As filed with the Securities and Exchange Commission on May 22, 2015

Securities Act File No. 333-202638     
Investment Company Act File No. 811-23037

 

 

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 


 

FORM N-2

 

REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933  x

 

PRE-EFFECTIVE AMENDMENT NO. 2 x

POST-EFFECTIVE AMENDMENT NO. o

 


 

REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 o

 

AMENDMENT NO. 2 x

 


 

TEKLA WORLD

HEALTHCARE FUND

(Exact name of Registrant as specified in its charter)

 


 

100 Federal Street, 19th Floor

Boston, MA 02110
(617) 772-8500

(Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant’s Principal Executive
Offices)

 


 

DANIEL R. OMSTEAD, Ph.D.
100 Federal Street, 19th Floor

Boston, MA 02110

(Name, address including zip code, and telephone number, including area code, of agent for service)

 


 

With Copies to:

 

JOSEPH R. FLEMING, ESQ.

CLIFFORD R. CONE, ESQ.

CHRISTOPHER P. HARVEY, ESQ.

LEONARD B. MACKEY, JR., ESQ.

ALLISON M. FUMAI, ESQ.

Clifford Chance US LLP

Dechert LLP

31 West 52nd Street

One International Place, 40th Floor

New York, NY 10019

100 Oliver Street

 

Boston, MA 02110

 

 


 

Approximate date of commencement of proposed sale to the public: As soon as practicable after the effective date of this Registration Statement.

 

If any of the securities being registered on this Form are being offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box.  o

 

It is proposed that this filing will become effective (check appropriate box):

 

o   when declared effective pursuant to Section 8(c)

 

CALCULATION OF REGISTRATION FEE UNDER THE SECURITIES ACT OF 1933

 

TITLE OF SECURITIES
BEING REGISTERED

 

AMOUNT BEING
REGISTERED(2)

 

PROPOSED
MAXIMUM
OFFERING PRICE
PER UNIT(1)

 

PROPOSED
MAXIMUM
OFFERING
PRICE(1)

 

AMOUNT OF
REGISTRATION
FEE (3)

 

Shares of Beneficial Interest ($.01 par value)

 

50,000 

 

$

20.00

 

$

1,000,000 

 

$

116.20

 

 


(1)  Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act of 1933.

(2)  Includes shares that may be offered to the Underwriters pursuant to an option to cover over-allotments.

(3)  $116.20 of which has been previously paid.

 

The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such dates as the Commission, acting pursuant to said Section 8(a), may determine.

 


 

 

 



The information contained in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION

Preliminary Prospectus dated May 22, 2015

PROSPECTUS

Shares

Tekla World Healthcare Fund

Common Shares

$20.00 per Share

Tekla World Healthcare Fund (the "Trust") is a newly organized, non-diversified, closed-end management investment company with no operating history. The Trust's investment objective is to seek current income and long-term capital appreciation. The Trust may not be able to achieve its investment objective. Under normal market conditions, the Trust expects to invest at least 80% of its Managed Assets (as defined below) in U.S. and non-U.S. companies engaged in the healthcare industries ("Healthcare Companies") including equity securities, convertible securities and debt securities. The Trust will concentrate its investments in the healthcare industries. A company will be deemed to be a Healthcare Company if, at the time the Trust makes an investment in a company, 50% or more of such company's sales, earnings or assets arise from or are dedicated to healthcare products or services or medical technology activities. Healthcare Companies may include companies in one or more of the following sub-sectors: pharmaceuticals, biotechnology, managed care, life science and tools, healthcare technology, healthcare services, healthcare supplies, healthcare facilities, healthcare equipment, healthcare distributors and Healthcare REITs (as defined herein). Tekla Capital Management LLC (the "Investment Adviser") determines, in its discretion, whether a company is a Healthcare Company. "Managed Assets" means the total assets of the Trust (including any assets attributable to borrowings for investment purposes) minus the sum of the Trust's accrued liabilities (other than liabilities representing borrowings for investment purposes). The Trust's 80% policy may only be changed with 60 days' prior notice to the Trust's shareholders ("Shareholders").

Under normal market conditions, the Trust expects to invest at least 40% of its Managed Assets in companies organized or located outside the United States or companies that do a substantial amount of business outside the United States. The Trust may invest up to 5% of its Managed Assets in securities of issuers located in emerging market countries. The Trust initially intends to hedge non-U.S. dollar exposure.

The Trust expects to invest 60-90% of its Managed Assets in equity securities (which may include common stock, preferred stock and warrants or other rights to acquire common or preferred stock). The Trust will invest in foreign securities and may buy and sell currencies for the purpose of settlement of transactions in foreign securities. The Trust may invest up to 30% of its Managed Assets in convertible securities. The Trust may invest up to 20% of its Managed Assets as measured at the time of investment in all non-convertible debt securities, including corporate debt obligations and debt securities that are rated non-investment grade (that is, rated Ba1 or lower by Moody's Investors Service, Inc. ("Moody's"), BB+ or lower by Standard & Poor's Ratings Group ("S&P"), or BB+ by Fitch, Inc. ("Fitch") or comparably rated by another nationally recognized statistical rating organization ("NRSRO"), or, if unrated, determined by the Investment Adviser to be of comparable credit quality). The Trust's investments in non-investment grade investments and those deemed to be of similar quality are considered speculative with respect to the issuer's capacity to pay interest and repay principal and are commonly referred to as "junk" or "high yield" securities. See "Risk Factors—Non-Investment Grade Securities Risk."

(continued on inside front cover)

No Prior History. Because the Trust is newly organized, its common shares of beneficial interest (the "Shares") have no history of public trading. Shares of closed-end investment companies frequently trade at a discount from their net asset value ("NAV"), which may increase investors' risk of loss. This risk may be greater for investors expecting to sell their shares in a relatively short period of time after completion of the public offering.

Listing. It is anticipated that the Shares will be approved for listing on the New York Stock Exchange, subject to notice of issuance, under the trading or "ticker" symbol "THW."

Investors should consider their investment goals, time horizons and risk tolerance before investing in the Trust. An investment in the Trust is not appropriate for all investors, and the Trust is not intended to be a complete investment program. Before buying any Shares, you should read the discussion of the principal risks of investing in the Trust, which are summarized in "Prospectus Summary—Risk Considerations" beginning on page 12 and in "Risk Factors" beginning on page 68.

Neither the securities and exchange commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

   

Per Share

 

Total (1)

 

Public offering price

 

$

20.00

   

$

     

Sales load (2)

 

$

0.90

   

$

     

Estimated offering expenses

 

$

0.04

   

$

     

Proceeds, after expenses, to the Trust (3)

 

$

19.06

   

$

     

(footnotes on inside front cover)

The underwriters expect to deliver the Shares to purchasers on or about , 2015.

Wells Fargo Securities  

The date of this prospectus is , 2015.



(footnotes from previous page)

(1)  The Trust has granted the underwriters an option to purchase up to additional Shares at the public offering price, less the sales load, within 45 days of the date of this prospectus solely to cover overallotments, if any. If such option is exercised in full, the public offering price, sales load, estimated offering expenses and proceeds, after expenses, to the Trust will be $ , $ , $ and $ , respectively. See "Underwriting."

(2)  The Investment Adviser (and not the Trust) has agreed to pay from its own assets a structuring fee to Wells Fargo Securities, LLC. The Investment Adviser (and not the Trust) may also pay certain qualifying underwriters a structuring for, a sales incentive fee or other additional compensation in connection with the offering. The Investment Adviser (and not the Trust) has agreed to pay Destra Capital Investments LLC for distribution assistance in connection with this offering of up to $ . Because the fees described in this footnote are paid by the Investment Adviser, they are not reflected under sales load in the table above. See "Underwriting."

(3)  The Investment Adviser has agreed to pay (i) all organizational expenses of the Trust and (ii) offering expenses of the Trust (other than the sales load) that exceed $0.04 per Share. The Trust will pay offering expenses of the Trust (other than the sales load) up to $0.04 per Share. Any offering expenses paid by the Trust will be deducted from the proceeds of the offering received by the Trust. After payment of such expenses, proceeds to the Trust will be $19.06 per Share. The aggregate offering expenses (other than the sales load) to be borne by the Trust are estimated to be $ (approximately $ per Share); therefore, offering expenses payable by the Investment Adviser are estimated to be $ ($ per Share). See "Trust Expenses."

(continued from previous page)

The Trust may invest in derivatives, including but not limited to options, futures, options on futures, forwards, swaps, options on swaps and other derivatives. Initially, the Trust intends to employ a strategy of writing (selling) covered call options on a portion of the common stocks in its portfolio, writing (selling) put options on a portion of the common stocks in its portfolio and, to a lesser extent, writing (selling) covered call and writing (selling) put options on indices of securities and sectors of securities generally within the healthcare industry. This option strategy is intended to generate current income from option premiums as a means to enhance distributions payable to the Trust's Shareholders and will be limited to 30% of the Trust's Managed Assets. These option strategies are not always profitable. The sale of a covered call option exposes the Trust during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or to possible loss due to continued holding of a security that might otherwise have been sold to protect against depreciation in the market price of the security. Therefore, the Investment Adviser may choose to decrease its use of the option writing strategy to the extent that it may negatively impact the Trust. Other than the Trust's option strategy and use of derivatives for hedging purposes, the Trust may invest up to 10% of its Managed Assets in derivatives.

The Trust may invest up to 20% of its Managed Assets in real estate investment trusts that derive their income from the ownership, leasing, or financing of properties in the healthcare sector ("Healthcare REITs").

The Trust may invest up to 10% of its Managed Assets in restricted securities, including private investments in public equity ("PIPEs") and venture capital investments.

The Trust may from time-to-time lend its portfolio securities.

Leverage. As soon as practicable following the initial public offering of the Shares (subject to market conditions), the Trust intends to use leverage to seek to achieve its investment objective. The Trust may issue Preferred Shares, borrow money and/or issue debt securities ("traditional leverage"). The Trust initially intends to use traditional leverage through a credit facility representing up to 20% of the Trust's Managed Assets. In addition, the Trust may enter into reverse repurchase agreements, swaps, futures, forward contracts, securities lending, short sales, and other derivative transactions, that have similar effects as leverage (collectively referred to as "effective leverage"). At no time will the Trust's overall use of leverage, either through traditional leverage or effective leverage, exceed 30% of the Trust's Managed Assets. Notwithstanding the foregoing, effective leverage incurred through the Trust's option strategy and use of derivatives for hedging purposes will not be counted toward the Trust's limit on the use of effective leverage or the overall 30% leverage limitation. The Trust's use of leverage is subject to risks and may cause the Trust's NAV, market price or distributions to be more volatile than if leverage was not used. For example, a rise in short-term interest rates, which currently are near historically low levels, will cause the Trust's NAV to decline more than if the Trust had not used leverage. A reduction in the Trust's NAV may cause a reduction in the market price of its Shares. There is no assurance that the Trust's leveraging strategies, if employed, will be successful. See "Risk Factors—Leverage Risk."

The Trust is permitted to obtain traditional leverage using any form or combination of financial leverage instruments, including through funds borrowed from banks or other financial institutions ( i.e. , a credit facility), margin facilities or notes issued by the Trust and the leverage attributable to similar transactions entered into by the Trust. Although it has no current intention to do so, the Trust may also issue preferred shares of beneficial interest ("Preferred Shares") in an aggregate amount of up to 30% of the Trust's Managed Assets immediately after such issuance. If the Trust uses leverage, the amount of fees paid to the Investment Adviser for its services will be higher than if the Trust does not use traditional leverage, because the fees paid are calculated based on Managed Assets, which includes assets purchased with leverage. Therefore, the Investment Adviser has a financial incentive to use traditional leverage, which creates a conflict of interest between the Investment Adviser and common shareholders, as only the common shareholders would bear the fees and expenses incurred through the Trust's use of traditional leverage, including the issuance of Preferred Shares, if any. The Trust's willingness to use traditional leverage, and the extent to which traditional leverage is used at any time, will depend on many factors. See "Trust Expenses."

In addition, the Trust may obtain effective leverage through the use of forward foreign currency exchange contracts, futures contracts, call and put options (including options on futures contracts, swaps, bonds, stocks and indexes), swaps (including credit default, index, basis, total return, volatility and currency swaps), forward contracts, loans of portfolio securities, short sales, when-issued, delayed delivery or forward commitment transactions and other derivative instruments. The Trust may use effective leverage opportunistically, though not at all times, and may choose to increase or decrease its effective leverage, or use different types or combinations of leveraging instruments, based on the Investment Adviser's assessment of market conditions and the investment environment, and the costs that the Trust would incur as a result of such effective leverage. There is no assurance that the Trust will utilize any form or combination of effective leverage. To the extent the Trust uses effective leverage, such transactions (with the exception of the Trust's option strategy and use of derivatives for hedging purposes) will be included in calculating the aggregate amount of leverage for purposes of the overall 30% leverage limitation on both traditional and effective leverage set forth above.

This prospectus sets forth concisely the information about the Trust you should know before investing, including information about risks. You should read this prospectus and retain it for future reference. A Statement of Additional Information dated , 2015 (the "SAI") containing additional information about the Trust has been filed with the Securities and Exchange Commission ("SEC" or "Commission") and is incorporated by reference in its entirety into this prospectus. A copy of the SAI, the table of contents of which appears on page 120 of this prospectus, may be obtained without charge by contacting the Investment Adviser at (617) 772-8500. The Trust also will produce both annual and semi-annual reports that will contain important information about the Trust. The Trust's annual and semi-annual reports will be available free upon request by contacting the Investment Adviser at (617) 772-8500. The Commission maintains a website (http://www.sec.gov) that will contain reports and any material incorporated by reference and other information regarding the Trust. You can also access and download the annual and semi-annual reports, when available, and the SAI at the Trust's website: www.teklacap.com.

Information about the Trust can be reviewed and copied at the Securities and Exchange Commission's Public Reference Room in Washington, DC. Call (202) 551-8090 for information on the operation of the Public Reference Room. This information is also available in the Commission's Internet site at http://www.sec.gov, and copies may be obtained upon payment of a duplicating fee by writing the Public Reference Section of the Securities and Exchange Commission, Washington, DC 20549-0102.

The Shares do not represent a deposit or an obligation of, and are not guaranteed or endorsed by, any bank or other insured depository institution, and are not federally insured by the Federal Deposit Insurance Corporation, the Federal Reserve Board or any other government agency.



TABLE OF CONTENTS

Prospectus Summary

   

1

   
Trust Expenses    

47

   
Use of Proceeds    

50

   
Description of the Trust    

50

   
Investment Objective and Policies    

50

   
Investment Philosophy    

52

   
Investment Techniques    

52

   
Leverage    

65

   
Risk Factors    

68

   
Management of the Trust    

101

   
Portfolio Transactions and Brokerage    

107

   
Net Asset Value    

107

   
Dividends and Distributions    

109

   
Dividend Reinvestment and Stock Purchase Plan    

110

   
Taxation    

113

   
Custodian, Administrator, Transfer Agent, Dividend Disbursing Agent and Registrar    

114

   
Investor Support Services    

115

   
Underwriting    

116

   
Legal Matters    

119

   
Independent Registered Public Accounting Firm    

119

   
Additional Information    

119

   
Special Note Regarding Forward-Looking Statements    

119

   
Table of Contents of Statement of Additional Information    

120

   

You should rely only on the information contained or incorporated by reference in this prospectus. The Trust has not, and the underwriters have not, authorized any other person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. The Trust is not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should not assume that the information in this prospectus is accurate as of any date other than the date of this prospectus. The Trust's business, financial condition and prospects may have changed since that date.


i




PROSPECTUS SUMMARY

This is only a summary. This summary does not contain all of the information that you should consider before investing in the Trust. You should review the more detailed information contained in this prospectus and in the (Statement of Additional Information (the "SAI"), dated , 2015, especially the information set forth in this prospectus under the heading "Risk Factors."

The Trust      Tekla World Healthcare Fund (the "Trust") is a newly organized, non-diversified closed-end management investment company with no operating history. See "Description of the Trust."

The Offering      The Trust is offering common shares of beneficial interest ("Shares") of the Trust at $20.00 per Share through a group of underwriters (the "Underwriters") led by Wells Fargo Securities, LLC. You must purchase at least 100 Shares ($2,000) in order to participate in this offering. The Trust's investment adviser, Tekla Capital Management LLC (the "Investment Adviser") has agreed to pay (i) all organizational expenses of the Trust and (ii) offering expenses (other than the sales load) that exceed $0.04 per Share. See "Underwriting."

Investment Objective and Strategies      The Trust's investment objective is to seek current income and long-term capital appreciation.

Under normal market conditions, the Trust expects to invest at least 80% of its Managed Assets in U.S. and non-U.S. companies engaged in the healthcare industries ("Healthcare Companies") including equity securities and debt securities. "Managed Assets" means the total assets of the Trust (including any assets attributable to borrowings for investment purposes) minus the sum of the Trust's accrued liabilities (other than liabilities representing borrowings for investment purposes). The Trust's 80% policy may only be changed with 60 days' prior notice to the Trust's shareholders (the "Shareholders"). The Trust will concentrate its investments in the healthcare industries.

A company will be deemed to be a Healthcare Company if, at the time the Trust makes an investment in the company, 50% or more of such company's sales, earnings or assets arise from or are dedicated to healthcare products or services or medical technology activities. Healthcare Companies may include companies in one or more of the following sub-sectors: pharmaceuticals, biotechnology, managed care, life science and tools, healthcare technology, healthcare services, healthcare supplies, healthcare facilities, healthcare equipment, healthcare distributors and Healthcare REITs (as defined herein). The Investment Adviser determines, in its discretion, whether a company is a Healthcare Company.


1



Under normal market conditions, the Trust expects to invest at least 40% of its Managed Assets in companies organized or located outside the United States or companies that do a substantial amount of business outside the United States. The Trust may invest up to 5% of its Managed Assets in securities of issuers located in emerging market countries ("Emerging Markets"). The Trust initially intends to hedge non-U.S. dollar exposure.

The Trust expects to invest 60-90% of its Managed Assets in equity securities (which may include common stock, preferred stock and warrants or other rights to acquire common or preferred stock). The Trust will invest in foreign securities and may buy and sell currencies for the purpose of settlement of transactions in foreign securities. The Trust may invest up to 30% of its Managed Assets in convertible securities. The Trust may invest up to 20% of its Managed Assets as measured at the time of investment in non-convertible debt securities, including corporate debt obligations and debt securities that are rated non-investment grade (that is, rated Ba1 or lower by Moody's Investors Service, Inc. ("Moody's"), BB+ or lower by Standard & Poor's Ratings Group ("S&P"), or BB+ by Fitch, Inc. ("Fitch") or comparably rated by another nationally recognized statistical rating organization ("NRSRO"), or, if unrated, determined by the Investment Adviser to be of comparable credit quality) and not including convertible securities. The Trust's investments in non-investment grade investments and those deemed to be of similar quality are considered speculative with respect to the issuer's capacity to pay interest and repay principal and are commonly referred to as "junk" or "high yield" securities.

The Trust may invest in derivatives, including but not limited to options, futures, options on futures, forwards, swaps (including credit default, index, basis, total return, volatility and currency swaps), options on swaps and other derivatives. Initially, the Trust intends to employ a strategy of writing (selling) covered call options on a portion of the common stocks in its portfolio, writing (selling) put options on a portion of the common stocks in its portfolio and, to a lesser extent, writing (selling) covered call and writing (selling) put options on indices of securities and sectors of securities generally within the healthcare industry. This option strategy is intended to generate current income from option premiums as a means to enhance distributions payable to the Trust's Shareholders and will be limited to 30% of the Trust's Managed Assets. These option strategies are not always profitable. The sale of a covered call option exposes the Trust during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or to possible loss due to


2



continued holding of a security that might otherwise have been sold to protect against depreciation in the market price of the security. Therefore, the Investment Adviser may choose to decrease its use of the option writing strategy to the extent that it may negatively impact the Trust. Other than the Trust's option strategy and use of derivatives for hedging purposes, the Trust may invest up to 10% of its Managed Assets in derivatives.

The Trust may invest up to 10% of its Managed Assets in restricted securities, including private investments in public equity ("PIPEs") and venture capital investments.

The Trust may invest up to 20% of its Managed Assets in Healthcare REITs.

The Trust may from time-to-time lend its portfolio securities. See "Investment Techniques — Securities Lending."

Investment Philosophy      The Investment Adviser manages the Trust with a global healthcare focus, using its operating knowledge and experience of research and development; the startup and growth of venture companies; clinical trials design and execution; and involvement in breakthrough products. The Investment Adviser believes that its unique skill set and long tenure in evaluating healthcare companies has provided it with the experience to identify investment opportunities across the capital structure in companies at all stages of their development. The Investment Adviser intends to invest the Trust's assets across the full capital structure of healthcare securities. A company's capital structure refers to the way it finances its business and can include some combination of equity securities, debt securities or hybrid securities, such as convertible securities. Medical progress and scientific breakthroughs are not unique to the United States. Inventions, drug discovery, and development occur worldwide. Such advancement often lags the attention of U.S. investors until much later in the value creation cycle for a host of reasons. Often times these products and companies are acquired or in-licensed by more mature multi-national pharmaceutical companies before U.S. investors can invest. The Trust will seek to make significant investments in developed and emerging healthcare companies that are not readily available in U.S. markets (both pre-public and public securities). The Investment Adviser's unique and deep understanding of relevant scientific and market trends may provide insight into attractive investments possibly earlier on the value creation curve. The Investment Adviser pursues its investment objective through the use of multiple sources of potential income, by varying the Trust's exposure across the global


3



healthcare industry, and by seeking to gain access to special opportunities such as PIPEs and convertible securities.

The Trust's Investments       Healthcare Companies. The Trust expects to invest in U.S. and non-U.S. equity and debt securities of companies in the healthcare industry, including, but not limited to, biotechnology, pharmaceutical, medical devices and healthcare services companies. See "Investment Techniques — Healthcare Companies." These investments are designed to take advantage of recent developments in certain healthcare sectors. For example, demographic changes are driving an increase in medical products due to the high growth rate of individuals age 65 and older. Recent developments in the pharmaceutical, biotechnology, and medical technology industries have produced a series of products that will extend or improve the quality of patients' lives, especially in the areas of oncology, infectious disease, inflammation and orphan diseases. The Investment Adviser also believes that the following trends have investment potential: (i) biopharmaceuticals, including products for novel targets; (ii) treatments for orphan and ultra-orphan ( i.e. , rare and extremely rare) diseases, including gene therapy; (iii) specialty pharmaceuticals; (iv) generic pharmaceuticals; (v) novel medical devices; (vi) life sciences tools and diagnostics; and (vii) products that will benefit from changes in the medical regulatory landscape.

Equity Securities. The Trust expects to invest 60-90% of its Managed Assets in equity securities, which may include common stock, preferred stock and warrants or other rights to acquire common or preferred stock. Common stock represents shares of a corporation or other entity that entitle the holder to a pro rata share of the profits of the entity, if any, without preference over any other shareholder or class of shareholders, including holders of the entity's preferred stock and other senior equity. Common stock usually carries with it the right to vote and frequently an exclusive right to do so. Preferred stock represents shares of a corporation or other entity that pay dividends at a specified rate and have precedence over common stock in the payment of dividends. If the corporation or other entity is liquidated or declares bankruptcy, the claims of owners of preferred stock will have precedence over the claims of owners of common stock, but not over the claims of owners of bonds or other debt securities. Rights and warrants are instruments which entitle the holder to buy an equity security at a specific price for a specific period of time. Rights are similar to warrants but typically have shorter durations and are offered to current stockholders of the issuer. Changes in the value of a right or a warrant do not necessarily correspond to changes in the value of its underlying security.


4



Convertible Securities. The Trust may invest in convertible securities. The Trust may invest up to 30% of its Managed Assets in convertible securities. Convertible securities are preferred stock or debt obligations that are convertible into common stock. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. Convertible securities in which the Trust invests are subject to the same ratings criteria as its other investments in fixed-income securities. Convertible securities have both equity and fixed-income risk characteristics. Like all fixed-income securities, the value of convertible securities is susceptible to the risk of market losses attributable to changes in interest rates. Generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. However, when the market price of the common stock underlying a convertible security exceeds the conversion price of the convertible security, the convertible security tends to reflect the market price of the underlying common stock. As the market price of the underlying common stock declines, the convertible security, like a fixed-income security, tends to trade increasingly on a yield basis, and thus may not decline in price to the same extent as the underlying common stock.

Debt Securities. The Trust may invest up to 20% of its Managed Assets as measured at the time of investment in debt securities, including corporate debt obligations and debt securities rated non-investment grade (that is, rated Ba1 or lower by Moody's, BB+ or lower by S&P, or BB+ by Fitch or comparably rated by another NRSRO, or, if unrated, determined by the Investment Adviser to be of comparable credit quality) and not including convertible securities. These securities are commonly called "high yield" or "junk" bonds. The Trust may invest in debt securities of any maturity.

Corporate debt obligations include bonds, notes, debentures, commercial paper and other obligations of corporations to pay interest and repay principal. The Trust may invest in corporate debt obligations issued by U.S. and non-U.S. issuers. In addition to obligations of corporations, corporate debt obligations include securities issued by banks and other financial institutions and supranational entities ( i.e. , the World Bank, the International Monetary Fund, etc.).

The Trust may invest in obligations issued or guaranteed by U.S. or foreign banks. Bank obligations, including without limitation, time deposits, bankers' acceptances and certificates of deposit, may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligations or by government


5



regulations. Banks are subject to extensive but different governmental regulations which may limit both the amount and types of loans which may be made and interest rates which may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds for the purpose of financing lending operations under prevailing money market conditions. General economic conditions as well as exposure to credit losses arising from possible financial difficulties of borrowers play an important part in the operation of this industry.

Foreign Securities. Foreign securities are non-U.S. securities, which may include securities denominated in U.S. dollars or in non-U.S. currencies or multinational currency units. The Trust may invest in non-U.S. securities of so-called emerging market issuers. For purposes of the Trust, a company is deemed to be a non-U.S. company if it meets one of the following tests: (i) such company was not organized in the United States; or (ii) such company's primary business office is not in the United States. 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 securities 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.

REITs. The Trust may invest up to 20% of Managed Assets in Healthcare REITs. The value of a REIT is affected by changes in the value of the properties owned by the REIT or securing mortgage loans held by the REIT. REITs are dependent upon the ability of the REITs' managers, and are subject to heavy cash flow dependency, default by borrowers and the qualification of the REITs under applicable regulatory requirements for favorable income tax treatment. REITs are also subject to risks generally associated with investments in real estate including possible declines in the value of real estate, general and local economic conditions, environmental problems and changes in interest rates. To the extent that assets underlying a REIT are concentrated geographically, by property type or in certain other respects, these risks may be heightened. The Trust will indirectly bear its proportionate share of any expenses, including management fees, paid by a REIT in which it invests. Healthcare REITs are REITs that derive their income from the ownership, leasing, or financing of properties in the healthcare sector.

Derivatives. Generally, derivatives are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate or index, and may relate


6



to individual debt or equity instruments, interest rates, currencies or currency exchange rates and related indexes. The Trust may invest in derivative instruments including options, futures, options on futures, forwards, swaps (including credit default, index, basis, total return, volatility and currency swaps), options on swaps and other derivatives for hedging purposes, although suitable derivative instruments may not always be available to the Investment Adviser for these purposes for investment. Other than the Trust's option strategy and the use of derivatives for hedging purposes, the Trust may invest up to 10% of its Managed Assets in derivatives. To the extent that the security or index underlying the derivative or synthetic instrument is or is composed of securities of Healthcare Companies, the Trust will include such derivative and synthetic instruments for the purposes of the Trust's 80% policy. The Trust may engage in short sales and short sales against the box in an amount not to exceed 10% of its Managed Assets.

The Trust may invest in structured instruments (such as equity-linked notes) for investment purposes as an alternative or complement to its options writing strategy or for risk management or leveraging purposes.

The Trust's Option Strategy. Initially, the Trust intends to employ a strategy of writing (selling) covered call options on a portion of the common stocks in its portfolio, writing (selling) put options on a portion of the common stocks in its portfolio and, to a lesser extent, writing (selling) covered call and writing (selling) put options on indices of securities and sectors of securities generally within the healthcare industry. This option strategy is intended to generate current income from option premiums as a means to enhance distributions payable to the Trust's Shareholders and will be limited to 30% of the Trust's Managed Assets. These option strategies are not always profitable. The sale of a covered call option exposes the Trust during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or to possible loss due to continued holding of a security that might otherwise have been sold to protect against depreciation in the market price of the security. Therefore, the Investment Adviser may choose to decrease its use of the option writing strategy to the extent that it may negatively impact the Trust.

Initial Public Offerings. The Trust may invest a portion of its assets in shares of issuers which are engaging in initial public offerings ("IPOs"), if consistent with the Trust's investment objective and policies. IPOs may have a magnified impact on the performance of a fund with a small asset base. The impact of IPOs on a fund's performance likely will decrease as such fund's asset size increases, which


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could reduce such fund's returns. IPOs may not be consistently available to the Trust for investing. IPO shares frequently are volatile in price due to the absence of a prior public market, the small number of shares available for trading and limited information about the issuer. Therefore, the Trust may hold IPO shares for a very short period of time. This may increase turnover and may lead to increased expenses, such as commissions and transaction costs all of which will be borne indirectly by the Trust's Shareholders. In addition, IPO shares can experience an immediate drop in value if the demand for the securities does not continue to support the offering price.

Restricted Securities. The Trust may invest up to 10% of its Managed Assets in U.S. securities and other U.S. financial instruments that are not registered or that are offered in an exempt non-public offering ("Restricted Securities") under the Securities Act of 1933, as amended (the "Securities Act"), including securities eligible for resale to "qualified institutional buyers" pursuant to Rule 144A under the Securities Act, PIPEs and venture capital investments.

The purchase price and subsequent valuation of Restricted Securities may reflect a discount from the price at which such securities trade when they are not restricted, because the restriction makes them less liquid. The amount of the discount from the prevailing market price is expected to vary depending upon the type of security, the character of the issuer, the length and nature of the restriction, the party who will bear the expenses of registering the Restricted Securities and prevailing supply and demand conditions.

Other Investment Companies. The Trust may invest in securities of other investment companies, such as mutual funds, closed-end funds, business development companies ("BDCs") and exchange-traded funds ("ETFs"), subject to statutory limitations prescribed by the Investment Company Act of 1940, as amended (the "Investment Company Act"). These limitations include in certain circumstances a prohibition on the Trust acquiring more than 3% of the voting shares of any other investment company, and a prohibition on investing more than 5% of the Trust's total assets in securities of any one investment company or more than 10% of the Trust's total assets in securities of all investment companies.

For additional information about the Trust's investments, see "Investment Techniques."

Leverage      The Trust currently intends to use leverage to seek to achieve its investment objective. The Trust is permitted to obtain leverage using any form or combination of financial leverage instruments, including through funds borrowed from banks or other financial institutions ( i.e. , a credit


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facility), the issuance of Preferred Shares, margin loan facilities or notes (collectively, "traditional leverage"). The Trust initially intends to use traditional leverage through a credit facility representing up to 20% of the Trust's Managed Assets. In addition, the Trust may enter into investment management techniques that have similar effects as leverage, including, among others, swaps (including credit default, index, basis, total return, volatility and currency swaps), futures and forward contracts, reverse repurchase agreements, options (including options on futures contracts, swaps, bonds, stocks and indexes) and other derivative transactions (collectively, "effective leverage"). At no time will the Trust's overall use of leverage, either through traditional or effective leverage, exceed 30% of the Trust's Managed Assets. To the extent the Trust uses effective leverage, such transactions (with the exception of the Trust's option strategy and use of derivatives for hedging purposes) will be included in calculating the aggregate amount of leverage for purposes of the overall 30% limitation on both traditional and effective leverage set forth above. Notwithstanding the foregoing, effective leverage incurred through the Trust's option strategy and use of derivatives for hedging purposes will not be counted toward the Trust's limit on the use of effective leverage or the overall 30% leverage limitation. The Trust may use leverage opportunistically, though not at all times, and may choose to increase or decrease its leverage, or use different types or combinations of leveraging instruments, based on the Investment Adviser's assessment of market conditions and the investment environment, and the costs that the Trust would incur as a result of such leverage. There is no assurance that the Trust will utilize any form or combination of leverage.

The Trust's use of leverage is subject to risks and may cause the Trust's net asset value ("NAV"), market price and distributions to be more volatile than if leverage was not used. For example, a rise in short-term interest rates, which currently are near historically low levels, will cause the Trust's NAV to decline more than if the Trust had not used leverage. A reduction in the Trust's NAV may cause a reduction in the market price of its Shares. There is no assurance that the Trust's leveraging strategies will be successful. See "Risk Factors — Leverage Risk."

Investment Adviser      Tekla Capital Management LLC (the "Investment Adviser") serves as investment adviser to the Trust. The Investment Adviser is a registered investment adviser based in Boston, Massachusetts at 100 Federal Street, 19th Floor, Boston, MA 02110. The Investment Adviser is a leading healthcare investment management firm with a unique ability to invest in both private and public opportunities across the capital


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structure. The Investment Adviser is currently a privately held investment adviser focused on the healthcare sector. The Investment Adviser manages three existing closed-end funds with total assets of approximately $2.7 billion as of March 31, 2015.

The Investment Adviser also serves as investment adviser to Tekla Life Sciences Investors (formerly known as H&Q Life Sciences Investors) ("HQL"), Tekla Healthcare Investors (formerly known as H&Q Healthcare Investors) ("HQH") and Tekla Healthcare Opportunities Fund ("THQ"), publicly traded, closed-end management investment companies that invest in companies in the healthcare industries. See "Management of the Trust — Investment Adviser." The Trust may be subject to certain potential conflicts of interest. See "Portfolio Transactions and Brokerage."

For the services provided by the Investment Adviser under the Investment Advisory Agreement between the Investment Adviser and the Trust (the "Advisory Agreement"), the Trust pays a fee, computed and payable monthly, of 1.00% (annualized) of the average daily value of the Trust's Managed Assets.

Distributions      The Trust currently anticipates making distributions to its Shareholders each month in cash out of legally available funds. The Trust expects to declare the initial monthly dividend on the Trust's Shares approximately 45 days after completion of this offering and to pay that initial monthly dividend approximately 60 to 90 days after completion of this offering, depending on market conditions.

The Trust's distribution policy and the basis for establishing the rate of its monthly distributions may be changed at any time by the Board of Trustees (the "Board") without Shareholder approval. Pursuant to an exemptive order obtained from the Commission under Section 19(b) of the Investment Company Act, the Trust is permitted to distribute long-term capital gains to shareholders more than once per year. See "Dividends and Distributions."

Dividend Reimbursement and Stock Purchase Plan      Shareholders will automatically have all dividends and distributions reinvested in Shares of the Trust in accordance with the Trust's Dividend Reinvestment and Stock Purchase Plan ("DRIP"). A Shareholder may terminate his or her participation in the DRIP at any time by contacting the Plan Agent (as defined herein) before the record date of the next distribution by telephone, on the Internet, or in writing. Shareholders whose Shares are held in the name of a broker or other nominee and who wish to elect to receive any dividends and distributions in cash must contact their broker or nominee. All distributions to Shareholders who do not participate in the DRIP, or who have elected to terminate


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their participation in the DRIP, will be paid by check mailed directly to the record holder by or under the direction of the Plan Agent when the Board declares a distribution. See "Dividend Reinvestment and Stock Purchase Plan."

Taxation      The Trust intends to elect to be treated and to qualify in each of its taxable years as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended (the "Code"). As a RIC, the Trust generally will not be required to pay U.S. federal income taxes on any ordinary income or capital gains that the Trust distributes to its Shareholders. To qualify as a RIC and maintain RIC status, the Trust must meet specific source-of-income and asset diversification requirements and must generally distribute an amount at least equal to the sum of 90% of its investment company taxable income (which includes, among other items, dividends, interest and net short-term capital gains in excess of net long-term capital losses, but determined without regard to the deduction for dividends paid) plus 90% of any net tax-exempt income for the Trust's taxable year. If, in any year, the Trust fails to qualify as a RIC under U.S. federal income tax laws, the Trust would be taxed as an ordinary corporation. In such circumstances, the Trust could be required to recognize unrealized gains, pay substantial taxes and make substantial distributions before re-qualifying as a RIC that is accorded special tax treatment. See "Taxation."

Independent Registered Public Accounting Firm      Deloitte & Touche LLP is the independent registered public accounting firm for the Trust and will audit the Trust's financial statements.

Investor Support Services      The Trust has retained Destra Capital Investments LLC ("Destra") to provide investor support services in connection with the ongoing operation of the Trust. Such services include providing ongoing contact with respect to the Trust and its performance with financial advisors that are representatives of financial intermediaries, communicating with the New York Stock Exchange ("NYSE") specialist for the Shares, and with the closed-end fund analyst community regarding the Trust on a regular basis, and hosting and maintaining a website for the Trust. The Trust will pay Destra a services fee in an annual amount equal to 0.12% of the average aggregate daily value of the Trust's Managed Assets from the closing through the first anniversary of the closing and (ii) 0.10% of the average aggregate daily value of the Trust's Managed Assets from the date immediately following such first anniversary through the remaining term of the investor support services agreement. The investor support services agreement will be in effect for a period of two years from the closing and will


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continue for successive one year periods unless either party to the agreement provides written notice to the other party at least 30 days prior to the end of the applicable period. The compensation received by Destra pursuant to the investor support services agreement is separate from the compensation Destra will receive for providing distribution assistance in connection with this offering.

Listing      The Trust intends to apply for listing on the NYSE under the ticker symbol "THW."

Risk Considerations      The following are the principal risks of investing in the Trust that you should carefully consider before investing in the Shares. In addition, see "Risk Factors" beginning on page 68 for a more detailed discussion of the principal risks as well as certain other risks you should consider carefully before investing in the Shares.

No Operating History. The Trust is a newly organized, non-diversified closed-end management investment company with no operating history. It is designed for long-term investing and not as a vehicle for trading. This risk may be greater for investors expecting to sell their shares in a relatively short period of time after completion of the public offering. See "Risk Factors — No Operating History."

Market Risk. As with any investment company that invests in equity securities, the Trust 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 Trust's Shares will fluctuate with the market. You could lose some or all of your investment over short or long periods of time. See "Risk Factors — Market Risk."

Political and economic news can influence market-wide trends and can cause disruptions in the U.S. or world financial markets. Other factors may be ignored by the market as a whole but may cause movements in the price of one company's stock or the stock of companies in one or more industries. All of these factors may have a greater impact on initial public offerings and emerging company shares.

Equity Securities Risk. The Trust expects to invest 60-90% of its Managed Assets in equity securities. Equity risk is the risk that equity securities held by the Trust will fall due to general market or economic conditions, perceptions regarding the industries in which the issuers of securities held by the Trust participate, changes in interest rates, and the particular circumstances and performance of particular companies whose securities the Trust holds. The price of an equity security of an issuer may be particularly sensitive to general movements in the stock market, or a


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drop in the stock market may depress the price of most or all of the equity securities held by the Trust. In addition, equity securities held by the Trust may decline in price if the issuer fails to make anticipated distributions or dividend payments because, among other reasons, the issuer experiences a decline in its financial condition. The Trust's expected investments in preferred stocks carries its own unique risks. Preferred stocks are typically subordinated to bonds and other debt instruments in a company's capital structure, in terms of priority to corporate income, and therefore will be subject to greater credit risk than those debt instruments. In addition, unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer's board of directors. The prices of preferred stock also tend to move upwards slower than common stock prices and the preferred stock may be substantially less liquid than common stock or other securities. See "Risk Factors — Equity Securities Risk."

Convertible Securities Risk. Convertible Securities generally offer lower interest or dividend yields than non-convertible debt securities of similar quality. The market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stock. When the market price of the underlying common stock approaches or is greater than the convertible security's conversion price, the prices of the convertible securities tend to rise as a reflection of the value of the underlying common stock. The conversion prior is defined as the predetermined price at which the convertible security could be exchanged for the associated stock. Consequently, a unique feature of convertible securities is that as the market price of the underlying common stock declines, convertible securities tend to trade increasingly on a yield basis, and so may not experience market value declines to the same extent as the underlying common stock. Investments in convertible securities generally entail less risk than investments in common stock of the same issuer but more risk than the issuer's debt obligations. See "Risk Factors — Convertible Securities Risk."

Selection Risk. 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 healthcare industry equity securities 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. See "Risk Factors — Selection Risk."


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Concentration in the Healthcare Industries. Under normal market conditions, the Trust expects to invest at least 80% of its Managed Assets in securities of Healthcare Companies. As a result, the Trust's portfolio will likely be more sensitive to, and possibly more adversely affected by, regulatory, economic or political factors or trends relating to the healthcare industries than a portfolio of companies representing a larger number of industries. As a result of its concentration policy, the Trust's investments may be subject to greater risk and market fluctuation than a fund that has securities representing a broader range of investments. The healthcare industries can be volatile. Currently, companies in the healthcare industries are highly valued relative to the broad market and may decline. The Trust may occasionally make investments in a company with the objective of controlling or influencing the management and policies of that company, which could potentially make the Trust more susceptible to declines in the value of the company's stock. The Investment Adviser may seek control in public companies only occasionally and most often in companies with a small capitalization.

Healthcare Companies have in the past been characterized by limited product focus, rapidly changing technology and extensive government regulation. In particular, technological advances can render an existing product, which may account for a disproportionate share of a company's revenue, obsolete. Obtaining governmental approval from U.S. governmental agencies such as the Food and Drug Administration (the "FDA"), and from non-U.S. governmental agencies for new products can be lengthy, expensive and uncertain as to outcome. These factors may result in abrupt advances and declines in the securities prices of particular companies and, in some cases, may have a broad effect on the prices of securities of companies in particular healthcare industries.

Intense competition exists within and among certain healthcare industries, including competition to obtain and sustain proprietary technology protection, including patents, trademarks and other intellectual property rights, upon which Healthcare Companies can be highly dependent for maintenance of profit margins and market exclusivity. The complex nature of the technologies involved can lead to patent disputes, including litigation that may be costly and that could result in a company losing an exclusive right to a patent.

Cost containment measures implemented by national governments, state or provincial governments and the private sector have adversely affected certain sectors of the healthcare industries. The implementation of any such


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further cost containment measures may have an adverse effect on some companies in the healthcare industries.

Product development efforts by Healthcare Companies may not result in commercial products. Even after a product is commercially released, governmental agencies may require additional clinical trials or change the labeling requirements for products if additional product side effects are identified, which could have a material adverse effect on the market price of the securities of those Healthcare Companies.

Certain Healthcare Companies in which the Trust may invest may be exposed to potential product liability risks that are inherent in the testing, manufacturing, marketing and sale of pharmaceuticals, medical devices or other products. A product liability claim may have a material adverse effect on the business, financial condition or securities prices of a company in which the Trust has invested.

All of these factors may cause the value of the Trust's Shares to fluctuate significantly over relatively short periods of time. See "Risk Factors — Concentration in Healthcare Industries."

Pharmaceutical Sector Risk. The success of companies in the pharmaceutical sector is highly dependent on the development, procurement and marketing of drugs. The values of pharmaceutical companies are also dependent on the development, protection and exploitation of intellectual property rights and other proprietary information, and the profitability of pharmaceutical companies may be significantly affected by such things as the expiration of patents or the loss of, or the inability to enforce, intellectual property rights.

The research and other costs associated with developing or procuring new drugs and the related intellectual property rights can be significant, and the results of such research and expenditures are unpredictable. There can be no assurance that those efforts or costs will result in the development of a profitable drug. Pharmaceutical companies may be susceptible to product obsolescence. Pharmaceutical companies also face challenges posed by the increased presence of counterfeit pharmaceutical products, which may negatively impact revenues and patient confidence. Many pharmaceutical companies face intense competition from new products and less costly generic products. Moreover, the process for obtaining regulatory approval by the FDA or other U.S. and non-U.S. governmental regulatory authorities is long and costly and there can be no assurance that the necessary approvals will be obtained or maintained.


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The pharmaceutical sector is also subject to rapid and significant technological change and competitive forces that may make drugs obsolete or make it difficult to raise prices and, in fact, may result in price discounting. Companies in the pharmaceutical sector may also be subject to expenses and losses from extensive litigation based on intellectual property, product liability and similar claims. Failure of pharmaceutical companies to comply with applicable laws and regulations can result in the imposition of civil and criminal fines, penalties and, in some instances, exclusion of participation in government sponsored programs such as Medicare and Medicaid.

Companies in the pharmaceutical sector may be adversely affected by government regulation and changes in reimbursement rates. The ability of many pharmaceutical companies to commercialize and monetize current and any future products depends in part on the extent to which reimbursement for the cost of such products and related treatments are available from third party payors, such as Medicare, Medicaid, private health insurance plans and health maintenance organizations. Third-party payors are increasingly challenging the price and cost-effectiveness of many medical products.

Significant uncertainty exists as to the reimbursement status of health care products, and there can be no assurance that adequate third-party coverage will be available for pharmaceutical companies to obtain satisfactory price levels for their products.

The international operations of many pharmaceutical companies expose them to risks associated with instability and changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations and other risks inherent to international business. Additionally, a pharmaceutical company's valuation can often be based largely on the potential or actual performance of a limited number of products. A pharmaceutical company's valuation can also be greatly affected if one of its products proves unsafe, ineffective or unprofitable. Such companies also may be characterized by thin capitalization and limited markets, financial resources or personnel, as well as dependence on wholesale distributors. The stock prices of companies in the pharmaceutical industry have been and will likely continue to be extremely volatile.

Biotechnology Industry Risk. The success of biotechnology companies is highly dependent on the development, procurement and/or marketing of drugs. The values of biotechnology companies are also dependent on the development, protection and exploitation of intellectual property rights and other proprietary information, and the


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profitability of biotechnology companies may be significantly affected by such things as the expiration of patents or the loss of, or the inability to enforce, intellectual property rights.

The research and other costs associated with developing or procuring new drugs, products or technologies and the related intellectual property rights can be significant, and the results of such research and expenditures are unpredictable. There can be no assurance that those efforts or costs will result in the development of a profitable drug, product or technology. Moreover, the process for obtaining regulatory approval by the FDA or other U.S. and non-U.S. governmental regulatory authorities is long and costly and there can be no assurance that the necessary approvals will be obtained or maintained.

The biotechnology sector is also subject to rapid and significant technological change and competitive forces that may make drugs, products or technologies obsolete or make it difficult to raise prices and, in fact, may result in price discounting. Companies in the biotechnology sector may also be subject to expenses and losses from extensive litigation based on intellectual property, product liability and similar claims. Failure of biotechnology companies to comply with applicable laws and regulations can result in the imposition of civil and/or criminal fines, penalties and, in some instances, exclusion of participation in government sponsored programs such as Medicare and Medicaid.

Companies in the biotechnology sector may be adversely affected by government regulation and changes in reimbursement rates. Healthcare providers, principally hospitals, that transact with companies in the biotechnology industry, often rely on third party payors, such as Medicare, Medicaid, private health insurance plans and health maintenance organizations to reimburse all or a portion of the cost of healthcare related products or services. Biotechnology companies will continue to be affected by the efforts of governments and third party payors to contain or reduce health care costs. For example, certain foreign markets control pricing or profitability of biotechnology products and technologies. In the United States, there has been, and there will likely continue to be, a number of federal and state proposals to implement similar controls.

A biotechnology company's valuation could be based on the potential or actual performance of a limited number of products and could be adversely affected if one of its products proves unsafe, ineffective or unprofitable. Such companies may also be characterized by thin capitalization and limited markets, financial resources or personnel. The stock prices of companies involved in the biotechnology


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sector have been and will likely continue to be extremely volatile.

Managed Care Sector Risk. Companies in the managed care sector often assume the risk of both medical and administrative costs for their customers in return for monthly premiums. The profitability of these products depends in large part on the ability of such companies to predict, price for, and effectively manage medical costs. Managed care companies base the premiums they charge and their Medicare bids on estimates of future medical costs over the fixed contract period; however, many factors may cause actual costs to exceed what was estimated and reflected in premiums or bids. These factors may include medical cost inflation, increased use of services, increased cost of individual services, natural catastrophes or other large-scale medical emergencies, epidemics, the introduction of new or costly treatments and technology, new mandated benefits (such as the expansion of essential benefits coverage) or other regulatory changes and insured population characteristics. Relatively small differences between predicted and actual medical costs or utilization rates as a percentage of revenues can result in significant changes in financial results.

Managed care companies are regulated at the federal, state, local and international levels. Insurance and HMO subsidiaries must be licensed by and are subject to the regulations of the jurisdictions in which they conduct business. U.S. health plans and insurance companies are also regulated under state insurance holding company regulations, and some of their activities may be subject to other health care-related regulations. The health care industry is also regularly subject to negative publicity, including as a result of governmental investigations, adverse media coverage and political debate surrounding industry regulation. Negative publicity may adversely affect stock price, damage the reputation of managed care companies in various markets or foster an increasingly active regulatory environment, which, in turn, could further increase the regulatory burdens under which such companies operate and their costs of doing business.

The implementation of the Affordable Care Act ("ACA") and other reforms could materially and adversely affect the manner in which U.S. managed care companies conduct business and their results of operations, financial position and cash flows. The ACA includes guaranteed coverage and expanded benefit requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, establishes minimum medical loss ratios, creates a federal premium review process, imposes new


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requirements on the format and content of communications (such as explanations of benefits) between health insurers and their members, grants to members new and additional appeal rights, and imposes new and significant taxes on health insurers and health care benefits.

Managed care companies contract with physicians, hospitals, pharmaceutical benefit service providers, pharmaceutical manufacturers, and other health care providers for services. Such companies' results of operations and prospects are substantially dependent on their continued ability to contract for these services at competitive prices. Failure to develop and maintain satisfactory relationships with health care providers, whether in-network or out-of-network, could materially and adversely affect business, results of operations, financial position and cash flows.

Life Science and Tools Industry Risk. Life sciences industries are characterized by limited product focus, rapidly changing technology and extensive government regulation. In particular, technological advances can render an existing product, which may account for a disproportionate share of a company's revenue, obsolete. Obtaining governmental approval from agencies such as the FDA, U.S. Department of Agriculture and other U.S. and non-U.S. governmental agencies for new products can be lengthy, expensive and uncertain as to outcome. Such delays in product development may result in the need to seek additional capital, potentially diluting the interests of existing investors such as the Trust. In addition, governmental agencies may, for a variety of reasons, restrict the release of certain innovative technologies of commercial significance, such as genetically altered material. These various factors may result in abrupt advances and declines in the securities prices of particular companies and, in some cases, may have a broad effect on the prices of securities of companies in particular life sciences industries.

Intense competition exists within and among certain life sciences industries, including competition to obtain and sustain proprietary technology protection. Life sciences companies can be highly dependent on the strength of patents, trademarks and other intellectual property rights for maintenance of profit margins and market share. The complex nature of the technologies involved can lead to patent disputes, including litigation that could result in a company losing an exclusive right to a patent. Competitors of life sciences companies may have substantially greater financial resources, more extensive development, manufacturing, marketing and service capabilities, and a larger number of qualified managerial and technical personnel. Such competitors may succeed in developing


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technologies and products that are more effective or less costly than any that may be developed by life sciences companies in which the Trust invests and may also prove to be more successful in production and marketing. Competition may increase further as a result of potential advances in health services and medical technology and greater availability of capital for investment in these fields.

With respect to healthcare, cost containment measures already implemented by national governments, state or provincial governments, international organizations and the private sector have adversely affected certain sectors of these industries. The implementation of the ACA may create increased demand for healthcare products and services but also may have an adverse effect on some companies in the healthcare industries. Increased emphasis on managed care in the United States may put pressure on the price and usage of products sold by life sciences companies in which the Trust may invest and may adversely affect the sales and revenues of life sciences companies.

Product development efforts by life sciences companies may not result in commercial products for many reasons, including, but not limited to, failure to achieve acceptable clinical trial results, limited effectiveness in treating the specified condition or illness, harmful side effects, failure to obtain regulatory approval, and high manufacturing costs. Even after a product is commercially released, governmental agencies may require additional clinical trials or change the labeling requirements for products if additional product side effects are identified, which could have a material adverse effect on the market price of the securities of those life sciences companies.

Certain life sciences companies in which the Trust may invest may be exposed to potential product liability risks that are inherent in the testing, manufacturing, marketing and sale of pharmaceuticals, medical devices or other products. There can be no assurance that a product liability claim would not have a material adverse effect on the business, financial condition or securities prices of a company in which the Trust has invested.

Healthcare Technology Sector Risk. Companies in the healthcare technology sector may incur substantial costs related to product-related liabilities. Many of the software solutions, health care devices or services developed by such companies are intended for use in collecting, storing and displaying clinical and health care-related information used in the diagnosis and treatment of patients and in related health care settings such as admissions, billing, etc. The limitations of liability set forth in the companies' contracts may not be enforceable or may not otherwise protect these


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companies from liability for damages. Healthcare technology companies may also be subject to claims that are not covered by contract, such as a claim directly by a patient. Although such companies may maintain liability insurance coverage, there can be no assurance that such coverage will cover any particular claim that has been brought or that may be brought in the future, that such coverage will prove to be adequate or that such coverage will continue to remain available on acceptable terms, if at all.

Healthcare technology companies may experience interruption at their data centers or client support facilities. The business of such companies often relies on the secure electronic transmission, data center storage and hosting of sensitive information, including protected health information, financial information and other sensitive information relating to clients, company and workforce. In addition, such companies may perform data center and/or hosting services for certain clients, including the storage of critical patient and administrative data and support services through various client support facilities. If any of these systems are interrupted, damaged or breached by an unforeseen event or actions of a third party, including a cyber-attack, or fail for any extended period of time, it could have a material adverse impact on the results of operations for such companies.

The proprietary technology developed by healthcare technology companies may be subject to claims for infringement or misappropriation of intellectual property rights of others, or may be infringed or misappropriated by others. Despite protective measures and intellectual property rights, such companies may not be able to adequately protect against theft, copying, reverse-engineering, misappropriation, infringement or unauthorized use or disclosure of their intellectual property, which could have an adverse effect on their competitive position. In addition, these companies are routinely involved in intellectual property infringement or misappropriation claims and it is expected that this activity will continue or even increase as the number of competitors, patents and patent enforcement organizations in the healthcare technology market increases, the functionality of software solutions and services expands, the use of open-source software increases and new markets such as health care device innovation, health care transactions, revenue cycle, population health management and life sciences are entered into. These claims, even if not meritorious, are expensive to defend and are often incapable of prompt resolution.

The success of healthcare technology companies depends upon the recruitment and retention of key personnel. To remain competitive, such companies must attract, motivate


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and retain highly skilled managerial, sales, marketing, consulting and technical personnel, including executives, consultants, programmers and systems architects skilled in healthcare technology, health care devices, health care transactions, population health management, revenue cycle and life sciences industries and the technical environments in which solutions, devices and services are needed. Competition for such personnel in the healthcare technology sector is intense in both the United States and abroad. The failure to attract additional qualified personnel could have a material adverse effect on healthcare technology companies' prospects for long-term growth.

Healthcare Services Sector Risk. The operations of healthcare services companies are subject to extensive federal, state and local government regulations, including Medicare and Medicaid payment rules and regulations, federal and state anti-kickback laws, the physician self-referral law ("Stark Law") and analogous state self-referral prohibition statutes, Federal Acquisition Regulations, the False Claims Act and federal and state laws regarding the collection, use and disclosure of patient health information and the storage, handling and administration of pharmaceuticals. The Medicare and Medicaid reimbursement rules related to claims submission, enrollment and licensing requirements, cost reporting, and payment processes impose complex and extensive requirements upon dialysis providers as well. A violation or departure from any of these legal requirements may result in government audits, lower reimbursements, significant fines and penalties, the potential loss of certification, recoupment efforts or voluntary repayments. If healthcare services companies fail to adhere to all of the complex government regulations that apply to their businesses, such companies could suffer severe consequences that would substantially reduce revenues, earnings, cash flows and stock prices.

A substantial percentage of a healthcare services company's service revenues may be generated from patients who have state Medicaid or other non-Medicare government-based programs, such as coverage through the Department of Veterans Affairs ("VA"), as their primary coverage. As state governments and other governmental organizations face increasing budgetary pressure, healthcare services companies may in turn face reductions in payment rates, delays in the receipt of payments, limitations on enrollee eligibility or other changes to the applicable programs.

Adverse economic conditions, such as those recently experienced in the United States and currently being experienced in many non-U.S. countries, could adversely affect the business and profitability of healthcare services companies. Among other things, the potential decline in


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federal, non-U.S. government and state revenues that may result from such conditions may create additional pressures to contain or reduce reimbursements for services from Medicare, Medicaid and other government sponsored programs. Increasing job losses or slow improvement in the unemployment rate in the United States and elsewhere as a result of adverse or recent economic conditions may result in a smaller percentage of patients being covered by an employer group health plan and a larger percentage being covered by lower paying Medicare and Medicaid programs. Employers may also select more restrictive commercial plans with lower reimbursement rates. To the extent that payors are negatively impacted by a decline in the economy, healthcare services companies may experience further pressure on commercial rates, a further slowdown in collections and a reduction in the amounts they expect to collect. In addition, uncertainty in the financial markets could adversely affect the variable interest rates payable under credit facilities or could make it more difficult to obtain or renew such facilities or to obtain other forms of financing in the future, if at all. Any or all of these factors, as well as other consequences of the adverse economic conditions which cannot currently be anticipated, could have a material adverse effect on a healthcare services company's revenues, earnings and cash flows and otherwise adversely affect its financial condition.

Healthcare Supplies Sector Risk. If healthcare supplies companies are unable to successfully expand their product lines through internal research and development and acquisitions, their business may be materially and adversely affected. In addition, if these companies are unable to successfully grow their businesses through marketing partnerships and acquisitions, their business may be materially and adversely affected.

Consolidation of healthcare providers has increased demand for price concessions and caused the exclusion of suppliers from significant market segments. It is expected that market demand, government regulation, third-party reimbursement policies, government contracting requirements and societal pressures will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances among customers and competitors. This may exert further downward pressure on the prices of healthcare supplies companies' products and adversely impact their businesses, financial conditions or results of operations.

Quality is extremely important to healthcare supplies companies and their customers due to the serious and costly consequences of product failure. Quality certifications are critical to the marketing success of their products and services. If a healthcare supplies company fails to meet


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these standards or fails to adapt to evolving standards, its reputation could be damaged, it could lose customers, and its revenue and results of operations could decline.

The ACA was enacted into law in the United States in March 2010. In addition to a medical device tax, effective as of January 2013, there are many programs and requirements for which the details have not yet been fully established or consequences not fully understood. It is unclear what healthcare programs and regulations will be ultimately implemented (or rescinded) at either the federal or state level, but any changes that may decrease reimbursement for healthcare supplies companies' products, reduce medical procedure volumes or increase cost containment measures could adversely impact the businesses of such companies.

Healthcare Facilities Sector Risk. A healthcare facility's ability to negotiate favorable contracts with HMOs, insurers offering preferred provider arrangements and other managed care plans significantly affects the revenues and operating results of such healthcare facilities. In addition, private payers are increasingly attempting to control health care costs through direct contracting with hospitals to provide services on a discounted basis, increased utilization reviews and greater enrollment in managed care programs, such as HMOs and PPOs. The trend toward consolidation among private managed care payers tends to increase their bargaining power over prices and fee structures. It is not clear what impact, if any, the increased obligations on private payers imposed by the health care reform law will have on a healthcare facility's ability to negotiate reimbursement increases. However, as various provisions of the ACA are implemented, including the establishment of the exchanges, non-government payers may increasingly demand reduced fees. If a healthcare facility is unable to enter into and maintain managed care contractual arrangements on acceptable terms, if it experiences material reductions in the contracted rates received from managed care payers, or if it has difficulty collecting from managed care payers, its results of operations could be adversely affected.

Further changes in the Medicare and Medicaid programs or other government health care programs could have an adverse effect on a healthcare facility's business. In addition to the changes affected by the ACA, the Medicare and Medicaid programs are subject to other statutory and regulatory changes, administrative rulings, interpretations and determinations concerning patient eligibility requirements, funding levels and the method of calculating payments or reimbursements, among other things, requirements for utilization review, and federal and state funding restrictions. All of these could materially increase or decrease payments from government programs in the future,


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as well as affect the cost of providing services to patients and the timing of payments to facilities, which could in turn adversely affect a healthcare facility's overall business, financial condition, results of operations or cash flows.

Healthcare facilities continue to be adversely affected by a high volume of uninsured and underinsured patients, as well as declines in commercial managed care patients. As a result, healthcare facilities continue to experience a high level of uncollectible accounts, and, unless their business mix shifts toward a greater number of insured patients as a result of the ACA or otherwise, the trend of higher co-pays and deductibles reverses, or the economy improves and unemployment rates decline, it is anticipated that this high level of uncollectible accounts will continue or increase. In addition, even after implementation of the ACA, healthcare facilities may continue to experience significant levels of bad debt expense and may have to provide uninsured discounts and charity care for undocumented aliens who are not permitted to enroll in a health insurance exchange or government health care program.

Healthcare Equipment Sector Risk. The medical device markets are highly competitive and a healthcare equipment company many be unable to compete effectively. These markets are characterized by rapid change resulting from technological advances and scientific discoveries.

Development by other companies of new or improved products, processes, or technologies may make a healthcare equipment company's products or proposed products less competitive. In addition, these companies face competition from providers of alternative medical therapies such as pharmaceutical companies.

Medical devices and related business activities are subject to rigorous regulation, including by the FDA, U.S. Department of Justice ("DOJ"), and numerous other federal, state, and foreign governmental authorities. These authorities and members of Congress have been increasing their scrutiny of the healthcare equipment industry. In addition, certain states have recently passed or are considering legislation restricting healthcare equipment companies' interactions with health care providers and requiring disclosure of certain payments to them. It is anticipated that governmental authorities will continue to scrutinize this industry closely, and that additional regulation may increase compliance and legal costs, exposure to litigation, and other adverse effects to operations.

Healthcare equipment companies are substantially dependent on patent and other proprietary rights and failing to protect such rights or to be successful in litigation


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related to such rights may result in the payment of significant monetary damages and/or royalty payments, may negatively impact the ability of healthcare equipment companies to sell current or future products, or may prohibit such companies from enforcing their patent and other proprietary rights against others.

Quality problems with the processes, goods and services of a healthcare equipment company could harm the company's reputation for producing high-quality products and erode its competitive advantage, sales and market share. Quality is extremely important to healthcare equipment companies and their customers due to the serious and costly consequences of product failure. Quality certifications are critical to the marketing success of goods and services. If a healthcare equipment company fails to meet these standards, its reputation could be damaged, it could lose customers, and its revenue and results of operations could decline.

Healthcare Distributors Sector Risk. Companies in the healthcare distribution sector operate in markets that are highly competitive. Because of competition, many of these companies face pricing pressures from customers and suppliers. If these companies are unable to offset margin reductions caused by pricing pressures through steps such as effective sourcing and enhanced cost control measures, the financial condition of such companies could be adversely affected. In addition, in recent years, the healthcare industry has continued to consolidate. Further consolidation among customers and suppliers (including branded pharmaceutical manufacturers) could give the resulting enterprises greater bargaining power, which may adversely impact the financial condition of companies in the healthcare distribution sector.

Fewer generic pharmaceutical launches or launches that are less profitable than those previously experienced may have an adverse effect on the profits of companies in the healthcare distribution sector. Additionally, prices for existing generic pharmaceuticals generally decline over time, although this may vary. Price deflation on existing generic pharmaceuticals may have an adverse effect on company profits. With respect to branded pharmaceutical price appreciation, if branded manufacturers increase prices less frequently or by amounts that are smaller than have been experienced historically, healthcare distribution companies may profit less from branded pharmaceutical agreements.

The healthcare industry is highly regulated, and healthcare distribution companies are subject to regulation in the United States at both the federal and state level and in


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foreign countries. If healthcare distribution companies fail to comply with these regulatory requirements, the financial condition of such companies could be adversely affected.

Due to the nature of the business of healthcare distribution companies, such companies may from time to time become involved in disputes or legal proceedings. For example, some of the products that these companies distribute may be alleged to cause personal injury or violate the intellectual property rights of another party, subjecting such companies to product liability or infringement claims. Litigation is inherently unpredictable, and the unfavorable resolution of one or more of these legal proceedings could adversely affect the cash flows of healthcare distribution companies.

Healthcare distribution companies depend on the availability of various components, compounds, raw materials and energy supplied by others for their operations. Any of these supplier relationships could be interrupted due to events beyond the control of such companies, including natural disasters, or could be terminated. A sustained supply interruption could have an adverse effect on business.

Healthcare REIT Risk. The healthcare industry is highly regulated, and changes in government regulation and reimbursement can have material adverse consequences on its participants, including Healthcare REITs, some of which may be unintended. The healthcare industry is also highly competitive, and the operators and managers of underlying properties of Healthcare REITs may encounter increased competition for residents and patients, including with respect to the scope and quality of care and services provided, reputation and financial condition, physical appearance of the properties, price and location. If tenants, operators and managers of the underlying properties of Healthcare REITs are unable to successfully compete with other operators and managers by maintaining profitable occupancy and rate levels, their ability to meet their respective obligations to Healthcare REITs may be materially adversely affected. There can be no assurance that future changes in government regulation will not adversely affect the healthcare industry, including seniors housing and healthcare operations, tenants and operators, nor can it be certain that tenants, operators and managers of the underlying properties of Healthcare REITs will achieve and maintain occupancy and rate levels that will enable them to satisfy their obligations to a Healthcare REIT. Any adverse changes in the regulation of the healthcare industry or the competitiveness of the tenants, operators and managers of the underlying properties of Healthcare REITs could have a more pronounced effect on a Healthcare REIT than if it had investments outside the seniors housing and healthcare industries. Regulation of the long-term


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healthcare industry generally has intensified over time both in the number and type of regulations and in the efforts to enforce those regulations. Federal, state and local laws and regulations affecting the healthcare industry include those relating to, among other things, licensure, conduct of operations, ownership of facilities, addition of facilities and equipment, allowable costs, services, prices for services, qualified beneficiaries, quality of care, patient rights, fraudulent or abusive behavior, and financial and other arrangements that may be entered into by healthcare providers. In addition, changes in enforcement policies by federal and state governments have resulted in an increase in the number of inspections, citations of regulatory deficiencies and other regulatory sanctions, including terminations from the Medicare and Medicaid programs, bars on Medicare and Medicaid payments for new admissions, civil monetary penalties and even criminal penalties. It is not possible to predict the scope of future federal, state and local regulations and legislation, including the Medicare and Medicaid statutes and regulations, or the intensity of enforcement efforts with respect to such regulations and legislation, and any changes in the regulatory framework could have a material adverse effect on the tenants, operators and managers of underlying properties of Healthcare REITs, which, in turn, could have a material adverse effect on Healthcare REITs themselves.

If tenants, operators and managers of underlying properties of Healthcare REITs fail to comply with the extensive laws, regulations and other requirements applicable to their businesses and the operation of properties, they could become ineligible to receive reimbursement from governmental and private third-party payor programs, face bans on admissions of new patients or residents, suffer civil or criminal penalties or be required to make significant changes to their operations. Tenants, operators and managers of underlying properties of Healthcare REITs also could face increased costs related to healthcare regulation, such as the ACA, or be forced to expend considerable resources in responding to an investigation or other enforcement action under applicable laws or regulations. In such event, the results of operations and financial condition of tenants, operators and managers of underlying properties of Healthcare REITs and the results of operations of properties operated or managed by those entities could be adversely affected, which, in turn, could have a material adverse effect on Healthcare REITs.

Certain tenants and operators of underlying properties of Healthcare REITs may rely on reimbursement from third-party payors, including the Medicare and Medicaid programs, for substantially all of their revenues. Federal and


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state legislators and regulators have adopted or proposed various cost-containment measures that would limit payments to healthcare providers, and budget crises and financial shortfalls have caused states to implement or consider Medicaid rate freezes or cuts. Private third-party payors also have continued their efforts to control healthcare costs. There is no assurance that tenants and operators of underlying properties of Healthcare REITs who currently depend on governmental or private payor reimbursement will be adequately reimbursed for the services they provide. Significant limits by governmental and private third-party payors on the scope of services reimbursed or on reimbursement rates and fees, whether from legislation, administrative actions or private payor efforts, could have a material adverse effect on the liquidity, financial condition and results of operations of certain tenants and operators of underlying properties of Healthcare REITs, which could affect adversely their ability to comply with the terms of leases and have a material adverse effect on Healthcare REITs.

REITs whose underlying properties are concentrated in a particular industry, such as the healthcare industry, or geographic region are subject to risks affecting such industries or regions. The securities of REITs involve greater risks than those associated with larger, more established companies and may be subject to more abrupt or erratic price movements because of interest rate changes, economic conditions and other factors. Securities of such issuers may lack sufficient market liquidity to enable the Trust to effect sales at an advantageous time or without a substantial drop in price.

Foreign Securities Risk. Foreign investments involve special risks that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments may be affected by changes in currency rates, changes in foreign or U.S. laws or restrictions applicable to such investments and changes in exchange control regulations ( e.g. , currency blockage). A decline in the exchange rate of the currency ( i.e. , weakening of the currency against the U.S. dollar) in which a portfolio security is quoted or denominated relative to the U.S. dollar would reduce the value of the portfolio security. In addition, if the currency in which the Trust receives dividends, interest or other payments declines in value against the U.S. dollar before such income is distributed as dividends to shareholders or converted to U.S. dollars, the Trust may have to sell portfolio securities to obtain sufficient cash to pay such dividends.

The Trust may invest in foreign securities which take the form of sponsored and unsponsored American depositary


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receipts ("ADRs"), global depositary receipts ("GDRs"), European depositary receipts ("EDRs") or other similar instruments representing securities of foreign issuers (together, "Depositary Receipts"). ADRs represent the right to receive securities of foreign issuers deposited in a domestic bank or a correspondent bank. ADRs are traded on domestic exchanges or in the U.S. over-the-counter ("OTC") market and, generally, are in registered form. EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank similar to ADRs and are designed for use in the non-U.S. securities markets. EDRs and GDRs are not necessarily quoted in the same currency as the underlying security. To the extent the Trust acquires Depositary Receipts through banks which do not have a contractual relationship with the foreign issuer of the security underlying the Depositary Receipts to issue and service such unsponsored Depositary Receipts, there is an increased possibility that the Trust will not become aware of and be able to respond to corporate actions, such as stock splits or rights offerings, involving the foreign issuer in a timely manner. In addition, the lack of information may result in inefficiencies in the valuation of such instruments. Investment in Depositary Receipts does not eliminate all the risks inherent in investing in securities of non-U.S. issuers. The market value of Depositary Receipts is dependent upon the market value of the underlying securities and fluctuations in the relative value of the currencies in which the Depositary Receipts and the underlying securities are quoted. However, by investing in Depositary Receipts, such as ADRs, which are quoted in U.S. dollars, the Trust may avoid currency risks during the settlement period for purchases and sales.

Brokerage commissions, custodial services and other costs relating to investment in international securities markets generally are more expensive than in the United States. In addition, clearance and settlement procedures may be different in foreign countries and, in certain markets, such procedures have been unable to keep pace with the volume of securities transactions, thus making it difficult to conduct such transactions.

Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to U.S. issuers. There may be less publicly available information about a foreign issuer than about a U.S. issuer. In addition, there is generally less government regulation of foreign markets, companies and securities dealers than in the United States, and the legal remedies for investors may be more limited than the remedies available in the United States. Foreign securities markets may have substantially less volume than U.S.


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securities markets and securities of many foreign issuers are less liquid and more volatile than securities of comparable domestic issuers. Furthermore, with respect to certain foreign countries, there is a possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on dividend or interest payments (or, in some cases, capital gains distributions), limitations on the removal of funds or other assets from such countries, and risks of political or social instability or diplomatic developments which could adversely affect investments in those countries.

The Trust may invest in securities of issuers located in Emerging Markets. The risks of foreign investment are heightened when the issuer is located in an emerging country. Emerging Markets are generally located in Africa, Asia, the Middle East, Eastern Europe and Central and South America. Investments in securities of issuers located in Emerging Markets may be subject to heightened risks, including relative illiquidity, price volatility and potential restrictions on repatriation of investment capital and income. The Trust's purchase and sale of portfolio securities in Emerging Markets may be constrained by limitations relating to daily changes in the prices of listed securities, periodic trading or settlement volume and/or limitations on aggregate holdings of foreign investors. Such limitations may be computed based on the aggregate trading volume by or holdings of the Trust, the Investment Adviser, or its affiliates and respective clients and other service providers. The Trust may not be able to sell securities in circumstances where price, trading or settlement volume limitations have been reached.

Foreign investment in the securities markets of certain Emerging Markets is restricted or controlled to varying degrees which may limit investment in such countries or increase the administrative costs of such investments. For example, certain Asian countries require governmental approval prior to investments by foreign persons or limit investment by foreign persons to only a specified percentage of an issuer's outstanding securities or a specific class of securities which may have less advantageous terms (including price) than securities of the issuer available for purchase by nationals. In addition, certain countries may restrict or prohibit investment opportunities in issuers or industries deemed important to national interests. Such restrictions may affect the market price, liquidity and rights of securities that may be purchased by the Trust. The repatriation of both investment income and capital from certain Emerging Markets is subject to restrictions such as the need for governmental consents. In situations where a country restricts direct investment in securities (which may


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occur in certain Asian and other countries), the Trust may invest in such countries through other investment funds in such countries.

Many Emerging Markets have recently experienced currency devaluations and substantial (and, in some cases, extremely high) rates of inflation. Other Emerging Markets have experienced economic recessions. These circumstances have had a negative effect on the economies and securities markets of those Emerging Markets.

Economies in Emerging Markets generally are dependent heavily upon commodity prices and international trade and, accordingly, have been and may continue to be affected adversely by the economies of their trading partners, trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade.

Many Emerging Markets are subject to a substantial degree of economic, political and social instability. Governments of some emerging countries are authoritarian in nature or have been installed or removed as a result of military coups, while governments in other Emerging Markets have periodically used force to suppress civil dissent. Disparities of wealth, the pace and success of democratization, and ethnic, religious and racial disaffection, among other factors, have also led to social unrest, violence and/or labor unrest in some Emerging Markets. Unanticipated political or social developments may result in sudden and significant investment losses. Investing in Emerging Markets involves greater risk of loss due to expropriation, nationalization, confiscation of assets and property or the imposition of restrictions on foreign investments and on repatriation of capital invested. As an example, in the past, some Eastern European governments have expropriated substantial amounts of private property, and many claims of the property owners have never been fully settled. There is no assurance that similar expropriations will not occur in other countries.

The Trust's investment in Emerging Markets may also be subject to withholding or other taxes, which may be significant and may reduce the return to the Trust from an investment in issuers in such countries.

Settlement procedures in Emerging Markets are frequently less developed and reliable than those in the United States and may involve the Trust's delivery of securities before receipt of payment for their sale. In addition, significant delays may occur in certain markets in registering the transfer of securities. Settlement or registration problems may make it more difficult for the Trust to value its portfolio securities and could cause the Trust to miss attractive investment opportunities, to have a portion of its assets


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uninvested or to incur losses due to the failure of a counterparty to pay for securities the Trust has delivered or the Trust's inability to complete its contractual obligations because of theft or other reasons.

The creditworthiness of the local securities firms used by the Trust in Emerging Markets may not be as sound as the creditworthiness of firms used in more developed countries. As a result, the Trust may be subject to a greater risk of loss if a securities firm defaults in the performance of its responsibilities.

The small size and inexperience of the securities markets in certain Emerging Markets and the limited volume of trading in securities in those countries may make the Trust's investments in such countries less liquid and more volatile than investments in countries with more developed securities markets (such as the United States, Japan and most Western European countries). The Trust's investments in Emerging Markets are subject to the risk that the liquidity of a particular investment, or investments generally, in such countries will shrink or disappear suddenly and without warning as a result of adverse economic, market or political conditions or adverse investor perceptions, whether or not accurate. Because of the lack of sufficient market liquidity, the Trust may incur losses because it will be required to effect sales at a disadvantageous time and only then at a substantial drop in price. Investments in Emerging Markets may be more difficult to value precisely because of the characteristics discussed above and lower trading volumes.

The Trust's use of foreign currency management techniques in Emerging Markets may be limited. A significant portion of the Trust's currency exposure in Emerging Markets may not be covered by these techniques.

Derivatives Risk. The Trust may invest in derivative instruments including options, futures, options on futures, forwards, swaps (including credit default, index, basis, total return, volatility and currency swaps), options on swaps and other derivatives, although suitable derivative instruments may not always be available to the Investment Adviser for these purposes. Initially, the Trust intends to employ a strategy of writing (selling) covered call options on a portion of the common stocks in its portfolio, writing (selling) put options on a portion of the common stocks in its portfolio and, to a lesser extent, writing (selling) covered call and writing (selling) put options on indices of securities and sectors of securities generally within the healthcare industry. This option strategy is intended to generate current income from option premiums as a means to enhance distributions payable to the Trust's Shareholders and will be limited to 30% of the Trust's Managed Assets.


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These option strategies are not always profitable. The sale of a covered call option exposes the Trust during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or to possible loss due to continued holding of a security that might otherwise have been sold to protect against depreciation in the market price of the security. Therefore, the Investment Adviser may choose to decrease its use of the option writing strategy to the extent that it may negatively impact the Trust. Other than the Trust's option strategy and use of derivatives for hedging purposes, the Trust may invest up to 10% of its Managed Assets in derivatives. Derivative instruments can be illiquid, may disproportionately increase losses, and may have a potentially large adverse impact on Trust performance.

Although both OTC and exchange-traded derivatives markets may experience lack of liquidity, OTC non-standardized derivative transactions are generally less liquid than exchange-traded instruments. The illiquidity of the derivatives markets may be due to various factors, including congestion, disorderly markets, limitations on deliverable supplies, the participation of speculators, government regulation and intervention, and technical and operational or system failures. In addition, daily limits on price fluctuations and speculative position limits on exchanges on which the Trust may conduct its transactions in derivative instruments may prevent prompt liquidation of positions, subjecting the Trust to the potential of greater losses. Losses from investments in derivative instruments can result from a lack of correlation between changes in the value of derivative instruments and the portfolio assets (if any) being hedged, the potential illiquidity of the markets for derivative instruments, the failure of the counterparty to perform its contractual obligations, or the risks arising from margin requirements and related leverage factors associated with such transactions. Losses may also arise if the Trust receives cash collateral under the transactions and some or all of that collateral is invested in the market. To the extent that cash collateral is so invested, such collateral will be subject to market depreciation or appreciation, and the Trust may be responsible for any loss that might result from its investment of the counterparty's cash collateral. The use of these management techniques also involves the risk of loss if the Investment Adviser is incorrect in its expectation of the timing or level of fluctuations in securities prices, interest rates or currency prices. Investments in derivative instruments may be harder to value, subject to greater volatility and more likely subject to changes in tax treatment than other investments. For these reasons, the Investment Adviser's attempts to hedge portfolio risks through the use


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of derivative instruments may not be successful. Trading in derivative instruments can result in large amounts of effective leverage. Thus, the leverage offered by trading in derivative instruments will magnify the gains and losses experienced by the Trust and could cause the Trust's net asset value to be subject to wider fluctuations than would be the case if the Trust did not use the leverage feature in derivative instruments. See "Risk Factors — Derivatives Risk."

Risks Associated with the Trust's Option Strategy. The ability of the Trust to achieve its investment objective is partially dependent on the successful implementation of its option strategy. There are several risks associated with transactions in options on securities used in connection with the Trust's option strategy. For example, there are significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well conceived transaction may be unsuccessful to some degree because of market behavior or unexpected events.

As the writer of a call option covered with a security held by the Trust, the Trust forgoes, during the option's life, the opportunities to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call but retains the risk of loss should the price of the underlying security decline. As the Trust writes such covered calls over more of its portfolio, its ability to benefit from capital appreciation becomes more limited. To the extent the Trust writes call options that are not fully covered by securities in its portfolio (such as calls on an index or sector), it will lose money if the portion of the security or securities underlying the option that is not covered by securities in the Trust's portfolio appreciate in value above the exercise price of the option by an amount that exceeds the premium received on the option plus the exercise price of the option. The amount of this loss theoretically could be unlimited. The writer of an option has no control over the time when it may be required to fulfill its obligations as a writer of the option.

When the Trust writes put options, it bears the risk of loss if the value of the underlying stock declines below the exercise price minus the put premium. If the option is exercised, the Trust could incur a loss if it is required to purchase the stock underlying the put option at a price greater than the market price of the stock at the time of exercise plus the put premium the Trust received when it wrote the option. While the Trust's potential gain as the writer of a covered put


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option is limited to the premium received from the purchaser of the put option, the Trust risks a loss equal to the entire exercise price of the option minus the put premium.

Risks that may adversely affect the ability of the Trust to successfully implement its option strategy include the following: "Risks Associated with Options on Securities Generally," "Risks of Writing Options," "Exchange-Listed Option Risks," "Over-the-Counter Option Risk," "Index Option Risk," "Limitations on Option Writing Risk" and "Tax Risk." See "Risk Factors — Risks Associated with the Trust's Option Strategy."

Interest Rate Risk. Prices of fixed-income securities generally rise and fall in response to interest rate changes. Generally, the prices of fixed-rate instruments held by the Trust will tend to fall as interest rates rise. Conversely, when interest rates decline, the value of fixed-rate instruments held by the Trust can be expected to rise. The Trust may be subject to greater risk of rising interest rates due to the current period of historically low interest rates. Expectations of higher inflation generally cause interest rates to rise. The longer the duration, or price sensitivity to changes in interest rates, of the security, the more sensitive the security is to this risk. In typical market interest rate environments, the prices of longer-term fixed-rate instruments tend to fluctuate more in price in response to changes in market interest rates than prices of shorter-term fixed-rate instruments. A 1% increase in interest rates would reduce the value of a $100 note by approximately one dollar if it had a one-year duration. See "Risk Factors — Interest Rate Risk."

Credit/Default Risk. Loans and other debt obligation investments are subject to the risk of non-payment of scheduled principal and interest. Changes in economic conditions or other circumstances may reduce the capacity of the party obligated to make principal and interest payments on such instruments and may lead to defaults. Such non-payments and defaults may reduce the value of the Shares and income distributions. The value of loans and other income investments also may decline because of concerns about the issuer's ability to make principal and interest payments. In addition, the credit ratings of loans or other income investments may be lowered if the financial condition of the party obligated to make payments with respect to such instruments changes. Because the Trust will invest in non-investment grade securities, it will be exposed to a greater amount of credit risk than a fund which invests solely in investment grade securities. The prices of lower grade instruments are generally more sensitive to negative developments, such as a decline in the issuer's revenues or a general economic downturn, than are the prices of higher


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grade instruments. Credit ratings assigned by rating agencies are based on a number of factors and do not necessarily reflect the issuer's current financial condition or the volatility or liquidity of the security. In the event of bankruptcy of the issuer of loans or other income investments, the Trust could experience delays or limitations with respect to its ability to realize the benefits of any collateral securing the instrument. In order to enforce its rights in the event of a default, bankruptcy or similar situation, the Trust may be required to retain legal or similar counsel and incur additional costs. See "Risk Factors — Credit/Default Risk."

Non-Investment Grade Securities Risk. The Trust may invest in securities that are rated, at the time of investment, non-investment grade quality (rated "Ba/BB+/BB+" or below by Moody's, S&P or Fitch, respectively), or securities that are unrated but determined to be of comparable quality by the Investment Adviser. Securities of non-investment grade quality are regarded as having predominantly speculative characteristics with respect to the issuer's capacity to pay interest and repay principal, and are commonly referred to as "junk bonds." Non-investment grade securities and unrated securities of comparable credit quality are subject to the increased risk of an issuer's inability to meet principal and interest payment obligations. The value of high yield, lower quality bonds is affected by the creditworthiness of the issuers of the securities and by general economic and specific industry conditions. These securities may be subject to greater price volatility due to such factors as specific corporate or municipal developments, interest rate sensitivity, negative perceptions of the junk bond markets generally and less secondary market liquidity. Issuers of high yield bonds are not as strong financially as those with higher credit ratings. These issuers are more vulnerable to financial setbacks and recession than more creditworthy issuers, which may impair their ability to make interest and principal payments. Non-investment grade securities may be particularly susceptible to economic downturns, specific corporate or municipal developments, interest rate sensitivity, negative perceptions of the junk bond markets generally and less secondary market liquidity. An economic recession could disrupt severely the market for such securities and may have an adverse impact on the value of such securities. In addition, any such economic downturn could adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon and increase the incidence of default for such securities. Non-investment grade securities, though higher yielding, are characterized by high risk. They may be subject to certain risks with respect to the issuing entity and to greater market fluctuations than certain lower yielding, higher rated


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securities. The retail secondary market for non-investment grade securities may be less liquid than that for higher rated securities. Adverse conditions could make it difficult at times for the Trust to sell certain securities or could result in lower prices than those used in calculating the Trust's NAV. Because of the substantial risks associated with investments in non-investment grade securities, you could lose money on your investment in Shares of the Trust, both in the short-term and the long-term.

Counterparty Risk. Many of the protections afforded to participants on some organized exchanges, such as the performance guarantee of a clearing house, might not be available in connection with uncleared OTC transactions. Therefore, in those instances in which the Trust enters into uncleared OTC transactions, the Trust will be subject to the risk that its direct counterparty will not perform its obligations under the transactions and that the Trust will sustain losses. If a counterparty becomes bankrupt, the Trust may experience significant delays in obtaining recovery (if at all) under the derivative contract in bankruptcy or other reorganization proceeding; if the Trust's claim is unsecured, the Trust will be treated as a general creditor of such prime broker or counterparty and will not have any claim with respect to the underlying security. The Trust may obtain only a limited recovery or may obtain no recovery in such circumstances. The counterparty risk for cleared derivatives is generally lower than for uncleared OTC derivatives since generally a clearing organization becomes substituted for each counterparty to a cleared derivative and, in effect, guarantees the parties' performance under the contract as each party to a trade looks only to the clearing house for performance of financial obligations. However, there can be no assurance that the clearing house, or its members, will satisfy its obligations to the Trust. These risks may also apply to the Trust's securities lending activities. See "Risk Factors — Counterparty Risk."

Regulation as a "Commodity Pool". The Investment Adviser has claimed an exclusion from the definition of the term "commodity pool operator" with respect to the Trust pursuant to Regulation 4.5 promulgated by the U.S. Commodity Futures Trading Commission (the "CFTC"). For the Investment Adviser to continue to qualify for the exclusion under CFTC Regulation 4.5 with respect to the Trust, the aggregate initial margin and premiums required to establish our positions in derivative instruments subject to the jurisdiction of the Commodity Exchange Act of 1936, as amended ("CEA") (other than positions entered into for hedging purposes) may not exceed five percent of the Trust's liquidation value or, alternatively, the net notional value of the Trust's aggregate investments in CEA-regulated


38



derivative instruments (other than positions entered into for hedging purposes) may not exceed 100% of the Trust's liquidation value. In the event the Investment Adviser fail to qualify for the exclusion with respect to the Trust and is required to register as a "commodity pool operator," it will become subject to additional disclosure, recordkeeping and reporting requirements with respect to the Trust, which may increase the Trust's expenses.

Failure of Futures Commission Merchants and Clearing Organizations. The Trust may deposit funds required to margin open positions in derivative instruments subject to the CEA with a clearing broker registered as a "futures commission merchant" ("FCM"). The CEA requires an FCM to segregate all funds received from customers with respect to any orders for the purchase or sale of U.S. domestic futures contracts and cleared swaps from the FCM's proprietary assets. Similarly, the CEA requires each FCM to hold in a separate secure account all funds received from customers with respect to any orders for the purchase or sale of foreign futures contracts and segregate any such funds from the funds received with respect to domestic futures contracts. However, all funds and other property received by a clearing broker from its customers are held by the clearing broker on a commingled basis in an omnibus account and may be freely accessed by the clearing broker, which may also invest any such funds in certain instruments permitted under the applicable regulation. There is a risk that assets deposited by the Trust with any swaps or futures clearing broker as margin for futures contracts or cleared swaps may, in certain circumstances, be used to satisfy losses of other clients of the Trust's clearing broker. In addition, the assets of the Trust may not be fully protected in the event of the clearing broker's bankruptcy, as the Trust would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing broker's combined domestic customer accounts.

Similarly, the CEA requires a clearing organization approved by the CFTC as a derivatives clearing organization to segregate all funds and other property received from a clearing member's clients in connection with domestic futures, swaps and options contracts from any funds held at the clearing organization to support the clearing member's proprietary trading. Nevertheless, with respect to futures and options contracts, a clearing organization may use assets of a non-defaulting customer held in an omnibus account at the clearing organization to satisfy payment obligations of a defaulting customer of the clearing member to the clearing organization. As a result, in the event of a default or the clearing broker's other clients or the clearing broker's failure to extend its own funds in


39



connection with any such default, the Trust would not be able to recover the full amount of assets deposited by the clearing broker on its behalf with the clearing organization.

Liquidity Risk. Illiquid securities include securities the disposition of which is subject to substantial legal or contractual restrictions. The sale of illiquid securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of securities eligible for trading on national securities exchanges or in the over-the-counter markets. Restricted securities may sell at a price lower than similar securities that are not subject to restrictions on resale. The continued liquidity of such securities may not be as well assured as that of publicly traded securities. During certain periods the liquidity of particular issuers or industries, or all securities within particular investment categories, may shrink or disappear suddenly and without warning as a result of adverse economic, market or political events, or adverse investor perceptions, whether or not accurate. See "Risk Factors — Liquidity Risk."

Equity-Linked Notes. Equity-linked notes ("ELNs") are hybrid securities with characteristics of both fixed income and equity securities. An ELN is a debt instrument, usually a bond, that pays interest based upon the performance of an underlying equity, which can be a single stock, basket of stocks or an equity index. The interest payment on an ELN may in some cases be leveraged so that, in percentage terms, it exceeds the relative performance of the market. ELNs generally are subject to the risks associated with the securities of equity issuers, default risk and counterparty risk. Additionally, because the Trust may use ELNs as an alternative or complement to its options strategy, the use of ELNs in this manner would expose the Trust to the risk that such ELNs will not perform as anticipated, and the risk that the use of ELNs will expose the Trust to different or additional default and counterparty risk as compared to a similar investment executed in an options strategy.

PIPEs Risk. PIPE transactions typically involve the purchase of securities directly from a publicly traded company or its affiliates in a private placement transaction, typically at a discount to the market price of the company's common stock. Equity issued in this manner is often subject to transfer restrictions and is therefore less liquid than equity issued through a registered public offering. In a PIPE transaction, the Trust may bear the price risk from the time of pricing until the time of closing. The Trust may be subject to lock-up agreements that prohibit transfers for a fixed period of time. In addition, because the offering of the securities in a PIPE transaction is not registered under the Securities Act, the securities are "restricted" and cannot be


40



immediately resold by the investors into the public markets. The Trust may enter into a registration rights agreement with the issuer pursuant to which the issuer commits to file a resale registration statement allowing the Trust to publicly resell its securities. Accordingly, PIPE securities may be deemed illiquid. However, the ability of the Trust to freely transfer the shares is conditioned upon, among other things, the Commission's preparedness to declare effective the resale registration statement covering the resale of the shares sold in the private financing and the issuer's right to suspend the Trust's use of the resale registration statement if the issuer is pursuing a transaction or some other material non-public event is occurring. Accordingly, PIPE securities may be subject to risks associated with illiquid securities. See "Risk Factors — PIPEs Risk."

Venture Capital Investments Risk. The Trust may occasionally invest in venture capital opportunities. While these securities offer the opportunity for significant capital gains, such investments also involve a degree of risk that can result in substantial losses. Some of the venture capital opportunities in which the Trust may invest are expected to be companies that are in a "start-up" stage of development, have little or no operating history, operate at a loss or with substantial variations in operating results from period to period, have limited products, markets, financial resources or management depth, or have the need for substantial additional "follow-on" capital to support expansion or to achieve or maintain a competitive position. Such additional investments may dilute the interests of prior investors, such as the Trust. Some of these companies may be emerging companies at the research and development stage with no marketable or approved products or technology. There can be no assurance that securities of start-up or emerging growth companies will, in the future, yield returns commensurate with their associated risks.

These investments, which are considered Restricted Securities, will be made primarily in convertible preferred stock. The Trust may also purchase non-convertible debt securities in connection with its venture capital investments, and otherwise when the Investment Adviser believes that such investments would be consistent with the Trust's investment objective. While these debt investments typically will not be rated, the Investment Adviser believes that, in light of the risk characteristics associated with investments in emerging growth companies, if such investments were to be compared with investments rated by S&P or Moody's, they may be rated as low as "C" in the rating categories established by S&P and Moody's. Such securities are commonly referred to as "junk bonds" and are considered, on balance, as predominantly speculative.


41



ETFs Risk. An investment in an ETF generally presents the same primary risks as an investment in a conventional fund ( i.e. , one that is not exchange-traded) that has the same investment objectives, strategies and policies. In addition, an ETF may fail to accurately track the market segment or index that underlies its investment objective. The price of an ETF can fluctuate, and the Trust could lose money investing in an ETF. Moreover, ETFs are subject to the following risks that do not apply to conventional open-end funds: (i) the market price of the ETF's shares may trade at a premium or a discount to their NAV; (ii) an active trading market for an ETF's shares may not develop or be maintained; and (iii) there is no assurance that the requirements of the exchange necessary to maintain the listing of an ETF will continue to be met or remain unchanged.

Leverage Risk. The Trust intends to use financial leverage for investment purposes. The Trust may issue Preferred Shares, borrow money and/or issue debt securities ("traditional leverage"). The Trust initially intends to use traditional leverage through a credit facility representing up to 20% of the Trust's Managed Assets. In addition, the Trust may enter into reverse repurchase agreements, swaps, futures, forward contracts, securities lending, short sales, and other derivative transactions, that have similar effects as leverage (collectively referred to as "effective leverage"). Furthermore, at no time will the Trust's use of leverage, either through traditional leverage or effective leverage, exceed 30% of the Trust's Managed Assets. Notwithstanding the foregoing, effective leverage incurred through the Trust's option strategy and use of derivatives for hedging purposes will not be counted toward the Trust's limit on the use of effective leverage or in the overall 30% leverage limitation.

The Trust's leveraged capital structure creates special risks not associated with unleveraged funds having a similar investment objective and policies. These include the possibility of greater loss and the likelihood of higher volatility of the NAV, market price and distributions of the Trust and the asset coverage for Preferred Shares, if any. Such volatility may increase the likelihood of the Trust having to sell investments in order to meet its obligations to make distributions on the Preferred Shares, or to redeem Preferred Shares when it may be disadvantageous to do so. Also, if the Trust is utilizing leverage, a decline in NAV could affect the ability of the Trust to make distributions and such a failure to pay dividends or make distributions could result in the Trust ceasing to qualify as a regulated investment company under the Code, as amended. See "Risk Factors — Leverage Risk."

Other risks and special considerations include the risk that fluctuations in interest rates on borrowings and short-term


42



debt or in the interest or dividend rates on any leverage that the Trust must pay will reduce the return to the Shareholders; the effects of leverage in a declining market, which are likely to cause a greater decline in the NAV of the Shares than if the Trust were not leveraged, which may result in a greater decline in the market price of the Shares. If the Trust uses leverage, the amount of fees paid to the Investment Adviser for its services will be higher than if the Trust did not use leverage because the fees paid are calculated based on Managed Assets, which includes assets purchased with leverage. Therefore, the Investment Adviser has a financial incentive to use leverage, which creates a conflict of interest between the Investment Adviser and common shareholders, as only the Trust's common shareholders would bear the fees and expenses incurred through the Trust's use of leverage, including the issuance of Preferred Shares, if any. Leverage may increase operating costs, which may reduce total return. For more information regarding the issuance of Preferred Shares, please see "Leverage — Preferred Shares."

Restricted Securities and Valuation Risk. Some of the Trust's investments are subject to restrictions on resale and generally have no established trading market or are otherwise illiquid with little or no trading activity. The valuation process requires an analysis of various factors. The Trust's fair value methodology includes the examination of, among other things, (i) the existence of any contractual restrictions on the disposition of the securities; (ii) information obtained from the issuer which may include an analysis of the company's financial statements, the company's products or intended markets, or the company's technologies; and (iii) the price of a security sold at arm's length in an issuer's subsequent completed round of financing. As there is typically no readily available market value for some of the Restricted Securities in the Trust's portfolio, such Restricted Securities in the Trust's portfolio are valued at fair value as determined in good faith by or under the direction of the Board pursuant to the Trust's valuation policy and a consistently applied valuation process. Because of the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Trust's investments determined in good faith by the Board may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment, while employing a consistently applied valuation process for the types of investments the Trust


43



makes. See "Risk Factors — Valuation of Restricted Securities."

Key Personnel Risk. There may be only a limited number of securities professionals who have comparable experience to that of the Trust's existing portfolio management team in the area of Healthcare Companies. If one or more of the team members dies, resigns, retires or is otherwise unable to act on behalf of the Investment Adviser, there can be no assurance that a suitable replacement could be found immediately. See "Risk Factors — Key Personnel Risk."

Discount to NAV Risk. Shares of closed-end investment companies frequently trade at a discount from their NAV. This characteristic is a risk separate and distinct from the risk that the Trust's NAV per Share could decrease as a result of its investment activities and may be greater for investors expecting to sell their Shares in a relatively short period of time following completion of this offering. The NAV per Share will be reduced immediately following this offering as a result of the payment of the sales load and certain offering costs. Although the value of the Trust's net assets is generally considered by market participants in determining whether to purchase or sell Shares, whether investors will realize gains or losses upon the sale of the Shares will depend entirely upon whether the market price of the Shares at the time of sale is above or below the investor's purchase price for the Shares. Because the market price of the Shares will be determined by supply of and demand for the Shares which will be affected by factors such as (i) NAV, (ii) dividend and distribution levels and their stability (which will in turn be affected by levels of dividend and interest payments by the Trust's portfolio holdings, the timing and success of the Trust's investment strategies, regulations affecting the timing and character of Trust distributions, Trust expenses and other factors), (iii) trading volume of the Shares, (iv) general market, interest rate and economic conditions and (v) other factors that may be beyond the control of the Trust. The Trust cannot predict whether the Shares will trade at, below or above NAV or at, below or above the initial public offering price. See "Risk Factors — Discount to NAV Risk."

Anti-Takeover Provisions Risk. The Trust's Declaration of Trust ("Declaration of Trust"), dated March 5, 2015, has provisions that could have the effect of limiting the ability of other entities or persons to (1) acquire control of the Trust, (2) cause it to engage in certain transactions, or (3) modify its structure. See "Risk Factors — Anti-Takeover Provisions Risk."

Related Party Transactions Risk. The majority of the Board will be unaffiliated with the Investment Adviser;


44



nevertheless, the Trust may be subject to certain potential conflicts of interest. Although the Trust has no obligation to do so, it may place brokerage orders with brokers who provide supplemental investment research and market and statistical information about Healthcare Companies and the healthcare industries. In addition, other investment companies advised by the Investment Adviser may concurrently invest with the Trust in restricted securities under certain conditions. The Trust also may invest, subject to applicable law, in companies in which the principals of the Investment Adviser or Trustees of the Trust have invested, or for which they serve as directors or executive officers. See "Risk Factors — Related Party Transactions Risk."

Non-Diversification Risk. The Trust is non-diversified, meaning that the Trust is permitted to invest more of its assets in fewer issuers than "diversified" funds. Thus, the Trust may be more susceptible to adverse developments affecting any single issuer held in its portfolio, and may be more susceptible to greater losses because of these developments. See "Risk Factors — Non-Diversification Risk."

Government Intervention. The recent instability in the financial markets has led the U.S. government and certain foreign governments to take a number of unprecedented actions designed to support certain financial institutions and segments of the financial markets that have experienced extreme volatility, and in some cases a lack of liquidity, including through direct purchases of equity and debt securities. Federal, state, and foreign governments, their regulatory agencies or self-regulatory organizations may take actions that affect the regulation of the issuers in which the Trust invests in ways that are unforeseeable. Legislation or regulation may also change the way in which the Trust is regulated. Such legislation or regulation could limit or preclude the Trust's ability to achieve its investment objective. See "Risk Factors — Government Intervention."

Market Disruption and Geopolitical Risk. The ongoing U.S. military and related action in Afghanistan and events in the Middle East, as well as the continuing threat of terrorist attacks, could have significant adverse effects on the U.S. economy, the stock market and world economies and markets generally. A disruption of financial markets or other terrorist attacks could adversely affect Trust service providers and/or the Trust's operations as well as interest rates, secondary trading, credit risk, inflation and other factors relating to the Shares. The Trust cannot predict the effects or likelihood of similar events in the future on the U.S. and world economies, the value of the Shares or the NAV of the Trust.


45



Potential Conflicts of Interest Risk. The Investment Adviser's investment team is responsible for managing the Trust as well as three other closed-end investment companies. In the future, the investment team may manage other funds and accounts, including proprietary accounts, separate accounts and other pooled investment vehicles, such as unregistered hedge funds. In the future, a portfolio manager may manage a separate account or other pooled investment vehicle which may have materially higher fee arrangements than the Trust and may also have a performance-based fee. The side-by-side management of these funds or accounts may raise potential conflicts of interest relating to cross trading, the allocation of investment opportunities and the aggregation and allocation of trades.

For additional risks relating to investments in the Trust, including "Mid-Cap and Small-Cap Risk," "Delay in Use of Proceeds Risk," "Temporary Defensive Strategies Risk," "U.S. Government Securities Risk," "Foreign Custody Risk," "Deflation Risk," "Inflation Risk," "Legal and Regulatory Risks," "Information Technology Systems," "Legislation Risk," "Management Risk," "Misconduct of Employees and of Service Providers," "Portfolio Turnover Risk," "Reliance on Service Providers," "When-Issued and Delayed Delivery Transactions Risk," "Risks Relating to Trust's RIC Status" and "RIC-Related Risks of Investments Generating Non-Cash Taxable Income" see "Risk Factors."


46




TRUST EXPENSES

The following table shows estimated Trust expenses as a percentage of net assets attributable to Shares. The purpose of the following table and the example below is to help you understand the fees and expenses that you, as a common shareholder, would bear directly or indirectly. Shareholders should understand that some of the percentages indicated in the tables below are estimates and may vary. The expenses shown in the table under "Estimated Annual Expenses" are based on estimated amounts for the Trust's first full year of operations and assume that the Trust issues 12,500,000 Shares. If the Trust issues fewer Shares, all other things being equal, these expenses would increase as a percentage of net assets attributable to Shares. This table assumes the use of leverage through a credit facility by the Trust in an amount of 20% of its Managed Assets (after leverage is incurred). See "Management of the Trust" and "Dividend Reinvestment and Stock Purchase Plan." The following table should not be considered a representation of the Trust's future expenses. Actual expenses may be greater or less than those shown below.

    Percentage of
Offering Price
 

Shareholder Transaction Expenses

 
Sales Load Paid by You    

4.50

% (1)

 
Offering Expenses Borne by the Trust    

0.20

% (2)

 

Dividend Reinvestment and Stock Purchase Plan Fees

   

None (3)

   
    Percentage of Net
Assets Attributable to
Shares (Assuming the
Use of Leverage) (4)
 

Estimated Annual Expenses

 
Management Fees    

1.25

% (5)

 
Interest Expense    

0.28

% (6)

 
Other Expenses    

0.57

% (7)

 
Total Annual Expenses    

2.10

%

 

(1)  For a description of the sales load, structuring fees and of other compensation paid to the Underwriters by the Trust and the Investment Adviser, see "Underwriting."

(2)  The Investment Adviser has agreed to pay (i) all organizational expenses and (ii) offering expenses (other than the sales load) over $0.04 per Share. The Trust will pay offering expenses of the Trust (other than the sales load) up to $0.04 per Share. Any offering expenses paid by the Trust will be deducted from the proceeds of the offering received by the Trust. The aggregate offering expenses (other than the sales load) to be borne by the Trust are estimated to be $ (approximately $ per Share). Offering expenses borne by the Trust are indirectly borne by the Common Shareholders. The Investment Adviser (and not the Trust) has agreed to pay from its own assets a structuring fee to Wells Fargo Securities, LLC. The Investment Adviser (and not the Trust) may also pay certain qualifying underwriters a structuring fee, a sales incentive fee or other additional compensation in connection with the offering. The Investment Adviser (and not the Trust) has agreed to pay Destra for distribution assistance in connection with this offering. The structuring fees and the distribution fees are not reflected in the sales load in the table above because they are paid by the Investment Adviser and not the Trust. The offering costs to be paid by the Trust are not included in the Total Annual Expenses amount shown in the table. Offering costs borne by the Trust's Shareholders will result in a reduction of capital of the Trust and immediate dilution to Shareholders.


47



(3)  The expenses of administering the Trust's Dividend Reinvestment and Stock Purchase Plan are included in "Other Expenses." You will pay brokerage charges if you direct your broker or the plan agent to sell your Shares that you acquired pursuant to the Trust's Dividend Reinvestment and Stock Purchase Plan. You may also pay a pro rata share of brokerage commissions incurred in connection with open-market purchases pursuant to the Trust's Dividend Reinvestment and Stock Purchase Plan. See "Dividend Reinvestment and Stock Purchase Plan."

(4)  The table in this footnote reflects that fact that you, as a common shareholder, will bear the expenses of the Trust's use of leverage in the form of higher fees as a percentage of the Trust's net assets attributable to Shares than if the Trust did not use leverage. In order to help you better understand the costs associated with the Trust's leveraging strategy, and to better understand the range of costs you will bear as a common shareholder, as the Trust moves toward full implementation of its leveraging strategy after the completion of this offering, the table presented below estimates what the Trust's annual expenses would be, stated as percentages of the Trust's net assets attributable to Shares, assuming the Trust is the same size as in the table above and does not use leverage in the form of a credit facility. In accordance with these assumptions, the Trust's expenses as a percentage of net assets attributable to Shares would be estimated to be as follows:

    Percentage of Net
Assets
Attributable
to Shares
(Assuming no
Leverage is Used)
 

Estimated Annual Expenses

         
Management Fees    

1.00

%

 
Other Expenses    

0.53

% (7)

 
Total Annual Expenses    

1.53

%

 

(5)  The Trust pays a management fee to the Investment Adviser in an annual amount equal to 1.00% of the Trust's average daily Managed Assets. The management fee of 1.00% of the Trust's Managed Assets represents 1.25% of net assets attributable to Shares assuming the use of leverage through a credit facility by the Trust in an amount of 20% of the Trust's Managed Assets.

(6)  Assumes the initial use of leverage through a credit facility of up to 20% of the Trust's Managed Assets (after leverage is incurred) at an annual interest rate expense to the Trust of 1.1%, which is based on current market conditions. The interest on the credit facility is a variable rate and will increase in a rising interest rate environment. The Trust may use other forms of leverage, which may be subject to different interest expenses than those estimated above. The actual amount of interest expense borne by the Trust will vary over time in accordance with the level of the Trust's use of leverage and variations in market interest rates. Fees and expenses in respect of other forms of leverage that may be used by the Trust in the future will be borne entirely by the Trust's common shareholders.

(7)  The "Other Expenses" shown in the tables above and related footnotes are based upon estimated amounts for the current fiscal year. These amounts include estimated payments of approximately $357,375 by the Trust to Destra under an Investor Support Services Agreement between the Trust and Destra, assuming the use of leverage through a credit facility of up to


48



20% of the Trust's Managed Assets (after leverage is incurred), and $285,900 assuming no leverage is used for purposes of the table in footnote 4. See "Investor Support Services."

HYPOTHETICAL EXAMPLE

The following hypothetical example demonstrates the projected dollar amount of total cumulative expenses that would be incurred over various periods with respect to a hypothetical investment in Shares of the Trust. These amounts are based upon payment by the Trust of investment advisory fees and other expenses at the levels set forth in the table above.

You would directly or indirectly pay the following expenses (including the sales load of $45 and estimated offering costs of $2) on a $1,000 investment in the Trust, assuming (1) total net annual expenses of 2.10% of net assets attributable to Shares in years 1 through 10 (which assumes the Trust's use of leverage through borrowings in an aggregate amount equal to 20% of the Trust's Managed Assets), and (2) a 5% annual return*:

1 Year  

3 Years

 

5 Years

 

10 Years

 
$

67

   

$

110

   

$

155

   

$

279

   

*   The example should not be considered a representation of future expenses, and actual expenses may be greater or less than those shown. The example assumes that the estimated "Other Expenses" set forth in the Estimated Annual Expenses table is accurate and that all dividends and distributions are reinvested at NAV. Actual expenses may be greater or less than those assumed. Moreover, the Trust's actual rate of return may be greater or less than the hypothetical 5% return shown in the example.


49



USE OF PROCEEDS

The net proceeds of the offering of Shares will be approximately $ ($ if the Underwriters exercise the overallotment option in full) after payment of the maximum offering costs (including sales load). The Investment Adviser has agreed to pay (i) all organizational expenses of the Trust and (ii) offering expenses (other than the sales load) that exceed $0.04 per Share. The net proceeds of the offering will be invested in accordance with the Trust's investment objective and policies. See "Investment Objective and Policies." The Trust currently anticipates that it will be able to fully invest the proceeds of the offering within six months following completion of the offering, depending on market conditions and the availability of appropriate securities. Restricted Securities may be purchased as appropriate opportunities arise, which could take up to one year or longer, and the Trust may choose to be more fully invested in publicly-traded securities during such period. Pending investment in the securities described above, the proceeds will be held in obligations of the U.S. Government, its agencies or instrumentalities ("U.S. Government Securities"), highly rated money market instruments or mutual funds that invest in such instruments. As a result of this short-term investment of the proceeds, during the Trust's ramp-up period, a lower return may be realized than if the Trust had been fully invested in accordance with its investment objective and policies.

DESCRIPTION OF THE TRUST

Tekla World Healthcare Fund (the "Trust") is a newly organized, non-diversified, closed-end management investment company with no operating history. The Trust was organized as a Massachusetts business trust on March 5, 2015 pursuant to a Declaration of Trust governed by Massachusetts law. As a newly organized entity, the Trust has no operating history. The Trust's principal offices are located at 100 Federal Street, 19th Floor, Boston, MA 02110.

The Trust's capitalization consists of an unlimited number of shares of beneficial interest, $0.01 par value. Each Share represents an equal proportionate beneficial interest in the Trust and, when issued and outstanding, will be fully paid and non-assessable by the Trust. Upon any liquidation of the Trust, Shareholders will be entitled to share pro rata in the net assets of the Trust available for distribution after paying or adequately providing for the payment of all outstanding liabilities. The Trust will send annual and semi-annual financial statements to Shareholders and may also issue more abbreviated interim reports to update Shareholders on a quarterly basis. The Trust will hold annual meetings of its Shareholders in accordance with the provisions of the Trust's by-laws (the "By-laws") and the rules of the NYSE.

Shareholders are entitled to one vote for each whole Share held and a proportionate fractional vote for each fractional Share held. The Trust's Shares do not have cumulative voting rights, which means that the holders of more than 50% of the Shares of the Trust voting for the election of Trustees can elect all of the Trustees, and, in such event, the holders of the remaining Shares will not be able to elect any Trustees. The Trust has a staggered Board, whereby one class of Trustees is elected each year.

For information regarding risk factors pertaining to the Trust, see "Risk Factors."

INVESTMENT OBJECTIVE AND POLICIES

The Trust's investment objective is to seek current income and long-term capital appreciation. The Trust's investment objective is a non-fundamental policy and may be changed by the Board of Trustees of the Trust upon 60 days' notice to Shareholders. For a more detailed description of the Trust's investment objective and policies see "Additional Information about Investments and Investment Techniques" and "Investment Restrictions" in the SAI. For a description of the risks that may be associated with an investment in the Trust, see the section of this prospectus entitled "Risk Factors."


50



Under normal market conditions, the Trust expects to invest at least 80% of its Managed Assets in U.S. and non-U.S. Healthcare Companies including equity securities and debt securities. The Trust intends to concentrate its investments in the healthcare industries.

"Managed Assets" means the total assets of the Trust (including any assets attributable to borrowings for investment purposes) minus the sum of the Trust's accrued liabilities (other than liabilities representing borrowings for investment purposes). The Trust's 80% policy is a non-fundamental policy and may only be changed with 60 days' prior notice to Shareholders.

A company will be deemed to be a Healthcare Company if, at the time the Trust makes an investment in the company, 50% or more of such company's sales, earnings or assets arise from or are dedicated to healthcare products or services or medical technology activities. Healthcare Companies may include companies in one or more of the following sub-sectors: pharmaceuticals, biotechnology, managed care, life science and tools, healthcare technology, healthcare services, healthcare supplies, healthcare facilities, healthcare equipment, healthcare distributors and Healthcare REITs. The Investment Adviser determines, in its discretion, whether a company is a Healthcare Company.

Under normal market conditions, the Trust expects to invest at least 40% of its Managed Assets in companies organized or located outside the United States or companies that do a substantial amount of business outside the United States. The Trust may invest up to 5% of its Managed Assets in securities of issuers located in Emerging Markets. The Trust initially intends to hedge non-U.S. dollar exposure.

The Trust expects to invest 60-90% of its Managed Assets in equity securities (which may include common stock, preferred stock and warrants or other rights to acquire common or preferred stock). The Trust will invest in foreign securities and may buy and sell currencies for the purpose of settlement of transactions in foreign securities. The Trust may invest up to 30% of its Managed Assets in convertible securities. The Trust may invest up to 20% of its Managed Assets as measured at the time of investment in all non-convertible debt securities, including corporate debt obligations and debt securities that are rated non-investment grade (that is, rated Ba1 or lower by Moody's, BB+ or lower by S&P, or BB+ by Fitch or comparably rated by another NRSRO, or, if unrated, determined by the Investment Adviser to be of comparable credit quality) and not including convertible securities. The Trust's investments in non-investment grade investments and those deemed to be of similar quality are considered speculative with respect to the issuer's capacity to pay interest and repay principal and are commonly referred to as "junk" instruments.

The Trust also may invest in derivatives, including but not limited to options, futures, options on futures, forwards, swaps (including credit default, index, basis, total return, volatility and currency swaps), options on swaps and other derivatives. Initially, the Trust intends to employ a strategy of writing (selling) covered call options on a portion of the common stocks in its portfolio, writing (selling) put options on a portion of the common stocks in its portfolio and, to a lesser extent, writing (selling) covered call and writing (selling) put options on indices of securities and sectors of securities generally within the healthcare industry. This option strategy is intended to generate current income from option premiums as a means to enhance distributions payable to the Trust's Shareholders and will be limited to 30% of the Trust's Managed Assets. These option strategies are not always profitable. The sale of a covered call option exposes the Trust during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or to possible loss due to continued holding of a security that might otherwise have been sold to protect against depreciation in the market price of the security. Therefore, the Investment Adviser may choose to decrease its use of the option writing strategy to the extent that it may negatively impact the Trust. Other than the Trust's option strategy and use of derivatives for hedging purposes, the Trust may invest up to 10% of its Managed Assets in derivatives.


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The Trust may invest up to 10% of its Managed Assets in restricted securities, including PIPEs and venture capital investments.

The Trust may from time-to-time lend its portfolio securities. See "Investment Techniques — Securities Lending."

See "Risk Factors" and "Investment Techniques."

