FORM N-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES

ITEM 1. REPORTS TO STOCKHOLDERS.

See Semiannual Report as of March 31, 2013.

H&Q LIFE SCIENCES INVESTORS

Semiannual Report

March 31, 2013

(Unaudited)

To our Shareholders:

On March 31, 2013, the net asset value (NAV) per share of the Fund was $16.90. During the six month period ended March 31, 2013, total return at NAV of your Fund was 11.57%, with distributions reinvested. During the most recent quarter ended March 31, 2013, total return at NAV of your Fund was 14.79%, with distributions reinvested. The total investment return at market with distributions reinvested was 17.75% during the six month period ended March 31, 2013 and was 22.46% during the quarter ended March 31, 2013. Comparisons to relevant indices are listed below:

Portfolio Highlights

In our opinion the stock market is performing well. Healthcare performance has exceeded that of the broad market. The S&P 500 Index has performed well but the NASDAQ Biotechnology Index (NBI) has performed even more impressively, as indicated above. This recent performance has been consistent with longer term performance of the NBI. We note that the NBI has approximately tripled in value since early 2009 and doubled since mid 2011. This performance trend has brought the biotechnology sector to all time highs. The Fund's performance has generally been consistent with the NBI during this period.

As portfolio managers on behalf of shareholders, we are pleased with the multiyear performance of both the NBI and the Fund. However after such a good period of stock price performance and given the cyclical history of the biotech sector and the market, it is reasonable to take a step back and evaluate whether we would expect this stellar sector performance to continue. One can never really know what will happen in the market. As described below, there are a good number of potential pitfalls. But there are also reasons to be optimistic. When we add up the pros and cons, we conclude there is a good chance that

solid biotechnology sector performance can continue. The details of our thinking follow but from a big picture perspective, we think that the biotech industry has reached a new level of maturity. Specifically, this sector has traditionally been characterized by the promise of future multi-billion dollar market potential products. Just a decade ago, relatively few companies in the NBI had attained significant product revenue and only a small percentage was profitable. Now, of the 118 companies in the NBI, 95% have some revenue and 80% have revenue of more than $10M. This looks like maturation to us.

First the positives. Biotech companies have become important components of traditional broad healthcare investors. By our calculation, 78% of the 27 healthcare mutual funds we follow have one or more biotech companies within their top ten positions. We think this validates the fact that biotechnology has really come of age. Moreover, it is our impression that the large pharmaceutical subsector of the healthcare area has also embraced biotechnology. Qualitatively, it is clear to us that these traditional large drug companies have come to rely more and more on biotechnology based products. As of 2012, six of the largest drugs (by sales) are of biotechnology origin. This maturation of the biotech subsector over recent years combined with the fact that the American population is getting older and will likely consume more healthcare makes us bullish on the group in general.

However, the question for us at the moment, independent of our bullish long term bias, is whether valuations in the healthcare sector in general and the biotechnology subsector in particular will continue to increase. The following factors are among those that affect our views.

Valuations in the healthcare sector, and particularly the biotech sector, are closely correlated with regulatory action, particularly approval (or rejection) of drugs by the US FDA. There is no question that the FDA has been approving drugs rapidly in the last few years. In 2012, for example the FDA approved 39 new drugs. This is more than they have approved in recent years. Perhaps more importantly, it appears to us that the FDA has been more open-minded about drug approvals than has been its custom. For example, the FDA has recently created a new "breakthrough" designation which suggests that, for certain drugs, it will consider faster approval than it has in the past. Moreover, in the last year or so, based on solid clinical data and unmet medical need, the FDA has approved at least 10 new drugs after Phase 2 data, rather than requiring a third Phase of clinical testing. We are encouraged by this apparent trend. By no means is FDA approving drugs without clear evidence of safety and efficacy but they do appear to be seeking to approve drugs sooner when the data warrant it.

