[Federal Register Volume 62, Number 13 (Tuesday, January 21, 1997)]
[Proposed Rules]
[Pages 3152-3173]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 97-1300]



[[Page 3151]]

_______________________________________________________________________

Part III





Securities and Exchange Commission





_______________________________________________________________________



17 CFR Parts 228, 229, 230, and 239 Plain English Disclosure; Proposed 
Rules

  Federal Register / Vol. 62, No. 13 / Tuesday, January 21, 1997 / 
Proposed Rules  

[[Page 3152]]



SECURITIES AND EXCHANGE COMMISSION

17 CFR Parts 228, 229, 230 and 239

[Release Nos. 33-7380; 34-38164; IC-22464; File No. S7-3-97; 
International Series No. 1044]
RIN 3235-AG88


Plain English Disclosure

AGENCY: Securities and Exchange Commission.

ACTION: Proposed rules.

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SUMMARY: One of the fundamental protections provided to investors by 
our federal securities laws is full and fair disclosure, but investors 
must be able to understand these disclosures to benefit from them. 
Prospectuses often use a complex, legalistic language that is foreign 
to all but financial or legal experts. To address these problems, our 
rule proposals would: Require companies to use plain English principles 
in writing the front and back cover pages, summary and risk factor 
sections of prospectuses; revise current requirements for highly 
technical information in the front of prospectuses; and revise the rule 
on the preparation of prospectuses to provide companies with more 
specific guidance on the clarity required in the entire document.

DATES: Public comments are due March 24, 1997.

ADDRESSES: Please send three copies of the comment letter to Jonathan 
G. Katz, Secretary, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549-6009. Comments can be sent 
electronically to the following e-mail address: [email protected]. 
The comment letter should refer to File No. S7-3-97; if e-mail is used 
please include the file number in the subject line. Anyone can inspect 
and copy the comment letters in the SEC's Public Reference Room, 450 
Fifth Street, N.W. Washington, D.C. 20549. We will post comment letters 
submitted electronically on our Internet site (http://www.sec.gov).

FOR FURTHER INFORMATION CONTACT: Ann D. Wallace, Senior Counsel to the 
Director, Division of Corporation Finance, at (202) 942-2980, or 
Kathleen K. Clarke, Special Counsel, Division of Investment Management, 
at (202) 942-0724, Securities and Exchange Commission, 450 Fifth 
Street, NW., Washington, DC 20549.

SUPPLEMENTARY INFORMATION: To implement the first step in our plain 
English initiatives, we are publishing for comment amendments to Rules 
421 1 and 461 2 of Regulation C 3 and Items 101,4 
301,5 501,6 502,7 503,8 and 508 9 of 
Regulation S-K.10 We also are proposing minor amendments to Forms 
S-2,11 S-3,12 S-4,13 S-20,14 F-3,15 and Form 
F-4,16 as part of this plain English initiative.
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    \1\ 17 CFR 230.421.
    \2\ 17 CFR 230.461.
    \3\ 17 CFR 230.400 et seq.
    \4\ 17 CFR 229.101.
    \5\ 17 CFR 229.301.
    \6\ 17 CFR 229.501.
    \7\ 17 CFR 229.502.
    \8\ 17 CFR 229.503.
    \9\ 17 CFR 229.508.
    \10\ 17 CFR 229.10 et seq. We are proposing similar revisions to 
Regulation S-B governing disclosure by small business issuers. 17 
CFR 228.10 et seq.
    \11\ 17 CFR 239.12.
    \12\ 17 CFR 239.13.
    \13\ 17 CFR 239.25.
    \14\ 17 CFR 239.20.
    \15\ 17 CFR 239.33.
    \16\ 17 CFR 239.34.
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    The Office of Investor Education and Assistance is issuing 
simultaneously a draft of the text of A Plain English Handbook: How to 
Create Clear SEC Disclosure Documents. The handbook covers proven 
techniques and tips on how to create plain English documents. You may 
request a copy of the draft handbook by calling 1-800-SEC-0330; or you 
may access the document on our Internet site (http://www.sec.gov).

Table of Contents

I. Executive Summary
II. Background
    A. Prospectus Disclosure Problems
    B. SEC Plain English Initiatives
    C. Arguments For Plain English
    D. Criticisms of Plain English
    1. Plain English Is Imprecise and Unsuited for Complex Material
    2. Plain English Will Increase Liability
III. Elements of Plain English
    A. Know Your Audience
    B. Know What Information Needs To Be Disclosed
    C. Use Clear Writing Techniques to Communicate Information
    1. Active Voice
    2. Short Sentences
    3. Definite, Concrete, Everyday Language
    4. Tabular Presentations
    5. No Legal Jargon or Highly Technical Business Terms
    6. No Multiple Negatives
     D. Design and Organize Your Document So It Is Easy and Inviting 
to Read
IV. Plain English Rule Proposals
    A. Proposed Plain English Rule 421(d)
    B. Clear, Concise and Understandable Prospectuses--Rule 421(b)
    C. Proposed Revisions to Regulation S-K
    1. Front of Registration Statement and Outside Front Cover Page 
of Prospectus
    2. Inside Front and Outside Back Cover Pages of Prospectus
    3. Prospectus Summary, Risk Factors and Ratio of Earnings to 
Fixed Charges
    a. Summary
    b. Risk Factors
    c. Ratio of Earnings to Fixed Charges
    D. Proposed Rules for Investment Companies
V. Staff Review. .
    A. Plain English Pilot Program
    B. Denial of Request for Acceleration
    C. Phase-In of Plain English Requirements
VI. Request for Comments
VII. Cost-Benefit Analysis
VIII. Summary of The Initial Regulatory Flexibility Analysis
IX. Paperwork Reduction Act
X. Statutory Authority
XI. Text of The Proposals
    Appendix A: Examples of Plain English Disclosure Documents
    Appendix B: Chart on Small Business Issuer Rule Proposals

I. Executive Summary

    Full and fair disclosure is one of the cornerstones of investor 
protection under the federal securities laws. Documents that 
communicate clearly and effectively play a crucial role in achieving 
the basic protections provided by disclosure. For many years, it has 
been recognized that the language and style of disclosure documents 
could be improved. Most recently, the Task Force on Disclosure 
Simplification 17 criticized prospectuses for their dense writing, 
legal boilerplate, and repetitive disclosures. These problems are 
magnified by the complex transactions and novel securities that 
dominate today's securities market.
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    \17\ S.E.C. Report of the Task Force on Disclosure 
Simplification (1996), Section II, Presentation of Information. The 
staff task force, with Philip K. Howard providing valuable advice, 
recommended ways to streamline, simplify and modernize our rules and 
forms on capital formation without compromising investor protection.
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    As part of our ongoing commitment to give investors more 
understandable disclosure documents, we are proposing a rule for public 
comment that requires the use of plain English writing principles when 
drafting the front of prospectuses--the cover page, summary, and risk 
factor sections of these documents. The proposed rule would require 
public companies and mutual funds to write this information in everyday 
language that investors can understand on the first reading.
    The efforts to date of the public companies participating in our 
plain English pilot programs support our belief that disclosure 
documents can be made more readable without sacrificing substantive 
business and financial information. Our proposed plain English rule, 
Rule 421(d), would specify six minimum plain English writing principles 
that public companies should use in drafting the front of prospectuses: 
Active voice, short sentences, everyday

[[Page 3153]]

language, tabular presentation of complex material, no legal jargon, 
and no multiple negatives. This proposal would not reduce or eliminate 
any of the substantive disclosures public companies must give 
investors. The prospectus would continue to contain detailed business 
and financial information, which would be available to investors and 
others in the marketplace who use this information.
    Recognizing that many of our rules have contributed to the 
legalistic language and tone of these documents, we also are proposing 
to eliminate highly formatted and overly technical information required 
on the cover page. The proposed rules move to the body of the document 
technical information that may be important to the offering process, 
but is not critical for the cover page. In addition, we are proposing 
other revisions to Rule 421, the rule on the preparation of 
prospectuses, to give companies guidance on how to improve the 
readability of the rest of the prospectus.
    Because our plain English proposals will change customary drafting 
practices, we are continuing our plain English pilot programs to help 
companies draft clearer disclosure documents. The documents filed by 
pilot participants will provide other companies with examples of plain 
English documents. Also, the Office of Investor Education and 
Assistance today is issuing a draft of the text of A Plain English 
Handbook: How To Create Clear SEC Disclosure Documents to explain the 
plain English principles of our proposed rule and other techniques for 
producing clearer documents. The staff welcomes your views on the draft 
handbook and how it can be improved. Once the staff receives your 
comments, the handbook will be finalized and available to the public at 
no cost.
    We have used a number of the plain English writing techniques in 
this release. For example, we have kept sentences and paragraphs short 
and avoided defined terms, cross-references, and other legalistic or 
formal writing conventions. We also have used the personal pronoun 
``we'' when referring to the SEC and ``you'' when referring to public 
companies and mutual funds that would need to comply with our plain 
English proposals.
    We encourage everyone involved in the public offering process--
public companies, lawyers, accountants, underwriters and investment 
bankers--to give us their comments on the proposed rules and other ways 
we can improve the language in disclosure documents. Most importantly, 
we would like investors, financial analysts, brokers, and other users 
of these disclosure documents to give us their views on our plain 
English proposals and ways to improve the readability of these 
documents.

II. Background

A. Prospectus Disclosure Problems

    Giving investors full and fair disclosure is one of the 
cornerstones of investor protection under the federal securities laws. 
The legislative history of the Securities Act of 193318 states 
that the purpose of disclosure ``is to secure for potential buyers the 
means of understanding the intricacies of the transaction into which 
they are invited.'' 19 The prospectus--the traditional offering 
document--must describe the company's business, management, and 
financial condition to enable investors to make informed investment 
decisions.
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    \18\ 15 U.S.C. 77a et seq.
    \19\ H.R. Rep. No. 85, 73rd Cong., 1st Sess. 8 (1933).
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    Investors often complain that prospectuses use arcane, complex, and 
incomprehensible language.20 As a result, many investors may skim, 
rather than read, prospectuses.21 A recent study on the investment 
concerns of senior citizens concluded:

    \20\ See, e.g., Letter from American Association of Retired 
Persons, the Consumer Federation of America, and the National 
Council of Individual Investors on the Private Securities Litigation 
Reform Act of 1995 regarding the Act's provision requiring a study 
on protections for senior citizens and qualified retirement plans 
(May 1, 1996).
    \21\ See, Richard C. Wydick, Plain English for Lawyers, 3 
(1994).
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    The notion that there is ``full disclosure'' to Americans about 
their investments is, by and large, a myth * * * [m]ost written 
disclosures are too long and too complicated to be of any practical 
use to someone other than a securities lawyer or expert 
investor.22
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    \22\ See, AARP/CFA/NASAA Background Report: The Five Biggest 
Problems ``Legitimate'' Investing Poses For Older Investors (March 
1995).
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    The Task Force's report criticized prospectuses for their dense 
writing, legal boilerplate, and repetitive descriptions of the 
company's business. Noting that trivial points sometimes receive as 
much attention as material ones, the report found that dense disclosure 
can often bury the points that are most significant to making an 
informed investment decision. The report expressed concern that 
prospectuses are filled with legal jargon and over-inclusive 
disclosures.
    These problems are not new. More than forty-five years ago, 
Professor Louis Loss identified prospectus readability as one of the 
basic problems with the registration process.23 In 1969, the Wheat 
Report found that prospectuses included unnecessary information, and 
were often so long or complex that the average investor could not 
readily understand them.24
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    \23\ Disclosure to Investors: A Reappraisal of Administrative 
Policies under the '33 and '34 Acts 77-78 (1969) (Wheat Report) 
(citing Loss, Securities Regulation 148--66 (1st. ed. 1951).
    \24\ Wheat Report at 77. See also Report of the Advisory 
Committee on Corporate Disclosure to the Securities and Exchange 
Commission. Appendix to the Report of the Advisory Committee on 
Corporate Disclosure, 6, 21-22 (November 3, 1977).
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    Over the years, the SEC has attempted to address these problems. 
The SEC's concern about prospectuses for employee benefit plans 
prompted a 1966 release encouraging issuers to avoid complex legal and 
other technical language in the plan prospectus. Most plan prospectuses 
either repeated the full text of the legal document adopting the plan 
or summarized the legal document using the same legal language. In the 
release, the SEC recognized that the chief goal of registration is to 
provide investors with disclosures that they can readily understand, 
concluding that ``* * * failure to use language that is clear and 
understandable by the investor may operate to defeat the purpose of the 
prospectus.'' 25
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    \25\ Securities Act Release No. 4844 (August 5, 1966) [31 FR 
10667].
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    When the SEC adopted the integrated disclosure system in 1982, it 
encouraged issuers to deliver their more readable glossy annual reports 
to shareholders, rather than the legalistic annual report on Form 10-K. 
The SEC believed that the more readable annual reports would ``promote 
the goal of concise, effective communication in the Securities Act 
context.''26
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    \26\ Securities Act Release No. 6383 (March 3, 1982) [45 FR 
11380].
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    Also in 1982, the SEC codified, in Rule 421 of Regulation C, the 
requirement for clear, concise and understandable presentation of 
information in prospectuses.27 This rule calls for descriptive 
captions or headings, and reasonably short paragraphs or sections. The 
rule also permits summaries of the information required in the 
prospectus, except for financial or tabular information.
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    \27\ In 1982, the SEC rescinded the guidelines for the 
preparation of prospectuses in Securities Act Release No. 4936 
(December 9, 1968) [33 FR 18617] except for the guide requiring 
clear, concise prospectus information, which was moved to Rule 421 
of Regulation C.
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    Several of the existing disclosure items already require companies 
to use plain English tools--a table or chart--to improve clarity and 
increase the likelihood that investors can grasp the information. For 
example, disclosure of managements' compensation must be in

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tables.28 Proxy statements must use a table showing the identity, 
background, and security holdings of nominees for the board of 
directors,29 and the security ownership of management and 
significant owners of an issuer's equity securities.30 Another 
provision encourages the use of tables, schedules, charts, and graphic 
illustrations to make financial information more understandable.31
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    \28\ Item 402(b) of Regulation S-K, 17 CFR 229.402.
    \29\ Item 7, Schedule 14A of Regulation 14A and Item 1, Schedule 
14C of Regulation 14C Securities Exchange Act, 17 CFR 240.14a-101, 
240.14c-101.
    \30\ Item 403 of Regulation S-K, 17 CFR 229.403.
    \31\ Note to Item 11 of Rule 14a-3 of Regulation 14A, Securities 
Exchange Act, 17 CFR 240.14a-3.
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    In 1991, the U.S. Congress and others expressed serious concern 
about the complexity and length of limited partnership prospectuses, 
and particularly the documents used to roll up limited partnerships. In 
congressional hearings on the need for legislation to reform the roll-
up process, former SEC chairman Richard Breeden addressed the problem 
of unreadable disclosure: ``I have taken a look at some of the 
documents filed with us in these roll-up transactions and I would like 
to meet the person who can understand all of the disclosures in some of 
these documents.'' 32
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    \32\ H.R. Rep. No. 102-254, 102d Cong., 1st Sess. (1991).
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    To address these concerns, the SEC issued an interpretive release 
to advise issuers on the requirements for clear, concise, and 
understandable disclosure in limited partnership offerings.33 Even 
with the interpretive release, our review staff in the Division of 
Corporation Finance continues to see documents that do not clearly 
explain the terms of these complex offerings.
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    \33\ Securities Act Release No. 6900 (June 17, 1991) [56 FR 
28979].
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    Beginning in 1994, we renewed our efforts to promote more readable 
disclosure documents, which led us to explore alternatives. With the 
support and participation of various industry groups and public 
companies, we instituted pilot projects to encourage the use of plain 
English and to gain practical experience on how to fashion rule changes 
that would improve the disclosure to investors. We recognize that 
everyone involved in the process--issuers, accountants, lawyers, 
underwriters, investment bankers, and the SEC--has a role in creating 
more readable documents.

