avatar Tekla World Healthcare Fund Finance, Insurance, And Real Estate

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    T E K L A H E A LT H C A R E O P P O RT U N I T I E S F U N D Semiannual Report March 31, 2019 Beginning on January 1, 2021, as permitted by regulations adopted by the Securities and Exchange Commission, paper copies of the Fund’s annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Fund’s website, teklacap.com., and you will be notified by mail each time a report is posted and provided with a website link to access the report. Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with the Fund, you can call Computershare at 1-800-426-5523 to inform the Fund that you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held in your account if you invest through your financial intermediary or all funds held with the fund complex if you invest directly with the Fund.


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    T EKLA H EALTHCARE O PPORTUNITIES 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 $0.1125 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 terminate 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- ketwide 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.


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    T EKLA H EALTHCARE O PPORTUNITIES F UND Dear Shareholders, The healthcare/biotechnology sector was quite volatile during the six month period ended March 31, 2019. As can be seen in the graph below, the illustrated indices declined very significantly in the fourth quarter of 2018, particularly during December 2018. This was among the most aggressive short-term declines we have seen in recent years. Conversely, in the first quarter of 2019, we observed one of the most prolific short-term advances the healthcare/biotechnology sector has seen in many years. The result, while demonstrating quite high volatility in the report period, in aggregate left the sector and the Fund down moderately for the reporting period. 6 Month Performance Ending March 31, 2019 120 Nasdaq Biotechnology Index® S&P Composite 1500® Healthcare Index 110 S&P 500® Index 100 90 80 70 All indices = 100 on Sep 30 2018 60 Sep 2018 Oct 2018 Nov 2018 Dec 2018 Jan 2019 Feb 2019 Mar 2019 The question this leaves us with is: What happened and what might we expect going forward? Our sector is usually most affected by the results from individual scientific news, clinical trial results and regulatory approval/rejection as well as merger and acquisition (M&A) activity. We have observed such occurrences in recent months. During the first quarter of 2019, we saw both encouraging and disappointing events. These include a significant positive, the proposed acquisition of Celgene Corporation by Bristol-Myers Squibb Company, which is the biggest proposed acquisition in our sector in some years. Other significant and encouraging events were also seen. Conversely, the pivotal clinical trial failure of Biogen Inc.’s Aducanumab was also reported in the first quarter of 2019. The clinical trial result was probably the most highly anticipated event expected within the next year. Its failure has damaged the so-called amyloid hypothesis, a heretofore putative strategy for treating Alzheimer’s Disease. We have certainly seen other positive clinical and regulatory developments in recent months but the Aducanumab trial failure was extremely disappointing. We will continue to see, evaluate and report on positive and negative events, but we think macro related sentiment will have no less impact than events on sector performance in the short to intermediate term. 1


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    As you are undoubtedly aware, in 2018 healthcare comprises nearly 18% of U.S. GDP making it among the biggest sectors in the U.S. economy. Costs to provide healthcare products and services are widely considered to be too high. Opinions regarding how these costs should be controlled and paid for have been hotly debated for many years but have reached a crescendo of late. As the 2020 U.S. presidential election approaches, it is pretty clear to us that healthcare is and will be a topic that receives great attention. As prospects grow or fade for individual candidates (including the incumbent), we expect sentiment for, as well as the value of, the healthcare sector to improve or decline in tandem. We think that these macro factors will be as important to the healthcare sector as fundamentals for the next twelve to eighteen months. In the medium to long term, headlines aside, we do not think there will be dramatic change in how healthcare is paid for or delivered. In the end, it seems likely to us that we will continue to have a system that is highly market dependent. Drugs that are differentiated and patent protected will sell well and receive premium pricing while generic drugs (which already comprise ~90% of prescriptions written) will also sell well but will be competitively priced. The Fund will continue to predominantly invest in companies that invent, develop and commercialize differentiated drugs that address unmet medical needs. We think that upon commercialization, such drugs will receive pricing that rewards the companies and their investors for risks taken in development and allow appropriate profit for the innovator. We will also continue to invest in companies that make generic drugs efficiently. We anticipate the general trend will be to increase utilization and that the “winners” in the generic drug space will be those that make (and sell) such drugs cheaply and well. Given that the quantity of generic drugs sold will continue to increase, we think there remains an opportunity to profitably invest in efficient manufacturers of such drugs. We note that in the last ten years, the annualized return of the NASDAQ Biotechnology Index®* (“NBI”) (+18.31%) and the S&P Composite 1500® Healthcare Index* (“S15HLTH”) (+16.92%) has exceeded that of the S&P 500® Index* (“SPX”) (+15.91%). As always, we thank you for your consideration of the Tekla Funds. Please call our distribution partner Destra Capital or us if you have any questions. Be well, Daniel R. Omstead, PhD President and Portfolio Manager 2


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    T EKLA H EALTHCARE O PPORTUNITIES F UND Fund Essentials Objective of the Fund The Fund’s investment objective is to seek current income and long-term capital appreciation. Description of the Fund Fund Overview and Tekla Healthcare Opportunities Fund Characteristics as of 3/31/19 (“THQ”) is a non-diversified closed-end healthcare fund traded on the New York Market Price1 $17.62 Stock Exchange under the ticker THQ. NAV2 $19.56 THQ employs a versatile growth and Premium/(Discount) -9.92% income investment strategy investing across all healthcare sub-sectors and across Average 30 Day a company’s full capital structure. Volume 114,914 Net Assets $811,190,666 Investment Philosophy Managed Assets $1,036,190,666 Tekla Capital Management LLC, the Leverage Outstanding $225,000,000 Investment Adviser to the Fund, believes that: Total Leverage Ratio3 21.71% • Aging demographics and adoption of Ticker THQ new medical products and services may NAV Ticker XTHQX provide long-term tailwinds for healthcare companies Commencement of • Late stage biotechnology product Operations Date 7/31/14 pipeline could lead to significant Fiscal Year to Date increases in biotechnology sales Distributions • Investment opportunity spans 11 sub- per Share $0.68 sectors including biotechnology, 1 The closing price at which the Fund’s shares were traded healthcare technology, managed care on the exchange. 2 and healthcare REITs Per-share dollar value of the Fund, calculated by • Robust M&A activity in healthcare may dividing the total value of all the securities in its portfolio, plus any other assets and less liabilities, by the number of create additional investment Fund shares outstanding. opportunities 3 As a percentage of managed assets Holdings of the Fund (Data is based on net assets) Asset Allocation as of 3/31/19 Sector Diversification as of 3/31/19 Equity - 101.9% Pharmaceuticals - 34.4% Convertible and Health Care Providers Non-convertible & Services - 27.7% Notes - 16.6% Biotechnology - 21.9% Health Care Equipment Short-term and Supplies - 16.7% Investment - 5.3% Real Estate Investment Convertible Preferred Trusts - 7.4% And Warrants - 1.6% Medical Devices and Call Option Contracts Diagnostics - 6.8% Purchased - 0.2% Repurchase Option Contracts Agreement - 5.3% Written - (0.2%) Life Sciences Tools & Services - 4.7% Other Liabilities in Healthcare Excess of Services - 0.5% Assets - (25.4%) Other Liabilities in Excess of Assets - (25.4%) This data is subject to change on a daily basis. 3


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    T EKLA H EALTHCARE O PPORTUNITIES F UND Largest Holdings by Issuer (Excludes Short-Term Investments) As of March 31, 2019 (Unaudited) % of Net Issuer – Sector Assets Johnson & Johnson – Pharmaceuticals 9.6% UnitedHealth Group Incorporated – Health Care Providers & Services 7.5% Pfizer Inc. – Pharmaceuticals 6.6% Merck & Co., Inc. – Pharmaceuticals 6.0% Anthem, Inc. – Health Care Providers & Services 5.0% Amgen Inc. – Biotechnology 4.6% Gilead Sciences, Inc. – Biotechnology 4.2% Medtronic plc – Health Care Equipment & Supplies 3.4% Thermo Fisher Scientific Inc. – Life Sciences Tools & Services 3.0% Abbott Laboratories – Health Care Equipment & Supplies 2.9% CVS Health Corporation – Health Care Providers & Services 2.9% AbbVie Inc. – Biotechnology 2.9% Eli Lilly and Company – Pharmaceuticals 2.8% Bristol-Myers Squibb Company – Pharmaceuticals 2.5% Celgene Corporation – Biotechnology 2.4% HCA Healthcare, Inc. – Health Care Providers & Services 2.3% Allergan plc – Pharmaceuticals 2.1% Welltower Inc. – Real Estate Investment Trusts 2.0% Stryker Corporation – Health Care Equipment & Supplies 2.0% Intuitive Surgical, Inc. – Medical Devices and Diagnostics 1.9% Fund Performance THQ is a closed-end fund which invests predominantly in healthcare companies. Subject to regular consideration, the Trustees of THQ have instituted a policy of making monthly distributions to shareholders. The Fund invests in equity and debt of healthcare companies. 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, THQ 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. 4


