Business Radar | Tekla World Healthcare Fund

Page 1

TEKLA WORLD H E A LT H C A R E F U N D Annual Report 2 0 1 7

Page 2

T EKLA W ORLD H EALTHCARE F UND Distribution policy: The Fund has implemented a managed distribution policy (the Policy) that provides for monthly distributions at a rate set by the Board of Trustees. Under the current Policy, the Fund intends to make monthly distributions at a rate of $0.1167 per share to shareholders of record. The Policy would result in a return of capital to shareholders, if the amount of the distri- bution exceeds the Fund’s net investment income and realized capital gains. A return of capital may occur, for example, when some or all of the money that you invested in the Fund is paid back to you. A return of capital distribution does not necessarily reflect the Fund’s investment per- formance and should not be confused with “yield” or “income.” The amounts and sources of distributions reported in the Fund’s notices pursuant to Section 19(a) of the Investment Company Act of 1940 are only estimates and are not being provided for tax report- ing purposes. The actual amounts and sources of the amounts for tax reporting purposes will de- pend upon the Fund’s investment experience during its fiscal year and may be subject to changes based on tax regulations. The Fund will send you a Form 1099-DIV for the calendar year that tells you how to report distributions for federal income tax purposes. You should not draw any conclusions about the Fund’s investment performance from the amount of distributions pursuant to the Policy or from the terms of the Policy. The Policy has been estab- lished by the Trustees and may be changed or terminated by them without shareholder approval. The Trustees regularly review the Policy and the frequency and rate of distributions 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 suspension or termination of the Policy could have the effect of creating a trading discount or widening an existing trading discount. At this time there are no reasonably foreseeable circumstances that might cause the Trustees to ter- minate the Policy. Consider these risks before investing: As with any investment company that invests in equity securities, the Fund is subject to market risk—the possibility that the prices of equity securities will decline over short or extended periods of time. As a result, the value of an investment in the Fund’s shares will fluctuate with the market generally and market sectors in particular. You could lose money over short or long periods of time. Political and economic news can influence mar- ket wide trends and can cause disruptions in the U.S. or world financial markets. Other factors may be ignored by the market as a whole but may cause movements in the price of one company’s stock or the stock of companies in one or more industries. All of these factors may have a greater impact on initial public offerings and emerging company shares. Different types of equity securities tend to shift into and out of favor with investors, depending on market and economic conditions. The performance of funds that invest in equity securities of Healthcare Companies may at times be better or worse than the performance of funds that focus on other types of securities or that have a broader investment style.

Page 3

T EKLA W ORLD H EALTHCARE F UND Dear Shareholders, In the last ten to fifteen year period, the performance of the healthcare sector, and that of the biotechnology sub-sector in particular, has been impressive. Note in the following graph that both the S&P Composite 1500® Health Care Index* (“S15HLTH”) outperformed the broad S&P 500® Index* (“SPX”) while the S&P Global 1200® Health Care Index* (“SGH”) performed generally in line with SPX in the fifteen year period ending September 30, 2017. Biotechnology, Healthcare, and S&P 500 Performance 2002 – 2017 500 S&P Composite 1500® Healthcare Index S&P Global 1200® Healthcare Index 400 S&P 500® Index 300 200 100 All indices = 100 on Sep 30 2002 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 We believe that a consistent record of discovery, development and commercialization of new drugs and products that improve quality of life, address medical need and ultimately save lives is the basis for this performance. Nearly everyone has heard of the remarkable genetic engineering and related technologies that are the basis of these new medical products. Moreover, just about everyone we know has a friend or relative who has benefitted from these products and technologies. We think that the combination of accomplishment and positive sentiment has driven healthcare/biotech sector performance. We also feel that, despite the long history of fundamental progress, angst over drug industry profitability in general, and over drug pricing in particular, has had a negative effect on sector sentiment as of late. These issues were front and center during the recently concluded presidential election cycle and have remained a controversial topic since then as Congress debated the potential repeal and/or replacement of Obamacare. In particular, we think that outrage over drug pricing, justified or (maybe) not, has hurt sentiment for the healthcare/biotech sector. 1

Page 4

Despite these challenges, recent sector performance has been quite positive. In fact, the broad SPX was up approximately 20% in calendar 2017 while the healthcare and biotech indices we track were up closer to 30%. As the quarter ended, we were quite upbeat. However, third quarter 2017 healthcare/biotech sector company reports (made in the month or so after the September 30, 2017 end of the Fund’s fiscal year) were mediocre overall, particularly for the large bellwether biotech and pharma companies. This has caused a pullback of approximately 10% in the healthcare sector. As of this writing in early November 2017, both the broad SPX and the healthcare and biotech indices are up approximately 20% in calendar 2017. Such a move in the markets in a ten-month period would always be welcome. However, given both the apparent sentiment and a weak quarter, we have taken a step back to review our thoughts on the healthcare/biotech sector. More detail is provided later in this note, but in summary, we remain optimistic about the sector. Overall, we expect a continuation of the impressive innovation we have seen. In just the last few years, there have been remarkable developments in immuno-oncology, gene therapy and other areas. In addition, the FDA (while remaining formidable) appears to have become incrementally more accommodative. The IPO market continues to produce new public companies. Our aggregate view is that, in combination with the broad creation and funding of a new generation of public companies, this continued innovation will lead to the discovery and development of many new and novel medical products that will propel the healthcare and biotech sectors forward. We expect these newly formed companies to either be acquired by or to replace the current industry leaders forming the next generation of healthcare/biotech growth. Although we may see some volatility as this renewal process sorts itself out, this makes us optimistic about the the medium- and long-term. As always, we thank you for your consideration of the Tekla Funds. Please call us if you have any questions. Respectfully yours, Daniel R. Omstead, Ph.D. President and Portfolio Manager 2

Page 5

Perspective on the Biotechnology and Healthcare Sectors For some time, Tekla has been positive about the long-term prospects for the healthcare/biotech sector. Over any reasonable multi-year timeframe, we are bullish. As we and others have noted, this sector continues to be a large portion of the US GDP. Healthcare spending is expected to reach 20% of the US economy within the next decade. While the sector comprises a smaller portion of the GDP of other countries, spending is considerable and expected to grow meaningfully in many developed countries. Furthermore, it is reported that overall US Medicare health spending is expected to grow at 5.8% for at least the next decade. In particular, prescription drug spending is expected to grow at 6.7% per year in this same timeframe. We think these projections make the sector attractive. Actual and Projected Net Medicare Spending 2010 – 2027 Actual Net Outlays (in billions) Projected Net Outlays (in billions) $1,159 $1,079 $996 $895 $847 $872 $754 $698 $648 $588 $590 $584 $540 $492 $505 $446 $480 $466 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 Percent of Federal Outlays 12.9 13.3 13.2 14.2 14.4 14.6 15.3 14.7 14.3 14.8 15.1 15.4 16.3 16.1 15.9 16.7 17.1 17.5 GDP 3.0 3.1 2.9 3.0 2.9 3.0 3.2 3.1 2.9 3.1 3.3 3.4 3.7 3.6 3.6 3.8 4.0 4.1 Source CBO, An update to the Budget and Economic Outlook, 2017 to 2027 (June 2017) Long-term sector fundamentals are also attractive when we consider healthcare spending on an individual basis. As seen in the figure below and the citation above, the population of the largest countries is expected to age in the coming years. Since more is spent on healthcare as individuals get older, overall healthcare spending should grow. This suggests that, over the long-term, demand for healthcare products and services should continue to grow, likely at an attractive rate. Population 65 to 84 and 85 Years and Over in the World’s Four Largest Countries: 2012, 2030, and 2050 350 300 250 Millions 200 150 100 50 0 2012 2030 2050 2012 2030 2050 2012 2030 2050 2012 2030 2050 United States China India Indonesia 65-84 Years Old 85 years and over Source: www.census.gov/prod/2014pubs/p25‐1140.pdf 3

Page 6

In the intermediate term, we see the continued creation of new and differentiated medical products that are safer and/or more efficacious than existing products and that address currently unmet medical needs in the US and non-US population. These products will be the basis for continued growth in the sector. The creation of new and novel products depends on the advancement of science in key areas, the identification and clinical testing of newly discovered drugs, and the regulatory approval of such drugs. We see evidence of these accomplishments. The following three charts present favorable trends in the publication of new NIH papers, in the number of registered clinical trials and in the approval of new drugs. For additional data and information, visit fda.gov, clintrials.gov and i2.wp.com. National Institute of Health (NIH) Funded Papers Per Year 100 90 80 70 Number (1000s) 60 50 40 30 20 10 0 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source : https://i2.wp.com/nexus.od.nih.gov/all/wp‐content/uploads/2016/03/Figure‐1‐NIH_papers_per_year.jpeg Number of Registered Clinical Trials 300,000 250,000 200,000 150,000 100,000 50,000 0 2000 2005 2010 2015 2017 ytd Source: https://clinicaltrials.gov/ct2/resources/trends#RegisteredStudiesOverTime 4

