2854 Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Rules and Regulations

1Rules 13d–1, 13d–2, 13d–3, and 13d–7 [17 CFR

240.13d–1, 240.13d–2, 240.13d–3, and 240.13d–7].

2 K 17 CFR 240.13d–101 and 240.240.13d–102.

3 17 CFR 240.16a–1.

4See fn. 9, infra.

5Schedules 13D and 13G are not required to be

filed electronically with respect to securities of

foreign private issuers. See Note to paragraph (c)(4)

to 17 CFR 232.901.

6Exchange Act Release No. 37403 (July 7, 1996)

(‘‘Reproposing Release’’). The comment letters, as

well as a summary of the comments, are available

from the Commission’s Public Reference Room (File

No. S7–16–96).

7The institutional investors include a broker or

dealer registered under Section 15(b) of the

Exchange Act [15 U.S.C. 78o(b)], a bank as defined

in Section 3(a)(6) of the Exchange Act [15 U.S.C.

78c(a)(6)], an insurance company as defined in

Section 3(a)(19) of the Exchange Act [15 U.S.C.

78c(a)(19)], an investment company registered

under Section 8 of the Investment Company Act of

1940 [15 U.S.C. 80a–8], an investment adviser

registered under Section 203 of the Investment

Advisers Act of 1940 [15 U.S.C. 80b–1 et seq.], an

employee benefit plan or pension fund that is

subject to the provisions of the Employee

Retirement Income Security Act of 1974 [codified

principally in 29 U.S.C. 1001–1461], and related

holding companies and groups (collectively,

‘‘institutional investors’’). Rule 13d–1(b)(1)(ii) [17

CFR 240.13d–1(b)(1)(ii)].

8The term ‘‘Exempt Investors’’ refers to persons

holding more than five percent of a class of subject

securities at the end of the calendar year, but who

have not made an acquisition subject to Section

13(d). For example, persons who acquire all their

securities prior to the issuer registering the subject

securities under the Exchange Act are not subject

to Section 13(d) and persons who acquire not more

than two percent of a class of subject securities

within a 12-month period are exempted from

Section 13(d) by Section 13(d)(6)(B), but in both

cases are subject to Section 13(g). Section

13(d)(6)(A) exempts acquisitions of subject

securities acquired in a stock-for-stock exchange

which is registered under the Securities Act of

1933.

9The term ‘‘Passive Investors’’ is used in this

release to refer to shareholders beneficially owning

more than five percent of the class of subject

securities and who can certify that the subject

securities were not acquired or held for the purpose

of and do not have the effect of changing or

influencing the control of the issuer of such

securities and were not acquired in connection with

or as a participant in any transaction having such

purpose or effect. See Rule 13d–1(c) and revised

Item 10 of Schedule 13G. Shareholders that are

unable to certify to this effect are considered to

have, for purposes of this release, a ‘‘disqualifying

purpose or effect’’.

10Rule 13d–1(c).

SECURITIES AND EXCHANGE

COMMISSION

17 CFR Part 240

[Release No. 34–39538; File No. S7–16–96;

International Series—1111]

RIN 3235–AG81

Amendments to Beneficial Ownership

Reporting Requirements

AGENCY: Securities and Exchange

Commission.

ACTION: Final rule.

SUMMARY: The Securities and Exchange

Commission is today adopting

amendments to its rules relating to the

reporting of beneficial ownership in

publicly held companies. These

amendments make the short-form

Schedule 13G available, in lieu of

Schedule 13D, to all investors

beneficially owning less than 20 percent

of the outstanding class that have not

acquired and do not hold the securities

for the purpose of or with the effect of

changing or influencing the control of

the issuer of the securities. The

purposes of the amendments are to

improve the effectiveness of the

beneficial ownership reporting scheme

and to reduce the reporting obligations

of passive investors.

EFFECTIVE DATE: The amendments are

effective February 17, 1998.

FOR FURTHER INFORMATION CONTACT:

Dennis O. Garris, Chief, Office of

Mergers and Acquisitions, Division of

Corporation Finance, Securities and

Exchange Commission at (202) 942–

2920, 450 Fifth Street N.W.,

Washington, D.C. 20549.

SUPPLEMENTARY INFORMATION: The

Securities and Exchange Commission

(‘‘Commission’’) is adopting

amendments to Regulation 13D–G 1 and

Schedules 13D and 13G.2 In addition,

the Commission is adopting conforming

amendments to Rule 16a–1 3 under the

Securities Exchange Act of 1934

(‘‘Exchange Act’’).

I. Executive Summary

Today, for the first time, the

Commission is permitting certain large

shareholders to use the short-form

Schedule 13G, rather than the long-form

Schedule 13D, to report accumulations

and changes in stock holdings. This

expanded eligibility to file on Schedule

13G applies only to persons not seeking

to acquire or influence ‘‘control’’ of the

issuer and who own less than 20

percent of the class of securities

(‘‘Passive Investor’’).4 The existing

reporting scheme imposed unnecessary

disclosure obligations on persons whose

acquisitions do not affect the control of

issuers. The amendments adopted today

will reduce the reporting obligations of

these Passive Investors. The

amendments also will improve the

effectiveness of the beneficial

ownership reporting scheme. The

reduced number of Schedule 13D filings

will allow the marketplace, as well as

the staff of the Commission, to focus

more quickly on acquisitions involving

the potential to change or influence

control.

Since a control purpose reflects the

state of mind of a filing person and there

are incentives to disclose less

information, the Commission is

imposing some safeguards on this new

class of short-form filers:

• Initial Schedule 13G must be filed

within 10 days (instead of year end);

• Prompt amendments are required

every time the Passive Investor acquires

more than an additional five percent;

• Loss of Schedule 13G-eligibility

occurs when Passive Investor acquires

20 percent or more of the class; and,

• If the person no longer passively

holds their shares or the person acquires

20 percent or more of the class, a

Schedule 13D is due within ten days

and the person is not permitted to vote

the shares or acquire more shares during

the period of time beginning from the

change in investment purpose or the

acquisition of 20 percent or more until

ten days after the Schedule 13D is filed.

The Commission also is adopting

related and clarifying amendments

including the simplification of the

Schedule 13G dissemination

requirements to reflect the ready

availability of those reports on the

Commission’s EDGAR system.

Schedules 13G will no longer be

required to be sent to the exchanges,

since all Schedules 13D and 13G must

now be filed electronically with the

Commission.5

II. Amendments to Regulation 13D–G

A. Expansion of the Class of Investors

Eligible To Report on Schedule 13G

The Commission proposed the

amendments adopted today on July 3,

1996.6 The amendments are being

adopted substantially as proposed with

some important modifications. In

addition to the two existing categories of

Schedule 13G filers (‘‘Qualified

Institutional Investors’’ 7 and ‘‘Exempt

Investors’’ 8), today’s amendments create

a third category (‘‘Passive Investors’’),9

significantly expanding the classes of

persons eligible to file on the short form.

Under the amendments, all Passive

Investors are permitted to use the shortform Schedule 13G.10 Passive Investors

choosing to report on Schedule 13G will

file that schedule within 10 calendar

days after acquiring beneficial

ownership of more than five percent of

a class of subject securities. Persons

unable or unwilling to certify that they

do not have a disqualifying purpose or

effect because, for example, the

possibility exists that they may seek to

exercise or influence control, would be

ineligible to file a Schedule 13G and

would be required to file a Schedule
Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Rules and Regulations 2855

11The Commission has revised, as proposed, the

certification on the Schedule 13G for Qualified

Institutional Investors to provide that such

investors certify that the securities were acquired

and are held in the ordinary course of business and

were not acquired and are not held for the purpose

of and do not have the effect of changing or

influencing the control of the issuer of such

securities and were not acquired and are not held

in connection with or as a participant in any

transaction having such purpose or effect (emphasis

added). This amendment to the certification is to

conform the language of the certification to

amended Rule 13d–1(e).

12Amended Rule 13d–2(b) requires Qualified

Institutional Investors to amend Schedule 13G 45

days after the end of each calendar year if, as of the

end of such calendar year, there are any changes in

the information reported in the previous filing on

that Schedule. Further, under amended Rule 13d–

2(c) if their beneficial ownership exceeds 10

percent of the class at the end of any month, an

amendment would be required to be filed within 10

days after the end of that month, as well as within

10 days after the end of any month in which their

ownership increases or decreases by more than five

percent of such class.

13See Sections II.C. and II.D. infra.

14The determination of what constitutes

‘‘promptly’’ under Regulation 13D–G is based upon

the facts and circumstances surrounding the

materiality of the change in information triggering

the filing obligation and the filing person’s previous

disclosures. Any delay beyond the date the filing

reasonably can be filed may not be prompt. See In

the Matter of Cooper Laboratories, Inc., Release No.

34–22171 (June 26, 1985).

15Rule 13d–1(e).

13D.11 Qualified Institutional Investors

remain eligible to file the short-form

report on Schedule 13G within 45

calendar days after the calendar year

end. Exempt Investors also will

continue to file their initial Schedule

13G within 45 calendar days after the

calendar year in which they became

subject to Section 13(g) and new Rule

13d–1(d).

