33594 Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / Notices

SECURITIES AND EXCHANGE

COMMISSION

[Investment Company Act Release No.

24457; 813–170]

Bain Capital, Inc. and BCIP Associates

II; Notice of Application

May 17, 2000.

AGENCY: Securities and Exchange

Commission (‘‘SEC’’).

ACTION: Notice of application for an

order under sections 6(b) and 6(e) of the

Investment Company Act of 1940

(‘‘Act’’) granting an exemption from all

provisions of the Act except section 9,

sections 17 (other than certain

provisions of paragraphs (a), (d), (f), (g),

and (j)) and 30 (other than certain

provisions of paragraphs (a), (b), (e), and

(h)), sections 36 through 53, and the

rules and regulations under the Act.

SUMMARY OF APPLICATION: Applicants

Bain Capital, Inc. (‘‘Bain Capital’’) and

BCIP Associates II (the ‘‘Initial

Investment Entity’’) request an

exemption from various provisions of

the Act for an ‘‘employees’ securities

company’’ within the meaning of

section 2(a)(13) of the Act.

Filing Dates: The application was

filed on May 29, 1997, and amended on

May 12, 2000.

Hearing or Notification of Hearing: An

order granting the application will be

issued unless the SEC orders a hearing.

Interested persons may request a

hearing by writing to the SEC’s

Secretary and serving applicants with a

copy of the request, personally or by

mail. Hearing requests should be

received by the SEC by 5:30 p.m. on

June 12, 2000, and should be

accompanied by proof of service on

applicant, in the form of an affidavit or,

for lawyers, a certificate of service.

Hearing requests should state the nature

of the writer’s interest, the reason for the

request, and the issues contested.

Persons may request notification of a

hearing by writing to the SEC’s

Secretary.

ADDRESSES:

Secretary, SEC, 450 Fifth Street NW,

Washington, DC 20549–0609.

Applicants, Two Copley Place, Boston,

Massachusetts 02116.

FOR FURTHER INFORMATION CONTACT:

Mary Kay Frech, Branch Chief, at (202)

942–0564 (Division of Investment

Management, Office of Investment

Company Regulation).

SUPPLEMENTARY INFORMATION: The

following is a summary of the

application. The complete application

may be obtained for a fee by writing the

SEC’s Public Reference Branch at 450

Fifth Street NW, Washington, DC

20549–0102, or by telephone at (202)

942–8090.

Applicants’ Representations

1. Bain Capital, A Delaware

corporation, is a private equity

investment firm. It manages private

investment funds (the ‘‘Bain Funds’’)

which are exempt from registration

under the Act in reliance on sections

3(c)(1) and 3(c)(7) of the Act. Bain

Capital is exempt from registration as an

investment adviser under the

Investment Advisers Act of 1940

(‘‘Advisers Act’’) in reliance upon

section 203(b)(3) of the Advisers Act.

2. Applicants propose to offer various

investment programs (‘‘Investment

Entities’’) to Eligible Investors (as

defined below) of Bain Capital and Bain

Capital Holdings, LLC, a limited

liability company which is being

organized to carry on the business

activities of Bain Capital and will be

owned by key employees of Bain Capital

(together with Bain Capital, the

‘‘Company’’).

The Initial Investment Entity has been

established to enable Eligible Investors

to participate in co-investment

opportunities with the Bain Funds. The

Initial Investment Entity is structured as

a general partnership formed as an

‘‘employees’ securities company’’

within the meaning of section 2(a)(13) of

the Act, and will operate as a closedend, non-diversified, management

investment company.

A subsequent Investment Entity may

be structured as a general partnership or

as a domestic or offshore limited

partnership, limited liability company,

or corporation. The Investment Entities

are established to reward and retain

Eligible Employees (as defined below)

and to attract highly qualified personnel

to the Company. No Eligible Employee

will be required to invest in any

Investment Entity.