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    The Fund may invest up to 20 percent of managed assets, measured at the time of investment, in the debt of healthcare companies. It may also invest up to 25 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 THQ 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 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, THQ 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 15-30% of net assets. There is no commonly published index which matches the investment strategy of THQ. With respect to the Fund’s equity investments, THQ often holds 20-35% of its managed assets, measured at the time of investment, in biotechnology. By contrast, the S15HLTH consists of more than 160 companies representing most or all of the healthcare subsectors in which THQ typically invests; biotechnology often represents 15-20% of this index. By contrast, the NBI, which contains approximately 220 constituents, 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 S15HLTH nor NBI indices contain any material amount of pre-public company assets. 5


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    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 THQ invests though the Fund invests in the SPX 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 THQ invests. Given the circumstances, we present both NAV and stock returns for the Fund in comparison to several commonly published indices. We note that THQ is a dynamically configured multi-asset class healthcare growth and income fund. There is no readily available index comprised of similar characteristics to THQ and to which THQ can directly be compared. Therefore, we provide returns for a number of indices representing the major components of THQ’s assets. Having said this, we note that there are no readily available indices representing the covered call strategy employed by THQ or the restricted security components of THQ. The following data for available funds over the six-month, one-year and since inception periods are provided for comparison. Fund Performance for the Period Ended March 31, 2019 Period THQ NAV THQ MKT NBI S15HLTH SPX SP5HCBIT FNHEA 6 month -3.70 -2.33 -8.18 -3.37 -1.73 4.66 16.50 1 year 15.49 15.40 5.24 14.63 9.48 5.24 36.47 inception 8.76 5.19 6.53 11.12 10.35 3.54 6.72 Inception date July 29, 2014 6


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    Performance Performance Performance 6 Month 1 Year since inception 36.5 16.5 15.5 15.4 14.6 9.5 11.1 10.3 8.8 4.7 5.2 5.2 5.2 6.5 6.7 3.5 -2.3 -1.7 -3.7 -3.4 -8.2 THQ MKT NBI S15HLTH SPX FNHEA THQ NAV NBI S15HLTH SPX FNHEA NBI S15HLTH SPX FNHEA SP5HCBIT SP5HCBIT SP5HCBIT THQ MKT THQ MKT THQ NAV THQ NAV 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. Until the DRIP price is available from the Plan Agent, the market price returns reflect the reinvestment at the closing market price on the last business day of the month. Once the DRIP is available around mid- month, the market price returns are updated to reflect reinvestment at the DRIP price. Portfolio Highlights as of March 31, 2019 Among other investments, Tekla Healthcare Opportunities’ performance benefitted in the past six months by the following: Anthem, Inc. (ANTM) is a managed care company that is well diversified across both commercial and government (Medicare and Medicaid) markets. Managed Care Organizations (MCOs) continue to operate against an attractive backdrop with stable healthcare cost trends and a favorable rate environment. ANTM is currently in the process of bringing its Pharmacy Benefit Management (PBM) business in-house which will drive meaningful cost savings and should help accelerate topline growth and earnings growth over the next several years. Ligand Pharmaceuticals Incorporated (LGND) shifted their business model from a royalty play on commercial assets centered on Promacta to a royalty shell more weighted to earlier stage candidates around novel technology platforms. This led to a rerating of the company with the shares being weak beginning in October. Our relative underweight helped the Fund’s portfolio during the reporting period. Medicines Company (The) (MDCO) has a lead asset, the RNA-modulator Inclisiran, in multiple dyslipidemia phase III studies that will readout in the coming months. Assuming success, this agent will represent a new modality in the treatment of dyslipidemia with an annual vaccine-like dosing regimen that should prove attractive to the medical community. The stock has appreciated significantly since the beginning of the year, helping the Fund’s performance. 7


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    Among other examples, THQ’s performance was negatively impacted by the following investments: Allergan plc (AGN) is a large-cap specialty pharma company with a focus on aesthetics, neurology, ophthalmology, and gastroenterology. The company has suffered a number of setbacks to its late-stage pipeline and its core Botox franchise is facing competition on both the aesthetic (from cheaper or longer lasting products) and therapeutic (from CGRP inhibitors in migraine) fronts, although we expect both franchises to remain durable. Activist investors are pushing for a separation of the CEO and Chairman roles as well as a potential break-up and sale of the company as a way to unlock value. We have decreased our ownership of this stock in recent quarters, but Fund performance was negatively affected in the reporting period. Diplomat Pharmacy (DPLO) is the largest independent provider of specialty pharmacy services in the U.S., positioning it well to capitalize on the rapidly growing specialty drug market. A large portfolio of limited distribution drugs helps differentiate DPLO; however, pharmacy reimbursement dynamics are putting pressure on the company’s margins. Last year the company acquired two small middle market PBMs to diversify its business, but integration stumbled and DPLO saw significant PBM customer losses. With expectations reset, the company’s specialty pharmacy business remains an attractive asset, although it will take time to reaccelerate growth. Teva Pharmaceutical (TEVA) is one of the largest manufacturers of generic pharmaceuticals. The generic drug industry has faced significant headwinds over the past several years due to increased competition, fewer blockbuster drugs rolling off patent, consolidation among large buying consortiums, and uncertainty around opioid drug litigation. Overall, this has led to persistent generic price deflation and a challenging operating environment. Following a management change in late 2017, turnaround efforts have included the rationalization of unprofitable products and significant cost cutting efforts. Overall, TEVA’s restructuring efforts and stabilization of generic deflation helps position the company to deleverage its balance sheet and return to growth in 2020. We have decreased our ownership of this stock in recent quarters, but Fund performance was negatively affected in the reporting period. **The trademarks NASDAQ Biotechnology Index®, S&P Composite 1500® Healthcare Index, S&P 500® Index, S&P 500® Health Care Corporate Bond Index and FTSE NAREIT Health Care Property Sector 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. 8


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    T EKLA H EALTHCARE O PPORTUNITIES F UND SCHEDULE OF INVESTMENTS MARCH 31, 2019 (Unaudited) CONVERTIBLE PREFERRED AND WARRANTS SHARES (Restricted) (a) (b) - 1.6% of Net Assets VALUE Biotechnology - 1.5% 751,072 Atreca, Inc. Series C1 $1,749,998 911,124 Decipher Biosciences, Inc. Series II, 8.00% 826,389 905,797 Decipher Biosciences, Inc. Series III, 8.00% 1,967,391 1,106,444 Galera Therapeutics, Inc. Series C, 6.00% 2,449,999 264,833 Oculis SA, Series B2 (c) 2,214,411 2,538,462 Rainier Therapeutics, Inc. Series A, 6.00% 1,650,000 1,470,588 Rainier Therapeutics, Inc. Series B, 6.00% 1,100,000 11,958,188 Health Care Equipment & Supplies - 0.1% 407,078 IlluminOss Medical, Inc. Series AA, 8.00% 407,078 383,470 IlluminOss Medical, Inc. Junior Preferred, 8.00% 383,470 32,792 IlluminOss Medical, Inc. Warrants (expiration 03/31/27, exercise price $1.00) 0 27,356 IlluminOss Medical, Inc. Warrants (expiration 09/06/27, exercise price $1.00) 0 10,942 IlluminOss Medical, Inc. Warrants (expiration 11/20/27, exercise price $1.00) 0 21,885 IlluminOss Medical, Inc. Warrants (expiration 01/11/28, exercise price $1.00) 0 21,885 IlluminOss Medical, Inc. Warrants (expiration 02/06/28, exercise price $1.00) 0 21,388 IlluminOss Medical, Inc. Warrants (expiration 01/29/29, exercise price $1.00) 0 790,548 TOTAL CONVERTIBLE PREFERRED AND WARRANTS (Cost $14,771,420) 12,748,736 The accompanying notes are an integral part of these financial statements. 9


