As Of                Filer                Filing    For·On·As Docs:Size              Issuer               Agent

 4/16/14  Tekla Healthcare Investors        N-2¶                  15:2.0M                                   Merrill Corp-MD/FA
          H&Q Healthcare Investors

Document/Exhibit                   Description                      Pages   Size 

 1: N-2         Registration Statement by a Closed-End Investment   HTML    900K 
                Company                                                          
15: COVER     ¶ Comment-Response or Cover Letter to the SEC         HTML     10K 
 2: EX-99.A(III)  Miscellaneous Exhibit                             HTML     17K 
 3: EX-99.A(IV)  Miscellaneous Exhibit                              HTML     17K 
 7: EX-99.A(IX)  Miscellaneous Exhibit                              HTML     17K 
 4: EX-99.A(V)  Miscellaneous Exhibit                               HTML     17K 
 5: EX-99.A(VI)  Miscellaneous Exhibit                              HTML     17K 
 6: EX-99.A(VIII)  Miscellaneous Exhibit                            HTML     17K 
 8: EX-99.G     Miscellaneous Exhibit                               HTML     45K 
 9: EX-99.J     Miscellaneous Exhibit                               HTML    127K 
10: EX-99.K(I)  Miscellaneous Exhibit                               HTML     66K 
11: EX-99.K(II)  Miscellaneous Exhibit                              HTML    166K 
12: EX-99.N(I)  Miscellaneous Exhibit                               HTML      9K 
13: EX-99.N(II)  Miscellaneous Exhibit                              HTML     48K 
14: EX-99.R     Miscellaneous Exhibit                               HTML     57K 

 

As filed with the Securities and Exchange Commission on [  ], 2014.

1933 Act File No. 333-[  ]
1940 Act File No. 811-04889

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

 

FORM N-2

 

x REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933

o PRE-EFFECTIVE AMENDMENT NO.

o POST-EFFECTIVE AMENDMENT NO.

 

 

x REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940

AMENDMENT NO. 19

 

 

H&Q HEALTHCARE INVESTORS

(Exact Name of Registrant as Specified in Charter)

 

 

2 Liberty Square, 9th Floor

Boston, MA 02109
(Address of Principal Executive Offices)
(617) 772-8500

(Registrant’s Telephone Number, including Area Code)

 

 

Daniel R. Omstead, Ph.D.
2 Liberty Square, 9th Floor
Boston, MA 02109

(Name and Address of Agent for Service)

 

 

Copies of Communications to:

 

Joseph R. Fleming, Esq.
Dechert LLP
One International Place, 40th Floor

100 Oliver Street
Boston, MA 02110

 

 

Approximate Date of Proposed Public Offering: As soon as practicable after the effective date of this Registration Statement.

 

If any of the securities being registered on this form are being 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.  o

 

It is proposed that this filing will become effective when declared effective pursuant to Section 8(c).

 

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

 

TITLE OF SECURITIES BEING REGISTERED

AMOUNT BEING REGISTERED

PROPOSED MAXIMUM OFFERING PRICE PER UNIT(1)

PROPOSED MAXIMUM OFFERING PRICE(1)

AMOUNT OF REGISTRATION FEE

Shares of Beneficial Interest ($.01 par value)

[  ]

$

[  ]

$

1,000,000

$

128.80

 

(1)  Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933 based on the average high and low prices of H&Q Healthcare Investors reported on the New York Stock Exchange on April 16, 2014.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such dates as the Commission, acting pursuant to said Section 8(a), may determine.

 

 

 

H&Q HEALTHCARE INVESTORS
CROSS REFERENCE SHEET

 

BETWEEN ITEMS OF REGISTRATION STATEMENT (FORM N-2) AND PROSPECTUS PURSUANT TO RULE 495(A)

 

ITEM NO.		CAPTION		LOCATION IN PROSPECTUS OR STATEMENT OF ADDITIONAL INFORMATION (“SAI”)
1.		Outside Front Cover Page		Front Cover Page
2.		Cover Pages; Other Offering Information		Front Cover Page
3.		Fee Table and Synopsis		Trust Expenses; Prospectus Summary
4.		Financial Highlights		Financial Highlights and Investment Performance
5.		Plan of Distribution		Front Cover Page; Prospectus Summary; The Offer
6.		Selling Stockholders		Not Applicable
7.		Use of Proceeds		Use of Proceeds
8.		General Description of the Registrant		Front Cover Page; Prospectus Summary; Financial Highlights and Investment Performance; Investment Objective and Policies; Risk Factors; Description of the Trust; Additional Information About Investments, Investment Techniques and Risks; Investment Restrictions; The Trust
9.		Management		Management of the Trust; Administrator, Custodian, Transfer Agent, Dividend Disbursing Agent, Registrar and Subscription Agent; Trustees and Officers; Investment Adviser and Investment Advisory Agreement
10.		Capital Stock, Long-Term Debt, and Other Securities		Front Cover Page; Description of the Trust; Dividends and Distributions; Quarterly Distribution Policy; Net Asset Value; Taxation, The Trust
11.		Defaults and Arrears on Senior Securities		Not Applicable
12.		Legal Proceedings		Not Applicable
13.		Table of Contents of the Statement of Additional Information		Table of Contents of Statement of Additional Information
14.		Cover Page of SAI		Cover Page of SAI

 

 

PROSPECTUS

 

The information contained in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION

PRELIMINARY PROSPECTUS

DATED [   ], 2014

H&Q HEALTHCARE INVESTORS

 

[  ] Shares
Issuable Upon Exercise Of Non-Transferable Rights
To Subscribe For Such Shares

 

New York Stock Exchange Symbol: HQH

 

 

H&Q Healthcare Investors (the “Trust”) is issuing non-transferable rights (“Rights”) to its Shareholders of record as of the close of business on [  ],  2014 (the “Record Date”). These Rights will allow you to subscribe for one (1) Share of the Trust for every three (3) Rights held (the “Offer”). You will receive one Right for each whole Share that you hold of record as of the Record Date, rounded down to the nearest number of Rights evenly divisible by three. The Rights will not be listed for trading on the New York Stock Exchange (“NYSE”) or any other exchange. You may also purchase Shares not acquired by other Shareholders subject to certain limitations and subject to allotment as described in this Prospectus.

