filed in September 2005, we estimate that approximately 22,083 current
reports filed on Forms 8-K would be filed pursuant to Item 1.01 of Form
8-K.
---------------------------------------------------------------------------

    \341\ 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 Form 8-K filings made in
September 2005, we estimate that 6,625 of the 22,083 current reports on
Form 8-K filed under Item 1.01 would relate to executive or director
compensation matters.
     Based on a review of Item 1.01 Form 8-K filings made in
September 2005, we estimate that 1,722 fewer Form 8-Ks would be filed
because of more focused current reporting of executive officer and
director compensation transactions under proposed Item 5.02(e) of Form
8-K.\342\
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    \342\ 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
$300 per hour. The computation of the reduction in burden is thus
based on 1,722 fewer Form 8-Ks filed with a per filing burden of
3.75 hours carried by the company and 1.25 hours at a cost of $300
per hour (or $375 per filing).
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D. Request for Comment

    We request comment in order to: (a) Evaluate whether the
collections of information are necessary for the proper performance of
our functions, including whether the information will have practical
utility; (b) evaluate the accuracy of our estimate of the burden of the
collections of information; (c) determine whether there are ways to
enhance the quality, utility, and clarity of the information to be
collected; and (d) evaluate whether there are ways to minimize the
burden of the collections of information on those who respond,
including through the use of automated collection techniques or other
forms of information technology.\343\
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    \343\ Comments are requested pursuant to 44 U.S.C.
3506(c)(2)(B).
---------------------------------------------------------------------------

    Any member of the public may direct to us any comments concerning
the accuracy of these burden estimates and any suggestions for reducing
these burdens. Persons who desire to submit comments on the collection
of information requirements should direct their comments to the OMB,
Attention: Desk Officer for the Securities and Exchange Commission,
Office of Information and Regulatory Affairs, Washington, DC 20503, and
should send a copy of the comments to Nancy M. Morris, Secretary,
Securities and Exchange Commission, 100 F Street, NE., Washington, DC
20549-9303, with reference to File No. S7-03-06. Requests for materials
submitted to the OMB by us with regard to this collection of
information should be in writing, refer to File No. S7-03-06, and be
submitted to the Securities and Exchange Commission, Office of Filings
and Information Services, Branch of Records Management, 6432 General
Green Way, Alexandria, VA 22312. Because the OMB is required to make a
decision concerning the collections of

information between 30 and 60 days after publication, your comments are
best assured of having their full effect if the OMB receives them
within 30 days of publication.

IX. Cost-Benefit Analysis

A. Background

    We are proposing revisions 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 proposed 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 also
propose to revise 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 also propose to revise 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 proposing to amend our beneficial ownership disclosure
requirement to require disclosure regarding pledges of securities by
management and directors' qualifying shares. Finally, we are proposing
that most of the disclosure that would be required under the proposed
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 it is incorporated by reference from proxy
or information statements.

B. Summary of Proposals

    In light of the complexity of, and variations in, compensation
programs, the sometimes inflexible and highly formatted nature of
current Item 402 of Regulation 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 proposed changes to Item 402 would apply a broader
approach that would eliminate some tables, simplify or refocus other
tables, reflect total current compensation in the Summary Compensation
Table, and reorganize the compensation table 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 would 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 would provide transparency
regarding company compensation policies and procedures, and be
sufficiently flexible to operate effectively as new forms of
compensation continue to evolve.
    Under the proposals, the scope and presentation of information in
Item 402 of Regulation S-B would differ in a number of significant ways
from Item 402 of Regulation S-K. Item 402 of Regulation S-B would:
     Limit the named executive officers for whom disclosure
would be required to a smaller group, consisting of the principal
executive officer and the two other highest paid executive officers;
\344\
---------------------------------------------------------------------------

    \344\ Current Item 402(a)(2) of Regulation S-B requires
compensation disclosure for all individuals serving as the small
business issuer's chief executive officer and the small business
issuer's four other highest paid 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; \345\
---------------------------------------------------------------------------

    \345\ Current Item 402(b)(1) of Regulation S-B requires
disclosure of compensation of the named executive officers for each
of the last three fiscal years, and narrative disclosure is not
currently required to accompany the Summary Compensation Table,
however the proposed narrative disclosure would address some
elements of compensation currently required in tables in current
Item 402 of Regulation S-B.
---------------------------------------------------------------------------

     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 would include expanded disclosure regarding holdings of
previously awarded stock, options and similar instruments, which would
include the value of stock and other similar incentive plan awards that
had not vested;
     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 would not include the following
disclosures that would be required by proposed Item 402 of Regulation
S-K:
     Compensation Discussion and Analysis;
     A third fiscal year of Summary Compensation Table
disclosure; and
     The supplementary Grants of Performance-Based Awards Table
and Grants of All Other Equity Awards Table, the Option Exercises and
Stock Vested Table, the Retirement Plan Potential Annual Payments and
Benefits Table, and the Nonqualified Defined Contribution and Other
Deferred Compensation Plans 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.
    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 proposed amendments to Items 1.01 and 5.02 of Form 8-
K would 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.
    Current Item 404 of Regulation S-K was adopted to consolidate
various provisions previously adopted in a piecemeal fashion. The
proposals would revise Item 404 of Regulation S-K to streamline and
modernize it, while making it more principles-based. Indebtedness of
related persons is limited by the Sarbanes-Oxley Act, and the
disclosure requirement regarding indebtedness of related persons would
be combined into the requirement regarding other transactions with
related persons. This consolidated disclosure requirement would apply
to an expanded group of related persons. While the current principles
for disclosure would be retained, the proposal would increase the
$60,000 threshold for disclosure currently in paragraphs (a) and (c) of
Item 404 to $120,000 and eliminate or reduce the scope of certain
instructions delineating

what transactions are reportable or excludable. Existing disclosure
requirements in Item 404 regarding transactions with promoters would
slightly expanded 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,
proposed 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 would similarly increase
to $120,000 the current $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, Form N-2 would require business development
companies to include the compensation disclosure required by Item 402
of Regulation S-K, as we propose to amend it.
    The proposals also would replace the disclosure requirement for
certain business relationships currently in Item 404(b) of Regulation
S-K, which focuses on relationships relevant to director independence,
with requirements for director independence disclosure discussed below.
Under the proposals, the disclosure currently required by 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.
Proposed Item 404(b) of Regulation S-K would require disclosure
regarding the company's policies for the review, approval or
ratification of transactions with related persons.
    We propose similar amendments to Item 404 of Regulation S-B, which
would result in a more detailed related person transaction disclosure
requirement than currently exists in Item 404 of Regulation S-B.
However, unlike Item 404 of Regulation S-K, Item 404 of Regulation S-B
would not require disclosure regarding the company's policies for the
review, approval or ratification of transactions with related persons.
We propose to retain 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 propose to adopt a new disclosure requirement in Item 407 of
Regulations S-K and S-B that would consolidate disclosures required in
several places throughout our rules addressing director independence,
board committee functions and other related corporate governance
matters. This proposed Item, which would require 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 the national
securities exchanges and the inter-dealer quotation systems of a
national securities association.\346\
---------------------------------------------------------------------------