Even though a Passive Investor may

report on Schedule 13G, it will be

permitted to file a Schedule 13D

instead. The fact that an investor can

represent that it does not have a

disqualifying purpose or effect but

nevertheless chooses to file on a

Schedule 13D may provide important

information concerning the filing

person’s investment purpose.

B. Filing Periods for Passive Investors

Filing on Schedule 13G

As adopted, Passive Investors

choosing to file a Schedule 13G will file

the initial schedule within 10 calendar

days of crossing the five percent

threshold. Requiring the filing within 10

days, rather than the 45 days following

year end as is currently applicable to

Qualified Institutional Investors and

Exempt Investors, will provide more

timely notice to the market and to

investors of the existence of voting

blocks that have the potential of

affecting or influencing control of the

issuer.

Although the Commission is adopting

the initial reporting obligations for

Passive Investors as proposed that are

more stringent than those for Qualified

Institutional Investors, the Commission

is adopting a more liberal approach for

amending Schedule 13G. The rule

permits Passive Investors to amend in a

manner similar, but more promptly

than, Qualified Institutional Investors

reporting on Schedule 13G.12

As proposed, Passive Investors would

have been subject to the more stringent

amendment requirements that currently

apply to Schedule 13D filers. Seven

commenters specifically addressed the

proposed amendment requirements and

five commenters believed that the

proposals were too complex and overly

cautious. Those commenters believed

that the application of the more

stringent amendment requirements to

Passive Investors would significantly

diminish the benefits of the proposals

overall to Passive Investors and would

be inconsistent with the Commission’s

intent to reduce the reporting

obligations of Passive Investors. One

commenter noted that if the Passive

Investors have no intent to influence or

change control of the issuer, then there

is no substantially greater need to track

the percentage changes in holdings of

Passive Investors, and therefore they

should be treated no differently than

Qualified Institutional Investors. In

contrast, other commenters argued that

the proposed accelerated filing of these

Schedule 13G amendments for Passive

Investors is necessary to provide notice

to investors, issuers, and to the market

of voting blocks of securities that have

the potential of affecting or influencing

control of the issuer.

While the Commission appreciates

that the beneficial ownership rules are

already complex, separate amendment

requirements for Passive Investors

appear to be necessary to address these

competing concerns raised by the

commenters. The views of the

commenters on the amendment issue

suggest that neither the current 13D nor

13G approach would be appropriate. By

requiring prompt reporting of more than

five percent changes in position, the

Commission believes that sufficient

information will be provided to

investors, issuers, and to the market

regarding the changes in percentage

ownership of Passive Investors. To

further prevent any possible abuse in

the use of Schedule 13G by investors

that have a disqualifying purpose or

effect, the Commission is adopting, as

proposed, the ‘‘cooling-off’’ period upon

a change in investment purpose and the

same ‘‘cooling-off’’ period will apply

upon acquiring 20 percent or more of

the class.13

Accordingly, as adopted, Passive

Investors must amend the Schedule 13G

within 45 calendar days after the end of

the calendar year to report any change

in the information previously reported.

Passive Investors also will amend the

Schedule 13G during the year if they

acquire greater than 10 percent of the

subject securities. This amendment will

be required to be filed ‘‘promptly’’ 14

upon acquiring greater than 10 percent.

Between 10 percent and less than 20

percent, Passive Investors will be

required to file additional amendments

‘‘promptly’’ during the year if they

increase or decrease their beneficial

ownership by more than five percent of

the class.

These new amendment requirements

for Passive Investors that acquire greater

than 10 percent of the class are different

than the amendment requirements for

Qualified Institutional Investors that

acquire greater than 10 percent.

Qualified Institutional Investors have

until 10 days after the month in which

they acquired greater than ten percent to

amend their Schedule 13G. Qualified

Institutional Investors holding more

than 10 percent have until 10 days after

the month in which they increased or

decreased their beneficial ownership by

more than five percent. In each case, the

Qualified Institutional Investor’s

beneficial ownership is computed as of

the last day of the month. The Qualified

Institutional Investors are permitted

greater flexibility in filing amendments

in recognition of the fact that Qualified

Institutional Investors routinely buy and

sell securities in the ordinary course of

business and are less likely to abuse the

process.

C. 13D Filing Requirement and CoolingOff Period for Changes in Investment

Purpose or Effect

When Qualified Institutional

Investors and Passive Investors

determine they hold the subject

securities with a disqualifying purpose

or effect, they must file a Schedule 13D

no later than 10 calendar days after the

change in investment purpose.15 The

Commission is adopting, as proposed, a

‘‘cooling-off’’ period that will begin with

the change in investment purpose and

last until the expiration of the tenth

calendar day from the date of the filing

of a Schedule 13D. During the coolingoff period, the reporting person is

prohibited from voting or directing the

voting of the subject securities or

acquiring additional beneficial

ownership of any equity securities of
2856 Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Rules and Regulations

16The sooner the Schedule 13D filing is made,

the sooner the cooling-off period will end, since the

cooling-off period ends 10 calendar days from the

date the Schedule 13D is filed.

17Upon reaching the 20 percent limit, the

investor is not required to amend its Schedule 13G

in addition to filing the Schedule 13D.

18Rule 13d-1(f).

19The ‘‘standstill’’ period would have

commenced upon acquiring 20 percent or more of

the class and terminated upon the filing of the

Schedule 13D. During the standstill period, the

investor would have been prohibited from voting its

securities or acquiring additional equity securities

in the issuer.

20As stated in the Reproposing Release, the

Commission does not intend these new rules to

create a presumption that beneficial ownership of

20 percent or more indicates control or a control

purpose. Further, no presumption is intended that

beneficial ownership below 20 percent cannot

indicate control or a control purpose. Indeed, the

Commission believes that it would be unusual for

an investor to be able to make the necessary

certification of a passive investment purpose when

beneficial ownership approaches 20 percent.

21Rule 13d–1(h).

22Rule 13d–1(b).

23The Schedule 13G would be filed as an initial

Schedule 13G as opposed to an amendment even

if the reporting person had reported on Schedule

13G before losing its Schedule 13G-eligibility.

24See Exchange Act Release No. 14692 (April 21,

1978) [43 FR 18484].

the issuer or any person controlling the

issuer.

Seven commenters specifically

addressed the proposals regarding the

Schedule 13D filing requirement upon a

change in investment purpose or effect

and the related cooling-off period. Three

of those commenters supported the

Schedule 13D filing requirement and

cooling-off period as proposed. The

other four commenters supported the

concept of a cooling-off period but

thought the period should be shortened.

However, in light of the changes being

adopted today to liberalize the

amendment requirements for Passive

Investors reporting on Schedule 13G,

the Commission believes the 10 day

cooling-off period, as adopted, is

necessary and appropriate. The earlier

commencement of the cooling-off period

will encourage the prompt filing of a

Schedule 13D.16 The cooling-off period

will prevent further acquisitions or the

voting of the subject securities until the

market and investors have been given

time to react to the information in the

Schedule 13D filing.

D. Twenty-Percent Limit on Ownership

Interest Reportable on Schedule 13G

and Related Cooling-Off Period

Under today’s amendments, Passive

Investor status is limited to holders of

less than 20 percent of the class of

subject securities. Upon acquiring 20

percent or more, the investor must

report the acquisition on Schedule 13D

within 10 calendar days.17 Additionally,

the investor will be subject to a

‘‘cooling-off’’ period commencing from

the time the investor reaches the 20

percent threshold until ten calendar

days after the filing of the Schedule

13D.18 During this period, the investor

will be prohibited from voting or

directing the voting of the subject

securities and from acquiring additional

beneficial ownership in any equity

securities of the issuer. This cooling-off

period is the same period that applies to

Passive Investors and Qualified

Institutional Investors when they

change their investment purpose. The

Commission proposed a standstill 19

period upon the acquisition of 20

percent or more of the class. The

Commission is adopting the cooling-off

period in lieu of the standstill period at

the 20 percent threshold in order to

further prevent abuse of the liberal

amendment requirements adopted today

for Passive Investors and to simplify

Regulation 13D–G.

Six commenters specifically

addressed the proposal regarding the 20

percent limitation and related standstill

period. A majority of those commenters

supported the 20 percent limitation.

One commenter believed the ownership

limit should be lowered to 10%. Three

commenters supported the standstill

period as proposed. Two commenters

believed that it would be unfair to

Passive Investors to impose a limit on

beneficial ownership reportable on

Schedule 13G and to apply any

standstill period. Those commenters

believed that if an investor can make the

passive certification, then it should be

treated the same as Qualified

Institutional Investors. The Commission

believes that the 20 percent limitation

and the cooling-off period adopted

today are necessary and appropriate for

prompt disclosure of sizeable blocks of

securities because of the inherent

control implications corresponding to

such ownership positions held by

persons that do not purchase securities

in the ordinary course of business.20

The 20 percent limit applies only

with respect to Passive Investors

reporting on Schedule 13G pursuant to

new Rule 13d–1(c). Qualified

Institutional Investors and Exempt

Investors are not subject to the 20

percent limitation because the

Commission recognizes that institutions

that purchase securities in the ordinary

course of business may be burdened by

a limitation on the amount of securities

that can be reported on the short-form

Schedule 13G. Further, the Commission

believes that Schedule 13G strikes an

appropriate balance between furnishing

disclosure to the market and the

burdens placed on such institutions.

