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Summary of

Securities Act (Australian Registered Managed Investment Schemes) Exemption Notice 2003

2003/297

Gazetted on 23 October 2003
Expires on 30 September 2008

Effects of the exemption
The Securities Act (Australian Registered Managed Investment Schemes) Exemption Notice 2003 (ARMIS 2003 notice) replaces the Securities Act (Australian Registered Managed Investment Schemes) Exemption Notice 1999 (ARMIS 1999 notice), subject to transitional provisions.

The ARMIS 2003 notice applies to offers of interests in Australian registered managed investment schemes. The schemes must be registered with the Australian Securities and Investments Commission (ASIC) under the Australian Corporations Act 2001. The ARMIS 2003 notice also applies to offers made by holders of these interests that have been previously allotted.

The ARMIS 2003 notice differs substantially to the ARMIS 1999 notice. The exemptions provided by the ARMIS 1999 have been continued, but the ARMIS 2003 notice also provides new exemptions from certain provisions of the Securities Act 1978 (the Act).

The ARMIS 2003 notice provides a new exemption from the investment statement requirement of the Act. This exemption enables an Australian Product Disclosure Statement (PDS) to be used in place of the New Zealand investment statement.

The inclusion of the investment statement exemption in the ARMIS 2003 notice allows issuers who choose to use the notice the choice of three types of disclosure to be made to New Zealand investors. Disclosure can be made using:

• an Australian prospectus and New Zealand investment statement; or
• an Australian PDS and a New Zealand investment statement; or
• an Australian PDS.

The investment statement or PDS (where used) must contain (or be accompanied by) certain warning statements and additional information specific to New Zealand investors. This information must be set out under the heading "Important Information for New Zealand Investors".

The ARMIS 2003 notice includes new exemptions for distribution reinvestment schemes. These exemptions apply where the securities are offered under a plan that -

• entitles the person to subscribe for the securities by applying all or a part of any distribution payable under the Australian registered scheme to that person; or
• requires the responsible entity to allot the securities in consideration for that person forgoing the right to receive all or part of the distribution payable to them; or
• involves the compulsory reinvestment of distributions to which the person is entitled towards the allotment of the securities.

• a copy of each specified document that is required to be lodged with the Registrar must have been received by the Registrar before the exemption notice can be first relied on by any scheme. This condition is linked to the prospectus exemption.

• a copy of any document that amends or supplements the Australian prospectus or PDS must have been received by the Registrar before any allotment of securities is made after the amendment or replacement takes effect. This condition is linked to the prospectus exemption.

• a copy of any document that amends or replaces any of the documents that are to be received by the Registrar, other than the Australian prospectus or PDS, must have been received by the Registrar within 5 working days of certain dates. This condition is linked to the statutory supervisor exemption.

Other changes to the ARMIS 2003 notice include:

• a materiality test;
• a requirement for an agent for service in New Zealand;
• differences in the types of documents that are required to be received by the Registrar;
• information about how returns to New Zealand investors are likely to be affected by New Zealand taxation rules and how returns may as a result differ from the returns described for Australian investors.

Background
The ARMIS 1999 notice was due to expire on the close of 30 April 2004. It was reviewed by the Commission during 2003.The Commission sought and considered comment from issuers that rely on the ARMIS 1999 notice and other interested parties in relation to the terms and conditions of exemption. The Commission also received and considered submissions in relation to the policy of the notice.

As a result of its review of the notice, the Commission decided that it would be appropriate to develop a new class exemption to better reflect the changes to the Australian regulatory regime and changes in Commission policy.

The exemption
Responsible entities of Australian schemes are exempted, subject to conditions, from sections 33(3), 37, 37A(1)(a), 37A(2), 38(a), 38A and 51 to 54 of the Act and regulations 11 to 18, 21 and 22 of the Regulations in respect of Australian participatory securities that are interests in an Australian registered scheme. Exemptions are provided from the same provisions of the Act and Regulations for holders of securities that have been previously allotted by a responsible entity.

