Regulatory Filings • Jun 5, 2006
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Download Source FileN-CSRS 1 a06-11466_3ncsrs.htm CERTIFIED SEMI-ANNUAL SHAREHOLDER REPORT
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 | |
|---|---|
| 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) | (Zip code) |
| 30 Rowes Wharf, Fourth Floor, Boston, MA | |
| 02110-3328 | |
| (Name and address of agent for | |
| service) | |
| Registrants telephone number, including | |
| area code: | 617-772-8500 |
| Date of fiscal year end: | September 30 |
| Date of reporting period: | October 1, |
| 2005 to March 31, 2006 |
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.
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*ITEM 1. REPORTS TO STOCKHOLDERS.*
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Document name: 06-11466-4.aa
H&Q HEALTHCARE INVESTORS
Semiannual Report
March 31, 2006
SEQ.=1,FOLIO='',FILE='06-11466-4.aa',USER='ltolend',CD='May 23 15:23 2006'
Document name: 06-11466-4.ba
T o our Shareholders:
On March 31, 2006, the net asset value per share of the Fund was $19.64. During the six-month period ended March 31, 2006, total return at net asset value of your Fund was 4.85%. During the most recent quarter ended March 31, 2006, total return at net asset value of your Fund was 7.83%. The total investment return at market was 5.52% during the six-month period ended March 31, 2006 and was 6.62% during the quarter ended March 31, 2006. Comparisons to relevant indices are listed below:
| Investment Returns — Investment Return at Market | +6.62 % | +5.52 % |
|---|---|---|
| Net Asset Value | +7.83 % | +4.85 % |
| NASDAQ Biotech Index (NBI) | +6.44 % | +7.18 % |
| S&P 500 Index | +4.21 % | +6.38 % |
In the most recent quarter ended March 31, 2006, the investment return at market value and net asset value (NAV) of your Fund each returned more than 6% and 7% respectively, outperforming the NASDAQ Biotech Index (NBI) and the S&P 500 Index (S&P) for the period. In that same period, the NBI outperformed the S&P. However, for the six-month period ending 3/31/06, investment return at market and NAV underperformed these benchmark indexes.
In the approximately six weeks since the end of March 2006, the S&P index has been flat to slightly down, while the Fund and the NBI have exhibited a somewhat larger retreat. We think that this trend evidences some profit taking in biotechnology as well as some market rotation out of smaller capitalization healthcare investments into other non-healthcare sectors as well some movement into large pharma. We also think that these trends have been exacerbated by macroeconomic factors (e.g., inflation fears resulting from increased energy and hard commodity pricing, Federal Reserve actions, etc.) as well as by some momentum buying as the largest cap segments of the market (e.g., the Dow Jones Industrial Average) approached multi-year highs. Certain regulatory events have also been an impediment to advancement of the group. For example, CMS' initial proposal regarding re-setting of reimbursement for medical products was not well received by the marketplace. We expect that final negotiations to be played out over time will moderate the impact of any proposal adopted by CMS, but the initial proposal provided for significant reductions in Medicare reimbursement rates for a number of important products.
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In the first half of calendar year 2005, a number of events in biotechnology sectors were well received by investors and, in our view, helped move the sector upward. Examples included positive results for Genzyme's Renagel product and for Genetech's Herceptin and Lucentis products. Also, Teva Pharmaceuticals obtained approval for generic versions of several prominent drugs, Amylin successfully launched a new drug, Byetta, for use in diabetes and Myogen demonstrated successful clinical data for a new heart failure drug. In aggregate, we believe that these and other events had a benefical effect on the sector. More recently there have been several program or product developments that we believe have had a negative impact on the sector. These include delays in key programs at Dov Pharmaceuticals and Encysive Pharmaceuticals, as well as failure of a clinical trial at Rigel Pharmaceuticals and at Inhibitex. We believe that these events, in combination with other events and macroeconomic factors have had a negative short term effect on the NBI and the sector generally. While we are not happy about these developments, we think that the biotech sector is approaching an oversold situation which may well present a buying opportunity for us in the not too distant future.
In the broader healthcare sectors, several trends have emerged of late. It appears that after multi-year stock price advancement, the Payer (i.e., HMO) and Provider (i.e., Hospital) sub-sectors of the Healthcare Market have slowed or even re-traced some gains of late. In addition, a number of the largest and probably best biotech companies, such as Genzyme, Gilead, Genentech and Amgen, have also retreated a bit after significant advancement in calendar year 2005. This recent price action may also produce a buying opportunity in the not too distant future.
During the six-month period ended March 31, 2006, within the public portfolio, the Fund established positions in several companies including Amgen, Inc., National Medical Health Card Systems, Inc., Idenix Pharmaceuticals, Inc., Imclone Systems, Inc., DJ Orthopedics Inc., and Myriad Genetics Inc. During the same six-month period, the Fund exited its positions in Millennium Pharmaceuticals, Inc., OSI Pharmaceuticals, Inc., Nuvelo, Inc., Alkermes, Inc., Intralase Corporation, and Medarex, Inc.
Within the venture and restricted securities portfolio during the six-month period ended March 31, 2006, the Fund made follow on investments in Xanthus Life Sciences, Inc. The Fund also increased its investment in Ceres, Inc. by participating in a cashless exercise of warrants. The Fund established positions in Akorn, Inc., Aveta, Inc., Cougar Biotechnology Inc. and Medwave, Inc.