E. Re-establishing Schedule 13G

Eligibility

The amended rules allow persons

who have lost their eligibility to file on

Schedule 13G to re-establish their

Schedule 13G-eligibility and again

report on Schedule 13G.21 Specifically,

a Qualified Institutional Investor that

has lost its Schedule 13G eligibility,

because it is no longer a qualified entity

under Rule 13d–1(b)(1)(ii) or cannot

make the required certification, is

allowed to switch back to Schedule 13G

pursuant to the Qualified Institutional

Investor provision 22 once it reestablishes its status under Rule 13d–

1(b)(1)(ii) or can again make the

necessary certification. Similarly, a

Passive Investor that has lost its

Schedule 13G-eligibility under Rule

13d–1(c), because it can no longer

certify that it does not have a

disqualifying purpose or effect or

because it reached the 20 percent

threshold, is able to switch back to

Schedule 13G when it can once again

make the certification or when its

beneficial ownership falls below 20

percent. The Commission believes that

investors and the market will be better

informed if reporting persons are able to

switch back to Schedule 13G after reestablishing their eligibility, since the

filing of a Schedule 13D will be a clearer

indicator of investors that currently

have a disqualifying purpose or effect or

investors that hold 20 percent or more

of the class.

Once a Schedule 13D reporting

person decides to switch to a Schedule

13G, the Schedule 13G would be filed

to reflect that decision.23 The filing of

the Schedule 13G will be deemed to

amend the Schedule 13D. Therefore, no

formal amendment to the Schedule 13D

will be required.

F. Expansion of the Class of Qualified

Institutional Investors

1. Foreign Institutional Investors

Under the amended rules, the use of

the short-form Schedule 13G pursuant

to the Qualified Institutional Investor

provisions of Rule 13d–1(b) will

continue to be limited essentially to

institutions such as brokers, dealers,

investment companies, and investment

advisers registered with the

Commission, or regulated banks or

insurance companies. The use of

Schedule 13G by similar non-domestic

institutions has been limited in the past

to those institutions that have obtained

an exemptive order from the

Commission 24 or, under the current
Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Rules and Regulations 2857

25See Section II.B. above.

26Title V, Section 508.

27Rule 13d–1(b)(1)(ii)(G). This amendment

codifies the no-action position set forth in Warren

E. Buffet & Berkshire Hathaway, Inc., (available

December 5, 1986). Two commenters addressed this

proposal and both commenters supported the

proposal.

28This amendment under Section 16 codifies the

interpretive position set forth in Edward C. Johnson

3d., (available August 20, 1991).

29Since state takeover statutes and shareholder

rights provisions are triggered by certain ‘‘beneficial

ownership’’ or ‘‘voting power’’ thresholds—and

may even use the beneficial ownership definition

under Rule 13d–3—there is a concern that reporting

ownership on an aggregate basis may trigger some

of those provisions.

30Likewise, under these circumstances,

attribution may not be required under Rule 16a–

1(a)(1).

practice, a no-action position from the

Division of Corporation Finance. The

no-action relief was based on the

requester’s undertaking to grant the

Commission access to information that

would otherwise be disclosed in a

Schedule 13D and the comparability of

the foreign regulatory scheme applicable

to the particular category of institutional

investor.

The Commission is not expanding the

list of qualified institutional investors to

include foreign institutions. The Passive

Investor provisions adopted today make

Schedule 13G available to all investors

that do not have a disqualifying purpose

or effect, including foreign investors.

These new provisions have more lenient

filing requirements for amendments to

Schedule 13G than as originally

proposed.25 Therefore, foreign

institutional investors wanting to report

on Schedule 13G should be able to rely

on the passive investor provisions

without significant difficulty. Any

foreign institutional investor that would

rather report on Schedule 13G as a

Qualified Institutional Investor and does

not want to rely on the Passive Investor

provisions may continue to seek noaction relief from the staff under current

practices.

2. State and Local Governmental

Employee Benefit Plans

The Commission is expanding the list

of Qualified Institutional Investors

under Rule 13d–1(b)(1)(ii) to allow

employee benefit plans maintained

primarily for the benefit of state or local

government employees to report on

Schedule 13G. The Commission

believes that these plans are now

generally subject to fiduciary obligations

and standards for investment that are

substantially similar to those imposed

by Employee Retirement Income

Security Act of 1974 (‘‘ERISA’’). The

Commission has revised the language in

Rule 13d–1(b)(1)(ii)(F) to eliminate the

phrase ‘‘pension fund’’ because such

entities are included in the definition of

employee benefit plan in Section 3(3) of

ERISA.

The Commission is making a

conforming change to the beneficial

owner definition under Section 16 by

amending Rule 16a–1(a)(1)(vi) to

include state and local government

employee benefit plans in the list of

persons that are not deemed to be the

beneficial owners of securities held for

the benefit of third parties.

3. Savings Associations

Based upon the suggestions of

commenters, the Commission is

expanding the list of Qualified

Institutional Investors under Rule 13d–

1(b)(1)(ii) by adding new paragraph (H)

to allow savings associations to report

on Schedule 13G. Adding savings

associations to the list of Qualified

Institutional Investors codifies the staff

no-action relief granted to Columbia

Savings and Loan (June 15, 1987).

The Commission is making a

conforming change to the Section 16

rules by adding new Rule 16a–

1(a)(1)(viii) to include savings

associations in the list of persons that

are not deemed to be the beneficial

owners of securities held for the benefit

of third parties.

4. Church Plans

Also upon the suggestion of

commenters, the Commission is

expanding the list of Qualified

Institutional Investors under Rule 13d–

1(b)(1)(ii) by adding new paragraph (I)

to allow church employee benefit plans

to report on Schedule 13G. Adding

church plans to the list of Qualified

Institutional Investors is consistent with

the treatment of church plans under the

National Securities Markets

Improvement Act of 1996 26 which

exempts such plans from most federal

securities regulation.

The Commission is making a

conforming change to the Section 16

rules by adding new Rule 16a–1(a)(1)(ix)

to include church plans in the list of

persons that are not deemed to be the

beneficial owners of securities held for

the benefit of third parties.

5. Control Persons of Qualified

Institutional Investors

The Commission is expanding the list

of Qualified Institutional Investors

under Rule 13d–1(b)(1)(ii) to allow

control persons of Qualified

Institutional Investors to report indirect

beneficial ownership through the

controlled entity on Schedule 13G. In

order to use Schedule 13G, the control

person must not own directly, or

indirectly through an ineligible entity or

affiliate, more than one percent of the

subject company’s stock and is not

seeking to change or influence control of

the subject company.27

The Commission is making a

conforming change to the Section 16

rules by amending Rule 16a–1(a)(1)(vii)

to include control persons of qualified

institutions in the list of persons that are

not deemed to be beneficial owners of

securities held for the benefit of third

parties.28

Four commenters have requested

some form of relief or guidance on when

beneficial ownership under Rule 13d–3

should be attributed among entities

under common control. This issue arises

in the case of a consolidated group of

corporations under common control or

in the case of a single entity that has

separately managed businesses within

the same legal entity. The Commission

recognizes that certain organizational

groups are comprised of many different

business units that operate

independently of each other. They may

nevertheless have to aggregate beneficial

ownership for Regulation 13D–G

reporting purposes.29 The need to

aggregate may have the effect of

requiring diverse business units to share

sensitive information, when it is

otherwise not necessary for business

purposes.

Because the Rule 13d–3(a) definition

of beneficial ownership includes

persons who have both direct and

indirect, as well as shared, voting and

investment power, beneficial ownership

by the business units, divisions or

subsidiaries that hold the securities

normally should be attributed to the

parent entities that are in a control

relationship to the shareholder entity. In

those instances where the organizational

structure of the parent and related

entities are such that the voting and

investment powers over the subject

securities are exercised independently,

attribution may not be required for the

purposes of determining whether a

filing threshold has been exceeded and

the aggregate amount owned by the

controlling persons.30

The determination as to whether the

voting and investment powers are

exercised independently from the

parent and other related entities is based

on the facts and circumstances. One

circumstance in which beneficial

ownership may not be required to be

attributed to the parent entities is when

these entities have in place certain

informational barriers that ensure that

the voting and investment powers are

exercised independently from parent
2858 Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Rules and Regulations

31The Commission adopted a similar approach in

modifying the definition of ‘‘affiliated purchaser’’

under Regulation M. See Exchange Act Release No.

38067 (December 20, 1996) [62 FR 520]. Although

informational barriers may serve to prevent the

attribution of beneficial ownership to the parent

entities, a group under Rule 13d–5(b) can still be

formed among commonly controlled entities or

with the parent entity that otherwise own securities

in the issuer if these persons agree to act together

for the purpose of acquiring, holding, voting or

disposing of the subject securities. See e.g., In the

Matter of the Gabelli Group, Inc., et al, Exchange

Act Rel. No. 26005 (August 17, 1988).