    \346\ We also propose 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 propose to amend Item 403 of Regulation S-K and
Regulation S-B to require this disclosure as well as disclosure
regarding directors' beneficial ownership of qualifying shares.
    We propose to require 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 would make these
documents easier to understand.
    The proposed changes to Item 402 of Regulation S-K, Items 402 and
404 of Regulation S-B, and Form 8-K would affect all companies
reporting under Sections 13(a) and 15(d) of the Exchange Act, other
than registered investment companies. The proposed changes to Item 404
of Regulation S-K would 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 proposed changes to Items 402 and 404 of
Regulation S-K and Regulation S-B would also affect additional
companies filing Securities Act and Exchange Act registration
statements. The proposed 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 proposed changes to Form N-1A will affect open-end
investment companies registering with the Commission on Form N-1A. The
proposed changes to Form N-2 will affect closed-end investment
companies (including business development companies) registering with
the Commission on Form N-2. The proposed 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 proposals would be 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 would be 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 tabular and new quantitative estimate disclosure for retirement
plans and similar benefits and director compensation. The proposals
would 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 proposals
also would 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 proposals of certain forms of
compensation, such as stock-, option- and incentive plan-based
compensation, as well as retirement and other post-employment
compensation, combined with the ability of investors to track the
elements of executive and director compensation and the relative
weights of those elements over time (and the reasons why companies
allocate

compensation in the manner that they do), would enable investors to
make comparisons both within and across companies. A presentation
facilitating the comparability and 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
disclosure of compensation across companies. Disclosure of total
compensation would 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 would 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.\347\
Particularly with respect to the proxy statement for the annual meeting
at which directors are elected, this improved disclosure would 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.
---------------------------------------------------------------------------

    \347\ 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).
---------------------------------------------------------------------------

    We believe that the extent to which increased transparency and
completeness in executive and director compensation disclosure would
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 would affect investors' decision-making with
respect to that company.
    Improved transparency in executive and director compensation under
these proposals 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 proposals, including
requirements to disclose a total amount of compensation and more detail
regarding compensation policies, could alter existing policies or
practices in these areas. We emphasize that we are not seeking to
foster any given directional or other impacts. Our objective is to
increase transparency to enable decision-makers to make more informed
decisions, which could result in different policies or practices or
increase investor confidence in existing policies or practices.
    The proposed amendments to Form 8-K would 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
would be filed pursuant to Item 5.02(e) of Form 8-K. To find this
information, shareholders and investors no longer would need to examine
multiple Item 1.01 disclosures relating to other actions. Companies
would also be relieved of obligations to quickly report arguably less
important compensation information on Form 8-K.
    The proposed amendments to Item 404 would 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 proposals would 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 current Item 404
into a single combined disclosure requirement, the proposals would
reduce confusion regarding the disclosure required when more than one
of the item's current provisions applies to a relationship. Improved
corporate governance disclosure in proposed Item 407 would provide
investors with better organized and more complete information regarding
the independence of members of the board of directors. In addition,
companies would benefit from having one disclosure item to satisfy in
making required corporate governance disclosures. The proposed
amendments to Item 403 of Regulation S-K and Regulation S-B would
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.
    Proposed 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 would decrease the
disclosure burden imposed on registered investment companies 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).
    Finally, presentation in plain English would facilitate investor
understanding of most of the matters contemplated by our proposals.
    The benefits of clearer, more useful disclosure are difficult to
quantify.

D. Costs

    In our view, the proposed revisions to the executive officer and
director compensation disclosure requirements would increase the costs
of complying with the Commission's rules. The proposed revisions to the
related person transaction, director independence and corporate
governance disclosure requirements would generally not increase costs.
We further believe that the costs related to preparing required
disclosure in plain English would be short-term costs arising mainly in
the first two years of implementation.\348\ Increased costs under the
proposals would largely impact companies required to comply with the
proposals; any net increase in costs would ultimately be borne by
shareholders of those companies. If our assumptions regarding these
costs and current practices are not correct or complete, then costs may
prove to be higher.
---------------------------------------------------------------------------

    \348\ The proposed plain English requirements would 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 proposals would, on balance,
be more costly for companies than compliance with the existing
disclosure requirements, with the highest incremental annual costs
occurring principally in the first two years as companies and their
advisors would 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 proposing would
incrementally increase

costs for companies in several ways as a result of the new or expanded
requirements. First, we propose that companies provide a Compensation
Discussion and Analysis involving a discussion and analysis of material
factors underlying compensation decisions reflected in the tabular
presentations.\349\ Second, we propose to require narrative disclosure
to accompany tabular presentations so that the data included in the
tables may be understood in context. Third, we propose to expand
disclosure regarding compensation-related equity-based and other plan-
based holdings, as well as retirement and similar plans. Finally, we
propose a director compensation table that would require more detailed
information regarding director compensation than is specified in the
current narrative disclosure requirement.\350\ Each of these proposed
revisions would seek to elicit more complete and clearer information
than is currently required under existing rules.
---------------------------------------------------------------------------

    \349\ The Compensation Discussion and Analysis, unlike the
current Compensation Committee Report and the Performance Graph, but
like all of the rest of the current compensation disclosure, would
be considered filed and as such would be part of the documents for
which certifications apply. 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 * * *
[T]he 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 * * * Conversely, the new rule 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.
    \350\ See current Item 402(f) of Regulation S-B and Item 402(g)
of Regulation S-K.
---------------------------------------------------------------------------

    While the Summary Compensation Table as proposed to be revised
would require reporting of the grant date fair value of stock-based and
option-based awards under the proposals, we do not believe that this
change would 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 incremental changes in the actuarial value of
retirement benefits for the purposes of reporting such compensation in
the Summary Compensation Table. 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
would increase costs, because existing disclosure requirements already
mandate the disclosure of all compensation, and the mechanical process
of adding up disclosure amounts would not be significant. Additional
costs may be incurred in preparing and presenting required disclosures
regarding up to three highly paid non-executive employees, 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 proposals. In addition, because named executive officers
would be based on total compensation rather than salary and bonus, some
companies may need to track more employees to determine which are the
most highly compensated.
    Under the proposals regarding Form 8-K, disclosure regarding
executive and director arrangements and other plans that would no
longer be required to be reported within four days under Item 1.01 of
Form 8-K would 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 would reduce its value to
investors, the proposals may impose costs on investors.
    We believe that there would not be a significant increase in the
cost of complying with the related person transaction disclosure
requirement. The proposals may increase the cost of complying with this
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'' and also, in the case
of indebtedness transactions, significant shareholders.\351\ Similarly,
with respect to registered investment companies and business
development companies, proposed 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 would
increase to $120,000 the current $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 proposals would impose
additional costs.
---------------------------------------------------------------------------

    \351\ Significant shareholders are those identified under
proposed Instruction 1.b.(i) to Item 404 of Regulation S-K, that is,
any security holder who is known to the registrant to own of record
or beneficially more than five percent of any class of the
registrant's voting securities.
---------------------------------------------------------------------------

    Proposed Item 404(b) of Regulation S-K would introduce 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 their policies for the review,
approval or ratification of related person transactions or the
determination of executive and director compensation we understand that
companies would incur costs of collecting the type of information that
would be required to be disclosed. These costs would 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 proposed rules would not require
companies to create new policies for review, approval or ratification
of relationships with related persons or the determination of executive
and director compensation; however, to the extent that companies do
create new policies that require the collection of different or
additional information, they may incur incremental costs.
    The proposed disclosures regarding director independence are
similar to existing 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 proposed
disclosure requirement regarding director independence could be
performed by the same person or group of persons responsible for
compliance under the current rules. Because the current rules already
require 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 proposed 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 relationships with
related persons. 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 existing
disclosure requirements or corporate governance listing standards.
    We believe that, overall, the costs noted above that are associated
with the proposed disclosure requirements for related person
transactions and director independence will be offset by cost decreases
associated with narrowing the scope of other disclosure requirements
under the proposal. In this regard, we believe that companies will
generally be required to provide an amount of information that is
comparable to what is currently required by our rules, but under the
proposals the information regarding these matters would be presented in
a manner that recognizes recent changes such as the imposition of
corporate governance listing standards at the major markets.
    Our plain English proposal would 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 would be required to be
disclosed in Exchange Act reports such as annual reports on Forms 10-K
or 10-KSB. We believe the proposed rules, if adopted, would 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 proposals. 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 proposals. A company
would 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 could 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 proposed collection of information requirements to be
approximately 537,792 hours of in-house company personnel time and to
be approximately $69,794,000 for the services of outside professionals.
These costs are based on our estimates that the annual incremental
disclosure burden imposed by the revisions that we propose today would
average 67 hours per Form 10-K; 35 hours per Form 10-KSB; 60 hours per
Form 10; 30 hours per Forms 10-SB and SB-2; 60 hours per Forms S-1, S-4
and S-11; and 1.675 hours per Form N-2. We estimate that the proposed
amendments to Item 22(b) of Schedule 14A and the proposal to increase
to $120,000 the current $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 $645,750
for the services of outside professionals, based on an estimate that
1,722 fewer Form 8-Ks would be filed because of more focused current
reporting of compensation transactions. Based on these estimates 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 proposals would be approximately $163,908,000.
We have not quantified other costs which might arise as a result of
implementation of the rules, especially to the extent that such costs
could arise as a result of changes in policies, practices or other
behavior attributable to the proposed disclosure requirements. These
costs could be more than those estimated for the purposes of the
Paperwork Reduction Act.

