Schedule 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities and Exchange Act of
1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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H&Q HEALTHCARE INVESTORS
H&Q LIFE SCIENCES INVESTORS
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Payment of Filing Fee (Check the appropriate box:)
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rules 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
H&Q HEALTHCARE INVESTORS
H&Q LIFE SCIENCES INVESTORS
30 Rowes Wharf, Fourth Floor
Boston, Massachusetts 02110-3328
(617) 310-0567
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of
H&Q HEALTHCARE INVESTORS and H&Q LIFE SCIENCES INVESTORS:
An Annual Meeting of Shareholders of H&Q Healthcare Investors and of
H&Q Life Sciences Investors (each a "Fund") will be held on Wednesday, June 28,
2000, at 10:00 A.M. at the Boston Harbor Hotel, 70 Rowes Wharf, Boston,
Massachusetts 02110, for the following purposes:
(1) Election of Trustees of the Fund;
(2) Ratification or rejection of the selection of Arthur Andersen
LLP as Independent Public Accountants of the Fund for the fiscal
year ending September 30, 2000;
(3) Approval or disapproval of the Investment Advisory Agreement
between the Fund and Hambrecht & Quist Capital Management
Incorporated providing for a reduced management fee rate;
(4) For H&Q Healthcare Investors shareholders only, consideration of
one shareholder proposal, if presented to the meeting; and
(5) Transaction of such other business as may properly come before
the Annual Meeting and any adjournment or adjournments thereof.
Although the Annual Meetings are held together for convenience in order
to hear common presentations, each Fund's shareholders take action independently
of the other. Shareholders of record at the close of business on May 25, 2000
will be entitled to vote at the Annual Meeting or at any adjournment or
adjournments thereof.
By Order of the Board of Trustees,
Kerri A. Bisner,
Secretary
May 30, 2000
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Please complete, date and sign the Proxy for the shares held by you and return
the Proxy in the envelope provided so that your vote can be recorded. No postage
is required if the envelope is mailed in the United States. It is important that
you return your signed Proxy promptly, regardless of the size of your holdings,
so that a quorum may be assured.
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<PAGE>
H&Q HEALTHCARE INVESTORS
H&Q LIFE SCIENCES INVESTORS
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation
by the Board of Trustees of H&Q Healthcare Investors ("HQH") and of H&Q Life
Sciences Investors ("HQL") (each a "Fund") of proxies to be voted at an Annual
Meeting of Shareholders ("Annual Meeting") of the Fund to be held on June 28,
2000, and any adjournment or adjournments thereof, for the purposes set forth in
the accompanying Notice of Annual Meeting, dated May 30, 2000. Unless otherwise
indicated, all information and each proposal applies separately to each Fund.
This Proxy Statement is first being mailed to shareholders on or about May 30,
2000.
The Fund's Annual Report with respect to the fiscal year ended
September 30, 1999 was mailed to shareholders on or about November 30, 1999. The
Fund will furnish, without charge, a copy of the Annual Report, or the most
recent Semi-Annual Report succeeding the Annual Report, if any, to a shareholder
upon request. Requests may be sent to the Fund at 30 Rowes Wharf, Fourth Floor,
Boston, MA 02110-3328 or be made by calling (800) 327-6679.
Proposal 1
ELECTION OF TRUSTEES
The Fund's Declaration of Trust provides that the Board of Trustees
shall be divided into three classes. The term of office of the Class B Trustees
expires on the date of the 2000 Annual Meeting, and the term of office of the
Class C and Class A Trustees will expire one and two years, respectively,
thereafter. Trustees chosen to succeed the Trustees whose terms are expiring
will be elected for a three-year term. An effect of staggered terms is to limit
the ability of entities or persons to acquire control of the Fund.
The Fund's Declaration of Trust provides that a majority of the
Trustees shall fix the number of the entire Board and that such number shall be
at least three and no greater than fifteen. The Board has fixed the number of
Trustees at seven. Proxies will be voted for the election of the following two
nominees for HQH and two nominees for HQL. Each nominee is presently serving as
a Trustee and has consented to continue to so serve. In the event that a nominee
is unable to serve for any reason (which is not now expected) when the election
occurs, the accompanying Proxy will be voted for such other person or persons as
the Board of Trustees may recommend.
The nominees to serve until the 2003 Annual Meeting are Lawrence S.
Lewin and Uwe E. Reinhardt, Ph.D. for HQH and Alan G. Carr and Henri A. Termeer
for HQL. The Trustees serving until the 2001 Annual Meeting are Robert P. Mack,
M.D., Eric Oddleifson and Oleg M. Pohotsky for HQH and Lawrence S. Lewin and Uwe
E. Reinhardt, Ph.D. for HQL. The Trustees serving until the 2002 Annual Meeting
are Alan G. Carr and Henri A. Termeer for HQH and Robert P. Mack, M.D., Eric
Oddleifson and Oleg M. Pohotsky for HQL. The address for each nominee and
Trustee is c/o the Fund at the Fund's address as set forth above.
The nominees and Trustees and their principal occupations for at least
the last five years are as follows:
<TABLE>
<CAPTION>
Name (Age), Business Experience and Directorships, Shares Beneficially Owned,
Term of Trusteeship, Other Positions with the Fund as of May 1, 2000
as of May 1, 2000 HQH HQL
- -------------------------------------------------- ---------------------------
<S> <C> <C>
Alan G. Carr* (65), 26,936(1) 14,221
President (since 1992), Director (since 1986) and Senior Vice President (from
1986-1992) of the Adviser; Managing Director (from 1992-1999) of Hambrecht &
Quist Group; and President and Trustee (since 1987) of HQH and (since 1992) of
HQL.
Lawrence S. Lewin** (61), 1,661 2,322
Formerly Chief Executive Officer (from 1970-1999) of The Lewin Group (healthcare
public policy and management consulting), a subsidiary of Quintiles
Transnational Corp.; Director (since 1989) of Apache Medical Systems; Director
(from 1996-1999) of Quintiles Transnational Corp.; and Trustee (since 1987) of
HQH, (since 1992) of HQL and Chairman (since 2000) of HQH and of HQL.
Robert P. Mack, M.D. (64), 2,073 -0-
Orthopedic Surgeon (from 1996-1998) at the Steadman-Hawkins Orthopedic Clinic
and (from 1977-1996) at the Denver Orthopedic Clinic; and Trustee (since 1991)
of HQH and (since 1992) of HQL.
2
<PAGE>
<S> <C> <C>
Eric Oddleifson** (65), 1,951 1,211
Managing Director (since 1997) of GMO Renewable Resources LLC (forest properties
investment); formerly Managing Director (from 1995-1997) of UBS Asset Management
(forest properties investment); formerly President, Director and Chief
Investment Officer (from 1984-1995) of Resource Investments, Inc. (forest
properties investment); and Trustee (since 1992) of HQH and of HQL.
Oleg M. Pohotsky (53), -0- -0-
Senior Vice President (since 1991) of FAC/Equities, a division of First Albany
Corporation (investment bank); and Trustee (since 2000) of HQH and of HQL.
Uwe E. Reinhardt, Ph.D. (62), 592 579
Professor of Economics (since 1968) at Princeton University; and Trustee (since
1988) of HQH and (since 1992) of HQL.
Henri A. Termeer** (54), -0- -0-
Chairman (since 1988), Chief Executive Officer (since 1985) and President (since
1983) of Genzyme Corporation (human healthcare products); Director (since 1987)
of ABIOMED, Inc.; Director (since 1992) of AutoImmune, Inc.; Director (since
1993) of Genzyme Transgenics; Director (since 1994) of Geltex Pharmaceutical,
Inc.; Director (since 1996) of Diacrin, Inc.; and Trustee (since 1989) of HQH
and (since 1992) of HQL.
------ ------
All Trustees of the Fund as a Group 33,249 18,333
</TABLE>
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* Trustee considered to be an "interested person" within the meaning of the
Investment Company Act of 1940 (the "1940 Act") through position or
affiliation with Hambrecht & Quist Capital Management Incorporated (the
"Adviser").
** Member of the Fund's Audit Committee.
(1) Mr. Carr's shares include 462 shares held by a family member as to which he
disclaims any beneficial interest.
During the fiscal year ended September 30, 1999, four meetings of the
Board of Trustees were held. Each Trustee of the Fund listed above who was a
Trustee during such fiscal year attended at least 75% of such meetings held
while he was a Trustee.