Page 7

New Molecular Entity (NME) and New Biologic License Application (BLA) Approvals by Calendar Year 50 45 45 40 41 39 35 37 30 30 25 26 27 24 20 22 22 21 15 18 10 5 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 ytd Approvals Linear Trend Source: https://www.fda.gov/Drugs/DevelopmentApprovalProcess/DrugInnovation/ucm537040.htm These data suggest that the pipeline of new drugs should continue to grow over time. As previously reported, an entirely new generation of public companies has been created and funded in the last several years. For example, note that Bloomberg reports that since 2014, there have been 839 IPOs and follow-on financings which raised an aggregate of $49.21 billion. In combination with existing corporations, this new generation of well- funded companies will sponsor the new and novel products we anticipate. We continue to see encouraging technological and clinical results. As an example, we point to the coming of age of cell, gene and RNAi therapies. These technologies have been in development for many years; each of these somewhat related approaches have accomplished major milestones. For example, we have seen the approval of an antisense product (Biogen’s SPINRAZATM) which treats an otherwise lethal pediatric condition called Spinal Muscular Atrophy, the approval of two T cell based therapies (Novartis’ KYMRIAHTM and Gilead/Kite’s Yescarta) that are remarkably effective in certain hematologic cancers, and clear proof of principle by an RNAi based product (Alnylam’s patisiran) in the treatment of a form of amyloidosis, and finally, a positive FDA panel recommendation for Spark Therapeutic’s Luxturna to treat a rare genetic form of blindness. These are just a few examples of the encouraging developments we are seeing. There are certainly many challenges to overcome but, in aggregate, these and other developments are an important part of our underlying optimism toward the healthcare/biotech sector. 5

Page 8

T EKLA W ORLD H EALTHCARE Objective of the Fund The Fund’s investment objective appreciation by investing primarily Fund seeks to provide regular Description of the Fund Tekla World Healthcare Fund (“THW”) is a non-diversified closed-end healthcare traded on the New York Stock Exchange under the ticker THW. Tekla employs its technical background, experience and global capabilities to identify and invest in companies and technologies worldwide that lead the way in inventions, drug discovery, and product development and provide what it believes are the best potential for upside value creation. Since inception, the Fund has made over 40 investments in companies domiciled in 15 countries outside the United States. Investment Philosophy Tekla Capital Management LLC, the Investment Adviser to the Fund, believes that: • Aging demographics and adoption of new medical products and services can provide long-term tailwinds for healthcare companies • Opportunities Outside the United States Maybe be underappreciated and timely • Investment opportunity spans the globe including biotechnology, healthcare technology, life sciences and medical devices • Robust M&A activity in healthcare may create additional investment opportunities Holdings of the Fund Asset Allocation as of 9/30/17 Equity - 103.7% Notes - 16.5% Short-Term Investment - 3.6% Convertible Preferred Stocks - 0.6% Mandatory Convertible Preferred Stock - 0.5% Call Option Contracts Written - (0.1%) Other liabilities in excess of assets - (24.8%) This data F UND Fund Essentials is to seek current income and long-term capital in securities of healthcare companies. In addition, the distribution of income and realized capital gains. Fund Overview and Characteristics as of 9/30/17 fund Market Price1 $14.56 NAV2 $15.55 Premium/(Discount) -6.37% Average 30 Day Volume 111,734 Net Assets $479,857,907 Managed Assets $599,857,907 Leverage Outstanding $120,000,000 Total Leverage Ratio3 20.00% Ticker THQ NAV Ticker XTHQX Commencement of Operations Date 6/30/15 Fiscal Year to Date Distributions per Share $1.40 1 The closing price at which the Fund’s shares were traded on the exchange. 2 Per-share dollar value of the Fund, calculated by dividing the total value of all the securities in its portfolio, plus any other assets and less liabilities, by the number of Fund shares outstanding. 3 As a percentage of managed assets. (Data is based on net assets) Sub-Sector Allocation as of 9/30/17 Pharmaceuticals - 60.4% Biotechnology - 29.7% Health Care Providers & Services - 16.6% Health Care Equipment & Supplies - 7.5% Real Estate Investment Trusts - 6.7% Repurchase Agreement - 3.6% Life Sciences Tools & Services - 0.3% Real Estate Management & Development - 0.0% Other liabilities in excess of assets - (24.8%) is subject to change on a daily basis. 6

Page 9

T EKLA W ORLD H EALTHCARE F UND Largest Holdings by Issuer (Excludes Short-Term Investments) As of September 30, 2017 % of Net Issuer – Sector Assets Gilead Sciences, Inc. – Biotechnology 8.1% Novartis AG – Pharmaceuticals 7.6% Allergan plc – Pharmaceuticals 4.8% Merck & Co., Inc. – Pharmaceuticals 4.1% Medtronic plc – Health Care Equipment & Supplies 3.9% Johnson & Johnson – Pharmaceuticals 3.6% GlaxoSmithKline plc – Pharmaceuticals 3.5% Teva Pharmaceutical Industries Ltd. – Pharmaceuticals 3.5% Roche Holding AG – Pharmaceuticals 3.2% Bayer AG – Pharmaceuticals 3.1% AstraZeneca PLC – Pharmaceuticals 3.1% UnitedHealth Group Inc. – Health Care Providers & Services 2.5% CVS Health Corporation – Health Care Providers & Services 2.3% UCB SA – Pharmaceuticals 2.1% Biogen Inc. – Biotechnology 2.1% Eli Lilly & Company – Pharmaceuticals 2.0% Mallinckrodt plc – Pharmaceuticals 2.0% Shire plc – Pharmaceuticals 1.9% Sanofi – Pharmaceuticals 1.9% Galapagos NV – Biotechnology 1.7% COUNTRY DIVERSIFICATION % of Net % of Managed As of September 30, 2017 Assets Assets United States 69.5% 55.6% Ireland 14.3% 11.4% Switzerland 10.4% 8.3% United Kingdom 9.8% 7.8% France 4.2% 3.4% Israel 4.0% 3.2% Belgium 3.8% 3.0% Netherlands 3.4% 2.8% Germany 3.1% 2.5% Japan 1.0% 0.8% Denmark 0.7% 0.6% Australia 0.6% 0.4% 7

Page 10

Fund Performance THW is a closed-end fund which invests predominantly in healthcare companies. Subject to regular consideration, the Trustees of THW have instituted a policy of making monthly distributions to shareholders. The Fund seeks to benefit from the earnings growth of the healthcare industry while capturing income. Income is derived from multiple sources including equity dividends, fixed income coupons, real estate investment trust distributions, convertible securities coupons and selective equity covered call writing premiums. In order to accomplish its objectives, THW often holds a majority of its assets in equities. Allocation of assets to various healthcare sectors can vary significantly as can the percentage of the portfolio which is overwritten. Under normal market conditions, the Fund expects to invest at least 40 percent of its managed assets in companies organized or located outside of the U.S. or companies that do a substantial amount of business outside the U.S. (“Foreign Issuers”). The Fund may invest up to 20 percent of managed assets, measured at the time of investment, in non-convertible debt of healthcare companies. It may also invest up to 20 percent of managed assets in healthcare REITs. The Fund may also hold up to 30 percent of managed assets in convertible securities and may invest a portion of its assets in restricted securities. In order to generate additional “current” income THW often sells (or writes) calls against a material portion of its equity assets. The portion of equity assets overwritten can vary, but usually represents less than 20 percent of managed assets. At times, the overwritten portion of assets is materially less than 20 percent of managed assets. The use of covered calls is intended to produce “current” income, but may limit upside in bullish markets. The Fund may also use leverage to enhance yield. The Fund may incur leverage up to 20 percent of managed assets at the time of borrowing. “Managed assets” means the total assets of the Fund (including any assets attributable to borrowings for investment purposes) minus the sum of the Fund’s accrued liabilities (other than liabilities representing borrowings for investment purposes). The Fund considers investments in companies of all sizes and in all healthcare subsectors, including but not limited to, biotechnology, pharmaceuticals, healthcare equipment, healthcare supplies, life science tools and services, healthcare distributors, managed healthcare, healthcare technology, and healthcare facilities. The Fund expects to invest at least 40 percent of managed assets in Foreign Issuers and emphasizes innovation, investing both in public and pre-public venture companies. The Fund considers its pre-public and other restricted investments to be a differentiating characteristic. Among the various healthcare subsectors, 8

Page 11

THW has considered the biotechnology subsector, including both pre- public and public companies, to be a key contributor to the healthcare sector. The Fund holds biotech assets, including both public and pre- public, often representing 25-35% of net assets. There is no commonly published index which matches the investment strategy of THW. With respect to the Fund’s equity investments, THW often holds 20-40% of its assets in biotechnology. By contrast, the SGH consists of more than 100 global companies representing most or all of the healthcare subsectors in which THW typically invests; biotechnology often represents up to 20% of this index. By contrast, the NASDAQ Biotechnology Index® (“NBI”), which contains approximately 160 securities, is much more narrowly constructed. The vast majority of this index is comprised of biotechnology, pharmaceutical and life science tools companies. In recent years, biotechnology has often represented 72-82% of the NBI. Neither the SGH nor NBI indices contain any material amount of pre-public company assets. The S&P 500® Health Care Corporate Bond Index* (“SP5HCBIT”) measures the performance of U.S. corporate debt issued by constituents in the healthcare sector of the SPX. This index is generally reflective of the debt assets in which THW invests, though the Fund invests in the SPX index debt components as well as those of smaller capitalization companies. The FTSE NAREIT Health Care Property Sector Index®* (“FNHEA”) is comprised of U.S. publicly traded REITs in the healthcare sector. This index is generally reflective of the REITs in which THW invests. We present both NAV and stock returns for the Fund in comparison to several commonly published indices. We note that THW is a dynamically configured multi-asset class global healthcare growth and income fund. There is no readily available index comprised of similar characteristics to THW and to which THW can directly be compared. Therefore, we provide returns for a number of indices representing the major components of THW’s assets. Having said this, we note that there are no readily available indices representing the covered call strategy employed by THW or the restricted security components of THW. The following data for available funds over the six-month and one-year periods are provided for comparison. 9

