UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number 811-4889
H&Q Healthcare Investors
(Exact name of registrant as specified in charter)
30 Rowes Wharf, Fourth Floor, Boston, MA 02110-3328
(Address of principal executive offices)
30 Rowes Wharf, Fourth Floor, Boston, MA 02110-3328
(Name and address of agent for service)
Registrant's telephone number, including area code: 617-772-8500
Date of fiscal year end: September 30
Date of reporting period: October 1, 2004 to March 31, 2005
Form N-CSR is to be used by management investment companies to file reports
with the Commission not later than 10 days after the transmission to
stockholders of any report that is required to be transmitted to stockholders
under Rule 30e-1 under the Investment Company Act of 1940 (17 CFR 270.30e-1).
The Commission may use the information provided on Form N-CSR in its regulatory,
disclosure review, inspection, and policymaking roles.
A registrant is required to disclose the information specified by Form
N-CSR, and the Commission will make this information public. A registrant is not
required to respond to the collection of information contained in Form N-CSR
unless the Form displays a currently valid Office of Management and Budget
("OMB") control number. Please direct comments concerning the accuracy of the
information collection burden estimate and any suggestions for reducing the
burden to Secretary, Securities and Exchange Commission, 450 Fifth Street, NW,
Washington, DC 20549-0609. The OMB has reviewed this collection of information
under the clearance requirements of 44 U.S.C. Section 3507.
ITEM 1. REPORTS TO STOCKHOLDERS
H&Q HEALTHCARE INVESTORS
[GRAPHIC]
SEMIANNUAL REPORT
March 31, 2005
To our Shareholders:
On March 31, 2005, the net asset value per share of the Fund was $17.36. During
the six month period ending March 31, 2005, total return at net asset value of
the Fund was -0.07%. During the most recent quarter ending March 31, 2005, the
total return at net asset value of the Fund was -5.22%. The total investment
return at market was -6.35% during the six month period ended March 31, 2005 and
was -9.04% during the quarter ended March 31, 2005. Comparisons to relevant
indices are listed below:
QUARTER SIX MONTHS
ENDED ENDED
TOTAL RETURNS 3/31/05 3/31/05
-----------------------------------------------------------------------
Investment Return at Market -9.04% -6.35%
Investment Return at Net Asset Value -5.22% -0.07%
NASDAQ Biotech Index (NBI) -15.35% -8.96%
S&P 500 Index -2.15% +6.88%
The Fund's Market Return exceeded the NBI during both the most recent quarter
and the six month period ended March 31, 2005. In addition, the NAV return
significantly exceeded that of the index during each of these periods.
The last six months has been quite volatile for the NBI. It advanced notably (up
7.6%) during the fourth calendar quarter of 2004 before declining even more
prominently (down 15.35%) during the first calendar quarter of 2005. While the
Fund's NAV and Market Price out-performed this index during the full six-month
period, both the Fund's NAV and market price trailed the index during the first
three months before outpacing the Index during the second three-month period.
The Fund's underperformance during the first three months was in part due to
underweighting Amgen in the portfolio. Amgen's stock performed well and consists
of approximately 16% of the NBI. Outperformance during the second three months
was due in part to the fact that the Fund did not own Biogen Idec, the NBI's
greatest declining stock during the period. Separate from assessing our
performance relative to the NBI, we also note that both the NBI and the Fund's
NAV and Market Price trailed the broad S&P 500 Index.
During the six-month period ended March 31, 2005, the Fund established positions
in Abgenix, Amylin Pharmaceuticals, Barrier Therapeutics, Chiron Corporation,
Connetics Corporation, Cytokinetics, DOV Pharmaceutical, Eclipsys Corporation,
Emageon, Genentech, HCA, Momenta Pharmaceuticals, Neurogen Corporation, NPS
Pharmaceuticals, Nuvelo, OSI Pharmaceuticals, Penwest Pharmaceuticals, Pharmion
1
Corporation, Protein Design Labs, Tenet Healthcare, Tercica, and The Medicines
Company. During the same six month period, the Fund exited its positions in
Biofield, Boston Scientific, Charles River Laboratories, Corixa, CTI Molecular
Imaging, CV Therapeutics, Enzon Pharmaceuticals, Guilford Pharmaceuticals, King
Pharmaceuticals, Lexicon Genetics, Neurocrine Biosciences, Pharmacyclics, Rigel
Pharmaceuticals, and Vicuron Pharmaceuticals. During the quarter, the Fund made
no new investments in its venture portfolio.
In evaluating the Fund's portfolio, we are in aggregate pleased with the
individual company components. The Fund invests in a significant number of
small, emerging healthcare companies. The stock prices of such companies can be
volatile. It is not uncommon for the stock of a given company to be among the
Fund's best performers at one point and then be a trailing performer (or visa
versa) within a relatively short period of time. We attempt to mitigate the
effect of such volatility by appropriate buying and selling, but in general we
seek to invest a significant percentage of the Fund's assets in small/mid size
companies with excellent growth potential. This is probably most evident in the
Fund's venture portfolio. Over the last several years, the healthcare venture
market, including many of our venture investments, has not performed well.
However, we are seeing much improved performance in the venture portfolio of
late. In fact, during the six-month period described in this report, three
companies, Idun Pharmaceuticals, Theravance and Conor were the best performing
assets in the portfolio. Each of these companies were until recently in our
restricted stock portfolio. Idun was acquired by Pfizer very recently.
Theravance and Conor completed successful initial public offerings (IPOs) in the
fall of 2004. In fact since the early part of 2004, there have been seven exits
from the venture portfolio. In addition to those already mentioned, Novacept was
acquired and Senomyx, VNUS Medical and Acadia all completed IPOs. Overall we
think these companies have significant growth potential.
Beyond our portfolio, the past six months have been notable for the
biotechnology sector in particular and for the healthcare sector in general. In
the biotechnology sector, events surrounding Genentech, Biogen Idec and Elan
have been notable.
Genentech was one of the earliest biotechnology companies. It has produced a
number of impressive products through its lifetime. In 2004, its Avastin product
was approved to treat colorectal cancer after having demonstrated (unexpectedly
to some) to have impressive effects on this very difficult-to-treat disease.
Broad use of Avastin in this indication in colorectal cancer is now widely
anticipated; the drug is generally thought of as having blockbuster potential.
Most recently (in May of 2005), Genentech demonstrated that Avastin may well
also be useful to treat both non-small cell lung cancer as well as breast
cancer. We feel that the utility
2
of such a drug in three such common and insidious forms of cancer may turn out
to have been a catalyst for the sector. The Fund took a position in Genentech
during the first calendar quarter of 2005.
