
[Federal Register: October 6, 2008 (Volume 73, Number 194)]
[Notices]               
[Page 58271-58274]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr06oc08-119]                         


[[Page 58271]]

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SECURITIES AND EXCHANGE COMMISSION

[Release No. IC-28426; 812-13392]

 
H&Q Healthcare Investors, et al.; Notice of Application

September 30, 2008.
AGENCY: Securities and Exchange Commission (``Commission'').

ACTION: Notice of application for an order under rule 17d-1 under the 
Investment Company Act of 1940 (``Act'') to permit certain joint 
transactions.

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Applicants: H&Q Healthcare Investors (``HQH''); H&Q Life Sciences 
Investors (``HQL''); Hambrecht & Quist Capital Management LLC on behalf 
of itself and its successors (``HQCM''); Promere Fund LP (``Promere 
Fund''); Promere Performance LLC (``Promere General Partner''); Promere 
Capital Management LLC on behalf of itself and its successors 
(``Promere Manager''); Ardance Fund LP (``Ardance Fund''); Ardance 
Performance LLC (``Ardance General Partner''); and Ardance Capital 
Management LLC on behalf of itself and its successors (``Ardance 
Manager'').\1\
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    \1\ The term ``successor,'' as applied to HQCM, Promere Manager, 
and Ardance Manager, means an entity that results from a 
reorganization into another jurisdiction or a change in the type of 
business organization.

Summary of Application: Applicants request an order to permit certain 
registered investment companies to coinvest with certain affiliated 
entities.\2\
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    \2\ All existing entities that currently intend to rely on the 
requested order have been named as applicants. Any other existing or 
future entity that subsequently relies on the order will comply with 
the terms and conditions of the application.

Filing Dates: The application was filed on May 30, 2007, and amended on 
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July 25, 2008 and September 30, 2008.

Hearing or Notification of Hearing: An order granting the application 
will be issued unless the Commission orders a hearing. Interested 
persons may request a hearing by writing to the Commission's Secretary 
and serving applicants with a copy of the request, personally or by 
mail. Hearing requests should be received by the Commission by 5:30 
p.m. on October 27, 2008 and should be accompanied by proof of service 
on applicants, 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 who wish to be notified of a hearing may request 
notification by writing to the Commission's Secretary.

ADDRESSES: Secretary, U.S. Securities and Exchange Commission, 100 F 
Street, NE., Washington, DC 20549-1090. Applicants: c/o Hambrecht & 
Quist Capital Management LLC, 2 Liberty Square, Ninth Floor, Boston, MA 
02109, Attention: Daniel R. Omstead, PhD.

FOR FURTHER INFORMATION CONTACT: Jean E. Minarick, Senior Counsel, at 
(202) 551-6811, or Janet M. Grossnickle, Assistant Director, at (202) 
551-6821 (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 at the 
Commission's Public Reference Room, 100 F Street, NE., Washington, DC 
20549-1520 (tel. 202-551-5850).