Independent of the regulatory environment, it appears to us that valuations in healthcare/biotechnology sector have not reached

undeserved levels. While the NBI has reached an all time high, we think current price levels are warranted. At the moment, the Price/Earnings (P/E) ratio of the larger capitalization biotech companies has increased to about 20-25, approximately double the lows of recent years. However, even with these increases, valuations generally remain at a significant discount to the P/E multiples achieved in the early/mid 2000s. Moreover, estimated growth rates for these large biotech companies are projected to continue to be high relative to other healthcare subsectors (e.g., pharma). By one bank's (Deutsche Bank) estimates, the average five year EPS growth rate for four of the largest biotechnology companies (Amgen, Inc., Biogen Idec, Inc., Celgene Corporation and Gilead Sciences, Inc.) is expected to be 19% compared to the S&P 500 at 9% and 0% for key members of the pharmaceutical sector (Pfizer, Inc., Bristol-Myers Squibb, Eli Lilly and Company and Merck & Co.). Deutsche Bank suggests that at the moment, the mean PEG (P/E/growth) for these large biotech companies is 0.79 compared to the S&P 500 at 1.33 and the large pharma group at 6.31. These data suggest that the biotech sector has room to grow relative to other key sectors before it would be considered expensive.

Although it is hard to quantify, sentiment is another key factor in determining the potential for the sector. It is our impression that sentiment for healthcare and biotechnology remains positive. We continue to see bullish sell-side reports on the sector. Importantly we have the impression that healthcare continues to be in favor at large generalist funds and that biotech continues to be in favor at many of the large healthcare mutual funds. For example as noted above, approximately 80% of the 27 public healthcare mutual funds we track own one of the four largest biotech companies among their ten largest positions. Approximately 50% of these 27 funds own 2 of these four stocks among their top ten positions. This suggests to us that sentiment for biotechnology is high.

In addition to the factors described above, we also regularly update you on M&A, clinical data and other events in the biotechnology sector and in your Fund. During the six month period ending March 31, 2013, we have, as usual, seen quite a bit of activity. In the non-Fund related biotechnology sector in general, business development continues to be a theme. In the six month period ending March 31, 2013, Thermo Fisher Scientific, Inc. announced that it would acquire Life Technologies Corporation and Pfizer spun out its substantial animal health business as Zoetis, Inc. The FDA approved Pfizer's Xalkori, a biotechnology derived treatment for non-small cell lung cancer, Aegerion Pharmaceutical Inc.'s Juxtapid for hypercholesterolemia and Johnson & Johnson's Zytiga (developed by Fund asset Cougar Biotechnology, Inc.) for a new indication. There were also several notable negative events in the quarter including data read out from two clinical trials for

Alzheimer's drug that did not meet expectation and Affymax, Inc./Takeda Pharmaceutical Company Limited's voluntary removal from the market of its Hematide treatment for anemia.

With respect to Fund assets, there were also a number of representative events. On the positive side, among other events we note approval of Medivation, Inc.'s Xtandi for use in prostate cancer, Amarin Corporation plc's Vascepa for use in hypertriglyceridemia, Ironwood Pharmaceuticals, Inc./Forest Laboratories, Inc.'s Linzess for use in irritable bowel syndrome, Biogen's Tecfidera for use in Multiple Sclerosis and Celgene's Pomalyst for use in Chronic Myeloid Leukemia. In addition, Celgene (Abraxane in pancreatic cancer), Gilead (Sofosbuvir in Hepatitis C) and Vertex Pharmaceuticals, Inc.(multiple drugs in Cystic fibrosis) each reported positive clinical data for key products. Biogen also reported the clinical failure of a drug intended to treat ALS. United Therapeutics Corporation reported that its oral Remodulin product failed to receive FDA approval. In the period, Amgen acquired deCODE Genetics, Inc., Gilead acquired YM BioSciences, Inc., and Biogen acquired certain rights to Tysabri from Elan Corporation, plc. In addition, several of the smaller cap cancer companies in the Fund's portfolio announced clinical or other news during the report period. For example, Celldex, Inc.'s principal product demonstrated a survival benefit in the metastatic breast cancer setting. MEI Pharma demonstrated an impressive response rate in patients with myelodysplastic syndrome when its product was combined with Celgene's Vidaza. Oncogenex Pharmaceuticals, Inc. began a pivotal trial in non-small cell lung cancer patients and Endocyte, Inc. filed for approval (in concert with Merck) for its ovarian cancer drug in the EU. We are pleased to see this kind of progress in the Funds holdings of smaller cap cancer companies.

In aggregate, the events described above suggest to us that the Healthcare/Biotechnology sector continues to possess upside potential. It looks to us like both the technical performance and market sentiment for the sector are positives. In addition, we believe the market continues to view this sector as defensive. In the current macro environment that assessment is, in our opinion, likely to be a positive for the sector. As a result we continue to advocate investment in the sector.