32To the extent the informational barrier is

crossed, beneficial ownership of that class of

security should be reported on an aggregate basis

by the entities sharing the information.

33The entities may have common officers,

directors, and employees but those persons must

not be involved in the exercise of the voting and

investment powers or otherwise made aware of

specific securities positions which are not publicly

available. This factor would ensure that persons

involved in the exercise of the voting and

investment powers are not the same persons that

would exercise such powers for the parent entity

and therefore no information concerning the

exercise of such powers would pass through the

informational barrier.

34Pub. L. No. 104–290, 110 Stat. 3416 (1996)

(codified in scattered sections of the United States

Code).

and affiliated entities.31 This approach

assumes that there will not be arbitrary

or artificial separation of business units.

One factor militating against separation

would be participation in a common

compensation pool that may align

voting and investment decisions.

When informational barriers are relied

upon to avoid attributing beneficial

ownership to the parent entities, the

various companies or groups should

maintain and enforce written policies

and procedures reasonably designed to

prevent the flow of information to and

from the other business units, divisions

and entities that relate to the voting and

investment powers over the securities.

Those companies or groups also should

obtain an annual, independent

assessment of the operation of the

policies and procedures established to

prevent the flow of information among

the related entities. The frequency in

which an informational barrier is

crossed with respect to a particular

security (and therefore beneficial

ownership would be attributed for that

security) would raise questions

regarding the efficacy of the

informational barrier overall. However,

an isolated instance in which this

occurs would not necessarily impact the

ownership treatment of securities of

other issuers held by the reporting

person.32

Finally, the parent entities should

have no officers or directors (or persons

performing similar functions) or

employees (other than clerical,

ministerial, or support personnel) who

are involved in the exercise of the

voting and investment powers in

common with the shareholder.33 For

example, the existence of an

independent investment committee

would be evidence of an effective

separation between the parent and the

affiliated entities.

6. Investment Advisers Prohibited From

Registering Under the Investment

Advisers Act of 1940 Pursuant to

Section 203A of That Act

Since the issuance of the Reproposing

Release, Congress passed the National

Securities Markets Improvement Act of

1996.34 Among other things, the Act

amended the Investment Advisers Act

of 1940 (the ‘‘Advisers Act’’) by adding

Section 203A, which prohibits certain

investment advisers from registering

with the Commission. For the most part,

only advisers that have ‘‘assets under

management’’ of $25 million or more,

that advise registered investment

companies, or that meet one of several

exemptions from the prohibition on

registration will be registered with the

Commission. Other advisers will be

regulated by state securities authorities.

Currently, Rule 13d–1(b)(1)(ii)(E)

restricts the use of Schedule 13G to

investment advisers registered under

Section 203 of the Advisers Act. Today

the Commission is amending this rule to

allow those investment advisers that are

prohibited from registering under the

Advisers Act pursuant to Section 203A

of that Act to report on Schedule 13G

as a Qualified Institutional Investor.

Although these persons will not be

subject to the federal regulatory regime

for investment advisers, they will

continue to buy and sell securities in

the ordinary course of business and

their businesses will be regulated by

state law.

The Commission is making a

conforming change to the Section 16

rules by amending Rule 16a–1(a)(1)(v) to

include these investment advisers in the

list of persons that are not deemed to be

the beneficial owners of securities held

for the benefit of third parties.

G. Shareholder Communications and

Beneficial Ownership Reporting

The Commission requested comment

as to whether the Section 13(d)

reporting obligations restrict a

shareholder’s ability to engage in proxy

related activities including the ability to

use the proxy rule exemptions that were

adopted in 1992 to facilitate

communications among shareholders.

The Commission asked whether relief,

in addition to that adopted today, from

Schedule 13D filing obligations with

respect to soliciting activities is

necessary and appropriate.

Only seven commenters responded to

this request for comment. Two

commenters believed that the Section

13(d) reporting obligations do not

restrict the use of the proxy rule

exemptions. The other five commenters

believed that the reporting obligations

do restrict the use of the proxy rule

exemptions and all those commenters

requested the Commission to provide

various forms of relief or guidance on

the matter. The two primary concerns

raised by the five commenters are that

activities exempt from the rules:

(i) May constitute the formation of a

‘‘group’’ under Rule 13d–5(b); or

(ii) May be construed as having the

purpose or effect of changing or

influencing the control of the issuer,

and therefore would disqualify a person

from eligibility to use Schedule 13G.

Although the Commission agrees that

it can provide some further guidance in

this area as discussed below, the

Commission does not believe that the

current beneficial ownership and group

concepts unduly interfere with the type

of shareholder communications

contemplated by the proxy rule

exemptions. The Commission believes

that no further relief from the Section

13(d) filing obligations is required.

Specifically, the Commission believes

that a shareholder who is a passive

recipient of soliciting activities, without

more, would not be deemed a member

of a group under Rule 13d–5(b)(1) with

persons conducting the solicitation.

This would be true even where the

soliciting activities result in the

shareholder granting a revocable proxy.

Similarly, when a shareholder solicits

and receives revocable proxy authority

(subject to the discretionary limits of

Rule 14a–4), without more, that

shareholder does not obtain beneficial

ownership under Section 13(d) in the

shares underlying the proxy.

The eligibility to use Schedule 13G by

a shareholder who submits, supports, or

engages in exempt soliciting activity in

favor of a shareholder proposal

submitted pursuant to Rule 14a–8, will

depend on whether that activity was

engaged in with the purpose or effect of

changing or influencing control of the

company. That determination normally

would be based upon the specific facts

and circumstances accompanying the

solicitation and the vote. For that

reason, the Commission is not able to

provide extensive guidance on this

issue.

In some cases the subject matter of the

proposal or solicitation may be

dispositive. For example, most

solicitations regarding social or public
Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Rules and Regulations 2859

35Rule 13d–1(h).

36On September 18, 1997, the Commission

proposed amending Rule 14a–8 to provide an

override mechanism from the exclusion of the

shareholder proposal under Rule 14a–8 (c)(5) and

(c)(7). See Release No. 34–39093. The 13Geligibility of a shareholder who would use the

proposed override mechanism to submit a

shareholder proposal would be determined in the

same manner as discussed in this section.

37Schedules 13D will, however, continue to be

sent to each exchange on which the security is

traded, which is a statutory requirement.

38See Exchange Act Release No. 7331 (September

24, 1996).

interest issues (e.g., environmental

policies, apartheid, etc.) would not have

the purpose or effect of changing or

influencing control of the company.

Corporate governance proposals,

however, may or may not be control

related. Proposals and soliciting activity

relating to matters such as executive

compensation, director pensions, and

confidential voting normally would not

prevent the use of a Schedule 13G. Even

corporate governance issues that are

presumably control related (e.g.,

removal of a poison pill, opting out of

state takeover statutes, or removal of

staggered boards) might not have a

disqualifying purpose or effect,

depending on the circumstances. In

contrast, most solicitations in support of

a proposal specifically calling for a

change of control of the company (e.g.,

a proposal to seek a buyer for the

company or a contested election of

directors or a sale of a significant

amount of assets or a restructuring of a

corporation) would clearly have that

purpose and effect. Some relevant

factors to consider in assessing the

purpose and effect of the type of

proposal and related soliciting activity

include:

(1) Does the filing person purchase

securities in the ordinary course of

business and by its nature does not seek

to acquire control of companies?

(2) Was the proposal submitted or

solicitation undertaken based upon the

filing person’s investment policies

regarding good corporate governance for

all the filer’s portfolio companies, rather

than to foster a control transaction for

the particular company?

(3) Was the proposal submitted, or

solicitation commenced, under

circumstances where, given the subject

matter of the particular proposal, it is

likely to have the effect of facilitating a

change of control of that particular

company by another person or group

(for example, the submission of a

proposal to eliminate a staggered board

that may facilitate a non-management

solicitation, even by an unrelated third

party)?

(4) Did the filing person commence an

independent solicitation, exempt or

otherwise, in favor of a proposal (the

mere submission of a proposal under

Rule 14a–8, without any independent

soliciting activity, would be less likely

to have a disqualifying purpose or

effect)?

(5) Was the activity undertaken in

opposition to a proposal put forth by

management for shareholder approval,

rather than in support of a proposal

submitted by the filing person or some

other shareholder?

Some proxy-related activities, by their

nature, will have only limited effect on

control of the company, and therefore

should normally not cause a

shareholder to lose its 13G eligibility.

For example, voting in favor of an

insurgent or making a voting

announcement under Rule 14a–

1(l)(2)(iv) in favor of a corporate

governance proposal, without more,

would not cause the loss of Schedule

13G eligibility, regardless of the subject

matter. This is true even if the voting

announcement supports a nonmanagement shareholder proposal.

Although in many instances these

determinations will be difficult and fact

intensive, the Commission believes that

the amendment adopted today that

allows a person to re-establish its

Schedule 13G eligibility 35 should serve

to lessen the concern that a Schedule

13G filing person may lose its eligibility

to report on Schedule 13G by engaging

in or being a part of soliciting activities.

