UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM N-Q

 

 

QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED
MANAGEMENT INVESTMENT COMPANY

 

Investment Company Act file number

811-04889

 

 

Tekla Healthcare Investors

(Exact name of registrant as specified in charter)

 

100 Federal Street, 19th Floor, Boston, MA

 

02110

(Address of principal executive offices)

 

(Zip code)

 

 

(Name and address of agent for service)

 

Registrant’s telephone number, including area code:

617-772-8500

 

 

Date of fiscal year end:

September 30

 

 

 

 

Date of reporting period:

6/30/16

 

 



 

Item 1.  Schedule of Investments.

 



 

TEKLA HEALTHCARE INVESTORS

SCHEDULE OF INVESTMENTS

JUNE 30, 2016

(Unaudited)

 

SHARES

 

 

 

VALUE

 

 

 

CONVERTIBLE PREFERRED AND WARRANTS (Restricted) (a) (b) — 4.9% of Net Assets

 

 

 

 

 

Biotechnology — 1.2%

 

 

 

1,426,649

 

Afferent Pharmaceuticals, Inc. Series C

 

$

6,890,728

 

1,553,255

 

BioClin Therapeutics, Inc. Series A

 

1,009,616

 

3,696,765

 

EBI Life Sciences, Inc. Series A (c)

 

18,854

 

2,266,666

 

GenomeDx Biosciences, Inc. Series C

 

3,399,999

 

 

 

 

 

11,319,197

 

 

 

Health Care Equipment & Supplies — 2.2%

 

 

 

3,364,723

 

AlterG, Inc. Series C

 

1,379,536

 

114,158

 

CardioKinetix, Inc. Series C

 

114

 

205,167

 

CardioKinetix, Inc. Series D

 

522,765

 

632,211

 

CardioKinetix, Inc. Series E

 

1,799,905

 

580,225

 

CardioKinetix, Inc. Series F

 

1,982,049

 

N/A

(e)

CardioKinetix, Inc. warrants (expiration 12/11/19)

 

0

 

N/A

(e)

CardioKinetix, Inc. warrants (expiration 6/03/20)

 

0

 

12,695

 

CardioKinetix, Inc. warrants (expiration 8/15/24)

 

0

 

951,000

 

IlluminOss Medical, Inc. Series AA (c)

 

951,000

 

895,848

 

IlluminOss Medical, Inc. Series Junior Preferred (c)

 

895,848

 

11,410,347

 

Insightra Medical, Inc. Series C (c)

 

11,410

 

8,661,370

 

Insightra Medical, Inc. Series C-2 (c)

 

8,661

 

815,025

 

Insightra Medical, Inc. warrants (expiration 3/31/25) (c)

 

0

 

4,482,636

 

Insightra Medical, Inc. warrants (expiration 5/28/25) (c)

 

0

 

3,260,100

 

Insightra Medical, Inc. warrants (expiration 8/18/25) (c)

 

0

 

13,823,805

 

Palyon Medical Corporation Series A (c)

 

2,944

 

27,100,879

 

Palyon Medical Corporation Series B (c)

 

1,897

 

N/A

(e)

Palyon Medical Corporation warrants (expiration 4/26/19) (c)

 

0

 

4,720,000

 

Tibion Corporation Series B

 

0

 

N/A

(e)

Tibion Corporation warrants (expiration 07/12/17)

 

0

 

N/A

(e)

Tibion Corporation warrants (expiration 10/30/17)

 

0

 

N/A

(e)

Tibion Corporation warrants (expiration 11/28/17)

 

0

 

3,750,143

 

Veniti, Inc. Series A (c)

 

6,880,013

 

1,881,048

 

Veniti, Inc. Series B (c)

 

3,545,023

 

1,031,378

 

Veniti, Inc. Series C (c)

 

2,179,714

 

 

 

 

 

20,160,879

 

 

 

Life Sciences Tools & Services — 0.7%

 

