment in a Smartshares Fund are: Risks arising because of investment in Index Securities Market Risk Smartshares Units are subject to the risks of an investment in a broadly based portfolio of securities, including the risk that the general level of security prices may decline, thereby 41

85 adversely affecting the value of the investment in that Smartshares Fund. Securities are susceptible to general market fluctuations and to volatile increases and decreases in value due to changes in market confidence in, and investor perception of, the issuer of those securities. These investor perceptions are based on various and unpredictable factors including expectations regarding government, economic, monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or regional political, economic and banking crises. This may result in a Unitholder 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 Security 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. Index Issuer Risk Index Issuer risk occurs where the individual assets of the Funds fluctuate in value due to circumstances specifically applicable to the Index Issuers. The risk is mitigated to an extent because the Funds invest across a number of industries in a range of securities at approximately their relevant Index weight. Foreign Currency Risk for smartmozy and smartozzy While Subscription Amounts and income for reinvestment are payable in New Zealand dollars, the Manager invests the proceeds for smartmozy and smartozzy in securities denominated in Australian dollars. In addition, Smartshares Units in smartmozy and smartozzy 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 a currency risk that may affect the value of smartmozy and smartozzy, 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 those Smartshares Funds foreign currency exposure. Risks arising because of investment through Smartshares Fund Tracking risk For a variety of reasons 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. The principal reasons for tracking differences arising are as follows: 42

86 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 Fund s 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

87 Market fluctuations and such adverse conditions may affect the value of a Unitholder s 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 Department s application of those laws may change during the period of an investor s 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 investor s 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

88 (b) (c) 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. Failure by central counterparty settlement system operator to meet settlement obligations: In the event that the settlement system operator (such as NZCL) does not fulfil its settlement obligations to the Funds in relation to a securities loan, the Funds sole right is to make a claim for compensation to the settlement system operator. The settlement system operator s liability is limited to determinations relating to claims for compensation. The NZ Markets Disciplinary Tribunal can require the settlement system operator to redetermine a claim for compensation if the settlement system operator has acted in bad faith. 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 Fund s 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

89 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

90 Can the investment be altered? Regular Savings Plan Unitholders may at any time, initiate, cease or alter (subject to maintaining a minimum contribution of $50 per month unless contributions are being completely stopped) the monthly Regular Savings Plan payments by giving 10 Business Days notice to the Unit Registrar prior to the Direct Debit Date. Distribution Reinvestment Plan Unitholders may at any time initiate or cease the Distribution Reinvestment Plan by notifying the Unit Registrar. However, Unitholders will need to give the Unit Registrar at least 10 Business Days' notice prior to the twice-yearly Distribution Ex Date to enable the change to be made for that distribution period. 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. Amendments to the relevant trust deed and issue terms The Manager and the Trustee of a Smartshares Fund may amend the Trust Deed for a Smartshares Fund and the issue terms without notice to Unitholders when the amendment is not, in the opinion of the Trustee, materially and adversely prejudicial to Unitholders generally, or in certain other limited circumstances, including under the authority of an extraordinary resolution of Unitholders. Otherwise the Manager must give at least three months notice to the Unitholders and an amendment will become effective if: (a) during the three month notice period both of the following conditions are met: i ii 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 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 (b) 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

91 for each Smartshares Fund. Amendments to comply with NZX Main Board Listing Rules The Trustee may at any time make any alteration, modification, variation, or addition to the Trust Deed or any term or conditions on which Smartshares Units are held from time to time with the concurrence of the Manager where it is necessary or expedient so that the relevant Smartshares Fund complies with the NZX Main Board Listing Rules, or as a consequence of an amendment to or repeal of the NZX Main Board Listing Rules. How do I cash in my investment? Smartshares Units can be cashed in two ways: 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: 500,000 units for smarttenz; 200,000 units for smartfonz and smartmidz; and 150,000 units for smartmozy and smartozzy, 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). Sale to retain PIE status In some circumstances the Manager may be required to take action to ensure that the Smartshares Funds retain their PIE status, and has been granted a waiver by the Special Division of the NZ Markets Disciplinary Tribunal to enable it to do so. If a Unitholder exceeds the investor interest size requirement prescribed in the Tax Act (the Breach ) in respect of a Fund, the Manager may take the following steps to ensure that the Breach is remedied: (a) (b) 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; the Unitholder shall have a period consisting of the grace period determined in 48

92 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) (ii) 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 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. Winding up of Smartshares Funds The Manager has the power to wind up the Smartshares Funds (after giving two months notice to Unitholders and the Trustee). The Trustee shall then distribute the balance after payment of costs and expenses amongst the Unitholders in proportion to the number of Smartshares Units held by them. Who do I contact with inquiries about my investment? If you require any information about your investment in Smartshares Units, you should first contact: The Unit Registrar Link Market Services Limited Level 7, Zurich House 21 Queen Street AUCKLAND 1142 Tel: (09) Fax: (09) smartshares@linkmarketservices.co.nz The Manager Head of Business Smartshares Limited Level 1, NZX Centre, 11 Cable Street PO Box 2959, Wellington Tel: smartshares@nzx.com 49

93 Is there anyone to whom I can complain if I have problems with the investment? Complaints can be made to any of the following: The Manager Head of Business Smartshares Limited Level 1, NZX Centre 11 Cable Street PO Box 2959 WELLINGTON Tel: smartshares@nzx.com Trustee for smarttenz, smartfonz and smartmozy The New Zealand Guardian Trust Company Limited Level 14, 191 Queen Street AUCKLAND 1010 Tel: (09) Fax: (09) ct-auckland@nzgt.co.nz Unit Registrar Link Market Services Limited Level 7, Zurich House 21 Queen Street AUCKLAND 1142 Tel: (09) Fax: (09) smartshares@linkmarketservices.co.nz Trustee for smartmidz and smartozzy Trustees Executors Limited Level 5, 10 Customhouse Quay PO Box 3222 WELLINGTON Tel: (04) Fax: (04) enquiries@trustees.co.nz Alternatively, you may lodge a complaint with the Manager s 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: Fax: (04) There is no ombudsman to whom complaints may be made. What other information can I obtain about this investment? Further information about the Smartshares Funds, and Smartshares Limited, is contained in or referred to in: The latest registered prospectus for each Smartshares Fund 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 or any NZX Firm. The prospectuses and financial statements are also filed with the Companies Office, and are available on the Companies Office website ( under the Manager s file reference, free of charge. The Trust Deed for each Smartshares Fund may be inspected, without fee, by any person at 50

94 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 ( Announcements to NZX, including Announcements of the tracking differences for the Smartshares Funds can be found at under the ticker symbols TNZ (for smarttenz), MDZ (for smartmidz), FNZ (for smartfonz), OZY (for smartozzy) and MZY (for smartmozy). Information to the Unitholder The annual report and half year report is made available to every investor on the Smartshares website within 90 days of the end of the relevant period. Notification of the availability of this annual report is sent to all investors by mail and a hard copy of the report can be posted to any Unitholder, if requested. Investors will also receive a distribution notice twice a year, as well as confirmation of Smartshares Units allocated if they are members of the Distribution Reinvestment Plan. Unitholders who are members of the Regular Savings Plan will receive a monthly statement confirming the price and number of Smartshares Units allocated for each contribution made. Information in relation to the value of your investment and trading history can be obtained via the Registry Investor Service Centre web site at 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 Auckland 1142 or by telephoning the Unit Registrar on (09) 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