3. The Company will act as the

managing partner (‘‘Managing Partner’’)

of the Initial Investment Entity. The

Managing Partner of subsequent

Investment Entities will be the

Company, a successor entity, (i.e., an

entity or entities that result from a

reorganization into another jurisdiction

or a change in the type of business

organization of the Company) or an

affiliated person (as defined in section

2(a)(3)(C) of the Act) of the Company

(‘‘Control Affiliate’’). A person serving

as an investment adviser to an

Investment Entity will be registered as

an investment adviser under the

Advisers Act, if required under

applicable law.

4. No fee will be charged to an

Investment Entity by the Managing

Partner and no compensation will be

paid by an Investment Entity or its

Partners to the Managing Partner for its

services in such capacity. No

Investment Entity will be charged

management fees by the Company, or

any of its affiliates. The Managing

Partner may require an Investment

Entity to reimburse it for direct costs of

disbursements and expenses that it

incurs on behalf of such Investment

Entity.

5. Interests in the Investment Entities

(‘‘Interests’’) will be offered without

registration in reliance on section 4(2) of

the Securities Act of 1993 (the ‘‘1933

Act’’) or Regulation D under the 1933

Act and will be sold without a sales

charge. Interests will be sold solely to

‘‘Eligible Investors.’’

Eligible Investors will consist of: (a)

Eligible Employees (as defined below);

(b) trusts and other investments vehicles

of which the trustees, grantors and/or

beneficiaries are Eligible Employees or

of which the beneficiaries are

immediate family members (spouses,

parents, children, spouses of children,

brothers, sisters, and grandchildren) of

Eligible Employees and charitable

organizations, including self-directed

retirement plan vehicles (including

individual retirement accounts); (c)

partnerships, corporations or other

entities all of the voting power of which

is controlled by Eligible Employees; and

(d) the Company.

Prior to offering interests in an

Investment Entity to an Eligible

Employee, the Managing Partner must

reasonably believe that the Eligible

Employee will be a sophisticated

investor capable of understanding and

evaluating the risks of participating in

the Investment Entity without the

benefit of regulatory safeguards. Eligible

Employees will be experienced

professionals in the leveraged buy out,

venture capital, investment banking or

management consulting business, or in

related administrative, financial,

accounting or operational activities.

6. An ‘‘Eligible Employee’’ is an

individual who at the time of an offer

for an Interest in an Investment Entity

is:

(a) A professional or key

administrative employee of the

Company or a Control Affiliate, or a

former professional employee of the

Company or a Control Affiliate, and is

an accredited investor meeting the

income requirements set forth in rule

501(a)(6) of Regulation D under the 1933

Act; or

(b) an employee of the Company or a

Control Affiliate who: (i) Will be

Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / Notices 33595

involved in managing the finances or

the day-to-day affairs of the Investment

Entities or in locating, structuring or

administering the investments made by

the Investment Entities; (ii) has an

individual rate of annual compensation

from all sources of at least $120,000, (iii)

has a reasonable expectation of having

the same rate of annual compensation in

each of the two immediately succeeding

years; and (iv) has such knowledge and

experience in financial and business

matters that he will be capable of

evaluating the merits and risks of the

proposed investments. A maximum of

35 persons who do not meet the income

requirements of Regulation D under the

1933 Act at the time an offer for an

Interest is made will be admitted to any

Investment Entity.

7. Before participating in an

Investment Entity, Eligible Employees

will be provided with a copy of the

organizational documents of the

Investment Entity, which will set forth

the specific investment objectives and

strategies of the Investment Entity, and

a description of the relevant risks

associated with an investment in an

Investment Entity.

8. Each Investment Entity will send

the Eligible Investors that participate in

the Investment Entity (‘‘Partners’’) an

annual repot regarding its operations

which will contain unaudited financial

statements. Within 90 days after the end

of each fiscal year, or as soon as

practicable thereafter, each Investment

Entity will transmit to each Partner a

report indicating its Share of the income

or losses of the Investment Entity for

federal income tax purposes for the

fiscal year most recently ended.