 

The Subscription Price per Share will be 95% of the volume weighted average price of a Share on the NYSE on [  ], 2014 (the “Pricing Date”) and the three preceding business days.

 

Rights may be exercised at anytime until 5:00 p.m., Eastern Time, [  ], 2014, unless the Offer is extended as discussed in this Prospectus. As the Offer expires before [  ], 2014, 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 “Information Agent”) at [  ].

 

The Trust is a diversified, closed-end management investment company whose shares of beneficial interest are listed and traded on the NYSE under the symbol “HQH.” The Trust’s investment objective is to seek long-term capital appreciation by investing primarily in equity and related securities (including securities subject to legal or contractual restrictions on resale) of U.S. and foreign companies principally engaged in the healthcare industries (“Healthcare Companies”). The Trust may invest in securities of emerging growth Healthcare Companies, 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 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 on resale (“Restricted Securities”). The Trust’s investments in Restricted Securities may include “start-up,” early and later stage financings of privately held companies (sometimes referred to as “venture capital” investments), private placements by public companies, and interests in joint ventures and limited partnerships.  See “Risk Factors — Investment in Emerging Growth Companies” and “Risk Factors — Liquidity of Portfolio Investments.”  The Trust may also invest in securities of large, well-known companies with existing products in the healthcare industries.  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 “Risk Factors.”

 

The Trust adopted a managed distribution policy in May 1999 pursuant to an exemptive order obtained from the Securities and Exchange Commission (“SEC” or “Commission”). The Trust intends to make regular quarterly distributions at a rate equal to 2.0% of the Trust’s net asset value (“NAV”). The Trust’s Board of Trustees (the “Board”) may modify or terminate the managed distribution policy at any time; any such change or termination may have an adverse effect on the market price for the Trust’s Shares.

 

To the extent that the Trust’s taxable income in any fiscal year exceeds the aggregate amount distributed pursuant to the managed distribution policy based on a fixed percentage of its NAV, the Trust would make an additional distribution in the amount of that excess near the end of the fiscal year. To the extent that the aggregate amount distributed by the Trust based on a fixed percentage of its net asset value exceeds its current and accumulated earnings and profits, the amount of that excess would constitute a return of capital or net realized capital gains for tax purposes.

 

 

The actual sources of the Trust’s quarterly distributions may be net investment income, net realized capital gains, return of capital or a combination of the foregoing and may be subject to retroactive recharacterization at the end of the Trust’s fiscal year based on tax regulations. The actual amounts attributable to each of these sources will be reported to Shareholders in January of each year on Form 1099-DIV.

 

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 [  ], 2014 (the “SAI”) containing additional information about the Trust has been filed with the 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 [  ] of this Prospectus, and the Trust’s annual and semi-annual reports may be obtained without charge by contacting the Information Agent at [  ]. The Commission maintains a website (http://www.sec.gov) that contains material incorporated by reference and other information regarding the Trust.  The Trust’s annual and semi-annual reports are also available on the Trust’s website (www.teklacap.com).

 

 

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 Subscription Price(1)			Estimated Sales Load		Estimated Proceeds To Trust Or Other Persons(2)
Per Share		$			None		$
Total Maximum		$			None		$

 

[        ], 2014

 

(1)         Estimated on the basis of the volume weighted average share price of a Share on the NYSE on [  ], 2014 and the three 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 [  ] Shares, for an aggregate total of [  ] 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 $[  ].

 

The Trust announced the Offer before the opening of trading on the NYSE on March 12, 2014. The NAV at the close of business on March 11, 2014 was $29.31, and the last reported sales price of a Share on the NYSE on that date was $29.25.

 

The Trust may increase the number of Shares subject to subscription by up to 25%, or up to an additional [  ] Shares, for an aggregate total of [   ] 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 either a dilution or accretion of NAV for all Shareholders, whether or not they exercise some or all of their Rights, because the Subscription Price per Share may be less than or greater than the then-current NAV per Share. The amount of dilution or accretion might be significant. See “The Offer.”

 

The Trust’s investment adviser is Tekla 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 Commission’s Public Reference Room in Washington, DC. Call (202) 551-8090 for information on the operation of the Public Reference Room. This information is also available at 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, 100 F Street, NE, Washington, DC 20549.

 

 

		·                  allow the Trust to make greater or additional investments at a time when the Trust’s Investment Adviser believes that securities of Healthcare Companies, including investments in new target validation approaches, other innovative medical technology companies, medical devices, specialty and generic pharmaceutical companies and healthcare information services, 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 the Patient Protection and Affordable Care Act, which may result in volume and utilization increases;
		·                  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;
		·                  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 investments in the public markets; and   ·                  provide the Investment Adviser with additional flexibility in managing the Trust’s portfolio to satisfy applicable portfolio diversification requirements.
		In addition, the Offer may 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 the average market value calculated at the Expiration Date. See “The Offer—Purpose of the Offer.”
Use of Proceeds		The Trust expects to invest the net proceeds 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.”
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 net asset value (“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. Shareholders will have their payment for additional Shares returned to them if they opt to cancel the exercise of their Rights. Shareholders will have their payment for additional Shares returned to them if they opt to cancel the exercise of their rights.
How to Obtain Subscription Information		·                  Contact your broker, bank or trust company. ·                  Contact [ ] (the “Information Agent”) toll-free at [ ].
How to Subscribe		You may subscribe in one of two ways:
		·                  Deliver a completed Exercise Form and payment to [ ] (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.
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.”