Under new Rule 13d–1(h), if a reporting

person loses its Schedule 13G eligibility

due to its soliciting activities and is

required to then report on Schedule

13D, the reporting person can switch

back to Schedule 13G when the

reporting person is no longer involved

in the soliciting activities and can make

the necessary certifications.36

H. Related and Clarifying Amendments

The Commission also has eliminated

the redundancies that existed in

Regulation 13D–G regarding the filing

and dissemination requirements by

setting forth such requirements in one

rule, Rule 13d–7(b). The Commission

believes that Schedule 13G will become

the primary reporting document for

beneficial ownership, since a majority of

investors will now file Schedule 13G in

lieu of Schedule 13D. For this reason,

the Commission proposed that the

original and amendments to Schedules

13G be provided to each exchange

where the security is traded as is

currently required for Schedules 13D.

However, since these filings will be

made by persons without a

disqualifying purpose or effect and are

now required to be filed electronically

on the Commission’s Electronic Data

Gathering and Retrieval System and

therefore available in the electronic

media, including on the Commission’s

World Wide Web site (http://

www.sec.gov), the Commission is not

adopting this proposal. Likewise, due to

the electronic availability of Schedules

13D, the Commission is not adopting

the proposal that a copy of the Schedule

13D and amendments thereto be

provided to the National Association of

Securities Dealers for securities quoted

on the National Association of

Securities Dealers Automated Quotation

System (‘‘NASDAQ’’).37

Additionally, because of the

electronic availability of filings and the

fact that Schedules 13G do not represent

control transactions, the Commission is

further simplifying the dissemination

requirements for all Schedule 13G filers

by eliminating the requirement that

Schedules 13G be sent to the exchanges.

Accordingly, copies of all initial

Schedules 13G and amendments filed

with the Commission by Passive

Investors, Qualified Institutional

Investors, and Exempt Investors will

only be required to be sent to the issuer

and will not be required to be sent to

any exchange or automated quotation

system on which the securities are

traded.

The amendments clarify the number

of copies required to be filed to the

extent paper filings may be made. The

Commission notes that paper filings

would be relatively rare, since all

Schedules 13D and 13G must be filed in

electronic format, unless they relate to

the securities of a foreign private issuer

or the filer has received a hardship

exemption. Additionally, the rules have

been revised to eliminate language

regarding filing fees for Schedules 13D

and 13G since such fees have been

previously eliminated.38 Finally,

technical amendments to Schedules 13D

and 13G have been made to conform the

schedules to the proposed rules and to

amend the filing deadlines and the

number of copies in the instruction.

BILLING CODE 8010–01–P
2860 Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Rules and Regulations
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2862 Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Rules and Regulations
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BILLING CODE 8010–01–C
2864 Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Rules and Regulations

38See Exchange Act Release No. 7331 (September

24, 1996).

39The sample included 100 Schedules 13D filed

from May 21, 1997 to June 2, 1997.

40 In an earlier survey discussed in the

Reproposing Release, 110 Schedules 13D filed in

November and December 1994 were surveyed and

76 percent disclosed a passive investment purpose.

Of the total surveyed, 63 percent disclosed a

passive investment purpose and held less than 20

percent of the class of securities and would

therefore be eligible to use Schedule 13G as Passive

Investors.

41This estimated number of respondents is based

upon the number of Schedules 13D filed in fiscal

year 1996 and assumes no increase each year. This

represents an estimated 53 percent reduction from

the 3,503 Schedules 13D filed in fiscal year 1996.

The estimated 53 percent reduction in Schedule

13D filings is based upon the sample data provided

by the Office of Economic Analysis.

42Total annual burden hours are determined by

multiplying the estimated average burden hours for

completing the particular schedule by the estimated

number of respondents that file that schedule.

43This number of respondents is based upon the

number of Schedules 13G filed in fiscal year 1996

(7,187) plus the additional 1,857 respondents that

are expected to file on Schedule 13G under the

proposed rules and assumes no increase each year.

IV. Final Regulatory Flexibility

Analysis

A Final Regulatory Flexibility

Analysis (‘‘FRFA’’) has been prepared in

accordance with 5 U.S.C. 604

concerning the amendments to the

beneficial ownership rules of Regulation

13D–G and related Schedules 13D and

13G and the amendments to Rule 16a–

1(a)(1). The analysis notes that the

principal effect of the revisions to

Regulation 13D–G will be to reduce the

disclosure obligations and associated

costs to a majority of persons, including

small entities, required to report

beneficial ownership under Sections

13(d) and 13(g) of the Exchange Act and

would eliminate the reporting

obligations under Section 16 of the

Exchange Act of certain governmental

employee benefit plans, church plans,

savings associations, investment

advisers registered with the state and

certain control persons of Qualified

Institutional Investors. The analysis also

indicates that there are no current

federal rules that duplicate, overlap or

conflict with the rules and forms to be

amended.

As stated in the analysis, alternatives

to the proposed amendments were

considered, including, among other

things, changing or simplifying the

compliance or reporting requirements

for small entities or exempting small

entities from all requirements to file the

schedules under Regulation 13D–G. As

discussed in the analysis, there is no

less restrictive alternative to the

amendments that would serve the

purposes of the beneficial ownership

provisions of the Exchange Act. As

originally proposed, Passive Investors

would have been subject to more

stringent amendment requirements that

would have required amendments to be

filed upon every one percent change in

their beneficial ownership. However, in

order to further reduce the reporting

burdens of Passive Investors, the

Commission is not adopting the

proposed amendment requirements.

Under the adopted rules, Passive

Investors will only file amendments to

their Schedules 13G upon greater than

five percent changes in their beneficial

ownership, as well as the annual

amendment. Further, the Commission

originally proposed that a copy of the

Schedule 13G be sent to each exchange

on which the security is traded and to

NASDAQ if the security trades there.

However, in order to simplify the

dissemination requirements, copies of

the Schedule 13G will not be required

to be sent to any exchange or NASDAQ

and will only continue to be sent to the

issuer, as well as being filed with the

Commission.

The Commission received no

comments on the Initial Regulatory

Flexibility Analysis (‘‘IRFA’’) prepared

in connection with the proposing

release. Five commenters indicated that

the amendments would improve the

effectiveness of the beneficial

ownership reporting system and would

reduce the reporting burdens of Passive

Investors.

A copy of the FRFA may be obtained

by contacting Dennis O. Garris in the

Office of Mergers and Acquisitions,

Division of Corporation Finance,

Securities and Exchange Commission,

450 Fifth Street, N.W., Washington, D.C.

20549.

V. Paperwork Reduction Act

The beneficial ownership reporting

requirements are intended to provide

investors and the subject issuer with

information about accumulations of

securities that may have the ability to

change or influence control of the

issuer. Before the amendments adopted

today, Regulation 13D–G required that

most persons file a detailed disclosure

statement on the long-form Schedule

13D upon acquiring more than five

percent of the subject securities. Certain

qualified institutions (Qualified

Institutional Investors) and persons who

have not made an acquisition subject to

Section 13(d) (Exempt Investors) may

file the short-form disclosure statement

Schedule 13G which requires less

detailed disclosure than Schedule 13D.

The amendments make Schedule 13G

available, in lieu of Schedule 13D, to all

Passive Investors beneficially owning

less than 20 percent. The Commission

anticipates that the amendments will

reduce the existing information

collection requirements associated with

Regulation 13D–G and Schedules 13D

and 13G. The amendments will allow

more individuals and non-institutional

investors to file the short-form Schedule

13G. An important change from the

proposed rules is that Passive Investors

filing on Schedule 13G will be subject

to the more liberal filing requirements

with respect to amending the Schedule

13G. This change further reduces the

reporting obligations of Passive

Investors. Under the amended rules,

Passive Investors must amend the

Schedule 13G within 45 calendar days

after the end of the calendar year to

report any change in the information

previously reported. Passive Investors

also will promptly amend the Schedule

13G during the year if they acquire

greater than 10 percent of the subject

securities and thereafter upon an

increase or decrease of greater than five

percent. Further, in order to reduce the

dissemination requirements for all

persons filing Schedules 13G, the

Commission is not adopting the

proposed requirement that Schedules

13G be sent to each exchange on which

the security is traded and to NASDAQ

if the security trades on its system. As

adopted, Schedules 13G will only be

required to be sent to the issuer as well

as being filed with the Commission.

In a recent study performed by the

Office of Economic Analysis,39 63

percent of the Schedules 13D surveyed

disclosed a passive investment purpose.

Of the total surveyed, 53 percent

disclosed a passive investment purpose

and held less than 20 percent of the

class of equity securities and therefore

would be eligible to file on Schedule

13G under the new rules as Passive

Investors.40 It is estimated that 1646

Schedules 13D will be filed each year

under the new rules.41 Each Schedule

13D would impose an estimated burden

of 14.75 hours for a total annual burden

of 24,278.50 hours.42 It is estimated that

9,044 Schedules 13G will be filed each

year under the new rules.43 Each

Schedule 13G would impose an

estimated burden of 10 hours for a total

annual burden of 90,440 hours.

