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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

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, N.W. Washington, D.C. 20549-6009. Comments can





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be sent electronically to the following e-mail address: rule-

comments@sec.gov. 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, N.W., Washington, D.C. 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


 

 -[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.





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-[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.

 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

 
 Page

I. Executive Summary . . . . . . . . . . . . . 

II. Background. . . . 

 

 -[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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 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) 





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Page

 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





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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.

 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 language, tabular presentation of
 

 -[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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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





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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.





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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 1933

-[18]- 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.

 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:

 The notion that there is "full disclosure" to
 Americans about their investments is, by and
 

 -[18]- 15 U.S.C. 77a et seq.

 -[19]- H.R. Rep. No. 85, 73rd Cong., 1st Sess. 8 (1933).

 -[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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 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]-

 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]-
 

 -[22]-
 See, AARP/CFA/NASAA Background Report: The Five Biggest
 Problems "Legitimate" Investing Poses For Older Investors
 (March 1995).

 -[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]-

 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]-

 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
 

 -[25]- Securities Act Release No. 4844 (August 5, 1966)
 [31 FR 10667].

 -[26]- Securities Act Release No. 6383 (March 3, 1982)
 [45 FR 11380].

 -[27]-
 In 1982, the SEC rescinded the guidelines for the
 (continued...)





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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.

 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 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]-

 In 1991, the U.S. Congress and others expressed serious

 

 -[27]-(...continued)
 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.

 -[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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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]-

 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.

 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
 

 -[32]- H.R. Rep. No. 102-254, 102d Cong., 1st Sess.
 (1991).

 -[33]- Securities Act Release No. 6900 (June 17, 1991)
 [56 FR 28979].





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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.

 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
 

 -[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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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]-











 

 -[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
 

 -[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
 (continued...)





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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.
































 

 -[38]-(...continued)
 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).





======START OF PAGE 18======

 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 plain English practitioners appear

to support these arguments.

 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
 

 -[39]- 15 U.S.C. 77k.

 -[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).





======START OF PAGE 19======

review these documents for accuracy. -[41]-

 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
 

 -[41]-
 See Joseph Kimble, "Answering the Critics of Plain
 Language," 5 Scribes J. of Legal Writing 51 (1994-1995).

 -[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.





======START OF PAGE 20======

English. -[44]-

 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.


















 

 -[44]- Id at 56-57.

 -[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.





======START OF PAGE 21======

III. Elements of Plain English

 Plain English simply means writing well. -[46]- Plain

English, or plain language, has been described as follows:

 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]-

 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



 

 -[46]- George Hathaway, An Overview of the Plain English
 Movement for Lawyers ... Ten Years Later, Michigan
 B. J. 26, (Jan. 1994).

 -[47]- Robert D. Eagleson, What Lawyers Need To Know
 About Plain Language, Michigan B. J. 44 (1994).





======START OF PAGE 22======

writing. -[48]- The educational background and financial

sophistication of your current or prospective investors should

dictate the language you use.

 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. 

 B. Know What Information Needs To Be Disclosed

 You can only communicate clearly when you understand the



 

 -[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).

 -[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).





======START OF PAGE 23======

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.

 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 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

 

 -[50]- Bryan A. Garner, The Elements of Legal Style 4
 (1991).





======START OF PAGE 24======

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





======START OF PAGE 25======

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:





======START OF PAGE 26======

 
 Before After

 No person has been authorized You should rely only on the
 to give any information or information contained in this
 make any representation other document or incorporated by
 than those contained or reference. We have not
 incorporated by reference in authorized anyone to provide
 this joint proxy you with information that is
 statement/prospectus, and, if different.
 given or made, such
 information or representation
 must not be relied upon as
 having been authorized.





======START OF PAGE 27======

 
 Before After

 The proxies solicited hereby You may revoke your proxy at
 for the Heartland Meeting may any time up to and including
 be revoked, subject to the the day of the meeting by
 procedures described herein, following the directions on
 at any time up to and page 18.
 including the date of the
 Heartland 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:





======START OF PAGE 28======

 
 Before After

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

 Before After

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





======START OF PAGE 29======

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



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





======START OF PAGE 30======

 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.