Page 12

Performance Performance 1 Year (%) 6 Month (%) 18.6 Performance 16.0 since inception (%) 14.1 14.0 10.5 9.5 10.6 6.3 6.4 7.7 6.7 7.5 4.3 5.7 2.2 3.2 0.6 -0.4 -5.0 -4.3 -10.3 THW MKT NBI SGH SPX FNHEA THW NAV NBI SGH SPX FNHEA NBI SGH SPX FNHEA SP5HCBIT SP5HCBIT SP5HCBIT THW MKT THW MKT THW NAV THW NAV Inception date June 30, 2015. All performance over one-year has been annualized. Performance data quoted represents past performance, which is no guarantee of future results, and current performance may be lower or higher than the figures shown. The NAV total return takes into account the Fund’s total annual expenses and does not reflect transaction charges. If transaction charges were reflected, NAV total return would be reduced. All distributions are assumed to be reinvested either in accordance with the dividend reinvestment plan (DRIP) for market price returns or NAV for NAV returns. The market price returns reflect the reinvestment at the closing market price on the last business day of the month. Portfolio Highlights as of September 30, 2017 Among other investments, THW’s performance benefitted in the past year by the following: Galapagos NV (GLPG) a Belgium based biotech has potential best in class treatments for cystic fibrosis (partnered with Abbvie Inc.) and a JAK inhibitor for the treatment of Rheumatoid arthritis. GLPG also has a deep pipeline that is starting to generate interest in the stock beyond the JAKs and the CF programs, namely the wholly-owned IPF (idiopathic pulmonary fibrosis) program, and partnered OA (osteoarthritis) and atopic dermatitis programs. We continue to believe that the depth of GLPG’s pipeline make it an attractive take-out target for 2018. Puma Biotechnology Inc. (PBYI) is a biopharmaceutical company whose lead asset for adjuvant breast cancer was recently approved by the FDA. The stock has reacted well to the easier-than-expected approval as well as early signs of market adoption of the agent. Vertex Pharmaceuticals Inc. (VRTX) is developing small molecules for the treatment of Cystic Fibrosis. The excitement now surrounds upcoming full phase 2 datasets for their triple combinations in heterozygous CF patients, which is expected in early 2018. The company proposes that these triple combination treatments could treat up to 90% of CF patients with a disease-modifying therapy. Sales on existing products continue to be strong as additional countries gain reimbursement OUS. We expect this trend to continue into 2018. We also anticipate the company to start sharing more data around their non-CF franchise going into 2018. 10

Page 13

Among other examples, THW’s performance was negatively impacted by the following: While we view Teva Pharmaceuticals (TEVA) as a leading specialty pharmaceuticals company, the stock underperformed due to sector wide pricing pressures in the generic space, and company-specific concerns about their high margin branded products business and their debt burden. We see TEVA as having the potential to turn around, but that may prove difficult. Teva will need to make significant structural changes to their business to effect a turnaround. Furthermore, the new CEO did not come on board until November 1st. *The trademarks NASDAQ Biotechnology Index®, S&P Composite 1500® Healthcare Index, S&P Composite 1500® Biotechnology Index, S&P Global 1200® Health Care Index, S&P 500® Health Care Corporate Bond Index, FTSE NAREIT Healthcare Property Sector Index®, and S&P 500® Index referenced in this report are the property of their respective owners. These trademarks are not owned by or associated with the Fund or its service providers, including Tekla Capital Management LLC. 11

Page 14

T EKLA W ORLD H EALTHCARE F UND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2017 PRINCIPAL CONVERTIBLE AND NON-CONVERTIBLE AMOUNT NOTES - 16.5% of Net Assets VALUE Convertible Notes (Restricted) (a) - 0.0% United States - 0.0% $70,629 IlluminOss Medical, Inc. Promissory Note, 8.00%, due 3/31/18 $35,315 TOTAL CONVERTIBLE NOTES 35,315 Non-Convertible Notes - 16.5% Ireland - 0.5% 3,000,000 Endo Ltd/Endo Finance LLC/Endo Finco Inc., 6.50%, due 2/1/25 (b) 2,430,000 United Kingdom - 0.8% 4,000,000 Hikma Pharmaceuticals PLC, 4.25%, due 4/10/20 4,037,904 United States - 15.1% 3,200,000 AbbVie Inc., 4.50%, due 5/14/35 3,443,535 4,100,000 Actavis Funding SCS, 4.55%, due 3/15/35 4,374,339 2,000,000 Amgen Inc., 3.63%, due 5/22/24 2,085,702 4,475,000 Amgen Inc., 4.66%, due 6/15/51 4,908,242 2,790,000 Baxalta Inc., 4.00%, due 6/23/25 2,926,750 1,200,000 Becton Dickinson and Co., 3.73%, due 12/15/24 1,225,740 3,000,000 DaVita, Inc., 5.00%, due 5/1/25 2,959,620 4,000,000 EMD Finance LLC, 3.25%, due 3/19/25 (b) 4,053,917 2,890,000 Envision Healthcare Corporation, 5.63%, due 7/15/22 3,012,825 1,385,000 Express Scripts Holding Company, 3.50%, due 6/15/24 1,405,311 3,000,000 Gilead Sciences, Inc., 4.60%, due 9/1/35 3,312,190 2,000,000 GlaxoSmithKline Capital Inc., 2.80%, due 3/18/23 2,033,609 1,200,000 HCA Healthcare Inc., 5.25%, due 4/15/25 1,297,500 2,500,000 HCA Healthcare Inc., 5.38%, due 2/1/25 2,634,375 2,000,000 HCA Healthcare Inc., 5.88%, due 5/1/23 2,175,000 2,630,000 HCP, Inc., 4.20%, due 3/1/24 2,752,954 3,000,000 HealthSouth Corporation, 5.75%, due 11/1/24 3,078,750 The accompanying notes are an integral part of these financial statements. 12

Page 15

T EKLA W ORLD H EALTHCARE F UND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2017 (continued) PRINCIPAL AMOUNT United States - continued VALUE $8,000,000 Mallinckrodt International Finance SA/ Mallinckrodt CB LLC, 5.50%, due 4/15/25 (b) $7,220,000 1,200,000 McKesson Corporation, 3.80%, due 3/15/24 1,260,749 1,200,000 Medtronic Inc., 4.38%, due 3/15/35 1,320,953 1,463,000 Merck & Co., Inc., 2.75%, due 2/10/25 1,467,530 2,115,000 Novartis Capital Corporation., 3.40%, due 5/6/24 2,215,607 3,500,000 Senior Housing Properties Trust, 4.75%, due 5/1/24 3,656,162 3,000,000 Tenet Healthcare Corporation., 6.75%, due 6/15/23 2,880,000 5,000,000 Zimmer Biomet Holdings, Inc., 4.25%, due 8/15/35 4,911,126 72,612,486 TOTAL NON-CONVERTIBLE NOTES 79,080,390 TOTAL CONVERTIBLE AND NON-CONVERTIBLE NOTES (Cost $77,261,803) 79,115,705 CONVERTIBLE PREFERRED AND WARRANTS SHARES (Restricted)(a) (c) - 0.7% of Net Assets United States - 0.7% 1,307,690 BioClin Therapeutics, Inc. Series A 849,999 505,049 BioClin Therapeutics, Inc. Series B 377,777 1,333,333 GenomeDx Biosciences, Inc. Series C 2,000,000 206,483 IlluminOss Medical, Inc. Junior Preferred 0 219,196 IlluminOss Medical, Inc. Series AA 0 17,657 IlluminOss Medical, Inc. Warrants (expiration 3/31/27) (c) 0 TOTAL CONVERTIBLE PREFERRED AND WARRANTS (Cost $3,453,443) 3,227,776 The accompanying notes are an integral part of these financial statements. 13

Page 16

T EKLA W ORLD H EALTHCARE F UND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2017 (continued) MANDATORY CONVERTIBLE SHARES PREFERRED STOCK - 0.5% of Net Assets VALUE Israel - 0.5% 7,000 Teva Pharmaceutical Industries Ltd., 7.00%, due 12/15/18 $2,412,480 TOTAL MANDATORY CONVERTIBLE PREFERRED STOCK (Cost $7,000,000) 2,412,480 COMMON STOCKS AND WARRANTS - 103.7% of Net Assets Australia - 0.6% 25,000 CSL Limited 2,626,955 Belgium - 3.8% 79,900 Galapagos NV (c) 8,139,253 142,500 UCB SA 10,143,985 18,283,238 Denmark - 0.7% 73,600 Novo Nordisk A/S (e) 3,543,840 France - 4.2% 270,250 Cellectis S.A. (c) (e) 7,688,612 300,000 Innate Pharma SA (c) 3,644,981 179,900 Sanofi (e) 8,957,221 20,290,814 Germany - 3.1% 110,250 Bayer AG 15,024,111 Ireland - 13.8% 113,470 Allergan plc (d) 23,255,676 391,288 Avadel Pharmaceuticals plc (c) (e) 4,108,524 248,248 Endo International plc (c) 2,126,244 162,900 Horizon Pharma plc (c) 2,065,572 16,795 Jazz Pharmaceuticals plc (c) 2,456,269 61,900 Mallinckrodt plc (c) 2,313,203 222,196 Medtronic plc 17,280,183 37,300 Perrigo Company plc 3,157,445 60,513 Shire plc (e) 9,266,961 66,030,077 The accompanying notes are an integral part of these financial statements. 14

