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Summary of

Securities Act (Charitable and Religious Purposes) Exemption Notice 2003

and

Securities Act (Charitable and Religious Purposes) Exemption Amendment Notice 2003

2003/66 and 2003/109

Gazetted on 27 March and 22 May 2003 respectively.
Expires on 30 November 2007.

Effects of the exemption
This exemption notice replaces both the Securities Act (Charitable and Other Purposes) Exemption Notice 1997 and the Securities Act (Religious Organisations) Exemption Notice 1997.

This notice grants exemptions, subject to conditions, from the prospectus and investment statement requirements of the Securities Act for offers of debt securities and participatory securities by charitable organisations.

The amendment notice amends the definition of "charitable organisation", to clarify that charitable organisations, for the notice's purposes, must exist exclusively for charitable purposes as defined in the notice.

The exemption
Charitable organisations are exempted from sections 33(2), 37 and 37A of the Securities Act and regulation 17 of the Securities Regulations in respect of debt securities.

Charitable organisations are also exempted from sections 33(3), 37 and 37A of the Act and regulation 17 of the Regulations in respect of participatory securities, but

• only if the rules of that organisation limit the liabilities of security holders to their fees or subscriptions; and
• only if the rights of holders of the securities are limited to the use of the organisation's assets, voting, and an entitlement to a share of the organisation's assets in the event of its dissolution.

These exemptions do not apply to securities relating to retirement villages.

Conditions
Provision of information document
The exemptions for debt securities are subject to the condition that all subscribers receive, before subscription, an information document relating to the securities.

This document must contain the following:

• a prominent statement advising prospective investors that the document may not contain all of the information that would be included in an investment statement and registered prospectus;
• the information required by clauses 2, 9, 10, 11 and 12 of Schedule 3D of the Securities Regulations i.e. information about the securities, the returns, guarantee, and risks and the consequences of insolvency of the issuer;
• a description of the charitable or religious purposes for which the money paid by subscribers will be used;
• the terms and conditions of the offer of the securities;
• any other information that is material to the offer of the securities; and
• a statement that it is a term of the offer of securities that the charitable organisation must send a copy of its most recent audited financial statements to any prospective investor who requests them.

Financial cap
In addition, charitable organisations offering debt securities under the notice are subject to a financial cap, except for debt securities offered by religious organisations exclusively for religious purposes. (Religious organisations are defined in the notice as being a subset of charitable organisations.)

The financial cap limits charitable organisations to having no more than $2,000,000 worth of debt securities outstanding at any one time, and to allotting no more than $500,000 worth of securities in any twelve month period.

Reasons
The Commission reviewed the 1997 notices as part of its 2002 exemption review. The exemptions for charitable organisations were considered appropriate, and were retained with the same general terms and conditions, apart from combining the two separate exemption notices into one.

Prospective investors in debt securities offered by charitable organisations are motivated by a desire to support the charitable goals of the organisation in question, as well as making an investment for financial purposes. Consequently the exemptions from securities law are granted, but on the basis that the attention of prospective investors is drawn to the exemption, and that investment advice is recommended for investors for whom financial returns are important.

The exemptions for participatory securities are intended to avoid compliance costs for issuers, but are limited in their scope to the use of facilities belonging to charitable organisations.