======START OF PAGE 31======

 After

 Event of Default (If) Remedy (Then)

 * Interest payment * Trustee or holders of 
 30 days late 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 * Same as above.
 or premium at maturity, 
 acceleration, redemption,
 or repurchase

 * Court ordered bankruptcy, * Neither the Trustee
 insolvency, reorganization, nor holders are
 liquidation, or similar action required to act. The
 continuing for 60 consecutive principal, accrued and
 days unpaid interest will
 be immediately
 payable.





======START OF PAGE 32======


 Before After

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





======START OF PAGE 33======

 written request.


 





======START OF PAGE 34======

 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 The new debt will rank equally
 passu with other senior debt with the other senior debt of
 of the company. the company.

 Before After

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





======START OF PAGE 35======

 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 A clause becomes valid only if
 unless approved by both both parties approve it.
 parties.
 
 Before After

 Except when an applicant has We will send your money within
 submitted a request for one business day if you
 withdrawal without the include your tax
 appropriate tax identification identification number in your
 number, the request will be withdrawal request.
 honored within one business
 day.


 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
 

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





======START OF PAGE 36======

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. 

 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 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. 



 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

 

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





======START OF PAGE 37======

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)."

 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]-
 

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

 -[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
 (continued...)





======START OF PAGE 38======

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
 

 -[54]-(...continued)
 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).





======START OF PAGE 39======

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





======START OF PAGE 40======

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.





======START OF PAGE 41======

 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.

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





======START OF PAGE 42======

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. 





======START OF PAGE 43======

 Regulation S-K - Item 501

 Current Proposed

 * Information in highly * Information formatted in
 formatted design clear, inviting design

 * Company name * Same

 * Title and amount of * Same
 securities offered

 * By whom securities * Same
 offered

 * Formatted distribution * Bullet list or other
 table showing price, design that highlights the
 underwriting price, underwriting
 commission, and commission, and proceeds
 proceeds of offering of offering

 * Instruction on
 showing bona fide * Retain
 estimate of range of
 maximum offering
 price

 * Instruction on * Retain
 showing how price
 determined

 * Formatted best efforts * Bullet list or other
 distribution table design that highlights the
 information
 * Specific language and * Clear language with no
 print type for legal type specified
 warnings
 
 * No requirement * Name of underwriters and
 type of underwriting
 arrangements
 * Cross-references to * Delete
 disclosure in
 prospectus

 * Specific cross- * Delete
 reference to risk
 factors

 * Underwriters' over- * Move to underwriting
 allotment option section





======START OF PAGE 44======

 * Expenses of offering * Move to underwriting
 section
 * Commissions paid by * Move to underwriting
 others and other non- section
 cash consideration

 * 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





======START OF PAGE 45======

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:



 Before After

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

 -[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.





======START OF PAGE 46======

 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 The information in this
 is subject to completion or prospectus is not complete and
 amendment. A registration may be amended. We may not
 statement relating to these sell these securities until
 securities has been filed with the registration statement
 the Securities and Exchange filed with the SEC is
 Commission. These securities effective. This prospectus is
 may not be sold nor may offers not an offer to sell nor is it
 to buy be accepted prior to seeking an offer to buy these
 the time the registration securities in any state where
 statement becomes effective. the offer or sale is not
 This prospectus shall not permitted.
 constitute an offer to sell or
 the solicitation of an offer
 to buy nor 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





======START OF PAGE 47======

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
 

 -[58]- Item 904 of Regulation S-K, 17 CFR 229.904.





======START OF PAGE 48======

partnership roll-up prospectuses. -[59]- Our proposals

would require the risks to be described in plain English only in

the risk factor section.

 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.

 Regulation S-K - Item 502

 Current Proposed

 * Stabilization * Move to underwriting
 activities by section
 underwriters

 * Underwriters' passive * Delete because it
 market making duplicates information in
 activities legend underwriting section

 * Disclosure of dealer * Move to back cover page
 prospectus delivery
 obligation

 * Availability of * Move to back cover page or
 

 -[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).

 -[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.





======START OF PAGE 49======

 Exchange Act reports include with incorporation
 generally by reference disclosure in
 short form registration
 statements

 * Availability of * Move to registration
 Exchange Act reports statement forms permitting
 incorporated by incorporation by reference
 reference in short
 form registration
 statements

 * Availability of annual * Move to business
 reports to description section
 shareholders with GAAP
 audited financial
 statements for foreign
 issuers and others not
 subject to our proxy
 rules

 * Enforceability of * Move to business
 civil liability description section
 provisions of federal
 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





======START OF PAGE 50======

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.