 

 

3,109,861

 

Dynex Technologies, Inc. Series A

 

1,554,931

 

142,210

 

Dynex Technologies, Inc. warrants (expiration 4/01/19)

 

0

 

11,335

 

Dynex Technologies, Inc. warrants (expiration 5/06/19)

 

0

 

3,669,024

 

Labcyte, Inc. Series C

 

4,274,413

 

160,767

 

Labcyte, Inc. Series D

 

168,484

 

 

 

 

 

5,997,828

 

 

 

Pharmaceuticals — 0.8%

 

 

 

4,118,954

 

Euthymics Biosciences, Inc. Series A (c)

 

4,119

 

77,632

 

Neurovance, Inc. Series A (c)

 

288,015

 

965,354

 

Neurovance, Inc. Series A-1 (c)

 

3,581,463

 

561,798

 

Ovid Therapeutics, Inc. Series B

 

3,500,002

 

 

 

 

 

7,373,599

 

 

 

TOTAL CONVERTIBLE PREFERRED AND WARRANTS
(Cost $55,708,882)

 

44,851,503

 

 

The accompanying notes are an integral part of this Schedule of Investments.

 



 

PRINCIPAL
AMOUNT

 

 

 

VALUE

 

 

 

CONVERTIBLE AND NON-CONVERTIBLE NOTES — 0.1% of Net Assets

 

 

 

 

 

Convertible Notes (Restricted) (a) (c) — 0.1%

 

 

 

 

 

Health Care Equipment & Supplies — 0.0%

 

 

 

$

414,000

 

Insightra Medical, Inc. Promissory Note, 8.00%, due 4/15/17

 

$

0

 

43,658

 

Palyon Medical Corporation Promissory Note, 8.00%, due 7/15/16

 

0

 

 

 

 

 

0

 

 

 

Pharmaceuticals — 0.1%

 

 

 

134,622

 

Neurovance, Inc. Cvt. Promissory Note, 6.00%, due 3/1/17

 

134,622

 

403,867

 

Neurovance, Inc. Cvt. Promissory Note, 6.00%, due 3/1/17

 

403,867

 

 

 

 

 

538,489

 

 

 

TOTAL CONVERTIBLE NOTES

 

538,489

 

 

 

Non-Convertible Notes (Restricted) (a) (b) — 0.0%

 

 

 

 

 

Health Care Equipment & Supplies — 0.0%

 

 

 

342,899

 

Tibion Corporation Non-Cvt. Promissory Note, 0.00%, due 12/31/18

 

0

 

40,596

 

Tibion Corporation Non-Cvt. Promissory Note, 0.00%, due 12/31/18

 

0

 

 

 

TOTAL NON-CONVERTIBLE NOTES

 

0

 

 

 

TOTAL CONVERTIBLE AND NON-CONVERTIBLE NOTES
(Cost $1,381,148)

 

538,489

 

 

SHARES

 

 

 

 

 

 

 

COMMON STOCKS AND WARRANTS — 89.5% of Net Assets

 

 

 

 

 

Biotechnology — 54.2%

 

 

 

175,299

 

ACADIA Pharmaceuticals Inc. (b)

 

5,690,206

 

348,916

 

Alexion Pharmaceuticals, Inc. (b)

 

40,739,432

 

278,717

 

Alkermes plc (b)

 

12,046,149

 

170,970

 

Alnylam Pharmaceuticals, Inc. (b)

 

9,487,125

 

122,083

 

Amgen Inc.

 

18,574,928

 

361,440

 

ARIAD Pharmaceuticals, Inc. (b)

 

2,671,042

 

187,390

 

Biogen Inc. (b)

 

45,314,650

 

406,545

 

BioMarin Pharmaceutical Inc. (b)

 

31,629,201

 

686,854

 

Celgene Corporation (b)

 

67,744,410

 

529,264

 

CytomX Therapeutics, Inc. (b)

 

5,406,432

 

733

 

Eiger BioPharmaceuticals, Inc. warrants (Restricted, expiration 10/10/18) (a) (b)

 

0

 

200,000

 

Epizyme, Inc. (b)

 

2,048,000

 

984,821

 

Exelixis, Inc. (b)

 

7,691,452

 

14,000

 

Galapagos NV (b) (d)

 

776,580

 

997,392

 

Gilead Sciences, Inc.