INVESTMENT PHILOSOPHY

The Investment Adviser manages the Trust with a global healthcare focus, using its operating knowledge and experience of research and development; the startup and growth of venture companies; clinical trials design and execution; FDA interactions, and involvement in breakthrough products. The Investment Adviser believes that its unique skill set and long tenure in evaluating healthcare companies has provided it with the experience to identify investment opportunities across the capital structure in companies at all stages of their development. The Investment Adviser intends to invest the Trust's assets across the full capital structure of healthcare securities. A company's capital structure refers to the way it finances its business and can include some combination of equity securities, debt securities or hybrid securities, such as convertible securities. Medical progress and scientific breakthroughs are not unique to the United States. Inventions, drug discovery, and development occur worldwide. Such advancement often lags the attention of U.S. investors until much later in the value creation cycle for a host of reasons. Often times these products and companies are acquired or in-licensed by more mature multi-national pharmaceutical companies before U.S. investors can invest. The Trust will seek to make significant investments in developed and emerging healthcare companies that are not readily available in U.S. markets (both pre-public and public securities). The Investment Adviser's unique and deep understanding of relevant scientific and market trends may provide insight into attractive investments possibly earlier on the value creation curve. The Investment Adviser pursues its investment objective through the use of multiple sources of potential income, by varying the Trust's exposure across the global healthcare industry, and by seeking to gain access to special opportunities such as PIPEs and convertible securities.

INVESTMENT TECHNIQUES

Healthcare Companies. The Trust expects to invest in U.S. and non-U.S. equity and debt securities of companies in the healthcare industry, including, but not limited to, biotechnology, pharmaceutical, medical devices and healthcare services companies. These investments are designed to take advantage of recent developments in certain healthcare sectors. For example, demographic changes are driving an increase in medical products due to the high growth rate of the population of Americans age 65 and older. Recent developments in the pharmaceutical, biotechnology, and medical technology industries have produced a series of products that will extend or improve the quality of patients' lives, especially in the areas of oncology, infectious disease, inflammation and orphan diseases. The Investment Adviser believes that the following trends have investment potential: (i) biopharmaceuticals including products for novel targets; (ii) treatments for orphan and ultra-orphan ( i.e. , rare and extremely rare) diseases, including gene therapy; (iii) specialty pharmaceuticals; (iv) generic pharmaceuticals; (v) novel medical devices; (vi) life sciences tools and diagnostics; and (vii) products that will benefit from changes in the regulatory landscape.

Healthcare Companies provide multiple diverse investment opportunities, including opportunities in the following sub-sectors: (i) pharmaceuticals, which includes large and small pharmaceutical, specialty pharmaceutical and generic drug companies; (ii) biotechnology, which includes companies engaged in research into, and development of, biological substances for the purposes of drug discovery and diagnostic development; (iii) managed care, which is a segment that represents HMOs and insurers; (iv) life sciences and tools, which includes research organizations that help design and run clinical trials,


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as well as life sciences research tools companies that offer instruments, reagents and services to scientists in academic, BioPharma and applied market laboratories; (v) healthcare technology, which include companies involved in automating various processes for hospitals and HMOs; (vi) healthcare services, which includes pharmacy benefits managers, alternative site care providers and laboratory services companies; (vii) healthcare supplies, which include companies that provide products such as tubes and bandages used every day in healthcare facilities and laboratories; (viii) healthcare facilities, which include hospitals and other brick and mortar facilities used to treat patients; (ix) healthcare equipment, which include medical diagnostic and device companies; (x) healthcare distributors, which distribute drugs and products to patients, hospitals and other facilities; and (xi) Healthcare REITs.

Equity Securities. The Trust expects invest 60-90% of its Managed Assets in equity securities, which may include common stock, preferred stock and warrants or other rights to acquire common or preferred stock. Common stock represents shares of a corporation or other entity that entitle the holder to a pro rata share of the profits of the entity, if any, without preference over any other shareholder or class of shareholders, including holders of the entity's preferred stock and other senior equity. Common stock usually carries with it the right to vote and frequently an exclusive right to do so. Preferred stock represents shares of a corporation or other entity that pay dividends at a specified rate and have precedence over common stock in the payment of dividends. If the corporation or other entity is liquidated or declares bankruptcy, the claims of owners of preferred stock will have precedence over the claims of owners of common stock, but not over the claims of owners of bonds. Rights and warrants are instruments which entitle the holder to buy an equity security at a specific price for a specific period of time. Rights are similar to warrants but typically have shorter durations and are offered to current stockholders of the issuer. Changes in the value of a right or a warrant do not necessarily correspond to changes in the value of its underlying security.

Debt Securities. The Trust may invest up to 20% of its Managed Assets as measured at the time of investment in all non-convertible debt securities, including corporate debt obligations and debt securities rated non-investment grade (that is, rated Ba1 or lower by Moody's, BB+ or lower by S&P, or BB+ or lower by Fitch or comparably rated by another NRSRO, or, if unrated, determined by the Investment Adviser to be of comparable credit quality) and not including convertible securities. These securities are commonly called "high yield" or "junk" bonds. The Trust may invest in debt securities of any maturity.

Corporate debt obligations include bonds, notes, debentures, commercial paper and other obligations of corporations to pay interest and repay principal. The Trust may invest in corporate debt obligations issued by U.S. and certain non-U.S. issuers, which issue securities denominated in the U.S. dollar (including Yankee and Euro obligations as well as other non-U.S. dollar currencies). In addition to obligations of corporations, corporate debt obligations include securities issued by banks and other financial institutions and supranational entities ( i.e. , the World Bank, the International Monetary Fund, etc.).

The Trust may invest in obligations issued or guaranteed by U.S. or foreign banks. Bank obligations, including without limitation, time deposits, bankers' acceptances and certificates of deposit, which may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligations or by government regulations. Banks are subject to extensive but different governmental regulations which may limit both the amount and types of loans which may be made and interest rates which may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds for the purpose of financing lending operations under prevailing money market conditions. General economic conditions as well as exposure to credit losses arising from possible financial difficulties of borrowers play an important part in the operation of this industry.

Foreign Securities. The Trust will invest in securities of foreign issuers, including securities quoted or denominated in a currency other than U.S. dollars. Investments in foreign securities may offer potential benefits not available from investments solely in U.S. dollar-denominated or quoted securities


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of domestic issuers. Such benefits may include the opportunity to invest in foreign issuers that appear, in the opinion of the Investment Adviser, to offer the potential for better long term growth of capital and income than investments in U.S. securities, the opportunity to invest in foreign countries with economic policies or business cycles different from those of the United States and the opportunity to reduce fluctuations in portfolio value by taking advantage of foreign securities markets that do not necessarily move in a manner parallel to U.S. markets. Investing in the securities of foreign issuers also involves, however, certain special risks, which are not typically associated with investing in U.S. dollar-denominated securities or quoted securities of U.S. issuers. Many of these risks are more pronounced for investments in emerging economies.

With respect to investments in certain foreign countries, there exist certain economic, political and social risks, including the risk of adverse political developments, nationalization, military unrest, social instability, war and terrorism, confiscation without fair compensation, expropriation or confiscatory taxation, limitations on the movement of funds and other assets between different countries, or diplomatic developments, any of which could adversely affect the Trust's investments in those countries. Governments in certain foreign countries continue to participate to a significant degree, through ownership interest or regulation, in their respective economies. Action by these governments could have a significant effect on market prices of securities and dividend payments.

Many countries throughout the world are dependent on a healthy U.S. economy and are adversely affected when the U.S. economy weakens or its markets decline. Additionally, many foreign country economies are heavily dependent on international trade and are adversely affected by protective trade barriers and economic conditions of their trading partners. Protectionist trade legislation enacted by those trading partners could have a significant adverse affect on the securities markets of those countries. Individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position.

Investments in foreign securities often involve currencies of foreign countries. Accordingly, the Trust may be affected favorably or unfavorably by changes in currency rates and in exchange control regulations and may incur costs in connection with conversions between various currencies. The Trust may be subject to currency exposure independent of its securities positions. To the extent that the Trust is fully invested in foreign securities while also maintaining net currency positions, it may be exposed to greater combined risk. Currency exchange rates may fluctuate significantly over short periods of time. They generally are determined by the forces of supply and demand in the foreign exchange markets and the relative merits of investments in different countries, actual or anticipated changes in interest rates and other complex factors, as seen from an international perspective. Currency exchange rates also can be affected unpredictably by intervention (or the failure to intervene) by U.S. or foreign governments or central banks or by currency controls or political developments in the United States or abroad.

Because foreign issuers generally are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to U.S. companies, there may be less publicly available information about a foreign company than about a U.S. company. Volume and liquidity in most foreign securities markets are less than in the United States and securities of many foreign companies are less liquid and more volatile than securities of comparable U.S. companies. The securities of foreign issuers may be listed on foreign securities exchanges or traded in foreign OTC markets. Fixed commissions on foreign securities exchanges are generally higher than negotiated commissions on U.S. exchanges, although the Trust endeavors to achieve the most favorable net results on its portfolio transactions. There is generally less government supervision and regulation of foreign securities exchanges, brokers, dealers and listed and unlisted companies than in the United States, and the legal remedies for investors may be more limited than the remedies available in the United States. For example, there may be no comparable provisions under certain foreign laws to insider trading and similar investor protections that apply with respect to securities transactions consummated in the United


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States. Mail service between the United States and foreign countries may be slower or less reliable than within the United States, thus increasing the risk of delayed settlement of portfolio transactions or loss of certificates for portfolio securities.

Foreign markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Such delays in settlement could result in temporary periods when some of the Trust's assets are uninvested and no return is earned on such assets. The inability of the Trust to make intended security purchases due to settlement problems could cause the Trust to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses to the Trust due to subsequent declines in value of the portfolio securities or, if the Trust has entered into a contract to sell the securities, in possible liability to the purchaser.

The Trust may invest in foreign securities which take the form of sponsored and unsponsored ADRs, GDRs, EDRs or other similar instruments representing securities of foreign issuers (together, "Depositary Receipts"). ADRs represent the right to receive securities of foreign issuers deposited in a domestic bank or a correspondent bank. ADRs are traded on domestic exchanges or in the U.S. OTC market and, generally, are in registered form. EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank similar to that for ADRs and are designed for use in the non-U.S. securities markets. EDRs and GDRs are not necessarily quoted in the same currency as the underlying security. To the extent the Trust acquires Depositary Receipts through banks which do not have a contractual relationship with the foreign issuer of the security underlying the Depositary Receipts to issue and service such unsponsored Depositary Receipts, there is an increased possibility that the Trust will not become aware of and be able to respond to corporate actions such as stock splits or rights offerings involving the foreign issuer in a timely manner. In addition, the lack of information may result in inefficiencies in the valuation of such instruments. Investment in Depositary Receipts does not eliminate all the risks inherent in investing in securities of non-U.S. issuers. The market value of Depositary Receipts is dependent upon the market value of the underlying securities and fluctuations in the relative value of the currencies in which the Depositary Receipts and the underlying securities are quoted. However, by investing in Depositary Receipts, such as ADRs, which are quoted in U.S. dollars, the Trust may avoid currency risks during the settlement period for purchases and sales.

The Trust may invest in countries with emerging economies or securities markets. Political and economic structures in many of such countries may be undergoing significant evolution and rapid development, and such countries may lack the social, political and economic stability characteristic of more developed countries. Certain of such countries have in the past failed to recognize private property rights and have at times nationalized or expropriated the assets of private companies. As a result, the risks described above, including the risks of nationalization or expropriation of assets, may be heightened.

REITs. The Trust may invest up to 20% of Managed Assets in Healthcare REITs. The value of a REIT is affected by changes in the value of the properties owned by the REIT or securing mortgage loans held by the REIT. REITs are dependent upon the ability of the REITs' managers, and are subject to heavy cash flow dependency, default by borrowers and the qualification of the REITs under applicable regulatory requirements for favorable income tax treatment. REITs are also subject to risks generally associated with investments in real estate including possible declines in the value of real estate, general and local economic conditions, environmental problems and changes in interest rates. To the extent that assets underlying a REIT are concentrated geographically, by property type or in certain other respects, these risks may be heightened. The Trust will indirectly bear its proportionate share of any expenses, including management fees, paid by a REIT in which it invests. Healthcare REITs are REITs that derive their income from the ownership, leasing, or financing of properties in the healthcare sector.


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Derivatives. Generally, derivatives are financial contracts whose value depends upon, or is derived from, the value of an underlying asset, reference rate or index, and may relate to individual debt or equity instruments, interest rates, currencies or currency exchange rates and related indexes. The Trust may invest in derivative instruments including options, futures, options on futures, forwards, swaps (including credit default, index, basis, total return, volatility and currency swaps), options on swaps and other derivatives, although suitable derivative instruments may not always be available to the Investment Adviser for these purposes for investment. To the extent that the security or index underlying the derivative or synthetic instrument is or is composed of securities of Healthcare Companies, the Trust will include such derivative and synthetic instruments for the purposes of the Trust's 80% policy. The Trust may engage in short sales and short sales against the box in an amount not to exceed 10% of Managed Assets.

The Trust may invest in structured instruments (such as equity-linked notes) for investment purposes as an alternative or complement to its options writing strategy or for risk management or leveraging purposes.

The Trust's Option Strategy. Initially, the Trust intends to employ a strategy of writing (selling) covered call options on a portion of the common stocks in its portfolio, writing (selling) put options on a portion of the common stocks in its portfolio and, to a lesser extent, writing (selling) covered call and writing (selling) put options on indices of securities and sectors of securities generally within the healthcare industry. This option strategy is intended to generate current income from option premiums as a means to enhance distributions payable to the Trust's Shareholders and will be limited to 30% of the Trust's Managed Assets. These option strategies are not always profitable. The sale of a covered call option exposes the Trust during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or to possible loss due to continued holding of a security that might otherwise have been sold to protect against depreciation in the market price of the security. Therefore, the Investment Adviser may choose to decrease its use of the option writing strategy to the extent that it may negatively impact the Trust. Other than the Trust's option strategy and use of derivatives for hedging purposes, the Trust may invest up to 10% of its Managed Assets in derivatives.

Initial Public Offerings. The Trust may invest a portion of its assets in shares of IPOs, if consistent with the Trust's investment objective and policies. IPOs may have a magnified impact on the performance of a fund with a small asset base. The impact of IPOs on a fund's performance likely will decrease as such fund's asset size increases, which could reduce such fund's returns. IPOs may not be consistently available to the Trust for investing. IPO shares frequently are volatile in price due to the absence of a prior public market, the small number of shares available for trading and limited information about the issuer. Therefore, the Trust may hold IPO shares for a very short period of time. This may increase turnover and may lead to increased expenses, such as commissions and transaction costs all of which will be borne indirectly by the holders of Shares. In addition, IPO shares can experience an immediate drop in value if the demand for the securities does not continue to support the offering price.

Convertible Securities. The Trust may invest in convertible securities. The Trust may invest up to 30% of its Managed Assets in convertible securities. Convertible securities are preferred stock or debt obligations that are convertible into common stock. Convertible securities generally offer lower interest or dividend yields than non-convertible securities of similar quality. Convertible securities in which the Trust invests are subject to the same ratings criteria as its other investments in fixed-income securities. Convertible securities have both equity and fixed-income risk characteristics. Like all fixed-income securities, the value of convertible securities is susceptible to the risk of market losses attributable to changes in interest rates. Generally, the market value of convertible securities tends to decline as interest rates increase and, conversely, to increase as interest rates decline. However, when the market price of the common stock underlying a convertible security exceeds the conversion price of the convertible security, the convertible security tends to reflect the market price of the underlying common stock. As


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the market price of the underlying common stock declines, the convertible security, like a fixed-income security, tends to trade increasingly on a yield basis, and thus may not decline in price to the same extent as the underlying common stock.

Restricted Securities. The Trust may purchase Restricted Securities under the Securities Act, including securities eligible for resale to "qualified institutional buyers" pursuant to Rule 144A under the Securities Act. The Trust may invest up to 10% of its Managed Assets in restricted securities, including PIPEs and venture capital investments.

The purchase price and subsequent valuation of Restricted Securities may reflect a discount from the price at which such securities trade when they are not restricted, because the restriction makes them less liquid. The amount of the discount from the prevailing market price is expected to vary depending upon the type of security, the character of the issuer, the party who will bear the expenses of registering the Restricted Securities and prevailing supply and demand conditions.

Other Investment Companies. The Trust may invest in securities of other investment companies, including ETFs, subject to statutory limitations prescribed by the Investment Company Act. These limitations include in certain circumstances a prohibition on the Trust acquiring more than 3% of the voting shares of any other investment company, and a prohibition on investing more than 5% of the Trust's total assets in securities of any one investment company or more than 10% of its total assets in securities of all investment companies. Many ETFs, however, have obtained exemptive relief from the Commission to permit unaffiliated funds to invest in the ETFs' shares beyond these statutory limitations, subject to certain conditions and pursuant to a contractual arrangement between the ETFs and the investing funds. The Trust may rely on these exemptive orders to invest in unaffiliated ETFs. Under an exemptive rule adopted by the Commission, the Trust may invest in certain other investment companies and money market funds beyond the statutory limits described above.

The use of ETFs is intended to help the Trust match the total return of the particular market segments or indices represented by those ETFs, although that may not be the result. Most ETFs are passively-managed investment companies whose shares are purchased and sold on a securities exchange. An ETF represents a portfolio of securities designed to track a particular market segment or index.

The Trust will indirectly bear its proportionate share of any management fees and other expenses paid by such other investment companies, in addition to the fees and expenses regularly borne by the Trust.

Options on Securities and Securities Indices. A put option gives the purchaser of the option the right to sell, and the writer (seller) of the option the obligation to buy, the underlying instrument during the option period. A call option gives the purchaser of the option the right to buy, and the writer (seller) of the option the obligation to sell, the underlying instrument during the option period. As an investment company registered with the Commission, the Trust may "set aside" (often referred to as "asset segregation") liquid assets, or engage in other Commission or Commission-staff approved measures to "cover" open positions with respect to certain kinds of derivative instruments. The Trust may write (sell) covered call and put options and purchase put and call options on any securities in which the Trust may invest or on any securities index consisting of securities in which it may invest.

The writing and purchase of options is a highly specialized activity which involves special investment risks. Options may be used for hedging or cross-hedging purposes, or to seek to increase total return (which is considered a speculative activity). The successful use of options depends in part on the ability of the Investment Adviser to anticipate future price fluctuations and the degree of correlation between the options and securities markets. If the Investment Adviser is incorrect in its expectation of changes in market prices or determination of the correlation between the instruments or indices on which options are written and purchased and the instruments in the Trust's investment portfolio, the Trust may incur losses that it would not otherwise incur. The use of options can also increase the Trust's


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transaction costs, which will be borne exclusively by common shareholders. Options written or purchased by the Trust may be traded on either U.S. or foreign exchanges or OTC. Foreign and OTC options will present greater possibility of loss because of their greater illiquidity and credit risks.

In lieu of entering into "protective put" transactions, the Trust may engage in barrier options transactions as an alternative means to offset or hedge against a decline in the market value of the Trust's securities. Barrier options are similar to standard options except that they become activated or are extinguished when the underlying asset reaches a predetermined level or barrier. "Down and out" barrier options are canceled or "knocked out" if the underlying asset falls to a pre-determined level. "Down and in" barrier options are activated or "knocked in" if the underlying asset falls to a pre-determined level. "Up and out" barrier options are extinguished or "knocked out" if the underlying asset rises to a predetermined level. "Up and in" barrier options are activated or "knocked in" if the underlying asset rises to a predetermined level. If the Investment Adviser sets too high or too low a barrier, and the option is either extinguished or "knocked out" or the options are never activated or "knocked in," the benefits to the Trust of using a barrier option strategy may be limited and the costs associated with a barrier option strategy could be detrimental to the Trust's performance. When writing an option, the Trust may "set aside" liquid assets, or engage in other appropriate measures to "cover" its obligation under the option contract.

Futures Contracts and Options and Swaps on Futures Contracts. Futures contracts are standardized, exchange-traded contracts that provide for the sale or purchase of a specified asset at a future time at a specified price. An option on a futures contract gives the purchaser the right (and the writer of the option the obligation) to assume a position in a futures contract at a specified exercise price within a specified period of time. A swap on a futures contract provides an investor with the ability to gain economic exposure to a particular futures market; however, unlike a futures contract that is exchange-traded, a swap on a futures contract is typically an OTC transaction. A futures contract may be based on particular securities, foreign currencies, securities indices and other financial instruments and indices. The Trust may engage in futures transactions on both U.S. and foreign exchanges.

The Trust may purchase and sell futures contracts, purchase and write call and put options on futures contracts and enter into swaps on futures contracts, in order to seek to increase total return or to hedge against changes in interest rates, securities prices or currency exchange rates, or to otherwise manage its term structure, sector selections and duration in accordance with its investment objective and policies. The Trust may also enter into closing purchase and sale transactions with respect to such contracts and options.

Forward Contracts. Forward contracts involve the purchase or sale of a specific quantity of a commodity, government security, foreign currency, or other asset at a specified price, with delivery and settlement at a specified future date.

Because it is a completed contract, a purchase forward contract can be a cover for the sale of a futures contract. The Trust may enter into forward contracts for hedging purposes and non-hedging purposes ( i.e. , to increase returns). Forward contracts may be used by the Trust for hedging purposes to protect against uncertainty in the level of future foreign currency exchange rates, such as when the Trust anticipates purchasing or selling a foreign security. For example, this technique would allow the Trust to "lock in" the U.S. dollar price of the security. Forward contracts may also be used to attempt to protect the value of the Trust's existing holdings of foreign securities. There may be, however, an imperfect correlation between the Trust's foreign securities holdings and the forward contracts entered into with respect to those holdings. Forward contracts may also be used for non-hedging purposes to pursue the Trust's investment objective, such as when the Trust's Investment Adviser anticipates that particular foreign currencies will appreciate or depreciate in value, even though securities denominated in those currencies are not then held in the Trust's portfolio. There is no requirement that the Trust hedge all or any portion of its exposure to foreign currency risks.


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Forward contracts, unlike futures contracts, are not traded on exchanges and are not standardized; rather, banks and dealers act as principals in these markets, negotiating each transaction on an individual basis. The principals who deal in the forward markets are not required to continue to make markets in the currencies or commodities they trade and these markets can experience periods of illiquidity, sometimes of significant duration. There have been periods during which certain participants in these markets have refused to quote prices for certain currencies or commodities or have quoted prices with an unusually wide spread between the price at which they were prepared to buy and that at which they were prepared to sell. Disruptions can occur in any market traded by the Investment Adviser due to unusually high trading volume, political intervention or other factors. Arrangements to trade forward contracts may be made with only one or a few counterparties, and liquidity problems therefore might be greater than if such arrangements were made with numerous counterparties. The imposition of controls by governmental authorities might also limit such forward (and futures) trading to less than that which the Investment Adviser would otherwise recommend, to the possible detriment of the Trust. Market illiquidity or disruption could result in major losses to the Trust. In addition, the Trust will be exposed to credit risks with regard to counterparties with which it trades as well as risks relating to settlement default. Such risks could result in substantial losses to the Trust.

Equity Swaps and Index Swaps. The Trust may invest in equity swaps and index swaps. Equity swaps allow the parties to a swap agreement to exchange the dividend income or other components of return on an equity investment (for example, a group of equity securities or an index) for another payment stream. An equity swap may be used by the Trust to invest in a market without owning or taking physical custody of securities in circumstances in which direct investment may be restricted for legal reasons or is otherwise deemed impractical or disadvantageous. Index swaps allow the Trust to receive one or more payments based off of the return, performance or volatility of an index or of certain securities which comprise the index.

The value of swaps can be very volatile. To the extent that the Investment Adviser does not accurately analyze and predict the potential relative fluctuation of the components swapped with another party, or the creditworthiness of the counterparty, the Trust may suffer a loss, which may be substantial. The value of some components of a swap (such as the dividends on a common stock) may also be sensitive to changes in interest rates. Furthermore, swaps may be illiquid, and the Trust may be unable to terminate its obligations when desired.

Currently, certain standardized swap transactions are subject to mandatory central clearing. Although central clearing is expected to decrease counterparty risk and increase liquidity compared to bilaterally negotiated swaps, central clearing does not eliminate counterparty risk or illiquidity risk entirely.

The Trust may be required to set aside liquid assets, or engage in other Commission approved measures to "cover" open swap positions. In the case of swaps that do not cash settle, for example, the Trust must set aside liquid assets equal to the full notional amount of the swaps while the positions are open. With respect to swaps that cash settle, however, the Trust may set aside liquid assets in an amount equal to the Trust's daily marked-to-market net obligations ( i.e. , the Trust's daily net liability) under the swaps, if any, rather than their full notional amount. The Trust reserves the right to modify its asset segregation policies in the future in its discretion. By setting aside assets equal to only its net obligations under cash settled swaps, the Trust will have the ability to employ leverage to a greater extent than if the Trust were required to segregate assets equal to the full notional amount of the swaps. The Trust's use of these techniques is subject to the Trust's overall limitation on leverage of up to 30% of the Trust's Managed Assets.

Interest Rate Swaps, Credit Swaps, Total Return Swaps, Options on Swaps and Interest Rate Caps, Floors and Collars. The Trust may enter into swap transactions and option agreements, including interest rate caps, floors and collars. Interest rate swaps involve the exchange by the Trust with


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another party of their respective commitments to pay or receive interest, such as an exchange of fixed-rate payments for floating rate payments. Credit swaps involve the receipt of floating or fixed rate payments in exchange for assuming potential credit losses on an underlying security. Credit swaps give one party to a transaction (the buyer of the credit swap) the right to dispose of or acquire an asset (or group of assets), or the right to receive a payment from the other party, upon the occurrence of specified credit events. Total return swaps give the Trust the right to receive the appreciation in the value of a specified security, index or other instrument in return for a fee paid to the counterparty, which will typically be based on an agreed upon interest rate. If the underlying asset in a total return swap declines in value over the term of the swap, the Trust may also be required to pay the dollar value of that decline to the counterparty. The Trust may also purchase and write (sell) options contracts on swaps, commonly referred to as swaptions. A swaption is an option to enter into a swap agreement. Like other types of options, the buyer of a swaption pays a non-refundable premium for the option and obtains the right, but not the obligation, to enter into an underlying swap or to modify the terms of an existing swap on agreed-upon terms. The seller of a swaption, in exchange for the premium, becomes obligated (if the option is exercised) to enter into or modify an underlying swap on agreed-upon terms, which generally entails a greater risk of loss than the Trust incurs in buying a swaption.

The purchase of an interest rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payment of interest on a notional principal amount from the party selling such interest rate cap. The purchase of an interest rate floor entitles the purchaser, to the extent that a specified index falls below a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling the interest rate floor. An interest rate collar is the combination of a cap and a floor that preserves a certain return within a predetermined range of interest rates.

The Trust may enter into the transactions described above for hedging purposes or to seek to increase total return. As an example, when the Trust is the buyer of a credit default swap (commonly known as buying protection), it may make periodic payments to the seller of the credit default swap to obtain protection against a credit default on a specified underlying asset (or group of assets). If a default occurs, the seller of a credit default swap may be required to pay the Trust the "notional value" of the credit default swap on a specified asset (or group of assets). On the other hand, when the Trust is a seller of a credit default swap (commonly known as selling protection), in addition to the credit exposure the Trust has on the other assets held in its portfolio, the Trust is also subject to the credit exposure on the notional amount of the swap since, in the event of a credit default, the Trust may be required to pay the "notional value" of the credit default swap on a specified asset (or group of assets) to the buyer of the credit default swap.

The use of interest rate, credit and total return swaps, options on swaps, and interest rate caps, floors and collars is a highly specialized activity which creates effective leverage and involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. If the Investment Adviser is incorrect in its forecasts of market values and interest rates, or in its evaluation of the creditworthiness of swap counterparties (with respect to bilateral swap transactions) and the issuers of the underlying assets, the investment performance of the Trust would be less favorable than it would have been if these investment techniques were not used.

Currently, certain standardized swap transactions are subject to mandatory central clearing. Although central clearing is expected to decrease counterparty risk and increase liquidity compared to bilaterally negotiated swaps, central clearing does not eliminate counterparty risk or illiquidity risk entirely.

When-Issued Securities and Forward Commitments. The Trust may purchase when-issued securities and make contracts to purchase or sell securities for a fixed price at a future date beyond customary settlement time. When-issued securities are securities that have been authorized, but not yet


60



issued. When-issued securities are purchased in order to secure what is considered to be an advantageous price or yield to the Trust at the time of entering into the transaction. A forward commitment involves entering into a contract to purchase or sell securities for a fixed price at a future date beyond the customary settlement period.

The purchase of securities on a when-issued or forward commitment basis involves a risk of loss if the value of the security to be purchased declines before the settlement date. Conversely, the sale of securities on a forward commitment basis involves the risk that the value of the securities sold may increase before the settlement date. Although the Trust will generally purchase securities on a when-issued or forward commitment basis with the intention of acquiring the securities for its portfolio, the Trust may dispose of when-issued securities or forward commitments prior to settlement if the Investment Adviser deems it appropriate. When purchasing a security on a when-issued basis or entering into a forward commitment, the Trust must "set aside" liquid assets, or engage in other appropriate measures to "cover" its obligations.

Repurchase Agreements. Repurchase agreements involve the purchase of securities subject to the seller's agreement to repurchase them at a mutually agreed upon date and price. The Trust may enter into repurchase agreements with securities dealers and banks which furnish collateral at least equal in value or market price to the amount of their repurchase obligation.

If the other party or "seller" defaults, the Trust might suffer a loss to the extent that the proceeds from the sale of the underlying securities and other collateral held by the Trust are less than the repurchase price and the Trust's costs associated with delay and enforcement of the repurchase agreement. In addition, in the event of bankruptcy of the seller, the Trust could suffer additional losses if a court determines that the Trust's interest in the collateral is not enforceable.

The Trust, together with other registered investment companies having advisory agreements with the Investment Adviser or any of its affiliates, may transfer uninvested cash balances into a single joint account, the daily aggregate balance of which will be invested in one or more repurchase agreements.

Reverse Repurchase Agreements. Reverse repurchase agreements involve the sale of securities held by the Trust with an agreement by the Trust to repurchase the securities at a mutually agreed upon date and price (including interest). Reverse repurchase agreements may be entered into when the Investment Adviser expects that the return to be earned from the investment of the transaction proceeds will be greater than the related interest expense. Reverse repurchase agreements create effective leverage. If the securities held by the Trust decline in value while these transactions are outstanding, the NAV of the Trust's outstanding shares will decline in value proportionately more than the decline in value of the securities. In addition, reverse repurchase agreements involve the risk that the investment return earned by the Trust (from the investment of the proceeds) will be less than the interest expense of the transaction, that the market value of the securities sold by the Trust will decline below the price the Trust is obligated to pay to repurchase the securities, and that the securities may not be returned to the Trust.

The Trust may "set aside" liquid assets, or engage in other appropriate measures to "cover" its obligations with respect to its transactions in reverse repurchase agreements. As a result of such segregation, the Trust's obligations under such transactions will not be considered senior securities representing indebtedness for purposes of the Investment Company Act and the Trust's use of leverage through reverse repurchase agreements will not be limited by the Investment Company Act, although it will be limited by the Trust's overall limitation on leverage. The Trust's use of leverage through reverse repurchase agreements may be limited by the availability of cash or liquid securities to earmark or segregate in connection with such transactions.

If the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce the Trust's obligation to repurchase the securities, and the Trust's use of the proceeds of the


61



reverse repurchase agreement may effectively be restricted pending such decision. Also, the Trust would bear the risk of loss to the extent that the proceeds of the reverse repurchase agreement are less than the value of the securities subject to such agreement.

With respect to any reverse repurchase agreement or similar transaction, the Trust's Managed Assets shall include any proceeds from the sale of an asset of the Trust to a counterparty in such a transaction, in addition to the value of the underlying asset as of the relevant measuring date.

Short Sales. The Trust may engage in short sales and short sales against the box in an amount not to exceed 10% of Managed Assets. Short sales are transactions in which the Trust sells a security it does not own in anticipation of a decline in the market value of that security. To complete such a transaction, the Trust must borrow the security to make delivery to the buyer. The Trust then is obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Trust. Until the security is replaced, the Trust is required to pay to the lender amounts equal to any dividend which accrues during the period of the loan. To borrow the security, the Trust also may be required to pay a premium, which would increase the cost of the security sold. There will also be other costs associated with short sales, which will be borne solely by the Trust's common Shareholders.

The Trust will incur a loss, which may be unlimited, as a result of the short sale if the price of the security increases between the date of the short sale and the date on which the Trust replaces the borrowed security. The Trust will realize a gain if the security declines in price between those dates. This result is the opposite of what one would expect from a cash purchase of a long position in a security. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of any premium or amounts in lieu of interest the Trust may be required to pay in connection with a short sale, and will be also decreased by any transaction or other costs.

Until the Trust replaces a borrowed security in connection with a short sale, the Trust will (a) segregate cash or liquid assets at such a level that the segregated assets plus any amount deposited with the broker as collateral will equal the current value of the security sold short or (b) otherwise cover its short position in accordance with applicable law.

There is no guarantee that the Trust will be able to close out a short position at any particular time or at an acceptable price. During the time that the Trust is short a security, it is subject to the risk that the lender of the security will terminate the loan at a time when the Trust is unable to borrow the same security from another lender. If that occurs, the Trust may be "bought in" at the price required to purchase the security needed to close out the short position, which may be a disadvantageous price.

The Trust may engage in short sales against the box. As noted above, a short sale is made by selling a security the seller does not own. A short sale is "against the box" to the extent that the seller contemporaneously owns or has the right to obtain, at no added cost, securities identical to those sold short. The Trust may enter into a short sale against the box, for example, to lock in a sales price for a security the Trust does not wish to sell immediately. If the Trust sells securities short against the box, it may protect itself from loss if the price of the securities declines in the future, but will lose the opportunity to profit on such securities if the price rises. If the Trust effects a short sale of securities at a time when it has an unrealized gain on the securities, it may be required to recognize that gain as if it had actually sold the securities (as a "constructive sale") on the date it effects the short sale. However, such constructive sale treatment may not apply if the Trust closes out the short sale with securities other than the appreciated securities held at the time of the short sale and if certain other conditions are satisfied. Uncertainty regarding the tax consequences of effecting short sales may limit the extent to which the Trust may effect short sales.

Preferred Stock, Warrants and Stock Purchase Rights. The Trust may invest in preferred stock, warrants and stock purchase rights (or "rights"). Preferred stocks are securities that represent an ownership interest providing the holder with claims on the issuer's earnings and assets before common


62



stock owners but after creditors. Unlike debt securities, the obligations of an issuer of preferred stock, including dividend and other payment obligations, may not typically be accelerated by the holders of such preferred stock on the occurrence of an event of default or other non-compliance by the issuer of the preferred stock.

Warrants and other rights are securities/contracts that are similar to call options but with different terms that entitle the holder to buy equity securities at a specific price for a specific period of time. The Trust will invest in warrants and rights only if such equity securities are deemed appropriate by the Investment Adviser for investment by the Trust. Warrants and rights have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer.

Exchange-Traded Notes ("ETNs"). ETNs are a type of senior, unsecured, unsubordinated debt security issued by financial institutions that combines both aspects of bonds and ETFs. An ETN's returns are based on the performance of a market index minus fees and expenses. Similar to ETFs, ETNs are listed on an exchange and traded in the secondary market. However, unlike an ETF, an ETN can be held until the ETN's maturity, at which time the issuer will pay a return linked to the performance of the market index to which the ETN is linked minus certain fees. ETNs do not make periodic interest payments and principal is not protected. ETNs are subject to credit risk and the value of an ETN may drop due to a downgrade in the issuer's credit rating, despite the underlying market benchmark or strategy remaining unchanged. The value of an ETN may also be influenced by time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying assets, changes in the applicable interest rates, changes in the issuer's credit rating, and economic, legal, political, or geographic events that affect the referenced underlying asset. When the Trust invests in ETNs it will bear its proportionate share of any fees and expenses borne by the ETN. The Trust's decision to sell its ETN holdings may be limited by the availability of a secondary market. In addition, although an ETN may be listed on an exchange, the issuer may not be required to maintain the listing and there can be no assurance that a secondary market will exist for an ETN.

Unseasoned Companies. The Trust may invest in companies which (together with their predecessors) have operated for less than three years. The securities of such companies may have limited liquidity, which can result in their being priced higher or lower than might otherwise be the case. In addition, investments in unseasoned companies are more speculative and entail greater risk than investments in companies with a longer and more established operating history.

U.S. Government Securities. The Trust may invest in U.S. Government Securities. U.S. Government Securities include U.S. Treasury obligations and obligations issued or guaranteed by U.S. government agencies, instrumentalities or sponsored enterprises. U.S. Government Securities may be supported by (i) the full faith and credit of the U.S. Treasury; (ii) the right of the issuer to borrow from the U.S. Treasury; (iii) the discretionary authority of the U.S. government to purchase certain obligations of the issuer; or (iv) only the credit of the issuer. U.S. Government Securities also include Treasury receipts, zero coupon bonds and other stripped U.S. Government Securities, where the interest and principal components are traded independently. U.S. Government Securities may also include Treasury inflation-protected securities whose principal value is periodically adjusted according to the rate of inflation.

U.S. Government Securities are deemed to include (i) securities for which the payment of principal and interest is backed by an irrevocable letter of credit issued by the U.S. government, its agencies, authorities or instrumentalities; and (ii) participations in loans made to foreign governments or their agencies that are so guaranteed. Certain of these participations may be regarded as illiquid.

U.S. Government Securities have historically involved little risk of loss of principal if held to maturity. However, no assurance can be given that loss of principal will not occur or that the U.S. government will provide financial support to U.S. government agencies, authorities, instrumentalities or sponsored enterprises if it is not obligated to do so by law.


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Custodial Receipts and Trust Certificates. The Trust may invest in custodial receipts and trust certificates representing interests in securities held by a custodian or trustee. The securities so held may include U.S. Government Securities or other types of securities in which the Trust may invest. The custodial receipts or trust certificates may evidence ownership of future interest payments, principal payments or both on the underlying securities, or, in some cases, the payment obligation of a third party that has entered into an interest rate swap or other arrangement with the custodian or trustee. For certain securities laws purposes, custodial receipts and trust certificates may not be considered obligations of the U.S. government or other issuer of the securities held by the custodian or trustee. If for tax purposes the Trust is not considered to be the owner of the underlying securities held in the custodial or trust account, the Trust may suffer adverse tax consequences. As a holder of custodial receipts and trust certificates, the Trust will bear its proportionate share of the fees and expenses charged to the custodial account or trust. The Trust may also invest in separately issued interests in custodial receipts and trust certificates.

Non-Investment Grade Securities. Non-investment grade securities and unrated securities of comparable credit quality (commonly referred to as "junk bonds") are considered speculative. In some cases, these obligations may be highly speculative and have poor prospects for reaching investment grade standing. Non-investment grade securities are subject to the increased risk of an issuer's inability to meet principal and interest obligations. These securities, also referred to as high yield securities, may be subject to greater price volatility due to such factors as specific corporate or municipal developments, interest rate sensitivity, negative perceptions of the junk bond markets generally and less secondary market liquidity.

Non-investment grade securities are often issued in connection with a corporate reorganization or restructuring or as part of a merger, acquisition, takeover or similar event. They are also issued by less established companies seeking to expand. Such issuers are often highly leveraged and generally less able than more established or less leveraged entities to make scheduled payments of principal and interest in the event of adverse developments or business conditions. Non-investment grade securities are also issued by governmental bodies that may have difficulty in making all scheduled interest and principal payments.

The market value of non-investment grade securities tends to reflect individual corporate or municipal developments to a greater extent than that of higher rated securities which react primarily to fluctuations in the general level of interest rates. As a result, the Trust's ability to achieve its investment objective may depend to a greater extent on the Investment Adviser's judgment concerning the creditworthiness of issuers than funds which invest in higher-rated securities. Issuers of non-investment grade securities may not be able to make use of more traditional methods of financing and their ability to service debt obligations may be affected more adversely than issuers of higher-rated securities by economic downturns, specific corporate or financial developments or the issuer's inability to meet specific projected business forecasts. Negative publicity about the junk bond market and investor perceptions regarding lower rated securities, whether or not based on fundamental analysis, may depress the prices for such securities.

A holder's risk of loss from default is significantly greater for non-investment grade securities than is the case for holders of other debt securities because such non-investment grade securities are generally unsecured and are often subordinated to the rights of other creditors of the issuers of such securities. Investment by the Trust in defaulted securities poses additional risk of loss should nonpayment of principal and interest continue in respect of such securities. Even if such securities are held to maturity, recovery by the Trust of its initial investment and any anticipated income or appreciation is uncertain.

The secondary market for non-investment grade securities is concentrated in relatively few market makers and is dominated by institutional investors, including mutual funds, insurance companies and other financial institutions. Accordingly, the secondary market for such securities is not as liquid as, and is more volatile than, the secondary market for higher-rated securities. In addition, market trading volume for high yield securities is generally lower and the secondary market for such securities could


64



shrink or disappear suddenly and without warning as a result of adverse market or economic conditions, independent of any specific adverse changes in the condition of a particular issuer. The lack of sufficient market liquidity may cause the Trust to incur losses because it will be required to effect sales at a disadvantageous time and then only at a substantial drop in price. These factors may have an adverse effect on the market price and the Trust's ability to dispose of particular portfolio investments. A less liquid secondary market also may make it more difficult for the Trust to obtain precise valuations of the high yield securities in its portfolio.

Credit ratings issued by credit rating agencies are designed to evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of non-investment grade securities and, therefore, may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the conditions of the issuer that affect the market value of the security. Consequently, credit ratings are used only as a preliminary indicator of investment quality.

Securities Lending.  The Trust may lend its portfolio securities, subject to the limitation that the Trust will not lend a security if, as a result of such loan, all securities then subject to loans would exceed 30% of the Trust's Managed Assets. Under applicable regulatory requirements (which are subject to change), the loan collateral must, on each business day, be at least equal to the value of the loaned securities and must consist of cash, bank letters of credit or U.S. Government Securities. To be acceptable as collateral, letters of credit must obligate a bank to pay amounts demanded by the Trust if the demand meets the terms of the letter. Such terms and the issuing bank must be satisfactory to the Trust. When the Trust lends a security, it is entitled to receive substitute payments in the amount of any dividends or interest on the loaned security and also receive one or more of: (1) a negotiated loan fee; (2) interest on securities used as collateral for the loan; or (3) interest on short-term debt securities purchased with the loan collateral. Either type of interest may be shared with the borrower of the security. The Trust may also pay reasonable finder's, custodian and administrative fees. The terms of the Trust's loans of securities must meet certain requirements under the Code, such as providing that the Trust may terminate the loan upon no more than five days' notice, and must permit the Trust to reacquire loaned securities in time to vote on any important matter. The Trust will make such loans only to banks and dealers with which it may enter into repurchase agreements. If the borrower fails to return the loaned security, the Trust's risks include: (1) any costs in disposing of the collateral; (2) loss from a decline in value of the collateral to an amount less than 100% of the securities loaned; (3) being unable to exercise its voting or consent rights with respect to the security; (4) any loss arising from a delay in the Trust's ability to recover such securities in a timely manner; (5) the inability of the Trust to reacquire the loaned securities; and (6) counterparty risk.

LEVERAGE

The Trust currently intends to use leverage to seek to achieve its investment objective. The Trust is permitted to obtain leverage using any form or combination of financial leverage instruments, including through funds borrowed from banks or other financial institutions ( i.e. , a credit facility), margin loan facilities, or by issuing Preferred Shares (collectively, "traditional leverage"). The Trust initially intends to leverage through a credit facility to a maximum of 20% of the Trust's Managed Assets. In addition, the Trust may enter into investment management techniques that have similar effects as leverage, including, among others, swaps, futures and forward contracts, options and other derivative transactions (collectively, "effective leverage"). At no time will the Trust's overall use of leverage, either through traditional or effective leverage, exceed 30% of the Trust's Managed Assets. Notwithstanding the foregoing, effective leverage incurred through the Trust's option strategy and use of derivatives for hedging purposes will not be counted toward the Trust's limit on the use of effective leverage or the overall 30% leverage limitation. The Trust may use leverage opportunistically, though not at all times, and may choose to increase or decrease its leverage, or use different types or combinations of leveraging instruments, based on the Investment Adviser's assessment of market conditions and the investment environment, and the


65



costs that the Trust would incur as a result of such leverage. There is no assurance that the Trust will utilize any form or combination of leverage.

Under the Investment Company Act, the Trust may not incur indebtedness if, immediately after incurring such indebtedness, the Trust would have an asset coverage ratio (as defined in the Investment Company Act) of less than 300% (the value of the Trust's total assets less liabilities other than the principal amount represented by indebtedness must be at least 300% of the principal amount represented by indebtedness at the time of issuance).

The terms of any such indebtedness may impose specific restrictions as a condition to borrowing and may require the Trust to pay a fee to maintain a line of credit, such as a commitment fee, or to maintain minimum average balances with a lender in addition to the traditional interest expense on amounts borrowed and may be stricter than what is required under the Investment Company Act. Any such requirements would increase the cost of such indebtedness over the stated interest rate. Such lenders would have the right to receive interest on and repayment of principal of any such indebtedness, which right will be senior to those of the common shareholders. If the Trust utilizes indebtedness, the common shareholders will bear all of the offering costs of the issuance of any indebtedness. In addition, the Trust expects that any credit facility that it enters into, or any notes that it issues, would contain provisions limiting certain activities of the Trust, including the payment of dividends to common shareholders in certain circumstances.

The Trust may also leverage through investments in reverse repurchase agreements and economically similar transactions, as well as derivatives that have economic characteristics similar to leverage. In connection with such investments, the Trust intends to earmark or segregate cash or liquid securities in accordance with applicable interpretations of the staff of the Commission. As a result of such segregation, the Trust's obligations under such transactions will not be considered senior securities representing indebtedness for purposes of the Investment Company Act, or included in calculating the aggregate amount of the Trust's leverage, however such transactions (with the exception of the Trust's option strategy and use of derivatives for hedging purposes) will be included in calculating the aggregate amount of leverage for purposes of the 30% limitation on effective leverage, as well as the overall 30% combined limitation on both traditional and effective leverage. To the extent that the Trust's obligations under such transactions are not so segregated or covered, such obligations may be considered "senior securities representing indebtedness" under the Investment Company Act and therefore subject to Investment Company Act asset coverage requirements.

The use of leverage can create risks. Changes in the value of the Trust's portfolio, including securities bought with the proceeds of leverage, will be borne entirely by the holders of Shares. The Trust's use of leverage is subject to risks and may cause the Trust's NAV, market price or distributions to be more volatile than if leverage was not used. If there is a net decrease or increase in the value of the Trust's investment portfolio, leverage will decrease or increase, as the case may be, the NAV per Share to a greater extent than if the Trust did not utilize leverage. A reduction in the Trust's NAV may cause a reduction in the market price of its shares. During periods in which the Trust is using leverage, the fees paid to the Investment Adviser for advisory services will be higher than if the Trust did not use leverage, because the fees paid will be calculated on the basis of the Trust's Managed Assets, which includes the proceeds from leverage. The Trust's leverage strategy may not be successful.

Certain types of leverage by the Trust may result in the Trust being subject to covenants relating to asset coverage and portfolio composition requirements. The Trust may be subject to certain restrictions on investments imposed by one or more lenders or by guidelines of one or more rating agencies, which may issue ratings for any short-term debt securities or Preferred Shares issued by the Trust. These guidelines may impose asset coverage or portfolio composition requirements that are more stringent than those imposed by the Investment Company Act. The Investment Adviser does not believe that these covenants or guidelines will impede it from managing the Trust's portfolio in accordance with its investment objective and policies if the Trust were to utilize leverage.


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The Trust's willingness to utilize leverage, and the amount of leverage the Trust will assume, will depend on many factors. Successful use of a leveraging strategy may depend on the Trust's ability to predict correctly interest rates and market movements, and there is no assurance that a leveraging strategy will be successful during any period in which it is employed. Any leveraging of the Shares cannot be achieved until the proceeds resulting from the use of leverage have been invested in accordance with the Trust's investment objectives and policies.

Effects of Leverage

Assuming that leverage through the use of a credit facility will represent approximately 20% of the Trust's Managed Assets and that the Trust will bear expenses relating to that leverage at an average annual rate of 1.1%, the income generated by the Trust's portfolio (net of estimated expenses) must exceed 0.28% in order to cover the expenses specifically related to the Trust's use of leverage. These numbers are estimates used for illustration only. Actual leverage expenses will vary frequently and may be significantly higher or may be lower than the rate estimated above. The Trust expects to fully implement its intended amount of leverage as soon as reasonably practicable following the completion of the public offering of the Trust's Shares, subject to then favorable market conditions.

The following table is furnished in response to requirements of the Commission. It is designed to illustrate the effect of leverage on common share total return, assuming hypothetical annual investment portfolio total returns, net of expenses (comprised of income and changes in the value of securities held in the Trust's portfolio) of –10%, –5%, 0%, 5% and 10%. These assumed investment portfolio returns are hypothetical figures and are not necessarily indicative of the investment portfolio returns experienced or expected to be experienced by the Trust. The table further assumes that the Trust uses borrowings representing 20% of the Trust's Managed Assets (which includes the amounts of leverage obtained through such borrowings) and a projected annual rate of interest on the borrowings of 1.1%. See "Risk Factors."

Assumed Portfolio Total Return (net of expenses)

   

–10.00

%

   

–5.00

%

   

0.00

%

   

5.00

%

   

10.00

%

 
Trust Share Total Return    

–12.78

%

   

–6.53

%

   

–0.28

%

   

5.97

%

   

12.22

%

 

Trust Share total return is composed of two elements: net investment income of the Trust and gains or losses on the value of the securities the Trust owns. As required by Commission rules, the table assumes that the Trust is more likely to suffer capital losses than to enjoy capital appreciation. For example, to assume a total return of 0% the Trust must assume that the return it receives on its investments is entirely offset by losses in the value of those investments.

If the Trust uses leverage, the amount of fees paid to the Investment Adviser for its services will be higher than if the Trust does not use leverage because the fees paid are calculated based on Managed Assets, which includes assets purchased with leverage. Therefore, the Investment Adviser has a financial incentive to use leverage, which creates a conflict of interest between the Investment Adviser and common shareholders, as only the common shareholders would bear the fees and expenses incurred through the Trust's use of leverage. The Trust's willingness to use leverage, and the extent to which leverage is used at any time, will depend on many factors. See "Trust Expenses."

Preferred Shares

The Trust is permitted to leverage its portfolio by issuing Preferred Shares, although it has no current intention of doing so. The Investment Company Act permits the issuance of Preferred Shares if, immediately after such issuance, the liquidation value of the outstanding Preferred Shares exceeds 50% of its assets (including the proceeds from the issuance) less liabilities other than borrowings ( i.e. , the value of the Trust's assets must be at least 200% of the liquidation value of its outstanding Preferred Shares). In addition, the Trust would not be permitted to declare any cash dividend or other distribution on its Shares unless, at the time of such declaration, the value of the Trust's assets less liabilities other than borrowings is at least 200% of such liquidation value.


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Notwithstanding the Investment Company Act requirement noted above with respect to asset coverage of any Preferred Shares, if Preferred Shares are issued, the Trust intends, in accordance with the overall 30% limitation on both traditional and effective leverage, to maintain an asset coverage ratio of at least 300%. The Trust expects that if Preferred Shares are issued, it will be subject to certain restrictions imposed by guidelines of one or more rating agencies that may issue ratings for Preferred Shares issued by the Trust. These guidelines are expected to impose asset coverage or portfolio composition requirements that are more stringent than those imposed on the Trust by the Investment Company Act which will require the redemption of the Preferred Shares in the event of non-compliance by the Trust and may also prohibit dividends and other distributions on the Shares in such circumstances. It is not anticipated that these covenants or guidelines would impede the Investment Adviser from managing the Trust's portfolio in accordance with the Trust's investment objective and policies.

In order to meet redemption requirements, the Trust may have to liquidate portfolio securities. Such liquidations and redemptions would cause the Trust to incur related transaction costs and could result in capital losses to the Trust. If the Trust has Preferred Shares outstanding, two of the Trust's Trustees will be elected by the holders of Preferred Shares voting separately as a class. The remaining Trustees of the Trust will be elected by holders of Shares and Preferred Shares voting together as a single class.

RISK FACTORS

An investment in the Shares of the Trust involves a high degree of risk. You should carefully consider the following risk factors in addition to the other information set forth in this prospectus. For additional information of the risks that may be associated with an investment in the Trust, see "Additional Information About Investments and Investment Techniques" in the SAI.

Because the Trust expects to invest at least 80% of its Managed Assets in the securities of Healthcare Companies, you should be aware of certain special considerations and risk factors relating to investments in such companies. No assurance can be given that Healthcare Companies will grow, that a sufficient number of appropriate investments will be available or that the Trust's particular investment choices will be successful. You should also be aware of considerations and risks relating to the Trust's investment practices. You should not consider an investment in the Trust by itself to be a balanced investment program. An investment in the Trust should be treated as a way to provide potential diversification as part of a more complete investment program. The Trust is intended for long-term investors seeking current income and long-term capital appreciation. You should carefully consider your ability to assume the risks described below before you make an investment in the Trust. An investment in Shares of the Trust is not appropriate for all investors.

No Operating History

The Trust is a newly organized, non-diversified, closed-end management investment company with no operating history. It is designed for long-term investing and not as a vehicle for trading. This risk may be greater for investors expecting to sell their Shares in a relatively short period of time after completion of the public offering.

Market Risk

As with any investment company that invests in equity securities, the Trust 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 Trust's Shares will fluctuate with the market. You could lose some or all of your investment over short or long periods of time.

Political and economic news can influence market-wide trends and can cause disruptions in the U.S. or world financial markets. Other factors may be ignored by the market as a whole but may cause


68



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.

Equity Securities Risk

The Trust expects to invest 60-90% of its Managed Assets in equity securities. Equity risk is the risk that equity securities held by the Trust will fall due to general market or economic conditions, perceptions regarding the industries in which the issuers of securities held by the Trust participate, changes in interest rates, and the particular circumstances and performance of particular companies whose securities the Trust holds. The price of an equity security of an issuer may be particularly sensitive to general movements in the stock market, or a drop in the stock market may depress the price of most or all of the equity securities held by the Trust.

In addition, equity securities held by the Trust may decline in price if the issuer fails to make anticipated distributions or dividend payments because, among other reasons, the issuer experiences a decline in its financial condition.

Selection Risk

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 healthcare industry equity securities 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.

Concentration in the Healthcare Industries

Under normal market conditions, the Trust expects to invest at least 80% of its Managed Assets in securities of Healthcare Companies. As a result, the Trust's portfolio will likely be more sensitive to, and possibly more adversely affected by, regulatory, economic or political factors or trends relating to the healthcare, agricultural and environmental technology industries than a portfolio of companies representing a larger number of industries. This risk is in addition to the risks normally associated with any strategy seeking capital appreciation by investing in a portfolio of equity securities. As a result of its concentration policy, the Trust's investments may be subject to greater risk and market fluctuation than a fund that has securities representing a broader range of investments. The healthcare industries can be volatile. Currently, companies in the healthcare industries are highly valued relative to the broad market and may decline. The Trust may occasionally make investments in a company with the objective of controlling or influencing the management and policies of that company, which could potentially make the Trust more susceptible to declines in the value of the company's stock. The Investment Adviser may seek control in public companies only occasionally and most often in companies with a small capitalization.

Healthcare Companies have in the past been characterized by limited product focus, rapidly changing technology and extensive government regulation. In particular, technological advances can render an existing product, which may account for a disproportionate share of a company's revenue, obsolete. Obtaining governmental approval from U.S. governmental agencies, such as the FDA, and from non-U.S. governmental agencies for new products can be lengthy, expensive and uncertain as to outcome. Such delays in product development may result in the need to seek additional capital, potentially diluting the interests of existing investors such as the Trust. In addition, governmental agencies may, for a variety of reasons, restrict the release of certain innovative technologies of commercial significance. These various factors may result in abrupt advances and declines in the securities prices of particular companies and, in some cases, may have a broad effect on the prices of securities of companies in particular healthcare industries.


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A concentration of investments in any healthcare industry or in Healthcare Companies generally may increase the risk and volatility of an investment company's portfolio. Such volatility is not limited to the biotechnology industry, and companies in other industries may be subject to similar abrupt movements in the market prices of their securities. No assurance can be given that future declines in the market prices of securities of companies in the industries in which the Trust may invest will not occur, or that such declines will not adversely affect the NAV or the price of the Shares.

Intense competition exists within and among certain healthcare industries, including competition to obtain and sustain proprietary technology protection. Healthcare Companies can be highly dependent on the strength of patents, trademarks and other intellectual property rights for maintenance of profit margins and market exclusivity. The complex nature of the technologies involved can lead to patent disputes, including litigation that may be costly and that could result in a company losing an exclusive right to a patent. Competitors of Healthcare Companies, particularly of the emerging growth Healthcare Companies in which the Trust may invest, may have substantially greater financial resources, more extensive development, manufacturing, marketing and service capabilities, and a larger number of qualified managerial and technical personnel. Such competitors may succeed in developing technologies and products that are more effective or less costly than any that may be developed by Healthcare Companies in which the Trust invests and may also prove to be more successful in production and marketing. Competition may increase further as a result of potential advances in health services and medical technology and greater availability of capital for investment in these fields.

With respect to healthcare industries, cost containment measures already implemented by national governments, state or provincial governments and the private sector have adversely affected certain sectors of these industries. The implementation of the ACA may create increased demand for healthcare products and services but also may have an adverse effect on some companies in the healthcare industries, as discussed further below under "Risks Associated with Implementation of ACA." Increased emphasis on managed care in the United States may put pressure on the price and usage of products sold by Healthcare Companies in which the Trust may invest and may adversely affect the sales and revenues of Healthcare Companies.

Product development efforts by Healthcare Companies may not result in commercial products for many reasons, including, but not limited to, failure to achieve acceptable clinical trial results, limited effectiveness in treating the specified condition or illness, harmful side effects, failure to obtain regulatory approval, and high manufacturing costs. Even after a product is commercially released, governmental agencies may require additional clinical trials or change the labeling requirements for products if additional product side effects are identified, which could have a material adverse effect on the market price of the securities of those Healthcare Companies.

Certain Healthcare Companies in which the Trust may invest may be exposed to potential product liability risks that are inherent in the testing, manufacturing, marketing and sale of pharmaceuticals, medical devices or other products. A product liability claim may have a material adverse effect on the business, financial condition or securities prices of a company in which the Trust has invested.

All of these factors may cause the value of the Trust's Shares to fluctuate significantly over relatively short periods of time.

Pharmaceutical Sector Risk

The success of companies in the pharmaceutical sector is highly dependent on the development, procurement and marketing of drugs. The values of pharmaceutical companies are also dependent on the development, protection and exploitation of intellectual property rights and other proprietary information, and the profitability of pharmaceutical companies may be significantly affected by such things as the expiration of patents or the loss of, or the inability to enforce, intellectual property rights.


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The research and other costs associated with developing or procuring new drugs and the related intellectual property rights can be significant, and the results of such research and expenditures are unpredictable. There can be no assurance that those efforts or costs will result in the development of a profitable drug. Pharmaceutical companies may be susceptible to product obsolescence. Pharmaceutical companies also face challenges posed by the increased presence of counterfeit pharmaceutical products, which may negatively impact revenues and patient confidence. Many pharmaceutical companies face intense competition from new products and less costly generic products. Moreover, the process for obtaining regulatory approval by the FDA or other U.S. and non-U.S. governmental regulatory authorities is long and costly and there can be no assurance that the necessary approvals will be obtained or maintained.

The pharmaceutical sector is also subject to rapid and significant technological change and competitive forces that may make drugs obsolete or make it difficult to raise prices and, in fact, may result in price discounting. Companies in the pharmaceutical sector may also be subject to expenses and losses from extensive litigation based on intellectual property, product liability and similar claims. Failure of pharmaceutical companies to comply with applicable laws and regulations can result in the imposition of civil and criminal fines, penalties and, in some instances, exclusion of participation in government sponsored programs such as Medicare and Medicaid.

Companies in the pharmaceutical sector may be adversely affected by government regulation and changes in reimbursement rates. The ability of many pharmaceutical companies to commercialize and monetize current and any future products depends in part on the extent to which reimbursement for the cost of such products and related treatments are available from third party payors, such as Medicare, Medicaid, private health insurance plans and health maintenance organizations. Third-party payors are increasingly challenging the price and cost-effectiveness of many medical products.

Significant uncertainty exists as to the reimbursement status of health care products, and there can be no assurance that adequate third-party coverage will be available for pharmaceutical companies to obtain satisfactory price levels for their products.

The international operations of many pharmaceutical companies expose them to risks associated with instability and changes in economic and political conditions, foreign currency fluctuations, changes in foreign regulations and other risks inherent to international business. Additionally, a pharmaceutical company's valuation can often be based largely on the potential or actual performance of a limited number of products. A pharmaceutical company's valuation can also be greatly affected if one of its products proves unsafe, ineffective or unprofitable. Such companies also may be characterized by thin capitalization and limited markets, financial resources or personnel, as well as dependence on wholesale distributors. The stock prices of companies in the pharmaceutical industry have been and will likely continue to be extremely volatile.

Biotechnology Industry Risk

The success of biotechnology companies is highly dependent on the development, procurement and/or marketing of drugs. The values of biotechnology companies are also dependent on the development, protection and exploitation of intellectual property rights and other proprietary information, and the profitability of biotechnology companies may be significantly affected by such things as the expiration of patents or the loss of, or the inability to enforce, intellectual property rights.

The research and other costs associated with developing or procuring new drugs, products or technologies and the related intellectual property rights can be significant, and the results of such research and expenditures are unpredictable. There can be no assurance that those efforts or costs will result in the development of a profitable drug, product or technology. Moreover, the process for obtaining regulatory approval by the FDA or other U.S. and non-U.S. governmental regulatory authorities is long and costly and there can be no assurance that the necessary approvals will be obtained or maintained.


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The biotechnology sector is also subject to rapid and significant technological change and competitive forces that may make drugs, products or technologies obsolete or make it difficult to raise prices and, in fact, may result in price discounting. Companies in the biotechnology sector may also be subject to expenses and losses from extensive litigation based on intellectual property, product liability and similar claims. Failure of biotechnology companies to comply with applicable laws and regulations can result in the imposition of civil and/or criminal fines, penalties and, in some instances, exclusion of participation in government sponsored programs such as Medicare and Medicaid.

Companies in the biotechnology sector may be adversely affected by government regulation and changes in reimbursement rates. Healthcare providers, principally hospitals, that transact with companies in the biotechnology industry, often rely on third party payors, such as Medicare, Medicaid, private health insurance plans and health maintenance organizations to reimburse all or a portion of the cost of healthcare related products or services. Biotechnology companies will continue to be affected by the efforts of governments and third party payors to contain or reduce health care costs. For example, certain foreign markets control pricing or profitability of biotechnology products and technologies. In the United States, there has been, and there will likely to continue to be, a number of federal and state proposals to implement similar controls.

A biotechnology company's valuation could be based on the potential or actual performance of a limited number of products and could be adversely affected if one of its products proves unsafe, ineffective or unprofitable. Such companies may also be characterized by thin capitalization and limited markets, financial resources or personnel. The stock prices of companies involved in the biotechnology sector have been and will likely continue to be extremely volatile.

Managed Care Sector Risk

Companies in the managed care sector often assume the risk of both medical and administrative costs for their customers in return for monthly premiums. The profitability of these products depends in large part on the ability of such companies to predict, price for, and effectively manage medical costs. Managed care companies base the premiums they charge and their Medicare bids on estimates of future medical costs over the fixed contract period; however, many factors may cause actual costs to exceed what was estimated and reflected in premiums or bids. These factors may include medical cost inflation, increased use of services, increased cost of individual services, natural catastrophes or other large-scale medical emergencies, epidemics, the introduction of new or costly treatments and technology, new mandated benefits (such as the expansion of essential benefits coverage) or other regulatory changes and insured population characteristics. Relatively small differences between predicted and actual medical costs or utilization rates as a percentage of revenues can result in significant changes in financial results.

Managed care companies are regulated at the federal, state, local and international levels. Insurance and HMO subsidiaries must be licensed by and are subject to the regulations of the jurisdictions in which they conduct business. U.S. health plans and insurance companies are also regulated under state insurance holding company regulations, and some of their activities may be subject to other health care-related regulations. The health care industry is also regularly subject to negative publicity, including as a result of governmental investigations, adverse media coverage and political debate surrounding industry regulation. Negative publicity may adversely affect stock price, damage the reputation of managed care companies in various markets or foster an increasingly active regulatory environment, which, in turn, could further increase the regulatory burdens under which such companies operate and their costs of doing business.

The implementation of the ACA and other reforms could materially and adversely affect the manner in which U.S. managed care companies conduct business and their results of operations, financial position and cash flows. The ACA includes guaranteed coverage and expanded benefit requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which


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policies can be rescinded, establishes minimum medical loss ratios, creates a federal premium review process, imposes new requirements on the format and content of communications (such as explanations of benefits) between health insurers and their members, grants to members new and additional appeal rights, and imposes new and significant taxes on health insurers and health care benefits.

Managed care companies contract with physicians, hospitals, pharmaceutical benefit service providers, pharmaceutical manufacturers, and other health care providers for services. Such companies' results of operations and prospects are substantially dependent on their continued ability to contract for these services at competitive prices. Failure to develop and maintain satisfactory relationships with health care providers, whether in-network or out-of-network, could materially and adversely affect business, results of operations, financial position and cash flows.

Life Science and Tools Industry Risk

Life sciences industries are characterized by limited product focus, rapidly changing technology and extensive government regulation. In particular, technological advances can render an existing product, which may account for a disproportionate share of a company's revenue, obsolete. Obtaining governmental approval from agencies such as the FDA , U.S. Department of Agriculture and other U.S. and non-U.S. governmental agencies for new products can be lengthy, expensive and uncertain as to outcome. Such delays in product development may result in the need to seek additional capital, potentially diluting the interests of existing investors such as the Trust. In addition, governmental agencies may, for a variety of reasons, restrict the release of certain innovative technologies of commercial significance, such as genetically altered material. These various factors may result in abrupt advances and declines in the securities prices of particular companies and, in some cases, may have a broad effect on the prices of securities of companies in particular life sciences industries.

Intense competition exists within and among certain life sciences industries, including competition to obtain and sustain proprietary technology protection. Life sciences companies can be highly dependent on the strength of patents, trademarks and other intellectual property rights for maintenance of profit margins and market share. The complex nature of the technologies involved can lead to patent disputes, including litigation that could result in a company losing an exclusive right to a patent. Competitors of life sciences companies may have substantially greater financial resources, more extensive development, manufacturing, marketing and service capabilities, and a larger number of qualified managerial and technical personnel. Such competitors may succeed in developing technologies and products that are more effective or less costly than any that may be developed by life sciences companies in which the Trust invests and may also prove to be more successful in production and marketing. Competition may increase further as a result of potential advances in health services and medical technology and greater availability of capital for investment in these fields.

With respect to healthcare, cost containment measures already implemented by national governments, state or provincial governments, international organizations and the private sector have adversely affected certain sectors of these industries. The implementation of the ACA may create increased demand for healthcare products and services but also may have an adverse effect on some companies in the healthcare industries. Increased emphasis on managed care in the United States may put pressure on the price and usage of products sold by life sciences companies in which the Trust may invest and may adversely affect the sales and revenues of life sciences companies.

Product development efforts by life sciences companies may not result in commercial products for many reasons, including, but not limited to, failure to achieve acceptable clinical trial results, limited effectiveness in treating the specified condition or illness, harmful side effects, failure to obtain regulatory approval, and high manufacturing costs. Even after a product is commercially released, governmental agencies may require additional clinical trials or change the labeling requirements for


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products if additional product side effects are identified, which could have a material adverse effect on the market price of the securities of those life sciences companies.

Certain life sciences companies in which the Trust may invest may be exposed to potential product liability risks that are inherent in the testing, manufacturing, marketing and sale of pharmaceuticals, medical devices or other products. There can be no assurance that a product liability claim would not have a material adverse effect on the business, financial condition or securities prices of a company in which the Trust has invested.

Healthcare Technology Sector Risk

Companies in the healthcare technology sector may incur substantial costs related to product-related liabilities. Many of the software solutions, health care devices or services developed by such companies are intended for use in collecting, storing and displaying clinical and health care-related information used in the diagnosis and treatment of patients and in related health care settings such as admissions, billing, etc. The limitations of liability set forth in the companies' contracts may not be enforceable or may not otherwise protect these companies from liability for damages. Healthcare technology companies may also be subject to claims that are not covered by contract, such as a claim directly by a patient. Although such companies may maintain liability insurance coverage, there can be no assurance that such coverage will cover any particular claim that has been brought or that may be brought in the future, that such coverage will prove to be adequate or that such coverage will continue to remain available on acceptable terms, if at all.

Healthcare technology companies may experience interruption at their data centers or client support facilities. The business of such companies often relies on the secure electronic transmission, data center storage and hosting of sensitive information, including protected health information, financial information and other sensitive information relating to clients, company and workforce. In addition, such companies may perform data center and/or hosting services for certain clients, including the storage of critical patient and administrative data and support services through various client support facilities. If any of these systems are interrupted, damaged or breached by an unforeseen event or actions of a third party, including a cyber-attack, or fail for any extended period of time, it could have a material adverse impact on the results of operations for such companies.

The proprietary technology developed by healthcare technology companies may be subject to claims for infringement or misappropriation of intellectual property rights of others, or may be infringed or misappropriated by others. Despite protective measures and intellectual property rights, such companies may not be able to adequately protect against theft, copying, reverse-engineering, misappropriation, infringement or unauthorized use or disclosure of their intellectual property, which could have an adverse effect on their competitive position. In addition, these companies are routinely involved in intellectual property infringement or misappropriation claims and it is expected that this activity will continue or even increase as the number of competitors, patents and patent enforcement organizations in the healthcare technology market increases, the functionality of software solutions and services expands, the use of open-source software increases and new markets such as health care device innovation, health care transactions, revenue cycle, population health management and life sciences are entered into. These claims, even if not meritorious, are expensive to defend and are often incapable of prompt resolution.

The success of healthcare technology companies depends upon the recruitment and retention of key personnel. To remain competitive, such companies must attract, motivate and retain highly skilled managerial, sales, marketing, consulting and technical personnel, including executives, consultants, programmers and systems architects skilled in healthcare technology, health care devices, health care transactions, population health management, revenue cycle and life sciences industries and the technical environments in which solutions, devices and services are needed. Competition for such personnel in the healthcare technology sector is intense in both the United States and abroad. The failure to attract


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additional qualified personnel could have a material adverse effect on healthcare technology companies' prospects for long-term growth.

Healthcare Services Sector Risk

The operations of healthcare services companies are subject to extensive federal, state and local government regulations, including Medicare and Medicaid payment rules and regulations, federal and state anti-kickback laws, Stark Law and analogous state self-referral prohibition statutes, Federal Acquisition Regulations, the False Claims Act and federal and state laws regarding the collection, use and disclosure of patient health information and the storage, handling and administration of pharmaceuticals. The Medicare and Medicaid reimbursement rules related to claims submission, enrollment and licensing requirements, cost reporting, and payment processes impose complex and extensive requirements upon dialysis providers as well. A violation or departure from any of these legal requirements may result in government audits, lower reimbursements, significant fines and penalties, the potential loss of certification, recoupment efforts or voluntary repayments. If healthcare services companies fail to adhere to all of the complex government regulations that apply to their businesses, such companies could suffer severe consequences that would substantially reduce revenues, earnings, cash flows and stock prices.

A substantial percentage of a healthcare services company's service revenues may be generated from patients who have state Medicaid or other non-Medicare government-based programs, such as coverage through the VA, as their primary coverage. As state governments and other governmental organizations face increasing budgetary pressure, healthcare services companies may in turn face reductions in payment rates, delays in the receipt of payments, limitations on enrollee eligibility or other changes to the applicable programs.

Adverse economic conditions, such recently experienced in the United States and currently being experienced in many non-U.S. countries, could adversely affect the business and profitability of healthcare services companies. Among other things, the potential decline in federal non-U.S. government and state revenues that may result from such conditions may create additional pressures to contain or reduce reimbursements for services from Medicare, Medicaid and other government sponsored programs. Increasing job losses or slow improvement in the unemployment rate in the United States and elsewhere as a result of adverse economic conditions may result in a smaller percentage of patients being covered by an employer group health plan and a larger percentage being covered by lower paying Medicare and Medicaid programs. Employers may also select more restrictive commercial plans with lower reimbursement rates. To the extent that payors are negatively impacted by a decline in the economy, healthcare services companies may experience further pressure on commercial rates, a further slowdown in collections and a reduction in the amounts they expect to collect. In addition, uncertainty in the financial markets could adversely affect the variable interest rates payable under credit facilities or could make it more difficult to obtain or renew such facilities or to obtain other forms of financing in the future, if at all. Any or all of these factors, as well as other consequences of the adverse economic conditions which cannot currently be anticipated, could have a material adverse effect on a healthcare services company's revenues, earnings and cash flows and otherwise adversely affect its financial condition.

Healthcare Supplies Sector Risk

If healthcare supplies companies are unable to successfully expand their product lines through internal research and development and acquisitions, their business may be materially and adversely affected. In addition, if these companies are unable to successfully grow their businesses through marketing partnerships and acquisitions, their business may be materially and adversely affected.

Consolidation of healthcare providers has increased demand for price concessions and caused the exclusion of suppliers from significant market segments. It is expected that market demand, government regulation, third-party reimbursement policies, government contracting requirements and societal pressures


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will continue to change the worldwide healthcare industry, resulting in further business consolidations and alliances among customers and competitors. This may exert further downward pressure on the prices of healthcare supplies companies' products and adversely impact their businesses, financial conditions or results of operations.

Quality is extremely important to healthcare supplies companies and their customers due to the serious and costly consequences of product failure. Quality certifications are critical to the marketing success of their products and services. If a healthcare supplies company fails to meet these standards or fails to adapt to evolving standards, its reputation could be damaged, it could lose customers, and its revenue and results of operations could decline.

The ACA was enacted into law in the United States in March 2010. In addition to a medical device tax, effective as of January 2013, there are many programs and requirements for which the details have not yet been fully established or consequences not fully understood. It is unclear what healthcare programs and regulations will be ultimately implemented at either the federal or state level, but any changes that may decrease reimbursement for healthcare supplies companies' products, reduce medical procedure volumes or increase cost containment measures could adversely impact the business of such companies.

Healthcare Facilities Sector Risk

A healthcare facility's ability to negotiate favorable contracts with HMOs, insurers offering preferred provider arrangements and other managed care plans significantly affects the revenues and operating results of such healthcare facilities. In addition, private payers are increasingly attempting to control health care costs through direct contracting with hospitals to provide services on a discounted basis, increased utilization reviews and greater enrollment in managed care programs, such as HMOs and PPOs. The trend toward consolidation among private managed care payers tends to increase their bargaining power over prices and fee structures. It is not clear what impact, if any, the increased obligations on private payers imposed by the health care reform law will have on a healthcare facility's ability to negotiate reimbursement increases. However, as various provisions of the ACA are implemented, including the establishment of the exchanges, non-government payers may increasingly demand reduced fees. If a healthcare facility is unable to enter into and maintain managed care contractual arrangements on acceptable terms, if it experiences material reductions in the contracted rates received from managed care payers, or if it has difficulty collecting from managed care payers, its results of operations could be adversely affected.

Further changes in the Medicare and Medicaid programs or other government health care programs could have an adverse effect on a healthcare facility's business. In addition to the changes affected by the ACA, the Medicare and Medicaid programs are subject to other statutory and regulatory changes, administrative rulings, interpretations and determinations concerning patient eligibility requirements, funding levels and the method of calculating payments or reimbursements, among other things, requirements for utilization review, and federal and state funding restrictions. All of these could materially increase or decrease payments from government programs in the future, as well as affect the cost of providing services to patients and the timing of payments to facilities, which could in turn adversely affect a healthcare facility's overall business, financial condition, results of operations or cash flows.

Healthcare facilities continue to be adversely affected by a high volume of uninsured and underinsured patients, as well as declines in commercial managed care patients. As a result, healthcare facilities continue to experience a high level of uncollectible accounts, and, unless their business mix shifts toward a greater number of insured patients as a result of the ACA or otherwise, the trend of higher co-pays and deductibles reverses, or the economy improves and unemployment rates decline, it is anticipated that this high level of uncollectible accounts will continue or increase. In addition, even after


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implementation of the ACA, healthcare facilities may continue to experience significant levels of bad debt expense and may have to provide uninsured discounts and charity care for undocumented aliens who are not permitted to enroll in a health insurance exchange or government health care program.

Healthcare Equipment Sector Risk

The medical device markets are highly competitive and a healthcare equipment company many be unable to compete effectively. These markets are characterized by rapid change resulting from technological advances and scientific discoveries. Development by other companies of new or improved products, processes, or technologies may make a healthcare equipment company's products or proposed products less competitive. In addition, these companies face competition from providers of alternative medical therapies such as pharmaceutical companies.

Medical devices and related business activities are subject to rigorous regulation, including by the FDA, DOJ, and numerous other federal, state, and foreign governmental authorities. These authorities and members of Congress have been increasing their scrutiny of the healthcare equipment industry. In addition, certain states have recently passed or are considering legislation restricting healthcare equipment companies' interactions with health care providers and requiring disclosure of certain payments to them. It is anticipated that governmental authorities will continue to scrutinize this industry closely, and that additional regulation may increase compliance and legal costs, exposure to litigation, and other adverse effects to operations.

Healthcare equipment companies are substantially dependent on patent and other proprietary rights and failing to protect such rights or to be successful in litigation related to such rights may result in the payment of significant monetary damages and/or royalty payments, may negatively impact the ability of healthcare equipment companies to sell current or future products, or may prohibit such companies from enforcing their patent and other proprietary rights against others.

Quality problems with the processes, goods and services of a healthcare equipment company could harm the company's reputation for producing high-quality products and erode its competitive advantage, sales and market share. Quality is extremely important to healthcare equipment companies and their customers due to the serious and costly consequences of product failure. Quality certifications are critical to the marketing success of goods and services. If a healthcare equipment company fails to meet these standards, its reputation could be damaged, it could lose customers, and its revenue and results of operations could decline.

Healthcare Distributors Sector Risk

Companies in the healthcare distribution sector operate in markets that are highly competitive. Because of competition, many of these companies face pricing pressures from customers and suppliers. If these companies are unable to offset margin reductions caused by pricing pressures through steps such as effective sourcing and enhanced cost control measures, the financial condition of such companies could be adversely affected. In addition, in recent years, the healthcare industry has continued to consolidate. Further consolidation among customers and suppliers (including branded pharmaceutical manufacturers) could give the resulting enterprises greater bargaining power, which may adversely impact the financial condition of companies in the healthcare distribution sector.

Fewer generic pharmaceutical launches or launches that are less profitable than those previously experienced may have an adverse effect on the profits of companies in the healthcare distribution sector. Additionally, prices for existing generic pharmaceuticals generally decline over time, although this may vary. Price deflation on existing generic pharmaceuticals may have an adverse effect on company profits. With respect to branded pharmaceutical price appreciation, if branded manufacturers increase prices


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less frequently or by amounts that are smaller than have been experienced historically, healthcare distribution companies may profit less from branded pharmaceutical agreements.

The healthcare industry is highly regulated, and healthcare distribution companies are subject to regulation in the United States at both the federal and state level and in foreign countries. If healthcare distribution companies fail to comply with these regulatory requirements, the financial condition of such companies could be adversely affected.

Due to the nature of the business of healthcare distribution companies, such companies may from time to time become involved in disputes or legal proceedings. For example, some of the products that these companies distribute may be alleged to cause personal injury or violate the intellectual property rights of another party, subjecting such companies to product liability or infringement claims. Litigation is inherently unpredictable, and the unfavorable resolution of one or more of these legal proceedings could adversely affect the cash flows of healthcare distribution companies.

Healthcare distribution companies depend on the availability of various components, compounds, raw materials and energy supplied by others for their operations. Any of these supplier relationships could be interrupted due to events beyond the control of such companies, including natural disasters, or could be terminated. A sustained supply interruption could have an adverse effect on business.

Healthcare REIT Risk

The healthcare industry is highly regulated, and changes in government regulation and reimbursement can have material adverse consequences on its participants, including Healthcare REITs, some of which may be unintended. The healthcare industry is also highly competitive, and the operators and managers of underlying properties of Healthcare REITs may encounter increased competition for residents and patients, including with respect to the scope and quality of care and services provided, reputation and financial condition, physical appearance of the properties, price and location. If tenants, operators and managers of the underlying properties of Healthcare REITs are unable to successfully compete with other operators and managers by maintaining profitable occupancy and rate levels, their ability to meet their respective obligations to Healthcare REITs may be materially adversely affected. There can be no assurance that future changes in government regulation will not adversely affect the healthcare industry, including seniors housing and healthcare operations, tenants and operators, nor can it be certain that tenants, operators and managers of the underlying properties of Healthcare REITs will achieve and maintain occupancy and rate levels that will enable them to satisfy their obligations to a Healthcare REIT. Any adverse changes in the regulation of the healthcare industry or the competitiveness of the tenants, operators and managers of the underlying properties of Healthcare REITs could have a more pronounced effect on a Healthcare REIT than if it had investments outside the seniors housing and healthcare industries. Regulation of the long-term healthcare industry generally has intensified over time both in the number and type of regulations and in the efforts to enforce those regulations. Federal, state and local laws and regulations affecting the healthcare industry include those relating to, among other things, licensure, conduct of operations, ownership of facilities, addition of facilities and equipment, allowable costs, services, prices for services, qualified beneficiaries, quality of care, patient rights, fraudulent or abusive behavior, and financial and other arrangements that may be entered into by healthcare providers. In addition, changes in enforcement policies by federal and state governments have resulted in an increase in the number of inspections, citations of regulatory deficiencies and other regulatory sanctions, including terminations from the Medicare and Medicaid programs, bars on Medicare and Medicaid payments for new admissions, civil monetary penalties and even criminal penalties. It is not possible to predict the scope of future federal, state and local regulations and legislation, including the Medicare and Medicaid statutes and regulations, or the intensity of enforcement efforts with respect to such regulations and legislation, and any changes in the regulatory framework could have a material adverse effect on the tenants, operators and managers of underlying properties of Healthcare REITs, which, in turn, could have a material adverse effect on Healthcare REITs themselves.


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If tenants, operators and managers of underlying properties of Healthcare REITs fail to comply with the extensive laws, regulations and other requirements applicable to their businesses and the operation of properties, they could become ineligible to receive reimbursement from governmental and private third-party payor programs, face bans on admissions of new patients or residents, suffer civil or criminal penalties or be required to make significant changes to their operations. Tenants, operators and managers of underlying properties of Healthcare REITs also could face increased costs related to healthcare regulation, such as the ACA, or be forced to expend considerable resources in responding to an investigation or other enforcement action under applicable laws or regulations. In such event, the results of operations and financial condition of tenants, operators and managers of underlying properties of Healthcare REITs and the results of operations of properties operated or managed by those entities could be adversely affected, which, in turn, could have a material adverse effect on Healthcare REITs.

Certain tenants and operators of underlying properties of Healthcare REITs may rely on reimbursement from third-party payors, including the Medicare and Medicaid programs, for substantially all of their revenues. Federal and state legislators and regulators have adopted or proposed various cost-containment measures that would limit payments to healthcare providers, and budget crises and financial shortfalls have caused states to implement or consider Medicaid rate freezes or cuts. Private third-party payors also have continued their efforts to control healthcare costs. There is no assurance that tenants and operators of underlying properties of Healthcare REITs who currently depend on governmental or private payor reimbursement will be adequately reimbursed for the services they provide. Significant limits by governmental and private third-party payors on the scope of services reimbursed or on reimbursement rates and fees, whether from legislation, administrative actions or private payor efforts, could have a material adverse effect on the liquidity, financial condition and results of operations of certain tenants and operators of underlying properties of Healthcare REITs, which could affect adversely their ability to comply with the terms of leases and have a material adverse effect on Healthcare REITs.

REITs whose underlying properties are concentrated in a particular industry, such as the healthcare industry, or geographic region are subject to risks affecting such industries or regions. The securities of REITs involve greater risks than those associated with larger, more established companies and may be subject to more abrupt or erratic price movements because of interest rate changes, economic conditions and other factors. Securities of such issuers may lack sufficient market liquidity to enable the Trust to effect sales at an advantageous time or without a substantial drop in price.

Risks Associated with Implementation of ACA

In March 2010, the ACA was enacted. The ACA contains a number of provisions that could affect the Trust and its investments over the next several years. These provisions include establishing health insurance exchanges to facilitate the purchase of qualified health plans, expanding Medicaid eligibility, subsidizing insurance premiums and creating requirements and incentives for businesses to provide healthcare benefits. Other provisions contain changes to healthcare fraud and abuse laws and expand the scope of the Federal False Claims Act. The ACA contains numerous other measures that could also affect the Trust. For example, payment modifiers are to be developed that will differentiate payments to physicians under federal healthcare programs based on quality of care. In addition, other provisions authorize voluntary demonstration projects relating to the bundling of payments for episodes of hospital care and the sharing of cost savings achieved under the Medicare program. In October 2011, the Centers for Medicare and Medicaid Services ("CMS") issued a final rule under the ACA that is intended to allow physicians, hospitals and other health care providers to coordinate care for Medicare beneficiaries through Accountable Care Organizations ("ACOs"). ACOs are entities consisting of healthcare providers and suppliers organized to deliver services to Medicare beneficiaries and eligible to receive a share of any cost savings the entity can achieve by delivering services to those beneficiaries at a cost below a set baseline and with sufficient quality of care. The Investment Adviser continues to evaluate the impact of the ACO regulations on the Trust's business and operations.


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Many of the ACA's most significant reforms, such as the establishment of state-based and federally facilitated insurance exchanges that provide a marketplace for eligible individuals and small employers to purchase health care insurance, became effective only recently. On October 1, 2013, individuals began enrolling in health care insurance plans offered under these state-based and federally-facilitated insurance exchanges, notwithstanding significant technical issues in accessing and enrolling in the federal online exchange. Such issues may have delayed or reduced the purchase of health care insurance by uninsured persons. In order to be covered on the effective date of January 1, 2014 individuals were required to enroll and pay their first premium by December 24, 2013, however, extensions may be granted on a case by case basis depending on specific circumstances. Uninsured persons who have not enrolled in health care insurance plans by March 31, 2014 are required to pay a penalty to the Internal Revenue Service, unless a hardship exception applies. The patient responsibility costs related to health care plans obtained through the insurance exchanges may be high, and we may experience increased bad debt due to patients' inability to pay for certain services.

The ACA also allows states to expand their Medicaid programs through an increase in the Medicaid eligibility income limit from a state's current eligibility levels to 133% of the federal poverty level. It remains unclear to what extent states will expand their Medicaid programs by raising the income limit to 133% of the federal poverty level. As a result of these and other uncertainties, we cannot predict whether there will be more uninsured patients in 2015 than anticipated when the ACA was enacted.

Federal and state agencies are expected to continue to develop regulations and implement provisions of the ACA. However, given the complexity and the number of changes expected as a result of the ACA, as well as the implementation timetable for many of them, it is not possible to predict the ultimate impacts of the ACA, as they may not be known for several years. The ACA also remains subject to continuing legislative scrutiny, including efforts by Congress to amend or repeal a number of its provisions as well as administrative actions delaying the effectiveness of key provisions. As a result, it is not possible to predict with any assurance the ultimate effect of the ACA on the Trust, nor provide any assurance that its provisions will not have a material adverse effect on the Trust.

Foreign Securities Risks

Foreign investments involve special risks that are not typically associated with U.S. dollar denominated or quoted securities of U.S. issuers. Foreign investments may be affected by changes in currency rates, changes in foreign or U.S. laws or restrictions applicable to such investments and changes in exchange control regulations ( e.g. , currency blockage). A decline in the exchange rate of the currency ( i.e. , weakening of the currency against the U.S. dollar) in which a portfolio security is quoted or denominated relative to the U.S. dollar would reduce the value of the portfolio security. In addition, if the currency in which the Trust receives dividends, interest or other payments declines in value against the U.S. dollar before such income is distributed as dividends to shareholders or converted to U.S. dollars, the Trust may have to sell portfolio securities to obtain sufficient cash to pay such dividends.

Brokerage commissions, custodial services and other costs relating to investment in international securities markets generally are more expensive than in the United States. In addition, clearance and settlement procedures may be different in foreign countries and, in certain markets, such procedures have been unable to keep pace with the volume of securities transactions, thus making it difficult to conduct such transactions.

Foreign issuers are not generally subject to uniform accounting, auditing and financial reporting standards comparable to those applicable to U.S. issuers. There may be less publicly available information about a foreign issuer than about a U.S. issuer. In addition, there is generally less government regulation of foreign markets, companies and securities dealers than in the United States, and the legal remedies for investors may be more limited than the remedies available in the United States. Foreign securities markets may have substantially less volume than U.S. securities markets and securities of many


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foreign issuers are less liquid and more volatile than securities of comparable domestic issuers. Furthermore, with respect to certain foreign countries, there is a possibility of nationalization, expropriation or confiscatory taxation, imposition of withholding or other taxes on dividend or interest payments (or, in some cases, capital gains distributions), limitations on the removal of funds or other assets from such countries, and risks of political or social instability or diplomatic developments which could adversely affect investments in those countries.

The Trust may invest in securities of issuers located in Emerging Markets. The risks of foreign investment are heightened when the issuer is located in an emerging country. Emerging Markets are generally located in Africa, Asia, the Middle East, Eastern Europe and Central and South America. Investments in securities of issuers located in Emerging Markets may be subject to heightened risks, including relative illiquidity, price volatility and potential restrictions on repatriation of investment capital and income. The Trust's purchase and sale of portfolio securities in Emerging Markets may be constrained by limitations relating to daily changes in the prices of listed securities, periodic trading or settlement volume and/or limitations on aggregate holdings of foreign investors. Such limitations may be computed based on the aggregate trading volume by or holdings of the Trust, the Investment Adviser, or its affiliates and respective clients and other service providers. The Trust may not be able to sell securities in circumstances where price, trading or settlement volume limitations have been reached.

Foreign investment in the securities markets of certain Emerging Markets is restricted or controlled to varying degrees which may limit investment in such countries or increase the administrative costs of such investments. For example, certain Asian countries require governmental approval prior to investments by foreign persons or limit investment by foreign persons to only a specified percentage of an issuer's outstanding securities or a specific class of securities which may have less advantageous terms (including price) than securities of the issuer available for purchase by nationals. In addition, certain countries may restrict or prohibit investment opportunities in issuers or industries deemed important to national interests. Such restrictions may affect the market price, liquidity and rights of securities that may be purchased by the Trust. The repatriation of both investment income and capital from certain Emerging Markets is subject to restrictions such as the need for governmental consents. In situations where a country restricts direct investment in securities (which may occur in certain Asian and other countries), the Trust may invest in such countries through other investment funds in such countries.

Many Emerging Markets have recently experienced currency devaluations and substantial (and, in some cases, extremely high) rates of inflation. Other Emerging Markets have experienced economic recessions. These circumstances have had a negative effect on the economies and securities markets of those Emerging Markets.

Economies in Emerging Markets generally are dependent heavily upon commodity prices and international trade and, accordingly, have been and may continue to be affected adversely by the economies of their trading partners, trade barriers, exchange controls, managed adjustments in relative currency values and other protectionist measures imposed or negotiated by the countries with which they trade.

Many Emerging Markets are subject to a substantial degree of economic, political and social instability. Governments of some Emerging Markets are authoritarian in nature or have been installed or removed as a result of military coups, while governments in other Emerging Markets have periodically used force to suppress civil dissent. Disparities of wealth, the pace and success of democratization, and ethnic, religious and racial disaffection, among other factors, have also led to social unrest, violence and/or labor unrest in some Emerging Markets. Unanticipated political or social developments may result in sudden and significant investment losses. Investing in Emerging Markets involves greater risk of loss due to expropriation, nationalization, confiscation of assets and property or the imposition of restrictions on foreign investments and on repatriation of capital invested. As an example, in the past, some Eastern European governments have expropriated substantial amounts of private property, and


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many claims of the property owners have never been fully settled. There is no assurance that similar expropriations will not occur in other countries.

The Trust's investment in Emerging Markets may also be subject to withholding or other taxes, which may be significant and may reduce the return to the Trust from an investment in issuers in such countries.

Settlement procedures in Emerging Markets are frequently less developed and reliable than those in the United States and may involve the Trust's delivery of securities before receipt of payment for their sale. In addition, significant delays may occur in certain markets in registering the transfer of securities. Settlement or registration problems may make it more difficult for the Trust to value its portfolio securities and could cause the Trust to miss attractive investment opportunities, to have a portion of its assets uninvested or to incur losses due to the failure of a counterparty to pay for securities the Trust has delivered or the Trust's inability to complete its contractual obligations because of theft or other reasons.

The creditworthiness of the local securities firms used by the Trust in Emerging Markets may not be as sound as the creditworthiness of firms used in more developed countries. As a result, the Trust may be subject to a greater risk of loss if a securities firm defaults in the performance of its responsibilities.

The small size and inexperience of the securities markets in certain Emerging Markets and the limited volume of trading in securities in those countries may make the Trust's investments in such countries less liquid and more volatile than investments in countries with more developed securities markets (such as the United States, Japan and most Western European countries). The Trust's investments in Emerging Markets are subject to the risk that the liquidity of a particular investment, or investments generally, in such countries will shrink or disappear suddenly and without warning as a result of adverse economic, market or political conditions or adverse investor perceptions, whether or not accurate. Because of the lack of sufficient market liquidity, the Trust may incur losses because it will be required to effect sales at a disadvantageous time and only then at a substantial drop in price. Investments in Emerging Markets may be more difficult to value precisely because of the characteristics discussed above and lower trading volumes.

The Trust's use of foreign currency management techniques in Emerging Markets may be limited. A significant portion of the Trust's currency exposure in emerging countries may not be covered by these techniques.

Derivatives Risk

The Trust may invest in derivative instruments including options, futures, options on futures, forwards, swaps, options on swaps and other derivatives, although suitable derivative instruments may not always be available to the Investment Adviser for these purposes. Initially, the Trust intends to employ a strategy of writing (selling) covered call options on a portion of the common stocks in its portfolio, writing (selling) put options on a portion of the common stocks in its portfolio and, to a lesser extent, writing (selling) covered call and writing (selling) put options on indices of securities and sectors of securities generally within the healthcare industry. This option strategy is intended to generate current income from option premiums as a means to enhance distributions payable to the Trust's Shareholders and will be limited to 30% of the Trust's Managed Assets. These option strategies are not always profitable. The sale of a covered call option exposes the Trust during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or to possible loss due to continued holding of a security that might otherwise have been sold to protect against depreciation in the market price of the security. Therefore, the Investment Adviser may choose to decrease its use of the option writing strategy to the extent that it may negatively impact the Trust. Other than the Trust's option strategy and use of derivatives for hedging purposes, the Trust may invest up to 10% of its


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Managed Assets in derivatives. Derivative instruments can be illiquid, may disproportionately increase losses, and may have a potentially large adverse impact on Trust performance.

Although both OTC and exchange-traded derivatives markets may experience lack of liquidity, OTC non-standardized derivative transactions are generally less liquid than exchange-traded instruments. The illiquidity of the derivatives markets may be due to various factors, including congestion, disorderly markets, limitations on deliverable supplies, the participation of speculators, government regulation and intervention, and technical and operational or system failures. In addition, daily limits on price fluctuations and speculative position limits on exchanges on which the Trust may conduct its transactions in derivative instruments may prevent prompt liquidation of positions, subjecting the Trust to the potential of greater losses. Although both OTC and exchange-traded derivatives markets may experience the lack of liquidity, OTC non-standardized derivative transactions are generally less liquid than exchange-traded instruments. The illiquidity of the derivatives markets may be due to various factors, including congestion, disorderly markets, limitations on deliverable supplies, the participation of speculators, government regulation and intervention, and technical and operational or system failures. In addition, daily limits on price fluctuations and speculative position limits on exchanges on which the Trust may conduct its transactions in derivative instruments may prevent prompt liquidation of positions, subjecting the Trust to the potential of greater losses. Losses from investments in derivative instruments can result from a lack of correlation between changes in the value of derivative instruments and the portfolio assets (if any) being hedged, the potential illiquidity of the markets for derivative instruments, the failure of the counterparty to perform its contractual obligations, or the risks arising from margin requirements and related leverage factors associated with such transactions. Losses may also arise if the Trust receives cash collateral under the transactions and some or all of that collateral is invested in the market. To the extent that cash collateral is so invested, such collateral will be subject to market depreciation or appreciation, and the Trust may be responsible for any loss that might result from its investment of the counterparty's cash collateral. The use of these management techniques also involves the risk of loss if the Investment Adviser is incorrect in its expectation of the timing or level of fluctuations in securities prices, interest rates or currency prices. Investments in derivative instruments may be harder to value, subject to greater volatility and more likely subject to changes in tax treatment than other investments. For these reasons, the Investment Adviser's attempts to hedge portfolio risks through the use of derivative instruments may not be successful. Trading in derivative instruments can result in large amounts of effective leverage. Thus, the leverage offered by trading in derivative instruments will magnify the gains and losses experienced by the Trust and could cause the Trust's net asset value to be subject to wider fluctuations than would be the case if the Trust did not use the leverage feature in derivative instruments.

Futures contracts and related options and swaps present the following risks:

•  While the Trust may benefit from the use of futures and options and swaps on futures, unanticipated changes in interest rates, securities prices or currency exchange rates may result in poorer overall performance than if the Trust had not entered into any futures contracts, options transactions or swaps.

•  Because perfect correlation between a futures position and a portfolio position that is intended to be protected is impossible to achieve, the desired protection may not be obtained and the Trust may be exposed to additional risk of loss.

•  The loss incurred by the Trust in entering into futures contracts and in writing call options and entering into swaps on futures is potentially unlimited and may exceed the amount of the premium received.

•  Futures markets are highly volatile and the use of futures may increase the volatility of the Trust's NAV.


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•  As a result of the low margin deposits normally required in futures trading, a relatively small price movement in a futures contract may result in substantial losses to the Trust.

•  Futures contracts and options and swaps on futures may be illiquid, and exchanges may limit fluctuations in futures contract prices during a single day.

•  Foreign exchanges may not provide the same protection as U.S. exchanges.

Risks Associated with the Trust's Option Strategy

The ability of the Trust to achieve current gains is partially dependent on the successful implementation of its option strategy. Risks that may adversely affect the ability of the Trust to successfully implement its option strategy include the following:

Risks Associated with Options on Securities Generally. There are significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objective. A decision as to whether, when and how to use options involves the exercise of skill and judgment, and even a well-conceived strategy or transaction may be unsuccessful because of market behavior or unexpected events.

Risks of Writing Options. As the writer of a covered call option, the Trust forgoes, during the option's life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but retains the risk of loss should the price of the underlying security decline. As the Trust writes covered calls over more of its portfolio, its ability to benefit from capital appreciation becomes more limited and the risk of net asset value erosion increases. If the Trust experiences net asset value erosion, which itself may have an indirect negative effect on the market price of the Trust's shares, the Trust will have a reduced asset base over which to write covered calls, which may eventually lead to reduced distributions to shareholders. The writer of an option has no control over the time when it may be required to fulfill its obligation as a writer of the option. Once an option writer has received an exercise notice, it cannot effect a closing purchase transaction in order to terminate its obligation under the option and must deliver the underlying security at the exercise price.

When the Trust writes covered put options, it bears the risk of loss if the value of the underlying stock declines below the exercise price minus the put premium. If the option is exercised, the Trust could incur a loss if it is required to purchase the stock underlying the put option at a price greater than the market price of the stock at the time of exercise plus the put premium the Trust received when it wrote the option. While the Trust's potential gain as the writer of a covered put option is limited to the premium received from the purchaser of the put option, the Trust risks a loss equal to the entire exercise price of the option minus the put premium.

Exchange-Listed Option Risks. There can be no assurance that a liquid market will exist when the Trust seeks to close out an option position on an options exchange. Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening transactions or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options). If trading were discontinued, the secondary market on that exchange (or in that class or series of options) would cease to exist. However, outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms. If the Trust were unable to


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close out a covered call option that it had written on a security, it would not be able to sell the underlying security unless the option expired without exercise.

The hours of trading for options on an exchange may not conform to the hours during which the underlying securities are traded. To the extent that the options markets close before the markets for the underlying securities, significant price and rate movements can take place in the underlying markets that cannot be reflected in the options markets. Call options are marked to market daily and their value will be affected by changes in the value and dividend rates of the underlying common stocks, an increase in interest rates, changes in the actual or perceived volatility of the stock market and the underlying common stocks and the remaining time to the options' expiration. Additionally, the exercise price of an option may be adjusted downward before the option's expiration as a result of the occurrence of certain corporate events affecting the underlying equity security, such as extraordinary dividends, stock splits, merger or other extraordinary distributions or events. A reduction in the exercise price of an option would reduce the Trust's capital appreciation potential on the underlying security.

Over-the-Counter Option Risk. The Trust may write (sell) unlisted OTC options to a significant extent. Options written by the Trust with respect to non-U.S. securities, indices or sectors generally will be OTC options. OTC options differ from exchange-listed options in that they are two-party contracts, with exercise price, premium and other terms negotiated between buyer and seller, and generally do not have as much market liquidity as exchange-listed options. The counterparties to these transactions typically will be major international banks, broker-dealers and financial institutions. The Trust may be required to treat as illiquid securities being used to cover certain written OTC options. The OTC options written by the Trust will not be issued, guaranteed or cleared by the Options Clearing Corporation. In addition, the Trust's ability to terminate the OTC options may be more limited than with exchange-traded options. Banks, broker-dealers or other financial institutions participating in such transactions may fail to settle a transaction in accordance with the terms of the option as written. In the event of default or insolvency of the counterparty, the Trust may be unable to liquidate an OTC option position.

Index Option Risk. The Trust may sell index call and put options from time to time. The purchaser of an index call option has the right to any appreciation in the value of the index over the exercise price of the option on or before the expiration date. The purchaser of an index put option has the right to any depreciation in the value of the index below the exercise price of the option on or before the expiration date. Because the exercise of an index option is settled in cash, sellers of index call options, such as the Trust, cannot provide in advance for their potential settlement obligations by acquiring and holding the underlying securities. The Trust will lose money if it is required to pay the purchaser of an index option the difference between the cash value of the index on which the option was written and the exercise price and such difference is greater than the premium received by the Trust for writing the option. The value of index options written by the Trust, which will be priced daily, will be affected by changes in the value and dividend rates of the underlying common stocks in the respective index, changes in the actual or perceived volatility of the stock market and the remaining time to the options' expiration. The value of the index options also may be adversely affected if the market for the index options becomes less liquid or smaller. Distributions paid by the Trust on its common shares may be derived in part from the net index option premiums it receives from selling index call and put options, less the cost of paying settlement amounts to purchasers of the options that exercise their options. Net index option premiums can vary widely over the short term and long term.

Limitation on Option Writing Risk. The number of call options the Trust can write is limited by the total assets the Trust holds and is further limited by the fact that all options represent 100 share lots of the underlying common stock. Furthermore, the Trust's options transactions will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are traded. These limitations govern the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert, regardless of whether the options are written or purchased on the same or different exchanges, boards of trade or other trading


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facilities or are held or written in one or more accounts or through one or more brokers. Thus, the number of options which the Trust may write or purchase may be affected by options written or purchased by other investment advisory clients of the advisors. An exchange, board of trade or other trading facility may order the liquidation of positions found to be in excess of these limits, and it may impose certain other sanctions.

Tax Risk. Income on options on individual stocks will not be recognized by the Trust for tax purposes until an option is exercised, lapses or is subject to a "closing transaction" (as defined by applicable regulations) pursuant to which the Trust's obligations with respect to the option are otherwise terminated. If the option lapses without exercise or is otherwise subject to a closing transaction, the premiums received by the Trust from the writing of such options will generally be characterized as short-term capital gain. If an option written by the Trust is exercised, the Trust may recognize taxable gain depending on the exercise price of the option, the option premium, and the fair market value of the security underlying the option. The character of any gain on the sale of the underlying security as short-term or long-term capital gain will depend on the holding period of the Trust in the underlying security. In general, distributions received by shareholders of the Trust that are attributable to short-term capital gains recognized by the Trust from its option writing activities will be taxed to such shareholders as ordinary income and will not be eligible for the reduced tax rate applicable to qualified dividend income.

Options on indices of securities and sectors of securities will generally be "marked-to-market" for U.S. federal income tax purposes. As a result, the Trust will generally recognize gain or loss on the last day of each taxable year equal to the difference between the value of the option on that date and the adjusted basis of the option. The adjusted basis of the option will consequently be increased by such gain or decreased by such loss. Any gain or loss with respect to options on indices and sectors will be treated as short-term capital gain or loss to the extent of 40% of such gain or loss and long-term capital gain or loss to the extent of 60% of such gain or loss. Because the mark-to-market rules may cause the Trust to recognize gain in advance of the receipt of cash, the Trust may be required to dispose of investments in order to meet its distribution requirements. Mark-to-market losses may be suspended or otherwise limited if such losses are part of a straddle or similar transaction. See "Tax Matters" in the SAI for more information.

Interest Rate Risk

Prices of fixed-income securities generally rise and fall in response to interest rate changes. Generally, the prices of fixed-rate instruments held by the Trust will tend to fall as interest rates rise. Conversely, when interest rates decline, the value of fixed-rate instruments held by the Trust can be expected to rise. The Trust may be subject to greater risk of rising interest rates due to the current period of historically low interest rates. Expectations of higher inflation generally cause interest rates to rise. The longer the duration, or price sensitivity to changes in interest rates, of the security, the more sensitive the security is to this risk. In typical market interest rate environments, the prices of longer-term fixed-rate instruments tend to fluctuate more in price in response to changes in market interest rates than prices of shorter-term fixed-rate instruments. A 1% increase in interest rates would reduce the value of a $100 note by approximately one dollar if it had a one-year duration.

Credit/Default Risk

Loans and other debt obligation investments are subject to the risk of non-payment of scheduled principal and interest. Changes in economic conditions or other circumstances may reduce the capacity of the party obligated to make principal and interest payments on such instruments and may lead to defaults. Such non-payments and defaults may reduce the value of the Shares and income distributions. The value of loans and other income investments also may decline because of concerns about the issuer's ability to make principal and interest payments. In addition, the credit ratings of loans or other in-


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come investments may be lowered if the financial condition of the party obligated to make payments with respect to such instruments changes. Because the Trust will invest in non-investment grade securities, it will be exposed to a greater amount of credit risk than a fund which invests solely in investment grade securities. The prices of lower grade instruments are generally more sensitive to negative developments, such as a decline in the issuer's revenues or a general economic downturn, than are the prices of higher grade instruments. Credit ratings assigned by rating agencies are based on a number of factors and do not necessarily reflect the issuer's current financial condition or the volatility or liquidity of the security. In the event of bankruptcy of the issuer of loans or other income investments, the Trust could experience delays or limitations with respect to its ability to realize the benefits of any collateral securing the instrument. In order to enforce its rights in the event of a default, bankruptcy or similar situation, the Trust may be required to retain legal or similar counsel and incur additional costs.

Counterparty Risk

Many of the protections afforded to participants on some organized exchanges, such as the performance guarantee of a clearing house, might not be available in connection with uncleared OTC transactions. Therefore, in those instances in which the Trust enters into uncleared OTC transactions, the Trust will be subject to the risk that its direct counterparty will not perform its obligations under the transactions and that the Trust will sustain losses. In addition, cleared derivative transactions benefit from daily marking-to-market and settlement, and segregation and minimum capital requirements applicable to intermediaries. Uncleared OTC derivative transactions generally do not benefit from such protections. This exposes the Trust to the risk that a counterparty will not settle a transaction in accordance with its terms and conditions because of a dispute over the terms of the contract (whether or not bona fide) or because of a credit or liquidity problem, thus causing the Trust to suffer a loss. Such "counterparty risk" is accentuated for contracts with longer maturities where events may intervene to prevent settlement, or where the Trust has concentrated its transactions with a single or small group of counterparties. OTC trades submitted for clearing will be subject to minimum initial and variation margin requirements set by the relevant clearinghouse, as well as possible Commission or CFTC mandated margin requirements. The regulators also have broad discretion to impose margin requirements on non-cleared OTC derivatives. OTC derivatives dealers have also become subject to new business conduct standards, disclosure requirements, reporting and recordkeeping requirements, transparency requirements, position limits, limitations on conflicts of interest, and other regulatory burdens. These new margin and regulatory requirements will increase the overall costs for OTC derivatives dealers. Dealers can be expected to try to pass those increased costs along, at least partially, to market participants such as the Trust in the form of higher fees or less advantageous dealer marks. The overall impact of the Dodd-Frank Wall Street Reform and Consumer Protection Act ("Dodd-Frank Act") on the Trust is highly uncertain and it is unclear how the OTC derivatives markets will adapt to this new regulatory regime.

If a counterparty becomes bankrupt, the Trust may experience significant delays in obtaining recovery (if at all) under the derivative contract in bankruptcy or other reorganization proceeding; if the Trust's claim is unsecured, the Trust will be treated as a general creditor of such prime broker or counterparty and will not have any claim with respect to the underlying security. The Trust may obtain only a limited recovery or may obtain no recovery in such circumstances. The counterparty risk for cleared derivatives is generally lower than for uncleared OTC derivatives since generally a clearing organization becomes substituted for each counterparty to a cleared derivative and, in effect, guarantees the parties' performance under the contract as each party to a trade looks only to the clearing house for performance of financial obligations. However, there can be no assurance that the clearing house, or its members, will satisfy its obligations to the Trust. These risks may also apply to the Trust's securities lending activities.

Historically, swap transactions have been individually negotiated non-standardized transactions entered into in OTC markets and have not been subject to the same type of government regulation as exchange-traded instruments. However, the OTC derivatives markets have recently become subject to com-


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prehensive statutes and regulations. In particular, in the United States, the Dodd-Frank Act requires that certain derivatives with U.S. persons must be executed on a regulated market and a substantial portion of OTC derivatives must be submitted for clearing to regulated clearinghouses. As a result, swap transactions entered into by the Trust may become subject to various requirements applicable to swaps under the Dodd-Frank Act, including clearing, exchange-execution, reporting and recordkeeping requirements, which may make it more difficult and costly for the Trust to enter into swap transactions and may also render certain strategies in which the Trust might otherwise engage impossible or so costly that they will no longer be economical to implement. Furthermore, the number of counterparties that may be willing to enter into swap transactions with the Trust may also be limited if the swap transactions with the Trust are subject to the swap regulation under the Dodd-Frank Act.

Regulation as a "Commodity Pool"

The Investment Adviser has claimed an exclusion from the definition of the term "commodity pool operator" with respect to the Trust pursuant to Regulation 4.5 promulgated by the CFTC. For the Investment Adviser to continue to qualify for the exclusion under CFTC Regulation 4.5 with respect to the Trust, the aggregate initial margin and premiums required to establish our positions in derivative instruments subject to the jurisdiction of the CEA (other than positions entered into for hedging purposes) may not exceed five percent of the Trust's liquidation value or, alternatively, the net notional value of the Trust's aggregate investments in CEA-regulated derivative instruments (other than positions entered into for hedging purposes) may not exceed 100% of the Trust's liquidation value. In the event the Investment Adviser fails to qualify for the exclusion with respect to the Trust and is required to register as a "commodity pool operator", it will become subject to additional disclosure, recordkeeping and reporting requirements with respect to the Trust, which may increase the Trust's expenses.

Failure of Futures Commission Merchants and Clearing Organizations

The Trust may deposit funds required to margin open positions in derivative instruments subject to the CEA with a clearing broker registered as a FCM. The CEA requires an FCM to segregate all funds received from customers with respect to any orders for the purchase or sale of U.S. domestic futures contracts and cleared swaps from the FCM's proprietary assets. Similarly, the CEA requires each FCM to hold in a separate secure account all funds received from customers with respect to any orders for the purchase or sale of foreign futures contracts and segregate any such funds from the funds received with respect to domestic futures contracts. However, all funds and other property received by a clearing broker from its customers are held by the clearing broker on a commingled basis in an omnibus account and may be freely accessed by the clearing broker, which may also invest any such funds in certain instruments permitted under the applicable regulation. There is a risk that assets deposited by the Trust with any swaps or futures clearing broker as margin for futures contracts or cleared swaps may, in certain circumstances, be used to satisfy losses of other clients of the Trust's clearing broker. In addition, the assets of the Trust may not be fully protected in the event of the clearing broker's bankruptcy, as the Trust would be limited to recovering only a pro rata share of all available funds segregated on behalf of the clearing broker's combined domestic customer accounts.

Similarly, the CEA requires a clearing organization approved by the CFTC as a derivatives clearing organization to segregate all funds and other property received from a clearing member's clients in connection with domestic futures, swaps and options contracts from any funds held at the clearing organization to support the clearing member's proprietary trading. Nevertheless, with respect to futures and options contracts, a clearing organization may use assets of a non-defaulting customer held in an omnibus account at the clearing organization to satisfy payment obligations of a defaulting customer of the clearing member to the clearing organization. As a result, in the event of a default or the clearing broker's other clients or the clearing broker's failure to extend its own funds in connection with any such de-


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fault, the Trust would not be able to recover the full amount of assets deposited by the clearing broker on its behalf with the clearing organization.

Liquidity Risk

Illiquid securities include securities the disposition of which is subject to substantial legal or contractual restrictions. The sale of illiquid securities often requires more time and results in higher brokerage charges or dealer discounts and other selling expenses than does the sale of securities eligible for trading on national securities exchanges or in the over-the-counter markets. Restricted securities may sell at a price lower than similar securities that are not subject to restrictions on resale. The continued liquidity of such securities may not be as well assured as that of publicly traded securities.

During certain periods the liquidity of particular issuers or industries, or all securities within particular investment categories, may shrink or disappear suddenly and without warning as a result of adverse economic, market or political events, or adverse investor perceptions, whether or not accurate.

Convertible Securities Risk

Convertible Securities generally offer lower interest or dividend yields than non-convertible debt securities of similar quality. The market value of convertible securities tends to decline as interest rates increase and, conversely, tends to increase as interest rates decline. In addition, because of the conversion feature, the market value of convertible securities tends to vary with fluctuations in the market value of the underlying common stock. When the market price of the underlying common stock approaches or is greater than the convertible security's "common price," the prices of the convertible securities tend to rise as a reflection of the value of the underlying common stock. The conversion price is defined as the predetermined price at which the convertible security could be exchanged for the discounted stock. A unique feature of convertible securities is that as the market price of the underlying common stock declines, convertible securities tend to trade increasingly on a yield basis, and so may not experience market value declines to the same extent as the underlying common stock. Consequently, investments in convertible securities generally entail less risk than investments in common stock of the same issuer. But more risk than the issuer's debt obligations.

Equity-Linked Notes

ELNs are hybrid securities with characteristics of both fixed income and equity securities. An ELN is a debt instrument, usually a bond, that pays interest based upon the performance of an underlying equity, which can be a single stock, basket of stocks or an equity index. The interest payment on an ELN may in some cases be leveraged so that, in percentage terms, it exceeds the relative performance of the market. ELNs generally are subject to the risks associated with the securities of equity issuers, default risk and counterparty risk. Additionally, because the Trust may use ELNs as an alternative or complement to its options strategy, the use of ELNs in this manner would expose the Trust to the risk that such ELNs will not perform as anticipated, and the risk that the use of ELNs will expose the Trust to different or additional default and counterparty risk as compared to a similar investment executed in an options strategy.

PIPEs Risk

PIPE transactions typically involve the purchase of securities directly from a publicly traded company or its affiliates in a private placement transaction, typically at a discount to the market price of the company's common stock. In a PIPE transaction, the Trust may bear the price risk from the time of pricing until the time of closing. Equity issued in this manner is often subject to transfer restrictions and is therefore less liquid than equity issued through a registered public offering. The Trust may be subject to lock-up agreements that prohibit transfers for a fixed period of time. In addition, because the offering of


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the securities in a PIPE transaction is not registered under the Securities Act, the securities are "restricted" and cannot be immediately resold by the investors into the public markets. The Trust may enter into a registration rights agreement with the issuer pursuant to which the issuer commits to file a resale registration statement allowing the Trust to publicly resell its securities. Accordingly, PIPE securities may be deemed illiquid. However, the ability of the Trust to freely transfer the shares is conditioned upon, among other things, the Commission's preparedness to declare effective the resale registration statement covering the resale of the shares sold in the private financing and the issuer's right to suspend the Trust's use of the resale registration statement if the issuer is pursuing a transaction or some other material non-public event is occurring. Accordingly, PIPE securities may be subject to risks associated with illiquid securities.

