(A)             (B)     (C)=(A)*(B)    (D)=(C)*0.75    (E)=(C)*0.25    (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
10-K \581\..............................................           8,602              95         817,190      612,892.50      204,297.50     $81,719,000
10-KSB..................................................           3,504              50         175,200      131,400.00       43,800.00      17,520,000
DEF 14A.................................................           7,250               3          21,750       16,312.50        5,437.50       2,175,000
DEF 14C.................................................             681               3           2,043        1,532.25          510.75         204,300
                                                                         -------------------------------------------------------------------------------
    Total...............................................  ..............  ..............       1,016,183      762,137.25      254,045.75     101,618,300
--------------------------------------------------------------------------------------------------------------------------------------------------------

 Table 2.--Calculation of Incremental Paperwork Reduction Act Burden Estimates for Securities Act Registration Statements and Exchange Act Registration
                                                                       Statements
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                $400
                          Form                                Annual        Incremental     Incremental     75% Issuer          25%        Professional
                                                             responses      hours/form        burden                       Professional        cost
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                     (A)             (B)     (C)=(A)*(B)    (D)=(C)*0.25    (E)=(C)*0.75    (F)=(E)*$400
--------------------------------------------------------------------------------------------------------------------------------------------------------
10......................................................              72              85           6,120        1,530.00        4,590.00      $1,836,000
10-SB...................................................             166              45           7,470        1,867.50        5,602.50       2,241,000
SB-2....................................................             885              45          39,825        9,956.25       29,868.75      11,947,500
S-1.....................................................             528              74          39,072        9,768.00       29,304.00      11,721,600
S-4.....................................................             619              17          10,523        2,630.75        7,892.25       3,156,900
S-11....................................................              60              85           5,100        1,275.00        3,825.00       1,530,000
N-2.....................................................             462               5           2,310          577.50        1,732.50         693,000
                                                                         -------------------------------------------------------------------------------
    Total...............................................  ..............  ..............         110,420       27,605.00       82,815.00      33,126,000
--------------------------------------------------------------------------------------------------------------------------------------------------------

2. Exchange Act Current Reports
    For purposes of the Paperwork Reduction Act, we estimate that the
amendments affecting the collection of information requirements related
to current reports on Form 8-K will reduce the annual paperwork burden
by approximately 6,458 hours of company personnel time and by a cost of
approximately $861,000 for the services of outside professionals. This
estimate reflects the reduction in the number of filings that could
result from our amendments.\582\ These estimates were based on the
following assumptions:
---------------------------------------------------------------------------

    \581\ The burden estimates for Form 10-K and 10-KSB assume that
the amended requirements are satisfied by either including
information directly in the annual reports or incorporating the
information by reference from the proxy statement or information
statement in Schedule 14A or Schedule 14C, respectively. As
described above, we now estimate that the changes to executive
compensation and corporate governance disclosure requirements
applicable only in proxy or information statements (and thus not in
Securities Act registration statements or Exchange Act reports or
registration statements) will impose an incremental burden.
    \582\ The amendments do not change the exhibit filing
requirements under Item 601(b)(10) of Regulations S-K and S-B,
therefore companies may be required to file compensatory plans,
contracts or arrangements as exhibits to filings even if current
reporting on Form 8-K is no longer required for the entry into or
amendment of those plans, contracts or arrangements.
---------------------------------------------------------------------------

     The number of annual responses for Form 8-K is estimated
to be 110,416.\583\ Based on a study of current reports on Form 8-K
filed in September 2005, we estimate that approximately 22,083 current
reports filed on Forms 8-K would be filed annually pursuant to Item
1.01 of Form 8-K;
---------------------------------------------------------------------------

    \583\ This is based on the number of responses made in the
period from October 1, 2004 through September 30, 2005.
---------------------------------------------------------------------------

     Based on a review of Item 1.01 of Form 8-K filings made in
September 2005, we estimate that 6,625 of the 22,083 current reports on
Form 8-K that would be filed annually under Item 1.01

would relate to executive or director compensation matters; and
     Based on a review of Item 1.01 of Form 8-K filings made in
September 2005, we estimate that 1,722 fewer current reports on Form 8-
K would be filed annually as a result of more focused current reporting
of executive officer and director compensation transactions under new
Item 5.02(e) of Form 8-K.\584\
---------------------------------------------------------------------------

    \584\ For Form 8-K, the current burden estimate is 5 hours per
filing. We estimate that 75% of the burden of preparation is carried
by the company internally and that 25% of the burden is carried by
outside professionals retained by the issuer at an average cost of
$400 per hour. The computation of the reduction in burden is thus
based on 1,722 fewer current reports on Form 8-K filed with a per
filing burden of 3.75 hours carried by the company and 1.25 hours at
a cost of $400 per hour (or $500 per filing).
---------------------------------------------------------------------------

IX. Cost-Benefit Analysis

A. Background

    We are adopting amendments to our rules governing disclosure of
executive and director compensation, related person transactions,
director independence and other corporate governance matters and
security ownership of officers and directors. The revisions to the
executive and director compensation disclosure rules are intended to
provide investors with a clearer and more complete picture of
compensation to principal executive officers, principal financial
officers, the highest paid executive officers and directors. We are
also amending our rules relating to current reports on Form 8-K to
require real-time disclosure of only executive and director
compensation events that are unquestionably or presumptively material,
thereby reducing the number of filings for events relating to executive
officers other than named executive officers and those officers
specified in Item 5.02. We are amending our closely related rules
requiring disclosure regarding the extent to which executive officers,
directors, significant shareholders and other related persons
participate in financial transactions and relationships with the
issuer. We are amending our beneficial ownership disclosure requirement
to require disclosure regarding pledges of securities by management and
directors' qualifying shares. Finally, we are requiring that most of
the disclosure that will be called for by the amendments be provided in
plain English, so that investors can more easily understand this
information when it is required to be included in Exchange Act reports
or is incorporated by reference from proxy or information statements.
While we believe that these amendments will result in significant
benefits, we also recognize that the amendments to the disclosure
requirements will impose additional costs. We have considered the costs
and benefits in adopting these amendments.

B. Summary of Amendments

    In light of the complexity of, and variations in, compensation
programs, the sometimes inflexible and highly formatted nature of
former Item 402 of Regulations S-K and S-B has resulted, in some cases,
in disclosure that does not clearly inform investors as to all elements
of compensation. The changes to Item 402 apply a broader approach that
eliminates some tables, simplifies or refocuses other tables, reflects
total compensation in the Summary Compensation Table, and reorganizes
the compensation tables to group together compensation elements that
have similar functions so that the quantitative disclosure is both more
informative and more easily understood. This improved quantitative
disclosure will be complemented by enhanced narrative disclosure
clearly and comprehensively describing the context in which
compensation is paid and received. In particular, the narrative
disclosure requirements will provide transparency regarding company
compensation policies and procedures, and is designed to be
sufficiently flexible to operate effectively as new forms of
compensation continue to evolve.
    We have also taken into account the relative burden of providing
disclosure by smaller companies that file information pursuant to
Regulation S-B (as opposed to Regulation S-K). Under the amendments,
the scope and presentation of information in Item 402 of Regulation S-B
will differ in a number of significant ways from Item 402 of Regulation
S-K. Item 402 of Regulation S-B will:
     Limit the named executive officers for whom disclosure is
required to a smaller group, consisting of the principal executive
officer and the two other highest paid executive officers; \585\
---------------------------------------------------------------------------

    \585\ Prior to these amendments, Item 402(a)(2) of Regulation S-
B required compensation disclosure for all individuals serving as
the small business issuer's chief executive officer and the small
business issuer's four highest paid executive officers other than
the chief executive officer.
---------------------------------------------------------------------------

     Require a revised Summary Compensation Table to disclose
compensation information for the small business issuer's two most
recent fiscal years, and to require that narrative disclosure accompany
the Summary Compensation Table; \586\
---------------------------------------------------------------------------

    \586\ Prior to these amendments, Item 402(b)(1) of Regulation S-
B required disclosure in the Summary Compensation Table of
compensation of the named executive officers for each of the last
three fiscal years, and narrative disclosure was not required to
accompany the Summary Compensation Table. Under the amendments
adopted today, new narrative disclosure will address some elements
of compensation previously required to be disclosed in tables.
---------------------------------------------------------------------------

     Provide a higher threshold for separate identification of
categories of ``All Other Compensation'' in the Summary Compensation
Table;
     Require a new Outstanding Equity Awards at Fiscal Year-End
Table that includes expanded disclosure regarding holdings of
previously awarded stock, options and similar instruments, which
includes the value of stock and other similar incentive plan awards
that have not vested, as well as information regarding options on an
award-by-award basis;
     Require additional narrative disclosure addressing the
material terms of defined benefit and defined contribution plans and
other post-termination compensation arrangements; and
     Require a new Director Compensation Table.
    Item 402 of Regulation S-B will not include the following
disclosures that will be required by amended Item 402 of Regulation S-
K:
     Compensation Discussion and Analysis or a Compensation
Committee Report;
     Information regarding two additional executive officers;
     A third fiscal year of Summary Compensation Table
disclosure;
     The supplementary Grants of Plan-Based Awards Table, the
Option Exercises and Stock Vested Table, the Pension Benefits Table,
the Nonqualified Deferred Compensation Table, and the separate
Potential Payments Upon Termination or Change-in-Control narrative
section, while providing a general requirement to discuss the material
terms of retirement plans and the material terms of contracts providing
for payment upon a termination or change in control.

    In addition, the application of Item 1.01 of Form 8-K to
compensatory arrangements has raised concerns that real-time disclosure
may be required for executive compensation events that are not
unquestionably or presumptively material, and that are more
appropriately disclosed, if at all, in the company's proxy statement
for its annual meeting of shareholders. The amendments to Items 1.01
and 5.02 of

