[Federal Register Volume 63, Number 166 (Thursday, August 27, 1998)]
[Notices]
[Pages 45882-45886]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 98-23072]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-23396; 813-176]
Hambrecht & Quist Employee Venture Fund, L.P., et at.; Notice of
Application
August 21, 1998.
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'') exempting the
applicants from all provisions of the Act, except section 9, sections
17 (other than certain provisions of paragraphs (a), (d), (e), (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.
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SUMMARY OF APPLICATION: Applicants request an order to exempt certain
limited partnership formed for the benefit of key employees of
Hambrecht & Quist Group (``H&Q Group'') and its affiliates from certain
provisions of the Act. Each partnership will be an employees'
securities company within the meaning of section 2(a)(13) of the Act.
APPLICANTS: Hambrecht & Quist Employee Venture Fund, L.P. (``Initial
Partnership''), and H&Q Group, on behalf of other partnerships or other
investment vehicles that may be formed in the future (``Other
Partnerships'') (together with the Initial Partnership, the
``Partnerships'').
FILING DATES: The application was filed on October 28, 1997. Applicants
have agreed to file an amendment to the application, the substance of
which is incorporated in this notice, during the notice period.
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 September 15,
1998, 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
SEC's Secretary.
ADDRESSES: Secretary, SEC, 450 Fifth Street, N.W., Washington, D.C.
20549. Applicants, One Bush Street, San Francisco, California 94104.
FOR FURTHER INFORMATION CONTACT: J. Amanda Machen, Senior Counsel, at
(202) 942-7120, or Christine Greenlees, Branch Chief, (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 at the
SEC's Public Reference Branch, 450 Fifth Street, N.W., Washington, D.C.
20549 (tel. 202-942-8090).
Applicants' Representations
1. H&Q Group, a holding company, operates as an investment bank
through its subsidiaries. Its principal wholly-owned subsidiary is
Hambrecht & Quist LLC, a broker-dealer registered under the Securities
Exchange Act of 1934 (``Exchange Act'') and an investment adviser
registered under the Investment Advisers Act of 1940 (``Advisers
Act''). H&Q Group and its affiliates, as defined in rule 12b-2 of the
Exchange Act (``Affiliates''), are referred to this notice collectively
as ``H&Q'' and individually as an ``H&Q entity.''
2. H&Q proposes to offer various investment programs for the
benefit of certain key employees. The programs may be structured as
different Partnerships or as separate plans within the same
Partnership. Each Partnership will be a limited partnership or limited
liability company formed as an ``employees'' securities company''
within the meaning of section 2(a)(13) of the Act, and will operate as
a closed-end, non-diversified, management investment company. The
Partnerships will be established primarily for the benefit of highly
compensated employees of H&Q as part of a program designed to create
capital building opportunities that are competitive with those at other
investment banking firms and to facilitate the recruitment of high
caliber professionals. Participation in a Partnership will be
voluntary.
3. H&Q Plan Management, LLC, a Delaware limited liability company,
will act as the general partner of the Initial Partnership (together
with any Affiliate that controls, is controlled by or is under common
control with H&Q Group and that acts as a Partnership's general
partner, the ``General Partner''). The General Partner will manage,
operate, and control each of the Partnerships; however, the General
Partner will be authorized to delegate management responsibility to H&Q
or to a committee of H&Q employees. An H&Q entity will act as the
investment adviser to a Partnership and will be registered as an
investment adviser under the Advisers Act.
4. Interests in the Partnerships (``Interests'') will be offered
without registration in reliance on section 4(2) of the Securities Act
of 1933 (the ``Securities Act''), or Regulation D under the Securities
Act, and will be sold without a sales load only to ``Eligible
Employees'' and ``Qualified Participants,'' in each case as defined
below (collectively, ``Participants''). Prior to offering Interests to
an Eligible
[[Page 45883]]
Employee, the General Partner must reasonably believe that the Eligible
Employee will be a sophisticated investor capable of understanding and
evaluating the risks of participating in the Partnership without the
benefit of regulatory safeguards. An Eligible Employee is (i) an
individual who is a current or former employee, officer, director, or
``Consultant'' of H&Q and, except for certain individuals who manage
the day-to-day affairs of the Partnership in question (``Managing
Employees''), meets the standards of an accredited investor under rule
501(a)(6) of Regulation D under the Securities Act, or (ii) an entity
that is a current or former ``Consultant'' of H&Q and meets the
standards of an accredited investor under rule 501(a) of Regulation
D.\1\ Eligible Employees will be experienced professionals in the
investment banking and securities businesses, or in related
administrative, financial, accounting, legal, or operational
activities.
