-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WQXPKq95cgBAVHR3Zrsw6RVKNdo7QAB+OlRwPqbrnYH6YrIU19Ph7yXExgEWhmMf OPxLPtwJ+7GkcwW7Cx25eA== 0000935069-06-000144.txt : 20060119 0000935069-06-000144.hdr.sgml : 20060119 20060119101807 ACCESSION NUMBER: 0000935069-06-000144 CONFORMED SUBMISSION TYPE: N-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20051130 FILED AS OF DATE: 20060119 DATE AS OF CHANGE: 20060119 EFFECTIVENESS DATE: 20060119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HIGHLAND FLOATING RATE FUND CENTRAL INDEX KEY: 0001068200 IRS NUMBER: 364251182 STATE OF INCORPORATION: MA FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: N-Q SEC ACT: 1940 Act SEC FILE NUMBER: 811-08953 FILM NUMBER: 06537024 BUSINESS ADDRESS: STREET 1: TWO GALLERIA TOWER STREET 2: 13455 NOEL ROAD,SUITE 1300 CITY: DALLAS STATE: TX ZIP: 75240 BUSINESS PHONE: 9726284100 MAIL ADDRESS: STREET 1: TWO GALLERIA TOWER STREET 2: 13455 NOEL ROAD,SUITE 1300 CITY: DALLAS STATE: TX ZIP: 75240 FORMER COMPANY: FORMER CONFORMED NAME: COLUMBIA FLOATING RATE FUND DATE OF NAME CHANGE: 20031107 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY FLOATING RATE FUND DATE OF NAME CHANGE: 20001212 FORMER COMPANY: FORMER CONFORMED NAME: LIBERTY STEIN ROE ADVISOR FLOATING RATE FUND DATE OF NAME CHANGE: 19991025 N-Q 1 nq.txt HIGHLAND FLOATING RATE NQ 11/05 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM N-Q QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS OF REGISTERED MANAGEMENT INVESTMENT COMPANY Investment Company Act file number 811-08953 -------------------- HIGHLAND FLOATING RATE FUND ---------------------------------------------------- (Exact name of registrant as specified in charter) 13455 Noel Road, Suite 1300 DALLAS, TEXAS 75240 ---------------------------------------------------- (Address of principal executive offices) (Zip code) James D. Dondero Highland Capital Management, L.P. 13455 Noel Road, Suite 1300 DALLAS, TEXAS 75240 ---------------------------------------------------- (Name and address of agent for service) Registrant's telephone number, including area code: (877) 532-2834 ----------------- Date of fiscal year end: AUGUST 31 ---------------- Date of reporting period: NOVEMBER 30, 2005 -------------------- Form N-Q is to be used by management investment companies, other than small business investment companies registered on Form N-5 (ss.ss. 239.24 and 274.5 of this chapter), to file reports with the Commission, not later than 60 days after the close of the first and third fiscal quarters, pursuant to rule 30b1-5 under the Investment Company Act of 1940 (17 CFR 270.30b1-5). The Commission may use the information provided on Form N-Q in its regulatory, disclosure review, inspection, and policymaking roles. A registrant is required to disclose the information specified by Form N-Q, and the Commission will make this information public. A registrant is not required to respond to the collection of information contained in Form N-Q unless the Form displays a currently valid Office of Management and Budget ("OMB") control number. Please direct comments concerning the accuracy of the information collection burden estimate and any suggestions for reducing the burden to the Secretary, Securities and Exchange Commission, 100 F Street, NE, Washington, DC 20549. The OMB has reviewed this collection of information under the clearance requirements of 44 U.S.C. ss. 3507. ITEM 1. SCHEDULE OF INVESTMENTS. The Schedule of Investments is attached herewith. INVESTMENT PORTFOLIO (UNAUDITED) NOVEMBER 30, 2005 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ SENIOR LOAN NOTES (A) - 88.0% AEROSPACE/DEFENSE - 0.9% 8,000,000 DeCrane Aircraft Holdings, Inc. First Lien Term Loan, 8.42%, 03/31/08 8,000,000 2,978,824 Vought Aircraft Industries, Inc. Term Loan, 6.72%, 12/22/11 3,007,063 --------------- 11,007,063 --------------- AIR TRANSPORT - 0.7% Continental Airlines, Inc. Tranche A-1 Term Loan, 857,143 9.25%, 06/01/11 811,851 Tranche A-2 Term Loan, 2,142,857 9.25%, 06/01/11 2,029,629 2,000,000 Northwest Airlines, Inc. Tranche C Term Loan, 10.07%, 11/23/10 2,027,500 3,353,434 United Airlines, Inc., DIP Tranche B Term Loan, 8.62%, 12/30/05 3,376,506 --------------- 8,245,486 --------------- AUTOMOTIVE - 4.5% CSA Acquisition Corp. Tranche B