9. An Investment Entity will maintain

a separate class of capital accounts for

Partners who are participating in a

particular investment (the ‘‘Participating

Partners’’). Capital contributions made

to an Investment Entity by or on behalf

of Participating Partners will be

allocated pro-rata to the capital subaccounts relating to a particular

investment for such Participating

Partners. Partners who do not

participate in a particular investment

will have no interest in, or capital subaccount with respect to, such

investment. A Partner’s percentage

share will differ from one sub-account

to another, such that each Partner’s

proportionate mix of investments is

likely to differ from each other Partner’s

and from an Investment Entity’s

aggregate investments.

10. In addition to co-investment

opportunities with the Bain Funds, the

Managing Partner of the Initial

Investment Entity may make other

investment opportunities not related to

Bain Fund investments available to one

or more Partners who are Eligible

Investors and in the case of any followon investment in a portfolio company,

the Managing Partner may also, in its

discretion, make such opportunity

available to Partners who participated in

earlier investments by the Initial

Investment Entity in such portfolio

company.

11. Partners will not be entitled to

redeem their interest in the Initial

Investment Entity. A Partner will be

permitted to transfer its interest only

with the express consent of the

Managing Partner and only to an

Eligible Investor. Upon a Partner’s

death, the Partner’s estate will be

substituted as a Partner.

12. The Managing Partner may require

a Partner to withdraw from an

Investment Entity if: (a) The Partner is

no longer deemed to be able to bear to

economic risk of investment in an

Investment Entity; (b) an Investment

Entity may suffer adverse tax

consequences if a particular Partner

were to remain; (c) the continued

participation of the Partner would

violate applicable law or regulations; or

(d) the Managing Partner; in its sole

discretion, deems such withdrawal to be

in the best interest of the Investment

Entity and any of its affiliated persons

(as defined in section 2(a)(3)(C) of the

Act).

If a Partner is required to withdraw,

an Investment Entity may, in its sole

discretion, require the Partner to sell its

Interest in the Investment Entity. The

purchase price for the sale of a

withdrawing Partner’s Interest would be

equal to the Partner’s capital account for

the Investment as of the date the Partner

is requested to withdraw determined as

if the capital account were credited or

charged with the income, realized and

unrealized gains, expenses, and realized

and unrealized losses attributable to the

investment as determined by the

Managing Partner.

13. An Investment Entity will not

acquire any security issued by a

registered investment company if,

immediately after such acquisition, the

Investment Entity would own more than

3% of the outstanding voting stock of

the registered investment company.

14. Each Investment Entity may invest

in investment opportunities offered to

or by, or that come to the attention of,

the Company, including opportunities

in which the Company, its affiliates

and/or its employees (including

Partners of the Investment Entities) may

invest for their own respective accounts.

The Investment Entities may also sell

securities to, or buy securities from, the

Company, its affiliates, or its employees

and may distribute securities in-kind to

Partners. The Company may perform

services for entities in which an

Investment Entity invests and may be

paid by such entities for such services

and for related disbursements and

charges.

Applicant’s Legal Analysis

1. Section 6(b) of the Act provides, in

part, that the SEC will exempt

employees’ securities companies from

the provisions of the Act to the extent

that such exemption is consistent with

the protection of investors. Section 6(b)

provides that the SEC will consider, in

determining which provisions of the Act

from which the company should be

exempt, the company’s form of

organization and capital structure, the

persons owning and controlling its

securities, the price of the company’s

securities and the amount of any sales

load, how the company’s funds are

invested, and the relationship between

the company and the issuers of the

securities in which it invests.

Section 2(a)(13) of the Act defines an

employees’ security company, in

relevant part, as any investment

company all of whose outstanding

securities are beneficially owned: (a) By

current or former employees, or persons

on retainer, of one or more affiliated

employers; (b) by immediate family

members of such employees; or (c) by

such employer or employers together

with any of the persons in (a) or (b).

2. Section 7 of the Act generally

prohibits investment companies that are

not registered under section 8 of the Act

from selling or redeeming their

securities. Section 6(e) of the Act

provides that, in connection with any

order exempting an investment

company from any provision of section

7, certain provisions of the Act, as

specified by the SEC, will be applicable

to the company and other persons

dealing with the company as though

such company were registered under the

Act.