B. SEC Plain English Initiatives

    We are committed to providing investors with better and more 
understandable disclosure documents. Our ultimate goal is to have all 
disclosure documents written in plain English, and we have undertaken 
several initiatives to improve the readability of these documents. With 
the cooperation of the Investment Company Institute and several large 
mutual fund groups, we recently organized a pilot program to permit 
mutual funds to use ``profiles'' with their prospectuses. 34 The 
``profile'' provides a standard format summary of eleven specific items 
of information so that investors can compare funds more easily. We are 
developing a proposed rule for public comment that would build on this 
experience.
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    \34\ Letter from Jack W. Murphy, Associate Director and Chief 
Counsel, Division of Investment Management, SEC, to Paul Schott 
Stevens, General Counsel, ICI (July 31, 1995). The Division has 
permitted the pilot program, with some modifications, to continue 
for another year. See, letter from Heidi Stam, Associate Director, 
Division of Investment Management, SEC, to Craig S. Tyle, Vice 
President and Senior Counsel, ICI (July 29, 1996).
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    In the spring of 1996, our Division of Corporation Finance began a 
plain English pilot program that encourages companies to draft their 
prospectuses and other disclosure documents more clearly. The Division, 
together with our Office of Investor Education and Assistance, offers 
advice on how to organize these documents, as well as examples of how 
to rewrite the legalese in plain English. To companies that undertake 
plain English disclosure, the Division offers expedited review of their 
documents. 35 The reception to our plain English pilot program has 
been positive, and the pilot participants' documents are serving as 
examples of clearer disclosure. 36
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    \35\ The first companies to participate in this pilot project, 
Bell Atlantic and NYNEX, drafted a plain English cover page and 
summary for their joint merger proxy statement (File No. 333-11573). 
The lawyers involved reported that writing in plain English did not 
increase their costs. See B. Fromson, At Last, A Proxy in Plain 
English, Washington Post (Sept. 22, 1996), at H4.
    \36\ For example, Baltimore Gas and Electric Company (File No. 
333-19263) has filed a plain English prospectus for their medium 
term note offering; ITT Corporation (File No. 333-7221) filed a 
universal shelf offering with the front of the document in plain 
English and plain English techniques applied to the entire document; 
Unisource Worldwide, Inc. (File No. 1-14482) filed a Form 10 
registration statement under the Exchange Act with the front of the 
document written in plain English; General Mills, Inc./Ralcorp, Inc. 
(File No. 333-18849) filed a merger proxy statement with the front 
of the document written in plain English; SCANA (File No. 333-18149) 
filed a registration statement covering their dividend reinvestment 
plan written in plain English; Antec Corporation/TSX Corporation 
(File No. 333-19129) filed a merger proxy statement with the front 
of the document written in plain English; and Keyspan Energy Corp. 
(File No. 333-18025) filed a merger proxy statement with the front 
of the document written in plain English.
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C. Arguments for Plain English

    The plain English movement started in the early 1970s with the 
simplification of insurance contracts, and gained momentum when more 
than half the states enacted statutes requiring plain English insurance 
contracts. A number of state bar associations, starting with Michigan, 
established plain English committees. Federal agencies, such as the 
Federal Communications Commission, the Small Business Administration, 
and the Department of the Interior, redrafted some or all of their 
regulations, as well as legal documents such as subpoenas, in plain 
English. The movement is also active in Canada, England, and Australia.
    Plain English has been implemented successfully in many areas. For 
example, after Citibank started using a plain English promissory note, 
the number of collection lawsuits dropped considerably because 
borrowers had a better understanding of their obligations.37 One 
law review article on using plain English in contracts under the 
Uniform Commercial Code, concluded that ``. . . [p]reparing documents 
in plain English will decrease the number of good faith disputes over 
the meaning of the words of the agreement.'' 38 Past experience 
with plain English suggests that its adoption in the securities area 
will increase investors' understanding of the business and financial 
condition of companies and lessen misunderstandings that lead to costly 
legal disputes. Clearer disclosure also should assist market 
professionals in making recommendations to clients and assist the 
courts in determining whether a company has made proper disclosure.
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    \37\ How Plain English Works for Business, Twelve Case Studies, 
U.S. Department of Commerce, Office of Consumer Affairs (March 
1984).
    \38\ Steven O. Weise, ``Plain English'' Will Set the UCC Free, 
28 Loy. L.A.L. Rev. 376 (1994). The article notes that ``[p]arties 
to contracts can reduce [inaccurate interpretations] by presenting 
courts and juries with documents that permit only one reasonable 
interpretation. . . .'' See also Mark Duckworth and Christopher 
Balmford, Convincing Business That Clarity Pays, Michigan B. J. 1314 
(Dec. 1994).
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D. Criticisms of Plain English

    When initially considering the change from a formal, legalistic 
writing style to plain English, the following reservations often are 
raised: (1) Legal language is more precise and is necessary to make 
complex material clear and accurate; and (2) federal securities law 
liability provisions particularly the strict liability provisions of 
section 11 of the Securities Act 39 requires legal language. 
Neither case law nor the experience of

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plain English practitioners appear to support these arguments.
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    \39\ 15 U.S.C. 77k.
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1. Plain English Is Imprecise and Unsuited for Complex Material
    In using plain English, you are not forced to choose between 
clarity and precision. The disclosure obviously must be correct, but 
plain English often is more precise than the obscure and complex 
writing style that is prevalent in prospectuses. While legal terms like 
``hereafter,'' ``hereinafter,'' and ``herein'' may give a legal flavor 
to writing, they do not add precision. 40 Needlessly wordy 
documents can actually increase ambiguity and usually hide important 
facts. Ambiguities and omissions that go unnoticed in long and turgid 
documents become more obvious when these documents are written in plain 
English, and are more likely to be detected and corrected by those who 
review these documents for accuracy. 41
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    \40\ David Mellinkoff, The Language of the Law 312-16 (1963). 
See also David Mellinkoff, ``The Myth of Precision and the Law 
Dictionary,'' 31 UCLA L. Rev. 31 423 (1983).
    \41\ See Joseph Kimble, ``Answering the Critics of Plain 
Language,'' 5 Scribes J. of Legal Writing 51 (1994-1995).
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    Unfortunately, some equate the term ``plain'' with ``simplistic.'' 
They fear their writing will be reduced to a simple style and 
restricted to a limited vocabulary ill-suited to conveying complex 
information. But plain English does not mean ``dumbing down'' complex 
information. It means writing it well so that it is not needlessly 
difficult to understand.
    Some in the legal profession have used plain English techniques to 
clarify a number of complex legal procedures and statutes. The Judicial 
Conference Advisory Committee on the Federal Rules of Appellate 
Procedure has proposed revising these rules using elements of plain 
English. 42 While these rules are currently being circulated for 
public comment, initial reaction to the rewrites appears to be 
positive. Such efforts are not limited to the United States. In 
Australia, a task force is rewriting Australia's Corporation Law under 
a mandate to simplify it. 43 Earlier, the Law Reform Commission of 
Victoria, Australia, redrafted Victoria's Takeover Code in plain 
English. 44
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    \42\ Committee on Rules of Practice and Procedure of the 
Judicial Conference of the United States, Preliminary Draft of 
Proposed Revision of the Federal Rules of Appellate Procedure Using 
Guidelines for Drafting and Editing Court Rules and Preliminary 
Draft of Proposed Amendments to Appellate Rules 27, 28 and 32, 
(April 1996). See also Bryan A. Garner, Guidelines For Drafting And 
Editing Court Rules (Administrative Office of the United States 
Courts 1996).
    \43\ See Note 41 above at 59.
    \44\ Id at 56-57.
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2. Plain English Will Increase Liability
    Stemming largely from the misconceptions addressed above, some 
practitioners expressed concern that the use of plain English will 
expose companies to greater liability under section 11. Liability 
should not increase. First, the rule proposals do not reduce the 
substantive information that must be given to an investor; plain 
English does not mean leaving out anything important or material. 
Second, we know of no case that has held anyone liable under Section 11 
for clearly disclosing material information to investors. 45 In 
all likelihood, liability should decrease with the use of plain English 
because it results in less confusing and ambiguous disclosure.
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    \45\ The staff's review of the few reported cases finding 
section 11 liability indicates that no case required the use of 
specific legal language or turned on the use of legal language.
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III. Elements of Plain English

    Plain English simply means writing well.46 Plain English, or 
plain language, has been described as follows:

    \46\ George Hathaway, An Overview of the Plain English Movement 
for Lawyers . . . Ten Years Later, Michigan B. J. 26, (Jan. 1994).
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    There is no one absolute form of plain language. It does not 
consist only of one-syllable words and one-clause sentences. It is 
not simplified or reduced English. It is the opposite not of 
elaborate language but of obscure language, for it seeks to have the 
message understood on the first reading. The plainness of a passage 
is defined in terms of the audience for that passage. It is clear, 
straightforward language for that audience.47

    \47\ Robert D. Eagleson, What Lawyers Need To Know About Plain 
Language, Michigan B. J. 44 (1994).
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    In summary, plain English requires you to:
     Know your audience;
     Know what material information needs to be disclosed;
     Use clear writing techniques to communicate the 
information; and
     Design and structure your document so it is easy and 
inviting to read.

A. Know Your Audience

    Since the purpose of using plain English is to communicate 
substantive information clearly to investors and the marketplace, you 
must first identify the investor groups to whom you are writing.48 
The educational background and financial sophistication of your current 
or prospective investors should dictate the language you use.
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    \48\ See, Janice C. Redish, How To Write Regulations And Other 
Legal Documents In Clear English, 8 (Sept. 1991) (available at 
American Institutes for Research Document Design Center, Washington, 
D.C. 20007).
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    If your company has a mix of sophisticated institutional investors 
and less experienced institutional and individual investors, you should 
write at a level that the less experienced investors would understand. 
While the language may change, the information will not. To serve an 
audience of various levels of sophistication such as securities 
analysts and others in the marketplace, some issuers present 
information in a format that makes it easy for investors to locate the 
basic information while providing additional detailed information for 
anyone who is interested.49 Where an offering is directed at only 
the most sophisticated institutional investors, clear writing still is 
necessary for your audience to understand the disclosure and to serve 
the needs of the securities markets.
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    \49\ See Caterpillar Inc., Third Quarter 1996 Financial Results 
(a two part document with statistical highlight and condensed 
financial information and a detailed analysis including financial 
statements for those who want additional detailed information).
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B. Know What Information Needs To Be Disclosed

    You can only communicate clearly when you understand the substance 
precisely and accurately.50 A failure common to disclosure 
documents is the tendency to indiscriminately combine material and 
immaterial information in dense and long sentences, in effect dumping 
large amounts of information on the reader. Disclosure documents 
typically fail to prioritize information and organize it logically so 
the reader can process it intelligently and quickly. All too often, 
details are disclosed before investors even know why they are receiving 
or reading a document. Plain English requires you to make judgments as 
to the importance of this information and the order in which you 
present it to investors.
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    \50\ Bryan A. Garner, The Elements of Legal Style 4 (1991).
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    A standard prospectus cover page--the cover page for an initial 
public offering, a merger, or a shelf offering--usually has dense print 
running to each of the four corners of the page. The sentences 
typically run 60 to 100 words long, with superfluous information and 
defined terms that interrupt the readers' attention. The name of the 
company, terms of the security, and underwriters' compensation are 
repeated two or three times. We believe that the cover page of the 
prospectus should invite the investor to read the document and should 
highlight key information about the offering. This information includes

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such items as the name of the company, the type of security, price and 
amount offered, and whom an investor should contact to purchase the 
security. The original cover pages and the plain English rewrites of 
the cover page of pilot participants documents in Appendix A give you 
examples of how to address this issue.
    When a prospectus summary is included in the document, it 
frequently runs 10 to 30 pages. These so-called summaries often provide 
a long description of the company's business and its business strategy. 
Where the prospectus provides a description of the security, it is 
often copied from the indenture or other legal document that is filed 
as an exhibit to the registration statement.
    The summary should not, and is not required to, contain all of the 
detailed information in the prospectus. As current Rule 421 states and 
as explained in the interpretive release on limited partnerships, the 
summary should provide investors with a clear, concise, and coherent 
``snapshot'' description of the most significant aspects of the 
offering. The summary should be balanced, giving investors both the 
pluses and the minuses of investing in your company or participating in 
the proposed transaction.