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    T EKLA H EALTHCARE O PPORTUNITIES F UND SCHEDULE OF INVESTMENTS MARCH 31, 2019 (Unaudited, continued) PRINCIPAL CONVERTIBLE AND NON-CONVERTIBLE AMOUNT NOTES - 16.6% of Net Assets VALUE Convertible Notes (Restricted) (a) - 0.2% Biotechnology - 0.1% $417,280 Rainier Therapeutics, Inc. Promissory Note 8.00% due 01/30/20 $417,280 417,280 Rainier Therapeutics, Inc. Promissory Note 8.00% due 01/30/20 417,280 834,560 Health Care Equipment & Supplies - 0.1% 131,169 IlluminOss Medical, Inc. Promissory Note 8.00% due 06/30/19 131,170 43,770 IlluminOss Medical, Inc. Promissory Note 8.00% due 06/30/19 43,770 87,539 IlluminOss Medical, Inc. Promissory Note 8.00% due 06/30/19 87,539 87,539 IlluminOss Medical, Inc. Promissory Note 8.00% due 06/30/19 87,539 109,424 IlluminOss Medical, Inc. Promissory Note 8.00% due 06/30/19 109,424 85,552 IlluminOss Medical, Inc. Promissory Note 8.00% due 06/30/19 85,552 544,994 TOTAL CONVERTIBLE NOTES 1,379,554 Non-Convertible Notes - 16.4% Biotechnology - 2.9% 10,000,000 Amgen Inc., 3.63% due 05/15/22 10,241,636 10,000,000 Gilead Sciences, Inc., 2.95% due 03/01/27 9,709,282 3,500,000 Gilead Sciences, Inc., 4.80% due 04/01/44 3,676,096 23,627,014 Health Care Equipment & Supplies - 2.2% 3,700,000 Becton, Dickinson and Company, 3.70% due 06/06/27 (d) 3,685,767 5,000,000 Medtronic, Inc., 3.50% due 03/15/25 5,155,944 3,500,000 Stryker Corporation, 3.65% due 03/07/28 3,589,772 6,000,000 Zimmer Biomet Holdings, Inc., 4.25% due 08/15/35 5,483,715 17,915,198 The accompanying notes are an integral part of these financial statements. 10


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    T EKLA H EALTHCARE O PPORTUNITIES F UND SCHEDULE OF INVESTMENTS MARCH 31, 2019 (Unaudited, continued) PRINCIPAL AMOUNT Health Care Providers & Services - 9.7% VALUE $12,693,000 Acadia Healthcare Company, Inc., 5.13% due 07/01/22 $12,724,733 10,500,000 Anthem, Inc., 3.50% due 08/15/24 10,631,225 3,500,000 Anthem, Inc., 4.65% due 08/15/44 3,626,966 3,600,000 CVS Health Corporation, 4.30% due 03/25/28 3,647,705 3,700,000 CVS Health Corporation, 5.05% due 03/25/48 3,727,398 7,500,000 Encompass Health Corporation, 5.75% due 11/01/24 7,593,750 8,250,000 Express Scripts Holding Company, 6.13% due 11/15/41 9,769,876 9,700,000 HCA Healthcare, Inc., 6.25% due 02/15/21 10,193,245 5,500,000 Tenet Healthcare Corporation, 4.63% due 07/15/24 5,508,525 10,500,000 UnitedHealth Group Incorporated, 4.38% due 03/15/42 11,175,266 78,598,689 Pharmaceuticals - 1.6% 4,750,000 AstraZeneca PLC, 6.45% due 09/15/37 (c) 6,051,163 780,000 Mallinckrodt International Finance SA, 4.75% due 04/15/23 612,300 5,020,000 Wyeth LLC, 5.95% due 04/01/37 6,387,080 13,050,543 TOTAL NON-CONVERTIBLE NOTES 133,191,444 TOTAL CONVERTIBLE AND NON-CONVERTIBLE NOTES (Cost $134,331,117) 134,570,998 COMMON STOCKS AND WARRANTS - 101.9% SHARES of Net Assets Biotechnology - 17.4% 287,086 AbbVie Inc. (d) 23,136,261 35,132 Alexion Pharmaceuticals, Inc. (b) 4,749,144 142,317 Amgen Inc. 27,037,384 40,459 Biogen Inc. (b) (d) 9,563,698 204,109 Celgene Corporation (b) 19,255,643 35,093 Esperion Therapeutics, Inc. (b) 1,408,984 116,040 Exelixis, Inc. (b) (d) 2,761,752 17,621 Galapagos NV (b) (e) 2,075,401 318,390 Gilead Sciences, Inc. (d) 20,698,534 The accompanying notes are an integral part of these financial statements. 11


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    T EKLA H EALTHCARE O PPORTUNITIES F UND SCHEDULE OF INVESTMENTS MARCH 31, 2019 (Unaudited, continued) SHARES Biotechnology - continued VALUE 66,533 Incyte Corporation (b) $5,722,503 11,459 Ligand Pharmaceuticals, Inc. (b) 1,440,511 40,093 Nektar Therapeutics (b) 1,347,125 23,436 Neurocrine Biosciences, Inc. (b) 2,064,712 226,241 Pieris Pharmaceuticals, Inc. (b) 757,907 40,496 Pieris Pharmaceuticals, Inc., Series A Warrants (expiration 06/08/21, exercise price $3.00) (a) (b) 39,281 20,248 Pieris Pharmaceuticals, Inc., Series B Warrants (expiration 06/08/21, exercise price $2.00) (a) (b) 26,525 12,196 Puma Biotechnology, Inc. (b) 473,083 12,163 Regeneron Pharmaceuticals, Inc. (b) 4,994,371 73,797 Vertex Pharmaceuticals Incorporated (b) (d) 13,574,958 141,127,777 Health Care Equipment & Supplies - 14.4% 294,772 Abbott Laboratories (d) 23,564,074 12,815 ABIOMED, Inc. (b) 3,659,836 93,998 Baxter International Inc. 7,642,977 44,993 Becton, Dickinson and Company (d) 11,236,102 94,571 DENTSPLY SIRONA Inc. (d) 4,689,776 45,202 Edwards Lifesciences Corporation (b) (d) 8,648,499 23,398 IDEXX Laboratories, Inc. (b) 5,231,793 8,000 Inogen, Inc. (b) 762,960 243,781 Medtronic plc 22,203,573 3,816 NuVasive, Inc. (b) 216,711 16,612 STERIS Plc 2,126,834 63,268 Stryker Corporation 12,496,695 6,379 Teleflex Incorporated 1,927,478 25,069 Varian Medical Systems, Inc. (b) 3,552,779 60,991 Wright Medical Group N.V. (b) 1,918,167 53,324 Zimmer Biomet Holdings, Inc. 6,809,475 116,687,729 Health Care Providers & Services - 18.0% 65,768 Acadia Healthcare Company, Inc. (b) 1,927,660 46,307 AmerisourceBergen Corporation (d) 3,682,333 90,594 Anthem, Inc. (d) 25,998,666 93,370 Centene Corporation (b) 4,957,947 10,640 Charles River Laboratories International, Inc. (b) 1,545,460 74,651 Cigna Corporation (b) 12,005,374 109,035 Community Health Systems, Inc. (b) 406,701 293,916 CVS Health Corporation 15,850,890 The accompanying notes are an integral part of these financial statements. 12