Conversely, the travails of Tysabri, a drug that has been marketed by Biogen
Idec and Elan to treat multiple sclerosis, may turn out to be a memorable
disappointment for the biotechnology sector. Tysabri was approved in 2004 after
demonstrating very impressive efficacy data in treating multiple sclerosis.
Initial launch of the drug was impressive to us, both in terms of reported sales
and in market share attained. Tysabri was expected to be a multi-billion dollar
product in a relatively short time. And while it was apparent that Tysabri was
an efficacious drug, during the first quarter of 2005, Elan and Biogen Idec
announced that two patients on Tysabri had developed a rare and often fatal
condition. This development lead to the removal of Tysabri from the marketplace
pending additional study. We think it will be difficult for this once heralded
drug to re-enter the market with anything like the previously anticipated sales
expectations. We feel that recent events surrounding Tysabri have had a sobering
effect on the biotech sector. And while the Fund has not had a recent position
in Biogen Idec, it did have a position in Elan from which it profitably exited
in 2004.
In general the biotech sector has been volatile in recent months with no clear
long-term upward or downward trend. We think that this uncertainty in direction
has been a response to a combination of both encouraging and discouraging
factors such as the events surrounding Avastin and Tysabri. We feel that in the
long run the positives will outweigh the negatives, but in the near future we
see a bit more uncertainty in the biotechnology sector.
There have also been events in the pharmaceutical sector that may have broad
impact on healthcare and potentially on the biotechnology sector. Events
surrounding a group of drugs in the so called COX-2 drugs in particular bear
note. Several large pharmaceutical companies including Merck and Pfizer have
marketed drugs in this class primarily to treat pain in arthritis patients.
These drugs had been thought to have gastrointestinal side effect advantages
over previously available drugs. Over the last few years, the COX-2 drugs have
exhibited excellent sales growth. Unfortunately, in the fall of 2004, Merck
elected to withdraw its COX-2 product from the market after it determined that
the drug might have unwanted cardiovascular side effects. This lead to a more
generalized evaluation of other drugs in the class. Ultimately, two other COX-2
drugs were either removed from the market or exhibited substantially reduced
use.
3
Certainly, events surrounding the COX-2 drugs have had negative effects on the
companies that marketed them. However, there may also be a broader impact. We
have some concern that the combined effects of the safety issues surrounding
Tysabri and the COX-2 drugs may produce, at least in the short term, a more
cautious approach by the FDA in reviewing new product applications. It is too
early to know for sure but we will continue to look for telltale signs.
As always, if you have any questions please call us at 617-772 8500. Thank you.
/s/ Daniel R. Omstead
Daniel R. Omstead
President
4
PRIVACY NOTICE
If you are a registered shareholder of the Fund, the Fund and Hambrecht & Quist
Capital Management LLC, the Fund's investment adviser, may receive nonpublic
personal information about you from the information collected by the transfer
agent from your transactions in Fund shares. Any nonpublic personal information
is not disclosed to third parties, except as permitted or required by law. In
connection with servicing your account and effecting transactions, the
information received may be shared with the investment adviser and
non-affiliates, including transfer agents, custodians, or other service
companies. Access to your nonpublic personal information is restricted to
employees who need to know that information to provide products or services to
you. To maintain the security of your nonpublic personal information, physical,
electronic, and procedural safeguards are in place that complies with federal
standards. The policies and practices described above apply to both current and
former shareholders.
If your Fund shares are held in "street name" at a bank or brokerage, we do not
have access to your personal information and you should refer to your bank's or
broker's privacy policies for a statement of the treatment of your personal
information
FOR MORE INFORMATION
A description of the Fund's proxy voting policies and procedures and information
regarding how the Fund voted proxies relating to portfolio securities during the
most recent 12-month period ended June 30, is available (i) without charge, upon
request by calling 1-800-451-2597; (ii) by writing to Hambrecht & Quist Capital
Management LLC at 30 Rowes Wharf, Boston, MA 02110-3328; (iii) on the Fund's
website at www.hqcm.com; and (iv) on the Securities Exchange Commission's
website at www.sec.gov.
The Fund's complete Schedule of Investments for the first and third quarters of
its fiscal year will be filed quarterly with the Securities and Exchange
Commission ("SEC") on Form N-Q. This Schedule of Investments will also be