Applicants' Representations

    1. HQCM, a limited liability company organized under the laws of 
Delaware, is an investment adviser registered under the Investment 
Advisers Act of 1940 (``Advisers Act''). Promere Manager, a limited 
liability company organized under the laws of Delaware, is an 
investment adviser exempt from registration under the Advisers Act. 
Ardance Manager, a limited liability company organized under the laws 
of Delaware, is an investment adviser exempt from registration under 
the Advisers Act.
    2. HQH, a Massachusetts business trust, is registered under the Act 
as a diversified closed-end management investment company. HQH's 
investment objective is long-term capital appreciation through 
investment in companies in the health care industry. HQCM serves as 
HQH's investment adviser and manages its day-to-day operations.
    3. HQL, a Massachusetts business trust, is registered under the Act 
as a diversified closed-end management investment company. HQL's 
investment objective is long-term capital appreciation through 
investment in companies involved in scientific advances in life 
sciences (including biotechnology, pharmaceutical, diagnostics, managed 
health care and medical equipment, hospitals, health care information 
technology and services, devices and supplies), agriculture and 
environmental management fields. HQCM acts as HQL's investment adviser 
and manages the day-to-day operations of HQL. From time to time, HQCM 
or an entity controlling, controlled by or under common control with 
HQCM (collectively, with HQCM, the ``Adviser'') may serve as investment 
adviser or sub-adviser to other registered closed-end management 
investment companies (together with HQH and HQL, the ``Registered 
Funds'') that will engage in investment activities similar to those 
engaged in by HQH and HQL.
    4. Promere Manager will make investment decisions for Promere Fund, 
a Delaware limited partnership, that intends to qualify for an 
exclusion from the definition of an investment company under section 
3(c)(7) of the Act. Promere General Partner, a Delaware limited 
liability company, that is under common control with Promere Manager, 
is the general partner of Promere Fund and will manage the business and 
affairs of Promere Fund. Promere Fund will seek long-term capital 
appreciation by investing primarily in privately held companies in the 
health care and life sciences industries.
    5. Ardance Manager will make investment decisions for Ardance Fund, 
a Delaware limited partnership, that intends to qualify for the 
exclusion from the definition of an investment company under section 
3(c)(1) of the Act. Ardance General Partner, a Delaware limited 
liability company, that is under common control with Ardance Manager, 
is the general partner of Ardance Fund and will manage the business and 
affairs of Ardance Fund. Ardance Fund will seek absolute returns on an 
annual basis while managing risk in both rising and falling markets. 
Ardance Fund's strategy for achieving this objective is to invest 
primarily in a portfolio of long and short equity positions focused on 
publicly traded companies in the health care industry. Although Ardance 
Fund will invest primarily in publicly traded securities and 
derivatives (e.g., for hedging and speculative purposes), it is 
possible that Ardance Fund may coinvest with HQH, HQL and/or Promere 
Fund in private placement securities. From time to time, the Adviser, 
Promere Manager or Ardance Manager may manage other accounts that are 
not registered investment companies in reliance on sections 3(c)(1) or 
3(c)(7) of the Act (such accounts, together with Promere Fund and 
Ardance Fund, the ``Unregistered Funds'').
    6. Applicants seek an order under rule 17d-1 under the Act to the 
extent necessary to permit HQH, HQL, and each other Registered Fund 
that is advised by an Adviser and the Unregistered Funds to coinvest in 
private placement transactions in which the Adviser, Promere Manager 
and/or

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Ardance Manager negotiate terms in addition to price (``private 
placement securities''), make follow-on investments in the issuers of 
private placement securities (``Follow-On Investments''), and exercise 
warrants, conversion privileges, and other rights associated with such 
private placement securities (collectively, the ``Co-investment 
Transactions''). The total available capital (``Total Available 
Capital'') of each Registered Fund and Unregistered Fund is the amount 
of total assets of each such fund available for investment in private 
placement securities, subject to applicable regulatory restrictions and 
the fund's fundamental investment restrictions and policies. The Board 
of Trustees (``Board'') of each Trust has set a limit on the amount of 
initial investment of each Trust in securities of an issuer in private 
placement transactions (the ``Investment Limit''), as described in the 
application.