95 GLOSSARY OF TERMS Announcement a market announcement to NZX that can be viewed on nzx.com under the tickers symbols TNZ (for smarttenz), MDZ (for smartmidz), FNZ (for smartfonz), OZY (for smartozzy) and MZY (for smartmozy), (and Announce and Announced have corresponding meanings). Application Form the application form attached to this Investment Statement. ASX Available Subscribed Capital Basket Business Day Capital Index Cash Amount Current Unit Value Direct Debit Date Distribution Date Distribution Ex Date Distribution Plan Ex Date Reinvestment the Australian Stock Exchange. has the meaning given to it in the Tax Act. a proportionate amount of the securities of the Index Issuers determined from time to time by the Manager as equivalent to 500,000 smarttenz, 200,000 smartfonz and smartmidz and 150,000 smartmozy and smartozzy Units. a day on which the NZX Main Board is open for usual business. an index that represents movements in the prices of constituents excluding the value of any distributions received. a cash amount determined by the Manager as being equal to: (a) in relation to a person subscribing for Units via Basket creation, a proportionate share of the income accrued and held in the particular Smartshares Fund that will be attributable to the Smartshares Units issued to the Basket applicant; and (b) in relation to a person redeeming Units via Basket withdrawal, the income accrued and held in the particular Smartshares Fund that is attributable to the Basket of securities being withdrawn. the market value of all securities held by the relevant Fund (plus any received and accrued income) less liabilities or provisions (including accrued liabilities and expenses) properly to be taken into account in determining the NAV of the relevant Fund, divided by the number of Units on issue for that Fund. on or about the 20 th of every month. each date on which distributions are paid to Unitholders, which will be within 20 Business Days after each Record Date. in relation to an entitlement means the second business day before the Record Date of that entitlement. means the scheme currently provided for in the prospectus for each Smartshares Fund under which Unitholders may semi-annually automatically invest their dividends and other distributions in the relevant Smartshares Fund. in relation to a benefit, means the second Business Day before the Record Date for that benefit, unless NZX determines otherwise. 52

96 Franked or Franking Credit GIF Imputation Credit Index Issuer Index Security Issuer Quoted Manager Market Participant Minimum Holding NAV NZCDC Settlement System NZCL NZDL NZX NZX Firm NZX Main Board PIE Record Date Regular Savings Plan Regular Savings Plan and Cash Application Account the Australian tax credit which is attached to the dividend, distributed in accordance with Australia's dividend imputation system. Group Investment Fund. imputation credit as defined in section YA 1 of the Tax Act. in respect of any particular Smartshares Fund, an issuer whose securities are included from time to time in the index which that Smartshares Fund tracks. a security issued by an Index Issuer that is held or to be acquired by a Smartshares Fund. Smartshares Limited. listed for quotation on the NZX Main Board. Smartshares Limited. any entity approved by NZX pursuant to the NZX Participant Rules to participate in any market provided by NZX. means the minimum number of Units in the Fund that a Unitholder must hold at all times. Currently this is 100 Units 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 discretions, from time to time). the net asset value of the relevant Fund. the central counterparty clearing and settlement system operated by NZX through its subsidiaries. New Zealand Clearing Limited. New Zealand Depository Limited. NZX Limited. a Market Participant accredited by NZX pursuant to the NZX Participant Rules to provide advice and trade on behalf of a client or as a principal (a list of which can be found on nzx.com). the main board equity security market operated by NZX. Portfolio Investment Entity under the Tax Act. in relation to each distribution to Unitholders, the time and date fixed by the Manager for the determination of the Unitholders to whom a distribution will be paid, which is currently on or about the last Business Day in March and September in each year. the scheme under which Unitholders may make monthly payments of at least NZ$50 to the Smartshares Funds in order to purchase further Smartshares Units on an ongoing basis. the account maintained in the name of the Trustee to receive funds from Unitholders to enable them to invest an amount into the Smartshares Funds on a one off, intermittent or monthly basis. Such account does not 53

97 Return smartfonz smartmidz smartmozy smartozzy smarttenz Smartshares Funds Smartshares Unit or Unit Subscription Amount constitute part of any Smartshares Fund. in relation to Units and other securities means the amounts distributed to holders of them together with any increase in their capital value and, in relation to an index, means the amounts that would be distributed to a person that held the Index Securities used to calculate the value of the relevant Index and any increase in the value of such a holding. NZX 50 Portfolio Index Fund. NZX MidCap Index Fund. NZX Australian MidCap Index Fund. NZX Australian 20 Leaders Index Fund. NZX 10 Fund. smartfonz, smartmidz, smartmozy, smarttenz or smartozzy. a unit in one of the Smartshares Funds. Tax Act the Income Tax Act Trustee Trust Deed Unitholder Unit Registrar the amount of money that is being provided for investing in Smartshares Funds (which includes the application fee). Trustees Executors Limited in respect of smartmidz and smartozzy and The New Zealand Guardian Trust Company Limited in respect of smartmozy, smartfonz and smarttenz or both of them as the context permits. in respect of any particular Smartshares Fund, the trust deed and all supplementary deeds and deeds of modifications for that Smartshares Fund. a holder of Smartshares Units. Link Market Services Limited. 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

98 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). Investment Statement for the purposes of the Securities Act Dated 18 December 2015

99 Contents IMPORTANT INFORMATION 3 HOW DO I APPLY? 13 NEW ZEALAND DIVIDEND INDEX TRUST (NZ DIVIDEND FUND) 17 AUSTRALIAN FINANCIALS INDEX TRUST (AUS FINANCIALS FUND) 19 AUSTRALIAN RESOURCES INDEX TRUST (AUS RESOURCES FUND) 21 ANSWERS TO IMPORTANT QUESTIONS 23 What sort of investment is this? 23 Who is involved in providing it for me? 23 How much do I pay? 26 What are the charges? 29 What returns will I get? 30 What are my risks? 35 Can the investment be altered? 41 How do I cash in my investment? 42 Who do I contact with inquiries about my investment? 43 Is there anyone to whom I can complain if I have problems with the investment? 44 What other information can I obtain about this investment? 44 GLOSSARY OF TERMS 47 2

100 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: What sort of investment is this? 23 Who is involved in providing it for me? 23 How much do I pay? 26 What are the charges? 29 What returns will I get? 30 What are my risks? 35 Can the investment be altered? 41 How do I cash in my investment? 42 Who do I contact with inquiries about my investment? 43 Is there anyone to whom I can complain if I have problems with the investment? 44 What other information can I obtain about this investment? 44 Page 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 Zealand s financial markets. The Financial Markets Authority s main objective is to promote and facilitate the development of fair, efficient, and transparent financial markets. For more information about investing, go to 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; 3