Form 8-K focus real-time disclosure on compensation arrangements with
executives and directors that we believe are unquestionably or
presumptively material, and eliminate the obligation to file Form 8-K
with respect to other compensatory arrangements.
    Further, the amendments streamline and modernize Item 404 of
Regulation S-K, while making it more principles-based. For example,
indebtedness of related persons is limited by the Sarbanes-Oxley Act,
and the disclosure requirement regarding indebtedness of related
persons has been combined into the requirement regarding other
transactions with related persons. This consolidated disclosure
requirement applies to an expanded group of related persons through
amendments to the definition of the term ``immediate family member.''
While the pre-existing principles for disclosure have been retained,
the amendments increase the threshold for disclosure from $60,000 to
$120,000 and eliminate or narrow the scope of certain instructions
delineating what transactions are reportable or excludable. The
disclosure requirements in Item 404 regarding transactions with
promoters have been slightly expanded in the amendments to apply when a
company had a promoter over the past five years, as well as to require
analogous disclosure regarding transactions with control persons of a
shell company.
    With respect to registered investment companies and business
development companies, amendments to Items 22(b)(7), 22(b)(8), and
22(b)(9) of Schedule 14A and to Forms N-1A, N-2, and N-3 similarly
increase to $120,000 the former $60,000 threshold for disclosure of
certain interests, transactions, and relationships of each director
(and, in the case of Items 22(b)(7), 22(b)(8), and 22(b)(9) of Schedule
14A, each nominee for election as director) who is not or would not be
an ``interested person'' of the fund within the meaning of Section
2(a)(19) of the Investment Company Act (and their immediate family
members). In addition, amended Form N-2 requires business development
companies to include the compensation disclosure required by Item 402
of Regulation S-K, as amended.
    The amendments also replace the disclosure requirement for certain
business relationships of directors that had been required by Item
404(b) of Regulation S-K prior to these amendments, which focused on
relationships relevant to director independence, with requirements for
director independence disclosure in new Item 407 discussed below. Under
the amendments, some of the disclosure that had been required under the
certain business relationship disclosure requirement may be required by
the consolidated disclosure requirement regarding transactions and
relationships with related persons in Item 404(a) of Regulation S-K.
Item 404(b) of Regulation S-K as amended requires disclosure regarding
the company's policies for the review, approval or ratification of
transactions with related persons.
    We are adopting similar amendments to Item 404 of Regulation S-B,
which will result in a more detailed related person transaction
disclosure requirement than had existed in Item 404 of Regulation S-B
prior to these amendments. However, unlike Item 404 of Regulation S-K,
Item 404 of Regulation S-B as amended does not require disclosure
regarding the company's policies for the review, approval or
ratification of transactions with related persons. We are retaining the
requirement that transactions occurring within the last two years must
be disclosed under Item 404 of Regulation S-B, whereas Item 404 of
Regulation S-K requires disclosure for the last fiscal year, unless the
information is included in a Securities Act or Exchange Act
registration statement, where information as to the last three fiscal
years is required.
    We are adopting a new disclosure requirement in Item 407 of
Regulations S-K and S-B that consolidates disclosures previously
required in several places throughout our rules addressing director
independence, board committee functions and other related corporate
governance matters. This new Item, which requires new disclosure
regarding independence of members of the board of directors and board
committees, is intended to enhance disclosures regarding independence
required by corporate governance listing standards of national
securities exchanges and automated inter-dealer quotation systems of a
national securities association.\587\ Item 407 of Regulations S-K and
S-B also includes a new disclosure requirement regarding the
compensation committee's processes and procedures for the consideration
and determination of executive and director compensation, and
disclosure regarding the availability of the compensation committee's
charter (if it has one), either as an appendix to the proxy or
information statement at least once every three fiscal years or on the
company's Web site. The amendments to Item 407 of Regulation S-K
require a short Compensation Committee Report regarding the
compensation committee's review and discussion with management of the
Compensation Discussion and Analysis, and the compensation committee's
recommendation to the Board with regard to the disclosure of the
Compensation Discussion and Analysis. This new Compensation Committee
Report, along with the Compensation Discussion and Analysis, is
required instead of the Board Compensation Committee Report on
Executive Compensation that was previously required by Item 402 of
Regulation S-K prior to today's amendments.
---------------------------------------------------------------------------

    \587\ We are also adopting conforming revisions to Item 22(b)
relating to the independence of members of nominating and audit
committees of investment companies.
---------------------------------------------------------------------------

    To the extent that shares beneficially owned by named executive
officers, directors and director nominees are used as collateral for
loans, these shares are subject to risks or contingencies that do not
apply to other shares beneficially owned by these persons. These
circumstances have the potential to influence management's performance
and decisions. As a result, we believe that the existence of these
securities pledges could be material to shareholders and should be
disclosed. We therefore are amending Item 403 of Regulations S-K and S-
B to require this disclosure as well as disclosure regarding directors'
beneficial ownership of qualifying shares.
    We are requiring that most of the information that is required by
these amendments be provided in plain English in Exchange Act reports
or in proxy or information statements incorporated by reference into
those reports. The plain English requirements will make these documents
easier to understand.
    The amendments to Item 402 of Regulation S-K, Items 402 and 404 of
Regulation S-B, and Form 8-K will affect all companies reporting under
Sections 13(a) and 15(d) of the Exchange Act, other than registered
investment companies. The amendments to Item 404 of Regulation S-K will
affect all companies reporting under Sections 13(a) and 15(d) of the
Exchange Act, other than registered investment companies, and all
companies, including registered investment companies, filing proxy or
information statements with respect to the election of directors. The
changes to Items 402 and 404 of Regulation S-K and Regulation S-B will
also affect additional companies filing Securities Act and Exchange Act
registration statements. The changes to Item 22(b) of Schedule 14A will
affect business

development companies and registered investment companies filing proxy
statements with respect to the election of directors. The changes to
Form N-1A will affect open-end investment companies registering with
the Commission on Form N-1A. The changes to Form N-2 will affect
closed-end investment companies (including business development
companies) registering with the Commission on Form N-2. The changes to
Form N-3 will affect separate accounts, organized as management
investment companies and offering variable annuities, registering with
the Commission on Form N-3.

C. Benefits

    As discussed, the overall goal of the executive and director
compensation amendments is to provide investors with clearer, better
organized and more complete disclosure regarding the mix, size and
incentive components of executive and director compensation. This goal
is accomplished by eliminating some tables and other disclosures that
we believe may no longer be useful to investors, revising other tables
so that they are more informative, and requiring new disclosure for
retirement plans and similar benefits, nonqualified deferred
compensation, post-termination benefits and director compensation. The
amendments require enhanced narrative disclosure, in the form of a
Compensation Discussion and Analysis section and narrative disclosure
accompanying the tables, to explain the significant factors underlying
the compensation decisions reflected in the tabular data. The
amendments also require companies to report the total amount of
compensation for named executive officers and directors, and provide
important context to the disclosure of total compensation.
    Improved disclosure under the amendments of executive and director
compensation, such as equity-based compensation, non-equity incentive
plan compensation, and retirement and other post-employment
compensation, combined with the ability of investors to track the
elements of compensation and the relative weights of those elements
over time (and the reasons why companies allocate compensation in the
manner that they do), will better enable investors to make comparisons
both within and across companies. A presentation facilitating the
comparability of different elements of compensation in different
companies should make it easier for investors to analyze both the
manner of compensation across companies and the quality of compensation
disclosure across companies. Disclosure of total compensation will
benefit investors by reducing the need to make individual computations
in order to assess the size of current compensation. Further, improved
executive and director compensation disclosure will enhance investors'
understanding of this use of corporate resources and the actions of
boards of directors and compensation committees in making decisions in
this area.\588\ Particularly with respect to the proxy statement for
the annual meeting at which directors are elected, this improved
disclosure will provide better information to shareholders for purposes
of evaluating the actions of the board of directors in fulfilling its
responsibilities to the company and its shareholders.
---------------------------------------------------------------------------

    \588\ For a discussion of the debate concerning board of
directors and managerial decision-making in the area of executive
compensation, see, e.g., Steven M. Bainbridge, Executive
Compensation: Who Decides?, 83 Tex. L. Rev. 1615 (2005).
---------------------------------------------------------------------------

    With respect to the new Compensation Committee Report regarding the
compensation committee's review and discussion with management of the
Compensation Discussion and Analysis, and the compensation committee's
recommendation to the board of directors with regard to disclosure of
the Compensation Discussion and Analysis, we believe that benefits will
be derived from the attention of the compensation committee to the
disclosure provided in Compensation Discussion and Analysis. Further,
the principal executive officer and principal financial officer can
look to the Compensation Committee Report when providing their
certifications. Finally, the Board Compensation Committee Report on
Executive Compensation has been eliminated in favor of company
disclosure in the form of the Compensation Discussion and Analysis,
which will provide investors with enhanced disclosure about the
objectives and implementation of executive compensation programs.
    We believe that the extent to which increased transparency and
completeness in executive and director compensation disclosure will
result in broader benefits depends at least in part on the extent to
which current executive and director compensation practices are aligned
with the interests of investors as reflected in their investment and
voting decisions. Any changes to a company that might occur, including
changes in corporate governance, changes in control, changes in the
employment of particular executives or other changes could depend to
some extent on the degree to which improved transparency in executive
and director compensation will affect investors' decision-making with
respect to that company.
    Disclosure under these new regulations will provide substantial
benefit to investors in terms of the accuracy, transparency,
completeness and accessibility of executive compensation and related
person transaction disclosure. Improved transparency in executive and
director compensation under these amendments could have other benefits
in terms of the allocative efficiency of affected corporations with
regard to the use of resources for executive compensation relative to
other corporate needs, as well as improvements in efficiency of
managerial labor markets. Benefits such as these depend on the extent
to which the amendments, including requirements to disclose a total
amount of compensation and more detail regarding compensation policies,
alter existing and future policies or practices in these areas. We
emphasize that we are not seeking to foster any particular policy or
practice. Our objective is to increase transparency to enable decision-
makers to make more informed decisions, which could result in different
policies or practices or an increase in investor confidence in existing
policies or practices.
    Enhanced disclosure of outstanding option awards on an award-by-
award basis, and additional disclosure regarding other equity-based
awards, will further benefit investors by making it easier to evaluate
the components of equity compensation for each named executive officer
and the valuations of those equity awards provided by companies in the
Summary Compensation Table.
    The amendments to Form 8-K will facilitate shareholder and investor
access to real-time disclosure of public companies' significant
personnel and compensation decisions by focusing this disclosure only
on what we believe are the most important compensatory arrangements
with executive officers and directors. This information will be filed
pursuant to Item 5.02 of Form 8-K. To find this information,
shareholders and investors no longer will need to examine multiple Item
1.01 disclosures relating to other actions. Companies will also be
relieved of obligations to quickly report arguably less important
compensation information on Form 8-K.
    The amendments to Item 404 will provide investors with more
complete disclosure of related person transactions and director
independence, and new disclosure regarding a company's policies and
procedures for the review,

approval or ratification of relationships with related persons. These
amendments will enhance investors' understanding of how corporate
resources are used in related person transactions, and provide improved
information to shareholders for purposes of better evaluating the
actions of the board of directors and executive officers in fulfilling
their responsibilities to the company and its shareholders.
    In addition, by combining similar provisions of former Item 404
into a single combined disclosure requirement, the amendments will
reduce confusion that may have occurred regarding the disclosure
required when more than one of the provisions of Item 404 applied to a
particular transaction or relationship before these amendments.
Improved corporate governance disclosure in new Item 407 will provide
investors with better organized and more complete information regarding
the independence of members of the board of directors.
    The amendments to Item 403 of Regulation S-K and Regulation S-B
will provide investors with disclosure of pledges of the securities
beneficially owned by management and directors and full disclosure of
beneficial ownership by directors, including directors' qualifying
shares. This information will contribute to investor understanding of
the economic incentives for executives and directors of public
companies.
    Changes to Items 22(b)(7), 22(b)(8) and 22(b)(9) of Schedule 14A
and to Forms N-1A, N-2, and N-3 may increase or decrease existing
disclosure burdens imposed on investment companies, or not affect them
at all, depending on the particular circumstances, by increasing the
threshold for disclosure of certain interests, transactions, and
relationships of each director (and, in the case of Items 22(b)(7),
22(b)(8), and 22(b)(9) of Schedule 14A, each nominee for election as
director) who is not or would not be an ``interested person'' of the
fund within the meaning of Section 2(a)(19) of the Investment Company
Act (and their immediate family members).
    The amendments to the executive and director compensation, related
person transaction, beneficial ownership and corporate governance
disclosure requirements will in many respects make these requirements
clearer for companies and their advisors, which could have the benefit
of improving overall compliance with these provisions, including those
provisions where disclosure requirements have not changed
substantively.
    Finally, presentation in plain English will facilitate investor
understanding of most of the matters contemplated by our amendments.

