- 1 -

          SECURITIES AND EXCHANGE COMMISSION

          17 CFR PARTS 200, 202, 210, 228, 229, 230, 232, 239, 240 and 249

          RELEASE NO. 33-7606A; 34-40632A; IC-23519A

          INTERNATIONAL SERIES RELEASE NO. 1167A

          FILE NO. S7-30-98

          RIN  3235-AG83

          THE REGULATION OF SECURITIES OFFERINGS

          AGENCY:   Securities and Exchange Commission.

          ACTION:   Notice of Proposed Rulemaking.

          SUMMARY:  The Commission is proposing to modernize and clarify

          the regulatory structure for offerings under the Securities Act

          of 1933 while maintaining investor protection.  The proposals

          cover five major topics:

               *    registration system reform;

               *    communications around the time of an offering;

               *    prospectus delivery requirements;

               *    integration of private and public offerings; and

               *    periodic reporting under the Securities Exchange Act of

          1934.

               Under the proposals, larger seasoned issuers could offer

          securities at any time as long as they file a registration

          statement before sale.  Other seasoned issuers could do the same

          when they make offerings to relatively sophisticated or informed

          investors.  The Commission staff would not review these

          registration statements before effectiveness.  Those issuers and

          their underwriters would designate the effective dates and have

          complete control over when they offer and sell in those

          registered offerings.  Their communications to the market and to

          investors, while governed by antifraud and civil liability

          provisions, would no longer be limited based on the filing or

          effectiveness of their registration statements.

               The proposals also would provide predictability to medium-

          sized seasoned issuers that register offerings.  The registration

          statements they file to raise capital would become effective when

          they designate.  Those registration statements would not be

          subject to pre-effective review by the Commission staff.

          Seasoned companies of any size would benefit from the proposals

          as well.  We would allow them to incorporate Exchange Act

          disclosure in registration statements earlier than the current

          rules permit.  To provide greater certainty to small and medium-

          sized issuers planning a registered offering, we also are

          proposing new communication rules.  One rule would provide that

          communications made by or for such an issuer more than 30 days

          before the registration statement is filed would not be treated

          as offers.  Other proposed rules would guide those issuers as to

          the types of communications that we permit within that 30-day

          period.

               Our proposals also would give issuers of all sizes and their

          underwriters greater freedom to communicate with investors in

          writing during the offering process.  The proposed exemptive

          rules would allow use of any document (not just the traditional

          prospectus) at any time during an offering by a larger seasoned

          issuer or an offering to sophisticated or informed investors by a

          smaller seasoned issuer.  Those "free writing" communications

          would be subject to antifraud and civil liability provisions.  In

          all other offerings, the proposed exemptions would allow an

          issuer and underwriter the same flexibility after the issuer has

          filed a registration statement.  The free writing proposals would

          allow use of documents tailored specifically for the investors

          reading them.  Other proposed revisions would increase investor

          access to analyst research reports.  We would allow their

          distribution around the time of an offering in more cases than

          permitted today.

               The proposals affecting prospectus delivery in registered

          offerings would re-focus those requirements for the benefit of

          investors.  Delivery of a prospectus or a term sheet would be

          required before investors make their investment decisions rather

          than at the time a sale is confirmed.

               The proposals addressing the integration of offerings would

          provide flexibility for issuers that have difficulty assessing

          the extent of market interest in a planned offering.  Those

          revisions would enable an issuer to change an unregistered

          private offering into a registered public offering, or vice

          versa, after it commences the offering.  Small companies that

          begin a registered public offering would still have the option to

          make an unregistered, exempt offering to qualified buyers even

          though they broadly solicited potential investors.

               Finally, we are proposing various revisions to expedite and

          expand some of the disclosure required in periodic reports filed

          under the Exchange Act.  Investors would have more timely access

          to company disclosure.

          DATES:    You should send us your comments so that they arrive at

          the Commission by April 5, 1999.

          ADDRESSES:     You should send 3 copies of your comments to

          Jonathan G. Katz, Secretary, U.S. Securities and Exchange

          Commission, 450 Fifth Street, N.W., Stop 6-9, Washington, D.C.,

          20549.  You also may submit your comments electronically to the

          following electronic mail address: rule-comments@sec.gov.  All

          comment letters should refer to File No. S7-30-98; this file

          number should be included in the subject line if you use

          electronic mail.  Comment letters will be available for public

          inspection and copying at the Commission's Public Reference Room,

          450 Fifth Street, N.W., Washington, D.C. 20549.   We will post

          electronically submitted comment letters on the Commission's

          Internet Web site (http://www.sec.gov).

          FOR FURTHER INFORMATION CONTACT:     Anita Klein at (202) 942-

          2980, Julie Hoffman, Joseph Babits, Patricia Miller or Rani Doyle

          at (202) 942-2900, or, with respect to small business issuer

          aspects, John Reynolds at (202) 942-2950, Division of Corporation

          Finance, U.S. Securities and Exchange Commission, Washington,

          D.C. 20549. [1]

          SUPPLEMENTARY INFORMATION:



                                            TABLE OF CONTENTS
          I.   Executive Summary. . . . . . . . . . . . . .             10
               A.   Registration System Reforms                         10
                    1.   Contents of Prospectuses                       11
                    2.   Timing of Registration                         13
                    3.   Underwriter Guidance                           14
                    4.   Small Business Issuers                         14
               B.   Easing Restrictions on Communications               15
                    1.   Issuer Communications                          15
                    2.   Safe Harbors for Research Reports              16
               C.   Prospectus Delivery Reforms                         16
               D.   Public and Private Offering Flexibility             17
               E.   Periodic Reporting . . . . . . .                    18


          **FOOTNOTES**

          [1]: The Commission also wishes to recognize the contributions to
               this release of Jennifer Bethel.

                                        - 2 -

          II.  History of Registration Under the Securities Act         18
               A.   Evolution of the Registration System                19
               B.   Review of the Capital Formation Process             22

          III. Recent Reform Initiatives . . . . . . .                  23
               A.   Task Force Report. . . . . . . .                    23
               B.   The Advisory Committee on Capital Formation         24
               C.   The Commission's Concept Release                    24
               D.   The National Securities Markets Improvement Act     25

          IV.  Scope of the Proposals. . . . . . . . . .                26

          V.   Proposals Altering the Securities Act Registration Process      27
               A.   Form B Offerings. . . . . . . .                     29
                    1.   How Form B Works. . . . . .                    29
                         a.   Registration Statement Contents           29
                              i.   Company Disclosure                   30
                              ii.  Transactional Disclosure             32
                         b.   Free Writing Materials                    35
                         c.   Time of Filing                            37
                         d.   Becoming Effective                        37
                         e.   Delayed Shelf Offerings and Form B        39
                    2.   Offerings Eligible for Registration on Form B  43
                         a.   Offerings by Larger Seasoned Issuers      43
                         b.   Offerings to QIBs                         47
                              i.   Advantages of Registered Offerings   49
                              ii.  Limitations on QIB Purchases         49
                              iii. QIB Definition                       50
                              iv.  Other Reporting and Non-Reporting Issuers                                                       52
                         c.   Offerings to Certain Existing Security
                              Holders                                   53
                              i.   Dividend or Interest Reinvestment Plans
                                                                        54
                              ii.  Offerings to Existing Common Stock
                                   Holders                              57
                              iii. Convertible Securities, Transferable
                                   Warrants and Rights Offerings        59
                              iv.  Exercise of Outstanding Transferable
                                   Options                              63
                         d.   Non-convertible Investment Grade Securities
                                                                        65
                         e.   Market Making Transactions by
                              Affiliated Broker-Dealers                 65
                         f.   Small Business Issuers                    68
                         g.   Form B Disqualifications                  70
                         h.   Secondary Offerings                       72
               B.   Form A Offerings. . . . . . . . .                   75
                    1.   Structure of Form A. . .                       76
                         a.   Part I -- Information Required in the Prospectus                                                    76
                              i.   Cover Pages                          76
                              ii.  Transactional Information            76
                              iii. Company Information                  77
                                   (A)  "Seasoned" Form A Issuers       77
                                   (B)  "Unseasoned" Issuers            80
                         b.   Part II -- Information Not in the Prospectus   80
                    2.   Timing of Form A Offerings                     80
                         a.   Seasoned Issuers                          80
                         b.   Unseasoned Issuers                        83
                    3.   Solicitation of Comments on
                         Definition of Form A Seasoned Issuer           84
                    4.   Disqualification for Seasoned Form A Companies 85
                    5.   Real Estate Companies                          85
               C.   Applicability of Civil Liability Provisions
                    to Offerings Registered on Proposed Forms A and B   87
                    1.   Form A Offerings. . . .                        87
                    2.   Form B Offerings. . . . . .                    90
                         a.   Section 11. . . . . . .                   90
                         b.   Section 12(a)(2). .                       91
                         c.   Section 17(a) and Exchange Act Section 10(b)   92
               D.   Form C Offerings . . . . . . . .                    93
                    1.   Use of Form C. . . . . .                       93
                    2.   Relationship with Exchange Act Rules           93
                    3.   Timing of Form C . . .                         94
                    4.   Structure of Form C. . .                       95
                         a.   Part I -- Information Required in the Prospectus                                                    95
                              i.   Information About the Transaction    95
                              ii.  Information About the Registrant     96
                                   (A)  Form B Eligible Registrants     96
                                   (B)  Seasoned Form A Registrants     97
                                   (C)  All Other Registrants           97
                              iii. Information About the Company Being Acquired                                                      98
                              iv.  Voting and Management Information    99
                         b.   Part II -- Information Not Required in the Prospectus                                                    99
                    5.   General Instruction G. of Form S-4             99
                    6.   Small Business -- Business Combinations        100
               E.   Small Business Issuers . . . . . .                  101
                    1.   Small Business Issuers' System                 101
                    2.   Re-defining "Small Business Issuer"            101
                    3.   Proposed Changes to Form SB-2                  104
                         a.   Conditions for Using Incorporation by
                              Reference                                 105
                         b.   How to Incorporate by Reference           106
                         c.   Delivery of Exchange Act Reports          108
                         d.   Other Changes to the Forms                110
                    4.   Form SB-3. . . . . . . . .                     110
                         a.   Use and Timing of Form SB-3               110
                         b.   Structure of Form SB-3                    111
                              i.   Part I - Information Required in the Prospectus                                                    111
                                   (A)  Information About the Transaction    111
                                   (B)  Information About the Registrant     111
                                        (1)  Transitional Small Business
                                             Issuers                    111
                                        (2)  Seasoned Small Business Issuers                                                       112
                                        (3)  All Other Small Business Issuers                                                       112
                                   (C)  Information About the
                                        Company Being Acquired          112
                                   (D)  Voting and Management Information    112
                              ii.  Part II - Information Not
                                   Required in the Prospectus           113
                         c.   Request for Comments                      113
                    5.   Small Business Issuers that Become Reporting
                         Companies                                      113
                    6.   Small Business Issuer Registration Fees        115
               F.   MJDS Issuers . . . . . . . . . . . .                117
               G.   Foreign Government Issuers                          120
               H.   Exxon Capital Transactions. . . .. . . . . . . . . . . . . . . . . . .                                               121
               I.   The Offset of Filing Fees and Other Technical
                    Changes to the Calculation of Filing Fees           123
               J.   Solicitation of Comments Regarding Offerings
                    Asset-Backed Securities Offerings                   124

          VI.  Concurrent Exchange Act Registration                     126

          VII. Communications During the Offering Process               127
               A.   Issuer Communications Relating to a Registered Offering      130
                    1.   The Pre-Filing Period                          130
                         a.   Form B Registrants                        130
                         b.   Foreign Governments                       135
                         c.   All Other Registrants                     136
                              i.   Bright Line Communications Safe Harbor        138
                              ii   Communications Safe Harbor           141
                                   (A)  Factual Business Communications 141
                                   (B)  Regularly Released
                                        Forward-Looking Information     142
                                   (C)  Notice of Proposed Offerings    144
                    2.   Communications During the Waiting Period       144
               B.   Filing Under EDGAR. . . . . . . . . .               148
               C.   Technology Implications of the Communications Proposals     149

                                        - 3 -

               D.   Research Reports. . . . . . .  . .                  151
                    1.   Proposals in Connection with Registered Offerings      153
                         a.   Rule 137 . . . . . .                      153
                         b.   Rule 138 . . . . . .                      155
                         c.   Rule 139 . . . . . .                      159
                              i.   Form B and Schedule B Offerings      160
                              ii.  All Other Offerings                  161
                              iii. Focused Reports                      162
                              iv.  Consideration to Expand Rule 139 to
                                   IPOs and Offerings by Unseasoned Issuers     163
                              v.   Industry-Related Reports             164
                              vi.  Section 17(b)                        165
                    2.   Proposals and Interpretation in Connection with
                         Regulation S and Rule 144A Offerings           166
                    3.   Research and Proxy Solicitation                168

          VIII.Prospectus Delivery. . . . . . . . . . . . .             169A.
                         Congressional History . . . . . .              169
               B.   Commission History . . . . . . . . .                170
               C.   Prospectus Delivery Proposals                       171
                    1.   Adequacy of Current Rules                      172
                    2.   Prospectus Delivery and
                         Developments in Communications                 173
                    3.   Final Prospectus Delivery Exemption            174
                         a.   Conditions to the Exemption               176
                         b.   Business Combination and Exchange Offers  177
                         c.   Rule 434 Final Prospectus Delivery Method 178
                    4.   Delivery of Preliminary Prospectus Information 179
                         a.   Form B Offerings                          179
                         b.   Offerings by Small or Unseasoned Issuers  181
                         c.   Foreign Government Issuers                182
                         d.   Canadian MJDS Issuers                     185
                         e.   Effectiveness and Prospectus Delivery     186
                         f.   Secondary Offerings                       187
                    5.   Aftermarket Prospectus Delivery                187
                         a.   Background of Aftermarket Prospectus Delivery
                                                                        188
                         b.   Aftermarket Underwriter Activities        190
                         c.   Recent Case Law Relating to Aftermarket
                              Delivery Obligations                      191
                         d.   Aftermarket Prospectus Delivery Proposals 192
                    6.   Proposed Repeal of Rule 153                    195
                    7.   Record Keeping of Prospectus Delivery          196


                                        - 4 -

          IX.  The Role of Underwriters. . . . . . . .                  197
               A.   Legislative Shaping of the Underwriters' Role       197
               B.   Case Law Interpretation of the Underwriter's Role   198
               C.   Commission Interpretation of the Underwriters' Role 199
               D.   Proposed Guidance on Underwriter Due Diligence      201
                    1.   Proposed Practices Reflect Current Practice    204
                    2.   The Role of Analysts                           205
                    3.   Other Due Diligence Practices                  206
                         a.   Disclosure Review by an
                              Issuer's Independent Accountants          206
                         b.   Disclosure Review by an
                              Independent Qualified Professional        207
               E.   Interpretation of the Guidance                      208
               F.   Investment Grade Debt Offerings                     209
               G.   Requests for Comment on the Proposed Guidance       209
               H.   Liability Safe Harbor. . . . . . .                  210

          X.   Integration of Registered and Unregistered Offerings     211
               A.   The Integration Doctrine. . . . .                   211
               B.   Rule 152. . . . . . . . . . . . . . .               212
               C.   Proposed Safe Harbors for Completed
                    and Abandoned Offerings; Related Rule Proposals     213
                    1.   Completed Offerings. . . . .                   214
                         a.   Issuer Transactions                       214
                         b.   Resale Transactions                       215
                         c.   Lock-up Agreements                        216
                    2.   Abandoned Offerings                            218
                         a.   Private to Public                         218
                         b.   Public to Private                         220
                    3.   Definition of Private Offering                 223
               D.   Proposed Changes to Rule 477                        224

          XI.  Proposals Relating to Exchange Act Disclosure            225
               A.   Annual and Quarterly Reports                        228
                    1.   Risk Factor Disclosure                         228
                    2.   Due Dates for Annual Reports of Foreign Private
                         Issuers                                        230
                    3.   Treating Quarterly Information as "Filed"      231
                    4.   Request for Comment on Management
                         Report to Audit Committee                      233
               B. Interim Reports on Form 8-K                           234
                    1. Timely Disclosure of Annual
                         and Quarterly Results of Domestic Companies    234
                         a.   Form 8-K Requirement for Item 301 Information
                                                                        234

                                        - 5 -

                         b.   Solicitation of Comment
                              on Whether Accelerate Due Dates           237
                    2.   Other Reporting Events                         238
                         a.   Material Modifications to
                              the Rights of Security Holders            239
                         b.   Departure of the CEO, CFO, COO or President
                                                                        240
                         c.   Material Defaults on Senior Securities    241
                         d.   Reliance on Prior Audit                   242
                         e.   Name Changes                              244
                         f.   Due Dates for Reporting Events            245
               C.   Signatures. . . . . . . . . . . . . .               246
                    1.   Exchange Act Reports and Registration Statements
                                                                        246
                    2.   Securities Act Filings                         249
               D.   Form 6-K Submissions. . . . .                       250
               E.   Solicitation of Comment Regarding
                    Plain English in Exchange Act Reports               251

          XII. Staff Review Policy. . . . . . . . . . . .               252
               A.   Notification of Selection for Review                253
               B.   Voluntary Pre-Review of Filings                     254

          XIII. Request for Comments About Investment Company
               Issuers and Market Value Adjustment Contracts            254
               A.   Investment Company Issuers                          254
               B.   Market Value Adjustment Contracts                   255

          XIV.  Cost-Benefit Analysis . . . . . . . . . .               255
               A.   Impact on Investors . . . . . . .                   256
               B. Impact on Issuers . . . . . . . .                     265
               C.   Impact on Other Parties . . . . .                   271

          XV.  Initial Regulatory Flexibility Analysis                  274
               A.   Reasons and Objectives for Proposed Action          274
               B.   Objectives and Legal Basis                          275
               C.   Small Entities Subject to the Rules                 275
               D.   Reporting, Recordkeeping and Other Compliance Requests
                                                                        275
               E.   Significant Alternatives. . . . . .                 276
               F.   Overlapping or Conflicting Federal Rules            281

          XVI. Paperwork Reduction Act. . . . . . . . .                 281

          XVII. General Request for Comments . . . . .                  305

          XVIII.  Statutory Basis. . . . . . . . . . . . . . .          306

          I.   EXECUTIVE SUMMARY

               Through the Securities Act registration system, issuers and

          underwriters reach out to the public and sell securities.  The

          registration system provides investors with the dual benefits of:

          full and fair disclosure (or effective remedies if there is

          faulty disclosure), and freely tradeable securities.

          Registration also benefits the markets at large by providing

          everyone with access to the most up-to-date information about the

          company making the offering.  This disclosure is significant both

          to the market, for accuracy in pricing, and to the individual

          investor, for determining the suitability of the investment.

          Today's proposals are based on a recognition that investors will

          receive these benefits of registration only if the Commission

          continues to make the registration system flexible enough to be a

          viable alternative in the capital markets of today and the

          future.

                A.  Registration System Reforms

               Our reforms to the registration system are designed to make

          registration more attractive to issuers without compromising

          investor protection.  We believe that registration benefits all

          participants:  issuers, by lowering their cost of capital;

          investors, by enhancing disclosure and providing remedies; and

          the marketplace, by increasing depth and liquidity.

               In 1990, the Commission adopted Rule 144A which permits

          unregistered sales to and by qualified institutional buyers

          ("QIBs"). [2]  Since then, this institutional market, which

          exists virtually side-by-side with the public market, has

          expanded significantly.  Recent data illustrates the size of this

          parallel market: in 1997, Rule 144A offerings comprised 17% of

          all offerings on a dollar basis, including 21% of all equity and

          16% of all debt. [3]  In some types of securities, the Rule 144A

          market has become predominant.  In 1997, 76% of the high-yield

          debt, 72% of the convertible investment grade debt, and 10% of

          the non-convertible investment grade debt were issued for the

          Rule 144A market. [4]

               Our proposed reforms seek to apply the issuer advantages of

          offering securities in the private and Rule 144A markets --

          timing and disclosure flexibility -- to the public market.  We

          believe that, as a result, more offerings will be registered.

               We propose to create a three-tiered registration system for

          offerings consisting of: Form A, Form B and Form C.  Form A

          offerings generally would be those made by smaller or unseasoned

          companies.  Form B offerings would be those made by larger,

          seasoned, well-followed issuers and those made to relatively

          informed or sophisticated investors.  Form C offerings would

          relate to business combinations or exchange offers.  Today the

          Commission also is publishing a companion release regarding the

          regulation of takeovers, including tender offers, mergers and

          other extraordinary transactions.  You should read that release

          for a detailed discussion of the regulation of business

          combinations and exchange offers registered on Form C. [5]

                     1.  Contents of Prospectuses

               Current requirements strictly mandate the content of an

          offering prospectus.  Because we believe that larger seasoned

          issuers attract a large market following and operate in an

          efficient market, we are considering providing them with a larger

          measure of flexibility to craft disclosure about their offerings.

          We are asking for comment on two alternative proposals for Form B

          offerings.  The first, while requiring all material transactional

          disclosure, would limit the itemized requirements for such

          disclosure.  The second would continue to require all itemized

          transactional disclosure.  Under both proposals, we would

          continue to mandate that issuers incorporate by reference the

          current itemized company information in their periodic reports.

          Thus, we would maintain the same standards for information about

          the company while we seek comment on the level of freedom to

          allow the issuer and the underwriter when crafting information

          about the offering itself.

               Where the issuer or its representative uses disclosure to

          promote sales in the offering, it would have to file that

          disclosure, which would be subject to civil liability provisions

          prohibiting material misstatements and omissions.  This

          "inclusive prospectus" approach would reflect the reality that

          investment decisions in these offerings would be based on more

          than the information contained in a single disclosure document.

               By shifting some itemized disclosure requirements to

          materiality-based requirements, as one of our proposals would

          permit, we seek to discourage drafters from just routinely

          providing the boilerplate transactional disclosure that some have

          suggested the standardized disclosure items have evoked.  This

          alternative would re-focus drafters on analyzing and including

          the information particular to that deal that is material to

          investors.  More focused disclosure could result.

               On the other hand, under our alternative proposal, all

          current transactional disclosure requirements specified in

          Regulation S-K that are in Form S-3 and/or Form F-3 would

          continue to apply.  This alternative would provide investors with

          more certain core transactional information.

               Under either proposal, issuers and third party participants

          such as underwriters and auditors would continue to ensure the

          quality of disclosure due to both market pressures and their

          legal responsibility to do so.  We believe that analysts and the

          financial press, among others, also will test the accuracy of

          disclosure by larger, seasoned issuers. [6]  By allowing issuers

          some more freedom to craft their transactional disclosure and

          communicate with investors in Form B offerings for which there is

          evidence of an efficient market, we also hope to reduce selective

          disclosure by allowing access to more information.

               We are considering the same alternative approaches to

          disclosure in offerings limited to sophisticated investors and in

          offerings to investors with a pre-established relationship with

          the issuer.  Historically, we have given issuers more flexibility

          in these types of offerings on the theory that these purchasers

          are able to fend for themselves.

               For smaller issuers or unseasoned issuers of any size, we

          believe that the current strict itemization of transactional

          information in the prospectus remains important to the

          dissemination of adequate offering information.  Some of those

          issuers would have little experience with crafting offering

          disclosure and the same market scrutiny is not present.  We would

          therefore maintain all current itemized offering disclosure

          requirements in Form A.  We would, however, allow more freedom

          for seasoned smaller issuers to rely on their periodic reports

          for disclosure about their companies in an offering.  In the case

          of business combinations and exchange offers on Form C, we would

          maintain the itemized requirements for transactional disclosure.

                    2.   Timing of Registration

               Under the revised registration system, issuers would have

          complete flexibility in timing the registration of Form B

          offerings.  By operation of rule, those registration statements

          would become effective at the issuer's discretion, either

          immediately upon filing or at whatever later date and time the

          issuer chooses.  The staff would not review these registration

          statements before the offering or take action to make the

          registration statement effective.  Form B registration statements

          would be screened by the Commission staff shortly after receipt

          by the Commission to determine whether the offering was eligible

          for registration on Form B and whether the disclosure raises any

          "red flags" concerning the antifraud provisions of the federal

          securities laws.  Therefore, the only timing constraint for Form

          B offerings would be the statutory requirement that the

          registration statement must be effective before the first sale.

          We are not proposing to exempt issuers from that requirement

          because, among other reasons, filing of a final prospectus would

          ensure prompt disclosure to the market about the offering.

               We would continue to require that issuers registering

          offerings on Form A file a registration statement before making

          their first offer.  The Commission staff would continue to review

          all initial public offerings and selectively review repeat

          offerings by smaller, unseasoned issuers.  We would, however,

          allow seasoned medium-sized issuers to control the timing of

          registration in their Form A offerings.  We also would allow

          certain other Form A issuers that incorporate recent Exchange Act

          reports that have been fully reviewed by the Commission staff to

          control the timing of their offerings.  Those filings, like Form

          B offerings, would be screened (but not reviewed) by the staff

          shortly after receipt.

               We believe that this increased flexibility in the timing of

          registration will encourage issuers to register more offerings

          and thus extend the investor protection benefits of registration

          to more purchasers.  Further, although offerings by these issuers

          that we would not review under the proposed system are currently

          subject to staff review, these reforms essentially mirror current

          practice with respect to review of what would be Form B-type

          filings and recently examined Form A-type filings.

                    3.   Underwriter Guidance

               In connection with the proposed registration system, we

          would add a new provision to the Securities Act rule concerning

          due diligence.  That rule currently lists circumstances to

          consider in deciding whether a person has met the "reasonable

          investigation" and "reasonable ground for belief" standards that

          apply in defending against liability under Section 11 of the

          Securities Act.  The new provision would cover only certain Form

          B offerings completed on an expedited basis and would expand upon

          the existing guidance in the rule to reflect current practices.

                     4.  Small Business Issuers

               For purposes of registration and reporting, we are proposing

          to revise the definition of "small business issuer" to increase

          the number of companies qualifying as small business issuers.  We

          would raise the annual revenues ceiling from $25 to $50 million

          and remove the public float limitation.  We propose to update the

          definition to reflect significant economic and market changes

          that have occurred in the six years since we adopted the

          definition.  Also, our successful experience with the small

          business disclosure system indicates that we could classify

          companies with higher revenues as small business issuers while at

          the same time maintaining investor protection.  To provide small

          businesses with greater flexibility in raising capital, we also

          propose to delay the time at which they must pay registration

          fees, allow earlier incorporation by reference of their Exchange

          Act reports and allow increases in the size of their offerings in

          an expedited fashion.

                B.  Easing Restrictions on Communications

                         Our proposals would loosen the strict controls that exist

          today on communications to investors and the market around the

          time of an offering.  Our intent in proposing the communications

          reforms is to ensure that investors and the market have greater

          access to more timely information, which we believe is the

          foundation of investor protection.  We are not proposing any

          diminution in the remedies that would be available to investors

          in the event of defective disclosure made by or on behalf of an

          issuer around the time of an offering.

                    1.   Issuer Communications

               The extent to which we would ease communications by the

          issuer or deal participants depends on the type of offering.  For

          Form B offerings, we would allow oral and written communications

          in any format at any time regardless of whether the offering is

          imminent or ongoing.  Of course, the antifraud provisions and

          civil liability provisions of the securities laws would apply to

          those communications and provide the necessary investor

          protections.

               In Form A offerings on the whole, we have less reason to

          assume that plentiful, thoroughly scrutinized issuer information

          is available.  A barrage of sales-related communications could

          affect prospective investors, especially if those communications

          are the only ones publicly available.  The greatest need for

          investor protection in that case would occur before the investor

          has access to reliable, balanced prospectus disclosure.  Thus,

          for these offerings, we propose to maintain the prohibition on

          offers prior to filing a registration statement.  Once the

          issuer's prospectus is on file with the Commission, however, our

          proposals would lift existing restrictions on written

          communications for Form A offerings because an investor would be

          able to test the sales materials against the registration

          statement.  Moreover, our proposals on prospectus delivery would

          ensure timely delivery, not just access, to this more balanced

          information.

               For the period before filing the registration statement, we

          propose to create greater certainty about the timing and scope of

          remaining restrictions on communications.  We are aware that the

          restrictions on communications before a filing have been

          criticized as unclear.  This is especially true due to the recent

          increased use of the Internet.  Consequently, we are proposing a

          bright-line rule that would define the 30 days immediately before

          filing the registration statement as the period during which

          communications would be limited due to the upcoming offering.  In

          addition, our proposed rules provide that, even during that

          30-day limited communications period, issuers could disclose

          factual business information and regularly released

          forward-looking information.  Our proposals also would permit

          issuers to announce limited offering information during the 30-

          day period without indicating whether the offering will be

          registered or exempt.

                    2.   Safe Harbors for Research Reports

                For Form B offerings and many Schedule B offerings by

          foreign governments, the proposals would allow analysts to

          publish research reports without any interruption due to the

          registered offering.  For other offerings, we propose expanded

          safe harbors to make it easier for analysts to report about

          foreign government issuers and smaller, unseasoned companies.  We

          also are proposing to expand those safe harbors to address the

          distribution of research reports in connection with Regulation S

          and Rule 144A offerings.

               C.   Prospectus Delivery Reforms

               To provide investors with the maximum benefit from

          prospectus disclosure, the proposals re-focus prospectus delivery

          requirements on when the prospectus is needed most: before

          investors make an investment decision.  Where we would require

          that offering participants deliver prospectus information

          earlier, we would allow them to decide whether or not to deliver

          a final prospectus.  Where they do not deliver a final

          prospectus, we would require that they tell investors where they

          can obtain it free of charge.

               In Form B offerings, we would not require that offering

          participants deliver a full prospectus.  We would, however,

          require earlier delivery of a "securities term sheet" outlining

          the key features of the securities.  Delivery of that securities

          term sheet would precede the investment decision -- when the

          investor gives its oral or written commitment to purchase.  We

          also are considering, as an alternative for Form B offerings,

          requiring delivery of a prospectus containing all mandated

          transactional information listed in Subpart 500 of Regulation S-K

          that would be contained in a short-form registration statement

          today.

               In Form A offerings by unseasoned issuers (issuers that have

          registered their initial public offerings within the past year),

          underwriters and dealers participating in the offering would have

          to deliver a preliminary prospectus at least 7 days before the

          date of pricing.  In all other Form A offerings, issuers,

          underwriters and participating dealers would have to deliver a

          preliminary prospectus at least 3 days before the date of

          pricing.  These requirements would ensure that investors that are

          offered securities of smaller, unseasoned issuers have more time

          in which to assess the disclosure.  Issuers and other

          participants in Form A offerings also would have to inform

          investors no later than 24 hours before pricing about any

          material change that has occurred since they delivered

          prospectuses.

                D.  Public and Private Offering Flexibility

                Today's capital markets can change quickly.  Companies,

          especially small businesses, may find that the desirability of

          making a public offering versus a private offering can change

          just as quickly.  Current rules prevent most companies from

          changing their minds in a timely fashion once they have started

          an offering one way.  Our proposals would remove most of those

          impediments.  Under the proposed safe harbor, if an issuer

          started to register a public offering but then decided to abandon

          it, the issuer could withdraw the registration statement and

          either wait 30 days to sell privately or sell privately sooner

          and accept a higher liability standard for written disclosure

          provided to purchasers.

               Similarly, if an issuer started a private offering but then

          decided to abandon it, the issuer could file a registration

          statement for a public offering immediately unless it had offered

          the securities to persons that would not have been eligible to

          buy in a private offering under Securities Act Section 4(2).  In

          that event, the issuer would have to wait for 30 days after

          abandoning the private offering to file its registration

          statement.

               This safe harbor would be particularly useful to small

          issuers.  It would allow a small private company to "test the

          waters" for a public offering of its securities through this

          mechanism.  Doing so would not prevent the small issuer from

          selling privately if it finds too few investors to make it

          worthwhile to become a public company.  Similarly, small issuers

          that find more investor interest than expected could change from

          a private offering to a registered public offering.

               E.   Periodic Reporting

               We are proposing several changes to Exchange Act disclosure

          requirements, some of which the Advisory Committee on Capital

          Formation and Regulatory Processes recommended.  These changes

          would require issuers to report annual and quarterly financial

          results sooner, to make and update risk factors disclosure in

          their Exchange Act reports, to accelerate the due dates for some

          Form 8-K reports and to expand the events about which Form 8-K

          requires a report.  The changes also would require persons

          signing Exchange Act filings to indicate that they have reviewed

          the disclosure and, to their knowledge, the registration

          statement or report does not contain any untrue statement of a

          material fact or omit to state a material fact necessary in order

          to make the statements made, in light of the circumstances under

          which they were made, not misleading.  These Exchange Act

          disclosure reforms would provide key investor protections in a

          further streamlined registration process.  Additionally, if the

          proposed registration system is adopted, the Commission envisions

          shifting staff resources to the review of Exchange Act filings.



          II.  HISTORY OF REGISTRATION UNDER THE SECURITIES ACT

               The Securities Act and the regulations thereunder have long

          provided the foundation for a capital-raising system of

          unparalleled integrity, fairness, and liquidity.  The regulatory

          scheme seeks to ensure that investors receive full and fair

          disclosure with respect to securities offerings by issuers and

          their affiliates.

               The Securities Act was adopted in response to the activities

          culminating in the 1929 market crash. [7]  President Franklin D.

          Roosevelt articulated the underlying philosophy of regulating

          securities offerings which continues today:

               [t]here is ... an obligation upon us to insist that every 
               issue of new securities to be sold in interstate commerce
               shall be accompanied by full publicity and information, 
               and that no essentially important element attending the issue
               shall be concealed from the buying public. [8]

               Congress has made relatively few broad-reaching amendments

          to the Securities Act since its inception.  In administering the

          statute, we strive to be responsive to changing markets and

          capital-raising practices.  Over the years, the Commission has

          interpreted the statute through rules and regulations to give

          continuing life to the original statute.

               A.   Evolution of the Registration System

               Modern efforts at reforming registration stem in part from a

          commentary on Securities Act regulation published in 1966.  In

          his article, "Truth in Securities," Milton H. Cohen theorized

          that the:

               combined disclosure requirements of these statutes would 
               have been quite different if the 1933 and 1934 Acts ... had
               been enacted in opposite order, or had been enacted as a 
               single, integrated statute.... [9]

          Cohen argued for a coordinated disclosure system having as its

          basis the continuous disclosure system of the Exchange Act with

          the Securities Act disclosure requirements built upon it. [10]

          The Commission soon thereafter instituted a study, chaired by

          Commissioner Francis M. Wheat, to examine disclosure to

          investors.[11]  The Wheat Report, published in 1969, recommended

          expanded periodic disclosure under the Exchange Act and the

          coordination of the disclosure requirements of the Securities Act

          and the Exchange Act. [12]

               The Commission followed up on the Wheat Report by adopting a

          short-form Securities Act registration statement.  That

          registration statement permitted incorporation by reference of

          Exchange Act reports by larger issuers and in specified types of

          offerings. [13]  This approach allowed companies to avoid

          reiterating in their registration statements the company

          disclosure contained in annual and other periodic reports.

               In 1977, the Commission adopted Regulation S-K, which began

          the effort to establish a single set of disclosure requirements

          for issuers under both the Securities Act and the Exchange

          Act. [14]  That effort was substantially completed with the

          adoption of the "Integrated Disclosure System" in 1982. [15]  The

          Commission's integrated disclosure system eliminated overlapping

          and unnecessary disclosure required by the Securities Act and the

          Exchange Act.

               The Commission also adopted the modern-day "shelf

          registration" system in connection with the integrated disclosure

          system. [16]  That permits registration of securities offerings

          that are conducted on a delayed basis sometime after the

          effective date. [17]  In 1992, the Commission extended short-form

          and shelf registration to smaller issuers and new offerings,

          including asset-backed securities offerings. [18]  The Commission

          also permitted registration of shelf offerings without requiring

          that the amount of securities be allocated upon registration to

          specific classes of the issuer's securities.  This approach

          permitted issuers to decide as late as the point of sale which of

          its securities to use.

               Another significant change in the registration system

          occurred with the Commission's adoption in 1990 of Rule 144A.

          [19]  Rule 144A provides a safe harbor from registration for

          resales of restricted securities to QIBs.  By creating certainty

          about when registration is not required in these transactions,

          the Commission enhanced the attractiveness of alternatives to

          registration of securities. [20]

               B.   Review of the Capital Formation Process

               Both within and outside the Commission, debate periodically

          has centered on the Securities Act and the best way to regulate

          the securities offering process.  Over the years, industry

          participants, academics and Commission members have voiced

          opinions that there are strains in the regulatory framework and

          have called for changes.  Their proposed solutions have ranged

          from minor rule changes to the abolition of the Commission. 

               There also has been recent discussion about the extent to

          which the regulatory system requires an overhaul in the face of

          the ever-changing market and offering practices. [21]  Factors

          identified as causing strain in the current regulatory regime

          include:

               1.   technological developments in the field of electronic 
                    communications; [22]

               2.   the gradual erosion of traditional distinctions 
                    between public and private offerings; [23]

               3.   novel financing instruments, methods of capital-raising 
                    and risk management initiatives; [24] and

               4.   regulatory initiatives that reduce other market risks, 
                    such as the T+3 clearance and settlement system. [25]

          III. RECENT REFORM INITIATIVES

               The Commission has been cognizant of the call for change in

          the regulatory framework governing the capital formation process.

          For the last several years, the Commission has been actively

          reevaluating the current registration system.  Recent Commission

          steps in that process have included: the March 1996 Report of the

          Task Force on Disclosure Simplification (the "Task Force"); the

          July 1996 Report of the Commission-impaneled Advisory Committee

          on the Capital Formation and Regulatory Processes (the "Advisory

          Committee"); and the Commission's Securities Act Concept Release

          in July 1996 (the "Concept Release"). [26]

               A.   Task Force Report

               The Commission's Task Force was organized in August 1995 to

          conduct a broad-based review of existing disclosure requirements

          to identify outdated or unnecessary requirements that clutter the

          regulatory framework.  That review encompassed the forms and

          rules relating to: capital-raising transactions; periodic

          reporting pursuant to the Exchange Act; proxy solicitations and

          tender offers; and beneficial ownership reports under the

          Williams Act.  The goal was to simplify the disclosure process,

          consistent with investor protection, by eliminating unnecessary

          requirements. [27]  In its March 1996 report, the Task Force

          recommended that the Commission eliminate or modify a quarter of

          the rules and half the forms.  To this end, the Commission has

          abolished 45 rules and 6 forms. [28]

               B.   The Advisory Committee on Capital Formation

               The Advisory Committee was established in 1995 by the

          Commission and chaired by then-Commissioner Steven M.H. Wallman.

          The Advisory Committee's objective was to evaluate the efficiency

          and effectiveness of the regulatory process relating to public

          offerings of securities, secondary market trading, and corporate

          reporting.  After 18 months of study, the Advisory Committee

          published a report in 1996 calling for reform.  Its primary

          recommendation was that the Commission further its integrated

          disclosure system by implementing a "company registration"

          concept first envisioned by the ALI's Federal Securities Code.

          The report advocated refocusing the registration system on

          registration not of transactions, but of companies, with greater

          reliance on periodic disclosure than prospectus disclosure.  The

          Advisory Committee suggested that the Commission implement the

          concept as a pilot program for larger companies.

               C.   The Commission's Concept Release

               In light of diverse developments in the markets and the work

          of the Advisory Committee and Task Force, the Commission

          published the Concept Release on offering regulation in July

          1996.  In the Concept Release, the Commission announced that it

          was reexamining the application of the Securities Act and the

          rules thereunder to securities offerings.  The Concept Release

          sought comment on the best methods for eliminating unnecessary

          obstacles to capital formation while improving the quality and

          timing of disclosure and, therefore, investor protection.  The

          Commission focused its questions in the Concept Release on broad

          concepts underlying Securities Act regulation.  They included:

               *    whether investors are receiving all material
                    information in a timely manner in the offering process;

               *    whether limitations on the use of written
                    communications other than the statutory prospectus
                    during the offering process ought to be eased;

               *    whether the speed of takedowns of securities under the
                    Commission's shelf registration system results in
                    procedures that do not adequately inform the market;

               *    whether the role of independent gatekeepers in the
                    offering process needs to be reconfigured to work in
                    conjunction with issuers' quick access to capital; and

               *    whether the periodic disclosure under the Exchange Act
                    needs improvement.

          The Commission also asked questions in the Concept Release about

          the Advisory Committee's company registration idea and

          suggestions about regulatory reform that had been made by others.

          The Commission received 55 comment letters in response to its

          requests. [29]

               D.   The National Securities Markets Improvement Act

               Following the publication of the Concept Release, the

          National Securities Markets Improvements Act of 1996 ("NSMIA")

          was enacted. [30]  This legislation was designed to update the

          securities laws to promote investment, decrease the cost of

          capital, and encourage competition.  To this end, Congress

          granted the Commission for the first time general exemptive

          authority under the Securities Act. [31]  In order to exercise

          our new exemptive authority, NSMIA requires us to find that such

          action is "necessary or appropriate in the public interest and

          consistent with the protection of investors." [32]  That

          exemptive authority gives the Commission substantial additional

          flexibility in administering the Securities Act.  Congress

          believed that this additional flexibility would allow the

          Commission to adopt more easily new approaches to registration

          and disclosure in order to promote efficiency, competition and

          capital formation. [33]

               After the enactment of NSMIA, the Commission began to study

          possible reform of the regulatory structure for offerings even

          more broadly.  For the past two years, the Commission staff has

          researched and studied the existing regulatory system and

          possible improvements that could be made to it.  Some of our

          proposals rely upon our new exemptive authority.

          IV.  SCOPE OF THE PROPOSALS

               The Commission is proposing a variety of revisions to the

          current regulatory structure for securities offerings. [34]

          While many revisions address problems identified by offering

          participants, the overall goal of the proposed reforms is to make

          the registration system more workable for issuers and

          underwriters and more effective for investors in today's capital

          markets.  In the last decade, the Commission has seen the results

          of a registration structure that has been perceived as having too

          much rigidity to comport with the realities of modern global

          markets.  Sellers have used to their fullest extent available

          methods of offering without registration.  Increasingly, they

          have tried to create new ways around registration strictures.

          They also have stretched the boundary between registered and

          exempt offerings in seeking to acquire the benefits of both.

          Where registration has taken place, too many offerings have been

          accomplished with a divergence between the disclosure about the

          transaction in the registration statement and the disclosure

          actually used to convince investors to buy.

               A large share of the stress on the registration structure in

          recent years has stemmed from the issuers' and underwriters' need

          to raise capital on a schedule that they can control.  Our

          proposals seek to fulfill that need through the registration

          system where consistent with investor protection.  In addition,

          the speed at which offerings are accomplished today, and the

          limitations on communications imposed by the statute, have called

          into question whether investors are being informed in a timely

          manner.  Rather than continuing the statute's "exclusive

          prospectus" approach to disclosure, our proposals take an

          "inclusive" approach to disclosure.  We seek to ensure that

          material information is within the reach of investors when they

          need it most.  We also seek to lessen the gap in offerings done

          quickly between the disclosure about the offering actually being

          used to sell the securities and the disclosure that is filed with

          the Commission in a registration statement.  Overall, the

          revisions should create a more flexible registration system under

          which public offerings proceed with benefits to both buyers and

          sellers.

               Our proposals are primarily focused on the structure of the

          regulation of offerings; they are not primarily focused on the

          contents of disclosure requirements.  In the process of

          considering structural reform, however, the Commission has

          recognized that it needs to study whether the specific disclosure

          that is mandated both in Exchange Act periodic reports and

          Securities Act registration statements should be re-focused to

          serve the investing public better.  As a result, the Commission's

          reform work is not done.  The next step in our ongoing process

          will be to revisit the quantity and quality of required

          disclosure.

          V.   PROPOSALS ALTERING THE SECURITIES ACT REGISTRATION PROCESS

               A principal premise of the existing Securities Act

          registration system is that a prospectus containing mandated

          disclosure should be virtually the exclusive written document

          used to offer the securities.  In the years since adoption,

          especially with the recent explosion of information technology,

          this exclusivity premise is less a reality than a theory, at

          least for certain offerings and issuers.  We believe that it is

          time to recognize that a different approach would be better for

          those offerings.

               For larger seasoned issuers, communications made around the

          time of a typical registered offering, whether or not part of a

          traditional prospectus, provide the basis for investment

          decisions in the offering.  Those issuers are well followed by

          the market and the important statements that they make are

          quickly disseminated and considered by investors even when the

          issuers are not making an offering.  When they are making an

          offering, any communication those issuers and other offering

          participants make is of even greater interest to the markets.

          For those issuers, therefore, we propose a transformation from

          the "exclusive" prospectus approach to the "inclusive" prospectus

          approach as a means of facilitating informed investment

          decisions.  That approach would embrace as part of the

          registration system all information used by or on behalf of the

          issuer during the offering period that would be material to an

          investor in the offering.  All investors in the offering would

          receive or have access to such information as well as the

          required material company and transactional disclosure.  The

          proposed system would maintain investor protection by subjecting

          this information to the antifraud and civil liabilities

          provisions of the Securities Act and the Exchange Act.

               For most offerings by smaller or unseasoned issuers, and in

          business combinations and exchange offers, we would primarily

          rely on the current mandated prospectus to provide written

          offering communication to investors, although there too we would

          allow them more freedom to communicate in any medium by means

          other than the prospectus. [35]

               The proposed system would have three main registration

          forms: Form A for smaller issuers and larger unseasoned issuers,

          Form B for larger seasoned issuers and offerings to relatively

          well-informed or sophisticated investors, and Form C for business

          combinations and exchange offers.  Both domestic and foreign

          issuers would use each of these Forms. [36]  Small business

          issuers would continue to be permitted to use Form SB-1 and

          revised Form SB-2 for their offerings and would have to use new

          Form SB-3 for business combinations and exchange offers.

               The new forms reflect our understanding of when investors

          need more, or less, mandated disclosure and when investors

          benefit from access to information from more than one source.  In

          addition, the proposed divisions of issuers and offerings would

          create a system that more accurately reflects when an efficient

          market exists and when an issuer has a significant market

          following.  The new system also would enhance the use of Exchange

          Act disclosure to satisfy Securities Act disclosure requirements.

               A.   Form B Offerings

                    1.   How Form B Works

                         a.   Registration Statement Contents

               At the time of effectiveness, a Form B registration

          statement would consist of:

               *    a cover page with a calculation of registration fee

                    table;

               *    a prospectus that contains:

                    -    offering information;

                    -    the registrant's Exchange Act reports, via
                         incorporation by reference;

                    -    a foreign private issuer's Item 18 reconciliation
                         (or Item 17, as applicable) to U.S. GAAP (if not
                         already in an incorporated report); [37]

                    -    the securities term sheet; [38]

                    -    undertakings to provide investors upon their
                         request, and free of charge, with information
                         incorporated by reference but not delivered.

               *    signatures;

               *    selected exhibits: [39]

                    -    any instrument that defines the rights of the
                         security holders (incorporated by reference if
                         previously filed);

                    -    consents; [40]

                    -    statement of eligibility of trustee, where
                         applicable (Form T-1);

                    -    legal opinions; and

                    -    a representation that underwriters concur with the
                         issuer's designated effective date. [41]

               Form B issuers would be required to deliver promptly a

          prospectus, free of charge, to any investor who requests it.  In

          addition to that obligation, Form B issuers would be required to

          deliver a securities terms sheet. [42]

                              i.   Company Disclosure

               Investors, as always, will obtain company information from a

          variety of sources such as the Internet, television, newspapers

          and radio.  They also may acquire company information from

          securities analysts or the company itself.  While there are many

          possible sources of information about Form B issuers that

          investors can access today, [43] one reliable source is the

          information that issuers make public through filing their

          Exchange Act reports with the Commission.  Investors can rely on

          this information because it is subject to

          the regulatory and antifraud provisions of the federal securities

          laws as well as subject to review by the staff of the Commission.

          This structure compels issuers to come forward with information

          about their businesses that they might not choose to make public

          otherwise.

               The proposed registration system takes account of this

          source of information by providing that an issuer must

          incorporate by reference into its effective registration

          statement on Form B:

               1.   its latest annual report [44] filed under the Exchange
          Act; and [45]

               2.   any Exchange Act reports filed since the end of the
                    fiscal year covered by its latest annual report. [46]

          Issuers that use Forms S-3 or F-3 currently must incorporate

          their Exchange Act reports into those Forms.  The 12-month

          reporting requirements under those Forms, however, do not assure

          that an issuer incorporates an annual report into either of those

          registration statements because annual reports are not due until

          three months (or 6 months, for foreign private issuers) after the

          end of a company's fiscal year.  In addition to this information,

          issuers would be required to disclose in their Form B

          registration statements updated company information that

          describes material changes not reflected in any Exchange Act

          reports incorporated by reference.


          **FOOTNOTES**

          [2]: "Qualified  institutional  buyers"  is defined in Securities
               Act  Rule  144A(a)(1), 17 CFR 230.144A(a)(1).   Even  though
               some proportion  of  the Rule 144A securities are eventually
               registered, the investor  benefits  of  registration are not
               maximized.  It is not uncommon for securities  sold  in Rule
               144A  transactions  to  end  up in the public market because
               they are registered for resale  or  exchanged for registered
               securities in "Exxon Capital" transactions  (named after the
               Commission   staff   interpretive  letter  sanctioning   the
               practice).

               [3]:Securities Data Corp's  New  Issues Database.  Virtually
               all of that market share has moved  to  the Rule 144A market
               in  the  last  5  years.   Rule  144A  is not available  for
               securities  listed  on  a  national securities  exchange  or
               quoted on a U.S. automated inter-dealer quotation system.

               [4]:Non-convertible investment  grade  debt  is eligible for
               short-form  registration  under our current system,  whereas
               the other two categories are not.

               [5]:Exchange Act Release No. 40633 (Nov. 3, 1998).

               [6]:We recognize that analysts,  especially so-called "sell-
               side" analysts, have inherent conflicts  of interest.  There
               is  a risk that impartiality may be compromised  when  their
               firms seek to participate in the issuers' distributions.  We
               believe,  nevertheless,  that  analysts  in general, and the
               expanding "buy side" analysts in particular, are in a unique
               position  to gather and analyze information  about  issuers.
               They represent an undeniably significant method of corporate
               disclosure and dissemination.

               [7]:The Securities  Act  was  the  first  of  six securities
               statutes  to  be  enacted during the 1933-1940 period.   The
               other five acts include:  the  Securities  Exchange  Act  of
               1934,  Pub.  L. No. 73-291, 48 Stat. 881 (1934) (codified as
               amended at 15 U.S.C. งง 78a-78kk (1994, Supplemented 1996));
               the Public Utilities  Holding  Company  Act of 1935, Pub. L.
               No. 74-333, 49 Stat. 803 (1935) (codified  as  amended at 15
               U.S.C.  งง  79-79z-6  (1994, Supplemented 1996)); the  Trust
               Indenture Act of 1939,  Pub.  L.  No.  76-253, 53 Stat. 1149
               (1939)  (codified  as amended at 15 U.S.C.  งง  77aaa-77bbbb
               (1994, Supplemented  1996));  the  Investment Company Act of
               1940, Pub. L. No. 76-768, 54 Stat. 789  (1940)  (codified as
               amended  at  15  U.S.C.  งง 80a-1-80a-64 (1994, Supplemented
               1996)); and the Investment Advisors Act of 1940, Pub. L. No.
               76-768,  54 Stat. 847 (1940)  (codified  as  amended  at  15
               U.S.C. งง 80b-1-80b-21 (1994, Supplemented 1996)).

               [8]:H.R. Rep. No. 85, 73d Cong. 1st Sess., at 1-2 (1933).

               [9]:Cohen, "Truth in Securities" Revisited, 79 Harv. L. Rev.
               1340, 1341 (1966).

               [10]:Id. at 1342.

               [11]:Disclosure    to   Investors   -   A   Reappraisal   of
               Administrative Policies Under the 1933 and 1934 Acts, Report
               and Recommendations  to  the  SEC from the Disclosure Policy
               Study (Mar. 27, 1969)[hereinafter "Wheat Report"].

               [12]:The securities bar also acted upon the ideas in Cohen's
               article.   The American Law Institute  commissioned  several
               industry experts,  led  by  Professor Louis Loss, to combine
               all  six  federal  statutes  into  one  comprehensive  code,
               American Law Institute, Federal  Securities Code (1980) (the
               "ALI  Code").  See also Loss, The American  Law  Institute's
               Federal  Securities  Code  Project,  25 Bus. Law. 27 (1969).
               Upon its completion ten years later in  1980, the Commission
               and  many in the securities industry expressed  support  for
               the ALI  Code.   See Securities Act Release Nos. 6242 (Sept.
               18, 1980) [20 S.E.C.  1483  (1980)] and 6377 (Jan. 21, 1982)
               [24  S.E.C.  Docket  788  (1961)]   (releases   stating  and
               reaffirming support for the ALI Code).  See also Coffee, Re-
               Engineering  Corporate  Disclosure:  The Coming Debate  Over
               Company  Registration,  52 Wash. & Lee L.  Rev.  1143,  1145
               (1995).  The ALI Code was  in  turn  presented  to Congress.
               Congress,  however, took no action with respect to  the  ALI
               Code.

               [13]:Securities  Act Release No. 5117 (Dec. 23, 1970) [36 FR
               777].

               [14]:Securities Act  Release No. 5893 (Dec. 23, 1977) [42 FR
               65554].  As originally  adopted,  Regulation  S-K  contained
               only  two  items: "Description of Business" and "Description
               of Property."

               [15]:Securities  Act  Release No. 6383 (Mar. 3, 1982) [47 FR
               11380].  In that release,  the  Commission  stated  that "in
               reliance  on  the  efficient  market  theory" Form S-3 would
               allow for maximum use of incorporation  by  reference [47 FR
               at 11382].

               [16]:Temporary  Rule  415  was  adopted  in March  of  1982.
               Securities Act Release No. 6383 (Mar. 3, 1982).  In November
               of 1983, the Commission announced the adoption  of a revised
               shelf  registration rule.  Securities Act Release  No.  6499
               (Nov. 17, 1983) [48 FR 52889].

               [17]:See Securities Act Release No. 6499 (Nov. 17, 1983) and
               Securities   Act   Rule  415,  17 CFR  230.415.   Short-form
               registration is used for delayed shelf offerings.

               [18]:Securities Act  Release No. 6964 (Oct. 22, 1992) [57 FR
               32461].

               [19]:Securities Act Release  No. 6862 (Apr. 23, 1990) [55 FR
               17933].

               [20]:According to Securities Data  Co.,  the  deal  value of
               Rule  144A  private  placements  in 1997 was $254.4 billion,
               approximately $83 billion of which  was  raised  by  foreign
               issuers.   Tibbitts,  Private  Placement Volume Explodes  as
               Structured  Deals  Rule  144A  Market,  Investment  Dealers'
               Digest, Feb. 2, 1998.  The amount  of  non-convertible bonds
               issued in the Rule 144A market in the first  quarter of 1998
               ($30 billion) is almost equal to the entire amount  (equity,
               preferred and debt) placed in the Rule 144A market from  its
               inception in 1990 to the end of 1992 ($31 billion).

               [21]:Compare  Merrill  Lynch  comment letter (Oct. 31, 1996)
               ("[W]e  believe  that  what the registration  process  needs
               today is a tune up, not  an  overhaul.")  with  American Bar
               Ass'n comment letter (Dec. 11, 1996) ("[T]he time  has  come
               to  recognize  that  the current jury-rigged system requires
               fundamental reforms.").   These  letters  are  available for
               inspection and copying in the Commission's public  reference
               room.  Refer to File No. S7-19-96.

               [22]:See,  e.g.,  Report  to  the  Congress:  The Impact  of
               Recent  Technological  Advances on the  Securities  Markets,
               (Sept.  1997).  That Report,  like  all  Commission  reports
               issued after 1996, is available on the Commission's Internet
               web site (http://www.sec.gov).

               [23]:See,   e.g.,  Keller,  Securities  Act  Concepts:   The
               Private/Public  Offering Dichotomy and Proposals for Reform,
               Mass. Continuing  Legal  Educ., 15 Ann. Bus. & Sec. L. Conf.
               (Oct. 31, 1997).

               [24]:Seligman,  The  Obsolescence   of   Wall   Street:    A
               Contextual  Approach  to  the  Evolving Structure of Federal
               Securities Regulation 93 Mich. L.  Rev.  649, 666-72 (1995).
               See also Securities Act Release No. 7386 (Jan. 31, 1997) [62
               FR 6044].

               [25]:See,  e.g., Securities Act Release No.  7168  (May  11,
               1995) [60 FR 26604].

               [26]:Securities  Act Release No. 7314 (July 31, 1996) [61 FR
               40044].

               [27]:The  Task Force  met  with  issuers,  investor  groups,
               underwriters,  accounting  firms,  lawyers,  and  others who
               participate  daily  in the capital markets.  The Task  Force
               reported that none of  the  participants suggested wholesale
               deregulation, and virtually all emphasized the importance of
               the Commission's basic regulatory  goals to preserve orderly
               markets. See Task Force Report at pp. 1-6.

               [28]:Securities Act Release No. 7300  (May  31, 1996) [61 FR
               30397] and Securities Act Release No. 7431 (July  18,  1997)
               [62   FR  39755].   These  releases  are  available  on  the
               Commission's Internet web site (http://www.sec.gov).

               [29]:Those  letters  and  a  summary of them may be read and
               copied at the Commission's Public  Reference Room, 450 Fifth
               Street  N.W., Washington, D.C. 20549.   Refer  to  File  No.
               S7-19-96.

               [30]:Pub. L. No. 104-290, 104th Cong., 2d. Sess. (1996).

               [31]:See  Section 28 of the Securities Act, 15 U.S.C. ง 77z-
               3.

               [32]:15 U.S.C. ง 77z-3.

               [33]:H.R. Rep. No. 104-622, 104 Cong. 2d Sess. at (1996).

               [34]:The proposals  do  not  purport  to affect any rules or
               regulations imposed by
               self-regulatory organizations in connection  with securities
               offerings.

               [35]:See  Section  VII.  of this release regarding  proposed
               changes in the regulation of offering communications.

               [36]:While disclosure for  foreign private issuers currently
               is made through a separate set  of  registration  forms,  we
               believe  that  it would be simpler to formulate a single set
               of forms for both  foreign  and  domestic issuers.  In doing
               so, foreign private issuers registering  on  Form A would be
               subject  to  the  same disclosure requirements as  they  are
               currently. In Form  B, foreign private issuers would have at
               least  as much flexibility  as  domestic  issuers.   Through
               designations on the front of the registration forms, it will
               be possible  to  track  the  use  by foreign private issuers
               regardless of whether they register  on  the  same  forms as
               domestic issuers.

               [37]:See Items 17 and 18 of Form 20-F.

               [38]:See   Section   VIII.C.4.a.   of  this  release  for  a
               discussion  of  this  securities  term  sheet  and  delivery
               requirements relating to it.

               [39]:See proposed revisions to Item 601 of  Regulation  S-K,
               17 CFR 229.601.

               [40]:See  infra  note  73  for  a  discussion of consents of
               auditors in delayed shelf registration statements.

               [41]:See Sections V.A.1.d. and V.B.2.a.  of this release for
               a discussion of this underwriter concurrence.

               [42]:We discuss prospectus delivery obligations  for  Form B
               issuers at Section VIII.C.4.a. of this release.

               [43]:We also believe our proposal to free communications  by
               Form  B  registrants,  discussed  below,  would spur diverse
               public  discourse  about  the merits of the issuer  and  its
               offering, all of which would be open to the public investor.

               [44]:We do not, however, permit  incorporation  by reference
               of  annual  reports  on  Form 40-F.  See General Instruction
               I.B.7. of proposed Form B.

               [45]:Financial statements  included  in  the Form must be no
               older  than  permitted  in  the age of financial  statements
               requirements of Regulation S-X.   See Rules 3-12 and 3-19 of
               Regulation  S-X,  17  CFR  210.3-12 and  210.3-19.   Foreign
               issuers using Form B would be  required to reconcile to U.S.
               GAAP  any  financial  statements  either   incorporated   by
               reference  into  or set forth in the Form.  We would require
               reconciliation in accordance with Item 17 or Item 18 of Form
               20-F under the same standards used today.

               [46]:The proposed system would not permit Form B registrants
               to incorporate by  reference  any  Exchange Act report filed
               after  the end of the offering period.   For  delayed  shelf
               offerings,   each  takedown  would  have  its  own  separate
               offering period.

                                        - 6 -

                              ii.  Transactional Disclosure

               We are seeking comment on two alternatives on Form B

          transactional disclosure.  The first would mandate the inclusion

          of "offering information" that includes some of the traditional

          items of transactional disclosure.  This alternative would allow

          issuer discretion as to materiality and applicability of other

          traditional items of transactional disclosure.  The second

          alternative would simply mandate that issuers set forth in Form B

          the items of transactional disclosure required today.  Both

          alternatives would require that the registrant file any offering

          information disclosed by or on behalf of the issuer (including by

          the underwriter or participating dealer) during the offering

          period. [47]  Under the first proposal, the registrant would file

          offering information as part of the prospectus in the effective

          registration statement. [48]  "Offering information" consists of:

               *    the amount of securities being offered; [49]

               *    material changes in the issuer's affairs since the end
                    of the latest fiscal year that are not reflected in
                    incorporated Exchange Act reports;

               *    the information required by Item 504 of Regulation S-K
                    regarding use of proceeds;

               *    the information about underwriter's discounts and
                    commissions required by Item 501(b)(3) of Regulation S-
                    K;

               *    information about the risks of the offering of the type
                    described in Item 503 of Regulation S-K;

               *    information concerning who is selling the securities of
                    the type described in Item 507 of Regulation S-K;

               *    material information about the terms of the securities
                    offered as required by Item 202 of Regulation S-K,
                    unless capital stock is to be registered and securities
                    of the same class are registered pursuant to Section 12
                    of the Exchange Act;

               *    all information regarding the transaction that is
                    material, which may include where applicable, but is
                    not limited to:

                    -    information about dilution of the type described
                         in Item 506 of Regulation S-K;

                    -    information about the determination of the
                         offering price of the type described in Item 505
                         of Regulation S-K;

                    -    information about the plan of distribution of the
                         type described in Item 508 of Regulation S-K;

                    -    ratio of earning to fixed charges, as described in
                         Item 503 of Regulation S-K;

               *    any offering information disclosed by or on behalf of
                    the issuer during the offering period, [50] other than
                    information communicated orally; and

               *    offering information communicated orally that the
                    issuer chooses to file.