101 the services the adviser can provide you with; the products the adviser can advise you on. 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 You can also complain to the Financial Markets Authority if you have concerns about the behaviour of a financial adviser. NZX Main Board Listing & Quotation Applications were made to the Special Division that regulates the Manager (in the place of NZX) for permission to quote the units in the Smartshares Funds (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. These applications were accepted, and the Units are quoted on the NZX Main Board. However, the Special Division accepts no responsibility for any statement in this Investment Statement. 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 Unitholder s 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 50 High Dividend 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 & Poor s and S&P are registered trademarks of Standard & Poor s Financial Services LLC ( S&P ) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ( Dow Jones ). NZX Limited s 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 4

102 Limited. Smartshares Limited s 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 Limited s Products or any member of the public regarding the advisability of investing in securities generally or in Smartshares Limited s 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 Limited s Products. S&P Dow Jones Indices and NZX Limited have no obligation to take the needs of Smartshares Limited or the owners of Smartshares Limited s 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 Limited s Products or the timing of the issuance or sale of Smartshares Limited s Products or in the determination or calculation of the equation by which Smartshares Limited s 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 Limited s 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 LIMITED S 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 & Poor s and S&P are registered trademarks of Standard & Poor s Financial Services LLC ( S&P ) and Dow Jones is a registered trademark of Dow Jones Trademark Holdings LLC ( Dow Jones ). ASX Operations Pty Ltd s 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 Limited s 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 Limited s Products or any member of the public regarding the advisability of investing in securities generally or in Smartshares Limited s 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 Limited s 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 Limited s 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 Limited s Products or the timing of the issuance or sale of Smartshares Limited s Products or in the determination or calculation of the equation by which Smartshares Limited s 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 Limited s Products. There is no assurance that investment products based on the S&P/ASX 200 Financials Ex-A-REIT Index and 5

103 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 LIMITED S 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. 6

104 KEY INFORMATION SUMMARY This section of the Investment Statement contains a summary of the key information relating to this offer. The rest of this Investment Statement contains important information. You should read all of it before deciding whether to invest. How do the Smartshares Funds work? This Investment Statement relates to the following Smartshares Funds: - NEW ZEALAND DIVIDEND INDEX TRUST (NZ Dividend Fund); - AUSTRALIAN FINANCIALS INDEX TRUST (Aus Financials Fund); and - AUSTRALIAN RESOURCES INDEX TRUST (Aus Resources Fund). The basic concept Each Smartshares Fund is a unit trust, as defined in the Unit Trusts Act The beneficial interest in each Smartshares Fund is divided into Units with each Unit representing an equal interest in the assets of that Smartshares Fund but not conferring any interest in any specific asset of that Smartshares Fund. The objective of each of the Smartshares Funds is to provide a Return to Unitholders that closely tracks the Return on a specific equity market index less certain costs (including tax) and fees of the Fund. An equity market index is a measure of the Return on a group of individual securities and is typically independently calculated by an index provider. To meet this objective, each Smartshares Fund aims to hold securities (Index Securities) of the entities that are part of the relevant index (Index Issuers) in proportions that match their weightings in the relevant index. This is called index tracking, and there is further information about it below on this page and on page 36, together with more specific comments about tracking performance for each of the Smartshares Funds in the descriptions of each individual Smartshares Fund on pages 17 to 21 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. 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 relevant Index Securities, you will not have any rights in relation to specific Index Securities held by a Smartshares Fund. There are also some differences between the Returns you will receive on the investments. The principal differences are as follows: 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

105 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. Who is involved in providing the Smartshares Funds? Smartshares Limited (the Manager) is a wholly owned subsidiary of NZX Limited (NZX). Smartshares Limited offers a range of funds. 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: Trustees Executors Limited (the Trustee); 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 Link Market Services Limited (the Unit Registrar). 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. 8

106 Particular Smartshares Funds The Smartshares Fund you choose to invest in is designed to give you Returns similar to the Returns on the index tracked by the relevant Smartshares Fund. The Manager buys and sells Index Securities to track the relevant index rather than making investment decisions based on its own assessment of the Index Issuers. This means the Smartshares Funds are what are commonly referred to as passive funds (as opposed to active funds, which involve a manager making its own judgement about where and when to invest and divest). The Smartshares Funds are: Fund Name Index Description NZ Dividend Fund S&P/NZX 50 High Dividend Index Comprises 25 of the highest yielding issuers included in the S&P/NZX 50 Index. The S&P/NZX 50 High Dividend Index limits the weighting of any one Index Issuer to 10%. Aus Financials Fund Aus Resources Fund S&P/ASX 200 Financials Ex-A-REIT Index S&P/ASX 200 Resources Index Comprises those securities included in the S&P/ASX 200 Index in the Financials Sector (excluding real estate investment trusts). The S&P/ASX 200 Financials Ex-A-REIT Index does not limit the weighting of any one Index Issuer. Comprises those securities included in the S&P/ASX 200 Index in the resources sector. The S&P/ASX 200 Resources Index does not limit the weighting of any one Index Issuer. 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

107 and on-line ( 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 entity s 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. What types of risks are involved with the Smartshares Funds? In summary, some of the principal risks are: Risks arising because of investment in Index Securities 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. Risks arising because of investment through Smartshares Funds 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

108 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. There is further information about risks on pages 35 to 40. What charges do Unitholders pay directly? When Unitholders first subscribe for Units they will pay an application fee to the Manager, which will be deducted from their Subscription Amount. For Subscription Amounts of less than $20,000 this will be a flat fee of $30, and for Subscription Amounts equal to or greater than $20,000 the subscription fee will be 0.2% of the full Subscription Amount. This fee is not payable for subsequent Cash Applications, subscriptions under the Regular Savings Plan or the Distribution Reinvestment Plan, or in relation to a Basket application. (Basket applications are for large investors, and are discussed on page 27.) Unitholders lodging or withdrawing a Basket will be charged a fee by the Manager for each lodgement or withdrawal. The amount they are charged is set out in the table below: Basket Creation $400 for the NZ Dividend Fund and Aus Financials Fund Basket Withdrawal $400 for the NZ Dividend Fund and Aus Financials Fund $800 for Aus Resources Fund $800 for Aus Resources Fund Fees are GST inclusive. 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. What charges do the Smartshares Funds pay? Each Smartshares Fund pays a management fee to the Manager. This is currently 0.54% per annum (inclusive of GST) of the relevant Smartshares Fund's NAV (for each of the Smartshares Funds), and is accrued daily and payable monthly in arrear. The management fee is currently used by the Manager to pay the expenses of the Fund including the Trustee, the Administration Manager, the Custodians, the Unit Registrar, any penalties and interest charged by the Inland Revenue and any bank fees, although the Manager reserves the right to have such amounts paid out of the Smartshares Funds. If the Manager does exercise its right to have such amounts paid out of the Smartshares Funds, it will first notify the Trustee and Unitholders but the Manager is not required to notify potential investors. Other expenses that arise, such as operating expenses that do not arise in the ordinary course of business, will be paid out of the Smartshares Funds. In addition to this management fee, the Manager may also receive payment for administering securities 11