available on the Fund's website at www.hqcm.com, or the SEC's website at
www.sec.gov. The Fund's Form N-Q may be reviewed and copied at the SEC's Public
Reference Room in Washington, DC or by calling 1-800-SEC-0330.
5
H&Q HEALTHCARE INVESTORS
LARGEST HOLDINGS
AS OF MARCH 31, 2005
% OF NET ASSETS
---------------
Conor Medsystems, Inc. (Restricted) 3.64%
Cubist Pharmaceuticals, Inc. 3.00%
Genzyme Corporation 2.75%
Gilead Sciences, Inc. 2.69%
Idun Pharmaceuticals, Inc. (Restricted) 2.57%
IDEXX Laboratories, Inc. 2.49%
Connetics Corporation 2.28%
Teva Pharmaceutical Industries, Ltd. 2.23%
MedImmune, Inc. 2.17%
Theravance, Inc. (Restricted and unrestricted) 2.07%
H&Q HEALTHCARE INVESTORS
[CHART]
PORTFOLIO
AS OF MARCH 31, 2005
RESTRICTED
BIOPHARMACEUTICALS 0.00% 26.83%
DRUG DELIVERY 0.00% 4.21%
DRUG DISCOVERY 4.29% 1.28%
EMERGING BIOPHARM. 4.83% 17.98%
GENERIC PHARMACEUTICALS 0.00% 9.22%
HEALTHCARE SERVICES 4.96% 5.42%
MEDICAL DEVICES AND DIAGNOSTICS 6.87% 5.16%
SHORT-TERM INVESTMENTS 0.00% 10.51%
6
H&Q HEALTHCARE INVESTORS
SCHEDULE OF INVESTMENTS
MARCH 31, 2005
(UNAUDITED)
SHARES VALUE
--------- --------------
CONVERTIBLE SECURITIES - 15.1% OF NET ASSETS
CONVERTIBLE PREFERRED (RESTRICTED) - 14.9%
DRUG DISCOVERY TECHNOLOGIES - 4.3%
2,380,953 Agilix Corporation Series B*^ $ 571,429
850,436 Avalon Pharmaceuticals Series B* 1,020,523
375,000 Ceres, Inc. Series C* 2,250,000
27,443 Ceres, Inc. Series C-1*# 164,658
277,967 Ceres, Inc. Series D*# 1,667,802
1,398,732 Galileo Pharmaceuticals, Inc. Series F-1* 489,556
1,212,709 Idun Pharmaceuticals, Inc. Series A-1*^ 7,154,983
462,963 Idun Pharmaceuticals, Inc. Series B-1*^ 2,138,889
1,750,000 Triad Therapeutics, Inc. Series A*^ 1,750
525,000 Triad Therapeutics, Inc. Series B*^ 525
1,200,000 Triad Therapeutics, Inc. Series C*^ 24,000
300,000 Zyomyx, Inc. Series A New* 30,000
300 Zyomyx, Inc. Series B New* 30
EMERGING BIOPHARMACEUTICALS - 3.6%
952,381 Agensys, Inc. Series C* 3,000,000
2,586,207 Corus Pharma, Inc. Series C* 3,000,000
1,818,182 Raven biotechnologies Series B*^ 1,509,091
2,809,157 Raven biotechnologies Series C*^ 2,331,600
47,407 Therion Biologics Corporation Series A* 57,837
240,000 Therion Biologics Corporation Series B*# 292,800
407,712 Therion Biologics Corporation Series C* 497,409
33,332 Therion Biologics Corporation Series C-2* 40,665
36,092 Therion Biologics Corporation Sinking Fund* 361
2,100,000 Xanthus Life Sciences, Inc. Series B*^ 2,100,000
HEALTHCARE SERVICES - 3.8%
1,577,144 CardioNet, Inc. Series C*^ 5,520,004
484,829 CytoLogix Corporation Series A*^ 399,984
227,130 CytoLogix Corporation Series B*#^ 187,382
160,000 I-trax, Inc. Series A* 2,512,000
5,384,615 PHT Corporation Series D*^ 4,200,000
1,204,495 PHT Corporation Series E*^ 939,506
MEDICAL DEVICES AND DIAGNOSTICS - 3.2%
4,852,940 Concentric Medical, Inc. Series B*^ 4,173,528
1,744,186 Concentric Medical, Inc. Series C*^ 1,500,000
222,222 EPR, Inc. Series A* 2,222
160,000 Masimo Corporation Series D* 1,760,000
1,632,653 OmniSonics Medical Technologies, Inc. Series B*^ 2,181,224
1,547,988 OmniSonics Medical Technologies, Inc. Series C*^ 1,800,000
652,173 TherOx Series H* 247,826
--------------
$ 53,767,584
--------------
The accompanying notes are an integral part of these financial statements.
7
PRINCIPAL
AMOUNT VALUE
------------ --------------
CONVERTIBLE SECURITIES - CONTINUED
CONVERTIBLE NOTES (RESTRICTED) - 0.2%
DRUG DISCOVERY TECHNOLOGIES - 0.05%
$ 198,511 Avalon, variable ranging from
15.0% to 8.0% Cvt. Note, due 2006 $ 198,511
HEALTHCARE SERVICES - 0.05%
168,337 CytoLogix Corporation 6.75% Cvt. Note##^ 168,337
MEDICAL DEVICES AND DIAGNOSTICS - 0.1%
304,085 TherOx 6.0% Cvt. Bridge Note, due 2006# 304,085
--------------
670,933
--------------
TOTAL CONVERTIBLE SECURITIES AND NOTES
(Cost $69,092,932) $ 54,438,517
--------------
SHARES
------------
COMMON STOCKS - 76.2%
BIOPHARMACEUTICALS - 26.8%
94,836 Amgen, Inc.* $ 5,520,404
200,000 Amylin Pharmaceuticals, Inc. 3,498,000
78,900 Celgene Corporation* 2,686,545
143,600 Chiron Corporation 5,034,616
1,021,657 Cubist Pharmaceuticals, Inc.* 10,849,997
250,000 Endo Pharmaceuticals Holdings* 5,637,500
67,000 Genentech, Inc. 3,792,870
173,500 Genzyme Corporation* 9,931,140
271,090 Gilead Sciences, Inc.* 9,705,022
138,000 Imclone Systems, Inc.* 4,761,000
329,000 MedImmune, Inc.* 7,833,490
360,000 Millennium Pharmaceuticals, Inc.* 3,031,200
333,300 NPS Pharmaceuticals, Inc.* 4,206,246
100,000 OSI Pharmaceuticals, Inc.* 4,134,000
150,000 Pharmion Corporation* 4,350,000
224,400 Pfizer, Inc. 5,894,988
252,800 Pozen, Inc.* 1,317,088
150,000 The Medicines Company* 3,394,755
464,900 Vivus, Inc.* 1,390,051
--------------
96,968,912
--------------
DRUG DELIVERY - 4.2%
326,040 Connetics Corporation* 8,245,552
749,933 DepoMed, Inc.* 2,954,736
324,920 Penwest Pharmaceuticals Co.* 4,016,011
--------------
15,216,299
--------------
DRUG DISCOVERY TECHNOLOGIES - 1.3%
238,660 deCODE Genetics, Inc.* 1,360,362
273,043 Senomyx, Inc.* 3,251,942
300,000 Zyomyx, Inc. (Restricted)* 3,000
--------------
4,615,304
--------------
The accompanying notes are an integral part of these financial statements.