The Fund has an Audit Committee comprised of Messrs. Lewin, Oddleifson
and Termeer, all "Disinterested Trustees" (persons other than those who are
interested persons of the Fund or the Adviser as defined in the 1940 Act). The
Audit Committee is responsible for reviewing with the Fund's auditors matters
related to the Fund's accounting affairs and reviewing the maintenance of the
Fund's records and custodian operations. The Board has not adopted, but is
currently developing, a written charter for the Audit Committee. The Audit
Committee held one meeting during the fiscal year ended September 30, 1999. Each
Trustee of the Fund listed above who was an Audit Committee Member during such
fiscal year attended the meeting held, except for Mr. Termeer. Mr. Termeer
attended 60% of the aggregate of the Board Meetings and the Audit Committee
Meeting held during the fiscal year. The Fund does not have a nominating
committee or compensation committee.
The Fund pays each of its Disinterested Trustees an annual fee of
$6,000 plus $900 for each meeting attended. Disinterested Trustees are also
reimbursed for travel expenses incurred in connection with attending such
meetings. For the fiscal year ended September 30, 1999, the Disinterested
Trustees received $57,963 from HQH and $58,091 from HQL for fees and reimbursed
expenses. No other direct compensation has been paid by the Fund to the Trustees
and officers as a group. Trustees and officers of the Fund who hold positions
with the Adviser receive indirect compensation from the Fund in the form of the
investment advisory fee paid to the Adviser.
<TABLE>
<CAPTION>
Compensation Table
------------------
For the fiscal year ended September 30, 1999
Aggregate Accrued Pension Total
Disinterested Compensation or Retirement Compensation
Trustee from each Fund Benefits from Fund Complex
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<S> <C> <C> <C>
Lawrence S. Lewin $8,700 None $17,400
Robert P. Mack, M.D. $9,600 None $19,200
Eric Oddleifson $9,600 None $19,200
Uwe E. Reinhardt, Ph.D. $9,600 None $19,200
Henri A. Termeer $8,700 None $17,400
</TABLE>
Executive Officers
3
<PAGE>
The following table sets forth information (Name (Age), Positions with
the Fund) for at least the last five years with respect to the executive
officers of the Fund not named above. Each officer has been elected by the Board
of Trustees and serves at the pleasure of the Trustees.
Kerri A. Bisner (37)
Secretary (since 1992) and Trustee* (1999) of HQH and of HQL; Senior
Vice President (since 1998) and Vice President (from 1994-1998) of the
Adviser.
Kimberley L. Carroll (44),
Treasurer and Chief Financial Officer (since 1987) of HQH and (since
1992) of HQL; and Vice President (since 1991) of the Adviser.
- ------------------
* On December 9, 1999, the Chase Manhattan Corporation acquired
Hambrecht & Quist Group, the indirect parent of the Adviser. Ms. Bisner resigned
from the Board of Trustees at that time in order to comply with Section 15(f)(1)
of the Investment Company Act of 1940, as amended.
Required Vote
The Fund's Declaration of Trust states that the Trustees shall be
elected by the affirmative vote of a majority of the Fund's shares voting at the
Annual Meeting. The Trustees recommend a vote FOR all nominees.
Proposal 2
RATIFICATION OR REJECTION OF SELECTION
OF INDEPENDENT PUBLIC ACCOUNTANTS
Pursuant to the 1940 Act, at a meeting called for such purpose on
November 8, 1999, a majority of the entire Board of Trustees of the Fund,
including a majority of the Disinterested Trustees, selected Arthur Andersen LLP
as Independent Public Accountants for the Fund for the fiscal year ending
September 30, 2000. The Fund has been advised that neither Arthur Andersen nor
any of its partners has any direct or material indirect financial interest in
the Fund, nor has had any connection during the past three years with the Fund
in the capacity of promoter, underwriter, voting trustee, director, officer or
employee.
Accounting services to be performed by Arthur Andersen for the Fund
will consist of the examination of the annual financial statements of the Fund,
consultation on financial, accounting and reporting matters, review and
consultation regarding various filings with the Securities and Exchange
Commission ("SEC") and attendance at some meetings of the Board of Trustees.
Arthur Andersen also will perform non-audit services consisting of review and/or
preparation of income tax returns of the Fund.
Representatives of Arthur Andersen will be present and available for
questioning at the Annual Meeting and will have an opportunity to make a
statement.
Required Vote
The selection of Arthur Andersen is submitted to the shareholders for
ratification and requires the affirmative vote of a majority of the Fund's
shares voting at the Annual Meeting. The Trustees recommend a vote FOR the
selection of Arthur Andersen as Independent Public Accountants for the Fund.
Proposal 3
APPROVAL OR DISAPPROVAL OF THE INVESTMENT ADVISORY AGREEMENT
PROVIDING FOR A REDUCED MANAGEMENT FEE RATE
Hambrecht & Quist Capital Management Incorporated, a California
corporation, is the investment adviser for each Fund. Under each Fund's
Investment Advisory Agreement (each an "Advisory Agreement"), dated April 30,
2000, the Adviser is responsible for the management of the Fund's assets,
subject to the supervision of the Board of Trustees. The Adviser manages the
investments of the Fund in accordance with its investment objective and
policies. The Adviser also is obligated to supervise and perform certain
administrative and management services and is obligated to provide the office
space, facilities, equipment and personnel necessary to perform its duties. The
Fund pays no salaries. The salaries of all officers of the Fund and all
personnel of the Fund or of the Adviser performing services relating to
research, statistical or investment activities, and of all Trustees who are
interested persons of the Fund or of the Adviser, are paid by the Adviser or an
affiliate thereof. Each Fund's Advisory Agreement was entered into prior to
obtaining shareholder approval consistent with regulatory positions because the
only material changes from the previous investment advisory agreement between
the Fund and the Adviser (each a "Former Advisory Agreement") are the dates of
execution and termination and a reduction of the management fee rate.
4
<PAGE>
Alan G. Carr serves as President and sole Director of the Adviser. The
Adviser's address is 30 Rowes Wharf, Fourth Floor, Boston, MA 02110-3328. The
Adviser is wholly-owned by Hambrecht & Quist California, a California
corporation, at the address of One Bush Street, San Francisco, California 94104,
which is indirectly wholly-owned by The Chase Manhattan Corporation, at the
address of 270 Park Avenue, New York, New York 10017.
The 1940 Act, which regulates investment companies such as the Fund,
requires a shareholder vote to approve a fund's investment advisory agreement
whenever there is a change of control of the fund's investment adviser. The
Chase Manhattan Corporation recently acquired Hambrecht & Quist Group, the
Adviser's indirect parent company. The Trustees of the Fund have been advised
that this transaction did not result in a change of control of the Adviser.
Nevertheless, the Trustees believe it is appropriate to seek shareholder
approval of the Advisory Agreement between the Fund and the Adviser, which was
approved by the Board of Trustees of the Fund on April 25, 2000. The Advisory
Agreement does not differ in any material respect from the Former Advisory
Agreement, except with respect to the dates of execution and termination and the
reduced fee schedule summarized below. Each Fund's Advisory Agreement contains
several other minor modifications (e.g., the correction of typographical errors)
to conform them to one another, but these modifications do not involve any
substantive changes.
Under the Former Advisory Agreement, the Fund paid a monthly fee equal
when annualized to (i) 2.5% of the average net assets for such month of its
venture capital and other restricted securities (securities subject to legal or
contractual restrictions on resale) constituting up to 25% of the Fund's net
assets and (ii) 1.0% of the average net assets for such month of all other
assets of the Fund; provided that in no event could the monthly fee when
annualized exceed 1.375% of the average net assets of the Fund for such month.
For the services provided by the Adviser under the Advisory Agreement,
the Fund pays a monthly fee equal when annualized to (i) 2.5% of the average net
assets for such month of its venture capital and other restricted securities
constituting up to 25% of the Fund's net assets and (ii) for such month, for all
other assets, 1.0% of the average net assets up to $250 million, 0.9% of the
average net assets for the next $250 million, 0.8% of the average net assets for
the next $500 million and 0.7% of the average net assets thereafter; provided
that in no event shall the monthly fee when annualized exceed 1.375% of average
net assets of the Fund for such month.
The Adviser will not participate directly in the capital appreciation
or venture capital or other restricted securities or provide managerial
assistance to portfolio companies, as is normally the case with venture capital
funds. The investment advisory fee paid by the Fund exceeds that paid by most
registered investment companies to their investment advisors but the Fund
believes that the fee is commensurate with the nature and quality of the
services required for identifying, evaluating and monitoring venture capital and
other restricted securities. For the fiscal year ended September 30, 1999, the
advisory fees for HQH and for HQL, were $2,319,338 and $1,537,385, respectively.
