Eric D. Roiter
Senior Vice President and General Counsel
Fidelity Management & Research Company
82 Devonshire Street
Boston, MA 02109-3614
August 29, 2002
Via Electronic Mail
Mr. Jonathan G. Katz
Securities and Exchange Commission
450 Fifth Street, NW
Washington, DC 20549-0609
Re: Additional Form 8-K Disclosure Requirements and Acceleration of Filing Dates (Release Nos. 33-8106; 34-46084; File No. S7-22-02)
Dear Mr. Katz:
On behalf of Fidelity Management & Research Company ("FMR"), I am writing in response to Securities Exchange Act Release No. 46084 regarding proposed additional Form 8-K disclosure requirements. FMR is the investment manager for over 260 registered investment companies in the Fidelity Group of Funds with aggregate assets in excess of $660 billion.
FMR strongly supports the Commission's goal of improving the timeliness and usefulness of corporate disclosures. The availability of timely information is crucial to informed investment decision-making by institutional and individual investors alike. For this reason, FMR applauds the Commission's recent rulemaking initiatives, including the proposed changes to Form 8-K. We wish to point out two areas in which clarification by the Commission would be helpful: (i) the interplay between Regulation FD and expanded corporate disclosures on Form 8-K and (ii) disclosure of off-balance sheet financings in 8-K reports, in light of new disclosure requirements under the Sarbanes-Oxley Act.
Regulation FD and Expanded 8-K Reporting.
In light of the proposed expanded scope of mandatory disclosure in 8-K reports, FMR urges the Commission to encourage reporting companies to be responsive to inquiries made by investment analysts and institutional investors about those reports. In adopting Regulation FD, the Commission emphasized that more frequent public disclosures should not foreclose the ability of analysts and investors to meet with corporate management and to pose probing questions that seek to test the premises and assumptions that underlie those disclosures -- all with a view toward assembling the mosaic that leads to sound investing and efficient pricing in our capital markets. More frequent 8-K reporting should, in fact, lead to a greater willingness on the part of issuers to meet with analysts and institutional investors who seek to fill out the interstices of what has already been publicly disclosed. Indeed, awareness on the part of corporate issuers that expanded 8-K reporting must be accompanied by a willingness to meet with analysts and institutions and respond to focused questions should reinforce management's incentive, in the preparation of those reports, to make them as informative, clear and useful as possible.
Off-balance Sheet Financing.
Recent events have dramatically underscored the importance of timely disclosure of off-balance sheet financings. FMR strongly supports inclusion of proposed Items 2.03 and 2.04 of Form 8-K, which cover the creation and triggering of material direct or contingent financial obligations, which we understand to include both on and off-balance sheet liabilities. We suggest that the Commission address the interplay between expanded 8-K reporting with rules that the Commission is required to adopt under Section 401 of Sarbanes-Oxley regarding off-balance sheet liabilities. We urge the Commission to conclude that disclosure of new, material off-balance (and on-balance) sheet liabilities should be made on the more timely basis required in 8-K reports, notwithstanding the call under Sarbanes-Oxley for inclusion of this disclosure in quarterly and annual reports. To facilitate compliance with the new legislation, the Commission could adopt rules to allow companies to file 10-Q (and perhaps 10-K) reports that incorporate by reference this information from previously filed current reports on Form 8-K.
The Commission asked for comments on whether disclosure of a contingent financial obligation under proposed Item 2.03 of Form 8-K should turn on whether the contingency is considered a "probability," a "significant possibility" or is simply greater than remote. Requiring disclosure of only those contingent liabilities that are deemed probable of occurrence would seem to fall short of the Commission's goal of putting investors on notice of foreseeable liabilities that could have a material impact on a company's financial condition. We suggest that the Commission adopt a standard of "significant possibility," if not the more inclusive standard of "reasonable possibility."
We appreciate the opportunity to comment on this important rule proposal. Please contact me at (617) 563-7000 should you have any questions concerning FMR's views.
/s/ Eric D. Roiter
cc: Alan Beller, Director
Divison of Corporation Finance
Paul F. Roye, Director
Division of Investment Management