[Federal Register Volume 63, Number 25 (Friday, February 6, 1998)]
[Rules and Regulations]
[Pages 6370-6390]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-2889]
[[Page 6369]]
_______________________________________________________________________
Part IV
Securities and Exchange Commission
_______________________________________________________________________
17 CFR Parts 228, et al.
Plain English Disclosure; Final Rule
Federal Register / Vol. 63, No. 25 / Friday, February 6, 1998 / Rules
and Regulations
[[Page 6370]]
SECURITIES AND EXCHANGE COMMISSION
17 CFR Parts 228, 229, 230, 239 and 274
[Release Nos. 33-7497; 34-39593; IC-23011; International Series No.
1113; File No. S7-3-97]
RIN 3235-AG88
Plain English Disclosure
AGENCY: Securities and Exchange Commission.
ACTION: Final rules.
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SUMMARY: We are adopting the plain English rule with some changes based
on the comments we received and the lessons we learned from the plain
English pilot participants. The rule requires issuers to write the
cover page, summary, and risk factors section of prospectuses in plain
English. We are changing the existing requirements for these sections
to the extent they conflict with the plain English rule. We are also
giving issuers more specific guidance on how to make the entire
prospectus clear, concise, and understandable. We believe that using
plain English in prospectuses will lead to a better informed securities
market--a market in which investors can more easily understand the
disclosure required by the federal securities laws.
DATES: Effective Date. October 1, 1998.
Compliance Date. October 1, 1998. When we act on the amendments to
the mutual fund disclosure requirements that we proposed in February
1997, we may change the date by which mutual funds must comply with
these amendments.
FOR FURTHER INFORMATION CONTACT: Ann D. Wallace or Carolyn A. Miller at
(202) 942-2980 or David Maltz at (202) 942-1921 in the Division of
Corporation Finance. If your questions involve mutual funds, call
Kathleen K. Clarke at (202) 942-0724 or Markian Melnyk at (202) 942-
0592 in the Division of Investment Management. Direct your questions on
the staff's plain English handbook to Nancy M. Smith at (202) 942-7040.
SUPPLEMENTARY INFORMATION: We are adopting amendments to Rules 421,\1\
461 \2\ and 481 \3\ of Regulation C \4\ and Items 101,\5\ 501,\6\
502,\7\ 503,\8\ and 508 \9\ of Regulations S-K \10\ and S-B.\11\ We are
also adopting minor amendments to Forms S-2,\12\ S-3,\13\ S-4,\14\ S-
20,\15\ F-2,\16\ F-3,\17\ F-4,\18\ and N-2.\19\
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\1\ 17 C.F.R. 230.421.
\2\ 17 C.F.R. 230.461.
\3\ 17 C.F.R. 230.481.
\4\ 17 C.F.R. 230.400 et seq.
\5\ 17 C.F.R. 229.101.
\6\ 17 C.F.R. 229.501.
\7\ 17 C.F.R. 229.502.
\8\ 17 CFR 229.503.
\9\ 17 CFR 229.508.
\10\ 17 CFR 229.10 et seq.
\11\ 17 CFR 228.10 et seq.
\12\ 17 CFR 239.12.
\13\ 17 CFR 239.13.
\14\ 17 CFR 239.25.
\15\ 17 CFR 239.20.
\16\ 17 CFR 239.32.
\17\ 17 CFR 239.33.
\18\ 17 CFR 239.34.
\19\ 17 CFR 239.14.
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Our Office of Investor Education and Assistance will issue, within
the next six weeks, a final version of A Plain English Handbook: How to
Create Clear SEC Disclosure Documents. The handbook will give
techniques and tips on how to create plain English disclosure
documents. We suggest you order a hard copy by calling 800-SEC-0330.
Some of the handbook's graphic elements will not be available on the
web version. A draft version is available now on our Internet site
(http://www.sec.gov).
Table of Contents
I. Executive Summary
II. Lessons From the Plain English Pilot Program
III. Rules on How to Prepare Prospectuses
A. Plain English Rule--Rule 421(d)
B. Clear, Concise, and Understandable Prospectuses--Rule 421(b)
C. Comments on Proposed Amendments to Rule 421(b) and Rule
421(d)
IV. Revisions to Regulations S-K and S-B
A. Item 501--Forepart of Registration Statement and Outside
Front Cover Page of Prospectus
B. Item 502--Inside Front and Outside Back Cover Pages of
Prospectus
C. Item 503--Summary Information, Risk Factors, and Ratio of
Earnings to Fixed Charges
1. Summary Information
2. Risk Factors
3. Ratio of Earnings to Fixed Charges
V. Plain English for Investment Companies
VI. Phase-In of the Plain English Rule and Other Requirements for
Issuers Other Than Investment Companies
VII. Comments on the Plain English Proposals
A. Liability Concerns
B. Staff Plain English Review and Comment Process
C. Requests for Acceleration
VIII. Cost-Benefit Analysis
IX. Final Regulatory Flexibility Analysis
X. Paperwork Reduction Act
XI. Statutory Authority
Text of the Amendments
Appendix A: Charts on Amendments to Small Business Issuer Rules
Appendix B: List of Plain English Pilot Participants
I. Executive Summary
Full and fair disclosure is one of the cornerstones of investor
protection under the federal securities laws. If a prospectus fails to
communicate information clearly, investors do not receive that basic
protection. Yet, prospectuses today often use complex, legalistic
language that is foreign to all but financial or legal experts. The
proliferation of complex transactions and securities magnifies this
problem. A major challenge facing the securities industry and its
regulators is assuring that financial and business information reaches
investors in a form they can read and understand.
In response to this challenge, we undertake today a sweeping
revision of how issuers must disclose information to investors. This
new package of rules will change the face of every prospectus used in
registered public offerings of securities.\20\ Prospectuses will be
simpler, clearer, more useful, and we hope, more widely read.
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\20\ We proposed this package of rules in January 1997. See
Release No. 33-7380 (January 14, 1997), 62 FR 3512 (January 21,
1997).
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First, the new rules require issuers to write and design the cover
page, summary, and risk factors section of their prospectuses in plain
English. Specifically, in these sections, issuers will have to use:
short sentences; definite, concrete, everyday language; active voice;
tabular presentation of complex information; no legal or business
jargon; and no multiple negatives. Issuers will also have to design
these sections to make them inviting to the reader. In response to
comments, the new rules will not require issuers to limit the length of
the summary, limit the number of risk factors, or prioritize risk
factors.
Second, we are giving guidance to issuers on how to comply with the
current rule that requires the entire prospectus to be clear, concise,
and understandable. Our goal is to purge the entire document of
legalese and repetition that blur important information investors need
to know.
Also, our Office of Investor Education and Assistance is finalizing
a handbook with practical tips on how to prepare plain English
documents. This handbook explains how to apply plain English principles
to disclosure documents.
To ensure a smooth transition, the plain English rule and the other
changes adopted today will apply beginning October 1, 1998. We
encourage all
[[Page 6371]]
participants in securities offerings to start following these plain
English principles now when writing their prospectuses. Our staff will
continue its efforts to assist companies in drafting prospectuses in
plain English.
II. Lessons From the Plain English Pilot Program
To test plain English in disclosure documents, the Division of
Corporation Finance started a pilot program in 1996 for public
companies willing to file plain English documents under either the
Securities Act of 1933 \21\ or the Securities Exchange Act of 1934.\22\
More than 75 companies have volunteered to participate in the pilot
program. Many participants have prepared disclosure documents that will
not be subject to the plain English rule, including proxy statements,
footnotes to financial statements,\23\ and management's discussion and
analysis of financial condition and results of operations.\24\
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\21\ 15 U.S.C. 77a et seq.
\22\ 15 U.S.C. 78a et seq.
\23\ See the Forms 10-Q of Pfizer, Inc. (File No. 1-3619) for
fiscal 1997.
\24\ See the 1996 Form 10-K filed by Baltimore Gas and Electric
Company (File No. 1-1910) and the Boddie-Noell Properties, Inc.
registration statement filed December 2, 1997 (File No. 333-39803).
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We have included in Appendix B a list of pilot participants that
filed plain English documents. These pilot participants produced
examples of disclosure that is clear, well-written, and designed to
increase investors' understanding.
Our experience with the pilot participants affirms our belief that
preparing documents in plain English increases investors' understanding
and helps them make informed investment decisions. The package of rules
we are adopting, as well as the handbook, will enable issuers to
improve dramatically the clarity of their disclosure documents.
III. Rules on How To Prepare Prospectuses
A. Plain English Rule--Rule 421(d)
Rule 421(d), the plain English rule, requires you to prepare the
front portion of the prospectus in plain English. You must use plain
English principles in the organization, language, and design of the
front and back cover pages, the summary, and the risk factors section.
Also, when drafting the language in these front parts of the
prospectus, you must comply substantially with six basic principles:
Short sentences;
Definite, concrete, everyday language;
Active voice;
Tabular presentation or bullet lists for complex material,
whenever possible;
No legal jargon or highly technical business terms; and
No multiple negatives.
A number of comment letters noted that our rule dictates how to
write the front of the prospectus. They are correct. We have seen
marked improvement in the clarity of disclosure when pilot participants
have used these widely recognized, basic principles of clear writing.
We believe the benefits to investors support mandating the use of these
writing principles for the front of the prospectus.
In addition, you must design the cover page, summary, and risk
factors section to make them easy to read. You must format the text and
design the document to highlight important information for investors.
The rule permits you to use pictures, charts, graphics, and other
design features to make the prospectus easier to understand.
B. Clear, Concise, and Understandable Prospectuses--Rule 421(b)
Rule 421(b) currently requires that the entire prospectus be clear,
concise, and understandable. This requirement is in addition to the
plain English rule we are adopting, which applies only to the front of
the prospectus.
We are adopting, as proposed, amendments to Rule 421(b). These
amendments provide guidance on how to prepare a prospectus that is
clear, concise, and understandable. The amendments set out four general
writing techniques that you must follow and list four conventions to
avoid when drafting the prospectus. As several comment letters noted,
these amendments codify our earlier interpretive advice.\25\
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\25\ See Securities Act Release No. 6900 (June 17, 1991).
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Amended Rule 421(b) requires you to use the following techniques
when writing the entire prospectus:
Present information in clear, concise sections,
paragraphs, and sentences. Whenever possible, use short explanatory
sentences and bullet lists;
Use descriptive headings and subheadings;
Avoid frequent reliance on glossaries or defined terms as
the primary means of explaining information in the prospectus. Define
terms in a glossary or other section of the document only if the
meaning is unclear from the context. Use a glossary only if it
facilitates understanding of the disclosure; and
Avoid legal and highly technical business terminology.
The new note to Rule 421(b) provides guidance on how to comply with
the rule's general requirements. The note lists the following drafting
conventions to avoid because they make your document harder to read:
Legalistic or overly complex presentations that make the
substance of the disclosure difficult to understand;
Vague boilerplate explanations that are readily subject to
differing interpretations;
Complex information copied directly from legal documents
without any clear and concise explanation of the provision(s); and
Repetitive disclosure that increases the size of the
document, but does not enhance the quality of the information.
C. Comments on Proposed Amendments to Rule 421(b) and Rule 421(d)
Several comment letters stated that we should permit public
companies to use legal and technical business terminology. The letters
noted, for example, that high technology companies must use technical
terms to distinguish their products or services from others in the
industry. We recognize that certain business terms may be necessary to
describe your operations properly. But, you should avoid using
excessive technical jargon that only your competitors or an industry
specialist can understand.
You should write the disclosure in your prospectus for investors.
When you use many highly technical terms, the investor must learn your
dictionary of terms to understand your disclosure. If technical terms
are unavoidable, you should make every effort to explain their meaning
the first time you use them.
Several comment letters noted that some investors, particularly
institutional investors, want to read the specific terms of contracts
or the securities offered. For example, an investor may want to read
the specific language of a loan agreement's financial covenants or an
indenture's default provisions.
Our current rule permits you to summarize an exhibit's key
provisions in your prospectus.\26\ Moreover, we require you to file
material contracts and any instruments that define the rights of
security holders. We believe this approach generally serves the needs
of all investors in the market. If you cannot adequately summarize the
language from an exhibit in the prospectus, then you should include
that language. However, you must
[[Page 6372]]
present it clearly and explain what it means to investors.
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\26\ Rule 421(c), 17 CFR 230.421(c).
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IV. Revisions to Regulations S-K and S-B
We are adopting these revisions largely as we proposed them.
However, based on the comment letters and our belief that communicating
clearly should be the focus of disclosure to investors, we are not
adopting any requirements that would require you to:
Limit the length of the summary;
Limit the number of risk factors; or
Prioritize risk factors.
A. Item 501--Forepart of Registration Statement and Outside Front Cover
Page of Prospectus \27\
As proposed, we are eliminating the formal design requirements for
the prospectus cover page. We are, however, requiring you to limit the
front cover of the prospectus to one page. We believe these revisions
will allow you to design and write a cover page that will focus
investors on key information about the offering and encourage them to
read the important information in the prospectus. Also, we intend for
these amendments to give you the flexibility you need to design a cover
page tailored to your company and the offering.
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\27\ Item 501 of Regulation S-K, 17 CFR 229.501, and Item 501 of
Regulation S-B, 17 CFR 228.501.
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Under the revised disclosure item, you are free to use pictures,
graphs, charts, and other designs that accurately depict your company,
business products, and financial condition. The staff will object to
design features and font types that make the disclosure hard to read or
understand.
We are amending the formalized requirements on how you present the
mandatory legends on the cover page. We are not placing any
restrictions on how you present these legends, except:
You must make the legends prominent; and
You must make the print type easy to read.
