Edgar Filing: H&Q HEALTHCARE INVESTORS

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 26, 2004.

SECURITIES ACT FILE NO. 333-114322
INVESTMENT COMPANY ACT FILE NO. 811-04889

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM N-2

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 /X/
PRE-EFFECTIVE AMENDMENT NO. 1 /X/
POST-EFFECTIVE AMENDMENT NO. / /

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF /X/
1940
AMENDMENT NO. 15 /X/

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)

Registrant's Telephone Number, Including Area Code: (617) 772-8500

DANIEL R. OMSTEAD, ENG.SCD.
30 ROWES WHARF, FOURTH FLOOR
BOSTON, MA 02110-3328
(Name and Address of Agent for Service)

COPIES TO:
JOSEPH R. FLEMING, ESQ.
Dechert LLP
200 Clarendon Street, 27th Floor
Boston, MA 02116-5021

Approximate date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement

If any securities being registered on this form will be offered on a delayed or
continuous basis in reliance on Rule 415 under the Securities Act of 1933, other
than securities offered in connection with a dividend reinvestment plan, check
the following box. /X/

It is proposed that this filing will become effective (check appropriate box)

/X/ when declared effective pursuant to Section 8(c)

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

PROPOSED MAXIMUM
TITLE OF SECURITIES AMOUNT BEING OFFERING PRICE PROPOSED MAXIMUM AMOUNT OF
BEING REGISTERED REGISTERED PER UNIT(1) OFFERING PRICE REGISTRATION FEE(2)

Shares of Beneficial Interest
($.01 par value)................... 6,295,180 $20.98 $132,072,876.40 $3,607.51

(1) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(c) under the Securities Act of 1933, as amended. Includes
shares that may be offered pursuant to an option to cover over-subscriptions.
Based on the average of the high and low prices reported on the New York Stock
Exchange on May 21, 2004 (i.e., a specified date within 5 business days prior to
the date of filing this registration statement).

(2) A registration fee of $13,126.12 was previously paid in connection with the
initial filing.

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PROSPECTUS

H&Q HEALTHCARE INVESTORS

5,036,144 SHARES
ISSUABLE UPON EXERCISE OF NON-TRANSFERABLE RIGHTS
TO SUBSCRIBE FOR SUCH SHARES

NEW YORK STOCK EXCHANGE SYMBOL: HQH

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H&Q Healthcare Investors is issuing non-transferable Rights to its Shareholders
of record as of the close of business on May 26, 2004. These Rights will allow
you to subscribe for one (1) Share of the Trust for each three (3) Rights held.
You will receive one Right for each whole Share that you hold of record as of
May 26, 2004, rounded up to the nearest number of Rights evenly divisible by
three. The Rights will not be listed for trading on the New York Stock Exchange
or any other exchange. You may also purchase Shares not acquired by other
Shareholders subject to certain limitations and subject to allotment.

THE SUBSCRIPTION PRICE PER SHARE WILL BE 95% OF THE LOWER OF (A) THE VOLUME
WEIGHTED AVERAGE SHARE PRICE OF A SHARE ON THE NYSE ON JUNE 21, 2004 AND THE
FOUR PRECEDING BUSINESS DAYS OR (B) THE NET ASSET VALUE PER SHARE ON JUNE 21,
2004.

RIGHTS MAY BE EXERCISED AT ANY TIME UNTIL 5:00 P.M., EASTERN TIME, ON JUNE 18,
2004, UNLESS THE OFFER IS EXTENDED AS DISCUSSED IN THIS PROSPECTUS. Since the
Offer closes before June 21, 2004, Shareholders who exercise their Rights will
not know the Subscription Price at the time they exercise their Rights. For
additional information regarding the Offer, please call The Altman Group, Inc.
at (800) 870-0126.

The Trust is a diversified, closed-end management investment company whose
shares of beneficial interest are listed and traded on the New York Stock
Exchange under the symbol "HQH." The Trust's investment objective is to seek
long-term capital appreciation by investing primarily in securities of companies
in the healthcare industries ("Healthcare Companies"). The Trust will invest
primarily in securities of companies that are believed by the Trust's investment
adviser to have significant potential for above-average long-term growth in
revenues and earnings. The Trust emphasizes investment in securities of emerging
growth Healthcare Companies. The Trust may also invest up to 40% of its net
assets in venture capital or other securities that are subject to legal or
contractual restrictions as to resale. These types of securities may be acquired
in connection with venture capital opportunities, as well as in private
placements in public companies. The Trust may not be able to achieve its
investment objective. FOR A DISCUSSION OF THE RISKS ASSOCIATED WITH AN
INVESTMENT IN THE TRUST, SEE "RISKS."

This Prospectus sets forth concisely the information about the Trust you should
know before investing, including information about risks. You should read this
Prospectus and retain it for future reference. A Statement of Additional
Information dated May 26, 2004 (the "SAI") containing additional information
about the Trust has been filed with the Securities and Exchange Commission and
is incorporated by reference in its entirety into this Prospectus. A copy of the
SAI, the table of contents of which appears on page 53 of this Prospectus, may
be obtained without charge by contacting the Information Agent at
(800) 870-0126. The Securities and Exchange Commission maintains a website
(http://www.sec.gov) that contains material incorporated by reference and other
information regarding the Trust.

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NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.

ESTIMATED ESTIMATED PROCEEDS
SUBSCRIPTION ESTIMATED TO TRUST OR OTHER
PRICE(1) SALES LOAD PERSONS(2)

Per Share..................................... $ None $
Total Maximum................................. $ None $

FOOTNOTES SET FORTH ON NEXT PAGE

May 26, 2004

(CONTINUED FROM PREVIOUS PAGE)

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(1) Estimated on the basis of the volume weighted average share price of a Share
on the NYSE on May 26, 2004 and the four preceding business days. The Trust
may increase the number of Shares subject to subscription by up to 25% of
the Shares offered hereby, or up to an additional 1,259,036 Shares, for an
aggregate total of 6,295,180 Shares. If the Trust increases the number of
Shares subject to subscription by 25%, the total maximum Estimated
Subscription Price will be approximately $ and the total maximum
Estimated Proceeds to the Trust will be approximately $ . No sales
load will be charged by the Trust in connection with this Offer. However,
Shareholders that choose to exercise their Rights through broker-dealers,
banks and nominees may incur a servicing fee charged by such broker-dealer,
bank or nominee.

(2) Before deduction of expenses related to the Offer incurred by the Trust,
estimated at approximately $390,000.

The Trust may increase the number of Shares subject to subscription by up to
25%, or up to an additional 1,259,036 Shares, for an aggregate total of
6,295,180 Shares.

As a result of the terms of the Offer, Shareholders who do not fully
exercise their Rights, including the Over-Subscription Privilege described in
the section of this Prospectus entitled "The Offer--Over-Subscription
Privilege," will, upon the completion of the Offer, own a smaller proportional
interest in the Trust than they owned before the Offer. The Offer will result in
a dilution of NAV for all Shareholders, whether or not they exercise some or all
of their Rights, because the Subscription Price per Share will be less than the
then-current NAV. The amount of dilution might be significant. See "The Offer."

The Trust's investment adviser is Hambrecht & Quist Capital Management, LLC.
The employees of Trust's investment adviser and the Trustees and officers of the
Trust may purchase Shares through the Primary Subscription and the
Over-Subscription Privilege on the same terms as other Shareholders.

Information about the Trust can be reviewed and copied at the Securities and
Exchange Commission's Public Reference Room in Washington, DC. Call
(202) 942-8090 for information on the operation of the Public Reference Room.
This information is also available in the Commission's Internet site at
http://www.sec.gov, and copies may be obtained upon payment of a duplicating fee
by writing the Public Reference Section of the Securities and Exchange
Commission, Washington, DC 20549-0102.

PROSPECTUS SUMMARY

YOU SHOULD CONSIDER THE MATTERS DISCUSSED IN THIS SUMMARY BEFORE INVESTING
IN THE TRUST THROUGH THE OFFER. THE FOLLOWING SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION APPEARING ELSEWHERE IN
THIS PROSPECTUS.

THE OFFER

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H&Q Healthcare Investors (the "Trust") is issuing to its
The Offer shareholders of record ("Shareholders") as of the close of
business on May 26, 2004 (the "Record Date") non-transferable
rights ("Rights") to subscribe for an aggregate of 5,036,144
shares of beneficial interest ("Shares") of the Trust (the
"Offer"). You will receive one Right for each whole Share you
held as of the Record Date, rounded up to the nearest number of
Rights evenly divisible by three. You may subscribe for one Share
for each three Rights you hold (the "Primary Subscription").
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Subscription Price The subscription price per Share (the "Subscription Price") will
be 95% of the lower of (a) the volume weighted average share
price of a Share on the New York Stock Exchange (the "NYSE") on
June 21, 2004 (the "Pricing Date") and the four preceding
business days or (b) the net asset value per Share (the "NAV") on
the Pricing Date.
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Subscription Period Rights may be exercised at any time during the subscription
period (the "Subscription Period"), which starts on June 1, 2004
and ends at 5:00 p.m., Eastern time, on June 18, 2004 (the
"Expiration Date").
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The Trust may, at its discretion, issue up to an additional 25%
Over-Subscription of the Shares in the Offer to honor over-subscription requests if
Privilege there are not enough Shares available from the Primary
Subscription to honor all over-subscription requests (the
"Over-Subscription Privilege"). If there are enough Shares left
after the Primary Subscription, all over-subscriptions will be
honored in full. If there are not enough Shares available to
honor all over-subscriptions (after giving effect to any increase
in the number of Shares to be offered), the available Shares will
be allocated pro rata among those who over-subscribe based on the
number of Rights originally issued to them by the Trust.
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Fractional Shares will not be issued upon the exercise of Rights.
Fractional Shares In the case of shares held of record by a broker-dealer, bank or
other financial intermediary (each, a "Nominee"), the number of
Rights issued to the Nominee will be adjusted to permit rounding
up (to the nearest number of Rights evenly divisible by three) of
the Rights to be received by each of the beneficial owners for
whom it is the holder of record only if the Nominee provides to
the Trust, on or before the close of business on June 11, 2004, a
written representation of the number of Rights required for such
rounding.
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The Trust's investment adviser believes that increasing the
Purpose of the Offer Trust's assets for investment through the Offer will benefit the
Trust and its Shareholders by allowing the Trust to take further
advantage of available investment opportunities in securities of
companies in the healthcare industries ("Healthcare Companies").
While there can be no assurance that any benefits will be
realized, increasing the Trust's investment assets through the
Offer is intended to:

- allow the Trust to increase its investments at a time when
the Trust's investment adviser believes that securities of
selected Healthcare Companies including specialty and
generic pharmaceuticals companies, medical devices,
healthcare information services and other innovative
healthcare product and biotechnology companies, are
positioned for price appreciation due to (i) demographic
changes, (ii) recent developments in the pharmaceutical,
biotechnology and medical technology industries relating to
products that have or will extend or improve the quality of
patients' lives, and (iii) the recent passage of a Medicare
reform bill, to be implemented by 2006, which may result in
dramatic growth in prescription volume;

- increase the Trust's average investment size, giving the
Trust additional negotiating leverage and pricing influence
over venture capital, private investments in public entities
(PIPEs) and other private equity investments and in the
public markets;

- provide the Trust with the ability to make additional
investments without realizing capital gains on current
investments or otherwise selling current investments at an
unfavorable time; and

- reduce operating costs per Share.

The Offer allows you the opportunity to purchase additional
Shares of the Trust at a price that will be below market value
and NAV at the Expiration Date. See "The Offer--Purpose of the
Offer."
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The Trust expects to invest the net proceeds of the Offer
Use of Proceeds primarily in securities of Healthcare Companies, particularly
investments in specialty and generic pharmaceuticals companies,
medical devices, healthcare information services and other
innovative healthcare product and biotechnology companies. Any
investments will be made in accordance with the Trust's
investment objective and policies. Investment of the proceeds is
expected to take up to six months from their receipt by the
Trust, depending on market conditions and the availability of
appropriate securities. See "Use of Proceeds."
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Notice of NAV Decline The Trust will suspend the Offer until it amends this Prospectus
if, after the effective date of this Prospectus, the Trust's NAV
declines more than 10% from its NAV as of that date. If that
occurs, the Trust will notify you of the decline and permit you
to cancel your exercise of your Rights.
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How to Obtain - Contact your broker, bank or trust company.
Subscription Information - Contact The Altman Group (the "Information Agent") toll-free
at (800) 870-0126.
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How to Subscribe You may subscribe in one of two ways:

- Deliver a completed Exercise Form and payment to EquiServe
Trust Company (the "Subscription Agent") by the Expiration
Date.

- If your Shares are held in a brokerage, bank or trust
account, have your broker, bank or trust company deliver a
Notice of Guaranteed Delivery to the Subscription Agent by
the Expiration Date.
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Tax Consequences For Federal income tax purposes, neither the receipt nor the
exercise of the Rights will result in taxable income to
Shareholders. You will not realize a taxable loss if your Rights
expire without being exercised. See "The Offer--Certain Federal
Income Tax Consequences of the Offer."
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IMPORTANT DATES TO REMEMBER

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Record Date................................................. May 26, 2004

Subscription Period......................................... June 1--June 18, 2004*

Deadline for delivery of Exercise Form together with payment
of Estimated Subscription Price or for delivery of Notice of
Guaranteed Delivery......................................... June 18, 2004*

Expiration Date............................................. June 18, 2004*

Pricing Date................................................ June 21, 2004*

Deadline for payment of final Subscription Price pursuant to
Notice of Guaranteed Delivery............................... June 23, 2004*

Confirmation to Registered Shareholders..................... June 27, 2004*

For Registered Shareholder Purchases--deadline for payment
of unpaid balance if final Subscription Price is higher than
Estimated Subscription Price................................ June 30, 2004*
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* Unless the Offer is extended.

THE TRUST

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The Trust The Trust is a diversified, closed-end management investment
company. The Trust was organized as a Massachusetts business
trust on October 31, 1986 and commenced operations on
April 22, 1987. As of May 26, 2004, the Trust had 15,108,430
Shares outstanding. Shares of the Trust are traded on the
NYSE under the symbol "HQH." As of May 26, 2004, the Trust's
NAV was $ and the Trust's last reported share price
of a Share on the NYSE was $ .
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Distributions The Trust intends to make quarterly distributions to its
Shareholders equal to 2.0% of the Trust's net asset value.
Net realized capital gains in excess of the total
distributed under this policy are generally included in the
December distribution. These quarterly distributions are
generally reinvested in additional Shares through the
Trust's Dividend Reinvestment Plan. The Trust's quarterly
distribution policy may be changed by the Board of Trustees
without Shareholder approval.

The current distribution policy is to declare distributions
in stock. Stock distributions will automatically be paid in
newly-issued full Shares of the Trust plus cash in lieu of
any fraction of a Share, unless otherwise instructed by the
Shareholder. If a Shareholder elects to receive a
distribution in cash, rather than in Shares, the
Shareholder's relative ownership in the Trust will be
reduced.

The first regular quarterly distribution to be paid on
Shares acquired upon exercise of Rights will be the first
quarterly distribution the record date for which occurs
after the issuance of the Shares. The Shares issued in the
Offer will not be entitled to the distribution to be
declared to Shareholders of record on May 25, 2004 which is
payable in June 2004.
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General Investment The Trust's investment objective is to seek long-term
Guidelines capital appreciation by investing primarily in securities of
Healthcare Companies. Under normal market conditions, the
Trust expects to invest at least 80% of its net assets in
securities of Healthcare Companies. This policy may not be
changed without 60 days' prior notice to Shareholders. The
Trust will not have less than 25% of its net assets invested
in Healthcare Companies. A company will be deemed to be a
Healthcare Company if, at the time the Trust makes an
investment in the company, 50% or more of such company's
sales, earnings or assets arise from or are dedicated to
healthcare products or services or medical technology
activities. The Trust may also invest in companies that do
not satisfy the above criteria but that are expected by the
Investment Adviser to have 25% or more of sales, earnings or
assets arising from or dedicated to such activities.
Investments in those types of companies will not exceed 20%
of the Trust's net assets at the time of investment. The
Investment Adviser determines, in its discretion, whether a
company is a Healthcare Company. The Trust may also invest
up to 20% of its net assets in the securities of foreign
issuers, expected to be located primarily in Western Europe,
Canada and Japan, and securities of United States ("U.S.")
issuers traded in foreign markets ("Foreign Securities").
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Venture Capital Investments The Trust emphasizes investment in securities of emerging
growth Healthcare Companies. These investments are often
venture capital investments. The Trust may invest up to 40%
of its net assets in securities subject to legal or
contractual restrictions as to resale ("Restricted
Securities") including venture capital investments. The
Trust's investments in Restricted Securities may include
"start-up," early and later stage financings of
privately-held companies and private placements in public
companies. See "Investment Objective and Policies."
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Investment Adviser Hambrecht & Quist Capital Management, LLC (the "Investment
Adviser") serves as investment adviser to the Trust. The
Investment Adviser also serves as investment adviser to H&Q
Life Sciences Investors ("HQL"), a closed-end management
investment company that invests in companies in the
healthcare industries. See "Management of the
Trust--Investment Adviser." The majority of the Trust's
Board of Trustees is unaffiliated with the Investment
Adviser; nevertheless, the Trust may be subject to certain
potential conflicts of interest. See "Portfolio Transactions
and Brokerage."
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Portfolio Management Currently Daniel R. Omstead, Eng.ScD., Christopher F.
Brinzey, M.B.A., Frank T. Gentile, Ph.D., Jason C. Akus,
M.D./M.B.A. and Michael S. Tung, M.D./M.B.A. are members of
the team that makes investments on behalf of the Trust.
These members also perform other duties, including making
investment decisions on behalf of HQL. See "Management of
the Trust--Investment Adviser."
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Compensation of Investment For the services provided by the Investment Adviser under
Adviser the Advisory Agreement, the Trust pays a fee, computed and
payable monthly, equal when annualized to (i) 2.5% of the
average net assets for the month of its venture capital and
other Restricted Securities (as defined) 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 monthly fee may
not exceed a rate when annualized of 1.375% (approximately
0.115% per month). Because the advisory fee is based on the
average net assets of the Trust, and since the Offer is
expected to result in an increase in net assets, the
Investment Adviser will benefit from the Offer by an
increase in the dollar amount of the fee.
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RISK FACTORS AND SPECIAL CONSIDERATIONS

THIS PROSPECTUS CONTAINS CERTAIN STATEMENTS THAT MAY BE DEEMED TO BE
"FORWARD-LOOKING STATEMENTS." ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF UNCERTAINTIES SET
FORTH BELOW AND ELSEWHERE IN THE PROSPECTUS. SEE "RISKS" FOR A MORE COMPLETE
DESCRIPTION OF RISKS THAT MAY BE ASSOCIATED WITH AN INVESTMENT IN THE TRUST.

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Dilution--Net Asset Value The Offer will result in dilution.
and Non-Participation in the Shareholders who do not fully exercise their Rights will
Offer experience dilution of NAV, dilution of a proportionate
ownership interest in the Trust, and dilution of voting
power. All Shareholders will experience an immediate
dilution of NAV, regardless of whether they exercise any or
all of their Rights, because the Subscription Price will be
less than the then-current NAV, and the number of Shares
outstanding after the Offer will increase by a greater
percentage than the increase in the size of the Trust's
assets. For example, if the assumed Subscription Price is
$ , representing a market price which is only 90% of
NAV, assuming that all Rights are exercised in the Primary
Subscription and no Shares are issued pursuant to the
Over-subscription Privilege, the Trust's NAV would be
reduced by approximately $ per Share or
approximately % of NAV. The actual Subscription Price may
be greater or less than the Subscription Price assumed
above. The example assumes a net asset value per Share of
$ which is based on the Trust's NAV after the close
of trading on Wednesday, May 26, 2004.
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Market Risk As with any investment company that invests in equity
securities, the Trust is subject to market risk--the
possibility that the prices of equity securities will
decline over short or extended periods of time. As a result,
the value of an investment in the Trust's Shares will
fluctuate with the market. You could lose money over short
or long periods of time.
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Selection Risk Different types of equity securities tend to shift into and
out of favor with investors, depending on market and
economic conditions. The performance of funds that invest in
healthcare industry equity securities may at times be better
or worse than the performance of funds that focus on other
types of securities or that have a broader investment style.
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Concentration in the Under normal market conditions, the Trust expects to invest
Healthcare Industries at least 80% of its net assets in securities of Healthcare
Companies. The Trust will not have less than 25% of its net
assets invested in Healthcare Companies. As a result, the
Trust's portfolio may be more sensitive to, and possibly
more adversely affected by, regulatory, economic or
political factors or trends relating to the healthcare
industries than a portfolio of companies representing a
larger number of industries. As a result of its
concentration policy, the Trust's investments may be subject
to greater risk and market fluctuation than a fund that has
securities representing a broader range of investments.
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Healthcare Companies have in the past been characterized by
limited product focus, rapidly changing technology and
extensive government regulation. In particular,
technological advances can render an existing product, which
may account for a disproportionate share of a company's
revenue, obsolete. Obtaining governmental approval from
agencies such as the Food and Drug Administration (FDA) for
new products can be lengthy, expensive and uncertain as to
outcome. These factors may result in abrupt advances and
declines in the securities prices of particular companies
and, in some cases, may have a broad effect on the prices of
securities of companies in particular healthcare industries.

Intense competition exists within and among certain
healthcare industries, including competition to obtain and
sustain proprietary technology protection, including
patents, trademarks and other intellectual property rights,
upon which Healthcare Companies can be highly dependent for
maintenance of profit margins and market exclusivity. The
complex nature of the technologies involved can lead to
patent disputes, including litigation that could result in a
company losing an exclusive right to a patent.

Cost containment measures implemented by the federal
government, state governments and the private sector have
adversely affected certain sectors of the healthcare
industries. The implementation of any such further cost
containment measures may have an adverse effect on some
companies in the healthcare industries.

Product development efforts by Healthcare Companies may not
result in commercial products. Even after a product is
commercially released, governmental agencies may require
additional clinical trials or change the labeling
requirements for products if additional product side effects
are identified, which could have a material adverse effect
on the market price of the securities of those Healthcare
Companies.

Certain Healthcare Companies in which the Trust may invest
may be exposed to potential product liability risks that are
inherent in the testing, manufacturing, marketing and sale
of pharmaceutical, medical device or other products. There
can be no assurance that a product liability claim would not
have a material adverse effect on the business, financial
condition or securities prices of a company in which the
Trust has invested.

All of these factors may cause the value of the Trust's
Shares to fluctuate significantly over relatively short
periods of time.
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Investment in Emerging The Trust emphasizes investment in equity securities of
Growth Companies emerging growth Healthcare Companies. While these securities
offer the opportunity for significant capital gains, these
investments also involve a degree of risk that can result in
substantial losses. There can be no assurance that
securities of start-up or emerging growth companies will, in
the future, yield returns commensurate with their associated
risks.
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Liquidity of Portfolio The Trust may invest substantially all of its net assets in
Investments securities of emerging growth Healthcare Companies,
including venture capital and other private equity
investments, although the latter, if restricted, are limited
to 40% of its net assets. Some of these securities are
traded in the over-the-counter market or on regional stock
exchanges where the low trading volume of a particular
security may result in abrupt and erratic price movements.
An investment in such securities may have limited liquidity,
and the Trust may find it necessary to sell at a discount
from recent prices or to sell over extended periods of time
when disposing of such securities. Restricted Securities in
which the Trust may invest cannot be sold except in a public
offering registered under the Securities Act of 1933, as
amended (the "Securities Act"), pursuant to an exemption
from the Securities Act or in compliance with applicable
Securities and Exchange Commission (the "Commission")
regulations.
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Valuation of Venture Capital Since there is typically no readily available market value
Investments and Restricted for the venture capital investments and some of the
Securities Restricted Securities in the Trust's portfolio, venture
capital investments and some Restricted Securities in the
Trust's Portfolio are valued substantially at fair value as
determined in good faith by the Board of Trustees pursuant
to a valuation policy and a consistently applied valuation
process. Because of the inherent uncertainty of determining
the fair value of investments that do not have a readily
available market value, the fair value of the Trust's
investments determined in good faith by the Board of
Trustees, or in accordance with valuation procedures
approved by the Board of Trustees, may differ significantly
from the values that would have been used had a ready market
existed for the investments, and the differences could be
material. There is no single standard for determining fair
value in good faith. As a result, determining fair value
requires that judgment be applied to the specific facts and
circumstances of each portfolio investment while employing a
consistently applied valuation process for the types of
investments the Trust makes.

Some of the Trust's investments are subject to restrictions
on resale and generally have no established trading market.
Because of the type of investments that the Trust makes and
the nature of its business, the valuation process requires
an analysis of various factors. The Trust's fair value
methodology includes the examination of, among other things,
the underlying investment performance, financial condition,
and market changing events that impact valuation.
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Foreign Securities The Trust may invest up to 20% of its net assets in
securities of foreign issuers, expected to be located
primarily in Western Europe, Canada and Japan, and
securities of U.S. issuers traded in foreign markets.
Foreign Securities may be less liquid and have prices that
are more volatile than securities of comparable U.S.
companies. An investment in Foreign Securities may also
involve currency risk.
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Key Personnel There may be only a limited number of securities
professionals who have comparable experience to that of the
Trust's existing portfolio management team in the area of
Healthcare Companies. If one or more of the team members
dies, resigns, retires or is otherwise unable to act on
behalf of the Investment Adviser, there can be no assurance
that a suitable replacement could be found immediately.
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Diversified Status The Trust may from time to time concentrate its investments
in a few issuers and take large positions in those issuers.
As a result, the Trust may be subject to a greater risk of
loss than an investment company that diversifies its
investments more broadly. Taking larger positions is also
likely to increase the volatility of the Trust's net asset
value reflecting fluctuation in the value of its large
holdings.
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Discount to NAV Market price risk is a risk separate and distinct from the
risk that the Trust's net asset value will decrease.
Although the Trust's Shares have recently traded on the NYSE
at a market price above their net asset value (a premium),
the Trust's Shares have traded in the market below (a
discount), at and above net asset value since the
commencement of the Trust's operations. There can be no
assurance that the Trust's shares will trade at a premium in
the future, or that any such premium is sustainable. The
Trust's Shares have traded at discounts of as much as
(30.90)% since the Trust commenced operations. In the year
ended December 31, 2003, the Trust's Shares traded in the
market at an average discount to net asset value of
(10.32)%. As of April 30, 2004, the Trust's shares traded in
the market at a 1.59% discount to their net asset value. The
Trust cannot predict whether the Shares will trade in the
future at, above or below their net asset value.
------------------------------------------------------------------------------------------

Declaration of Trust The Trust's Amended and Restated Declaration of Trust
("Declaration of Trust"), dated April 21, 1987, presently
has provisions that could have the effect of limiting the
ability of other entities or persons to (1) acquire control
of the Trust, (2) cause it to engage in certain
transactions, or (3) modify its structure. These provisions
may be considered "anti-takeover" provisions.
------------------------------------------------------------------------------------------

Repurchase of Shares You may dispose of your Shares on the NYSE or other markets
on which the Shares may trade, but because the Trust is a
closed-end investment company, you do not have the right to
redeem your Shares. At least once a year the Trustees
consider whether the Trust should repurchase its Shares in
the open market or make a tender offer. Any repurchases will
comply with the provisions of the Investment Company Act and
Massachusetts law that apply to open market transactions.
There is no assurance that any action undertaken to
repurchase Shares will result in the Shares trading at a
price which approximates net asset value. Repurchases of
Shares by the Trust would also decrease its total assets and
may increase its expenses as a percentage of average net
assets as a result. The Trust's net income will be reduced
by the amount of any interest owed on any borrowings made to
finance any Share repurchase transactions. The Trust has no
current plans to repurchase its Shares.
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------

------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------

Related Party Transactions The majority of the Board will be unaffiliated with the
Investment Adviser; nevertheless, the Trust may be subject
to certain potential conflicts of interest. Although the
Trust has no obligation to do so, it may place brokerage
orders with brokers who provide supplemental investment
research and market and statistical information about the
healthcare industries. In addition, other investment
companies advised by the Investment Adviser may concurrently
invest with the Trust in Restricted Securities under certain
conditions. The Investment Adviser may also provide
managerial assistance to issuers of securities in which the
Trust invests. The Trust also may invest, subject to
applicable law, in companies in which the principals of the
Investment Adviser or Trustees of the Trust have invested,
or for which they serve as directors or executive officers.
------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------

TRUST EXPENSES

FEES AND EXPENSES

ANNUAL EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS
ATTRIBUTABLE TO SHARES)
Management Fee............................................ %

Other Expenses(1)......................................... %
---
Total Annual Expenses(2).................................. %
===

------------------------

(1) "Other Expenses" have been estimated for the current fiscal year.

(2) The estimated % expense ratio assumes that the Offer is fully
subscribed, yielding estimated net proceeds of approximately $
(assuming a Subscription Price of $ per Share) and that, as a result,
based on the Trust's net assets attributable to Shareholders on May 26, 2004
of $ , the net assets attributable to Shareholders would be $ .

The purpose of the table above is to assist you in understanding the various
costs and expenses that you will bear directly or indirectly as an investor in
the Trust. For more information regarding the management fees paid by the Trust,
refer to the section of this Prospectus entitled "Management of the
Trust--Investment Adviser."

HYPOTHETICAL EXAMPLE

The following hypothetical example demonstrates the projected dollar amount
of total cumulative expenses that would be incurred over various periods with
respect to a hypothetical investment in Shares of the Trust. These amounts are
based upon payment by the Trust of investment advisory fees and other expenses
at the levels set forth in the table above.

You would directly or indirectly pay the following expenses on a $1,000
investment in the Trust, assuming (i) all dividends and other distributions are
reinvested at NAV, (ii) the market price at the time of investment was equal to
the net asset value per share, (iii) the percentage amounts listed under Annual
Expenses above remain the same in the years shown, and (iv) a 5% annual return:

1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------ ------ -------
$ $ $ $

See also Note (2) above for assumptions made in calculating the expenses in
this hypothetical example. See "Financial Highlights" for the Trust's actual
ratio of expenses to average net assets for the fiscal year ended September 30,
2003.

The above tables and the assumption in the hypothetical example of a 5%
annual return are required by regulations of the Commission applicable to all
investment companies. The assumed 5% annual return is not a prediction of, and
does not represent, the projected or actual performance of the Trust's Shares.
For more complete descriptions of certain of the Trust's costs and expenses, see
"Management of the Trust--Investment Adviser."

THIS HYPOTHETICAL EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST
OR FUTURE EXPENSES, AND THE TRUST'S ACTUAL EXPENSES MAY BE GREATER OR LESS THAN
THOSE SHOWN.

FINANCIAL HIGHLIGHTS AND INVESTMENT PERFORMANCE

FINANCIAL HIGHLIGHTS

The financial highlights table is intended to help you understand the
Trust's financial performance. Information is shown for the Trust's last ten
fiscal years. Certain information reflects financial results from a single Trust
share. The information for the fiscal years ended September 30, 2003,
September 30, 2002 and September 30, 2001 was audited by PricewaterhouseCoopers
LLP, independent accountants. The information included in the Trust's financial
statements for the fiscal years ended September 30, 2000 and September 30, 1999
was audited by other independent accountants, whose reports expressed an
unqualified opinion on those financial statements and financial highlights. The
report of PricewaterhouseCoopers LLP, together with the financial statements of
the Trust, are included in the Trust's September 30, 2003 Annual Report, and are
included elsewhere in this Prospectus.

FOR THE YEAR ENDED SEPTEMBER 30,
---------------------------------------------------------------------------------
2003 2002(1) 2001 2000 1999
------------ ------------ ------------ ------------ ------------

Net asset value per share:
Beginning of year............ $ 18.160 $ 27.350 $ 46.147 $ 21.771 $ 16.711
------------ ------------ ------------ ------------ ------------
Net investment loss............ $ (0.231)(2) $ (0.283)(2) $ (0.195)(2) $ (0.290) $ (0.176)
Net realized and unrealized
gain (loss) on investments... 3.871 (5.727) (13.822) 28.131 5.596
Federal income taxes on
retained long-term capital
gains........................ -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Total increase (decrease) from
investment operations........ $ 3.640 $ (6.010) $ (14.017) $ 27.841 $ 5.420
------------ ------------ ------------ ------------ ------------
Dilutive effect of sale of
common stock and related
expenses from rights
offering..................... -- -- -- -- --
------------ ------------ ------------ ------------ ------------
Capital gains distributions to
shareholders................. $ (2.170) $ (3.180) $ (4.780) $ (3.465) $ (0.360)
------------ ------------ ------------ ------------ ------------
Net asset value per share:
End of year.................... $ 19.630 $ 18.160 $ 27.350 $ 46.147 $ 21.771
============ ============ ============ ============ ============
Per share market value:
End of year.................... $ 17.66 $ 14.10 $ 21.74 $ 36.19 $ 16.31
Total investment return at
market value................. 43.49% (25.24)% (27.23)% 151.66% 27.39%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year...... $286,754,854 $242,005,778 $329,373,206 $485,582,570 $209,519,627
Ratio of operating expenses to
average net assets........... 1.65% 1.64% 1.42% 1.45% 1.46%
Ratio of net investment loss to
average net assets........... (1.27)% (1.16)% (0.62)% (0.86)% (0.91)%
Portfolio turnover rate........ 32.80% 17.40% 16.17% 12.90% 24.88%
Number of shares outstanding at
end of year.................. 14,608,952 13,323,483 12,042,064 10,522,490 9,623,524

--------------------------

(1) The Trust adopted the provisions of 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.

FINANCIAL HIGHLIGHTS AND INVESTMENT PERFORMANCE (CONTINUED)

FOR THE YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------------------------
1998 1997 1996 1995 1994
------------ ------------ ------------ ------------ -----------

Net asset value per share:
Beginning of year................. $ 23.106 $ 25.754 $ 21.818 $ 16.609 $ 17.604
------------ ------------ ------------ ------------ -----------
Net investment loss............... $ (0.217) $ (0.224) $ (0.331) $ (0.228) $ (0.199)
Net realized and unrealized gain
(loss) on investments........... (5.108) 4.524 5.487 5.437 (0.230)
Federal income taxes on retained
long-term capital gains......... -- -- -- -- (0.566)
------------ ------------ ------------ ------------ -----------
Total increase (decrease) from
investment operations........... $ (5.325) $ 4.300 $ 5.156 $ 5.209 $ (0.995)
------------ ------------ ------------ ------------ -----------
Dilutive effect of sale of common
stock and related expenses from
rights offering................. -- (2.458) -- -- --
------------ ------------ ------------ ------------ -----------
Capital gains distributions to
shareholders.................... $ (1.070) $ (4.490) $ (1.220) -- --
------------ ------------ ------------ ------------ -----------
Net asset value per share:
End of year....................... $ 16.711 $ 23.106 $ 25.754 $ 21.818 $ 16.609
============ ============ ============ ============ ===========
Per share market value:
End of year....................... $ 13.13 $ 19.00 $ 20.88 $ 18.25 $ 15.13
Total investment return at market
value........................... (26.05)% 14.01% 22.03% 20.66% (17.69)%
RATIOS AND SUPPLEMENTAL DATA:
Net assets at end of year......... $157,976,073 $207,728,666 $147,552,505 $121,072,675 $92,169,061
Ratio of operating expenses to
average net assets.............. 1.46% 1.57% 1.62% 1.76% 1.74%
Ratio of net investment loss to
average net assets.............. (1.11)% (1.13)% (1.44)% (1.31)% (1.13)%
Portfolio turnover rate........... 17.15% 17.47% 22.41% 22.81% 28.10%
Number of shares outstanding at
end of year..................... 9,453,317 8,990,179 5,729,160 5,549,198 5,549,198

PORTFOLIO CHARACTERISTICS

A substantial portion of the Trust's investment portfolio consists of
venture capital and private equity investments. As of March 31, 2004, 19.88% of
the Trust's assets were invested in Restricted Securities of 26 Healthcare
Companies, one of which was publicly-traded. The Trust continues to value this
security below current market prices as it remains restricted as to resale.

From inception, the Trust has made 270 venture capital investments in 93
private companies and 16 private placements in public companies. There have been
45 initial public offerings and 12 acquisitions of restricted portfolio
companies as of March 31, 2004.

The following sets forth certain information with respect to the composition
of the Trust's investment portfolio as of March 31, 2004.

H&Q HEALTHCARE INVESTORS

PORTFOLIO--AS OF MARCH 31, 2004

[GRAPHIC]

The following table sets forth the Trust's ten largest holdings as a
percentage of net assets as of March 31, 2004.

THE TRUST'S TEN LARGEST HOLDINGS
(AS OF MARCH 31, 2004)

% OF NET ASSETS
---------------

Impax Laboratories.......................................... 3.87%
Telik....................................................... 3.68%
Celgene..................................................... 3.11%
Genzyme..................................................... 3.10%
Pfizer...................................................... 2.98%
Amgen....................................................... 2.63%
Elan........................................................ 2.53%
Cubist Pharmaceuticals...................................... 2.41%
IVAX........................................................ 2.37%
Tera Pharmaceutical Industries ADR.......................... 2.36%

SHARE PRICE AND NAV

The Trust's Shares are publicly-held and have been listed and are trading on
the NYSE. The following table sets forth for the quarters indicated the high and
low closing prices per Share on the

NYSE, the corresponding NAV, the percentage premium or discount at such closing
prices, and the number of Shares traded. The NAV as of the close of business on
May 26, 2004 was $ and the last reported sales price of a Share that day
was $ .