8
SHARES VALUE
------------ --------------
EMERGING BIOPHARMACEUTICALS - 19.3%
396,000 Abgenix, Inc.* $ 2,772,000
565,000 ACADIA Pharmaceuticals, Inc.* 3,898,500
424,100 Adolor Corporation* 4,215,554
633,041 Ariad Pharmaceuticals, Inc.* 3,545,030
245,000 Barrier Therapeutics, Inc. 3,795,050
400,118 Cytokinetics, Inc.* 2,624,774
264,000 DOV Pharmaceutical, Inc.* 3,611,520
415,102 Dyax Corporation* 1,336,628
912,000 Exelixis, Inc.* 6,183,360
568,600 Kosan Biosciences, Inc.* 2,331,260
547,760 Momenta Pharmaceuticals, Inc.* 4,639,527
510,880 Myogen, Inc.* 4,030,843
102,176 Myogen, Inc., Warrants* 9,196
214,810 Neurogen Corporation* 1,520,855
492,656 Nuvelo, Inc.* 3,202,264
312,000 Protein Design Labs, Inc.* 4,988,880
616,380 Seattle Genetics, Inc.* 3,168,193
225,619 Telik, Inc.* 3,402,335
368,086 Tercica, Inc.* 2,808,496
157,887 Theravance, Inc.* 2,881,438
265,654 Theravance, Inc. (Restricted)* 4,605,776
226,760 Therion Biologics Corporation (Restricted)* 2,268
--------------
69,573,747
--------------
GENERIC PHARMACEUTICALS - 9.2%
124,700 Barr Pharmaceuticals, Inc.* 6,089,101
418,154 Impax Laboratories, Inc.*^^ 6,690,464
358,250 IVAX Corporation* 7,082,603
161,500 Par Pharmaceutical Companies, Inc.* 5,400,560
260,200 Teva Pharmaceutical Industries, Ltd. ADR 8,066,200
--------------
33,328,928
--------------
HEALTHCARE SERVICES - 6.6%
26,125 DakoCytomation, Inc. (Restricted)@ 271,961
245,000 Eclipsys Corporation* 3,792,600
121,770 Emageon, Inc.* 2,186,989
70,000 HCA, Inc.* 3,713,500
260,000 Provident Senior Living Trust (Restricted)~+ 3,900,000
306,208 Syntiro Healthcare Services (Restricted)*# 3,062
300,000 Tenet Healthcare Corporation* 3,472,500
754,500 WebMD Corporation* 6,413,250
--------------
23,753,862
--------------
MEDICAL DEVICES AND DIAGNOSTICS - 8.8%
949,200 Conor Medsystems, Inc. (Restricted)* 13,143,098
166,020 IDEXX Laboratories, Inc.* 8,991,643
The accompanying notes are an integral part of these financial statements.
9
SHARES VALUE
------------ --------------
MEDICAL DEVICES AND DIAGNOSTICS - CONTINUED
160,000 Masimo Corporation (Restricted)* $ 1,600
1,071,150 Orthovita, Inc.* 3,641,910
208,529 Songbird Hearing, Inc. (Restricted)* 2,085
546,875 VNUS Medical Technologies, Inc. (Restricted)* 6,016,172
--------------
31,796,508
--------------
TOTAL COMMON STOCKS
(Cost $237,661,129) $ 275,253,560
--------------
PRINCIPAL
AMOUNT
------------
SHORT-TERM INVESTMENTS - 10.5%
$ 1,900,000 American Express Credit Corp.; 2.65%,
due 4/1/05 $ 1,900,000
6,800,000 American Express Credit Corp.; 2.67%,
due 4/4/05 6,798,487
4,500,000 American Express Credit Corp.; 2.73%,
due 4/11/05 4,496,588
1,100,000 American Express Credit Corp.; 2.70%,
due 4/13/05 1,099,010
2,500,000 American Express Credit Corp.; 2.75%,
due 4/15/05 2,497,326
2,500,000 American Express Credit Corp.; 2.73%,
due 4/18/05 2,496,777
4,700,000 American Express Credit Corp.; 2.74%,
due 4/20/05 4,693,203
12,900,000 General Electric Capital Corp.; 2.76%
due 4/6/05 12,895,055
1,100,000 General Electric Capital Corp.; 2.76%
due 4/8/05 1,099,410
--------------
TOTAL SHORT-TERM INVESTMENTS
(Cost $37,975,856) $ 37,975,856
--------------
TOTAL INVESTMENTS - 101.8%
(Cost $344,729,917) $ 367,667,933
--------------
LIABILITIES, NET OF CASH AND
OTHER ASSETS - (1.8%) (6,279,448)
--------------
NET ASSETS - 100% $ 361,388,485
==============
----------
* Non income-producing security.
# Including associated warrants.
@ Foreign security.
## Variable maturity.
+ Exchange traded security fair valued by the Valuation Committee of the
Board of Trustees.
^ Affiliated issuers in which the Fund holds 5% or more of the voting
securities (Total Market Value of $36,902,233).
~ Real Estate Investment Trust.
^^ Includes 17,297 restricted shares.
ADR American Depository Receipt.
The accompanying notes are an integral part of these financial statements.
10
H&Q HEALTHCARE INVESTORS
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 2005
(UNAUDITED)
ASSETS:
Investments in non affiliated issuers, at value
(identified cost $304,524,246; see Schedule of
Investments) $ 330,765,700
Investments in affiliated issuers, at value
(identified cost $40,205,671; see Schedule of
Investments) 36,902,233
Cash 59,741
Interest receivable 50,174
Receivable for investments sold 7,195,451
Prepaid expenses 56,965
-----------------
Total assets $ 375,030,264
-----------------
LIABILITIES:
Payable for investments purchased $ 13,008,822
Accrued advisory fee 404,190
Accrued audit fee 36,707
Accrued legal fees 82,048
Accrued shareholder reporting fees 44,710
Accrued other 65,302
-----------------
Total liabilities $ 13,641,779
-----------------
NET ASSETS $ 361,388,485
=================
SOURCES OF NET ASSETS:
Shares of beneficial interest, par value $.01 per
share, unlimited number of shares authorized,
amount paid in on 20,820,269 shares issued and
outstanding $ 340,620,938
Accumulated net investment loss (2,316,382)
Accumulated net realized gain on investments 145,913
Net unrealized gain on investments 22,938,016
-----------------
Total net assets (equivalent to $17.36 per
share based on 20,820,269 shares outstanding) $ 361,388,485
=================
The accompanying notes are an integral part of these financial statements.
11
STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 2005
(UNAUDITED)
INVESTMENT INCOME:
Dividend income (net of foreign tax
of $6,640) $ 180,714
Interest income from non affiliated issuers 456,064
Interest income from affiliated issuers 5,713
------------
Total investment income $ 642,491
EXPENSES:
Advisory fees $ 2,416,498
Legal fees 132,604
Trustees' fees and expenses 77,485
Shareholder reporting 52,264
Custodian fees 45,377
Accounting and auditing fees 36,707
Transfer agent fees 26,236
Stock exchange listing fee 13,948
Other (see note (3)) 157,754
------------
Total expenses 2,958,873
--------------
Net investment loss $ (2,316,382)
--------------
NET REALIZED AND UNREALIZED GAIN ON
INVESTMENTS:
Net realized gain on investments from
non affiliated issuers $ 5,707,435
Decrease in net unrealized gain on
investments (3,892,734)
--------------
Net realized and unrealized gain
on investments $ 1,814,701
--------------
Net decrease in net assets
resulting from operations $ (501,681)
==============
The accompanying notes are an integral part of these financial statements.