 

83,202,441

 

407,579

 

Heron Therapeutics, Inc. (b)

 

7,356,801

 

508,323

 

Incyte Corporation (b)

 

40,655,674

 

107,827

 

Medivation, Inc. (b)

 

6,501,968

 

130,000

 

Merus B.V. (b)

 

1,056,250

 

 

The accompanying notes are an integral part of this Schedule of Investments.

 



 

SHARES

 

 

 

VALUE

 

 

 

Biotechnology — continued

 

 

 

206,567

 

Merus B.V. (Restricted) (a) (b)

 

$

1,510,521

 

391,312

 

Natera, Inc. (b)

 

4,721,179

 

346,103

 

Neurocrine Biosciences, Inc. (b)

 

15,730,381

 

1,770,168

 

Pieris Pharmaceuticals, Inc. (b)

 

2,849,970

 

136,973

 

Pieris Pharmaceuticals, Inc. (Restricted) (a) (b)

 

198,474

 

54,790

 

Pieris Pharmaceuticals, Inc., Series A warrants (Restricted, expiration 6/8/21) (a) (b)

 

31,230

 

27,394

 

Pieris Pharmaceuticals, Inc., Series B warrants (Restricted, expiration 6/8/21) (a) (b)

 

18,902

 

109,644

 

Regeneron Pharmaceuticals, Inc. (b)

 

38,290,974

 

61,880

 

Ultragenyx Pharmaceutical Inc. (b)

 

3,026,551

 

474,879

 

Vertex Pharmaceuticals Incorporated (b)

 

40,849,092

 

 

 

 

 

495,820,015

 

 

 

Health Care Equipment & Supplies — 2.6%

 

 

 

240,300

 

Abbott Laboratories

 

9,446,193

 

1,155,000

 

Alliqua BioMedical, Inc. (b)

 

1,293,600

 

160,000

 

Cercacor Laboratories, Inc. (Restricted) (a) (b)

 

234,746

 

77,194

 

IDEXX Laboratories, Inc. (b)

 

7,168,235

 

60,590

 

Medtronic plc

 

5,257,394

 

10,735

 

TherOx, Inc. (Restricted) (a) (b)

 

215

 

 

 

 

 

23,400,383

 

 

 

Health Care Providers & Services — 4.6%

 

 

 

120,880

 

AmerisourceBergen Corporation

 

9,588,202

 

120,000

 

Centene Corporation (b)

 

8,564,400

 

91,826

 

HCA Holdings, Inc. (b)

 

7,071,520

 

222,222

 

InnovaCare Health, Inc. (Restricted) (a) (b) (g)

 

190,000

 

212,541

 

Molina Healthcare, Inc. (b)

 

10,605,796

 

48,076

 

Universal Health Services, Inc.

 

6,446,992

 

 

 

 

 

42,466,910

 

 

 

Life Sciences Tools & Services — 6.2%

 

 

 

227,150

 

Agilent Technologies, Inc.

 

10,076,374

 

240,532

 

Illumina, Inc. (b)

 

33,765,882

 

102,000

 

PRA Health Sciences, Inc. (b)

 

4,259,520

 

60,645

 

Thermo Fisher Scientific Inc.