               This alternative could provide registrants, and those acting

          on their behalf, more flexibility to craft a selling document

          shaped by their particular offering, the market demands for

          information, and the requirements to provide material information

          to investors.  We believe the greater freedom may allow issuers

          to cut some boilerplate disclosure and to omit non-material

          disclosure from the prospectus.  We solicit comment, however,

          with regard to whether issuers would use that freedom to

          accomplish those objectives.  At the same time, the Form's

          requirements should ensure investor protection by requiring

          issuers to disclose all material offering information in the

          prospectus that is part of the effective Form B.  We solicit

          comment on this point.

               We solicit comment on whether traditional transactional line

          items not included in Form B should be retained.  If so, which of

          the items?  Conversely, should we permit Form B issuers to craft

          their transactional disclosure based on what they believe is

          material information, and what the market and investors would

          demand, rather than based on traditional transactional line

          items?  If so, should we limit that flexibility to a narrower

          class of Form B issuers, such as those with a minimum public

          float of $750 million or $1 billion?

               The second alternative would mandate that issuers disclose

          in Form B all the information required by the Regulation S-K

          transactional disclosure items currently required in Form S-3

          and/or Form F-3.  In addition to the information that would be

          required by the first alternative, this alternative would require

          the registrant to provide further information in accordance with

          Regulation S-K. [51]  Should Form B include as mandated itemized

          information all of the topics listed under that requirement?

          Should mandated itemized disclosure be a different subset of the

          Regulation S-K information currently required in Form S-3 and/or

          Form F-3?


          **FOOTNOTES**

          [47]:We would not permit  a Form B registrant to file information
               that had not been disclosed during the offering period.  See
               Form B "Information Required  in the Prospectus that is Part
               of the Effective Registration Statement,"  paragraph  1.(c),
               and  proposed Securities Act Rule 172(e), 17 CFR 230.172(e).
               Information  communicated orally during that period could be
               reduced to writing  and  filed  as  part of the registration
               statement if the registrant so chooses.

               [48]:Information communicated orally  would  not  have to be
               filed and would be subject to Section 12(a)(2) liability.

               [49]:Under  Rule  457(a),  17  CFR  230.457(a), a number  of
               securities may be registered.  Under  Rule  457(o),  17  CFR
               230.457(o),   a   dollar  amount  may  be  registered.   The
               registrant may choose  between  these  two alternatives in a
               typical capital-raising offering.

               [50]:For purposes of this Form, "offering  period" means the
               period beginning 15 days in advance of the first  offer made
               by  or  on  behalf  of  the  issuer  in  connection with the
               offering and ending when the offering is completed.

               [51]:That additional information would be:  certain portions
               of  Item  501  of  Regulation  S-K (forepart of registration
               statement and outside front cover  page of prospectus); Item
               502 of Regulation S-K (inside front  and  outside back cover
               pages  of  prospectus);  certain  portions  of Item  503  of
               Regulation S-K (prospectus summary and address and telephone
               number);  Item  509  of  Regulation  S-K,  where  applicable
               (interests  of  named  experts and counsel) and Item 510  of
               Regulation S-K, where applicable  (disclosure  of Commission
               position on indemnification for Securities Act liabilities).

                                        - 7 -

                         b.   Free Writing Materials

               For Form B issuers, written information [52] disclosed

          during the "offering period" would be classified as either

          "offering information" or "free writing" materials. [53]  The

          "offering period" with respect to a Form B offering would be

          defined as the period beginning 15 days before the first offer

          made by or on behalf of the issuer and ending at the time of

          completion of the offering.  "Free writing" materials would

          include all written information disclosed by or on behalf of the

          issuer during the offering period, other than "offering

          information," factual business communications [54] and limited

          notices of proposed offerings. [55]  Free writing could include,

          but would not be limited to, sales literature and selling

          documents that include forward-looking information. [56]  A

          document that contains both offering information and "free

          writing" would be treated as "free writing," if the offering

          information was filed as part of the issuer's registration

          statement.  If the offering information was not filed as part of

          the issuer's registration statement, the document, including the

          "free writing" portion, would be treated as offering information

          and would be required to be filed as part of the registration

          statement.

               The registrant would file, at the same time it files its

          Form B registration statement, the free writing materials it

          disseminated before filing its Form B. [57]  It would file free

          writing materials used after the filing of its Form B at the time

          of first use. [58]  The registrant would not file free writing

          materials as part of the effective registration statement, nor

          would it have to file information in the effective registration

          statement as free writing materials. [59]

               Given the significance of the offering period, should the

          Commission require the registrant to state on the front cover

          page of the registration statement the date of the first offer in

          connection with the offering being registered?  Should the

          Commission require free writing materials to be filed at the time

          of their first use since investors might prefer access to them as

          they make their investment decisions?

                         c.   Time of Filing

               A registrant could file a registration statement on Form B

          at any time before the first sale of the securities. [60]

          Issuers wishing to file immediately before sale could do so. [61]

          Because issuers may wish to price Form B offerings before filing

          and because many offerings are currently priced after hours, we

          would allow registrants to file Form B registration statements

          with the Commission after hours via EDGAR or facsimile until

          10:00 p.m. [62]  Issuers would pay the filing fee under the same

          procedures used today by issuers filing Rule 462(b) registration

          statements after hours via facsimile. [63]

                         d.   Becoming Effective

               A Form B and any amendment to a Form B would be effective by

          operation of rule at the issuer's discretion to give issuers

          maximum flexibility. [64]  The issuer would simply select one of

          three choices on the cover page:

               (1)  effective upon filing;

               (2)  effective _________________ (date and time specified by

          the issuer); or

               (3)  effective as specified in a later amendment to the

          registration statement. [65]

          The Commission staff would not have to take action for the

          registration statement to become effective.

               In most underwritten offerings under the current

          registration system, the Commission requires that a request for

          effectiveness of a registration statement be made by the

          underwriters in addition to the issuer. [66]  Both underwriters

          and issuers are subject to liability under Section 11 for the

          disclosure in an effective registration statement.  A request for

          effectiveness is therefore an acknowledgment by each requester

          that it is aware of its obligations under the Securities

          Act. [67]

               Because the issuer would have complete control over

          effectiveness by controlling the filing, we would include in Form

          B a requirement that the issuer obtain and file as an exhibit

          evidence of the managing underwriters' or principal underwriters'

          concurrence with the issuer's designation of effectiveness. [68]

          The issuer would have to obtain that concurrence before it files

          the Form B registration statement in which it requests either

          immediate effectiveness or effectiveness at a specified date.

               Would the requirement to file the evidence of the

          underwriters' concurrence as an exhibit to Form B be

          unnecessarily burdensome?  Alternatively, should we require the

          issuer to represent in the registration statement that it

          obtained the underwriters' concurrence, but not require it to

          file the concurrence, and require it to retain the concurrence

          for 5 years?  Should we require that the issuer obtain the

          concurrence, but not require that the concurrence be evidenced in

          writing?  Would an oral concurrence provide the issuer and the

          underwriters with sufficient assurance of agreement and

          protection against misunderstanding?

                         e.   Delayed Shelf Offerings and Form B

               Form B would provide much the same flexibility to issuers

          that delayed shelf registration on Forms S-3 and F-3 has

          provided, [69] and those benefits would be available to

          approximately the same issuers. [70]  Unlike current shelf

          registration, however, issuers using Form B would not need to

          file a base or core prospectus to be able to offer and sell at

          will.  Base prospectuses today, particularly those used for

          unallocated delayed shelf registration statements, tend to

          describe in the broadest of terms the many different types of

          securities and offerings that might be done off the shelf.  Thus,

          in offerings off the shelf, the key offering disclosure is

          usually filed in the Rule 424 prospectus supplement.  Form B

          would allow an issuer to avoid writing transactional disclosure

          that covers "everything but the kitchen sink" and simply file

          whatever transactional disclosure it gives to investors at the

          time of the offering.

               There are also other Form B benefits as compared to the

          current delayed shelf system.  First, the Form B registration

          statement would not be subject to pre-effective staff review.

          Under the existing delayed shelf system, the Form S-3 or F-3

          containing the core prospectus is subject to the staff's

          selective pre-review.  Second, issuers may have less concern

          about market overhang effects on its stock price under Form B.

          [71]  Under the current system, an issuer wishing to put equity

          securities on the shelf has to include them in the registration

          statement even before it intends to offer those securities.

          Under the proposed system, a registrant need only file a Form B

          registration statement before sale.  The absence of a filing that

          signals an upcoming offering well before the time it can be

          completed may be welcomed by issuers, but may be of concern to

          secondary market participants. [72]

               Another advantage for issuers in Form B as compared to

          existing shelf registration relates to fees.  In shelf

          registration today, an issuer must file the base prospectus and

          pay the full filing fee at that time, even though it may not take

          down securities from the shelf until much later.  An issuer using

          Form B other than for delayed offerings would pay upon filing but

          generally that would not occur until sale.  There would be no

          need to register more than is needed for that offering at that

          time.

               We believe that the way Form B operates would largely

          eliminate the incentive for a registrant to set up a delayed

          shelf registration statement.  We recognize, however, that some

          issuers are accustomed to doing shelf takedowns and do so on a

          frequent basis.  As proposed, a registrant wishing to file some

          preliminary information could still do so on Form B and either

          become effective then and file the remaining disclosure

          concerning the offering in a post-effective amendment or delay

          effectiveness of the Form B until the rest of the information is

          available.  The issuer could designate when those post-effective

          amendments become effective.  The current delayed shelf does not

          require directors and officers to sign the Rule 424(b)

          supplements filed for each takedown. [73]  Under the proposal,

          registrants may use a power of attorney to avoid the

          inconvenience of obtaining multiple signatures upon the filing of

          a pre-effective or post-effective amendment.  We also would

          provide in delayed shelf offerings that when the persons signing

          a Form B do not appoint a person to sign via a power of attorney,

          a signature on a post-effective amendment by an authorized

          representative of the registrant shall be deemed to constitute

          signature by the persons signing the original filing unless

          otherwise specified in the amendment. [74]

               Delayed shelf offerings on Form B would, however, improve

          upon the Form S-3/F-3 shelf registration system in two ways that

          would enhance investor protection.  First, we would provide

          clearly in Form B that any transactional disclosure used in

          connection with a Form B offering is within the effective

          registration statement.  With Form B, transactional information

          disclosed to investors before the end of the offering period

          would have to be filed either as part of the effective

          registration statement or on a post-effective amendment that

          becomes effective whenever the issuer wishes before the time of

          sales.  That information would be within the scope of Section 11

          under the Securities Act.  That transactional disclosure would

          include information filed under Rule 424 as prospectus

          supplements to shelf registration statements today.  We also

          would provide clearly in Form B that historical and forward-

          incorporated Exchange Act reports would be part of the effective

          registration statement.  That information also would be within

          the scope of Section 11.  We recognize that certain commentators

          have questioned whether Section 11 applies to Rule 424

          information [75] and forward-incorporated Exchange Act reports.

          [76]  While we believe that under existing law such Section 11

          liability applies, and do not accept the views of those

          commentators on these issues, we recognize that an explicit

          statement in the proposed Form would serve to eliminate any

          uncertainty practitioners may believe exists.

               The other change to the way delayed shelf would operate

          relates to the time of filing with the Commission information

          about the offering off the shelf.  Today, that information may be

          filed pursuant to Rule 424 up to two business days after the

          earlier of pricing of the securities or first use of the

          prospectus supplement.  Under the proposed registration system,

          we would require that Form B issuers file this information as

          part of the effective registration statement by the time of

          sale. [77]  We believe that both investors and the market are

          better served by having this disclosure filed promptly.

          Moreover, because the transactional information that may be filed

          as part of the Form B registration statement includes only

          information about which investors have been informed before

          committing to purchase the securities, there is less reason to

          contemplate a filing after the sale takes place.  In addition,

          the Commission is aware that some investors trading in shelf

          registrants' securities after a takedown and before the filing

          have been troubled by the absence of disclosure during that

          period.  We have concerns that some investors are aware of the

          shelf takedowns while others become aware days later when notice

          is filed with the Commission.  Although a two-business-day wait

          may not have been considered a material delay at the outset of

          modern shelf registration, it appears to be one in today's market

          framework.  Eliminating this delay would support our goal of

          reducing the risks of selective disclosure.

               We solicit comment on whether there is a continued need for

          a delayed shelf concept under Form B.  Do registrants see

          advantages to delayed registration on Form B over and above what

          would be allowed on Form B without that concept?  Does the

          delayed shelf concept needlessly complicate the system?  Is there

          a reason to retain the two-year limitation on the amount

          registered?  Would concerns about market overhang keep issuers

          from taking advantage of any extension?  Should we limit the

          extension to 3 or 4 years?  Would issuers benefit more if we

          remove completely any restrictions on the amount of securities

          that issuers could register for a delayed shelf?  What if we

          extended the possible life of a shelf registration statement to

          6, 7 or 10 years?  Would issuers register securities to be

          offered over those periods of time?

                    2.   Offerings Eligible For Registration on Form B

               An issuer may register on Form B only offerings that fit in

          one of the following categories.

                         a.   Offerings by Larger Seasoned Issuers

               Given the envisioned disclosure and delivery aspects of Form

          B, we believe that only those issuers with a demonstrated market

          following should be eligible to use Form B to register primary

          and secondary offerings of any type to the general public.  The

          current threshold for short-form registration (Forms S-3 and F-3)

          is a public float of $75 million.  Based on our research, we

          believe that the most accurate measurement to attain the goal of

          choosing issuers for which there is an efficient market is a

          combination of public float of the issuer's common equity

          securities [78] and average daily trading volume ("ADTV") of the

          issuer's equity securities. [79]  We propose that an issuer able

          to use Form B should either have:

               *    a public float of $75 million or more and an ADTV of $1
                    million or more; [80] or

               *    a public float of $250 million or more. [81]

          Thus, if an issuer has a public float of less than $250 million

          then it must have an ADTV of at least $1 million in addition to a

          public float of $75 million.

               In determining these thresholds, we considered, among other

          things, the level of analysts coverage that would result at

          different public float and ADTV thresholds.  Our research

          indicates that companies that meet the proposed combined public

          float/ADTV test would have an average of 14 analysts following

          them.

               We looked at analyst coverage not because we believe that

          analysts create market following or because we believe that

          analysts statements are wholly accurate and unbiased or because

          we believe that all investors would have access to or rely upon

          analysts reports.  Instead, we looked to analyst coverage because

          we believe that the number of analysts that cover companies that

          fit a certain profile is indicative of the level of investor

          interest in companies within the profile.  Like news

          organizations, analysts tend to cover companies that are of

          interest to their customers. [82]

               For purposes of Form B, issuers would be required to measure

          their ADTV during the three full calendar months (or any 90

          consecutive calendar days ending within 10 calendar days)

          immediately preceding the filing of the registration statement.

          They would measure their public float as of the end of their last

          fiscal quarter.  While the alternative stand-alone public float

          test of $250 million may be used by both domestic and foreign

          issuers to qualify for Form B eligibility, we propose it

          primarily for the benefit of large foreign issuers whose shares

          trade principally on foreign markets. [83]  In comparison to

          current Form S-3 and F-3 public float levels, 1,175 fewer

          companies would be eligible to register on Form B due to size.

          [84]  Those companies, and even smaller ones, would, however, be

          eligible to register on Form B under other criteria discussed

          below, such as when offering only to QIBs or offering investment

          grade securities.

               In addition to the public float/ADTV criteria, Form B would

          be available only to issuers that have a history of reporting

          under the Exchange Act.  The reporting history would ensure that

          issuers have been reporting long enough so that adequate

          information about them is publicly available.  It also gives

          issuers enough time to adjust to the disclosure requirements

          applicable to reporting companies.  We propose a one-year

          reporting history requirement coupled with the requirement that

          the issuer have filed at least one annual report.  Because annual

          reports are due months after the end of a fiscal year, simply

          requiring that Form B issuers have a one-year reporting history

          would not necessarily ensure that all issuers using the Form had

          prepared and filed at least one annual report. [85]  We believe

          the annual report requirement would provide benefits to

          investors, due to the fact that they would have more Exchange Act

          information to use in evaluating the issuer and also because the

          issuer would have more reporting experience.  In addition, an

          issuer would not qualify to use Form B unless it had filed all

          Exchange Act reports due and had filed all of its reports on a

          timely basis in the 12 months immediately before the filing. [86]

               We request your comment on this proposal.  Should the $75

          million threshold used in conjunction with the ADTV threshold be

          higher (e.g., $100 million, $150 million, $200 million or $250

          million)? [87]  Should the ADTV test used with the public float

          test be higher (e.g., $1.5 million or $2 million)? [88]  Should

          the ADTV test be lower (e.g., $750,000)? [89] Should we raise the

          proposed stand-alone public float test of $250 million (e.g., to

          $300 million, $350 million, $400 million or $450 million)?

          Should we lower the stand-alone public float test (e.g., to $200

          million)? [90]  Should we raise the one-year and one annual

          report reporting requirement to two years? [91]  Is there any

          reason why the ADTV/public float test thresholds should be

          consistent with the thresholds used for the actively-traded

          security exception in Rule 101(c)(1) of Regulation M?  Instead of

          worldwide volume, which is used in Regulation M, would U.S.

          market volume, as proposed, be a better indicator of market

          following by U.S. investors?  Unlike Regulation M and the

          proposals, should ADTV be calculated solely on the basis of

          trading conducted on the NYSE, AMEX or Nasdaq-NMS so as to

          exclude microcap companies? [92]

                         b.   Offerings to QIBs

               As the Commission determined in adopting Rule 144A, larger

          institutional investors, or QIBs as denominated in the rule, are

          presumed to be sophisticated securities investors. [93]  Their

          investing experience and size purportedly puts them in a position

          to insist upon as much information as would be provided by

          registration. [94]  Also, their size, which may be viewed as

          signifying buying and bargaining power, should allow them to

          demand from issuers protective covenants and restrictions.  In

          other words, their sophistication enables them to fend for

          themselves. [95]  Rule 144A applies both with respect to

          securities of reporting companies and non-reporting companies.

          [96]

               If QIBs can fend for themselves in unregistered transactions

          involving securities of both reporting and non-reporting

          companies, they certainly should be able to fend for themselves

          at least as easily in connection with an offering by a public

          company registered on Form B.  Moreover, when QIBs fend for

          themselves in Form B offerings, they will share the benefit of

          the disclosure they acquire with the rest of the investing public

          through the filing of that disclosure.  To encourage registration

          of offerings that otherwise would be made in reliance on Rule

          144A, we propose to extend Form B for registration of offerings

          made solely to QIBs, as defined in Rule 144A, where the QIBs are

          purchasing for their own accounts or for the accounts of other

          QIBs. [97]  Those offerings could be made where the issuer has

          been a reporting company for at least one year, has filed at

          least one annual report under Section 13(a) of the Exchange Act

          and is current and timely in fulfilling its reporting

          requirements.

                              i.   Advantages of Registered Offerings

               Domestic issuers and foreign issuers that are already

          reporting would have the same key advantage under Form B

          registration that they find today in making Rule 144A offerings:

          they would find it just as easy to time their offerings because

          the issuer would control when its registration statement becomes

          effective and it need only file before the first sale.  We

          believe issuers and investors would realize two significant

          benefits from registration of securities that otherwise would be

          sold only in reliance on Rule 144A:

               1.   Unlike Rule 144A, securities fungible with those that
                    are listed on exchanges or quoted on NASDAQ could be
                    offered and sold under Form B registration.

               2.   Unlike Rule 144A securities, the securities generally
                    would be freely resalable because they would be covered
                    by a registration statement.  Because the securities
                    would not be restricted, some QIBs that otherwise would
                    be subject to limitations on the amount of restricted
                    securities they may hold would be permitted to purchase
                    these registered securities freely. [98]

                              ii.  Limitations on QIB Purchases

               Because the securities registered on Form B would not be

          restricted securities, there is some chance that investors and

          issuers would arrange to use the Form where the offering is not

          truly a QIB-only offering but instead is a distribution to the

          public using a QIB as a conduit. [99]  We therefore would provide

          that certain QIBs would be ineligible to purchase under a Form B

          QIB-only offering.  Dealers and investment advisers would be

          excluded from those offerings.  Those purchasers do not generally

          purchase securities for their own investment.  Dealers are in the

          business of selling securities.  Moreover, the size threshold in

          Rule 144A for dealers is significantly lower than the thresholds

          for other QIBs.  Given those factors, we believe the risk of

          indirect distribution by QIBs in those categories is sufficient

          to warrant precluding their participation.  Should other QIB

          groups be excluded?  If so, which ones?

               Furthermore, issuers and QIBs that attempt to effect an

          indirect public distribution of securities through a QIB-only

          offering on Form B would violate Section 5 absent an applicable

          exemption.  The transaction that the issuer would register under

          this provision of Form B would be its sale of securities to QIBs,

          not a sale to the public.  If the securities do not come to rest

          with the QIBs and the QIBs are mere conduits for sales to the

          public, the offering would be ineligible for registration on Form

          B. [100]  If a QIB purchases and effects a distribution, it will

          be acting as an underwriter as defined in Section 2(a)(11) of the

          Securities Act.  Its transaction would not be registered and

          likely would not be exempt and therefore would be illegal.

                              iii. QIB Definition

               The current general QIB test, which was established with the

          adoption of Rule 144A, is whether the institution, acting for its

          own account or for that of other QIBs, in the aggregate owns and

          invests on a discretionary basis at least $100 million of

          securities of non-affiliates. [101]  The QIB threshold differs

          for dealers and banks, savings associations and equivalent

          institutions.  We solicit comment on whether the thresholds for

          defining "qualified institutional buyer" for purposes of Form B

          and Rule 144A should be revised upward in light of the length of

          time since Rule 144A was adopted and the changes that have

          occurred in the markets since then. [102]

               Taking into account only inflation since 1990, use of the

          $100 million threshold today would have been the same as if the

          Commission in 1990 had approved a 144A threshold of $81 million

          dollars. [103]  Taking into account only market changes since

          1990, our use of the $100 million QIB threshold today is

          equivalent to us adopting in 1990 a threshold of only $29.2

          million. [104]  Thus, taking into account market changes, the

          $100 million 1990 threshold would translate to approximately $240

          million today.  Even with some adjustments, therefore, we believe

          more entities would qualify as QIBs today than could have

          qualified at the time we adopted Rule 144A in 1990.

               We solicit comment on whether one should have to own and

          invest on a discretionary basis at least $125, $150 or $200

          million in securities of non-affiliated issuers to qualify as a

          QIB.  We also solicit comment on whether we should increase the

          $10 million eligibility requirement for dealers acting for their

          own accounts or for the accounts of other QIBs.  Should it be

          raised to $15, $20 or $25 million?  Should we increase the net

          worth test for banks, savings associations and equivalent

          institutions?  If so, should it be raised from $25 to $30, $35 or

          $50 million in order for them to qualify as QIBs? [105]  Should a

          net worth test be applied to those institutions at all?

               Are upward revisions necessary to provide continued

          assurance that QIBs are sophisticated investors with some ability

          to require appropriate disclosure from the sellers?  If so,

          should they be based on inflation only or should we revise them

          in accordance with market-related measures?

               We also request your comment on whether we should expand the

          eligibility standards for Rule 144A QIB status.  If so, what

          categories of entities should we make eligible as QIBs?  For

          example, should we permit certain state pension funds to qualify

          as QIBs if they meet the current thresholds in Rule 144A?

                              iv.  Other Reporting and Non-Reporting

          Issuers

               In light of the sophistication of QIB purchasers, we solicit

          comment about whether we should extend Form B to issuers subject

          to the Exchange Act reporting requirements that do not satisfy a

          one-year and one annual report reporting history.  If we were to

          extend Form B in that way, an issuer could choose to register not

          long after registering for the first time another offering under

          the Securities Act or a class of securities under the Exchange

          Act.  Even in that event, however, the issuer would have filed

          virtually the same company information in its prior registration

          statement that it otherwise would file in its periodic reports.

          That information, like periodic reports, could be incorporated

          into its Form B registration statement.  In the case of offerings

          made only to QIBs, is a year of seasoning as a reporting company

          going to provide significant investor protections that the QIBs

          themselves could not attain?  Alternatively, should we increase

          the reporting requirement to two years for offerings to QIBs on

          Form B by issuers that do not meet the

          public float/ADTV threshold?

               Non-reporting foreign issuers that currently make Rule 144A

          offerings would not be eligible for Form B even for QIB-only

          offerings.  We solicit comment concerning whether the largest

          non-reporting foreign issuers (e.g., those with a public float

          over $500 or $750 million) should be permitted to use Form B to

          register offerings to QIBs of investment grade securities.  These

          issuers would be required to reconcile their financial statements

          to conform to U.S. GAAP.  This alternative would allow large

          foreign issuers to enter the U.S. markets in a registered context

          rather than through Rule 144A, and would give the initial

          investors freely tradeable securities. [106]

               By registering, those companies would become reporting

          issuers.  We would require reconciliation of their financial

          statements in the Form B registration statement.  Also, because

          these issuers would not have Exchange Act reports to incorporate

          by reference, we would require that they disclose in the Form B

          registration statement the company information set forth in

          Regulation S-K.  Under those circumstances, would allowing

          foreign issuers the opportunity to register investment grade

          securities on an expedited basis encourage them to enter the U.S.

          registration and reporting system?  Would they be unlikely to

          register even on that basis due to the reporting and disclosure

          requirements, or for other reasons?  Should we preclude

          non-reporting foreign issuers from registering even investment

          grade QIB-only offerings on Form B absent staff review?

                         c.   Offerings to Certain Existing Security

          Holders

               We propose to extend Form B to smaller issuers that do not

          meet the Form's public float and ADTV threshold eligibility

          requirements for registration of offerings to certain existing

          shareholders.  Under the proposed registration system, those

          issuers, which otherwise would be required to use Form A, may use

          Form B to register: rights offerings; offerings of securities

          pursuant to a dividend or interest reinvestment plan; offerings

          of common stock to existing common stock holders, such as under a

          direct stock purchase plan; offerings of securities upon exercise

          of either outstanding transferable options or outstanding

          transferable warrants; and offerings of securities upon

          conversion of outstanding convertible securities.

               Current short-form registration statements, Forms S-3 and F-

          3, may be used in some, but not all, of these cases. [107]  The

          Commission extended Forms S-3 and F-3 for registration of these

          kinds of offerings based on the premise that, despite the

          issuers' inability to meet the eligibility requirements and the

          possibility they may not be well known or widely followed by the

          market, these offerings would be directed to specific investors

          that previously invested in the issuer's securities and could

          therefore be expected to follow the issuer or to receive

          information from the issuer.  Similarly, we propose to allow

          issuers that do not meet proposed Form B's public float and ADTV

          tests to register these and similar offerings on Form B as long

          as they meet the reporting requirements of the proposed Form and

          the transactional requirements described below.

                              i.   Dividend or Interest Reinvestment Plans

                         As early as 1977, we began relaxing registration

          requirements for dividend or interest reinvestment plans

          ("DRIPs"). [108]  We currently allow all issuers to use short-

          form registration for securities offered pursuant to their DRIPs

          even if they do not meet the Forms' public float tests. [109]

          These registration statements become effective automatically upon

          filing without staff review. [110]

               Under the proposed registration system, we seek both to

          maintain the relaxed regulatory approach to registration of DRIP

          offerings and to prevent abuses of the registration system's

          investor protections. [111]  We therefore would extend Form B for

          DRIP offerings of seasoned issuers that do not otherwise meet the

          Form's eligibility requirements if:

               1.   the issuer has not discontinued or suspended dividend
                    payments on the securities held by DRIP participants;

               2.   the DRIP securities registered on Form B are offered
                    only to existing security holders that have held the
                    issuer's securities for at least 2 months;

               3.   the dollar amount of the DRIP securities registered on
                    Form B represents no more than 15% of the issuer's
                    public float when aggregated with the dollar amount of
                    securities previously registered by the issuer on Form
                    B pursuant to any offering directed solely to common
                    security holders, including a DRIP, within the 12
                    months before the start of, and during, the current
                    offering; and

               4.   the shareholder purchases in any 12-month period no
                    more than the smaller of 100% of the value of the
                    issuer's securities owned by the shareholder at the
                    start of the 12-month period, or 5% of the total
                    offering amount, except that any shareholder may
                    purchase up to $10,000 of securities in any 12-month

                    period.

               We would preclude issuers from using DRIPs to sell

          securities directly to participants at a time when the issuer has

          discontinued or suspended dividend payments on the DRIP

          securities.  A purchase is not merely a dividend reinvestment

          when the company is not paying dividends.  This is consistent

          with the Division's current interpretation. [112]

               We also would set a limit on the amount of DRIP securities

          an issuer may register on Form B equal to an aggregate of 15% of

          the issuer's public float within the 12 months before the start

          of and during the offering. [113]  Under this proposal, issuers

          could make several DRIP offerings on Form B over the course of a

          12-month period as long as the total amount registered within

          that period did not exceed 15%. [114]  While Form B would cover

          the offering of securities by a smaller issuer to its existing

          shareholders, if such an issuer uses its shareholders merely as

          conduits to distribute the securities to the public, the offering

          would not be eligible for Form B.  If a shareholder purchases to

          effect a public distribution, it would be considered an

          underwriter and its sale would not be considered registered.  To

          avoid the potential use of Form B in these conduit situations, we

          propose to restrict the amount of securities that may be

          purchased by any one shareholder and its affiliates.  This

          provision, in addition to the 15% limitation, would protect

          against an unregistered distribution to the public.

               Our proposal would limit the amount that an existing

          shareholder may purchase in any 12-month period.  It could

          purchase the smaller of: 100% of the value of the issuer's

          securities it owns at the start of the 12-month period; or 5% of

          the total offering amount.  A shareholder would have to aggregate

          its securities purchases and ownership with those of its

          affiliates.  The shareholder also would have to count its

          purchases in all Form B offerings to existing security holders

          within the 12-month period.  Any one shareholder and its

          affiliates would be able to purchase at least $10,000 of the

          issuer's securities in any 12-month period in Form B offerings to

          existing security holders, despite the percentage tests.  For

          example, where a shareholder owned $5,000 of the issuer's

          securities at the start of a 12-month period, it would be able to

          purchase $10,000 of securities in the subsequent 12-month period

          in all Form B registered offerings to existing security holders.

               Finally, the Commission notes that investor eligibility to

          participate in a DRIP is often  based on ownership of a certain

          amount of the issuer's securities.  In many cases, ownership of

          just one share or even a partial share worth as little as $25

          qualifies a person for participation in a DRIP.  The Commission

          is concerned that where there may be little public information

          about an issuer and the investor does not have a significant

          ownership interest in the securities of an issuer, the investor

          may not have access to adequate issuer information or have the

          inclination to follow the issuer and its business. [115]  To help

          ensure that investors have a chance to learn about the issuer

          before deciding whether to participate in its DRIP, the

          Commission proposes to provide that small issuers may not use

          Form B to register their DRIPs unless the DRIP is limited to

          investors who have held securities of the issuer for at least two

          months.

               Should the proposed 15% threshold be lowered to 5% or 10%,

          or raised to 20%?  Would the shareholder purchase limitations

          adequately protect against unregistered distributions to the

          public?  Should the percentage limitations be lower (e.g., 75% of

          the securities owned at the start or 2% of the total offering) or

          higher (e.g., 150% of the securities owned at the start or 10% of

          the total offering)?  Should the $10,000 minimum purchase amount

          during any 12-month period be lower (e.g., $5,000) or higher

          (e.g., $20,000)?  Should we lengthen the 12-month measurement

          period to two years?  Should the two-month ownership period

          before participation be longer (e.g., 3, 4, 5 or 6 months) or

          should it be shorter (e.g., one month) or eliminated completely?

          Finally, would the holding period requirement make it overly

          burdensome for issuers to determine who is eligible to

          participate in the DRIP?

                              ii.  Offerings to Existing Common Stock

          Holders

               For the same reasons we would permit small issuers to

          register on Form B securities issued pursuant to DRIPs, rights

          offerings, or in connection with convertible securities and

          exercise of transferable warrants, we would permit smaller

          issuers to use Form B to register offerings of common stock to

          existing common stock holders, without regard to whether the

          offering was pursuant to an ongoing plan.  This proposal

          represents an extension of our current approach to offerings to

          existing security holders and reflects, in part, our recognition

          that more and more companies offer securities to existing

          security holders through direct stock purchase plans ("DSPPs").

               To register on Form B, these offerings would have to meet

          the following conditions:

               1.   the securities registered on Form B are offered only to
                    existing common stock holders that have held the
                    issuer's common stock for at least two months;

               2.   the dollar amount of the securities registered on Form
                    B represents no more than 15% of the issuer's public
                    float when aggregated with the dollar amount of
                    securities previously registered by the issuer on Form
                    B pursuant to any offering directed solely to common
                    security holders, including under DRIPs, within the 12
                    months before the start of, and during, the current
                    offering; and

               3.   the shareholder purchases in any 12-month period no
                    more than the smaller of 100% of the value of the
                    issuer's common stock owned by the shareholder at the
                    start of the 12-month period, or 5% of the total
                    offering amount, except that any shareholder may
                    purchase up to $10,000 of common stock in any 12-month

                    period.

               We propose the first two conditions for the same reasons we

          propose them in connection with DRIPs.  Just as with DRIPs, we

          seek to prevent small companies otherwise ineligible to use Form

          B from being overly-aggressive in labeling a sale to the public

          as a sale to existing shareholders.  Therefore, we impose these

          conditions.  The first condition requires issuers to aggregate

          all their offerings of common stock to existing security holders,

          including those under DRIPs, to determine how much common stock

          they may register on the Form B for offerings to existing common

          stock holders.  We believe the condition is appropriate because

          it would inhibit smaller issuers from circumventing the 15%

          public float mechanism designed to prevent smaller issuers from

          using DRIPs to raise excessive amounts of capital through a

          short-form registration statement that they would otherwise be

          ineligible to use. [116]  These common stock offerings raise

          concerns similar to offerings under DRIPs.  We therefore propose

          to add the same kind of common stock shareholder purchase

          limitation as proposed for DRIP offerings registered on Form B.

               The Commission believes this proposal will make it easier

          for smaller issuers to publicly offer securities to its existing

          shareholders.  The proposal also may benefit investors because

          extending Form B for offerings pursuant to DSPPs may encourage

          issuers to register them.

               We solicit your comment on this proposal.  Should we narrow

          or expand the offering thresholds?  Would the shareholder

          purchase limitations adequately protect against unregistered

          distributions to the public?  Should the purchase limitations be

          the same as used in DRIP offerings or should they be lower or

          higher?  Is two months a sufficient amount of time to ensure that

          investors would have time to familiarize themselves with the

          issuer?  Is it a sufficient period of time to ensure the offering

          is truly one to existing shareholders and not simply an offering

          to the public at large?  Should we have a minimum ownership

          requirement to ensure that investors have reason to keep informed

          about the company?  If so, how much?  Would a $1,000, $2,000,

          $5,000 or $10,000 threshold be appropriate?  Should we apply a

          minimum ownership requirement to DRIPs as well?  If so, should

          the threshold be the same as for offerings of common stock to

          common stock holders?

               We are proposing to make Form B available for offerings to

          existing common stock holders of smaller issuers, in part,

          because we assume that those investors are following those

          issuers.  Therefore, those investors would not need delivery of

          company information.  Is our assumption correct that an existing

          common stock holder is likely to follow the issuer?  Would it be

          more appropriate to move such offerings to Form A but permit

          small issuers to designate the effective date of their Form A

          registration statement?  What additional costs, if any, would

          issuers incur as a result of requiring them to use Form A for

          these offerings, with the ability to designate their effective

          dates, instead of Form B?

                              iii. Convertible Securities, Transferable
                                   Warrants and Rights Offerings

               In 1972, we adopted amendments to our short-form

          registration statement to provide that seasoned issuers could use

          Form B to register securities to be offered upon the conversion

          of outstanding convertible securities and upon the exercise of

          outstanding transferable warrants. [117]  In 1978, we adopted, in

          the "nature of an experiment," short-form registration to

          register rights offerings to existing shareholders. [118]  We

          determined not to require that issuers of rights offerings, or of

          the other kinds of offerings to existing shareholders, meet the

          newly adopted eligibility standards applied to primary offerings

          by large, seasoned companies. [119]  When we adopted Form S-3, we

          explained that offerees in offerings to existing shareholders

          pursuant to rights offerings, exercises of convertible

          securities, exercises of transferable warrants and dividend or

          interest reinvestment plans did "not need the additional

          assurances of wide information dissemination provided by the test

          for primary offerings" because they already owned securities of

          the issuer and could be presumed to follow the issuer through

          corporate communications and Exchange Act reports. [120]

               We believe that reasons that have historically supported a

          streamlined and relaxed approach to offerings by smaller seasoned

          issuers to existing shareholders would support extending the

          availability of proposed Form B to smaller reporting issuers that

          make offerings of securities pursuant to: rights offerings, [121]

          conversion of outstanding convertible securities and exercise of

          transferrable warrants. [122]  Those issuers would continue to

          realize the benefits of short-form registration for offerings to

          existing shareholders that had already made a decision to invest

          in the issuer.  At the same time, the reporting requirement of

          Form B would ensure the public availability of at least 12 months

          of public information about the issuer.

               We seek your comment on this proposal.  Do any of these

          three types of offerings present risks that should result in

          exclusion from Form B?  Is there any reason to preclude such

          issuers from using Form B?  Should we restrict availability of

          Form B to smaller issuers that have sent at least a glossy annual

          report to their shareholders [123] within the twelve months

          before making their offering to existing shareholders?  Is that

          requirement useful in light of the fact that the warrants or

          convertible securities are transferable, and therefore the

          shareholders to whom the issuer would send that information may

          not be the same persons who exercise or convert?  Are we correct

          in continuing to believe that existing investors would follow the

          issuer and keep informed of its business?  Or, to ensure investor

          follow-up, should we limit Form B for offerings to existing

          security holders that hold a minimum amount or value of the

          issuer's securities (e.g., $2,000)?

               Under current requirements, an issuer may not use Form S-3

          to register securities pursuant to DRIPs, upon exercise of

          outstanding rights or transferable warrants, or upon conversion

          of outstanding convertible securities unless it has sent an

          annual report [124] within the 12 months preceding the filing of

          the Form S-3 to all record holders of those outstanding or DRIP

          securities. [125]  Foreign private issuers registering such

          offerings on Form F-3 are not subject to any prior information

          delivery requirement. [126]  We have not included a prior

          delivery requirement in the proposed system.  These issuers would

          be ineligible to use Form B unless they had already filed with

          the Commission at least one annual report. [127]

               We solicit comment on whether to impose any information

          delivery requirement on smaller issuers that would use Form B to

          register securities issuable in connection with these kinds of

          securities offerings.  Is it fair to assume that security holders

          would have adequate information about an issuer they already

          invested in if the issuer were not required to deliver annual

          report information to security holders?  Should we require them

          to provide existing security holders with more information than

          would be required under current rules (e.g., information in an

          annual report on Form 10-K or 20-F)?

               In connection with this proposal, are there any reasons to

          continue to distinguish domestic issuers from foreign private

          issuers?  Should we require foreign private issuers making these

          kinds of offerings to deliver information to their existing

          security holders?  If so, should they be required to deliver the

          same kind of information required by Form 20-F, or should we

          allow them to deliver the level of information required by Rule

          14a-3?

                              iv.  Exercise of Outstanding Transferable

          Options

               We propose to allow smaller seasoned issuers to use Form B

          to register offerings to existing security holders of securities

          issuable upon exercise of outstanding transferable options.

          Issuer options are like warrants in that they entitle the holder

          to buy or sell securities at a fixed price, during a specified

          period in the future.  In deciding whether to buy the option, an

          investor speculates about the future value of the security

          underlying the option.  An option holder then either trades the

          option on the basis of the premium price, exercises it or lets it

          lapse.

               If an option holder has already made one investment decision

          about the underlying securities before exercising the option, we

          believe it is fair to presume that the holder has access to

          information about the issuer.  (In the case of employee options,

          the employee may have simply received a grant of options.)  To at

          least the same extent as existing shareholders, we believe that

          such investors may be expected to follow the issuer closely

          through corporate communications or Exchange Act reports.

          Therefore, we propose to extend Form B to smaller seasoned

          issuers for registration of securities issuable upon exercise of

          options.

               As in the case of conversions of convertible securities and

          exercises of transferable warrants, if the underlying security is

          issuable within one year of the company's issuance of the option,

          the underlying security would be part of the offering of the

          option.  Consequently, the underlying securities must be

          registered with the option.  In that case, unless the issuer is

          eligible to use Form B to register the option, it would not be

          eligible to register the underlying security on Form B. [128]

               We seek comment on this proposal.  Would allowing Form B

          registration for option exercises by smaller companies otherwise

          ineligible for Form B result in indirect distributions of common

          stock to the public?  Does their ineligibility to use Form B for

          this purpose if exercisable within a year avoid that possibility?

          Should we preclude Form B registration for exercises of options

          by dealers to avoid the possibility of issuers entering into

          options with underwriters as a means to effect a delayed

          distribution by issuers that would be ineligible for delayed

          shelf registration?

               For domestic issuers that would use Form B for offerings to

          existing shareholders, should we, following Form S-3's current

          requirements, extend the Form only if within the 12 months

          preceding the filing on Form B the issuer sent out material

          company and financial information to all its existing

          shareholders to whom it would extend the Form B offering? [129]

          If so, would investors need more or less information than what

          Form S-3 currently calls for in order to make an informed

          investment decision? [130]  Would 6 months be more appropriate

          because it would be more timely?  What information, if any,

          should foreign companies using the Form be required to have

          provided?  Would this registration option render Form S-8

          unnecessary for exercises of employee stock options?  Should we

          continue to require issuers to register employee stock option

          exercises on Form S-8 in light of the fact that employees may not

          have made an investment decision when acquiring the options?


          **FOOTNOTES**

          [52]:For  these  purposes,  "written"  includes  all  information
               disseminated  otherwise  than  orally  and  therefore  would
               include  electronic communications and other future uses  of
               changing communications technology.

               [53]:If a document includes offering information, whether or
               not it also contains free writing, it would be treated as an
               offering information  document  for all purposes unless that
               offering   information   is  otherwise   included   in   the
               registration statement.

               [54]:"Factual business communications"  would  be defined in
               proposed Securities Act Rule 169, 17 CFR 230.169.

               [55]:See proposed revisions to Securities Act Rule  135,  17
               CFR 230.135.

               [56]:Section  12(a)(2) would apply to free writing materials
               (and to all oral  statements  made  by  or  on behalf of the
               issuer during the offering period).

               [57]:See  proposed  Securities  Act Rule 425(b)(2),  17  CFR
               230.425(b)(2).  As proposed, Rule  425  would  describe  the
               materials that would not have to be filed.  They consist of:
               1.   any  factual  business  communication  (as  defined  in
                    proposed Rule 169) regardless of when it is made;
               2.   any  research report used in reliance on Rules 137, 138
                    or 139;
               3.   any information  used  in  connection  with an offering
                    under Form S-8;
               4.   any information used in connection with  an offering on
                    Form B under a dividend or interest reinvestment plan;
               5.   any information used in connection with a  direct stock
          purchase plan; or
               6.   any  information  filed  or to be filed as part  of  an
                    effective registration statement.

               For purposes of proposed Rule 425,  "direct  stock  purchase
               plan"  refers  to  a  registrant-sponsored plan pursuant  to
               which the registrant offers registered common stock for cash
               to   only   its  existing  common   stock   holders   ("plan
               participants")   and   in  which  there  is  no  underwriter
               participation.  The common  stock registered pursuant to the
               plan  may  either  be  newly  issued  or  purchased  by  the
               registrant for the account of plan  participants  at  prices
               not  in  excess  of  current  market  prices  at the time of
               purchase, or at prices not in excess of an amount determined
               under a pricing formula specified in the plan and  based  on
               average or current market prices at the time of purchase.

               [58]:See   proposed  Securities  Act  Rule  425(b),  17  CFR
               230.425(b).

               [59]:See proposed Securities Act Rule 425, 17 CFR 230.425.

               [60]:See Section  VII.  of  this release for a discussion of
               the restrictions on communications that are being eliminated
               for Form B offerings.

               [61]:Because Form B offerings  would  not  have  to be filed
               until  the  time  of first sale, the payment of registration
               fees would also be delayed until the time of first sale.

               [62]:See proposed revisions  to  Securities Act Rules 110(d)
               and 402, 17 CFR 230.110(d) and 230.402.   In the usual case,
               a  registrant  may  file a registration statement  in  paper
               format only until 5:30  p.m.   It  may file on EDGAR between
               5:30 p.m. and 10:00 p.m., but those  registration statements
               are treated as if they were filed the following day.  Form B
               registration statements filed after hours via EDGAR would be
               treated  as filed the same day.  See proposed  revisions  to
               Rule 13 of  Regulation  S-T,  17  CFR  232.13.  We also have
               proposed  revisions to Securities Act Rule  111(b),  17  CFR
               230.111(b),  to allow for special fee payment procedures for
               Form B filings made after hours.

               [63]:See Securities  Act  Rule  111,  17  CFR 230.111.  That
               procedure is described in detail in Securities  Act  Release
               No. 7168 (May 11, 1995).

               [64]:See  proposed Securities Act Rule 462(f)(1) and (f)(2),
               17 CFR 230.462(f)(1) and 230.462(f)(2).

               [65]:The later  amendment  could  amount  to  no more than a
               cover   page  on  which  the  registrant  would  check   the
               appropriate  box  to  designate immediate effectiveness or a
               specified effective date.

               [66]:See Securities Act Rule 461(a), 17 CFR 230.461(a).  The
               Rule requires the managing  underwriters, or if there are no
               managing underwriters, the principal  underwriters,  to join
               in  the  issuer's request for acceleration of a registration
               statement.

               [67]: See Securities Act Rule 461(a), 17 CFR 230.461(a).

               [68]:See proposed  Form  B  "Exhibits"  section and proposed
               revisions  to  Item  601  of  Regulation S-K.   Evidence  of
               concurrence could be, for example,  in  a  writing  from the
               underwriter  to the issuer or an electronic message to  that
               effect.

               [69]:For convenience,  we refer to Rule 415(a)(1)(x), 17 CFR
               230.415(a)(1)(x), offerings  as  delayed  shelf offerings or
               shelf offerings in this release.  Other types  of  Rule  415
               shelf offerings, such as continuous offerings, generally are
               unaffected by the proposed system.

               [70]:Our  research  indicates  that,  of  the  379  existing
               issuers  who  utilized  the  equity  and  unallocated  shelf
               registration  system between calendar year 1993 to the third
               quarter of 1996, only 37 would be ineligible to use new Form
               B under the public float/ADTV tests (the tests are described
               at Section V.B.2.a.  of this release).  Of those, 23 issuers
               appear to be REITs.  The  37  that  are  eliminated would be
               able  to use Form B for offerings to QIBs and  offerings  of
               investment grade securities, among others.

               [71]:For  a  discussion  of  market  overhang  effects,  see
               Securities  Act  Release No. 6383, (Mar. 16, 1992) (adopting
               integrated   disclosure   system   and   unallocated   shelf
               registration rules).

               [72]:See Section  XVII of this release for a solicitation of
               comment regarding the effect this proposal would have on the
               secondary market.

               [73]:Under  the current  system,  auditors  do  not  provide
               consents  for   prospectus  supplements.   They  consent  to
               inclusion of the  financial  statements  in the registration
               statement  and  also  consent  at  the time of  filing  most
               post-effective amendments.  Subsequently  filed  Forms  10-K
               that  are  incorporated  by  reference include the auditor's
               consent to inclusion of the financial  statements  to update
               the   shelf.   Under  the  proposed  system,  post-effective
               amendments   will   be  more  common  because  transactional
               information will be filed in that manner.

               The consents of auditors are not required today with respect
               to the filing of prospectus  supplements  and  certain post-
               effective amendments to shelf registration statements.   The
               Commission  similarly would not require an auditor's consent
               for post-effective  amendments  that  amount  to  prospectus
               supplements and have no bearing on the financial statements.

               [74]:See Signatures section of Form B and proposed revisions
               to  Securities  Act  Rule  471,  17  CFR  230.471.  See also
               Section  XI.C.  of  this  release,  the  discussion  of  the
               proposal   to   require  management  to  certify   that   to
               management's knowledge,  the  filings  they  sign contain no
               material misstatement or omission.

               [75]:For  example,  the  Advisory  Committee  expressed  the
               belief  that  Section 11 may not apply and recommended  that
               the Commission  address  this potential lapse in application
               of  Securities  Act  protections.   See  Advisory  Committee
               Report at p.28.

               [76]:See, e.g., Johnson  and  McLaughlin,  Corporate Finance
               and the Federal Securities Laws 2d ed. 508-09  (1997).   But
               see proposed revisions to Item 512 of Regulation S-K, 17 CFR
               229.512.

               [77]:See  proposed  revisions  to  Rule  424(b)(2),  17  CFR
               230.424(b)(2).

               [78]:Public  float  is  the  aggregate  market  value of the
               issuer's  outstanding  voting  and non-voting common  equity
               held by non-affiliates of the issuer.   17 CFR 228.10(a)(1).
               We used market capitalization information  as  a  proxy  for
               public  float  figures.   Public  float  information is less
               readily available and would require a determination  of  the
               equity  interests  of  affiliates  of  a company in order to
               derive it from market capitalization data.

               [79]:Our  research  showed  that  a public company's  market
               capitalization,  public  float  and  ADTV  are  closely  and
               positively  associated  with  the number  of  analysts  that
               follow firms.  Combination tests  of  ADTV and either market
               capitalization or public float are more  closely  associated
               with  the  speed of price discovery than any of those  tests
               alone. The proposed  tests  would  preclude  lesser followed
               companies from Form B registration eligibility.   We  use  a
               similar combination in Regulation M.  See Exchange Act Rules
               100 - 105, 17 CFR 242.100 - 242.105.

               [80]:Our  research  indicates that, just taking into account
               ADTV levels, 4% of the  companies with an ADTV of $1 million
               or more would have fewer than 3 analysts covering them.  Our
               research  also  indicates that,  just  taking  into  account
               market capitalization,  14%  of  the  companies  with market
               capitalizations of $75 million or more would have fewer than
               3 analysts covering them.

               [81]:Our  research  indicates that 5% of the companies  that
               have market capitalizations  of  $250  million  or more have
               fewer than 3 analysts covering them.  On average,  companies
               of this size have 15 analysts covering them.

               [82]:Both   issuers  and  investors  suggest  that  multiple
               analysts are  necessary  to  provide  the public with broad,
               relatively  unbiased  information  about  a   company.    We
               obtained information concerning analyst coverage from Nelson
               Publications,  publisher of Nelson's Directory of Investment
               Research (1996).   The research that we conducted considered
               the number of analyst  firms  that  follow  a company rather
               than  the  number  of  individual  analysts.   In  proposing
               thresholds,   we  have  considered  that  not  all  analysts
               contained in that  listing  would  be actively following the
               issuer at all times.  Thus, we have  chosen  thresholds that
               provide  a  significant  number  of  analysts following  the
               issuer.  Where an issuer has significant  analyst  following
               and  the  market operates efficiently with respect to  price
               discovery,  we  believe  it  is fair to assume some level of
               investor awareness of company  information.  It is also fair
               to  assume  that  investors would have  access  to  multiple
               sources of information  about  a  company, making short-form
               registration and elimination of communications  restrictions
               appropriate.

               [83]:ADTV is measured for purposes of Form B on U.S. trading
               markets only.  We believe that provides a better  measure of
               U.S.   market  following  than  world-wide  ADTV  for  these
               purposes.    To   avoid   creating   a   test   that   would
               disproportionately  exclude  well  followed  foreign issuers
               with  little  or  no  U.S.  trading  market, we provide  the
               alternative  $250  million  float  test  without   an   ADTV
               component.

               [84]:Of  these  companies,  only  13 have taken advantage of
               unallocated shelf registration.  This  eligibility  criteria
               includes  801  more  issuers  than were eligible to register
               securities  on  Form  S-3 when the  Commission  lowered  the
               public float requirements  from  $150 million to $75 million
               in  1992.  See Securities Act Release  No.  6943  (July  16,
               1992) [57 FR 32461].

               [85]:Form S-3 currently requires simply a one-year reporting
               history.  Form F-3 requires a one-year reporting history and
               also  imposes  a  requirement that the registrant previously
               filed an annual report on Form 20-F.

               [86]:Issuers also would be required to be in compliance with
               our EDGAR rules.  These  timeliness  and  EDGAR requirements
               currently  apply  to  offerings  registered  on   short-form
               registration statements on Forms S-3 and F-3.

               [87]:At  the  $100 million market capitalization level,  our
               research indicates  that 5% of the companies have fewer than
               3 analysts covering them.   At  $150  million, 5% have fewer
               than  3  analysts;  at $200 million, 5% have  fewer  than  3
               analysts; and at $250 million, 5% have fewer than 3.  At the
               $100 million threshold, an average of 14 analysts follow the
               company.  At $150 million,  the  average increases to 15, at
               $200  million  the average increases  is  15,  and  at  $250
               million the average is 16.

               [88]:Our research  indicates  that  companies  with  an ADTV
               between  $1  million  and $2.5 million have an average of  8
               analysts following them.

               [89]:Our research shows  that  33% of companies with an ADTV
               of less than $1 million have no analyst following.

               [90]:Companies with a market capitalization of at least $200
               million have an average of 14.5 analysts following them.

               [91]:We  studied  the  impact  of  extending  the  reporting
               history   by  additional  years  and  found   no   resulting
               statistically  significant improvement in price discovery or
               analyst following.

               [92]:See Section  V.A.2.g.  of this release for a discussion
               relating to microcap companies.

               [93]:Securities Act Release No.  6862 (Apr. 23, 1990).  Rule
               144A   provides   a   safe  harbor  from  the   registration
               requirements of the Securities Act for resales of restricted
               securities  to  QIBs  as  defined  in  Securities  Act  Rule
               144A(a)(1), 17 CFR 230.144A(a)(1).

               [94]:In many instances, issuers  prepare  materials that are
               almost   identical   in   presentation   and  substance   to
               registration statements.  See, e.g., McGeehan,  Money Raised
               in  Private  Placement  of Issues Doubles as Companies  Take
               Advantage of SEC's Rule 144A"  Wall St. J., Jan. 2, 1998, at
               38, col. 1.

               [95]:See Securities Act Release No. 6808 (Oct. 25, 1988) [53
               FR 50038] Section IV.A.1. (institutional  investors  possess
               sufficient   knowledge   and  experience  in  financial  and
               business matters, and so are capable of evaluating the risks
               of an investment and are less  in need of the protections of
               registration);  see also Securities  Act  Release  No.  6839
               (July 11, 1989)  [54 FR 30076], Section II.B.

               [96]:When the issuer  of  the  securities to be resold under
               Rule 144A is neither a reporting  company  nor  exempt  from
               reporting under Exchange Act Rule 12g3-2(b), availability of
               the  Rule  is  conditioned  on  the  right of the current or
               prospective  holder  of  the issuer's securities  to  obtain
               specific information from  the issuer.  See Rule 144A(d)(4),
               17 CFR 230.144A(d)(4).

               [97]:An issuer that wishes to register an offering on Form B
               made solely to QIBs may offer  or  sell  only  to persons it
               reasonably  believes  are QIBs.  The Division of Corporation
               Finance  has  interpreted   the  filing  of  a  registration
               statement as a general solicitation.  The filing of a Form B
               registration statement could, in and of itself, be viewed as
               a general solicitation and therefore  as  making  offers  to
               non-QIBs.   Therefore,  under  the  proposals,  the Division
               would  reconsider  the  issue regarding filing as a  general
               solicitation for the purposes of QIB-only Form B offerings.

               [98]:The fact that Rule 144A, 17 CFR 230.144A, offerings are
               frequently conditioned on  the  issuer's promise to register
               the offering with the Commission  within three to six months
               evidences  the attraction of holding  registered  securities
               even for QIBs.

               [99]:This kind  of  indirect  distribution would deprive the
               ultimate public purchasers of the  liability  protections of
               Securities Act registration.

               [100]:Securities Act Rule 401(g), 17 CFR 230.401(g),  states
               that any registration statement or amendment is deemed to be
               filed  on  the proper form unless the Commission objects  to
               the form before  the effective date.  The rule thus requires
               the Commission and  the registrant to resolve disputes about
               form eligibility before  effectiveness.   We  recently  have
               proposed  to amend Rule 401(g) to exclude from its scope all
               registration  statements  and post-effective amendments that
               become effective automatically  upon filing.  See Securities
               Act Release No. 7506 (Feb. 17, 1998)  [63 FR 9648].  In this
               release  we propose to expand that exclusion  to  cover  all
               registration   statements  in  which  the  registrant  could
               designate the effective  date.   See  proposed  revisions to
               Rule 401(g), 17 CFR 230.401(g).  This change would eliminate
               the presumption existing today that an effective  Securities
               Act  registration  statement is on the appropriate form  and
               therefore  aid  the  Commission   staff  in  asserting  that
               securities are offered and sold in violation of Section 5 if
               anyone attempts to use QIBs as conduits in connection with a
               QIB-only Form B offering.

               [101]:See   Securities   Act   Rule   144A(a)(1),   17   CFR
               230.144A(a)(1).  See also Securities Act  Release  No.  6862
               (Apr.  23,  1990); Securities Act Release No. 6806 (Oct. 25,
               1988) [53 FR 44016].

               [102]:In 1997,  companies  raised approximately $254 billion
               through  144A  offerings.   This  figure  represents  a  94%
               increase from 1996 and a 250% increase from 1995.  McGeehan,
               supra, n. 94, at 38, col. 1.

               [103]:This figure is based on  changes in the consumer price
               index between January 1, 1990 and January 1, 1998.

               [104]:This  figure  is based on increases  in  the  S&P  500
               between January 1, 1990 and January 1, 1998.

               [105]:See Securities  Act  Rule  144A(a)(ii) and (a)(vi), 17
               CFR 230.144A(a)(ii) and (a)(vi).

               [106]:Through 1992, foreign issuers  accounted for about 30%
               of the 144A market.  See, e.g., Bostwick,  The  SEC Response
               to Internationalization and Institutionalization:  Rule 144A
               Merit Regulation of Investors, 27 Law and Policy  in  Int'l.
               Bus.  423 (Winter 1996); Devere, 144A Deal Volume Surges  in
               Dynamic  Second  Quarter,  62  Investment Dealer's Digest 13
               (July 22, 1996).

               [107]:See Instruction I.B.4. to Forms S-3 and F-3.

               [108]:See Securities Act Release  No.  5923  (Apr. 11, 1978)
               [43 FR 16677].

               [109]:Most DRIPs are registered on Form S-3.   For  purposes
               of  this  discussion, we will refer to Form S-3 rather  than
               Forms S-3 and F-3.

               [110]:Securities Act Release No. 6964 (Oct. 22, 1992).

               [111]:Some   issuers   have  been  known  to  register  DRIP
               offerings on Form S-3 as  a  pretext  for  making  what  are
               basically  primary  offerings  to  the public.  Some issuers
               otherwise ineligible to use Form S-3  have  registered DRIPs
               on the Form to raise amounts of capital that,  in  the worst
               cases,  exceed the issuer's public float at the commencement
               of the offering.

               [112]:See  The  Division  of  Corporation  Finance Manual of
               Publicly  Available Telephone Interpretations  (July  1997),
               available on our web site (http://www.sec.gov).

               [113]:Based  on  our  research of DRIP offerings made during
               the last year, the 15% limit should not affect the amount of
               securities that the vast  majority  of  issuers register for
               offerings pursuant to DRIPs.  We specify  this  threshold in
               the instructions to proposed Form B.

               [114]:The issuer would refer to its most recently filed Form
               10-K to determine its public float for calculating  how much
               it  may register on Form B.  This limitation also may  allow
               issuers  to  avoid  market  overhang  problems  that  may be
               associated  with  registering at one time a large amount  of
               securities to be offered over a long period.

               [115]:Securities Act  Rule  405, 17 CFR 230.405, defines the
               term dividend or interest reinvestment  plan and states that
               such  plans may allow participants to contribute  additional
               cash amounts  for  the  purchase of securities offered under
               the DRIP.  Accordingly, once  an issuer registers a DRIP, it
               may offer securities to participants  in addition to or even
               in lieu of those purchased by the reinvestment  of dividends
               or interest.

               [116]:Many  issuers  offer  securities  to existing security
               holders   through   DSPPs   to  qualify  those  holders   to
               participate in their DRIPs.  Depending on the circumstances,
               the  two  plans  could work in the  same  ways  and  provide
               holders with the same  benefits.  Accordingly, at this time,
               we  believe  it  is  appropriate  to  limit  the  amount  of
               securities a small issuer can register under either offering
               when registering them  on  Form  B  --  no  matter  how  the
               offering is characterized.

               [117]:See  Securities  Act  Release No. 5265 (June 27, 1972)
               [37 FR 15989].

               [118]:Securities Act Release  No. 5879 (Nov. 2, 1977) [42 FR
               58677].

               [119]:Securities Act Release No. 5923 (Apr. 11, 1978) [43 FR
               16672]; Securities Act Release  No.  5931 (May 15, 1978) [43
               FR 21661].

               [120]:Securities Act Release No. 6331  (Aug. 6, 1981) [46 FR
               41902].

               [121]:In situations where securities underlying  rights  may
               be  acquired  by  new  investors  because, for instance, the
               rights are transferable, an issuer  may  not  use short-form
               registration  unless  it  meets the eligibility requirements
               for a primary offering on the  form.   See, e.g., Securities
               Act Release No. 6943 (July 16, 1992).  Our  proposals  would
               not alter this position.  Accordingly, smaller issuers would
               be   ineligible   to  use  Form  B  to  register  securities
               underlying rights that may be acquired by new investors.  We
               also would preclude  smaller  issuers  from  using Form B to
               register securities underlying rights that were not taken up
               by  existing  shareholders  and that would be offered  on  a
               "standby" basis to new investors.

               [122]:Form  B would not be available  for  the  issuance  of
               securities  pursuant   to  a  conversion  of  a  convertible
               security or the exercise  of  a  transferable warrant if the
               issuance of such securities could  occur  within one year of
               the  company's  issuance  of  the  convertible  security  or
               transferable   warrant.   If  the  underlying  security   is
               issuable within  one  year  of the company's issuance of the
               convertible security or transferable warrant, the underlying
               security would be part of the  offering  of  the convertible
               security   or   transferable  warrant.   Consequently,   the
               underlying  securities   must   be   registered   with   the
               convertible security or transferable warrant.  In that case,
               unless  the issuer is eligible to use Form B to register the
               convertible  security  or transferable warrant, it would not
               be eligible to register  the  underlying security on Form B.
               See The Division of Corporation  Finance  Manual of Publicly
               Available  Telephone  Interpretations,  Section  A.9.  (July
               1997).