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    T EKLA H EALTHCARE O PPORTUNITIES F UND SCHEDULE OF INVESTMENTS MARCH 31, 2019 (Unaudited, continued) SHARES Health Care Providers & Services - continued VALUE 127,901 Diplomat Pharmacy, Inc. (b) $743,105 65,635 HCA Healthcare, Inc. 8,557,491 23,757 Humana Inc. 6,319,362 54,770 McKesson Corporation 6,411,376 141,136 Tenet Healthcare Corporation (b) 4,070,362 200,778 UnitedHealth Group Incorporated (d) 49,644,368 14,786 WellCare Health Plans, Inc. (b) 3,988,524 146,109,619 Healthcare Services - 0.5% 25,840 Laboratory Corporation of America Holdings (b) 3,953,003 Life Sciences Tools & Services - 4.7% 34,491 Illumina, Inc. (b) 10,716,009 25,600 PRA Health Sciences, Inc. (b) 2,823,424 90,193 Thermo Fisher Scientific Inc. 24,687,628 38,227,061 Medical Devices and Diagnostics - 6.8% 19,377 Align Technology, Inc. (b) 5,509,462 323,696 Boston Scientific Corporation (b) (d) 12,423,453 92,611 Danaher Corporation 12,226,504 16,091 Hologic, Inc. (b) 778,804 26,306 Intuitive Surgical, Inc. (b) (d) 15,009,678 8,091 Masimo Corporation (b) 1,118,823 43,600 Quest Diagnostics, Inc. 3,920,512 39,902 ResMed Inc. 4,148,611 55,135,847 Pharmaceuticals - 32.7% 114,339 Allergan plc (d) 16,740,373 427,584 Bristol-Myers Squibb Company (d) 20,400,033 656,921 Egalet Corp (a) (b) (f) 700,015 177,767 Eli Lilly and Company (d) 23,067,046 12,230 IQVIA Holdings, Inc. (b) 1,759,285 558,277 Johnson & Johnson (d) 78,041,542 74,029 Medicines Company (The) (b) 2,069,111 582,935 Merck & Co., Inc. (d) 48,482,704 112,651 Mylan N.V. (b) 3,192,529 1,256,883 Pfizer Inc. (d) 53,379,821 395,860 Teva Pharmaceutical Industries Limited (b) (e) 6,207,085 117,857 Zoetis Inc. 11,864,664 265,904,208 The accompanying notes are an integral part of these financial statements. 13


  • Page 16

    T EKLA H EALTHCARE O PPORTUNITIES F UND SCHEDULE OF INVESTMENTS MARCH 31, 2019 (Unaudited, continued) SHARES Real Estate Investment Trusts - 7.4% VALUE 126,122 LTC Properties, Inc. $5,776,388 258,109 Medical Properties Trust, Inc. 4,777,598 211,143 New Senior Investment Group Inc. 1,150,729 290,795 Omega Healthcare Investors, Inc. 11,093,829 248,608 Physicians Realty Trust 4,676,316 395,119 Sabra Health Care REIT, Inc. 7,692,967 293,879 Senior Housing Properties Trust 3,461,895 76,246 Ventas, Inc. 4,865,257 212,462 Welltower Inc. 16,487,051 59,982,030 TOTAL COMMON STOCKS AND WARRANTS (Cost $771,426,013) 827,127,274 PRINCIPAL SHORT-TERM INVESTMENT - 5.3% of AMOUNT Net Assets $42,806,000 Repurchase Agreement, Fixed Income Clearing Corp., repurchase value $42,806,000, 0.50%, dated 03/29/19, due 04/01/19 (collateralized by U.S. Treasury Note 2.25%, due 07/31/21, market value $45,180 and U.S. Treasury Note 2.75%, due 08/15/21, market value $43,621,069) 42,806,000 TOTAL SHORT-TERM INVESTMENT (Cost $42,806,000) 42,806,000 TOTAL INVESTMENTS - 125.4% (Cost $963,334,550) 1,017,253,008 The accompanying notes are an integral part of these financial statements. 14


  • Page 17

    T EKLA H EALTHCARE O PPORTUNITIES F UND SCHEDULE OF INVESTMENTS MARCH 31, 2019 (Unaudited, continued) NUMBER OF CONTRACTS (100 SHARES EACH)/ NOTIONAL OPTION CONTRACTS PURCHASED - 0.2% AMOUNT ($) of Net Assets VALUE CALL OPTION CONTRACTS PURCHASED - 0.2% of Net Assets 65/2,340,000 Biogen Inc. Jun20 360 Call $24,050 2,500/12,500,000 Bristol-Myers Squibb Company Jan20 50 Call 800,000 TOTAL CALL OPTION CONTRACTS PURCHASED (Premiums paid $1,445,488) 824,050 OPTION CONTRACTS WRITTEN - (0.2)% of Net Assets CALL OPTION CONTRACTS WRITTEN - (0.1)% of Net Assets 163/(2,608,000) Allergan plc Apr19 160 Call (2,771) 124/(1,041,600) AmerisourceBergen Corporation Apr19 84 Call (5,580) 163/(5,216,000) Anthem, Inc. Apr19 320 Call (1,793) 545/(2,152,750) Boston Scientific Corporation Apr19 39.5 Call (21,800) 2,500/(15,000,000) Bristol-Myers Squibb Company Jan20 60 Call (175,000) 415/(2,075,000) Dentsply Sirona, Inc. Apr19 50 Call (33,200) 109/(2,125,500) Edwards Lifesciences Corporation Apr19 195 Call (27,795) 617/(8,329,500) Eli Lilly and Company Apr19 135 Call (34,552) 400/(1,040,000) Exelixis, Inc. Apr19 26 Call (7,200) 617/(4,164,750) Gilead Sciences, Inc. Apr19 67.5 Call (29,616) 582/(8,322,600) Johnson & Johnson Apr19 143 Call (43,650) 311/(2,612,400) Merck & Co., Inc. Apr19 84 Call (23,947) 968/(8,324,800) Merck & Co., Inc. Apr19 86 Call (12,584) 1,871/(8,325,950) Pfizer Inc. Apr19 44.5 Call (7,484) 308/(8,316,000) UnitedHealth Group Incorporated Apr19 270 Call (13,860) 135/(2,598,750) Vertex Pharmaceuticals Incorporated Apr19 192.5 Call (26,325) TOTAL CALL OPTION CONTRACTS WRITTEN (Premiums received $750,423) (467,157) The accompanying notes are an integral part of these financial statements. 15


  • Page 18

    T EKLA H EALTHCARE O PPORTUNITIES F UND SCHEDULE OF INVESTMENTS MARCH 31, 2019 (Unaudited, continued) NUMBER OF CONTRACTS (100 SHARES EACH)/ NOTIONAL PUT OPTION CONTRACTS AMOUNT ($) WRITTEN - (0.1)% of Net Assets VALUE 479/(3,592,500) Abbott Laboratories Apr19 75 Put $(23,950) 243/(1,871,100) AbbVie Inc. Apr19 77 Put (18,225) 336/(2,604,000) Agilent Technologies Inc. Apr19 77.5 Put (23,856) 106/(2,491,000) Becton, Dickinson and Company Apr19 235 Put (7,526) 140/(511,000) Boston Scientific Corporation Apr19 36.5 Put (3,150) 2,500/(10,000,000) Bristol-Myers Squibb Company Jan20 40 Put (405,000) 38/(2,052,000) Intuitive Surgical, Inc. Apr19 540 Put (20,520) 336/(2,604,000) Merck & Co., Inc. Apr19 77.5 Put (4,368) 127/(1,143,000) PerkinElmer Inc. Apr19 90 Put (4,763) 91/(2,093,000) Waters Corporation Apr19 230 Put (5,915) TOTAL PUT OPTION CONTRACTS WRITTEN (Premiums received $867,391) (517,273) TOTAL OPTION CONTRACTS WRITTEN (Premiums received $1,617,814) (984,430) TOTAL INVESTMENTS LESS CALL OPTION CONTRACTS WRITTEN - 125.4% (Cost $963,162,224) 1,017,092,628 OTHER LIABILITIES IN EXCESS OF ASSETS - (25.4)% (205,901,962) NET ASSETS - 100% $811,190,666 (a) Security fair valued using significant unobservable inputs. See Investment Valuation and Fair Value Measurements. (b) Non-income producing security. (c) Foreign security. (d) A portion of security is pledged as collateral for call options written. (e) American Depository Receipt (f) Affiliated issuers in which the Fund holds 5% or more of the voting securities (total market value of $700,015). The accompanying notes are an integral part of these financial statements. 16