MARKET CORRESPONDING MARKET CORRESPONDING
QUARTER PRICE(1) NET ASSET PREMIUM/ PRICE(1) NET ASSET PREMIUM/ TRADING
ENDING HIGH VALUE(2) (DISCOUNT)(2) LOW VALUE(2) (DISCOUNT)(2) VOLUME
---------------------------- -------- ------------- ------------- -------- ------------- ------------- ---------

Fiscal 2002
Dec. 31................... $26.48 $30.90 (14.30)% $21.50 $27.33 (21.33)% 1,784,000
Mar. 31................... 25.63 29.91 (14.31) 22.00 25.38 (13.32) 1,628,000
June 30................... 22.02 25.56 (13.85) 16.45 20.05 (17.96) 1,880,000
Sept. 30.................. 16.40 19.62 (16.41) 13.80 17.78 (22.38) 2,300,000
Fiscal 2003
Dec. 31................... 16.05 19.28 (16.75) 13.10 17.40 (24.71) 2,531,000
Mar. 31................... 15.70 17.33 (9.41) 13.08 15.84 (17.42) 3,862,000
June 30................... 18.24 19.81 (7.93) 14.52 16.76 (13.37) 1,803,000
Sept. 30.................. 18.63 20.94 (11.03) 17.14 18.84 (9.02) 2,414,000
Fiscal 2004
Dec. 31................... 18.91 20.16 (6.20) 17.83 19.37 (7.95) 1,624,000
Mar. 31................... 21.53 21.15 1.80 18.56 19.73 (5.93) 2,075,000

--------------------------

(1) As reported by the NYSE.

(2) Based on the Trust's computations, on the day that the high or low market
price was recorded.

Shares of the Trust have frequently traded at a discount to NAV but have
occasionally traded at a premium to NAV. There can be no assurance that Shares
will trade at premium to NAV in the future. Certain features of and steps taken
by the Trust may have tended to reduce the discount from net asset value at
which its Shares might otherwise have traded, although the Trust is not able to
determine what effect, if any, these various features and steps may have had.
The Trust's current 2% distribution policy (see "Dividends and Distributions"),
begun in May 1999, may have contributed to this effect. This trend may also have
resulted in whole or in part from other factors, such as the Trust's investment
performance and the performance of the healthcare industry generally.

INVESTMENT PERFORMANCE

The table below presents average annual total returns of the Trust's Shares
on two separate bases. The first column presents the Trust's market value
return, which is the average annual rate of return, based on the Trust's market
value, on an amount invested in the Trust from the beginning to the end of the
stated period and assumes reinvestment of net investment income dividends and
capital gains distributions. This figure reflects the actual experience of a
Shareholder, before commission costs, who bought and sold Shares of the Trust at
the beginning and ending dates. The second column features the NAV return, which
presents the same information, but values the Trust at NAV rather than market
value.

The record of the AMEX Biotech Index has been included so that the Trust's
results may be compared with an unmanaged equal-dollar weighted index designed
to measure the performance of a cross-section of core issuers in the
biotechnology industry. The record of the Russell 2000 has been included so that
the Trust's results may be compared with an unmanaged index reflecting the
performance of the 2,000 smallest companies in the Russell 3000 Index (which in
turn represents the 3,000 largest U.S. companies based on total market
capitalization). The record of the NASDAQ Industrials has been included so that
the Trust's results may be compared with an unmanaged, market value-weighted
index reflecting all Nasdaq National Market System issues classified as
industrial based on Standard Industrial Classification codes relative to a
company's major source of revenue. The record of the Dow Jones Industrial
Average has been included so that the Trust's results may be compared with an
unmanaged, market value-weighted index composed of 30 large "blue-chip"
industrial stocks.

The figures for each index assume reinvestment of dividends. It is not possible
to invest directly in any index.

H&Q HEALTHCARE INVESTORS ANNUALIZED RETURNS
(FOR PERIODS ENDING MARCH 31, 2004)

AMEX DOW JONES
HQH HQH BIOTECH RUSSELL NASDAQ INDUSTRIAL
STOCK** NAV* INDEX** 2000** INDUSTRIALS** AVERAGE**
-------- -------- -------- -------- ------------- ----------

1 YEAR.......................... 54.02% 36.26% 57.93% 61.93% 63.15% 29.60%
3 YEARS......................... 11.66% 2.63% 3.83% 9.43% 10.68% 1.59%
5 YEARS......................... 23.97% 14.17% 23.00% 8.22% 3.76% 1.14%
10 YEARS........................ 13.09% 12.25% 19.05% 8.93% 7.91% 11.04%

------------------------

* Source: Lipper Closed-End Equity Funds Analysis

** Source: Factset, Total Annualized Compounded Return, dividends reinvested on
ex-date

THE ABOVE RESULTS REPRESENT PAST PERFORMANCE AND SHOULD NOT BE CONSIDERED AN
INDICATION OF FUTURE PERFORMANCE. The information is provided for purposes of
presenting an historical perspective of the Trust. The investment return and net
asset and market prices will fluctuate, so that Shares may be worth more or less
than their original cost when sold.

THE OFFER

TERMS OF THE OFFER

The Trust is issuing to its Shareholders non-transferable Rights to
subscribe for an aggregate of 5,036,144 Shares. The Trust may increase the
number of Shares subject to subscription by up to 25% of the Shares, for an
aggregate total of 6,295,180 Shares. Shareholders will receive one
non-transferable Right for each Share held as of the Record Date, rounded up to
the nearest number of Rights evenly divisible by three. The Rights entitle a
Shareholder to acquire, at the Subscription Price, one Share for each three
Rights held. If you exercise all of the Rights issued to you, you may subscribe
for Shares which were not otherwise subscribed for by others in the Primary
Subscription.

Rights may be exercised at any time during the Subscription Period, which
commences on June 1, 2004 and ends at 5:00 p.m., Eastern time, on June 18, 2004,
unless extended by the Trust (such date, as it may be extended, is referred to
in this Prospectus as the "Expiration Date").

Fractional Shares will not be issued upon the exercise of Rights. In the
case of shares held of record by a broker-dealer, bank or other financial
intermediary (each, a "Nominee"), the number of Rights issued to such Nominee
will be adjusted to permit rounding up (to the nearest number of Rights evenly
divisible by three) of the Rights to be received by each of the beneficial
owners for whom it is the holder of record only if the Nominee provides to the
Trust, on or before the close of business on June 11, 2004, a written
representation of the number of Rights required for such rounding.

The Rights are non-transferable. Therefore, only the underlying Shares will
be listed for trading on the NYSE or any other exchange.

For purposes of determining the number of Shares a Shareholder may acquire
pursuant to the Offer, broker-dealers whose Shares are held of record by Cede &
Co., Inc. ("Cede"), nominee for the Depository Trust Company, or by any other
depository or nominee, will be deemed to be the holders of the Rights that are
issued to Cede or such other depository or nominee on their behalf. Shares
acquired pursuant to the Over-Subscription Privilege are subject to allotment,
which is more fully discussed under "The Offer--Over-Subscription Privilege."

The Subscription Price will be 95% of the lower of (i) the volume weighted
average share price of a Share on the NYSE on June 21, 2004 (the "Pricing Date")
and the four preceding business days or (ii) the net asset value ("NAV") of a
Share on the Pricing Date. Since the time of the close of the Offer on the
Expiration Date is before the Pricing Date, Shareholders who choose to exercise
their Rights will not know the Subscription Price at the time they exercise
their Rights.

The Rights will be evidenced by Exercise Forms which will be mailed to
Shareholders. You may exercise your Rights by completing an Exercise Form and
delivering it, together with payment by means of (i) a check or money order or
(ii) a Notice of Guaranteed Delivery to the Subscription Agent during the
Subscription Period. The methods by which Rights may be exercised and Shares
paid for are set forth below in "Exercise of Rights" and "Payment for Shares."

PURPOSE OF THE OFFER

The Board of Trustees of the Trust (the "Board") has determined that it is
in the best interests of the Trust and its Shareholders to increase the assets
of the Trust available for investment through the Offer, so that the Trust will
be in a better position to more fully take advantage of available investment
opportunities in Healthcare Companies, including investments in specialty and
generic pharmaceuticals companies, medical devices, healthcare information
services and other innovative healthcare products and biotechnology companies.
The Board was informed by the Investment Adviser that many high quality venture
capital investment opportunities are available, and that Shareholders could
potentially realize significant benefits from increased investment in both
venture capital securities and publicly-traded Healthcare Companies. The Board
also reviewed data suggesting that increased asset size could favorably affect
the Trust's expense ratio since the additional assets raised in the Offer were
expected to allow the Trust to reach a breakpoint in the investment advisory fee
and spread fixed costs over a larger number of Shares. The Board unanimously
approved the Offer and concluded that increasing the assets of the Trust through
the Offer would be beneficial to the Trust and its Shareholders. However, there
can be no assurance that the anticipated benefits discussed herein will occur as
a result of increasing the assets of the Trust through the Offer.

In determining that the initiation of the Offer and the proposed terms of
the Offer were in the best interest of Shareholders, the Board considered a
variety of factors, including those set forth below:

RECENT DEVELOPMENTS IN CERTAIN HEALTHCARE SECTORS. Demographic changes
continue to create new medical opportunities. It is estimated that by the year
2010 over 13.4% of the U.S. population will be 65 or older vs. 12.9% in 2002.
This segment of the U.S. population consumes three to four times the healthcare
goods and services as the rest of the U.S. population. The Investment Adviser
expects that this will drive an increase in all types of medical products, from
drugs to orthopedic procedures. Furthermore, the Managed Care Institute expects
this trend to drive Medicare enrollment from 40 million enrollees to an
estimated 75-77 million by the year 2030. The Investment Adviser believes that
this trend will dramatically increase the demand for new healthcare services and
technologies.

In addition, recent developments in the pharmaceutical, biotechnology, and
medical technology industries have produced a series of products that the
Investment Adviser believes have extended or improved, or will extend or
improve, the quality of patients' lives, and as a result are expected to be
commercially successful. As of March 2004, more than 406 therapeutic products to
treat a variety of diseases or conditions have completed human clinical trials
and are awaiting FDA marketing approval. There are approximately 1,125 products
in late stage (Phase III) human clinical trials, and 9,428 products are in
earlier stage trials and pre-clinical development. The last five years have seen
the commercialization of products that have made incredible advances in treating
cancer, rheumatoid arthritis, erectile dysfunction, psoriasis, multiple
sclerosis and depression. In the next five years, the Investment Adviser
anticipates approval of other novel products which will have a comparable impact
in treating such conditions as sleep disorders, obesity, cardiovascular disease,
cancer, and chronic and acute pain.

The Investment Adviser also believes that the recent passage of a Medicare
reform bill, to be implemented by 2006, will dramatically alter the healthcare
landscape. Under this bill, it is estimated that at least 10 million people will
gain new coverage of a prescription drug benefit. The Investment Adviser
believes that there will be a dramatic growth in prescription volume resulting
from passage of the Medicare bill.

Based on these trends and events, the Investment Adviser continues to
believe there are outstanding opportunities for investment in healthcare and
biotechnology related companies. In addition to the companies and products in
which the Trust has already invested, the Investment Adviser sees great promise
from several developing trends. Among others, the Investment Adviser sees
tremendous potential in the areas of (1) generic pharmaceuticals, (2) specialty
pharmaceuticals, (3) disease management, (4) novel medical devices, (5) novel
drugs derived from known and novel targets and (6) products which will benefit
from impending changes in the regulatory landscape. The Trust intends to use the
net proceeds from the Offer to capitalize on such investment opportunities.

A benefit to Shareholders from the Offer is expected to be the Trust's
ability to incrementally invest in additional companies on the forefront of
these developing trends. Completion of the Offer is expected to allow the Trust
to continue to invest in and/or own securities of companies in which it has
already invested and still take advantage of these developing trends. Without
completing the proposed offering, the Trust may have to choose between
maintaining some of its existing investments and investing in companies which
will take advantage of developing trends.

INCREASED INVESTMENT SIZE. The Investment Adviser believes that larger
investments by the Trust provide additional negotiating leverage and pricing
influence over venture capital, private investments in public entities (PIPEs),
and other private equity investments and in the public markets. With an
increased asset base through the Offer, the Trust may be able to make
investments of the size necessary to achieve more favorable investment terms.

ADDITIONAL INVESTMENTS. In order to take advantage of new investment
opportunities in the healthcare industries without the Offer, the Trust would be
required to sell a portion of its existing investments which would result in
transaction costs and may result in a realization of significant capital gains
or otherwise take place at a time when the investment sold may not have fully
achieved the Trust's investment objective for it. The Offer provides the Trust
with the ability to both capitalize on new investment opportunities and maintain
its investment in existing assets.

OPPORTUNITY TO PURCHASE BELOW MARKET PRICE AND NAV. The Offer affords
existing Shareholders the opportunity to purchase additional Shares at a price
that will be below market value and NAV at the Expiration Date. However,
Shareholders who do not fully exercise their Rights will own, upon completion of
the Offer, a smaller proportional interest in the Trust than they owned before
the Offer. The Board of Trustees took this into account in adopting the
Subscription Price formula applicable to the Offer and selecting the ratio of
Rights offered relative to the number of Shares held on the Record Date. See
"The Offer" and "Risks."

REDUCTION IN OPERATING COSTS PER SHARE. The Board was advised by the
Investment Adviser that the Trust could potentially achieve additional economies
of scale as a result of an increase in the Trust's total assets. The Investment
Adviser believes that the increase in assets from the Offer will reduce the
Trust's expenses as a percentage of average net assets per Share because the
Trust is expected to reach a breakpoint in the investment advisory fee if the
Offer is fully subscribed and fixed costs would be spread over a greater number
of Shares.

The Trust's Board of Trustees voted unanimously to approve the terms of the
Offer. One of the Trust's Trustees who voted to authorize the Offer is
affiliated with the Investment Adviser and, therefore, could benefit indirectly
from the Offer. The other six Trustees are not "interested persons" of the Trust
within the meaning of the Investment Company Act of 1940, as amended (the
"Investment Company Act"). The Investment Adviser may also benefit from the
Offer because its fee is based on

the net assets of the Trust. See "Management of the Trust--Investment Adviser."
It is not possible to state precisely the amount of additional compensation the
Investment Adviser might receive as a result of the Offer because it is not
known how many Shares will be subscribed for and because the proceeds of the
Offer will be invested in additional portfolio securities, which will fluctuate
in value.

The Trust may, in the future, choose to make additional rights offerings
from time to time for a number of shares and on terms that may or may not be
similar to this Offer. Any such future rights offerings will be made in
accordance with the then applicable requirements of the Investment Company Act
and the Securities Act.

There can be no assurance that the Trust or its Shareholders will achieve
any of the foregoing objectives or benefits through the Offer.

OVER-SUBSCRIPTION PRIVILEGE

If some Shareholders do not exercise all of the Rights initially issued to
them in the Primary Subscription, such Shares which have not been subscribed for
will be offered, by means of the Over-Subscription Privilege, to Shareholders
who have exercised all the Rights initially issued to them and who wish to
acquire more than the number of Shares for which the Rights issued to them are
exercisable. Shareholders who exercise all the Rights initially issued to them
will be asked to indicate, on the Exercise Form which they submit with respect
to the exercise of the Rights, how many Shares they are willing to acquire
pursuant to the Over-Subscription Privilege. The Trust may, at its discretion,
issue up to an additional 25% of the Shares in the Offer to honor
over-subscription requests if sufficient Shares are not available from the
Primary Subscription to honor all over-subscriptions. If sufficient Shares
remain, all over-subscriptions will be honored in full. If sufficient Shares are
not available to honor all over-subscriptions (after giving effect to any
increase in the number of Shares to be offered), the available Shares will be
allocated among those who over-subscribe based on the number of Rights
originally issued to them by the Trust, so that the number of Shares issued to
Shareholders who subscribe pursuant to the Over-Subscription Privilege will
generally be in proportion to the number of Shares owned by them in the Trust on
the Record Date. The allocation process may involve a series of allocations to
assure that the total number of Shares available for over-subscriptions is
distributed on a pro-rata basis. The Over-Subscription Privilege may result in
additional dilution of interest and voting rights to Shareholders, and
additional reduction in the Trust's NAV per share.

The Trustees and officers of the Trust and employees of the Investment
Adviser may purchase Share's in the Offer and pursuant to the Over-Subscription
Privilege. Any such purchases will be made on the same terms applicable to other
Shareholders.

THE SUBSCRIPTION PRICE

The Subscription Price per Share will be 95% of the lower of (a) the volume
weighted average share price of a Share on the NYSE on June 21, 2004 and the
four preceding business days OR (b) the NAV as of the Pricing Date.

The Trust announced the Offer after the close of trading on the NYSE on
April 8, 2004. The NAV at the close of business on April 8, 2004 and May 26,
2004 was $21.36 and $ , respectively, and the last reported share price of
a Share on the NYSE on those dates was $20.70 and $ , respectively. Since
the Expiration Date occurs before the Pricing Date, Shareholders who decide to
acquire Shares on the Primary Subscription or pursuant to the Over-Subscription
Privilege will not know the purchase price for such Shares when they make such
decision. Information about the Trust's NAV may be obtained by calling
(800) 451-2597.

EXPIRATION OF THE OFFER

Rights will expire at 5:00 p.m., Eastern time, on the Expiration Date and
thereafter may not be exercised, unless the Offer is extended.

Any extension, termination, or amendment will be followed as promptly as
practical by announcement thereof, such announcement in the case of an extension
to be issued no later than 9:00 a.m., Eastern time, on the next business day
following the previously scheduled Expiration Date. The Trust will not, unless
otherwise obligated by law, have any obligation to publish, advertise, or
otherwise communicate any such announcement other than by making a release to
the Dow Jones News Service or such other means of announcement as the Trust
deems appropriate.

SUBSCRIPTION AGENT

The Subscription Agent is EquiServe Trust Company, 66 Brooks Drive,
Braintree, MA 02184, which will receive, for its administrative, processing,
invoicing and other services as Subscription Agent, a fee estimated to be
$30,000, which includes reimbursement for all out-of-pocket expenses related to
the Offer. The Subscription Agent is also the Trust's Transfer Agent and
Registrar with respect to the Shares. SIGNED EXERCISE FORMS SHOULD BE SENT TO
EQUISERVE TRUST COMPANY, by one of the methods described below:

SUBSCRIPTION CERTIFICATE
DELIVERY METHOD ADDRESS
--------------------------------------------- ---------------------------------------------

By First Class Mail.......................... EquiServe Trust Company
Corporate Reorganization
P.O. Box 859208
Braintree, MA 02185

By Hand...................................... EquiServe Trust Company
c/o Securities Transfer & Reporting
100 Williams Street, 3rd Floor
New York, NY 10038

By Overnight Courier or Express Mail......... EquiServe Trust Company
161 Baystate Drive
Braintree, MA 02184

By Broker-Dealer or other Nominee ........... Shareholders whose Shares are held in a
(Notice of Guaranteed Delivery) brokerage, bank or trust account may contact
their broker or other nominee and instruct
them to submit a Notice of Guaranteed
Delivery and Payment on their behalf.

DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE DOES NOT CONSTITUTE A VALID
DELIVERY.

INFORMATION AGENT

Any questions or requests for assistance may be directed to the Information
Agent at its telephone number and address listed below:

The Altman Group, Inc.
1275 Valley Brook Avenue
Lyndhurst, New Jersey 07071
Toll Free: (800) 870-0126

You may also call the Trust at (617) 772-8500 or contact your bank, broker
or other nominee for information with respect to the Offer.

The Information Agent will receive a fee estimated to be approximately
$7,500, which includes reimbursement for all out-of-pocket expenses related to
its services as Information Agent.

EXERCISE OF RIGHTS

Rights may be exercised by completing and signing the reverse side of the
Exercise Form which accompanies this Prospectus and mailing it in the envelope
provided, or otherwise delivering the completed and signed Exercise Form to the
Subscription Agent, together with payment for the Shares as described below
under "Payment for Shares." Completed Exercise Forms and related payments must
be received by the Subscription Agent before 5:00 p.m., Eastern time, on or
before the Expiration Date (unless payment is effected by means of a Notice of
Guaranteed Delivery as described below under "Payment for Shares") at the
offices of the Subscription Agent at the address set forth above. A Shareholder
who exercises Rights pursuant to the Primary Subscription is hereinafter
referred to as an "Exercising Shareholder." Rights may also be exercised through
an Exercising Shareholder's broker, who may charge such Exercising Shareholder a
servicing fee.

Shareholders for whom there is not a current address ("stop mail" accounts)
will not be mailed this Prospectus or other subscription materials.

EXERCISING SHAREHOLDERS WHO ARE RECORD OWNERS. Exercising Shareholders may
choose between either option set forth under "Payment for Shares" below. If time
is of the essence, option (2) will permit delivery of the Exercise Form and
payment after the Expiration Date.

INVESTORS WHOSE SHARES ARE HELD BY A BROKER-DEALER OR OTHER
NOMINEE. Exercising Shareholders whose Shares are held by a nominee such as a
broker-dealer, bank or trust company must contact the nominee to exercise their
Rights. In that case, the nominee will complete the Exercise Form on behalf of
the Exercising Shareholder and arrange for proper payment by one of the methods
set forth under "Payment for Shares" below.

NOMINEES. Nominees who hold Shares for the account of others should notify
the respective beneficial owners of such Shares as soon as possible to ascertain
such beneficial owners' intentions and to obtain instructions with respect to
exercising the Rights. If the beneficial owner so instructs, the nominee should
complete the Exercise Form and submit it to the Subscription Agent with the
proper payment described under "Payment for Shares" below.

All questions as to the validity, form, eligibility (including times of
receipt and matters pertaining to beneficial ownership) and the acceptance of
subscription forms and the Subscription Price will be determined by the Trust,
which determinations will be final and binding. No alternative, conditional or
contingent subscriptions will be accepted. The Trust reserves the absolute right
to reject any or all subscriptions not properly submitted or the acceptance of
which would, in the opinion of the Trust's counsel, be unlawful. The Trust also
reserves the right to waive any irregularities or conditions, and the Trust's
interpretations of the terms and conditions of the Offer shall be final and
binding. Any

irregularities in connection with subscriptions must be cured within such time
as the Trust shall determine unless waived. Neither the Trust nor the
Subscription Agent shall be under any duty to give notification of defects in
such subscriptions or incur any liability for failure to give such notification.
Subscriptions will not be deemed to have been made until such irregularities
have been cured or waived.

PAYMENT FOR SHARES

You may exercise your Rights and pay for Shares subscribed for pursuant to
the Primary Subscription and Over-Subscription Privilege in one of the following
ways:

(1) DELIVER EXERCISE FORM AND PAYMENT TO THE SUBSCRIPTION AGENT BY THE
EXPIRATION DATE:

Exercising Shareholders may deliver to the Subscription Agent at any of the
offices set forth above on page 20 (i) a completed and executed Exercise Form
indicating the number of Rights they have been issued and the number of Shares
they are acquiring pursuant to the Primary Subscription, as well as the number
of any additional Shares they would like to subscribe for under the
Over-Subscription Privilege and (ii) payment for all such ordered Shares based
on the Estimated Subscription Price of $ per Share, both no later than
5:00 p.m., Eastern time, on the Expiration Date.

The Subscription Agent will deposit all checks received by it for the
purchase of Shares into a segregated interest bearing account of the Trust (the
interest from which will belong to the Trust) pending proration and distribution
of Shares.

A PAYMENT PURSUANT TO THIS METHOD (1) MUST BE IN U.S. DOLLARS BY MONEY ORDER
OR CHECK DRAWN ON A BANK LOCATED IN THE U.S., (2) MUST BE PAYABLE TO "H&Q
HEALTHCARE INVESTORS" AND (3) MUST ACCOMPANY AN EXECUTED EXERCISE FORM FOR SUCH
SUBSCRIPTION TO BE ACCEPTED. THIRD (OR MULTIPLE) PARTY CHECKS WILL NOT BE
ACCEPTED.

(2) CONTACT YOUR BROKER, BANK OR TRUST COMPANY TO DELIVER NOTICE OF
GUARANTEED DELIVERY TO THE SUBSCRIPTION AGENT BY THE EXPIRATION DATE:

Exercising Shareholders may request a NYSE or National Association of
Securities Dealers, Inc. member, bank or trust company (each a "nominee") to
execute a Notice of Guaranteed Delivery (or equivalent electronic information)
and deliver it, by facsimile or otherwise, to the Subscription Agent by
5:00 p.m., Eastern time, on the Expiration Date indicating (i) the number of
Rights they wish to exercise, the number of Primary Subscription Shares they
wish to acquire, and the number of Over-Subscription Privilege Shares for which
they wish to subscribe and (ii) guaranteeing delivery of payment and a completed
Exercise Form from such Exercising Shareholder by June 23, 2004. You must
arrange for payment to the nominee, who will in turn submit the Exercise Form
and payment on your behalf by June 18, 2004. The Subscription Agent will not
honor a Notice of Guaranteed Delivery unless the completed Exercise Form is
received by the Subscription Agent by the close of business on June 23, 2004 and
full payment for the Shares is received by it by the close of business on
June 30, 2004.

On June 27, 2004 (the "Confirmation Date"), the Subscription Agent will send
a confirmation to each Exercising Shareholder (or, if the Shares are held by a
depository or other nominee, to such depository or other nominee), showing
(i) the number of Shares acquired pursuant to the Primary Subscription,
(ii) the number of Shares, if any, acquired pursuant to the Over-Subscription
Privilege, (iii) the per Share and total purchase price for the Shares, and
(iv) any additional amount payable by such Exercising Shareholder to the Trust
or any excess to be refunded by the Trust to such Exercising Shareholder in each
case based upon the final Subscription Price. Any additional payment required
from an Exercising Shareholder must be received by the Subscription Agent by
June 30, 2004 (the "Final Payment Date"). Any excess payment to be refunded by
the Trust to an Exercising Shareholder

will be mailed by the Subscription Agent to the holder as promptly as
practicable after the Final Payment Date. In the case of any Shareholder who
exercises his or her right to acquire Shares pursuant to the Over-Subscription
Privilege, any excess payment which would otherwise be refunded to the
Shareholder will be applied by the Trust toward payment for additional Shares
acquired pursuant to exercise of the Over-Subscription Privilege. Any additional
payment required from a Shareholder must be received by the Subscription Agent
by the close of business on June 30, 2004. Any excess payment to be refunded by
the Trust to a Shareholder will be mailed by the Subscription Agent to such
Shareholder as promptly as possible within ten (10) business days after the
Confirmation Date. All payments by a Shareholder must be made in United States
dollars by money order or check drawn on a bank located in the United States of
America and payable to H&Q HEALTHCARE INVESTORS.

Issuance and delivery of certificates for the Shares purchased are subject
to actual collection of checks and actual payment pursuant to any Notice of
Guaranteed Delivery.

If an Exercising Shareholder does not make payment of any additional amounts
due by June 28, 2004, the Trust reserves the right to take any or all of the
following actions: (i) apply any payment received by it toward the purchase of
the greatest whole number of Shares which could be acquired by such Exercising
Shareholder upon exercise of the Primary Subscription and/or Over-Subscription
Privilege based on the amount of such payment; (ii) allocate the Shares subject
to subscription rights to one or more other Shareholders; (iii) sell all or a
portion of the Shares deliverable upon exercise of subscription rights on the
open market and apply the proceeds thereof to the amount owed; and/or
(iv) exercise any and all other rights or remedies to which it may be entitled,
including, without limitation, the right to set-off against payments actually
received by it with respect to such subscribed Shares.

AN EXERCISING SHAREHOLDER WILL NOT HAVE THE RIGHT TO CANCEL THE EXERCISE OF
RIGHTS OR RESCIND A PURCHASE AFTER THE SUBSCRIPTION AGENT HAS RECEIVED PAYMENT,
EITHER BY MEANS OF A NOTICE OF GUARANTEED DELIVERY OR A CHECK OR MONEY ORDER,
EXCEPT AS DESCRIBED UNDER "THE OFFER--NOTICE OF NAV DECLINE."

The risk of delivery of subscription forms and payments to the Subscription
Agent will be borne by the Exercising Shareholder and not the Trust, the
Subscription Agent or the Information Agent. If the mail is used to exercise
Rights, it is recommended that such Exercise Forms and payment be sent by
registered mail, properly insured, with return receipt requested, and that a
sufficient number of days be allowed to ensure delivery to the Trust and
clearance of payment before 5:00 p.m., Eastern time, on the Expiration Date.
Because uncertified personal checks may take at least five business days to
clear and may, at the discretion of the Trust, not be accepted if not cleared
before the Expiration Date, you are strongly encouraged to pay, or arrange for
payment, by means of certified or bank cashier's check.

NOTICE OF NAV DECLINE

The Trust will suspend the Offer until it amends this Prospectus if, after
the effective date of this Prospectus, the Trust's NAV declines more than 10%
from its NAV as of that date. In such event, the Trust will notify you of any
such decline and thereby permit you to cancel your exercise of your Rights.

DELIVERY OF SHARE CERTIFICATES

Registered Shareholders who are participants in the Trust's Dividend
Reinvestment Plan (the "Plan") will have any Shares that they acquire pursuant
to the Offer credited to their Shareholder dividend reinvestment accounts in the
Plan. Shareholders whose Shares are held of record by Cede or by any other
depository or nominee on their behalf or their broker-dealers' behalf will have
any Shares that they acquire pursuant to the Offer credited to the account of
Cede or such other depository or nominee. With respect to all other
Shareholders, certificates for all Shares acquired pursuant to the

Offer will be mailed after payment for all the Shares subscribed for has
cleared, which clearance may take up to 15 days from the date of receipt of the
payment.

EMPLOYEE PLAN CONSIDERATIONS

Shareholders that are employee benefit plans subject to the Employee
Retirement Income Security Act of 1974, as amended ("ERISA") (including
corporate savings and 401(k) plans), and plans that are subject to Code
Section 4975, such as profit sharing/retirement plans for self-employed
individuals and Individual Retirement Accounts (collectively, "Retirement
Plans") should be aware that additional contributions of cash to the Retirement
Plan (other than rollover contributions or trustee-to-trustee transfers from
other Retirement Plans) to exercise Rights would be treated as Retirement Plan
contributions and therefore, when taken together with contributions previously
made, may be treated as excess or nondeductible contributions and may be subject
to excise taxes. In the case of Retirement Plans qualified under Section 401(a)
of the Internal Revenue Code of 1986, as amended (the "Code"), additional cash
contributions could cause violations of the maximum contribution limitations of
Section 415 of the Code or other qualification rules. Retirement Plans in which
contributions are so limited should consider whether there is an additional
source of funds available within the Retirement Plan, such as a reallocation
from another investment option or other liquidation of assets, with which to
exercise the Rights. Because the rules governing Retirement Plans are extensive
and complex, Retirement Plans contemplating the exercise of Rights should
consult with their counsel before such exercise.

Retirement Plans and other tax exempt entities should also be aware that if
they borrow to finance their exercise of Rights, they may become subject to the
tax on unrelated business taxable income under Section 511 of the Code. If any
portion of an Individual Retirement Account ("IRA") is used as security for a
loan, the portion so used will be treated as a distribution to the IRA
depositor.

ERISA contains fiduciary responsibility requirements, and ERISA and the Code
contain prohibited transactions rules that may affect the exercise of Rights.
Due to the complexity of these rules and the penalties for noncompliance,
Retirement Plans should consult with their counsel regarding the consequences of
their exercise of Rights under ERISA and the Code.

CERTAIN FEDERAL INCOME TAX CONSEQUENCES OF THE OFFER

The following discussion summarizes the principal federal income tax
consequences of the Offer to Shareholders and Exercising Shareholders. It is
based upon the Code, U.S. Treasury regulations, Internal Revenue Service rulings
and policies and judicial decisions in effect on the date of this Prospectus.
This discussion does not address all federal income tax aspects of the Offer
that may be relevant to a particular Shareholder because of his individual
circumstances or to Shareholders subject to special treatment under the Code
(such as insurance companies, financial institutions, tax-exempt entities,
dealers in securities, foreign corporations, and persons who are not citizens or
residents of the U.S.), and it does not address any state, local or foreign tax
consequences. Accordingly, each Shareholder should consult his or her own tax
advisor as to the specific tax consequences of the Offer to him or her. Each
Shareholder should also review the discussion of certain tax considerations
affecting the Trust and Shareholders set forth under "Taxation" below.

For federal income tax purposes, neither the receipt nor the exercise of the
Rights by Shareholders will result in taxable income to those Shareholders, and
no loss will be realized if the Rights expire without exercise.

A Shareholder's holding period for a Share acquired upon exercise of a Right
begins with the date of exercise. A Shareholder's basis for determining gain or
loss upon the sale of a Share acquired upon the exercise of a Right will be
equal to the sum of the Shareholder's basis in the Right, if any, and the
Subscription Price per Share. The Shareholder's basis in the Right will be zero
unless either (i) the fair

market value of the Right on the date of distribution is 15% or more of the fair
market value on such date of the Shares with respect to which the Right was
distributed, or (ii) the Shareholder elects, on its federal income tax return
for the taxable year in which the Right is received, to allocate part of the
basis of such Shares to the Right. If either of clauses (i) and (ii) is
applicable, then if the Right is exercised, the Exercising Shareholder will
allocate its basis in the Shares with respect to which the Right was distributed
between such Shares and the Right in proportion to the fair market values of
each on the date of distribution. A Shareholder's gain or loss recognized upon a
sale of a Share acquired upon the exercise of a Right will be a capital gain or
loss (assuming the Share was held as a capital asset at the time of sale) and
will be a long-term capital gain or loss if the Share was held at the time of
sale for more than one year.

The foregoing is only a summary of the applicable federal income tax laws
presently in effect and does not include any state or local tax consequences of
the Offer. Moreover, the foregoing does not address the many factors that may
determine whether an investor will be liable for the federal alternative minimum
tax. You should consult your own tax advisor concerning the tax consequences of
this transaction.

SPECIAL CONSIDERATIONS

Shareholders who do not fully exercise their Rights should expect that they
will, at the completion of the Offer, own a smaller proportional interest in the
Trust than would otherwise be the case if they exercised their Rights. The Trust
cannot determine the extent of this dilution at this time because it does not
know what proportion of the Trust's Shares will be purchased as a result of the
Offer.

Shareholders may experience dilution in their holdings because they will
indirectly bear the expenses of the Offer. Further, Shareholders that do not
submit subscription requests pursuant to the Over-Subscription Privilege may
also experience dilution in their holdings if the Trust offers additional Shares
for subscription. The Trust cannot state precisely the amount of any such
decrease in NAV because it does not know at this time how many Shares will be
subscribed for or what the NAV or market price per Share will be at the Pricing
Date. As of May 26, 2004, the Trust's Shares traded at a % [premium
above/discount to] NAV. If the Trust's Shares trade at a [premium above/discount
to] NAV as of the Pricing Date, the Trust estimates that such dilution would be
minimal. See "Risks--Dilution of NAV and Effect of Non-Participation in the
Offer." Except as described in this Prospectus, you will have no right to
rescind your subscription requests after receipt of your payment for Shares by
the Subscription Agent.

OTHER RIGHTS OFFERINGS

The Trust made a rights offering in February 1997 at a price that was lower
than its then-current NAV, and may have similar rights offerings in the future.
Any such future rights offerings would be separately registered with the
Commission and made by means of separate prospectuses.

RESTRICTION ON FOREIGN SHAREHOLDERS

Shareholders on the Record Date whose record addresses are outside the
United States will receive written notice of the Offer; however, Exercise Forms
will not be mailed to such Shareholders. The Rights to which those Exercise
Forms relate will be held by the Subscription Agent for such foreign
Shareholders' accounts until instructions are received in writing with payment
to exercise the Rights. If no such instructions are received by the Expiration
Date, such Rights will expire. See "Subscription Agent."

USE OF PROCEEDS

Assuming all Shares offered hereby are sold at an estimated Subscription
Price (the "Estimated Subscription Price") of $ per Share, the net proceeds
of the Offer will be approximately $ , after deducting expenses
payable by the Trust estimated at approximately $ . The net proceeds of the
Offer will be invested in accordance with the Trust's investment objective and
policies. See "Investment Objective and Policies." Various factors affect
investments in emerging growth companies that are different from factors
affecting investments in large well-known companies, including the additional
research required to investigate a large number of small companies and the
volatility and illiquidity of securities of those companies. Accordingly,
initial investment of the proceeds in publicly-traded securities may take place
during a period of up to six months following completion of the Offer, depending
on market conditions and the availability of appropriate securities. Restricted
Securities may be purchased as appropriate opportunities arise, which could take
up to one year or longer, and the Trust may choose to be more fully invested in
publicly-traded securities during such period. Pending investment in the
securities described above, the proceeds will be held in obligations of the U.S.
Government, its agencies or instrumentalities ("U.S. Government Securities"),
highly rated money market instruments or mutual funds that invest in such
instruments. As a result of this short-term investment of the proceeds, a lower
return may be realized.

INVESTMENT OBJECTIVE AND POLICIES

GENERAL

The Trust's investment objective is to seek long-term capital appreciation
by investing primarily in Healthcare Companies. The Trust's investment objective
is a fundamental policy and may not be changed without the affirmative vote of
the holders of a majority of the Trust's outstanding Shares (as that term is
defined in Section 2(a)(42) of the Investment Company Act). For a more detailed
description of the Trust's investment objective and policies see "Additional
Information about Investments and Investment Techniques" and "Investment
Restrictions" in the SAI. For a description of the risks that may be associated
with an investment in the Trust, see the section of this Prospectus entitled
"Risks."

In an effort to achieve its investment objective, the Trust will invest
primarily in securities of U.S. and foreign companies that are believed by the
Investment Adviser to have significant potential for above-average long-term
growth in revenues and earnings. The Investment Adviser expects that such
companies generally will, in its judgment, possess most of the following
characteristics: (1) current or anticipated strong market position for their
services or products, (2) experienced business management, (3) recognized
technological expertise, and (4) the ability either to generate funds internally
to finance growth or to secure outside sources of capital. For companies with
earnings, the Investment Adviser will attempt to invest in securities that sell
at price-earnings ratios or at multiples of underlying asset values which,
relative to other comparable securities or to the company's growth expectations,
do not fully reflect the company's potential.

The Trust emphasizes investment in securities of emerging growth Healthcare
Companies, some of which may offer limited products or services or which are at
the research and development stage with no marketable or approved products or
technologies. The securities of most emerging growth Healthcare Companies in
which the Trust will invest are expected to be traded in the over-the-counter
market or restricted as to public resale. The Trust may invest up to 40% of its
net assets in Restricted Securities. The Trust may invest in securities of
large, well-known companies with existing products in the healthcare industries
that are believed by the Investment Adviser to be undervalued in relation to
their long-term growth potential or asset value.

The Trust may invest up to 20% of its net assets in Foreign Securities. The
Trust may buy and sell currencies for the purpose of settlement of transactions
in Foreign Securities, but presently does not intend to engage in hedging
operations.