Applicants request an order under

sections 6(b) and 6(e) of the Act

exempting them from all provisions of

the Act, except section 9, sections 17

(other than certain provisions of

paragraphs (a), (d), (f), (g), and (j)), and

30 (other than certain provisions of

paragraphs (a), (b), (e), and (h)), and

sections 36 through 53, and the rules

and regulations under the Act.

3. Section 17(a) generally prohibits

any affiliated person (as defined in

section 2(a)(3) of the Act) of a registered

investment company, or any affiliated

person of such person, acting as

principal, from knowingly selling or

33596 Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / Notices

purchasing any security or other

property to or from the company.

Applicants request an exemption from

section 17(a) to permit:

(a) The Company and Control

Affiliates, acting as principal, to engage

in any transaction directly or indirectly

with any Investment Entity or any entity

controlled by an Investment Entity;

(b) Any Investment Entity to invest in

or engage in any transaction with any

entity, acting a principal: (i) in which an

Investment Entity, and entity controlled

by an Investment Entity, the Company

or Control Affiliate has invested or will

invest; or (ii) with which an Investment

Entity, any entity controlled by an

Investment Entity, the Company or any

Control Affiliate is or will become

otherwise affiliated; and

(c) A partner or other investor of an

investment vehicle for investors who are

not affiliated with the Company, over

which the Company or a Control

Affiliate exercises investment

discretion, and any affiliate of that

partner or investor (collectively, ‘‘Third

Party Investors’’), acting as principal, to

engage in any transaction directly or

indirectly with an Investment Entity or

any entity controlled by an Investment

Entity.

4. Applicants state that an exemption

from section 17(a) is consistent with the

protection of investors. Applicants

assert that, prior to investing, Eligible

Employees will be provided with a copy

of the organizational documents of an

Investment Entity, which will set forth

its specific investment objectives and

strategies. Applicants believe that the

Eligible Employees will be able to

understand and evaluate the risks

associated with participation in an

Investment Entity. Applicants assert

that the community of interest among

the Partners and the Company will

reduce the risk of abuse in such

transactions. Applicants also

acknowledge that any transaction

subject to section 17(a) for which

exemptive relief has not been requested

would require specific approval from

the SEC.

5. Section 17(d) of the Act and rule

17d–1 under the Act prohibit any

affiliated person or principal

underwriter of a registered investment

company, or any affiliated person of an

affiliated person or principal

underwriter, acting as principal, from

participating in any joint arrangement

with the company unless authorized by

order of the SEC.

Applicants request relief to permit an

Investment Entity to participate in joint

transactions involving:

(a) An investment in a security: (i) in

which the Bain Funds, the Company,

another Investment Entity or an

affiliated person of any of the Bain

Funds, the Company or an Investment

Entity, or a transferee of one of these, is

a participant or becomes a participant;

or (ii) with respect to which the

Company or any affiliated person

thereof is entitled to receive fees or

compensation of any kind, including,

but not limited to, transaction fees,

consulting fees, management fees or

other economic benefits or interests; and

(b) Any investment vehicle

sponsored, offered or managed by the

Company, another Investment Entity or

any affiliated person of the Company or

an Investment Entity.

6. Applicants assert that the flexibility

to structure co- and joint investments in

the manner described in the application

will not involve abuses of the type

section 17(d) an rule 17d–1 were

designed to prevent. Applicants state

that, because attractive investment

opportunities of the types considered by

the Investment Entities often require

that each participant make available

funds in an amount that may be

substantially greater than that available

to an Investment Entity alone, there may

be certain attractive opportunities of

which an Investment Entity may be

unable to take advantage except as a coparticipant with other persons,

including affiliated persons.