109 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

110 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 Alternatively you can obtain an investment in a Smartshares Fund by purchasing existing Units on market through an NZX Firm, in which case the Manager s 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 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 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: through a further Cash Application (for a minimum of $250); through the Regular Savings Plan; or through the Distribution Reinvestment Plan. These options are each described below. Alternatively you can purchase existing Units on market through an NZX Firm. Cash Application Investment As with the initial Cash Application, a Cash Application 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 application payment to Link Market Services Limited, PO Box 91976, Auckland Alternatively, you can send it to the Manager, an NZX Firm, through any other channel approved by NZX (of which there are currently none). Investors can also apply online at The Manager may suspend the acceptance of Cash Applications at any time by way of an Announcement to NZX. The Manager may also reject any application for any reason. The Regular Savings Plan You can currently make a regular monthly investment directly from your bank account with no transaction fees charged by the Manager. Every month for an amount you choose (minimum contribution $50 per month) the Manager will add Smartshares Units to your investment. Simply apply online at or complete the Application Form and direct debit authority included in this Investment Statement. Your payments will then be automatically withdrawn from your nominated bank account on a monthly basis. In addition you can make additional lump sum deposits with your monthly direct debit at any time ($250 minimum value). 13

111 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) 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 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 Smartshares Units in your Smartshares Fund(s) on or around the end of each month. The Unit Registrar will send you a statement each month confirming your new Smartshares Unit holding(s). To join the Smartshares Regular Savings Plan, you must 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, whichever of these Funds you wish to invest in on a regular basis. Alternatively you must make a Cash Application that, if accepted, would mean you held at least 50 Units in the Aus Financials Fund, or 100 Units in the NZ Dividend Fund or Aus Resources Fund, whichever Fund you want to invest in. 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 Zero transaction cost no transaction fees charged by the Manager at present Affordable contributions from just $50 per month 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. The Distribution Reinvestment Plan Each Smartshares Fund may receive dividends from the Index Issuers in which it invests. These dividends and other income are retained in the Smartshares Fund (and reflected in the Current Unit Value) and the Smartshares Fund makes distributions to Unitholders periodically, with each Unitholder s entitlement based on the Unitholder s holding as at the Record Date for that distribution. Your share of each distribution by the relevant Smartshares Fund will be automatically reinvested as additional Smartshares Units on each Distribution Date unless you choose to have distributions paid out to you by direct credit. By having these payments automatically reinvested, you are increasing your unitholding without having to do anything. Compounding distributions can work in your favour if you want to accumulate Smartshares Units over the longer term. See page 34 for more details. Below is a summary of the different ways of purchasing and selling Units: Method of Investment On Market Purchase Direct Application Regular Savings Plan Distribution Reinvestment Plan Basket Application Price you will pay (per Unit) The market price available at the time of purchase Current Unit Value determined on the last Business Day of the month that the direct application contribution is processed. Current Unit Value determined on the last Business Day of the month that the Regular Savings Plan contribution is processed. The strike price that is Announced to the market for that distribution period. Securities and Cash as determined by the 14

112 Basket composition equal to the Current Unit Value on the Business Day the basket is applied for. Method of Sale On Market Sale Basket Redemption Price you will receive (per Unit) The market price available at the time of sale Securities and cash as determined by the Basket composition equal to the Current Unit Value on the Business Day the basket redemption is requested. 15

113 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 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, Honours (first class) 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. John Williams John is currently the Investment Manager at Trust Investments Management Limited. Previously he was a Key Client Manager at Vanguard Investments, and he has held a range of investment strategy roles. Guy Elliffe Guy is currently Corporate Governance Manager at the Accident Compensation Corporation. Previously he was Head of Equities at AMP Capital Investors (New Zealand) Limited, and he has held a range of senior investment roles in New Zealand and the US. 16

114 NEW ZEALAND DIVIDEND INDEX TRUST (NZ Dividend Fund) The NZ Dividend Fund tracks the S&P/NZX 50 High Dividend Index, which gives investors exposure to 25 entities listed on the NZX that are included in the S&P/NZX 50 Index (the index used as the primary gauge for the New Zealand market) and have paid a dividend within the last twelve months. Securities are ranked based on the highest trailing twelve month gross dividend yields. The S&P/NZX 50 High Dividend Index (the index tracked by the NZ Dividend Fund) is rebalanced semiannually with each constituent allocated a weight, at the time of the rebalance, set proportional to its dividend yield adjusted market cap. Additions to the index normally only take place at the semi-annual rebalance. A link to the index methodology for the S&P/NZX 50 High Dividend Index can be found at The methodology for constructing the index may change from time to time. The S&P/NZX 50 High Dividend Index was established prior to the offer opening. The specific entities included in the index may change over time. The following entities are included in the S&P/NZX 50 High Dividend Index as at 30 September 2015: Auckland International Airport Limited Air New Zealand Limited Australia and New Zealand Banking Group Limited Argosy Property Limited Contact Energy Limited Fletcher Building Limited Freightways Limited FSF Management Company Limited Genesis Energy Limited Goodman Property Trust Heartland New Zealand Limited Infratil Limited Kathmandu Holdings Limited Kiwi Property Group Limited Meridian Energy Limited Mighty River Power Limited Nuplex Industries Limited Precinct Properties New Zealand Limited SKYCITY Entertainment Group Limited Sky Network Television Limited Spark New Zealand Limited Trade Me Group Limited Trustpower Limited 17

115 Westpac Banking Corporation Z Energy Limited 18

116 AUSTRALIAN FINANCIALS INDEX TRUST (Aus Financials Fund) The Aus Financials Fund tracks the S&P/ASX 200 Financials Ex A-REIT Index, which gives investors exposure to entities listed on the ASX that are included in the S&P/ASX 200 Index (the index used as the primary gauge for the Australian market) and are classified as Financial Sector companies, but excluding Australian real estate investment trusts. Securities are classified using the Global Industry Classification Standard (GICS ). The Global Industry Classification Standard is designed to meet the needs of the investment community by categorising companies into sectors and industries that reflect a company s primary business model as determined by its financial performance. The S&P/ASX 200 Financials Ex A-REIT Index (the index tracked by the Aus Financials Fund) is rebalanced quarterly with each constituent allocated a weight at the time of the rebalance representing its proportionate market capitalisation. Additions to the index normally only take place at the quarterly rebalance. A link to the index methodology for the S&P/ASX 200 Financials Ex A-REIT Index can be found at The methodology for constructing the index may change from time to time. The number of constituents and the specific entities included in the index may change over time. At 30 September 2015 the entities included in the S&P/ASX 200 Financial Ex A-REIT Index were: AMP Limited Australia and New Zealand Banking Group Limited ASX Limited Aveo Group Trust Bank of Queensland Limited Bendigo and Adelaide Bank Limited BT Investment Management Limited Cover-More Group Limited Challenger Limited Commonwealth Bank of Australia Limited FlexiGroup Limited Genworth Mortgage Insurance Australia Limited Henderson Group PLC Insurance Australia Group Limited Ioof Hldgs Limited Lend Lease Group Limited Macquarie Group Limited Magellan Financial Group Limited Medibank Private Limited National Australia Bank Limited OzForex Group Limited Perpetual Limited Platinum Asset Management Limited QBE Insurance Group Limited Steadfast Group Limited 19

