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Guide To Investment Statements

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The first place to go for information about an investment is the
investment statement. This is a plain-English document prepared by the issuer of the securities. Its should give you key information about the investment that you need to make investment decisions.

Every investment statement is set out the same way, with information
under 11 headings. This is done to make it easier for you to compare
one investment with another.

The headings in the investment statement are questions. Each of these
tells you something important about the investment. This is why it is
worth taking the time to read this information.

The 11 questions, and the sort of information you can get from them, are:

  • What sort of investment is this?
    This gives a
    brief description of the securities being offered - what you are
    actually buying. It will tell you whether they are shares, debentures, units in a unit trust, etc.
  • Who is involved in providing it to me?
    The
    names and addresses of people who have important roles in the offer are
    set out here. This includes the issuer of the securities and any
    promoters of the offer. It also includes the trustee or statutory supervisor for debt securities and managed funds. These people are appointed to look after investors' interests.

    This
    section also tells you about the main activities of the managed fund or
    the issuer. This is very important, because when you invest in a
    company's securities you are really investing in the activities of that
    company. You should find that information here.

    For example, if
    the investment is in a finance company this part of the investment
    statement should tell you what types of lending the finance company
    does, and whether its lending is limited to any particular region or
    sector (such as property).

    Knowing about the activities of an
    issuer helps you to understand what your money will be used for, which
    helps you to assess the risks of the investment.

  • How much do I pay?
    Before
    you buy any security you need to know how much it costs. This part of
    the investment statement will tell you this. It will also say how
    payments should be made, and whether you buy the securities with one
    up-front payment or with several payments over time.

    If there is a cooling-off period during which you can change your mind about the securities, this will be disclosed here.

  • What are the charges?
    Fees
    can make a big difference to the returns you get from an investment.
    This is particularly so with managed funds, where you pay fees to the
    people who manage your investment for you.

    This part of the
    investment statement sets out the fees you will pay if you invest.
    Different investments structure their fees in different ways. Some fees
    are paid when you first invest, some are charged on an ongoing basis.
    There may be fees or charges that you have to pay when you sell your
    investment, or switch to another fund run by the same manager. All
    these fees must be separately set out here, so you can see what you are
    paying for.

    As well as fees, the costs of running and
    administering the investment may be paid by investors, or taken out of
    the funds of the scheme. These charges will also be described here.

    If the issuer or anyone else is able to change the level of fees and charges at any time, this must be disclosed.

    Where
    possible, fees have to be set out as dollar amounts. If this can't be
    done, which is often the case, the investment statement has to say how
    the fees and charges are calculated.

  • What returns will I get?
    Different
    investments offer different sorts of returns. Whether or not an
    investment is right for your needs depends heavily on the returns you
    can expect from it. You need to know whether or not any return is
    promised , how returns are made up, and what factors are likely to
    affect the levels of returns.

    Some investments promise to give investors a fixed return, such as the interest on a term deposit or a finance company debenture. Other investments, e.g. managed funds and shares, aim to produce certain returns, whether by capital
    growth or income, but don't promise a fixed rate. The investment
    statement must say here whether or not any level of returns is promised
    to investors. Of course, even if a return is promised, whether or not
    you receive the return depends on the company being able to pay.

    The key factors that will determine the returns must be set out here. If
    you are investing in a managed fund this section should tell you how
    your return will be affected by the performance of the investments that
    the fund makes. If you are buying shares you should see the major
    elements of the company's business that will determine whether or not
    your investment grows, or returns dividends.

    From
    reading this section you will see that the key factors that determine
    returns are usually closely related to the main risks of the
    investment, which are disclosed in the next section of the investment
    statement.

    This part of the investment statement will also tell
    you whether the returns on your investment are likely to be affected by
    tax, and how frequently returns will be paid, if this is known.

    If
    anyone has agreed to guarantee the securities, this will be stated
    here, along with information about the nature and amount of the
    guarantee, whether there are any conditions attached to it, whether it
    is secured in any way, and whether the guarantor is associated with the
    issuer of the securities.

  • What are my risks?
    A
    good understanding of the risks of an investment helps you to make an
    informed decision about whether a particular investment is right for
    you. The principal risks of an investment should be set out in this
    part of the investment statement. This includes the risks that:

    • the money you pay will not be paid back in full;
    • the returns described in the investment statement will not be received; and
    • you may need to pay more money on the investment.

    The
    description of risk will often cover risks that may apply to many
    investments, such as currency risk, general market risk, and liquidity
    risk. It is worth reading these in every case, as some investments are
    more sensitive to some of these general risks than other investments.

    Every
    investment also has risks that are specific to it, or to the sector in
    which the issuer operates. These risks come from the particular
    business activities of the issuer.
    If you want to build up a balanced mix of investments it is important
    that you understand the specific risks of each investment, so that you
    can avoid putting too much money into investments that face the same
    types of risks. For example, buying a debenture from a finance company
    that lends mainly on property development exposes you to the risks of
    the property market. If you also buy an investment in a managed fund
    that invests mainly in property your exposure to the property sector is
    increased.

  • Can the investment be altered?
    Sometimes
    an investment can be changed by an investor, or by the issuer (e.g. the
    term of a deposit might be able to be extended). If so, the investment
    statement must describe this, and say whether any fees are charged to
    change the investment.
  • How do I cash in my investment?
    This
    tells you whether you can sell your investment, and if there is a
    charge for this. You can also find out here whether you, the issuer, or
    anyone else can terminate or cancel the investment at any time, and
    what you will have to pay for this.

    If you can sell your
    investments, the investment statement must say whether the directors
    think there is an established market for the securities. If there is an
    established market (e.g. if the securities are listed on NZX) it is likely to be easier to sell your investments than if there is no such market.

  • Who do I contact with enquiries about my investment?
    This
    gives the names, addresses and telephone numbers of the people working
    for the issuer you should contact to ask about the investment.
  • Is there anyone I can complain to if I have a problem with the investment?
    The
    issuer has to set out a contact person or people who you can complain
    to about your investment, and the address and telephone number for
    complaints. It will also say whether you can complain to a trustee or
    statutory supervisor.

    Some issuers belong to industry ombudsmen
    schemes. Ombudsmen are independent people who you can complain to about
    your investment, but you can only do this if the issuer of the
    investment belongs to one of these schemes, such as the Banking
    Ombudsman.

  • What other information is available about this investment?
    More
    information about an investment is in the registered prospectus and the
    financial statements. The investment statement sets out how you can get
    these documents, free of charge.

    Most issuers give investors
    annual reports, or annual financial statements. You can find out
    exactly what annual information is available for an investment in this
    part of the investment statement.

    Any other information
    available from the issuer will also be set out here, along with
    instructions as to how you can get it and whether you have to pay for
    it.

All investment statements must answer all these questions. This helps you to compare one investment with another.

Read the investment statement before you commit to an investment. If
you don't you may not be aware of important factors that could strongly
affect your decision on whether or not to invest.

This article was provided by the Securities Commission.

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