While, as described above, we see several reasons to be optimistic, there are also real reasons to be cautious. Given the recent price movement in the NBI, we would not be surprised to see a pullback motivated by profit taking. Although we don't see one on the horizon, we can never rule out an event, sector-specific or otherwise, that unravels sentiment. The bottom line is that despite the recent advances, the biotechnology sector is inherently volatile and as such is inevitably subject to individual event risk. Having said this, our greatest concern at the moment is the macroeconomic environment. Politics aside, it is

clear that that recent debt purchase actions by the Federal Reserve (i.e., Quantitative Easing) have kept interest rates low and have encouraged equity investment. In the view of many, these actions have forced investment out of bonds and into equities. Whatever else these actions have done, they have ultimately pushed market valuations up. The Fed has assured the marketplace that it can unwind its debt positions without significant harm. In the short term, some portion of the market/sector's recent rise can be attributed to the Fed's actions. We are hopeful that the Fed can affect a "soft landing"; we think that such an outcome would have modest impact on market valuations. But should Fed deleveraging (or the prospect of such deleveraging) have a significant effect on market sentiment, valuations in both the broad and healthcare markets could be adversely affected. We will take the benefit that equities are receiving now as the Fed expands its balance sheet but are not looking forward to the day that deleveraging is definitively announced or begins. This is our biggest concern at the moment but well out of our control.

Investment Changes

During the six month period ended March 31, 2013, within the public portfolio, the Fund established positions in several companies including Onyx Pharmaceuticals, Inc., Actavis, Inc., Merrimack Pharmaceuticals, Inc., Synta Pharmaceuticals Corporation, Sagent Pharmaceuticals, Inc. and Endocyte, Inc. During the same six month period the Fund exited its positions in several companies including NPS Pharmaceuticals, Inc., Alere, Inc., ImmunoGen, Inc., Watson Pharmaceuticals, Inc. Thermo Fisher Scientific, Inc. and Bruker Corporation.

During the six month period ended March 31, 2013, within the venture portfolio, the Fund made follow on investments in several companies including Neurovance, Inc., Tibion Corporation, Euthymics, Inc., Labcyte, Inc. and CardioKinetix. Aveta, Inc. sold its North American business to a division of UnitedHealth. Aveta's remaining Medicaid and Medicare Advantage business changed its name to InnovaCare Health, Inc.

As always, if you have questions, please feel free to call us at 617-772-8500.

Daniel R. Omstead, PhD
President

H&Q LIFE SCIENCES INVESTORS

LARGEST HOLDINGS BY ISSUER
(Excludes Short-Term Investments)

As of March 31, 2013
(Unaudited)

SECTOR DIVERSIFICATION (% of Net Assets)

As of March 31, 2013

(Unaudited)

H&Q LIFE SCIENCES INVESTORS

SCHEDULE OF INVESTMENTS

MARCH 31, 2013

(Unaudited)

H&Q LIFE SCIENCES INVESTORS

SCHEDULE OF INVESTMENTS

MARCH 31, 2013

(Unaudited)

(continued)

H&Q LIFE SCIENCES INVESTORS

SCHEDULE OF INVESTMENTS

MARCH 31, 2013

(Unaudited)

(continued)

H&Q LIFE SCIENCES INVESTORS

SCHEDULE OF INVESTMENTS

MARCH 31, 2013

(Unaudited)

(continued)

H&Q LIFE SCIENCES INVESTORS

SCHEDULE OF INVESTMENTS

MARCH 31, 2013

(Unaudited)

(continued)

(a)  Security fair valued.

(b)  Non-income producing security.

(c)  Affiliated issuers in which the Fund holds 5% or more of the voting securities (total market value of $11,540,796).

(d)  Number of warrants to be determined at a future date.

(e)  American Depository Receipt

(f)  Foreign security.

(g)  Security exempt from registration under Rule 144A of the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.

H&Q LIFE SCIENCES INVESTORS

SCHEDULE OF INVESTMENTS

MARCH 31, 2013

(Unaudited)

(continued)

Other Information

The Fund uses a three-tier hierarchy to prioritize the assumptions, referred to as inputs, used in valuation techniques to measure fair value. The three-tier hierarchy of inputs is summarized in the three broad levels. Level 1 includes quoted prices in active markets for identical investments. Level 2 includes prices determined using other significant observable inputs (including quoted prices for similar investments, interest rates, credit risk, etc.). Level 3 includes prices determined using significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). These inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.