D. Costs

    In our view, the amendments to the executive officer and director
compensation, related person transaction and corporate governance
disclosure requirements will increase the costs of complying with the
Commission's rules. We further believe that the costs related to
preparing required disclosure in plain English will be short-term costs
arising mainly in the first two years of implementation.\589\
---------------------------------------------------------------------------

    \589\ The new plain English requirements will require both the
rewriting of existing disclosures in plain English, as well as
drafting new disclosures in plain English, such as Compensation
Discussion and Analysis.
---------------------------------------------------------------------------

    We believe that compliance with these amendments will, on balance,
be more costly for companies than compliance with the former disclosure
requirements, with the highest incremental annual costs occurring
principally in the first two years as companies and their advisors
determine how best to compile and report information in response to new
or expanded disclosure requirements.
    The improved quantitative and textual disclosure regarding
executive and director compensation that we are adopting will
incrementally increase costs for companies in several ways as a result
of the following new or expanded requirements. First, we are requiring
that companies provide a Compensation Discussion and Analysis involving
a discussion and analysis of material factors underlying compensation
decisions reflected in the tabular presentations.\590\ To respond to
commenters' concerns that it is appropriate for the compensation
committee to continue to focus on the executive compensation disclosure
process as well as concerns with certifications, we are adopting a new
Compensation Committee Report regarding the compensation committee's
review and discussion with management of the Compensation Discussion
and Analysis, and the compensation committee's recommendation to the
board of directors with regard to the disclosure of the Compensation
Discussion and Analysis. To the extent that members of the compensation
committee would need to spend additional time and resources reviewing
the executive and director compensation disclosures and potentially
retaining experts and advisors to assist them in that review,\591\ this
requirement will result in additional costs to issuers.
---------------------------------------------------------------------------

    \590\ The Compensation Discussion and Analysis, unlike the Board
Compensation Committee Report on Executive Compensation that was
required prior to the adoption of these amendments, but like all of
the rest of the current compensation disclosure, is considered filed
and as such will be part of the documents for which certifications
apply. The new Compensation Committee Report will be furnished
rather than filed. The release adopting our certification
requirements discussed the costs and benefits of the requirements as
follows:
    The new certification requirement may lead to some additional
costs for issuers. The new rules require an issuer's principal
executive and financial officers to review the issuer's periodic
reports and to make the required certification. To the extent that
corporate officers would need to spend additional time thinking
critically about the overall context of their company's disclosure,
issuers would incur costs (although investors would benefit from
improved disclosure). The certification requirement creates a new
legal obligation for an issuer's principal executive and financial
officers, but does not change the standard of legal liability. * * *
Conversely, the new rules are likely to provide significant benefits
by ensuring that information about an issuer's business and
financial condition is adequately reviewed by the issuer's principal
executive and financial officers. Certification Release, at Section
VII.
    \591\ While our rules do not require the retention of
consultants or other advisers, to the extent that companies do
retain compensation consultants or other professionals we understand
that they would generally charge per-hour rates comparable to those
rates charged by outside counsel, which we have estimated for the
purposes of our Paperwork Reduction Act analysis are approximately
$400 per hour.
---------------------------------------------------------------------------

    In addition to the Compensation Discussion and Analysis section, we
are requiring narrative disclosure to accompany tabular presentations
so that the data included in the tables may be understood in context.
We are also expanding disclosure regarding compensation-related equity-
based and other plan-based holdings, as well as retirement and similar
plans. Finally, we are adopting a Director Compensation Table that will
require more detailed information regarding director compensation than
was specified in the narrative disclosure requirement that existed
prior to today's amendments. Each of these revisions seeks to elicit
clearer and more complete information than was required under the
requirements in place before adoption of these amendments. We have also
decided to retain the Performance Graph in light of commenters'
overwhelming support for this disclosure requirement, but we are moving
it to new paragraph (e) of Item 201 of Regulation S-K and requiring
that it will be furnished in the annual report to security holders
rather than the proxy or information statement. Since we originally
proposed to delete the Performance Graph altogether, its retention
requires us to consider the costs incurred by issuers to continue to
comply with this requirement; however,

the substance of what is required with regard to the Performance Graph
will not change substantially from what was required prior to the
adoption of these amendments.
    While the Summary Compensation Table as amended will require
reporting of the grant date fair value of equity-based awards, we do
not believe that this change will increase costs for companies, because
the computation of the grant date fair values of stock, options and
similar instruments already is required for financial statement
purposes as a result of the implementation of FAS 123R. Companies may
incur additional costs, however, in determining the year to year
incremental changes in the actuarial present value of the named
executive officers' accumulated benefit under defined benefit and
actuarial pension plans for the purposes of reporting such compensation
in the Summary Compensation Table. In an effort to reduce costs in
response to commenters' suggestions, we have revised the requirement to
specify that in computing the amount to be disclosed under the
amendments, companies must use the same assumptions (other than the
normal retirement age) that they use for financial reporting purposes
under generally accepted accounting principles. Another change which
may help to make the calculation less costly is our revision to the
proposal that the incremental change in the actuarial present value of
the named executive officers' accumulated benefit under defined benefit
and actuarial pension plans required in the Summary Compensation Table
directly correspond to the disclosure required in the Pension Benefits
Table. Therefore, a second and different calculation of pension
benefits is not being adopted as proposed. Costs may also arise from
the reporting of other compensation in the All Other Compensation
Column of the Summary Compensation Table. We do not believe that the
addition of a ``Total'' column to the Summary Compensation Table in and
of itself will increase costs, because former disclosure requirements
already mandated the disclosure of all compensation, and the mechanical
process of adding up disclosure amounts should not be significant.
    Companies will incur additional costs associated with disclosing
the number and key terms of out-of-the-money instruments in the
Outstanding Equity Awards at Fiscal Year-End Table. As adopted, this
table will require companies to disclose, on an award-by-award basis,
the number of underlying securities, the exercise or base price and the
expiration date with respect to each award of unexercised options,
stock appreciation rights and similar instruments with option-like
features. Given the detailed information required, the disclosure
generated may be lengthy, but commenters indicated that this
information is meaningful to them.\592\ Instead of disclosure on an
aggregate basis, as was proposed and as was required for some
outstanding option awards before adoption of these amendments, the
disclosure of individual awards will enable investors to understand the
extent and magnitude to which an executive's previously awarded options
provide the potential to generate upside growth in the value of these
holdings.\593\ We have attempted to minimize the cost of this rule as
amended by requiring that companies list only the key terms of the
securities, as opposed to computing the weighted average of exercise
prices or some other calculation necessary for the purposes of
aggregation.
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    \592\ Several commenters recommended expanded disclosure of the
number and key terms of out-of-the-money instruments. See n. 277.
Other commenters suggested award-by-award disclosure for options.
See letters from Hodak Value Advisors and The Rock Center for
Corporate Governance.
    \593\ See, e.g., letters from Brian Foley & Co.; Buck
Consultants; and Grundfest.
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    Additional costs may also be incurred in preparing and presenting
required disclosures regarding retirement benefits, deferred
compensation and post-termination or change in control payments, to the
extent that information regarding these matters is not currently
collected in a way that would facilitate disclosure under the
amendments. However, these costs will likely be mitigated to some
extent for the following reasons:
     As noted above, the calculation of the actuarial value of
pension benefits required in the Pension Benefits Table and the Summary
Compensation Table will be standardized to a significant extent by
requiring companies to use many of the same assumptions for purposes of
these calculations as they use for financial reporting purposes under
generally accepted accounting principles;
     The Pension Benefits Table will not require different
calculations from those called for in the Summary Compensation Table
and will not require the disclosure of estimated retirement benefits
payable upon early retirement, as proposed; and
     We have adopted commenters' suggestions that the
quantitative disclosure required for post-termination agreements in new
Item 402(j) of Regulation S-K be calculated by applying standard
assumptions as to the share price of the company's securities and the
date of the event triggering termination.
    In addition, because the determination of named executive officers
will be based on total compensation rather than salary and bonus, some
companies will incur higher costs tracking the compensation paid to all
executive officers in order to determine which are the most highly
compensated. At the same time, however, companies will not be required
to track the incremental change in the value of pension benefits or the
amount of above-market or preferential earnings on nonqualified
deferred compensation for purposes of identifying named executive
officers, as they would have under the proposed requirements.
    Under the amendments regarding Form 8-K, disclosure regarding
executive and director arrangements and other plans that are no longer
required to be reported within four days under Item 1.01 of Form 8-K
will be required to be disclosed by way of the exhibit filing
requirements on at least a quarterly basis. To the extent that a
reduction in timeliness of this information will reduce its value to
investors, the amendments may impose costs on investors other than
those associated with transitioning to the new threshold.
    We believe that there will be some increase in the cost of
complying with the related person transaction disclosure requirement
and corporate governance disclosures. The amendments may increase the
cost of complying with the related person transaction disclosure
requirement by eliminating or reducing the scope of certain
instructions and by expanding the group of related persons covered to
include additional ``immediate family members.'' We did not adopt, as
proposed, a requirement for disclosure of indebtedness transactions
with significant shareholders. Similarly, with respect to registered
investment companies and business development companies, amendments to
Items 22(b)(7), 22(b)(8), and 22(b)(9) of Schedule 14A and to Forms N-
1A, N-2, and N-3 will increase to $120,000 the former $60,000 threshold
for disclosure of certain interests, transactions, and relationships of
each director (and, in the case of Items 22(b)(7), 22(b)(8), and
22(b)(9) of Schedule 14A, each nominee for election as director) who is
not or would not be an ``interested person'' of the fund within the
meaning of Section 2(a)(19) of the Investment Company Act (and their
immediate family members).