C. Use Clear Writing Techniques To Communicate Information

    Although it is impossible to give a precise formula for clear 
writing, using the following plain English principles will help you 
produce clearer and more readable disclosure documents. Our proposed 
rule would require you, at a minimum, to comply substantially with each 
of these plain English principles in drafting the front and back cover 
pages and the summary and risk factors sections of the prospectus:
     Active voice;
     Short sentences;
     Definite, concrete, everyday language;
     Tabular presentation and ``bullet lists'' for complex 
material whenever possible;
     No legal jargon or highly technical business terms; and
     No multiple negatives.
    Success in clear writing is, of course, ultimately a question of 
how well all the elements are put together, and requires a good faith 
effort to achieve clarity. The draft plain English handbook offers 
numerous examples of how to use these and other plain English tools to 
write more clearly. We provide examples of these requirements only to 
illustrate the plain English principle. You should make sure that your 
disclosure reflects the facts of your particular situation.
1. Active Voice
    The active voice generally is easier to understand than the passive 
because the reader can clearly identify the person or the thing 
performing the action. The passive voice delays readers' comprehension, 
and in some cases, allows the writer to delete who is performing the 
action altogether, further hindering comprehension. When the sentence 
is long and complicated, the passive voice forces the reader to go back 
and start at the beginning. The passive voice usually results in 
needlessly longer sentences. Consider the following examples:

------------------------------------------------------------------------
                 Before                               After             
------------------------------------------------------------------------
No person has been authorized to give    You should rely only on the    
 any information or make any              information contained in this 
 representation other than those          document or incorporated by   
 contained or incorporated by reference   reference. We have not        
 in this joint proxy statement/           authorized anyone to provide  
 prospectus, and, if given or made,       you with information that is  
 such information or representation       different.                    
 must not be relied upon as having been                                 
 authorized.                                                            
                                                                        
The proxies solicited hereby for the     You may revoke your proxy at   
 Heartland Meeting may be revoked,        any time up to and including  
 subject to the procedures described      the day of the meeting by     
 herein, at any time up to and            following the directions on   
 including the date of the Heartland      page 18.                      
 Meeting.                                                               
------------------------------------------------------------------------

    Notice that in the proxy example, the passive legalese is ambiguous 
because it never states who can revoke a proxy. Also, when you use a 
vague cross-reference, you hinder your readers' ability to locate the 
information. The rewrite is clearer because it uses everyday language 
and provides the page number where investors can find out how to revoke 
their proxies.
2. Short Sentences
    The plain English requirement for short sentences addresses one of 
the most critical language problems in disclosure documents. It is 
fairly common for sentences in prospectuses or other disclosure 
documents to be 60 to 100 words or more, with clauses and parenthetical 
phrases that increase their complexity. Needlessly complex sentences, 
which often mix substantive information with definitions and numerous 
qualifications, can overwhelm the reader. You should strive to have 
shorter sentences, typically 25 to 30 words. We believe that the 
rewrites in the following examples are shorter, clearer and less vague:

------------------------------------------------------------------------
                 Before                               After             
------------------------------------------------------------------------
Machine Industries and Great Tools,      We must comply with the        
 Inc., are each subject to the            Securities Exchange Act of    
 information requirements of the          1934. Accordingly, we file    
 Securities Exchange Act of 1934, as      annual, quarterly and current 
 amended (the ``Exchange Act''), and in   reports, proxy statements, and
 accordance therewith file reports,       other information with the    
 proxy statements, and other              Securities and Exchange       
 information with the Securities and      Commission.                   
 Exchange Commission (the                                               
 ``Commission'').                                                       
                                                                        

[[Page 3157]]

                                                                        
The Drake Capital Corporation (the       The Drake Capital Corporation  
 ``Company'') may offer from time to      may offer from time to time up
 time its Global Medium-Term Notes,       to $6,428,598,500 of Global   
 Series A, Due from 9 months to 60        Medium-Term Notes, Series A,  
 Years From Date of Issue, which are      that will mature from 9 months
 issuable in one or more series (the      to 60 years from the date     
 ``Notes''), in the United States in an   issued. We will offer our     
 aggregate principal amount of up to      notes, in one or more series, 
 U.S. $6,428,598,500, or the equivalent   in U.S., foreign, and         
 thereof in other currencies, including   composite currencies, like the
 composite currencies such as the         European Currency Unit. If we 
 European Currency Unit (the ECU)         offer original discount notes,
 (provided that, with respect to          we will use their initial     
 Original Issue Discount Notes (as        offering prices to calculate  
 defined under Description of Notes--     when we reach $6,428,598,500. 
 Original Issue Discount Notes), the                                    
 initial offering price of such Notes                                   
 shall be used in calculating the                                       
 aggregate principal amount of Notes                                    
 offered hereunder).                                                    
------------------------------------------------------------------------

3. Definite, Concrete, Everyday Language
    Language that is vague or abstract begs for further explanation. It 
is not enough merely to translate information into clearer language. As 
the following example shows, you must reassess the disclosure to 
determine whether more information is needed to make it understandable. 
You should note that the rewrite reflects an analysis of all of the 
information in the prospectus.

------------------------------------------------------------------------
                 Before                               After             
------------------------------------------------------------------------
History of Net Losses. The Company has   History of Net Losses. We have 
 recorded a net loss under generally      recorded a net loss under     
 accepted accounting principles for       generally accepted accounting 
 each fiscal year since its inception     principles for each year since
 in May 1990, as well as for the nine     we started in 1990, and for   
 months ended June 30, 1995. However,     the nine months ended June 30,
 these results include the effect of      1995. Our losses were caused, 
 certain significant, non-cash            in part, by the annual write- 
 accounting charges related to the        off of a portion of the       
 accounting for the Company's             goodwill resulting from the   
 acquisitions and related transactions.   ten acquisitions we made      
                                          during this period.           
------------------------------------------------------------------------

    In the rewrite, the reasons for the history of net losses replaces 
the general, vague language on the ``significant, non-cash accounting 
charges'' causing the loss.
4. Tabular Presentations
    A tabular presentation organizes complex material in a manner that 
greatly facilitates investor comprehension. For example, an ``if-then'' 
table highlights for investors the events of defaults and their remedy 
under the indenture. An illustration follows:

------------------------------------------------------------------------
                                 Before                                 
-------------------------------------------------------------------------
The following will be ``Events of Default'' under the Indenture:        
   (i) failure to pay any interest on any Note when it becomes due and  
 payable, and such failure shall continue for a period of 30 days; (ii) 
 failure to pay the principal of (or premium, if any) on any Note at its
 Maturity (upon acceleration, optional or mandatory redemption, required
  repurchases or otherwise); (iii) there shall have been the entry by a 
 court of competent jurisdiction of (a) a decree or order for relief in 
 respect of the Company, in an involuntary case or proceeding under any 
applicable Bankruptcy Law or (b) a decree or order adjudging the Company
     bankrupt or insolvent, or seeking reorganization, arrangement,     
  adjustment or composition of or in respect of the Company, under any  
  applicable federal or state law, or appointing a custodian, receiver, 
 liquidator, assignee, trustee, sequestrator (or other similar official)
     of the Company, or of any substantial part of their respective     
 properties, or ordering the winding up or liquidation of their affairs,
 and any such decree or order for relief shall continue to be in effect,
or any such other decree or order shall be unstayed and in effect, for a
  period of 60 consecutive days, the Trustee or the holders of not less 
  than 25% in aggregate principal amount of the Notes then outstanding  
 may, and the Trustee at the request of such Holders shall, declare all 
  unpaid principal of (and premium, if any, on) and accrued interest on 
 all the Notes to be due and payable immediately, by a notice in writing
    to the Company (and to the Trustee if given by the Holders of the   
  Notes); If an Event of Default specified in clause (iii) occurs, then 
    all the Notes shall ipso facto become and be immediately due and    
    payable, in an amount equal to the principal amount of the Notes,   
together with accrued and unpaid interest, if any, to the date the Notes
become due and payable, without any declaration or other act on the part
                      of the Trustee or any holder.                     
------------------------------------------------------------------------


------------------------------------------------------------------------
                                  After                                 
-------------------------------------------------------------------------
          Event of default (If)                   Remedy (Then)         
------------------------------------------------------------------------
 Interest payment 30 days late.   Trustee or holders of 
                                          at least 25% of these notes   
                                          outstanding may notify the    
                                          company in writing that the   
                                          principal, premium, if any,   
                                          and accrued interest are      
                                          immediately due and payable;  
                                          or                            
                                         Upon written request of the    
                                          holders of at least 25% of    
                                          these notes outstanding, the  
                                          Trustee shall notify the      
                                          company in writing that the   
                                          principal, premium, if any,   
                                          and accrued and unpaid        
                                          interest are immediately due  
                                          and payable.                  
 Failure to pay principal or      Same as above.        
 premium at maturity, acceleration,                                     
 redemption, or repurchase.                                             
 Court ordered bankruptcy,        Neither the Trustee   
 insolvency, reorganization,              nor holders are required to   
 liquidation, or similar action           act. The principal, accrued   
 continuing for 60 consecutive days.      and unpaid interest will be   
                                          immediately payable.          
------------------------------------------------------------------------


[[Page 3158]]


------------------------------------------------------------------------
                 Before                               After             
------------------------------------------------------------------------
The Indenture provides that no Holder    Before you may take legal or   
 of any Senior Debt Securities of any     any other formal action       
 series may institute any proceeding,     relating to the indenture or  
 judicial or otherwise, with respect to   this series of securities, the
 the Indenture or the Senior Debt         following must take place:    
 Securities of such series, or for the    You must give the     
 appointment of a receiver or trustee,    trustee written notice of a   
 or for any other remedy under the        continuing event of default;  
 Indenture, unless: (i) such Holder has   The holders of at     
 previously given to the Trustee          least 25% of the principal    
 written notice of a continuing Event     amount of all affected senior 
 of Default with respect to the Senior    debt securities outstanding of
 Debt Securities of such series; (ii)     this series must make a       
 the Holders of at least 25% in           written request of the trustee
 aggregate principal amount of            to take action because of the 
 outstanding Senior Debt Securities of    default;                      
 all such series affected shall have      The holders must have 
 made written request to the Trustee to   offered indemnification,      
 institute proceedings in respect of      reasonably satisfactory to the
 such Event of Default in its own name    trustee, against the cost,    
 as Trustee under the Indenture; (iii)    liabilities and expenses for  
 such Holder or Holders have offered to   taking such action;           
 the Trustee indemnity reasonably         The trustee must not  
 satisfactory to the Trustee against      have taken action for 60 days 
 any cost, liabilities or expenses to     after receipt of notice,      
 be incurred in compliance with such      request for action, and the   
 request; (iv) the Trustee for 60 days    indemnification offer; and    
 after its receipt of such notice,        During this 60 day    
 request and offer of indemnity has       period, the holders of a      
 failed to institute any such             majority of the principal     
 proceeding; and (v) during such 60-day   amount of all affected senior 
 period, the Holders of a majority in     debt securities outstanding of
 aggregate principal amount of the        this series have not asked the
 outstanding Senior Debt Securities of    trustee to take any action    
 all such affected series have not        inconsistent with the request.
 given the Trustee a direction that is                                  
 inconsistent with such written                                         
 request.                                                               
------------------------------------------------------------------------

5. No Legal Jargon or Highly Technical Business Terms
    One of the persistent criticisms of the prospectus writing style is 
the use of legal jargon and legalese. Here are two examples from debt 
offerings replete with legalese:

------------------------------------------------------------------------
                 Before                               After             
------------------------------------------------------------------------
The new debt will rank pari passu with   The new debt will rank equally 
 other senior debt of the company..       with the other senior debt of 
                                          the company.                  
The following description encompasses    We disclose information about  
 all the material terms and provisions    our notes in two separate     
 of the Notes offered hereby and          documents that progressively  
 supplements, and to the extent           provide more detail on the    
 inconsistent therewith replaces, the     note's specific terms: the    
 description of the general terms and     prospectus, and this pricing  
 provisions of the Debt Securities (as    supplement. Since the specific
 defined in the accompanying              terms of notes are made at the
 Prospectus) set forth under the          time of pricing, rely on      
 heading ``Description of Debt            information in the pricing    
 Securities'' in the Prospectus, to       supplement over different     
 which description reference is hereby    information in the prospectus.
 made.                                                                  
------------------------------------------------------------------------

    When you use defined terms and excessive cross-references, 
practices common to legal drafting, you force the reader to learn a new 
vocabulary--your vocabulary. These writing conventions may be a short 
hand for the writer but they inhibit the reader's ability to understand 
the information.
6. No Multiple Negatives
    Negative sentences and multiple negatives within a sentence hinder 
comprehension as the reader deciphers the meaning of the negatives. Ask 
yourself which sentences are clearer.

------------------------------------------------------------------------
                 Before                               After             
------------------------------------------------------------------------
No clause can become valid unless        A clause becomes valid only if 
 approved by both parties..               both parties approve it.      
Except when an applicant has submitted   We will send your money within 
 a request for withdrawal without the     one business day if you       
 appropriate tax identification number,   include your tax              
 the request will be honored within one   identification number in your 
 business day..                           withdrawal request.           
------------------------------------------------------------------------

D. Design And Organize Your Document So It Is Easy and Inviting To Read

    We believe the dense copy used in the typical prospectus coupled 
with its legal tone, discourages investors from reading the document. 
By importing into your disclosure documents the design concepts you 
already use in your annual reports to shareholders, you can make 
disclosure documents visually inviting and easier to read.
    Experts believe, generally, that the eye can only comfortably scan 
50-70 characters in a line without losing its place.\51\ It is thus 
difficult to read dense blocks of text that run across an entire page. 
A number of the plain English pilot participants solved the problem by 
using two columns. White space also relieves the eye and encourages the 
investor to read the document. The use of all capital letters, right-
hand margins that are justified, and tissue-like paper can make the job 
of reading a document extremely hard.
---------------------------------------------------------------------------

    \51\ Duncan A. MacDonald, Drafting Documents in Plain Language, 
Practicing Law Institute, 229 (1979).
---------------------------------------------------------------------------

    If your prospectus includes a table of contents with descriptive 
captions, subcaptions, and page numbers, an investor will be able to 
locate information easily in the prospectus. Captions and descriptive 
headings throughout the document also cue the reader as to the subject 
matter.
    Depending on the type of offering and the audience, a question-and-
answer format can greatly increase the readability of your document. We 
have

[[Page 3159]]

encouraged the use of the question-and-answer format for employee stock 
purchase plans.\52\ Several of the plain English pilot participants 
used a question and answer format to answer common questions raised by 
investors.
---------------------------------------------------------------------------

    \52\ Securities Act Release No. 4844 (August 5, 1966) (31 FR 
10667).
---------------------------------------------------------------------------

    Although not part of our proposed rules, another effective tool for 
producing plain English documents is to use personal pronouns. Personal 
pronouns immediately engage your readers' attention. A familiar writing 
style where ``we'' or ``I'' refers to management or the company, and 
``you'' refers to the investor, involves your reader and increases 
comprehension. If you avoid distant and abstract language like ``the 
company'' and ``a shareholder,'' your writing becomes clearer and more 
appealing because you are communicating directly with your reader.
    Take, for example, a recent offering made by Berkshire 
Hathaway.\53\ The cover page of the prospectus contains the following 
personal communication: ``Warren Buffet, as Berkshire's Chairman, and 
Charles Munger, as Berkshire's Vice Chairman, want you to know the 
following (and urge you to ignore anyone telling you that these 
statements are `boilerplate' or unimportant).''
---------------------------------------------------------------------------

    \53\ Berkshire Hathaway Inc., Form S-3, filed April 2, 1996, 
effective May 8, 1996, File No. 333-2141.
---------------------------------------------------------------------------

    This introduction is followed by clear warnings regarding the 
company's asset growth, share price, and the market for the securities 
offered. A similar personal approach, with the frequent use of the 
pronoun ``we'' to refer to the company, Warren Buffet, or Charles 
Munger, is used in Berkshire Hathaway's 1995 annual report to 
shareholders.
    Several of the pilot participants used personal pronouns throughout 
their documents. Others employed a modified approach in which personal 
pronouns were used when referring to the company but a more formal 
designation like ``holder'' or ``noteholder'' was used when referring 
to the investor.54
---------------------------------------------------------------------------

    \54\ Bell Atlantic Corporation used personal pronouns for both 
the company and the shareholder in their merger proxy statement. ITT 
Corporation and Baltimore Gas and Electric Corporation used the 
modified approach. See Appendix A. Bell Atlantic also used personal 
pronouns in the management's discussion and analysis section of the 
Form 10-Q for the quarter ended September 30, 1996 (File No. 1-
8606).
---------------------------------------------------------------------------

IV. Plain English Rule Proposals

    The Task Force on Disclosure Simplification recommended developing 
a plain English introduction to the prospectus and, to enhance the 
prospectus's readability, eliminating boilerplate ``legalese,'' 
requiring a summary of key information, and enhancing the disclosure to 
include significant financial ratios and other information. The Task 
Force also recommended that the Commission issue a plain English 
interpretive release. Our proposals include most of the Task Force's 
specific recommendations for improving the readability of documents. 
This release serves as our interpretative advice on plain English. We 
have decided to defer action on the Task Force's recommendation to 
provide investors with disclosure on significant financial ratios. 
Further study is needed to determine the best format for providing 
important financial indicators to investors and the ratios that should 
be provided.

