Fonterra Shareholders' Fund Prospectus and Investment Statement

How Trading Among Farmers
will work
When Trading Among Farmers starts,
there will be two key changes:
• Farmer Shareholders will buy and sell
Shares among themselves, not with
Fonterra. They will do this on a private
market called the Fonterra Shareholders’
Market. It will be a private market because
only Farmer Shareholders, Fonterra,
and a specially appointed market maker
(which is described below) will be allowed
to trade Shares; and
• a fund known as the Fonterra Shareholders’
Fund will operate. The Fund is intended to:
––
supplement liquidity in the Fonterra
Shareholders’ Market through a liquid
market for Units which can effectively
be “exchanged” for Fonterra Shares (by
Farmer Shareholders, Fonterra and the
market maker) and vice versa;
––
provide additional financial flexibility for
Farmer Shareholders, who will have the
opportunity to sell Economic Rights of
Shares to the Fund; and
––
permit a broader range of investors to
buy a security (a Unit in the Fonterra
Shareholders’ Fund) that essentially
passes through the Economic Rights.
This is described in Section 5 – Trading
Among Farmers in Detail.
Fonterra Shareholders’ Fund
• The Fund is a unit trust formed under
the Unit Trusts Act. It is managed by the
Manager and the Trustee is appointed to
act as trustee of the Fund for the benefit
of Unit Holders.
• Units will be listed on the NZX Main Board
and on ASX and will be able to be freely
bought and sold, in the same way as any
other listed security.
• The Manager of the Fund has a board of
five directors. Three directors will be
elected by Unit Holders. However, the
first three directors have been selected by
Fonterra so that the Fund can commence
operations. The other two directors of the
Manager are appointed by Fonterra.
• Units will be able to be exchanged for Shares
(and vice versa) by Farmer Shareholders,
Fonterra and the market maker (discussed
below) on a one-for-one basis.
• Other investors will not be able to
exchange Units for Shares (or vice versa).
• As described on the previous page under
the heading “Economic Rights”, the Economic
Rights of Shares are held on trust for the
Fund by the Fonterra Farmer Custodian
(a special purpose company) under a trust
called the Fonterra Economic Rights Trust.
• The Fonterra Farmer Custodian is owned
by the trustees of a specially created
trust. This trust has three trustees.
Farmer Shareholders, Fonterra and the
Shareholders’ Council each appoint one
trustee. A more detailed description of the
role of the Fonterra Farmer Custodian,
is set out in Section 5 – Trading Among
Farmers in Detail.
• The Fund will elect to be a “foreign
investment variable-rate PIE” for New
Zealand income tax purposes. A New
Zealand tax summary in relation to the
Fund is set out in Section 9 – Taxation.
Fonterra Shareholders’ Market
• The Fonterra Shareholders’ Market will be
operated by NZX. It will be a registered
market on which only FSM Participants
accredited by NZX may trade on behalf
of Farmer Shareholders. The Fonterra
Shareholders’ Market will be regulated and
monitored by NZX (whose regulatory role
will include monitoring compliance with
and enforcing the FSM Rules and the
NZX Participant Rules) and the Financial
Markets Authority, in the same way as
other markets operated by NZX.
• There will be a market maker (known as
the Registered Volume Provider or RVP)
who will be continuously active in offering
to buy and sell Shares on the Fonterra
Shareholders’ Market during the periods
of operation of the Fonterra Shareholders’
Market (other than in the case of a
temporary halt in, or suspension of, trading
in Shares). This is intended to assist the
liquidity of trading on the Fonterra
Shareholders’ Market to make it easier for
Farmer Shareholders to buy or sell Shares
on that market. Craigs Investment Partners
Limited has been initially appointed as the
Registered Volume Provider.
overview of trading among farmers
A high level representation of the relationship
between the Fonterra Shareholders’ Market
and the Fonterra Shareholders’ Fund is shown
in the diagram. The diagram illustrates that
the number of Units on issue will be a small
proportion of the total number of Fonterra
Shares on issue. The diagram is also intended
to illustrate the connection between these
two markets.
FONTERRA
SHAREHOLDERS’ MARKET
SHARES
CUSTODIAN
FONTERRA
SHAREHOLDERS’ FUND
UNITS
FONTERRA FARMERS
FUND INVESTORS
FONTERRA SHAREHOLDERS’ FUND PROSPECTUS AND INVESTMENT STATEMENT 11