Under normal market conditions, the Trust will invest at least 80% of its
net assets in securities of Healthcare Companies and in no event will have less
than 25% of its net assets so invested. For purposes of satisfying the foregoing
requirements, a company will be deemed to be a Healthcare Company if, at the
time the Trust makes an investment therein, 50% or more of such company's sales,
earnings or assets arise from or are dedicated to healthcare products or
services or medical technology activities. The Trust may also invest in
companies that do not satisfy the above criteria but that are expected by the
Investment Adviser to have 25% or more of sales, earnings or assets arising from
or dedicated to such activities, but investments in such companies will not at
the time of investment exceed 20% of the Trust's net assets. Determinations as
to whether a company is a Healthcare Company will be made by the Investment
Adviser in its discretion. The Trust's 80% policy stated above may not be
changed without 60 days' prior notice to Shareholders.

The equity and related securities in which the Trust may invest consist of
common stock of Healthcare Companies and, to a lesser extent, of preferred
stock, convertible debt, and warrants or other rights to acquire common or
preferred stocks of such companies. The Trust's investments in venture capital
opportunities will be made primarily in convertible preferred stock. The Trust
may also purchase non-convertible debt securities in connection with its venture
capital investments, and otherwise when the Investment Adviser believes that
such investments would be consistent with the Trust's investment objective.
Because of the risk characteristics associated with venture capital investments
for emerging growth companies, such investments may be regarded as highly
speculative.

Investments will not be made in any company with the objective of exercising
control over that company's management. The Trust may make investments
contemporaneously with other venture capital groups that may provide issuers
with significant managerial assistance. The Investment Adviser may also provide
managerial assistance.

The Trust may from time lend its portfolio securities. See "Investment
Techniques."

In addition, the Trust may, to a limited degree, enter into when-issued and
delayed delivery transactions, forward foreign currency contracts and repurchase
agreements. Under normal market conditions, the Trust does not intend to engage
in such practices. See "Risks" and "Investment Techniques."

The Trust also has adopted certain other investment restrictions in an
effort to achieve its investment objective. See "Investment Restrictions" in the
Trust's SAI.

HEALTHCARE INDUSTRIES

Investments in the healthcare industries are likely to continue to be the
principal component of the Trust's portfolio and, except when the Trust assumes
a temporary defensive position, will represent at least 25% of the Trust's net
assets. This predominance reflects the size and diversity of the healthcare
industries.

The healthcare industries constitute a large segment of the U.S. economy.
The U.S. Centers for Medicare and Medicaid Services (CMS) estimate national
healthcare expenditures in 2003 at 15.3% of U.S. Gross Domestic Product (GDP).
This constitutes a 7.8% growth over U.S. healthcare expenditures

in 2002. U.S. GDP is a measure of the total value of all goods and services
produced in the U.S. over the course of a year. CMS estimates that by 2013
healthcare spending is projected to reach $3.4 trillion and 18.4% of U.S. GDP.
While these projections do not reflect the impacts of the Medicare Prescription
Drug, Improvement, and Modernization Act of 2003 (MMA), they serve as a baseline
for health care spending trends over the next 10 years. The Investment Adviser
currently expects there will not be a substantial change in aggregate spending
due to the MMA, but that there will likely be a shift of spending by payers. The
Investment Adviser expects that the largest impacts will begin in 2006 with the
start of the Medicare prescription drug benefit and the increased payments for
Medicare Advantage plans. There will likely be a large shift in prescription
drug spending by payers, from private spending and Medicaid to Medicare. The
Investment Adviser believes that, while the healthcare industries are undergoing
significant change, they serve market sectors that are generally growing at
above-average rates; thus providing potential investment opportunities for the
Trust.

MARKET FORCES IN HEALTHCARE

Markets for healthcare products and services have undergone significant
growth over the last 25 years. Factors contributing to this growth include
demographic shifts tending to a more elderly population and technological
advances which may lead to therapy, or possibly cures, for many disease states
for which there are no currently effective treatments. In addition, the
Investment Adviser believes that worldwide consumer awareness and acceptance of
new and innovative healthcare products continues to rise, stimulating demand,
and that the rate of demographic and technological change may accelerate in the
future, causing certain segments of the business to decline and others to
experience growth. Investments in the companies developing products that benefit
from these market forces may present potentially profitable opportunities.

DEMOGRAPHICS. Demographic changes continue to create new medical
opportunities. It is estimated that by the year 2010 over 13.4% of the U.S.
population will be 65 or older vs. 12.9% in 2002. This segment of the U.S.
population consumes three to four times the healthcare goods and services as the
rest of the U.S. population. Recent developments in the pharmaceutical,
biotechnology, and medical technology industries have produced a series of
products that the Investment Adviser believes have extended or improved, or will
extend or improve, the quality of patients' lives, and as a result are expected
to be commercially successful. The Investment Adviser expects that this will
drive an increase in all types of medical products, from drugs to orthopedic
procedures. Furthermore, the Managed Care Institute expects this trend to drive
Medicare enrollment from 40 million enrollees to an estimated 75-77 million
enrollees by the year 2030. This trend is expected to dramatically increase the
demand for new healthcare services and technologies.

TECHNOLOGY. Advances in the fields of biotechnology, diagnostics, tools and
electronics are enhancing medical applications in existing markets and creating
new markets. These advances have contributed to longevity as well as to an
improved quality of life. Specifically, the Investment Adviser believes that
diagnostic techniques and therapeutic products have significantly changed the
practice of medicine and will continue to do so for the foreseeable future.
Diagnostic techniques have become more sophisticated and accurate. Likewise,
therapeutics are becoming more effective, and as a result of improved
diagnostics, are being utilized at an earlier stage of treatment for many
diseases. Increasingly, new therapeutic products are being developed for
previously diagnosable diseases for which no therapy was available. Once
incurable fatal diseases are now not only being diagnosed earlier, but therapies
that can effect a change in the course of these diseases are now available.

DEMAND. The demographic and technological advancements described above have
both led to significant increases in demand for healthcare products and services
in recent years, and the trend looks to continue. Consumers have become
accustomed to access to a variety of healthcare products and services, and their
awareness of the availability of innovations has increased with the
proliferation

of the internet and direct to consumer advertisements. People expect to live
longer and better than in generations past, and in the opinion of the Investment
Adviser, the demand for such healthcare products and services should remain
strong.

COST CONTAINMENT. The growing cost of providing healthcare has placed
financial strains on the government, employers, and individuals. The goal of
containing cost increases is a double-edged sword. While healthcare inflation
will adversely affect certain segments of the healthcare industries, these
increases also create significant opportunities for new products and services
that enable care to be delivered more effectively in other settings. The
increasing financial pressure caused by the constraints of paying for the rising
demand for healthcare with limited financial resources is a trend that is
expected to continue if not accelerate. For these reasons, the Investment
Adviser favors investments in Healthcare Companies that the Investment Adviser
believes can provide products and services of comparable quality to, but at a
lower cost than, existing products and services; or that can develop more cost
effective technologies, products, and services. Cost containment can be achieved
in a number of ways, including but not limited to: the development of products
and procedures that reduces the number of hospitalizations or the recovery time
from an illness or injury, products and services that result in fewer side
effects than existing treatments, and healthcare delivery facilities and
services which provide treatment or therapy in a less costly environment.

REGULATION. The FDA requires that approvals be obtained before marketing
new products. The approval process can be lengthy, expensive, and uncertain as
to outcome; and, when successful, can create barriers to competition not
generally present in other industries. For companies with established approved
products, these barriers to entry can result in longer and more profitable
product cycles than might otherwise exist. As of March 2004, more than 406
therapeutic products to treat a variety of diseases or conditions have completed
human clinical trials and are awaiting FDA marketing approval, there are
approximately 1,125 products in late stage (Phase III) human clinical trials,
and 9,428 products are in earlier stage trials and pre-clinical development. The
last five years have seen the commercialization of products that have made
incredible advances in treating cancer, rheumatoid arthritis, erectile
dysfunction, psoriasis, multiple sclerosis and depression. In the next five
years, the Investment Adviser anticipates approval of other novel products which
will have a comparable impact in treating such conditions as sleep disorders,
obesity, cardiovascular disease, cancer, and pain. While the appointment of a
new FDA commissioner may generate some uncertainty in the short term, it is the
Investment Adviser's opinion that the trend of recent years towards more rapid
and greater total number of approvals, may improve.

The Investment Adviser believes that the FDA and CMS will continue to look
for creative ways of bringing novel and safe drugs to the market faster, and to
make them available to more people. In the very recent past, the FDA has made a
number of changes to its requirements for drug development that the Investment
Adviser believes create new opportunities for investment by the Trust. For
example, the FDA's continued and even enhanced record of targeting breakthrough
therapeutics for approval provides an investment opportunity. The Investment
Adviser has already taken advantage of this trend and will continue to do so.
Another regulatory change that should bode well for the approval process is the
recently developed FDA special protocol assessment (SPA) development route for
biologics. This approach allows sponsoring companies to obtain a binding a
priori agreement with the FDA on the approvability of a clinical trial before
that trial is completed. The Investment Adviser thinks this approach adds a
level of clarity and direction that drug and biotech companies should be able to
parlay into well-executed clinical trials that are designed around the endpoints
the FDA needs to make an educated and informed decision. The Investment
Adviser's experience and expertise in evaluating clinical trial design lends
itself well to these FDA changes. The Investment Adviser also anticipates that
the FDA will define a path for approval of generic biologics as there is
uncertainty in this path at the current time. Once an approved approach is
defined, the Investment Adviser believes a number of pharmaceutical and
biotechnology companies will take advantage. The experience of the Investment

Adviser's staff in this area will allow the Investment Adviser to capitalize on
this opportunity on behalf of the Trust.

PATENTS. Many companies in the healthcare industries are developing
innovative technologies for commercial products which may receive patent
protection. The granting of a patent may result in an extensive period of market
exclusivity and protection against competition, allowing the patent holder to
realize several years of high returns from product sales or royalty revenues.
Such proprietary intellectual property positions may act as barriers to
competition and may also increase the possibility that any acquisition of such a
company would be at a premium over its public or private valuation.

INDUSTRY FRAGMENTATION. Approximately 2,100 publicly-traded companies, as
well as many private companies, compete in the worldwide healthcare markets
today. The Investment Adviser believes that none of the industries within these
markets are considered to be dominated by any one company or small group of
companies, although certain companies may dominate a particular product segment.
This industry fragmentation enhances the growth opportunities for both publicly
and privately held companies, and increases the number and diversity of
investment opportunities available to the Trust. The Investment Adviser also
believes that the growth, size and fragmentation of the healthcare industries
will continue to encourage entrepreneurial activity in spite of cost containment
trends and thereby provide a broad range of attractive venture capital
investment opportunities. In addition, mergers and acquisitions for access to
technology or to gain perceived critical size may also provide opportunities for
capital gains.

INTERNATIONALIZATION. The healthcare industries have become increasingly
internationalized. U.S. companies compete on a large scale in the markets of the
European Union and Japan, which are the two principal non-U.S. healthcare
markets. To a lesser extent, European and Japanese companies have increased
their competition for U.S. markets. The Investment Adviser intends to continue
to consider making public and private investments in Foreign Securities of
Healthcare Companies, subject to the Trust's investment policies.

SECTORS WITHIN HEALTHCARE

In addition to the kinds of companies and products in which the Trust has
already invested, the Investment Adviser sees great promise from several
developing trends. Among others, the Investment Adviser sees tremendous
potential in the areas of (1) generic pharmaceuticals, (2) specialty
pharmaceuticals, (3) biotechnology, (4) medical devices, (5) diagnostics,
(6) disease management, and (7) managed healthcare. A major benefit to the
Trust's Shareholders from the Offer is expected to be the Trust's ability to
incrementally invest in additional companies on the forefront of these
developing trends. The following categories illustrate some of the sectors in
which Healthcare Companies operate, and some of the sectors which may be of
interest to the Trust:

GENERIC PHARMACEUTICALS. The U.S. generic drug industry is $15 billion in
size and according to numbers from the GPhA, this number is expected to more
than double to $38 billion by 2010. This growth has been driven by a number of
factors, the most important of which has been the utilization of generic drugs
as a low cost alternative. One recently published statistic by the Managed Care
Institute showed that a 1% increase in generic drug utilization could generate
savings to healthcare payors of $1.2 billion each year. The Investment Adviser
believes that the increased utilization of generic drugs will continue to gain
momentum to offset rapidly growing drug expenditures.

While costs savings has motivated the success of generics to this point, the
Investment Adviser believes it is other growth drivers that will motivate us to
increase exposure to the generic drug space going forward. For starters, the
Investment Adviser sees a more aggressive approach by the generic drug
manufacturers to file for generic alternatives. This has led to an increase in
the number of new ANDAs being filed to over 358 that exist as of March 2004. The
Investment Adviser also sees a "more kind and gentle" FDA attitude towards the
generic drug companies as exemplified by a median approval time that has dropped
nearly nine months in the last eight years. Finally, the Investment Adviser
expects over 170 drugs to go off patent over the next few years with branded
product sales of close to $40 billion. While these numbers are subject to a
number of factors including patent disputes, the genericization of these
products would double the size of the generic market, making it the fastest
growing pharmaceutical sector in healthcare.

SPECIALTY PHARMACEUTICALS. The specialty pharmaceutical sector is evolving
into a sector that the Investment Adviser believes will be a high growth area of
the healthcare industry and a key component to our portfolio. Early in the
evolution of this sector, specialty pharmaceuticals were used to describe
companies built around drug delivery systems or companies which focused on
acquiring old and under-promoted products. The business models of these
companies were characterized by low margin, commoditized products, and
out-licensing agreements that yielded single digit royalty streams.

Today, these companies are migrating to higher value proprietary models.
Drug delivery companies are taking existing, validated molecules and using their
delivery systems, including oral, transdermal, and sustained release approaches,
to supersede intravenous, injectable or multiple dose a day regimens. The
companies pursuing this life cycle extension strategy are improving therapy not
only through greater patient compliance with prescription directions but also by
improved administration of consistently efficacious quantities of the compound.
Companies pursuing the acquisitive business model are looking to in-license
later-staged products, developing R&D budgets, expanding their sales forces and
competing head to head with biotech and pharmaceuticals in niche markets. In
both cases, these companies are characterized by low risk R&D strategies that
are using validated targets, which typically means new drugs can reach the
market faster. Furthermore, the highly targeted marketing approach complementing
the niche product strategy is able to provide these specialty pharmaceutical
companies with big pharmaceutical-like margins which ensure a high value, high
profit business model. As a result, the Investment Adviser believes the
specialty pharmaceuticals market will offer superior market returns.

BIOTECHNOLOGY. Biotechnology firms employ new techniques, such as
monoclonal antibodies, recombinant DNA, molecular structure analysis, and
genomics to produce novel therapeutic and diagnostic products. Advances in
molecular biology and the screening of compounds of possible utility have the
potential to materially enhance the process of discovering useful new
therapeutic products and to shorten the development period for, and reduce the
cost of developing, such products. As biotechnology evolves from a research and
development stage to a commercial stage, these techniques and products will have
the potential to expand existing markets and to create new ones. Public equity
markets have provided substantial capital to the biotechnology industry, and a
large number of major corporations have provided capital through significant
acquisitions, equity investments and in connection with product license
agreements. Federal government support of biotechnology research has contributed
significantly to the invention and development of "break-through" products.

As an example, the Investment Adviser will consider investments in
biotechnology companies developing novel drugs from known or novel targets. In
this area, the Investment Adviser believes that the use of genomic approaches
will continue to allow us to identify and clinically validate new molecular
targets. Most existing drugs work by interacting with a relatively small number
of target molecules in the body. The genomic era of the last five to ten years
has identified thousands of new potential targets through which new and novel
medicines might be able to beneficially intervene in disease processes,
particularly in cancer. The recent approvals of Avastin-TM- (anti-VEGF) and
Velcade-TM- (proteosome inhibitor) are examples of approved drugs that address
new targets. In addition, the

Investment Adviser sees potential in the use of immuno-stimulation to help
manage cancer. The Investment Adviser also sees continued development of
monoclonal antibodies for oncology indications. Such antibodies are being
developed today with and without specific cell toxins or payloads. The recent
approvals of Rituxan-TM- and Bexxar-TM- and the clinical advancement of several
drugs, which target the EGFR receptor, are a few examples. In the area of target
selection, the Investment Adviser sees increased use of structural biology,
pathways analysis, imaging technology, and biomarker development. The Investment
Adviser also expects newer approaches to chemistry based on increased target
understanding. In sum, this area presents a tremendous opportunity for expanded
investments by the Trust.

MEDICAL DEVICES. Novel medical technology is typically thought to include
products used in healthcare other than pharmaceuticals. Products range from
crutches to spine implants to drug-eluting stents to robotic surgical
instruments. Overall, the medical technology sector is a market totaling more
than $200 billion which accounts for approximately 15% of all dollars spent in
healthcare--more money than is spent on all pharmaceuticals and biotechnology
products combined. However, despite the size of this sector, the Investment
Adviser sees the medical technology market as a young sector with many future
investment opportunities. This is exemplified by the fact that currently
two-thirds of the publicly-traded medical technology companies have market
capitalizations of under $200 million. The Investment Adviser's investments
include companies of this size. Many of these small market capitalization
medical technology companies are on the cusp of launching key products that will
validate their business models and drive significant growth. The Investment
Adviser believes that medical technology companies may produce solid investment
returns that are less susceptible to fluctuations in general market conditions
which affect big pharmaceuticals, healthcare services, and biotechnology.

DIAGNOSTICS. The accuracy, sophistication and cost effectiveness of
diagnosis has improved dramatically through imaging systems, such as ultrasound
and magnetic resonance imaging (MRI) and Positron Emission Tomography (PET), as
well as through improved chemical and biological tests. Many of the new systems
and supplies are or will likely be available to the patient directly or at a
physician's office, as well as in the hospital or independent laboratory. These
innovations generally increase the likelihood of earlier diagnosis and more
efficacious and cost effective treatment. Under development are new contrast
agents to enhance the output from virtually all imaging modalities, which are
being further improved by innovative computer software that prepare data for
display. Advances in genetic testing are expected to improve the ability to
treat diseases at earlier stages and to identify those people that may have a
greater than average chance of contracting certain diseases. The Investment
Adviser believes these current and potential advances may increase demand for
diagnostic products.

DISEASE MANAGEMENT. As healthcare costs spiraled in the 1980's, the
industry turned to managed care companies to minimize the excess administrative
burden of the cost plus model. During the evolution of managed care, it began to
rely on information technology to help manage the increasingly complex
relationships and growing number of "transactions" between patient, provider,
and payor. As healthcare services continue to evolve, new tools will be
required. Today people are living longer and want to live better lives. This
suggests that these individuals will both remain in the healthcare system longer
as well as utilize more services while a part of the healthcare system. The
Managed Care Institute expects Medicare enrollment to increase from 40 million
enrollees to between 75-77 million enrollees by 2030. The Investment Adviser
believes this trend will increase the demand for new healthcare services and
technologies focused on maximizing the benefit of every healthcare dollar spent.
Creative disease management programs to manage high risk populations could be
implemented by large employers and other healthcare providers. New diagnostic
devices and medical devices that improve overall wellness, and quality of life
will become popular with the graying of America. Other services of healthcare
with a focus on cutting unnecessary costs will be focused on the better
management of information, particularly such areas as claims processing, patient
management direct costs and quality

control, and ultimately automation of patient records. The Investment Adviser
expects that these areas will receive increased emphasis in the portfolio in the
future.

MANAGED HEALTHCARE. Many varieties of companies are engaged directly or
indirectly in the delivery of healthcare to patients, including hospitals,
nursing homes, inpatient and outpatient rehabilitation services and therapeutic
services delivered to the home. The Investment Adviser believes that healthcare
cost containment efforts will continue to reduce revenues to acute care
hospitals and promote the delivery of therapy in other more efficient settings.
These trends should enhance the delivery of increasingly sophisticated care at
home, and the potential of outpatient surgery and rehabilitation and of
specialized free-standing facilities. The Investment Adviser also believes that
cost pressures will, however, increasingly negatively impact many of such
providers, and investment in these sectors is currently relatively underweighted
in the portfolio. However, some sectors may benefit from these trends. In
general, such companies are able simultaneously to improve quality and reduce
the cost of care.

Completion of the Offer will allow the Trust to continue to invest in and/or
own securities of the companies in which it has already invested and still take
advantage of these developing trends. Without completing the Offer, the Trust
would likely have to choose between maintaining some of its existing investments
and investing in companies which will take advantage of the developing trends.

OTHER

The Trust may also invest in companies and industries that are benefiting
from the growth of healthcare industries. These companies may include real
estate investment trusts (REITs) which derive their income from the ownership,
leasing, or financing of healthcare facilities, manufacturers of nutritional
products, and key suppliers of services or equipment.

Significant declines in the stock prices of many companies in the healthcare
industries have constrained the ability of some private companies to raise
capital to finance their growth and fund research. The Investment Adviser
continues to believe that this presents opportunities, especially in its venture
capital investing. In addition, shares of many publicly-traded Healthcare
Companies also appear to be trading at attractive valuations when compared to
stocks of companies in other industries.

RISKS

An investment in the Shares of the Trust involves a high degree of risk. You
should carefully consider the following risk factors in addition to the other
information set forth in this Prospectus. For additional information of the
risks that may be associated with an investment in the Trust, see "Additional
Information About Investments and Investment Techniques" in the SAI.

Because the Trust intends to invest substantially all of its assets in
equity securities of Healthcare Companies, you should be aware of certain
special considerations and risk factors relating to investments in such
companies. No assurance can be given that Healthcare Companies will grow, that a
sufficient number of appropriate investments will be available or that the
Trust's particular investment choices will be successful. You should also be
aware of considerations and risks relating to the Trust's investment practices.
You should not consider an investment in the Trust by itself to be a balanced
investment program. An investment in the Trust should be treated as a way to
provide diversification as part of a more complete investment program. The Trust
is intended for long-term investors not seeking current income. You should
carefully consider your ability to assume the risks described below before you
make an investment in the Trust. An investment in Shares of the Trust is not
appropriate for all investors.

DILUTION OF NAV AND EFFECT OF NON-PARTICIPATION IN THE OFFER

As a result of the terms of the Offer, Shareholders who do not fully
exercise their Rights, including the Over-Subscription Privilege, will, at the
completion of the Offer, own a smaller proportional interest in the Trust than
they owned before the Offer and will experience a dilution of NAV. Because the
Subscription Price will be less than the then-current NAV, all Shareholders will
experience an immediate dilution of NAV as a result of the Offer whether or not
they exercise some or all of their Rights. Because it is not known at this time
how many Shares will be subscribed for or what the Subscription Price will be,
it is not possible to state precisely the amount of dilution you may experience.
However, the dilution could be significant. For example, if the assumed
Subscription Price is $ , representing a market price which is only 90% of
NAV, assuming that all Rights are exercised in the Primary Subscription and no
Shares are issued pursuant to the Over-Subscription Privilege, the Trust's NAV
would be reduced by approximately $ per Share or approximately % of
NAV. The actual Subscription Price may be greater or less than the Subscription
Price assumed above. The example assumes an NAV of $ per Share, based on
the Trust's NAV after the close of trading on Wednesday, May 26, 2004. Since
April 22, 1987 (commencement of operations), Shares of the Trust have traded at
various times at, above and below the NAV.

MARKET RISK

As with any investment company that invests in equity securities, the Trust
is subject to market risk--the possibility that the prices of equity securities
will decline over short or extended periods of time. As a result, the value of
an investment in the Trust's Shares will fluctuate with the market. You could
lose money over short or long periods of time.

SELECTION RISK

Different types of equity securities tend to shift into and out of favor
with investors, depending on market and economic conditions. The performance of
funds that invest in healthcare industry equity securities may at times be
better or worse than the performance of funds that focus on other types of
securities or that have a broader investment style.

CONCENTRATION IN THE HEALTHCARE INDUSTRIES

Under normal market conditions, the Trust expects to invest primarily in
securities of Healthcare Companies representing a finite number of industries.
The Trust will not have less than 25% of its net assets invested in Healthcare
Companies. As a result, the Trust's portfolio may be more sensitive to, and
possibly more adversely affected by, regulatory, economic or political factors
or trends relating to the healthcare, agricultural and environmental technology
industries than a portfolio of companies representing a larger number of
industries. This risk is in addition to the risks normally associated with any
strategy seeking capital appreciation by investing in a portfolio of equity
securities. As a result of its concentration policy, the Trust's investments may
be subject to greater risk and market fluctuation than a fund that has
securities representing a broader range of investments.

Healthcare Companies have in the past been characterized by limited product
focus, rapidly changing technology and extensive government regulation. In
particular, technological advances can render an existing product, which may
account for a disproportionate share of a company's revenue, obsolete. Obtaining
governmental approval from agencies such as the FDA for new products can be
lengthy, expensive and uncertain as to outcome. Such delays in product
development may result in the need to seek additional capital, potentially
diluting the interests of existing investors such as the Trust. In addition,
governmental agencies may, for a variety of reasons, restrict the release of
certain innovative technologies of commercial significance. These various
factors may result in abrupt advances

and declines in the securities prices of particular companies and, in some
cases, may have a broad effect on the prices of securities of companies in
particular healthcare industries.

While a concentration of investments in any healthcare industry or in
Healthcare Companies generally may increase the risk and volatility of an
investment company's portfolio, the Trust will endeavor to reduce risk by having
a portfolio of investments that is diversified within its stated objective and
policies. Such volatility is not limited to the biotechnology industry, and
companies in other industries may be subject to similar abrupt movements in the
market prices of their securities. No assurance can be given that future
declines in the market prices of securities of companies in the industries in
which the Trust may invest will not occur, or that such declines will not
adversely affect the NAV or the price of the Shares.

Intense competition exists within and among certain healthcare industries,
including competition to obtain and sustain proprietary technology protection.
Healthcare Companies can be highly dependent on the strength of patents,
trademarks and other intellectual property rights for maintenance of profit
margins and market exclusivity. The complex nature of the technologies involved
can lead to patent disputes, including litigation that could result in a company
losing an exclusive right to a patent. Competitors of Healthcare Companies,
particularly of the emerging growth Healthcare Companies that the Trust
emphasizes, may have substantially greater financial resources, more extensive
development, manufacturing, marketing and service capabilities, and a larger
number of qualified managerial and technical personnel. Such competitors may
succeed in developing technologies and products that are more effective or less
costly than any that may be developed by Healthcare Companies in which the Trust
invests and may also prove to be more successful in production and marketing.
Competition may increase further as a result of potential advances in health
services and medical technology and greater availability of capital for
investment in these fields.

With respect to healthcare, cost containment measures already implemented by
the federal government, state governments and the private sector have adversely
affected certain sectors of these industries. There is increasing discussion at
all levels of government, as to how to extend health insurance coverage to the
millions of people in the U.S. who are currently uninsured while also
restraining the growth of total healthcare expenditures. The implementation of
any of the measures under discussion may create increased demand for healthcare
products and services but also may have an adverse effect on some companies in
the healthcare industries. No assurance can be given that healthcare reform
legislation will be enacted or, if enacted, as to its ultimate form. Increased
emphasis on managed care in the United States may put pressure on the price and
usage of products sold by Healthcare Companies in which the Trust may invest and
may adversely affect the sales and revenues of Healthcare Companies.

Product development efforts by Healthcare Companies may not result in
commercial products for many reasons, including, but not limited to, failure to
achieve acceptable clinical trial results, limited effectiveness in treating the
specified condition or illness, harmful side effects, failure to obtain
regulatory approval, and high manufacturing costs. Even after a product is
commercially released, governmental agencies may require additional clinical
trials or change the labeling requirements for products if additional product
side effects are identified, which could have a material adverse effect on the
market price of the securities of those Healthcare Companies.

Certain Healthcare Companies in which the Trust may invest may be exposed to
potential product liability risks that are inherent in the testing,
manufacturing, marketing and sale of pharmaceutical, medical device or other
products. There can be no assurance that a product liability claim would not
have a material adverse effect on the business, financial condition or
securities prices of a company in which the Trust has invested.

All of these factors may cause the value of the Trust's Shares to fluctuate
significantly over relatively short periods of time.

INVESTMENT IN EMERGING GROWTH COMPANIES

The Trust emphasizes investment in equity securities of emerging growth
Healthcare Companies. While these securities offer the opportunity for
significant capital gains, such investments also involve a degree of risk that
can result in substantial losses. Some of the Healthcare Companies in which the
Trust may invest are expected to be companies that are in a "start-up" stage of
development, have little or no operating history, operate at a loss or with
substantial variations in operating results from period to period, have limited
products, markets, financial resources or management depth, or have the need for
substantial additional "follow-on" capital to support expansion or to achieve or
maintain a competitive position. Some of these Healthcare Companies may be
emerging companies at the research and development stage with no marketable or
approved products or technology. There can be no assurance that securities of
start-up or emerging growth companies will, in the future, yield returns
commensurate with their associated risks.

LIQUIDITY OF PORTFOLIO INVESTMENTS

The Trust may invest substantially all of its net assets in securities of
emerging growth Healthcare Companies that are traded in the over-the-counter
market or on regional stock exchanges where the low trading volume of a
particular security may result in abrupt and erratic price movements. An
investment in such securities may have limited liquidity, and the Trust may find
it necessary to sell at a discount from recent prices or to sell over extended
periods of time when disposing of such securities. In addition, the Trust may
invest up to 40% of its net assets in Restricted Securities, which by their
terms are illiquid because they are subject to legal or contractual restrictions
on resale. The Trust cannot sell Restricted Securities except in a public
offering registered under the Securities Act or pursuant to an exemption from
registration under the Securities Act, including a transaction in compliance
with Rule 144 under the Securities Act. Rule 144 permits only limited sales
under specified conditions unless the Trust has held the securities for at least
two years and is unaffiliated with the issuer. Restricted Securities are
expected to include venture capital investments that may take many years from
the date of initial investment to reach a state of maturity when public
disposition can be considered. Adverse conditions in the securities markets at
certain times may preclude a public offering of an issuer's unregistered
securities. The lack of an active secondary market and resale restrictions may
result in the inability of the Trust to sell a security at a fair price and may
substantially delay the sale of a security that the Trust seeks to sell.
Companies whose securities are not publicly-traded are also not subject to the
same disclosure and other legal requirements as are applicable to companies with
publicly-traded securities. Restricted Securities eligible for resale to
qualified institutional buyers pursuant to Rule 144A under the Securities Act
are subject to the 40% limitation described above.

VALUATION OF VENTURE CAPITAL INVESTMENTS AND RESTRICTED SECURITIES

Since there is typically no readily available market value for the venture
capital investments and some of the Restricted Securities in the Trust's
portfolio, venture capital investments and some Restricted Securities in the
Trust's Portfolio are valued substantially at fair value as determined in good
faith by the Board of Trustees pursuant to a valuation policy and a consistently
applied valuation process. Because of the inherent uncertainty of determining
the fair value of investments that do not have a readily available market value,
the fair value of the Trust's investments determined in good faith by the Board
of Trustees, or in accordance with valuation procedures approved by the Board of
Trustees, may differ significantly from the values that would have been used had
a ready market existed for the investments, and the differences could be
material. There is no single standard for determining fair value in good faith.
As a result, determining fair value requires that judgment be applied to the
specific facts and circumstances of each portfolio investment while employing a
consistently applied valuation process for the types of investments the Trust
makes.

Some of the Trust's investments are subject to restrictions on resale and
generally have no established trading market. Because of the type of investments
that the Trust makes and the nature of its business, the valuation process
requires an analysis of various factors. The Trust's fair value methodology
includes the examination of, among other things, the underlying investment
performance, financial condition, and market changing events that impact
valuation.

FOREIGN SECURITIES

The Trust may invest up to 20% of its net assets in Foreign Securities.
Foreign Securities may be less liquid and have prices that are more volatile
than securities of comparable U.S. companies. Foreign stock exchanges and
brokers are generally subject to less governmental supervision and regulation
than U.S. exchanges and brokers, and commissions on foreign stock exchanges are
generally higher than negotiated commissions in the U.S. Sometimes there are
delays in the settlement of transactions effected in foreign markets. Certain
countries restrict foreign investments in their securities markets. These
restrictions may limit or prohibit investment in certain countries or in certain
industries or market sectors, or may increase the cost of investing in
securities of particular companies.

Foreign companies are not generally subject to uniform accounting, auditing
and financial reporting standards or to other regulatory requirements comparable
to those applicable to U.S. companies. There may be less available information
concerning non-U.S. issuers of securities held by the Trust than is available
concerning U.S. companies. In some foreign countries, nationalization,
expropriation, confiscatory taxation or establishment of exchange controls are
possible. Income earned in a foreign nation may be subject to taxation
(including withholding taxes on interest and dividends), or other taxes may be
imposed on investments in Foreign Securities. Other risks associated with
investments in Foreign Securities include difficulties in pursuing legal
remedies and obtaining judgments in foreign courts, political or social
instability and diplomatic developments that could adversely affect the Trust's
investments in companies located in foreign countries. An investment in Foreign
Securities may also involve a degree of currency risk.

KEY PERSONNEL

Investment decisions on behalf of the Trust are made by a team of
individuals. Some members of the group have experience in financial analysis of
public and private companies. Others have deep scientific backgrounds and
considerable operating experience in biotechnology and/or pharmaceutical
companies. Still others have medical degrees. The Investment Adviser believes
that the investment process benefits from a considered evaluation of potential
investments by a group containing a variety of specialized backgrounds. The team
currently in place is composed of members with a variety of specialized
backgrounds. The Investment Adviser believes that no single individual in the
group is individually critical but believes that the overall capability is key.
There may be only a limited number of professionals who have, in total,
comparable relevant experience to that of the current group. If one or more team
members dies, resigns, retires or is otherwise unable to act on behalf of the
Investment Adviser, there can be no assurance that a suitable replacement could
be found immediately.

DIVERSIFIED STATUS

The Trust operates as a "diversified" management investment company, as
defined in the Investment Company Act. Under this definition, at least 75% of
the value of the Trust's total assets must, at the time of investment, consist
of cash and cash items (including receivables), U.S. Government securities,
securities of other investment companies, and other securities limited in
respect of any one issuer to an amount not greater in value than 5% of the value
of the Trust's total assets and to not more than 10% of the voting securities of
a single issuer. This limit does not apply, however, to 25% of the Trust's
assets, which may be invested in a single issuer. Notwithstanding its
diversified status, the Trust may, from time to time, concentrate its
investments in a few issuers and take large

positions in those issuers, consistent with being a "diversified" investment
company. As a result, the Trust may be subject to a greater risk of loss than an
investment company that diversifies its investments more broadly. Taking larger
positions is also likely to increase the volatility of the Trust's net asset
value reflecting fluctuation in the value of its large holdings.

DISCOUNT TO NAV

The Shares are listed on the New York Stock Exchange under the symbol "HQH."
The shares of closed-end investment companies frequently trade at a discount to
NAV but may trade at a premium. This is characteristic of shares of a closed-end
fund and is a risk separate and distinct from the risk of a decline in the NAV
as a result of a fund's investment activities. Because of this factor and the
nature of the Trust's investment objective and policies, the Trust is designed
primarily for long-term investors and should not be considered a vehicle for
trading purposes. Since its initial public offering in April 1987, Shares have
traded at various times at both a discount and a premium to NAV. The risk that
the Shares may trade at a discount to NAV may be greater for investors expecting
to sell their Shares in a relatively short period of time. Since the inception
of the Trust in April 1987, the longest consecutive period during which the
Shares of the Trust traded at discount to NAV was 9.5 years and the longest
consecutive period during which Shares of the Trust traded at a premium to NAV
was 387 days. The Trust cannot predict whether the Shares will trade in the
future at, above or below NAV.

DECLARATION OF TRUST

The Trust's Declaration of Trust has provisions that could have the effect
of limiting the ability of other entities or persons to (1) acquire control of
the Trust, (2) cause it to engage in certain transactions or (3) modify its
structure. The Board is divided into three classes, each having a term of three
years. Each year the term of office of one class will expire: Robert P. Mack,
M.D., Eric Oddleifson and Oleg M. Pohotsky will continue in office until 2004,
Henri A. Termeer will continue in office until 2005, and Daniel R. Omstead,
Eng.ScD., Lawrence S. Lewin and Uwe E. Reinhardt, Ph.D. will continue in office
until 2006. This provision could delay for up to two years the replacement of a
majority of the Board. A Trustee may be removed from office by Shareholders only
by a vote of two-thirds of the outstanding Shares of the Trust. Subject to the
requirements of the Investment Company Act, vacancies on the Board of Trustees
may be filled by the remaining Trustees for the balance of the term of the
class.

When a Principal Shareholder (as defined below) is a Party to the
transaction, the affirmative vote or consent of the holders of 75% of the
Trust's Shares outstanding and entitled to vote will be required to authorize
any of the following types of transactions:

(i) the merger or consolidation of the Trust with or into any Principal
Shareholder;

(ii) the issuance of any securities of the Trust to any Principal
Shareholder for cash (except pursuant to any cash dividend reinvestment
program available to all Shareholders and approved by the Trustees);

(iii) the sale, lease or exchange of all or a substantial part of the assets
of the Trust to or with any Principal Shareholder (except assets having
an aggregate fair market value of less than $1,000,000, aggregating for
the purpose of such computation all assets sold, leased or exchanged in
any series of similar transactions within a 12-month period); or

(iv) the sale or lease to the Trust, in exchange for securities of the
Trust, of any assets of any Principal Shareholder (except assets having
an aggregate fair market value of less than $1,000,000, aggregating for
the purpose of such computation all assets sold, leased or exchanged in
any series of similar transactions within a 12-month period).