 

8,960,905

 

 

 

 

 

57,062,681

 

 

 

Pharmaceuticals — 21.9%

 

 

 

91,893

 

Akorn, Inc. (b)

 

2,617,572

 

171,201

 

Allergan plc (b)

 

39,562,839

 

583,984

 

Auris Medical Holding AG (b)

 

2,446,893

 

85,667

 

Eli Lilly & Company

 

6,746,276

 

147,000

 

Endo International plc (b)

 

2,291,730

 

113,487

 

Flex Pharma, Inc. (b)

 

1,158,702

 

289,660

 

Foamix Pharmaceuticals Ltd. (b)

 

1,839,341

 

587,000

 

Horizon Pharma plc (b)

 

9,667,890

 

88,386

 

Impax Laboratories, Inc. (b)

 

2,547,285

 

131,460

 

Intra-Cellular Therapies, Inc. (b)

 

5,103,277

 

116,759

 

Jazz Pharmaceuticals plc (b)

 

16,499,214

 

382,868

 

The Medicines Company (b)

 

12,875,851

 

419,300

 

Mylan NV (b)

 

18,130,532

 

 

The accompanying notes are an integral part of this Schedule of Investments.

 



 

SHARES

 

 

 

VALUE

 

 

 

Pharmaceuticals — continued

 

 

 

483,700

 

Paratek Pharmaceuticals, Inc. (b)

 

$

6,728,267

 

673,204

 

Pfizer, Inc.

 

23,703,513

 

286,650

 

Sagent Pharmaceuticals, Inc. (b)

 

4,294,017

 

119,885

 

Shire plc (f)

 

22,068,431

 

103,558

 

Tetraphase Pharmaceuticals Inc. (b)

 

445,299

 

430,658

 

Teva Pharmaceutical Industries Ltd. (f)

 

21,631,951

 

 

 

 

 

200,358,880

 

 

 

TOTAL COMMON STOCKS AND WARRANTS
(Cost $618,598,764)

 

819,108,869

 

 

 

EXCHANGE TRADED FUND — 1.6% of Net Assets

 

 

 

57,670

 

iShares Nasdaq Biotechnology ETF

 

14,840,798

 

 

 

TOTAL EXCHANGE TRADED FUND
(Cost $11,259,769)

 

14,840,798

 

 

PRINCIPAL
AMOUNT

 

 

 

 

 

 

 

SHORT-TERM INVESTMENT— 3.3% of Net Assets

 

 

 

$

30,537,000

 

Repurchase Agreement, Fixed Income Clearing Corp., repurchase value $30,537,000, 0.03%, dated 06/30/16, due 07/01/16 (collateralized by U.S. Treasury Bond 3.125%, due 02/15/43, market value $31,148,997)

 

30,537,000

 

 

 

TOTAL SHORT-TERM INVESTMENT
(Cost $30,537,000)

 

30,537,000

 

 

 

TOTAL INVESTMENTS BEFORE MILESTONE INTEREST - 99.4%
(Cost $717,485,563)

 

909,876,659

 

 

INTEREST

 

 

 

 

 

 

 

MILESTONE INTEREST (Restricted)(a) (b) — 0.0% of Net Assets

 

 

 

 

 

Pharmaceuticals — 0.0%

 

 

 

1

 

Targegen Milestone Interest

 

0

 

 

 

TOTAL MILESTONE INTEREST
(Cost $4,194,994)

 

0

 

 

 

TOTAL INVESTMENTS - 99.4%
(Cost $721,680,557)

 

909,876,659

 

 

 

OTHER ASSETS IN EXCESS OF LIABILITIES - 0.6%

 

5,834,546

 

 

 

NET ASSETS - 100%

 

$

915,711,205

 

 


(a)

Security fair valued. See Investment Valuation and Fair Value Measurements.

(b)

Non-income producing security.

(c)

Affiliated issuers in which the Fund holds 5% or more of the voting securities (total market value of $18,907,450).

(d)

Foreign security.

(e)

Number of warrants to be determined at a future date.

 

The accompanying notes are an integral part of this Schedule of Investments.

 



 

(f)

American Depository Receipt

(g)

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

 

The accompanying notes are an integral part of this Schedule of Investments.