Since these forms already require such disclosure using the $60,000
threshold, we do not believe the amendments would impose additional
costs.
    Amended Item 404(b) of Regulation S-K introduces new costs by
imposing new disclosure requirements on companies regarding their
policies for review, approval or ratification of related person
transactions. In order to comply with disclosure requirements regarding
policies for the review, approval or ratification of related person
transactions, we understand that companies will incur costs of
collecting the type of information that will be required to be
disclosed. These costs will be higher to the extent companies do not
already collect this information, either pursuant to their corporate
governance policies or through directors' and officers' questionnaires.
The new rules do not require companies to create new policies or
processes for review, approval or ratification of relationships with
related persons. However, to the extent that companies do create new
policies or processes that require the collection of different or
additional information, they may incur incremental costs.
    The amended disclosures regarding director independence are similar
to disclosure requirements under the proxy rules regarding the
independence of directors who are members of the company's audit and
nominating committees. Thus, for companies that are subject to the
proxy rules, the task of complying with the disclosure requirement
regarding director independence can be performed by the same person or
group of persons already responsible for compliance with the rules
requiring disclosure about the independence of nominating and audit
committee members. Because the rules prior to these amendments already
required companies subject to the proxy rules to collect and disclose
information about the independence of directors who serve on the audit
and nominating committees, this amended disclosure should not impose
significant new costs for the collection of information by companies
that are subject to the proxy rules. The new disclosure requirement
regarding director and committee member independence may require
disclosure of additional categories or types of director relationships.
Additional costs may be incurred in seeking this information. However,
such costs are limited by the extent to which companies already
identify and track the relationships that may be required to be
disclosed for the purposes of complying with pre-existing disclosure
requirements or corporate governance listing standards. Finally,
additional costs may be incurred by companies complying with Item
407(a) when companies rely on an exemption from independence standards,
as we are requiring disclosure regarding reliance on any such
exemption, including the basis for the conclusion that the exemption is
available.
    We believe that, overall, the costs noted above which are
associated with the amended disclosure requirements for related person
transactions and director independence will be offset to some extent by
cost decreases associated with narrowing the scope of other disclosure
requirements under the amendments, such as the disclosure that was
required about director relationships under Item 404(b) of Regulation
S-K before today's amendments. In this regard, we believe that
companies will generally be required to provide an amount of
information that is comparable to what had been required by our rules
before the amendments. However, under the amendments the information
regarding these matters will be presented in a manner that recognizes
recent changes, such as the imposition of corporate governance listing
standards at the major markets.
    Moreover, our amendments to the related person transaction and
director independence disclosure requirements differ in certain
respects from the proposals, which may lessen the expected compliance
costs. In response to commenters' concerns, we are retaining certain
exceptions to the related person transaction disclosure requirements
that existed under the rules prior to these amendments, and we are not
requiring disclosure of indebtedness transactions with significant
shareholders (or their immediate family members). For the amended
disclosures under new Item 407(a), any additional compliance costs
associated with requiring companies to disclose the transactions,
relationships and arrangements considered by the board of directors in
determining the independence of directors or director nominees is
mitigated to some extent because the amendments require only the
disclosure of the specific type or category of transactions considered
by the board of directors that are not otherwise disclosed under the
related person transaction disclosure requirement of Item 404(a). In
contrast, under the rule proposals, disclosure of the specific details
of each such transaction, relationship or arrangement would have been
required. Furthermore, in response to several commenters, we have
eliminated the proposed requirement under new Item 407(e) to identify
any executive officer within the company that a compensation consultant
contacted in carrying out its assignment. The overall effect of these
modifications to Items 404(a) and 407 as they were proposed will be to
reduce the number and type of transactions or contacts for which
disclosure will be required under the new rules and lessen the
aggregate burden imposed on companies to comply with the new rules. We
recognize, as suggested by commenters, that additional costs may be
incurred in preparing the additional disclosures required regarding the
compensation committee process, including disclosure regarding the use
of compensation consultants, as well as in the compensation committee's
involvement with the Compensation Discussion and Analysis through the
Compensation Committee Report.
    Our plain English amendments require that companies use a clear
writing style to present the information about executive and director
compensation, related person transactions, beneficial ownership and
some corporate governance matters that are required to be disclosed in
Exchange Act reports such as annual reports on Forms 10-K or 10-KSB. We
believe the amended rules will result in a short-term increase in costs
for companies as they rewrite the information required to be included
in annual reports or incorporated by reference from proxy or
information statements, but few additional costs after the first year
or two of implementation, as companies become familiar with the
organizational, language, and document structure changes necessary to
comply with these amendments. Additional costs, if any, should be one-
time or otherwise short-term.
    We believe that there would be little, if any, increase in the cost
of complying with the beneficial ownership rule amendments. A company
will be required to disclose named executive officer, director and
director nominee pledges of securities, and directors' full beneficial
ownership of equity securities, including directors' qualifying shares.
The company can inquire as to this information in questionnaires it
already circulates to the company's officers and directors.
    For purposes of the Paperwork Reduction Act, we have estimated the
annual incremental increase in the paperwork burden for companies to
comply with our collection of information requirements to be
approximately 783,284 hours of in-house company personnel time and to
be approximately $133,883,300 for the

services of outside professionals. As noted in the Paperwork Reduction
Act section, we have revised these estimates both in response to
comments about the proposed estimates and in light of the changes we
have made from the proposal.\594\ These costs are based on our
estimates that the annual incremental disclosure burden imposed by the
revisions that we adopt today will average 95 hours per Form 10-K; 50
hours per Form 10-KSB; 3 hours per Schedule 14A and Schedule 14C; 85
hours per Form 10; 45 hours per Forms 10-SB and SB-2; 74 hours per Form
S-1; 17 hours per Form S-4; 85 hours per Form S-11; and 5 hours per
Form N-2. We estimate that the amendments to Item 22(b) of Schedule 14A
and increasing to $120,000 the former $60,000 threshold for disclosure
of certain interests, transactions, and relationships of each director
in Forms N-1A, N-2, and N-3 will not impose an annual incremental
disclosure burden. These estimated costs include an estimated reduction
in costs attributable to current reports on Form 8-K of approximately
6,458 hours of company personnel time and by a cost of approximately
$861,000 for the services of outside professionals, based on an
estimate that 1,722 fewer current reports on Form 8-K will be filed
because of more focused current reporting of compensation transactions.
Based on these estimates solely computed for the purposes of the
Paperwork Reduction Act and assuming that the cost of in-house company
personnel time is $175, the total estimated incremental costs of the
amendments is approximately $270,958,000. These estimates of
incremental costs, which were prepared for the purposes of the
Paperwork Reduction Act, are limited to hours and costs associated with
collecting information, preparing disclosure, filing forms, and
retaining records imposed by the applicable forms, and were based in
part with reference to the pre-existing burden estimates for each of
the forms.
---------------------------------------------------------------------------

    \594\ See Section VIII. above.
---------------------------------------------------------------------------

X. Consideration of Burden on Competition and Promotion of Efficiency,
Competition and Capital Formation

    Exchange Act Section 23(a)(2) \595\ requires us, when adopting
rules under the Exchange Act, to consider the impact that any new rule
would have on competition. In addition, Section 23(a)(2) prohibits us
from adopting any rule that would impose a burden on competition not
necessary or appropriate in furtherance of the purposes of the Exchange
Act. Furthermore, Securities Act Section 2(b),\596\ Exchange Act
Section 3(f) \597\ and Investment Company Act Section 2(c) \598\
require us, when engaging in rulemaking where we are required to
consider or determine whether an action is necessary or appropriate in
the public interest, to consider, in addition to the protection of
investors, whether the action will promote efficiency, competition, and
capital formation.
---------------------------------------------------------------------------

    \595\ 15 U.S.C. 78w(a)(2).
    \596\ 15 U.S.C. 77b(b).
    \597\ 15 U.S.C. 78c(f).
    \598\ 15 U.S.C. 80a-2(c).
---------------------------------------------------------------------------

    We have also discussed other impacts of the amendments in our Cost-
Benefit, Paperwork Reduction Act and Final Regulatory Flexibility Act
Analyses. The amendments to Regulations S-K and S-B, to Items 8 and
22(b) of Schedule 14A, and to Forms N-1A, N-2, and N-3 are intended to
improve the completeness and clarity of executive compensation and
related person transactions disclosure available to investors and the
financial markets. These amendments will enhance investors'
understanding of how corporate resources are used, and enable
shareholders to better evaluate the actions of the board of directors
in fulfilling their responsibilities, as well as the incentives for
executive officers.
    The amendments to Form 8-K are intended to facilitate the ability
of investors and shareholders to access real-time disclosure of public
companies' executive compensation events that are unquestionably or
presumptively material by requiring this disclosure only for
compensatory agreements with specified executive officers. To find this
information, shareholders and investors no longer need to examine
multiple Form 8-K disclosures relating to other executive officers or
other material non-ordinary course definitive agreements.
    The amendments to expand and consolidate into one item the director
independence and related corporate governance disclosure requirements
in new Item 407 of Regulation S-K will improve the understanding of
shareholders and investors about the composition and functions of the
board of directors and board committees. Amendments to beneficial
ownership reporting requiring disclosure of pledged securities and
director qualifying shares are intended to improve the disclosure
regarding security holdings of directors and executive officers.
    The requirement that most of the information called for in these
amendments be written in plain English is intended to make Exchange Act
reports and proxy or information statements incorporated by reference
in those reports easier to understand. Thus, the amended rules will
enhance the reporting requirements in place before adoption of these
amendments by providing more effective material disclosure to investors
in a timely manner. We anticipate that these amendments will improve
investors' ability to make informed investment and voting decisions
and, therefore, may lead to increased efficiency and competitiveness of
the U.S. capital markets. As discussed more fully in our Cost-Benefit
Analysis, improved transparency in disclosure under these amendments
could have other benefits in terms of the allocative efficiency of
affected corporations with regard to the use of resources for executive
compensation relative to other corporate needs, as well as improvements
in efficiency of managerial labor markets.
    Some commenters were concerned as to whether including examples in
the principles-based Compensation Discussion and Analysis disclosure
item would in some way cause companies and compensation committees to
feel obligated to conform their compensation decision-making processes
to those examples. As we discussed in Section II.B.1., we emphasize
that application of a particular example must be tailored to the
company. We believe using a disclosure concept along with illustrative
examples strikes an appropriate balance to effectively elicit
meaningful disclosure applicable to the company. Companies must assess
the materiality to investors of the information that is identified by
the examples in light of the particular situation of the company.
    We recognize that increased time and resources will need to be
devoted by companies and their officers, directors and advisors to
prepare the revised disclosures required by these amendments. As
discussed in more detail above, we have made substantive modifications
to the proposals to address, in part, cost and burden concerns raised
by some commenters.\599 \ We have also revisited and increased our
burden estimates for Paperwork Reduction Act purposes. Ultimately, the
impact of additional

resources being used by companies to prepare the new disclosures will
be borne by the companies' shareholders. Based on the extensive comment
we received from investors supporting our proposals, strong evidence
suggests that shareholders are willing to bear these costs.\600\
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    \599\ For example, we have attempted to reduce the burden on
quantifying post-employment compensation. See Section II.C.5. In
addition, several of our other modifications to the proposals were
made to address some commenter concerns over the possible perception
of ``double-counting'' of compensation elements, which should also
help to improve the utility of the compensation disclosures to
investors.
    \600\ See, e.g., letters from CalPERS; CalSTRS; D. Cayot; CII;
CRPTF; C. Green; ICI; Institutional Investors Group; M. McPherson;
A. Silverstein; and M. von Euler.
---------------------------------------------------------------------------

    Because only companies subject to the reporting requirements of
Sections 13 and 15 of the Exchange Act, and companies filing
registration statements under the Securities Act and Exchange Act, will
be required to make the amended disclosures required by Items 402, 404
and 407, competitors not in those categories could gain an
informational advantage. However, with respect to executive
compensation, as under Item 402 before adoption of these amendments, a
company will not be required to disclose target levels with respect to
specific quantitative or qualitative performance-related factors, or
any other factors or criteria involving confidential trade secrets and
commercial or financial information, the disclosure of which would
result in competitive harm to the company. Notwithstanding this
exception for competitively sensitive information, competitors could
potentially gain additional insight into the executive compensation
policies of companies through disclosure required in Compensation
Discussion and Analysis and in other portions of the required
disclosure. Further, the availability of more broad-based compensation
disclosure may provide additional information to be used by competitors
in recruiting executive talent, although much of this information is
already available from compensation consultants and other sources.
    We have considered any impact the amendments may have on smaller as
opposed to larger public companies, including the ability of smaller
companies to absorb the costs of the amendments and whether any
resulting disproportionate impact might affect the competitiveness of
smaller issuers or their capital formation decisions. Further, as
discussed in our Final Regulatory Flexibility Act Analysis, we have
considered alternatives to minimize any significant adverse impact on
smaller companies, including adopting different and less restrictive
reporting requirements for small business issuers under Regulation S-B,
particularly given that small business issuer compensation structures
are likely to be less complex than those of larger issuers. We believe
the changes that are reflected in the amendments to Regulation S-B will
balance the information needs of investors in smaller companies with
the burdens imposed on such companies by the disclosure requirements.
    We do not expect that the incremental effect of the amendments
overall will have a material effect on competition. We expect that the
amended reporting requirements will enhance the efficiency of capital
formation. Investors have stated that they believe that the improved
transparency and completeness of executive compensation information
resulting from these amendments will help them make more informed
investment and voting decisions.\601\ Investors are likely to be more
confident allocating capital to firms in which compensation practices
are well-aligned with the investors' interests when investors possess
more information regarding executive compensation. Improved
transparency thus may encourage investors to commit their capital and
thereby facilitate issuers' access to capital.
---------------------------------------------------------------------------