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\1\ A ``Consultant'' is a person or entity whom H&Q has engaged
on retainer to provide services and professional expertise on an
ongoing basis as a regular consultant or as a business or legal
adviser and who shares a community of interest with H&Q and H&Q
employees.
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5. Managing Employees, who also will qualify as Eligible Employees,
will have primary responsibility for operating the Partnership. These
responsibilities will include, among other things, identifying,
investigating, structuring, negotiating, and monitoring investments for
the Partnership, communicating with the Limited Partners of the
Partnership, maintaining the books and records of the Partnership, and
making recommendations with respect to investment decisions by the
General Partner. Each Managing Employee will (a) be closely involved
with and knowledgeable with respect to the Partnership's affairs, (b)
be an officer or employee of H&Q, and (c) have reportable income from
all sources (including any profit shares and bonuses) in the calendar
year immediately preceding the Employee's participation in the
Partnership in excess of $120,000 and have a reasonable expectation of
reportable income of at least $150,000 in the years in which the
Employee invests in a Partnership.
6. A Qualified Participant (a) is an Eligible Family Member or
Qualified Entity (in each case as defined below) of an Eligible
Employee, and (b) if the individual or entity is purchasing an Interest
from a Partner or directly from the Partnership, comes within one of
the categories of an ``accredited investor'' under rule 501(a) of
Regulation D.\2\ An ``Eligible Family Member'' is a spouse, parent,
child, spouse of child, brother, sister, or grandchild of an Eligible
Employee. A ``Qualified Entity'' is: (a) a trust of which the trustee,
grantor, and/or beneficiary is an Eligible Employee; (b) a partnership,
corporation, or other entity controlled by an Eligible Employee; \3\ or
(c) a trust or other entity established for the benefit of Eligible
Family Members of an Eligible Employee.
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\2\ ``Partner'' means any partner of a Partnership, including
the General Partner.
\3\ The inclusion of partnerships, corporations, or other
entities controlled by an Eligible Employee in the definition of
``Qualified Entities'' is intended to enable Eligible Employees to
make investments in the Partnerships through personal investment
vehicles for the purpose of personal and family investment and
estate planning objectives. Eligible Employees will exercise
investment discretion or control over these investment vehicles,
thereby creating a close nexus between H&Q and these investment
vehicles. In the case of a partnership, corporation, or other entity
controlled by a Consultant entity, individual participants will be
limited to senior level employees, members, or partners of the
Consultant who will be required to qualify as an ``accredited
investor'' under rule 501(a)(6) of Regulation D and who will have
access to the General Partner or H&Q.
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7. The terms of a Partnership will be fully disclosed to each
Eligible Employee and, if applicable, to a Qualified Participant of the
Eligible Employee, in a limited partnership agreement (the ``Limited
Partnership Agreement''), which will be furnished at the time the
Eligible Employee is invited to participate in the Partnership. Each
Partnership will send audited financial statements to each Participant
within 120 days or as soon as practicable after the end of its fiscal
year. In addition, each Participant will receive a copy of Schedule K-1
showing the Participant's share of income, credits, deductions, and
other tax items.
8. Interests in a Partnership will be non-transferable except with
the prior written consent of the General Partner. No person will be
admitted into a Partnership as a Partner unless the person is am
Eligible Employee, a Qualified Participant of an Eligible Employee, or
an H&Q entity.
