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SEC Wants Simpler Language Used in Investment Roll-Ups

June 14, 1991

WASHINGTON (AP) _ The Securities and Exchange Commission is proposing tougher disclosure language for limited partnership consolidations known as ″roll-ups.″

In addition to making it easier for limited partnership investors to understand key documents, the SEC also proposed a new rule that would make easier for them to communicate with other shareholders when they don’t like what they read.

Roll-ups are shares in limited partnerships repackaged into a new financial product and traded publicly like a stock. They have come under congressional scrutiny because of incidents in which the value of a partnership is diluted to compensate for other bad investments.

While honoring the letter of securities laws by disclosing all pertinent information, say critics, roll-up prospectuses often violate the spirit of the law by doing so in hefty, often incomprehensible documents.

The proposal would require a summary of the planned roll-up and a clear explanation of the risks involved.

SEC Chairman Richard Breeden said the rule change, if approved, ″should help investors understand the transaction, both its costs and benefits, without the need to read the whole prospectus. We simply will not tolerate attempts to bury important information deep inside unreadable documents.″

The SEC also proposed revamping proxy rules to make it easier for all shareholders, including limited partners, to communicate with each other without having to go through a costly and time-consuming process.

A proxy is a shareholders’ absentee ballot at a company’s annual shareholders’ meeting.

Companies registered with the SEC must submit proxy statements to shareholders and the agency before the annual meeting containing information about the board of directors, how much they’re paid and any proposals to be voted on by the shareholders.

Shareholder rights advocates have complained that SEC rules have made it difficult and expensive for dissident shareholders to buck the corporate system and put their own proposals before fellow shareholders.

Last year a number of groups, including the United Shareholders Associations, California Public Employees’ Retirement System and American Bar Association asked the SEC to overhaul the proxy voting system.

Ralph Whitworth, president of the United Shareholders, hailed Thursday’s SEC vote as ″a first positive step. But we’re anxious for the commission to move on to more fundmental problems in the proxy voting system.″

Linda Quinn, head of the SEC’s Division of Corporation Finance, said additional proposals will be submitted to the commission over the next 12 months.

Thursday’s proposed changes would make it easier for shareholders to talk to each other about company proposals and avoid requirements for filing and SEC review of communications with more than 10 shareholders.

The rule change also will make it easier to get access to a company’s shareholder list, a key to winning support for a proposal to be voted on at a company’s annual meeting.

Since 1980, about $130 billion has been invested in limited partnerships, largely in real estate or oil and gas drilling.

A bill to protect small investors from roll-up abuses is pending in the House, although Breeden noted that there has not been a single roll-up reported since October.

The American Association of Limited Partners complained the SEC was advancing only ″a handful of weak half-measures.″

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