E. Request for Comment

     We solicit quantitative data to assist our assessment of
the benefits and costs of increased disclosure resulting from: (1)
Requiring narrative disclosure regarding executive and director
compensation in the form of Compensation Discussion and Analysis and
narrative disclosures accompanying the tabular presentations, and
eliminating the Compensation Committee Report and Performance Graph;
(2) expanding disclosure, in a tabular format, of director
compensation; and (3) requiring the more focused and in some cases
expanded tabular presentation of executive compensation. We also
solicit such data regarding the benefits and costs of any other aspects
of the executive compensation disclosure proposals.
     We solicit quantitative data to assist our assessment of
the benefits and costs of revising the requirements for current
reporting of executive and director compensation arrangements on Form
8-K to focus on those arrangements which are unquestionably material.
     We solicit quantitative data to assist our assessment of
the benefits and costs of increased disclosure resulting from: (1)
Expanding the group of related persons covered by current Item 404(a)
to include additional ``immediate family members''; (2) expanding the
required relationship disclosure to include significant shareholders as
related persons who may have reportable indebtedness relationships; and
(3) requiring disclosure of a registrant's policies for approval of
relationships involving related persons and the independence of
directors. We also solicit such data regarding the benefits and costs
of any other aspects of the related person transactions disclosure
requirements.
     Do companies currently have policies and procedures
regarding the review, approval, authorization or ratification of
relationships with related persons? If not, what cost would a company
incur to institute such policies?
     Are there any public companies that currently provide
information to the public regarding their policies and procedures
related to the review, approval, authorization or ratification of
relationships with related persons? If so, is there any information
available as to whether investors find this information to be useful?
     We solicit quantitative data to assist our assessment of
the benefits and costs associated with increased disclosure and the
proposed application of plain English principles to the disclosure
resulting from most of the proposed requirements.
     What are the direct and indirect costs associated with the
proposals?
     What are the costs in the first year of compliance versus
subsequent years?
     We solicit comments on the degree to which companies
already collect the information that the proposed rules would require
to be disclosed.

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

    Exchange Act Section 23(a)(2) \352\ 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),\353\ Exchange Act
Section 3(f) \354\ and Investment Company Act Section 2(c) \355\
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.
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    \352\ 15 U.S.C. 78w(a)(2).
    \353\ 15 U.S.C. 77b(b).
    \354\ 15 U.S.C. 78c(f).
    \355\ 15 U.S.C. 80a-2(c).
---------------------------------------------------------------------------

    The proposed 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 transaction disclosure available to investors and the
financial markets. These proposals would enhance investors'
understanding of how corporate resources are used, and enable
shareholders to better evaluate the actions of the board of directors
and executive officers in fulfilling their responsibilities.
    The proposed amendments to Form 8-K are intended to facilitate the
ability of investors and shareholders to access real-time disclosure of
public companies' employee compensation events that are unquestionably
or presumptively material by requiring this disclosure only for the
compensatory agreements with specified executive officers. To find this
information, shareholders and investors no longer would need to examine
multiple Form 8-K disclosures relating to other executive officers or
other material non-ordinary course definitive agreements.
    The proposals to expand and consolidate into one item the director
independence and related corporate governance disclosure requirements
in proposed Item 407 of Regulation S-K would improve shareholders' and
investors' understanding of the composition and functions of the board
of directors and board committees. Proposed 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 proposal to require most of the information required in these
proposals to 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 proposed rules would enhance existing reporting
requirements by providing more effective material disclosure to
investors in a timely manner. We anticipate that these proposals would
improve investors'' ability to make informed investment and voting
decisions and, therefore lead to increased efficiency and
competitiveness of the U.S. capital markets.
    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, would be required to
make the proposed 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
current Item 402, registrants would not be required to disclose target
levels with respect to specific quantitative or qualitative
performance-related factors, or any factors or criteria involving
confidential commercial or business information, the disclosure of
which would have an adverse effect on 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.
    We request comment on whether the proposals, if adopted, would
promote efficiency, competition, and capital formation or have an
impact or burden on competition. Commenters are requested to provide
empirical data and other factual support for their views, if possible.

XI. Initial Regulatory Flexibility Act Analysis

    This Initial Regulatory Flexibility Act Analysis has been prepared
in accordance with 5 U.S.C. 603. It relates to proposed 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,\356\ other highly paid executive officers and all
members of the board of directors, and of related person transactions.
These proposed revisions include revising 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 of 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 all
disclosure required by the proposed items to be provided in plain
English.
---------------------------------------------------------------------------

    \356\ The principal financial officer is not specified as a
named executive officer in Item 402 of Regulation S-B.
---------------------------------------------------------------------------

A. Reasons for the Proposed Action

    Since the enactment of the Securities Act and the Exchange Act, the
Commission has on a number of occasions explored the best methods for
communicating clear, concise and meaningful material information about
executive and director compensation and relationships with the issuer.
With regard to compensation, at different times, the Commission has
adopted rules mandating narrative, tabular, and combinations of
narrative and tabular disclosure as the best method for presenting
compensation disclosure in a manner that is concise and useful to
investors. From time to time, the Commission has reconsidered executive
and director compensation information requirements in light of changing
trends in executive compensation, or due to concerns about the
usefulness of disclosure elicited under then applicable rules. Most
recently, in 1992, the Commission proposed and adopted amendments to
the disclosure rules that moved away from the mostly narrative
disclosure approach adopted in 1983 to