117 Suncorp Group Limited Westpac Banking Corp 20

118 AUSTRALIAN RESOURCES INDEX TRUST (Aus Resources Fund) The Aus Resources Fund tracks the S&P/ASX 200 Resources Index, which gives investors exposure to entities listed on the ASX that are included in the S&P/ASX 200 Index (the index used as the primary gauge for the Australian market) and are classified as Resource Sector companies. Securities are classified using the Global Industry Classification Standard (GICS ). The Global Industry Classification Standard is designed to meet the needs of the investment community by categorising companies into sectors and industries that reflect a company s primary business model as determined by its financial performance. The S&P/ASX 200 Resources Index (the index tracked by the Aus Resources Fund) is rebalanced quarterly with each constituent allocated a weight at the time of the rebalance representing its proportionate market capitalisation. Additions to the index normally only take place at the quarterly rebalance. A link to the index methodology for the S&P/ASX 200 Resources Index can be found at The methodology for constructing the index may change from time to time. The number of constituents and the specific entities included in the index may change over time. At 30 September 2015 the entities included in the S&P/ASX 200 Resources Index were: AWE Limited Alumina Limited Arrium Limited BHP Billiton Limited Beach Energy Limited Bluescope Steel Limited Caltex Australia Limited Drillsearch Energy Limited Evolution Mining Limited Fortescue Metals Group Limited Iluka Resources Limited Independence Group NL Karoon Gas Australia Limited Liquefied Natural Gas Limited Newcrest Mining Limited Northern Star Resources Ltd OZ Minerals Limited Oil Search Limited Origin Energy Limited Paladin Energy Limited Regis Resources Limited Rio Tinto Limited Sandfire Resources NL Santos Limited Sims Metal Management Limited South 32 Limited 21

119 Syrah Resources Limited Western Areas Limited Whitehaven Coal Limited Woodside Petroleum Limited WorleyParsons Limited 22

120 ANSWERS TO IMPORTANT QUESTIONS Defined terms in this Investment Statement have the meaning set out in the Glossary of Terms on pages 47 to 50. What sort of investment is this? Each Smartshares Fund is a unit trust constituted under the Unit Trusts Act 1960 and, accordingly, the Units offered in this Investment Statement are units in a unit trust. Each Smartshares Fund was established on 19 March 2015 under the relevant Trust Deed. When you buy Smartshares Units you become a Unitholder in the relevant Smartshares Fund you have chosen to invest in. The Smartshares Funds are passively managed and their objective is to provide Returns that track the Return on the particular index that the Smartshares Fund tracks less certain costs (including tax) and fees of the Smartshares Fund. Each Smartshares Fund owns a portfolio of securities in a proportion that is as close as possible to the weightings of the securities in the relevant index that the Smartshares Fund tracks. Who is involved in providing it for me? Names of Smartshares Funds The names of the Smartshares Funds in which Units are offered in this Investment Statement are: - NEW ZEALAND DIVIDEND INDEX TRUST (NZ Dividend Fund); - AUSTRALIAN FINANCIALS INDEX TRUST (Aus Financials Fund); and - AUSTRALIAN RESOURCES INDEX TRUST (Aus Resources Fund). 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 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 Fund managers were able to submit an application for a licence from 1 April The Manager has applied to the FMA to obtain the necessary licence and the FMA is currently considering the Manager s 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. Address of the Manager Smartshares Limited NZX Centre Level 1, 11 Cable Street PO Box 2959 Wellington Tel: smartshares@smartshares.co.nz 23

121 The Manager's address may change from time to time. You can find up-to-date details at any time at 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 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) Fax: (04) enquiries@trustees.co.nz The Trustee's address may change from time to time. You can find up-to-date details at any time at 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 A copy of the Trustee s licence, including the conditions on the licence, can be obtained at the FMA s website: by clicking on Compliance, Lists and registers, Licensed Supervisors, Trustees Executors Limited. Alternatively, a copy can be found on the Trustee s website: 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. 24

122 The Administration Manager The Administration Manager 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 The Administration Manager's address may change from time to time. You can find up-to-date details at any time at 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 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 The Custodian for the NZ Dividend Fund is: JB Were (NZ) Nominees Limited Level 38, Vero Centre, 48 Shortland Street PO Box 887, Auckland The Custodians' addresses may change from time to time. You can find up-to-date details at any time at 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) Fax: (09) 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 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

123 Nature and duration of Smartshares Funds The Smartshares Funds are unit trusts constituted under the Unit Trusts Act The Smartshares Funds were established on 19 March 2015 under the Trust Deeds, and amended by a deed of modification dated 5 June For more information regarding the Trust Deeds see the "Summary of the Trust Deeds" section in the registered prospectus for the Smartshares Funds. How much do I pay? There are four ways in which you can subscribe for Smartshares Units, and the method you choose affects how many Units you must subscribe for. 1. Cash Applications Subscriptions for Smartshares Units can be made by applying online at 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 Manager s 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 investor s 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. 2. Regular Savings Plan Once you have the Minimum Holding in the relevant Fund, investing regularly can be a very effective way to accumulate Smartshares Units over the long term. Even small amounts saved on a regular basis have the potential to grow into a significant number of Smartshares Units over a number of years. 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. In theory, this reduces an investor's exposure to the risk of short term fluctuations in the price of Units, as it works to smooth out the market s ups and downs and helps 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 New Zealand bank account. Provided Unitholders hold the Minimum Holding, or if a they make a Cash Application that, if accepted, would mean they hold the Minimum Holding, they can choose to participate in the Regular Savings Plan and start saving with contributions as low as $50 per 26

124 month. Simply complete the Application Form and direct debit authority included in this Investment Statement, or apply online at 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 Unitholder s 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 Distribution Reinvestment Plan Each Smartshares Fund receives dividends from the Index Issuers in which it invests. As described on page 31 these dividends and other income are retained within the relevant Smartshares Fund and then allocated to Unitholders for distribution. Such distributions are automatically reinvested on each Distribution Date (after the deduction of Distribution Reinvestment Plan fees (if any)) to provide you 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 Index Securities and then issue new Units to those Unitholders or to purchase existing Units on market and pass those existing Units on to those Unitholders. In either case, the Manager's purchase of Index Securities or Units with reinvestment monies will be made at current market prices or Current Unit Values. 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 Financial Markets Conduct Act 2013 and Financial Markets Conduct Regulations

125 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). Smartshares Unit Issue Price Smartshares Units are issued at the Current Unit Value applying at the relevant time for Cash Applications, the Regular Savings Plan and the Distribution Reinvestment Plan. The Current Unit Value of a Smartshares Unit is determined by dividing the total value of the Smartshares Fund s NAV by the total number of Smartshares Units on issue. The Current Unit Value of a Smartshares Unit includes not only the value of the underlying Index Securities held in a Smartshares Fund, but also accrued income in relation to the portfolio (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. 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 Fund s 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). Suspension of Issues and Withdrawals The Manager is not obliged to accept basket applications or basket withdrawals in a Smartshares Fund in the period from (and including) the date of the Announcement of a distribution to (and including) the Distribution Ex Date for that distribution. Refunds The Trustee will not refund any Subscription Amount, except where the Trustee, on the advice of the Manager, decides that an investor s 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. Manager may request information The Manager may request any Unitholder to provide information to the Manager to enable the Manager to determine whether a Smartshares Fund can continue to meet the PIE eligibility requirements (further details are provided in the "Taxation" section on page 31). 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 to enable the Manager to meet its requirements under the Anti-Money Laundering and Countering Financing of Terrorism Act 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 whom the Manager understands has an interest in the Units held by a Unitholder. 28