  • Page 19

    T EKLA H EALTHCARE O PPORTUNITIES F UND STATEMENT OF ASSETS AND LIABILITIES MARCH 31, 2019 (Unaudited) ASSETS: Investments in unaffiliated issuers, at value (cost $957,794,477) $1,017,377,043 Investments in affiliated issuers, at value (cost $6,985,561) 700,015 Cash 306 Cash at broker 28,961,600 Dividends and interest receivable 2,034,949 Receivable for investments sold 3,296,090 Prepaid expenses 25,576 Total assets 1,052,395,579 LIABILITIES: Payable for investments purchased 12,795,717 Accrued advisory fee 828,603 Accrued investor support service fees 41,430 Accrued shareholder reporting fees 81,012 Accrued trustee fees 40,922 Loan Payable 225,000,000 Options written, at value (premium received $1,617,814) 984,430 Income distribution payable 149,639 Interest payable 1,158,080 Accrued other 125,080 Total liabilities 241,204,913 Commitments and Contingencies (see Note 1) NET ASSETS $811,190,666 SOURCES OF NET ASSETS: Shares of beneficial interest, par value $.01 per share, unlimited number of shares authorized, amount paid in on 41,462,660 shares issued and outstanding $794,031,680 Total distributable earnings (loss) 17,158,986 Total net assets (equivalent to $19.56 per share based on 41,462,660 shares outstanding) $811,190,666 The accompanying notes are an integral part of these financial statements. 17


  • Page 20

    T EKLA H EALTHCARE O PPORTUNITIES F UND STATEMENT OF OPERATIONS SIX MONTHS ENDED MARCH 31, 2019 (Unaudited) INVESTMENT INCOME: Dividend income $8,495,360 Interest and other income 2,674,857 Total investment income 11,170,217 EXPENSES: Advisory fees 5,118,734 Interest expense 3,688,122 Investor support service fees 255,937 Administration fees 86,380 Trustees’ fees and expenses 71,511 Legal fees 76,203 Auditing fees 33,558 Shareholder reporting 77,917 Custodian fees 75,414 Transfer agent fees 14,316 Other (see Note 2) 198,514 Total expenses 9,696,606 Net investment income 1,473,611 REALIZED AND UNREALIZED GAIN (LOSS): Net realized gain (loss) on: Investments (15,657,299) Closed or expired option contracts written 2,178,131 Foreign currency transactions 7,669 Net realized loss (13,471,499) Change in unrealized appreciation (depreciation) Investments in unaffiliated issuers (26,344,887) Investments in affiliated issuers 15 Option contracts purchased (621,437) Option contracts written 623,717 Change in unrealized appreciation (depreciation) (26,342,592) Net realized and unrealized gain (loss) (39,814,091) Net decrease in net assets resulting from operations ($38,340,480) The accompanying notes are an integral part of these financial statements. 18


  • Page 21

    T EKLA H EALTHCARE O PPORTUNITIES F UND STATEMENTS OF CHANGES IN NET ASSETS Six months ended Year ended March 31, 2019 September 30, (Unaudited) 2018 NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS: Net investment income $1,473,611 $5,716,320 Net realized gain (loss) (13,471,499) 51,428,217 Change in net unrealized appreciation (depreciation) (26,342,592) 38,720,068 Net increase (decrease) in net assets resulting from operations (38,340,480) 95,864,605 DISTRIBUTIONS TO SHAREHOLDERS FROM (See Note 1): Distributions (net investment income, realized gain (loss), other) (28,072,412) * (57,856,225) Total distributions (28,072,412) (57,856,225) CAPITAL SHARE TRANSACTIONS: Fund shares repurchased (610,415 and 1,443,016 shares, respectively) (see Note 1) (10,638,148) (25,422,774) Total capital share transactions (10,638,148) (25,422,774) Net increase (decrease) in net assets (77,051,040) 12,585,606 NET ASSETS: Beginning of period 888,241,706 875,656,100 End of period $811,190,666 $888,241,706 * A portion of the distributions may be deemed a tax return of capital at year end. The accompanying notes are an integral part of these financial statements. 19


  • Page 22

    T EKLA H EALTHCARE O PPORTUNITIES F UND STATEMENT OF CASH FLOWS SIX MONTHS ENDED MARCH 31, 2019 (Unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Purchases of portfolio securities ($162,639,363) Purchases to close option contracts written (2,005,843) Net maturities of short-term investments (22,404,000) Sales of portfolio securities 221,920,302 Proceeds from option contracts written 4,702,231 Interest income received 2,582,372 Dividend income received 8,618,794 Other operating receipts (expenses paid) (8,613,205) Net cash provided from operating activities 42,161,288 CASH FLOWS FROM FINANCING ACTIVITIES: Cash distributions paid (28,099,635) Fund shares repurchased (10,638,148) Cash at broker (3,423,250) Net cash used for financing activities (42,161,033) NET INCREASE IN CASH 255 CASH AT BEGINNING OF YEAR 51 CASH AT END OF SIX MONTHS $306 RECONCILIATION OF NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS TO NET CASH PROVIDED FROM OPERATING ACTIVITIES: Net decrease in net assets resulting from operations ($38,340,480) Purchases of portfolio securities (162,639,363) Purchases to close option contracts written (2,005,843) Net maturities of short-term investments (22,404,000) Sales of portfolio securities 221,920,302 Proceeds from option contracts written 4,702,231 Accretion of discount 63,559 Net realized loss on investments, options and foreign currencies 13,471,499 Decrease in net unrealized appreciation (depreciation) on investments and options 26,342,592 Increase in dividends and interest receivable (32,610) Decrease in accrued expenses (107,733) Increase in prepaid expenses and interest payable 1,191,134 Net cash provided from operating activities $42,161,288 The accompanying notes are an integral part of these financial statements. 20


  • Page 23

    T EKLA H EALTHCARE O PPORTUNITIES F UND FINANCIAL HIGHLIGHTS Period Six months July 31, ended 2014 to March 31, 2019 Years ended September 30, September 30, (Unaudited) 2018 2017 2016 2015 2014 (1) OPERATING PERFORMANCE FOR A SHARE OUTSTANDING THROUGHOUT EACH PERIOD Net asset value per share, beginning of period $21.11 $20.12 $19.14 $18.77 $19.33 $19.10(2) Net investment income (loss) (3) 0.04 0.13 0.16 0.18 0.11 (0.01) Net realized and unrealized gain (loss) (0.94) 2.15 2.16 1.78 0.68 0.39 Total increase (decrease) from investment operations (0.90) 2.28 2.32 1.96 0.79 0.38 Distributions to shareholders from: Income distributions to shareholders (0.68) (0.58) (1.03) (1.65) (1.35) (0.11) Net realized capital gains — (0.77) (0.32) — — — Total distributions (0.68) (1.35) (1.35) (1.65) (1.35) (0.11) Capital charges with respect to issuance of shares — — — — — (0.04) Increase resulting from shares repurchased (3) 0.03 0.06 0.01 0.06 — — Net asset value per share, end of period $19.56 $21.11 $20.12 $19.14 $18.77 $19.33 Per share market value, end of period $17.62 $18.74 $18.57 $17.48 $16.30 $18.85 Total investment return at market value (2.33%)* 9.00% 14.85% 18.25% (7.37%) (5.42%)* Total investment return at net asset value (3.70%)* 13.32% 13.64% 12.44% 4.02% 2.02%* RATIOS Expenses to average net assets 2.40%** 2.21% 2.03% 1.88% 1.60% 1.28%** Expenses, excluding interest expense 1.49%** 1.49% 1.51% 1.50% 1.44% 1.28%** Net investment income (loss) to average net assets 0.36%** 0.69% 0.86% 0.96% 0.50% (0.41%)** SUPPLEMENTAL DATA Net assets at end of period (in millions) $811 $888 $876 $837 $824 $848 Portfolio turnover rate 15.82%* 39.59% 36.22% 48.24% 92.61% 19.61%* * Not Annualized. ** Annualized. (1) Commenced operations on July 31, 2014. (2) Net asset value beginning of period reflects a deduction of $0.90 per share sales charge from the initial offering price of $20.00 per share. (3) Computed using average shares outstanding. The accompanying notes are an integral part of these financial statements. 21


