April 24, 1998 Securities and Exchange Commission 450 Fifth Street, N.W. Washington, D.C. 20549 Attention: Mr. Jonathan G. Katz, Secretary Re: Proposal to Amend Rule 701 -- File No. S7-5-98 BellSouth Corporation is a reporting company under the Securities Exchange Act of 1934; nevertheless, it is very interested in the Commission's proposal to amend Rule 701 because of its potential applicability to exempt deferred compensation and potentially other securities offerings under employee benefit plans by its subsidiaries and affiliates. In general, we support the proposed amendments and approaches taken in the Release -- increasing the issuance thresholds and, in particular, making the limits applicable to sales, not offers. (In this regard, does the Commission need to formally exempt offers from the coverage of Section 5?) In the case of subsidiaries, we especially appreciate the Commission's proposal to apply the Rule's asset test to a guaranteeing parent company assets, because many subsidiaries that provide supervisory, marketing or strategic functions may have a disproportionately small asset base. However, where the parent has guaranteed the obligations, the disclosure obligation should shift entirely from the issuer-subsidiary to the guarantor-parent. Relief from SAB 53 is critical because many non-public entities (especially subsidiaries of public registrants) will be unwilling to disclose financials for competitive, regulatory or liability reasons. In this regard, (e)(5) should provide that if parent disclosure is being made, subsidiary disclosure need not be made. Footnote 25 of the Release states that in "limited" situations, a parent guaranty of deferred compensation may be exempt from registration. We are concerned that this reference implies that the Commission has not identified how it will treat the registrability of parent guaranties or what circumstances may justify exceptions from the rule. We favor a constant applicability of an exemption. Alternatively, the Commission might choose to exempt the primary offering of the deferred compensation by the subsidiary if the parent company guaranty were registered and parent company financial disclosure were made. In fact, this might be more logical, since the parent company guaranty provides the real credit support. On a related point, the wording of (b)(3) of the proposed rule is very confusing. If it is meant to afford Section 5 relief for parent guarantors, it should say so more directly. In particular, what does "rely on this section" mean? In terms of disclosure, we have already made the point that disclosure of subsidiary-issuer information should not be required where the parent is guaranteeing the subsidiary's obligation. Although this is particularly compelling in the case of a guarantee, we believe it applies to a case where the parent does not guarantee the subsidiary's obligation. While we do advocate disclosure of key plan provisions, including whether or to what extent the subsidiary obligations are guarantied by the parent, we do not support obligatory financial disclosure. Employees have a good sense of the financial condition of their employer, certainly better than the general public. As the Commission has repeatedly stated, it is appropriate to abbreviate disclosure in an employment benefit plan context because the companies are offering securities more for compensatory than capital raising purposes, and so the incentive to defraud is less. Financial information pertaining to private companies is extremely sensitive, and hundreds of prospectuses floating around are bound to fall into non-employee hands. In our opinion, the risk of damage from such a circumstance is far greater than the benefit of providing this information to employees in the context of a benefit plan offering. Several technical points -- First, there is a typo in (c): the reference to 230.701(d)(1)(ii) should be to 230(d)(2)(ii); secondly, we see no usefulness to a Form 701 and believe it would be a waste of the staff's time and issuers' time to have to deal with such a requirement; and finally, we see no reason to require the delivery of the plan document to the employees ((e)(1))if a summary is provided. Many plans are omnibus stock plans that would be expensive to produce, would rarely be read by employees and would be confusing as to interpretation. It should suffice that employees can request a copy if they wish. Finally, a great deal of confusion has reigned the past two years as to what characteristics of a deferred compensation plan raise registration issues. Since the staff has raised these intriguing issues, perhaps the adopting release could address this area and provide guidance as to when a "security" arises. No presumption should arise that deferred compensation is a security without certain clear attributes. What are they, or how should a practitioner analyze whether deferred compensation is a registrable security? As always, we would be happy to discuss these comments in more detain if it would be helpful. Very truly yours, Clarence B. Manning General Attorney