Applicants state also that, in light of

the Company’s purpose of establishing

the Investment Entities to reward

Eligible Investors and to attract highlyqualified personnel to the Company, the

possibility is minimal that an affiliatedparty investor will enter into a

transaction with an Investment Entity

with the intent of disadvantaging the

Investment Entity. Applicants assert

that strict compliance with section 17(d)

could cause an Investment Entity to

forgo investment opportunities simply

because a Partner, the Company, or

another affiliated person of the

Investment Entity also had or was

making such investment and would

prevent the Investment Entity from

achieving its primary investment

purpose of investing alongside the Bain

Funds.

7. Section 17(f) of the Act designates

the entities that may act as investment

company custodians, and rule 17f–2

specifies the requirements for a

registered management investment

company to maintain custody of its

investments.

Applicants request an exemption from

the requirements of section 17(f) of the

Act and rule 17f–2 under the Act to

permit the following exceptions from

the requirements of rule 17f–2:

(a) Compliance with paragraph (b) of

the rule may be achieved through

safekeeping in the locked files of the

Company or of a partner of the

Company;

(b) For purposes of paragraph (d) of

the rule: (i) employees of the Company

will be deemed employees of the

Investment Entities, (ii) officers of the

Managing Partner of an Investment

Entity will be deemed to be officers of

such Investment Entity, (iii) the

Managing Partner of an Investment

Entity will be deemed to be the board

of directors of such Investment Entity;

and

(c) In place of the verification

procedure under paragraph (f) of the

rule, verification will be effected

quarterly by two employees of the

Company. Applicants submit that,

because may of the Investment Entities’

investments will be evidenced only by

partnership agreements or similar

documents, rather than by negotiable

certificates which could be

misappropriated, such instruments are

most suitably kept in the Company’s

files where they can be referred to as

necessary. Applicants also state that

each Investment Entity comply with all

other requirements of rule 17f–2.

8. Section 17(g) of the Act and rule

17g–1 under the Act generally require

the bonding of officers and employees of

a registered investment company who

have access to its securities or funds.

Rule 17g–1 requires that a majority of

directors who are not interested persons

take certain actions and give certain

approvals relating to fidelity bonding.

Applicants state that it is likely that

all members of the board of directors of

the Managing Partners (‘‘Board

Members’’) would be considered

interested persons of the Investment

Entities. Applicants request exemptive

relief to permit a majority of the Board

Members, regardless of whether they are

interested persons, to take certain

actions and make certain approvals

concerning bonding required by rule

17g–1.

Applicants state that the Investment

Entities could not comply with rule

17g–1 without the requested relief.

Applicants also state that each

Investment Entity will comply with all

other requirements of rule 17g–1.

9. Section 17(j) and rule 17j–1(b)

make it unlawful for certain persons to

engage in fraudulent or deceptive

practices in connection with the

purchase or sale of a security held or to

be acquired by a registered investment

company. Rule 17j–1 also requires that

every registered investment company

adopt a written code of ethics and that

every access person of a registered

Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / Notices 33597

1Such persons shall not include any parties who

may be affiliated persons of the Investment Entity

solely because they have co-invested in an

investment vehicle or joint enterprise, where

neither the Investment Entity nor the Company

exercises control over such persons.

investment company report personal

securities transactions. Applicants

request an exemption from the

requirements of rule 17j–1 under the

Act, with the exception of the anti-fraud

provisions of paragraph (b), because

they would be unnecessary and

burdensome in the case of the

Investment Entities.

10. Applicants request an exemption

from the requirements in sections 30(a),

30(b), and 30(e), and the rules under

those sections, that registered

investment companies prepare and file

with the SEC and mail to their

shareholders certain periodic reports

and financial statements. Applicants

contend that the forms prescribed by the

SEC for periodic reports have little

relevance to the Investment Entities and

would entail administrative and legal

costs that outweigh any benefit to the

Partners. Applicants request exemptive

relief to the extent necessary to permit

each Investment Entity to report

annually to its Partners.

Applicants also request an exemption

from section 30(h) to the extent

necessary to exempt the Managing

Partner, Board Members and any other

persons who may be deemed to be

members of an advisory board of an

Investment Entity from filing Forms 3,

4, and 5 under section 16(a) of the

Securities Exchange Act of 1934 (the

‘‘Exchange Act’’) with respect to their

ownership of Interests in the Investment

Entities. Applicants assert that, because

there will be no trading market and the

transfers of Interests will be severely

restricted, these filings are unnecessary

for the protection of investors and

burdensome to those required to make

them.