Given the recent significant growth in the Fund's net assets, the Adviser and
the Trustees agreed on a reduced fee schedule at higher asset levels as
described above. Although the advisory fees for each Fund for its fiscal year
ended September 30, 1999 would have been unchanged had the Advisory Agreement
been in effect at that time, the Adviser anticipates that, subject to market
conditions, management fee savings will potentially be realized this calendar
year.
The services of the Adviser to the Fund are not deemed to be exclusive,
and nothing in the Advisory Agreement prevents the Investment Adviser, or any
affiliate thereof, from providing similar services to other companies and other
clients or from engaging in other activities.
In addition to the management fee payable to the Adviser, the Fund pays
all of its expenses, without limitation, that are not assumed by the Adviser.
For the fiscal year ended September 30, 1999, the annualized expense ratio was
1.46% for HQH and 1.60% for HQL.
The Advisory Agreement provides that the Adviser shall not be liable to
the Fund or any shareholder of the Fund for any error of judgement or for any
loss suffered by the Fund in connection with the Adviser's services, except for
a loss resulting from a breach of fiduciary duty with respect to the receipt of
compensation for services and except for a loss resulting from willful
misfeasance, bad faith, gross negligence or reckless disregard of the Adviser's
obligations and duties.
The Advisory Agreement will remain in effect until June 30, 2001, and
will continue in effect thereafter only if continuance is specifically approved
at least annually by the Trustees of the Fund or by a vote of a majority of
Disinterested Trustees. The Advisory Agreement would terminate automatically if
assigned and may be terminated without penalty by a vote of a majority of the
outstanding voting securities of the Fund or by either party on not less than 30
nor more than 60 days written notice. As noted above, the terms of the Advisory
Agreement were approved by the Trustees, including those who are Disinterested
Trustees, on April 25, 2000.
5
<PAGE>
During the course of their deliberations relating to the Advisory
Agreement, the Board of Trustees, including the Disinterested Trustees,
considered a variety of factors, including (1) the nature, quality and extent of
the services furnished by the Adviser to the Fund; (2) the investment record of
the Adviser in managing the Fund; (3) the addition of break-points to the fee
rate, which provide for lower fee rates at higher asset levels; (4) the
projected profitability of the Adviser under the new fee schedule; (5) the
necessity of the Adviser's maintaining and enhancing its ability to retain and
attract capable personnel to serve the Fund; (6) the financial resources of the
Adviser and the continuance of appropriate incentives to assure that the Adviser
will continue to furnish high quality services to the Fund; (7) comparative data
as to investment performance, advisory fees and expense ratios of similar funds
(although the Trustees do not believe that any precisely comparable funds
exist); (8) the fact that a significant percentage of the assets of the Fund is
invested in privately placed securities and that managers of unregistered
venture capital funds that invest in such securities generally charge a
significantly higher fee for managing those assets (including a percentage of
the gain, which is not possible for a registered fund); (9) possible economies
of scale; (10) the Adviser's commitment to support the services provided to the
Fund; (11) possible ancillary benefits to the Adviser from serving as adviser;
(12) current and developing conditions in the financial services industry; and
(13) various other factors.
Based on all of the foregoing, the Board of Trustees, including all of
the Disinterested Trustees, unanimously approved the terms of the Advisory
Agreement, and recommends that shareholders of the Fund approve the terms of the
Advisory Agreement.
The discussion herein is qualified in its entirety by the Advisory
Agreement, a copy of which is annexed hereto as Exhibit A.
Portfolio Transactions
Subject to policies established by the Board of Trustees of the Fund,
the Adviser is primarily responsible for the execution of the Fund's portfolio
transactions and the allocation of brokerage. In executing such transactions,
the Adviser will seek to obtain the best price and execution for the Fund,
taking into account numerous factors. While the Adviser generally seeks
reasonably competitive commission rates, the Fund will not necessarily pay the
lowest commission available.
Required Vote
Approval of the Advisory Agreement requires the affirmative vote of a
majority of the Fund's outstanding voting shares. (For this proposal only,
majority means the lesser of (i) 67% or more of the shares present at a meeting
if the holders of more than 50% of the outstanding shares of the Fund are
present or represented by proxy at a meeting or (ii) more than 50% of the
outstanding shares of the Fund.) The Trustees recommend a vote FOR the approval
of the Advisory Agreement providing for a reduced management fee rate.
Proposal 4
SHAREHOLDER PROPOSAL
This proposal applies only to H&Q Healthcare Investors. Accordingly,
for purposes of this Proposal 4, the term "Fund" is intended to mean only HQH
and not HQL.
The Fund has been notified that Phillip Goldstein, of Opportunity
Partners L.P., 60 Heritage Drive, Pleasantville, New York 10570, being the owner
of $2,000 or more of shares of beneficial interest of the Fund held over one
year and to be held beyond the meeting date, intends to present the proposal set
forth below for consideration at the Annual Meeting of Shareholders:
PROPOSED: It is recommended that shareholders be afforded an
opportunity to realize net asset value ("NAV") for their shares by converting
the Fund to an open-end fund or in some other manner.
SUPPORTING STATEMENT: The shares of our Fund have languished at a large
discount to their NAV for a long time.
Since the shareholders of [the parent company of] our Fund's investment
advisor recently had an opportunity to cash out at a premium price, we think
this would be an ideal time for us to also have an opportunity to sell our
shares at an above-market price. Therefore, we would like the Fund to convert to
an open-end fund.
Management will likely argue that the Fund holds illiquid investments
and that open-ending it is not feasible. Nevertheless, we think it is time to
make a firm commitment to enhancing shareholder value and if that requires
gradually shifting the Fund's portfolio toward more liquid securities, so be it.
Continuing to tolerate a wide discount indefinitely is simply unacceptable
because we believe the supposed advantage of the closed-end structure pales in
comparison to the increase in value that would result from open-ending.
If you agree that it its time to eliminate the discount once and for
all, you should vote "FOR" this proposal.
6
<PAGE>
MANAGEMENT'S RESPONSE
The Board of Trustees of the Fund recommends a vote "AGAINST" this
proposal for the following reasons:
The Board of Trustees considers and votes on the issue of open-ending
the Fund at least once a year. In their best business judgement, they have
determined that this is currently not in the best interests of the Fund's
shareholders. However, they too are concerned when the discount appears
unreasonably wide and, consequently, they approved a fixed distribution policy
that is intended to narrow the discount. This policy received approval from the
SEC in January 2000 and the first distribution was made on March 27, 2000. In
the Trustees' opinion, it would only be prudent to allow the policy to be in
effect for an adequate period of time in order to judge its effectiveness before
an alternative is approved.
Some of the factors that the Trustees consider regarding open-ending
include:
- The investment objective the Fund is to seek long-term capital
appreciation by investing in emerging growth healthcare companies. Open-ending
would result in a fundamental change in the type of securities that could be
held in the Fund's portfolio. Ultimately, the Fund's investment emphasis would
probably be forced to refocus on larger capitalization, publicly traded
securities of the type purchased by other open-end funds. Fund shareholders have
actively made a decision to buy Fund shares in the public market (instead of
buying shares of the many open-end funds in this sector) which indicates the
interest in access to these smaller capitalization issuers. The Trustees believe
that shareholders have chosen to purchase Fund shares with an understanding of
the nature of the Fund and it would therefore be unsound to change the Fund's
basic investment strategy at this time.
- The closed-end fund structure of the Fund was specifically chosen to
enable it to hold a portfolio of small capitalization, emerging growth stocks,
including restricted securities. Many of the public securities held in the Fund
are thinly traded, relatively illiquid securities. These small capitalization
securities are subject to abrupt and erratic price movements. It is difficult to
own them in an open-end fund where daily liquidity is necessary. The cash
reserves required for redemptions can also be a drag on an open-end fund's
performance. In addition, the returns of long-term shareholders in a closed-end
fund are not diluted by large cash inflows when the sector is in favor as they
would be in an open-end fund.
- Sector funds can be very volatile. The relatively stable asset base
of a closed-end fund allows a portfolio manager to invest with the longer-term
outlook necessary for small companies to fully mature and realize maximum
capital appreciation potential. It is the Fund's emphasis on small
capitalization issuers and restricted securities which provides a unique
opportunity to shareholders.
