November 15, 2007 LAWFUEL – Legal Newswire:
1. Enhanced Disclosure for Mutual Funds
The Commission will consider whether to publish for comment a rule proposal that is intended to improve mutual fund disclosure. The proposed rules would require that all mutual fund investors receive a clear, concise summary of key information needed to make an informed investment decision. The proposed rules would also encourage funds to harness the power of the Internet to allow investors to choose the format in which they receive more detailed information and to provide that information in a more user-friendly format than is available today. The proposed rules are intended to enable investors to use and compare mutual fund information more effectively.
The proposal that the Commission will consider includes the following.
Summary Information at the Front of the Prospectus. The proposal would amend Form N-1A, the form used by mutual funds to register under the Investment Company Act of 1940 and to offer securities under the Securities Act of 1933, by requiring every mutual fund to include key information in plain English in a standardized order at the front of the mutual fund statutory prospectus. Like the risk/return summary that is currently included at the front of every mutual fund prospectus, this summary would include a fund’s investment objectives and strategies, risks, and costs. It also would include brief information regarding top ten portfolio holdings, investment advisers and portfolio managers, purchase and sale procedures and tax consequences, and financial intermediary compensation. The proposed amendments would require that the summary information be presented separately for each fund covered by a multiple fund prospectus. This requirement is intended to assist investors in finding important information regarding the particular fund in which they are interested.
New Prospectus Delivery Option for Mutual Fund Securities. The proposed rule would permit a person to satisfy its mutual fund prospectus delivery obligations under the securities laws by sending or giving key information to investors in the form of a “summary prospectus” and providing the summary prospectus, statutory prospectus, shareholder reports, and other information on an Internet Web site in a format that enhances investors’ ability to effectively use the more detailed information in those documents. In addition, the statutory prospectus and other information would be provided in paper to any investor who prefers to review more detailed information in that format. The summary prospectus would contain the same information in the same order as the required summary at the front of the statutory prospectus.
The proposed rule would require that the Internet version of the summary prospectus and statutory prospectus be presented in a user-friendly format that permits investors, financial intermediaries, analysts, and other users to move readily back and forth between related information in the summary prospectus and the statutory prospectus. This is intended to allow investors and others to efficiently access the particular information in which they are interested. The proposed rule would also require that persons accessing the Internet information be able to permanently retain an electronic version of the summary prospectus, statutory prospectus, and other information. The proposal is intended to take advantage of technological developments and the expanded use of the Internet in order to provide investors with information that is easier to use and more readily accessible, while retaining the comprehensive quality of the information that is available to investors today.
2. Acceptance of Foreign Private Issuer Financial Statements Prepared in Accordance with International Financial Reporting Standards without Reconciliation to U.S. GAAP
The Commission will consider whether to adopt amendments to its forms and rules to accept, in filings from foreign private issuers, financial statements that comply with International Financial Reporting Statements (IFRS) as issued by the International Accounting Standards Board (IASB) without reconciliation to U.S. GAAP. If adopted, the amendments will
apply to foreign private issuers that file financial statements that comply with IFRS as issued by the IASB; and
allow those issuers to file those financial statements in their annual filings and registration statements without reconciliation to U.S. GAAP.
3. Smaller Reporting Company Regulatory Relief and Simplification
The Commission will consider whether to adopt final rules that would
replace the current “small business issuer” category with a new expanded category of “smaller reporting companies” having less than $75 million in public equity float or, if a company does not have a calculable public equity float, having revenues of less than $50 million in the last fiscal year;
expand eligibility for the Commission’s scaled disclosure and reporting requirements for smaller companies by allowing the newly defined category of smaller reporting companies to use the scaled disclosure requirements;
move 12 non-financial scaled disclosure item requirements from Regulation
S-B into Regulation S-K (the scaled disclosure requirements would be available only to smaller reporting companies);
move the scaled financial statement requirements in Item 310 of Regulation S-B into new Article 8 of Regulation S-X, and amend these requirements to provide a scaled disclosure option for smaller reporting companies, requiring two years of balance sheet data instead of one year;
permit smaller reporting companies to elect to comply with scaled financial disclosure and non-financial disclosure on an item-by-item or “a la carte” basis;
eliminate our current “SB” forms, but allow a phase-out period for current small business issuers transitioning to smaller reporting company status; and
permit all foreign companies to qualify as “smaller reporting companies” if they choose to file on domestic company forms and provide financial statements prepared in accordance with U.S. Generally Accepted Accounting Principles.
4. Revisions to Securities Act Rules 144 and 145
The Commission will consider whether to adopt amendments to Rule 144 that would
· shorten the holding period for restricted securities of reporting companies to six months;
· substantially simplify Rule 144 compliance for non-affiliates by allowing non-affiliates of reporting companies to freely resell restricted securities after satisfying a six-month holding period (subject only to the Rule 144(c) public information requirement until the securities have been held for one year) and by allowing non-affiliates of non-reporting companies to freely resell restricted securities after satisfying a 12-month holding period;
· for affiliates’ sales, revise the manner of sale requirements for equity securities, eliminate them for debt securities, and relax the volume limitations for debt securities;
· for affiliates’ sales, raise the thresholds that trigger Form 144 filing requirements from 500 shares or $10,000 to 5,000 shares or $50,000;
· simplify and streamline the Preliminary Note to and other parts of Rule 144; and
· codify certain staff interpretations relating to Rule 144.
The amendments to Rule 145 would, if adopted,
· eliminate the presumptive underwriter provision except with respect to transactions involving blank check or shell companies; and
· revise the resale provisions of Rule 145(d).
5. Exemption of Compensatory Employee Stock Options from Registration under Section 12(g) of the Exchange Act
The Commission will consider adoption of two amendments to Exchange Act Rule 12h-1 that would
· provide an exemption for private non-reporting issuers from Exchange Act Section 12(g) registration for compensatory employee stock options issued under employee stock option plans; and
· provide an exemption for issuers that are required to file reports under the Exchange Act pursuant to Exchange Act Section 13 or Section 15(d) from Section 12(g) registration for compensatory employee stock options.
These exemptions would apply only to an issuer’s compensatory employee stock options and would not extend to the class of securities underlying those options.
