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29 May 2001

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News Release

ADVERTISEMENTS AND OFFER DOCUMENTS

1. Recently, the Commission reviewed a number of offer documents of forestry schemes, including offers on the internet. In general, we have found that the standard of disclosure in the offer documents, including advertisements, falls short of the standard expected of issuers of securities to the public. We are particularly concerned about the following two aspects:
   1. the statement of an "equivalent bank interest rate" (after tax) to represent the rate of return on the forestry investment; and

   2. advertisements on the internet that do not comply with securities law.

"Equivalent bank interest rate"

2. "Equivalent bank interest rates" are often prominently quoted by promoters in advertisements and other offer documents. These give the impression that returns from forestry investments are equivalent to returns on bank deposits.

3. A bank interest rate is not representative or equivalent to the rate of return from the forest investment - it differs, among other things, in risk profile, timing of returns and nature of returns. In a forestry investment, returns are usually not secure or promised. They are distributed only at the end of a long investment period, usually 28 years. Returns from the investment can take any form depending on the type of security offered. Calculation of the returns is also less straightforward given the long investment period. Comparatively, returns from a bank deposit are usually promised. They are distributed annually or at the end of a shorter investment period. The calculation of the return, the interest, is relatively straightforward.

4. The "equivalent bank interest rate" quoted for a forestry investment is usually calculated on an after tax basis, even though the dollar returns and IRR are often calculated on a pre-tax basis. This means that the after tax bank interest rate is not "equivalent", as it is often stated, to the forecast returns or IRR. In addition, for a particular investment, the equivalent bank interest rate on an after-tax basis will be different depending on whether the promoter assumes that an investor pays a 24% tax rate, a 33% tax rate or a 39% tax rate. This makes it difficult for investors to compare the rates of return from different forestry investments.

5. We think that any rate of return that is promoted in relation to an investment should relate specifically to the type of security being offered. Labelling a rate of return as equivalent to a rate on a different type of security is not appropriate and may mislead. This is particularly where the surrogate rate relates to an investment that is not equivalent to a forestry investment in so many ways.

Advertising on the Internet

6. We have reviewed a number of forest investment scheme websites. We found that many do not comply with the Securities Act 1978 and the Securities Regulations 1983. We draw your attention to the following matters.

General advertising

7. If your website offers securities or refers to the fact that you are offering securities, or is likely to induce someone to enquire about securities, it is an advertisement in terms of the Securities Act 1978. This means that the website must comply with the provisions in respect of advertising of both the Act and the Regulations:
   1. the website must refer to the investment statement;

   2. a regulation 17 certificate is required for the website and must be signed by the directors of the issuer;

   3. the website must comply with all the regulations that apply to advertising;

   4. in particular, the following regulations should be noted:
      1. Regulation 8 - the website must not contain information that is likely to mislead, deceive or confuse in respect of any material matter;

      2. Regulation 9 - any information that is in the website must not be inconsistent with information in the registered prospectus;

      3. the website should not contain forecasts or projected financial information unless it is also contained in the registered prospectus; and

   5. the website must be kept current. We note that offer documents may remain accessible on a website once the offer closes. In this circumstance it is a breach of the law to accept subscriptions. A website must be updated promptly to ensure investors are not misled.

8. A number of other regulations also apply. It is important that your website complies with the law. We advise you to seek legal advice prior to posting your website on the internet.

9. If a website contains any statement, including a statement by a forestry consultant, this will be considered to be an expert's report and the expert must have consented to the inclusion of the statement on the web page.

Investment Statements

10. An investment statement can be an online document that the investor reads on the browser so long as it is presented in a form that can be readily stored in a permanent form and retrieved and read in the future. This is required by the definition of "writing" in section 2 of the Securities Act 1978. Alternatively, the investment statement can be presented as a pdf file, or other downloadable format, whereby the investor obtains a permanent record.

11. If the investment statement is presented as an online document, we think the website should also include a downloadable version or instructions as to how to save the content of the web page for future reference. In any case, the investment statement should be able to be stored as one complete document. It is not acceptable for the investment statement to be only available as a number of web pages that need to be saved individually.

12. In addition, if an investment statement is to be viewed online, and particularly if the whole document is presented as a single web page, we think that the "Important Information" section required by Schedule 3D to the Regulations should contain hyperlinks to the relevant sections that answer a particular question. This would allow easy access to information that may otherwise appear daunting when presented as one web page.

13. We have seen some websites that have prominent links to the application form from the home page of the website, or from a point prior to the investment statement. This is not acceptable.

14. It is important to ensure that investors do not subscribe for securities unless they have already received the investment statement. One way to minimise this risk is to make visitors to your website go through the pages containing the investment statement before they can access the application form.

15. This is important for you, as the issuer, because any allotment made to a person who did not receive the investment statement is voidable under the Securities Act 1978. In addition, criminal penalties may apply.

16. You should not assume that a "tick box" to be completed by the investor acknowledging that he or she has seen the investment statement will be enough by itself to avoid liability. Neither is it sufficient for an investor to acknowledge that he or she has had an opportunity to view the investment statement. An investment statement must be "received". This means that the investor must have the investment statement in a permanent form that can be viewed in the future. Whether or not this occurs is a question of fact.

17. We are writing to advise you that:
    1. we consider the use of an equivalent bank interest rate to represent the rate of return on a forestry investment to be misleading;

    2. we consider that material on the websites of many forestry investment schemes do not always comply with the law for the reasons stated above ;

    3. in future, we will consider whether:
       1. to ban the advertisements and offer documents if equivalent bank interest rates are used;
       2. to ban the content of the websites if they do not comply with the law; and
       3. to invite the Registrar of Companies to consider whether to take prosecution action.

18. We are releasing a copy of this letter to the media.

Yours faithfully

John Farrell
Chief Executive

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