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As always, if you have any questions or comments, please call me at 617-772-8500. I would be happy to speak with you.
Daniel R. Omstead President
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H&Q HEALTHCARE INVESTORS
LARGEST HOLDINGS BY ISSUER
As of March 31, 2006
| Conor Medsystems, Inc. | 3.80 % |
|---|---|
| Gilead Sciences, Inc. | 3.36 % |
| Genzyme Corp. | 2.82 % |
| Teva Pharmaceutical Industries, Ltd. | 2.75 % |
| Cubist Pharmaceuticals, Inc. | 2.66 % |
| Concentric Medical, Inc. | 2.39 % |
| Theravance, Inc. | 2.09 % |
| Medtronic, Inc. | 2.08 % |
| IDEXX Laboratories, Inc. | 2.04 % |
| Impax Laboratories, Inc. | 1.94 % |
H&Q HEALTHCARE INVESTORS
PORTFOLIO
As of March 31, 2006
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Document name: 06-11466-4.ca
H&Q HEALTHCARE INVESTORS
SCHEDULE OF INVESTMENTS
March 31, 2006
(Unaudited)
| SHARES | CONVERTIBLE SECURITIES - 13.6% of Net Assets — Convertible Preferred (Restricted) - 13.5% | VALUE |
|---|---|---|
| Drug Discovery Technologies - 1.4% | ||
| 2,380,953 | Agilix Corporation Series B (a) (b) | $ 571,429 |
| 375,000 | Ceres, Inc. Series C (a) | 2,250,000 |
| 32,193 | Ceres, Inc. Series C-1 (a) (c) | 193,158 |
| 280,105 | Ceres, Inc. Series D (a) (c) | 1,680,630 |
| 845,375 | Cougar Biotechnology Inc. Series A (a) | 1,462,499 |
| 1,398,732 | Galileo Pharmaceuticals, Inc. Series F-1 (a) | 140 |
| 300,000 | Zyomyx, Inc. Series A New (a) | 30,000 |
| 300 | Zyomyx, Inc. Series B New (a) | 30 |
| Emerging Biopharmaceuticals - 3.8% | ||
| 1,117,381 | Agensys, Inc. Series C (a) | 3,300,300 |
| 2,586,207 | Corus Pharma, Inc. Series C (a) | 1,500,000 |
| 1,818,182 | Raven biotechnologies, Inc. Series B (a) | 1,509,091 |
| 2,809,157 | Raven biotechnologies, Inc. Series C (a) | 2,331,600 |
| 4,083,022 | Raven biotechnologies, Inc. Series D (a) | 1,200,000 |
| 2,123,077 | TargeGen, Inc. Series C (a) | 2,760,000 |
| 47,407 | Therion Biologics Corporation Series A (a) | 57,837 |
| 240,000 | Therion Biologics Corporation Series B (a) | 292,800 |
| 407,712 | Therion Biologics Corporation Series C (a) (c) | 497,409 |
| 33,332 | Therion Biologics Corporation Series C-2 (a) (c) | 40,665 |
| 36,092 | Therion Biologics Corporation Sinking Fund (a) | 361 |
| 2,555,000 | Xanthus Life Sciences, Inc. Series B (a) | 2,555,000 |
| Healthcare Services - 3.9% | ||
| 1,577,144 | CardioNet, Inc. Series C (a) (b) | 5,520,004 |
| 484,829 | CytoLogix Corporation Series A (a) (b) | 399,984 |
| 227,130 | CytoLogix Corporation Series B (a) (b) (c) | 187,382 |
| 160,000 | I-trax, Inc. Series A (a) | 5,584,000 |
| 5,384,615 | PHT Corporation Series D (a) (b) | 4,200,000 |
| 1,204,495 | PHT Corporation Series E (a) (b) | 939,506 |
| Medical Devices and Diagnostics - 4.4% | ||
| 4,852,940 | Concentric Medical, Inc. Series B (a) (b) (d) | 6,794,116 |
| 1,744,186 | Concentric Medical, Inc. Series C (a) (b) | 2,441,860 |
| 683,000 | Concentric Medical, Inc. Series D (a) (b) | 956,200 |
| 222,222 | EPR, Inc. Series A (a) | 2,222 |
| 3,669,024 | Labcyte, Inc. Series C (a) | 1,920,000 |
| 160,000 | Masimo Corporation Series D | 1,760,000 |
| 1,632,653 | OmniSonics Medical Technologies, Inc. Series B (a) (b) | 2,181,224 |
| 1,547,988 | OmniSonics Medical Technologies, Inc. Series C (a) (b) | 1,800,001 |
| 65,217 | TherOx, Inc. Series H (a) | 247,825 |
| 149,469 | TherOx, Inc. Series I (a) (c) | 577,100 |
| $ 57,744,373 |
The accompanying notes are an integral part of these financial statements.