- Because the Fund includes a substantial unrealized capital gain,
open-ending would result in an inequitable tax burden on the shareholders that
chose to remain in the Fund. To the extent that any sales made to meet daily
redemptions resulted in a gain, the remaining shareholders would incur a capital
gain liability. The shareholders that forced the sale of the portfolio
securities in order to meet redemptions would not bear a portion of this
liability and that is clearly unfair.
- The Fund is currently able to invest up to 40% of its assets in
restricted securities. If converted to open-end form, restricted securities
would be limited to not more than 15% of its assets under current SEC
regulations and some method of liquidation would have to be found to reach the
allowable limit. These securities are subject to legal and contractual
restrictions on resale. There is no guarantee that buyers can be found or that
the prices offered would not be disadvantageous to the Fund's shareholders.
- Expenses would likely increase (including costs of shareholder
service, compliance, sales, marketing and distribution, and legal, custodial and
transfer agency fees) on an ongoing basis, in addition to the significant
one-time costs incurred in the conversion.
- The Fund, unlike many closed-end funds, has traded at a significant
premium in the past. The Fund's premium has been as high as 21.5% and the
discount as high as 30.9%. The premium/discount relationship is primarily a
sector sentiment indicator. Buying shares at a discount can be an advantage as
it allows shareholders to leverage their purchase of securities by paying less
for every dollar of net assets.
Overall, the Board of Trustees feels that a significant restructuring
of the portfolio would damage values, incur both selling expenses and
shareholder tax liabilities and be contrary to what the shareholders
specifically chose when they made an investment in Fund shares. This would thus
negate any value in open-ending the Fund.
7
<PAGE>
Please be assured that whether or not Proposal 4 is approved, the
Trustees will continue to diligently explore ways of reducing the Fund's
discount, including converting the Fund to an open-end fund if it were deemed
appropriate.
Accordingly, the Board of Trustees recommends that you vote "AGAINST"
this proposal and, if the proposal is presented, your proxy will be so voted
unless you specify otherwise.
Required Vote
Approval of Proposal 4 requires the affirmative vote of a majority of
the Fund's shares voting at the Annual Meeting.
OTHER BUSINESS
As of the date of this Proxy Statement, the Board of Trustees is not
aware that any matters are to be presented for action at the Annual Meeting
other than those described above. Should other business properly be brought
before the Annual Meeting, it is intended that the accompanying Proxy will be
voted thereon in accordance with the judgment of the persons named as proxies.
PROXIES AND VOTING AT THE MEETING
Shareholders who execute proxies may revoke them at any time before
they are voted by written notice to the Secretary of the Fund or by casting a
vote at the meeting. All valid proxies received prior to the meeting, or any
adjournment or adjournments thereof, will be voted at the meeting and any
adjournments thereof. The representation in person or by proxy of a majority of
the outstanding shares of the Fund is necessary to constitute a quorum for
transacting business at the Annual Meeting. For purposes of determining the
presence of a quorum, abstentions and broker "non-votes" will be treated as
shares that are present. Broker non-votes are proxies received by the Fund from
brokers or nominees when the broker or nominee has neither received instructions
from the beneficial owner or other persons entitled to vote nor has
discretionary power to vote on a particular matter. Matters on which a choice
has been provided will be voted as indicated on the proxy card, and, if no
instruction is given, the persons named as proxies will vote the shares
represented thereby in favor of the matters set forth in Proposal 1, Proposal 2
and Proposal 3 and against the matter set forth in Proposal 4 (for HQH
shareholders only) of the Notice of Annual Meeting, and will use their best
judgment in connection with the transaction of such other business as may
properly come before the Annual Meeting or any adjournment or adjournments
thereof. Abstentions and broker non-votes will not be counted in favor of, but
will have no other effect on, the votes for Proposals 1 2, 3 and 4 (for HQH
shareholders only) that require the approval of a majority of shares voting at
the Annual Meeting.
In the event that sufficient votes in favor of any proposal set forth
in the Notice of Annual Meeting are not received by June 28, 2000, the persons
named as proxies in the enclosed proxy card may propose one or more adjournments
of the meeting to permit further solicitation. Any such adjournment will require
the affirmative vote of the holders of a majority of the shares present in
person or by proxy at the session of the meeting to be adjourned. The persons
named as proxies on the enclosed proxy card will vote in favor of such
adjournment those proxies which they are entitled to vote in favor of the
proposal for which further solicitation of proxies is to be made. They will vote
against any such adjournment those proxies required to be voted against such
proposal. The costs of any such additional solicitation and of any adjourned
session will be borne by the Fund.
As of May 1, 2000, there were issued and outstanding 10,174,647 shares
of beneficial interest of HQH and 7,802,538 shares of beneficial interest of
HQL. Shareholders will be entitled to one vote for each share held. Only
shareholders of record at the close of business on May 25, 2000, the record
date, will be entitled to vote at the Annual Meeting. As of May 1, 2000, the
Trustees and officers of the Fund beneficially owned less than 1% of the
outstanding voting securities of the Fund. As of May 1, 2000, HQL was not aware
of any group that beneficially owned more than 5% of its outstanding voting
securities. As of May 1, 2000, HQH was aware of one investment adviser group
that beneficially owned more than 5% of the respective outstanding voting
securities: Yale University, Investment Office, 230 Prospect Street, New Haven,
CT 06511-2107. Yale University beneficially owned 5.4% of the outstanding shares
of HQH.
PROPOSALS FOR 2001 ANNUAL MEETING
Shareholder proposals for the Fund's year 2001 Annual Meeting must be
received at the Fund's executive offices at 30 Rowes Wharf, Fourth Floor,
Boston, Massachusetts 02110-3328 no later than January 30, 2001 for inclusion in
the 2001 Proxy Statement and form of proxy. Submission of such proposals does
not insure that they will be included in the 2001 Proxy Statement or submitted
for a vote at the 2001 Annual Meeting.
8
<PAGE>
GENERAL
The Fund will pay the cost of preparing, assembling and mailing the
material in connection with solicitation of proxies, and will reimburse brokers,
nominees and similar record holders for their reasonable expenses incurred in
connection with forwarding proxy material to beneficial holders. In addition to
the solicitation by use of the mails, certain officers of the Fund and certain
employees of the Adviser, who will receive no compensation for their services
other than their regular salaries, may solicit the return of proxies personally
or by telephone or facsimile.
H&Q HEALTHCARE INVESTORS
H&Q LIFE SCIENCES INVESTORS
May 30, 2000
HQHCM-PS-00
9
<PAGE>
EXHIBIT A
H&Q HEALTHCARE INVESTORS
INVESTMENT ADVISORY AGREEMENT
THIS INVESTMENT ADVISORY AGREEMENT, dated as of April 30, 2000 between
H&Q HEALTHCARE INVESTORS, a Massachusetts business trust (the "Fund"), and
HAMBRECHT & QUIST CAPITAL MANAGEMENT INCORPORATED, a California corporation (the
"Investment Adviser"),
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. Services To Be Rendered by the Investment Adviser to the Fund.
-------------------------------------------------------------
Subject to the supervision and direction of the Board of Trustees of
the Fund, the Investment Adviser will
a. act in strict conformity with the Fund's Declaration of
Trust, the Investment Company Act of 1940 (the "1940 Act") and the
Investment Advisers Act of 1940, as the same may from time to time be
amended;
b. manage the portfolio in accordance with the Fund's
investment objective and policies as stated in the Fund's Prospectus;
c. make investment decisions for the Fund;
d. place purchase and sale orders for portfolio transactions
for the Fund;
e. supply the Fund 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;
f. supply or direct and supervise a third party administrator
or custodian in the provision to the Fund of accounting and bookkeeping
services, the calculation of the net asset value of shares of the Fund,
internal auditing services, and other clerical services in connection
therewith; and
g. prepare or supervise and direct a third party administrator
or custodian in the preparation of reports to shareholders of the Fund,
tax returns and reports to and filings with the Securities and Exchange
Commission ("SEC") and state Blue Sky authorities.
In providing these services, the Investment Adviser will provide
investment research and supervision of the Fund's investments and conduct a
continual program of investment, evaluation and, if appropriate, sale and
reinvestment of the Fund's assets. In addition, the Investment Adviser will
furnish the Fund with whatever statistical information the Fund may reasonably
request with respect to the securities that the Fund may hold or contemplate
purchasing.
