[Federal Register Volume 63, Number 11 (Friday, January 16, 1998)]
[Rules and Regulations]
[Pages 2854-2868]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-1084]



[[Page 2853]]

_______________________________________________________________________

Part V





Securities and Exchange Commission





_______________________________________________________________________



17 CFR Part 240



Amendments to Beneficial Ownership Reporting Requirements; Final Rule

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

[[Page 2854]]



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.

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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'').
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    \1\ Rules 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.
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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.
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    \4\ See fn. 9, infra.
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    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\
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    \5\ Schedules 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.
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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 
short-form 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

[[Page 2855]]

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).
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    \6\ Exchange 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).
    \7\ The 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)].
    \8\ The 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.
    \9\ The 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''.
    \10\ Rule 13d-1(c).
    \11\ The 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).
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    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\
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    \12\ Amended 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.
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    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\
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    \13\ See Sections II.C. and II.D. infra.
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    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.
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    \14\ The 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).
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    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 Cooling-Off 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 
cooling-off 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

[[Page 2856]]

the issuer or any person controlling the issuer.
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    \15\ Rule 13d-1(e).
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    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.
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    \16\ The 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.
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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.
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    \17\ Upon reaching the 20 percent limit, the investor is not 
required to amend its Schedule 13G in addition to filing the 
Schedule 13D.
    \18\ Rule 13d-1(f).
    \19\ The ``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.
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    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\
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    \20\ As 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.
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    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 re-establishes 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 re-establishing 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.
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    \21\ Rule 13d-1(h).
    \22\ Rule 13d-1(b).
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    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.
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    \23\ The 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.
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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

[[Page 2857]]

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.
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    \24\ See Exchange Act Release No. 14692 (April 21, 1978) [43 FR 
18484].
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    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 no-action relief from the staff under current 
practices.
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    \25\ See Section II.B. above.
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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.
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    \26\ Title V, Section 508.
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    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\
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    \27\ Rule 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.
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    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\
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    \28\ This amendment under Section 16 codifies the interpretive 
position set forth in Edward C. Johnson 3d., (available August 20, 
1991).
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    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.
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    \29\ Since 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.
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    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\
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    \30\ Likewise, under these circumstances, attribution may not be 
required under Rule 16a-1(a)(1).
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    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

[[Page 2858]]

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.
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    \31\ The 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).
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    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\
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    \32\ To 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.
---------------------------------------------------------------------------

    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.
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    \33\ The 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.
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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.
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    \34\ Pub. L. No. 104-290, 110 Stat. 3416 (1996) (codified in 
scattered sections of the United States Code).
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    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

[[Page 2859]]

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 non-management 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
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    \35\ Rule 13d-1(h).
    \36\ On 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 13G-eligibility 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.
---------------------------------------------------------------------------

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
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    \37\ Schedules 13D will, however, continue to be sent to each 
exchange on which the security is traded, which is a statutory 
requirement.
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    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.
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    \38\ See Exchange Act Release No. 7331 (September 24, 1996).
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[[Page 2864]]

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.
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    \38\ See Exchange Act Release No. 7331 (September 24, 1996).
---------------------------------------------------------------------------

    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.
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    \39\ The 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.
    \41\ This 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.
    \42\ Total 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.
    \43\ This 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.
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    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

[[Page 2865]]

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. Sec. 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
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    \44\ However, 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.
    \45\ The sample included 100 Schedules 13D filed from May 21, 
1997 to June 2, 1997.
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    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 Sec. 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:


Sec. 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 
(Sec. 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 (Sec. 240.13d-
101) may, in lieu thereof, file with the Commission, a short-form 
statement on Schedule 13G (Sec. 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 Sec. 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);

[[Page 2866]]