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H&Q HEALTHCARE INVESTORS
SCHEDULE OF INVESTMENTS
March 31, 2006
(Unaudited)
(continued)
| PRINCIPAL AMOUNT | Convertible Notes (Restricted) - 0.1% | VALUE |
|---|---|---|
| Healthcare Services - 0.1% | ||
| $ 300,000 | CardioNet, Inc. Cvt. Note, 8.00% due 2006 (b) (c) | $ 300,000 |
| 168,337 | CytoLogix Corporation Cvt. Note, 6.75% (b) (e) | 168,337 |
| $ 468,337 | ||
| TOTAL CONVERTIBLE SECURITIES (Cost $68,062,993) | $ 58,212,710 | |
| SHARES | COMMON STOCKS - 85.6% | |
| Biopharmaceuticals - 29.0% | ||
| 577,778 | Akorn, Inc. (Restricted) (a) (c) | $ 2,386,801 |
| 373,750 | Alexza Pharmaceuticals, Inc. (a) | 3,644,063 |
| 98,800 | Amgen, Inc. (a) | 7,187,700 |
| 50,000 | Biogen Idec Inc. (a) | 2,355,000 |
| 493,886 | Cubist Pharmaceuticals, Inc. (a) | 11,344,561 |
| 512,859 | Encysive Pharmaceuticals Inc. (a) | 2,507,881 |
| 129,400 | Endo Pharmaceuticals Holdings (a) | 4,245,614 |
| 154,500 | Forest Laboratories, Inc. (a) | 6,895,335 |
| 51,500 | Genentech, Inc. (a) | 4,352,265 |
| 178,893 | Genzyme Corporation (a) | 12,025,187 |
| 230,825 | Gilead Sciences, Inc. (a) | 14,361,931 |
| 404,675 | Idenix Pharmaceuticals Inc. (a) | 5,491,440 |
| 140,500 | Imclone Systems, Inc. (a) | 4,779,810 |
| 246,623 | Inhibitex Inc. (a) | 1,790,483 |
| 778,450 | Insmed Inc. (a) | 1,517,978 |
| 1,048,756 | Inspire Pharmaceuticals, Inc. (a) | 5,484,993 |
| 158,690 | MedImmune, Inc. (a) | 5,804,880 |
| 408,000 | MGI Pharma, Inc. (a) | 7,140,000 |
| 168,960 | Myriad Genetics Inc. (a) | 4,408,166 |
| 124,080 | PDL BioPharma Inc. (a) | 4,069,824 |
| 165,000 | Pfizer, Inc. | 4,111,800 |
| 63,300 | Pharmion Corporation (a) | 1,140,666 |
| 278,300 | Schering-Plough Corporation | 5,284,917 |
| 392,849 | Vivus, Inc. (a) | 1,308,187 |
| 123,639,482 | ||
| Drug Delivery - 2.7% | ||
| 822,533 | DepoMed, Inc. (a) | 5,371,140 |
| 262,990 | Noven Pharmaceuticals, Inc. (a) | 4,736,450 |
| 56,806 | Penwest Pharmaceuticals Co. (a) | 1,232,122 |
| 11,339,712 | ||
| Drug Discovery Technologies - 2.4% | ||
| 69,840 | Avalon Pharmaceuticals, Inc. (a) | 352,692 |
| 207,432 | Avalon Pharmaceuticals, Inc. (Restricted) (a) | 995,155 |
The accompanying notes are an integral part of these financial statements.
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H&Q HEALTHCARE INVESTORS
SCHEDULE OF INVESTMENTS
March 31, 2006
(Unaudited)
(continued)
| SHARES | Drug Discovery Technologies - continued | VALUE |
|---|---|---|
| 93,931 | Cougar Biotechnology Inc. (Restricted) (a) | $ 162,501 |
| 213,513 | Senomyx, Inc. (a) | 3,514,424 |
| 238,550 | ZymoGenetics, Inc. (a) | 5,157,451 |
| 300,000 | Zyomyx, Inc. (Restricted) (a) | 3,000 |
| 10,185,223 | ||
| Emerging Biopharmaceuticals - 13.4% | ||
| 391,698 | ACADIA Pharmaceuticals, Inc. (a) | 6,259,334 |
| 826,591 | Ariad Pharmaceuticals, Inc. (a) | 5,438,969 |
| 453,772 | Barrier Therapeutics, Inc. (a) | 4,392,513 |
| 86,930 | DOV Pharmaceutical, Inc. (a) | 1,389,141 |
| 465,050 | Exelixis, Inc. (a) | 5,585,250 |
| 677,239 | Kosan Biosciences, Inc. (a) | 3,988,938 |
| 60,500 | Momenta Pharmaceuticals, Inc. (a) | 1,189,430 |
| 62,073 | Myogen, Inc. (a) | 2,248,905 |
| 102,176 | Myogen, Inc. warrants (a) | 2,904,864 |
| 599,790 | Neurogen Corporation (a) | 3,712,700 |
| 297,663 | Nitromed, Inc. (a) | 2,500,369 |
| 626,580 | Seattle Genetics, Inc. (a) | 3,233,153 |
| 51,454 | Telik, Inc. (a) | 996,149 |
| 690,556 | Tercica, Inc. (a) | 4,626,725 |
| 318,291 | Theravance, Inc. (a) | 8,924,880 |
| 226,760 | Therion Biologics Corporation (Restricted) (a) | 2,268 |
| 57,393,588 | ||
| Generic Pharmaceuticals - 9.3% | ||
| 119,700 | Barr Pharmaceuticals, Inc. (a) | 7,538,706 |
| 828,524 | Impax Laboratories, Inc. (a) | 8,276,955 |
| 155,600 | K-V Pharmaceutical Co. (a) | 3,753,072 |
| 183,000 | Medicis Pharmaceutical Corporation | 5,965,800 |
| 177,500 | Taro Pharmaceuticals Industries Ltd. (a) | 2,474,350 |
| 285,569 | Teva Pharmaceutical Industries, Ltd. ADR | 11,759,731 |
| 39,768,614 | ||
| Healthcare Services - 10.1% | ||
| 131,000 | Allscripts Healthcare Solutions, Inc. (a) | 2,398,610 |
| 222,222 | Aveta, Inc. (Restricted) (a) | 2,999,997 |
| 26,125 | DakoCytomation, Inc. (Restricted) (f) | 271,961 |
| 239,000 | Eclipsys Corporation (a) | 5,642,790 |
| 389,319 | Emageon, Inc. (a) | 6,614,530 |
| 646,500 | Emdeon Corporation (a) | 6,982,200 |
| 141,000 | Medco Health Solutions, Inc. (a) | 8,068,020 |
| 198,905 | National Medical Health Card Systems, Inc. (a) | 5,569,340 |
| 306,208 | Syntiro Healthcare Services (Restricted) (a) | 306 |
| 625,000 | Tenet Healthcare Corporation (a) | 4,612,500 |
| 43,160,254 |
The accompanying notes are an integral part of these financial statements.