 

2

 

IMPORTANT DATES TO REMEMBER

 

Record Date		[  ], 2014
Subscription Period		[  ], 2014 through [  ], 2014*
Deadline for delivery of Exercise Form together with payment of Estimated Subscription Price or for delivery of Notice of Guaranteed Delivery		[  ], 2014*
Expiration Date		[  ], 2014*
Pricing Date		[  ], 2014*
Deadline for payment of final Subscription Price pursuant to Notice of Guaranteed Delivery		[  ], 2014*
Confirmation to Registered Shareholders**		[  ], 2014*
For Registered Shareholder Purchases—deadline for payment of unpaid balance if final Subscription Price is higher than Estimated Subscription Price		[  ], 2014*

 

*                 Unless the Offer is extended.

 

**          Registered Shareholders are those Shareholders who are the record owners of Trust Shares (that is, their names appear directly on the records of the Trust’s transfer agent) and whose Shares are not held through a broker-dealer or other nominee or intermediary.

 

3

 

TRUST EXPENSES

 

Fees and Expenses

 

Annual Expenses (as a percentage of average net assets attributable to Shares)
Management Fee(1)			%
Other Expenses(2)			%
Total Annual Expenses(3)			%

 

(1)         The Investment Adviser has contractually agreed to waive a portion of management fees for a one-year period following completion of the Offer.  See “The Trust — Compensation of the Investment Adviser.”  Absent such waiver the management fee would be [  ]%.

 

(2)         “Other Expenses” have been estimated for the current fiscal year.

 

(3)         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 [  ], 2014 of $[  ], the net assets attributable to Shareholders would be $[  ].

 

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 per Share, (ii) the market price at the time of investment was equal to the NAV 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 (3) 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, 2013.

 

The purpose of the table above is to assist you in understanding the various cost and expenses that you will bear directly or indirectly as an investor in the Trust. For more information on the management fees paid by the Trust, see “The Trust—Compensation of Investment Adviser.”

 

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.”

 

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.

 

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.

 

11

 

Share Price and NAV

 

The Trust’s Shares are publicly-held and have been listed and are trading on the NYSE under the symbol “HQH.” The following table sets forth for the quarters indicated the high and low closing prices per Share on the NYSE, the corresponding NAV per Share, the percentage premium or discount at such closing prices, and the number of Shares traded.

 

The NAV per Share as of the close of business on [  ], 2014 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(1)
Fiscal 2011
Dec. 31		$13.45		$15.47		(13.06	)%	$11.99		$14.35		(16.44	)%	$5,149,523
Mar. 31		14.72		16.11		(8.63	)	13.42		15.47		(13.25	)	5,568,105
June 30		15.95		16.91		(5.68	)	14.39		16.06		(10.40	)	5,132,135
Sept. 30		15.83		17.21		(8.02	)	12.26		14.10		(13.05	)	5,348,063
Fiscal 2012
Dec. 31		14.11		15.70		(10.13	)	12.52		13.95		(10.25	)	4,536,895
Mar. 31		16.47		17.87		(7.83	)	14.15		15.77		(10.27	)	5,185,566
June 30		17.27		18.21		(5.16	)	15.63		17.14		(8.81	)	5,037,182
Sept. 30		18.36		19.20		(4.38	)	16.85		18.31		(7.97	)	5,856,403
Fiscal 2013
Dec. 31		18.47		19.57		(5.62	)	16.85		17.91		(5.92	)	5,891,734
Mar. 31		19.98		20.89		(4.36	)	17.76		18.88		(5.93	)	7,391,354
June 30		23.86		23.14		3.11		20.00		20.87		(4.17	)	9,238,221
Sept. 30		25.83		24.95		3.53		22.53		23.43		(3.84	)	7,518,769
Fiscal 2014
Dec. 31		27.79		26.16		6.23		22.67		23.50		(3.53	)	5,229,254
Mar. 31		31.63		30.63		3.27		25.98		27.16		(4.35	)	7,954,040

 

(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 NAV 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. At least once a year the Board considers whether the Trust should repurchase its Shares in the open market or make a tender offer. In March, 2013, the Board approved the continuation of the repurchase program to allow the Trust to repurchase up to 12% of its outstanding Shares in the open market during a one-year period beginning July 11, 2013. In March, 2014, the Board approved the continuation of the repurchase program to allow the Trust to repurchase up to 12% of its outstanding Shares in the open market during a one-year period beginning July 11, 2014. The Trust’s Declaration of Trust also requires that the Board annually consider and vote upon the conversion of the Trust to an open-end company.

 

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 NASDAQ Biotech Index has been included so that the Trust’s results may be compared with an unmanaged capitalization-weighted index consisting of 122 small and large biotech companies. The record of the S&P 500 Index has been included so that the Trust’s results may be compared with an unmanaged, base-weighted methodology index including 500 leading companies in leading industries in the U.S. focused on the large cap segment of the market.

 

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

 

15

 

H&Q Healthcare Investors Annualized Returns (for periods ended March 31, 2014)

 

						NASDAQ
		HQH		HQH		BIOTECH		S&P 500
		STOCK*		NAV**		INDEX*		INDEX*
1 YEAR		46.87	%	40.52	%	47.90	%	21.85	%
3 YEARS		34.26	%	29.57	%	33.33	%	14.65	%
5 YEARS		30.56	%	24.78	%	29.29	%	21.15	%
10 YEARS		11.18	%	11.19	%	12.23	%	7.42	%

 

*                 Source: Bloomberg, Total Annualized Compounded Return.

 

**          Source: Based on the Trust’s computations.

 

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 [  ] Shares. The Trust may increase the number of Shares subject to subscription by up to 25% of the Shares, for an aggregate total of [  ] Shares. Shareholders will receive one non-transferable Right for each Share held as of the Record Date, rounded down to the nearest number of Rights evenly divisible by three. The Rights entitle a Shareholder to acquire, at the Subscription Price, one Share for every 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 [  ], 2014 and ends at 5:00 p.m., Eastern Time, on [  ], 2014, 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. Therefore, Shares will be issued for Rights submitted in multiples of three only.