The Commission did not receive any

Paper Work Reduction Act comments.

Providing the information required by

Schedules 13D and 13G is mandatory

under Sections 13(d) and 13(g) and

Regulation 13D–G of the Exchange Act.

The information will not be kept

confidential. Unless a currently valid

OMB control number is displayed on

the Schedules 13D and 13G, the

Commission may not sponsor or
Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Rules and Regulations 2865

44However, eight commenters expressed general

views as to the costs and benefits associated with

the amendments, without attempting to quantify

either the costs or benefits. Five commenters stated

that the proposed amendments would reduce

passive filers’ reporting burdens and associated

costs. Seven commenters expressed concern that

the proposed 20 percent limitation upon the

availability of Schedule 13G to institutional

investors that are passive would impose increased

compliance burdens and costs without providing

any useful information to the public. Finally, three

commenters believed that requiring Schedule 13G

filers to provide each exchange upon which the

security is traded a copy of the Schedule would be

overly burdensome because such information is not

readily available. The proposal to provide copies of

Schedule 13G to each exchange is not being

adopted.

45The sample included 100 Schedules 13D filed

from May 21, 1997 to June 2, 1997.

conduct or require response to an

information collection. The OMB

control number is 3235–0145. The

collection is in accordance with the

clearance requirements of 44 U.S.C.

§ 3507.

VI. Cost-Benefit Analysis

No specific data was provided in

response to the Commission’s request

regarding the costs and benefits

associated with amending the filing

requirements under Regulation 13D–

G.44 Making Schedule 13G available to

all Passive Investors holding less than

20 percent of subject securities should

significantly reduce the reporting costs

incurred by those investors. Regulation

13D–G applies to any person that

acquires more than five percent of a

class of equity securities. The

amendments will decrease the

disclosure obligations of a significant

number of persons currently required to

file the long-form Schedule 13D. Based

upon data provided by the

Commission’s Office of Economic

Analysis, 53 percent of Schedules 13D

studied by that office disclosed a

passive investment purpose and held

less than 20 percent of the class of

securities and, therefore, would be

eligible to file on Schedule 13G as

Passive Investors under the

amendments adopted today.45

An important change from the

proposed rules is that Passive Investors

filing on Schedule 13G will be subject

to the more liberal filing requirements

with respect to amending the Schedule

13G. This change further reduces the

reporting obligations of Passive

Investors. Commenters believed that the

amendment requirements, as proposed,

were too burdensome and that the

potential benefit of the proposals to

Passive Investors would have been

substantially outweighed by the costs of

monitoring their holdings and reporting

the changes. Under the amended rules,

Passive Investors must amend the

Schedule 13G within 45 calendar days

after the end of the calendar year to

report any change in the information

previously reported. Passive Investors

also will promptly amend the Schedule

13G during the year if they acquire

greater than 10 percent of the subject

securities and thereafter upon an

increase or decrease of greater than five

percent. Further, in order to reduce the

dissemination requirements for all

persons filing Schedules 13G, the

Commission is not adopting the

proposed requirement that Schedules

13G be sent to each exchange on which

the security is traded and to NASDAQ

if the security trades on its system. As

adopted, Schedules 13G will only be

required to be sent to the issuer as well

as being filed with the Commission.

The Commission does not believe that

the amendments adopted today will

have any burden on competition or

capital formation since the purpose of

the Regulation 13D–G filing

requirements is only to report beneficial

ownership in public companies. The

amendments adopted today will

increase market efficiency because with

the reduced number of Schedule 13D

filings the market will be able to focus

more quickly on acquisitions involving

the potential to change or influence

control.

VII. Statutory Basis and Text of

Amendments

The amendments to Rules 13d–1,

13d–2, 13d–3 and 13d–7 and Schedules

13D and 13G and Rule 16a–1 are being

adopted pursuant to the authority set

forth in Sections 3(b), 13, 16 and 23 of

the Securities Exchange Act of 1934.

Lists of Subjects in 17 CFR Part 240

Reporting and recordkeeping

requirements, Securities.

Text of Amendments

In accordance with the foregoing,

Title 17, Chapter II of the Code of

Federal Regulations is amended as

follows:

PART 240—GENERAL RULES AND

REGULATIONS, SECURITIES

EXCHANGE ACT OF 1934

1. The authority citation for Part 240

continues to read, in part, as follows:

Authority: 15 U.S.C. 77c, 77d, 77g, 77j,

77s, 77z–2, 77eee, 77ggg, 77nnn, 77sss, 77ttt,

78c, 78d, 78f, 78i, 78j, 78k, 78k–1, 78l, 78m,

78n, 78o, 78p, 78q, 78s, 78u–5, 78w, 78x,

78ll(d), 79q, 79t, 80a–20, 80a–23, 80a–29,

80a–37, 80b–3, 80b–4 and 80b–11, unless

otherwise noted.

* * * * *

2. By amending § 240.13d–1 to revise

paragraph (a), the introductory text of

paragraph (b)(1), paragraphs (b)(1)(ii)

and (b)(2), to remove paragraphs (b)(3)

and (b)(4) and to redesignate paragraphs

(c), (d), (e) and (f) as paragraphs (d), (i),

(j) and (k), revise newly designated

paragraph (d) and to add paragraphs (c),

(e), (f), (g) and (h) to read as follows:

§ 240.13d–1 Filing of schedules 13D and

13G.

(a) Any person who, after acquiring

directly or indirectly the beneficial

ownership of any equity security of a

class which is specified in paragraph (i)

of this section, is directly or indirectly

the beneficial owner of more than five

percent of the class shall, within 10

days after the acquisition, file with the

Commission, a statement containing the

information required by Schedule 13D

(§ 240.13d–101).

(b)(1) A person who would otherwise

be obligated under paragraph (a) of this

section to file a statement on Schedule

13D (§ 240.13d–101) may, in lieu

thereof, file with the Commission, a

short-form statement on Schedule 13G

(§ 240.13d–102), Provided, That:

(i) * * *

(ii) Such person is:

(A) A broker or dealer registered

under section 15 of the Act (15 U.S.C.

78o);

(B) A bank as defined in section

3(a)(6) of the Act (15 U.S.C. 78c);

(C) An insurance company as defined

in section 3(a)(19) of the Act (15 U.S.C.

78c);

(D) An investment company

registered under section 8 of the

Investment Company Act of 1940 (15

U.S.C. 80a–8);

(E) Any person registered as an

investment adviser under Section 203 of

the Investment Advisers Act of 1940 (15

U.S.C. 80b–3) or under the laws of any

state;

(F) An employee benefit plan as

defined in Section 3(3) of the Employee

Retirement Income Security Act of 1974,

as amended, 29 U.S.C. 1001 et seq.

(‘‘ERISA’’) that is subject to the

provisions of ERISA, or any such plan

that is not subject to ERISA that is

maintained primarily for the benefit of

the employees of a state or local

government or instrumentality, or an

endowment fund;

(G) A parent holding company or

control person, provided the aggregate

amount held directly by the parent or

control person, and directly and

indirectly by their subsidiaries or

affiliates that are not persons specified

in § 240.13d–1(b)(1)(ii)(A) through (I),

does not exceed one percent of the

securities of the subject class;

(H) A savings association as defined

in Section 3(b) of the Federal Deposit

Insurance Act (12 U.S.C. 1813);
2866 Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Rules and Regulations

(I) A church plan that is excluded

from the definition of an investment

company under section 3(c)(14) of the

Investment Company Act of 1940 (15

U.S.C. 80a–3); and

(J) A group, provided that all the

members are persons specified in

§ 240.13d–1(b)(1)(ii)(A) through (I); and

(iii) * * *

(2) The Schedule 13G filed pursuant

to paragraph (b)(1) of this section shall

be filed within 45 days after the end of

the calendar year in which the person

became obligated under paragraph (b)(1)

of this section to report the person’s

beneficial ownership as of the last day

of the calendar year, Provided, That it

shall not be necessary to file a Schedule

13G unless the percentage of the class

of equity security specified in paragraph

(i) of this section beneficially owned as

of the end of the calendar year is more

than five percent; However, if the

person’s direct or indirect beneficial

ownership exceeds 10 percent of the

class of equity securities prior to the end

of the calendar year, the initial Schedule

13G shall be filed within 10 days after

the end of the first month in which the

person’s direct or indirect beneficial

ownership exceeds 10 percent of the

class of equity securities, computed as

of the last day of the month.

(c) A person who would otherwise be

obligated under paragraph (a) of this

section to file a statement on Schedule

13D (§ 240.13d–101) may, in lieu

thereof, file with the Commission,

within 10 days after an acquisition

described in paragraph (a) of this

section, a short-form statement on

Schedule 13G (§ 240.13d–102).

Provided, That the person:

(1) Has not acquired the securities

with any purpose, or with the effect of,

changing or influencing the control of

the issuer, or in connection with or as

a participant in any transaction having

that purpose or effect, including any

transaction subject to § 240.13d–3(b);

(2) Is not a person reporting pursuant

to paragraph (b)(1) of this section; and

(3) Is not directly or indirectly the

beneficial owner of 20 percent or more

of the class.