Using all capitalized letters for the legends does not give them
proper prominence. Rather, it makes them hard to read. A well-designed
cover page that does not crowd the legends with other text can give
them the prominence they need.
We have amended Item 501 to give you two plain English examples of
the legend that states the Commission has not approved the
offering.\28\ The item also gives you a plain English example of the
legend that states the prospectus is not yet complete, commonly called
the ``red herring'' legend.
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\28\ The North American Securities Administrators Association,
Inc.'s Disclosure Reform Task Force recommended that the suggested
legend include a reference to the state securities commissions. We
have changed the legend to reflect this suggestion.
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We are revising the requirements on information that you must
always include on the prospectus cover page. Our goal is to have the
cover page focus on key information about the offering. You should
avoid moving information to the cover page unnecessarily.
We had proposed to eliminate the requirement that the cover page
include a cross-reference to the risk factors section in the
prospectus. In response to comment letters emphasizing the importance
of this information, we are keeping this requirement. The cover page
must reference the risk factors section and state the page number on
which the risk factors begin.
The following table shows the current requirements for the
prospectus cover page and the changes we are adopting.
Regulation S-K--Item 501
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Current Final
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Cover page of registration Same.
statement.
Company name.................. Same.
Title, amount, and description Same.
of securities offered.
Selling security holders Same.
offering.
Cross-reference to risk Same, except cross-
factors. reference must include page
number. No print type
specified.
Formatted distribution table Delete distribution
showing price, underwriting table. Use bullet list or
commission, and proceeds of offering. other design that highlights
the information.
Show bona fide estimate of Same.
range of maximum offering price and
number of securities.
If price not set, show how Same.
price will be determined.
Formatted best efforts Delete distribution
disclosure and distribution table. table. Use bullet list or
other design that highlights
the information.
Commission legend............. Retain in plain
English. Include reference to
state securities commissions.
No print type specified.
State-required legends........ Same.
Underwriters' over-allotment Identify existence of
option, expenses of offering, the option and the number of
commissions paid by others, and other shares. Move all other
non-cash consideration and finders' information to the plan of
fees. distribution section.
No requirement to identify Identify market for
market for securities, trading symbol, securities, trading symbol,
underwriters, or type of underwriting underwriters, and type of
arrangements. underwriting arrangements.
Date of prospectus............ Same.
Prospectus ``Subject to Retain in plain
Completion'' legend. English.
No page limit................. Must limit cover to
one page.
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In our proposing release, we asked whether we should require
specific information on the prospectus cover page for certain types of
offerings, such as mergers, exchange offers, or limited partnership
offerings. Several comment letters suggested that the plain English
rule and the revised disclosure requirements should replace our earlier
interpretive advice on cover page disclosure for limited partnership
offerings.\29\
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\29\ See Securities Act Release No. 6900 for our interpretive
advice on limited partnership offerings.
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We believe that the plain English rule and the revised disclosure
requirements are consistent with our earlier advice on limited
partnership offering prospectuses and similar offerings, with one
significant exception. Under our advice, the cover page must list the
offering's key risks, resulting in repetitious disclosure of those
risks. However, we believe the unique nature of these offerings and the
risks they present to investors warrant requiring the issuer to
highlight these risks on the cover page. Of course, the cover page,
summary, and risk factors section must otherwise comply with the plain
English rule and the revised disclosure requirements we are adopting.
We are not adopting special requirements for any other type of
offering. We have had a number of merger prospectuses in the pilot
program that provide excellent guidance on how to apply plain English
to these offerings.
B. Item 502--Inside Front and Outside Back Cover Pages of Prospectus
\30\
We are amending the requirements for the inside front cover page
and outside back cover page of the prospectus to limit significantly
the information you are required to include on these pages. We believe
this will give you further freedom to arrange the information in the
prospectus from investors' viewpoints. The table at the end of this
section shows the current requirements for these pages and the changes
we are adopting.\31\
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\30\ Item 502 of Regulation S-K, 17 CFR 229.502, and Item 502 of
Regulation S-B, 17 CFR 228.502.
\31\ We are also amending Forms S-2, S-3, S-4, F-2, F-3, and F-
4. Along with the list of reports incorporated by reference, you
will include information on (1) how investors may obtain a copy of
these reports, and (2) how they may obtain copies of the other
reports you file with the SEC.
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Although we prefer that the required table of contents immediately
follow the cover page, we believe you should continue to have the
flexibility to include it on either the inside front or outside back
cover page of the prospectus. However, if you deliver a prospectus to
investors electronically, you must include the table of contents
immediately after the cover page. This placement will benefit investors
because they will not have to scroll to the end of the prospectus to
see how it is organized.
Although some comment letters recommended that we eliminate the
requirement to disclose the dealer's prospectus delivery obligations,
we have decided to retain this disclosure on the outside back cover
page. We believe this disclosure is helpful to dealers in meeting their
legal obligation to deliver the prospectus.
Regulation S-K--Item 502
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Current Final
------------------------------------------------------------------------
Availability of Exchange Act Move to description of
reports generally. business section or, for short-
form registration statements,
to the incorporation by
reference disclosure.
Identify market for securities Move to cover page.
Availability of annual reports Move to description of
to shareholders with financial business section.
statements for foreign issuers and
others not subject to proxy rules.
Availability of Exchange Act Move to incorporation
reports incorporated by reference in by reference disclosure.
short-form registration statements.
Stabilization legend.......... Move to plan of
distribution section.
Passive market making Delete. Disclosure
activities legend. retained in plan of
distribution section.
Dealer prospectus delivery.... Retain on outside back
cover page.
Enforceability of civil Move to description of
liability provisions of federal business section.
securities laws against foreign
persons.
Table of contents............. Same. If prospectus
delivered electronically, must
immediately follow cover page.
------------------------------------------------------------------------
C. Item 503--Summary Information, Risk Factors, and Ratio of Earnings
to Fixed Charges \32\
1. Summary Information
If you include a summary, it must be brief and in plain English.
Further, if you include a summary description of the company's business
operations or financial condition, you must write this information in
plain English even if you do not caption it a ``summary.''
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\32\ Item 503 of Regulation S-K, 17 CFR 229.503, and Item 503 of
Regulation S-B, 17 CFR 228.503.
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Although we have not limited the length of the summary, we believe
this section should highlight the most important features of the
offering. For example, the summary should not include a lengthy
description of the company's business and business strategy. This
detailed information is better suited to the disclosure in the body of
the prospectus.
Several comment letters suggested that we require a summary
section. We decided against this because a summary may not be helpful
in all prospectuses. For example, you may not need to summarize the
prospectus in a short-form registration statement.
Several comment letters suggested that we specify the information
that must be in a summary. Because we believe you need flexibility to
write a summary that is appropriate to your offering, we are not
adopting specific disclosure items for the summary. However, because
the financial statements are an important part of the disclosures made
by public companies, we believe you should continue to highlight
financial information in the summary. You should present this financial
information in a manner that allows investors to understand it easily.
2. Risk Factors
If you include a risk factors section in your prospectus, you must
write the risk factors in plain English and avoid ``boilerplate'' risk
factors. We believe a discussion of risk in purely generic terms does
not tell investors how the risk may affect their investment in a
specific company. You should place any risk factor in context so
investors can understand the specific risk as it applies to your
company and its operations.
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3. Ratio of Earnings to Fixed Charges
When you offer debt or preferred equity, you must disclose a ratio
of earnings to fixed charges. Where you include a prospectus summary,
amended Item 503 requires you to show the ratio of earnings to fixed
charges as part of the summarized financial data.
V. Plain English for Investment Companies
The plain English rule applies to prospectuses of investment
companies and will complement our disclosure initiatives for these
companies.\33\ Also, the amendments we are adopting to Rule 481 require
these companies to write and design the front parts of their
prospectuses in plain English.
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\33\ See the amendments to Rule 481 under Regulation C, 17 CFR
230.481.
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As part of our commitment to improve mutual fund disclosure, in
February 1997, we proposed significant changes to the disclosure
requirements for mutual fund prospectuses and new summary disclosure
documents called ``profiles.'' \34\ These proposals would require a
standardized risk/return summary in mutual fund prospectuses and
profiles. The risk/return summary would include a concise narrative
discussion of fund risks and a bar chart showing a fund's annual
returns for the past ten years. We expect to consider these and other
changes to mutual fund prospectuses shortly. The plain English rule
will apply to the cover page and the risk/return summary in
prospectuses and the new fund profiles.\35\
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\34\ The proposed amendments to Form N-1A are included in
Investment Company Act Release No. 22528 (February 27, 1997) and the
proposed profile rule is in Investment Company Act Release No. 22529
(February 27, 1997).
\35\ We are also adopting amendments to Rule 481 to require
plain English legends in fund prospectuses.
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Investment companies must comply with the plain English rule and
the revised disclosure requirements for new registration statements
filed on or after October 1, 1998. When we act on the changes to the
mutual fund disclosure requirements, we may change the compliance date
for mutual funds so they may comply with these new requirements with
one filing.\36\
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\36\ The Commission proposed to allow mutual funds a transition
period of six months after the effective date of the proposed rules
before they would need to comply with the new prospectus disclosure
requirements. See Investment Company Act Release Nos. 22528 and
22529 (February 27, 1997).
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VI. Phase-In of the Plain English Rule and Other Requirements for
Issuers Other Than Investment Companies
To ease the transition to plain English and to avoid delaying your
access to the capital markets, we will phase in the plain English rule
and the other changes as follows:
If you first file a registration statement on or after
October 1, 1998, you must comply with the new requirements.\37\ If you
file a registration statement before October 1, 1998, but it is not yet
effective on that date, you do not have to amend it to comply with the
new requirements before it is effective.
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\37\ If you file a registration statement under Rule 462(b), you
must comply with new requirements only if they applied to the
earlier offering.
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On or after October 1, 1998, any supplement you file to a
prospectus in an effective registration statement that relies on Rule
415(a)(1)(x) must comply with the new requirements.
If you file a post-effective amendment on or after October
1, 1998, either to include the company's latest audited financial
statements in the registration statement or to update the prospectus
under Section 10(a)(3),\38\ you must comply with the new requirements.
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\38\ 15 U.S.C. 77j(a)(3).
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If you elect to comply immediately with any of the plain English
requirements, we believe you should comply with all of them to make the
document more readable. For example, you should not have a plain
English cover page and a legalistic summary or risk factors section.
During the phase-in period, we will hold workshops to help issuers,
underwriters, and their counsel comply with the plain English rule.
Until October 1, 1998, the staff will continue the plain English pilot
program, but because of limited resources and because we expect high
demand by issuers to participate in the pilot, the staff will no longer
offer expedited review. We encourage issuers to participate in the
pilot program with both Securities Act and Exchange Act documents.
VII. Comments on the Plain English Proposals
We received 45 comment letters on the plain English proposals.\39\
Generally, the comment letters favored requiring plain English for the
front of prospectuses--the cover page, summary, and risk factors
section. The American Society of Corporate Secretaries and the American
Corporate Counsel Association, as well as several public companies,
supported the plain English requirements. They believe that requiring
plain English will focus all parties involved in the offering process--
issuers, underwriters, trustees, and counsel--on clear and readable
disclosure. Investor groups, such as the American Association of
Retired Persons and the Consumer Federation of America, supported
adopting the plain English rule to ensure that investors receive clear
information.
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\39\ You may read and copy the comment letters and the staff's
summary of these letters in our Public Reference Room at 450 Fifth
Street, NW., Washington, DC 20549. Ask for File No. S7-3-97.
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Other comment letters raised the following general concerns about
the plain English rule:
Will the plain English rule increase a registrant's
liability?
How will the staff review and comment on plain English
filings?
Will the Commission deny acceleration of a filing if it
does not comply with the plain English rule?
We address these concerns in the following three sections.
A. Liability Concerns
Several comment letters, including those of the American Bar
Association and the Securities Industry Association, recommended a
voluntary rather than a mandatory approach to improving the readability
of prospectuses. These comment letters argued against mandating plain
English primarily because of liability concerns.
These comment letters expressed concern that issuers may omit
material information in the course of simplifying the language. The
comment letters urged us to adopt a safe harbor rule from legal
liability to cover the sections of the prospectus that must be in plain
English.
Other letters from groups representing public companies and the
mutual fund industry stated they believe plain English will not
increase their liability. They stated that plain English disclosure
should reduce potential liability because it decreases the likelihood
that an investor will misunderstand the prospectus.\40\
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\40\ For example, see the Investment Company Institute's comment
letter, dated March 24, 1997.
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Using plain English does not mean omitting important information.
These rules only require you to disclose information in words investors
can understand and in a format that invites them to read the document.
For these reasons, we do not believe that a safe harbor rule is
necessary or appropriate. We also believe it is inappropriate for you
to include language that attempts to create a safe harbor for these
sections.
The letters raising liability concerns also questioned whether it
is possible to summarize in plain English complex matters covered in
the body of the document. We believe the courts will continue to view
the summary section,
[[Page 6375]]
as its caption indicates, as a highlight of important information in
the prospectus. A summary, by its very nature, cannot disclose
everything. In determining whether a company has made full disclosure,
courts should look at the disclosure in the entire document.
Moreover, a company's failure to include everything in the summary
should not trigger automatically the application of the ``buried
facts'' doctrine. Under the buried facts doctrine, a court would
consider disclosure to be false and misleading only if its overall
significance is obscured because material information is ``buried,''
for example, in footnotes or appendices.\41\
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\41\ See Gould v. American Hawaiian Steamship Company, 331 F.
Supp. 981 (D. Del. 1971); Kohn v. American Metal Climax, Inc., 322
F. Supp. 1331 (E.D. Pa. 1970), modified, 458 F.2d 255 (3d Cir.
1972).