    \601\ See, e.g., letters from CII; CFA Centre 1; ICI; and ISS.
---------------------------------------------------------------------------

XI. Final Regulatory Flexibility Act Analysis

    This Final Regulatory Flexibility Act Analysis has been prepared in
accordance with 5 U.S.C. 603. It relates to revisions to the rules and
forms under the Securities Act and Exchange Act that seek to improve
the clarity and completeness of companies' disclosure of the
compensation earned by the principal executive officer, principal
financial officer,\602\ other highly paid executive officers and all
members of the board of directors, and of related person transactions.
These changes include amending the executive and director compensation
disclosure requirements, modifying our rules so that only elements of
compensation that are unquestionably or presumptively material to
investors must be disclosed in current reports on Form 8-K,
streamlining and modernizing disclosure requirements regarding related
person transactions, adding disclosure regarding pledges of securities
beneficially owned by executive officers and directors and regarding
directors' qualifying shares, consolidating corporate governance
disclosure requirements and expanding disclosure regarding the
independence of the board of directors, as well as requiring that most
of the disclosure required by the amended rules be provided in plain
English.
---------------------------------------------------------------------------

    \602\ The principal financial officer is not specified as a
named executive officer in Item 402 of Regulation S-B.
---------------------------------------------------------------------------

A. Need for the Rules and Amendments

    On January 27, 2006, we issued proposals to change the rules
requiring disclosure of executive and director compensation, related
person transactions, director independence and other corporate
governance matters, and security ownership of officers and directors.
    We are adopting amendments that establish a broader-based approach
to eliciting executive and director compensation disclosure, while
retaining comparability. In addition, we are adopting amendments to
Form 8-K in order to focus current disclosure on compensation-related
events that are unquestionably or presumptively material to investors.
Given the close relationship between executive and director
compensation and other financial transactions and relationships
involving companies and their directors, executive officers,
significant shareholders and respective immediate family members, we
are also adopting amendments to streamline and modernize the related
person transaction disclosure requirements, while also making the
requirements more principles-based and expanding the requirements to
elicit disclosure about policies and procedures for the review,
approval or ratification of related person transactions.\603\ With
respect to disclosure about director independence, we are replacing
requirements for disclosure about specific relationships that can
affect director independence with a narrative explanation of the
independence status of directors under a company's independence
policies for the majority of the board and for the nominating, audit
and compensation committees. We are also consolidating these and other
requirements regarding director independence, board committees and
other corporate governance matters in a new disclosure item. In
addition, we are adopting corresponding changes to items in our
registration forms and proxy and information statements filed by
registered investment companies and business development companies that
impose requirements to disclose certain interests, transactions, and
relationships of each director or nominee for election as director who
is not or would not be

an ``interested person'' of the fund within the meaning of Section
2(a)(19) of the Investment Company Act (and their immediate family
members). Further, we are adopting amendments to require disclosure of
the number of shares pledged by named executive officers, directors and
director nominees, given that these shares are subject to risks and
contingencies that do not apply to other shares beneficially owned by
these persons. Finally, in order to emphasize that most of these
amended requirements must be presented in a manner that is clear,
concise and understandable for investors, we are adopting rules
requiring that the disclosure regarding executive and director
compensation, beneficial ownership, related person transactions and
most corporate governance matters be provided in plain English when
included in Exchange Act reports.
---------------------------------------------------------------------------

    \603\ Item 404 of Regulation S-B as adopted does not require
disclosure about policies and procedures for the review, approval or
ratification of related person transactions.
---------------------------------------------------------------------------

B. Significant Issues Raised by Public Comment

    In the Proposing Release, we requested comment on any aspect of the
Initial Regulatory Flexibility Act Analysis, including the number of
small entities that would be affected by the proposals, and both the
qualitative and quantitative nature of the impact. Several commenters
noted that costs and burdens arising from the proposals would have
disproportionately affected small business issuers and smaller public
companies that are not small business issuers but did not provide any
specific comments on the Initial Regulatory Flexibility Act
Analysis.\604\ As summarized in Section XI.D. below and discussed in
greater detail in previous sections, we have taken these comments into
account in adopting different requirements for small business issuers.
---------------------------------------------------------------------------

    \604\ See, e.g., letters from ABA; ACB; ICBA; and SCSGP.
---------------------------------------------------------------------------

C. Small Entities Subject to the Rules and Amendments

    The amendments will affect small entities, the securities of which
are registered under Section 12 of the Exchange Act or that are
required to file reports under Section 15(d) of the Exchange Act. The
amendments also will affect small entities that file, or have filed, a
registration statement that has not yet become effective under the
Securities Act or the Exchange Act and that has not been withdrawn.
Securities Act Rule 157 \605\ and Exchange Act Rule 0-10(a) \606\
define an issuer to be a ``small business'' or ``small organization''
for purposes of the Regulatory Flexibility Act if it had total assets
of $5 million or less on the last day of its most recent fiscal year.
These are the types of entities that we refer to as small entities in
this section. We believe that the amendments will affect small entities
that are operating companies. We estimate that there are approximately
2,500 issuers, other than investment companies, that may be considered
small entities. An investment company is considered to be a ``small
business'' if it, together with other investment companies in the same
group of related investment companies, has net assets of $50 million or
less as of the end of its most recent fiscal year.\607\ We believe that
the amendments will affect small entities that are investment
companies. We estimate that there are approximately 240 investment
companies that may be considered small entities.
---------------------------------------------------------------------------

    \605\ 17 CFR 230.157.
    \606\ 17 CFR 240.0-10(a).
    \607\ 17 CFR 270.0-10(a).
---------------------------------------------------------------------------

D. Reporting, Recordkeeping and Other Compliance Requirements

    We note that small business issuers,\608\ which is a broader
category of issuers than small entities, in certain circumstances may
provide the executive and director compensation, relationships with
related persons and promoters, beneficial ownership and corporate
governance disclosure specified, respectively, in Items 402, 403, 404
and 407 of Regulation S-B, rather than the corresponding disclosure
specified in Items 402, 403, 404 and 407 of Regulation S-K.
---------------------------------------------------------------------------

    \608\ Item 10 of Regulation S-B (17 CFR 228.10) defines a small
business issuer as a registrant that has revenues of less than $25
million, is a U.S. or Canadian issuer, is not an investment company,
and has a public float of less than $25 million. Also, if it is a
majority owned subsidiary, the parent corporation also must be a
small business issuer.
---------------------------------------------------------------------------

    The amendments to Item 402 of Regulation S-K expand some former
disclosure requirements, and consolidate or eliminate others. The
amendments to Item 402 of Regulation S-B will require less extensive
disclosure for small business issuers than will be required for
companies complying with Item 402 of Regulation S-K as amended. Under
the amendments, the scope and presentation of information in Item 402
of Regulation S-B will differ in a number of significant ways from Item
402 of Regulation S-K. Item 402 of Regulation S-B will:
     Limit the named executive officers for whom disclosure
will be required to a smaller group, consisting of the principal
executive officer and the two other highest paid executive officers;
     Require that the Summary Compensation Table disclose the
two most recent fiscal years and that narrative disclosure accompany
the Summary Compensation Table;
     Provide a higher threshold for separate identification of
categories of ``All Other Compensation'' in the Summary Compensation
Table;
     Require the Outstanding Equity Awards at Fiscal Year-End
Table;
     Require additional narrative disclosure addressing the
material terms of defined benefit and defined contribution plans and
other post-termination compensation arrangements; and
     Require the Director Compensation Table.
    New Item 402 of Regulation S-B does not include the following
disclosures that are required by new Item 402 of Regulation S-K:
     Compensation Discussion and Analysis or a Compensation
Committee Report;
     Information regarding two additional executive officers;
     The third fiscal year of Summary Compensation Table
disclosure; and
     The supplementary Grants of Plan-Based Awards Table, the
Option Exercises and Stock Vested Table, the Pension Benefits Table,
and the Nonqualified Deferred Compensation Table and the separate
Potential Payments Upon Termination or Change-in-Control narrative
section, while providing a general requirement to discuss the material
terms of retirement plans and the material terms of contracts providing
for payment upon a termination or change in control.
    As a result, the amendments to Item 402 of Regulation S-B will not
result in the same level of incremental increase in costs or burdens as
will the requirements of amendments to Item 402 of Regulation S-K.
    The amendments to Item 404 of Regulations S-K and S-B will decrease
the related person transaction disclosure requirement that companies,
including small entities, must comply with in some respects and expand
it in other respects. The amendments to Item 404 of Regulation S-B will
potentially decrease the scope of the related person transaction
disclosure requirement by changing the $60,000 threshold for disclosure
of related person transactions to the lesser of $120,000 or one percent
of the average of the small business issuers' total assets at year-end
for the last three completed fiscal years.\609\ At

the same time, the amendments to Item 404 of Regulation S-B will
increase the scope of the related person transaction disclosure
requirement by expanding the group of related persons covered to
include additional ``immediate family members.'' In addition, the
amendments may decrease or increase the scope of the related person
transaction disclosure requirement by eliminating or reducing the scope
of instructions that provide bright line tests for whether related
person transaction disclosure is required.
---------------------------------------------------------------------------

    \609\ Amended Item 404(a) of Regulation S-K only includes
$120,000 as the threshold.
---------------------------------------------------------------------------

    Unlike the amendments to Item 404 of Regulation S-K, the amendments
to Item 404 of Regulation S-B will not impose an additional disclosure
requirement for small business issuers, including small entities,
regarding their policies and procedures for the review, approval or
ratification of relationships with related persons. The amendments to
Item 404 of Regulation S-B and new Item 407 of Regulation S-B require,
depending upon the particular circumstances of a company, more or less
disclosure by changing the disclosure requirement regarding director
independence.\610\ Unlike the amendments to Item 407 of Regulation S-K,
the amendments to Item 407 of Regulation S-B do not require a
Compensation Committee Report regarding the compensation committee's
review and discussion with management of the Compensation Discussion
and Analysis, and the compensation committee's recommendation to the
board of directors with regard to the disclosure of the Compensation
Discussion and Analysis, because Item 402 of Regulation S-B does not
require Compensation Discussion and Analysis disclosure.
---------------------------------------------------------------------------

    \610\ As was the case prior to these amendments, compensation
committee interlocks disclosure is required by Regulation S-K but is
not required under Regulation S-B.
---------------------------------------------------------------------------