12
STATEMENTS OF CHANGE IN NET ASSETS
FOR THE SIX FOR THE
MONTHS ENDED YEAR ENDED
MARCH 31, 2005 SEPTEMBER 30,
(UNAUDITED) 2004
---------------- -------------
NET INCREASE (DECREASE) IN NET
ASSETS RESULTING FROM OPERATIONS:
Net investment loss $ (2,316,382) $ (4,494,628)
Net realized gain on investments 5,707,435 33,306,313
Decrease in net unrealized
gain on investments (3,892,734) (15,448,108)
---------------- -------------
Net (decrease) increase in net
assets resulting from operations $ (501,681) $ 13,363,577
---------------- -------------
DISTRIBUTIONS TO SHAREHOLDERS
FROM:
Net realized capital gains $ (14,954,054) $ (28,746,611)
---------------- -------------
CAPITAL SHARE TRANSACTIONS:
Value of shares issued in
reinvestment of distributions
(439,824 and 970,841 shares,
respectively) $ 7,541,144 $ 17,775,555
Value of 4,800,652 shares issued
in rights offering -- 80,650,954
Offering costs charged to
paid-in-capital -- (495,253)
---------------- -------------
Net increase in net assets resulting
from capital share transactions $ 7,541,144 $ 97,931,256
---------------- -------------
Net (decrease) increase in
net assets $ (7,914,591) $ 82,548,222
NET ASSETS:
Beginning of period 369,303,076 286,754,854
---------------- -------------
End of period $ 361,388,485 $ 369,303,076
================ =============
Accumulated net investment
loss included in net assets at
end of year $ (2,316,382) --
================ =============
The accompanying notes are an integral part of these financial statements.
13
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31, 2005
(UNAUDITED)
CASH FLOWS USED IN OPERATING ACTIVITIES:
Interest income received $ 16,973
Dividends received 180,714
Operating expenses paid (2,871,767)
---------------
Net cash used in operating activities $ (2,674,080)
---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of portfolio securities $ (130,049,127)
Net purchases of temporary cash investments 22,529,635
Sales and maturities of portfolio securities 117,422,131
---------------
Net cash provided from investing activities $ 9,902,639
---------------
CASH FLOWS USED IN FINANCING ACTIVITIES:
Cash distributions paid, net $ (7,412,910)
---------------
Net cash used in financing activities $ (7,412,910)
---------------
NET DECREASE IN CASH $ (184,351)
CASH AT BEGINNING OF PERIOD 244,092
---------------
CASH AT END OF PERIOD $ 59,741
===============
RECONCILIATION OF NET INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS TO NET CASH
USED FOR OPERATING ACTIVITIES:
Net decrease in net assets resulting from operations $ (501,681)
Accretion of discount (429,256)
Net realized gain on investments (5,707,435)
Decrease in net unrealized gain on investments 3,892,734
Decrease in interest receivable (15,550)
Increase in accrued expenses 59,376
Increase in prepaid expenses 27,732
---------------
Net cash used in operating activities $ (2,674,080)
===============
Noncash financing activities not included herein consist of reinvested
distributions of $7,541,144
Noncash investing activities not included herein consist of three conversions of
restricted preferred stock with a cost of $11,007,833 to restricted common stock
each of the same issuer.
The accompanying notes are an integral part of these financial statements.
14
H&Q HEALTHCARE INVESTORS
FINANCIAL HIGHLIGHTS
(SELECTED DATA FOR EACH SHARE OF BENEFICIAL INTEREST OUTSTANDING
THROUGHOUT THE PERIOD INDICATED)
FOR THE SIX
MONTHS ENDED FOR THE YEAR ENDED SEPTEMBER 30,
MARCH 31, 2005 -------------------------------------------------------------------------------------
(UNAUDITED) 2004 2003 2002 (1) 2001 2000
-------------- ------------- ------------- ------------- ------------- -------------
Net asset value per
share:
Beginning of period $ 18.12 $ 19.63 $ 18.16 $ 27.35 $ 46.15 $ 21.77
-------------- ------------- ------------- ------------- ------------- -------------
Net investment loss $ (0.11)(2) $ (0.28)(2) $ (0.23)(2) $ (0.28)(2) $ (0.20)(2) $ (0.29)
Net realized and
unrealized gain
(loss) on
investments 0.07 0.57 3.87 (5.73) (13.82) 28.13
-------------- ------------- ------------- ------------- ------------- -------------
Total (decrease)
increase from
investment
operations $ (0.04) $ 0.29 $ 3.64 $ (6.01) $ (14.02) $ 27.84
-------------- ------------- ------------- ------------- ------------- -------------
Capital gains
distributions
to shareholders $ (0.72) $ (1.80) $ (2.17) $ (3.18) $ (4.78) $ (3.47)
-------------- ------------- ------------- ------------- ------------- -------------
Net asset value per
share:
End of period $ 17.36 $ 18.12 $ 19.63 $ 18.16 $ 27.35 $ 46.15
============== ============= ============= ============= ============= =============
Per share market
value:
End of period $ 16.26 $ 18.11 $ 17.66 $ 14.10 $ 21.74 $ 36.19
Total investment
return at
market value (6.35%) 12.99% 43.49% (25.24%) (27.23%) 151.66%
RATIOS AND SUPPLEMENTAL
DATA:
Net assets at end
of period $ 361,388,485 $ 369,303,076 $ 286,754,854 $ 242,005,778 $ 329,373,206 $ 485,582,570
Ratio of operating
expenses to
average
net assets 1.60%* 1.63% 1.65% 1.64% 1.42% 1.45%
Ratio of net
investment
loss to average
net assets (1.25%)* (1.42%) (1.27%) (1.16%) (0.62%) (0.86%)
Portfolio turnover
rate 37.49% 33.65% 32.80% 17.40% 16.17% 12.90%
Number of shares
outstanding at end
of period 20,820,269 20,380,445 14,608,952 13,323,483 12,042,064 10,522,490
(1) In 2002, the Fund adopted the provisions of the AICPA Audit and Accounting
Guide for Investment Companies and began accreting discounts and amortizing
premiums on all debt securities. The effect of this change for the year
ended September 30, 2002 was a decrease in net investment loss per share of
$.009, an increase in net realized and unrealized loss on investments per
share of $.009, and a decrease in the ratio of net investment loss to
average net assets from (1.20%) to (1.16%). Per share data and ratios for
the periods prior to October 1, 2001 have not been restated to reflect this
change in presentation.
(2) Net investment loss per share has been computed using average shares
outstanding.
* Annualized.
The accompanying notes are an integral part of these financial statements.
15
H&Q HEALTHCARE INVESTORS
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
(UNAUDITED)
(1) ORGANIZATION
H&Q Healthcare Investors (the Fund) is a Massachusetts business trust
registered under the Investment Company Act of 1940 as a diversified
closed-end management investment company. The Fund's investment objective is
long-term capital appreciation through investment in securities of companies
in the healthcare industries. The Fund invests primarily in securities of
public and private companies that are believed to have significant potential
for above-average growth. The Fund was organized on October 31, 1986 and
commenced operations on April 22, 1987.