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The package of rules we are adopting should lead to clearer
documents that are easier for investors to understand. We believe that
compliance with these requirements will not increase the risk of
litigation.
B. Staff Plain English Review and Comment Process
Several comment letters questioned whether the staff's time would
be well spent giving comments on grammar. The letters also stated that
the staff's past comments have caused many immaterial disclosures and
much of the repetition in current prospectuses.
Our staff will focus on whether you disclose material information
and whether that disclosure is clear and readable. The staff will not
correct grammatical mistakes.
We recognize that a document can still be clear despite the
occasional long sentence or use of passive voice. But we have learned
from the plain English pilot program that a document becomes clearer
and easier to read when its writer uses plain English.
The staff will issue their comments in plain English and avoid
requesting repetitive information in the document. If the staff selects
your registration statement for a legal and accounting review, the same
people who review your document will issue any plain English comments.
Because the format and design of your document play a large part in
its readability, we will request paper copies of the plain English
sections that you plan to deliver to investors. We are working to
upgrade our Electronic Data Gathering Analysis and Retrieval system,
EDGAR, to permit the filing of an exact duplicate of the paper copy
sent to investors but this may not occur for some time.
C. Requests for Acceleration
Rule 461 currently requires the Commission staff, when presented
with a request for acceleration, to consider the accuracy and adequacy
of the prospectus that you circulated.\42\ The rule also requires the
staff to consider whether you have made a bona fide effort to make the
prospectus reasonably concise and understandable. We are amending Rule
461 to require the staff to consider also whether you have made a bona
fide effort to satisfy the plain English rule in drafting the front
part of the prospectus. Because compliance with the plain English rule
will facilitate investors' understanding of the prospectus information,
we believe it is important that the preliminary prospectus that you
circulate to investors complies with the plain English rule.
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\42\ See Rule 461 of Regulation C, 17 CFR 230.461.
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Comment letters expressed concern that the amendment to Rule 461
could frequently delay the effective date of registration statements.
We believe that these concerns are unfounded. The procedures for
addressing deficiencies and for granting or denying acceleration
requests have worked very well for many years. We believe the continued
use of these procedures will work in implementing the plain English
rule. If we select your registration statement for review, the staff
will give you comments on how to comply with the plain English rule as
well as other requirements. You will have the same opportunity you have
now to work with the staff to resolve all comments on your document,
consistent with your financing schedule.
VIII. Cost-Benefit Analysis
The plain English rule and amendments should improve communications
between public companies and investors and promote investor protection.
Specifically, we anticipate, and many public comment letters concur,
that adopting the plain English rule will:
Allow investors to make better-informed assessments of the
risk and rewards of investment opportunities;
Reduce the likelihood that investors make investment
mistakes because of incomprehensible disclosure documents;
Reduce investors' costs of investing by lowering the time
required to read and understand information;
Increase consumers' interest in investing by giving them
greater confidence in their understanding of investments;
Reduce the number of costly legal disputes because
investors are more likely to better understand disclosure documents;
and
Lower offering costs because investors will ask issuers
fewer questions about the offering.
Several comment letters suggested that writing documents in plain
English would impose substantial costs on public companies.\43\ While
there may be some additional costs initially, we expect them to be
modest and to diminish over time as firms learn to prepare documents
using plain English principles. After a short phase-in period, public
companies should incur little, if any, additional cost from this rule
or these amendments. In some instances, we anticipate that companies
will save on printing and mailing costs because plain English tends to
reduce document length. Some firms may also save time answering
investors' questions. We believe the substantial benefits to investors
and the public markets more than justify the phase-in costs.
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\43\ PSA The Bond Market Trade Association, in their comment
letter dated March 24, 1997, for example, estimated that costs
``could increase by up to 50 percent.''
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We base these conclusions, in part, on companies' experiences in
the plain English pilot program. To help assess the benefits and costs,
we asked nine randomly selected plain English pilot participants, one
of which prepared an initial public offering prospectus, about their
experiences preparing plain English documents. Six of the nine
participants responded, including the initial public offering issuer.
All of the participants agreed that investors benefit from clearer,
more readable, less redundant disclosure. Specifically, several
predicted that investor misunderstandings and mistakes would decline.
They did not generally believe, however, that writing their disclosures
in plain English would reduce their liability for disclosures. The
consensus was that investors file lawsuits on the basis of disclosure
materiality, not brevity or wording. Several participants found,
however, that they spent less time answering investors' questions when
they wrote their documents in plain English.\44\
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\44\ For example, one participant indicated that they spent 12
percent less time answering investors' questions, while another
spent 20 percent less time.
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In terms of the costs of writing documents in plain English, all of
the responding participants spent more time writing their documents in
plain English than they otherwise would have
[[Page 6376]]
if they used conventional language.\45\ Pilot participants found that
legal and technical writing costs rose for plain English filings by
approximately 15 percent.\46\ Because legal and technical writing
comprises approximately 48 percent of the total burden hours necessary
to complete a registration statement (with accounting comprising the
other 52 percent),\47\ we estimate that total burden hours will rise by
approximately seven percent in the first year.
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\45\ Four of the six participants spent 10 percent longer; the
initial public offering issuer spent 15 percent longer; and one
participant took ``significantly longer.'' For the participant that
took significantly longer, we received two estimates--one from the
company of 75 percent longer and one from the firm's legal counsel
of 200 percent longer.
\46\ This estimate is based on responses to a survey of nine
plain English pilot program participants and on a summary of the
results of an informal survey of pilot participants conducted by the
American Society of Corporate Secretaries. See Public Comment letter
dated March 24, 1997.
\47\ The Division of Corporation Finance collected Item 511 of
Regulation S-K expense information from approximately 1500
registration statements filed between January 1 and December 31,
1995. Assuming legal costs averaged $150/hour and accounting costs
averaged $75/hour, the survey indicates that approximately 48
percent of burden hours are for legal and technical writing, while
52 percent are accounting-related. Because the rule and amendments
apply predominately to legal and technical writing, we apply the
increased burden to those hours.
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The table below shows the current and estimated burden hours per
filing, the estimated change in burden hours per filing, and the number
of forms filed in 1997 by form type.\48\ The information in the table
indicates that we estimate public companies will require on average 60
additional hours per filing to comply with the plain English
requirements in the first year. At $120 per hour,\49\ this translates
to an added cost in the first year of approximately $7,200 per
filing.\50\ Based on pilot program participants' experiences,\51\ we
expect the number of hours and cost to fall in the following year to
the current level as firms gain experience with the plain English
principles. We anticipate the cost to repeat filers to fall even
sooner.
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\48\ We do not anticipate that the plain English requirements
will change the burden hours or cost for preparing Form N-2.
Consequently, we do not include Form N-2 in the table.
\49\ We anticipate that some firms will comply, in part, with
the plain English requirements using in-house counsel, which will
lower hourly costs.
\50\ In 1997, registrants filed 7,531 filings. At $7,200 per
filing, the total increase in cost would be approximately $54
million.
\51\ Four of the six participants believed that once they
developed plain English formats, it would take them less time to
write a document in plain English than in the conventional language.
One participant predicted that writing documents in plain English
would require no additional time after the initial effort. The other
participant did not comment directly.
----------------------------------------------------------------------------------------------------------------
Change in
Estimated Estimated Change in estimated
burden hours/ burden hours/ estimated Filings/year burden hours
Form filing before filing after burden hours/ \52\ by filing type
plain English plain English filing after plain
rule rule English rule
----------------------------------------------------------------------------------------------------------------
S-1............................. 1,267 1,358 91 1,067 97,097
S-2............................. 470 504 34 145 4,930
S-3............................. 398 427 29 3,137 90,973
S-4............................. 1,233 1,322 89 2,044 181,916
F-1/S-20........................ 1,868 2,002 134 162 21,708
F-2............................. 559 599 40 3 120
F-3............................. 166 178 12 220 2,640
F-4............................. 1,308 1,402 94 243 22,842
S-11............................ 147 158 11 68 748
SB-1............................ 710 761 51 8 408
SB-2............................ 876 939 63 434 27,342
-------------------------------
Total..................... .............. .............. .............. 7,531 450,724
----------------------------------------------------------------------------------------------------------------
\52\ These estimates are based on the number of such filings made in calendar year 1997.
We believe the estimate of seven-percent higher cost in the first
year is somewhat overstated because it is based on the experiences of
pilot participants who did not have models to follow. The time required
for future registrants to comply with the requirements should be lower.
To help reduce compliance time, the staff is including a list of
filings by pilot participants and the information issuers need to
locate those filings. The staff is also issuing a handbook on how to
prepare plain English documents and will hold workshops to help public
companies, their counsel, and underwriters comply with the rules. We
also anticipate that public companies' legal counsel, who will gain
experience from all their clients' transactions, will help to speed the
transition to plain English. Finally, some firms filed multiple
registration statements in 1997 and we applied the same burden hour
increase to all filings. We believe that required compliance time for
firms' later filings should be lower than earlier filings as companies
gain experience writing in plain English.
These results are consistent with those found by the American
Society of Corporate Secretaries, which surveyed the 57 member
companies represented on its Securities Law Committee. The twelve
members who had prepared at least one plain English document predicted
no ``material change in annual burden reporting or hours.'' \53\
Similarly, Baltimore Gas and Electric Company incurred no additional
cost once the company learned the process.\54\
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\53\ See American Society of Corporate Secretaries Public
Comment letter dated March 24, 1997.
\54\ See Baltimore Gas and Electric Company Public Comment
letter dated March 26, 1997.
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[[Page 6377]]
One benefit generally found by pilot program participants was that
document length was shortened on average by 11 percent.\55\ Given that
the average length of an S-1 prospectus is approximately 116 pages,
this decline would result in a 13-page reduction. For an S-3
prospectus, whose average length is 52 pages, the decline would save 6
pages. And the length of an S-4 prospectus, which averages 219 pages,
would fall by 24 pages.\56\ Where plain English shortened documents,
several responding participants estimated lower printing and
distribution costs. Even if costs dropped by only five percent, firms
would save approximately $3,160 per filing. In aggregate, firms would
save approximately $24 million per year--savings that could continue
for as long as firms comply with the plain English requirements.\57\
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\55\ One of the six participants indicated that writing in plain
English shortened their document by 5 percent; one by 10 to 15
percent; one by 15 percent; and one by 35 percent. Interestingly,
the pilot participant who spent 75 percent more time on its plain
English prospectus shortened its prospectus the largest amount--35
percent. One found no appreciable difference, and one estimated that
plain English increased document length by one percent.
\56\ The staff randomly selected prospectuses filed in 1997 to
estimate document length.
\57\ The Division of Corporation Finance collected Item 511 of
Regulation S-K expense information from approximately 1500
registration statements filed between January 1 and December 31,
1995. Printing expenses averaged $63,200 per filing. Assuming five-
percent cost savings, public companies would save $3,160 per filing
or a total of about $24 million in printing and mailing costs on
7,531 filings per year.
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In summary, while all of the participants that answered our
questions incurred some additional document preparation costs, the
majority estimated them to be low and predicted that they would fall
over time. The participants anticipated little added, and perhaps even
lower, overall cost. Some even predicted they might save money on
printing and distribution costs and time answering investors'
questions. Based on the experiences of pilot program participants, we
believe that the substantial benefits to investors of plain English and
the on-going cost savings to issuers justify the short-term cost to
public companies of learning to prepare documents in plain English.
IX. Final Regulatory Flexibility Analysis
The staff has prepared this Final Regulatory Flexibility Analysis
in accordance with Section 603 of the Regulatory Flexibility Act (5
U.S.C. 603). This analysis relates to revisions of Rules 421, 461, and
481 of Regulation C and Items 101, 501, 502, 503, and 508 of
Regulations S-K and S-B to implement the Commission's plain English
initiative. The Commission is also adopting minor amendments to Forms
S-2, S-3, S-4, S-20, F-2, F-3, and F-4 under the Securities Act and
Form N-2 under the Investment Company Act.
Need for and Objectives of Plain English Rules
In August 1995, Chairman Arthur Levitt organized the Task Force on
Disclosure Simplification to find ways to simplify the disclosure
process and increase the effectiveness and efficiency of capital
formation where consistent with investor protection. In its final
report to the Commission, the Task Force suggested that the Commission
require public companies to write certain parts of prospectuses in
plain English.\58\ The Commission responded in January 1997 by
proposing a rule and several amendments that required public companies
to write the front of prospectuses using plain English principles.\59\
The amendments revised current rules and forms to eliminate certain
language requirements in the front of prospectuses and relocate highly
technical language within the prospectus. The Commission proposed these
rules to enhance the clarity and conciseness of prospectuses.
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\58\ See Report of the Task Force on Disclosure Simplification
(March 1996).
\59\ Securities Act Release No. 33-7380.
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The Commission received 45 comment letters from 43 entities in
response to the proposing release.\60\ The commentators generally
expressed strong support for the plain English proposals, although
several expressed concerns with specific provisions and some suggested
alternative approaches for addressing particular issues. The Commission
is adopting the plain English proposals with minor modifications that
clarify provisions and reflect the suggestions of some comment letters
and the plain English pilot program participants. These rules will make
prospectuses simpler, clearer, more useful, and, we hope, more widely
read.
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\60\ A summary of comments is available, along with the comment
letters, in Public File No. S7-3-97. The file is available for
inspection and copying in the Commission's Public Reference Room,
450 Fifth Street N.W., Washington, D.C. 20549.
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The amendments will be adopted pursuant to Sections 6, 7, 8, 10,
and 19(a) of the Securities Act, Sections 12, 13, 15(d), 16(a), and
23(a) of the Exchange Act, and Sections 8, 24, 30, 31, and 38 of the
Investment Company Act of 1940.