The following is a summary of the inputs used as of March 31, 2013 to value the Fund's net assets. For the six months ended March 31, 2013, there were no transfers between levels 1 and 2.

H&Q LIFE SCIENCES INVESTORS

SCHEDULE OF INVESTMENTS

MARCH 31, 2013

(Unaudited)

(continued)

Other Information, continued

The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value. Realized and unrealized gain (loss) disclosed in the reconciliation are included in Net Realized and Unrealized Gain (Loss) on the Statement of Operations.

H&Q LIFE SCIENCES INVESTORS

SCHEDULE OF INVESTMENTS

MARCH 31, 2013

(Unaudited)

(continued)

Other Information, continued

The following is a quantitative disclosure about significant unobservable inputs used in the determination of the fair value of level 3 assets.

H&Q LIFE SCIENCES INVESTORS

STATEMENT OF ASSETS AND LIABILITIES

MARCH 31, 2013

(Unaudited)

H&Q LIFE SCIENCES INVESTORS

STATEMENT OF OPERATIONS

SIX MONTHS ENDED MARCH 31, 2013

(Unaudited)

H&Q LIFE SCIENCES INVESTORS

STATEMENTS OF CHANGES IN NET ASSETS

(a)  Reflects year end reclassifications to the Fund's capital accounts to reflect income and gains available for distribution under income tax regulations.

H&Q LIFE SCIENCES INVESTORS

STATEMENT OF CASH FLOWS

SIX MONTHS ENDED MARCH 31, 2013

(Unaudited)

Noncash financing activities not included herein consist of reinvested distributions to shareholders of $4,446,111.

H&Q LIFE SCIENCES INVESTORS

FINANCIAL HIGHLIGHTS

*  Not Annualized.

**  Annualized.

(1)  Computed using average shares outstanding.

(2)  Includes special dividends from three issuers in the aggregate amount of $0.13 per share. Excluding the special dividends, the net investment loss per share would have been $(0.22) the ratio of net investment loss to average net assets would have been (1.58%).

(3)  Includes a special dividend from an issuer in the amount of $0.02 per share. Excluding the special dividend, the net investment loss per share would have been $(0.21) the ratio of net investment loss to average net assets would have been (1.66%).

(4)  Includes a special dividend from an issuer in the amount of $0.06 per share. Excluding the special dividend, the net investment loss per share would have been $(0.15) the ratio of net investment loss to average net assets would have been (1.28%).

H&Q LIFE SCIENCES INVESTORS

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2013

(Unaudited)

(1)  Organization and Significant Accounting Policies

H&Q Life Sciences Investors (the Fund) is a Massachusetts business trust registered under the Investment Company Act of 1940 as a diversified closed-end management investment company. The Fund's investment objective is long-term capital appreciation through investment in companies in the life sciences industry (including biotechnology, pharmaceutical, diagnostics, managed healthcare and medical equipment, hospitals, healthcare information technology and services, devices and supplies), agriculture and environmental management. The Fund invests primarily in securities of public and private companies that are believed by the Fund's Investment Adviser, Tekla Capital Management LLC (the Adviser), to have significant potential for above-average growth.

The preparation of these financial statements requires the use of certain estimates by management in determining the Fund's assets, liabilities, revenues and expenses. Actual results could differ from these estimates and such differences could be material. The following is a summary of significant accounting policies followed by the Fund, which are in conformity with accounting principles generally accepted in the United States of America ("GAAP"). Events or transactions occurring after March 31, 2013, through the date that the financial statements were issued, have been evaluated in the preparation of these financial statements.

Investment Valuation

Shares of publicly traded companies listed on national securities exchanges or trading in the over-the-counter market are typically valued at the last sale price, as of the close of trading, generally 4 p.m., Eastern time. The Board of Trustees of the Fund (the "Trustees") have established and approved fair valuation policies and procedures with respect to securities for which quoted prices may not be available or which do not reflect fair value. Shares of publicly traded companies for which market quotations are not readily available, such as stocks for which trading has been halted or for which there are no current day sales, or whose quoted price may otherwise not reflect fair value, are valued in good faith by the Adviser using a fair value process pursuant to policies and procedures approved by the Trustees described below. Restricted securities of companies that are publicly traded are typically valued based on the closing market quote on the valuation date adjusted for the impact of the restriction as determined in good faith by the Adviser also using fair valuation policies and procedures approved by the Trustees described below. Non-exchange traded warrants of publicly traded companies are typically valued using the Black-Scholes model, which incorporates both observable and unobservable inputs. Short-term investments with a maturity of 60 days or less are valued at amortized cost, which approximates fair value.