 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
 

 < < 6 2 > >
 Item 508 of Regulation S-K, 17 CFR 229.508 and Item 508 of
 Regulation S-B, 17 CFR 228.508.





======START OF PAGE 51======

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]-

 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
 

 -[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.





======START OF PAGE 52======

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.

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

 -[64]- Rule 12b-11, 17 CFR 240.12b-11.





======START OF PAGE 53======

 obtained at prescribed rates
 by writing to the Securities
 and Exchange Commission,
 Public Reference Section, 450
 Fifth Street, N.W.,
 Washington, D.C. 20549.


 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.

 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


 

 -[65]- Item 101 of Regulation S-K and Regulation S-B.

 -[66]- Item 101 of Regulation S-K and Regulation S-B.





======START OF PAGE 54======

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.

 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]-

 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
 

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





======START OF PAGE 55======

fixed charges.





======START OF PAGE 56======

 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





======START OF PAGE 57======

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





======START OF PAGE 58======

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?





======START OF PAGE 59======

 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.

 D. Proposed Rule Changes 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. 

 The plain English disclosure proposals complement these

disclosure initiatives. The proposed changes to Rule 421 would




 

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

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





======START OF PAGE 60======

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.

 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

 

 -[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).





======START OF PAGE 61======

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


 

 -[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).





======START OF PAGE 62======

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.

 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]-

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

 

 -[73]- Division of Corporation Finance letter to ITT
 Corporation (December 6, 1996) and BGE Corporation
 (dated January 6, 1997).

 -[74]- Rule 461 of Regulation C.





======START OF PAGE 63======

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.





======START OF PAGE 64======

 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;

 * 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
 

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





======START OF PAGE 65======

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 plain 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 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





======START OF PAGE 66======

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.





======START OF PAGE 67======

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





======START OF PAGE 68======

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





======START OF PAGE 69======

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
 

 -[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.





======START OF PAGE 70======

currently is approved by that Office and displays a Paperwork

Reduction Act control number.

 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 an estimate of the change in the burden

and the basis for your position. 





======START OF PAGE 71======

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 228.101 to add paragraphs (c) and (d) to

read as follows:

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





======START OF PAGE 72======

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

[228.101(f) of this chapter] (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:

 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 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





======START OF PAGE 73======

 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





======START OF PAGE 74======

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 Sate 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 230.430A of this chapter.

 * * * * *





======START OF PAGE 75======

 4. Section 228.502 is revised to read as follows: 

 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 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, D.C. 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





======START OF PAGE 76======

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 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 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





======START OF PAGE 77======

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  228.503 to read as follows:

 228.503 (Item 503) Summary Information and Risk Factors.

 The following information must be furnished in plain English

as required by 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





======START OF PAGE 78======

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 230.430A(a) of this

chapter and information disclosed in a prospectus but is subject

to change as a result of pricing.





======START OF PAGE 79======

 6. Section 228.508 is amended to add a sentence to the end

of paragraph (a) and paragraph (j) to read as follows:

 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 

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





======START OF PAGE 80======

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





======START OF PAGE 81======

otherwise noted.

 * * * * *



 8. By amending 229.101 to add paragraphs (e) and (f)

before "Instructions to Item 101" to read as follows:

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 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





======START OF PAGE 82======

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 229.301 by designating the introductory

text as paragraph (a), redesignating paragraphs (a) and (b) as





======START OF PAGE 83======

paragraphs (a)(1) and (a)(2); redesignating existing instruction

as "Instructions to Item 301(a)" and adding paragraph (b) to read

as follows:

 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





======START OF PAGE 84======

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.





======START OF PAGE 85======

 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 229.501 to read as follows:

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 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

230.421(d) of Regulation C of this chapter. The information may





======START OF PAGE 86======

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. 

 (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





======START OF PAGE 87======

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





======START OF PAGE 88======

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





======START OF PAGE 89======

 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





======START OF PAGE 90======

 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 230.430A of this chapter.



 11. By revising 229.502 to read as follows: 

229.502 (Item 502) Inside Front and Outside Back Cover Pages of





======START OF PAGE 91======

 Prospectus.

 This information must be furnished in plain English as

required by 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, D.C. 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;





======START OF PAGE 92======

 (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.