Small Entities Subject to the Rules
For the purposes of the Regulatory Flexibility Act, the term
``small business,'' as used in reference to a public company other than
an investment company, is defined by Rule 157 under the Securities Act
as an issuer whose total assets on the last day of its most recent
fiscal year were $5 million or less and is engaged or proposing to
engage in small business financing.\61\ An issuer is considered to be
engaged in small business financing if it is conducting or proposes to
conduct an offering of securities that does not exceed $5 million. The
Securities Exchange Act defines a ``small business'' issuer, other than
an investment company, to be an issuer that, on the last day of its
most recent fiscal year, had total assets of $5 million or less. When
used with respect to an issuer that is an investment company, the term
is defined as an investment company with net assets of $50 million or
less as of the end of its most recent fiscal year.\62\
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\61\ 17 CFR 230.157.
\62\ 17 CFR 240.0-10.
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The Commission estimates that approximately 1,100 of approximately
12,700 Exchange Act reporting companies and 800 investment companies of
approximately 3,700 active registered investment companies currently
satisfy the definition of ``small business,'' all of which will be
subject to the plain English requirements. We have no reliable way,
however, to determine how many businesses may become subject to
Commission reporting obligations in the future, or may otherwise be
impacted by the plain English requirements.
Significant Issues Raised by Public Comment
The Commission received no requests for the Initial Regulatory
Flexibility Analysis and received no comments specifically in response
to its request for information about the impact of the rule and
amendments on small businesses. Nine comment letters, however,
discussed the costs and benefits to public companies in general. Six
believed that costs would generally be low and temporary as firms learn
to write in plain English. Three believed that the costs would be more
significant. These costs are discussed in greater detail in the next
subsection. The Commission's efforts to minimize the compliance costs
to all reporting companies, both large and small, are discussed in the
final subsection of this Final Regulatory Flexibility Analysis.
[[Page 6378]]
Projected Reporting, Recordkeeping, and Other Compliance Requirements
The plain English rules and amendments do not affect the substance
of the disclosures that public companies must make. They do not impose
any new recordkeeping requirements or require reporting of additional
information. We anticipate, however, that there will be a temporary
increase in cost that will diminish over time as firms learn to prepare
documents using plain English principles. Thus, after a short phase-in
period, public companies should incur little, if any, additional cost
from this rule or these amendments. In some instances, we anticipate
that companies will save on printing and mailing costs because plain
English tends to reduce document length. Some firms may also save time
answering investors' questions.
We base these conclusions, in part, on companies' experiences in
the plain English pilot program. We solicited information about firms'
experiences by questioning a group of pilot participants. Based on
their responses, discussed in detail in Section VIII, we anticipate a
temporary increase in cost that will diminish over time as firms learn
to prepare documents using plain English principles. While none of the
pilot participants specifically qualified as a ``small business,'' the
company that wrote its initial public offering prospectus in plain
English had a favorable experience.
In addition, we requested information about the impact of the plain
English requirements on small businesses in the proposing release.
While no one commented specifically on the burden to small firms,
several letters indicated that the additional cost of writing in plain
English would be low and would diminish after the initial effort of
learning to write in plain English. Some commentators even predicted
savings. This evidence contrasts, however, with three letters
expressing concern that writing in plain English would increase
document preparation costs and lengthen documents. While we considered
these concerns, experience from the pilot program suggests that phase-
in costs will be low and that documents will be shorter and easier to
read and understand.
Agency Action To Minimize Effect on Small Businesses
The Regulatory Flexibility Act directs the Commission to consider
significant alternatives that would accomplish the stated objectives,
while minimizing any significant adverse impact on small issuers. In
connection with the plain English rules and amendments, we considered
several alternatives, including (a) establishing different compliance
and reporting requirements for small businesses; and (b) using
performance rather than design standards, and (c) exempting small
businesses from all or part of the requirements. We do not believe,
however, that these alternatives are appropriate. First, these
alternatives would be inconsistent with our statutory mandate to
require prospectuses to disclose fully and fairly all material
information to investors. Second, these alternatives would
significantly dilute or negate the important benefits of plain English
disclosure to investors. For these reasons, we also believe there would
be no benefit in providing separate requirements for small issuers
based on the use of performance rather than design standards.
We have tried before, through interpretive advice and other means,
to address the problems with current prospectus disclosure, which too
often includes arcane, needlessly complex, and incomprehensible
language. These earlier measures have not resulted in widespread
improvement in prospectus readability. Therefore, we believe the plain
English requirements are necessary to improve communication between
public companies and investors, particularly given the relatively low
compliance burden. In addition, we believe the rules and amendments
should apply equally to all entities required to disclose information
under the Securities Act to enhance protection of all investors.
The plain English principles are generally broad statements that
provide registrants flexibility in how to disclose information. Thus,
there are a variety of ways in which registrants, including small
businesses, can use the principles and guidance in making their
disclosures. Modifications of the plain English proposals by the
Commission will reduce the short-term cost to small issuers. Based on
suggestions in several comment letters, the Commission is not adopting
limitations on the length of summaries, limitations on the number of
risk factors or the requirement that companies prioritize risk factors.
To provide compliance assistance to both small and large issuers, the
release includes a list of filings by pilot participants and the
information issuers need to locate those filings. The staff is also
issuing a handbook on how to prepare plain English documents and will
hold workshops to help small and large issuers, their counsels,
underwriters, and others comply with the rules. Finally, the Commission
is minimizing the impact by delaying the effective date of the rules
until October 1, 1998.
X. Paperwork Reduction Act
The plain English rule and amendments affect several regulations
and forms that contain ``collection of information requirements''
within the meaning of the Paperwork Reduction Act of 1995.\63\ In the
proposing release, the Commission stated its belief that the plain
English rule and amendments would not result in a substantive or
material change to the affected collections of information.
Nevertheless, the Commission solicited comment on whether the rule and
amendments would materially affect the burden on public companies and
mutual funds that prepare prospectuses. Because several comment letters
indicated that the burden would increase, at least in the short term,
the Commission has determined to submit the rule and amendments to the
Office of Management and Budget for review in accordance with 44 U.S.C.
3507(d). The Commission is amending Rules 421, 461, and 481 of
Regulation C and Items 101, 501, 502, 503, and 508 of Regulations S-K
and S-B. The Commission is also adopting minor amendments to Forms S-2,
S-3, S-4, S-20, F-2, F-3, and F-4 under the Securities Act and Form N-2
under the Investment Company Act as a part of the plain English
initiative.\64\
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\63\ 44 U.S.C. 3501 et seq.
\64\ Regulations S-K, S-B, and C do not impose reporting burdens
directly on public companies. For administrative convenience, each
of these regulations is currently assigned one burden hour. The
burden hours imposed by the disclosure regulations are currently
included in the estimates for the forms that refer to the
regulations.
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The rule and amendments require public companies to write
information included in the front of prospectuses the cover page,
summary, and risk factors section--in everyday language that investors
can understand. The changes also codify existing Commission
interpretive advice and eliminate requirements no longer deemed useful.
The requirements do not affect the substance of the disclosures that
registrants must make. They do not impose any new recordkeeping
requirements or require reporting of additional information.
As discussed in detail in Section VII, we anticipate that there
will be a temporary increase in burden that will diminish over time as
firms learn to prepare documents using plain English principles. As
indicated in the Cost/Benefit Analysis table, we estimate that
[[Page 6379]]
public companies will require on average 60 additional burden hours per
filing or 450,724 hours in total to comply with the plain English
requirements in the first year. We then expect burden hours to fall to
their current level. Thus, after a short phase-in period, public
companies should incur little, if any, additional cost from this rule
or these amendments. In some instances, we anticipate that companies
will save on printing and mailing costs because plain English tends to
reduce document length. Some firms may also save time answering
investors' questions. The added burden will be reflected in the
estimated burden hours for Regulation C.\65\
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\65\ Regulations S-K and S-B will continue to show an estimated
burden hour of one.
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The information collection requirements imposed by the forms and
regulations are mandatory to the extent that a company elects to do a
registered offering. The information is made publicly available. An
agency may not conduct or sponsor, and a person is not required to
respond to, a collection of information unless it displays a currently
valid OMB control number.
In accordance with 44 U.S.C. 3506(c)(2)(B), the Commission solicits
comment on the following:
Whether the changes in the collection of information are
necessary for the proper performance of the function of the agency;
The accuracy of the Commission's estimate of the burden of
the changes to the collection of information;
The quality, utility, and clarity of the information to be
collected; and
Whether there are ways to minimize the burden of the
collection of information on those who are to respond, including
through the use of automated collection techniques or other forms of
information technology.
Anyone desiring to submit comments on the collection of information
requirements should direct them to the Office of Management and Budget,
Attention: Desk Officer for the Securities and Exchange Commission,
Office of Information and Regulatory Affairs, Washington, D.C. 20503,
and should also send a copy of their comments to Jonathan G. Katz,
Secretary, Securities and Exchange Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, with reference to File No. S7-3-97. The Office
of Management and Budget is required to make a decision concerning the
collection of information between 30 and 60 days after publication, so
a comment to OMB is best assured of having its full effect if OMB
receives it within 30 days of publication.
XI. Statutory Authority
The rule amendments are proposed under Sections 6, 7, 8, 10 and
19(a) of the Securities Act, Sections 12, 13, 15(d), 16(a) and 23(a) of
the Exchange Act, and Sections 8, 24, 30, 31 and 38 of the Investment
Company Act of 1940.
List of Subjects in 17 CFR Parts 228, 229, 230, 239, and 274
Investment companies, Reporting and recordkeeping requirements,
Securities, and Investment Companies.
Text of the Amendments
For the reasons discussed in the preamble, the Securities and
Exchange Commission amends Title 17, Chapter 11 of the Code of Federal
Regulations as follows:
PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS
1. The authority citation for part 228 continues to read as
follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 77sss,
78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 80a-8, 80a-29, 80a-30, 80a-37,
80b-11, unless otherwise noted.
2. By amending Sec. 228.101 to add paragraphs (c) and (d) to read
as follows:
Sec. 228.101 (Item 101) Description of Business.
* * * * *
(c) Reports to security holders. Disclose the following in any
registration statement you file under the Securities Act of 1933:
(1) If you are not required to deliver an annual report to security
holders, whether you will voluntarily send an annual report and whether
the report will include audited financial statements;
(2) Whether you file reports with the Securities and Exchange
Commission. If you are a reporting company, identify the reports and
other information you file with the SEC; and
(3) That the public may read and copy any materials you file with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. State that the public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-
SEC-0330. If you are an electronic filer, state that the SEC maintains
an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file
electronically with the SEC and state the address of that site (http://
www.sec.gov). You are encouraged to give your Internet address, if
available;
(d) Canadian Issuers. Provide the information required by Items
101(f)(2) and 101(g) of Regulation S-K (Sec. 229.101(f)(2) and (g)).
3. Section 228.501 is revised to read as follows:
Sec. 228.501 (Item 501) Front of registration statement and front
cover of prospectus.
The small business issuer must furnish the following information in
plain English. See Sec. 230.421(d) of Regulation C of this chapter.
(a) Limit the outside front cover page of the prospectus to one
page and include the following information:
(1) The registrant's name. A foreign registrant also must give the
English translation of its name;
(2) The title, amount, and description of securities offered. If
the underwriter has any arrangement with the issuer, such as an over-
allotment option, under which the underwriter may purchase additional
shares in connection with the offering, indicate that this arrangement
exists and state the amount of additional shares that the underwriter
may purchase under the arrangement;
(3) If there are selling security holders, a statement to that
effect;
(4) Whether any national securities exchange or the Nasdaq Stock
Market lists the securities offered, naming the particular market(s),
and identifying the trading symbol(s) for those securities;
(5) A cross-reference to the risk factors section, including the
page number where it appears in the prospectus. Highlight this cross-
reference by prominent type or in another manner;
(6) Any legend or statement required by the law of any state in
which the securities are offered;
(7) A legend that indicates that neither the Securities and
Exchange Commission nor any state securities commission has approved or
disapproved of the securities or passed on the adequacy or accuracy of
the disclosures in the prospectus. Also make clear that any
representation to the contrary is a criminal offense. You may use one
of the following or other clear, plain language:
Example A: Neither the Securities and Exchange Commission nor
any state securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of the
prospectus. Any representation to the contrary is a criminal
offense.
Example B: Neither the Securities and Exchange Commission nor
any state securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or complete.
[[Page 6380]]
Any representation to the contrary is a criminal offense.
(8) If you are not a reporting company and the preliminary
prospectus will be circulated, as applicable:
(i) A bona fide estimate of the range of the maximum offering price
and maximum number of shares or units offered; or
(ii) A bona fide estimate of the principal amount of debt
securities offered;
(9)(i) Name(s) of the lead or managing underwriter(s) and an
identification of the nature of the underwriting arrangements;
(ii) If the offering is not made on a firm commitment basis, a
brief description of the underwriting arrangements;
(iii) If you offer the securities on a best efforts or best efforts
minimum/maximum basis, the date the offering will end, any minimum
purchase requirements, and whether or not there are any arrangements to
place the funds in an escrow, trust, or similar account; and
(iv) If you offer the securities for cash, the price to the public
for the securities, the underwriting discounts and commissions, and
proceeds to the registrant or other persons. Show the information on
both a per share or unit basis and for the total amount of the
offering. If you make the offering on a minimum/maximum basis, show
this information based on the total minimum and total maximum amount of
the offering. You may present the information in a table, term sheet
format, or other clear presentation. You may present the information in
any format that fits the design of the cover page so long as the
information can be easily read and is not misleading;
(10) If the prospectus will be used before the effective date of
the registration statement, a prominent statement that:
(i) The information in the prospectus will be amended or completed;
(ii) A registration statement relating to these securities has been
filed with the Securities and Exchange Commission;
(iii) The securities may not be sold until the registration
statement becomes effective; and
(iv) The prospectus is not an offer to sell the securities and it
is not soliciting an offer to buy the securities in any state where
offers or sales are not permitted. You may use the following or other
clear, plain language:
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
(11) If you use Sec. 230.430A of this chapter to omit pricing
information and the prospectus is used before you determine the public
offering price, the information in paragraph (a)(10) of this section;
and
(12) The date of the prospectus.