Page 17

T EKLA W ORLD H EALTHCARE F UND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2017 (continued) SHARES Israel - 3.6% VALUE 516,598 Foamix Pharmaceuticals Ltd. (c) $2,867,119 805,600 Teva Pharmaceutical Industries Ltd. (d) (e) 14,178,560 17,045,679 Japan - 1.0% 88,000 Ono Pharmaceutical Co. Ltd. 1,993,832 35,100 Sosei Group Corporation (c) 2,963,341 4,957,173 Netherlands - 3.4% 1,405,324 Affimed N.V. (c) 3,161,979 232,352 Mylan NV (c) 7,288,882 241,021 uniQure N.V. (c) 2,313,802 144,800 Wright Medical Group N.V. (c) 3,745,976 16,510,639 Switzerland - 10.4% 398,662 Novartis AG (e) 34,225,133 484,000 Roche Holding AG (e) 15,488,000 49,713,133 United Kingdom - 8.9% 538,868 Adaptimmune Therapeutics plc (c) (e) 4,413,329 442,600 AstraZeneca PLC (e) 14,995,288 6,300 Cardinal Health, Inc. 421,596 359,000 GlaxoSmithKline plc (e) 14,575,400 215,000 Hikma Pharmaceuticals PLC 3,488,889 159,500 Verona Pharma plc (c) (e) 2,448,325 1,282,978 Verona Pharma plc (Restricted) (c) 2,166,179 513,192 Verona Pharma plc, Warrants (expiration 4/27/22) (a) (c) 191,449 42,700,455 United States - 50.2% 36,421 AbbVie Inc. 3,236,370 64,100 Acadia Healthcare Company, Inc. (c) 3,061,416 18,200 Alexion Pharmaceuticals, Inc. (c) 2,553,278 33,300 AmerisourceBergen Corporation 2,755,575 15,965 Anthem Inc. 3,031,434 319,235 Ardelyx, Inc. (c) 1,787,716 31,700 Biogen Inc.v(c) 9,925,904 12,000 BioMarin Pharmaceutical Inc. (c) 1,116,840 42,000 Celgene Corporation (c) (d) 6,124,440 The accompanying notes are an integral part of these financial statements. 15

Page 18

T EKLA W ORLD H EALTHCARE F UND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2017 (continued) SHARES United States - continued VALUE 105,800 Celldex Therapeutics, Inc. (c) $302,588 60,800 Centene Corporation (c) 5,883,616 16,102 Cigna Corporation 3,010,108 94,900 Community Health Systems, Inc. (c) 728,832 133,412 CVS Health Corporation 10,849,064 168,600 Diplomat Pharmacy, Inc. (c) 3,491,706 112,695 Eli Lilly & Company 9,639,930 98,913 Entellus Medical, Inc.v(c) 1,825,934 436,450 Gilead Sciences, Inc. (d) 35,361,179 73,400 Global Medical REIT Inc. 659,132 9,455 HCA Healthcare, Inc. (c) 752,523 45,500 HCP, Inc. 1,266,265 68,000 Healthcare Realty Trust Incorporated 2,199,120 46,000 Healthcare Trust of America, Inc. 1,370,800 12,781 Humana Inc. 3,113,835 64,000 Incyte Corporation (c) 7,471,360 134,700 Johnson & Johnson (d) 17,512,347 56,900 Juno Therapeutics, Inc. (c) 2,552,534 200,324 Karyopharm Therapeutics Inc. (c) 2,199,558 30,000 LTC Properties, Inc. 1,409,400 37,700 McKesson Corporation 5,791,097 298,262 Medical Properties Trust, Inc. 3,916,180 288,114 Merck & Co., Inc. (d) 18,447,939 62,898 Nevro Corp. (c) 5,716,170 567,997 New Senior Investment Group Inc. 5,197,173 213,000 Novavax, Inc. (c) 242,820 45,500 Omega Healthcare Investors, Inc. 1,451,905 164,050 Pfizer Inc. 5,856,585 57,103 Puma Biotechnology, Inc. (c) (d) 6,838,084 23,725 Quorum Health Corporation (c) 122,895 94,800 Sabra Health Care REIT, Inc. 2,079,912 129,500 Sarepta Therapeutics, Inc. (c) (d) 5,874,120 166,950 Senior Housing Properties Trust 3,263,873 2,118 The RMR Group Inc., Class A 108,759 6,509 Thermo Fisher Scientific Inc. 1,231,503 11,521 United Therapeutics Corporation (c) 1,350,146 60,071 UnitedHealth Group Inc. 11,764,905 425,000 Valeant Pharmaceuticals International, Inc. (c) 6,090,250 23,500 Ventas, Inc. 1,530,555 46,104 Vertex Pharmaceuticals Incorporated (c) 7,009,652 The accompanying notes are an integral part of these financial statements. 16

Page 19

T EKLA W ORLD H EALTHCARE F UND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2017 (continued) SHARES United States - continued VALUE 21,400 Welltower Inc. $1,503,992 116,669 Xenon Pharmaceuticals Inc. (c) 344,174 240,925,493 TOTAL COMMON STOCKS AND WARRANTS (Cost $597,623,967) 497,651,607 PRINCIPAL AMOUNT SHORT-TERM INVESTMENT - 3.6% of Net Assets $17,146,000 Repurchase Agreement, Fixed Income Clearing Corp., repurchase value $17,146,000, 0.12%, dated 09/29/17, due 10/02/17 (collateralized by U.S. Treasury Notes 1.50%, due 08/15/26, market value $17,489,425) 17,146,000 TOTAL SHORT-TERM INVESTMENT (Cost $17,146,000) 17,146,000 TOTAL INVESTMENTS - 124.9% (Cost $702,485,213) 599,553,568 The accompanying notes are an integral part of these financial statements. 17

Page 20

T EKLA W ORLD H EALTHCARE F UND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2017 (continued) NUMBER OF CONTRACTS (100 SHARES EACH) /NOTIONAL CALL OPTION CONTRACTS AMOUNT WRITTEN - (0.1)% of Net Assets VALUE 144/14,400 Allergan plc Oct17 215 Call $(23,472) 210/21,000 Celgene Corporation Oct17 146 Call (53,550) 355/35,500 Gilead Sciences, Inc. Oct17 87.5 Call (9,230) 920/92,000 Johnson & Johnson Oct17 135 Call (27,600) 954/95,400 Merck & Co., Inc. Oct17 67 Call (4,770) 287/28,700 Puma Biotechnology, Inc. Oct17 115 Call (290,444) 741/74,100 Sarepta Therapeutics, Inc. Oct17 50 Call (103,740) 3,469/346,900 Teva Pharmaceutical Industries Ltd. Oct17 18.5 Call (114,477) TOTAL CALL OPTION CONTRACTS WRITTEN (Premiums received $496,907) (627,283) TOTAL INVESTMENTS LESS CALL OPTION CONTRACTS WRITTEN - 124.8% (Cost $701,988,306) 598,926,285 OTHER LIABILITIES IN EXCESS OF ASSETS - (24.8)% (119,068,378) NET ASSETS - 100% $479,857,907 (a) Security fair valued. See Investment Valuation and Fair Value Measurements. (b) 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. (c) Non-income producing security. (d) A portion of security is pledged as collateral for call options written. (e) American Depository Receipt The accompanying notes are an integral part of these financial statements. 18

Page 21

T EKLA W ORLD H EALTHCARE F UND SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2017 (continued) The following forward contracts were held as of September 30, 2017: Settlement Settlement Current Unrealized Description Counterparty Date Currency Value in USD Value Gain/(Loss) Contracts Purchased: Danish Krone Goldman Sachs Bank 10/31/17 25,757,984 DKK $4,088,122 $4,097,562 $9,440 $4,097,562 $9,440 Contracts Sold: British Pound Goldman Sachs Bank 10/31/17 17,528,717 GBP $23,640,420 $23,509,876 $130,544 Danish Krone Goldman Sachs Bank 10/31/17 37,015,133 DKK 5,902,804 5,888,341 14,463 Euro Goldman Sachs Bank 10/31/17 23,274,619 EUR 27,615,359 27,549,298 66,061 Israeli Sheqel Goldman Sachs Bank 10/31/17 13,747,403 ILS 3,907,534 3,892,794 14,740 Israeli Sheqel Goldman Sachs Bank 10/31/17 10,774,845 ILS 3,044,670 3,051,068 (6,398) Japanese Yen Goldman Sachs Bank 10/31/17 437,550,349 JPY 3,926,627 3,893,346 33,281 Swiss Franc Goldman Sachs Bank 10/31/17 23,880,572 CHF 24,752,119 24,706,287 45,832 $92,491,010 $298,523 The accompanying notes are an integral part of these financial statements. 19