Applicants' Legal Analysis

    1. Section 17(d) of the Act and rule 17d-1 under the Act generally 
prohibit any affiliated person of a registered investment company, or 
affiliated person of an affiliated person, when acting as principal, 
from effecting any joint transaction in which the company participates 
unless the transaction is approved by the Commission. Rule 17d-1 under 
the Act provides that in passing upon applications under section 17(d), 
the Commission will consider whether the participation of a registered 
investment company in a joint enterprise on the basis proposed is 
consistent with the provisions, policies, and purposes of the Act and 
the extent to which the company's participation is on a basis different 
from or less advantageous than that of other participants.
    2. Section 2(a)(3) of the Act, in relevant part, defines an 
``affiliated person'' of another person as (a) Any person directly or 
indirectly owning, controlling, or holding with power to vote, 5% or 
more of the outstanding voting securities of the other person; (b) any 
person 5% or more of whose outstanding voting securities are directly 
or indirectly owned, controlled, or held with power to vote by the 
other person; (c) any person directly or indirectly controlling, 
controlled by, or under common control with the other person and (d) 
any officer, director, partner, copartner, or employee of the other 
person. As described more fully in the application, each of the 
Unregistered Funds, Promere General Partner, Ardance General Partner 
and any Adviser might be deemed to be an affiliated person or a second-
tier affiliated person of each Registered Fund within the meaning of 
Section 2(a)(3) of the Act, and the Registered Funds might be deemed to 
be affiliated persons within the meaning of Section 2(a)(3) of the Act. 
In some circumstances, these affiliations might prohibit each 
Registered Fund from participating in Co-investment Transactions 
pursuant to Section 17(d) and Rule 17d-1.
    3. Applicants state that the ability to participate in Co-
investment Transactions will benefit the Registered Funds and their 
shareholders by increasing the favorable investment opportunities 
available to them. Applicants represent that the Registered Funds will 
be able to (i) have a larger pool of capital available for investment, 
thereby obtaining access to a greater number and variety of potential 
investments than any Registered Fund could obtain on its own, and (ii) 
increase their bargaining power to negotiate more favorable terms.
    4. Applicants believe that the terms and conditions contained in 
the application ensure that the Co-investment Transactions are 
consistent with the protection of each Registered Fund's investors and 
with the purposes intended by the policy and provisions of the Act. 
Specifically, all participants will invest at the same time for the 
same price and with the same terms, conditions, class, registration 
rights, and any other rights, so that no participant receives terms 
more favorable than any other participant. In addition, the decision to 
participate in a Co-investment Transaction must be approved by a 
Required Majority (as defined below) of the Board of each participating 
Registered Fund to ensure that the terms of the Co-investment 
Transaction are fair and reasonable, do not involve overreaching, and 
are consistent with the investment objectives and policies of the 
Registered Fund. Co-investment Transactions will be reviewed by a duly 
appointed committee of the Board (the ``Joint Transaction Committee'') 
that shall consist solely of members of the Board who are not 
``interested persons'' within the meaning of section 2(a)(19) of the 
Act (the ``Independent Trustees'') and shall have as its members at 
least a majority of all of the Independent Trustees.

Applicants' Conditions

    Applicants agree that any order granting the requested relief shall 
be subject to the following conditions:
    1. Each time that an Unregistered Fund or a Registered Fund 
proposes to acquire private placement securities, the acquisition of 
which would be consistent with the investment objectives and policies 
of one or more Registered Funds, the Adviser will offer to each such 
Registered Fund the opportunity to acquire a pro rata amount (based 
upon amounts available for investment by each such Registered Fund and 
each participating Unregistered Fund) of the private placement 
securities, up to the entire amount being offered to it. If one 
Registered Fund declines the offer or accepts a portion of the private 
placement securities offered to it, but one or more other Registered 
Funds accepts the private placement securities offered, that portion of 
the private placement securities declined by the Registered Fund may be 
allocated to the other Registered Funds and Unregistered Funds based on 
their amounts available for investment. However, if the pro rata 
allocation to any Registered Fund exceeds its Investment Limit, then 
the portion of the allocation that exceeds the Investment Limit may be 
allocated pro rata to each other Registered Fund (up to its Investment 
Limit) and each participating Unregistered Fund. In each case in which 
an amount of private placement securities remains available after 
allocating the private placement securities to the Registered Funds as 
described above, the remainder may be allocated to the participating 
Unregistered Funds. For purposes of these conditions, the phrase 
``amounts available for investment'' is the Total Available Capital of 
the Registered Fund or Unregistered Fund.
    2. (a) With respect to each Co-investment Transaction, for each 
Registered Fund, the Adviser will make a separate determination whether 
the acquisition of the private placement security is appropriate and 
consistent with the investment objectives and policies of the 
Registered Fund and, if so, the appropriate amount that the Registered 
Fund should invest.
    (b) After making the determination required in (a) above, the 
Adviser will submit written information concerning the Co-investment 
Transaction, including the amount proposed to be acquired by the 
Registered Fund, any other Registered Funds, and each Unregistered Fund 
to the Joint Transactions Committee. A Registered Fund's Joint 
Transactions Committee shall consist solely of Independent Trustees and 
shall have as its members at least a majority of all of the Independent 
Trustees of such Registered Fund. The Adviser will provide information 
concerning the Total