(b) [Reserved]
4. Section 228.502 is revised to read as follows:
Sec. 228.502 (Item 502) Inside Front and Outside Back Cover Pages of
Prospectus.
The small business issuer must furnish the following information in
plain English. See Sec. 230.421(d) of Regulation C of this chapter.
(a) Table of contents. On either the inside front or outside back
cover page of the prospectus, provide a reasonably detailed table of
contents. It must show the page number of the various sections or
subdivisions of the prospectus. Include a specific listing of the risk
factors section required by Item 503 of this Regulation S-B (17 CFR
228.503). You must include the table of contents immediately following
the cover page in any prospectus you deliver electronically;
(b) Dealer prospectus delivery obligation. If applicable to your
offering, on the outside back cover page of the prospectus, advise
dealers of their prospectus delivery obligation, including the
expiration date specified by Section 4(3) of the Securities Act (15
U.S.C. 77d(3)) and Sec. 230.174 of this chapter. You may use the
following or other clear, plain language:
Dealer Prospectus Delivery Obligation
Until (insert date), all dealers that effect transactions in
these securities, whether or not participating in this offering, may
be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
5. By revising Sec. 228.503 to read as follows:
Sec. 228.503 (Item 503) Summary Information and Risk Factors.
The small business issuer must furnish the following information in
plain English. See Sec. 230.421(d) of Regulation C of this chapter.
(a) Summary. Provide a summary of the information in the prospectus
where the length or complexity of the prospectus makes a summary
useful. The summary should be brief. The summary should not contain,
and is not required to contain, all of the detailed information in the
prospectus. If you provide summary business or financial information,
even if you do not caption it as a summary, you still must provide that
information in plain English.
Instruction to paragraph 503(a)
The summary should not merely repeat the text of the prospectus
but should provide a brief overview of the key aspects of the
offering. Carefully consider and identify those aspects of the
offering that are the most significant and determine how best to
highlight those points in clear, plain language.
(b) Address and phone number. Include, either on the cover page or
in the summary section of the prospectus, the complete mailing address
and telephone number of your principal executive offices.
(c) Risk factors. (1) Discuss in a section captioned ``Risk
Factors'' any factors that make the offering speculative or risky. The
factors may include, among other things, the following:
(i) Your lack of an operating history;
(ii) Your lack of recent profits from operations;
(iii) Your poor financial position;
(iv) Your business or proposed business; or
(v) The lack of a market for your common equity securities.
(2) The risk factor discussion must immediately follow the summary
section. If you do not include a summary section, the risk factor
discussion must immediately follow the cover page or the pricing
information that immediately follows the cover page. Pricing
information means price and price-related information that you may omit
from the prospectus in an effective registration statement based on
Sec. 230.430A(a) of this chapter.
6. Section 228.508 is amended to revise the heading of paragraph
(a), add two sentences to the end of paragraph (a) and revise paragraph
(j) to read as follows:
Sec. 228.508 (Item 508) Plan of Distribution.
(a) Underwriters and underwriting obligations.* * * The small
business issuer must disclose the offering expenses specified in Item
511 of this Regulation S-B (17 CFR 228.511). If there is an arrangement
under which the underwriter may purchase additional shares in
connection with the offering, such as an over-allotment option,
describe that arrangement and disclose information on the total
offering price, underwriting discounts and commissions, and total
proceeds assuming the underwriter purchases all
[[Page 6381]]
of the shares subject to that arrangement.
* * * * *
(j) Stabilization and other transactions. (1) Briefly describe any
transaction that the underwriter intends to conduct during the offering
that stabilizes, maintains, or otherwise affects the market price of
the offered securities. Include information on stabilizing
transactions, syndicate short covering transactions, penalty bids, or
any other transaction that affects the offered security's price.
Describe the nature of the transactions clearly and explain how the
transactions affect the offered security's price. Identify the exchange
or other market on which these transactions may occur. If true,
disclose that the underwriter may discontinue these transactions at any
time;
(2) If the stabilizing began before the effective date of the
registration statement, disclose the amount of securities bought, the
prices at which they were bought, and the period within which they were
bought. If you use Sec. 230.430A of this chapter, the final prospectus
must contain information on the stabilizing transactions that took
place before the public offering price was set; and
(3) If you are making a warrant or rights offering of securities to
existing security holders and the securities not purchased by existing
security holders are to be reoffered to the public, disclose the
following information in the reoffer prospectus:
(i) The amount of securities bought in stabilization activities
during the offering period and the price or range of prices at which
the securities were bought;
(ii) The amount of the offered securities subscribed for during the
offering period;
(iii) The amount of the offered securities purchased by the
underwriter during the offering period;
(iv) The amount of the offered securities sold by the underwriter
during the offering period and the price or range of prices at which
the securities were sold; and
(v) The amount of the offered securities that will be reoffered to
the public and the offering price.
PART 229--STANDARD INSTRUCTIONS FOR FILING FORMS UNDER SECURITIES
ACT OF 1933, SECURITIES EXCHANGE ACT OF 1934 AND ENERGY POLICY AND
CONSERVATION ACT OF 1975--REGULATION S-K
7. The general authority citation for part 229 continues to read as
follows:
Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn,
77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll(d), 79e,
79n, 79t, 80a-8, 80a-29, 80a-30, 80a-37, 80b-11, unless otherwise
noted.
* * * * *
8. By amending Sec. 229.101 to add paragraphs (e), (f), and (g)
before ``Instructions to Item 101'' to read as follows:
Sec. 229.101 (Item 101) Description of business.
* * * * *
(e) Available information. Disclose the following in any
registration statement you file under the Securities Act of 1933:
(1) Whether you file reports with the Securities and Exchange
Commission. If you are reporting company, identify the reports and
other information you file with the SEC.
(2) That the public may read and copy any materials you file with
the SEC at the SEC's Public Reference Room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. State that the public may obtain information on
the operation of the Public Reference Room by calling the SEC at 1-800-
SEC-0330. If you are an electronic filer, state that the SEC maintains
an Internet site that contains reports, proxy and information
statements, and other information regarding issuers that file
electronically with the SEC and state the address of that site (http://
www.sec.gov). You are encouraged to give your Internet address, if
available;
(f) Reports to security holders. Disclose the following information
in any registration statement you file under the Securities Act:
(1) If the SEC's proxy rules or regulations, or stock exchange
requirements, do not require you to send an annual report to security
holders or to holders of American depository receipts, describe briefly
the nature and frequency of reports that you will give to security
holders. Specify whether the reports that you give will contain
financial information that has been examined and reported on, with an
opinion expressed ``by'' an independent public or certified public
accountant.
(2) For a foreign private issuer, if the report will not contain
financial information prepared in accordance with U.S. generally
accepted accounting principles, you must state whether the report will
include a reconciliation of this information with U.S. generally
accepted accounting principles.
(g) Enforceability of civil liabilities against foreign persons.
Disclose the following if you are a foreign private issuer filing a
registration statement under the Securities Act:
(1) Whether or not investors may bring actions under the civil
liability provisions of the U.S. federal securities laws against the
foreign private issuer, any of its officers and directors who are
residents of a foreign country, any underwriters or experts named in
the registration statement that are residents of a foreign country, and
whether investors may enforce these civil liability provisions when the
assets of the issuer or these other persons are located outside of the
United States. The disclosure must address the following matters:
(i) The investor's ability to effect service of process within the
United States on the foreign private issuer or any person;
(ii) The investor's ability to enforce judgments obtained in U.S.
courts against foreign persons based upon the civil liability
provisions of the U.S. federal securities laws;
(iii) The investor's ability to enforce, in an appropriate foreign
court, judgments of U.S. courts based upon the civil liability
provisions of the U.S. federal securities laws; and
(iv) The investor's ability to bring an original action in an
appropriate foreign court to enforce liabilities against the foreign
private issuer or any person based upon the U.S. federal securities
laws.
(2) If you provide this disclosure based on an opinion of counsel,
name counsel in the prospectus and file as an exhibit to the
registration statement a signed consent of counsel to the use of its
name and opinion.
* * * * *
9. By revising Sec. 229.501 to read as follows:
Sec. 229.501 (Item 501) Forepart of Registration Statement and Outside
Front Cover Page of Prospectus.
The registrant must furnish the following information in plain
English. See Sec. 230.421(d) of Regulation C of this chapter.
(a) Front cover page of the registration statement. Where
appropriate, include the delaying amendment legend from
[[Page 6382]]
Sec. 230.473 of Regulation C of this chapter.
(b) Outside front cover page of the prospectus. Limit the outside
cover page to one page. If the following information applies to your
offering, disclose it on the outside cover page of the prospectus.
(1) Name. The registrant's name. A foreign registrant must give the
English translation of its name.
Instruction to paragraph 501(b)(1).
If your name is the same as that of a company that is well
known, include information to eliminate any possible confusion with
the other company. If your name indicates a line of business in
which you are not engaged or you are engaged only to a limited
extent, include information to eliminate any misleading inference as
to your business. In some circumstances, disclosure may not be
sufficient and you may be required to change your name. You will not
be required to change your name if you are an established company,
the character of your business has changed, and the investing public
is generally aware of the change and the character of your current
business.
(2) Title and amount of securities. The title and amount of
securities offered. Separately state the amount of securities offered
by selling security holders, if any. If the underwriter has any
arrangement with the issuer, such as an over-allotment option, under
which the underwriter may purchase additional shares in connection with
the offering, indicate that this arrangement exists and state the
amount of additional shares that the underwriter may purchase under the
arrangement. Give a brief description of the securities except where
the information is clear from the title of the security. For example,
you are not required to describe common stock that has full voting,
dividend and liquidation rights usually associated with common stock.
(3) Offering price of the securities. Where you offer securities
for cash, the price to the public of the securities, the underwriter's
discounts and commissions, the net proceeds you receive, and any
selling shareholder's net proceeds. Show this information on both a per
share or unit basis and for the total amount of the offering. If you
make the offering on a minimum/maximum basis, show this information
based on the total minimum and total maximum amount of the offering.
You may present the information in a table, term sheet format, or other
clear presentation. You may present the information in any format that
fits the design of the cover page so long as the information can be
easily read and is not misleading:
Instructions to paragraph 501(b)(3)
1. If a preliminary prospectus is circulated and you are not
subject to the reporting requirements of Section 13(a) or 15(d) of
the Exchange Act, provide, as applicable:
(A) A bona fide estimate of the range of the maximum offering
price and the maximum number of securities offered; or
(B) A bona fide estimate of the principal amount of the debt
securities offered.
2. If it is impracticable to state the price to the public,
explain the method by which the price is to be determined. If the
securities are to be offered at the market price, or if the offering
price is to be determined by a formula related to the market price,
indicate the market and market price of the securities as of the
latest practicable date.
3. If you file a registration statement on Form S-8, you are not
required to comply with this paragraph (b)(3).
(4) Market for the securities. Whether any national securities
exchange or the Nasdaq Stock Market lists the securities offered,
naming the particular market(s), and identifying the trading symbol(s)
for those securities;
(5) Risk factors. A cross-reference to the risk factors section,
including the page number where it appears in the prospectus. Highlight
this cross-reference by prominent type or in another manner;
(6) State legend. Any legend or statement required by the law of
any state in which the securities are to be offered. You may combine
this with any legend required by the SEC, if appropriate;
(7) Commission legend. A legend that indicates that neither the
Securities and Exchange Commission nor any state securities commission
has approved or disapproved of the securities or passed upon the
accuracy or adequacy of the disclosures in the prospectus and that any
contrary representation is a criminal offense. You may use one of the
following or other clear, plain language:
Example A: Neither the Securities and Exchange Commission nor
any state securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
Example B: Neither the Securities and Exchange Commission nor
any state securities commission has approved or disapproved of these
securities or determined if this prospectus is truthful or complete.
Any representation to the contrary is a criminal offense.
(8) Underwriting. (i) Name(s) of the lead or managing
underwriter(s) and an identification of the nature of the underwriting
arrangements;
(ii) If the offering is not made on a firm commitment basis, a
brief description of the underwriting arrangements. You may use any
clear, concise, and accurate description of the underwriting
arrangements. You may use the following descriptions of underwriting
arrangements where appropriate:
Example A: Best efforts offering. The underwriters are not
required to sell any specific number or dollar amount of securities
but will use their best efforts to sell the securities offered.
Example B: Best efforts, minimum-maximum offering. The
underwriters must sell the minimum number of securities offered
(insert number) if any are sold. The underwriters are required to
use only their best efforts to sell the maximum number of securities
offered (insert number).