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H&Q HEALTHCARE INVESTORS
SCHEDULE OF INVESTMENTS
March 31, 2006
(Unaudited)
(continued)
| SHARES | Medical Devices and Diagnostics - 18.7% | VALUE | |
|---|---|---|---|
| 187,780 | Adeza Biomedical Corporation (a) | $ 3,967,791 | |
| 164,150 | Affymetrix, Inc. (a) | 5,405,460 | |
| 852,150 | Align Technology, Inc. (a) | 7,814,216 | |
| 57,500 | Boston Scientific Corporation (a) | 1,325,375 | |
| 447,722 | Conor Medsystems, Inc. (a) | 13,163,027 | |
| 109,200 | Conor Medsystems, Inc. (Restricted) (a) | 3,049,956 | |
| 120,000 | DJ Orthopedics Inc. (a) | 4,771,200 | |
| 136,000 | Gen-Probe, Inc. (a) | 7,496,320 | |
| 28,500 | Guidant Corporation | 2,224,710 | |
| 100,980 | IDEXX Laboratories, Inc. (a) | 8,720,633 | |
| 160,000 | Masimo Corporation (Restricted) (a) | 1,600 | |
| 175,000 | Medtronic, Inc. | 8,881,250 | |
| 830,292 | Medwave, Inc. (Restricted) (a) (c) | 2,690,146 | |
| 369,583 | Orchid Cellmark, Inc. (a) | 2,121,406 | |
| 1,020,000 | Orthovita, Inc. (a) | 4,222,800 | |
| 208,529 | Songbird Hearing, Inc. (Restricted) (a) | 2,085 | |
| 546,875 | VNUS Medical Technologies, Inc. (a) | 4,150,781 | |
| 80,008,756 | |||
| TOTAL COMMON STOCKS (Cost $293,806,651) | $ 365,495,629 | ||
| PRINCIPAL AMOUNT | SHORT-TERM INVESTMENT - 1.4% | ||
| $ 6,000,000 | General Electric Capital Corp.; 4.63% due 04/03/06 (Cost $5,998,456) | $ 5,998,456 | |
| TOTAL INVESTMENTS - 100.6% (Cost $367,868,100) | $ 429,706,795 | ||
| OTHER LIABILITIES IN EXCESS OF ASSETS - (0.6%) | $ (2,644,492 | ) | |
| NET ASSETS - 100% | $ 427,062,303 |
(a) Non-income producing security.
(b) Affiliated issuers in which the Fund holds 5% or more of the voting securities (Total Market Value of $26,460,043).
(c) Including associated warrants.
(d) Includes 321,000 non-voting shares.
(e) Variable maturity.
(f) Foreign Security.
ADR American Depository Receipt.
The accompanying notes are an integral part of these financial statements.
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H&Q HEALTHCARE INVESTORS
STATEMENT OF ASSETS AND LIABILITIES
March 31, 2006
(Unaudited)
| AS SETS: — Investments in non affiliated issuers, at value (identified cost $341,307,215; see Schedule of Investments) | $ 403,246,752 | |
|---|---|---|
| Investments in affiliated issuers, at value (identified cost $26,560,885; see Schedule of Investments) | 26,460,043 | |
| Cash | 72,376 | |
| Interest and dividends receivable | 66,088 | |
| Receivable for investments sold | 799,209 | |
| Prepaid expenses | 51,082 | |
| Total assets | $ 430,695,550 | |
| LIABILITIES: | ||
| Payable for investments purchased | $ 3,071,495 | |
| Accrued advisory fee | 416,613 | |
| Accrued audit fee | 44,184 | |
| Accrued administration fee | 5,199 | |
| Accrued legal fees | 15,085 | |
| Accrued shareholder reporting fees | 63,874 | |
| Accrued other | 16,797 | |
| Total liabilities | $ 3,633,247 | |
| NET ASSETS | $ 427,062,303 | |
| SOURCES OF NET ASSETS: | ||
| Shares of beneficial interest, par value $.01 per share, unlimited number of shares authorized, amount paid in on 21,749,270 shares issued and outstanding | $ 353,294,931 | |
| Accumulated net investment loss | (490,899 | ) |
| Accumulated net realized gain on investments | 12,419,577 | |
| Net unrealized gain on investments | 61,838,694 | |
| Total net assets (equivalent to $19.64 per share based on 21,749,270 shares outstanding) | $ 427,062,303 |
The accompanying notes are an integral part of these financial statements.
