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OMB APPROVAL | |
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OMB Number: |
3235-0578 |
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Expires: |
January 31, 2016 |
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UNITED STATES |
Estimated average burden hours per response . . . . . . . . . . 10.5 | |
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SECURITIES AND EXCHANGE COMMISSION |
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Washington, D.C. 20549 |
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FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY
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Investment Company Act file number |
811-22955 | |||||||
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Tekla Healthcare Opportunities Fund | ||||||||
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(Exact name of registrant as specified in charter) | ||||||||
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100 Federal Street, 19th Floor, Boston, MA |
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02110 | ||||||
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(Address of principal executive offices) |
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(Zip code) | ||||||
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(Name and address of agent for service) | ||||||||
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Registrant’s telephone number, including area code: |
617-772-8500 |
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Date of fiscal year end: |
September 30 |
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Date of reporting period: |
12/31/15 |
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Item 1. Schedule of Investments.
TEKLA HEALTHCARE OPPORTUNITIES FUND
SCHEDULE OF INVESTMENTS
DECEMBER 31, 2015
(Unaudited)
|
PRINCIPAL |
|
|
|
VALUE |
| ||
|
|
|
CONVERTIBLE AND NON-CONVERTIBLE NOTES — 20.2% of Net Assets |
|
|
| ||
|
|
|
Convertible Notes — 6.5% |
|
|
| ||
|
|
|
Biotechnology — 1.4% |
|
|
| ||
|
$ |
10,000,000 |
|
Cepheid, Inc., 1.25% due 2/1/21 |
|
$ |
8,893,750 |
|
|
4,000,000 |
|
Immunomedics, Inc., 4.75% due 2/15/20 (a) |
|
3,172,500 |
| ||
|
|
|
|
|
12,066,250 |
| ||
|
|
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Pharmaceuticals — 5.1% |
|
|
| ||
|
13,000,000 |
|
Aegerion Pharmaceuticals, Inc., 2.00% due 8/15/19 (a) |
|
8,628,750 |
| ||
|
14,330,000 |
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ARIAD Pharmaceuticals Inc., 3.63% due 6/15/19 (a) |
|
14,168,788 |
| ||
|
14,700,000 |
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Corsicanto Ltd, 3.50% due 1/15/32 |
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13,303,500 |
| ||
|
7,000,000 |
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Egalet Corporation, 5.50% due 4/1/20 (a) |
|
7,297,500 |
| ||
|
|
|
|
|
43,398,538 |
| ||
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|
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TOTAL CONVERTIBLE NOTES |
|
55,464,788 |
| ||
|
|
|
|
|
|
| ||
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|
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Non-Convertible Notes — 13.7% |
|
|
| ||
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|
