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DEFECTIVE PROSPECTUSES
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On 21 July 2003 ASIC provided an overview of its actions in relation to
public fundraisings for the 2002/03 financial year. Since July 2002, ASIC
has placed a total of 89 stop orders on defective prospectuses seeking to
raise over $383 million from the public by the issue of securities.

ASIC intends that publication of the various defects identified in
fundraising documents will assist issuers and the advisers who prepare
these documents to adequately discharge their duties.

The most common defect was a failure by companies to clarify how the funds
would be applied in the event that the company failed to raise the amount
originally sought in the raising where it was not underwritten, nor
subject to a minimum subscription condition.

Other common defects related to the adequacy of financial information
disclosed in the fundraising document, and a lack of disclosure in
relation to other material information, usually, the risks associated with
the company's current activities or the proposed venture. Defects relating
to the use of financial forecasts in prospectuses were much lower than in
previous years suggesting that most prospectus issuers are now familiar
with ASIC's policy statement on forecasts (Policy Statement 170:
Prospective financial information).

ASIC considers inadequate financial information to include a failure to
meet the specific disclosure requirements in offer information statements
(see Policy Statement 157: Financial reports for offer information
statements), and the adequacy of details about intangible assets.

Since ASIC last provided an update on its prospectus actions in April this
year, ASIC has issued six final stop orders and revoked a further nine
interim orders on fundraising documents that contained insufficient
information for investors. Three other companies lodged replacement or
supplementary documents, which addressed ASIC's concerns, prior to the
issue of an interim stop order.

Most final stop orders were issued with the consent of the relevant
company, after they made the decision not to proceed with the particular
prospectus, rather than to address the disclosure deficiencies.

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ASIC REGULATION OF PROMISSORY NOTES
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On 14 July 2003 ASIC announced the release of an FAQ to assist issuers of
promissory notes in understanding their obligations under the Corporations
Act. The FAQ provides guidance on the circumstances when promissory notes
are likely to be regulated as financial products.

A promissory note is an unconditional promise by an issuer to pay an
agreed sum of money at a fixed or determinable future time to, or at the
order of, a specified person.

Generally, where an offer involves just a promissory note with a face
value of at least $50,000 and no other special features, it will not be
regulated under the Corporations Act. However, ASIC notes that some
issuers are seeking to rely on the promissory note exemptions under the
Act by offering complex investment arrangements involving promissory notes
to retail investors. In some cases, although an offer involves the issue
of a promissory note, the rate of return and the financial risk to retail
investors varies or is dependent on the performance of certain
investments.

ASIC believes that these arrangements are likely to be financial products
and therefore regulated under the Corporations Act, requiring licensing
and disclosure. In particular ASIC is concerned about complex arrangements
involving promissory notes that:

- are accompanied by other promises about how the money loaned may or will
be repaid;
- may reasonably be considered to express or contain a representation or
agreement that the investment returns will be produced by an underlying
specific investment or the performance of some specific commercial
activity;
- are not liquid, cannot be easily traded and are not designed to raise
short term finance to manage day to day liquidity issues; and
- are directed primarily at the retail clients.

For example, an arrangement is likely to involve the offer of financial
products if investors' money (raised through the offer of promissory
notes) is used to partly fund the purchase and development of property and
investors are led to understand that repayment is dependant on the success
of the development.

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TOWER AUSTRALIA TO REPAY INVESTORS
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On 4 July 2003 the Federal Court of Australia gave judgment and made
orders in proceedings brought by ASIC against Tower Australia Limited
(Tower). Tower consented to the orders and will reimburse investors who
have been underpaid for their investments in Tower's Blue Ribbon Products.

The Court declared that Tower had engaged in misleading and deceptive
conduct since early 1993, by sending:

- annual statements of account to some investors that recorded incorrect
redemption or withdrawal benefits; and
- letters (either attaching a cheque or confirming a direct deposit into a
nominated account) to some investors incorrectly stating that the amount
of the cheque or the deposit represented the sum total of the investors'
redemption or withdrawal benefit.

Tower estimated that the cost of repaying policyholders is about $600,000,
and has made provision in its accounts for that amount.

The Court has ordered Tower to send notices (if it has not already done
so) to affected investors advising them that, as a result of computer
error, they may have received incorrect surrender values and/or withdrawal
amounts.

The Court also noted ASIC's acceptance of an enforceable undertaking on 19
June 2003 from Tower stating that Tower will:

- repay any shortfall (plus interest) to investors who have fully redeemed
their investments;
- correct the entitlements of investors who have partially redeemed their
investments;
- take all reasonable steps to ensure that all redemption advices, and
redemption and withdrawal amounts are correct;
- use its best endeavours to rectify the computer error; and
- not take any action against investors who may have been overpaid.

Tower has also undertaken to conduct an internal review to ensure that
financial products similar to the Blue Ribbon Products are not similarly
affected by computer error.

The orders follow an ASIC investigation into complaints alleging that
surrender values shown in annual statements for the Blue Ribbon Products
were incorrect. Tower has cooperated with ASIC throughout the
investigation, and took steps to address ASIC's concerns.

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USING PAST PERFORMANCE FIGURES IN INVESTMENT ADVERTISEMENTS
===========================================
On 3 July 2003 ASIC released final guidelines on the use of past
performance information in investment advertisements.

Key guidelines include that:

- advertisements using past performance information should include a
five-year return figure (or the longest period available for newer funds);
- information about returns should be balanced with information about
risks;
- all past performance figures are up-to-date; and
- important information should not be buried in fine print.

Other key guidelines include that:

- promoters should not give undue prominence to past performance
information;
- promoters are encouraged to show performance compared to a benchmark or
their peers;
- returns should be calculated after all on-going fees have been deducted;
and 'simulated' past performance figures should only be used in very
limited cases.

Research on the use of past performance information shows that:

- it is used in advertising for many products in the financial services
industry, especially when recent returns look good;
- promoters choose varying methods for showing past performance, resulting
in poor comparability;
- advertisements rarely include information about the risk or volatility
of the promoted investment; and
- academic research commissioned by ASIC indicates past performance is a
weak and unreliable predictor of future performance over the medium to
long term.

Copies of the guidelines are available from the ASIC website

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New Banking Code of Practice released
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The Australian Bankers Association has released its revised Code of Banking Practice, replacing the 1993 version of its charter of customer rights.

Download the Code

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