A. Proposed Plain English Rule 421(d)

    While all prospectuses must be clear and understandable, our 
proposals would also require the front of the prospectus to meet the 
plain English requirements in proposed Rule 421(d). In addition, we are 
proposing to codify our interpretive advice, first given for limited 
partnership offerings, to give you more guidance on how to meet the 
requirements for clear, concise and understandable disclosure in 
prospectuses.
    If adopted as proposed, Rule 421(d) would require you, when 
drafting the cover page, summary, and risk factors sections, to use the 
plain English principles, discussed above in the section, Elements of 
Plain English. You should design these sections of the document to make 
them inviting and easy to read. This design could take many forms, 
including the use of pictures, logos, charts, graphs, or other 
features, so long as the design is not misleading and the required 
information is clear. The examples from pilot participants' documents, 
included in Appendix A, and the staff's draft handbook give you 
guidance in this area. We will include on our Internet site examples of 
other plain English documents to help you draft more readable 
disclosure documents.
    Our proposals for plain English cover pages, prospectus summary, 
and risk factors sections should improve greatly the readability of the 
entire document. We encourage you to use plain English techniques to 
draft the entire prospectus. We also encourage you to use these 
techniques for drafting your other disclosure documents.
    We request your comments on all aspects of the proposed rule. Your 
comments should provide any factual support for your position. Please 
comment on whether you believe the proposed plain English requirements 
will achieve clearer disclosure and improve readability. We also 
request your comments as to whether compliance with the proposed rule 
changes will cause registrants to highlight key information for 
investors and eliminate redundant or uninformative information.

B. Clear, Concise and Understandable Prospectuses--Rule 421(b)

    We are proposing the following expansion of Rule 421(b) to give you 
guidance on the minimum requirements to meet the current provision for 
clear, concise, and understandable disclosure in the prospectus and to 
identify drafting problems to avoid. These standards and common 
prospectus drafting problems were identified in our interpretive 
release on limited partnership offerings. In drafting the disclosure in 
the prospectus you should apply the following techniques:
     Information must be presented in clear, concise paragraphs 
and sentences. If possible, information should be presented in short 
explanatory sentences and ``bullet'' lists;
     Captions and subheading titles must describe specifically 
the information included in the section;
     Terms that are not clear from the context generally should 
be defined in a glossary or other section of the document. Glossaries 
are recommended where they facilitate understanding of the disclosure. 
Frequent reliance on glossaries or defined terms as the primary means 
of explaining information in the body of the prospectus should be 
avoided; and
     Legal and highly technical business terminology should be 
avoided.
    Our proposals also include a Note to Rule 421(b) that lists 
drafting conventions that you should avoid in presenting prospectus 
information. The proposed Note to Rule 421(b) identifies the following 
problems in drafting prospectus disclosure:
     Legalistic, overly complex presentations that make the 
substance of the disclosure difficult to understand;
     Vague ``boilerplate'' explanations that are imprecise and 
readily subject to differing interpretations;
     Complex information copied directly from legal documents 
without any clear and concise explanation of the provision(s); and
     Disclosure repeated in different sections of the document 
that increases the size of the document, does not enhance the quality 
of the information, and does not enlighten the reader.


[[Page 3160]]


Some have suggested that the undue length of many prospectus also makes 
them difficult to read. You are encouraged to use the current provision 
of Rule 421 which allows you to condense or summarize information in 
the prospectus, information other than the financial statements.

C. Proposed Revisions to Regulation S-K

1. Front of Registration Statement and Outside Front Cover Page of 
Prospectus
    We propose to revise the requirements for the outside front cover 
page of the prospectus to eliminate the stylized format and require 
legal warnings in plain English. We believe that the legal language 
specified by the requirements is not informative to investors. More 
importantly, we believe the dense format of the cover page discourages 
investors from reading the important business and financial disclosures 
in the prospectus.
    Substantially the same changes are being proposed to the 
requirements for small business issuers, except Regulation A offerings. 
In 1992, we adopted major revisions to the Regulation A offering 
process for companies not subject to our reporting requirements. 
Because few Regulation A offerings were made last year, we are not 
proposing changes to the disclosure requirements for these offerings. 
We request your comments, however, on whether the legal legends 
required in these offerings should be changed to conform to our 
proposals to draft these legends in plain English.55 The table 
below shows the current requirements of Regulation S-K and our proposed 
changes.56
---------------------------------------------------------------------------

    \55\ Regulation A requires a bold-face, all-capital legend that 
the SEC does not approve or disapprove of the securities offered, 17 
CFR 230.253, and a legend indicating the document is incomplete, 17 
CFR 230.255. In addition, Form 1-A requires legal warnings in all-
capital letters regarding the risk of the offering in the Model 1-A 
disclosure alternative.
    \56\ See Item 501 of Regulation S-K, 17 CFR 229.501 and Item 501 
of Regulation S-B, 17 CFR 228.501. See Appendix B for a chart 
showing the changes to Regulation S-B.

                        Regulation S-K--Item 501                        
------------------------------------------------------------------------
                Current                              Proposed           
------------------------------------------------------------------------
 Information in highly            Information formatted 
 formatted design.                        in clear, inviting design.    
 Company name..................   Same.                 
 Title and amount of securities   Same.                 
 offered.                                                               
 By whom securities offered....   Same.                 
 Formatted distribution table     Bullet list or other  
 showing price, underwriting              design that highlights the    
 commission, and proceeds of offering.    price, underwriting           
                                          commission, and proceeds of   
                                          offering.                     
 Instruction on showing bona      Retain.               
 fide estimate of range of maximum                                      
 offering price.                                                        
 Instruction on showing how       Retain.               
 price determined.                                                      
 Formatted best efforts           Bullet list or other  
 distribution table.                      design that highlights the    
                                          information.                  
 Specific language and print      Clear language with no
 type for legal warnings.                 type specified.               
 No requirement................   Name of underwriters  
                                          and type of underwriting      
                                          arrangements.                 
 Cross-references to disclosure   Delete.               
 in prospectus.                                                         
 Specific cross-reference to      Delete.               
 risk factors.                                                          
 Underwriters' over-allotment     Move to underwriting  
 option.                                  section.                      
 Expenses of offering..........   Move to underwriting  
                                          section.                      
 Commissions paid by others and   Move to underwriting  
 other non-cash consideration.            section.                      
 Finders fees..................   Move to underwriting  
                                          section.                      
------------------------------------------------------------------------

    Our proposals would require you to format the outside front cover 
page in a design that invites an investor to read the information. The 
proposals would allow you to use pictures, graphs, charts, and other 
designs that accurately depict your company, its business, products, or 
financial condition, so long as the information is not misleading. The 
proposals would eliminate the current requirements for cover page 
cross-references, including the cross-reference to risk factors. A 
cross-reference may unnecessarily clutter the cover page and duplicate 
the information in the table of contents. We believe that our proposed 
requirement for risk factors in plain English will improve the 
disclosure to investors, making the cross-reference unnecessary. We 
propose to retain the cross-reference to risk factors on the cover page 
for small business issuers since often these companies present greater 
risks because of their limited operations and financial condition.
    Your comments are requested, however, as to whether the existing 
requirements should be retained, and if so, which ones. We also request 
that you indicate other information or design elements for the cover 
page that would provide clearer, more readable disclosure. We ask you 
to give us your comments on whether the proposed disclosure 
requirements are sufficiently flexible to permit you to meet the plain 
English requirements. Your comments are requested on whether the cross-
reference to risk factors should be retained for all offerings or 
whether the plain English requirements make it unnecessary for any 
offering, including small business issuer offerings.
    The legal warnings required by our regulations would be in plain 
English.57 Because the current requirement for printing the legend 
in all capital letters makes the information difficult to read, no 
print type or size is proposed. We offer one example of a plain English 
legend, however, you are encouraged to draft your own plain English 
version, so long as the content is retained. One example of the current 
legend rewritten in plain English is as follows:
---------------------------------------------------------------------------

    \57\ The staff is working with the North American Securities 
Administrators Association, Inc.'s Disclosure Reform Task Force to 
coordinate our efforts to assure clearer communications with 
investors. The Disclosure Reform Task Force is considering the 
effect of our plain English initiatives on the states' disclosure 
requirements, particularly the language used in state-required 
legends.

[[Page 3161]]



------------------------------------------------------------------------
                 Before                               After             
------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED  The Securities and Exchange    
 OR DISAPPROVED BY THE SECURITIES AND     Commission has not approved or
 EXCHANGE COMMISSION NOR HAS THE          disapproved these securities, 
 COMMISSION PASSED UPON THE ACCURACY OR   or determined if this         
 ADEQUACY OF THIS PROSPECTUS. ANY         prospectus is truthful or     
 REPRESENTATION TO THE CONTRARY IS A      complete. Any representation  
 CRIMINAL OFFENSE.                        to the contrary is a criminal 
                                          offense.                      
------------------------------------------------------------------------

    Our proposals would require the legend indicating an incomplete 
prospectus, commonly called the ``red herring'' legend, to be in any 
plain English format. One example of the current legend in plain 
English would read as follows:

------------------------------------------------------------------------
                 Before                               After             
------------------------------------------------------------------------
Information contained herein is subject  The information in this        
 to completion or amendment. A            prospectus is not complete and
 registration statement relating to       may be amended. We may not    
 these securities has been filed with     sell these securities until   
 the Securities and Exchange              the registration statement    
 Commission. These securities may not     filed with the SEC is         
 be sold nor may offers to buy be         effective. This prospectus is 
 accepted prior to the time the           not an offer to sell nor is it
 registration statement becomes           seeking an offer to buy these 
 effective. This prospectus shall not     securities in any state where 
 constitute an offer to sell or the       the offer or sale is not      
 solicitation of an offer to buy nor      permitted.                    
 shall there be any sale of these                                       
 securities in any State in which such                                  
 offer, solicitation or sale would be                                   
 unlawful prior to registration or                                      
 qualification under the securities                                     
 laws of any State.                                                     
------------------------------------------------------------------------

    Although no requirement currently exists to disclose the name of 
the underwriter and the type of offering, this information is usually 
provided on the cover page. Our proposal would specifically provide for 
this information in plain English on the cover page.
    We have not proposed any specific print size or font type for the 
plain English portion of the prospectus. Our proposals allow you the 
flexibility to use a print type and font size that enhances your 
document design so long as the information is easily readable. We 
request your comments as to whether we should require or prohibit any 
specific print type or font size and the reason for your position.
    Your comments should address specifically the proposed revisions to 
the legends and suggest alternative plain English legends. Your 
comments should address whether the plain English legends adequately 
inform investors, and whether the proposed cover page information 
should be mandated, or whether other information should be permitted 
and, if so, what information. For example, should information on the 
cover page be limited to the name of the company and the securities 
offered, with the other information disclosed in the summary section of 
the document?
    In addition, we request public comment on whether specific 
information should be required for the cover pages of merger proxy 
statements, registered exchange offers, or other offerings. Please 
provide examples of the types of information that should be required. 
We specifically request your comments on whether the limited 
partnership roll-up transactions should be subject to these plain 
English proposals or should different standards apply to these 
transactions and, if so, what standard should apply. For example, the 
current roll-up disclosure provisions 58 provide for a detailed 
discussion of risks of the offering, while the proposals made today 
would require risk factors to be brief. Also, risk factors are required 
on the cover page, summary section and risk factors section in limited 
partnership roll-up prospectuses.59 Our proposals would require 
the risks to be described in plain English only in the risk factor 
section.
---------------------------------------------------------------------------

    \58\ Item 904 of Regulation S-K, 17 CFR 229.904.
    \59\ See Items 902(b)(2) of Regulation S-K 17 CFR 229.902(b)(2); 
Item 903(b)(1) of Regulation S-K, 17 CFR 229.903(b)(1); and Item 
904(a)(2) of Regulation of S-K, 17 CFR 229.904(a)(2).
---------------------------------------------------------------------------

2. Inside Front and Outside Back Cover Pages of Prospectus
    Currently, information of a highly technical nature is required on 
either the inside front or outside back cover page of the 
prospectus.60 Except for the availability of Exchange Act 
reports,61 the table of contents, and the legend concerning the 
dealer's prospectus delivery obligation, we propose to move this 
technical information to the body of the prospectus, as shown in the 
following table.
---------------------------------------------------------------------------

    \60\ See Item 502 of Regulation S-K, 17 CFR 229.502 and Item 502 
of Regulation S-B 17 CFR 228.502.
    \61\ Securities Exchange Act of 1934, 15 U.S.C. 78a et seq.

                        Regulation S-K--Item 502                        
------------------------------------------------------------------------
                Current                              Proposed           
------------------------------------------------------------------------
 Stabilization activities by      Move to underwriting  
 underwriters.                            section.                      
 Underwriters' passive market     Delete because it     
 making activities legend.                duplicates information in     
                                          underwriting section.         
 Disclosure of dealer             Move to back cover    
 prospectus delivery obligation.          page.                         
 Availability of Exchange Act     Move to back cover    
 reports generally.                       page or include with          
                                          incorporation by reference    
                                          disclosure in short form      
                                          registration statements.      
 Availability of Exchange Act     Move to registration  
 reports incorporated by reference in     statement forms permitting    
 short form registration statements.      incorporation by reference.   