  • Page 24

    T EKLA H EALTHCARE O PPORTUNITIES F UND NOTES TO FINANCIAL STATEMENTS MARCH 31, 2019 (Unaudited) (1) Organization and Significant Accounting Policies Tekla Healthcare Opportunities Fund (the Fund) is a Massachusetts business trust formed on April 2, 2014 and registered under the Investment Company Act of 1940 as a non-diversified closed-end management investment company. The Fund commenced operations on July 31, 2014. The Fund’s investment objective is to seek current income and long-term capital appre- ciation through investments in U.S. and non-U.S. companies in the healthcare industry (in- cluding equity securities, debt securities and pooled investment vehicles). 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 Fund may invest in private companies and other restricted securities, including private investments in public equity and venture capital investments, if these securities would currently comprise 10% or less of Managed Assets. 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 March 31, 2019, through the date that the financial statements were issued, have been evaluated in the preparation of these financial statements. Clarification in Foreign Security Investment Definition Effective January 31, 2019, the Fund will not invest more than 20% of its Managed Assets as measured at the time of investment in non-U.S. securities, which may include securities de- nominated in the U.S. dollars or in non-U.S. currencies or multinational currency units. The Fund may invest in non-U.S. securities of so-called emerging market issuers. For purposes of the Fund, the Adviser determines, in its discretion, whether a company is a non-U.S. company using an independent analysis of one or more classifications assigned by third parties. These classifications are generally based on a number of criteria, including a company’s country of domicile, the primary stock exchange on which a company’s securities trade, the location from which the majority of a company’s revenue is derived, and a company’s reporting cur- rency. Non-U.S. securities markets generally are not as developed or efficient as those in the United States. Securities of some non-U.S. issuers are less liquid and more volatile than secu- rities of comparable U.S. issuers. Similarly, volume and liquidity in most non-U.S. securities markets are less than in the United States and, at times, price volatility can be greater than in the United States. Change in Debt Investment Strategy The Board approved on March 21, 2019, an increase in the Fund’s limit on debt security in- vestments from 15% of Managed Assets to 20% of Managed Assets. This change was effective on March 29, 2019. 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) has established 22


  • Page 25

    T EKLA H EALTHCARE O PPORTUNITIES F UND NOTES TO FINANCIAL STATEMENTS MARCH 31, 2019 (continued) 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 bid price in the case of exchange traded options or, in the case of OTC-traded options, the average of the last bid price as obtained from two or more dealers unless there is only one dealer, in which case that dealer’s price is used. Forward foreign currency contracts are valued on the basis of the value of the underlying currencies at the prevailing currency exchange rate. 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 restric- tion 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 pub- licly 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 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 in- puts. 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 23


  • Page 26

    T EKLA H EALTHCARE O PPORTUNITIES F UND NOTES TO FINANCIAL STATEMENTS MARCH 31, 2019 (continued) (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 pur- chasing 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 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 average number of outstanding call options written and options purchased for the six months ended March 31, 2019 were 6,642 and 1,315 respectively. Derivatives not accounted for as hedging instruments Statement of Assets and under ASC 815 Liabilities Location Statement of Operations Location Equity Contracts Assets, Options Net realized gain on purchased, at closed or expired option value $824,050 contracts purchased $— Change in unrealized appreciation (depreciation) on option contracts purchased ($621,438) 24


  • Page 27

    T EKLA H EALTHCARE O PPORTUNITIES F UND NOTES TO FINANCIAL STATEMENTS MARCH 31, 2019 (continued) 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 $984,430 closed or expired option contracts written $2,178,131 Change in unrealized appreciation (depreciation) on option contracts written $623,717 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 six months ended March 31, 2019 totaled $158,782,318 and $197,237,302, 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 re- tention 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 $0.1125 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 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. 25


  • Page 28

    T EKLA H EALTHCARE O PPORTUNITIES F UND NOTES TO FINANCIAL STATEMENTS MARCH 31, 2019 (continued) Share Repurchase Program In March 2019, the Trustees approved the renewal of the share repurchase program to allow the Fund to purchase up to 12% of its outstanding common shares in the open market for a one-year period ending July 14, 2020. Prior to this renewal, in March 2018, the Trustees ap- proved 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 July 14, 2019. The share repurchase program is intended to enhance shareholder value and potentially reduce the discount between the market price and the Fund’s shares and the Fund’s net asset value. During the six months March 31, 2019, the Fund repurchased 610,415 shares at a total cost of $10,638,148. 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 10.17%. During the year ended September 30, 2018, the Fund repurchased 1,443,016 shares at a total cost of $25,422,774. 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 9.68%. 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, 2019, 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. The cumulative distributions paid this fiscal year-to-date are currently estimated to be from the following sources: net investment income, net realized short-term capital gains, net realized long-term capital gains, and return of capital or other capital source. The amounts and sources of distributions are only estimates and not being provided for tax reporting purposes. The ac- tual amounts and sources of the amounts for tax reporting purposes will depend upon the Fund’s investment experience during the remainder of its fiscal year and may be subject to changes based on tax regulations. 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, 2019. 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. Additionally, in the normal course of business, the Fund enters into agreements with 26


  • Page 29

    T EKLA H EALTHCARE O PPORTUNITIES F UND NOTES TO FINANCIAL STATEMENTS MARCH 31, 2019 (continued) 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. Loan Payable The Fund maintains a $225,000,000 line of credit with the Bank of Nova Scotia (the “Line of Credit”) which expires on January 31, 2020. As of March 31, 2019, the Fund had drawn down $225,000,000 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 0.25% (per annum). Per the Line of Credit agreement, the Fund paid an upfront fee of 0.05% on the total line of credit balance, which is being amortized through January 30, 2020. 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, 2018 to March 31, 2019 were 3.2236% and $225,000,000, 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 March 31, 2019. Investor Support Services The Fund has retained Destra Capital Advisors 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 0.05% of the average aggregate daily value of the Fund’s Managed Assets pursuant to 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 portion of the payment of salary and provision of benefits to the Fund’s Chief Compliance Officer. During the six months ended March 31, 2019, these payments amounted to $46,772 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. 27


  • Page 30

    T EKLA H EALTHCARE O PPORTUNITIES F UND NOTES TO FINANCIAL STATEMENTS MARCH 31, 2019 (continued) (3) Other Transactions with Affiliates An affiliate company is a company in which the Fund holds 5% or more of the voting securities. Transactions involving such companies during the six months ended March 31, 2019 were as follows: Net Realized Beginning Gain/(Loss) Change in Ending Value Value as of on sale of Unrealized as of September 30, Purchase at Proceeds Affiliated Appreciation/ March 31, Affiliated Companies 2018 Cost from Sales Companies Depreciation 2019 Egalet Corp $700,000* $— $— $— $15 $700,015 $700,000 $— $— $— $15 $700,015 * Not an affiliate at September 30, 2018 Shares/ Dividend/ Principal Interest Capital Gain Amount as of Income from Distributions March 31, Affiliated from Affiliated 2019 Companies Companies Egalet Corp 656,921 $— $— 656,921 $— $— (4) 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 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. The following is a summary of the levels used as of March 31, 2019 to value the Fund’s net assets. Assets at Value Level 1 Level 2 Level 3 Total Convertible Preferred And Warrants Biotechnology $— $— $11,958,188 $11,958,188 Health Care Equipment & Supplies — — 790,548 790,548 Convertible Notes Biotechnology — — 834,560 834,560 Health Care Equipment & Supplies — — 544,994 544,994 Non-convertible Notes Biotechnology — 23,627,014 — 23,627,014 Health Care Equipment & Supplies — 17,915,198 — 17,915,198 Health Care Providers & Services — 78,598,689 — 78,598,689 Pharmaceuticals — 13,050,543 — 13,050,543 28


  • Page 31

    T EKLA H EALTHCARE O PPORTUNITIES F UND NOTES TO FINANCIAL STATEMENTS MARCH 31, 2019 (continued) Assets at Value Level 1 Level 2 Level 3 Total Common Stocks And Warrants Biotechnology $141,061,971 $— $65,806 $141,127,777 Health Care Equipment & Supplies 116,687,729 — — 116,687,729 Health Care Providers & Services 146,109,619 — — 146,109,619 Healthcare Services 3,953,003 — — 3,953,003 Life Sciences Tools & Services 38,227,061 — — 38,227,061 Medical Devices And Diagnostics 55,135,847 — — 55,135,847 Pharmaceuticals 265,204,193 — 700,015 265,904,208 Real Estate Investment Trusts 59,982,030 — — 59,982,030 Short-term Investment — 42,806,000 — 42,806,000 Total $826,361,453 $175,997,444 $14,894,111 $1,017,253,008 Other Financial Instruments Assets Options Contracts Purchase $824,050 $— $— $824,050 Liabilities Options Contracts Written (984,430) — — (984,430) Total ($160,380) $— $— ($160,380) The following is a reconciliation of Level 3 assets for which significant unobservable inputs were used to determine fair value. Net realized gain (loss) and Net change in Cost of Proceeds transfers Balance Balance as of unrealized purchases from in as of September 30, appreciation and sales and (out) of March 31, Investments in Securities 2018 (depreciation) converstions converstions Level 3 2019 Convertible Preferred and Warrants Biotechnology $8,675,519 ($201,900) $7,705,121 ($4,220,552) $0 $11,958,188 Health Care Equipment & Supplies 790,548 0 0 0 0 790,548 Convertible Notes Biotechnology 0 0 834,560 0 0 834,560 Health Care Equipment & Supplies 459,441 0 85,553 0 0 544,994 Pharmaceuticals 700,000 0 0 (700,000) 0 0 Common Stocks and Warrants Biotechnology 162,591 (96,785) 0 0 0 65,806 Pharmaceuticals 0 15 700,000 0 0 700,015 Total $10,788,099 ($298,670) $9,325,234 ($4,920,552) $0 $14,894,111 Net change in unrealized appreciation (depreciation) from investments still held as of March 31, 2019 ($2,491,200) 29