formatted tables which sought to capture the various elements of
compensation and promote comparability from year to year and from
company to company.
    While this tabular approach remains a sound basis for disclosure,
its sometimes inflexible and formatted nature has, especially in light
of the complexity of and variations in compensation programs, resulted
in some cases in disclosure that does not clearly inform investors as
to all elements of compensation, notwithstanding the express
requirement to do so in the rules. Accordingly, the proposals under
current consideration seek a broader-based approach to eliciting
executive compensation disclosure while retaining comparability.
    Form 8-K requires disclosure of the entry into, amendment of and
termination of material definitive agreements entered into outside the
ordinary course of business. Under our current definitions in
Regulation S-K, many agreements regarding executive compensation are
deemed to be material agreements entered into outside the ordinary
course, and when for purposes of consistency we adopted those
definitions for use in the expanded Form 8-K requirements, we
incorporated all of these executive compensation agreements into the
current Form 8-K disclosure requirements. Therefore, many agreements
regarding executive compensation are required to be disclosed within
four business days of the applicable triggering event. Because it was
not our intent in adopting the expanded Form 8-K requirements to make
all elements of compensation for all executive officers potential items
of real-time disclosure, but only to capture in this area, as in
others, events that are unquestionably or presumptively material to
investors, we believe it is appropriate to modify our rules so that
only those events must be disclosed on Form 8-K.
    We believe that disclosure of executive and director compensation
is closely related to disclosure regarding financial transactions and
relationships involving companies and their directors, executive
officers, significant shareholders and respective immediate family
members. These disclosure requirements have historically been
interconnected, given that relationships among these persons and the
company can include transactions that involve compensation or analogous
features. Such disclosure also represents material information in
evaluating the overall relationship with a company's executive officers
and directors. Further, this disclosure provides material information
regarding the independence of directors. The current related party
transaction disclosure requirements were adopted piecemeal over the
years and were combined in one disclosure requirement beginning in
1982. In light of the many developments, including the increasing focus
on corporate governance and director independence, we believe it is
necessary to revise the rule. We propose to replace the current
requirement for disclosure about 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
also propose to consolidate this and other requirements regarding
director independence, board committees and other corporate governance
matters in a new disclosure Item. In addition, we are also proposing
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).
    To the extent that shares beneficially owned by named executive
officers, directors and director nominees are pledged, these shares are
subject to risks and 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, and for
this reason, it appears that the existence of these securities pledges
could be material to shareholders and should be disclosed under
proposed revisions to Item 403 of Regulations S-K and S-B. An exclusion
from the beneficial ownership disclosure requirement for directors''
qualifying shares is also proposed to be removed.
    In order for most of these amended requirements to result in
disclosure that is clear, concise and understandable for investors when
responsive disclosure is included in Exchange Act reports or
incorporated by reference from proxy or information statements, we
propose to add Exchange Act rules to require that the disclosure
regarding executive and director compensation, beneficial ownership,
related person transactions and most corporate governance matters be
provided in plain English.

B. Objectives

    The overall goal of the rule proposals is to provide investors with
a clearer and more complete picture of executive and director
compensation, related person transactions and corporate governance
matters. We believe that the proposals would:
     Confirm our current requirement that all elements of
compensation must be disclosed;
     Retain the comparability of executive and director
compensation while also providing material qualitative information
about the context in which compensation is granted, awarded and earned;
     Reorganize and modify the type of compensation information
that must be disclosed in current reports;
     Streamline and modernize the related person transaction
disclosure requirements, while making them more principles-based;
     Update the disclosure requirements regarding director
independence to reflect current listing standards and consolidate all
such disclosure under a single disclosure item so that it is easier to
locate; and
     Facilitate more informed voting decisions in the face of
complex information about directors, executive officers and corporate
governance, by requiring that most of the information required by these
proposals be written in plain English.

C. Legal Basis

    We are proposing the amendments pursuant to Sections 3(b), 6, 7, 10
and 19(a) of the Securities Act; Sections 10(b), 12, 13, 14(a), 15(d),
and 23(a) of the Exchange Act; Sections 8, 20(a), 24(a), 30, and 38 of
the Investment Company Act; and Section 3(a) of the Sarbanes-Oxley Act
of 2002.

D. Small Entities Subject to the Proposed Amendments

    The proposals would 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
proposals also would affect small entities that file, or have filed, a
registration statement that has not yet become effective under the
Securities Act and that has not been withdrawn. Securities Act Rule 157
\357\ and Exchange Act Rule 0-10(a) \358\

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.
We believe that the proposals would 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.\359\ We believe that
the proposals would affect small entities that are investment
companies. We estimate that there are approximately 240 investment
companies that may be considered small entities.
---------------------------------------------------------------------------

    \357\ 17 CFR 230.157.
    \358\ 17 CFR 240.0-10(a).
    \359\ 17 CFR 270.0-10(a).
---------------------------------------------------------------------------

E. Reporting, Recordkeeping and Other Compliance Requirements

    The proposed amendments to Item 402 of Regulation S-K would expand
some existing disclosure requirements, and consolidate or eliminate
others. The proposed amendments to Item 402 of Regulation S-B would
require less extensive disclosure for small business issuers than would
be required for companies complying with Item 402 of Regulation S-K.
Under the proposals, the scope and presentation of information in Item
402 of Regulation S-B would differ in a number of significant ways from
Item 402 of Regulation S-K. Item 402 of Regulation S-B would:
     Limit the named executive officers for whom disclosure
would 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.
    Item 402 of Regulation S-B would not include the following
disclosures that would be required by proposed Item 402 of Regulation
S-K:
     Compensation Discussion and Analysis;
     Information regarding two additional executives;
     The third fiscal year of Summary Compensation Table
disclosure; and
     The supplementary Grants of Performance-Based Awards Table
and Grants of All Other Equity Awards Table, the Option Exercises and
Stock Vested Table, the Retirement Plan Potential Annual Payments and
Benefits Table, and the Nonqualified Defined Contribution and Other
Deferred Compensation Plans 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 proposed amendments to Item 402 of Regulation S-B
would not result in the same level of incremental increase in costs or
burdens as would the requirements of proposed amendments to Item 402 of
Regulation S-K.
    The proposed amendments to Item 404 of Regulation S-K and S-B would
decrease the existing related person transaction disclosure requirement
that companies, including small entities, must comply with in some
respects and expand it in other respects. The proposed amendments to
Item 404 of Regulation S-B would 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 for the last three completed fiscal years.\360\
At the same time, the proposed amendments to Item 404 of Regulation S-B
would increase the scope of the related person transaction disclosure
requirement by expanding the group of related persons covered to
include additional ``immediate family members,'' and in the case of
indebtedness relationships, significant shareholders. In addition, the
proposals 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.
---------------------------------------------------------------------------

    \360\ Proposed Item 404(a) of Regulation S-K only includes
$120,000 as the threshold.
---------------------------------------------------------------------------

    Unlike the proposed amendments to Item 404 of Regulation S-K, the
proposed amendments to Item 404 of Regulations S-B would 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
proposed amendments to Item 404 of Regulation S-B and proposed Item 407
of Regulation S-B would require, depending upon the particular
circumstances of a company, more or less disclosure by changing the
disclosure requirement regarding director independence.\361\
---------------------------------------------------------------------------

    \361\ As is the case currently, proposed Item 407 of Regulation
S-B would not require compensation committee interlocks disclosure
as would proposed Item 407 of Regulation S-K. This retains a current
difference between Item 402 of Regulation S-B and Item 402 of
Regulation S-K.
---------------------------------------------------------------------------