 

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

 

Shares acquired pursuant to the Over-Subscription Privilege are subject to allotment, which is more fully discussed under “The Offer—Over-Subscription Privilege.”

 

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.

 

The Subscription Price will be 95% of the volume weighted average price of a Share on the NYSE on the Pricing Date and the three preceding business days. 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.”

 

16

 

Purpose of the Offer

 

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 generic pharmaceuticals companies, medical devices, healthcare information service, new target validation approaches, and other innovative medical technology companies. The Board was informed by the Investment Adviser that many high quality 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 was also informed that increasing the asset size through a Rights Offering may favorably affect the Trust’s expense ratio, which could be beneficial to the Trust’s Shareholders. 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. The population of Americans age 65 and older continues to grow at a very high rate. According to the U.S. Census Bureau, the percentage of the U.S. population 65 or older will be 19% in 2030 versus 13% in 2010. Furthermore, the population of the oldest Americans in this group, those 85 or older will increase from 5.8 million in 2010 to 8.7 million in 2030. This population consumes three to four times the healthcare goods and services as the rest of the population. This will drive increased consumption of all types of medical products, from drugs to orthopedic and surgical procedures. Furthermore, the Medicare Payment Advisory Commission estimates this trend will drive Medicare enrollment from 48 million enrollees in 2011 to an estimated 79 million by the year 2030. This trend will further 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 will extend or improve the quality of patients’ lives, especially in the areas of oncology, infectious disease, inflammation and orphan diseases. The last five years has seen the commercialization of products that have made significant advances in treating cancer, hepatitis C, diabetes, osteoporosis, rheumatoid arthritis, irritable bowel syndrome, multiple sclerosis, HIV, cystic fibrosis, and hypercholesterolemia. In the next five years, the Investment Adviser anticipates approval of other novel products that will have a comparable impact in treating additional indications in oncology, mental health, respiratory disorders, pain, the broader cystic fibrosis population, and multiple orphan indications.

 

The Patient Protection and Affordable Care Act (PPACA), or the Affordable Care Act (ACA), a U.S. federal statute, was signed into law by President Barack Obama on March 23, 2010. Together with the Health Care and Education Reconciliation Act, PPACA probably represents the most significant government expansion and regulatory expansion of the U.S. healthcare system since the passage of Medicare and Medicaid in 1965. The PPACA is aimed at increasing the rate of health insurance coverage for Americans and reducing the overall costs per capita of health care. It provides a number of mechanisms, including mandates, subsidies, and tax credits to employers and individuals to expand insurance coverage to 30 million new people. Additional reforms are targeted to improve healthcare outcomes and streamline the delivery of health care. The Investment Adviser expects that this significant piece of legislation will result in volume and utilization increases. In general, these volume increases, the result of increased insurance coverage, should bode well for hospitals, medical device, and drug utilization trends. Additionally, the healthcare insurers (Payors/HMOs) may see increased costs from higher healthcare utilization rates. Despite some of these costs, there will be pockets of opportunity even with the payors. For example, Medicaid-focused HMOs stand to see large enrollment gains that will lead to double-digit sales growth for the foreseeable future.

 

Based on these trends and events, the Investment Adviser continues to believe, and has advised the Board, that there are attractive opportunities for investment in Healthcare Companies.

 

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In addition to the companies and products in which the Trust has already invested, the Investment Adviser sees great additional promise from several developing trends. In particular, the Investment Adviser sees potential in the areas of 1) biopharmaceuticals, including products for novel targets, 2) orphan and ultra-orphan indications, including gene therapy, 3) specialty pharmaceuticals, 4) generic pharmaceuticals, 5) healthcare services, 6) novel medical devices, 7) healthcare information services, and 8) products that will benefit from changes in the regulatory landscape such as the FDA’s “breakthrough designation,” which is intended for products that treat a serious medical condition that may be substantially superior to available therapy (such a designation may expedite the approval process). Completion of the Offer will allow the Trust to continue to invest in and/or own stock in the companies in which it has already invested and invest in additional companies on the forefront of these developing trends. Without completing the Offer, the Trust may well have to choose between maintaining some of its existing investments and investing in companies which will take advantage of the developing trends.

 

Additional Investments. In order to take advantage of new investment opportunities in the healthcare industries without the Offer, the Trust might 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.

 

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 investments 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. An increase in assets available for investment should allow the Trust to take advantage of a number of investment opportunities in both publicly-traded Healthcare Companies as well as private venture capital securities. This would potentially allow the Trust to more fully take advantage of a number of attractive long-term trends that the Investment Adviser is witnessing in the healthcare industries, particularly with regards to investments in large mid-cap biopharmaceutical companies, healthcare services, healthcare information services and other innovative biopharmaceutical companies.

 

Operating Efficiencies and Other Shareholder Benefits.

 

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 could 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.  In addition, the Investment Adviser has voluntarily agreed to waive advisory fees to which it might otherwise be entitled under its Investment Advisory Agreement with the Trust for a one-year period, if the Offer is completed.  See the section entitled “Prospectus Summary — The Trust — Compensation of Investment Adviser” in this Prospectus.

 

Liquidity and Discount. The Investment Adviser believes that having more assets under management will benefit existing Shareholders by providing greater liquidity (given expected higher average trading volumes) and make the Trust more attractive to large institutional investors that may not have previously thought they could

 

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purchase enough Shares to assemble an acceptably sized position. These factors could ultimately work to keep the Trust’s discounts narrower than might otherwise occur.

 

Opportunity to Purchase Below Market Price. The Offer affords existing Shareholders the opportunity to purchase additional Shares at a price that will be below market value 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 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 “Risk Factors.”