               [123]:Throughout  this  release, all references  to  "annual
               report" or "Exchange Act  annual report" refer to the annual
               report  filed  under Section  13(a)  of  the  Exchange  Act,
               generally on a Form  10-K  or  20-F.   All references to the
               "glossy annual report to security holders"  or  "the  annual
               report to security holders" refer to the annual report filed
               under Rule 14a-3, 17 CFR 240.14a-3.

               [124]:Form  S-3  states  that the material that issuers must
               deliver  to  existing  security  holders  must  include  the
               information required by  Rule 14a-3(b), 17 CFR 240.14a-3(b).
               The information required under  that Rule is most frequently
               included in companies' glossy annual  reports,  and  is less
               detailed  than  the information required in an annual report
               filed under cover  of  Form 10-K.  Form S-3 also states that
               management-related information  need  only  be  delivered to
               existing security holders who may be issued common  stock in
               connection with their exercises or conversions of securities
               or participation in a DRIP.

               [125]:See General Instruction I.B.4. of Form S-3.

               [126]:See  General  Instruction 1.B.4. of Form F-3.  Foreign
               private issuers, however,  are not permitted to use Form F-3
               for these kinds of offerings if any of the securities are to
               be  offered  or sold in a standby  or  similar  underwriting
               arrangement.

               [127]:Smaller  issuers  of  securities  under these kinds of
               offerings,  whether  domestic  or  foreign,  would   not  be
               eligible  to  use Form B unless they: were seasoned (subject
               for at least 12  months  to  the  reporting  requirements of
               Section 12 or 15(d)); were timely in meeting their reporting
               obligations; and had filed at least one annual  report under
               the Exchange Act.  See General Instruction I.B. of  proposed
               Form B.

               [128]:See  The  Division  of  Corporation Finance Manual  of
               Publicly Available Telephone Interpretations,  Section  A.9.
               (July 1997).

               [129]:Prior  delivery  of  specific  information to existing
               shareholders is not currently required on Form F-3.

               [130]:See General Instruction I.B.4. of  Form S-3, citing to
               Rule 14a-3(b) of the Exchange Act, 17 CFR  249.13a-3(b), and
               Items  401, 402 and 403 of Regulation S-K, 17  CFR  229.401-
               229.403.

                                        - 8 -

                         d.   Non-Convertible Investment Grade Securities

                         Today, companies that do not meet the public float

          requirement of Form S-3 may nevertheless register an offering of

          non-convertible investment grade securities on that Form. When

          the Commission adopted Form S-3 in 1982, we indicated that Form

          S-3 was appropriate for the registration of investment grade

          securities because investors purchase those securities on the

          basis of their interest rate and credit rating. [131]  The

          Commission continues to believe that investors rely on a

          security's credit rating, although investors may well seek more

          than just rating information in order to evaluate the investment.

               Given the historical precedent of using investment grade

          rating as an eligibility criterion for Form S-3 registration, we

          are proposing to allow non-convertible investment grade

          securities offerings to be registered on Form B by issuers that

          have been reporting under the Exchange Act for at least a year,

          have filed at least one annual report and are current and timely

          in filing those reports.  We solicit comment, however, regarding

          whether we should continue to have a registration system in which

          Form eligibility turns solely on a credit rating, particularly in

          the case of Form B.  A credit rating is one organization's

          judgment about the likelihood of default.  That judgment is not a

          guarantee of no risk.  Rather than allowing use of Form B on the

          sole basis of an investment grade rating for the securities being

          offered, should we provide for registration of those securities

          on Form A with its mandated transactional disclosure but allow

          for effectiveness of those Form A filings upon demand?

                         e.   Market Making Transactions by Affiliated

          Broker-Dealers

               When a broker-dealer that is an affiliate of an issuer [132]

          engages in market making transactions in that issuer's

          securities, registration under the Securities Act is

          required. [133]  The registration requirement arises under the

          statute due to either of two reasons.  First, in the definition

          of "underwriter" under the Securities Act, the term "issuer"

          includes any person affiliated with the issuer. [134]  Because of

          the affiliation between the broker-dealer and the issuer, the

          broker-dealer itself is considered an issuer.  Thus, the

          exemption from Securities Act registration for persons other than

          "issuers, underwriters and dealers" would not be available. [135]

               The second reason registration is required flows from the

          definition of "dealer" under the Securities Act.  The Securities

          Act exempts from registration most securities transactions by

          dealers. [136]  "Dealer," as defined under the Securities Act,

          means any person that engages in transactions in "securities

          issued by another person." [137]  If an issuer and its broker-

          dealer are affiliated, the broker-dealer would be considered to

          be an issuer.  Hence, if it engages in a transaction in the

          issuer's securities, its transaction would not be in securities

          "issued by another person."  Thus, the affiliated broker-dealer

          is not a "dealer" under the Securities Act and the dealer's

          exemption is not available.  Absent an exemption, registration

          under the Securities Act is required by Section 5.

               In accordance with Section 5, therefore, the broker-dealer

          must prepare and deliver "market making prospectuses" in market

          making transactions in securities of its affiliates.  This

          prospectus discloses the affiliation between the issuer and

          broker-dealer, explains the use of the prospectus in offers and

          sales by the affiliated broker-dealer in market making

          activities, and provides information about the issuer.

               We have recognized that prospectus delivery in market making

          transactions imposes a burden on affiliated broker-dealers. [138]

          We seek to reduce that burden while maintaining investor

          protection.  By allowing registration of these transactions on

          Form B, we would preserve the benefits for investors of

          registration, but alleviate much of the burden. [139]

               Certain other transactions are proposed to be allowed on

          Form B because of the nature of the purchasers, such as their

          financial sophistication or their pre-existing knowledge of the

          issuer.  Because of their nature, these purchasers appear to have

          less need for prospectus delivery.  Purchasers in market making

          transactions, on the other hand, may not have prior issuer

          knowledge or financial sophistication.  Despite this difference,

          however, purchasers in market making transactions should not be

          adversely affected by registration on Form B.  Buyers in this

          situation, like most buyers in the secondary markets, are likely

          to have made their investment decisions before contact with the

          market maker.

               We propose to permit registration of ordinary market making

          transactions by affiliated broker-dealers on Form B only if the

          issuer is a reporting company under the Exchange Act. [140]  That

          criterion would assure that information about the registrant is

          publicly available.  We also would include two requirements to be

          sure that the transactions by affiliated broker-dealers are bona

          fide market making transactions.  First, the broker-dealer must

          engage in the transactions only in its ordinary capacity as a

          market maker. [141]  Second, the securities must be outstanding

          securities that the broker-dealer did not acquire directly from

          the issuer or an affiliate of the issuer or indirectly by

          arrangement with those parties.  Market making transactions that

          do not meet these requirements could not be registered on Form B.

               We request your views on this aspect of Form B eligibility.

          Should market making transactions by affiliated broker-dealers be

          permitted on Form B?  If not, why should they be excluded?  Are

          there reasons prospectus delivery should be retained for all

          market making transactions?  Are the registrant requirements

          appropriate and adequate?  Are there additional restrictions that

          would further ensure that only bona fide market making

          transactions are registered on Form B?  Should the Commission

          consider extending Form B for this purpose to non-reporting

          foreign private issuers whose securities are traded in designated

          offshore markets and who claim the exemption from registration

          under Rule 12g3-2(b)?  Should we more specifically define the

          types of market making transactions permitted?  Should the

          Commission exempt all market making transactions from prospectus

          delivery requirements, or exempt certain market making

          transactions from the registration requirements entirely?

                          f.  Small Business Issuers

               Most small business issuers that file Exchange Act reports

          provide disclosure based upon Regulation S-B.  These issuers

          would be allowed to register certain offerings on Form B.  If

          they meet the seasoned reporting requirements of Form B, they

          would be able to register on Form B offerings to certain existing

          security holders, offerings of non-convertible investment grade

          securities, offerings solely to QIBs and market making

          transactions.

               A small number of reporting small business issuers provide

          non-financial statement disclosure based on Form 1-A, instead of

          Regulation S-B. [142]  The Form 1-A disclosure requirements are

          generally less extensive than those of Regulation S-B.  These

          issuers are called "transitional small business issuers." [143]

          These companies continue to provide non-financial statement

          disclosure based on Form 1-A in their Exchange Act reports.

               Proposed Form B would not be available for transitional

          small business issuers. [144]  We believe that these issuers

          should be excluded from using the Form for several reasons.

          First, the disclosure in their Exchange Act reports would be less

          detailed than disclosure provided by other Exchange Act reporting

          companies.  Second, these issuers are likely to have less

          experience in preparing disclosure documents.  Third, we believe

          that the disclosure document should be subject to possible staff

          review.  Consequently, automatic effectiveness should be

          unavailable for these offerings.

               We request your comments on our treatment of small business

          issuers under proposed Form B.  Should Form B be available for

          small business issuers?  If not, why not?  Should we expand the

          Form to permit offerings by transitional small business issuers?

          If so, what types of offerings should they be allowed to conduct

          under the Form?


          **FOOTNOTES**

          [131]:Securities Act Release No. 6383 (Mar. 3, 1982).

               [132]:A  broker-dealer  is  considered  an  affiliate of the
               issuer when the broker-dealer controls, or is controlled by,
               the  issuer  or  when the broker-dealer and the  issuer  are
               under common control.   See Rule 405 of Regulation C, 17 CFR
               230.405.  The determination of control is based on the facts
               and circumstances of the particular situation.

               [133]:Market-making transactions are principal transactions.
               A  principal  transaction is  a  transaction  in  which  the
               broker-dealer purchases or sells for its own account, rather
               than the account of another party.

               [134]:Section 2(a)(11)  of  the  Securities  Act defines the
               term  "underwriter"  to  mean "any person who has  purchased
               from an issuer with a view  to,  or  offers  or sells for an
               issuer in connection with, the distribution of any security,
               ... or participates  or has a participation in the direct or
               indirect underwriting of any such undertaking  ....  As used
               in  this  paragraph  the  term  "issuer"  shall include,  in
               addition  to  an issuer, any person directly  or  indirectly
               controlling or controlled by the issuer, or any person under
               direct or indirect  common  control  with  the  issuer."  15
               U.S.C. ง 77b(a)(11).

               [135]:See  Section 4(1) of the Securities Act, 15  U.S.C.  ง
               77d(1).

               [136]:See Section  4(3)  of  the  Securities  Act, 15 U.S.C.
               ง 77d(3).

               [137]:Section  2(a)(12)  of  the Securities Act defines  the
               term "dealer" to mean "any person who engages either for all
               or  part  of his time, directly  or  indirectly,  as  agent,
               broker, or  principal,  in the business of offering, buying,
               selling,  or  otherwise dealing  or  trading  in  securities
               issued by another person."  15 U.S.C. ง 77b(a)(12).

               [138]:The  Task   Force   recommended   elimination  of  the
               affiliated broker-dealer's prospectus delivery obligation in
               "regular  way"  market making  transactions  in  outstanding
               securities of a Section 12 reporting  company.   Task  Force
               Report at p. 42.

               [139]:See Sections VIII.C.3. and VIII.C.4.a. of this release
               for  a  discussion  of  when  prospectus information must be
               delivered in Form B offerings.

               [140]:The same disqualifications  that  would apply to other
               types   of  offerings  on  Form  B  also  would  apply   for
               registration  of  market  making  transactions.  See Section
               V.A.2.g. of this release.

               [141]:Section 3(a)(38) of the Exchange  Act defines the term
               "market maker" to mean "any specialist permitted to act as a
               dealer,  any  dealer  acting  in  the  capacity   of   block
               positioner,  and any dealer who, with respect to a security,
               holds himself out (by entering quotations in an inter-dealer
               communications  system or otherwise) as being willing to buy
               and sell such security  for  his own account on a regular or
               continuous basis."  15 U.S.C. ง 78c(a)(38).

               [142]:Form 1-A is the Form used  to qualify securities under
               Regulation  A,  an  exemption  from registration  under  the
               Securities  Act.  Form 1-A contains  two  offering  circular
               models, Model  A  and  B,  plus other parts.  These offering
               circular  models  and  Part F/S  of  Form  1-A  provide  the
               disclosure  requirements  for  offering  circulars  used  in
               Regulation A offerings.

               [143]:Transitional small business issuers are companies that
               either initially  registered  a  securities offering on Form
               SB-1  under  the Securities Act or initially  registered  on
               Form 10-KSB under the Exchange Act and provided certain Form
               10-KSB  disclosure  based  on  the  Form  1-A  non-financial
               statement disclosure requirements.

               [144]:This  approach  is  consistent with our approach under
               the proposed changes to Form  SB-2 and proposed new Form SB-
               3.    Proposed  Form  SB-2  and  SB-3   would   not   permit
               incorporation  by  reference  by transitional small business
               issuers.

                                        - 9 -

                         g.   Form B Disqualifications

               Given the freedom and flexibility provided to issuers that

          would register their offerings on Form B, we do not believe that

          all issuers that would meet the Form's reporting and other

          eligibility requirements would necessarily be suited to use the

          Form.  We believe certain events and circumstances justify

          disqualification of otherwise eligible offerings from

          registration on Form B, no matter under which category of Form B

          offerings it would be eligible.  For those offerings, investors

          need the additional protections that come with registration on

          other forms: mandated transactional disclosure standards;

          stricter prospectus delivery requirements; possible staff review;

          and greater Commission control over effectiveness.

               Under our proposal, the disqualifications generally would

          fall into four categories.  The first category would include

          issuers whose offerings have been identified as potential

          vehicles for fraudulent and manipulative schemes that harm

          investors. [145]  Blank check companies [146] and companies

          offering penny stock [147] would fall into this category.  The

          second category would include issuers that appear more likely to

          face potentially significant liquidity problems, such as issuers

          that recently defaulted on material indebtedness.  An issuer that

          is the subject of a "going concern" opinion from its independent

          auditor also would fall into this category, as would an issuer

          that recently was involved in a bankruptcy or insolvency

          proceeding.

               We also believe that an issuer should be disqualified from

          the privilege of using Form B if it abuses the registration

          system or other federal securities laws.  The third category of

          Form B ineligible issuers would therefore include those issuers

          that within five years before the date of filing a Form B were

          found to have violated provisions of the federal securities laws

          or that were convicted of securities fraud or business-related

          fraud or perjury. [148]  It also would include issuers with

          executive officers, directors, general partners or nominees to

          such positions, or issuers using underwriters, that have done the

          same.

               The issuers in these three categories have historically been

          viewed as unsuited to short-form registration or ineligible for

          certain disclosure-related relief.  For instance, the Commission

          has repeatedly stated its belief that penny stock and blank check

          offerings give rise to disclosure abuses. [149]  In addition,

          Congress determined not to extend the safe harbors for forward-

          looking statements to: issuers of blank check and penny stock

          securities offerings; issuers previously convicted of certain

          felonies and misdemeanors; and, issuers that are subject to a

          decree or order involving a violation of the securities

          laws. [150]  Accordingly, we believe it is appropriate to

          preclude such issuers from registering their offerings on Form B.

               The fourth category of issuers that we would disqualify from

          use of Form B would include issuers that fail to cooperate in

          good faith with the Commission's selective review system for

          Exchange Act reports.  If the issuer has failed to resolve the

          Commission's staff's comments on an Exchange Act report that the

          issuer would be incorporating by reference into its Form B, we

          would not permit that issuer to use Form B.

               We seek comment on these proposals.  Should other categories

          of issuers also be precluded from using Form B?  For example, is

          there any reason we should disqualify certain entities from using

          Form B, such as partnerships, limited liability companies or

          direct participation investment programs?  On the other hand,

          should any of the issuers noted in the four categories be

          permitted to use Form B?  Should any of them be permitted to use

          Form B, but not be permitted to designate the effective time?

          Should we extend the look-back periods used to disqualify issuers

          in any other category to coincide with the five-year look-back

          for issuers which have violated the law?

               More recently the Commission has identified offering abuses

          associated with very small capitalization issuers. [151]  We

          solicit comment on whether issuers more likely to be identified

          with microcap fraud should be disqualified from using Form B even

          though they do not fall into the blank check/penny stock category

          or the prior violations category.  If we were to disqualify

          issuers more likely to engage in microcap offering fraud, how

          would we define such a category?  What issuer or offering

          characteristics would be inclusive enough to meet our goal of

          preventing abuse but exclusive enough to avoid improperly

          stigmatizing smaller issuers that are not involved in fraud?

               Would disqualification from Form B use on the basis of a

          "going concern" opinion from the issuer's independent auditor

          cause undue pressure to be placed on auditors not to issue those

          opinions?  Should the Commission replace that disqualification

          with one dependent on whether the issuer had: 1) net losses or

          negative cash flows from operations for two or more of the past

          three annual fiscal periods; or 2) a deficit in net worth at the

          date of the most recent balance sheet?

                         h.   Secondary Offerings

               As proposed, registrants would not be able to register an

          offering on Form B without meeting other eligibility criterion

          simply because it is a secondary offering.  Whether an equity

          offering is a primary or secondary one, the investment is in the

          securities of the issuer and it is the issuer's disclosure that

          is relevant to investors.  In either offering, the issuer

          prepares the disclosure.  The primary difference is that the

          issuer does not receive the proceeds in the secondary offering.

          Considered only from an investor's viewpoint, the same disclosure

          would be needed regardless of whether the issuer or an affiliate

          is selling the securities.

               For some time, however, we have made a distinction in

          eligibility for short-form registration between primary and

          secondary offerings. [152]  To register secondary offerings,

          issuers do not need to meet the Form S-3 or F-3 public float

          test.  By allowing short-form registration for secondary

          offerings, we have inadvertently provided an incentive for

          issuers not to register primary sales and to distribute to the

          public indirectly through third parties.  Some registrants have

          been particularly aggressive about casting what are actually

          primary distributions as secondary offerings by selling

          shareholders in order to use current short-form registration.

          This practice threatens the integrity of the registration process

          by permitting registrants to do indirectly what they would be

          precluded from doing directly.  Given the attractions of Form B,

          we would expect that practice to continue if we were to allow

          secondary offering registration on Form B.  We would avoid that

          abuse by not allowing registration of secondary offerings on Form

          B unless other offering eligibility criteria were met.

               In 1981, we proposed to apply the same public float test for

          both primary and secondary offerings in Form S-3.  Commenters

          were concerned that applying the additional float requirement to

          secondary offerings would adversely affect venture capital

          companies and their investors.  In light of that concern, we

          chose to distinguish the two types of offerings in Form S-3.  The

          proposed registration system, however, has several advantages

          over the existing system that could ease any concerns regarding

          venture capitalists.  For example, under the eligibility

          requirements for use of Form B, a company may register its

          initial offering of common stock to the venture capitalists on

          Form B that are existing common stockholders of the company.  We

          also would make Form B available for any offering to venture

          capitalists who are QIBs.  Form B offerings could be completed as

          quickly as today's private offerings, because Form B would not be

          subject to staff pre-review and could be effective upon filing if

          the issuer chooses.  Because Form B would permit companies to

          register their initial offerings to venture capitalists, as

          opposed to first completing a private placement and then

          registering those securities for a secondary offering, special

          treatment of secondary offerings for the sake of venture

          capitalists would no longer be needed. [153]

               Registrants would register secondary offerings not eligible

          for Form B under the proposed system on Form A which is described

          in detail below.  Form A, unlike Form S-1 today, would permit

          companies to incorporate their Exchange Act filings by

          reference.  Consequently, it should take a company less time to

          prepare its registration statement on Form A as compared to Form

          S-1 today.  Additionally, the Commission is proposing to provide

          some Form A companies with the ability to designate the effective

          dates of their registration statements. [154]  Where applicable,

          the company's registration statement, therefore, would be

          effective significantly sooner than under the current system.

          [155]

               We are proposing to treat primary and secondary offerings

          the same on Form B.  Thus, secondary offerings by affiliates

          [156] would need to qualify under the same public float/ADTV,

          QIB-only, existing shareholders, or investment grade eligibility

          criteria.  Affiliates stand in the shoes of the issuer and should

          get no different or better treatment.  Because issuers and others

          have relied upon the historical distinction between secondary and

          primary offerings, however, we solicit comment regarding whether

          the secondary nature of offerings by non-affiliates should be

          added as a separate eligibility criterion on new Form B.

                Similarly, we are proposing to revise Form S-8 treatment of

          secondary offerings. [157]  Currently, affiliates and others may

          register on Form S-8 resales of control or restricted securities

          acquired pursuant to an employee benefit plan.  The resale

          prospectus on Form S-8 must meet the requirements of Part I of

          Form S-3 or Form F-3.  For the same reasons that we are not

          proposing special eligibility for secondary offerings on Form B,

          we propose to eliminate special eligibility for secondary (i.e.,

          resale) offerings on Form S-8.  Whether an offering is primary or

          secondary is of little importance to most investors.  Investors

          tend to base their investment decision on an issuer's

          disclosures.  Accordingly, we believe amending Form S-8 would

          further investor protection.

               Comment is solicited with respect to elimination of S-3

          level registration of secondary offerings on Form S-8.  Are there

          compelling reasons to retain that treatment in an employee

          benefit context that would not apply in other secondary

          offerings?

               B. Form A Offerings

               Form A would be the basic form for registration under the

          Securities Act. [158]  It would be available for any offering for

          which no other Form is authorized or prescribed.  Initial public

          offerings and smaller reporting issuers' offerings ineligible for

          another form would be registered on Form A.  Many of the

          offerings that issuers would register today on Form S-1, F-1, S-2

          and F-2 would be registered under the proposed system on Form A.

          Just as in the case of Forms B and C, both domestic and foreign

          filers would use Form A. [159]

                    1.   Structure of Form A

               In keeping with current Securities Act registration forms,

          there are two parts to Form A:  information included in the

          prospectus (Part I) and information not included in the

          prospectus (Part II).

                         a.   Part I -- Information Required in the

          Prospectus

               Part I of Form A requires the following three categories of

          information: (1) standard disclosure on the cover and back pages

          of the prospectus and registration statement; (2) transactional

          information; and (3) company information.  All issuers

          registering on Form A would set forth the first two types of

          information directly in the prospectus.  Some Form A issuers

          would incorporate by reference their company information, while

          others would set forth that information directly in the

          prospectus.

                              i.   Cover Pages

               All issuers using Form A must comply with Items 501, 502 and

          503 of Regulation S-K relating to information on the front cover

          page of the registration statement, the cover pages of the

          prospectus and in the summary and risk factors sections, among

          others.  This is the same requirement as in current Forms S-1,

          F-1, S-2 and F-2.

                              ii.  Transactional Information

               All issuers using Form A also must provide information

          regarding:

               *    summary risk factors and ratio of earnings to fixed

                    charges;

               *    use of proceeds;

               *    determination of offering price;

               *    dilution;

               *    selling security holders;

               *    plan of distribution;

               *    description of securities;

               *    interests of named experts and counsel; and

               *    the Commission's position on indemnification for

                    Securities Act liabilities.

          Again, this is the same information that is required in current

          Forms S-1, F-1, S-2 and F-2.


          **FOOTNOTES**

          [145]:See, e.g., Securities Act Release  No.  7006 (July 2, 1993)
               [58 FR 37445].

               [146]:Securities Act Rule 419(a)(2), 17 CFR 230.419(a)(2),
               defines blank check company.

               [147]:Exchange Act Rule 3a51-1, 17 CFR 240.3a51-1, defines
               penny stock.

               [148]:See General Instruction I.B.6.(g) and (h) of Proposed
               Form B, 17 CFR 239.5.

               [149]:See, e.g., Securities Act Release No. 7024 (Oct. 25,
               1993) [58 FR 58099] (the Commission stated that Congress
               found blank check companies to be common vehicles for fraud
               and manipulation in the penny stock market, and concluded
               that the Commission's disclosure-based regulation and review
               of such offerings protects investors); Securities Act
               Release No. 7393 (Feb. 20, 1997) [62 FR 9276] (blank check
               and penny stock issuers would be ineligible to use proposed
               rule providing for delayed pricing because of "prior
               substantial abuses").

               [150]:Section 27A of the Securities Act, 15 U.S.C. ง 77z-2,
               and Section 21E of the Exchange Act, 15 U.S.C. ง 78u-5.

               [151]:See, e.g., Securities Act Release No. 7505 (Feb. 17,
               1998) [63 FR 9632] (adopting amendments to Regulation S (17
               CFR 230.901 - 905)); Exchange Act Release No. 39670 (Feb.
               17, 1998)[63 FR 9661] (proposing amendments to Exchange Act
               Rule 15c2-11 (17 CFR 240.15c2-11)).

               [152]:See Securities Act Release No. 5265 (June 27, 1972).

               [153]:Under this proposal, unlike in a registered secondary
               offering, venture capitalists would generally not be subject
               to the prospectus delivery requirements.

               [154]:See proposed revisions to Securities Act Rule 462, 17
               CFR 230.462.

               [155]:The holding period of Rule 144(d), 17 CFR 230.144(d),
               also is much shorter today than it was in 1981, thus making
               private placements more attractive as an alternative to
               registration than they were in 1981.  We recently proposed
               to narrow the definition of "affiliate."  Consequently, Rule
               144 would be available to most venture capitalists.
               Securities Act Release No. 7391 (Feb. 20, 1997) [62 FR
               9246].

               [156]:For purposes of this discussion, we assume that the
               narrower definition of "affiliate" proposed by the
               Commission in 1997 would apply.  We have not proposed that
               narrower definition in this release because we already have
               proposed it.

               [157]:Form S-8 would be largely unaffected by the proposed
               registration system.  For example, no additional filing or
               delivery requirements would be added for Form S-8.

               [158]:Form A also may be used to register concurrently under
               Section 12(b) or 12(g) of the Exchange Act.  See Section VI.
               of this release for a discussion of concurrent Exchange Act
               registration.

               [159]:U.S. registrants must provide all information required
               by the Items of the Form except where the Item expressly
               identifies the requirement as applying only to foreign
               registrants.  Similarly, foreign registrants must provide
               all information required by the Items of this Form except
               where the Item expressly identifies the requirement as
               applying only to U.S. registrants.

                                        - 10 -

                              iii. Company Information

               Depending on whether the issuer is "seasoned" or not, it

          must present company-related disclosure either in full in the

          prospectus or incorporate it by reference into the prospectus

          that is part of the effective registration statement.

                                   (A)  "Seasoned" Form A Issuers

               For purposes of Form A, "seasoned" issuers would be:

               *    issuers that have been reporting under the Exchange Act
                    for at least 24 months, if they have a public float of
                    $75 million or more; and

               *    issuers that have been reporting under the Exchange Act
                    for at least 24 months and have filed at least two
                    annual reports.

          Issuers that are "seasoned" would be eligible to incorporate

          their previously filed Exchange Act reports by reference unless

          they meet any of the disqualifications contained in General

          Instruction II.B. of the Form. [160]

               A Form A registrant would incorporate by reference into the

          prospectus and deliver, along with the prospectus, its latest

          annual report filed pursuant to Section 13(a) or 15(d) of the

          Exchange Act and either deliver or include in the prospectus the

          information in Part I of Form 10-Q or 10-QSB for the most recent

          fiscal quarter.  The registrant must deliver the information

          required by this option with the first prospectus it sends.  It

          need not deliver that information with any subsequent prospectus

          it sends to the same person.

               Issuers relying on this option would not have to reiterate

          company information in the prospectus, although they would have

          to deliver those incorporated reports with the preliminary

          prospectus. [161]  The Form A eligibility requirements for

          incorporation by reference would reduce the length of time a

          registrant must be reporting.  Under current Forms S-2 and F-2, a

          registrant must have a thirty-six month reporting history before

          it may incorporate by reference. [162]  We solicit comment on

          whether the seasoning test for incorporation by reference on Form

          A should be shortened (e.g., to where the issuer has been

          reporting under the Exchange Act for 12 months and has filed at

          least one annual report).

               If a company incorporates by reference, investors would be

          required to review more than one document to obtain all the

          material information.  We solicit comment as to whether this

          increases the analytical burden on investors.  Additionally, does

          incorporation by reference of documents containing historical

          disclosure tend to obscure recent material information about the

          company?  Would it be better for investors if incorporation by

          reference was limited to the most recent annual report with all

          subsequent information included in the prospectus?  Today, some

          small issuers that are not well known to investors may include,

          for marketing purposes, information in their prospectuses that

          also is contained in the documents they have incorporated by

          reference.  Is incorporation by reference useful for such small

          companies?  Is incorporation by reference necessary in light of

          technological advances in financial printing?  Does incorporation

          by reference reduce an issuer's cost of registration if the

          incorporated documents are required to be delivered to investors?

          If so, by how much are costs reduced?

               Current Forms S-2 and F-2 give a registrant two options for

          complying with the disclosure requirements of the Form when

          incorporating by reference.  If the registrant elects to deliver

          the prospectus together with its Exchange Act reports

          incorporated by reference in the registration statement, it must

          provide in the prospectus updating financial information and

          describe any material changes in its affairs not previously

          disclosed in an incorporated and delivered Exchange Act report.

          If the registrant does not elect to deliver its incorporated

          Exchange Act reports together with the prospectus, it must

          provide abbreviated company information in the prospectus

          itself. [163]  Proposed Form A would permit only the first option

          of providing company information when incorporating -- a

          registrant may incorporate company information into its

          prospectus and deliver its Exchange Act reports together with the

          prospectus. [164]  Otherwise, it could not incorporate and must

          set forth the full company disclosure required in a Form A, just

          like an unseasoned Form A company.

               Current Form S-2 permits issuers to choose to incorporate

          and deliver their glossy annual and quarterly reports to security

          holders in lieu of incorporating and delivering their Exchange

          Act annual and quarterly reports.  Proposed Form A would require

          issuers to incorporate and deliver their latest Forms 10-K and

          10-Q, because those reports must contain more extensive

          disclosure about the company. [165]  We solicit comment on

          whether Form A seasoned issuers should be given the option to

          incorporate and deliver their glossy annual and quarterly reports

          to shareholders in lieu of their reports on Forms 10-K and 10-Q,

          with the additional provisions that those glossy annual and

          quarterly reports are incorporated by reference in their entirety

          (and are therefore subject to Section 11 liability under the

          Securities Act) and are filed with the Commission before their

          use in the Form A.

               In certain circumstances, current Forms S-2 and F-2 permit

          registrants that are majority-owned subsidiaries but do not meet

          the Form eligibility requirements to register on those Forms

          instead of Form S-1 or F-1 if their parent satisfies certain

          requirements.  This provision allows both the parent and the

          majority-owned subsidiary to register the offering on one form

          and incorporate by reference.  Proposed Form A would not provide

          a similar option to those majority-owned subsidiaries.  Given

          that Form A encompasses both seasoned and non-seasoned issuers

          and that incorporation by reference on Form A would be available

          after 24 months, as opposed to the current 36-month requirement,

          we believe there would be little reason to extend the ability to

          incorporate by reference to majority-owned subsidiaries any

          sooner.

                                   (B)  "Unseasoned" Issuers

               In initial public offerings and offerings by all other

          issuers that are not "seasoned," we would require that the

          registrant provide company information in the prospectus.  The

          content of the company information in the registration statement

          would remain the same as it is in current Forms S-1 and F-1.  We

          would not permit these issuers to incorporate by reference any

          Exchange Act reports.

                         b.   Part II -- Information Not in the Prospectus

               Just as in Forms S-1, F-1, S-2 and F-2, Part II of proposed

          Form A would require the following information in the

          registration statement but not in the prospectus that is

          delivered to investors: expenses of issuance and distribution,

          indemnification of directors and officers, recent sales of

          unregistered securities, exhibits and undertakings.

                    2.   Timing of Form A Offerings

                         a.   Seasoned Issuers

               Many commenters on the Concept Release noted that issuers

          would benefit from greater certainty of the time schedule of

          staff review.  For example, a fixed offering schedule would

          promote efficiency in marketing efforts and the management of

          deal flow.  We believe that we can achieve greater certainty in

          the timing of staff review without compromising investor

          protection.  Proposed revisions to Securities Act Rule 462 [166]

          would provide for effectiveness of registration statements and

          post-effective amendments of seasoned issuers on Form A whenever

          they request if:

               1.   the registrant's public float is or exceeds $75
                    million; or

               2.   the Exchange Act annual report incorporated into the
                    Form A recently has been reviewed fully by the
                    Commission staff and has been amended in accordance
                    with the staff's comments, if so requested. [167]

               In addition to the reporting history requirement, issuers in

          all cases must be subject to the Exchange Act reporting

          requirements, current in filing their Exchange Act reporting

          requirements and timely in filing their Exchange Act reports

          during the last 12 months in order to be seasoned.  A seasoned

          issuer that meets one of these criteria may choose when it wants

          its registration statement on Form A to be effective. [168]  The

          front cover of the Form would include three boxes, one of which

          the issuer would check to designate the date and time of

          effectiveness of the Form.  Like Form B issuers, these seasoned

          Form A issuers may elect that the filing become effective:

          immediately upon filing, at the date and time specified on the

          front cover, or as specified in a later amendment.  Even if an

          issuer met either of those criteria, the proposal would preclude

          it from designating the effectiveness of its Form A if the issuer

          fits the profile of any issuer disqualified in Form A from the

          provisions in the Form for incorporation by reference and

          automatic effectiveness. [169]

               The basis of the public float test is to provide medium-

          sized seasoned issuers with certainty about the timing of their

          registered offerings.  We believe that issuers would be more

          inclined to register their offerings if they knew they could take

          advantage of market windows or realize a need for quick capital

          by relying on Form A's provisions for automatic effectiveness.

               The $75 million public float criteria is the same float

          level required in our current short-form registration statements

          (Forms S-3 and F-3).  Our research indicates that approximately

          1175 companies that are currently eligible to use those

          short-form registration statements would be ineligible to use

          Form B, at least with respect to offerings requiring the issuer

          to satisfy the public float/ADTV threshold.  Those 1175 companies

          generally would be able to avail themselves of Form A's

          provisions for automatic effectiveness if they had reported under

          the Exchange Act for at least 24 months.  We propose the $75

          million float requirement to ensure that the only registration

          statements on Form A that could become automatically effective

          are those filed by issuers with some market following resulting

          from their size and at least 24 months experience filing Exchange

          Act reports.

               The basis of the recently reviewed test is that the staff

          will have reviewed the bulk of the issuer's disclosure.  Pursuant

          to this test, any seasoned Form A issuer may designate

          effectiveness where it incorporates by reference into its Form A

          an annual report filed under Section 13(a) or 15(d) for its most

          recently completed fiscal year [170] that has been reviewed fully

          by the Commission staff and the issuer has responded

          satisfactorily to the staff's comments. [171]  As discussed in

          greater detail below, the staff of the Division of Corporation

          Finance would consider requests that the staff review their

          Exchange Act reports. [172]  Because issuers may request that the

          staff review their Exchange Act annual reports before registering

          on Form A, this mechanism would allow an issuer further

          flexibility in controlling the timing of its registered offering.

               We solicit your comment on this proposal.  Should we permit

          these registration statements on Form A to become effective per

          the issuer's discretion?  Is the $75 million float too high?

          Should it be lowered to $60 million?  Or should it be raised to

          $100 million or $200 million?  Would the proposal to allow a Form

          A issuer incorporating a fully reviewed annual report provide

          particular flexibility in light of the proposal that the staff

          would review Exchange Act reports upon request to the extent it

          is able?  Should the power to designate effectiveness when the

          staff has reviewed the issuer's annual report be limited to

          offerings of a class of securities the issuer has registered

          previously?  Should there be any time frame within which the

          staff would have to review the report, for example, within three

          or six months before the offering?  Should we exclude offerings

          of certain securities from that treatment?  If so, what types of

          securities?

               Because the proposed rules provide these issuers with

          complete control over effectiveness of their filings, we would

          require that the issuer obtain evidence of the managing

          underwriters' or principal underwriters' concurrence with its

          designation of effectiveness. [173]  The issuer would have to

          file the evidence of concurrence as an exhibit to Form A.

               Would a requirement to file the concurrence be unnecessarily

          burdensome?  Alternatively, should we require the issuer to

          obtain the underwriters' concurrence, but not require that the

          concurrence be evidenced in writing?  Would an oral concurrence

          provide the issuer and the underwriters with sufficient assurance

          of agreement and protection against misunderstanding?  Should we

          require that the issuer represent in the registration statement

          that it obtained the concurrence, not require filing, and require

          that the issuer retain the written concurrence for five years?

                         b.   Unseasoned Issuers

               The timetable for effectiveness of registration statements

          filed by issuers making their initial public offerings or by

          issuers who do not meet the "seasoned" eligibility requirements

          of General Instruction II. of Form A would be similar to the

          filings on Forms S-1 and F-1 today.  All registration statements

          would be reviewed on a similar time table as current Forms S-1

          and F-1 and the registration statement would become effective

          pursuant to a request for acceleration after the issuer addresses

          staff comments.

                    3.   Solicitation of Comments on Definition of Form A
                         Seasoned

                         Issuer

                         We use the same definition of seasoned issuer under Form A

          for purposes of permitting incorporation by reference of Exchange

          Act reports and timing of registration statement effectiveness,

          with one exception discussed below.  We distinguish between

          issuers with a public float of $75 million or more and issuers

          with a public float of less than $75 million.  Issuers with

          public floats of $75 million or more must have reported under the

          Exchange Act for 24 months or more.  Issuers with smaller public

          floats must have reported for 24 months or more and filed at

          least two annual reports.  For purposes of determining

          effectiveness (but not incorporation by reference), issuers with

          smaller public floats also must incorporate an Exchange Act

          annual report that was reviewed fully by Commission staff and

          amended for any staff comments.  An issuer also must meet other

          conditions to be seasoned for purposes of incorporation by

          reference and timing of effectiveness.

               We solicit comment regarding the reporting history of

          companies with a public float of $75 million or more.  Is 24

          months the proper reporting history to permit companies with that

          amount of public float to determine the timing of their

          effectiveness?  Would a 12-month reporting history be sufficient

          in this regard?  Similarly, is 24 months the proper reporting

          history to permit these companies to incorporate by reference

          Exchange Act periodic reports?  Would a 12-month reporting

          history be sufficient in this regard?  For each of these purposes

          (i.e., timing of effectiveness and incorporation by reference),

          should we add an annual report filing requirement to the 24- or

          12-month reporting periods?  Finally, for each of these purposes,

          we have proposed that the company be timely in filing its

          Exchange Act reports for the most recent 12 months.  Is this

          sufficient evidence of providing timely information to the

          market?  Would a longer period, such as 24 months, be more

          appropriate?

               We also solicit comment regarding the reporting history of

          companies with a public float of less than $75 million.  Is 24

          months of Exchange Act reporting and the filing of at least two

          annual reports the proper reporting history to permit companies

          with that amount of public float to determine the timing of their

          effectiveness?  Would 12 months of Exchange Act reporting and the

          filing of at least one annual report be sufficient in this

          regard?  Similarly, is 24 months of Exchange Act reporting and

          the filing of at least two annual reports the proper reporting

          history to permit these companies to incorporate by reference

          Exchange Act periodic reports?  Would 12 months of Exchange Act

          reporting and the filing of at least one annual report be

          sufficient in this regard?  For each of these purposes, should we

          simply require either a 24- or 12-month reporting history,

          without regard to how many annual reports had been filed by the

          registrant?  Finally, for each of these purposes, we have

          proposed that the company be timely in filing its Exchange Act

          reports for the most recent 12 months.  Is this sufficient

          evidence of providing timely information to the market?  Would a

          longer period, such as 24 months, be more appropriate?  For

          purposes of timing of effectiveness, should we require that the

          Exchange Act annual report incorporated by reference be reviewed

          fully by Commission staff and satisfactorily amended for any

          staff comments?

                    4.   Disqualification for Seasoned Form A Companies

               As noted, Form A would permit smaller, reporting issuers to

          incorporate by reference their Exchange Act reports and to have

          greater control over their effectiveness time schedule.  We do

          not believe that all issuers that would meet proposed Form A's

          reporting and other eligibility requirements would necessarily be

          suited to incorporate by reference their company information or

          have expedited effectiveness.  We believe certain events and

          circumstances justify disqualification of otherwise eligible

          issuers from taking advantage of those benefits on Form A.  We

          propose to use the same factors that disqualify otherwise

          eligible issuers from using Form B. [174]  As we do with Form B

          issuers, we solicit comment on whether we should lengthen the

          "look-back" periods we propose to use to disqualify Form A

          issuers from designating the effective date of their registration

          statements or incorporating by reference.  If so, should the

          periods be independent of or match those in Form B?

                    5.   Real Estate Companies

               Real estate entities that formerly registered on Form S-11

          would now register on Form A, unless they meet the eligibility

          requirements of another form.  Disclosure specifically required

          by Form S-11 instead has been added to Regulation S-K. [175]

          Real estate entities that formerly provided such disclosure on

          Forms S-11 or S-4 would continue to be required to provide such

          disclosure on Forms A and C, respectively.

               These proposed disclosure requirements of Regulation S-K

          have been drafted in plain English and would codify certain staff

          practices regarding disclosure by real estate entities.  These

          practices include disclosing:

               1.   when finite life entities intend to sell their
          properties;

               2.   the securities rating assigned by a nationally
                    recognized statistical rating organization ("NRSRO") to
                    any securities in which the registrant has invested;

               3.   any cross default or cross collateralization provisions
                    in mortgages; and

               4.   information about subsidiaries, such as operating

                    partnerships.

          Additionally, to provide uniformity on how registrants calculate

          occupancy rates, the Commission is proposing to require real

          estate entities to disclose occupancy rates as a percentage of

          rentable square footage or units. [176]  Finally, the new

          disclosure requirements of Regulation S-K would omit disclosure

          currently required by Item 35 of Form S-11, as it appears no

          longer applicable to most real estate companies.

               We also propose to amend Forms 10 and Form 10-K to codify

          the staff's practice of requiring real estate entities to

          disclose:

                    *    operating and financing activities; [177]

                    *    real estate and other investment activities; [178]

                         and

                    *    a description of real estate and operating

                         data. [179]

               We also are proposing in certain offerings by real estate

          entities to eliminate the Guide 5 recommendation that a

          registrant supplementally provide the Commission staff, before

          use, sales materials it intends to furnish to investors. [180]

          The Commission staff would no longer pre-review the sales

          materials in cases where an issuer has the power to designate the

          effective date of its registration statement or when the

          Commission staff has notified the issuer that it will not be

          reviewing its registration statement.  The benefits provided by

          the ability to designate effectiveness would be significantly

          diminished if the issuer nevertheless had to delay its offering

          until the Commission staff had pre-reviewed its sales materials.

          Similarly, there would be little benefit to investors from

          Commission staff pre-review of sales materials where the staff

          would not also review the issuer's registration statement.

          Proposed Rule 425 generally would require issuers and offering

          participants to file sales materials used in an offering.  We

          request comment as to whether the Guide 5 recommendation to

          provide the Commission staff with sales materials supplementally

          should be eliminated for all offerings because sales materials

          generally would be filed under proposed Rule 425.

                C.  Applicability of Civil Liability Provisions to
                    Offerings Registered on Proposed Forms A and B

               The proposals provide a liability structure that depends on

          the content of materials, as well as the manner and time in which

          materials are used.  The following discussion describes this

          liability structure.

                    1.   Form A Offerings

               A Form A offering either may involve, or must involve, the

          following materials used in connection with the offer or sale of

          securities:

               *    the Form A registration statement, including the
                    prospectus;

               *    if the issuer is seasoned, the Exchange Act reports
                    that it incorporates by reference into its registration
                    statement;

               *    free-writing materials, but only after the issuer files
                    the Form A registration statement;
               *    a prospectus contained in a post-effective amendment to
                    the Form A registration statement; and

               *    prospectus supplements that the issuer uses after
                    effectiveness of the Form A registration statement for
                    shelf offerings.

          The liability that applies to each of these types of materials is

          as follows.

               Section 11 liability would attach to the effective Form A

          registration statement, including the prospectus in it. [181]

               A Form A registrant relying on incorporation by reference

          would have to incorporate into the registration statement its

          last annual report filed under Section 13(a), and all Exchange

          Act reports that it files under Section 13(a) thereafter up to

          the date of effectiveness.  Section 11 liability would attach to

          all information in those incorporated reports. [182]  Section 11

          also would attach to any Exchange Act report filed after the

          effective date that the issuer incorporates by reference through

          filing a post-effective amendment. [183]

               A Form A registrant using free writing materials after it

          files its registration statement would file those materials in

          accordance with Rule 425.  Section 12(a)(2) liability would

          attach to all free writing materials the registrant uses, whether

          or not they are filed under Rule 425 as required.

               A Form A registrant could make additions or revisions to the

          prospectus by filing a post-effective amendment to the

          registration statement.  The prospectus in a post-effective

          amendment becomes the prospectus in the registration statement.

          [184]  Accordingly, Section 11 would attach to any prospectus

          (and any other information) included in a post-effective

          amendment to Form A.

               As proposed, Form A registrants would not be permitted to

          undertake delayed shelf offerings of securities under Rule 415.

          Those registrants could, however, undertake other shelf

          offerings, such as continuous offerings.  In those offerings, the

          registrant could use prospectus supplements to change the

          prospectus in the registration statement after effectiveness.

          Because prospectus supplements are not set forth in post-

          effective amendments, it has been argued that Section 11

          liability does not attach to them.  It is our view that these

          supplements are part of that prospectus and Section 11 liability

          applies to the information in them.

               All of the materials described above would be subject not

          only to the civil liability provisions of the Securities Act, but

          also to the antifraud provisions of the Securities Act and the

          Exchange Act.  The proposals would have no effect on the

          applicability of those provisions. [185]

               Rule 167 defines any communication made more than 30 days

          before filing in a Form A-registered offering as not being an

          offer to sell or offer to buy securities for purposes of Section

          5(c) of the Securities Act.  Because of this definition, neither

          Section 11 nor Section 12(a)(2) of the Securities Act would

          attach to these communications.  However, these definitions do

          not affect the application of the anti-fraud provisions of the

          Exchange Act or the Securities Act.  For example, any

          communication "in connection with the purchase or sale" of a

          security would be subject to Exchange Act Section 10(b),

          regardless of Rule 167.  Similarly, any "offer or sale of any

          security" would be subject to Securities Act Section 17(a).


          **FOOTNOTES**

          [160]:Section  11  would  apply to all documents incorporated  by
               reference in Form A.

               [161]:For  a  discussion   of  Form  A  prospectus  delivery
               obligations, see Sections VIII.C.3.  and  VIII.C.4.b. and e.
               of this release.

               [162]:Those   forms  are  available  for  smaller   seasoned
               issuers, but are  rarely  used.  In 1996, only 102 Forms S-2
               were filed and only three Forms F-2 were filed.

               [163]:This disclosure is less  comprehensive than what would
               be  required  on  Form  S-1  or  F-1  today.    It  includes
               information  regarding:   the  registrant's  business,   the
               registrant's    common   equity   securities,   management's
               discussion and analysis,  changes  in and disagreements with
               accountants  on  accounting  and  financial  disclosure  and
               market  risk.   Financial  statements  and  other  financial
               information,   including   selected   financial   data   and
               supplementary financial information  are also required to be
               presented in the prospectus.

               [164]:The disclosure required by seasoned Form A registrants
               includes  a  description  of  any  material  change  in  the
               registrant's  affairs  that is not already  described  in  a
               filing with the Commission,  incorporated  by reference into
               Form A and delivered to investors.

               [165]:A  small  business  issuer may choose to  register  an
               offering on Form A rather than  on Form SB-2 and incorporate
               and deliver its reports on Forms 10-KSB and 10-QSB.  A small
               business issuer that registers an  offering under Form A but
               that  does  not incorporate its Exchange  Act  reports  must
               provide the company disclosure called for by Form A based on
               either Regulation  S-K  or  Form  20-F  (if a Canadian small
               business issuer).

               [166]:17 CFR 230.462.

               [167]:Form A would not permit incorporation  by reference of
               any  Exchange  Act  report  or  other  filing  if the  staff
               reviewed the filing and any comments remain unresolved.

               [168]:While  these  registration  statements  will  not   be
               reviewed   by   the  staff,  any  request  for  confidential
               treatment regarding  information  required to be included in
               the  registration statement may be received  by  the  staff.
               Therefore,  any request for confidential treatment should be
               submitted  a  reasonable   period  before  the  registration
               statement's designated effective date.

               [169]:See General Instruction  II.B  of  proposed Form A and
               Section V.B.1.a.4. of this release.

               [170]:See   proposed  revisions  to  Securities   Act   Rule
               468(f)(1)(iv), 17 CFR 230.468(f)(1)(iv).

               [171]:Because Form A would not permit issuers to incorporate
               any Exchange  Act report if any Commission staff comments on
               it are unresolved, issuers could only take advantage of this
               provision  if  the   review   of  their  annual  report  was
               completed.

               [172]:See Section XII.B. of this release.

               [173]:See proposed Form A, Item 21 and proposed revisions to
               Item 601 of Regulation S-K, 17 CFR 229.601.

               [174]:See General Instruction II.B.  of  proposed Form A, 17
               CFR 239.4.  For a discussion of the nature  of  and  reasons
               behind  the disqualifications, see Section V.A.2.g. of  this
               release.

               [175]:See  proposed  Items 1101 - 1113 of Regulation S-K, 17
               CFR 229.1101 - 229.1113.

               [176]:See proposed Item  1107  of  Regulation  S-K,  17  CFR
               229.1107.

               [177]:See  proposed  Item  1105  of  Regulation  S-K, 17 CFR
               229.1105.

               [178]:See  proposed  Item  1106  of  Regulation S-K, 17  CFR
               229.1106.

               [179]:See  proposed  Item  1107 of Regulation  S-K,  17  CFR
               229.1107.

               [180]:See proposed revisions  to  Guide  5, referenced in 17
               CFR 229.801(e).

               [181]:Section 12(a)(2) liability also would  attach  to  any
               information in the registration statement that is part of  a
               prospectus.   Section 12(a)(2) also would attach to any oral
               communication used to offer or sell the securities.

               [182]:The filed  Exchange  Act reports would also be subject
               to Section 18 liability.  See Section XI.A.3 of this release
               for a discussion of Section 18 of the Exchange Act.

               [183]:A  Form  A  issuer may not  incorporate  Exchange  Act
               reports filed after  the  effective  date  except  through a
               post-effective  amendment.   Forward  incorporation  is  not
               available on Form A.

               [184]:See  Securities  Act Section 11(a), 15 U.S.C. ง77k(a),
               and Item 512(a)(2) of Regulation S-K, 17 CFR 229.512(a)(2).

               [185]:See Exchange Act Section  10(b),  15  U.S.C.  ง78j(b),
               Exchange Act Rule 10b-5, 17 CFR 240.10b-5 and Securities Act
               Section 17(a), 15 U.S.C. ง77q(a).

                                        - 84 -

                    2.   Form B Offerings

               In a Form B-registered offering, the liability provisions

          would apply to written disclosures as follows:

               *    Section 11 would apply to all information in the
                    registration statement, including:[186]
                    *    the term sheet,
                    *    offering information used during the offering
                         period, [187]
                    *    the Exchange Act reports incorporated by reference
                         into the registration statement,
                    *    material updates to the disclosure in the
                         incorporated Exchange Act reports, and
                    *    all other information included in the registration
                         statement, including exhibits;

               *    Section 12(a)(2) liability would always apply to "free-
                    writing" materials that are used during the offering
                    period, including regularly released forward-looking
                    information;

               *    Section 12(a)(2) liability may apply to factual
                    business communications during the offering period;

               *    Section 17(a) liability would apply to any
                    communication that constitutes an offer of a security,
                    regardless of whether that offer was made during the
                    offering period; and

               *    Exchange Act Section 10(b) liability would apply to any
                    communication in connection with the purchase or sale
                    of a security, regardless of whether that communication
                    was during the offering period.

                         a.   Section 11

               Section 11 liability would attach to all information in the

          Form B registration statement.  Offering information that is used

          during the offering period must be filed as part of the

          registration statement.  Offering information used in the period

          beginning 15 days before the first offer and ending with the

          filing of the registration statement must be filed with that

          registration statement.  Because the offering period runs through

          the completion of the offering, all offering information -

          including pricing information - used after filing of the

          registration statement would have to be filed as an amendment to

          the Form B registration statement.

               A Form B registrant must incorporate by reference into the

          registration statement its last annual report filed under Section

          13(a), and all Exchange Act reports that it files thereafter up

          to the date of effectiveness of the registration statement.  A

          Form B registrant also must incorporate by reference into the

          registration statement all Exchange Act reports it files between

          effectiveness of the Form B registration statement and the

          completion of the offering.

               A Form B registrant must inform potential investors of

          material updates to its Exchange Act reports.  The registrant

          would accomplish this through the use of offering information

          that is filed as part of the effective Form B registration

          statement.

                         b.   Section 12(a)(2)

               Section 12(a)(2) liability would always apply to free

          writing materials that are used during the during the offering

          period.  Among other communications, regularly released forward-

          looking information would be included in this category of

          information. [188]

               Free writing materials used during the offering period would

          have to be filed in accordance with Rule 425.  Free writing

          materials used in the period beginning 15 days before the first

          offer and ending with the filing of the registration statement

          must be filed under Rule 425.  Because the offering period runs

          through the completion of the offering, free writing materials

          used after filing of the registration statement also must be

          filed under Rule 425.  Section 12(a)(2) liability would attach to

          all free writing materials the registrant uses, whether or not

          they are filed under Rule 425 as required.

               While factual business communications are not "free writing"

          materials, [189] Section 12(a)(2) may still apply to those

          communications during the offering period if they are made to

          offer securities.

                         c.   Section 17(a) and Exchange Act Section 10(b)

               Section 17(a) liability would apply to any communication in

          the offer or sale of a security, regardless of whether that

          communication was made during the offering period.  Exchange Act

          Section 10(b) liability would apply to any communication in

          connection with the purchase or sale of a security, regardless of

          whether that communication was during the offering period.

               Rule 167 defines any communication made more than 30 days

          before filing in a Form A-registered offering as not being an

          offer to sell or an offer to buy the securities being offered

          under the registration statement.  Rule 167 has a similar

          treatment for communications made before the offering period in a

          Form B-registered offering.  Because of this rule, neither

          Section 11 nor Section 12(a)(2) would attach to these

          communications.  Rule 167 does not, however, affect the

          application of Section 17(a) or Exchange Act Section 10(b) to

          these communications.


          **FOOTNOTES**

          [186]:Section   12(a)(2)  liability  also  would  attach  to  any
               information  in the registration statement that is part of a
               prospectus and  to  any  oral communication used to offer or
               sell the securities.

               [187]:The offering period  would  begin  15  days before the
               first  offer  is  made  and  end  at the completion  of  the
               offering.

               [188]:Proposed  Securities Act Rule  168,  17  CFR  230.168,
               would    define    "regularly    released    forward-looking
               information" and exempt  it  from  the  prohibition  on pre-
               filing offers in Section 5(c).  This exemption would be more
               significant  for  Form  A-registered  offerings, because all
               pre-filing offers in connection with offerings registered on
               Form  B  would  be exempt from Section 5(c)  under  proposed
               Securities Act Rule 166, 17 CFR 230.166.  Regularly released
               forward-looking information  must  be  filed  under proposed
               Securities Act Rule 425, 17 CFR 230.425.

               [189]:Proposed  Securities  Act  Rule  169, 17 CFR  230.169,
               would  define "factual business communications"  and  exempt
               them from  the  prohibition  on pre-filing offers in Section
               5(c).  This exemption would be  more significant for Form A-
               registered  offerings,  because  all  pre-filing  offers  in
               connection with offerings registered  on  Form  B are exempt
               from Section 5(c) under proposed Securities Act Rule 166, 17
               CFR  230.166.   Proposed  Securities  Act  Rule 425, 17  CFR
               230.425, would state that registrants need not file "factual
               business communications," regardless of when they are made.

                                        - 85 -

               D.   Form C Offerings

                    1.   Use of Form C

               Under the proposed system, business combinations and

          exchange offers would be registered exclusively on proposed Form

          C. [190]  Proposed Form C would permit all offerings that were

          available on Forms S-4 and F-4.  One form would be available for

          both domestic and foreign issuers. [191]  A registrant must use

          Form C, or SB-3 if a small business issuer, to register an

          offering under the Securities Act that is:

               1.   a business combination transaction of the type
                    specified in Rule 145(a);

               2.   a merger in which the applicable law would not require
                    the solicitation of the votes or consents of all of the
                    security holders of the company being acquired;

               3.   an exchange offer for securities of the issuer or
                    another entity;

               4.   a public reoffering or resale of any securities
                    acquired pursuant to this registration statement; or

               5.   more than one of the kinds of transactions listed in
                    paragraphs 1. through 4. registered on one registration

                    statement.

                    2.   Relationship with Exchange Act Rules

               Like Forms S-4 and F-4, the proposed Form C prospectus may

          serve as the proxy or information statement used in connection

          with the proposed transaction.  Form C would be deemed to meet

          the informational and filing requirements of the proxy or

          information statement rules under Section 14 of the Exchange Act

          and Regulations 14A and 14C.

               In a companion release, the Commission is also proposing

          changes to the Exchange Act and Williams Act regulatory scheme

          applicable to extraordinary transactions, including the rules

          under Sections 13(e), 14(a), 14(c), 14(d) and 14(e). [192]  For a

          more complete discussion of the rationale behind the

          extraordinary transactions proposals, you also should read that

          Release.

                    3.   Timing of Form C

               As proposed, a Form C registration statement would be

          subject to Commission staff review and would become effective in

          the same manner that Forms S-4 and F-4 become effective today.

          Although some Form C registration statements would be filed by

          large seasoned issuers acquiring large seasoned companies, we

          have not proposed automatic effectiveness for Form C under the

          theory that the market is not informed at the time of filing

          about the pro forma effects of the transaction.  We solicit

          comment, however, regarding whether all registration statements

          filed on Form C (except Rule 13e-3 and roll-up transactions)

          should become effective automatically upon filing or on an

          expedited schedule (e.g., 20 days after filing).  Should Form C

          registration statements filed by Form B-eligible companies become

          effective automatically upon filing, similar to the Form B

          registration statement?  Should Form C registration statements

          become effective automatically or on an expedited schedule if the

          company to be acquired would meet the Form B public float/ADTV

          test?  What if both the registrant and the company being acquired

          would meet that test?  Should Form A registrants eligible to

          determine the timing of effectiveness of a Form A registration

          statement also be able to control timing of their Form C

          registration statements?  Are there any categories of offerings

          on Form C that should be granted automatic or expedited

          effectiveness, such as exchange offers?


          **FOOTNOTES**

          [190]:Small  business  issuers, however, would register  business
               combinations and exchange offers on proposed Form SB-3.  For
               an explanation of Form  SB-3,  see  Section  V.E.4.  of this
               release.   A small business issuer's disclosure requirements
               would not differ  substantially from Form S-4 today.  Form C
               would thus provide  no additional benefits to small business
               issuers than Form SB-3  and,  for  tracking  purposes, small
               business issuers would be barred from using Form C.  A small
               business issuer may, of course, provide more information  on
               Form  SB-3  than  required  by the small business disclosure
               regime.

               [191]:U.S. registrants must provide all information required
               by the Items of the Form except  where  the  Item  expressly
               identifies  the  requirement  as  applying  only  to foreign
               registrants.   Similarly,  foreign  registrants must provide
               all information required by the Items  of  this  Form except
               where  the  Item  expressly  identifies  the requirement  as
               applying only to U.S. registrants.

               [192]:See Exchange Act Release No. 40633 (Nov. 3, 1998).

                                        - 86 -

                    4.   Structure of Form C

               In keeping with other Securities Act registration forms,

          there are two parts to Form C:  information included in the

          prospectus (Part I) and information not included in the

          prospectus (Part II).

                         a.   Part I - Information Required in the

          Prospectus

               Like current Forms S-4 and F-4, Part I is divided into four

          sections:  information about the transaction, information about

          the registrant, information about the company being acquired, and

          voting and management information.

                              i.   Information About the Transaction

               The first section requires the disclosure of information

          about the proposed transaction.  In addition to other

          information, this section requires a prospectus summary, a

          summary of the material features of the proposed transaction and

          a presentation of pro forma financial information. [193]  This

          section is designed to elicit material information about a

          transaction that should be presented in a prospectus subject to

          Securities Act liabilities which is delivered to investors.  We

          solicit comment on whether Form B-eligible registrants should be

          required to comply with the mandated disclosure requirements for

          transactional information as described in this section or whether

          these registrants should be permitted somewhat more freedom to

          develop their own transactional disclosure, much as they would on

          Form B.


          **FOOTNOTES**

          [193]:Other  information  required  by  this section  include:  a
               description of material contacts between  the registrant and
               the   company  being  acquired;  information  required   for
               reofferings by persons deemed to be underwriters; disclosure
               regarding  the  interests  of named experts and counsel; and
               disclosure of the Commission's  position  on indemnification
               for Securities Act liabilities.

               Real estate entities would be required to provide additional
               information  specific  to  that industry.  That  information
               includes   disclosure   regarding:     risk   factors;   the
               organization;  tax  treatment;  certain  relationships   and
               related  transactions;  selection, management and custody of
               investments; conflict of  interest policy and limitations of
               liability.

                                        - 87 -

                              ii.  Information About the Registrant

               The second section mandates the disclosure regarding the

          information required  about the registrant and prescribes

          different levels of information required to be presented in the

          prospectus incorporated by reference, depending on which

          Securities Act form the registrant could use in making a primary

          offering of its securities.  Current Forms S-4 and F-4 apply

          different levels of registrant disclosure based on the

          registrant's eligibility for Forms S-1, S-2, S-3, F-1, F-2 and

          F-3.  Proposed Form C continues this approach and reflects the

          proposed re-tiering of the registration forms.

                                   (A)  Form B Eligible Registrants

               If the registrant meets the registrant eligibility

          requirements of General Instruction I.B. and the public

          float/ADTV test of Form B, it may elect to satisfy company

          disclosure requirements through incorporation by reference.  The

          registrant would provide substantially the same information that

          a Form S-3 or F-3 eligible issuer currently provides on Forms S-4

          and F-4:

               1.   a description of any material change in the affairs 
                    of the registrant that is not already described in a
                    filing with the Commission which is incorporated by 
                    reference into the Form C;

               2.   incorporation by reference of its latest annual report 
                    filed in accordance with Section 13(a) or 15(d) of the
                    Exchange Act and any other reports filed pursuant to 
                    Section 13(a) or 15(d) of the Exchange Act since the end
                    of the fiscal year; and

               3.   under certain circumstances, incorporation by reference 
                    of the description of capital stock contained in an
                    Exchange Act registration statement. [194]


          **FOOTNOTES**

          [194]:The description of capital  stock must be incorporated only
               if capital stock is being registered  and  securities of the
               same class are registered under Section 12 of  the  Exchange
               Act, and such stock is either listed for trading or admitted
               to  unlisted  trading  privileges  on  a national securities
               exchange  or  bid and offer quotations for  such  stock  are
               reported in an  automated  quotations  system  operated by a
               national securities association.