  • Page 32

    T EKLA H EALTHCARE O PPORTUNITIES F UND NOTES TO FINANCIAL STATEMENTS MARCH 31, 2019 (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 March 31, Range 2019 Valuation Technique Unobservable Input (Weighted Average) Private Companies and Other Restricted $65,806 Income approach, Discount for lack of 20% (20%) Securities Black-Scholes marketability 4,920,102 Proabability-weighted Discount rate 24.24%-35.14% (32.18%) expected return Price to sales multiple 3.65x-4.34x (4.15x) model 7,114,423 Market approach, (a) N/A recent transaction 2,793,780 Market Comparable Discount for lack of 15.00% (15.00%) marketability Earnings ratio 4.60x (4.60x) $14,894,111 (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 to provide as these methods of measure are investment specific. (5) 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 1% of the Fund’s Managed Assets at March 31, 2019. At March 31, 2019, the Fund had a commitment of $268,873 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, 2019. 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 Atreca, Inc. Series C1 Cvt. Pfd 09/05/18 $1,749,998 $2.33 $1,749,998 Decipher Biosciences, Inc. Series II Cvt. Pfd 03/29/19 4,220,551 0.91 826,389 Series III Cvt. Pfd 03/29/19 954,747 2.17 1,967,391 Galera Therapeutics, Inc. Series C Cvt. Pfd 08/30/18 2,450,062 2.21 2,449,999 IlluminOss Medical, Inc. Series AA Cvt. Pfd 01/21/16 284,688 1.00 407,078 Junior Preferred 01/21/16 132,722 1.00 383,470 Cvt. Promissory Note 03/28/17 131,241 100.00 131,170 Cvt. Promissory Note 12/20/17 43,796 100.00 43,770 Cvt. Promissory Note 01/11/18 87,548 100.00 87,539 30


  • Page 33

    T EKLA H EALTHCARE O PPORTUNITIES F UND NOTES TO FINANCIAL STATEMENTS MARCH 31, 2019 (continued) Acquisition Carrying Value Security (#) Date Cost per Unit Value Cvt. Promissory Note 02/06/18 $87,539 $100.00 $87,539 Cvt. Promissory Note 09/05/18 109,424 100.00 109,424 Cvt. Promissory Note 01/28/19 85,552 100.00 85,552 Warrants (expiration 03/31/27) 03/28/17 152 0.00 0 Warrants (expiration 09/06/27) 09/05/18 0 0.00 0 Warrants (expiration 11/20/27) 11/21/17 40 0.00 0 Warrants (expiration 01/11/28) 01/11/18 13 0.00 0 Warrants (expiration 02/06/28) 02/06/18 0 0.00 0 Warrants (expiration 01/29/29) 01/28/19 0 0.00 0 Oculis SA, Series B2 Cvt. Pfd 01/16/19 2,227,160 8.36 2,214,411 Rainier Therapeutics, Inc. Series A Cvt. Pfd 01/19/16, 10/24/16 1,651,214 0.65 1,650,000 Series B Cvt. Pfd 03/03/17 1,100,073 0.75 1,100,000 Cvt. Promissory Note 01/30/19 417,280 100.00 417,280 Cvt. Promissory Note 03/28/19 417,280 100.00 417,280 $16,151,080 $14,128,290 (#) See Schedule of Investments and corresponding footnotes for more information on each issuer. 31


  • Page 34

    T EKLA H EALTHCARE O PPORTUNITIES F UND INVESTMENT ADVISORY AGREEMENT APPROVAL The Investment Advisory Agreement (the Advisory Agreement) between the Fund and the Adviser continues in effect so long as its continuance is approved at least annually by (i) the Trustees of the Fund and (ii) a majority of the Trustees of the Fund who are not interested persons (the Independent Trustees), by vote cast in person at a meeting called for the purpose of voting on such approval. After considering the matter in a meeting held on March 21, 2019, the Board, and the Inde- pendent Trustees voting separately, determined that the terms of the Advisory Agreement are fair and reasonable and approved the continuance of the Advisory Agreement as being in the best interests of the Fund and its shareholders. In making its determination, the Board considered materials that were specifically prepared by the Adviser and by an independent data provider at the request of the Board and Fund counsel for purposes of the contract re- view process, including comparisons of (i) the Fund’s performance to a variety of equity, debt and REIT benchmarks and to a peer group of other investment companies, (ii) the Fund’s expenses and expense ratios to those of a peer group of other investment companies, and (iii) the Adviser’s profitability with respect to its services for the Fund to the profitability of other investment advisers. The Trustees took into account that the Adviser provides in- vestment management services only to Tekla Healthcare Opportunities Fund, Tekla Life Sci- ences Investors, Tekla Healthcare Investors and Tekla World Healthcare Fund and does not derive any significant benefit from its relationship with the Fund other than receipt of advisory fees pursuant to the Advisory Agreement, market research and potential marketing exposure for the Adviser. The Board also received and reviewed information throughout the year about the portfolio performance, the investment strategy, the portfolio management team and the fees and expenses of the Fund. In their deliberations, the Independent Trustees had the op- portunity to meet privately without representatives of the Adviser present and were repre- sented throughout the process by counsel to the Independent Trustees and the Fund. In approving the Advisory Agreement, the Board considered, among other things, the nature, extent, and quality of the services to be provided by the Adviser, the investment performance of the Fund and the Adviser, the costs of services provided and profits realized by the Adviser and its affiliates, and whether fee levels reflect any economies of scale for the benefit of Fund shareholders and the extent to which economies of scale would be realized as the Fund grows. The Board reviewed information about the foregoing factors and considered changes, if any, in such information since its previous approval. The Board also evaluated the financial strength of the Adviser and the capability of the personnel of the Adviser, specif- ically the strength and background of its investment analysts. Fund counsel provided the Board with the statutory and regulatory requirements for approval and disclosure of invest- ment advisory agreements. The Board, including the Independent Trustees, evaluated all of the foregoing and, considering all factors together, determined in the exercise of its business judgment that the continuance of the Advisory Agreement is in the best interests of the Fund and its shareholders. The following provides more detail on certain factors considered by the Trustees and the Board’s conclusions with respect to each such factor. The nature, extent and quality of the services to be provided by the Adviser. On a regular basis the Board considers the roles and responsibilities of the Adviser as a whole, along with spe- cific portfolio management, support and trading functions the Adviser provides to the Fund. The Trustees considered the nature, extent and quality of the services provided by the Adviser to the Fund. The Trustees continue to be satisfied with the quality and value of the investment advisory services provided to the Fund by the Adviser, and, in particular, the management style and discipline followed by the Adviser and the quality of the Adviser’s research, trading, portfolio management, compliance and administrative personnel. The Trustees also took into account the Adviser’s significant investment in its business through the addition of portfolio 32