    Similar to proposed Item 404(a) of Regulation S-K, proposed
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 would 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
current $60,000 threshold for disclosure of such interests,
transactions, and relationships.
    The proposed amendments to Item 403 of Regulation S-K and S-B would
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
would impose an additional disclosure requirement on companies,
including small entities.
    The proposed plain English rules applicable to Exchange Act reports
and proxy or information statements incorporated by reference into
Exchange Act reports would not affect the substance of disclosures that
companies must make. The proposed plain English rules would also not
impose any new recordkeeping requirements or require reporting of
additional information. Other proposed changes to our rules would
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 proposals are expected to result in increased costs to
all subject companies, large or small, as follows:
     Incremental increase in costs is expected with proposed
changes to executive and director compensation disclosure requirements;
     No 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 proposed
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 proposed 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 proposed expanded director
independence disclosure in Item 407 of Regulation S-K or S-B could be
performed by the same person or group of persons responsible for
compliance under the current rules at a minimal incremental cost.
    Our plain English proposal would 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 would be required to be
disclosed in Exchange Act reports such as annual reports on Forms 10-K
or 10-KSB. We believe the proposed rules, if adopted, would 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 proposals. 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 would take issuers 70 additional hours to
prepare the proposed disclosure in year one, 25 additional hours in
year two, and 10 additional hours in year three and thereafter, which
results in an average of 35 additional hours over the three year
period. The same estimates would 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 would file a Form 10-K, we estimate for purposes
of the Paperwork Reduction Act that it would take issuers 120
additional hours to prepare the proposed disclosure in year one, and 55
hours in year two, and 25 hours in year three and thereafter, which
results in an average of 67 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 would
be performed by the company internally at a cost of $175 per hour and
25% of the burden would be carried by outside professionals retained by
the company at a cost of $300 per hour, the average annual cost to
comply with the proposed disclosure requirements in periodic reports
and/or proxy or information statements would be approximately $7,219.
The extent to which an additional average compliance cost of
approximately $7,219 per small entity over a three year period would
constitute a significant economic impact for small entities would
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 would take business development companies 100
additional hours to prepare the proposed disclosure in year one, 50
hours in year two and 25 hours in year three and thereafter, which
results in an average of 58 hours for each business development company
to comply with the proposed compensation disclosures that would be
required on Form N-2. If we assume that 25% of the burden would be
borne internally at a cost of $175 per hour and 75% of the burden would
be carried by outside professionals retained by the company at a cost
of $300 per hour, the average annual cost for business development
companies to comply with the proposed disclosure requirements on Form
N-2 would be approximately $15,588. The extent to which an additional
average compliance cost of approximately $15,588 per small entity over
a three year period would constitute a significant economic impact for
small entities would 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.
    We encourage written comments regarding this analysis. We solicit
comments as to whether the proposed amendments could have an effect
that we have not considered. We request that commenters describe the
nature of any impact on small entities and provide empirical data to
support the extent of the impact.

F. Duplicative, Overlapping or Conflicting Federal Rules

    We believe that there are no federal rules that conflict with or
completely duplicate the proposed rules.

G. Significant Alternatives

    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 proposals, 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 proposed some different
compliance or reporting requirements for small entities and solicited
comments on others. 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 would 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 would be
necessary to promote the goal of relatively uniform presentation of
comparable information for the benefit of investors. Finally, although
we propose to exempt some information required of larger issuers, a
wholesale exemption for small entities would not be appropriate because
the proposals are designed to make uniform the application of the
disclosure and other requirements that would be amended.

    We note that small business issuers,\362\ which is a broader
category of issuers than small entities, in certain circumstances may
provide the executive compensation and relationships with related
persons and promoters disclosure specified, respectively, in Items 402
and 404 of Regulation S-B, rather than the corresponding disclosure
specified in Items 402 and 404 of Regulation S-K. We have proposed
disclosure amendments that would require clear and straightforward
disclosure of executive compensation, and relationships with related
persons and promoters, respectively. We have proposed what we believe
to be appropriate revisions to the small business issuer reporting
requirements under Regulation S-B, given that small business issuer
compensation structures are likely to be less complex than those of
registrants that are not small business issuers. Separate disclosure
requirements for small entities that would differ from the proposed
reporting requirements of Regulation S-B would not yield the disclosure
we believe to be necessary to achieve our disclosure objectives. In
particular, we believe the changes that are reflected in the proposed
amendments to Regulation S-B would balance the informational needs of
investors in smaller companies with the burdens imposed on such
companies by the disclosure requirements.
---------------------------------------------------------------------------

    \362\ 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.
---------------------------------------------------------------------------

    We have used design rather than performance standards in connection
with the proposals for two reasons. First, based on our past
experience, we believe the proposed disclosure would be more useful to
investors if there were specific informational requirements. The
proposed mandated disclosures are intended to result in more focused
and comprehensive disclosure. Second, the specific disclosure
requirements in the proposals would promote more consistent disclosure
among public companies because they would provide greater certainty as
to the scope of required disclosure. In addition, specific disclosure
requirements would improve the Commission's ability to enforce the
proposed rules. Therefore, amending the disclosure requirements of
Items 402 and 404 of Regulations S-K and Regulation S-B and Exchange
Act Form 8-K, and adopting Item 407 of Regulation S-K and S-B, appears
to be the most effective method of eliciting the disclosure.

H. Solicitation of Comment

    We encourage the submission of comments with respect to any aspect
of this Initial Regulatory Flexibility Analysis. In particular, we
request comments regarding: (i) The number of small entity issuers that
may be affected by the proposed revisions; (ii) the existence or nature
of the potential impact of the proposed revisions on small entity
issuers discussed in the analysis; and (iii) how to quantify the impact
of the proposed revisions. Commenters are asked to describe the nature
of any impact and provide empirical data supporting the extent of the
impact. Such comments will be considered in the preparation of the
Final Regulatory Flexibility Analysis, if the proposed revisions are
adopted, and will be placed in the same public file as comments on the
proposed amendments.

XII. Small Business Regulatory Enforcement Fairness Act

    For purposes of the Small Business Regulatory Enforcement Fairness
Act of 1996,\363\ a rule is ``major'' if it has resulted, or is likely
to result in:
---------------------------------------------------------------------------

    \363\ Pub. L. 104-121, Title II, 110 Stat. 857 (1996).
---------------------------------------------------------------------------

     An annual effect on the U.S. economy of $100 million or
more;
     A major increase in costs or prices for consumers or
individual industries; or
     Significant adverse effects on competition, investment or
innovation.

We request comment on whether our proposals would be a ``major rule''
for purposes of the Small Business Regulatory Enforcement Fairness Act.
We solicit comment and empirical data on: (a) the potential effect on
the U.S. economy on an annual basis; (b) any potential increase in
costs or prices for consumers or individual industries; and (c) any
potential effect on competition, investment or innovation.

XIII. Statutory Authority and Text of the Proposed Amendments

    We are proposing 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) and 23(a) of the Exchange Act, as amended, and
Sections 8, 20(a), 24(a), 30 and 38 of the Investment Company Act of
1940, as amended.

List of Subjects

17 CFR Part 228

    Reporting and recordkeeping requirements, Securities, Small
businesses.

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

    Reporting and recordkeeping requirements, Securities.

17 CFR Part 274

    Investment companies, Reporting and recordkeeping requirements,
Securities.

    For the reasons set forth above, we propose to amend Title 17,
Chapter II of the Code of Federal Regulations as follows:

PART 228--INTEGRATED DISCLOSURE SYSTEM FOR SMALL BUSINESS ISSUERS

    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.
* * * * *
    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]

    3. Remove and reserve Sec.  228.306.

Sec.  228.401  [Amended]

    4. Amend Sec.  228.401 by removing paragraphs (e), (f) and (g).
    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)(iii) of
this Item), provided, however, that no disclosure need be provided
for any executive officer, other than the PEO, whose total
compensation 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 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 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 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.
    (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 measure. A non-stock
incentive plan is an incentive plan or portion of an incentive plan
where the relevant performance measure is not based on the price of the
small business issuer's equity securities or the award does not permit
settlement by issuance of the small business issuer's equity
securities. The term incentive plan award means an award provided under
an incentive plan.
    (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
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                Non-stock
                                                                                incentive     All other
           Name and principal position               Year     Total  ($)  Salary  ($)   Bonus  ($)     Stock        Option        plan      compensation
                                                                                awards  ($)  awards  ($)  compensation       ($)
                                                                                ($)
(a)                                                     (b)          (c)          (d)          (e)          (f)          (g)           (h)           (i)
-------------------------------------------------
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 total compensation for the covered fiscal
year (column (c)). With respect to each named executive officer,
disclose the sum of all amounts reported in columns (d) through (i);
    (iv) The dollar value of base salary (cash and non-cash) earned by
the named executive officer during the fiscal year covered (column
(d));
    (v) The dollar value of bonus (cash and non-cash) earned by the
named executive officer during the fiscal year covered (column (e));

    Instructions to Item 402(b)(2)(iv) and (v). 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 be disclosed in a filing under Item 5.02(e) of Form 8-K
(17 CFR 249.308).
    2. Small business issuers need not include in the salary column
(column (d)) or bonus column (column (e)) 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, stock-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 Table corresponding to that fiscal year (e.g., stock awards
(column (f)); option awards (column (g)); all other compensation
(column (i))); or if made pursuant to a non-stock incentive plan and
therefore not reportable at grant in the Summary Compensation Table,
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.