Page 22

T EKLA W ORLD H EALTHCARE F UND STATEMENT OF ASSETS AND LIABILITIES SEPTEMBER 30, 2017 ASSETS: Investments, at value (cost $702,485,213) $599,553,568 Cash 441 Dividends and interest receivable 2,112,191 Prepaid expenses 60,244 Unrealized appreciation on forward currency contracts 314,361 Total assets 602,040,805 LIABILITIES: Unrealized depreciation on forward currency contracts 6,398 Accrued advisory fee 494,259 Accrued investor support service fees 24,713 Accrued shareholder reporting fees 38,238 Accrued trustee fees 108 Loan payable 120,000,000 Options written, at value (premium received $496,907) 627,283 Income distribution payable 210,555 Interest payable 595,121 Accrued other 186,223 Total liabilities 122,182,898 Commitments and Contingencies (see Note 1) NET ASSETS $479,857,907 SOURCES OF NET ASSETS: Shares of beneficial interest, par value $.01 per share, unlimited number of shares authorized, amount paid in on 30,855,176 shares issued and outstanding $587,499,401 Accumulated net investment loss (4,427,952) Accumulated net realized loss on investments, options and foreign currencies (464,937) Net unrealized loss on investments, options and translation of assets and liabilities in foreign currencies (102,748,605) Total net assets (equivalent to $15.55 per share based on 30,855,176 shares outstanding) $479,857,907 The accompanying notes are an integral part of these financial statements. 20

Page 23

T EKLA W ORLD H EALTHCARE F UND STATEMENT OF OPERATIONS YEAR ENDED SEPTEMBER 30, 2017 INVESTMENT INCOME: Dividend income (net of foreign tax of $446,318) $9,123,180 Interest and other income 4,053,830 Total investment income 13,177,010 EXPENSES: Advisory fees 5,858,094 Interest expense 2,320,550 Investor support service fees 292,905 Custodian fees 190,087 Legal fees 135,104 Trustees’ fees and expenses 131,594 Auditing fees 65,500 Shareholder reporting 114,774 Administration fees 98,150 Transfer agent fees 28,078 Other (see Note 2) 355,633 Total expenses 9,590,469 Net investment income 3,586,541 REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments 26,957,567 Closed or expired option contracts written 5,685,726 Foreign currency transactions (1,534,406) Net realized gain 31,108,887 Change in unrealized appreciation (depreciation) Investments (7,665,083) Option contracts written (706,496) Foreign currency (6,518) Forward contracts 210,654 Change in unrealized appreciation (depreciation) (8,167,443) Net realized and unrealized gain (loss) 22,941,444 Net increase in net assets resulting from operations $26,527,985 The accompanying notes are an integral part of these financial statements. 21

Page 24

T EKLA W ORLD H EALTHCARE F UND STATEMENTS OF CHANGES IN NET ASSETS Year ended Year ended September 30, September 30, 2017 2016 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS: Net investment income $3,586,541 $2,740,329 Net realized gain 31,108,887 40,425,967 Change in net unrealized depreciation (8,167,443) (40,071,829) Net increase in net assets resulting from operations 26,527,985 3,094,467 DISTRIBUTIONS TO SHAREHOLDERS FROM: Net investment income (40,263,261) (43,664,462) Net realized capital gain (928,203) — Return of capital (2,021,911) — Total distributions (43,213,375) (43,664,462) CAPITAL SHARE TRANSACTIONS: Fund shares repurchased (185,991 and 138,826 shares, respectively) (see Note 1) (2,675,441) (2,094,115) Total capital share transactions (2,675,441) (2,094,115) Net decrease in net assets (19,360,831) (42,664,110) NET ASSETS: Beginning of year 499,218,738 541,882,848 End of year $479,857,907 $499,218,738 Accumulated net investment loss included in net assets at end of year ($4,427,952) (a) ($350,322) (a) (a) Reflects reclassifications to the Fund’s capital accounts to reflect income and gains available for distribution under income tax regulations. The accompanying notes are an integral part of these financial statements. 22

Page 25

T EKLA W ORLD H EALTHCARE F UND STATEMENT OF CASH FLOWS YEAR ENDED SEPTEMBER 30, 2017 CASH FLOWS FROM OPERATING ACTIVITIES: Purchases of portfolio securities ($349,438,026) Purchases to close option contracts written (881,093) Net maturities of short-term investments 2,916,000 Sales of portfolio securities 383,175,456 Proceeds from option contracts written 6,816,522 Interest income received 4,250,468 Dividend income received 8,710,765 Other operating receipts (expenses paid) (9,632,947) Net cash provided from operating activities 45,917,145 CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions paid (43,252,195) Fund shares repurchased (2,675,441) Net cash used for financing activities (45,927,636) NET DECREASE IN CASH (10,491) CASH AT BEGINNING OF YEAR 10,932 CASH AT END OF YEAR $441 RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH PROVIDED FROM OPERATING ACTIVITIES: Net increase in net assets resulting from operations $26,527,985 Purchases of portfolio securities (349,438,026) Purchases to close option contracts written (881,093) Net maturities of short-term investments 2,916,000 Sales of portfolio securities 383,175,456 Proceeds from option contracts written 6,816,522 Accretion of discount (43,135) Net realized (loss) on investments, options and foreign currencies (31,108,887) Decrease in net unrealized appreciation (depreciation) on investments, options and foreign currencies 8,167,443 Increase in dividends and interest receivable (172,642) Increase in accrued expenses 8,521 Decrease in prepaid expenses and interest payable (50,999) Net cash provided from operating activities $45,917,145 The accompanying notes are an integral part of these financial statements. 23

Page 26

T EKLA W ORLD H EALTHCARE F UND FINANCIAL HIGHLIGHTS For the period June 30, For the years ended 2015 to September 30, September 30, 2017 2016 2015 (1) OPERATING PERFORMANCE FOR A SHARE OUTSTANDING THROUGHOUT EACH YEAR Net asset value per share, beginning of year $16.08 $17.38 $19.10(2) Net investment income (loss) (3) 0.12 0.09 (0.02) Net realized and unrealized gain (loss) 0.74 (0.06) (1.47) Total increase (decrease) from investment operations 0.86 0.03 (1.49) Distributions to shareholders from: Income distributions to shareholders (1.30) (1.40) (0.23) Net realized capital gain (0.03) — — Return of capital (0.07) — — Total distributions (1.40) (1.40) (0.23) Increase resulting from shares repurchased (3) 0.01 0.07 — Net asset value per share, end of year $15.55 $16.08 $17.38 Per share market value, end of year $14.56 $14.68 $14.38 Total investment return at market value 9.47% 12.34% (27.07%)* Total investment return at net asset value 6.74% 1.81% (7.46%)* RATIOS Expenses to average net assets 2.05% 1.70% 1.32%** Expenses, excluding interest expense, to average net assets 1.55% 1.47% 1.32%** Net investment income (loss) to average net assets 0.77% 0.53% (0.37%)** SUPPLEMENTAL DATA Net assets at end of year (in millions) $480 $499 $542 Portfolio turnover rate 58.05% 67.00% 58.96%* * Not Annualized. ** Annualized. (1) Commenced operations on June 30, 2015. (2) Net asset value beginning of period reflects a deduction of $0.90 per share sales charge from the ini- tial offering price of $20.00 per share. (3) Computed using average shares outstanding. The accompanying notes are an integral part of these financial statements. 24

Page 27

T EKLA W ORLD H EALTHCARE F UND NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (1) Organization and Significant Accounting Policies Tekla World Healthcare Fund (the Fund) is a Massachusetts business trust formed on March 5, 2015 and registered under the Investment Company Act of 1940 as a non-diversified closed- end management investment company. The Fund commenced operations on June 30, 2015. The investment objective is to seek current income and long-term capital appreciation through investments in U.S. and non-U.S. companies engaged in the healthcare industry (including equity securities and debt securities). The Fund invests primarily in securities of public and private companies 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 manage- ment 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 ac- counting principles generally accepted in the United States of America (GAAP). The Fund is an investment company and follows accounting and reporting guidance in the Financial Ac- counting Standards Board Accounting Standards Codification 946. Events or transactions oc- curring after September 30, 2017, 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 Fund holds securities or other assets that are denominated in a foreign currency. The Fund will normally use the currency exchange rates as of 4:00 p.m. (Eastern Time) when valuing such assets. The Board of Trustees of the Fund (the Trustees) has 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. Convertible bonds, corporate and government bonds are valued using a third-party pricing service. Convertible bonds are valued using this pricing service only on days when there is no sale reported. Puts and calls generally are valued at the close of regular trading on the securities or commodities exchange on which they are primarily traded. Options on securities generally are valued at their last sale price in the case of exchange traded options or, in the case of OTC-traded options, the average of the last sale price as obtained from two or more dealers unless there is only one dealer, in which case that dealer’s price is used. Forward foreign currency contracts are valued on the basis of the value of the underlying currencies at the prevailing forward exchange rates. 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 deter- mined 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 generally 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 generally valued at amortized cost, which approximates fair value. Convertible preferred shares, warrants or convertible note interests in private companies and other restricted securities, as well as shares of publicly traded companies for which market 25

Page 28

T EKLA W ORLD H EALTHCARE F UND NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (continued) quotations are not readily available, such as stocks for which trading has been halted or for which there are no current day sales, 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 com- pany’s products or intended markets or the company’s technologies; (iii) the price of the same or similar security negotiated at arm’s length in an issuer’s completed subsequent round of fi- nancing; (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 terms. Where available and appropriate, multiple valuation methodologies are applied to con- firm 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. Addi- tionally, 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 enters 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 or to gain or hedge exposure to financial market risk. 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 un- derlying 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 26