The Fund has adopted investment policies (non-fundamental investment
policies) which may be changed by action of the Board of Trustees without
shareholder approval. In June 2004, the Board of Trustees took action to make
the following change (as indicated by the strikethrough) to one of the Fund's
non fundamental investment policies: "investments will not be made in any
company with the objective of exercising control over that company's
management, [BEGINSTRIKETHROUGH]and the fund generally will not provide
managerial assistance to any such company as is normally the case with
venture capital funds.[ENDSTRIKETHROUGH] The Fund, however, may make
investments as a co-investor with other venture capital groups that may
provide issuers with significant managerial assistance."
In June and September, 2004, the Board of Trustees amended the Fund's
by-laws to provide for the office of Chief Compliance Officer and to require
that all matters put to vote of shareholders shall be decided by a vote of
the majority of all votes validly cast at a meeting at which a quorum is
present, unless otherwise specifically required by the Fund's Declaration of
Trust of By-Laws.
The preparation of these financial statements requires the use of certain
estimates by management in determining the entity's assets, liabilities,
revenues and expenses. Actual results could differ from these estimates. The
following is a summary of significant accounting policies consistently
followed by the Fund, which are in conformity with accounting principals
generally accepted in the United States of America.
INVESTMENT SECURITIES
Investments traded on national securities exchanges or in the
over-the-counter market that are National Market System securities are
valued at the last sale price or, lacking any sales, at the mean between the
last bid and asked prices. Other over-the-counter securities are valued at
the most recent bid prices as obtained from one or more dealers that make
markets in the securities. Exchange traded investments for which market
quotations are not readily available are valued at fair value as determined
in good faith by the Trustees of the Fund. The value of venture capital and
other restricted securities is determined in good faith by the Trustees.
However, because of the uncertainty of venture capital and other restricted
security valuations, these estimated values may differ significantly from
the values that would have been used had a ready market for the securities
existed, and the differences could be material. See note 4 below. Temporary
investments with maturity of 60 days or less are valued at amortized cost.
Investment transactions are recorded on a trade date basis. Gains and
losses from sales of investments are recorded using the "identified cost"
method. Interest income is recorded on the accrual basis, adjusted for
amortization of premiums and accretion of discounts. Dividend income is
recorded on the ex-dividend date. Income and realized gains or losses on
investments from affiliated issuers are identified in the Statement of
Operations. Affiliated issuers are issuers in which the Fund holds 5% or
more of the voting securities and are separately identified in the Schedule
of Investments.
16
REPURCHASE AGREEMENTS
From time to time, in connection with managing cash and short-term
investments the Fund may enter into transactions in repurchase agreements.
When such transactions are entered into, the Fund's custodian takes
possession of the underlying collateral securities, the market value of
which is at least equal to the principal, including accrued interest, of the
repurchase transaction at all times. In the event of default or bankruptcy
by the other party to the agreement, realization and/or retention of the
collateral by the Fund may be delayed or limited.
FEDERAL INCOME TAXES
It is the Fund's policy to comply with the requirements of the Internal
Revenue Code applicable to regulated investment companies and to distribute
to its shareholders substantially all of its taxable income and its net
realized capital gains, if any. Therefore, no Federal income or excise tax
provision is required.
DISTRIBUTIONS
The Fund records all distributions to shareholders from net investment
income, if any, and realized gains on the ex-dividend date. Such
distributions are determined in conformity with income tax regulations. Due
to permanent book/tax differences in accounting for certain transactions,
certain distributions may be treated as distributions from capital as
opposed to distributions of net investment income or realized capital gains.
DISTRIBUTION POLICY
Distributions will automatically be paid in newly issued shares of the
Fund unless otherwise instructed by the shareholder. Pursuant to an SEC
exemptive order, the Fund has implemented a fixed distribution policy that
permits the Fund to make quarterly distributions at a rate of 2% of the
Fund's net assets to shareholders of record. The Fund intends to use net
realized capital gains when making quarterly distributions. This could
result in a return of capital to shareholders if the amount of the
distribution exceeds the Fund's net investment income and realized capital
gains. It is anticipated that net realized capital gains in excess of the
total distributed under this policy would be included in the December
distribution.
STATEMENT OF CASH FLOWS
The cash amount shown in the Statement of Cash Flows is the amount
included in the Fund's Statement of Assets and Liabilities and represents
cash on hand at its custodian and does not include temporary cash
investments at March 31, 2005.
INDEMNIFICATIONS
Under the Fund's organizational documents, its officers and Trustees may
be indemnified against certain liabilities and expenses arising out of the
performance of their duties to the Fund. Additionally, in the normal course
of business, the Fund enters into agreements with service providers that may
contain indemnification clauses. The Fund's maximum exposure under these
agreements is unknown as this would involve future claims that may be made
against the Fund that have not yet occurred. However, based on experience,
the Fund expects the risk of loss to be remote.
(2) SECURITIES TRANSACTIONS
The aggregate cost of purchases and proceeds from sales of investment
securities (other than temporary cash investments) for the six months ended
March 31, 2005 totaled $141,626,014 and $124,035,583 respectively.
17
At March 31, 2005, the total cost of securities for Federal income tax
purposes was $344,729,917. The net unrealized gain on securities held by the
Fund was $22,938,016, including gross unrealized gain of $78,256,415 and
gross unrealized loss of $55,318,399.
(3) INVESTMENT ADVISORY FEES AND OTHER TRANSACTIONS WITH AFFILIATES
The Fund has entered into an Investment Advisory Agreement (the Advisory
Agreement) with Hambrecht & Quist Capital Management LLC (the Adviser).
Pursuant to the terms of the Advisory Agreement, the Fund pays the Adviser a
monthly fee at the rate when annualized of (i) 2.5% of the average net
assets for the month of its venture capital and other restricted securities
up to 25% of net assets and (ii) for the month, for all other assets, 1.0%
of the average net assets up to $250 million, 0.9% of the average net assets
for the next $250 million, 0.8% of the average net assets for the next $500
million and 0.7% of the average net assets thereafter. The aggregate fee may
not exceed a rate when annualized of 1.375%.