Applicant’s Conditions

Applicants agree that any order

granting the requested relief shall be

subject to the following conditions:

1. Each proposed transaction

otherwise prohibited by section 17(a) or

section 17(d) and rule 17d–1 (the

‘‘Section 17 Transactions’’) will be

effected only if the Managing Partner

determines that:

(A) The terms of the Section 17

Transaction, including the

consideration to be paid or received, are

fair and reasonable to the affected

Partners of the participating Investment

Entity and do not involve overreaching

of the Investment Entity or its Partners

on the part of any person concerned;

and

(b) The Section 17 Transaction is

consistent with the interests of the

Partners of the participating Investment

Entity, the Investment Entity

organizational documents, and the

Investment Entity’s reports to its

Partners.

In addition, the Managing Partner will

record and preserve a description of

such section 17 Transactions, its

findings, the information or materials

upon which its findings are based and

the basis therefor. All such records will

be maintained for the life of an

Investment Entity and at least two years

thereafter, and will be subject to

examination by the SEC and its staff. All

such records will be maintained in an

easily accessible place for at least the

first two years.

2. In any case where purchases or

sales are made from or to an entity

affiliated with an Investment Entity by

reason of a 5% or more investment in

such entity by a director, officer, or

employee of the Managing Partner, such

individual will not participate in the

Managing Partner’s determination of

whether or not to make such investment

available to the Partners of an

Investment Entity.

3. The Managing Partner will adopt,

and periodically review and update,

procedures designed to ensure that

reasonable inquiry is made, prior to the

consummation of any Section 17

Transaction, with respect to the possible

involvement in the transaction of any

affiliated person of the Investment

Entities, or any affiliated person of such

a person.

4. The Managing Partner will not

make available to the Partners of an

Investment Entity any investment in

which a Co-Investor, as defined below,

has or proposes to acquire the same

class of securities of the same issuer,

where the investment involves a joint

enterprise or other joint arrangement

within the meaning of rule 17d–1 in

which the Investment Entity and the CoInvestor are participants, unless any

such Co-Investor, prior to disposing of

all or part of its investment:

(a) Gives the Managing Partner of the

participating Investment Entity holding

such investment sufficient, but not less

than one day’s, notice of its intent to

dispose of its investment; and

(b) Refrains from disposing of its

investment unless the participating

Investment Entity holding such

investment has the opportunity to

dispose of its investment prior to or

concurrently with, on the same terms as,

and on a pro rata basis with, the CoInvestor.

The term ‘‘Co-Investor’’ means any

person who is a: (a) An affiliated person

of the Investment Entity who is under

common control with the Investment

Entity, or controlled by the Company; 1

(b) the Company and any entities

controlled by the Company; (c) a current

or former managing director of the

Company; (d) an investment vehicle

offered, sponsored, or managed by the

Company or an affiliated person of the

Company; or (e) a company in which

the Managing Partner acts as a general

partner or in a similar capacity, or has

a similar capacity to control the sale or

disposition of the company’s securities.

The restrictions contained in this

condition, however, shall not be

deemed to limit or prevent the

disposition of an investment by a CoInvestor:

(a) To its direct or indirect whollyowned subsidiary, to any Company (a

‘‘parent’’) of which the Co-investor is a

direct or indirect wholly-owned

subsidiary, or to a direct or indirect

wholly-owned subsidiary of its parent;

(b) to immediate family members

(spouses, parents, children, spouses of

children, brothers, sisters and

grandchildren) of the Co-investor or a

trust established for any such family

member;

(c) When the investment is comprised

of securities that are listed, on a national

securities exchange registered under

section 6 of the Exchange Act; or

(d) When the investment is comprised

of securities that are, national market

system securities pursuant to section

11A(a)(2) of the Exchange Act and rule

11Aa2–1 thereunder.