However, such 75% vote or consent will not be required with respect to the
foregoing transactions where the Board approves by resolution a memorandum of
understanding with the Principal Shareholder with respect to and substantially
consistent with such transaction. For this purpose, a "Principal Shareholder" is
any corporation, person or other entity which is the beneficial owner, directly
or indirectly, of more than five percent (5%) of the outstanding Shares or any
"affiliate" or "associate" (as those terms are defined in Rule 12b-2 of the
General Rules and Regulations under the Securities Exchange Act of 1934 as in
effect on April 21, 1987) of a Principal Shareholder. In addition to the Shares
which a corporation, person or other entity beneficially owns directly, (a) any
corporation, person or other entity shall be deemed to be the beneficial owner
of any Shares (i) which it has the right to acquire pursuant to any agreement or
upon exercise of the conversion rights or warrants, or otherwise (but excluding
share options granted by the Trust) or (ii) which are beneficially owned,
directly or indirectly (including Shares deemed owned through application of
clause (i) above), by any other corporation, person or entity with which it or
its affiliate or associate has any agreement, arrangement or understanding for
the purpose of acquiring, holding, voting or disposing of Shares, or which is
its affiliate or associate, and (b) the outstanding Shares shall include Shares
deemed owned through application of clauses (i) and (ii) above but shall not
include any other Shares which may be issuable pursuant to any agreement, or
upon exercise of conversion rights or warrant, or otherwise.

These provisions could have the effect of depriving Shareholders of an
opportunity to sell their Shares at a premium over prevailing market price by
discouraging a third party from seeking to obtain control of the Trust in a
tender offer or similar transaction. The Board has determined that the 75%
voting requirements described above, which are greater than the minimum
requirements under state law or the Investment Company Act, are in the best
interests of the Shareholders.

REPURCHASE OF SHARES

You may dispose of your Shares on the NYSE or other markets on which the
Shares may trade, but because the Trust is a closed-end investment company, you
do not have the right to redeem your Shares. The Trustees, however, intend to
consider, from time to time, but not less frequently than annually, the
desirability of open market purchases or tender offers. Any Share repurchases
will be made in accordance with the applicable provisions of the Investment
Company Act and Massachusetts law in open market transactions. Shares
repurchased by the Trust will be held in its treasury. Although the Trust has no
present intention of doing so, it reserves the right to incur debt to finance
such repurchases or tender offers, provided that it will not repurchase
securities during the periods when it has outstanding borrowings in excess of 5%
of its net assets. Interest on any borrowings to finance Share repurchase
transactions will increase the Trust's expenses and will reduce the Trust's net
income. There can be no assurance that Share repurchases, if any, will cause the
Shares to trade at a price equal to or in excess of their net asset value.
Nevertheless, the possibility that a portion of the Trust's outstanding Shares
may be the subject of repurchases may reduce the spread between market price and
net asset value that might otherwise exist. The Trust may not repurchase Shares
except (i) on a securities exchange and after notification to Shareholders of
its intent to purchase Shares within the six months preceding the purchase,
(ii) pursuant to a tender offer to all Shareholders, or (iii) as otherwise
permitted by the Commission. Any related interest charges will be paid by the
Trust and borne pro rata by the Shareholders indirectly through their interest
in the Trust.

If the Trust repurchases its Shares for a price below their NAV, the NAV of
those Shares that remain outstanding would be enhanced, but this does not
necessarily mean that the market price of those outstanding Shares would be
affected, either positively or negatively. There is no assurance that any action
undertaken to repurchase Shares will result in the Shares trading at a price
which approximates net asset value. Repurchases of Shares by the Trust would
also decrease its total assets and accordingly may increase its expenses as a
percentage of average net assets. Further, interest on

any borrowings to finance any such share repurchase transactions would reduce
the Trust's net income. The Trust has no current plans to repurchase its Shares.

RELATED PARTY TRANSACTIONS

The majority of the Board is unaffiliated with the Investment Adviser;
nevertheless, the Trust may be subject to certain potential conflicts of
interest. Although the Trust has no obligation to do so, it may place brokerage
orders with brokers who provide supplemental investment research and market and
statistical information about the healthcare industries. In addition, other
investment companies advised by the Investment Adviser may concurrently invest
with the Trust in Restricted Securities under certain conditions. The Investment
Adviser may also provide managerial assistance to issuers of securities in which
the Trust invests.

The Trust also may invest, subject to applicable law, in companies in which
the principals of the Investment Adviser or Trustees of the Trust have invested,
or for which they serve as directors or executive officers. The Investment
Company Act prohibits the Trust from engaging in certain transactions involving
its "affiliates," including, among others, the Trust's Trustees, officers and
employees, the Investment Adviser and any "affiliates" of such affiliates except
pursuant to an exemptive order or the provisions of certain rules under the
Investment Company Act. In the view of the staff of the Commission, other
investment companies advised by the Investment Adviser may, in some instances,
be viewed to be affiliates of the Trust. Such legal restrictions and delays and
costs involved in obtaining necessary regulatory approvals may preclude or
discourage the Trust from making certain investments and no assurance can be
given that any exemptive order sought by the Trust will be granted.

INVESTMENT TECHNIQUES

In addition to the investment practices described above, the Trust may
utilize the following investment practices:

MONEY MARKET INSTRUMENTS

When, in the opinion of the Investment Adviser, adverse market conditions or
industry expectations support such action, the Trust may, for temporary
defensive purposes, invest up to 75% of its net assets in money market
instruments. The Trust may also invest in money market instruments in advance of
a pending investment. To the extent that the Trust assumes a temporary defensive
position or otherwise invests in short-term obligations, it may not achieve its
investment objective and will not participate in the capital appreciation, if
any, of securities in which the Trust would normally invest.

Money market instruments in which the Trust may invest include certificates
of deposit and bankers' acceptances issued by domestic branches of
federally-insured U.S. banks and savings and loan associations and commercial
paper and high and upper medium grade corporate debt securities rated, as of the
date of purchase, among the following rating categories of the indicated rating
service: bonds--Moody's Aaa, Aa or A; S&P AAA, AA or A; notes--Moody's MIG-1,
MIG-2 or MIG-3; S&P SP-1+ or SP-2; commercial paper--Moody's P-1; S&P A-1. The
Trust also may invest in shares of money market mutual funds that invest in
money market instruments and U.S. Government securities. Money market mutual
funds are investment companies and the Trust's investments in those companies
are subject to certain limitations. As a shareholder in money market mutual
funds, the Trust will bear its ratable share of such companies' expenses,
including investment advisory or management fees, and will remain subject to the
payment of fees to the Investment Adviser. U.S. Government securities are
obligations of the U.S. Government and its agencies and instrumentalities. U.S.
Government securities may or may not be guaranteed by the full faith and credit
of the U.S. Treasury, and there can be no

assurance that the U.S. Government would assure payment on securities not
directly guaranteed by the full faith and credit of the U.S. Treasury.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Trust may purchase securities on a "when issued" basis or a "delayed
delivery" basis. A "when issued" basis refers to a transaction involving
securities that have been authorized but have not yet been issued. A delayed
delivery transaction is one in which a contract to purchase or sell a security
is agreed upon at a fixed price in the future at a date beyond the customary
settlement period. When-issued and delayed delivery transactions involve the
risk that the value of the securities involved may change before they are
delivered to the Trust. In addition, the counterparty could fail to perform its
part of the contract by failing to buy from or sell to the Trust as previously
agreed.

REPURCHASE AGREEMENTS

A repurchase agreement allows the Trust to buy a security on an agreement
with the seller in which the seller agrees to buy back the security, with
interest, at a later date. It is the Trust's present intention to enter into
repurchase agreements for a relatively short period (usually not more than one
week) only with commercial banks and registered broker-dealers and only with
respect to U.S. Government securities and money market instruments. A repurchase
agreement involves the risk that the seller could be unable or unwilling to
honor its commitment to repurchase the securities, in which case the Trust would
suffer a loss.

LOANS OF PORTFOLIO SECURITIES

In an attempt to make productive use of its assets, the Trust may lend its
portfolio securities on a short-term basis, subject to the limitation that the
Trust will not lend a security if, as a result of such loan, all securities then
subject to loans would exceed 20% of the Trust's net assets. In the event that
the Trust invests the cash collateral from such loans of portfolio securities,
the Trust may realize additional gains or losses. Lending portfolio securities
involves the risk that the borrower could fail to return the securities
borrowed, in which case the Trust could suffer a loss.

HEDGING

In order to hedge against changes in the value of its portfolio securities,
the Trust may from time to time engage in certain hedging strategies. The Trust
will engage in hedging activities from time to time in the Investment Adviser's
discretion, and may not necessarily be engaging in such activities when
movements in the securities markets, foreign exchange rates, or interest rates
that could affect the value of the assets of the Trust occur. The risks of
hedging include the possibility that interest rates, securities prices and
currency exchange rates may not move in the direction that the portfolio
managers anticipated. In addition, the skills involved in employing hedging
strategies differ from the skills involved in selecting portfolio securities,
and the derivative instruments used in hedging strategies may imperfectly
correlate with the underlying security, interest rate or currency being hedged.
Hedging strategies can also expose the Trust to the risk of its inability to
close-out a hedged position and adverse price movements may result in a loss
substantially greater than the Trust's initial investment in the hedging
instrument (potential loss in some hedging strategies is unlimited).

FUTURES CONTRACTS

The Trust may enter into contracts for the purchase or sale for future
delivery (a "futures contract") of baskets of securities, financial indices,
financial instruments or foreign currencies. The Trust would purchase or sell
futures contracts to attempt to protect the value of its securities from
market-wide price movements and fluctuations in interest or foreign exchange
rates without actually

buying or selling securities or foreign currency. Similar to the risks of
hedging, the risks of futures contracts include the possibility that interest
rates, securities prices and currency exchange rates may not move in the
direction anticipated. The skills involved in selecting futures contracts differ
from the skills involved in selecting portfolio securities. In addition, the
futures contract may imperfectly correlate with the underlying security,
interest rate or currency underlying the contract, and there can be no assurance
that a liquid market will exist at a time when the Trust seeks to close out a
futures position.

FOREIGN CURRENCY TRANSACTIONS

The Trust may enter into forward foreign currency exchange contracts and may
purchase and sell foreign currency futures contracts to protect against a
decline in the U.S. dollar equivalent value of its foreign currency portfolio
securities or the payments thereon that may result from an adverse change in
foreign currency exchange rates. Foreign currency exchange rates may fluctuate
significantly over short periods of time and may also be affected by political
developments, including intervention by U.S. or foreign governments.

Under normal market conditions, the Trust currently does not intend to
engage in the foregoing practices or investments with the exception of
investments in money market instruments.

MANAGEMENT OF THE TRUST

BOARD OF TRUSTEES

Under the Trust's Declaration of Trust and the laws of the Commonwealth of
Massachusetts, the Trust's business and affairs are managed under the direction
of its Board of Trustees. Investment decisions for the Trust are made by the
Investment Adviser, subject to any direction it may receive from the Trust's
Board of Trustees, which periodically reviews the Trust's investment
performance. The Statement of Additional Information includes additional
information about the members of the Board of Trustees and is available, without
charge, upon request, by calling the Information Agent at (800) 870-0126.

INVESTMENT ADVISER

Hambrecht & Quist Capital Management, LLC, a limited liability company under
the laws of the State of Delaware, serves as the investment adviser to the
Trust. The Investment Adviser is an investment adviser registered under the
Investment Advisers Act of 1940, as amended. The Investment Adviser is located
at 30 Rowes Wharf, Fourth Floor, Boston, MA 02110-3328.

At inception, Hambrecht & Quist Capital Management Incorporated
("HQCM, Inc.") was the Trust's investment adviser. HQCM, Inc. was formed as a
wholly-owned subsidiary of Hambrecht & Quist Group. HQCM, Inc. remained the
Investment Adviser as The Chase Manhattan Corporation ("Chase") first acquired
Hambrecht & Quist Group and then merged with J.P. Morgan Incorporated to
form J.P. Morgan Chase & Co. In 2002, the management of HQCM, Inc. formed an
independent entity, Hambrecht & Quist Capital Management, LLC ("HQCM, LLC"), to
effect a buyout of HQCM, Inc. In this transaction, HQCM, LLC acquired certain of
the assets of HQCM, Inc., and substantially all of the management and staff of
HQCM, Inc. became employees of HQCM, LLC. HQCM, LLC, the Trust's current
investment adviser, is owned by Daniel R. Omstead, Mary Omstead and the Alan G.
Carr Irrevocable Trust. Mr. Carr, a former portfolio manager, president and
trustee of the Trust, passed away in October 2003. Dr. Omstead is currently the
President and Chief Executive Officer of the Investment Adviser. Mary Omstead is
Dr. Omstead's wife. Under the terms of HQCM, LLC's current Amended and Restated
Limited Liability Company Agreement, HQCM, LLC will purchase the Alan G. Carr
Irrevocable Family Trust's interest in HQCM, LLC over the course of a number of
years.

The Investment Adviser also provides investment advisory services to another
closed-end investment company, H&Q Life Sciences Investors ("HQL"), which
invests in companies in the healthcare industries. As of December 31, 2003, the
Investment Adviser managed approximately $487 million in assets for the Trust
and HQL.

The Investment Advisory Agreement between the Investment Adviser and the
Trust (the "Advisory Agreement") provides that, subject to the supervision and
direction of the Board, the Investment Adviser is responsible for the actual
management of the Trust's portfolio. The Investment Adviser is also obligated to
supervise or perform certain administrative and management services for the
Trust and is obligated to provide the office space, facilities, equipment and
personnel necessary to perform its duties under the Advisory Agreement. The
responsibility for making decisions to buy, sell or hold a particular security
rests with the Investment Adviser. However, the Investment Adviser may consider
investment analysis from various sources, including broker-dealers with which
the Trust does business.

Subject to the supervision and direction of the Board of Trustees of the
Trust, the Investment Adviser manages the Trust's portfolio in accordance with
the Trust's investment objective and policies as stated in the Trust's
Prospectus; makes investment decisions for the Trust; places purchase and sale
orders for portfolio transactions for the Trust; supplies the Trust with office
facilities (which may be in the Investment Adviser's own offices), statistical
and research data, data processing services, clerical, internal executive and
administrative services, and stationery and office supplies; supplies or directs
and supervises a third party administrator or custodian in the provision to the
Trust of accounting and bookkeeping services, the calculation of the net asset
value of shares of the Trust, internal auditing services, and other clerical
services in connection therewith, and prepares or supervises and directs a third
party administrator or custodian in the preparation of reports to shareholders
of the Trust, tax returns and reports to and filings with the Commission and
state Blue Sky authorities. In providing these services, the Investment Adviser
provides investment research and supervision of the Trust's investments and
conducts a continual program of investment, evaluation and, if appropriate, sale
and reinvestment of the Trust's assets. In addition, the Investment Adviser
furnishes the Trust with whatever statistical information the Trust may
reasonably request with respect to the securities that the Trust may hold or
contemplate purchasing.

For the services provided by the Investment Adviser under the Advisory
Agreement, the Trust will pay a fee, computed and payable monthly, equal when
annualized to (i) 2.5% of the average net assets for the month of its venture
capital and other Restricted Securities (as defined) 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 monthly fee may not exceed a rate when
annualized of 1.375% (approximately 0.115% per month). Because the advisory fee
is based on the average net assets of the Trust and since the Offer is expected
to result in an increase in net assets, the Investment Adviser should benefit
from the Offer by an increase in the dollar amount of the fee. The investment
advisory fee paid by the Trust exceeds that paid by most registered investment
companies to their investment advisers. The Trust believes that the fee is
commensurate with the nature and quality of the services required for
identifying, evaluating and monitoring the Trust's Restricted Securities
investments.

Under the Advisory Agreement, the Investment Adviser has agreed to bear all
expenses in connection with the performance of its services under the Advisory
Agreement, including compensation of and office space for officers and employees
of the Trust connected with investment and economic research, trading and
investment management of the Trust, as well as the fees of all Trustees of the
Trust who are "affiliated persons" of the Investment Adviser, as that term is
defined in the Investment Company Act, or any of its "affiliated persons." Under
the Advisory Agreement, the Trust must pay (or, if Trust expenses are paid by
the Investment Adviser, shall reimburse the Investment Adviser for) all other
expenses incurred in the organization and operation of the Trust including,
among other

things, expenses for legal and auditing services, costs of printing proxy
statements, prospectuses, share certificates and shareholder reports, charges of
the custodian, any sub-custodian and transfer agent, expenses in connection with
the Dividend Reinvestment Plan, the Commission, and National Association of
Securities Dealers, Inc. fees, fees and expenses of the Trustees who are not
"affiliated persons" of the Investment Adviser or any of its "affiliated
persons," accounting and valuation costs, administrator's fees, membership fees
in trade associations, fidelity bond coverage for the Trust's officers and
employees, errors and omissions insurance coverage for Trustees and officers,
interest, brokerage costs, taxes, stock exchange listing fees and expenses,
expenses of qualifying the Trust's Shares for sale in various states, expenses
associated with personnel performing exclusively shareholder servicing
functions, certain other organization expenses, litigation and other
extraordinary or non-recurring expenses, and other expenses properly payable by
the Trust. The Trust may enter into arrangements to have third parties assume
any expenses for which it is responsible.

PORTFOLIO MANAGEMENT

At the current time a team of analysts, including Daniel R. Omstead
Eng.ScD., Christopher F. Brinzey, M.B.A., Frank T. Gentile, Ph.D., Jason C.
Akus, M.D./M.B.A. and Michael S. Tung, M.D./ M.B.A. are members of the team that
makes investments on behalf of the Trust. These members also perform other
duties including, making investments on behalf of HQL. Each of the members of
the team listed below have been on the Trust's portfolio management team, which
is responsible for the day-to-day management of the Trust's portfolio, since
joining the Investment Adviser. Each team member's business experience for at
least the last five years is included below.

Daniel R. Omstead, Eng.ScD., is President and Chief Executive Officer of the
Investment Adviser. He is also President of the Trust and HQL. Before joining
the Investment Adviser, Dr. Omstead was President and CEO of
Reprogenesis, Inc., a private development stage biotech company developing
therapies in the field of regenerative medicine. In 2000, Reprogenesis was
merged with two other biotech companies to form Curis, Inc. Before joining
Reprogenesis, Dr. Omstead was Senior Vice President, Research and Development at
Cytotherapeutics, Inc., a public biotech company that developed CNS therapies.
Before entering the biotech industry, Dr. Omstead was employed for 14 years in
the pharmaceutical industry at Ortho Pharmaceutical Corporation and at the R.W.
Johnson Pharmaceutical Research Institute, both divisions of Johnson & Johnson
and at Merck Sharpe & Dohme Research Laboratories, a division of Merck &
Company, Inc. While at Johnson & Johnson, Dr. Omstead participated in the
development of Orthoclone OKT3-TM-, Eprex-TM-/Procrit-TM- and other biological
products. While at Merck, he worked on the development of Recombivax-TM-,
Mefoxin-TM-, Heartguard-TM- and other traditional drug products. Dr. Omstead
holds Doctoral and Master's Degrees in Chemical Engineering and Applied
Chemistry from Columbia University and a B.S. degree in Civil Engineering from
Lehigh University.

Christopher F. Brinzey is Vice President, Research of the Investment
Adviser. Mr. Brinzey joined the Investment Adviser in February of 2001 and is
responsible for investment research and venture investment due diligence in the
following areas: specialty pharmaceuticals and healthcare information technology
and services. Before joining the Investment Adviser, Mr. Brizney was a senior
analyst for Advest Incorporated's healthcare research team where he covered and
helped to finance a number of companies in the healthcare information technology
and eHealth sector. Other prior work experience includes project management and
consulting for SunGard Financial Systems, a subsidiary of SunGard Data Systems,
a global IT solutions and eProcessing company. Mr. Brinzey received a B.A. in
psychology from Hobart College and an MBA from Northeastern University.

Frank T. Gentile, Ph.D., is Vice President, Research of the Investment
Adviser. Dr. Gentile joined the Investment Adviser in September 2002. His
emphasis is on the analysis of private and public companies in the fields of
Functional Genomics and Proteomics, as well as Cell and Gene Therapy. Previously
Dr. Gentile was Vice President, Technology Program Management at Millennium

Pharmaceuticals. At Millennium, Dr. Gentile was responsible for management of
all technology platform development programs. Before joining Millennium,
Dr. Gentile was Vice President of Product Development at Curis, Inc., a
biotechnology company in Cambridge developing products in the area of
Regenerative Medicine. From 1997 to 2000, he was Director and then Vice
President, Program Management at Reprogenesis, Inc. From 1990-1997 he was
employed at CytoTherapeutics, Inc., where he held several scientific and
management positions. Dr. Gentile received a B.E. degree in Chemical Engineering
from The Cooper Union and a Ph.D. in Chemical Engineering from MIT. Before
working in industry, he was a post-doctoral fellow at the Swiss Federal
Institute of Technology (ETH) in Zurich, Switzerland. He is also an Adjunct
Associate Professor of Biotechnology at Brown University. He has written over
120 peer reviewed publications and holds 30 U.S. patents in the area of
biotechnology.

Jason C. Akus, M.D./M.B.A., has the title Associate, Research and is
responsible for investment research and due diligence in the biotechnology,
medical device, and diagnostic areas. Dr. Akus joined the Investment Adviser in
July of 2001 after graduating from Tufts with an M.D. and M.B.A. Dr. Akus also
graduated from Tufts with a B.S. in Mathematics. During medical school,
Dr. Akus consulted for a variety of healthcare information technology companies.

Michael S. Tung, M.D./M.B.A., also has the title Associate, Research and is
responsible for investment research and due diligence in the biotechnology,
pharmaceuticals and medical technology sectors. Dr. Tung joined the Investment
Adviser in November 2003. Before that time, Dr. Tung was an analyst at Durus
Capital Management covering companies in the biotechnology, pharmaceuticals, and
medical technology sectors. Dr. Tung completed a combined M.D./M.B.A. program at
Tufts University School of Medicine, did residency training at the Beth Israel
Deaconess Medical Center in Boston, and is a licensed physician in
Massachusetts. Dr. Tung has a B.S. in Biology and a B.A. in Economics from the
George Washington University.

CODE OF ETHICS

The Trust's Board of Trustees approved a Code of Ethics under Rule 17j-1 of
the Investment Company Act that covers the Trust and the Investment Adviser. The
Code of Ethics establishes procedures for personal investing and restricts
certain transactions. Employees subject to the Code of Ethics may invest in
securities for their personal investment accounts, including, in certain cases,
securities that may be purchased or held by the Trust. See "Code of Ethics" in
the Statement of Additional Information.

DESCRIPTION OF TRUST

The Trust is a diversified, closed-end management investment company. The
Trust was organized as a Massachusetts business trust on October 31, 1986
pursuant to a Declaration of Trust governed by Massachusetts law and commenced
operations on April 22, 1987. The Trust's Declaration of Trust was amended and
restated as of April 21, 1987 ("Amended and Restated Declaration of Trust"). The
Amended and Restated Declaration of Trust is referred to in this Prospectus as
the "Declaration of Trust" unless the context requires otherwise. The Trust's
principal offices are located at 30 Rowes Wharf, Fourth Floor, Boston, MA
02110-3328.

The Trust's capitalization consists of an unlimited number of shares of
beneficial interest, $.01 par value. Each Share represents an equal
proportionate beneficial interest in the Trust and, when issued and outstanding,
will be fully paid and non-assessable by the Trust. Upon any liquidation of the
Trust, Shareholders will be entitled to share pro rata in the net assets of the
Trust available for distribution after paying or adequately providing for the
payment of all liabilities. The Trust will send annual and semi-annual financial
statements to Shareholders and may also issue more abbreviated interim reports
to update Shareholders on a quarterly basis. The Trust will hold annual meetings
of its Shareholders in accordance with the provisions of the Trust's By-laws and
the rules of the NYSE.

Shareholders are entitled to one vote for each whole Share held and a
proportionate fractional vote for each fractional Share held. The Trust's Shares
do not have cumulative voting rights, which means that the holders of more than
50% of the Shares of the Trust voting for the election of Trustees can elect all
of the Trustees, and, in such event, the holders of the remaining Shares will
not be able to elect any Trustees. The Trust has a staggered Board, whereby one
class of Trustees is elected each year.

There were 15,108,430 Shares outstanding as of the Record Date. Assuming
that all Rights are exercised pursuant to the Primary Subscription, an
additional 5,036,144 Shares will be issued. The Trust may, at its discretion,
issue up to an additional 25% of the Shares in the Offer to honor
over-subscription requests if sufficient Shares are not available from the
Primary Subscription to honor all over-subscriptions.

For information regarding risk factors pertaining to the Trust, see "Risks."

As of May 21, 2004, to the best of the Trust's knowledge, and based solely
on Schedule 13D/G filings made with the Commission, there was no person who
controlled the Trust.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to policies established by the Board, the Investment Adviser is
primarily responsible for the execution of the Trust's portfolio transactions
and the allocation of brokerage. In executing such transactions, the Investment
Adviser will seek to obtain the best price and execution for the Trust, taking
into account such factors as price, size of order, difficulty of execution,
operational facilities of the firm involved, the firm's risk in positioning a
block of securities, and research, market and statistical information provided
by such firm. While the Investment Adviser generally seeks reasonably
competitive commission rates, the Trust will not necessarily pay the lowest
commission available.

The Trust intends to purchase and hold securities for capital appreciation
and it is not anticipated that frequent portfolio changes will be made for
short-term trading purposes or to take advantage of short-term swings in the
market. However, changes may be made in the portfolio consistent with the
investment objective and policies of the Trust whenever changes are believed by
the Investment Adviser to be in the best interest of the Trust and its
Shareholders. Risk factors, particularly those relating to a specific security
investment or to the market and economic conditions, may also affect the rate at
which the Trust buys and sells its portfolio holdings. The Trust has no fixed
policy with respect to portfolio turnover rate. The Trust may engage in
short-term trading or portfolio securities, including initial public offerings,
which may result in increasing the Trust's portfolio turnover rate. The
portfolio turnover rate is calculated by dividing the lesser of purchases or
sales of long-term portfolio securities by the average monthly value of the
Trust's long-term portfolio securities. A high rate of portfolio turnover (100%
or more) could produce higher trading costs and taxable distributions, which
would detract from the Trust's performance. The Trust's portfolio turnover rate
for the fiscal years ended September 30, 2003 and September 30, 2002 was 32.80%
and 17.40%, respectively.

NET ASSET VALUE

The NAV of the Trust's Shares is calculated at the close of regular trading
on the NYSE (generally 4:00 p.m., Eastern time) every day that the NYSE is open.
The Trust makes this information available daily by telephone (800) 451-2597,
via its web site (www.hqcm.com) and through electronic distribution for media
publication, including major internet-based financial services web sites and
portals (bloomberg.com, yahoo.com, cbsmarketwatch.com, etc.). Currently, The
Wall Street Journal, The New York Times and Barron's publish NAVs for closed-end
investment companies at least weekly.

NAV is calculated by dividing the value of the securities held by the Trust
plus any cash or other assets minus all liabilities, including accrued expenses,
by the total number of Shares outstanding at such time. Securities for which
market quotations are readily available are valued at market price.

Portfolio securities that are traded on one or more U.S. 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 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. Redeemable securities issued by a registered open-end
investment company are valued at net asset value per share. Other securities are
valued at the mean between the closing bid and asked prices. Short- term
investments that mature in 60 days or less are valued at amortized cost, unless
the Board determines that such valuation does not constitute fair value.

Bonds, other than convertible bonds, are valued using a third-party pricing
system. Convertible bonds are valued using this pricing system only on days when
there is no sale reported. Temporary cash investments with maturity of 60 days
or less are valued at amortized cost. Puts and calls generally are valued at the
close of regular trading on the securities or commodities exchange on which they
are primarily traded. Options on securities generally are valued at their last
bid price in the case of exchange-traded options or, in the case of OTC-traded
options, the average of the last bid price as obtained from two or more dealers
unless there is only one dealer, in which case that dealer's price is used.
Forward foreign currency contracts are valued on the basis of the value of the
underlying currencies at the prevailing currency exchange rate. The prevailing
currency exchange rate shall be determined within one hour of when the most
recently available exchange rate information has been received based on
information obtained from a bank or banks.

Securities that are primarily traded on foreign securities exchanges
generally are valued at the last sale price on the exchange on which they are
primarily traded. Foreign securities that are primarily traded on the foreign
over-the-counter market are generally valued at the last sale quotation, if
market quotations are available, or the last reported bid price if there is no
active trading in a particular security on a given day. However, if intervening
events result in market volatility that significantly affects the value of any
such foreign securities after the close of trading on the relevant foreign
market, but before the Trust values its Shares on any particular day on which
the Trust is required to value its Shares, the Trust may, but is not required
to, determine the value of such securities at "fair value," as determined in
good faith by or under the direction of the Board of Trustees.

Quotations of foreign securities in foreign currencies are converted, at
current exchange rates, to their U.S. dollar equivalents to determine their
current value. In addition, to the extent that the Trust values its foreign
securities (other than ADR's and ADS's) as of the close of trading on various
exchanges and over-the-counter markets throughout the world, the calculation of
the Trust's net asset value may not take place contemporaneously with the
valuation of foreign securities held by the Trust.

The value of any security or other asset for which market quotations are not
readily available shall be determined in a manner that most fairly reflects the
security's (or asset's) "fair value," which is the amount that the Trust might
reasonably expect to receive for the security (or asset) upon its current sale.
Each such determination is based on a consideration of all relevant factors,
which are likely to vary from one pricing context to another. Examples of such
factors may include, but are not limited to: (1) the type of the security;
(2) the size of the holding (including percent of outstanding securities of
issuer held by the Trust); (3) the initial cost of the security; (4) the
existence of any contractual restrictions on the security's disposition and the
time to freedom from such restrictions; (5) the price and extent of public
trading in similar securities of the issuer or of comparable companies;
(6) quotations or prices from broker-dealers and/or pricing services;
(7) information obtained from the issuer, analysts, and/or the appropriate stock
exchange (for exchange-traded securities); (8) an analysis of the company's
financial statements; (9) an evaluation of the forces that influence the issuer
and the market(s) in which the security is purchased and sold (e.g., the
existence of pending merger activity, public offerings or tender offers that
might affect the value of the security); and (10) the price of securities in a
subsequent round of financing of an issuer in an arm's-length transaction, if
the round includes a new third party investor.

Sometime a "significant valuation event" may cause the market value of a
security to differ from the fair market value of that security. A "significant
valuation event" is an event that causes or is likely to cause a market
quotation to be unavailable or unreliable, and may include: situations relating
to a single issue in a market sector; significant fluctuations in U.S. or
foreign markets; market disruptions or closings caused by human error, equipment
failures, natural disasters, armed conflicts, acts of God, governmental actions
or other developments, as well as the same or similar events which may affect
specific issues or the securities markets even though not tied directly to the
securities markets. A significant valuation event occurring after the close of
trading but before the time of valuation may mean that the closing price for the
security does not constitute a readily available market quotation. If a
significant valuation event has occurred, the security will be valued at fair
value as determined in good faith by the Board in accordance with the procedures
hereinafter described. Such valuations and procedures will be reviewed
periodically by the Board.

The fair value of investments for which no market exists can not be
precisely determined. With respect to securities of a company in its early stage
of development, valuation will typically be based upon the original cost to the
Trust. This methodology will typically be used until significant developments
affecting the portfolio company provide a basis for a change in valuation. The
status of portfolio companies is monitored for progress against plan,
advancement of the stage of product development, and other factors. When
revenues and earnings are present they are monitored. Valuation changes are
event driven. When an appropriate event occurs (e.g., the completion of a third
party transaction or a significant change in business model) valuation is
changed accordingly. In addition the Trust will typically base changes in
valuation on actual transactions or on actual firm offers by sophisticated
independent investors unaffiliated with the Adviser. Legal or contractual
restrictions on the sale of portfolio securities by the Trust will be considered
in the valuation of such securities.

Other assets, which include cash, prepaid and accrued items, accounts
receivable and income on investments and from the sale of portfolio securities,
are carried in accordance with generally accepted accounting principles, as are
all liabilities. Liabilities primarily include accrued expenses, sums owed for
securities purchased and dividends payable.

DIVIDENDS AND DISTRIBUTIONS

The Trust expects to distribute to Shareholders annually dividends of all or
a portion of its investment company taxable income, if any. For federal income
tax purposes, the Trust is required to distribute substantially all of its
investment company taxable income for each year. Net capital gain (i.e., the
excess of net long-term capital gain over net short-term capital loss), if any,
may be distributed or may be retained at the discretion of the Board.
"Investment company taxable income," as used herein, includes all interest and
other ordinary income earned by the Trust on its portfolio holdings and net
short-term capital gains in excess of net long-term capital losses, less the
Trust's expenses. See "Taxation--Distributions."

Various factors will affect the level of the Trust's income, including the
asset mix, the performance of the companies represented in the Trust's
portfolio, and the Trust's use of hedging and fluctuations in the rate of
exchange between foreign currencies and the U.S. dollar to the extent the Trust
has invested in Foreign Securities. Each Shareholder will have all dividends and
distributions reinvested in Shares of the Trust issued pursuant to the Trust's
Plan, unless the Shareholder elects not to participate in the Plan. Shareholders
who elect not to participate in the Plan will receive their dividends and
distributions in cash. See "Dividend Reinvestment Plan." Notices will be
provided in accordance with Section 19(a) of the Investment Company Act.

The current distribution policy is to declare distributions in stock. Stock
distributions will automatically be paid in newly-issued full Shares of the
Trust plus cash in lieu of any fraction of a

Share, unless otherwise instructed by the Shareholder. If a Shareholder elects
to receive a distribution in cash, rather than in Shares, the Shareholder's
relative ownership in the Trust will be reduced.

QUARTERLY DISTRIBUTION POLICY

On May 10, 1999, the Trust's Board of Trustees adopted a managed
distribution policy with respect to the Trust's Shares. Under the managed
distribution policy, the Trust intends to make quarterly distributions to its
Shareholders equal to 2.0% of the Trust's net asset value. If, for any taxable
year, the total distributions required for the Trust's distribution policy
exceed the Trust's annual investment company taxable income and net long-term
capital gains, the excess will generally be treated as a return of capital (up
to the amount of the Shareholder's adjusted tax basis in his or her Shares). The
amount treated as a tax-free return of capital will reduce a Shareholder's
adjusted basis in his or her own Shares, thereby increasing his or her potential
gain or reducing his or her potential loss on the sale of his or her Shares.

If the Trust's investment company taxable income and net long-term capital
gains for any taxable year or calendar year exceed the amount required to be
distributed under the distribution policy, the Trust will at a minimum make
distributions necessary to permit it to qualify for treatment as a regulated
investment company under the Code. The Trust has the discretion to retain for
reinvestment net long-term capital gains in excess of net short-term capital
losses, to the extent that it does not need to distribute these gains to meet
its managed distribution obligation or tax requirements. Any retained gains may
be subject to taxation, although Shareholders may receive credit for taxes paid
by the Trust. It is anticipated that net realized capital gains in excess of the
total distributed under this policy would be included in the December
distribution.

This distribution policy may, under certain circumstances, have certain
adverse consequences to the Trust and its Shareholders. To make such
distributions, the Trust may have to sell a portion of its investment portfolio
at a time when independent investment judgment might not dictate such action.
The Trust's quarterly distribution policy may be changed by the Board of
Trustees without Shareholder approval.

The Trust's most recent distribution of $0.39 per Share was payable to
Shareholders of record on February 20, 2004. That distribution was paid in
Shares on March 30, 2004. For the 2003 calendar year, the Trust distributed a
total of $1.68 per Share. The first regular quarterly distribution to be paid on
Shares acquired upon exercise of Rights will be the first quarterly distribution
the record date for which occurs after the issuance of the Shares. The Shares
issued in the Offer will not be entitled to the distribution to be declared to
Shareholders of record on May 25, 2004 which is payable in June 2004.

DIVIDEND REINVESTMENT PLAN

Each Shareholder holding Shares of the Trust will automatically be a
participant in the Trust's Plan, unless the Shareholder elects not to
participate in the Plan. Under the Plan, whenever the Trust declares a
distribution of dividends and capital gains payable in Shares or cash, the
distribution of dividends and capital gains will be automatically reinvested by
EquiServe Trust Company (the "Plan Agent"), in whole or fractional Shares of the
Trust, as the case may be, for the accounts of the participating shareholders.
Shareholders who specifically elect not to participate in the Plan will receive
all distributions of dividends and capital gains in cash paid by check in U.S.
dollars mailed directly to the shareholders (or if the Shares are held in street
or other nominee name, then to the nominee) by the Dividend Disbursing Agent.
Shareholders may receive more detailed information regarding the Plan from the
Plan Agent.

date determined by the Board of Trustees. Whenever the market price per Share is
equal to or exceeds NAV on the valuation date, participants will be issued
Shares at the greater of (i) NAV or (ii) 95% of the then-current market price of
the Shares. If the NAV of the Shares on the valuation date exceeds the market
price of the Shares at that time, participants will receive Shares from the
Trust valued at the market price. The market price of the Shares on a particular
date shall be the last sales price on the NYSE on that date or, if no sale
occurred on the NYSE on that date, then the mean between the closing bid and
asked quotations for the Shares on the NYSE on such date; and NAV per Share on a
particular date shall be as determined by or on behalf of the Trust.

Experience under the Plan may indicate that changes are desirable.
Accordingly, the terms and conditions of the Plan may be amended or supplemented
by the Plan Agent or the Trust at any time or times but, except when necessary
or appropriate to comply with applicable law or the rules or policies of the
Commission or any other regulatory authority, only by mailing to the
Shareholders appropriate written notice at least 90 days before the effective
date of the change. All correspondence concerning the Plan should be directed to
the Plan Agent, EquiServe Trust Company at P.O. Box 43010, Providence, RI
02940-3010 Shareholders may also contact the Plan Agent toll-free by telephone
at (800) 426-5523.

TAXATION

The following discussion is based upon the advice of Dechert LLP, counsel
for the Trust, and is a general summary of the principal U.S. federal income tax
considerations regarding an investment in the Trust. The discussion is based on
laws, regulations, rulings and decisions currently in effect, all of which are
subject to change (possibly with retroactive effect) or different
interpretations. The discussion below does not purport to deal with all of the
federal income tax consequences applicable to the Trust, or to all categories of
investors, some of which may be subject to special rules. Each prospective
shareholder is urged to consult with his or her own tax adviser with respect to
the specific federal, state, local, foreign and other tax consequences of
investing in Shares of the Trust.