The Fund has entered into a Services Agreement (the "Agreement") with the
Adviser. Pursuant to the terms of the Agreement, the Fund reimburses the
Adviser for certain services related to a portion of the payment of salary
and provision of benefits to the Fund's Chief Compliance Officer. During the
six months ended March 31, 2005 these payments amounted to $70,341 and are
included in "Other" under the heading "EXPENSES" in the Statement of
Operations. These expenses along with insurance expenses of $52,224 incurred
to unaffiliated entities are the major components of "Other" under the
heading "EXPENSES" in the Statement of Operations. Expenses incurred
pursuant to the Agreement as well as certain expenses paid for by the
Adviser are allocated in an equitable fashion to the Fund.
Certain officers and Trustees of the Fund are also officers of the
Adviser. Trustees who are not affiliates of the Adviser receive an annual
fee of $20,000 plus $500 for each Committee on which they serve and $1,000
for each meeting attended.
(4) VENTURE CAPITAL AND OTHER RESTRICTED SECURITIES
The Fund may invest in venture capital and other restricted securities if
these securities would currently comprise 40% or less of net assets. The
value of these securities represents 22.80% of the Fund's net assets at
March 31, 2005.
The Fund maintains an investment restriction that prohibits the Fund from
purchasing more than 10% of the outstanding voting securities of any issuer.
In order to clarify that restriction, the Board of Trustees, (effective
September 30, 2004) has determined that, for purposes of that restriction,
the Fund will consider outstanding voting securities of an issuer to include
any security of the issuer that entitles the owner or holder to vote for the
election of directors of the issuer (a "voting security") and any other
outstanding security of the issuer that is exercisable for or convertible
into a voting security within 60 days from the date of the calculation.
During the year ended September 30, 2004, a restricted security was
exchanged for cash in connection with a corporate action, a portion of which
has been retained by the issuer in an escrow account pending resolution of
certain contingencies and whose estimated value of $211,284 at March 31,
2005 has also been determined by the Trustees. The value of the escrow
account is included in the Receivable for Investments Sold in the Statement
of Assets and Liabilities.
18
The following table details the acquisition date, cost, carrying value
per unit, and value of the Fund's venture capital and other restricted
securities at March 31, 2005, as determined by the Trustees of the Fund.
ACQUISITION CARRYING VALUE
SECURITY DATE COST PER UNIT VALUE
--------------------------------------------------------------------------------------------------------------
Agensys, Inc.
Series C Cvt. Pfd. 2/14/02 $ 3,005,073 $ 3.15 $ 3,000,000
Agilix Corporation^
Series B Cvt. Pfd. 11/8/01 3,014,260 0.24 571,429
Avalon Pharmaceuticals
Series B Cvt. Pfd. 10/22/01 3,008,325 1.20 1,020,523
Bridge Loan 2/11/05 198,511 1.00 198,511
CardioNet, Inc.^
Series C Cvt. Pfd. 5/3/01 - 3/25/03 5,549,183 3.50 5,520,004
Ceres, Inc.
Series C Cvt. Pfd. 12/23/98 1,502,620 6.00 2,250,000
Series C-1 Cvt. Pfd.# 3/31/01 111,488 6.00 164,658
Series D Cvt. Pfd.# 3/14/01 1,668,122 6.00 1,667,802
Concentric Medical, Inc.^
Series B Cvt. Pfd. 5/7/02 - 1/24/03 3,329,210 0.86 4,173,527
Series C Cvt. Pfd. 12/19/03 1,500,000 0.86 1,500,000
Conor MedSystems, Inc.
Restricted Common 10/23/2003 - 8/6/04 3,056,876 13.85 13,143,098
Corus Pharma, Inc.
Series C Cvt. Pfd. 4/8/04 3,002,344 1.16 3,000,000
CytoLogix Corporation^
Series A Cvt. Pfd. 1/13/98 - 7/21/99 1,622,895 0.83 399,984
Series B Cvt. Pfd.*# 1/11/01 760,284 0.83 187,382
Cvt. Note# 5/29/02 168,337 1.00 168,337
DakoCytomation, Inc.
Restricted Common 6/14/04 1,102,920 10.41 271,961
EPR, Inc.
Series A Cvt. Pfd. 3/9/94 1,000,409 0.01 2,222
Galileo Pharmaceuticals, Inc.
Series F-1 Cvt. Pfd. 8/18/00 3,002,895 0.35 489,556
Idun Pharmaceuticals, Inc.^
Series A-1 Cvt. Pfd. 11/26/02 3,001,966 5.90 7,154,983
Series B-1 Cvt. Pfd. 5/24/04 741,719 4.62 2,138,889
I-trax, Inc.
Series A Cvt. Pfd. 3/18/04 4,003,650 15.70 2,512,000
Masimo Corporation
Series D Cvt. Pfd. 8/14/96 1,120,041 11.00 1,760,000
Restricted Common 3/31/98 0 0.01 1,600
OmniSonics Medical Technologies, Inc.^
Series B Cvt. Pfd. 5/24/01 2,409,023 1.34 2,181,224
Series C Cvt. Pfd. 10/1/03 1,800,336 1.16 1,800,000
PHT Corporation^
Series D Cvt. Pfd. 7/23/01 4,205,754 0.78 4,200,000
Series E Cvt. Pfd. 9/12/03 - 10/14/04 941,669 0.78 939,506
Provident Senior Living Trust
Restricted Common 7/26/04 3,900,871 15.00 3,900,000
Raven biotechnologies, Inc.^
Series B Cvt. Pfd. 12/12/00 3,001,725 0.83 1,509,091
Series C Cvt. Pfd. 11/26/02 2,331,600 0.83 2,331,600
Songbird Hearing, Inc.
Restricted Common 12/14/00 3,004,861 0.01 2,085
Syntiro Heathcare Services
Restricted Common 2/5/97 1,200,325 0.01 3,062
19
ACQUISITION CARRYING VALUE
SECURITY DATE COST PER UNIT VALUE
--------------------------------------------------------------------------------------------------------------
Theravance, Inc.
Restricted Common 2/5/99 - 8/28/00 $ 3,603,382 $ 17.34 $ 4,605,776
Therion Biologics Corporation
Series A Cvt. Pfd. 8/20/96 - 10/16/96 444,850 1.22 57,837
Series B Cvt. Pfd.# 6/22/99 900,914 1.22 292,800
Series C Cvt. Pfd. 9/26/01 - 10/15/01 1,529,348 1.22 497,409
Series C-2 Units# 8/13/03 59,998 1.22 40,665
Sinking Fund Cvt. Pfd. 10/18/94 - 8/20/96 721,291 0.01 361
Restricted Common 7/12/90 - 1/25/96 511,365 0.01 2,268
TherOx, Inc.