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Biotechnology — 1.2% |
|
|
| ||
|
10,000,000 |
|
Amgen Inc. 3.63% due 5/15/22 |
|
10,272,160 |
| ||
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|
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Health Care Equipment & Supplies — 2.9% |
|
|
| ||
|
14,610,000 |
|
Alere, Inc., 6.50% due 6/15/20 |
|
14,025,600 |
| ||
|
5,000,000 |
|
Medtronic, Inc., 3.50% due 3/15/25 |
|
5,040,850 |
| ||
|
6,000,000 |
|
Zimmer Biomet Holdings, Inc., 4.25% due 8/15/35 |
|
5,593,554 |
| ||
|
|
|
|
|
24,660,004 |
| ||
|
|
|
Health Care Providers & Services — 8.1% |
|
|
| ||
|
12,693,000 |
|
Acadia Healthcare Co Inc., 5.13% due 7/01/22 |
|
11,867,955 |
| ||
|
10,500,000 |
|
Anthem Inc., 3.50% due 8/15/24 |
|
10,252,011 |
| ||
|
8,665,000 |
|
Cigna Corporation, 5.88% due 3/15/41 |
|
9,965,980 |
| ||
|
8,250,000 |
|
Express Scripts Holding Company, 6.13% due 11/15/41 |
|
9,375,366 |
| ||
|
9,700,000 |
|
HCA Holdings, Inc., 6.25% due 2/15/21 |
|
10,257,750 |
| ||
|
7,500,000 |
|
HealthSouth Corp, 5.75% due 11/01/24 |
|
7,153,125 |
| ||
|
10,500,000 |
|
UnitedHealth Group Inc., 4.38% due 3/15/42 |
|
10,318,571 |
| ||
|
|
|
|
|
69,190,758 |
| ||
|
|
|
Pharmaceuticals — 1.5% |
|
|
| ||
|
4,750,000 |
|
AstraZeneca PLC, 6.45% due 9/15/37 (e) |
|
6,006,845 |
| ||
|
780,000 |
|
Mallinckrodt International Finance SA, 4.75% due 4/15/23 |
|
690,300 |
| ||
|
5,020,000 |
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Wyeth LLC, 5.95% due 4/01/37 |
|
5,968,941 |
| ||
|
|
|
|
|
12,666,086 |
| ||
|
|
|
TOTAL NON-CONVERTIBLE NOTES |
|
116,789,008 |
| ||
|
|
|
TOTAL CONVERTIBLE AND NON-CONVERTIBLE NOTES |
|
172,253,796 |
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|
SHARES |
|
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COMMON STOCKS AND WARRANTS — 98.5% |
|
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Biotechnology — 39.5% |
|
|
|
|
156 |
|
AbbVie Inc. |
|
9,241 |
|
The accompanying notes are an integral part of this Schedule of Investments.
|
SHARES |
|
|
|
VALUE |
| |
|
|
|
Biotechnology — continued |
|
|
| |
|
141,890 |
|
Alexion Pharmaceuticals, Inc. (b) |
|
$ |
27,065,517 |
|
|
72,601 |
|
Alkermes plc (b) |
|
5,763,067 |
| |
|
146,000 |
|
Amgen Inc. |
|
23,700,180 |
| |
|
43,300 |
|
Anacor Pharmaceuticals, Inc. (b) |
|
4,891,601 |
| |
|
319,600 |
|
Baxalta Inc. |
|
12,473,988 |
| |
|
133,931 |
|
Biogen Inc. (b) |
|
41,029,762 |
| |
|
23,500 |
|
BioMarin Pharmaceutical Inc. (b) |
|
2,461,860 |
| |
|
499,142 |
|
Celgene Corporation (b) |
|
59,777,246 |
| |
|
159,000 |
|
Cepheid, Inc. (b) |
|
5,808,270 |
| |
|
305,100 |
|
Eleven Biotherapeutics, Inc. warrants (Restricted, expiration 11/24/17) (b) (d) |
|
0 |
| |
|
639,219 |
|
Gilead Sciences, Inc. |
|
64,682,571 |
| |
|
112,223 |
|
Incyte Corporation (b) |
|
12,170,584 |
| |
|
125,100 |
|
Juno Therapeutics, Inc. (b) |
|
5,500,647 |
| |
|
300,000 |
|
Karyopharm Therapeutics Inc. (b) |
|
3,975,000 |
| |
|
107,400 |
|
Medivation, Inc. (b) |
|
5,191,716 |
| |
|
320,405 |
|
Natera, Inc. (b) |
|
3,460,374 |
| |
|
1,308,385 |
|
Pieris Pharmaceuticals, Inc. (b) |
|
2,996,202 |
| |
|
165,000 |
|
Puma Biotechnology, Inc. (b) |
|
12,936,000 |
| |
|
68,700 |
|
United Therapeutics Corporation (b) |
|
10,759,107 |
| |
|
265,543 |
|
Vertex Pharmaceuticals Incorporated (b) |
|
33,413,276 |
| |
|
|
|
|
|