                                        - 88 -

                                   (B)  Seasoned Form A Registrants

               If the registrant meets the eligibility requirements for

          incorporation by reference in Form A, it may elect to comply with

          the incorporation by reference option in

          Form C. [195]  A registrant choosing this option must incorporate

          by reference into the prospectus and deliver with the prospectus

          its latest annual report filed pursuant to Section 13(a) or 15(d)

          of the Exchange Act and either deliver or include in the

          prospectus the information in Part I of Form 10-Q or 10-QSB for

          the most recent fiscal quarter.  The registrant must deliver the

          information required by this option with the first prospectus it

          sends.  As with Form A, it need not deliver that information with

          any subsequent prospectus it sends to the same person.

               The disclosure required from seasoned Form A registrants

          would also include a description of any material change in the

          registrant's affairs that is not already described in a filing

          with the Commission and incorporated by reference into Form C.

               Unlike current Form S-4, Form C would not permit delivery of

          a company's glossy annual or glossy quarterly report to security

          holders in lieu of delivery of a Form 10-K or Form 10-Q report.

          Just as we are soliciting comment on whether to provide the

          option to incorporate and deliver a company's glossy annual and

          quarterly report in lieu of a company's Form 10-K and Form 10-Q

          for "seasoned" companies filing on Form A, we solicit comment on

          whether we should provide this option for seasoned Form A

          companies filing on Form C.

                                   (C)  All Other Registrants

               All registrants ineligible for Form C's two incorporation by

          reference options would disclose in the registration statement

          the same information as current Forms S-4 and F-4 require of

          Forms S-1 and F-1 registrants.  In addition, real estate entities

          would disclose the information required by the following proposed

          items of Regulation S-K:  Item 1105, Operating and financing

          activities; Item 1106, Real estate and other investment

          activities; and Item 1107, Description of real estate and

          operating data.

                              iii. Information About the Company Being

          Acquired

               Similar to current Forms S-4 and F-4, proposed Form C would

          require presentation of disclosure about the company being

          acquired in the registration statement.  Presentation of

          disclosure could be made under the same options that would be

          available to the registrant.  Thus, a company to be acquired

          would refer to the "Information About the Registrant" section to

          determine whether and how it could incorporate by reference.

               Forms S-4 and F-4 give non-reporting companies to be

          acquired a choice about the amount of disclosure that they

          provide.  They may either provide the full company information

          required by reporting companies [196] or provide abbreviated

          company information which only non-reporting companies are

          permitted to provide. [197]  Form C proposes different disclosure

          requirements than on current Forms S-4 and F-4.  Form C would

          require a non-reporting company to provide the same non-financial

          disclosure as a reporting company [198] but would not require the

          company to provide the full financial statement disclosure that a

          reporting company would have to provide. [199]  We solicit

          comment on what non-financial disclosure should be required by

          non-reporting companies.  Would the requirement to provide the

          same information as reporting companies be unduly burdensome on

          these companies?  If so, what information should be required by

          non-reporting companies?

                              iv.  Voting and Management Information

               Form C would require issuers to present much the same

          information in the Form C prospectus as they would be required to

          present in Forms S-4 and F-4 today.  If either the registrant or

          the company to be acquired is soliciting proxies, consents or

          authorizations,  Form C would require information about: the

          meeting, the vote required for approval, revocability of proxy,

          dissenters' rights, persons making the solicitation, persons with

          substantial interest in the matter and voting securities of

          principal holders.

               Whether or not proxies, consents or authorizations are being

          solicited, and in the case of exchange offers, Form C would

          require information concerning voting securities and the

          principal holders of such shares with respect to all directors

          and executive officers of both entities.  Form C would require

          information about directors and executive officers of the

          surviving or acquiring company, certain relationships and related

          transactions and executive compensation.  If eligible to

          incorporate by reference, the registrant or the company to be

          acquired could incorporate this information into the prospectus

          in lieu of presenting the information in the prospectus.

                         b.   Part II - Information Not Required in the

          Prospectus

               Just as in Form S-4 and F-4, Part II of proposed Form C

          would require, in the registration statement but not in the

          prospectus that is delivered to shareholders, information about

          indemnification of directors and officers, exhibits and

          undertakings.

                    5.   General Instruction G. of Form S-4

               Proposed Form C would not include any instruction to

          parallel General Instruction G. of Form S-4 regarding the

          formation of bank or savings and loan holding companies.  This

          General Instruction is part of Form S-4, but is no longer needed

          in the business combination form because Congress has amended the

          Securities Act. [200]  Section 3(a)(12) exempts from registration

          the vast majority of those transactions eligible for General

          Instruction G. [201]  In those limited situations in which an

          offering regarding the formation of a bank or saving and loan

          holding company falls outside of the Section 3(a)(12) exemption,

          the registrant may still register the transaction on any form

          appropriate to the registrant and transaction.  In addition,

          Staff Accounting Bulletin 50, which permits abbreviated financial

          statements, would still be available in this transaction.

                    6.   Small Business -- Business Combinations

               Small business issuers would not be permitted to register an

          offering involving a business combination on Form C.  Instead, we

          are proposing a new form, Form SB-3, which is a small business

          combination form. [202]  Due to the necessary different

          requirements of larger domestic and foreign issuers and those

          issuers in the small business reporting regime, the use of two

          forms is necessary for business combinations to provide clarity

          for the registrant as to the requirements of the particular

          offering.

               In the event that a registrant filing on Form C is

          registering an acquisition of a company that is reporting

          pursuant to the small business issuer regime, the small business

          issuer need only provide the information in the registration

          statement that it would be required to provide if the offering

          was registered on Form SB-3.


          **FOOTNOTES**

          [195]:See  Sections  V.B.1.a.iii.(A)  and V.B.4. of this  release
               regarding  Form  A  issuers  eligible   to   incorporate  by
               reference.    Section   11  would  apply  to  all  documents
               incorporated by reference in Form C.

               [196]:See Item 17(a) of Form S-4 and Item 17(a) of Form F-4.

               [197]:See Item 17(b) of Form S-4 and Item 17(b) of Form F-4.

               [198]:Form S-4 does not require  non-reporting  companies to
               be acquired to provide the information required by  Item 102
               of  Regulation  S-K  (description of property), Item 103  of
               Regulation  S-K  (legal   proceedings)  or  Item  304(a)  of
               Regulation   S-K   (changes  in   and   disagreements   with
               accountants on accounting and financial disclosure).  Form C
               would require both reporting  and non-reporting companies to
               provide  this information.  Similarly,  Form  F-4  does  not
               require non-reporting  companies  to  be acquired to provide
               the information required by Item 2 of Form 20-F (description
               of property), Item 3 of Form 20-F (legal  proceedings), Item
               6 of Form 20-F (exchange controls) and Item  7  of Form 20-F
               (taxation).   Form C would require both reporting  and  non-
               reporting companies to provide this information.

               [199]:See Items  18(c)  and 21(b) of proposed Form C, 17 CFR
               239.6.  For a more complete discussion of this proposal, see
               Exchange Act Release No. 40633 (Nov. 3, 1998).

               [200]:Riegle    Community   Development    and    Regulatory
               Improvement Act,  Pub.  L. No. 103-325, Title III, ง320, 108
               Stat. 2225 (1994) amending  ง3(a)  of the Securities Act (15
               U.S.C. ง77c(a)).

               [201]:Transactions  in  which the rights  and  interests  of
               security   holders   in   the  holding   company   are   not
               "substantially the same" as those in the bank or savings and
               loan association before the  transaction  are  not  exempted
               from   registration  by  Section  3(a)(12)  but  would  have
               satisfied General Instruction G. of Form S-4.

               [202]:See Section V.E.4. of this release for a discussion of
               proposed Form SB-3.

                                        - 89 -

               E.   Small Business Issuers

                     1.  Small Business Issuers' System

               In 1992 and 1993, we adopted special registration forms

          under the Securities Act for smaller issuers: Forms SB-1 and SB-

          2. [203]  We also adopted special forms for these issuers to use

          in registering and reporting under the Exchange Act. [204]  The

          disclosure requirements of those forms are less extensive than

          the ones that apply to larger issuers.

               The small business issuer registration and reporting systems

          were designed to facilitate capital-raising by small businesses

          and reduce their costs in complying with the federal securities

          laws.  A small business issuer generally is any issuer with less

          than $25 million in revenues and a public float of less than $25

          million. [205]

                    2.   Re-defining "Small Business Issuer"

               Since the Commission adopted the "small business issuer"

          definition in 1992, economic and market changes have occurred.

          While annual inflation rates have remained low, the nation's

          economy has experienced significant growth.  Revenue levels of

          most public companies increased substantially, and their market

          capitalizations rose even more dramatically.  This growth in

          revenues and market capitalization levels has effectively reduced

          the percentage and number of public companies qualifying as small

          business issuers. [206]  Many companies that would have met the

          definition of small business issuer in 1992 now do not qualify as

          small business issuers even though they remain relatively small.

          These companies must satisfy the more extensive disclosure

          requirements of Regulation S-K and S-X in preparing their

          registration statements and periodic reports.

               We have had six years of successful experience with the

          small business issuer disclosure system.  Our experience

          indicates that small business issuers have incurred less cost,

          time and burden in preparing disclosure documents based on the

          streamlined disclosure requirements.  The system has improved

          their access to capital and increased their competitiveness

          against larger companies without reducing investor protection.

          For these reasons, we are proposing to redefine "small business

          issuer" by revising the criteria in the definitions. [207]

               We are proposing to raise the revenues test to $50 million

          and eliminate the public float test.  As a result, 1100 more

          public companies would meet that revenues test than satisfy the

          current $25 million revenues test today. [208]  The $50 million

          revenues test also would reinstate the percentage of public

          companies that met the revenues test in 1992. [209]  While the

          percentages remain constant, 500 more public companies would meet

          the $50 million revenues test than met the $25 million revenues

          test in 1992.

               Our proposal would aid non-reporting companies with revenues

          between $25 and $50 million that plan to register initial public

          offerings under the Securities Act or propose to register a class

          of securities under the Exchange Act.  Also, reporting companies

          that are small business issuers would be able to remain in the

          small business disclosure system until their revenues grow to $50

          million. [210]

                We would eliminate the public float test from the small

          business issuer definition.  The small business system is

          designed to simplify and reduce the cost of raising capital for

          start-up, developing and small businesses.  We believe that the

          size of a company's revenues may be a more indicative measure of

          whether a company needs the benefits of the small business system

          than a combined revenues and public float test.  While the public

          float test for small businesses may be correlated with the size

          of a company's operations, it can, at times, penalize those small

          businesses that the market believes to have promising prospects.

          The elimination of the public float test also would simplify the

          regulatory scheme.  Accordingly, we propose that a company that

          has less than $50 million in revenues would qualify as a small

          business issuer regardless of the size of its public float.

               We request your comments on the proposed revised definition

          of small business issuer. [211]  Should the proposed revenues

          level be higher (such as $60 or $70 million) or lower (such as

          $45 or $40 million)?  Why?  Should the public float test be

          retained?  If retained, should it also be set at $50 million or

          should it be retained at $25 million or increased to $60 or 70

          million?  Should another measure, such as assets level or market

          capitalization, be used to define small business issuers?  If

          another measure is used, what dollar level would be appropriate

          and why?

               We are not proposing to change the time period over which

          revenues would be considered.  Under the current definition, a

          non-reporting company would look at the amount of its revenues

          during its last fiscal year (and public float as of a date within

          60 days before filing its registration statement).  A reporting

          company would look at its revenues (and public float) as the end

          of its last two consecutive fiscal years.  We would continue to

          apply this approach.  Thus, a private company filing either an

          initial public offering under the Securities Act or registering a

          class of securities under the Exchange Act would look to its

          revenues during the its last fiscal year.  A public reporting

          company that is in the small business disclosure system would be

          required to leave the system if it had revenues over $50 million

          in each of its last two consecutive fiscal years.  A public

          reporting company which is not in the small business disclosure

          system would have to earn less than $50 million revenues in each

          of its last two consecutive fiscal years before it would be

          permitted to switch to the small business system.   We solicit

          your comments as to whether a revenues test based on a longer

          time period, such as three years, or an average annual revenues

          test based on a three-year period, would be better.

                      3. Proposed Changes to Form SB-2

               We propose changes to Form SB-2 to permit seasoned small

          business issuers to incorporate their previously filed Exchange

          Act reports by reference. [212]  In most cases, the Exchange Act

          disclosure would satisfy the company disclosure requirements of

          Form SB-2.  By delivering previously prepared documents, the

          small business issuer would avoid the expense, time and effort

          required in recreating this disclosure.  Those issuers would

          continue to include the same information about the offering, such

          as use of proceeds and plan of distribution disclosure, in the

          prospectus. [213]  We believe there is no compelling reason to

          preclude the small business issuer from incorporating by

          reference to the same extent as a Form A issuer.  If we extend

          this option to small business issuers, they will not need to

          leave the less extensive small business disclosure system in

          order to enjoy the benefits of incorporation by reference. [214]

                         a.   Conditions for Using Incorporation by

          Reference

               The conditions for using incorporation by reference in Form

          SB-2 would be the same as those in Form A.  By using the same

          criteria, we would treat equally all seasoned Exchange Act

          reporting companies that are not using Form B, regardless of

          their size.  To use incorporation by reference, the small

          business issuer would have to have been subject to the Exchange

          Act reporting requirements for at least a twenty-four-month

          period and have filed all required reports on a timely basis

          during the twelve months just before filing the Form SB-2. [215]

          Likewise, the issuer also must have filed at least two Exchange

          Act annual reports.

               Small business issuers would be subject to the same

          disqualifications applicable to Form A and Form B issuers

          relating to the issuer's financial condition, past violation of

          laws or status as a blank check or penny stock company. [216]  In

          addition, a small business issuer that used the less extensive

          Regulation A narrative disclosure requirements in its latest

          annual report on Form 10-KSB would not be allowed to incorporate

          its Exchange Act reports by reference.  We solicit comment on

          whether we should extend any of Form SB-2's disqualification

          provisions' "look-back" periods. [217]

               Similarly, we are not proposing to permit transitional small

          business issuers registering on Form SB-1 to use incorporation by

          reference. [218]  We believe it is important that issuers

          experience at least one cycle of reporting under a comprehensive

          (as opposed to a significantly streamlined) disclosure regime

          before graduating to a short-form approach.

               We solicit your views regarding whether incorporation by

          reference should be available to small business issuers.  Should

          their smaller size preclude them from using incorporation by

          reference?  Should we impose additional conditions on small

          business issuers regardless of what form they use given their

          smaller size?  Should we shorten the reporting history

          requirement (e.g., to twelve months or twelve months and the

          filing of one annual report)?  Does it take a longer period for

          those issuers to adjust to the reporting requirements and produce

          the expected Exchange Act disclosure?  Should there be additional

          disqualifications?  For example, should a Form SB-2 issuer not be

          able to incorporate by reference if a material retroactive

          restatement of its financial statements or a material disposition

          of assets is not reflected in its latest Exchange Act annual

          report, even if that information is set forth in the prospectus?

                          b.  How to Incorporate by Reference

               Under the proposals, a small business issuer choosing to

          incorporate by reference must incorporate its latest Exchange Act

          annual report and all Exchange Act reports filed after the end of

          the fiscal year covered by that form. [219]  It would not be

          permitted to incorporate Exchange Act forms filed after the

          effective date of the registration statement.

               The issuer must list in the prospectus that is part of the

          effective registration statement all of the reports that are

          incorporated by reference. [220]  As part of the effective

          registration statement, all incorporated portions of these

          reports would be subject to Section 11.  If an issuer wanted to

          incorporate an Exchange Act report filed after effectiveness of

          the Form SB-2, it would have to file a post-effective amendment

          to incorporate it into that prospectus.

               A small business issuer would have to state in the SB-2

          prospectus that it will provide to investors any report that it

          is incorporating by reference but not providing with the

          prospectus. [221]  It also must identify the reports that it

          files with or submits to the Commission and describe how

          investors may obtain those reports. [222]

               Small business issuers would have to update the company

          information in the prospectus if material changes occur after the

          end of the fiscal year covered by the annual report and are not

          reported in the Form 10-QSB delivered with the prospectus. [223]

          In addition, the small business issuer would have to include

          financial statements of businesses acquired or to be acquired or

          real estate operations acquired or to be acquired, and pro forma

          financial information, if that information is required by

          Regulation S-B [224] and was not in the latest annual

          report. [225]

               Comment is requested on the manner of incorporation of

          Exchange Act reports.  Should issuers be permitted to incorporate

          reports filed after effectiveness of the Form SB-2 provided that

          they are deemed incorporated into the prospectus that is part of

          the effective registration statement?

                         c.   Delivery of Exchange Act Reports

               A small business issuer would have to provide copies of its

          recent Exchange Act reports with the delivered prospectus when it

          incorporates by reference in the Form SB-2.  It must deliver to

          investors a copy of its latest Exchange Act annual report and

          state in the prospectus that it is accompanied by that annual

          report. [226]  It also would have to deliver its Form 10-QSB for

          its most recent fiscal quarter [227] or include that information

          in the prospectus.  Those that choose to deliver the Form 10-QSB

          would have to state in the prospectus that it is accompanied by

          that Form.

               The issuer would have to deliver the Exchange Act annual

          report and the Form 10-QSB with the prospectus delivered to

          investors under proposed Securities Act Rule 172.  If the issuer

          delivers another prospectus to the same investor later on in the

          offering, it would not have to re-deliver the Exchange Act

          reports. [228]

               Our proposals require delivery of the small business

          issuer's full Exchange Act annual report rather than an

          abbreviated glossy annual report to security holders.  We believe

          that most small business issuers are not generally followed by

          the investment community and the information that they report is

          not widely disseminated.  Because a typical annual report to

          security holders provides less information to investors than an

          annual report, we believe the latter would aid investors

          more. [229]  For example, an annual report to security holders

          does not include complete information about management, executive

          compensation, security ownership and transactions with related

          parties.  We would require that the issuer deliver this

          disclosure, which is included in the Exchange Act annual report,

          with the prospectus. [230]

                We solicit comment on these delivery requirements.  Should

          we expand the delivery requirements to require delivery not just

          of the annual report and most recent Form 10-QSB but also any

          other Form 10-QSB or Form 8-K filed since the end of the fiscal

          year covered by the annual report?  Should we narrow the delivery

          requirements?  For example, should we allow small business

          issuers to deliver their annual reports to security holders

          instead of their Exchange Act annual report disclosure?

                         d.   Other Changes to the Forms

               In addition to amending Form SB-2 to permit incorporation by

          reference, we are rearranging that Form in order to accommodate

          the new provisions.  Also, we are proposing correcting and

          technical changes to Form SB-2. [231]

                    4.   Form SB-3

                         a.   Use and Timing of Form SB-3

               Small business issuers would register business combinations

          and exchange offers on proposed Form SB-3, rather than Form C.

          Under the present system, small business issuers must use Form S-

          4 for these transactions.  A General Instruction to the Form

          lists the Items of Form S-4 with which small business filers are

          not required to comply.  It also lists those Items of other forms

          that the registrant must comply with in lieu of the Form S-4

          Items.  We are proposing a separate form for small business

          issuers to simplify and streamline their disclosure requirements

          when they register a business combination or exchange offer

          transaction.

               Only registrants that are small business issuers under Rule

          405 would be allowed to use proposed Form SB-3.  Form SB-3 would

          be available for the same types of transactions as proposed Form

          C and current Form S-4. [232]  Form SB-3 may serve as the proxy

          or information statement used in the proposed transaction, like

          Form C.  A Form SB-3 would be subject to Commission staff review

          and would become effective in the same manner as Form S-4 today.

                         b.   Structure of Form SB-3

               In keeping with other Securities Act registration forms,

          there are two parts to Form SB-3:  information included in the

          prospectus (Part I) and information not included in the

          prospectus (Part II).

                              i.   Part I - Information Required in the

          Prospectus

               The Part I information of Form SB-3 would be the same as the

          Part I information required by Form C.  It would consist of four

          sections:  information about the transaction, information about

          the registrant, information about the company being acquired, and

          voting and management information.

                                   (A)  Information About the Transaction

               The registrant would have to provide the same information

          about the transaction as a registrant on Form C would.

                                   (B)  Information About the Registrant

               This section details the disclosure requirements that apply

          to the registrant.  It includes three different disclosure

          formats, based upon the level of disclosure that the small

          business issuer would have to provide in a primary offering.  We

          are proposing this approach with the larger issuers on Form C as

          well.

                                        (1)  Transitional Small Business

          Issuers

               Certain small business issuers provide non-financial

          statement disclosure in their Exchange Act reports based on Form

          1-A. [233]  Those disclosure requirements are less detailed than

          the Regulation S-B requirements, which apply to all other small

          business issuers.  Form S-4 now permits these registrants to

          provide the same non-financial statement disclosures as they

          would on Form 1-A, so long as the registrants provided the

          information required by Form 1-A in their most recent Form 10-

          KSB.  Proposed Form SB-3 would preserve this option.  This

          alternative would be available only if the registrant would be

          eligible to use Form SB-1.  Form SB-3 requires the registrant to

          supplement the Form 1-A non-financial information with disclosure

          required by certain items of Regulation S-B.  Also, the

          registrant would have to provide the financial statements called

          for by Item 310 of Regulation S-B.

                                        (2)  Seasoned Small Business

          Issuers

               A registrant that would be able to incorporate by reference

          from its Exchange Act reports under the proposed changes to Form

          SB-2 also would be able to incorporate by reference its Exchange

          Act reports under proposed Form SB-3.  Just like seasoned Form A

          issuers on Form C, if the registrant chooses this option, it must

          incorporate by reference into the prospectus, and deliver with

          the prospectus, its latest Exchange Act annual and quarterly

          reports.  Like proposed Form C, Form SB-3 would not permit

          delivery of a company's glossy annual report to security holders

          or a quarterly report to security holders.

                                        (3)  All Other Small Business

          Issuers

               Registrants that are not transitional small business issuers

          or seasoned small business issuers would have to provide the same

          registrant information they are required to by Form S-4 today.  A

          transitional small business issuer or a seasoned small business

          issuer also may elect to comply with this disclosure format.

                                   (C)  Information About the Company Being

                                        Acquired

               Proposed Form SB-3 would require the same information

          required by current Form S-4 and that would be required by

          proposed Form C.  If the company being acquired is a small

          business issuer, information for that company would be provided

          under the same three options available to the registrant on Form

          SB-3.  If the company being acquired is not a small business

          issuer, information for that company would be the same as if it

          were the registrant on Form C.

                                   (D)  Voting and Management Information

               This section of proposed Form SB-3 would mandate disclosure

          the same as that required by Form S-4 and proposed Form C.  If

          the registrant or company being acquired is eligible to

          incorporate by reference, this information also may be

          incorporated.


          **FOOTNOTES**

          [203]:Securities  Act  Release  No.  6949  (July 30, 1992) [57 FR
               36442] (adopting Form SB-2) and Securities  Act  Release No.
               6996 (Apr. 28, 1993) [58 FR 26509] (adopting Form SB-1).

               [204]:These  Exchange  Act forms are:  Form 10-SB (the  form
               used to register a class  of  securities  under the Exchange
               Act); Form 10-KSB (the annual report form);  and Form 10-QSB
               (the   quarterly   report   form).   We  also  revised   the
               requirements  for annual reports  to  security  holders  and
               proxy and information  statements of small business issuers.
               See 17 CFR 240.14a-3(b),  Note to Small Business Issuers; 17
               CFR 240.14c-3(a)(2), Note to  Small Business Issuers; and 17
               CFR 240.14a-101, Note G - Special  Note  for  Small Business
               Issuers.

               [205]:17  CFR 230.405.  Other conditions also must  be  met.
               The issuer must be either a U.S. or Canadian issuer and must
               not be an investment  company  under  the Investment Company
               Act of 1940.  In addition, if the issuer is a majority-owned
               subsidiary of another company, the parent  also  must  be  a
               small business issuer.

               [206]:In 1992, we indicated that 42% of public companies had
               revenues  of  less  than  $25  million  and  63%  had market
               capitalizations  under $25 million.  Securities Act  Release
               No.  6924  (Mar. 20,  1992)  [57  FR  9768].   Today,  these
               percentages have fallen to 31% and 24%, respectively.  (This
               data is derived  from  a Compustat database for 9,698 public
               reporting companies as of June 24, 1998.)  While about 3,600
               public companies met the  $25 million revenues test in 1992,
               only about 3,000 public companies meet that test today.  Our
               analysis   necessarily   excludes   private   companies   as
               information for them is not generally available.

               [207]:See proposed revisions  to Securities Act Rule 405, 17
               CFR 230.405; Exchange Act Rule  12b-2, 17 CFR 240.12b-2; and
               Item 10 of Regulation S-B, 17 CFR 228.10.

               [208]:Currently, almost 4,100 public companies have revenues
               below $50 million.

               [209]:Approximately  42% of public  companies  met  the  $25
               million revenues test  in  1992.   The same percentage would
               meet the $50 million test today.

               [210]:Currently, reporting companies  that  are  not  in the
               small business disclosure system are able to use that system
               only  if  they  meet the revenues and public float tests for
               two consecutive years.   See  17  CFR  228.10(a)(2)(iv).  We
               would alter that treatment for purposes  of  the  transition
               from   the   $25  million  thresholds  to  the  $50  million
               threshold.  Under  our proposals, we would allow a reporting
               company to switch to  the  small  business issuer disclosure
               system  immediately in the first year  after  the  proposals
               become effective if it had revenues of less than $50 million
               for its last  two  fiscal  years.   That transition would be
               allowed  even  if  the  issuer's revenues  for  those  years
               exceeded the current $25  million  threshold  or  the issuer
               exceeded the current public float test in those years.

               [211]:See proposed Item 10(a)(1) of Regulation S-B,  17  CFR
               228.10(a)(1).

               [212]:Section  11  would apply to all documents incorporated
               by reference in Form SB-2.

               [213]:The offering disclosure  requirements are contained in
               proposed Form SB-2, Items 1-10 and 14.

               [214]:Form S-2 currently permits  incorporation by reference
               for small business issuers that meet  certain  requirements.
               See  General  Instruction  II.C. of Form S-2.  The  proposed
               changes to Form SB-2 would preserve  this  option  for these
               issuers.  While small business issuers would be eligible  to
               use  Form  A, use of that Form would involve compliance with
               Regulation S-K  rather  than  reliance on the small business
               issuer disclosure system.

               [215]:See proposed Form SB-2, General Instruction D.

               [216]:See Sections V.A.2.g., V.B.1.a.iii.(A)  and  V.B.4. of
               this  release  which discuss the disqualification provisions
               for  Form  A  and  Form  B  issuers.   The  disqualification
               provisions for those  Forms are the same as we propose under
               Form SB-2.

               [217]:See General Instruction E.2. of proposed Form SB-2, 17
               CFR 239.10.

               [218]:Form  SB-1 is available  for  certain  small  business
               issuers that register no more than $10 million of securities
               during  any  continuous   twelve-month  period.   Form  SB-1
               permits these issuers to provide the non-financial statement
               disclosure required under Regulation  A,  17  CFR  230.251 -
               263.   These  narrative  disclosure  requirements  are  less
               extensive  than  those  of Regulation S-B, which governs the
               disclosure in Form SB-2.

               [219]:See proposed Form SB-2,  Items  11  and  12.   A small
               business  issuer  that  was in the small business disclosure
               system during its last fiscal  year  would  incorporate  its
               annual  report  on  Form  10-KSB.   A reporting company that
               entered the small business disclosure system after the close
               of  its latest fiscal year would be allowed  to  incorporate
               its annual report on Form 10-K or 20-F for its latest fiscal
               year.

               Small  business  issuers,  like larger registrants, have the
               option  of satisfying certain  Exchange  Act  annual  report
               requirements  by  incorporating  portions  of  their  glossy
               annual reports to security holders under Rule 14a-3 or  14c-
               3,  17  CFR  240.14a-3  or 240.14c-3, or definitive proxy or
               information statements filed  under  Regulations 14A or 14C.
               See, for example, Form 10-KSB, General  Instruction E.  If a
               registrant's  Exchange  Act annual report incorporates  from
               those documents, the incorporated  portions also will become
               part of the Form SB-2 through incorporation  of the Exchange
               Act annual report.

               [220]:See proposed Form SB-2, Item 12(a).

               [221]:See proposed Form SB-2, Item 12(b).  The  issuer would
               have to:

               (i)  disclose that the information will be provided  without
                    cost upon oral or written request; and
               (ii) name the contact person who should receive the request.

                    [222]:See proposed Form SB-2, Item 12(c).

               [223]:See proposed Form SB-2, Item 11(e).

               [224]:17  CFR  228.310(c)-(e).   Item  310(c)  requires  the
               financial statements of certain businesses acquired or to be
               acquired.   If  those financial statements are required, pro
               forma financial information also must be provided under Item
               310(d).  Item 310(e)  requires  financial  information about
               certain real estate operations acquired or to be acquired.

               [225]: See proposed Form SB-2, Item 11(d).

               [226]:See  proposed Form SB-2, Item 11(a).  An  issuer  that
               incorporates   sections  of  its  glossy  annual  report  to
               security  holders   or   definitive   proxy  or  information
               statement into its Form 10-KSB also would  have  to  deliver
               those portions together with the prospectus.

               [227]:See proposed Form SB-2, Item 11(c).  If, however,  the
               report  for the most recent fiscal quarter is not due before
               the effective  date  of  the  Form  SB-2,  the  issuer would
               deliver   the   quarterly  report  for  the  fiscal  quarter
               immediately before that one.  It could also elect to deliver
               the later Form 10-QSB  even  though  it is not yet due to be
               filed under Exchange Act rules.

               [228]:See proposed revisions to Form SB-2, Note to Item 12.

               [229]:The  annual  report  to  security  holders   of  small
               business  issuers  must contain the information required  by
               Rule 14a-3(b), 17 CFR 240.14a-3(b).  This includes financial
               statements, changes  in  and disagreements with accountants,
               management's  discussion  and   analysis   or   a   plan  of
               operations,   a   brief   description   of  business,  basic
               management information and market prices  for  the  issuer's
               common  equity and related information.  17 CFR 240.14a-3(b)
               and 17 CFR 240.14c-3(b).

               [230]:For  similar  reasons,  we  do  not propose that small
               business  issuers  deliver  a quarterly report  to  security
               holders instead of the most recently filed Form 10-QSB.

               [231]:General Instruction A.3.  would  be revised because it
               repeats  General Instruction A.2. General  Instruction  B.1.
               would be amended  to  remove the reference to Form SR, which
               was  eliminated  in  September  1997.   See  Securities  Act
               Release No. 7431 (July 18, 1997).

               [232]:See Section V.D.1. of this release for a discussion of
               the transactions required to be registered on Form C.

               [233]:Non-reporting  companies   use  Form  1-A  to  qualify
               securities offered under Regulation  A,  an  exemption  from
               registration under Section 3(b) of the Securities Act.

                                        - 90 -

                              ii.  Part II - Information Not Required in

          the Prospectus

               Proposed Form SB-3 would require information about

          indemnification of directors and officers, exhibits and

          undertakings to be provided in Part II of the registration

          statement, as required by Form S-4 and proposed Form C.

                         c.   Request for Comments

               We request your comments on proposed Form SB-3.  Do you

          believe that a separate form for small business issuers

          registering a business combination or exchange offer is

          necessary?  Would it be better to include small business issuers

          on proposed Form C?  We propose to allow a small business

          issuer's acquisition of a company that is not a small business

          issuer on Form SB-3.  Is this appropriate or should those

          transactions be filed on Form C?

                    5.   Small Business Issuers that Become Reporting

          Companies

               Another way in which we would ease capital formation for

          small business issuers is to solve a dilemma that arises at times

          when they seek to register an offering for the first time.

          Generally, small business issuers have made exempt offerings of

          securities before they first register an offering.  Sometimes

          those offerings are made under Rule 504 of Regulation D under the

          Securities Act. [234]  Rule 504 states that an issuer subject to

          the reporting requirements of Section 13 or 15(d) may not rely on

          the Rule.

               That prohibition on reliance by reporting companies has

          raised registration concerns for companies that issue convertible

          securities or warrants in compliance with Rule 504 and afterwards

          become reporting companies. [235]  If their convertible

          securities or warrants remain outstanding at the time they become

          reporting companies, the ongoing offer and sale of the underlying

          securities would no longer be covered by Rule 504.  Sometimes a

          reporting issuer can rely on another exemption with respect to

          the continuing offer and the sale of the underlying securities.

          [236]  If not, the reporting issuer can face the difficult

          situation of having no exemption and being unable to register the

          offering of the underlying securities because it has offered the

          securities before filing a registration statement. [237]

               We are concerned that an issuer would lose the Rule 504

          exemption for the underlying securities in these circumstances

          solely because the issuer has become a reporting company.  In

          fact, holders of convertible securities or warrants may benefit

          from that transition.  They may have access to more information

          about the issuer if it is a reporting company.  Greater access to

          information always assists investors that have to make investment

          decisions.

               Accordingly, we propose to revise Rule 504 to provide that

          the status of the issuer as a reporting company does not prevent

          it from relying on the Rule for the issuance of securities

          underlying convertible securities and warrants that it previously

          offered in compliance with the Rule when it was not a reporting

          company. [238]  If the issuer becomes unable to rely on Rule 504

          for any reason other than the fact that it became a reporting

          company, Rule 504 would not be available.

               Under this proposal, a reporting company would be able to

          rely on Rule 504 only for the conversion or exercise of

          securities if they were offered pursuant to Rule 504.  Thus,

          before the issuer became subject to the reporting requirements,

          the convertible securities or warrants would have to have been:

               1.   immediately convertible or exercisable; or

               2.   convertible or exercisable within a year.

               We solicit comment on this change to Rule 504.  We seek

          comment about whether we should permit a reporting company to

          rely on Rule 504 for the offer and sale of securities underlying

          convertible securities or warrants regardless of when they become

          convertible or exercisable.  For example, should Rule 504 apply

          to the offer and sale of underlying securities if the issuer

          becomes a reporting company one year after issuing warrants under

          Rule 504 that were not exercisable for three years?

               Are there reasons to limit reliance on the Rule to a certain

          period of time after the issuer becomes a reporting company?

          Should we not allow an issuer to rely on the Rule for the

          exercise or conversion if the issuer sold the warrants or

          convertible securities when it could have foreseen that it was

          about to become a reporting company?  For example, should we

          extend Rule 504 to securities underlying warrants and convertible

          securities only if the issuer sold them more than six months (or

          three months) before becoming a reporting company?

                    6.   Small Business Issuer Registration Fees

               We also seek to ease the registration process for small

          business issuers in recognition of unique difficulties they may

          face due to their size.  We are proposing rule revisions that

          would permit small business issuers filing on small business

          registration statement forms to delay payment of the Commission

          registration statement filing fee until shortly before

          effectiveness. [239]  These issuers often face substantial

          liquidity problems due to their smaller size.  The cost of

          preparing and filing a registration statement is a relatively

          expensive endeavor for many small business issuers.  Those costs

          may deplete the issuer's liquid resources.  By delaying fee

          payment, these issuers will have extra time, at least for this

          portion of the offering expenses, to generate funds to pay the

          fees.  This should help ease registration for these issuers.

          [240]

               The amount of securities that a small business issuer is

          able to sell in a registered offering may not be determined until

          well after the public offering begins and the issuer can assess

          investor interest.  It is not uncommon that small business

          issuers have to scale back the amount of its offering.  If the

          issuer were not required to pay the fee until shortly before

          effectiveness, it would more likely be able to pay only the fee

          on the amount of securities that will be sold in the offering.

               Under the proposals, a small business issuer that wishes to

          delay fee payment would have to include a Rule 473(a) delaying

          amendment in its registration statement.  It also would have to

          include an undertaking in the registration statement to pay the

          fee no later than the day on which it submits a request for

          acceleration of effectiveness of the registration statement.  If

          a small business issuer files a pre-effective amendment stating

          that the registration statement shall thereafter become effective

          under Section 8(a) of the Securities Act (deleted the delaying

          amendment), it would have to pay the fee no later than the date

          the amendment is filed.  If no fee is paid at that time, the pre-

          effective amendment would not be considered filed.  Where a small

          business issuer makes an initial filing of a registration

          statement without the Rule 473(a) delaying amendment, it must pay

          the registration fee in order for the registration statement to

          be considered filed.  If no fee is paid at that time, the

          registration statement would not be deemed filed.

               We request your comments on this proposed rule change.

          Should fee payments by small business issuers be delayed until

          shortly before effectiveness?  If not, why not?  Should this

          alternative be available to all small business issuers or only

          some category of those issuers, such as non-reporting small

          business issuers?  Should this option be allowed for registration

          statements filed by blank check companies, blind pool companies,

          or other issuers?  Should this option be allowed for all issuers

          that file on a registration form that is not effective at the

          issuer's discretion, whether or not the issuer is a small

          business issuer? [241]  Would the Commission staff be inundated

          with filings by persons who were not necessarily sincere about

          going forward with offerings?  If so, should we require a good

          faith down payment of the filing fee?

               F.   MJDS Issuers

               In 1991, the Commission adopted rules and forms to create a

          multijurisdictional disclosure system ("MJDS") with Canada.  The

          Commission's purpose was to facilitate cross-border securities

          offerings and periodic reporting by eligible Canadian

          issuers. [242]  The MJDS allows eligible Canadian issuers to

          satisfy registration and reporting requirements under the

          Securities Act and the Exchange Act by providing the Commission

          with disclosure documents prepared under Canadian securities law.

          At the time the Commission adopted the MJDS, Canada's securities

          administrators adopted a parallel multijurisdictional disclosure

          system for U.S. issuers.  Together, the systems provide that

          issuers in the United States and Canada are principally subject

          to the specific disclosure requirements of only their home

          country when making securities offerings in the other country.

               The MJDS may be used only for certain kinds of

          transactions, [243] and only by issuers that meet the issuer

          eligibility requirements related to those transactions.  Issuer

          eligibility requirements under the MJDS vary depending on the

          transaction being registered.  One requirement is that an issuer

          have a minimum public float.  To register an exchange offer or

          business combination under the MJDS, an issuer must have a public

          float of (CN) $75 million (Canadian dollars). [244]  To use the

          MJDS to register an offering of investment grade securities or to

          register any securities offering by a larger issuer, the issuer

          must have a public float of at least (US) $75 million. [245]

          Registration under the Exchange Act also may be accomplished

          under the MJDS by a Canadian issuer if it has a public float of

          at least (US) $75 million.  The minimum float requirements were

          designed so that the MJDS would be used by issuers that were

          well-known and widely followed by the market. [246]  Those

          issuers are the same type we would allow to use proposed Form B

          for any offering.  We are therefore proposing to replace the

          public float tests under the MJDS with the same public float/ADTV

          thresholds proposed for Form B. [247]

               A Canadian foreign private issuer that meets the other

          issuer eligibility criteria under the MJDS therefore would be

          eligible to use it if:

               1.   Its public float is (US) $75 million or more and the
                    ADTV of its equity securities is $1 million or more; or

               2.   The issuer's public float is (US) $250 million or more.

               With the combined public float/ADTV test, some issuers may

          find that the proposed thresholds are more difficult to satisfy

          than the current MJDS public float test.  The proposed thresholds

          also would have an effect on issuers seeking to register an

          exchange offer or a business combination because the float would

          be measured in U.S. dollars instead of Canadian dollars.  Because

          the other public float requirements under the MJDS are measured

          in U.S. dollars, the proposal would have less of an impact on

          those transactions.

                Despite the possibility that the new eligibility thresholds

          may preclude some Canadian issuers from using the MJDS, we

          believe that the reasons that support the proposed thresholds for

          Form B issuers, as explained above, also support the proposed

          thresholds for MJDS issuers.  Accordingly, we propose to revise

          the public float tests in Forms F-8, F-9, F-10, F-80, and 40-F to

          conform to the proposed public float/ADTV thresholds for Form B.

               We solicit your comment on this proposal.  Should we

          continue to express the proposed public float/ADTV requirements

          for business combinations and exchange offers in Canadian dollars

          rather than in U.S. dollars?  Would the higher proposed

          thresholds allow too few Canadian companies to use the MJDS

          system?  Should the proposed revisions apply to some but not all

          of the MJDS forms?  If so, which ones?

               The proposals in this release also would affect MJDS issuers

          in another way.  Form B requires that the issuer previously have

          filed at least one annual report on Form 10-K or Form 20-F and

          have registered an offering of securities under the Securities

          Act using a form other than those, such as the MJDS Securities

          Act forms, that become effective automatically upon filing.  As a

          result of these requirements, Canadian issuers who file annual

          reports on Form 40-F or whose previous offerings have been

          registered under the Securities Act on MJDS forms will not be

          eligible to use Form B.  If we permitted a Canadian issuer to use

          filings under MJDS as the basis for Form B eligibility, the

          issuer could access our markets both initially and on a

          continuing basis without the Commission staff ever reviewing any

          of its disclosure documents.  Thus, we propose to exclude MJDS

          forms in determining eligibility.  Consequently, Canadian issuers

          would need to plan in advance which registration or reporting

          forms to use under the Securities Act and the Exchange Act,

          because they would not be able move back and forth between the

          MJDS and non-MJDS systems as easily as is currently possible.  We

          solicit comment on this aspect of Form B.  In addition, in view

          of the fact that Form B will provide some of the same benefits as

          the MJDS, in terms of ease of access to the market, should some

          or all of the MJDS forms be eliminated in favor of the system

          proposed in this release?  If only some MJDS forms should be

          eliminated, which ones?

               G.   Foreign Government Issuers

               Proposed Rule 462 would permit certain seasoned foreign

          government issuers that file registration statements on Schedule

          B to designate the date and time of the effectiveness of their

          registration statements by checking a box on the cover page of

          their Schedules. [248]  The issuer could designate that the

          registration statement be effective automatically upon filing,

          upon any date and time it specifies, or as designated in a later

          amendment.  Registration statements filed in reliance on the Rule

          would not be subject to Commission review.

               Rule 462 would only be available to foreign government

          issuers that were registering on Schedule B an offering of at

          least $250 million that also was underwritten on a firm

          commitment basis. [249]  These issuers also would be required to

          have a history of registering under the Securities Act.  To use

          Rule 462, a foreign government issuer would have to have

          registered an offering under the Securities Act within the three

          most recent years.

               The prior registration requirements would guarantee that

          some public information would be available before a foreign

          government issuer could rely on the Rule.  It also would give the

          issuer an opportunity to become comfortable with the registration

          process and disclosure standards of the federal securities laws.

               The basis for extending automatic effectiveness to these

          issuers rests on the concept that offerings by seasoned, well-

          known issuers attract market, analyst and investor attention and

          recognition.  We believe that most investors and analysts would

          have familiarity with these foreign governments due to their

          nature and size.  The firm commitment underwritten $250 million

          offering criteria should ensure that their offering also attract

          significant market, analyst and investor attention.  We believe

          the prior filing requirement would ensure that these issuers had

          some experience with registration under the Securities Act.

          These factors would result, we believe, in the generation and

          dissemination of current public information about the foreign

          government issuers and their offerings.  In this respect, they

          would be similar to the classes of issuers to which we would

          extend Form B.  We are therefore proposing that, like Form B

          issuers, these Schedule B issuers may designate the effectiveness

          of their registration statements.

               We seek comment on this proposal.  Should we raise the

          proposed effectiveness rule's offering threshold to something

          around $500 million or lower it to something around $150 million?

          Should we require that a foreign government issuer have

          registered an offering under the Securities Act within 5 years

          rather than within three years?  Should we allow any filing by a

          foreign sovereign government issuer, other than its initial

          registered offering, to be effective immediately upon filing?

          Should other non-financial factors affect the foreign government

          issuer's ability to designate the effectiveness of its

          registration statement?

               H.   Exxon Capital Transactions

               If the Commission decides to adopt these proposals, the

          staff of the Division of Corporation Finance would repeal the

          line of interpretive letters concerning Exxon Capital exchange

          offers. [250]  These interpretive letters allow issuers to sell

          certain securities in a private offering and shortly thereafter

          register an offering of substantially identical securities in

          exchange for those securities privately placed.  Issuers use this

          procedure, in part, because it allows them to avoid the delay

          associated with registration.  Since July 1, 1998, more than one-

          third of all initial public offerings have been Exxon Capital

          exchanges.

               Under these interpretive letters, investors that participate

          in the exchange may resell their new securities without complying

          with registration or prospectus delivery requirements of the

          Securities Act.  Prior to these letters, privately placed

          securities could be registered only for resale, which provides

          investors with the protection of prospectus delivery requirements

          and subjects the sellers to the liability provisions of Sections

          12(a)(2) and 17(a) of the Securities Act and, if deemed

          underwriters, Section 11 of the Securities Act. [251]

               These proposals would create a registration system that

          captures the speed and flexibility associated with private

          offerings while retaining the benefits of registration for

          investors.  Private placements would no longer be an issuer's

          main choice when needing to complete an offering quickly.  Delays

          commonly associated with registration would no longer exist for

          Form B issuers and for medium size Form A issuers.  Their

          registration statements would not be subject to prior staff

          review.  Moreover, if such an issuer chooses, its registration

          statement could be effective upon filing.

               The proposed registration system does not exclude the small

          issuer from these benefits.  Small issuers that do not meet the

          public float requirement of Form B or the float level on Form A

          to allow control over effectiveness would be able to use Form B

          to registered an offering if they sell only to QIBs.  Given the

          nature of the purchasers contemplated in the Exxon Capital line

          of letters, allowing small issuers to register sales to QIBs on

          Form B would allow those issuers much of the same flexibility the

          Exxon Capital structure gives them today.

               Elimination of this line of interpretive letters would

          eliminate the ability of these smaller issuers to rely on the

          Exxon Capital line of interpretive letters for sales to non-QIBs.

          This limitation seems appropriate, as it aligns with our views

          regarding registered offerings by these issuers to QIBs and the

          need for additional protections for non-QIBs in offerings by

          these smaller issuers.  Accordingly, we concur with the belief of

          the Division of Corporation Finance that the Exxon Capital line

          of interpretive letters should be repealed upon adoption of

          reforms to the registration system.  Comment is solicited with

          regard to whether the Exxon Capital line of letters should be

          repealed sooner or regardless of whether any reform to the

          registration statement is adopted.


          **FOOTNOTES**

          [234]:17  CFR  230.504.   That  Rule  provides  an exemption from
               registration   for   securities   offerings   not  exceeding
               $1,000,000 within a 12-month period.

               [235]:An issuer may become an Exchange Act reporting company
               in a number of ways.  Usually, companies become  subject  to
               the  reporting  requirements either because they register an
               offering  of  securities  under  the  Securities  Act,  they
               register a class of securities under the Exchange Act before
               listing or quotation,  or  they exceed the number of holders
               and assets tests in Exchange Act Section 12(g).

               [236]:Under many circumstances, the Section 3(a)(9)
               exemption would be available for the issuance of securities
               pursuant to a conversion.  Section 3(a)(9) does not
               generally apply, however, to the exercise of warrants
               because the exemption is for exchanges by the issuer of
               securities with its existing security holders and is not
               available where a commission or remuneration is paid or
               given directly or indirectly for soliciting the exchange.

               [237]:Offers of the underlying securities occur upon
               issuance of the convertible security or warrant where
               convertible or exercisable within one year.  Also, offers of
               the underlying securities continue until the conversion or
               exercise has occurred or the conversion or exercise period
               has ended.

               [238]:See proposed revisions to Securities Act Rule 504(a),
               17 CFR 230.504(a).

               [239]:See proposed revisions to Securities Act Rule 456, 17
               CFR 230.456.

               [240]:Until recently, the Commission has had little
               flexibility to change the timing of registration fee
               payments under the Securities Act.  Section 6(b)(2) of the
               Securities Act, 15 U.S.C. ง77f(b)(2), provides that
               registration fees must be paid when a registration statement
               is filed.  That section also says that a registration
               statement will not be deemed filed unless the fee has been
               paid. 15 U.S.C. ง77f(c).  NSMIA revised Section 4(e) of the
               Exchange Act, 15 U.S.C. ง78d(e), to allow the Commission
               flexibility to specify the time that fee payments are due
               relative to filings with the Commission.

               [241]:For example, Schedule B and the following Forms would
               not always become effective at the issuer's discretion:  A,
               C, F-8, F-9, F-10 and F-80.

               [242]:Securities Act Release No. 6902 (June 21, 1991) [56 FR
               30036].

               [243]:Generally, the transactions permitted under the MJDS
               include: issuance of securities upon exercise of rights
               offered to existing shareholders; issuance of securities
               pursuant to an exchange offer or business combination
               requiring shareholder vote; issuance of investment grade
               debt or preferred securities; and securities offerings by
               larger issuers.

               [244]:Issuer exchange offers do not require a minimum public
               float.

               [245]:That float test is not applicable for offerings of
               non-convertible investment grade securities.

               [246]:When the Commission last revised the public float
               thresholds in the MJDS, we specifically noted that the MJDS
               public float test was meant to parallel the Form S-3 public
               float test.  Securities Act Release No. 7025 (Nov. 3, 1993)
               [58 FR 62028].

               [247]:The proposed revisions would not add a public float
               requirement for any transaction registered under the MJDS
               that does not currently require one.

               [248]:See proposed Securities Act Rule 462(f)(1) and (f)(2),
               17 CFR 230.462(f)(1) and 230.462(f)(2).

               [249]:For a delayed shelf offering, the $250 million would
               be measured based on what is registered at the outset, not
               what is offered in any single takedown.

               [250]:See, e.g., Exxon Capital Holdings Corp. (May 13,
               1988); Morgan Stanley & Co. Inc. (Mar. 27, 1991); Mary Kay
               Cosmetics, Inc. (June 5, 1991); Shearman & Sterling (July 2,
               1993); Brown & Wood LLP (Feb. 5, 1997).

               [251]:The basic premise underlying the Exxon Capital line of
               interpretive letters is that the securities exchanged in
               reliance on those letters would remain in the institutional
               investor secondary market.

                                        - 91 -

               I.   The Offset of Filing Fees and Other Technical Changes
                    to the Calculation of Filing Fees

               In 1995, the Commission expanded Rule 429 [252] to provide a

          mechanism for issuers to offset the payment of a registration

          statement filing fee with fees that were previously paid. [253]

          The amount available for use as an offset under Rule 429 equals

          the portion of the filing fee previously paid that is associated

          with any unsold securities registered on an earlier registration

          statement.  Once a filing fee has been used as an offset, those

          unsold securities on the earlier registration statement are

          deemed deregistered.  This change has proved to be beneficial to

          issuers.

               Rule 429, however, also provides for the use of a combined

          prospectus for multiple offerings.  At times, the combination of

          fee offset procedures and combined prospectus procedures in the

          same rule has resulted in confusion as to whether an issuer is

          offsetting fees or is combining prospectuses.  To avoid that

          confusion, we propose to move the fee offset procedures into Rule

          457, which currently deals with fee payment. [254]

               We also propose revisions to the fee offset procedures to

          allow issuers to offset filing fees on more occasions.

          Currently, fee offset is not possible if the issuer withdraws the

          earlier registration statement.  Under the proposals, we would

          allow issuers to offset a registration statement filing fee in

          the same manner regardless of whether it withdraws the

          registration statement.  To assist the Commission in tracking the

          payment of filing fees and allow for more accurate estimates of

          future filing fee payments, the proposals would provide that any

          offset must occur within five years of the completion or

          termination of the initial registration statement.

               We also are proposing to amend Rule 457 to codify certain

          staff interpretations as follows:

               (i)  no additional filing fee would be required to be paid

          for a resale offering of securities, where such securities were

          received and a filing fee was paid, in connection with a

          registered offering involving an exchange, reclassification or

          recapitalization; [255]

               (ii) we would not require payment of a filing fee for the

          registration of an indeterminate amount of securities to be

          offered solely for market making purposes by an affiliate of the

          issuer; [256]  and

               (iii) in offerings by selling security holders, the issuer

          may calculate the filing fee using the total aggregate dollar

          amount to be offered, rather than setting forth the number of

          securities and information based on that just as in offerings

          where issuers are selling. [257]

               J.   Solicitation of Comments Regarding Offerings of
                    Asset-Backed Securities Offerings

               Currently, issuers (i.e., trusts or other limited purpose

          entities) and registrants (i.e., sponsors, servicers or

          depositors) may register an offering of investment grade asset-

          backed securities on Form S-3 whether or not they are subject to

          the Exchange Act's reporting requirements.  Form S-3 does not

          require an issuer or registrant of investment grade asset-backed

          securities to have been reporting under the Exchange Act because

          asset-backed securities are valued primarily on the pool of

          assets chosen, not on an issuer or registrant's limited

          operations. [258]  Moreover, historical Exchange Act reports

          filed by the issuer or registrant of asset-backed securities

          generally are viewed as of little assistance to investors since

          such reports would reflect the results of a different pool of

          assets than those backing the securities being offered.

          Investors of asset-backed securities often look to a nationally

          recognized statistical rating organization's (NRSRO) ratings when

          making their investment decisions.

               As proposed, neither Form B nor Form A is designated for use

          in registering offerings of asset-backed securities. [259]  The

          Commission staff is engaged in an ongoing project to consider

          development of disclosure and registration requirements

          specifically related to asset-backed securities.  The Commission

          staff intends to develop proposals with respect to asset-backed

          securities offerings in connection with that project.  To gather

          more information, we solicit comment about the treatment of these

          types of offerings in relation to the proposals in this release.

               Overall, should treatment of asset-backed securities

          offerings be the same as or similar to treatment of Form A

          offerings or Form B offerings?  Should we continue to distinguish

          asset-backed securities on the basis of whether or not they are

          investment grade securities?  Should offerings of investment

          grade asset-backed securities be treated more like Form B

          offerings and other asset-backed securities offerings be treated

          more like Form A offerings?  Should we require that one or more

          NRSROs have rated the securities?

               Should the Commission give registrants in some asset-backed

          offerings greater freedom to craft disclosure about the offering

          without binding them to all of the itemized disclosure in

          Regulation S-K?  If so, how should the mandated items differ from

          the ones mandated in Form B?  Should the Commission craft a

          separate regulation setting forth mandated asset-backed offering

          disclosure items?  Should communications restrictions applicable

          before filing a registration statement and during the

          registration process be more akin to those applicable to

          offerings on Form A, Form B or neither?

               Should the Commission preserve staff review for all asset-

          backed offerings or are there categories of such offerings that

          the Commission need not review for the purpose of investor

          protection?  Should the Commission allow the registrant to

          control effectiveness in any category of asset-backed offerings?

          Should delivery requirements with respect to asset-backed

          offerings resemble delivery obligations of Form A offerings, Form

          B offerings or neither?


          **FOOTNOTES**

          [252]:17 CFR 230.429.

               [253]:Securities Act Release No. 7168 (May 11, 1995).

               [254]:See proposed Rule 457(p), 17 CFR 230.457(p).

               [255]: See proposed Rule 457(f)(5), 17 CFR 230.457(f)(5).

               [256]:See proposed Rule 457(q), 17 CFR 230.457(q).

               [257]:See proposed Rule 457(o), 17 CFR 230.457(o).

               [258]:See Securities Act Release 6964 (October 22, 1992) [57
               FR 56248].

               [259]:Form S-3 has permitted  the registration of investment
               grade asset-backed securities since  1992.   See  Securities
               Act Release No. 6964 (Oct. 22, 1992).

                                        - 92 -

          VI.  CONCURRENT EXCHANGE ACT REGISTRATION

               We are proposing to permit an issuer to register

          concurrently both an offering under the Securities Act and a

          class of securities under the Exchange Act on Form A, Form B,

          Form C, Form SB-1, Form SB-2, Form SB-3 and Schedule B. [260]  A

          reporting company can register a class of securities under the

          Exchange Act on a short-form registration statement: Form 8-

          A. [261]  Form 8-A requires a description of the registrant's

          securities and the filing as exhibits of documents defining the

          rights of security holders. [262]  Current rules require

          companies that are registering both an offering of securities

          under the Securities Act and a class of securities under the

          Exchange Act to file two forms: the Securities Act registration

          statement and the Form 8-A.  Because the proposed Securities Act

          forms should contain all of the necessary information, we propose

          to eliminate the Form 8-A filing requirement when the registrant

          files one of those Securities Act registration statements at that

          time. [263]

               To allow concurrent registration, those registration Forms

          would have boxes on the facing page for registrants to check to

          indicate that Exchange Act registration should be concurrent.

          The registrant would include the title of the class of securities

          to be registered and the exchange or market on which the

          securities are to be listed or traded.  We also are proposing a

          new rule to permit foreign governments and their political

          subdivisions that register securities offerings on Schedule B to

          register concurrently under the Exchange Act. [264]  If these

          issuers seek concurrent Exchange Act registration, they must

          include the same paragraph and table on the facing page of their

          Schedule B registration statements that appear on the Securities

          Act registration statements for which we will have adopted forms.

               We request comment on these concurrent registration

          proposals.  Are there offerings for which concurrent registration

          should not be available because the securities description in the

          Securities Act registration statement would not be

          adequate? [265]

          VII. COMMUNICATIONS DURING THE OFFERING PROCESS

               The Securities Act restricts the types of offering

          communications that a registrant may use during the time it is

          engaged in a registered public offering of its securities. [266]

          The level of restrictions depends on the period during which the

          communications occur.  The Securities Act creates three distinct

          periods in the registered offering process.  The first period

          occurs before a registrant files a registration statement with

          the Commission and is commonly called the "pre-filing period."

          The second period starts with the filing of the registration

          statement and ends with the effectiveness of that registration

          statement and is commonly called the "waiting period."  The third

          period follows the effective date of the registration statement.

          That period is commonly called the "post-effective period."

               During the pre-filing period, the Securities Act prohibits

          the registrant from making any interstate offers or sales of the

          securities. [267]  During the waiting period, the registrant may

          make certain types of offers (but not sales).  Offers made in

          writing, by radio or by television must conform to the

          information requirements of Section 10 of the Securities Act.

          Thus, the Securities Act prohibits the use of supplemental sales

          literature ("free writing") during the waiting period.

          Generally, issuers and underwriters make written offers during

          the waiting period by means of a preliminary prospectus which

          must be filed with the Commission.  Person-to-person oral offers

          also are allowed during this period and, unlike widely

          disseminated communications such as radio or television

          broadcasts, do not have to satisfy the informational requirements

          of Section 10.  During the post-effective period, the registrant

          may use any materials to offer the securities [268] but only if

          it delivers the final prospectus before or with those

          materials. [269]  It also may sell the securities.

               Congress designed these limitations so that the prospectus

          would be the primary means for investors to obtain information

          during the waiting period regarding an offering of securities.

          Congress' goal was to prevent high pressure sales practices and

          to provide investors with an opportunity to become familiar with

          the investment being offered. [270]  In fact, the Securities Act

          originally prohibited both oral and written offers during the

          waiting period. [271]  While that prohibition succeeded in

          limiting high pressure sales practices, it also limited the time

          in which investors could become familiar with the investment so

          as to make an unhurried decision regarding the merits of the

          securities. [272]  That limitation ultimately was revised by

          Congress in 1954 in favor of permitting certain offers during the

          waiting period. [273]

               The statutory regulation of communications during the pre-

          filing and waiting periods has not changed since those 1954

          amendments.  Our capital markets, however, have changed

          significantly.  For example, there have been major advancements

          in technology and communication media since 1954.  There have

          been many more offerings of increasingly complex and synthetic or

          hybrid securities.  The trends towards globalization of

          securities markets and multinationalization of issuers and

          offerings have continued.  Among others, these changes have

          increasingly created conflicts between communications mechanisms

          to which markets have become accustomed and the restrictions

          placed by the Securities Act on communications around the time of

          a registered offering.

               The Commission continues to believe that the Securities Act

          goals of preventing high pressure sales practices and providing

          investors with the time and opportunity to familiarize themselves

          with investment opportunities continue to be important today.  We

          believe, however, that the means by which to effectuate those

          goals can be shaped to facilitate capital formation better and to

          provide more information on a more timely basis to investors.  We

          do not believe it is appropriate to unnecessarily hinder

          communications when allowing them would provide benefits to

          investors and issuers as well as reflect current practices and

          realities.

                A.  Issuer Communications Relating to a Registered Offering

                    1.   The Pre-Filing Period

                         a.   Form B Registrants

                 Today, the largest public companies are followed by

          numerous analysts that actively seek new information on a

          continual basis. [274]  Unlike smaller and less mature companies,

          large public companies tend to have a regular dialogue with

          investors and market participants through the press and other

          media.  Companies in which there is a wide interest are called

          upon to release more information about their activities more

          often than is expected of lesser-known companies.  The markets

          also absorb information disclosed about these companies at a

          rapid rate. [275]  Technological innovations that permit

          instantaneous communications are a driving force behind this

          decade's securities market.

               Given the abundance of readily accessible information about

          large, seasoned public companies, any communications made by them

          while in the process of registering an offering are less likely

          to have a significant impact by conditioning the market or

          stimulating interest in a proposed offering. [276]  Accordingly,

          we are proposing to remove the restrictions on offering

          communications by those companies during the pre-filing period.

          [277]  We are proposing an exemption to provide that offers may

          be made in the pre-filing period. [278]

               For a large, seasoned company to rely on the proposed

          exemption for any offering, it must have filed all of its

          periodic reports under the Exchange Act for at least one year on

          a timely basis and have filed at least one annual report.  It

          also must have either:

               1.   a public float with a market value of at least $250

                    million; or

               2.   a public float with a market value of at least $75
                    million and the average daily trading volume for its
                    equity shares of at least $1 million.

          These mirror the eligibility criteria for Form B registration by

          large well-followed issuers discussed earlier.

               The proposed registration system also contemplates use of

          Form B for offerings by smaller issuers that do not meet Form B's

          public float and ADTV eligibility tests.  Those offerings would

          be limited to: offerings solely to QIBs; [279] offerings to

          certain existing shareholders; [280] offerings of investment

          grade securities; offerings of certain investment grade asset-

          backed securities; and offerings in connection with market making

          transactions.  We propose to treat these Form B issuers in the

          same manner as we would treat large seasoned issuers that would

          register their offerings on Form B.  Accordingly, their ability

          to offer registered securities also would not be contingent on

          the prior filing of the registration statement for the

          offering. [281]

               These offerings would be directed mainly to existing

          shareholders of the issuer, such as under a DRIP, or to investors

          that, because of their status, have unique access to information

          about the issuer, such as a QIB.  Offerees that have an existing

          connection with, or a prior investment in, the issuer could be

          presumed to follow the issuer in order to monitor their

          investment. [282]

               In the case of DRIPs, the participant already has made an

          investment decision about the issuer -- to participate in the

          DRIP -- thus, the investor would be likely to obtain information

          about the issuer both on its own and from the issuer.  We believe

          the investors in these Form B offerings, due to their experience

          or nature, would be less susceptible than other investors to

          pre-filing hype about a new offering by the issuer. [283]  Thus,

          the investor protection concerns that are associated with the

          prohibition against offers before the registration statement is

          filed are lessened.

