Fonterra Shareholders' Fund Prospectus and Investment Statement

What are the charges
Applicants for Units are not required to pay
any charges to the Manager of the Fund or
Fonterra (or any associated person of either
of them) or to the Fund other than the Final
Price for each Unit subscribed for which will
be determined as set out under the heading
“How much do I pay” above.
Units subsequently purchased or sold on the
NZX Main Board or ASX are likely to attract
normal brokerage and charges that are
payable for transactions conducted on those
stock exchanges.
Fonterra will pay all costs associated with the
Offer. Details of the expenses of the Offer are
set out under the heading “Issue expenses” in
Section 10 – Statutory Information.
Fonterra has agreed to meet the day-to-day
operating costs of the Fund. This arrangement
will not change without the agreement of all
parties to the Authorised Fund Contract. In
addition, the Fund will use corporate facilities,
support functions, and services provided by
Fonterra. These are generally provided at no
cost to the Fund. There are some exceptions
to this principle which are described in
Section 5 – Trading Among Farmers in Detail.
What returns will I get
Returns generally
Returns on Units may be derived by way of
any distributions made by the Fund in respect
of the Units, and by way of any capital
appreciation realised on the sale or other
disposition of Units (although the market
price of the Units may also decline).
As each Unit corresponds to the Economic
Rights derived from the holding of a single
Share in Fonterra, returns on Units will relate
to the financial performance of Fonterra and,
in particular, decisions made by the Fonterra
Board in relation to dividends paid by Fonterra
to Shareholders. Fonterra’s dividend policy
will primarily determine the distributions, if any,
made by the Manager in respect of Units.
Distributions will be payable to the Unit Holders
entered on the register of Unit Holders at the
record date for the relevant distribution.
The key factors that determine the returns
that are likely to be derived from an
investment in Units are:
• the market price of Units;
• the performance and financial position of
Fonterra;
• Fonterra’s reserves and retentions;
• decisions of the Fonterra Board in relation
to dividends paid by Fonterra to
Shareholders;
• general economic conditions;
• movements in the local and global market
for listed securities;
• changes to government policy, legislation
or regulation;
• competition in the markets in which
Fonterra operates;
• general operational and business risks;
• the factors discussed below under the
heading “What are my risks” and in
Section 7 – Investment Risks; and
• applicable taxes (see Section 9 – Taxation
for a summary of the material New Zealand
tax consequences for Unit Holders).
Distributions
Cash distributions from the Fund
The Trust Deed provides that where Fonterra
pays a cash dividend or other cash benefit
(other than supplementary dividends) on a
per-Share basis, upon receipt by the Fonterra
Farmer Custodian (being the holder of the
Shares for which Economic Rights are held
for the Fund), the Manager of the Fund will
pass on that cash dividend or other cash
benefit to Unit Holders on a per-Unit basis,
less any adjustments for tax. Supplementary
dividends will be passed on in the same way,
but only to the Unit Holders that entitled
Fonterra to receive a tax credit for the
supplementary dividends.
The Manager can give no assurance as to the
amount or frequency of such cash dividend or
other cash benefit received by the Fonterra
Farmer Custodian from Fonterra. Therefore,
the Manager cannot give any assurance as to
the amount or frequency of cash distributions
to be paid in respect of Units.
The Trustee is the entity legally liable to pay
any cash distributions declared or made on
the Units.
Fonterra’s dividend policy
Fonterra’s dividend policy targets a payout
ratio of 65% to 75% of adjusted net profit
after tax (after taking into account nonrecurring
items and other factors), with 40%
to 50% of dividends paid at the half year.
The policy also gives the Fonterra Board
discretion to have regard to other commercial
considerations it considers to be relevant as
described in more detail in Section 4 –
Fonterra Financial Information.
The Fonterra Board reserves the right to
amend its dividend policy from time to time.
Other distributions
Unit Holders may also be entitled to receive
other distributions, for example, in certain
circumstances where Fonterra undertakes
to raise new equity. See under the heading
“Issues and buy backs of Shares” in Section 5
– Trading Among Farmers in Detail for
further information.
Sale of Units
Unit Holders may benefit from any increase
in the market price of their Units. Unit
Holders will realise this benefit upon the
sale of their Units. However, the market
price of Units may also decline. The price
of the Units could rise or fall depending
on numerous factors, including (without
limitation) those listed above under the
heading “Returns generally”.
There can be no guarantee that an active
market for the Units will develop, or that
the market price of the Units will increase.
Information on the selling of Units is set out
below under the heading “How do I cash in
my investment” in this section.
No guarantee
Nothing contained in this Offer Document
should be construed as a promise of any
particular returns. None of Fonterra, the
Manager, Fonterra’s subsidiaries, the Trustee,
the Joint Lead Managers or any of their
respective directors, officers, employees,
consultants, agents, partners or advisers gives
any guarantee or promise as to the return of
capital or the amount of any returns (including
distributions) in relation to the Units.
The information set out in this section should
be read in conjunction with the information
set out under the heading “What are my
risks” below and in Section 7 – Investment
Risks. The factors described in that section
could reduce or eliminate the distributions or
other returns intended to be derived from the
holding of Units.
FONTERRA SHAREHOLDERS’ FUND PROSPECTUS AND INVESTMENT STATEMENT 17