(iii) If you offer the securities on a best efforts or best efforts
minimum/maximum basis, the date the offering will end, any minimum
purchase requirements, and any arrangements to place the funds in an
escrow, trust, or similar account. If you have not made any of these
arrangements, state this fact and describe the effect on investors;
(9) Date of prospectus. The date of the prospectus;
(10) Prospectus ``Subject to Completion'' legend. If you use the
prospectus before the effective date of the registration statement, a
prominent statement that:
(i) The information in the prospectus will be amended or completed;
(ii) A registration statement relating to these securities has been
filed with the Securities and Exchange Commission;
(iii) The securities may not be sold until the registration
statement becomes effective; and
(iv) The prospectus is not an offer to sell the securities and it
is not soliciting an offer to buy the securities in any state where
offers or sales are not permitted. The legend may be in the following
or other clear, plain language:
The information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. This prospectus is not an offer to sell these securities
and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
(11) If you use Sec. 230.430A of this chapter to omit pricing
information and the prospectus is used before you determine the public
offering price, the information and legend in paragraph (b)(10) of this
section.
10. By revising Sec. 229.502 to read as follows:
[[Page 6383]]
Sec. 229.502 (Item 502) Inside Front and Outside Back Cover Pages of
Prospectus.
The registrant must furnish this information in plain English. See
Sec. 230.421(d) of Regulation C of this chapter.
(a) Table of contents. On either the inside front or outside back
cover page of the prospectus, provide a reasonably detailed table of
contents. It must show the page number of the various sections or
subdivisions of the prospectus. Include a specific listing of the risk
factors section required by Item 503 of this Regulation S-K (17 CFR
229.503). You must include the table of contents immediately following
the cover page in any prospectus you deliver electronically.
(b) Dealer prospectus delivery obligation. On the outside back
cover page of the prospectus, advise dealers of their prospectus
delivery obligation, including the expiration date specified by Section
4(3) of the Securities Act (15 U.S.C. 77d(3)) and Sec. 230.174 of this
chapter. If you do not know the expiration date on the effective date
of the registration statement, include the expiration date in the copy
of the prospectus you file under Sec. 230.424(b) of this chapter. You
do not have to include this information if dealers are not required to
deliver a prospectus under Sec. 230.174 of this chapter or Section
24(d) of the Investment Company Act (15 U.S.C. 80a-24). You may use the
following or other clear, plain language:
Dealer Prospectus Delivery Obligation
Until (insert date), all dealers that effect transactions in
these securities, whether or not participating in this offering, may
be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
11. By revising Sec. 229.503 to read as follows:
Sec. 229.503 (Item 503) Prospectus Summary, Risk Factors, and Ratio of
Earnings to Fixed Charges.
The registrant must furnish this information in plain English. See
Sec. 230.421(d) of Regulation C of this chapter.
(a) Prospectus summary. Provide a summary of the information in the
prospectus where the length or complexity of the prospectus makes a
summary useful. The summary should be brief. The summary should not
contain, and is not required to contain, all of the detailed
information in the prospectus. If you provide summary business or
financial information, even if you do not caption it as a summary, you
still must provide that information in plain English.
Instruction to paragraph 503(a).
The summary should not merely repeat the text of the prospectus
but should provide a brief overview of the key aspects of the
offering. Carefully consider and identify those aspects of the
offering that are the most significant and determine how best to
highlight those points in clear, plain language.
(b) Address and telephone number. Include, either on the cover page
or in the summary section of the prospectus, the complete mailing
address and telephone number of your principal executive offices.
(c) Risk factors. Where appropriate, provide under the caption
``Risk Factors'' a discussion of the most significant factors that make
the offering speculative or risky. This discussion must be concise and
organized logically. Do not present risks that could apply to any
issuer or any offering. Explain how the risk affects the issuer or the
securities being offered. Set forth each risk factor under a subcaption
that adequately describes the risk. The risk factor discussion must
immediately follow the summary section. If you do not include a summary
section, the risk factor section must immediately follow the cover page
of the prospectus or the pricing information section that immediately
follows the cover page. Pricing information means price and price-
related information that you may omit from the prospectus in an
effective registration statement based on Sec. 230.430A(a) of this
chapter. The risk factors may include, among other things, the
following:
(1) Your lack of an operating history;
(2) Your lack of profitable operations in recent periods;
(3) Your financial position;
(4) Your business or proposed business; or
(5) The lack of a market for your common equity securities or
securities convertible into or exercisable for common equity
securities.
(d) Ratio of earnings to fixed charges. If you register debt
securities, show a ratio of earnings to fixed charges. If you register
preference equity securities, show the ratio of combined fixed charges
and preference dividends to earnings. Present the ratio for each of the
last five fiscal years and the latest interim period for which
financial statements are presented in the document. If you will use the
proceeds from the sale of debt or preference securities to repay any of
your outstanding debt or to retire other securities and the change in
the ratio would be ten percent or greater, you must include a ratio
showing the application of the proceeds, commonly referred to as the
pro forma ratio.
Instructions to paragraph 503(d)
1. Definitions. In calculating the ratio of earnings to fixed
charges, you must use the following definitions:
(A) Fixed charges. The term ``fixed charges'' means the sum of
the following: (a) interest expensed and capitalized, (b) amortized
premiums, discounts and capitalized expenses related to
indebtedness, (c) an estimate of the interest within rental expense,
and (d) preference security dividend requirements of consolidated
subsidiaries.
(B) Preference security dividend. The term ``preference security
dividend'' is the amount of pre-tax earnings that is required to pay
the dividends on outstanding preference securities. The dividend
requirement must be computed as the amount of the dividend divided
by (1 minus the effective income tax rate applicable to continuing
operations).
(C) Earnings. The term ``earnings'' is the amount resulting from
adding and subtracting the following items. Add the following: (a)
Pre-tax income from continuing operations before adjustment for
minority interests in consolidated subsidiaries or income or loss
from equity investees, (b) fixed charges, (c) amortization of
capitalized interest, (d) distributed income of equity investees,
and (e) your share of pre-tax losses of equity investees for which
charges arising from guarantees are included in fixed charges. From
the total of the added items, subtract the following: (a) interest
capitalized, (b) preference security dividend requirements of
consolidated subsidiaries, and (c) the minority interest in pre-tax
income of subsidiaries that have not incurred fixed charges. Equity
investees are investments that you account for using the equity
method of accounting. Public utilities following SFAS 71 should not
add amortization of capitalized interest in determining earnings,
nor reduce fixed charges by any allowance for funds used during
construction.
2. Disclosure. Disclose the following information when showing
the ratio of earnings to fixed charges:
(A) Deficiency. If a ratio indicates less than one-to-one
coverage, disclose the dollar amount of the deficiency.
(B) Pro forma ratio. You may show the pro forma ratio only for
the most recent fiscal year and the latest interim period. Use the
net change in interest or dividends from the refinancing to
calculate the pro forma ratio.
(C) Foreign private issuers. A foreign private issuer must show
the ratio based on the figures in the primary financial statement. A
foreign private issuer must show the ratio based on the figures
resulting from the reconciliation to U.S. generally accepted
accounting principles if this ratio is materially different.
(D) Summary Section. If you provide a summary or similar section
in the prospectus, show the ratios in that section.
3. Exhibit. File an exhibit to the registration statement to
show the figures used to
[[Page 6384]]
calculate the ratios. See paragraph (b)(12) of Item 601 of
Regulation S-K (17 CFR 229.601(b)(12)).
12. By amending Sec. 229.508 by revising paragraphs (e) and (l) to
read as follows:
Sec. 229.508 (Item 508) Plan of distribution.
* * * * *
(e) Underwriter's compensation. Provide a table that sets out the
nature of the compensation and the amount of discounts and commissions
to be paid to the underwriter for each security and in total. The table
must show the separate amounts to be paid by the company and the
selling shareholders. In addition, include in the table all other items
considered by the National Association of Securities Dealers to be
underwriting compensation for purposes of that Association's Rules of
Fair Practice.
Instructions to paragraph 508(e)
1. The term ``commissions'' is defined in paragraph (17) of
Schedule A of the Securities Act. Show separately in the table the
cash commissions paid by the registrant and selling security
holders. Also show in the table commissions paid by other persons.
Disclose any finder's fee or similar payments in the table.
2. Disclose the offering expenses specified in Item 511 of
Regulation S-K (17 CFR 229.511).
3. If the underwriter has any arrangement with the issuer, such
as an over-allotment option, under which the underwriter may
purchase additional shares in connection with the offering, indicate
that this arrangement exists and state the amount of additional
shares that the underwriter may purchase under the arrangement.
Where the underwriter has such an arrangement, present maximum-
minimum information in a separate column to the table, based on the
purchase of all or none of the shares subject to the arrangement.
Describe the key terms of the arrangement in the narrative.
* * * * *
(l) Stabilization and other transactions. (1) Briefly describe any
transaction that the underwriter intends to conduct during the offering
that stabilizes, maintains, or otherwise affects the market price of
the offered securities. Include information on stabilizing
transactions, syndicate short covering transactions, penalty bids, or
any other transaction that affects the offered security's price.
Describe the nature of the transactions clearly and explain how the
transactions affect the offered security's price. Identify the exchange
or other market on which these transactions may occur. If true,
disclose that the underwriter may discontinue these transactions at any
time;
(2) If the stabilizing began before the effective date of the
registration statement, disclose the amount of securities bought, the
prices at which they were bought and the period within which they were
bought. If you use Sec. 230.430A of this chapter, the prospectus you
file under Sec. 230.424(b) of this chapter or include in a post-
effective amendment must contain information on the stabilizing
transactions that took place before the determination of the public
offering price; and
(3) If you are making a warrants or rights offering of securities
to existing security holders and any securities not purchased by
existing security holders are to be reoffered to the public, disclose
in a supplement to the prospectus or in the prospectus used in
connection with the reoffering:
(i) The amount of securities bought in stabilization activities
during the offering period and the price or range of prices at which
the securities were bought;
(ii) The amount of the offered securities subscribed for during the
offering period;
(iii) The amount of the offered securities subscribed for by the
underwriter during the offering period;
(iv) The amount of the offered securities sold during the offering
period by the underwriter and the price or price ranges at which the
securities were sold; and
(v) The amount of the offered securities that will be reoffered to
the public and the public offering price.
PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933
13. The general authority citation for part 230 is revised to read
as follows:
Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c,
78d, 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-24, 80a-29,
80a-30, and 80a-37, unless otherwise noted.
* * * * *
14. By amending Sec. 230.421 by revising paragraph (b) and adding
paragraph (d) to read as follows:
Sec. 230.421 Presentation of information in prospectuses.
* * * * *
(b) You must present the information in a prospectus in a clear,
concise and understandable manner. You must prepare the prospectus
using the following standards:
(1) Present information in clear, concise sections, paragraphs, and
sentences. Whenever possible, use short, explanatory sentences and
bullet lists;
(2) Use descriptive headings and subheadings;
(3) Avoid frequent reliance on glossaries or defined terms as the
primary means of explaining information in the prospectus. Define terms
in a glossary or other section of the document only if the meaning is
unclear from the context. Use a glossary only if it facilitates
understanding of the disclosure; and
(4) Avoid legal and highly technical business terminology.
Note to Sec. 230.421(b):
In drafting the disclosure to comply with this section, you
should avoid the following:
1. Legalistic or overly complex presentations that make the
substance of the disclosure difficult to understand;
2. Vague ``boilerplate'' explanations that are imprecise and
readily subject to different interpretations;
3. Complex information copied directly from legal documents
without any clear and concise explanation of the provision(s); and
4. Disclosure repeated in different sections of the document
that increases the size of the document but does not enhance the
quality of the information.
* * * * *
(d)(1) To enhance the readability of the prospectus, you must use
plain English principles in the organization, language, and design of
the front and back cover pages, the summary, and the risk factors
section.
(2) You must draft the language in these sections so that at a
minimum it substantially complies with each of the following plain
English writing principles:
(i) Short sentences;
(ii) Definite, concrete, everyday words;
(iii) Active voice;
(iv) Tabular presentation or bullet lists for complex material,
whenever possible;
(v) No legal jargon or highly technical business terms; and
(vi) No multiple negatives.
(3) In designing these sections or other sections of the
prospectus, you may include pictures, logos, charts, graphs, or other
design elements so long as the design is not misleading and the
required information is clear. You are encouraged to use tables,
schedules, charts and graphic illustrations of the results of
operations, balance sheet, or other financial data that present the
data in an understandable manner. Any presentation must be consistent
with the financial statements and non-financial information in the
prospectus. You must draw the graphs and charts to scale. Any
information you provide must not be misleading.
Instruction to Sec. 230.421
You should read Securities Act Release No. 33-7497 (January 28,
1998) for information on plain English principles.
[[Page 6385]]
15. By revising paragraph (b)(1) of Sec. 230.461 to read as
follows.
Sec. 230.461 Acceleration of effective date.
* * * * *
(b) * * *
(1) Where there has not been a bona fide effort to make the
prospectus reasonably concise, readable, and in compliance with the
plain English requirements of Rule 421(d) of Regulation C (17 CFR
230.421(d)) in order to facilitate an understanding of the information
in the prospectus.
* * * * *
16. Revise Sec. 230.481 to read as follows:
Sec. 230.481 Information required in prospectuses.
Disclose the following in registration statements prepared on a
form available solely to investment companies registered under the
Investment Company Act of 1940 or in registration statements filed
under the Act for a company that has elected to be regulated as a
business development company under Sections 55 through 65 of the
Investment Company Act (15 U.S.C. 80a-54--80a-64):
(a) Facing page. Indicate the approximate date of the proposed sale
of the securities to the public.
(b) Outside front cover page. If applicable, include the following
in plain English as required by Sec. 230.421(d):
(1) Commission legend. Provide a legend that indicates that the
Securities and Exchange Commission has not approved or disapproved of
the securities or passed upon the accuracy or adequacy of the
disclosure in the prospectus and that any contrary representation is a
criminal offense. The legend may be in one of the following or other
clear and concise language:
Example A: The Securities and Exchange Commission has not
approved or disapproved these securities or passed upon the adequacy
of this prospectus. Any representation to the contrary is a criminal
offense.