 



 

TEKLA HEALTHCARE INVESTORS

NOTES TO SCHEDULE OF INVESTMENTS

JUNE 30, 2016

(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. Convertible bonds, corporate and government 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. 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.

 

Convertible preferred shares, warrants or convertible note interests in private companies, milestone interests, 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 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.

 

Federal Income Tax Cost

 

At June 30, 2016, the cost of securities for Federal income tax purposes was $721,681,200. The net unrealized gain on securities held by the Fund was $188,195,459, including gross unrealized gain of $271,469,134 and gross unrealized loss of $83,273,675.

 

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 period ended June 30, 2016 were as follows:

 

Issuer

 

Value on
September 30,
2015

 

Purchases

 

Sales

 

Income

 

Value on
June 30, 2016

 

CardioKinetix, Inc.

 

$

6,169,346

 

 

 

 

 

 

 

$

*

EBI Life Sciences, Inc.

 

18,854

 

 

 

 

 

 

 

18,854

 

Euthymics Biosciences, Inc.

 

1,582,914

 

 

 

 

 

 

 

4,119

 

IlluminOss Medical, Inc.

 

3,593,974

 

$

1,050,000

 

$

99,000

 

 

 

1,846,848

 

Insightra Medical, Inc.

 

8,496,358

 

414,000

 

 

$

6,992

 

20,071

 

Neurovance, Inc.

 

5,705,132

 

538,489

 

 

10,049

 

4,407,967

 

Palyon Medical Corporation

 

4,992

 

 

107,385

 

(8,909

)

4,841

 

Veniti, Inc.

 

4,302,680

 

 

 

 

12,604,750

 

 

 

$

29,874,250

 

$

2,002,489

 

$

206,385

 

$

8,132

 

$

18,907,450

 

 


* No longer an affiliate as of June 30, 2016.

 



 

TEKLA HEALTHCARE INVESTORS

NOTES TO SCHEDULE OF INVESTMENTS

JUNE 30, 2016

(Unaudited)

(continued)

 

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 June 30, 2016 to value the Fund’s net assets. For the period ended June 30, 2016, there were no transfers between Levels 1 and 2. The Fund accounts for transfers between levels at the beginning of the period.

 

Assets at Value

 

Level 1

 

Level 2

 

Level 3

 

Total

 

Convertibe Preferred and Warrants

 

 

 

 

 

 

 

 

 

Biotechnology

 

 

 

 

 

$

11,319,197

 

$

11,319,197

 

Health Care Equipment & Supplies

 

 

 

 

 

20,160,879

 

20,160,879

 

Life Sciences Tools & Services

 

 

 

 

 

5,997,828

 

5,997,828

 

Pharmaceuticals

 

 

 

 

 

7,373,599

 

7,373,599

 

Convertible and Non-Convertible Notes

 

 

 

 

 

 

 

 

 

Health Care Equipment & Supplies

 

 

 

 

 

0

 

0

 

Pharmaceuticals

 

 

 

 

 

538,489

 

538,489

 

Common Stocks and Warrants

 

 

 

 

 

 

 

 

 

Biotechnology

 

$

494,060,888

 

 

 

1,759,127

 

495,820,015

 

Health Care Equipment & Supplies

 

23,165,422

 

 

 

234,961

 

23,400,383

 

Health Care Providers & Services

 

42,276,910

 

 

 

190,000

 

42,466,910

 

Life Sciences Tools & Services

 

57,062,681

 

 

 

 

57,062,681

 

Pharmaceuticals

 

200,358,880

 

 

 

 

200,358,880

 

Exchange Traded Fund

 

14,840,798

 

 

 

 

14,840,798

 

Short-term Investment

 

 

$

30,537,000

 

 

30,537,000

 

Other Assets

 

 

 

279,312

 

279,312

 

Total

 

$

831,765,579

 

$

30,537,000

 

$

47,853,392

 

$

910,155,971

 

 

The following is a reconciliation of level 3 assets for which significant unobservable inputs were used to determine fair value.

