NEWFUNDS COLLECTIVE INVESTMENT SCHEME - Newfunds GOVI Exchange Traded Fund to Change from a Reinvesting Portfolio to a Distributing Portfolio

Newfunds GOVI Exchange Traded Fund to Change from a Reinvesting Portfolio to a Distributing Portfolio

NEWFUNDS COLLECTIVE INVESTMENT SCHEME
NEWFUNDS GOVI EXCHANGE TRADED FUND
JSE code: NFGOVI
ISIN code: ZAE000161949
(“NEWFNGOVI” or "NF GOVI Portfolio")


A portfolio in the NewFunds Collective Investment Scheme, registered as such in terms of the
Collective Investment Schemes Control Act, 45 of 2002

NEWFUNDS GOVI EXCHANGE TRADED FUND TO CHANGE FROM A REINVESTING
PORTFOLIO TO A DISTRIBUTING PORTFOLIO

1.   Introduction

     NF GOVI Portfolio unitholders (“Unitholders”) are referred to the FSCA Conduct Standard 1 of
     2020 (CIS) (“Conduct Standard”) issued by the Financial Sector Conduct Authority (“FSCA”) on
     19 May 2020.

     The Conduct Standard is applicable to portfolios comprising collective investment schemes
     registered in terms of the Collective Investment Schemes Control Act, 2002 (Act No. 45 of 2002)
     (“CISCA”).

     The Conduct Standard is intended to set minimum requirements for net asset valuation calculation
     and pricing for collective investment scheme portfolios registered in terms of CISCA and are
     therefore applicable to the NF GOVI Portfolio.

     In terms of the Conduct Standard, and as further set out below, the NF GOVI Portfolio distribution
     method which currently allows for the re-investing of all dividends received, will now be adjusted
     to one in which all dividends received are paid out in cash to Unitholders.

2.   Background on the NFGOVI

     The NF GOVI Portfolio tracks the FTSE/JSE GOVI Index (“GOVI Index”), an index consisting of
     Top 10 bonds issued by the South African Government with the aim of providing investors with
     exposure to the Top 10 RSA Government Bonds as is determined and calculated daily.

     The NF GOVI Portfolio declares a notional distribution to unitholders monthly, and reinvests the
     value of the notional distribution, which consists primarily of coupons and interest received from
     the underlying bonds issuers, into constituent securities of the GOVI Index. Such coupons and
     interest in respect of the distribution does not incur dividends tax as it is not considered a dividend
     however unitholders will be liable for income tax at their marginal rate of tax on the coupons and
     interest declared and deemed to have been received.

     The NF GOVI Portfolio is considered to be a reinvesting portfolio as all income, which as stated
     above primarily consists of coupons and interest, is declared to Unitholders on declaration date
     and then is reinvested by NewFunds on behalf of Unitholders into constituent securities of the
     GOVI Index in the exact proportions as per the GOVI Index.

3.   Rationale for the change in distribution methodology

     Unitholders are referred to paragraph 11.6 of the applicable portfolio supplement (“APS”) (“APS
     Distribution Methodology”) issued in terms of the NF GOVI Portfolio on 12 January 2012 which,
     using the definitions in such APS, reads as follows:

     “Given that the Portfolio is tracking the Total Return version of the GOVI Index, the intention is for
     all amounts received by the Portfolio (other than capital gains on disposals (see above), which will
     predominantly comprise coupons derived from Constituent Securities) to be notionally distributed
     to holders of Participatory Interests within twelve months of receipt thereof (although no cash will
     flow to such holders) and reinvested on a monthly basis in the Portfolio by the acquisition of
     additional Constituent Securities (in the weightings of the GOVI Index) so as to increase the net
     asset value of the portfolio and consequently increase the value of each Participatory Interest in
     the GOVI ETF Portfolio.”

     The APS Distribution Methodology therefore gives rise to the re-investment of distributions
     declared in terms of the NF GOVI Portfolio.

     The APS Distribution Methodology is therefore not in compliance with paragraph 10.1 (“Conduct
     Standard Distribution Methodology”) which reads as follows:


     “All income received and accrued by a portfolio or class after deducting permissible costs must
     be distributed to investors so that it is taxed in the hands of the investor and that the nature of the
     income is preserved in the process.”

     The Conduct Standard Distribution Methodology therefore gives rise to distributions, which must
     be distributed to investors and not re-invested.

     Hence, as a result of the Conduct Standard Distribution Methodology, distributions declared by the
     NF GOVI Portfolio shall be distributed in cash to Unitholders and not reinvested on a monthly basis
     in the Portfolio by the acquisition of additional Constituent Securities (in the weightings of the GOVI
     Index) so as to increase the net asset value of the portfolio and consequently increase the value
     of each Participatory Interest in the GOVI ETF Portfolio.”


4.   Effective date of the Conduct Standard

     The Conduct Standard shall take effect from 19 November 2020, meaning all distributions declared
     on or after this effective date, shall be governed in terms of the Conduct Standard.

     The first such distribution to be declared by the NF GOVI Portfolio to be governed by the Conduct
     Standard shall be the distribution for the month ending 31 October 2020. The salient dates of which
     are as follows:

     Declaration date                           Thursday,12 November,2020
     Last day to trade                           Tuesday,17 November,2020
     Ex date                                   Wednesday,18 November,2020
     Record date                                   Friday,20 November,2020
     Payment date                                  Monday,23 November,2020


5.   Financial effect on Unitholders

     The change from the APS Distribution Methodology to the Conduct Standard Distribution
     Methodology will have no financial effect on Unitholders. Unitholders will realise the same
     economic outcome and subject to the same tax principles.

6.   Application of JSE Listings Requirement and amendment of the APS

     Paragraph 19.20(a) of the Listings Requirements of JSE Limited reads as follows:

     “An issuer is required to comply with the following continuing obligations once its securities have
     been listed:

     (a) in the event that the issuer makes any changes to the placing document or pricing supplement
     that affect the terms and conditions of the securities or the guarantee, other than changes which
     are of a formal, minor or technical nature or are made to correct a manifest error or to comply with
     mandatory provisions of the law, the applicant issuer must obtain approval from holders of
     securities, holding not less than 66.67% of the value of a specific class of securities;”
    Hence as the change in distribution methodology is necessitated by the Conduct Standard which
    is considered to be a change to comply with mandatory provisions of the law, no approval from
    Unitholders is required to implement the NF GOVI Portfolio distribution method.

    The APS will be amended in due course to reflect the change in distribution methodology as set
    out in the Conduct Standard.


21 October 2020


Sponsor
Vunani Sponsors

Date: 21-10-2020 11:14:00
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