Convertible preferred shares, warrants or convertible note interests in private companies, milestone interests, other restricted securities, as well as shares of publicly traded companies for which market quotations are not available or which do not reflect fair value, are typically valued in good faith, based upon the recommendations made by the Adviser pursuant to fair valuation policies and procedures approved by the Trustees. The Adviser has a Valuation Sub-Committee comprised of senior management which reports to the Valuation Committee of the Board at least quarterly. Each fair value determination is based on a consideration of relevant factors, including both observable and unobservable inputs. Observable and unobservable inputs the Adviser considers may include (i) the existence of any contractual restrictions on the disposition of securities; (ii) information obtained from the company, which may include an analysis of the company's financial statements, the company's products or intended markets or the company's technologies; (iii) the price of the same or similar security

H&Q LIFE SCIENCES INVESTORS

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2013

(continued)

negotiated at arm's length in an issuer's completed subsequent round of financing; (iv) the price and extent of public trading in similar securities of the issuer or of comparable companies; or (v) a probability and time value adjusted analysis of contractual term. Where appropriate, multiple valuation methodologies are applied to confirm fair value. Significant unobservable inputs identified by the Adviser are often used in the fair value determination. A significant change in any of these inputs may result in a significant change in the fair value measurement. Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly from the values that would have been used had a ready market for the investments existed, and differences could be material. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different from the valuations used at the date of these financial statements.

Options on Securities

An option contract is a contract in which the writer (seller) of the option grants the buyer of the option, upon payment of a premium, the right to purchase from (call option) or sell to (put option) the writer a designated instrument at a specified price within a specified period of time. Certain options, including options on indices, will require cash settlement by the Fund if the option is exercised. The Fund may enter into option contracts in order to hedge against potential adverse price movements in the value of portfolio assets, as a temporary substitute for selling selected investments to lock in the purchase price of a security or currency which it expects to purchase in the near future as a temporary substitute for purchasing selected investments, or to enhance potential gain.

The Fund's obligation under an exchange traded written option or investment in an exchange-traded purchased option is valued at the last sale price or in the absence of a sale, the mean between the closing bid and asked prices. Gain or loss is recognized when the option contract expires, is exercised or is closed.

If the Fund writes a covered call option, the Fund foregoes, in exchange for the premium, the opportunity to profit during the option period from an increase in the market value of the underlying security above the exercise price. If the Fund writes a put option it accepts the risk of a decline in the market value of the underlying security below the exercise price. Over-the-counter options have the risk of the potential inability of counterparties to meet the terms of their contracts. The Fund's maximum exposure to purchased options is limited to the premium initially paid. In addition, certain risks may arise upon entering into option contracts including the risk that an illiquid secondary market will limit the Fund's ability to close out an option contract prior to the expiration date and that a change in the value of the option contract may not correlate exactly with changes in the value of the securities or currencies hedged.

All options on securities and securities indices written by the Fund are required to be covered. When the Fund writes a call option, this means that during the life of the option the Fund may own or have the contractual right to acquire the securities subject to the option or may maintain with the Fund's custodian in a segregated account appropriate liquid securities in an amount at least equal to the market value of the securities underlying the option. When the Fund writes a put option, this means that the Fund will maintain with the Fund's custodian in a segregated account appropriate liquid securities in an amount at least equal to the exercise price of the option. The Fund may use option contracts to gain or hedge exposure to financial market risk.

H&Q LIFE SCIENCES INVESTORS

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2013

(continued)

Transactions in call options written for the six months ended March 31, 2013 were as follow:

Milestone Interests

The Fund holds financial instruments which reflect the current value of future milestone payments the Fund may receive as a result of contractual obligations from other parties. The value of such payments are adjusted to reflect the estimated risk based on the relative uncertainty of both the timing and the achievement of individual milestones. A risk to the Fund is that the milestones will not be achieved and no payment will be received by the Fund. The milestone interests were received as part of the proceeds from the sale of two private companies. Any payments received are treated as a reduction of the cost basis of the milestone interest with payments received in excess of the cost basis treated as a realized gain. The contractual obligations with respect to the TargeGen Milestone Interest provide for payments at various stages of the development of TargeGen's principal product candidate as of the date of the sale. The contractual obligations with respect to the Xoft Milestone Interest provide for a payment based upon the cumulative net revenue of certain of the company's products over a three-year period following the sale.