9. An Eligible Employee's interest in a Partnership may be subject
to repurchase or cancellation if: (a) the Eligible Employee's
relationship with H&Q is terminated for cause; (b) the Eligible
Employee becomes a consultant to or joins any firm that the General
Partner determines, in its reasonable discretion, is competitive with
any business of H&Q; or (c) the Eligible Employee voluntarily resigns
from employment with H&Q. Upon repurchase or cancellation, the General
Partner will pay to the Eligible Employee at least the lesser of (a)
the amount paid by the Eligible Employee to acquire the Interest (plus
interest, as determined by the General Partner), and (b) the fair
market value of the Interest as determined at the time of repurchase or
cancellation by the General Partner. The terms of any repurchase or
cancellation will apply equally to any Qualified Participant of an
Eligible Employee.
10. Subject to the terms of the applicable Limited Partnership
Agreement, a Partnership will be permitted to enter into transactions
involving (a) an H&Q entity, (b) a portfolio company, (c) any Partner
or any person or entity affiliated with a Partner, (d) an investment
fund or separate account that is organized for the benefit of investors
who are not affiliated with H&Q and over which an H&Q entity will
exercise investment discretion (``Third Party Fund''), or (e) any
partner or other investor of a Third Party Fund that is not affiliated
with H&Q (a ``Third Party Investor''). These transactions may include a
Partnership's purchase or sale of an investment or an interest from or
to any H&Q entity or Third Party Fund, acting as principal. Prior to
entering into these transactions, the General Partner must determine
that the terms are fair to the Partners.
11. A Partnership will not invest more than 15% of its assets in
securities issued by registered investment companies (with the
exception of temporary investments in money market funds). A
Partnership will not acquire any security issued by a registered
investment company if immediately after the acquisition, the
Partnership will own more than 3% of the outstanding voting stock of
the registered investment company.
12. An H&Q entity (including the General Partner) acting as agent
or broker may receive placement fees, advisory fees, or other
compensation from a Partnership in connection with a Partnership's
purchase or sale of securities, provided the placement fees, advisory
fees, or other compensation are ``usual and customary.'' Fees or other
compensation will be deemed ``usual and customary'' only if (a) the
Partnership is purchasing or selling securities with other unaffiliated
third parties, including Third Party Funds, (b) the fees or
compensation being charged to the Partnership are also being charged to
the unaffiliated third parties, including Third Party Funds, and (c)
the amount of securities being purchased or sold by the Partnership
does not exceed 50% of the total amount of securities being purchased
or sold by the
[[Page 45884]]
Partnership and the unaffiliated third parties, including Third Party
Funds. H&Q entities, including the General Partner, also may be
compensated for services to entities in which the Partnerships invest
and to entities that are competitors of these entities, and may
otherwise engage in normal business activities.
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 the exemption is consistent with the protection of
investors. Section 6(b) provides that the SEC will consider, in
determining the 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)
defines an employee's security company, in relevant part, as any
investment company all of whose 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 persons,
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 from selling or redeeming their
securities. Section 6(e) 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 the company were registered under the Act. Applicants request an
order under sections 6(b) and 6(e) exempting the Partnerships from all
provisions of the Act, except section 9, section 17 (other than certain
provisions of paragraphs (a), (d), (e), (f), (g), and (j)), section 30
(other than certain provisions of paragraphs (a), (b), (e), and (h)),
sections 36 through 53, and the rules and regulations thereunder.
3. Section 17(a) generally prohibits any affiliated person of a
registered investment company, or any affiliated person of an
affiliated person, acting as principal, from knowingly selling or
purchasing any security or other property to or from the company.
Applicants request an exemption from section 17(a) to permit: (a) an
H&Q entity or a Third Party Fund, acting as principal, to engage in any
transaction directly or indirectly with any Partnership or any company
controlled by the Partnerships; (b) any Partnership to invest in or
engage in any transaction with any H&Q entity, acting as principal, (i)
in which the Partnership, any company controlled by the Partnership, or
any H&Q entity or Third Party Fund has invested or will invest, or (ii)
with which the Partnership, any company controlled by the Partnership,
or any H&Q entity or Third Party Fund is or will become otherwise
affiliated; and (c) any Third Party Investor, acting as principal, to
engage in any transaction directly or indirectly with a Partnership or
any company controlled by the Partnership.