    (vi) For awards of stock, including restricted stock, restricted
stock units, phantom stock, phantom stock units, common stock
equivalent units and other similar instruments that do not have option-
like features, the aggregate grant date fair value computed in
accordance with Financial Accounting Standards Board Statement of
Financial Accounting Standards No. 123 (revised 2004), Share-Based
Payment (``FAS 123R''), as modified or supplemented, applying the same
valuation model and assumptions as the small business issuer applies
for financial statement reporting purposes, and all earnings on any
outstanding awards (column (f));
    (vii) For awards of stock options, with or without tandem SARs,
freestanding SARs and other similar instruments with option-like
features (including awards that subsequently have been transferred),
the aggregate grant date fair value computed in accordance with FAS
123R applying the same valuation model and assumptions as the small
business issuer applies for financial statement reporting purposes, and
all earnings on any outstanding awards (column (g));

    Instructions to Item 402(b)(2)(vi) and (vii). 1. For awards
reported in columns (f) and (g), 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
402.
    2. If at any time during the last completed fiscal year, the
small business issuer has adjusted or amended the exercise price of
stock 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 (g), the total
fair value of options or SARs as so repriced or modified, measured
as of the repricing or modification date.
    3. All earnings on outstanding awards must be identified and
quantified in a footnote to column (f) or (g), as applicable,
whether the earnings were paid during the fiscal year, payable
during the period but deferred, or payable by their terms at a later
date.

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

    Instructions to Item 402(b)(2)(viii). 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-stock incentive plan compensation must be
identified and quantified in a footnote to column (h), 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.

    (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 (d)-(h) must be reported in
this column. 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 earnings on compensation that is deferred on a basis that
is not tax-qualified, including such earnings on non-qualified defined
contribution plans;
    (C) All ``gross-ups'' or other amounts reimbursed during the fiscal
year for the payment of taxes;
    (D) 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 computed in accordance with FAS 123R
applying the same valuation model and assumptions as the small business
issuer applies for financial statement reporting purposes;
    (E) 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;
    (F) Small business issuer contributions or other allocations to
vested and unvested defined contribution plans;
    (G) The aggregate increase in actuarial value to the named
executive officer of all defined benefit and actuarial pension plans
(including supplemental plans) accrued during the small business
issuer's covered fiscal year; and
    (H) 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. ?>

    Instructions to Item 402(b)(2)(ix). 1. Incentive plan awards and
earnings and earnings on restricted stock, options, SARs and similar
awards are required to be reported elsewhere as provided herein.
These

amounts and amounts received on exercise of options and SARs are not
reportable as All Other Compensation in column (i).
    2. Benefits paid pursuant to defined benefit and actuarial plans
are reportable as All Other Compensation in column (i) if paid to
the named executive officer during the period covered by the Table.
Otherwise 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)(C) 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 and its subsidiaries.
    5. Regarding paragraph (b)(2)(ix)(B) of this Item, 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. Footnote disclosure may be provided
disclosing the portion of any earnings that the registrant considers
to be paid at an above-market rate, provided that the footnote
explains the small business issuer's criteria for determining the
portion considered to be above-market.
    6. The disclosure required pursuant to paragraph (b)(2)(ix)(G)
of this Item applies to 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 and supplemental employee retirement plans,
but excluding tax-qualified defined contribution plans and
nonqualified defined contribution plans.
    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), 78o(d)) at any time during that year, except that the small
business issuer will be required to provide information for 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. 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. Amounts deferred at the election of a named executive officer
or at the direction of the small business issuer, 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. The amount
so deferred must be disclosed in a footnote to the applicable
column.

    (c) Narrative disclosure to summary compensation table. (1) 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:
    (i) The material terms of each named executive officer's employment
agreement or arrangement, whether written or unwritten.
    (ii) If at any time during the last fiscal year, any outstanding
option, SAR 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.
    (iii) 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
(h) 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.
    (iv) The material terms of each grant, including but not limited to
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.
    (v) The material terms of any non-option and non-SAR 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.
    (vi) The assumptions underlying any determination of an increase in
the actuarial value of defined benefit and actuarial plans and the
method of calculating earnings on deferred compensation plans including
defined contribution plans.
    (vii) 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 paragraphs (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.
    (2) For up to three employees who were not executive officers
during the last completed fiscal year and whose total compensation for
the last completed fiscal year was greater than that of any named
executive officers, disclose each of such employee's total compensation
for that year and describe their job positions.
    (d) Outstanding equity awards at fiscal year-end table. (1) Provide
the information specified in paragraph (d)(2) of this Item, concerning
the number and value of unexercised options, SARs and similar
instruments and nonvested stock (including restricted stock, restricted
stock units or other similar instruments) and incentive plan awards for
each named executive officer outstanding as of the end of the small
business issuer's last completed fiscal year on an aggregated basis in
the following tabular format:

                                  Outstanding Equity Awards at Fiscal Year-end
----------------------------------------------------------------------------------------------------------------
                                                                                Incentive
                                                                                Incentive      plans:
                                  Number of     In-the-money   Number of      Market       plans:     market or
                                  securities     amount of     shares or     value of    number of      payout
                                  underlying    unexercised     units of    shares or    nonvested     value of
             Name                unexercised       option      stock held    units of     shares,     nonvested
                                   options      ()    that have    stock held    units or     shares,
                                 ()    exercisable/   not vested   that have      other       units or
                                 exercisable/  unexercisable  ()   not vested  rights held     other
                                unexercisable                                  ($)        (< greek-   rights held
                                                                                i>)           ($)
(a)                                      (b)            (c)           (d)          (e)          (f)          (g)
-------------------------------
PEO...........................
A.............................
B.............................
----------------------------------------------------------------------------------------------------------------

    (2) The Table shall include:
    (i) The name of the executive officer (column (a));
    (ii) The total number of securities underlying unexercised options,
SARs and similar instruments with option-like features held at the end
of the last completed fiscal year, including awards that have been
transferred, separately identifying the exercisable and unexercisable
options, SARs and similar instruments (column (b));
    (iii) The aggregate in-the-money amount of unexercised options,
SARs and similar instruments with option-like features held at the end
of the fiscal year, including awards that have been transferred,
separately identifying the exercisable and unexercisable options, SARs
and similar instruments (column (c));
    (iv) The total number of nonvested shares of stock (including
restricted stock, restricted stock units or similar instruments that do
not have option-like features) held at the end of the fiscal year
(column (d));
    (v) The aggregate market value of nonvested shares of stock
(including restricted stock, restricted stock units or similar
instruments that do not have option-like features) held at the end of
the fiscal year (column (e));
    (vi) The total number of nonvested shares, units or other rights
awarded under any incentive plan, and, if applicable the number of
shares underlying any such unit or right, held at the end of the fiscal
year (column (f)); and
    (vii) The aggregate market or payout value of nonvested shares,
units or other rights awarded under any incentive plan held at the end
of the fiscal year (column (g)).