Example B: The Securities and Exchange Commission has not
approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the
contrary is a criminal offense.
(2) ``Subject to Completion'' legend.
(i) If a prospectus or Statement of Additional Information will be
used before the effective date of the registration statement, include
on the outside front cover page of the prospectus or Statement of
Additional Information, a prominent statement that:
(A) The information in the prospectus or Statement of Additional
Information will be amended or completed;
(B) A registration statement relating to these securities has been
filed with the Securities and Exchange Commission;
(C) The securities may not be sold until the registration statement
becomes effective; and
(D) In a prospectus, that the prospectus is not an offer to sell
the securities and it is not soliciting an offer to buy the securities
in any state where offers or sales are not permitted, or in a Statement
of Additional Information, that the Statement of Additional Information
is not a prospectus.
(ii) The legend may be in the following language or other clear and
understandable language:
The information in this prospectus (or Statement of Additional
Information) is not complete and may be changed. We may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus (or
Statement of Additional Information) is not an offer to sell these
securities and is not soliciting an offer to buy these securities in
any state where the offer or sale is not permitted.
(iii) In the case of a prospectus that omits pricing information
under Sec. 230.430A, provide the information and legend in paragraph
(b)(2) of this section if the prospectus or Statement of Additional
Information is used before the initial public offering price is
determined.
(c) Table of contents. Include on either the outside front, inside
front, or outside back cover page of the prospectus, a reasonably
detailed table of contents. It must show the page number of the various
sections or subdivisions of the prospectus. Include this table of
contents immediately following the cover page in any prospectus
delivered electronically.
(d) Stabilization and Other Transactions. (1) Indicate on the front
cover page of the prospectus if the underwriter has any arrangement
with the issuer, such as an over-allotment option, under which the
underwriter may purchase additional shares in connection with the
offering, and state the amount of additional shares the underwriter may
purchase under the arrangement. Provide disclosure in the prospectus
that briefly describes any transaction that the underwriter intends to
conduct during the offering that stabilizes, maintains, or otherwise
affects the market price of the offered securities. Include information
on stabilizing transactions, syndicate short covering transactions,
penalty bids, or any other transactions that affect the offered
security's price. Describe the nature of the transactions clearly and
explain how the transactions affect the offered security's price.
Identify the exchange or other market on which these transactions may
occur. If true, disclose that the underwriter may discontinue these
transactions at any time;
(2) If the stabilizing began before the effective date of the
registration statement, disclose in the prospectus the amount of
securities bought, the prices at which they were bought and the period
within which they were bought. In the event that Sec. 230.430A of this
chapter is used, the prospectus filed under Sec. 230.497(h) or included
in a post-effective amendment must contain information on the
stabilizing transactions that took place before the determination of
the public offering price shown in the prospectus; and
(3) If you are making a warrant or rights offering of securities to
existing security holders and the securities not purchased by existing
security holders are to be reoffered to the public, disclose in the
prospectus used in connection with the reoffering:
(i) The amount of securities bought in stabilization activities
during the offering period and the price or range of prices at which
the securities were bought;
(ii) The amount of the offered securities subscribed for during the
offering period;
(iii) The amount of the offered securities subscribed for by the
underwriters during the offering period;
(iv) The amount of the offered securities sold during the offering
period by the underwriters and the price or range of prices at which
the securities were sold; and
(v) The amount of the offered securities to be reoffered to the
public and the public offering price.
(e) Dealer prospectus delivery obligations. On the outside back
cover page of the prospectus, advise dealers of their prospectus
delivery obligation, including the expiration date specified by Section
4(3) of the Act (15 U.S.C. 77d(3)) and Sec. 230.174. If the expiration
date is not known on the effective date of the registration statement,
include the expiration date in the copy of the prospectus filed under
Sec. 230.497. This information need not be included if dealers are not
required to deliver a prospectus under Sec. 230.174 or Section 24(d) of
the Investment Company Act of 1940 (15 U.S.C. 80a-24). Use the
following or other clear, plain language:
[[Page 6386]]
Dealer Prospectus Delivery Obligation
Until (insert date), all dealers that effect transactions in
these securities, whether or not participating in this offering, may
be required to deliver a prospectus. This is in addition to the
dealers' obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
(f) Electronic distribution. Where a prospectus is distributed
through an electronic medium, issuers may satisfy legibility
requirements applicable to printed documents, such as paper size, type
size and font, bold-face type, italics and red ink, by presenting all
required information in a format readily communicated to investors, and
where indicated, in a manner reasonably calculated to draw investor
attention to specific information.
PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933
17. The authority citation for part 239 continues to read in part
as follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77z-2, 77sss, 78c,
78l, 78m, 78n, 78o(d), 78u-5, 78w(a), 78ll(d), 79e, 79f, 79g, 79j,
79l, 79m, 79n, 79q, 79t, 80a-8, 80a-29, 80a-30 and 80a-37, unless
otherwise noted.
* * * * *
18. By amending Form S-2 (referenced in Sec. 239.12), Item 12 to
add paragraph (d) to read as follows:
(Note: The text of Form S-2 does not, and this amendment will not,
appear in the Code of Federal Regulations)
Form S-2
Registration Statement Under the Securities Act of 1933
* * * * *
Item 12. Incorporation of Certain Information by Reference.
* * * * *
(d)(1) You must state (i) that you will provide to each person,
including any beneficial owner, to whom a prospectus is delivered, a
copy of any or all of the information that has been incorporated by
reference in the prospectus but not delivered with the prospectus;
(ii) that you will provide this information upon written or oral
request;
(iii) that you will provide this information at no cost to the
requester; and
(iv) the name, address, and telephone number to which the request
for this information must be made.
Note to Item 12(d)(1)
If you send any of the information that is incorporated by
reference in the prospectus to security holders, you also must send
any exhibits that are specifically incorporated by reference in that
information.
(2) You must (i) identify the reports and other information that
you file with the SEC; and
(ii) state that the public may read and copy any materials you file
with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. State that the public may obtain
information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. If you are an electronic filer, state that
the SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that
file electronically with the SEC and state the address of that site
(http://www.sec.gov). You are encouraged to give your Internet address,
if available.
* * * * *
19. By amending Form S-3 (referenced in Sec. 239.13) Item 12 to add
paragraph (c) before the instruction to read as follows:
(Note: The text of Form S-3 does not, and this amendment will not,
appear in the Code of Federal Regulations)
Form S-3
Registration Statement Under the Securities Act of 1933
* * * * *
Item 12. Incorporation of Certain Information by Reference.
* * * * *
(c)(1) You must state (i) that you will provide to each person,
including any beneficial owner, to whom a prospectus is delivered, a
copy of any or all of the information that has been incorporated by
reference in the prospectus but not delivered with the prospectus;
(ii) that you will provide this information upon written or oral
request;
(iii) that you will provide this information at no cost to the
requester; and
(iv) the name, address, and telephone number to which the request
for this information must be made.
Note to Item 12(c)(1)
If you send any of the information that is incorporated by
reference in the prospectus to security holders, you also must send
any exhibits that are specifically incorporated by reference in that
information.
(2) You must (i) identify the reports and other information that
you file with the SEC; and
(ii) state that the public may read and copy any materials you file
with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. State that the public may obtain
information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. If you are an electronic filer, state that
the SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that
file electronically with the SEC and state the address of that site
(http://www.sec.gov). You are encouraged to give your Internet address,
if available.
* * * * *
20. By amending Form S-20 (referenced in Sec. 239.20) to revise the
reference in Item 1 ``Item 502(f) of Regulation S-K [Sec. 229.502(f) of
this chapter]'' to read ``Item 101(g) of Regulation S-K
[Sec. 229.101(g) of this chapter].''
(Note: The text of Form S-20 does not, and this amendment will not,
appear in the Code of Federal Regulations)
21. By amending Form S-4 (referenced in Sec. 239.25) to revise Item
2 and adding paragraph (c) to Item 11 and paragraph (d) to Item 13 to
read as follows:
(Note: The text of Form S-4 does not, and this amendment will not,
appear in the Code of Federal Regulations)
Form S-4
Registration Statement Under the Securities Act of 1933
* * * * *
Item 2. Inside Front and Outside Back Cover Pages of Prospectus.
Provide the information required by Item 502 of Regulation S-K. In
addition, on the inside front cover page, you must state (1) that the
prospectus incorporates important business and financial information
about the company that is not included in or delivered with the
document; and
(2) that this information is available without charge to security
holders upon written or oral request. Give the name, address, and
telephone number to which security holders must make this request. In
addition, you must state that to obtain timely delivery, security
holders must request the information no later than five business days
before the date they must make their investment decision. Specify the
date by which security holders must request this information. You must
highlight this statement by print type or otherwise.
Note to Item 2.
If you send any of the information that is incorporated by
reference in the prospectus to security holders, you also must send
any
[[Page 6387]]
exhibits that are specifically incorporated by reference in that
information.
* * * * *
Item 11. Incorporation of Certain Information by Reference.
* * * * *
(c) You must (1) identify the reports and other information that
you file with the SEC; and
(2) state that the public may read and copy any materials you file
with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. State that the public may obtain
information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. If you are an electronic filer, state that
the SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that
file electronically with the SEC and state the address of that site
(http://www.sec.gov). You are encouraged to give your Internet address,
if available.
* * * * *
Item 13. Incorporation of Certain Information by Reference
* * * * *
(d) You must (1) identify the reports and other information that
you file with the SEC; and
(2) state that the public may read and copy any materials you file
with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. State that the public may obtain
information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. If you are an electronic filer, state that
the SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that
file electronically with the SEC and state the address of that site
(http://www.sec.gov). You are encouraged to give your Internet address,
if available.
* * * * *
22. By amending Form F-2 (referenced in Sec. 239.32) to revise Item
12 to read as follows:
(Note: The text of Form F-2 does not, and this amendment will not,
appear in the Code of Federal Regulations)
Form F-2
Registration Statement Under the Securities Act of 1933
* * * * *
Item 12. Information with respect to the Registrant.
(a) You must state (1) that you will provide to each person,
including any beneficial owner, to whom a prospectus is delivered, a
copy of any or all of the information that has been incorporated by
reference in the prospectus but not delivered with the prospectus;
(2) that you will provide this information upon written or oral
request;
(3) that you will provide this information at no cost to the
requester; and
(4) the name, address, and telephone number to which the request
for this information must be made.
Note to Item 12(a)
If you send any of the information that is incorporated by
reference in the prospectus to security holders, you also must send
any exhibits that are specifically incorporated by reference in that
information.
(b) You must (1) identify the reports and other information that
you file with the SEC; and
(2) state that the public may read and copy any materials you file
with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. State that the public may obtain
information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. If you are an electronic filer, state that
the SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that
file electronically with the SEC and state the address of that site
(http://www.sec.gov). You are encouraged to give your Internet address,
if available.
* * * * *
23. By amending Form F-3 (referenced in Sec. 239.33) by adding
paragraphs (d) and (e) to Item 12 before the instruction to read as
follows:
(Note: The text of Form F-3 does not, and this amendment will not,
appear in the Code of Federal Regulations)
Form F-3
Registration Statement Under the Securities Act of 1933
* * * * *
Item 12. Incorporation of Certain Information by Reference.
* * * * *
(d) You must state (1) that you will provide to each person,
including any beneficial owner, to whom a prospectus is delivered, a
copy of any or all of the information that has been incorporated by
reference in the prospectus but not delivered with the prospectus;
(2) that you will provide this information upon written or oral
request;
(3) that you will provide this information at no cost to the
requester; and
(4) the name, address, and telephone number to which the request
for this information must be made.
Note to Item 12(d)
If you send any of the information that is incorporated by
reference in the prospectus to security holders, you also must send
any exhibits that are specifically incorporated by reference in that
information.
(e) You must (1) identify the reports and other information that
you file with the SEC; and
(2) state that the public may read and copy any materials you file
with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. State that the public may obtain
information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. If you are an electronic filer, state that
the SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that
file electronically with the SEC and state the address of that site
(http://www.sec.gov). You are encouraged to give your Internet address,
if available.
* * * * *
24. By amending Form F-4 (referenced in Sec. 239.34) to revise Item
2 and add paragraph (b) to Item 11 and paragraph (c) to Item 13 to read
as follows:
(Note: The text of Form F-4 does not, and this amendment will not,
appear in the Code of Federal Regulations)
Form F-4
Registration Statement Under the Securities Act of 1933
* * * * *
Item 2. Inside Front and Outside Back Cover Pages of Prospectus
Provide the information required by Item 502 of Regulation S-K. In
addition, on the inside front cover page, you must state (1) that the
prospectus incorporates important business and financial information
about the company that is not included in or delivered with the
document; and
(2) that this information is available without charge to security
holders upon written or oral request. Give the name, address, and
telephone number to which security holders must make this
[[Page 6388]]
request. In addition, you must state that to obtain timely delivery,
security holders must request the information no later than five
business days before the date they must make their investment decision.
Specify the date by which security holders must request this
information. You must highlight this statement by print type or
otherwise.
Note to Item 2.
If you send any of the information that is incorporated by
reference in the prospectus to security holders, you also must send
any exhibits that are specifically incorporated by reference in that
information.
* * * * *
Item 11. Incorporation of Certain Information by Reference
* * * * *
(b) You must (1) identify the reports and other information that
you file with the SEC; and
(2) state that the public may read and copy any materials you file
with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. State that the public may obtain
information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. If you are an electronic filer, state that
the SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that
file electronically with the SEC and state the address of that site
(http://www.sec.gov). You are encouraged to give your Internet address,
if available.