4. Applicants state than an exemption from section 17(a) is
consistent with the protection of investors and is necessary to promote
the purpose of the Partnerships. Applicants state that the Participants
in each Partnership will be fully informed of the extent of the
Partnership's dealings with H&Q. Applicants also state that, as
professionals employed in the investment banking and securities
businesses, Participants will be able to understand and evaluate the
attendant risks. Applicants assert that the community of interest among
the Participants and H&Q will provide the best protection against any
risk of abuse.
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 the SEC.
Applicants request exemptive relief to permit affiliated persons of
each Partnership, or affiliated persons of any of these persons, to
participate in any joint arrangement in which the Partnership or a
company controlled by the Partnership is a participant.
6. Applicants submit that it is likely that suitable investments
will be brought to the attention of a Partnership because of its
affiliation with H&Q, H&Q's large capital resources, and its experience
in structuring complex transactions. Applicants also submit that the
types of investment opportunities considered by a Partnership often
require each investor to make funds available in an amount that may be
substantially greater than what a Partnership may make available on its
own. Applicants contend that, as a result, the only way in which a
Partnership may be able to participate in these opportunities may be to
co-invest with other persons, including its affiliates. Applicants note
that each Partnership will be organized for the benefit of Eligible
Employees as an incentive for them to remain with H&Q and for the
generation and maintenance of goodwill. Applicants believe that, if co-
investments with H&Q are prohibited, the appeal of the Partnerships
would be significantly diminished. Applicants assert that Eligible
Employees wish to participate in coinvestment opportunities because
they believe that (a) the resources of H&Q enable it to analyze
investment opportunities to an extent that individual employees would
not be able to duplicate, (b) investments made by H&Q will not be
generally available to investors even of the financial status of the
Eligible Employees, and (c) Eligible Employees will be able to pool
their investment resources, thus achieving greater diversification of
their individual investment portfolios.
7. Applicants assert that the flexibility to structure co-
investments and joint investments will not involve abuses of the type
section 17(d) and rule 17d-1 were designed to prevent. Applicants state
that the concern that permitting co-investments by H&Q and a
Partnership might lead to less advantageous treatment of the
Partnership should be mitigated by the fact that H&Q will be acutely
concerned with its relationship with the investors in the Partnership,
and the fact that senior officers and directors of H&Q entities will be
investing in the Partnership. In addition, applicants assert that
strict compliance with section 17(d) would cause the Partnership to
forego investment opportunities simply because a Participant or other
affiliated person of the Partnership (or any affiliate of the
affiliated person) made a similar investment.
8. Co-investments with Third Party Funds, or by an H&Q entity
pursuant to a contractual obligation to a Third Party Fund, will not be
subject to condition 3 below. Applicants note that it is common for a
Third Party Fund to require that H&Q invest its own capital in Third
Party Fund investments, and that the H&Q investments be subject to
substantially the same terms as those applicable to the Third Party
Fund. Applicants believe it is important that the interests of the
Third Party Fund take priority over the interests of the Partnerships,
and that the Third Party Fund not be burdened or otherwise affected by
activities of the Partnerships. In addition, applicants assert that the
relationship of a Partnership to a Third
[[Page 45885]]
Party Fund is fundamentally different from a Partnership's relationship
to H&Q. Applicants contend that the focus of, and the rationale for,
the protections contained in the requested relief are to protect the
Partnerships from any overreaching by H&Q in the employer/employee
context, whereas the same concerns are not present with respect to the
Partnerships and a Third Party Fund.
9. Section 17(e) and rule 17e-1 limit the compensation an
affiliated person may receive when acting as agent or broker for a
registered investment company. Applicants request an exemption from
section 17(e) to permit an H&Q entity (including the General Partner)
that acts as an agent or broker to receive placement fees, advisory
fees, or other compensation from a Partnership in connection with the
purchase or sale by the Partnership of securities, provided that the
fees or other compensation is deemed ``usual and customary.''