5. The Managing Partner of each

Investment Entity will send to each

Partner who had an interest in that

Investment Entity at any time during the

fiscal year then ended, Investment

Entity financial statements. Such

financial statements may be unaudited.

In addition, within 90 days after the end

of each fiscal year of each of the

Investment Entities or as soon as

practicable thereafter, the Managing

Partner shall send a report to each

person who was a partner at any time

during the fiscal year then ended,

setting forth such tax information as

shall be necessary for the preparation by

the Partner of his federal and state

income tax returns and a report of the

investment activities of the Investment

Entity during such year.

The Managing Partner will make a

valuation or have a valuation made of

all of the assets of the Investment

Entities as of the end of each fiscal year

in a manner consistent with the

33598 Federal Register / Vol. 65, No. 101 / Wednesday, May 24, 2000 / Notices

1 15 U.S.C. 78s(b)(1).

2 17 CFR 240.19b–4.

3 17 CFR 240.19b–4(e).

4 15 U.S.C. 78s(b).

5Securities Exchange Act Release No. 42542

(March 17, 2000), 65 FR 16437.

6See letter from Michael J. Ryan, Chief of Staff,

Amex, to Nancy Sanow, Assistant Director, Division

of Market Regulation (‘‘Division’’), SEC, dated April

24, 2000 (‘‘Amendment No. 1’’). In Amendment No.

1, Amex proposed to add Commentary .03 to Amex

Rule 1000A, creating a product description delivery

requirement for series that have been granted relief

by the SEC from the prospectus delivery

requirements of Section 24(d) of the Investment

Company Act of 1940 (‘‘1940 Act’’). Amex also

clarified the timing for compliance with the

eligibility criteria and verified that the Exchange

will require issuers of a series of PDRs or Index

Fund Shares listed under Rule 19b–4(e) to represent

to the Exchange that the index or portfolio of

securities underlying such series will comply with

the applicable eligibility criteria as of the date of

initial deposit of securities to the trust or fund in

connection with the initial issuance of shares of

such trust or fund.

7 17 CFR 240.19b–4(e). Rule 19b–4(e) permits selfregulatory organizations (‘‘SROs’’) to list and trade

new derivatives products that comply with existing

SRO trading rules, procedures, surveillance

programs and listing standards, without submitting

a proposed rule change under Section 19(b).

8Under the Subchapter M of the Internal Revenue

Code, for a fund to qualify as a regulated investment

company the securities of a single issuer can

account for no more than 25% of a fund’s total

assets, and at least 50% of a fund’s total assets must

be comprised of cash (including government

securities) and securities of single issuers whose

securities account for less than 5% of such fund’s

total assets.

customary practice with respect to the

valuation of assets of the kind held by

the Investment Entities which may

include, in the case of co-investments

with a Bain Fund, valuations provided

by such Bain Fund.

6. Each Investment Entity and its

Managing Partner will maintain and

preserve, for the life of each such

Investment Entity and at least two years

thereafter, such accounts, books, and

other documents as constitute the

record forming the basis for the

financial statements and annual reports

of such Investment Entity to be

provided to its Partners, and agree that

all such records will be subject to

examination by the SEC and its staff. All

such records will be maintained in an

easily accessible place for at least the

first two years.

For the Commission, by the Division of

Investment Management, under delegated

authority.

Margaret H. McFarland,

Deputy Secretary.

[FR Doc. 00–13066 Filed 5–24–00; 8:45 am]

BILLING CODE 8010–01–M

SECURITIES AND EXCHANGE

COMMISSION

[Release No. 34–42787; File No. SR–Amex–

00–14]

Self-Regulatory Organizations;