338,066,209 |
| |
|
|
|
Health Care Equipment & Supplies — 6.5% |
|
|
| |
|
11,361 |
|
Alere Inc. (b) |
|
444,101 |
| |
|
319,600 |
|
Baxter International Inc. |
|
12,192,740 |
| |
|
551,000 |
|
Endologix Inc. (b) |
|
5,454,900 |
| |
|
255,810 |
|
St. Jude Medical, Inc. |
|
15,801,384 |
| |
|
123,940 |
|
Stryker Corporation |
|
11,518,984 |
| |
|
102,300 |
|
Zimmer Biomet Holdings, Inc. |
|
10,494,957 |
| |
|
|
|
|
|
55,907,066 |
| |
|
|
|
Health Care Providers & Services — 13.3% |
|
|
| |
|
209,572 |
|
Community Health Systems, Inc. (b) |
|
5,559,945 |
| |
|
372,672 |
|
HCA Holdings, Inc. (b) |
|
25,203,807 |
| |
|
112,000 |
|
Humana Inc. |
|
19,993,120 |
| |
|
135,360 |
|
Molina Healthcare, Inc. (b) |
|
8,139,197 |
| |
|
164,500 |
|
Tenet Healthcare Corporation (b) |
|
4,984,350 |
| |
|
342,121 |
|
UnitedHealth Group, Inc. |
|
40,247,114 |
| |
|
22,224 |
|
Universal Health Services, Inc. |
|
2,655,546 |
| |
|
88,652 |
|
WellCare Health Plans, Inc. (b) |
|
6,933,473 |
| |
|
|
|
|
|
113,716,552 |
| |
|
|
|
Health Care Technology — 0.3% |
|
|
| |
|
173,600 |
|
Allscripts Healthcare Solutions, Inc. (b) |
|
2,669,968 |
| |
|
|
|
|
|
|
| |
|
|
|
Life Sciences Tools & Services — 2.4% |
|
|
| |
|
396,800 |
|
Agilent Technologies, Inc. |
|
16,590,208 |
| |
The accompanying notes are an integral part of this Schedule of Investments.
|
SHARES |
|
|
|
VALUE |
| |
|
|
|
Life Sciences Tools & Services — continued |
|
|
| |
|
25,750 |
|
Thermo Fisher Scientific Inc. |
|
$ |
3,652,638 |
|
|
|
|
|
|
20,242,846 |
| |
|
|
|
Pharmaceuticals — 25.8% |
|
|
| |
|
145,970 |
|
Allergan plc (b) |
|
45,615,625 |
| |
|
884,612 |
|
Johnson & Johnson |
|
90,867,345 |
| |
|
585,000 |
|
Merck & Co., Inc. |
|
30,899,700 |
| |
|
965,037 |
|
Pfizer Inc. |
|
31,151,394 |
| |
|
331,118 |
|
Teva Pharmaceutical Industries Ltd. (c) |
|
21,734,586 |
| |
|
|
|
|
|
220,268,650 |
| |
|
|
|
Real Estate Investment Trusts — 10.7% |
|
|
| |
|
73,195 |
|
Care Capital Properties, Inc. |
|
2,237,571 |
| |
|
236,618 |
|
LTC Properties Inc. |
|
10,207,700 |
| |
|
1,153,574 |
|
Medical Properties Trust, Inc. |
|
13,277,637 |
| |
|
413,116 |
|
Omega Healthcare Investors Inc. |
|
14,450,798 |
| |
|
1,050,902 |
|
Physicians Realty Trust |
|
17,718,208 |
| |
|
456,190 |
|
Sabra Health Care REIT Inc. |
|
9,228,724 |
| |
|
479,604 |
|
Senior Housing Properties Trust |
|
7,117,323 |
| |
|
15,000 |
|
Ventas Realty, LP / Ventas Capital Corporation |
|
391,650 |
| |
|
292,782 |
|
Ventas, Inc. |
|
16,521,688 |
| |
|
|
|
|
|
91,151,299 |
| |
|
|
|
Real Estate Management & Development — 0.0% |
|
|
| |
|
5,323 |
|
The RMR Group Inc, Class A. (b) |
|
76,704 |
| |
|
|
|
TOTAL COMMON STOCKS AND WARRANTS |
|
842,099,294 |
| |
|
|
|
|
|
|
| |
|
|
|
PREFERRED STOCK — 1.4% |
|
|
| |
|
|
|
Real Estate Investment Trusts — 1.4% |
|
|
| |
|
200,000 |
|
Welltower, Inc. |
|
12,182,000 |
| |
|
|
|
TOTAL PREFERRED STOCK |
|
12,182,000 |
| |
|
|
|
|
|
|
| |
|
|
|
MANDATORY CONVERTIBLE PREFERRED STOCK — 2.1% |
|
|
| |
|
|
|
Pharmaceuticals — 2.1% |
|
|
| |
|
5,000 |
|
Allergan plc, 5.50% due 03/01/18 |
|
5,150,900 |
| |
|
13,000 |
|
Teva Pharmaceutical Industries Ltd., 7.00% due 12/15/18 |
|
13,225,659 |
| |
|
|
|
TOTAL MANDATORY CONVERTIBLE PREFERRED STOCK |
|
18,376,559 |
| |
The accompanying notes are an integral part of this Schedule of Investments.