Venture Capital Investments Risk

The Trust may occasionally invest in venture capital opportunities. While these securities offer the opportunity for significant capital gains, such investments also involve a degree of risk that can result in substantial losses. Some of the venture capital opportunities in which the Trust may invest are expected to be companies that are in a "start-up" stage of development, have little or no operating history, operate at a loss or with substantial variations in operating results from period to period, have limited products, markets, financial resources or management depth, or have the need for substantial additional "follow-on" capital to support expansion or to achieve or maintain a competitive position. Such additional investments may dilute the interests of prior investors, such as the Trust. Some of these companies may be emerging companies at the research and development stage with no marketable or approved products or technology. There can be no assurance that securities of start-up or emerging growth companies will, in the future, yield returns commensurate with their associated risks.

These investments, which are considered Restricted Securities, will be made primarily in convertible preferred stock. The Trust may also purchase non-convertible debt securities in connection with its venture capital investments, and otherwise when the Investment Adviser believes that such investments would be consistent with the Trust's investment objective. While these debt investments typically will not be rated, the Investment Adviser believes that, in light of the risk characteristics associated with investments in emerging growth companies, if such investments were to be compared with investments rated by S&P or Moody's, they may be rated as low as "C" in the rating categories established by S&P and Moody's. Such securities are commonly referred to as "junk bonds" and are considered, on balance, as predominantly speculative.

ETFs Risk

An investment in an ETF generally presents the same primary risks as an investment in a conventional fund ( i.e. , one that is not exchange-traded) that has the same investment objectives, strategies and policies. In addition, an ETF may fail to accurately track the market segment or index that underlies its investment objective. The price of an ETF can fluctuate, and the Trust could lose money investing in an ETF. Moreover, ETFs are subject to the following risks that do not apply to conventional open-end funds: (i) the market price of the ETF's shares may trade at a premium or a discount to their NAV; (ii) an active trading market for an ETF's shares may not develop or be maintained; and (iii) there is no assurance that the requirements of the exchange necessary to maintain the listing of an ETF will continue to be met or remain unchanged.

Leverage Risk

The Trust currently intends to use financial leverage to seek to achieve its investment objective. The Trust may issue Preferred Shares, borrow money and/or issue debt securities ("traditional leverage"). The Trust initially intends to use traditional leverage through a credit facility to a maximum of 20% of the Trust's Managed Assets. In addition, the Trust may enter into reverse repurchase agreements,


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swaps, futures, forward contracts, securities lending, short sales, and other derivative transactions, that have similar effects as leverage (collectively referred to as "effective leverage"). At no time will the Trust's overall use of leverage, either through traditional leverage or effective leverage, exceed 30% of the Trust's Managed Assets. Notwithstanding the foregoing, effective leverage incurred through the Trust's option strategy and use of derivatives for hedging purposes will not be counted toward the Trust's limit on the use of effective leverage or the overall 30% leverage limitation.

The Trust's leveraged capital structure creates special risks not associated with unleveraged funds having a similar investment objective and policies. These include the possibility of greater loss and the likelihood of higher volatility of the NAV, market price and distributions of the Trust and the asset coverage for Preferred Shares. Such volatility may increase the likelihood of the Trust having to sell investments in order to meet its obligations to make distributions on the Preferred Shares, or to redeem preferred shares when it may be disadvantageous to do so. Also, if the Trust is utilizing leverage, a decline in NAV could affect the ability of the Trust to make distributions and such a failure to pay dividends or make distributions could result in the Trust ceasing to qualify as a regulated investment company under the Code.

Other risks and special considerations include the risk that fluctuations in interest rates on borrowings and short-term debt or in the interest or dividend rates on any leverage that the Trust must pay will reduce the return to the Shareholders; the effects of leverage in a declining market, which are likely to cause a greater decline in the NAV of the Shares than if the Trust were not leveraged, which may result in a greater decline in the market price of the Shares; when the Trust uses financial leverage, the investment advisory fees payable to the Investment Adviser will be higher than if the Trust did not use leverage; and leverage may increase operating costs, which may reduce total return.

Restricted Securities and Valuation Risk

Some of the Trust's investments are subject to restrictions on resale and generally have no established trading market or are otherwise illiquid with little or no trading activity. The Trust may invest up to 10% of its Managed Assets in such restricted securities. The valuation process requires an analysis of various factors. The Trust's fair value methodology includes the examination of, among other things, (i) the existence of any contractual restrictions on the disposition of the securities; (ii) information obtained from the issuer which may include an analysis of the company's financial statements, the company's products or intended markets, or the company's technologies; and (iii) the price of a security sold at arm's length in an issuer's subsequent completed round of financing.

As there is typically no readily available market value for some of the securities in the Trust's portfolio, such securities are valued at fair value as determined in good faith by the Board pursuant to the Trust's valuation policy and a consistently applied valuation process. Because of the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Trust's investments determined in good faith by or under the direction of the Board, or in accordance with valuation procedures approved by the Board, may differ significantly from the values that would have been used had a ready market existed for the investments, and the differences could be material. There is no single standard for determining fair value in good faith. As a result, determining fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment, while employing a consistently applied valuation process for the types of investments the Trust makes.

Investing in 144A Securities may decrease the liquidity of the Trust's portfolio to the extent that qualified institutional buyers become for a time uninterested in purchasing these restricted securities. The purchase price and subsequent valuation of restricted and illiquid securities normally reflect a discount, which may be significant, from the market price of comparable securities for which a liquid market exists.


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Investments purchased by the Trust, particularly debt securities and over-the-counter traded instruments that are liquid at the time of purchase, may subsequently become illiquid due to events relating to the issuer of the securities, markets events, economic conditions or investor perceptions. Domestic and foreign markets are becoming more and more complex and interrelated, so that events in one sector of the market or the economy, or in one geographical region, can reverberate and have negative consequences for other market, economic or regional sectors in a manner that may not be reasonably foreseen. With respect to over-the-counter traded securities, the continued viability of any over-the-counter secondary market depends on the continued willingness of dealers and other participants to purchase the instruments.

Non-Investment Grade Securities Risk

The Trust may invest in securities that are rated, at the time of investment, non-investment grade quality (rated "Ba/BB+/BB+" or below by Moody's, S&P or Fitch, respectively), or securities that are unrated but determined to be of comparable quality by the Investment Adviser. Securities of non-investment grade quality are regarded as having predominantly speculative characteristics with respect to the issuer's capacity to pay interest and repay principal, and are commonly referred to as "junk bonds." Non-investment grade securities and unrated securities of comparable credit quality are subject to the increased risk of an issuer's inability to meet principal and interest payment obligations. The value of high yield, lower quality bonds is affected by the creditworthiness of the issuers of the securities and by general economic and specific industry conditions. These securities may be subject to greater price volatility due to such factors as specific corporate or municipal developments, interest rate sensitivity, negative perceptions of the junk bond markets generally and less secondary market liquidity. Issuers of high yield bonds are not as strong financially as those with higher credit ratings. These issuers are more vulnerable to financial setbacks and recession than more creditworthy issuers, which may impair their ability to make interest and principal payments. Non-investment grade securities may be particularly susceptible to economic downturns, specific corporate or municipal developments, interest rate sensitivity, negative perceptions of the junk bond markets generally and less secondary market liquidity. An economic recession could disrupt severely the market for such securities and may have an adverse impact on the value of such securities. In addition, any such economic downturn could adversely affect the ability of the issuers of such securities to repay principal and pay interest thereon and increase the incidence of default for such securities. Non-investment grade securities, though higher yielding, are characterized by high risk. They may be subject to certain risks with respect to the issuing entity and to greater market fluctuations than certain lower yielding, higher rated securities. The retail secondary market for non-investment grade securities may be less liquid than that for higher rated securities. Adverse conditions could make it difficult at times for the Trust to sell certain securities or could result in lower prices than those used in calculating the Trust's NAV. Because of the substantial risks associated with investments in non-investment grade securities, you could lose money on your investment in Shares of the Trust, both in the short-term and the long-term.

Ratings are relative and subjective and not absolute standards of quality. Securities ratings are based largely on an issuer's historical financial condition and the rating agencies' analyses at the time of rating. Consequently, the rating assigned to any particular security or instrument is not necessarily a reflection of an issuer's current financial condition. Subsequent to its purchase by the Trust, the security or instrument may cease to be rated or its rating may be reduced. In addition, it is possible that NRSROs might not change their ratings of a particular security or instrument to reflect subsequent events on a timely basis. Moreover, such ratings do not assess the risk of a decline in market value. None of these events will require the sale of such securities or instruments by the Trust, although the Investment Adviser will consider these events in determining whether the Trust should continue to hold the securities.


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Mid-Cap and Small-Cap Risk

Investments in mid- and small-capitalization companies involve greater risk and portfolio price volatility than investments in larger capitalization stocks. Among the reasons for the greater price volatility of these investments are the less certain growth prospects of smaller firms and the lower degree of liquidity in the markets for such securities. Mid- and small-capitalization companies may be thinly traded and may have to be sold at a discount from current market prices or in small lots over an extended period of time. In addition, these securities are subject to the risk that during certain periods the liquidity of particular issuers or industries, or all securities in particular investment categories, will shrink or disappear suddenly and without warning as a result of adverse economic or market conditions, or adverse investor perceptions whether or not accurate. Because of the lack of sufficient market liquidity, the Trust may incur losses because it will be required to effect sales at a disadvantageous time and only then at a substantial drop in price. Mid- and small-capitalization companies include "unseasoned" issuers that do not have an established financial history; often have limited product lines, markets or financial resources; may depend on or use a few key personnel for management; and may be susceptible to losses and risks of bankruptcy.

Mid- and small-capitalization companies may be operating at a loss or have significant variations in operating results; may be engaged in a rapidly changing business with products subject to a substantial risk of obsolescence; may require substantial additional capital to support their operations, to finance expansion or to maintain their competitive position; and may have substantial borrowings or may otherwise have a weak financial condition. In addition, these companies may face intense competition, including competition from companies with greater financial resources, more extensive development, manufacturing, marketing, and other capabilities, and a larger number of qualified managerial and technical personnel. Transaction costs for these investments are often higher than those of larger capitalization companies. Investments in mid- and small-capitalization companies may be more difficult to price precisely than other types of securities because of their characteristics and lower trading volumes.

Delay in Use of Proceeds Risk

Although the Trust intends to invest the proceeds from the sale of the securities offered hereby as soon as practicable following the completion of the offering, such investments may be delayed if suitable investments are unavailable at the time. Prior to the time the proceeds of this offering are invested, such proceeds may be invested in short-term money market instruments and U.S. Government Securities. See "Use of Proceeds."

Key Personnel Risk

Investment decisions on behalf of the Trust are made by a team of individuals. Some members of the group have experience in financial analysis of public and private companies. Others have deep scientific backgrounds and considerable operating experience in biotechnology and/or pharmaceutical companies. Still others have medical degrees. The Investment Adviser believes that the investment process benefits from a considered evaluation of potential investments by a group containing a variety of specialized backgrounds. The team currently in place is composed of members with a variety of specialized backgrounds. The Investment Adviser believes that no single individual in the group is individually critical but believes that the overall capability is key. There may be only a limited number of professionals who have, in total, comparable relevant experience to that of the current group. If one or more team members dies, resigns, retires or is otherwise unable to act on behalf of the Investment Adviser, there can be no assurance that a suitable replacement could be found immediately.

Temporary Defensive Strategies Risk

When the Investment Adviser anticipates unusual market or other conditions, the Trust may temporarily depart from its primary investment strategy as a defensive measure and invest all or a portion of


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its assets in obligations of the U.S. Government; commercial paper rated at least A-2 by S&P, P-2 by Moody's or having a comparable rating by another NRSRO; certificates of deposit; bankers' acceptances; repurchase agreements; non-convertible preferred stocks and non-convertible corporate bonds with a remaining maturity of less than one year; ETFs; other investment companies; cash items; or any other fixed-income securities that the Investment Adviser considers consistent with this strategy. To the extent that the Trust invests defensively, it may not achieve its investment objective.

U.S. Government Securities Risk

The U.S. government may not provide financial support to U.S. government agencies, instrumentalities or sponsored enterprises if it is not obligated to do so by law. U.S. Government Securities issued by those agencies, instrumentalities and sponsored enterprises, including those issued by Fannie Mae, Freddie Mac and the Federal Home Loan Banks, are neither issued nor guaranteed by the United States Treasury and, therefore, are not backed by the full faith and credit of the United States. The maximum potential liability of the issuers of some U.S. Government Securities held by the Trust may greatly exceed their current resources, including their legal right to support from the U.S. Treasury. It is possible that issuers of U.S. Government Securities will not have the funds to meet their payment obligations in the future. Fannie Mae and Freddie Mac have been operating under conservatorship, with the Federal Housing Finance Agency (the "FHFA") acting as their conservator, since September 2008. The entities are dependent upon the continued support of the U.S. Department of the Treasury and FHFA in order to continue their business operations. These factors, among others, could affect the future status and role of Fannie Mae and Freddie Mac and the values of their securities and the securities which they guarantee. Additionally, the U.S. government and its agencies and instrumentalities do not guarantee the market value of their securities, which may fluctuate.

Discount to NAV Risk

Shares of closed-end investment companies frequently trade at a discount from their NAV. This characteristic is a risk separate and distinct from the risk that the Trust's NAV per Share could decrease as a result of its investment activities and may be greater for investors expecting to sell their Shares in a relatively short period of time following completion of this offering. The NAV per Share will be reduced immediately following this offering as a result of the payment of the sales load and certain offering costs. Although the value of the Trust's net assets is generally considered by market participants in determining whether to purchase or sell Shares, whether investors will realize gains or losses upon the sale of the Shares will depend entirely upon whether the market price of the Shares at the time of sale is above or below the investor's purchase price for the Shares. Because the market price of the Shares will be determined by supply of and demand for the Shares which will be affected by factors such as (i) NAV, (ii) dividend and distribution levels and their stability (which will in turn be affected by levels of dividend and interest payments by the Trust's portfolio holdings, the timing and success of the Trust's investment strategies, regulations affecting the timing and character of Trust distributions, Trust expenses and other factors), (iii) trading volume of the Shares, (iv) general market, interest rate and economic conditions and (v) other factors that may be beyond the control of the Trust. The Trust cannot predict whether the Shares will trade at, below or above NAV or at, below or above the initial public offering price.

Anti-Takeover Provisions Risk

The Trust's Declaration of Trust, dated March 5, 2015, has provisions that could have the effect of limiting the ability of other entities or persons to (1) acquire control of the Trust, (2) cause it to engage in certain transactions, or (3) modify its structure.


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Related Party Transactions Risk

The majority of the Board will be unaffiliated with the Investment Adviser; nevertheless, the Trust may be subject to certain potential conflicts of interest. Although the Trust has no obligation to do so, it may place brokerage orders with brokers who provide supplemental investment research and market and statistical information about Healthcare Companies and the healthcare industries. In addition, other investment companies advised by the Investment Adviser may concurrently invest with the Trust in restricted securities under certain conditions.

The Trust also may invest, subject to applicable law, in companies in which the principals of the Investment Adviser or Trustees of the Trust have invested, or for which they serve as directors or executive officers. The Investment Company Act prohibits the Trust from engaging in certain transactions involving its "affiliates," including, among others, the Trust's Trustees, officers and employees, the Investment Adviser and any "affiliates" of such affiliates except pursuant to an exemptive order or the provisions of certain rules under the Investment Company Act. In the view of the staff of the Commission, other investment companies advised by the Investment Adviser may, in some instances, be viewed to be affiliates of the Trust. Such legal restrictions and delays and costs involved in obtaining necessary regulatory approvals may preclude or discourage the Trust from making certain investments and no assurance can be given that any exemptive order sought by the Trust will be granted.

Non-Diversification Risk

The Trust is non-diversified, meaning that the Trust is permitted to invest more of its assets in fewer issuers than "diversified" funds. Thus, the Trust may be more susceptible to adverse developments affecting any single issuer held in its portfolio, and may be more susceptible to greater losses because of these developments.

Foreign Custody Risk

The Trust may hold foreign securities and cash with foreign banks, agents and securities depositories appointed by the Trust's custodian (each a "Foreign Custodian"). Some Foreign Custodians may be recently organized or new to the foreign custody business. In some countries, Foreign Custodians may be subject to little or no regulatory oversight over or independent evaluation of their operations. Further, the laws of certain countries may place limitations on the Trust's ability to recover its assets if a Foreign Custodian enters bankruptcy. Investments in emerging markets may be subject to even greater custody risks than investments in more developed markets. Custody services in emerging market countries are very often undeveloped and may be considerably less well regulated than in more developed countries, and thus may not afford the same level of investor protection as would apply in developed countries.

Deflation Risk

Deflation risk is the risk that prices throughout the economy decline over time, which may have an adverse effect on the market valuation of companies, their assets and their revenues. In addition, deflation may have an adverse effect on the creditworthiness of issuers and may make issuer default more likely, which may result in a decline in the value of the Trust's portfolio.

Inflation Risk

Inflation risk is the risk that the value of assets or income from investment will be worth less in the future as inflation decreases the value of money. As inflation increases, the real value of the Shares and distributions on those shares can decline. In addition, during any periods of rising inflation, leverage expenses would likely increase, which would tend to further reduce returns to the holders of Shares.


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Legal and Regulatory Risks

Legal and regulatory changes could occur and may adversely affect the Trust and its ability to pursue its investment strategies and/or increase the costs of implementing such strategies. New or revised laws or regulations may be imposed by the CFTC, the Commission, the U.S. Federal Reserve, other banking regulators, other governmental regulatory authorities or self-regulatory organizations that supervise the financial markets that could adversely affect the Trust. In particular, these agencies are empowered to promulgate a variety of new rules pursuant to recently enacted financial reform legislation in the United States. The Trust also may be adversely affected by changes in the enforcement or interpretation of existing statutes and rules by these governmental regulatory authorities or self-regulatory organizations.

Congress recently enacted legislation that provides for new regulation of the derivatives market, including clearing, margin, reporting, recordkeeping, and registration requirements. Because the legislation leaves much to agency rule making, its ultimate impact remains unclear. New regulations could, among other things, restrict the Trust's ability to engage in derivatives transactions (for example, by making certain types of derivatives transactions no longer available to the Trust) and/or increase the costs of such derivatives transactions (for example, by increasing margin or capital requirements), and the Trust may be unable to execute its investment strategy as a result. It is unclear how the regulatory changes will affect counterparty risk.

The CFTC and certain futures exchanges have established limits, referred to as "position limits," on the maximum net long or net short positions which any person may hold or control in particular options and futures contracts; those position limits may also apply to certain other derivatives positions the Trust may wish to take. Under the exchange rules, all positions owned or controlled by the same person or entity, even if in different accounts, may be aggregated for purposes of determining whether the applicable position limits have been exceeded. Thus, even if the Trust does not intend to exceed applicable position limits, it is possible that different clients managed by the Investment Adviser and its affiliates may be aggregated for this purpose. Therefore it is possible that the trading decisions of the Investment Adviser may have to be modified and that positions held by the Trust may have to be liquidated in order to avoid exceeding such limits. The modification of investment decisions or the elimination of open positions, if it occurs, may adversely affect the performance of the Trust.

Government Intervention

The recent instability in the financial markets has led the U.S. government and certain foreign governments to take a number of unprecedented actions designed to support certain financial institutions and segments of the financial markets that have experienced extreme volatility, and in some cases a lack of liquidity, including through direct purchases of equity and debt securities. Federal, state, and foreign governments, their regulatory agencies or self-regulatory organizations may take actions that affect the regulation of the issuers in which the Trust invests in ways that are unforeseeable. Legislation or regulation may also change the way in which the Trust is regulated. Such legislation or regulation could limit or preclude the Trust's ability to achieve its investment objective.

Congress has enacted sweeping financial legislation, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the "Dodd-Frank Act"), signed into law by President Obama on July 21, 2010, regarding the operation of banks, private fund managers and other financial institutions, which includes provisions regarding the regulation of derivatives. Many provisions of the Dodd-Frank Act will be implemented through regulatory rulemakings and similar processes over a period of time. The impact of the Dodd-Frank Act, and of follow-on regulation, on trading strategies and operations is impossible to predict, and may be adverse. Practices and areas of operation subject to significant change based on the impact, direct or indirect, of the Dodd-Frank Act and follow-on regulation, may change in manners that are unforeseeable, with uncertain effects. By way of example and not limitation, direct and indirect


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changes from the Dodd-Frank Act and follow-on regulation may occur to a significant degree with regard to, among other areas, financial consumer protection, bank ownership of and involvement with private funds, proprietary trading, registration of investment advisers, and the trading and use of many derivative instruments, including swaps. There can be no assurance that such legislation or regulation will not have a material adverse effect on the Trust. In addition, Congress may address tax policy, which also could have uncertain direct and indirect impact on trading and operations, as well as, potentially, operations and structure of the Trust.

Further, the Dodd-Frank Act created the Financial Stability Oversight Council ("FSOC"), an interagency body charged with identifying and monitoring systemic risks to financial markets. The FSOC has the authority to require that non-bank financial companies that are "predominantly engaged in financial activities," such as the Trust and the Investment Adviser, whose failure it determines would pose systemic risk, be placed under the supervision of the Board of Governors of the Federal Reserve System ("Federal Reserve"). The FSOC has the authority to recommend that the Federal Reserve adopt more stringent prudential standards and reporting and disclosure requirements for non-bank financial companies supervised by the Federal Reserve. The FSOC also has the authority to make recommendations to the Federal Reserve on various other matters that may affect the Trust, including requiring financial firms to submit resolution plans, mandating credit exposure reports, establishing concentration limits, and limiting short-term debt. The FSOC may also recommend that other federal financial regulators impose more stringent regulation upon, or ban altogether, financial activities of any financial firm that poses what it determines are significant risks to the financial system.

The implementation of the Dodd-Frank Act could also adversely affect the Investment Adviser and the Trust by increasing transaction and/or regulatory compliance costs. In addition, greater regulatory scrutiny and the implementation of enhanced and new regulatory requirements may increase the Investment Adviser's and the Trust's exposure to potential liabilities, and in particular liabilities arising from violating any such enhanced and/or new regulatory requirements. Increased regulatory oversight could also impose administrative burdens on the Investment Adviser and the Trust, including, without limitation, responding to investigations and implementing new policies and procedures. The ultimate impact of the Dodd-Frank Act, and any resulting regulation, is not yet certain and the Investment Adviser and the Trust may be affected by the new legislation and regulation in ways that are currently unforeseeable.

In addition, the securities and futures markets are subject to comprehensive statutes, regulations and margin requirements. The CFTC, the Commission, the Federal Deposit Insurance Corporation, other regulators and self-regulatory organizations and exchanges are authorized under these statutes, regulations and otherwise to take extraordinary actions in the event of market emergencies.

In the aftermath of the recent financial crisis, there appears to be a renewed popular, political and judicial focus on finance related consumer protection. Financial institution practices are also subject to greater scrutiny and criticism generally. In the case of transactions between financial institutions and the general public, there may be a greater tendency toward strict interpretation of terms and legal rights in favor of the consuming public, particularly where there is a real or perceived disparity in risk allocation and/or where consumers are perceived as not having had an opportunity to exercise informed consent to the transaction. In the event of conflicting interests between retail investors holding common shares of a closed-end investment company such as the Trust and a large financial institution, a court may similarly seek to strictly interpret terms and legal rights in favor of retail investors.

Information Technology Systems

The Trust is dependent on the Investment Adviser for certain management services as well as back-office functions. The Investment Adviser depends on information technology systems in order to assess investment opportunities, strategies and markets and to monitor and control risks for the Trust. It is possible that a failure of some kind which causes disruptions to these information technology systems could materially limit the Investment Adviser's ability to adequately assess and adjust investments, formulate


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strategies and provide adequate risk control. Any such information technology-related difficulty could harm the performance of the Trust. Further, failure of the back-office functions of the Investment Adviser to process trades in a timely fashion could prejudice the investment performance of the Trust.

Legislation Risk

At any time after the date of this prospectus, legislation may be enacted that could negatively affect the assets of the Trust. Legislation or regulation may change the way in which the Trust itself is regulated. The Investment Adviser cannot predict the effects of any new governmental regulation that may be implemented, and there can be no assurance that any new governmental regulation will not adversely affect the Trust's ability to achieve its investment objective.

Management Risk

The Trust is subject to management risk because it is an actively managed investment portfolio. The Investment Adviser and the individual portfolio managers will apply investment techniques and risk analyses in making investment decisions for the Trust, but there can be no guarantee that these will produce the desired results. The Trust may be subject to a relatively high level of management risk because the Trust may invest in derivative instruments, which may be highly specialized instruments that require investment techniques and risk analyses different from those associated with bonds.

Misconduct of Employees and of Service Providers

Misconduct or misrepresentations by employees of the Investment Adviser or the Trust's service providers could cause significant losses to the Trust. Employee misconduct may include binding the Trust to transactions that exceed authorized limits or present unacceptable risks and unauthorized trading activities or concealing unsuccessful trading activities (which, in any case, may result in unknown and unmanaged risks or losses) or making misrepresentations regarding any of the foregoing. Losses could also result from actions by the Trust's service providers, including, without limitation, failing to recognize trades and misappropriating assets. In addition, employees and service providers may improperly use or disclose confidential information, which could result in litigation or serious financial harm, including limiting the Trust's business prospects or future marketing activities. Despite the Investment Adviser's compliance program, misconduct and intentional misrepresentations may be undetected or not fully comprehended, thereby potentially undermining the Investment Adviser's compliance efforts. As a result, no assurances can be given that the compliance and oversight performed by the Investment Adviser will identify or prevent any such misconduct.

Portfolio Turnover Risk

The Trust's annual portfolio turnover rate may vary greatly from year to year, as well as within a given year. Portfolio turnover rate is not considered a limiting factor in the execution of investment decisions for the Trust. High portfolio turnover may generate short-term capital gains taxable as ordinary income, which may have a negative impact on the Trust's performance over time.

Reliance on Service Providers

The Trust must rely upon the performance of service providers to perform certain functions, which may include functions that are integral to the Trust's operations and financial performance. Failure by any service provider to carry out its obligations to the Trust in accordance with the terms of its appointment, to exercise due care and skill, or to perform its obligations to the Trust at all as a result of insolvency, bankruptcy or other causes could have a material adverse effect on the Trust's performance and returns to shareholders. The termination of the Trust's relationship with any service provider, or any delay in appointing a


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replacement for such service provider, could materially disrupt the business of the Trust and could have a material adverse effect on the Trust's performance and returns to shareholders.

Market Disruption and Geopolitical Risk

The ongoing U.S. military and related action in Afghanistan and events in the Middle East, as well as the continuing threat of terrorist attacks, could have significant adverse effects on the U.S. economy, the stock market and world economies and markets generally. A disruption of financial markets or other terrorist attacks could adversely affect Trust service providers and/or the Trust's operations as well as interest rates, secondary trading, credit risk, inflation and other factors relating to the Shares. The Trust cannot predict the effects or likelihood of similar events in the future on the U.S. and world economies, the value of the Shares or the NAV of the Trust.

Over the past several years global financial markets experienced periods of unprecedented turmoil, which contributed to severe market volatility and caused severe liquidity strains in the credit markets. Volatile financial markets can expose the Trust to greater market and liquidity risk and potential difficulty in valuing portfolio instruments held by the Trust. Recently, markets have witnessed more stabilized economic activity as expectations for an economic recovery increased. The Investment Adviser does not know how long the financial markets will continue to be affected by these recent events and cannot predict the effects of these or similar events in the future on the U.S. and world economies and securities in the Trust's portfolio.

As a result of recent events involving Ukraine and the Russian Federation, the United States and the European Union have imposed sanctions on certain Russian individuals and a Russian bank. The United States and other nations or international organizations may impose additional, broader economic sanctions or take other actions that may adversely affect Russian-related issuers in the future. These sanctions, any future sanctions or other actions, or even the threat of further sanctions or other actions, may negatively affect the value and liquidity of the Trust's investments. For example, the Trust may be prohibited from investing in securities issued by companies subject to such sanctions. In addition, the sanctions may require the Trust to freeze its existing investments in Russian companies, prohibiting the Trust from buying, selling or otherwise transacting in these investments. Russia may undertake countermeasures or retaliatory actions which may further impair the value and liquidity of the Trust's portfolio and potentially disrupt its operations.

When-Issued and Delayed Delivery Transactions Risk

The Trust may purchase fixed-income securities on a when-issued basis, and may purchase or sell those securities for delayed delivery. When-issued and delayed delivery transactions occur when securities are purchased or sold by the Trust with payment and delivery taking place in the future to secure an advantageous yield or price. Securities purchased on a when-issued or delayed delivery basis may expose the Trust to counterparty risk of default as well as the risk that securities may experience fluctuations in value prior to their actual delivery. The Trust will not accrue income with respect to a when-issued or delayed delivery security prior to its stated delivery date. Purchasing securities on a when-issued or delayed delivery basis can involve the additional risk that the price or yield available in the market when the delivery takes place may not be as favorable as that obtained in the transaction itself.

Risks Relating to Trust's RIC Status

To qualify and remain eligible for the special tax treatment accorded to RICs under the Code, the Trust must meet certain source-of-income, asset diversification and annual distribution requirements. Very generally, in order to qualify as a RIC, the Trust must derive at least 90% of its gross income for each taxable year from dividends, interest, payments with respect to certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, net income from certain qualified publicly traded partnerships, or other income derived with respect to its business of investing in stock or


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other securities. The Trust must also meet certain asset diversification requirements at the end of each quarter of each of its taxable years. Failure to meet these diversification requirements on the last day of a quarter may result in the Trust having to dispose of certain investments quickly in order to prevent the loss of RIC status. Any such dispositions could be made at disadvantageous prices or times, and may result in substantial losses to the Trust. In addition, in order to be eligible for the special tax treatment accorded RICs, the Trust must meet the annual distribution requirement, requiring it to generally distribute an amount at least equal to the sum of 90% of its investment company taxable income (which includes, among other items, dividends, interest and net short-term capital gains in excess of net long-term capital losses, but determined without regard to the deduction for dividends paid) plus 90% of any net tax-exempt income for the Trust's taxable year. If the Trust fails to qualify as a RIC for any reason and becomes subject to corporate tax (and applicable state corporate income or similar taxes), the resulting taxes could substantially reduce its net assets, the amount of income available for distribution and the amount of its distributions. Such a failure would have a material adverse effect on the Trust and its shareholders. In addition, the Trust could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions in order to re-qualify as a RIC.

RIC-Related Risks of Investments Generating Non-Cash Taxable Income

Certain of the Trust's investments may require the Trust to recognize taxable income in a taxable year in excess of the cash generated on those investments during that year. In particular, the Trust may invest in loans and other debt obligations that will be treated as having "market discount" and/or "original issue discount" for U.S. federal income tax purposes. Because the Trust may be required to recognize income in respect of these investments before, or without, receiving cash representing such income, the Trust may have difficulty satisfying the annual distribution requirements applicable to RICs and avoiding Trust-level U.S. federal income and/or excise taxes. Accordingly, the Trust may be required to sell assets, including at potentially disadvantageous times or prices, raise additional debt or equity capital, make taxable distributions of its shares or debt securities, or reduce new investments, to obtain the cash needed to make these income distributions. If the Trust liquidates assets to raise cash, the Trust may realize gain or loss on such liquidations; in the event the Trust realizes net capital gains from such liquidation transactions, the Trust's shareholders may receive larger capital gain distributions than they would in the absence of such transactions.

Secondary Market for the Trust's Shares

The issuance of Shares through the Trust's Dividend Reinvestment and Stock Purchase Plan may have an adverse effect on the secondary market for the Shares. The increase in the number of outstanding Shares resulting from issuances pursuant to the Trust's Dividend Reinvestment and Stock Purchase Plan and the discount to the market price at which such Shares may be issued, may put downward pressure on the market price for the Shares. Shares will not be issued pursuant to the Dividend Reinvestment and Stock Purchase Plan at any time when Shares are trading at a lower price than the Trust's NAV per Share. When the Trust's Shares are trading at a premium, the Trust may also issue Shares that may be sold through private transactions effected on the NYSE or through broker-dealers. The increase in the number of outstanding Shares resulting from these offerings may put downward pressure on the market price for Shares.

Potential Conflicts of Interest Risk

The Investment Adviser's investment team is responsible for managing the Trust as well as three other closed-end investment companies. In the future, the investment team may manage other funds and accounts, including proprietary accounts, separate accounts and other pooled investment vehicles, such as unregistered hedge funds. In the future, a portfolio manager may manage a separate account or other pooled investment vehicle which may have materially higher fee arrangements than the Trust and may


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also have a performance-based fee. The side-by-side management of these funds or accounts may raise potential conflicts of interest relating to cross trading, the allocation of investment opportunities and the aggregation and allocation of trades.

MANAGEMENT OF THE TRUST

Board of Trustees

Under the Trust's Declaration of Trust and the laws of the Commonwealth of Massachusetts, the Trust's business and affairs are managed under the direction of its Board. Investment decisions for the Trust are made by the Investment Adviser, subject to any direction it may receive from the Board, which periodically reviews the Trust's investment performance. The Statement of Additional Information includes additional information about the members of the Board and is available, without charge, upon request, by calling (617) 772-8500.

Investment Adviser

Tekla Capital Management LLC, a limited liability company formed under the laws of the State of Delaware, serves as the Investment Adviser to the Trust. The Investment Adviser is an investment adviser registered under the Investment Advisers Act of 1940, as amended. The Investment Adviser is located at 100 Federal Street, 19th Floor, Boston, MA 02110. The Investment Adviser is owned by Daniel R. Omstead and Mary N. Omstead. Dr. Omstead is currently the President and Chief Executive Officer of the Investment Adviser. Mary N. Omstead is Dr. Omstead's wife.

The Investment Adviser also provides investment advisory services to other closed-end investment companies, HQL, HQH and THQ, which invest in companies in the healthcare and life sciences industries. As of March 31, 2015, the Investment Adviser had assets under management of over $2.7 billion.

The Advisory Agreement provides that, subject to the supervision and direction of the Board, the Investment Adviser is responsible for the actual management of the Trust's portfolio. The Investment Adviser is also obligated to supervise or perform certain administrative and management services for the Trust and is obligated to provide the office space, facilities, equipment and personnel necessary to perform its duties under the Advisory Agreement. The responsibility for making decisions to buy, sell or hold a particular security rests with the Investment Adviser. However, the Investment Adviser may consider investment analysis from various sources, including broker-dealers with which the Trust does business.

Subject to the supervision and direction of the Board, the Investment Adviser manages the Trust's portfolio in accordance with the Trust's investment objective and policies as stated in the prospectus; makes investment decisions for the Trust; places purchase and sale orders for portfolio transactions for the Trust; supplies the Trust with office facilities (which may be in the Investment Adviser's own offices), statistical and research data, data processing services, clerical, internal executive and administrative services, and stationery and office supplies; directs and supervises a third party administrator or custodian in the provision to the Trust of accounting and bookkeeping services, the calculation of the net asset value of shares of the Trust, internal auditing services, and other clerical services in connection therewith, and prepares or supervises and directs a third party administrator or custodian in the preparation of reports to shareholders of the Trust, tax returns and reports to and filings with the Commission and state securities authorities. In providing these services, the Investment Adviser provides investment research and supervision of the Trust's investments and conducts a continual program of investment, evaluation and, if appropriate, sale and reinvestment of the Trust's assets. In addition, the Investment Adviser furnishes the Trust with whatever statistical information the Trust may reasonably request with respect to the securities that the Trust may hold or contemplate purchasing.


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For the services provided by the Investment Adviser under the Advisory Agreement, the Trust will pay a fee, computed and payable monthly, equal when annualized to 1.00% of the average daily value of the Trust's Managed Assets.

A discussion regarding the basis for the Board's initial approval of the Advisory Agreement for the Trust will be available in the Trust's annual report for the period ending September 30, 2015.

Under the Advisory Agreement, the Investment Adviser has agreed to bear all expenses in connection with the performance of its services under the Advisory Agreement, including compensation of and office space for officers and employees of the Trust connected with investment and economic research, trading and investment management of the Trust, as well as the fees of all Trustees of the Trust who are "affiliated persons" of the Investment Adviser, as that term is defined in the Investment Company Act, or any of its "affiliated persons." Under the Advisory Agreement, the Trust must pay (or, if Trust expenses are paid by the Investment Adviser, shall reimburse the Investment Adviser for) all other expenses incurred in the operation of the Trust including, among other things, expenses for legal and auditing services, costs of printing proxy statements, prospectuses, share certificates and shareholder reports, charges of the custodian, any sub-custodian and transfer agent, expenses in connection with the Dividend Reinvestment and Stock Purchase Plan, the Commission, and Financial Industry Regulatory Authority, Inc. ("FINRA") fees, fees and expenses of the Trustees who are not "affiliated persons" of the Investment Adviser or any of its "affiliated persons," accounting and valuation costs, administrator's fees, membership fees in trade associations, fidelity bond coverage for the Trust's officers and employees, errors and omissions insurance coverage for Trustees and officers, interest, brokerage costs, taxes, stock exchange listing fees and expenses, expenses of qualifying the Shares for sale in various states, expenses associated with personnel performing exclusively shareholder servicing functions, litigation and other extraordinary or non-recurring expenses, and other expenses properly payable by the Trust.

Portfolio Management

Currently Daniel R. Omstead, Ph.D., Jason C. Akus, M.D./M.B.A, Pete Savitscus, Mark Charest, Ph.D, Christian Richard, Timothy Gasperoni, Ph.D., MBA, Amanda Birdsey-Benson, Ph.D., Alan Kwan, Ph.D. and William Hite, CFA. are members of the team that analyzes investments on behalf TCM. The team's business experience for at least the last five years is included below. Dr. Omstead exercises ultimate decision-making authority with respect to investments.

Daniel R. Omstead, Ph.D., is President and Chief Executive Officer of the Investment Adviser since 2001. He is also President of the Trust, HQL, HQH and THQ and serves on their Valuation Committees. Prior to joining the Investment Adviser, Dr. Omstead was President and CEO of Reprogenesis, Inc., a private development stage biotech company developing therapies in the field of regenerative medicine. In 2000, Reprogenesis was merged with two other biotech companies to form Curis, Inc. Before joining Reprogenesis, Dr. Omstead was Senior Vice President, Research and Development at Cytotherapeutics, Inc., a public biotech company that developed CNS therapies. Before entering the biotech industry, Dr. Omstead was employed for 14 years in the pharmaceutical industry at Ortho Pharmaceutical Corporation and at the R.W. Johnson Pharmaceutical Research Institute, both divisions of Johnson & Johnson and at Merck Sharpe & Dohme Research Laboratories, a division of Merck & Company, Inc. While at Johnson & Johnson, Dr. Omstead participated in the development of Orthoclone OKT3 TM , Eprex TM /Procrit TM and other biological products. While at Merck, he worked on the development of Recombivax TM , Mefoxin TM , Heartguard TM and other traditional drug products. Dr. Omstead holds a Ph.D. and Master's Degree in Chemical Engineering and Applied Chemistry from Columbia University and a B.S. degree in Civil Engineering from Lehigh University.

Jason Akus is responsible for investment research and due diligence in the Medical Device, Diagnostic, and Biopharmaceutical areas. He joined the Investment Adviser in July of 2001 after graduating from Tufts with an M.D. and M.B.A. Dr. Akus graduated from Tufts with a B.S. in Mathematics. During medical school, Dr. Akus consulted for a variety of Healthcare IT companies.


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Peter Savitscus joined the Investment Adviser in April 2005 as Head Trader. Mr. Savitscus is responsible for trading operations and technical research of potential and existing portfolio securities. Mr. Savitscus has over nine years of equity trading experience. Mr. Savitscus previously worked as Proprietary Trader with Fair Haven Capital, LLC. He graduated with a B.A. from Villanova University.

Mark Charest joined the Investment Adviser in February 2015. Previously, he was a Portfolio Manager at New Leaf Venture Partners focused on public healthcare technology investments. Prior to New Leaf, Dr. Charest was a Kauffman Fellow at Panorama Capital focused on public and private healthcare technology investments. Dr. Charest was the recipient of the 2012 Jeff Timmons Memorial Award in recognition of his contributions to the Kauffman Fellows organization and service to the Kauffman Fellows program. Dr. Charest has also previously worked as a Consultant at ZS Associates, a healthcare-focused management consultancy, as an Associate at Great Point Partners, a healthcare-focused public and private equity investment firm, and he was a Medicinal Chemistry Lab Manager in the Oncology Group at the Novartis Institutes for BioMedical Research. Dr. Charest received his Ph.D. in Chemistry and Chemical Biology from Harvard University as a National Science Foundation Graduate Research Fellow and his B.A. in Chemistry with the highest honors from Rutgers University. During his graduate studies, Mark completed the chemical synthesis of tetracycline and made key contributions to intellectual property out-licensed to found Tetraphase Pharmaceuticals.

Christian Richard joined the Investment Adviser in March of 2015. Previously, he was a Partner/Head of Research for Merlin Biomed Private Equity/Merlin Nexus for 12 years. Merlin Nexus is a cross-over life sciences fund focused on negotiated transactions in both late-stage private and public companies. Prior to Merlin Nexus, he spent almost five years in the Allergy/Immunology Group at the Schering-Plough Research Institute. He has a BS in Cellular and Molecular Biology from Purchase College and both an MS in Biochemistry and an MBA in Finance from NYU.

Timothy Gasperoni joined the Investment Adviser in March 2015. Previously he was a Senior Analyst and Founding Member of Sabby Capital, a public and private equity fund focused on biotechnology and medical devices. Dr. Gasperoni was head of Sabby's research function and led the firm's venture investment arm. Previously, Dr. Gasperoni was a Partner and Senior Analyst at Crosswind Investments, LLC, a spin-off of Cowen & Co that managed small- and mid-cap growth funds. During Dr. Gasperoni's tenure at the firm, the funds outperformed their respective benchmarks by over 2500 basis points. Prior to Crosswind, Dr. Gasperoni was the Senior Analyst at Andesite, LLC, a healthcare-dedicated long-short fund. He led the firm's research function and was responsible for all syndicate transactions. Prior to his career in financial services, Dr. Gasperoni served in consulting, operating, and scientific roles in the biopharmaceutical industry. Dr. Gasperoni holds a B.A. from Swarthmore College, an M.A. from the University of Pennsylvania, a Ph.D. in Neuroscience from UCLA, and an MBA from MIT.

Amanda Birdsey-Benson joined the Investment Adviser in October of 2014. Previously, she was an analyst for R.A. Capital Management, where she covered investment opportunities in indications such as dermatology, chronic kidney disease, women's health, cystic fibrosis and diabetes. Prior to R.A. Capital, Dr. Birdsey-Benson completed her post-doctoral work at the McGovern Institute of Brain Research at MIT. Dr. Birdsey-Benson holds a B.S. degree in Biology from University of Connecticut and a Ph.D in Biochemistry from Dartmouth College. Dr. Birdsey-Benson is responsible for investment research of private and public companies in the fields of biotechnology, diagnostics and orphan diseases and is a member of the team responsible for making investments on behalf of HQH, HQL and THQ.

Alan Kwan joined the Investment Adviser in June 2014 as Senior Analyst. Dr. Kwan previously was a Principal Investigator at GlaxoSmithKline, plc., where he designed and established proprietary experimental and analytical methodologies that leveraged platform technologies in oncology, immunology, haematology, antibacterials, vaccines, safety and toxicology, and other R&D units. Dr. Kwan also directed the installation and global deployment of genomics platform technologies throughout GSK R&D. Dr. Kwan holds a B.S. in Computer Science from The University of British Columbia, an M.S. in


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Computational Genetics from Washington University in St. Louis, a Ph.D. in Computational Genomics from Washington University School of Medicine, and an MBA from The Massachusetts Institute of Technology.

William Hite joined the Investment Adviser in March 2015. Previously, he was an Associate Analyst at Columbia Management where he covered the Global Healthcare. Prior to Columbia Management, Mr. Hite was an Associate Analyst at Lazard Capital Markets, focusing on Biotechnology, Life Science Tools and Diagnostics. Mr. Hite has also previously worked at Leerink Partners where he focused on Healthcare Investing and Binary Event Strategies. Mr. Hite graduated from Ithaca College with B.S. in Organizational Communication, Learning, and Design and is a CFA Charter holder. Mr. Hite is responsible for investment research in Large Cap Pharmaceutical, Large Cap Biotechnology, Orphan Disease, Virology, and Medical Technology companies for making investments on behalf of HQH, HQL, and THQ.

The portfolio management team applies both bottom-up and top-down strategies in its investment process. A bottom-up strategy is taken on the company level where individual opportunities are evaluated in three fundamental bases as appropriate: the scientific basis, the market basis, and the financial basis. Scientifically, assets are evaluated on first principals; the market basis evaluates the regulatory and competitive landscape faced by each company; financial evaluation takes place through a variety of metrics relative to the subsector to which each company belongs. A top-down approach is taken on the level of sector allocation within the portfolio. The investment team divides healthcare into 14 major subsectors and utilizes a battery of measures to identify relative value on a subsector basis. These measures include sector revenue multiples, earnings multiples, and forward growth estimates and prospects. To stay current, the investment team evaluates subsectors on a continually rotating basis and allocation flows are adjusted as appropriate.

For additional information regarding the portfolio management of the Trust, see "Investment Adviser and Investment Advisory Agreement — Portfolio Management" in the SAI.

Code of Ethics

The Board approved a joint Code of Ethics under Rule 17j-1 of the Investment Company Act that covers the Trust, HQH, HQL, THQ, and the Investment Adviser. The joint Code of Ethics establishes procedures for personal investing and restricts certain transactions. Employees subject to the joint Code of Ethics may invest in securities for their personal investment accounts, including, in certain cases, securities that may be purchased or held by the Trust. See "Code of Ethics" in the SAI.

Certain Provisions of the Declaration of Trust

The Trust's Declaration of Trust has provisions that could have the effect of limiting the ability of other entities or persons to (1) acquire control of the Trust, (2) cause it to engage in certain transactions or (3) modify its structure. The Board is divided into three classes, each having a term of three years. Each year the term of office of one class will expire. This provision could delay for up to two years the replacement of a majority of the Board. A Trustee may be removed from office by Shareholders only by a vote of two-thirds of the outstanding Shares. Subject to the requirements of the Investment Company Act, vacancies on the Board may be filled by the remaining Trustees for the balance of the term of the class.

When a Principal Shareholder (as defined below) is a Party to the transaction, the affirmative vote or consent of the holders of 75% of the Shares outstanding and entitled to vote will be required to authorize any of the following types of transactions:

(i)  the merger or consolidation of the Trust with or into any Principal Shareholder;


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(ii)  the issuance of any securities of the Trust (in one or more series of transactions in any twelve-month period) to any Principal Shareholder for cash, securities or other property (or combination thereof) having an aggregate fair market value of $1,000,000 or more, excluding (i) sales of any securities of the Trust in connection with a public offering thereof; (ii) issuances of securities of the Trust pursuant to any dividend reinvestment program available to all Shareholders and approved by the Trustees; and (iii) issuances of securities of the Trust upon the exercise of any stock subscription rights distributed by the Trust.

(iii)  the sale, lease or exchange of all or a substantial part of the assets of the Trust to or with any Principal Shareholder (except assets having an aggregate fair market value of less than $1,000,000, aggregating for the purpose of such computation all assets sold, leased or exchanged in any series of similar transactions within a 12-month period); or

(iv)  the sale or lease to the Trust, in exchange for securities of the Trust, of any assets of any Principal Shareholder (except assets having an aggregate fair market value of less than $1,000,000, aggregating for the purpose of such computation all assets sold, leased or exchanged in any series of similar transactions within a 12-month period).

However, such 75% vote or consent will not be required with respect to the foregoing transactions where the Board, by a vote of 75% or more of the Trustees, approves by resolution a memorandum of understanding or agreement with the Principal Shareholder with respect to and substantially consistent with such transaction. For this purpose, a "Principal Shareholder" is any corporation, person or other entity which is the beneficial owner, directly or indirectly, of more than 5% of the outstanding Shares or any "affiliate" or "associate" (as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on April 21, 1987) of a Principal Shareholder. In addition to the Shares which a corporation, person or other entity beneficially owns directly, (a) any corporation, person or other entity shall be deemed to be the beneficial owner of any Shares (i) which it has the right to acquire pursuant to any agreement or upon exercise of the conversion rights or warrants, or otherwise (but excluding share options granted by the Trust) or (ii) which are beneficially owned, directly or indirectly (including Shares deemed owned through application of clause (i) above), by any other corporation, person or entity with which it or its affiliate or associate has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of Shares, or which is its affiliate or associate, and (b) the outstanding Shares shall include Shares deemed owned through application of clauses (i) and (ii) above but shall not include any other Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights or warrant, or otherwise.

These provisions could have the effect of depriving Shareholders of an opportunity to sell their Shares at a premium over prevailing market price by discouraging a third party from seeking to obtain control of the Trust in a tender offer or similar transaction. The Board has determined that the 75% voting requirements described above, which are greater than the minimum requirements under state law or the Investment Company Act, are in the best interests of the Shareholders.

Repurchase of Shares

You may dispose of your Shares on the NYSE or other markets on which the Shares may trade, but because the Trust is a closed-end investment company, you do not have the right to redeem your Shares directly with the Trust. The Board, however, intends to consider, from time to time, but not less frequently than annually, the desirability of open market purchases of the Trust's Shares or tender offers. Any Share repurchases will be made in accordance with the applicable provisions of the Investment Company Act, applicable federal law and Massachusetts law in open market transactions. Shares repurchased by the Trust will be held in its treasury. Although the Trust has no present intention of doing so, it reserves the right to incur debt to finance such repurchases or tender offers. Interest on any borrow-


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ings to finance Share repurchase transactions will increase the Trust's expenses and will reduce the Trust's net income. There can be no assurance that Share repurchases, if any, will cause the Shares to trade at a price equal to or in excess of their NAV. Nevertheless, the possibility that a portion of the Trust's outstanding Shares may be the subject of repurchases may reduce the spread between market price and NAV that might otherwise exist. The Trust may not repurchase Shares except (i) on a securities exchange and after notification to Shareholders of its intent to purchase Shares within the six months preceding the purchase, (ii) pursuant to a tender offer to all Shareholders, or (iii) as otherwise permitted by the Commission. Any related interest charges will be paid by the Trust and borne pro rata by the Shareholders indirectly through their interest in the Trust.

If the Trust repurchases its Shares for a price below their NAV, the NAV of those Shares that remain outstanding would be enhanced, but this does not necessarily mean that the market price of those outstanding Shares would be affected, either positively or negatively. There is no assurance that any action undertaken to repurchase Shares will result in the Shares trading at a price which approximates net asset value. Repurchases of Shares by the Trust would also decrease its total assets and accordingly may increase its expenses as a percentage of average net assets. Further, interest on any borrowings to finance any such share repurchase transactions would reduce the Trust's net income. The Trust has no current plans to repurchase its Shares.

Notice is hereby given in accordance with Section 23(c) of the Investment Company Act that the Trust may, from time to time, purchase at market price its common Shares but is under no obligation to do so.

Conversion to Open-End Investment Company

Under the Declaration of Trust, the conversion of the Trust from a closed-end to an open-end investment company would require (1) the approval of the Board, and (2) the affirmative vote or consent of the holders of 75% of the Shares outstanding and entitled to vote. Such a vote would be in addition to any vote or consent required in addition to the vote or consent of Shareholders otherwise required by law or any agreement between the Trust and the NYSE. The Investment Company Act requires that the Trust receive a vote of a majority of its outstanding voting Shares in order to convert the Trust from a closed-end to an open-end investment company.

The conversion of the Trust from a closed-end to an open-end investment company would have to be approved by the Board prior to its submission to Shareholders. A proposal to convert the Trust to an open-end company might be supported or opposed by the Board depending on the Board's judgment as to its advisability in light of circumstances prevailing at the time.

Shareholders of an open-end investment company may require the company to redeem their shares at any time (except in certain circumstances as authorized by or under the Investment Company Act) at their NAV, less such redemption charge, if any, as might be in effect at the time of a redemption. Conversion to an open-end investment company could require the disposal of illiquid investments to meet current requirements of the Commission that no more than 15% of an open-end investment company's assets consist of illiquid securities, and would likely require involuntary liquidation of portfolio securities, and the inherent realization of net long-term capital gains in connection therewith, to meet periodic requests for redemption. Moreover, Shares of the Trust would no longer be listed on the NYSE.

Control Person

Prior to the offering, the Investment Adviser will purchase Shares from the Trust in an amount sufficient to satisfy the Trust's net worth requirements under Section 14(a) of the Investment Company Act. At that time, the Investment Adviser will own 100% of the outstanding Shares. The Investment Adviser may be deemed to directly control the Trust until such time as it owns less than 25% of the outstanding


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Shares. However, it is anticipated that the Investment Adviser will no longer be a direct control person due to its ownership position once the offering is completed.

PORTFOLIO TRANSACTIONS AND BROKERAGE

Subject to policies established by the Board, the Investment Adviser is primarily responsible for the execution of the Trust's portfolio transactions and the allocation of brokerage. In executing such transactions, the Investment Adviser will seek to obtain the best price and execution for the Trust, taking into account such factors as price, size of order, difficulty of execution, operational facilities of the firm involved, the firm's risk in positioning a block of securities, and research, market and statistical information provided by such firm. While the Investment Adviser generally seeks reasonably competitive commission rates, the Trust will not necessarily pay the lowest commission available.

The Trust intends to purchase and hold securities for capital appreciation and it is not anticipated that frequent portfolio changes will be made for short-term trading purposes or to take advantage of short-term swings in the market. However, changes may be made in the portfolio consistent with the investment objective and policies of the Trust whenever changes are believed by the Investment Adviser to be in the best interest of the Trust and its Shareholders. Risk factors, particularly those relating to a specific security investment or to the market and economic conditions, may also affect the rate at which the Trust buys and sells its portfolio holdings. The Trust has no fixed policy with respect to portfolio turnover rate. The Trust may engage in short-term trading or portfolio securities, including initial public offerings, which may result in increasing the Trust's portfolio turnover rate. The portfolio turnover rate is calculated by dividing the lesser of purchases or sales of long-term portfolio securities by the average monthly value of the Trust's long-term portfolio securities. A high rate of portfolio turnover (100% or more) could produce higher trading costs and taxable distributions, which would detract from the Trust's performance.

NET ASSET VALUE

The NAV of the Trust's Shares is calculated at the close of regular trading on the NYSE (generally 4:00 p.m., Eastern Time) every day that the NYSE is open. The Trust makes this information available daily by telephone (800) 451-2597, via its web site (www.teklacap.com) and through electronic distribution for media publication, including major internet-based financial services web sites and portals ( e.g. , bloomberg.com, yahoo.com, cbsmarketwatch.com, etc.). Currently, The Wall Street Journal, The New York Times and Barron's publish NAVs for closed-end investment companies at least weekly.

NAV is calculated by dividing the Trust's total assets (the value of the securities held by the Trust plus any cash or other assets, including interest payable but not yet received) minus all liabilities (including accrued expenses, dividends payable and any borrowings of the Trust) by the total number of Shares outstanding at such time. If any Preferred Shares are outstanding, net assets available for common Shareholders are determined by deducting from net assets the liquidation preference and any accrued dividends on the Preferred Shares.

Securities for which market quotations are readily available are valued at market price. Portfolio securities that are traded on one or more U.S. national securities exchanges or in the over-the-counter market that are National Market System securities are valued at the last sale price or, lacking any sales, at the mean between last bid and asked prices. Other over-the-counter securities are valued at the most recent bid prices as obtained from one or more dealers that make markets in the securities. Redeemable securities issued by a registered open-end investment company are valued at net asset value per share. Other securities are valued at the mean between the closing bid and asked prices. Short-term investments that mature in 60 days or less are valued at amortized cost, unless the Board determines that such valuation does not constitute fair value.


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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. Temporary cash investments with maturity of 60 days or less are valued at amortized cost. 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. The prevailing currency exchange rate shall be determined within one hour of when the most recently available exchange rate information has been received based on information obtained from a bank or banks.

Securities that are primarily traded on foreign securities exchanges generally are valued at the last sale price on the exchange on which they are primarily traded. Foreign securities that are primarily traded on the foreign over-the-counter market are generally valued at the last sale quotation, if market quotations are available, or the last reported bid price if there is no active trading in a particular security on a given day. However, if intervening events result in market volatility that significantly affects the value of any such foreign securities after the close of trading on the relevant foreign market, but before the Trust values its Shares on any particular day on which the Trust is required to value its Shares, the Trust may, but is not required to, determine the value of such securities at "fair value," as determined in good faith by or under the direction of the Board.

Quotations of foreign securities in foreign currencies are converted, at current exchange rates, to their U.S. dollar equivalents to determine their current value. In addition, to the extent that the Trust values its foreign securities (other than American Depositary Receipts ("ADR") and American Depositary Shares ("ADS")) as of the close of trading on various exchanges and over-the-counter markets throughout the world, the calculation of the Trust's net asset value may not take place contemporaneously with the valuation of foreign securities held by the Trust.

The value of any security or other asset for which market quotations are not readily available shall be determined in a manner that most fairly reflects the security's (or asset's) "fair value," which is the amount that the Trust might reasonably expect to receive for the security (or asset) upon its current sale. Each such determination is based on a consideration of all relevant factors, which are likely to vary from one pricing context to another. Examples of such factors may include, but are not limited to: (1) the type of the security; (2) the size of the holding (including percent of outstanding securities of issuer held by the Trust); (3) the initial cost of the security; (4) the existence of any contractual restrictions on the security's disposition and the time to freedom from such restrictions; (5) the price and extent of public trading in similar securities of the issuer or of comparable companies; (6) quotations or prices from broker-dealers and/or pricing services; (7) information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); (8) an analysis of the company's financial statements; (9) an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold ( e.g. , the existence of pending merger activity, public offerings or tender offers that might affect the value of the security); and (10) the price of securities in a subsequent round of financing of an issuer in an arm's-length transaction, if the round includes a new third party investor.

Sometimes a "significant valuation event" may cause the market value of a security to differ from the fair market value of that security. A "significant valuation event" is an event that causes or is likely to cause a market quotation to be unavailable or unreliable, and may include: situations relating to a single issue in a market sector; significant fluctuations in U.S. or foreign markets; market disruptions or closings caused by human error, equipment failures, natural disasters, armed conflicts, acts of God, governmental actions or other developments, as well as the same or similar events which may affect specific issues or the securities markets even though not tied directly to the securities markets. A significant valuation event occurring after the close of trading but before the time of valuation may mean that the clos-


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ing price for the security does not constitute a readily available market quotation. If a significant valuation event has occurred, the security will be valued at fair value as determined in good faith by the Board in accordance with the procedures described above. Such valuations and procedures will be reviewed periodically by the Board.

The Trust shall initially value an investment in a private placement or in a private company at cost. The valuation of an investment in a private placement or in a private company will be adjusted to reflect its fair valuation, as internal and external events are deemed to have a known or likely impact on the financial condition or market value of the investment. Internal or external factors affecting the fair valuation may include items such as a subsequent financing round, a material deviation from the business plan, or a change in market conditions that may impair the company's ability to meet its capital requirements. If a subsequent round of financing includes a new third-party investor in an arms-length transaction, then the securities shall be marked up or down to the value used in that financing round. Equity investments in exchange for marketing or development rights do not constitute arms-length transactions.

Venture investments that have an initial public offering shall be valued at a discount to the public market value of the securities. The discount in each case is determined by appraisal, considering such factors as market liquidity, time to freedom from restrictions, fundamental outlook for the company and such other factors as are enumerated above that are deemed to be relevant. Private placements in public companies are similarly priced at a discount to the public market generally until the restrictions on sale of the security expire.

Other assets, which include cash, prepaid and accrued items, accounts receivable and income on investments and from the sale of portfolio securities, are carried in accordance with generally accepted accounting principles, as are all liabilities. Liabilities primarily include accrued expenses, sums owed for securities purchased and dividends payable.

DIVIDENDS AND DISTRIBUTIONS

For federal income tax purposes, the Trust is required to distribute substantially all of its investment company taxable income for each year. Net capital gain ( i.e. , the excess of net long-term capital gain over net short-term capital loss), if any, may be distributed or may be retained at the discretion of the Board. "Investment company taxable income," as used herein, includes all interest and other ordinary income earned by the Trust on its portfolio holdings and net short-term capital gains in excess of net long-term capital losses, less the Trust's expenses. See "Taxation — Distributions."

If the Trust is precluded from making distributions on the Shares because of any applicable asset coverage requirements, the terms of the Preferred Shares (if any) may provide that any amounts so precluded from being distributed, but required to be distributed for the Trust to meet the distribution requirements for qualification as a regulated investment company for U.S. federal income tax purposes, will be paid to the holders of the Preferred Shares as a special distribution. This distribution can be expected to decrease the amount that holders of Preferred Shares would be entitled to receive upon redemption or liquidation of the shares.

The Trust currently anticipates making distributions in cash to its shareholders of all or a portion of its net investment income to Shareholders each month out of legally available funds. The Trust expects to declare the initial monthly dividend on the Trust's Shares approximately 45 days after completion of this offering and to pay that initial quarterly dividend approximately 60 to 90 days after completion of this offering, depending on market conditions. The Trust will pay Shareholders at least annually all or substantially all of its net investment income after the payment of interest, fees or dividends, if any, owed with respect to any forms of leverage utilized by the Trust.


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The Trust intends to pay any capital gains distributions at least annually. Pursuant to an exemptive order obtained from the Commission under Section 19(b) of the Investment Company Act, the Trust is permitted to distribute long-term capital gains to shareholders more than once per year.

The Trust's monthly distribution policy and the basis for establishing the rate of its monthly distributions may be changed at any time by the Board without Shareholder approval.

Various factors will affect the level of the Trust's income, including the asset mix, the performance of the companies represented in the Trust's portfolio, and the Trust's use of hedging and fluctuations in the rate of exchange between foreign currencies and the U.S. dollar to the extent the Trust has invested in Foreign Securities.

Notices will be provided in accordance with Section 19(a) of the Investment Company Act.

DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

Under the Dividend Reinvestment and Stock Purchase Plan, dividends and/or distributions to a Shareholder will automatically be reinvested in additional Shares of the Trust. Each registered Shareholder may elect to have dividends and distributions distributed in cash ( i.e. , "opt-out") rather than participate in the Dividend Reinvestment and Stock Purchase Plan. For any registered Shareholder that does not so elect (each, a "Participant" and collectively, "Participants"), dividends and/or distributions on such Shareholder's Shares will be reinvested by Computershare Trust Company, N.A. (the "Plan Agent"), as agent for Shareholders in additional Shares, as set forth below. Participation in the Dividend Reinvestment and Stock Purchase Plan is completely voluntary, and may be terminated or resumed at any time without penalty by internet, telephone or notice if received and processed by the Plan Agent prior to the dividend record rate; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Participants who hold their Shares through a broker or other nominee and who wish to elect to receive any dividends and distributions in cash must contact their broker or nominee. It is contemplated that the Fund will pay a monthly dividend or other distribution (herein, a "Dividend").

The Plan Agent will open an account for each holder of Shares under the Dividend Reinvestment and Stock Purchase Plan in the same name in which such holder of Shares is registered. Whenever the Trust declares a Dividend payable in cash, non-participants in the Dividend Reinvestment and Stock Purchase Plan will receive cash and Participants will receive the equivalent in Shares. The Shares will be acquired by the Plan Agent for the Participants' accounts, depending upon the circumstances described below, either through (i) receipt of additional unissued but authorized Shares from the Trust ("Newly Issued Shares") or (ii) by purchase of outstanding Shares on the open market ("Open-Market Purchases") on the NYSE or elsewhere.

If, on the payment date for any Dividend, the NAV per Share is equal to or less than the closing market price plus estimated per Share fees (which include any applicable brokerage commissions the Plan Agent is required to pay) (such condition often referred to as a "premium"), the Plan Agent will invest the Dividend amount in Newly Issued Shares on behalf of the Participants. The number of Newly Issued Shares to be credited to each Participant's account will be determined by dividing the dollar amount of the Dividend by the NAV per Share on the payment date; provided that, if the NAV is less than or equal to 95% of the closing market value on the payment date, the dollar amount of the Dividend will be divided by 95% of the closing market price per Share on the payment date. If, on the payment date for any Dividend, the NAV per Share is greater than the closing market price per share plus per Share fees (such condition referred to as a "market discount"), the Plan Agent will invest the Dividend amount in Shares acquired on behalf of the Participants in Open-Market Purchases.


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In the event of a market discount on the payment date for any Dividend, the Plan Agent (or Plan Agent's broker) will have until the last business day before the next date on which the Shares trade on an "ex-dividend" basis or 30 days after the payment date for such Dividend, whichever is sooner (the "Last Purchase Date"), to invest the Dividend amount in Shares acquired in Open-Market Purchases. Open-market purchases may be made on any securities exchange where Shares are traded, in the over-the-counter market or in negotiated transactions, and may be on such terms as to price, delivery and otherwise as the Plan Agent shall determine. The per Share purchase price for Open-Market Purchases will be the weighted average price of the Shares on the payment date. If, before the Plan Agent has completed its Open-Market Purchases, the market price per Share exceeds the NAV per Share, the average per Share purchase price paid by the Plan Agent may exceed the NAV of the Shares, resulting in the acquisition of fewer Shares than if the Dividend had been paid in Newly Issued Shares on the Dividend payment date. Because of the foregoing difficulty with respect to Open-Market Purchases, the Dividend Reinvestment and Stock Purchase Plan provides that if the Plan Agent is unable to invest the full Dividend amount in Open-Market Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Shares at the NAV per Share at the close of business on the Last Purchase Date provided that, if the NAV is less than or equal to 95% of the then current market price per Share; the dollar amount of the Dividend will be divided by 95% of the market price on the payment date.

Each Participant can voluntarily purchase additional Shares at any time through the Plan Agent. The Plan Agent will purchase additional Shares through Open-Market Purchases. The minimum investment under this option is $50. To make an investment online, participants may log on to www.computershare.com/investor, in order to authorize recurring automatic monthly deductions from a U.S. bank account or a one-time online bank debit from a U.S. bank account. Participants may also make optional cash investments in Shares by sending a check in U.S. dollars and drawn against a U.S. bank to the Plan Agent along with a completed transaction form appended to each statement received from the Plan Agent. The Plan Agent will not accept cash, traveler's checks, money orders or third party checks. The Plan Agent will purchase whole and fractional Shares to equal each amount a Participant invests, less any applicable fees. Each optional cash investment by check or one-time online bank debit will entail a transaction fee of $5.00 plus $0.05 per Share purchased. If funds are deducted monthly and automatically from a U.S. bank account, for each debit the transaction fee is $2.50 plus $0.05 per Share purchased. Shares will be purchased by the Plan Agent at least monthly. The transaction will occur within five (5) business days after a Participant's funds are received by the Plan Agent, assuming the applicable market is open for trading. If due to unusual circumstances, the Plan Agent is unable to purchase Shares from optional cash payments within 35 days, the Plan Agent will return such funds by check. If any Participant's check for an optional cash payment is returned unpaid for any reason, or an authorized electronic funds transfer is rejected, the Plan Agent will consider the request for the investment of such funds null and void. The Plan Agent will immediately remove from the Participant's Plan account those Shares, if any, purchased upon the prior credit of such funds and will immediately sell such Shares. The Plan Agent will also sell any additional Shares from the Participant's Plan fee account as necessary to cover any costs, losses or fees. Participants will be charged $25.00 for each returned check or rejected electronic funds transfer.

The Plan Agent maintains all Participants' accounts in the Dividend Reinvestment and Stock Purchase Plan and furnishes written confirmation of all transactions in the accounts, including information needed by Participants for tax records. Shares in the account of each Participant will be held by the Plan Agent on behalf of the Participant in book entry form in the Plan Agent's name or the Plan Agent's nominee. Each shareholder proxy will include those Shares purchased or received pursuant to the Dividend Reinvestment and Stock Purchase Plan. The Plan Agent will forward all proxy solicitation materials to Participants and vote proxies for Shares held under the Dividend Reinvestment and Stock Purchase Plan in accordance with the instructions of the Participants.


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In the case of shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Agent will administer the Dividend Reinvestment and Stock Purchase Plan on the basis of the number of Shares certified from time to time by the record shareholder and held for the account of beneficial owners who participate in the Dividend Reinvestment and Stock Purchase Plan.

Any stock dividends or split of Shares distributed by the Trust on Shares held by the Plan Agent for Participants will be credited to their accounts. In the event that the Trust makes available to its stockholders rights to purchase additional Shares or other securities, the Shares held for each Participant under the Plan will be added to other Shares held by the Participant in calculating the number of rights to be issued to each Participant.

The Plan Agent's fees for the handling of the reinvestment of dividends and distributions will be paid by the Trust. However, each Participant will pay a per Share (currently $0.05) fee incurred in connection with Open-Market Purchases. The automatic reinvestment of Dividends will not relieve Participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividend. If a Participant elects by telephone, internet or written notice to the Plan Agent to have the Plan Agent sell all or a part of his or her Shares and remit the proceeds to the Participant, the Plan Agent is authorized to deduct a $15 sales fee per trade and a per Share fee of $0.12 from such proceeds. All per Share fees include any applicable brokerage commissions the Plan Agent is required to pay.

If a Participant elects by telephone, internet or written notice to the Plan Agent to have the Plan Agent sell all or a part of his or her Shares and remit the proceeds to the Participant, the Plan Agent will process all sale instructions received no later than five (5) business days after the date on which the order is received. Such sale will be made through the Plan Agent's broker on the relevant market and the sale price will not be determined until such time as the broker completes the sale. In each case, the price to each Participant shall be the weighted average sale price obtained by the Plan Agent's broker net of fees for each aggregate order placed by the Plan Agent and executed by the broker. To maximize cost savings, the Plan Agent will seek to sell Shares in round lot transactions. For this purpose the Plan Agent may combine a Participant's Shares with those of other selling Participants.

Each Participant may terminate his or her account under the Plan by notifying the Plan Agent by telephone, through the internet or in writing prior to the dividend record date. Such termination will be effective immediately if received by the Plan Agent prior to any dividend or distribution record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Upon any withdrawal or termination, the Plan Agent will cause to be delivered to each terminating Participant a statement of holdings for the appropriate number of the Trust's whole book-entry Shares and a check for the cash adjustment of any fractional share at the then current market value per Share less any applicable fees.

The Trust reserves the right to amend or terminate the Plan upon notice in writing to each Participant at least 30 days prior to any record date for the payment of any dividend or distribution by the Trust. Notice will be sent to Participants of any amendments as soon as practicable after such action by the Trust.

All correspondence from a registered owner of Shares concerning the Dividend Reinvestment and Stock Purchase Plan should be directed to the Plan Agent at Computershare Trust Company, N.A, P.O. Box 30170, College Station, TX 77842-3170, with overnight correspondence being directed to the Plan Agent at Computershare Trust Company, N.A, 211 Quality Circle, Suite 210, College Station, TX 77845; by calling 1-800-426-5523; or through the Plan Agent's website at www.computershare.com/investor. Participants who hold their Shares through a broker or other nominee should direct correspondence or questions concerning the Dividend Reinvestment and Stock Purchase Plan to their broker or nominee.


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TAXATION

The following discussion is based upon the advice of Dechert LLP, counsel for the Trust, and is a general summary of the principal U.S. federal income tax considerations regarding an investment in the Trust. The discussion is based on laws, regulations, rulings and decisions currently in effect, all of which are subject to change (possibly with retroactive effect) or different interpretations. The discussion below does not purport to deal with all of the federal income tax consequences applicable to the Trust, or to all categories of investors, some of which may be subject to special rules. Unless otherwise noted, the following discussion assumes that an investor is a United States person and holds Shares as a capital asset. Each prospective shareholder is urged to consult with his or her own tax adviser with respect to the specific federal, state, local, foreign and other tax consequences of investing in Shares of the Trust.

Taxation of the Trust

The Trust intends to qualify and elect to be treated each taxable year as a regulated investment company ("RIC") under the Code. The principal federal income tax benefits of qualifying as a RIC, as compared to an ordinary taxable corporation, are that a RIC generally is not itself subject to federal income tax on ordinary investment income and net capital gains that are currently distributed to its shareholders, and that the character of long-term capital gains which are recognized and properly designated by a RIC flows through to its shareholders, who receive (or are deemed to receive) distributions of such income. However, the Trust would be subject to corporate income tax (currently at a maximum marginal rate of 35%) on any undistributed income.

Distributions

Dividends paid from investment company taxable income generally will be taxable to shareholders as ordinary income whether paid in cash or reinvested in the Trust's Shares. The Trust intends to distribute to its shareholders substantially all of its investment company taxable income, if any, for each year.

A portion of the dividends paid by the Trust may be treated as "qualified dividend income" which is taxable to individuals at the same rates that are applicable to long-term capital gains. A Trust distribution is treated as qualified dividend income to the extent that the Trust receives dividend income from taxable domestic corporations and certain qualified foreign corporations, provided that certain holding period and other requirements are met. Trust distributions generally will not qualify as qualified dividend income to the extent attributable to interest, capital gains, REIT distributions and certain distributions from non-U.S. corporations.

If a portion of the Trust's income consists of dividends paid by U.S. corporations, a portion of the dividends paid by the Trust may be eligible for the corporate dividends-received deduction.

Distributions of the excess, if any, of net long-term capital gains over net short-term capital losses designated by the Trust as capital gain dividends will be taxable to shareholders as long-term capital gains, whether paid in cash or reinvested in the Trust's Shares, regardless of how long the shareholders have held the Trust's Shares, and will not be eligible for the dividends received deduction for corporations.

Each year, Shareholders will be notified as to the amount and federal tax status of all dividends and capital gains paid during the prior year. Such dividends and capital gains may also be subject to state or local taxes. Dividends declared in October, November, or December with a record date in such month and paid during the following January will be treated as having been paid by the Trust and received by Shareholders on December 31 of the calendar year in which declared, rather than the calendar year in which the dividends are actually received.


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Sale of Shares

Gain or loss realized upon the sale or exchange of Shares will be a capital gain or loss if the Shares are capital assets in the Shareholder's hands and generally will be long-term or short-term, depending upon the Shareholder's holding period for the Shares. You should be aware that any loss realized upon the sale or exchange of Shares held for six months or less will be treated as a long-term capital loss to the extent of any distributions or deemed distributions of long-term capital gain to the Shareholder with respect to such Shares. In addition, any loss realized on a sale or exchange of Shares will be disallowed to the extent the Shares disposed of are replaced within a period of 61 days beginning 30 days before and ending 30 days after the Shares are disposed of, such as pursuant to the Plan. In such case, the basis of Shares acquired will be adjusted to reflect the disallowed loss.

Medicare Tax on Net Investment Income

An additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain distributions received from the Trust and net gains from redemptions or other taxable dispositions of Trust shares) of U.S. individuals, and undistributed net investment income of estates and trusts to the extent that such person's "modified adjusted gross income" (in the case of an individual) or "adjusted gross income" (in the case of an estate or trust) exceeds certain threshold amounts.

Backup Withholding

If a Shareholder has not furnished a certified correct taxpayer identification number (generally a Social Security number) and has not certified that withholding does not apply, or if the Internal Revenue Service has notified the Trust that the taxpayer identification number listed on the account is incorrect according to their records or that the Shareholder is subject to backup withholding, federal law generally requires the Trust to withhold 28% from any dividends and/or redemptions (including exchange redemptions). Amounts withheld are applied to federal tax liability; a refund may be obtained from the Service if withholding results in overpayment of taxes. Federal law also requires the Trust to withhold up to 30% or the applicable tax treaty rate from ordinary dividends paid to certain nonresident alien and other non-U.S. shareholder accounts.

This is a brief summary of some of the tax laws that affect an investment in the Trust. Moreover, the foregoing does not address the many factors that may determine whether an investor will be liable for the federal alternative minimum tax. Please see the SAI and a tax adviser for further information.

CUSTODIAN, ADMINISTRATOR, TRANSFER AGENT, DIVIDEND
DISBURSING AGENT AND REGISTRAR

The Trust's securities and cash are held under a custodian contract by State Street Bank and Trust Company (the "Custodian"), whose principal business address is One Lincoln Street, Boston, MA 02111. The Custodian also performs certain accounting related functions for the Trust, including calculation of NAV and net income.

State Street Bank and Trust Company (the "Administrator") serves as administrator to the Trust pursuant to an administration agreement between the Administrator and the Trust (the "Administration Agreement"). Under the Administration Agreement the Trust's assets are combined with assets of HQL, HQH and THQ. The combined assets are charged fees computed and payable monthly at an annual rate of: 3.40% of the Trust's average monthly net assets on assets up to $150 million; 2.40% of the Trust's average monthly net assets on assets up to $150 million, and 1.40% of the Trust's average monthly net assets on assets in excess of $300 million, with a minimum fee of $77,500 per year. The Administrative Agreement also


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covers administrative costs including out-of-pocket expenses incurred in the ordinary course of providing services under the Administration Agreement.

Computershare Inc. serves as Dividend Disbursing Agent for the Trust. Computershare Trust Company, N.A., a fully owned subsidiary of Computershare Inc., serves as (1) the Plan Agent for the Trust's Dividend Reinvestment Plan and (2) the Transfer Agent and Registrar for Shares of the Trust. Computershare Trust Company, N.A. and Computershare Inc. have their principal business at 250 Royall Street, Canton, MA 02021.

INVESTOR SUPPORT SERVICES

The Trust has retained Destra to provide investor support services in connection with the ongoing operation of the Trust. Such services include providing ongoing contact with respect to the Trust and its performance with financial advisors that are representatives of financial intermediaries, communicating with the NYSE specialist for the Shares, and with the closed-end fund analyst community regarding the Trust on a regular basis, and hosting and maintaining a website for the Trust. The Trust will pay Destra a services fee in an annual amount equal to (i) 0.12% of the average aggregate daily value of the Trust's Managed Assets from the closing through the first anniversary of the closing and (ii) 0.10% of the average aggregate daily value of the Trust's Managed Assets from the date immediately following such first anniversary through the remaining term of the investor support services agreement. The investor support services agreement will be in effect for a period of two years from the closing and will continue for successive one year periods unless either party to the agreement provides written notice to the other party at least 30 days prior to the end of the applicable period.


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UNDERWRITING

Wells Fargo Securities, LLC is acting as the representative of the Underwriters named below. Subject to the terms and conditions stated in the underwriting agreement dated the date of this prospectus, each Underwriter named below has agreed to purchase, and the Trust has agreed to sell to that Underwriter, the number of Shares set forth opposite the Underwriter's name.

Underwriter

  Number of
Shares
 

Wells Fargo Securities, LLC

         

Total

         

The underwriting agreement provides that the obligations of the Underwriters to purchase the Shares included in this offering are subject to approval of legal matters by counsel and to other conditions. The Underwriters are obligated to purchase all the Shares (other than those covered by the over-allotment option described below) shown above if any of the Shares are purchased.

The Underwriters propose to offer some of the Shares directly to the public at the public offering price set forth on the cover page of this prospectus and some of the Shares to dealers at the public offering price less a concession not to exceed $ 0.60 per Share. The sales load the investors in the Trust will pay of $0.90 per Share is equal to 4.5% of the initial offering price. If all of the Shares are not sold at the initial offering price, the representatives may change the public offering price and other selling terms. Investors must pay for any Shares purchased on or before , 2015. The representatives have advised the Trust that the Underwriters do not intend to confirm any sales to any accounts over which they exercise discretionary authority.

At the Trust's request, the Underwriters will make available Shares for sale in this public offering to employees of the Investment Adviser and one or more members of the Board of Trustees of the Trust at the offering price of $20.00 per Share.

Additional Compensation to be Paid by the Investment Adviser

The Investment Adviser (and not the Trust) has agreed to pay Wells Fargo Securities, LLC from its own assets, a structuring fee for advice relating to the structure, design and organization of the Trust as well as services related to the sale and distribution of the Shares in the amount of $                   . If the over-allotment option is not exercised, the structuring fee paid to Wells Fargo Securities, LLC will not exceed                    of the total public offering price.

The Investment Adviser (and not the Trust) may also pay certain qualifying underwriters, including those named above, a structuring fee, a sales incentive fee or additional compensation in connection with the offering. The total amounts of these payments paid to any such qualifying underwriter will not exceed 1.5% of the total price of the Shares sold in this offering.

The amount of these structuring fees and sales incentive fees are calculated based on the total respective sales of Shares by these Underwriters, including those Shares included in the Underwriters' overallotment option, and will be paid regardless of whether some or all of the overallotment option is exercised.

The Investment Adviser has entered into a distribution agreement with Destra under which Destra provides assistance to the Adviser with respect to distribution of the Shares. The fees and reimbursement of expenses due pursuant to this distribution agreement will be paid exclusively by the Investment Adviser (and not the Trust). The Investment Adviser has agreed to compensate Destra, including reimbursement of expenses, in the amount of up to $      . If the over-allotment option is not exercised, the compensation paid to Destra will not exceed      % of the total public offering price. Destra is a registered


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broker-dealer and a member of the Financial Industry Regulatory Authority, Inc. ("FINRA") and may be deemed an "underwriter" for purposes of this offering under the Securities Act, although Destra will not purchase or resell any of the Shares in connection with the offering.

The Trust has agreed to pay expenses related to the reasonable fees and disbursements of counsel to the Underwriters in connection with the review by FINRA of the terms of the sale of the Shares, the filing fees incident to the filing of marketing materials with FINRA and the transportation and other expenses incurred by the Underwriters in connection with presentations to prospective purchasers of the Shares, Such expenses will not exceed $20,000 in the aggregate.

Total underwriting compensation determined in accordance with FINRA rules is summarized as follows. The sales load of $0.90 per Share is equal to 4.5% of the public offering price of the Shares. The total amount of the Underwriters' additional compensation payments by the Investment Adviser described above will not exceed 9% of the total public offering price of the Shares offered hereby. The sum total of all compensation to the Underwriters in connection with this public offering of the Shares, including the sales load and all forms of additional compensation or structuring or sales incentive fee payments, if any, to the Underwriters, the payments to Destra pursuant to the distribution agreement and other expenses (including reimbursed expenses), will be limited to not more than 9% of the total public offering price of the Shares sold in this offering.

The Trust has granted to the Underwriters an option, exercisable for 45 days from the date of this prospectus, to purchase up to additional Shares at the public offering price less the sales load. The Underwriters may exercise the option solely for the purpose of covering over-allotments, if any, in connection with this offering. To the extent such option is exercised, each Underwriter must purchase a number of additional Shares approximately proportionate to that Underwriter's initial purchase commitment.

The Trust and the Investment Adviser have agreed, for a period of 180 days from the date of this prospectus, that they will not, without the prior written consent of Wells Fargo Securities, LLC, on behalf of the Underwriters, with certain exceptions, dispose of or hedge any Shares or any securities convertible into or exchangeable for Shares, provided that the Trust may issue Shares pursuant to the Trust's Plan.

To meet the NYSE distribution requirements for trading, the Underwriters have undertaken to sell Shares in a manner such that shares are held by a minimum of 400 beneficial owners in lots of 100 or more, the minimum stock price will be at least $4.00 at the time of listing on the NYSE, at least 1,100,000 Shares will be publicly held in the United States and the aggregate market value of publicly held shares in the United States will be at least $60 million. The Trust intends to apply for listing on the New York Stock Exchange under the symbol "THW."

The following table shows the sales load that investors in the Trust will pay to the Underwriters in connection with this offering. These amounts are shown assuming both no exercise and full exercise of the Underwriters' option to purchase additional Shares.

   

No Exercise

 

Full Exercise

 

Per Share

 

$

0.90

   

$

0.90

   

Total

 

$

     

$

     

The Trust and the Investment Adviser have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act, or to contribute to payments the Underwriters may be required to make because of any of those liabilities.

Certain Underwriters may make a market in Shares after trading in Shares has commenced on the NYSE. No Underwriter is, however, obligated to conduct market-making activities and any such activities may be discontinued at any time without notice, at the sole discretion of the Underwriters. No assurance can be given as to the liquidity of, or the trading market for, the Shares as a result of any


117



market-making activities undertaken by any Underwriter. This prospectus is to be used by any Underwriter in connection with the offering and, during the period in which a prospectus must be delivered, with offers and sales of the Shares in market-making transactions in the over-the-counter market at negotiated prices related to prevailing market prices at the time of the sale.

In connection with the offering, Wells Fargo Securities, LLC, on behalf of themselves and the other Underwriters, may purchase and sell the Shares in the open market. These transactions may include short sales, syndicate covering transactions and stabilizing transactions. Short sales involve syndicate sales of Shares in excess of the number of Shares to be purchased by the Underwriters in the offering, which creates a syndicate short position. "Covered" short sales are sales of Shares made in an amount up to the number of Shares represented by the Underwriters' over-allotment option. In determining the source of Shares to close out the covered syndicate short position, the Underwriters will consider, among other things, the price of the Shares available for purchase in the open market as compared to the price at which they may purchase Shares through the over-allotment option.

If the Underwriters create a short position in the Shares in connection with the offering ( i.e. , if they will use Shares that are listed on the cover of this prospectus), Wells Fargo Securities, LLC, on behalf of themselves and the other Underwriters, may reduce the short position by managing in transactions to close out the short position. Transactions to close out the covered syndicate short position involve either purchases of Shares in the open market after the distribution has been completed or the exercise of the over-allotment option. The Underwriters may also make "naked" short sales of the Shares in excess of the over-allotment option. The Underwriters must close out any naked short position by purchasing Shares in the open market. A naked short position is more likely to be created if the Underwriters are concerned that there may be downward pressure on the price of the Shares in the open market after pricing that could adversely affect investors who purchase in the offering. Stabilizing transactions consist of bids for or purchases of Shares in the open market while the offering is in progress.

The Underwriters may impose a penalty bid. Penalty bids allow the underwriting syndicate to reclaim selling concessions allowed to an Underwriter or a dealer for distributing Shares in this offering if the syndicate repurchases Shares to cover syndicate short positions or to stabilize the purchase price of the Shares.

Any of these activities may have the effect of preventing or retarding a decline in the market price of the Shares. They may also cause the price of the Shares to be higher than the price that would otherwise exist in the open market in the absence of these transactions. The Underwriters may conduct these transactions on the NYSE or in the over-the-counter market, or otherwise. If the Underwriters commence any of these transactions, they may discontinue them at any time.

A prospectus in electronic format may be made available on the websites maintained by one or more of the Underwriters. Other than this prospectus in electronic format, the information on any such Underwriter's website is not part of this prospectus. The representatives may agree to allocate a number of Shares to Underwriters for sale to their online brokerage account holders. The representatives will allocate Shares to Underwriters that may make internet distributions on the same basis as other allocations. In addition, Shares may be sold by the Underwriters to securities dealers who resell Shares to online brokerage account holders.

The Trust anticipates that, from time to time, certain Underwriters may act as brokers or dealers in connection with the execution of the Trust's portfolio transactions after they have ceased to be Underwriters and, subject to certain restrictions, may act as brokers while they are Underwriters.

Certain Underwriters and their affiliates may, from time to time, engage in transactions with or perform investment banking, securities trading, hedging, commercial lending and advisory services for the Trust and the Investment Adviser and their affiliates in the ordinary course of business, for which such Underwriters have received, and may expect to receive, customary fees and expenses.


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The principal business address of Wells Fargo Securities, LLC is 550 South Tryon Street, Charlotte, North Carolina 28202.

LEGAL MATTERS

Certain legal matters in connection with the Shares will be passed upon for the Trust by Dechert LLP, One International Place, 40th Floor, 100 Oliver Street, Boston, MA 02110 and for the Underwriters by Clifford Chance US LLP, 31 West 52nd Street, New York, NY 10019. Clifford Chance US LLP may rely as to certain matters of Massachusetts law on the opinion of Dechert LLP.

INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Deloitte & Touche LLP is the independent registered public accounting firm for the Trust and will audit the Trust's financial statements.

ADDITIONAL INFORMATION

The Trust is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act and in accordance therewith is required to file reports, proxy statements and other information with the Commission. Any such reports, proxy statements and other information filed by the Trust can be inspected and copied (at prescribed rates) at the Commission's Public Reference Section, Washington, D.C. 20549-1520.

This prospectus constitutes a part of a registration statement on Form N-2 (together with the SAI and all the exhibits and appendices thereto, the "Registration Statement") filed by the Trust with the Commission under the Securities Act and the Investment Company Act. This prospectus and the SAI do not contain all of the information set forth in the Registration Statement. Reference is hereby made to the Registration Statement and related exhibits for further information with respect to the Trust and the Shares offered hereby. Statements contained herein concerning the provisions of documents are necessarily summaries of such documents, and each statement is qualified in its entirety by reference to the copy of the applicable document filed with the Commission.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this prospectus constitute forward-looking statements, which involve known and unknown risks, uncertainties and other factors that may cause the actual results, levels of activity, performance or achievements of the Trust to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, those listed under "Risk Factors" and elsewhere in this prospectus. As a result of the foregoing and other factors, no assurance can be given as to the future results, levels of activity or achievements, and neither the Trust nor any other person assumes responsibility for the accuracy and completeness of such statements. To the extent required by law, the Trust undertakes to supplement this prospectus to reflect any material changes to the Trust after the date of this prospectus.


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TABLE OF CONTENTS OF STATEMENT OF ADDITIONAL INFORMATION

   

PAGE

 

Additional Information About Investments and Investment Techniques

   

3

   

Investment Restrictions

   

22

   

Trustees and Officers

   

23

   

The Trust

   

32

   

Investment Adviser and Investment Advisory Agreement

   

35

   

Proxy Voting Policy and Procedures

   

37

   

Code of Ethics

   

37

   

Net Asset Value

   

38

   
Portfolio Transactions and Brokerage    

39

   

Tax Matters

   

41

   

Custodian, Administrator, Transfer Agent, Dividend Disbursing Agent and Registrar

   

46

   

Report of Independent Registered Public Accountant

   

48

   

Financial Statements

   

49

   

Proxy Voting Policies and Procedures

   

A-1

   


120




Shares

Tekla World Healthcare Fund

Common Shares
$20.00 per Share

PROSPECTUS
                  , 2015

Wells Fargo Securities

Until , 2015 (25 days after the date of this prospectus), all dealers that buy, sell or trade the Shares, whether or not participating in the offering, may be required to deliver a prospectus. This delivery requirement is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.




 

The information contained in this Statement of Additional Information is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This Statement of Additional Information is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

 

SUBJECT TO COMPLETION

 

TEKLA WORLD HEALTHCARE FUND

 

STATEMENT OF ADDITIONAL INFORMATION

 

May 22, 2015

 

Tekla World Healthcare Fund (the “Trust”) is a newly organized, non-diversified, closed-end management investment company with no operating history. The Trust’s investment objective is to seek current income and long-term capital appreciation. Under normal market conditions, the Trust expects to invest at least 80% of its Managed Assets (as defined below) in U.S. and non-U.S. companies engaged in the healthcare industry (“Healthcare Companies”) including equity securities and debt securities.  “Managed Assets” means the total assets of the Trust (including any assets attributable to borrowings for investment purposes) minus the sum of the Trust’s accrued liabilities (other than liabilities representing borrowings for investment purposes).  The Trust’s 80% policy may only be changed with 60 days’ prior notice to the Trust’s shareholders (“Shareholders”).

 

A company will be deemed to be a Healthcare Company if, at the time the Trust makes an investment in a company, 50% or more of such company’s sales, earnings or assets arise from or are dedicated to healthcare products or services or medical technology activities.  Healthcare Companies may include companies in one or more of the following sub-sectors: pharmaceuticals, biotechnology, managed care, life science and tools, healthcare technology, healthcare services, healthcare supplies, healthcare facilities, healthcare equipment, healthcare distributors and Healthcare REITs (as defined herein). The Investment Adviser (defined below) determines, in its discretion, whether a company is a Healthcare Company.

 

The Trust expects to invest 60-90% of its Managed Assets in equity securities (which may include common stock, preferred stock and warrants or other rights to acquire common or preferred stock). The Trust will invest in foreign securities and may buy and sell currencies for the purpose of settlement of transactions in foreign securities. The Trust may invest up to 30% of its Managed Assets in convertible securities.  The Trust may invest in debt securities, including corporate debt obligations and debt securities that are rated non-investment grade (that is, rated Ba1 or lower by Moody’s Investors Service, Inc. (“Moody’s”), BB+ or lower by Standard & Poor’s Ratings Group (“S&P”), or BB by Fitch, Inc. (“Fitch”) or comparably rated by another nationally recognized statistical rating organization (“NRSRO”), or, if unrated, determined by the Investment Adviser to be of comparable credit quality) and not including convertible securities.  The Trust’s investments in non-investment grade investments and those deemed to be of similar quality are considered speculative with respect to the issuer’s capacity to pay interest and repay principal and are commonly referred to as “junk” or “high yield” securities.

 

The Trust may invest in derivatives, including but not limited to options, futures, options on futures, forwards, swaps, options on swaps and other derivatives.  Initially, the Trust intends to employ a strategy of writing (selling) covered call options on a portion of the common stocks in its portfolio, writing (selling) put options on a portion of the common stocks in its portfolio and, to a lesser extent, writing (selling) covered call and writing (selling) put options on indices of securities and sectors of securities generally within the healthcare industry. This option strategy is intended to generate current income from option premiums as a means to enhance distributions payable to the Trust’s Shareholders and will be limited to 30% of the Trust’s Managed Assets. These option strategies are not always profitable. The sale of a covered call option exposes the Trust during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or to possible loss due to continued holding of a security that might otherwise have been sold to protect against depreciation in the market price of the security. Therefore, the Investment Adviser may choose to decrease its use of the option writing strategy to the extent that it may negatively impact the Trust. Other than the Trust’s option strategy and use of derivatives for hedging purposes, the Trust may invest up to 10% of its Managed Assets in derivatives.

 

1



 

The Trust may invest up to 10% of its Managed Assets in restricted securities, including private investments in public equity (“PIPEs”) and venture capital investments.

 

The Trust may invest up to 20% of its Managed Assets in real estate investment trusts that derive their income from the ownership, leasing, or financing of properties in the healthcare sector (“Healthcare REITs”).

 

The Trust may from time-to-time lend its portfolio securities.  In addition, the Trust may, to a limited degree, enter into when-issued and delayed delivery transactions, forward foreign currency contracts and repurchase agreements. Under normal market conditions, the Trust does not intend to engage in such practices.

 

The Trust’s investment adviser is Tekla Capital Management LLC (the “Investment Adviser”).

 

This Statement of Additional Information (“SAI”) is not a prospectus, but should be read in conjunction with the prospectus for the Trust dated    , 2015 (the “prospectus”), and as it may be supplemented. This SAI does not include all information that a prospective investor should consider before purchasing shares of beneficial interest (“Shares”) of the Trust, and investors should obtain and read the prospectus prior to purchasing Shares. A copy of the prospectus may be obtained without charge, by calling (617) 772-8500.

 

The Trust’s annual report (when available) may be obtained upon request and without charge by calling toll free (617) 772-8500.

 

The prospectus and this SAI omit certain of the information contained in the Trust’s registration statement filed with the Securities and Exchange Commission (the “Commission”). Information about the Trust can be reviewed and copied at the Commission’s Public Reference Room in Washington, DC. Call (202) 551-8090 for information on the operation of the Public Reference Room. This information is also available in the Commission’s Internet site at http://www.sec.gov, and copies may be obtained upon payment of a duplicating fee by writing the Public Reference Section of the Commission, Washington, DC 20549-0102.

 

TABLE OF CONTENTS

 

Additional Information About Investments and Investment Techniques

3

Investment Restrictions

22

Trustees and Officers

23

The Trust

32

Investment Adviser and Investment Advisory Agreement

35

Proxy Voting Policy and Procedures

37

Code of Ethics

37

Net Asset Value

38

Portfolio Transactions and Brokerage

39

Tax Matters

41

Custodian, Administrator, Transfer Agent, Dividend Disbursing Agent and Registrar

46

Report of Independent Registered Public Accounting Firm

48

Financial Statements

49

Proxy Voting Policies and Procedures

A-1

 

2



 

ADDITIONAL INFORMATION ABOUT INVESTMENTS
AND INVESTMENT TECHNIQUES

 

Some of the different types of securities in which the Trust may invest, subject to its investment objective, policies and restrictions, are described in the prospectus under “Investment Objectives and Policies” and “Risk Factors.”

 

Additional information concerning certain of the Trust’s investments, investment techniques and investment restrictions is set forth below. The Trust may utilize the following investment practices:

 

Healthcare Companies

 

The Trust expects to invest in U.S. and non-U.S. equity and debt securities of companies in the healthcare industry, including, but not limited to, biotechnology, pharmaceutical, medical devices and healthcare services companies. These investments are designed to take advantage of recent developments in certain healthcare sectors.  For example, demographic changes are driving an increase in medical products due to the high growth rate of the population of Americans age 65 and older. Recent developments in the pharmaceutical, biotechnology, and medical technology industries have produced a series of products that will extend or improve the quality of patients’ lives, especially in the areas of oncology, infectious disease, inflammation and orphan diseases. The Investment Adviser also believes that the following trends have investment potential: (i) biopharmaceuticals, including products for novel targets; (ii) treatments for orphan and ultra-orphan ( i.e. , rare and extremely rare) diseases, including gene therapy; (iii) specialty pharmaceuticals; (iv) generic pharmaceuticals; (v) novel medical devices; (vi) life sciences tools and diagnostics; and (vii) products that will benefit from changes in the regulatory landscape.

 

Healthcare Companies provide multiple diverse investment opportunities, including opportunities in the following sectors: (i) pharmaceuticals, which includes large and small pharmaceutical, specialty pharmaceutical and generic drug companies; (ii) biotechnology, which includes companies engaged in research into, and development of, biological substances for the purposes of drug discovery and diagnostic development; (iii) managed care, which is a segment that represents HMOs and insurers; (iv) life sciences and tools, which includes research organizations that help design and run clinical trials, as well as life sciences research tools companies that offer instruments, reagents and services to scientists in academic, BioPharma and applied market laboratories; (v) healthcare technology, which include companies involved in automating various processes for hospitals and HMOs; (vi) healthcare services, which includes pharmacy benefits managers, alternative site care providers and laboratory services companies; (vii) healthcare supplies, which include companies that provide products such as tubes and bandages used every day in healthcare facilities and laboratories; (viii) healthcare facilities, which include hospitals and other brick and mortar facilities used to treat patients; (ix) healthcare equipment, which include medical diagnostic and device companies; (x) healthcare distributors, which distribute drugs and products to patients, hospitals and other facilities; and (xi) healthcare REITs, which are REITs that derive their income from the ownership, leasing, or financing of properties in the healthcare sector.

 

Equity Securities

 

The Trust expects to invest 60-90% of its Managed Assets in equity securities, which may include common stock, preferred stock and warrants or other rights to acquire common or preferred stock.  Common stock represents shares of a corporation or other entity that entitle the holder to a pro rata share of the profits of the entity, if any, without preference over any other shareholder or class of shareholders, including holders of the entity’s preferred stock and other senior equity. Common stock usually carries with it the right to vote and frequently an exclusive right to do so. The Trust may invest in preferred stocks, which represent shares of a corporation or other entity that pay dividends at a specified rate and have precedence over common stock in the payment of dividends. If the corporation or other entity is liquidated or declares bankruptcy, the claims of owners of preferred stock will have precedence over the claims of owners of common stock, but not over the claims of owners of bonds. Some preferred stock dividends are non-cumulative, but some are “cumulative,” meaning that they require that all or a portion of prior unpaid dividends be paid to preferred stockholders before any dividends are paid to common stockholders. Certain preferred stock dividends are “participating” and include an entitlement to a dividend exceeding the specified dividend rate in certain cases. Investments in preferred stocks carry many of the same risks as investments in common stocks and debt securities.

 

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Debt Securities

 

The Trust may invest up to 20% of its Managed Assets as measured at the time of investment in non-convertible debt securities, including corporate debt obligations and debt securities that are rated below investment grade (that is, rated Ba1 or lower by Moody’s, BB+ or lower by S&P, or BB by Fitch or comparably rated by another NRSRO, or, if unrated, determined by the Investment Adviser to be of comparable credit quality) and not including convertible securities.  To the extent the Trust invests in the following types of debt securities, its net asset value may change as the general levels of interest rates fluctuate. When interest rates decline, the value of debt securities can be expected to rise. Conversely, when interest rates rise, the value of debt securities can be expected to decline. The Trust’s investments in debt securities with longer terms to maturity are subject to greater volatility than the Trust’s shorter-term obligations. Debt securities may have all types of interest rate payment and reset terms, including fixed rate, adjustable rate, zero coupon, contingent, deferred, payment in kind and auction rate features.

 

Corporate debt obligations include bonds, notes, debentures and other obligations of corporations to pay interest and repay principal. Corporate debt obligations are subject to the risk of an issuer’s inability to meet principal and interest payments on the obligations and may also be subject to price volatility due to such factors as market interest rates, market perception of the creditworthiness of the issuer and general market liquidity.

 

Corporate debt obligations rated BBB or Baa are considered medium grade obligations with speculative characteristics, and adverse economic conditions or changing circumstances may weaken their issuers’ capacity to pay interest and repay principal. Medium to lower rated and comparable non-rated securities tend to offer higher yields than higher rated securities with the same maturities because the historical financial condition of the issuers of such securities may not have been as strong as that of other issuers. The price of corporate debt obligations will generally fluctuate in response to fluctuations in supply and demand for similarly rated securities. In addition, the price of corporate debt obligations will generally fluctuate in response to interest rate levels. Fluctuations in the prices of portfolio securities subsequent to their acquisition will not affect cash income from such securities but will be reflected in the Trust’s net asset value (“NAV”).

 

Because medium to lower rated securities generally involve greater risks of loss of income and principal than higher rated securities, investors should consider carefully the relative risks associated with investment in securities which carry medium to lower ratings and in comparable unrated securities. In addition to the risk of default, there are the related costs of recovery on defaulted issues. The Investment Adviser will attempt to reduce these risks through portfolio diversification and by analysis of each issuer and its ability to make timely payments of income and principal, as well as broad economic trends and corporate developments.

 

The Trust may invest in obligations issued or guaranteed by U.S. or foreign banks. Bank obligations, including without limitation, time deposits, bankers’ acceptances and certificates of deposit, which may be general obligations of the parent bank or may be limited to the issuing branch by the terms of the specific obligations or by government regulation. Banks are subject to extensive but different governmental regulations which may limit both the amount and types of loans which may be made and interest rates which may be charged. In addition, the profitability of the banking industry is largely dependent upon the availability and cost of funds for the purpose of financing lending operations under prevailing money market conditions. General economic conditions as well as exposure to credit losses arising from possible financial difficulties of borrowers play an important part in the operation of this industry.

 

Certificates of deposit are certificates evidencing the obligation of a bank to repay funds deposited with it for a specified period of time at a specified rate. Certificates of deposit are negotiable instruments and are similar to saving deposits but have a definite maturity and are evidenced by a certificate instead of a passbook entry. Banks are required to keep reserves against all certificates of deposit. Fixed time deposits are bank obligations payable at a stated maturity date and bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand by the investor, but may be subject to early withdrawal penalties which vary depending upon market conditions and the

 

4



 

remaining maturity of the obligation. The Trust may invest in deposits in U.S. and European banks satisfying the standards set forth above.

 

Foreign Securities

 

The Trust will invest in securities of foreign issuers, including securities quoted or denominated in a currency other than U.S. dollars. Investments in foreign securities may offer potential benefits not available from investments solely in U.S. dollar-denominated or quoted securities of domestic issuers. Such benefits may include the opportunity to invest in foreign issuers that appear, in the opinion of the Investment Adviser, to offer the potential for better long term growth of capital and income than investments in U.S. securities, the opportunity to invest in foreign countries with economic policies or business cycles different from those of the United States and the opportunity to reduce fluctuations in portfolio value by taking advantage of foreign securities markets that do not necessarily move in a manner parallel to U.S. markets. Investing in the securities of foreign issuers also involves, however, certain special risks, including those discussed in the prospectus and those set forth below, which are not typically associated with investing in U.S. dollar-denominated securities or quoted securities of U.S. issuers. Many of these risks are more pronounced for investments in emerging countries.

 

With respect to investments in certain foreign countries, there exist certain economic, political and social risks, including the risk of adverse political developments, nationalization, military unrest, social instability, war and terrorism, confiscation without fair compensation, expropriation or confiscatory taxation, limitations on the movement of funds and other assets between different countries, or diplomatic developments, any of which could adversely affect the Trust’s investments in those countries. Governments in certain foreign countries continue to participate to a significant degree, through ownership interest or regulation, in their respective economies. Action by these governments could have a significant effect on market prices of securities and dividend payments.

 

Many countries throughout the world are dependent on a healthy U.S. economy and are adversely affected when the U.S. economy weakens or its markets decline. Additionally, many foreign country economies are heavily dependent on international trade and are adversely affected by protective trade barriers and economic conditions of their trading partners. Protectionist trade legislation enacted by those trading partners could have a significant adverse affect on the securities markets of those countries. Individual foreign economies may differ favorably or unfavorably from the U.S. economy in such respects as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payments position.

 

Investments in foreign securities often involve currencies of foreign countries. Accordingly, the Trust may be affected favorably or unfavorably by changes in currency rates and in exchange control regulations and may incur costs in connection with conversions between various currencies. The Trust may be subject to currency exposure independent of its securities positions. To the extent that the Trust is fully invested in foreign securities while also maintaining net currency positions, it may be exposed to greater combined risk. Currency exchange rates may fluctuate significantly over short periods of time. They generally are determined by the forces of supply and demand in the foreign exchange markets and the relative merits of investments in different countries, actual or anticipated changes in interest rates and other complex factors, as seen from an international perspective. Currency exchange rates also can be affected unpredictably by intervention (or the failure to intervene) by U.S. or foreign governments or central banks or by currency controls or political developments in the United States or abroad.

 

Because foreign issuers generally are not subject to uniform accounting, auditing and financial reporting standards, practices and requirements comparable to those applicable to U.S. companies, there may be less publicly available information about a foreign company than about a comparable U.S. company. Volume and liquidity in most foreign securities markets are less than in the United States markets and securities of many foreign companies are less liquid and more volatile than securities of comparable U.S. companies. The securities of foreign issuers may be listed on foreign securities exchanges or traded in foreign OTC markets. Fixed commissions on foreign securities exchanges are generally higher than negotiated commissions on U.S. exchanges, although the Trust endeavors to achieve the most favorable net results on its portfolio transactions. There is generally less government supervision and regulation of foreign securities markets and exchanges, brokers, dealers and listed and unlisted companies than in the United States, and the legal remedies for investors may be more limited than the remedies available in the United States. For example, there may be no comparable provisions under certain foreign laws to insider trading and similar investor protections that apply with respect to securities transactions consummated in the United States. Mail service between the United States and foreign countries may be slower or less reliable than within the United States, thus increasing the risk of delayed settlement of portfolio transactions or loss of certificates for portfolio securities.

 

5



 

Foreign markets also have different clearance and settlement procedures, and in certain markets there have been times when settlements have been unable to keep pace with the volume of securities transactions, making it difficult to conduct such transactions. Such delays in settlement could result in temporary periods when some of the Trust’s assets are uninvested and no return is earned on such assets. The inability of the Trust to make intended security purchases due to settlement problems could cause the Trust to miss attractive investment opportunities. Inability to dispose of portfolio securities due to settlement problems could result either in losses to the Trust due to subsequent declines in value of the portfolio securities or, if the Trust has entered into a contract to sell the securities, in possible liability to the purchaser.

 

The Trust may invest in foreign securities which take the form of sponsored and unsponsored Depositary Receipts. ADRs represent the right to receive securities of foreign issuers deposited in a domestic bank or a correspondent bank. ADRs are traded on domestic exchanges or in the U.S. OTC market and, generally, are in registered form. EDRs and GDRs are receipts evidencing an arrangement with a non-U.S. bank similar to that for ADRs and are designed for use in the non-U.S. securities markets. EDRs and GDRs are not necessarily quoted in the same currency as the underlying security. To the extent the Trust acquires Depositary Receipts through banks which do not have a contractual relationship with the foreign issuer of the security underlying the Depositary Receipts to issue and service such unsponsored Depositary Receipts, there may be an increased possibility that the Trust would not become aware of and be able to respond to corporate actions such as stock splits or rights offerings involving the foreign issuer in a timely manner. In addition, the lack of information may result in inefficiencies in the valuation of such instruments. Investment in Depositary Receipts does not eliminate all the risks inherent in investing in securities of non-U.S. issuers. The market value of Depositary Receipts is dependent upon the market value of the underlying securities and fluctuations in the relative value of the currencies in which the Depositary Receipts and the underlying securities are quoted. However, by investing in Depositary Receipts, such as ADRs, which are quoted in U.S. dollars, the Trust may avoid currency risks during the settlement period for purchases and sales.

 

As described more fully below, the Trust may invest in countries with emerging economies or securities markets. Political and economic structures in many of such countries may be undergoing significant evolution and rapid development, and such countries may lack the social, political and economic stability characteristic of more developed countries. Certain of such countries have in the past failed to recognize private property rights and have at times nationalized or expropriated the assets of private companies. As a result, the risks described above, including the risks of nationalization or expropriation of assets, may be heightened.

 

Investing in Europe. The Trust may operate in euros and/ or may hold euros and/or euro-denominated bonds and other obligations. The euro requires participation of multiple sovereign states forming the Euro zone and is therefore sensitive to the credit, general economic and political position of each such state, including each state’s actual and intended ongoing engagement with and/or support for the other sovereign states then forming the European Union, in particular those within the Euro zone. Changes in these factors might materially adversely impact the value of securities that the Trust has invested in.

 

European countries can be significantly affected by the tight fiscal and monetary controls that the European Economic and Monetary Union (“EMU”) imposes for membership. Europe’s economies are diverse, its governments are decentralized, and its cultures vary widely. Several EU countries, including Greece, Ireland, Italy, Spain and Portugal have faced budget issues, some of which may have negative long-term effects for the economies of those countries and other EU countries. There is continued concern about national-level support for the euro and the accompanying coordination of fiscal and wage policy among EMU member countries. Member countries are required to maintain tight control over inflation, public debt, and budget deficit to qualify for membership in the EMU. These requirements can severely limit the ability of EMU member countries to implement monetary policy to address regional economic conditions.

 

Investing in Canada. The Trust may invest in issuers located in Canada or that have significant exposure to the Canadian economy. The Canadian market is relatively concentrated in issuers involved in the production and distribution of natural resources, and therefore the Canadian economy is very dependent on the supply and demand for natural resources. There is a risk that any changes in these sectors could have an adverse impact on the Canadian economy. The Canadian economy is dependent on the economy of the United States as the United States is Canada’s largest trading partner and foreign investor. Reduction in spending on Canadian products and services or changes in the U.S. economy may cause an impact in the Canadian economy. Past periodic demands by the Province of Quebec

 

6



 

for sovereignty have also significantly affected equity valuations and foreign currency movements in the Canadian market.

 

Investing in Emerging Countries. The securities markets of emerging countries are less liquid and subject to greater price volatility, and have a smaller market capitalization, than the U.S. securities markets. In certain countries, there may be fewer publicly traded securities and the market may be dominated by a few issues or sectors. Issuers and securities markets in such countries are not subject to as extensive and frequent accounting, financial and other reporting requirements or as comprehensive government regulations as are issuers and securities markets in the U.S. In particular, the assets and profits appearing on the financial statements of emerging country issuers may not reflect their financial position or results of operations in the same manner as financial statements for U.S. issuers. Substantially less information may be publicly available about emerging country issuers than is available about issuers in the United States.

 

Emerging country securities markets are typically marked by a high concentration of market capitalization and trading volume in a small number of issuers representing a limited number of industries, as well as a high concentration of ownership of such securities by a limited number of investors. The markets for securities in certain emerging countries are in the earliest stages of their development. Even the markets for relatively widely traded securities in emerging countries may not be able to absorb, without price disruptions, a significant increase in trading volume or trades of a size customarily undertaken by institutional investors in the securities markets of developed countries. The limited size of many of these securities markets can cause prices to be erratic for reasons apart from factors that affect the soundness and competitiveness of the securities issuers. For example, prices may be unduly influenced by traders who control large positions in these markets. Additionally, market making and arbitrage activities are generally less extensive in such markets, which may contribute to increased volatility and reduced liquidity of such markets. The limited liquidity of emerging country securities may also affect the Trust’s ability to accurately value its portfolio securities or to acquire or dispose of securities at the price and time it wishes to do so or in order to meet redemption requests.

 

With respect to investments in certain emerging market countries, antiquated or poorly established legal systems may have an adverse impact on the Trust. For example, while the potential liability of a shareholder of a U.S. corporation with respect to acts of the corporation is generally limited to the amount of the shareholder’s investment, the notion of limited liability is less clear in certain emerging market countries. Similarly, the rights of investors in emerging market companies may be more limited than those of shareholders of U.S. corporations.

 

Transaction costs, including brokerage commissions or dealer mark-ups, in emerging countries may be higher than in the United States and other developed securities markets. In addition, existing laws and regulations are often inconsistently applied. As legal systems in emerging countries develop, foreign investors may be adversely affected by new or amended laws and regulations. In circumstances where adequate laws exist, it may not be possible to obtain swift and equitable enforcement of the law.

 

Custodial and/or settlement systems in emerging markets countries may not be fully developed. To the extent the Trust invests in emerging markets, Trust assets that are traded in such markets and which have been entrusted to such sub-custodians in those markets may be exposed to risks for which the sub-custodian will have no liability.

 

Foreign investment in the securities markets of certain emerging countries is restricted or controlled to varying degrees. These restrictions may limit the Trust’s investment in certain emerging countries and may increase the expenses of the Trust. Certain emerging countries require governmental approval prior to investments by foreign persons or limit investment by foreign persons to only a specified percentage of an issuer’s outstanding securities or a specific class of securities which may have less advantageous terms (including price) than securities of the company available for purchase by nationals. In addition, the repatriation of both investment income and capital from emerging countries may be subject to restrictions which require governmental consents or prohibit repatriation entirely for a period of time. Even where there is no outright restriction on repatriation of capital, the mechanics of repatriation may affect certain aspects of the operation of the Trust. The Trust may be required to establish special custodial or other arrangements before investing in certain emerging countries.

 

Emerging countries may be subject to a substantially greater degree of economic, political and social instability and disruption than is the case in the United States, Japan and most Western European countries. This instability may result from, among other things, the following: (i) authoritarian governments or military involvement in political and economic decision making, including changes or attempted changes in governments through extra-constitutional

 

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means; (ii) popular unrest associated with demands for improved political, economic or social conditions; (iii) internal insurgencies; (iv) hostile relations with neighboring countries; (v) ethnic, religious and racial disaffection or conflict; and (vi) the absence of developed legal structures governing foreign private investments and private property. Such economic, political and social instability could disrupt the principal financial markets in which the Trust may invest and adversely affect the value of the Trust’s assets. The Trust’s investments can also be adversely affected by any increase in taxes or by political, economic or diplomatic developments.

 

The Trust may seek investment opportunities within former “Eastern bloc” countries. Most of these countries had a centrally planned, socialist economy for a substantial period of time. The governments of many of these countries have more recently been implementing reforms directed at political and economic liberalization, including efforts to decentralize the economic decision-making process and move towards a market economy. However, business entities in many of these countries do not have an extended history of operating in a market-oriented economy, and the ultimate impact of these countries’ attempts to move toward more market-oriented economies is currently unclear. In addition, any change in the leadership or policies of these countries may halt the expansion of or reverse the liberalization of foreign investment policies now occurring and adversely affect existing investment opportunities.