 

The Trust’s Shares traded at a premium as of [  ], 2014. If the Trust’s Shares continue to trade at a premium, the Offer could increase the NAV of the Trust, if the discounted Subscription Price exceeds the NAV.

 

The Board 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, will benefit indirectly from the Offer. The other six Trustees are not “interested persons” of the Trust within the meaning of the Investment Company Act. The Board noted that the Investment Adviser will benefit from the Offer because its fee is based on the net assets of the Trust. The Board also noted that the Investment Adviser has voluntarily agreed to waive advisory fees to which it otherwise might be entitled under its Investment Advisory Agreement with the Trust for a one-year period, if the Offer is completed (see the section entitled “The Trust — Investment Adviser” in this Prospectus) and that the Board annually considers the breakpoint and fee rate schedule in connection with its consideration of the continuation of the Investment Advisory Agreement.  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. However, if the Offer is fully subscribed, it would add (net of offering expenses) approximately $[        ] to the net assets of the Trust. This amount, assuming no fluctuation due to changes in the market, would add $[        ] to the Investment Adviser’s annual compensation based upon an advisory fee of [  ] during the one-year period following completion of the Offer (and $[   ] to the Investment Adviser’s annual compensation thereafter based upon an advisory fee of [    ], unless the Investment Adviser’s fee waiver were to remain in effect for any subsequent period — see the section entitled “Prospectus Summary — The Trust — Compensation of Investment Adviser”). The Trust’s assets could increase further if the Shares subject to the Over-Subscription Privilege were to be issued.  The Board also took into account the Investment Adviser’s commitment to continue to build out its infrastructure, including development of a staff adequate in number, experience and qualifications to meet future demands of the Trust (and HQL) for investment management services.

 

The Board considered the possibility of a decline in the market price of Shares of the Trust. The Board was advised by the Investment Adviser that, if market conditions were to become less favorable, the Investment Adviser may desire to re-evaluate its recommendation of the Offer. The Investment Adviser indicated to the Board that, should the Trust begin to trade at a significant discount to NAV, it would re-examine its recommendation of the Offer and may consider recommending cancellation of the Offer or a change in the terms of the Offer.

 

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. A Shareholder who exercises Rights pursuant to the Primary Subscription is hereinafter referred to as an “Exercising Shareholder”. In such event, the Trust will notify Shareholders and permit Exercising Shareholders to cancel exercise of their Rights. Exercising Shareholders will have their payment for additional Shares returned to them if they opt to cancel the exercise of their Rights.

 

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

 

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By Broker-Dealer or other Nominee (Notice of Guaranteed Delivery)

Shareholders whose Shares are held in a 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:

 

[Insert name, address and telephone number]
Toll Free: [  ]

 

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 $[  ], 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.  Shareholders whose record addresses on the Record Date are outside the U.S. will not be mailed Exercise Forms.

 

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 timely 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.

 

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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 [  ], 2014 (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 [  ], 2014. 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 [  ], 2014, 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.  Shareholders will have their payment for additional Shares returned to them, if they opt to cancel the exercise of their Rights.

 

Delivery of Shares

 

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, Shares will be issued after the expiration of the Offer, and clearance of checks, which can take up to 15 days.

 

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employers and individuals to expand insurance coverage to 30 million new people. Additional reforms are targeted to improve healthcare outcomes and streamline the delivery of health care. The Investment Adviser expects that this significant piece of legislation will likely result in volume and utilization increases. In general, these volume increases, the result of increased insurance coverage, should bode well for hospitals, medical device, and drug utilization trends. On the other hand, the healthcare insurers (Payors/HMOs) may see increased costs from higher healthcare utilization rates. Despite some of these costs, there will be pockets of opportunity even with the payors. For example, Medicaid-focused HMOs stand to see large enrollment gains that will lead to double-digit sales growth for the foreseeable future.

 

To better describe the potential opportunities in various sub-sectors, the following information describes examples of trends in key sub-sectors.

 

i.                 Biopharmaceuticals.  Prescription medicines play a large role in saving and improving lives. Over the last 25 years, prescription medicines have significantly reduced deaths from major diseases such as heart disease, several cancers, and HIV/AIDS. They have also improved the quality of life for people suffering from conditions such as arthritis and Alzheimer’s disease. Recent advances have included entirely new classes of treatments for diabetes, hypertension, and HIV/AIDS; a new generation of personalized medicines; and the very first treatments for a number of rare diseases, such as Pompe disease and Hunter syndrome. As our population ages and faces increased rates of disease, medical advances in the drug arena will be key to alleviating suffering.

 

Oncology is an area of particularly strong interest. In recent years, genetic sequencing of tumors has become the standard of care at many centers. A number of companies are heavily involved in the development of targeted therapies for multiple solid and liquid tumors. Drugs targeting the epidermal growth factor receptor (EGFR), the B-RAF gene, and anaplastic lymphoma kinase (ALK) receptor already exist, and hundreds of programs are in development for the next generation of novel agents. Another important area in oncology is stimulating the immune system to combat the tumor. Some immune stimulating agents, such as Provenge and Yervoy, have been approved in the last 2-3 years while multiple immunomodulators targeting programmed cell death 1 (PD-1) and programmed cell death ligand 1 (PDL-1) are in Phase III trials. Recent clinical progress in the area of RNA interference (RNAI) presents a new approach to a number of old and new targets. This technology has the possibility to access so-called ‘undrug-able’ targets. We also foresee an increased use of biomarker development in early and late stage clinical trials to increase productivity.