 

Level 3 Assets

 

Balance as of
September 30,
2015

 

Net realized
gain (loss)
and change in
unrealized
appreciation
(depreciation)

 

Cost of
purchases
and
conversions

 

Proceeds
from sales
and
conversions

 

Net
transfers
in
(out of)
Level 3

 

Balance
as of
June 30,
2016

 

Convertible Preferred and Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

Biotechnology

 

$

6,129,122

 

$

3,364,818

 

$

4,418,402

 

$

(2,593,145

)

 

 

$

11,319,197

 

Health Care Equipment & Supplies

 

26,344,438

 

(4,272,869

)

967,733

 

(2,878,423

)

 

 

20,160,879

 

Life Sciences Tools & Services

 

4,303,950

 

1,693,878

 

 

 

 

 

5,997,828

 

Pharmaceuticals

 

10,788,048

 

(3,420,351

)

5,902

 

 

 

 

7,373,599

 

Convertible and Non-Convertible Notes

 

 

 

 

 

 

 

 

 

 

 

 

 

Health Care Equipment & Supplies

 

151

 

(414,151

)

454,598

 

(40,598

)

 

 

0

 

Pharmaceuticals

 

 

(1,820

)

540,309

 

 

 

 

538,489

 

Common Stocks and Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

Biotechnology

 

6,082,338

 

(4,551,334

)

3,030,594

 

(2,802,471

)

 

 

1,759,127

 

Health Care Equipment & Supplies

 

145,447

 

89,514

 

 

 

 

 

234,961

 

Health Care Providers & Services

 

471,110

 

(281,110

)

 

 

 

 

190,000

 

Pharmaceuticals

 

32,214

 

(32,214

)

 

 

 

 

 

Other Assets

 

380,021

 

 

77,766

 

(178,474

)

 

 

279,312

 

Total

 

$

54,676,839

 

$

(7,825,639

)

$

9,495,304

 

$

(8,493,111

)

$

0

 

$

47,853,392

 

Net change in unrealized appreciation (depreciation) from investments still held as of June 30, 2016

 

$

(4,557,536

)

 



 

TEKLA HEALTHCARE INVESTORS

NOTES TO SCHEDULE OF INVESTMENTS

JUNE 30, 2016

(Unaudited)

(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
6/30/2016

 

Valuation Technique

 

Unobservable
Input

 

Range (Weighted
Average)

Private Companies and Other Restricted Securities

 

$

284,878

 

Income approach Black-Scholes

 

Discount for lack of marketability

 

20% (20%)

 

 

13,737,899

 

Adjusted capital asset pricing model

 

Discount rate

 

20.15%-39.34% (23.37%)

 

 

 

 

 

 

Price to sales multiple

 

1.58-4.85 (2.32)

 

 

33,551,303

 

Market approach, recent transaction

 

(a)

 

N/A

 

 

279,312

 

Probability adjusted value

 

Probability of events

 

10%-75% (33.92%)

 

 

 

 

 

 

Timing of events

 

0.25-2.58 (1.04) years

 

 

$

47,853,392

 

 

 

 

 

 

 

 


(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.

 

Private Companies and Other Restricted Securities

 

The Fund may invest in private companies and other restricted securities if these securities would currently comprise 40% or less of net assets. The value of these securities represented 5% of the Fund’s net assets at June 30, 2016.

 

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 June 30, 2016. The Fund on its own does not have the right to demand that such securities be registered.

 



 

TEKLA HEALTHCARE INVESTORS

NOTES TO SCHEDULE OF INVESTMENTS

JUNE 30, 2016

(Unaudited)

(continued)

 

Security (#)

 

Acquisition
Date

 

Cost

 

Carrying Value
per Unit

 

Value

 

Afferent Pharmaceuticals, Inc.