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Available Capital of the Registered Funds and the Unregistered Funds in 
order to assist the Joint Transactions Committee with its review of the 
Registered Fund's investments for compliance with the allocation 
features set forth in condition 1 above.
    (c) A Registered Fund may participate in a Co-investment 
Transaction only if the Required Majority (as defined below) determines 
that:
    i. The terms of the Co-investment Transaction, including the 
consideration to be paid, are reasonable and fair to the Registered 
Fund and its shareholders and do not involve overreaching of the 
Registered Fund or its shareholders on the part of any person 
concerned;
    ii. The proposed Co-investment Transaction is consistent with the 
Registered Fund's investment objectives and policies as recited in its 
Form N-2 registration statement and its reports to shareholders; and
    iii. The participation by another Registered Fund or the 
Unregistered Fund(s) in the proposed Co-investment Transaction would 
not disadvantage the Registered Fund, and participation by the 
Registered Fund would not be on a basis different from or less 
advantageous than that of any other Registered Fund or Unregistered 
Fund; provided, that if any Unregistered Fund, but not the Registered 
Funds, gains the right to nominate a director for election to a 
portfolio company's board of directors or the right to have a board 
observer or any similar right to participate in the governance or 
management of the portfolio company, such event shall not be 
interpreted to prohibit the Required Majority from reaching the 
conclusions required by this condition 2(c)(iii), if
    (A) The Required Majority has the right to ratify the selection of 
such director or board observer, if any; and
    (B) The Adviser:
    (1) Provides to the Joint Transactions Committee material 
information received by any such person who then serves as a director 
or participates as a board observer or exercises any similar right to 
participate in the governance of a portfolio company; and
    (2) Agrees to provide periodic reports to the Joint Transactions 
Committee with respect to the material actions of such director or the 
material information received by such board observer or obtained 
through the exercise of any similar right to participate in the 
governance or management of the portfolio company; and
    iv. The proposed investment by the Registered Fund will not benefit 
the Adviser, any other Registered Fund, any Unregistered Fund, or any 
affiliated person thereof, except to the extent permitted under section 
17(e) of the Act.
    (d) A Required Majority is the number of a Registered Fund's Joint 
Transactions Committee members equal to at least a majority of all of 
the Independent Trustees of such Registered Fund. Each member of a 
Required Majority shall have no direct or indirect financial interest 
in the proposed Co-investment Transaction.
    3. A Registered Fund has the right to decline to participate in any 
Co-investment Transaction or to invest less than the amount proposed. 
If the Adviser determines that a Registered Fund should not participate 
in a Co-investment Transaction offered to it pursuant to condition 1 
above, the Adviser will submit its determination to the Joint 
Transactions Committee for approval by a Required Majority.
    4. Each Registered Fund shall participate in a Co-investment 
Transaction only if the terms, conditions, price, class of securities 
being purchased, settlement date, registration rights, if any, and 
other rights are the same for each Registered Fund and any Unregistered 
Fund participating in the Co-investment Transaction. When more than one 
Registered Fund proposes to invest in a Co-investment Transaction, the 
Joint Transactions Committee of each Registered Fund shall review the 
Co-investment Transaction and a Required Majority will make the 
determinations in condition 2 above, on or about the same time. The 
grant to any Unregistered Fund, but not the Registered Fund(s), of the 
right to nominate a director for election to a portfolio company's 
board of directors or the right to have a board observer or any similar 
right to participate in the governance or management of the portfolio 
company shall not cause a failure of this condition, if conditions 
2(c)(iii)(A) and (B) are satisfied.
    5. Except as described below, no Registered Fund may make a Follow-
On Investment or exercise warrants, conversion privileges, or other 
rights unless such Registered Fund and each other Registered Fund and 
Unregistered Fund that participated in the original Co-investment 
Transaction make such Follow-On Investment or exercise such warrants, 
conversion rights, or other rights at the same time and in amounts 
proportionate to their respective holdings of the private placement 
securities acquired in such Co-investment Transaction. If a Registered 
Fund participates in a Follow-On Investment or exercises warrants, 
conversion privileges, or other rights and the amounts to be invested 
or the warrants, conversion privileges or other rights to be exercised 
by each Registered Fund and Unregistered Fund are disproportionate to 
their respective holdings, the Adviser will formulate a recommendation 
as to the proposed Follow-On Investment or exercise of warrants, 
conversion privileges or other rights by each Registered Fund and 
Unregistered Fund and submit the recommendation to each Registered 
Fund's Joint Transactions Committee, including an explanation of such 
disproportionate investments or exercise of rights. Prior to any such 
disproportionate Follow-On Investment or exercise of rights, a 
Registered Fund must obtain approval by a Required Majority for the 
transaction as set forth in condition 2 above. Transactions pursuant to 
this condition 5 will be subject to the other conditions set forth in 
the application.
    6. Except for transactions covered by condition 5 above, no 
Unregistered Fund or Registered Fund will sell, exchange, or otherwise 
dispose of any interest in any private placement securities acquired 
pursuant to the order, unless each Registered Fund has the opportunity 
to dispose of its interest at the same time, for the same unit 
consideration, on the same terms and conditions, as such Unregistered 
Fund or other Registered Fund and in a proportionate amount (based upon 
their relative holdings of the private placement securities). With 
respect to any such transaction, the Adviser will formulate a 
recommendation as to the proposed participation by a Registered Fund 
and submit the recommendation to such Registered Fund's Joint 
Transactions Committee. The Registered Fund will dispose of such 
private placement securities to the extent the Joint Transactions 
Committee, upon the affirmative vote of a Required Majority, determines 
that the disposition is in the best interest of the Registered Fund, is 
fair and reasonable, and does not involve overreaching of the 
Registered Fund or its shareholders by any person concerned.
    7. The expenses, if any, associated with acquiring, holding, or 
disposing of any private placement securities (including, without 
limitation, the expenses of the distribution of any private placement 
securities registered for sale under the Securities Act of 1933), to 
the extent not payable solely by the Adviser, Promere Manager and 
Ardance Manager, as applicable, under their respective investment 
management agreements with the Registered Fund or Unregistered Fund, 
shall be shared by the Registered Funds and the