2. Brokerage.
----------
In executing transactions for the Fund and selecting brokers or dealers
(which brokers or dealers may include any affiliate of the Investment Adviser to
the extent permitted by the 1940 Act) the Investment Adviser will use its best
efforts to obtain the best price and execution for the Fund. In assessing the
best price and execution available for any portfolio transaction, the Investment
Adviser will consider all factors it deems relevant including, but not limited
to, price (including any applicable brokerage commission or dealer spread), size
of order, difficulty of execution, and operational facilities of the firm
involved and the firm's risk in positioning a block of securities. In selecting
brokers or dealers to execute a particular transaction and in evaluating the
best price and execution available, the Investment Adviser may consider the
brokerage and research services (as those terms of are defined in Section 28(e)
of the Securities Exchange Act of 1934 (the "Exchange Act")) provided to the
Fund and/or other accounts over which the Investment Adviser exercises
investment discretion. It is understood that such services may be useful to the
Investment Adviser in connection with its services to other clients.
14
<PAGE>
On occasions when the Investment Adviser deems the purchase or sale of
a security to be in the best interest of the Fund as well as other clients, the
Investment Adviser, to the extent permitted by applicable laws and regulations,
may, but shall be under no obligation to, aggregate the securities to be sold or
purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Investment Adviser in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Fund and to such
other clients.
3. Other Agreements; Use of Name, Etc.
-----------------------------------
It is understood that any of the shareholders, Trustees, officers,
agents and employees of the Fund may be a shareholder, director, officer, agent
or employee of or be otherwise interested in the Investment Adviser and in any
affiliate thereof with the Investment Adviser and that the Investment Adviser
and any affiliate thereof with the Investment Adviser may have an interest in
the Fund. It is also understood that the Investment Adviser and persons
affiliated with the Investment Adviser have and may have advisory, management,
service or other contracts with other organizations and persons, and may have
other interests and businesses and that the Fund shall have no interest in the
profits or opportunities derived from the same, that the Investment Adviser may
give advice and take action in the performance of its duties with respect to
such other clients that may differ from advice given on the timing or nature of
action taken with respect to the Fund. Nothing in this Agreement shall be deemed
to confer upon the Investment Adviser any obligation to acquire for the account
of the Fund a position in any security that the Investment Adviser or any
affiliate thereof may acquire for its own account or for the account of any
other client, if in the sole and absolute discretion of the Investment Adviser
it is not for any reason practical or desirable to acquire a position in such
security for the Fund's account.
The Investment Adviser shall authorize and permit any of its officers,
directors and employees who may be elected as Trustees or officers of the Fund
to serve in the capacities in which they are elected. Services to be furnished
by the Investment Adviser under this Agreement may be furnished through the
medium of any of such officers, directors or employees.
The Fund acknowledges that the terms "Hambrecht & Quist" and "H&Q" are
property rights of the Investment Adviser and its affiliates and that such
entities may permit other entities to use such terms as part of their names. The
Fund agrees that, if the Investment Adviser ceases to act as investment adviser
to the Fund, the Fund's license to use the term "H&Q" as part of its name will
terminate, unless an agreement can be reached on its continued use by the Fund.
If an agreement acceptable to all parties cannot be reached, the Fund will take
all necessary actions to change its name to a name not including such terms.
4. Compensation.
-------------
The Fund will pay to the Investment Adviser as compensation for the
Investment Adviser's services rendered a fee, computed monthly, equal when
annualized to (1) 2.5% of the average net assets for such month of its venture
capital and other restricted securities constituting up to 25% of net assets and
(2) the percentage that corresponds to the fee table below of the average net
assets for such month of all other assets ("Other Assets"). provided that in no
event shall such monthly fee when annualized exceed 1.375% of the average net
assets of the Fund for such month.
<TABLE>
<CAPTION>
Annualized
Value of Other Assets Fee Rate
-------------------------------------------- --------
<S> <C>
$250,000,000 or less 1.0%
$250,000,001 to $500,000,000 0.9%
$500,000,001 to $1,000,000,000 0.8%
In excess of $1,000,000,000 0.7%
</TABLE>
For purposes of this section, "average net assets" for any month shall
be equal to the average of the net asset value of the appropriate assets at the
last business day of such month and the net asset value of the appropriate
assets at the last business day of the prior month. In determining average net
assets for purposes of clauses (1) and (2) above, liabilities and expenses of
the Fund shall be allocated pro rata based on the ratio that the assets referred
to in each clause bear to the total assets of the Fund. Such fee shall be
payable for each month within five business days after the end of the such
month.
For purposes of this Section 4, "venture capital and other restricted
securities" shall be securities of issuers for which no market quotations are
readily available and securities of companies for which market quotations are
readily available but which are subject to legal or contractual restrictions on
resale. Securities of companies for
15
<PAGE>
which public information is available but as to sale of which the safe harbor
provided by Rule 144(k) is not available shall be considered to be subject to
legal or contractual restrictions on resale.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Fund
are qualified for offer and sale, the compensation due the Investment Adviser
for such fiscal year shall be reduced by the amount of such excess by a
reduction or refund thereof. In the event that the expenses of the Fund exceed
any expense limitation which the Investment Adviser may, by written notice to
the Fund, voluntarily declare to be effective subject to such terms and
conditions as the Investment Adviser may prescribe in such notice, the
compensation due the Investment Adviser shall be reduced and if necessary the
Investment Adviser shall assume expenses of the Fund, to the extent required by
such expense limitation. In no event shall the provisions of this Section 4
require the Investment Adviser to reduce its fee if not so required by an
applicable statute or regulatory authority.
If the Investment Adviser shall serve for less than the whole of a
month, the foregoing compensation shall be pro rated.
5. Expenses.
---------
The Investment Adviser will bear all expenses in connection with the
performance of its services under this Agreement, including compensation of and
office space for officers and employees of the Fund connected with investment
and economic research, trading and investment management of the Fund, as well as
the fees of all Trustees of the Fund who are "affiliated persons" of the
Investment Adviser, as that term is defined in the 1940 Act, or any of its
"affiliated persons".
The Fund shall pay (or, in the event that such expenses are paid by the
Investment Adviser, shall reimburse the Investment Adviser for) all other
expenses incurred in the organization and operation of the Fund including, among
other things, expenses for legal and auditing services, costs of printing proxy
statements, prospectuses, stock certificates and shareholder reports, charges of
the custodian, any sub-custodian and transfer agent, expenses in connection with
the Dividend Reinvestment and Cash Purchase plan, SEC and National Association
of Securities Dealers, Inc. fees, fees and expenses of the Trustees who are not
"affiliated persons" of the Investment Adviser or any of its "affiliated
persons", accounting and valuation costs, administrator's fees, membership fees
in trade associations, fidelity bond coverage for the Fund'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 Fund'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 Fund.
6. Assignment Terminates This Agreement; Amendments of This
Agreement.
--------------------------------------------------------
This Agreement shall automatically terminate, without the payment of
any penalty in the event of its assignment, and this Agreement shall not be
amended unless such amendment is approved at a meeting by the affirmative vote
of a majority of the outstanding shares of the Fund, and by the vote cast in
person at a meeting called for the purpose of voting on such approval, of a
majority of the Trustees of the Fund who are not interested persons of the Fund
or of the Investment Adviser.
7. Effective Period and Termination of This Agreement.
---------------------------------------------------
This Agreement shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 6) until terminated as follows:
a. Either party hereto may at any time terminate this
Agreement by not less than thirty (30) days' nor more than sixty (60)
days' written notice delivered or mailed by registered mail, postage
prepaid, to the other party;
b. If (I) the Trustees of the Fund or the shareholders by the
affirmative vote of a majority of the outstanding shares of the Fund
and (ii) a majority of the Trustees of the Fund who are not interested
persons of the Fund or of the Investment Adviser, by vote cast in
person at a meeting called for the purpose of voting on such approval,
do not specifically approve at least annually the continuance of this
Agreement, then this Agreement shall automatically terminate at the
close of business on June 30, 2001 or the expiration of one year from
the effective date of the last such continuance, whichever is later; or
16
<PAGE>
Action by the Fund under (a) above may be taken either by (i) vote of a
majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Agreement pursuant to this Section 7 shall be
without the payment of any penalty.
8. Certain Definitions.
--------------------
For the purposes of this Agreement, the "affirmative vote of a majority
of outstanding shares of the Fund" means the affirmative vote, at a duly called
and held meeting of shareholders of the Fund, (a) of the holders of 67% or more
of the shares of the Fund present (in person or by proxy) and entitled to vote
at such meeting, if the holders of more than 50% of the outstanding shares of
the Fund entitled to vote at such meeting are present in person or by proxy, or
(b) of the holders of more than 50% of the outstanding shares of the Fund
entitled to vote at such meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the Rules and Regulations thereunder,
subject, however to such exemptions as may be granted by the SEC under said Act;
the term "specifically approve at least annually" shall be construed in a manner
consistent with the 1940 Act and the Rules and Regulations thereunder; and the
term "brokerage and research services" shall have the meaning given in the
Exchange Act and the Rules and Regulations thereunder.