    Instructions to Item 402(d)(2). 1. In the title of the table,
specify the applicable fiscal year of the small business issuer.
    2. Options, SARs or similar instruments are in-the-money if the
market price of the underlying securities exceeds the exercise or
base price of the option, SAR or similar instrument. Compute the
amounts in column (c) by determining the difference between the
market price at fiscal year-end of the securities underlying the
options, SARs or similar instruments and the exercise or base price
of the options, SARs or similar instruments.
    3. The expiration dates of options, SARs and similar instruments
held at fiscal year-end, separately identifying the exercisable and
unexercisable options, SARs and similar instruments must be
disclosed by footnote to column (b). If the expiration date of an
option, SAR or similar instrument held at fiscal year-end
subsequently has occurred, state whether it was exercised or expired
unexercised. The vesting dates of restricted stock shares and
similar instruments and incentive plan awards held at fiscal-year
end must be disclosed by footnotes to columns (d) and (f),
respectively.
    4. Compute the market values of stock (including restricted
stock, restricted stock units or similar instruments) holdings
reported in column (e) and equity-based incentive plan awards
reported in column (g) 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 restricted stock or incentive plan
award holdings, respectively.

    (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 employee 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
----------------------------------------------------------------------------------------------------------------
                                                                                Non-stock
                                               Fees earned                              incentive     All other
              Name                 Total  ($)   or paid in     Stock        Option        plan      compensation
                                                cash  ($)   awards  ($)  awards  ($)  compensation       ($)
                                                                                ($)
(a)                                       (b)          (c)          (d)          (e)           (f)           (g)
---------------------------------
A...............................
B...............................
C...............................

D...............................
E...............................
----------------------------------------------------------------------------------------------------------------

    (2) The Table shall include:
    (i) The name of each director, unless such director is also a named
executive officer under Item 402(a) and his or her compensation for
service as a director is fully reflected in the Summary Compensation
Table pursuant to Item 402(b) and otherwise as required pursuant to
Items 402(c) and (e) (column (a));
    (ii) The dollar value of total compensation for the covered fiscal
year (column (b)). With respect to each director, disclose the sum of
all amounts reported in columns (c) through (g);
    (iii) 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 (c));
    (iv) For awards of stock, including restricted stock, restricted
stock units, phantom stock, phantom stock units, common stock
equivalent units or other similar instruments that do not have option-
like features, the aggregate grant date fair value computed in
accordance with FAS 123R, applying the same valuation model and
assumptions as the small business issuer applies for financial
statement reporting purposes, and all earnings on any outstanding
awards (column (d));
    (v) For awards of stock options, with or without tandem SARs,
freestanding SARs and other similar instruments with option-like
features (including awards that subsequently have been transferred),
the aggregate grant date fair value computed in accordance with FAS
123R applying the same valuation model and assumptions as the small
business issuer applies for financial statement reporting purposes, and
all earnings on any outstanding awards (column (e));

    Instruction to Item 402(f)(2)(iv) and (v). Disclose, for each
director, by footnote to the appropriate column, the outstanding
equity awards at fiscal year end as would be required if the tabular
presentation for named executive officers specified in paragraph (d)
of this Item were required for directors.

    (vi) The dollar value of all earnings for services performed during
the fiscal year pursuant to non-stock-based incentive plans as defined
in paragraph (a)(5)(iii) of this Item, and all earnings on any
outstanding awards (column (f)); and
    (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
for the last completed fiscal year that is not properly reportable in
columns (c)-(f) must be reported in this column and must be identified
and quantified in a footnote if it is deemed material in accordance
with paragraph (c)(6) of this Item. Such compensation must include, but
is not limited to:
    (A) All perquisites and other personal benefits, or property,
unless the aggregate amount of such compensation is less than $10,000;
    (B) All earnings on compensation that is deferred on a basis that
is not tax-qualified;
    (C) All amounts reimbursed during the fiscal year for the payment
of taxes;
    (D) 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 computed in accordance with FAS 123R
applying the same valuation model and assumptions as the small business
issuer applies for financial statement reporting purposes;
    (E) The amount paid or accrued to any director pursuant to a plan
or arrangement in connection with:
    (1) The resignation, retirement or any other termination of such
director; or
    (2) A change in control of the small business issuer;
    (F) The aggregate increase in actuarial value to the director of
all defined benefit and actuarial pension plans (including supplemental
plans) accrued during the small business issuer's covered fiscal year;
    (G) Small business issuer contributions or other allocations to
vested and unvested defined contribution plans;
    (H) Consulting fees earned from, or paid or payable by the small
business issuer and/or its subsidiaries (including joint ventures);
    (I) The annual costs of payments and promises of payments pursuant
to director legacy programs and similar charitable award programs; and
    (J) 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 director.

    Instruction to Item 402(f)(2)(vii). Programs in which small
business issuers agree to make donations to one or more charitable
institutions in a director's name, payable by the small business
issuer currently or upon a designated event, such as the retirement
or death of the director, are charitable awards programs or director
legacy programs for purposes of the disclosure required by paragraph
(f)(2)(vii)(I) of this Item. Provide footnote disclosure of the
total dollar amount and other material terms of each such program
for which tabular disclosure is provided.
    Instruction to Item 402(f)(2). Two or more directors may be
grouped in a single row in the table if all of their elements of
compensation are identical. The names of the directors for whom
disclosure is presented on a group basis should be clear from the
table.

    (3) Narrative to director compensation table. Provide a narrative
description of any factors necessary to an understanding of the
director compensation disclosed in this Table. While material factors
will vary depending upon the facts, examples of such factors may
include, in given cases, among other things:
    (i) A description of standard compensation arrangements (such as
fees for retainer, committee service, service as chairman of the board
or a committee, and meeting attendance); and
    (ii) Whether any director has a different compensation arrangement,
identifying that director and describing the terms of that arrangement.

    Instruction to Item 402(f). In addition to the Instruction to
paragraph (f)(2)(vii) of this Item, the following apply equally to
paragraph (f) of this Item: Instructions 2 and 3 to paragraph (b) of
this Item; the Instructions to paragraphs (b)(2)(iv) and (v) of this
Item; the Instructions to paragraphs (b)(2)(vi) and (vii) of this
Item; the Instructions to paragraph (b)(2)(viii) of this Item; the
Instructions to paragraph (b)(2)(ix) of this Item; and paragraph
(c)(6) of this Item. These Instructions apply to the columns in the
Director Compensation Table that are analogous to the columns in the
Summary Compensation Table to which they refer and to disclosures
under paragraph (f) of this Item that correspond to analogous
disclosures provided for in paragraph (b) of this Item to which they
refer.

    6. Amend Sec.  228.403 by revising paragraph (b) to read as
follows:

Sec.  228.403  (Item 403) Security Ownership of Certain Beneficial
Owners and Management.

* * * * *
    (b) Security ownership of management. Furnish the following
information, as of the most recent practicable date, in substantially
the tabular form indicated, as to each class of equity securities of
the small business issuer or any of its parents or subsidiaries,
including directors' qualifying shares, beneficially owned by all
directors and nominees, naming them, each of the named executive
officers as defined in Item 402(a)(2) (Sec.  228.402(a)(2)), and
directors and executive officers of the small business issuer as a
group, without naming them. Show in column (3) the total number of
shares beneficially owned and in column (4) the percent of the class so
owned. Of the number of shares shown in column (3), indicate, by
footnote the amount of shares that are pledged as security and the
amount of shares with respect to which such persons have the right to
acquire beneficial ownership as specified in Sec.  240.13d-3(d)(1) of
this chapter.

----------------------------------------------------------------------------------------------------------------
                                                                  (3) Amount of shares
          (1) Title of class            (2) Name of beneficial       and nature of         (4) Percent of class
                                                owner             beneficial ownership
----------------------------------------------------------------------------------------------------------------

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

* * * * *
    7. Revise Sec.  228.404 to read as follows:

Sec.  228.404  (Item 404) Transactions with related persons and
promoters.