 

The economies of emerging countries may differ unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, capital reinvestment, resources, self-sufficiency and balance of payments. Many emerging countries have experienced in the past, and continue to experience, high rates of inflation. In certain countries inflation has at times accelerated rapidly to hyperinflationary levels, creating a negative interest rate environment and sharply eroding the value of outstanding financial assets in those countries. Other emerging countries, on the other hand, have recently experienced deflationary pressures and are in economic recessions. The economies of many emerging countries are heavily dependent upon international trade and are accordingly affected by protective trade barriers and the economic conditions of their trading partners. In addition, the economies of some emerging countries are vulnerable to weakness in world prices for their commodity exports.

 

The Trust’s income and, in some cases, capital gains from foreign stocks and securities will be subject to applicable taxation in certain of the countries in which it invests, and treaties between the U.S. and such countries may not be available in some cases to reduce the otherwise applicable tax rates.

 

From time to time, certain of the companies in which the Trust may invest may operate in, or have dealings with, countries subject to sanctions or embargos imposed by the U.S. government and the United Nations and/or countries identified by the U.S. government as state sponsors of terrorism. A company may suffer damage to its reputation if it is identified as a company which operates in, or has dealings with, countries subject to sanctions or embargoes imposed by the U.S. government as state sponsors of terrorism. As an investor in such companies, the Trust would be indirectly subject to those risks.

 

REITs

 

The Trust may invest up to 20% of its Managed Assets in Healthcare REITs. The value of a REIT is affected by changes in the value of the properties owned by the REIT or securing mortgage loans held by the REIT. REITs are dependent upon the ability of the REITs’ managers, and are subject to heavy cash flow dependency, default by borrowers and the qualification of the REITs under applicable regulatory requirements for favorable income tax treatment. REITs are also subject to risks generally associated with investments in real estate including possible declines in the value of real estate, general and local economic conditions, environmental problems and changes in interest rates. To the extent that assets underlying a REIT are concentrated geographically, by property type or in certain other respects, these risks may be heightened. The Trust will indirectly bear its proportionate share of any expenses, including management fees, paid by a REIT in which it invests. Healthcare REITs are REITs that derive their income from the ownership, leasing, or financing of properties in the healthcare sector.

 

Derivatives

 

The Trust may use various types of financial instruments, some of which are derivatives, to attempt to manage the risk of the Trust’s investments or for investment purposes ( e.g. , as a substitute for investing in securities). These financial instruments include, among others, options, futures, forward contracts and swaps. Positions in these financial instruments may expose the Trust to an obligation to another party. The Trust will not enter into any such transaction unless it owns (1) an offsetting (“covered”) position in securities, currencies or other options, futures

 

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contracts or forward contracts or (2) cash or liquid assets with a value, marked-to-market daily, sufficient to cover their obligations to the extent not covered as provided in (1) above. The Trust will comply with Commission guidelines regarding cover for these instruments and will, if the guidelines so require, designate the prescribed amount of cash or liquid assets as segregated.

 

Assets used as cover or held as segregated cannot be sold while the position in the corresponding financial instrument is open unless they are replaced with other appropriate assets.

 

Initially, the Trust intends to employ a strategy of writing (selling) covered call options on a portion of the common stocks in its portfolio, writing (selling) put options on a portion of the common stocks in its portfolio and, to a lesser extent, writing (selling) covered call and writing (selling) put options on indices of securities and sectors of securities generally within the healthcare industry. This option strategy is intended to generate current income from option premiums as a means to enhance distributions payable to the Trust’s Shareholders. These option strategies are not always profitable. The sale of a covered call option exposes the Trust during the term of the option to possible loss of opportunity to realize appreciation in the market price of the underlying security or to possible loss due to continued holding of a security that might otherwise have been sold to protect against depreciation in the market price of the security. Therefore, the Investment Adviser may choose to decrease its use of the option writing strategy to the extent that it may negatively impact the Trust.

 

Initial Public Offerings

 

The Trust may invest a portion of its assets in shares of IPOs, if consistent with the Trust’s investment objective and policies. IPOs may have a magnified impact on the performance of a fund with a small asset base. The impact of IPOs on a fund’s performance likely will decrease as such fund’s asset size increases, which could reduce such fund’s returns. IPOs may not be consistently available to the Trust for investing. IPO shares frequently are volatile in price due to the absence of a prior public market, the small number of shares available for trading and limited information about the issuer. Therefore, the Trust may hold IPO shares for a very short period of time. This may increase turnover and may lead to increased expenses, such as commissions and transaction costs all of which will be borne indirectly by the holders of Shares. In addition, IPO shares can experience an immediate drop in value if the demand for the securities does not continue to support the offering price.

 

Convertible Securities

 

The Trust may invest up to 30% of its Managed Assets in convertible securities. Convertible securities are bonds, debentures, notes, preferred stocks or other securities that may be converted into or exchanged for a specified amount of common stock (or other securities) of the same or different issuer within a particular period of time at a specified price or formula. A convertible security entitles the holder to receive interest that is generally paid or accrued on debt or a dividend that is paid or accrued on preferred stock until the convertible security matures or is redeemed, converted or exchanged. Convertible securities have unique investment characteristics, in that they generally (i) have higher yields than common stocks, but lower yields than comparable non-convertible securities, (ii) are less subject to fluctuation in value than the underlying common stock due to their fixed income characteristics and (iii) provide the potential for capital appreciation if the market price of the underlying common stock increases.

 

The value of a convertible security is a function of its “investment value” (determined by its yield in comparison with the yields of other securities of comparable maturity and quality that do not have a conversion privilege) and its conversion value (the security’s worth, at market value, if converted into the underlying common stock). The investment value of a convertible security is influenced by changes in interest rates, with investment value normally declining as interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors may also have an effect on the convertible security’s investment value. The conversion value of a convertible security is determined by the market price of the underlying common stock. If the conversion value is low relative to the investment value, the price of the convertible security is governed principally by its investment value. To the extent the market price of the underlying common stock approaches or exceeds the conversion price, the price of the convertible security will be increasingly influenced by its conversion value. A convertible security generally will sell at a premium over its conversion value by the extent to which investors place value on the right to acquire the underlying common stock while holding a fixed income security.

 

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A convertible security may be subject to redemption at the option of the issuer at a price established in the convertible security’s governing instrument. If a convertible security held by the Trust is called for redemption, the Trust will be required to convert the security into the underlying common stock, sell it to a third party or permit the issuer to redeem the security. Any of these actions could have an adverse effect on the Trust’s ability to achieve its investment objective, which, in turn, could result in losses to the Trust. To the extent that the Trust holds a convertible security, or a security that is otherwise converted or exchanged for common stock (e.g., as a result of a restructuring), the Trust may, consistent with its investment objective, hold such common stock in its portfolio.

 

In evaluating a convertible security, the Investment Adviser will give primary emphasis to the attractiveness of the underlying common stock. Convertible debt securities are equity investments for purposes of the Trust’s investment policies.

 

Restricted Securities

 

The Trust may invest up to 10% of its Managed Assets in U.S. securities and other U.S. financial instruments that are not registered or that are offered in an exempt non-public offering (“Restricted Securities”) under the Securities Act of 1933, as amended (the “Securities Act”), including securities eligible for resale to “qualified institutional buyers” pursuant to Rule 144A under the Securities Act, PIPEs and venture capital investments.

 

The purchase price and subsequent valuation of Restricted Securities may reflect a discount from the price at which such securities trade when they are not restricted, because the restriction makes them less liquid. The amount of the discount from the prevailing market price is expected to vary depending upon the type of security, the character of the issuer, the party who will bear the expenses of registering the Restricted Securities and prevailing supply and demand conditions.

 

Pooled Investment Vehicles

 

The Trust may invest in securities of pooled investment vehicles, including other investment companies, ETFs and exchange-traded notes (“ETNs”). The Trust will indirectly bear its proportionate share of any management fees and other expenses paid by pooled investment vehicles in which it invests, in addition to the management fees (and other expenses) paid by the Trust. The Trust’s investments in pooled investment vehicles are subject to statutory limitations prescribed by the Investment Company Act, including in certain circumstances a prohibition on the Trust acquiring more that 3% of the voting shares of any other investment company, and a prohibition on investing more than 5% of the Trust’s total assets in securities of any one investment company or more than 10% of its total assets in the securities of all investment companies. Many ETFs, however, have obtained exemptive relief from the SEC to permit unaffiliated funds (such as the Trust) to invest in their shares beyond these statutory limits, subject to certain conditions and pursuant to contractual arrangements between the ETFs and the investing funds. The Trust may rely on these exemptive orders in investing in ETFs. Under an exemptive rule adopted by the Commission, the Trust may invest in certain other investment companies and money market funds beyond the statutory limits described above.

 

The Trust may purchase shares of investment companies investing primarily in foreign securities, including “country funds.” Country funds have portfolios consisting primarily of securities of issuers located in specified foreign countries or regions.

 

ETFs are pooled investment vehicles issuing shares which are traded like traditional equity securities on a stock exchange. An ETF represents a portfolio of securities or other assets, which is often designed to track a particular market segment or index. An investment in an ETF, like one in any pooled investment vehicle, carries the risks of its

 

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underlying securities or other assets. An ETF may fail to accurately track the returns of the market segment or index that it is designed to track, and the price of an ETF’s shares may fluctuate or lose money. In addition, because they, unlike other pooled investment vehicles, are traded on an exchange, ETFs are subject to the following risks: (i) the market price of the ETF’s shares may trade at a premium or discount to the ETF’s NAV; (ii) an active trading market for an ETF may not develop or be maintained; and (iii) there is no assurance that the requirements of the exchange necessary to maintain the listing of the ETF will continue to be met or remain unchanged. In the event substantial market or other disruptions affecting ETFs should occur in the future, the liquidity and value of the Trust’s shares could also be substantially and adversely affected.

 

Options on Securities and Securities Indices

 

Writing Covered Options. The Trust may write (sell) covered call and put options on any securities in which it may invest or any securities index consisting of securities in which it may invest. The Trust may write such options on securities that are listed on national domestic securities exchanges or foreign securities exchanges or traded in the OTC market. A call option written by the Trust obligates the Trust to sell specified securities to the holder of the option at a specified price if the option is exercised on or before the expiration date. Depending upon the type of call option, the purchaser of a call option either (i) has the right to any appreciation in the value of the security over a fixed price (the “exercise price”) on a certain date in the future (the “expiration date”) or (ii) has the right to any appreciation in the value of the security over the exercise price at any time prior to the expiration of the option. If the purchaser does not exercise the option, the Trust pays the purchaser the difference between the price of the security and the exercise price of the option. The premium, the exercise price and the market value of the security determine the gain or loss realized by the Trust as the seller of the call option. The Trust can also repurchase the call option prior to the expiration date, ending its obligation. In this case, the cost of entering into closing purchase transactions will determine the gain or loss realized by the Trust. All call options written by the Trust are covered, which means that the Trust will own the securities subject to the option as long as the option is outstanding or the Trust will use the other methods described below. The Trust’s purpose in writing covered call options is to realize greater income than would be realized on portfolio securities transactions alone. However, the Trust may forego the opportunity to profit from an increase in the market price of the underlying security.

 

A put option written by the Trust would obligate the Trust to purchase specified securities from the option holder at a specified price if, depending upon the type of put option, either (i) the option is exercised at any time on or before the expiration date or (ii) the option is exercised on the expiration date. All put options written by the Trust would be covered, which means that the Trust will segregate cash or liquid assets with a value at least equal to the exercise price of the put option (less any margin on deposit) or will use the other methods described below. The purpose of writing such options is to generate additional income for the Trust. However, in return for the option premium, the Trust accepts the risk that it may be required to purchase the underlying securities at a price in excess of the securities’ market value at the time of purchase.

 

In the case of a call option, the option is “covered” if the Trust owns the instrument underlying the call or has an absolute and immediate right to acquire that instrument without additional cash consideration (or, if additional cash consideration is required, liquid assets in such amount are segregated) upon conversion or exchange of other instruments held by it. A call option is also covered if the Trust holds a call on the same instrument as the option written where the exercise price of the option held is (i) equal to or less than the exercise price of the option written, or (ii) greater than the exercise price of the option written provided the Trust segregates liquid assets in the amount of the difference. A put option is also covered if the Trust holds a put on the same instrument as the option written where the exercise price of the option held is (i) equal to or higher than the exercise price of the option written, or (ii) less than the exercise price of the option written provided the Trust segregates liquid assets in the amount of the difference. The Trust may also cover options on securities by segregating cash or liquid assets, as permitted by applicable law, with a value, when added to any margin on deposit, that is equal to the market value of the securities in the case of a call option. Segregated cash or liquid assets may be quoted or denominated in any currency.

 

Options on securities indices are similar to options on securities, except that the exercise of securities index options requires cash payments and does not involve the actual purchase or sale of securities. In addition, securities index options are designed to reflect price fluctuations in a group of securities or segment of the securities market rather than price fluctuations in a single security.

 

The Trust may cover call options on a securities index by owning securities whose price changes are expected to be similar to those of the underlying index, or by having an absolute and immediate right to acquire such securities

 

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without additional cash consideration (or for additional consideration which has been segregated by the Trust) upon conversion or exchange of other securities in its portfolio. The Trust may also cover call and put options on a securities index by segregating cash or liquid assets, as permitted by applicable law, with a value, when added to any margin on deposit, that is equal to the market value of the underlying securities in the case of a call option, or the exercise price in the case of a put option, or by owning offsetting options as described above.

 

The Trust may terminate its obligations under an exchange traded call or put option by purchasing an option identical to the one it has written. Obligations under OTC options may be terminated only by entering into an offsetting transaction with the counterparty to such option. Such purchases are referred to as “closing purchase transactions.”

 

Purchasing Options. The Trust may purchase put and call options on any securities in which it may invest or any securities index comprised of securities in which it may invest. The Trust may also enter into closing sale transactions in order to realize gains or minimize losses on options it had purchased.

 

The Trust may purchase call options in anticipation of an increase, or put options in anticipation of a decrease, in the market value of securities or other instruments of the type in which it may invest (“protective puts”). The purchase of a call option would entitle the Trust, in return for the premium paid, to purchase specified securities or other instruments at a specified price during the option period. The Trust would ordinarily realize a gain on the purchase of a call option if, during the option period, the value of such securities exceeded the sum of the exercise price, the premium paid and transaction costs; otherwise the Trust would realize either no gain or a loss on the purchase of the call option. The purchase of a put option would entitle the Trust, in exchange for the premium paid, to sell specified securities at a specified price during the option period. The purchase of protective puts is designed to offset or hedge against a decline in the market value of the Trust’s securities. Put options may also be purchased by the Trust for the purpose of affirmatively benefiting from a decline in the price of securities which it does not own. The Trust would ordinarily realize a gain if, during the option period, the value of the underlying securities decreased below the exercise price sufficiently to cover the premium and transaction costs; otherwise the Trust would realize either no gain or a loss on the purchase of the put option. Gains and losses on the purchase of put options may be offset by countervailing changes in the value of the underlying portfolio securities.

 

The Trust would purchase put and call options on securities indices for the same purposes as it would purchase options on individual securities.

 

Risks Associated with Options Transactions. There is no assurance that a liquid secondary market on an options exchange will exist for any particular exchange-traded option or at any particular time. If the Trust is unable to effect a closing purchase transaction with respect to covered options it has written, the Trust will not be able to sell the underlying securities or dispose of segregated assets until the options expire or are exercised. Similarly, if the Trust is unable to effect a closing sale transaction with respect to options it has purchased, it will have to exercise the options in order to realize any profit and will incur transaction costs upon the purchase or sale of underlying securities.

 

Reasons for the absence of a liquid secondary market on an exchange include the following: (i) there may be insufficient trading interest in certain options; (ii) restrictions may be imposed by an exchange on opening or closing transactions or both; (iii) trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options; (iv) unusual or unforeseen circumstances may interrupt normal operations on an exchange; (v) the facilities of an exchange or the Options Clearing Corporation may not at all times be adequate to handle current trading volume; or (vi) one or more exchanges could, for economic or other reasons, decide or be compelled at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary market on that exchange (or in that class or series of options) would cease to exist, although outstanding options on that exchange that had been issued by the Options Clearing Corporation as a result of trades on that exchange would continue to be exercisable in accordance with their terms.

 

There can be no assurance that higher trading activity, order flow or other unforeseen events will not, at times, render certain of the facilities of the Options Clearing Corporation or various exchanges inadequate. Such events have, in the past, resulted in the institution by an exchange of special procedures, such as trading rotations, restrictions on certain types of order or trading halts or suspensions with respect to one or more options. These special procedures may limit liquidity.

 

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The Trust may purchase and sell both options that are traded on U.S. and foreign exchanges and options traded OTC with broker-dealers who make markets in these options. The ability to terminate OTC options is more limited than with exchange-traded options and may involve the risk that broker-dealers participating in such transactions will not fulfill their obligations.

 

Transactions by the Trust in options will be subject to limitations established by each of the exchanges, boards of trade or other trading facilities on which such options are traded governing the maximum number of options in each class which may be written or purchased by a single investor or group of investors acting in concert regardless of whether the options are written or purchased on the same or different exchanges, boards of trade or other trading facility or are held in one or more accounts or through one or more brokers. Thus, the number of options which the Trust may write or purchase may be affected by options written or purchased by other investment advisory clients of the Investment Adviser. An exchange, board of trade or other trading facility may order the liquidation of positions found to be in excess of these limits, and it may impose certain other sanctions.

 

The writing and purchase of options is a highly specialized activity which involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The use of options to seek to increase total return involves the risk of loss if the Investment Adviser is incorrect in its expectation of fluctuations in securities prices or interest rates. The successful use of options for hedging purposes also depends in part on the ability of the Investment Adviser to manage future price fluctuations and the degree of correlation between the options and securities markets. If the Investment Adviser is incorrect in its expectation of changes in securities prices or determination of the correlation between the securities or securities indices on which options are written and purchased and the securities in the Trust’s investment portfolio, the Trust may incur losses that it would not otherwise incur. The writing of options could increase the Trust’s portfolio turnover rate and, therefore, associated brokerage commissions or spreads.

 

Futures Contracts and Options and Swaps on Futures Contracts

 

Futures Contracts . The Trust may enter into contracts for the purchase or sale for future delivery (a “futures contract”) of baskets of securities, financial indices, financial instruments or foreign currencies. The Trust may purchase or sell futures contracts to attempt to protect the value of its securities from market-wide price movements and fluctuations in interest or foreign exchange rates without actually buying or selling securities or foreign currency.

 

A “sale” of a futures contract (or a “short” futures position) means the assumption of a contractual obligation to deliver the securities or currency underlying the contract at a specified price and at a specified future time. A “purchase” of a futures contract (or a “long” futures position) means the assumption of a contractual obligation to acquire the securities or currency underlying the contract at a specified price and at a specified future time.

 

Margin Requirements . At the time a futures contract is purchased or sold, the Trust must allocate cash or securities as a deposit payment (“initial margin”). It is expected that the initial margin on U.S. exchanges may range from approximately 1% to approximately 10% of the value of the securities or commodities underlying the contract. Under certain circumstances, however, such as periods of high volatility, the Trust may be required by an exchange to increase the level of its initial margin payment. Additionally, initial margin requirements may be increased generally in the future by regulatory action. An outstanding futures contract is valued daily and the payment in cash of “variation margin” may be required, a process known as “mark to the market.”

 

Considerations Concerning Futures Contracts and Options on Futures Contracts . Futures contracts entail special risks. The ordinary spreads between values in the cash and futures markets, due to differences in the character of these markets, are subject to distortions relating to (1) investor’s obligations to meet additional variation margin requirements, (2) decisions to make or take delivery, rather than entering into offsetting transactions, and (3) the difference between margin requirements in the securities markets and margin deposit requirements in the futures markets. The possibility of such distortion means that a correct forecast of general market, foreign exchange rate or interest rate trends by the Investment Adviser may still not result in a successful transaction. The Trust’s ability to establish and close out positions in futures contracts and options on futures contracts will be subject to the development and maintenance of a liquid market. Although the Trust generally will purchase or sell only those futures contracts and options for which there appears to be a liquid market, there is no assurance that a liquid market on an exchange will exist for any particular futures contract or option at any particular time.

 

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Under certain circumstances, exchanges may establish daily limits in the amount that the price of a futures contract may vary either up or down from the previous day’s settlement price. Once the daily limit has been reached in a particular contract, no trades may be made that day at a price beyond that limit.

 

Forward Contracts

 

Forward contracts involve the purchase or sale of a specific quantity of a commodity, government security, foreign currency, or other asset at a specified price, with delivery and settlement at a specified future date. Because it is a completed contract, a purchase forward contract can be a cover for the sale of a futures contract. The Trust may enter into forward contracts for hedging purposes and non-hedging purposes (i.e ., to increase returns). Forward contracts may be used by the Trust for hedging purposes to protect against uncertainty in the level of future foreign currency exchange rates, such as when the Trust anticipates purchasing or selling a foreign security. For example, this technique would allow the Trust to “lock in” the U.S. dollar price of the security. Forward contracts may also be used to attempt to protect the value of the Trust’s existing holdings of foreign securities. There may be, however, an imperfect correlation between the Trust’s foreign securities holdings and the forward contracts entered into with respect to those holdings. Forward contracts may also be used for nonhedging purposes to pursue the Trust’s investment objective, such as when the Trust’s Investment Adviser anticipates that particular foreign currencies will appreciate or depreciate in value, even though securities denominated in those currencies are not then held in the Trust’s portfolio. There is no requirement that the Trust hedge all or any portion of its exposure to foreign currency risks.

 

Forward contracts, unlike futures contracts, are not traded on exchanges and are not standardized; rather, banks and dealers act as principals in these markets, negotiating each transaction on an individual basis. The principals who deal in the forward markets are not required to continue to make markets in the currencies or commodities they trade and these markets can experience periods of illiquidity, sometimes of significant duration. There have been periods during which certain participants in these markets have refused to quote prices for certain currencies or commodities or have quoted prices with an unusually wide spread between the price at which they were prepared to buy and that at which they were prepared to sell. Disruptions can occur in any market traded by the Investment Adviser due to unusually high trading volume, political intervention or other factors. Arrangements to trade forward contracts may be made with only one or a few counterparties, and liquidity problems therefore might be greater than if such arrangements were made with numerous counterparties. The imposition of controls by governmental authorities might also limit such forward (and futures) trading to less than that which the Investment Adviser would otherwise recommend, to the possible detriment of the Trust. Market illiquidity or disruption could result in major losses to the Trust. In addition, the Trust will be exposed to credit risks with regard to counterparties with whom they trade as well as risks relating to settlement default. Such risks could result in substantial losses to the Trust.

 

Equity Swaps

 

The Trust may enter into equity swap contracts to invest in a market without owning or taking physical custody of securities in various circumstances, including circumstances where direct investment in the securities is restricted for legal reasons or is otherwise impracticable. Equity swaps may also be used for hedging purposes or to seek to increase total return. The counterparty to an equity swap contract will typically be a bank, investment banking firm or broker/dealer. Equity swap contracts may be structured in different ways. For example, a counterparty may agree to pay the Trust the amount, if any, by which the notional amount of the equity swap contract would have increased in value had it been invested in particular stocks (or an index of stocks), plus the dividends that would have been received on those stocks. In these cases, the Trust may agree to pay to the counterparty a floating rate of interest on the notional amount of the equity swap contract plus the amount, if any, by which that notional amount would have decreased in value had it been invested in such stocks. Therefore, the return to the Trust on the equity swap contract should be the gain or loss on the notional amount plus dividends on the stocks less the interest paid by the Trust on the notional amount. In other cases, the counterparty and the Trust may each agree to pay the other the difference between the relative investment performances that would have been achieved if the notional amount of the equity swap contract had been invested in different stocks (or indices of stocks).

 

The Trust will generally enter into equity swaps on a net basis, which means that the two payment streams are netted out, with the Trust receiving or paying, as the case may be, only the net amount of the two payments. Payments may be made at the conclusion of an equity swap contract or periodically during its term. Equity swaps normally do not involve the delivery of securities or other underlying assets. Accordingly, the risk of loss with respect to equity swaps is normally limited to the net amount of payments that the Trust is contractually obligated to make. If the

 

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other party to an equity swap defaults, the Trust’s risk of loss consists of the net amount of payments that the Trust is contractually entitled to receive, if any. Inasmuch as these transactions are entered into for hedging purposes or are offset by segregated cash or liquid assets to cover the Trust’s exposure, the Trust and the Investment Adviser believe that such transactions do not constitute senior securities under the Investment Company Act and, accordingly, will not treat them as being subject to the Trust’s borrowing restrictions under the Investment Company Act but will count them against the Trust’s overall leverage limit.

 

The Trust will not enter into swap transactions unless the unsecured commercial paper, senior debt or claims paying ability of the other party thereto is considered to be investment grade by the Investment Adviser. The Trust’s ability to enter into certain swap transactions may be limited by tax considerations.

 

Index Swaps, Interest Rate Swaps, Credit Swaps, Total Return Swaps, Options on Swaps and Interest Rate Caps, Floors and Collars

 

The Trust may enter into index, interest rate, credit and total return swaps for both hedging purposes and to seek to increase total return. As examples, the Trust may enter into swap transactions for the purpose of attempting to obtain or preserve a particular return or spread at a lower cost than obtaining a return or spread through purchases and/or sales of instruments in other markets, as a duration management technique, to protect against any increase in the price of securities the Trust anticipates purchasing at a later date, or to gain exposure to certain markets in an economical way. The Trust may also enter into interest rate caps, floors and collars. The Trust may also purchase and write (sell) options contracts on swaps, commonly referred to as swaptions.

 

In a standard “swap” transaction, two parties agree to exchange the returns, differentials in rates of return or some other amount earned or realized on particular predetermined investments or instruments, which may be adjusted for an interest factor. The gross returns to be exchanged or “swapped” between the parties are generally calculated with respect to a “notional amount,” i.e. , the return on or increase in value of a particular dollar amount invested at a particular interest rate, in a particular security, or in a “basket” of securities representing a particular index. Bilateral swap agreements are two party contracts entered into primarily by institutional investors. Cleared swaps are transacted through futures commission merchants (“FCMs”) that are members of central clearinghouses with the clearinghouse serving as a central counterparty similar to transactions in futures contracts. The Trust posts initial and variation margin by making payments to its clearing member FCMs.

 

Interest rate swaps involve the exchange by the Trust with another party of their respective commitments to pay or receive interest, such as an exchange of fixed rate payments for floating rate payments. Index swaps involve the exchange by the Trust with another party of the respective amounts payable with respect to a notional principal amount at interest rates equal to two specified indices. Credit swaps involve the exchange of a floating or fixed rate payment in return for assuming potential credit losses of an underlying security, or pool of securities. Total return swaps are contracts that obligate a party to pay or receive interest in exchange for payment by the other party of the total return generated by a security, a basket of securities, an index or an index component.

 

A swaption is an option to enter into a swap agreement. Like other types of options, the buyer of a swaption pays a non-refundable premium for the option and obtains the right, but not the obligation, to enter into an underlying swap or to modify the terms of an existing swap on agreed-upon terms. The seller of a swaption, in exchange for the premium, becomes obligated (if the option is exercised) to enter into or modify an underlying swap on agreed-upon terms, which generally entails a greater risk of loss than incurred in buying a swaption. The purchase of an interest rate cap entitles the purchaser, to the extent that a specified index exceeds a predetermined interest rate, to receive payment of interest on a notional principal amount from the party selling such interest rate cap. The purchase of an interest rate floor entitles the purchaser, to the extent that a specified index falls below a predetermined interest rate, to receive payments of interest on a notional principal amount from the party selling the interest rate floor. An interest rate collar is the combination of a cap and a floor that preserves a certain return within a predetermined range of interest rates.

 

A great deal of flexibility may be possible in the way swap transactions are structured. However, generally the Trust will enter into interest rate, total return, credit and index swaps on a net basis, which means that the two payment streams are netted out, with the Trust receiving or paying, as the case may be, only the net amount of the two payments. Interest rate, total return, credit and index swaps do not normally involve the delivery of securities, other underlying assets or principal. Accordingly, the risk of loss with respect to interest rate, total return, credit and index swaps is normally limited to the net amount of interest payments that the Trust is contractually obligated to make. If

 

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the other party to a bilateral swap agreement defaults, the Trust’s risk of loss consists of the net amount of interest payments that the Trust is contractually entitled to receive.

 

Pursuant to the Dodd-Frank Act, certain standardized swaps are currently subject to mandatory central clearing. Central clearing is expected to decrease counterparty risk and increase liquidity compared to bilateral swaps because central clearing interposes the central clearinghouse as the counterparty to each participant’s swap. However, central clearing does not eliminate counterparty risk or illiquidity risk entirely. In addition, depending on the size of the Trust and other factors, the margin required under the rules of a clearinghouse and by a clearing member may be in excess of the collateral required to be posted by the Trust to support its obligations under a similar bilateral swap. However, regulators are expected to adopt rules imposing certain margin requirements, including minimums, on uncleared swaps in the near future, which could change this comparison.

 

A credit swap may have as reference obligations one or more securities that may, or may not, be currently held by the Trust. The protection “buyer” in a credit swap is generally obligated to pay the protection “seller” an upfront or a periodic stream of payments over the term of the swap provided that no credit event, such as a default, on a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value” (full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. The Trust may be either the protection buyer or seller in the transaction. If the Trust is a buyer and no credit event occurs, the Trust may recover nothing if the swap is held through its termination date. However, if a credit event occurs, the buyer generally may elect to receive the full notional value of the swap in exchange for an equal face amount of deliverable obligations of the reference entity whose value may have significantly decreased. As a seller, the Trust generally receives an upfront payment or a rate of income throughout the term of the swap provided that there is no credit event. As the seller, the Trust would effectively add leverage to its portfolio because, in addition to its total net assets, the Trust would be subject to investment exposure on the notional amount of the swap.

 

If a credit event occurs, the value of any deliverable obligation received by the Trust as seller, coupled with the upfront or periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of value to the Trust.

 

To the extent that the Trust’s exposure in a transaction involving a swap, a swaption or an interest rate floor, cap or collar is covered by identifying on its books cash or liquid assets or is covered by other means in accordance with SEC guidance, the Trust and the Investment Adviser believe that the transactions do not constitute senior securities under the Investment Company Act and, accordingly, will not treat them as being subject to the Trust’s borrowing restrictions under the Investment Company Act but will count them against the Trust’s overall leverage limit.

 

The Trust will not enter into bilateral transactions involving swaps, caps, floors or collars unless the unsecured commercial paper, senior debt or claims paying ability of the other party thereto (with respect to bilateral swap transactions) is considered to be investment grade by the Investment Adviser. If there is a default by the other party to such a transaction, the Trust will have contractual remedies pursuant to the agreements related to the transaction.

 

The use of swaps, swaptions and interest rate caps, floors and collars is a highly specialized activity which creates effective leverage and involves investment techniques and risks different from those associated with ordinary portfolio securities transactions. The use of a swap requires an understanding not only of the referenced asset, reference rate, or index but also of the swap itself, without the benefit of observing the performance of the swap under all possible market conditions. If the Investment Adviser is incorrect in its forecasts of market values, credit quality and interest rates, the investment performance of the Trust would be less favorable than it would have been if these investment techniques were not used.

 

In addition, these transactions can involve greater risks than if the Trust had invested in the reference obligation directly because, in addition to general market risks, swaps are subject to illiquidity risk, counterparty risk, credit risk and pricing risk. Regulators also may impose limits on an entity’s or group of entities’ positions in certain swaps. However, certain risks are reduced (but not eliminated) if the Trust invests in cleared swaps. Because bilateral swap agreements are two party contracts and because they may have terms of greater than seven days, these swaps may be considered to be illiquid. Moreover, the Trust bears the risk of loss of the amount expected to be received under a swap agreement in the event of the default or bankruptcy of a swap counterparty. Many swaps are complex and often valued subjectively. Swaps and other derivatives may also be subject to pricing or “basis” risk,

 

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which exists when the price of a particular derivative diverges from the price of corresponding cash market instruments. Under certain market conditions it may not be economically feasible to imitate a transaction or liquidate a position in time to avoid a loss or take advantage of an opportunity. If a swap transaction is particularly large or if the relevant market is illiquid, it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses.

 

The swap market has grown substantially in recent years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized swap documentation. As a result, the swap market has become relatively liquid in comparison with the markets for other similar instruments which are traded in the interbank market. The Investment Adviser, under the supervision of the Board of Trustees (the “Board”), is responsible for determining and monitoring the liquidity of the Trust’s transactions in swaps, swaptions, caps, floors and collars.

 

Regulators are in the process of developing rules that would require trading and execution of most liquid swaps on trading facilities. Moving trading to an exchange-type system may increase market transparency and liquidity but may require the Trust to incur increased expenses to access the same types of swaps.

 

Rules adopted pursuant to the Dodd-Frank Act also require centralized reporting of detailed information about many types of cleared and uncleared swaps. This information is available to regulators and, to a more limited extent and on an anonymous basis, to the public. Reporting of swap data may result in greater market transparency, which may be beneficial to funds that use swaps to implement trading strategies. However, these rules place potential additional administrative obligations on these funds, and the safeguards established to protect anonymity may not function as expected.

 

When-Issued and Delayed Delivery Transactions

 

The Trust may purchase securities on a “when issued” basis or a “delayed delivery” basis. “When-issued” securities are securities whose terms are available and for which a market exists, but which are not available for immediate delivery. “Delayed delivery” transactions are those in which the Trust purchases a security but settlement of the transaction is to occur after the customary settlement date. The Trust will enter into such transactions for the purpose of acquiring securities that it wishes to purchase but that are not currently available for purchase. The Trust may dispose of a commitment to purchase prior to settlement. However, the Trust does not intend to make such purchases for speculative purposes. When such transactions are negotiated, the purchase price is fixed at the time the commitment is made, but delivery and payment for the securities take place at a later date. During the period between commitment and settlement, no payment is made for the securities purchased, and no interest or dividends accrue to the Trust. However, the securities are subject to market fluctuation, and the value at settlement may be less than the purchase price. While awaiting settlement, the Trust will maintain with its custodian a segregated account consisting of liquid securities, which may include cash, obligations of the U.S. Government, its agencies or instrumentalities (“U.S. Government Securities”), debt obligations or equity securities having a value at least equal to its purchase commitments. The commitment to purchase a security for which payment will be made on a future date may be deemed a separate security and involves a risk of loss if the security declines prior to the settlement date, which risk is in addition to the risk of decline of the Trust’s other assets.

 

Repurchase Agreements

 

A repurchase agreement is an agreement under which the Trust acquires a security subject to the obligation of the seller to repurchase and the Trust to resell such security at a fixed time and price (representing the Trust’s cost and interest). It is the Trust’s present intention to enter into repurchase agreements for a relatively short period (usually not more than one week) only with commercial banks and registered broker-dealers and only with respect to U.S. Government Securities and money market instruments. Repurchase agreements may also be viewed as loans made by the Trust, which are collateralized by the securities subject to repurchase. The Trust intends to take possession of collateral, and the Investment Adviser will monitor repurchase transactions to ensure that the value of the underlying securities will at all times be at least equal to the total amount of the repurchase obligation, including the interest factor. If the seller defaults the Trust could realize a loss on the sale of the underlying security to the extent that the proceeds of sale, including accrued interest, are less than the resale price provided in the agreement, including interest. In addition, if the seller should be involved in bankruptcy or insolvency proceedings, the Trust may incur delay and costs in selling the underlying security or may suffer a loss of principal and interest if the Trust is treated as an unsecured creditor and required to return the underlying collateral to the seller.

 

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Reverse Repurchase Agreements

 

Reverse repurchase agreements involve the sale of securities held by the Trust with an agreement by the Trust to repurchase the securities at an agreed upon price, date and interest payment. At the time the Trust enters into a reverse repurchase agreement, it may establish and maintain a segregated account with the custodian containing cash and/or liquid assets having a value not less than the repurchase price (including accrued interest). If the Trust establishes and maintains such a segregated account, a reverse repurchase agreement will not be considered a borrowing by the Trust; however, under certain circumstances in which the Trust does not establish and maintain such a segregated account, such reverse repurchase agreement will be considered a borrowing for the purpose of the Trust’s limitation on borrowings. Reverse repurchase agreements create effective leverage. If the securities held by the Trust decline in value while these transactions are outstanding, the NAV of the Trust’s outstanding shares will decline in value by proportionately more than the decline in value of the securities. In addition, reverse repurchase agreements involve the risk that the investment return earned by the Trust (from the investment of the proceeds) will be less than the interest expense of the transaction, that the market value of the securities sold by the Trust will decline below the price the Trust is obligated to pay to repurchase the securities, and that the securities may not be returned to the Trust.

 

The Trust may “set aside” liquid assets, or engage in other appropriate measures to “cover” its obligations with respect to its transactions in reverse repurchase agreements. As a result of such segregation, the Trust’s obligations under such transactions will not be considered senior securities representing indebtedness for purposes of the Investment Company Act, and the Trust’s use of leverage through reverse repurchase agreements will not be limited by the Investment Company Act, although it will be limited by the Trust’s overall limitation on leverage as described in the prospectus. However, the Trust’s use of leverage through reverse repurchase agreements will be considered to be financial leverage for purposes of determining compliance with the Trust’s maximum overall leverage levels approved by the Board. The Trust’s use of leverage through reverse repurchase agreements may be further limited by the availability of cash or liquid securities to earmark or segregate in connection with such transactions.

 

If the buyer of securities under a reverse repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension of time to determine whether to enforce the Trust’s obligation to repurchase the securities, and the Trust’s use of the proceeds of the reverse repurchase agreement may effectively be restricted pending such decision. Also, the Trust would bear the risk of loss to the extent that the proceeds of the reverse repurchase agreement are less than the value of the securities subject to such agreement.

 

With respect to any reverse repurchase agreement or similar transaction, the Trust’s Managed Assets shall include any proceeds from the sale of an asset of the Trust to a counterparty in such a transaction, in addition to the value of the underlying asset as of the relevant measuring date.

 

Short Sales

 

The Trust may engage in short sales and short sales against the box in an amount not to exceed 10% of Managed Assets. Short sales are transactions in which the Trust sells a security it does not own in anticipation of a decline in the market value of that security. To complete such a transaction, the Trust must borrow the security to make delivery to the buyer. The Trust then is obligated to replace the security borrowed by purchasing it at the market price at the time of replacement. The price at such time may be more or less than the price at which the security was sold by the Trust. Until the security is replaced, the Trust is required to pay to the lender amounts equal to any dividend which accrues during the period of the loan. To borrow the security, the Trust also may be required to pay a premium, which would increase the cost of the security sold. There will also be other costs associated with short sales, which will be borne solely by the Trust’s common Shareholders.

 

The Trust will incur a loss as a result of the short sale if the price of the security increases between the date of the short sale and the date on which the Trust replaces the borrowed security. The Trust will realize a gain if the security declines in price between those dates. This result is the opposite of what one would expect from a cash purchase of a long position in a security. The amount of any gain will be decreased, and the amount of any loss increased, by the amount of any premium or amounts in lieu of interest the Trust may be required to pay in connection with a short sale, and will be also decreased by any transaction or other costs.

 

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Until the Trust replaces a borrowed security in connection with a short sale, the Trust will (a) segregate cash or liquid assets at such a level that the segregated assets plus any amount deposited with the broker as collateral will equal the current value of the security sold short or (b) otherwise cover its short position in accordance with applicable law.

 

There is no guarantee that the Trust will be able to close out a short position at any particular time or at an acceptable price. During the time that the Trust is short a security, it is subject to the risk that the lender of the security will terminate the loan at a time when the Trust is unable to borrow the same security from another lender. If that occurs, the Trust may be “bought in” at the price required to purchase the security needed to close out the short position, which may be a disadvantageous price.

 

The Trust may engage in short sales against the box. As noted above, a short sale is made by selling a security the seller does not own. A short sale is “against the box” to the extent that the seller contemporaneously owns or has the right to obtain, at no added cost, securities identical to those sold short. The Trust may enter into a short sale against the box, for example, to lock in a sales price for a security the Trust does not wish to sell immediately. If the Trust sells securities short against the box, it may protect itself from loss if the price of the securities declines in the future, but will lose the opportunity to profit on such securities if the price rises. If the Trust effects a short sale of securities at a time when it has an unrealized gain on the securities, it may be required to recognize that gain as if it had actually sold the securities (as a “constructive sale”) on the date it effects the short sale. However, such constructive sale treatment may not apply if the Trust closes out the short sale with securities other than the appreciated securities held at the time of the short sale and if certain other conditions are satisfied. Uncertainty regarding the tax consequences of effecting short sales may limit the extent to which the Trust may effect short sales.

 

Preferred Stock, Warrants and Stock Purchase Rights

 

The Trust may invest in preferred stock, warrants and stock purchase rights (or “rights”). Preferred stock represents an ownership interest providing the holder with claims on the issuer’s earnings and assets before common stock owners but after creditors and other debt holders. Unlike debt securities, the obligations of an issuer of preferred stock, including dividend and other payment obligations, may not typically be accelerated by the holders of such preferred stock on the occurrence of an event of default (such as a covenant default or filing of a bankruptcy petition) or other non-compliance by the issuer with the terms of the preferred stock. Often, however, on the occurrence of any such event of default or non-compliance by the issuer, preferred stockholders will be entitled to gain representation on the issuer’s board of directors or increase their existing board representation. In addition, preferred stockholders may be granted voting rights with respect to certain issues on the occurrence of any event of default.

 

Warrants and other rights are securities/contracts that are similar to options but with different terms that entitle the holder to buy equity securities at a specific price for a specific period of time. The Trust will invest in warrants and rights only if such equity securities are deemed appropriate by the Investment Adviser for investment by the Trust. Warrants and rights have no voting rights, receive no dividends and have no rights with respect to the assets of the issuer.

 

Exchange-Traded Notes (“ETNs”)

 

ETNs are a type of senior, unsecured, unsubordinated debt security issued by financial institutions that combines both aspects of bonds and ETFs. An ETN’s returns are based on the performance of a market index minus fees and expenses. Similar to ETFs, ETNs are listed on an exchange and traded in the secondary market. However, unlike an ETF, an ETN can be held until the ETN’s maturity, at which time the issuer will pay a return linked to the performance of the market index to which the ETN is linked minus certain fees. Unlike regular bonds, ETNs do not make periodic interest payments and principal is not protected. ETNs are subject to credit risk and the value of an ETN may drop due to a downgrade in the issuer’s credit rating, despite the underlying market benchmark or strategy remaining unchanged. The value of an ETN may also be influenced by time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying assets, changes in the applicable interest rates, changes in the issuer’s credit rating, and economic, legal, political, or geographic events that affect the referenced underlying asset. When the Trust invests in ETNs it will bear its proportionate share of any fees and expenses borne by the ETN. The Trust’s decision to sell its ETN holdings may be limited by the availability of a secondary market. In addition, although an ETN may be listed on an exchange, the issuer may not be required to maintain the listing and there can be no assurance that a secondary market will exist for an ETN.

 

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Unseasoned Companies

 

The Trust may invest in companies (including predecessors) which have operated less than three years. The securities of such companies may have limited liquidity, which can result in their being priced higher or lower than might otherwise be the case. In addition, investments in unseasoned companies are more speculative and entail greater risk than do investments in companies with an established operating history.

 

U.S. Government Securities

 

The Trust may invest in securities issued or guaranteed by the U.S. Government or its agencies or instrumentalities. Although U.S. Government securities issued directly by the U.S. Government are guaranteed by the U.S. Treasury, other U.S. Government securities issued by an agency or instrumentality of the U.S. Government may not be. No assurance can be given that the U.S. Government would provide financial support to its agencies and instrumentalities if not required to do so by law.

 

Custodial Receipts and Trust Certificates

 

The Trust may invest in custodial receipts and trust certificates, which may be underwritten by securities dealers or banks, representing interests in securities held by a custodian or trustee. The securities so held may include U.S. Government Securities, municipal securities or other types of securities in which the Trust may invest. The custodial receipts or trust certificates are underwritten by securities dealers or banks and may evidence ownership of future interest payments, principal payments or both on the underlying securities, or, in some cases, the payment obligation of a third party that has entered into an interest rate swap or other arrangement with the custodian or trustee. For purposes of certain securities laws, custodial receipts and trust certificates may not be considered obligations of the U.S. government or other issuer of the securities held by the custodian or trustee. As a holder of custodial receipts and trust certificates, the Trust will bear its proportionate share of the fees and expenses charged to the custodial account or trust. The Trust may also invest in separately issued interests in custodial receipts and trust certificates.

 

Although under the terms of a custodial receipt or trust certificate the Trust would typically be authorized to assert its rights directly against the issuer of the underlying obligation, the Trust could be required to assert through the custodian bank or trustee those rights as may exist against the underlying issuers. Thus, in the event an underlying issuer fails to pay principal and/or interest when due, the Trust may be subject to delays, expenses and risks that are greater than those that would have been involved if the Trust had purchased a direct obligation of the issuer. In addition, in the event that the trust or custodial account in which the underlying securities have been deposited is determined to be an association taxable as a corporation, instead of a non-taxable entity, the yield on the underlying securities would be reduced in recognition of any taxes paid.

 

Certain custodial receipts and trust certificates may be synthetic or derivative instruments that have interest rates that reset inversely to changing short-term rates and/or have embedded interest rate floors and caps that require the issuer to pay an adjusted interest rate if market rates fall below or rise above a specified rate. Because some of these instruments represent relatively recent innovations, and the trading market for these instruments is less developed than the markets for traditional types of instruments, it is uncertain how these instruments will perform under different economic and interest-rate scenarios. Also, because these instruments may be leveraged, their market values may be more volatile than other types of fixed income instruments and may present greater potential for capital gain or loss. The possibility of default by an issuer or the issuer’s credit provider may be greater for these derivative instruments than for other types of instruments. In some cases, it may be difficult to determine the fair value of a derivative instrument because of a lack of reliable objective information and an established secondary market for some instruments may not exist. In many cases, the Internal Revenue Service (the “IRS”) has not ruled on the tax treatment of the interest or payments received on the derivative instruments and, accordingly, purchases of such instruments are based on the opinion of counsel to the sponsors of the instruments.

 

Non-Investment Grade Securities

 

The Trust may invest in non-convertible bonds rated BB+ or below by S&P, Ba1 or below by Moody’s, or BB by Fitch or comparable rated and unrated securities. These bonds are commonly referred to as “junk bonds” and are considered speculative. The ability of issuers of non-investment grade securities to make principal and interest payments may be questionable because such issuers are often less creditworthy or are highly leveraged and generally less able than more established or less leveraged entities to make scheduled payments of principal and interest. Non-investment grade securities are also issued by governmental issuers that may have difficulty in making

 

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all scheduled interest and principal payments. In some cases, non-investment grade securities may be highly speculative, have poor prospects for reaching investment grade standing and be in default. As a result, investment in such bonds will entail greater risks than those associated with investment in investment grade bonds ( i.e. , bonds rated AAA, AA, A or BBB by Standard & Poor’s, Aaa, Aa, A or Baa by Moody’s, or AAA, AA, A, or BBB by Fitch). Analysis of the creditworthiness of issuers of non-investment grade securities may be more complex than for issuers of higher quality debt securities, and the ability of the Trust to achieve its investment objective may, to the extent of its investments in non-investment grade securities, be more dependent upon such creditworthiness analysis than would be the case if the Trust were investing in higher quality securities.

 

The market values of non-investment grade securities tend to reflect individual corporate or municipal developments to a greater extent than do those of higher rated securities, which react primarily to fluctuations in the general level of interest rates. Issuers of non-investment grade securities that are highly leveraged may not be able to make use of more traditional methods of financing. Their ability to service debt obligations may be more adversely affected by economic downturns or their inability to meet specific projected business forecasts than would be the case for issuers of high-rated securities. Negative publicity about the junk bond market and investor perceptions regarding lower-rated securities, whether or not based on fundamental analysis, may depress the prices for non-investment grade securities. In the lower quality segments of the fixed income securities market, changes in perceptions of issuers’ creditworthiness tend to occur more frequently and in a more pronounced manner than do changes in higher quality segments of the fixed income securities market, resulting in greater yield and price volatility. Another factor which causes fluctuations in the prices of non-investment grade securities is the supply and demand for similarly rated securities. In addition, the prices of investments fluctuate in response to the general level of interest rates.

 

Fluctuations in the prices of portfolio securities subsequent to their acquisition will not affect cash income from such securities but will be reflected in the Trust’s NAV.

 

The risk of loss from default for the holders of non-investment grade securities is significantly greater than is the case for holders of other debt securities because non-investment grade securities are generally unsecured and are often subordinated to the rights of other creditors of the issuers of such securities. Investment by the Trust in already defaulted securities poses an additional risk of loss should nonpayment of principal and interest continue in respect of such securities. Even if such securities are held to maturity, recovery by the Trust of its initial investment and any anticipated income or appreciation is uncertain. In addition, the Trust may incur additional expenses to the extent that it is required to seek recovery relating to the default in the payment of principal or interest on such securities or otherwise protect its interests. The Trust may be required to liquidate other portfolio securities to satisfy annual distribution obligations of the Trust in respect of accrued interest income on securities which are subsequently written off, even though the Trust has not received any cash payments of such interest.

 

The secondary market for non-investment grade securities is concentrated in relatively few markets and is dominated by institutional investors, including mutual funds, insurance companies and other financial institutions. Accordingly, the secondary market for such securities may not be as liquid as and may be more volatile than the secondary market for higher-rated securities. In addition, the trading volume for non-investment grade securities is generally lower than that of higher rated securities. The secondary market for non-investment grade securities could contract under adverse market or economic conditions independent of any specific adverse changes in the condition of a particular issuer. These factors may have an adverse effect on the ability of the Trust to dispose of particular portfolio investments when needed to meet redemption requests or other liquidity needs. The Investment Adviser could find it difficult to sell these investments or may be able to sell the investments only at prices lower than if such investments were widely traded. Prices realized upon the sale of such lower rated or unrated securities, under these circumstances, may be less than the prices used in calculating the NAV of the Trust. A less liquid secondary market also may make it more difficult for the Trust to obtain precise valuations of the non-investment grade securities in its portfolio.

 

The adoption of new legislation could adversely affect the secondary market for non-investment grade securities and the financial condition of issuers of these securities. The form of any future legislation, and the probability of such legislation being enacted, is uncertain.

 

Non-investment grade securities also present risks based on payment expectations. Non-investment grade securities frequently contain “call” or buy-back features which permit the issuer to call or repurchase the security from its holder. If an issuer exercises such a “call option” and redeems the security, the Trust may have to replace such security with a lower-yielding security, resulting in a decreased return for investors. In addition, if the Trust

 

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experiences net redemptions of its shares, it may be forced to sell its higher-rated securities, resulting in a decline in the overall credit quality of its portfolio and increasing its exposure to the risks of non-investment grade securities.

 

Credit ratings issued by credit rating agencies are designed to evaluate the safety of principal and interest payments of rated securities. They do not, however, evaluate the market value risk of non-investment grade securities and, therefore, may not fully reflect the true risks of an investment. In addition, credit rating agencies may or may not make timely changes in a rating to reflect changes in the economy or in the conditions of the issuer that affect the market value of the security. Consequently, credit ratings are used only as a preliminary indicator of investment quality. Investments in non-investment grade and comparable unrated obligations will be more dependent on the Investment Adviser’s credit analysis than would be the case with investments in investment-grade debt obligations. The Investment Adviser employs its own credit research and analysis, which includes a study of an issuer’s existing debt, capital structure, ability to service debt and to pay dividends, sensitivity to economic conditions, operating history and current earnings trend. The Investment Adviser continually monitors the investments in the Trust’s portfolio and evaluates whether to dispose of or to retain non-investment grade and comparable unrated securities whose credit ratings or credit quality may have changed. If after its purchase, a portfolio security is assigned a lower rating or ceases to be rated, the Trust may continue to hold the security if the Investment Adviser believes it is in the best interest of the Trust and its Shareholders.

 

An economic downturn could severely affect the ability of highly leveraged issuers of junk bond investments to service their debt obligations or to repay their obligations upon maturity. Factors having an adverse impact on the market value of junk bonds will have an adverse effect on the Trust’s NAV to the extent it invests in such investments. In addition, the Trust may incur additional expenses to the extent it is required to seek recovery upon a default in payment of principal or interest on its portfolio holdings.

 

Loans of Portfolio Securities

 

The Trust may lend its portfolio securities, subject to the limitation that the Trust will not lend a security if, as a result of such loan, all securities then subject to loans would exceed 30 % of the Trust’s Managed Assets. Under applicable regulatory requirements (which are subject to change), the loan collateral must, on each business day, be at least equal to the value of the loaned securities and must consist of cash, bank letters of credit or U.S. Government Securities. To be acceptable as collateral, letters of credit must obligate a bank to pay amounts demanded by the Trust if the demand meets the terms of the letter. Such terms and the issuing bank must be satisfactory to the Trust. When the Trust lends a security, it is entitled to receive substitute payments in the amount of any dividends or interest on the loaned security and also receive one or more of: (1) a negotiated loan fee; (2) interest on securities used as collateral for the loan; or (3) interest on short-term debt securities purchased with the loan collateral. Either type of interest may be shared with the borrower of the security. The Trust may also pay reasonable finder’s, custodian and administrative fees. The terms of the Trust’s loans of securities must meet certain requirements under the Internal Revenue Code of 1986, as amended (the “Code”), such as providing that the Trust may terminate the loan upon no more than five days’ notice, and must permit the Trust to reacquire loaned securities in time to vote on any important matter. The Trust will make such loans only to banks and dealers with which it may enter into repurchase agreements. If the borrower fails to return the loaned security, the Trust’s risks include: (1) any costs in disposing of the collateral; (2) loss from a decline in value of the collateral to an amount less than 100% of the securities loaned; (3) being unable to exercise its voting or consent rights with respect to the security; (4) any loss arising from a delay in the Trust’s ability to recover such securities in a timely manner; (5) the inability of the Trust to reacquire the loaned securities; and (6) counterparty risk.

 

INVESTMENT RESTRICTIONS

 

The Trust has adopted certain fundamental restrictions, which may not be changed without the affirmative vote of the holders of a majority of the Trust’s outstanding Shares. As used in this SAI, a “majority of the Trust’s outstanding Shares” means the lesser of (1) 67% of the Shares represented at a meeting at which more than 50% of the outstanding Shares are represented or (2) more than 50% of the outstanding Shares. For purposes of the following limitations (except for the asset coverage requirement with respect to borrowings), all percentage limitations apply immediately after a purchase and any subsequent change in any applicable percentage resulting from market conditions does not require any action. With respect to the limitations on the issuance of senior securities and in the case of borrowings, the percentage limitations apply at the time of issuance and on an ongoing basis. The Trust may not:

 

22



 

1.                                       Invest 25% or more of its Managed Assets in the securities of one or more issuers conducting their principal business activities in the same industry (excluding the U.S. Government or any of its agencies or instrumentalities); except that the Trust will invest more than 25% of its Managed Assets in companies conducting their principal business in healthcare industries.

 

2.                                       Purchase or sell commodities or commodities contracts. The prohibition on the purchase or sale of commodities applies to the purchase or sale of “physical” commodities; the Trust may invest in currency and financial instruments and contracts in accordance with its investment objective and policies, including, without limitation, structured notes, futures contracts, swaps, options on commodities, currencies, swaps and futures, ETFs, ETNs, investment pools and other instruments, regardless of whether such instrument is considered to be a commodity.

 

3.                                       Purchase or sell real estate; although the Trust may purchase and sell securities or instruments that are secured by real estate or interests therein or that reflect the return of an index of real estate values, securities of real estate investment trusts and mortgage-related securities, and may hold and sell real estate acquired by the Trust as a result of the ownership of securities.

 

4.                                       Underwrite securities of other issuers, except to the extent that, in connection with the disposition of its portfolio securities, the Trust may be deemed an underwriter under federal or state securities law. See “Portfolio Transactions and Brokerage.”

 

5.                                       Issue senior securities to the extent such issuance would violate applicable law.

 

6.                                       Borrow money, except as permitted by the Investment Company Act, or interpretations or modifications by the Commission, Commission staff or other authority with appropriate jurisdiction.

 

7.                                       Mortgage, pledge, hypothecate or in any manner transfer, as security for indebtedness, any securities owned or held by the Trust, except as may be necessary in connection with permitted borrowings under 6 above.

 

8.                                       Make loans of money, except (a) by the purchase of debt obligations in which the Trust may invest consistent with its investment objective and policies, or (b) as may otherwise be permitted by the Investment Company Act, as amended from time to time, the rules and regulation promulgated by the SEC under the Investment Company Act, as amended from time to time, or an exemption or other relief applicable to the Trust from the provisions of the Investment Company Act, as amended from time to time.  The Trust reserves the authority to enter into repurchase agreements, reverse repurchase agreements and to make loans of its portfolio securities to qualified institutional investors, brokers, dealers, banks or other financial institutions, so long as the terms of the loans are not inconsistent with the requirements of the Investment Company Act.

 

In addition, the Trust has adopted the following investment policies, which may be changed by the action of the Board of Trustees (the “Board”) without shareholder approval:

 

1.                                       The Trust, under normal circumstances, will have at least 80% of its Managed Assets invested in Healthcare Companies. This investment policy may only be changed with 60 days’ prior notice to Shareholders.

 

2.                                       The Trust may invest up to 10% of the Trust’s Managed Assets in Restricted Securities.

 

Except as otherwise noted, all percentage limitations set forth above apply immediately after a purchase and a subsequent change in the applicable percentage resulting from market fluctuations does not require elimination of any security from the portfolio. Other than the restrictions identified above as fundamental, the Trust’s investment policies and restrictions may be changed without Shareholder approval.

 

TRUSTEES AND OFFICERS

 

Overall responsibility for general oversight of the Trust rests with the Board. The Board is comprised of seven individuals, six of whom are not “interested persons” of the Trust (as that term is defined in Section 2(a)(19) of the Investment Company Act) (“Independent Trustee”). The Chairman of the Board is an Independent Trustee. The Chairman presides at meetings of the Trustees, participates in the preparation of the agenda for meetings of the Board, and acts as a liaison between the Independent Trustees and the Trust’s management between Board meetings. Except for any duties specified herein, the designation as Chairman does not impose any obligations or standards greater than or different from other Trustees.

 

23



 

The Board holds regular quarterly meetings each year to consider and address matters involving the Trust. The Board also may hold special meetings to address matters arising between regular meetings. The Independent Trustees also meet outside the presence of management in executive session at least quarterly and have engaged independent legal counsel to assist them in performing their oversight responsibilities.

 

The Board has established Audit, Governance and Nominating, Valuation and Qualified Legal Compliance Committees to assist the Board in the oversight of the management and affairs of the Trust. All of the members of these Committees are Independent Trustees, except for Dr. Omstead, who serves on the Valuation Committee. From time to time the Board may establish additional committees or informal working groups to deal with specific matters.

 

The Trust is subject to a number of risks including investment, compliance, operational and valuation risks. Although the Investment Adviser and the officers of the Trust are responsible for managing these risks on a day-to-day basis, the Board has adopted, and periodically reviews, policies and procedures designed to address these risks. As part of its regular oversight of the Trust, the Board, directly or through a Committee, interacts with the Trust’s Chief Compliance Officer, the Trust’s independent public accounting firm, and legal counsel to the Trust. These interactions include discussing the Trust’s risk management and controls with the independent registered public accounting firm engaged by the Trust, reviewing valuation policies and procedures and the valuations of specific restricted securities, and receiving periodic reports from the Trust’s Chief Compliance Officer regarding compliance matters relating to the Trust and its major service providers, including results of the implementation and testing of the Trust’s and such providers’ compliance programs. The Board’s oversight function is facilitated by management reporting processes designed to provide information to the Board regarding the identification, assessment, and management of critical risks and the controls and policies and procedures used to mitigate those risks. The Board reviews its role in supervising the Trust’s risk management from time to time and may change the manner in which it fulfills its oversight responsibilities at its discretion at any time.

 

The Board has determined that its leadership structure is appropriate for the Trust because it enables the Board to exercise informed and independent judgment over matters under its purview, allocates responsibility among committees in a manner that fosters effective oversight and allows the Board to devote appropriate resources to specific issues in a flexible manner as they arise. The Board periodically reviews its leadership structure as well as its overall structure, composition, and functioning, and may make changes at its discretion at any time.

 

The Trust’s Declaration of Trust provides that the Trust will indemnify Trustees and officers and may indemnify employees and agents of the Trust against liabilities and expenses incurred in connection with claims or litigation in which they may be involved because of their offices with the Trust. However, nothing in the Declaration of Trust or the By-laws of the Trust protects or indemnifies a Trustee, officer, employee or agent against any liability to which he or she would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.

 

The names of the Trustees and officers of the Trust, their addresses, ages and principal occupations during the past five years, and their positions with certain other organizations and publicly-held companies, are provided in the tables below. Trustees that are deemed “interested persons” (as that term is defined in Section 2(a)(19) of the Investment Company Act) of the Trust or the Investment Adviser are included in the table titled “Interested Trustees.” Trustees who are not interested persons as described above are referred to as Independent Trustees. The Trust, Tekla Life Sciences Investors (formerly known as H&Q Life Sciences Investors) (“HQL”), Tekla Healthcare Investors (formerly known as H&Q Healthcare Investors) (“HQH”) and Tekla Healthcare Opportunities Fund (“THQ”), other closed-end investment companies advised by the Investment Adviser, are the only four portfolios in the Fund Complex. Each Trustee also serves as a trustee for HQL, HQH and THQ.  

 

24



 

TRUSTEES

 

NAMES, ADDRESSES(1) AND
DATES OF BIRTH

 

POSITION WITH THE
TRUST, TERM OF
OFFICE(2) AND
LENGTH
OF TIME SERVED

 

PRINCIPAL OCCUPATION(S) DURING
PAST 5 YEARS AND OTHER
DIRECTORSHIPS HELD

 

NUMBER OF
PORTFOLIOS IN
TRUST
COMPLEX
OVERSEEN BY
TRUSTEE

INDEPENDENT TRUSTEES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Michael W. Bonney

 

8/1958

 

Class C; Trustee (since 2015)

 

Chief Executive Officer and Director, Cubist Pharmaceuticals, Inc. (2012-2014); President, Chief Executive Officer and Director, Cubist Pharmaceuticals, Inc. (2003-2012); President, Cubist Pharmaceuticals, Inc. (2002-2003); Director, NPS Pharmaceuticals, Inc. (since 2005); Chairman of the Board of Trustees, Bates College (since 2010); Trustee, Bates College (since 2002); Board member of the Pharmaceutical Research and Manufacturers of America (PhRMA) (since 2009).

 

4

Rakesh K. Jain, Ph.D.

 

12/1950

 

Class B; Trustee (since 2015)

 

Director, Steele Lab of Tumor Biology at Massachusetts General Hospital (since 1991); A.W. Cook Professor of Tumor Biology (Radiation Oncology) at Harvard Medical School (since 1991); Ad hoc Consultant/Scientific Advisory Board Member for pharmaceutical/biotech companies (various times since 2002); Ad hoc Consultant, Gerson Lehman Group (since 2004) (financial services research); Advisory Committee Member, Department of Biotechnology, Government of India (2004 - 2009). Director, Co-Founder, XTuit Pharmaceuticals, Inc. (since 2011).

 

4

Oleg M. Pohotsky

 

3/1947

 

Class A; Trustee (since 2015)

 

Consultant and Managing Partner, Right Bank Partners (since 2002); Adviser, Board of Advisers, Kaufman & Co. LLC (since 2008) (investment banking); Director, Avangard Investment Holdings (since 2010); Director, New America High Income Fund, Inc. (since 2013).

 

4

William S. Reardon, CPA

 

6/1946

 

Class A; Trustee (since 2015)

 

Independent Consultant (since 2002); Director, Idera Pharmaceuticals, Inc. (since 2002); Director, Synta Pharmaceuticals, Inc. (since 2004).

 

4

Uwe E. Reinhardt, Ph.D.

 

9/1937

 

Class C; Trustee (since 2015)

 

Professor of Economics, Princeton University (since 1968); Director, Boston Scientific Corporation (since 2002) (medical devices); Director, Amerigroup, Inc. (since 2002) (health insurance).

 

4

Lucinda H. Stebbins, CPA

 

 

Class B; Trustee (since 2015)

 

Independent Consultant and Senior Project Manager, Deutsche Bank (since 2004); Director, Solstice Home Care, Inc. (since 2014); Director, Bald Peak Land

 

4

 

25



 

11/1945

 

 

 

Company, (2008-2014) (real estate).

 

 

 

 

 

 

 

 

 

INTERESTED TRUSTEE:

 

 

 

 

 

 

 

 

 

 

 

 

 

Daniel R. Omstead, Ph.D. (3)

7/1953

 

Class B; President (since 2015)

 

Trustee (since 2015)

 

President, the Trust (since 2015), Tekla Healthcare Investors (formerly known as H&Q Healthcare Investors) and Tekla Life Sciences Investors (formerly known as H&Q Life Sciences Investors) (since 2001) and Tekla Healthcare Opportunities Fund (since 2014); President, Chief Executive Officer and Managing Member, Tekla Capital Management LLC (since 2002); Director, Neurovance, Inc. (since 2015) (biotechnology); Director, IlluminOss Medical, Inc. (since 2012) (medical devices); Director, Magellan Diagnostics, Inc. (since 2006) (medical devices); Director, Palyon Medical Corporation (since 2009) (medical devices); Director, Dynex Corporation (since 2012) (medical devices).

 

4

 


(1)          The address for each Trustee is: Tekla World Healthcare Fund, 100 Federal Street, 19th Floor, Boston, MA 02110, 617-772-8500.

 

(2)          After a Trustee’s initial term, each Trustee is expected to serve a three-year term concurrent with the class of Trustees in which he or she serves:

 

Class A Trustees serve an initial term until the first annual shareholder meeting subsequent to their election called for the purpose of electing Trustees and until a successor is duly elected and qualifies.

 

Class B Trustees serve an initial term until the second annual shareholder meeting called for the purpose of electing Trustees and until a successor is duly elected and qualifies.

 

Class C Trustees serve an initial term until the third annual shareholder meeting called for the purpose of electing Trustees and until a successor is duly elected and qualifies.

 

(3)          Trustee considered to be an “interested person” within the meaning of the Investment Company Act (an “Interested Person”), through his position or affiliation with the Investment Adviser.

 

The Board believes that each Trustee’s experience, qualifications, attributes and skills on an individual basis and in combination with those of other Trustees lead to the conclusion that each Trustee should serve in such capacity. Among the attributes or skills common to all Trustees are their ability to review critically and to evaluate, question and discuss information provided to them, to interact effectively with the other Trustees, the Trust’s Investment Adviser, the administrator and other service providers, counsel and independent registered public accounting firm, and to exercise effective and independent business judgment in the performance of their duties as Trustees. Each Trustee’s ability to perform the duties of a trustee effectively has been attained and enhanced through the Trustee’s education, professional training and other life experiences, such as business, consulting or public service positions and through experience from service as a member of this Trust’s Board and that of HQH, HQL and THQ, public companies, or non-profit entities or other organizations.

 

Michael W. Bonney: Mr. Bonney was the Chief Executive Officer and member of the Board of Directors of Cubist Pharmaceuticals, Inc. until December, 2014, providing each Fund with valuable insight into operating matters relating to biotech companies and the overall healthcare industry. He serves on the Valuation Committee and is Chairman of the Governance and Nominating Committee of each Fund. Mr. Bonney is also a Director of Alnylam Pharmaceuticals, Inc. and is Chairman of the Board of Trustees of Bates College. He holds a BA degree from Bates College.

 

26



 

Rakesh K. Jain, Ph.D.: Dr. Rakesh Jain is the Andrew Werk Cook Professor of Tumor Biology in the Department of Radiation Oncology at Harvard Medical School and the Director of the Edwin L. Steele Laboratory of Tumor Biology at Massachusetts General Hospital, providing each Fund with a valuable perspective on emerging life sciences technologies. Dr. Jain co-founded XTuit Pharmaceuticals, Inc. in 2011, where he also serves as a board member. He serves on the Governance and Nominating Committee of each Fund. Prior to joining Harvard, he was professor of chemical engineering at Columbia University and Carnegie Mellon University. Dr. Jain is regarded as a pioneer in the fields of tumor biology, drug delivery, in vivo imaging and bioengineering. Dr. Jain has authored more than 600 publications. He serves on advisory panels to government, industry and academia, and has served or continues to serve on editorial advisory boards of twenty journals, including Journal of Clinical Oncology and Nature Reviews Clinical Oncology. He has received more than 70 major awards and lectureships, including a Guggenheim Fellowship, the Humboldt Senior Scientist Award, the National Cancer Institute’s Research Career Development Award and Outstanding Investigator Grant, the Academic Scientist of the Year Award from the Pharmaceutical Achievements Awards, the Distinguished Service Award from Nature Biotechnology and the Innovator Award from the DoD Breast Cancer Program. He is a member of all three branches of US National Academies — the Institute of Medicine, the National Academy of Engineering and the National Academy of Sciences and is a member of the American Academy of Arts and Sciences.

 

Oleg M. Pohotsky: Mr. Pohotsky is a corporate finance and investment professional with over forty years of diversified experience gained both in industry and in financial markets. Mr. Pohotsky serves as Chairman of the Board of Trustees of each Fund and also serves as Chairman of each Fund’s Valuation Committee and serves on each Fund’s Audit Committee. He has over 45 years of cumulative board experience in the full range of organization types: publicly-traded, privately-held, venture-backed and non-profit. He has also served as a director of a healthcare services company listed on the Nasdaq NMS where he was a member of the audit committee. In his various directorships he has also served on investment, compensation, personnel and executive committees. His career spanned over twenty years in the investment industry, both as an investment banker and as a venture capital and private equity investor, and included serving as chairman of the valuation and fairness opinion committee of a NYSE-member firm. Mr. Pohotsky also currently serves on the Board of Directors of Avangardco Investments Holdings, an LSE-listed agribusiness enterprise based in Ukraine, on the board of directors of the New America High Income Fund, Inc., a closed end fund investing in high yield securities on a leveraged basis and on the Board of Advisors of Kaufman & Co., LLC, a Boston-based boutique investment banking firm, and was previously affiliated with GovernanceMetrics International, Inc. as a Senior Advisor until its sale in 2014. He provides each Fund with valuable experience in valuation and the financial industry. Mr. Pohotsky holds a BSChE degree from Clarkson University, a JD degree from the University of Miami and MBA from the Harvard Business School. He has also been awarded an honorary doctorate by Clarkson University.  

 

William S. Reardon, CPA: Mr. Reardon’s personal experience as a Life Science audit partner at PricewaterhouseCoopers LLP (“PwC”), with a broad spectrum of companies across the corporate life cycle from startup to successful product driven pharmaceutical companies, provides each Fund with a valuable perspective in analyzing life science company opportunities and in valuing the venture portion of the portfolio. Until 2002, Mr. Reardon was a business assurance partner in PwC’s Boston office and leader of the Life Sciences Industry Practice for New England and the Eastern U.S., working closely with many of the Firm’s public clients in SEC-registered equity, convertible and R&D limited partnership offerings and many initial public offerings. He serves on the Valuation and Audit Committees of each Fund. From 1998-2000 he served on the Board of the Emerging Companies Section of the Biotechnology Industry Organization (“BIO”) and from 2000 to 2002 he served on the Board of Directors of the Massachusetts Biotechnology Council (“MBC”). During his professional career, he was a frequent speaker at BIO conferences and MBC Industry meetings on issues affecting biotechnology companies. He currently also serves as a board member and audit committee chair of two development-stage public companies, Synta Pharmaceuticals and Idera Pharmaceuticals. Mr. Reardon is member of the American Institute of CPAs and the Massachusetts Society of CPAs, with an MBA from Harvard Business School and a BA in East Asian History from Harvard College.

 

Uwe E. Reinhardt, Ph.D.: Dr. Reinhardt is the James Madison Professor of Political Economy at Princeton University, teaching economics and public affairs since 1968, and has been a member of the Institute of Medicine of the National Academy of Sciences since 1978. He serves on the Audit Committee of each Fund. Dr. Reinhardt is recognized as one of the nation’s leading authorities on health care economics, a prominent scholar in health care economics and a frequent speaker and author on subjects ranging from the war in Iraq to the future of Medicare. Dr. Reinhardt provides each Fund with valuable insights in healthcare economics and reform. He is a past president of

 

27



 

the Association of Health Services Research. From 1986 to 1995 he served as a commissioner on the Physician Payment Review Committee, established in 1986 by Congress to advise it on issues related to the payment of physicians. He is a senior associate of the Judge Institute for Management of Cambridge University, UK, and a trustee of Duke University and the Duke University Health System. Dr. Reinhardt is or was a member of numerous editorial boards, among them the Journal of Health Economics, the Milbank Memorial Quarterly, Health Affairs, the New England Journal of Medicine, and the Journal of the American Medical Association. Dr. Reinhardt received his Ph.D. from Yale University.

 

Lucinda H. Stebbins, CPA: Ms. Stebbins brings to each Fund over twenty years experience working in the fund industry, providing valuable perspectives on a variety of technical and industry matters. She serves as Chairman of the Audit Committee and serves on the Governance and Nominating Committee of each Fund. She started her career with the investment management firm of Scudder, Stevens and Clark, which was later merged into the U.S. operations of Zurich Financial Services, and then finally acquired by Deutsche Bank. She served as a Senior Vice President at Scudder Investments and subsequently as a Director at Deutsche Asset Management and was an officer of approximately 200 funds in these complexes. Ms. Stebbins’ expertise is in the accounting, tax, and regulatory sides of the fund business, and she continues to act as an independent consultant to the fund industry. Prior to joining Scudder, she was a Senior Manager at Price Waterhouse and is a member of the Massachusetts Society of CPAs. She also serves on the Board of Solstice Home Care, Inc., served on the Board of Bald Peak Land Company and has been on a number of non-profit Boards. She holds an MBA degree from Babson College and a BA in economics from Wellesley College.

 

Daniel R. Omstead, Ph.D.: Dr. Omstead is President and Chief Executive Officer of Tekla Capital Management LLC (the “Investment Adviser”), a registered investment adviser that serves as investment adviser to HQH, HQL and THQ. Dr. Omstead is also President of HQH, HQL and THQ and serves on their Valuation Committees. Dr. Omstead is portfolio manager for the public and restricted/venture portfolios within HQH and HQL, since 2001, and THQ, since 2014. As part of these responsibilities, Dr. Omstead is a member of the Board of Directors of several portfolio companies including IlluminOss Medical, Inc., Magellan Diagnostics, Dynex Corporation and Palyon Medical Corporation. Prior to joining the Investment Adviser, Dr. Omstead was President and CEO of Reprogenesis, Inc., a private development stage biotech company which developed therapies in the field of tissue engineering and regenerative medicine. Before joining Reprogenesis, Dr. Omstead was Senior Vice President, Research and Development, at Cytotherapeutics, Inc, a public biotech company. Prior to entering the biotech industry, Dr. Omstead was employed for fourteen years in positions of increasing responsibility within the pharmaceutical industry at Ortho Pharmaceutical Corporation and at the R.W. Johnson Pharmaceutical Research Institute, both divisions of Johnson & Johnson, and at Merck, Sharp and Dohme Research Laboratories, a division of Merck & Co., Inc. Dr. Omstead provides the Trust with insights into both pharmaceutical and biotech companies. Dr. Omstead holds Ph.D. and Master’s Degrees in Chemical Engineering and Applied Chemistry from Columbia University and a B.S. degree in Civil Engineering from Lehigh University. He is an emeritus member of the Board of Directors of a non-profit agency that provides emergency shelter, housing and supportive services to homeless and low-income individuals and families in the Boston area. Dr. Omstead is also an Overseer at the Joslin Diabetes Center.

 

OFFICERS

 

NAME, ADDRESS(1) AND
DATE OF BIRTH

 

POSITION(S) HELD WITH
THE TRUST, TERM OF
OFFICE(2) AND LENGTH
OF TIME SERVED

 

PRINCIPAL OCCUPATION(S) DURING PAST 5 YEARS AND
OTHER DIRECTORSHIPS HELD

 

 

 

 

 

Daniel R. Omstead, Ph.D.

7/1953

 

President (since 2015);

Trustee (since 2015)

 

President, the Trust (since 2015), Tekla Healthcare Opportunities Fund (since 2014) and Tekla Life Sciences Investors (formerly known as H&Q Life Sciences Investors) and Tekla Healthcare Investors (formerly known as H&Q Healthcare Investors) (since 2001); President, Chief Executive Officer and Managing Member, Tekla Capital Management LLC (since 2002); Director, Neurovance, Inc. (since 2015)

 

28



 

 

 

 

 

(biotechnology); Director, IlluminOss Medical, Inc. (since 2012) (medical devices); Director, Magellan Diagnostics, Inc. (since 2006) (medical devices); Director, Palyon Medical Corporation (since 2009) (medical devices); Director, Dynex Corporation (since 2012) (medical devices).

 

 

 

 

 

Laura Woodward, CPA

11/1968

 

Chief Compliance Officer, Secretary and Treasurer (since 2015)

 

Chief Compliance Officer, Secretary and Treasurer, the Trust (since 2015), THQ (since 2014), and HQL and HQH (since 2009); Chief Compliance Officer and Vice President of Fund Administration, Tekla Capital Management LLC (since 2009); Senior Manager, PricewaterhouseCoopers LLP (1990-2009).

 


(1)          The address for each Officer is: Tekla World Healthcare Fund, 100 Federal Street, 19th Floor, Boston, MA 02110, 617-772-8500.

 

(2)          Each Officer serves in such capacity for an indefinite period of time at the discretion of the Trustees.

 

Ownership of Securities

 

As of May 1, 2015, the dollar range of equity securities owned beneficially by each Trustee in the Trust and in any registered investment companies overseen by the Trustee within the same family of investment companies as the Trust is as follows:

 

NAME OF
TRUSTEE

 

DOLLAR RANGE OF
EQUITY SECURITIES
IN THE TRUST

 

AGGREGATE DOLLAR RANGE OF
EQUITY SECURITIES IN ALL
REGISTERED INVESTMENT
COMPANIES OVERSEEN BY
TRUSTEE IN FAMILY OF
INVESTMENT COMPANIES

 

 

 

 

 

Independent Trustees

 

 

 

 

 

 

 

 

 

Michael W. Bonney

 

 

 

Over $100,000

Rakesh K. Jain, Ph.D.

 

 

 

None

Oleg M. Pohotsky

 

 

 

$10,001 - $50,000

William S. Reardon, CPA

 

 

 

Over $100,000

Uwe E. Reinhardt, Ph.D.

 

 

 

Over $100,000

Lucinda H. Stebbins, CPA

 

 

 

Over $100,000

Interested Trustee

 

 

 

 

 

 

 

 

 

Daniel R. Omstead, Ph.D.

 

 

 

Over $100,000

 

Dr. Omstead and Ms. Woodward serve as officers of the Trust. As of the date of this SAI, the Trust has not commenced operations, and therefore the Trustees and executive officers of the Trust did not own any of the outstanding Shares of the Trust.

 

29



 

Prior to the offering, the Investment Adviser will purchase Shares from the Trust in an amount sufficient to satisfy the Trust’s net worth requirements under Section 14(a) of the Investment Company Act.  At that time, the Investment Adviser will own 100% of the outstanding Shares. The Investment Adviser may be deemed to control the Trust until such time as it owns less than 25% of the outstanding Shares.

 

Standing Committees

 

AUDIT COMMITTEE. The Trust has an Audit Committee comprised solely of Independent Trustees who are “independent” as defined in the New York Stock Exchange (“NYSE”) Listing Standards. The Board has adopted a written charter for the Audit Committee. The Audit Committee charter is available at http://www.teklacap.com. The principal purpose of the Trust’s Audit Committee is to assist the Board in fulfilling its responsibility to oversee management’s conduct of the Trust’s financial reporting process, including reviewing the financial reports and other financial information provided by the Trust, the Trust’s systems of internal accounting and financial controls and the annual independent audit process.

 

For the Trust, the Audit Committee’s role is one of oversight, and it is recognized that the Trust’s management is responsible for preparing the Trust’s financial statements and that the outside auditor is responsible for auditing those financial statements. Although the Audit Committee member must be financially literate and one member must have accounting or financial management expertise (as determined by the Board in its business judgment), Audit Committee members are not professionally engaged in the practice of accounting or auditing and are not experts in the fields of accounting or auditing, including with respect to auditor independence. Audit Committee members rely, without independent verification, on the information provided to them and on the representations made by management and the Trust’s independent public accountants.

 

The members of the Trust’s Audit Committee are Mr. Pohotsky, Mr. Reardon, Dr. Reinhardt and Ms. Stebbins. Ms. Stebbins is the Chairman of the Trust’s Audit Committee.

 

GOVERNANCE AND NOMINATING COMMITTEE. The Trust has a Governance and Nominating Committee comprised solely of Independent Trustees who are “independent” as defined in the NYSE Listing Standards.

 

The principal missions of the Committee are (i) to review, evaluate, and enhance the effectiveness of the Board in its role in governing the Trust and overseeing the management of the Trust and (ii) to promote the effective participation of qualified individuals on the Board, on committees of the Board, and as executive officers of the Trust.

 

The Committee reviews, discusses and makes recommendations to the Board relating to those issues that pertain to the effectiveness of the Board in carrying out its responsibilities in governing the Trust and overseeing the Trust’s management. The Committee makes nominations for trustees and officers of the Trust and for membership on all committees of the Board and submits such nominations to the full Board for consideration.

 

The Trust’s By-Laws require that each prospective trustee candidate have a college degree or equivalent business experience and provide a list of minimum qualifications for trustees, which include expertise, experience or relationships relevant to the business of the Trust. The Trust’s By-Laws also require that a candidate is not serving in any of various positions with another investment company (as defined in the Investment Company Act) that focuses its investments in the healthcare and/or life sciences industries, unless such investment company is managed by the Trust’s Investment Adviser or an affiliate, or in various positions with the investment adviser, sponsor or equivalent of such an investment company. The Committee may also take into account other factors when considering and evaluating potential trustee candidates, including but not limited to: (i) availability and commitment to attend meetings and perform responsibilities of the Board; (ii) relevant industry and related experience; (iii) educational background; (iv) financial expertise; (v) the candidate’s ability, judgment and expertise; and (vi) the overall diversity of the Board’s composition.

 

The Committee may identify prospective trustees from any reasonable source, including, but not limited to, the consultation of third-party trustee search services. The Committee will consider potential trustee candidates recommended by Shareholders, provided that the proposed candidates (i) satisfy any minimum qualifications of the Trust for its trustees; (ii) are not “interested persons” (as that term is defined in Section 2(a)(19) of the Investment Company Act) of the Trust or the Investment Adviser; and (iii) are “independent” as defined in the NYSE Listing Standards. In order to be evaluated by the Committee, trustee candidates recommended by Shareholders must also meet certain eligibility requirements as set out in the Committee’s Charter. Other than those eligibility requirements,

 

30



 

the Committee shall not evaluate shareholder trustee nominees in a different manner than other nominees. The standard of the Committee is to treat all equally qualified nominees in the same manner.

 

All recommendations by Shareholders must be received by the Trust by the deadline for submission of any shareholder proposals which would be included in the Trust’s proxy statement for the next annual meeting of the Trust. Each shareholder or shareholder group must meet the requirements stated in the Committee’s charter in order to recommend a candidate. A Shareholder or Shareholder group may not submit more than one candidate per year. When recommending a trustee candidate, Shareholders must include in their notice to the Trust’s Secretary: (i) the shareholder’s contact information; (ii) the trustee candidate’s contact information and the number of Trust shares owned by the proposed candidate; (iii) all information regarding the candidate that would be required to be disclosed in solicitations of proxies for elections of trustees required by Regulation 14A of the Securities Act of 1934, as amended; and (iv) a notarized letter executed by the trustee candidate, stating his or her intention to serve as a nominee and be named in the Trust’s proxy statement, if nominated by the Board, and to serve as a trustee, if so elected. Once a recommendation has been timely received in proper form, the candidate will be asked to complete an eligibility questionnaire to assist the Trust in assessing the candidate’s qualifications as a potential Independent Trustee and as someone who is “independent” under the NYSE Listing Standards. The Committee will make such determinations in its sole discretion and such determinations shall be final.

 

The members of the Committee are Mr. Bonney, Dr. Jain and Ms. Stebbins. Mr. Bonney is the Chairman of the Committee.

 

VALUATION COMMITTEE. The Board has delegated to the Trust’s Valuation Committee general responsibility for determining, subject to final Board ratification, in accordance with the Trust’s valuation procedures, the value of assets held by the Trust on any day on which the net asset value per share is determined. The Valuation Committee may appoint, and has appointed, a Sub-Committee made up of employees and officers of the Investment Adviser, to deal in the first instance with day-to-day valuation decisions, subject to oversight by the Valuation Committee. The Valuation Committee shall meet as often as necessary to ensure that each action taken by the Sub-Committee is reviewed within a calendar quarter of the occurrence. In connection with its review, the Valuation Committee shall ratify or revise the pricing methodologies authorized by the Sub-Committee since the last meeting of the Valuation Committee. The Valuation Committee is charged with the responsibility of determining the fair value of the Trust’s securities or other assets in situations set forth in the Trust’s valuation procedures.

 

The members of the Trust’s Valuation Committee are Mr. Bonney, Dr. Omstead, Mr. Pohotsky and Mr. Reardon. Mr. Pohotsky is the Chairman of the Trust’s Valuation Committee.

 

QUALIFIED LEGAL COMPLIANCE COMMITTEE. The Trust has a Qualified Legal Compliance Committee (“QLCC”) comprised solely of Independent Trustees. The Board has adopted a written charter for the QLCC. The principal purpose of the Trust’s QLCC is to review and respond to reports of Evidence of a Material Violation (as defined in the QLCC charter). Reporting Evidence of a Material Violation is required under the Standards of Professional Conduct for Attorneys adopted by the Commission under the Sarbanes-Oxley Act of 2002 (the “Standards”). Under the Standards, if an attorney appearing and practicing before the Commission in the representation of an issuer, such as the Trust, becomes aware of Evidence of a Material Violation by the issuer or by any officer, trustee, employee or agent of the issuer, the Standards provide for the attorney to report such evidence to the issuer’s QLCC forthwith. In discharging its role, the QLCC is granted the power to investigate any Evidence of a Material Violation brought to its attention with full access to all books, records, facilities and personnel of the Trust and the power to retain outside counsel, auditors or other experts for this purpose.

 

The members of the Trust’s QLCC are Dr. Jain, Mr. Pohotsky and Mr. Reardon. Mr. Reardon is the Chairman of the Trust’s QLCC.

 

Compensation of Trustees

 

The Trust pays each of the Trustees not affiliated with the Investment Adviser an annual fee of $18,000. Independent Trustees are also paid $1,000 for each Board meeting attended in person, $750 for each Committee meeting attended in person and $250 for each Board and Committee meeting attended by telephone. The Chairman of the Board receives an additional annual fee of $5,000, the Chairmen of the Audit and Valuation Committees receive an additional annual fee of $2,500, and the Chairman of the Governance and Nominating Committee receives an additional annual fee of $1,250. Each member of the Audit and Valuation Committees receives an

 

31



 

additional annual fee of $500 and each member of the Governance and Nominating Committee receives an additional annual fee of $250. Neither the Chairman nor any members of the Qualified Legal Committee receive additional annual fees. Independent Trustees are also reimbursed for travel expenses incurred in connection with attending such meetings. Trustees and officers of the Trust who hold positions with the Investment Adviser receive indirect compensation from the Trust in the form of the investment advisory fee paid to the Investment Adviser.

 

The following table sets forth information regarding the estimated compensation of Trustees by the Trust and other funds managed by the Investment Adviser for the fiscal year ending September 30, 2015, but does not include expenses. As of the date of this SAI, the “Fund Complex” was comprised of the Trust, HQL, HQH and THQ.

 

COMPENSATION TABLE
FOR THE FISCAL YEAR ENDING SEPTEMBER 30, 2015

 

NAME OF TRUSTEE

 

AGGREGATE
COMPENSATION
FROM TRUST*

 

PENSION OR
RETIREMENT
BENEFITS
ACCRUED AS
PART OF TRUST
EXPENSES

 

ESTIMATED
ANNUAL
BENEFITS UPON
RETIREMENT

 

TOTAL
COMPENSATION
FROM TRUST AND
FUND COMPLEX
PAID TO
TRUSTEES

 

 

 

 

 

 

 

 

 

 

 

INDEPENDENT TRUSTEES

 

 

 

 

 

 

 

 

 

Michael W. Bonney

 

$

8,020.83

 

N/A

 

N/A

 

85,520.83

 

Rakesh K. Jain, Ph.D.

 

$

6,750.00

 

N/A

 

N/A

 

69,500.00

 

Oleg M. Pohotsky

 

$

11,125.00

 

N/A

 

N/A

 

109,375.00

 

William S. Reardon

 

$

8,000.00

 

N/A

 

N/A

 

85,250.00

 

Uwe W. Reinhardt, Ph.D.

 

$

6,250.00

 

N/A

 

N/A

 

68,500.00

 

Lucinda H. Stebbins

 

$

9,291.67

 

N/A

 

N/A

 

$

87,041.67

 

INTERESTED TRUSTEES

 

 

 

 

 

 

 

 

 

Daniel R. Omstead, Ph.D.**

 

$

None

 

N/A

 

N/A

 

None

 

 


*                  The Trust had not commenced operations as of the date of this SAI.

 

**           Mr. Omstead is an Interested Trustee, and as such, receives no compensation from the Trust or the Fund Complex.

 

THE TRUST

 

The Trust’s capitalization consists of an unlimited number of Shares, $0.01 par value. Each Share represents an equal proportionate beneficial interest in the Trust and, when issued and outstanding, will be fully paid and non-assessable by the Trust. Upon any liquidation of the Trust, Shareholders will be entitled to share pro rata in the net assets of the Trust available for distribution after paying or adequately providing for the payment of all liabilities. The Trust will send annual and semi-annual financial statements to Shareholders and may also issue more abbreviated interim reports to update Shareholders on a quarterly basis. The Trust will hold annual meetings of its Shareholders in accordance with the provisions of the Trust’s By-laws and the rules of the NYSE.

 

Shareholders are entitled to one vote for each whole Share held and a proportionate fractional vote for each fractional Share held. The Trust’s Shares do not have cumulative voting rights, which means that the holders of more than 50% of the Shares of the Trust voting for the election of Trustees can elect all of the Trustees, and, in such event, the holders of the remaining Shares will not be able to elect any Trustees. The Trust has a staggered Board, whereby one class of Trustees is elected each year.

 

The Trust is an entity of the type commonly known as a “Massachusetts business trust.” Under Massachusetts law, Shareholders of such a trust under certain circumstances may be determined to be personally liable as partners for the Trust’s obligations. However, the Trust’s Declaration of Trust contains an express disclaimer of shareholder liability for the acts or obligations of the Trust and provides for indemnification and reimbursement of expenses out of the Trust’s property for any shareholder held personally liable for the obligations of the Trust. Thus, the risk of a shareholder incurring financial loss on account of a Trust liability is limited to circumstances in which the Trust is unable to meet its obligations from the liquidation of its portfolio investments.

 

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The overall management of the Trust is vested in the Board. The Board approves all significant agreements between the Trust and persons or companies furnishing services to it, including the Trust’s agreements with its Investment Adviser, Custodian, any foreign sub-custodians, Registrar and Transfer Agent. The management of the day-to-day operations of the Trust is delegated to its officers and to the Investment Adviser, subject always to the investment objective and policies of the Trust and to general supervision by the Board.

 

In addition, the Declaration of Trust requires the affirmative vote or consent of the holders of 75% of the Shares of the Trust to authorize certain transactions with a person or entity that is directly, or indirectly through affiliates, the beneficial owner of 5% or more of the outstanding Shares of the Trust unless the Board takes certain actions to approve such a transaction. These provisions could make it more difficult to change the management of the Trust and could have the effect of depriving Shareholders of an opportunity to sell their Shares at a premium over prevailing market prices by discouraging a third party from seeking to obtain control of the Trust in a tender offer or similar transaction.

 

Preferred Shares

 

The Declaration of Trust provides that the Trust has the power to issue additional Shares by action of the Board without the approval of the holders of the Trust’s common shareholders.  This power may be deemed to include the issuance of Preferred Shares with such rights and privileges as may be determined by the Board.

 

The Trust may elect to issue Preferred Shares as part of its leverage strategy though it does not currently intend to do so. The Trust has the ability to issue Preferred Shares representing up to 50% of the Trust’s total assets (less the Trust’s obligations under senior securities representing indebtedness). The Investment Company Act permits the issuance of Preferred Shares if, immediately after such issuance, the liquidation value of the Trust’s outstanding Preferred Shares exceeds 50% of its assets (including the proceeds from the issuance) less liabilities other than borrowings ( i.e. , the value of the Trust’s assets must be at least 200% of the liquidation value of its outstanding Preferred Shares). In addition, the Trust would not be permitted to declare any cash dividend or other distribution on its Shares unless, at the time of such declaration, the value of the Trust’s assets less liabilities other than borrowings is at least 200% of such liquidation value. Notwithstanding the Investment Company Act requirement listed above with respect to asset coverage of any Preferred Shares, if Preferred Shares are issued, the Trust intends to maintain an asset coverage ratio of at least 300%. Although the terms of any Preferred Shares, including dividend rate, liquidation preference and redemption provisions, would be determined by the Board, subject to applicable law and the Declaration of Trust, it is likely that the Preferred Shares would be structured to carry a relatively short-term dividend rate reflecting interest rates on short-term bonds, by providing for the periodic redetermination of the dividend rate at relatively short intervals through an auction, remarketing or other procedure. The Trust also believes that it is likely that the liquidation preference, voting rights and redemption provisions of any Preferred Shares would be similar to those stated below.

 

Liquidation Preference . In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Trust, the holders of Preferred Shares would be entitled to receive a preferential liquidating distribution, which would be expected to equal the original purchase price per Preferred Share plus accrued and unpaid dividends, whether or not declared, before any distribution of assets is made to common shareholders. After payment of the full amount of the liquidating distribution to which they are entitled, the holders of Preferred Shares would not be entitled to any further participation in any distribution of assets by the Trust.

 

Voting Rights . The Investment Company Act requires that the holders of any Preferred Shares, voting separately as a single class, have the right to elect at least two Trustees at all times. The remaining Trustees would be elected by holders of Shares and Preferred Shares, voting together as a single class. In addition, subject to the prior rights, if any, of the holders of any other class of senior securities outstanding, the holders of any Preferred Shares have the right to elect a majority of the Trustees of the Trust at any time in the event that two years of dividends on any Preferred Shares are unpaid. The Investment Company Act also requires that, in addition to any approval by shareholders that might otherwise be required, the approval of the holders of a majority of any outstanding Preferred Shares, voting separately as a class, would be required to: (i) adopt any plan of reorganization that would adversely affect the Preferred Shares; and (ii) take any action requiring a vote of security holders under Section 13(a) of the Investment Company Act, including, among other things, changes in the Trust’s subclassification as a closed-end investment company or changes in its fundamental investment restrictions. As a result of these voting rights, the Trust’s ability to take any such actions may be impeded to the extent that there are any Preferred Shares outstanding. The Board presently intends that, except as otherwise indicated in the prospectus or the SAI and except as otherwise

 

33



 

required by applicable law or the Declaration of Trust, if Preferred Shares were issued, holders of Preferred Shares would have equal voting rights with common shareholders (one vote per share, unless otherwise required by the Investment Company Act) and would vote together with common shareholders as a single class.

 

The affirmative vote of the holders of a majority of the outstanding Preferred Shares, voting as a separate class, would be required to amend, alter or repeal any of the preferences, rights or powers of holders of Preferred Shares so as to affect materially and adversely such preferences, rights or powers, or to increase or decrease the authorized number of Preferred Shares. The class vote of holders of Preferred Shares described above would in each case be in addition to any other vote required to authorize the action in question.

 

Redemption, Purchase and Sale of Preferred Shares by the Trust . The terms of any Preferred Shares issued would be expected to provide that: (i) they are redeemable by the Trust in whole or in part at the original purchase price per share plus accrued dividends per share; (ii) the Trust may tender for or purchase Preferred Shares; and (iii) the Trust may subsequently resell any shares so tendered for or purchased. Any redemption or purchase of Preferred Shares by the Trust would reduce any leverage applicable to the Shares, while any resale of shares by the Trust would increase that leverage.

 

The discussion above describes the possible offering of Preferred Shares by the Trust. If the Board determines to proceed with such an offering, the terms of the Preferred Shares may be the same as, or different from, the terms described above, subject to applicable law and the Trust’s Declaration of Trust. The Board, without the approval of the common shareholders, may authorize an offering of Preferred Shares or may determine not to authorize such an offering, and may fix the terms of the Preferred Shares to be offered. Common Shareholders will bear all expenses in connection with the offering and issuance of Preferred Shares.

 

Repurchases of Shares and Tender Offers

 

The Trust is a closed-end management investment company and as such its Shareholders do not, and will not, have the right to redeem their Shares of the Trust. The Trustees, however, intend to consider, from time to time, but not less frequently than annually, the desirability of open market purchases or tender offers. Any such repurchases will be made in accordance with the applicable provisions of the Investment Company Act and Massachusetts law in open market transactions. Shares repurchased by the Trust will be held in its treasury. The share repurchase program is intended to enhance shareholder value and potentially reduce the discount between the market price of the Trust’s shares and the Trust’s NAV. There is no assurance that any action undertaken to repurchase Shares will result in the Shares trading at a price which approximates net asset value. Although the Trust has no present intention of doing so, it reserves the right to incur debt to finance such repurchases or tender offers. Interest on any borrowings to finance Share repurchase transactions will increase the Trust’s expenses and will reduce the Trust’s net income. There can be no assurance that Share repurchases, if any, will cause the Shares to trade at a price equal to or in excess of their net asset value. Nevertheless, the possibility that a portion of the Trust’s outstanding Shares may be the subject of repurchases may reduce the spread between market price and net asset value that might otherwise exist. The Trust may not repurchase Shares except (1) on a securities exchange and after notification to Shareholders of its intent to purchase Shares within the six months preceding the purchase, (2) pursuant to a tender offer to all Shareholders, or (3) as otherwise permitted by the Commission.

 

The Shares of the Trust will trade in the open market at a price which will be a function of several factors, including their supply, demand, investment performance and yield. The shares of closed-end investment companies generally sell at market prices varying from their NAV and such shares frequently trade at a discount to NAV, but in some cases trade at a premium. The market price of the Shares will be determined by factors including trading volume of such Shares, general market and economic conditions and other factors beyond the control of the Trust. Therefore, the Trust cannot predict whether its Shares will trade at, below or above NAV. When the Trust repurchases its Shares for a price below their NAV, the NAV of those Shares that remain outstanding will increase, but this does not necessarily mean that the market price of those outstanding Shares will be affected, either positively or negatively.

 

Conversion to Open-End Investment Company

 

Under the Declaration of Trust, the conversion of the Trust from a closed-end to an open-end investment company would require (1) the approval of the Board, and (2) the affirmative vote or consent of the holders of 75% of the Shares outstanding and entitled to vote. Such a vote would be in addition to any vote or consent required in addition

 

34



 

to the vote or consent of Shareholders otherwise required by law or any agreement between the Trust and the NYSE. The Investment Company Act requires that the Trust receive a vote of a majority of its outstanding voting Shares in order to convert the Trust from a closed-end to an open-end investment company.

 

The conversion of the Trust from a closed-end to an open-end investment company would have to be approved by the Board prior to its submission to Shareholders. A proposal to convert the Trust to an open-end company might be supported or opposed by the Board depending on the Board’s judgment as to its advisability in light of circumstances prevailing at the time.

 

Shareholders of an open-end investment company may require the company to redeem their shares at any time (except in certain circumstances as authorized by or under the Investment Company Act) at their NAV, less such redemption charge, if any, as might be in effect at the time of a redemption. Conversion to an open-end investment company could require the disposal of illiquid investments to meet current requirements of the Commission that no more than 15% of an open-end investment company’s assets consist of illiquid securities, and would likely require involuntary liquidation of portfolio securities, and the inherent realization of net long-term capital gains in connection therewith, to meet periodic requests for redemption. Moreover, Shares of the Trust would no longer be listed on the NYSE.

 

INVESTMENT ADVISER AND INVESTMENT ADVISORY AGREEMENT

 

Tekla Capital Management LLC, a limited liability company formed under the laws of the State of Delaware, serves as the Investment Adviser to the Trust. The Investment Adviser is an investment adviser registered under the Investment Advisers Act of 1940, as amended. The Investment Adviser is located at 100 Federal Street, 19th Floor, Boston, MA 02110. The Investment Adviser is owned by Daniel R. Omstead and Mary N. Omstead. Dr. Omstead is currently the President and Chief Executive Officer of the Investment Adviser. Mary N. Omstead is Dr. Omstead’s wife.

 

The Investment Advisory Agreement between the Investment Adviser and the Trust (the “Advisory Agreement”) provides that, subject to the supervision and direction of the Board, the Investment Adviser is responsible for the actual management of the Trust’s portfolio. The Investment Adviser is also obligated to supervise or perform certain administrative and management services for the Trust and is obligated to provide the office space, facilities, equipment and personnel necessary to perform its duties under the Advisory Agreement. The responsibility for making decisions to buy, sell or hold a particular security rests with the Investment Adviser. However, the Investment Adviser may consider investment analysis from various sources, including broker-dealers with which the Trust does business. See “Portfolio Transactions and Brokerage.”

 

Subject to the supervision and direction of the Board, the Investment Adviser manages the Trust’s portfolio in accordance with the Trust’s investment objective and policies as stated in the prospectus; makes investment decisions for the Trust; places purchase and sale orders for portfolio transactions for the Trust; supplies the Trust with office facilities (which may be in the Investment Adviser’s own offices), statistical and research data, data processing services, clerical, internal executive and administrative services, and stationery and office supplies; supplies or directs and supervises a third party administrator or custodian in the provision to the Trust of accounting and bookkeeping services, the calculation of the net asset value of shares of the Trust, internal auditing services, and other clerical services in connection therewith; and prepares or supervises and directs a third party administrator or custodian in the preparation of reports to Shareholders of the Trust, tax returns and reports to and filings with the Commission and state securities authorities. In providing these services, the Investment Adviser provides investment research and supervision of the Trust’s investments and conducts a continual program of investment, evaluation and, if appropriate, sale and reinvestment of the Trust’s assets. In addition, the Investment Adviser furnishes the Trust with whatever statistical information the Trust may reasonably request with respect to the securities that the Trust may hold or contemplate purchasing.

 

For the services provided by the Investment Adviser under the Advisory Agreement, the Trust will pay a fee, computed and payable monthly, equal when annualized to 1.00% of the average daily value of the Trust’s Managed Assets. “Managed Assets” means the total assets of the Trust (including any assets attributable to borrowings for investment purposes) minus the sum of the Trust’s accrued liabilities (other than liabilities representing borrowings for investment purposes).

 

35



 

The Advisory Agreement provides that the Investment Adviser shall not be liable for any loss incurred by any act or omission of any broker. The Advisory Agreement also provides that the Investment Adviser shall not be liable to the Trust or to any Shareholder of the Trust for any error or judgment or for any loss suffered by the Trust in connection with rendering services under the Advisory Agreement except (1) a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services (in which case any award of damages shall be limited to the period and the amount set forth in Section 36(b)(3) of the Investment Company Act) or (2) a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Investment Adviser, or reckless disregard of its obligations and duties under the Advisory Agreement. Subject to the foregoing, the Advisory Agreement also provides that the Trust shall indemnify the Investment Adviser, and any officer, director and employee of the Investment Adviser to the maximum extent permitted by Article V of the Trust’s Declaration of Trust.

 

The services of the Investment Adviser to the Trust are not deemed to be exclusive, and nothing in the Advisory Agreement prevents the Investment Adviser, or any affiliate thereof, from providing similar services to other companies and other clients or from engaging in other activities.

 

Under the Advisory Agreement, the Investment Adviser has agreed to bear all expenses in connection with the performance of its services under the Advisory Agreement, including compensation of and office space for officers and employees of the Trust connected with investment and economic research, trading and investment management of the Trust, as well as the fees of all Trustees of the Trust who are “affiliated persons” of the Investment Adviser, as that term is defined in the Investment Company Act, or any of its “affiliated persons.”

 

Under the Advisory Agreement, the Trust must pay (or, in the event that such expenses are paid by the Investment Adviser, shall reimburse the Investment Adviser for) all other expenses incurred in the operation of the Trust including, among other things, expenses for legal and auditing services, costs of printing proxy statements, prospectuses, stock certificates and shareholder reports, charges of the custodian, any sub-custodian and transfer agent, expenses in connection with the Dividend Reinvestment and Stock Purchase Plan, the Commission, and the Financial Regulatory Authority (“FINRA”) fees, fees and expenses of the Trustees who are not “affiliated persons” of the Investment Adviser or any of its “affiliated persons,” accounting and valuation costs, administrator’s fees, membership fees in trade associations, fidelity bond coverage for the Trust’s officers and employees, errors and omissions insurance coverage for Trustees and officers, interest, brokerage costs, taxes, stock exchange listing fees and expenses, expenses of qualifying the Trust’s Shares for sale in various states, expenses associated with personnel performing exclusively shareholder servicing functions, litigation and other extraordinary or non-recurring expenses, and other expenses properly payable by the Trust.

 

Unless earlier terminated as described below, the Advisory Agreement will, after an initial two-year term, remain in effect from year to year if approved annually (1) by the Board or by the holders of a majority of the Trust’s outstanding Shares and (2) by the majority of the Trustees who are not parties to the Advisory Agreement or interested persons of any such party. The Advisory Agreement may be terminated without penalty by (1) the Trust or the Investment Adviser at any time without penalty upon not less than 30 and no more than 60 days’ written notice or (2) a vote of the holders of a majority of the Trust’s outstanding Shares, and will automatically terminate in the event of its assignment. Action by the Trust under (1) above may be taken either by (i) vote of a majority of its Trustees, or (ii) the affirmative vote of a majority of the outstanding shares of the Trust.

 

A discussion regarding the basis for the Board of Trustees’ initial approval of the Advisory Agreement for the Trust will be available in the Trust’s annual report for the fiscal period ending September 30, 2015.

 

Portfolio Management

 

Currently Daniel R. Omstead, Ph.D., Jason C. Akus, M.D./M.B.A, Pete Savitscus, Mark Charest, Ph.D,  Christian Richard, Timothy Gasperoni, Ph.D., MBA, Amanda Birdsey-Benson, Ph.D., Alan Kwan, Ph.D. and William Hite, CFA. are members of the team that analyzes investments on behalf TCM’s three clients (the “Funds”).  Dr. Omstead exercises ultimate decision-making authority with respect to investments.

 

The following tables disclose other accounts within each type of category listed below for which Mr. Omstead is responsible for day to day portfolio management, as of March 31, 2015, unless otherwise noted.

 

36



 

Daniel R. Omstead, Ph.D.

 

 

 

Number of
Accounts

 

Assets of
Accounts

 

Number of Accounts
Subject to a
Performance Fee

 

Assets Subject to a
Performance Fee

 

 

 

 

 

 

 

 

 

 

 

Registered Investment Companies

 

3

 

$

2,729,151,755

 

0

 

$

0

 

 

 

 

 

 

 

 

 

 

 

Pooled Investment Vehicles Other Than Registered Investment Companies

 

0

 

$

0

 

0

 

$

0

 

 

 

 

 

 

 

 

 

 

 

Other Accounts

 

0

 

$

0

 

0

 

$

0

 

 

Security Ownership of Portfolio Managers

 

The Trust was not in operation prior to the date of this SAI. Consequently, the portfolio managers own no securities issued by the Trust.

 

Portfolio Manager Compensation Structure

 

The Investment Adviser offers employees what it believes are competitive salaries and benefits in order to attract and retain adequate staff to provide services to the Trusts. The Investment Adviser feels the current staff level is adequate in size, experience and qualifications to effectively manage both the public and restricted portfolios of the Trust, HQH, HQL and THQ. The Investment Adviser further believes that the staff has the unique qualifications and experience to be effective in making purchase and sale decisions.

 

Dr. Omstead is an owner of the Investment Adviser. He receives compensation for his contribution to the portfolio management team and for his contribution to the general management of the Investment Adviser. As a member of the Investment Adviser, Dr. Omstead also receives distributions made to members. Currently, such distributions are principally the result of the investment advisory fees paid to the Investment Adviser by the Trust, HQH, HQL and THQ.

 

PROXY VOTING POLICY AND PROCEDURES

 

The Board has adopted a proxy voting policy and procedure (the “Proxy Voting Policy”), pursuant to which the Trustees have delegated proxy voting responsibility to the Investment Adviser. A copy of the Proxy Voting Policy is attached as Appendix A to this SAI.

 

A description of the Trust’s proxy voting policies and procedures and information on how the Trust voted proxies relating to portfolio securities during the most recent 12-month period ended June 30 will be available (1) without charge, upon request, by calling the Trust at (617) 772-8500, and (2) on the Securities and Exchange Commission’s website at http://www.sec.gov.

 

CODE OF ETHICS

 

The Board has approved a joint Code of Ethics under Rule 17j-1 of the Investment Company Act that covers certain personnel of the Trust and the Investment Adviser. The joint Code of Ethics establishes procedures for personal investing and restricts certain transactions by certain personnel covered by the joint Code of Ethics. Employees subject to the joint Code of Ethics may invest in securities for their personal investment accounts, including, in certain cases, securities that may be purchased or held by the Trust. The joint Code of Ethics applies to investments by covered persons in their personal accounts, the accounts of family members living in the same household, and accounts in which the covered person has a beneficial interest ( i.e., ownership, voting or investment control). Some of the restrictions set forth in the joint Code of Ethics do not apply to the Trust’s Independent Trustees. In general terms, the joint Code of Ethics is designed to ensure that the investing activities of covered personnel are conducted in a manner that avoids potential or actual conflicts of interest with the Trust and its Shareholders and that covered personnel conduct their personal investing in a manner consistent with their fiduciary duty towards the Trust and its Shareholders.

 

The joint Code of Ethics requires pre-clearance for certain investments in equities (not including mutual funds), imposes reporting requirements, and imposes sanctions for violations. Specifically, among other things, the joint Code of Ethics prohibits sales of securities to or purchases of securities from the Trust and prohibits the purchase or

 

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sale of any security under consideration for trading by the Trust within seven days before or after the Trust trades in the security.

 

The Trust’s joint Code of Ethics is filed as an exhibit to this registration statement. In addition, you may read and copy the code of ethics at the Commission’s Public Reference Room in Washington, DC. You may obtain information on operations of the Public Reference Room by calling the Commission at (202) 551-8090. In addition, the joint Code of Ethics is available on the EDGAR Database on the Commission Internet site at http://www.sec.gov. You may obtain copies of the joint Code of Ethics, after paying a duplicating fee, by electronic request at the following email address: publicinfo@sec.gov, or by writing to the Commission’s Public Reference Section, Washington, DC 20549-0102.

 

NET ASSET VALUE

 

The net asset value (“NAV”) of the Trust’s Shares is calculated at the close of regular trading on the NYSE (generally 4:00 p.m., Eastern time) every day that the NYSE is open. The Trust makes this information available daily by telephone (800) 451-2597, via its web site (www.teklacap.com) and through electronic distribution for media publication, including major internet-based financial services web sites and portals ( e.g. , bloomberg.com, yahoo.com, cbsmarketwatch.com, etc.). Currently, The Wall Street Journal, The New York Times and Barron’s publish NAVs for closed-end investment companies at least weekly.

 

NAV is calculated by dividing the Trust’s total assets (the value of the securities held by the Trust plus any cash or other assets, including interest payable but not yet received) minus all liabilities (including accrued expenses, dividends payable and any borrowings of the Trust) by the total number of Shares outstanding at such time.  If any preferred shares are outstanding, net assets available for common Shareholders is determined by deducting from net assets the liquidation preference and any accrued dividends on the preferred shares.

 

Securities for which market quotations are readily available are valued at market price. Portfolio securities that are traded on one or more U.S. national securities exchanges or in the over-the-counter market that are National Market System securities are valued at the last sale price or, lacking any sales, at the mean between last bid and asked prices. Other over-the-counter securities are valued at the most recent bid prices as obtained from one or more dealers that make markets in the securities. Redeemable securities issued by a registered open-end investment company are valued at net asset value per share. Other securities are valued at the mean between the closing bid and asked prices. Short- term investments that mature in 60 days or less are valued at amortized cost, unless the Board determines that such valuation does not constitute 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. Temporary cash investments with maturity of 60 days or less are valued at amortized cost. 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. The prevailing currency exchange rate shall be determined within one hour of when the most recently available exchange rate information has been received based on information obtained from a bank or banks.

 

Securities that are primarily traded on foreign securities exchanges generally are valued at the last sale price on the exchange on which they are primarily traded. Foreign securities that are primarily traded on the foreign over-the-counter market are generally valued at the last sale quotation, if market quotations are available, or the last reported bid price if there is no active trading in a particular security on a given day. However, if intervening events result in market volatility that significantly affects the value of any such foreign securities after the close of trading on the relevant foreign market, but before the Trust values its Shares on any particular day on which the Trust is required to value its Shares, the Trust may, but is not required to, determine the value of such securities at “fair value,” as determined in good faith by or under the direction of the Board.

 

Quotations of foreign securities in foreign currencies are converted, at current exchange rates, to their U.S. dollar equivalents in order to determine their current value. In addition, to the extent that the Trust values its foreign securities (other than American Depositary Receipts’ (“ADR”) and American Depositary Shares’ (“ADS”)) as of the

 

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close of trading on various exchanges and over-the-counter markets throughout the world, the calculation of the Trust’s net asset value may not take place contemporaneously with the valuation of foreign securities held by the Trust.

 

The value of any security or other asset for which market quotations are not readily available shall be determined in a manner that most fairly reflects the security’s (or asset’s) “fair value,” which is the amount that the Trust might reasonably expect to receive for the security (or asset) upon its current sale. Each such determination is based on a consideration of all relevant factors, which are likely to vary from one pricing context to another. Examples of such factors may include, but are not limited to: (1) the type of the security; (2) the size of the holding (including percent of outstanding securities of issuer held by the Trust); (3) the initial cost of the security; (4) the existence of any contractual restrictions on the security’s disposition and the time to freedom from such restrictions; (5) the price and extent of public trading in similar securities of the issuer or of comparable companies; (6) quotations or prices from broker-dealers and/or pricing services; (7) information obtained from the issuer, analysts, and/or the appropriate stock exchange (for exchange-traded securities); (8) an analysis of the company’s financial statements; (9) an evaluation of the forces that influence the issuer and the market(s) in which the security is purchased and sold ( e.g. , the existence of pending merger activity, public offerings or tender offers that might affect the value of the security); and (10) the price of securities in a subsequent round of financing of an issuer in an arm’s-length transaction, if the round includes a new third party investor.

 

Sometimes a “significant valuation event” may cause the market value of a security to differ from the fair market value of that security. A “significant valuation event” is an event that causes or is likely to cause a market quotation to be unavailable or unreliable, and may include: situations relating to a single issue in a market sector; significant fluctuations in U.S. or foreign markets; market disruptions or closings caused by human error, equipment failures, natural disasters, armed conflicts, acts of God, governmental actions or other developments, as well as the same or similar events which may affect specific issues or the securities markets even though not tied directly to the securities markets. A significant valuation event occurring after the close of trading but before the time of valuation may mean that the closing price for the security does not constitute a readily available market quotation. If a significant valuation event has occurred, the security will be valued at fair value as determined in good faith by the Board in accordance with the procedures described above. Such valuations and procedures will be reviewed periodically by the Board.