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H&Q HEALTHCARE INVESTORS
STATEMENT OF OPERATIONS
For the Six Months Ended March 31, 2006
(Unaudited)
| INVESTMENT INCOME: — Dividend income (net of foreign tax of $6,337) | $ 84,344 | ||
|---|---|---|---|
| Special dividend | 1,615,318 | ||
| Interest income from non affiliated issuers | 767,265 | ||
| Interest income from affiliated issuers | 29,900 | ||
| Total investment income | $ | 2,496,827 | |
| EXPENSES: | |||
| Advisory fees | $ 2,451,307 | ||
| Legal fees | 89,726 | ||
| Trustees' fees and expenses | 85,601 | ||
| Accounting, administration and auditing fees | 76,311 | ||
| Shareholder reporting | 63,700 | ||
| Custodian fees | 51,506 | ||
| Transfer agent fees | 30,030 | ||
| Stock exchange listing fee | 12,465 | ||
| Other (see note (3)) | 127,058 | ||
| Total expenses | 2,987,704 | ||
| Net investment loss | ($ | 490,877 | ) |
| NET REALIZED AND UNREALIZED GAIN ON INVESTMENTS: | |||
| Net realized gain on investments | $ | 17,350,733 | |
| Increase in net unrealized gain on investments | 2,398,359 | ||
| Net realized and unrealized gain on investments | $ | 19,749,092 | |
| Net increase in net assets resulting from operations | $ | 19,258,215 |
The accompanying notes are an integral part of these financial statements.
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H&Q HEALTHCARE INVESTORS
STATEMENTS OF CHANGES IN NET ASSETS
| For the six months ended March 31, 2006 (Unaudited) | For the year ended September 30, 2005 | |||||
|---|---|---|---|---|---|---|
| NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS: | ||||||
| Net investment loss | ($ | 490,877 | ) | ($ | 4,423,721 | ) |
| Net realized gain on investments | 17,350,733 | 34,435,090 | ||||
| Increase in net unrealized gain on investments | 2,398,359 | 32,609,585 | ||||
| Net increase in net assets resulting from operations | $ | 19,258,215 | $ | 62,620,954 | ||
| DISTRIBUTIONS TO SHAREHOLDERS FROM: | ||||||
| Net realized capital gains | ($ | 18,795,337 | ) | ($ | 29,808,260 | ) |
| CAPITAL SHARE TRANSACTIONS: | ||||||
| Value of shares issued in reinvestment of distributions (522,229 and 846,596 shares, respectively) | $ | 9,481,853 | $ | 15,001,802 | ||
| Net increase in net assets | $ | 9,944,731 | $ | 47,814,496 | ||
| NET ASSETS: | ||||||
| Beginning of period | 417,117,572 | 369,303,076 | ||||
| End of period | $ | 427,062,303 | $ | 417,117,572 | ||
| ACCUMULATED NET INVESTMENT LOSS INCLUDED IN NET ASSETS AT END OF PERIOD | ($ | 490,899 | ) | ($ | 22 | ) |
The accompanying notes are an integral part of these financial statements.
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H&Q HEALTHCARE INVESTORS
STATEMENT OF CASH FLOWS
For the Six Months Ended March 31, 2006
(Unaudited)
| CASH FLOWS PROVIDED FROM OPERATING ACTIVITIES: — Purchases of portfolio securities | ($ | 146,615,313 | ) |
|---|---|---|---|
| Net maturities of short-term investments | 13,350,253 | ||
| Sales of portfolio securities | 143,690,688 | ||
| Interest income received | 25,893 | ||
| Dividends received | 1,694,172 | ||
| Operating expenses paid | (3,012,862 | ) | |
| Net cash provided from operating activities | $ | 9,132,831 | |
| CASH FLOWS USED FOR FINANCING ACTIVITIES: | |||
| Cash distributions paid, net | ($ | 9,313,484 | ) |
| Net cash used for financing activities | ($ | 9,313,484 | ) |
| NET DECREASE IN CASH | ($ | 180,653 | ) |
| CASH AT BEGINNING OF PERIOD | 253,029 | ||
| CASH AT END OF PERIOD | $ | 72,376 | |
| RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH PROVIDED FROM OPERATING ACTIVITIES: | |||
| Net increase in net assets resulting from operations | $ | 19,258,215 | |
| Purchases of portfolio securities | (146,615,313 | ) | |
| Net maturities of short-term investments | 13,350,253 | ||
| Sales of portfolio securities | 143,690,688 | ||
| Accretion of discount | (769,814 | ) | |
| Net realized gain on investments | (17,350,733 | ) | |
| Increase in net unrealized gain on investments | (2,398,359 | ) | |
| Increase in interest receivable | (6,948 | ) | |
| Decrease in accrued expenses | (59,824 | ) | |
| Decrease in prepaid expenses | 34,666 | ||
| Net cash provided from operating activities | $ | 9,132,831 |
Noncash financing activities not included herein consist of reinvested distributions of $9,481,853
Noncash operating activities not included herein consist of one conversion of restricted preferred stock with a cost of $3,008,325 to restricted common stock of the same issuer.
