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Tracking Stocks

Sept. 3, 2004

Many companies issue "tracking" stocks—also known as "targeted" stocks—in addition to their traditional common stock. A tracking stock is a type of common stock that "tracks" or depends on the financial performance of a specific business unit or operating division of a company—rather than the operations of the company as a whole. Tracking stocks trade as separate securities. As a result, if the unit or division does well, the value of the tracking stock may increase—even if the company as a whole performs poorly. The opposite may also be true.

Shareholders of tracking stocks have a financial interest only in that unit or division of the company. Unlike the common stock of the company itself, a tracking stock usually has limited or no voting rights. In the event of a company’s liquidation, tracking stock shareholders typically do not have a legal claim on the company’s assets. If a tracking stock pays dividends, the amounts paid will depend on the performance of the business unit or division. But not all tracking stocks pay dividends.

The SEC’s registration and reporting requirements for tracking stocks are basically no different from the requirements for any company issuing a new class of common stock. Unless an exemption applies, a tracking stock must be registered under the Securities Act of 1933 if it is publicly offered. The reporting requirements under the Securities Exchange Act of 1934 extend to the company that offered the tracking stock to the public. In most cases, since the company is already filing reports with the SEC, the only effect of issuing a tracking stock is that the company must include financial statements about the tracking stock in its reports.

If you want to find more information about a company’s tracking stock, you should visit the "investor relations" section of the company’s website.

We have provided this information as a service to investors.  It is neither a legal interpretation nor a statement of SEC policy.  If you have questions concerning the meaning or application of a particular law or rule, please consult with an attorney who specializes in securities law.

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