126 What are the charges? Unless otherwise specified all fees are inclusive of GST. Entry and Exit charges If you buy Smartshares Units directly from the Manager through a Cash Application (as described on page 26 above) you pay a flat application fee to the Manager of $30 for Subscription Amounts of less than $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 50 Smartshares Units in the Aus Financials Fund, or 100 Smartshares Units in the NZ Dividend Fund or Aus Resources Fund, whichever Fund you have invested in. 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 and withdrawal charges When subscribing via Basket creation and withdrawing via Basket redemption the following charges are payable to the Manager as at the date of this Investment Statement. Basket Creation $400 for the NZ Dividend Fund and Aus Financials Fund Basket Withdrawal $400 for the NZ Dividend Fund and Aus Financials Fund $800 for the Aus Resources Fund $800 for the Aus Resources Fund 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. Other management charges Management fees are charged to the Smartshares Funds and are currently 0.54% per annum of the NAV of the relevant Smartshares Fund and 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. If the change is material (as determined by the Manager in its reasonable discretion), the Manager must give notice to Unitholders of the relevant Smartshares Fund as well. The Manager may 29

127 reduce the fee by giving notice to the Trustee (and such decrease may have immediate effect). There are no limits to the Manager s 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 Trustee s 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. What returns will I get? Nature of the returns Any Returns you get from your Smartshares Units will be a combination of: (a) (b) 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 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

128 Key factors that determine returns for Smartshares Funds The Returns for the Smartshares Funds are subject to the general fluctuations and direction of the New Zealand sharemarket (in the case of the NZ Dividend Fund) or the Australian sharemarket (in the case of the Aus Financials Fund and Aus Resources Fund), up or down, and the performance of the Index Issuers, which includes changes in their security prices and the value of any dividends or other distributions paid. Both of these factors are influenced by New Zealand, Australian and global economies. In addition, currency fluctuations between the New Zealand and Australian dollar will impact on the Returns for the Aus Financials Fund and the Aus Resources Fund as the Manager does not currently take steps to hedge against currency fluctuations. Amount of the returns The amount of the Returns you get from your investment in Smartshares Units will vary from time to time, depending on the factors above. Returns cannot be predicted with any accuracy. None of the Manager, the Trustee, NZX, the Custodians and Administration Manager nor any other person guarantees a particular level of Return on your investment in Smartshares Units. No Returns are promised. 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 Manager s 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 Manager s 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

129 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. 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 each 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 (including any NZX listed securities consisting of shares in non-new Zealand resident entities). In relation to the applicable equities, the Smartshares 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 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. 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. 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. capital gains from the sale of investments) 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 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 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. To the extent that Imputation Credits are available, distributions to Unitholders will be fully imputed. 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 32

130 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 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 Smartshares 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 each Smartshares Fund is eligible to be enrolled and remain as a PIE. This includes ensuring that any one Unitholder s 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 Unitholder s 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. 33

131 Australian taxation treatment As the Smartshares Funds do not have a permanent establishment in Australia and will not hold at any time 10% or more of the issued shares in any Index Issuer, the Smartshares Funds should not be subject to Australian income tax in respect of any gains made on disposal. Where fully Franked dividends are paid by Australian resident companies to the Smartshares Funds, no Australian tax should be withheld at source in Australia. Where unfranked or partially Franked dividends are paid by Australian resident companies to the Smartshares Funds, it is likely that Australian tax will be withheld at source in Australia in relation to the unfranked portion of the dividend. Where the Smartshares Funds hold 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 Smartshares Funds net of any withholding tax paid to the Australian tax authorities. Please refer to the prospectus for the Smartshares Funds for information on stamp duty. 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 Auckland 1142 Tel (09) Fax (09) 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 Manager s 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

132 The potential benefits of securities lending are two-fold: Additional source of income: Securities lending should earn income and, following payment of the Manager s 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. Terms of Securities Lending The Trust Deeds permit the Manager to lend securities held by the Smartshares Funds only in accordance with certain terms, as set out in the appendix to the Smartshares Funds' prospectus. The Manager will carry out any securities lending for the NZ Dividend Fund through the NZCDC Settlement System, which is a designated settlement system. The NZCDC Settlement System is operated by subsidiaries of NZX. NZCL, a subsidiary of NZX, is the central counterparty clearing house for the NZCDC Settlement System, and will become the borrower in respect of all securities lent by the NZ Dividend Fund. It will also settle all securities loans in accordance with the rules of the NZCDC Settlement System. NZDL, another subsidiary of NZX, operates the depository for the NZCDC Settlement System, in which Index Securities of the NZ Dividend Fund are held, and administers securities lending. New Zealand Depository Nominee Limited, another subsidiary of NZX, holds the legal title to those Index Securities that are held in the depository. Therefore the entities which operate the NZCDC Settlement System used by the Manager, being ultimately wholly owned by NZX, are related parties of the Manager under the Listing Rules. The Special Division has granted the Manager a waiver from the Listing Rules to allow the Manager to conduct securities lending through the NZCDC Settlement System. The Manager does not currently lend securities held by the NZ Dividend Fund directly to NZX Market Participants (bilateral lending), rather than through NZCL. This is because the rules of the NZCDC Settlement System do not currently allow bilateral securities lending. However, if the rules are changed to allow bilateral lending, the Manager may conduct bilateral lending on the terms described in the appendix to the Smartshares Funds' prospectus. Liability to pay returns The Trustee is the person legally liable to pay Returns (if any). What are my risks? The principal risks of an investment in a Smartshares Fund are: Risks arising because of investment in Index Securities Market Risk Smartshares Units are subject to the risks of an investment in a broadly based portfolio of securities, including the risk that the general level of security prices may decline, thereby adversely affecting the value of the investment in that Smartshares Fund. Securities are susceptible to general market fluctuations and to volatile increases and decreases in price due to changes in market confidence in, and investor perception of, the issuer of those securities. 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 and banking crises. This may result in a Unitholder 35

133 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. Risks arising because of investment through Smartshares Fund Tracking Risk For a variety of reasons 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 in order to track an index are likely to face the same issues as the Manager in trying to exactly track the relevant index. The Manager measures its tracking performance as follows. On the date on which the Smartshares Funds are launched, there is a mathematical relationship between the NAV of the Index Securities held in each Smartshares Fund and the value of the relevant index, which can be expressed as: 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 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

134 (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 Fund s 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 Unitholder s 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

135 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 Office s application of those laws may change during the period of a Unitholder s 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 Unitholder s 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

136 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) Failure by central counterparty settlement system operator to meet settlement obligations: In the event that the settlement system operator (such as NZCL) does not fulfil its settlement obligations to a Smartshares Fund in relation to a securities loan, that Smartshares Fund s sole right is to make a claim for compensation to the settlement system operator. The settlement system operator s liability is limited to determinations relating to claims for compensation. The NZ Markets Disciplinary Tribunal can require the settlement system operator to re-determine a claim for compensation if the settlement system operator has acted in bad faith. 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 Fund s 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