Series H Cvt. Pfd. 9/11/00 3,002,506 0.38 247,826
Bridge Note# 1/28/04 304,085 1.00 304,085
Triad Therapeutics, Inc.^
Series A Cvt. Pfd. 6/8/99 1,752,359 0.00 1,750
Series B Cvt. Pfd. 1/10/03 1,053,135 0.00 525
Series C Cvt. Pfd. 12/20/00 - 11/25/02 920,897 0.02 24,000
VNUS Medical Technologies, Inc.
Restricted Common 8/20/01 4,200,003 11.00 6,016,172
Xanthus Life Sciences, Inc.^
Series B Cvt. Pfd. 12/5/03 2,101,320 1.00 2,100,000
Zyomyx, Inc.
New Common 2/19/99 - 7/22/04 3,602,065 0.01 3,000
Series A New Cvt. Pfd. 1/12/04 299,700 0.10 30,000
Series B New Cvt. Pfd. 2/19/99 - 1/12/04 468 0.10 30
-------------- --------------
$ 93,274,977 $ 82,387,538
============== ==============
# With warrants attached
^ Affiliated issuers in which the Fund holds 5% or more of the voting
securities
(5) SOURCES OF NET ASSETS
The changes in the sources of net assets for the period from October 1,
2004 through March 31, 2005 are as follows:
CAPITAL PAID ACCUMULATED ACCUMULATED NET
IN ON SHARES NET NET REALIZED UNREALIZED
OF BENEFICIAL INVESTMENT GAIN ON GAIN ON TOTAL NET
INTEREST LOSS INVESTMENTS INVESTMENTS ASSETS
-----------------------------------------------------------------------------
As of October 1, 2004 $ 333,079,794 $ -- $ 9,392,532 $ 26,830,750 $ 369,303,076
Net investment loss
for the period from
October 1, 2004 through
March 31, 2005 (2,316,382) (2,316,382)
Net realized gains
for the period from
October 1, 2004 through
March 31, 2005 5,707,435 5,707,435
Distributions, net of
reinvestments paid
during the period from
October 1, 2004 through
March 31, 2005 (14,954,054) (14,954,054)
Value of shares issued
in reinvestment of
distributions 7,541,144 7,541,144
Decrease in net
unrealized gain on
investments (3,892,734) (3,892,734)
------------- ------------- ------------- ------------- -------------
As of March 31, 2005 $ 340,620,938 $ (2,316,382) $ 145,913 $ 22,938,016 $ 361,388,485
============= ============= ============= ============= =============
20
H&Q HEALTHCARE INVESTORS
New York Stock Exchange Symbol: HQH
30 Rowes Wharf, 4th Floor
Boston, Massachusetts 02110-3328
(617) 772-8500
www.hqcm.com
OFFICERS
Daniel R. Omstead, Ph.D., President
Kathleen Eckert, Secretary, Treasurer and
Chief Compliance Officer
TRUSTEES
Lawrence S. Lewin
Robert P. Mack, M.D.
Eric Oddleifson
Daniel R. Omstead, Ph.D.
Oleg M. Pohotsky
Uwe E. Reinhardt, Ph.D.
Henri A. Termeer
INVESTMENT ADVISER
Hambrecht & Quist Capital Management LLC
CUSTODIAN
State Street Bank and Trust Company
TRANSFER AGENT
EquiServe Trust Company, N.A.
LEGAL COUNSEL
Dechert LLP
Shareholders with questions regarding share transfers may call
1-800-426-5523
Interim daily net asset value may be obtained from
our website (www.hqcm.com) or by calling
1-800-451-2597
For copies of the Fund's
DIVIDEND REINVESTMENT PLAN,
please contact the Plan Agent, EquiServe Trust Company, N.A.
PO Box 43010 Providence, RI 02940-3010
Telephone: 1-800-426-5523
HAMBRECHT & QUIST CAPITAL MANAGEMENT LLC
30 Rowes Wharf
Boston, MA 02110-3328
HQHCM-SAR-05
ITEM 2. CODE OF ETHICS.
Not applicable to this semi-annual filing.
ITEM 3. AUDIT COMMITTEE FINANCIAL EXPERT.
Not applicable to this semi-annual filing.
ITEM 4. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
Not applicable to this semi-annual filing.
ITEM 5. AUDIT COMMITTEE OF LISTED REGISTRANTS.
No applicable to this semi-annual filing.
ITEM 6. SCHEDULE OF INVESTMENTS.
The Registrant's Schedule of Investments is included as part of the Report
to Shareholders filed under Item 1 of this form.
ITEM 7. DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END
MANAGEMENT INVESTMENT COMPANIES.
Not applicable to this semi-annual filing.
ITEM 8. PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES
Not applicable to this semi-annual filing.
ITEM 9. PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT
COMPANY AND AFFILIATED PURCHASERS.
None.
ITEM 10. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There have been no material changes to the procedures by which the
shareholders may recommend nominees to the registrant's Board of Trustees,
where those changes were implemented after the registrant last provided
disclosure in response to the requirements of Item 7(d)(2)(ii)(G) of
Schedule 14A, or this Item.
ITEM 11. CONTROLS AND PROCEDURES.
(a) In the opinion of the principal executive officer and principal
financial officer, based on their evaluation which took place within
90 days of this filing, the Registrant's disclosure controls and
procedures are adequately designed and are operating effectively to
ensure (i) that material information relating to the Registrant,
including its consolidated subsidiaries, is made known to them by
others within those entities, particularly during the period in which
this report is being prepared; and (ii) that information required to
be disclosed by the registrant on Form N-CSR is recorded, processed,
summarized and reported within the time period specified in the
Securities and Exchange Commission's rules and forms.
(b) There were no changes in the Registrant's internal control over
financial reporting that occurred during the Registrant's most recent
fiscal half-year that may have materially affected or are reasonably
likely to materially affect, the Registrant's internal control.
ITEM 12. EXHIBITS
(a)(1) CODE OF ETHICS: NOT APPLICABLE TO THIS SEMI-ANNUAL FILING.
(a)(2) CERTIFICATION: FILED AS AN ATTACHMENT TO THIS FILING.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
(Registrant) H&Q HEALTHCARE INVESTORS
------------------------------------------------------------------
By (Signature and Title)* /s/ Daniel R. Omstead
-------------------------------------------------------
Daniel R. Omstead, President
Date: 5/27/05
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By (Signature and Title)* /s/ Kathleen Eckert
-------------------------------------------------------
Kathleen Eckert, Treasurer
Date: 5/27/05
By (Signature and Title)*
-------------------------------------------------------
Date:
* Print the name and title of each signing officer under his or her signature.