Smart Components and subassemblies

Hi, I'm using Smart Components for the first time and am trying to understand what it wants from me. Does it require that the component that you choose as Smart be within the same assembly level (or subassembly) as the included parts and features?

Here's what I have:

Assembly

     pin

     bushing

     Assembly level hole propagated to subassembly1

     Assembly level hole propagated to sub 2

     Subassembly 1

          A plate

     Subassembly 2

          Another plate

    

When I start Smart Components, I am able to select the pin and bushing, but not the holes.

I am beginning to think it would be helpful to think of Solidworks as a database program sometimes. This might help explain behaviors in situations like this...

SolidworksAssemblies