Responsible entities are exempted, subject to conditions, from sections 33(3), 37, 37A, 38A and 51 to 54 of the Act and the Regulations (except regulation 8) in relation to securities allotted under a distribution reinvestment scheme.

Conditions
The exemptions from sections 33(3), 37, 37A(2) and 38A of the Act and regulations 11 to 18, 21 and 22 of the Regulations are subject to the following conditions:

• there must be an Australian disclosure document (meaning a PDS or Australian prospectus) relating to the securities at the time that offers of the securities are made or open for acceptance in New Zealand in reliance on any of the exemptions granted by the notice;
• before the first offer of any securities in an Australian registered scheme is made or is open for acceptance in New Zealand, a copy of each of the documents specified in clause 6(1)(b) of the notice relating to that scheme has been received by the Registrar. These documents are -
  • the Australian disclosure document relating to the securities;
  • any document that is lodged or registered with ASIC that is referred to in the Australian disclosure document and is taken to be included in that document under the Australian Corporations Act 2001;
  • any exemption, order or declaration that has been granted by ASIC in respect of a scheme (other than an exemption, order or declaration that applies to Australian registered schemes generally or to a class of persons);
  • the licence of the responsible entity;
  • the constitution of the Australian registered scheme;
  • evidence of the scheme's registration with ASIC;
  • the compliance plan for the scheme;
  • any documents that amend or supplement any of the documents above that exist when the first offer of the securities is made in New Zealand.
• any document that amends, supplements or replaces the Australian disclosure document has been received by the Registrar before any allotment of securities is made in New Zealand after the amendment, supplement or replacement takes effect;
• there is a contemporaneous offer in Australia;
• the only material differences between the Australian disclosure document that is used in New Zealand and the equivalent document used in Australia relate to the document used in New Zealand -
  • including the statements and information required by the exemption notice;
  • excluding information about interests in Australian registered schemes not offered in New Zealand;
  • excluding statements or information about securities not offered in New Zealand
• within 5 working days of receipt of an offeree's request for the Australian disclosure document, the offeree must be sent, without fee, the Australian disclosure document, certain specified associated documents and any supplementary disclosure document in use at the time the request is received.

The exemptions from section 33(3) of the Act are subject to the following conditions:

• a copy of any document that amends or replaces any of the documents specified in clause 6(1)(b) of the ARMIS 2003 notice, other than the Australian disclosure document has been received by the Registrar within 5 working days of certain specified events;
• the conditions relating to the exemptions from sections 33(3), 37, 37A(2) and 38A of the Act and regulations 11 to 18, 21 and 22 of the Regulations do not apply in respect of a document to the offer of any security that is made after a copy of that document has been received by the Registrar.

The exemption from section 37A(1)(a) of the Act is subject to the following conditions:

• before subscribing, a subscriber must have received the following -
  • a PDS;
  • every supplementary PDS in use at the time of the offer in New Zealand
• the PDS contains, under the heading "Important Information for New Zealand Investors", the statement set out in the Schedule to the notice.
• the statement may contain immaterial differences from the form set out in the Schedule if it still has the same effect and is not misleading.

Further conditions applying to investment statements and PDS are:

• the investment statement or, if there is no investment statement, the PDS, contains or is accompanied by additional statements and information for New Zealand investors, as specified in the exemption notice. These are to be under the heading "Important Information for New Zealand Investors". These include -
  • warnings for New Zealand investors about certain differences between investing in New Zealand and Australia;
  • information describing how returns for New Zealand investors are likely to be affected by New Zealand tax rules;
  • a list of the types of document that have been received by the Registrar and that these can be inspected;
  • information concerning an agreement as to jurisdiction in respect of any dispute concerning an offer of the securities and details about the New Zealand agent for service.
• immaterial differences between the information required in the investment statement or PDS and the information actually presented in the document will not breach a condition of the prospectus exemption.

A report must be sent to the Commission by 31 March about fundraising activities in the previous calendar year. This condition is not linked to the exemptions from the prospectus exemption or the investment statement exemption.