    (a) Transactions with related persons. Describe any transaction
during the last two years, or any currently proposed transaction, in
which the small business issuer was, or is to be, a participant and the
amount involved exceeds the lesser of $120,000 or one percent of the
average of the small business issuer's total assets for the last three
completed fiscal years and in which any related person had, or will
have, a direct or indirect material interest. Disclose the following
information regarding the transaction:
    (1) The name of the related person and the basis on which the
person is a related person.
    (2) The related person's interest in the transaction with the small
business issuer, including the related person's position(s) or
relationship(s) with, or ownership in, a firm, corporation, or other
entity that is a party to, or has an interest in, the transaction.
    (3) The approximate dollar value of the amount involved in each
transaction and of the amount of the related person's interest in each
transaction each of which shall be computed without regard to the
amount of profit or loss.
    (4) In the case of indebtedness, disclosure of the amount involved
in the transaction shall include the largest aggregate amount of
principal outstanding during the last two years, the amount thereof
outstanding as of the latest practicable date, the amount of principal
paid during the periods for which disclosure is provided, the amount of
interest paid during the period for which disclosure is provided, and
the rate or amount of interest payable on the indebtedness.
    (5) Any other information regarding the transaction or the related
person in the context of the transaction that is material to investors
in light of the circumstances of the particular transaction.

    Instructions to Item 404(a). 1. For the purposes of paragraph
(a) of this Item, the term related person means:
    a. Any person who was in any of the following categories at any
time during the specified period for which disclosure under
paragraph (a) of this Item is required:
    i. Any director or executive officer of the small business
issuer;
    ii. Any nominee for director, when the information called for by
paragraph (a) of this Item is being presented in a proxy or
information statement relating to the election of that nominee for
director; or
    iii. Any immediate family member of any of the foregoing
persons, which means any child, stepchild, parent, stepparent,
spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-
in-law, brother-in-law, or sister-in-law, and any person (other than
a tenant or employee) sharing the household of a related person
identified in paragraph 1.a.i. or 1.a.ii. of this instruction; and
    b. Any person who was in any of the following categories when a
transaction in which such person had a direct or indirect material
interest occurred or existed:
    i. A security holder covered by Item 403(a) (Sec.  228.403(a));
or
    ii. Any immediate family member of any such security holder,
which means any child, stepchild, parent, stepparent, spouse,
sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law,
brother-in-law, or sister-in-law, of such security holder and any
person (other than a tenant or employee) sharing the household of
such security holder.
    2. For purposes of paragraph (a) of this Item, a transaction
includes, but is not limited to, any financial transaction,
arrangement or relationship (including any indebtedness or guarantee
of indebtedness) or any series of similar transactions, arrangements
or relationships.
    3. The amount involved in the transaction shall be computed by
determining the dollar value of the amount involved in the
transaction in question, which shall include:
    a. In the case of any lease or other transaction providing for
periodic payments or installments, the aggregate amount of all
periodic payments or installments due on or after the beginning of
the small business issuer's last fiscal year, including any required
or optional payments due during or at the conclusion of the lease.
    b. In the case of indebtedness, the largest aggregate amount of
all indebtedness outstanding at any time since the beginning of the
small business issuer's last fiscal year and all amounts of interest
payable on it during the last fiscal year.
    4. In the case of transactions involving indebtedness, the
following items of indebtedness may be excluded from the calculation
of the amount of indebtedness and need not be disclosed: amounts due
from the related person for purchases of goods and services subject
to usual trade terms, for ordinary business travel and expense
payments and for other transactions in the ordinary course of
business.
    5. Disclosure of an employment relationship or transaction
involving an executive officer and any related compensation solely
resulting from that employment relationship or transaction need not
be provided pursuant to paragraph (a) of this Item if:
    a. The compensation arising from the relationship or transaction
is reported pursuant to Item 402 (Sec.  228.402); or
    b. The executive officer is not an immediate family member of a
related person (as specified in Instruction 1. to paragraph (a) of
this Item) and such compensation would have been reported under Item
402 (Sec.  228.402) as compensation earned for services to the small
business issuer if the

executive officer was a named executive officer as that term is
defined in Item 402(a)(2) (Sec.  228.402(a)(2)), and such
compensation had been approved as such by the compensation committee
of the board of directors (or group of independent directors
performing a similar function) of the small business issuer.
    6. Disclosure of compensation to a director need not be provided
pursuant to paragraph (a) of this Item if the compensation is
reportable pursuant to Item 402(f) (Sec.  228.402(f)).
    7. In the case of a transaction involving indebtedness, if the
lender is a bank, savings and loan association, or broker-dealer
extending credit under Federal Reserve Regulation T (12 CFR part
220) and the loans are not disclosed as nonaccrual, past due,
restructured or potential problems (see Item III.C.1. and 2. of
Industry Guide 3, Statistical Disclosure by Bank Holding Companies
(17 CFR 229.802(c))), disclosure under paragraph (a) of this Item
may consist of a statement, if such is the case, that the loans to
such persons:
    a. Were made in the ordinary course of business;
    b. Were made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
loans with persons not related to the lender; and
    c. Did not involve more than the normal risk of collectibility
or present other unfavorable features.
    8. A person who has a position or relationship with a firm,
corporation, or other entity that engages in a transaction with the
small business issuer shall not be deemed to have an indirect
``material'' interest within the meaning of paragraph (a) of this
Item where:
    a. The interest arises only:
    i. From such person's position as a director of another
corporation or organization which is a party to the transaction; or
    ii. From the direct or indirect ownership by such person and all
other persons specified in Instruction 1 to paragraph (a) of this
Item, in the aggregate, of less than a ten percent equity interest
in another person (other than a partnership) which is a party to the
transaction; or
    iii. From both such position and ownership; or
    b. The interest arises only from such person's position as a
limited partner in a partnership in which the person and all other
persons specified in Instruction 1 to paragraph (a) of this Item,
have an interest of less than ten percent, and the person is not a
general partner of and does not hold another position in the
partnership.
    9. Include information for any material underwriting discounts
and commissions upon the sale of securities by the small business
issuer where any of the specified persons was or is to be a
principal underwriter or is a controlling person or member of a firm
that was or is to be a principal underwriter.

    (b) Parents. List all parents of the small business issuer showing
the basis of control and as to each parent, the percentage of voting
securities owned or other basis of control by its immediate parent, if
any.
    (c) Promoters. (1) Small business issuers that had a promoter at
any time during the past five fiscal years shall:
    (i) State the names of the promoter(s), the nature and amount of
anything of value (including money, property, contracts, options or
rights of any kind) received or to be received by each promoter,
directly or indirectly, from the small business issuer and the nature
and amount of any assets, services or other consideration therefor
received or to be received by the small business issuer; and
    (ii) As to any assets acquired or to be acquired by the small
business issuer from a promoter, state the amount at which the assets
were acquired or are to be acquired and the principle followed or to be
followed in determining such amount, and identify the persons making
the determination and their relationship, if any, with the small
business issuer or any promoter. If the assets were acquired by the
promoter within two years prior to their transfer to the small business
issuer, also state the cost thereof to the promoter.
    (2) Small business issuers shall provide the disclosure required by
paragraphs (c)(1)(i) and (c)(1)(ii) of this Item as to any person who
acquired control of a small business issuer that is a shell company, or
any person that is part of a group, consisting of two or more persons
that agree to act together for the purpose of acquiring, holding,
voting or disposing of equity securities of a small business issuer,
that acquired control of a small business issuer that is a shell
company.
    8. Add Sec.  228.407 to read as follows:

Sec.  228.407  (Item 407) Corporate governance.

    (a) Director independence. Identify each director and, when the
disclosure called for by this paragraph is being presented in a proxy