Page 29

T EKLA W ORLD H EALTHCARE F UND NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (continued) 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 ac- count appropriate liquid securities in an amount at least equal to the exercise price of the option. The average number of outstanding call options written for the year ended September 30, 2017 were 5,115. Derivatives not accounted for as hedging instruments Statement of Assets and under ASC 815 Liabilities Location Statement of Operations Location Equity Contracts Liabilities, options Net realized gain on written, at value $627,283 closed or expired option contracts written $5,685,726 Change in unrealized appreciation (depreciation) on option contracts written ($706,496) Forward Currency Assets, forward Change in unrealized Contracts currency, at value $314,361 appreciation (depreciation) on forward contracts $210,654 Liabilities, forward currency, at value $6,398 Forward Contracts Forward contracts involve the purchase or sale of a specific quantity of a commodity, govern- ment security, foreign currency, or other asset at a specified price, with delivery and settlement at a specified future date. Because it is a completed contract, a purchase forward contract can be a cover for the sale of a futures contract. The Fund may enter into forward contracts for hedging purposes and non-hedging purposes (i.e., to increase returns). Forward contracts may be used by the Fund for hedging purposes to protect against uncertainty in the level of future foreign currency exchange rates, such as when the Fund anticipates purchasing or selling a foreign security. Forward contracts may also be used to attempt to protect the value of the Fund’s existing holdings of foreign securities. Forward contracts may also be used for non-hedging purposes to pursue the Fund’s investment objective. There is no requirement that the Fund hedge all or any portion of its exposure to foreign currency risks. Average notional amount of forward contracts for the year ended September 30, 2017 was $87,651,856. 27

Page 30

T EKLA W ORLD H EALTHCARE F UND NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (continued) Investment Transactions and Income Investment transactions are recorded on a trade date basis. Gains and losses from sales of in- vestments 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 in- come 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 if it represents a return of capital. The aggregate cost of purchases and proceeds from sales of investment securities (other than short-term investments) for the year ended September 30, 2017 totaled $332,530,151 and $380,006,401, respectively. Repurchase Agreements In managing short-term investments the Fund may from time to time enter into transactions in re- purchase 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. The Fund may enter into repurchase transactions with any broker, dealer, registered clearing agency or bank. Repurchase agreement transactions are not counted for purposes of the limitations imposed on the Fund’s investment in debt securities. Distribution Policy Pursuant to a Securities and Exchange Commission exemptive order the Fund may make pe- riodic distributions that include capital gains as frequently as 12 times in any one taxable year in respect of its common shares, and the Fund has implemented a managed distribution policy (the Policy) providing for monthly distributions at a rate set by the Board of Trustees. Under the current Policy, the Fund intends to make monthly distributions at a rate of $0.1167 per share to shareholders of record. 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 dis- tributions necessary to comply with the requirements of the Internal Revenue Code. The Policy has been established by the Trustees and may be changed by them without shareholder ap- proval. The Trustees regularly review the Policy and the frequency and distribution rate con- sidering the purpose and effect of the Policy, the financial market environment, and the Fund’s income, capital gains and capital available to pay distributions. Share Repurchase Program In March 2017, the Trustees approved the renewal of the share repurchase program to allow the Fund to purchase in the open market up to 7% of its outstanding common shares for a seven month period ending July 14, 2018. Prior to this renewal, in December 2016, the Trustees approved the renewal of the share repurchase program to allow the Fund to repurchase up to 12% of its outstanding shares for a one year period ending December 14, 2017. The share re- purchase program is intended to enhance shareholder value and potentially reduce the dis- count between the market price of the Fund’s shares and the Fund’s net asset value. During the year ended September 30, 2017 the Fund repurchased 185,991 shares at a total cost of $2,675,441. The weighted average discount per share between the cost of repurchase and net asset value applicable to such shares at the date of repurchase was 5.80%. 28

Page 31

T EKLA W ORLD H EALTHCARE F UND NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (continued) During the year ended September 30, 2016, the Fund repurchased 138,826 shares at a total cost of $2,094,115. The weighted average discount per share between the cost of repurchase and net asset value applicable to such shares at the date of repurchase was 8.54%. 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 September 30, 2017, 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 transac- tions, 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. At September 30, 2017, the Fund reclassified $33,527,292 from accumulated net realized gain on investment and $35,549,204 to undistributed net investment income to paid in capital, with a net impact of ($2,021,912), to adjust for current period book/tax differences. The tax basis components of distributable earnings and the tax cost as of September 30, 2017 were as follows: Cost of investments for tax purposes $702,502,004 Gross tax unrealized appreciation $19,939,000 Gross tax unrealized depreciation ($123,514,719) Net tax unrealized appreciation on investments ($103,575,719) Late year annual loss deferral ($3,884,576) The Fund has designated the distributions for its taxable years ended September 30, 2017 and 2016 as follows: Distributions paid from: 2017 2016 Ordinary income (includes short-term capital gain) $40,263,261 $43,095,902 Long-term capital gain $928,203 $568,560 Return of capital $2,021,911 $— Commitments and Contingencies 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. Addi- tionally, 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. 29

Page 32

T EKLA W ORLD H EALTHCARE F UND NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (continued) Loan Payable The Fund maintains a $125,000,000 line of credit with the Bank of Nova Scotia (the Line of Credit) which expires on January 3, 2018. As of September 30, 2017, the Fund had drawn down $120,000,000 from the Line of Credit, which was the maximum borrowing outstanding during the period. The Fund is charged interest at the rate of 0.70% above the relevant LIBOR rate adjusted by the Statutory Reserve Rate for borrowing (per annum). The Fund is also charged a commitment fee on the daily unused balance of the line of credit at the rate of 0.10% (per annum). Per the Line of Credit agreement, the Fund paid an upfront fee of 0.10% on the total line of credit balance, which is being amortized through January 4, 2018. The Fund pledges its investment securities as the collateral for the line of credit per the terms of the agreement. The weighted average interest rate and the average outstanding loan payable for the period from October 1, 2016 to Septem- ber 30, 2017 were 1.8931% and $120,000,000, respectively. The stated carrying amount of the line of credit approximates its fair value based upon the short term nature of the borrowings and the interest rates being based upon the market terms. The borrowings under the line of credit would be considered as Level 2 in the fair value hierarchy (See Note 3) at September 30, 2017. Investor Support Services The Fund has retained Destra Capital Investment LLC (Destra) to provide investor support services in connection with the ongoing operation of the Fund. The Fund pays Destra a fee in an annual amount equal to (i) 0.12% of the average aggregate daily value of the Fund’s Managed Assets from June 30, 2015 to June 30, 2016 and (ii) 0.05% of the average aggregate daily value of the Fund’s Managed Assets from June 30, 2016 through the remaining term of the investor support services agreement. (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 1.00% of the average daily value of the Fund’s Managed Assets. Managed Assets means the total assets of the Fund minus the Fund’s liabilities other than the loan payable. 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 por- tion of the payment of salary and provision of benefits to the Fund’s Chief Compliance Officer. During the year ended September 30, 2017, these payments amounted to $49,400 and are included in the Other category of expenses 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 or officers of the Fund who are also officers of the Adviser. 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) Fair Value Measurements 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 30

Page 33

T EKLA W ORLD H EALTHCARE F UND NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (continued) in the three broad levels. Level 1 includes quoted prices in active markets for identical invest- ments. Level 2 includes prices determined using other significant observable inputs (including quoted prices for similar investments, interest rates, credit risk, etc.). The independent pricing vendor may value bank loans and debt securities at an evaluated bid price by employing methodologies designed to identify the market value for such securities and such securities are considered Level 2 in the fair value hierarchy. 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. For the year ended September 30, 2017, there was a transfer between Level 1 and 2 and no other transfers between Levels. The amount of the transfer between Level 1 and Level 2 was $2,660,692. The investment was transferred due to a trading restriction and the value is being supported by significant observable inputs. The Fund accounts for transfers between levels at the beginning of the period. The following is a summary of the levels used as of September 30, 2017 to value the Fund’s net assets. Assets at Value Level 1 Level 2 Level 3 Total Convertible Notes United States $35,315 $35,315 Non-Convertible Notes Ireland $2,430,000 — 2,430,000 United Kingdom 4,037,904 — 4,037,904 United States 72,612,486 — 72,612,486 Convertible Preferred United States — 3,227,776 3,227,776 Mandatory Convertible Preferred Stock Israel $2,412,480 — — 2,412,480 Common Stocks and Warrants Australia 2,626,955 — — 2,626,955 Belgium 18,283,238 — — 18,283,238 Denmark 3,543,840 — — 3,543,840 France 20,290,814 — — 20,290,814 Germany 15,024,111 — — 15,024,111 Ireland 66,030,077 — — 66,030,077 Israel 17,045,679 — — 17,045,679 Japan 4,957,173 — — 4,957,173 Netherlands 16,510,639 — — 16,510,639 Switzerland 49,713,133 — — 49,713,133 United Kingdom 40,342,827 2,166,179 191,449 42,700,455 United States 240,925,493 — 0 240,925,493 Short-term Investment — 17,146,000 — 17,146,000 Total $497,706,459 $98,392,569 $3,454,540 $599,553,568 31

