NEW ZEALAND GAZETTE

No. 18

Inland Revenue

Tax Administration Act 1994

Notice of Product Ruling

1. This is a notice of a product ruling made under section 91F of the Tax Administration Act 1994.

2. Product ruling No. 97/13 was issued on 14 February 1997. It relates to a wholesale superannuation fund, and the definitions of ‘superannuation fund’ and ‘qualifying trust’ and the application of section HH 3 (5) of the Income Tax Act 1994.

3. A copy of the ruling may be obtained by writing to the Assistant General Manager (Adjudication & Rulings), National Office, Inland Revenue, P.O. Box 2198, Wellington.

JEFFREY TYLER, Assistant General Manager (Adjudication & Rulings).

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Notice of Product Ruling

1. This is a notice of a product ruling made under section 91F of the Tax Administration Act 1994.

2. Product ruling No. 97/14 was issued on 14 February 1997. It relates to a wholesale superannuation fund, and the definitions of ‘superannuation fund’ and ‘qualifying trust’ and the application of section HH 3 (5) of the Income Tax Act 1994 as amended by the Taxation (Core Provisions) Act 1996.

3. A copy of the ruling may be obtained by writing to the Assistant General Manager (Adjudication & Rulings), National Office, Inland Revenue, P.O. Box 2198, Wellington.

JEFFREY TYLER, Assistant General Manager (Adjudication & Rulings).

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Issue of Capital Guaranteed Growth Notes and Related Financial Arrangements

This determination may be cited as “Determination S4: Issue of Capital Guaranteed Growth Notes and Related Financial Arrangements”.

1. Explanation (which does not form part of the determination)

Structure

1.1 BNZ proposes to establish FundCo, a vehicle which will issue notes to investors, the return on which is linked to an investment in futures contracts, derivative contracts and foreign exchange contracts. FundCo will be a wholly owned subsidiary of BNZ. In addition, repayment of a certain amount, being at least equal to the initial capital invested on subscription of the notes, is guaranteed by BNZ.

1.2 The structure of the notes issued by FundCo is as follows:

(a) Issue of Notes: FundCo will issue a series of notes to investors. Each note will represent an agreement to sell, on a cash settled basis, to the investor, on a specified future date, a stated proportion of FundCo’s assets on that date. The notes will constitute debt securities under the Securities Act 1978. Accordingly, FundCo will appoint a trustee and enter into a trust deed for the benefit of noteholders, as required by the Securities Act.

(b) Termination: On the termination date, instead of physical delivery of FundCo’s assets in settlement of all outstanding notes, there will be a cash settlement of each note equal to the value of the specified proportion of the assets being purchased.

(c) Variable Payments: During the term of the notes, progress payments are to be made to investors based upon a fixed percentage of the increase in value of the net assets of TradeCo (see (g) below). Restrictions are placed on payments which would reduce the value of the original investment.

(d) Capital Guarantee Fund: FundCo uses a proportion of the amount received on issue of the notes to invest in a deposit with BNZ. On maturity, the value of the deposit is equal to the aggregate amount subscribed by the investors on the original issue of the notes plus an additional amount (which will be known with certainty prior to issue of the notes) equal to a fixed percentage of the amount received on issue. This enables FundCo to satisfy its obligations to repay, at least, the aggregate amount originally invested by the investors (the capital guaranteed amount).

(e) Investment linked to futures contracts, derivative contracts and foreign exchange contracts: FundCo makes an investment of the balance of the amount received on issue of the notes (i.e. after investing in the deposit and meeting certain expenses) by way of an agreement for sale with TradeCo, a company owned by the trustees of a trust established for charitable purposes in New Zealand. TradeCo makes investments in futures contracts, derivative contracts and foreign exchange contracts (see (h) below). The agreement provides for a sale of all of TradeCo’s assets, with settlement at a stated time, being a number of years after entry into the agreement.

(f) Cash Settled Sale: Instead of physical delivery of TradeCo’s assets on settlement, there will be a cash settlement of the agreement equal to the value of the assets of TradeCo. It is not intended that TradeCo’s assets will be physically delivered to FundCo except in the event of a default by TradeCo to make the cash settlement payment. The cash proceeds will form part of the assets of FundCo subject to the settlement referred to in paragraph (b).

(g) Variable Payments: During the term of the notes progress payments are to be made by TradeCo to FundCo based upon a fixed percentage of the increase in value of TradeCo’s net assets (thereby enabling FundCo to make the payments described in paragraph (c) to investors during the term of the agreements).

(h) Futures contracts, derivative contracts and foreign exchange contracts: TradeCo then uses the moneys received by it under the agreement for sale with FundCo to invest in futures contracts, derivative contracts and foreign exchange contracts. These contracts will be managed by members of the ED & F Man group of companies.

(i) Guarantee: TradeCo will enter into a guarantee agreement with BNZ under which BNZ will agree to guarantee repayment of the capital guaranteed amount.

Overall effect of arrangements

1.3 The amount of expenditure incurred by TradeCo in relation to the TradeCo Agreement (as calculated pursuant to this Determination and under sections EH 1 to EH 9 of the Act) after allowing for other expenditure incurred by TradeCo will be equivalent on an annual basis to the income derived by TradeCo with respect to its investment in futures contracts, derivative contracts and foreign exchange contracts (as calculated pursuant to this Determination and under sections EH 1 to EH 9 of the Act) and vice versa.

1.4 The amount of expenditure incurred by FundCo in