The accompanying notes are an integral part of these financial statements.
12
SEQ.=14,FOLIO='12',FILE='06-11466-4.ca',USER='ltolend',CD='May 23 15:23 2006'
H&Q HEALTHCARE INVESTORS
FINANCIAL HIGHLIGHTS
(Selected data for each share of beneficial interest outstanding throughout the period indicated)
| For the six months ended March 31, 2006 | For the year ended September 30, | |||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Unaudited) | 2005 | 2004 | 2003 | 2002 (1) | 2001 | |||||||||||||
| Net asset value per share: Beginning of year | $ | 19.65 | $ | 18.12 | $ | 19.63 | $ | 18.16 | $ | 27.35 | $ | 46.15 | ||||||
| Net investment loss (2) | ($ | 0.02 | ) (3) | ($ | 0.21 | ) | ($ | 0.28 | ) | ($ | 0.23 | ) | ($ | 0.28 | ) | ($ | 0.20 | ) |
| Net realized and unrealized gain (loss) on investments | 0.89 | 3.18 | 0.57 | 3.87 | (5.73 | ) | (13.82 | ) | ||||||||||
| Total increase (decrease) from investment operations | $ | 0.87 | $ | 2.97 | $ | 0.29 | $ | 3.64 | ($ | 6.01 | ) | ($ | 14.02 | ) | ||||
| Capital gain distributions to shareholders | ($ | 0.88 | ) | ($ | 1.44 | ) | ($ | 1.80 | ) | ($ | 2.17 | ) | ($ | 3.18 | ) | ($ | 4.78 | ) |
| Net asset value per share: End of period | $ | 19.64 | $ | 19.65 | $ | 18.12 | $ | 19.63 | $ | 18.16 | $ | 27.35 | ||||||
| Per share market value: End of period | $ | 18.75 | $ | 18.64 | $ | 18.11 | $ | 17.66 | $ | 14.10 | $ | 21.74 | ||||||
| Total investment return at market value | 5.52 | % | 11.56 | % | 12.99 | % | 43.49 | % | (25.24 | %) | (27.23 | %) | ||||||
| RATIOS AND SUPPLEMENTAL DATA: | ||||||||||||||||||
| Net assets at end of period | $ | 427,062,303 | $ | 417,117,572 | $ | 369,303,076 | $ | 286,754,854 | $ | 242,005,778 | $ | 329,373,206 | ||||||
| Ratio of operating expenses to average net assets | 1.47 | %* | 1.56 | % | 1.63 | % | 1.65 | % | 1.64 | % | 1.42 | % | ||||||
| Ratio of net investment loss to average net assets | (0.24 | %)* (3) | (1.17 | %) | (1.42 | %) | (1.27 | %) | (1.16 | %) | (0.62 | %) | ||||||
| Portfolio turnover rate | 35.84 | % | 92.68 | % | 33.65 | % | 32.80 | % | 17.40 | % | 16.17 | % | ||||||
| Number of shares outstanding at end of period | 21,749,270 | 21,227,041 | 20,380,445 | 14,608,952 | 13,323,483 | 12,042,064 |
(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 period 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.
(3) Includes a special dividend from an issuer in the amount of $0.08 per share. Excluding the special dividend, the ratio of net investment loss to average net assets would have been (1.04%) annualized.
The accompanying notes are an integral part of these financial statements.
13
SEQ.=15,FOLIO='13',FILE='06-11466-4.ca',USER='ltolend',CD='May 23 15:23 2006'
Document name: 06-11466-4.da
H&Q HEALTHCARE INVESTORS
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
(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 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 principles generally accepted in the United States of America.
Investment Securities & Investment Income
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 is 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. Short-term 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.
Repurchase Agreements
In managing short-term investments the Fund may from time to time enter into transactions in repurchase agreements. In a repurchase agreement, 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.
14
SEQ.=16,FOLIO='14',FILE='06-11466-4.da',USER='ltolend',CD='May 23 15:23 2006'
H&Q HEALTHCARE INVESTORS
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
(continued)
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 short-term investments at March 31, 2006.
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 short-term investments) for the six months ended March 31, 2006 totaled $148,899,596 and $139,646,183 respectively.
At March 31, 2006, the total cost of securities for Federal income tax purposes was $367,868,100. The net unrealized gain for Federal income tax purposes on securities held by the Fund was $61,838,694, including gross unrealized gain of $108,696,352 and gross unrealized loss of $46,857,658.