[[Page 3162]]

                                                                        
 Availability of annual reports   Move to business      
 to shareholders with GAAP audited        description section.          
 financial statements for foreign                                       
 issuers and others not subject to our                                  
 proxy rules.                                                           
 Enforceability of civil          Move to business      
 liability provisions of federal          description section.          
 securities laws against foreign                                        
 persons.                                                               
 Table of contents.............   Move to inside front  
                                          cover page or immediately     
                                          following the cover page.     
------------------------------------------------------------------------

    Much of the currently required information is highly technical and 
drafted in legal language that often confuses rather than informs 
investors. We believe that placing this information in the front of the 
prospectus overshadows the essential business and financial information 
fundamental to an investment decision. Because the disclosure will be 
elsewhere in the prospectus, the information provided investors will be 
the same. Moving this information to the body of the prospectus will 
give you the freedom to design an inviting cover page which highlights 
key information for investors.
    We believe the current information on the underwriter's 
stabilization activities, passive market making activities, and the 
dealer's obligations to deliver prospectuses is key information on the 
orderly distribution of the offering. But this information is not 
essential for the front of the document. We propose relocating the 
stabilization information to the underwriting section of the 
prospectus.\62\ Information on passive market making activities 
currently is required both in the underwriting section of the 
prospectus and as a legal legend on either the inside front or outside 
back cover page. Duplication of this information on the cover page is 
unnecessary and we propose to delete it from the cover page but retain 
the information in the underwriting section.
---------------------------------------------------------------------------

    \62\ Item 508 of Regulation S-K, 17 CFR 229.508 and Item 508 of 
Regulation S-B, 17 CFR 228.508.
---------------------------------------------------------------------------

    We also propose to retain the requirement to disclose the dealer's 
prospectus delivery obligations on the back cover page of the 
prospectus. This will help dealers meet their obligations to deliver a 
prospectus in connection with the distribution of the securities. 
However, we request your views as to whether this information is 
necessary and, if so, whether we should require that this notice to 
dealers be disclosed elsewhere in the document, like the inside front 
cover page.
    You have an obligation to send to security holders, upon request 
and at no charge, the Exchange Act reports incorporated by reference in 
short-form registration statements. We currently require you to 
disclose this obligation on the inside front cover page or elsewhere, 
as appropriate. We propose to relocate this information to the section 
of the short form registration statements detailing what information 
you must incorporate by reference.
    We propose to move the disclosure regarding the availability of 
Exchange Act reports to the back cover page of the prospectus. 
Alternatively, it could be included as part of the disclosure 
incorporating Exchange Act reports by reference into short form 
registration statements. Moving the information to the back cover page 
would provide you the flexibility to design the front of the document 
in a clear manner. Requiring this information to be provided where the 
Exchange Act reports are incorporated by reference would eliminate 
duplication in short form registration statements.\63\
---------------------------------------------------------------------------

    \63\ Our proposals would amend Forms S-2, S-3, S-4, F-3 and F-4 
to include the requirement to disclose the availability of documents 
incorporated by reference with the disclosure on incorporation by 
reference of Exchange Act reports.
---------------------------------------------------------------------------

    Because we now have an 800 number that gives information on how to 
obtain the reports filed with us and because copies of these reports 
are now available on the Internet, the proposed revisions would delete 
the requirement that our headquarters and regional office addresses be 
given. For this reason, we are also proposing to delete the requirement 
to disclose the availability of these reports at the exchange where the 
issuers' securities are listed. Of course, you must continue to send 
copies of your Exchange Act reports to the exchange where your 
securities are listed.\64\ We request your comments on whether the 
information should be required elsewhere in the document, or whether 
the requirements should give companies greater flexibility to place the 
information where it is highlighted best for investors, given the 
design of the document. If your Exchange Act reports are on your 
Internet site, our rule proposals encourage you to give the web site 
address in your documents.
---------------------------------------------------------------------------

    \64\ Rule 12b-11, 17 CFR 240.12b-11.
---------------------------------------------------------------------------

    One example of a plain English rewrite of this disclosure follows:

------------------------------------------------------------------------
                 Before                               After             
------------------------------------------------------------------------
Our company is subject to the            Our company files annual,      
 informational requirements of the        quarterly and current reports,
 Securities Exchange Act of 1934, as      proxy statements and other    
 amended (the ``Exchange Act''), and,     information with the SEC. You 
 in accordance therewith, files reports   may read and copy any reports,
 and other information with the           statements or other           
 Securities and Exchange Commission       information we file at the    
 (the ``Commission''). The reports and    SEC's public reference room in
 other information filed by our company   Washington, D.C. You can      
 with the Commission can be inspected     request copies of these       
 and copied at the Commission's public    documents, upon payment of a  
 reference room located at 450 Fifth      duplicating fee, by writing to
 Street, N.W., Room 1024, Washington,     the SEC. Please call the SEC  
 D.C. 20549, and at the public            at 1-800-SEC-0330 for further 
 reference facilities in the              information on the operation  
 Commission's regional offices located    of the public reference rooms.
 at: 7 World Trade Center, 13th Floor,    Our SEC filings are also      
 New York, New York 10048; and at         available to the public on the
 Northwest Atrium Center, 500 West        SEC Internet site (http://
 Madison Street, Suite 1400, Chicago,     www.sec.gov.).                
 Illinois 60661. Copies of such                                         
 material can be obtained at prescribed                                 
 rates by writing to the Securities and                                 
 Exchange Commission, Public Reference                                  
 Section, 450 Fifth Street, N.W.,                                       
 Washington, D.C. 20549..                                               
------------------------------------------------------------------------


[[Page 3163]]

    Our proposals would move to the body of the prospectus the 
information on the availability of audited financial statements, where 
the company is a foreign private issuer or is not subject to our proxy 
rules. As proposed, we would require the information to appear, under a 
descriptive heading, as part of the business description. 65 We 
believe that relocating this information in the business section of the 
prospectus would inform investors of the continued availability and 
type of financial information your company will provide.
---------------------------------------------------------------------------

    \65\ Item 101 of Regulation S-K and Regulation S-B.
---------------------------------------------------------------------------

    Currently, you may provide information as to the enforceability of 
civil liabilities against foreign persons on the inside front cover 
page or in the front of the prospectus. We propose to move this 
information to the business description section of the 
prospectus.66 The staff's experience is that this information is 
often provided as a generic risk factor. If enforceability of civil 
liabilities presents a material risk to an investor given the company 
and its operations, our proposal for plain English prioritized risk 
factors would require risk disclosure. Your comments should address 
whether, given our global markets, the information now is sufficiently 
routine to make this disclosure more appropriate in the business 
description and required as a risk factor only when it is a material 
risk relating to an investment in the company. If you believe the 
information should be disclosed in another section of the prospectus, 
please give us the reason(s) for your position.
---------------------------------------------------------------------------

    \66\ Item 101 of Regulation S-K and Regulation S-B.
---------------------------------------------------------------------------

    As currently permitted, the table of contents often appears on the 
back cover page. We question whether a reader goes to the back of the 
document first to locate a guide to the document, so our proposals 
would require this information to be on the inside front cover or 
immediately behind the cover page. We request your comments on whether 
the information flow of the document should permit you the flexibility 
to place the table of contents where you believe it best serves as a 
guide to the document, and the reasons for your position.
3. Prospectus Summary, Risk Factors and Ratio of Earnings to Fixed 
Charges 67
---------------------------------------------------------------------------

    \67\ See Item 503 of Regulation S-K, 17 CFR 229.503 and Item 503 
of Regulation S-B, 17 CFR 228.503.
---------------------------------------------------------------------------

    Currently, you are required to include a summary of the information 
contained in the prospectus where the length or complexity of the 
prospectus makes a summary appropriate. The existing requirements also 
specify that a risk factor section be provided, where appropriate, and 
that this section immediately follow either the summary section or the 
cover page. In addition, information is required as to the ratio of 
earnings to fixed charges.

a. Summary

    Our proposals would require a prospectus summary in plain English. 
To address the problem where the summary is ten to twenty-five pages 
long, we have revised the current provision to require that the summary 
section be brief. The current requirement continues to be a general 
provision giving you the flexibility to draft a meaningful summary 
appropriate to the type of offering.
    We request your comment as to whether the summary should be further 
limited to a specific number of pages. For example, should the summary 
be no more than three, four, or five pages? We also request your 
comments as to whether we should require specific information in this 
section, such as condensed financial information and a summary of 
management's discussion and analysis. Please indicate any specific 
information you believe should be in the summary.
    A recent review by the staff of a number of the short form 
registration statements indicates that these offerings often include a 
summary or similar section describing the company's business and 
operations. This discussion contains a lengthy discussion of the 
company's business, risk factors, and summarized financial information. 
The information is not specifically required, but apparently is 
considered important to the selling effort. If you elect to include 
this information, the disclosure would be subject to the same plain 
English disclosure requirements as we propose for the front of the 
document. Please give us your comments on whether short registration 
forms should have a summary and, if so, which offerings, and the 
reasons for your position. We also request your comments as to whether 
a summary section should be required for all prospectuses, given the 
current complexity of these documents.

b. Risk Factors

    Our proposals would require the risk factors to be in plain English 
and be listed in order of their importance. As is currently the case, 
the discussion would immediately follow the summary, if one is 
provided, or the cover page of the prospectus. Often the risk factor 
disclosure in a prospectus is boilerplate, listing risks that could 
apply to any offering or that are not likely to occur. Because 
boilerplate risks do not provide meaningful information to investors, 
we believe they should not be used and our proposals specifically 
prohibit them.
    For example, if your company is making an initial public offering 
of common stock and the securities will be listed and traded on a 
national securities exchange, it is not helpful to investors to provide 
a statement that management can give no assurance that an active market 
will develop in the company's securities. If, given these facts, you 
believe that a market will develop for the securities, then the risk 
factor is not helpful to an investor. On the other hand, if, given 
these facts, you believe that a market reasonably may not develop, 
additional information would be necessary as to why a trading market 
may not develop.
    We are concerned, however, that plain English alone will not 
address the problem of listing many risk factors that are so general 
that they are not meaningful and add to the length of the document 
making the document difficult to read. We request your comments on 
whether we should require disclosure of a specific number of risk 
factors, such as eight, or alternatively limit the risk factor 
discussion to no more than two pages.
    Your comments specifically are requested as to whether there should 
be any limit on the number of prioritized risk factors or the number of 
pages, or whether the limit should be higher or lower than eight risk 
factors or the two pages. For instance, should there be no more than 
four risk factors discussed in this section, divided equally between 
company and offering risks, or should the number of permitted risk 
factors be increased to 10 or 12 with no allocation as to the nature of 
the risk? Should there be a page limit and should the limit be no more 
than two pages, three pages, four pages or higher?

c. Ratio of Earnings to Fixed Charges

    When you issue debt or a class of preferred equity, you are 
required to disclose a ratio of earnings to fixed charges. Since this 
information usually is included in the prospectus with selected 
financial data, we propose to move the requirement to that 
section.68 Where a prospectus summary is included, we propose that 
the ratio of earnings to fixed charges be shown as part of the 
summarized financial data, as is currently the practice.
---------------------------------------------------------------------------

    \68\ Item 301 of Regulation S-K, 17 CFR 229.301.

---------------------------------------------------------------------------

[[Page 3164]]

D. Proposed Rules for Investment Companies

    Current disclosure standards direct investment companies to provide 
clear, concise, and understandable disclosure in prospectuses.69 
We are concerned, however, that fund prospectuses are overly complex 
and difficult to follow. We have commenced significant disclosure 
initiatives to improve the information provided to fund investors, 
including consideration of a summary disclosure document or ``profile'' 
for funds and updating prospectus disclosure requirements. We expect to 
announce proposals that would implement these initiatives in the near 
future.
---------------------------------------------------------------------------

    \69\ See, e.g., General Instruction G of Form N-1A.
---------------------------------------------------------------------------

    The plain English disclosure proposals complement these disclosure 
initiatives. The proposed changes to Rule 421 would apply to 
funds.70 The proposed revisions in Regulation S-K intended to 
improve the clarity of disclosure in prospectuses of corporate issuers 
would not apply to funds, although similar legal legends and other 
requirements are included in specific rules for investment 
companies.71 We plan to consider conforming changes to the rules 
for fund prospectuses in connection with the disclosure initiatives for 
investment companies. We request your comments on whether the proposed 
changes to Rule 421 should be modified for fund prospectuses.
---------------------------------------------------------------------------

    \70\ While the disclosure in fund prospectuses must be clear, 
concise, and understandable, the proposed plain English principles 
in Rule 421(d) would apply to the front and back cover pages of the 
prospectus and summary, if any. The specific requirement for plain 
English risk factors disclosure referred to in proposed Rule 421(d) 
would not apply to funds since the same disclosure is not required 
in their prospectuses.
    \71\ See, e.g., proposed Item 501(b) (5) and (8) of Regulation 
S-K (SEC legend and subject to completion legend); similar legends 
are required for mutual funds by Rule 481(b) (1) and (2) of 
Regulation C, 17 CFR 230.481(b) (1) and (2). Many of the proposed 
revisions to Regulation S-K would, if applied to funds, affect 
relatively few offerings of fund securities, e.g., descriptions of 
underwritten offerings in proposed Item 501(b)(6).
---------------------------------------------------------------------------

    The phase-in of plain English requirements proposed for corporate 
issuers discussed below may need to be modified for investment 
companies since they are engaged in continuous offerings of securities. 
We also request comment on special requirements that may be necessary 
to allow for the orderly phase-in of the proposed plain English 
requirements for investment companies.

V. Staff Review

A. Plain English Pilot Program

    The Division of Corporation Finance has established a pilot program 
to work with public companies on drafting plain English documents filed 
under either the Securities Act or the Exchange Act. We also expedite 
the review of these filings. The staff's comments, in plain English, 
will be consistent with these plain English proposals. The staff has 
issued five interpretive letters under the plain English pilot program. 
The staff granted interpretive relief from compliance with the legend 
requirements in the front of the prospectus, the distribution table 
showing the price, underwriters' commissions and proceeds of the 
offering, and the disclosure regarding the availability of Exchange Act 
reports.72 The staff also stated its view that identification of a 
company's web site and the statement ``[o]ur SEC filings are also 
available to the public from our web site'' will not, by itself, 
include or incorporate by reference any information into the 
registration statement that is included or hot linked to the issuer's 
regular web site that is not otherwise incorporated by reference into 
the registration statement.73 Because the staff's interpretive 
position on these matters is now well established, other pilot 
participants may rely on these positions and do not need to submit a 
specific written request.
---------------------------------------------------------------------------

    \72\ Division of Corporation Finance letters to ITT Corporation 
(dated November 12, 1996 and January 6, 1997), Baltimore Gas and 
Electric Corporation (two letters dated January 6, 1997) and SCANA 
Corporation (dated January 6, 1997).
    \73\ Division of Corporation Finance letter to ITT Corporation 
(December 6, 1996) and BGE Corporation (dated January 6, 1997).
---------------------------------------------------------------------------

B. Denial of Request for Acceleration

    Currently, we consider a number of factors in determining whether 
the statutory requirements for acceleration of registration statements 
for public offerings, including mutual fund offerings, have been met, 
and may refuse to accelerate the effective date in appropriate 
circumstances. Among the factors that we consider is the clarity of the 
disclosure. We may refuse to accelerate a registration statement:

    Where there has not been a bona fide effort to make the 
prospectus reasonably concise and readable, so as to facilitate an 
understanding of the information required or permitted to be 
contained in the prospectus.'' 74

    \74\ Rule 461 of Regulation C.
---------------------------------------------------------------------------

Our proposals amend this provision to reflect the proposed requirement 
for plain English. To effectively implement plain English we are 
committed to administering this rule in a manner that achieves its goal 
of readable documents. If your document, when filed, indicates a good 
faith effort to meet the requirement, our staff will work with you, in 
the review and comment process, to meet any plain English requirements 
adopted and your financing schedule. We request your views as to other 
actions that we should take to make the prospectus clearer to investors 
and implement the plain English requirements.