* * * * *
Item 13. Incorporation of Certain Information by Reference
* * * * *
(c) You must (1) identify the reports and other information that
you file with the SEC; and
(2) state that the public may read and copy any materials you file
with the SEC at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. State that the public may obtain
information on the operation of the Public Reference Room by calling
the SEC at 1-800-SEC-0330. If you are an electronic filer, state that
the SEC maintains an Internet site that contains reports, proxy and
information statements, and other information regarding issuers that
file electronically with the SEC and state the address of that site
(http://www.sec.gov). You are encouraged to give your Internet address,
if available.
* * * * *
PART 274--FORMS PRESCRIBED UNDER THE INVESTMENT COMPANY ACT OF 1940
25. The authority citation for part 274 continues to read as
follows:
Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 78c(b), 78l, 78m,
78n, 78o(d), 80a-8, 80a-24, and 80a-29, unless otherwise noted.
26. Amend Form N-2 (referenced in Sec. 274.11a-1) to revise Item 2,
Item 3, and Item 14 to read as follows:
(Note: The text of Form N-2 does not, and this amendment will not,
appear in the Code of Federal Regulations.)
Form N-2
* * * * *
Item 2. Cover Pages; Other Offering Information
1. Disclose whether any national securities exchange or the Nasdaq
Stock Market lists the securities offered, naming the particular
market(s), and identify the trading symbol(s) for those securities, on
the inside front or outside back cover page of the prospectus unless
the information appears on the front cover page.
2. Provide the information required by paragraph (d) of Rule 481
under the Securities Act [17 CFR 230.481(d)] in an appropriate place in
the prospectus.
3. Provide the information required by paragraph (e) of Rule 481
under the Securities Act [17 CFR 230, 481(d)] on the outside back cover
page of the prospectus.
Item 3. Fee Table and Synopsis
* * * * *
3. In the case of a business development company, include the
information required by Item 101(e) of Regulation S-K [17 CFR
229.101(e)] (concerning reports and other information filed with the
SEC).
* * * * *
Item 14. Cover Page
1. The outside cover page must contain the following information:
* * * * *
(e) The statement required by paragraph (b)(2) of Rule 481 under
the Securities Act [17 CFR 230.481(b)(2)].
* * * * *
By the Commission.
Dated: January 28, 1998.
Margaret H. McFarland,
Deputy Secretary.
Note: Appendices A and B to the Preamble will not appear in the
Code of Federal Regulations.
Appendix A--Charts on Amendments to Small Business Issuer Rules
Chart 1: Regulation S-B Item 501
------------------------------------------------------------------------
Current Final
------------------------------------------------------------------------
Small business issuer name.... Same.
Title, amount, and description Same.
of securities offered.
Selling security holders Same.
offering.
Cross-reference to risk Same, except cross-
factors. reference must include page
number. No print type
specified.
Formatted distribution table Delete distribution
showing price, underwriting table. Use bullet list or
commission, and proceeds of offering. other design that highlights
the information.
Show bona fide estimate of Same.
range of maximum offering price and
number of shares.
Formatted best efforts Delete distribution
disclosure and distribution table. table. Use bullet list or
other design that highlights
the information.
Prospectus ``Subject to Retain in plain
Completion'' legend. English.
Commission legend............. Retain in plain
English. Include reference to
state securities commissions.
No print type specified.
State-required legends........ Same.
Underwriters' over-allotment Identify existence of
option, expenses of offering, the option and the number of
commissions paid by others, and other shares. Move all other
non-cash consideration and finders information to the plan of
fees. distribution section.
Date of prospectus............ Same.
Expenses of offering.......... Move to plan of
distribution section.
[[Page 6389]]
No requirement to identify Identify market for
market for securities. securities, trading symbol,
underwriters, and type of
underwriting.
No page limit................. Must limit cover to
one page.
------------------------------------------------------------------------
Chart 2: Regulation S-B Item 502
------------------------------------------------------------------------
Current Final
------------------------------------------------------------------------
Availability of Exchange Act Move to description of
Reports. business section or, for short-
form registration statements,
include with incorporation by
reference disclosure.
Identify market for securities Move to cover page.
Availability of reports with Move to description of
audited financial statements. business section.
Availability of reports Move to incorporation
incorporated by reference.. by reference disclosure.
Stabilization legend.......... Move to plan of
distribution section.
Passive market making Delete. Disclosure
activities legend. retained in plan of
distribution section.
Dealer prospectus delivery Retain on outside back
obligation. page of prospectus.
Canadian issuers' disclosure Move to description of
on enforceability of civil liability business section.
against foreign person.
Table of contents............. Same. If prospectus
delivered electronically, must
immediately follow cover page.
Summary....................... Retain in plain
English.
Address and telephone number.. Retain. Permit on
cover page or in summary.
Risk factors.................. Retain in plain
English.
------------------------------------------------------------------------
Appendix B--List of Plain English Pilot Participants
----------------------------------------------------------------------------------------------------------------
Company name File No. Type of file Date filed
----------------------------------------------------------------------------------------------------------------
AMBAC Inc..................... 1-10777 Annual Proxy/Schedule 4/1/97.
14A.
American Family Holdings, Inc. 333-37161 Consent Solicitation/ 11/5/97.
Form S-4.
AmerUs Life Holdings, Inc..... 333-40065 Merger Proxy/Form S-4 11/12/97.
ANTEC Corporation............. 333-19129 Merger Proxy/Form S-4 12/31/96.
Associated Banc-Corp.......... 333-18181 Merger Proxy/Form S-4 1/22/97.
Baltimore Gas and Electric 333-22697 Selling Shareholder 3/4/97.
Company. Prospectus/Form S-3.
Baltimore Gas and Electric 333-19263 Medium Term Note 1/3/97.
Company. Prospectus/Form S-3.
Baltimore Gas and Electric 1-1910 Management's 3/28/97.
Company. Discussion and
Analysis in the Form
10-K for the year
ended 12/31/96.
Bell Atlantic Corporation..... 333-11573 Merger Proxy/Form S-4 9/9/96.
BellSouth Corporation......... 333-25703 Merger Proxy/Form S-4 4/23/97.
The B.F. Goodrich Company..... 333-40291 Merger Proxy/Form S-4 11/14/97.
Boddie-Noell Properties, Inc.. 333-39803 Common Stock Offering/ 12/2/97.
Form S-2.
British Telecommunications PLC 333-6422 Merger Proxy/Form F-4 Foreign issuer not filed electronically.
(MCI Communications Provided in hard copy.
Corporation).
The Brooklyn Union Gas Company 333-30353 Merger Proxy/Form S-4 6/30/97.
Buckeye Partners, L.P......... 1-09356 Consent Solicitation/ 6/26/97.
Schedule 14A.
Caterpillar Inc............... 1-768 Annual Proxy/Schedule 2/25/97.
14A.
The Chase Manhattan 1-5805 Annual Proxy/Schedule 3/28/97.
Corporation. 14A.
ChoicePoint Inc............... 1-13069 Form 10.............. 6/9/97.
Citizens Bancorp.............. 333-29031 Savings & Loan 7/31/97.
Conversion/Form S-1.
Compaq Computer Corporation... 333-32401 Merger Proxy/Form S-4 7/30/97.
CVS Corporation............... 333-24163 Merger Proxy/Form S-4 4/17/97.
Dean Witter, Discover & Co. 333-25003 Merger Proxy/Form S-4 4/11/97.
(Morgan Stanley Group Inc.).
Delaware First Financial 333-36757 Savings & Loan 11/7/97.
Corporation. Conversion/Form SB-2.
Detroit Diesel Corporation.... 1-12394 Annual Proxy/Schedule 3/27/97.
14A.
Dollar Thrifty Automotive 333-39661 Common Stock Offering 12/16/97.
Group, Inc. IPO/Form S-1.
Dominion Resources, Inc....... 333-35501 Universal Shelf/Form 9/15/97.
S-3.
Eastman Kodak Company......... 333-31759 Direct Purchase Plan/ 7/22/97.
Form S-3.
Emerson Electric Co........... 333-40871 Merger Proxy/Form S-4 11/24/97.
Farmland Industries, Inc...... 333-40759 Subordinated 12/9/97.
Debenture Bonds/Form
S-1.
FDX Corporation............... 333-39483 Merger Proxy/Form S-4 12/4/97.
FFP Marketing Company, Inc.... 333-41709 Merger Proxy/Form S-4 12/10/97.
The FINOVA Group Inc.......... 1-11011 Annual Proxy/Schedule 4/2/97.
14A.
Ford Motor Company............ 1-3950 Annual Proxy/Schedule 4/7/97.
14A.
General Electric Company...... 333-30845 Merger Proxy/Form S-4 7/8/97.
General Mills, Inc............ 333-20429 Merger Proxy/Form S-4 1/24/97.
General Motors Corporation.... 333-37215 Spin-off Proxy/Form S- 11/10/97.
4.
Great Pee Dee Bancorp, Inc.... 333-36489 Savings & Loan 10/23/97.
Conversion/Form SB-2.
Hercules Incorporated......... 1-496 Annual Proxy/Schedule 3/14/97
14A.
Honeywell Inc................. 0-20629 Annual Proxy/Schedule 3/4/97.
14A.
[[Page 6390]]
International Business 333-27669 Selling Shareholder 5/29/97.
Machines Corporation. Prospectus/Form S-3.
ITT Corporation............... 333-7221 Universal Shelf/Form 6/28/96.
S-3.
Keebler Foods Company......... 333-42075 Common Stock Offering 1/7/98.
IPO/Form S-1.
MBNA Master Credit Card Trust (1) Asset-Backed Provided in hard copy.
II. Securities Offering.
Medical Science Systems, Inc.. 333-37441 Common Stock Offering/ 11/21/97.
Form SB-2.
Mellon Bank Corporation....... 333-38213 Direct Stock Purchase 10/17/97.
Plan/Form S-3.
Monsanto Company.............. 1-2516 Spin-off Proxy 7/14/97.
Solicitation/
Schedule 14A.
North Arkansas Bancshares, Inc 333-35985 Savings & Loan 10/30/97.
Conversion/Form SB-2.
Ohio Edison Company........... 333-1489 Merger Proxy/Form S-4 4/12/96.
Parent Holding Corp. 333-40233 Merger Proxy/Form S-4 11/14/97.
(Doubletree Corporation).
Perkins Family Restaurants, 1-09214 Merger Proxy 11/28/97.
L.P. Solicitation/
Schedule 14A.
Pfizer Inc.................... 1-3619 Notes to Financial 5/13/97, 8/13/97 and 11/12/97.
Statements/Form 10-Q
for the periods 3/30/
97, 6/29/97 and 9/28/
97.
Pfizer Inc.................... 33-56435 Dividend Reinvestment 11/17/97.
Plan/Form 424B3.
Premium Cigars International, 333-29985 Common Stock Offering 8/18/97.
Ltd. IPO/Form SB-2.
Price Communications 333-34017 Merger Proxy/Form S-4 9/4/97.
Corporation.
Providian Bancorp, Inc........ 1-12897 Form 10.............. 4/17/97.
RSL Communications, Ltd....... 333-34281 Exxon Capital 9/29/97.
Exchange Debt
Offering/Form S-1.
Rymer Foods Inc............... 333-27895 Prepackaged 5/28/97.
Bankruptcy Proxy/
Form S-4.
Santa Anita Realty 333-34831 Merger 1 Proxy/Form S- 9/26/97.
Enterprises, Inc. 4.
Sara Lee Corporation.......... 1-3344 Annual Proxy/Schedule 9/22/97.
14A.
SCANA Corporation............. 333-18149 Direct Purchase Plan/ 1/10/97.
Form S-3.
SFB Bancorp, Inc.............. 333-23505 Saving & Loan 4/9/97.
Conversion/Form SB-2.
SFBS Holding Company.......... 333-40955 Savings & Loan 12/23/97.
Conversion/Form SB-2.
SIS Bancorp, Inc.............. 333-38889 Merger Proxy/Form S-4 10/28/97.
Sullivan & Cromwell........... (2) Description of Provided in hard copy.
American Depository
Receipts.
Tejas Gas Corporation......... 1-11580 Cash Merger Proxy 11/21/97.
Solicitation/
Schedule 14A.
Traveler Group Inc............ 333-38647 Merger Proxy/Form S-4 10/24/97.
Tyco International Ltd........ 333-31631 Merger Proxy/Form S-4 7/29/97.
Union Community Bancorp....... 333-35799 Savings & Loan 11/10/97.
Conversion/Form S-1.
Unisource Worldwide, Inc...... 1-14482 Form 10.............. 11/26/97.
United Tennessee Bankshares, 333-36465 Savings & Loan 11/12/97.
Inc. Conversion/Form SB-2.
UP Sedona, Inc................ 333-22643 Condo Offering 8/11/97.
Prospectus/Form S-11.
Valero Refining and Marketing 333-27013 Spin-off and Merger 5/13/97.
Company. Proxy/Form S-1.
Wal-Mart Stores, Inc.......... 1-6991 Annual Proxy/Schedule 4/18/97.
14-A.
The Warnaco Group, Inc........ 333-40207 Merger Proxy/Form S-4 11/14/97.
WICOR, Inc.................... 333-27415 Direct Stock Purchase 5/19/97.
Plan/Form S-3.
WSB Holding Company........... 333-29389 Savings & Loan 7/15/97.
Conversion/Form SB-2.
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\1\ Not filed yet.
\2\ Not on file.
[FR Doc. 98-2889 Filed 2-5-98; 8:45 am]
BILLING CODE 8010-01-P