(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%. Beginning July 1, 2006 the Fund will pay a monthly 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, 0.98% of the average net assets up to $250 million, 0.88% of the average net assets for the next $250 million, 0.80% of the average net assets for the next $500 million and 0.70% of the average net assets thereafter. The aggregate fee may not exceed a rate when annualized of 1.375%
As of February 2005, Daniel R. Omstead, Ph.D, Christopher F. Brinzey, M.B.A., Frank T. Gentile, Ph.D. and Jason C. Akus, M.D./M.B.A. are members of the team that makes investments on behalf of the Fund. These members also perform other duties, including making
15
SEQ.=17,FOLIO='15',FILE='06-11466-4.da',USER='ltolend',CD='May 23 15:23 2006'
H&Q HEALTHCARE INVESTORS
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
(continued)
investment decisions on behalf of another closed-end investment Company, H&Q Life Sciences Investors, which invests in the healthcare industries.
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, 2006 these payments amounted to $54,817 and are included in the "other" category in the Statement of Operations together with insurance expenses of $49,181 incurred to unaffiliated entities. Such expenses are the major components of "other" 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 $500 for each meeting attended.
An affiliate company is a company in which the Fund holds 5% or more of the voting securities. Transactions with such companies all of which are venture capital companies, during the six months ended March 31, 2006 were as follows:
| Issuer | Value on October 1, 2005 | Purchases | Sales | Income | Value on March 31, 2006 |
|---|---|---|---|---|---|
| Agilix Corporation | $ 571,429 | $ | $ | $ | $ 571,429 |
| CardioNet, Inc. | 5,820,004 | | | 12,043 | 5,820,004 |
| Concentric Medical, Inc. | 10,192,176 | | | | 10,192,176 |
| CytoLogix Corporation | 755,703 | | | 17,857 | 755,703 |
| OmniSonics Medical Technologies, Inc. | 3,981,225 | | | | 3,981,225 |
| PHT Corporation | 5,139,506 | | | | 5,139,506 |
| $ 26,460,043 | $ 0 | $ 0 | $ 29,900 | $ 26,460,043 |
(4) Venture Capital and Other Restricted Securities
The Fund may invest in venture capital and other restricted securities if these securities would currently constitute 40% or less of net assets. The value of these securities represents 17% of the Fund's net assets at March 31, 2006.
During the year ended September 30, 2004, restricted securities from one issuer were 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 $684,509 at March 31, 2006 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.
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, 2006, as determined by the Trustees of the Fund. With the exception of Conor Medsystems, Inc. Restricted common stock the Fund on its own does not have the right to demand that such securities be registered. Subject to certain conditions the Fund has the right to request registration of Conor Medsystems, Inc. Restricted common stock.
16
SEQ.=18,FOLIO='16',FILE='06-11466-4.da',USER='ltolend',CD='May 23 15:23 2006'
H&Q HEALTHCARE INVESTORS
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
(continued)
| Security (g) | Acquisition Date | Cost | Carrying Value per Unit | Value |
|---|---|---|---|---|
| Agensys, Inc. | ||||
| Series C Cvt. Pfd. | 2/14/02, 9/27/05 | $ 3,307,024 | $ 2.95 | $ 3,300,300 |
| Agilix Corporation | ||||
| Series B Cvt. Pfd. | 11 /8/01 | 3,014,260 | 0.24 | 571,429 |
| Akorn, Inc. | ||||
| Restricted Common | 3 /7/06 | 2,600,001 | 4.13 | 2,386,801 |
| Avalon Pharmaceuticals, Inc. | ||||
| Restricted Common | 10/22/01-2/11/05 | 3,217,655 | 4.80 | 995,155 |
| Aveta, Inc. | ||||
| Restricted Common | 12 /21/05 | 2,999,997 | 13.50 | 2,999,997 |
| CardioNet, Inc. | ||||
| Series C Cvt. Pfd. | 5/3/01-3/25/03 | 5,551,349 | 3.50 | 5,520,004 |
| Convertible Note | 8 /15/05 | 300,000 | 1.00 | 300,000 |
| 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 | 193,158 |
| Series D Cvt. Pfd. | 3 /14/01 | 1,668,122 | 6.00 | 1,680,630 |
| Concentric Medical, Inc. | ||||
| Series B Cvt. Pfd. | 5/7/02-1/24/03 | 3,329,210 | 1.40 | 6,794,116 |
| Series C Cvt. Pfd. | 12 /19/03 | 1,500,000 | 1.40 | 2,441,860 |
| Series D Cvt. Pfd. | 9 /30/05 | 957,768 | 1.40 | 956,200 |
| Conor Medsystems, Inc. | ||||
| Restricted Common | 10/23/03-8/6/04 | 653,127 | 27.93 | 3,049,956 |
| Corus Pharma, Inc. | ||||
| Series C Cvt. Pfd. | 4 /8/04 | 3,002,344 | 0.58 | 1,500,000 |
| Cougar Biotechnology Inc. | ||||
| Series A Cvt. Pfd. | 3 /30/06 | 1,462,499 | 1.73 | 1,462,499 |
| Restricted Common | 3 /30/06 | 162,501 | 1.73 | 162,501 |
| 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 |
| Convertible Note | 5 /29/02 | 168,337 | 1.00 | 168,337 |
| Dako A/S | ||||
| 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 | 0.00 | 140 |
| I-trax, Inc. | ||||
| Series A Cvt. Pfd. | 3 /18/04 | 4,003,650 | 34.90 | 5,584,000 |