    Similar to amended Item 404(a) of Regulation S-K, amendments to
Items 22(b)(7), 22(b)(8), and 22(b)(9) of Schedule 14A and to Forms N-
1A, N-2, and N-3 decrease the scope of the requirement imposed on
registered investment companies and business development companies to
disclose certain interests, transactions, and relationships of each
director (and, in the case of Items 22(b)(7), 22(b)(8), and 22(b)(9) of
Schedule 14A, each nominee for election as director) who is not or
would not be an ``interested person'' of the fund within the meaning of
Section 2(a)(19) of the Investment Company Act (and their immediate
family members) by increasing to $120,000 the former $60,000 threshold
for disclosure of such interests, transactions, and relationships.
    The amendments to Item 403 of Regulations S-K and S-B require
footnote disclosure to the beneficial ownership table of the number of
shares pledged by named executive officers, directors and director
nominees and disclosure of directors' qualifying shares. This imposes
an additional disclosure requirement on companies, including small
entities.
    The new plain English rules applicable to Exchange Act reports and
proxy or information statements incorporated by reference into Exchange
Act reports will not affect the substance of disclosures that companies
must make. The new plain English rules will also not impose any new
recordkeeping requirements or require reporting of additional
information. Other changes to our rules will decrease the scope of the
disclosure requirements for Form 8-K, and thereby result in a reduction
in the number of current reports on Form 8-K filed each year.
    Overall, the amendments are expected to result in increased costs
to all subject companies, large or small, as follows:
     Incremental increase in costs is expected with changes to
executive and director compensation disclosure requirements;
     Incremental increase in costs is expected from the
amendments to the related person transaction rules and corporate
governance disclosures; and
     Decreased costs are expected as a result of the revisions
to Form 8-K.
    Because the current proxy rules require a subject registrant to
collect and disclose information about the independence of its
directors who serve on the audit or nominating committee of its board,
the amended disclosure should not impose on companies subject to the
proxy rules significant new costs for the collection of information
regarding the independence of directors. Thus, the task of complying
with the expanded director independence disclosure in new Item 407 of
Regulations S-K and S-B could be performed by the same person or group
of persons responsible for compliance under the former rules at a
minimal incremental cost. Additional costs will likely be incurred to
provide additional disclosure regarding compensation committee
processes.
    Our plain English amendments require that companies use a clear
writing style to present the information about executive and director
compensation, related person transactions, beneficial ownership and
some corporate governance matters that are required to be disclosed in
Exchange Act reports such as annual reports on Forms 10-K or 10-KSB. We
believe the new rules will result in a short-term increase in costs for
companies as they rewrite the information required to be included in
annual reports or incorporated by reference from proxy or information
statements, but few additional costs after the first year or two of
implementation, as companies become familiar with the organizational,
language, and document structure changes necessary to comply with these
amendments. Additional costs, if any, should be one-time or otherwise
short-term.
    For purposes of the Paperwork Reduction Act, we estimate that with
respect to Form 10-KSB, it will take issuers 100 additional hours to
prepare the revised disclosure in year one, 35 additional hours in year
two, and 15 additional hours in year three and thereafter, which
results in an average of 50 additional hours over the three year
period. The same estimates apply to preparation of information in the
proxy or information statement that is then incorporated by reference
into the Form 10-KSB. With regard to persons other than small business
issuers who will file a Form 10-K, we estimate for purposes of the
Paperwork Reduction Act that it will take issuers 170 additional hours
to prepare the revised disclosure in year one, 80 additional hours in
year two, and 35 additional hours in year three and thereafter, which
results in an average of 95 hours over the three year period. If we
assume that a small entity complies with the disclosure provisions of
Regulation S-B rather than Regulation S-K and 75% of the burden will be
performed by the company internally at a cost of $175 per hour and 25%
of the burden will be carried by outside professionals retained by the
company at a cost of $400 per hour, the average annual cost to comply
with the amended disclosure requirements in periodic reports and/or
proxy or information statements will be approximately $11,563. The
extent to which an additional average compliance cost of approximately
$11,563 per small entity over a three year period constitutes a
significant economic impact for small entities will depend on the
relative revenues, costs and allocation of resources toward compliance
with the Commission's rules for small entities both individually and as
a group.
    For purposes of the Paperwork Reduction Act, we estimate that with
respect to Form N-2, it will take business development companies 150
additional hours to prepare the revised

disclosure in year one, 75 hours in year two and 30 hours in year three
and thereafter, which results in an average of 85 hours for each
business development company to comply with the revised compensation
disclosures that will be required on Form N-2. If we assume that 25% of
the burden will be borne internally at a cost of $175 per hour and 75%
of the burden will be carried by outside professionals retained by the
company at a cost of $400 per hour, the average annual cost for
business development companies to comply with the revised disclosure
requirements on Form N-2 will be approximately $29,219. The extent to
which an additional average compliance cost of approximately $29,219
per small entity over a three year period constitutes a significant
economic impact for small entities will depend on the relative assets,
income, operating expenses and the allocation of resources toward
compliance with the Commission's rules for small entities both
individually and as a group.

E. Agency Action To Minimize Effect on Small Entities

    The Regulatory Flexibility Act directs us to consider significant
alternatives that would accomplish the stated objectives, while
minimizing any significant adverse impact on small entities. In
connection with the amendments, we considered the following
alternatives:
    1. Establishing different compliance or reporting requirements
which take into account the resources available to smaller entities;
    2. The clarification, consolidation or simplification of disclosure
for small entities;
    3. Use of performance standards rather than design standards; and
    4. Exempting smaller entities from coverage of the disclosure
requirements, or any part thereof.

    With regard to Alternative 1, we have adopted different compliance
or reporting requirements for small entities. We nevertheless believe
improving the clarity and completeness of disclosure regarding
executive and director compensation and related person transactions
requires a high degree of comparability between all issuers. Regarding
Alternative 2, the amendments clarify, consolidate and simplify the
requirements for all public companies, and some especially for small
entities. Regarding Alternative 3, we believe that design rather than
performance standards are appropriate, because design standards for
small entities are necessary to promote the goal of relatively uniform
presentation of comparable information for the benefit of investors.
Finally, although we are exempting some information required of larger
issuers, a wholesale exemption for small entities is not appropriate
because the amendments are designed to make uniform the application of
the disclosure and other requirements that we are adopting.
    We have used design rather than performance standards in connection
with the amendments for two reasons. First, based on our past
experience, we believe the disclosure provided in response to the
amended requirements will be more useful to investors if there are
specific informational requirements. The mandated disclosures we are
adopting are intended to result in more focused and comprehensive
disclosure. Second, the specific disclosure requirements in the
amendments will promote more consistent disclosure among public
companies, because they provide greater certainty as to the scope of
required disclosure.

XII. Statutory Authority and Text of the Amendments

    We are adopting new rules and amendments pursuant to Sections 3(b),
6, 7, 10, and 19(a) of the Securities Act, as amended, Sections 10(b),
12, 13, 14, 15(d), 16 and 23(a) of the Exchange Act, as amended,
Sections 8, 20(a), 24(a), 30 and 38 of the Investment Company Act of
1940, as amended, and Sections 3(a) and 306(a) of the Sarbanes-Oxley
Act of 2002.

List of Subjects

17 CFR Part 228

    Reporting and recordkeeping requirements, Securities, Small
businesses.

17 CFR Parts 229, 232, 239, 240, 245 and 249

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 274

    Investment companies, Reporting and recordkeeping requirements,
Securities.

0
For the reasons set out in the preamble, Title 17, Chapter II of the
Code of Federal Regulations, is amended as follows:

PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS

0
1. The authority citation for part 228 continues to read in part as
follows:

    Authority: 15 U.S.C. 77e, 77f, 77g, 77h, 77j, 77k, 77s, 77z-2,
77z-3, 77aa(25), 77aa(26), 77ddd, 77eee, 77ggg, 77hhh, 77jjj, 77nnn,
77sss, 78l, 78m, 78n, 78o, 78u-5, 78w, 78ll, 78mm, 80a-8, 80a-29,
80a-30, 80a-37, 80b-11, and 7201 et seq.; and 18 U.S.C. 1350.
* * * * *

0
2. Amend Sec.  228.201 by revising Instruction 2 to paragraph (d) to
read as follows:

Sec.  228.201  (Item 201) Market for common equity and related
stockholder matters.

* * * * *
    Instructions to paragraph (d).
    1. * * *
    2. For purposes of this paragraph, an ``individual compensation
arrangement'' includes, but is not limited to, the following: a
written compensation contract within the meaning of ``employee
benefit plan'' under Sec.  230.405 of this chapter and a plan
(whether or not set forth in any formal document) applicable to one
person as provided under Item 402(a)(5)(ii) of Regulation S-B (Sec.
228.402(a)(5)(ii)).
* * * * *

Sec.  228.306  [Removed and reserved]

0
3. Remove and reserve Sec.  228.306.

Sec.  228.401  [Amended]

0
4. Amend Sec.  228.401 by removing paragraphs (e), (f) and (g).

0
5. Revise Sec.  228.402 to read as follows:

Sec.  228.402 (Item 402)  Executive compensation.

    (a) General--(1) All compensation covered. This Item requires
clear, concise and understandable disclosure of all plan and non-plan
compensation awarded to, earned by, or paid to the named executive
officers designated under paragraph (a)(2) of this Item, and directors
covered by paragraph (f) of this Item, by any person for all services
rendered in all capacities to the small business issuer and its
subsidiaries, unless otherwise specifically excluded from disclosure in
this Item. All such compensation shall be reported pursuant to this
Item, even if also called for by another requirement, including
transactions between the small business issuer and a third party where
a purpose of the transaction is to furnish compensation to any such
named executive officer or director. No amount reported as compensation
for one fiscal year need be reported in the same manner as compensation
for a subsequent fiscal year; amounts reported as compensation for one
fiscal year may be required to be reported in a different manner
pursuant to this Item.
    (2) Persons covered. Disclosure shall be provided pursuant to this
Item for each of the following (the ``named executive officers''):
    (i) All individuals serving as the small business issuer's
principal executive officer or acting in a similar capacity during the
last completed fiscal year (``PEO''), regardless of compensation level;
    (ii) The small business issuer's two most highly compensated
executive

officers other than the PEO who were serving as executive officers at
the end of the last completed fiscal year; and
    (iii) Up to two additional individuals for whom disclosure would
have been provided pursuant to paragraph (a)(2)(ii) of this Item but
for the fact that the individual was not serving as an executive
officer of the small business issuer at the end of the last completed
fiscal year.

    Instructions to Item 402(a)(2).
    1. Determination of most highly compensated executive officers.
The determination as to which executive officers are most highly
compensated shall be made by reference to total compensation for the
last completed fiscal year (as required to be disclosed pursuant to
paragraph (b)(2)(x) of this Item) reduced by the amount required to
be disclosed pursuant to paragraph (b)(2)(viii) of this Item,
provided, however, that no disclosure need be provided for any
executive officer, other than the PEO, whose total compensation, as
so reduced, does not exceed $100,000.
    2. Inclusion of executive officer of subsidiary. It may be
appropriate for a small business issuer to include as named
executive officers one or more executive officers or other employees
of subsidiaries in the disclosure required by this Item. See Rule
3b-7 under the Exchange Act (17 CFR 240.3b-7).
    3. Exclusion of executive officer due to overseas compensation.
It may be appropriate in limited circumstances for a small business
issuer not to include in the disclosure required by this Item an
individual, other than its PEO, who is one of the small business
issuer's most highly compensated executive officers due to the
payment of amounts of cash compensation relating to overseas
assignments attributed predominantly to such assignments.