 

 

 

 

 

 

 

 

 

Series C Cvt. Pfd

 

7/1/15

 

$

3,503,978

 

$

4.83

 

$

6,890,728

 

AlterG, Inc.

 

 

 

 

 

 

 

 

 

Series C Cvt. Pfd

 

4/12/13

 

2,053,934

 

0.41

 

1,379,536

 

BioClin Therapeutics, Inc.

 

 

 

 

 

 

 

 

 

Series A Cvt. Pfd

 

1/19/16

 

1,009,704

 

0.65

 

1,009,616

 

CardioKinetix, Inc.

 

 

 

 

 

 

 

 

 

Series C Cvt. Pfd

 

5/22/08

 

2,379,165

 

0.00

114

 

Series D Cvt. Pfd

 

12/10/10

 

785,619

 

2.55

 

522,765

 

Series E Cvt. Pfd

 

9/14/11

 

1,803,981

 

2.85

 

1,799,905

 

Series F Cvt. Pfd

 

12/04/14

 

1,982,283

 

3.42

 

1,982,049

 

Warrants (expiration 12/11/19)

 

12/10/09, 2/11/10

 

177

 

0.00

 

0

 

Warrants (expiration 6/03/20)

 

6/03/10, 9/01/10

 

177

 

0.00

 

0

 

Warrants (expiration 8/15/24)

 

8/15/14

 

181

 

0.00

 

0

 

Cercacor Laboratories, Inc. Common

 

3/31/98

 

0

 

1.47

 

234,746

 

Dynex Technologies, Inc.

 

 

 

 

 

 

 

 

 

Series A Cvt. Pfd

 

1/03/12

††

287,751

 

0.50

 

1,554,931

 

Warrants (expiration 4/01/19)

 

1/03/12

††

86

 

0.00

 

0

 

Warrants (expiration 5/06/19)

 

1/03/12

††

7

 

0.00

 

0

 

EBI Life Sciences, Inc.

 

 

 

 

 

 

 

 

 

Series A Cvt. Pfd

 

12/29/11

††

19,566

 

0.01

 

18,854

 

Eiger BioPharmaceuticals, Inc.

 

 

 

 

 

 

 

 

 

Warrants (expiration 10/10/18)

 

10/10/13

 

359

 

0.00

 

0

 

Euthymics Biosciences, Inc.

 

 

 

 

 

 

 

 

 

Series A Cvt. Pfd

 

7/14/10 - 5/21/12

 

3,792,631

 

0.00

4,119

 

GenomeDx Biosciences, Inc.

 

 

 

 

 

 

 

 

 

Series C Cvt. Pfd

 

2/22/16

 

3,400,703

 

1.50

 

3,399,999

 

IlluminOss Medical, Inc.

 

 

 

 

 

 

 

 

 

Series AA Cvt. Pfd

 

1/21/16

 

955,555

 

1.00

 

951,000

 

Series Junior Preferred Cvt. Pfd

 

9/26/12, 6/13/14, 1/21/16

 

3,461,754

 

1.00

 

895,848

 

InnovaCare Health, Inc. Common

 

12/21/12

††

965,291

 

0.86

 

190,000

 

Insightra Medical, Inc.

 

 

 

 

 

 

 

 

 

Series C Cvt. Pfd

 

4/29/13 - 4/17/14

 

4,839,765

 

0.00

11,410

 

Series C-2 Cvt. Pfd

 

5/25/15

 

3,666,720

 

0.00

8,661

 

Cvt. Promissory Note

 

4/15/16

 

414,000

 

0.00

0

 

Warrants (expiration 3/31/25)

 

7/24/15

 

16

 

0.00

 

0

 

Warrants (expiration 5/28/25)

 

5/28/15

 

86

 

0.00

 

0

 

Warrants (expiration 8/18/25)

 

8/8/15

 

63

 

0.00

 

0

 

Labcyte, Inc.