TAXATION OF THE TRUST

The Trust intends to qualify and elect to be treated each taxable year as a
regulated investment company ("RIC") under the Code. The principal federal
income tax benefits of qualifying as a RIC, as compared to an ordinary taxable
corporation, are that a RIC generally is not itself subject to federal income
tax on ordinary investment income and net capital gains that are currently
distributed to its shareholders, and that the character of long-term capital
gains which are recognized and properly designated by a RIC flows through to its
shareholders, who receive (or are deemed to receive) distributions of such
income. However, the Trust would be subject to corporate income tax (currently
at a maximum marginal rate of 35%) on any undistributed income.

DISTRIBUTIONS

Dividends paid from investment company taxable income generally will be
taxable to shareholders as ordinary income whether paid in cash or reinvested in
the Trust's Shares. The Trust intends to distribute to its shareholders
substantially all of its investment company taxable income, if any, for each
year. It is anticipated that the Trust's income distributions will be paid
annually in additional Shares unless the shareholder elects payment in cash.

A portion of the dividends paid by the Trust may be treated as "qualified
dividend income" which is taxable to individuals at the same rates that are
applicable to long-term capital gains. A Trust distribution is treated as
qualified dividend income to the extent that the Trust receives dividend income
from taxable domestic corporations and certain qualified foreign corporations,
provided that certain holding period and other requirements are met. Trust
distributions generally will not qualify as

qualified dividend income to the extent attributable to interest, capital gains,
REIT distributions and, in many cases, distributions from non-U.S. corporations.

If a portion of the Trust's income consists of dividends paid by U.S.
corporations, a portion of the dividends paid by the Trust may be eligible for
the corporate dividends-received deduction.

Distributions of the excess, if any, of net long-term capital gains over net
short-term capital losses designated by the Trust as capital gain dividends will
be taxable to shareholders as long-term capital gains, whether paid in cash or
reinvested in the Trust's Shares, regardless of how long the shareholders have
held the Trust's Shares, and will not be eligible for the dividends received
deduction for corporations.

Each year, Shareholders will be notified as to the amount and federal tax
status of all dividends and capital gains paid during the prior year. Such
dividends and capital gains may also be subject to state or local taxes.
Dividends declared in October, November, or December with a record date in such
month and paid during the following January will be treated as having been paid
by the Trust and received by Shareholders on December 31 of the calendar year in
which declared, rather than the calendar year in which the dividends are
actually received.

Gain or loss realized upon the sale or exchange of Shares will be a capital
gain or loss if the Shares are capital assets in the Shareholder's hands and
generally will be long-term or short-term, depending upon the Shareholder's
holding period for the Shares. You should be aware that any loss realized upon
the sale or exchange of Shares held for six months or less will be treated as a
long-term capital loss to the extent of any distributions or deemed
distributions of long-term capital gain to the Shareholder with respect to such
Shares. In addition, any loss realized on a sale or exchange of Shares will be
disallowed to the extent the Shares disposed of are replaced within a period of
61 days beginning 30 days before and ending 30 days after the Shares are
disposed of, such as pursuant to the Plan. In such case, the basis of Shares
acquired will be adjusted to reflect the disallowed loss.

If a Shareholder has not furnished a certified correct taxpayer
identification number (generally a Social Security number) and has not certified
that withholding does not apply, or if the Internal Revenue Service has notified
the Trust that the taxpayer identification number listed on the account is
incorrect according to their records or that the Shareholder is subject to
backup withholding, federal law generally requires the Trust to withhold 28%
from any dividends and/or redemptions (including exchange redemptions). Amounts
withheld are applied to federal tax liability; a refund may be obtained from the
Service if withholding results in overpayment of taxes. Federal law also
requires the Trust to withhold up to 30% or the applicable tax treaty rate from
ordinary dividends paid to certain nonresident alien and other non-U.S.
shareholder accounts.

This is a brief summary of some of the tax laws that affect an investment in
the Trust. Moreover, the foregoing does not address the many factors that may
determine whether an investor will be liable for the federal alternative minimum
tax. Please see the SAI and a tax adviser for further information.

CUSTODIAN AND TRANSFER AGENT, DIVIDEND
DISBURSING AGENT, REGISTRAR, AND SUBSCRIPTION AGENT

The Trust's securities and cash are held under a custodian contract by State
Street Bank and Trust Company (the "Custodian"), whose principal business
address is 225 Franklin Street, Boston, MA 02110. The Custodian also performs
certain accounting related functions for the Trust, including calculation of NAV
and net income.

connection with the Offer. EquiServe, Inc. and EquiServe Trust Company have
their principal business at 150 Royall Street, Canton, MA 02021.

LEGAL MATTERS

The validity of the Shares offered hereby will be passed on for the Trust by
Dechert LLP, 200 Clarendon Street, 27th Floor, Boston, Massachusetts 02116-5021.

EXPERTS

PricewaterhouseCoopers LLP ("PwC") had been selected as the independent
accountants of the Trust for its fiscal year ending September 30, 2004. On
May 7, 2004, PwC resigned as the Trust's independent accountants for its fiscal
year ending September 30, 2004 effective upon the completion of services related
to the Trust's semi-annual financial statements. The reports provided by PwC for
the fiscal years ending September 30, 2002 and September 30, 2003 were
unqualified and contained no adverse opinion or disclaimer of opinion, nor were
the reports modified as to uncertainty, audit scope, or accounting principle.
Further, in connection with its audits for the two previous fiscal years and
through the date of this registration statement, there have been no
disagreements between PwC and the Trust on any matter of accounting principles
or practices, financial statement disclosure or auditing scope or procedure,
which disagreements, if not resolved to their satisfaction, would have caused
PwC to reference the subject matter of the disagreements in its report on the
financial statements for such years. The Trust is currently seeking to retain
new independent auditors for its fiscal year ending September 30, 2004. The
audited financial statements of the Trust and certain of the information
appearing under the caption "Financial Highlights" included in this Prospectus
for fiscal years ended September 30, 2003, September 30, 2002 and September 30,
2001 have been audited by PwC and are included in reliance upon such reports and
upon the authority of such firms as experts in accounting and auditing.

The audited financial statements of the Trust and certain of the information
appearing under the caption "Financial Highlights" included in this Prospectus
for fiscal years through September 30, 2000 have been audited by Arthur Andersen
LLP, the Trust's previous independent accountants. Arthur Andersen LLP's reports
expressed an unqualified opinion on those financial statements and financial
highlights. Arthur Andersen LLP ceased operations in 2002.

REPORTS TO SHAREHOLDERS

The Trust will send unaudited semiannual reports and audited annual reports,
including a list of investments held, to shareholders. The Trust has in the past
also issued more abbreviated interim reports to Shareholders on a quarterly
basis.

ADDITIONAL INFORMATION

The Trust is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended, and the Investment Company Act and in
accordance therewith is required to file reports, proxy statements and other
information with the Commission. Any such reports, proxy statements and other
information filed by the Trust can be inspected and copied (at prescribed rates)
at the public reference facilities of the Commission, Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549. The Trust's Shares are listed on the NYSE.
Reports, proxy statements and other information concerning the Trust can also be
inspected and copied at the Library of the NYSE, 20 Broad Street, New York, NY
10005.

This Prospectus constitutes a part of a registration statement on Form N-2
(together with the SAI and all the exhibits and appendices thereto, the
"Registration Statement") filed by the Trust with the Commission under the
Securities Act and the Investment Company Act. This Prospectus and the SAI

do not contain all of the information set forth in the Registration Statement.
Reference is hereby made to the Registration Statement and related exhibits for
further information with respect to the Trust and the Shares offered hereby.
Statements contained herein concerning the provisions of documents are
necessarily summaries of such documents, and each statement is qualified in its
entirety by reference to the copy of the applicable document filed with the
Commission.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this Prospectus constitute forward-looking statements,
which involve known and unknown risks, uncertainties and other factors that may
cause the actual results, levels of activity, performance or achievements of the
Trust to be materially different from any future results, levels of activity,
performance or achievements expressed or implied by such forward-looking
statements. Such factors include, among others, those listed under "Risks" and
elsewhere in this Prospectus. As a result of the foregoing and other factors, no
assurance can be given as to the future results, levels of activity or
achievements, and neither the Trust nor any other person assumes responsibility
for the accuracy and completeness of such statements. To the extent required by
law, the Trust undertakes to supplement this Prospectus to reflect any material
changes to the Trust after the date of this Prospectus.

TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

PAGE
--------

Additional Information About Investments and Investment
Techniques................................................ 2
Investment Restrictions..................................... 7
Trustees and Officers....................................... 9
The Trust................................................... 15
Investment Advisory Agreement............................... 17
Code of Ethics.............................................. 22
Net Asset Value............................................. 22
Portfolio Transactions and Brokerage........................ 24
Dividend Reinvestment Plan.................................. 27
Tax Matters................................................. 28
Custodian and Transfer Agent, Dividend Disbursing Agent and
Registrar................................................. 34
Financial Statements........................................ 35
Appendix A--Proxy Voting Policies and Procedures............ 36

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

TO THE TRUSTEES AND SHAREHOLDERS OF H&Q HEALTHCARE INVESTORS:

In our opinion, the accompanying statement of assets and liabilities,
including the schedule of investments, and the related statements of operations,
of changes in net assets and of cash flows and the financial highlights present
fairly, in all material respects, the financial position of H&Q Healthcare
Investors (the "Fund") at September 30, 2003, the results of its operations and
its cash flows for the year then ended, the changes in its net assets for each
of the two years in the period then ended and the financial highlights for each
of the three years in the period then ended, in conformity with accounting
principles generally accepted in the United States of America. These financial
statements and financial highlights (hereafter referred to as "financial
statements") are the responsibility of the Fund's management; our responsibility
is to express an opinion on these financial statements based on our audits. We
conducted our audits of these financial statements in accordance with the
standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits, which included confirmation of securities at September 30, 2003 by
correspondence with the custodian and brokers, provide a reasonable basis for
our opinion.

The financial statements of the Fund as of September 30, 2000 and for the
two years then ended were audited by other independent accountants whose report
dated November 3, 2000 expressed an unqualified opinion on those statements.

PricewaterhouseCoopers LLP
Boston, Massachusetts
November 25, 2003

FINANCIAL STATEMENTS

The following are the financial statements and related notes from the
Trust's September 30, 2003 Annual Report to Shareholders, including the Schedule
of Investments, the Statement of Assets and Liabilities, the Statement of
Operations, the Statement of Changes in Net Assets, the Statement of Cash Flows
and the five year Financial Highlights. It is expected that the unaudited
financial statements included in the Trust's Semi-Annual Report to Shareholders
for the six months ended March 31, 2004 will be mailed to Shareholders and
available on the Trust's website (www.hqcm.com) on or around June 1, 2004.

H&Q HEALTHCARE INVESTORS
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2003

SHARES VALUE
------ ------------

CONVERTIBLE SECURITIES--21.8% OF NET ASSETS

CONVERTIBLE PREFERRED (RESTRICTED)--21.7%

DRUG DISCOVERY TECHNOLOGIES--7.2%

2,380,953 Agilix Series B*............................................ $ 1,500,001
850,436 Avalon Pharmaceuticals Series B*............................ 2,999,964
375,000 Ceres Series C*............................................. 2,250,000
27,443 Ceres Series C-1*........................................... 164,658
277,967 Ceres Series D*............................................. 1,667,802
139,873 Galileo Laboratories Series F*.............................. 489,555
1,212,709 Idun Pharmaceuticals Series A-1*^........................... 3,000,000
1,034,519 Senomyx Series E*........................................... 3,000,002
1,750,000 Triad Therapeutics Series A*^............................... 1,750,000
525,000 Triad Therapeutics Series B*^............................... 525,000
1,200,000 Triad Therapeutics Series C*^............................... 1,200,000
923,077 Zyomyx Series B*............................................ 923,077
600,000 Zyomyx Series C*............................................ 600,000
600,000 Zyomyx Series E*............................................ 600,000

EMERGING BIOPHARMACEUTICALS--4.8%

453,828 ACADIA Pharmaceuticals Series E*............................ 1,225,336
277,778 ACADIA Pharmaceuticals Series F*............................ 750,001
952,381 Agensys 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
211,765 Theravance Series C*........................................ 1,905,885
200,000 Theravance Series D-1*...................................... 1,800,000
47,407 Therion Biologics Series A*................................. 85,333
240,000 Therion Biologics Series B*#................................ 432,000
407,712 Therion Biologics Series C*#................................ 733,882
36,092 Therion Biologics Sinking Fund*............................. 361

HEALTHCARE SERVICES--3.8%

1,577,144 CardioNet Series C*^........................................ 5,520,004
484,829 CytoLogix Series A*^........................................ 399,984
227,130 CytoLogix Series B*#^....................................... 187,382
5,384,615 PHT Series D*^.............................................. 4,200,000
743,282 PHT Series E*^.............................................. 579,760

MEDICAL DEVICES AND DIAGNOSTICS--5.9%

636,364 AbTox Series F*+............................................ 6,364
4,852,940 Concentric Medical Series B*^............................... 3,299,999
222,222 EPR Series A*............................................... 2,222
343,750 LocalMed Series D*.......................................... 3,437
160,000 Masimo Series D*............................................ 1,760,000

The accompanying notes are an integral part of these financial statements.
55

H&Q HEALTHCARE INVESTORS
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2003

SHARES VALUE
------ ------------

631,580 Novacept Series G*#......................................... $ 2,178,951
347,826 Novacept Series H*.......................................... 1,200,000
1,632,653 OmniSonics Medical Technologies Series B*^.................. 2,180,898
639,659 Songbird Hearing Series D*.................................. 6,397
652,173 TherOx Series H*............................................ 1,976,084
820,313 VNUS Medical Technologies Series E*......................... 4,200,003
------------
$ 62,145,033
------------

PRINCIPAL
AMOUNT
---------

CONVERTIBLE BONDS AND NOTES (RESTRICTED)--0.1%

HEALTHCARE SERVICES--0.1%
$ 168,337 CytoLogix 6.75% Cvt. Note, due 2003^........................ $ 168,337
1,577,366 FitForAll.com 10% Prom. Note*+.............................. 158
96,605 PHT Bridge Loan, due 2004*^................................. 96,605

MEDICAL DEVICES AND DIAGNOSTICS--0.0%

180,000 AbTox 12% Prom. Note*+...................................... 84,000
------------
$ 349,100
------------
TOTAL CONVERTIBLE SECURITIES
(COST $86,203,104).......................................... $ 62,494,133
============

SHARES VALUE
------ ------------

COMMON STOCKS--64.9%

BIOPHARMACEUTICALS--28.4%

81,000 Amgen*...................................................... $ 5,230,170
101,848 Biopure Class A*............................................ 658,956
204,900 Celgene*.................................................... 8,878,317
441,471 Corixa*..................................................... 3,514,109
33,164 Corixa Warrants (expire 8/14/07)*........................... 60,690
803,657 Cubist Pharmaceuticals*..................................... 8,671,459
312,823 CV Therapeutics*............................................ 6,882,106
308,400 Enzon Pharmaceuticals*...................................... 3,589,776
120,000 Genzyme*.................................................... 5,550,000
213,000 Gilead Sciences*............................................ 11,913,090
279,000 MedImmune*.................................................. 9,209,790
93,100 Neurocrine Biosciences*..................................... 4,610,312
267,000 Pfizer...................................................... 8,111,460
180,000 Pozen*...................................................... 3,200,400
113,700 Vertex Pharmaceuticals*..................................... 1,398,510
------------
81,479,145
------------

The accompanying notes are an integral part of these financial statements.
56

H&Q HEALTHCARE INVESTORS
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2003

SHARES VALUE
------ ------------

DRUG DELIVERY--3.4%

225,000 Aradigm*.................................................... $ 402,750
833,333 DepoMed*.................................................... 5,291,664
291,667 DepoMed Warrants (expire 4/21/08)*.......................... 1,222,085
532,580 Durect*..................................................... 1,789,469
338,892 Sontra Medical*^............................................ 518,505
346,729 Sontra Medical (Restricted)*^............................... 424,396
------------
9,648,869
------------
DRUG DISCOVERY TECHNOLOGIES--2.7%

933,000 deCODE Genetics*............................................ 4,394,430
507,200 Lexicon Genetics*........................................... 2,617,152
170,142 Lynx Therapeutics*.......................................... 867,724
386,400 Lynx Therapeutics Warrants (expire 4/29/07)*................ 0
------------
7,879,306
------------
EMERGING BIOPHARMACEUTICALS--13.4%

311,300 Adolor*..................................................... 5,712,355
2,760 BioTransplant (Restricted) Warrants (expire 8/12/04)*....... 0
6,300 BioTransplant (Restricted) Warrants (expire 10/31/04)*...... 0
1,150 BioTransplant (Restricted) Warrants (expire 8/15/05)*....... 69
387,802 Dyax*....................................................... 2,381,104
243,100 Encysive Pharmaceuticals*................................... 1,533,961
732,600 Exelixis*................................................... 5,230,764
457,600 Kosan Biosciences*.......................................... 3,642,496
99,314 Rigel Pharmaceuticals*...................................... 1,430,122
410,237 Telik*...................................................... 8,225,252
33,332 Therion Biologics (Restricted) C-2 Units*#.................. 59,998
226,760 Therion Biologics (Restricted)*............................. 2,268
270,270 Tularik*.................................................... 2,664,862
418,165 Vicuron Pharmaceuticals*.................................... 7,401,520
14,947 Vicuron Pharmaceuticals Warrants (expire 8/25/05)*.......... 176,492
------------
38,461,263
------------
GENERIC PHARMACEUTICALS--7.5%

135,000 aaiPharma*.................................................. 2,309,850
705,770 Impax Laboratories*......................................... 8,829,183
43,934 Impax Laboratories Warrants (expire 6/30/05)*............... 263,035
326,600 IVAX*....................................................... 6,401,360
62,100 Teva Pharmaceutical Industries ADR.......................... 3,549,015
------------
21,352,443
------------

The accompanying notes are an integral part of these financial statements.
57

H&Q HEALTHCARE INVESTORS
SCHEDULE OF INVESTMENTS
SEPTEMBER 30, 2003

SHARES VALUE
------ ------------

HEALTHCARE SERVICES--2.3%

85,200 Charles River Labs*......................................... $ 2,614,788
454,500 WebMD*...................................................... 4,054,140
306,208 Syntiro Healthcare Services (Restricted)*................... 3,062
188,096 Syntiro Healthcare Services (Restricted) Warrants (expire
10/15/04)*.................................................. 0
------------
6,671,990
------------
MEDICAL DEVICES AND DIAGNOSTICS--7.2%

522,617 Biofield*................................................... 99,297
600,000 Biofield (Restricted)*...................................... 96,000
1,000,000 Endocardial Solutions*^..................................... 5,000,000
645,000 EP MedSystems*.............................................. 2,560,650
209,000 IDEXX Laboratories*......................................... 8,880,410
160,000 Masimo Labs (Restricted)*................................... 1,600
1,020,000 Orthovita*^................................................. 3,978,000
------------
20,615,957
------------
TOTAL COMMON STOCKS
(COST $120,121,144)......................................... $186,108,973
============

PRINCIPAL
AMOUNT
---------

TEMPORARY CASH INVESTMENTS--14.2%

$14,500,000 American Express Credit Corp.; 1.03%, due 10/10/03.......... $ 14,496,266
7,800,000 Exxon Proj. Yrs. 3 & 4; 0.97%, due 10/17/03................. 7,796,637
1,300,000 General Electric Capital Corp.; 1.03% due 10/1/03........... 1,300,000
3,100,000 General Electric Capital Corp.; 1.03% due 10/15/03.......... 3,098,758
14,000,000 U.S. Treasury Bill; 0.75%, due 10/23/03..................... 13,993,583
------------
TOTAL TEMPORARY CASH INVESTMENTS
(COST $40,685,244).......................................... $ 40,685,244
============
TOTAL INVESTMENTS
(COST $247,009,492)......................................... $289,288,350
============

------------------------

* Non income-producing security.

# With warrants attached.

^ Affiliated issuers in which the Fund holds 5% or more of the voting
securities (Total Market Value of $41,069,564.

+ Issuer filed for bankruptcy.

The accompanying notes are an integral part of these financial statements.
58

H&Q HEALTHCARE INVESTORS

STATEMENT OF ASSETS AND LIABILITIES

SEPTEMBER 30, 2003

ASSETS:
Investments, at value (identified cost $247,009,492; see
Schedule of Investments)................................ $289,288,350
Cash........................................................ 1,998,971
Receivable for investments sold........................... 60,000
Interest receivable....................................... 54,750
Prepaid expenses.......................................... 51,219
------------
Total assets............................................ $291,453,290
------------
LIABILITIES:
Payable for investments purchased......................... $ 4,217,837
Accrued advisory fee...................................... 325,731
Accrued audit fee......................................... 68,525
Accrued other............................................. 86,343
------------
Total liabilities....................................... $ 4,698,436
------------
NET ASSETS.................................................. $286,754,854
============
SOURCES OF NET ASSETS:
Shares of beneficial interest, par value $.01 per share,
unlimited number of shares authorized, amount paid in on
14,608,952 shares issued and outstanding................ $235,148,591
Accumulated net realized gain on investments.............. 9,327,405
Net unrealized gain on investments........................ 42,278,858
------------
Total net assets (equivalent to $19.63 per share based
on 14,608,952 shares outstanding)..................... $286,754,854
============

The accompanying notes are an integral part of these financial statements.

H&Q HEALTHCARE INVESTORS

STATEMENT OF OPERATIONS

FOR THE YEAR ENDED SEPTEMBER 30, 2003

INVESTMENT INCOME:
Dividend income (net of foreign tax of $1,366)............ $ 45,869
Interest income........................................... 937,637
-----------
Total investment income................................. $ 983,506
EXPENSES:
Advisory fees............................................. $ 3,503,127
Trustees' fees and expenses............................... 136,980
Legal fees................................................ 121,806
Shareholder reporting..................................... 116,680
Accounting and auditing fees.............................. 92,435
Custodian fees............................................ 73,725
Transfer agent fees....................................... 59,289
Stock exchange listing fee................................ 40,312
Other..................................................... 83,239
-----------
Total expenses.......................................... 4,227,593
-----------
Net investment loss................................... $(3,244,087)
-----------
NET REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
Net realized gain on investments.......................... $26,376,623
Increase in net unrealized gain on investments............ 31,417,229
-----------
Net gain on investments............................... $57,793,852
-----------
Net increase in net assets resulting from
operations........................................ $54,549,765
===========

The accompanying notes are an integral part of these financial statements.

H&Q HEALTHCARE INVESTORS

STATEMENTS OF CHANGES IN NET ASSETS

FOR THE YEAR ENDED
-----------------------------
SEPTEMBER 30, SEPTEMBER 30,
2003 2002
------------- -------------

NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS:
Net investment loss....................................... $ (3,244,087) $ (3,593,224)
Net realized gain on investments.......................... 26,376,623 33,875,011
Increase (decrease) in net unrealized gain on
investments............................................. 31,417,229 (106,220,050)
------------ -------------
Net increase (decrease) in net assets resulting from
operations............................................ $ 54,549,765 $ (75,938,263)
------------ -------------
DISTRIBUTIONS TO SHAREHOLDERS FROM:
Net realized capital gains................................ $(29,863,899) $ (39,468,231)
------------ -------------
CAPITAL SHARE TRANSACTIONS:
Value of shares issued in reinvestment of distributions
(1,285,469 and 1,281,419 shares, respectively).......... $ 20,063,210 $ 28,039,066
------------ -------------
Net increase (decrease) in net assets................... $ 44,749,076 $ (87,367,428)
NET ASSETS:
Beginning of year......................................... 242,005,778 329,373,206
------------ -------------
End of year............................................... $286,754,854 $ 242,005,778
============ =============

The accompanying notes are an integral part of these financial statements.

H&Q HEALTHCARE INVESTORS

STATEMENT OF CASH FLOWS

FOR THE YEAR ENDED SEPTEMBER 30, 2003

CASH FLOWS USED FOR OPERATING ACTIVITIES:
Interest and other income received........................ $ 872,218
Dividends received........................................ 45,869
Operating expenses paid................................... (4,236,900)
------------
Net cash used for operating activities.................. $ (3,318,813)
------------
CASH FLOWS PROVIDED FROM INVESTING ACTIVITIES:
Purchases of portfolio securities......................... $(66,416,016)
Net sales of temporary cash investments................... 6,989,549
Sales and maturities of portfolio securities.............. 74,502,121
------------
Net cash provided from investing activities............. $ 15,075,654
------------
CASH FLOWS USED FOR FINANCING ACTIVITIES:
Cash distributions paid, net.............................. $ (9,800,689)
------------
Net cash used for financing activities.................. $ (9,800,689)
------------
NET DECREASE IN CASH........................................ $ 1,956,152
CASH AT BEGINNING OF YEAR................................... 42,819
------------
CASH AT END OF YEAR......................................... $ 1,998,971
============
RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM
OPERATIONS TO NET CASH USED FOR OPERATING ACTIVITIES:
Net increase in net assets resulting from operations...... $ 54,549,765
Accretion of discount..................................... (77,536)
Net realized gain on investments.......................... (26,376,623)
Increase in net unrealized gain on investments............ (31,417,229)
Decrease in dividends and interest receivable............. 12,117
Increase in accrued expenses.............................. 12,497
Increase in prepaid expenses.............................. (21,804)
------------
Net cash used for operating activities.................. $ (3,318,813)
============

Noncash financing activities not included herein consist of stock
distributions of $20,063,210.

The accompanying notes are an integral part of these financial statements.

H&Q HEALTHCARE INVESTORS

FINANCIAL HIGHLIGHTS

(SELECTED DATA FOR EACH SHARE OF BENEFICIAL INTEREST OUTSTANDING

THROUGHOUT THE PERIOD INDICATED)

Net asset value per share:
Beginning of year....... $ 18.160 $ 27.350 $ 46.147 $ 21.771 $ 16.711
------------ ------------ ------------ ------------ ------------
Net investment loss....... $ (0.231)(2) $ (0.283)(2) $ (0.195)(2) $ (0.290) $ (0.176)
Net realized and
unrealized gain (loss)
on investments.......... 3.871 (5.727) (13.822) 28.131 5.596
------------ ------------ ------------ ------------ ------------
Total increase (decrease)
from investment
operations.............. $ 3.640 $ (6.010) $ (14.017) $ 27.841 $ 5.420
------------ ------------ ------------ ------------ ------------
Capital gains
distributions to
shareholders............ $ (2.170) $ (3.180) $ (4.780) $ (3.465) $ (0.360)
------------ ------------ ------------ ------------ ------------
Net asset value per share:
End of year............. $ 19.630 $ 18.160 $ 27.350 $ 46.147 $ 21.771
============ ============ ============ ============ ============
Per share market value:
End of year............. $ 17.66 $ 14.10 $ 21.74 $ 36.19 $ 16.31
Total investment return at
market value............ 43.49% (25.24)% (27.23)% 151.66% 27.39%
RATIOS AND SUPPLEMENTAL
DATA:
Net assets at end of
year.................... $286,754,854 $242,005,778 $329,373,206 $485,582,570 $209,519,627
Ratio of operating
expenses to average net
assets.................. 1.65% 1.64% 1.42% 1.45% 1.46%
Ratio of net investment
loss to average net
assets.................. (1.27%) (1.16%) (0.62%) (0.86%) (0.91%)
Portfolio turnover rate... 32.80% 17.40% 16.17% 12.90% 24.88%
Number of shares
outstanding at end of
year.................... 14,608,952 13,323,483 12,042,064 10,522,490 9,623,524

--------------------------

(1) 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.

The accompanying notes are an integral part of these financial statements.

H&Q HEALTHCARE INVESTORS

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2003

(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 those 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. As indicated in Note 4, 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. Temporary cash 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.

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. The Fund has adjusted
for the effect of certain permanent book/tax differences, which primarily
related to net operating losses, short-term capital gains and market discount
for the year ended September 30, 2003. This adjustment has no effect on the
Fund's net assets, net investment loss or net realized gain. The calculation of
net investment loss per share in the financial highlights excluded this
adjustment. At September 30, 2003, the Fund's undistributed net realized gain on
a tax basis was the same as accumulated net realized gain on investments.

Pursuant to Section 852 of the Internal Revenue Code, the Fund has
designated $29,863,899 as a long-term capital gain distribution for its taxable
year ended September 30, 2003.

H&Q HEALTHCARE INVESTORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2003

DISTRIBUTION POLICY

The current distribution policy is to declare distributions in stock. Stock
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 September 30,
2003.

(2) SECURITIES TRANSACTIONS

The aggregate cost of purchases and proceeds from sales of investment
securities (other than temporary cash investments) for the year ended
September 30, 2003 totaled $70,633,853 and $72,888,497, respectively. At
September 30, 2003, the total cost of securities for Federal income tax purposes
was $247,009,492. The net unrealized gain on securities held by the Fund was
$42,278,858, including gross unrealized gain of $86,279,493 and gross unrealized
loss of $44,000,635.

At September 30, 2003, the Fund was committed to participate in a round of
financing to purchase additional shares of restricted preferred stock for
approximately $122,000. The Fund expects to satisfy this commitment in part
through the conversion of a loan.

(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%. 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
$15,000 plus $1,500 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% of the Fund's net assets at September 30,
2003.

H&Q HEALTHCARE INVESTORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2003

The value of the venture capital and other restricted securities is
determined in good faith by the Trustees. However, because of the inherent
uncertainty of 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.

During the year ended September 30, 2003, the Fund sold restricted
securities for cash and a pro portionate interest in a 5% interest-bearing
promissory note due October 31, 2004. The Fund's interest in the note has a par
value of $121,200 whose estimated value of $60,000 at September 30, 2003 has
also been determined by the Trustees and which 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 September 30, 2003, as
determined by the Trustees of the Fund.

ACQUISITION CARRYING VALUE
SECURITY DATE COST PER UNIT VALUE
-------- ---------------- ----------- --------------- -----------

AbTox
Series F Cvt. Pfd............... 3/7/97 $ 1,485,126 $0.010 $ 6,364
12% Promissory Note............. 2/26/98-3/26/98 180,000 0.467 84,000
ACADIA Pharmaceuticals
Series E Cvt. Pfd............... 5/2/00-3/24/03 3,000,594 2.700 1,225,336
Series F Cvt. Pfd............... 3/19/03 750,363 2.700 750,001
Agensys
Series C Cvt. Pfd............... 2/14/02 3,005,073 3.150 3,000,000
Agilix
Series B Cvt. Pfd............... 11/8/01 3,014,260 0.630 1,500,001
Avalon Pharmaceuticals
Series B Cvt. Pfd............... 10/22/01 3,008,325 3.528 2,999,964
Biofield
Common.......................... 12/15/00 302,984 0.160 96,000
BioTransplant
Common Warrants (expire
8/12/04)...................... 8/12/94 0 0.000 0
Common Warrants (expire
10/31/04)..................... 10/31/94 0 0.000 0
Common Warrants (expire
8/15/05)...................... 8/18/95 0 0.060 69
CardioNet^
Series C Cvt. Pfd............... 5/3/01-3/25/03 5,546,931 3.500 5,520,004
Ceres
Series C Cvt. Pfd............... 12/23/98 1,502,620 6.000 2,250,000
Series C-1 Cvt. Pfd.*........... 1/4/01 111,488 6.000 164,658
Series D Cvt. Pfd.*............. 3/14/01 1,668,122 6.000 1,667,802
Concentric Medical
Series B Cvt. Pfd............... 5/7/02-1/24/03 3,328,055 0.680 3,299,999
CytoLogix^
Series A Cvt. Pfd............... 1/13/98-7/21/99 2,332,441 0.825 399,984
Series B Cvt. Pfd.*............. 1/11/01 1,153,658 0.825 187,382
Cvt. Note....................... 5/29/02 168,337 1.000 168,337

H&Q HEALTHCARE INVESTORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2003

ACQUISITION CARRYING VALUE
SECURITY DATE COST PER UNIT VALUE
-------- ---------------- ----------- --------------- -----------

EPR
Series A Cvt. Pfd............... 3/9/94 $ 1,000,409 $0.010 $ 2,222
FitForAll.com
10% Promissory Note*............ 2/22/00-9/18/00 1,613,493 0.000 158
Galileo Laboratories
Series F Cvt. Pfd............... 8/18/00 3,002,682 3.500 489,555
Idun Pharmaceuticals
Series A-1 Cvt. Pfd............. 11/26/02 3,001,966 2.474 3,000,000
LocalMed
Series D Cvt. Pfd............... 2/9/96 1,376,970 0.010 3,437
Masimo
Series D Cvt. Pfd............... 8/14/96 1,120,040 11.000 1,760,000
Masimo Labs
Common.......................... 8/14/96 0 0.010 1,600
Novacept
Series G Cvt. Pfd.*............. 3/27/01 3,001,927 3.450 2,178,951
Series H Cvt. Pfd............... 4/25/02 1,200,000 3.450 1,200,000
OmniSonics Medical Technologies^
Series B Cvt. Pfd............... 5/24/01 2,404,898 1.336 2,180,898
PHT^
Series D Cvt. Pfd............... 7/23/01 4,202,025 0.780 4,200,000
Series E Cvt. Pfd............... 9/12/03 579,760 0.780 579,760
Bridge Loan..................... 7/15/03 96,605 1.000 96,605
Raven biotechnologies^
Series B Cvt. Pfd............... 12/12/00 3,001,725 0.830 1,509,091
Series C Cvt. Pfd............... 11/26/02 2,331,600 0.830 2,331,600
Senomyx
Series E Cvt. Pfd............... 2/19/02 3,003,903 2.900 3,000,002
Songbird Hearing
Series D Cvt. Pfd............... 12/14/00 3,004,861 0.010 6,397
Sontra Medical^
Common.......................... 9/9/98-6/24/02 852,367 1.224 424,396
Syntiro Heathcare Services
Common.......................... 2/5/97 1,200,325 0.010 3,062
Warrants (expire 10/15/04)...... 10/15/98 0 0.000 0
Theravance
Series C Cvt. Pfd............... 2/5/99 1,800,123 9.000 1,905,885
Series D-1 Cvt. Pfd............. 8/28/00 1,800,900 9.000 1,800,000

H&Q HEALTHCARE INVESTORS

NOTES TO FINANCIAL STATEMENTS (CONTINUED)

SEPTEMBER 30, 2003

ACQUISITION CARRYING VALUE
SECURITY DATE COST PER UNIT VALUE
-------- ---------------- ----------- --------------- -----------

Therion Biologics
C-2 Units*...................... 8/13/03 $ 59,998 $1.800 $ 59,998
Common.......................... 7/12/90-10/16/96 511,365 0.010 2,268
Series A Cvt. Pfd............... 8/20/96-10/16/96 444,850 1.800 85,333
Series B Cvt. Pfd.*............. 2/24/99-6/22/99 900,914 1.800 432,000
Series C Cvt. Pfd.*............. 9/26/01 1,529,348 1.800 733,882
Sinking Fund Cvt. Pfd........... 10/17/94-4/3/96 721,291 0.010 361
TherOx
Series H Cvt. Pfd............... 9/11/00 3,001,873 3.030 1,976,084
Triad Therapeutics
Series A Cvt. Pfd............... 6/8/99 1,751,170 1.000 1,750,000
Series B Cvt. Pfd............... 12/20/00 1,053,135 1.000 525,000
Series C Cvt. Pfd............... 11/25/02 1,200,000 1.000 1,200,000
VNUS Medical Technologies^
Series E Cvt. Pfd............... 8/20/01 4,200,003 5.120 4,200,003
Zyomyx
Series B Cvt. Pfd............... 2/19/99 1,200,550 1.000 923,077
Series C Cvt. Pfd............... 3/2/00 1,200,690 1.000 600,000
Series E Cvt. Pfd............... 7/22/02 1,200,000 1.000 600,000
----------- -----------
$89,130,143 $63,081,526
=========== ===========

------------------------

* With warrants attached.

^ Affiliated issuers.

On November 24, 2003, the Fund upon approval of the Valuation Committee,
made a change in the value of its Zyomyx holdings to approximately $21,000 to
reflect the then current fair market value.

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER MADE BY THIS PROSPECTUS AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE TRUST OR THE TRUST'S INVESTMENT ADVISER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY
SECURITY OTHER THAN THE SHARES OF BENEFICIAL INTEREST OFFERED BY THIS
PROSPECTUS, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY
OFFER TO BUY THE SHARES OF BENEFICIAL INTEREST BY ANYONE IN ANY JURISDICTION IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON
MAKING SUCH OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY SUCH
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT INFORMATION CONTAINED HEREIN IS
CORRECT AS OF ANY TIME AFTER THE DATE HEREOF. HOWEVER, IF ANY MATERIAL CHANGE
OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THE PROSPECTUS
WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.

--------------------------

TABLE OF CONTENTS

PAGE
--------

Prospectus Summary........................ 1
Trust Expenses............................ 11
Financial Highlights and Investment
Performance............................. 12
The Offer................................. 16
Use of Proceeds........................... 26
Investment Objective and Policies......... 26
Risks..................................... 33
Investment Techniques..................... 40
Management of the Trust................... 42
Description of Trust...................... 45
Portfolio Transactions and Brokerage...... 46
Net Asset Value........................... 46
Dividends and Distributions............... 48
Dividend Reinvestment Plan................ 49
Taxation.................................. 50
Custodian and Transfer Agent, Dividend
Disbursing Agent, Registrar and
Subscription Agent...................... 51
Legal Matters............................. 52
Experts................................... 52
Reports to Shareholders................... 52
Additional Information.................... 52
Special Note Regarding Forward-Looking
Statements.............................. 53
Table of Contents of Statement of
Additional Information.................. 53
Report of Independent Registered Public
Accounting Firm......................... 54
Financial Statements...................... 54

5,036,144 SHARES

H&Q HEALTHCARE
INVESTORS

ISSUABLE UPON EXERCISE OF

NON-TRANSFERABLE RIGHTS TO

SUBSCRIBE FOR SUCH SHARES

---------------------

PROSPECTUS

---------------------

May 26, 2004

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------

H&Q HEALTHCARE INVESTORS

STATEMENT OF ADDITIONAL INFORMATION

MAY 26, 2004

H&Q Healthcare Investors (the "Trust") is a diversified, closed-end,
management investment company registered under the Investment Company Act of
1940, as amended (the "Investment Company Act"). The Trust's investment
objective is to seek long-term capital appreciation by investing primarily in
securities of companies in the healthcare industries ("Healthcare Companies").
The Trust will invest primarily in securities of companies that are believed by
the Trust's investment adviser to have significant potential for above-average,
long-term growth in revenues and earnings. The Trust emphasizes investment in
securities of emerging growth Healthcare Companies, most of which are expected
to be traded in the over-the-counter market. The Trust may also invest up to 40%
of its net assets in venture capital or other securities subject to legal or
contractual restrictions as to resale ("Restricted Securities"). Such securities
may be acquired in connection with venture capital opportunities, as well as in
private placements of public companies. No assurance can be given that the Trust
will achieve its investment objective. The Trust's investment adviser is
Hambrecht & Quist Capital Management, LLC (the "Investment Adviser").