    (3) Information for full fiscal year. If the PEO served in that
capacity during any part of a fiscal year with respect to which
information is required, information should be provided as to all of
his or her compensation for the full fiscal year. If a named executive
officer (other than the PEO) served as an executive officer of the
small business issuer (whether or not in the same position) during any
part of the fiscal year with respect to which information is required,
information shall be provided as to all compensation of that individual
for the full fiscal year.
    (4) Omission of table or column. A table or column may be omitted
if there has been no compensation awarded to, earned by, or paid to any
of the named executive officers or directors required to be reported in
that table or column in any fiscal year covered by that table.
    (5) Definitions. For purposes of this Item:
    (i) The term stock means instruments such as common stock,
restricted stock, restricted stock units, phantom stock, phantom stock
units, common stock equivalent units or any similar instruments that do
not have option-like features, and the term option means instruments
such as stock options, stock appreciation rights and similar
instruments with option-like features. The term stock appreciation
rights (``SARs'') refers to SARs payable in cash or stock, including
SARs payable in cash or stock at the election of the small business
issuer or a named executive officer. The term equity is used to refer
generally to stock and/or options.
    (ii) The term plan includes, but is not limited to, the following:
Any plan, contract, authorization or arrangement, whether or not set
forth in any formal document, pursuant to which cash, securities,
similar instruments, or any other property may be received. A plan may
be applicable to one person. Small business issuers may omit
information regarding group life, health, hospitalization, or medical
reimbursement plans that do not discriminate in scope, terms or
operation, in favor of executive officers or directors of the small
business issuer and that are available generally to all salaried
employees.
    (iii) The term incentive plan means any plan providing compensation
intended to serve as incentive for performance to occur over a
specified period, whether such performance is measured by reference to
financial performance of the small business issuer or an affiliate, the
small business issuer's stock price, or any other performance measure.
An equity incentive plan is an incentive plan or portion of an
incentive plan under which awards are granted that fall within the
scope of Financial Accounting Standards Board Statement of Financial
Accounting Standards No. 123 (revised 2004), Share-Based Payment, as
modified or supplemented (``FAS 123R''). A non-equity incentive plan is
an incentive plan or portion of an incentive plan that is not an equity
incentive plan. The term incentive plan award means an award provided
under an incentive plan.
    (iv) The terms date of grant or grant date refer to the grant date
determined for financial statement reporting purposes pursuant to FAS
123R.
    (v) Closing market price is defined as the price at which the small
business issuer's security was last sold in the principal United States
market for such security as of the date for which the closing market
price is determined.
    (b) Summary compensation table--(1) General. Provide the
information specified in paragraph (b)(2) of this Item, concerning the
compensation of the named executive officers for each of the small
business issuer's last two completed fiscal years, in a Summary
Compensation Table in the tabular format specified below.

                                                                                Summary Compensation Table
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Nonequity       Nonqualified
                                                                                Stock awards      Option awards    incentive plan       deferred         All other
   Name and principal position          Year           Salary  ($)       Bonus  ($)            ($)               ($)          compensation      compensation      compensation      Total  ($)
                                                                                ($)          earnings  ($)         ($)
(a)                               (b)               (c)               (d)               (e)               (f)               (g)               (h)               (i)              (j)
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                  ................  ................  ................  ................  ................  ................  ................  ...............  ...............
PEO.............................
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
A...............................  ................  ................  ................  ................  ................  ................  ................  ...............  ...............

------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
B...............................  ................  ................  ................  ................  ................  ................  ................  ...............  ...............

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

    (2) The Table shall include:
    (i) The name and principal position of the named executive officer
(column (a));
    (ii) The fiscal year covered (column (b));
    (iii) The dollar value of base salary (cash and non-cash) earned by
the named executive officer during the fiscal year covered (column
(c));
    (iv) The dollar value of bonus (cash and non-cash) earned by the
named executive officer during the fiscal year covered (column (d));

    Instructions to Item 402(b)(2)(iii) and (iv).
    1. If the amount of salary or bonus earned in a given fiscal
year is not calculable through the latest practicable date, a
footnote shall be included disclosing that the amount of salary or
bonus is not calculable through the latest practicable date and
providing the date that the amount of salary or bonus is expected to
be determined, and such amount must then be disclosed in a filing
under Item 5.02(f) of Form 8-K (17 CFR 249.308).
    2. Small business issuers need not include in the salary column
(column (c)) or bonus column (column (d)) any amount of salary or
bonus forgone at the election of a named executive officer pursuant
to a small business issuer's program under which stock, equity-based
or other forms of non-cash compensation may be received by a named
executive officer instead of a portion of annual compensation earned
in a covered fiscal year. However, the receipt of any such form of
non-cash compensation instead of salary or bonus earned for a
covered fiscal year must be disclosed in the appropriate column of
the Summary Compensation Table corresponding to that fiscal year
(e.g., stock awards (column (e)); option awards (column (f)); all
other compensation (column (i))), or, if made pursuant to a non-
equity incentive plan and therefore not reportable in the Summary
Compensation Table when granted, a footnote must be added to the
salary or bonus column so disclosing and referring to the narrative
disclosure to the Summary Compensation Table (required by paragraph
(c) of this Item) where the material terms of the award are
reported.

    (v) For awards of stock, the aggregate grant date fair value
computed in accordance with FAS 123R (column (e));
    (vi) For awards of options, with or without tandem SARs (including
awards that subsequently have been transferred), the aggregate grant
date fair value computed in accordance with FAS 123R (column (f));

    Instructions to Item 402(b)(2)(v) and (vi).
    1. For awards reported in columns (e) and (f), include a
footnote disclosing all assumptions made in the valuation by
reference to a discussion of those assumptions in the small business
issuer's financial statements, footnotes to the financial
statements, or discussion in the Management's Discussion and
Analysis. The sections so referenced are deemed part of the
disclosure provided pursuant to this Item.
    2. If at any time during the last completed fiscal year, the
small business issuer has adjusted or amended the exercise price of
options or SARs previously awarded to a named executive officer,
whether through amendment, cancellation or replacement grants, or
any other means (``repriced''), or otherwise has materially modified
such awards, the small business issuer shall include, as awards
required to be reported in column (f), the incremental fair value,
computed as of the repricing or modification date in accordance with
FAS 123R, with respect to that repriced or modified award.

    (vii) The dollar value of all earnings for services performed
during the fiscal year pursuant to awards under non-equity incentive
plans as defined in paragraph (a)(5)(iii) of this Item, and all
earnings on any outstanding awards (column (g));

    Instructions to Item 402(b)(2)(vii).
    1. If the relevant performance measure is satisfied during the
fiscal year (including for a single year in a plan with a multi-year
performance measure), the earnings are reportable for that fiscal
year, even if not payable until a later date, and are not reportable
again in the fiscal year when amounts are paid to the named
executive officer.
    2. All earnings on non-equity incentive plan compensation must
be identified and quantified in a footnote to column (g), whether
the earnings were paid during the fiscal year, payable during the
period but deferred at the election of the named executive officer,
or payable by their terms at a later date.

    (viii) Above-market or preferential earnings on compensation that
is deferred on a basis that is not tax-qualified, including such
earnings on nonqualified defined contribution plans (column (h));

    Instruction to Item 402(b)(2)(viii).
    Interest on deferred compensation is above-market only if the
rate of interest exceeds 120% of the applicable federal long-term
rate, with compounding (as prescribed under section 1274(d) of the
Internal Revenue Code, (26 U.S.C. 1274(d))) at the rate that
corresponds most closely to the rate under the small business
issuer's plan at the time the interest rate or formula is set. In
the event of a discretionary reset of the interest rate, the
requisite calculation must be made on the basis of the interest rate
at the time of such reset, rather than when originally established.
Only the above-market portion of the interest must be included. If
the applicable interest rates vary depending upon conditions such as
a minimum period of continued service, the reported amount should be
calculated assuming satisfaction of all conditions to receiving
interest at the highest rate. Dividends (and dividend equivalents)
on deferred compensation denominated in the small business issuer's
stock (``deferred stock'') are preferential only if earned at a rate
higher than dividends on the small business issuer's common stock.
Only the preferential portion of the dividends or equivalents must
be included. Footnote or narrative disclosure may be provided
explaining the small business issuer's criteria for determining any
portion considered to be above-market.

    (ix) All other compensation for the covered fiscal year that the
small business issuer could not properly report in any other column of
the Summary Compensation Table (column (i)). Each compensation item
that is not properly reportable in columns (c)-(h), regardless of the
amount of the compensation item, must be included in column (i). Such
compensation must include, but is not limited to:
    (A) Perquisites and other personal benefits, or property, unless
the aggregate amount of such compensation is less than $10,000;
    (B) All ``gross-ups'' or other amounts reimbursed during the fiscal
year for the payment of taxes;
    (C) For any security of the small business issuer or its
subsidiaries purchased from the small business issuer or its
subsidiaries (through deferral of salary or bonus, or otherwise) at a
discount from the market price of such security at the date of
purchase, unless that discount is available generally, either to all
security holders or to all salaried employees of the small business
issuer, the compensation cost, if any, computed in accordance with FAS
123R;
    (D) The amount paid or accrued to any named executive officer
pursuant to a plan or arrangement in connection with:
    (1) Any termination, including without limitation through
retirement, resignation, severance or constructive termination
(including a change in responsibilities) of such executive officer's
employment with the small business issuer and its subsidiaries; or
    (2) A change in control of the small business issuer;
    (E) Small business issuer contributions or other allocations to
vested and unvested defined contribution plans;
    (F) The dollar value of any insurance premiums paid by, or on
behalf of, the small business issuer during the covered fiscal year
with respect to life insurance for the benefit of a named executive
officer; and
    (G) The dollar value of any dividends or other earnings paid on
stock or option awards, when those amounts were not factored into the
grant date fair value required to be reported for the stock or option
award in columns (e) or (f); and

    Instructions to Item 402(b)(2)(ix).
    1. Non-equity incentive plan awards and earnings and earnings on
stock or options,

except as specified in paragraph (b)(2)(ix)(G) of this Item, are
required to be reported elsewhere as provided in this Item and are
not reportable as All Other Compensation in column (i).
    2. Benefits paid pursuant to defined benefit and actuarial plans
are not reportable as All Other Compensation in column (i) unless
accelerated pursuant to a change in control; information concerning
these plans is reportable pursuant to paragraph (e)(1) of this Item.
    3. Reimbursements of taxes owed with respect to perquisites or
other personal benefits must be included in the columns as tax
reimbursements (paragraph (b)(2)(ix)(B) of this Item) even if the
associated perquisites or other personal benefits are not required
to be included because the aggregate amount of such compensation is
less than $10,000.
    4. Perquisites and other personal benefits shall be valued on
the basis of the aggregate incremental cost to the small business
issuer.
    5. For purposes of paragraph (b)(2)(ix)(D) of this Item, an
accrued amount is an amount for which payment has become due.