The exemptions from section 33(3), 37, 37A, 38A and 51 to 54 of the Act and the Regulations (except regulation 8) for distribution reinvestment schemes apply where securities are allotted to a person who already holds the same kind of securities as those allotted.

The exemptions in relation to distribution reinvestment schemes are subject to the following conditions:

• before the person subscribes for the securities, they must have received specified information, including -
  • an offer of securities under the distribution reinvestment scheme;
  • the terms and conditions of the distribution reinvestment scheme;
  • the availability of certain documents; and
  • that they will be sent a statement of the amount of the distribution and the number of securities that have been allotted to them.

• at the time the price of the securities is set the responsible entity must not have any information that is not publicly available that would, or would be likely, to have a material adverse effect on the realisable price of the security if publicly available;

• the offer must be made to all persons in New Zealand who hold or who have applied to hold securities of the same kind and every person to whom an offer is made must be given a reasonable opportunity to accept it;

• the securities must be issued on the terms disclosed to the holders and subject to the same rights as the securities issued to all holders of securities of the same kind; and

• at the time offers are made in New Zealand under the distribution reinvestment scheme there is a contemporaneous offer in Australia.

Transitional provisions
The expiry date of the ARMIS 1999 notice has been amended and it now expires on 10 March 2004, to coincide with the end of the transitional regime in Australia.

The ARMIS 2003 notice provides a transitional period for securities offered after the notice comes into force under an Australian disclosure document that is dated before the expiry of the ARMIS 1999 notice. Offers of those securities may be made in accordance with either that notice (until 30 September 2004) or the ARMIS 2003 notice.

Reasons
Under the new Australian regime the Australian prospectus is being replaced by the PDS. Australian schemes will not be able to use a prospectus after March 2004. In recognition of the Australian regime, the ARMIS 1999 notice (as amended) included exemptions from the prospectus requirements of the Act. It enabled either an Australian prospectus or a PDS to be used in place of a New Zealand prospectus.

The ARMIS 2003 notice continues to enable offers to be made using a PDS and acknowledges that the PDS will become the predominant offer document in Australia for managed investment schemes. The ARMIS 2003 notice also provides for use of an Australian prospectus until March 2004, to take account of the transitional period in Australia and provide flexibility for issuers.

The ARMIS 2003 notice recognises that the PDS is a plain English disclosure document, prepared in accordance with Australian requirements. The PDS is a suitable alternative to the investment statement and offers issuers the flexibility of using only a PDS, along with additional information specific to New Zealand investors.

The exemptions in relation to distribution reinvestment schemes recognise that where the offeree is an existing security holder of the issuer's securities, full disclosure about the securities and the issuer is not necessary where the investor has decided to participate in a distribution reinvestment scheme. The exemption recognises the expense of producing disclosure documents so that units can be offered under a reinvestment scheme and enables New Zealand investors to have the same opportunity as Australians to participate in the distribution reinvestment scheme.

The requirement that certain documents must be filed with the Registrar to obtain relief from the need to register a New Zealand prospectus recognises that there is particular value in these key documents being available to investors (and others) who wish to obtain them. Changes to the types of documents that are required to be received by the Registrar have been updated to reflect the Australian requirements.

The inclusion of information about taxation provides New Zealand investors with information about how the return on their investment may be affected by New Zealand taxation rules, before they invest in the managed investment scheme.

The materiality test excuses non-material failures to include specific information in the additional statements that are required to be included in the investment statement or PDS.

The requirement for an agent for service in New Zealand will assist New Zealand investors to obtain court redress in the event of difficulties with the issuer, in light of what could be high costs of commencing overseas legal proceedings. The ARMIS 2003 notice provides flexibility for responsible entities and reduces compliance costs by enabling responsible entities to use Australian offer documents to offer securities to the public in New Zealand. The use of the Australian offer documents is balanced by the conditions of exemption, in particular the requirements for disclosure of certain warning statements and additional information specific to New Zealand investors.