H&Q LIFE SCIENCES INVESTORS

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2013

(continued)

The following is a summary of the impact of the milestone interests on the financial statements as of and for the six months ended March 31, 2013:

Other Assets

Other assets in the Statement of Assets and Liabilities consists of amounts due to the Fund at various times in the future in connection with the sale of investments in five private companies.

Investment Transactions and Income

Investment transactions are recorded on a trade date basis. Gains and losses from sales of investments are recorded using the "identified cost" method. Interest income is recorded on the accrual basis, adjusted for amortization of premiums and accretion of discounts. Dividend income is recorded on the ex-dividend date, less any foreign taxes withheld. Upon notification from issuers, some of the dividend income received may be redesignated as a reduction of cost of the related investment.

The aggregate cost of purchases and proceeds from sales of investment securities (other than short-term investments) for the six months ended March 31, 2013 totaled $33,751,268 and $52,651,303, respectively.

Repurchase Agreements

In managing short-term investments the Fund may from time to time enter into transactions in repurchase agreements. In a repurchase agreement, the Fund's custodian takes possession of the underlying collateral securities from the counterparty, the market value of which is at least equal to the principal, including accrued interest, of the repurchase transaction at all times. In the event of default or bankruptcy by the other party to the agreement, realization and/or retention of the collateral by the Fund may be delayed.

Distribution Policy

Pursuant to a Securities and Exchange Commission exemptive order, the Fund has implemented a fixed distribution policy (the Policy) that permits the Fund to make quarterly distributions at a rate set by the Board of Trustees. Under the current Policy, the Fund intends to make quarterly distributions at a rate of 2% of the Fund's net assets to shareholders of record. The Fund intends to use net realized capital gains when making quarterly distributions, if available, but the Policy would result in a return of capital to shareholders if the amount of the distribution exceeds the Fund's net investment income and realized capital gains. If taxable income and net long-term realized gains exceed the amount required to be distributed under the Policy, the Fund will at a minimum make distributions necessary to comply with the requirements of the Internal Revenue Code. Previously, for the period April 5, 2010 to November 1, 2010, the Fund had made quarterly distributions at a rate of 1.25% of the Fund's net assets. The Trustees suspended the Policy on August 4, 2009 and reinstated the Policy on April 5, 2010. Prior to August 4, 2009, the Fund made quarterly distributions at a rate of 2% of the Fund's net assets. The Policy has been established by the Board of Trustees and may be changed by them without shareholder approval. The Trustees regularly review the Policy and

H&Q LIFE SCIENCES INVESTORS

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2013

(continued)

the distribution rate considering the purpose and effect of the Policy, the financial market environment, and the Fund's income, capital gains and capital available to pay distributions.

The Fund's policy is to declare quarterly distributions in stock. The distributions are automatically paid in newly-issued full shares of the Fund unless otherwise instructed by the shareholder. Fractional shares will generally be settled in cash, except for registered shareholders with book entry accounts of the Fund's transfer agent who will have whole and fractional shares added to their accounts. The Fund's transfer agent delivers an election card and instructions to each registered shareholder in connection with each distribution. The number of shares issued will be determined by dividing the dollar amount of the distribution by the lower of net asset value or market price on the pricing date. If a shareholder elects to receive a distribution in cash, rather than in shares, the shareholder's relative ownership in the Fund will be reduced. The shares reinvested will be valued at the lower of the net asset value or market price on the pricing date. Distributions in stock will not relieve shareholders of any federal, state or local income taxes that may be payable on such distributions. Additional distributions, if any, made to satisfy requirements of the Internal Revenue Code may be paid in stock, as described above, or in cash.

Share Repurchase Program

In March 2013, the Trustees approved the renewal of the repurchase program to allow the Fund to repurchase up to 12% of its outstanding shares in the open market for a one year period beginning July 11, 2013. Prior to this renewal, in March 2012, the Trustees approved the renewal of the repurchase program to allow the Fund to repurchase up to 12% of its outstanding shares for a one year period beginning July 11, 2012. The share repurchase program is intended to enhance shareholder value and potentially reduce the discount between the market price of the Fund's shares and the Fund's net asset value.