Page 34

T EKLA W ORLD H EALTHCARE F UND NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (continued) Assets at Value Level 1 Level 2 Level 3 Total Other Financial Instruments Assets Forward Currency Contracts $314,361 — $314,361 Liabilities Call Options Contracts Written ($627,283) — — (627,283) Forward Currency Contracts — (6,398) — (6,398) Total ($627,283) $307,963 $0 ($319,320) The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value. Change in Net Net Balance Balance as of Unrealized Transfers Transfers as of Investments in September 30, Appreciation Net in to out of September 30, Securities 2016 (Depreciation) Purchases Net Sales Level 3 Level 3 2017 Convertible Notes United States $0 ($35,360) $70,675 $0 $0 $0 $35,315 Convertible Preferred United States 2,916,063 (427,270) 738,983 0 0 0 3,227,776 Common Stocks and Warrants United Kingdom 88,800 101,553 1,096 0 0 0 191,449 United States 0 (11) 11 0 0 0 0 Total $3,004,863 ($361,088) $810,765 $0 $0 $0 $3,454,540 Net change in unrealized appreciation (depreciation) from investments still held as of September 30, 2017 ($361,088) 32

Page 35

T EKLA W ORLD H EALTHCARE F UND NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 2017 (continued) The following is a quantitative disclosure about significant unobservable inputs used in the determination of the fair value of Level 3 assets. Fair Value at September 30, Range 2017 Valuation Technique Unobservable Input (Weighted Average) Private Companies and Other Restricted $191,449 Income approach, Discount for lack of 20% (20%) Securities Black-Scholes marketability 3,227,776 Probability-weighed Discount rate 16.94%-60.56% (35.56%) expected return model Price to sales multiple 3.06x-10.90x (6.41x) 35,315 Market approach, recent transaction (a) N/A $3,454,540 (a) The Valuation technique used as a basis to approximate fair value of these investments is based upon subsequent financing rounds. There is no quantitative information as these methods of measure are investment specific. (4) Private Companies and Other Restricted Securities The Fund may invest in private companies and other restricted securities if these securities would currently comprise 10% or less of Managed Assets. The value of these securities repre- sented less than 1% of the Fund’s Managed Assets at September 30, 2017. 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 September 30, 2017. The Fund on its own does not have the right to demand that such securities be registered. Acquisition Carrying Value Security (#) Date Cost per Unit Value BioClin Therapeutics, Inc. Series A Cvt. Pfd 1/19/16, 10/24/16 $850,559 $0.65 $849,999 Series B Cvt. Pfd 3/3/17 377,777 0.75 377,777 GenomeDx Biosciences, Inc. Series C Cvt. Pfd 2/22/16 2,002,271 1.50 2,000,000 IlluminOss Medical, Inc. Series AA Cvt. Pfd 1/21/16 152,415 0.00 0 Junior Preferred Cvt. Pfd 1/21/16 70,421 0.00 0 Cvt. Promissory Note 3/28/17 70,674 0.50 35,315 Warrants (expiration 3/31/27) 3/28/17 11 0.00 0 Verona Pharma plc 4/27/17 2,430,235 1.69 2,166,179 $5,954,363 $5,429,270 (#) See Schedule of Investments and corresponding footnotes for more information on each issuer. 33

Page 36

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Trustees and Shareholders of Tekla World Healthcare Fund: We have audited the accompanying statement of assets and liabilities of Tekla World Healthcare Fund (the “Fund”), including the schedule of investments, as of September 30, 2017, the related statements of operations and cash flows for the year then ended, the statements of changes in net assets for each of the two years in the period then ended and the financial highlights for each of the two years in the period then ended and for the period June 30, 2015 (commencement of operations) to September 30, 2015. These financial statements and financial highlights are the responsibility of the Fund’s management. Our responsibility is to express an opinion on these financial statements and financial highlights based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. Our procedures included confirmation of securities owned as of September 30, 2017, by correspondence with the custodian and brokers; where replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such financial statements and financial highlights referred to above present fairly, in all material respects, the financial position of Tekla World Healthcare Fund as of September 30, 2017, the results of its operations and its cash flows for the year then ended, the changes in its net assets for each of the two years in the period then ended and the financial highlights for each of the two years in the period then ended and for the period June 30, 2015 (commencement of operations) to September 30, 2015, in conformity with accounting principles generally accepted in the United States of America. DELOITTE & TOUCHE LLP Boston, Massachusetts November 20, 2017 34

Page 37

T EKLA W ORLD H EALTHCARE F UND TRUSTEES Number of Position(s) Held with Principal Occupation(s) Portfolios in Fund Name, Address1 Fund, Term of Office2 and During Past 5 Years and Complex Overseen and Date of Birth Length of Time Served Other Directorship(s) Held by Trustee Independent Trustees: Michael W. Bonney Trustee (since 2015) Chief Executive Officer and Chairman 4 8/1958 of the Board of Trustees, Kaleido Biosciences (since 2017); Partner, Third Rock Ventures (2016); Chief Executive Officer and Director, Cubist Pharmaceuticals, Inc. (2012-2015); President, Chief Executive Officer and Director, Cubist Pharmaceuticals, Inc. (2002-2012); Director, Magenta Therapeutics (since 2016); Director, Global Blood Therapeutics (since 2016); Director, Revolution Medicine (since 2016); Director, Celgene Corporation (since 2015); Director, Whitehead Institute (since 2015); Director, Alnylam Pharmaceuticals, Inc. (since 2014); Director, Gulf of Maine Research Institute (since 2015); Director, NPS Pharmaceuticals, Inc. (2012-2015); Chairman of the Board of Trustees, Bates College (since 2010); Board member of Pharmaceutical Research and Manufacturers of America (PhRMA) (2009-2014) Trustee, Bates College (since 2002). Rakesh K. Jain, Trustee (since 2015) Director, Steele Lab of Tumor Biology 4 Ph.D. at Massachusetts General Hospital 12/1950 (since 1991); A.W. Cook Professor of Tumor Biology (Radiation Oncology) at Harvard Medical School (since 1991); Ad hoc Consultant/Scientific Advisory Board Member for pharmaceutical/ biotech companies (various times since 2002); Ad hoc Consultant, Gershon Lehman Group (since 2004); Director, Co-Founder, XTuit Pharmaceuticals, Inc. (since 2012). Oleg M. Pohotsky, Trustee (since 2015) Consultant and Managing Partner, 4 M.B.A., J.D. Chairman (since 2015) Right Bank Partners (since 2002); 3/1947 Adviser, Board Advisers, Kaufman & Co. LLC (since 2008); Director, AvangardCo Investment Holdings (since 2011); Director, The New America High Income Fund, Inc. (since 2013). 35

Page 38

T EKLA W ORLD H EALTHCARE F UND TRUSTEES (continued) Number of Position(s) Held with Principal Occupation(s) Portfolios in Fund Name, Address1 Fund, Term of Office2 and During Past 5 Years and Complex Overseen and Date of Birth Length of Time Served Other Directorship(s) Held by Trustee William S. Reardon Trustee (since 2015) Certified Public Accountant (until 4 6/1946 2017); Independent Consultant (since 2002); Director, Idera Pharmaceuticals, Inc (since 2002); Director, Synta Pharmaceuticals, Inc. (2004-2016). Uwe E. Reinhardt, Trustee (since 2015) Professor of Economics, Princeton 4 Ph.D. University (since 1968); Director, 9/1937 Boston Scientific Corporation (deceased 11/2017) (2002-2015); Director, Amerigroup, Inc. (2002-2012). Lucinda H. Trustee (since 2015) Independent Consultant, Deutsche 4 Stebbins, CPA Bank (2004-2015); Director, Bald 11/1945 PeakLand Company, Inc. (2008-2014); Director, Solstice Home Care, Inc. (since 2014). Interested Trustee: Daniel R. President (since 2015); President of the Fund, Tekla 4 Omstead, Ph.D.3 Trustee (since 2015) Healthcare Investors (HQH) (since 7/1953 2001),Tekla Life Sciences Investors (HQL) (since 2001) and Tekla Healthcare Opportunities Fund (THQ) (since 2014); President, Chief Executive Officer and Managing Member of Tekla Capital Management LLC (since 2002); Director: IlluminOss Medical, Inc. (since 2012); Magellan Diagnostics, Inc.(since 2006); Dynex Corporation (since 2012); Insightra Medical, Inc. (since 2015); Neurovance, Inc. (since 2015); EBI Life Sciences, Inc. (since 2015); Euthymics Biosciences, Inc. (since 2015); Veniti, Inc. (since 2015). 1 The Address for each Trustee is: Tekla World Healthcare Fund, 100 Federal Street, 19th Floor, Boston, Massachusetts, 02110, 617-772-8500. 2 Each Trustee currently is serving a three year term. 3 Trustee considered to be an “interested person” within the meaning of the Investment Compa- ny Act of 1940, as amended (the “1940 Act”), through position or affiliation with the Adviser. 36

Page 39

T EKLA W ORLD H EALTHCARE F UND OFFICERS Position(s) Held with Name, Address1 Fund, Term of Office2 and and Date of Birth Length of Time Served Principal Occupation(s) During Past 5 Years Daniel R. President (since 2015); President of the Fund, HQH (since 2001), HQL Omstead, Ph.D. Trustee (since 2015) (since 2001) and THQ (Since 2014); President, 7/1953 Chief Executive Officer and Managing Member of Tekla Capital Management LLC (since 2002); Director: IlluminOss Medical, Inc. (since 2012); Magellan Diagnostics, Inc. (since 2006); Dynex Corporation (since 2012); Insightra Medical, Inc. (since 2015); Neurovance, Inc. (since 2015); EBI Life Sciences, Inc. (since 2015); Euthymics Biosciences, Inc. (since 2015); Veniti, Inc. (since 2015). Laura Woodward, Chief Compliance Officer, Secretary Chief Compliance Officer, Secretary and Treasurer, CPA and Treasurer (since 2015) the Fund, HQH (since 2009), HQL (since 2009) 11/1968 and THQ (since 2014); Chief Compliance Officer and Vice President of Fund Administration, Tekla Capital Management LLC (since 2009); Senior Manager, PricewaterhouseCoopers LLP (1990-2009). 1 The Address for each officer is: Tekla World Healthcare Fund; 100 Federal Street, 19th Floor, Boston, Massachusetts, 02110, 617-772-8500. 2 Each officer serves in such capacity for an indefinite period of time at the pleasure of the Trustees. The Fund’s Statement of Additional Information includes additional information about the Fund’s Trustees and is available without charge, upon request by calling (617) 772-8500 or writing to Tekla Capital Management LLC at 100 Federal Street, 19th Floor, Boston, MA 02110. 37