    (x) The dollar value of total compensation for the covered fiscal
year (column (j)). With respect to each named executive officer,
disclose the sum of all amounts reported in columns (c) through (i).

    Instructions to Item 402(b).
    1. Information with respect to the fiscal year prior to the last
completed fiscal year will not be required if the small business
issuer was not a reporting company pursuant to section 13(a) or
15(d) of the Exchange Act (15 U.S.C. 78m(a) or 78o(d)) at any time
during that year, except that the small business issuer will be
required to provide information for any such year if that
information previously was required to be provided in response to a
Commission filing requirement.
    2. All compensation values reported in the Summary Compensation
Table must be reported in dollars and rounded to the nearest dollar.
Reported compensation values must be reported numerically, providing
a single numerical value for each grid in the table. Where
compensation was paid to or received by a named executive officer in
a different currency, a footnote must be provided to identify that
currency and describe the rate and methodology used to convert the
payment amounts to dollars.
    3. If a named executive officer is also a director who receives
compensation for his or her services as a director, reflect that
compensation in the Summary Compensation Table and provide a
footnote identifying and itemizing such compensation and amounts.
Use the categories in the Director Compensation Table required
pursuant to paragraph (f) of this Item.
    4. Any amounts deferred, whether pursuant to a plan established
under section 401(k) of the Internal Revenue Code (26 U.S.C.
401(k)), or otherwise, shall be included in the appropriate column
for the fiscal year in which earned.

    (c) Narrative disclosure to summary compensation table. Provide a
narrative description of any material factors necessary to an
understanding of the information disclosed in the Table required by
paragraph (b) of this Item. Examples of such factors may include, in
given cases, among other things:
    (1) The material terms of each named executive officer's employment
agreement or arrangement, whether written or unwritten;
    (2) If at any time during the last fiscal year, any outstanding
option or other equity-based award was repriced or otherwise materially
modified (such as by extension of exercise periods, the change of
vesting or forfeiture conditions, the change or elimination of
applicable performance criteria, or the change of the bases upon which
returns are determined), a description of each such repricing or other
material modification;
    (3) The waiver or modification of any specified performance target,
goal or condition to payout with respect to any amount included in non-
stock incentive plan compensation or payouts reported in column (g) to
the Summary Compensation Table required by paragraph (b) of this Item,
stating whether the waiver or modification applied to one or more
specified named executive officers or to all compensation subject to
the target, goal or condition;
    (4) The material terms of each grant, including but not limited to
the date of exercisability, any conditions to exercisability, any
tandem feature, any reload feature, any tax-reimbursement feature, and
any provision that could cause the exercise price to be lowered;
    (5) The material terms of any non-equity incentive plan award made
to a named executive officer during the last completed fiscal year,
including a general description of the formula or criteria to be
applied in determining the amounts payable and vesting schedule;
    (6) The method of calculating earnings on nonqualified deferred
compensation plans including nonqualified defined contribution plans;
and
    (7) An identification to the extent material of any item included
under All Other Compensation (column (i)) in the Summary Compensation
Table. Identification of an item shall not be considered material if it
does not exceed the greater of $25,000 or 10% of all items included in
the specified category in question set forth in paragraph (b)(2)(ix) of
this Item. All items of compensation are required to be included in the
Summary Compensation Table without regard to whether such items are
required to be identified.

    Instruction to Item 402(c).
    The disclosure required by paragraph (c)(2) of this Item would
not apply to any repricing that occurs through a pre-existing
formula or mechanism in the plan or award that results in the
periodic adjustment of the option or SAR exercise or base price, an
antidilution provision in a plan or award, or a recapitalization or
similar transaction equally affecting all holders of the class of
securities underlying the options or SARs.

    (d) Outstanding equity awards at fiscal year-end table. (1) Provide
the information specified in paragraph (d)(2) of this Item, concerning
unexercised options; stock that has not vested; and equity incentive
plan awards for each named executive officer outstanding as of the end
of the small business issuer's last completed fiscal year in the
following tabular format:

                                                      Outstanding Equity Awards at Fiscal Year-End
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                             Option awards                                                           Stock awards
           ---------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Equity         Equity
                                                 Equity                                                                       incentive      incentive
               Number of       Number of        incentive                                                                   plan  awards:  plan  awards:
              securities       securities     plan  awards:                                     Number of     Market value    Number of      Market or
   Name       underlying       underlying       Number of        Option          Option         shares or     of shares of     unearned     payout value
              unexercised     unexercised      securities    exercise price    expiration    units of stock     units of    shares, units   of unearned
                options         options        underlying          ($)            date        that have not    stock that      or other    shares, units
              ()     ()      unexercised                                       vested         have not     rights that     or others
              exercisable    unexercisable      unearned                                       ()    vested  ($)      have not     rights that
                                                 options                                                                        vested        have not
                                               ()                                                                   ()    vested  ($)
(a)         (b)             (c)              (d)             (e)             (f)             (g)             (h)            (i)            (j)
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PEO

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A

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B

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    (2) The Table shall include:
    (i) The name of the named executive officer (column (a));
    (ii) On an award-by-award basis, the number of securities
underlying unexercised options, including awards that have been
transferred other than for value, that are exercisable and that are not
reported in column (d) (column (b));
    (iii) On an award-by-award basis, the number of securities
underlying unexercised options, including awards that have been
transferred other than for value, that are unexercisable and that are
not reported in column (d) (column (c));
    (iv) On an award-by-award basis, the total number of shares
underlying unexercised options awarded under any equity incentive plan
that have not been earned (column (d));
    (v) For each instrument reported in columns (b), (c) and (d), as
applicable, the exercise or base price (column (e));
    (vi) For each instrument reported in columns (b), (c) and (d), as
applicable, the expiration date (column (f));
    (vii) The total number of shares of stock that have not vested and
that are not reported in column (i) (column (g));
    (viii) The aggregate market value of shares of stock that have not
vested and that are not reported in column (j) (column (h));
    (ix) The total number of shares of stock, units or other rights
awarded under any equity incentive plan that have not vested and that
have not been earned, and, if applicable the number of shares
underlying any such unit or right (column (i)); and
    (x) The aggregate market or payout value of shares of stock, units
or other rights awarded under any equity incentive plan that have not
vested and that have not been earned (column (j)).

    Instructions to Item 402(d)(2).
    1. Identify by footnote any award that has been transferred
other than for value, disclosing the nature of the transfer.
    2. The vesting dates of options, shares of stock and equity
incentive plan awards held at fiscal-year end must be disclosed by
footnote to the applicable column where the outstanding award is
reported.
    3. Compute the market value of stock reported in column (h) and
equity incentive plan awards of stock reported in column (j) by
multiplying the closing market price of the small business issuer's
stock at the end of the last completed fiscal year by the number of
shares or units of stock or the amount of equity incentive plan
awards, respectively. The number of shares or units reported in
column (d) or (i), and the payout value reported in column (j),
shall be based on achieving threshold performance goals, except that
if the previous fiscal year's performance has exceeded the
threshold, the disclosure shall be based on the next higher
performance measure (target or maximum) that exceeds the previous
fiscal year's performance. If the award provides only for a single
estimated payout, that amount should be reported. If the target
amount is not determinable, small business issuers must provide a
representative amount based on the previous fiscal year's
performance.
    4. Multiple awards may be aggregated where the expiration date
and the exercise and/or base price of the instruments is identical.
A single award consisting of a combination of options, SARs and/or
similar option-like instruments shall be reported as separate awards
with respect to each tranche with a different exercise and/or base
price or expiration date.
    5. Options or stock awarded under an equity incentive plan are
reported in columns (d) or (i) and (j), respectively, until the
relevant performance condition has been satisfied. Once the relevant
performance condition has been satisfied, even if the option or
stock award is subject to forfeiture conditions, options are
reported in column (b) or (c), as appropriate, until they are
exercised or expire, or stock is reported in columns (g) and (h)
until it vests.

    (e) Additional narrative disclosure. Provide a narrative
description of the following to the extent material:
    (1) The material terms of each plan that provides for the payment
of retirement benefits, or benefits that will be paid primarily
following retirement, including but not limited to tax-qualified
defined benefit plans, supplemental executive retirement plans, tax-
qualified defined contribution plans and nonqualified defined
contribution plans.
    (2) The material terms of each contract, agreement, plan or
arrangement, whether written or unwritten, that provides for payment(s)
to a named executive officer at, following, or in connection with the
resignation, retirement or other termination of a named executive
officer, or a change in control of the small business issuer or a
change in the named executive officer's responsibilities following a
change in control, with respect to each named executive officer.
    (f) Compensation of directors. (1) Provide the information
specified in

paragraph (f)(2) of this Item, concerning the compensation of the
directors for the small business issuer's last completed fiscal year,
in the following tabular format:

                                                                  Director Compensation
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                                                                                Non-equity      Nonqualified
                                   Fees earned or     Stock awards    Option awards    incentive plan      deferred        All other
              Name                  paid in cash          ($)              ($)          compensation     compensation     compensation      Total  ($)
                                         ($)                                                ($)         earnings  ($)         ($)
(a)                               (b)               (c)              (d)              (e)              (f)              (g)              (h)
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A

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B

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C

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D

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E

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    (2) The Table shall include:
    (i) The name of each director unless such director is also a named
executive officer under paragraph (a) of this Item and his or her
compensation for service as a director is fully reflected in the
Summary Compensation Table pursuant to paragraph (b) of this Item and
otherwise as required pursuant to paragraphs (c) through (e) of this
Item (column (a));
    (ii) The aggregate dollar amount of all fees earned or paid in cash
for services as a director, including annual retainer fees, committee
and/or chairmanship fees, and meeting fees (column (b));
    (iii) For awards of stock, the aggregate grant date fair value
computed in accordance with FAS 123R (column (c));
    (iv) For awards of options, with or without tandem SARs (including
awards that subsequently have been transferred), the aggregate grant
date fair value computed in accordance with FAS 123R (column (d));

    Instruction to Item 402(f)(2)(iii) and (iv).
    For each director, disclose by footnote to the appropriate
column, the aggregate number of stock awards and the aggregate
number of option awards outstanding at fiscal year end.

    (v) The dollar value of all earnings for services performed during
the fiscal year pursuant to non-equity incentive plans as defined in
paragraph (a)(5)(iii) of this Item, and all earnings on any outstanding
awards (column (e));
    (vi) Above-market or preferential earnings on compensation that is
deferred on a basis that is not tax-qualified, including such earnings
on nonqualified defined contribution plans (column (f));
    (vii) All other compensation for the covered fiscal year that the
small business issuer could not properly report in any other column of
the Director Compensation Table (column (g)). Each compensation item
that is not properly reportable in columns (b)-(f), regardless of the
amount of the compensation item, must be included in column (g) and
must be identified and quantified in a footnote if it is deemed
material in accordance with paragraph (c)(7) of this Item. Such
compensation must include, but is not limited to:
    (A) Perquisites and other personal benefits, or property, unless
the aggregate amount of such compensation is less than $10,000;
    (B) All ``gross-ups'' or other amounts reimbursed during the fiscal
year for the payment of taxes;
    (C) For any security of the small business issuer or its
subsidiaries purchased from the small business issuer or its
subsidiaries (through deferral of salary or bonus, or otherwise) at a
discount from the market price of such security at the date of
purchase, unless that discount is available generally, either to all