               Similarly, investors that are able to obtain information

          because they are able to influence the issuer to provide them

          with it, such as QIBs, may not need the protections that would

          flow from a prohibition of pre-filing communications.  If an

          issuer makes statements about an upcoming offering before it

          files its Form B for the offering, the QIB is more likely than

          other investors to be in a position to insist that the issuer

          explain any information the issuer disseminated before filing.

          It also would be sophisticated enough to recognize the value of

          waiting until it has a prospectus before making an investment

          decision.

               Moreover, the free communications proposal would not extend

          to any issuer that had not previously registered with the

          Commission.  We also would require that the issuer be reporting

          in a timely manner for at least the one year before filing an

          offering on Form B.  The reporting requirements would serve the

          purpose of ensuring that material information about the issuer

          would be publicly available.  An investor could use that, and

          whatever other information it may gather, to gauge any

          communications by the issuer before the registration statement

          filing.

               We solicit comment on the proposal to allow Form B

          registrants to communicate freely before filing a registration

          statement.  Is Form B the proper standard or should the treatment

          be limited only to some subset of Form B offerings, such as those

          meeting the public float/ADTV tests.  For these purposes, should

          a minimum average daily trading volume also be required for

          companies with a public float of at least $250 million?  Should

          companies be subject to the reporting requirements for a longer

          period of time, such as two  years?

               Does the likelihood of market conditioning based on pre-

          filing communications depend upon the security being issued or

          the transaction being registered?  Does the likelihood of market

          conditioning depend on the trading market for the securities?  If

          so, should the issuer's trading market be an element of the test

          for when pre-filing communications restrictions are lifted?

          Should the nature of the securities offered affect whether pre-

          filing communications should be restricted in any manner?  If

          offering materials are used before filing a registration

          statement, should certain information be required to be disclosed

          therein?

               While Section 5 of the Securities Act prohibits both offers

          to sell and solicitations of offers to buy a security before a

          registration statement is filed, Section 2(a)(3) of the Act

          exempts preliminary negotiations or agreements between the issuer

          and any underwriter, and among underwriters.  During that period,

          negotiation of the financing may proceed, but steps may not be

          taken to form a selling group.  Dealers may not make offers to

          buy the securities and underwriters and issuers may not offer to

          sell them to dealers during that period.  Congress created this

          limitation in part to limit the pressure it believed could be

          brought to bear on dealers to rush their orders. [284]  Congress

          also expressed its concern that market participants would

          overstimulate the demand for a company's securities and then

          pressure that company to issue such securities. [285]

          Consequently, Section 5 also prevents all pre-filing marketing of

          public offerings by underwriters and dealers.

               Under our proposal, before the filing of a Form B, dealers

          could make offers to buy, and issuers and underwriters could make

          offers to sell to dealers.  Underwriters and dealers could market

          the securities before the filing of the Form B.  Comment is

          requested on these aspects of the communications proposals.  In

          today's markets, could issuers and underwriters unduly pressure

          dealers to accept an allotment of securities without the

          opportunity to scrutinize the registration statement?  Similarly,

          could underwriters and dealers unduly pressure corporations to

          issue securities by marketing a company's securities before the

          issuer wished it to happen?  If so, what other safeguards would

          protect against undue pressure?

                         b.   Foreign Governments

               We also propose to allow a seasoned foreign government

          issuer to communicate freely before filing a registration

          statement for an offering of securities that exceeds $250 million

          and that is underwritten on a firm commitment basis. [286]  We

          would deem a foreign government issuer to be seasoned if one year

          has passed since the date of effectiveness of its initial public

          offering. [287]  We believe that, generally, there is abundant

          public information, investor awareness and market following

          relating to seasoned foreign government issuers that make large

          public offerings.  At and around the time of such an offering,

          sufficient market coverage appears virtually assured.  Therefore,

          we propose to allow large and seasoned foreign government issuers

          to freely communicate during the pre-filing period.

               Smaller offerings by unseasoned foreign government issuers

          may not attract significant market attention.  Such an issuer

          should limit its pre-filing communications to avoid situations

          where the only public information available about the issuer or

          its offering before it files its registration statement is the

          information that the issuer disseminated for purposes of the

          offering.  When the catalysts for public dissemination of

          information from sources like analysts or other securities

          experts are missing, we believe the best way for us to protect

          investors is to limit the communications of unseasoned foreign

          government issuers that make smaller offerings in the same way we

          would limit the communications of Form A issuers.  If a foreign

          government issuer is registering its initial public offering or

          is registering an offering of securities that is less than $250

          million or that is not being underwritten on a firm commitment

          basis, the issuer would be subject to the same 30-day limited

          communications period applicable to Form A registrants. [288]

          Smaller unseasoned foreign government issuers may rely on safe

          harbors to make announcements during that period, such as factual

          business information [289] or Rule 135 offering notices. [290]

                         c.   All Other Registrants

               Under existing regulations, not all public communications by

          an issuer are prohibited before and during a registered offering.

          The line between communications that are permissible and those

          that are not, however, is not always easy to perceive.  Over the

          years, the Commission has attempted to address this issue in

          several releases.

               In 1969, the Commission stated that, while a company is "in

          registration":

               disclosure of a material event would ordinarily not be 
               subject to restrictions under Section 5 of the Securities Act if
               it is purely factual and does not include predictions or opinions. [291]

          The release qualified that guidance, however, by stating that

          "[a]lthough the matters discussed herein reflect the policies and

          practices which the staff of the Commission will follow, they do

          not represent rules of the Commission.  Accordingly, these

          interpretations are subject to change based on experience in

          their application...."

               Two years later, the Commission published another release on

          communications. [292]  That release stated, in the context of

          companies refusing to answer legitimate inquiries, that "the

          practice of non-disclosure of factual information by a publicly

          held company on the grounds that it has securities in

          registration" [293] is not justified by securities laws or

          Commission policy.  In the same release, however, the Commission

          indicated that neither a company in registration nor persons

          acting on its behalf "should instigate publicity for the purpose

          of facilitating the sale of securities" in the offering.  The

          Commission also noted that:

               [t]he determination of whether an item of information or
               publicity could be deemed to constitute an offer -- a step
               in the selling effort -- in violation of Section 5 must be
               made by the issuer in the light of all the facts and
               circumstances surrounding each case. [294]

               Given the generality of the statements made by the

          Commission through the years, and the difficulty of applying a

          "facts and circumstances" test that will be viewed by others in

          hindsight, cautious legal counsel today often judge it wiser to

          advise clients to apply significant restrictions on

          communications.  In practice, they appear reluctant to rely on

          the Commission's general statement of 30 years ago allowing

          disclosure of material factual information during the course of a

          registered offering. [295]  In the absence of Commission rules,

          the Commission's (or the staff's) statements have been viewed as

          providing only vague, general guidance.  Securities law

          practitioners generally see applying that guidance as a practical

          problem.  Many companies appear to be following the practice of

          shutting off communications of all types for the sake of

          eliminating the risk of being questioned about possible illegal

          offers and experiencing a delay in their offering.  Those

          companies that wish to continue communications face the cost of

          seeking legal advice and review of virtually any communication

          during the period. [296]

               This difficulty of discerning the breadth and length of the

          limitations on communications is why we are proposing safe harbor

          rules for registrants other than Form B and Schedule B issuers we

          discussed above.  The safe harbors should help to encourage open

          communication.  Our proposed solution is two-fold.

                              i.   Bright-Line Communications Safe Harbor

               The Commission seeks first to address uncertainty about

          whether communications made long before the filing of a

          registration statement will be viewed in hindsight as illegal

          offers.  We believe that uncertainty has led to a chilling of

          issuer communications for a longer period before filing than is

          necessary for investor protection.  The uncertainty also

          unnecessarily complicates the task of those planning the capital-

          raising process.  We see little benefit to continuing it.  We

          believe the purpose of prohibiting offers before a registration

          statement is filed, which we discussed above, can be fulfilled

          without the attendant uncertainty costs.

               Accordingly, we propose a safe harbor for all communications

          made by or on behalf of any issuer that take place during a

          specified period before it files a registration statement. [297]

          In offerings registered on Form B, an issuer, and those acting on

          behalf of the issuer, may freely communicate before the offering

          period begins (i.e., 15 days in advance of the first offer).  For

          business combinations registered on Forms C, SB-3, F-8, F-80 or

          F-10 (when F-10 is used in connection with a business combination

          transaction), the offerors may freely communicate before the

          first communication related to the offering (except for

          communications, among the participants in the offering). [298]

          For all other offerings, an issuer, and those acting on the

          issuer's behalf, may freely communicate at any time before the

          30-day period before the date of filing the registration

          statement.  Under the safe harbor, the issuer, underwriter and

          participating dealer must take all reasonable steps within their

          control to prevent further distribution or re-publication of the

          communication during those periods in which free communication is

          not permitted.  We recognize that once a person makes information

          public it is no longer in full control over whether others will

          use that information at a later point in time.  For example, an

          issuer may issue a press release on the 40th day before filing a

          registration statement on Form A and a monthly magazine that is

          published on the 29th day before filing may see fit to make

          reference to it.  We would not view it as outside this safe

          harbor if the magazine published that information on the 29th day

          through no efforts of, or arrangement with, the issuer.  If,

          however, the CEO or some other representative of the issuer gave

          an interview on the 40th day before filing without getting

          assurance that the interview article would not be published

          during the 30-day period, that communication would be outside the

          safe harbor.

               In addition, if an issuer places information on its Internet

          web site during a period in which it may freely communicate, we

          would view it as outside the safe harbor if it fails to remove

          information from its web site during the limited communications

          period, if the communication is not covered by one of the other

          proposed safe harbors discussed below (e.g., for factual business

          information or regularly released forward-looking information).

          An issuer may not circumvent the bright-line communications safe

          harbor by arranging for a third party to disseminate information

          on its behalf during the limited communications period.  For

          example, if an agent or third party acting on behalf of the

          issuer posts information on a web site that does not fall within

          a safe harbor, we would view the posting as outside the bright-

          line communications safe harbor. [299]

               We recognize that there is a risk in creating a bright-line

          test.  Some issuers and underwriters could decide to make all of

          their selling efforts before the bright-line period when a

          prospectus is not available.  We propose to mitigate that risk

          through the prospectus delivery requirement (discussed below)

          that, regardless of when the selling efforts occur, investors

          will have time to review the balanced, accurate disclosure about

          the investment. [300]  We also mitigate that risk in offerings

          not registered on Form B and not involving business combinations

          through the use of a 30-day limited communications period.  The

          30 days will operate as a "cooling off" period with respect to

          any communications made to investors.   We solicit comment,

          however, regarding whether a longer period, such as 90 days or 60

          days or 45 days, would mitigate the risk further while still

          providing a useful dividing line between communications likely to

          be undertaken as part of the sales effort and those that serve

          other purposes.  Conversely, would a shorter period of time, such

          as 20 days, adequately serve that function?  Are there other

          risks or benefits of creating a bright-line test?

               Would the condition that all reasonable steps be taken

          within the 30 days by the issuer, underwriter or dealer to

          prevent further distribution or re-publication be adequate to

          ensure that there is a "cooling off" period?  Should we build in

          an automatic longer prospectus delivery period before pricing

          when issuers or others participating in the offering fall outside

          a safe harbor by communicating during the 30-day period?  The

          proposed safe harbor would cover communications of any sort.

          Should we provide that the safe harbor does not apply to

          communications discussing the offering itself?  Should we require

          that offering materials used more than 30 days in advance of

          filing a registration statement be filed with the Commission in

          the same way as free writing materials? [301]  If so, should we

          require filing of such information if disseminated within 40, 50

          or 60 days before the issuer files its registration statement?

                              ii.  Communications Safe Harbor

               While defining the pre-filing period during which these

          issuers must be concerned about the nature of their

          communications should help lessen uncertainty, we believe further

          proposals would do so even more.  As the Commission stated almost

          three decades ago, "[the] flow of normal corporate news,

          unrelated to a selling effort for an issue of securities, is

          natural, desirable and entirely consistent with the objectives of

          disclosure to the public which underlies the federal securities

          laws." [302]  We are proposing therefore to exempt factual

          business communications from communications restrictions. [303]

          In addition, in offerings by reporting companies, we propose an

          exemption from communications restrictions for regularly released

          forward-looking information. [304]  We solicit comment on whether

          we should extend the limited communications period.  Should it be

          45, 50, 60 or 90 days in length?

                                   (A)  Factual Business Communications

               For purposes of these proposals, "factual business

          communications" would include:

               -    factual information about the issuer or some aspect of

                    its business;

               -    advertisement of the issuer's products or services;

               -    factual business or financial developments with respect

                    to the issuer;

               -    dividend notices;

               -    factual information required to be set forth in any
                    Exchange Act report the issuer is required to file; and

               -    factual information communicated in response to
                    unsolicited inquiries from stockholders, analysts, the
                    press and others with a legitimate interest in the
                    issuer's affairs.

          Factual business communications would not include information

          about the registered offering itself or forward-looking

          information.  Information about the offering would continue to be

          limited to that which is permitted to be published under

          Securities Act Rule 135. [305]

                                   (B)  Regularly Released Forward-Looking

                                        Information

               We also propose a safe harbor for reporting companies that

          are accustomed to releasing forward-looking information to the

          markets so that those communications are not discouraged during

          the limited communications period 30 days before a registration

          statement is filed. [306]  The safe harbor would exempt the

          dissemination of that information from the Section 5 restrictions

          on offers in the pre-filing period if the issuer is subject to

          the reporting requirements of Section 13(a) of the Exchange Act.

          In order to come within the safe harbor, the issuer must have

          customarily released this type of information in its ordinary

          course of business for the last two fiscal years (and any portion

          of a fiscal year) immediately before the communication.  The

          time, manner and form in which the information is released must

          be consistent with past practice. [307]  The categories of

          forward-looking information that would be covered by the safe

          harbor are:

               1.   projections of the issuer's revenues, income (loss), 
                    earnings (loss) per share, capital expenditures,
                    dividends, capital structure or other financial items;

               2.   statements about the issuer management's plans and 
                    objectives for future operations, including plans or
                    objectives relating to the products or services of the issuer;

               3.   statements about the issuer's future economic performance 
                    of the type contemplated by the management's
                    discussion and analysis of financial condition and 
                    results of operation described in Item 303 of Regulation
                    S-K or Item 9 of Form 20-F; and

               4.   assumptions underlying or relating to any of the information 
                    described in paragraphs (1), (2) and (3). [308]

               We recognize that projections have historically been viewed

          as the type of communication that would be particularly

          troublesome in the period before a registration statement is

          filed. [309]  For that reason, we propose to exclude these

          statements from the proposed safe harbor for factual business

          communications.  We also, however, wish to encourage, where

          consistent with investor protection, the voluntary disclosure of

          forward-looking information.  Given its value to investors,

          analysts, investment advisers and other securities professionals,

          the release of forward-looking information should not be

          constrained in circumstances that do not require constraint.

          Thus, where that information is regularly released by the issuer,

          we would presume that it is not being released around the time of

          the offering solely as a method of hyping the securities.

          Accordingly, we propose the safe harbor.

               We solicit comment on the safe harbor for this forward-

          looking information.  Are there other categories of

          forward-looking information that should be added to the list of

          exempted communications?  Should any of the categories proposed

          in the exemption be deleted?


          **FOOTNOTES**

          [260]:The   Commission's   Task   Force   recommended  concurrent
               registration in its Report.  Task Force Report at p. 86.  We
               first proposed concurrent registration  in  May 1996 as part
               of   the   Phase   Two   proposals   to   implement  certain
               recommendations  contained  in  the  Report.   Exchange  Act
               Release  No.  37263 (May 31, 1996) [61 FR 30405].   When  we
               adopted several  of the Phase Two proposals in July 1997, we
               indicated that we  would  continue to consider the matter in
               our   efforts  to  streamline  the   registration   process.
               Exchange  Act  Release  No.  38850  (July  18,  1997) [62 FR
               39755].   That  release  adopted a companion proposal  which
               revised Rule 12d1-2, 17 CFR  240.12d1-2, to permit automatic
               effectiveness of the Form 8-A  as  of  the effective time of
               the Securities Act registration statement  relating  to  the
               same  class  of  securities.   We  continue  to believe that
               concurrent registration would be beneficial for  registrants
               and are now reproposing it.  See proposed Exchange  Act Rule
               12d1-2, 17 CFR 240.12d1-2.

               [261]:We also permit an issuer registering an initial public
               offering  to  use Form 8-A even though it is not a reporting
               company until after  effectiveness  of  the  Securities  Act
               registration statement.

               [262]:The    securities   description   must   provide   the
               information called  for by either Item 202 of Regulation S-K
               or Regulation S-B, as  applicable, 17 CFR 229.202 and 17 CFR
               228.202.  An issuer can  incorporate  by reference into Form
               8-A information that is contained in other filings made with
               the Commission.

               [263]:We also propose a revision to clarify that Form 8-A is
               available for reporting companies only  if  they are current
               in  their  reporting.   See  proposed  revisions to  General
               Instruction A of Form 8-A.

               [264]:See proposed Securities Act Rule 499, 17 CFR 230.499.

               [265]:In the 1996 proposing release, we  did  not propose to
               allow concurrent registration for securities to  be  offered
               and sold on a delayed basis under Rule 415(a)(1)(x), 17  CFR
               230.415(a)(1)(x),  because  of  concerns  about  whether  an
               adequate description of the securities would be contained in
               the Exchange Act registration statement.

               [266]:Those  acting  on behalf of the registrant (such as an
               underwriter) are subject  to  the  same  restrictions as the
               registrant.

               [267]:Securities  Act  Rule 135, 17 CFR 230.135,  allows  an
               issuer to notify the public  of  a proposed offering as long
               as  the  contents of the notice do not  exceed  the  limited
               items specified in the rule.

               [268]:These  materials  are still subject, of course, to the
               antifraud and civil liability provisions of the statute.

               [269]:Final  prospectuses  must  satisfy  the  informational
               requirements of Section 10(a) of the Securities Act.

               [270]:H.R. Rep. No. 85, 73rd Cong., 1st Sess. 3 (1933).

               [271]:Section  2(a)(3) of the Securities Act originally made
               no distinction between  offers and sales.  The term sale was
               defined to include any: "offer  to  sell," "offer for sale,"
               "attempt or offer to dispose of, or solicitation of an offer
               to buy."  Consequently, Section 5(a)  of  the Securities Act
               prohibited at that time both interstate offers  and sales of
               securities before a registration statement became effective.
               See also S. Report No. 1036, 83rd Cong. 2d Sess. 4 (1954).

               [272]:Hearings on S. 2846 Before the Subcomm. of  the Senate
               Comm.  on  Banking  and  Currency,  83rd Cong., 2d Sess.  23
               (1954)  (statement  of  Ralph H. Demmler,  Chairman  of  the
               Securities and Exchange Commission).   The  regulators  soon
               realized   the   importance   of  providing  investors  with
               information during the waiting  period.   The  Federal Trade
               Commission (which administered the Securities Act before the
               creation  of the Commission in 1934) published its  view  in
               1933 that it was permissible for issuers and underwriters to
               disseminate  circulars  during  the  waiting  period if they
               described  a  security  in  the  same  manner  a Section  10
               prospectus would.  See Securities Act Release No.  70  (Nov.
               6, 1933) [11 FR 10948]; Securities Act Release No. 464 (Aug.
               19,  1935)  [11  FR 10953].  In 1946, the Commission adopted
               Rule 131, 17 CFR 230.131,  which expressly permitted the use
               of  a  preliminary  prospectus   or   "red   herring."   See
               Securities  Act  Release  No.  3177  (Dec. 6, 1946)  [11  FR
               14260].  See also Securities Act Rules  430 and 430A, 17 CFR
               230.430 and 230.430A.

               [273]:The 1954 amendments were intended to  codify practices
               with regard to communications during the waiting  period and
               finally  resolve  concerns that dissemination of preliminary
               information during  the  waiting  period  would  breach  the
               prohibition  against  offers.   See Hearings Before the H.R.
               Comm. on Interstate and Foreign Commerce,  83rd  Cong.,  1st
               Sess.   66   (1953)   (statement  of  Richard  B.  McEntire,
               Commissioner  of the Securities  and  Exchange  Commission).
               See also H.R. Rep. No. 1542, 83rd Cong., 2d Sess. 7 (1954).

               [274]:For example,  companies  with a $250 million or higher
               market capitalization have, on average,  15 research analyst
               firms following them.

               [275]:A   staff   study   on  the  market's  absorption   of
               information  found that the  speed  of  price  discovery  is
               positively     associated     with     companies'     market
               capitalizations,  public  floats and ADTVs.  The staff found
               that combination tests of ADTV  and  either  public float or
               market capitalization are more closely associated  with  the
               speed  of  price  discovery than tests of only public float,
               only market capitalization  or  only  ADTV.  See Eligibility
               Requirements  for  Firms  Receiving  Preferred  Registration
               Status  in the Registration and Disclosure  Reform  Proposal
               (April 30, 1997).

               [276]:The  Commission  has  long interpreted "offer to sell"
               broadly to encompass pre-filing  publicity  efforts that may
               not be phrased expressly in terms of an offer  but condition
               the  market or stimulate interest in the offering.   See  In
               the Matter  of  Loeb, Rhodes & Co., 38 SEC 843 (1959) and In
               the Matter of First Maine Corp., 38 SEC 882 (1959).

               [277]:Rules 101 and  102 of Regulation M, 17 CFR 242.101 and
               242.102, would continue  to prohibit inducements to purchase
               securities that are the subject of a distribution during any
               applicable restricted period.

               [278]:See proposed Securities  Act Rule 166, 17 CFR 230.166.
               Prospectuses used in reliance on this Rule during the period
               beginning 15 days before the first offer and ending with the
               offering completion would be filed  under proposed Rule 425,
               17 CFR 230.425.

               [279]:See   Securities   Act   Rule   144A(a)(1),   17   CFR
               230.144A(a)(1).

               [280]:We  propose  that  Form B allow registration  of  five
               kinds  of  offerings  to existing  shareholders,  including:
               offerings  of  securities   upon   exercise   of  rights  or
               conversion of convertible securities; offerings  pursuant to
               dividend  or  interest  reinvestment  plans;  offerings   to
               existing  common  stock holders; and offerings of securities
               issuable upon exercise  of transferable warrants or options.
               These offerings, and why  we  propose  they be registered on
               Form B, are discussed in more detail in  Section V.A.2.c. of
               this release.

               [281]:See  proposed  Securities  Act  Rule  166(a),  17  CFR
               230.166(a).

               [282]:See General Instruction I.B.4. of Form S-3.

               [283]:Under the proposed Form B, generally, a  small  issuer
               would  not  be  permitted  to  make offerings to an existing
               security holder unless the investor  held  securities of the
               issuer  for  at  least  a  two-month  period.  We  set  this
               requirement to ensure that the investor  would have adequate
               time to assess its investment and determine whether to sell,
               hold or buy the issuer's securities.

               [284]:See H.R. Rep. No. 85, 73rd Cong., 1st Sess. 3 (1933).

               [285]:See H.R. Rep. No. 85, 73rd Cong., 1st Sess. 2 (1933).

               [286]:We propose the $250 million offering  threshold  as  a
               proxy   for   size.    The   firm   commitment  underwriting
               requirement  would  provide  greater  assurance   that   the
               offering   would   proceed   in  an  orderly  fashion.   And
               underwriting participation in  the  offering signals greater
               market interest in the offering and the  presence  of  other
               investor  protections  due  to the underwriters' gatekeeping
               function.   As with Form B issuers, we believe the seasoning
               requirement  would  ensure  a  certain   level  of  publicly
               available information.

               [287]:See  proposed  Securities  Act  Rule  166(a),  17  CFR
               230.166(a).

               [288]:Proposed  Securities  Act  Rule  167, 17 CFR  230.167,
               would provide that communications before  the  beginning  of
               the  30-day  period would not, for registration purposes, be
               deemed to be either  an  offer to sell or an offer to buy as
               long as the issuer takes reasonable steps to prevent further
               public dissemination of the  information  during  the 30-day
               limited communications period.  The rule would apply equally
               to  unseasoned  foreign sovereigns and all foreign political
               subdivisions  that   must   observe   the   30-day   limited
               communications period.

               [289]:See proposed Securities Act Rule 169, 17 CFR 230.169.

               [290]:See proposed revisions to Securities Act Rule 135,  17
               CFR 230.135.

               [291]:Securities  Act Release No. 5009 (Oct. 7, 1969) [34 FR
               16870].

               [292]:Securities Act  Release No. 5180 (Aug. 6, 1971) [36 FR
               16506].

               [293]:The term "in registration"  was  used to mean the time
               starting before the filing of the registration statement and
               ending  with the date the issuer "reaches  an  understanding
               with a broker-dealer  that is to act as managing underwriter
               until the end of the aftermarket  prospectus delivery period
               applicable to dealers."  Id.

               [294]:Id.

               [295]:Among other results, issuers  sometimes  refrain  from
               distributing  routine reports to shareholders concerning the
               company  during   the  quiet  period.   See  Quiet,  Please,
               Investor Relations, Dec. 1997, at 49.

               [296]:For example,  the  Commission  understands  that legal
               counsel  have  advised  issuers  that  all  press  releases,
               speeches to groups, product advertisements, announcements of
               developments, responses to inquiries by those who report  to
               the  public,  changes  in  advertising  policy,  and  public
               statements  first  be  cleared  by legal counsel during this
               period.

               [297]:See proposed Securities Act  Rule 167, 17 CFR 230.167.
               The bright line safe harbor would apply  only  to registered
               offerings.   Accordingly,  the safe harbor would not  permit
               issuers  to avoid the prohibition  on  general  solicitation
               when conducting a private offering or avoid the Section 4(2)
               requirement  that  the  "transaction  not involve any public
               offering." See 15 U.S.C. ง 77d(2).

               [298]:For   a   discussion  of  other  "free  communication"
               provisions applicable to business combinations, see Exchange
               Act Release No. 40633 (Nov. 3, 1998).

               [299]:This position parallels advice we gave regarding third
               party web site postings  in the context of offshore Internet
               offerings.  See Securities  Act  Release  No. 7516 (Mar. 23,
               1998) [63 FR 14806], Sections III.D. and IV.D.

               [300]:An issuer could not use the Section 10 prospectus at a
               point more than 30 days before filing and then  fail to file
               it as part of the registration statement because  it  is not
               "an  offer."  The registration statement would be materially
               deficient absent the prospectus.

               [301]:See proposed Securities Act Rule 425, 17 CFR 230.425.

               [302]:Securities Act Release No. 5009 (Oct. 7, 1969).

               [303]:See proposed Securities Act Rule 169, 17 CFR 230.169.

               [304]:See proposed Securities Act Rule 168, 17 CFR 230.168.

               [305]:We  propose  to  revise  Rule  135, 17 CFR 230.135, to
               permit  issuers  to  use  it whether they  plan  to  make  a
               registered    or    private    offering.      See    Section
               VII.A.1.c.ii.(C)  of  this release for a discussion  of  the
               proposed revisions to Rule 135.

               [306]:See proposed Securities Act Rule 168, 17 CFR 230.168.

               [307]:This information generally would have to be filed with
               the Commission under proposed  Securities  Act  Rule 425, 17
               CFR 230.425.

               [308]:These   are   essentially   the   same  categories  of
               statements  that  are defined as forward looking  statements
               under Securities Act  Section  27A(i)(1).   In  light of the
               offering context, we omitted the category of "statements  by
               an  underwriter or participating dealer assessing any of the
               itemized information."

               [309]:Until  the 1970s, the Commission prohibited disclosure
               of forward-looking  information.   In  1979,  the Commission
               adopted   a  safe  harbor  for  release  of  forward-looking
               information.   See  Securities Act Release No. 5362 (Feb. 2,
               1973) [38 FR 7220]; Securities  Act  Release  No. 6084 (June
               25, 1979) [44 FR 38810]; see also Wheat Report,  supra  note
               11, at 94; Securities Act Release No. 5180 (Aug. 16, 1971).

                                        - 93 -

                                   (C)  Notice of Proposed Offerings

               As part of lifting communications restrictions, we propose

          to merge current Securities Act Rules 135 and 135c. [310]  The

          resulting rule, Rule 135, would provide issuers with a

          communications safe harbor for limited notice of their proposed

          offerings or business transactions.  We propose to remove the

          reference found in current Rule 135 that specifically states that

          issuers may not name the underwriters of its proposed offering in

          any notice published in reliance on the Rule.  The proposed rule

          clearly pronounces that these notices may not include information

          beyond the subjects enumerated in the rule.  Because the proposed

          rule does not include a provision that would allow issuers to

          name their underwriters, their Rule 135 notices may not name

          their underwriters.  We solicit comment as to whether there are

          reasons to retain the specific prohibitions in the rule.

               New Rule 135 would not require issuers to announce whether

          the offering would be public or private.  Consequently, an issuer

          would not have to commit early on whether it is planning a

          registered or exempt offering.  Thus an issuer may find more

          flexibility in assessing market demand through publication of the

          Rule 135 notice.  Proposed Rule 135 also would provide

          specifically that an issuer may issue a statement to correct

          inaccurate accounts or misstatements about its offering.  An

          issuer's correction may not, however, include more information

          than would be needed to remedy the inaccuracy.

                         2.   Communications During the Waiting Period

               Restrictions on communications during the waiting period

          differ according to the form the communication takes.  During the

          waiting period, oral offers may be made without content

          restrictions other than due to liability concerns.  Written

          offers, however, must have Section 10 contents or they cannot be

          used.  This distinction appears to do little to enhance investor

          protection or facilitate the capital formation process.  One can

          argue that it creates an incentive for issuers and underwriters

          to omit information or to provide it in a manner that is not

          readily available to investors for later reference.  For

          instance, sellers may choose to omit matters that are not easily

          understood orally, or they may present that information orally

          anyway despite the risk that investors will have a less than

          perfect understanding of it.  Issuers and their agents are known

          to deliberately provide some information during the waiting

          period only orally, and also limit the audience to avoid those

          communications being considered broadcasted.  Perhaps the best

          example of how this current regulatory structure negatively

          affect investors is the "road show" structure.  It is common for

          issuers and underwriters to conduct "road show" presentations

          during the waiting period for selected broker-dealers and large

          institutional investors.  While these road shows are valuable to

          some investors because they provide a forum for investors'

          questions, their value is curtailed because of the limited

          audience invited to attend and the fact that issuers and

          underwriters do not allow participants to retain materials used

          during the presentation (other than the preliminary prospectus).

          These restrictions raise concerns regarding selective disclosure

          of material information.  They also raise concerns about whether

          investors have been informed as well as they might have been

          absent those restrictions. [311]

               We believe that the waiting period should be a time of open

          dialogue between the registrant and its potential investors,

          provided that the registrant is accountable for the accuracy and

          completeness of its communications.  The medium in which

          disclosure is made should not be dictated by the regulatory

          structure but, rather, by the needs of investors.

               Under the proposal, we would allow companies to make offers

          and disseminate offering information during the waiting period in

          any form without each communication having to meet the

          informational requirements of Section 10. [312]  This would

          permit issuers to prepare presentations and disclose information

          in a variety of formats, available to all investors. [313]

          Through these changes, the Commission seeks to have sellers

          augment the information available to investors and thereby

          enhance investors' knowledge of the company and its securities.

          [314]

               Our communications proposals logically contemplate that

          larger seasoned issuers, including issuers eligible to use Form B

          and larger, seasoned foreign government issuers, that would have

          no pre-filing communications restrictions would also be able to

          freely communicate after filing a registration statement. [315]

          While generally there may be very limited post-filing marketing

          periods for these issuers because no registration statement need

          be filed until the time of sale, some may choose to file earlier.

          Proposed Rule 165 therefore would permit those issuers to engage

          in post-filing free writing if they:

               1.   comply with the preliminary prospectus delivery
                    requirements in proposed Rule 172;

               2.   file free writing materials under proposed Rule 425;
                    and

               3.   file a final prospectus meeting the requirements of
                    Section 10(a) before the first sale.

          Smaller issuers that would be likely to market the securities

          during the waiting period may also engage in post-filing free

          writing under the same proposed conditions.  All free writing

          materials and term sheets, whether used by large or small

          issuers, would have to include a prominent legend advising

          investors to read the other disclosure documents filed with the

          Commission before making an investment decision.  The legend also

          would describe how the investor could get copies of this

          information for free from the Commission's web site and explain

          which documents an investor could get for free from the issuer.

          [316]  Although free writing material would be required to be

          filed, it would not be required to be delivered.  We believe that

          the filing requirement enhances investor protection by reducing

          selective disclosure.  For example, road show materials not

          generally available to individual investors today would be

          available to the broader market on a real-time basis after the

          registration statement is filed. [317]  We solicit comment as to

          whether investors would have an increased analytical burden in

          collecting and evaluating various free writing materials.

               In light of the free writing that would be granted by the

          proposed rules, we propose to revise Securities Act Rule 134 to

          narrow its application to investment companies.  The Rule 134

          safe harbor would not be needed by other issuers.  The proposed

          Rule 134 amendments would not make substantive changes to the

          content of the Rule. [318]  We are, however, revising the Rule to

          make it more understandable.  For example, the legends informing

          investors how to obtain more complete information about a fund

          would be simplified and combined into one legend.  The amendments

          also would clarify that an investment company may identify its

          secretary, treasurer and any vice-president, in addition to its

          president, in a Rule 134 advertisement. [319]  Finally, to

          reflect changes made by NSMIA, legend text referring to state

          registration of securities would be deleted. [320]

               We request comment regarding whether a legend substantially

          similar to that required to appear in Rule 482 advertisements

          used with a profile should be required for Rule 134

          advertisements that are used with a profile. [321]  Are funds

          likely to use Rule 134 advertisements with a profile?  Should

          such disclosure be permissive or mandatory?

               B.   Filing Under EDGAR

               Communications filed under Rule 425 would be filed

          electronically, via the EDGAR system, to the same extent that the

          registration statements to which the communications relate are

          required to be filed under EDGAR. [322]  In some cases, issuers

          may wish to communicate with investors through multimedia

          prospectuses.  These multimedia prospectuses may be presented in

          the form of videos, CD-ROMs, streamed video or audio files that

          can be played over the Internet.  Currently, EDGAR is not able to

          accept multimedia prospectuses.  Instead, companies using

          multimedia prospectuses file a transcript of the material on

          EDGAR. [323]

               We have awarded a contract to modernize EDGAR, which will

          enable filers to enhance the appearance of their documents by

          using graphics and different fonts.  The system, however, may not

          be able to accommodate multimedia materials.  We are considering

          whether some of these media could be included in the new system.

          Some of the factors we are considering include:  security;

          development and maintenance costs of a system that will accept

          these media; costs of database storage; how these materials

          should be disseminated to the public; whether investors would

          have as ready access to these materials as to the current

          electronic filings; how to meet the archival requirements for

          storage of electronic documents; wide divergence in industry

          standards for most multi-media formats; how to assure that filed

          documents continue to be readable in the future, since

          applications that can present these media may change or even

          disappear over time.

               If at adoption EDGAR is unable to accept multimedia

          prospectuses, we would require that a transcript of the

          presentation be filed. [324]  Additionally, we would require that

          the issuer file five copies of the multimedia prospectus in the

          form used, so that we may make it available through our public

          reference rooms.  We solicit comment on this approach and

          alternative approaches to the dissemination of multimedia

          prospectuses.  For example, rather than have the issuer file five

          copies of the multimedia prospectus, should we require that the

          issuer include an address in the transcript where the multimedia

          prospectus can be obtained in its original form?  Should we

          require that a summary of the multimedia prospectus be filed

          through EDGAR instead of a transcript?

               C.   Technology Implications of the Communications Proposals

               The proposed communications rules would enable issuers and

          market participants to take significantly greater advantage of

          the Internet and other electronic media to communicate and

          deliver information to investors. [325]  Most notably, the

          proposals would permit all issuers, underwriters and their

          representatives to communicate during the waiting period with

          potential investors without having to conform their

          communications to the informational requirements of Section 10 of

          the Securities Act. [326]  Accordingly, after filing a

          registration statement, any issuer or underwriter could take full

          advantage of innovative media technology in stylizing its free

          writing materials.  In that period, issuers and underwriters

          could use the Internet and other electronic media to, among other

          things:

               *    conduct electronic roadshows to institutional and
                    retail investors without the use of password
                    protection;

               *    use electronic mail to answer investors questions about
                    the company and its offering; and

               *    conduct "chat room" discussions or post messages on
                    bulletin boards about its offering with potential
                    investors. [327]

               For offerings registered by well-followed, large issuers on

          Form B, the issuers and underwriters could use the Internet and

          other media for those purposes both before and after filing a

          registration statement. [328]  The ability to communicate before

          filing would allow issuers to use the Internet and other

          electronic media to determine investors' interest in a proposed

          public offering well before committing significant resources to

          its completion.

               The 30-day bright-line test would help smaller companies

          that have been concerned about when in relation to an offering

          they should monitor or limit their Internet use.  They would know

          they have freedom to disseminate information on it at any time

          except during the 30 days just before filing their registration

          statements. [329]

               The proposed safe harbor for factual business communications

          made within the 30 days before filing a registration statement

          would provide smaller issuers with more certainty when

          determining what information may be posted on their Internet Web

          sites during those 30 days. [330]

               Proposed Form B also would provide issuers with more

          flexibility in crafting transactional disclosure in their

          prospectuses.  This additional flexibility also should allow

          issuers to take greater advantage of innovations in media

          technology.

               The Commission also is proposing to require issuers to

          identify their web site addresses and provide an e-mail contact

          on the cover page of every registration statement under the

          Securities Act.  This requirement would make this information

          more accessible to investors, as well as ease investors'

          electronic communications with companies.

                D.  Research Reports [331]

               Investors acquire useful information regarding companies

          from sources other than Commission-mandated disclosure.  One such

          source is analysts' research reports.  As the Commission has long

          acknowledged and the Supreme Court recognized in Dirks v.

          SEC, [332] analysts fulfill an important function by keeping

          investors informed.  They digest information from Exchange Act

          reports and other sources, actively pursue new company

          information, put all of it into context, and act as conduits in

          the flow of information by publishing reports explaining the

          effect of this information to investors. [333]  They also express

          opinions and recommendations about investment in issuers'

          securities.  Unlike small investors, analysts can arrange to

          interact with key company insiders and ask them pertinent

          questions.  Where analysts are acting independently and

          objectively, investors gain from the publication of their

          insights.

               Analyst reports, however, also potentially can be misused to

          hype a company's securities.  Because they could do so under the

          guise of providing objective, independent analysis, they could

          unduly influence investors.  Often, firms that employ analysts

          and publish their research reports also act, or may act, as

          underwriters in connection with the offerings of companies that

          are the subject of the reports.  Research by a broker or dealer

          about an issuer that proposes to register a public offering, or

          has registered an offering, may constitute an offer of those

          securities. [334]  This is particularly true when the broker-

          dealer is to participate in the distribution as an underwriter or

          selling group member.

               The Commission recognized both possible uses of analyst

          research reports -- for hyping as well as for enhancing the free

          flow of information -- when it adopted Rules 137, 138 and 139

          under the Securities Act.  Those safe harbor rules describe

          circumstances in which a broker-dealer may publish research in

          and around the time of a registered offering without concerns

          about violating Section 5 through making an illegal offer or

          using a non-conforming prospectus.  In those rules, the

          Commission struck a balance between its concern about hyping and

          its concern for current information by restricting the situations

          in which the three safe harbors would apply. [335]  Commenters on

          the Concept Release asked the Commission to minimize the scope of

          restrictions on research in order to reflect rapid advances in

          communications technology and globalization of the markets, among

          other developments. [336]

                    1.   Proposals in Connection with Registered Offerings

               When a company is making a registered offering, investors

          particularly seek current information about the issuer and its

          securities.  In general, we propose to allow investors to receive

          as much current information as possible with respect to companies

          that are in registration, where consistent with investor

          protection.  This is true especially where the largest companies

          are involved.  The narrowness of the current rules regarding

          research causes some analysts' research to be barred at a point

          at which investors may seek current research reports the most.

          The result is that investors may rely on research that does not

          reflect material changes or current data.

               In addition, the narrower rules put U.S. investors at a

          relative disadvantage because analyst firms may determine that

          current law would not allow them to give investors the current

          research that is distributed to investors outside the United

          States.  While larger U.S. investors find out about research

          distributed offshore and arrange to receive it, the same cannot

          be said with assurance about smaller U.S. investors.  Because of

          the benefits of analyst research, the proposals overall would

          create broader exemptions to allow publication of research in

          more instances around the time of an offering.  This approach

          would allow investors to judge for themselves the value of the

          analysts' opinions set forth in those reports. a. Rule 137

               When a broker or dealer is not otherwise participating in a

          distribution of securities, and does not propose to participate

          in a distribution, it is guided by Rule 137. [337]  That rule

          provides that research may be published by the broker or dealer

          in the regular course of its business where it is not receiving

          consideration of any kind from persons with an interest in the

          securities being registered.  Rule 137 protects the broker or

          dealer from being considered an "underwriter" by virtue of its

          publication. [338]  It provides a safe harbor only with respect

          to reporting companies.

               The release proposing Rule 137 in 1969 explained that "[t]he

          need for such a rule is primarily evidenced in connection with

          actively traded securities of issuers concerning which adequate

          information is available to the public." [339]  While the need

          for a safe harbor in 1969 may have been confined to reporting

          companies, it no longer appears to us that the need is so

          confined.  Not all actively traded securities are issued by

          reporting companies, particularly in light of the market interest

          in securities of foreign issuers.

               We propose to expand Rule 137 to cover non-reporting

          companies. [340]  We also propose to delete the condition in Rule

          137 that the broker or dealer publish the report in the regular

          course of its business.  As expanded, Rule 137 would provide a

          safe harbor with respect to registrants, such as foreign

          government issuers, that are less likely to be reporting under

          the Exchange Act.  The new rule also would allow a broker or

          dealer to commence research coverage on private companies

          planning to make registered offerings, even where it had never

          before published a research report concerning that company.

          Where a broker or dealer is not connected to the registrant's

          distribution, we perceive limited risk that it will use its

          research about the registrant or its securities to hype the

          market for the securities being distributed.  While the broker or

          dealer may seek to cover the registrant for purposes of

          attracting underwriting business from the registrant in the

          future, that motive for coverage is universal and is not limited

          to the distribution period.  Investors should factor in that

          incentive when analyzing any research report.  We do not believe

          the risk of analysts creating reports that are positively skewed

          to attract future business outweighs the benefits to investors

          from having persons independent of the issuer and the underwriter

          publish their views about the investment opportunity at a time

          when investors would especially look for information.  We solicit

          comment on the relative risks and benefits of this approach.

               We also solicit comment regarding our proposal to remove the

          "regular course of business" condition in Rule 137.  To avoid

          concerns that research preparation, absent that condition, would

          be an unusual activity for that broker or dealer, should it be

          replaced with a narrower requirement that the person who prepares

          the research must be employed by the broker or dealer to prepare

          research in the normal course of his or her duties?  Would those

          concerns be lessened if we required that the person who prepares

          the research must be a registered person?   Should other

          restrictions be imposed on who prepares the research?  Should we

          mandate the manner in which the broker-dealer discloses the

          identity and affiliation of those who prepare research?

                         b.   Rule 138

               Rule 138 permits a broker or dealer participating in a

          distribution of one type of an issuer's securities to publish

          research confined to another type of the issuer's securities if

          it publishes or distributes the research in the ordinary course

          of its business.  For example, a dealer distributing

          non-convertible debt may publish under Rule 138 research solely

          relating to the common stock of that issuer.  A dealer

          distributing convertible debt could publish research limited to

          the issuer's non-convertible, non-participating preferred

          securities under Rule 138.  When we proposed Rule 138 in 1969, we

          noted that the markets for non-convertible senior securities and

          common stock differ significantly.  There is less opportunity to

          condition the market when a broker or dealer is underwriting one

          and reporting on the other. [341]  In addition, the investment

          conditions with respect to common stock and senior securities are

          significantly different. [342]

               Rule 138 is not available, however, for offerings by any

          type of issuer.  The offering must relate to securities of an

          issuer that: has been reporting for 3 years (Form S-2 or F-2

          issuers); has been reporting for one year and has a public float

          of $75 million (S-3 or F-3 issuers); or is a foreign private

          issuer that has a public float of $75 million and a one-year

          trading history on a designated offshore securities market.  In

          addition, the research must be published by the broker or dealer

          in the regular course of its business.

               Unlike Rule 137, which focuses on whether the broker or

          dealer becomes an underwriter by publishing research, the Rule

          138 safe harbor relates specifically to those who are acting as

          underwriters.  The Rule was designed to address the concern that

          the publication would violate Section 5.  A broker or dealers'

          research could be viewed as an unlawful offer if it occurs before

          the filing of a registration statement.  The publication could

          also be a non-conforming prospectus [343] because the contents

          will not have the disclosure required by Section 10 of the

          Securities Act.  Rule 138 therefore provides that publication of

          research under the Rule will not be considered:

               -    an offer during the pre-filing period, which would
                    violate Securities Act Section 5(c); or

               -    a distribution of a "prospectus" that does not conform
                    to the requirements of Section 10, which would violate
                    Securities Act Section 5(b)(1). [344]

               Under the proposed registration system, offers may be made

          during the pre-filing period with respect to Form B offerings.

          [345]  In addition, prospectuses used in connection with Form B

          offerings need not conform to the requirements of

          Section 10. [346]  Thus, a broker or dealer would not need the

          relief that Rule 138 provides in connection with Form B

          offerings. [347]

               Further, in registered business combinations, any

          communications before the first communication related to the

          offering, other than communications among participants, would not

          constitute an offer for the purposes of Section 5(c), provided

          that the parties take reasonable steps to prevent distribution of

          such communication after the announcement but before filing a

          registration statement.  Thus, a broker or dealer would not need

          the relief that Rule 138 provides in connection with registered

          business combination transactions.

               Brokers and dealers would only rely on Rule 138 to a limited

          extent with respect to other registered offerings.  In other

          offerings, a proposed rule would provide that communications made

          more than 30 days before the registration statement is filed

          would not constitute offers. [348]  Research materials

          distributed during that period would not constitute prospectuses.

          [349]  Thus, even in the absence of the Rule 138 safe harbor,

          underwriters and participating dealers would have no Section 5

          concerns about publishing research reports during that period.

          Similarly, after a registration statement is filed, offers may be

          made and a proposed rule would provide that prospectuses do not

          have to conform to Section 10 disclosure standards. [350]  Thus,

          underwriters and participating dealers would have no Section 5

          concerns about publishing research reports during that period.

          Thus, an underwriter or participating dealer's Section 5 concerns

          about research reports would be limited to the 30-day period

          before filing a registration statement.

               We propose to expand Rule 138 to cover research reports

          relating to securities of virtually all companies subject to the

          Exchange Act reporting requirements, rather than just larger

          foreign and domestic issuers with a one-year reporting history

          and other issuers with a 3-year reporting history. [351]  Where

          Exchange Act reports are available, investors will have another

          source for information against which to compare the analyst's

          report.  The only reporting issuers' securities that we would not

          cover are those that have historically posed certain risks of

          abuse.  They include: blank check companies, shell companies and

          companies making offerings of penny stock.

               We are not proposing that the Rule be limited to companies

          that have been reporting for a specific period of time.

          Companies generally become subject to the Exchange Act reporting

          requirements through registering under either the Securities Act

          or the Exchange Act and provide current disclosure in connection

          with that event.  We solicit comment, however, regarding whether

          companies covered by Rule 138 should have to have a specified

          reporting history (e.g., 6 months or a year).

               We are not currently proposing that Rule 138 be expanded to

          cover non-reporting companies other than foreign private issuers

          that would satisfy the public float/ADTV thresholds of Form B

          measured on a worldwide basis and whose equity securities trade

          on a designated offshore securities market. [352]  As the

          Commission explained in 1994 when it proposed to expand Rule 138

          to cover certain non-reporting foreign private issuers with an

          offshore trading history, there is a stream of corporate

          information available in the marketplace about those foreign

          private issuers due to their nature, even though they are not

          filing reports with the Commission. [353]  The same stream of

          information is not available about other non-reporting companies.

               Comment is solicited with regard to the application of the

          proposed Rule 138 safe harbor to research reports regarding

          non-reporting issuers.  Should we require the non-reporting

          foreign private issuers to have a specified trading history on a

          designated offshore securities market, as Rule 138 does today?

          If so, should that trading history be set at one year as in

          current Rule 138, or some shorter period (e.g., 6 months)?

          Should we expand the safe harbor to cover cases where the issuer

          has issued debt in a public offering, but then terminated its

          status as a reporting company, if the broker or dealer is

          publishing research reports with respect to those debt

          securities?  Are there reporting companies with respect to which

          Rule 138 should not apply?

                         c.   Rule 139

               Rule 139 permits a broker or dealer participating in a

          distribution of securities by a larger, seasoned issuer or a

          larger foreign private issuer publicly traded abroad to publish

          research concerning the issuer or any class of its securities, if

          that research is in a publication distributed with reasonable

          regularity in the normal course of its business.  Rule 139 also

          provides a safe harbor in those situations for distributions by

          smaller seasoned issuers, if the broker or dealer complies with

          additional restrictions on the nature of the publication and the

          opinion or recommendation expressed in it.

                Like Rule 138, Rule 139 was developed to create a safe

          harbor from Section 5 for a person acting as an underwriter for

          the issuer.  It ensures that the research does not constitute an

          offer during the period before filing, or constitute a

          non-conforming prospectus. [354]  Unlike Rule 138, this Rule

          covers the situation where the broker or dealer's report covers

          the same securities that it is selling on the issuer's behalf in

          the registered offering.

               The greatest potential for blurring the objective analyst

          role and the underwriting role occurs when the analyst firm is

          publishing research directly about the security it is

          underwriting.  The Commission has recognized that risk in the

          past by attaching more restrictions to the publication of

          research reports under the circumstances in Rule 139.

                              i.   Form B and Schedule B Offerings

               In the case of Form B offerings, we believe that the fact

          that many analysts would be covering the issuer, and that the

          investors would be relatively informed already, justifies

          allowing research to be published around the time of an offering

          without applying Section 5 restrictions.  Thus, the proposed

          communications rules allow research reports to be a part of the

          mix of information that investors may see around the time of a

          Form B registered offering regardless of who publishes those

          reports. [355]  Accordingly, the Rule 139 safe harbor would not

          be needed in those cases.

               We would provide the same freedom for a research report

          published around the time of an offering by a seasoned foreign

          government issuer that is registering an offering of securities

          that exceeds $250 million and that is underwritten on a firm

          commitment basis. [356]  Because the proposed communications

          rules would provide that offers may be made before filing of such

          a registration statement, an underwriter or participating dealer

          would not have to be concerned about research during that

          period. [357]  Similarly, because prospectuses relating to

          offerings by those foreign government issuers would not have to

          satisfy the requirements of Section 10, underwriters and

          participating dealers would not have to be concerned about

          publishing research once a Schedule B registration statement is

          filed. [358]  The same would be true in a registered business

          combination in the period prior to the first communication about

          the transaction (other than among offering participants).

                              ii.  All Other Offerings

               As discussed in connection with Rule 138, in all other

          offerings, underwriters and participating dealers would have no

          Section 5 concerns about publishing research more than 30 days

          before the filing of a registration statement or after a

          registration statement is filed. [359]  Thus, an underwriter or

          participating dealer would rely on Rule 139 to address its

          Section 5 concerns about research reports only during the 30-day

          period before the filing of a registration statement.

               In offerings by these issuers, we have some concern that,

          absent restrictions, research reports published before the filing

          of a registration statement might evolve into selling documents

          distributed at a time when no prospectus is available.  With

          appropriate restrictions, we generally believe that research

          should be able to continue during that time period.  The proposed

          delivery rules would ensure that investors will have time to

          consider the prospectus disclosure before making a final

          investment decision.


          **FOOTNOTES**

          [310]:See  proposed  revisions to Securities Act Rule 135, 17 CFR
               230.135.

               [311]:See, e.g.,  Pratt,  The  IPO  Information  Gap; Retail
               Investors  are  Always the Last to Know as Institutions  Get
               Key Data Despite  SEC  Ban,  Investment Dealers' Digest, May
               18, 1992, at 14.  See also Seely, In I.P.O.'s, the More Data
               the Better, N.Y. Times, April 26, 1992, ง 3, at 13, col. 2.

               [312]:See proposed Securities  Act Rule 165, 17 CFR 230.165.
               Any prospectus disseminated in reliance  on  this Rule would
               be  subject  to Section 12(a)(2) of the Securities  Act  and
               would be filed  under  proposed  Securities Act Rule 425, 17
               CFR 230.425.

               [313]:For example, the Division of  Corporation  Finance has
               issued  a  line of no-action letters that permitted  issuers
               and underwriters to conduct road show presentations over the
               Internet and  through  other  electronic  media.   Access to
               these road shows presentations, however, has been restricted
               by   the  sponsor  to  institutional  investors,  investment
               advisers,  broker-dealers, security analysts and others that
               customarily  would  attend the live presentation.  See Staff
               no-action letters Private Financial Network (Mar. 12, 1997);
               Net Roadshow, Inc. (July 23, 1997); and Bloomberg L.P. (Oct.
               22, 1997).  We request  comment  on whether video road shows
               should  be  deemed  free  writing  and  therefore  would  be
               required to be filed under these proposals.

               [314]:The  proposals also include modifications  to  various
               rules  as  a  result   of   the   restrictions  on  offering
               communications being lifted.  Securities  Act  Rule  431, 17
               CFR 230.431, permits an issuer that has been subject to  the
               reporting  requirements of the Exchange Act for more than 36
               months to distribute a summary prospectus after it has filed
               the related  registration statement.  Our proposal to permit
               the  use of "free  writing"  materials  during  the  waiting
               period for all issuers would allow issuers to create and use
               summary  prospectuses  without complying with the strictures
               of Rule 431.  Accordingly,  we  are  proposing  to eliminate
               Rule 431.

               [315]:See proposed Securities Act Rule 165, 17 CFR 230.165.

               [316]:See proposed revisions to Securities Act Rule  421, 17
               CFR 230.421.

               [317]:For  Form B offerings, road show materials used before
               the registration statement is filed would not be required to
               be filed until the registration statement is.

               [318]:We noted in our release adopting amendments to Form N-
               1A that we intend  to  re-evaluate fund advertising rules in
               the future.  See Investment  Company  Act  Release No. 23064
               (Mar. 23, 1998) [68 FR 13916, 13936].

               [319]:See paragraph (a)(3)(ii) and (a)(3)(x) of the proposed
               amendments to Securities Act Rule 134, 17 CFR 230.134.

               [320]:NSMIA,  Section  102(a) (exempting certain  securities
               offerings from state regulation).

               [321]:Rule 482(a)(3)(ii), 17 CFR 230.482(a)(3)(ii), requires
               Rule 482 advertisements  that  are used with a profile under
               Rule 498 ("Profile") to include a conspicuous statement that
               indicates that information is available in the Profile about
               the investment company, the procedures  for investing in the
               investment  company and the availability of  the  investment
               company's prospectus.

               [322]:Foreign  private  issuers  are not required to file on
               EDGAR.

               [323]:See Rule 304 of Regulation S-T, 17 CFR 232.304.

               [324]:Like today, issuers also would  have to include a fair
               and  accurate  description  of  any  graphical   information
               presented that otherwise is not disclosed in the transcript.

               [325]:In  October  1995, the Commission published its  first
               interpretive release  regarding the use of electronic media.
               At that time, the Commission  noted  its belief that the use
               of  electronic  media  "enhances  the  efficiency   of   the
               securities  markets  by allowing for the rapid dissemination
               of  information  to  investors   and   financial   markets."
               Securities  Act  Release  No.  7233  (Oct.  5,  1995) [60 FR
               53458].  The  procedural  requirements  discussed  in   that
               release  regarding  notice,  access and evidence of delivery
               would continue to be applicable  under  the proposed system.
               See also Securities Act Release No. 7288  (May  9, 1996) [61
               FR  24644].   More  recently,  the  Commission  has provided
               additional  guidance with regard to the use of Internet  web
               sites  in  the   offering   of   securities  offshore.   See
               Securities Act Release No. 7516 (Mar. 23, 1998).

               [326]:See proposed Rule 165, 17 CFR 230.165.

               [327]:In the near future, the Commission  intends to address
               specific  technological  issues that arise in  the  offering
               process.   These issues exist  under  the  current  offering
               framework as well as the framework proposed in this release.
               Further guidance on these activities may be provided in that
               release.

               [328]:See proposed Rule 166, 17 CFR 230.166.

               [329]:See proposed Rule 167, 17 CFR 230.167.

               [330]:See proposed Rule 169, 17 CFR 230.169.

               [331]:For convenience,  we  use the terms "research reports"
               and  "reports" in this section  to  cover  not  only  formal
               reports  published  by  analysts but also the broad range of
               analyst  communications  about   issuers,   whether  or  not
               formalized  in  a  report.  Rules 137, 138 and 139,  17  CFR
               230.137,  230.138  and  230.139,  refer  to  publication  of
               "information, opinions or recommendations."  For purposes of
               this release we use the term "research" generically to cover
               all of those.

               [332]:463 U.S. 646, 658-59 (1983).

               [333]:Investors benefit  from  being  informed on an ongoing
               basis via analysts about particular securities  and issuers.
               For   instance,  issuers'  forward-looking  information   is
               disseminated  indirectly  through analyst reports.  Analysts
               communicate  with issuer representatives  and  then  reflect
               their understanding  about  likely  future  results  in  the
               reports  or updates they publish.  The market's expectations
               of an issuer's  future  earnings can be gradually altered by
               issuers leading analysts  away  from  incorrect predictions;
               less volatility in stock price would result.

               [334]:See Sections 2(a)(3) and 5 of the  Securities  Act, 15
               U.S.C. งง 77b(a)(3), 77e.

               [335]:These  releases  are  discussed  in  Chiappinelli, Gun
               Jumping: The Problem of Extraneous Offers of  Securities, 50
               U. Pitt. L. Rev. 457, 505-07 (1989).

               [336]:See, e.g., comment letters, in File No. S7-19-96, from
               the American Bar Ass'n (Dec. 11, 1996), Merrill  Lynch (Oct.
               31,  1996),  Morgan  Stanley  (Dec.  9, 1996), PSA The  Bond
               Market Ass'n (Nov. 8, 1996), Shearman  &  Sterling (Dec. 13,
               1996) and the Securities Industry Ass'n (Nov. 13, 1996).

               [337]:Even  if the distribution of research  constitutes  an
               offer, a dealer  may  rely on Section 4(3) of the Securities
               Act  which  provides  an  exemption  from  registration  for
               dealers that are not acting  as  underwriters.  Section 4(3)
               is not available, however, during  certain  defined  periods
               shortly after the commencement of an initial offering  of  a
               security  or the effective date of a registration statement.
               It is during those periods that reliance on Rule 137, 17 CFR
               230.137, may matter most.

               [338]:Rule  137,  17  CFR 230.137, provides that a broker or
               dealer satisfying the rule  will  not  be "participating" in
               the offering for purposes of the definition of "underwriter"
               in Securities Act Section 2(11).

               [339]:Securities Act Release No. 5010 (Oct.  7, 1969) [34 FR
               18130].

               [340]:See proposed revisions to Securities Act  Rule 137, 17
               CFR 230.137.  The proposed rule would not cover blank  check
               companies, shell companies and companies making offerings of
               penny stock.

               [341]:Securities  Act  Release No. 5010 (Oct. 7, 1969).  The
               release  noted  specifically  that  the  market  for  senior
               securities is largely institutional and that "the investment
               conditions with respect  to  common  stock  and  the  senior
               securities  of  established  corporations  are significantly
               different."  See also Securities Act Release  No. 6492 (Oct.
               6, 1983) [48 FR 46801].

               [342]:See Securities Act Release No. 5010 (Oct. 7, 1969).

               [343]:A "prospectus" is defined in Section 2(a)(10)  of  the
               Securities    Act   to   include   any   notice,   circular,
               advertisement,  letter or communication, written or by radio
               or  television,  which  offers  any  security  for  sale  or
               confirms the sale of any security.

               [344]:Rule 138, 17 CFR 230.138, exempts the research covered
               by  its terms from  constituting  an  "offer  to  sell"  for
               purposes  of Securities Act Section 5 or an "offer for sale"
               for purposes of Securities Act Section 2(a)(10).

               [345]:See proposed Securities Act Rule 166, 17 CFR 230.166.

               [346]:See  proposed  Securities  Act  Rule  165(a),  17  CFR
               230.165(a).

               [347]:Rule  138,  17  CFR  230.138,  currently  contains  an
               instruction that the Rule's safe harbor is available when an
               issuer plans  to  file,  files  or  has  an  effective shelf
               registration  statement  that  includes both non-convertible
               securities  and  equity  securities.    See  Securities  Act
               Release  No.  7132 (Feb. 1, 1995) [60 FR 6965].   Under  the
               proposed registration  system  this instruction would not be
               needed  because  these  shelf  offerings  would  be  Form  B
               offerings.

               [348]:See proposed Securities Act Rule 167, 17 CFR 230.167.

               [349]:In order for a communication  to  be a "prospectus" as
               defined  in  Section  2(a)(10)  of the Securities  Act,  the
               communication must either offer a  security  or  confirm the
               sale  of  a  security.  Research reports do not confirm  the
               sale of a security  and  proposed  Rule 167, 17 CFR 230.167,
               would provide that they are not prohibited offers.

               [350]:See  proposed  Securities  Act  Rule  165(b),  17  CFR
               230.165(b).

               [351]:See proposed revision to Securities  Act  Rule 138, 17
               CFR 230.138.

               [352]:"Designated offshore securities market" is  defined in
               Rule 902(b) of Regulation S, 17 CFR 230.902(b).

               [353]:See  Securities  Act Release No. 7120 (Dec. 13,  1994)
               [59 FR 31038].

               [354]:Rule 139, 17 CFR 230.139,  exempts  the  research from
               constituting  an "offer to sell" for purposes of  Securities
               Act  Section 5 or  an  "offer  for  sale"  for  purposes  of
               Securities Act Section 2(a)(10).

               [355]:See  proposed Securities Act Rule 166, 17 CFR 230.166,
               and proposed  Securities Act Rule 165(a), 17 CFR 230.165(a).
               As in the case  of  Rule  138,  17  CFR 230.138, brokers and
               dealers would not have a need to rely  on  Rule  139, 17 CFR
               230.139, in connection with Form B offerings.

               [356]:By  "seasoned"  we  mean  that  the foreign government
               issuer's offering takes place one year  or  more  after  the
               effective date of its initial public offering.