During the six months ended March 31, 2013, the Fund did not repurchase any shares through the repurchase program.

During the year ended September 30, 2012, the Fund repurchased 975,059 shares at a total cost of $10,877,720. The weighted average discount per share between the cost of repurchase and the net asset value applicable to such shares at the date of repurchase was 9.85%.

Federal Taxes

It is the Fund's policy to comply with the requirements of the Internal Revenue Code applicable to regulated investment companies and to distribute to its shareholders substantially all of its taxable income and its net realized capital gains, if any. Therefore, no Federal income or excise tax provision is required.

As of March 31, 2013, the Fund had no uncertain tax positions that would require financial statement recognition or disclosure. The Fund's federal tax returns are subject to examination by the Internal Revenue Service for a period of three years.

Distributions

The Fund records all distributions to shareholders on the ex-dividend date. Such distributions are determined in conformity with income tax regulations, which may differ from GAAP. These differences include temporary and permanent differences from losses on wash sale transactions, installment sale adjustments and ordinary loss netting to reduce short term capital gains. Reclassifications are made to the Fund's capital accounts to reflect income and gains available for distribution under income tax regulations.

H&Q LIFE SCIENCES INVESTORS

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2013

(continued)

Statement of Cash Flows

The cash amount shown in the Statement of Cash Flows is the amount included in the Fund's Statement of Assets and Liabilities and represents cash on hand at March 31, 2013.

Indemnifications

Under the Fund's organizational documents, its officers and Trustees may be indemnified against certain liabilities and expenses arising out of the performance of their duties to the Fund. Additionally, in the normal course of business, the Fund enters into agreements with service providers that may contain indemnification clauses. The Fund's maximum exposure under these agreements is unknown as this would involve future claims that may be made against the Fund that have not yet occurred. However, based on experience, the Fund expects the risk of loss to be remote.

(2)  Investment Advisory and Other Affiliated Fees

The Fund has entered into an Investment Advisory Agreement (the Advisory Agreement) with the Adviser. Pursuant to the terms of the Advisory Agreement, the Fund pays the Adviser a monthly fee at the rate when annualized of (i) 2.50% of the average net assets for the month of its venture capital and other restricted securities up to 25% of net assets and (ii) for all other net assets, 0.98% of the average net assets up to $250 million, 0.88% of the average net assets for the next $250 million, 0.80% of the average net assets for the next $500 million and 0.70% of the average net assets thereafter. The aggregate fee would not exceed a rate when annualized of 1.36%.

The Fund has entered into a Services Agreement (the Agreement) with the Adviser. Pursuant to the terms of the Agreement, the Fund reimburses the Adviser for certain services related to a portion of the payment of salary and provision of benefits to the Fund's Chief Compliance Officer. During the six months ended March 31, 2013, these payments amounted to $23,149 and are included in the other category in the Statement of Operations, together with insurance and other expenses incurred to unaffiliated entities. Expenses incurred pursuant to the Agreement as well as certain expenses paid for by the Adviser are allocated to the Fund in an equitable fashion as approved by the Trustees of the Fund.

The Fund pays compensation to Independent Trustees in the form of a retainer, attendance fees, and additional compensation to Board and Committee chairpersons. The Fund does not pay compensation directly to Trustees or officers of the Fund who are also officers of the Adviser.

(3)  Other Transactions with Affiliates

An affiliate company is a company in which the Fund holds 5% or more of the voting securities. Transactions with such companies during the six months ended March 31, 2013 were as follows:

H&Q LIFE SCIENCES INVESTORS

NOTES TO FINANCIAL STATEMENTS

MARCH 31, 2013

(continued)

(4) Private Companies and Other Restricted Securities

The Fund may invest in private companies and other restricted securities if these securities would currently comprise 40% or less of net assets. The value of these securities represents 9% of the Fund's net assets at March 31, 2013.

At March 31, 2013, the Fund had commitments of $864,748 relating to additional investments in two private companies.

The following table details the acquisition date, cost, carrying value per unit, and value of the Fund's private companies and other restricted securities at March 31, 2013. The Fund on its own does not have the right to demand that such securities be registered.