 (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 230.174 of





======START OF PAGE 93======

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 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 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 229.503 to read as follows:

229.503 (Item 503) Prospectus Summary and Risk Factors.

 The following information must be furnished in plain English

as required by 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 





======START OF PAGE 94======

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





======START OF PAGE 95======

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  229.508 by revising paragraphs (b) and

(e) and adding paragraph (l) to read as follows:

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





======START OF PAGE 96======

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.





======START OF PAGE 97======

 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 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

230.430A of this chapter is used, the prospectus filed pursuant





======START OF PAGE 98======

to 230.424(b) of this chapter or included in a post-effective

amendment must include information 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





======START OF PAGE 99======

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.

 * * * * *





======START OF PAGE 100======

 15. By amending 230.421 by revising paragraph (b) and

adding paragraph (d) to read as follows:

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





======START OF PAGE 101======

 be avoided.

 Notes to 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





======START OF PAGE 102======

 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 230.461 by adding a sentence to the end of

paragraph (b)(1) to read as follows.

230.461 Acceleration of effective date.

 * * * * *

 (b) * * *

 (1) * * * Where the plain English prospectus requirements

of 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,

78l, 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.

 * * * * *





======START OF PAGE 103======

 18. By amending Form S-2 (referenced in 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.

 * * * * *



 19. By amending Form S-3 (referenced in 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]





======START OF PAGE 104======

 FORM S-3

 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

 * * * * *

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.

 * * * * *



 20. By amending Form S-20 (referenced in 239.20) to revise

the reference in Item 1 "Item 502(f) of Regulation S-K

[229.502(f) of this chapter]" to read "Item 101(f) of Regulation

S-K [229.101(f) of this chapter]".





======START OF PAGE 105======

 21. By amending Form S-4 (referenced in 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 (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.

 * * * * *





======START OF PAGE 106======

 22. By amending Form F-3 (referenced in 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.

 * * * * *





======START OF PAGE 107======

 23. By amending Form F-4 (referenced in 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 (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.

 * * * * *

 By the Commission.

 Jonathan G. Katz
 Secretary
January 14, 1997





======START OF PAGE 108======





======START OF PAGE 109======

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.





======START OF PAGE 110======

Note: Appendix B to the Preamble does not appear in the Code of
Federal Regulations

 APPENDIX B

 Proposed Changes to Regulation S-B

 Regulation S-B - Item 501

 Front of Registration Statement and Outside Front Cover of
Prospectus

 Current Proposed

 * Small business issuer * Same
 name

 * Title, amount and * Same
 description of
 securities offered

 * Selling security * Same
 holders' offering
 identified

 * Cross-reference to * Same
 risk-factors

 * SEC legal legend * Rewritten in plain English

 * Formatted distribution * Bullet list or other
 table showing price, design that highlights the
 underwriting information
 commission, and
 proceeds

 * Instruction on bona * Retain
 fide estimate of
 price

 * Instruction * Retain on cover page. 
 requiring terms of No longer permitted in
 best efforts summary
 offering

 * Legal legend where * Rewritten in plain English
 preliminary prospectus
 incomplete

 * Legend required by * Rewritten in plain
 state law English
 





======START OF PAGE 111======

 * Date of prospectus * Retain

 * Expenses of offering * Move to underwriting
 section





======START OF PAGE 112======

 APPENDIX B

 Proposed Changes to Regulation S-B

 Regulation S-B - Item 502
 Inside Front and Outside Back Cover Pages of Prospectus

 Current Proposed

 * Availability of * Retain on back cover page
 Exchange Act Reports or include with
 incorporation by reference
 disclosure in short-form
 registration statements
 * Availability of * Move to business
 reports with audited description section
 financial statements

 * Availability of * Move to prospectus where
 reports incorporated incorporation by reference
 by reference disclosure provided


 * Stabilization legend * Move to underwriting
 section
 * Passive market making * Delete
 legend

 * Dealer prospectus * Move to back cover page of
 delivery legend prospectus

 * Table of contents * Inside front cover page or
 immediately following
 cover page
 * Canadian issuers * Retain as part of business
 disclosure on description
 enforceability of
 civil liability
 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 * Move to inside cover page
 address and telephone or summary
 number
 * Risk factors * Retain in plain English. 





======START OF PAGE 113======

 Codify prior
 interpretation to
 prioritize risk factors