American Stock Exchange LLC; Order

Approving Proposed Rule Change and

Notice of Filing and Order Granting

Accelerated Approval of Amendment

No. 1 Relating to Generic Listing

Standards Applicable to Listing

Portfolio Depository Receipts and

Index Fund Shares Pursuant to Rule

19b–4(e) Under the Securities

Exchange Act of 1934

I. Introduction

On March 6, 2000, the American

Stock Exchange LLC (‘‘Amex’’ or

‘‘Exchange’’) filed with the Securities

and Exchange Commission (‘‘SEC’’ or

‘‘Commission’’), pursuant to Section

19(b)(1) of the Securities Exchange Act

of 1934 (‘‘Act’’) 1 and Rule 19b–4

thereunder,2 a proposed rule change to

establish generic listing standards

applicable to Portfolio Depository

Receipts (‘‘PDRs’’) and Index Fund

Shares. By establishing generic listing

standards, the Amex may permit the

listing and trading of PDRs and Index

Fund Shares pursuant to Rule 19b–4(e)

under the Act 3 without submitting a

proposed rule change pursuant to

Section 19(b) under the Act.4 The

proposed rule change was published for

comment in the Federal Register on

March 28, 2000.5 No comments were

received on the proposal. The proposal

was amended on April 27, 2000.6 In this

notice and order, the Commission is

seeking comment from interested

persons on Amendment No. 1, and is

approving the proposed rule change,

including accelerated approval of

Amendment No. 1.

II. Description of the Proposal

The proposal adds commentaries to

Amex Rules 1000 and 1000A to provide

standards to permit listing and trading

of PDRs and Index Fund Shares

pursuant to Rule 19b–4(e) under the

Act.7 The proposal requires that PDRs

and Index Fund Shares listed pursuant

to Rule 19b–4(e) be subject to specific

generic criteria as set forth in proposed

Amex Rule 1000, Commentary .03 (for

PDRs) and Amex Rule 1000A,

Commentary .02 and .03 (for Index

Fund Shares). All other provisions of

Amex Rules 1000 et seq. and 1000A et

seq. will continue to apply to such

securities.

The proposed implements generic

listing criteria that are intended to

ensure that a significant portion of the

weight of an index or portfolio is

accounted for by stocks with substantial

market capitalization and trading

volume. Proposed Commentary .03 to

Amex Rule 1000 and Commentary .02 to

Amex Rule 1000A both provide that,

upon the initial listing of a series of

PDRs or Index Fund Shares under Rule

19b–4(e), component stocks that in the

aggregate account for at least 90% of the

weight of the index or portfolio must

have a minimum market value of at least

$75 million. In addition, the component

stocks in the index must have a

minimum monthly trading volume

during each of the last six months of at

least 250,000 shares for stocks

representing at least 90% of the weight

of the index or portfolio.

The most heavily weighted

component stock in an underlying index

cannot exceed 25% of the weight of the

index or portfolio, and the five most

heavily weighted component stocks

cannot exceed 65% of the weight of the

index or portfolio. The underlying index

or portfolio must include a minimum of

13 stocks, which is the minimum

number to permit qualification as a

regulated investment company under

Subchapter M of the Internal Revenue

Code.8 All securities in an underlying

index or portfolio must be listed on a

national securities exchange or The

Nasdaq Stock Market (including the

Nasdaq SmallCap Market).

Proposed Commentary .03 to Amex

Rule 1000 and Commentary .02 to Amex

Rule 1000A provide that the underlying

index will be calculated based on either

the market capitalization, modified

market capitalization, price, equaldollar or modified equal-dollar

weighting methodology. In addition, if

the index is maintained by a brokerdealer, the broker-dealer must erect a

‘‘fire wall’’ around the personnel who

have access to information concerning

changes and adjustments to the index

and the index must be calculated by a

third party who is not a broker-dealer.

The current index value will be

disseminated every 15 seconds over the

Consolidated Tape Association’s

Network B.

The Reporting Authority will

disseminate for each series of PDRs and

Index Fund Shares an estimate, updated

every 15 seconds, of the value of a share

of each series. This may be based, for

example, upon current information

regarding the required deposit of

securities plus any cash amount to

permit creation of new shares of the

series or upon the index value.

A minimum of 100,000 shares of a

series of PDRs or Index Fund Shares

will be required to be outstanding as of

the start of trading. The minimum

trading increment for a series of PDRs