This Statement of Additional Information ("SAI") is not a prospectus, but
should be read in conjunction with the Prospectus for the Trust dated May 26,
2004 (the "Prospectus"). This SAI does not include all information that a
prospective investor should consider before purchasing shares of beneficial
interest ("Shares") of the Trust, and investors should obtain and read the
Prospectus prior to purchasing Shares. A copy of the Prospectus may be obtained
without charge, by calling the Information Agent at (800) 870-0126. This SAI
incorporates by reference the entire Prospectus.

The Prospectus and this SAI omit certain of the information contained in
the Trust's registration statement filed with the Securities and Exchange
Commission (the "Commission"). Information about the Trust can be reviewed and
copied at the Commission's Public Reference Room in Washington, DC. Call (202)
942-8090 for information on the operation of the Public Reference Room. This
information is also available in the Commission's Internet site at
http://www.sec.gov, and copies may be obtained upon payment of a duplicating fee
by writing the Public Reference Section of the Commission, Washington, DC
20549-0102.

TABLE OF CONTENTS

PAGE

Additional Information About Investments and Investment Techniques 2
Investment Restrictions 7
Trustees and Officers 9
The Trust 15
Investment Advisory Agreement 17
Code of Ethics 22
Net Asset Value 22
Portfolio Transactions and Brokerage 24
Dividend Reinvestment Plan 27
Tax Matters 28
Custodian and Transfer Agent, Dividend Disbursing Agent and Registrar 34
Financial Statements 35
Appendix A -- Proxy Voting Policies and Procedures 36

ADDITIONAL INFORMATION ABOUT INVESTMENTS
AND INVESTMENT TECHNIQUES

Some of the different types of securities in which the Trust may invest,
subject to its investment objective, policies and restrictions, are described in
the Prospectus under "Investment Objectives and Policies" and "Risks."
Additional information concerning certain of the Trust's investments, investment
techniques and investment restrictions is set forth below.

WHEN-ISSUED AND DELAYED DELIVERY TRANSACTIONS

The Trust may purchase securities on a "when issued" basis or a "delayed
delivery" basis. "When-issued" securities are securities whose terms are
available and for which a market exists, but which are not available for
immediate delivery. "Delayed delivery" transactions are those in which the Trust
purchases a security but settlement of the transaction is to occur after the
customary settlement date. The Trust will enter into such transactions for the
purpose of acquiring securities that it wishes to purchase but that are not
currently available for purchase. The Trust may dispose of a commitment to
purchase prior to settlement. However, the Trust does not intend to make such
purchases for speculative purposes. When such transactions are negotiated, the
purchase price is fixed at the time the commitment is made, but delivery and
payment for the securities take place at a later date. During the period between
commitment and settlement, no payment is made for the securities purchased, and
no interest or dividends accrue to the Trust. However, the securities are
subject to market fluctuation, and the value at settlement may be less than the
purchase price. While awaiting settlement, the Trust will maintain with its
custodian a segregated account consisting of liquid securities, which may
include cash, obligations of the U.S. Government, its agencies or
instrumentalities ("U.S. Government Securities"), debt obligations or equity
securities having a value at least equal to its purchase commitments. The
commitment to purchase a security for which payment will be made on a future
date may be deemed a separate security and involves a risk of loss if the
security declines prior to the settlement date, which risk is in addition to the
risk of decline of the Trust's other assets.

U.S. GOVERNMENT SECURITIES

The Trust may invest in securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities. Although U.S. Government
securities issued directly by the U.S. Government are guaranteed by the U.S.
Treasury, other U.S. Government securities issued by an agency or
instrumentality of the U.S. Government may not be. No assurance can be given
that the U.S. Government would provide financial support to its agencies and
instrumentalities if not required to do so by law.

REPURCHASE AGREEMENTS

A repurchase agreement is an agreement under which the Trust acquires a
security subject to the obligation of the seller to repurchase and the Trust to
resell such security at a fixed time and price (representing the Trust's cost
and interest). It is the Trust's present intention to enter into repurchase
agreements for a relatively short period (usually not more than one week) only
with commercial banks and registered broker-dealers and only with respect to
U.S. Government Securities and money market instruments. Repurchase agreements
may also be viewed as loans made by the Trust, which are collateralized by the
securities subject to repurchase. The Trust intends to take possession of
collateral, and the Investment Adviser will monitor repurchase transactions to
ensure that the value of the underlying securities will at all times be at least
equal to the total amount of the repurchase obligation, including the interest
factor. If the seller defaults the Trust could realize a loss on the sale of the
underlying security to the extent that the proceeds of sale, including accrued
interest, are less than the resale price provided in the agreement, including
interest. In addition, if the seller should be involved in bankruptcy or
insolvency proceedings, the Trust may incur delay and costs in selling the
underlying security or may suffer a loss of principal and interest if the Trust
is treated as an unsecured creditor and required to return the underlying
collateral to the seller. The Trust may not enter into repurchase agreements
with respect to more than 10% of its net assets.

LOANS OF PORTFOLIO SECURITIES

In an attempt to make productive use of its assets, the Trust may lend its
portfolio securities, subject to the limitation that the Trust will not lend a
security if, as a result of such loan, all securities then subject to loans
would exceed 20% of the Trust's net assets. Under applicable regulatory
requirements (which are subject to change), the loan collateral must, on each
business day, be at least equal to the value of the loaned securities and must
consist of cash, bank letters of credit or U.S. Government Securities. To be
acceptable as collateral, letters of credit must obligate a bank to pay amounts
demanded by the Trust if the demand meets the terms of the letter. Such terms
and the issuing bank must be satisfactory to the Trust. When the Trust lends a
security, it is entitled to receive substitute payments in the amount of any
dividends or interest on the loaned security and also receives one or more of:
(1) a negotiated loan fee; (2) interest on securities used as collateral for the
loan; or (3) interest on short-term debt securities purchased with the loan
collateral. Either type of interest may be shared with the borrower of the
security. The Trust may also pay reasonable finder's, custodian and
administrative fees. The terms of the Trust's loans of securities must meet
certain requirements under the Internal Revenue Code of 1986, as amended (the
"Code"), such as providing that the Trust may terminate the loan upon no more
than five days' notice, and must permit the Trust to reacquire loaned securities
in time to vote on any important matter. The Trust will make such loans only to
banks and dealers with which it may enter into

repurchase agreements. If the borrower fails to return the loaned security, the
Trust's risks include: (1) any costs in disposing of the collateral; (2) loss
from a decline in value of the collateral to an amount less than 100% of the
securities loaned; (3) being unable to exercise its voting or consent rights
with respect to the security; (4) any loss arising from the Trust being unable
to settle a sale of such securities in a timely manner; and (5) the inability of
the Trust to reacquire the loaned securities.

HEDGING

In order to hedge against changes in the value of its portfolio securities,
the Trust may from time to time engage in certain hedging strategies.

The Trust may engage in hedging activities from time to time at the
Investment Adviser's discretion, but may not necessarily be engaging in such
activities when movements in the securities markets, foreign exchange rates, or
interest rates that could affect the value of the assets of the Trust occur. The
Trust's ability to pursue certain of these strategies may be limited by
applicable regulations of the Commodity Futures Trading Commission ("CFTC").

Although the Trust believes that use of such strategies will benefit the
Trust, if the Investment Adviser's judgment about the general direction of
securities market movements, foreign exchange rates or interest rates is
incorrect, the Trust's overall performance could be poorer than if it had not
pursued those strategies. Moreover, changes in the value of the instruments that
the Trust purchases to hedge its portfolio securities may not correlate
precisely with changes in the value of the portfolio securities the Trust is
attempting to hedge. In addition, in situations where the Trust has insufficient
cash, it may have to sell assets from its portfolio to meet margin requirements
at a time when it may be disadvantageous to do so. The Trust's hedging
activities may also result in a higher portfolio turnover rate and additional
brokerage costs.

FUTURES CONTRACTS

FUTURES CONTRACTS. The Trust may enter into contracts for the purchase or
sale for future delivery (a "futures contract") of baskets of securities,
financial indices, financial instruments or foreign currencies. The Trust may
purchase or sell futures contracts to attempt to protect the value of its
securities from market-wide price movements and fluctuations in interest or
foreign exchange rates without actually buying or selling securities or foreign
currency.

A "sale" of a futures contract (or a "short" futures position) means the
assumption of a contractual obligation to deliver the securities or currency
underlying the contract at a specified price and at a specified future time. A
"purchase" of a futures contract (or a "long" futures position) means the
assumption of a contractual obligation to acquire the securities or currency
underlying the contract at a specified price and at a specified future time.

MARGIN REQUIREMENTS. At the time a futures contract is purchased or sold,
the Trust must allocate cash or securities as a deposit payment ("initial
margin"). It is expected that the initial margin on U.S. exchanges may range
from approximately 3% to approximately 15% of the value of the securities or
commodities underlying the contract. Under certain circumstances, however, such
as periods of high volatility, the Trust may be required by an exchange to
increase the level of its initial margin payment. Additionally, initial margin
requirements may be increased generally in the

future by regulatory action. An outstanding futures contract is valued daily and
the payment in cash of "variation margin" may be required, a process known as
"mark to the market."

REGULATORY LIMITATIONS ON THE USE OF FUTURES CONTRACTS. Regulations of the
CFTC applicable to the Trust currently require that all of the Trust's futures
transactions constitute bona fide hedging transactions or be undertaken
incidental to the Trust's activities in the securities markets. In accordance
with CFTC regulations, the Trust may not purchase or sell futures contracts if
immediately thereafter the sum of the amounts of initial margin deposits on the
Trust's existing futures positions would exceed 5% of the fair market value of
the Trust's total assets. The Investment Adviser reserves the right to comply
with such different standards as may be established by CFTC rules and
regulations with respect to the purchase or sale of futures contracts.

CONSIDERATIONS CONCERNING FUTURES CONTRACTS AND OPTIONS ON FUTURES
CONTRACTS. Futures contracts entail special risks. The ordinary spreads between
values in the cash and futures markets, due to differences in the character of
these markets, are subject to distortions relating to (1) investor's obligations
to meet additional variation margin requirements, (2) decisions to make or take
delivery, rather than entering into offsetting transactions, and (3) the
difference between margin requirements in the securities markets and margin
deposit requirements in the futures markets. The possibility of such distortion
means that a correct forecast of general market, foreign exchange rate or
interest rate trends by the Investment Adviser may still not result in a
successful transaction. The Trust's ability to establish and close out positions
in futures contracts and options on futures contracts will be subject to the
development and maintenance of a liquid market. Although the Trust generally
will purchase or sell only those futures contracts and options for which there
appears to be a liquid market, there is no assurance that a liquid market on an
exchange will exist for any particular futures contract or option at any
particular time.

Under certain circumstances, exchanges may establish daily limits in the
amount that the price of a futures contract may vary either up or down from the
previous day's settlement price. Once the daily limit has been reached in a
particular contract, no trades may be made that day at a price beyond that
limit.

EXCHANGE RATE RISK

The Trust may enter into forward foreign currency exchange contracts
("forward contracts") and may purchase and sell foreign currency futures
contracts to protect against a decline in the U.S. Dollar equivalent value of
its foreign currency portfolio securities or the payments thereon that may
result from an adverse change in foreign currency exchange rates. The accurate
projection of short-term currency market movements is extremely difficult, and
the successful execution of a short-term hedging strategy is highly uncertain.

FORWARD CONTRACTS. A forward contract obligates one party to purchase and
the other party to sell a definite amount of a given foreign currency at some
specified future date. In some circumstances the purchase or sale of appropriate
forward contracts may help offset declines in the U.S. Dollar equivalent value
of the Trust's foreign currency denominated assets and income available for
distribution to the Trust's shareholders of record that result from adverse
changes in the exchange rate between the U.S. Dollar and the various foreign
currencies in which the Trust's assets or income may be denominated. The U.S.
Dollar equivalent value of the principal of and rate of return on foreign
currency denominated securities will decline if the exchange rate of the U.S.

Dollar rises in relation to that currency. Such declines could be partially or
completely offset by an increase in the value of a forward contract on that
foreign currency.

While the use of foreign currency forward contracts may protect the Trust
against declines in the U.S. Dollar equivalent value of its assets, their use
will reduce the possible gain from advantageous changes in the value of the U.S.
Dollar against particular currencies in which their assets are denominated.
Moreover, the use of foreign currency forward contracts will not eliminate
fluctuations in the underlying U.S. Dollar equivalent value of the prices of or
rates of return on the assets held in the portfolio and the use of such
techniques will subject the Trust to certain risks.

The foreign exchange markets can be highly volatile, subject to sharp price
fluctuations. In addition, trading forward contracts can involve a degree of
leverage. As a result, relatively small movements in the rates of exchange
between the currencies underlying a contract could result in immediate and
substantial losses to the Trust. Trading losses that are not offset by
corresponding gains in assets being hedged could sharply reduce the value of the
Trust's portfolio.

FUTURES CONTRACTS ON FOREIGN CURRENCIES. Buyers and sellers of foreign
currency futures contracts are subject to the same risks that apply to the use
of futures generally. In addition, there are risks associated with foreign
currency futures contracts and their use as hedging devices similar to those
associated with options on foreign currencies described above. Further,
settlement of a foreign currency futures contract must occur within the country
issuing the underlying currency. Thus, the Trust must accept or make delivery of
the underlying foreign currency in accordance with any U.S. or foreign
restrictions or regulations regarding the maintenance of foreign banking
arrangements by U.S. residents and may be required to pay any fees, taxes or
charges associated with such delivery that are assessed in the country of the
underlying currency.

COVERAGE REQUIREMENTS

All futures and forward currency contracts purchased or sold by the Trust
are required to be covered. When the Trust purchases a futures or forward
currency contract, this means that the Trust will maintain with the Trust's
custodian in a segregated account an amount of liquid securities, including
cash, U.S. Government Securities, debt obligations or equity securities, so that
the amount so segregated, plus the amount of initial and variation margin held
in the account of its broker, if applicable, equals the market value of the
futures or forward currency contract.

When the Trust sells a futures or forward currency contract, this means
that during the life of the futures or forward currency contract the Trust will
own or have the contractual right to acquire the securities or foreign currency
subject to the futures or forward currency contract, or will maintain with the
Trust's custodian in a segregated account liquid securities, including cash,
U.S. Government Securities, debt obligations or equity securities, in an amount
at least equal to the market value of the securities or foreign currency
underlying the futures or forward currency contract.

If the market value of the contract moves adversely to the Trust, or if the
value of the securities in the segregated account declines, the Trust will be
required to deposit additional cash or securities in the segregated account at a
time when it may be disadvantageous to do so.

INVESTMENT RESTRICTIONS

The Trust has adopted certain fundamental restrictions, which, like its
investment objective, may not be changed without the affirmative vote of the
holders of a majority of the Trust's outstanding Shares. As used in this SAI, a
"majority of the Trust's outstanding Shares" means the lesser of (1) 67% of the
Shares represented at a meeting at which more than 50% of the outstanding Shares
are represented or (2) more than 50% of the outstanding Shares. The Trust may
not:

1. With respect to 75% of its total assets, invest in securities of any one
issuer if immediately after and as a result of such investment more than 5% of
the total assets of the Trust, taken at market value, would be invested in the
securities of such issuer. This restriction does not apply to investments in
U.S. Government Securities.

2. Purchase more than 10% of the outstanding voting securities of any one
issuer.

3. Purchase or sell commodities or commodities contracts. The prohibition
on the purchase or sale of commodities applies to the purchase or sale of
"physical" commodities.

4. Purchase or sell real estate; provided that the Trust may invest in
securities secured by real estate or interests therein or issued by companies
which invest in real estate or interests therein.

5. Purchase any securities on margin or make short sales of securities,
except for short-term credit necessary for the clearance of portfolio
transactions.

6. Underwrite securities of other issuers, except to the extent that, in
connection with the disposition of its portfolio securities, the Trust may be
deemed an underwriter under federal or state securities law. See "Portfolio
Transactions and Brokerage."

7. Invest less than 25% of its net assets in securities of companies in the
healthcare industries.

8. Invest more than 40% of the Trust's net assets in venture capital or
other Restricted Securities.

9. Issue senior securities or borrow amounts in excess of 10% of its net
assets at the time of borrowing, and then only from banks as a temporary measure
for extraordinary or emergency purposes or for the repurchase of its securities.
The Trust will not repurchase its securities during periods when it has
outstanding borrowings in excess of 5% of its net assets. The Trust will not
borrow for investment purposes.

10. Mortgage, pledge, hypothecate or in any manner transfer, as security
for indebtedness, any securities owned or held by the Trust, except as may be
necessary in connection with permitted borrowings under 9. above.

11. Make loans of money, except by the purchase of debt obligations in
which the Trust may invest consistent with its investment objective and
policies. The Trust reserves the authority to enter into repurchase agreements
and to make loans of its portfolio securities to qualified institutional
investors, brokers, dealers, banks or other financial institutions, so long as
the terms of the loans are not inconsistent with the requirements of the
Investment Company Act. Such loans

may not exceed an aggregate amount of 20% of the Trust's net assets. Repurchase
agreements are subject to the percentage limitation described in investment
policy 5. below. See also "Repurchase Agreement."

12. Purchase securities of other investment companies except in connection
with a merger, consolidation, acquisition or reorganization, if (a) more than
10% of its total assets would be invested in securities of other investment
companies, (b) more than 5% of its total assets would be invested in the
securities of any one investment company, or (c) the Trust would own more than
3% of any other investment company's securities.

In addition, the Trust has adopted the following investment policies, which
may be changed by the action of the Board of Trustees (the "Board") without
shareholder approval:

1. The Trust, under normal circumstances, will have at least 80% of its net
assets invested in securities of Healthcare Companies. This investment policy
may not be changed without 60 days' prior notice to shareholders.

2. To the extent not invested in the Healthcare Company, assets of the
Trust will be invested in cash, U.S. Government Securities, money market
instruments or money market mutual funds for liquidity. When, in the opinion of
the Investment Adviser, adverse market conditions or industry expectations
support such action, the Trust may temporarily take a defensive position of up
to 75% of net assets in such liquid investments. The money market instruments in
which the Trust may invest include certificates of deposit and bankers'
acceptances issued by domestic branches of federally-insured U.S. banks and
savings and loan associations and commercial paper and high and upper medium
grade corporate debt securities rated, as of the date of purchase, among the
highest rating categories of Moody's Investors Service Inc. (Aaa, Aa or A for
bonds; MIG-1, MIG-2 or MIG-3 for notes; P-1 for commercial paper) or Standard &
Poor's Corporation (AAA, AA or A for bonds; SP-1+ to SP-2 for notes; A-1 for
commercial paper). The Trust also may invest in shares of money market mutual
funds that invest in money market instruments and U.S. Government Securities.
Money market mutual funds are investment companies and the Trust's investments
in those companies are subject to the limitations set forth in 12 under
"Investment Restrictions." As a shareholder in money market mutual funds, the
Trust will bear its ratable share of such companies' expenses, including
investment adviser or management fees, and will remain subject to payment of
fees to the Investment Adviser.

3. Investments will not be made in any company with the objective of
exercising control over that company's management, and the Trust generally will
not provide managerial assistance to any such company as is normally the case
with venture capital funds. The Trust, however, may make investments as a
co-investor with other venture capital groups that may provide issuers with
significant managerial assistance.

4. The Trust may invest up to 5% of its net assets in warrants, valued at
market value. Warrants acquired in units or attached to other securities are not
subject to this restriction.

5. The Trust may not enter into repurchase agreements with respect to more
than 10% of its net assets. It is the Trust's present intention to enter into
repurchase agreements for a relatively short period (usually not more than one
week) only with commercial banks and registered broker-dealers and only with
respect to U.S. Government Securities and money market instruments. Repurchase

agreements may also be viewed as loans made by the Trust which are
collateralized by the securities subject to repurchase. The Trust intends to
take possession of collateral, and the Investment Adviser will monitor
repurchase transactions to ensure that the value of the underlying securities
will be at least equal at all times to the total amount of the repurchase
obligation, including the interest factor. See also "Repurchase Agreements."

6. The Trust may not invest more than 20% of its net assets at the time of
purchase in securities of foreign issuers. Such issuers are expected to be
companies domiciled in Canada, Western Europe and Japan. The Trust may buy and
sell foreign currencies for the purpose of settlement of transactions in foreign
securities, but presently does not intend to engage in hedging operations such
as buying contracts for purchase in the future of foreign currencies. Any such
hedging operations would be limited to 5% of net assets.

7. The Trust may not invest in put or call options.

Except as otherwise noted, all percentage limitations set forth above apply
immediately after a purchase and a subsequent change in the applicable
percentage resulting from market fluctuations does not require elimination of
any security from the portfolio.

TRUSTEES AND OFFICERS

The Trust's Declaration of Trust provides that the Trust will indemnify
Trustees and officers and may indemnify employees and agents of the Trust
against liabilities and expenses incurred in connection with claims or
litigation in which they may be involved because of their offices with the
Trust. However, nothing in the Declaration of Trust or the By-laws of the Trust
protects or indemnifies a Trustee, officer, employee or agent against any
liability to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his office.

The names of the Trustees and officers of the Trust, their addresses, ages
and principal occupations during the past five years, and, in the case of the
Trustees, their positions with certain other organizations and publicly-held
companies, are provided in the tables below. Trustees that are deemed
"interested persons" (as that term is defined in Section 2(a)(19) of the
Investment Company Act) of the Trust or the Investment Adviser are included in
the table titled "Interested Trustees." Trustees who are not interested persons
as described above are referred to as Independent Trustees. The Trust and H&Q
Life Sciences Investors ("HQL"), another closed-end investment company advised
by the Investment Adviser, are the only two portfolios in the Fund Complex.

INTERESTED TRUSTEES

POSITION WITH THE PRINCIPAL OCCUPATION
NAMES, AGES AND ADDRESSES TRUST AND OTHER AFFILIATIONS
---------------------------------- --------------------------------- ------------------------------------------------------------

Lawrence S. Lewin^@ (66) Class B Trustee; Trustee Executive Consultant (since December 1999); Chief Executive
3305 Rolling Road (since 1987) and Chairman of Officer (from 1970-1999) of The Lewin Group (healthcare
Chevy Chase, MD 20815 Trust (since 2000) pubic policy and Management consulting), a subsidiary of
Quintiles Transnational Corp.; Director (since 2003) of
Medco Health Solutions, Inc.; Trustee, HQL (since 1992)
and Chairman of HQL (since 2000).

Robert P. Mack, M.D.#^ (68) Class C Trustee; Trustee Consultant in Orthopedic Surgery to Orthopedic Associates
30 Rowes Wharf (since 1991) of Aspen (since 2000); and Trustee, HQL (since 1992).
Boston, MA 02110

Eric Oddleifson**#@ (69) Class C Trustee; Trustee Partner (1997-2003) and Investment Committee Chair (since
42 River Road (since 1992) Sept. 2003) of GMO Renewable Resources LLC (timber
Cohasset, MA 02025 investment management); and Trustee, HQL (since 1992).

Oleg M. Pohotsky**#@ (57) Class C Trustee; Trustee Financial Consultant (since 2002); Senior Vice President
30 Rowes Wharf (since 2000) (from 1991-2001) of FAC/Equities, a division of First Albany
Boston, MA 02110 Corporation (investment bank); and Trustee, HQL (since 2000).

Uwe E. Reinhardt, Ph.D.** (66) Class B Trustee; Trustee Professor of Economics (since 1968) at Princeton
30 Rowes Wharf (since 1988) University; Director (since 2000) of Triad Hospitals, Inc.;
Boston, MA 02110 Director (since 2002) of Boston Scientific; Director
(since 2002) of Amerigroup, Inc.; Director (since 2001) of
Duke University; Director (since 2001) of the Duke
University Health System; Director (since 2002) of the
National Bureau of Economic Research; and Trustee, HQL
(since 1992).

Henri A. Termeer^ (58) Class A Trustee; Trustee Chairman (since 1988), Chief Executive Officer (since
Genzyme Corporation (since 1989) 1985), and President (since 1983) of Genzyme Corporation
500 Kendall Street (human healthcare products); Director (since 1987) of
Cambridge, MA 02139 ABIOMED, Inc.; and Trustee, HQL (since 1992).

# Member of the Trust's Valuation Committee.
^ Member of the Trust's Corporate Governance and Nominating Committee.
** Member of the Trust's Audit Committee.
@ Member of the Trust's Qualified Legal Compliance Committee.

INTERESTED TRUSTEES

POSITION WITH THE PRINCIPAL OCCUPATION
NAMES, AGES AND ADDRESSES TRUST AND OTHER AFFILIATIONS
-------------------------------- ------------------------------- ---------------------------------------------------------------

Daniel R. Omstead, EngScD* (50) Class B Trustee; President Trustee (since 2003) and President (since 2001) of HQL;
30 Rowes Wharf (since 2001) and Trustee President, Chief Executive Officer and Managing Member (since
Boston, MA 02110 (since 2003) July 2002) of the Investment Adviser; President and
Chief Executive Officer (2001-June 2002) and Managing
Director (2000-June 2002) of Hambrecht & Quist Capital
Management, Inc.; President and Chief Executive Officer
(from 1998-2000) of Reprogenesis, Inc.

* Trustee considered to be an "interested person" within the meaning of the
Investment Company Act (an "Interested Person"), through his position or
affiliation with the Investment Adviser.

EXECUTIVE OFFICERS WHO ARE NOT TRUSTEES

POSITION WITH THE PRINCIPAL OCCUPATION
NAMES, AGES AND ADDRESSES TRUST AND OTHER AFFILIATIONS
-------------------------------- ------------------------------- ---------------------------------------------------------------

Kimberley L. Carroll (48) Treasurer (since 1987); Treasurer and Chief Financial Officer of the Trust (since
30 Rowes Wharf Secretary (since 2004) 1987) and of HQL (since 1992); Secretary of HQL (since 2004);
Boston, MA 02110 Vice President of the Investment Adviser (since 2002); Vice
President (from 1991-July 2002) and Treasurer (from 2000-July
2002) of Hambrecht & Quist Capital Management, Inc.

OWNERSHIP OF SECURITIES

As April 30, 2004, the Trust's Trustees and executive officers, as a
group, beneficially owned less than 1% of the Trust's outstanding Shares. The
information as to beneficial ownership of securities which appears below is
based on statements furnished to the Trust by its Trustees and executive
officers.

To the knowledge of the Trust, as of April 30, 2004, there were no
control persons of the Trust and no persons were known to own, either
beneficially or of record, 5% or more of the Shares of the Trust.

For the year ended December 31, 2003, the dollar range of equity
securities owned beneficially by each Trustee in the Trust and in any registered
investment companies overseen by the Trustee within the same family of
investment companies as the Trust is as follows:

INDEPENDENT TRUSTEES

AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED INVESTMENT
DOLLAR RANGE OF EQUITY COMPANIES OVERSEEN BY TRUSTEE IN
NAME OF DIRECTOR SECURITIES IN THE TRUST FAMILY OF INVESTMENT COMPANIES
---------------------------------- --------------------------------------- --------------------------------------------

Lawrence S. Lewin $10,001 - $50,000 $50,001 - $100,000
Robert P. Mack, M.D. $50,001 - $100,000 $50,001 - $100,000
Eric Oddleifson $50,001 - $100,000 over $100,000
Oleg M. Pohotsky None None
Uwe E. Reinhardt, Ph.D. $10,001 - $50,000 $10,001 - $50,000
Henri A. Termeer None None

INTERESTED TRUSTEES

AGGREGATE DOLLAR RANGE OF EQUITY
SECURITIES IN ALL REGISTERED INVESTMENT
DOLLAR RANGE OF EQUITY COMPANIES OVERSEEN BY TRUSTEE IN FAMILY OF
NAME OF DIRECTOR SECURITIES IN THE TRUST INVESTMENT COMPANIES
---------------------------------- --------------------------------------- --------------------------------------------

Daniel R. Omstead, Eng.ScD. None $1 - $10,000

Dr. Omstead and Ms. Carroll serve as executive officers of the Trust. As of
December 31, 2003, the executive officers of the Trust beneficially owned 510
Shares of the Trust, or less than 1% of the Shares outstanding on that date.

STANDING COMMITTEES

AUDIT COMMITTEE. The Trust has an Audit Committee comprised solely of
Trustees who are not "interested persons" (as that term is defined in Section
2(a)(19) of the Investment Company Act) of the Trust or the Investment Adviser
and who are "independent" as defined in the New York Stock Exchange ("NYSE")
Listing Standards (each an "Independent Trustee"). The Trust's Board of Trustees
has adopted a written charter for the Audit Committee. The principal purpose of
the Trust's Audit Committee is to assist the Board of Trustees in fulfilling its
responsibility to oversee management's conduct of the Trust's financial
reporting process, including reviewing the financial reports and other financial
information provided by the Trust, the Trust's systems of internal accounting
and financial controls and the annual independent audit process.

For the Trust, the Audit Committee's role is one of oversight, and it is
recognized that the Trust's management is responsible for preparing the
Trust's financial statements and that the outside auditor is responsible for
auditing those financial statements. Although the Audit Committee member must
be financially literate and one member must have accounting or financial
management expertise (as determined by the Board of Trustees in its business
judgment), Audit Committee members are not professionally engaged in the
practice of accounting or auditing and are not experts in the fields of
accounting or auditing, including with respect to auditor independence. Audit
Committee members rely, without independent verification, on the information
provided to them and on the representations made by management and the
Trust's independent public accountants.

The members of the Trust's Audit Committee are Messrs. Oddleifson, Pohotsky
and Reinhardt. Mr. Pohotsky is the Chairman of the Trust's Audit Committee. The
Trust's Audit Committee held one meeting during the fiscal year ended September
30, 2003.

NOMINATING AND GOVERNANCE COMMITTEE. The Trust has a Nominating and
Governance Committee comprised solely of Independent Trustees who are
"independent" as defined in the NYSE Listing Standards. The Board of
Trustees has adopted a written Nominating Charter for the Nominating and
Governance Committee. Under the Nominating Charter, the mission of the
Committee is to promote the effective participation of qualified individuals
on the Board, committees of the Board and as executive officers of the Trust.
As its governance function, the Committee reviews, evaluates and strives to
enhance the effectiveness of the Board in its role in governing the Trust and
overseeing the management of the Trust.

The Trust's Nominating and Governance Committee requires that each
prospective trustee candidate have a college degree or equivalent business
experience, and that each candidate is not serving in a similar capacity on
the board of a registered investment company which is not sponsored or
advised by the Trust's investment adviser or its affiliates. The Committee
may also take into account other factors when considering and evaluating
potential trustee candidates, including but not limited to: (i) availability
and commitment to attend meetings and perform responsibilities on the Board;
(ii) relevant industry and related experience; (iii) educational background;
(iv) financial expertise; (v) the candidate's ability, judgment and
expertise; and (vi) the overall diversity of the Board's composition.

The Committee may identify prospective trustees from any reasonable
source, including, but not limited to, the consultation of third-party
trustee search services. The Trust's Nominating and Governance Committee will
consider potential trustee candidates recommended by shareholders, provided
that the proposed candidates (i) satisfy any minimum qualifications of the
Trust for its trustees; (ii) are not "interested persons" (as that term is
defined in Section 2(a)(19) of the 1940 Act) of the Trust or the Investment
Adviser; and (iii) are "independent" as defined in the NYSE Listing
Standards. In order to be evaluated by the Committee, trustee candidates
recommended by shareholders must also meet certain eligibility requirements
as set out in the Committee's Nominating Charter. Other than those
eligibility requirements, the Committee shall not evaluate shareholder
trustee nominees in a different manner than other nominees. The standard of
the Committee is to treat all equally qualified nominees in the same manner.

All shareholder recommended nominee submissions must be received by the
Trust by the deadline for submission of any shareholder proposals which would
be included in the Trust's proxy statement for the next annual meeting of the
Trust. Each nominating shareholder or shareholder group must meet the
requirements stated in the Nominating Charter. When nominating a trustee
candidate, shareholders must include in their notice to the Trust's
Secretary: (i) the shareholder's contact information; (ii) the trustee
candidate's contact information and the number of Trust shares owned by the
proposed candidate; (iii) all information regarding the candidate that would
be required to be disclosed in solicitations of proxies for elections of
trustees required by Regulation 14A of the Securities Act of 1934, as
amended; and (iv) a notarized letter executed by the trustee candidate,
stating his or her intention to serve as a nominee and be named in the
Trust's proxy statement, if nominated by the Board of Trustees, and to be
named as a trustee if so elected. Once a nomination has been timely received
in proper form, the nominee will be asked to complete an eligibility
questionnaire to assist the Trust in assessing the nominee's qualifications
as a potential

Independent Trustee and as someone who is "independent" under the NYSE
Listing Standards. The Nominating and Governance Committee will make such
determinations in its sole discretion and such determinations shall be final.

The members of the Trust's Nominating and Governance Committee are
Messrs. Lewin and Termeer and Dr. Mack. Mr. Lewin is the Chairman of the
Nominating and Governance Committee. The Nominating and Governance Committee
did not meet during the fiscal year ended September 30, 2003.

VALUATION COMMITTEE. The Board has delegated to the Trust's Valuation
Committee general responsibility for determining, in accordance with the
Trust's valuation procedures, the value of assets held by the Trust on any
day on which the net asset value per share is determined. The Valuation
Committee may appoint, and has appointed, a Sub-Committee made up of
employees and officers of the Investment Adviser, to deal in the first
instance with day to day valuation decisions, subject to oversight by the
Valuation Committee. The Valuation Committee shall meet as often as necessary
to ensure that each action taken by the Sub-Committee is reviewed within a
calendar quarter of the occurrence. In connection with its review, the
Valuation Committee shall ratify or revise the pricing methodologies
authorized by the Sub-Committee since the last meeting of the Valuation
Committee. The Valuation Committee is charged with the responsibility of
determining the fair value of the Trust's securities or other assets in
situations set forth in the Trust's valuation procedures.

The members of the Trust's Valuation Committee are Messrs. Oddleifson
and Pohotsky and Dr. Mack. The Trust's Valuation Committee held two meetings
during the fiscal year ended September 30, 2003.

QUALIFIED LEGAL COMPLIANCE COMMITTEE. The Trust has a Qualified Legal
Compliance Committee ("QLCC") comprised solely of Independent Trustees. The
Trust's Board of Trustees has adopted a written charter for the QLCC. The
principal purpose of the Trust's QLCC is to review and respond to reports of
Evidence of a Material Violation (as defined in the QLCC charter). Reporting
Evidence of a Material Violation is required under the Standards of Professional
Conduct for Attorneys adopted by the Commission under the Sarbanes-Oxley Act of
2002 (the "Standards"). Under the Standards, if an attorney appearing and
practicing before the Commission in the representation of an issuer, such as the
Trust, becomes aware of Evidence of a Material Violation by the issuer or by any
officer, trustee, employee or agent of the issuer, the Standards provide for the
attorney to report such evidence to the issuer's QLCC forthwith. In discharging
its role, the QLCC is granted the power to investigate any Evidence of a
Material Violation brought to its attention with full access to all books,
records, facilities and personnel of the Trust and the power to retain outside
counsel, auditors or other experts for this purpose.

The members of the Trust's QLCC are Messrs. Lewin, Oddleifson and Pohotsky.
Mr. Pohotsky is the Chairman of the Trust's QLCC. The Trust's QLCC did not meet
during the fiscal year ended September 30, 2003.

COMPENSATION OF TRUSTEES

The Trust pays each of the Trustees not affiliated with the Investment
Adviser an annual fee of $20,000. For the fiscal year ended September 30,
2003, the annual fee was $15,000. Trustees

are also paid $1,000 for each Board and Committee meeting attended in person
and $500 for each Board and Committee meeting attended by telephone. The
Chairman of the Board receives an additional annual fee of $2,500, the
Chairman of each Committee receives an additional annual fee of $1,500 and
each Committee member receives an additional annual fee of $500. Independent
Trustees are also reimbursed for travel expenses incurred in connection with
attending such meetings. For the fiscal years ended September 30, 2003 and
September 30, 2002, the Trust paid such fees and reimbursed such expenses
amounting to $137,000 and $144,700, respectively, in the aggregate. No other
direct compensation has been paid by the Trust or HQL to the Trustees and
officers as a group. Trustees and officers of the Trust who hold positions
with the Investment Adviser receive indirect compensation from the Trust in
the form of the investment advisory fee paid to the Investment Adviser.

The following table sets forth information regarding compensation of
Trustees by the Trust and other funds managed by the Investment Adviser for
the fiscal year ended September 30, 2003, but does not include expenses. As
of September 30, 2003, the "Fund Complex" was comprised of the Trust and HQL.

COMPENSATION TABLE
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2003

PENSION OR TOTAL
RETIREMENT ESTIMATED COMPENSATION FROM
AGGREGATE BENEFITS ACCRUED ANNUAL TRUST AND FUND
COMPENSATION AS PART OF TRUST BENEFITS UPON COMPLEX PAID TO
NAME OF TRUSTEE FROM TRUST EXPENSES RETIREMENT TRUSTEES
-------------- ------------------- ---------------- -------------------

INDEPENDENT TRUSTEES

Lawrence S. Lewin................. $ 24,000 N/A N/A $ 48,000
Robert P. Mack, M.D............... $ 21,000 N/A N/A $ 42,000
Eric Oddleifson................... $ 24,000 N/A N/A $ 48,000
Oleg M. Pohotsky.................. $ 24,000 N/A N/A $ 48,000
Uwe E. Reinhardt, Ph.D............ $ 18,000 N/A N/A $ 36,000
Henri A. Termeer.................. $ 19,500 N/A N/A $ 39,000
INTERESTED TRUSTEES
Alan G. Carr*..................... $ 0 N/A N/A $ 0
Daniel R. Omstead, Eng.ScD........ $ 0 N/A N/A $ 0

* Mr. Carr passed away in October 2003.