  • Page 35

    T EKLA H EALTHCARE O PPORTUNITIES F UND INVESTMENT ADVISORY AGREEMENT APPROVAL (continued) management and administrative staff in recent years and the Adviser’s commitment to con- tinue to build out its infrastructure as future circumstances require. The investment performance of the Fund and the Adviser. On a regular basis the Board reviews performance information of the Fund and discusses the Fund’s investment strategy with the Adviser. The Trustees reviewed performance information for the Fund and, in particular, per- formance information for the one-year and three-year periods ending December 31, 2018. The Trustees noted that longer comparison cannot be made due to the short operating history of the Fund. In addition, the Trustees reviewed comparisons of the Fund’s perform- ance, individually and in combination, to the S&P Composite 1500® Health Care Index (S15HLTH), the S&P 500® Health Care Corporate Bond Index (SP5HCBIT) and the FTSE NAREIT Health Care Property Sector Index® (FNHEA). The Trustees also compared perform- ance to a peer group of funds as well as information relating to the performance of the Fund’s venture capital portfolio. The Trustees noted that the performance information re- viewed reflects a view of the Fund’s performance only as of a certain date, and that the results might be significantly different if a different date was selected to generate the per- formance information. Additionally, the Trustees recognized that longer periods of perform- ance for the Fund may be adversely and disproportionately affected by significant underperformance in one more recent period, and that such underperformance may be caused by a small number of investment decisions or positions. The objective of the Fund is to provide both growth and income to investors by using a va- riety of healthcare assets. Growth, in large part, is to be provided by the Fund’s ownership of the stock of a broad mix of healthcare companies. Such breadth is to be provided by rep- resentative ownership of stock in most or all of ten major healthcare subsectors represented in the S15HLTH. Income is to be provided by (i) ownership of a variety of assets including but not limited to a) dividend producing stocks of traditional healthcare companies and healthcare-related REITS, b) the corporate debt of a variety of healthcare companies and (ii) premium income from selling covered call options associated with healthcare companies. The Trustees considered that the performance associated with owning such a complex mix of assets by the Fund is likely to produce periods when the performance of the Fund would likely depart from the return associated with a single equity index. The Trustees thus consid- ered that there may be periods when the Fund’s NAV performance could be greater or lesser than that of relevant indices. The Trustees considered that determining such an exact com- bination of returns is difficult or impossible, given the general lack of appropriate component equity, debt, REIT, covered call and other indices. The Trustees noted that as of December 31, 2018 the Fund underperformed a composite of the S15HLTH, SP5HCBIT and FNHEA aggregated to represent the Fund’s target allocation of these benchmarks for both the one-year and three-year periods. However, the Fund outper- formed the average return of an independently selected fund comparison group for these same one- and three-year periods ending December 31, 2018. In considering the Fund’s relative performance, the Trustees noted that, although an inde- pendent service provider had been engaged to help identify the appropriate benchmark and peer group for the Fund, the Fund’s unique strategy presents challenges when comparing the Fund’s performance to a single benchmark or peer group as no single benchmark or fund within the peer group contains exactly the same investment strategy as the Fund. The Trustees observed that the Fund’s strategy contemplates ownership of a variety of health- care-related asset classes. The Trustees noted that, as a result, all other things being equal, in periods when one asset class performs relatively better than another asset class, the Fund might be expected to underperform a particular benchmark and/or the peer group and vice 33


  • Page 36

    T EKLA H EALTHCARE O PPORTUNITIES F UND INVESTMENT ADVISORY AGREEMENT APPROVAL (continued) versa. Additionally, the Trustees noted that unlike the indices comprising the blended bench- mark and most of the peer group, the Fund may maintain a meaningful allocation to venture and restricted securities. In light of these differences, the Trustees recognized the more limited usefulness of these performance comparisons for the Fund. The Trustees concluded they continue to be satisfied with the investment performance of the Fund and the Adviser. The costs of services to be provided and profits to be realized by the Adviser from its relationship with the Fund. The Trustees considered the various services provided by the Adviser to the Fund and reviewed comparative information regarding the expenses and expense ratios of the Fund and a peer group of other investment companies. The Trustees noted that the Ad- viser’s fees are within the range of fees presented in the comparative information and noted that a portion of the Fund’s investment portfolio is invested in venture and restricted securities, a portfolio management service that can warrant higher management fees than those charged by the Adviser to the Fund. The Trustees also considered financial information provided by the Adviser, including financial statements of the Adviser and a comparison of the Adviser’s profitability with respect to its services for the Fund to the profitability of other investment advisers. The Trustees noted that the fees charged by the Adviser are within a reasonable range of fees as compared to fees charged by other investment advisers, and the services provided by the Adviser and the amounts paid under the Advisory Agreement are at least comparable to the services rendered and fees charged by others for similar services to warrant a finding that fees to be paid by the Fund are fair. Based on the information provided to and evaluated by the Trustees, the Trustees concluded that the fees charged by the Adviser are fair and rea- sonable in light of the quality and nature of the services provided by the Adviser and that the profitability of the Adviser’s relationship with the Fund has not been excessive. Whether fee levels reflect economies of scale and the extent to which economies of scale would be realized as the Fund grows. The Trustees considered the advisory fee schedule in the Ad- visory Agreement and noted that it does not provide for breakpoints that might reduce the effective fee to the extent that the Fund’s net assets should increase. The Trustees determined that, given the closed-end structure of the Fund and the fact that the Fund has no current plans to seek additional assets beyond maintaining its dividend reinvestment plan and that any significant growth in its assets generally will occur through appreciation in the value of the Fund’s investment portfolio (rather than sales of additional shares in the Fund), the Fund’s advisory fee schedule is satisfactory and fair. 34


  • Page 37

    T EKLA H EALTHCARE O PPORTUNITIES F UND PRIVACY NOTICE: If you are a registered shareholder of the Fund, the Fund and Tekla Capital Management LLC, the Fund’s investment adviser, may receive nonpublic personal in- formation about you from the information collected by the transfer agent from your transac- tions in Fund shares. Any nonpublic personal information is not disclosed to third parties, except as permitted or required by law. In connection with servicing your account and ef- fecting transactions, the information received may be shared with the investment adviser and non-affiliates, including transfer agents, custodians or other service companies. Access to your nonpublic personal information is restricted to employees who need to know that information to provide products or services to you. To maintain the security of your nonpublic personal information, physical, electronic, and procedural safeguards are in place that comply with federal standards. The policies and practices described above apply to both current and former shareholders. If your Fund shares are held in “street name” at a bank or brokerage, we do not have access to your personal information and you should refer to your bank’s or broker’s privacy policies for a statement of the treatment of your personal information. 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-PORT. 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. 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, approximately 15 days after the end of each quarter. These fact cards will be available on the Fund’s website and by re- quest from the Fund’s marketing and investor support services agent, Destra Capital Advisors, at 1-877-855-3434. DISTRIBUTION POLICY: The Fund has a managed distribution policy as described in the Notes to Financial Statements. For more information contact your financial adviser. SHARE REPURCHASE PROGRAM: In March 2019, the Trustees approved the renewal of the share repurchase program to allow the Fund to purchase up to 12% of its outstanding common shares in the open market for a one-year period ending July 14, 2020 PORTFOLIO MANAGEMENT: Daniel R. Omstead, PhD, Jason C. Akus, MD/MBA, Timothy Gasperoni, MBA, PhD, Christian M. Richard, MBA, MS, Henry Skinner, PhD, Ashton L.Wilson, Christopher Abbott, Robert Benson, CFA, CAIA, Richard Goss, Alan Kwan, MBA, PhD and Loretta Tse, PhD are members of a team that analyzes investments on behalf of the Fund. Dr. Omstead exercises ultimate decision making authority with respect to investments. HOUSEHOLDING: A number of banks, brokers and financial advisers have instituted “householding”. Under this practice, which has been approved by the SEC, only one copy of shareholder documents may be delivered to multiple shareholders who share the same ad- dress and satisfy other conditions. Householding is intended to reduce expenses and elimi- nate duplicate mailings of shareholder documents. If you do not want the mailing of your shareholder documents to be combined with those of other members of your household, please contact your bank, broker or financial adviser. 35


  • Page 38

    T EKLA H EALTHCARE O PPORTUNITIES F UND New York Stock Exchange Symbol: THQ NAV Symbol: XTHQX 100 Federal Street, 19th Floor Boston, Massachusetts 02110 (617) 772-8500 www.teklacap.com Officers Daniel R. Omstead, PhD, President Laura Woodward, CPA, Chief Compliance Officer, Secretary and Treasurer Trustees Rakesh K. Jain, PhD Thomas M. Kent, CPA Elizabeth G. Nabel, MD Daniel R. Omstead, PhD Oleg M. Pohotsky, MBA, JD William S. Reardon, MBA Lucinda H. Stebbins, MBA, 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


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