 

ii.             Orphan and Ultra-Orphan Disease. In addition to positive drug development in Pompe disease and Hunter syndrome, other recent approvals are for diseases such as postherpetic neuralgia (PHN) and atypical hemolytic-uremic syndrome (aHUS). Since the enactment of the Orphan Drug Act in the early 1980’s, over 400 products targeting these diseases have been approved, over 100 since 2006. There are between 6000 and 7000 rare disease affecting some 25 million Americans and even more worldwide. Recently, companies have begun to develop products for so-called ultra-orphan indications (defined as occurring in 20 patients/1 million in the general population). The Investment Adviser believes that investment in companies targeting orphan and ultra-orphan indications is advantageous given (a) the life-saving nature of these medicines, particularly in children, (b) the relatively small clinical programs needed, (c) the ease of third party reimbursement and (d) the years of marketing exclusivity granted by regulatory agencies. Areas that are being investigated today include sickle cell anemia, child and adult cerebral adrenoleukodystrophy (ALD), beta-Thalassemia, transthyretin related (TTR) amyloidosis and Morquio A Syndrome. Many of these products are being treated by gene therapy approaches, which may be able to integrate within the patient’s own DNA to provide a permanent cure for the patient.

 

iii.         Specialty Pharmaceuticals. The specialty pharmaceutical sector is evolving into a sector that we anticipate will be a high growth area of the healthcare industry and a key component to the Trust’s portfolio. Early in the evolution of this sector, specialty pharmaceuticals were used to describe companies built around drug delivery systems or companies built around older, under-promoted, acquired products. The business models of these companies were low margin businesses surviving on single digit royalty streams and products where pricing pressures existed.

 

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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 systems, to supersede intravenous, injectable or multiple dose a day regimes. 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. Other companies within the specialty pharmaceutical model are pursuing a more acquisitive business model. This too has been a very successful approach, as they have taken advantage of larger pharmaceutical companies purging non-core assets. In each of these basic approaches, the result has been a growing opportunity for smaller and more agile companies to in-license later-staged product(s), cost effectively develop the products by leveraging existing data packages, or use more rapid paths to FDA approval, and develop commercial organizations that compete with larger biotech and pharmaceutical companies in niche markets. The Investment Adviser expects the specialty pharmaceutical sector will continue to offer attractive market returns.

 

iv.           Generic Pharmaceutical. The North American generic drug industry is approximately $70 billion in size and has grown at a compound annual growth rate of 7.9%, according to various reports. It is estimated that, within the United States, 80% of all drugs dispensed today are generic drugs. The 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. According to a report from the Generic Pharmaceutical Association (GPhA), the use of generic drugs concluded that the use of these low cost alternatives saved the healthcare system $217 billion in 2012. Another report published 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.

 

While cost saving has motivated the success of generics to this point, many other growth drivers exist within the generic drug industry that continue to make the Investment Adviser optimistic about increasing investment exposure to this sector. The Investment Adviser is seeing a more aggressive approach by the generic drug manufacturers to file for generic alternatives. This has led to an increase in the number of abbreviated new drug applications (ANDAs) filed and a current backlog of pending approvals of nearly 2,000 ANDAs at the FDA. From a regulatory standpoint, the FDA’s implementation of generic drug user-fee account (GDUFA) has increased the staff at the Office of Generic Drugs in an effort to improve manufacturing and safety standards as well as provide the staffing levels to more rapidly procure approval of ANDA filings. The Investment Adviser believes a new pathway to approve bio-similar drugs could be determined in the near future that would unlock an additional $40 billion in potential product sales for generic drug manufacturers to develop. Finally, the Investment Adviser expects that over 70 products generating over $70 billion in branded sales will lose patent protection by 2017. This brand-to-generic conversion opportunity represents nearly 25% of the branded pharmaceutical market today. While these numbers are subject to a number of factors, including patent disputes, the availability of these products in generic form could significantly grow the generic market, making it a compelling area of continued investment going forward.

 

v.               Healthcare Services.  The healthcare services sector includes companies from managed care organizations, healthcare facilities, drug distributors, pharmacy benefit managers to other alternative care providers.  Companies within this industry sector provide varying degrees of services focused on improving access, coverage and quality of healthcare deliveries. In a market-based healthcare system such as the one found in the United States, services are usually paid for by the patient, the patient’s health insurance company, or through government assisted payments (Medicaid and Medicare). Given these dynamics of the payment system, the stocks within the healthcare services sector are often sensitive to changes in the economy as well as to any adjustments to the payment system itself. With the economic challenges faced over the last few years and the changes to the healthcare system with the implementation of PPACA, this has not been a sector of focus for the Trust. However, with the economy showing signs of picking up and the uncertainties of healthcare reform largely behind us, the Investment Adviser believes the investment opportunity in the healthcare services sector has improved. Specific areas within the managed care industry may experience dramatic gains from the availability of insurance to an additional 30 million people made possible by the PPACA.

 

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vi.           Novel Medical Devices. Medical technology includes all products used in healthcare other than pharmaceuticals. Products range from crutches to spine implants to drug-eluting stents to vagal nerve stimulators. Medical devices sales were $95 billion in the U.S. in 2010, and worldwide projections are for sales of greater than $350 billion by 2015. It accounts for 6% of all dollars spent in healthcare in the United States. Many medical technology companies are under $500 million in market capitalization. Medical technology company valuations are directly correlated with the underlying company fundamentals; and thus stock performance is a function of operational performance. The price movements of large pharmaceutical and biotechnology companies are less correlated with their earnings. The Investment Adviser believes that medical technology companies that achieve good earnings performance will produce returns that are less susceptible to fluctuations in general market conditions that affect large pharmaceuticals and biotechnology companies.

 

The Investment Adviser sees several strong areas of growth in this sector. One is the use of devices that can be implanted via minimally invasive procedures, instead of large open surgical procedures that entail significant cost and morbidity. Trans-catheter aortic valve replacement (TAVR) is one example. Another is the use of devices in areas not traditionally served by implants such as those to treat heart failure or the use of left ventricular assist devices (LVADs) as destination therapy as opposed to a bridge to heart transplants. A third involves the use of a diagnostic tool (imaging, biomarker or other) that will be marketed along with a drug agent. The Investment Adviser sees this as a big growth driver as personalized medicine becomes a bigger part of oncology and other therapeutic areas.