(d) Any person who is or becomes

directly or indirectly the beneficial

owner of more than five percent of any

equity security of a class specified in

paragraph (i) of this section and who is

not required to file a statement under

paragraph (a) of this section by virtue of

the exemption provided by Section

13(d)(6)(A) or (B) of the Act (15 U.S.C.

78m(d)(6)(A) or 78m(d)(6)(B)), or

because the beneficial ownership was

acquired prior to December 22, 1970, or

because the person otherwise (except for

the exemption provided by Section

13(d)(6)(C) of the Act (15 U.S.C.

78m(d)(6)(C))) is not required to file a

statement, shall file with the

Commission, within 45 days after the

end of the calendar year in which the

person became obligated to report under

this paragraph (d), a statement

containing the information required by

Schedule 13G (§ 240.13d–102).

(e)(1) Notwithstanding paragraphs (b)

and (c) of this section and § 240.13d–

2(b), a person that has reported that it

is the beneficial owner of more than five

percent of a class of equity securities in

a statement on Schedule 13G

(§ 240.13d–102) pursuant to paragraph

(b) or (c) of this section, or is required

to report the acquisition but has not yet

filed the schedule, shall immediately

become subject to §§ 240.13d–1(a) and

240.13d–2(a) and shall file a statement

on Schedule 13D (§ 240.13d–101)

within 10 days if, and shall remain

subject to those requirements for so long

as, the person:

(i) Has acquired or holds the

securities with a purpose or effect of

changing or influencing control of the

issuer, or in connection with or as a

participant in any transaction having

that purpose or effect, including any

transaction subject to § 240.13d–3(b);

and

(ii) Is at that time the beneficial owner

of more than five percent of a class of

equity securities described in

§ 240.13d–1(i).

(2) From the time the person has

acquired or holds the securities with a

purpose or effect of changing or

influencing control of the issuer, or in

connection with or as a participant in

any transaction having that purpose or

effect until the expiration of the tenth

day from the date of the filing of the

Schedule 13D (§ 240.13d–101) pursuant

to this section, that person shall not:

(i) Vote or direct the voting of the

securities described therein; or

(ii) Acquire an additional beneficial

ownership interest in any equity

securities of the issuer of the securities,

nor of any person controlling the issuer.

(f)(1) Notwithstanding paragraph (c)

of this section and § 240.13d–2(b),

persons reporting on Schedule 13G

(§ 240.13d–102) pursuant to paragraph

(c) of this section shall immediately

become subject to §§ 240.13d–1(a) and

240.13d–2(a) and shall remain subject to

those requirements for so long as, and

shall file a statement on Schedule 13D

(§ 240.13d–101) within 10 days of the

date on which, the person’s beneficial

ownership equals or exceeds 20 percent

of the class of equity securities.

(2) From the time of the acquisition of

20 percent or more of the class of equity

securities until the expiration of the

tenth day from the date of the filing of

the Schedule 13D (§ 240.13d–101)

pursuant to this section, the person

shall not:

(i) Vote or direct the voting of the

securities described therein, or

(ii) Acquire an additional beneficial

ownership interest in any equity

securities of the issuer of the securities,

nor of any person controlling the issuer.

(g) Any person who has reported an

acquisition of securities in a statement

on Schedule 13G (§ 240.13d–102)

pursuant to paragraph (b) of this section,

or has become obligated to report on the

Schedule 13G (§ 240.13d–102) but has

not yet filed the Schedule, and

thereafter ceases to be a person specified

in paragraph (b)(1)(ii) of this section or

determines that it no longer has

acquired or holds the securities in the

ordinary course of business shall

immediately become subject to

§ 240.13d–1(a) or § 240.13d–1(c) (if the

person satisfies the requirements

specified in § 240.13d–1(c)), and

§§ 240.13d–2 (a), (b) or (d), and shall

file, within 10 days thereafter, a

statement on Schedule 13D (§ 240.13d–

101) or amendment to Schedule 13G, as

applicable, if the person is a beneficial

owner at that time of more than five

percent of the class of equity securities.

(h) Any person who has filed a

Schedule 13D (§ 240.13d–101) pursuant

to paragraph (e), (f) or (g) of this section

may again report its beneficial

ownership on Schedule 13G (§ 240.13d–

102) pursuant to paragraphs (b) or (c) of

this section provided the person

qualifies thereunder, as applicable, by

filing a Schedule 13G (§ 240.13d–102)

once the person determines that the

provisions of paragraph (e), (f) or (g) of

this section no longer apply.

* * * * *

3. By amending § 240.13d–2 by

revising paragraphs (a), (b), and the note

to § 240.13d–2; redesignating paragraph

(c) as paragraph (e), and adding

paragraphs (c) and (d) to read as follows:

§ 240.13d–2 Filing of amendments to

Schedules 13D or 13G.

(a) If any material change occurs in

the facts set forth in the Schedule 13D

(§ 240.13d–101) required by § 240.13d–

1(a), including, but not limited to, any

material increase or decrease in the

percentage of the class beneficially

owned, the person or persons who were

required to file the statement shall

promptly file or cause to be filed with

the Commission an amendment

disclosing that change. An acquisition

or disposition of beneficial ownership of

securities in an amount equal to one

percent or more of the class of securities

shall be deemed ‘‘material’’ for purposes
Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Rules and Regulations 2867

of this section; acquisitions or

dispositions of less than those amounts

may be material, depending upon the

facts and circumstances.

(b) Notwithstanding paragraph (a) of

this section, and provided that the

person filing a Schedule 13G

(§ 240.13d–102) pursuant to § 240.13d–

1(b) or § 240.13d–1(c) continues to meet

the requirements set forth therein, any

person who has filed a Schedule 13G

(§ 240.13d–102) pursuant to § 240.13d–

1(b), § 240.13d–1(c) or § 240.13d–1(d)

shall amend the statement within fortyfive days after the end of each calendar

year if, as of the end of the calendar

year, there are any changes in the

information reported in the previous

filing on that Schedule: Provided,

however, That an amendment need not

be filed with respect to a change in the

percent of class outstanding previously

reported if the change results solely

from a change in the aggregate number

of securities outstanding. Once an

amendment has been filed reflecting

beneficial ownership of five percent or

less of the class of securities, no

additional filings are required unless the

person thereafter becomes the beneficial

owner of more than five percent of the

class and is required to file pursuant to

§ 240.13d–1.

(c) Any person relying on § 240.13d–

1(b) that has filed its initial Schedule

13G (§ 240.13d–102) pursuant to that

paragraph shall, in addition to filing any

amendments pursuant to § 240.13d–

2(b), file an amendment on Schedule

13G (§ 240.13d–102) within 10 days

after the end of the first month in which

the person’s direct or indirect beneficial

ownership, computed as of the last day

of the month, exceeds 10 percent of the

class of equity securities. Thereafter,

that person shall, in addition to filing

any amendments pursuant to § 240.13d–

2(b), file an amendment on Schedule

13G (§ 240.13d–102) within 10 days

after the end of the first month in which

the person’s direct or indirect beneficial

ownership, computed as of the last day

of the month, increases or decreases by

more than five percent of the class of

equity securities. Once an amendment

has been filed reflecting beneficial

ownership of five percent or less of the

class of securities, no additional filings

are required by this paragraph (c).

(d) Any person relying on § 240.13d–

1(c) and has filed its initial Schedule

13G (§ 240.13d–102) pursuant to that

paragraph shall, in addition to filing any

amendments pursuant to § 240.13d–

2(b), file an amendment on Schedule

13G (§ 240.13d–102) promptly upon

acquiring, directly or indirectly, greater

than 10 percent of a class of equity

securities specified in § 240.13d–1(d),

and thereafter promptly upon increasing

or decreasing its beneficial ownership

by more than five percent of the class of

equity securities. Once an amendment

has been filed reflecting beneficial

ownership of five percent or less of the

class of securities, no additional filings

are required by this paragraph (d).

* * * * *

Note to § 240.13d–2: For persons

filing a short-form statement pursuant to

Rule 13d–1 (b) or (c), see also Rules

13d–1 (e), (f), and (g).

4. By amending § 240.13d–3 by

revising paragraph (d)(1)(ii) to read as

follows:

§ 240.13d–3 Determination of beneficial

ownership.

* * * * *

(d) * * *

(1) * * *

(ii) Paragraph (d)(1)(i) of this section

remains applicable for the purpose of

determining the obligation to file with

respect to the underlying security even

though the option, warrant, right or

convertible security is of a class of

equity security, as defined in § 240.13d–

1(i), and may therefore give rise to a

separate obligation to file.

* * * * *

5. By adding § 240.13d–7 to read as

follows:

§ 240.13d–7 Dissemination.

One copy of the Schedule filed

pursuant to §§ 240.13d–1 and 240.13d–

2 shall be sent to the issuer of the

security at its principal executive office,

by registered or certified mail. A copy

of Schedules filed pursuant to

§§ 240.13d–1(a) and 240.13d–2(a) shall

also be sent to each national securities

exchange where the security is traded.