    (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 
Sec. 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 (Sec. 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 (Sec. 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 Sec. 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 (Sec. 240.13d-102).
    (e)(1) Notwithstanding paragraphs (b) and (c) of this section and 
Sec. 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 (Sec. 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 
Secs. 240.13d-1(a) and 240.13d-2(a) and shall file a statement on 
Schedule 13D (Sec. 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 Sec. 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 Sec. 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 (Sec. 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 
Sec. 240.13d-2(b), persons reporting on Schedule 13G (Sec. 240.13d-102) 
pursuant to paragraph (c) of this section shall immediately become 
subject to Secs. 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 (Sec. 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 (Sec. 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 (Sec. 240.13d-102) pursuant to paragraph (b) 
of this section, or has become obligated to report on the Schedule 13G 
(Sec. 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 
Sec. 240.13d-1(a) or Sec. 240.13d-1(c) (if the person satisfies the 
requirements specified in Sec. 240.13d-1(c)), and Secs. 240.13d-2 (a), 
(b) or (d), and shall file, within 10 days thereafter, a statement on 
Schedule 13D (Sec. 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 (Sec. 240.13d-101) 
pursuant to paragraph (e), (f) or (g) of this section may again report 
its beneficial ownership on Schedule 13G (Sec. 240.13d-102) pursuant to 
paragraphs (b) or (c) of this section provided the person qualifies 
thereunder, as applicable, by filing a Schedule 13G (Sec. 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 Sec. 240.13d-2 by revising paragraphs (a), (b), and 
the note to Sec. 240.13d-2; redesignating paragraph (c) as paragraph 
(e), and adding paragraphs (c) and (d) to read as follows:


Sec. 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 (Sec. 240.13d-101) required by Sec. 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

[[Page 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 (Sec. 240.13d-102) pursuant to 
Sec. 240.13d-1(b) or Sec. 240.13d-1(c) continues to meet the 
requirements set forth therein, any person who has filed a Schedule 13G 
(Sec. 240.13d-102) pursuant to Sec. 240.13d-1(b), Sec. 240.13d-1(c) or 
Sec. 240.13d-1(d) shall amend the statement within forty-five 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 Sec. 240.13d-
1.
    (c) Any person relying on Sec. 240.13d-1(b) that has filed its 
initial Schedule 13G (Sec. 240.13d-102) pursuant to that paragraph 
shall, in addition to filing any amendments pursuant to Sec. 240.13d-
2(b), file an amendment on Schedule 13G (Sec. 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 Sec. 240.13d-2(b), file an amendment on Schedule 13G 
(Sec. 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 Sec. 240.13d-1(c) and has filed its 
initial Schedule 13G (Sec. 240.13d-102) pursuant to that paragraph 
shall, in addition to filing any amendments pursuant to Sec. 240.13d-
2(b), file an amendment on Schedule 13G (Sec. 240.13d-102) promptly 
upon acquiring, directly or indirectly, greater than 10 percent of a 
class of equity securities specified in Sec. 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 Sec. 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 Sec. 240.13d-3 by revising paragraph (d)(1)(ii) to 
read as follows:


Sec. 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 
Sec. 240.13d-1(i), and may therefore give rise to a separate obligation 
to file.
* * * * *
    5. By adding Sec. 240.13d-7 to read as follows:


Sec. 240.13d-7  Dissemination.

    One copy of the Schedule filed pursuant to Secs. 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 Secs. 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 Sec. 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) ``(Sec. 240.13d-1(f))'' to read ``Sec. 240.13d-
1(k)'' as follows:


Sec. 240.13d-101  Schedule 13D--Information to be included in 
statements filed pursuant to Sec. 240.13d-1(a) and amendments thereto 
filed pursuant to Sec. 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 Secs. 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 Sec. 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 Sec. 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:


Sec. 240.13d-102  Schedule 13G--Information to be included in 
statements filed pursuant to Sec. 240.13d-1(b), (c) and (d) and 
amendments thereto filed pursuant to Sec. 240.13d-2.

* * * * *
----------------------------------------------------------------------
(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

[[Page 2868]]

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 Secs. 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 Sec. 240.13d-
1(b)(1)(ii)(E);
    (f) [ ] An employee benefit plan or endowment fund in accordance 
with Sec. 240.13d-1(b)(1)(ii)(F);
    (g) [ ] A parent holding company or control person in accordance 
with Sec. 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 Sec. 240.13d-1(b)(1)(ii)(J).
    If this statement is filed pursuant to Sec. 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: __________.
    (b) Percent of class: __________.
    (c) Number of shares as to which the person has:
    (i) Sole power to vote or to direct the vote __________.
    (ii) Shared power to vote or to direct the vote __________.
    (iii) Sole power to dispose or to direct the disposition of 
__________.
    (iv) Shared power to dispose or to direct the disposition of 
__________.
    Instruction. For computations regarding securities which represent 
a right to acquire an underlying security see Sec. 240.13d-3(d)(1).
* * * * *

Item 8. Identification and Classification of Members of the Group

    If a group has filed this schedule pursuant to Sec. 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 Sec. 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 Sec. 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 Sec. 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 Sec. 240.13d-7(b) for other parties for whom copies are to be 
sent.
* * * * *
    8. By amending Sec. 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:


Sec. 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 
Sec. 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