9. Non-liability of the Investment Adviser.
----------------------------------------
The Investment Adviser shall not be held responsible for any loss
incurred by any act or omission of any broker. The Investment Adviser also shall
not be liable to the Fund or to any shareholder of the Fund for any error or
judgment or for any loss suffered by the Fund in connection with rendering
services hereunder except (a) a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services (in which case any
award of damages shall be limited to the period and the amount set forth in
Section 36(b)(3) of the 1940 Act) or (b) a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment
Adviser, or reckless disregard of its obligations and duties hereunder. Subject
to the foregoing, the Fund also shall indemnify the Investment Adviser, and any
officer, director and employee thereof to the maximum extent permitted by
Article V of the Fund's Declaration of Trust.
10. Limitation of Liability of the Trustees and Shareholders.
---------------------------------------------------------
A copy of the Declaration of Trust of the Fund is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Fund as Trustees
and not individually and that the obligations of this instrument are not binding
upon any of the Trustees or shareholders individually but are binding only upon
the assets and property of the Fund.
11. Furnishing of Materials.
------------------------
During the term of this Agreement, the Fund agrees to furnish the
Investment Adviser at its principal executive office all prospectuses, proxy
statements, report to shareholders, sales literature, or other material prepared
for distribution to shareholders of the Fund or the public, which refer to the
Investment Adviser in any way, prior to use thereof and not to use such material
if the Investment Adviser reasonably objects in writing within five business
days (or such other time as may be mutually agreed) after receipt thereof. In
the event of termination of this Agreement, the Fund will continue to furnish to
the Investment Adviser copies of any of the above-mentioned materials which
refer in any way to the Investment Adviser. The Fund shall furnish or otherwise
make available to the Investment Adviser such other information relating to the
business affairs of the Fund as the Investment Adviser at any time, or from time
to time, reasonably requests in order to discharge its obligations hereunder.
12. Governing Law.
--------------
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
17
<PAGE>
IN WITNESS WHEREOF, H&Q Healthcare Investors and Hambrecht & Quist
Capital Management Incorporated have each caused this instrument to be signed in
duplicate in its behalf by its President or a Vice President thereunto duly
authorized, all as of the date first hereinabove written.
H&Q HEALTHCARE INVESTORS
By: __________________________________________________
Title: _______________________________________________
HAMBRECHT & QUIST CAPITAL MANAGEMENT INCORPORATED
By: __________________________________________________
Title: _______________________________________________
18
<PAGE>
H&Q LIFE SCIENCES INVESTORS
INVESTMENT ADVISORY AGREEMENT
-----------------------------
THIS INVESTMENT ADVISORY AGREEMENT, dated as of April 30, 2000 between
H&Q LIFE SCIENCES INVESTORS, a Massachusetts business trust (the "Fund"), and
HAMBRECHT & QUIST CAPITAL MANAGEMENT INCORPORATED, a California corporation (the
"Investment Adviser"),
W I T N E S S E T H:
That in consideration of the mutual covenants herein contained, it is
agreed as follows:
1. Services To Be Rendered by the Investment Adviser to the Fund.
-------------------------------------------------------------
Subject to the supervision and direction of the Board of Trustees of
the Fund, the Investment Adviser will
a. act in strict conformity with the Fund's Declaration of
Trust, the Investment Company Act of 1940 (the "1940 Act") and the
Investment Advisers Act of 1940, as the same may from time to time be
amended;
b. manage the portfolio in accordance with the Fund's
investment objective and policies as stated in the Fund's Prospectus;
c. make investment decisions for the Fund;
d. place purchase and sale orders for portfolio transactions
for the Fund;
e. supply the Fund 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;
f. supply or direct and supervise a third party administrator
or custodian in the provision to the Fund of accounting and bookkeeping
services, the calculation of the net asset value of shares of the Fund,
internal auditing services, and other clerical services in connection
therewith; and
g. prepare or supervise and direct a third party administrator
or custodian in the preparation of reports to shareholders of the Fund,
tax returns and reports to and filings with the Securities and Exchange
Commission ("SEC") and state Blue Sky authorities.
In providing these services, the Investment Adviser will provide
investment research and supervision of the Fund's investments and conduct a
continual program of investment, evaluation and, if appropriate, sale and
reinvestment of the Fund's assets. In addition, the Investment Adviser will
furnish the Fund with whatever statistical information the Fund may reasonably
request with respect to the securities that the Fund may hold or contemplate
purchasing.
2. Brokerage.
----------
In executing transactions for the Fund and selecting brokers or dealers
(which brokers or dealers may include any affiliate of the Investment Adviser to
the extent permitted by the 1940 Act) the Investment Adviser will use its best
efforts to obtain the best price and execution for the Fund. In assessing the
best price and execution available for any portfolio transaction, the Investment
Adviser will consider all factors it deems relevant including, but not limited
to, price (including any applicable brokerage commission or dealer spread), size
of order, difficulty of execution, and operational facilities of the firm
involved and the firm's risk in positioning a block of securities. In selecting
brokers or dealers to execute a particular transaction and in evaluating the
best price and execution available, the Investment Adviser may consider the
brokerage and research services (as those terms of are defined in Section 28(e)
of the Securities Exchange Act of 1934 (the "Exchange Act")) provided to the
Fund and/or other accounts over which the Investment Adviser exercises
investment discretion. It is understood that such services may be useful to the
Investment Adviser in connection with its services to other clients.
19
<PAGE>
On occasions when the Investment Adviser deems the purchase or sale of
a security to be in the best interest of the Fund as well as other clients, the
Investment Adviser, to the extent permitted by applicable laws and regulations,
may, but shall be under no obligation to, aggregate the securities to be sold or
purchased in order to obtain the most favorable price or lower brokerage
commissions and efficient execution. In such event, allocation of the securities
so purchased or sold, as well as the expenses incurred in the transaction, will
be made by the Investment Adviser in the manner it considers to be the most
equitable and consistent with its fiduciary obligations to the Fund and to such
other clients.
3. Other Agreements; Use of Name, Etc.
-----------------------------------
It is understood that any of the shareholders, Trustees, officers,
agents and employees of the Fund may be a shareholder, director, officer, agent
or employee of or be otherwise interested in the Investment Adviser and in any
affiliate thereof with the Investment Adviser and that the Investment Adviser
and any affiliate thereof with the Investment Adviser may have an interest in
the Fund. It is also understood that the Investment Adviser and persons
affiliated with the Investment Adviser have and may have advisory, management,
service or other contracts with other organizations and persons, and may have
other interests and businesses and that the Fund shall have no interest in the
profits or opportunities derived from the same, that the Investment Adviser may
give advice and take action in the performance of its duties with respect to
such other clients that may differ from advice given on the timing or nature of
action taken with respect to the Fund. Nothing in this Agreement shall be deemed
to confer upon the Investment Adviser any obligation to acquire for the account
of the Fund a position in any security that the Investment Adviser or any
affiliate thereof may acquire for its own account or for the account of any
other client, if in the sole and absolute discretion of the Investment Adviser
it is not for any reason practical or desirable to acquire a position in such
security for the Fund's account.
The Investment Adviser shall authorize and permit any of its officers,
directors and employees who may be elected as Trustees or officers of the Fund
to serve in the capacities in which they are elected. Services to be furnished
by the Investment Adviser under this Agreement may be furnished through the
medium of any of such officers, directors or employees.
The Fund acknowledges that the terms "Hambrecht & Quist" and "H&Q" are
property rights of the Investment Adviser and its affiliates and that such
entities may permit other entities to use such terms as part of their names. The
Fund agrees that, if the Investment Adviser ceases to act as investment adviser
to the Fund, the Fund's license to use the term "H&Q" as part of its name will
terminate, unless an agreement can be reached on its continued use by the Fund.
If an agreement acceptable to all parties cannot be reached, the Fund will take
all necessary actions to change its name to a name not including such terms.
4. Compensation.
-------------
The Fund will pay to the Investment Adviser as compensation for the
Investment Adviser's services rendered a fee, computed monthly, equal when
annualized to (1) 2.5% of the average net assets for such month of its venture
capital and other restricted securities constituting up to 25% of net assets and
(2) the percentage that corresponds to the fee table below of the average net
assets for such month of all other assets ("Other Assets"). provided that in no
event shall such monthly fee when annualized exceed 1.375% of the average net
assets of the Fund for such month.