 

The Trust shall initially value an investment in a private placement in a private company at cost.  The valuation of an investment in a private placement or in a private company will be adjusted to reflect its fair valuation, as internal and external events are deemed to have a known or likely impact on the financial condition or market value of the investment.  Internal or external factors affecting the fair valuation may include items such as a subsequent financing round, a material deviation from the business plan, or a change in market conditions that may impair the company’s ability to meet its capital requirements.  If a subsequent round of financing includes a new third-party investor in an arms-length transaction, then the securities shall be marked up or down to the value used in that financing round.  Equity investments in exchange for marketing or development rights do not constitute arms-length transactions.

 

Venture investments that have an initial public offering shall be valued at a discount to the public market value of the securities.  The discount in each case is determined by appraisal, considering such factors as market liquidity, time to freedom from restrictions, fundamental outlook for the company and such other factors as are enumerated above that are deemed to be relevant.  Private placements in public companies are similarly priced at a discount to the public market generally until the restrictions on sale of the security expire.

 

Other assets, which include cash, prepaid and accrued items, accounts receivable and income on investments and from the sale of portfolio securities, are carried in accordance with generally accepted accounting principles, as are all liabilities. Liabilities primarily include accrued expenses, sums owed for securities purchased and dividends payable.

 

PORTFOLIO TRANSACTIONS AND BROKERAGE

 

Subject to policies established by the Board, the Investment Adviser is primarily responsible for the execution of the Trust’s portfolio transactions and the allocation of brokerage. In executing transactions for the portfolio and selecting brokers or dealers (which brokers or dealers may include any affiliate of the Investment Adviser to the extent permitted by the Investment Company Act), the Investment Adviser will use its best efforts to obtain the best

 

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price and execution for the Trust. In assessing the best price and execution available for any portfolio transaction, the Investment Adviser will consider all factors it deems relevant including, but not limited to, price (including any applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm involved and the firm’s risk in positioning a block of securities. The Investment Adviser may cause the Trust to pay a broker-dealer that furnishes brokerage and research services a higher commission than that which might be charged by another broker-dealer for effecting the same transaction, provided that the Investment Adviser determines in good faith that such commission is reasonable in relation to the value of the brokerage and research services provided by such broker-dealer, viewed in terms of either the particular transaction or the overall responsibilities of the Investment Adviser to the Trust. In selecting brokers or dealers to execute a particular transaction and in evaluating the best price and execution available, the Investment Adviser may consider the brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934, as amended) provided to the Trust and/or other accounts over which the Investment Adviser exercises investment discretion. Such brokerage and research services might consist of reports and statistics on specific companies or industries, general summaries of groups of bonds and their comparative earnings and yields, or broad overviews of the securities markets and the economy. It is further understood that such services may be useful to the Investment Adviser in connection with its services to other clients. While the Investment Adviser generally seeks reasonably competitive commission rates, the Trust will not necessarily pay the lowest commission available.

 

The Trust has no obligation to deal with any broker or group of brokers in executing transactions in portfolio securities. Brokers who provide supplemental research, market and statistical information to the Investment Adviser may receive orders for transactions by the Trust. The term “research, market and statistical information” includes advice as to the value of securities, the advisability of purchasing or selling securities and the availability of securities or purchasers or sellers of securities, and furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio strategy and the performance of accounts. Information so received will be in addition to and not in lieu of the services required to be performed by the Investment Adviser under the Advisory Agreement and the expenses of the Investment Adviser will not necessarily be reduced as a result of the receipt of such supplemental information. Such information may be useful to the Investment Adviser in providing services to clients other than the Trust, and not all such information may be used by the Investment Adviser in connection with the Trust. Conversely, such information provided to the Investment Adviser by brokers and dealers through whom other clients of the Investment Adviser in the future may effect securities transactions may be useful to the Investment Adviser in providing services to the Trust. To the extent the Investment Adviser receives valuable research, market and statistical information from a broker-dealer, the Investment Adviser intends to direct orders for Trust transactions to that broker-dealer, subject to the foregoing policies, regulatory constraints and the ability of broker dealers to provide competitive prices and commission rates.

 

The Investment Company Act restricts transactions involving the Trust and its “affiliates,” including among others, the Trust’s Trustees, officers and employees, the Investment Adviser and any “affiliates” of such affiliates. Subject to any such restrictions, investment companies advised by the Investment Adviser may concurrently invest with the Trust in Restricted Securities, and the Trust may also invest in companies in which directors of the Investment Adviser or Trustees of the Trust have invested or for which they serve as directors or executive officers. A substantial portion of the securities in which the Trust may invest are traded in the over-the-counter markets, and the Trust intends to deal directly with the dealers who make markets in the securities involved, except as limited by applicable law and in those circumstances where better prices and execution are available elsewhere. Under the Investment Company Act, persons affiliated with the Trust are generally prohibited from dealing as principal with the Trust in the purchase and sale of securities. Under certain circumstances, affiliated persons of the Trust are permitted to serve as its broker in over-the-counter transactions conducted on an agency basis.

 

It is likely that, subject to applicable law, the Trust may invest in securities concurrently being purchased by other investment companies advised by the Investment Adviser. Such purchases would be made on terms no less favorable than those under which such investment companies would be acquiring the securities. In the case of concurrent purchases by the Trust and another investment company or companies managed by the Investment Adviser, such purchases would be made where the Investment Adviser has made an independent decision on behalf of the Trust and such other company that the purchase is appropriate in light of the investment objectives, policies, restrictions, current holdings, available cash and portfolio structure of and other factors affecting each. Such investments will be allocated among clients in a manner believed by the Investment Adviser to be equitable to each. The Trust may also from time to time invest in securities of companies in which affiliated persons of the Trust have

 

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invested, subject to the provisions of the Investment Company Act and the rules and regulations promulgated thereunder.

 

The Trust’s portfolio transactions in Restricted Securities are generally subject to Rule 144 under the Securities Act. In general, under Rule 144 as currently in effect, if the Trust has beneficially owned Restricted Securities of a publicly held issuer for a minimum of six months, it will be entitled to sell in any three-month period that number of such securities that will not exceed the greater of 1% of the then outstanding securities of that class or the average weekly trading volume in securities of that class in any national securities exchange and/or in the over-the-counter market during the four calendar weeks immediately preceding the date on which notice of the sale is filed with the Commission. These volume limitations also apply to sales by the Trust of the securities of any issuer as to which it is deemed an affiliate, regardless of whether securities of such issuer are publicly traded. The above-described sales under Rule 144 are subject to certain requirements relating to manner of sale, notice and availability of current public information about the issuer. If the Trust is not deemed to have been an affiliate of the issuer at any time during the 90 days immediately preceding the sale and has beneficially owned Restricted Securities for at least one year, it is entitled to sell such securities under Rule 144(k) without regard to whether the issuer is publicly-held or to the volume limitations or other requirements described above. When Restricted Securities are sold to the public other than pursuant to Rule 144 or 144A, the Trust may be deemed an “underwriter” with respect thereto for purposes of the Securities Act and subject to liability as such thereunder.

 

On occasions when the Investment Adviser deems the purchase or sale of a security to be in the best interest of the Trust as well as other clients, the Investment Adviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be sold or purchased in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Investment Adviser in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Trust and to such other clients.

 

Allocation of transactions, including their frequency, to various broker-dealers is determined by the Investment Adviser with respect to the Trust, based on their best judgment and in a manner deemed fair and reasonable to Shareholders. The primary consideration is prompt execution of orders in an effective manner at the most favorable price. Certain investments may be appropriate for the Trust and also for other clients advised by the Investment Adviser. Investment decisions for the Trust and for other investment accounts managed by the Investment Adviser are made independently of each other in the light of differing conditions. However, the same investment decision may be made for two or more of such accounts. When a purchase or sale of the same security is made at substantially the same time on behalf of the Trust and one or more other accounts, the transaction will be averaged as to price, and available investments allocated as to amount, in a manner the Investment Adviser believes to be equitable to each such account. Although the Investment Adviser seeks the most favorable overall net results for all of the accounts in any aggregated transaction, in some cases, this practice may adversely affect the price paid or received by the Trust or the size of the position obtained or sold by the Trust. To the extent permitted by law, the Investment Adviser may aggregate the securities to be sold or purchase for the Trust with those to be sold or purchased for other investment companies or accounts in order to obtain best execution.

 

For a description of the Trust’s portfolio turnover policies, see “Portfolio Transactions and Brokerage” in the prospectus.

 

TAX MATTERS

 

The following is only a summary of certain U.S. federal income tax considerations generally affecting the Trust and its Shareholders. No attempt is made to present a detailed explanation of the tax treatment of the Trust or its Shareholders, and the following discussion is not intended as a substitute for careful tax planning. Shareholders should consult with their own tax advisers regarding the specific federal, state, local, foreign and other tax consequences of investing in the Trust.

 

Taxation of the Trust

 

The Trust intends to elect to be treated and to qualify in each of its taxable years as a regulated investment company (“RIC”) under the Code. As a RIC, the Trust generally will not be required to pay U.S. federal income taxes on any ordinary income or capital gains that the Trust distributes to its Shareholders. To qualify as a RIC and maintain RIC

 

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status, the Trust must meet specific source-of-income and asset diversification requirements and must generally distribute an amount at least equal to the sum of 90% of its investment company taxable income (which includes, among other items, dividends, interest and net short-term capital gains in excess of net long-term capital losses), but determined without regard to the deduction for dividends paid) plus 90% of any net tax-exempt income for the Trust’s taxable year. If, in any year, the Trust fails to qualify as a RIC under U.S. federal income tax laws, the Trust would be taxed as an ordinary corporation. In such circumstances, the Trust could be required to recognize unrealized gains, pay substantial taxes and make substantial distributions before re-qualifying as a RIC that is accorded special tax treatment.

 

To qualify as a RIC, the Trust must, among other things, (a) derive in each taxable year at least 90% of its gross income from dividends, interest, payments with respect to securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, net income derived from an interest in a qualified publicly traded partnership and other income derived with respect to its business of investing in such stock, securities or currencies (the “Qualifying Income Requirement”); (b) diversify its holdings so that, at the end of each quarter of the taxable year, (1) at least 50% of the market value of the Trust’s assets is represented by cash and cash items, U.S. Government Securities, the securities of other RICs and other securities, with such other securities of any one issuer limited for the purposes of this calculation to an amount not greater than 5% of the value of the Trust’s total assets and not greater than 10% of the outstanding voting securities of such issuer, and (2) not more than 25% of the value of its total assets is invested in the securities of any one issuer (other than U.S. Government Securities or the securities of other RICs); and (c) distribute at least 90% of its investment company taxable income (which includes, among other items, dividends, interest and net short-term capital gains in excess of net long-term capital losses) each taxable year. The U.S. Treasury Department has authority to promulgate regulations pursuant to which gains from foreign currency (and options, futures and forward contracts on foreign currency) not directly related to a RIC’s business of investing in stocks and securities would not be treated as qualifying income for purposes of the Qualifying Income Requirement. To date, such regulations have not been promulgated.

 

If for any taxable year the Trust were to fail to qualify as a RIC, all of the Trust’s taxable income would be subject to federal income tax at the rates applicable to corporations (with no deduction for distributions to Shareholders), and Trust distributions would be taxable to Shareholders as dividends to the extent of the Trust’s earnings and profits.

 

Amounts not distributed on a timely basis in accordance with a calendar year distribution requirement are subject to a nondeductible 4% excise tax. To avoid the excise tax, the Trust must generally distribute during each calendar year an amount at least equal to the sum of (1) 98% of its ordinary income (taking into account certain deferrals and elections) for the calendar year, (2) 98.2% of its capital gains in excess of its capital losses (adjusted for certain ordinary losses) for the one-year period ending on October 31 of the calendar year, and (3) all ordinary income and capital gains for previous years that were not distributed during such years. To avoid application of the excise tax, the Trust intends to make its distributions in accordance with the calendar year distribution requirement. A dividend will be treated as paid on December 31 of the calendar year if it is declared by the Trust in October, November or December of the year, payable to Shareholders of record on a date in such a month and paid by the Trust during January of the following year. Such dividends will be taxable to Shareholders as of December 31 of the calendar year in which the dividends are declared, rather than during the calendar year in which the dividends are received. If the Trust elects to retain net capital gains and treat such gains as having been distributed, all or a portion of such gains may not be treated as having been timely distributed for purposes of satisfying the excise tax calendar year distribution requirement.

 

Distributions

 

Dividends paid from investment company taxable income generally will be taxable to Shareholders as ordinary income whether paid in cash or reinvested in the Trust’s Shares. The Trust intends to distribute to its Shareholders substantially all of its investment company taxable income, if any, for each year. It is anticipated that the Trust’s income distributions will be paid monthly in cash.

 

A portion of the dividends paid by the Trust may be treated as “qualified dividend income” which is taxable to individuals at the same rates that are applicable to long-term capital gains. A Trust distribution is treated as qualified dividend income to the extent that the Trust receives dividend income from taxable domestic corporations and certain qualified foreign corporations, provided that certain holding period and other requirements are met. Holding periods may be affected by certain of the Trust’s transactions in options (including covered call options) and other

 

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derivatives. Trust distributions generally will not qualify as qualified dividend income to the extent attributable to interest, capital gains, REIT distributions and distributions from certain non-U.S. corporations.

 

Distributions of the excess, if any, of net long-term capital gains over net short-term capital losses (“net capital gains”) designated by the Trust as capital gain dividends will be taxable to Shareholders as long-term capital gains, whether paid in cash or reinvested in the Trust’s Shares, regardless of how long the Shareholders have held the Trust’s Shares, and will not be eligible for the dividends received deduction for corporations. The Trust may elect to retain net capital gains. In such event, the Trust will be required to pay federal income taxes on the undistributed net capital gains, but intends to elect to treat such capital gains as having been distributed to Shareholders. As a result, such amounts will be included in the gross income of the Shareholders as long-term capital gains and Shareholders will be able to claim their proportionate share of federal income taxes paid by the Trust on such gains as a credit against their own federal income tax liabilities, and will be entitled to increase the adjusted tax basis of their Shares of the Trust by an amount equal to 65% of the amount of the undistributed capital gains included in their gross income. Organizations or persons not subject to federal income tax on such capital gains (such as, generally, qualified pension and profit-sharing funds, including Individual Retirement Accounts and Keogh plans, and certain trusts, nonresident aliens and foreign corporations) will be entitled to a refund of their pro rata share of such taxes paid by the Trust upon filing appropriate returns or claims for refund with the Internal Revenue Service (“IRS”). Even if the Trust makes such an election, it is possible that the Trust may incur an excise tax as a result of not having distributed sufficient net capital gains.

 

A distribution of an amount in excess of the Trust’s current and accumulated earnings and profits will be treated by a Shareholder as a return of capital which is applied against and reduces the Shareholder’s basis in his or her Shares. To the extent that the amount of any such distribution exceeds the shareholder’s basis in his or her Shares, the excess will be treated by the Shareholder as gain from a sale or exchange of the Shares.

 

If the value of the Trust’s Shares is reduced below a Shareholder’s cost as a result of a distribution of investment company taxable income or net capital gains by the Trust, such distribution will be taxable to the shareholder. The price of Shares purchased at this time may reflect the amount of the forthcoming distribution. Those purchasing just prior to a distribution of investment company taxable income or net capital gains will receive a distribution which will nevertheless be taxable to them.

 

Dividends (not including capital gain dividends) received by corporate Shareholders from the Trust qualify for the dividends received deduction for corporate Shareholders to the extent the Trust designates the amount distributed as eligible for the deduction. The aggregate amount designated by the Trust cannot exceed the aggregate amount of dividends received by the Trust from domestic corporations for the taxable year, and the designation of dividend income must generally be the same for all Shares. Thus, unless 100% of the Trust’s gross income constitutes qualified dividends, a portion of the dividends paid to corporate Shareholders will not qualify for the dividends received deduction. The dividends received deduction for corporate Shareholders may be further reduced if the Shares with respect to which dividends are received are treated as debt-financed or if either those Shares or the Shares of the Trust are deemed to have been held by the Trust or its Shareholders, respectively, for less than 46 days.

 

In addition to furnishing any other required tax statements, the Trust intends to report in written notices to Shareholders regarding the tax status of all distributions made during such taxable year, the amount qualifying for the dividends received deduction for corporations and the amount of undistributed net capital gains and related tax credits.

 

Sale of Shares

 

Generally, gain or loss realized upon the sale or exchange of Shares will be capital gain or loss if the Shares are capital assets in the shareholder’s hands and generally will be long-term or short-term, depending upon the shareholder’s holding period for the Shares. Investors should be aware that any loss realized upon the sale or exchange of Shares held for six months or less will be treated as a long-term capital loss to the extent of any distributions or deemed distributions of long-term capital gain to the shareholder with respect to such Shares. In addition, any loss realized on a sale or exchange of Shares will be disallowed to the extent the Shares disposed of are replaced within a period of 61 days beginning 30 days before and ending 30 days after the Shares are disposed of, such as pursuant to the Plan. In such case, the basis of Shares acquired will be adjusted to reflect the disallowed loss.

 

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Legislation passed by Congress requires reporting of adjusted cost basis information for covered securities, which generally include shares of a regulated investment company, to the IRS and to taxpayers. Shareholders should contact their financial intermediaries with respect to reporting of cost basis and available elections for their accounts.

 

Passive Foreign Investment Companies

 

The Trust may invest in shares of foreign corporations which may be classified under the Code as passive foreign investment companies (“PFICs”). In general, a foreign corporation is classified as a PFIC if at least one-half of its assets produce passive income, or 75% or more of its gross income is passive income. If the Trust receives a so-called “excess distribution” with respect to PFIC stock, the Trust itself may be subject to a tax on a portion of the excess distribution, whether or not the corresponding income is distributed by the Trust to Shareholders. In general, under the PFIC rules, an excess distribution is treated as having been realized ratably over the period during which the Trust held the PFIC shares. The Trust itself will be subject to tax on the portion, if any, of an excess distribution that is so allocated to prior Trust taxable years and an interest factor will be added to the tax, as if the tax had been payable in such prior taxable years. Gain from the sale of PFIC shares is treated in the same manner as an excess distribution. Excess distributions and gain from the sale of PFIC shares are characterized as ordinary income even though, absent application of the PFIC rules, such gains and certain excess distributions might have been classified as capital gain.

 

The Trust may elect to mark to market any PFIC shares in lieu of being subject to U.S. federal income taxation. At the end of each taxable year to which the election relates, the Trust would report as ordinary income the amount by which the fair market value of the PFIC stock exceeds the Trust’s adjusted basis in the stock. Any mark-to-market losses and any loss from an actual disposition of shares would be deductible as ordinary losses to the extent of any net mark-to-market gains included in income in prior years. The effect of the election would be to treat excess distributions and gain on dispositions as ordinary income which is not subject to a Trust-level tax when distributed to Shareholders as a dividend. Alternatively, the Trust may elect to include as income and gain its share of the ordinary earnings and net capital gain of certain PFICs in lieu of being taxed in the manner described above.

 

Currency Fluctuations — “Section 988” Gains or Losses

 

Under the Code, the gains or losses attributable to fluctuations in exchange rates which occur between the time the Trust accrues receivables or liabilities denominated in a foreign currency and the time the Trust actually collects such receivables or pays such liabilities generally are treated as ordinary income or ordinary loss. Similarly, on disposition of foreign currency or debt securities denominated in a foreign currency and on disposition of certain futures and forward contracts, gains or losses attributable to fluctuations in the value of foreign currency between the date of acquisition of the currency, security or contract and the date of disposition also are treated as ordinary gain or loss. These gains or losses, referred to under the Code as “Section 988” gains or losses, may increase or decrease the amount of the Trust’s investment company taxable income to be distributed to its Shareholders as ordinary income.

 

Hedging Transactions

 

Certain futures, foreign currency contracts and options in which the Trust may invest are “section 1256 contracts.” While gains or losses on section 1256 contracts are considered 60% long-term and 40% short-term capital gains or losses, certain foreign currency futures and foreign currency contracts may give rise to ordinary income or loss, as described above. Also, section 1256 contracts held by the Trust at the end of each taxable year (and, generally, for purposes of the 4% excise tax, on October 31 of each year) are “marked-to-market” with the result that unrealized gains or losses are treated as though they were realized.

 

Generally, the hedging transactions undertaken by the Trust (including certain covered call options) may result in “straddles” for U.S. federal income tax purposes. The straddle rules may affect the character of gains (or losses) realized by the Trust. In addition, losses realized by the Trust on positions that are part of a straddle may be deferred under the straddle rules, rather than being taken into account in calculating the taxable income for the taxable year in which the losses are realized. Because only a few regulations implementing the straddle rules have been promulgated, the tax consequences to the Trust of engaging in hedging transactions are not entirely clear.

 

The Trust may make one or more of the elections available under the Code which are applicable to straddles. If the Trust makes any of the elections, the amount, character and timing of the recognition of gains or losses from the affected straddle positions will be determined under the rules that vary according to the election(s) made. The

 

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rules applicable under certain of the elections may operate to accelerate the recognition of gains or losses from the affected straddle positions.

 

Notwithstanding any of the foregoing, the Trust may recognize gain (but not loss) from a constructive sale of certain “appreciated financial positions” if the Trust enters into a short sale, offsetting notional principal contract, futures or forward contract transaction with respect to the appreciated position or substantially identical property. Appreciated financial positions subject to this constructive sale treatment are interests (including options, futures and forward contracts and short sales) in stock, partnership interests, certain actively traded trust instruments and certain debt instruments. Constructive sale treatment does not apply to certain transactions closed before the end of the thirtieth day after the close of the taxable year, if certain conditions are met.

 

High Yield Debt Investments

 

Investments in debt obligations that are at risk of or in default present tax issues for the Trust. Tax rules are not entirely clear about issues such as whether and to what extent the Trust should recognize market discount on a debt obligation, when the Trust may cease to accrue interest, original issue discount or market discount, when and to what extent the Trust may take deductions for bad debts or worthless securities and how the Trust should allocate payments received on obligations in default between principal and income. These and other related issues will be addressed by the Trust in order to ensure that it distributes sufficient income to preserve its status as a RIC.

 

REITs

 

The Trust may invest in REITs. Investments in REIT equity securities may require the Trust to accrue and distribute income not yet received. In order to generate sufficient cash to make the requisite distributions, the Trust may be required to sell securities in its portfolio (including when it is not advantageous to do so) that it otherwise would have continued to hold. The Trust’s investments in REIT equity securities may at other times result in the Trust’s receipt of cash in excess of the REIT’s earnings; if the Trust distributes such amounts, such distribution could constitute a return of capital to Trust shareholders for federal income tax purposes. Dividends received by the Trust from a REIT generally will not constitute qualified dividend income.

 

Foreign Withholding Taxes

 

Income received by the Trust from non-U.S. sources may be subject to withholding and other taxes imposed by other countries. Because it is not expected that more than 50% of the value of the Trust’s total assets at the close of its taxable year will consist of stock and securities of non-U.S. corporations, it is not expected that the Trust will be eligible to elect to “pass-through” to the Trust’s Shareholders the amount of foreign income and similar taxes paid by the Trust. In the absence of such an election, the foreign taxes paid by the Trust will reduce its investment company taxable income, and distributions of investment company taxable income received by the Trust from non-U.S. sources will be treated as U.S. source income.

 

Backup Withholding

 

The Trust (or applicable withholding agent) may be required to withhold U.S. federal income tax at the rate of 28% of all taxable distributions payable to Shareholders who fail to provide the Trust with their correct taxpayer identification number or to make required certifications, or who have been notified by the IRS that they are subject to backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against a shareholder’s U.S. federal income tax liability. Certain persons are exempt from the backup withholding requirements. Questions relating to backup withholding should be directed to your tax adviser.

 

Foreign Shareholders

 

U.S. taxation of a shareholder who, as to the U.S., is a non-resident alien individual, a foreign trust or estate, a foreign corporation or foreign partnership (“Foreign Shareholder”) depends on whether the income from the Trust is “effectively connected” with a U.S. trade or business carried on by such shareholder.

 

Income Not Effectively Connected

 

If the income from the Trust is not “effectively connected” with a U.S. trade or business carried on by the Foreign Shareholder, distributions of investment company taxable income will be subject to a U.S. tax of 30% (or lower treaty rate), which tax is generally withheld from such distributions.

 

45



 

Distributions of capital gain dividends and amounts retained by the Trust which are designated as undistributed capital gains will not be subject to U.S. tax at the rate of 30% (or lower treaty rate) unless the Foreign Shareholder is a non-resident alien individual and is physically present in the U.S. for more than 182 days during the taxable year and meets certain other requirements. However, this 30% tax on capital gains of non-resident alien individuals who are physically present in the U.S. for more than the 182-day period only applies in exceptional cases, because any individual present in the U.S. for more than 182 days during the taxable year is generally treated as a resident for U.S. federal income tax purposes; in that case, he or she would be subject to U.S. federal income tax on his or her worldwide income at the graduated rates applicable to U.S. citizens, rather than the 30% U.S. tax. In the case of a Foreign Shareholder who is a non-resident alien individual, the Trust may be required to withhold U.S. federal income tax at a rate of 28% of distributions of net capital gains unless the Foreign Shareholder certifies his or her non-U.S. status under penalties of perjury or otherwise establishes an exemption. See “Backup Withholding” above. If a Foreign Shareholder is a non-resident alien individual, any gain such shareholder realizes upon the sale or exchange of such shareholder’s Shares of the Trust in the U.S. will ordinarily be exempt from U.S. tax unless such shareholder is physically present in the U.S. for more than 182 days during the taxable year and meets certain other requirements.

 

Under an expired exemption (which may be further extended by U.S. Congress), subject to certain limitations, dividends paid to certain Foreign Shareholders by RICs may be exempt from U.S. tax for taxable years beginning before January 1, 2015 to the extent such dividends were attributable to “qualified net interest income” and/or “qualified net short-term capital gains,” provided that the RIC elected to follow certain procedures. The Trust does not anticipate following the procedures and as a result, the full amount of distributions of ordinary dividends, including distributions of any interest or short-term gains will be subject to withholding at a rate of 30 percent or any applicable lower treaty rate.

 

Income Effectively Connected

 

If the income from the Trust is “effectively connected” with a U.S. trade or business carried on by a Foreign Shareholder, then distributions of investment company taxable income and capital gain dividends, amounts retained by the Trust which are designated as undistributed capital gains and any gains realized upon the sale or exchange of Shares of the Trust will be subject to U.S. federal income tax at the graduated rates applicable to U.S. citizens, residents and domestic corporations. Such Foreign Shareholders that are corporations may also be subject to the branch profits tax imposed by the Code.

 

FATCA

 

Withholding of U.S. tax is required (at a 30% rate) on payments of taxable dividends and (effective January 1, 2017) redemption proceeds and certain capital gain dividends made to certain non-U.S. entities that fail to comply (or be deemed compliant) with extensive new reporting and withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information to enable the applicable withholding agent to determine whether withholding is required.

 

The tax consequences to a Foreign Shareholder entitled to claim the benefits of an applicable tax treaty may be different from those described herein. Foreign Shareholders may also be subject to U.S. estate tax with respect to their Trust shares. Foreign Shareholders are advised to consult their own tax advisers with respect to the particular tax consequences to them of an investment in the Trust.

 

Other Taxes

 

Distributions may also be subject to state, local and foreign taxes and/or the alternative minimum tax depending on each Shareholder’s particular situation. Shareholders should consult their own tax advisers with respect to their particular situation.

 

CUSTODIAN, ADMINISTRATOR, TRANSFER AGENT, DIVIDEND DISBURSING
AGENT AND REGISTRAR

 

The Trust’s securities and cash are held under a custodian contract by State Street Bank and Trust Company (the “Custodian”), whose principal business address is One Lincoln Street, Boston, MA 02111. Rules adopted under the Investment Company Act permit the Trust to maintain its securities and cash in the custody of certain eligible banks and securities depositories. Pursuant to those Rules, the Trust’s portfolio of securities and cash, when invested in

 

46



 

Foreign Securities, will be held by sub-custodians who have been approved by the Board in accordance with the rules and regulations of the Commission following consideration of a number of factors, including, but not limited to, the relationship of the institution with the Custodian, the reliability and financial stability of the institution, the ability of the institution to perform capably custodial services for the Trust, the reputation of the institution in its national market, the political and economic stability of the countries in which the sub-custodians will be located and the risks of potential nationalization or expropriation of Trust assets. The Custodian also performs certain accounting related functions for the Trust, including calculation of NAV and net income.

 

State Street Bank and Trust Company (the “Administrator”) also serves as administrator to the Trust pursuant to an Administration Agreement. Under the Administration Agreement the Trust’s assets are combined with assets of Tekla Life Science Investors (formerly known as H&Q Life Sciences Investors), Tekla Healthcare Investors (formerly known as H&Q Healthcare Investors) and Tekla Healthcare Opportunities Fund, other closed-end mutual funds managed by the Investment Adviser. The combined assets are charged fees computed and payable monthly at an annual rate of:  3.40% of the Trust’s average monthly net assets on assets up to $150 million; 2.40% of the Trust’s average monthly net assets on assets up to $150 million, and 1.40% of the Trust’s average monthly net assets on assets in excess of $300 million, with a minimum fee of $77,500 per year. The Administrative Agreement also covers administrative costs including out-of-pocket expenses incurred in the ordinary course of providing services under the Administration Agreement.

 

Computershare Inc. serves as Dividend Disbursing Agent for the Trust. Computershare Trust Company, N.A., a fully owned subsidiary of Computershare, Inc. serves as (1) the Plan Agent for the Trust’s Dividend Reinvestment Plan and (2) the Transfer Agent and Registrar for Shares of the Trust. Computershare Trust Company, N.A. and Computershare Inc. have their principal business at 250 Royall Street, Canton, MA 02021.

 

47



 

REPORT OF INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM

 

To the Board of Trustees and Shareholder of Tekla World Healthcare Fund:

 

We have audited the accompanying statement of assets and liabilities of Tekla World Healthcare Fund (the “Fund”) as of May 19, 2015. This financial statement is the responsibility of the Fund’s management. Our responsibility is to express an opinion on this financial statement based on our audit.

 

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the statement of assets and liabilities is free of material misstatement. The Fund is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Fund’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statement, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

 

In our opinion, such statement of assets and liabilities presents fairly, in all material respects, the financial position of Tekla World Healthcare Fund as of May 19, 2015, in conformity with accounting principles generally accepted in the United States of America.

 

/s/ Deloitte & Touche LLP

 

DELOITTE & TOUCHE LLP

Boston, Massachusetts

May 21, 2015

 

The accompanying notes are an integral part of this financial statement.

 

48



 

FINANCIAL STATEMENTS

 

A copy of the annual report of the Trust (when available) may be obtained upon request and without charge by writing to the Investment Adviser, or by calling the Investment Adviser at (617) 772-8500. The annual report for the fiscal period ending September 30, 2015 will become available to Shareholders in November, 2015.

 

49



 

Tekla World Healthcare Fund

STATEMENT OF ASSETS AND LIABILITIES

May 19, 2015

 

Assets

 

 

 

Cash

 

$

100,000

 

Deferred offering costs

 

$

111,781

 

Total Assets

 

$

211,781

 

 

 

 

 

Liabilities

 

 

 

Offering costs payable

 

$

111,781

 

Total Liabilities

 

$

111,781

 

 

 

 

 

Net Assets

 

$

100,000

 

 

 

 

 

Sources Of Net Assets

 

 

 

Paid in capital

 

$

100,000

 

Total Net Assets (equivalent to $19.10 per share based on 5,235.60 Shares outstanding)

 

$

100,000

 

 

The accompanying notes are an integral part of this financial statement.

 

50



 

Tekla World Healthcare Fund

NOTES TO FINANCIAL STATEMENT

May 19, 2015

 

(1) Organization and Significant Accounting Policies

 

Tekla World Healthcare Fund (the Fund) is a Massachusetts business trust, formed on March 5, 2015 and registered under the Investment Company Act of 1940 as a non-diversified closed-end management investment company. The Fund’s investment objective is to seek current income and long-term capital appreciation.

 

The Fund has had no operations to date other than matters relating to its registration and the sale and issuance of 5,235.60 shares of beneficial interest in the Fund to Tekla Capital Management LLC at a net asset value per share of $19.10.

 

The preparation of this financial statement requires the use of certain estimates by management in determining the Fund’s assets, liabilities, revenues and expenses. Actual results could differ from these estimates and such differences could be material. The following is a summary of significant accounting policies followed by the Fund, which are in conformity with accounting principles generally accepted in the United States of America (“GAAP”).  Events or transactions occurring after May 19, 2015, through the date that the financial statement was issued, have been evaluated in the preparation of this financial statement.

 

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 May 19, 2015, 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.

 

Organizational Expenses and Offering Costs

 

All organizational expenses of the Trust will be borne by Tekla Capital Management LLC.  As a result, organizational expenses are not reflected in the statement of assets and liabilities, and a statement of operations is not presented.   Offering costs of $111,781 have been incurred through May 19, 2015 and have been treated as a deferred charge in the accompanying Statement of Assets and Liabilities.  Offering costs will be limited to $0.04 per share and will be charged to paid in capital upon sale of the shares. The organizational expenses and any offering costs paid in excess of the $0.04 per share limitation are not subject to future recoupment by Tekla Capital Management LLC.

 

(2)  Investment Advisory and Other Affiliated Fees

 

The Board has approved the Fund to enter into an Investment Advisory Agreement (the Advisory Agreement) with Tekla Capital Management LLC (the “Adviser”).  Pursuant to the terms of the Advisory Agreement, the Fund is expected to pay the Adviser a monthly fee at the rate when annualized of 1.00% of the average daily value of the Managed Assets of the Fund.  Managed Assets means the total assets of the Fund (including any assets attributable to borrowings for investment

 

51



 

purposes) minus the sum of the Fund’s accrued liabilities (other than liabilities representing borrowings for investment purposes).

 

The Board has approved the Fund to enter into a Services Agreement (the Agreement) with the Adviser. Pursuant to the terms of the Agreement, the Fund is expected to reimburse 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.  Expenses incurred pursuant to the Agreement as well as certain expenses paid for by the Adviser are expected to be allocated to the Fund in an equitable fashion as approved by the Trustees of the Fund.

 

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

 

52



 

APPENDIX A

 

PROXY VOTING POLICIES AND PROCEDURES

 

Policy

 

The following are the policies and procedures adopted and implemented by Tekla Capital Management LLC (“TCM”) for voting proxies with respect to portfolio securities held by Tekla World Healthcare Fund, Tekla Healthcare Opportunities Fund, Tekla Healthcare Investors (formerly known as H&Q Healthcare Investors) and Tekla Life Sciences Investors (formerly known as H&Q Life Sciences Investors) (each a “Fund” and collectively the “Funds”). The policies and procedures are reasonably designed to ensure that proxies are voted in the best interest of the Funds and the Funds’ shareholders, in accordance with TCM’s fiduciary duties and Rule 206(4)-6 under the Investment Advisers Act of 1940 (the “Investment Advisers Act”). TCM considers the “best interests” of the Funds and their shareholders to mean their best long-term economic interests.

 

TCM shall vote proxies for the exclusive benefit, and in the best economic interest, of the Funds and their shareholders. Such exercise of voting rights shall be subject to the same standard of care as is generally applicable to TCM’s performance of its duties, as set forth in the advisory agreements with the Funds. The policies and procedures contained herein are designed to be guidelines, however each vote is ultimately cast on a case-by-case basis, taking into consideration the relevant facts and circumstances at the time of the vote. Any material conflicts that may arise will be resolved in the best interests of the Funds and their shareholders.

 

A proxy committee has been designated and is responsible for administering and overseeing the proxy voting process. The committee consists of the President of TCM, TCM’s Chief Compliance Officer (“CCO”), and the analyst responsible for oversight of the company that is the subject of the proxy.  The committee considers proxy questions and determines the vote on behalf of the Funds.

 

Procedures

 

Logistics

 

TCM’s CCO shall be responsible for maintaining the proxy log, monitoring corporate actions and confirming the timely voting of proxies. The proxy log shall contain the following information, in accordance with Form N-PX:

 

·                   the name of the issuer;

 

·                   the exchange ticker symbol, if available;

 

·                   the CUSIP number, if available;

 

·                   the shareholder meeting date;

 

·                   a brief identification of the matter voted on;

 

·                   whether the matter was proposed by the issuer or a security holder;

 

·                   whether TCM cast its vote on the matter;

 

·                   how TCM cast its vote on the matter (for, against, abstain; for or withhold regarding the election of directors); and

 

·                   whether TCM cast its vote for or against management.

 

TCM’s CCO shall also record whether any conflicts of interest have been identified and, if so, what action was taken to resolve the conflict with respect to each vote cast and each abstention.

 

A-1



 

Substantive Voting Decisions

 

TCM’s substantive voting decisions turn on the particular facts and circumstances of each proxy vote. The following is a list of common proxy vote issues and TCM’s standard considerations when determining how to vote such proxies.

 

Routine Matters/Corporate Administrative Items . After an initial review, TCM generally votes with management on routine matters related to the operation of the issuer that are not expected to have a significant economic impact on the issuer and/or its shareholders.

 

Potential for Major Economic Impact . TCM may review and analyze on a case-by-case basis, non-routine proposals that are more likely to affect the structure and operation of the issuer and to have a greater impact on the value of the investment.

 

Corporate Governance . TCM may review and consider corporate governance issues related to proxy matters and generally supports proposals that foster good corporate governance practices.

 

Special Interest Issues . TCM may consider: (i) the long-term benefit to shareholders of promoting corporate accountability and responsibility on social issues; (ii) management’s responsibility with respect to special interest issues; (iii) any economic costs and restrictions on management; and (iv) the responsibility of TCM to vote proxies for the greatest long-term shareholder value.

 

Limitations on Director Tenure and Retirement . TCM may consider: (i) a reasonable retirement age for directors, e.g. 70 or 72; (ii) the introduction of new perspectives on the board; and (iii) the arbitrary nature of such limitations and the possibility of detracting from the board’s stability and continuity.

 

Directors’ Minimum Stock Ownership . TCM may consider: (i) the benefits of additional vested interest; (ii) the ability of a director to serve a company well regardless of the extent of his or her share ownership; and (iii) the impact of limiting the number of persons qualified to be directors.

 

D&O Indemnification and Liability Protection . TCM may consider: (i) indemnifying directors for acts conducted in the normal course of business; (ii) limiting liability for monetary damages for violating the duty of care; (iii) expanding coverage beyond legal expenses to acts that represent more serious violations of fiduciary obligation than carelessness ( e.g. negligence); and (iv) providing expanded coverage in cases when a director’s legal defense was unsuccessful if the director was found to have acted in good faith and in a manner that he or she reasonably believed was in the best interests of the issuer.

 

Director Nominations in Contested Elections . TCM may consider: (i) long-term financial performance of the issuer relative to its industry; (ii) management’s track record; (iii) background to proxy contest; (iv) qualifications of both slates of nominees; (v) evaluations of what each side is offering shareholders as well as the likelihood that the proposed objectives and goals can be met; and (vi) stock ownership positions.

 

Cumulative Voting . TCM may consider: (i) the ability of significant stockholders to elect a director of their choosing; (ii) the ability of minority shareholders to concentrate their support in favor of a director or directors of their choosing; and (iii) the potential to limit the ability of directors to work for all shareholders.

 

Classified Boards .  TCM may consider: (i) providing continuity; (ii) promoting long-term planning; and (iii) guarding against unwanted takeovers.

 

Poison Pills . TCM may consider: (i) TCM’s position on supporting proposals to require a shareholder vote on other shareholder rights plans; (ii) ratifying or redeeming a poison pill in the interest of protecting the value of the issuer; and (iii) other alternatives to prevent a takeover at a price demonstrably below the true value of the issuer.

 

Fair Price Provisions . TCM may consider: (i) the vote required to approve the proposed acquisition; (ii) the vote required to repeal the fair price provision; (iii) the mechanism for determining fair price; and (iv) whether these provisions are bundled with other anti-takeover measures ( e.g. , supermajority voting requirements) that may entrench management and discourage attractive tender offers.

 

A-2



 

Equal Access . TCM may consider: (i) the opportunity for significant shareholders of the issuer to evaluate and propose voting recommendations on proxy proposals and director nominees, and to nominate candidates to the board; and (ii) the added complexity and burden.

 

Charitable Contributions . TCM may consider: (i) the potential benefits to shareholders; (ii) the potential to detract the issuer’s resources from more direct uses of increasing shareholder value; and (iii) the responsibility of shareholders to make individual contributions.

 

Stock Authorizations : TCM may consider: (i) the need for the increase; (ii) the percentage increase with respect to the existing authorization; (iii) voting rights of the stock; and (iv) overall capitalization structures.

 

Preferred Stock . TCM may consider: (i) whether the new class of preferred stock has unspecified voting, conversion, dividend distribution, and other rights; (ii) whether the issuer expressly states that the stock will not be used as a takeover defense or carry superior voting rights; (iii) whether the issuer specifies the voting, dividend, conversion, and other rights of such stock and the terms of the preferred stock appear reasonable; and (iv) whether the stated purpose is to raise capital or make acquisitions in the normal course of business.

 

Director Compensation . TCM may consider: (i) whether director shares are at the same market risk as those of the shareholders; and (ii) how option programs for outside directors compare with the standards of internal programs.

 

Golden and Tin Parachutes . TCM may consider: (i) whether they will be submitted for shareholder approval; and (ii) the employees covered by the plan and the quality of management.

 

Compensation .   TCM may consider:  (i)  Whether the company has an independent compensation committee; (ii) whether the compensation committee engaged independent consultants; (iii)  whether the compensation committee has lapsed or waived equity vesting restrictions; and (iv) whether the company has adopted or extended a Golden Parachute without shareholder approval.  TCM will generally support annual advisory votes on executive compensation.

 

Limitations

 

TCM may abstain from voting a proxy if it concludes that the effect on shareholders’ economic interests or the value of the portfolio holding is indeterminable or insignificant. TCM may abstain from voting a proxy if it concludes that the cost of voting is disproportionate to the economic impact the vote would have on the portfolio holdings. With respect to certain privately held companies, TCM may not have the opportunity to vote or may have a limitation on its ability to vote. For example, in certain cases a company may be permitted by its charter or other governing documents to take action without a shareholder meeting and with written consent of fewer than all shareholders.

 

Conflicts of Interest

 

The Proxy Committee identifies any potential conflicts of interest.  Each potential conflict must be addressed in a manner which will be in the best interest of the Funds and their shareholders. If any potential conflict is identified the Proxy Committee consults with the Funds’ counsel.  Where conflicts of interest arise between clients and TCM, TCM may convene an ad-hoc committee to debate the conflict and to give a ruling on a preferred course of action. If the ad-hoc committee determines that TCM has a conflict of interest in any instance, TCM’s CCO shall disclose the conflict to the Board and seek voting instructions.

 

TCM may cause the proxies to be voted in accordance with the recommendations of an independent third party service provider that TCM may use to assist in voting proxies.

 

Disclosure

 

The following disclosure shall be provided in connection with these policies and procedures:

 

·                   TCM shall provide a description or a copy of these policies and procedures to the Boards of Trustees of the Funds annually and upon request.

 

·                   TCM shall make available to the Funds its proxy voting records, for inclusion on the Funds’ Form N-PX.

 

·                   TCM shall include its proxy voting policies and procedures in its annual filing on Form N-CSR.

 

A-3



 

·                   TCM shall cause the Funds’ shareholder reports to include a statement that a copy of these policies and procedures is available upon request (i) by calling a toll-free number; (ii) on the Funds’ website, (if the Funds choose); and (iii) on the SEC’s website.

 

·                   TCM shall cause the Funds’ annual and semi-annual reports to include a statement that information is available regarding how the Funds voted proxies during the most recent twelve-month period (i) without charge, upon request, either by calling a toll-free number or on or through the Funds’ website, or both; and (ii) on the SEC’s website.

 

Recordkeeping

 

TCM shall maintain records of proxies voted in accordance with Section 204-2 of the Advisers Act, including proxy statements, a record of each vote cast, and a copy of any document created by TCM that was material to making a decision of how to vote the proxy, or that memorializes the basis for TCM’s decision on how to vote the proxy. TCM shall also maintain a copy of its policies and procedures and each written request from a client for proxy voting records and TCM’s written response to any client request, either written or oral, for such records. Proxy statements that are filed on EDGAR shall be considered maintained by TCM. All such records shall be maintained for a period of five years in an easily accessible place, the first two year in the offices of TCM.

 

A-4



 

PART C

 

OTHER INFORMATION

 

Item 25.  Financial Statements and Exhibits

 

1.               Financial Statements:

 

Part A: Not applicable, as Registrant has not yet commenced operations.

 

Part B:     Statement of Assets and Liabilities. Financial Statements indicating that the Registrant has met the net worth requirements of Section 14(a) of the Investment Company Act of 1940 are included in Part B of this Registration Statement.

 

2.               Exhibits:

 

a.                         (i)              Amended and Restated Declaration of Trust of the Registrant, dated as of May 18, 2015, filed herewith.

 

b.                         By-Laws of the Registrant, filed herewith.

 

c.                          Not Applicable.

 

d.                         Not Applicable.

 

e.                          Form of Dividend Reinvestment and Stock Purchase Plan of the Registrant, filed herewith.

 

f.                           Not Applicable.

 

g.                          Form of Investment Advisory Agreement between the Registrant and Tekla Capital Management LLC, filed herewith.

 

h.                         Form of Underwriting Agreement, filed herewith.

 

i.                             Not Applicable.

 

j.                            Form of Custodian Agreement between the Registrant and State Street Bank and Trust Company, filed herewith.

 

k.                         (i)              Form of Administration Agreement between the Registrant and State Street Bank and Trust Company, filed herewith.

 

(ii)           Form of Transfer Agency and Service Agreement between the Registrant and Computershare Inc. and Computershare Trust Company, N.A., filed herewith.

 

(iii)        Support Services Agreement between the Registrant and Destra Capital Investments LLC, filed herewith.

 

(iv)       Distribution Assistance Agreement between the Investment Adviser and Destra Capital Investments LLC, filed herewith.

 

l.                             Opinion and Consent of Dechert LLP.(1)

 

m.                     Not Applicable.

 

n.                         Consent of Deloitte & Touche LLP, filed herewith.

 

o.                         Not Applicable.

 

p.                         Subscription Agreement, filed herewith

 

q.                         Not Applicable.

 



 

r.                            Code of Ethics of Registrant and its Investment Adviser, filed herewith.

 

s.                           Powers of Attorney, filed herewith.

 


(1) To be filed by amendment.

 

Item 26.  Marketing Arrangements.

 

See the Form of Underwriting Agreement as Exhibit (h)(1) filed herewith.

 

Item 27.  Other Expenses of Issuance and Distribution.

 

The following table sets forth the estimated expenses expected to be incurred in connection with the offering described in this Registration Statement:

 

Registration fees

 

$

[  ]

 

New York Stock Exchange listing fees

 

$

[  ]

 

FINRA fees

 

$

[  ]

 

Printing

 

$

[  ]

 

Accounting fees and expenses

 

$

[  ]

 

Legal fees and expenses

 

$

[  ]

 

Miscellaneous

 

$

[  ]

 

TOTAL

 

$

[  ]

 

 

Item 28.  Persons Controlled by or under Common Control with Registrant.

 

No person is directly or indirectly under Common Control with the Registrant, except that the Registrant may be deemed to be controlled by Tekla Capital Management LLC (“TCM”), the investment adviser to the Registrant, because immediately prior to this offering TCM will own 100% of the Registrant’s outstanding common shares. Following completion of this offering, TCM’s share ownership is expected to represent less than 1% of the Registrant’s outstanding shares. TCM is a Delaware limited liability company.

 

Item 29.  Number of Holders of Securities.

 

As of May 19, 2015, the number of record holders of each class of securities of Registrant was as follows:

 

Title of Class

 

Number of Record
Holders

 

Shares of beneficial interest, $.01 par value

 

1

 

 

Item 30.  Indemnification.

 

Under Article V of the Registrant’s Amended and Restated Declaration of Trust dated May 18, 2015, any past or present Trustee or officer of Registrant will be indemnified by the Registrant to the fullest extent permitted by law against liability and against all expenses reasonably incurred by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by reason of his being or having been a Trustee or officer of Registrant, and against amounts paid and incurred by him in the settlement thereof. This provision does not authorize indemnification when it is determined, in the manner specified in the Declaration of Trust, that the Trustee or officer would otherwise be liable to Registrant or its shareholders by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of his duties. Expenses of a Trustee or officer may be paid by Registrant in advance of the final disposition of any claim, action, suit or proceeding upon receipt of an undertaking by the Trustee or officer to repay the expenses to Registrant in the event that it is ultimately determined that indemnification of the Trustee or officer is not authorized under the Declaration of Trust.

 



 

The Registrant will purchase insurance insuring its Trustees and officers against certain liabilities incurred in their capacity as such, and insuring the Registrant against any payments which it is obligated to make to such persons under the foregoing indemnification provisions.

 

Insofar as indemnification for liability arising under the Securities Act of 1933, as amended (“1933 Act”), may be permitted to Trustees, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that, in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 1933 Act, and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a Trustee, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such Trustee, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the 1933 Act and will be governed by the final adjudication of such issue.

 

Under the Investment Advisory Agreement between the Registrant and Tekla Capital Management LLC (the “Investment Adviser”) dated [  ], the Registrant has agreed to certain limitations on the liability of the Investment Adviser and has agreed to provide certain indemnification. Section 9 of the Investment Advisory Agreement provides as follows:

 

The Investment Adviser shall not be held responsible for any loss incurred by any act or omission of any broker. The Investment Adviser also shall not be liable to the Fund or to any shareholder of the Fund for any error or judgment or for any loss suffered by the Fund in connection with rendering services hereunder except (a) a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services (in which case any award of damages shall be limited to the period and the amount set forth in Section 36(b)(3) of the [Investment Company Act of 1940]) or (b) a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Investment Adviser, or reckless disregard of its obligations and duties hereunder. Subject to the foregoing, the Fund also shall indemnify the Investment Adviser, and any officer, director and employee thereof to the maximum extent permitted by Article V of the Fund’s Declaration of Trust.

 

Section 6 of the Form of Underwriting Agreement, filed as Exhibit (h)(i) to this Registration Statement, provides for each of the parties thereto, including the Registrant and the Underwriters, to indemnify the others, their directors, trustees, certain of their officers and persons who control them against certain liabilities in connection with the offering described therein, including liabilities under the federal securities laws.

 

Item 31.  Business and Other Connections of Investment Adviser.

 

Tekla Capital Management LLC was organized in June 2002 for the purpose of providing investment advisory services to Tekla Healthcare Investors and Tekla Life Sciences Investors (formerly H&Q Healthcare Investors and H&Q Life Sciences Investors, respectively) (File Nos. 811-04889 and 811-06565). Reference is made to “Trustees and Officers” in the Statement of Additional Information and to Schedule A of Part 1 of Form ADV, Uniform Application for Investment Adviser Registration, as amended from time to time, (File No. 801-61018) filed with the Commission for information concerning the business and other connections of Daniel R. Omstead, Ph.D., Trustee and President of the Trust and President and CEO of the Investment Adviser.

 

Item 32.  Location of Accounts and Records.

 

Records are located at:

 

1.                                       Tekla Capital Management LLC

100 Federal Street, 19th Floor

Boston, MA 02110

 

(Registrant’s corporate records and records relating to its function as Investment Adviser to Registrant)

 



 

2.                                       State Street Bank and Trust Company

One Lincoln Street

Boston, Massachusetts 02111

 

(Records relating to its function as Custodian to Registrant; and most of Registrant’s accounting and all records relating to its function as Registrant’s accounting agent)

 

3.                                       Computershare Trust Company, N.A.

250 Royall Street

Canton, MA 02021

 

(Records relating to its function as Registrar and Transfer Agent to Registrant)

 

4.                                       Computershare Trust Company, N.A.

250 Royall Street

Canton, MA 02021

 

(Records relating to its function as Dividend Disbursing Agent to Registrant)

 

Item 33.  Management Service.

 

Not Applicable.

 

Item 34.  Undertakings.

 

1.  Registrant hereby undertakes to suspend offering of the shares covered hereby until it amends its prospectus contained herein if (1) subsequent to the effective date of this Registration Statement, its net asset value per share declines more than 10 percent from its net asset value per share as of the effective date of this Registration Statement, or (2) its net asset value increases to an amount greater than its net proceeds as stated in such prospectus.

 

2.  Not Applicable.

 

3.  Not Applicable.

 

4.  Not Applicable.

 

5.  Registrant hereby undertakes that: (a) for the purpose of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant under Rule 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective; and (b) for the purposes of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new Registration Statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

 

6.  The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery, within two business days of receipt of a written or oral request, any Statement of Additional Information.

 



 

SIGNATURES

 

Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Registration Statement on Form N-2 to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Boston and Commonwealth of Massachusetts on the 21st day of May, 2015.

 

 

TEKLA WORLD HEALTHCARE FUND

 

 

 

By:

/s/ Daniel R. Omstead

 

 

President

 

Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and on the dates indicated:

 

Signature

 

Title

 

Date

 

 

 

 

 

/s/ Daniel R. Omstead

 

Trustee and President (Principal Executive Officer)

 

May 21, 2015

Daniel R. Omstead

 

 

 

 

 

 

 

 

 

/s/ Laura Woodward

 

Treasurer (Principal Financial Officer)

 

May 21, 2015

Laura Woodward

 

 

 

 

 

 

 

 

 

/s/ Oleg M. Pohotsky*

 

Trustee and Chairman of the Board

 

May 21, 2015

Oleg M. Pohotsky

 

 

 

 

 

 

 

 

 

/s/ Michael W. Bonney*

 

Trustee

 

May 21, 2015

Michael W. Bonney

 

 

 

 

 

 

 

 

 

/s/ Rakesh K. Jain*

 

Trustee

 

May 21, 2015

Rakesh K. Jain

 

 

 

 

 

 

 

 

 

/s/ William S. Reardon*

 

Trustee

 

May 21, 2015

William S. Reardon

 

 

 

 

 

 

 

 

 

/s/ Uwe E. Reinhardt*

 

Trustee

 

May 21, 2015

Uwe E. Reinhardt

 

 

 

 

 

 

 

 

 

/s/ Lucinda H. Stebbins*

 

Trustee

 

May 21, 2015

Lucinda H. Stebbins

 

 

 

 

 

*By: Daniel R. Omstead, as attorney in-fact of each person so indicated and pursuant to the powers of attorney filed herewith as Exhibit (s).

 



 

EXHIBIT LIST

 

Exhibit (a)

 

Amended and Restated Declaration of Trust of the Registrant, dated as of May 18, 2015

 

 

 

Exhibit (b)

 

By-Laws of the Registrant

 

 

 

Exhibit (e)

 

Form of Dividend Reinvestment and Stock Purchase Plan of the Registrant

 

 

 

Exhibit (g)

 

Form of Investment Advisory Agreement between the Registrant and Tekla Capital Management LLC

 

 

 

Exhibit (h)

 

Form of Underwriting Agreement

 

 

 

Exhibit (j)

 

Form of Custodian Agreement between the Registrant and State Street Bank and Trust Company

 

 

 

Exhibit (k)(i)

 

Form of Administration Agreement between the Registrant and State Street Bank and Trust Company

 

 

 

Exhibit (k)(ii)

 

Form of Transfer Agency and Service Agreement between the Registrant and Computershare Inc. and Computershare Trust Company, N.A.

 

 

 

Exhibit (k)(iii)

 

Support Services Agreement between the Registrant and Destra Capital Investments LLC

 

 

 

Exhibit (k)(iv)

 

Distribution Assistance Agreement between the Investment Adviser and Destra Capital Investments LLC

 

 

 

Exhibit (n)

 

Consent of Deloitte & Touche LLP

 

 

 

Exhibit (p)

 

Subscription Agreement

 

 

 

Exhibit (r)

 

Code of Ethics of Registrant and its Investment Adviser

 

 

 

Exhibit (s)

 

Powers of Attorney

 


Exhibit 99.2a

 

AMENDED AND RESTATED DECLARATION OF TRUST

 

OF

 

TEKLA WORLD HEALTHCARE FUND

 

DECLARATION OF TRUST, made March 5, 2015 and amended and restated as of May 18, 2015 by the Trustees hereunder (together with all other persons from time to time duly elected, qualified and serving as Trustees in accordance with the provisions of Article II hereof, the “Trustees”);

 

Whereas the Trustees desire to establish a trust for the investment and reinvestment of funds contributed thereto; and

 

Whereas the Trustees desire that the beneficial interest in the trust assets be divided into transferable shares of beneficial interest, as hereinafter provided;

 

Now, Therefore, the Trustees hereby declare that all money and property contributed to the trust established hereunder shall be held and managed in trust for the benefit of holders, from time to time, of the shares of beneficial interest issued hereunder and subject to the provisions hereof.

 

ARTICLE I

 

NAME AND DEFINITIONS

 

Section 1.1                                     Name . The name of the trust created hereby is the “Tekla World Healthcare Fund.”

 

Section 1.2                                     Definitions . Wherever they are used herein, the following terms have the following respective meanings:

 

(a)                                  By-Laws ” means the By-laws referred to in Section 3.8 hereof, as from time to time amended.

 

(b)                                  The terms “ Commission ,” “ Interested Person, ” and “ Majority Shareholder Vote ” (the 67% or 50% requirement of the third sentence of section 2(a)(42) of the 1940 Act; whichever may be applicable) have the meanings given them in the 1940 Act.

 

(c)                                   Custodian ” means any person other than the Trust who has custody of any Trust Property as required by Section 17(f) of the 1940 Act, but does not include a system for the central handling of securities described in Section 17(f).

 

(d)                                  Declaration ” means this Declaration of Trust as amended from time to time. Reference in this Declaration of Trust to “Declaration,” “hereof,” herein” and “hereunder” shall be deemed to refer to this Declaration rather than the article or section in which such words appear.

 



 

(e)                                   Distributo r” means the party or parties, other than the Trust, to the contract described in Section 4.2 hereof.

 

(f)                                    Investment Adviser ” means a party furnishing services to the Trust pursuant to the contract described in Section 4.1 hereof.

 

(g)                                   The “ 1940 Act ” means the Investment Company Act of 1940 and the Rules and Regulations thereunder, as amended from time to time.

 

(h)                                  Person ” means and includes individuals, corporations, partnerships, trusts, associations; joint ventures and other entities, whether or not legal entities, and governments and agencies and political subdivisions thereof, whether domestic or foreign.

 

(i)                                      Shareholder ” means a record owner of outstanding Shares.

 

(j)                                     Shares ” means the units of interest into which the beneficial Interest in the Trust shall be divided from time to time and includes fractions of Shares as well as whole Shares.

 

(k)                                  Transfer Agent ” means a party furnishing services to the Trust pursuant to the contract described in Section 4.3 hereof.

 

(l)                                      The “ Trust ” means the trust created hereby.

 

(m)                              The “ Trust Property ” means any and all property, real or personal, tangible or intangible, which is owned or held by or for the account of the Trust or the Trustees.

 

(n)                                  The “ Trustee s” means the persons who have signed the Declaration, so long as they shall continue in office in accordance with the terms hereof, and all other persons who may from time to time be duly elected, qualified and serving as Trustees in accordance with the provisions hereof, and reference herein to a Trustee or the Trustees shall refer to such person or persons in their capacity as trustees hereunder.

 

ARTICLE II

 

TRUSTEES

 

Section 2.1                                     Number of Trustees . The number of Trustees shall initially be seven (7), provided that at or prior to such time as a registration statement under the Securities Act of 1933, as amended, covering the first public offering of securities of the Trust shall have become effective the number of Trustees shall be such number as shall be fixed from time to time by a written instrument signed by a majority of the Trustees, provided, however, that the number of Trustees shall in no event be less than three (3) nor more than fifteen (15). No reduction in the number of Trustees shall have the effect of removing any Trustee from office prior to the expiration of his term unless the Trustee is specifically removed pursuant to Section 2.2 of this Article II at the time of the decrease.

 

Section 2.2                                     Term of Office of Trustees . At such time as the number of Trustees shall initially be fixed by written instrument as provided in Section 2.1 of this Article II, the Board of

 

2



 

Trustees shall be divided into three classes, with the number of Trustees in each class being determined by written instrument of the Board of Trustees. The term of office of the first class shall expire on the date of the first annual meeting of Shareholders. The term of office of the second class shall expire one year thereafter. The term of office of the third class shall expire two years thereafter. Upon expiration of the term of office of each class as set forth above, the number of Trustees in such class, as determined from time to time by the Board of Trustees in accordance with this Article II, shall be elected for a term of three years to succeed the Trustees whose terms of office expire. The Trustees shall be elected by the Shareholders owning of record a plurality of the Shares voting at an annual meeting of the Shareholders or special meeting in lieu thereof called for that purpose, except as provided in Section 2.3 of this Article, and each Trustee elected shall hold office until his successor shall have been elected and shall have qualified; except that (a) any Trustee may resign his trust (without need for prior or subsequent accounting) by an instrument in writing signed by him and delivered to the other Trustees, which shall take effect upon such delivery or upon such later date as is specified therein; (b) that any Trustee may be removed (provided the aggregate number of Trustees after such removal shall not be less than the number required by Section 2.1 hereof) with cause, at any time by written instrument, signed by at least two-thirds of the remaining Trustees, specifying the date when such removal shall become effective; (c) that any Trustee who requests in writing to be retired or who has become incapacitated by illness or injury may be retired by written instrument signed by a majority of the other Trustees, specifying the date of his retirement; and (d) a Trustee may be removed at any meeting of Shareholders by a vote of two-thirds of the outstanding Shares. Upon the resignation or removal of a Trustee, or his otherwise ceasing to be a Trustee, he shall execute and deliver such documents as the remaining Trustees shall require for the purpose of conveying to the Trust or the remaining Trustees any Trust Property held in the name of the resigning or removed Trustee. Upon the incapacity or death of any Trustee, his legal representative shall execute and deliver on his behalf such documents as the remaining Trustees shall require as provided in the preceding sentence.

 

If the number of Trustees is changed, any increase or decrease shall be apportioned among the Classes, as of the annual meeting of Shareholders next succeeding any such change, so as to maintain a number of Trustees in each Class as nearly equal as possible.  No reduction in the number of Trustees shall have the effect of removing any Trustee from office prior to the expiration of his or her term unless the Trustee is specifically removed at the time of the decrease.

 

Section 2.3                                     Resignation and Appointment of Trustees . The term of office of a Trustee shall terminate and a vacancy shall occur in the event of the death, declination, resignation, removal, retirement, bankruptcy, adjudicated incompetence or other incapacity to perform the duties of the office of a Trustee. In the case of an existing vacancy, including a vacancy existing by reason of an increase in the number of Trustees, the remaining Trustees shall fill such vacancy by appointing such other person as they in their discretion shall see fit. In the event such vacancy arose due to an increase in the number of Trustees, any Trustee so elected to fill such vacancy at an annual meeting shall hold office for a term which coincides with that of the Class of Trustee to which such office has been apportioned as heretofore provided, and until his or her successor shall be elected and shall qualify. Any such appointment shall be evidenced by a written instrument signed by a majority of the Trustees then in office. Any such appointment shall not become effective, however, until the person named in the written instrument of appointment shall have accepted in writing such appointment and agreed in writing to be bound by the terms of the Declaration. An appointment of a Trustee, may be

 

3



 

made by the Trustees then in office and notice thereof mailed to Shareholders as aforesaid in anticipation of a vacancy to occur by reason of retirement, resignation or increase in number of Trustees effective at a later date, provided that said appointment shall become effective only at or after the effective date of said retirement, resignation or increase in number of Trustees.

 

Section 2.4                                     Vacancies . The death, declination, resignation, retirement, removal, bankruptcy, adjudicated incompetence or incapacity to perform the duties of a Trustee, or any one of them, shall not operate to annul the Trust or to revoke any existing agency created pursuant to the terms of this Declaration. Whenever a vacancy in the number of Trustees shall occur, until such vacancy is filled as provided in Section 2.3, the Trustees in office, regardless of their number, shall have all the powers granted to the Trustees and shall discharge all the duties imposed upon the Trustees by the Declaration. A written instrument certifying the existence of such vacancy signed by a majority of the Trustees shall be conclusive evidence of the existence of such vacancy.

 

Section 2.5                                     Delegation of Power to Other Trustees . Any Trustee may, by power of attorney, delegate his power for a period not exceeding six (6) months at any one time to any other Trustee or Trustees; provided that in no case shall less than two (2) Trustees personally exercise the powers granted to the Trustees under the Declaration except as herein otherwise expressly provided.

 

ARTICLE III

 

POWERS OF TRUSTEES

 

Section 3.1                                     General . The Trustees shall have exclusive and absolute control over the Trust Property and over the business of the Trust to the same extent as if the Trustees were the sole owners of the Trust Property and business in their own right, but with such powers of delegation as may be permitted by the Declaration. The Trustees shall have power to conduct the business of the Trust and carry on its operations in any and all of its branches and maintain offices both within and without the Commonwealth of Massachusetts, in any and all states of the United States of America, in the District of Columbia, and in any and all commonwealths, territories, dependencies, colonies, possessions, agencies or instrumentalities of the United States of America and of foreign governments and to do all such other things and execute all such instruments as the Trustees deem necessary, proper or desirable in order to promote the interests of the Trust although such things are not herein specifically mentioned. Any determination as to what is in the interests of the Trust made by the Trustees in good faith shall be conclusive. In construing the provisions of the Declaration, the presumption shall be in favor of a grant of power to the Trustees.

 

The enumeration of any specific power herein shall not be construed as limiting the aforesaid power. Such powers of the Trustees may be exercised without order of or resort to any court.

 

Section 3.2                                     Investments .

 

(a)                                  The Trustees shall have the power to:

 

(i)                                      operate as and carry on the business of an investment company, and exercise all of the powers necessary or appropriate to the conduct of such operations;

 

4



 

(ii)                                   invest and reinvest cash, and hold cash uninvested;

 

(iii)                                invest in, hold for investment, or reinvest in, securities, including common and preferred stocks; warrants; bonds, debentures, bills, time notes and all other evidences of indebtedness; negotiable or non-negotiable instruments; general and limited partnership interests, government securities, including securities of any state, municipality or other political subdivision thereof, or any governmental or quasi-governmental agency or instrumentality; and money market instruments including bank certificates of deposit, finance paper, commercial paper, bankers acceptances, interests in bank sweep accounts and all kinds of repurchase agreements, of any corporation, company, trust, association, firm or other business organization however established, and of any country, state, municipality or other political subdivision, or any governmental or quasi-governmental agency or instrumentality;

 

(iv)                               acquire (by purchase, subscription or otherwise), to hold; to trade in and deal in, to acquire any rights or options to purchase or sell, to sell or otherwise dispose of, to lend and to pledge any such securities, to enter into repurchase agreements and forward foreign currency exchange contracts, to purchase and sell futures contracts and options on futures contracts of all descriptions, and to engage in all types of hedging and risk management transactions;

 

(v)                                  exercise all rights, powers and privileges of ownership or interest in all securities and property included in the Trust Property, including the right to vote thereon and otherwise act with respect thereto and to do all acts for the preservation, protection, improvement and enhancement in value of all such securities and property;

 

(vi)                               acquire (by purchase, lease or otherwise) and to hold, use, maintain, develop and dispose of (by sale or otherwise) any property, real or personal; provided that the Trustees shall not purchase or sell real estate, except that the Trustees may purchase or sell securities secured by real estate or interests therein or issued by companies which invest in real estate or interests therein;

 

(vii)                            borrow money or otherwise obtain credit and in this connection issue notes or other evidence of indebtedness; secure borrowings by mortgaging, pledging or otherwise subjecting as security the Trust Property; endorse, guarantee, or undertake the performance of any obligation, contract or engagement of any other Person and to lend Trust Property;

 

(viii)                         aid by further investment any corporation, company, trust, association, general or limited partnership or firm, any obligation of or interest in which is included in the Trust Property or in the affairs of which the Trustees have any direct or indirect interest; to do all acts and things designed to protect, preserve, improve or enhance the value of such obligation or interest; to guarantee or become surety on any or all of the contracts, stocks, bonds, notes, debentures and other obligations of or interests in any such corporation, company, trust, association, general or limited partnership or firm; and

 

5



 

(ix)                               carry on any other business in connection with or incidental to any of the foregoing powers, do everything necessary, suitable or proper for the accomplishment of any purpose or the attainment of any object or the furtherance of any power hereinbefore set forth, and do every other act or thing incidental or appurtenant to or connected with the aforesaid purposes, objects or powers.

 

The foregoing clauses shall be construed both as objects and powers, and the foregoing enumeration of specific powers shall not be held to limit or restrict in any manner the general powers of the Trustees.

 

(b)                                  The Trustees shall not be limited to investing in obligations maturing before the possible termination of the Trust, nor shall the Trustees be limited by any law limiting the investments which may be made by fiduciaries.

 

Section 3.3                                     Legal Title .  Legal title to all the Trust Property shall be vested in the Trustees as joint tenants except that the Trustees shall have power to cause legal title to any Trust Property to be held by or in the name of one or more of the Trustees, or in the name of the Trust, or in the name of any other Person as nominee, on such terms as the Trustees may determine. The right, title and interest of the Trustees in the Trust Property shall vest automatically in each Person who may hereafter become a Trustee. Upon the termination of the term of office, resignation, removal or death of a Trustee he shall automatically cease to have any right, title or interest in any of the Trust Property, and the right, title and interest of such Trustee in the Trust Property shall vest automatically in the remaining Trustees. Such vesting and cessation of title shall be effective whether or not conveyancing documents have been executed and delivered.

 

Section 3.4                                     Issuance and Purchase of Shares . The Trustees shall have the power to issue, sell, purchase, retire, cancel, acquire, hold, resell, reissue, dispose of, transfer, and otherwise deal in Shares and, subject to the provisions set forth in Articles VII and VIII hereof, to apply to any such repurchase, retirement, cancellation or acquisition of Shares any funds or property of the Trust whether capital or surplus or otherwise, to the full extent now or hereafter permitted by the 1940 Act and the laws of the Commonwealth of Massachusetts governing business corporations.

 

Section 3.5                                     Delegation; Committees . The Trustees shall have power to delegate from time to time to such of their number or to officers, employees or agents of the Trust the doing of such things and the execution of such instruments either in the name of the Trust or the names of the Trustees or otherwise as the Trustees may deem expedient, to the same extent as such delegation is not prohibited by the 1940 Act.

 

Section 3.6                                     Collection and Payment . The Trustees shall have power to collect all property due to the Trust; to pay all claims, including taxes, against the Trust Property; to prosecute, defend, compromise or abandon any claims relating to the Trust Property; to foreclose any security interest securing any obligations by virtue of which any property is owed to the Trust; and to enter into releases, agreements and other instruments.

 

Section 3.7                                     Expenses . The Trustees shall have the power to incur and pay any expenses which in the opinion of the Trustees are necessary or incidental to carry out any of the purposes of

 

6



 

the Declaration, and to pay reasonable compensation from the funds of the Trust to themselves as Trustees. The Trustees shall fix the compensation of all officers, employees and Trustees.

 

Section 3.8                                     Manner of Acting; By-law s. Except as otherwise provided herein or in the By-laws; any action to be taken by the Trustees may be taken by a majority of the Trustees present at a meeting of Trustees (a quorum being present), including any meeting held by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, or by written consents of all the Trustees. The Trustees may adopt By-laws not inconsistent with this Declaration to provide for the conduct of the business of the Trust and may amend or repeal such By-laws to the extent such power is not reserved to the Shareholders.

 

Section 3.9                                     Miscellaneous Powers . The Trustees shall have the power to: (a) employ or contract with such persons as the Trustees may deem desirable for the transaction of the business of the Trust; (b) enter into joint ventures, partnerships and any other combinations or associations; (c) remove Trustees or fill vacancies in or add to their number, elect and remove such officers and appoint and terminate such agents or employees as they consider appropriate, and appoint from their own number, and terminate, any one or more committees which may exercise some or all of the power and authority of the Trustees as the Trustees may determine; (d) purchase, and pay for out of Trust Property, insurance policies insuring the Shareholders, Trustees, officers, employees, agents, investment advisers, distributors, selected dealers or independent contractors of the Trust against all claims arising by reason of holding any such position or by reason of any action taken or omitted by any such person in such capacity, whether or not constituting negligence, or whether or not the Trust would have the power to indemnify such person against such liability; (e) establish pension, profit sharing, share purchase and other retirement, incentive and benefit plans for any Trustees, officers, employees or agents of the Trust; (f) to the extent permitted by law, and in addition to the mandatory indemnification required by Section 5.3, indemnify any person with whom the Trust has dealings, including the Distributor, Transfer Agent and selected dealers to such extent as the Trustees shall determine; (g) guarantee indebtedness or contractual obligations of others; (h) determine and change the fiscal year of the Trust and the method by which its accounts shall be kept; and (i) adopt a seal for the Trust but the absence of such seal shall not impair the validity of any instrument executed on behalf of the Trust.

 

ARTICLE IV

 

INVESTMENT ADVISER, DISTRIBUTOR AND TRANSFER AGENT

 

Section 4.1                                     Investment Adviser . The Trustees may in their discretion from time to time enter into one or more investment advisory or management contracts whereby a party to such contract shall undertake to furnish the Trust such administrative, management, investment advisory, statistical and research facilities and services, and such other facilities and services, if any, as the Trustees shall from time to time consider desirable and all upon such terms and conditions as the Trustees may in their discretion determine. Notwithstanding any provisions of the Declaration, the Trustees may delegate to the Investment Adviser authority (subject to such general or specific instructions as the Trustees may from time to time adopt) to effect purchases, sales, loans or exchanges of assets of the Trust on behalf of the Trustees or may authorize any officer, employee or Trustee to effect such purchases, sales, loans or exchanges pursuant to recommendations of the Investment Adviser (and all

 

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without further action by the Trustees). Any such purchases, sales, loans and exchanges shall be deemed to have been authorized by all of the Trustees.

 

Section 4.2                                     Distributor . The Trustees may in their discretion from time to time enter into a contract providing for the sale of Shares whereby the Trust may either agree to sell the Shares to the other party to the contract or appoint such other party its sales agent for such Shares. In either case, the contract shall be on such terms and conditions as the Trustees may in their discretion determine not inconsistent with the provisions of this Article IV or the By-laws; and such contract may also provide for the sale of Shares by such other party as principal or as agent of the Trust and may provide that such other party may enter into selected dealer agreements with registered securities dealers to further the purpose of the distribution of the Shares.

 

Section 4.3                                     Transfer Agent . The Trustees may in their discretion from time to time enter into a transfer agency and shareholder service contract whereby the other party to such contract shall undertake to furnish transfer agency and shareholder services to the Trust. The contract shall have such terms and conditions as the Trustees may in their discretion determine not inconsistent with the Declaration or the By-laws. Such services may be provided by one or more persons.

 

Section 4.4                                     Parties to Contract . Any contract of the character described in Section 4.1, 4.2 or 4.3 of this Article IV or any Custodian contract, as described in the By-laws, may be entered into with any Person, although one or more of the Trustees or officers of the Trust may be an officer, partner, director, trustee, shareholder or member of such other party to the contract, and no such contract shall be invalidated or rendered voidable by reason of the existence of any such relationship; nor shall any Person holding such relationship be disqualified from voting upon or executing any such contract; nor shall any Person holding such relationship be liable merely by reason of such relationship for any loss or expense to the Trust under or by reason of said contract or accountable for any profit realized directly or indirectly therefrom, provided that the contract when entered into was not inconsistent with the provisions of this Article IV or the By-laws. The same Person may be the other party to contracts entered into pursuant to Sections 4.1, 4.2 and 4.3 above or Custodian contracts, and any Person may be financially interested or otherwise affiliated with Persons who are parties to any or all of the contracts mentioned in this Section 4.4.

 

Section 4.5                                     Compliance with 1940 Act . Any contract entered into pursuant to Sections 4.1 or 4.2 shall be consistent with and subject to the requirements of Section 15 of the Investment Company Act of 1940 (including any amendment thereof or other applicable Act of Congress hereafter enacted) with respect to its continuance in effect, its termination and the method of authorization and approval of such contract or renewal thereof.

 

ARTICLE V

 

LIMITATIONS OF LIABILITY OF SHAREHOLDERS, TRUSTEES AND OTHERS

 

Section 5.1                                     N o Personal Liability of Shareholders, Trustees, etc .

 

(a)                                  No Shareholder shall be subject to any personal liability whatsoever to any Person in connection with Trust Property or the acts, obligations or affairs of the Trust solely by

 

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reason of his being or having been a Shareholder and not because of his or her acts or omissions in any other capacity. The Trust shall indemnify and hold each Shareholder harmless from and against all claims and liabilities to which such Shareholder may become subject by reason of his being or having been a Shareholder, and shall reimburse such Shareholder for all legal and other expenses reasonably incurred by him in connection with any such claim or liability. The rights accruing to a Shareholder under this Section 5.1 shall not exclude any other right to which such Shareholder may be lawfully entitled, nor shall anything herein contained restrict the right of the Trust to indemnify or reimburse a Shareholder in any appropriate situation even though not specifically provided herein.

 

(b)                                  Any Person extending credit to, contracting with or having any claim against the Trust shall look only to the Trust Property for payment under such credit, contract or claim; and neither the Shareholders nor the Trustees, nor any of the Trust’s officers, employees or agents, whether past, present or future, shall be personally liable therefor. Nothing in this Declaration of Trust shall protect any former or acting Trustee or officer against any liability to which such Trustee or officer would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office.

 

Section 5.2                                     Non-Liability of Trustees, etc . No Trustee, officer, employee or agent of the Trust shall be liable to the Trust, its Shareholders, or to any Shareholder, Trustee, officer, investment adviser, employee, or agent thereof for any action or failure to act (including without limitation the failure to compel in any way any former or acting Trustee to redress any breach of, trust) except for his own bad faith, willful misfeasance, gross negligence or reckless disregard of his duties involved in the conduct of his office.

 

Section 5.3                                     Mandatory Indemnification .

 

(a)                                  Subject to the exceptions and limitations contained in paragraph (b) below:

 

(i)                                      every person who is or has been a Trustee or officer of the Trust shall be indemnified by the Trust to the fullest extent permitted by law against all liability and against all expenses reasonably incurred or paid by him in connection with any claim, action, suit or proceeding in which he becomes involved as a party or otherwise by virtue of his being or having been a Trustee or officer, and against amounts paid or incurred by him in the settlement thereof;

 

(ii)                                   the words “claim,” “action,” “suit,” or “proceeding” shall apply to all claims, actions, suits or proceedings (civil, criminal, administrative or other, including appeals), actual or threatened; and the words “liability” and “expenses” shall include, without limitation, attorneys’ fees, costs, judgments, amounts paid in settlement, fines, penalties and other liabilities.

 

(b)                                  No indemnification shall be provided hereunder to a Trustee or officer:

 

(i)                                      against any liability to the Trust or the Shareholders by reason of a final adjudication by the court or other body before which the proceeding was brought that he engaged in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office or agency;

 

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(ii)                                   with respect to any matter as to which he shall have been finally adjudicated not to have acted in good faith in the reasonable belief that his action was in the best interest of the Trust;

 

(iii)                                in the event of a settlement or other disposition not involving a final adjudication as provided in paragraph (b)(i) or (b) (ii) resulting in a payment by a Trustee or officer, unless there has been either a determination that such Trustee or officer did not engage in willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his office or agency by the court or other body approving the settlement or other disposition or a reasonable determination, based upon a review of readily available facts (as opposed to a full trial-type inquiry) that he did not engage in such conduct;

 

(A)                                by vote of a majority of the Disinterested Trustees acting on the matter (provided that a majority of the Disinterested Trustees then in office act on the matter); or

 

(B)                                by written opinion of independent legal counsel.

 

(c)                                   Expenses of preparation and presentation of a defense to any claim, action, suit, or proceeding of the character described in paragraph (a) of this Section 5.3 shall be advanced by the Trust prior to final disposition thereof upon receipt of an undertaking by or on behalf of the recipient to repay such amount if it is ultimately determined that he is not entitled to indemnification under this Section 5.3; provided that either

 

(i)                                      such undertaking is secured by a surety bond or some other appropriate security or the Trust shall be insured against losses arising out of any such advances; or

 

(ii)                                   A majority of the Disinterested Trustees acting on the matter (provided that a majority of. the Disinterested Trustees then in office act on the matter) or an independent legal counsel in a written opinion, shall determine, based upon a review of readily available facts (as opposed to a full trial-type inquiry), that there is reason to believe that the recipient ultimately will be found entitled to indemnification.

 

As used in this Section 5.3, a “Disinterested Trustee” is one (i) who is not an “Interested Person” of the Trust (including anyone who has been exempted from being an “Interested Person” by any rule, regulation or order of the Commission, and (ii) against whom none of such actions, suits or other proceedings or another action, suit or other proceeding on the same or similar grounds is then or had been pending.

 

Section 5.4                                     Permissive Indemnificatio n. The Board of Trustees may authorize or ratify, either by contract or resolution, indemnification of employees and agents of the Fund, including the investment adviser or underwriters of the Shares, to the full extent permitted under applicable law.

 

Section 5.5                                     Insurance; Rights to Continue . The rights of indemnification and advancement of expenses provided in this Declaration of Trust may be insured against by policies maintained by the Trust, shall be severable, shall not affect any other rights to which any Trustee, officer, investment adviser, Shareholder, employee or agent may now or hereafter be entitled, shall continue as to a Person who has ceased to be such Trustee, officer, Shareholder, investment adviser,

 

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employee or agent and shall inure to the benefit of the heirs, executors, administrators, and assigns of such Person. Nothing contained herein shall affect any rights to indemnification to which any Person may be otherwise entitled under law.

 

Section 5.6                                     No Bond Required of Trustees . No Trustee shall be obligated to give any bond or other security for the performance of any of his duties hereunder.

 

Section 5.7                                     Execution of Trust Instruments, etc . Every obligation, contract, instrument, certificate, Share, other security of the Trust or undertaking, and every other act or thing whatsoever executed in connection with the Trust shall be conclusively presumed to have been executed or done by the executors thereof only in their capacity as Trustees under the Declaration or in their capacity as officers, employees or agents of the Trust.

 

Section 5.8                                     Reliance on Experts, etc . Each Trustee and officer or employee of the Trust shall, in the performance of his duties, be fully and completely justified and protected with regard to any act or any failure to act resulting from reliance in good faith upon the books of account or other records of the Trust, upon an opinion of counsel, or upon reports made to the Trust by any of its officers or employees or by the Investment Adviser, the Distributor, Transfer Agent, selected dealers, accountants appraisers or other experts or consultants selected with reasonable care by the Trustees, officers or employees of the Trust, regardless of whether such counsel or expert may also be a Trustee.

 

ARTICLE VI

 

SHARES OF BENEFICIAL INTEREST

 

Section 6.1                                     Beneficial Interest . The interest of the beneficiaries hereunder shall be divided into transferable shares of beneficial interest, all of one class, with a par value of $.01 per share. The number of shares of beneficial interest authorized hereunder is unlimited. All Shares issued hereunder including, without limitation, Shares issued in connection with a dividend in Shares or a split of Shares, shall be fully paid and nonassessable.

 

Section 6.2                                     Rights of Shareholders . The ownership of the Trust Property of every description and the right to conduct any business hereinbefore described are vested exclusively in the Trustees, and the Shareholders shall have no interest therein other than the beneficial interest conferred by their Shares, and they shall have no right to call for any partition or division of any property, profits, rights or interests of the Trust nor can they be called upon to assume any losses of the Trust or suffer any assessment of any kind by virtue of their ownership of Shares. The Shares shall be personal property giving only the rights in the Declaration specifically set forth. The Shares shall not entitle the holder to preference, preemptive, appraisal, conversion or exchange rights, except as the Trustees may determine with respect to any series of Shares.

 

Section 6.3                                     Trust Only . It is the intention of the Trustees to create only the relationship of Trustee and beneficiary between the Trustees and each Shareholder from time to time. It is not the intention of the Trustees to create a general partnership, limited partnership, joint stock association, corporation, bailment or any form of legal relationship other than a trust.  Nothing in the Declaration shall be, construed to make the Shareholders, either by themselves or with the Trustees, partners and members of a joint stock association.

 

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Section 6.4                                     Issuance of Share s. The Trustees in their discretion may, from time to time without vote of the Shareholders, issue Shares, in addition to the then issued and outstanding Shares and Shares held in the treasury, to such party or parties and for such amount and type of consideration, including cash or property, at such time or times, and on such terms as the Trustees may deem best, and may in such manner acquire other assets (including the acquisition of assets subject to liabilities and in connection with the assumption of liabilities) and businesses. In connection with any issuance of Shares, the Trustees may issue fractional Shares and Shares held in the treasury. The Trustees may from time to time divide or combine the Shares into a greater or lesser number without thereby changing the proportionate beneficial interests in the Trust. Contributions to the Trust may be accepted for whole Shares and/or 1-1,000ths of a Share or integral multiples thereof.

 

Section 6.5                                     Register of Shares . A register shall be kept at the principal office of the Trust or at an office of the Transfer Agent which shall contain the names and addresses of the Shareholders and the number of Shares held by them respectively and a record of all transfers thereof. Such register shall be conclusive as to who are the holders of the Shares and who shall be entitled to receive dividends or distributions or otherwise to exercise or enjoy the rights of Shareholders. No Shareholder shall be entitled to receive payment of any dividend or distribution, nor to have notice given to him as herein or in the By-laws provided, until he has given his address to the Transfer Agent or such other officer or agent of the Trustees as shall keep the said register for entry thereon. The Trustees, in their discretion, may authorize the issuance of Share certificates and promulgate appropriate rules and regulations as to their use.

 

Section 6.6                                     Transfer of Shares . Shares shall be transferable on the records of the Trust only by the record holder thereof or by his agent thereunto duly authorized in writing, upon delivery to the Trustees or the Transfer Agent of a duly executed instrument of transfer, together with any certificate or certificates (if issued) for such Shares and such evidence of the genuineness of each such execution and authorization and of other matters as may reasonably be required. Upon such delivery the transfer shall be recorded on the register of the Trust. Until such record is made, the Shareholder of record shall be deemed to be the holder of such Shares for all purposes hereunder and neither the Trustees nor any Transfer Agent or register nor any officer, employee or agent of the Trust shall be affected by any notice of the proposed transfer.

 

Any person becoming entitled to any Shares in consequence of the death, bankruptcy or incompetence of any Shareholder, or otherwise by operation of law, shall be recorded on the register of Shares as the holder of such Shares upon production of the proper evidence thereof to the Trustees or the Transfer Agent; but until such record is made, the Shareholder of record shall be deemed to be the holder of such Shares for all purposes hereunder and neither the Trustees nor any Transfer Agent or registrar, nor any officer or agent of the Trust shall be affected by any notice of such death, bankruptcy or incompetence, or other operation of law.

 

Section 6.7                                     Notices . Any and all notices to which any Shareholder may be entitled and any and all communications shall be deemed duly served or given if mailed, postage prepaid, addressed to any Shareholder of record at his last known address as recorded on the register of the Trust; provided, however, that annual reports and proxy statements need not be sent to a Shareholder if:

 

(i)                                      an annual report and a proxy statement for two consecutive annual meetings, or

 

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(ii)                                   all, and at least two, checks (if sent by first class mail) in payment of dividends on Shares during a twelve-month period

 

have been mailed to such Shareholder’s address and have been returned undelivered. However, delivery of such annual reports and proxy statements shall resume once the Shareholder’s current address is determined.

 

Section 6.8                                     Treasury Shares . Shares held in the treasury shall, until reissued pursuant to Section 6.4, not confer any voting rights on the Trustees, nor shall such Shares be entitled to any dividends or other distributions declared with respect to the Shares.

 

Section 6.9                                     Voting Powers . The Shareholders shall have power to vote only (i) the election of Trustees as provided in Section 2.2 hereof, (ii) with respect to any investment advisory or management contract to the extent required by the 1940 Act, (iii) with respect to termination of the Trust as provided in Section 8.2, (iv) with respect to any amendment of the Declaration to the extent and as provided in Section 8.3, (v) with respect to any transaction described in Sections 8.4, 8.5, 8.6 and 8.7, (vi) with respect to incorporation of the Trust to the extent and as provided in Section 8.5, (vii) with respect to a determination submitted to them pursuant to Section 10.8 as to whether or not a court action, proceeding or claim should or should not be brought or maintained derivatively on behalf of the Trust or the Shareholders, (viii) with respect to a determination submitted to them pursuant to Section 10.9 as to whether or not a direct action by a Shareholder or group of Shareholders shall be authorized, and (ix) with respect to such additional matters relating to the Trust as may be required by the Declaration, the By-laws or any registration of the Trust as an investment company under the 1940 Act with the Commission (or any successor agency) or any state, or as the Trustees may consider necessary or desirable.  Except as otherwise specifically provided in the Declaration or the By-Laws or as required by provisions of the 1940 Act, all matters shall be decided by a vote of the majority of all votes validly cast at a meeting at which a quorum is present.  Each whole Share shall be entitled to one vote as to any matter on which it is entitled to vote and each fractional Share shall be entitled to a proportionate fractional vote. There shall be no cumulative voting in the election of Trustees. Until Shares are issued, the Trustees may exercise all rights of Shareholders and may take any action required by law, the Declaration or the By-laws to be taken by Shareholders. The By-laws may include further provisions for Shareholders’ votes and meetings and related matters.

 

ARTICLE VII

 

DETERMINATION OF NET ASSET VALUE, NET INCOME AND DISTRIBUTIONS

 

The Trustees, in their absolute discretion, may prescribe and shall set forth in the By-laws or in a duly adopted vote of the Trustees such bases and times for determining the per Share net asset value of the Shares or net income, or the declaration and payment of dividends and distributions, as they may deem necessary or desirable.

 

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ARTICLE VIII

 

DURATION; TERMINATION OF TRUST; AMENDMENT; MERGERS, ETC.

 

Section 8.1                                     Duration . The Trust shall continue without limitation of time but subject to the provisions of this Article VIII.

 

Section 8.2                                     Termination of Trust .

 

(a)                                  The Trust may be terminated (i) by the affirmative vote of the holders of not less than seventy-five percent (75%) of the Shares outstanding and entitled vote at any meeting of Shareholders, (ii) by a majority of the Trustees and the affirmative vote of the holders of not less than seventy-five percent (75%) of such Shares; or (iii) by seventy-five percent (75%) of the Trustees.  Upon the termination of the Trust:

 

(i)                                      The Trust shall carry on no business except for the purpose of winding up its affairs;

 

(ii)                                   The Trustees shall proceed to wind up the affairs of the Trust and all of the powers of the Trustees under this Declaration shall continue until the affairs of the Trust shall have been wound up, including the power to fulfill or discharge the contracts of the Trust, collect its assets, sell, convey, assign, exchange, transfer or otherwise dispose of all or any part of the remaining Trust Property to one or more persons at public or private sale for consideration which may consist in whole or in part of cash, securities or other property of any kind, discharge or pay its liabilities, and to do all other acts appropriate to liquidate its business; provided, that any sale, conveyance, assignment, exchange, transfer or other disposition of all or substantially all of the Trust Property shall require Shareholder approval in accordance with Section 8.4 hereof; and

 

(iii)                                After paying or adequately providing for the payment of all liabilities, and upon receipt of such releases, indemnities and refunding agreements as they deem necessary for their protection, the Trustees may distribute the remaining Trust Property, in cash or in kind or partly in cash and partly in kind, among the Shareholders according to their respective rights.

 

(b)                                  After termination of the Trust and distribution to the Shareholders as herein provided, a majority of the Trustees shall execute and place in the records of the Trust an instrument in writing setting forth the fact of such termination, and the Trustees shall thereupon be discharged from all further liabilities and duties hereunder, and the rights and interests of all Shareholders shall thereupon cease.

 

Section 8.3                                     Amendment Procedure .

 

(a)                                  Except as provided in paragraph (c) of this Section 8.3, this Declaration may be amended (i) by a Majority Shareholder Vote or (ii) by a majority of the Trustees and the affirmative vote of the holders of not less than a majority of the Shares outstanding and entitled to vote. The Trustees may also amend this Declaration without the vote or consent of Shareholders to change the name of the Trust, to supply any omission, to cure, correct or supplement any ambiguous,

 

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defective or inconsistent provision hereof, or if they deem it necessary to conform this Declaration to the requirements of applicable federal laws or regulations or the requirements of the regulated investment company provisions of the Internal Revenue Code, but the Trustees shall not be liable for failing so to do.

 

(b)                                  No amendment may be made under this Section 8.3 which would change any rights with respect to any Shares by reducing the amount payable thereon upon liquidation of the Trust or by diminishing or eliminating any voting rights pertaining thereto, except with the vote or consent of the holders of two-thirds of the Shares outstanding and entitled to vote. Nothing contained in this Declaration shall permit the amendment of this Declaration to impair the exemption from personal liability of the Shareholders, Trustees, officers, employees and agents of the Trust or to permit assessment upon Shareholders.

 

(c)                                   No amendment may be made under this Section 8.3 which shall amend, alter, change or repeal any of the provisions of Sections 8.3, 6.4, 8.6 and 8.7 unless the amendment effecting such amendment, alteration, change or repeal shall receive the affirmative vote or consent of seventy-five percent (75%) of the Shares outstanding and entitled to vote. Such affirmative vote or consent shall be in addition to the vote or consent of the holders of Shares otherwise required by law or by the terms of any class. or series of preferred stock, whether now or hereafter authorized, or any agreement between the Trust and any national securities exchange.

 

(d)                                  A certificate signed by a majority of the Trustees setting forth an amendment and reciting that it was duly adopted by the Shareholders or by the Trustees as aforesaid or a copy of the Declaration, as amended, and executed by a majority of the Trustees, shall be conclusive evidence of such amendment when placed in the records of the Trust.

 

Notwithstanding any other provision hereof, until such time as a Registration Statement under the Securities Act of 1933, as amended, covering the first public offering of securities of the Trust shall have become effective, this Declaration may be terminated or amended in any respect by the affirmative vote of a majority of the Trustees or by an instrument signed by a majority of the Trustees,

 

Section 8.4                                     Merger, Consolidation and Sale of Assets . Subject to the provisions of Section 8.7 hereof, the Trust may merge or consolidate with any other corporation, association, trust or other organization, or may sell, lease or exchange all or substantially all of the Trust Property, including its good will, upon such terms and conditions and for such consideration when and as authorized at any meeting of Shareholders called for the purpose by the affirmative vote of the holders of not less than two-thirds of the Shares outstanding and entitled to vote, or by an instrument or instruments in writing without a meeting, consented to by the holders of not less than two-thirds of such Shares, provided, however, that if such merger, consolidation, sale, lease or exchange is recommended by the Trustees, the vote or written consent of the holders of a majority of Shares outstanding and entitled to vote, shall be sufficient authorization; and any such merger, consolidation, sale, lease or exchange shall be deemed for all purposes to have been accomplished under and pursuant to the statutes of the Commonwealth of Massachusetts.

 

Section 8.5                                     Incorporation and Reorganization . With the approval of the holders of a majority of the Shares outstanding and entitled to vote, the Trustees may cause to be organized or

 

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assist in organizing a corporation or corporations under the laws of any jurisdiction, or any other trust, partnership, association or other organization to take over all of the Trust Property or to carry on any business in which the Trust shall directly or indirectly have any interest, and to sell, convey and transfer the Trust Property to any such corporation, trust, partnership, association or organization in exchange for the shares or securities thereof or otherwise and to lend money to, subscribe for the shares or securities of, and enter into any contracts with any such corporation, trust, partnership, association or organization or any corporation, partnership, association, trust, or organization in which the Trust holds or is about to acquire shares or any other interest. The Trustees may also cause a merger or consolidation between the Trust or any successor thereto and any such corporation, trust, partnership, association or other organization if and to the extent permitted by law, as provided under the law then in effect. Nothing contained herein shall be construed as requiring approval of Shareholders for the Trustees to organize or assist in organizing one or more corporations, trusts, partnerships, associations or other organizations and selling, conveying or transferring a portion of the Trust Property to such organization or entities.

 

Section 8.6                                     Conversion .

 

Notwithstanding any other provision of this Declaration, the conversion of the Trust from a “closed-end company” to an “open-end company,” as those terms are defined in Sections 5(a)(2) and 5(a)(1), respectively, of the 1940 Act as in effect on the date hereof, shall require (i) the approval of the Board of Trustees and (ii) the affirmative vote or consent of the holders of seventy-five percent (75%) of the Shares outstanding and entitled to vote.

 

Section 8.7

 

(a)                                  Notwithstanding any other provision of this Declaration and subject to the exceptions provided in paragraph (d) of this Section, the types of transactions described in paragraph (c) of this Section shall require the affirmative vote or consent of the holders of seventy-five percent (75%) of the Shares outstanding and entitled to vote, when a Principal Shareholder (as defined in paragraph (b) of this Section) is a party to the transaction. Such affirmative vote or consent shall be in addition to the vote or consent of the holders of Shares otherwise required by law or by the terms of any class or series of preferred stock, whether now or hereafter authorized, or any agreement between the Trust and any national securities exchange.

 

(b)                                  The term “Principal Shareholder” shall mean any corporation, person or other entity which is the beneficial owner, directly or indirectly, of more than five percent (5%) of the outstanding Shares and shall include any affiliate or associate, as such terms are defined in clause (ii) below, of a Principal Shareholder. For the purposes of this Section, in addition to the Shares which a corporation, person or other entity beneficially owns directly, (a) any corporation, person or other entity shall be deemed to be the beneficial owner of any Shares (i) which it has the right to acquire pursuant to any agreement or upon exercise of the conversion rights or warrants, or otherwise (but excluding share options granted by the Trust) or (ii) which are beneficially owned, directly or indirectly (including Shares deemed owned through application of clause (i) above), by any other corporation, person or entity with which it or its “affiliate” or “associate” (as defined below) has any agreement, arrangement or understanding for the purpose of acquiring, holding, voting or disposing of Shares, or which is its “affiliate”, or “associate” as those terms are defined in Rule 12b-2 of the General Rules and Regulations under the Securities Exchange Act of 1934 as in effect on the date hereof, and (b) the

 

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outstanding Shares shall include Shares deemed owned through application of clauses (i) and (ii) above but shall not include any other Shares which may be issuable pursuant to any agreement, or upon exercise of conversion rights or warrants, or otherwise.

 

(c)                                   This Section shall apply to the following transactions:

 

(i)                                      The merger or consolidation of the Trust or any subsidiary of the Trust with or into any Principal Shareholder.

 

(ii)                                   The issuance of any securities of the Trust (in one or more series of transactions in any twelve-month period) to any Principal Shareholder for cash, securities or other property (or combination thereof) having an aggregate fair market value of $1,000,000 or more, excluding (i) sales of any securities of the Trust in connection with a public offering thereof; (ii) issuances of securities of the Trust pursuant to any dividend reinvestment program available to all Shareholders and approved by the Trustees; and (iii) issuances of securities of the Trust upon the exercise of any stock subscription rights distributed by the Trust.

 

(iii)                                The sale, lease or exchange of all or any substantial part of the assets of the Trust to or with any Principal Shareholder (except assets having an aggregate fair market value of less than $1,000,000, aggregating for the purpose of such computation all assets sold, leased or exchanged in any series of similar transactions within a twelve-month period) except for transactions in securities effected by the Trust, in the ordinary course of business.

 

(iv)                               The sale or lease to the Trust or any subsidiary thereof, in exchange for securities of the Trust, of any assets of any Principal Shareholder (except assets having an aggregate fair market value of less than $1,000,000, aggregating for the purposes of such computation all assets sold, leased or exchanged in any series of similar transactions within a twelve-month period).

 

(v)                                  Any Shareholder proposal as to specific investment decisions made or to be made with respect to the assets of the Trust or a series or Class of Shares.

 

(d)                                  The provisions of this Section shall not be applicable to (i) any of the transactions described in paragraph. (c) of this Section if the Board of Trustees of the Trust shall, by a vote of 75% or more of the Trustees, have approved a memorandum of understanding or agreement with such Principal Shareholder with respect to and substantially consistent with such transaction, or (ii) any such transaction with any corporation of which majority of the, outstanding shares of all classes of stock normally entitled to vote in elections of directors is owned of record or beneficially by the Trust and its subsidiaries.

 

(e)                                   The Board of Trustees. shall have the power and duty to determine for the purposes of this Section on the basis of information known to the Trust, whether (i) a corporation, person or entity beneficially owns more than five percent (5%) of the outstanding Shares, (ii) a corporation, person or entity is an “affiliate” or “associate” (as defined above) of another, (iii) the assets being acquired or leased to or by the Trust or any subsidiary thereof, constitute a substantial part of the assets of the Trust and have an aggregate fair market value of $1,000,000 or more, and (iv) the memorandum of understanding referred to in paragraph (d) hereof is substantially consistent with the transaction

 

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covered thereby. Any such determination shall be conclusive and binding for all purposes of this Section.

 

ARTICLE IX

 

REPORTS TO SHAREHOLDERS

 

The Trustees shall at least annually, or as required by the 1940 Act, submit to the Shareholders a written financial report of the Trust, including financial statements which shall at least annually be certified by independent public accountants.

 

ARTICLE X

 

MISCELLANEOUS

 

Section 10.1                              Filing . This Declaration and any amendment hereto shall be filed in the office of the Secretary of the Commonwealth of Massachusetts and in such other places as may be required under the laws of Massachusetts and may also be filed or recorded in such other places as the Trustees deem appropriate. Each amendment so filed shall be accompanied by a certificate signed and acknowledged by a Trustee stating that such action was duly taken in a manner provided herein, and unless such amendment or such certificate sets forth some later time for the effectiveness of such amendment, such amendment shall be effective upon its filing. A restated Declaration, integrating into a single instrument all of the provisions of the Declaration which are then in effect and operative, may be executed from time to time by a majority of the Trustees and shall upon filing with the Secretary of the Commonwealth of Massachusetts, be conclusive evidence of all amendments contained therein and may thereafter be referred to in lieu of the original Declaration and the various amendments thereto.

 

Section 10.2                              Governing Law . This Declaration is executed by the Trustees and delivered in The Commonwealth of Massachusetts and with reference to the laws thereof, and the rights of all parties and the validity and construction of every provision hereof shall be subject to and construed according to the laws of said Commonwealth.

 

Section 10.3                              Counterparts . This Declaration may be simultaneously executed in several counterparts, each of which shall be deemed to be an original, and such counterparts, together, shall constitute one and the same instrument, which shall be sufficiently evidenced by any such original counterpart.

 

Section 10.4                              Reliance by Third Parties . Any certificate executed by an individual who, according to the records of the Trust appears to be a Trustee hereunder, certifying: (a) the number or identity of Trustees or Shareholders, (b) the due authorization of the execution of any instrument or writing, (c) the form of any vote passed at a meeting of Trustees or Shareholders, (d) the fact that the number of Trustees or Shareholders present at any meeting or executing any written instrument satisfies the requirements of this Declaration, (e) the form of any By-laws adopted by or the identity of any officers elected by the Trustees, or (f) the existence of any fact or facts which in any manner relate to the affairs of the Trust, shall be conclusive evidence as to the matters so certified in favor of any Person dealing with the Trustees and their successors.

 

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Section 10.5                              Provisions in Conflict With Law or Regulations .

 

(a)                                  The provisions of the Declaration are severable, and if the Trustees shall determine, with the advice of counsel, that any of such provisions is in conflict with the 1940 Act, the regulated investment company provisions of the Internal Revenue Code of 1986, as amended, or with other applicable laws and regulations, the conflicting provision shall be deemed not to constitute and never to have constituted a part of the Declaration; provided, however, that such determination shall not affect any of the remaining provisions of the Declaration or render invalid or improper any action taken or omitted prior to such determination.

 

(b)                                  If any provision of the Declaration shall be held invalid or unenforceable in any jurisdiction, such invalidity or unenforceability shall affect only such provision in such jurisdiction and shall not in any manner affect such provision in any other jurisdiction or any other provision of the Declaration in any jurisdiction.

 

Section 10.6                              Principal Office of the Trust .  The principal office of the Trust shall be at 100 Federal Street, 19 th  Floor, Boston, Massachusetts 02110.

 

Section 10.7                              Appointment of Resident Agent .

 

Daniel R. Omstead, 100 Federal Street, 19 th  Floor, Boston, Massachusetts 02110, is hereby appointed the resident agent of the Trust in the Commonwealth of Massachusetts upon whom may be served any notice, process or pleading in any action or proceeding against the Trust or the Trustees as such.

 

Section 10.8                              Derivative Claims .  No Shareholder shall have the right to bring or maintain any court action, proceeding or claim on behalf of the Trust without first making demand on the Trustees requesting the Trustees to bring or maintain such action, proceeding or claim.  Such demand shall not be excused under any circumstances, including claims of alleged interest on the part of the Trustees, unless the plaintiff makes a specific showing that irreparable nonmonetary injury to the Trust would otherwise result.  Such demand shall be mailed to the Secretary of the Trust at the Trust’s principal office and shall set forth with particularity the nature of the proposed court action, proceeding or claim and the essential facts relied upon by the Shareholder to support the allegations made in the demand.  The Trustees shall consider such demand within 90 days of its receipt by the Trust.  In their sole discretion, the Trustees may submit the matter to a vote of Shareholders of the Trust.  Any decision by the Trustees to bring, maintain or settle (or not to bring, maintain or settle) such court action, proceeding or claim, or to submit the matter to a vote of Shareholders, shall be binding upon the Shareholders.  Any decision by the Trustees to bring or maintain a court action, proceeding or suit on behalf of the Trust or a series or class of Shares shall be subject to the right of the Shareholders under Article VI, Section 6.9 hereof, if any, to vote on whether or not such court action, proceeding or suit should or should not be brought or maintained.

 

Section 10.9                              Direct Claims .  No shareholder or group of Shareholders shall have the right to bring or maintain a direct action or claim for monetary damages against the Trust or the Trustees predicated upon an express or implied right of action under this Declaration or U.S. federal securities laws (excepting rights of action specifically contemplated by U.S. federal

 

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securities laws), nor shall any single Shareholder, whether or not is similarly situated to one or more other Shareholders with respect to any such alleged injury, have the right to bring such an action, unless the Shareholder or group of Shareholders has obtained authorization from the Trustees to bring the action.  The requirement of authorization shall not be excused under any circumstances, including claims of alleged interest on the part of the Trustees.  A request for authorization shall be mailed to the Secretary of the Trust at the Trust’s principal office and shall set forth with particularity the nature of the proposed court action, proceeding or claim and the essential facts relied upon by the Shareholder or group of Shareholders to support the allegations made in the request.  The Trustees shall consider such request within 90 days of its receipt by the Trust.  In their sole discretion, the Trustees may submit the matter to a vote of Shareholders of the Trust or series or class of Shares, as appropriate.  Any decision by the Trustees to settle or to authorize (or not to settle or to authorize) such court action, proceeding or claim, or to submit the matter to a vote of Shareholders, shall be binding upon the Shareholder or group of Shareholders seeking authorization.  Any decision by the Trustees to authorize a court action, proceeding or suit by a group of Shareholders shall be subject to the right of the Shareholders under Article VI, Section 6.9 hereof, if any, to vote on whether or not such court action, proceeding or suit should or should not be brought or maintained.

 

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IN WITNESS WHEREOF , the undersigned have executed this instrument this 18 th  day of May, 2015.

 

/s/ Michael W. Bonney

 

/s/ Rakesh K. Jain

Michael W. Bonney

 

Rakesh K. Jain

Trustee

 

Trustee

 

 

 

 

 

 

/s/ Daniel R. Omstead

 

/s/ Oleg M. Pohotsky

Daniel R. Omstead

 

Oleg M. Pohotsky

Trustee

 

Trustee

 

 

 

 

 

 

/s/ William S. Reardon

 

/s/ Uwe E. Reinhardt

William S. Reardon 

 

Uwe E. Reinhardt 

Trustee

 

Trustee

 

 

 

 

 

 

/s/ Lucinda H. Stebbins

 

 

Lucinda H. Stebbins

 

 

Trustee

 

 

 

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Exhibit 99.2b

 

BY-LAWS

OF

TEKLA WORLD HEALTHCARE FUND

 

ARTICLE I

 

Definitions

 

The terms “Commission,” “Custodian,” “Declaration,” “Distributor,” “Investment Adviser,” “Majority Shareholder Vote,” “1940 Act,” “Shareholder,” “Shares,” “Transfer Agent,” “Trust,” “Trust Property” and “Trustees” have the respective meanings given them in the Declaration of Trust of Tekla World Healthcare Fund dated March 5, 2015, as amended from time to time.

 

ARTICLE II

 

Offices

 

Section 1. Principal Office. Until changed by the Trustees, the principal office of the Trust in The Commonwealth of Massachusetts shall be in the City of Boston, County of Suffolk.

 

Section 2. Other Offices. The Trust may have offices in such other places within or without the Commonwealth as the Trustees may from time to time determine.

 

ARTICLE III

 

Shareholders

 

Section 1. Meetings. An annual meeting of the Shareholders shall be held at such place within or without the Commonwealth of Massachusetts on such day and at such time as the Trustees shall designate. Special meetings of the Shareholders may be called at any time by a majority of the Trustees. Special meetings of Shareholders shall be called by the Trustees upon receipt by the Secretary at the Trust’s principal office of (1) a written request of Shareholders holding in the aggregate Shares representing not less than a majority of all votes entitled to be cast at such meeting, specifying a proper purpose or purposes for which such meeting is to be called as determined pursuant to the Declaration and these By-Laws and providing all information required pursuant to Section 2(b) of this Article III and (2) payment of the reasonably estimated cost of preparing and mailing notice of such meeting, which the President or Secretary shall determine and specify to such Shareholders. Any such meeting shall be held within or without the Commonwealth of Massachusetts on such day and at such time as the Trustees shall designate. The holders of a majority of outstanding Shares present in person or by proxy shall constitute a quorum at any meeting of the Shareholders.

 

Section 2. Notice of Meetings.

 

(a) Notice of Meetings. Notice of all meetings of the Shareholders, stating the time, place and purposes of the meeting, shall be given by the Trustees by mail to each Shareholder at his address as recorded on the register of the Trust, mailed not less than ten (10) days and not more than sixty (60) days before the meeting. For any matter to be properly before any annual or special meeting, the matter must be (1) specified in the notice of the meeting given by or at the direction of the Trustees, (2) otherwise brought before the meeting by or at the direction of the Trustees, or (3) a proper matter for action by the Shareholders as determined pursuant to the Declaration and these By-Laws and brought before the meeting by a Shareholder in the manner specified in Section 2(b) of this Article III. Any adjourned meeting may be held as adjourned without further notice. No notice need be given to any Shareholder

 



 

who shall have failed to inform the Trust of his current address or if a written waiver of notice, executed before or after the meeting by the Shareholder or his attorney thereunto authorized, is filed with the records of the meeting.

 

(b) Requirements for Matters to Be Considered.

 

(i) In addition to any other requirements under applicable law and the Declaration and these By-Laws, any proposal to elect any person nominated by Shareholders for election as Trustee at an annual meeting or a special meeting called by the Trustees for the purpose of electing a Trustee or Trustees and any other proposals by Shareholders to be presented at an annual meeting or a special meeting may only be brought before the meeting if timely written notice (the “Shareholder Notice”) is provided to the Secretary. For an annual meeting, unless a greater or lesser period is required under applicable law, to be timely, the Shareholder Notice must be received at the principal office of the Trust not less than ninety (90) days nor more than one hundred twenty (120) days prior to the first anniversary date (“Anniversary Date”) of the date of the Trust’s annual meeting in the preceding year; provided, however, if and only if the annual meeting is not scheduled to be held within a period that commences thirty (30) days before the Anniversary Date and ends thirty (30) days after such Anniversary Date (an annual meeting date outside such period being referred to herein as an “Other Annual Meeting Date”), such Shareholder Notice must be given in the manner provided herein by the later of the close of business on (1) the date ninety (90) days prior to such Other Annual Meeting Date or (2) the tenth (10th) business day following the date such Other Annual Meeting Date is first publicly announced or disclosed. For a special meeting called by the Trustees, unless a greater or lesser period is required under applicable law, to be timely, the Shareholder Notice must be received at the principal office of the Trust not later than the close of business on the tenth (10th) business day following the date of such special meeting is publicly announced.

 

Any Shareholder submitting a nomination of a person for election as a Trustee at an annual meeting or special meeting called by the Trustees for election of Trustees shall deliver as part of the Shareholder Notice: (1) a statement in writing setting forth (A) the name, age, date of birth, business address, residence address and nationality of such nominee; (B) the class or series and number of all Shares of the Trust owned of record or beneficially by such nominee, as reported to such Shareholder by such nominee; (C) all other information regarding such nominee that would be required to be disclosed in solicitations of proxies for elections of directors, or is otherwise required, pursuant to Section 14 of the Exchange Act (or any successor provision thereto) and the rules and regulations promulgated thereunder; and (D) whether such Shareholder believes the nominee is or will be an “interested person” of the Trust (as defined in the 1940 Act) and, if not an “interested person,” information regarding such nominee that will be sufficient for the Trustees to make such determination; and (2) the written, signed and notarized statement of such nominee giving consent to be named as a nominee in any proxy statement relating to such election and confirming such nominee’s intention to serve as a Trustee, if elected. In addition to the information expressly required to be in the Shareholder Notice, the Trustees may require any proposed nominee to furnish such other information as they may reasonably require or deem necessary to determine the eligibility of such nominee to serve as a Trustee.

 

Without limiting the foregoing, any Shareholder who gives a Shareholder Notice of any matter proposed to be brought before a meeting (including a nomination of a person for election as Trustee) shall deliver, as part of such Shareholder Notice: (1) a reasonably particular description of the matter proposed and the exact text of the proposal; (2) a brief written statement of the reasons why the proposal is in the best interests of Shareholders; (3) such Shareholder’s name and address as they appear on the Trust’s books and the Shareholder’s telephone number; (4) all other information regarding such Shareholder that would be required to be disclosed in solicitations of proxies with respect to such matter, or is otherwise required, pursuant to Section 14 of the Exchange Act (or any successor provision thereto) and the rules and regulations thereunder; (5) the class or series and number of all Shares of the Trust owned beneficially

 

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and of record by such Shareholder; (6) an explicit description of each Derivative Instrument, as defined in Section 2(b)(v), into which the Shareholder or any affiliate has entered or is a party or beneficiary, each transaction or arrangement into which the Shareholder or any affiliate has entered or is a party or beneficiary with the effect or intent of mitigating or otherwise managing benefit, loss or risk of Share price changes or increasing or decreasing the Shareholder’s or such affiliate’s voting power in Shares and, if applicable, the number of Shares of the Trust to which such Derivative Instrument, transaction or arrangement relates; (7) if the Shareholder is an investment entity, an explicit description of the Shareholder’s investment strategy or objective and a copy of the Shareholder’s most recent related disclosure document(s) provided to investors; (8) any material interest of such Shareholder in the matter proposed (other than as a Shareholder); (9) a representation that the Shareholder intends to appear in person or by proxy at the meeting to act on the matter proposed; (10) if the proposal involves a nominee for election as Trustee, a description of all arrangements or understandings between the Shareholder and such nominee and any other person or persons (including their names) pursuant to which the nomination is to be made by the Shareholder; and (11) in the case of a Shareholder (a “Beneficial Owner”) that holds Shares entitled to vote at the meeting through a nominee or “street name” holder of record, evidence establishing such Beneficial Owner’s indirect ownership of, and entitlement to vote, Shares at the meeting. In addition to the information expressly required to be in the Shareholder Notice, the Shareholder shall also provide such other information as the Trustees may reasonably request in order to assess whether the matter is a proper matter for Shareholders’ consideration and determine a position with respect to such proposal. As used in this Section 2(b), Shares “beneficially owned” shall mean all Shares which such person is deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the Exchange Act (or any successor provisions thereto).

 

(ii) For purposes of this Section 2(b), a matter shall be deemed to have been “publicly announced” if such matter is disclosed in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service, in a document publicly filed by the Trust with the U.S. Securities and Exchange Commission or in a Web site accessible to the public maintained by the Trust or by its Investment Adviser.