Page 40

T EKLA W ORLD H EALTHCARE F UND ANNUAL MEETING REPORT: An Annual Meeting of Shareholders was held on June 15, 2017. Shareholders voted to elect Trustees of the Fund to hold office for a term of three years or until their respective successors shall have been duly elected and qualified. The following votes were cast with respect to each of the nominees: For Withheld Rakesh K. Jain, Ph.D. 27,067,236 364,049 Daniel R. Omstead, Ph.D. 27,097,167 334,118 Lucinda H. Stebbins, CPA 27,094,030 337,255 Rakesh K. Jain, Ph.D., Daniel R. Omstead, Ph.D. and Lucinda H. Stebbins, CPA were elected to serve until the 2020 Annual Meeting. Trustees serving until the 2018 Annual Meeting are Michael W. Bonney and Uwe E. Reinhardt, Ph.D. Trustees serving until the 2019 Annual Meeting are Oleg M. Pohotsky, MBA, J.D. and William S. Reardon. Shareholders ratified the appointment of Deloitte & Touche LLP as the independent registered public accountants of the Fund for the fiscal year ending September 30, 2017 by the following votes: Against/ For Withhold Abstain 27,177,726 149,152 104,407 FOR MORE INFORMATION: A description of the Fund’s proxy voting policies and procedures and information on how the Fund voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 is available (i) without charge, upon request by calling 1-800-451-2597; (ii) by writing to Tekla Capital Management LLC at 100 Federal Street, 19th Floor, Boston, MA 02110; (iii) on the Fund’s website at www.teklacap.com; and (iv) on the SEC’s website at http://www.sec.gov. The Fund’s complete Schedule of Investments for the first and third quarters of its fiscal year will be filed quarterly with the SEC on Form N-Q. This Schedule of Investments will also be available on the Fund’s website at www.teklacap.com, or the SEC’s website at http://www.sec.gov. The Fund’s Form N-Q may be reviewed and copied at the SEC’s Public Reference Room in Washington, DC or by calling 1-800-SEC-0330. You can find information regarding the Fund at the Fund’s website, www.teklacap.com. The Fund regularly posts information to its website, including information regarding daily share pricing and distributions and press releases, and maintains links to the Fund’s SEC filings. The Fund currently publishes and distributes quarterly fact cards, including performance, portfolio holdings and sector information for each fiscal quarter. These fact cards will be available on the Fund’s website and by request from the Fund’s marketing and investor support services agent, Destra Capital Investments, at 1-877-855-3434. 38

Page 41

T EKLA W ORLD H EALTHCARE F UND FEDERAL TAX INFORMATION (unaudited): Certain information for the Fund is required to be provided to shareholders based on the Fund’s income and distributions for the taxable year ended December 31, 2017. In February 2018, shareholders will receive Form 1099-DIV, which will include their share of qualified dividends and capital gains and return of capital distributed during the calendar year 2017. Shareholders are advised to check with their tax advisors for information on the treatment of these amounts on their individual tax returns. For corporate shareholders, 5.95% of ordinary income dividends paid by the Fund qualified for the dividends received deduction during the period July 31, 2017 to September 30, 2017. Under Section 854(b)(2) of the Code, the Fund designated $7,616,999 as qualified dividends for the year ended September 30, 2017. DISTRIBUTION POLICY: The Fund has a fixed distribution policy as described in the Notes to Financial Statements. For more information contact your financial adviser. SHARE REPURCHASE PROGRAM: In March 2017, the Trustees approved the renewal of the share repurchase program to allow the Fund to purchase in the open market up to 7% of its out- standing common shares for a seven month period ending July 14, 2018. PORTFOLIO MANAGEMENT: Daniel R. Omstead, Ph.D., Jason C. Akus, M.D./M.B.A., Timothy Gasperoni, M.B.A, Ph.D., Christian M. Richard, M.B.A, M.S., Henry Skinner, Ph,D., Christopher Abbott, Robert Benson, CFA, CAIA, Amanda Birdsey-Benson, Ph.D. and Alan Kwan, M.B.A, Ph.D. are members of a team that analyzes investments on behalf of the Fund. Dr. Omstead exercises ultimate decision making authority with respect to investments. 39

Page 42

T EKLA W ORLD H EALTHCARE F UND DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN Reinvestment of Distributions. Under the Dividend Reinvestment and Stock Purchase Plan, dividends and/or distributions to a Shareholder will automatically be reinvested in additional Shares of the Fund. Each registered Shareholder may elect to have dividends and distributions dis- tributed in cash (i.e., “opt-out”) rather than participate in the Dividend Reinvestment and Stock Purchase Plan. For any registered Shareholder that does not so elect, dividends and/or distributions on such Shareholder’s Shares will be reinvested by Computershare Trust Company, N.A. (the “Plan Agent”), as agent for Shareholders in additional Shares, as set forth below. Participation in the Div- idend Reinvestment and Stock Purchase Plan is completely voluntary, and may be terminated or resumed at any time without penalty by internet, telephone or notice if received and processed by the Plan Agent prior to the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Participants who hold their Shares through a broker or other nominee and who wish to elect to receive any dividends and distributions in cash must contact their broker or nominee. The Plan Agent’s fees for the handling of the reinvestment of dividends and distributions will be paid by the Fund. Each participant will pay a per Share fee (currently $0.05 per Share) incurred in connection with open market purchases. If a participant elects to have the Plan Agent sell all or a part of his or her Shares and remit the proceeds to the participant, the Plan Agent is authorized to deduct a $15 sales fee per trade and a per Share fee of $0.12 from such proceeds. All per Share fees include any applicable brokerage commissions the Plan Agent is required to pay. The automatic reinvestment of Dividends will not relieve Participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividend. The Plan Agent will acquire shares for participants’ accounts by purchasing either newly issued shares from the Fund or outstanding shares in the open market, depending upon the circumstances. If on the payment date of a dividend or distribution the NAV per share is equal to or less than the closing market price (plus estimated per share fees in connection with the purchase of shares), the Plan Agent will invest the dividend or distribution in newly issued shares. The number of newly issued shares to be credited to each participant’s account will be determined by dividing the amount of the participant’s cash dividend or distribution by the greater of the NAV per share on the payment date or 95% of the closing market price per share on the payment date. If on the pay- ment date the NAV per share is greater than the closing market price per share (plus per share fees), the Plan Agent will invest the dividend or distribution in shares acquired in open-market purchases. The per share price for open-market purchases will be the weighted average price of the shares on the payment date. Stock Purchase Plan. All registered shareholders can voluntarily purchase additional shares in the Fund at any time through the Plan Agent. The minimum investment under this option is $50. Participants can make an investment online or by sending a check to the Plan Agent. Each invest- ment will entail a transaction fee of $5.00 plus $0.05 per share purchased. Shareholders can also authorize the Plan Agent to make automatic withdrawals from a bank account. Each automatic transaction will entail a fee of $2.50 plus $0.05 per share purchased. There is a $25 charge for each returned check or rejected electronic funds transfer. 40

Page 43

T EKLA W ORLD H EALTHCARE F UND DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN (continued) Amendment or Termination of Plan. The Fund reserves the right to amend or terminate the Plan upon notice in writing to each participant at least 30 days prior to any record date for the payment of any dividend or distribution by the Fund. Plan Agent. You can contact the Plan Agent at www.computershare.com/investor, at P.O. Box 30170, College Station, TX 77842-3170 or at 1-800-426-5523. 41

Page 44

This page has been intentionally left blank.

Page 45

This page has been intentionally left blank.

Page 46

This page has been intentionally left blank.

Page 47

Page 48

T EKLA W ORLD H EALTHCARE F UND New York Stock Exchange Symbol: THW NAV Symbol: XTHWX 100 Federal Street, 19th Floor Boston, Massachusetts 02110 (617) 772-8500 www.teklacap.com Officers Daniel R. Omstead, Ph.D., President Laura Woodward, CPA, Chief Compliance Officer, Secretary and Treasurer Trustees Michael W. Bonney Rakesh K. Jain, Ph.D. Daniel R. Omstead, Ph.D. Oleg M. Pohotsky, M.B.A., J.D. William S. Reardon Uwe E. Reinhardt, Ph.D. Lucinda H. Stebbins, CPA Investment Adviser Tekla Capital Management LLC Administrator & Custodian State Street Bank and Trust Company Transfer Agent Computershare, Inc. Legal Counsel Dechert LLP Shareholders with questions regarding share transfers may call 1-800-426-5523 Daily net asset value may be obtained from our website (www.teklacap.com) or by calling 617-772-8500

Page 49

By industry

By Role

Comprehensive

Relevant

Easy to use

Pages