| Labcyte, Inc. | ||||
| Series C Cvt. Pfd. | 7 /18/05 | 1,923,506 | 0.52 | 1,920,000 |
| Masimo Corporation | ||||
| Series D Cvt. Pfd. | 8 /14/96 | 1,120,224 | 11.00 | 1,760,000 |
| Restricted Common | 3 /31/98 | 0 | 0.01 | 1,600 |
| Medwave, Inc. | ||||
| Restricted Common | 2 /21/06 | 2,275,000 | 3.24 | 2,690,146 |
| 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 | 1,800,001 |
| 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 |
| 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 |
| Series D Cvt. Pfd. | 6 /23/05 | 1,205,415 | 0.29 | 1,200,000 |
| Songbird Hearing, Inc. | ||||
| Restricted Common | 12 /14/00 | 3,004,861 | 0.01 | 2,085 |
17
SEQ.=19,FOLIO='17',FILE='06-11466-4.da',USER='ltolend',CD='May 23 15:23 2006'
H&Q HEALTHCARE INVESTORS
NOTES TO FINANCIAL STATEMENTS
March 31, 2006
(continued)
| Security (g) | Acquisition Date | Cost | Carrying Value per Unit | Value | |
|---|---|---|---|---|---|
| Syntiro Healthcare Services | |||||
| Restricted Common | 2 /5/97 | $ 1,200,325 | $ 0.001 | $ 306 | |
| TargeGen, Inc. | |||||
| Series C Cvt. Pfd. | 8 /30/05 | 2,763,306 | 1.30 | 2,760,000 | |
| 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 | 901,393 | 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 | 3.80 | 247,825 | |
| Series I Cvt. Pfd. | 7 /8/05 | 579,407 | 3.86 | 577,100 | |
| Xanthus Life Sciences, Inc. | |||||
| Series B Cvt. Pfd. | 12/5/03-3/23/06 | 2,556,320 | 1.00 | 2,555,000 | |
| Zyomyx, Inc. | |||||
| 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 | |
| New Restricted Common | 2/19/99-7/22/04 | 3,602,065 | 0.01 | 3,000 | |
| $ 89,392,810 | $ 70,778,486 | (h) |
(g) See Schedule of Investments and corresponding footnotes for more information on each issuer.
(h) Represents 17% of the Fund's net assets as of March 31, 2006.
(5) Sources of Net Assets
The changes in the sources of net assets for the period from October 1, 2005 through March 31, 2006 are as follows:
| As of October 1, 2005: | Capital Paid in on Shares of Beneficial Interest — $ 343,813,078 | Accumulated Net Investment Loss — ($ | 22 | ) | Accumulated Net Realized Gain on Investments — $ 13,864,181 | $ 59,440,335 | Total Net Assets — $ 417,117,572 | |
|---|---|---|---|---|---|---|---|---|
| For the period from October 1, 2005 through March 31, 2006: | ||||||||
| Net investment loss | (490,877 | ) | (490,877 | ) | ||||
| Net realized gains | 17,350,733 | 17,350,733 | ||||||
| Distributions, net of reinvestments paid | (18,795,337 | ) | (18,795,337 | ) | ||||
| Value of shares issued in reinvestment of dividends | 9,481,853 | 9,481,853 | ||||||
| Increase in net unrealized gain on investments | 2,398,359 | 2,398,359 | ||||||
| As of March 31, 2006: | $ 353,294,931 | ($ | 490,899 | ) | $ 12,419,577 | $ 61,838,694 | $ 427,062,303 |
18
SEQ.=20,FOLIO='18',FILE='06-11466-4.da',USER='ltolend',CD='May 23 15:23 2006'
Document name: 06-11466-4.ea
H&Q HEALTHCARE INVESTORS
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 comply 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 on how the Fund voted proxies and 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 and 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.
19
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SEQ.=23,FOLIO='',FILE='06-11466-4.ea',USER='ltolend',CD='May 23 15:23 2006'
Document name: 06-11466-4.za
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
Administrator & Custodian
State Street Bank and Trust Company
Transfer Agent
Computershare Shareholder Services, Inc.
Legal Counsel
Dechert LLP
Shareholders with questions regarding share transfers may call
1-800-426-5523
Daily net asset value may be obtained from
our website ( www.hqcm.com ) or by calling
1-800-451-2597
HQH-SAR-06
SEQ.=24,FOLIO='',FILE='06-11466-4.za',USER='ltolend',CD='May 23 15:23 2006'
*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 Registrants 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 registrants 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 Registrants 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 Commissions rules and forms.
(b) There were no changes in the Registrants internal control over financial reporting that occurred during the Registrants most recent fiscal half-year that may have materially affected or are reasonably likely to materially affect, the Registrants 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.*
SEQ.=1,FOLIO='',FILE='C:\JMS\ksathis\06-11466-3\task1140419\11466-3-ga.htm',USER='skraghavan',CD='May 27 14:39 2006'
*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) | |
|---|---|
| By (Signature and Title)* | /s/ Daniel R. Omstead |
| Daniel R. Omstead, President | |
| Date: | 6/5/06 |
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: | 6/5/06 |
| By (Signature and Title)* | |
| Date: |
SEQ.=1,FOLIO='',FILE='C:\JMS\sethu\06-11466-3\task1151461\11466-3-jc.htm',USER='sesankaran',CD='Jun 6 01:37 2006'
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