|
PRINCIPAL |
|
|
|
VALUE |
| ||
|
|
|
SHORT-TERM INVESTMENT — 4.0% |
|
|
| ||
|
$ |
33,712,000 |
|
Repurchase Agreement, Fixed Income Clearing Corp., repurchase value $33,712,000, 0.03%, dated 12/31/15, due 01/04/16 (collateralized by Federal Home Loan Banks 3.180%, due 12/06/32, market value $32,450,844 and Federal National Mortgage Association 3.400%, due 09/27/32, market value $1,938,938) |
|
$ |
33,712,000 |
|
|
|
|
TOTAL SHORT-TERM INVESTMENT |
|
33,712,000 |
| ||
|
|
|
TOTAL INVESTMENTS - 126.2% |
|
1,078,623,649 |
| ||
|
|
|
OTHER LIABILITIES IN EXCESS OF ASSETS - (26.2)% |
|
(223,643,850 |
) | ||
|
|
|
NET ASSETS - 100% |
|
$ |
854,979,799 |
| |
|
(a) |
|
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. |
|
(b) |
|
Non-income producing security. |
|
(c) |
|
American Depository Receipt |
|
(d) |
|
Security fair valued. See Investment Valuation and Fair Value Measurements. |
|
(e) |
|
Foreign security. |
The accompanying notes are an integral part of this Schedule of Investments.
TEKLA HEALTHCARE OPPORTUNITIES FUND
NOTES TO SCHEDULE OF INVESTMENTS
DECEMBER 31, 2015
(Unaudited)
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 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. Bonds, other than convertible bonds, are valued using a third-party pricing system. Convertible bonds are valued using this pricing system 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 restriction as determined in good faith by the Adviser also using fair valuation policies and procedures approved by the Trustees described below. Non-exchange traded warrants of publicly traded companies are 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.
Restricted securities as well as shares of publicly traded companies for which market quotations are not available or which do not reflect fair value are typically valued in good faith, based upon the recommendations made by the Adviser pursuant to fair valuation policies and procedures approved by the Trustees.
The Adviser has a Valuation Sub-Committee comprised of senior management which reports to the Valuation Committee of the Board at least quarterly. Each fair value determination is based on a consideration of relevant factors, including both observable and unobservable inputs. Observable and unobservable inputs the Adviser considers may include (i) the existence of any contractual restrictions on the disposition of securities; (ii) information obtained from the company, which may include an analysis of the company’s financial statements, the company’s products or intended markets or the company’s technologies; (iii) the price of the same or similar security negotiated at arm’s length in an issuer’s completed subsequent round of financing; (iv) the price and extent of public trading in similar securities of the issuer or of comparable companies; or (v) a probability and time value adjusted analysis of contractual terms. Where available and appropriate, multiple valuation methodologies are applied to confirm fair value. Significant unobservable inputs identified by the Adviser are often used in the fair value determination. A significant change in any of these inputs may result in a significant change in the fair value measurement. Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly from the values that would have been used had a ready market for the investments existed, and differences could be material. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different from the valuations used at the date of these financial statements.
TEKLA HEALTHCARE OPPORTUNITIES FUND
NOTES TO SCHEDULE OF INVESTMENTS
DECEMBER 31, 2015
(Unaudited)
(continued)
Federal Income Tax Cost
At December 31, 2015, the cost of securities for Federal income tax purposes was $1,081,063,885. The net unrealized loss on securities held by the Fund was $2,440,236, including gross unrealized gain of $56,343,644 and gross unrealized loss of $58,783,880.
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 investments. 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 that utilize actual market transactions, broker supplied valuations, and/or other 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 inputs used as of December 31, 2015 to value the Fund’s net assets. For the period ended December 31, 2015, there were no transfers between Levels 1 and 2. The Fund accounts for transfers between levels at the beginning of the period.