C. Phase-In of Plain English Requirements

    To make sure that our plain English proposals do not interfere with 
your need to access the capital markets on a timely basis, any plain 
English rule that is finally adopted would be phased in as follows:
     Registration statements pending on the effective date of 
the rule would not need to be revised to meet the plain English 
requirements;
     An updating amendment to a registration statement filed to 
meet section 10(a)(3) of the Securities Act 75 would be required 
to comply with the rule in effect at the time of filing;
---------------------------------------------------------------------------

    \75\ 15 U.S.C. 77j(a)(3).
---------------------------------------------------------------------------

     Any shelf registration statement affected by the plain 
English rule would be required to comply with the requirement at the 
time a new shelf registration statement is filed, but no later than 
December 31, 1998.
     All filings would be required to comply with the rule no 
later than December 31, 1998.
    Please give us your comments on whether this schedule provides you 
the necessary flexibility to meet the proposed revisions, if adopted.

VI. Request for Comments

    We request your comments on whether plain English should be 
mandated or only recommended, and whether there are other alternatives 
that will provide for a more reader-friendly and understandable 
disclosure document. Your comments are also requested on whether or not 
plain English should be required for the entire prospectus and not just 
the cover page, prospectus summary, and risk factors section. Please 
furnish the specific reasons for your position. We request your comment 
on whether additional plan English techniques should be required and, 
if so, which ones. If you have concerns that plain English will 
increase liability we request information on the substantive basis for 
your

[[Page 3165]]

concern and, if available, the factual data in support of your 
position.
    We specifically request that investors provide comments on the 
proposals.

VII. Cost-Benefit Analysis

    Our plain English proposals streamline existing requirements and 
require a clear writing style and format. We believe the proposals, if 
adopted, would result in little additional costs as issuers implement 
the organizational, language, and document structure changes necessary 
to comply with these proposals. Additional cost, if any, should be 
short-term and would be outweighed by the significant improvement in 
disclosure to investors. In addition, a number of the proposals 
simplify the cover page format, which should result in some printing 
and other cost savings in preparing prospectuses.
    We request your comment on whether the proposed rules would be 
``major rules'' for purposes of the Small Business Regulatory 
Enforcement Fairness Act of 1996. We have tentatively concluded that 
the proposed rules would not result in a major increase in costs or 
prices for consumers or individual industries or significant adverse 
effects on competition, employment, investment, productivity, 
innovation, or small business. We request comments on whether the 
proposed rules are likely to have a $100 million or greater annual 
effect on the economy. Your comments should provide empirical data to 
support your views.
    As an aid in evaluating the cost and benefits of the proposals, we 
request your comments and those of others involved in the registration 
process on this cost/benefit analysis. Please provide empirical data in 
support of your position to assist us in determining the cost and 
benefits of the proposals. We specifically request individual investors 
to provide us their views on the cost and benefits of the proposals.

VIII. Summary of the Initial Regulatory Flexibility Analysis

    We have prepared an initial regulatory flexibility analysis, IRFA, 
in accordance with 5 U.S.C. 603 concerning the proposed rules. As 
discussed more fully in the IRFA, the proposed rules would codify our 
interpretive advice, eliminate requirements that are no longer useful, 
and require plain English to be used to simplify the language used in 
the front of the documents. The rule amendments are proposed under 
sections 6, 7, 8, 10, and 19(A) of the Securities Act, and sections 3, 
12, 13, 14, 14(d), 23(a), and 35A of the Exchange Act.
    As the IRFA describes, we are aware of approximately 1100 Exchange 
Act reporting companies and approximately 800 active registered 
investment companies that currently satisfy the definition of ``small 
businesses'' under Rule 157 of the Securities Act. However, there is no 
reliable way to determine how many businesses may become subject to 
reporting obligations in the future or may otherwise be impacted by the 
rule proposals. The proposed rules do not affect the substance of 
disclosures registrants must make. The proposals do not impose any new 
recordkeeping requirements or require reporting of additional 
information. Thus, we believe that the proposals will not increase 
reporting, recordkeeping, or compliance burdens, and in some cases may 
slightly reduce those burdens for small businesses. Our view is also 
based on the experience of participants in the plain English pilot 
program. Pilot participants reported that the time required to 
understand the reporting requirements and prepare disclosures was the 
same, and in some cases a little less, than under existing rules. 
Although none of the program participants is a ``small business'' as 
defined by our rules, we believe the proposals will affect all 
registrants in the same way.
    As discussed more fully in the IRFA, several possible significant 
alternatives to the proposals were considered. These included 
establishing different compliance or reporting requirements for small 
entities, or exempting them from all or part of the proposed 
requirements. We believe that such alternatives are not appropriate for 
the following reasons: (i) They would be inconsistent with our mandate 
to require prospectuses to fully and fairly disclose all material 
information to investors; (ii) they would negate the important benefits 
of the proposals; and (iii) they would not reduce small issuers' 
compliance costs. The IRFA also indicates that there are no current 
federal rules that duplicate, overlap, or conflict with the proposed 
rules.
    We encourage written comments on any aspect of the IRFA. In 
particular, we seek comment on: (i) The number of small entities that 
would be affected by the proposed rules; and (ii) the determination 
that the proposed rules would not increase, and in some cases might 
slightly reduce, reporting, recordkeeping, and other compliance 
requirements for small entities. If you believe the proposals will 
significantly impact a substantial number of small entities please 
describe the nature of the impact and estimate the extent of the 
impact. For purposes of making determinations required by the Small 
Business Regulatory Enforcement Act of 1966, we are also requesting 
data regarding the potential impact of the proposed rules on the 
economy on an annual basis. Your comments will be considered in the 
preparation of the Final Regulatory Flexibility Analysis if the 
proposed amendments are adopted. A copy of the analysis may be obtained 
by contacting Ann D. Wallace, Division of Corporation Finance, 
Securities and Exchange Commission, 450 Fifth Street, N.W., Washington, 
D.C. 20549.

IX. Paperwork Reduction Act

    The proposed amendments would affect several regulations and forms 
76 that contain ``collection of information requirements'' within 
the meaning of the Paperwork Reduction Act of 1995.77 In order to 
obtain Office of Management and Budget approval, we previously 
submitted estimates to that Office of the time and cost burdens imposed 
on public companies by each regulation and form. Each of the 
regulations and forms currently is approved by that Office and displays 
a Paperwork Reduction Act control number.
---------------------------------------------------------------------------

    \76\ We are proposing changes to Rules 421 and 461 of Regulation 
C, Items 101, 501, 502, 503 and 508 of Regulation S-K and Regulation 
S-B and Item 301 of Regulation S-K. We also are proposing minor 
amendments to registration Forms S-2, S-3, S-4, S-20, F-3 and F-4 
under the Securities Act. Regulation S-K, Regulation S-B and 
Regulation C do not impose reporting burdens directly on public 
companies. For administrative convenience, each of these regulations 
is assigned one burden hour. The burden hours imposed by the 
disclosure regulations are reflected in the estimates for the forms 
that refer to the regulations.
    \77\ 44 U.S.C. 3501 et seq.
---------------------------------------------------------------------------

    We believe that the proposed amendments would not result in a 
substantive or material change to the collection of information 
requirements based on our experience with the plain English pilot 
programs. Pilot participants have indicated that they do not believe 
that drafting plain English documents has increased their time or cost 
burdens. In addition, the proposed rules do not affect the substance of 
the disclosure required. We anticipate that the proposals would not 
materially change the annual burden reporting and burden hours, because 
the proposals provide guidance on meeting existing disclosure 
obligations and simplify the format of the disclosure provided to 
investors.
    We solicit comment on our determination that the proposals would 
not result in a substantive or material change to the collection of 
information requirement and burdens. If you believe the proposals will 
affect materially the annual burden, you are asked to provide

[[Page 3166]]

an estimate of the change in the burden and the basis for your 
position.

X. Statutory Authority

    The rule amendments outlined above are proposed pursuant to 
Sections 6, 7, 8, 10 and 19(a) of the Securities Act and Sections 8, 
30, 31 and 38 of the Investment Company Act of 1940.

List of Subjects in 17 CFR Parts 228, 229, 230 and 239

    Reporting and recordkeeping requirements, Securities and Investment 
companies.

XI. Text of the Proposals

    In accordance with the foregoing, Title 17, Chapter 11 of the Code 
of Federal Regulations is proposed to be amended 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, 
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn, 77sss, 
78l, 78m, 78n, 78o, 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. If the small business issuer is 
not required to deliver an annual report to security holders, indicate 
whether it will voluntarily send an annual report and whether the 
report will include audited financial statements.
    (d) Canadian Issuers. Canadian issuers shall provide the 
information required by Item 101(f) of Regulation S-K (Sec. 228.101(f)) 
(Enforceability of Civil Liabilities Against Foreign Persons).
    3. Section 228.501 is amended by adding an introductory text, 
revising paragraphs (a)(4), (a)(5), (a)(7) and (a)(8) and removing 
paragraph (a)(11) to read as follows:


Sec. 228.501  (Item 501) Front of registration statement and outside 
front cover of prospectus.

    The following information must be provided in plain English as 
required by Sec. 230.421(d) of Regulation C of this chapter.
    (a) * * *
    (4) Cross reference to and identify the location in the prospectus 
(e.g., by page number or other specific location) of the risk factors 
section of the prospectus. The information should be highlighted by 
prominent type or otherwise.
    (5) The small business issuer must provide disclosure that informs 
investors that the Securities and Exchange Commission has not approved 
the securities or passed on the adequacy of the disclosures in the 
prospectus and that any representation to the contrary is a criminal 
offense. The disclosure may be in one of the following formats 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 the prospectus. Any representation to the contrary is a criminal 
offense.
    Example B: The Securities and Exchange Commission (``SEC'') 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.

    (6) * * *
    (7) If the securities are to be offered for cash, the small 
business issuer should set forth the price to the public, and the cash 
underwriting discounts and commissions. The information may be set 
forth in a table, term sheet format or other clear presentation. The 
small business issuer 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. The information must be shown on a 
per unit and aggregate basis. If the offering is made on a minimum/
maximum basis, information on the aggregate minimum/maximum must be 
shown. For best efforts or best efforts minimum/maximum offerings the 
cover page should disclose the date the offering will end and the 
provisions to place the funds in an escrow, trust, or similar account. 
Note that Item 508(a) requires all compensation and expenses of the 
underwriters to be disclosed in that section.
    (8) A prospectus used before the effective date of the registration 
statement must include a prominent statement that indicates that:
    (i) The information in the prospectus will be amended or completed;
    (ii) The securities may not be sold until the registration 
statement becomes effective; and
    (iii) The prospectus is not an offer to sell nor is it seeking an 
offer to buy the securities in any State where the offering is not 
permitted. The legend may be in the following language or other clear, 
and understandable language:

    The information in this prospectus is not complete. We may not 
sell these securities until the registration statement filed with 
the SEC is effective. This prospectus is not an offer to sell nor is 
it seeking an offer to buy these securities in any state where the 
offer or sale is not permitted.

    (iv) Comparable information must be provided if the prospectus is 
used before the determination of the initial public offering price in 
the case of a prospectus that omits this information as permitted by 
Sec. 230.430A of this chapter.
* * * * *
    4. Section 228.502 is revised to read as follows:


Sec. 228.502 (Item 502)  Inside front and outside back cover page of 
prospectus.

    A small business issuer must disclose the following information in 
plain English as required by Sec. 230.421(d) of Regulation C of this 
chapter.
    (a) Information available to security holders. (1) On the inside 
front or outside back cover page of the prospectus, the small business 
issuer must state whether it is a reporting company; and
    (2) The small business issuer shall describe the nature and 
frequency of the reports and other information the issuer is required 
to file with the Securities and Exchange Commission (SEC) that are 
available to investors. The small business issuer shall indicate that 
the documents can be reviewed and copied at the Commission's Public 
Reference Room in Washington, DC. 20549. In addition, if the small 
business issuer is an electronic filer, the disclosure shall indicate 
that the reports may be viewed on the SEC's Internet site (http://
www.sec.gov) or that copies may be obtained, upon payment of a 
duplicating fee, by writing to the SEC's Public Reference Section. The 
small business issuer should indicate that information on the operation 
of the public reference room may be obtained by calling the SEC at 1-
800-SEC-0330. Small business issuers are encouraged to give their 
Internet site address, if one is available.
    (3) The small business issuer shall state the name of any national 
securities exchange on which its securities are listed.
    (b) Address and telephone number. The small business issuer must 
include on the inside front cover page, or in the summary of the 
prospectus, the complete mailing address and telephone number of the 
small business issuer's principal executive offices.
    (c) Dealer Prospectus Delivery Obligations. The small business 
issuer must set forth information on the outside back cover page of the 
prospectus which advises dealers conducting transactions in the 
securities, whether or not they are participating in the distribution, 
that

[[Page 3167]]

they may be required to deliver a prospectus. The disclosure should 
specify the time period during which dealers must deliver a prospectus 
as specified in section 4(3) of the Securities Act and Sec. 230.174 of 
this chapter. The following legend may be used or any other format that 
includes the required content and is clear and concise;

    Until (insert date) all dealers that buy, sell or trade 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.

    (d) Table of Contents. On the inside front cover page of the 
prospectus, or immediately following the cover page, the small business 
issuer should provide a reasonably detailed table of contents showing 
the location in the prospectus, including page number, if practicable, 
of the subject matter of the various sections or subdivisions of the 
prospectus, including the risk factors section required by Item 503 of 
Regulation S-B.
    (e) Financial Data Graphs. Registrants are encouraged to use 
tables, schedules, charts and graphic illustrations of the results of 
operations, balance sheet, or other financial data that presents the 
data in an understandable manner. Any presentation must be consistent 
with the financial statements and related non-financial information. 
The graphs and charts must be drawn to scale and the information 
provided must not be misleading.
    5. By revising Sec. 228.503 to read as follows:


Sec. 228.503 (Item 503)  Summary information and risk factors.

    The following information must be furnished in plain English as 
required by Sec. 230.421(d) of Regulation C of this chapter.
    (a) Summary. Provide a summary of the information contained in the 
prospectus where the length and complexity of the prospectus make a 
summary useful. The summary should be brief. The summary should not and 
is not required to contain all of the detailed information in the 
prospectus.
    (b)(1) Risk factors. Discuss under the caption ``Risk Factors'' any 
factors that make the offering speculative or risky. The risk factor 
disclosure should highlight critical factors that the investor must 
consider in making an investment decision. Generic and boilerplate 
risks that could apply to any issuer or any offering should not be 
provided. The risk factors must be discussed in the order of their 
importance. The factors may include, among other things, the following:
    (i) The small business issuer's lack of recent profits from 
operations;
    (ii) The small business issuer's poor financial position;
    (iii) The small business issuer's business or proposed business; or
    (iv) The lack of a market for the small business issuer's common 
equity securities.
    (2) The risk factor discussion should immediately follow the 
summary section. If no summary section is necessary, the risk factor 
discussion should immediately follow the cover page of the prospectus 
or, if included, a pricing information section that immediately follows 
the cover page.