6. By amending § 240.13d–101 by

revising the language preceding the first

box on the cover page, revising the note

on the cover page, revising Instruction

(2) for the Cover Page, and in Item 7

revise the cite ‘‘Rule 13d–1(f)

‘‘(§ 240.13d–1(f))’’ to read ‘‘§ 240.13d–

1(k)’’ as follows:

§ 240.13d–101 Schedule 13D—Information

to be included in statements filed pursuant

to § 240.13d–1(a) and amendments thereto

filed pursuant to § 240.13d–2(a).

* * * * *

If the filing person has previously

filed a statement on Schedule 13G to

report the acquisition that is the subject

of this Schedule 13D, and is filing this

schedule because of §§ 240.13d–1(e),

240.13d–1(f) or 240.13d–1(g), check the

following box.

* * * * *

Note: Schedules filed in paper format shall

include a signed original and five copies of

the schedule, including all exhibits. See

§ 240.13d–7(b) for other parties to whom

copies are to be sent.

* * * * *

Instructions for Cover Page

* * * * *

(2) If any of the shares beneficially

owned by a reporting person are held as

a member of a group and the

membership is expressly affirmed,

please check row 2(a). If the reporting

person disclaims membership in a

group or describes a relationship with

other person but does not affirm the

existence of a group, please check row

2(b) [unless it is a joint filing pursuant

to Rule 13d–1(k)(1) in which case it may

not be necessary to check row 2(b)].

* * * * *

7. By amending § 240.13d–102 by

revising the section heading, before the

first paragraph on the cover page add a

line for the date of the reportable event

and boxes to check for the appropriate

filing provision, revising Instruction (2)

for the Cover Page, revising Instruction

A following the Notes, revising Items 3,

4, 8, and 10, and revising the Note at the

end of the schedule, to read as follows:

§ 240.13d–102 Schedule 13G—Information

to be included in statements filed pursuant

to § 240.13d–1(b), (c) and (d) and

amendments thereto filed pursuant to

§ 240.13d–2.

* * * * *

lllllllllllllllllllll

(Date of Event Which Requires Filing of this

Statement)

Check the appropriate box to

designate the rule pursuant to which

this Schedule is filed:

[ ] Rule 13d–1(b)

[ ] Rule 13d–(c)

[ ] Rule 13d–1(d)

* * * * *

Instructions for Cover Page

* * * * *

(2) If any of the shares beneficially

owned by a reporting person are held as

a member of a group and that

membership is expressly affirmed,

please check row 2(a). If the reporting

person disclaims membership in a

group or describes a relationship with

other person but does not affirm the

existence of a group, please check row

2(b) [unless it is a joint filing pursuant

to Rule 13d–1(k)(1) in which case it may

not be necessary to check row 2(b)].

* * * * *

Notes

* * * * *

Instructions. A. Statements filed

pursuant to Rule 13d–1(b) containing

the information required by this
2868 Federal Register / Vol. 63, No. 11 / Friday, January 16, 1998 / Rules and Regulations

schedule shall be filed not later than

February 14 following the calendar year

covered by the statement or within the

time specified in Rules 13d–1(b)(2) and

13d–2(c). Statements filed pursuant to

Rule 13d–1(c) shall be filed within the

time specified in Rules 13d–1(c), 13d–

2(b) and 13d–2(d). Statements filed

pursuant to Rule 13d–1(c) shall be filed

not later than February 14 following the

calendar year covered by the statement

pursuant to Rules 13d–1(d) and 13d–

2(b).

* * * * *

Item 3. If this statement is filed

pursuant to §§ 240.13d–1(b) or 240.13d–

2(b) or (c), check whether the person

filing is a:

(a) [ ] Broker or dealer registered

under section 15 of the Act (15 U.S.C.

78o).

(b) [ ] Bank as defined in section

3(a)(6) of the Act (15 U.S.C. 78c).

(c) [ ] Insurance company as defined

in section 3(a)(19) of the Act (15 U.S.C.

78c).

(d) [ ] Investment company registered

under section 8 of the Investment

Company Act of 1940 (15 U.S.C 80a–8).

(e) [ ] An investment adviser in

accordance with § 240.13d–1(b)(1)(ii)(E);

(f) [ ] An employee benefit plan or

endowment fund in accordance with

§ 240.13d–1(b)(1)(ii)(F);

(g) [ ] A parent holding company or

control person in accordance with

§ 240.13d–1(b)(1)(ii)(G);

(h) [ ] A savings associations as

defined in Section 3(b) of the Federal

Deposit Insurance Act (12 U.S.C. 1813);

(i) [ ] A church plan that is excluded

from the definition of an investment

company under section 3(c)(14) of the

Investment Company Act of 1940 (15

U.S.C. 80a–3);

(j) [ ] Group, in accordance with

§ 240.13d–1(b)(1)(ii)(J).

If this statement is filed pursuant to

§ 240.13d–1(c), check this box. [ ]

Item 4. Ownership

Provide the following information

regarding the aggregate number and

percentage of the class of securities of

the issuer identified in Item 1.

(a) Amount beneficially owned:

lllll.

(b) Percent of class: lllll.

(c) Number of shares as to which the

person has:

(i) Sole power to vote or to direct the

vote lllll.

(ii) Shared power to vote or to direct

the vote lllll.

(iii) Sole power to dispose or to direct

the disposition of lllll.

(iv) Shared power to dispose or to

direct the disposition of lllll.

Instruction. For computations

regarding securities which represent a

right to acquire an underlying security

see § 240.13d–3(d)(1).

* * * * *

Item 8. Identification and Classification

of Members of the Group

If a group has filed this schedule

pursuant to § 240.13d–1(b)(1)(ii)(J), so

indicate under Item 3(h) and attach an

exhibit stating the identity and Item 3

classification of each member of the

group. If a group has filed this schedule

pursuant to § 240.13d–1(d), attach an

exhibit stating the identity of each

member of the group.

* * * * *

Item 10. Certifications

(a) The following certification shall be

included if the statement is filed

pursuant to § 240.13d–1(b):

By signing below I certify that, to the

best of my knowledge and belief, the

securities referred to above were

acquired and are held in the ordinary

course of business and were not

acquired and are not held for the

purpose of or with the effect of changing

or influencing the control of the issuer

of the securities and were not acquired

and are not held in connection with or

as a participant in any transaction

having that purpose or effect.

(b) The following certification shall be

included if the statement is filed

pursuant to § 240.13d–1(c):

By signing below I certify that, to the

best of my knowledge and belief, the

securities referred to above were not

acquired and are not held for the

purpose of or with the effect of changing

or influencing the control of the issuer

of the securities and were not acquired

and are not held in connection with or

as a participant in any transaction

having that purpose or effect.

* * * * *

Note: Schedules filed in paper format shall

include a signed original and five copies of

the schedule, including all exhibits. See

§ 240.13d–7(b) for other parties for whom

copies are to be sent.

* * * * *

8. By amending § 240.16a–1 to revise

paragraphs (a)(1)(i), (ii), (iii), (iv), (v),

(vi) and (vii), redesignate paragraph

(a)(1)(viii) as paragraph (a)(1)(xi) and to

add paragraphs (a)(1)(viii), (ix) and (x)

to read as follows:

§ 240.16a–1 Definition of terms.

* * * * *

(a) * * *

(1) * * *

(i) A broker or dealer registered under

section 15 of the Act (15 U.S.C. 78o);

(ii) A bank as defined in section

3(a)(6) of the Act (15 U.S.C. 78c);

(iii) An insurance company as defined

in section 3(a)(19) of the Act (15 U.S.C.

78c);

(iv) An investment company

registered under section 8 of the

Investment Company Act of 1940 (15

U.S.C. 80a–8);

(v) Any person registered as an

investment adviser under Section 203 of

the Investment Advisers Act of 1940 (15

U.S.C. 80b–3) or under the laws of any

state;

(vi) An employee benefit plan as

defined in Section 3(3) of the Employee

Retirement Income Security Act of 1974,

as amended, 29 U.S.C. 1001 et seq.

(‘‘ERISA’’) that is subject to the

provisions of ERISA, or any such plan

that is not subject to ERISA that is

maintained primarily for the benefit of

the employees of a state or local

government or instrumentality, or an

endowment fund;

(vii) A parent holding company or

control person, provided the aggregate

amount held directly by the parent or

control person, and directly and

indirectly by their subsidiaries or

affiliates that are not persons specified

in paragraphs (a)(1)(i) through (ix), does

not exceed one percent of the securities

of the subject class;

(viii) A savings association as defined

in Section 3(b) of the Federal Deposit

Insurance Act (12 U.S.C. 1813);

(ix) A church plan that is excluded

from the definition of an investment

company under section 3(c)(14) of the

Investment Company Act of 1940 (15

U.S.C. 80a–3); and

(x) A group, provided that all the

members are persons specified in

§ 240.16a–1(a)(1)(i) through (ix).

* * * * *

By the Commission.

Dated: January 12, 1998.

Jonathan G. Katz,

Secretary.

[FR Doc. 98–1084 Filed 1–15–98; 8:45 am]

BILLING CODE 8010–01–P