TEKLA HEALTHCARE OPPORTUNITIES FUND
NOTES TO SCHEDULE OF INVESTMENTS
DECEMBER 31, 2015
(Unaudited)
(continued)
|
Assets at Value |
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
| ||||
|
Convertible and Non- Convertible Notes |
|
|
|
|
|
|
|
|
| ||||
|
Convertible Notes |
|
|
|
|
|
|
|
|
| ||||
|
Biotechnology |
|
|
|
$ |
12,066,250 |
|
|
|
$ |
12,066,250 |
| ||
|
Pharmaceuticals |
|
|
|
|
43,398,538 |
|
|
|
43,398,538 |
| |||
|
Non-Convertible Notes |
|
|
|
|
|
|
|
|
| ||||
|
Biotechnology |
|
|
|
10,272,160 |
|
|
|
10,272,160 |
| ||||
|
Health Care Equipment & Supplies |
|
|
|
24,660,004 |
|
|
|
24,660,004 |
| ||||
|
Health Care Providers & Services |
|
|
|
69,190,758 |
|
|
|
69,190,758 |
| ||||
|
Pharmaceuticals |
|
|
|
12,666,086 |
|
|
|
12,666,086 |
| ||||
|
Common Stocks and Warrants |
|
|
|
|
|
|
|
|
| ||||
|
Biotechnology |
|
$ |
338,066,209 |
|
— |
|
$ |
0 |
|
338,066,209 |
| ||
|
Health Care Equipment & Supplies |
|
55,907,066 |
|
— |
|
— |
|
55,907,066 |
| ||||
|
Health Care Providers & Services |
|
113,716,552 |
|
— |
|
— |
|
113,716,552 |
| ||||
|
Health Care Technology |
|
2,669,968 |
|
— |
|
— |
|
2,669,968 |
| ||||
|
Life Sciences Tools & Services |
|
20,242,846 |
|
— |
|
— |
|
20,242,846 |
| ||||
|
Pharmaceuticals |
|
220,268,650 |
|
— |
|
— |
|
220,268,650 |
| ||||
|
Real Estate Investment Trusts |
|
91,151,299 |
|
— |
|
— |
|
91,151,299 |
| ||||
|
Real Estate Management & Development |
|
76,704 |
|
— |
|
— |
|
76,704 |
| ||||
|
Preferred Stock |
|
|
|
|
|
|
|
|
| ||||
|
Real Estate Investment Trusts |
|
12,182,000 |
|
— |
|
— |
|
12,182,000 |
| ||||
|
Mandatory Convertible Preferred Stock |
|
|
|
|
|
|
|
|
| ||||
|
Pharmaceuticals |
|
18,376,559 |
|
— |
|
— |
|
18,376,559 |
| ||||
|
Short-term Investment |
|
— |
|
33,712,000 |
|
— |
|
33,712,000 |
| ||||
|
Total |
|
$ |
872,657,853 |
|
$ |
205,965,796 |
|
$ |
0 |
|
$ |
1,078,623,649 |
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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 represented 0% of the Fund’s Managed Assets at December 31, 2015.
At December 31, 2015, the Fund had commitments of $188,458 relating to an additional investment in one private company.
Item 2. Controls and Procedures.
(a.) The registrant’s principal executive officer and principal financial officer have concluded, based on their evaluation of the registrant’s disclosure controls and procedures as conducted within 90 days of the filing date of this report, that these disclosure controls and procedures are adequately designed and are operating effectively to ensure that information required to be disclosed by the registrant on Form N-Q is (i) accumulated and communicated to the investment company’s management, including its certifying officers, to allow timely decisions regarding required disclosure; and (ii) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms.
(b.) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the registrant’s last fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 3. Exhibits.
Separate certifications for each principal executive officer and principal financial officer of the registrant as required by Rule 30a-2(a) under the Act (17 CFR 270.30a-2(a)). Filed herewith.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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(Registrant) |
Tekla Healthcare Opportunities Fund |
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By (Signature and Title) |
/s/ Daniel R. Omstead |
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Daniel R. Omstead, President |
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Date |
2/26/16 |
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Pursuant to the requirements of the Securities and Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
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By (Signature and Title) |
/s/ Laura Woodward |
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Laura Woodward, Treasurer |
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Date |
2/26/16 |
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