 

(iii) In no event shall an adjournment or postponement (or a public announcement thereof) of a meeting of Shareholders commence a new time period (or extend any time period) for the giving of notice as provided in this Section 2(b).

 

(iv) The person presiding at any annual or special meeting, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall have the power and duty to determine whether notice of nominees and other matters proposed to be brought before a meeting has been duly given in the manner provided in this Section 2(b) and, if not so given, shall direct and declare at the meeting that such nominees and other matters shall not be considered.

 

(v) “Derivative Instrument” shall mean any option, warrant, convertible security, stock appreciation right, or similar right with an exercise or conversion privilege or a settlement payment or mechanism at a price related to Shares of the Trust or with a value derived in whole or in part from the value of Shares of the Trust, whether or not such instrument or right shall be subject to settlement in Shares of the Trust or otherwise.

 

(vi) The requirements set forth in this Section 2(b) relating to Shareholder nominations of candidates for election as Trustees and other Shareholder proposals do not apply to Shareholder proposals submitted in accordance with the requirements of Rule 14a-8 under the Securities Exchange Act of 1934 (“Exchange Act”) (or any successor provision thereto).

 

Section 3. Record Date for Meetings. For the purpose of determining the Shareholders who are entitled to notice of and to vote at any meeting, or to participate in any distribution, or for the purpose of any other

 

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action, the Trustees may from time to time close the transfer books for such period, not exceeding thirty (30) days, as the Trustees may determine; or without closing the transfer books the Trustees may fix a date not more than sixty (60) days prior to the date of any meeting of Shareholders or distribution or other action as a record date for the determination of the persons to be treated as Shareholders of record for such purposes.

 

Section 4. Proxies. At any meeting of Shareholders, any holder of Shares entitled to vote thereat may vote by proxy, provided that no proxy shall be voted at any meeting unless it shall have been placed on file with the Secretary, or with such other officer or agent of the Trust as the Secretary may direct, for verification prior to the time at which such vote shall be taken. Pursuant to a resolution of a majority of the Trustees, proxies may be solicited in the name of one or more Trustees or one or more of the officers of the Trust. Only Shareholders of record shall be entitled to vote. Each full Share shall be entitled to one vote and fractional Shares shall be entitled to a vote of such fraction. When any Share is held jointly by several persons, any one of them may vote at any meeting in person or by proxy in respect to such Share, but if more than one of them shall be present at such meeting in person or by proxy, and such joint owners or their proxies so present disagree as to any vote to be cast, such vote shall not be received in respect of such Share. A proxy purporting to be executed by or on behalf of a Shareholder shall be deemed valid unless challenged at or prior to its exercise, and the burden of proving invalidity shall rest on the challenger. If the holder of any such Share is a minor or a person of unsound mind, and subject to guardianship or to the legal control of any other person as regards the charge or management of such Share, he may vote by his guardian or such other person appointed or having such control, and such vote may be given in person or by proxy.

 

Section 5. Inspection of Records. The records of the Trust shall be open to inspection by Shareholders to the same extent as is permitted shareholders of a Massachusetts business corporation.

 

Section 6. Action without Meeting. Any action which may be taken by Shareholders may be taken without a meeting if a majority of Shareholders entitled to vote on the matter (or such larger proportion thereof as shall be required by law, the Declaration or these By-laws for approval of such matter) consent to the action in writing and the written consents are filed with the records of the meetings of Shareholders. Such consent shall be treated for all purposes as a vote taken at a meeting of Shareholders.

 

ARTICLE IV

 

Trustees

 

Section 1. Meetings of the Trustees. The Trustees may in their discretion provide for regular or stated meetings of the Trustees. Notice of regular or stated meetings need not be given. Meetings of the Trustees other than regular or stated meetings shall be held whenever called by the President, or by anyone of the Trustees, at the time being in office. Notice of the time and place of each meeting other than regular or stated meetings shall be given by the Secretary or an Assistant Secretary or by the officer or Trustee calling the meeting and shall be mailed to each Trustee at least two days before the meeting, or shall be telegraphed, or cabled to each Trustee at his business address, or personally delivered to him at least one day before the meeting. Such notice may, however, be waived by any Trustee. Notice of a meeting need not be given to any Trustee if a written waiver of notice, executed by him before or after the meeting, is filed with the records of the meeting, or to any Trustee who attends the meeting without protesting prior thereto or at its commencement the lack of notice to him. A notice or waiver of notice need not specify the purpose of any meeting. The Trustees may meet by means of a telephone conference circuit or similar communications equipment by means of which all persons participating in the meeting can hear each other, which telephone conference meeting shall be deemed to have been held at a place designated by the Trustees at the meeting. Participation in a telephone conference meeting shall constitute presence in

 

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person at such meeting. Any action required or permitted to be taken at any meeting of the Trustees may be taken by the Trustees without a meeting if all the Trustees consent to the action in writing and the written consents are filed with the records of the Trustees’ meetings. Such consents shall be treated as a vote for all purposes.

 

Section 2. Quorum and Manner of Acting. A majority of the Trustees shall be present in person at any regular or special meeting of the Trustees in order to constitute a quorum for the transaction of business at such meeting and (except as otherwise required by law, the Declaration or these By-laws) the act of a majority of the Trustees present at any such meeting, at which a quorum is present, shall be the act of the Trustees. In the absence of a quorum, a majority of the Trustees present may adjourn the meeting from time to time until a quorum shall be present. Notice of an adjourned meeting need not be given.

 

Section 3. Chairman of the Board. The Trustees may elect or appoint from their own number a Chairman of the Board. The Chairman of the Board, if one be appointed or elected, shall preside at all meetings of the Board of Trustees and shall be ex officio a member of all committees of the Board of Trustees. He or she shall have such other powers and perform such other duties as may be assigned to him or her from time to time by the Board of Trustees.

 

Section 4. Trustee Qualifications.

 

(a) To qualify as a nominee for election as a Trustee, an individual, at the time of nomination,

 

(i) shall have substantial expertise, experience or relationships relevant to the business of the Trust;

 

(ii) shall have a college degree or equivalent business experience;

 

(iii) shall not serve as (A) a director, trustee, officer, partner or employee of another investment company (as defined in the 1940 Act) that focuses its investments in the healthcare and/or life sciences industries, unless such investment company is managed by the Trust’s investment adviser or an affiliate thereof, or (B) as a director, officer, partner or employee of the investment adviser, sponsor or equivalent of such an investment company with supervisory responsibility for the day-to-day operations of such investment company or investment decisions made with respect to such investment company; and

 

(iv) shall be at least one of the following:

 

(A) a present or former director, trustee, member of the supervisory board or senior executive officer of at least one company having substantial operations or investments in the healthcare and/or life sciences industries;

 

(B) an individual who has served at least five years as (I) a director, trustee or senior executive officer (or in a capacity comparable to any such position) of an investment company (as defined in 1940 Act), the assets of which during that period have been invested primarily in securities of healthcare and/or life sciences companies, (II) a director, senior executive officer or senior investment officer (or in a capacity comparable to any such position) of an investment adviser having discretionary management authority over a substantial amount of assets of other persons (including the Trust) invested in securities of healthcare and/or life sciences companies, or (III) a director, senior executive officer or senior investment officer (or in a capacity comparable to any such position) of an investment adviser having discretionary management authority over a substantial amount of assets of other persons (including the Trust) invested in restricted equity or equity-linked securities similar in nature to the types of restricted equity or equity-linked securities in which the Trust may invest; or

 

(C) an individual who has served at least five years as a senior consultant or adviser (including as a business consultant, economic, policy, scientific or medical adviser, or accountant) to (I) at least one company having substantial operations in the healthcare and/or life sciences industries, (II) an investment company (as defined in the 1940 Act), the assets of which during that period have been invested primarily

 

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in securities of healthcare and/or life sciences companies, or (III) a venture capital or private equity firm investing in restricted equity or equity-linked securities similar in nature to the types of restricted equity or equity-linked securities in which the Trust may invest.

 

(b) The Trustees, in their sole discretion, shall determine whether an individual satisfies the foregoing qualifications. Any individual who does not satisfy the qualifications set forth under the foregoing provisions of this section shall not be eligible for nomination or election as a Trustee.

 

(c) In addition, no person shall be qualified to be a Trustee unless the Trustees, in consultation with counsel to the Trust, have determined that such person, if elected as a Trustee, would not cause the Trust to be in violation of, or not in compliance with, applicable law, regulation or regulatory interpretation, or the Declaration (as amended and supplemented from time to time), or any general policy adopted by the Trustees regarding either retirement age or the percentage of “interested persons” (as defined in the 1940 Act) and other persons that may serve as Trustees.

 

ARTICLE V

 

Committees and Advisory Board

 

Section 1. Executive and Other Committees. The Trustees by vote of a majority of all the Trustees may elect from their own number an Executive Committee to consist of not less than three (3) Trustees to hold office at the pleasure of the Trustees, which shall have the power to conduct the current and ordinary business of the Trust while the Trustees are not in session, including the purchase and sale of securities and such other powers of the Trustees as the Trustees may, from time to time, delegate to them except those powers which by law, the Declaration or these By-laws they are prohibited from delegating. The Trustees may also elect from their own number other Committees from time to time (including an Audit Committee), the number composing such Committees, the powers conferred upon the same (subject to the same limitations as with respect to the Executive Committee) and the term of membership on such Committees to be determined by the Trustees.

 

Section 2. Meeting, Quorum and Manner of Acting. The Trustees may (1) provide for stated meetings of any Committees, (2) specify the manner of calling and notice required for special meetings of any Committee, (3) specify the number of members of a Committee required to constitute a quorum and the number of members of a Committee required to exercise specified powers delegated to such Committee, (4) authorize the making of decisions to exercise specified powers by written assent of the requisite number of members of a Committee without a meeting, and (5) authorize the members of a Committee to meet by means of a telephone conference circuit.

 

The Executive Committee shall keep regular minutes of its meetings and records of decisions taken without a meeting and cause them to be recorded in a book designated for that purpose and kept in the office of the Trust.

 

Section 3. Advisory Board. The Trustees may appoint an Advisory Board to consist in the first instance of not less than three (3) members. Members of such Advisory Board shall not be Trustees or officers and need not be Shareholders. Members of this Board shall hold office for such period as the Trustees may by resolution provide. Any member of such Board may resign therefrom by a written instrument signed by him which shall take effect upon delivery to the Trustees. The Advisory Board shall have no legal powers and shall not perform the functions of Trustees in any manner, said Board being intended merely to act in an advisory capacity. Such Advisory Board shall meet at such times and upon such notice as the Trustees may by resolution provide.

 

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ARTICLE VI

 

Officers

 

Section 1. General Provisions. The Officers of the Trust shall be a President, a Treasurer, a Secretary and a Chief Compliance Officer, all of whom shall be elected by the Trustees. The Trustees may elect or appoint such other officers or agents as the business of the Trust may require, including one or more Vice Presidents, one or more Assistant Secretaries, and one or more Assistant Treasurers. The Trustees may delegate to any officer or committee the power to appoint any subordinate officers or agents.

 

Section 2. Term of Office and Qualifications. Except as otherwise provided by law, the Declaration or these By-laws all officers of the Trust shall hold office at the pleasure of the Trustees. The Secretary and Treasurer may be the same person. A Vice President and the Treasurer or a Vice President and the Secretary may be the same person, but the offices of Vice President, Secretary and Treasurer shall not be held by the same person. The President shall hold no other office; provided, however, that the President may hold any other office until such time as a Registration Statement under the Securities Act of 1933, as amended, covering the first public offering of securities of the Trust, shall have become effective. Except as above provided, any two offices may be held by the same person. Any officer may be but none need be a Trustee or Shareholder.

 

Section 3. Removal. The Trustees, at any regular or special meeting of the Trustees, may remove any officer with or without cause by a vote of a majority of the Trustees. Any officer or agent appointed by any officer or committee may be removed with or without cause by such appointing officer or committee.

 

Section 4. Powers and Duties of the President. The President may call meetings of the Trustees and of any Committee thereof when he deems it necessary and shall preside at all meetings of the Shareholders. The President shall be the principal executive officer of the Trust, and subject to the control of the Trustees and any Committees of the Trustees, within their respective spheres, as provided by the Trustees, he shall at all times exercise a general supervision and direction over the affairs of the Trust. He shall have the power to employ attorneys and counsel for the Trust and to employ such subordinate officers, agents, clerks and employees as he may find necessary to transact the business of the Trust. He shall also have the power to grant, issue, execute or sign such powers of attorney, proxies or other documents as may be deemed advisable or necessary in furtherance of the interests of the Trust. The President shall have such other powers and duties as, from time to time, may be conferred upon or assigned to him by the Trustees.

 

Section 5. Powers and Duties of Vice Presidents. In the absence or disability of the President, the Vice President or, if there be more than one Vice President, any Vice President designated by the Trustees shall perform all the duties and may exercise any of the powers of the President, subject to the control of the Trustees. Each Vice President shall perform such other duties as may be assigned to him from time to time by the Trustees or the President.

 

Section 6. Powers and Duties of the Treasurer. The Treasurer shall be the principal financial and accounting officer of the Trust. He shall deliver all funds of the Trust which may come into his hands to such Custodian as the Trustees may employ pursuant to Article X of these By-laws. He shall render a statement of condition of the finances of the Trust to the Trustees as often as they shall require the same and he shall in general perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Trustees. The Treasurer shall give a bond for the faithful discharge of his duties, if required so to do by the Trustees, in such sum and with such surety or sureties as the Trustees shall require.

 

Section 7. Powers and Duties of the Secretary. The Secretary shall keep the minutes of all meetings of the Trustees and of all meetings of the Shareholders in proper books provided for that purpose; he shall have custody of the seal of the Trust; he shall have charge of the Share transfer books, lists and records unless the same are in the charge of the Transfer Agent. He shall attend to the giving and serving of all notices by the Trust in accordance with the provisions of these By-laws and as required by law; and subject to

 

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these By-laws, he shall in general perform all duties incident to the office of Secretary and such other duties as from time to time may be assigned to him by the Trustees.

 

Section 8. Powers and Duties of Assistant Treasurer. In the absence or disability of the Treasurer, any Assistant Treasurer designated by the Trustees shall perform all the duties, and may exercise any of the powers, of the Treasurer. The Assistant Treasurers shall perform such other duties as from time to time may be assigned to them by the Trustees. Each Assistant Treasurer shall give a bond for the faithful discharge of his duties, if required so to do by the Trustees, in such sum and with such surety or sureties as the Trustees shall require.

 

Section 9. Powers and Duties of Assistant Secretaries. In the absence or disability of the Secretary, any Assistant Secretary designated by the Trustees shall perform all of the duties, and may exercise any of the powers, of the Secretary. The Assistant Secretaries shall perform such other duties as from time to time may be assigned to them by the Trustees.

 

Section 10. Compensation of Officers and Trustees and Members of the Advisory Board. Subject to any applicable provisions of the Declaration, the compensation of the officers and Trustees and members of the Advisory Board shall be fixed from time to time by the Trustees or, in the case of officers, by any Committee or officer upon whom such power may be conferred by the Trustees. No officer shall be prevented from receiving such compensation as such officer by reason of the fact that he is also a Trustee. Notwithstanding the foregoing, the compensation of the Chief Compliance Officer shall be fixed from time to time solely by the Trustees.

 

Section 11. Powers and Duties of the Chief Compliance Officer. The Chief Compliance Officer shall be responsible for developing a compliance program that is reasonably designed to prevent violations of applicable securities law and all other relevant laws. The Chief Compliance Officer shall be responsible for the management, administration and enforcement of such compliance program. The Chief Compliance Officer shall have the duties and powers assigned to such officer pursuant to Rule 38a-1 under the Investment Company Act of 1940, as amended, or pursuant to any other rule or regulation adopted by the Securities and Exchange Commission that assigns duties or powers to the Chief Compliance Officer.

 

ARTICLE VII

 

Fiscal Year

 

The fiscal year of the Trust shall begin on the first day of October in each year and shall end on the last day of September, in each year, provided, however, that the Trustees may from time to time change the fiscal year.

 

ARTICLE VIII

 

Seal

 

The Trustees shall adopt a seal which shall be in such form and shall have such inscription thereon as the Trustees may from time to time prescribe.

 

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ARTICLE IX

 

Waivers of Notice

 

Whenever any notice whatever is required to be given by law, the Declaration or these By-laws, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time stated therein, shall be deemed equivalent thereto. A notice shall be deemed to have been telegraphed or cabled for the purpose of these By-laws when it has been delivered to a representative of any telegraph or cable company with instruction that it be telegraphed or cabled.

 

ARTICLE X

 

Custodian

 

Section 1. Appointment and Duties. The Trustees shall at all times employ a bank or trust company having a capital, surplus and undivided profits of at least five million dollars ($5,000,000) as Custodian with authority as its agent, but subject to such restrictions, limitations and other requirements, if any, as may be contained in the Declaration, these By-laws and the 1940 Act:

 

(1) to hold the securities owned by the Trust and deliver the same upon written order;

 

(2) to receive and receipt for any monies due to the Trust and deposit the same in its own banking department or elsewhere as the Trustees may direct;

 

(3) to disburse such funds upon orders or vouchers;

 

(4) if authorized by the Trustees, to keep the books and accounts of the Trust and furnish clerical and accounting services; and

 

(5) if authorized to do so by the Trustees, to compute the net income of the Trust;

 

all upon such basis of compensation as may be agreed upon between the Trustees and the Custodian. If so directed by a Majority Shareholder Vote, the Custodian shall deliver and pay over all property of the Trust held by it as specified in such vote.

 

The Trustees may also authorize the Custodian to employ one or more sub-Custodians from time to time to perform such of the acts and services of the Custodian and upon such terms and conditions, as may be agreed upon between the Custodian and such sub-Custodian and approved by the Trustees, provided that in every case such sub- Custodian shall be a bank or trust company organized under the laws of the United States or one of the states thereof and having capital, surplus and undivided profits of at least five million dollars ($5,000,000).

 

Section 2. Central Certificate System. Subject to such rules, regulations and orders as the Commission may adopt, the Trustees may direct the Custodian to deposit all or any part of the securities owned by the Trust in a system for the central handling of securities established by a national securities exchange or a national securities association registered with the Commission under the Securities Exchange Act of 1934, or such other person as may be permitted by the Commission, or otherwise in accordance with the 1940 Act, pursuant to which system all securities of any particular class or series of any issuer deposited within the system are treated as fungible and may be transferred or pledged by bookkeeping entry without physical delivery of such securities, provided that all such deposits shall be subject to withdrawal only upon the order of the Trust or its Custodian.

 

Section 3. Acceptance of Receipts in Lieu of Certificates. Subject to such rules, regulations and orders as the Commission may adopt, the Trustees may direct the Custodian to accept written receipts or other written evidence indicating purchases of securities held in book-entry form in the Federal Reserve System in accordance with regulations promulgated by the Board of Governors of the Federal Reserve System and the local Federal Reserve Banks in lieu of receipt of certificates representing such securities.

 

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Section 4. Provisions of Custodian Contract. The following provisions shall apply to the employment of a Custodian pursuant to this Article X and to any contract entered into with the Custodian so employed:

 

(a) The Trustees shall cause to be delivered to the Custodian all securities owned by the Trust or to which it may become entitled, and shall order the same to be delivered by the Custodian only upon completion of a sale, exchange, transfer, pledge, loan of portfolio securities to another person or other disposition thereof, and upon receipt by the Custodian of the consideration therefor or a certificate of deposit or a receipt of an issuer or of its Transfer Agent, all as the Trustees may generally or from time to time require or approve, or to a successor Custodian; and the Trustees shall cause all funds owned by the Trust or to which it may become entitled to be paid to the Custodian, and shall order the same disbursed only for investment against delivery of the securities acquired, or the return of cash held as collateral for loans of portfolio securities, or in payment of expenses, including management compensation, and liabilities of the Trust, including distributions to Shareholders, or to a successor Custodian; provided, however, that nothing herein shall prevent delivery of securities for examination to the broker selling the same in accord with the “street delivery” custom whereby such securities are delivered to such broker in exchange for a delivery receipt exchanged on the same day for an uncertified check of such broker to be presented on the same day for certification. Notwithstanding anything to the contrary in these By-laws, upon receipt of proper instructions, which may be standing instructions, the Custodian may delivery funds in the following cases. In connection with repurchase agreements, the Custodian may transmit, prior to receipt on behalf of the Fund of any securities or other property, funds from the Fund’s custodian account to a special custodian approved by the Trustees of the Fund, which funds shall be used to pay for securities to be purchased by the Fund subject to the Fund’s obligation to sell and the seller’s obligation to repurchase such securities. In such case, the securities shall be held in the custody of the special custodian. In connection with the Trust’s purchase or sale of financial futures contracts, the Custodian shall transmit, prior to receipt on behalf of the Fund of any securities or other property, funds from the Trust’s custodian account in order to furnish to any maintain funds with brokers as margin to guarantee the performance of the Trust’s futures obligations in accordance with the applicable requirements of commodities exchanges and brokers.

 

(b) In case of the resignation, removal or inability to serve of any such Custodian, the Trust shall promptly appoint another bank or trust company meeting the requirements of this Article X as successor Custodian. The agreement with the Custodian shall provide that the retiring Custodian shall, upon receipt of notice of such appointment, deliver the funds and property of the Trust in its possession to and only to such successor, and that pending appointment of a successor Custodian, or a vote of the Shareholders to function without a Custodian, the Custodian shall not deliver funds and property of the Trust to the Trust, but may delivery them to a bank or trust company of its own selection, having an aggregate capital, surplus and undivided profits (as shown in its last published report) of at least five million dollars ($5,000,000), as the property of the Trust to be held under terms similar to those on which they were held by the retiring Custodian.

 

ARTICLE XI

 

Sale of Shares of the Trust

 

The Trustees may from time to time issue and sell or cause to be issued and sold Shares for cash or other property, which shall in every case be paid or delivered to the Custodian as agent of the Trust before the delivery of any certificate for such shares. The Shares, including additional Shares which may have been purchased by the Trust (herein sometimes referred to as “treasury shares”), may not be sold at less than the net asset value thereof determined by or on behalf of the Trustees as of a time within forty-eight (48) hours, excluding Sundays and holidays, next preceding the time of such determination, except (1) in

 

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connection with an offering to the holders of Shares; (2) with the consent of a majority of the holders of Shares; (3) upon conversion of a convertible security in accordance with its terms; (4) upon the exercise of any warrant issued in accordance with the provisions of Section 18(d) of the 1940 Act; or (5) under such other circumstances as the Commission may permit by rules and regulations or orders for the protection of investors.

 

No Shares need be offered to existing Shareholders before being offered to others. No Shares shall be sold by the Trust (although Shares previously contracted to be sold may be issued upon payment therefor) during any period when the determination of net asset value is suspended by declaration of the Trustees. In connection with the acquisition by merger or otherwise of all or substantially all the assets of an investment company (whether a regulated or private investment company or a personal holding company), the Trustees may issue or cause to be issued Shares and accept in payment therefor such assets at not more than market value in lieu of cash, notwithstanding that the federal income tax basis to the Trust of any assets so acquired may be less than the market value, provided that such assets are of the character in which the Trustees are permitted to invest the funds of the Trust.

 

ARTICLE XII

 

Dividends and Distributions

 

Section 1. Distributions to Shareholders. The Trustees shall from time to time distribute ratably among the Shareholders such proportion of the net profits, surplus (including paid-in surplus), capital, or assets held by the Trustees as they may deem proper. Such distributions may be made in cash or property (including without limitation any type of obligations of the Trust or any assets thereof), and the Trustees may distribute ratably among the Shareholders additional Shares issuable hereunder in such manner, at such times, and on such terms as the Trustees may deem proper. Such distributions may be among the Shareholders of record at the time of declaring a distribution or among the Shareholders of record at such other date or time or dates or times as the Trustees shall determine. The Trustees may always retain from the net profits such amount as they may deem necessary to pay the debts or expenses of the Trust or to meet obligations of the Trust, or as they may deem desirable to use in the conduct of its affairs or to retain for future requirements or extensions of the business. The decision of the Trustees as to what, in accordance with generally accepted accounting principles, is net profits, surplus, capital or assets shall be final, and except as specifically provided herein the decision of the Trustees as to what expenses and charges of the Trust shall be charged against assets and what against income shall be final, all subject to any applicable provisions of the 1940 Act and rules, regulations and orders of the Commission promulgated thereunder.

 

Inasmuch as the computation of net income and gains for federal income tax purposes may vary from the computation thereof on the books, the above provisions shall be interpreted to give to the Trustees the power in their discretion to distribute for any fiscal year as ordinary dividends and as capital gains distributions, respectively, additional amounts sufficient to enable the Trust to avoid or reduce liability for taxes.

 

Section 2. Dividend Reinvestment Plans. The Trustees may adopt and offer to Shareholders such dividend reinvestment plans, cash dividend payout plans or related plans as the Trustees shall deem appropriate.

 

Section 3. Stock Dividends. Anything in these By-laws to the contrary notwithstanding, the Trustees may at any time declare and distribute pro rata among the Shareholders a “stock dividend” out of either authorized but unissued Shares or treasury shares of the Trust or both.

 

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ARTICLE XIII

 

Amendments

 

These By-laws, or any of them, may be altered, amended or repealed, or new By-laws may be adopted (a) by Majority Shareholder Vote, or (b) by the Trustees, provided, however, that no By-law may be amended, adopted or repealed by the Trustees if such amendment, adoption or repeal requires, pursuant to law, the Declaration or these By-laws, a vote of the Shareholders or if such amendment, adoption or repeal changes or affects the provisions of Sections 1 and 4 of Article X or the provisions of this Article XIII.

 

ARTICLE XIV

 

Miscellaneous

 

The Trust shall not impose any restrictions upon the transfer of the Shares of the Trust except as provided in the Declaration, but this requirement shall not prevent the charging of customary transfer agent fees.

 

The Trust shall not permit any officer or Trustee of the Trust, or any partner, officer or director of the Investment Adviser or underwriters of the Trust to deal for or on behalf of the Trust with himself as principal or agent, or with any partnership, association or corporation in which he has a financial interest; provided that the foregoing provisions shall not prevent (a) officers and Trustees of the Trust or partners, officers or directors of the Investment Adviser or underwriter of the Trust from buying, holding or selling shares in the Trust, or from being partners, officers or directors or otherwise financially interested in the Investment Adviser or underwriter of the Trust; (b) purchases or sales of securities or other property by the Trust from or to an affiliated person or to the Investment Adviser or underwriters of the Trust if such transaction is exempt from the applicable provisions of the 1940 Act; (c) purchases of investments for the portfolio of the Trust or sales of investments owned by the Trust through a security dealer who is, or one or more of whose partners, shareholders, officers or directors is, an officer or Trustee of the Trust, or a partner, officer or director of the Investment Adviser or underwriter of the Trust, if such transactions are handled in the capacity of broker only and commissions charged do not exceed customary brokerage charges for such services; (d) employment of legal counsel, registrar, Transfer Agent, dividend disbursing agent or Custodian who is, or has a partner, shareholder, officer, or director who is, an officer or Trustee of the Trust, or a partner, officer of director of the Investment Adviser or underwriter of the Trust, if only customary fees are charged for services to the Trust; (e) sharing statistical research, legal and management expenses and office hire and expenses with any other investment company in which an officer or Trustee of the Trust, or a partner, officer or director of the Investment Adviser or underwriter of the Trust, is an officer or director or otherwise financially interested.

 

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Exhibit 99.2e

 

TEKLA WORLD HEALTHCARE FUND

 

DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN

 

Introduction

 

Under the Dividend Reinvestment and Stock Purchase Plan (the “Plan”) for Tekla World Healthcare Fund (the “Fund”), dividends and/or distributions to a holder of the Fund’s common shares of beneficial interest (each, a “Common Share” and, collectively “Common Shares”) will automatically be reinvested in additional Common Shares of the Fund.  Each shareholder that participates in the Plan (each, a “Participant” and collectively, “Participants”) may elect to have dividends and distributions distributed in cash ( i.e. , “opt-out”) rather than participate in the Plan.  For any Participant that does not so elect, dividends and/or distributions on such Participant’s Common Shares will be reinvested by Computershare Trust Company, N.A. (the “Plan Agent”), as agent for shareholders in administering the Plan, in additional Common Shares, as set forth below. Participation in the Plan is completely voluntary, and may be terminated or resumed at any time without penalty by Internet, telephone or notice if received and processed by the Plan Agent prior to the dividend record rate; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Participants who hold their Common Shares through a broker or other nominee and who wish to elect to receive any dividends and distributions in cash must contact their broker or nominee.  It is contemplated that the Fund will pay a monthly dividend or other distribution (herein, a “Dividend”).

 

Plan Details

 

1.               The Plan Agent will open an account for each holder of Common Shares under the Plan in the same name in which such holder of Common Shares is registered. Whenever the Fund declares a Dividend payable in cash, non-participants in the Plan will receive cash and Participants will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Agent for the Participants’ accounts, depending upon the circumstances described below, either through (i) receipt of additional unissued but authorized Common Shares from the Fund (“Newly Issued Common Shares”) or (ii) by purchase of outstanding Common Shares on the open market (“Open-Market Purchases”) on the New York Stock Exchange or elsewhere.

 

2.               If, on the payment date for any Dividend, the net asset value (“NAV”) per Common Share is equal to or less than the closing market price plus estimated per Share fees (which include any applicable brokerage commissions the Plan Agent is required to pay) (such condition often referred to as a “premium”), the Plan Agent will invest the Dividend amount in Newly Issued Common Shares on behalf of the Participants. The number of Newly Issued Common Shares to be credited to each Participant’s account will be determined by dividing the dollar amount of the Dividend by the NAV per Common Share on the payment date; provided that, if the NAV is less than or equal to 95% of the closing market value on the payment date, the dollar amount of the Dividend will be divided by 95% of the closing market price per Common Share on the payment date. If, on the payment date for any Dividend, the NAV per Common Share is greater than the closing market price per share plus per Share fees (such condition referred to as a “market discount”), the Plan Agent will invest the Dividend amount in Common Shares acquired on behalf of the Participants in Open-Market Purchases. In the event of a market discount on the payment date for any Dividend, the Plan Agent (or Plan Agent’s broker) will have until the last business day before the next date on which the Common Shares trade on an “ex-dividend” basis or 30 days after the payment date for such Dividend, whichever is sooner (the “Last Purchase Date”), to invest the Dividend amount in

 



 

Common Shares acquired in Open-Market Purchases. Open-market purchases may be made on any securities exchange where Common Shares are traded, in the over-the-counter market or in negotiated transactions, and may be on such terms as to price, delivery and otherwise as the Plan Agent shall determine. The per Share purchase price for Open-Market Purchases will be the weighted average price of the Common Shares on the payment date. If, before the Plan Agent has completed its Open-Market Purchases, the market price per Common Share exceeds the NAV per Common Share, the average per Common Share purchase price paid by the Plan Agent may exceed the NAV of the Common Shares, resulting in the acquisition of fewer Common Shares than if the Dividend had been paid in Newly Issued Common Shares on the Dividend payment date. Because of the foregoing difficulty with respect to Open-Market Purchases, the Plan provides that if the Plan Agent is unable to invest the full Dividend amount in Open-Market Purchases during the purchase period or if the market discount shifts to a market premium during the purchase period, the Plan Agent may cease making Open-Market Purchases and may invest the uninvested portion of the Dividend amount in Newly Issued Common Shares at the NAV per Common Share at the close of business on the Last Purchase Date provided that, if the NAV is less than or equal to 95% of the then current market price per Common Share; the dollar amount of the Dividend will be divided by 95% of the market price on the payment date.

 

3.               [Each Participant can voluntarily purchase additional Common Shares at any time by through the Plan Agent.  The Plan Agent will purchase additional Common Shares through Open-Market Purchases. The minimum investment under this option is $50.  To make an investment online, participants may log on to www.computershare.com, in order to authorize recurring automatic monthly deductions from a U.S. bank account or a one-time online bank debit from a U.S. bank account.  Participants may also make optional cash investments in Common Shares by sending a check in U.S. dollars and drawn against a U.S. bank to the Plan Agent along with a completed transaction form appended to each statement received from the Plan Agent.  The Plan Agent will not accept cash, traveler’s checks, money orders or third party checks. The Plan Agent will purchase whole and fractional Common Shares to equal each amount a Participant invests, less any applicable fees.  Each optional cash investment by check or one-time online bank debit will entail a transaction fee of $5.00 plus $0.05 per Common Share purchased.  If funds are deducted monthly and automatically from a U.S. bank account, for each debit the transaction fee is $2.50 plus $0.05 per Common Share purchased.  Common Shares will be purchased by the Plan Agent at least monthly.  The transaction will occur within five (5) business days after a Participant’s funds are received by the Plan Agent, assuming the applicable market is open for trading. If due to unusual circumstances, the Plan Agent is unable to purchase Common Shares from optional cash payments within 35 days, the Plan Agent will return such funds by check. If any Participant’s check for an optional cash payment is returned unpaid for any reason, or an authorized electronic funds transfer is rejected, the Plan Agent will consider the request for the investment of such funds null and void. The Plan Agent will immediately remove from the Participant’s Plan account those Common Shares, if any, purchased upon the prior credit of such funds and will immediately sell such Common Shares. The Plan Agent will also sell any additional Common Shares from the Participant’s Plan fee account as necessary to cover any costs, losses or fees. Participants will be charged $25.00 for each returned check or rejected electronic funds transfer.]

 

4.               The Plan Agent maintains all Participants’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by Participants for tax records. Common Shares in the account of each Participant will be held by the Plan Agent on behalf of the Participant in book entry form in the Plan Agent’s name or the Plan Agent’s nominee. Each shareholder proxy will include those Common Shares purchased or received pursuant to the Plan.

 



 

The Plan Agent will forward all proxy solicitation materials to Participants and vote proxies for Common Shares held under the Plan in accordance with the instructions of the Participants.

 

5.               In the case of shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder and held for the account of beneficial owners who participate in the Plan.

 

6.               Any stock dividends or split of Common Shares distributed by the Fund on Common Shares held by the Plan Agent for Participants will be credited to their accounts. In the event that the Fund makes available to its shareholders rights to purchase additional Common Shares or other securities, the Common Shares held for each Participant under the Plan will be added to other Common Shares held by the Participant in calculating the number of rights to be issued to each Participant.

 

7.               [The Plan Agent’s fees for the handling of the reinvestment of dividends and distributions will be paid by the Fund. However, each Participant will pay a per Common Share (currently $0.05) fee incurred in connection with Open-Market Purchases. The automatic reinvestment of Dividends will not relieve Participants of any Federal, state or local income tax that may be payable (or required to be withheld) on such dividend. If a Participant elects by telephone, Internet or written notice to the Plan Agent to have the Plan Agent sell all or a part of his or her Common Shares and remit the proceeds to the Participant, the Plan Agent is authorized to deduct a $15 sales fee per trade and a per Common Share fee of $0.12 from such proceeds. All per Common Share fees include any applicable brokerage commissions the Plan Agent is required to pay.]

 

8.               If a Participant elects by telephone, Internet or written notice to the Plan Agent to have the Plan Agent sell all or a part of his or her Common Shares and remit the proceeds to the Participant, the Plan Agent will process all sale instructions received no later than five (5) business days after the date on which the order is received. Such sale will be made through the Plan Agent’s broker on the relevant market and the sale price will not be determined until such time as the broker completes the sale. In each case, the price to each Participant shall be the weighted average sale price obtained by the Plan Agent’s broker net of fees for each aggregate order placed by the Plan Agent and executed by the broker. To maximize cost savings, the Plan Agent will seek to sell Shares in round lot transactions. For this purpose the Plan Agent may combine a Participant’s Common Shares with those of other selling Participants.

 

9.               Each Participant may terminate his or her account under the Plan by so notifying the Plan Agent by telephone, through the Internet or in writing prior to the dividend record date. Such termination will be effective immediately if received by the Plan Agent prior to any dividend or distribution record date; otherwise such termination or resumption will be effective with respect to any subsequently declared dividend or other distribution. Upon any withdrawal or termination, the Plan Agent will cause to be delivered to each terminating Participant a statement of holdings for the appropriate number of the Fund’s whole book-entry Common Shares and a check for the cash adjustment of any fractional share at the then current market value per Common Share less any applicable fees.

 

10.        The Fund reserves the right to amend or terminate the Plan upon notice in writing to each Participant at least 30 days prior to any record date for the payment of any dividend or distribution by the Fund. Notice will be sent to Participants of any amendments as soon as practicable after such action by the Fund.

 



 

11.        All correspondence from a registered owner of Common Shares concerning the Plan should be directed to the Plan Agent, Computershare Trust Company, N.A., in writing to P.O. Box 30170, College Station, TX 77842-3170, with overnight correspondence being directed to 211 Quality Circle, Suite 210, College Station, TX 77845; by calling 1-800-426-5523; or through the Plan Agent’s website at www.computershare.com/investor. Participants who hold their Common Shares through a broker or other nominee should direct correspondence or questions concerning the Plan to their broker or nominee.

 


 

Exhibit 99.2g

 

TEKLA WORLD HEALTHCARE FUND

INVESTMENT ADVISORY AGREEMENT

 

THIS INVESTMENT ADVISORY AGREEMENT, dated as of [  ], 2015 between TEKLA WORLD HEALTHCARE FUND, a Massachusetts business trust (the “Fund”), and TEKLA CAPITAL MANAGEMENT LLC, a Delaware limited liability company (the “Investment Adviser”),

 

W I T N E S S E T H:

 

That in consideration of the mutual covenants herein contained, it is agreed as follows:

 

1.                                       Services To Be Rendered by the Investment Adviser to the Fund .

 

Subject to the supervision and direction of the Board of Trustees of the Fund, the Investment Adviser will:

 

a.                                       act in strict conformity with the Fund’s Declaration of Trust, the Investment Company Act of 1940 (the “1940 Act”) and the Investment Advisers Act of 1940, as the same may from time to time be amended

 

b.                                       manage the portfolio in accordance with the Fund’s investment objective and policies as stated in the Fund’s Prospectus;

 

c.                                        make investment decisions for the Fund;

 

d.                                       place purchase and sale orders for portfolio transactions for the Fund;

 

e.                                        supply the Fund with office facilities (which may be in the Investment Adviser’s own offices), statistical and research data, data processing services, clerical, internal executive and administrative services, and stationery and office supplies;

 

f.                                         supply or direct and supervise a third party administrator and/or custodian in the provision to the Fund of accounting and bookkeeping services, the calculation of the net asset value of shares of the Fund, and the management of the Fund’s administrative affairs; and

 

g.                                        prepare or supervise and direct a third party administrator and/or custodian in the preparation of reports to shareholders of the Fund, tax returns and reports to and filings with the Securities and Exchange Commission (“SEC”) and state Blue Sky authorities.

 

In providing these services, the Investment Adviser will provide investment research and supervision of the Fund’s investments and conduct a continual program of investment, evaluation and, if appropriate, sale and reinvestment of the Fund’s assets. In addition, the Investment Adviser will furnish the Fund with whatever statistical information the Fund may

 



 

reasonably request with respect to the securities that the Fund may hold or contemplate purchasing.

 

2.                                       Brokerage .

 

In executing transactions for the Fund and selecting brokers or dealers (which brokers or dealers may include any affiliate of the Investment Adviser to the extent permitted by the 1940 Act) the Investment Adviser will use its best efforts to obtain the best price and execution for the Fund. In assessing the best price and execution available for any portfolio transaction, the Investment Adviser will consider all factors it deems relevant including, but not limited to, price (including any applicable brokerage commission or dealer spread), size of order, difficulty of execution, and operational facilities of the firm involved and the firm’s risk in positioning a block of securities. In selecting brokers or dealers to execute a particular transaction and in evaluating the best price arid execution available, the Investment Adviser may consider the brokerage and research services (as those terms are defined in Section 28(e) of the Securities Exchange Act of 1934 (the “Exchange Act”)) provided to the Fund and/or other accounts over which the Investment Adviser exercises investment discretion. It is understood that such services may be useful to the Investment Adviser in connection with its services to other clients.

 

On occasions when the Investment Adviser deems the purchase or sale of a security to be in the best interest of the Fund as well as other clients, the Investment Adviser, to the extent permitted by applicable laws and regulations, may, but shall be under no obligation to, aggregate the securities to be sold or purchased in order to obtain the most favorable price or lower brokerage commissions and efficient execution. In such event, allocation of the securities so purchased or sold, as well as the expenses incurred in the transaction, will be made by the Investment Adviser in the manner it considers to be the most equitable and consistent with its fiduciary obligations to the Fund and to such other clients.

 

3.                                       Other Agreements; Use of Name Etc.

 

It is understood that any of the shareholders, Trustees, officers, agents and employees of the Fund may be a shareholder, director, officer, agent or employee of or be otherwise interested in the Investment Adviser and in any affiliate thereof with the Investment Adviser and that the Investment Adviser and any affiliate thereof with the Investment Adviser may have an interest in the Fund. It is also understood that the Investment Adviser and persons affiliated with the Investment Adviser have and may have advisory, management, service or other contracts with other organizations and persons, and may have other interests and businesses and that the Fund shall have no interest in the profits or opportunities derived from the same, that the Investment Adviser may give advice and take action in the performance of its duties with respect to such other clients that may differ from advice given on the timing or nature of action taken with respect to the Fund. Nothing in this Agreement shall be deemed to confer upon the Investment Adviser any obligation to acquire for the account of the Fund a position in any security that the Investment Adviser or any affiliate thereof may acquire for its own account or for the account of any other client, if in the sole and absolute discretion of the Investment Adviser it is not for any reason practical or desirable to acquire a position in such security for the Fund’s account.

 

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The Investment Adviser shall authorize and permit any of its officers, directors and employees who may be elected as Trustees or officers of the Fund to serve in the capacities in which they are elected. Services to be furnished by the Investment Adviser under this Agreement may be furnished through the medium of any of such officers, directors or employees.

 

4.                                       Compensation .

 

The Fund will pay to the Investment Adviser as compensation for the Investment Adviser’s services rendered a fee, computed and payable monthly, equal when annualized to 1.00% of the average daily value of the Trust’s managed assets.  For purposes of this section, “managed assets” for any month shall be equal to 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).  Borrowings for investment purposes include any form or combination of financial leverage instruments, such as borrowings from banks or other financial institutions (i.e., a credit facility), margin facilities, the issuance of preferred shares or notes and leverage attributable to reverse repurchase agreements, dollar rolls or similar transactions.  Such fee shall be payable for each month within five business days after the end of such month.

 

In the event that the expenses of the Fund exceed any expense limitation which the Investment Adviser may, by written notice to the Fund, voluntarily declare to be effective subject to such terms and conditions as the Investment Adviser may prescribe in such notice, the compensation due the Investment Adviser shall be reduced and if necessary the Investment Adviser shall assume expenses of the Fund, to the extent required by such expense limitation.

 

If the Investment Adviser shall serve for less than the whole of a month, the foregoing compensation shall be pro rated.

 

5.                                       Expenses .

 

The Investment Adviser will bear all expenses in connection with the performance of its services under this Agreement, including compensation of and office space for officers and employees of the Fund connected with investment and economic research, trading and investment management of the Fund, as well as the fees of all Trustees of the Fund who are “affiliated persons” of the Investment Adviser, as that term is defined in the 1940 Act, or any of its “affiliated persons”.

 

The Fund shall pay (or, in the event that such expenses are paid by the Investment Adviser, shall reimburse the Investment Adviser for) all other expenses incurred in the operation of the Fund including, among other things, expenses for legal and auditing services, costs of printing proxy statements, prospectuses, stock certificates and shareholder reports, charges of the custodian, any sub-custodian and transfer agent, expenses in connection with the Dividend Reinvestment and Stock Purchase Plan, SEC and Financial Industry Regulatory Authority (“FINRA”) fees, fees and expenses of the Trustees who are not “affiliated persons” of the Investment Adviser or any of its “affiliated persons”, accounting and valuation costs, administrator’s fees, membership fees in trade associations, fidelity bond coverage for the Fund’s officers and employees, errors and omissions insurance coverage for Trustees and officers,

 

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interest, brokerage costs, taxes, stock exchange listing fees and expenses, expenses of qualifying the Fund’s shares for sale in various states, expenses associated with personnel performing exclusively shareholder servicing functions, litigation and other extraordinary or non-recurring expenses, and other expenses properly payable by the Fund.

 

6.                                       Amendments of This Agreement .

 

This Agreement shall not be amended unless such amendment is approved at a meeting by the affirmative vote of a majority of the outstanding shares of the Fund, and by vote cast in person at a meeting called for the purpose of voting on such approval, of a majority of the Trustees of the Fund who are not interested persons of the Fund or of the Investment Adviser.

 

7.                                       Effective Period and Termination of This Agreement .

 

This Agreement shall become effective as of the date first written above and shall remain in full force and effect for an initial two-year term and continuously thereafter so long as such continuance is specifically approved at least annually (a) by the vote of a majority of the Trustees who are not parties to this Agreement or interested persons of any such party, cast in person at a meeting called for the purpose of voting on such approval, and (b) by the Board of Trustees of the Fund or by vote of a majority of the outstanding voting securities of the Fund.  This Agreement shall automatically terminate, without the payment of any penalty, in the event of its assignment.

 

Either party hereto may at any time terminate this Agreement without the payment of any penalty by not less than thirty (30) days’ nor more than sixty (60) days’ written notice delivered or mailed by registered mail, postage prepaid, to the other party.  Action by the Fund to terminate this Agreement may be taken either by (i) vote of a majority of its Trustees, or (ii) by the affirmative vote of a majority of the outstanding shares of the Fund.

 

8.                                       Certain Definitions .

 

For the purposes of this Agreement, the “affirmative vote of a majority of outstanding shares of the Fund” means the affirmative vote, at a duly called and held meeting of shareholders of the Fund, (a) of the holders of 67% or more of the shares of the Fund present (in person or by proxy) and entitled to vote at such meeting, if the holders of more than 50% of the outstanding shares of the Fund entitled to vote at such meeting are present in person or by proxy, or (b) of the holders of more than 50% of the outstanding shares of the Fund entitled to vote at such meeting, whichever is less.

 

For the purposes of this Agreement, the terms “affiliated person”, “control”, “interested person” and “assignment” shall have their respective meanings as defined in the 1940 Act and the Rules and Regulations thereunder, subject, however to such exemptions as may be granted by the SEC under said Act; the term “specifically approve at least annually” shall be construed in a manner consistent with the 1940 Act and the Rules and Regulations thereunder; and the term “brokerage and research services” shall have the meaning given in the Exchange Act and the Rules and Regulations thereunder.

 

4



 

9.                                       Non-Liability of the Investment Adviser .

 

The Investment Adviser shall not be held responsible for any loss incurred by any act or omission of any broker. The Investment Adviser also shall not be liable to the Fund or to any shareholder of the Fund for any error or judgment or for any loss suffered by the Fund in connection with rendering services hereunder except (a) a loss resulting from a breach of fiduciary duty with respect to the receipt of compensation for services (in which case any award of damages shall be limited to the period and the amount set forth in Section 36(b)(3) of the 1940 Act) or (b) a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the Investment Adviser, or reckless disregard of its obligations and duties hereunder. Subject to the foregoing, the Fund also shall indemnify the Investment Adviser, and any officer, director and employee thereof to the maximum extent permitted by Article V of the Fund’s Declaration of Trust.

 

10.                                Limitation of Liability of the Trustees and Shareholders .

 

A copy of the Declaration of Trust of the Fund is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Fund as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of the Fund.

 

11.                                Furnishing of Materials .

 

During the term of this Agreement, the Fund agrees to furnish the Investment Adviser at its principal executive office all prospectuses, proxy statements, report to shareholders, sales literature, or other material prepared for distribution to shareholders of the Fund or the public, which refer to the Investment Adviser in any way, prior to use thereof and not to use such material if the Investment Adviser reasonably objects in writing within five business days (or such other time as may be mutually agreed) after receipt thereof. In the event of termination of this Agreement, the Fund will continue to furnish to the Investment Adviser copies of any of the above-mentioned materials which refer in any way to the Investment Adviser. The Fund shall furnish or otherwise make available to the Investment Adviser such other information relating to the business affairs of the Fund as the Investment Adviser at any time, or from time to time, reasonably requests in order to discharge its obligations hereunder.

 

12.                                Governing Law; No Third-Party Beneficiaries .

 

This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Massachusetts. There are no third-party beneficiaries of this Agreement.

 

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IN WITNESS WHEREOF, Tekla World Healthcare Fund and the Investment Adviser have each caused this instrument to be signed in duplicate on its behalf by its President or other officer thereunto duly authorized, all as of the date first hereinabove written.

 

 

TEKLA WORLD HEALTHCARE FUND

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

 

Title:

President

 

 

 

 

 

 

 

 

TEKLA CAPITAL MANAGEMENT LLC

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

 

Title:

President and Chief Executive Officer

 

 

6


 

Exhibit 99.2h

 

 

 

TEKLA WORLD HEALTHCARE FUND

 

[ · ] Common Shares of Beneficial Interest

$20.00 per Share

 

 

FORM OF UNDERWRITING AGREEMENT

 

 

Dated: [ · ], 2015

 

 

 

 



 

Table of Contents

 

 

 

Page

 

 

 

SECTION 1.   Representations and Warranties

 

2

 

 

 

SECTION 2.   Sale and Delivery to Underwriters; Closing

 

15

 

 

 

SECTION 3.   Covenants of the Trust and the Adviser

 

16

 

 

 

SECTION 4.   Payment of Expenses

 

19

 

 

 

SECTION 5.   Conditions of Underwriters’ Obligations

 

20

 

 

 

SECTION 6.   Indemnification

 

23

 

 

 

SECTION 7.   Contribution

 

26

 

 

 

SECTION 8.   Representations, Warranties and Agreements to Survive Delivery

 

27

 

 

 

SECTION 9.   Termination of Agreement

 

27

 

 

 

SECTION 10.   Default by One or More of the Underwriters

 

27

 

 

 

SECTION 11.   Notices

 

28

 

 

 

SECTION 12.   Parties

 

29

 

 

 

SECTION 13.   GOVERNING LAW

 

29

 

 

 

SECTION 14.   Effect of Headings

 

29

 

 

 

SECTION 15.   Definitions

 

29

 

 

 

SECTION 16.   Absence of Fiduciary Relationship

 

29

 

EXHIBITS

 

Exhibit A  –  Initial Securities to be Sold

Exhibit B  –  Form of Opinion of Trust Counsel

Exhibit C  –  Form of Opinion of Adviser Counsel

Exhibit D  –  Price-Related Information

Exhibit E  –  Rule 482 Statements

 

i



 

TEKLA WORLD HEALTHCARE FUND

 

[ · ] Common Shares of Beneficial Interest

 

UNDERWRITING AGREEMENT

 

[ · ], 2015

 

Wells Fargo Securities, LLC

[UNDERWRITERS]

 

As Representatives of the several Underwriters

listed on Exhibit A hereto

 

c/o Wells Fargo Securities, LLC

375 Park Avenue

New York, New York 10152

 

Ladies and Gentlemen:

 

Tekla World Healthcare Fund, a Massachusetts business trust (the “ Trust ”) and Tekla Capital Management LLC, a Delaware limited liability company (the “ Adviser ”), confirm their respective agreements with Wells Fargo Securities, LLC (“ Wells Fargo ”) and each of the other Underwriters named in Exhibit A hereto (collectively, the “ Underwriters ,” which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Wells Fargo, [REPRESENTATIVES] are acting as representatives (in such capacity, the “ Representatives ”), with respect to the issue and sale by the Trust of a total of [ · ] common shares of beneficial interest, par value $0.01 per share (the “ Initial Securities ”), and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of Initial Securities set forth in said Exhibit A hereto, and with respect to the grant by the Trust to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of [ · ] additional common shares of beneficial interest, par value $0.01 per share (the “ Option Securities ”), to cover over-allotments, if any.  The Initial Securities to be purchased by the Underwriters and all or any part of the Option Securities are hereinafter called, collectively, the “ Securities .”  Certain terms used in this Agreement are defined in Section 15 hereof.

 

The Trust understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered.

 

The Trust has entered into (i) an Investment Advisory Agreement with the Adviser dated as of [ · ], 2015, (ii) a Custodian Agreement with [ · ] dated as of [ · ], 2015, (iii) a Transfer Agency and Service Agreement with [ · ] dated as of [ · ], 2015, (iv) an Administration Agreement with [ · ] dated as of [ · ], 2015, and (v) a Subscription Agreement between the Trust and the Adviser dated as of [ · ], 2015 and such agreements are herein referred to as the “ Investment Advisory Agreement ,” the “ Custodian Agreement, ” the “ Transfer Agency Agreement, ” the “ Administration Agreement, ” and the “ Subscription Agreement, ” respectively.  Collectively, the Investment Advisory Agreement, the Custodian Agreement, the Transfer Agency Agreement, the

 

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Administration Agreement and the Subscription Agreement are herein referred to as the “ Trust Agreements .” [ADD ANY OTHER MATERIAL TRUST AGREEMENTS] The Adviser has entered into a Structuring Fee Agreement with Wells Fargo dated as of [ · ], 2015, and [Additional Structuring Fee/Compensation Agreement(s) to be inserted] and such agreements are herein referred to as the “ Fee Agreements .”  In addition, the Trust has adopted a dividend reinvestment plan pursuant to which holders of common shares of beneficial interest shall have their dividends automatically reinvested in additional common shares of beneficial interest of the Trust unless they elect to receive such dividends in cash, and such plan is herein referred to as the “ Dividend Reinvestment Plan .”

 

The Trust has prepared and filed with the Commission a registration statement (File Nos. 333-202638 and 811-23037) on Form N-2, including a related preliminary prospectus (including the statement of additional information incorporated by reference therein), for registration under the 1933 Act and the 1940 Act of the offering and sale of the Securities. The Trust may have filed one or more amendments thereto, including a related preliminary prospectus (including the statement of additional information incorporated by reference therein), each of which has previously been furnished to you.

 

The Trust will next file with the Commission one of the following: either (1) prior to the effective date of the Registration Statement, a further amendment to the Registration Statement (including the form of final prospectus (including the statement of additional information incorporated by reference therein)) or (2) after the effective date of the Registration Statement, a final prospectus (including the statement of additional information incorporated by reference therein) in accordance with Rules 430A and 497. In the case of clause (2), the Trust has included or incorporated by reference in the Registration Statement, as amended at the effective date, all information (other than Rule 430A Information) required by the 1933 Act and the 1940 Act and the Rules and Regulations to be included in the Registration Statement and the Prospectus.  As filed, such amendment and form of final prospectus (including the statement of additional information incorporated by reference therein), or such final prospectus (including the statement of additional information incorporated by reference therein), shall contain all Rule 430A Information, together with all other such required information, and, except to the extent the Representatives shall agree in writing to a modification, shall be in all substantive respects in the form furnished to you prior to the Applicable Time or, to the extent not completed at the Applicable Time, shall contain only such specific additional information and other changes (beyond that contained in the latest preliminary prospectus) as the Trust has advised you, prior to the Applicable Time, will be included or made therein.

 

SECTION 1.   Representations and Warranties .

 

(a)                                  Representations and Warranties by the Trust and the Adviser.  The Trust and the Adviser, jointly and severally, represent and warrant to each Underwriter as of the date hereof, as of the Applicable Time, as of the Closing Date referred to in Section 2(c) hereof, and as of each Option Closing Date (if any) referred to in Section 2(b) hereof, and agree with each Underwriter, as follows:

 

(1)                                  Compliance with Registration Requirements .  The Securities have been duly registered under the 1933 Act and the 1940 Act, pursuant to the Registration

 

2



 

Statement.  Each of the Initial Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and has been filed under the 1940 Act, and no stop order suspending the effectiveness of the Initial Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act or the 1940 Act, and no proceedings for any such purpose have been instituted or are pending or, to the knowledge of the Trust or the Adviser, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with.  The Preliminary Prospectus and the Prospectus complied when filed with the Commission in all material respects with the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations. The Preliminary Prospectus and the Prospectus and any amendments or supplements thereto delivered to the Underwriters for use in connection with the offering of the Securities each was identical to the electronically transmitted copy thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

 

At the respective times the Initial Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became or become effective and at the Closing Date (and, if any Option Securities are purchased, at the applicable Option Closing Date), the Initial Registration Statement, any Rule 462(b) Registration Statement will, and the 1940 Act Notification when originally filed with the Commission and any amendments and supplements thereto did or will, comply in all material respects with the requirements of the 1933 Act, the 1940 Act and the Rules and Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading.  Neither the Prospectus nor any amendments or supplements thereto, as of its date, at the Closing Date (and, if any Option Securities are purchased, at the applicable Option Closing Date), and at any time when a prospectus is required by applicable law to be delivered in connection with sales of Securities, included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.  The Preliminary Prospectus, any Rule 482 Statement issued at or prior to the Applicable Time, if any, and the information included on Exhibit F hereto, all considered together (collectively, the “ General Disclosure Package ”) did not or will not contain any untrue statement of a material fact or omit to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; provided , however , that the Trust makes no representations or warranties as to the information contained in or omitted from the Preliminary Prospectus or the Prospectus in reliance upon and in conformity with information furnished in writing to the Trust by or on behalf of any Underwriter specifically for inclusion therein, it being understood and agreed that the only such information furnished by any Underwriter consists of the information described as such in Section 6(b) hereof.

 

The Trust’s registration statement on Form 8-A under the 1934 Act is effective.

 

(2)                                  Independent Accountants .  [ · ] who certified and audited the financial statements and supporting schedules included in the Registration Statement, the

 

3



 

Preliminary Prospectus and the Prospectus is an independent registered public accounting firm as required by the 1933 Act, the 1940 Act and the Rules and Regulations and the Public Company Accounting Oversight Board.

 

(3)                                  Financial Statements .  The financial statements of the Trust included in the Registration Statement, the General Disclosure Package and the Prospectus, together with the related schedules (if any) and notes, present fairly the financial position of the Trust at the dates indicated and the results of operations and cash flows of the Trust for the periods specified; and all such financial statements have been prepared in conformity with GAAP applied on a consistent basis throughout the periods involved and comply with all applicable accounting requirements under the 1933 Act, the 1940 Act and the Rules and Regulations.  The supporting schedules, if any, included in the Registration Statement present fairly, in accordance with GAAP, the information required to be stated therein, and the other financial and statistical information and data included in the Registration Statement, the General Disclosure Package and the Prospectus are accurately derived from such financial statements and the books and records of the Trust.

 

(4)                                  No Material Adverse Change in Business .  Since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package and the Prospectus, except as otherwise stated therein, (A) there has been no Trust Material Adverse Effect, (B) there have been no transactions entered into by the Trust which are material with respect to the Trust other than those in the ordinary course of its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and (C) there has been no dividend or distribution of any kind declared, paid or made by the Trust on any class of its Common Stock.

 

(5)                                  Good Standing of the Trust .  The Trust has been duly formed and is validly existing in good standing as a business trust under the laws of the Commonwealth of Massachusetts and has the full power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and to enter into and perform its obligations under this Agreement and the Trust Agreements; and the Trust is duly qualified to transact business and is in good standing under the laws of each jurisdiction which requires qualification.

 

(6)                                  No Subsidiaries .  The Trust has no subsidiaries.

 

(7)                                  Investment Company Status.   The Trust is duly registered with the Commission as a closed-end, diversified management investment company under the 1940 Act.  The Trust is, and at all times through the completion of the transactions contemplated hereby, will be, in compliance with the provisions of the 1933 Act, the 1940 Act and  the 1940 Act Rules and Regulations, and the 1940 Act Notification has been duly filed with the Commission.  The Trust has not received any notice from the Commission pursuant to Section 8(e) of the 1940 Act with respect to the 1940 Act Notification or the Registration Statement.

 

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(8)                                  Officers and Trustees .  No person is serving or acting as an officer, trustee or investment adviser of the Trust except in accordance with the provisions of the 1940 Act and the Rules and Regulations and the Advisers Act.  Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, no trustee of the Trust is (A) an “interested person” (as defined in the 1940 Act) of the Trust or (B) an “affiliated person” (as defined in the 1940 Act) of any Underwriter.  For purposes of this Section 1(a)(8), the Trust and the Adviser shall be entitled to rely on representations from such officers and trustees.

 

(9)                                  Capitalization .  The authorized, issued and outstanding common shares of beneficial interest of the Trust are as set forth in the Registration Statement, the General Disclosure Package and in the Prospectus.  All issued and outstanding common shares of beneficial interest of the Trust have been duly authorized and validly issued and are fully paid and non-assessable and have been offered and sold or exchanged by the Trust in compliance with all applicable laws (including, without limitation, federal and state securities laws); none of the outstanding common shares of beneficial interest of the Trust was issued in violation of the preemptive or other similar rights of any securityholder of the Trust; the Securities have been duly and validly authorized and, when issued and delivered to and paid for by the Underwriters pursuant to this Agreement, will be fully paid and nonassessable; and the certificates for the Securities, if any, are in valid and sufficient form.

 

(10)                           Power and Authority .  The Trust has full power and authority to enter into this Agreement and the Trust Agreements; the execution and delivery of, and the performance by the Trust of its obligations under this Agreement and the Trust Agreements have been duly and validly authorized by the Trust; and this Agreement and the  Trust Agreements have been duly executed and delivered by the Trust and constitute the valid and legally binding agreements of the Trust, enforceable against the Trust in accordance with their terms, except as rights to indemnity and contribution may be limited by federal or state securities laws and subject to the qualification that the enforceability of the Trust’s obligations hereunder and thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws relating to or affecting creditors’ rights generally and by general equitable principles.

 

(11)                           Approval of Investment Advisory Agreement .  The Trust’s Board of Trustees and the Trust’s sole shareholder have approved the Investment Advisory Agreement in accordance with Section 15 of the 1940 Act.

 

(12)                           Agreements’ Compliance with Law .  This Agreement and each of the Trust Agreements comply in all material respects with all applicable provisions of the 1940 Act, the 1940 Act Rules and Regulations, the Advisers Act and the Advisers Act Rules and Regulations.

 

(13)                           Absence of Defaults and Conflicts .  The Trust is not (i) in violation of its Organizational Documents, (ii) in breach or default in the performance of the terms of any indenture, contract, lease, mortgage, declaration of trust, note agreement, loan

 

5



 

agreement or other agreement, obligation, condition, covenant or instrument to which it is a party or bound or to which its property is subject or (iii) in violation of any law, ordinance, administrative or governmental rule or regulation applicable to the Trust or of any decree of the Commission, FINRA, any state securities commission, any foreign securities commission, any national securities exchange, any arbitrator, any court or any other governmental, regulatory, self-regulatory or administrative agency or any official having jurisdiction over the Trust.

 

(14)                           Absence of Proceedings .  There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Trust, threatened, against or affecting the Trust which is required to be disclosed in the Registration Statement, the General Disclosure Package and Prospectus (other than as disclosed therein), or that could reasonably be expected to result in a Trust Material Adverse Effect, or that could reasonably be expected to materially and adversely affect the properties or assets of the Trust or the consummation of the transactions contemplated in this Agreement or the performance by the Trust of its obligations under this Agreement or the Trust Agreements; the aggregate of all pending legal or governmental proceedings to which the Trust is a party or of which any of its property or assets is the subject which are not described in the Registration Statement, the General Disclosure Package or the Prospectus or to be filed as an exhibit to the Registration Statement that are not described or filed as required by the 1933 Act, the 1940 Act or the Rules and Regulations, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Trust Material Adverse Effect.

 

(15)                           Accuracy of Descriptions and Exhibits .  The statements set forth under the headings [“Description of Shares,” “Certain Provisions in the Declaration of Trust and By-Laws” and “Tax Matters” in the Registration Statement, the General Disclosure Package and the Prospectus and “Federal Income Tax Matters”] in the Statement of Additional Information, insofar as such statements purport to summarize certain provisions of the 1940 Act, Massachusetts law, the Trust’s Organizational Documents, U.S. federal income tax law and regulations or legal conclusions with respect thereto, fairly and accurately summarize such provisions in all material respects; all descriptions in the Registration Statement, the General Disclosure Package and the Prospectus of any Trust documents are accurate in all material respects; and there are no franchises, contracts, indentures, mortgages, deeds of trust, loan or credit agreements, bonds, notes, debentures, evidences of indebtedness, leases or other instruments or agreements required to be described or referred to in the Registration Statement, the General Disclosure Package or the Prospectus or to be filed as exhibits to the Registration Statement that are not described or filed as required by the 1933 Act, the 1940 Act or the Rules and Regulations which have not been so described and filed as required.

 

(16)                           Absence of Further Requirements .  (A) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency, domestic or foreign, and (B) no authorization, approval, vote or other consent of any other person or entity, is necessary or required for the performance by the Trust of its obligations under this Agreement or the Trust

 

6



 

Agreements, for the offering, issuance, sale or delivery of the Securities hereunder, or for the consummation of any of the other transactions contemplated by this Agreement or the Trust Agreements, in each case on the terms contemplated by the Registration Statement, the General Disclosure Package and the Prospectus, except such as have been already obtained and under the 1933 Act, the 1940 Act, the Rules and Regulations, the rules and regulations of FINRA, including legacy NASD rules, and the NYSE and such as may be required under state securities laws.

 

(17)                           Non-Contravention .  Neither the execution, delivery or performance of this Agreement, the Trust Agreements nor the consummation by the Trust of the transactions herein or therein contemplated (i) conflicts or will conflict with or constitutes or will constitute a breach of the Organizational Documents of the Trust, (ii) conflicts or will conflict with or constitutes or will constitute a breach of or a default under, any agreement, indenture, lease or other instrument to which the Trust is a party or by which it or any of its properties may be bound or (iii) violates or will violate any statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Trust or any of its properties or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Trust pursuant to the terms of any agreement or instrument to which the Trust is a party or by which the Trust may be bound or to which any of the property or assets of the Trust is subject.

 

(18)                           Possession of Licenses and Permits .  The Trust has such licenses, permits and authorizations of governmental or regulatory authorities (“ Permits ”) as are necessary to own its property and to conduct its business in the manner described in the Registration Statement, the General Disclosure Package and the Prospectus; the Trust has fulfilled and performed all its material obligations with respect to such Permits and no event has occurred which allows or, after notice or lapse of time, would allow, revocation or termination thereof or results in any other material impairment of the rights of the Trust under any such Permit, subject in each case to such qualification as may be set forth in the Registration Statement, the General Disclosure Package and the Prospectus; and, except as described in the Registration Statement, the General Disclosure Package and the Prospectus, none of such Permits contains any restriction that is materially burdensome to the Trust.

 

(19)                           Possession of Intellectual Property . The Trust owns or possesses, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names or other intellectual property (collectively, “ Intellectual Property ”) necessary to carry on the business now operated by the Trust, and the Trust has not received any notice or is not otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Trust therein, and which infringement or conflict (if the subject of any unfavourable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Trust Material Adverse Effect.

 

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(20)                           Distribution of Offering Material .  The Trust has not distributed and, prior to the later to occur of (i) the Closing Date and (ii) completion of the distribution of the Securities, will not distribute any offering material in connection with the offering and sale of the Securities other than the Registration Statement, the General Disclosure Package, the Prospectus, the Sales Material (as defined below) or other materials permitted by the 1933 Act, the 1940 Act or the Rules and Regulations.

 

(21)                           Absence of Registration Rights .  There are no persons with registration rights or other similar rights to have any securities (debt or equity) (A) registered pursuant to the Registration Statement or included in the offering contemplated by this Agreement or (B) otherwise registered by the Trust under the 1933 Act or the 1940 Act.  There are no persons with tag-along rights or other similar rights to have any securities (debt or equity) included in the offering contemplated by this Agreement or sold in connection with the sale of Securities by the Trust pursuant to this Agreement.

 

(22)                           NYSE .  The Securities are duly listed and admitted and authorized for trading, subject to official notice of issuance and evidence of satisfactory distribution, on the NYSE.

 

(23)                           FINRA Matters .  All of the information provided to the Underwriters or to counsel for the Underwriters by the Trust, its officers and trustees in connection with letters, filings or other supplemental information provided to FINRA pursuant to FINRA’s conduct rules (Rules 5100, 5110 or 5121), including legacy NASD rules, is true, complete and correct.

 

(24)                           Tax Returns .  The Trust has filed all tax returns that are required to be filed and has paid all taxes required to be paid by it and any other assessment, fine or penalty levied against it, to the extent that any of the foregoing is due and payable, except for any such tax, assessment, fine or penalty that is currently being contested in good faith by appropriate actions and except for such taxes, assessments, fines or penalties the nonpayment of which would not, individually or in the aggregate, have a Trust Material Adverse Effect.

 

(25)                           Subchapter M .  The Trust is currently in compliance with the requirements of Subchapter M of the Internal Revenue Code of 1986, as amended (the “ Code ”) to qualify as a regulated investment company under the Code and intends to direct the investment of the net proceeds of the offering of the Securities in such a manner as to comply with the requirements of Subchapter M of the Code.

 

(26)                           Insurance .  The Trust is insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as are prudent and customary in the businesses in which it is engaged and which the Trust deems adequate; all policies of insurance insuring the Trust or its business, assets, employees, officers and trustees, including its fidelity bond required by Rule 17g-1 of the 1940 Act Rules and Regulations and the Trust’s trustees and officers/errors and omissions insurance policy, are in full force and effect; the Trust is in compliance with the terms of such fidelity bond and policy in all material respects; and there are no claims by the Trust under any such

 

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fidelity bond or policy as to which any insurance company is denying liability or defending under a reservation of rights clause; the Trust has not been refused any insurance coverage sought or applied for; and the Trust has no reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Trust Material Adverse Effect, except as set forth in or contemplated in the Registration Statement, the General Disclosure Package and the Prospectus (exclusive of any supplement thereto).

 

(27)                           Accounting Controls and Disclosure Controls .  The Trust maintains a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management’s general or specific authorizations and with the investment objective(s), policies and restrictions of the Trust and the applicable requirements of the 1940 Act, the 1940 Act Rules and Regulations and the Code; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP, to calculate net asset value, to maintain accountability for assets and to maintain material compliance with the books and records requirements under the 1940 Act and the 1940 Act Rules and Regulations; (C) access to assets is permitted only in accordance with management’s general or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.  The Trust employs “internal control over financial reporting” (as such term is defined in Rule 30a-3 under the 1940 Act) and such internal control over financial reporting is and shall be effective as required by the 1940 Act and the 1940 Act Rules and Regulations.  The Trust is not aware of any material weakness in its internal control over financial reporting.  The Trust employs “disclosure controls and procedures” (as such term is defined in Rule 30a-3 under the 1940 Act); such disclosure controls and procedures are effective.

 

(28)                           Compliance with the Sarbanes-Oxley Act.   There is and has been no failure on the part of the Trust or any of the Trust’s trustees or officers, in their capacities as such, to comply with any provision of the Sarbanes-Oxley Act and the rules and regulations promulgated in connection therewith, including Sections 302 and 906 related to certifications.

 

(29)                           Trust Compliance with Policies and Procedures .  The Trust has adopted and implemented written policies and procedures reasonably designed to prevent violation of the Federal Securities Laws (as that term is defined in Rule 38a-1 under the 1940 Act) by the Trust, including policies and procedures that provide oversight of compliance for each investment adviser, administrator and transfer agent of the Trust.

 

(30)                           Absence of Manipulation .  The Trust has not taken and will not take, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in the stabilization or manipulation of the price of any security to facilitate the sale or resale of the Securities, and the Trust is not aware of any such action taken or to be taken by any affiliates of the Trust, other than such

 

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actions as taken by the Underwriters that are affiliates of the Trust, so long as such actions are in compliance with all applicable law.

 

(31)                           Statistical, Demographic or Market-Related Data .  Any statistical, demographic or market-related data included in the Registration Statement, the General Disclosure Package or the Prospectus is based on or derived from sources that the Trust believes to be reliable and accurate and all such data included in the Registration Statement, the General Disclosure Package or the Prospectus accurately reflects the materials upon which it is based or from which it was derived.

 

(32)                           Advertisements .  All advertising, sales literature or other promotional material (including “prospectus wrappers”, “broker kits”, “road show slides” and “road show scripts”), whether in printed or electronic form, authorized in writing by or prepared by or at the direction of the Trust or the Adviser for use in connection with the offering and sale of the Securities (collectively, “Sales Material”) complied and comply in all material respects with the applicable requirements of the 1933 Act, the 1940 Act, the Rules and Regulations and the rules and interpretations of FINRA and if required to be filed with FINRA under FINRA’s conduct rules (Rules 5100, 5110 or 5121), and applicable legacy NASD conduct rules, were so filed. No Sales Material contained or contains an untrue statement of a material fact or omitted or omits to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

(33)                           Related Party Transactions . There are no business relationships or related party transactions involving the Trust or any other person required to be described in the Registration Statement, the General Disclosure Package and the Prospectus which have not been described as required, it being understood and agreed that the Trust and the Adviser make no representation or warranty with respect to any such relationships involving any Underwriter or any affiliate and any other person that have not been disclosed to the Trust by the relevant Underwriter in connection with this offering.

 

(34)                           No Material Restrictions Relating to Investing Assets . There are no material restrictions, limitations or regulations with respect to the ability of the Trust to invest its assets as described in any Registration Statement, General Disclosure Package and the Prospectus, other than as described therein.

 

(35)                           Absence of Undisclosed Payments .  Neither the Trust nor any employee or agent of the Trust has made any payment of funds of the Trust or received or retained any funds, which payment, receipt or retention of funds is of a character required to be disclosed in the Registration Statement, the General Disclosure Package or the Prospectus

 

(36)                           Foreign Corrupt Practices Act .  Neither the Trust nor, any trustee or officer of the Trust, nor to the knowledge of the Trust, any agent, employee, affiliate or other person acting on behalf of the Trust is aware of or has taken any action, directly or indirectly, that has resulted or would result in a violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (collectively, the “FCPA”) or any other applicable anti-corruption laws, including,

 

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without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the FCPA or any other applicable anti-corruption laws,  and the Trust and, to the knowledge of the Trust, its affiliates have conducted their businesses in compliance with the FCPA and any other applicable anti-corruption laws, and have instituted and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith.

 

(37)                           Money Laundering Laws .  The operations of the Trust are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar applicable rules, regulations or guidelines, issued, administered or enforced by any governmental agency (collectively, “ Money Laundering Laws ”) and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Trust with respect to the Money Laundering Laws is pending or, to the knowledge of the Trust, threatened.

 

(38)                           OFAC .  Neither the Trust, its trustees or officers nor, to the knowledge of the Trust, any agent, employee, affiliate or person acting on behalf of the Trust is a person or entity that is, or is owned or controlled by a person or entity that is, currently the subject of any U.S. sanctions administered or enforced by the Office of Foreign Assets Control of the U.S. Treasury Department (“ OFAC ”); and the Trust will not directly or indirectly use any of the proceeds received by the Trust from the sale of Securities contemplated by this Agreement, or lend, contribute or otherwise make available any such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities or business of or with any person or entity or in any country or territory that, at the time of such financing is the subject of any U.S. sanctions administered or enforced by OFAC.

 

(b)                                  Representations and Warranties by the Adviser .  The Adviser represents and warrants to each Underwriter as of the date hereof, as of the Applicable Time, as of the Closing Date and as of each Option Closing Date (if any), and agrees with each Underwriter, as follows:

 

(1)                                  Adviser Status .  The Adviser is duly registered as an investment adviser under the Advisers Act and is not prohibited by the Advisers Act, the 1940 Act, the Advisers Act Rules and Regulations or the 1940 Act Rules and Regulations from acting under the Investment Advisory Agreement or the Fee Agreements as contemplated by the Registration Statement, the General Disclosure Package and the Prospectus.

 

(2)                                  Capitalization .  The Adviser has the financial resources available to it necessary for the performance of its services and obligations as contemplated in the Registration Statement, the General Disclosure Package and the Prospectus and under this Agreement, the Investment Advisory Agreement and the Fee Agreements.

 

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(3)                                  No Material Adverse Change in Business .  Since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package and the Prospectus, except as otherwise stated therein, (A) there has been no Adviser Material Adverse Effect and (B) there have been no transactions entered into by the Adviser which are material with respect to the Adviser other than those in the ordinary course of its business as described in the Registration Statement, the General Disclosure Package and the Prospectus.

 

(4)                                  Good Standing .  The Adviser has been duly formed and is validly existing in good standing as a limited liability company under the laws of the State of Delaware and has the full power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and to enter into and perform its obligations under this Agreement and the Fee Agreements; and the Adviser is duly qualified to transact business and is in good standing under the laws of each jurisdiction which requires qualification.

 

(5)                                  Power and Authority .  The Adviser has full power and authority to enter into this Agreement, the Investment Advisory Agreement and the Fee Agreements; the execution and delivery of, and the performance by the Adviser of its obligations under this Agreement, the Investment Advisory Agreement and the Fee Agreements have been duly and validly authorized by the Adviser; and this Agreement, the Investment Advisory Agreement and the Fee Agreements have been duly executed and delivered by the Adviser and constitute the valid and legally binding agreements of the Adviser, enforceable against the Adviser in accordance with their terms, except as rights to indemnity and contribution may be limited by federal or state securities laws and subject to the qualification that the enforceability of the Adviser’s obligations hereunder and thereunder may be limited by bankruptcy, insolvency, reorganization, moratorium, fraudulent conveyance and other laws relating to or affecting creditors’ rights generally and by general equitable principles.

 

(6)                                  Description of the Adviser .  The description of the Adviser and its business and the statements attributable to the Adviser in the Registration Statement, the General Disclosure Package and Prospectus complied and comply in all material respects with the provisions of the 1933 Act, the 1940 Act, the Advisers Act, the 1940 Act Rules and Regulations and the Advisers Act Rules and Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading.

 

(7)                                  Non-Contravention .  Neither the execution, delivery or performance of this Agreement, the Investment Advisory Agreement or the Fee Agreements nor the consummation by the Trust or the Adviser of the transactions herein or therein contemplated (i) conflicts or will conflict with or constitutes or will constitute a breach of the Organizational Documents of the Adviser, (ii) conflicts or will conflict with or constitutes or will constitute a breach of or a default under, any agreement, indenture, lease or other instrument to which the Adviser is a party or by which it or any of its

 

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properties may be bound or (iii) violates or will violate any statute, law, regulation or filing or judgment, injunction, order or decree applicable to the Adviser or any of its properties or will result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Adviser pursuant to the terms of any agreement or instrument to which the Adviser is a party or by which the Adviser may be bound or to which any of the property or assets of the Adviser is subject.

 

(8)                                  Agreements’ Compliance with Laws .  This Agreement, the Investment Advisory Agreement and the Fee Agreements comply in all material respects with all applicable provisions of the 1940 Act, the 1940 Act Rules and Regulations, the Advisers Act and the Advisers Act Rules and Regulations.

 

(9)                                  Absence of Proceedings .  There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body, domestic or foreign, now pending, or, to the knowledge of the Adviser, threatened, against or affecting the Adviser which is required to be disclosed in the Registration Statement, the General Disclosure Package and Prospectus (other than as disclosed therein), or that could reasonably be expected to result in an Adviser Material Adverse Effect, or that could reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in this Agreement or the performance by the Adviser of its obligations under this Agreement, the Investment Advisory Agreement or the Fee Agreements; the aggregate of all pending legal or governmental proceedings to which the Adviser is a party or of which any of its property or assets is the subject which are not described in the Registration Statement, the General Disclosure Package or the Prospectus, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in an Adviser Material Adverse Effect.

 

(10)                           Absence of Further Requirements .  (A) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency, domestic or foreign, and (B) no authorization, approval, vote or other consent of any other person or entity, is necessary or required for the performance by the Adviser of its obligations under this Agreement, the Investment Advisory Agreement, or the Fee Agreements, except such as have been already obtained under the 1933 Act, the 1940 Act, the Rules and Regulations, the rules and regulations of FINRA (and applicable legacy NASD rules and regulations) and the NYSE and such as may be required under state securities laws.

 

(11)                           Possession of Permits .  The Adviser has such Permits as are necessary to own its property and to conduct its business in the manner described in the Registration Statement, the General Disclosure Package and the Prospectus; the Adviser has fulfilled and performed all its material obligations with respect to such Permits and no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or results in any other material impairment of the rights of the Adviser under any such Permit.

 

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(12)                           Adviser Compliance with Policies and Procedures .  The Adviser has adopted and implemented written policies and procedures under Rule 206(4)-7 of the Advisers Act reasonably designed to prevent violation of the Advisers Act and the Advisers Act Rules by the Adviser and its supervised persons.

 

(13)                           Absence of Manipulation .  The Adviser has not taken and will not take, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in the stabilization or manipulation of the price of any security to facilitate the sale or resale of the Securities, and the Adviser is not aware of any such action taken or to be taken by any affiliates of the Adviser, other than such actions as taken by the Underwriters that are affiliates of the Adviser, so long as such actions are in compliance with all applicable law.

 

(14)                           Promotional Materials .  In the event that the Trust or the Adviser makes available any promotional materials related to the Securities or the transactions contemplated hereby intended for use only by registered broker-dealers and registered representatives thereof by means of an Internet web site or similar electronic means, the Adviser will install and maintain, or will cause to be installed and maintained, pre-qualification and password-protection or similar procedures which are reasonably designed to effectively prohibit access to such promotional materials by persons other than registered broker-dealers and registered representatives thereof.

 

(15)                           Internal Controls .  The Adviser maintains a system of internal controls sufficient to provide reasonable assurance that (i) transactions effectuated by it under the Investment Advisory Agreement are executed in accordance with its management’s general or specific authorization; and (ii) access to the Trust’s assets is permitted only in accordance with management’s general or specific authorization.

 

(16)                           Money Laundering Laws .  The operations of the Adviser and its subsidiaries are and have been conducted at all times in compliance with applicable Money Laundering Laws and no action, suit or proceeding by or before any court or governmental agency, authority or body or any arbitrator involving the Adviser or any of its subsidiaries with respect to the Money Laundering Laws is pending or, to the knowledge of the Adviser, threatened. Neither the Adviser nor, any officer or director of the Adviser, nor to the knowledge of the Adviser, any agent, employee, affiliate or other person acting on behalf of the Adviser is aware of or has taken any action, directly or indirectly, that has resulted or would result in a violation by such persons of the FCPA or any other applicable anti-corruption laws, including, without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the FCPA or any other applicable anti-corruption laws, and the Adviser and, to the knowledge of the Adviser, its affiliates have conducted their businesses in compliance with the FCPA and any other applicable anti-corruption laws, and have instituted and

 

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maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith.

 

(17)                           OFAC .  Neither the Adviser, its directors or officers nor, to the knowledge of the Adviser, any agent, employee, affiliate or other person acting on behalf of the Adviser is a Person that is, or is owned or controlled by a person or entity that is, currently the subject of any U.S. sanctions administered or enforced by OFAC; and the Adviser will not cause the Fund, directly or indirectly, to use any of the proceeds received by the Fund from the sale of Securities contemplated by this Agreement, or lend, contribute or otherwise make available any such proceeds to any subsidiary, joint venture partner or other person or entity, for the purpose of financing the activities or business of or with any person or entity in any country or territory that, at the time of such financing is the subject of any U.S. sanctions administered or enforced by OFAC.

 

(c)                                   Certificates.  Any certificate signed by any officer of the Trust or the Adviser and delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Trust or the Adviser, as the case may be, to each Underwriter as to the matters covered thereby.

 

SECTION 2.   Sale and Delivery to Underwriters; Closing .

 

(a)                                  Initial Securities.   On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Trust agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Trust, at a purchase price of $[ · ] per share, the amount of the Initial Securities set forth opposite such Underwriter’s name in Exhibit A hereto.  The Trust is advised that the Underwriters intend to (i) make a public offering of their respective portions of the Securities as soon after the Applicable Time as is advisable and (ii) initially to offer the Securities upon the terms set forth in the Registration Statement, the General Disclosure Package and the Prospectus.

 

(b)                                  Option Securities.  Subject to the terms and conditions and in reliance upon the representations and warranties herein set forth, the Trust hereby grants an option to the several Underwriters to purchase, severally and not jointly, up to [ · ] Option Securities at the same purchase price per share as the Underwriters shall pay for the Initial Securities.  Said option may be exercised only to cover over-allotments in the sale of the Initial Securities by the Underwriters.  Said option may be exercised in whole or in part at any time and from time to time on or before the 45th day after the date of the Prospectus upon written or telegraphic notice by the Representatives to the Trust setting forth the number of shares of the Option Securities as to which the several Underwriters are exercising the option and the settlement date.  The number of Option Securities to be purchased by each Underwriter shall be the same percentage of the total number of shares of the Option Securities to be purchased by the several Underwriters as such Underwriter is purchasing of the Initial Securities, subject to such adjustments as you in your absolute discretion shall make to eliminate any fractional shares.  Any such time and date of delivery (an “ Option Closing Date ”) shall be determined by the Representatives, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Date, as hereinafter defined.

 

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(c)                                   Payment.  Payment of the purchase price for the Initial Securities, and delivery of the related closing certificates therefor, shall be made at the offices of [ · ],[ · ],[ · ] or at such other place as shall be agreed upon by the Representatives and the Trust, at 6:00 P.M. (Eastern time) on [ · ], 2015 (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Representatives and the Trust (such time and date of payment and delivery being herein called “ Closing Date ”).

 

In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Representatives and the Trust, on each Option Closing Date as specified in the notice from the Representatives to the Trust.

 

Delivery of the Securities shall be made to the Representatives for the respective accounts of the several Underwriters against payment by the several Underwriters through the Representatives of the purchase price thereof to or upon the order of the Trust by Federal Funds wire transfer payable in same-day funds to an account specified by the Trust.  Delivery of the Initial Securities and the Option Securities shall be made through the facilities of The Depository Trust Company unless the Representatives shall otherwise instruct.  Wells Fargo, individually and not as Representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Date or the relevant Option Closing Date, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder.

 

(d)                                  Denominations; Registration.  Certificates for the Initial Securities and the Option Securities, if any, shall be in such denominations and registered in such names as the Representatives may request in writing at least one full business day before the Closing Date or the relevant Option Closing Date, as the case may be.  The certificates for the Initial Securities and the Option Securities, if any, will be made available for examination and packaging by the Representatives in The City of New York not later than noon (Eastern time) on the business day prior to the Closing Date or the relevant Option Closing Date, as the case may be.

 

SECTION 3.   Covenants of the Trust and the Adviser .  The Trust and the Adviser, jointly and severally, covenant with each Underwriter as follows:

 

(a)                                  Compliance with Securities Regulations and Commission Requests.  The Trust, subject to Section 3(a)(ii), will comply with the requirements of Rule 430A and will notify the Representatives immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the

 

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suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes, or of any examination pursuant to Section 8(e) of the 1940 Act concerning the Registration Statement and (v) if the Trust becomes the subject of a proceeding under Section 8A of the 1933 Act in connection with the offering of the Securities.  The Trust will use its best efforts in connection with the offering of the Securities to prevent the issuance of any stop order or the suspension of any such qualification and, if issued, to obtain as soon as possible the withdrawal thereof.

 

(b)                                  Filing of Amendments.   The Trust will give the Representatives notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)) or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectus, whether pursuant to the 1933 Act or otherwise, or will furnish the Representatives with copies of any such documents within a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall object.

 

(c)                                   Delivery of Registration Statements.  The Trust has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts.  The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

 

(d)                                  Delivery of Prospectuses.  The Trust has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus prepared prior to the date of this Agreement as such Underwriter reasonably requested, and the Trust hereby consents to the use of such copies for purposes permitted by the 1933 Act.  The Trust will furnish to each Underwriter, without charge, such number of copies of the documents constituting the General Disclosure Package prepared on or after the date of this Agreement and the Prospectus (and any amendments or supplements thereto) as such Underwriter may reasonably request.  The Registration Statement, the General Disclosure Package and the Prospectus and any amendments or supplements thereto furnished to the Underwriters is or will be, as the case may be, identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

 

(e)                                   Continued Compliance with Securities Laws.  The Trust will comply with the 1933 Act, the 1940 Act and the Rules and Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus.  If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities (including, without limitation, pursuant to Rule 172), any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Trust, to amend the Registration

 

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Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act, the 1940 Act or the Rules and Regulations, the Trust will promptly prepare and file with the Commission, subject to Section 3(b) hereof, such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Trust will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request.

 

(f)                                    Blue Sky Qualifications.  The Trust will use its best efforts, in cooperation with the Underwriters, to qualify, if necessary, the Securities for offering and sale under the applicable securities laws of states of the United States, the District of Columbia, Guam, Puerto Rico and the U.S. Virgin Islands as the Representatives may designate and to maintain such qualifications in effect for a period of not less than one year from the date of this Agreement; provided, however, that the Trust shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.

 

(g)                                   Rule 158.  The Trust will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its security holders as soon as practicable an earnings statement for the purposes of, and to provide to the Underwriters the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act.

 

(h)                                  Use of Proceeds .  The Trust will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under “Use of Proceeds.”

 

(i)                                      Reporting Requirements.  The Trust, during the period when the Prospectus is required to be delivered under the 1933 Act, the 1940 Act or the Rules and Regulations, will file all documents required to be filed with the Commission pursuant to the 1933 Act, the 1940 Act or the Rules and Regulations within the time periods required by the 1934 Act, the 1940 Act or the Rules and Regulations.

 

(j)                                     Subchapter M.  The Trust will comply with the requirements of Subchapter M of the Code to qualify as a regulated investment company under the Code.

 

(k)                                  Absence of Manipulation .  The Trust and the Adviser have not taken and will not take, directly or indirectly, any action designed to or that would constitute or that might reasonably be expected to cause or result in the stabilization or manipulation of the price of any security to facilitate the sale or resale of the Securities, and the Trust and the Adviser are not aware of any such action taken or to be taken by any affiliates of the

 

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Trust or the Adviser, other than such actions as taken by the Underwriters that are affiliates of the Trust or the Adviser, so long as such actions are in compliance with all applicable law.

 

(l)                                      Restriction on Sale of Securities.  The Trust will not, without the prior written consent of Wells Fargo [ADD OTHER REPRESENTATIVES], offer, sell, contract to sell, pledge, or otherwise dispose of, or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the Trust or any affiliate of the Trust or any person in privity with the Trust, directly or indirectly, including the filing (or participation in the filing) of a registration statement with the Commission in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, any other Securities or any securities convertible into, or exercisable, or exchangeable for, Securities; or publicly announce an intention to effect any such transaction for a period of 180 days following the Applicable Time, provided , however , that the Trust may issue and sell Securities pursuant to any dividend reinvestment plan of the Trust in effect at the Applicable Time.

 

SECTION 4.   Payment of Expenses .

 

(a)                                  Expenses.  The Trust will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the word processing, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates or evidence of book-entry notation for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the counsel, accountants and other advisors to the Trust, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, the documents constituting the General Disclosure Package, the Prospectus and the 1940 Act Notification, any Sales Material and any amendments or supplements thereto, (vii) the fees and expenses of the custodian and the transfer agent and registrar for the Securities, (viii) the FINRA filing fees incurred by the Trust under FINRA Rule 5110 in connection with the offering of the Securities, (ix) the fees and disbursements of counsel to the Underwriters in connection with, the review by FINRA of the terms of the sale of the Securities in an amount of $20,000, (x) the transportation and other expenses incurred in connection with presentations to prospective purchasers of the Securities, (xi) the fees and expenses incurred in connection with the listing of the Securities on the NYSE and (xii) all other costs and expenses incident to the performance by the Trust of its obligations hereunder.  To the extent that the foregoing costs and expenses incidental to the performance of the obligations of the Trust under this Agreement exceed $0.04 per share, the Adviser will pay all such costs and expenses.

 

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(b)                                  Termination of Agreement.  If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a) hereof, the Trust and the Adviser, jointly and severally, agree that they shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters.

 

SECTION 5.   Conditions of Underwriters’ Obligations .  The obligations of the Underwriters to purchase the Initial Securities and the Option Securities, as the case may be, shall be subject to the accuracy of the representations and warranties on the part of the Trust and the Adviser contained herein as of the Applicable Time, the Closing Date and any Option Closing Date pursuant to Section 2 hereof, to the accuracy of the statements of the Trust and the Adviser made in any certificates pursuant to the provisions hereof, to the performance by the Trust and the Adviser of their respective covenants and other obligations hereunder and to the following additional conditions:

 

(a)                                  Effectiveness of Registration Statement.  The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and at the Closing Date (or the applicable Option Closing Date, as the case may be) no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or any notice objecting to its use or order pursuant to Section 8(e) of the 1940 Act shall have been issued and proceedings therefor initiated or, to the knowledge of the Trust or the Adviser, threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel to the Underwriters.  A prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 497 or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A.

 

(b)                                  Opinion of Counsel for the Trust.  At the Closing Date, the Representatives shall have received the favorable opinion, dated as of the Closing Date, of Dechert LLP, counsel for the Trust (“ Trust Counsel ”), in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters, to the effect set forth in Exhibit B hereto and to such further effect as counsel to the Underwriters may reasonably request. The opinion of Trust Counsel shall state that [UNDERWRITERS COUNSEL], counsel for the Underwriters, may rely on such opinion as to matters of Massachusetts law for the purposes of rendering its opinion referenced in Section 5(c).

 

(c)                                   Opinion of Counsel for Underwriters.  At the Closing Date, the Representatives shall have received the favorable opinion, dated as of the Closing Date, of [UNDERWRITERS COUNSEL], counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters, in form and substance satisfactory to the Representatives.  Insofar as the opinion expressed above relates to or is dependent upon matters governed by Massachusetts law, [UNDERWRITERS COUNSEL] will be permitted to rely on the opinion of Dechert LLP.

 

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(d)                                  Certificate of the Trust.  At the Closing Date or the applicable Option Closing Date, as the case may be, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus or the General Disclosure Package (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), any Trust Material Adverse Effect, and, at the Closing Date, the Representatives shall have received a certificate of the Chairman, the President, the Chief Executive Officer or an Executive Vice President or Senior Vice President of the Trust and of the Chief Financial Officer or Chief Accounting Officer of the Trust, dated as of the Closing Date, to the effect that (i) there has been no such Trust Material Adverse Effect, (ii) the representations and warranties of the Trust in this Agreement are true and correct with the same force and effect as though expressly made at and as of the Closing Date, (iii) the Trust has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Date under or pursuant to this Agreement, and (iv) no stop order suspending the effectiveness of the Registration Statement or order of suspension or revocation of registration pursuant to Section 8(e) of the 1940 Act has been issued, and no proceedings for that purpose have been instituted or are pending or, to their knowledge, are contemplated by the Commission.

 

(e)                                   Opinion of Counsel for the Adviser.  At the Closing Date, the Representatives shall have received the favorable opinion, dated as of the Closing Date, of [ADVISER COUNSEL], counsel for the Adviser, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters, to the effect set forth in Exhibit C hereto and to such further effect as counsel to the Underwriters may reasonably request.

 

(f)                                    Certificate of the Adviser .  At the Closing Date or the applicable Option Closing Date, as the case may be, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus or the General Disclosure Package (exclusive of any amendments or supplements thereto subsequent to the date of this Agreement), any Adviser Material Adverse Effect, and, at the Closing Date, the Representatives shall have received a certificate of the Chairman, the President, the Chief Executive Officer or an Executive Vice President or Senior Vice President of the Adviser and of the Chief Financial Officer or Chief Accounting Officer of the Adviser, dated as of the Closing Date, to the effect that (i) there has been no such Adviser Material Adverse Effect, (ii) the representations and warranties of the Adviser in this Agreement are true and correct with the same force and effect as though expressly made at and as of the Closing Date, (iii) the Adviser has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Date under or pursuant to this Agreement, and (iv) no stop order suspending the effectiveness of the Registration Statement or order of suspension or revocation of registration pursuant to Section 8(e) of the 1940 Act has been issued and no proceedings for that purpose have been instituted or are pending or, to their knowledge, are contemplated by the Commission .

 

(g)                                   Accountant’s Comfort Letter.  At the time of the execution of this Agreement, the Representatives shall have received from [ · ] a letter, dated the date of this Agreement and in form and substance satisfactory to the Representatives, together

 

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with signed or reproduced copies of such letter for each of the other Underwriters, containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information of the Trust contained in the Registration Statement, the Preliminary Prospectus or the Prospectus.

 

(h)                                  Bring-down Comfort Letter.  At the Closing Date, the Representatives shall have received from [ · ] a letter, dated as of the Closing Date and in form and substance satisfactory to the Representatives, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (g) of this Section, except that the specified date referred to shall be a date not more than three business days prior to the Closing Date.

 

(i)                                      Fee Agreements.  At the Applicable Time, the Adviser shall deliver to each of the other parties to the Fee Agreements copies of the Fee Agreements, executed by the Adviser and dated the date of this Agreement, together with reproduced copies of such agreements executed by the Adviser for each of the other parties thereto.

 

(j)                                     No Objection.   Prior to the date of this Agreement, FINRA shall have confirmed that it has no objection with respect to the fairness and reasonableness of the underwriting terms and arrangements.

 

(k)                                  Conditions to Purchase of Option Securities.  In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities on any Option Closing Date that is after the Closing Date, the obligations of the several Underwriters to purchase the applicable Option Securities shall be subject to the conditions specified in the introductory paragraph of this Section 5 and to the further condition that, at the applicable Option Closing Date, the Representatives shall have received:

 

(1)                                  Officers’ Certificate of the Trust .  A certificate, dated such Option Closing Date, to the effect set forth in, and signed by two of the officers specified in, Section 5(d) hereof, except that the references in such certificate to the Closing Date shall be changed to refer to such Option Closing Date.

 

(2)                                  Opinion of Counsel for Trust .  The favorable opinion of Trust Counsel in form and substance satisfactory to counsel for the Underwriters, dated such Option Closing Date, relating to the Option Securities to be purchased on such Option Closing Date and otherwise to the same effect as the opinion required by Section 5(b) hereof.

 

(3)                                  Opinion of Counsel for Underwriters .  The favorable opinion of [UNDERWRITERS COUNSEL], counsel for the Underwriters, dated such Option Closing Date, relating to the Option Securities to be purchased on such Option Closing Date and otherwise to the same effect as the opinion required by Section 5(c) hereof.

 

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(4)                                  Opinion of Counsel for the Adviser .  The favorable opinion of [ADVISER COUNSEL], counsel for the Adviser, dated such Option Closing Date, relating to the Option Securities to be purchased on such Option Closing Date and otherwise to the same effect as the opinion required by Section 5(e) hereof.

 

(5)                                  Certificate of the Adviser .  A certificate, dated such Option Closing Date, to the effect set forth in, and signed by two of the officers specified in, Section 5(f) hereof, except that the references in such certificate to the Closing Date shall be changed to refer to such Option Closing Date.

 

(6)                                  Bring-down Comfort Letter .  A letter from [ · ], in form and substance satisfactory to the Representatives and dated such Option Closing Date, substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(h) hereof, except that the “specified date” in the letter furnished pursuant to this paragraph shall be a date not more than five days prior to such Option Closing Date.

 

(l)                                      Additional Documents.  At the Closing Date and at each Option Closing Date, counsel for the Underwriters shall have been furnished with such documents and opinions as they may require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, contained in this Agreement; and all proceedings taken by the Trust and the Adviser in connection with the issuance and sale of the Securities as herein contemplated and in connection with the other transactions contemplated by this Agreement shall be satisfactory in form and substance to the Representatives and counsel for the Underwriters.

 

(m)                              Delivery of Documents .  The documents required to be delivered by this Section 5 shall be delivered at the office of [UNDERWRITERS COUNSEL], counsel for the Underwriters, at [ · ],[ · ], on the Closing Date and at each Option Closing Date.

 

(n)                                  Termination of Agreement.  If any condition specified in this Section 5 shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of Option Securities on an Option Closing Date which is after the Closing Date, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by notice to the Trust.

 

SECTION 6.   Indemnification .

 

(a)                                  Indemnification by the Trust and the Adviser.   The Trust and the Adviser, jointly and severally, agree to indemnify and hold harmless the Underwriters, affiliates of each Underwriter, directors, officers, employees and agents of each Underwriter, and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:

 

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(i)              against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading, or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus, any Sales Material, the Preliminary Prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;

 

(ii)           against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Trust and the Adviser; and

 

(iii)        against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Wells Fargo), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i) or (ii) above,

 

provided , however , that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Trust or the Adviser by any Underwriter through Wells Fargo expressly for use in the Registration Statement (or any amendment thereto), or in any preliminary prospectus, any Sales Material, the Preliminary Prospectus or the Prospectus (or any amendment or supplement thereto).  For purposes of this Agreement, the Trust and the Adviser acknowledge that the only such information furnished to the Trust shall be [(i) the statements set forth in the last paragraph of the cover page regarding the expected delivery of the Securities and, under the heading “Underwriting,” (ii) the list of Underwriters and their respective participation in the sale of the Securities, (iii) the sentences related to concessions and reallowances and (iv) the paragraphs related to stabilization, syndicate covering transactions and penalty bids in the Preliminary Prospectus or the Prospectus] (collectively, the “Underwriter Information”)

 

(b)                                  Indemnification by the Underwriters .  Each Underwriter agrees, severally and not jointly, to indemnify and hold harmless each of the Trust and the Adviser, each of their directors, trustees, members, each of their officers who signed the Registration Statement and each person, if any, who controls the Trust or the Adviser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section 6, as incurred, but only

 

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with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), or any preliminary prospectus, any Sales Material, the Preliminary Prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with the Underwriter Information.

 

(c)                                   Actions against Parties; Notification.  Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement.  Counsel to the indemnified parties shall be selected as follows: counsel to the Underwriters and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall be selected by Wells Fargo [ADD OTHER REPRESENTATIVES]; counsel to the Trust, its directors, trustees, members, each of its officers who signed the Registration Statement and each person, if any, who controls the Trust within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall be selected by the Trust; and counsel to the Adviser and each person, if any, who controls such Adviser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall be selected by the Adviser.  An indemnifying party may participate at its own expense in the defense of any such action; provided, however, that counsel to the indemnifying party shall not (except with the consent of the indemnified party) also be counsel to the indemnified party.  In no event shall the indemnifying parties be liable for the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for the Underwriters and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for the Trust, each of their directors, trustees, members, each of its officers who signed the Registration Statement and each person, if any, who controls the Trust within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, the fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for the Adviser and the fees and expenses of more than one counsel, in each case in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances.  No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

 

(d)                                  Settlement Without Consent if Failure to Reimburse.  If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii) effected without its written consent if

 

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(i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.

 

(e)                                   Other Agreements with Respect to Indemnification and Contribution .  The provisions of this Section 6 and in Section 7 hereof shall not affect any agreements among the Trust and the Adviser with respect to indemnification of each other or contribution between themselves.

 

SECTION 7. Contribution .  If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Trust and the Adviser on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Trust and the Adviser on the one hand and of the Underwriters on the other hand in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.

 

The relative benefits received by the Trust and the Adviser on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Trust and the Adviser and the total underwriting discounts and commissions received by the Underwriters, in each case as set forth on the cover of the Prospectus, bear to the aggregate initial public offering price of the Securities as set forth on such cover.

 

The relative fault of the Trust and the Adviser on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Trust, by the Adviser or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

The Trust, the Adviser and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7.  The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or

 

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defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.

 

Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission.

 

No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 

For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each trustee, officer, employee and agent of an Underwriter shall have the same rights to contributions as such Underwriters, and each person who controls the Trust or the Adviser within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, each officer of the Trust and the Adviser and each trustee, director, officer or member of the Trust and the Adviser shall have the same rights to contribution as the Trust and the Adviser.  The Underwriters’ respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Exhibit A hereto and not joint.

 

SECTION 8.   [Limitation of Liability of the Trustees and Shareholders .  A copy of the Declaration of Trust of the Trust is on file with the Secretary of the Commonwealth of Massachusetts, and notice is hereby given that this instrument is executed on behalf of the Trustees of the Trust as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of the Trust.]

 

SECTION 9.   Representations, Warranties and Agreements to Survive Delivery .  All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Trust or signed by or on behalf of the Adviser submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Trust, or by or on behalf of the Adviser, and shall survive delivery of the Securities to the Underwriters.

 

SECTION 10.   Termination of Agreement .

 

(a)                                  Termination; General.  The Representatives may terminate this Agreement, by notice to the Trust or the Adviser, at any time on or prior to the Closing Date (and, if any Option Securities are to be purchased on an Option Closing Date which occurs after the Closing Date, the Representatives may terminate the obligations of the several Underwriters to purchase such Option Securities, by notice to the Trust, at any time on or prior to such Option Closing Date) (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus or the General Disclosure Package, any Trust

 

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Material Adverse Effect or Adviser Material Adverse Effect, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable or inadvisable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Trust has been suspended or materially limited by the Commission or the NYSE, or if trading generally on the NYSE or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, FINRA or any other governmental authority, or a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States or (iv) if a banking moratorium has been declared by either Federal or New York authorities.

 

(b)                                  Liabilities.  If this Agreement is terminated pursuant to this Section 9, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 hereof shall survive such termination and remain in full force and effect.

 

SECTION 11.   Default by One or More of the Underwriters .  If one or more of the Underwriters shall fail at the Closing Date or an Option Closing Date to purchase the Securities which it or they are obligated to purchase under this Agreement (the “ Defaulted Securities ”), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then:

 

(a)                                  if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters; or

 

(b)                                  if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Option Closing Date which occurs after the Closing Date, the obligation of the Underwriters to purchase and of the Trust to sell the Option Securities that were to have been purchased and sold on such Option Closing Date, shall terminate without liability on the part of any non-defaulting Underwriter.

 

No action taken pursuant to this Section 10 shall relieve any defaulting Underwriter from liability in respect of its default.

 

In the event of any such default which does not result in a termination of this Agreement or, in the case of an Option Closing Date which is after the Closing Date, which does not result

 

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in a termination of the obligation of the Underwriters to purchase and the Trust to sell the relevant Option Securities, as the case may be, the Representatives shall have the right to postpone the Closing Date or the relevant Option Closing Date, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements.  As used herein, the term “Underwriter” includes any person substituted for an Underwriter under this Section 10.

 

SECTION 12.   Notices .  All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication.  Notices to the Underwriters shall be directed to the Representatives at Wells Fargo Securities, LLC, 375 Park Avenue, New York, New York 10152, Attention:  Equity Syndicate; notices to the Trust and the Adviser shall be directed to them at 2 Liberty Square, 9 th  Floor, Boston, MA 02109, Attention: [ · ].

 

SECTION 13.   Parties .  This Agreement shall inure to the benefit of and be binding upon the Underwriters, the Trust and the Adviser and their respective successors.  Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters, the Trust and the Adviser and their respective successors and the controlling persons and directors, officers, members and trustees referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained.  This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters, the Trust and the Adviser and their respective successors, and said controlling persons and officers and directors and trustees and their heirs and legal representatives, and for the benefit of no other person, firm or corporation.  No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase.

 

SECTION 14.   GOVERNING LAW .  THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK.

 

SECTION 15.   Effect of Headings .  The Section and Exhibit headings herein are for convenience only and shall not affect the construction hereof.

 

SECTION 16.   Definitions .  As used in this Agreement, the following terms have the respective meanings set forth below:

 

Advisers Act ” means the Investment Advisers Act of 1940, as amended.

 

Advisers Act Rules and Regulations ” means the rules and regulations of the Commission under the Advisers Act.

 

Adviser Material Adverse Effect ” means a material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Adviser, whether or not arising in the ordinary course of business.

 

29



 

Applicable Time ” means the date and time that this Agreement is executed and delivered by the parties hereto.

 

Commission ” means the Securities and Exchange Commission.

 

EDGAR ” means the Commission’s Electronic Data Gathering, Analysis and Retrieval System.

 

FINRA ” means the Financial Industry Regulatory Authority.

 

Trust Material Adverse Effect ” means a material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Trust, whether or not arising in the ordinary course of business.

 

GAAP ” means generally accepted accounting principles.

 

Initial Registration Statement ” means the Trust’s registration statement (File Nos. 333-202638 and 811-23037 on Form N-2 (including the statement of additional information incorporated by reference therein), as amended (if applicable), at the time it became effective, including the Rule 430A Information.

 

NYSE ” means the New York Stock Exchange.

 

Organizational Documents ” means (a) in the case of a corporation, its charter and by-laws; (b) in the case of a limited or general partnership, its partnership certificate, certificate of formation or similar organizational document and its partnership agreement; (c) in the case of a limited liability company, its articles of organization, certificate of formation or similar organizational documents and its operating agreement, limited liability company agreement, membership agreement or other similar agreement; (d) in the case of a trust, its declaration of trust, certificate of formation or similar organizational document and its trust agreement or other similar agreement; and (e) in the case of any other entity, the organizational and governing documents of such entity.

 

preliminary prospectus ” means any prospectus (including the statement of additional information incorporated by reference therein) used in connection with the offering of the Securities that was so used before the Initial Registration Statement became effective, or that was used after such effectiveness and prior to the execution and delivery of this Agreement, or that omitted the Rule 430A Information or that was captioned “Subject to Completion”.

 

Preliminary Prospectus ” shall mean the preliminary prospectus (including the statement of additional information incorporated by reference therein) dated [ · ], 2015 and any preliminary prospectus (including the statement of additional information incorporated by reference therein) included in the Registration Statement at the Applicable Time that omits Rule 430A Information.

 

Prospectus ” shall mean the prospectus (including the statement of additional information incorporated by reference therein) relating to the Securities that is first filed pursuant to Rule 497 after the Applicable Time.

 

30



 

Registration Statement ” means the Initial Registration Statement; provided that, if a Rule 462(b) Registration Statement is filed with the Commission, then the term “Registration Statement” shall also include such Rule 462(b) Registration Statement.

 

Rule 172 ,” “ Rule 497 ,” “ Rule 430A ,” “ Rule 433 ” and “ Rule 462(b) ” refer to such rules under the 1933 Act.

 

Rule 430A Information ” means the information included in the Prospectus that was omitted from the Initial Registration Statement at the time it became effective but that is deemed to be a part of the Initial Registration Statement at the time it became effective pursuant to Rule 430A.

 

Rule 462(b) Registration Statement ” means a registration statement filed by the Trust pursuant to Rule 462(b) for the purpose of registering any of the Securities under the 1933 Act, including the Rule 430A Information.

 

Rule 482 Statement ” means a document that is prepared in accordance with the provisions of Rule 482 under the Rules and Regulations, each of which is listed in Exhibit F hereto.

 

Rules and Regulations ” means, collectively, the 1933 Act Rules and Regulations and the 1940 Act Rules and Regulations.

 

Sarbanes-Oxley Act ” means the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated thereunder or implementing the provisions thereof.

 

1933 Act ” means the Securities Act of 1933, as amended.

 

1933 Act Rules and Regulations ” means the rules and regulations of the Commission under the 1933 Act.

 

1934 Act ” means the Securities Exchange Act of 1934, as amended.

 

1934 Act Rules and Regulations ” means the rules and regulations of the Commission under the 1934 Act.

 

1940 Act ” means the Investment Company Act of 1940, as amended.

 

1940 Act Notification ” means a notification of registration of the Trust as an investment company under the 1940 Act on Form N-8A, as the 1940 Act Notification may be amended from time to time.

 

1940 Act Rules and Regulations ” means the rules and regulations of the Commission under the 1940 Act.

 

All references in this Agreement to the Registration Statement, the Initial Registration Statement, any Rule 462(b) Registration Statement, any preliminary prospectus, the Preliminary

 

31



 

Prospectus, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to EDGAR.

 

SECTION 17.   Absence of Fiduciary Relationship .  Each of the Trust and the Adviser acknowledges and agrees that:

 

(a)                                  Each of the Underwriters is acting solely as an underwriter in connection with the public offering of the Securities and no fiduciary, advisory or agency relationship between the Trust or the Adviser, on the one hand, and any of the Underwriters, on the other hand, has been or will be created in respect of any of the transactions contemplated by this Agreement, irrespective of whether or not any of the Underwriters have advised or is advising the Trust or the Adviser on other matters and none of the Underwriters has any obligation to the Trust or the Adviser with respect to the transactions contemplated by this Agreement except the obligations expressly set forth in this Agreement;

 

(b)                                  the public offering price of the Securities and the price to be paid by the Underwriters for the Securities set forth in this Agreement were established by the Trust following discussions and arms-length negotiations with the Representatives;

 

(c)                                   it is capable of evaluating and understanding, and understands and accepts, the terms, risks and conditions of the transactions contemplated by this Agreement;

 

(d)                                  in connection with each transaction contemplated by this Agreement and the process leading to such transactions, each Underwriter is and has been acting solely as principal and not as fiduciary, advisor or agent of the Trust or the Adviser or any of their respective affiliates; provided however, that in its capacity as an independent contractor, an Underwriter may be providing advice to the Adviser as to the structure, design and organization of the Trust pursuant to the Fee Agreements;

 

(e)                                   none of the Underwriters has provided any legal, accounting, regulatory or tax advice to the Trust or the Adviser with respect to the transactions contemplated by this Agreement and it has consulted its own legal, accounting, regulatory and tax advisers to the extent it has deemed appropriate;

 

(f)                                    it is aware that the Underwriters and their respective affiliates are engaged in a broad range of transactions which may involve interests that differ from those of the Trust and the Adviser, and that none of the Underwriters has any obligation to disclose such interests and transactions to the Trust or the Adviser by virtue of any fiduciary, advisory or agency relationship; and

 

(g)                                   it waives, to the fullest extent permitted by law, any claims it may have against any of the Underwriters for breach of fiduciary duty or alleged breach of fiduciary duty and agrees that none of the Underwriters shall have any liability (whether direct or indirect, in contract, tort or otherwise) to it in respect of such a fiduciary duty claim or to any person asserting a fiduciary duty claim on its behalf or on behalf of the Trust or the Adviser.

 

[Signature Page Follows]

 

32



 

If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Trust and the Adviser a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters, the Trust and the Adviser in accordance with its terms.

 

 

 

Very truly yours,

 

 

 

 

 

TEKLA WORLD HEALTHCARE FUND

 

 

 

 

 

 

 

 

By

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

 

 

TEKLA CAPITAL MANAGEMENT LLC

 

 

 

 

 

 

 

 

By

 

 

 

 

Name:

 

 

 

Title:

 

 

 

 

 

 

CONFIRMED AND ACCEPTED, as of the date first above written:

 

 

 

 

 

WELLS FARGO SECURITIES, LLC

 

 

 

[REPRESENTATIVES]

 

 

 

 

 

By: WELLS FARGO SECURITIES, LLC

 

 

 

 

 

 

 

 

By:

 

 

 

 

Authorized Signatory

 

 

 

For themselves and as Representatives of the Underwriters named in Exhibit A hereto.

 

33



 

EXHIBIT A

 

Name of Underwriter

 

Number of
Initial Securities

 

 

 

Wells Fargo Securities, LLC

 

 

 

 

 

TOTAL UNDERWRITERS (    )

 

 

 

A-1



 

EXHIBIT B

 

[FORM OF OPINION OF TRUST COUNSEL]

 



 

EXHIBIT C

[FORM OF OPINION OF ADVISER’S COUNSEL]

 



 

EXHIBIT D

 

PRICE-RELATED INFORMATION

 

Tekla World Healthcare Fund

 

Shares offered: [ · ]

 

Over-allotment option: [ · ]

 

Initial public offering price per Common Share of Beneficial Interest for the Securities shall be $[20.00].

 

D-1



 

EXHIBIT E

 

Rule 482 Statements

 


Exhibit 99.2j

 

CUSTODIAN AGREEMENT

 

This Agreement, dated as of May     , 2015, between TEKLA WORLD HEALTHCARE FUND, a business trust organized and existing under the laws of Massachusetts (the “ Fund ”), and STATE STREET BANK and TRUST COMPANY, a Massachusetts trust company (the “ Custodian ”).