<TABLE>
<CAPTION>
Annualized
Value of Other Assets Fee Rate
-------------------------------------------- --------
<S> <C>
$250,000,000 or less 1.0%
$250,000,001 to $500,000,000 0.9%
$500,000,001 to $1,000,000,000 0.8%
In excess of $1,000,000,000 0.7%
</TABLE>
For purposes of this section, "average net assets" for any month shall
be equal to the average of the net asset value of the appropriate assets at the
last business day of such month and the net asset value of the appropriate
assets at the last business day of the prior month. In determining average net
assets for purposes of clauses (1) and (2) above, liabilities and expenses of
the Fund shall be allocated pro rata based on the ratio that the assets referred
to in each clause bear to the total assets of the Fund. Such fee shall be
payable for each month within five business days after the end of the such
month.
For purposes of this Section 4, "venture capital and other restricted
securities" shall be securities of issuers for which no market quotations are
readily available and securities of companies for which market quotations are
readily available but which are subject to legal or contractual restrictions on
resale. Securities of companies for
20
<PAGE>
which public information is available but as to sale of which the safe harbor
provided by Rule 144(k) is not available shall be considered to be subject to
legal or contractual restrictions on resale.
In the event that expenses of the Fund for any fiscal year should
exceed the expense limitation on investment company expenses imposed by any
statute or regulatory authority of any jurisdiction in which shares of the Fund
are qualified for offer and sale, the compensation due the Investment Adviser
for such fiscal year shall be reduced by the amount of such excess by a
reduction or refund thereof. In the event that the expenses of the Fund exceed
any expense limitation which the Investment Adviser may, by written notice to
the Fund, voluntarily declare to be effective subject to such terms and
conditions as the Investment Adviser may prescribe in such notice, the
compensation due the Investment Adviser shall be reduced and if necessary the
Investment Adviser shall assume expenses of the Fund, to the extent required by
such expense limitation. In no event shall the provisions of this Section 4
require the Investment Adviser to reduce its fee if not so required by an
applicable statute or regulatory authority.
If the Investment Adviser shall serve for less than the whole of a
month, the foregoing compensation shall be pro rated.
5. Expenses.
---------
The Investment Adviser will bear all expenses in connection with the
performance of its services under this Agreement, including compensation of and
office space for officers and employees of the Fund connected with investment
and economic research, trading and investment management of the Fund, as well as
the fees of all Trustees of the Fund who are "affiliated persons" of the
Investment Adviser, as that term is defined in the 1940 Act, or any of its
"affiliated persons".
The Fund shall pay (or, in the event that such expenses are paid by the
Investment Adviser, shall reimburse the Investment Adviser for) all other
expenses incurred in the organization and operation of the Fund including, among
other things, expenses for legal and auditing services, costs of printing proxy
statements, prospectuses, stock certificates and shareholder reports, charges of
the custodian, any sub-custodian and transfer agent, expenses in connection with
the Dividend Reinvestment and Cash Purchase plan, SEC and National Association
of Securities Dealers, Inc. fees, fees and expenses of the Trustees who are not
"affiliated persons" of the Investment Adviser or any of its "affiliated
persons", accounting and valuation costs, administrator's fees, membership fees
in trade associations, fidelity bond coverage for the Fund'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 Fund'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 Fund.
6. Assignment Terminates This Agreement; Amendments of This
Agreement.
--------------------------------------------------------
This Agreement shall automatically terminate, without the payment of
any penalty in the event of its assignment, and this Agreement shall not be
amended unless such amendment is approved at a meeting by the affirmative vote
of a majority of the outstanding shares of the Fund, and by the vote cast in
person at a meeting called for the purpose of voting on such approval, of a
majority of the Trustees of the Fund who are not interested persons of the Fund
or of the Investment Adviser.
7. Effective Period and Termination of This Agreement.
---------------------------------------------------
This Agreement shall become effective upon its execution, and shall
remain in full force and effect continuously thereafter (unless terminated
automatically as set forth in Section 6) until terminated as follows:
a. Either party hereto may at any time terminate this
Agreement by not less than thirty (30) days' nor more than sixty (60)
days' written notice delivered or mailed by registered mail, postage
prepaid, to the other party;
b. If (I) the Trustees of the Fund or the shareholders by the
affirmative vote of a majority of the outstanding shares of the Fund
and (ii) a majority of the Trustees of the Fund who are not interested
persons of the Fund or of the Investment Adviser, by vote cast in
person at a meeting called for the purpose of voting on such approval,
do not specifically approve at least annually the continuance of this
Agreement, then this Agreement shall automatically terminate at the
close of business on June 30, 2001 or the expiration of one year from
the effective date of the last such continuance, whichever is later; or
21
<PAGE>
Action by the Fund under (a) above may be taken either by (i) vote of a
majority of its Trustees, or (ii) by the affirmative vote of a majority of the
outstanding shares of the Fund.
Termination of this Agreement pursuant to this Section 7 shall be
without the payment of any penalty.
8. Certain Definitions.
--------------------
For the purposes of this Agreement, the "affirmative vote of a majority
of outstanding shares of the Fund" means the affirmative vote, at a duly called
and held meeting of shareholders of the Fund, (a) of the holders of 67% or more
of the shares of the Fund present (in person or by proxy) and entitled to vote
at such meeting, if the holders of more than 50% of the outstanding shares of
the Fund entitled to vote at such meeting are present in person or by proxy, or
(b) of the holders of more than 50% of the outstanding shares of the Fund
entitled to vote at such meeting, whichever is less.
For the purposes of this Agreement, the terms "affiliated person",
"control", "interested person" and "assignment" shall have their respective
meanings defined in the 1940 Act and the Rules and Regulations thereunder,
subject, however to such exemptions as may be granted by the SEC under said Act;
the term "specifically approve at least annually" shall be construed in a manner
consistent with the 1940 Act and the Rules and Regulations thereunder; and the
term "brokerage and research services" shall have the meaning given in the
Exchange Act and the Rules and Regulations thereunder.
9. Non-liability of the Investment Adviser.
----------------------------------------
The Investment Adviser shall not be held responsible for any loss
incurred by any act or omission of any broker. The Investment Adviser also shall
not be liable to the Fund or to any shareholder of the Fund for any error or
judgment or for any loss suffered by the Fund in connection with rendering
services hereunder except (a) a loss resulting from a breach of fiduciary duty
with respect to the receipt of compensation for services (in which case any
award of damages shall be limited to the period and the amount set forth in
Section 36(b)(3) of the 1940 Act) or (b) a loss resulting from willful
misfeasance, bad faith or gross negligence on the part of the Investment
Adviser, or reckless disregard of its obligations and duties hereunder. Subject
to the foregoing, the Fund also shall indemnify the Investment Adviser, and any
officer, director and employee thereof to the maximum extent permitted by
Article V of the Fund's Declaration of Trust.
10. Limitation of Liability of the Trustees and Shareholders.
---------------------------------------------------------
A copy of the Declaration of Trust of the Fund is on file with the
Secretary of the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Fund as Trustees
and not individually and that the obligations of this instrument are not binding
upon any of the Trustees or shareholders individually but are binding only upon
the assets and property of the Fund.
11. Furnishing of Materials.
------------------------
During the term of this Agreement, the Fund agrees to furnish the
Investment Adviser at its principal executive office all prospectuses, proxy
statements, report to shareholders, sales literature, or other material prepared
for distribution to shareholders of the Fund or the public, which refer to the
Investment Adviser in any way, prior to use thereof and not to use such material
if the Investment Adviser reasonably objects in writing within five business
days (or such other time as may be mutually agreed) after receipt thereof. In
the event of termination of this Agreement, the Fund will continue to furnish to
the Investment Adviser copies of any of the above-mentioned materials which
refer in any way to the Investment Adviser. The Fund shall furnish or otherwise
make available to the Investment Adviser such other information relating to the
business affairs of the Fund as the Investment Adviser at any time, or from time
to time, reasonably requests in order to discharge its obligations hereunder.
12. Governing Law.
--------------
This Agreement shall be governed by and construed in accordance with
the laws of the Commonwealth of Massachusetts.
22
<PAGE>
IN WITNESS WHEREOF, H&Q Life Sciences Investors and Hambrecht & Quist
Capital Management Incorporated have each caused this instrument to be signed in
duplicate in its behalf by its President or a Vice President thereunto duly
authorized, all as of the date first hereinabove written.