 

vii.       Healthcare Information Services. Information-based services or technologies, while used extensively in other paper record-intensive industries, have lagged in their use within healthcare. The Investment Adviser believes this represents an interesting area of future investment for the Trust. A number of factors in recent years have led to this conclusion. The most important factor driving this conclusion was the enactment of the Health Information Technology for Economic and Clinical Health Act (HITECH) in 2009. The law was implemented to improve American healthcare delivery and patient care through an unprecedented investment in Health IT (HIT). Additionally, as part of the PPACA, the government established the Medicare Shared Savings Program (MSSP), which encourages investment in infrastructure and redesign of processes in the interest of delivering high quality and efficient care. The Investment Adviser believes the continual drive to achieve the level of connectivity and integration under HITECH and MSSP will continue to lead to the investment in and use of healthcare-related technology solutions.

 

viii.   Regulatory Changes. 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. New FDA review guidelines such as the Prescription Drug User Fee Account V program (PDUFA V) and GDUFA include user fees that will expand the budgets and staff of this critical organization. Eventually these changes should translate to a more efficient agency. As more new products are developed, clinical trial designs will become more complex. The Investment Adviser believes that its expertise in evaluating these trial designs gives the Investment Adviser (and therefore the Trust) a competitive advantage in selecting companies for investment. The changes made at the FDA have, in the Investment Adviser’s opinion, led to more transparency, which has resulted in a much more active and efficient agency. During 2012, a record level of drug approvals was achieved. It also appears the FDA has begun to look more favorably at the approvability of truly novel drugs with compelling clinical data, even if the data are relatively early stage, involving a relatively small number of patients. In fact, FDA has created a new “Breakthrough Designation” for a number of truly novel agents. This designation is intended for products that treat a serious medical condition and that may be substantially superior to available therapy, and it may expedite the approval process.  Through August of 2013, 14 drugs received this designation with two already approved. The Investment Adviser believes that its experience in drug development will allow it to critically evaluate company submissions made on early clinical data, and that this capability gives it additional opportunities to invest. As noted earlier, the Investment Adviser also anticipates the FDA will soon define a path to approval of generic biologics, as there is currently no viable path. Once an approved approach is defined, the Investment Adviser believes a number of companies will take advantage of this path forward. 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.

 

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Anti-Takeover Provisions

 

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: Michael W. Bonney, Oleg M. Pohotsky and William S. Reardon, CPA will continue until 2016; Daniel R. Omstead, Ph.D. and Uwe E. Reinhardt, Ph.D. will continue until 2015; and Rakesh K. Jain, Ph.D. and Lucinda H. Stebbins, CPA will continue until 2014. 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 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.

 

The By-Laws also specify certain maximum qualifications for Trustee positions, require advance written notice of Shareholder proposals, and impose procedural and informational requirements for Shareholders to call special meetings.

 

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.

 

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Investment Adviser

 

The Investment Adviser is a limited liability company organized under the laws of the State of Delaware and is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. The Investment Adviser is located at 2 Liberty Square, 9th Floor, Boston, MA 02109.

 

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 when 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 Hambrecht & Quist Capital Management LLC (“HQCM LLC”), the predecessor of the Investment Adviser, as an independent entity, to affect 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 changed its name to Tekla Capital Management LLC in 2012. The Investment Adviser is owned by Daniel R. Omstead and Mary Omstead. Dr. Omstead is currently the President and Chief Executive Officer of the Investment Adviser. Mary Omstead is Dr. Omstead’s wife. Dr. Omstead is President of the Trust.

 

The Investment Adviser also provides investment advisory services to another closed-end investment company, HQL, which invests in companies in the life sciences industries. As of March 31, 2014, the Investment Adviser managed approximately $1,102,000,000 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, 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; directs and supervises a third party administrator or custodian in the provision to the Trust of accounting and bookkeeping services, the calculation of the NAV of Shares of the Trust, internal accounting services, and other clerical services in connection therewith, and 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 securities authorities. The Investment Adviser also 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 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, 0.98% of the average net assets up to $250 million, 0.88% of the average net assets for the next $250 million, 0.80% of the average net assets for the next $500 million and 0.70% of the average net assets thereafter.

 

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 may benefit from the Offer by an increase in the dollar amount of the fee.  However, the Investment Adviser has agreed to waive advisory fees to which it otherwise might be entitled under its Investment Advisory Agreement with the Trust for a one-year period, if the Offer is completed.  See the section entitled “Prospectus Summary — The Trust — Compensation of Investment Adviser” in this Prospectus.

 

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The aggregate monthly fee may not exceed a rate when annualized of 1.36% (approximately 0.11% per month).

 

On March 28, 2014, the Board, and the Independent Trustees voting separately, determined that the terms of the Advisory Agreement are fair and reasonable and approved the continuance of the Advisory Agreement as being in the best interests of the Trust and its Shareholders. In making its determination, the Board considered materials that were specifically prepared by the Investment Adviser at the request of the Board and Trust counsel for purposes of the contract review process, including comparisons of (i) the Trust’s performance to its benchmark, the NASDAQ Biotech Index (“NBI”) and other indexes, and to other investment companies, (ii) the Trust’s expenses and expense ratios to those of a peer group of other investment companies, and (iii) the Investment Adviser’s profitability with respect to its services for the Trust to the profitability of other investment advisers. The Board took into account that the Investment Adviser presently provides investment management services only to the Trust and to HQL and does not derive any benefit from its relationship with the Trust other than receipt of advisory fees pursuant to the Investment Advisory Agreement. The Board also received and reviewed information throughout the year about the portfolio performance, the investment strategy, the portfolio management team and the fees and expenses of the Trust.