 

WITNESSETH:  that  in consideration of the mutual covenants and agreements hereinafter contained, the parties hereto agree as follows:

 

SECTION 1.                             EMPLOYMENT OF CUSTODIAN AND PROPERTY TO BE HELD BY IT

 

The Fund hereby employs the Custodian as the custodian of its assets, including securities which the Fund desires to be held in places within the United States (“ domestic securities ”) and securities it desires to be held outside the United States (“ foreign securities ”).  The Fund agrees to deliver to the Custodian all securities and cash owned by it, and all payments of income, payments of principal or capital distributions received by it with respect to all securities owned by it from time to time, and the cash consideration received by it for such new or treasury shares of beneficial interest of the Fund (“ Shares ”) as may be issued or sold from time to time. The Custodian shall not be responsible for any property of the Fund held or received by the Fund and not delivered to the Custodian  Upon receipt of “ Proper Instructions ” (as such term is defined in Section 7 hereof), the Custodian shall from time to time employ one or more sub-custodians located in the United States, but only in accordance with an applicable vote by the Board of Trustees of the Fund (the “ Board ”).  The Custodian may employ as sub-custodian for the Fund’s foreign securities the foreign banking institutions and foreign securities depositories designated in Schedules A and B hereto, but only in accordance with the applicable provisions of Sections 3 and 4.  The Custodian shall have no more or less responsibility or liability to the Fund on account of any actions or omissions of any sub-custodian so employed than any such sub-custodian has to the Custodian.

 

SECTION 2.                             DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD BY THE CUSTODIAN IN THE UNITED STATES

 

SECTION 2.1                      HOLDING SECURITIES .  The Custodian shall hold and physically segregate for the account of the Fund all non-cash property, to be held by it in the United States, including all domestic securities owned by the Fund other than (a) securities which are maintained pursuant to Section 2.8 in a clearing agency which acts as a securities depository or in a book-entry system authorized by the U.S. Department of the Treasury (each, a “ U.S. Securities System ”).

 

SECTION 2.2                      DELIVERY OF SECURITIES .  The Custodian shall release and deliver domestic securities owned by the Fund held by the Custodian or in a U.S. Securities System account of the Custodian, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:

 

1)                                      Upon sale of such securities for the account of the Fund and receipt of payment therefor;

 

2)                                      Upon the receipt of payment in connection with any repurchase agreement related to such securities entered into by the Fund;

 



 

3)                                      In the case of a sale effected through a U.S. Securities System, in accordance with the provisions of Section 2.8 hereof;

 

4)                                      To the depository agent in connection with tender or other similar offers for securities of the Fund;

 

5)                                      To the issuer thereof or its agent when such securities are called, redeemed, retired or otherwise become payable; provided that, in any such case, the cash or other consideration is to be delivered to the Custodian;

 

6)                                      To the issuer thereof, or its agent, for transfer into the name of the Fund or into the name of any nominee or nominees of the Custodian or into the name or nominee name of any agent appointed pursuant to Section 2.7 or into the name or nominee name of any sub-custodian appointed pursuant to Section 1; or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units; provided that, in any such case, the new securities are to be delivered to the Custodian;

 

7)                                      Upon the sale of such securities for the account of the Fund, to the broker or its clearing agent, against a receipt, for examination in accordance with “street delivery” custom; provided that in any such case, the Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Custodian’s own negligence or willful misconduct;

 

8)                                      For exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;

 

9)                                      In the case of warrants, rights or similar securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities; provided that, in any such case, the new securities and cash, if any, are to be delivered to the Custodian;

 

10)                               For delivery in connection with any loans of securities made by the Fund, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund, which may be in the form (among others) of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodian’s account in the book-entry system authorized by the U.S. Department of

 

2



 

the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Fund prior to the receipt of such collateral;

 

11)                               For delivery in connection with any loans of securities made by the Fund to a third party lending agent, or the lending agent’s custodian, in accordance with Proper Instructions (which may or may not provide for the receipt by the Custodian of collateral therefor) agreed upon from time to time by the Custodian and the Fund;

 

12)                               For delivery as initial or variation margin in connection with trading in futures and options on futures contracts entered into by the Fund;

 

13)                               For delivery as security in connection with any borrowing by the Fund requiring a pledge of assets by the Fund, but only against receipt of amounts borrowed;

 

14)                               For delivery in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Securities Exchange Act of 1934 (the “ Exchange Act ”) and a member of the Financial Industry Regulatory Authority, Inc. (“ FINRA ”, formerly known as The National Association of Securities Dealers, Inc.), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange, or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund;

 

15)                               For delivery in accordance with the provisions of any agreement among the Fund, the Custodian, and a futures commission merchant registered under the Commodity Exchange Act, relating to compliance with the rules of the Commodity Futures Trading Commission (“ CFTC ”) and/or any contract market, or any similar organization or organizations, regarding account deposits in connection with transactions by the Fund;

 

16)                               Upon receipt of instructions from the transfer agent for the Fund (the “ Transfer Agent ”) for delivery to such Transfer Agent or to the holders of Shares in connection with distributions in kind, as may be described from time to time in the Fund’s currently effective prospectus and statement of additional information (the “ Prospectus ”), in satisfaction of requests by holders of Shares for repurchase or redemption;

 

17)                               For any other purpose, but only upon receipt of Proper Instructions specifying the securities of the Fund to be delivered and naming the person or persons to whom delivery of such securities shall be made.

 

SECTION 2.3                      REGISTRATION OF SECURITIES .  Domestic securities held by the Custodian (other than bearer securities) shall be registered in the name of the Fund or in the name of any nominee of the Fund or of any nominee of the Custodian which nominee shall be assigned

 

3



 

exclusively to the Fund, unless the Fund has authorized in writing the appointment of a nominee to be used in common with other registered investment companies having the same investment advisor as the Fund, or in the name or nominee name of any agent appointed pursuant to Section 2.7 or in the name or nominee name of any sub-custodian appointed pursuant to Section 1.  All securities accepted by the Custodian on behalf of the Fund under the terms of this Agreement shall be in “street name” or other good delivery form.  If, however, the Fund directs the Custodian to maintain securities in “street name”, the Custodian shall utilize its best efforts only to timely collect income due the Fund on such securities and to notify the Fund on a best efforts basis only of relevant corporate actions including, without limitation, pendency of calls, maturities, tender or exchange offers.

 

SECTION 2.4                      BANK ACCOUNTS .  The Custodian shall open and maintain a separate bank account or accounts in the United States in the name of the Fund, subject only to draft or order by the Custodian acting pursuant to the terms of this Agreement, and shall hold in such account or accounts, subject to the provisions hereof, all cash received by it from or for the account of the Fund, other than cash maintained by the Fund in a bank account established and used in accordance with Rule 17f-3 under the Investment Company Act of 1940, as amended (the “ 1940 Act ”).  Monies held by the Custodian for the Fund may be deposited by it to its credit as Custodian in the banking department of the Custodian or in such other banks or trust companies as it may in its discretion deem necessary or desirable; provided , however, that every such bank or trust company shall be qualified to act as a custodian under the 1940 Act and that each such bank or trust company and the monies to be deposited with each such bank or trust company shall be approved by vote of a majority of the Board.  Such monies shall be deposited by the Custodian in its capacity as Custodian and shall be withdrawable by the Custodian only in that capacity.

 

SECTION 2.5                      COLLECTION OF INCOME .  Subject to the provisions of Section 2.3, the Custodian shall collect on a timely basis all income and other payments with respect to registered domestic securities held hereunder to which the Fund shall be entitled either by law or pursuant to custom in the securities business, and shall collect on a timely basis all income and other payments with respect to bearer domestic securities if, on the date of payment by the issuer, such securities are held by the Custodian or its agent thereof and shall credit such income, as collected, to the Fund’s custodian account.  Without limiting the generality of the foregoing, the Custodian shall detach and present for payment all coupons and other income items requiring presentation as and when they become due and shall collect interest when due on securities held hereunder.  Income due the Fund on securities loaned pursuant to the provisions of Section 2.2 (10) shall be the responsibility of the Fund.  The Custodian will have no duty or responsibility in connection therewith, other than to provide the Fund with such information or data as may be necessary to assist the Fund in arranging for the timely delivery to the Custodian of the income to which the Fund is properly entitled.

 

SECTION 2.6                      PAYMENT OF FUND MONIES .  Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out monies of the Fund in the following cases only:

 

1)                                      Upon the purchase of domestic securities, options, futures contracts or options on

 

4



 

futures contracts for the account of the Fund but only (a) against the delivery of such securities or evidence of title to such options, futures contracts or options on futures contracts to the Custodian (or any bank, banking firm or trust company doing business in the United States or abroad which is qualified under the 1940 Act to act as a custodian and has been designated by the Custodian as its agent for this purpose) registered in the name of the Fund or in the name of a nominee of the Custodian referred to in Section 2.3 hereof or in proper form for transfer; (b) in the case of a purchase effected through a U.S. Securities System, in accordance with the conditions set forth in Section 2.8 hereof; (c) in the case of repurchase agreements entered into between the Fund and the Custodian, or another bank, or a broker-dealer which is a member of FINRA, (i) against delivery of the securities either in certificate form or through an entry crediting the Custodian’s account at the Federal Reserve Bank with such securities or (ii) against delivery of the receipt evidencing purchase by the Fund of securities owned by the Custodian along with written evidence of the agreement by the Custodian to repurchase such securities from the Fund; or (d) for transfer to a time deposit account of the Fund in any bank, whether domestic or foreign; such transfer may be effected prior to receipt of a confirmation from a broker and/or the applicable bank pursuant to Proper Instructions from the Fund as defined herein;

 

2)                                      In connection with conversion, exchange or surrender of securities owned by the Fund as set forth in Section 2.2 hereof;

 

3)                                      For the redemption or repurchase of Shares issued as set forth in Section 5 hereof;

 

4)                                      For the payment of any expense or liability incurred by the Fund, including but not limited to the following payments for the account of the Fund:  interest, taxes, management, accounting, administration, shareholder servicing, transfer agent and legal fees, and operating expenses of the Fund whether or not such expenses are to be in whole or part capitalized or treated as deferred expenses;

 

5)                                      For the payment of any dividends on Shares declared pursuant to the governing documents of the Fund;

 

6)                                      For payment of the amount of dividends received in respect of securities sold short;

 

7)                                      For delivery as initial or variation margin in connection with trading in futures and options on futures contracts entered into by the Fund;

 

8)                                      For any other purpose, but only upon receipt of Proper Instructions specifying the amount of such payment and naming the person or persons to whom such payment is to be made.

 

5



 

SECTION 2.7                      APPOINTMENT OF AGENTS .  The Custodian may at any time or times in its discretion appoint (and may at any time remove) any other bank or trust company which is itself qualified under the 1940 Act to act as a custodian, as its agent to carry out such of the provisions of this Section 2 as the Custodian may from time to time direct; provided , however, that the appointment of any agent shall not relieve the Custodian of its responsibilities or liabilities hereunder.

 

SECTION 2.8                      DEPOSIT OF FUND ASSETS IN U.S. SECURITIES SYSTEMS .  The Custodian may deposit and/or maintain securities owned by the Fund in a U.S. Securities System in compliance with the conditions of Rule 17f-4 of the 1940 Act, as amended from time to time.

 

SECTION 2.9                      SEGREGATED ACCOUNT .  The Custodian shall upon receipt of Proper Instructions establish and maintain a segregated account or accounts for and on behalf of the Fund, into which account or accounts may be transferred cash and/or securities, including securities maintained in an account by the Custodian pursuant to Section 2.8 hereof, (i) in accordance with the provisions of any agreement among the Fund, the Custodian and a broker-dealer registered under the Exchange Act and a member of FINRA (or any futures commission merchant registered under the Commodity Exchange Act), relating to compliance with the rules of The Options Clearing Corporation and of any registered national securities exchange (or the CFTC or any registered contract market), or of any similar organization or organizations, regarding escrow or other arrangements in connection with transactions by the Fund, (ii) for purposes of segregating cash or government securities in connection with swaps arrangements entered into by the Fund, options purchased, sold or written by the Fund, or commodity futures contracts or options thereon purchased or sold by the Fund, (iii) for the purposes of compliance by the Fund with the procedures required by Investment Company Act Release No. 10666, or any subsequent release of the U.S. Securities and Exchange Commission (the “ SEC ”), or interpretative opinion of the staff of the SEC, relating to the maintenance of segregated accounts by registered investment companies, and (iv) for any other purpose upon receipt of Proper Instructions.

 

SECTION 2.10               OWNERSHIP CERTIFICATES FOR TAX PURPOSES .  The Custodian shall execute ownership and other certificates and affidavits for all federal and state tax purposes in connection with receipt of income or other payments with respect to domestic securities of the Fund held by it and in connection with transfers of securities.

 

SECTION 2.11               PROXIES .  The Custodian shall, with respect to the domestic securities held hereunder, cause to be promptly executed by the registered holder of such securities, if the securities are registered otherwise than in the name of the Fund or a nominee of the Fund, all proxies, without indication of the manner in which such proxies are to be voted, and shall promptly deliver to the Fund such proxies, all proxy soliciting materials and all notices relating to such securities.

 

SECTION 2.12               COMMUNICATIONS RELATING TO FUND SECURITIES .  Subject to the provisions of Section 2.3, the Custodian shall transmit promptly to the Fund all written information (including, without limitation, pendency of calls and maturities of domestic securities and expirations of rights

 

6



 

in connection therewith and notices of exercise of call and put options written by the Fund and the maturity of futures contracts purchased or sold by the Fund) received by the Custodian from issuers of the securities being held for the Fund.  With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund all written information received by the Custodian from issuers of the securities whose tender or exchange is sought and from the party (or its agents) making the tender or exchange offer.  If the Fund desires to take action with respect to any tender offer, exchange offer or any other similar transaction, the Fund shall notify the Custodian at least three business days prior to the date on which the Custodian is to take such action.  Custodian shall supply, upon the request of the Fund, written information concerning nonvoluntary corporate actions such as record and payment dates of dividends.

 

SECTION 3.                             PROVISIONS RELATING TO RULES 17F-5 AND 17F-7

 

SECTION 3.1.                   DEFINITIONS .  As used throughout this Agreement, the following capitalized terms shall have the indicated meanings:

 

“Country Risk” means all factors reasonably related to the systemic risk of holding Foreign Assets in a particular country including, but not limited to, such country’s political environment, economic and financial infrastructure (including any Eligible Securities Depository operating in the country), prevailing or developing custody and settlement practices, and laws and regulations applicable to the safekeeping and recovery of Foreign Assets held in custody in that country; provided, however, Country Risk shall not include the custody or settlement practices and procedures of an Eligible Foreign Custodian selected by the Foreign Custody Manager that are not prevailing practices in the country in which the Foreign Assets are held.

 

“Eligible Foreign Custodian” has the meaning set forth in section (a)(1) of Rule 17f-5, including a majority-owned direct or indirect subsidiary of a U.S. Bank (as defined in Rule 17f-5), a bank holding company meeting the requirements of an Eligible Foreign Custodian  (as set forth in Rule 17f-5 or by other appropriate action of the SEC), or a foreign branch of a Bank (as defined in Section 2(a)(5) of the 1940 Act) meeting the requirements of a custodian under Section 17(f) of the 1940 Act; the term does not include any Eligible Securities Depository.

 

“Eligible Securities Depository” has the meaning set forth in section (b)(1) of Rule 17f-7.

 

“Foreign Assets” means any of the Fund’s investments (including foreign currencies) for which the primary market is outside the United States and such cash and cash equivalents as are reasonably necessary to effect the Fund’s transactions in such investments.

 

“Foreign Custody Manager” has the meaning set forth in section (a)(3) of Rule 17f-5.

 

“Rule 17f-5” means Rule 17f-5 promulgated under the 1940 Act, as amended from time to time.

 

“Rule 17f-7” means Rule 17f-7 promulgated under the 1940 Act, as amended from time to time.

 

7



 

SECTION 3.2.                   THE CUSTODIAN AS FOREIGN CUSTODY MANAGER .

 

3.2.1                      DELEGATION TO THE CUSTODIAN AS FOREIGN CUSTODY MANAGER . The Fund, by resolution adopted by its Board, hereby delegates to the Custodian, subject to Section (b) of Rule 17f-5, the responsibilities set forth in this Section 3.2 with respect to Foreign Assets held outside the United States, and the Custodian hereby accepts such delegation as Foreign Custody Manager of the Fund.

 

3.2.2                      COUNTRIES COVERED .  The Foreign Custody Manager shall be responsible for performing the delegated responsibilities defined below only with respect to the countries and custody arrangements for each such country listed on Schedule A to this Agreement, which list of countries may be amended from time to time by the Fund with the agreement of the Foreign Custody Manager.  The Foreign Custody Manager shall list on Schedule A the Eligible Foreign Custodians selected by the Foreign Custody Manager to maintain the Fund’s assets, which list of Eligible Foreign Custodians may be amended from time to time in the sole discretion of the Foreign Custody Manager.  The Foreign Custody Manager will provide amended versions of Schedule A in accordance with Section 3.2.5 hereof.

 

Upon the receipt by the Foreign Custody Manager of Proper Instructions to open an account or to place or maintain Foreign Assets in a country listed on Schedule A, and the fulfillment by the Fund of the applicable account opening requirements for such country, the Foreign Custody Manager shall be deemed to have been delegated by the Board responsibility as Foreign Custody Manager with respect to that country and to have accepted such delegation.  Execution of this Agreement by the Fund shall be deemed to be a Proper Instruction to open an account, or to place or maintain Foreign Assets, in each country listed on Schedule A in which the Custodian has previously placed or currently maintains Foreign Assets pursuant to the terms of the Agreement.  Following the receipt of Proper Instructions directing the Foreign Custody Manager to close the account of the Fund with the Eligible Foreign Custodian selected by the Foreign Custody Manager in a designated country, the delegation by the Board to the Custodian as Foreign Custody Manager for that country shall be deemed to have been withdrawn,  the Custodian shall immediately cease to be the Foreign Custody Manager of the Fund with respect to that country, and the Custodian shall use commercially reasonable efforts to effect the closing of such account.

 

The Foreign Custody Manager may withdraw its acceptance of delegated responsibilities with respect to a designated country upon written notice to the Fund.  Sixty days (or such longer period to which the parties agree in writing) after receipt of any such notice by the Fund, the Custodian shall have no further responsibility in its capacity as Foreign Custody Manager to the Fund with respect to the country as to which the Custodian’s acceptance of delegation is withdrawn.

 

3.2.3                      SCOPE OF DELEGATED RESPONSIBILITIES :

 

(a)                                  SELECTION OF ELIGIBLE FOREIGN CUSTODIANS .  Subject to the provisions of this Section 3.2, the Foreign Custody Manager may place and maintain the Foreign Assets in the care of

 

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the Eligible Foreign Custodian selected by the Foreign Custody Manager in each country listed on Schedule A, as amended from time to time.  In performing its delegated responsibilities as Foreign Custody Manager to place or maintain Foreign Assets with an Eligible Foreign Custodian, the Foreign Custody Manager shall determine that the Foreign Assets will be subject to reasonable care, based on the standards applicable to custodians in the relevant market in which the Foreign Assets will be held by that Eligible Foreign Custodian, after considering all factors relevant to the safekeeping of such assets, including, without limitation the factors specified in Rule 17f-5(c)(1), as amended from time to time.

 

(b)                                  CONTRACTS WITH ELIGIBLE FOREIGN CUSTODIANS .  The Foreign Custody Manager shall determine that the contract governing the foreign custody arrangements with each Eligible Foreign Custodian selected by the Foreign Custody Manager will satisfy the requirements of Rule 17f-5(c)(2), as amended from time to time.

 

(c)                                   MONITORING .  In each case in which the Foreign Custody Manager maintains Foreign Assets with an Eligible Foreign Custodian selected by the Foreign Custody Manager, the Foreign Custody Manager shall establish a system to monitor, in accordance with the requirements of Rule 17f-5(c): (i) the appropriateness of maintaining the Foreign Assets with such Eligible Foreign Custodian and (ii) performance of the contract governing the custody arrangements established by the Foreign Custody Manager with the Eligible Foreign Custodian.  In the event the Foreign Custody Manager determines that the custody arrangements with an Eligible Foreign Custodian it has selected are no longer appropriate, the Foreign Custody Manager shall notify the Board in accordance with Section 3.2.5 hereunder.

 

3.2.4                      GUIDELINES FOR THE EXERCISE OF DELEGATED AUTHORITY .  For purposes of this Section 3.2, the Board, or at its delegation, the Fund’s investment advisor, shall be deemed to have considered and determined to accept such Country Risk as is incurred by placing and maintaining the Foreign Assets in each country for which the Custodian is serving as Foreign Custody Manager of the Fund.

 

3.2.5                      REPORTING REQUIREMENTS .  The Foreign Custody Manager shall report the withdrawal of the Foreign Assets from an Eligible Foreign Custodian and the placement of such Foreign Assets with another Eligible Foreign Custodian by providing to the Board an amended Schedule A at the end of the calendar quarter in which an amendment to such Schedule has occurred.  The Foreign Custody Manager shall make written reports notifying the Board of any other material change in the foreign custody arrangements of the Fund described in this Section 3.2 after the occurrence of the material change as required by Rule 17f-5(b)(2).

 

3.2.6                      STANDARD OF CARE AS FOREIGN CUSTODY MANAGER OF THE FUND .  In performing the responsibilities delegated to it hereunder, the Foreign Custody Manager agrees to exercise reasonable care, prudence and diligence such as a person having responsibility for the safekeeping of foreign assets of management investment companies registered under the 1940 Act would exercise.

 

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3.2.7                      REPRESENTATIONS WITH RESPECT TO RULE 17F-5 .  The Foreign Custody Manager represents to the Fund that it is a U.S. Bank as defined in section (a)(7) of Rule 17f-5. The Fund represents to the Custodian that the Board has determined that it is reasonable for the Board to rely on the Custodian to perform the responsibilities delegated pursuant to this Agreement to the Custodian as the Foreign Custody Manager of the Fund.

 

3.2.8                      EFFECTIVE DATE AND TERMINATION OF THE CUSTODIAN AS FOREIGN CUSTODY MANAGER .  The Board’s delegation to the Custodian as Foreign Custody Manager of the Fund shall be effective as of the date hereof and shall remain in effect until terminated at any time, without penalty, by written notice from the terminating party to the non-terminating party.  Termination of the Custodian as Foreign Custody Manager will become effective thirty (30) days after receipt by the non-terminating party of such notice.  The provisions of Section 3.2.2 hereof shall govern the delegation to and termination of the Custodian as Foreign Custody Manager of the Fund with respect to designated countries.

 

SECTION 3.3                      ELIGIBLE SECURITIES DEPOSITORIES .

 

3.3.1                      ANALYSIS AND MONITORING .  The Custodian shall (a) provide the Fund (or its duly-authorized investment manager or investment advisor) with an analysis of the custody risks associated with maintaining assets with the Eligible Securities Depositories set forth on Schedule B hereto, as amended from time to time, in accordance with section (a)(1)(i)(A) of Rule 17f-7, and (b) monitor such risks on a continuing basis, and promptly notify the Fund (or its duly-authorized investment manager or investment advisor) of any material change in such risks, in accordance with section (a)(1)(i)(B) of Rule 17f-7.

 

3.3.2                      STANDARD OF CARE .  The Custodian agrees to exercise reasonable care, prudence and diligence in performing the duties set forth in Section 3.3.1.

 

SECTION 3.4                      ACCESS OF INDEPENDENT ACCOUNTANTS OF THE FUND .  Upon reasonable request of the Fund, the Custodian will use reasonable efforts to arrange for the independent accountants for the Fund to be afforded access to the books and records of any foreign banking institution employed as a Foreign Sub-Custodian insofar as such books and records relate to the performance of such foreign banking institution under its agreement with the Custodian as the Foreign Custody Manager of the Fund.

 

SECTION 4.                         DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY OF THE FUND HELD OUTSIDE THE UNITED STATES.

 

SECTION 4.1                      DEFINITIONS .  As used throughout this Agreement, the following capitalized terms shall have the indicated meanings:

 

“Foreign Securities System” means an Eligible Securities Depository listed on Schedule B hereto.

 

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“Foreign Sub-Custodian” means a foreign banking institution serving as an Eligible Foreign Custodian hereunder.

 

SECTION 4.2.                   HOLDING SECURITIES .  The Custodian shall identify on its books as belonging to the Fund the foreign securities held by each Foreign Sub-Custodian or Foreign Securities System.  The Custodian may hold foreign securities for all of its customers, including the Fund, with any Foreign Sub-Custodian in an account that is identified as belonging to the Custodian for the benefit of its customers, provided however, that (i) the records of the Custodian with respect to foreign securities of the Fund which are maintained in such account shall identify those securities as belonging to the Fund and (ii), to the extent permitted and customary in the market in which the account is maintained, the Custodian shall require that securities so held by the Foreign Sub-Custodian be held separately from any assets of such Foreign Sub-Custodian or of other customers of such Foreign Sub-Custodian.

 

SECTION 4.3.                   FOREIGN SECURITIES SYSTEMS .  Foreign securities shall be maintained in a Foreign Securities System in a designated country through arrangements implemented by the Custodian or a Foreign Sub-Custodian, as applicable, in such country.

 

SECTION 4.4.                   TRANSACTIONS IN FOREIGN CUSTODY ACCOUNT .

 

4.4.1.                   DELIVERY OF FOREIGN SECURITIES .  The Custodian or a Foreign Sub-Custodian shall release and deliver foreign securities of the Fund held by the Custodian or such Foreign Sub-Custodian, or in a Foreign Securities System account, only upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, and only in the following cases:

 

(i)                                      upon the sale of such foreign securities for the Fund in accordance with commercially reasonable market practice in the country where such foreign securities are held or traded, including, without limitation: (A) delivery against expectation of receiving later payment; or (B) in the case of a sale effected through a Foreign Securities System, in accordance with the rules governing the operation of the Foreign Securities System;

 

(ii)                                   to the depository agent in connection with tender or other similar offers for foreign securities of the Fund;

 

(iii)                                to the issuer thereof or its agent when such foreign securities are called, redeemed, retired or otherwise become payable;

 

(iv)                               to the issuer thereof, or its agent, for transfer into the name of the Custodian (or the name of the respective Foreign Sub-Custodian or of any nominee of the Custodian or such Foreign Sub-Custodian) or for exchange for a different number of bonds, certificates or other evidence representing the same aggregate face amount or number of units;

 

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(v)                                  to brokers, clearing banks or other clearing agents for examination or trade execution in accordance with market custom; provided that in any such case the Foreign Sub-Custodian shall have no responsibility or liability for any loss arising from the delivery of such securities prior to receiving payment for such securities except as may arise from the Foreign Sub-Custodian’s own negligence, bad faith or willful misconduct;

 

(vi)                               for exchange or conversion pursuant to any plan of merger, consolidation, recapitalization, reorganization or readjustment of the securities of the issuer of such securities, or pursuant to provisions for conversion contained in such securities, or pursuant to any deposit agreement;

 

(vii)                            in the case of warrants, rights or similar foreign securities, the surrender thereof in the exercise of such warrants, rights or similar securities or the surrender of interim receipts or temporary securities for definitive securities;

 

(viii)                         for delivery as security in connection with any borrowing by the Fund requiring a pledge of assets by the Fund;

 

(ix)                               for delivery as initial or variation margin in connection with trading in options and futures contracts entered into by the Fund;

 

(x)                                  for delivery in connection with any loans of foreign securities made by the Fund, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodian’s account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Fund prior to the receipt of such collateral;

 

(xi)                               for delivery in connection with any loans of foreign securities made by the Fund to a third party lending agent, or the lending agent’s custodian, in accordance with Proper Instructions (which may not provide for the receipt by the Custodian of collateral therefor) agreed upon from time to time by the Custodian and the Fund;

 

(xii)                            for any other purpose, but only upon receipt of Proper Instructions specifying the foreign securities to be delivered and naming the person or persons to whom delivery of such securities shall be made.

 

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4.4.2.                        PAYMENT OF FUND MONIES .  Upon receipt of Proper Instructions, which may be continuing instructions when deemed appropriate by the parties, the Custodian shall pay out, or direct the respective Foreign Sub-Custodian or the respective Foreign Securities System to pay out, monies of the Fund in the following cases only:

 

(i)                                      upon the purchase of foreign securities for the Fund, unless otherwise directed by Proper Instructions, by (A) delivering money to the seller thereof or to a dealer therefor (or an agent for such seller or dealer) against expectation of receiving later delivery of such foreign securities; or (B) in the case of a purchase effected through a Foreign Securities System, in accordance with the rules governing the operation of such Foreign Securities System;

 

(ii)                                   in connection with the conversion, exchange or surrender of foreign securities of the Fund;

 

(iii)                                for the payment of any expense or liability of the Fund, including but not limited to the following payments:  interest, taxes, investment advisory fees, transfer agency fees, fees under this Agreement, legal fees, accounting fees, and other operating expenses;

 

(iv)                               for the purchase or sale of foreign exchange or foreign exchange contracts for the Fund, including transactions executed with or through the Custodian or its Foreign Sub-Custodians;

 

(v)                                  for delivery as initial or variation margin in connection with futures or options on futures contracts entered into by the Fund;

 

(vi)                               for payment of part or all of the dividends received in respect of securities sold short;

 

(vii)                            for delivery in connection with any loans of foreign securities made by the Fund, but only against receipt of adequate collateral as agreed upon from time to time by the Custodian and the Fund, which may be in the form of cash or obligations issued by the United States government, its agencies or instrumentalities, except that in connection with any loans for which collateral is to be credited to the Custodian’s account in the book-entry system authorized by the U.S. Department of the Treasury, the Custodian will not be held liable or responsible for the delivery of securities owned by the Fund prior to the receipt of such collateral;

 

(viii)                         for delivery in connection with any loans of foreign securities made by the Fund to a third party lending agent, or the lending agent’s custodian, in accordance with Proper Instructions (which may not provide for the receipt by the Custodian of collateral therefor) agreed upon from time to time by the Custodian and the Fund;

 

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(ix)                               for any other purpose, but only upon receipt of Proper Instructions specifying the amount of such payment and naming the person or persons to whom such payment is to be made.

 

4.4.3.                   MARKET CONDITIONS .  Notwithstanding any provision of this Agreement to the contrary, settlement and payment for Foreign Assets received for the account of the Fund and delivery of Foreign Assets maintained for the account of the Fund may be effected in accordance with the customary established securities trading or processing practices and procedures in the country or market in which the transaction occurs, including, without limitation, delivering Foreign Assets to the purchaser thereof or to a dealer therefor (or an agent for such purchaser or dealer) with the expectation of receiving later payment for such Foreign Assets from such purchaser or dealer.

 

The Custodian shall provide to the Board or its duly-authorized designee the information with respect to custody and settlement practices in countries in which the Custodian employs a Foreign Sub-Custodian described on Schedule C hereto at the time or times set forth on such Schedule.  The Custodian may revise Schedule C from time to time, provided that no such revision shall result in the Board or its duly-authorized designee being provided with substantively less information than had been previously provided hereunder.

 

SECTION 4.5.                   REGISTRATION OF FOREIGN SECURITIES .  The foreign securities maintained in the custody of a Foreign Sub-Custodian (other than bearer securities) shall be registered in the name of the Fund or in the name of the Custodian or in the name of any Foreign Sub-Custodian or in the name of any nominee of the foregoing, and, provided that such nominee does not act negligently, the Fund agrees to hold any such nominee harmless from any liability as a holder of record of such foreign securities. The Custodian or a Foreign Sub-Custodian shall not be obligated to accept securities on behalf of the Fund under the terms of this Agreement unless the form of such securities and the manner in which they are delivered are in accordance with reasonable market practice.

 

SECTION 4.6                      BANK ACCOUNTS .  The Custodian shall identify on its books as belonging to the Fund cash (including cash denominated in foreign currencies) deposited with the Custodian.  Where the Custodian is unable to maintain, or market practice does not facilitate the maintenance of, cash on the books of the Custodian, a bank account or bank accounts shall be opened and maintained outside the United States on behalf of the Fund with a Foreign Sub-Custodian in accordance with the provisions of this Agreement.  All accounts referred to in this Section shall be subject only to draft or order by the Custodian (or, if applicable, such Foreign Sub-Custodian) acting pursuant to the terms of this Agreement to hold cash received by or from or for the account of the Fund.  Cash maintained on the books of the Custodian (including its branches, subsidiaries and affiliates), regardless of currency denomination, is maintained in bank accounts established under, and subject to the laws of, The Commonwealth of Massachusetts.

 

SECTION 4.7.                   COLLECTION OF INCOME .  The Custodian shall use reasonable commercial efforts to collect all income and other payments with respect to the Foreign Assets held hereunder to which the Fund shall be entitled and shall credit such income, as collected, to the Fund.  In the event that extraordinary measures are required to collect such income, the Fund and the Custodian shall

 

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consult as to such measures and as to the compensation and expenses of the Custodian relating to such measures.

 

SECTION 4.8                      SHAREHOLDER RIGHTS .  With respect to the foreign securities held pursuant to this Section 4, the Custodian will use reasonable commercial efforts to facilitate the exercise of voting and other shareholder rights, subject always to the laws, regulations and practical constraints that may exist in the country where such securities are issued.  The Fund acknowledges that local conditions, including lack of regulation, onerous procedural obligations, lack of notice and other factors may have the effect of severely limiting the ability of the Fund to exercise shareholder rights.

 

SECTION 4.9.                   COMMUNICATIONS RELATING TO FOREIGN SECURITIES .  The Custodian shall transmit promptly to the Fund written information with respect to materials received by the Custodian via the Foreign Sub-Custodians from issuers of the foreign securities being held for the account of the Fund (including, without limitation, pendency of calls and maturities of foreign securities and expirations of rights in connection therewith).  With respect to tender or exchange offers, the Custodian shall transmit promptly to the Fund written information with respect to materials so received by the Custodian from issuers of the foreign securities whose tender or exchange is sought or from the party (or its agents) making the tender or exchange offer.  The Custodian shall not be liable for any untimely exercise of any tender, exchange or other right or power in connection with foreign securities or other property of the Fund at any time held by it unless (i) the Custodian or the respective Foreign Sub-Custodian is in actual possession or control of such foreign securities or property and (ii) the Custodian receives Proper Instructions with regard to the exercise of any such right or power, and both (i) and (ii) occur at least three business days prior to the date on which the Custodian is to take action to exercise such right or power.

 

SECTION 4.10.            LIABILITY OF FOREIGN SUB-CUSTODIANS .  Each agreement pursuant to which the Custodian employs a Foreign Sub-Custodian shall require the Foreign Sub-Custodian to exercise reasonable care in the performance of its duties, and, to the extent possible,  to indemnify and hold harmless the Custodian from and against any loss, damage, cost, expense, liability or claim arising out of or in connection with the Foreign Sub-Custodian’s performance of such obligations.  At the Fund’s election, it shall be entitled to be subrogated to the rights of the Custodian with respect to any claims against a Foreign Sub-Custodian as a consequence of any such loss, damage, cost, expense, liability or claim if and to the extent that the Fund has not been made whole for any such loss, damage, cost, expense, liability or claim.

 

SECTION 4.11               TAX LAW .  The Custodian shall have no responsibility or liability for any obligations now or hereafter imposed on the Fund or the Custodian as custodian of the Fund by the tax law of the United States or of any state or political subdivision thereof.  It shall be the responsibility of the Fund to notify the Custodian of the obligations imposed on the Fund or the Custodian as custodian of the Fund by the tax law of countries other than those mentioned in the above sentence, including responsibility for withholding and other taxes, assessments or other governmental charges, certifications and governmental reporting.  The sole responsibility of the Custodian with regard to such tax law shall be to use reasonable efforts to assist the Fund with

 

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respect to any claim for exemption or refund under the tax law of countries for which the Fund has provided such information.

 

SECTION 4.12.            LIABILITY OF CUSTODIAN .  The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian to the same extent as set forth with respect to sub-custodians generally in the Agreement and, regardless of whether assets are maintained in the custody of a Foreign Sub-Custodian or a Foreign Securities System, the Custodian shall not be liable for any loss, damage, cost, expense, liability or claim resulting from nationalization, expropriation, currency restrictions, or acts of war or terrorism, or any other loss where the Sub-Custodian has otherwise acted with reasonable care.

 

SECTION 5.                             PAYMENTS FOR SALES OR REPURCHASES OR REDEMPTIONS OF SHARES.

 

The Custodian shall receive from the distributor for the Shares or from the Transfer Agent and deposit into the account of the Fund such payments as are received for Shares thereof issued or sold from time to time by the Fund.  The Custodian will provide timely notification to the Fund and the Transfer Agent of any receipt by it of payments for Shares of the Fund.

 

From such funds as may be available for the purpose, the Custodian shall, upon receipt of instructions from the Transfer Agent, make funds available for payment to holders of Shares who have delivered to the Transfer Agent a request for redemption or repurchase of their Shares. In connection with the redemption or repurchase of Shares, the Custodian is authorized upon receipt of instructions from the Transfer Agent to wire funds to or through a commercial bank designated by the redeeming shareholders.  In connection with the redemption or repurchase of Shares, the Custodian shall honor checks drawn on the Custodian by a holder of Shares, which checks have been furnished by the Fund to the holder of Shares, when presented to the Custodian in accordance with such procedures and controls as are mutually agreed upon from time to time between the Fund and the Custodian.

 

SECTION 6.                             FOREIGN EXCHANGE .

 

SECTION 6.1.                   GENERALLY .  Upon receipt of Proper Instructions, which for purposes of this Section may also include security trade advices, the Custodian shall facilitate the processing and settlement of foreign exchange transactions.  Such foreign exchange transactions do not constitute part of the services provided by the Custodian under this Agreement.

 

SECTION 6.2.                   FUND ELECTIONS .  The Fund (or its investment advisor acting on its behalf) may elect to enter into and execute foreign exchange transactions with third parties that are not affiliated with the Custodian, with State Street Global Markets, which is the foreign exchange division of State Street Bank and Trust Company and its affiliated companies (“ SSGM ”), or with a sub-custodian.  Where the Fund or its investment a dvisor gives Proper Instructions for the execution of a foreign exchange transaction using an indirect foreign exchange service described in the Client Publications (as defined below), the Fund (or its investment a dvisor ) instructs the Custodian, on behalf of the Fund, to direct the execution of such foreign exchange transaction to SSGM or , when

 

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the relevant currency is not traded by SSGM, to the applicable sub-custodian.  T he Custodian shall not have any agency (except as contemplated in preceding sentence), trust or fiduciary obligation to the Fund , its investment a dvisor or any other person in connection with the execution of any foreign exchange transaction .  The Custodian shall have no responsibility under this Agreement for the selection of the counterparty to, or the method of execution of, any foreign exchange transaction entered into by the Fund ( or its investment a dvisor acting on its behalf) or the reasonableness of the execution rate on any such transaction.

 

SECTION 6.3.                   FUND ACKNOWLEDGEMENT   The Fund  acknowledges that in connection with all foreign exchange transactions entered into by the Fund ( or its investment advisor acting on its behalf) with SSGM or any sub-custodian, SSGM and each such sub-custodian:

 

(i)                                shall be acting in a principal capacity and not as broker, agent or fiduciary to the Fund or its investment a dvisor ;

 

(ii)                             shall seek to profit from such foreign exchange transactions, and are entitled to retain and not disclose any such profit to the Fund or its investment advisor; and

 

(iii)                          shall enter into such foreign exchange transactions pursuant to the terms and conditions, including pricing or pricing methodology, (a) agreed with the Fund or its investment advisor from time to time or (b) in the case of an indirect foreign exchange service, (i) as established by SSGM and set forth in the Client Publications with respect to the particular foreign exchange execution services selected by the Fund or the investment advisor or (ii) as established by the sub-custodian from time to time.

 

SECTION 6.4.                   TRANSACTIONS BY STATE STREET .  The Custodian or its affiliates, including SSGM, may trade based upon information that is not available to the Fund (or its investment advisor acting on its behalf), and may enter into transactions for its own account or the account of clients in the same or opposite direction to the transactions entered into with the Fund (or its investment manager), and shall have no obligation, under this Agreement, to share such information with or consider the interests of their respective counterparties, including, where applicable, the Fund or the investment advisor.

 

Client Publications ” means the general client publications of State Street Bank and Trust Company available from time to time to clients and their investment managers.

 

SECTION 7.                             PROPER INSTRUCTIONS.

 

Proper Instructions ”, which may also be standing instructions, as used throughout this Agreement shall mean instructions received by the Custodian from one or more persons or one or more entities as the Board shall have authorized from time to time.   Such instructions may be in writing signed by the authorized person or persons or may be in a tested communication or in a communication utilizing access codes effected between electro-mechanical or electronic devices or may be by such other means and utilizing such intermediary systems and utilities as may be agreed to from time to time by the Custodian and the person giving such instructions, provided that the Fund has followed any security

 

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procedures agreed to from time to time by the Fund and the Custodian, including, but not limited to, the security procedures selected by the Fund in the Funds Transfer Addendum to this Agreement.    Oral instructions will be considered Proper Instructions if the Custodian reasonably believes them to have been given by a person authorized to give such instructions with respect to the transaction involved. The Fund shall cause all oral instructions to be confirmed in writing.   For purposes of this Section, Proper Instructions shall include instructions received by the Custodian pursuant to any multi-party agreement which requires a segregated asset account in accordance with Section 2.9 of this Agreement.  The Fund shall cause its duly authorized officer to certify to the Custodian in writing the names and specimen signatures of persons authorized to give Proper Instructions.  The Custodian shall be entitled to rely upon the identity and authority of such persons until it receives notice from the Fund to the contrary.

 

SECTION 8.                             ACTIONS PERMITTED WITHOUT EXPRESS AUTHORITY.

 

The Custodian may in its discretion, without express authority from the Fund:

 

1)                                      make payments to itself or others for minor expenses of handling securities or other similar items relating to its duties under this Agreement, provided that all such payments shall be accounted for to the Fund;

 

2)                                      surrender securities in temporary form for securities in definitive form;

 

3)                                      endorse for collection, in the name of the Fund, checks, drafts and other negotiable instruments; and

 

4)                                      in general, attend to all non-discretionary details in connection with the sale, exchange, substitution, purchase, transfer and other dealings with the securities and property of the Fund except as otherwise directed by the Board.

 

SECTION 9.                             EVIDENCE OF AUTHORITY.

 

The Custodian shall be protected in acting upon any instructions, notice, request, consent, certificate or other instrument or paper reasonably believed by it to be genuine and to have been properly executed by or on behalf of the Fund.  The Custodian may receive and accept a copy of a resolution of the Board, certified by the Secretary or an Assistant Secretary of the Fund (“ Certified Resolution ”), as conclusive evidence (a) of the authority of any person to act in accordance with such resolution or (b) of any determination or of any action by the Board as described in such resolution, and such resolution may be considered as in full force and effect until receipt by the Custodian of written notice to the contrary.

 

SECTION 10.                      DUTIES OF CUSTODIAN WITH RESPECT TO THE BOOKS OF ACCOUNT AND CALCULATION OF NET ASSET VALUE AND NET INCOME.

 

The Custodian shall cooperate with and supply necessary information to the entity or entities appointed by the Board to keep the books of account of the Fund and/or compute the net asset value per Share of the outstanding Shares or, if directed in writing to do so by the Fund, shall itself keep

 

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such books of account and/or compute such net asset value per Share.  If so directed, the Custodian shall also calculate daily the net income of the Fund as described in the currently effective Prospectus and shall advise the Fund and the Transfer Agent daily of the total amounts of such net income and, if instructed in writing by an officer of the Fund to do so, shall advise the Transfer Agent periodically of the division of such net income among its various components.  The calculations of the net asset value per Share and the daily income of the Fund shall be made at the time or times described from time to time in the currently effective Prospectus.

 

SECTION 11.                      RECORDS.

 

The Custodian shall create and maintain all records relating to its activities and obligations under this Agreement in such manner as will meet the obligations of the Fund under the 1940 Act, with particular attention to Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.  All such records shall be the property of the Fund and shall at all times during the regular business hours of the Custodian be open for inspection by duly authorized officers, employees or agents of the Fund and employees and agents of the SEC.  The Custodian shall, at the Fund’s request, supply the Fund with a tabulation of securities owned by the Fund and held by the Custodian and shall, when requested to do so by the Fund and for such compensation as shall be agreed upon between the Fund and the Custodian, include certificate numbers in such tabulations.

 

SECTION 12.                      OPINION OF FUND’S INDEPENDENT ACCOUNTANT.

 

The Custodian shall take all reasonable action, as the Fund may from time to time request, to obtain from year to year favorable opinions from the Fund’s independent accountants with respect to its activities hereunder in connection with the preparation of the Fund’s Form N-1A, and Form N-SAR or other annual reports to the SEC and with respect to any other requirements thereof.

 

SECTION 13.                      REPORTS TO FUND BY INDEPENDENT PUBLIC ACCOUNTANTS.

 

The Custodian shall provide the Fund, at such times as the Fund may reasonably require, with reports by independent public accountants on the accounting system, internal accounting control and procedures for safeguarding securities, futures contracts and options on futures contracts, including securities deposited and/or maintained in a U.S. Securities System or a Foreign Securities System (either, a “ Securities System ”), relating to the services provided by the Custodian under this Agreement; such reports, shall be of sufficient scope and in sufficient detail, as may reasonably be required by the Fund to provide reasonable assurance that any material inadequacies would be disclosed by such examination, and, if there are no such inadequacies, the reports shall so state.

 

SECTION 14.                      COMPENSATION OF CUSTODIAN.

 

The Custodian shall be entitled to reasonable compensation for its services and expenses as Custodian, as agreed upon from time to time between the Fund and the Custodian.

 

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SECTION 15.                      RESPONSIBILITY OF CUSTODIAN.

 

So long as and to the extent that it is in the exercise of reasonable care and good faith, the Custodian shall not be responsible for the title, validity or genuineness of any property or evidence of title thereto received by it or delivered by it pursuant to this Agreement and shall be held harmless in acting upon any notice, request, consent, certificate or other instrument reasonably believed by it to be genuine and to be signed by the proper party or parties, including any futures commission merchant acting pursuant to the terms of a three-party futures or options agreement.  The Custodian shall be held to the exercise of reasonable care in carrying out the provisions of this Agreement, but shall be kept indemnified by and shall be without liability to the Fund for any action taken or omitted by it in good faith without negligence, including, without limitation, acting in accordance with any Proper Instruction.  It shall be entitled to rely on and may act upon advice of counsel (who may be counsel for the Fund) on all matters, and shall be without liability for any action reasonably taken or omitted in good faith pursuant to such advice.  The Custodian shall be without liability to the Fund for any loss, liability, claim or expense resulting from or caused by anything which is part of Country Risk (as defined in Section 3 hereof), including without limitation nationalization, expropriation, currency restrictions, insolvency of a Foreign Sub-Custodian, or acts of war, revolution, riots or terrorism.

 

Except as may arise from the Custodian’s own negligence, willful misconduct, or bad faith or the negligence or willful misconduct of a sub-custodian or agent, the Custodian shall be without liability to the Fund for any loss, liability, claim or expense resulting from or caused by: (i) events or circumstances beyond the reasonable control of the Custodian or any sub-custodian or Securities System or any agent or nominee of any of the foregoing, including, without limitation, the interruption, suspension or restriction of trading on or the closure of any securities market, power or other mechanical or technological failures or interruptions, computer viruses or communications disruptions, work stoppages, natural disasters, or other similar events or acts; (ii) errors by the Fund or its duly-authorized investment manager or investment advisor in their instructions to the Custodian provided such instructions, and Custodian’s reliance upon them, have been in accordance with this Agreement; (iii) the insolvency of or acts or omissions by a Securities System; (iv) any delay or failure of any broker, agent or intermediary, central bank or other commercially prevalent payment or clearing system to deliver to the Custodian’s sub-custodian or agent securities purchased or in the remittance or payment made in connection with securities sold; (v) any delay or failure of any company, corporation, or other body in charge of registering or transferring securities in the name of the Custodian, the Fund, the Custodian’s sub-custodians, nominees or agents or any consequential losses arising out of such delay or failure to transfer such securities including non-receipt of bonus, dividends and rights and other accretions or benefits; (vi) delays or inability to perform its duties due to any disorder in market infrastructure with respect to any particular security or Securities System; and (vii) any provision of any present or future law or regulation or order of the United States of America, or any state thereof, or any other country, or political subdivision thereof or of any court of competent jurisdiction.

 

The Custodian shall be liable for the acts or omissions of a Foreign Sub-Custodian (as defined in Section 4 hereof) to the same extent as set forth with respect to sub-custodians generally in this Agreement.

 

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If the Fund requires the Custodian to take any action with respect to securities, which action involves the payment of money or which action may, in the opinion of the Custodian, result in the Custodian or its nominee assigned to the Fund being liable for the payment of money or incurring liability of some other form, the Fund, as a prerequisite to requiring the Custodian to take such action, shall provide indemnity to the Custodian in an amount and form satisfactory to it.

 

If the Fund requires the Custodian, its affiliates, subsidiaries or agents, to advance cash or securities for any purpose (including but not limited to securities settlements, foreign exchange contracts and assumed settlement) or in the event that the Custodian or its nominee shall incur or be assessed any taxes, charges, expenses, assessments, claims or liabilities in connection with the performance of this Agreement, except such as may arise from its or its nominee’s own negligent action, negligent failure to act or willful misconduct, or if the Fund fails to compensate the Custodian pursuant to Section 14 hereof, any property at any time held for the account of the Fund shall be security therefor and should the Fund fail to repay the Custodian promptly, the Custodian shall be entitled to utilize available cash and to dispose of the Fund’s assets to the extent necessary to obtain reimbursement.

 

In no event shall either party be liable for indirect, special or consequential damages.

 

SECTION 16.                      EFFECTIVE PERIOD, TERMINATION AND AMENDMENT.

 

This Agreement shall become effective as of its execution, shall continue in full force and effect until terminated as hereinafter provided, may be amended at any time by mutual agreement of the parties hereto and may be terminated by either party by an instrument in writing delivered or mailed, postage prepaid to the other party, such termination to take effect not sooner than thirty (30) days after the date of such delivery or mailing; provided , however, that the Fund shall not amend or terminate this Agreement in contravention of any applicable federal or state regulations, or any provision of the Fund’s Declaration of Trust, and further provided, that the Fund may at any time by action of its Board (i) substitute another bank or trust company for the Custodian by giving notice as described above to the Custodian, or (ii) immediately terminate this Agreement in the event of the appointment of a conservator or receiver for the Custodian by the Comptroller of the Currency or upon the happening of a like event at the direction of an appropriate regulatory agency or court of competent jurisdiction.

 

Upon termination of the Agreement, the Fund shall pay to the Custodian such compensation as may be due as of the date of such termination and shall likewise reimburse the Custodian for its reasonable costs, expenses and disbursements.  The provisions of Sections 4.11, 14 and 15 of this Agreement shall survive termination of this Agreement for any reason.

 

SECTION 17.                      SUCCESSOR CUSTODIAN.

 

If a successor custodian for the Fund shall be appointed by the Board, the Custodian shall, upon termination and receipt of Proper Instructions, deliver to such successor custodian at the office of the

 

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Custodian, duly endorsed and in the form for transfer, all securities of the Fund then held by it hereunder and shall transfer to an account of the successor custodian all of the securities of the Fund held in a Securities System.

 

If no such successor custodian shall be appointed, the Custodian shall, in like manner, upon receipt of Proper Instructions, deliver at the office of the Custodian and transfer such securities, funds and other properties in accordance with such alternative arrangements.

 

In the event that no Proper Instructions designating a successor custodian or alternative arrangements shall have been delivered to the Custodian on or before the date when such termination shall become effective, then the Custodian shall have the right to deliver to a bank or trust company, which is a “bank” as defined in the 1940 Act, doing business in Boston, Massachusetts, or New York, New York, of its own selection, having an aggregate capital, surplus, and undivided  profits, as shown by its last published report, of not less than $25,000,000, all securities, funds and other properties held by the Custodian hereunder and all instruments held by the Custodian relative thereto and all other property held by it under this Agreement on behalf of the Fund, and to transfer to an account of such successor custodian all of the Fund’s securities held in any Securities System.  Thereafter, such bank or trust company shall be the successor of the Custodian under this Agreement.

 

In the event that securities, funds and other properties remain in the possession of the Custodian after the date of termination hereof owing to failure of the Fund to procure the Proper Instructions or alternative arrangements  to appoint a successor custodian, the Custodian shall be entitled to fair compensation for its services during such period as the Custodian retains possession of such securities, funds and other properties and the provisions of this Agreement relating to the duties and obligations of the Custodian shall remain in full force and effect.

 

SECTION 18.                      INTERPRETIVE AND ADDITIONAL PROVISIONS.

 

In connection with the operation of this Agreement, the Custodian and the Fund may from time to time agree on such provisions interpretive of or in addition to the provisions of this Agreement as may in their joint opinion be consistent with the general tenor of this Agreement.  Any such interpretive or additional provisions shall be in a  writing signed by both parties and shall be annexed hereto, provided that no such interpretive or additional provisions shall contravene any applicable federal or state regulations or any provision of the Fund’s Declaration of Trust.  No interpretive or additional provisions made as provided in the preceding sentence shall be deemed to be an amendment of this Agreement.

 

SECTION 19.                      MASSACHUSETTS LAW TO APPLY.

 

This Agreement shall be construed and the provisions thereof interpreted under and in accordance with laws of The Commonwealth of Massachusetts.

 

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SECTION 20.                      PRIOR AGREEMENTS.

 

This Agreement supersedes and terminates, as of the date hereof, all prior Agreements between the Fund and the Custodian relating to the custody of the Fund’s assets.

 

SECTION 21.                      NOTICES .

 

Any notice, instruction or other instrument required to be given hereunder may be delivered in person to the offices of the parties as set forth herein during normal business hours or delivered prepaid registered mail or by telex, cable or telecopy to the parties at the following addresses or such other addresses as may be notified by any party from time to time.

 

To the Fund:

TEKLA WORLD HEALTHCARE FUND

 

2 Liberty Square, 9 th  Floor

 

Boston, MA 02109

 

Attention: Laura Woodward

 

Telephone: 617-772-8500

 

Telecopy: 617-772-8577

 

 

To the Custodian:

STATE STREET BANK AND TRUST COMPANY

 

Josiah Quincy Building

 

200 Newport Avenue

 

North Quincy, Massachusetts 02171

 

Attention: Michael D. Timcoe, Vice President

 

Telephone: 617-985-3185

 

Telecopy: 617-330-0681

 

Such notice, instruction or other instrument shall be deemed to have been served in the case of a registered letter at the expiration of five business days after posting, in the case of cable twenty-four hours after dispatch and, in the case of telex, immediately on dispatch and if delivered outside normal business hours it shall be deemed to have been received at the next time after delivery when normal business hours commence and in the case of cable, telex or telecopy on the business day after the receipt thereof.  Evidence that the notice was properly addressed, stamped and put into the post shall be conclusive evidence of posting.

 

SECTION 22                         CONFIDENTIALITY .  All information provided under this Agreement by a party (the “ Disclosing Party ”) to the other party (the “ Receiving Party ”) regarding the Disclosing Party’s business and operations shall be treated as confidential.  Subject to Section 23 below, all confidential information provided under this Agreement by Disclosing Party shall be used, including disclosure to third parties, by the Receiving Party, or its agents or service providers, solely for the purpose of performing or receiving the services and discharging the Receiving Party’s other obligations under the Agreement or managing the business of the Receiving Party and its affiliates, including financial and operational management and reporting, risk management, legal and regulatory compliance and

 

23



 

client service management.  The foregoing shall not be applicable to any information (a) that is publicly available when provided or thereafter becomes publicly available, other than through a breach of this Agreement, (b) that is independently derived by the Receiving Party without the use of any information provided by the Disclosing Party in connection with this Agreement, (c) that is disclosed to comply with any legal or regulatory proceeding, investigation, audit, examination, subpoena, civil investigative demand or other similar process, (d) that is disclosed as required by operation of law or regulation or as required to comply with the requirements of any market infrastructure that the Disclosing Party or its agents direct the Custodian or its affiliates to employ (or which is required in connection with the holding or settlement of instruments included in the assets subject to this Agreement), or (e) where the party seeking to disclose has received the prior written consent of the party providing the information, which consent shall not be unreasonably withheld .

 

SECTION 23  USE OF DATA .

 

(a)                                  In connection with the provision of the services and the discharge of its other obligations under this Agreement, the Custodian (which term for purposes of this Section 23 includes each of its parent company, branches and affiliates (“ Affiliates ”)) may collect and store information regarding the Fund and share such information with its Affiliates, agents and service providers in order and to the extent reasonably necessary (i) to carry out the provision of services contemplated under this Agreement and other agreements between the Fund and the Custodian or any of its Affiliates and (ii) to carry out management of its businesses, including, but not limited to, financial and operational management and reporting, risk management, legal and regulatory compliance and client service management.

 

(b)                                  Subject to Section 23(c) below, the Custodian and/or its Affiliates (except those Affiliates or business divisions principally engaged in the business of asset management) may use any data or other information (“ Data ”) obtained by such entities in the performance of their services under this Agreement or any other agreement between the Fund and the Custodian or one of its Affiliates, including Data regarding transactions and portfolio holdings relating to the Fund, and publish, sell, distribute or otherwise commercialize the Data ; provided that, unless the Fund otherwise consents, Data is combined or aggregated with information relating to (i) other customers of the Custodian and/or its Affiliates or (ii) information derived from other sources, in each case such that any published information will be displayed in a manner designed to prevent attribution to or identification of such Data with the Fund.  The Fund agrees that Custodian and/or its Affiliates may seek to profit and realize economic benefit from the commercialization and use of the Data, that such benefit will constitute part of the Custodian’s compensation for services under this Agreement or such other agreement, and the Custodian and/or its Affiliates shall be entitled to retain and not be required to disclose the amount of such economic benefit and profit to the Fund.

 

(c)                                    Except as expressly contemplated by this Agreement, nothing in this Section 23 shall limit the confidentiality and data-protection obligations of the Custodian and its Affiliates under this Agreement and applicable law.  The Custodian shall cause any Affiliate, agent or service provider to

 

24



 

which it has disclosed Data pursuant to this Section 23 to comply at all times with confidentiality and data-protection obligations as if it were a party to this Agreement.

 

SECTION 24.                      REPRODUCTION OF DOCUMENTS.

 

This Agreement and all schedules, addenda, exhibits, attachments and amendments hereto may be reproduced by any photographic, photostatic, microfilm, micro-card, miniature photographic or other similar process.  The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.

 

SECTION 25.                      REMOTE ACCESS SERVICES ADDENDUM.

 

The Custodian and the Fund agree to be bound by the terms of the Remote Access Services Addendum attached hereto.

 

SECTION 26.                      REGULATION GG .  The Fund hereby represents and warrants that it does not engage in an “Internet gambling business,” as such term is defined in Section 233.2(r) of Federal Reserve Regulation GG (12 CFR 233) (“ Regulation GG ”).  The Fund hereby covenants and agrees that it shall not engage in an Internet gambling business.  In accordance with Regulation GG, the Fund is hereby notified that “restricted transactions,” as such term is defined in Section 233.2(y) of Regulation GG, are prohibited in any dealings with the Custodian pursuant to this Agreement or otherwise between or among any party hereto.

 

SECTION 27.  DATA PRIVACY. The Custodian will implement and maintain a written information security program that contains appropriate security measures to safeguard the personal information of the Fund’s shareholders, employees, directors and/or officers that the Custodian receives, stores, maintains, processes or otherwise accesses in connection with the provision of services hereunder.  For these purposes, “personal information” shall mean (i) an individual’s name (first initial and last name or first name and last name), address or telephone number plus (a) social security number, (b) drivers license number, (c) state identification card number, (d) debit or credit card number, (e) financial account number or (f) personal identification number or password that would permit access to a person’s account or (ii) any combination of the foregoing that would allow a person to log onto or access an individual’s account.  Notwithstanding the foregoing “personal information” shall not include information that is lawfully obtained from publicly available information, or from federal, state or local government records lawfully made available to the general public.

 

SECTION 28.                      COUNTERPARTS.

 

This Agreement may be signed in counterparts, all of which shall constitute but one and the same instrument.  Counterparts may be executed in either original or electronically transmitted form (e.g., faxes or emailed portable document format (PDF) form), and the parties hereby adopt as original any

 

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signatures received via electronically transmitted form.

 

SECTION 29.                      SEVERABILITY.

 

Whenever possible, each provision of this Agreement shall be interpreted in such a manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be deemed prohibited or invalid under such applicable law, such provision shall be ineffective to the extent of such prohibition or invalidity, and such prohibition or invalidity shall not invalidate the remainder of such provision or the other provisions of this Agreement.

 

SECTION 30.                      STATUS OF FUND AS MASSACHUSETTS BUSINESS TRUST .

 

A copy of the Fund’s Agreement and Declaration of Trust is on file with the Secretary of State of The Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed on behalf of the Fund by an officer or Trustee of the Fund in his or her capacity as an officer or Trustee of the Fund and not individually and that the obligations of or arising out of this Agreement are not binding upon any of the Trustees, officers or shareholders individually but are binding only upon the assets and property of the Fund.

 

SECTION 31.                      SHAREHOLDER COMMUNICATIONS ELECTION.

 

SEC Rule 14b-2 requires banks which hold securities for the account of customers to  respond to requests by issuers of securities for the names, addresses and holdings of beneficial owners of securities of that issuer held by the bank unless the beneficial owner has expressly objected to disclosure of this information.  In order to comply with the rule, the Custodian needs the Fund to indicate whether it authorizes the Custodian to provide the Fund’s name, address, and share position to requesting companies whose securities the Fund owns.  If the Fund tells the Custodian “no”, the Custodian will not provide this information to requesting companies.  If the Fund tells the Custodian “yes” or does not check either “yes” or “no” below, the Custodian is required by the rule to treat the Fund as consenting to disclosure of this information for all securities owned by the Fund or any funds or accounts established by the Fund.  For the Fund’s protection, the Rule prohibits the requesting company from using the Fund’s name and address for any purpose other than corporate communications.  Please indicate below whether the Fund consents or objects by checking one of the alternatives below.

 

YES o                                                          The Custodian is authorized to release the Fund’s name, address, and share positions.

 

NO  x                                                           The Custodian is not authorized to release the Fund’s name, address, and share positions.

 

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IN WITNESS WHEREOF , each of the parties has caused this instrument to be executed in its name and behalf by its duly authorized representative under seal as of the date first above-written.

 

 

TEKLA WORLD HEALTHCARE FUND

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

STATE STREET BANK AND TRUST COMPANY

 

 

 

 

 

By:

 

 

Name:  Gunjan Kedia

 

Title:    Executive Vice President

 

 


Exhibit 99.2k.(i)

 

ADMINISTRATION AGREEMENT

 

Agreement dated as of May     , 2015 by and between State Street Bank and Trust Company, a Massachusetts trust company (the “Administrator”) and Tekla World Healthcare Fund (the “Trust”).

 

WHEREAS, the Trust is registered as closed-end management investment companies under the Investment Company Act of 1940, as amended (the “1940 Act”);

 

WHEREAS, the Trust desires to retain the Administrator to furnish certain administrative services to the Trust, and the Administrator is willing to furnish such services, on the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, the parties hereto agree as follows:

 

1.                                       APPOINTMENT OF ADMINISTRATOR

 

The Trust hereby appoints the Administrator to act as administrator with respect to the Trust for purposes of providing certain administrative services for the period and on the terms set forth in this Agreement.  The Administrator accepts such appointment and agrees to render the services stated herein.

 

In the event that the Trust establishes one or more additional portfolios or funds (the “Additional Funds”) with respect to which it wishes to retain the Administrator to act as administrator hereunder, the Trust shall notify the Administrator in writing.  Upon written acceptance by the Administrator, such Additional Fund shall become subject to the provisions of this Agreement to the same extent as the Trust and any existing Fund, except to the extent that such provisions (including those relating to the compensation and expenses payable by the Trust) may be modified with respect to each Additional Fund in writing by the Trust and the Administrator at the time of the addition of the Additional Fund.

 

2.                                       DELIVERY OF DOCUMENTS

 

The Trust will promptly deliver to the Administrator copies of each of the following documents and all future amendments and supplements, if any:

 

a.                                       The Trust’s declaration of trust and by-laws;

 

b.                                       The Trust’s currently effective registration statement under the Securities Act of 1933, as amended (the “1933 Act”), and the 1940 Act and the Trust’s Prospectus(es) and Statement(s) of Additional Information relating to the

 



 

Trust and all amendments and supplements thereto as in effect from time to time;

 

c.                                        Certified copies of the resolutions of the Board of Trustees of the Trust (the “Board”) authorizing (1) the Trust to enter into this Agreement and (2) certain individuals on behalf of the Trust to (a) give instructions to the Administrator pursuant to this Agreement and (b) sign checks and pay expenses;

 

d.                                       A copy of the investment advisory agreement between the Trust and its investment adviser; and

 

e.                                        Such other certificates, documents or opinions which the Administrator may, in its reasonable discretion, deem necessary or appropriate in the proper performance of its duties.

 

3.                                       REPRESENTATIONS AND WARRANTIES OF THE ADMINISTRATOR

 

The Administrator represents and warrants to the Trust that:

 

a.                                       It is a Massachusetts trust company, duly organized and existing under the laws of The Commonwealth of Massachusetts;

 

b.                                       It has the power and authority to carry on its business in The Commonwealth of Massachusetts;

 

c.                                        All requisite corporate proceedings have been taken to authorize it to enter into and perform this Agreement;

 

d.                                       No legal or administrative proceedings have been instituted or threatened which would impair the Administrator’s ability to perform its duties and obligations under this Agreement;

 

e.                                        Its entrance into this Agreement shall not cause a material breach or be in material conflict with any other agreement or obligation of the Administrator or any law or regulation applicable to it; and

 

f.                                         It maintains mutual fund industry standard back-up systems and other procedures that are reasonably designed to prevent disruption or delay in the performance of its obligations or duties under this Agreement.

 

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4.                                       REPRESENTATIONS AND WARRANTIES OF THE TRUST

 

The Trust represents and warrants to the Administrator that:

 

a.                                       It is a business trust, duly organized, existing and in good standing under the laws of The Commonwealth of Massachusetts;

 

b.                                       It has the corporate power and authority under applicable laws and by its declaration of trust and by-laws to enter into and perform this Agreement;

 

c.                                        All requisite proceedings have been taken to authorize it to enter into and perform this Agreement;

 

d.                                       It is an investment company properly registered under the 1940 Act;

 

e.                                        A registration statement under the 1933 Act and the 1940 Act has been filed and will be effective and remain effective during the term of this Agreement. The Trust also warrants to the Administrator that as of the effective date of this Agreement, all necessary filings under the securities laws of the states in which the Trust offers or sells its shares have been made;

 

f.                                         No legal or administrative proceedings have been instituted or threatened which would impair the Trust’s ability to perform its duties and obligations under this Agreement;

 

g.                                        Its entrance into this Agreement will not cause a material breach or be in material conflict with any other agreement or obligation of the Trust or any law or regulation applicable to it; and

 

h.                                       As of the close of business on the date of this Agreement, the Trust is authorized to issue shares of beneficial interest.

 

5.                                       ADMINISTRATION SERVICES

 

The Administrator shall provide the following services, subject to the control, supervision, authorization and direction of the Trust, and, in each case where appropriate, the review and comment by the Trust’s independent accountants and legal counsel and in accordance with procedures which may be established from time to time between the Trust and the Administrator:

 

a.                                       Prepare for review and approval by officers of the respective Trust the Trust’s financial information contained within the Trust’s semi-annual and

 

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annual shareholder reports, Form N-Q reports, and other quarterly reports (as mutually agreed upon), including tax footnote disclosures where applicable;

 

b.                                       Coordinate the audit of the respective Trust’s financial statements by the Trust’s independent accountants, including the preparation of supporting audit workpapers and other schedules, and make such reports and recommendations to the Board concerning the performance of the independent accountants as the Board may reasonably request;

 

c.                                        Prepare for review by an officer of the respective Trust the Trust’s periodic financial reports required to be filed with the Securities and Exchange Commission (“SEC”) on Form N-SAR and financial information required by Form N-CSR and such other reports, forms or filings as may be mutually agreed upon;

 

d.                                       Prepare for review by an officer of the respective Trust annual fund expense budgets, perform accrual analyses and rollforward calculations and recommend changes to fund expense accruals on a periodic basis, arrange for payment of the Trust’s expenses, review calculations of fees paid to the Trust’s Advisor, custodian, fund accountant, distributor and transfer agent, and obtain authorization of accrual changes and expense payments;

 

e.                                        Provide periodic testing with respect to compliance with Internal Revenue Code mandatory qualification requirements, the requirements of the 1940 Act and the respective Trust’s Prospectus limitations as may be mutually agreed upon, including quarterly compliance reporting to the Trust’s officers as well as preparation of Board compliance materials;

 

f.                                         Prepare and furnish total return performance information, including such information on an after-tax basis, calculated in accordance with applicable U.S. securities laws and regulations, as may be reasonably requested;

 

g.                                        Prepare and disseminate vendor survey information;

 

h.                                       Provide periodic reports and reasonable documentation to the Trust’s Chief Compliance Officer in connection with Rule 38a-1 of the 1940 Act with respect to services provided by the Administrator and the Administrator’s compliance with its operating policies and procedures related thereto;

 

i.                                           Provide sub-certificates in connection with the certification requirements of the Sarbanes-Oxley Act of 2002 with respect to services provided by the Administrator;

 

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j.                                          Maintain certain books and records of the Trust as required under Rule 31a-1(b) of the 1940 Act, as may be agreed upon;

 

k.                                       Consult with the Trust’s officers, independent accountants, legal counsel, custodian, fund accountant, distributor, and transfer agent in establishing the accounting policies of the Trust;

 

l.                                           Compute tax basis provisions for both excise and income tax purposes;

 

m.                                   Prepare the Trust’s federal, state, and local income tax returns and extension requests for review and for execution and filing by the Trust’s independent accountants and execution and filing by the Trust’s treasurer, including Form 1120-RIC, Form 8613 and Form 1099-MISC;

 

n.                                       Coordinate Forms 1042/1042S with the Trust’s transfer agent;

 

o.                                       Prepare information for Section 852 mailings; and

 

p.                                       Review and sign off on periodic income distribution calculations and annual minimum distribution calculations (income and capital gain) prior to their declaration.

 

The Administrator shall perform such other services for the Trust that are mutually agreed to by the parties from time to time, for which the Trust will pay such fees as may be mutually agreed upon, including the Administrator’s reasonable out-of-pocket expenses.  The provision of such services shall be subject to the terms and conditions of this Agreement.

 

The Administrator shall provide the office facilities and the personnel required by it to perform the services contemplated herein.

 

6.                                       FEES; EXPENSES; EXPENSE REIMBURSEMENT

 

The Administrator shall receive from the Trust such compensation for the Administrator’s services provided pursuant to this Agreement as may be agreed to from time to time in a written fee schedule approved by the parties and initially set forth in the Fee Schedule to this Agreement.  The fees are accrued daily and billed monthly and shall be due and payable upon receipt of the invoice.  Upon the termination of this Agreement before the end of any month, the fee for the part of the month before such termination shall be prorated according to the proportion which such part bears to the full monthly period and shall be payable upon the date of termination of this Agreement.  In addition, the Trust shall reimburse the Administrator for its reasonable and fully documented out-of-pocket costs incurred in connection with this Agreement.

 

5



 

The Trust agrees to promptly reimburse the Administrator for any equipment and supplies specially ordered by or for the Trust through the Administrator and for any other expenses not contemplated by this Agreement that the Administrator may incur on the Trust’s behalf or at the Trust’s request or with the Trust’s consent. All rights of compensation and expense reimbursement under this Agreement for services performed shall survive the termination of this Agreement.

 

The Trust acknowledges and agrees that it will bear all expenses that are incurred in its operation and not specifically assumed by the Administrator.  Expenses to be borne by the Trust, include, but are not limited to:  organizational expenses; cost of services of independent accountants and outside legal and tax counsel (including such counsel’s review of the Trust’s registration statement, proxy materials, federal and state tax qualification as a regulated investment company and other reports and materials prepared by the Administrator under this Agreement); cost of any services contracted for by the Trust directly from parties other than the Administrator; cost of trading operations and brokerage fees, commissions and transfer taxes in connection with the purchase and sale of securities for the Trust; investment advisory fees; taxes, insurance premiums and other fees and expenses applicable to its operation; costs incidental to any meetings of shareholders including, but not limited to, legal and accounting fees, proxy filing fees and the costs of preparation, printing and mailing of any proxy materials; costs incidental to Board meetings, including fees and expenses of Board members; the salary and expenses of any officer, director\trustee or employee of the Trust; costs incidental to the preparation, printing and distribution of the Trust’s registration statements and any amendments thereto and shareholder reports; cost of typesetting and printing of prospectuses; cost of preparation and filing of the Trust’s tax returns, Form N-2, Form N-PX, Form N-CSR, Form N-Q and Form N-SAR, and all notices, registrations and amendments associated with applicable federal and state tax and securities laws; all applicable registration fees and filing fees required under federal and state securities laws; fidelity bond and directors’ and officers’ liability insurance; and cost of independent pricing services used in computing the Trust’s net asset value.

 

The Administrator is authorized to and may employ or associate with such person or persons as the Administrator may deem desirable to assist it in performing its duties under this Agreement; provided, however, that the compensation of such person or persons shall be paid by the Administrator and that the Administrator shall be as fully responsible to the Trust for the acts and omissions of any such person or persons as it is for its own acts and omissions.

 

7.                                       INSTRUCTIONS AND ADVICE

 

At any time, the Administrator may apply to any officer of the Trust or the Trust’s investment adviser or their designee for instructions and may consult with its own legal counsel or outside counsel for the Trust or the independent accountants for the Trust at the expense of the Trust, with respect to any matter arising in connection with the services to be performed by the Administrator under this Agreement.  The Administrator shall not be liable, and shall be indemnified by the Trust, for any action taken or omitted by it in good faith in reliance upon any

 

6



 

such instructions or advice or upon any paper or document believed by it to be genuine and to have been signed by an officer or other representative of the Trust.  The Administrator shall not be held to have notice of any change of authority of any person until receipt of written notice thereof from the Trust.  Nothing in this Section shall be construed as imposing upon the Administrator any obligation to seek such instructions or advice, or to act in accordance with such advice when received.

 

8.                                       LIMITATION OF LIABILITY AND INDEMNIFICATION

 

The Administrator shall be responsible for the performance of only such duties as are set forth in this Agreement and, except as otherwise provided under Section 6, shall have no responsibility for the actions or activities of any other party, including other service providers.  The Administrator shall have no liability in respect of any loss, damage or expense suffered by the Trust insofar as such loss, damage or expense arises from the performance of the Administrator’s duties hereunder in reliance upon records that were maintained for the Trust by entities other than the Administrator prior to the Administrator’s appointment as administrator hereunder.   The Administrator shall have no liability for any error of judgment or mistake of law or for any loss or damage resulting from the performance or nonperformance of its duties hereunder unless caused by or resulting from or attributable to (a) the negligence, willful misconduct, bad faith or reckless disregard of the Administrator, its officers or employees, or (b) the material breach of this Agreement by the Administrator.  The Administrator shall not be liable for any special, indirect, incidental, punitive or consequential damages, including lost profits, of any kind whatsoever (including, without limitation, attorneys’ fees) under any provision of this Agreement or for any such damages arising out of any act or failure to act hereunder, each of which is hereby excluded by agreement of the parties regardless of whether such damages were foreseeable or whether either party or any entity had been advised of the possibility of such damages.  In any event, the Administrator’s cumulative liability for each calendar year (a “Liability Period”) with respect to the Trust under this Agreement regardless of the form of action or legal theory shall be limited to its total annual compensation earned with respect to the Trust and fees payable hereunder during the preceding Compensation Period, as defined herein, for any liability or loss suffered by the Trust including, but not limited to, any liability relating to qualification of the Trust as a regulated investment company or any liability relating to the Trust’s compliance with any federal or state tax or securities statute, regulation or ruling during such Liability Period.  “Compensation Period” shall mean the calendar year ending immediately prior to each Liability Period in which the event(s) giving rise to the Administrator’s liability for that period have occurred.  Notwithstanding the foregoing, the Compensation Period for purposes of calculating the annual cumulative liability of the Administrator for the Liability Period commencing on the date of this Agreement and terminating on December 31, 2015 shall be the date of this Agreement through December 31, 2015, and the Compensation Period for the Liability Period commencing January 1, 2016 and terminating on December 31, 2016 shall be the date of this Agreement through December 31, 2015.

 

The Trust shall indemnify and hold the Administrator and its directors, officers, employees and agents harmless from all loss, cost, damage and expense, including reasonable fees

 

7



 

and expenses for counsel, incurred by the Administrator resulting from any claim, demand, action or suit in connection with the Administrator’s acceptance of this Agreement, any action or omission by it in the performance of its duties hereunder, or as a result of acting upon any instructions reasonably believed by it to have been duly authorized by the Trust or its investment adviser, or upon reasonable reliance on information or records given or made by the Trust or its investment adviser, provided that this indemnification shall not apply to actions or omissions of the Administrator, its officers or employees in cases of its or their own negligence, willful misconduct, bad faith or reckless disregard.

 

With respect to any claim for indemnification under this Agreement, the Trust will be entitled to participate, as applicable, at its own expense in the defense of any suit brought to enforce any liability subject to such indemnification.  In the event the Trust elects to assume the defense of any such suit and retain counsel, the Administrator, or any of its affiliated persons named as defendant or defendants in the suit, may retain additional counsel but shall bear the fees and expenses of such counsel unless (i) the Trust has specifically authorized the retaining of such counsel or (ii) the Administrator shall have determined in good faith that the retention of such counsel is required as a result of a conflict of interest.

 

The indemnification contained herein shall survive the termination of this Agreement.

 

9.                                       CONFIDENTIALITY

 

All information provided under this Agreement by a party (the “Disclosing Party”) to the other party (the “Receiving Party”) regarding the Disclosing Party’s business and operations shall be treated as confidential.  Subject to Section 10 below, all confidential information provided under this Agreement by Disclosing Party shall be used, including disclosure to third parties, by the Receiving Party, or its agents or service providers, solely for the purpose of performing or receiving the services and discharging the Receiving Party’s other obligations under the Agreement or managing the business of the Receiving Party and its Affiliates (as defined in Section 10 below), including financial and operational management and reporting, risk management, legal and regulatory compliance and client service management.  The foregoing shall not be applicable to any information (a) that is publicly available when provided or thereafter becomes publicly available, other than through a breach of this Agreement, (b) that is independently derived by the Receiving Party without the use of any information provided by the Disclosing Party in connection with this Agreement, (c) that is disclosed to comply with any legal or regulatory proceeding, investigation, audit, examination, subpoena, civil investigative demand or other similar process, (d) that is disclosed as required by operation of law or regulation or as required to comply with the requirements of any market infrastructure that the Disclosing Party or its agents direct the Administrator or its Affiliates to employ (or which is required in connection with the holding or settlement of instruments included in the assets subject to this Agreement), or (e) where the party seeking to disclose has received the prior

 

8



 

written consent of the party providing the information, which consent shall not be unreasonably withheld.

 

10.                                USE OF DATA

 

(a)                                  In connection with the provision of the services and the discharge of its other obligations under this Agreement, the Administrator (which term for purposes of this Section 10 includes each of its parent company, branches and affiliates (“Affiliates”)) may collect and store information regarding the Trust or Fund and share such information with its Affiliates, agents and service providers in order and to the extent reasonably necessary (i) to carry out the provision of services contemplated under this Agreement and other agreements between the Trust and the Administrator or any of its Affiliates and (ii) to carry out management of its businesses, including, but not limited to, financial and operational management and reporting, risk management, legal and regulatory compliance and client service management.

 

(b)                                  Subject to Section 10(c) below, the Administrator and/or its Affiliates (except those Affiliates or business divisions principally engaged in the business of asset management) may use any data or other information (“Data”) obtained by such entities in the performance of their services under this Agreement or any other agreement between the Trust and the Administrator or one of its Affiliates, including Data regarding transactions and portfolio holdings relating to the Trust/Fund, and publish, sell, distribute or otherwise commercialize the Data ; provided that, unless the Trust otherwise consents, Data is combined or aggregated with information relating to (i) other customers of the Administrator and/or its Affiliates or (ii) information derived from other sources, in each case such that any published information will be displayed in a manner designed to prevent attribution to or identification of such Data with the Trust/Fund. The Trust agrees that Administrator and/or its Affiliates may seek to profit and realize economic benefit from the commercialization and use of the Data, that such benefit will constitute part of the Administrator’s compensation for services under this Agreement or such other agreement, and the Administrator and/or its Affiliates shall be entitled to retain and not be required to disclose the amount of such economic benefit and profit to the Trust/Fund.

 

(c)                                   Except as expressly contemplated by this Agreement, nothing in this Section 10 shall limit the confidentiality and data-protection obligations of the Administrator and its Affiliates under this Agreement and applicable law.  The Administrator shall cause any Affiliate, agent or service provider to which it has disclosed Data pursuant to this Section 10 to comply at all times with confidentiality and data-protection obligations as if it were a party to this Agreement.

 

11.                                COMPLIANCE WITH GOVERNMENTAL RULES AND REGULATIONS; RECORDS

 

The Trust assumes full responsibility for complying with all securities, tax, commodities and other laws, rules and regulations applicable to it.

 

9



 

In compliance with the requirements of Rule 31a-3 under the 1940 Act, the Administrator agrees that all records which it maintains for the Trust shall at all times remain the property of the Trust, shall be readily accessible during normal business hours, and shall be promptly surrendered upon the termination of the Agreement or otherwise on written request.  The Administrator further agrees that all records which it maintains for the Trust pursuant to Rule 31a-1 under the 1940 Act will be preserved for the periods prescribed by Rule 31a-2 under the 1940 Act unless any such records are earlier surrendered as provided above.  Records may be surrendered in either written or machine-readable form.

 

12.                                SERVICES NOT EXCLUSIVE

 

The services of the Administrator to the Trust are not to be deemed exclusive, and the Administrator shall be free to render similar services to others.  The Administrator shall be deemed to be an independent contractor and shall, unless otherwise expressly provided herein or authorized by the Trust from time to time, have no authority to act or represent the Trust in any way or otherwise be deemed an agent of the Trust.

 

13.                                TERM, TERMINATION AND AMENDMENT

 

This Agreement shall become effective as of the date first above written.  The Agreement shall remain in effect unless terminated by either party on sixty (60) days’ prior written notice.  Termination of this Agreement with respect to any given Trust shall in no way affect the continued validity of this Agreement with respect to any other Trust.  This Agreement may be modified or amended from time to time by mutual written agreement of the parties hereto.

 

Upon termination of this Agreement, the Trust shall pay to the Administrator such compensation and any reimbursable expenses as may be due under the terms hereof as of the date of such termination, including reasonable out-of-pocket expenses associated with such termination. This Agreement may be modified or amended from time to time by mutual written agreement of the parties hereto.

 

14.                                NOTICES

 

Any notice or other communication authorized or required by this Agreement to be given to either party shall be in writing and deemed to have been given when delivered in person or by confirmed facsimile, by overnight delivery through a commercial courier service, or posted by certified mail, return receipt requested, to the following address (or such other address as a party may specify by written notice to the other):

 

10



 

If to the Trust:

 

TEKLA WORLD HEALTHCARE FUND

2 Liberty Square, 9 th  Floor

Boston, MA 02109

Attn: Laura Woodward

Facsimile: (617) 772-8577

 

If to the Administrator:

 

STATE STREET BANK AND TRUST COMPANY

801 Pennsylvania Avenue

Tower I

Kansas City, Missouri 64105

Attn:  Brian O’Sullivan, Senior Vice President

Telephone: 816-871-3292

Facsimile:

 

with a copy to:

 

STATE STREET BANK AND TRUST COMPANY

Legal Division — Global Services Americas

One Lincoln Street

Boston, MA  02110

Attention:  Senior Vice President and Senior Managing Counsel

 

15.                                NON-ASSIGNABILITY

 

This Agreement shall not be assigned by either party hereto without the prior consent in writing of the other party, except that the Administrator may assign this Agreement to a successor of all or a substantial portion of its business, or to a party controlling, controlled by or under common control with the Administrator.

 

16.                                SUCCESSORS

 

This Agreement shall be binding on and shall inure to the benefit of the Trust and the Administrator and their respective successors and permitted assigns.

 

17.                                ENTIRE AGREEMENT

 

This Agreement contains the entire understanding between the parties hereto with respect to the subject matter hereof and supersedes all previous representations, warranties or commitments regarding the services to be performed hereunder whether oral or in writing.

 

11



 

18.                                WAIVER

 

The failure of a party to insist upon strict adherence to any term of this Agreement on any occasion shall not be considered a waiver nor shall it deprive such party of the right thereafter to insist upon strict adherence to that term or any term of this Agreement.  Any waiver must be in writing signed by the waiving party.

 

19.                                SEVERABILITY

 

If any provision of this Agreement is invalid or unenforceable, the balance of the Agreement shall remain in effect, and if any provision is inapplicable to any person or circumstance it shall nevertheless remain applicable to all other persons and circumstances.

 

20.                                GOVERNING LAW

 

This Agreement shall be construed and the provisions thereof interpreted under and in accordance with the laws of The Commonwealth of Massachusetts.

 

21.                                FORCE MAJEURE

 

In the event the Administrator is unable to perform its obligations or duties under the terms of this Agreement arising out of or caused, directly or indirectly, by circumstances beyond its control, including, without limitation, any act of God, strike, riot, act of war, act of terrorism, equipment failure, mechanical failure, power failure or damage, computer virus, governmental action, communication disruption or other causes beyond its control, the Administrator shall not be liable for any loss, damage, cost, charge, counsel fee, payment, expenses or liability to any other party (whether or not a party to this Agreement) resulting from such failure to perform its obligations or duties under this Agreement or otherwise from such causes.

 

22.                                SEPARATE AGREEMENTS

 

The parties affirm and agree that this Agreement shall be enforced as a separate agreement as between the Administrator and the Trust.  Nothing in this Agreement shall be interpreted to combine or collectively enjoin the Trust.  For all purposes, this Agreement shall be considered and interpreted as individual agreements between the Administrator and the Trust.

 

23.                                LIMITATION OF LIABILITY OF THE TRUSTEES AND SHAREHOLDERS

 

A copy of the Trust’s declaration of trust is on file with the Secretary of the Commonwealth of Massachusetts and notice is hereby given that this instrument is executed on

 

12



 

behalf of the Trustees of the Trust as Trustees and not individually and that the obligations of this instrument are not binding upon any of the Trustees or shareholders individually but are binding only upon the assets and property of  the Trust.

 

24.                                REPRODUCTION OF DOCUMENTS

 

This Agreement and all schedules, exhibits, attachments and amendments hereto may be reproduced by any photographic, xerographic, photostatic, microfilm, micro-card, miniature photographic or other similar process. The parties hereto all/each agree that any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding, whether or not the original is in existence and whether or not such reproduction was made by a party in the regular course of business, and that any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence.

 

25.                                COUNTERPARTS

 

This Agreement may be executed by the parties hereto on any number of counterparts, and all of said counterparts taken together shall be deemed to constitute one and the same instrument.  Counterparts may be executed in either original or electronically transmitted form (e.g., faxes or emailed portable document format (PDF) form), and the parties hereby adopt as original any signatures received via electronically transmitted form.

 

[ Remainder of page intentionally left blank. ]

 

13



 

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their officers designated below as of the date first written above.

 

TEKLA WORLD HEALTHCARE FUND

 

 

 

 

 

By:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

 

STATE STREET BANK AND TRUST COMPANY

 

 

 

 

 

By:

 

 

 

 

 

Name:

Gunjan Kedia

 

 

 

 

Title:

Executive Vice President

 

 

14


Exhibit 99.2k.(ii)

 

TRANSFER AGENCY

 

AND SERVICE AGREEMENT

 

between

 

H & Q LIFE SCIENCES &

H & Q HEALTHCARE INVESTORS

 

and

 

COMPUTERSHARE TRUST COMPANY, N.A.

 

and

 

COMPUTERSHARE SHAREHOLDER SERVICES, INC.

 



 

Table of Contents

 

 

 

 

Section 1.

Certain Definitions

4

 

 

 

Section 2.

Appointment of Agent

6

 

 

 

Section 3.

Standard Services

7

 

 

 

Section 4.

Dividend Disbursing Services

8

 

 

 

Section 5.

Shareholder Internet Account Access Services

9

 

 

 

Section 6.

Optional Services and Standards

10

 

 

 

Section 7.

Customer Responsibilites For Employee Plan Services

12

 

 

 

Section 8.

Fee and Expenses

13

 

 

 

Section 9.

Representations and Warranties of Transfer Agent

15

 

 

 

Section 10.

Representations and Warranties of Customer

16

 

 

 

Section 11.

Indemnification/Limitation of Liability

16

 

 

 

Section 12.

Damages

18

 

 

 

Section 13.

Responsibilites of the Transfer Agent

18

 

 

 

Section 14.

Covenants of the Customer and Transfer Agent

19

 

 

 

Section 15.

Data Access and Proprietary Information

20

 

 

 

Section 16.

Confidentiality

21

 

 

 

Section 17.

Term and Termination

22

 

 

 

Section 18.

Assignment

23

 

 

 

Section 19.

Unaffiliated Third Parties

23

 

 

 

Section 20.

Miscellaneous

24

 

 

 

Section 20.1

Notices

24

 

 

 

Section 20.2

Successors

24

 



 

Section 20.3.

Amendments

24

 

 

 

Section 20.4.

Severability

24

 

 

 

Section 20.5.

Governing Law

24

 

 

 

Section 20.6

Force Majeure

25

 

 

 

Section 20.7

Descriptive Headings

25

 

 

 

Section 20.8

Third Party Beneficiaries

25

 

 

 

Section 20.9

Survival

25

 

 

 

Section 20.10

Priorities

25

 

 

 

Section 20.11.

Merger of Agreement

25

 

 

 

Section 20.12

Counterparts

25

 



 

AGREEMENT made as of the 1 st  day of March, 2006, by and between H & Q Life Sciences Investors, Inc. and H & Q Healthcare Investors, a corporation, having its principal office and place of business at 30 Rowes Wharf, 4 th  Floor, Boston, Massachusetts 02110 (each a “Customer” or the “Customer”), and Computershare Shareholder Services, Inc., (formerly known as EquiServe, Inc.) a Delaware corporation, and its fully owned subsidiary Computershare Trust Company, N.A., (formerly known as EquiServe Trust Company, N.A.) a federally chartered trust company doing business at 150 Royall Street, Canton, Massachusetts 02021, (collectively, the “Transfer Agent” or individually “CSS” and the “Trust Company”, respectively).

 

WHEREAS, the Customer desires to appoint the Transfer Agent as sole transfer agent, registrar, administrator of dividend reinvestment plans, option plans, and direct stock purchase plans and CSS as dividend disbursing agent and processor of all payments received or made by Customer under this Agreement.

 

WHEREAS, the Trust Company and CSS desire to accept such respective appointments and perform the services related to such appointments;

 

NOW THEREFORE, in consideration of the mutual covenants herein contained, the parties hereto agree as follows:

 

1.               Certain Definitions.

 

(a)                                  “Account” or “Accounts” shall mean the account of each Shareholder which account shall hold any full or fractional shares of stock held by such Shareholder and/or outstanding funds or tax reporting to be done.

 

(b)                                  “Account Agreement” shall have the meaning set forth in Section 7.10 .

 

(c)                                   “Additional Services” shall mean any and all services which are not Services as set forth in the Fee and Service Schedule, but performed by Transfer Agent upon request of Customer.

 

(d)                                  “Agreement” shall mean this agreement and any and all exhibits or schedules attached hereto and any and all amendments or modifications, which may from time to time be executed.

 

(e)                                   “Annual Period” shall mean each twelve (12) month period commencing on the Effective Date and, thereafter, on each anniversary of the Effective Date.

 

(f)                                    “Closed Account” shall mean an account with a zero share balance, no outstanding funds or no reportable tax information.

 

(g)                                   “Customer ID(s)” shall have the meaning set forth in Section 15.3 .

 

(h)                                  “Data Access Service” shall have the meaning set forth in Section 15.1 .

 

4



 

(i)                                      “Dividend Reinvestment Plan” and “Direct Stock Purchase Plan” shall mean the services as set forth in Section 4 and in the Fee and Service Schedule.

 

(j)                                     “Effective Date” shall mean the date first stated above.

 

(k)                                  “Employee Stock Purchase Plan” and “Employee Stock Option Plan” shall mean the services as set forth in Section 6.

 

(l)                                      “Enrollment Materials” shall mean the Plan brochure, enrollment card and other materials prepared by Transfer Agent for distribution to Participants.

 

(m)                              “Fee and Service Schedule” shall mean the fees and services set forth in the “Fee and Service Schedule” attached hereto.

 

(n)                                  “Grant File” shall have the meaning set forth in Section 7.4 .

 

(o)                                  “Optional Services” shall mean all services described in Section 5 .

 

(p)                                  “Participant” or “Participants” shall mean employees of Customer who have been granted Options in the Option Plan and Customer’s employees who complete and return a signed enrollment form, which is accepted by Transfer Agent for the Employee Stock Purchase Plan, or Shareholders enrolled in a Dividend Reinvestment Plan or Direct Stock Purchase Plan.

 

(q)                                  “Password(s)” shall have the meaning set forth in Section 15.3 .

 

(r)                                     “Payroll File” shall mean the file from Customer delivered to Transfer Agent from time to time setting forth the amount of funds to be delivered on behalf of each Participant in the Employee Stock Purchase Plan and any additional information Transfer Agent may reasonably request.

 

(s)                                    “Plan” or “Plans” shall mean the Customer’s Employee Stock Purchase Plan and Customer’s Employee Stock Option Plan.

 

(t)                                     “Proprietary Information” shall have the meaning set forth in Section 15.4 .

 

(u)                                  “Security Procedures” shall have the meaning set forth in Section 5.1 .

 

(v)                                  “Services” shall mean any and all services as further described herein and in the “Fee and Service Schedule” or other schedules attached hereto.

 

(w)                                “SESO” shall mean the Simultaneous Exercise and Sale of Options services performed by Transfer Agent on behalf of Participants.

 

(x)                                  “Share” shall mean Customer’s common stock, par value $.01 per share authorized by the Customer’s Articles of Incorporation, and other classes of Customer’s stock to be designated by the Customer in writing and for which the Transfer Agent agrees to service under this Agreement.

 

5



 

(y)                                  “Shareholder” shall mean the holder of record of Shares.

 

(z)                                   “Shareholder Data” shall have the meaning set forth in Section 15.2 .

 

(aa) “Shareholder Internet Services” shall have the meaning set forth in Section 5.1 .

 

2.               Appointment of Agent .

 

2.1                                Appointments. The Customer hereby appoints the Transfer Agent to act as sole transfer agent and registrar for all Shares in accordance with the terms and conditions hereof and as administrator of Plans and appoints CSS as dividend disbursing agent and processor of all payments received or made by or on behalf of the Customer under this Agreement, and the Transfer Agent and CSS accept the appointments. Customer shall provide Transfer Agent with certified copies of resolutions dated the date hereof appointing the Trust Company as Transfer Agent.

 

2.2                                Documents . In connection with the appointing of Transfer Agent as the transfer agent and registrar for the Customer, the Customer will provide or has previously provided each of the following documents to the Transfer Agent:

 

(a)                                  Copies of Registration Statements and amendments thereto, filed with the Securities and Exchange Commission for initial public offerings;

 

(b)                                  Specimens of all forms of outstanding stock certificates, in forms approved by the Board of Directors of the Customer, with a certificate of the Secretary of the Customer as to such approval;

 

(c)                                   Specimens of the Signatures of the officers of the Customer authorized to sign stock certificates and individuals authorized to sign written instructions and requests; and

 

(d)                                  An opinion of counsel for the Customer addressed to both the Trust Company and CSS with respect to:

 

(i)                        The Customer’s organization and existence under the laws of its state of organization;

 

(ii)                     The status of all Shares of the Customer covered by the appointment under the Securities Act of 1933, as amended, and any other applicable federal or state statute; and

 

(iii)                  That all issued Shares are, and all unissued Shares will be, when issued, validly issued, fully paid and non-assessable.

 

2.3                                Records . Transfer Agent may adopt as part of its records all lists of holders, records of Customer’s stock, books, documents and records which have been employed by any former agent of Customer for the maintenance of the ledgers for such shares, provided such ledger is certified by an officer

 

6



 

of Customer or the prior transfer agent to be true, authentic and complete.

 

2.4                                Shares . Customer shall, if applicable, inform Transfer Agent as to (i) the existence or termination of any restrictions on the transfer of Shares and in the application to or removal from any certificate of stock of any legend restricting the transfer of such Shares or the substitution for such certificate of a certificate without such legend, (ii) any authorized but unissued Shares reserved for specific purposes, (iii) any outstanding Shares which are exchangeable for Shares and the basis for exchange, (iv) reserved Shares subject to option and the details of such reservation and (v) special instructions regarding dividends and information of foreign holders.

 

2.5                                Customer’s Agent . Transfer Agent represents that it is engaged in an independent business and will perform its obligations under this Agreement as an agent of Customer.

 

2.6                                Certificates . Customer shall deliver to Transfer Agent an appropriate supply of stock certificates, which certificates shall provide a signature panel for use by an officer of or authorized signor for Transfer Agent to sign as transfer agent and registrar, and which shall state that such certificates are only valid after being countersigned and registered.

 

3. Standard Services .

 

3.1                                Transfer Agent Services . The Transfer Agent will perform the following services:

 

In accordance with the procedures established from time to time by agreement between the Customer and the Transfer Agent, the Transfer Agent shall:

 

(a)                                  issue and record the appropriate number of Shares as authorized and hold such Shares in the appropriate Shareholder account;

 

(b)                                  effect transfers of Shares by the registered owners thereof upon receipt of appropriate documentation;

 

(c)                                   act as agent for Shareholders pursuant to the Dividend Reinvestment Plan, and other investment programs as amended from time to time in accordance with the terms of the agreements relating thereto to which the Transfer Agent is or will be a party; and

 

(d)                                  issue replacement certificates for those certificates alleged to have been lost, stolen or destroyed upon receipt by the Transfer Agent of an open penalty surety bond satisfactory to it and holding it and the Customer harmless, absent notice to the Customer and the Transfer Agent that such certificates have been acquired by a bonafide purchaser. The Transfer Agent, at its option, may issue replacement certificates in place of mutilated stock certificates upon presentation thereof without such indemnity. Further, the Transfer Agent may at its sole option accept indemnification from a Customer to issue replacement certificates for those certificates alleged to have been lost, stolen or destroyed in lieu of an open penalty bond.

 

7



 

3.2           CSS Services . In accordance with procedures established from time to time by agreement between the Customer and CSS, CSS shall:

 

(a)                                  prepare and transmit payments for dividends and distributions declared by the Customer, provided good funds for said dividends or distributions are received by CSS prior to the scheduled payable date for said dividends or distributions;

 

(b)                                  issue replacement checks and place stop orders on original checks based on shareholder’s representation that a check was not received or was lost. Such stop orders and replacements will be deemed to have been made at the request of Customer, and Customer shall be responsible for all losses or claims resulting from such replacement; and

 

(c)                                   Receive all payments made to the Customer or the Transfer Agent under the Dividend Reinvestment Plan, Direct Stock Purchase Plan, and Plans and make all payments required to be made under such plans, including all payments required to be made to the Customer.

 

3.3                                Customary Services . The Transfer Agent shall perform all the customary services of a transfer agent, agent of dividend reinvestment plan, cash purchase plan and other investment programs as described in Section 3.1 consistent with those requirements in effect as of the date of this Agreement. CSS shall perform all the customary services of a dividend disbursing agent and a processor of payments as described in Section 3.2 consistently with those requirements in effect as of the date of this Agreement. The detailed services and definition, frequency, limitations and associated costs (if any) of the Services to be performed by the Transfer Agent are set out in the attached Fee and Service Schedule.

 

3.4                                Compliance with Laws . The Customer agrees that each of the Trust Company and CSS is obligated to and the Trust Company and CSS agree to comply with all applicable federal, state and local laws and regulations, codes, order and government rules in the performance of its duties under this Agreement.

 

3.5                                Unclaimed Property and Lost Shareholders . The Transfer Agent shall report unclaimed property to each state in compliance with state law and Section 17Ad-17 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for lost Shareholders. If the Customer is not in compliance with applicable state laws, there will be no charge for the first two years for this service, other than a charge of $3.00 per due diligence notice mailed; provided that after the first two years, the Transfer Agent will charge Customer its then standard fee plus any out-of-pocket expenses.

 

3.6                                Compliance with Office of Foreign Asset Control (“OFAC”) Regulations . The Transfer Agent shall ensure compliance with OFAC laws.

 

4. Dividend Disbursing Services .

 

4.1                                Declaration of Dividends . Upon receipt of a written notice from the President, any Vice President, Secretary, Assistant Secretary, Treasurer or Assistant Treasurer of Customer declaring the payment of a dividend, CSS shall disburse such dividend payments provided that in advance of such payment, Customer furnishes CSS with sufficient funds. The payment of such funds to CSS for the

 

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purpose of being available for the payment of dividend checks from time to time is not intended by Customer to confer any rights in such funds on Customer’s Shareholders whether in trust or in contract or otherwise.

 

4.2                                Stop Payments . Customer hereby authorizes CSS to stop payment of checks issued in payment of dividends, but not presented for payment, when the payees thereof allege either that they have not received the checks or that such checks have been mislaid, lost, stolen, destroyed or, through no fault of theirs, are otherwise beyond their control and cannot be produced by them for presentation and collection, and CSS shall issue and deliver duplicate checks in replacement thereof, and Customer shall indemnify Transfer Agent against any loss or damage resulting from reissuance of the checks.

 

4.3                                Tax Withholding . CSS is hereby authorized to deduct from all dividends declared by Customer and disbursed by CSS, as dividend disbursing agent, the tax required to be withheld pursuant to Sections 1441, 1442 and 3406 of the Internal Revenue Code of 1986, as amended, or by any Federal or State statutes subsequently enacted, and to make the necessary return and payment of such tax in connection therewith.

 

5. Shareholder Internet Account Access Services .

 

5.1                                Shareholder Internet Services . The Transfer Agent shall provide internet access to Customer’s shareholders through Transfer Agent’s web site, equiserve.com (“Shareholder Internet Services”), pursuant to its established procedures (“Security Procedures”), to allow shareholders to view their account information and perform certain on-line transaction request capabilities. The Shareholder Internet Services shall be provided at no additional charge at this time, other than the transaction fees currently being charged for the different transactions as described on the Fee and Service Schedule. The Transfer Agent reserves the right to charge a fee for this service at any time in the future.

 

5.2                                Scope of Transfer Agent Shareholder Internet Services Obligations . Transfer Agent shall at all times use reasonable care in performing Shareholder Internet Services under this Agreement. In the absence of breach of its duties under this Agreement, Transfer Agent shall not be liable for any action taken, suffered, or omitted by it or for any error made by it in the performance of its services under this Agreement. With respect to any claims for losses, damages, costs or expenses which may arise directly or indirectly from Security Procedures which Transfer Agent has implemented or omitted, Transfer Agent shall be presumed to have used reasonable care if it has followed, in all material respects, its Security Procedures then in effect. Transfer Agent may, but shall not be required to, modify such Security Procedures from time to time to the extent it believes, in good faith, that such modifications will enhance the security of Shareholder Internet Services. All data and information transmissions accessed via Shareholder Internet Services are for informational purposes only, and are not intended to satisfy regulatory requirements or comply with any laws, rules, requirements or standards of any federal, state or local governmental authority, agency or industry regulatory body, including the securities industry, which compliance is the sole responsibility of Customer.

 

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5.3                                No Other Warranties.

 

EXCEPT AS OTHERWISE EXPRESSLY STATED IN SECTION 5.2 OF THIS AGREEMENT, THE SHAREHOLDER INTERNET SERVICES ARE PROVIDED “AS-IS,” ON AN “AS AVAILABLE” BASIS, AND TRANSFER AGENT HEREBY SPECIFICALLY DISCLAIMS ANY AND ALL REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, REGARDING SUCH SERVICES PROVIDED BY TRANSFER AGENT HEREUNDER, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE AND IMPLIED WARRANTIES ARISING FROM COURSE OF DEALING OR COURSE OF PERFORMANCE.

 

6. Optional Services and Standards.

 

6.1                                Optional Services.

 

To the extent that Customer elects to engage any entity other than the Transfer Agent (“Client Vendor”) to provide the services listed below the Customer shall give the Transfer Agent the Transfer Agent the right of first refusal to provide such services upon same terms and fees as the Client Vendor:

 

(a)                                  Employee plan services;

 

(b)                                  Employee Stock Purchase Plan Programs; and

 

(c)                                   Corporate actions (including inter alia, odd lot buy backs, exchanges, mergers, redemptions, subscriptions, capital reorganization, coordination of post-merger services and special meetings).

 

In the event that the Client Vendor provides that above services, the Client shall pay the Transfer Agent its standard fees and expenses charged by the Transfer Agent for services rendered to support the above services rendered by the Vendor for the benefit of the Client.

 

6.2                                Standards .

 

Optional Services shall be provided as follows:

 

(a)                                  Transfer Agent shall, as exercise and sales agent for Customer in connection with the Employee Stock Option Plan, execute the Options granted by Customer to Participants and sell any related Shares in accordance with Transfer Agent’s generally applicable guidelines for plans of this type. Transfer Agent shall establish an Account for each such Participant and shall maintain a record of each transaction in such Account.

 

(b)                                  In executing purchases and sales of Shares in connection with the Plans, Transfer Agent shall act independently of Customer and shall not consult with or be directed or influenced by Customer in any way. Subject only to the provisions of the Agreement, Transfer Agent shall have full discretion as to all matters relating to such purchases, including determining the number of Shares, if any, to be purchased on any day or at any time of that day, the prices paid for such Shares, the markets on which such purchases are made, and the persons (including the brokers-dealers) from or through whom such

 

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purchases are made.

 

(c)                                   Transfer Agent shall not be obligated to purchase Shares for any Participant of the Employee Stock Purchase Plan until Transfer Agent (i) is advised by CSS of its receipt from the Customer for each such purchase of available funds (which, in the case of funds transmitted by check, shall mean funds cleared for payment by CSS’s bank), (ii) receives the Payroll File from Customer, and (iii) reconciles the funds received by CSS with the Payroll File to determine that the aggregate amount of funds received correspond to the aggregate of the amounts specified in the Payroll File.

 

(d)                                  Transfer Agent shall provide Enrollment Materials to Customer for distribution to each potential Participant, which materials shall include, when properly completed, the forms accepted by Transfer Agent to establish an Account. These Enrollment Materials shall be Transfer Agent’s standard forms (unless otherwise requested by Customer and agreed to in advance by Transfer Agent, in which event, Customer shall be charged a fee). In the event another firm has previously provided services similar to those provided by Transfer Agent hereunder in respect to the Plan, Transfer Agent shall not be obligated to receive in any Account assets from such firm until it has accepted properly completed Enrollment Materials from each Participant involved and reconciled the assets received with information received from such firm or Customer detailing the allocation of those assets to each relevant Account; provided that Transfer Agent shall have no responsibility for determining the accuracy of the information received or for the reconciling of such information with any Participant’s entitlements under the Plan.

 

(e)                                   Transfer Agent shall provide exercise forms and information materials regarding SESO to Customer for distribution to each Participant in the Employee Stock Option Plan, which material shall include, when properly completed, authorization for Transfer Agent to sell the Shares. These materials shall be Transfer Agent’s standard forms (unless otherwise requested by Customer and agreed to in advance by Transfer Agent, in which event, Customer shall be charged a fee pursuant to Section 8 of this Agreement).

 

(f)                                    Transfer Agent shall transmit to each Participant all proxy statements, annual reports, meeting notices and other materials received from Customer with respect to Shares acquired pursuant to the Plan and held in the Participant’s Account. Proxies shall be voted with respect to full Shares held in a Participant’s Account in accordance with the Participant’s instructions duly delivered to Transfer Agent.

 

(g)                                   Transfer Agent shall prepare and distribute periodically to each Participant a statement as to the Share acquired for the Participant’s Account under the Plan. Transfer Agent shall provide Customer with summary data regarding Plan Accounts as reasonably requested by Customer and replacement transaction information upon request.

 

(h)                                  Transfer Agent shall maintain a record of all Options granted by Customer to Participants of the Employee Stock Option Plan including any restricted share awards, and the date each Option granted vests in each account. Transfer Agent shall report to Customer the date on which such Participant exercises an Option and, on a periodic basis, any and all Account information reasonably requested by Customer, in such form as

 

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mutually agreed to by the parties. Transfer Agent shall prepare and distribute to each Participant a statement as to the Options granted, Shares acquired and Shares sold for each Account under the Plan.

 

7. Customer Responsibilities For Employee Plan Services.

 

7.1                                Payroll Files . Customer shall furnish to Transfer Agent, in a format prescribed by Transfer Agent, all Payroll Files and employee payroll and other information which, Transfer Agent may require in order to perform its Services or calculate its fees under the Agreement. In particular, but not by way of limitation, Customer shall notify Transfer Agent in the manner specified by Transfer Agent of the name and Account number of each Participant who terminates participation in the Plan whether by reason of termination of employment with Customer, cessation of payroll deductions or otherwise. Transfer Agent shall be entitled to rely upon the accuracy and completeness of all information which it reasonably believes to have been furnished to it by Customer or at Customer’s direction and shall have no duty to inquire about such information or about the application of any funds, securities or other assets held by Customer under the Plan.

 

7.2                                Enrollment Materials . Customer shall distribute to each of its employees, and to each employee of any subsidiary or affiliate of Customer participating in the Plan who is eligible to become a Participant, a copy of the Enrollment Materials or a copy of the SESO exercise form and shall be solely responsible for collecting and delivering to Transfer Agent a new account application properly completed and executed by each Participant. Customer shall in no event permit an employee who has not attained the age of majority in the state in which the employee resides to become a Participant and shall refuse to accept Enrollment Materials completed by such an individual.

 

7.3                                Employee Deductions . Customer shall collect all amounts deductible pursuant to the Employee Share Purchase Plan from the compensation of Participants and any other amounts contributed by the Participants pursuant to the Plan and shall make all required contributions, if any, in accordance with such Plan, and shall hold such amounts until delivered to CSS.

 

7.4                                Payroll and Grant Files . Customer shall deliver each Payroll File and grant file (“Grant File”) to Transfer Agent in a machine-readable format conforming to specifications furnished by Transfer Agent from time to time. If a Payroll File or Grant File does not conform to such specifications, processing of such Payroll File by Transfer Agent shall not be required. Each Payroll File shall be reconciled by Customer against the funds and/or Shares referenced in such file prior to delivery of the file to Transfer Agent. If any Payroll File or Grant File submitted to Transfer Agent is incomplete, incorrect or subsequently changed by Customer, Transfer Agent shall not be required to correct, change or otherwise prepare such file for processing unless Customer pays additional fees for customized and manual processing.

 

7.5                                Payment of Funds . All remittances of funds by Customer to CSS with respect to the Employee Share Purchase Plan shall be made either by check or by wire transfer in accordance with instructions received from CSS. All Payroll Files and Grant Files shall be delivered to Transfer Agent at the place and in the manner specified in instructions transmitted by Transfer Agent to Customer.

 

7.6                                Customer Deliveries . All funds paid to CSS and all Payroll Files and Grant Files delivered to Transfer Agent on behalf of Customer and any of its subsidiaries participating in the Plan, as well as all

 

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other notices and instructions relating to the plan or this Agreement, shall be delivered by the department, office or source within Customer, or other person acting on behalf of Customer, specified by Customer. For purposes of the Agreement, any action taken by any person acting on behalf of Customer shall be considered as an action by Customer. Delivery of funds or Payroll Files or Grant Files other than in accordance with Section 7.4 and Section 7.5 shall not constitute delivery within the meaning of the Agreement.

 

7.7                                Reports and Statements . Each report and statement issued by Transfer Agent shall be deemed correct unless Transfer Agent receives written notice of any incorrectness, incompleteness or inaccuracy in the report or statement within thirty (30) days.

 

7.8                                Content of Communications . Customer shall obtain the prior written consent of Transfer Agent to any reference to Transfer Agent or to Services to be furnished by Transfer Agent in any communication or document pertaining to the Plan not prepared by Transfer Agent; provided that Transfer Agent shall have no responsibility or liability for the content of any such communication or document.

 

7.9                                Errors . Customer will promptly notify Transfer Agent of any errors or omissions in information supplied by Customer. In such an event, or in the event Transfer Agent executes a purchase of Shares and subsequently discovers an error or omission in information supplied to it by Customer, Transfer Agent’s sole obligation shall be to use reasonable efforts to correct any resulting errors in any reports prepared for Customer or any Participant, and Customer assumes responsibility for any loss incurred by Transfer Agent.

 

7.10                         Account Agreements . Each Account established for a Participant may be used by the Participant for transactions in such securities (including securities not issued by Customer) and other assets as are allowable for investment by Transfer Agent. The relationship between Transfer Agent and each Participant with respect to the Account and transactions therein shall be governed by a separate agreement between them (an “Account Agreement”) which constitutes part of the Enrollment Materials. Each Account Agreement, unless previously terminated, shall survive the termination of the Agreement, and each Account Agreement and the fees and commissions applied thereunder may be amended from time to time in accordance with the terms thereof without notice to or consent from Customer. Transfer Agent may, at its own expense, solicit indications of interest from or make offers to the Participants regarding securities, or other assets or services upon the consent of Customer, but Customer shall have no responsibility to assist Transfer Agent or make any recommendations to Participants in this regard.

 

8. Fees and Expenses.

 

8.1 Fee and Service Schedules . Customer agrees to pay Transfer Agent the fees for Services performed pursuant to this Agreement as set forth in the Fee and Service Schedule attached hereto, for the initial term of the Agreement (the “Initial Term”).

 

8.2                                COLA/Fee Increases . After the Initial Term of the Agreement, providing that service mix and volumes remain constant, the fees listed in the Fee and Service Schedule shall be increased (a) by the accumulated change in the National Employment Cost Index for Service Producing Industries (Finance, Insurance, Real Estate) for the preceding years of the contract, as published by the Bureau of Labor Statistics of the United States Department of Labor or (b) to the Transfer Agent’s minimum fee then in effect, whichever is greater. Fees will be increased on this basis on each successive contract anniversary thereafter.

 

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8.3                                Adjustments . Notwithstanding Section 8.1 above, fees, and the out-of-pocket expenses and advances identified under Section 8.4 below, may be changed from time to time as agreed upon in writing between the Transfer Agent and the Customer.

 

8.4                                Out-of-Pocket Expenses . In addition to the fees paid under Section 8.1 above, the Customer agrees to reimburse the Transfer Agent for out-of-pocket expenses, including but not limited to postage, Transfer Agent administrative costs, forms, telephone, microfilm, microfiche, taxes, records storage, exchange and broker fees, or advances incurred by the Transfer Agent for the items set out in Exhibit A attached hereto. In addition, any other expenses incurred by the Transfer Agent at the request or with the consent of the Customer, will be reimbursed by the Customer.

 

8.5                                Conversion Funds . Conversion funding required by any out of proof condition caused by a prior agents’ services shall be advanced to Transfer Agent prior to the commencement of services.

 

8.6                                Postage . Postage for mailing of dividends, proxies, Customer reports and other mailings to all Shareholder Accounts shall be advanced to the Transfer Agent by the Customer prior to commencement of the mailing date of such materials.

 

8.7                                Invoices . The Customer agrees to pay all fees and reimbursable expenses within 30 days of the date of the respective billing notice, except for any fees or expenses that are subject to good faith dispute. In the event of such a dispute, the Customer may only withhold that portion of the fee or expense subject to the good faith dispute. The Customer shall notify the Transfer Agent in writing within twenty-one (21) calendar days following the receipt of each billing notice if the Customer is disputing any amounts in good faith. If the Customer does not provide such notice of dispute within the required time, the billing notice will be deemed accepted by the Customer. The Customer shall settle such disputed amounts within five (5) business days of the day on which the parties agree on the amount to be paid by payment of the agreed amount. If no agreement is reached, then such disputed amounts shall be settled as may be required by law or legal process.