Applicants state that for the purposes of the application, fees or
other compensation that is charged or received by an H&Q entity will be
deemed ``usual and customary'' only if (a) the Partnership is
purchasing or selling securities with other unaffiliated third parties,
including Third Party Funds, (b) the fees or compensation being charged
to the Partnership are also being charged to the unaffiliated third
parties, including Third Party Funds, and (c) the amount of securities
being purchased or sold by the Partnership does not exceed 50% of the
total amount of securities being purchased or sold by the Partnership
and the unaffiliated third parties, including Third Party Funds.
Applicants assert that, because H&Q does not wish it to appear as if it
is favoring the Partnerships, compliance with section 17(e) would
prevent a Partnership from participating in transactions where the
Partnership is being charged lower fees than unaffiliated third
parties. Applicants assert that the fees or other compensation paid by
a Partnership to an H&Q entity will be the same as those negotiated at
arm's length with unaffiliated third parties.
10. Rule 17e-1(b) requires that a majority of directors who are not
``interested persons'' (as defined in section 2(a)(19) of the Act) take
actions and make approvals regarding commissions, fees, or other
remuneration. Applicants request an exemption from rule 17e-1(b) to the
extent necessary to permit each Partnership to comply with the rule
without having a majority of the members of the General Partner who are
not interested persons take actions and make determinations as set
forth in the rule. Applicants state that because all the members of the
General Partner will be affiliated persons, without the relief
requested, a Partnership could not comply with rule 17e-1(b).
Applicants state that each Partnership will comply with rule 17e-1(b)
by having a majority of the members of the Partnership take actions and
make approvals as are set forth in rule 17e-1. Applicants state that
each Partnership will comply with all other requirements of rule 17e-1
for the transactions described above in the discussion of section
17(e).
11. Section 17(f) designates the entities that may act as
investment company custodians, and rule 17f-1 imposes certain
requirements when the custodian is a member of a national securities
exchange. Applicants request an exemption from section 17(f) and rule
17f-1 to permit an H&Q entity to act as custodian of Partnership assets
without a written contract, as would be required by rule 17f-1(a).
Applicants also request an exemption from the rule 17f-1(b)(4)
requirement that an independent accountant periodically verify the
assets held by the custodian. Applicants believe that, because of the
community of interest between H&Q and the Partnerships and the existing
requirement for an independent audit, compliance with these
requirements would be unnecessarily burdensome and expensive.
Applicants will comply with all other requirements of rule 17f-1.
12. Section 17(g) and rule 17g-1 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 request
exemptive relief to permit the General Partner's officers and
directors, who may be deemed interested persons, to take actions and
make determinations set forth in the rule. Applicants state that,
because all the members of the General Partner will be affiliated
persons, a Partnership could not comply with rule 17g-1 without the
requested relief. Specifically, each Partnership will comply with rule
17g-1 by having a majority of the Partnership's directors take actions
and make determinations as are set forth in rule 17g-1. Applicants also
state that each Partnership will comply with all other requirements of
rule 17g-1.
13. Section 17(j) and paragraph (a) of rule 17j-1 make it unlawful
for certain enumerated 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 investment
company report personal securities transactions. Applicants request an
exemption from the provisions of rule 17j-1, except for the anti-fraud
provisions of paragraph (a), because they are unnecessarily burdensome
as applied to the Partnerships.
14. 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 Partnerships and would
entail administrative and legal costs that outweigh any benefit to the
Participants. Applicants request exemptive relief to the extent
necessary to permit each Partnership to report annually to its
Participants. Applicants also request an exemption from section 30(h)
to the extent necessary to exempt the General Partner of each
Partnership and any other persons who may be deemed to be members of an
advisory board of a Partnership from filing Forms 3, 4, and 5 under
section 16(a) of the Exchange Act with respect to their ownership of
Interests in the Partnership. 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.