THE TRUST

The Trust's capitalization consists of an unlimited number of Shares,
$.01 par value. Each Share represents an equal proportionate beneficial
interest in the Trust and, when issued and outstanding, will be fully paid
and non-assessable by the Trust. Upon any liquidation of the Trust,
Shareholders will be entitled to share pro rata in the net assets of the
Trust available for distribution after paying or adequately providing for the
payment of all liabilities. The Trust will send annual and semi-annual
financial statements to Shareholders and may also issue more abbreviated
interim reports to update Shareholders on a quarterly basis. The Trust will
hold annual meetings of its Shareholders in accordance with the provisions of
the Trust's By-laws and the rules of the New York Stock Exchange ("NYSE").

The Trust is an entity of the type commonly known as a "Massachusetts
business trust." Under Massachusetts law, shareholders of such a trust under
certain circumstances may be determined to be personally liable as partners for
the Trust's obligations. However, the Trust's Declaration of Trust contains an
express disclaimer of shareholder liability for the acts or obligations of the
Trust and provides for indemnification and reimbursement of expenses out of the
Trust's property for any shareholder held personally liable for the obligations
of the Trust. Thus, the risk of a shareholder incurring financial loss on
account of a Trust liability is limited to circumstances in which the Trust is
unable to meet its obligations from the liquidation of its portfolio
investments.

The overall management of the Trust is vested in the Board. The Board
approves all significant agreements between the Trust and persons or companies
furnishing services to it, including the Trust's agreements with its Investment
Adviser, Custodian, any foreign sub-custodians, Registrar and Transfer Agent.
The management of the day-to-day operations of the Trust is delegated to its
officers and to the Investment Adviser, subject always to the investment
objective and policies of the Trust and to general supervision by the Board.

In addition, the Declaration of Trust requires the affirmative vote or
consent of the holders of 75% of the Shares of the Trust to authorize certain
transactions with a person or entity that is directly, or indirectly through
affiliates, the beneficial owner of 5% or more of the outstanding Shares of the
Trust unless the Board takes certain actions to approve such a transaction.
These provisions could make it more difficult to change the management of the
Trust and could have the effect of depriving Shareholders of an opportunity to
sell their Shares at a premium over prevailing market prices by discouraging a
third party from seeking to obtain control of the Trust in a tender offer or
similar transaction. See "Risks -- Declaration of Trust" in the Trust's
Prospectus.

REPURCHASES OF SHARES AND TENDER OFFERS

The Trust is a closed-end, management investment company and as such its
Shareholders do not, and will not, have the right to redeem their Shares of
the Trust. The Trustees, however, intend to consider, from time to time, but
not less frequently than annually, the desirability of open market purchases
or tender offers. Any such repurchases will be made in accordance with the
applicable provisions of the Investment Company Act and Massachusetts law in
open market transactions. Shares repurchased by the Trust will be held in its
treasury. Although the Trust has no present intention of doing so, it
reserves the right to incur debt to finance such repurchases or tender
offers, provided that it will not repurchase securities during the periods
when it has outstanding borrowings in excess of 5% of its net assets. See
"Investment Restrictions." Interest on any borrowings to finance Share
repurchase transactions will increase the Trust's expenses and will reduce
the Trust's net income. There can be no assurance that Share repurchases, if
any, will cause the Shares to trade at a price equal to or in excess of their
net asset value. Nevertheless, the possibility that a portion of the Trust's
outstanding Shares may be the subject of repurchases may reduce the spread
between

market price and net asset value that might otherwise exist. The Trust may
not repurchase Shares except (1) on a securities exchange and after
notification to Shareholders of its intent to purchase Shares within the six
months preceding the purchase, (2) pursuant to a tender offer to all
Shareholders, or (3) as otherwise permitted by the Commission.

The Shares of the Trust will trade in the open market at a price which will
be a function of several factors, including their supply, demand, investment
performance and yield. The shares of closed-end investment companies generally
sell at market prices varying from their net asset value ("NAV") and such shares
frequently trade at a discount to NAV, but in some cases trade at a premium. The
market price of the Shares will be determined by factors including trading
volume of such Shares, general market and economic conditions and other factors
beyond the control of the Trust. Therefore, the Trust cannot predict whether its
Shares will trade at, below or above NAV. When the Trust repurchases its Shares
for a price below their NAV, the NAV of those Shares that remain outstanding
will be enhanced, but this does not necessarily mean that the market price of
those outstanding Shares will be affected, either positively or negatively.

CONVERSION TO OPEN-END INVESTMENT COMPANY STATUS

The conversion of the Trust from a closed-end to an open-end investment
company would require the favorable vote of the holders of a majority of the
Shares of the Trust outstanding and entitled to vote. Such a vote would be in
addition to any vote or consent required in addition to the vote or consent of
Shareholders otherwise required by law or any agreement between the Trust and
the NYSE. The Investment Company Act requires that the Trust receive a vote of a
majority of its outstanding voting Shares in order to convert the Trust from a
closed-end to an open-end investment company.

The amendment would have to be approved by the Board prior to its
submission to Shareholders. The Board is required under the Declaration of Trust
to consider and vote annually upon the proposal to convert to open-end status. A
proposal to convert the Trust to an open-end company might be supported or
opposed by the Board depending on the Board's judgment as to its advisability in
light of circumstances prevailing at the time.

Shareholders of an open-end investment company may require the company to
redeem their shares at any time (except in certain circumstances as authorized
by or under the Investment Company Act) at their NAV, less such redemption
charge, if any, as might be in effect at the time of a redemption. Conversion to
an open-end investment company could require the disposal of illiquid
investments to meet current requirements of the Commission that no more than 15%
of an open-end investment company's assets consist of illiquid securities, and
would likely require involuntary liquidation of portfolio securities, and the
inherent realization of net long-term capital gains in connection therewith, to
meet periodic requests for redemption. Moreover, Shares of the Trust would no
longer be listed on the NYSE.

INVESTMENT ADVISORY AGREEMENT

Hambrecht & Quist Capital Management, LLC, a limited liability company
under the laws of the State of Delaware, serves as the investment adviser to the
Trust. The Investment Adviser is an investment adviser registered under the
Investment Advisers Act of 1940, as amended. The Investment Adviser is located
at 30 Rowes Wharf, Fourth Floor, Boston, MA 02110-3328.

At inception, Hambrecht & Quist Capital Management Incorporated ("HQCM,
Inc.") was the Trust's investment adviser. HQCM, Inc. was formed as a
wholly-owned subsidiary of Hambrecht & Quist Group. HQCM, Inc. remained the
Investment Adviser as The Chase Manhattan Corporation ("Chase") first
acquired Hambrecht & Quist Group and then merged with J.P. Morgan
Incorporated to form J.P. Morgan Chase & Co. In 2002, the management of HQCM,
Inc. formed an independent entity, Hambrecht & Quist Capital Management, LLC
("HQCM, LLC"), to effect a buyout of HQCM, Inc. In this transaction, HQCM,
LLC acquired certain of the assets of HQCM, Inc., and substantially all of
the management and staff of HQCM, Inc. became employees of HQCM, LLC. HQCM,
LLC, the Trust's current investment adviser, is owned by Daniel R. Omstead,
Mary Omstead and the Alan G. Carr Irrevocable Trust. Mr. Carr, a former
portfolio manager, president and trustee of the Trust, passed away in October
2003. Dr. Omstead is currently the President and Chief Executive Officer of
the Investment Adviser. Mary Omstead is Dr. Omstead's wife. Under the terms
of HQCM, LLC's current Amended and Restated Limited Liability Company
Agreement, HQCM, LLC will purchase the Alan G. Carr Irrevocable Family
Trust's interest in HQCM, LLC over the course of a number of years.

Subject to the supervision and direction of the Board of Trustees of the
Trust, the Investment Adviser manages the Trust's portfolio in accordance with
the Trust's investment objective and policies as stated in the Trust's
Prospectus; makes investment decisions for the Trust; places purchase and sale
orders for portfolio transactions for the Trust; supplies the Trust with office
facilities (which may be in the Investment Adviser's own offices), statistical
and research data, data processing services, clerical, internal executive and
administrative services, and stationery and office supplies; supplies or directs
and supervises a third party administrator or custodian in the provision to the
Trust of accounting and bookkeeping services, the calculation of the net asset
value of shares of the Trust, internal auditing services, and other clerical
services in connection therewith; and prepares or supervises and directs a third
party administrator or custodian in the preparation of reports to shareholders
of the Trust, tax returns and reports to and filings with the Commission and
state Blue Sky authorities. In providing these services, the Investment Adviser
provides investment research and supervision of the Trust's investments and
conducts a continual program of investment, evaluation and, if appropriate, sale
and reinvestment of the Trust's assets. In addition, the Investment Adviser
furnishes the Trust with whatever statistical information the Trust may
reasonably request with respect to the securities that the Trust may hold or
contemplate purchasing.

For the services provided by the Investment Adviser under the Advisory
Agreement, the Trust will pay a fee, computed and payable monthly, equal when
annualized to (1) 2.5% of the average net assets for the month of its venture
capital and other Restricted Securities (as defined) up to 25% of net assets and
(2) 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 monthly fee may not exceed a rate when annualized
of 1.375% (approximately 0.115% per month).

The Investment Adviser will not participate directly in the capital
appreciation of Restricted Securities or generally provide managerial assistance
to portfolio companies, as is normally the case with venture capital funds. For
purposes of calculation of the investment advisory fee, "average net assets" for
any month shall be equal to the average of the net asset value of such assets as
of the last business day of such month and the net asset value of the
appropriate assets as of the last business day of the preceding month. In
determining average net assets for purposes of clauses (1) and (2) above,
liabilities and expenses of the Trust shall be allocated pro rata based on the
ratio that the assets referred to in each clause bear to the total assets of the
Trust. Such fee shall be payable for each month within five business days after
the end of such month.

For purposes of the calculation of the investment advisory fee, "venture
capital and other Restricted Securities" shall be securities of issuers for
which no market quotations are readily available and securities of companies for
which market quotations are readily available but which are subject to legal or
contractual restrictions on resale. Securities of companies for which public
information is available but as to the sale of which the safe harbor provided by
Rule 144(k) is not available shall be considered to be subject to legal or
contractual restrictions on resale.

The investment advisory fee paid by the Trust exceeds that paid by most
registered investment companies to their investment advisers. The Trust believes
that the fee is commensurate with the nature and quality of the services
required for identifying, evaluating and monitoring the Trust's Restricted
Securities investments.

The Advisory Agreement provides that the Investment Adviser shall not be
liable for any loss incurred by any act or omission of any broker. The Advisory
Agreement also provides that the Investment Adviser shall not be liable to the
Trust or to any Shareholder of the Trust for any error or judgment or for any
loss suffered by the Trust in connection with rendering services under the
Advisory Agreement except (1) a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services (in which case any
award of damages shall be limited to the period and the amount set forth in
Section 36(b)(3) of the Investment Company Act) or (2) a loss resulting from
willful misfeasance, bad faith or gross negligence on the part of the Investment
Adviser, or reckless disregard of its obligations and duties under the Advisory
Agreement. Subject to the foregoing, the Advisory Agreement also provides that
the Trust shall indemnify the Investment Adviser, and any officer, director and
employee of the Investment Adviser to the maximum extent permitted by Article V
of the Trust's Declaration of Trust.

For the fiscal years ended September 30, 2003, September 30, 2002 and
September 30, 2001, the Trust paid the Adviser $3,503,127, $4,233,892 and
$4,411,094, respectively, in advisory fees.

The services of the Investment Adviser to the Trust are not deemed to be
exclusive, and nothing in the Advisory Agreement prevents the Investment
Adviser, or any affiliate thereof, from providing similar services to other
companies and other clients or from engaging in other activities.

Under the Advisory Agreement, the Investment Adviser has agreed to bear all
expenses in connection with the performance of its services under the Advisory
Agreement, including

compensation of and office space for officers and employees of the Trust
connected with investment and economic research, trading and investment
management of the Trust, as well as the fees of all Trustees of the Trust who
are "affiliated persons" of the Investment Adviser, as that term is defined
in the Investment Company Act, or any of its "affiliated persons."

Under the Advisory Agreement, the Trust must pay (or, in the event that
such expenses are paid by the Investment Adviser, shall reimburse the Investment
Adviser for) all other expenses incurred in the organization and operation of
the Trust including, among other things, expenses for legal and auditing
services, costs of printing proxy statements, prospectuses, stock certificates
and shareholder reports, charges of the custodian, any sub-custodian and
transfer agent, expenses in connection with the Dividend Reinvestment Plan, the
Commission, and National Association of Securities Dealers, Inc. fees, fees and
expenses of the Trustees who are not "affiliated persons" of the Investment
Adviser or any of its "affiliated persons," accounting and valuation costs,
administrator's fees, membership fees in trade associations, fidelity bond
coverage for the Trust's officers and employees, errors and omissions insurance
coverage for Trustees and officers, interest, brokerage costs, taxes, stock
exchange listing fees and expenses, expenses of qualifying the Trust's Shares
for sale in various states, expenses associated with personnel performing
exclusively shareholder servicing functions, certain other organization
expenses, litigation and other extraordinary or non-recurring expenses, and
other expenses properly payable by the Trust. The Trust may enter into
arrangements to have third parties assume any expenses for which it is
responsible.

Unless earlier terminated as described below, the Advisory Agreement
will remain in effect from year to year if approved annually (1) by the Board
or by the holders of a majority of the Trust's outstanding Shares and (2) by
the majority of the Trustees who are not parties to the Advisory Agreement or
interested persons of any such party. The Advisory Agreement may be
terminated without penalty by (1) the Trust or the Investment Adviser at any
time without penalty upon not less than 30 and no more than 60 days' written
notice or (2) a vote of the holders of a majority of the Trust's outstanding
Shares, and will automatically terminate in the event of its assignment.
Action by the Trust under (1) above may be taken either by (i) vote of a
majority of its Trustees, or (ii) the affirmative vote of a majority of the
outstanding shares of the Trust.

The current Advisory Agreement was initially approved by the Trustees of
the Trust, including a majority of Trustees who are not parties to the agreement
or interested persons (as defined in the Investment Company Act) of any such
party, on April 14, 2002 and last approved by the Trustees of the Trust,
including a majority of the Trustees who are not parties to the Advisory
Agreement or interested persons of any such party, on April 13, 2004.

In considering the renewal of the Advisory Agreement for another year,
the Independent Trustees considered information supplied to them by the
Investment Adviser concerning, among other things, the nature, quality, level
and extent of services provided by the Investment Adviser to the Trust; the
favorable investment performance, both of the Trust itself and relative to
appropriate peer groups and market indices over the period of time; venture
investment activity of the Trust; regulatory compliance and Shareholder
satisfaction; the Trust's audits; investment management fees, expense ratios
and asset size of the Trust itself and relative to appropriate peer groups;
the Investment Adviser's best execution efforts and exclusive use of hard
dollars for research services; and the Investment Adviser's profitability
from managing the Trust.

In the course of their review, the Independent Trustees requested and
reviewed substantial information regarding, among other things: the
Investment Adviser's staffing; the depth and technical experience of the
portfolio management team; the Investment Adviser's investment advisory
capabilities; the Investment Adviser's future business plans, including its
plans to develop and offer additional asset management products and services
and the potential impact, if any, on the Investment Adviser's service
capabilities if such plans are implemented; the progress of the management
succession plan implemented in 2000; the Trust's fee structure; and the
financial resources of the Investment Adviser, including its financial
structure, stability and cash flow.

The Independent Trustees reviewed the Trust's investment advisory fee
structure, taking into account the unique characteristics of the Trust's
investment portfolio, the nature and complexity of the portfolio composition
of the Trust, the Trust's investment performance and the level of services
received from the Investment Adviser. The Independent Trustees considered
profitability data presented by the Investment Adviser, including the
Investment Adviser's profitability following the buyout of HQCM, Inc. The
Investment Adviser gave assurances to the Independent Trustees concerning the
adequacy of its financial resources, which the Independent Trustees
considered along with assurances from the Investment Adviser that it has
established a substantial cash reserve to help maintain its economic
viability.

Based on the Trust's investment advisory fee structure, taking into
account the unique characteristics of the Trust's investment portfolio, the
Trust's investment performance and the level of services received from the
Investment Adviser, the Board of Trustees, including all of the Independent
Trustees, voted to continue the Advisory Agreement for another year.

The Investment Adviser's use of the term "H&Q" is pursuant to a written
license agreement (the "License Agreement"), a copy of which the Investment
Adviser has provided to the Trust. Under the License Agreement, the Investment
Adviser may sublicense the term "H&Q" to an investment company for which it
serves as investment adviser, for use as part of the investment company's name,
pursuant to a written sublicense agreement that (a) is at least as protective of
the rights of the licensor under the License Agreement as the License Agreement
and (b) does not permit the investment company to sub-sublicense the term "H&Q".
The Trust has agreed that its right to use the term "H&Q" is subject in all
respects to the terms of the License Agreement. The Trust has also agreed that
if the License Agreement terminates for any reason, or if the Investment Adviser
ceases to act as investment adviser to the Trust, the Trust's sublicense to use
the term "H&Q" as part of its name will terminate, at which time the Trust will
take all necessary action to change its name to a name not including such term.
The Investment Adviser may at any time permit others to use the term "H&Q" under
a similar sublicense.

PROXY VOTING POLICY AND PROCEDURES

The Board of Trustees of the Trust has adopted a proxy voting policy and
procedure (the "Proxy Voting Policy"), pursuant to which the Trustees have
delegated proxy voting responsibility to the Investment Adviser. A copy of the
Proxy Voting Policy is attached as Appendix A to this SAI.

Effective August 31, 2004, information on how the Trust voted proxies
relating to portfolio securities during the most recent 12-month period ended
June 30 will be available (1) without

charge, upon request, by calling the Trust at (617) 772-8500, and (2) on the
Securities and Exchange Commission's website at http://www.sec.gov.

CODE OF ETHICS

The Trust's Board of Trustees has approved a Code of Ethics under Rule
17j-1 of the Investment Company Act that covers certain personnel of the Trust
and the Investment Adviser. The Code of Ethics establishes procedures for
personal investing and restricts certain transactions by certain personnel
covered by the Code of Ethics. Employees subject to the Code of Ethics may
invest in securities for their personal investment accounts, including, in
certain cases, securities that may be purchased or held by the Trust. The Code
of Ethics applies to investments by covered persons in their personal accounts,
the accounts of family members living in the same household, and accounts in
which the covered person has a beneficial interest (i.e., ownership, voting or
investment control). Some of the restrictions set forth in the Code of Ethics do
not apply to the Trust's Independent Trustees. In general terms, the Code of
Ethics is designed to ensure that the investing activities of covered personnel
are conducted in a manner that avoids potential or actual conflicts of interest
with the Trust and its Shareholders and that covered personnel conduct their
personal investing in a manner consistent with their fiduciary duty towards the
Trust and its shareholders.

The Code of Ethics requires pre-clearance for certain investments in
equities (not including mutual funds), imposes reporting requirements, and
imposes sanctions for violations. Specifically, among other things, the Code of
Ethics prohibits sales of securities to or purchases of securities from the
Trust and prohibits the purchase or sale of any security under consideration for
trading by the Trust within seven days before or after the Trust trades in the
security.

The Trust's Code of Ethics is filed as an exhibit to this registration
statement. In addition, you may read and copy the code of ethics at the
Commission's Public Reference Room in Washington, DC. You may obtain
information on operations of the Public Reference Room by calling the
Commission at (202) 942-8090. In addition, the Code of Ethics is available on
the EDGAR Database on the Commission Internet site at http://www.sec.gov. You
may obtain copies of the Code of Ethics, after paying a duplicating fee, by
electronic request at the following email address: publicinfo@sec.gov, or by
writing to the Commission's Public Reference Section, 450 5th Street, NW,
Washington, DC 20549-0102.

NET ASSET VALUE

The net asset value ("NAV") of the Trust's Shares is calculated at the
close of regular trading on the NYSE (generally 4:00 p.m., Eastern time)
every day that the NYSE is open. The Trust makes this information available
daily by telephone (800) 451-2597, via its web site (www.hqcm.com) and
through electronic distribution for media publication, including major
internet-based financial services web sites and portals (bloomberg.com,
yahoo.com, cbsmarketwatch.com, etc.). Currently, The Wall Street Journal, The
New York Times and Barron's publish NAVs for closed-end investment companies
at least weekly.

market price. Portfolio securities that are traded on one or more U.S.
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 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.
Redeemable securities issued by a registered open-end investment company are
valued at net asset value per share. Other securities are valued at the mean
between the closing bid and asked prices. Short- term investments that mature
in 60 days or less are valued at amortized cost, unless the Board determines
that such valuation does not constitute fair value.

Quotations of foreign securities in foreign currencies are converted, at
current exchange rates, to their U.S. dollar equivalents in order to determine
their current value. In addition, to the extent that the Trust values its
foreign securities (other than ADR's and ADS's) as of the close of trading on
various exchanges and over-the-counter markets throughout the world, the
calculation of the Trust's net asset value may not take place contemporaneously
with the valuation of foreign securities held by the Trust.

comparable companies; (6) quotations or prices from broker-dealers and/or
pricing services; (7) information obtained from the issuer, analysts, and/or
the appropriate stock exchange (for exchange-traded securities); (8) an
analysis of the company's financial statements; (9) an evaluation of the
forces that influence the issuer and the market(s) in which the security is
purchased and sold (e.g., the existence of pending merger activity, public
offerings or tender offers that might affect the value of the security); and
(10) the price of securities in a subsequent round of financing of an issuer
in an arm's-length transaction, if the round includes a new third party
investor.

Sometimes a "significant valuation event" may cause the market value of a
security to differ from the fair market value of that security. A "significant
valuation event" is an event that causes or is likely to cause a market
quotation to be unavailable or unreliable, and may include: situations relating
to a single issue in a market sector; significant fluctuations in U.S. or
foreign markets; market disruptions or closings caused by human error, equipment
failures, natural disasters, armed conflicts, acts of God, governmental actions
or other developments, as well as the same or similar events which may affect
specific issues or the securities markets even though not tied directly to the
securities markets. A significant valuation event occurring after the close of
trading but before the time of valuation may mean that the closing price for the
security does not constitute a readily available market quotation. If a
significant valuation event has occurred, the security will be valued at fair
value as determined in good faith by the Board in accordance with the procedures
hereinafter described. Such valuations and procedures will be reviewed
periodically by the Board.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to policies established by the Board, the Investment Adviser is
primarily responsible for the execution of the Trust's portfolio transactions
and the allocation of brokerage. In executing transactions for the portfolio and
selecting brokers or dealers (which brokers or dealers may include any affiliate
of the Investment Adviser to the extent permitted by the Investment Company
Act), the Investment Adviser will use its best efforts to obtain the best price
and execution for the Trust. In assessing the best price and execution available
for any portfolio transaction, the Investment Adviser will consider all factors
it deems relevant including, but not limited to, price (including any

applicable brokerage commission or dealer spread), size of order, difficulty
of execution, and operational facilities of the firm involved and the firm's
risk in positioning a block of securities. The Investment Adviser may cause
the Trust to pay a broker-dealer that furnishes brokerage and research
services a higher commission than that which might be charged by another
broker-dealer for effecting the same transaction, provided that the
Investment Adviser determines in good faith that such commission is
reasonable in relation to the value of the brokerage and research services
provided by such broker-dealer, viewed in terms of either the particular
transaction or the overall responsibilities of the Investment Adviser to the
Trust. In selecting brokers or dealers to execute a particular transaction
and in evaluating the best price and execution available, the Investment
Adviser may consider the brokerage and research services (as those terms are
defined in Section 28(e) of the Securities Exchange Act of 1934, as amended)
provided to the Trust and/or other accounts over which the Investment Adviser
exercises investment discretion. Such brokerage and research services might
consist of reports and statistics on specific companies or industries,
general summaries of groups of bonds and their comparative earnings and
yields, or broad overviews of the securities markets and the economy. It is
further understood that such services may be useful to the Investment Adviser
in connection with its services to other clients. While the Investment
Adviser generally seeks reasonably competitive commission rates, the Trust
will not necessarily pay the lowest commission available.

The Trust has no obligation to deal with any broker or group of brokers in
executing transactions in portfolio securities. Brokers who provide supplemental
research, market and statistical information to the Investment Adviser may
receive orders for transactions by the Trust. The term "research, market and
statistical information" includes advice as to the value of securities, the
advisability of purchasing or selling securities and the availability of
securities or purchasers or sellers of securities, and furnishing analyses and
reports concerning issuers, industries, securities, economic factors and trends,
portfolio strategy and the performance of accounts. Information so received will
be in addition to and not in lieu of the services required to be performed by
the Investment Adviser under the Advisory Agreement and the expenses of the
Investment Adviser will not necessarily be reduced as a result of the receipt of
such supplemental information. Such information may be useful to the Investment
Adviser in providing services to clients other than the Trust, and not all such
information may be used by the Investment Adviser in connection with the Trust.
Conversely, such information provided to the Investment Adviser by brokers and
dealers through whom other clients of the Investment Adviser in the future may
effect securities transactions may be useful to the Investment Adviser in
providing services to the Trust. To the extent the Investment Adviser receives
valuable research, market and statistical information from a broker-dealer, the
Investment Adviser intends to direct orders for Trust transactions to that
broker-dealer, subject to the foregoing policies, regulatory constraints and the
ability of broker dealers to provide competitive prices and commission rates.

The Investment Company Act restricts transactions involving the Trust and
its "affiliates," including among others, the Trust's Trustees, officers and
employees, the Investment Adviser and any "affiliates" of such affiliates.
Subject to any such restrictions, investment companies advised by the Investment
Adviser may concurrently invest with the Trust in Restricted Securities, and the
Trust may also invest in companies in which directors of the Investment Adviser
or Trustees of the Trust have invested or for which they serve as directors or
executive officers. A substantial portion of the securities in which the Trust
may invest are traded in the over-the-counter markets, and the Trust intends to
deal directly with the dealers who make markets in the securities involved,
except as limited by applicable law and in those circumstances where better
prices and execution are

available elsewhere. Under the Investment Company Act, persons affiliated
with the Trust are generally prohibited from dealing as principal with the
Trust in the purchase and sale of securities. Under certain circumstances,
affiliated persons of the Trust are permitted to serve as its broker in
over-the-counter transactions conducted on an agency basis.

It is likely that, subject to applicable law, the Trust may invest in
securities concurrently being purchased by other investment companies advised by
the Investment Adviser. Such purchases would be made on terms no less favorable
than those under which such investment companies would be acquiring the
securities. In the case of concurrent purchases by the Trust and another
investment company or companies managed by the Investment Adviser, such
purchases would be made where the Investment Adviser has made an independent
decision on behalf of the Trust and such other company that the purchase is
appropriate in light of the investment objectives, policies, restrictions,
current holdings, available cash and portfolio structure of and other factors
affecting each. Such investments will be allocated among clients in a manner
believed by the Investment Adviser to be equitable to each. The Trust may also
from time to time invest in securities of companies in which affiliated persons
of the Trust have invested, subject to the provisions of the Investment Company
Act and the rules and regulations promulgated thereunder.

The Trust's portfolio transactions in Restricted Securities are generally
subject to Rule 144 under the Securities Act. In general, under Rule 144 as
currently in effect, if the Trust has beneficially owned Restricted Securities
of a publicly held issuer for more than one but less than two years, it will
be entitled to sell in any three-month period that number of such securities
that will not exceed the greater of 1% of the then outstanding securities of
that class or the average weekly trading volume in securities of that class in
any national securities exchange and/or in the over-the-counter market during
the four calendar weeks immediately preceding the date on which notice of the
sale is filed with the Commission. These volume limitations also apply to sales
by the Trust of the securities of any issuer as to which it is deemed an
affiliate, regardless of whether securities of such issuer are publicly traded.
The above-described sales under Rule 144 are subject to certain requirements
relating to manner of sale, notice and availability of current public
information about the issuer. If the Trust is not deemed to have been an
affiliate of the issuer at any time during the 90 days immediately preceding the
sale and has beneficially owned Restricted Securities for at least two years,
it is entitled to sell such securities under Rule 144(k) without regard to
whether the issuer is publicly-held or to the volume limitations or other
requirements described above. When Restricted Securities are sold to the public
other than pursuant to Rule 144 or 144A, the Trust may be deemed an
"underwriter" with respect thereto for purposes of the Securities Act and
subject to liability as such thereunder.

On occasions when the Investment Adviser deems the purchase or sale of a
security to be in the best interest of the Trust as well as other clients,
the Investment Adviser, to the extent permitted by applicable laws and
regulations, may, but shall be under no obligation to, aggregate the
securities to be sold or purchased in order to obtain the most favorable
price or lower brokerage commissions and efficient execution. In such event,
allocation of the securities so purchased or sold, as well as the expenses
incurred in the transaction, will be made by the Investment Adviser in the
manner it considers to be the most equitable and consistent with its
fiduciary obligations to the Trust and to such other clients.

Allocation of transactions, including their frequency, to various
broker-dealers is determined by the Investment Adviser with respect to the
Trust, based on their best judgment and in a manner

deemed fair and reasonable to Shareholders. The primary consideration is
prompt execution of orders in an effective manner at the most favorable
price. Certain investments may be appropriate for the Trust and also for
other clients advised by the Investment Adviser. Investment decisions for the
Trust and for other investment accounts managed by the Investment Adviser are
made independently of each other in the light of differing conditions.
However, the same investment decision may be made for two or more of such
accounts. When a purchase or sale of the same security is made at
substantially the same time on behalf of the Trust and one or more other
accounts, the transaction will be averaged as to price, and available
investments allocated as to amount, in a manner the Investment Adviser
believes to be equitable to each such account. Although the Investment
Adviser seeks the most favorable overall net results for all of the accounts
in any aggregated transaction, in some cases, this practice may adversely
affect the price paid or received by the Trust or the size of the position
obtained or sold by the Trust. To the extent permitted by law, the Investment
Adviser may aggregate the securities to be sold or purchase for the Trust
with those to be sold or purchased for other investment companies or accounts
in order to obtain best execution.

For the fiscal years ended September 30, 2003, September 30, 2002 and
September 30, 2001, $321,075, $98,177 and $11,170, respectively, of brokerage
commissions were paid by the Trust.

For a description of the Trust's portfolio turnover policies and the
portfolio turnover rates for the last two fiscal years, see "Portfolio
Transactions and Brokerage" in the Trust's Prospectus.

DIVIDEND REINVESTMENT PLAN

Each Shareholder holding Shares of the Trust will automatically be a
participant in the Trust's Dividend Reinvestment Plan (the "Plan"), unless the
Shareholder elects not to participate in the Plan. Under the Plan, whenever the
Trust declares a distribution of dividends and capital gains payable in Shares
or cash, the distribution of dividends and capital gains will be automatically
reinvested by EquiServe Trust Company (the "Plan Agent"), in whole or fractional
Shares of the Trust, as the case may be, for the accounts of the participating
Shareholders. Shareholders who specifically elect not to participate in the Plan
will receive all distributions of dividends and capital gains in cash paid by
check in U.S. dollars mailed directly to the Shareholders (or if the Shares are
held in street or other nominee name, then to the nominee) by the Dividend
Disbursing Agent. Shareholders may receive more detailed information regarding
the Plan from the Plan Agent.

The Plan Agent serves as agent for the Shareholders in administering the
Plan. Participants in the Plan will receive Shares valued on the valuation
date, generally at the lower of market price or NAV, except as specified
below. The valuation date will be the dividend or distribution payment date
or a date determined by the Board of Trustees. Whenever the market price per
Share is equal to or exceeds NAV on the valuation date, participants will be
issued Shares at the greater of (1) NAV or (2) 95% of the then-current market
price of the Shares. If the NAV on the valuation date exceeds the market
price of the Shares at that time, participants will receive Shares from the
Trust valued at the market price. The market price of the Shares on a
particular date shall be the last sales price on the NYSE on that date or, if
no sale occurred on the NYSE on that date, then the mean between the closing
bid and asked quotations for the Shares on the NYSE on such date; and NAV per
Share on a particular date shall be as determined by or on behalf of the
Trust.

Each Shareholder may terminate his or her account under the Plan, or may
withdraw from the Plan upon written notice to the Plan Agent at the address
shown below received at least ten days prior to the record date for a dividend
or distribution, which notice will be effective for that and all subsequent
dividends or distributions. When a participant withdraws from the Plan or upon
termination of the Plan as provided below, certificates for whole Shares
credited to his or her account under the Plan will be issued and a cash payment
will be made for any fraction of a Share credited to such account. There is no
penalty for non-participation in or withdrawal from the Plan. Shareholders who
have withdrawn from the Plan may rejoin it at any time by notifying the Plan
Agent by telephone and furnishing to the Plan Agent an authorization in the
required form upon request.

The Plan Agent maintains each Shareholder's account in the Plan and
furnishes written confirmations of all transactions in the accounts, including
information needed by Shareholders for personal and tax records. Shares in the
account of each Plan participant will be held by the Plan Agent in
non-certificated form in the name of the participant, and each Shareholder's
proxy will include those shares issued pursuant to the Plan.

In the case of Shareholders such as banks, brokers or nominees that hold
Shares for others who are the beneficial owners, the Plan Agent will administer
the Plan on the basis of the number of Shares certified from time to time by the
Shareholder as representing the total amount registered in the Shareholder's
name and held for the account of beneficial owners who are participants in the
Plan. Brokers and nominees of banks and financial institutions are advised to
contact the Plan Agent to determine whether the beneficial owners of Shares held
in their names may participate in the Plan.

The Plan Agent's fees for the handling of the reinvestment of dividends and
distributions will be paid by the Trust.

The automatic reinvestment of dividends and distributions will not relieve
participants of any federal or other income tax that may be payable or required
to be withheld on such dividends or distributions.

Experience under the Plan may indicate that changes are desirable.
Accordingly, the terms and conditions of the Plan may be amended or
supplemented by the Plan Agent or the Trust at any time or times but, except
when necessary or appropriate to comply with applicable law or the rules or
policies of the Commission or any other regulatory authority, only by mailing
to the Shareholders appropriate written notice at least 90 days prior to the
effective date thereof. All correspondence concerning the Plan should be
directed to the Plan Agent, EquiServe Trust Company at P.O. Box 43010,
Providence, RI 02940-3010. Shareholders may also contact the Plan Agent
toll-free by telephone at (800) 426-5523.

TAX MATTERS

The following is only a summary of certain U.S. federal income tax
considerations generally affecting the Trust and its shareholders. No attempt is
made to present a detailed explanation of the tax treatment of the Trust or its
shareholders, and the following discussion is not intended as a substitute for
careful tax planning. Shareholders should consult with their own tax advisers

regarding the specific federal, state, local, foreign and other tax consequences
of investing in the Trust.

TAXATION OF THE TRUST

The Trust intends to qualify and elect to be treated each taxable year as a
regulated investment company under the Internal Revenue Code of 1986, as amended
(the "Code"). The principal federal income tax benefits of qualifying as a
regulated investment company ("RIC"), as compared to an ordinary taxable
corporation, are that a RIC generally is not itself subject to federal income
tax on ordinary investment income and net capital gains that are currently
distributed to its shareholders, and that the character of long-term capital
gains which are recognized and properly designated by a RIC flows through to its
shareholders, who receive (or are deemed to receive) distributions of such
income. However, the Trust would be subject to corporate income tax (currently
at a maximum marginal rate of 35%) on any undistributed income.

To qualify as a RIC, the Trust must, among other things, (a) derive in each
taxable year at least 90% of its gross income from dividends, interest, payments
with respect to securities loans, gains from the sale or other disposition of
stock, securities or foreign currencies, and other income derived with respect
to its business of investing in such stock, securities or currencies (the
"Qualifying Income Requirement"); (b) diversify its holdings so that, at the end
of each quarter of the taxable year, (1) at least 50% of the market value of the
Trust's assets is represented by cash and cash items, U.S. Government
Securities, the securities of other RICs and other securities, with such other
securities of any one issuer limited for the purposes of this calculation to an
amount not greater than 5% of the value of the Trust's total assets and not
greater than 10% of the outstanding voting securities of such issuer, and (2)
not more than 25% of the value of its total assets is invested in the securities
of any one issuer (other than U.S. Government Securities or the securities of
other RICs); and (c) distribute at least 90% of its investment company taxable
income (which includes, among other items, dividends, interest and net
short-term capital gains in excess of net long-term capital losses) each taxable
year. The U.S. Treasury Department has authority to promulgate regulations
pursuant to which gains from foreign currency (and options, futures and forward
contracts on foreign currency) not directly related to a RIC's business of
investing in stocks and securities would not be treated as qualifying income for
purposes of the Qualifying Income Requirement. To date, such regulations have
not been promulgated.

If for any taxable year the Trust were to fail to qualify as a RIC, all of
the Trust's taxable income would be subject to federal income tax at the rates
applicable to corporations (with no deduction for distributions to
Shareholders), and Trust distributions would be taxable to Shareholders as
dividends to the extent of the Trust's earnings and profits.

Amounts not distributed on a timely basis in accordance with a calendar
year distribution requirement are subject to a nondeductible 4% excise tax. To
avoid the excise tax, the Trust must distribute during each calendar year an
amount equal to the sum of (1) at least 98% of its ordinary income (not taking
into account any capital gains or losses) for the calendar year, (2) at least
98% of its capital gains in excess of its capital losses (adjusted for certain
ordinary losses) for the one-year period ending on October 31 of the calendar
year, and (3) all ordinary income and capital gains for previous years that were
not distributed during such years. To avoid application of the excise tax, the
Trust intends to make its distributions in accordance with the calendar year
distribution requirement. A dividend will be treated as paid on December 31 of
the calendar year if it is declared

by the Trust in October, November or December of the year, payable to
shareholders of record on a date in such a month and paid by the Trust during
January of the following year. Such dividends will be taxable to shareholders
as of December 31 of the calendar year in which the dividends are declared,
rather than during the calendar year in which the dividends are received. If
the Trust elects to retain net capital gains and treat such gains as having
been distributed, all or a portion of such gains may not be treated as having
been timely distributed for purposes of satisfying the excise tax calendar
year distribution requirement.