 

8.8                                Taxes . Customer shall pay all sales or use taxes in lieu thereof with respect to the Services (if applicable) provided by Transfer Agent under this Agreement.

 

8.9                                Late Payments .

 

(a)               If any undisputed amount in an invoice of the Transfer Agent (for fees or reimbursable expenses) is not paid when due, the Customer shall pay the Transfer Agent interest thereon (from the due date to the date of payment) at a per annum rate equal to one percent (1.0%) plus the Prime Rate (that is, the base rate on corporate loans posted by large domestic banks) published by The Wall Street Journal (or, in the event such rate is not so published, a reasonably equivalent published rate selected by Customer on the first day of publication during the month when such amount was due). Notwithstanding any other provision hereof, such interest rate shall be no greater than permitted under applicable provisions of Massachusetts or New Jersey law.

 

(b) The failure by Customer to pay an invoice within 90 days after receipt of such invoice or the failure by the Customer to timely pay two consecutive invoices shall constitute a material breach pursuant to Section 17.4(a)  below. The Transfer Agent may terminate this Agreement for such material breach

 

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immediately and shall not be obligated to provide the Customer with 30 days to cure such breach.

 

8.10                         Services Required by Legislation . Services required by legislation or regulatory mandate that become effective after the Effective Date of this Agreement shall not be part of the Services, and shall be billed by appraisal.

 

8.11                         Overtime Charges . Overtime charges will be assessed in the event of a late delivery to the Transfer Agent of Customer material for mailings to Shareholders, unless the mail date is rescheduled. Such material includes, but is not limited to, proxy statements, quarterly and annual reports, dividend enclosures and news releases.

 

8.12                         Bank Accounts . The Customer acknowledges that the bank accounts maintained by CSS in connection with the Services will be in its name and that CSS may receive investment earnings in connection with the investment at CSS’s risk and for its benefit of funds held in those accounts from time to time.

 

9. Representations and Warranties of Transfer Agent .

 

9.1                                Governance . The Trust Company is a federally chartered limited purpose national bank duly organized under the laws of the United States and CSS is a corporation validly existing and in good standing under the laws of the State of Delaware and each has full corporate power, authority and legal right to execute, deliver and perform this Agreement. The execution, delivery and performance of this Agreement by Transfer Agent has been duly authorized by all necessary corporate action and constitutes the legal valid and binding obligation of Transfer Agent enforceable against Transfer Agent in accordance with its terms.

 

9.2                                Compliance . The execution, delivery and performance of the Agreement by Transfer Agent will not violate, conflict with or result in the breach of any material term, condition or provision of, or require the consent of any other party to, (i) any existing law, ordinance, or governmental rule or regulation to which Transfer Agent is subject, (ii) any judgement, order, writ, injunction, decree or award of any court, arbitrator or governmental or regulatory official, body or authority which is applicable to Transfer Agent, (iii) the incorporation documents or by-laws of , or any material agreement to which Transfer Agent is a party.

 

9.3                                Facilities . The Transfer Agent has and will continue to have access to the necessary facilities, equipment and personnel to perform its duties and obligations under this Agreement.

 

9.4                                Computer Services . DATA ACCESS SERVICE AND ALL COMPUTER PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE PROVIDED ON AN AS IS, AS AVAILABLE BASIS. TRANSFER AGENT EXPRESSLY DISCLAIMS ALL WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE. CUSTOMER HEREBY ACKNOWLEDGES THAT THE DATA ACCESS SERVICE MAY NOT BE OR BECOME AVAILABLE DUE TO ANY NUMBER OF FACTORS INCLUDING WITHOUT LIMITATION PERIODIC SYSTEM MAINTENANCE, SCHEDULED OR UNSCHEDULED, ACTS OF GOD, TECHNICAL FAILURE, TELECOMMUNICATIONS INFRASTRUCTURE OR DELAY OR DISRUPTION ATTRIBUTABLE TO VIRUSES, DENIAL OF SERVICE ATTACKS, INCREASED OR FLUCTUATING DEMAND, AND ACTIONS AND OMISSIONS OF THIRD PARTIES. THEREFORE TRANSFER AGENT EXPRESSLY DISCLAIMS

 

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ANY EXPRESS OR IMPLIED WARRANTY REGARDING SYSTEM AND/OR DATA ACCESS SERVICE AVAILABILITY, ACCESSABILITY, OR PERFORMANCE.

 

10.             Representations and Warranties of Customer.

 

The Customer represents and warrants to the Transfer Agent that:

 

10.1                                   Organizations . It is a corporation duly organized and existing and in good standing under the laws of Massachusetts;

 

10.2                                   Governance. It is empowered under applicable laws and by its Articles of Incorporation and By-Laws to enter into and perform this Agreement. All corporate proceedings required by said Articles of Incorporation, By-Laws and applicable law have been taken to authorize it to enter into and perform this Agreement; and

 

10.3                                   Securities Act of 1933. A registration statement under the Securities Act of 1933, as amended (the “1933 Act”) has been filed and is currently effective, or will be effective prior to the sale of any Shares, and will remain so effective, and all appropriate state securities law filings have been made with respect to all the Shares of the Customer being offered for sale except for any Shares which are offered in a transaction or series of transactions which are exempt from the registration requirements of the 1933 Act and state securities laws; information to the contrary will result in immediate notification to the Transfer Agent.

 

11.             Indemnification/Limitation of Liability.

 

11.1                         Standard of Care. The Transfer Agent shall at all times act in good faith and agrees to use its best efforts within reasonable time limits to insure the accuracy of all services performed under this Agreement, but assumes no responsibility and shall not be liable for loss or damage due to errors unless said errors are caused by its negligence, bad faith or willful misconduct or that of its employees as set forth and subject to the limitations set forth in Section 11.4 below.

 

11.2                         Customer Indemnity . The Transfer Agent shall not be responsible for, and the Customer shall indemnify and hold the Transfer Agent harmless from and against, any and all losses, claims, damages, costs, charges, counsel fees and expenses, payments, expenses and liability arising out of or attributable to:

 

(a)                                  All actions of the Transfer Agent or its agents or subcontractors required to be taken pursuant to this Agreement, provided such actions are taken in good faith and without negligence or willful misconduct;

 

(b)                                  The Customer’s lack of good faith, negligence or willful misconduct or the breach of any representation or warranty of the Customer hereunder;

 

(c)                                   The reliance or use by the Transfer Agent or its agents or subcontractors of information, records and documents which (i) are received by the Transfer Agent or its agents or subcontractors and furnished to it by or on behalf of the Customer, and (ii) have been prepared and /or maintained by the Customer or any other person or firm on behalf of the Customer. Such other person or firm

 

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shall include any former transfer agent or former registrar, or co-transfer agent or co-registrar or any current registrar where the Transfer Agent is not the current registrar;

 

(d)                                  The reliance or use by the Transfer Agent or its agents or subcontractors of any paper or document reasonably believed to be genuine and to have been signed by the proper person or persons including Shareholders or electronic instruction from Shareholders submitted through the shareholder Internet Services or other electronic means pursuant to security procedures established by the Transfer Agent;

 

(e)                                   The reliance on, or the carrying out by the Transfer Agent or its agents or subcontractors of any instructions or requests of the Customer’s representatives;

 

(f)                                    The offer or sale of Shares in violation of any federal or state securities laws requiring that such Shares be registered or in violation of any stop order or other determination or ruling by any federal or state agency with respect to the offer or sale of such Shares;

 

(g) The negotiations and processing of all checks, including checks made payable to prospective or existing shareholders which are tendered to the Transfer Agent for the purchase of Shares (commonly known as “third party checks”);

 

(h) Any actions taken or omitted to be taken by any former agent of Customer and arising from Transfer Agent’s reliance on the certified list of holders; and

 

(i)                                      The negotiation, presentment, delivery or transfer of Shares through the Direct Registration System Profile System.

 

11.3                         Instructions . At any time the Transfer Agent may apply to any officer of the Customer for instruction, and may consult with legal counsel for the Transfer Agent or the Customer with respect to any matter arising in connection with the services to be performed by the Transfer Agent under this Agreement, and Transfer Agent and its agents and subcontractors shall not be liable and shall be indemnified by the Customer for any action taken or omitted by it in reliance upon such instructions or upon the advice or opinion of such counsel. The Transfer Agent, its agents and subcontractors shall be protected and indemnified in acting upon any paper or document reasonably believed to be genuine and to have been signed by the proper person or persons, or upon any instruction, information, data, records or documents provided the Transfer Agent or its agents or subcontractors by telephone, in person, machine readable input, telex, CRT data entry or similar means authorized by the Customer, and shall not be held to have notice of any change of authority of any person, until receipt of written notice thereof from the Customer. The Transfer Agent, its agents and subcontractors shall also be protected and indemnified in recognizing stock certificates which are reasonably believed to bear the proper manual or facsimile signatures of officers of the Customer, and the proper countersignature of any former transfer agent or former registrar, or of a co-transfer agent or co-registrar.

 

11.4                         Transfer Agent Indemnification/Limitation of Liability . Transfer Agent shall be responsible for and shall indemnify and hold the Customer harmless from and against any and all losses, damages, costs, charges, counsel fees, payments, expenses and liability arising out of or attributable to Transfer Agent’s refusal or failure to comply with the terms of this Agreement, or which arise out of Transfer Agent’s negligence or willful misconduct or which arise out of the breach of any representation or warranty of

 

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Transfer Agent hereunder, for which Transfer Agent is not entitled to indemnification under this Agreement; provided, however, that Transfer Agent’s aggregate liability during any term of this Agreement with respect to, arising from, or arising in connection with this Agreement, or from all services provided or omitted to be provided under this Agreement, whether in contract, or in tort, or otherwise, is limited to, and shall not exceed, the amounts paid hereunder by the Customer to Transfer Agent as fees and charges, but not including reimbursable expenses, during the six (6) calendar months immediately preceding the event for which recovery from the Transfer Agent is being sought.

 

11.5                         Notice. In order that the indemnification provisions contained in this Section shall apply, upon the assertion of a claim for which one party may be required to indemnify the other, the party seeking indemnification shall promptly notify the other party of such assertion, and shall keep the other party advised with respect to all developments concerning such claim. The indemnifying party shall have the option to participate with the indemnified party in the defense of such claim or to defend against said claim in its own name or the name of the indemnified party. The indemnified party shall in no case confess any claim or make any compromise in any case in which the indemnifying party may be required to indemnify it except with the indemnifying party’s prior written consent.

 

12.             Damages.

 

NO PARTY SHALL BE LIABLE FOR ANY INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES OF ANY NATURE WHATSOEVER, INCLUDING, BUT NOT LIMITED TO, LOSS OF ANTICIPATED PROFITS, OCCASIONED BY A BREACH OF ANY PROVISION OF THIS AGREEMENT EVEN IF APPRISED OF THE POSSIBILITY OF SUCH DAMAGES.

 

13.             Responsibilities of the Transfer Agent.

 

The Transfer Agent undertakes the duties and obligations imposed by this Agreement upon the following terms and conditions, by all of which the Customer, by its acceptance hereof, shall be bound:

 

13.1                         Whenever in the performance of its duties hereunder the Transfer Agent shall deem it necessary or desirable that any fact or matter be proved or established prior to taking or suffering any action hereunder, such fact or matter may be deemed to be conclusively proved and established by a certificate signed by the Chairman of the Board, the President, any Vice President, the Treasurer, any Assistant treasurer, the Secretary or any Assistant Secretary of the Customer and delivered to the Transfer Agent. Such certificate shall be full authorization to the recipient for any action taken or suffered in good faith by it under the provisions of this Agreement in reliance upon such certificate.

 

13.2                         The Customer agrees that it will perform, execute, acknowledge and deliver or cause to be performed, executed, acknowledged and delivered all such further and other acts, instruments and assurances as may reasonably be required by the Transfer Agent for the carrying out, or performing by the Transfer Agent of the provisions of this Agreement.

 

13.3                         Transfer Agent, any of its affiliates or subsidiaries, and any stockholder, director, officer or employee of the Transfer Agent may buy, sell or deal in the securities of the Customer or become pecuniary interested in any transaction in which the Customer may be interested, or contract with or lend money to the Customer or otherwise act as fully and freely as though it were not appointed as agent

 

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under this Agreement. Nothing herein shall preclude the Transfer Agent from acting in any other capacity for the Customer or for any other legal entity.

 

13.4                    No provision of this Agreement shall require the Transfer Agent to expend or risk its own funds or otherwise incur any financial liability in the performance of any of its duties hereunder or in the exercise of its rights if it shall believe in good faith that repayment of such funds or adequate indemnification against such risk or liability is not reasonably assured to it.

 

14.             Covenants of the Customer and Transfer Agent.

 

14.1                         Customer Corporate Authority . The Customer shall furnish to the Transfer Agent the following;

 

(a)                                            A copy of the Articles of Incorporation and By-Laws of the Customer;

 

(b)                                            Copies of all material amendments to its Articles of Incorporation or By-Laws made after the date of this Agreement, promptly after such amendments are made; and

 

(c)                                             A certificate of the Customer as to the Shares authorized, issued and outstanding, as well as a description of all reserves of unissued Shares relating to the exercise of options, warrants or a conversion of debentures or otherwise.

 

14.2                         Transfer Agent Facilities . The Transfer Agent hereby agrees to establish and maintain facilities and procedures reasonably acceptable to the Customer for the safekeeping of stock certificates, check forms and facsimile signature imprinting devices, if any, and for the preparation, use, and recordkeeping of such certificates, forms and devices.

 

14.3                         Records . The Transfer Agent shall keep records relating to the services to be performed hereunder, in the form and manner as it may deem advisable. The Transfer Agent agrees that all such records prepared or maintained by it relating to the services performed hereunder are the property of the Customer and will be preserved, maintained and made available in accordance with the requirements of law, and will be surrendered promptly to the Customer on and in accordance with its request.

 

14.4                         Confidentiality . The Transfer Agent and the Customer agree that all books, records, information and data pertaining to the business of the other party which are exchanged or received pursuant to the negotiation or the carrying out of this Agreement shall remain confidential, and shall not be voluntarily disclosed to any other person, except as may be required by law.

 

14.5                         Non-Solicitation of Transfer Agent Employees . Customer shall not attempt to hire or assist with the hiring of an employee of EquiServe or affiliated companies or encourage any employee to terminate their relationship with EquiServe or its affiliated companies.

 

14.6                         Notification . Customer shall notify Transfer Agent as soon as possible in advance of any stock split, stock dividend similar event which may affect the Shares, and any bankruptcy, insolvency, moratorium or other proceeding regarding Customer affecting the enforcement of creditors’ rights. Notwithstanding any other provision of the Agreement to the contrary, Transfer Agent will have no obligation to perform any Services under the Agreement subsequent to the commencement of any

 

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bankruptcy, insolvency, moratorium or other proceeding regarding Customer affecting the enforcement of creditor’ rights unless Transfer Agent receives assurance satisfactory to it that it will receive full payment for such services. Further, Customer may not assume the Agreement after the filing of a bankruptcy petition without transfer agents written consent.

 

15.             Data Access Service and Proprietary Information.

 

15.1                         Transfer Agent has developed a data access service that enables the Customer to access the Customer’s shareholder records maintained on Transfer Agent’s computer system through the Internet or remote access, as the case may be (the “Data Access Service”). The Customer wishes to use such Data Access Service subject to the terms and conditions set forth herein. Therefore, the Customer and Transfer Agent agree as follows:

 

15.2                         Access to Shareholder Data.

 

The Service provided to the Customer pursuant to this Agreement shall include granting the Customer access to the Shareholder, Customer and proxy information (“Shareholder Data”) maintained on the records database for the purpose of examining, maintaining, editing, or processing transactions with respect to Shareholder Data.

 

15.3                         Procedures for Access.

 

To use the Data Access Service, the Customer must access through the Internet or remote terminal, as the case may be, pursuant to the procedures provided by Transfer Agent. Such access is accomplished by entering a unique Customer identification (“Customer ID(s)”) and passwords (“Password(s)”) assigned to the Customer by Transfer Agent. Each Customer ID and Password assigned to the Customer is for use only by the Customer. The Customer shall establish and maintain reasonable security and control over all such Customer IDs and Passwords. Transfer Agent shall maintain reasonable security and control over each Customer ID. After Transfer Agent assigns the Customer a Password, the Customer shall change the Password. The Customer recognizes that Transfer Agent does not have knowledge of the Password, which is selected by the Customer and is within the Customer’s exclusive control after the necessary change. The Customer may change any Password thereafter at any time. Customer agrees to notify Transfer Agent immediately if any employee of Customer granted access to the Data Access Service leaves the employ of the Customer, in order to enable Transfer Agent to terminate such employee’s access.

 

15.4                         Proprietary Information .

 

The Customer acknowledges that the databases, computer programs, screen formats, report formats, interactive design techniques, and documentation manuals furnished to the Customer by the Transfer Agent as part of the Data Access Service to access Shareholder Data maintained by the Transfer Agent on data bases under the control and ownership of the Transfer Agent or other third party constitute copyrighted, trade secret, or other proprietary information (collectively, “Proprietary Information”) of substantial value to the Transfer Agent or other third party. In no event shall Proprietary Information be deemed Shareholder Data. The Customer agrees to treat all Proprietary Information as proprietary to the Transfer Agent and further agrees that it shall not divulge any Proprietary Information to any person or

 

20



 

organization except as may be provided hereunder. Without limiting the foregoing, the Customer agrees for itself and its employees and agents:

 

(a)                                            to refrain from copying or duplicating in any way the Proprietary Information, other than to print out pages reflecting Shareholder Data to provide to shareholders or for Customer’s internal use;

 

(b)                                            to refrain from obtaining unauthorized access to any portion of the Proprietary Information, and if such access is inadvertently obtained, to inform Transfer Agent in a timely manner of such fact and dispose of such information in accordance with Transfer Agent’s instructions;

 

(c)                                             to refrain from causing or allowing the Proprietary Information from being retransmitted to any other computer facility or other location, except with the prior written consent of Transfer Agent;

 

(d)                                            that the Customer shall have access only to those authorized transactions agreed upon by the parties; and

 

(e)                                             to honor all reasonable written requests made by Transfer Agent to protect at Transfer Agent’s expense the rights of Transfer Agent Proprietary Information at common law, under federal copyright law and under other federal or state law.

 

Each party shall take reasonable efforts to advise its employees of their obligations pursuant to this Section 15 .

 

15.5                         Content . If the Customer notifies the Transfer Agent that any part of the Data Access Service does not operate in material compliance with the user documentation provided by the Transfer Agent for such service, the Transfer Agent shall endeavor in a timely manner to correct such failure. Organizations from which the Transfer Agent may obtain certain data included in the Services are solely responsible for the contents of such data and the Customer agrees to make no claim against the Transfer Agent arising out of the contents of such third party data, including, but not limited to, the accuracy thereof.

 

15.6                         Transactions . If the transactions available to the Customer include the ability to originate electronic instructions to the Transfer Agent in order to (i) effect the transfer or movement of Shares or direct CSS to transfer cash or (ii) transmit Shareholder information or other information, then in such event the Transfer Agent shall be entitled to rely on the validity and authenticity of such instructions without undertaking any further inquiry as long as such instructions are undertaken in conformity with security procedures established by the Transfer Agent from time to time.

 

16.                                Confidentiality.

 

16.1                         Covenant. The Transfer Agent and the Customer agree that they will not, at any time during the term of this Agreement or after its termination, reveal, divulge, or make known to any person, firm, corporation or other business organization, any customers’ lists, trade secrets, cost figures and projections, profit figures and projections, or any other secret or confidential information whatsoever,

 

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whether of the Transfer Agent or of the Customer, used or gained by the Transfer Agent or the Customer during performance under this Agreement. The Customer and the Transfer Agent further covenant and agree to retain all such knowledge and information acquired during and after the term of this Agreement respecting such lists, trade secrets, or any secret or confidential information whatsoever in trust for the sole benefit of the Transfer Agent or the Customer and their successors and assigns. The above prohibition of disclosure shall not apply to the extent that the Transfer Agent must disclose such data to its sub-contractor or agent for purposes of providing services under this Agreement.

 

16.2                         Request for Records . In the event that any requests or demands are made for the inspection of the Shareholder records of the Customer, other than request for records of Shareholders pursuant to standard subpoenas from state or federal government authorities (e.g., in divorce and criminal actions), the Transfer Agent will endeavor to notify the Customer and to secure instructions from an authorized officer of the Customer as to such inspection. The Transfer Agent expressly reserves the right, however, to exhibit the Shareholder records to any person whenever it is advised by counsel that it may be held liable for the failure to exhibit the Shareholder records to such person or if required by law or court order.

 

17.                Term and Termination.

 

17.1                         Term . The Initial Term of this Agreement shall be three (3) years from the date first stated above unless terminated pursuant to the provisions of this Section 17 . Unless a terminating party gives written notice to the other party sixty (60) days before the expiration of the Initial Term this Agreement will renew automatically from year to year (“Renewal Term”). Sixty (60) days before the expiration of the Initial Term or a Renewal Term the parties to this Agreement will agree upon a Fee Schedule for the upcoming Renewal Term. If no new fee schedule is agreed upon, the fees will increase as set forth in Section 8.2 .

 

17.2                         Early Termination. Notwithstanding anything contained in this Agreement to the contrary, should Customer desire to move any of its Services provided by the Transfer Agent hereunder to a successor service provider prior to the expiration of the then current Initial or Renewal Term, or without the required notice period, the Transfer Agent shall make a good faith effort to facilitate the conversion on such prior date, however, there can be no guarantee that the Transfer Agent will be able to facilitate a conversion of Services on such prior date. In connection with the foregoing, should Services be converted to a successor service provider, or if the Customer is liquidated or its assets merged or purchased or the like with another entity which does not utilize the services of the Transfer Agent, the fees payable to the Transfer Agent shall be calculated as if the services had remained with the Transfer Agent until the expiration of the then current Initial or Renewal Term and calculated at existing rates on the date notice of termination was given to the Transfer Agent, and the payment of fees to the Transfer Agent as set forth herein shall be accelerated to the date prior to the conversion or termination of services. Section 17.2 shall not apply if the Transfer Agent is terminated for cause under Section 17.4(a)  of this Agreement. Once this Agreement is terminated, any and all other services provided by Transfer Agent for the Customer will be deemed terminated on said date.

 

17.3                         Expiration of Term . After the expiration of the Initial Term or Renewal Term whichever currently is in effect, should either party exercise its right to terminate, all reasonable out-of-pocket expenses associated with the movement of records and material will be borne by the Customer. Additionally, the Transfer Agent will charge a de-conversion/transition fee in an amount equal to 25% of the

 

22



 

aggregate fees incurred by Customer during the immediately preceding twelve (12) month period, provided, however, such fee shall in no event be less than $3,750.00.

 

17.4                         Termination .

 

This Agreement may be terminated in accordance with the following:

 

(a)              at any time by any party upon a material breach of a representation, covenant or term of this Agreement by any other unaffiliated party which is not cured within a period not to exceed thirty (30) days after the date of written notice thereof by one of the other parties; and

 

(b)              by Transfer Agent, at any time, in the event that during the term of this Agreement, a bankruptcy or insolvency proceeding is filed by or against Customer or a trustee or receiver is appointed for any substantial part of Customer’s property (and in a case of involuntary bankruptcy, insolvency or receivership proceeding, there is entered an order for relief, or order appointing a receiver or some similar order or decree and Customer does not succeed in having such order lifted or stayed within sixty (60) days from the date of its entry), or Customer makes an assignment of all or substantially all of its property for the benefit of creditors or ceases to conduct its operations in the normal course or business.

 

17.5                         Records. Upon receipt of written notice of termination, the parties will use commercially practicable efforts to effect an orderly termination of this Agreement. Without limiting the foregoing, Transfer Agent will deliver promptly to Customer, in machine readable form on media as reasonably requested by Customer, all Shareholder and other records, files and data supplied to or compiled by Transfer Agent on behalf of Customer.

 

18.             Assignment.

 

18.1                         Affiliates . The Transfer Agent may, without further consent of the Customer assign its rights and obligations hereunto to any affiliated transfer agent registered under Section 17A(c)(2) of the Exchange Act.

 

18.2                         Sub-contractors . Transfer Agent may, without further consent on the part of Customer, subcontract with other subcontractors for telephone and mailing services as may be required from time to time; provided, however, that the Transfer Agent shall be as fully responsible to the Customer for the acts and omissions of any subcontractor as it is for its own acts and omissions.

 

19.             Unaffiliated Third Parties.

 

Nothing herein shall impose any duty upon the Transfer Agent in connection with or make the Transfer Agent liable for the actions or omissions to act of unaffiliated third parties such as, by way of example and not limitation, airborne services, the U.S. mails and telecommunication companies, provided, if the Transfer Agent selected such company, the Transfer Agent shall have exercised due care in selecting the same.

 

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20.                                Miscellaneous.

 

20.1                         Notices.

 

Any notice or communication by the Transfer Agent or the Customer to the other is duly given if in writing and delivered in person or mailed by first class mail, postage prepaid, telex, telecopier or overnight air courier guaranteeing next day delivery, to the other’s address:

 

If to the Customer:

 

H & Q Life Sciences Investors and H & Q Healthcare Investors

30 Rowes Wharf, 4 th  Floor

Boston, Massachusetts 0210

Telecopy No.: (617) 772-8577

Attn: Kimberly Carroll

 

If to the Transfer Agent:

 

Computershare Trust Company, N.A.

250 Royall Street

Canton, MA 02021

Telecopy No.: (781) 575-4188

Attn: General Counsel

 

The Transfer Agent and the Customer may, by notice to the other, designate additional or different addresses for subsequent notices or communications.

 

20.2                         Successors.

 

All the covenants and provisions of this agreement by or for the benefit of the Customer or the Transfer Agent shall bind and inure to the benefit of their respective successors and assigns hereunder.

 

20.3                         Amendments.

 

This Agreement may be amended or modified by a written amendment executed by the parties hereto and, to the extent required, authorized or approved by a resolution of the Board of Directors of the Customer.

 

20.4                         Severability .

 

If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provision, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated.

 

20.5                         Governing Law.

 

This Agreement shall be governed by the laws of the Commonwealth of Massachusetts.

 

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20.6                         Force Majeure.

 

Notwithstanding anything to the contrary contained herein, Transfer Agent shall not be liable for any delays or failures in performance resulting from acts beyond its reasonable control including, without limitation, acts of God, shortage of supply, breakdowns or malfunctions, interruptions or malfunction of computer facilities, or loss of data due to power failures or mechanical difficulties with information storage or retrieval systems, labor difficulties, war, or civil unrest.

 

20.7                         Descriptive Headings.

 

Descriptive headings of the several sections of this Agreement are inserted for convenience only and shall not control or affect the meaning or construction of any of the provisions hereof.

 

20.8                         Third Party Beneficiaries.

 

The provisions of this Agreement are intended to benefit only the Transfer Agent, the Customer and their respective permitted successors and assigns. No rights shall be granted to any other person by virtue of this agreement, and there are no third party beneficiaries hereof.

 

20.9                         Survival.

 

All provisions regarding indemnification, warranty, liability and limits thereon, and confidentiality and protection of proprietary rights and trade secrets shall survive the termination of this Agreement.

 

20.10                  Priorities.

 

In the event of any conflict, discrepancy, or ambiguity between the terms and conditions contained in this Agreement and any schedules or attachments hereto, the terms and conditions contained in this Agreement shall take precedence.

 

20.11                  Merger of Agreement.

 

This agreement constitutes the entire agreement between the parties hereto and supersedes any prior agreement with respect to the subject matter hereof, whether oral or written.

 

20.12                  Counterparts.

 

This Agreement may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument.

 

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IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be executed by one of its officers thereunto duly authorized, all as of the date first written above.

 

H & Q LIFE SCIENCES INVESTORS AND

 

 

H & Q HEALTHCARE INVESTORS

 

 

 

 

 

By:

/s/ Kathleen Eckert

 

 

Name:

Kathleen Eckert

 

 

Title:

Treasurer

 

 

 

 

 

 

COMPUTERSHARE SHAREHOLDER SERVICES, INC.

 

 

COMPUTERSHARE TRUST COMPANY, N.A.

 

 

 

 

 

 

On Behalf of Both Entities

 

 

 

 

 

 

By:

/s/ Dennis V. Moccia

 

 

Name:

Dennis V. Moccia

 

 

Title:

Managing Director

 

 

 

26



 

Form of Amendment to Transfer Agency and Service Agreement

 

This Amendment (“Amendment”), effective as of close of business on                , 2014 (“Effective Date”), is to the Transfer Agency and Service Agreement (the “Agreement”) made as of March 1, 2006, as amended, by and between Computershare Inc., f/k/a, Computershare Shareholder Services, Inc., and Computershare Trust Company, N.A., (collectively, the “Transfer Agent”) and H & Q Healthcare Investors and H & Q Life Sciences Investors (each a “Customer” or the “Customer”). Capitalized terms used but not otherwise defined herein shall have the same meaning as those terms in the Agreement.

 

WHEREAS, the Customer and Transfer Agent are parties to the Agreement; and

 

WHEREAS, the Customer and Transfer Agent desire to amend the Agreement upon the terms and conditions set forth herein;

 

NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:

 

1.                                       Amendment to Agreement.

 

a.                                       Tekla Healthcare Opportunities Fund is hereby added as a party to the Agreement and is included in the definition of “Customer”.

 

b.                                       The Fee and Service Schedule for Stock Transfer Services (“Schedule”) dated June 1, 2012 is hereby amended by deleting the fee under the “Ongoing Account Management” section in its entirety and replacing it with the following:

 

$1,282.60 Per Month

 

H & Q Healthcare Investors

 

$1,282.60 Per Month

 

H & Q Life Sciences Investors

 

$1,200.00 Per Month

 

Tekla Healthcare Opportunities Fund”

 

2.                                       Limited Effect. Except as expressly modified herein, the Agreement and Schedule shall continue to be and shall remain, in full force and effect and the valid and binding obligation of the parties thereto in accordance with its terms.

 

3.                                       Counterparts. This Amendment may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. A signature to this Amendment transmitted electronically shall have the same authority, effect, and enforceability as an original signature.

 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers, hereunto duly agreed and authorized, as of the Effective Date.

 

Computershare Inc.

 

H & Q Healthcare Investors

Computershare Trust Company, N.A.

 

H & Q Life Sciences Investors

 

 

Tekla Healthcare Opportunities Fund

 

 

 

On Behalf of Both Entities:

 

On Behalf of Each Fund:

 

By:

 

 

By:

 

Name:

 

 

Name:

 

Title:

 

 

Title:

 

 



 

Second Amendment to Transfer Agency and Service Agreement

 

This Second Amendment (“Amendment”), effective as of close of business on            , 2015 (“Effective Date”), is to the Transfer Agency and Service Agreement (the “Agreement”) made as of March 1, 2006, as amended, by and between Computershare Inc., f/k/a, Computershare Shareholder Services, Inc., and Computershare Trust Company, N.A., (collectively, the “Transfer Agent”) and Tekla Healthcare Investors, f/k/a H & Q Healthcare Investors, Tekla Life Sciences Investors, f/k/a H & Q Life Sciences Investors, and Tekla Healthcare Opportunities Fund (each a “Customer” or the “Customer”). Capitalized terms used but not otherwise defined herein shall have the same meaning as those terms in the Agreement.

 

WHEREAS, the Customer and Transfer Agent are parties to the Agreement; and

 

WHEREAS, the Customer and Transfer Agent desire to amend the Agreement upon the terms and conditions set forth herein;

 

NOW THEREFORE, for good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties hereby agree as follows:

 

1.                                       Amendments to Agreement.

 

a.                                       Tekla World Healthcare Fund is hereby added as a party to the Agreement and is included in the definition of “Customer”.

b.                                       The Fee and Service Schedule for Stock Transfer Services (“Schedule”) dated June 1, 2012 is hereby amended as follows:

 

(i) Delete the fees under the “Ongoing Account Management” section in their entirety and replace with the following:

 

$1,282.60 Per Month

 

Tekla Healthcare Investors (quarterly dividends)

 

$1,282.60 Per Month

 

Tekla Life Sciences Investors (quarterly dividends)

 

$1,875.00 Per Month

 

Tekla Healthcare Opportunities Fund (monthly dividends)

 

$1,875.00 Per Month

 

Tekla World Healthcare Fund (monthly dividends)”

 

(i) Delete the “Dividend Services” and “ACH Services” sections in their entirety and replace with the following:

 

“Dividend Services

 

·                             Receive full funding one day prior to payable date by 11:00 a.m., Eastern Time via Federal Funds Wire.

·                             Coordinate the mailing of dividends with an additional enclosure with each dividend check

·                             Prepare and file federal information returns (Form 1099) of dividends paid in a year

·                             Prepare and file state information returns of dividends paid in a year to Shareholders resident within such state

·                             Prepare and file annual withholding return (Form 1042) and payments to the government of income taxes withheld from non-resident aliens

·                             Coordinate the mailing of Form 1099 to Shareholders

·                             Coordinate the email notification to Shareholders of the online availability of Form 1099

·                             Replace lost dividend checks

·                             Reconcile paid and outstanding checks

·                             Code “undeliverable” Accounts to suppress mailing dividend checks to same

·                             Keep records of accumulated uncashed dividends

·                             Withhold tax from Shareholder Accounts as required by United States government regulations

 



 

·                             Reconcile and report taxes withheld, including additional Form 1099 reporting requirements, to the Internal Revenue Service

·                             Mail to new Accounts who have had taxes withheld, to inform them of procedures to be followed to curtail subsequent back-up withholding

·                             Perform Shareholder file adjustments to reflect certification of Accounts

·                             If Company is not tax resident in the United States, Company shall advise Agent. Dividend withholding tax services are subject to additional fees.

 

Automated Clearinghouse ( ACH) Services

 

·                             Review data for accuracy and completeness

·                             Mail cure letter to Shareholders with incomplete information

·                             Code Accounts for ACH and performing pre-note test

·                             Identify rejected ACH transmissions, mail dividend check and explanation letter to Shareholders with rejected transmissions

·                             Respond to Shareholder inquiries concerning the ACH Program

·                             Calculate the Share breakdown for ACH vs. other dividend payments and notify Company of funding amount for ACH transmissions and other payable date funds

·                             Credit ACH designated bank accounts automatically on dividend payable date

·                             Maintenance of ACH participant file, including coding new ACH Accounts

·                             Process termination requests

·                             Keep adequate records including retention of ACH documents”

 

2.                                       Limited Effect. Except as expressly modified herein, the Agreement and Schedule shall continue to be and shall remain, in full force and effect and the valid and binding obligation of the parties thereto in accordance with its terms.

 

3.                                       Counterparts . This Amendment may be executed in any number of counterparts and each of such counterparts shall for all purposes be deemed to be an original, and all such counterparts shall together constitute but one and the same instrument. A signature to this Amendment executed and/or transmitted electronically shall have the same authority, effect, and enforceability as an original signature.

 



 

IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be executed by their respective officers, hereunto duly agreed and authorized, as of the Effective Date.

 

Computershare Inc.

 

Tekla Healthcare Investors

Computershare Trust Company, N.A.

 

Tekla Life Sciences Investors

 

 

Tekla Healthcare Opportunities Fund

 

 

Tekla World Healthcare Fund

 

 

 

On Behalf of Both Entities:

 

On Behalf of Each Fund:

 

 

 

By:

 

 

By:

 

Name:

 

 

Name:

 

Title:

 

 

Title:

 

 


Exhibit 99.2k.(iii)

 

SUPPORT SERVICES AGREEMENT

 

This Agreement is made as of May 18, 2015, by and among Tekla World Healthcare Fund, a Massachusetts business trust (the “Fund”), and Destra Capital Investments LLC, a Delaware limited liability company (“Destra”).

 

WHEREAS, the Fund is operated as a closed-end management investment company under the Investment Company Act of 1940, as amended, and the rules and regulations thereunder (the “1940 Act”), and the Fund’s common shares of beneficial interest (the “Common Shares”) sold in an offering are registered under the Securities Act of 1933, as amended, and the rules and regulations thereunder (the “Securities Act”), are registered under the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the “Exchange Act”), and listed for public trading on the New York Stock Exchange (the “NYSE”);

 

WHEREAS, Tekla Capital Management LLC, a Delaware limited liability company (the “Adviser”) and a registered investment adviser under the Investment Advisers Act of 1940, as amended, and the rules and regulations thereunder, is the investment adviser to the Fund; and

 

WHEREAS, the Fund wishes to retain Destra to provide the Services (as defined herein) under the terms and conditions stated herein, and Destra is willing to provide such Services for the compensation set forth herein.

 

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and intending to be legally bound, the parties hereby agree as follows:

 

1.                                       APPOINTMENT. The Fund hereby retains Destra to furnish, and Destra hereby agrees to furnish, in accordance with the highest commercial standards, the Services.

 

2.                                       SERVICES AND DUTIES OF DESTRA. From the date of this Agreement until the termination of this Agreement, Destra shall, at its own expense:

 

(a)                                  provide ongoing contact with respect to the Fund and its performance with financial advisors (including, without limitation, broker-dealers and registered investment advisers) that are representatives of financial intermediaries, including providing investor relations materials (to the extent deemed advisable by Destra) that are prepared by, or reviewed and approved by, the Fund or the Adviser, with a view to keeping such financial advisors informed regarding the benefits to their clients of investing in the Fund;

 

(b)                                  respond to questions from financial advisors, the public, shareholders and potential shareholders regarding the Fund;

 

(c)                                   communicate with the stock exchange specialist(s) for the Fund’s shares, and with the closed-end fund analyst community regarding the Fund on a regular basis (no less frequently than quarterly);

 

(d)                                  host each year a conference or meetings with the closed-end fund analyst community at which Fund and its portfolio managers will be highlighted;

 

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(e)                                   at the election of the Fund, host the Fund’s website and maintain such website with such information about the Fund and the Adviser as is initially mutually agreed by Destra and the Fund and the Adviser, with performance, financial and other data regarding the Fund and the Adviser to be provided to Destra by the Fund or the Adviser promptly as such data becomes available, and with such other information about the Fund and the Adviser to be provided to Destra by the Fund or the Adviser from time to time;

 

(f)                                    ensure all updates to the Fund’s website are completed within a timely manner;

 

(g)                                   provide data, software and hardware security protections for the Fund’s website consistent with best industry practices, including but not limited to use of network “firewalls”, the latest patches and restrictive access to data networks and server equipment;

 

(h)                                  secure or back-up all data, files, file systems and other material used on the Fund’s website and storing such material (i) in a different city from where such website is hosted and (ii) in a manner that can be retrieved easily and economically in the case of data and file loss;

 

(i)                                      restore promptly the operation of the Fund’s website in the event of disaster or other event that halts or significantly interferes with the operation of the servers hosting the Fund’s website;

 

(j)                                     provide periodic check-ups to ensure the Fund’s website is up to date, that the Fund’s domain name directs and resolves to the Fund’s website and that all links within the Fund’s website function as intended;

 

(k)                                  provide information of each time the Fund’s website is accessed and indicating the time allotment as well as the materials accessed and providing such information to management of the Fund and the Adviser on a quarterly basis (unless reasonably requested by management of the Fund or Adviser more frequently);

 

(1)                                  ensure that the Fund’s website complies will all applicable laws and regulations, including, without limitation, the Securities Act, the Exchange Act and the rules of the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the NYSE;

 

(m)                              provide necessary ongoing technical assistance with respect to subclauses (e) through (1);

 

(n)                                  provide quarterly reports to the Fund and its Board of Trustees summarizing Destra’s activities in respect of the Fund;

 

(o)                                  at the election of the Fund, assist in the solicitation of proxies from shareholders;

 

(p)                                  in the event the Fund conducts a rights offering or a secondary offering of securities, at the request of the Fund, assist in the structuring of the offering and the development of communications to the public and to financial advisers regarding the offering;

 

(q)                                  be available to assist in the development of communications regarding modifications to the Fund’s structure, dividends, investment policies or otherwise;

 

2



 

(r)                                     make necessary filings with the NYSE, FINRA or other regulators of Fund communications with the public and assure compliance by the Fund with applicable regulatory requirements in connection with communications to the public, as well as financial intermediaries and analysts;

 

(s)                                    maintain a dedicated toll-free number for shareholder support for the Fund and marketing requests on an ongoing basis; and

 

(t)                                     provide such other services as to which the Fund and Destra may from time to time mutually agree (collectively, (a) through (t), the “Services”).

 

Destra acknowledges and agrees that it is not authorized to provide any information or make any representation regarding the Adviser, the Fund or the Common Shares other than (i) information contained in the Fund’s public statements or filings with the SEC and (ii) any other information approved in writing by the Fund or the Adviser for use by Destra in connection with the performance of the Services by Destra.

 

3.                                       COMPLIANCE WITH THE FUND’S GOVERNING DOCUMENTS AND APPLICABLE LAW. In all matters pertaining to the performance of this Agreement, Destra will act in conformity with the provisions of the governing documents of the Fund, each as amended or restated from time to time, and in accordance with the directions of the Adviser and the Fund, and will conform to, and comply with, the requirements of applicable federal, state and foreign law, including, without limitation, the 1940 Act, the Securities Act, the Exchange Act, NYSE rules and regulations, FINRA rules and regulations and state securities laws and regulations.

 

4.                                       EXCLUSIVITY .The services of Destra hereunder are not deemed to be exclusive, and Destra and its officers, employees and affiliates may, without the written consent of the Fund, render such services to others, and the Fund may without the consent of Destra retain others to provide the same or similar services as those to be provided by Destra hereunder.

 

5.                                       REPRESENTATIONS, WARRANTIES AND COVENANTS OF DESTRA.

 

(a)                                  Destra represents and warrants that (i) it has obtained all necessary registrations, licenses and approvals in order to perform the Services contemplated by this Agreement and (ii) is registered as a broker-dealer with the SEC and is in good standing with FINRA. Destra covenants to maintain all necessary registrations, licenses and approvals to perform the Services contemplated by this Agreement in effect during the term of this Agreement.

 

(b)                                  Destra agrees that it shall promptly notify the Fund and the Adviser (i) in the event that the SEC, FINRA or any other authority (including any self- regulatory or state authority) has censured its activities, functions or operations, suspended or revoked any registration, license or approval, or has commenced proceedings or an investigation that may result in any of these actions, (ii) before there is a change of control of Destra or any change in the senior management of Destra or (iii) of any change to Destra that may be reasonably expected to adversely affect its ability to perform the Services contemplated by this Agreement.

 

(c)                                   Destra represents and warrants that (i) it is a validly existing entity under the laws of the State of Delaware and has full limited liability company power and authority to perform its obligations under this Agreement, (ii) this Agreement has been duly and validly authorized, executed and delivered on its behalf and constitutes its binding and

 

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enforceable obligation in accordance with its terms and (iii) the execution and delivery of this Agreement, the incurrence of the obligations herein set forth and the performance of the Services will not constitute a breach of, or default under, its constituent documents, other instruments to which Destra is a party or by which Destra is bound or affected, or under any order, rule or regulation applicable to it of any court or any governmental body or administrative agency having jurisdiction over it.

 

(d)                                  Destra acknowledges that it shall act as an independent contractor in providing the Services.

 

(e)                                   Destra acknowledges and agrees that neither the Fund, nor the legal or accounting advisors to the Fund, is an advisor to Destra as to legal, tax, accounting or regulatory matters in any jurisdiction and Destra shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the Services contemplated hereby.

 

(f)                                    Destra represents and warrants that (i) it has not compensated, directly or indirectly, any third party in connection with securing the Fund as a client and (ii) it will not share its fees with any third party, without the prior written consent of the Fund.

 

(g)                                   Destra acknowledges that all rights and interests to the Fund’s domain name are owned by the Fund or the Adviser, and that it has reviewed and received a copy of the License Agreement, if any.

 

6.                                       PERFORMANCE OF SERVICES STANDARDS.

 

(a)                                  Destra shall perform the Services (i) using sound, commercial practices and in a competent and professional manner by personnel who are knowledgeable, qualified and trained in performing each of the Services and (ii) in accordance with any written direction by the Fund or the Adviser in order for the Fund and the Adviser to ensure that such Services are in compliance with the Fund’s and the Adviser’s legal, regulatory and compliance obligations.

 

(b)                                  Destra shall cooperate with the authorized trustees, directors, officers, employees, subcontractors and agents of the Fund and the Adviser in performing Services as reasonably requested by the Fund or the Adviser.

 

(c)                                   Destra shall use best industry practices to scan for any computer viruses, worms, time bombs, Trojan horses or other harmful or destructive code in performing the Services, as applicable.

 

(d)                                  Destra shall ensure that the Fund’s domain name shall direct and resolve to the Fund’s website.

 

(e)                                   At the election of the Fund, Destra shall ensure that the Fund’s website and the related services performed hereunder, as applicable, shall conform to and operate in accordance with functional and technical specifications, as agreed by Destra and the Fund and/or the Adviser.

 

(f)                                    At the election of the Fund, Destra shall operate the Fund’s website such that the Fund’s website shall not infringe, violate, misappropriate or misuse the patent, trademark,

 

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copyright, trade secret, privacy rights or other intellectual property of any party; provided, that, Destra shall not be responsible for any material, marks or intellectual property provided by the Fund or the Adviser.

 

(g)                                   At the election of the Fund, Destra shall operate the Fund’s website, including the collection and processing of data relating to persons, in a manner not to infringe on any applicable law, including without limitation applicable federal and state privacy laws. Without prejudice to the foregoing, Destra shall ensure that each person accessing the Fund’s website or subscribing to an alert has access to such notices as are required under applicable privacy laws.

 

7.                                       REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE FUND.

 

(a)                                  The Fund agrees with Destra that it shall promptly notify Destra (i) in the event that the SEC or any other regulatory authority has censured in writing the Fund’s activities, functions or operations, suspended or revoked any registration, license or approval, or has commenced proceedings that may result in any of these actions and which would materially affect the Fund, (ii) in the event that there is a change of control of the Fund or (iii) of any change to the Fund that materially and adversely affects the Fund’s ability to perform its obligations under this Agreement.

 

(b)                                  The Fund represents and warrants to Destra that (i) it is a validly existing entity and has full trust power and authority to perform its obligations under this Agreement, (ii) this Agreement has been duly and validly authorized, executed and delivered on its behalf and constitutes its binding and enforceable obligation in accordance with its terms, and (iii) the execution and delivery of this Agreement, the incurrence of its obligations herein set forth and the consummation of the transactions contemplated herein will not constitute a breach of, or default under, its constituent documents, other instruments to which the Fund is a party or by which the Fund is bound or affected, or under any order, rule or regulation applicable to it of any court or any governmental body or administrative agency having jurisdiction over it.

 

8.                                       COMPENSATION.

 

(a)                                  As compensation for the Services to be provided by Destra under this Agreement, the Fund shall pay to Destra a services fee in an annual amount equal to (i) 0.12% (12 bps) of the average aggregate daily value of the Fund’s Managed Assets (as defined in the Investment Management and Advisory Agreement between the Fund and the Adviser) from the Closing through the first Anniversary of the Closing and (ii) 0.10% (10 bps) of the average aggregate daily value of the Fund’s Managed Assets from the date immediately following such first Anniversary through the remaining term of this Agreement, unless Destra and the Fund mutually agree, in writing, on a services fee different than that referenced herein and such agreed upon fee is a reasonable representation of Destra’s costs in providing the services to the Tekla Healthcare Opportunities Fund and the Tekla World Healthcare Fund (the “Tekla Funds”), such fee to be accrued and paid in the same manner, over the same period and paid on the same day as the Adviser’s investment advisory fee is paid by the Fund under such Investment Management and Advisory Agreement (the “Services Fee”).  Notwithstanding any other provision of this Agreement, no compensation will be due and payable under this Agreement unless the Fund has completed the initial public offering of its Common Shares.

 

(b)                                  If this Agreement is terminated, other than pursuant to Section 11(b)(ii), the Fund shall pay within 30 days of the termination date to Destra the pro-rata portion of the Services

 



 

Fee computed on the average aggregate daily Managed Assets for the unpaid period preceding the termination date. If this Agreement is terminated pursuant to Section 11 (b)(ii), the Fund shall not owe Services Fees for any unpaid period preceding the termination date.

 

9.                                       LIMITATION OF LIABILITY OF DESTRA. Destra will not be liable for any act or omission or for any error of judgment or for any loss suffered by the Fund or the Adviser in connection with the performance of the Services by Destra under this Agreement, except a loss directly or indirectly resulting from willful misfeasance, bad faith or gross negligence on Destra’s part in the performance of its duties, from the reckless disregard by Destra of its duties under this Agreement or the material breach by Destra of any of Destra’s representations, warranties or covenants hereunder (“Destra Disabling Conduct”).

 

The Fund agrees to indemnify, defend and hold harmless Destra, and any person who controls Destra within the meaning of Section 15 of the Securities Act (collectively, “Destra Indemnified Persons”), against any and all claims, demands, liabilities and expenses (including the reasonable and documented out-of-pocket costs of investigating or defending such claims, demands or liabilities and any reasonable and documented out-of-pocket fees of one counsel incurred in connection therewith) which Destra Indemnified Persons may incur arising out of or relating to (i) the Fund’s material breach of any of its obligations, representations, warranties or covenants contained in this Agreement or (ii) the Fund’s failure to comply, on behalf of itself and the Adviser, with any applicable laws or regulations, but only to the extent that such claims, demands, liabilities and expenses do not arise out of or are not based upon Destra Disabling Conduct.

 

10.                                LIMITATION OF LIABILITY OF THE ADVISER AND THE FUND. Neither the Adviser nor the Fund will be liable for any act or omission or for any error of judgment or for any loss suffered by Destra in connection with the performance of the Fund’s duties under this Agreement, except a loss resulting from willful misfeasance, bad faith or gross negligence on the Fund’s part in the performance of its duties or from the reckless disregard by it of its duties under this Agreement or the material breach by the Fund of any of the Fund’s representations, warranties or covenants hereunder (“Fund Disabling Conduct”).

 

Destra agrees to indemnify, defend and hold harmless the Adviser and the Fund, each of their officers, trustees, directors and agents, and any person who controls the Adviser or the Fund within the meaning of Section 15 of the Securities Act (collectively, “Fund Indemnified Persons”), against any and all claims, demands, liabilities and expenses (including the reasonable and documented out-of-pocket costs of investigating or defending such claims, demands or liabilities and any reasonable and documented out-of-pocket fees of one counsel for each of the Adviser and the Fund incurred in connection therewith) that any Fund Indemnified Persons may incur arising out of or relating to (i) Destra Disabling Conduct with respect to the provision of services under this Agreement; (ii) Destra’s material breach of any of its obligations, representations, warranties or covenants contained in this Agreement or (iii) Destra’s failure to comply with any applicable laws or regulations, but only to the extent that such claims, demands, liabilities and expenses do not arise out of or are not based upon Fund Disabling Conduct.

 

11.                                TERM; TERMINATION.

 

(a)                                  The term of this Agreement shall commence upon the date referred to above and shall continue in effect for a period of two years from the date hereof; provided that, following the first anniversary of the date hereof, the Trustees (or their designee) of the Fund may

 

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terminate this Agreement, per Section 11(b)(ii) below, with at least 30 days’ written notice to Destra and Destra may terminate this Agreement with at least 30 days’   written notice to the Fund. Following the initial two-year period, the Agreement will continue for successive one-year periods unless terminated pursuant to Section 11(b).

 

(b)                                  Following the initial two-year period, this Agreement may be terminated solely as follows:

 

(i)                                      by Destra in the event of a material breach of this Agreement by the Fund and such material breach goes uncured for five (5) days, upon ten (10) days’ prior written notice to the Fund;

 

(ii)                                   by the Fund in the event of a material breach of this Agreement by Destra and such material breach goes uncured for five (5) days, upon ten (10) days’ prior written notice to Destra; provided that in the case of a material breach of Section 2(g) or Section 12, the Fund may terminate this agreement immediately upon written notice to Destra;

 

(iii)                                by either party on 30 days’ written notice to the other party hereto; or

 

(iv)                               at any time by the express written mutual agreement of all of the parties hereto.

 

(c)                                   Section 9, Section 10, Section l l(d) and Sections 12 through 25 shall survive any termination of this Agreement.

 

(d)                                  Upon termination of this Agreement by either party, Destra agrees to relinquish to the Fund or the Adviser any and all materials and files relating to the Fund’s website, along with all user name/passwords and links associated with the Fund’s website.

 

12.                                WEBSITE.

 

(a)                                  Destra agrees that the Fund and the Adviser or its affiliates have reserved all rights in and to the trademarks, trade names, trade devices, symbols, insignias, service marks, logos, slogans and other indicia of origin and proprietary identifying symbols that the Adviser, the Fund or any of their affiliates owns or any abbreviation, contraction, designation or simulation thereof used by the Adviser or the Fund or any of their affiliates (the “Tekla Marks”). Destra and its employees, agents, contractors and representatives shall not make use of the Tekla Marks, except as authorized in writing by the Adviser or the Fund (as the case may be) in connection with Destra providing the Services. Nothing in this Agreement transfers any rights in any Tekla Marks to Destra or its employees, agents, contractors or representatives.

 

(b)                                  Destra agrees and acknowledges that the Fund or its affiliates own all right, title, and interest, in or to, the Fund’s website, the source code underlying the Fund’s website, any patentable inventions or copyrightable material that Destra develops specifically for the purpose of performing the Services for the Fund, including any moral rights, and that any such copyrightable material is a “work made for hire.” To the extent that ownership of the Fund’s website, the source code underlying the Fund’s website, any such patentable inventions or copyrightable material are not vested in the Fund, Destra hereby assigns all right, title, and interest, in or to, any rights under copyright, patent or otherwise to the Fund or its affiliates, as applicable. Destra further agrees to execute, or to cause Destra’ s

 

7



 

employees, agents, contractors or representatives to execute, any documents or do such other acts as the Fund or the Adviser may reasonably require in order to confirm the Fund’s or its affiliates’ ownership in any such copyrights or patents with the appropriate governmental authority. Any intellectual property rights licensed by Destra for the purposes of performing the Services shall be assignable to the Fund or its affiliates upon the Fund’s or the applicable affiliate’s request, unless the Fund or its applicable affiliate gives prior, written consent to enter such a license.

 

13.                                AMENDMENT OF THIS AGREEMENT. This Agreement may not be amended, supplemented or otherwise modified except by written agreement executed by all the parties hereto.

 

14.                                CONFIDENTIALITY / PRIVACY. Destra and the Fund each acknowledge that it may obtain certain confidential information of the other parties to this Agreement, or, in the case of Destra, of the Adviser, the Fund and shareholders of the Fund, during the performance of its duties under this Agreement, and each party hereto agrees to treat all such confidential information as proprietary information of the applicable party and to keep such information confidential by using the same care and discretion it uses with respect to its own confidential information, property and trade secrets; provided, that a party may disclose confidential information if (i) such disclosure is approved in writing by the applicable party from which the confidential information originates or (ii) such disclosure is required by applicable laws, rules, and regulations (including, for the avoidance of doubt, disclosures required in any document filed, provided or furnished with or to the SEC, FINRA or other regulatory authority), or such disclosure is required to be made in response to a valid request by a regulatory authority having jurisdiction; and provided further that the Fund may disclose material terms of the Agreement to underwriters of the Fund and in the Prospectus and Statement of Additional Information for the Fund. If Destra is required or requested to disclose confidential information of the Fund or the Adviser pursuant to (ii) above, Destra shall immediately notify the Fund or the Adviser, as the case may be, in order to provide the Fund or the Adviser, as the case may be, the opportunity to pursue such legal or other action as such parties may desire to prevent the release of such confidential information, and such party agrees to provide reasonable assistance to any party seeking to prevent the release of such confidential information, at the expense of the requesting party. For purposes of this Agreement, “confidential information” does not include information which, without any breach of Destra or the Fund of the foregoing, (1) is or becomes publicly available (other than in breach of this Agreement or a violation of a confidentiality obligation owed to a party hereto), (2) is in the possession of the Fund or Destra (as the case may be) prior to disclosure by the other party, (3) is independently developed by Destra or the Fund (as the case may be) outside the scope of this Agreement and without use of confidential information or (4) is rightfully obtained by Destra or the Fund (as the case may be) from third parties who have no duty of confidentiality to the Adviser or the Fund, respectively.

 

In the performance of its obligations under this Agreement and in respect of any information provided to Destra in connection with this Agreement, Destra agrees to comply with all applicable laws and regulations related to the collection, storage, handling, processing and transfer of non-public personal information (“Applicable Data Security Laws”), including without limitation the Massachusetts Standards for the Protection of Personal Information, 201 CMR 17.00, et. seq., and to implement and maintain appropriate security measures to protect the confidentiality, security and integrity of non-public personal information in the manner provided for under and to the extent required by all such Applicable Data Security Laws.

 

15.                                GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of New York, without regard to principles of conflict of laws of any jurisdiction to the contrary.

 

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16.                                BOOKS AND RECORDS

 

(a)                                  In compliance with the requirements of the 1940 Act and other applicable law, Destra hereby agrees that all records which it may maintain for the Fund or the Adviser, as the case may be, are the property of the Adviser or the Fund, as the case may be, and further agrees to surrender promptly to the Adviser or the Fund, as the case may be, any of such records upon request.

 

(b)                                  Destra hereby agrees to furnish to regulatory authorities having the requisite authority any information or reports in connection with Services that Destra renders pursuant to this Agreement which may be requested in order to ascertain whether the operations of the Fund and/or the Adviser are being conducted in a manner consistent with applicable laws and regulations. Subject to the proviso below, if Destra is required or requested to provide any information or reports to regulatory authorities, Destra shall immediately notify the Fund and the Adviser in order to provide the Fund and the Adviser the opportunity to pursue such legal or other action as it may desire to prevent the release of the information or reports, and Destra agrees to provide reasonable assistance to the Fund and the Adviser in seeking to prevent the release of the information, in each case; provided, that such disclosure by Destra is not prohibited by applicable law.

 

17.                                BENEFIT TO OTHERS. The understandings contained in this Agreement are for the sole benefit of the parties hereto (and the Adviser) and their respective successors and assigns and, except as specifically contemplated herein with respect to Destra Indemnified Persons and Fund Indemnified Persons, they shall not be construed as conferring, and are not intended to confer, any rights on any other persons except the Adviser. For the avoidance of doubt; the Adviser is an express third-party beneficiary of this Agreement.

 

18.                                BINDING NATURE OF AGREEMENT; NO ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that no party may assign or transfer its rights nor delegate its obligations under this Agreement without the prior written consent of other parties hereto. Any assignment not in accordance with this Section 18 shall be void ab initio.

 

19.                                EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against the any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as signatories.

 

20.                                ENTIRE AGREEMENT. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained.  The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.

 

21.                                WAIVERS. Neither the failure nor any delay on the part of any party to this Agreement to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor

 

9



 

shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and signed by the party asserted to have granted such waiver.

 

22.                                CONSTRUCTION. The captions of this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.

 

23.                                SEVERABILITY. If any provision (or part thereof) of this Agreement is held illegal, invalid or unenforceable by a final decision of a court of competent jurisdiction, statute, rule, regulation, law or ordinance, the parties hereto shall negotiate in good faith to replace such provision with a legal, suitable and equitable substitute therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such illegal, invalid or unenforceable provision and the remaining provisions of this Agreement shall remain in full force and effect.

 

24.                                The Fund’s Amended and Restated Declaration of Trust, including any amendments thereto, is on file with the Secretary of The Commonwealth of Massachusetts. This Agreement is executed on behalf of the Fund by an officer of the Fund as an officer and not individually and the obligations imposed upon the Fund by this Agreement are not binding upon any of the Fund’s Trustees, officers or shareholders individually but are binding only upon the assets and property of the Fund.

 

25.                                NOTICES.

 

All notices required or permitted to be sent under this Agreement shall be sent:

 

If to the Fund, to:

 

 

Tekla World Healthcare Fund

100 Federal Street, 19 th  Floor

Boston, MA 02110

 

 

 

With a copy emailed to:

domstead@teklacap.com

 

 

If to Destra, to:

 

 

 

Destra Capital Investments LLC

One North Wacker Drive

48th Floor

 

Chicago, Illinois 60606

 

 

 

With a copy emailed to:

dominic.martellaro@destracapital.com

 

virginija.adomavicius@destracapital.com

 

[SIGNATURE PAGE FOLLOWS]

 

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IN WITNESS WHEREOF, the parties hereto have caused the instrument to be executed by their officers designated below as of the day and year first above written.

 

 

 

TEKLA WORLD HEALTHCARE FUND

 

 

 

/s/ Daniel R. Omstead

 

By:

Daniel R. Omstead

 

Title:

President

 

 

 

 

 

DESTRA CAPITAL INVESTMENTS LLC

 

 

 

/s/ Dominic C. Martellaro

 

By:

Dominic C. Martellaro

 

Title:

CEO

 

11


Exhibit 99.2k.(iv)

 

DISTRIBUTION ASSISTANCE AGREEMENT

 

This Agreement is made as of May 14, 2015, by and among Tekla Capital Management LLC, a Delaware limited liability company (the “Adviser”), and Destra Capital Investments LLC, a Delaware limited liability company (“Destra”).

 

WHEREAS, Tekla World Healthcare Fund (the “Fund”) has filed a notification on Form N-8A of registration as an investment company under the Investment Company Act of 1940, as amended, and the rules and regulations thereunder (the “1940 Act”) and a registration statement on Form N-2, as amended (the “Registration Statement”), relating to the initial public offering of shares of common stock of the Fund (the “Common Shares,” and such offering, the “Offering”);

 

WHEREAS, the Fund is expected to be operated as a closed-end management investment company under the 1940 Act and the Common Shares are expected to be registered under the Securities Act of 1933, as amended, and the rules and regulations thereunder (the “Securities Act”) and the Securities Exchange Act of 1934, as amended, and the rules and regulations thereunder (the “Exchange Act”), and listed for public trading on the New York Stock Exchange (the “NYSE”); and

 

WHEREAS, the Adviser intends to serve as the investment adviser to the Fund;

 

WHEREAS, the Adviser wishes to retain Destra to provide the distribution assistance and marketing services set forth herein under the terms and conditions stated herein, and Destra is willing to provide such services for the compensation set forth herein.

 

NOW, THEREFORE, in consideration of the premises and mutual covenants contained herein, and intending to be legally bound, the parties hereby agree as follows:

 

1.                                       APPOINTMENT. The Adviser hereby retains Destra to furnish, and Destra hereby agrees to furnish, in accordance with the highest commercial standards, the services set forth in Section 2 below.

 

2.                                       SERVICES AND DUTIES OF DESTRA. At such times and to the extent that the Adviser or the Fund may reasonably request, Destra will use its reasonable best efforts to assist the Fund and the Adviser with the distribution of the Common Shares in the Offering by:

 

(a)                                  making a reasonable number as to be mutually and reasonably agreed by Destra and the Adviser of both external wholesalers and internal wholesalers available to aid in the distribution of the Common Shares and to generally provide wholesale services with respect to the Common Shares for the Offering;

 

(b)                                  providing such assistance as the Adviser or the Fund may reasonably request in connection with structuring the Fund and its investment strategies and policies, in conjunction with discussions with the lead managing underwriters, and developing and coordinating a targeted “road show” with respect to the Offering;

 

(c)                                   preparing or customizing marketing materials for use by, and presentations to the sales networks at, broker-dealers and other intermediaries that have agreed to distribute the Common Shares in the Offering;

 

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(d)                                  organizing and hosting meetings with key financial advisers at such broker-dealers and other intermediaries, analysts and other entities that participate in the initial distribution of closed-end funds;

 

(e)                                   making such written and other reports and recommendations to the Adviser and the Fund with respect to the distribution of the Common Shares in the Offering as the Adviser or the Fund may reasonably request;

 

(f)                                    replying to requests for information from broker-dealers and other intermediaries concerning the Fund, the Offering and/or the Common Shares;

 

(g)                                   preparing and discussing with representatives of the Adviser, the Fund, and the lead underwriters of the Offering the sales materials of the Fund, including with respect to the compliance of the content of such sales materials with the rules and regulations of the Securities and Exchange Commission (the “SEC”), the Financial Industry Regulatory Authority (“FINRA”) or any state securities authority; and the filing of any sales materials with the SEC, FINRA, and any other regulatory authority;

 

(h)                                  assisting in the drafting of press releases in connection with the Offering and providing sales support and marketing services customary for an initial public offering (including any overallotment) of common shares of a closed-end management investment company; and

 

(i)                                      providing such other services with respect to the distribution of the Common Shares in the Offering as the Adviser or the Fund may reasonably request from time to time.

 

Destra acknowledges and agrees that it is not authorized to provide any information or make any representation regarding the Adviser, the Fund or the Common Shares other than (i) information contained in the Fund’s Registration Statement (or such other information approved in advance in writing by the Adviser or the Fund for use by Destra in connection with the performance of the services provided by Destra hereunder), (ii) the final preliminary prospectus included in the Registration Statement, printed and made available by the Fund for use in connection with the Offering and the related marketing efforts, (iii) any sales literature and advertising materials approved in advance in writing by the Adviser or the Fund for use by Destra in connection with the performance of the services provided by Destra hereunder and (iv) other information approved in advance in writing by the Adviser or the Fund for use by Destra in connection with the performance of the services provided by Destra hereunder.

 

3.                                       COMPLIANCE WITH THE FUND’S GOVERNING DOCUMENTS AND APPLICABLE LAW. In all matters pertaining to the performance of this Agreement, Destra will act in conformity with the provisions of the governing documents of the Fund, each as amended or restated from time to time, and the Registration Statement related to Destra’s services in connection with the distribution of the Common Shares in the Offering, and in accordance with the directions of the Adviser and the Fund, and will conform to, and comply with, the requirements of applicable federal, state and foreign law, including, without limitation, the 1940 Act, the Securities Act, the Exchange Act, NYSE rules and regulations, FINRA rules and regulations and state securities laws and regulations.

 

4.                                       EXCLUSIVITY. The services of Destra hereunder are not deemed to be exclusive, and Destra and its officers, employees and affiliates may, without the prior written consent of the Adviser or the Fund, render such services to others, except that during the term of this Agreement: (i) Destra

 

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will not launch, or aid in launching, in the public markets any other registered closed-end fund offering with an investment strategy similar to that of the Fund during the period from the launch of the Offering through the closing of the Offering (including the expiration of any overallotment or “Green Shoe” period), without the prior written consent of the Adviser and (ii) Destra will make the Fund the sole focus of Destra’s distribution services for closed-end funds the strategy of which is investing in equity in any material respect for the period from the launch of the Offering through the closing of the Offering (including the expiration of any overallotment or “Green Shoe” period); provided, however, that the foregoing shall not prohibit Destra from filing, or aiding in the filing of a registration statement for such a closed-end fund following the closing of the Offering (exclusive of any overallotment or “Green Shoe” period) or entering into an agreement to provide services similar to those under this Agreement for such closed-end fund the offering of shares of which shall occur during a period other than the period from the launch of the Offering through the Closing of the Offering (including the expiration of any overallotment or “Green Shoe” period). For greater certainty, the “launch of the Offering” for purposes of this Agreement is the date that the Fund’s definitive preliminary prospectus (also known as the “red herring” prospectus) is printed and first made available by the Fund for use in connection with the Offering and the related marketing efforts. The parties understand and agree that, subject to the termination provisions in Section 11, the launch of the Offering may take place at any time during the continuance of this Agreement in the discretion of the Adviser and the Fund, and that Destra must observe the requirements of clauses (i) and (ii) above regardless of any agreement or arrangements it has entered into to provide services for another closed-end fund whose offering period may overlap with the period from the eventual launch of the Offering through the closing of the Offering.

 

5.                                       REPRESENTATIONS, WARRANTIES AND COVENANTS OF DESTRA.

 

(a)                                  Destra represents and warrants that (i) it has obtained all necessary registrations, licenses and approvals in order to perform the services contemplated by this Agreement and (ii) is registered as a broker-dealer with the SEC and is in good standing with FINRA. Destra covenants to maintain all necessary registrations, licenses and approvals to perform the services contemplated by this Agreement in effect during the term of this Agreement.

 

(b)                                  Destra agrees that it shall promptly notify the Adviser and the Fund (i) in the event that the SEC, FINRA or any other authority (including any self- regulatory or state authority) has censured its activities, functions or operations, suspended or revoked any registration, license or approval, or has commenced proceedings or an investigation that may result in any of these actions, (ii) before there is a change of control of Destra or any change in the senior management of Destra or (iii) of any change to Destra that may be reasonably expected to adversely affect its ability to perform the services contemplated by this Agreement.

 

(c)                                   Destra represents and warrants that (i) it is a validly existing entity under the laws of the State of Delaware and has full limited liability company power and authority to perform its obligations under this Agreement, (ii) this Agreement has been duly and validly authorized, executed and delivered on its behalf and constitutes its binding and enforceable obligation in accordance with its terms and (iii) the execution and delivery of this Agreement, the incurrence of the obligations herein set forth and the consummation of the transactions contemplated herein will not constitute a breach of, or default under, its constituent documents, other instruments to which Destra is a party or by which Destra is bound or affected, or under any order, rule or regulation applicable to it of any court or any governmental body or administrative agency having jurisdiction over it.

 

3



 

(d)                                  Destra acknowledges that it shall act as an independent contractor in providing services pursuant to this Agreement.

 

(e)                                   Destra acknowledges and agrees that neither the Adviser nor the Fund, nor the legal or accounting advisors to the Adviser or the Fund, is an advisor to Destra as to legal, tax, accounting or regulatory matters in any jurisdiction and Destra shall consult with its own advisors concerning such matters and shall be responsible for making its own independent investigation and appraisal of the services contemplated hereby.

 

(f)                                    Destra represents and warrants that (i) it has not compensated, directly or indirectly, any third party in connection with securing the Adviser or the Fund as a client and (ii) it will not share its fees with any third party, without the prior written consent of the Adviser and the Fund.

 

6.                                       REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE ADVISER.

 

(a)                                  The Adviser agrees with Destra that it shall promptly notify Destra (i) in the event that the SEC or any other regulatory authority has censured in writing the Adviser’s activities, functions or operations, suspended or revoked any registration, license or approval, or has commenced proceedings that may result in any of these actions and which would materially affect the Fund or the Offering, (ii) in the event that there is a change of control of the Adviser or (iii) of any change to the Adviser that materially and adversely affects the Adviser’s ability to perform its obligations under this Agreement.

 

(b)                                  The Adviser represents and warrants to Destra that (i) it is a validly existing entity and has full limited liability company power and authority to perform its obligations under this Agreement, (ii) this Agreement has been duly and validly authorized, executed and delivered on its behalf and constitutes its binding and enforceable obligation in accordance with its terms, (iii) the execution and delivery of this Agreement, the incurrence of its obligations herein set forth and the consummation of the transactions contemplated herein will not constitute a breach of, or default under, its constituent documents, other instruments to which the Adviser is a party or by which the Adviser is bound or affected, or under any order, rule or regulation applicable to it of any court or any governmental body or administrative agency having jurisdiction over it and (iv) the Adviser will be registered prior to the consummation of the Offering as an investment adviser under the Investment Advisers Act of 1940, as amended, and in any state where registration as such is required, except to the extent any such failure to register would not have a material adverse effect on the Adviser’s ability to perform its obligations under this Agreement.

 

7.                                       COMPENSATION. As compensation for the services to be provided by Destra under this Agreement, the Adviser shall pay to Destra a marketing fee, due and payable upon the closing date of the Offering (the “Closing”), in an amount equal to (i) 0.15% (15 bps) of the first $500 million aggregate offering amount of Common Shares sold in the Offering, (ii) 0.18% (18 bps) of the next $200 million aggregate offering amount of Common Shares sold in the Offering, (iii) 0.21% (21 bps) of the next $200 million aggregate offering amount of Common Shares sold in the Offering, and (iv) 0.15% (15 bps) of the aggregate offering amount of Common Shares sold in the Offering in excess of $900 million, in all cases including any Common Shares sold pursuant to the exercise by the underwriters of their “Green Shoe” option.

 

4



 

In connection to the marketing fee above, the Adviser reserves the right, until such date as it is practical, but not in any event later than May 22, 2015 and upon prior written notice to Destra, rescind the above fee, at which time such fee shall be substituted with the marketing fee in form of Appendix A, attached hereto (“Adviser’s Right of Rescission”).

 

The Adviser’s Right of Rescission shall only be effective to this Section 7 of the Agreement and all remaining provisions of this Agreement shall remain in full force and effect.

 

8.                                       REIMBURSEMENT OF EXPENSES.

 

(a)                                  Within 30 days following the earlier to occur of (i) the completion of the Offering, including any proposed overallotment or “Green Shoe” period and (ii) the determination by the lead underwriters of the Offering that the Offering will not be completed, the Adviser shall pay or reimburse Destra for all Destra Road Show Expenses (as defined below).

 

(b)                                  In the event that this Agreement is terminated prior to the Closing, other than pursuant to Section 11(a)(ii), the Adviser shall bear one hundred percent (100%) of any Destra Road Show Expenses. In the event that this Agreement is terminated prior to the Closing pursuant to Section 11(a)(ii), Destra shall bear one hundred percent (100%) of any Destra Road Show Expenses.

 

(c)                                   As used in this Section 8:

 

“Destra Road Show Expenses” means, and is limited to, reasonable and documented out-of-pocket expenses incurred by Destra in connection with the road show for the Offering (including reasonable costs for travel, lodging, meals, printing, shipping and mailing) up to $400,000 in the aggregate for the Offering. For the avoidance of doubt, Destra Road Show Expenses shall not include, without the prior written consent of the Adviser, any expenses incurred for the chartering of planes or following the completion of the road show.

 

(d)                                  Any obligation of the Adviser to reimburse any expenses to Destra for Destra Road Show Expenses will be satisfied by payment or reimbursement of the required amount to Destra, subject to applicable law. Except as provided in this Section 8, Destra shall not be entitled to be reimbursed by the Adviser or the Fund or any of their affiliates for any expenses or costs other than Destra Road Show Expenses.

 

9.                                       LIMITATION OF LIABILITY OF DESTRA. Destra will not be liable for any act or omission or for any error of judgment or for any loss suffered by the Adviser or the Fund in connection with the performance of Destra’s duties under this Agreement, except a loss directly or indirectly resulting from willful misfeasance, bad faith or gross negligence on Destra’s part in the performance of its duties, from the reckless disregard by Destra of its duties under this Agreement or the material breach by Destra of any of Destra’s representations, warranties or covenants hereunder (“Destra Disabling Conduct”).

 

The Adviser agrees to indemnify, defend and hold harmless Destra, and any person who controls Destra within the meaning of Section 15 of the Securities Act (collectively, “Destra Indemnified Persons”), against any and all claims, demands, liabilities and expenses (including the reasonable and documented out-of-pocket costs of investigating or defending such claims, demands or

 

5



 

liabilities and any reasonable and documented out-of-pocket fees of one counsel incurred in connection therewith) which Destra Indemnified Persons may incur arising out of or relating to (i) the Adviser’s material breach of any of its obligations, representations, warranties or covenants contained in this Agreement or (ii) the Adviser’s failure to comply, on behalf of itself and the Fund, with any applicable laws or regulations, but only to the extent that such claims, demands, liabilities and expenses do not arise out of or are not based upon Destra Disabling Conduct.

 

10.                                LIMITATION OF LIABILITY OF THE ADVISER AND THE FUND. Neither the Adviser nor the Fund will be liable for any act or omission or for any error of judgment or for any loss suffered by Destra in connection with the performance of the Adviser’s duties under this Agreement, except (in the case of the Adviser and not the Fund) for a loss resulting from willful misfeasance, bad faith or gross negligence on the Adviser’s part in the performance of its duties or from the reckless disregard by it of its duties under this Agreement or the material breach by the Adviser of any of the Adviser’s representations, warranties or covenants hereunder (“Adviser Disabling Conduct”).

 

Destra agrees to indemnify, defend and hold harmless the Adviser and the Fund, each of their officers, trustees, directors and agents, and any person who controls the Adviser or the Fund within the meaning of Section 15 of the Securities Act (collectively, “Adviser Indemnified Persons”), against any and all claims, demands, liabilities and expenses (including the reasonable and documented out- of-pocket costs of investigating or defending such claims, demands or liabilities and any reasonable and documented out-of-pocket fees of one counsel for each of the Adviser and the Fund incurred in connection therewith) that any Adviser Indemnified Persons may incur arising out of or relating to (i) Destra Disabling Conduct with respect to the provision of services under this this Agreement; (ii) Destra’s material breach of any of its obligations, representations, warranties or covenants contained in this Agreement or (iii) Destra’s failure to comply with any applicable laws or regulations, but only to the extent that such claims, demands, liabilities and expenses do not arise out of or are not based upon Adviser Disabling Conduct.

 

11.                                TERMINATION.

 

(a)                                  This Agreement may be terminated solely as follows:

 

(i)                                      by Destra in the event of a material breach of this Agreement by the Adviser, upon 10 days’ prior written notice to the Adviser and the Fund; provided, however, that a determination by the lead underwriters that the Offering will not be completed shall not be deemed to be a material breach of this Agreement;

 

(ii)                                   by the Adviser in the event of a material breach of this Agreement by Destra, upon 10 days’ prior written notice to Destra; provided, however, that a determination by the lead underwriters that the Offering will not be completed shall not be deemed to be a material breach of this Agreement;

 

(iii)                                by the express written mutual agreement of all of the parties hereto (including, but not limited to, following a determination based upon discussions with prospective lead managing underwriters that the Offering is not likely to occur within the time frame set forth in (iv) below; and

 

(iv)                               by any of the parties on or after July 1, 2015, if the Offering has not commenced by that date.

 

6



 

(b)                                  Upon termination of this Agreement other than pursuant to Section 11(a)(ii), the Adviser shall promptly pay to Destra the reimbursement of expenses contemplated by Section 8(b). The Adviser shall owe no other fees or expenses upon termination to Destra including, by way of clarification, fees contemplated by Section 7.

 

(c)                                   Sections 9, 10 and 12 through 23 shall survive any termination of this Agreement.

 

12.                                AMENDMENT OF THIS AGREEMENT. This Agreement may not be amended, supplemented or otherwise modified except by written agreement executed by all the parties hereto.

 

13.                                CONFIDENTIALITY / PRIVACY. Destra and the Adviser each acknowledge that it may obtain certain confidential information of the other parties to this Agreement, or, in the case of Destra, of the Fund and shareholders of the Fund, during the performance of its duties under this Agreement, and each party hereto agrees to treat all such confidential information as proprietary information of the applicable party and to keep such information confidential by using the same care and discretion it uses with respect to its own confidential information, property and trade secrets; provided, that a party may disclose confidential information if (i) such disclosure is approved in writing by the applicable party from which the confidential information originates or (ii) such disclosure is required by applicable laws, rules, and regulations (including, for the avoidance of doubt, disclosures required in any document filed, provided or furnished with or to the SEC, FINRA or other regulatory authority), or such disclosure is required to be made in response to a valid request by a regulatory authority having jurisdiction; and provided further that the Adviser may disclose material terms of the Agreement to underwriters of the Fund and in the Prospectus and Statement of Additional Information for the Fund. If Destra is required or requested to disclose confidential information of the Adviser or the Fund pursuant to (ii) above, Destra shall immediately notify the Adviser or the Fund, as the case may be, in order to provide the Adviser or the Fund, as the case may be, the opportunity to pursue such legal or other action as such parties may desire to prevent the release of such confidential information, and such party agrees to provide reasonable assistance to any party seeking to prevent the release of such confidential information, at the expense of the requesting party. For purposes of this Agreement, “confidential information” does not include information which, without any breach of Destra, the Fund or the Adviser of the foregoing, (1) is or becomes publicly available (other than in breach of this Agreement or a violation of a confidentiality obligation owed to a party hereto), (2) is in the possession of Destra, the Fund or the Adviser (as the case may be) prior to disclosure by the other party, (3) is independently developed by Destra, the Fund or the Adviser (as the case may be) outside the scope of this Agreement and without use of confidential information or (4) is rightfully obtained by Destra, the Fund or the Adviser (as the case may be) from third parties who have no duty of confidentiality to the Adviser, the Fund or Destra, respectively.

 

In the performance of its obligations under this Agreement and in respect of any information provided to Destra in connection with this Agreement, Destra agrees to comply with all applicable laws and regulations related to the collection, storage, handling, processing and transfer of non-public personal information (“Applicable Data Security Laws”), including without limitation the Massachusetts Standards for the Protection of Personal Information, 201 CMR 17.00, et. seq., and to implement and maintain appropriate security measures to protect the confidentiality, security and integrity of non-public personal information in the manner provided for under and to the extent required by all such Applicable Data Security Laws.

 

14.                                GOVERNING LAW. This Agreement shall be construed in accordance with the laws of the State of New York, without regard to principles of conflict of laws of any jurisdiction to the contrary.

 

7



 

15.                                BOOKS AND RECORDS

 

(a)                                  In compliance with the requirements of the 1940 Act and other applicable law, Destra hereby agrees that all records which it may maintain for the Fund or the Adviser, as the case may be, are the property of the Adviser or the Fund, as the case may be, and further agrees to surrender promptly to the Adviser or the Fund, as the case may be, any of such records upon request.

 

(b)                                  Destra hereby agrees to furnish to regulatory authorities having the requisite authority any information or reports in connection with services that Destra renders pursuant to this Agreement which may be requested in order to ascertain whether the operations of the Adviser and/or the Fund are being conducted in a manner consistent with applicable laws and regulations. Subject to the proviso below, if Destra is required or requested to provide any information or reports to regulatory authorities, Destra shall immediately notify the Adviser and the Fund in order to provide the Adviser and the Fund the opportunity to pursue such legal or other action as it may desire to prevent the release of the information or reports, and Destra agrees to provide reasonable assistance to the Adviser and the Fund in seeking to prevent the release of the information, in each case; provided, that such disclosure by Destra is not prohibited by applicable law.

 

16.                                BENEFIT TO OTHERS. The understandings contained in this Agreement are for the sole benefit of the parties hereto and their respective successors and assigns and, except as specifically contemplated herein with respect to Destra Indemnified Persons and Adviser Indemnified Persons, they shall not be construed as conferring, and are not intended to confer, any rights on any other persons.

 

17.                                BINDING NATURE OF AGREEMENT; NO ASSIGNMENT. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that no party may assign or transfer its rights nor delegate its obligations under this Agreement without the prior written consent of other parties hereto; provided, that the Adviser may assign its rights or obligations, in whole or in part, under this Agreement to the Fund. Any assignment not in accordance with this Section 17 shall be void ab initio.

 

18.                                EXECUTION IN COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against the any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as signatories.

 

19.                                ENTIRE AGREEMENT. This Agreement contains the entire understanding among the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements and understandings, inducements or conditions, express or implied, oral or written, except as herein contained. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.

 

20.                                WAIVERS. Neither the failure nor any delay on the part of any party to this Agreement to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be

 

8



 

construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence. No waiver shall be effective unless it is in writing and signed by the party asserted to have granted such waiver.

 

21.                                CONSTRUCTION. The captions of this Agreement are included for convenience of reference only and in no way define or delimit any of the provisions hereof or otherwise affect their construction or effect.

 

22.                                SEVERABILITY. If any provision (or part thereof) of this Agreement is held illegal, invalid or unenforceable by a final decision of a court of competent jurisdiction, statute, rule, regulation, law or ordinance, the parties hereto shall negotiate in good faith to replace such provision with a legal, suitable and equitable substitute therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such illegal, invalid or unenforceable provision and the remaining provisions of this Agreement shall remain in full force and effect.

 

23.                                NOTICES.

 

All notices required or permitted to be sent under this Agreement shall be sent:

 

If to the Adviser, to:

 

Tekla Capital Management LLC

100 Federal Street, 19th Floor

Boston, MA 02110

 

With copies emailed to:                                                                  domstead@teklacap.com

 

If to the Fund, to:

 

Tekla World Healthcare Fund

100 Federal Street, 19th Floor

Boston, MA 02110

 

With copies emailed to:                                                                  domstead@teklacap.com

 

If to Destra, to:

 

Destra Capital Investments LLC

One North Wacker Drive

48th Floor

Chicago, IL 60606

 

With copies emailed to:                                                                  dominic.martellaro@destracapital.com

virginija.adomavicius@destracapital.com

 

[SIGNATURE PAGE FOLLOWS]

 

9



 

IN WITNESS WHEREOF, the parties hereto have caused the instrument to be executed by their officers designated below as of the day and year first above written.

 

 

 

TEKLA CAPITAL MANAGEMENT LLC

 

 

 

 

 

/s/ Daniel R Omstead

 

By:

Daniel R Omstead

 

Title:

CEO & President

 

 

 

 

 

DESTRA CAPITAL INVESTMENTS LLC

 

 

 

 

 

/s/ Dominic C. Martellaro

 

By:

Dominic C. Martellaro

 

Title:

CEO

 

10



 

Appendix A

 

In the event that the Adviser exercises its Right of Rescission per Section 7 of this Agreement, Section 7 of the Agreement shall be deleted in its entirety and replaced with the following:

 

7.                                       COMPENSATION.As compensation for the services to be provided by Destra under this Agreement, the Adviser shall pay to Destra a marketing fee, due and payable upon the closing date of the Offering (the “Closing”), in an amount equal to 0.17% (17 bps) of the aggregate offering amount of Common Shares sold in the Offering, including any Common Shares sold pursuant to the exercise by the underwriters of their “Green Shoe” option.

 

All remaining provisions of this Agreement shall remain in full force and effect.

 

11


Exhibit 99.2n

 

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

We consent to the use in this Pre-Effective Amendment No. 2 to Registration Statement No. 333-202638 on Form N-2 of our report dated May 21, 2015, relating to the statement of assets and liabilities of Tekla World Healthcare Fund as of May 19, 2015 and to the references to us under the heading “Independent Registered Public Accounting Firm” in the Prospectus, which is a part of such Registration Statement.

 

/S/ DELOITTE & TOUCHE LLP

 

Boston, Massachusetts

May 21, 2015

 


 

Exhibit 99.2p

 

SUBSCRIPTION AGREEMENT

 

This Subscription Agreement is hereby made as of the day of May 18, 2015, by and between Tekla World Healthcare Fund, a Massachusetts business trust (“Trust”) and Tekla Capital Management LLC (“Subscriber”).

 

WHEREAS, the Trust has been formed for the purpose of conducting, operating and carrying on the business of a closed-end management investment company registered under the Investment Company Act of 1940 Act, as amended (“1940 Act”); and

 

WHEREAS , the Subscriber expects to enter into an Investment Advisory Agreement pursuant to which it will serve as the adviser to the Trust; and

 

WHEREAS, Section 14(a) of the 1940 Act requires each registered investment company to have a net worth of at least $100,000 before making a public offering of its securities, unless certain other arrangements have been made; and

 

WHEREAS, the Subscriber wishes to subscribe for and purchase, and the Trust wishes to sell to the Subscriber, 5,235.60 common shares of beneficial interest, par value $0.01 (“Shares”), for a purchase price of $19.10 per Share, or an aggregate purchase price of $100,000.

 

NOW, THEREFORE, the Trust and the Subscriber agree as follows:

 

1.               The Subscriber subscribes for and agrees to purchase from the Trust the Shares for a purchase price of $19.10 per Share and an aggregate purchase price of $100,000. The Subscriber agrees to make payment for the Shares at such time as demand for payment may be made by an officer of the Trust.

 

2.               The Trust agrees to issue and sell said Shares to the Subscriber promptly upon its receipt of the aggregate purchase price.

 

3.               To induce the Trust to accept its subscription and issue the Shares subscribed for, the Subscriber represents that it is informed as follows:

 

a.               That the Shares being subscribed for have not been and will not be registered under the Securities Act of 1933, as amended (“Securities Act”), or registered or qualified under the securities laws of any state;

 

b.               That the Shares will be sold by the Trust in reliance on an exemption from the registration requirements of the Securities Act;

 

c.                That the Trust’s reliance upon an exemption from the registration requirements of the Securities Act is predicated in part on the representations and agreements contained in this Subscription Agreement;

 

d.               That, when issued, the Shares will be “restricted securities” as defined in paragraph (a)(3) of Rule 144 of the General Rules and Regulations under the Securities Act (“Rule 144”), and cannot be sold or transferred by the Subscriber unless they are subsequently registered under the Securities Act or unless an exemption from such registration is available; and

 



 

e.                That there do not currently appear to be any exemptions from the registration provisions of the Securities Act available to the Subscriber for resale of the Shares. In the future, certain exemptions may possibly become available, including an exemption for limited sales in accordance with the conditions of Rule 144.

 

The Subscriber understands that a primary purpose of the information acknowledged in subparagraphs (a) through (e) above is to put the Subscriber on notice as to certain restrictions on the transferability of the Shares.

 

4.               To further induce the Trust to accept its subscription and issue the Shares subscribed for, the Subscriber:

 

a.               Represents and warrants that the Shares subscribed for are being and will be acquired for investment for its own account and not on behalf of any other person or persons and not with a view to, or for sale in connection with, any public distribution thereof;

 

b.               Acknowledges that it has such knowledge and experience in financial and business matters (and particularly in the business in which the Trust operates) as to be capable of evaluating the merits and risks of the investments in the Shares. The Subscriber also acknowledges that it is an “accredited investor” as defined in Rule 501(a) of Regulation D under the Securities Act; and

 

c.                Agrees that any certificates representing the Shares subscribed for may bear a legend substantially in the following form:

 

The shares represented by this certificate have been acquired for investment and have not been registered under the Securities Act of 1933 or any other federal or state securities law. These shares may not be offered for sale, sold or otherwise transferred unless registered under said securities laws or unless some exemption from registration is available; and

 

5.               This Subscription Agreement and all of its provisions shall be binding upon the legal representatives, heirs, successors and assigns of the parties hereto. This Subscription Agreement may be signed in one or more counterparts, each of which shall be deemed to be an original.

 

6.               This Subscription Agreement is executed on behalf of the Trust by an officer of the Trust as an officer and not individually, and the obligations imposed upon the Trust by this Subscription Agreement are not binding upon any of the Trust’s Trustees, officers or shareholders individually, but are binding only upon the assets and property of the Trust.

 

Remainder of page intentionally left blank.

 



 

IN WITNESS WHEREOF, the Trust and the Subscriber have caused their duly authorized officers to execute this Subscription Agreement as of the date first above written.

 

TEKLA WORLD HEALTHCARE FUND

 

 

 

 

 

 

By:

/s/ Daniel R. Omstead

 

Name:

Daniel R. Omstead

 

Title:

President

 

 

 

 

 

 

 

TEKLA CAPITAL MANAGEMENT LLC

 

 

 

By:

/s/ Daniel R. Omstead

 

Name:

Daniel R. Omstead

 

Title:

President and Chief Executive Officer

 

 


Exhibit 99.2r

 

Tekla Capital Management LLC (“TCM”)

Tekla Healthcare Investors · Tekla Life Sciences Investors · Tekla Healthcare Opportunities Fund

(Each a “Fund,” together the “Funds”)

 

CODE OF ETHICS

 

This Code of Ethics restricts the personal investing activity of each Employee and, as applicable, Trustee of the Funds or TCM.(1) The Code contains specific investment restrictions and a general statement of principles, which may restrict investments not specifically covered by the Code. Some of these restrictions do not apply to the Funds’ Independent Trustees. The Code applies to investments in your accounts, your Family Members’ accounts (i.e., any accounts of your spouse or other family members living in your house) and any accounts in which you or they may have Beneficial Ownership (i.e., ownership, voting or investment control). Please take care to determine the full coverage of the Code as it applies to you.

 

I.  Responsibility and Oversight

 

Generally, the Code requires pre-clearance for certain investments, prohibits other investments and activities, imposes reporting requirements and provides for sanctions for violations. The basic rules are set out in Section II below. Coverage of the Code, exclusions, definitions and other important matters are set out in subsequent sections. If you have any question about the application of the Code to any transaction, do not engage in that transaction until it has been pre-cleared by the President or the Fund’s Chief Compliance Officer (“CCO”). Throughout this Code, transactions by the President requiring pre-clearance shall be pre-cleared by the Fund’s CCO or, if the Fund’s CCO is unavailable, then by the Funds’ counsel and transactions by the Fund’s CCO requiring pre-clearance shall be pre-cleared by the President or, if the President is unavailable, then by the Funds’ counsel.

 

The President has the authority at any time, upon written notice, to further restrict the investing activity of each Employee. In addition, you are reminded that your investing activity is subject to applicable state and federal laws and may be subject to other policies and procedures of the Funds or TCM.

 

II.  Specific Restrictions

 

Independent Trustees are only subject to paragraphs G and H of this Section II. This Section II applies in its entirety to all other Employees (as defined).

 

A.             You shall obtain the prior approval of the President or Fund’s CCO for all transactions in equity securities (including stock options); provided, however, that the President shall obtain prior approval for his or her own such transactions from the Funds’ CCO or, if the Funds’ CCO is unavailable, then from the Funds’ counsel and the Fund’s CCO shall obtain prior approval for his or her own such transactions from the President or, if the President is unavailable, then from the Funds’ counsel. You may engage in the approved transaction within a period of seven (7) calendar days following receipt of such approval, unless otherwise specifically agreed to in advance.

 


(7) Unless otherwise noted, capitalized terms used in the Code shall have the meaning given to them in Section IX below. References to “you” refer to each Employee. In some instances, for ease of use, partial definitions of capitalized terms are given in the text of the Code. Each of these partial definitions is qualified in its entirety by reference to the corresponding definition set forth in Section VIII below.

 



 

B.             You shall obtain the prior approval of the President or Fund’s CCO for all transactions in Private Placements (i.e., securities not registered under the Securities Act of 1933); provided, however, that the President shall obtain prior approval for his or her own such transactions from the Fund’s CCO or, if the Fund’s CCO is unavailable, then from the Funds’ counsel and the Fund’s CCO shall obtain prior approval for his or her own such transactions from the President or, if the President is unavailable, then from the Funds’ counsel.(2)

 

C.             You shall not acquire any securities in an initial public offering.

 

D.             You shall not buy or sell any security under consideration for trading by the Funds or within seven (7) days before or after the Funds trade in the security.

 

E.              You shall not profit from the purchase and sale or sale and purchase of the same or equivalent equity securities within sixty days.(3)

 

F.               You shall not sell any security to or buy any security from the Funds.

 

G.             You shall not use material nonpublic information, regardless of how acquired, in your securities transactions. Generally, material nonpublic information means information not generally available to the public that, if public, might affect the price of the security.

 

H.            You shall not disclose confidential information about the investment activities of the Funds or TCM. Confidential information includes, but is not limited to, information about actual or contemplated purchases or sales by the Funds, nonpublic information about the Funds’ portfolio companies and other proprietary information about the Funds or TCM.

 

I.                 You shall not serve as a director of a publicly traded company (or hold any similar position).

 

J.                 You shall not participate in negotiations for corporate financings, acquisitions or other transactions for outside companies and, in particular, you shall not negotiate or accept a finder’s fee or similar fee in connection with your participation.

 

K.            You shall not seek or accept either any gifts(4) of material value or any sort of preferential treatment from, or special arrangements with, any financial institution if such gifts or treatment reasonably could appear to have been motivated by your relationship to Funds or TCM.

 

L.              No Employee shall originate or circulate in any manner information concerning any security that the Employee knows or has reasonable grounds for believing is a Rumor and is likely to influence the market price of such security.  If an Employee learns of a Rumor that the Employee knows or has reasonable grounds to believe was originated or circulated by an TCM Employee for the purpose of improperly influencing the market price of a security, the Employee must promptly report the Rumor to the CCO or the Funds’ counsel.

 


(2)  The President should consider whether the investment opportunity should be reserved for the Funds and whether the opportunity is offered to the Employees because of his or her position with the Funds.  If the Employee’s investment is approved, the Employee must disclose his or her interest if he or she is involved in the Funds’ consideration of an investment in the issuer.

 

(3)  You may purchase and sell or sell or purchase the same of equivalent securities within sixty (60) days to realize a loss.

 

(4)  Refer to Tekla Gift and Entertainment Receipt Guidelines

 



 

III.  Covered Transactions and Exempt Transactions

 

Independent Trustees are not subject to the Section III except to the extent that the trading restrictions in paragraphs G and H of Section II above are implicated. This Section III applies in its entirety to all other Employees.

 

A.             The trading restrictions listed above shall apply to transactions in your Covered Accounts (i.e., your own accounts, your Family Members’ accounts, and any accounts in which you or they may have Beneficial Ownership (i.e., ownership, voting or investment control)).(5)

 

B.             The trading restrictions listed above shall not apply to the following types of transactions in your Covered Accounts:

 

·                   Reinvestments of dividends pursuant to a plan;

 

·                   Stock dividends and distributions, mandatory conversions or tenders, and receipts of rights;

 

·                   Transactions in which Beneficial Ownership is not acquired or disposed of (e.g., a pledge of stock to secure a loan);

 

·                   Transactions in Covered Accounts as to which (i) you or your Family Members do not have investment control; or (ii) you or your Family Members have given investment discretion to a financial institution not affiliated with the Funds or TCM, provided that :

 

·                   The account is approved by the President or Fund’s CCO; provided, however, that the President shall obtain approval with respect to such accounts relating to him or her from the Fund’s CCO or, if the Fund’s CCO is unavailable, then from the Funds’ counsel and the Fund’s CCO shall obtain approval with respect to such accounts relating to him or her from the President or, if the President is unavailable, then from the Funds’ counsel; (6)

 

·                   The written account agreement (“Agreement”) must be filed with the CCO prior to any transactions;

 

·                   Any amendment to the Agreement must be filed with the CCO prior to its effective date;

 

·                   The Agreement must require the account manager to provide the CCO with copies of all transaction confirmations and periodic account statements;

 

·                   The Agreement must prohibit: (i) acquisitions of securities in IPOs and (ii) acquisitions of securities in Private Placements without prior approval from the President or CCO or the Funds’ counsel, as applicable; and

 


(5)  When you influence or control an account, but do not have Beneficial Ownership in the account, you must avoid any activity that conflicts or appears to conflict with the interests of the Funds or the Adviser.

 



 

·                   This exemption is not available for any transaction which you suggest or direct or as to which you acquire advance information.

 

·                   Transactions in securities in connection with an employer-sponsored or other tax qualified plan;

 

·                   Transactions in securities and instruments that are not Reportable Securities (as defined in Section IX); and

 

·                   Pre-approved same-day exercise and sale of stock options.

 

C.  The trading restrictions listed above in Section II. A, D, and E shall not apply to:

 

·                   Open-end mutual funds;

 

·                   Transactions in exchange-traded funds other than those exchange-traded funds whose primary investment objective includes investment in the healthcare, life sciences companies (including biotechnology, pharmaceutical, diagnostics, managed healthcare and medical equipment, hospitals, healthcare information technology and services, devices and supplies), agriculture and environmental management; or

 

·                   Transactions in exchange-traded funds that are based on instruments that are not Reportable Securities.

 

IV.  Violations and Sanctions applicable to Employees

 

Careful adherence to the Code is one of the basic conditions of your employment. The President and the Fund’s CCO, shall determine violations of the Code. Profits or other benefits resulting from violations of the Code shall be forfeited by the violator to TCM and (i) paid to the Funds for the benefit of the Funds’ shareholders; or (ii) dealt with in any other manner the President or Adviser’s CCO determines in good faith to be fair and reasonable. In appropriate cases, the President, the CCO or the Board of Trustees may impose other sanctions for conduct inconsistent with this Code. Any such additional sanctions (which may include, but are not limited to, fines, letters of sanction, suspension or termination of employment for cause) may be levied and will be determined by TCM or the Board of Trustees, taking into account any remedies required or requested by, among others, the SEC and other regulatory bodies. Certain violations of this Code may also involve violations of state or federal law, with the possibility of civil or criminal penalties.

 

V.  Reporting Requirements

 

With respect to this Section V, Independent Trustees are subject to paragraph B, but only in situations where a Quarterly Transaction Reporting obligation arises as set forth below in paragraph E(ii). This section applies in its entirety to all other Employees.

 

A.            Initial Holdings Reports. Within ten (10) calendar days of becoming an Employee, you must file a dated report with the CCO that contains:

 

1.               the title (security description), number of shares and principal amount of each Reportable Security in which you or any of your Family Members had any Beneficial Ownership when you became an Employee; and

 



 

2.               the name of each broker, dealer or bank with which you or any of your Family Members maintained a Covered Account (i.e., an account in which you or they had any Beneficial Ownership) when you became an Employee.

 

B.             Quarterly Transaction Reports. Within ten (10) calendar days after the end of each calendar quarter, you must file a dated report with the CCO that:

 

1.               details all transactions in Reportable Securities in which you or any of your Family Members had any Beneficial Ownership during the quarter(7); and

 

2.               identifies any broker, dealer or bank with which you or any of your Family Members established a Covered Account during the quarter and the date the account was established.

 

C.             Annual Holdings Reports.  Within thirty (30) calendar days after the end of each calendar year, you must file a dated report with the CCO that contains:

 

1.               the title (security description), number of shares and principal amount of each Reportable Security in which you or any of your Family Members had any Beneficial Ownership; and

 

2.               the name of each broker, dealer or bank with which you or any of your Family Members maintained a Covered Account.(8)

 

D.  Gift or Entertainment Receipt Report. Within ten (10) calendar days after the end of each calendar quarter, you must file a Gift or Entertainment Receipt Report that describes any gifts as defined in the Tekla Gift and Entertainment Receipt Guidelines received by you during the recent quarter. You must also include the name of the vendor from which the gifts were received and an approximate value.

 

E.              Exceptions from the Reporting Requirements. You are not required to file reports in connection with any account over which you have no influence or control. In addition, the Independent Trustees of the Funds are not required to submit (i) Initial Holdings Reports; (ii) Quarterly Transactions Reports, except when they knew or should have known that, during the 15-day period before or after a securities transaction, the securities were purchased or sold by the Funds or a purchase or sale of the securities was considered for the Funds, or (iii) Annual Holdings Reports.

 

F.               Disclaimer. Any report required by this Code may contain a statement that the report is not to be construed as an admission that the person making the report has any Beneficial Ownership in the securities to which the report relates.

 


(7)  This report shall include the date of the transaction, the title (security description), interest rate and maturity date, if applicable, the number of shares and the principal amount of each security, the nature of the transaction (i.e., purchase, sale or any other type of acquisition or disposition), the price at which the transaction was effected and the name of the broker, dealer or bank with or through which the transaction was effected.

 

(8)   This information must be current within thirty (30) days as of the date the report is filed.

 



 

VI.  General Principles

 

This Section applies to all Employees and the Independent Trustees.

 

In addition to the Specific Restrictions set forth above, the Funds and TCM shall be governed by the following principles and shall apply them to its Employees and Independent Trustees as applicable:

 

A.             The interests of the Funds and the Funds’ shareholders are paramount and come before the interests of any Employee.

 

B.             Personal investing activities of all Employees shall be conducted in a manner that shall avoid actual or potential conflicts of interest with the Funds and the Funds’ shareholders.

 

C.             Employees shall not use their positions, or investment opportunities presented by virtue of such positions, to the detriment of the Funds and the Funds’ shareholders.

 

D.             It is recognized that all Employees owe a fiduciary duty to the Funds and the Funds’ shareholders. This means a duty of loyalty, fairness and good faith, and the same duty on the part of TCM not to do anything prejudicial to or in conflict with the interests of the Funds.

 

It is your responsibility to be aware of the rules, regulations and policies that apply to you and to conduct business so as to avoid violations thereof, any appearance of violations thereof or grounds for criticism. Your personal trading must always be carried out in good judgment and good faith. All possible situations cannot be covered by this Code and, under special circumstances, exceptions may be appropriate.

 

VII.  Legal Requirement

 

This Section applies to all Employees and the Independent Trustees.

 

Rule 17j-l makes it unlawful for any Employee or Independent Trustee in connection with the purchase and sale by such person of a security held or to be acquired(9) by the Funds, including options and convertible securities:

 

A.             To employ any device, scheme or artifice to defraud the Funds;

 

B.             To make to the Funds any untrue statement of a material fact or omit to state to the Funds a material fact necessary in order to make the statements made, in light of the circumstances under which they are made, not misleading;

 

C.             To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon the Funds; or

 

D.             To engage in any manipulative practice with respect to the Funds.

 

To assure compliance with these restrictions, the Funds and TCM adopt and agree to be governed by the provisions contained in this Code of Ethics.

 


(9)  Securities “held or to be acquired” include a) Reportable Securities which, within the most recent 15 days, (i) are or have been held by the Funds, or (ii) are being considered for purchase by the Funds; and b) options to purchase or sell, and any securities convertible into or exchangeable for, Reportable Securities.

 



 

VIII.  Administration of the Code

 

This Section applies to all Employees, including the Independent Trustees.

 

A.             All Employees are subject to this Code. The CCO shall provide you with a copy of the Code and inform you of your reporting obligations. Within thirty (30) days of becoming an Employee and the end of each calendar year, you must certify to the CCO that you are aware of your obligations under the Code and have complied with its requirements.

 

B.             The CCO shall implement a system to monitor your investments and identify abusive or inappropriate practices. This system will include review by appropriate personnel of all reports required by the Code. A list of persons responsible for reviewing these reports will be kept by the CCO in an easily accessible place. The CCO will report on this system to the Board of Trustees at the Board’s next meeting following the system’s design and thereafter in connection with the Board of Trustees’ annual consideration of this Code.

 

B.             The President or Fund’s CCO also will report to the Board of Trustees at each meeting regarding the following matters not previously reported: (i) securities transactions in violation of this Code (and any sanctions imposed in response thereto); (ii) apparent violations of the reporting requirements (and any sanctions imposed in response thereto); and (iii) the results of monitoring of personal investment activities of Employees. If the President or Fund’s CCO finds that no violation has occurred, a written memorandum of these findings must be filed with the reports made pursuant to this Code.

 

C.             At least annually, TCM and the Funds shall furnish to the Board of Trustees a written report that (i) describes any issues arising under this Code since the last report to the Board of Trustees, including material violations and sanctions imposed in response thereto; and (ii) certifies that each of TCM and the Funds has adopted reasonable procedures to prevent violations of this Code.

 

D.             The Board of Trustees shall consider the reports made available to it and may, in its discretion, impose, or recommend that TCM impose, sanctions on those who violate the Code. These sanctions may be in addition to the sanctions referred to above.

 

E.              The Board of Trustees (including a majority of the Independent Trustees) and TCM shall approve this Code based on a determination that the Code contains provisions reasonably necessary to prevent Employees from engaging in any conduct prohibited by Rule 17j-1. The Board shall approve the code of ethics of any other investment adviser to the Funds prior to retaining its services. In addition, the Board must approve all material changes to this Code, or to the code of such other adviser, within six (6) months of the adoption of the material change.

 

F.               This Code and any related procedures, a copy of each report or duplicate statement required hereunder, any written report or memorandum required hereunder, and lists of all persons required to make reports hereunder shall be preserved with each Fund’s records for the period required by Rule 17j-l (generally, five (5) years).

 

IX.  Definitions

 

As used herein:

 

A.             “Adviser” means Tekla Capital Management LLC.

 



 

B.             “Beneficial Ownership” generally means having a direct or indirect pecuniary interest in a security and is legally defined to be Beneficial Ownership as used in Rule 16a-1(a)(2) under Section 16 of the Securities Exchange Act of 1934. Beneficial Ownership is presumed regarding securities and accounts held in the name of a spouse or any other family member living in the same household as you. Beneficial Ownership also extends to transactions by entities over which a person has ownership, voting or investment control, including corporations (and similar entities), trusts and foundations.

 

C.             “Board” or “Board of Trustees” means the Board of Trustees of the Funds.

 

D.             “Chief Compliance Officer” shall mean the Fund’s Chief Compliance Officer

 

E.              “Control” has the same meaning as in Section 2(a)(9) of the Investment Company Act of 1940, as amended. Generally, this means the power to exercise a controlling influence over the management or policies of a company, unless the power is solely the result of an official position with the company. Any person who owns beneficially, either directly or through one or more controlled companies, more than 25% of the voting securities of a company shall be presumed to control the company.

 

F.               “Covered Account” means an account in which you or any of your Family Members have any Beneficial Ownership in Reportable Securities.

 

G.             An “Employee” is (1) each director, trustee, officer or employee of the Funds or TCM; and (2) any natural person in a Control relationship to the Funds or TCM (or any employee of any company in a Control relationship to the Funds or TCM) who obtains information concerning recommendations made to the Funds with regard to the purchase or sale of Reportable Securities by the Funds.

 

H.            “Family Member” means your spouse or any other family member living in the same house as you.

 

I.                 “Funds” means together Tekla Healthcare Investors, Tekla Life Sciences Investors.

 

J.                 “Independent Trustee” means any trustee of the Funds who is not an “interested person” of the Funds as that term is defined in Section 2(a)(19) of the Investment Company Act of 1940, as amended. Generally, an “interested person” of the Funds means a person who is affiliated with TCM because of his or her employment by TCM or holding office with the Funds.

 

K.            A “Private Placement” includes any offering that is exempt from registration under the Securities Act of 1933 pursuant to Section 4(2) or Section 4(6), or pursuant to Rule 504, Rule 505, or Rule 506 thereunder.

 

L.              “Reportable Security” includes any security other than debt securities issued or guaranteed by the U.S. Government or its agencies, bankers’ acceptances, bank certificates of deposit, commercial paper, high quality short-term debt instruments (including repurchase agreements), and shares issued by open-end investment companies (but not including open-end exchange traded funds).

 

M.         “Rule 17j-1” means Rule 17j-1 under the Investment Company Act of 1940, as amended.

 

N.             A “Rumor” is defined as a false or misleading statement or a statement without a reasonable basis.

 


Exhibit 99.2s

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS , that Daniel R. Omstead, whose signature appears below, constitutes and appoints Laura Woodward, Joseph R. Fleming, Christopher P. Harvey, Alison M. Fumai and Brian S. Vargo and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution among himself or herself and each of the persons appointed herein, for him or her in his or her name, place and stead, in any and all capacities, to sign any and all registration statements of TEKLA WORLD HEALTHCARE FUND (the “Fund”), and any amendments or supplements thereto and all instruments necessary or incidental in connection therewith, and to file the same, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his or her substitutes, may lawfully do or cause to be done by virtue hereof.

 

Dated:

May 18, 2015

 

 

 

 

 

 

/s/ Daniel R. Omstead

 

Daniel R. Omstead

 

 



 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS , that Michael W. Bonney, whose signature appears below, constitutes and appoints Daniel R. Omstead, Laura Woodward, Joseph R. Fleming, Christopher P. Harvey, Alison M. Fumai and Brian S. Vargo and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution among himself or herself and each of the persons appointed herein, for him or her in his or her name, place and stead, in any and all capacities, to sign the Declaration of Trust and any and all registration statements of TEKLA WORLD HEALTHCARE FUND (the “Fund”), and any amendments or supplements thereto and all instruments necessary or incidental in connection therewith, and to file the same, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his or her substitutes, may lawfully do or cause to be done by virtue hereof.

 

Dated:

May 18, 2015

 

 

 

 

 

 

/s/ Michael W. Bonney

 

Michael W. Bonney

 

 



 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS , that Rakesh K. Jain, whose signature appears below, constitutes and appoints Daniel R. Omstead, Laura Woodward, Joseph R. Fleming, Christopher P. Harvey, Alison M. Fumai and Brian S. Vargo and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution among himself or herself and each of the persons appointed herein, for him or her in his or her name, place and stead, in any and all capacities, to sign the Declaration of Trust and any and all registration statements of TEKLA WORLD HEALTHCARE FUND (the “Fund”), and any amendments or supplements thereto and all instruments necessary or incidental in connection therewith, and to file the same, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his or her substitutes, may lawfully do or cause to be done by virtue hereof.

 

Dated:

May 18, 2015

 

 

 

 

 

 

/s/ Rakesh K. Jain

 

Rakesh K. Jain

 

 



 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS , that Oleg M. Pohotsky, whose signature appears below, constitutes and appoints Daniel R. Omstead, Laura Woodward, Joseph R. Fleming, Christopher P. Harvey, Alison M. Fumai and Brian S. Vargo and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution among himself or herself and each of the persons appointed herein, for him or her in his or her name, place and stead, in any and all capacities, to sign the Declaration of Trust and any and all registration statements of TEKLA WORLD HEALTHCARE FUND (the “Fund”), and any amendments or supplements thereto and all instruments necessary or incidental in connection therewith, and to file the same, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his or her substitutes, may lawfully do or cause to be done by virtue hereof.

 

Dated:

May 18, 2015

 

 

 

 

 

/s/ Oleg M. Pohotsky

 

Oleg M. Pohotsky

 

 



 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS , that William S. Reardon, whose signature appears below, constitutes and appoints Daniel R. Omstead, Laura Woodward, Joseph R. Fleming, Christopher P. Harvey, Alison M. Fumai and Brian S. Vargo and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution among himself or herself and each of the persons appointed herein, for him or her in his or her name, place and stead, in any and all capacities, to sign the Declaration of Trust and any and all registration statements of TEKLA WORLD HEALTHCARE FUND (the “Fund”), and any amendments or supplements thereto and all instruments necessary or incidental in connection therewith, and to file the same, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his or her substitutes, may lawfully do or cause to be done by virtue hereof.

 

Dated:

May 18, 2015

 

 

 

 

 

/s/ William S. Reardon

 

William S. Reardon

 

 



 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS , that Uwe E. Reinhardt, whose signature appears below, constitutes and appoints Daniel R. Omstead, Laura Woodward, Joseph R. Fleming, Christopher P. Harvey, Alison M. Fumai and Brian S. Vargo and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution among himself or herself and each of the persons appointed herein, for him or her in his or her name, place and stead, in any and all capacities, to sign the Declaration of Trust and any and all registration statements of TEKLA WORLD HEALTHCARE FUND (the “Fund”), and any amendments or supplements thereto and all instruments necessary or incidental in connection therewith, and to file the same, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his or her substitutes, may lawfully do or cause to be done by virtue hereof.

 

Dated:

May 18, 2015

 

 

 

 

 

 

/s/ Uwe E. Reinhardt

 

Uwe E. Reinhardt

 

 



 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS , that Lucinda H. Stebbins, whose signature appears below, constitutes and appoints Daniel R. Omstead, Laura Woodward, Joseph R. Fleming, Christopher P. Harvey, Alison M. Fumai and Brian S. Vargo and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution among himself or herself and each of the persons appointed herein, for him or her in his or her name, place and stead, in any and all capacities, to sign the Declaration of Trust and any and all registration statements of TEKLA WORLD HEALTHCARE FUND (the “Fund”), and any amendments or supplements thereto and all instruments necessary or incidental in connection therewith, and to file the same, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his or her substitutes, may lawfully do or cause to be done by virtue hereof.

 

Dated:

May 18, 2015

 

 

 

 

 

/s/ Lucinda H. Stebbins

 

Lucinda H. Stebbins

 

 



 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS , that Laura Woodward, whose signature appears below, constitutes and appoints Daniel R. Omstead, Joseph R. Fleming, Christopher P. Harvey, Alison M. Fumai and Brian S. Vargo and each of them, his or her true and lawful attorney-in-fact and agent, with full power of substitution among himself or herself and each of the persons appointed herein, for him or her in his or her name, place and stead, in any and all capacities, to sign the Declaration of Trust and any and all registration statements of TEKLA WORLD HEALTHCARE FUND (the “Fund”), and any amendments or supplements thereto and all instruments necessary or incidental in connection therewith, and to file the same, with all exhibits thereto and other documents in connection therewith, with the U.S. Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or his or her substitutes, may lawfully do or cause to be done by virtue hereof.

 

Dated:

May 18, 2015

 

 

 

 

 

/s/ Laura Woodward

 

Laura Woodward