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Unregistered Funds in proportion to the relative amounts of such 
private placement securities held or being acquired or disposed of, as 
the case may be, by the Registered Funds and the Unregistered Funds.
    8. Each quarter the Adviser will provide to each Registered Fund's 
Joint Transactions Committee information concerning all investments in 
private placement securities made by all Registered and Unregistered 
Funds, including all investments in which the Registered Fund declined 
to participate, so that a Required Majority may determine whether all 
investments made during the preceding quarter, including those in which 
the Registered Fund declined to participate, comply with the conditions 
of the order. In addition, all of the Independent Trustees of each 
Registered Fund will consider at least annually the continued 
appropriateness of Co-investment Transactions by the Registered Fund 
with the Unregistered Funds and other Registered Funds, including 
whether engaging in Co-investment Transactions pursuant to the order 
continues to be in the best interests of the Registered Fund and its 
shareholders and does not involve overreaching on the part of any 
person concerned.
    9. No investment will be made by a Registered Fund in a Co-
investment Transaction in reliance on the order if the Adviser knows or 
reasonably should know that an Unregistered Fund or another Registered 
Fund or any affiliated person of such Unregistered Fund or another 
Registered Fund then currently holds a security issued by that issuer, 
except for a Follow-On Investment made pursuant to condition 5 of this 
order.
    10. Any transaction fee (including break-up or commitment fees but 
excluding brokerage fees contemplated by section 17(e)(2) of the Act) 
received in connection with a transaction entered into in reliance on 
the order will be distributed to the participants on a pro rata basis 
based on the amounts they invested or committed, as the case may be, in 
such transaction. If any transaction fee is to be held by the Adviser, 
Promere General Partner, Promere Manager, Ardance General Partner or 
Ardance Manager pending consummation of the transaction, the fee will 
be deposited into an account maintained by the Adviser, Promere General 
Partner, Promere Manager, Ardance General Partner or Ardance Manager at 
a bank or banks having the qualifications prescribed in section 26(a) 
of the Act, and the account will earn a competitive rate of interest 
that also will be divided pro rata among the participants based on the 
amounts they invested or committed, as the case may be, in such 
transaction. None of the Adviser, Promere General Partner, Promere 
Manager, Ardance General Partner, or Ardance Manager will receive 
additional compensation or remuneration of any kind as a result of or 
in connection with a co-investment or compensation for its services in 
sponsoring, structuring, or providing managerial assistance to an 
issuer of private placement securities that is not shared pro rata with 
the coinvesting Registered Funds and Unregistered Funds.
    11. Each applicant will maintain and preserve all records required 
to be preserved under the Act and the rules and regulations under the 
Act applicable to such applicant. The Registered Funds will maintain 
the records required by section 57(f)(3) of the Act as if each of the 
Registered Funds were a business development company and the Co-
investment Transactions were approved under section 57(f).

    For the Commission, by the Division of Investment Management, 
pursuant to delegated authority.
Florence E. Harmon,
Acting Secretary.
 [FR Doc. E8-23491 Filed 10-3-08; 8:45 am]

BILLING CODE 8011-01-P