Instruction to Item 503(b)(2)

    ``Pricing information'' as used in paragraph (b) of this section 
shall mean price and price-related information of the type that may 
be omitted from the prospectus in an effective registration 
statement in reliance on Sec. 230.430A(a) of this chapter and 
information disclosed in a prospectus but is subject to change as a 
result of pricing.
    6. Section 228.508 is amended to add a sentence to the end of 
paragraph (a) and paragraph (j) to read as follows:


Sec. 228.508 (Item 508)  Plan of distribution.

* * * * *
    (a) Underwriters and underwriting obligations. * * * Disclose in a 
table all underwriting compensation including the other expenses of the 
offering specified in Item 511 of this Regulation S-B.
* * * * *
    (j) Stabilization and other transactions. The small business issuer 
must provide disclosure which briefly describes any transaction that 
the underwriters intend to conduct during the offering that stabilizes, 
maintains or otherwise affects the market price of the offered 
securities. Disclosure should be provided to indicate, if true, that 
the underwriters may discontinue these transactions at any time and 
indicate the exchange or other market on which these transactions may 
occur.
    (1) If the stabilizing begins before the effective date of the 
registration statement, the small business issuer must state the amount 
of securities bought, the prices at which they were bought and the 
period within which they were bought. If Sec. 230.430A of this chapter 
is used, the final prospectus must include information on the 
stabilizing transactions before the public offering price was set.
    (2) In connection with warrant or rights offerings to existing 
security holders, where securities not purchased by security holders 
are reoffered to the public, give the following information in the 
reoffer prospectus:
    (i) The amount of securities bought in stabilization activities 
during the rights offering period and the price or range of prices at 
which the securities were bought;
    (ii) The amount of the securities subscribed for during the rights 
offering period;
    (iii) The amount of the securities purchased by the underwriter 
during the rights offering period; and
    (iv) The amount of the securities reoffered to the public and the 
offering price.

Instruction to Paragraph (j)

    The disclosure should include information on stabilizing 
transactions, syndicate short covering transactions, penalty bids or 
any other transaction that affects the offered security's price. The 
nature of the transactions should be described in a clear 
understandable manner.

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 authority citation for part 229 continues to read as 
follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 
77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77iii, 77jjj, 77nnn, 
77sss, 78c, 78i, 78j, 78l, 78m, 78n, 78o, 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) and (f) before 
``Instructions to Item 101'' to read as follows:


Sec. 229.101 (Item 101)  Description of business.

* * * * *
    (e) Reports to security holders. Where a registrant is not required 
to deliver an annual report to security holders (or holders of American 
Depositary Receipts) by Section 14 of the Exchange Act (15 U.S.C. 78n) 
or stock exchange requirements, describe briefly the nature and 
frequency of reports that will be given to security holders. Specify 
whether or not such reports will contain financial information that has 
been examined and reported upon, with an opinion expressed by, any 
independent public or certified public accountant. In the case of the 
reports of a foreign private issuer, state whether the report will 
contain financial information prepared in accordance with United States 
generally accepted accounting

[[Page 3168]]

principles, or whether the report will include a reconciliation of such 
information with such accounting principles.
    (f) Enforceability of civil liabilities against foreign persons. 
(1) A foreign private issuer shall provide disclosure which informs an 
investor as to whether actions may be brought under the civil 
liabilities provisions of the Federal securities laws against the 
registrant, its officers and directors, the underwriters or experts 
located in or residents of a foreign country or whose assets are 
located outside the United States. The disclosure shall 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 United 
States courts against the persons based upon the civil liability 
provisions of the Federal securities laws;
    (iii) The investor's ability to enforce, in an appropriate foreign 
court, judgments of United States courts based upon the civil liability 
provisions of the 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 Federal securities laws.
    (2) If any of the disclosures are based upon an opinion of counsel, 
counsel must be named in the prospectus. The foreign private issuer 
must file a signed consent of counsel, to the use of counsel's name and 
opinion, as an exhibit to the registration statement.
    9. By amending Sec. 229.301 by designating the introductory text as 
paragraph (a), introductory text, redesignating paragraphs (a) and (b) 
as paragraphs (a)(1) and (a)(2); redesignating existing instruction as 
``Instructions to Item 301(a)'' and adding paragraph (b) to read as 
follows:


Sec. 229.301 (Item 301)  Selected financial data.

* * * * *
    (b) Ratio of Earnings to Fixed Charges. If debt securities are 
registered, a ratio of earnings to fixed charges must be shown. If 
preference equity securities are registered, a ratio of combined fixed 
charges and preference dividends to earnings must be shown. The ratio 
must be presented for each of the last five fiscal years and the latest 
interim period for which financial statements are presented. If 
proceeds from the sale of debt or preference securities will be used to 
repay any of the registrant's outstanding securities, and the change in 
the ratio would be ten percent or greater, a pro forma ratio must be 
shown.

Instructions to Item 301(b)

    1. Definitions. The following definitions apply when calculating 
the ratio of earnings to fixed charges.
    A. Fixed charges. The term ``fixed charges'' means the sum of the 
following: (i) Interest expensed and capitalized, (ii) amortized 
premiums, discounts and capitalized expenses related to indebtedness, 
(iii) an estimate of the interest within rental expense, and (iv) 
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 shall be computed as the amount of the dividend divided by 
(1--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: (i) Pretax income from 
continuing operations before adjustment for minority interests in 
consolidated subsidiaries or income or loss from equity investees, (ii) 
fixed charges; (iii) amortization of capitalized interest, (iv) 
distributed income of equity investees, and (v) the registrant's share 
of pre-tax losses of equity investees for which charges arising from 
guarantees are included in fixed charges. Subtract: (i) interest 
capitalized, (ii) preference security dividend requirements of 
consolidated subsidiaries, and (iii) the minority interest in pre-tax 
income of subsidiaries that have not incurred fixed charges. Equity 
investees are investments that are accounted for using the equity 
method. 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. The following disclosure should be provided when 
showing the ratio of earnings to fixed charges.
    A. Deficiency. If a ratio indicates less than one-to-one coverage, 
the registrant must disclose the dollar amount of the deficiency.
    B. Pro forma ratio. The pro forma ratio may only be shown for the 
most recent fiscal year and the latest interim period. Only the net 
change in interest or dividends of the refinancing may be used to 
calculate the ratio.
    C. Foreign private issuer. A foreign private issuer must show the 
ratio based on the figures in the primary financial statement. If 
materially different, the ratio also must be shown based on the figures 
resulting from the reconciliation to U.S. generally accepted accounting 
principles.
    D. Summary Section. If a summary section is provided in the 
prospectus, registrants should show the ratios in that section.
    3. Exhibit. The registrant must file an exhibit to the registration 
statement to show the figures used to calculate the ratios. See 
paragraph (12) of Item 601 of Regulation S-K.

    10. By revising Sec. 229.501 to read as follows:


Sec. 229.501 (Item 501)  Front of the registration statement and 
outside front cover page of the prospectus.

    (a) Facing Page. The facing page must indicate the approximate date 
of the proposed sale to the public and, where appropriate, must include 
the delaying amendment legend required by Sec. 230.473 of Regulation C 
of this chapter.
    (b) Outside Front Cover Page of Prospectus. The following 
information, if applicable, must appear on the outside cover page of 
the prospectus, and must be in plain English as required by 
Sec. 230.421(d) of Regulation C of this chapter. The information may be 
presented in a table, bullet list, term sheet format or other clear 
design. Registrants should design the outside cover page in a manner 
and format that is easy to read and encourages the investor to read the 
disclosure. Registrants may use any design that does not diminish the 
required information and is not misleading.
    (1) Name. The registrant's name should be set forth. A foreign 
private registrant must give the English translation of the name.

Instruction to Paragraph 501(b)(1)

    If the registrant's name is the same as that of a company that 
is well known, the registrant must include information to eliminate 
any possible confusion with the other company. If the name indicates 
a line of business in which the registrant is not engaged or is 
engaged only to a limited extent, the registrant must include 
information to remove a misleading inference as to the registrant's 
business. In some circumstances disclosure may not be sufficient and 
the registrant may be required to change its name. A name change is 
not required where the registrant is an established company, the 
character of its business has changed, and the investing public is 
aware generally of the change and the registrant's current business.


[[Page 3169]]


    (2) Title and amount of securities. The title and amount of 
securities offered must be given. The amount of securities offered by 
selling security holders must be stated separately. A brief description 
of the securities must also be given except where the information is 
clear from the title of the security. For example, no description is 
necessary for common stock that has full voting rights, dividends and 
liquidation rights usually associated with common stock.
    (3) Offering price, underwriting commissions and offering proceeds. 
Where securities are to be offered for cash, the price to the public, 
the underwriting discounts and commissions, and the proceeds to be 
received by the registrant and the proceeds to be received by the 
selling shareholders, if any, should be shown.

Instructions to Paragraph 501(b)(3)

    1. If a preliminary prospectus is circulated and the registrant 
is not subject to the reporting requirements of Section 13(a) or 15 
(d) of the Exchange Act, set forth either:
    (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, the 
method by which the price is to be determined should be explained. 
If the securities are to 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. The term ``commissions'' is defined in paragraph (17) of 
Schedule A of the Securities Act. Only cash commissions paid by the 
registrant or selling security holders are to be shown. See Item 508 
of Regulation S-K as to the requirements to disclose other expenses 
of the offering.
    4. The proceeds shown should be the gross proceeds of the 
offering less underwriting discounts and commissions. The price and 
proceeds information should be shown on both a per unit and an 
aggregate basis. Registration statements on Form S-8 relating to 
employee benefit plans, Form S-4 or F-4 covering securities issued 
in a merger transaction or Form S-3 or F-3 relating to a dividend 
reinvestment plan are not required to comply with this paragraph.

    (4) State Legend. Any legend or statement required by the law of 
any State in which the securities are to be offered should be set 
forth.
    (5) Commission Legend. Disclosure should be furnished that 
indicates that the Securities and Exchange Commission has not approved 
the securities or passed upon the adequacy of the disclosures in the 
prospectus and that any contrary representation is a criminal offense. 
The legend may be in one of the following formats 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 (SEC) 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.

    (6) Underwriting. Identify the underwriter(s) and briefly indicate 
the nature of the underwriting arrangements. If the securities are 
offered on a best efforts basis, set forth the termination date of the 
offering, any minimum required purchase and any arrangements to place 
the funds received in an escrow, trust, or similar account. If no such 
arrangements have been made, so state. Registrants may use any clear, 
concise, and accurate description of the underwriting arrangements. The 
following descriptions of underwriting arrangements may be used, 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 
underwriter must sell the minimum number of securities offered 
(insert number) but is only required to use their best efforts to 
sell the maximum number of securities offered (insert number).
    Example C: Firm commitment. The underwriters are required to 
purchase all of the securities if any of the securities are 
purchased.

    (7) Date of Prospectus. The approximate date of the prospectus 
should be given.
    (8) ``Subject to Completion'' Legend. Any prospectus used before 
the effective date of the registration statement must include a 
prominent statement that indicates that:
    (i) The information in the prospectus will be amended or completed;
    (ii) The securities may not be sold until the registration 
statement becomes effective; and
    (iii) The prospectus is not an offer to sell nor is it seeking 
offers to buy the securities in any State where offers or sales is not 
permitted. The legend may be in the following language or other clear, 
and understandable language:

    The information in this prospectus is not complete. We may not 
sell these securities until the registration statement filed with 
the SEC is effective. This prospectus is not an offer to sell nor is 
it seeking an offer to buy these securities in any state where the 
offer or sale is not permitted.

    (iv) Comparable information must be provided if the prospectus is 
used before to the determination of the initial public offering price 
in the case of a prospectus that omits this information as permitted by 
Sec. 230.430A of this chapter.
    11. By revising Sec. 229.502 to read as follows:


Sec. 229.502 (Item 502)  Inside front and outside back cover pages of 
prospectus.

    This information must be furnished in plain English as required by 
Sec. 230.421(d) of Regulation C of this chapter.
    (a) Available Information. Registrants subject to the reporting 
requirements of section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 
78m(a) or 78o(d)) at the time the registration statement is filed must 
provide disclosure indicating:
    (1) That the registrant is subject to the information requirements 
of the Exchange Act and files reports and other information with the 
Securities and Exchange Commission;
    (2) That reports (and where registrant is subject to sections 14(a) 
and 14(c) of the Exchange Act (15 U.S.C. 78n(a) and (c)), proxy and 
information statements) and other information filed by the registrant 
can be reviewed and copied at the Commission's Public Reference Room in 
Washington, DC 29549. In addition, if the registrant is an electronic 
filer, the disclosure must indicate that the reports may be viewed on 
the SEC's Internet site (http://www.sec.gov) or that copies may be 
obtained, upon payment of a duplicating fee, by writing to the SEC's 
Public Reference Section. The registrant must indicate that information 
on the operation of the public reference rooms may be obtained by 
calling the SEC at 1-800-SEC-0330. Registrants are encouraged to give 
their Internet site address, if one is available. This information must 
appear on the back cover page or in the prospectus where the registrant 
discloses the reports incorporated by reference;
    (3) The name of any national securities exchange on which the 
registrant's securities are listed.
    (b) Table of Contents. The registrant must provide on the inside 
front cover page, or immediately following the cover page, a reasonably 
detailed table of contents. The table of contents should show the 
location in the prospectus, including the page number, if practicable, 
of the subject matter of the various sections or subdivisions of the 
prospectus, including the risk factor section required by Item 503 of 
Regulation S-K.

[[Page 3170]]

    (c) Address and Telephone Number. Registrants must include the 
complete mailing address, including zip code, and the telephone number, 
including area code, of their principal executive offices.
    (d) Financial Data Graphs. Registrants are encouraged to use 
tables, schedules, charts and graphic illustrations of the results of 
operations, balance sheet, or other financial data that presents the 
data in an understandable manner. Any presentation must be consistent 
with the financial statements and related non-financial information. 
The graphs and charts must be drawn to scale and the information 
provided must not be misleading.
    (e) Dealer Prospectus Delivery Obligations. Information must be set 
forth on the outside back cover page of the prospectus that advises 
brokers 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 the expiration date 
is not known on the effective date of the registration statement, the 
date must be included in the copy of the prospectus filed under 
Sec. 230.424(b) of this chapter. The legend can be in any format so 
long as the content is set forth. No legend is required 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). The 
legend may read as follows:

    Until (insert date) all dealers that buy, sell or trade 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.

    12. By revising Sec. 229.503 to read as follows:


Sec. 229.503 (Item 503)  Prospectus summary and risk factors.

    The following information must be furnished in plain English as 
required by Sec. 230.421(d) of Regulation C of this chapter. The 
information may be presented in table, bullet list, term sheet format, 
or other clear design. Registrants should structure and organize the 
prospectus summary and risk factors discussion in a manner and format 
that is easy to read and encourages investors to read the disclosure. 
Registrants may use any format or design that does not obscure the 
required information and is not misleading.
    (a) Prospectus Summary. Registrants must include a summary of the 
information in the prospectus where the length or complexity of the 
prospectus makes a summary appropriate. The summary section should be 
brief. The summary should not and is not required to contain all of the 
detailed information in the prospectus.