               [357]:See proposed Securities Act Rule 166, 17 CFR 230.166.

               [358]:See  proposed  Securities  Act  Rule  165(a),  17  CFR
               230.165(a).

               [359]:See  proposed Securities Act Rule 167, 17 CFR 230.167,
               and proposed Securities Act Rule 165(b), 17 CFR 230.165(b).

                                        - 94 -

                              iii. Focused Reports

               Proposed Rule 139 would continue to provide for two

          categories of reports, broad industry-related reports and reports

          more focused on the issuer and its securities. [360]  The

          companies about which brokers may prepare those two categories of

          reports, however, would change.  Where reporting issuers are

          making the offering, we would not continue to limit the focused

          issuer reports under the Rule to issuers that meet the Form S-3

          or F-3 minimum float/investment grade and reporting history.

          Instead, the proposed Rule would allow those reports in offerings

          of any type of securities by any size issuer that has a one-year

          reporting history. [361]

               In addition, the proposed Rule would allow for focused

          reports relating to offerings by foreign government issuers that

          are registering on Schedule B for the first time as long as the

          issuer is registering on Schedule B an offering of more than $250

          million on a firm commitment underwritten basis.  We recognize

          that because of the nature of foreign government issuers,

          significant amounts of information likely would be available

          about them  even though they may not have registered before in

          this country.  We solicit comment regarding our extension of the

          focused reports safe harbor to these foreign government

          offerings.  Should we do so only if the foreign government issuer

          has previously issued securities in a public offering or if the

          broker or dealer was reporting on the issuer regularly before the

          filing?

               One of the conditions that currently applies to focused

          research reports under Rule 139 is that the reports are

          distributed with reasonable regularity in the normal course of

          business.  We propose to eliminate the "reasonable regularity"

          part of that condition but retain a requirement that the report

          be distributed in the broker or dealer's ordinary course of

          business.  Where the issuer has been reporting under the Exchange

          Act for more than a year, investors will have public disclosure

          to refer to in weighing the contents of a focused research

          report.  The same would be true of a large, well-followed foreign

          issuer even if it is not reporting in the United States.  The

          condition that the broker or dealer be distributing the report as

          part of its ordinary course of business (i.e., it has a history

          of distributing similar focused reports on other issuers or

          securities) should allay concern about hyping as well.  We

          solicit comment about the elimination of the reasonable

          regularity condition.  Are there any reasons we should retain the

          condition?  Should we instead substitute a bright-line test that

          indicates more clearly just how long a broker or dealer must have

          been reporting about the issuer or its securities and with what

          frequency?  If so, how long and how often?

                         iv.  Consideration to Expand Rule 139 to IPOs and
                              Offerings by Unseasoned Issuers

               We also solicit comment on whether to expand the focused

          reports aspect of Rule 139 to initial registered offerings and

          repeat offerings by large unseasoned issuers where research

          reports are published by brokers or dealers that have been

          following the issuers in the ordinary course of their business.

          [362]  Large issuers, even those that have not been reporting for

          a full year, may generate significant market and analyst

          attention.  In some cases, the same would be true in initial

          registered offerings.

               In cases involving repeat offerings by large unseasoned

          reporting companies, we believe it is possible that investors may

          benefit if research reports concerning these large companies were

          available around the time of their offerings.  On the other hand,

          we see merit in limiting dissemination of research reports about

          unseasoned companies.  A limitation helps ensure that the market

          is not mislead by subjective reports that are not balanced by

          regulated public disclosure made over a period of time.  Given

          the risk of use of research reports as sales materials in the

          case of initial registered offerings and other offerings within a

          year of effectiveness, we would envision a safe harbor applying

          only if the research reports were required to be filed with the

          Commission in connection with the offering.

               What limitations should we consider if we were to extend the

          Rule 139 focused reports safe harbor to IPOs?  Should we limit

          extension to companies initially offering more than a certain

          dollar amount of securities?  If so, at what level should we set

          the minimum offering amount: $250 million; $500 million; $600

          million?  Should we set other conditions?  If so, what kinds?

               Do these same considerations apply to unseasoned reporting

          companies?  Does the proposed Form B public float/ADTV criteria

          provide a good model for qualifying companies that should be able

          to rely on this aspect of Rule 139?  Should we differentiate

          unseasoned reporting companies listed on a national securities

          exchange from ones that are not listed?

               Should we condition any extension of Rule 139 to cover

          focused reports about these companies on the broker or dealer

          having a specified history of following the company (e.g., two

          years)?  Should we extend it only if the report was prepared by a

          broker or dealer that had issued research reports about the

          company before the time it announced its registered offering?

               Should we require that issuers file any research report

          prepared in reliance on any further extension of Rule 139 as part

          of their registration statements or as prospectus supplements?  A

          filing requirement would assure that all investors would have

          equal access to the report, in furtherance of our goals to reduce

          selective disclosure whenever possible.  If such reports are not

          filed, should issuers and underwriters be required to inform

          investors of the reports' availability and undertake to provide

          the reports upon request?

                              v.   Industry-Related Reports

               We also would extend the industry-related report safe

          harbor.  Instead of applying only to offerings of issuers that

          meet the Form S-3 or F-3 minimum float/investment grade and

          reporting history, we would extend it to all issuers, regardless

          of size or reporting history.  Where the report is not truly

          focused on the issuer of the securities, which the existing

          conditions ensure, there appears to be little risk of a report

          that is distributed regularly being distributed for the purpose

          of hyping the security.  Even if the purpose of the broker-

          dealer's distribution was hyping, that type of report is unlikely

          to have that effect, regardless of whether the issuer is

          reporting or not.  We solicit comment, however, concerning

          whether the contents of such a report under the proposed safe

          harbor should be further limited with respect to non-reporting

          companies.

               We also propose to alter one of the conditions of the

          existing industry-related report safe harbor.  We would eliminate

          the requirement that the report not contain a more favorable

          recommendation than the one made in the last publication by the

          broker or dealer about the issuer or its securities.  That

          condition controls the recommendation being made by the analyst,

          not just the format in which it is made.  While we recognize the

          risk involved in lifting that constraint, we believe it is

          possible to address the hyping concern by disclosure rather than

          by prohibiting a broker or dealer from stating what may be a

          legitimate change in its opinion.  Our proposed Rule would

          provide simply that, when a broker or dealer wishes to make a

          more favorable recommendation than it made in the past, it also

          must disclose in the report the last two opinions or

          recommendations it published while not participating in a

          distribution by the issuer. [363]  Because the broker or dealer

          also must disclose its role in the distribution, investors will

          be aware of the potential conflict of interest and can judge the

          current recommendation accordingly.

               As revised, Rule 139 also would require that the broker or

          dealer reporting on unseasoned or non-reporting issuers have

          distributed such reports with "reasonable regularity."  We

          solicit comment regarding the need to retain the reasonable

          regularity requirement for unseasoned or non-reporting issuers.

          We also solicit comment as to whether it is necessary that

          projections for unseasoned or non-reporting issuers have been

          published with reasonable regularity.

                    vi.  Section 17(b)

               Section 17(b) of the Securities Act requires disclosure of

          any compensation received or expected to be received, directly or

          indirectly, form an issuer, underwriter or dealer for the

          publication or communication of information that describes a

          security. [364]  Brokers and dealers are reminded that

          compensation received from an issuer that could be attributed to

          the preparation of a research report should be prominently

          disclosed.

                    2.   Proposals and Interpretation in Connection with
                         Regulation S and Rule 144A Offerings

               Where an issuer is offering securities outside the United

          States in reliance on Regulation S, it and those acting on its

          behalf are required to refrain from making "directed selling

          efforts" in the United States and must ensure that the

          transaction is an "offshore transaction."  "Directed selling

          efforts" is defined to encompass activities that are done for the

          purpose of, or could reasonably be expected to have the effect

          of, conditioning the market in the United States for the

          securities being offered under the Regulation.  To satisfy the

          offshore transaction condition, no offer may be made to a person

          in the United States.

               A broker or dealer acting as an underwriter on behalf of an

          issuer in connection with a Regulation S offering may wish,

          around the same time, to publish or distribute in the United

          States its regular analysts' research reports that cover the

          issuer, its securities or its industry.  In that event, questions

          arise regarding whether those actions would conflict with the

          prohibition against directed selling efforts or the offshore

          transaction condition. [365]  The concern stems from the analysis

          that those actions could be viewed as conditioning the market,

          which would constitute directed selling efforts, or offering the

          securities in the United States, which is prohibited under the

          "offshore transaction" requirement.

               Similarly, when a broker or dealer is selling securities in

          reliance on Rule 144A, it is subject to the condition that it may

          not make offers to persons other than those it reasonably

          believes are QIBs.  Where it distributes research about the

          issuer around the time of the Rule 144A transaction, it may be

          viewed as making offers to persons that receive it, including

          those who are not QIBs.

               We are concerned that these blanket restrictions have

          resulted in brokers and dealers withholding regularly published

          research that they have not prepared with a view towards

          promoting the offering to investors.  We therefore have proposed

          amendments to

          Regulation S and Rule 144A.  They provide that research may be

          published or distributed under new terms set forth in Rules 138

          and 139 notwithstanding the Regulation S prohibition against

          directed selling efforts and offshore transaction requirements or

          the requirement that Rule 144A offers be limited to QIBs.

               In Rule 139, we would add an exemption in connection with

          these unregistered offerings.  It would be limited to issuers

          about whom a broker or dealer may prepare focused reports (that

          is, seasoned issuers, larger foreign issuers and foreign

          government issuers). [366]  We are not proposing to create a Rule

          139 exemption for reports on small or unseasoned issuers making

          Regulation S or Rule 144A offerings.  We solicit comment,

          however, concerning whether the proposed Rule 139 exemption for

          industry-type reports in registered offerings should be extended

          on equivalent terms to Regulation S or Rule 144A offerings.

               With one exception, we propose to apply the same conditions

          in the Rule 138 and 139 exemptions for Regulation S and Rule 144A

          transactions that we would apply in connection with registered

          offerings.  The additional condition would be that research could

          be published only in a publication that the broker or dealer

          distributes with reasonable regularity.  We believe that

          restriction is appropriate given that our goal in these

          unregistered offerings is to allow for the continuation of

          research that the broker or dealer has regularly published, not

          the commencement of research.  We solicit comment with regard to

          whether the research safe harbors for Regulation S and Rule 144A

          offerings should contain additional safeguards.  Conversely,

          should only Rule 139 contain the reasonable regularity

          requirement for these offerings?  We also solicit comment on

          whether a bright-line test should replace the "reasonable

          regularity" requirement.  If so, what publication intervals

          should the safe harbor substitute for the reasonable regularity

          requirement (e.g., annual or quarterly publication)?  Would a

          bright-line test provide sufficient flexibility to cover

          differing practices among brokers and dealers?

               In its 1990 release adopting Regulation S, we stated that

          research reports of the nature described in Rule 139(b) would not

          be deemed to constitute directed selling efforts in offerings by

          reporting companies. [367]  Those reports are limited to ones

          that are not focused solely on the issuer or its securities but

          are more akin to industry reports.  In addition, those reports

          are limited in how much prominence they can give to the issuer

          and whether they can provide a more favorable recommendation than

          last issued.  In the same release, we warned brokers and dealers

          involved in Regulation S offerings by non-reporting companies to

          exercise greater caution in publication of research.  As a

          result, it generally has been viewed as not appropriate for

          participating brokers or dealers to publish research of the

          nature described in Rule 138 and Rule 139(a) while an issuer is

          conducting an offering under Regulation S.

               The Commission believes that this interpretation currently

          limits the distribution of regularly published research reports

          by brokers and dealers.  The Commission, therefore, is expressing

          the view today that brokers and dealers may publish and

          distribute research reports as described in current Rule 138 or

          Rule 139 without such reports being deemed to constitute directed

          selling efforts.

                    3.   Research and Proxy Solicitation

               We also are proposing to codify a Commission staff position

          [368] that the publication or distribution of research under the

          conditions set forth in Rules 138 and 139 is permitted in

          connection with a registered securities offering that is subject

          to the proxy rules under the Exchange Act. [369]  The new rule

          would provide that distribution of research in accordance with

          Rule 138 or 139 would be an exempt solicitation for purposes of

          the proxy rules. [370]

               Recently adopted Exchange Act Regulation M also contemplated

          dissemination of research by distribution participants and their

          affiliates during the pendency of a distribution of securities if

          the conditions of Exchange Act Rule 138 or 139 are met. [371]

          Codification of the staff's position would further harmonize the

          treatment of research under the Securities Act and Exchange Act

          rules.  We solicit comment on whether the proposed revisions

          would change analysts' approach to publishing research reports on

          ongoing business combinations.

          VIII. PROSPECTUS DELIVERY

               A.   Congressional History

               Congress intended that the prospectus provide investors with

          "the means of understanding the intricacies of the transaction. .

          . ." [372]  From the outset of the Securities Act, therefore,

          Section 5 has required an issuer to send the investor a final

          prospectus no later than the time of sale. [373]  When Congress

          recognized that the final prospectus would not always be

          available to investors at the time they make their investment

          decisions, [374] it amended the Securities Act in 1954 to allow

          for the use of the preliminary prospectus.  As the House

          Committee on Interstate and Foreign Commerce explained:

                    [h]ow the investor might have accurate information at
                    the time it is useful to him is a problem that long has
                    been recognized.  The proposed amendment offers an
                    approach to its solution in that it provides for the
                    use of a processed document, or preliminary prospectus,
                    prior to the effective date of the registration
                    statement. [375]

          While Congress permitted the use of preliminary prospectuses, it

          did not lift its mandate that final prospectuses be delivered.

          Thus, while the issuer has the option to deliver prospectus

          information to the investor before it makes its investment

          decision, the Act only requires that a final prospectus be

          delivered to investors prior to or with the confirmation.

          Because the confirmation arrives at the end of the offering

          process, investors' investment decisions generally have been made

          before the time of final prospectus delivery.

               B.   Commission History

               In the face of Congress' decision to treat the two kinds of

          prospectuses in that manner, the Commission's approach to

          preliminary prospectus delivery has been measured.  Immediately

          after the adoption of the 1954 amendments, the Commission adopted

          Securities Act Rule 460. [376]  Rule 460 states that the

          Commission may consider whether preliminary prospectuses have

          been adequately distributed before accelerating the effectiveness

          of a registration statement. [377]

               In 1969, the Commission expressed its concern that investors

          were not receiving the necessary disclosure to make informed

          investment decisions in offerings by first time issuers. [378]

          The Commission emphasized that "the investing public should be

          aware that many such offerings of securities are of a highly

          speculative character and that the prospectus should be carefully

          examined before an investment decision is reached." [379]

          Accordingly, the Commission stated that, before accelerating the

          effectiveness of a registration statement for a first time

          issuer, it would consider whether the issuer had taken reasonable

          steps to send to investors a preliminary prospectus at least 48

          hours before the mailing of confirmations.

               The Commission formalized that 48-hour requirement in

          offerings by new issuers in 1982 when it amended Exchange Act

          Rule 15c2-8. [380]  Rule 15c2-8 requires a broker or dealer, in

          connection with offerings by first time issuers, to deliver a

          copy of the preliminary prospectus to anyone expected to purchase

          in the offering.  They must deliver the prospectus at least 48

          hours before sending a confirmation.  Rule 15c2-8 also requires

          that a broker or dealer take reasonable steps to comply promptly

          with any written request for a preliminary or final prospectus.

          Additionally, under the rule, brokers and dealers must make

          copies of the preliminary and final prospectus available to their

          sales associates that are expected to solicit orders for such

          securities. [381]

               C. Prospectus Delivery Proposals

               The Commission continues to believe that delivery of

          information to investors plays an integral role in their

          protection.  In recognition of the importance of the prospectus

          to investors, we recently adopted rules that require the use of

          plain English in the prospectus. [382]  Among other benefits, the

          use of plain English eliminates arcane, unnecessarily complex and

          incomprehensible language from key sections of the prospectus.

          We adopted these rules in order to allow investors to understand

          the intricacies and risks of an offering better when making their

          investment decisions.  If the plain English prospectus reaches

          investors only after they have made their investment decisions,

          the full benefit is not realized.

                    1.   Adequacy of Current Rules

               Under current market practices, the Commission is concerned

          that Rule 460 and Rule 15c2-8 do not provide adequate assurance

          that all investors who need it will have sufficient time to

          consider the prospectus disclosure before making their investment

          decisions.  Our concern about the adequacy of current rules is

          multifold.  First, Rule 460 does not mandate delivery of

          preliminary prospectus information.  Second, delivery of the

          preliminary prospectus information under Rule 15c2-8 covers only

          initial public offerings.  While preliminary prospectus

          disclosure is essential in those offerings, investors' need for

          that disclosure before making investment decisions is not

          confined to those offerings.

               Third, because Rule 15c2-8 measures the timing of delivery

          from the date of confirmation and uses only a 48-hour period, we

          are concerned that the Rule does not ensure a sufficient amount

          of time for investors to consider fully the intricacies of an

          offering.  For example, in the typical marketed underwritten

          offering today, investors appear to make their investment

          decisions on or before the "circle date."  This is the point at

          which investors are asked to "firm up" their orders in

          anticipation of pricing.  On the circle date, an investor is

          asked to represent orally whether it will or will not purchase in

          the offering.  The underwriter "circles" those indications of

          interest in its book that represent an affirmative response.  The

          underwriters rely on these commitments in reaching final price

          and volume terms with the issuer.  As a matter of practice, the

          investing public treats itself as committed at this point in

          time. [383]  The circle date or dates in an offering can occur

          days before pricing.  Confirmations are sent to investors after

          pricing occurs.  While issuers and underwriters can always choose

          to deliver preliminary prospectuses earlier than required, and

          sometimes do under current practices, the 48-hour delivery period

          in the Rule may not effectively guarantee that investors receive

          prospectuses when they need them most. [384]

               A fourth reason for concern that existing rules may not be

          sufficient relates to the fact that the Rule only applies to

          brokers and dealers.  As the use of electronic media to make

          offerings becomes more prevalent, issuers may increasingly choose

          to offer their stock directly to the public. [385]  Issuers are

          not subject to Rule 15c2-8's delivery obligation. [386]  In

          current offerings not involving a broker or dealer, Rule 15c2-8

          has no effect on prospectus delivery.

                    2.   Prospectus Delivery and Developments in

          Communications

               Investors' need for adequate time to review the preliminary

          prospectus may be particularly enhanced in marketed deals under

          the proposed system.  Under today's proposals, we would permit

          the distribution of sales materials in addition to the

          preliminary prospectus.  This may result in investors receiving

          much more sales literature in marketed offerings.  In turn,

          investors may require more time with a preliminary prospectus in

          hand to evaluate all the materials they have.  Providing

          investors with preliminary prospectuses sufficiently before their

          investment decisions would allow them to consider both the

          supplemental sales literature and the disclosure contained in the

          preliminary prospectus.

               In the 29 years since the Commission first formulated the

          48-hour delivery period, advances in technology, changes in

          practices and regulatory developments have profoundly altered the

          transmission of prospectus information.  Today, in a matter of

          minutes, issuers can disseminate documents across the country and

          to the far corners of the world.  Many issuers have Internet web

          sites that provide investors with instantaneous access to their

          financial reports and other company information.  Electronic

          delivery of prospectuses is becoming more common, as companies

          and investors become more familiar with that medium. [387]

          Broker-dealers already make trade settlement information in

          connection with securities offerings available electronically on

          a real-time basis to institutional customers. [388]  Print media

          also has seen its share of technological advancements.  In those

          29 years, we have moved from typewriters and typesetting to

          everyday use of computers.  Today, a prospectus can be printed in

          a fraction of the time it took when the 48-hour period was

          formulated.  In addition, regulatory changes such as shelf

          registration, unallocated shelf registration and, as proposed

          today, Form B registration have allowed and would allow issuers

          and underwriters to take advantage of any favorable changes in

          the securities markets quickly.

                    3.   Final Prospectus Delivery Exemption

               We believe that requiring delivery of only a final

          prospectus at the time of sale does not completely fulfill the

          Securities Act goal of protecting investors through disclosure in

          all offerings.  In firm commitment underwritten offerings, the

          final prospectus invariably arrives after the investor has made

          its investment decision.  While delivery of final prospectuses in

          those offerings may be useful to investors who are considering

          litigation or resale, it does little to fulfill the prophylactic

          goals of the Securities Act.  As Professor Louis Loss noted, "[a]

          prospectus that comes with the security does not tell the

          investor whether or not he should buy.  It tells him whether he

          has acquired a security or a lawsuit." [389]

               In addition, because the Securities Act requires delivery of

          a final prospectus before or at the same time the confirmation is

          sent, the successful completion of the clearance and settlement

          process is contingent on prompt completion and delivery of the

          final prospectus.  Broker-dealers sometimes experience practical

          difficulties in trying to comply with the current T+3 settlement

          cycle.  In some cases, Exchange Act 10b-10 confirmations have had

          to be delayed in order to await completion of the final

          prospectus. [390]  Any future shortening of the settlement cycle

          would simply exacerbate those difficulties.

               The cost of delivery of a final prospectus, where it is

          otherwise readily available to the public, [391] may exceed any

          marginal benefit to investors.  To provide investors with the

          maximum benefit from the prospectus, our proposals would re-focus

          prospectus delivery requirements on a point in time before

          investors have made their investment decisions.  Accordingly, the

          Commission is proposing to create a new exemption from the

          Securities Act requirement to deliver a final prospectus. [392]

          The Commission is not proposing to change the final prospectus

          delivery requirement in Exchange Act Rule 15c2-8(d). [393]  That

          rule requires all brokers or dealers that participate in a

          distribution of securities registered under the Securities Act to

          take reasonable steps to comply promptly with the written request

          of any person for a copy of the final prospectus.  The broker or

          dealer must comply with such request until the expiration of the

          applicable 40-day or 90-day period under Section 4(3) of the

          Securities Act.  We solicit comment on whether, as a condition to

          the exemption, issuers, like brokers and dealers, [394] should be

          required to provide to a purchaser upon request, and free of

          charge, a copy of the final prospectus.

                         a.   Conditions to the Exemption

               As a condition to the exemption, we would require that

          issuers, brokers and dealers tell investors, by the time

          investors receive their confirmations of sale, where they can

          acquire the information that constitutes the final prospectus

          free of charge. [395]  We also would require as a condition the

          delivery of preliminary prospectus information in accordance with

          the Commission's new rule. [396]

               Comment is solicited with respect to the notification

          condition.  Given the availability of the final prospectus in all

          cases via the Commission's Internet web site or the Commission's

          Public Reference Room, is there a need to tell investors where to

          find it?  Should the notification instead state that the

          registrant will provide promptly a copy of the final prospectus

          upon request?  Would the proposals shift too heavy a burden to

          investors by requiring them to take action to obtain a final

          prospectus rather than to receive it automatically?  Is the

          burden on investors enough that, despite EDGAR, we should

          continue to require final prospectus delivery?


          **FOOTNOTES**

          [360]:See proposed Securities Act Rule 139, 17 CFR 230.139.

               [361]:We would  continue  to allow research concerning large
               foreign exchange-traded issuers  that  are  not reporting if
               the Form B public float/ADTV threshold is satisfied.

               [362]:For purposes of this discussion, a large company would
               be one that would meet the public float/ADTV  tests  in Form
               B.

               [363]:If  the  broker or dealer has not made recommendations
               on two such occasions  in  the  past,  it  may  so state and
               provide its last recommendation.

               [364]:In  adopting  Section  17(b),  Congress  intended   to
               address  the  "evils  of  the  'tipster  sheet'  as  well as
               articles in newspaper[s] or periodicals that purport to give
               an  unbiased  opinion  but  which opinions in reality [were]
               bought and paid for."  H.R. Rep.  No.  85,  73rd  Cong., 1st
               Sess. 24 (1933).

               [365]:See,   e.g.,   Braverman,  U.S.  Legal  Considerations
               Affecting Global Offerings  of  Shares in Foreign Companies,
               17 J. of Int'l. L. & Bus. 30, 79 (1996).

               [366]:See proposed revisions to Securities Act Rules 138(b),
               17    CFR   230.138(b);   139(b),    17   CFR    230.139(b);
               144A(d)(1)(i),    17   CFR   230.144A(d)(1)(i);   and   Rule
               902(c)(3)(viii)  and   (h)(4)   of   Regulation  S,  17  CFR
               230.902(c)(3)(viii) and (h)(4).

               [367]:Securities Act Release No. 6863 (Apr. 24, 1990) [55 FR
               18306, 18311-12].

               [368]:See  Staff  no-action letter Merrill,  Lynch,  Pierce,
               Fenner & Smith, Inc. (Oct. 24, 1997).

               [369]:See proposed  Exchange Act Rule 14a-1(l)(2)(v), 17 CFR
               240.14a-1(l)(2)(v).

               [370]:See Exchange Act  Rule  14a-2(a)(7),  17  CFR 240.14a-
               2(a)(7).

               [371]:Exchange Act Rule 101(b)(1), 17 CFR 242.101(b)(1).

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

               [373]:A  final  prospectus is a prospectus that conforms  to
               Section 10(a) of the Securities Act, 15 U.S.C. ง 77(j)(a).

               [374]:H.R. Report No. 1542, 83rd Cong., 2d Sess., 12 (1954).

               [375]:Id.

               [376]:17 CFR 230.460;  Securities Act Release No. 3519 (Oct.
               11, 1954) [19 FR 6727].

               [377]:Under  Section  8(a)   of   the  Securities  Act,  the
               Commission  must give "due regard to  the  adequacy  of  the
               information respecting  the  issuer theretofore available to
               the public . . ." before accelerating the effectiveness of a
               registration statement. 15 U.S.C. ง 77(h)(a).

               [378]:Securities Act Release No. 4968 (Apr. 24, 1969) [34 FR
               7235].

               [379]:Securities Act Release No. 4968, 34 FR at 7235.

               [380]:17 CFR 240.15c2-8; Securities  Act  Release  No.  6383
               (Mar.  3,  1982)[47  FR  11380].   In  the  1980 Rule 15c2-8
               proposing release, the Commission noted that  a  preliminary
               prospectus delivery requirement may be appropriate  for  all
               issuers  and  solicited  comment  on  extending  it to every
               offering.   Securities Act Release No. 6276 (Dec. 23,  1980)
               [46 FR 78].   Commenters  expressed  concern  that  such  an
               extension  would  create  an  artificial waiting period that
               would impose an undue burden on  an  issuer's ability to tap
               favorable  securities markets.  See Securities  Act  Release
               No. 6338 (Aug. 6, 1981) [46 FR 42042].

               [381]:In  the   1969  release  proposing  Rule  15c2-8,  the
               Commission expressed  its  concern  that  salespersons  were
               offering  newly  issued  securities without seeing a copy of
               the preliminary prospectus.   Exchange  Act Release No. 8710
               (Oct. 7, 1969) [34 FR 17034].

               [382]:Securities Act Release No. 7497 (Jan. 28, 1998) [63 FR
               6370].

               [383]:According to offering participants with whom the staff
               spoke,  the  "law  of  the  Street" operates to  require  an
               investor  either  to  purchase  the   securities  it  orally
               committed to buy on the circle date or  harm  its reputation
               by breaking its commitment.  To break the commitment made on
               the  circle  date  also  is  to  risk exclusion from  future
               offerings.

               [384]:Arguments have been made to  the  staff that providing
               for delivery in these marketed deals at such a late point in
               the  offering  process  would  still  be  effective  because
               underwriters will allow their favored customers,  even then,
               to  back  out  of  the trade without repercussions.  We  are
               concerned that reliance  on that practice would disadvantage
               smaller   investors  and  not   reflect   current   offering
               practices.

               [385]:See Grant,  Small  Firms  Take  Direct  Route to Stock
               Offerings,  USA TODAY, Apr. 29, 1979, at 4b; Kollar,  Do-it-
               Yourself  Public   Offerings;   The  Internet  Gives  a  New
               Dimension to an Old Financing Vehicle,  Investment  Dealers'
               Digest,  Mar. 24,  1997 at 4; Barlas, Floating Stock on  the
               Web; The Next Wave?, Investor's Daily, Feb. 5, 1998, at A9.

               [386]:Rule 15c2-8, 17  CFR  240.15c2-8,  would  apply if the
               issuer itself is a broker or dealer.

               [387]:See Bagley & Tomkinson, Internet Is Seeing  Its  Share
               of  Securities Offerings, The Nat'l L. J., Feb. 2, 1998,  at
               C3; Weisul,  The  New  Plumbing  on  Wall Street; Forget the
               Hype: The Internet is Now Being Used by  Securities Firms to
               Solve  Workaday Problems, Investment Dealers'  Digest,  Jun.
               23, 1997, at 10.

               [388]:See,  e.g.,  Depository  Trust Company's Institutional
               Delivery  System  User  Manual  at  1   (1994).   Electronic
               messages containing the key information about the trade made
               in the offering are often sent earlier so that the clearance
               and settlement process may begin.  Paper  confirmations  are
               then mailed later.

               [389]:Loss, Fundamentals of Securities Regulation 93 (1988).

               [390]:See  the  comment  letters, in File No. S7-19-96, from
               the American Bar Association  (Dec. 11, 1996), Merrill Lynch
               (Oct. 31, 1996), Morgan Stanley (Dec. 9, 1996), PSA The Bond
               Market  Association  (Nov.  8,  1996)   and  the  Securities
               Industry Association (Nov. 13, 1996).

               [391]:Domestic  issuers  file  final prospectuses  with  the
               Commission  electronically  via  EDGAR.    The  filings  are
               available on a real-time basis through various  services and
               after   a   24-hour  delay  at  the  Commission's  web  site
               (http://www.sec.gov).

               [392]:See proposed  Securities Act Rule 173, 17 CFR 230.173.
               This Rule would not apply  in the case of offerings on Forms
               C, SB-3, F-8, F-80 or F-10 (when  that  Form  is  used  in a
               business combination transaction) or offerings of investment
               company securities.

               [393]:17 CFR 240.15c2-8(d).

               [394]:See 17 CFR 240.15c2-8(a).

               [395]:See  proposed  Securities  Act  Rule  173(c),  17  CFR
               230.173(c).  In the case of Form B offerings, investors will
               be notified through the term sheet of where they can acquire
               this information.

               [396]:See proposed Securities Act Rule 172, 17 CFR 230.172.

                                        - 95 -

                         b.   Business Combinations and Exchange Offers

               We are not planning to exempt offerings registered on the

          Securities Act forms for business combinations and exchange

          offers from the final prospectus delivery requirement. [397]

          These offerings differ from the other offerings registered under

          the Securities Act because the proxy rules and tender offer rules

          in conjunction with state law impose informational and delivery

          requirements in those transactions.  The information contained in

          the final prospectus therefore would be delivered regardless of

          Securities Act requirements.  In order to ensure consistency

          among the various rules and regulations applicable to these

          business combinations and exchange offers, the final prospectus

          delivery requirement would remain intact.

                In addition to the Section 5(b)(2) requirement for final

          prospectus delivery, Forms S-4 and F-4 require the registrant, if

          it or the company to be acquired incorporates any documents into

          the prospectus, to deliver a prospectus no later than 20 business

          days before the date of the meeting or, if no meeting is held and

          proxies are solicited, 20 days before the corporate action or

          transaction is effected.  This time period was established by the

          Commission in 1984 to address investors' need for sufficient time

          to acquire the documents incorporated by reference and,

          presumably, consider them. [398]  Since 1984, we have witnessed

          the advent of EDGAR, the Internet and other sources of filed

          information.  The Commission no longer believes that a 20-day

          time period is needed for that purpose.  All of the documents

          that would be incorporated into proposed Form C would be

          available through the Commission's Internet web site, as well as

          other sources, before the time the registration statement becomes

          effective.  We propose to eliminate the 20-day period.  We

          solicit comment, however, on whether we should retain a set

          period and, if so, how long that period should be.  Would

          delivery under the requirements applicable to these offerings not

          ensure sufficient time to obtain and consider the disclosure

          without one?


          **FOOTNOTES**

          [397]:These Forms would include Forms C, SB-3, F-8, F-80 and F-10
               (when   that   Form   is  used  in  a  business  combination
               transaction).

               [398]:Securities Act Release No. 6578 (Apr. 23, 1985) [50 FR
               18990].

                                        - 96 -

                         c.   Rule 434 Final Prospectus Delivery Method

               In 1995, the Commission adopted Rule 434 [399] to ease the

          burden of prospectus delivery within the new T+3 settlement

          cycle. [400]  At that time, four investment firms and the

          Securities Industry Association (SIA) had expressed concern that

          there would be insufficient time to mass print and mail final

          Section 10(a) prospectuses in a T+3 settlement cycle.  Rule 434

          provides that delivery of a final prospectus may be made in

          multiple documents at different intervals in the offering

          process.

               Rule 434 allows issuers and other offering participants to

          meet their prospectus delivery requirement by delivering a

          preliminary prospectus and a term sheet or abbreviated term sheet

          before or at the time of sale.  The information contained in the

          preliminary prospectus, confirmation and term sheet or

          abbreviated term sheet must in aggregate meet the informational

          requirements of Section 10(a).  Therefore, only the Section 10(a)

          information not previously delivered to investors would have to

          appear in the term sheet or abbreviated term sheet.  Consequently

          the term sheet or abbreviated term sheet could be printed and

          mass mailed quicker than the final integrated prospectus. [401]

               As discussed earlier, the Commission is proposing to re-

          focus the prospectus delivery requirements on a point in time

          before investors have made their investment decision.  If the

          proposed registration system is adopted, issuers and offering

          participants largely will be exempt from the requirement to

          deliver a final prospectus at the time of sale.  Therefore, the

          printing and mailing of a final prospectus in time to meet the

          T+3 settlement cycle would not be required.  Accordingly, the

          Commission is proposing to repeal Rule 434 for issuers other than

          investment companies as its purpose and usefulness to issuers and

          offering participants under the proposed registration system

          would be limited.  The proposals do not exempt investment

          companies from the requirement to deliver a final prospectus at

          the time of sale.  The Commission therefore is proposing to

          retain Rule 434 for closed-end funds and unit investment trusts,

          which are currently covered by the Rule.  We request comment on

          whether Rule 434 should be retained for these categories of

          investment companies.

                    4.   Delivery of Preliminary Prospectus Information

               Under the proposed registration system, we seek to ensure

          that high quality disclosure is delivered to investors when they

          need it most -- before they make their investment decisions.

          [402]  The proposed prospectus delivery requirements, like the

          current prospectus delivery requirements, do not contemplate that

          an issuer demonstrate that the investors actually received the

          prospectus.  The issuer would have to take steps to ensure that

          the means it chooses to deliver the prospectus would reasonably

          result in delivery to the issuer by a certain date.  As with

          other reforms, what prospectus information is required to be

          delivered, and when, will depend upon the nature of the issuer

          and offering. [403]

                         a.   Form B Offerings

               In all offerings of securities on Form B, we propose to

          mandate the delivery of transactional information before the

          investment decision. [404]  We seek comment on two alternative

          proposals.  Under the first proposal, we would mandate delivery

          of a securities term sheet.  The securities term sheet would:

          (1) itemize the material terms of the securities in summary

          format; (2) identify a contact person to whom questions and

          requests for final documents may be directed; (3) name any person

          other than the issuer that is selling the securities and briefly

          identify any material relationship between such person and the

          issuer with in the past three years; and (4) include a legend

          advising investors to read, before making an investment decision,

          the documents the issuer files with the Commission.  We would

          require that the securities term sheet be delivered to investors

          before they make their investment decisions and be on file with

          the Commission before the first sale.  Delivery of other

          information would not be mandated in proposed Rule 172 for Form B

          offerings.

               Under the second proposal, we would require delivery of a

          prospectus containing all transactional disclosure currently

          required in Form S-3/F-3.  That prospectus would have to be on

          file before first sale.  Just like the first proposal, delivery

          of other information would not be mandated in proposed Rule 172.

               We ask for comment on what kind of information should be

          mandated in the term sheet or prospectus.  For example, should

          the term sheet include all "offering information" [405] filed in

          Form B offerings?  Should the term sheet be more like a profile

          prospectus?  Should mandated term sheet disclosure be a different

          subset of offering information?  If so, should the term sheet

          include only categories of transactional information that must be

          disclosed in every Form B registration statement (e.g., use of

          proceeds, changes in the registrant's affairs, etc.)?  Should the

          term sheet include any of the categories of disclosure that must

          be included in the Form B filing if applicable (e.g.,

          transactional risk factors, dilution, etc.)?  Should we require

          that the term sheet be written in plain English?  Should we

          require in the prospectus fewer items of mandated disclosure?  If

          so, which items should be excluded?

               Similarly, should material changes in the issuer's affairs

          not previously reported be required on either the term sheet or

          the prospectus?  Would there already be sufficient information

          available to investors and the market regarding certain

          securities such that delivery of a securities term sheet or

          prospectus would be unlikely to enhance investor protection

          significantly?  Should we require delivery of a securities term

          sheet or prospectus in any Form B offering, regardless of whether

          or not the class of securities was previously registered?

                          b.  Offerings by Small or Unseasoned Issuers

               Delivery of information contained in the prospectus is

          especially important when the registrant is a new or relatively

          new public company.  In those cases, there is comparatively

          little information available about the company.  Due to the

          general lack of familiarity by investors with companies that are

          smaller or unseasoned, it is important that prospectus

          information be delivered early enough for investors to have

          sufficient time to assess the disclosure and, if necessary, seek

          further information in light of it.  In these situations, we

          would not limit the requirement to deliver a preliminary

          prospectus to non-reporting companies, as Rule 15c2-8 does today.

          We are proposing to require the delivery of a Section 10

          prospectus for all filings of small or unseasoned

          offerings. [406]  The timing aspect of the delivery requirement

          would be dependent upon whether the offering was the registrant's

          initial public offering (or registered within a year of the

          registrant's initial public offering).  If so, we propose to

          require that a Section 10 prospectus be delivered in a manner

          reasonably designed to be received by each investor no later than

          7 calendar days before the date of pricing in a firm commitment

          underwritten offering.  In a best efforts offering, or direct

          public offering, we would mandate delivery in a manner reasonably

          designed to be received by each investor no later than 7 calendar

          days before the investor signs a subscription agreement or other

          document in which it commits to purchase securities.  For more

          seasoned issuers, [407] we would require that the prospectus (and

          any incorporated reports) be delivered so as to arrive at least 3

          calendar days before the date of pricing, or the date the

          investor signs a subscription agreement or other document in

          which it commits to purchase the securities, as applicable.

               We solicit comment on whether we should require earlier

          prospectus delivery.  Should we mandate delivery, for example, at

          10 or 15 days (rather than 7 days) and 5 or 10 days (rather than

          3 days) before the date of pricing or commitment to purchase?  We

          solicit comment on whether the proposed 7 and 3 day delivery

          dates are shorter or longer than the dates by which issuers

          typically deliver red herring prospectuses under the current

          system.  Would the proposal alter current delivery practices in

          offerings of the type that would be made on Form A or the small

          business issuer system?  If so, how?

               Because information would be delivered to the investor

          before the transaction is declared effective and sold, material

          changes to the transaction or the company information may arise

          that were not disclosed in the preliminary prospectus delivered

          to investors.  If investors are not otherwise informed about

          those changes, the information must be set forth in a document

          sent in a manner reasonably designed to be delivered to each

          investor at least 24 hours before the pricing of securities or

          the date the investor signs a subscription agreement or otherwise

          commits to purchase the securities. [408]  Should we instead

          require delivery of material change information in 36 or 48

          hours?

                         c.   Foreign Government Issuers

               We propose to exempt foreign government issuers [409] from

          the final prospectus delivery requirements and require them to

          deliver prospectus information under Rule 172 for the same reason

          we propose that treatment for other issuers: to provide more

          timely and efficient dissemination of information to investors. 

               Foreign government issuers are exempt from the reporting

          requirements under the Exchange Act unless they list their

          securities on a U.S. exchange. [410]  Therefore, the proposed

          prospectus delivery requirements would serve a significant

          function in ensuring that investors have the information about

          foreign governments they need, at the time they need it, to make

          an informed investment decision.  As in the case of corporate

          issuers, however, delivery may be needed more or less depending

          on the issuer and the offering.  We believe that investors would

          need less time to review the prospectus information for a new

          offering by a seasoned issuer than it would that of an unseasoned

          one.

               When a foreign government issuer makes an initial registered

          offering in the United States, it files a Schedule B with the

          Commission.  The Schedule is publicly available, and in many

          cases contains much more information than is mandated. [411]

          Investors can access this information through the Commission at

          any time after the registration statement becomes publicly

          available.  Depending on the nature of the offering and the

          issuer, analysts may cover the issuer and disseminate information

          about it and its offerings.  For purposes of prospectus delivery,

          therefore, we would define "seasoned" foreign government issuers

          as those that already have registered a public offering on

          Schedule B.  In the absence of a reporting history, we believe

          that is the best measure of seasoning.

               Under proposed Rule 172, foreign government issuers would be

          divided into two categories:  (1) larger seasoned issuers; and

          (2) smaller/unseasoned issuers.  Larger seasoned issuers would

          consist of those that:

               *    had registered an initial public offering with the
                    Commission that was declared effective more than one
                    year before the registration of its current offering on
                    Schedule B; and

               *    are registering an offering of securities in excess of
                    $250 million that is being underwritten on a firm
                    commitment basis.

          All other foreign government issuers would be within the

          smaller/unseasoned category.

               Large seasoned foreign government issuers that registered

          their offerings on Schedule B would be treated like Form B

          registrants for purposes of prospectus information delivery

          requirements.  We would mandate the delivery of a term sheet

          describing the material terms of the security being offered.  We

          also would require that the term sheet be on file with the

          Commission before the first sale. [412]  These foreign government

          issuers would have to send the term sheet by means that would

          reasonably result in delivery to the investor before it makes a

          binding investment decision.

               Foreign government issuers in the smaller/unseasoned

          category would be treated like Form A registrants.  A foreign

          government issuer, regardless of size, registering its initial

          public offering on Schedule B (or registering within 1 year of

          it) would be included in the smaller/unseasoned category.  That

          issuer would be treated like an issuer registering its initial

          public offering on Form A.  Thus, we would require it to send a

          prospectus that satisfies the requirements of Section 10 of the

          Securities Act, by means reasonably designed so that the investor

          receives the prospectus at least 7 days before:

               *    the date of pricing the securities (for offerings
                    underwritten on a firm commitment basis); or

               *    the date the investor signs a document that commits it
                    to purchase the securities or otherwise commits to
                    purchase (for offerings underwritten on a best efforts
                    basis and non-underwritten offerings).

               A seasoned foreign government issuer registering an offering

          of less than $250 million or registering an offering that is not

          underwritten on a firm commitment basis would be treated the same

          as a seasoned small issuer on Form A.  It would have to deliver a

          prospectus 3 days before the date of pricing or the date an

          investor commits to purchase, as applicable.

               We solicit comment on the prospectus delivery proposals as

          they relate to foreign government issuers.  For unseasoned

          foreign governments, should we mandate prospectus delivery

          earlier than 7 days?  Would 10 or 15 days be a better measure of

          time needed to digest the information and do any follow up

          inquiries.  For other foreign government issuers in the

          smaller/unseasoned category, should we mandate prospectus

          delivery earlier than 3 days?  Would 5 or 10 days be a better

          measure?  For seasoned Schedule B issuers making smaller

          offerings or offerings not done on a firm commitment underwritten

          basis, should we mandate prospectus delivery earlier than 3 days?

          Would 5 or 10 days be a better measure?  Should our definitions

          of "seasoned" for offerings by foreign government issuers require

          that the issuer have made its initial public offering more than 1

          year earlier?  Would two years earlier be a better test?  Should

          we raise the offering threshold (e.g., to $400 or $500 million)

          or lower it (e.g., to $100 or $150 million)?

               As we do regarding the term sheet required for Form B

          offerings, we solicit comment on whether the term sheet for

          Schedule B offerings should include information in addition to

          the material terms of the securities.

                         d.   Canadian MJDS Issuers

               We also would require earlier delivery with respect to

          offerings on Forms F-7, F-8, F-9, F-10 and F-80 -- the

          registration statements used in connection with the MJDS.  Under

          the proposed registration system, issuers that register offerings

          under the MJDS, other than business combinations and exchange

          offers, also would be required to comply with proposed Rule 172.

          [413]  We believe this requirement would be especially useful to

          U.S. investors who may need more time to familiarize themselves

          with the disclosure that Canadian companies prepare pursuant to

          the requirements of Canadian securities regulation, which would

          likely differ somewhat from disclosure generally prepared under

          U.S. federal securities laws.

               Issuers that register on MJDS Forms F-7, F-9 or F-10 (when

          that form does not involve a business combination) would be

          required to deliver a Section 10 prospectus under the proposed

          Rule.  The delivery periods would mirror those applicable to Form

          A offerings.  Seasoned issuers making offerings underwritten on a

          firm commitment basis would be required to deliver the prospectus

          to investors at least 3 days before the pricing date.  For

          offerings underwritten on a best efforts basis, seasoned issuers

          would be required to deliver the prospectus to investors at least

          3 days before the investor commits to purchase the securities.

          Unseasoned issuers would be required to deliver the Section 10

          prospectus at least 7 days before the date of pricing or the date

          an investor commits to purchase, depending on the type of

          underwriting.  Because there would be less public information

          available for unseasoned issuers, the proposed Rule calls for

          them to give investors more time to read the prospectus.

               Comment is solicited with regard to these delivery

          obligations.  Would the 7-day or 3-day delivery requirement

          provide investors with sufficient time to consider the issuer's

          disclosure?  Should MJDS issuers be required to deliver sooner

          than proposed?  Would 10 or 15 days (instead of 7) or 5 or 10

          days (instead of 3) be better measures?  Should we provide that

          MJDS issuers eligible to register on Form B be treated for

          purposes of delivery the same as Form B issuers, even though they

          rely on Canadian disclosure requirements?  Is there any reason to

          differentiate the business combinations and exchange offers on

          MJDS forms from those on Form C or Form SB-3 with respect to the

          delivery requirements?

                          e.  Effectiveness and Prospectus Delivery

               In determining whether to accelerate effectiveness of

          registration statements, Section 8(a) of the Securities Act

          provides that the Commission consider whether there has been

          available adequate and understandable public information about an

          issuer and its offering.  If not, the Commission may determine

          that it is not in the public interest to accelerate effectiveness

          of the registration statement.  Under the proposed registration

          system, we would consider whether an issuer complied with its

          prospectus delivery obligations in evaluating any request for

          acceleration.  We propose to amend Securities Act Rule 461 to

          reflect the consideration of compliance with delivery obligations

          under proposed Rule 172. [414]

                         f.   Secondary Offerings

               The proposed prospectus delivery requirements also would

          apply to registered secondary offerings made by selling security

          holders.  We believe this is appropriate because most registered

          secondary offerings would be made in a manner that is similar to

          registered primary offerings.  We solicit comment regarding

          whether it is appropriate to apply the same delivery requirements

          to all secondary offerings made by selling security holders that

          we apply to primary offerings made by the issuer.  If not, why

          not, and how should they differ?

               Are certain types of registered secondary offerings

          conducted in a sufficiently different manner from registered

          primary offerings that the delivery requirements are either not

          necessary or not appropriate?  In particular, should the same

          delivery requirements apply to non-underwritten secondary sales

          into an existing trading market?

                     5.  Aftermarket Prospectus Delivery

               For a specified period of time after a registration

          statement becomes effective, the Securities Act requires dealers

          to deliver a final prospectus to persons who buy those

          securities.  This aftermarket delivery obligation applies to all

          dealers, whether or not they participated in the offering

          itself. [415]  The obligation arises because Section 5 applies to

          the dealer's transactions.  The exemption generally relied upon

          by dealers, Section 4(3) of the Securities Act, is not available

          during a 40-day or 90-day period after the later of the effective

          date of a registration statement or the first bona fide offer of

          the security. [416]  Thus, the aftermarket delivery period is

          defined primarily by the length of time Section 4(3) is

          unavailable. [417]

                         a.   Background of Aftermarket Prospectus Delivery

                 An exemption from registration for dealers is not

          available during those periods because Congress determined to

          mandate that information be delivered to investors by all dealers

          while the securities are "in the stream of distribution." [418]

          Congress deemed protection of investors in the aftermarket

          important because: those investors are likely to be less

          sophisticated than the ones able to purchase in the initial sale,

          they frequently purchase at a higher price than the price of the

          initial offering, and they are solicited or influenced by the

          same selling efforts as the initial purchasers. [419]  The

          Section 4(3) period was created to distinguish between

          transactions during distributions and ordinary trading

          transactions. [420]

               Initially, Congress provided for a one-year aftermarket

          prospectus delivery period during which all dealers were

          obligated to deliver a prospectus.  In 1954, Congress shortened

          the period to 40 days because it determined that distributions

          were completed well before the one-year period. [421]  In 1964,

          Congress extended the 40-day period to 90 days for those

          transactions where no securities of an issuer had previously been

          sold pursuant to an earlier effective registration

          statement. [422]  At the same time, Congress gave the Commission

          the power to shorten the 40-day and 90-day delivery period by

          rule, regulation or order.

               In response to the 1964 legislative action, the Commission

          promptly shortened the aftermarket delivery period for some

          offerings via the adoption of Rule 174. [423]  Since 1964, the

          Commission has amended aftermarket delivery obligations in Rule

          174 four times. [424]

               Current Rule 174 exempts from aftermarket prospectus

          delivery any transaction relating to securities of a reporting

          company. [425]  If the transaction relates to securities of a

          non-reporting company that will be listed on a national

          securities exchange or quoted on an electronic inter-dealer

          quotation system, current Rule 174 sets an aftermarket delivery

          period of 25 days. [426]  For offerings by blank check companies,

          Rule 174 sets an aftermarket prospectus delivery period of 90

          days after the funds are released from the escrow or trust

          account. [427]  Where a registration statement relates to

          offerings to be made from time to time, Rule 174 provides that

          there is no aftermarket delivery requirement once the initial

          period expires. [428]

                         b.   Aftermarket Underwriter Activities

               In practice, aftermarket activities by underwriters occur in

          connection with offerings both by reporting and non-reporting

          companies.  For example, the Commission's Office of Economic

          Analysis surveyed aftermarket underwriter short covering in 236

          offerings completed between May and July 1997. [429]  Short

          covering occurs when the underwriter creates a short position in

          the offering that it covers by exercising the over-allotment

          option, by purchases in the aftermarket or by a combination of

          the two.

               In its survey, the Commission examined the frequency of

          short covering.  Of the 236 offerings, underwriters in 54% of the

          initial public offerings and 73% of the non-initial public

          offerings covered short positions in the aftermarket. [430]  Of

          those initial public offerings, 42% had underwriters still

          covering short positions 10 days after the offering.  That

          percentage dropped to 13% at 25 days after the offering.  Of the

          non-initial public offerings in which short position were taken,

          28% had underwriters who were still covering short positions 10

          days after the offering.  That percentage dropped to 10% at 25

          days after the offering. [431]

                         c.   Recent Case Law Relating to Aftermarket
                              Delivery Obligations

               Since the Gustafson v. Alloyd Co. [432] decision by the

          Supreme Court, several federal district courts have concluded

          that the end of the prospectus delivery obligation also marks the

          end of the distribution for purposes of civil liability

          provisions under the Securities Act.  Those decisions tie

          together the obligation to deliver a prospectus in the

          aftermarket with the existence of investor remedies in the

          aftermarket.

               In Gustafson, the Supreme Court stated that "the liability

          imposed by Section 12[(a)](2) ... cannot attach unless there is

          an obligation to distribute the prospectus in the first place (or

          unless there is an exemption)." [433]  District courts have

          interpreted this dicta to mean that Section 12(a)(2) protections

          apply only where there is an obligation under Section 5 (read in

          conjunction with Section 4(3) and Rule 174) to deliver a

          prospectus. [434]  Some courts have extended that reasoning by

          analogy to Section 11 as well. [435]

               Under the current delivery requirements, that interpretation

          could result, and in some cases has resulted, in findings that

          Section 11 and Section 12(a)(2) protections do not extend to the

          entire distribution because Rule 174 creates an exemption from

          the prospectus delivery aspect of Section 5.  We believe such an

          outcome is inconsistent with the investor protection provisions

          of the Securities Act and therefore seek to eliminate any

          potential confusion that could arise from Commission rules

          relating to prospectus delivery obligations.

                         d.   Aftermarket Prospectus Delivery Proposals

               We propose to continue the principle of applying a

          prospectus delivery obligation to transactions in the

          aftermarket.  The concerns about aftermarket purchasers that

          caused Congress to apply Section 5's investor protections

          arguably remain just as valid today.  We want to ensure that

          investors are suitably informed and protected in the aftermarket.

          When we adopted Rule 174, we intended simply to express when

          prospectus delivery was needed. [436]  We did not intend to

          delineate when the remedies provisions in the Securities Act

          would or would not apply.

               While we believe it is appropriate overall to continue to

          apply a prospectus delivery obligation in the aftermarket, we

          also recognize that the world of accessible investment

          information has changed in many respects since Congress last

          amended that obligation in 1964.  We believe it is time to

          reassess how this particular delivery obligation may be

          satisfied.  While the Gustafson Court stated that a prospectus

          delivery obligation must exist in order to apply Section

          12(a)(2), Section 12(a)(2) does not speak to the method by which

          that obligation could be satisfied.  Physical delivery of a

          prospectus would not necessarily be required for purposes of the

          section.

               Today, prospectuses are readily available during the

          aftermarket period through our Internet web site as well as other

          electronic sources.  The Commission realizes that some investors

          are technologically sophisticated and are just as able as dealers

          to download the final prospectus from the Internet. We also

          recognize, however, that there are still many investors who do

          not have the capacity to obtain information in that manner.

          Given that the final prospectus delivery obligation in the

          aftermarket truly protects investors primarily after they have

          made their initial investment decisions, we believe that

          obligation could be satisfied through a means other than physical

          delivery.

               We propose to revise Rule 174 so that the prospectus

          delivery obligation would be satisfied if a final prospectus

          [437] is on file with the Commission and the dealer notifies each

          investor, before or at the same time it receives a confirmation,

          where it may promptly acquire, free of charge from the issuer,

          final prospectus information.  For example, the dealer could

          notify investors that they can download a final prospectus in

          electronic form from our web site and request it in paper format

          by calling the dealer at the listed number.  The notice may be in

          the form of a legend on the confirmation sent by the dealer under

          Exchange Act Rule 10b-10.

               The proposed Rule would maintain the twin goals of the

          aftermarket prospectus delivery that Congress created: informing

          investors and preserving investor remedies throughout the stream

          of distribution of securities.  By directing investors to a web

          site where they are able to view and print the final prospectus,

          and by allowing investors to request physical delivery of a final

          prospectus, the Commission would ensure investor awareness of the

          availability of information in the aftermarket.  At the same

          time, the burden on dealers would be minimized to only those

          cases where investors seek a paper prospectus.

               We propose to apply the Section 5 prospectus delivery

          obligation for transactions by all dealers for a period of 25

          calendar days after the later of: the effective date of the

          registration statement, or the first date on which the security

          was bona fide offered to the public. [438]  The aftermarket

          delivery obligation would apply regardless of whether the

          offering is an initial public offering or a repeat offering.  The

          frequency and nature of the underwriter trading behavior

          demonstrates that aftermarket distributive activities are clearly

          not confined to offerings that are initial public offerings.

          [439]

               The intent of Section 4(3) and Rule 174 was to provide

          Securities Act protection during the entire stream of

          distribution.  Given our research and understanding of practices,

          we believe it is possible to set an appropriate delivery

          obligation period at 25 days for both initial public offerings

          and repeat offerings.  The single period for all offerings would

          simplify compliance for dealers and provide a bright-line by

          which investors could set their expectations.  Thus, the market

          should benefit from the clear definition of aftermarket

          transactions.  While distributive activities continue in some

          offerings beyond that period, we believe the vast majority do

          not.  We solicit comment, however, regarding whether the period

          should be shorter (e.g., 20 days) or longer (e.g., 30 days) or

          vary according to some other aspect of the offering.

               We also solicit comment on whether dealers that were not

          members of the underwriting syndicate for an offering of a

          reporting company should have a prospectus delivery requirement.

          Would the cost of compliance by notification under proposed Rule

          174 for those dealers be greater than the benefit of an informed

          aftermarket?

                    6.   Proposed Repeal of Rule 153

               Under the proposed prospectus delivery regime, Securities

          Act Rule 153 would not be necessary. [440]  Rule 153 addresses

          delivery of final prospectuses in transactions between brokers

          taking place over a national securities exchange.  The Rule

          states that the Section 5 delivery obligation of a final

          prospectus before or with a security will be satisfied if the

          issuer or underwriter delivers the final prospectus to the

          exchange.  The Rule contemplates that these prospectuses will

          then be taken or copied by the members of the exchange that are

          on the buy side of the transaction and delivered to the

          beneficial purchaser. [441]  The Rule is limited in that it

          applies only to transactions between members of a national

          securities exchange and only where the transaction was effected

          on that exchange. [442]  The Rule is not applicable for

          transactions on an automated quotation system.

               Based on our staff's discussions with exchanges and market

          participants, it appears that Rule 153 is not relied on (or

          rarely relied on) to accomplish prospectus delivery.  There are

          two explanations for this.  First, Rule 153 is narrow in scope

          and therefore does not apply to many transactions.  Second, from

          a procedural standpoint, an underwriter finds it easier to mail

          prospectuses to all purchasers rather than differentiating among

          them.

               Under the proposed aftermarket prospectus delivery system,

          Rule 153 would not be necessary.  As we propose to revise Rule

          174, dealers would have a prospectus delivery requirement for

          transactions relating to a registered security for a period of

          twenty-five calendar days after the later of:  the effective date

          of the registration statement, or the first date on which the

          security was bona fide offered to the public.  That delivery

          obligation would be deemed satisfied, however, if a final

          prospectus is on file with the Commission and each investor is

          notified where it can obtain the final prospectus information

          that satisfies Section 10(a).  Thus, in the limited situations

          under the proposed system in which Rule 153 might apply, delivery

          is satisfied through another mechanism.  We therefore propose to

          repeal Rule 153.

                    7.   Record Keeping of Prospectus Delivery

               We solicit comment on whether the Commission should, by

          rule, specifically require broker-dealers to keep records of

          their distribution of information relating to an offering of

          securities under the Securities Act. [443]  For example, should

          the Commission require a broker-dealer to keep records on each

          offering regarding where and how prospectuses, term sheets and

          free writing material were disseminated?  Should the Commission

          limit such a rule only to managing or principal underwriters or

          should the rule apply to every broker-dealer?  Should records be

          required concerning prospectuses only, or should the records

          reflect all information distributed?  Should this requirement be

          limited to the "offering period" only or should it extend through

          the aftermarket delivery time period required by the proposed

          amendment to Rule 174?  Should this requirement be limited only

          to those offerings that become effectively automatically? [444]

          How long should these records be required to be kept?  Is two

          years a long enough period?  Is six years too long?

               To enable easier tracking of compliance, should we require

          issuers that make offerings (other than Form B offerings) that

          are underwritten on a firm commitment basis disclose the pricing

          date?  Should it be disclosed in the first quarterly report they

          would be required to file after the offering or in another

          Exchange Act report (e.g., a Form 8-K)?

          IX.  THE ROLE OF UNDERWRITERS

               A.   Legislative Shaping of the Underwriters' Role

               In passing the Securities Act in 1933, Congress was acting

          on its concern that misleading disclosure and high pressure sales

          tactics had overstimulated investors' demand for securities.

          [445]  Congress' remedy was to require that investors get

          complete and truthful information regarding the offered

          securities.  To help ensure that result, Congress deliberately

          placed underwriters within the scope of the liability provisions.

          [446]  Congress recognized that underwriters occupied a unique

          position that enabled them to discover and compel disclosure of

          essential facts about the offering. [447]  Congress believed that

          subjecting underwriters to the liability provisions would provide

          the necessary incentive to ensure their careful investigation of

          the offering. [448]

               Congress' goal was not to have underwriters act as insurers

          of an issuer's securities. [449]  Accordingly, Congress provided

          underwriters and others with a "due diligence" defense.  An

          underwriter is not liable under Section 11 for the non-expertised

          portions of the registration statement if, after reasonable

          investigation, it had reasonable

          grounds to believe (and did believe) that the statements in the

          registration statement "were true and that there was no omission

          to state a material fact required to be stated therein or

          necessary to make the statements therein not

          misleading...." [450]

               B.   Case Law Interpretation of the Underwriters' Role

               In the past, the courts also have recognized the important

          role underwriters play in the offering process.  As the U.S.

          Court of Appeals for the Second Circuit noted, "[n]o greater

          reliance in our self-regulatory system is placed on any single

          participant in the issuance of securities than upon the

          underwriter...." [451]  Accordingly, courts have found that

          underwriters must conduct an investigation "reasonably calculated

          to reveal all of those facts [that] would be of interest to a

          reasonably prudent investor." [452]  As the courts have noted, it

          is impossible to have a rigid rule defining what is a reasonable

          investigation or how far an underwriter must go in order to

          verify an issuer's statements. [453]

               C.   Commission Interpretation of the Underwriters' Role

               We, too, have provided guidance with regard to underwriter

          due diligence.  In 1982, as part of a comprehensive program to

          integrate the disclosure requirements of the Securities Act and

          the Exchange Act, we adopted Rule 176. [454]  Rule 176 identifies

          circumstances relevant in determining whether a person's conduct

          satisfies the due diligence standard in Section 11. [455]  They

          are:

               1.   the type of issuer;

               2.   the type of security;

               3.   the type of person;

               4.   the office held when the person is an officer;

               5.   the presence or absence of another relationship to the
                    issuer when the person is a director or proposed
                    director;

               6.   reasonable reliance on officers, employees and others
                    whose duties should have given them knowledge of the
                    particular facts;

               7.   for underwriters, the type of underwriting arrangement,
                    the role as underwriter, and the availability of
                    information with respect to the registration; and

               8.   where a fact or document is incorporated by reference,
                    whether the person had any responsibility for the fact
                    or document when filed.

          We wrote this list in a general way to apply to virtually any

          kind of offering and to apply to any person that could claim a

          due diligence defense.

               We adopted Rule 176 to provide guidance to courts assessing

          the reasonableness of an investigation under the integrated

          disclosure system. [456]  At that time, we expressly rejected the

          consideration of competitive timing and pressures when evaluating

          the reasonableness of an underwriter's investigation. [457]

               In proposing Rule 176, we also discussed techniques

          available to underwriters that would allow them to expedite their

          due diligence investigations. [458]  We stated that an

          underwriter could develop a "reservoir of knowledge," before an

          offering, by carefully reviewing a company's Exchange Act

          filings, analysts' reports, and by attending the company's

          meetings with analysts and brokers.  This "reservoir of

          knowledge" would enable the underwriter to complete its due

          diligence investigations more quickly, because it would already

          be familiar with the company.