H&Q LIFE SCIENCES INVESTORS
By: ___________________________________________
Title: ________________________________________
HAMBRECHT & QUIST CAPITAL MANAGEMENT INCORPORATED
By: ___________________________________________
Title: ________________________________________
23
<PAGE>
H&Q HEALTHCARE INVESTORS
Proxy for Annual Meeting of Shareholders to be held June 28, 2000
This Proxy is Being Solicited on Behalf of the Board of Trustees
The undersigned hereby appoints Alan G. Carr, Eric Oddleifson and Kimberley L.
Carroll, and each of them, proxies of the undersigned, with full powers of
substitution, to vote at the Annual Meeting of Shareholders of H&Q HEALTHCARE
INVESTORS (the "Fund") to be held on June 28, 2000 at 10:00 A.M. at the Boston
Harbor Hotel, 70 Rowes Wharf, Boston, Massachusetts 02110, and at any
adjournment or adjournments thereof, all the shares of the Fund outstanding in
the name of the undersigned as follows on the resverse side of this card.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES FOR TRUSTEE, FOR APPROVAL OF
PROPOSALS 2 AND 3, AGAINST APPROVAL OF PROPOSAL 4, AND WITH RESPECT TO ITEM 5,
AS SAID PROXIES, AND EACH OF THEM, MAY DETERMINE.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign this proxy exactly as your name appears on the books of the Fund.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- --------------------------------------- -------------------------------------
- --------------------------------------- -------------------------------------
- --------------------------------------- -------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
H&Q HEALTHCARE INVESTORS
- --------------------------------------------------------------------------------
Mark Box at right if an address change or comment has been [ ]
noted on the reverse side of this card. [ ]
CONTROL NUMBER:
RECORD DATE SHARES:
|------------------------
Please be sure to sign and date this Proxy. | Date
- -------------------------------------------------------|------------------------
- ------------Shareholder sign here---------------------- Co-owner sign here-----
DETACH CARD
-------------------
Vote by Telephone
-------------------
It's fast, convenient, and immediate!
Call Toll-Free on a Touch-Tone Phone
Follow these four easy steps:
- --------------------------------------------------------------------------------
1. Read the accompanying Proxy Statement and
Proxy Card.
2. Call the toll-free number
1-877-PRX-VOTE (1-877-779-8683).
There is NO CHARGE for this call.
3. Enter your Control Number located on your Proxy Card.
4. Following the recorded instructions.
- --------------------------------------------------------------------------------
Your Vote is important!
Call 1-877-PRX-VOTE anytime!
<TABLE>
<S> <C> <C> <C>
1. On the election of two Trustees: For All With- For All
Nominees hold Except
(01) Lawrence S. Lewin [ ] [ ] [ ]
(02) Uwe E. Reinhardt, Ph.D. [ ] [ ] [ ]
If you do not wish your shares voted "For" a particular nominee, mark the "For
All Except" box and strike a line through the name of the nominee. Your shares
will be voted for the remaining nominee (The Board of Trustees recommends a
vote FOR all nominees);
For Against Abstain
2. Ratification of the selection of Arthur [ ] [ ] [ ]
Anderson LLP as Independent Public Accountants [ ] [ ] [ ]
of the Fund for the fiscal year ending
September 30, 2000 (The Board of Trustees
recommends a vote FOR):
3. Approval of a new investment advisory contract [ ] [ ] [ ]
(The Board of Trustees recommends a vote FOR): [ ] [ ] [ ]
4. Approval of a shareholder proposal to open-end [ ] [ ] [ ]
the Fund (The Board of Trustees recommends [ ] [ ] [ ]
a vote AGAINST): AND
</TABLE>
5) In their discretion, on all other business that may properly come before the
Annual Meeting and any adjournment or adjournments thereof.
DETACH CARD
-------------------
Vote by Internet
-------------------
It's fast, convenient, and your vote is immediately
confirmed and posted.
Follow these four easy steps:
- --------------------------------------------------------------------------------
1. Read the accompanying Proxy Statement and
Proxy Card.
2. Go to the Website
http://www.eproxyvote.com/hqh
3. Enter your Control Number located on your Proxy Card.
4. Following the instructions provided.
- --------------------------------------------------------------------------------
Your Vote is Important!
Go to http://www.eproxyvote.com/hqh anytime!
Do not return your Proxy Card if your are voting by Telephone or Internet
<PAGE>
H&Q LIFE SCIENCES INVESTORS
Proxy for Annual Meeting of Shareholders to be held June 28, 2000
This Proxy is Being Solicited on Behalf of the Board of Trustees
The undersigned hereby appoints Alan G. Carr, Eric Oddleifson and Kimberley L.
Carroll, and each of them, proxies of the undersigned, with full powers of
substitution, to vote at the Annual Meeting of Shareholders of H&Q LIFE SCIENCES
INVESTORS (the "Fund") to be held on June 28, 2000 at 10:00 A.M. at the Boston
Harbor Hotel, 70 Rowes Wharf, Boston, Massachusetts 02110, and at any
adjournment or adjournments thereof, all the shares of the Fund outstanding in
the name of the undersigned as follows on the resverse side of this card.
THIS PROXY WILL BE VOTED AS SPECIFIED. IF NO SPECIFICATION IS MADE, THIS PROXY
WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES FOR TRUSTEE, FOR ADOPTION OF
PROPOSALS 2 AND 3, AND WITH RESPECT TO ITEM 4, AS SAID PROXIES, AND EACH OF
THEM, MAY DETERMINE.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE
ENCLOSED ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign this proxy exactly as your name appears on the books of the Fund.
Joint owners should each sign personally. Trustees and other fiduciaries should
indicate the capacity in which they sign, and where more than one name appears,
a majority must sign. If a corporation, this signature should be that of an
authorized officer who should state his or her title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- --------------------------------------- -------------------------------------
- --------------------------------------- -------------------------------------
- --------------------------------------- -------------------------------------
<PAGE>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
- --------------------------------------------------------------------------------
H&Q LIFE SCIENCES INVESTORS
- --------------------------------------------------------------------------------
Mark Box at right if an address change or comment has been [ ]
noted on the reverse side of this card. [ ]
CONTROL NUMBER:
RECORD DATE SHARES:
|------------------------
Please be sure to sign and date this Proxy. | Date
- -------------------------------------------------------|------------------------
- ------------Shareholder sign here---------------------- Co-owner sign here-----
DETACH CARD
-------------------
Vote by Telephone
-------------------
It's fast, convenient, and immediate!
Call Toll-Free on a Touch-Tone Phone
Follow these four easy steps:
- --------------------------------------------------------------------------------
1. Read the accompanying Proxy Statement and
Proxy Card.
2. Call the toll-free number
1-877-PRX-VOTE (1-877-779-8683).
There is NO CHARGE for this call.
3. Enter your Control Number located on your Proxy Card.
4. Follow the recorded instructions.
- --------------------------------------------------------------------------------
Your Vote is important!
Call 1-877-PRX-VOTE anytime!
<TABLE>
<S> <C> <C> <C>
1. On the election of two Trustees: For All With- For All
Nominees hold Except
(01) Alan G. Carr [ ] [ ] [ ]
(02) Henry A. Termeer [ ] [ ] [ ]
If you do not wish your shares voted "For" a particular nominee, mark the "For
All Except" box and strike a line through the name of the nominee. Your shares
will be voted for the remaining nominee (The Board of Trustees recommends a
vote FOR all nominees);
For Against Abstain
2. Ratification of the selection of Arthur [ ] [ ] [ ]
Anderson LLP as Independent Public Accountants [ ] [ ] [ ]
of the Fund for the fiscal year ending
September 30, 2000 (The Board of Trustees
recommends a vote FOR):
3. Approval of a new investment advisory contract [ ] [ ] [ ]
(The Board of Trustees recommends a vote FOR): [ ] [ ] [ ]
</TABLE>
4) In their discretion, on all other business that may properly come before the
Annual Meeting and any adjournment or adjournments thereof.
DETACH CARD
-------------------
Vote by Internet
-------------------
It's fast, convenient, and your vote is immediately
confirmed and posted.
Follow these four easy steps:
- --------------------------------------------------------------------------------
1. Read the accompanying Proxy Statement and
Proxy Card.
2. Go to the Website
http://www.eproxyvote.com/hql
3. Enter your Control Number located on your Proxy Card.
4. Follow the instructions provided.
- --------------------------------------------------------------------------------
Your Vote is Important!
Go to http://www.eproxyvote.com/hqh anytime!
Do not return your Proxy Card if your are voting by Telephone or Internet