137 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

138 Can the investment be altered? Regular Savings Plan Unitholders may at any time initiate, cease or alter (subject to maintaining a minimum contribution of $50 per month unless contributions are being completely stopped) the monthly Regular Savings Plan payments by giving ten Business Days notice to the Unit Registrar prior to the Direct Debit Date. Distribution Reinvestment Plan Unitholders may at any time initiate or cease the Distribution Reinvestment Plan by notifying the Unit Registrar. However, Unitholders will need to give the Unit Registrar at least ten Business Days' notice prior to the next Distribution Ex Date to enable the change to be made for that distribution period. 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) (b) (c) give at least ten Business Days' prior notice of any such increase of any fee relating to applications to the Trustee; 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 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). Amendments to the relevant trust deed and issue terms The Manager and the Trustee may amend the relevant Trust Deed for a Smartshares Fund in any of the following cases: (a) (b) (c) (d) (e) if the same is authorised by an extraordinary resolution of Unitholders; if the same is required or recommended by the FMA; 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; 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 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

139 Further details on the Trust Deeds and issue terms are provided in the registered prospectus for the Smartshares Funds. Amendments to an Investment Policy The Investment Policy of each Smartshares Fund may be amended or replaced from time to time by the Manager in consultation with the Trustee. If the Manager proposes to amend or replace an Investment Policy in a manner that materially affects existing Unitholders, the Manager shall, prior to effecting any such amendment or replacement, give at least 30 days' written notice to the Unitholders and if such notice is required, the relevant amendment or replacement shall not be effective until such notice period has expired. 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. How do I cash in my investment? Smartshares Units can be cashed up in two ways: 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). Sale to retain PIE status In some circumstances the Manager may be required to take action to ensure that the Smartshares Funds retain their PIE status. The Manager has been granted a waiver by the Special Division to enable it to do so. 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 42

140 remedied: (a) (b) (c) 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; 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 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) (ii) 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 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. Winding up of Smartshares Funds The Manager has the power to wind up any Smartshares Fund (after giving three months notice to the Trustee). The Trustee shall give Unitholders notice that the Trustee has received a notice from the Manager terminating the relevant Smartshares Fund. The Trustee shall then distribute the balance, after payment of any costs, charges, expenses, claims and liabilities (including tax and contingent liabilities) incurred in connection with the relevant Smartshares Fund, or arising out of the liquidation of the Fund, amongst the Unitholders in proportion to the number of Units held by them. The Trustee shall retain such amount as the Manager considers necessary or appropriate to meet all the above costs, charges, expenses, claims and liabilities (including contingent liabilities and tax) that are not paid prior to distribution. Who do I contact with inquiries about my investment? If you require any information about your investment in Smartshares Units, you should first contact: The Unit Registrar Link Market Services Limited Level 7, Zurich House 21 Queen Street AUCKLAND 1010 Tel: (09) Fax: (09) smartshares@linkmarketservices.co.nz The Manager Head of Business Smartshares Limited Level 1, NZX Centre, 11 Cable Street PO Box 2959, Wellington Tel: smartshares@smartshares.co.nz 43

141 Is there anyone to whom I can complain if I have problems with the investment? Complaints can be made to any of the following: The Manager Head of Business Smartshares Limited Level 1, NZX Centre 11 Cable Street PO Box 2959 WELLINGTON Tel: smartshares@smartshares.co.nz Unit Registrar Link Market Services Limited Level 7, Zurich House 21 Queen Street AUCKLAND 1010 Tel: (09) Fax: (09) smartshares@linkmarketservices.co.nz Trustee Trustees Executors Limited Level 5, 10 Customhouse Quay PO Box 3222 WELLINGTON Tel: (04) Fax: (04) enquiries@trustees.co.nz Alternatively, you may lodge a complaint with the Manager s 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: Fax: (04) There is no ombudsman to whom complaints may be made. What other information can I obtain about this investment? Further information about the Smartshares Funds, and Smartshares Limited, is contained in or referred to in: The latest registered prospectus for the Smartshares Funds 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 (when prepared). The prospectus and financial statements (when prepared) are also filed with the Companies Office, and are available on the Companies Office website ( under the Manager s 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

142 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 ( Announcements to NZX, including Announcements of the tracking differences for the Smartshares Funds can be found at under the ticker symbols "DIV" for the NZ Dividend Fund, "ASF" for the Aus Financials Fund and "ASR" for the Aus Resources Fund. Information to the Unitholder The annual report and half year report is made available to every investor on the Smartshares website within 90 days of the end of the relevant period. Notification of the availability of this annual report is sent to all investors by mail and a hard copy of the report can be posted to any Unitholder, if requested. Investors will also receive a distribution notice in respect of each Distribution Date, as well as confirmation of Smartshares Units allocated if they are members of the Distribution Reinvestment Plan. Unitholders who are members of the Regular Savings Plan will receive a monthly statement confirming the price and number of Smartshares Units allocated for each contribution made. Information in relation to the value of your investment and trading history can be obtained via the Registry Investor Service Centre web site at 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) (b) (c) (d) (e) (f) (g) a copy of the most recent annual report of the Smartshares Funds (when prepared); 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); a copy of the Trust Deeds; 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; a copy of the most recent investment statement relating to the Units (which, as at the date of this Investment Statement is this document); 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 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

143 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 Auckland 1142 or by telephoning the Unit Registrar on (09) 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 46

144 GLOSSARY OF TERMS Administration Manager Announcement BNP Paribas Fund Services Australasia Pty Limited, acting through its New Zealand branch, or any other administration manager appointed from time to time. a market announcement to NZX that can be viewed on 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 (and Announce and Announced have corresponding meanings). Application Form the application form attached to this Investment Statement. ASX Aus Financials Fund Aus Resources Fund Basket Business Day Cash Amount Cash Application Current Unit Value Custodian the Australian Stock Exchange. the Australian Financials Index Trust the Australian Resources Index Trust a proportionate amount of the securities of the Index Issuers determined from time to time by the Manager as equivalent to 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 day on which the NZX Main Board is open for usual business. a cash amount determined by the Manager as being equal to: (a) in relation to a person subscribing for Units via Basket creation, a proportionate share of the income accrued and held in the particular Smartshares Fund that will be attributable to the Smartshares Units issued to the Basket applicant; and (b) in relation to a person redeeming Units via Basket withdrawal, the income accrued and held in the particular Smartshares Fund that is attributable to the Basket of securities being withdrawn. an application for Units that is made for cash and is not made under the Regular Savings Plan or the Distribution Reinvestment Plan. the market value of all securities held by the relevant Smartshares Fund (plus any received and accrued income) less liabilities or provisions (including accrued liabilities and expenses) properly to be taken into account in determining the NAV of the relevant Smartshares Fund, divided by the number of Units on issue for that Fund. 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