               D.   Proposed Guidance on Underwriter Due Diligence

               The registration system we are proposing, among other

          things, would allow more reporting issuers to register capital

          faster and more efficiently.  Consequently, underwriters may

          experience marginal additional timing pressures in conducting

          their due diligence investigations.  Under those circumstances,

          underwriters must take care not to allow competitive pressures

          and issuers' demands for speed to lessen their due diligence

          investigations.  We have been advised that firms currently

          underwriting expedited offerings by reporting issuers perform a

          reasonable investigation despite the very short period between

          when they are named the underwriter and when the offering is

          commenced.  They reportedly use a combination of real-time and

          anticipatory due diligence practices.  Those practices should

          work as well in connection with expedited offerings under the

          proposed registration system.

               We believe that a court would, of its own accord, take into

          account all of the facts and circumstances that affect the

          ability of the underwriter to conduct a reasonable investigation

          or develop reasonable grounds for belief.  Nevertheless, a rule

          that provides guidance with respect to expedited offerings by

          reporting companies could help those involved in the due

          diligence process and those assessing its adequacy.  We believe

          we can identify several due diligence practices for those

          offerings that, if present, may be indicative of a "reasonable

          investigation" under Section 11 and "reasonable care" under

          Section 12(a)(2).

               Accordingly, we are proposing to expand Rule 176. [459]

          First, we are proposing that Rule 176 address the reasonable care

          standard of Section 12(a)(2) as well as the reasonable

          investigation standard of Section 11.  While Section 11 requires

          a more diligent investigation than Section 12(a)(2), any

          practices or factors that would be considered favorably under

          Section 11 also should be considered as favorably under the

          reasonable care standard of Section 12(a)(2). [460]

               We also are proposing to add subsection (i) to the Rule.  It

          would identify six due diligence practices that the Commission

          believes would enhance an underwriter's due diligence

          investigation when conducting an expedited offering.  The

          Commission believes the courts should view these practices as

          positive factors when evaluating an underwriter's due diligence

          defense, though these practices in no way constitute an exclusive

          list or serve as a substitute for a court's analysis of all

          relevant circumstances.  The absence of one or more of these

          practices, apart from the underwriter's review of the

          registration statement and inquiry into facts or circumstances

          that raise concerns about the adequacy or accuracy of the

          disclosure, should not be considered definitive in reaching a

          conclusion about the adequacy of the underwriter's investigation.

               Subsection (i) would apply only to offerings of equity and

          non-investment grade debt securities that were marketed and

          completed in fewer than five days.  Additionally, the proposed

          guidance would require that the issuer have registered the

          offering on Form B.  These expedited offerings require the

          underwriter to perform the bulk of its due diligence on a

          compressed time schedule.  For offerings conducted on a longer

          time schedule, the Commission believes that no additional

          guidance is required.  For every offering, including expedited

          offerings, the courts would examine all the relevant

          circumstances.  The six practices that the courts should consider

          as positive factors in expedited offerings are:

               1.   Whether the underwriter reviewed the registration
                    statement and conducted a reasonable inquiry into any
                    fact or circumstance that would cause a reasonable
                    person to question whether the registration statement
                    contains an untrue statement of a material fact or
                    omits to state a material fact required to be stated
                    therein or necessary to make the statements therein not
                    misleading;

               2.   Whether the underwriter discussed the information
                    contained in the registration statement with the
                    relevant executive officer(s) of the registrant
                    (including, at a minimum, the chief financial officer
                    ("CFO") or chief accounting officer ("CAO") or his or
                    her designee) and the CFO or CAO (or his or her
                    designee) certified that he or she has examined the
                    registration statement and that to the best of his or
                    her knowledge, it does not contain an untrue statement
                    of a material fact or omit to state a material fact
                    required to be stated therein or necessary to make the
                    statements therein not misleading;

               3.   Whether the underwriter received a Statement on
                    Auditing Standards ("SAS") No. 72 comfort letter from
                    the issuer's auditors;

               4.   Whether the underwriter received a favorable opinion
                    from issuer's counsel opining that nothing has come to
                    its attention that has caused it to believe that the
                    registration statement contains an unfair or untrue
                    statement or omits to state a material fact;

               5.   Whether the underwriter employed counsel that, after
                    reviewing the issuer's registration statement, Exchange
                    Act filings and other information, opined that nothing
                    came to its attention that would lead it to believe
                    that the registration statement contains an untrue
                    statement or omits to state a material fact; and

               6.   Whether the underwriter employed and consulted a
                    research analyst that:

                    (i)  has followed the issuer or the issuer's industry
                         on an ongoing basis for at least the 6 months
                         immediately before the commencement of the
                         offering; and

                    (ii) has issued a report on the issuer or its industry
                         within the 12 months immediately before
                         commencement of the offering.

               The Advisory Committee on Capital Formation also recommended

          expanding the factors listed in Rule 176. [461]  We solicit

          comment on whether one of those factors, a management report to

          the audit committee of the board regarding procedures established

          to assure accurate and complete Exchange Act disclosure, be

          included in Rule 176 as a basis for underwriter due diligence.

          [462]

                    1.   Proposed Practices Reflect Current Practice

               Various underwriters and issuers have identified to the

          Commission staff potential elements of current due diligence

          investigations for expedited offerings.  All of the six practices

          identified in the proposal reportedly are being used to some

          degree by most underwriters for those offerings.  For example,

          even in the speediest of offerings, an underwriter interested in

          establishing that it had done a reasonable investigation would:

          read the disclosure, talk about it with management of the issuer,

          document management's conclusion about its adequacy, and follow

          up on matters of concern that arise in connection with its

          inquiry.  An underwriter doing a due diligence investigation in

          an expedited offering may seek assurance from third parties

          involved in the offering that they have not discovered

          inadequacies in the disclosure.  Thus, they may arrange for

          opinions from both the issuer's counsel and their own.

          Additionally, underwriters may arrange for a SAS 72 comfort

          letter from the issuer's auditor.  Though we believe that

          underwriters' reliance on representations by third parties may,

          depending on the circumstances, be a factor in considering an

          underwriter defense in expedited offerings, in every instance we

          believe it is appropriate for underwriters to review the

          registration statement and make reasonable inquires about any

          suspicious statements or omissions.  For that reason, we have

          indicated that a court could consider dispositive an

          underwriter's failure to do so.  We request comment on whether

          reliance on third party representations alone could satisfy an

          underwriter's obligation.


          **FOOTNOTES**

          [399]:17 CFR 230.434.

               [400]:Securities Act Release No. 7168 (May 11, 1995).

               [401]:It   appears,   however,   that   most   issuers   and
               participants  continued  to  deliver  the  integrated  final
               Section  10(a)  prospectus  at  the  time  of  sale.   Since
               September  of  1996,   only  four  (non-investment  company)
               issuers have filed term sheets or abbreviated term sheets.

               [402]:See proposed Securities  Act Rule 172, 17 CFR 230.172,
               and proposed revisions to Exchange  Act  Rule 15c2-8, 17 CFR
               240.15c2-8.

               [403]:If   it  chooses  to,  the  issuer,  underwriting   or
               participating   broker   or   dealer  may  deliver  a  final
               prospectus in lieu of the preliminary prospectus, so long as
               the delivery of the final prospectus  satisfies the required
               time frame.

               [404]:A preliminary prospectus could be used to satisfy this
               obligation  if  an  issuer  so  chooses.  If  a  preliminary
               prospectus is delivered, delivery of a securities term sheet
               would not be required.  Absent consent  by  the  investor to
               electronic  delivery,  the  issuer  or underwriter would  be
               required to send a paper copy of the securities term sheet.

               [405]:See  Section  V.A.1.a.ii.  of  this   release   for  a
               discussion of what constitutes "offering information."

               [406]:This  requirement would encompass all filings on Forms
               A, SB-1, SB-2,  F-7,  F-9,  F-10  (not  involving a business
               combination)  and  certain  Schedule  B  offerings.    These
               proposes  do not contemplate that issuers must satisfy their
               prospectus  delivery  requirements  by  using  any  specific
               method   of  delivery.   Whether  issuers  satisfy  delivery
               requirements  electronically  or  in  more traditional ways,
               they would be required to deliver the prospectus in a manner
               reasonably designed to result in delivery  by the applicable
               date.

               [407]:For  purposes  of this delivery requirement,  seasoned
               issuers are those whose  initial public offerings took place
               one  year  or  more  before  the   effective   date  of  the
               registration   statement   for   the  current  offering   of
               securities.

               [408]:For  example,  an  issuer could  choose  to  have  the
               brokers tell investors orally  about  the  changes when they
               call to determine if investors will commit to purchase.

               [409]:Securities  Act  Rule  405,  17  CFR 230.405,  defines
               "foreign government" to mean the government  of  any foreign
               country or the government of any political subdivision  of a
               foreign country.

               [410]:Section  15(d)  of  the  Exchange Act expressly states
               that  it  does  not  apply  to foreign  government  issuers.
               Section 12(g) of the Exchange Act applies only to issuers of
               equity  securities,  and foreign  government  issuers  never
               issue  equity.   Accordingly,  Section  12(b)  is  the  only
               section under the  Exchange  Act  that  imposes  a reporting
               requirement on foreign government issuers.

               [411]:Typically,  the  registration statements will  include
               information about the issuer's  country, form of government,
               economy, monetary system, public  finance and national debt.
               Foreign   government   issuers  disclose   this   additional
               information for marketing  purposes and due to concern about
               the antifraud provisions of  the  federal  securities  laws.
               See  Greene  &  Adee, The Securities of Foreign Governments,
               Political Subdivisions  and  Multinational Organizations, 10
               N.C.J. of Int'l L. and Com. Reg. 1 (Winter 1985).

               [412]:See proposed Securities  Act  Rule  230.493A,  17  CFR
               230.493A.

               [413]:Business combinations and exchange offers on Form F-8,
               F-80,  and  F-10  (when  that  Form  is  used  in a business
               combination transaction) like business combinations on Forms
               C  and SB-3, would not be subject to proposed Rule  172,  17
               CFR  230.172, preliminary prospectus delivery.  Instead, due
               to the nature of the transactions, they would continue to be
               subject  to  the  final  prospectus  delivery obligations of
               Section 5.  The timing of that delivery  would  be dependent
               on state law.

               [414]:See proposed Securities Act Rule 461(b)(2)(i),  17 CFR
               230.461(b)(2)(i).

               [415]:The  obligation  is  in  addition to the obligation of
               dealers to deliver a prospectus  when acting as underwriters
               and with respect to their unsold allotments.

               [416]:The 90-day delivery period in Section 4(3) applies for
               securities  of issuers that have not  previously  registered
               under the Securities  Act.   The  40-day  delivery period in
               Section   4(3)   applies  to  securities  of  issuers   that
               previously registered under the Securities Act.

               [417]:As discussed  below,  Securities  Act Rule 174, 17 CFR
               230.174, modifies the statutory delivery obligation.

               [418]:See S. Rep. No. 1036, 83rd Cong., 2d  Sess.  7  (1954)
               (statement  of  Dr. Edward T. McCormick, former Commissioner
               of the Securities  and  Exchange Commission and then-current
               president of the American Stock Exchange).

               [419]:See S. Rep. 379, 88th Cong., 1st Sess. 28 (1963).

               [420]:The primary purpose of Section 4(3) was to exempt from
               the  scope  of  Section  5  "transactions  by  a  dealer  in
               securities  not  connected by time  and  circumstances  with
               [the] distribution  of  a  new offering."  H.R. Rep. No. 85,
               73rd  Cong.,  1st  Sess.  6 (1933).   The  bright-line  test
               Congress  adopted was considered  less  ambiguous  and  less
               subject to  "easy  evasion"  than  any  attempt to establish
               criteria   distinguishing   dealer  activities   which   are
               distributive  from  those which  are  merely  incidental  to
               ordinary  trading.   Throop   and  Lane,  Some  Problems  of
               Exemption Under the Securities  Act of 1933, 4 L. & Contemp.
               Problems 89, 120 (1937).

               [421]:1954 Amendments to the Securities Act of 1933, Pub. L.
               No. 83-577, 68 Stat. 683 (1954).

               [422]:Securities Act Amendments of 1964, Pub. L. No. 88-467,
               78 Stat. 580 (1964).  Congress extended  the  period for two
               reasons.   First,  it  viewed  90  days as a "more realistic
               appraisal of the time during which the  distribution process
               continues in the case of many new issuers."  See S. Rep. No.
               379, 88th Cong., 1st Sess. 28 (1963).  Second,  it wished to
               protect  investors from the "hot issue" allure characterized
               by a "seemingly  insatiable  appetite"  for  new issues with
               "rapid  rises in the prices of such securities  to  premiums
               over the initial offering."  Id.

               [423]:Securities Act Release No. 4749 (Dec. 23, 1964) [29 FR
               19099].

               [424]:Securities Act Release No. 4886 (Nov. 29, 1967) [32 FR
               17933] (exempting securities registered on new Form S-7 from
               the  prospectus  delivery  requirements  of  Section  4(3));
               Securities  Act  Release  No.  5101  (Nov.  19, 1970) [35 FR
               18130] (eliminating the aftermarket delivery requirement for
               securities of reporting issuers); Securities Act Release No.
               6763 (Apr. 4, 1988) [53 FR 11841] (reducing the  aftermarket
               delivery requirement for securities issued in initial public
               offerings that are exchange-listed or quoted on an automated
               inter-dealer  quotation  system) and Securities Act  Release
               No. 6932 (April 4, 1992) [57  FR  18037]  (adopting a longer
               delivery   requirement   for   securities  of  blank   check
               companies).

               [425]:17 CFR 230.174(b).

               [426]:17 CFR 230.174(d).  In establishing the 25-day period,
               the Commission considered how long it took for the market to
               be   stabilized   and  to  disseminate   information.    The
               Commission  also  studied   the  daily  trading  volume  and
               relative prices changes in the  aftermarket.  Securities Act
               Release No. 6763 (Apr. 4, 1988).

               [427]:17 CFR 230.174(g).

               [428]:17 CFR 230.174(c).

               [429]:Of the 236 offerings studied,  114 were initial public
               offerings   and   122   were  primary,  non-initial   public
               offerings.

               [430]:As a result of the  findings  of  this  research,  the
               Commission  also  reviewed  the  frequency of short covering
               based on differing criteria, such  as  average daily trading
               volume, market capitalization, and proceeds of the offering,
               to  determine  if  there  were other factors  indicative  of
               aftermarket activity.  The Commission found no statistically
               significant deviations resulting  from the various objective
               criteria   selected.    Frequency   of   Aftermarket   Price
               Stabilization,  Memorandum  of  the Commission's  Office  of
               Economic Analysis (July 24, 1998).

               [431]:Id.

               [432]:513 U.S. 561 (1995).

               [433]:Id. at 564.

               [434]:Stack  v.  Lobo,  903  F.  Supp.   1361   (N.D.   Cal.
               1995)(characterizing   Gustafson   as  imposing  "prospectus
               liability only when the issuer is required  to  distribute a
               prospectus"  and  applying  the  civil  liability provisions
               based on the 25-day period created by Rule  174  for  IPOs);
               Agryropoulous  v.  Mednet, 1997 U.S. Dist. LEXIS 10497 (C.D.
               Cal. 1997) (citing Gustafson for the holding that "[S]ection
               12(a)(2) imposes prospectus  liability  only when the issuer
               is  required  to  distribute a prospectus")  and  Gannon  v.
               Continental  Ins.  Co.,  920  F.  Supp.  566  (D.N.J.  1996)
               (interpreting Gustafson  to preclude liability under Section
               12(a)(2) "for anything other  than  a  stock  purchase on an
               initial offering").  See also Levitin v. A Pea  in  the Pod,
               1997  U.S.  Dist.  LEXIS  4985  (N.D.  Tex. 1997) (reasoning
               "[a]ny  redistribution  of...stock  within   the   statutory
               [mandatory   prospectus   delivery]  period...takes  on  the
               characteristics  of  a  new  offering"  and  thus  liability
               attaches).

               [435]:See, e.g., In Re WRT Energy Securities Lit., 1997 U.S.
               Dist. LEXIS 14009 at *21 (S.D.N.Y.  1997);  Gould v. Harris,
               929  F.  Supp.  353  (C.D.  Cal. 1996); Murphy v.  Hollywood
               Enter. Corp., 1996 WL 393662  at *3 (D. Or. 1996); Gannon v.
               Continental Ins. Co., 920 F. Supp.  566  (D.N.J.  1996)  and
               Stack, 903 F. Supp. at 1361.

               [436]:Securities Act Release No. 4749 (Dec. 23, 1964).

               [437]:We  would provide that the prospectus on file may omit
               price-related information in reliance on Securities Act Rule
               430A, 17 CFR  230.430A,  which  deems that information to be
               part of the effective registration statement upon filing.

               [438]:Proposed revisions to Rule  174, 17 CFR 230.174, would
               retain some of the provisions of current  Rule  174:  (1) we
               would   continue  to  apply  a  90-day  prospectus  delivery
               obligation  to  securities  of blank check companies; (2) we
               would retain the provision that  Rule  174  does not shorten
               the   prospectus   delivery   obligation  with  respect   to
               securities covered by any registration  statement  that  was
               the  subject  of a stop order under Section 8(a) of the Act;
               and (3) we would  retain  the  provision  expressing the our
               authority to set a different aftermarket delivery obligation
               in a particular case, as appropriate.

               [439]:We have considered but rejected an outright  exemption
               of  dealers'  transactions  from  the aftermarket prospectus
               delivery obligation.  Among the reasons  for doing so is the
               risk  that it could have the unintended effect  of  limiting
               remedies  for  purchasers  in  aftermarket transactions.  We
               believe  that  result would frustrate  the  legislative  and
               Commission intent  to  protect  investors who buy throughout
               the distribution period, including  the  aftermarket part of
               it.

               [440]:17 CFR 230.153.

               [441]:Some commentators have questioned whether  in practice
               the  re-delivery  to the purchaser would occur.  See,  e.g.,
               Johnson & McLaughlin, supra note 76, at 548-49.

               [442]:See In the Matter of Hazel Bishop Inc., Securities Act
               Release  No. 4371 (June  7,  1961)  [40  S.E.C.  Docket  718
               (1961)].

               [443]:The  Commission  would  promulgate  such  a rule under
               Section 17 of the Exchange Act.

               [444]:The  Act  requires  the  Commission,  in  ruling  upon
               requests  for  acceleration  of  the  effective  date  of  a
               registration   statement,   to   consider  whether  adequate
               information is available to the public.   See Securities Act
               Section  8(a).   The Commission gives guidance  as  to  what
               constitutes  adequate   information   in  Rule  460, 17  CFR
               230.460.   Many  issuers  provide  the  Commission   with  a
               description  of  their  effort  to  satisfy the guidance set
               forth in Rule 460 in their requests for  acceleration of the
               registration  statement.   Requests  for  acceleration   are
               submitted  pursuant  to  Securities  Act  Rule  461,  17 CFR
               230.461.   Under  the  proposals,  in  Form  B offerings and
               certain offerings on Form A, underwriters and  issuers would
               no   longer   submit   to   the  Commission  a  request  for
               acceleration.

               [445]:During the 1920s, $25,000,000,000  in securities (half
               of all those issued) proved to be worthless.   H.R. Rep. No.
               85,  73rd Cong., 1st Sess. 2 (1933) (hereinafter  H.R.  Rep.
               No. 85).

               [446]:Congress   placed   some  of  the  responsibility  for
               investors' losses on the securities  industry.  The House of
               Representatives'   Committee  on  Interstate   and   Foreign
               Commerce  noted that  "the  flotation  of  such  a  mass  of
               essentially  fraudulent securities was made possible because
               of the complete abandonment by many underwriters and dealers
               in securities of those standards of fair, honest and prudent
               dealing  that  should  be  basic  to  the  encouragement  of
               investment...."  H.R. Rep. No. 85 at 2.

               [447]:ABA Committee  on  Federal  Regulation  of Securities,
               Report of Task Force on Sellers' Due Diligence  and  Similar
               Defenses  Under  the  Federal  Securities Laws, 48 Bus. Law.
               1185, 1191 (May 1993).

               [448]:H.R. Rep. No. 85 at 5.

               [449]:H.R. Rep. No. 152, 73rd Cong.,  1st  Sess.  26 (1933).
               In  order  to  remove  any  uncertainty  with  regard to the
               standard  of reasonableness Section 11(c) of the  Securities
               Act was amended in 1934 to replace the term "fiduciary" with
               the common  law definition of the duty of a fiduciary.  H.R.
               Rep. No. 1383,  73rd  Cong.,  2d  Sess.  (1934).   See  also
               Escott,  et al. v. Barchris Construction Corp., 283 F. Supp.
               643,  697  (S.D.N.Y.   1968)   ("In   order   to   make  the
               underwriters' participation in this enterprise of any  value
               to the investors, the underwriters must make some reasonable
               attempt to verify the data submitted to them.").

               [450]:15  U.S.C. ง 77(k)(b)(3).  For expertised portions  of
               the registration  statement,  an  underwriter need only show
               that it had no reasonable ground to  believe,  and  did  not
               believe,  that  the statements in the registration statement
               were untrue or omitted to state a material fact.  Id.

               [451]:Chris-Craft  Industries, Inc. v. Piper Aircraft Corp.,
               480 F.2d 341, 370 (2d Cir. 1983).

               [452]:See, e.g., Feit  v.  Leasco Data Processing Equipment,
               332 F. Supp. 544, 582 (E.D.N.Y. 1971).

               [453]:Barchris, 283 F. Supp. at 643.

               [454]:17 CFR 230.176.

               [455]:The rule applies to persons other than the issuer.  In
               the   adopting  release  for  Rule   176,   the   Commission
               acknowledged that there are other circumstances beyond those
               enumerated   in   the   rule   which   may   bear  upon  the
               reasonableness  of  an  underwriter's  investigation.    See
               Securities Act Release No. 6383 (Mar. 3, 1982).

               [456]:The  integrated  disclosure  system  (and  later shelf
               registration)   allowed   issuers   to  complete  registered
               offerings  faster  than  previously possible.   Underwriters
               expressed  concern  that those  accelerated  time  schedules
               would  increase pressure  on  them  to  expedite  their  due
               diligence  investigations.   See  Securities Act Release No.
               6335 (Aug. 6, 1981) [46 FR 42015].   See  also  Feit, 332 F.
               Supp.  at  582.  The  Commission  stated that the integrated
               disclosure   system   was  not  designed   to   modify   the
               responsibility  of  underwriters   and   others  to  make  a
               reasonable  investigation. See also Securities  Act  Release
               No. 6499 (Nov. 17, 1983).

               [457]:Securities Act Release No. 6335 (Aug. 6, 1981).

               [458]:Securities Act Release No. 6335 (Aug. 6, 1981).  These
               techniques were  not  codified as part of the rule but "were
               presented to help facilitate  the  development of procedures
               compatible with integrated approach  to  registration."  See
               Securities Act Release No. 6383 (Mar. 3, 1982).

               [459]:See proposed revisions to Securities  Act Rule 176, 17
               CFR 230.176.

               [460]:If our proposed expansion of Securities  Act Rule 176,
               17   CFR  230.176,  is  adopted  as  proposed,  we  envision
               providing  additional guidance in the adopting release as to
               the difference  between  the  reasonable  care  standard  of
               Section  12(a)(2)  and the reasonable investigation standard
               of Section 11.

               [461]:See  Advisory  Committee   Report   at   65-70.   That
               Committee  primarily  suggested  that  compliance with  both
               mandatory    and    voluntary    "disclosure   enhancements"
               recommended  in  its  Report  be  added   as   factors   for
               underwriters.   In  addition to the management report to the
               audit committee, those included:
               -    senior  management   certification  to  the  Commission
                    regarding disclosure in Exchange Act reports;
               -    reviews by outside professionals including:
                    -    SAS 71 review by company's auditors
                    -    SAS 72 comfort letter
                    -    SAS 37 subsequent events procedures
                    -    Rule 10b-5 opinion letter
               -    existence of a disclosure review committee of the board
                    of directors;
               -    the extent of access to analysts; and
               -    the size of the offering.

                    [462]:See Section XI.A.4.  of  this  release  regarding
               Exchange Act disclosure.

                                        - 97 -

                    2.   The Role of Analysts

               An underwriter will sometimes employ its research analysts

          to help it conduct its due diligence investigation.  We believe

          it is appropriate to recognize that research analysts working for

          an underwriter can play an important role in facilitating the due

          diligence process in expedited offerings.  A research analyst

          that follows an issuer's industry would likely be aware of the

          risks and prospects of an issuer's business.  An analyst is

          employed to search out and analyze not only the Commission

          filings but also any other information that is available about

          the issuer and its industry.  While an analyst may not have the

          same degree of access to issuer information as an underwriter

          performing long-term due diligence, he or she generally has

          regular contact with the issuer or companies in the issuer's

          industry.  As a result, the analyst would have acquired the

          necessary "reservoir of information" about the issuer that helps

          fulfill due diligence requirements in expedited offerings.

               Firms acting as underwriters in expedited offerings

          generally do so when they are already conducting a form of "due

          diligence" year round via their in-house analysts.  Because of

          their analysts' prior work, these underwriters have less to do

          immediately before the offering. [463]  While some brokerage

          firms may have "walled off" analysts from the underwriting side

          of their businesses, that no longer appears to be uniformly the

          case at the time where an analyst's knowledge can be instrumental

          in expediting the due diligence process. [464]

               In this respect, we recognize that, in limited and

          controlled circumstances, cooperation between analysts and

          underwriters can be useful.  The proposed system perceives the

          utility of a "one-way" wall between analysts and underwriters of

          the same firm, whereby information from the analysts who have a

          "reservoir of information" is available to the underwriters for

          purposes of Rule 176.  We still would expect brokerage firms to

          maintain a wall between analysts and underwriters to prevent any

          flow of information from the underwriter to the analyst that

          would result in selective disclosure.

                    3.   Other Due Diligence Practices

               The Commission also wishes to solicit comment on a number of

          other due diligence practices that are currently being conducted

          or discussed by underwriters.

                         a.   Disclosure Review by an Issuer's Independent

                              Accountants

                         The role of the accountant in a due diligence investigation

          cannot be overlooked.  Accountants are often the people most

          familiar with an issuer's financial standing and prospects.  They

          play a vital role in the protection of investors.  As noted

          earlier, underwriters also rely on accountants in performing

          their due diligence investigation.  Underwriters often will

          request a SAS 72 comfort letter from an issuer's independent

          auditors as part of their due diligence investigation.

          Additionally, some issuers have their accountants conduct a SAS

          71 review of their quarterly financial statements.  We believe

          that this additional review of an issuer's quarterly financial

          statements augments compliance with our rules and regulations.

          Consequently, we request comment as to whether we should add to

          the proposed practices the fact that an independent accountant

          performed a timely review under SAS 71 of an issuer's quarterly

          financial information.

               Recently, the American Institute of Certified Public

          Accountants ("AICPA") issued a Statement on Standards for

          Attestation Engagements No. 8 ("SSAE 8").  The SSAE 8

          contemplates that an accountant may perform either an examination

          or a review of an issuer's management's and discussion and

          analysis ("MD&A") disclosure.  The examination is intended to

          result in the accountant's expression of an opinion as to

          whether:

               1.   the issuer MD&A disclosure contains the required
                    elements of Item 303 or Regulation S-K or Item 303 of
                    Regulation S-B;

               2.   the historical financial information included in the
                    MD&A is accurately derived from the issuer's financial
                    statements; and

               3.   the issuer's underlying information, determinations,
                    estimates and assumptions provide a reasonable basis
                    for the disclosures contained in the MD&A. [465]

          We believe that a SSAE opinion may further our disclosure goals

          and help obtain greater compliance with our rules.  Therefore, we

          also solicit comment as to whether a SSAE 8 review should be

          added to the proposed practices.

                         b.   Disclosure Review by an Independent Qualified

                              Professional

               We also request comment as to whether to include as one of

          the proposed practices an underwriter's review of a favorable

          report issued by a qualified independent professional to the

          issuer after the professional conducted a year-end disclosure

          review.  The purpose of the qualified independent professional's

          review would be for the professional to assess the disclosure in

          the annual report the issuer is drafting before the issuer files

          it under the Exchange Act. [466]  Although this practice is not

          common today, we believe it could enhance the quality of Exchange

          Act disclosure that is typically incorporated by reference into

          registration statements in connection with expedited and other

          offerings.  In the event that a qualified independent

          professional completed such a review, a reasonable underwriter

          should be allowed to factor that in when figuring out what steps

          it needs to take in its due diligence.

               We anticipate that such a disclosure review generally would

          occur independent of the offering process during the period after

          the end of the issuer's fiscal year but before it has filed its

          annual report.  In the course of the review, the professional

          would read all of the issuer's Exchange Act reports for the year,

          as well as last year's annual report, to assist it in evaluating

          the quality of the Exchange Act annual report not yet filed by

          the issuer for the year just ended.  The qualified independent

          professional also would perform a reasonable investigation. [467]

          It would have to issue its report before the commencement of the

          offering in order for the underwriters to place reasonable

          reliance on the report.

               To issue a favorable report, the professional would have to

          state that, after reading those reports and doing a reasonable

          investigation, it believes that the disclosure in the

          non-expertised portions of the annual report to be filed is true

          and there were no omissions of material facts.  As to the

          expertised portions (including the audited financial statements),

          the professional would have to state that it does not believe

          that the disclosure is untrue or there was an omission to state a

          material fact.

               We also request comment as to whether certain qualifications

          should be required of the independent professional.  While we

          anticipate that different professions could perform the

          disclosure review, should such a review be limited to only

          certain professions such as the legal or accounting profession?

          Would we need to provide guidance as to what would constitute an

          adequate disclosure review?  Would there be a sufficient number

          of qualified professionals willing to undertake such a review?

          Since these professionals would be subject to liability, would

          this prevent a market for such services from developing?  Would

          issuers be willing to pay for such a review?

               Besides this proposed practice and the liability provisions

          of the Acts, are there more direct or better ways to enhance the

          underwriters' due diligence role with respect to an issuer's

          Exchange Act reports?  If so, what are they?

               E.   Interpretation of the Guidance

               While we believe that the due diligence practices we propose

          to add to Rule 176 would enhance an underwriter's investigation,

          these practices should not be viewed as mandatory.  We also are

          not suggesting that some or all of these practices are the

          exclusive way to establish adequate due diligence, even in an

          expedited offering.  The absence of any one or more of the

          practices in a particular case, except for the underwriter's

          review of the registration statement and inquiry into facts or

          circumstances that raise concerns about the adequacy or accuracy

          of the disclosure, should not be considered definitive in

          reaching a conclusion about the adequacy of due diligence

          efforts. [468]  Each offering is unique, and therefore the

          underwriter must evaluate the surrounding circumstances and then

          choose the appropriate due diligence practices.

               F.   Investment Grade Debt Offerings

               The proposed guidance would not apply to offerings of

          investment grade debt.  Issuers that offer investment grade debt

          under a medium term note program may conduct frequent offerings.

          Consequently, underwriters' due diligence is usually performed

          periodically rather than with each offering of investment grade

          debt.  Periodic due diligence normally would not be completed

          under the same time pressures associated with an expedited

          offering of equity or non-investment grade debt securities.  We

          solicit comment, however, as to whether investment grade debt

          offerings should be included in the proposed amendments to Rule

          176.  If so, are there certain due diligence practices that would

          not be applicable to investment grade debt?  Are there specific

          due diligence practices that are performed only with regard to

          investment grade debt offerings?  Should these practices be added

          to Rule 176?  Would these practices allow for due diligence to be

          performed on an offering-by-offering basis?  Would additional

          guidance regarding investment grade debt offerings be useful to

          the courts?

               G.   Requests for Comment on the Proposed Guidance

               The Commission requests comment on the proposed amendment to

          Rule 176.  Because the courts already consider the surrounding

          circumstances of the offering when determining whether an

          underwriter's investigation was reasonable, would adding these

          practices to Rule 176 materially assist courts in evaluating due

          diligence efforts?  Would adding them assist underwriters in

          crafting their due diligence practices?  Would any of the

          proposed practices cause some underwriters, such as those that do

          not employ analysts, to suffer unfair competitive disadvantages?

               Are there other due diligence practices that should be

          included in the proposed amendment?  Are any of the practices not

          relevant to consider in assessing an underwriter's due diligence?

          Should the extent to which an underwriter has very recently

          underwritten another offering for the same issuer be explicitly

          identified as a relevant circumstance?

               Should the proposed 5-day marketing period be shortened

          (e.g., to two or three days) or lengthened (e.g., to five

          business days)?  Should the proposed guidance be limited to

          offerings that are underwritten on a firm commitment basis?

          Should the proposed guidance be expanded to cover offerings that

          are registered on Form A, particularly those for which the

          underwriter designates effectiveness?  Will the proposed changes

          provide an incentive for underwriters and issuers to complete

          their offerings earlier than today?  Do we need to define when an

          offering is considered first marketed?  In general, we solicit

          comment on whether the proposed practices, separately or as a

          package, provide underwriters with sufficient guidance to enable

          them to perform adequate due diligence investigations.  Are the

          proposals too lenient to serve that purpose?  Should we add other

          practices to proposed Rule 176(i) to direct underwriters who

          participate in these offerings better?  On the other hand, are

          the proposals overly burdensome?

               H.   Liability Safe Harbor

               Several commenters on the Concept Release suggested that

          reform is needed to ensure that an underwriter's exposure to

          liability under Section 11 mirrors its ability to affect

          disclosure. [469]  In expedited offerings, they argued, there is

          little time to conduct due diligence immediately before

          commencement.  As a result, some commenters suggested that

          underwriters be protected from liability through a safe harbor in

          those offerings. [470]  We are not proposing such a safe harbor

          from potential liability.  To grant one to underwriters would be

          to lessen significantly their incentive to test the quality of

          the issuer's disclosure in such offerings.  We recognize the

          value that underwriters add to the disclosure process.  In our

          view, investors require that protection.  In addition, like the

          courts and past Commissions, we do not believe that it would be

          possible to craft a single, finite list of steps that will,

          without fail, constitute a reasonable investigation in every set

          of circumstances in many different offerings.  We believe our

          proposal to include specific guidance in Rule 176 about expedited

          offerings will aid underwriters considering how to conduct due

          diligence in those circumstances and assist in the event a court

          needs to assess those steps.

          X.   INTEGRATION OF REGISTERED AND UNREGISTERED OFFERINGS

               A.   The Integration Doctrine

               The integration doctrine reaches all the way back to

          1933. [471]  Put simply, integration is the process of combining

          separate transactions in securities as part of the same offering

          for purposes of analyzing whether the registration provisions of

          the Securities Act apply.  It is what prevents an issuer from

          evading registration by artificially splitting what is in reality

          a single offering to make it appear that an exemption applies

          when no exemption for that offering was ever intended.  When

          separate transactions are integrated into one offering, that

          offering must have an exemption from registration.  If no

          exemption is available, then the transaction, if not registered,

          would be in violation of Section 5 of the Securities Act.  Thus,

          integration is a concept that upholds the policies underlying

          both the registration system and the exemption system in the

          Securities Act.

               The integration doctrine is not always easy for securities

          law practitioners to apply to offerings.  The analysis generally

          is dependent on considering all the particular facts and

          circumstances for each offering.  Over the years, however, the

          Commission has given guidance.  In 1962, the Commission issued a

          release that established a framework for analyzing whether

          offerings should be integrated. [472]  The five-factor test

          established in that release continues to apply today. [473]  In

          addition, the Commission has created a number of safe harbors

          from integration in order to simplify the analysis in particular

          cases. [474]  The application of the integration doctrine also

          has been the subject of staff interpretive letters. [475]

               B.   Rule 152

               In 1935, the Commission adopted Rule 152. [476]  It provides

          a safe harbor from integration when an issuer makes a private

          offering pursuant to Securities Act Section 4(2) and then decides

          to make a public offering and/or file a registration statement.

          The rule states that Section 4(2) shall be deemed to apply to

          transactions that did not involve any public offering at the time

          even though the issuer decides subsequently to make a public

          offering and/or file a registration statement.

               Rule 152 has not been considered a model of clarity.  Over

          the years, the scope of Rule 152 has been a matter of some

          uncertainty and the subject of Commission staff no-action

          letters.  For example, questions have been raised about: whether

          the safe harbor is available to both completed private offerings

          and abandoned private offerings, whether the safe harbor is

          available when the registered offering was contemplated at the

          time of the private offering, and under what circumstances an

          offering is considered completed for purposes of the safe

          harbor. [477]

                C.  Proposed Safe Harbors for Completed and Abandoned
          Offerings; Related Rule Proposals

               The integration doctrine and Rule 152 have received a great

          deal of attention in recent years from securities law

          practitioners.  Their interest has reflected their clients'

          demand for speed in the offering process.  One area in which

          frequent questions arise with respect to integration is the

          combination of private and public offerings. [478]

               We propose to revise Rule 152 to clarify and expand the

          integration safe harbor. [479]  First, the rule would address the

          circumstances under which a completed unregistered private

          offering would not be integrated with a subsequent registered

          offering.  Second, the rule would set conditions under which an

          unregistered private offering that has been abandoned may be

          followed by a registered offering.  Third, the rule would provide

          a safe harbor for issuers that wish to abandon a registered

          offering and follow it with an unregistered private offering.

          Fourth, the rule would codify some of the staff positions taken

          with respect to integration and registration of resales.

          Finally, the exempt offerings covered by the rule would be

          expanded to include other types of unregistered private offerings

          in addition to Section 4(2) offerings.

               We also are proposing related rule changes.  Proposed Rule

          159 would codify a current staff position concerning lock-up

          agreements before business combinations. [480]  Rule 477 would be

          revised to facilitate withdrawals of registration statements.

          [481]

                    1.   Completed Offerings

                         a.   Issuer Transactions

               Through revising Rule 152, we hope to avoid persistent

          interpretive questions concerning whether Section 5 problems

          arise if a private offering was completed within 6 months before

          the filing of a registration statement. [482]  As proposed, if

          the private offering is completed before the registration

          statement is filed, the private offering would not be integrated

          with the registered offering regardless of the length of time

          between the two offerings.

               The proposed rule would define the circumstances under which

          an offering would be considered completed for purposes of the

          safe harbor.  An offering would be completed where all purchasers

          have fully paid the purchase price for the securities in the

          private offering.  If certain conditions are met, an offering

          will be considered completed even if the purchase price for the

          securities has not been fully paid.  For this exception to apply,

          the transaction may not be subsequently re-negotiated.   These

          conditions require that the purchaser be unconditionally

          obligated to pay for the securities.  We would qualify that

          requirement to permit conditional obligations to purchase the

          securities as long as the obligation depends on a condition that

          is not within the direct or indirect control of any purchaser.

          Also, the purchase price in the private offering must be fixed

          and not contingent upon market prices around the time of the

          registered offering.  This ensures that the purchaser assumes the

          market risk.

               A private offering may involve the offer and sale of

          convertible securities or warrants.  These securities are

          generally convertible or exercisable into a class of underlying

          securities (e.g., common stock) over a period of time.  While

          these securities are convertible or exercisable, the issuer, in

          effect, is conducting an offering of the underlying securities.

          During this time period, the issuer may file a registration

          statement under the Securities Act.  The offering of the

          underlying securities concurrently with the registered offering

          has generated uncertainty about whether the offerings should be

          integrated.  To address these concerns, we propose to expand the

          Rule 152 safe harbor to protect the offering of the underlying

          securities from integration with the registered offering.  As

          proposed, the offering of the underlying securities would be

          considered completed when the offering of the convertible

          securities or warrants is completed.

               A special approach would apply to a private offering made

          before an initial public offering where the private offering does

          not raise capital for the issuer but is conducted only to modify

          the issuer's capital structure.  For this approach to apply, the

          private offering must not be a roll-up transaction under Rule

          901(c) of Regulation S-K.  When these conditions are satisfied,

          the private offering would not be integrated with the later

          registered offering.

               We request your comments on our proposed safe harbor for

          completed offerings.  Is our definition of completed offerings

          clear, especially those offerings where payment for the

          securities has not been made?  Should other conditions be added

          for these offerings?

                         b.   Resale Transactions

               We would clarify in Rule 152 that it is permissible for an

          issuer to register the resale of securities that were originally

          sold by the issuer in a completed bona fide private offering.

          The private offering would be considered completed if the

          proposed conditions discussed above are met.  An offering would

          be considered completed even though payment for the securities

          has not been made, or the securities have not been issued, when

          the registration statement for the resales is filed.  Under this

          approach, payment for the securities may be made following filing

          or effectiveness of the registration statement for the resales.

          Also, the payment obligation may be conditioned upon

          effectiveness of the registration statement, assuming the

          purchasers have no control over that condition.

               We would exclude from the safe harbor resales by affiliates

          of the issuer or a broker-dealer that has purchased directly from

          the issuer or an affiliate.  In these transactions, there are

          questions as to whether the offering is a true resale transaction

          or a primary offering by the issuer.  This determination may be

          made only after examining the facts and circumstances of each

          individual situation.  Because of this uncertainty, we do not

          propose to extend the safe harbor for these resale offerings.

               For purposes of this provision, the definition of

          "affiliate" would have the same meaning as that term has under

          Rule 144. [483]  We have proposed to change the definition of

          affiliate under Rule 144. [484]  If the Rule 144 definition is

          changed, the new definition also would apply to Rule 152.

               We request your views on the safe harbor for resale

          offerings.  Should the safe harbor cover resale offerings by

          affiliates?  If it should, what conditions should be imposed to

          assure that the resales are bona fide secondary transactions and

          not part of a primary distribution?  Should the Rule 144

          definition of affiliate be used or would some subset of the

          persons that fall within that definition be more appropriate?  If

          so, what?

                         c.   Lock-up Agreements

               The use of lock-up agreements in business combinations has

          become common.  As part of the negotiations for these

          combinations, the acquiring party usually requires that

          management and principal security holders of the company to be

          acquired commit to vote for the acquisition.  These so-called

          "lock-up" agreements are made when the acquisition agreement is

          finalized, before any action by the public security holders.

          These agreements could be considered investment decisions under

          the Securities Act.  If they are, the offers and sales of

          securities were made to persons who entered into those agreements

          before the business combination is presented to the non-

          affiliated security holders for their vote.  Under this

          reasoning, those offers and sales could not be included in the

          registration statement for the offering to the persons not

          entering into lock-up agreements.

               In recognition of the legitimate business reasons underlying

          the practice, the staff has permitted the registration of offers

          and sales under certain circumstances where lock-up agreements

          have been signed.  We propose a rule that codifies this position.

          [485]  Our proposed rule would allow registration of those offers

          and sales when:

               (i)  The lock-up agreements involve only executive officers,

          directors, affiliates, founders and their family members, and

          holders of 5% or more of the voting equity securities of the

          company being acquired;

               (ii) The persons signing the agreements own less than 100%

          of the voting equity securities of the company being acquired;

          and

               (iii) Votes will be solicited from shareholders of the

          company being acquired who have not signed the agreements and who

          would be ineligible to purchase in an offering under Section 4(2)

          or 4(6) of the Securities Act or Rule 506 of Regulation D.

               The first condition would assure that the only persons who

          signed the agreements were insiders with access to corporate

          information who arguably would not need the protections of

          registration and prospectus disclosure.  The last two conditions

          would make certain that registration under the Securities Act is

          required to accomplish the business combination.  Where no vote

          is required or 100% of the shares are locked up, no investment

          decision would be made by non-affiliated shareholders and the

          transaction would have been completed via the lock-up agreement.

          If the non-affiliated shareholders were able to purchase under

          one of the private offering exemptions from registration, the

          entire transaction would be more akin to a private placement and

          registration of only resales would follow from that

          characterization.

               We request your comments on proposed Rule 159.  Should

          registration be permitted for securities under lock-up

          agreements?  If no, why not?  Are the proposed conditions

          sufficient or are different or additional conditions needed?

          Should some specified percentage lower than 100% (e.g., 75%) be

          used?  Would it matter what percentage had been locked up if a

          significant number of shareholders had not been?  Should the

          proposed rule, which applies to lock-ups in connection with

          mergers and similar transactions, also apply to lock-ups in

          connection with tender offers?  If so, would different conditions

          be appropriate?

               2.   Abandoned Offerings

               An ongoing private offering may be abandoned by an issuer

          for any of a number of reasons.  After commencement of a private

          offering, the issuer may discover that interest in the securities

          is soft and it is unable to sell the amount of securities it

          needs to sell.  On the other hand, the issuer may encounter

          substantial interest from investors and wish to increase the size

          or scope of the offering.  In the latter situation, the issuer

          may decide to switch the offering from a private one to a

          registered one.

               Likewise, a registered offering may be abandoned for various

          reasons.  For example, the issuer and its underwriter may

          discover after filing the registration statement that there is

          less investor interest than required to complete the registered

          offering successfully.  The issuer may encounter delays in

          getting the registration statement effective and need funding on

          a more expedited basis.  Changes in the market may make a

          registered offering less attractive.

                         a.   Private to Public

               Under Section 5 of the Securities Act, offers may not be

          made in registered offerings before filing a registration

          statement.  Thus, an issuer generally is unable to begin a

          private offering by making offers and then decide to make the

          offering a registered one.

               Under the proposed registration system, Form B issuers would

          have no difficulty beginning an offering as a private one and

          completing it as a registered public offering.  Because the

          issuer would not be required to file a Form B until the time of

          sale, and offers could be made before filing, the transition from

          a unregistered offering to a registered offering would not have

          the same regulatory consequences as it does today.

               Form A and other issuers, however, would not have the same

          freedom to proceed with offers in the absence of a filed

          disclosure document. [486]  Thus, the same issues that exist

          today under the registration system would need to be addressed

          for those issuers.  We propose to expand Rule 152 to permit Form

          A issuers to abandon an ongoing private offering and then conduct

          a public offering under the following conditions:

               1.   The issuer notifies all offerees in the private
                    offering that the private offering is abandoned;

               2.   No securities were sold in the private offering;

               3.   Neither the issuer nor any person acting on its behalf
                    offered the securities in the private offering by any
                    form of general solicitation or general
                    advertising; [487]

               4.   The issuer does not file the registration statement
                    until at least 30 days after it notifies all offerees
                    of abandonment if securities had been offered in the
                    private offering to any person ineligible to purchase
                    in an offering in accordance with Section 4(2), Section
                    4(6) or Rule 506; and

               5.   The issuer either files any selling materials used in
                    the private offering as part of the registration
                    statement or it informs all private offerees that the
                    filed prospectus replaces the prior selling materials
                    and any indications of interest are rescinded.

               These conditions would assure that persons offered the

          securities in the private offering are treated the same as

          offerees and purchasers in the registered offering.  The

          prohibition against sales would make sure that all purchasers

          have the protections of Section 11 liability.  The prohibition on

          any public offers in the private offering and the 30-day waiting

          period (if applicable) would protect against issuers who had no

          intention of making a private offering abusing the safe harbor by

          making public offers before filing the registration statement

          containing the full and balanced disclosure.  Because only Form B

          issuers are granted that freedom under the proposed

          communications rules, we would not want that distinction eroded

          by persons through the integration safe harbor.  The 30-day

          waiting period also would be consistent with our communications

          proposals in that 30 days measures the limited communications

          period before a public offering.

               The notification condition in the safe harbor would assure

          that all private offerees are aware of the abandonment of the

          private offering.  Offerees in the private offering would receive

          the benefit of Section 11 liability on any selling materials used

          in the private offering where the issuer files those materials as

          part of the registration statement.  If the issuer chooses not to

          do that, those offerees would be informed that they should rely

          on the prospectus for the registered offering instead of the

          earlier selling materials.

               Assuming the 30-day waiting period does not apply, if all of

          these conditions are met, the issuer need not wait before filing

          the registration statement.  We request your comments on this

          safe harbor.  Are the conditions adequate to assure full

          protection of investors?  Are different or additional conditions

          needed?  Is the 30-day waiting period sufficiently long to

          provide a disincentive to abuse of the safe harbor or should it

          be longer (e.g., 45 or 60 days)?  Would a company be able to

          condition the public market for its securities through beginning

          a private offering under this mechanism despite the 30-day

          waiting period?  Should the offering materials used in the

          private offering always have to be filed either under proposed

          Rule 425 or as part of the effective registration statement?

                         b.   Public to Private

               The filing of a registration statement for a specific

          securities offering constitutes a general solicitation for that

          offering. [488]  Thus, when an issuer wishes to convert an

          offering begun as a registered public offering into a private

          offering, or follow it soon after abandonment with a private

          offering, it is doubtful that a private offering exemption would

          be available.  In addition, public offers under the registration

          statement may have been made to persons who would be  ineligible

          to buy in the private offering.  Issuers currently in this

          situation must wait a full six months to be certain that the

          public offering under the registration statement would not be

          integrated with the private offering.  We are proposing a safe

          harbor that would shorten or eliminate that wait.

               An issuer, especially a private company or a small business

          issuer, may not know whether investors will be interested in its

          securities.  Expecting that investors will be interested, these

          issuers may undergo the time and expense of preparing and filing

          a registration statement under the Securities Act.  During the

          public offering period, they may discover only limited investor

          interest.  Faced with soft investor interest, these issuers may

          have to abandon the registered offering, but they still may need

          funding.  Our proposal would eliminate integration concerns and

          permit these issuers to offer and sell securities in the private

          offering to persons eligible to buy under the private offering

          exemption even if they expressed interest as a result of public

          offers in the registered offering. [489]  Thus, issuers faced

          with a soft market will receive at least some benefits from the

          time and expense incurred while pursuing registration.

               We propose a safe harbor that would permit switching from a

          public offering (started either by the filing of a registration

          statement or begun under Form B before filing a registration

          statement) to an unregistered private offering if the following

          conditions are met:

               1.   If a registration statement has been filed, the issuer
                    withdraws it under Rule 477;

               2.   If no registration statement has been filed (i.e., Form
                    B), the issuer notifies all offerees in a public
                    offering that it is abandoning the public offering;

               3.   No securities were sold in the public offering;

               4.   Where the issuer first offers the securities in the
                    private offering more than 30 days after abandonment or
                    withdrawal, the issuer notifies each purchaser in the
                    private offering that the offering is not registered,
                    the securities are restricted, and that investors do
                    not have the protections of Section 11 of the
                    Securities Act; and

               5.   Where the issuer first offers the securities in the
                    private offering 30 or fewer days after abandonment or
                    withdrawal of the public offering, the issuer and any
                    underwriter agree to accept liability for material
                    misstatements or omissions in the offering documents
                    used in the private offering under the standards of
                    Section 11 and Section 12(a)(2) of the Securities Act.

               The notification requirement for public offerings begun

          under Form B would assure that offerees are made aware of the

          termination of the public offering.  If a registration statement

          has been filed, it must be withdrawn in order to end the public

          offering.  Because the withdrawal of the registration statement

          is public information, it would signal to offerees that the

          public offering has been terminated.

               If the private offering is begun more than 30 days after

          abandonment or withdrawal of the public offering, the intervening

          time period should reduce concerns that offerees in the private

          offering would be influenced by the public offering.   Offerees

          in the private offering likely will discount any offering

          materials they may have received in the public offering due to

          this passage of time.  Instead, they are more likely to rely on

          the private offering documents.  We would require that the issuer

          notify purchasers in the private offering that the offering is

          not registered, the securities would be restricted securities and

          that they do not have the benefits of Section 11 liability.  This

          disclosure requirement plus the intervening time period would

          assure that investors do not confuse the securities they are

          buying in the private offering with those offered in the public

          offering.

               An issuer may need funding immediately and may not be able

          to wait more than 30 days.  We would provide an option for

          companies that need to raise capital within the 30-day period.

          The reduced time period between the public offering and the

          private offering raises more investor protections concerns,

          however, about the lingering effects of the public offering.

          Offerees in the private offering may still be influenced by the

          public offering.  In addition, we do not want issuers to use the

          integration safe harbor merely as a mechanism to avoid the

          prohibition on general solicitation and general advertising.

          Allowing an immediate switch from registered to private would

          encourage that abuse, absent some disincentives.

               We propose as a condition that an issuer and any underwriter

          involved in the private offering enter into a binding agreement

          to apply Section 11 liability standards for any material

          misstatements or material omissions in the private offering

          materials with respect to any investor who purchases in the

          private offering within 30 days following the end of the public

          offering.  These investors, who are likely to have been

          influenced by the public offering, should have the protections of

          Section 11 liability.  We also would provide that investors who

          purchase in the private offering more than 30 days after the

          public offering ends would have the benefit of Section 12(a)(2)

          standards for liability for any material misstatements or

          material omission in the private offering materials.

               Are the proposed conditions adequate to assure that

          investors in the private offering are fully protected?  Should

          different or additional conditions be required?  Is a 30-day time

          period adequate or should the time period be longer (e.g., 45 or

          60 days)?  Should we permit private offerings to start within the

          30-day period at all?

                     3.  Definition of Private Offering

               Rule 152 currently provides a safe harbor only for

          transactions under Section 4(2) of the Securities Act.  There are

          other exemptions under the Securities Act which prohibit public

          offers.  Section 4(6) [490] prohibits advertising or public

          solicitation in any transaction under that section.  Rule 506,

          [491] which was adopted under Section 4(2), prohibits offers or

          sales by any form of general solicitation or advertising.  These

          exemptions also have other requirements, in addition to the ban

          on public offers.

               We propose to expand the private offerings covered by Rule

          152 to include offerings under the Section 4(6) exemption and to

          specify in the Rule that it applies to the Rule 506 exemption.

          This would provide consistent treatment for Securities Act

          exemptions for private offerings.  We request your views on the

          expansion of Rule 152 to these additional private offering

          exemptions.  Are there reasons to continue to exclude either of

          these two exemptions?

               Rule 505 of Regulation D, [492] unlike Rule 506, permits

          sales to persons who are neither accredited nor financially

          sophisticated. [493]  Because these persons may purchase in Rule

          505 offerings, we have not included those offerings in Rule 152.

          We solicit comment, however, as to whether sufficient protections

          exist under the proposed safe harbor to justify inclusion of Rule

          505 offerings.

               D.   Proposed Changes to Rule 477

               Rule 477 of Regulation C [494] contains the procedures to be

          followed by a registrant in order to withdraw a registration

          statement or an amendment filed under the Securities Act.  The

          Commission must find that the withdrawal is consistent with the

          public interest and investor protection and affirmatively act to

          consent to the withdrawal.  This finding requirement involves

          staff review of the withdrawal request and the time necessary for

          that review.  The time needed for that review can vary.  For a

          limited number of registration statements, the withdrawal request

          is deemed granted upon filing where the registration statement

          has not become effective. [495]

               We propose to revise the rule to facilitate withdrawal of

          registration statements, particularly in light of the effect of

          withdrawals under proposed Rule 152.  We would allow registration

          statements to be withdrawn automatically upon filing the request.

          The proposed changes would permit quick withdrawals for

          registration statements.  These changes would expedite the use of

          proposed Rule 152 in switching from a registered public offering

          to a private offering and provide predictability in other cases.

               We request your comments on the proposed change to Rule 477.

          Should we permit fewer types of registration statements to be

          withdrawn automatically upon filing?  Should the rule be changed

          only to permit automatic withdrawal of any Form B registration

          statement, or any Form A registration statement where the

          registrant is eligible to incorporate by reference and become

          effective on an expedited basis?  Should it be changed so that

          for all other registration statements, an application for

          withdrawal would become effective automatically ten days after

          filing, unless we grant the withdrawal earlier or notify the

          registrant during the ten-day period that the application will be

          reviewed?  Are there reasons to limit the classes of registration

          statements that may be withdrawn automatically?

          XI.  PROPOSALS RELATING TO EXCHANGE ACT DISCLOSURE

                To improve Exchange Act disclosure, we propose revisions to

          enhance the quality and timeliness of information in the periodic

          reports filed by domestic reporting companies. [496]  Investors

          trading in the secondary markets look to Exchange Act reports for

          information.  Moreover, seasoned issuers that file registration

          statements under the Securities Act incorporate information from

          their Exchange Act reports into their Securities Act filings.

          Investors buying in public offerings therefore also rely on

          Exchange Act disclosure.  As we provide for further reliance on

          Exchange Act disclosure, we are particularly cognizant of the

          need to evaluate whether and how it can better serve investors.

               Under our proposals, we would extend risk factor disclosure

          to Exchange Act reports, expand the items of disclosure required

          to be reported on Form 8-K and add a provision for voluntary

          reporting of information on Form 6-K.  We also would require top

          management that sign Exchange Act registration statements and

          reports to certify that they have reviewed the disclosure in them

          and that they know of no untrue statement of a material fact or

          omission of a material fact necessary in order to make the

          statements made, in light of the circumstances under which they

          were made, not misleading.  In addition, we would require issuers

          to identify their web site addresses, if any, and an e-mail

          address, if any, on the cover page of all registration statements

          and Exchange Act reports.  This requirement would make this

          information more accessible to investors, as well as ease

          investors' electronic communications with public companies.

               Companies frequently issue press releases as a means of

          disseminating corporate information.  In the case of quarterly

          and annual financial results, we are concerned that this manner

          of disclosure provides uneven results: some investors may learn

          of the information, others may not; some investors may have

          quicker access to the information than others.  One of the

          purposes of the Commission's reporting system is to provide a

          single source where all investors can expect to find material

          company disclosure.  To even the flow of disclosure to investors,

          we believe that companies should file material financial

          information that they may currently be making public only by

          press release.

               We also note reports that corporate managers make conference

          calls after issuing press releases in order to "clarify" the

          information. [497]  We are concerned that these conference calls

          exacerbate the problem of uneven disclosure, especially in the

          short-term. [498]  This practice widens the information gap

          between large and small investors.  Large investors, particularly

          institutional ones, may be on the conference call, or they

          frequently hire analysts that participate in conference calls and

          often obtain more detailed information about a company's earnings

          before the information is widely disseminated.  While we believe

          analysts perform a valuable public function in filtering and

          passing on company information, we believe the small investors

          are the last to realize the benefits of this function.  We think

          this is especially true when companies do not file with the

          Commission material information they issue in press releases or

          communicate by conference calls to analysts. [499]

               When there is a significant time lag between the occurrence

          of a material event and the reporting of that event, or the

          determination of the quarterly or annual results and the

          reporting of them, there is a greater chance that selected

          investors will learn about the information before others. [500]

          We seek to minimize the gap of information between all investors.

          One way to do that is to require the quicker filing of material

          company information with the Commission.  Although this will not

          eliminate entirely the information gap, it will decrease the

          amount of time during which there is a trading advantage.  By

          requiring companies to speed their reporting of material

          information such as earnings announcements and other financial

          data, we hope to decrease the information gap between the "have"

          and "have-not" investors.   Accordingly, we propose to shorten

          the due dates for material event reports and to accelerate the

          reporting of annual and quarterly selected financial data.


          **FOOTNOTES**

          [463]:While  the  rule  contemplates  that  the  analyst has been
               following  the  issuer  or  its  industry  as  part  of  its
               employment responsibilities for a period of time,  the  rule
               does  not  require  that  the  analyst  be  employed  by the
               underwriter  for  that  entire  period.   The  fact  that an
               analyst  moves  from  one analyst position to another should
               not be relevant where the  analyst's  coverage of the issuer
               continues.

               [464]:While we recognize the varying practices  with respect
               to  maintaining  a wall between the analyst and underwriting
               sides  of  the  brokerage  firm,  we  do  not  suggest  that
               brokerage  firms  should   remove   or  lower  those  walls.
               Although we recognize the helpful role  analysts  perform in
               facilitating due diligence, we also recognize the wisdom  of
               maintaining    legitimate   walls   between   analysts   and
               underwriters that work for the same brokerage firm and share
               an  interest  in the  same  issuers.   See,  e.g.,  AutoZone
               Holders Sold Stock in June After Goldman, Analysts Talked Up
               Issue, Wall St. J., Jan. 15, 1997 at C1.

               [465]:Statement  on Standards for Attestation Engagement No.
               8, American Institute of Certified Public Accountants.

               [466]:This annual  report  would  be  incorporated  into the
               registration statement prepared for the offering.

               [467]:We envision this investigation as akin to the type  of
               reasonable  investigation  an underwriter would undertake if
               the  disclosure  were  contained   in   a   Securities   Act
               registration statement.

               [468]:We  have reflected this position in proposed revisions
               to Rule 176, 17 CFR 230.176.

               [469]:See, e.g., comment letters, in File No. S7-19-96, from
               Merrill Lynch (Oct. 31, 1996), Morgan Stanley (Dec. 9, 1996)
               and the Securities Industry Ass'n (Nov. 13, 1996).

               [470]:See,  e.g.,  comment letters, in File Number S7-19-96,
               from Cleary, Gottlieb,  Steen & Hamilton (Dec. 27, 1996) and
               Merrill Lynch (Oct. 31, 1996).

               [471]:See Securities Act Release No. 97 (Dec. 28, 1933).

               [472]:See Securities Act Release No. 4552 (Nov. 6, 1962) [27
               FR 11316].

               [473]:The five factors are:
               1.  Are the offerings part of a single plan of financing?
               2.  Do the offerings have the same general purpose?
               3.  Are the offerings of the same class of securities?
               4.  Are the offerings being made at or about the same time?
               5.  Are the securities being  sold  for  the  same  type  of
          consideration?
               These factors also are noted in Rule 502 of Regulation D, 17
               CFR  230.502.   The  Commission  has  stated that any of the
               factors can be determinative.  Securities  Act  Release  No.
               4552 (Nov. 6, 1962).

               [474]:For  example, Rule 502(a), 17 CFR 230.502(a), provides
               that offers  and  sales  made  more than 6 months before the
               start  of an offering under Regulation  D  or  more  than  6
               months after  the completion of an offering under Regulation
               D will not be integrated  with  the Regulation D offering if
               there  were no non-Regulation D offers  and  sales  of  that
               class of  securities  (other  than  through employee benefit
               plans) during that period.  See also  Rule 147(b)(2), 17 CFR
               230.147(b)(2),  which  provides a similar  safe  harbor  for
               exempt intrastate offerings; Rule 251(c), 17 CFR 230.251(c),
               which provides a similar  safe harbor under Regulation A for
               small offerings by non-reporting issuers; Rule 701(b)(6), 17
               CFR   230.701(b)(6),   which  contains   a   non-integration
               provision in connection  with  exempt offerings to employees
               and consultants under compensation plans.

               [475]:See,  e.g.,  Staff  interpretive   letters   Squadron,
               Ellenoff, Pleasant and Lehrer (Feb. 28, 1992) and Black  Box
               Inc. (June 26, 1990).

               [476]:See  Securities  Act  Release  No. 305 (Mar. 2, 1935).
               See also Securities Act Release No. 4761  (Feb. 5, 1965) [30
               FR 2022].