Applicants' Conditions
Applicants agree that any order granting the requested relief will
be subject to the following conditions:
1. Each proposed transaction otherwise prohibited by section 17(a)
or section 17(d) of the Act and rule 17d-1 under the Act to which a
Partnership is a party (the ``Section 17 Transactions'') will be
effected only if the General Partner determines that: (a) the terms of
the transaction, including the consideration to be paid or received,
are fair and reasonable to the Partners and do not involve overreaching
of the Partnership or its Partners on the part of any person concerned;
and (b) the transaction is consistent with the interests of the
Partners, the Partnership's organizational documents, and the
Partnership's reports to its Partners. In addition, the General
[[Page 45886]]
Partner will record and preserve a description of the Section 17
Transactions, the General Partner's findings, the information or
materials upon which the General Partner's findings are based, and the
basis for the findings. All records relating to an investment program
will be maintained until the termination of the investment program and
at least two years thereafter, and will be subject to examination by
the SEC and its staff.\4\
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\4\ Each Partnership will preserve the accounts, books and other
documents required to be maintained in an easily accessible place
for the first two years.
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2. In connection with the Section 17 Transactions, the General
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 or
promoter of or principal underwriter for the Partnership, or any
affiliated person of such person, promoter, or principal underwriter.
3. The General Partner will not invest the funds of any Partnership
in any investment in which a ``Co-Investor'' (as defined below) has
acquired 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 or rule 17d-1 in which the
Partnership and a Co-Investor are participants, unless any such Co-
Investor, prior to disposing of all or part of its investment, (a)
gives the General Partner 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 Partnership has the
opportunity to dispose of the Partnership's investment prior to or
concurrently with, on the same terms as, and pro rata with the Co-
Investor. The term ``Co-Investor'' with respect to any Partnership
means any person who is: (a) an ``affiliated person'' (as defined in
section 2(a)(3) of the Act) of the Partnership (other than a Third
Party Fund); (b) H&Q; (c) an officer or director of H&Q; or (d) an
entity (other than a Third Party Fund) in which the General Partner
acts as general partner or has a similar capacity to control the sale
or other disposition of the entity's securities. The restrictions
contained in this condition, however, shall not be deemed to limit to
prevent the disposition of an investment by a Co-Investor: (a) to its
direct or indirect wholly-owned 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 of the Co-Investor or a
trust or other investment vehicle established for any family member;
(c) when the investment is comprised of securities that are listed on
any exchange registered as a national securities exchange under section
6 of the Exchange Act; (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; or
(e) when the investment is comprised of securities that are listed on
or traded on any foreign securities exchange or board of trade that
satisfies regulatory requirements under the law of the jurisdiction in
which such foreign securities exchange or board of trade is organized
similar to those that apply to a national securities exchange or a
national market system for securities.
4. Each Partnership and the General Partner will maintain and
preserve, for the life of each Partnership and at least two years
thereafter, such accounts, books, and other documents as constitute the
record forming the basis for the audited financial statements that are
to be provided to the Participants in the Partnership, and each annual
report of the Partnership required to be sent to the Participants, and
agree that all such records will be subject to examination by the SEC
and its staff.\5\
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\5\ Each Partnership will preserve the accounts, books and other
documents required to be maintained in an easily accessible place
for the first two years.
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5. The General Partner of each Partnership will send to each
Participant in the Partnership who had an interest in any capital
account of the Partnership, at any time during the fiscal year then
ended, Partnership financial statements audited by the Partnership's
independent accountants. At the end of each fiscal year, the General
Partner will make a valuation or have a valuation made of all of the
assets of the Partnership as of the fiscal year end in a manner
consistent with customary practice with respect to the valuation of
assets of the kind held by the Partnership. In addition, within 120
days after the end of each fiscal year of each Partnership or as soon
as practicable thereafter, the General Partner of the Partnership will
send a report to each person who was a Participant in the Partnership
at any time during the fiscal year then ended, setting forth such tax
information as shall be necessary for the preparation by the
Participant of his or its federal and state income tax returns, and a
report of the investment activities of the Partnership during that
year.
6. In any case where purchases or sales are made by a Partnership
from or to an entity affiliated with the Partnership by reason of a 5%
or more investment in the entity by an H&Q director, officer, or
employee, the individual will not participate in the Partnership's
determination of whether or not to effect the purchase or sale.
For the Commission, by the Division of Investment Management,
under delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 98-23072 Filed 8-26-98; 8:45 am]
BILLING CODE 8010-01-M