 

In approving the Investment Advisory Agreement, the Board considered, among other things, the nature, extent, and quality of the services to be provided by the Investment Adviser, the investment performance of the Trust and the Investment Adviser, the costs of services provided and profits realized by the Investment Adviser and its affiliates, and whether fee levels reflect economies of scale for the benefit of Trust Shareholders and the extent to which economies of scale would be realized as the Trust grows. The Board reviewed information about the foregoing factors and considered changes, if any, in such information since its previous approval. The Board also evaluated the financial strength of the Investment Adviser and the capability of the personnel of the Investment Adviser, specifically the strength and background of its investment analysts. Trust counsel provided the Board with the statutory and regulatory requirements for approval and disclosure of investment advisory agreements. The Board, including the Independent Trustees, evaluated all of the foregoing and, considering all factors together, determined in the exercise of its business judgment that the continuance of the Investment Advisory Agreement is in the best interests of the Trust and its Shareholders. The following provides more detail on certain factors considered by the Board and the Board’s conclusions with respect to each such factor.

 

The nature, extent and quality of the services to be provided by the Investment Adviser. On a regular basis the Board considers the roles and responsibilities of the Investment Adviser as a whole, along with specific portfolio management, support and trading functions the Investment Adviser provides to the Trust. The Board considered the nature, extent and quality of the services provided by the Investment Adviser to the Trust.  The Board continues to be satisfied with the quality and value of the investment advisory services provided to the Trust by the Investment Adviser, and, in particular, the management style and discipline followed by the Investment Adviser and the quality of the Investment Adviser’s research, trading, portfolio management, compliance and administrative personnel.  The Board also took into account the Investment Adviser’s commitment to continue to build out its infrastructure, including development of a staff adequate in number, experience and qualifications to meet the future demands of the Trust (and HQL) for investment management services.

 

The investment performance of the Trust and the Investment Adviser. On a regular basis the Board reviews performance information for the Trust and discusses the Trust’s investment strategy with the Investment Adviser. The Board reviewed performance information for the Trust for the current year to date and over the past one-, two-, three-, four-, five-, six-, seven-, eight-, nine-, and ten-year periods. Although the NBI’s performance exceeded the Trust’s returns by NAV and by stock price in most of the reported periods, the Board noted that the returns by NAV and by stock price of the Trust (including venture capital investments) were more comparable to the performance of the NBI (which includes only public companies) over the longer periods. In addition, the Trust’s returns by NAV and by stock price exceeded the performance of the S&P 500 Index and the S&P 1500 Healthcare Index for the reported periods, and the Trust’s performance compares well to a peer group of 31 healthcare funds for the reported periods. The Board continues to be satisfied with the investment performance of the Trust and the Investment Adviser.

 

The costs of services to be provided and profits to be realized by the Investment Adviser from its relationship with the Trust. The Board considered the various services provided by the Investment Adviser to the Trust and reviewed comparative information regarding the expenses and expense ratios of the Trust and a peer group of other investment companies. The Board noted that the Investment Adviser’s fees are within the range of fees presented in

 

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the comparative information and noted that a portion of the Trust’s investment portfolio is invested in venture and restricted securities, a portfolio management service that can command higher management fees than those charged by the Investment Adviser pursuant to the Investment Advisory Agreement. The Board also considered financial information provided by the Investment Adviser, including financial statements of the Investment Adviser and a comparison of the Investment Adviser’s profitability with respect to its services for the Trust to the profitability of other investment advisers.  Based on the information provided to and evaluated by the Board, the Board concluded that the fees charged by the Investment Adviser are fair and reasonable in light of the quality and nature of the services provided by the Investment Adviser and that the profitability of the Investment Adviser’s relationship with the Trust has not been excessive. The fees charged by the Investment Adviser are within a reasonable range of fees as compared to fees charged by other investment advisers, and the services provided by the Investment Adviser and the amounts paid under the Investment Advisory Agreement are sufficiently favorable in comparison to the services rendered and fees charged by others for similar services to warrant a finding that fees to be paid by the Trust are fair.

 

Whether fee levels reflect economies of scale and the extent to which economies of scale would be realized as the Trust grows. The Board considered that the Investment Advisory Agreement provides for breakpoints in the advisory fees so that the Trust will share the benefits of the economies of scale that would inure to the Investment Adviser as the Trust’s assets increase. Given the asset size of the Trust, and as economies of scale are still modest at current Trust asset levels, the Board determined that the Trust’s breakpoint schedule is satisfactory and fair.  The Board also noted that the Investment Adviser has voluntarily agreed to waive advisory fees to which it otherwise would be entitled under the Investment Advisory Agreement for a one-year period, if the Offer is completed.

 

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 FINRA 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.

 

Portfolio Management

 

At the current time, a team of analysts, including Daniel R. Omstead, Ph.D., Christopher F. Brinzey, M.B.A., Frank T. Gentile, Ph.D., and Jason C. Akus, M.D./M.B.A., are members of the team that makes investments on behalf of the Trust. These members also perform other duties, including making investments on behalf of HQL. Dr. Omstead has overall investment decision responsibility for the Trust and HQL. Each of the members of the team listed below has 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, Ph.D., is President and Chief Executive Officer of the Investment Adviser. He is also President of the Trust and HQL and serves on their Valuation Committees. 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

 

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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 OKT3TM, EprexTM/ProcritTM and other biological products. While at Merck, he worked on the development of RecombivaxTM, MefoxinTM, HeartguardTM 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, MBA, is Senior 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. Brinzey 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 Senior 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., is Senior Vice President, 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.

 

See “Investment Adviser and Investment Advisory Agreement in the SAI for further information about compensation of these persons, management of client assets by these persons and ownership of Trust Shares by these persons.

 

Code of Ethics

 

The Board 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 SAI.

 

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 2 Liberty Square, 9th Floor, Boston, MA 02019.

 

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