report on the results of its monitoring activities and reconcile those results with the objectives the Commission seeks to further. For rules that have been in place for a reasonable period of time, the discussion could describe why the rule was adopted, how the rule was monitored, and positive and negative consequences of the rule as evidenced by the monitoring. For new rules adopted during the fiscal year being reported on, the Commission could identify the perceived positive and negative consequences and report on whether or not it is going to monitor the rule and if so, how. It will, of course, not be possible to do this for every new rule or form or amendment to an existing rule or form. The Commission will have to identify those which potentially will have the most impact on the disclosure system. It is The Committee would like to apply the foregoing proposals as part of a solution to an often-made criticism of one of the Commission's rule-making practices. suggested that sometimes the Commission's disclosure requirements are applicable to registrants for whom they have no meaning, and that disclosures material to one industry should not be required for other industries as to which they are not applicable. This problem could be substantially alleviated and disclosure documents made far more useful if a different, more flexible, approach were taken to establishing disclosure requirements. It is proposed that the Commission continue and expand the approach taken in adopting Guide 55, relating to interests in oil and gas programs, Guide 60, relating to preparation of registration statements for interests in real estate limited partnerships, and Guide 61, relating to statistical disclosures for bank holding companies, by adopting additional disclosure guides applicable to particular industries. 8/ This approach has the following advantages: 1. The extent to which registrants would have to comply with disclosure requirements which are not meaningful to their situation would be minimized; 8/ This recommendation was forwarded to the Commission on November 9, 1976 accompanied by a memorandum from the Division of Corporation Finance, requesting authorization to develop on a limited, experimental basis disclosure guidelines for four industries: Class I railroads, casualty insurance companies, scheduled airlines and one other industry at that time undetermined. The Division requested authorization to obtain input from users and preparers of information. The memorandum was approved. The first step toward implementation occurred on April 28, 1977, when the Commission announced in Securities Act Release No. 5824 that it was coinsidering the formulation of rules and guides with respect to the form and content of railroad industry disclosure requirements and requested public input. Securities Act Release No. 5827 (May 19, 1977) announced that guidelines would be developed for the disclosure to be included in registration statements and reports filed by electric and gas utility companies. 2. Disclosures of vital importance to understanding a company in a particular industry would be secured; and 3. The Commission's staff would have a ready reference for a particular industry, thereby avoiding any charge that the staff had failed to apply uniform disclosure requirements to all registrants in an industry. Applying some of the recommendations set forth in Section B above, the Committee recommends the following process for affecting this reform. The Division of Corporation Finance might wish to supplement the Commission's current rule-making practices to secure appropriate input from the users and preparers of information in the specific industry. For example, in addition to issuing a release requesting general comment, the Division might request the Financial Executives Institute and the Financial Analysts Federation (and other representative professional and industry trade associations) to form industry committees to prepare a joint recommendation to the Division. On a continuing basis, these committees might monitor the effectiveness of the industry guides and recommend revisions. An experimental approach for a few industries would permit the Division to explore which mechanisms for securing input from users and preparers are most successful, thus enabling the Commission to evaluate the results before committing large amounts of resources. CHAPTER X SOFT INFORMATION RECOMMENDATIONS: Regarding forward looking information: The Commission should encourage issuers to publish forward-looking and analytical information. Experimental programs to encourage certain types of information such as projections and futureoriented analysis should be initiated. Monitoring of these programs is encouraged for the purpose of determining the usefulness of the information to investors, the costs to issuers, and the responsiveness of issuers to user needs. The SEC staff review process should be coordinated to assure proper implementation of Commission policy and uniform treatment of issuers. A safe harbor rule should be adopted to provide maximum incentive for disclosure of management projections and other forward-looking information, whether or not filed with the Commission. The purpose of the safe harbor rule would be to place the burden of proof on the person seeking to establish liability for the disclosure of a management projection, management's analysis of financial information, plans and objectives, and other items of forwardlooking and analytical information. The safe harbor rule should be applicable to all registrants and should provide protection from li |