145 Direct Debit Date Distribution Date Distribution Ex Date Trustee) from time to time. on or about the 20th of every month. each date on which distributions are paid to Unitholders, which will be within 20 Business Days after each Record Date. Currently, distributions for the NZ Dividend Fund and Aus Financials Fund are made quarterly and distributions for the Aus Resources Fund are made semiannually. in relation to a distribution, the date on which NZX quotes the Units on an "ex" basis under the NZX Participant Rules. Distribution Reinvestment Plan Establishment Deed Exempt Investor FMA Franked or Franking Credit Imputation Credit Index Administrator Index Issuer Index Securities Investment Policy Investment Statement Listed Listing Rules Manager Market Participant Master Trust Deed means the plan currently provided for in the prospectus for the Smartshares Funds under which Unitholders may automatically invest their dividends and other distributions in the relevant Smartshares Fund. an establishment deed establishing a Smartshares Fund between the Manager and the Trustee. a Unitholder that is an investor of the type listed in section HM 21(2) of the Tax Act (including Parts A and B of Schedule 29 of that act), or equivalent provision. the Financial Markets Authority. the Australian tax credit which is attached to the dividend, distributed in accordance with Australia's dividend imputation system. imputation credit as defined in section YA 1 of the Tax Act. S&P Dow Jones Indices. in respect of each Smartshares Fund, an issuer whose securities are included from time to time in the index which that Smartshares Fund tracks. securities issued by an Index Issuer that are held or to be acquired by a Smartshares Fund. an investment policy that is developed by the Manager in accordance with the relevant Trust Deed (and which may not be inconsistent with the index tracking objective for the relevant Smartshares Fund set out in the relevant Establishment Deed) and sets out how the Manager will invest on behalf of the relevant Smartshares Fund. this investment statement. listed on the NZX Main Board. the NZX Main Board listing rules that regulate issuers listed on the NZX Main Board. Smartshares Limited. any entity approved by NZX pursuant to the NZX Participant Rules to participate in any market provided by NZX. the master trust deed between the Manager and the Trustee dated 24 June

146 Minimum Holding NAV NZCDC Settlement System NZCL NZ Dividend Fund NZDL NZX NZX Firm NZX Main Board NZX Participant Rules PIE Record Date Regular Savings Plan Return Smartshares Funds or Funds Smartshares Unit or Unit Special Division Subscription Amount the minimum number of Smartshares Units in a Smartshares Fund that a Unitholder must hold at all times. Currently this is 100 Units for the Aus Resources Fund and NZ Dividend Fund and 50 Units in the Aus Financials Fund (or such different amount as is determined by the Manager in its sole discretion). the net asset value of the relevant Smartshares Fund. the central counterparty clearing and settlement system operated by NZX through its subsidiaries. New Zealand Clearing Limited. means the New Zealand Dividend Index Trust. New Zealand Depository Limited. NZX Limited. a Market Participant accredited by NZX pursuant to the NZX Participant Rules to provide advice and trade on behalf of a client or as a principal (a list of which can be found on the main board equity security market operated by NZX. means the rules regulating Market Participants of NZX. Portfolio Investment Entity under the Tax Act. in relation to a distribution to Unitholders, the time and date fixed by the Manager for the determination of the Unitholders to whom a distribution will be paid, which, for the NZ Dividend Fund and Aus Financials Fund, is currently on or about the last Business Day in March, June, September and December in each year and, for the Aus Resources Fund, is currently on or about the last Business Day in March and September in each year. the scheme under which Unitholders may make monthly payments of at least NZ$50 to the Smartshares Funds in order to purchase further Smartshares Units on an ongoing basis. in relation to Units and other securities means the amounts distributed to holders of them together with any increase in their capital value and, in relation to an index, means the amounts that would be distributed to a person that held the Index Securities used to calculate the value of the relevant Index and any increase in the value of such a holding. the NZ Dividend Fund, Aus Financials Fund and the Aus Resources Fund. a unit in one of the Smartshares Funds. Tax Act the Income Tax Act Trust Deed means the division of the NZ Markets Disciplinary Tribunal constituted under the NZ Markets Disciplinary Tribunal Rules, that regulates the Manager (in the place of NZX), for compliance with the Listing Rules. the amount of money that is being provided for investing in Smartshares Funds (which includes the application fee). in respect of any particular Smartshares Fund, the Master 49

147 Trustee Unitholder Unit Registrar You Trust Deed and the relevant Establishment Deed (as may be supplemented or amended by any supplementary deeds or deeds of modifications). Trustees Executors Limited. a holder of Smartshares Units. Link Market Services Limited. A potential investor or a Unitholder. 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

148 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 Investment Statement for the purposes of the Securities Act Dated 18 December 2015

149 Contents IMPORTANT INFORMATION 3 HOW DO I APPLY? 14 ANSWERS TO IMPORTANT QUESTIONS 21 What sort of investment is this? 21 Who is involved in providing it for me? 22 How much do I pay? 25 What are the charges? 27 What returns will I get? 29 What are my risks? 32 Can the investment be altered? 38 How do I cash in my investment? 39 Who do I contact with inquiries about my investment? 40 Is there anyone to whom I can complain if I have problems with the investment? 41 What other information can I obtain about this investment? 41 GLOSSARY OF TERMS 44 2

150 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: What sort of investment is this? 21 Who is involved in providing it for me? 22 How much do I pay? 25 What are the charges? 27 What returns will I get? 29 What are my risks? 32 Can the investment be altered? 38 How do I cash in my investment? 39 Who do I contact with inquiries about my investment? 40 Is there anyone to whom I can complain if I have problems with the investment? 41 What other information can I obtain about this investment? 41 Page 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 Zealand s financial markets. The Financial Markets Authority s main objective is to promote and facilitate the development of fair, efficient, and transparent financial markets. For more information about investing, go to 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

151 the products the adviser can advise you on. 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 You can also complain to the Financial Markets Authority if you have concerns about the behaviour of a financial adviser. NZX Main Board Listing & Quotation Applications were made to the Special Division that regulates the Manager (in the place of NZX) for permission to quote the units in the Smartshares Funds (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. These applications were accepted, and the Units are quoted on the NZX Main Board. However, the Special Division accepts no responsibility for any statement in this Investment Statement. The NZX Main Board is a licensed market operated by NZX, which is a licensed market operator regulated under the FMC Act. 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 Unitholder s 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

152 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. 5

153 KEY INFORMATION SUMMARY This section of the Investment Statement contains a summary of the key information relating to this offer. The rest of this Investment Statement contains important information. You should read all of it before deciding whether to invest. How do the Smartshares Funds work? This Investment Statement relates to the following Smartshares Funds: - 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. Overview of fund structure Unitholders (you) hold Units in a Smartshares Fund, which invests in shares in an Underlying Fund ( Underlying Shares ). Unitholders do not hold a direct interest in the Underlying Fund, i.e. you have an indirect investment in an Underlying Fund. The return a Smartshares Fund receives as a shareholder in an Underlying Fund is passed on to Unitholders (after the deduction of certain fees, costs and tax expenses). Each Underlying Fund is an index tracking fund. The Underlying Fund aims to provide a return to its shareholders (i.e. the relevant Smartshares Fund) that closesly tracks the return of an Underlying Index. This is called index tracking. Each Underlying Fund invests in securities listed in various global markets in order to track the relevant Underlying Index. The basic concept Each Smartshares Fund is a unit trust, as defined in the Unit Trusts Act The beneficial interest in each Smartshares Fund is divided into Units with each Unit representing an equal interest in the assets of that Smartshares Fund, but not conferring any interest in any specific asset of that Smartshares Fund. Each Smartshares Fund invests in a different fund (an Underlying Fund) by purchasing shares in that Underlying Fund (Underlying Shares). The Underlying Shares are an exchange-traded class of shares issued by each of the Underlying Funds and effectively represent an interest in the Index Securities held by the relevant Underlying Fund. 6