DISTRIBUTIONS

Distributions of the excess, if any, of net long-term capital gains over
net short-term capital losses ("net capital gains") designated by the Trust
as capital gain dividends will be taxable to shareholders as long-term
capital gains, whether paid in cash or reinvested in the Trust's Shares,
regardless of how long the shareholders have held the Trust's Shares, and
will not be eligible for the dividends received deduction for corporations.
The Trust may elect to retain net capital gains. In such event, the Trust
will be required to pay federal income taxes on the undistributed net capital
gains, but intends to elect to treat such capital gains as having been
distributed to shareholders. As a result, such amounts will be included in
the gross income of the shareholders as long-term capital gains and
shareholders will be able to claim their proportionate share of federal
income taxes paid by the Trust on such gains as a credit against their own
federal income tax liabilities, and will be entitled to increase the adjusted
tax basis of their Shares of the Trust by an amount equal to 65% of the
amount of the undistributed capital gains included in their gross income.
Organizations or persons not subject to federal income tax on such capital
gains (such as, generally, qualified pension and profit-sharing funds,
including Individual Retirement Accounts and Keogh plans, and certain trusts,
nonresident aliens and foreign corporations) will be entitled to a refund of
their pro rata share of such taxes paid by the Trust upon filing appropriate
returns or claims for refund with the Internal Revenue Service ("IRS"). Even
if the Trust makes such an election, it is possible that the Trust may incur
an excise tax as a result of not having distributed sufficient net capital
gains.

A distribution of an amount in excess of the Trust's current and
accumulated earnings and profits will be treated by a Shareholder as a return of
capital which is applied against and reduces the Shareholder's basis in his or
her Shares. To the extent that the amount of any such distribution exceeds the
shareholder's basis in his or her Shares, the excess will be treated by the
Shareholder as gain from a sale or exchange of the Shares.

If the value of the Trust's Shares is reduced below a Shareholder's cost as
a result of a distribution of investment company taxable income or net capital
gains by the Trust, such distribution will be taxable to the shareholder. The
price of Shares purchased at this time may reflect the amount of the forthcoming
distribution. Those purchasing just prior to a distribution of investment
company taxable income or net capital gains will receive a distribution which
will nevertheless be taxable to them.

Dividends (not including capital gain dividends) received by corporate
shareholders from the Trust qualify for the dividends received deduction for
corporate shareholders to the extent the Trust designates the amount distributed
as eligible for the deduction. The aggregate amount designated by the Trust
cannot exceed the aggregate amount of dividends received by the Trust from
domestic corporations for the taxable year, and the designation of dividend
income must generally be the same for all Shares. Thus, unless 100% of the
Trust's gross income constitutes qualified dividends, a portion of the dividends
paid to corporate shareholders will not qualify for the dividends received
deduction. The dividends received deduction for corporate shareholders may be
further reduced if the Shares with respect to which dividends are received are
treated as debt-financed or if either those Shares or the Shares of the Trust
are deemed to have been held by the Trust or its shareholders, respectively, for
less than 46 days.

In addition to furnishing any other required tax statements, the Trust
intends to send not later than 60 days after September 30 (the end of the tax
and fiscal year of the Trust) written notices to shareholders regarding the tax
status of all distributions made during such taxable year, the amount qualifying
for the dividends received deduction for corporations and the amount of
undistributed net capital gains and related tax credits.

SALE OF SHARES

Generally, gain or loss realized upon the sale or exchange of Shares will
be capital gain or loss if the Shares are capital assets in the shareholder's
hands and generally will be long-term or short-term, depending upon the
shareholder's holding period for the Shares. Investors should be aware that any
loss realized upon the sale or exchange of Shares held for six months or less
will be treated as a long-term capital loss to the extent of any distributions
or deemed distributions of long-term capital gain to the shareholder with
respect to such Shares. In addition, any loss realized on a sale or exchange of
Shares will be disallowed to the extent the Shares disposed of are replaced
within a period of 61 days beginning 30 days before and ending 30 days after the
Shares are disposed of, such as pursuant to the Plan. In such case, the basis of
Shares acquired will be adjusted to reflect the disallowed loss.

The Trust may invest in shares of foreign corporations which may be
classified under the Code as passive foreign investment companies ("PFICs").
In general, a foreign corporation is classified as a PFIC if at least
one-half of its assets constitute investment-type assets, or 75% or more of
its gross income is investment-type income. If the Trust receives a so-called
"excess distribution" with respect to PFIC stock, the Trust itself may be
subject to a tax on a portion of the excess distribution, whether or not the
corresponding income is distributed by the Trust to shareholders. In general,
under the PFIC rules, an excess distribution is treated as having been
realized ratably over the period during which the Trust held the PFIC shares.
The Trust itself will be subject to tax on the portion, if any, of an excess
distribution that is so allocated to prior Trust taxable years and an
interest factor will be added to the tax, as if the tax had been payable in
such

prior taxable years. Gain from the sale of PFIC shares is treated in the same
manner as an excess distribution. Excess distributions and gain from the sale
of PFIC shares are characterized as ordinary income even though, absent
application of the PFIC rules, such gains and certain excess distributions
might have been classified as capital gain.

The Trust may elect to mark to market any PFIC shares in lieu of being
subject to U.S. federal income taxation. At the end of each taxable year to
which the election relates, the Trust would report as ordinary income the amount
by which the fair market value of the PFIC stock exceeds the Trust's adjusted
basis in the stock. Any mark-to-market losses and any loss from an actual
disposition of shares would be deductible as ordinary losses to the extent of
any net mark-to-market gains included in income in prior years. The effect of
the election would be to treat excess distributions and gain on dispositions as
ordinary income which is not subject to a Trust-level tax when distributed to
shareholders as a dividend. Alternatively, the Trust may elect to include as
income and gain its share of the ordinary earnings and net capital gain of
certain PFICs in lieu of being taxed in the manner described above.

CURRENCY FLUCTUATIONS--"SECTION 988" GAINS OR LOSSES

Under the Code, the gains or losses attributable to fluctuations in
exchange rates which occur between the time the Trust accrues receivables or
liabilities denominated in a foreign currency and the time the Trust actually
collects such receivables or pays such liabilities generally are treated as
ordinary income or ordinary loss. Similarly, on disposition of foreign currency
or debt securities denominated in a foreign currency and on disposition of
certain futures and forward contracts, gains or losses attributable to
fluctuations in the value of foreign currency between the date of acquisition of
the currency, security or contract and the date of disposition also are treated
as ordinary gain or loss. These gains or losses, referred to under the Code as
"Section 988" gains or losses, may increase or decrease the amount of the
Trust's investment company taxable income to be distributed to its Shareholders
as ordinary income.

HEDGING TRANSACTIONS

Certain futures and foreign currency contracts in which the Trust may
invest are "section 1256 contracts." While gains or losses on section 1256
contracts are considered 60% long-term and 40% short-term capital gains or
losses, certain foreign currency futures and foreign currency contracts may give
rise to ordinary income or loss, as described above. Also, section 1256
contracts held by the Trust at the end of each taxable year (and, generally, for
purposes of the 4% excise tax, on October 31 of each year) are
"marked-to-market" with the result that unrealized gains or losses are treated
as though they were realized.

Generally, the hedging transactions undertaken by the Trust may result in
"straddles" for U.S. federal income tax purposes. The straddle rules may affect
the character of gains (or losses) realized by the Trust. In addition, losses
realized by the Trust on positions that are part of a straddle may be deferred
under the straddle rules, rather than being taken into account in calculating
the taxable income for the taxable year in which the losses are realized.
Because only a few regulations implementing the straddle rules have been
promulgated, the tax consequences to the Trust of engaging in hedging
transactions are not entirely clear.

The Trust may make one or more of the elections available under the Code
which are applicable to straddles. If the Trust makes any of the elections, the
amount, character and timing of the recognition of gains or losses from the
affected straddle positions will be determined under the rules that vary
according to the election(s) made. The rules applicable under certain of the
elections may operate to accelerate the recognition of gains or losses from the
affected straddle positions.

Notwithstanding any of the foregoing, the Trust may recognize gain (but not
loss) from a constructive sale of certain "appreciated financial positions" if
the Trust enters into a short sale, offsetting notional principal contract,
futures or forward contract transaction with respect to the appreciated position
or substantially identical property. Appreciated financial positions subject to
this constructive sale treatment are interests (including options, futures and
forward contracts and short sales) in stock, partnership interests, certain
actively traded trust instruments and certain debt instruments. Constructive
sale treatment does not apply to certain transactions closed before the end of
the thirtieth day after the close of the taxable year, if certain conditions are
met.

FOREIGN WITHHOLDING TAXES

Income received by the Trust from non-U.S. sources may be subject to
withholding and other taxes imposed by other countries. Because it is not
expected that more than 50% of the value of the Trust's total assets at the
close of its taxable year will consist of stock and securities of non-U.S.
corporations, it is not expected that the Trust will be eligible to elect to
"pass-through" to the Trust's shareholders the amount of foreign income and
similar taxes paid by the Trust. In the absence of such an election, the foreign
taxes paid by the Trust will reduce its investment company taxable income, and
distributions of investment company taxable income received by the Trust from
non-U.S. sources will be treated as U.S. source income.

BACKUP WITHHOLDING

The Trust may be required to withhold U.S. federal income tax at the rate
of 28% of all taxable distributions payable to shareholders who fail to provide
the Trust with their correct taxpayer identification number or to make required
certifications, or who have been notified by the IRS that they are subject to
backup withholding. Backup withholding is not an additional tax. Any amounts
withheld may be credited against a shareholder's U.S. federal income tax
liability. Certain persons are exempt from the backup withholding requirements.
Questions relating to backup withholding should be directed to your tax adviser.

FOREIGN SHAREHOLDERS

U.S. taxation of a shareholder who, as to the U.S., is a non-resident
alien individual, a foreign trust or estate, a foreign corporation or foreign
partnership ("foreign shareholder") depends on whether the income from the
Trust is "effectively connected" with a U.S. trade or business carried on by
such shareholder.

INCOME NOT EFFECTIVELY CONNECTED. If the income from the Trust is not
"effectively connected" with a U.S. trade or business carried on by the foreign
shareholder, distributions of investment company taxable income will be subject
to a U.S. tax of 30% (or lower treaty rate), which tax is generally withheld
from such distributions.

Distributions of capital gain dividends and amounts retained by the Trust
which are designated as undistributed capital gains will not be subject to U.S.
tax at the rate of 30% (or lower treaty rate) unless the foreign shareholder is
a non-resident alien individual and is physically present in the U.S. for more
than 182 days during the taxable year and meets certain other requirements.
However, this 30% tax on capital gains of non-resident alien individuals who are
physically present in the U.S. for more than the 182-day period only applies in
exceptional cases, because any individual present in the U.S. for more than 182
days during the taxable year is generally treated as a resident for U.S. federal
income tax purposes; in that case, he or she would be subject to U.S. federal
income tax on his or her worldwide income at the graduated rates applicable to
U.S. citizens, rather than the 30% U.S. tax. In the case of a foreign
shareholder who is a non-resident alien individual, the Trust may be required to
withhold U.S. federal income tax at a rate of 28% of distributions of net
capital gains unless the foreign shareholder certifies his or her non-U.S status
under penalties of perjury or otherwise establishes an exemption. See "Backup
Withholding" above. If a foreign shareholder is a non-resident alien individual,
any gain such shareholder realizes upon the sale or exchange of such
shareholder's Shares of the Trust in the U.S. will ordinarily be exempt from
U.S. tax unless such shareholder is physically present in the U.S. for more than
182 days during the taxable year and meets certain other requirements.

INCOME EFFECTIVELY CONNECTED. If the income from the Trust is "effectively
connected" with a U.S. trade or business carried on by a foreign shareholder,
then distributions of investment company taxable income and capital gain
dividends, amounts retained by the Trust which are designated as undistributed
capital gains and any gains realized upon the sale or exchange of Shares of the
Trust will be subject to U.S. federal income tax at the graduated rates
applicable to U.S. citizens, residents and domestic corporations. Such foreign
shareholders that are corporations may also be subject to the branch profits tax
imposed by the Code.

The tax consequences to a foreign shareholder entitled to claim the
benefits of an applicable tax treaty may be different from those described
herein. Foreign Shareholders are advised to consult their own tax advisers with
respect to the particular tax consequences to them of an investment in the
Trust.

OTHER TAXES

Distributions may also be subject to state, local and foreign taxes and/or
the alternative minimum tax depending on each Shareholder's particular
situation. Shareholders should consult their own tax advisers with respect to
their particular situation.

CUSTODIAN AND TRANSFER AGENT,
DIVIDEND DISBURSING AGENT AND REGISTRAR

The Trust's securities and cash are held under a custodian contract by
State Street Bank and Trust Company (the "Custodian"), whose principal business
address is 225 Franklin Street, Boston, Massachusetts 02110. Rules adopted under
the Investment Company Act permit the Trust to maintain its securities and cash
in the custody of certain eligible banks and securities depositories. Pursuant
to those Rules, the Trust's portfolio of securities and cash, when invested in
Foreign Securities, will be held by sub-custodians who have been approved by the
Board in accordance with the rules and regulations of the Commission following
consideration of a number of factors, including, but not limited to, the
relationship of the institution with the Custodian, the reliability and

financial stability of the institution, the ability of the institution to
perform capably custodial services for the Trust, the reputation of the
institution in its national market, the political and economic stability of the
countries in which the sub-custodians will be located and the risks of potential
nationalization or expropriation of Trust assets. The Custodian also performs
certain accounting related functions for the Trust, including calculation of NAV
and net income.

EquiServe, Inc. serves as Dividend Disbursing Agent. EquiServe Trust
Company, a fully owned subsidiary of EquiServe, Inc., serves as (1) the Plan
Agent for the Trust's Dividend Reinvestment Plan, (2) the Transfer Agent and
Registrar for Shares of the Trust and (3) the Subscription Agent in connection
with the Offer. EquiServe, Inc. and EquiServe Trust Company have their principal
business at 150 Royall Street, Canton, MA 02021.

FINANCIAL STATEMENTS

PricewaterhouseCoopers LLP ("PwC") had been selected as the independent
accountants of the Trust for its fiscal year ending September 30, 2004. On
May 7, 2004, PwC resigned as the Trust's independent accountants for its
fiscal year ending September 30, 2004 effective upon the completion of
services related to the Trust's semi-annual financial statements. The reports
provided by PwC for the fiscal years ending September 30, 2002 and September
30, 2003 were unqualified and contained no adverse opinion or disclaimer of
opinion, nor were the reports modified as to uncertainty, audit scope, or
accounting principle. Further, in connection with its audits for the two
previous fiscal years and through the date of this registration statement,
there have been no disagreements between PwC and the Trust on any matter of
accounting principles or practices, financial statement disclosure or
auditing scope or procedure, which disagreements, if not resolved to their
satisfaction, would have caused PwC to reference the subject matter of the
disagreements in its report on the financial statements for such years. The
Trust is currently seeking to retain new independent auditors for its fiscal
year ending September 30, 2004. The audit, audit-related and non-audit
services any newly-appointed independent auditors may provide include, among
other things, examination of the financial statements of the Trust, services
relating to filings by the Trust with the SEC and consultation on matters
related to the preparation and filing of tax returns.

The Trust's financial statements and financial highlights for the fiscal
years ended September 30, 2003, September 30, 2002 and September 30, 2001
have been audited by PricewaterhouseCoopers LLP, independent accountants. The
information included in the Trust's financial statements for the fiscal years
ended September 30, 2000 and September 30, 1999 has been audited by Arthur
Andersen LLP, the Trust's previous independent accountants. Arthur Andersen
LLP's reports expressed an unqualified opinion on those financial statements
and financial highlights. Arthur Andersen LLP ceased operations in 2002. The
report of PricewaterhouseCoopers LLP, together with the financial statements
of the Trust, are included in the Trust's September 30, 2003 Annual Report
and are included in the Prospectus.

Any statement contained in the Trust's annual report that is included in
the Prospectus shall be deemed modified or superceded for purposes of the
Prospectus and this SAI to the extent a statement contained in the Prospectus or
this SAI varies from such statement. Any such statement so modified or
superceded shall not, except as modified or superceded, be deemed to constitute
a part of the Prospectus or this SAI.

It is expected that the unaudited financial statements included in the
Trust's Semi-Annual Report to Shareholders for the six months ended March 31,
2004 will be mailed to Shareholders and available on the Trust's website
(www.hqcm.com) on or around June 1, 2004.

APPENDIX A

PROXY VOTING POLICIES AND PROCEDURES

HAMBRECHT & QUIST CAPITAL MANAGEMENT LLC
PROXY VOTING POLICIES AND PROCEDURES
April, 2003

The following are the policies and procedures adopted and implemented by
Hambrecht & Quist Capital Management LLC (the "Adviser") for voting proxies
with respect to portfolio securities held by H&Q Healthcare Investors and H&Q
Life Sciences Investors (each a "Fund" and collectively the "Funds"). The
policies and procedures are reasonably designed to ensure that proxies are
voted in the best interest of the Funds and the Funds' shareholders, in
accordance with the Adviser's fiduciary duties and Rule 206(4)-6 under the
Investment Advisers Act of 1940 (the "Investment Advisers Act"). The Adviser
considers the "best interests" of the Funds and their shareholders to mean
their best long-term economic interests.

I. General Statement of Policies and Procedures.

The Adviser shall vote proxies for the exclusive benefit, and in the best
economic interest, of the Funds and their shareholders. Such exercise of voting
rights shall be subject to the same standard of care as is generally applicable
to the Adviser's performance of its duties, as set forth in the advisory
agreements with the Funds. The policies and procedures contained herein are
designed to be guidelines, however each vote is ultimately cast on a
case-by-case basis, taking into consideration the relevant facts and
circumstances at the time of the vote. Any material conflicts that may arise
will be resolved in the best interests of the Funds and their shareholders.

II. Responsibility and Oversight.

A proxy committee is hereby designated and shall be responsible for
administering and overseeing the proxy voting process. The committee shall
consist of the President of the Adviser, the Treasurer of the Adviser, and the
analyst responsible for oversight of the company which is the subject of the
proxy.

III. Proxy Voting Procedures.

A. Logistics. The Treasurer shall be responsible for maintaining the
proxy log, monitoring corporate actions and confirming the timely voting of
proxies. The proxy log shall contain the following information, in accordance
with Form N-PX:

1. the name of the issuer;

2. the exchange ticker symbol, if available;

3. the CUSIP number, if available;

4. the shareholder meeting date;

5. a brief identification of the matter voted on;

6. whether the matter was proposed by the issuer or a security holder;

7. whether the Adviser cast its vote on the matter;

8. how the Adviser cast its vote on the matter (for, against, abstain;
for or withhold regarding the election of directors); and

9. whether the Adviser cast its vote for or against management.

B. Substantive Voting Decisions.

The Adviser's substantive voting decisions turn on the particular facts and
circumstances of each proxy vote. The following is a list of common proxy vote
issues and the Adviser's standard considerations when determining how to vote
such proxies.

1. ROUTINE MATTERS/CORPORATE ADMINISTRATIVE ITEMS. After an initial
review, the Adviser generally votes with management on routine matters
related to the operation of the issuer that are not expected to have a
significant economic impact on the issuer and/or its shareholders.

2. POTENTIAL FOR MAJOR ECONOMIC IMPACT. The Adviser reviews and analyzes
on a case-by-case basis, non-routine proposals that are more likely to
affect the structure and operation of the issuer and to have a greater
impact on the value of the investment.

3. CORPORATE GOVERNANCE. The Adviser reviews and considers corporate
governance issues related to proxy matters and generally supports
proposals that foster good corporate governance practices.

4. SPECIAL INTEREST ISSUES. The Adviser considers: (i) the long-term
benefit to shareholders of promoting corporate accountability and
responsibility on social issues; (ii) management's responsibility with
respect to special interest issues; (iii) any economic costs and
restrictions on management; and (iv) the responsibility of the Adviser
to vote proxies for the greatest long-term shareholder value.

5. LIMITATIONS ON DIRECTOR TENURE AND RETIREMENT. The Adviser considers:
(i) a reasonable retirement age for directors, e.g. 70 or 72; (ii) the
introduction of new perspectives on the board; and (iii) the arbitrary
nature of such limitations and the possibility of detracting from the
board's stability and continuity.

6. DIRECTORS' MINIMUM STOCK OWNERSHIP. The Adviser considers: (i) the
benefits of additional vested interest; (ii) the ability of a director
to serve a company well regardless of the extent of his or her share
ownership; and (iii) the impact of limiting the number of persons
qualified to be directors.

7. D&O INDEMNIFICATION AND LIABILITY PROTECTION. The Adviser considers:
(i) indemnifying directors for acts conducted in the normal course of
business; (ii) limiting liability for monetary damages for violating
the duty of care; (iii) expanding coverage beyond legal expenses to
acts that represent more serious violations of

fiduciary obligation than carelessness (e.g. negligence); and (iv)
providing expanded coverage in cases when a director's legal defense
was unsuccessful if the director was found to have acted in good faith
and in a manner that he or she reasonably believed was in the best
interests of the issuer.

8. DIRECTOR NOMINATIONS IN CONTESTED ELECTIONS. The Adviser considers:
(i) long-term financial performance of the issuer relative to its
industry; (ii) management's track record; (iii) background to proxy
contest; (iv) qualifications of both slates of nominees; (v)
evaluations of what each side is offering shareholders as well as the
likelihood that the proposed objectives and goals can be met; and (vi)
stock ownership positions.

9. CUMULATIVE VOTING. The Adviser considers: (i) the ability of
significant stockholders to elect a director of their choosing; (ii)
the ability of minority shareholders to concentrate their support in
favor of a director or directors of their choosing; and (iii) the
potential to limit the ability of directors to work for all
shareholders.

10. CLASSIFIED BOARDS. The Adviser considers: (i) providing continuity;
(ii) promoting long-term planning; and (iii) guarding against unwanted
takeovers.

11. POISON PILLS. The Adviser considers: (i) the Adviser's position on
supporting proposals to require a shareholder vote on other
shareholder rights plans; (ii) ratifying or redeeming a poison pill in
the interest of protecting the value of the issuer; and (iii) other
alternatives to prevent a takeover at a price demonstrably below the
true value of the issuer.

12. FAIR PRICE PROVISIONS. The Adviser considers: (i) the vote required to
approve the proposed acquisition; (ii) the vote required to repeal the
fair price provision; (iii) the mechanism for determining fair price;
and (iv) whether these provisions are bundled with other anti-takeover
measures (e.g., supermajority voting requirements) that may entrench
management and discourage attractive tender offers.

13. EQUAL ACCESS. The Adviser considers: (i) the opportunity for
significant shareholders of the issuer to evaluate and propose voting
recommendations on proxy proposals and director nominees, and to
nominate candidates to the board; and (ii) the added complexity and
burden.

14. CHARITABLE CONTRIBUTIONS. The Adviser considers: (i) the potential
benefits to shareholders; (ii) the potential to detract the issuer's
resources from more direct uses of increasing shareholder value; and
(iii) the responsibility of shareholders to make individual
contributions.

15. STOCK AUTHORIZATIONS: The Adviser considers: (i) the need for the
increase; (ii) the percentage increase with respect to the existing
authorization; (iii) voting rights of the stock; and (iv) overall
capitalization structures.

16. PREFERRED STOCK. The Adviser considers: (i) whether the new class of
preferred stock has unspecified voting, conversion, dividend
distribution, and other rights; (ii)

whether the issuer expressly states that the stock will not be used as
a takeover defense or carry superior voting rights; (iii) whether the
issuer specifies the voting, dividend, conversion, and other rights of
such stock and the terms of the preferred stock appear reasonable; and
(iv) whether the stated purpose is to raise capital or make
acquisitions in the normal course of business.

17. DIRECTOR COMPENSATION. The Adviser considers: (i) whether director
shares are at the same market risk as those of the shareholders; and
(ii) how option programs for outside directors compare with the
standards of internal programs.

18. GOLDEN AND TIN PARACHUTES. The Adviser considers: (i) whether they
will be submitted for shareholder approval; and (ii) the employees
covered by the plan and the quality of management.

IV. Limitations.

The Adviser may abstain from voting a proxy if it concludes that the effect on
shareholders' economic interests or the value of the portfolio holding is
indeterminable or insignificant. The Adviser may abstain from voting a proxy if
it concludes that the cost of voting is disproportionate to the economic impact
the vote would have on the portfolio holdings.

V. Conflicts of Interest.

Where conflicts of interest arise between clients and the Adviser which cannot
be fully addressed by the process outlined above, the Adviser may convene an
ad-hoc committee which will meet to debate the conflict and to give a ruling on
a preferred course of action. The ad-hoc committee will be charged with
resolving the issue in a manner which will be in the best interests of the Funds
and their shareholders.

Alternatively, the Adviser may cause the proxies to be voted in accordance with
the recommendations of an independent third party service provider that the
Adviser may use to assist in voting proxies.

VI. Disclosure.

The following disclosure shall be provided in connection with these policies and
procedures:

1. The Adviser shall provide a description or a copy of these policies
and procedures to the Boards of Trustees of the Funds annually and
upon request.

2. The Adviser shall make available to the Funds its proxy voting
records, for inclusion on the Funds' Form N-PX.

3. The Adviser shall include its proxy voting policies and procedures in
its annual filing on Form N-CSR.

4. The Adviser shall cause the Funds' shareholder reports to include a
statement that a copy of these policies and procedures is available
upon request (i) by calling a toll-

free number; (ii) on the Funds' website, (if the Funds choose); and
(iii) on the SEC's website.

5. The Adviser shall cause the Funds' annual and semi-annual reports to
include a statement that information is available regarding how the
Funds voted proxies during the most recent twelve-month period (i)
without charge, upon request, either by calling a toll-free number or
on or through the Funds' website, or both; and (ii) on the SEC's
website.

VII. Recordkeeping.

The Adviser shall maintain records of proxies voted in accordance with Section
204-2 of the Advisers Act, including proxy statements, a record of each vote
cast, and a copy of any document created by the Adviser that was material to
making a decision of how to vote the proxy, or that memorializes the basis for
the Adviser's decision on how to vote the proxy. The Adviser shall also maintain
a copy of its policies and procedures and each written request from a client for
proxy voting records and the Adviser's written response to any client request,
either written or oral, for such records. Proxy statements that are filed on
EDGAR shall be considered maintained by the Adviser. All such records shall be
maintained for a period of five years in an easily accessible place, the first
two year in the offices of the Adviser.

PART C
OTHER INFORMATION

Item 24. Financial Statements and Exhibits

1. Financial Statements:

(i) Report of Independent Public Accountants dated November 25,
2003.

(ii) Schedule of Investments as of September 30, 2003.

(iii) Statement of Assets and Liabilities as of September 30,
2003.

(iv) Statement of Operations as of September 30, 2003.

(v) Statement of Cash Flows as of September 30, 2003.

(vi) Statement of Changes in Net Assets as of September 30, 2003.

All other financial statements, schedules and historical financial information
have been omitted as the subject matter is not required, not present, or not
present in amounts sufficient to require submission.

2. Exhibits:

a. (i) Amended and Restated Declaration of Trust of the Registrant,
dated as of April 21, 1987, is incorporated by reference to Exhibit
(a) to Registrant's registration statement on Form N-2 (File No.
333-19247), filed January 3, 1997.

(ii) Amendment Relating to Notice of Change of Trustee, dated
June 2, 2003, is incorporated by reference to Exhibit (a)(ii) to
Registrant's registration statement on Form N-2 (File
No. 333-114322), filed April 8, 2004.

b. By-Laws of the Registrant are incorporated by reference to Exhibit
(b) to Registrant's registration statement on Form N-2 (File No.
333-19247), filed January 3, 1997.

c. Not Applicable.

d. (i) Specimen certificate for Shares of Beneficial Interest is
filed herewith.

(ii) Form of Notice of Guaranteed Delivery is filed herewith.

(iii) Form of Exercise Form is filed herewith.

(iv) Form of Beneficial Owner Certification is filed herewith.

e. Dividend Reinvestment Plan of the Registrant dated May 1995 is
incorporated by reference to Exhibit (e) to Registrant's
registration statement on Form N-2 (File No. 333-19247), filed
January 3, 1997.

f. Not Applicable.

g. Investment Advisory Agreement, dated as of July 1, 2002, between
the Registrant and Hambrecht & Quist Capital Management, LLC is
incorporated by reference to Exhibit (g) to Registrant's
registration statement on Form N-2 (File No. 333-114322), filed
April 8, 2004.

h. Not Applicable.

i. Not Applicable.

j. (i) Custodian Contract, dated April 21, 1987, between the
Registrant and State Street Bank and Trust Company is incorporated
by reference to Exhibit (j) to Pre-Effective Amendment No. 1 to
Registrant's registration statement on Form N-2 (File No.
333-19247), filed February 7, 1997.

(ii) Amendment to Custodian Contract, dated July 21, 1989,
between the Registrant and State Street Bank and Trust Company is
incorporated by reference to Exhibit (j) to Pre-Effective Amendment
No. 1 to Registrant's registration statement on Form N-2 (File No.
333-19247), filed February 7, 1997.

k. (i) Transfer Agency and Service Agreement, dated as of March 1,
2003, among the Registrant, H&Q Life Sciences Investors, EquiServe,
Inc. and EquiServe Trust Company, N.A. is incorporated by
reference to Exhibit (k)(i) to Registrant's registration
statement on Form N-2 (File No. 333-114322), filed April 8, 2004.

(ii) Information Agent Agreement between the Registrant and The
Altman Group, Inc. is filed herewith.

(iii) Subscription Agent Agreement among the Registrant,
EquiServe Trust Company, N.A. and EquiServe Inc. is filed
herewith.

l. Opinion and Consent of Dechert LLP is filed herewith.

m. Not Applicable.

n. Consent of PricewaterhouseCoopers LLP is filed herewith.

o. Not Applicable.

p. Not Applicable.

q. Not Applicable.

r. Code of Ethics of Registrant and its Investment Adviser is
incorporated by reference to Exhibit (r) to Registrant's
registration statement on Form N-2 (File No. 333-114322), filed
April 8, 2004.

s. Powers of Attorney are incorporated by reference to Exhibit (s)
to Registrant's registration statement on Form N-2 (File No.
333-114322), filed April 8, 2004.

Item 25. Marketing Arrangements.

Not Applicable.

Item 26. Other Expenses of Issuance and Distribution.

The following table sets forth the estimated expenses expected to be
incurred in connection with the offering described in this Registration
Statement:

Registration fees $ 13,500
New York Stock Exchange listing fees $ 50,000
Printing $ 65,000
Fees and expenses of qualification under state securities $ 5,000
laws (including fees of counsel)
Accounting fees and expenses $ 6,000
Legal fees and expenses $ 168,000
Information Agent Fees $ 7,500
Subscription Agent Fees $ 20,000
Marketing Costs $ 25,000
Miscellaneous $ 25,000
TOTAL $ 390,000

Item 27. Persons Controlled by or under Common Control with Registrant.

Not Applicable.

Item 28. Number of Holders of Securities.

As of April 30, 2004, the number of record holders of each class of
securities of Registrant was as follows:

Number of Record
Title of Class Holders

Shares of beneficial interest, $.01 par value 685

Item 29. Indemnification.

Under Article V of the Registrant's Amended and Restated Declaration of
Trust dated April 21, 1987, any past or present Trustee or officer of Registrant
will be indemnified by the Registrant to the fullest extent permitted by law
against liability and against all expenses reasonably incurred by him in
connection with any claim, action, suit or proceeding in which he becomes
involved as a party or otherwise by reason of his being or having been a Trustee
or officer of Registrant, and against amounts paid and incurred by him in the
settlement thereof. This provision does not authorize indemnification when it is
determined, in the manner specified in the Amended and Restated Declaration of
Trust, that the Trustee or officer would otherwise be liable to Registrant or
its shareholders by reason of willful misfeasance, bad faith, gross negligence
or reckless disregard of his duties. Expenses of a Trustee or officer may be
paid by Registrant in advance of the final disposition of any claim, action,
suit or proceeding upon receipt of an undertaking by the Trustee or officer to
repay the expenses to Registrant in the event that it is ultimately determined
that indemnification of the Trustee or officer is not authorized under the
Amended and Restated Declaration of Trust.

The Registrant will purchase insurance insuring its Trustees and
officers against certain liabilities incurred in their capacity as such, and
insuring the Registrant against any payments which it is obligated to make to
such persons under the foregoing indemnification provisions.

Insofar as indemnification for liability arising under the Securities
Act of 1933, as amended ("1933 Act"), may be permitted to Trustees, officers and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission such indemnification is against public policy
as expressed in the 1933 Act, and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a Trustee, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such Trustee, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the 1933 Act
and will be governed by the final adjudication of such issue.

Under the Investment Advisory Agreement between the Registrant and Hambrecht &
Quist Capital Management, LLC (the "Investment Adviser") dated July 1, 2002, the
Registrant has agreed to certain limitations on the liability of the Investment
Adviser and has agreed to provide certain indemnification. Section 9 of the
Investment Advisory Agreement provides as follows:

The Investment Adviser shall not be held responsible for any loss incurred
by any act or omission of any broker. The Investment Adviser also shall not
be liable to the Fund or to any shareholder of the Fund for any error or
judgment or for any loss suffered by the Fund in connection with rendering
services hereunder except (a) a loss resulting from a breach of fiduciary
duty with respect to the receipt of compensation for services (in which
case any award of damages shall be limited to the period and the amount set
forth in Section 36(b)(3) of the [Investment Company Act of 1940]) or (b) a
loss resulting from willful misfeasance, bad faith or gross negligence on
the part of the Investment Adviser, or reckless disregard of its
obligations and duties hereunder. Subject to the foregoing, the Fund also
shall indemnify the Investment Adviser, and any officer, director and
employee thereof to the maximum extent permitted by Article V of the Fund's
Declaration of Trust.

Item 30. Business and Other Connections of Investment Adviser.

Hambrecht & Quist Capital Management LLC was organized in June 2002 for
the purpose of providing investment advisory services to H&Q Healthcare
Investors and H&Q Life Sciences Investors (File Nos. 811-04889 and 811-06565).
Reference is made to "Trustees and Officers" in the Statement of Additional
Information and to Schedule A of Part I of Form ADV, Uniform Application for
Investment Adviser Registration, as amended from time to time, (File No.
801-61018) filed with the Commission for information concerning the business and
other connections of Daniel R. Omstead, Eng.ScD., Trustee and President of the
Trust and President and CEO of the Investment Adviser.

Item 31. Location of Accounts and Records.

Records are located at:

1. Hambrecht & Quist Capital Management, LLC
30 Rowes Wharf, Fourth Floor
Boston, MA 02110-3328

(Registrant's corporate records and records relating to its
function as Investment Adviser to Registrant)

2. State Street Bank and Trust Company
225 Franklin Street
Boston, MA 02101

(Records relating to its function as Custodian to Registrant; and
most of Registrant's accounting and all records relating to its
function as Registrant's accounting agent)

3. EquiServe Trust Company, N.A.
150 Royall Street
Canton, MA 02021

(Records relating to its function as Registrar and Transfer Agent
to Registrant)

4. EquiServe, Inc.
150 Royall Street
Canton, MA 02021

(Records relating to its function as Dividend Disbursing Agent to
Registrant)

Item 32. Management Service.

Not Applicable.

Item 33. Undertakings.

1. Registrant hereby undertakes to suspend offering of the shares
covered hereby until it amends its prospectus contained herein if (1) subsequent
to the effective date of this Registration Statement, its net asset value per
share declines more than 10 percent from its net asset value per share as of the
effective date of this Registration Statement, or (2) its net asset value
increases to an amount greater than its net proceeds as stated in such
prospectus.

2. Not Applicable.

3. Not Applicable.

4. Not Applicable.

5. (a) For the purpose of determining any liability under the
Securities Act, the information omitted from the form of prospectus filed as
part of this Registration Statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant under Rule 497(h) under the
Securities Act shall be deemed to be part of this Registration Statement as of
the time it was declared effective; and (b) Registrant hereby undertakes that
for the purposes of determining any liability under the Securities Act of 1933,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new Registration Statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.

6. The Registrant undertakes to send by first class mail or other
means designed to ensure equally prompt delivery, within two business days of
receipt of a written or oral request, any Statement of Additional Information.

SIGNATURES

Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this
Pre-Effective Amendment No. 1 to its Registration Statement on Form N-2 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Boston and Commonwealth of Massachusetts on the 26th day of May, 2004.

H&Q HEALTHCARE INVESTORS

By: /s/ Daniel R. Omstead
------------------------------
President

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:

Signature Title Date
--------- ----- ----

/s/ Kimberley L. Carroll Treasurer and Chief May 26, 2004
------------------------------------- Financial Officer
Kimberley L. Carroll

* Trustee May 26, 2004
-------------------------------------
Lawrence S. Lewin

* Trustee May 26, 2004
-------------------------------------
Robert P. Mack

* Trustee May 26, 2004
-------------------------------------
Eric Oddleifson

/s/ Daniel R. Omstead Trustee and May 26, 2004
------------------------------------- President
Daniel R. Omstead

* Trustee May 26, 2004
-------------------------------------
Oleg M. Pohotsky

* Trustee May 26, 2004
-------------------------------------
Uwe E. Reinhardt

* Trustee May 26, 2004
-------------------------------------
Henri A. Termeer

*By: /s/ Daniel R. Omstead
------------------------------------------
Daniel R. Omstead
as attorney-in-fact

EXHIBIT LIST

d. (i) Specimen certificate for Shares of Beneficial Interest

(ii) Form of Notice of Guaranteed Delivery

(iii) Form of Exercise Form

(iv) Form of Beneficial Owner Certification

k. (ii) Information Agent Agreement between the Registrant and The
Altman Group, Inc.

(iii) Subscription Agent Agreement among the Registrant,
EquiServe Trust Company, N.A. and EquiServe Inc.

l. Opinion and Consent of Dechert LLP

n. (i) Consent of PricewaterhouseCoopers LLP