               [477]:See,  e.g.,  Staff  interpretive  letters   Quad  City
               Holdings, Inc. (Apr. 8, 1993); Vulture Petroleum Corp. (Feb.
               2, 1987); Verticom Inc. (Feb. 12, 1986).

               [478]:Integration  issues may relate to two or more  private
               offerings, as well.   Neither current nor proposed revisions
               to Rule 152, 17 CFR 230.152, addresses these issues.

               [479]:See proposed revisions  to Securities Act Rule 152, 17
               CFR 230.152.

               [480]:See proposed Securities Act Rule 159, 17 CFR 230.159.

               [481]:See proposed revisions to  Securities Act Rule 477, 17
               CFR 230.477.

               [482]:The 6-month time period is found  in  Rule  502(a)  of
               Regulation  D, 17 CFR 230.502(a).  Offers and sales within 6
               months of the  start  or end of a Regulation D offering must
               be analyzed under the five-factor  test to determine whether
               those  offers  and sales should be considered  part  of  the
               Regulation D offering.

               [483]:Rule  144(a)(1),  17  CFR  230.144(a)(1),  defines  an
               affiliate of  an  issuer  as  a  person  that  directly,  or
               indirectly  through one or more intermediaries, controls, or
               is controlled  by,  or  is  under  common control with, such
               issuer.

               [484]:See Securities Act Release No.  7391  (Feb.  28, 1997)
               [62 FR 9246].

               [485]:See proposed Securities Act Rule 159, 17 CFR 230.159.

               [486]:Issuers  registering  offerings  on the small business
               issuer forms (i.e., Forms SB-1, SB-2 and  SB-3)  would  face
               the  same  issues  as  issuers  registering on Form A.  They
               would receive the same treatment for this purpose.

               [487]:These terms would have the  same  meanings  as used in
               Rule 502(c) of Regulation D,  17 CFR 230.502(c).

               [488]:See  Division  of Corporation Finance, Current  Issues
               and Rulemaking Outline  available  on  the  Commission's web
               site (http://www.sec.gov).

               [489]:While  the  proposed  revisions would provide  for  no
               integration, the subsequent private  offering  must  satisfy
               all  of  the conditions of the relevant exemption to proceed
               on that basis.

               [490]:15  U.S.C.   ง   77d(6).    Section   4(6)  exempts  a
               transaction that does not exceed $5 million,  if  offers  or
               sales  are  made  to  only  accredited  investors  and other
               conditions are met.  Accredited investor is defined  in Rule
               501(a) of Regulation D, 17 CFR 230.501(a).

               [491]:17  CFR  230.506.  The Commission adopted Rule 506  to
               provide a safe harbor  as to what type of offering would not
               be  considered a public offering  for  purposes  of  Section
               4(2).   An issuer complying with Rule 506 is certain that it
               is conducting a valid Section 4(2) offering.

               [492]:17  CFR  230.505.   Rule 505 provides an exemption for
               offerings up to $5 million  within a twelve-month period, if
               certain conditions are met.   This  exemption was created by
               the  Commission  under Section 3(b) of  Securities  Act,  15
               U.S.C. ง 77c(b).

               [493]:Generally speaking, these investors must be limited to
               35.

               [494]:17 CFR 230.477.

               [495]:Rule 477(b), 17 CFR 230.477(b), currently permits this
               procedure for registration  statements on Form F-2, relating
               to a dividend or interest reinvestment  plan, or on Form S-4
               complying with General Instruction G. of that Form.

               [496]:Some  of  these proposed revisions were  suggested  in
               substance by the  Advisory  Committee.   While  the Advisory
               Committee envisioned them as operating only where  a company
               was part of a company registration pilot system, we  believe
               implementing  these improvements makes sense for all issuers
               regardless of whether  they  are concurrently registering an
               offering.  The proposals relating to Exchange Act disclosure
               do  not  precisely follow the suggestions  of  the  Advisory
               Committee.   However,  they  emphasize  the  significance of
               Exchange  Act reporting and would provide investors  with  a
               more current  and  fuller  stream  of information.  That end
               corresponds with the Advisory Committee's goals.

               [497]:See, e.g., Frankel, et al., An  Empirical  Examination
               of  Conference Calls as a Voluntary Disclosure Medium  (Dec.
               1996)  (unpublished  manuscript)  (U.  of  Mich.  Bus. Sch.)
               [hereinafter Conference Call Study].  This study noted  that
               companies  typically  hold  conference  calls  with analysts
               because  of the declining relevance of historical  financial
               data.

               [498]:See   Remarks   by  Arthur  Levitt,  Chairman  of  the
               Securities and Exchange Commission, A Question of Integrity:
               Promoting Investor Confidence  by  Fighting  Insider Trading
               (Feb.  27,  1998),  available on the Commission's  web  site
               (http://www.sec.gov).

               [499]:The Conference Call Study states that company managers
               often provide "detailed segment data" during the course of a
               conference call that  is not available in the press release.
               They also make more forward-looking  statements  than in the
               press release.  Conference Call Study supra note 497,  at 9.

               [500]:See,  e.g.,  Trading Picks Up During Conference Calls,
               Evidently leaving Small Investors on Hold, Wall St. J., Mar.
               6, 1998, at C2; Small  Investors Angered by Growth of After-
               Hours Profits Reports, Wall  St.  J.,  Jan. 21, 1997, at C1;
               The Price of Great Expectations, Wash. Post,  Jan. 23, 1997,
               at E1.

                                        - 98 -

               A.   Annual and Quarterly Reports

                     1.  Risk Factor Disclosure

               Most Securities Act registration statements currently

          require an analysis of the risks associated with an investment in

          a company's securities. [501]  Item 503 of Regulation S-K [502]

          describes that required disclosure as a "discussion of the most

          significant factors that make the offering speculative or risky."

          The Commission promulgated this requirement because it assists

          investors in comprehending more fully whether the securities

          present an appropriate level of risk for them as an investment.

               We propose to extend risk factor disclosure to Exchange Act

          registration statements [503] and periodic reports [504] of all

          issuers.  The proposal would require issuers to articulate

          concisely the most significant risk factors relating to the

          company's future financial performance.  This disclosure would be

          equally valuable whether investors are purchasing securities in a

          registered offering or trading in the secondary markets.  Through

          the proposal, the Commission would ensure that timely disclosure

          about these types of risks does not depend on whether a public

          company decides to register an offering.

               The annual disclosure specifically would consist of an

          itemization of the most significant factors with respect to the

          public company's business, operations, industry or financial

          position that may have a negative impact on its future financial

          performance.  A foreign government issuer would set forth the

          most significant risk factors with respect to its financial

          position and the most significant country risks that are unlikely

          to be known or anticipated by investors. [505]  The proposal

          would require that the issuer briefly explain how each risk

          affects it.

               For public companies filing quarterly reports, we also are

          proposing that material changes in risk factor disclosure be

          reported quarterly. The company would disclose in the quarterly

          report only material risk factors that either:

               1.   were not included in the later of the registrant's most
                    recent Securities Act registration statement or
                    Exchange Act periodic report; or

               2.   had changed since the date of that registration
                    statement or periodic report.

          Foreign private issuers are not required to file reports on a

          quarterly basis under the Exchange Act; therefore, those

          companies would update their risk factors disclosure on an annual

          basis unless they choose to do so more frequently. [506]

               A reporting company may incorporate risk factor disclosure

          into its Securities Act registration statement from its Exchange

          Act periodic reports.  This Exchange Act disclosure may satisfy

          in whole or in part the risk factor disclosure required in the

          Securities Act registration statement.  Where that is true, a

          registrant need not reiterate that risk factor disclosure in its

          Securities Act registration statement. [507]

               Securities Act Rule 421(d) requires issuers to write and

          design their risk factor disclosure in registration statements

          using plain English principles.  Where risk factor disclosure in

          Exchange Act reports currently is incorporated by reference into

          Securities Act registration statements, the Commission staff has

          advised issuers that the Exchange Act risk factor disclosure must

          comply with Rule 421(d).  Under the proposals, registrants may

          more frequently incorporate Exchange Act risk factor disclosure

          into their Securities Act registration statements.  In light of

          that, we are proposing an Exchange Act rule parallel to Rule

          421(d) that would clarify that plain English requirements apply

          to Exchange Act risk factor disclosure. [508]

               We seek comment on the proposals relating to risk factor

          disclosures for quarterly and annual reports.  Should we require

          risk factor disclosure about specific matters that are in

          addition to those referred to in Item 503 of Regulation S-K?  If

          so, what are they?

                    2.   Due Dates for Annual Reports of Foreign Private

          Issuers

               Reporting companies that are foreign private issuers are

          required to file annual reports on Form 20-F. [509]  These

          reports are due within six months after the end of fiscal

          year. [510]  Like domestic issuers, foreign private issuers issue

          press releases containing their annual results before the due

          dates of their annual reports filed with the Commission.  In

          fact, given the longer due date, they may do this far more

          frequently than domestic issuers. [511]

               For the same reasons we propose to accelerate the reporting

          of annual results for domestic issuers through adding a Form 8-K

          filing, we also propose to accelerate the due date for annual

          reports of foreign private issuers.  We propose that a foreign

          private issuer be required to file its annual report on Form 20-F

          within 5 months after its fiscal year end.  Although that due

          date would remain significantly longer than the due date for

          annual reports of domestic companies, it would shorten the gap

          between the two.  In light of the variety of foreign law

          requirements for annual reports, a gradual decrease in due dates

          for annual reports appears preferable.  We believe foreign

          reporting companies should be able to prepare annual reports

          within 5 months or less without an undue increase in cost.  We

          also propose to change the filing period for the transition

          report that must be filed after a foreign private issuer changes

          its fiscal year.  We would reduce the time period for filing this

          report from six to five months. [512]  We would not change the

          present three-month filing period where the transition period

          does not exceed six months and the issuer elects to file the

          abbreviated transition report. [513]

               We seek comment on this proposal.  Should we accelerate the

          due date to 4 months?  How would the 4-month or 5-month due date

          compare to foreign requirements to report annual results?

                    3.   Treating Quarterly Information as "Filed"

               Under current Exchange Act rules, [514] the financial

          information required by Part I of Form 10-Q and Form 10-QSB is

          deemed not to be "filed." [515]  Part I information is therefore

          not subject to liability under Section 18 of the Exchange

          Act. [516]  Those rules originated in 1955 when the Commission

          proposed to require semi-annual reporting of certain financial

          information for the first time. [517]  At that time, the

          Commission determined that semi-annual reports should be deemed

          not to be filed for purposes of Section 18 because interim

          earnings figures included in those reports would often be based

          on "reasonable estimates...or certain assumptions." [518]

               Since 1955, the Commission has taken a few steps to expand

          periodic financial reporting.  In 1970, we required that public

          companies file quarterly financial information on Form

          10-Q. [519]  In 1981, we expanded the information required by

          Form 10-Q to include disclosure of management's discussion and

          analysis of the registrant's financial condition and results of

          operations ("MD&A"). [520]  Most recently, we amended Form 10-Q

          in 1997 to require registrants to disclose qualitative and

          quantitative information about market risks. [521]

               Both the existing registration system and the proposed

          registration system rely on Exchange Act disclosure.  The

          rationale behind the rules granting relief from Section 18 seems

          out of place more than 40 years later in a market which now

          routinely relies on such reasonable estimates and assumptions.

          Furthermore, registrants have had 28 years of experience

          preparing quarterly financial statements and 17 years of

          preparing MD&A disclosures.

               Accordingly, we propose to revise rules to treat the

          financial statements and MD&A disclosure in Forms 10-Q and 10-QSB

          as filed. [522]  We would not extend the same treatment to market

          risk disclosure.  Given the recent adoption of the rules

          requiring that disclosure, as well as the complex nature of that

          disclosure, we believe it would be appropriate to continue to

          treat that part of Form 10-Q disclosure as not "filed" for

          purposes of Section 18.

               We solicit comment on whether applying Section 18 remedies

          to financial statements and MD&A disclosure would cause

          registrants to alter disclosure in quarterly reports that they

          make today.  If so, what kinds of disclosure would change and

          how?  Is there any reason to treat MD&A disclosure as "filed" but

          not the financial statements, or vice versa?  How does the

          treatment of these parts as not "filed" affect investors?  Should

          we also apply Section 18 remedies to quarterly market risk

          disclosures?

                    4.   Request for Comment on Management Report to Audit

          Committee

               We solicit comment on the Advisory Committee's

          recommendation to require the filing of a management report to

          the audit committee of the board of directors. [523]  The report

          would disclose the procedures, if any, established to assure the

          accuracy and adequacy of Exchange Act reports.  As the Advisory

          Committee envisioned it, the report would not specify a

          particular set of procedures to follow, nor would it require an

          assessment of the adequacy of the procedures.  The report would

          be filed as an exhibit to the Form 10-K and would be refiled only

          when there was a material change in procedures.  Would such a

          report enhance the quality of disclosure provided in Exchange Act

          reports?


          **FOOTNOTES**

          [501]:See, e.g., Forms F-1, F-2, F-3, F-4, S-1, S-2, S-3, S-4 and
               S-11.   To  provide  uniformity, we also would mandate  risk
               factor disclosure in Securities  Act registration statements
               of  foreign  governments  and their political  subdivisions.
               Those  are virtually the only  Securities  Act  registration
               statements  that  do  not currently mandate this disclosure.
               Because those investments  are not free from risk, investors
               should  benefit from a risk analysis  by  those  issuers  as
               well.

               [502]:17 CFR 229.503.

               [503]:The  Exchange  Act  registration  forms  affected are:
               Forms  10, 10-SB and 18.  Form 20-F registration  statements
               already  require  risk  factor disclosure.  See Item 1(b) of
               Form 20-F.

               [504]:The Exchange Act periodic reports affected are:  Forms
               20-F, 10-Q, 10-QSB, 10-K,  10-KSB  and  18-K.   The Advisory
               Committee  suggested  the  use of risk factor disclosure  in
               Form 10-K, with updates in Form 10-Q for any material change
               in  the  risk  disclosure.   Advisory  Committee  Report  at
               Appendix B, p. 57.

               [505]:The  forms  used  by  foreign  governments  and  their
               political subdivisions are Schedule  B  under the Securities
               Act and Forms 18 and 18-K under the Exchange Act.

               [506]:We are proposing to amend Form 6-K  to  create an Item
               by which foreign private issuers would identify  information
               they are filing under that Form at their option that  is not
               based on foreign requirements.

               [507]:In  a  Securities Act registration statement, the risk
               factors disclosure  sometimes  focuses  on  aspects  of  the
               particular  security  or  the particular transaction that is
               the subject of the registration  statement,  in  addition to
               company  risk  factors.   The  risk  factor disclosure  that
               issuers would include in Exchange Act  reports  would relate
               only  to  the  risks that could affect the company's  future
               financial performance.   Thus,  given the somewhat differing
               focus, the risk factor disclosure may vary.

               [508]:See proposed Exchange Act Rule 12b-24, 17 CFR 240.12b-
               24.

               [509]:"Foreign private issuer" is  defined  in  Exchange Act
               Rule 3b-4(c), 17 CFR 240.3b-4(c).

               [510]:See General Instruction A.(b) of Form 20-F.

               [511]:Using  electronic  search  databases,  we  found  that
               foreign  private  issuers  use Business Wire and PR Newswire
               and  other  services to issue  press  releases  about  their
               annual results,  including  detailed  financial information.
               For   comparative   purposes,   these   companies   disclose
               information about their most recent year  end along with the
               same information for the prior year.  While  it appears that
               a  minority of foreign companies issue these press  releases
               as soon  as  two months after their fiscal year ends, others
               issue them within three or four months after the fiscal year
               end.

               [512]:See proposed  Exchange  Act  Rule 13a-10(g)(3), 17 CFR
               240.13a-10(g)(3)  and  proposed  Exchange   Act   Rule  15d-
               10(g)(3), 17 CFR 240.15d-19(g)(3).

               [513]:See  Exchange  Act  Rule 13a-10(g)(4), 17 CFR 240.13a-
               10(g)(4) and Exchange Act Rule 15d-10(g)(4), 17 CFR 240.15d-
               10(g)(4).

               [514]:Exchange Act Rule 13a-13(d), 17 CFR 240.13a-13(d), and
               Exchange Act Rule 15d-13(d), 17 CFR 240.15d-13(d).

               [515]:Part  I  of  Form  10-Q  consists  of:  the  financial
               statements;  the  Management's Discussion  and  Analysis  of
               Financial Condition  and  Results  of  Operations;  and  the
               Quantitative  and Qualitative Disclosures About Market Risk.
               Part I of Form  10-QSB  contains only the first two of those
               three categories.

               [516]:Section 18 provides  a  remedy  for  those  relying on
               false  or  misleading  statements  made  in any application,
               report, document or registration statement  filed  with  the
               Commission under the Exchange Act.

               [517]:  Exchange Act Release No. 5129 (Jan. 27, 1955) [20 FR
               771].

               [518]:Id.   See also Exchange Act Release No. 5189 (June 23,
               1955) [20 FR  4816]  (adopting  the  semi-annual  reports as
               proposed).

               [519]: Exchange Act Release No. 9004 (Oct. 28, 1970)  [35 FR
               17537].

               [520]: Exchange Act Release No. 17524 (Feb. 17, 1981) [46 FR
               12480].

               [521]:  See  Exchange  Act Release No. 38223 (Jan. 31, 1997)
               [46 FR 6044].

               [522]:See proposed revisions  to  Exchange Act Rules 13a-13d
               and  15d-13(d),  17  CFR  240.13a-13(d)  and  240.15d-13(d).
               Along with these proposed revisions  to  Rule 15d-13, we are
               correcting  that Rule by removing paragraph  (e),  which  is
               duplicative and  was  intended  to  be  removed  in  a prior
               amendment  to  the Rule.  See Exchange Act Release No. 13477
               (Apr. 28, 1977)  [42  FR 24062] and Exchange Act Release No.
               13156 (Jan. 13, 1977) [42 FR 4424].

               [523]:See Advisory Committee  Report  at Appendix B, pp. 52-
               54.   See  also  Section  IX.D.  of  this release  regarding
               whether  the  report should be considered  as  a  factor  in
               evaluating an underwriter's due diligence obligation.

                                        - 99 -

               B.   Interim Reports on Form 8-K

                    1.   Timely Disclosure of Annual and Quarterly Results
          of Domestic    Companies

                         a.   Form 8-K Requirement for Item 301 Information



               A domestic reporting company must file an annual report on

          Form 10-K or Form 10-KSB within 90 days after the end of its

          fiscal year. [524]  A domestic reporting company must file a

          quarterly report on Form 10-Q or 10-QSB within 45 days of the end

          of its quarter. [525]

               Hundreds of public companies issue press releases to

          announce annual and quarterly results well before they file their

          annual and quarterly reports with the Commission. [526]  We are

          cognizant that significant technological developments over at

          least the last three decades have simplified the process of

          preparing financial data and periodic reports.  It appears that

          companies and their auditors have developed efficiencies over the

          years that allow them to generate basic financial data quickly.

               The timing and frequency with which companies issue press

          releases about their annual and quarterly results indicates that

          companies complete the preparation of at least their core

          financial data well before the due dates of their periodic

          reports.  That practice also reflects the importance of that

          financial information and investors' demand for it at the

          earliest time it is available.

               While we applaud companies' practice of issuing press

          releases to keep investors informed, there are disadvantages to

          dissemination of information in this way.  Not all investors

          subscribe to the publications that carry press release

          information.  Not all publications report on every company's

          release or include all the information in the release. [527]  The

          unevenness of press release disclosure raises concerns that not

          all investors are informed of a company's financial results at

          the same time.  Moreover, presentation of annual and quarterly

          information in press releases differs from company to company.

          Sometimes this variance appears to arise because a company wants

          to focus on the positive aspects of the financial information.

          [528]

               To ensure uniform and even disclosure by public companies,

          we propose to require domestic reporting companies to report

          selected financial data on Form 8-K.  That report would be due on

          the earlier of the date they issue a press release containing

          earnings information or either the date that is 30 days after the

          end of each of the first three quarters of their fiscal year or

          60 days after the end of their fiscal year.

                The Form 8-K would include the selected financial data

          required by Item 301 of Regulation S-K for both the most recently

          completed fiscal quarter and interim period or year.  For

          comparative purposes, we also would require companies to disclose

          Item 301 financial data for the same periods of the prior year.

          For example, if a company issued an early press release

          announcing earnings results for its second quarter, its Form 8-K

          would include Item 301 information for the three months

          comprising the second quarter as well as for the six months

          ending the second quarter.  The Form also would include Item 301

          information for the corresponding periods of the prior year so

          investors could compare current results with last year's results.

               We believe the press releases of most companies include at

          least this level of basic material information.  Accordingly, we

          do not believe the requirement would impose a significant burden

          on domestic reporting companies, particularly those that

          consistently issue press releases.  As for companies that do not

          follow the press release practice, we believe that they

          nevertheless would be able to prepare Item 301 information by the

          30th day after the end of their quarters or the 60th day after

          the end of their fiscal years.

               Regulation S-B does not contain a disclosure requirement

          comparable to Item 301 of Regulation S-K.  Thus, small business

          issuers now are not required to provide Regulation S-K, Item 301

          information in their disclosure documents.  Also, transitional

          small business issuers are not required to provide this

          information.  We propose to require all small business issuers,

          including transitional small business issuers, to provide

          Regulation S-K, Item 301 information in Form 8-K reports filed in

          advance of their quarterly or annual reports.  We request your

          comments on whether small business issuers should be required to

          provide Regulation S-K, Item 301 information in these current

          reports.  Should small business issuers providing disclosure

          based on Regulation S-B be subject to this requirement?  Should

          transitional small business issuers be subject to this

          requirement?  Would it be more difficult for small business

          issuers to comply with this requirement?  Would the additional

          time and cost of this disclosure requirement outweigh the

          increase in investor protection?

               We believe that all investors and the market would benefit

          from being able to review selected financial data earlier than

          they can today.  Would these benefits justify the cost associated

          with an additional filing?  Should we require more or less than

          Item 301 information?  If more, what kinds of additional

          information should we require?  Should we require companies to

          discuss factors that may affect the comparability of current

          results with last year's results?  If less, what should we omit?

          Would current interim financial data be meaningful absent

          presentation of historical comparative information?  Given the

          limited nature of the information required by Item 301, should we

          require companies to file the Form 8-K even earlier than proposed

          (e.g., 20 or 25 days after the end of the quarter and 45 or 50

          days after the end of the year)?

                         b.   Solicitation of Comment on Whether to
          Accelerate Due Dates

               Since 1970, annual reports have been due 90 days after a

          reporting company's fiscal year end. [529]  Quarterly reports,

          since they were first required in 1946, have always been due

          within 45 days after the end of a quarter. [530]  Many companies

          file, or ostensibly could file, their periodic reports before

          they are due.

               In this age of computers, instantaneous communications and

          electronic filing, we believe it is possible for reporting

          companies to file their annual and quarterly Exchange Act reports

          sooner than they are currently due.  Public companies, as a

          group, have had decades of experience in preparing Exchange Act

          periodic reports within 90 and 45 days. [531]

               As the proposed registration system makes clear, the

          securities markets move faster than they did before.

          Commentators have long remarked that because the due dates for

          quarterly reports are so lengthy, the information required by

          Form 10-Q or 10-QSB is stale by the time the reports are

          available. [532]  Annual information --  when provided 90 days

          after a fiscal year end -- is also viewed as stale.  We believe

          investors and the market would realize immediate and ongoing

          benefits if domestic reporting companies filed their annual and

          quarterly reports earlier than currently due.  We also believe

          earlier due dates would provide investors with more timely

          disclosure as well as shorten the period during which periodic

          results would be available to only certain investors.

               For these reasons, as an alternative to the proposal to add

          a financial reporting requirement to Form 8-K discussed above, we

          request comment on whether we should accelerate the due dates for

          annual and quarterly reports.  Should we require companies to

          file quarterly reports on Forms 10-Q or 10-QSB within 30 days

          after their first three fiscal quarters?  Should we require them

          to file annual reports within 60 days after their fiscal year

          end?  Would companies find it feasible to prepare their periodic

          reports within those periods?  If we adopt this alternative,

          should the periods be lengthened (e.g., to 35 or 40 days after

          the end of a quarter and 70 or 75 days after the end of a fiscal

          year)?  Should small business issuers, because they may have

          fewer resources, be given more time to prepare periodic reports

          than larger issuers?  Should larger issuers, because their

          accounting issues may be more complex, be given the same amount

          or more time than small business issuers to prepare their

          periodic reports?  If we were to reduce the time period for

          filing annual and quarterly reports, should we also shorten the

          filing period for the transition report that must be filed after

          an issuer changes its fiscal year?

               We solicit comment on whether accelerated periodic reporting

          requirements would exacerbate the problems of selective

          disclosure by issuers to certain analysts or shareholders.  Are

          there steps other than, or in addition to, accelerating the due

          dates of periodic and current reports that the Commission should

          take to address selective disclosure to institutional investors

          through conference calls, advance press releases or other

          methods?

                    2.   Other Reporting Events

               We propose to expand the items of disclosure that reporting

          companies must report on Form 8-K to include: material

          modifications to the rights of security holders; departure of a

          CEO or CFO; material defaults on senior securities; certain

          auditor notifications; and company name changes.  Some of the

          proposed items currently have to be disclosed only on a quarterly

          basis.  Other proposed items may be reported if the company

          chooses to do so or feels compelled to do so because of concerns

          about antifraud provisions.  We believe that prompt reporting by

          issuers of each of these events would enhance investor

          protection.  We solicit comment on whether other disclosure

          should be required on Form 8-K.  If so, what types of

          information?  If companies disclose less information to the

          market when experiencing difficulties, is there a need for more

          frequent reports or updates when events such as those we propose

          to add take place?

               We also propose to accelerate the due date of reports that

          must be filed on Form 8-K.  The longer the period of time between

          the occurrence of a material event and the public reporting of

          the event, the greater the likelihood that over the course of

          that period security holders will be selectively informed of that

          material information.  The unfair trading advantage that may

          result can be significantly lessened if information about

          material events is reported earlier on Form 8-K.

                         a.   Material Modifications to the Rights of
                              Security Holders

               The Commission believes, as did the Advisory Committee,

          that reporting companies should promptly and publicly notify

          their security holders about material modifications in their

          rights. [533]  The Commission proposes to add an item to Form 8-K

          that would accelerate the disclosure of developments that

          materially modify the rights of security holders, favorably or

          unfavorably, to within five calendar days of the development or

          event causing the modification.

               Under current requirements, a reporting company must

          disclose the general effects of those modifications in the report

          on Form 10-Q or Form 10-QSB for the quarter in which the

          modifications occur. [534]  That requirement allows reporting

          companies to delay filing this information for up to four and a

          half months after changes to security holder rights have

          occurred.  That timing is unnecessarily long given the

          significance of these matters to security holders and the

          possibility that modifications to their rights could have a

          dramatic effect on the value of the securities they own.

               Under our proposal, reporting companies would be required to

          promptly disclose on Form 8-K any modification of the instruments

          that define security holder rights, modifications to security

          holder rights resulting from the issuance of another class of

          securities, and modifications resulting because of restrictions

          on working capital or payment of dividends.

               We solicit comment on this proposal.  Should it encompass

          other specific events that could materially affect security

          holder rights, such as reincorporation from one state to another,

          elimination of preemptive rights, or adoption of an anti-takeover

          plan.

                         b.   Departure of CEO, CFO, COO or President

                         The departure of a reporting company's chief executive

          officer, chief financial officer, chief operating officer,

          president, or any person serving equivalent functions, is a

          material event that often can cause changes in the market price

          of the company's securities as well as changes to the company's

          business or goals.  Today, reporting companies are not required

          to disclose these events on either a quarterly or current basis,

          although many do report them on a timely basis because the

          departure of a CEO, CFO, COO or president is usually viewed as a

          material event. [535]

               The Advisory Committee recognized that general principles of

          materiality often cause reporting companies to promptly disclose

          the termination of their CEOs, CFOs, COOs or president;

          nonetheless, it recommended that the Commission expand Form 8-K

          to accelerate and mandate disclosure of the resignation or

          removal of a public company's top five executive officers. [536]

               We believe it is important to investors and the market that

          public companies promptly report news of the departure of a CEO,

          CFO, COO, president or any person serving in those capacities.

          Whether the departure is the result of resignation or termination

          or another reason also would be of interest to investors.

          Accordingly, the Commission proposes to add an item to Form 8-K

          to require disclosure of that departure information.  Given the

          significance of this information, we solicit comment on whether

          it should be reported within one business day of the departure.

               We also seek comment on whether the proposal should be

          extended to include more than just a company's CEO, CFO, COO and

          president.  Should we require a company to disclose on Form 8-K

          the departure of any of its five most highly compensated

          executive officers?  Are other positions, whether or not based on

          compensation, significant enough to justify mandating Form 8-K

          disclosure when they are vacated?  For example, should Form 8-K

          require disclosure of the departure of key personnel who make

          significant contributions to the company, such as a chief

          technology officer or head of information systems, a scientist,

          researcher, or head of marketing or production?

                         c.   Material Defaults on Senior Securities

               Any material default by a reporting company on payments of

          principal or interest or any other scheduled payment on its

          securities could have severe consequences to the reporting

          company, its business and its security holders.  The default is

          especially significant when senior securities are involved,

          because a default on those securities may signal that the company

          faces imminent, serious financial difficulty.

               Under current reporting requirements, disclosure of material

          defaults on senior securities need be made only on a quarterly

          basis. [537]  The Commission believes quarterly reporting of such

          events is insufficient, as did the Advisory Committee. [538]

          Reporting companies should be required to provide current public

          notice of all material defaults on senior securities so that

          investors have time to consider the possible effects of any

          default, including whether to sell or hold their securities.

          Further, the Commission and the Advisory Committee share concerns

          that, under current reporting standards, default information may

          become stale before it reaches all the security holders of a

          reporting company.

               For these reasons, we propose to revise 8-K to require

          current disclosure of material defaults under a company's

          governing instruments and material delinquencies in a company's

          payments of interest or a dividend preference due on its senior

          securities.  Also, given the potentially grave consequences of a

          material default on senior securities, the Commission does not

          believe it would be appropriate to allow reporting companies to

          wait as much as five days to report the event.  Instead, we

          believe that reporting companies should disclose this information

          as soon as possible, but certainly no later than the day

          following the material default.  Accordingly, we propose to set

          the due date at one business day after the day the default

          occurred.  Where the default occurred on a Saturday, Sunday or a

          federal holiday, we propose that the disclosure be due within two

          business days after the day the default occurred.

               As with other proposed changes to Form 8-K, we solicit your

          comment.  Do reporting companies need as much as five days before

          they are prepared to file material default reports?  Should we

          limit the due date to one business day, instead of two business

          days, for reporting of material defaults that occur on a

          Saturday, Sunday or federal holiday?

                         d.   Reliance on Prior Audit

               Form 8-K already requires a reporting company to disclose

          promptly when its independent accountant resigns, declines to

          stand for reelection or is dismissed, as well as when it engages

          a new auditor. [539]  To supplement these items, the Commission

          is proposing that a reporting company promptly report when:

               (i)  its independent auditor notifies it that it may no

                    longer rely on the audit report included; and

               (ii) the independent auditor notifies it that the auditor

                    will not consent to the use of its prior audit report

                    or the company or one of its significant subsidiaries.

               The Commission believes that such announcements would be of

          interest and importance to investors and the market because they

          could signal a discrepancy in the company's audited financial

          reports. [540]  Further, announcements or dissemination of

          information about such auditor notices, as with announcements and

          information about the other events proposed to be added to Form

          8-K, could have an immediate and significant impact on the market

          price of a company's securities.  We are concerned about the

          potential for unfair trading on the basis of selective

          information.  The Advisory Committee stated these same concerns,

          and also posited that timely disclosure about matters relating to

          certifying would reinforce the auditor's role as a

          gatekeeper. [541]

               Accordingly, we propose to add these events to those that

          relate to a company's accountants and auditors and that are

          already in Form 8-K. [542]  We would require companies to report

          these events within one business day of their occurrence.

               We solicit comment about whether other events concerning an

          auditor's report should be included in the Form 8-K.  For

          example, should companies report when they seek to have another

          auditor reaudit a prior audited period?  The Committee did

          suggest we require disclosure of engagement of a new auditor to

          reaudit a prior audited period.  We seek comment on this subject.

               With respect to the information about auditors already

          required by Item 4 of Form 8-K, we propose to accelerate the due

          date for reporting that information to one business day after the

          reporting event occurs.  We believe the significance of that

          information warrants near immediate disclosure.

                         e.   Name Changes

               We propose to add to Form 8-K a requirement that a reporting

          company report any change in its name.  This disclosure is not

          specifically required in current periodic reports, although

          companies may report name changes because general principles of

          materiality may call for it.  Under our proposal, companies would

          report their former and current names within five calendar days

          after the change.  Prompt reporting of a change in a reporting

          company's name is important to keep investors informed of the

          status of the company.  Also, for investors that are not

          otherwise aware, a change in a company's name often signals the

          occurrence of some significant event concerning the company about

          which they should educate themselves.  Timely public notice of a

          name change also would allow investors to continue to follow or

          research the reporting company and avoid concern about its fate

          when its familiar name is replaced by an unfamiliar one.

               We solicit comment on this proposal.  If the name change

          results from a business combination that was already publicly

          announced, should we nonetheless require name change reporting?

                    f.   Due Dates for Reporting Events

               Currently, most reports filed on Form 8-K are due within 15

          calendar days after the occurrence of the event triggering the

          reporting requirement. [543]  Some reports are due within 5

          business days after the occurrence of the event. [544]

               The Commission believes that, given the explosive growth of

          the secondary trading market and the importance of Exchange Act

          reporting to it, reporting companies should be required to

          disclose more information about material events and developments

          that concern them and their security holders sooner than they are

          required currently.

               The Advisory Committee suggested that the due date for

          mandated reports on Form 8-K be accelerated from 15 calendar days

          to 5 business days. [545]  The Commission believes it is

          appropriate to go further, however, and proposes to accelerate

          the general Form 8-K due date to 5 calendar days after occurrence

          of the events required to be reported on the Form. [546]  For

          disclosures of material defaults and notices that a company's

          independent accountant has resigned, declined to stand for

          reelection or been replaced, [547] as discussed above, we

          generally would require companies to report within one business

          day after the date of the reportable event. We also propose to

          accelerate the reporting of resignations of any of the

          registrant's directors to within one business day of the

          reportable event. [548]

               The Commission recognizes that acceleration of the due date

          may create some burdens for reporting companies; however, we

          believe that any burdens are outweighed by investors' and the

          market's need for current information.  With respect to each

          proposed addition to or acceleration of reporting under Form 8-K,

          the Commission believes that security holders and the market have

          a need for prompt disclosure particularly because the events

          could impact the market price of the reporting company's

          securities.  We also believe that the faster that material

          information is publicly disclosed, the less the potential for

          unfair trading on the basis of selective disclosure.

               We ask for your comment on this proposal.  Does the proposed

          5-day reporting period provide reporting companies with enough

          time to file their reports?  If not, should the due dates be

          extended, as the Committee suggested, to 5 business days?  Should

          material defaults be reported faster than other events required

          to be reported on Form 8-K?  Should the due date of other

          required reports similarly be set at one business day?

               C.   Signatures

                    1.    Exchange Act Reports and Registration Statements

               The Commission is proposing to revise the signatures section

          of all registration statements and periodic reports filed under

          the Exchange Act to mandate that the persons who are required to

          sign those reports must certify that they have read the

          registration statement or report and that they know of no untrue

          statement of a material fact or omission of a material fact

          necessary in order to make the statements made, in light of the

          circumstances under which they were made, not misleading. [549]

          The proposal also would expand the number of persons required to

          sign Forms 8-A, 10, 10-SB, 20-F, 40-F, 10-Q and 10-QSB, to

          include the principal executive officers of the registrant and a

          majority of the board of directors of the registrant. [550]

          Although we are not proposing to require that a majority of board

          members sign current reports filed under cover of Form 8-K and 6-

          K, we would require the signatory for the registrant to certify

          that he or she provided a copy of those reports to the

          registrant's board of directors.  That certification should

          encourage board participation in the disclosures required to be

          made on those Forms. [551]

               We believe that persons signing the report will be less

          likely to adopt the practice of simply signing blank signature

          pages without having even seen the report if they must

          affirmatively state that they have read the report and that they

          know of no untrue statement of a material fact or omission of a

          material fact necessary in order to make the statements made, in

          light of the circumstances under which they were made, not

          misleading. [552]  Requiring a signatory of current reports to

          provide a copy of those reports to the registrant's board of

          directors would, at a minimum, help ensure that the board is

          quickly informed about material current developments or events

          that concern the registrant.

               This proposal is based in part on the Advisory Committee's

          finding that the disclosures made in Exchange Act reports tends

          to be of a lesser quality than the disclosures made in Securities

          Act filings.  The Committee believed that, generally, one way to

          improve Exchange Act disclosures would be to require senior

          management to review the Exchange Act reports filed on behalf of

          the company they managed. [553]

               The Commission concurs with the Committee's goal that

          management take a more active role in the disclosure the

          registrant makes in its Exchange Act reports as well as

          acknowledge more responsibility for the disclosure in their

          reports. [554]  We also note, as the Committee did, that

          revisions to enhance the disclosures in Form 8-K may improve

          disclosure for Securities Act purposes, because almost all

          seasoned issuers incorporate their Exchange Act reports into

          their Securities Act registration statements.

               We recognize that companies may find it inconvenient to

          obtain the additional signatures that would be necessary to file

          the report.  However, we believe the instructions to the Forms,

          current or proposed, that provide for conformed signatures would

          significantly ease any logistical burdens associated with

          obtaining the signatures.

                    2.   Securities Act Filings

               We also propose to revise the signature sections of certain

          registration statements under the Securities Act to mandate that

          any person signing the registration statements certify that he or

          she has read the registration statement and, to his or her

          knowledge, it does not contain an untrue statement of a material

          fact or omit to state a material fact required to be stated

          therein or necessary to make the statements therein not

          misleading. [555]  Unlike the Exchange Act proposals, we would

          not expand the number of persons required to sign the

          registration statements. [556]

               We hope that the certification requirement would cause the

          signatories, who typically also manage and control the issuer, to

          read the disclosure and perhaps even participate more in the

          preparation of the filing.  We seek your comment on this

          proposal.  Would the proposed certification have any effect on

          the extent to which the signatories participate in overseeing the

          disclosure?  Would it change the extent to which management of

          the companies are given draft disclosure or given time to read

          the disclosure before filing?  Given that signatories are already

          responsible for the disclosure under the liability provisions of

          the Securities Act, [557] would certification have any effect?


          **FOOTNOTES**

          [524]:See  General Instructions  A  of  Forms  10-K  and  10-KSB.
               Foreign  companies  that  do not satisfy the foreign private
               issuer  definition in Exchange  Act  Rule  3b-4(c),  17  CFR
               240.3b-4(c), also must report on Forms 10-K or 10-KSB.

               [525]:See  General  Instruction  A of Forms 10-Q and 10-QSB.
               Foreign private issuers, as defined in Exchange Act Rule 3b-
               4(c) have no quarterly reporting obligation.   See  Exchange
               Act Rule 13a-13(b)(2), 17 CFR 240.13a-13(b)(2).  Other  non-
               governmental foreign issuers must file quarterly reports.

               [526]:Companies  frequently  issue  press  releases  through
               Business  Wire, PR Newswire and other publications.  Through
               narrow searches  of  electronic databases, it is possible to
               find the press releases of hundreds of companies that relate
               to   early  annual  and  quarterly   results   or   earnings
               information.   Most companies seem to have included in their
               press releases the  basic information that would be prepared
               for inclusion in a periodic report.  Some companies also use
               press releases to announce  the  early  filing  of  periodic
               reports   with  the  Commission  and  to  publish  the  same
               financial information  that  they  include  in their filings
               with the Commission.

               [527]:Some services apparently publish verbatim  almost  any
               company  press release (e.g., Business Wire or PR Newswire).
               Not all investors have access or know about these services.

               [528]:See,  e.g.,  Antilla,  Quarterly  Reports  Often  Mask
               Companies'  Ugly  Truths,  The Dallas Morning News, Apr. 12,
               1998 at 13A.

               [529]:See Exchange Act Release Nos. 9000 (Oct. 21, 1970) [35
               FR 16919] and 9004 (Oct. 28,  1970)  [35  FR 17537].  Before
               1970, the due date for filing annual reports  was  120  days
               after a company's fiscal year end.

               [530]:See  Exchange Act Release No. 3803 (Mar. 28, 1946) [11
               FR 10988].

               [531]:Since  1970, we have expanded the information required
               by Form 10-Q only  twice to any notable extent.  In 1981, we
               added the requirement  for  MD&A  information.  Exchange Act
               Release No. 17524 (Feb. 17, 1981);  see  Item 2 of Part 2 of
               Form  10-Q.   Last  year  we added a disclosure  requirement
               relating to market risk.  Exchange  Act  Release  No.  38223
               (Jan. 31, 1997); see Item 3 of Part 2 of Form 10-Q.

               [532]:"In  a  slower, paper-based world, quarterly reporting
               frames were deemed  adequate  for purposes of the 1934 Act's
               continuous disclosure system...[b]ut in an era of electronic
               reporting,  it is possible to advocate  a  much  more  rapid
               reporting  obligation."    Coffee,   Brave  New  World?  The
               Impact(s)  of the Internet on Modern Securities  Regulation,
               52  Bus. Law  1195,  1199  (Aug.  1997).   In  1969,  former
               Commission  Chairman  Manuel  Cohen said: "because companies
               need not file the [quarterly] report until 45 days after the
               end of the quarter, the information  is  often  stale."  See
               Brown,  Corporate  Communications and the Federal Securities
               Laws, 53 Geo. Wash. L. Rev. 741, (1985).

               [533]:The Advisory Committee recommended that the Commission
               expand  Form 8-K to require  disclosure  about  developments
               that would result in material modifications to the rights of
               security  holders.   See  Advisory Committee Report at p. 27
               and Appendix B at p. 55.

               [534]:Item 2 of Part II of  Form  10-Q  and 10-QSB.  Foreign
               private issuers are not required to file  quarterly  reports
               and   therefore   are   not   subject   to  this  disclosure
               requirement.

               [535]:Item   6   of  Form  8-K  currently  requires   prompt
               disclosure of a director's  resignation  or  declination  to
               stand  for  re-election.   The Item does not require similar
               disclosure with respect to CEOs, CFOs, COOs or president.

               [536]:See Advisory Committee  Report at p. 27 and Appendix B
               at p. 55.  The Committee did not limit its recommendation to
               disclosures regarding the CEO,  CFO,  COO and president.  It
               extended its recommendation to the "top  five" or "five most
               senior" executive officers.

               [537]:Item 3 of Part II of Form 10-Q and Item  3  of Part II
               of  Form  10-QSB.  Both Items require disclosure of defaults
               whether under the terms of a company's governing instruments
               or with respect  to  arrearages in the payment of a dividend
               or other delinquencies.   Neither  Item,  however,  requires
               disclosure  of  defaults  or arrearages with respect to  any
               class of securities held entirely  by  or for the account of
               the  registrant  or  its  wholly  owned  subsidiaries.   See
               Instruction  to  Item  3  of  Part  II  of  Form  10-Q   and
               Instruction  to  Item  3  of  Part  II  of Form 10-QSB.  Our
               proposal includes these same reporting exceptions.

               [538]:The  Advisory  Committee  also  recommended  that  the
               Commission  accelerate  disclosure of material  defaults  on
               senior  securities.   The  Committee  believed  that  prompt
               public disclosure would reduce  the  possibility  of  unfair
               trading  based  on  selective  disclosure  and would improve
               market efficiency.  See Advisory Committee Report  at  p. 27
               and Appendix B at pp. 55-56.

               [539]:Item 4 of Form 8-K.

               [540]:The  Advisory  Committee  suggested  that this kind of
               disclosure  should  be required on Form 8-K.   See  Advisory
               Committee Report at p.  27  and  Appendix B at pp. 55-56. As
               noted, the Commission's proposals  do  not  precisely follow
               the   Committee's   suggestions.   The  Committee  did   not
               expressly suggest expanding  Form  8-K to require disclosure
               of an accountant or auditor's refusal  to  consent to use of
               its prior audit report.

               [541]:See Advisory Committee Report, Appendix B at pp. 27-28
               and  55-56.  The Committee explained that an  auditor  could
               provide  a  gatekeeping  function  when  asked to furnish or
               update a consent to the use of its report.   If  the auditor
               does not satisfy itself that the report does not require any
               adjustments, it may withhold or refuse to consent  to use of
               the  report.   By  requiring  companies  to  report when its
               auditor refuses to consent to use of its report,  we  elicit
               disclosure  that  may  signal  problems  with  the company's
               financials.

               [542]:See proposed revisions to Item 304 of Regulation  S-B,
               17  CFR  228.304,  and  proposed  revisions  to  Item 304 of
               Regulation S-K, 17 CFR 229.304.

               [543]:Events  concerning changes in control of a registrant,
               acquisition or  disposition by a registrant of a significant
               amount  of  assets,   and   a   registrant's  bankruptcy  or
               receivership,  as  well as other events,  must  be  reported
               within 15 calendar days of the occurrence of the event.  See
               General Instruction B. of Form 8-K.

               [544]:Registrants must  file  reports  on  Form 8-K within 5
               business days of both changes in the registrant's certifying
               accountant  and  the resignation of any of the  registrant's
               directors.  See General Instruction B. of Form 8-K.

               [545]: Advisory Committee Report at p. 27.

               [546]:As discussed  above,  this due date would not apply to
               the reporting of annual and quarterly  financial  results on
               Form 8-K.

               [547]:This information is currently required to be disclosed
               under  Item  4  of  Form 8-K, within 5 business days of  the
               event.

               [548]:This information is currently required under Item 6 of
               Form 8-K and is due today  within  5  business  days  of the
               event.

               [549]:The  proposal  relates  to Exchange Act Forms 8-A, 10,
               10-SB, 20-F, 40-F, 6-K, 8-K, 10-Q,  10-QSB, 10-K and 10-KSB.
               The  Commission  is not currently proposing  to  change  the
               language in these Forms that direct the registrant to file a
               specified number of  copies with the Commission.  Of course,
               reporting  entities  that   file  the  Forms  electronically
               pursuant to Regulation S-T need  not  submit multiple copies
               electronically.

               [550]:Forms 10-K and 10-KSB already require those persons to
               sign those Forms.  See Instruction D.(2)(a) of Form 10-K and
               Instruction C.2. of Form 10-KSB.  Forms  8-K  and  6-K  only
               require  the  signature  of the officer signing on behalf of
               the registrant and in his  or  her capacity as an officer of
               the  registrant.  See Form 6-K and  Form  8-K.   We  do  not
               propose  to  revise  either  Form 6-K or 8-K to require more
               signatures.

               [551]:Although board members may  not review the disclosures
               in those Forms before receiving them from the registrant, we
               believe  that  the  delivery  requirement   would   increase
               director  awareness  of  the disclosure in the reports,  and
               therefore possibly increase  their participation.  Moreover,
               the Commission has noted that  certain companies may have no
               internal   system  by  which  to  provide   directors   with
               significant   corporate  information.   The  Commission  has
               indicated   before   that   directors   must   assume   some
               responsibility  with  respect  to  disclosures  made  by the
               companies on whose boards they sit. See, e.g., Exchange  Act
               Release No. 17114 (Sept. 2, 1980) [45 FR 63630].

               [552]:The Advisory Committee noted in its Report that it was
               advised   that  senior  management  of  reporting  companies
               routinely execute  the  signature  pages  for  Exchange  Act
               reports  without having or reviewing the report itself.  See
               Advisory  Committee  Report,  Appendix  B  at  p.  50.   The
               Advisory Committee  learned  in various meetings and through
               research  that  board  members  devote   less  attention  to
               Exchange   Act   reports   than  they  devote  to  reviewing
               Securities  Act  filings.  See  Advisory  Committee  Report,
               Appendix A at pp. 49-53.

               [553]:The Committee  also  suggested  that,  the  Commission
               require senior management to address and submit a report  to
               the audit committee of the board of directors describing the
               procedures employed to ensure compliance with disclosure and
               accounting   standards   and   requirements.   See  Advisory
               Committee Report, Appendix B at pp. 50-54.

               [554]:In 1980, the Commission amended  Form  10-K to require
               that the Form be signed on behalf of the registrant  by  the
               registrant's  principal  executive officer(s), its principal
               financial officer, its controller  or  principal  accounting
               officer  and  by  at  least  a  majority  of  the  board  of
               directors.   Exchange Act Release No. 17114 (Sept. 2, 1980).
               The Commission noted that, while commentators either did not
               address or object  to  the  proposal  to  require  executive
               officers  to  sign  the  Form  10-K,  they did object to the
               proposal  that  board  members  be required  to  sign.   The
               Commission  adopted  the  proposal  over  the  commentators'
               objections because it concluded that  the  requirement would
               help shift the focus to Exchange Act reporting.  By shifting
               the  focus,  the  Commission  expected  that  officers   and
               directors  would  pay more attention to the disclosures made
               in Forms 10-K and to  participate more in their preparation.
               It  believed  then,  as  we   do  now,  that  the  signature
               requirement would impose an added measure of discipline that
               would provide benefits that outweighed the potential impact,
               if any, of the signature on legal liability.

               [555]:We would revise existing Securities Act Forms SB-1 and
               SB-2.  Proposed Securities Act  Forms A, B, C and SB-3 would
               include the same certification.

               [556]:Forms S-1, S-2, F-1, F-2, S-3,  F-3, S-4, F-4 and S-11
               currently  require  the signatures of the  same  persons  we
               would require to sign proposed Forms A, B and C.

               [557]:See  Securities   Act   Section  11(a),  15  U.S.C.  ง
               77(k)(a).

                                       - 100 -

               D.   Form 6-K Submissions

               Form 6-K is a critical part of the Exchange Act disclosure

          system for foreign private issuers.  Form 6-K requires a foreign

          private issuer to furnish the Commission with all the material

          information that the foreign issuer:

               1.   discloses or is required to disclose under the laws of
                    its domicile or place of incorporation;

               2.   files or is required to file with stock exchanges that
          list its securities; and

               3.   distributes or is required to distribute to its
          security holders. [558]

               Unlike Form 8-K, [559] Form 6-K does not explicitly

          encourage current voluntary disclosure that is not dependent upon

          foreign requirements.  The Commission believes foreign issuers

          should be encouraged to keep their security holders and the

          market up-to-date, particularly because they may report less

          frequently than domestic issuers do under the Exchange Act

          system.  Accordingly, the Commission proposes to add an

          instruction to Form 6-K to encourage foreign issuers to submit

          voluntarily current information that the issuer deems of

          importance to its security holders.  Because the submission would

          be voluntary, we are not proposing a filing deadline, but we

          would recommend that foreign issuers promptly submit the Form 6-K

          after becoming aware of the information.  We would deem

          information submitted voluntarily not to be filed for purposes of

          Section 18, just as we do all information under cover of Form 6-

          K. [560]

               We solicit comment on the proposed instruction.  Rather than

          encourage more disclosure by foreign private issuers, should we

          mandate particular disclosures not required under applicable

          foreign requirements?  If so, what disclosures should be

          mandatory?  For example, should we require issuers to report risk

          factor information similar to what would be required in Form 10-

          Q?  Should we encourage reporting of other information about the

          issuer by enumerating in the proposed instruction areas of

          possible interest to investors?

               The Commission is also proposing to revise Form 6-K to

          include four new items in the list of examples of what issuers

          would disclose on Form 6 K if the information is disclosed under

          applicable foreign requirements.  Those items are: i) changes in

          the issuer's name; ii) material modifications to the rights of

          security holders; iii) any material defaults on indebtedness,

          material arrearages in dividends and other material

          delinquencies; and iv) departure of the issuer's chief executive

          officer, chief financial officer, chief operating officer or

          president (or anyone serving those functions).  The existing list

          on Form 6-K mirrors the events that domestic issuers must report

          on Form 8-K.  Because we are proposing to include these items on

          Form 8-K, we are proposing corresponding changes to the Form 6-K

          list.  Each of the four relates to material events that all

          reporting issuers, foreign or domestic, should disclose to their

          security holders and the market of on a timely basis.

               We seek comment on this revision.  Are there reasons to omit

          any of the four from the instruction?  Should we consider adding

          other, more specific, informational items?

               E.   Solicitation of Comment Regarding Plain English in

          Exchange Act Reports

                The Commission recently adopted the requirement that

          Securities Act prospectuses be drafted in plain English.  In the

          Securities Act registration system we propose today, investors

          would look increasingly to Exchange Act reports for information

          regarding the registrant.  These proposals also would expand the

          documents that would be used in connection with an offering.  The

          concerns that led to the plain English revisions included the

          need to read and understand easily the information that is the

          basis for the investment decision.  Given today's proposals,

          these concerns would also seem to apply to Exchange Act documents

          that are incorporated by reference into the Securities Act

          prospectus.  One proposal to require risk factor disclosure in

          Exchange Act registration statements and periodic reports also

          requires that disclosure be written using plain English

          principles.  We solicit comment on whether we should extend the

          plain English requirement to all materials that are a part of the

          prospectus, including other parts of  Exchange Act reports that

          are incorporated by reference into that document.  Would it be

          more appropriate to extend the plain English requirements to all

          Exchange Act periodic reports, regardless of whether they are

          incorporated by reference into a Securities Act registration

          statement?  Should we extend the plain English requirements only

          to certain parts of Exchange Act periodic reports, such as the

          description of the company's business or the MD&A section?

          XII. STAFF REVIEW POLICY

                The Commission staff would continue to review all IPO

          registration statements for sufficiency of disclosure.  The staff

          would review Form A registration statements by certain repeat

          issuers and Form C registration statements if they are selected

          in accordance with its review criteria.

               Form B registration statements would not be reviewed by the

          staff before effectiveness.  Although the Commission will

          continue to review their periodic reports on a regular basis, we

          see less need for regulatory supervision at the time of their

          offerings.  We solicit comment, however, on whether the staff

          review should apply to Form B offerings of novel securities.  If

          so, how should "novel" be defined so as to provide certainty as

          to the possibility of review?  If the Commission staff reviews

          "novel" securities offerings, would those offerings tend to

          gravitate to the unregistered market?

               Form B registration statements would be screened by the

          staff promptly after being filed with the Commission.  The staff

          will determine whether the offering was eligible to be registered

          on Form B [561] and whether the disclosure raises any "red flags"

          concerning compliance with the antifraud provisions of the

          federal securities laws.  If the offering filed on Form B is not

          eligible for registration on Form B, the issuer would have

          violated Section 5 of the Act and would be referred to the

          Division of Enforcement for appropriate action.  If the

          disclosure raises "red flags," the staff will conduct an

          immediate review of the registration statement and take further

          action as appropriate.

               Filings on Form A would be divided into two categories:

          those subject to review and those not subject to review.  Filings

          by smaller and unseasoned issuers would be reviewed by the staff

          in the same way they are today.  However, medium-sized seasoned

          issuers may designate the time and date that their registration

          statements on Form A would become effective; these filings

          obviously would not be subject to staff review prior to

          effectiveness. Some commenters on the Concept Release suggested

          that the Division disclose its review criteria to provide more

          predictability in the offering process. [562]  They noted that,

          other than in the case of initial public offerings which are

          always reviewed by the staff, the Commission has not chosen to

          tell issuers planning an offering what criteria the staff will

          use to make its decision about reviewing their registration

          statements.

               We intend to resolve this uncertainty in the case of Form B

          offerings by announcing that the staff will not review those

          offerings.  These registration statements either would be

          effective upon filing or would become effective when the issuer

          chooses.  The same would be true of Form A offerings either made

          by issuers with a public float greater than $75 million or made

          by seasoned issuers incorporating an annual report on Form 10-K

          or Form 20-F that has been reviewed previously by the Commission

          staff.  In addition, we propose not to review certain offerings

          by large seasoned foreign government issuers registering on

          Schedule B.  In all other repeat offerings, we believe that the

          positive effects on registration statement disclosure that result

          from the possibility of staff review outweigh the cost of

          uncertainty.  As a result, the Division will not make its review

          criteria for other offerings public.

               In order to increase efficiency and certainty for issuers,

          however, we propose several changes to the staff review process

          with respect to Exchange Act filings.

               A.   Notification of Selection for Review

               If the proposals are adopted, the Division staff will begin

          to notify the issuer as soon as its Exchange Act reports are

          selected for review.  This practice would eliminate the concerns

          expressed by issuers that they are taken by surprise when they

          receive a comment letter from the staff on their Exchange Act

          filings.  The staff also will indicate in those notification

          telephone calls approximately when comments, if any, can be

          expected to be communicated to the issuer by the staff.

               B.   Voluntary Pre-Review of Filings

                If the proposals are adopted, the Division staff will begin

          to consider requests by issuers for the staff to review their

          Exchange Act disclosure because the issuer is planning an

          offering in the near future.  The Commission also reminds issuers

          that, as always, the Division is willing to discuss with issuers

          potential accounting problems that may arise either in due course

          or in connection with unusual transactions.  Resolution of those

          issues before filing benefits all interested parties. [563]

               This voluntary review option would be available to reporting

          issuers that are concerned about receiving a staff comment letter

          requesting an amendment to an Exchange Act report that is being

          incorporated into a registration statement or that will serve as

          the basis for company disclosure in a registration statement.

          Subject to obvious limitations on staff resources, the staff will

          make every effort to accommodate an issuer's request when made a

          reasonable period before an offering.  If the staff is unable to

          accommodate a request, the issuer will be so advised promptly

          after the request is made.  If the staff informs the issuer that

          it is unable to review the issuer's Exchange Act reports at that

          time, the staff would not select those reports for a routine

          review during the 30 days thereafter.  At any time more than 30

          days thereafter, the staff could choose to perform a routine

          review of that issuer's reports.  At all times, the Commission

          staff would reserve the right to review those reports for cause.

          XIII.REQUEST FOR COMMENTS ABOUT INVESTMENT COMPANY ISSUERS AND
               MARKET VALUE ADJUSTMENT CONTRACTS

               A.   Investment Company Issuers

               Interested persons are asked to submit written comments on

          how any aspect of  the proposals affects investment companies and

          on how the proposals should be modified to reflect the

          circumstances of investment companies.  For example should the

          safe harbors for communications contained in proposed rules 167,

          168 and 169 apply to investment companies or should investment

          companies be expressly excluded from these safe harbors?  Do the

          proposals, which generally are tied to the form on which

          securities are registered, adequately address delivery

          obligations with respect to investment company securities,

          particularly the securities of closed-end investment companies?

               B.   Market Value Adjustment Contracts

               Life insurance companies sometimes issue so-called "market

          value adjustment„ contracts, either alone or in combination with

          a variable annuity contract.  Under a market value adjustment

          contract, an insurer promises a contractowner a fixed interest

          rate, subject to an adjustment based on prevailing interest rates

          in the event of early surrender of the contract.  Market value

          adjustment contracts have been registered on Form S-1, S-2 or S-

          3.  Under today's proposals, they would be registered on Form A

          or B.

               We solicit comment on how the proposals affect market value

          adjustment contracts and on how the proposals should be modified

          for these contracts.  For example, what criteria should be used

          to determine whether a market value adjustment contract is

          registered on Form A or Form B?  Is one of these forms more

          appropriate for all market value adjustment contracts?  Should

          registration statements on Form B for market value adjustment

          contracts be subject to the same rules for time of filing and

          time of effectiveness as other Form B registration statements, or

          should they be treated similarly to investment company

          registration statements?  Should the exemption permitting offers

          to be made in the pre-filing period apply to market value

          adjustment contracts registered on Form B?  Should the same

          delivery requirements apply to market value adjustment contracts

          registered on Forms A and B as apply to other Form A and B

          offerings, or should market value adjustment contracts be treated

          similarly to investment company securities?

          XIV. COST-BENEFIT ANALYSIS

               The proposed new rules and amendments should modernize and

          improve the Commission's regulatory system for offerings under

          the Securities Act.  We believe our proposals would enhance

          communications between public companies and investors, and

          promote investor protection.  In this section we examine the

          benefits and costs of the proposed revisions of the Securities

          Act and Exchange Act, focusing on the groups that might be

          affected.  We request that commentators provide views and

          supporting information as to the benefits and costs associated

          with the proposals.

                A.  Impact on Investors

               We anticipate that the proposed rules and amendments would

          enhance investor protection by requiring issuers to deliver

          information to investors before they commit to purchasing

          securities. [564]  Specifically, the proposed rules and

          amendments would require issuers registering securities on Form A

          to deliver preliminary prospectuses to potential buyers 7 days

          before pricing for initial public offerings and 3 days before

          pricing for repeat offerings.  Issuers would have to notify

          offerees of material changes at least 24 hours before pricing.

          For Form B offerings, issuers would be required to deliver term

          sheets outlining the key features of the securities before

          accepting purchases from customers.  In contrast to the proposed

          rules, the final prospectus currently is required to be sent to

          investors before, or at the same time as, the securities

          purchased. [565]  Thus investors typically receive prospectuses

          after securities sales, rather than when they are considering the

          merits of investments.  The proposed rules and amendments would

          accelerate the delivery of information to investors in some

          circumstances, thereby ensuring they receive written information

          before investing.

               The proposed rules and amendments would also enhance the

          timeliness, uniformity, and quality of disclosure in Exchange Act

          reports by:

          *    requiring registrants to file summary financial information
               on Form 8-K before they file Forms 10-K and 10-Q;

          *    shortening the period during which foreign private
               registrants may file Form 20-F;

          *    reducing the 15-day filing period for Form 8-K to 5 days,
               and reducing the 5-day filing period for disclosing
               independent accountant and director resignations, material
               defaults, dividend arrearages, and delinquencies filed on
               Form 8-K to 1 day;

          **FOOTNOTES**

          [558]:See General Instruction B to Form 6-K.

               [559]:See Item 5 of Form 8-K.

               [560]:For internal tracking purposes, we propose to add a
               box to the cover of Form 6-K for issuers to check if they
               are voluntarily submitting the Form 6-K pursuant to the
               proposed instruction.

               [561]:The issuer and the offering must meet the eligibility
               requirements set forth in General Instruction I. of Form B.

               [562]:See, e.g., comment letters, in File No. S7-19-96, from
               PSA The Bond Market Trade Ass'n (Nov. 8, 1996); Cleary,
               Gottlieb, Steen & Hamilton (Dec. 27, 1996); and the N.Y.
               State Bar Ass'n (Oct. 25, 1996).

               [563]:We would exclude from this policy Exchange Act reports
               filed in accordance with requirements of foreign law, such
               as Forms 40-F and 6-K.

               [564]:See proposed Securities Act Rule 172, 17 CFR 230.172.

               [565]:In initial public offerings, issuers are required to
               deliver preliminary prospectuses to investors at least 48
               hours before sending confirmations.