Instruction to paragraph (a)

    The summary section must provide investors with a clear, concise 
and coherent ``snapshot'' description of the most significant 
aspects of the offering. Summaries should not randomly repeat the 
text of the prospectus but should provide a brief overview of the 
key aspects of the offering. Registrants must carefully consider and 
identify the aspects of an offering that are the most significant 
and determine how best to highlight these points in everyday 
language.

    (b) Risk Factors. Where appropriate, registrants must set forth 
under the caption ``Risk Factors'' a discussion of the most significant 
factors that make the offering speculative or one of high risk. The 
risk factors must be discussed in the order of their importance. The 
risk factors discussion should be short, concise and organized in a 
logical manner. The prioritized risk factors must highlight critical 
factors the investor must weigh in making an investment decision. 
Generic and boilerplate risk that could apply to any registrant or any 
offering should not be provided. Each risk factor must be set forth 
under a subcaption that adequately describes the risk. The risk factor 
discussion should immediately follow the summary section, if one is 
included, or the cover page of the prospectus. The factors may include, 
among other things, the following:
    (1) The registrant's lack of an operating history;
    (2) The registrant's lack of profitable operations in recent 
periods;
    (3) The registrant's financial position;
    (4) The registrant's business or proposed business; or
    (5) The lack of a market for the registrant's common equity 
securities or securities convertible into or exercisable for common 
equity securities.
    13. By amending Sec. 229.508 by revising paragraphs (b) and (e) and 
adding paragraph (l) to read as follows:


Sec. 229.508 (Item 508)  Plan of distribution.

* * * * *
    (b) New Underwriters. Where securities being registered are those 
of a registrant that has not previously been required to file reports 
under section 13(a) or 15(d) of the Exchange Act (15 U.S.C. 78m(a) or 
78o(d)) and any of the managing underwriter(s) (or where there are no 
managing underwriters, a majority of the principal underwriters) was 
organized, reactivated, or first registered as a broker-dealer within 
the past three years, these facts should be disclosed in the 
prospectus. If appropriate, disclosure that the principal business 
function of the underwriters is to sell the securities to be 
registered, or that the promoters of the registrant have a material 
relationship with such underwriter(s) should be provided. Sufficient 
details shall be given to allow full appreciation of the 
underwriter(s)' experience and its relationship with the registrant, 
promoters and their controlling persons.
* * * * *
    (e) Underwriters' compensation. Set forth in tabular form the 
nature of the compensation and the amount of discounts and commissions 
to be allowed or paid to the underwriters. Separately show amounts to 
be paid by the company and the selling shareholders. In addition, all 
other items deemed by the National Association of Securities Dealers to 
constitute underwriting compensation for purposes of the Association's 
Rules of Fair Practice must be shown in the table.

 Instructions to Paragraph 508(e)

     1. The term ``commissions'' is defined in paragraph (17) of 
Schedule A of the Securities Act. Show cash commissions paid by the 
registrant or selling security holders separately in the table. 
Commissions paid by other persons also shall be set forth in the 
table. Any finder's fee or similar payments shall be disclosed in a 
note in the table.
     2. Where an underwriter has received an over-allotment option, 
maximum-minimum information shall be presented in the table, based 
on the purchase of all or none of the shares subject to the option. 
The terms of the option should be described in the narrative.
* * * * *
     (l) Stabilization and other transactions. (1) The registrant must 
provide disclosure which briefly describes any transaction that the 
underwriter(s) intends to conduct during the offering that stabilizes, 
maintains or otherwise affects the market price of the offered 
securities. Disclosure should be provided to indicate, if true, that 
the underwriter(s) may discontinue these transactions at any time and 
indicate the exchange or other market on which these transactions may 
occur.
     (2) If the stabilizing began before the effective date of the 
registration statement, set forth the amount of securities bought, the 
prices at which the securities 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 pursuant to Sec. 230.424(b) of this chapter 
or included in a post-effective amendment must include information

[[Page 3171]]

as to stabilizing transactions effected before the determination of the 
public offering price set forth in such prospectus.
     (3) If the securities being registered are to be offered to 
existing security holders pursuant to warrants or rights and any 
securities not taken by security holders are to be reoffered to the 
public after the expiration of the rights offerings period, the 
registrant shall be set forth, in a supplement or otherwise, in the 
prospectus used in connection with such reoffering:
     (i) The amount of securities bought in stabilization activities 
during the rights offering period and the price or range of prices at 
which such securities were bought;
     (ii) The amount of the offering securities subscribed for during 
such period;
     (iii) The amount of the offered securities subscribed for by the 
underwriters during the period;
     (iv) The amount of the offered securities sold during such 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.

Instruction to Paragraph (j)

     The disclosure should include information on stabilizing 
transactions, syndicate short covering transactions, penalty bids or 
any other transaction that affects the offered security's price. The 
nature of the transactions should be described in a clear, 
understandable manner.

PART 230--GENERAL RULES AND REGULATIONS, SECURITIES ACT OF 1933

     14. The authority citation for Part 230 continues to read in part 
as follows:

     Authority: 15 U.S.C. 77b, 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 
78(d), 78l, 78m, 78n, 78o, 78w, 78ll(d), 79t, 80a-8, 80a-29, 80a-30, 
and 80a-37, unless otherwise noted.
* * * * *
     15. 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) The information set forth in a prospectus should be presented 
in a clear, concise and understandable fashion. All information 
contained in a prospectus shall be set forth under appropriate captions 
or headings reasonably indicative of the principal subject matter set 
forth thereunder. Except as to financial statements and other tabular 
data, all information set forth in a prospectus shall be divided into 
reasonably short paragraphs or sections. Registrants shall prepare the 
prospectus using the following standards:
     (1) Information shall be presented in clear, concise paragraphs 
and sentences. If possible, information shall be presented in short 
explanatory sentences and ``bullet'' lists;
     (2) Captions and subheading titles shall specifically describe the 
disclosure included in the section;
     (3) Terms that are not clear from the context generally should be 
defined in a glossary or other section of the document. Glossaries are 
recommended where they facilitate understanding. Frequent reliance on 
defined terms as the primary means of explaining information in the 
body of the prospectus must be avoided; and
     (4) Legal and highly technical business terminology should be 
avoided.

Notes to Sec. 230.421(b)

     In drafting prospectus information, registrants should avoid 
the following:
     1. Legalistic, overly complex presentations that make the 
substance of the disclosure difficult to understand;
     2. Vague ``boilerplate'' explanations that are imprecise and 
readily subject to differing 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, does not enhance the 
quality of the information, and overwhelms the reader.

     (d)(1) The registrant must use plain English principles in the 
organization, language, and structure of the front and back cover 
pages, and the summary and risk factors sections, if any, included in 
the prospectus. These sections should communicate the information 
clearly to investors. At a minimum, the disclosure should substantially 
comply with each of the following plain English writing principles:
     (i) Active voice;
     (ii) Short sentences;
     (iii) Definite, concrete, everyday words;
     (iv) Tabular presentation or ``bullet'' list for complex material, 
whenever possible;
     (v) No legal jargon, or highly technical business terms; and
     (vi) No multiple negatives.
     (2) The design of these sections or other sections of the 
prospectus may include pictures, logos, charts, graphs or other design 
elements so long as the design is not misleading and the required 
information is clear.
     16. By amending Sec. 230.461 by adding a sentence to the end of 
paragraph (b)(1) to read as follows.


Sec. 230.461  Acceleration of effective date.

* * * * *
     (b) * * *
     (1) * * * Where the plain English prospectus requirements of 
Sec. 230.421(d) of this chapter have not been met.

PART 239--FORMS PRESCRIBED UNDER THE SECURITIES ACT OF 1933

     17. The authority citation for Part 239 continues to read as 
follows:

     Authority: 15 U.S.C. 77f, 77g, 77h, 77j, 77s, 77sss, 78c, 781, 
78m, 78n, 78o(d), 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.
* * * * *


Sec. 229.12  [Form S-2 Amended]

    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) The registrant shall indicate that it will provide, without 
charge to each person, including any beneficial owner to whom a 
prospectus is delivered, upon their written or oral request, a copy 
of any and all of the information that has been incorporated by 
reference in the prospectus but not delivered with the prospectus. 
Registrants are not required to send the exhibits to the information 
that is incorporated by reference unless such exhibits are 
specifically incorporated by reference into the information that the 
prospectus incorporates. The registrant shall give the title or 
department including the address and telephone number where the 
request should be made.
* * * * *


Sec. 239.13  [Form S-3 Amended]

     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

* * * * *

[[Page 3172]]

    Item 12. Incorporation of Certain Information by Reference.
* * * * *
     (c) The registrant shall indicate that it will provide, without 
charge to each person, including any beneficial owner to whom a 
prospectus is delivered, upon their written or oral request, a copy 
of any and all of the information that has been incorporated by 
reference in the prospectus but not delivered with the prospectus. 
Registrants are not required to send the exhibits to the information 
that is incorporated by reference unless such exhibits are 
specifically incorporated by reference into the information that the 
prospectus incorporates. The registrant shall give the title or 
department including the address and telephone number where the 
request should be made.
* * * * *


Sec. 239.20  [Form S-20 Amended]

     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(f) of Regulation 
S-K [Sec. 229.101(f) of this chapter]''.


Sec. 239.25  [Form S-4 Amended]

     21. By amending Form S-4 (referenced in Sec. 239.25) to revise 
Item 2 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 the 
Prospectus.
     Set forth the information required by Item 502 of Regulation S-
K (Sec. 229.502 of this chapter). In addition, on the inside front 
cover page, the registrant shall include information that highlights 
by print type or otherwise that the prospectus incorporates by 
reference important business and financial information about the 
company that is not included in or delivered with the document but 
which is available to security holders upon request. Give the name, 
address and telephone number where the request should be directed. 
In addition, the registrant should indicate that in order to obtain 
timely delivery, the request should be made no later than five 
business days prior to the date on which the investment decision 
must be made.
* * * * *


Sec. 239.33  [Form F-3 amended]

    22. By amending Form F-3 (referenced in Sec. 239.33) by adding 
paragraph (d) 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) The registrant shall indicate that it will provide, without 
charge to each person, including any beneficial owner to whom a 
prospectus is delivered, upon their written or oral request, a copy 
of any and all of the information that has been incorporated by 
reference in the prospectus but not delivered with the prospectus. 
Registrants are not required to send the exhibits to the information 
that is incorporated by reference unless such exhibits are 
specifically incorporated by reference into the information that the 
prospectus incorporates. The registrant shall give the title or 
department including the address and telephone number where the 
request should be made.
* * * * *


Sec. 239.34  [Form F-4 Amended]

    23. By amending Form F-4 (referenced in Sec. 239.34) to revise Item 
2 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 the 
Prospectus.
    Set forth the information required by Item 502 of Regulation S-K 
(Sec. 229.502 of this chapter). In addition, on the inside front 
cover page, the registrant shall include information that highlights 
by print type or otherwise that the prospectus incorporates by 
reference important business and financial information about the 
company that is not included in or delivered with the document but 
which is available to security holders upon request. Give the name, 
address and telephone number where the request should be directed. 
In addition, the registrant should indicate that in order to obtain 
timely delivery, the request should be made no later than five 
business days prior to the date on which the investment decision 
must be made.
* * * * *
    Dated: January 14, 1997.

    By the Commission.
Margaret H. McFarland,
Deputy Secretary.
    Note: Appendix A to the Preamble does not appear in the Code of 
Federal Regulations and the examples to Appendix A will not be in 
the Federal Register but may be viewed on our Internet site (http://
www.sec.gov)

Appendix A--Examples of Plain English Disclosure Documents

    The following pages are before and after samples taken from 
document filed by some of the Plain English Pilot participants:
     Bell Atlantic Corporation
     ITT Corporation
     Baltimore Gas and Electric Company
     Unisource Worldwide, Inc.
    Some of the ``after'' examples do not contain all of the 
information that appears in the corresponding ``before''. To make 
these documents clearer and easier for investors to understand, 
these registrants either moved this information to a more logical 
section of the document or eliminated it because it was redundant.
    Note: Appendix B to the Preamble does not appear in the Code of 
Federal Regulations

Appendix B--Chart on Small Business Issuer Rule Proposals

  Regulation S-B--Item 501--Front of Registration Statement and Outside 
                        Front Cover of Prospectus                       
------------------------------------------------------------------------
                Current                              Proposed           
------------------------------------------------------------------------
 Small business issuer name....   Same.                 
 Title, amount and description    Same.                 
 of securities offered.                                                 
 Selling security holders'        Same.                 
 offering identified.                                                   
 Cross-reference to risk-         Same.                 
 factors.                                                               
 SEC legal legend..............   Rewritten in plain    
                                          English.                      
 Formatted distribution table     Bullet list or other  
 showing price, underwriting              design that highlights the    
 commission, and proceeds.                information                   
 Instruction on bona fide         Retain                
 estimate of price.                                                     
 Instruction requiring terms of   Retain on cover page. 
 best efforts offering.                   No longer permitted in        
                                          summary.                      
 Legal legend where preliminary   Rewritten in plain    
 prospectus incomplete.                   English.                      
 Legend required by state law..   Rewritten in plain    
                                          English.                      
 Date of prospectus............   Retain.               

[[Page 3173]]

                                                                        
 Expenses of offering..........   Move to underwriting  
                                          section.                      
------------------------------------------------------------------------


 Regulation S-B--Item 502--Inside Front and Outside Back Cover Pages of 
                               Prospectus                               
------------------------------------------------------------------------
                Current                              Proposed           
------------------------------------------------------------------------
 Availability of Exchange Act     Retain on back cover  
 Reports.                                 page or include with          
                                          incorporation by reference    
                                          disclosure in short-form      
                                          registration statements.      
 Availability of reports with     Move to business      
 audited financial statements.            description section.          
 Availability of reports          Move to prospectus    
 incorporated by reference.               where incorporation by        
                                          reference disclosure provided.
 Stabilization legend..........   Move to underwriting  
                                          section.                      
 Passive market making legend..   Delete.               
 Dealer prospectus delivery       Move to back cover    
 legend.                                  page of prospectus.           
 Table of contents.............   Inside front cover    
                                          page or immediately following 
                                          cover page.                   
 Canadian issuers disclosure on   Retain as part of     
 enforceability of civil liability        business description.         
 against foreign person.                                                
------------------------------------------------------------------------


     Regulation S-B--Item 503--Summary Information and Risk Factors     
------------------------------------------------------------------------
                Current                              Proposed           
------------------------------------------------------------------------
 Summary.......................   Retain in plain       
                                          English. Propose to require   
                                          discussion to be brief.       
 Small business issuer address    Move to inside cover  
 and telephone number.                    page or summary.              
 Risk factors..................   Retain in plain       
                                          English. Codify prior         
                                          interpretation to prioritize  
                                          risk factors.                 
------------------------------------------------------------------------

[FR Doc. 97-1300 Filed 1-17-97; 8:45 am]
BILLING CODE 8010-01-P