 

 

 

 

 

 

 

 

 

Series C Cvt. Pfd

 

7/18/05

 

1,925,938

 

1.17

 

4,274,413

 

Series D Cvt. Pfd

 

12/21/12

 

102,912

 

1.05

 

168,484

 

Merus B.V. Common

 

8/17/15

 

2,753,145

 

7.31

 

1,510,521

 

Neurovance, Inc.

 

 

 

 

 

 

 

 

 

Series A Cvt. Pfd

 

12/29/11

††

293,838

 

3.71

 

288,015

 

Series A-1 Cvt. Pfd

 

10/11/12 - 10/10/13, 3/17/15

 

3,594,700

 

3.71

 

3,581,463

 

Cvt. Promissory Note

 

2/23/16

 

135,077

 

100.00

 

134,622

 

Cvt. Promissory Note

 

3/14/16

 

405,232

 

100.00

 

403,867

 

Ovid Therapeutics, Inc.

 

 

 

 

 

 

 

 

 

Series B Cvt. Pfd

 

8/7/15

 

3,500,002

 

6.23

 

3,500,002

 

Palyon Medical Corporation

 

 

 

 

 

 

 

 

 

Series A Cvt. Pfd

 

4/28/09

 

2,978,923

 

0.00

2,944

 

Series B Cvt. Pfd

 

6/28/13

 

1,891,949

 

0.00

1,897

 

Cvt. Promissory Note

 

1/22/15

 

43,658

 

0.00

 

0

 

Warrants (expiration 4/26/19)

 

4/25/12

 

0

 

0.00

 

0

 

Pieris Pharmaceuticals, Inc.

 

 

 

 

 

 

 

 

 

Common

 

6/7/16

 

265,728

 

1.45

 

198,474

 

Series A, Warrants (expiration 6/8/21)

 

6/7/16

 

6,849

 

0.57

 

31,230

 

Series B, Warrants (expiration 6/8/21)

 

6/7/16

 

3,424

 

0.69

 

18,902

 

Targegen Milestone Interest

 

7/20/10

 

4,194,994

 

0.00

 

0

 

TherOx, Inc. Common

 

9/11/00, 7/8/05

 

3,582,706

 

0.02

 

215

 

Tibion Corporation

 

 

 

 

 

 

 

 

 

Series B Cvt. Pfd

 

2/23/11

 

1,302,544

 

0.00

 

0

 

Non-Cvt. Promissory Note

 

7/12/12

 

343,226

 

0.00

 

0

 

Non-Cvt. Promissory Note

 

4/12/13

 

40,598

 

0.00

 

0

 

Warrants (expiration 07/12/17)

 

7/12/12

 

0

 

0.00

 

0

 

Warrants (expiration 10/30/17)

 

10/30/12

 

0

 

0.00

 

0

 

Warrants (expiration 11/28/17)

 

11/28/12

 

0

 

0.00

 

0

 

Veniti, Inc.

 

 

 

 

 

 

 

 

 

Series A Cvt. Pfd

 

2/28/11

 

3,270,355

 

1.83

 

6,880,013

 

Series B Cvt. Pfd

 

5/24/13

 

1,723,585

 

1.88

 

3,545,023

 

Series C Cvt. Pfd

 

12/12/14

 

1,180,235

 

2.11

 

2,179,714

 

 

 

 

 

$

68,863,170

 

 

 

$

47,574,080

 

 


(#)    See Schedule of Investments and corresponding footnotes for more information on each issuer.

            Carrying value per unit is greater than $0.00 but less than $0.01

††     Interest received as part of a corporate action for a previously owned security.

 



 

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.

 

(Registrant)

Tekla Healthcare Investors

 

 

 

 

By (Signature and Title)

/s/ Daniel R. Omstead

 

 

Daniel R. Omstead, President

 

 

 

 

Date

8/26/16

 

 

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.

 

By (Signature and Title)

/s/ Laura Woodward

 

 

Laura Woodward, Treasurer

 

 

 

 

Date

8/26/16