Term Loan, 1,141,375 6.06%, 12/23/11 1,144,765 Tranche C Term Loan, 612,042 6.06%, 12/23/11 615,867 Delphi Corp. 1,000,000 Revolver, 06/18/09 (b) 1,017,920 8,403,133 Term Loan, 06/14/11 (b) 8,712,368 Tranche B DIP Term Loan, 1,500,000 12.50%, 10/08/07 (b) 1,519,050 Federal-Mogul Corp. 3,000,000 DIP Term Loan, 12/09/06 (b) 3,045,000 Supplemental Revolver, 1,270,249 7.97%, 12/09/06 1,273,425 Tranche B Term Loan, 5,000,000 6.72%, 12/24/05 (f) 4,678,600 Tranche C Term Loan, 1,048,750 7.97%, 12/09/06 1,051,372 Goodyear Tire & Rubber Co. Second Lien Term Loan, 2,500,000 7.06%, 04/30/10 2,517,450 Third Lien Term Loan, 3,500,000 7.81%, 03/01/11 3,479,000 3,070,325 Hayes Lemmerz International, Inc. Term Loan B, 7.44%, 06/03/09 3,065,382 1,000,000 Insurance Auto Auctions, Inc. Term Loan, 7.14%, 05/19/12 1,013,750 1,970,050 J.L. French Automotive Castings, Inc. First Lien Term Loan, 8.43%, 07/31/11 1,815,401 Key Plastics LLC Term Loan B, 7.20%, 5,204,769 06/29/10 5,178,745 Term Loan C, 9.97%, 5,633,500 06/25/11 5,506,746 PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ AUTOMOTIVE (CONTINUED) 830,435 Keystone Automotive Industries, Inc. Term Loan B, 5.81%, 10/30/09 836,663 2,355,196 Rexnord Corp. Term Loan B, 6.15%, 12/31/11 2,386,120 3,950,000 Stanadyne Corp. Term Loan, 7.60%, 08/02/10 3,969,750 Tenneco Automotive, Inc. Tranche B Term Loan, 1,779,338 6.63%, 12/12/10 1,808,537 Tranche B-1 Credit Linked Deposit, 781,632 6.34%, 12/12/10 797,264 --------------- 55,433,175 --------------- BEVERAGE & TOBACCO - 2.1% 2,683,333 Caribbean Restaurant LLC Tranche B, 6.89%, 06/30/09 2,728,628 523,801 Commonwealth Brands, Inc. Incremental Term Loan, 7.25%, 08/28/07 523,801 4,973,178 Dr. Pepper Bottling Company of Texas Tranche B Term Loan, 6.18%, 12/19/10 5,054,589 13,576,246 DS Waters Enterprises LP Term Loan, 8.72%,11/07/09 (b) 12,990,839 3,750,000 National Distributing Co., Inc. Second Lien Term Loan, 10.70%, 06/01/10 3,759,375 1,235,294 Sunny Delight Beverage Co. First Lien Term Loan, 8.46%, 08/20/10 1,238,382 --------------- 26,295,614 --------------- BROADCAST RADIO & TELEVISION - 1.8% 5,500,000 HIT Entertainment PLC Second Lien Term Loan, 9.71%, 02/26/13 5,539,875 1,043,977 NEP Supershooters LP Second Lien Term Loan, 12.02%, 08/03/11 1,038,757 NextMedia Operating, Inc. Initial First Lien Term Loan, 2,769,230 6.12%, 11/15/12 (b) 2,795,760 Delay Draw Term Loan Initial, 615,385 11/15/12 (b) 620,382 Spanish Broadcasting Systems, Inc. First Lien Term Loan, 2,985,000 6.03%, 06/10/12 3,030,730 Second Lien Term Loan, 1,000,000 8.02%, 06/10/13 1,016,040 4,932,078 Warner Music Group Term Loan B, 6.41%, 02/28/11 4,985,640 13 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) NOVEMBER 30, 2005 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ SENIOR LOAN NOTES (CONTINUED) BROADCAST RADIO & TELEVISION (CONTINUED) 2,992,500 Young Broadcasting, Inc. Term Loan, 6.42%, 11/03/12 3,016,799 --------------- 22,043,983 --------------- BUILDING & DEVELOPMENT - 4.9% 5,017,576 Atrium Cos., Inc. Term Loan, 7.89%, 12/28/11 5,016,020 Custom Building Products, Inc. First Lien Term Loan, 1,904,754 6.27%, 10/20/11 1,914,278 Second Lien Term Loan, 1,000,000 9.02%, 04/20/12 994,690 1,980,000 DESA LLC Term Loan, 8.87%, 11/26/11 1,955,250 4,204,243 Lake at Las Vegas Joint Venture First Lien Term Loan, 7.03%, 11/01/09 4,250,237 LNR Property Corp. Tier A Mezzanine, 1,000,000 8.74%, 02/03/08 1,010,000 Tranche A Term Loan, 1,866,467 7.09%, 02/03/08 1,878,132 Tranche B Term Loan, 12,249,625 7.24%, 02/03/08 12,331,330 Morningside Assisted Living Mezzanine Loan, 1,500,000 11.38%, 10/12/08 1,500,000 Senior Mortgage Loan, 1,500,000 7.13%, 10/12/08 1,500,000 NATG Holdings LLC Credit Linked Certificate of 1,039,746 Deposit, 6.81%, 01/23/09 977,361 1,001,749 Term Loan A, 8.75%, 01/23/09 235,411 733,455 Term Loan B1, 9.25%, 01/23/10 194,366 72,363 Term Loan B2, 9.25%, 01/23/10 68,021 1,965,075 Nortek Holdings, Inc. Term Loan, 5.91%, 08/27/11 1,987,438 3,990,000 Palmdale Hills Property LLC First Lien Term Loan, 7.24%, 05/19/10 3,990,000 1,500,000 Pivotal Group Promotory First Lien Term Loan, 6.97%, 08/31/10 1,503,750 2,000,000 Shea Capital I, LLC Facility B, 6.26%, 10/27/11 2,018,760 Spanish Peaks Holdings LLC Tranche A Credit-Linked Deposit, 751,997 3.92%, 08/10/11 759,517 Tranche B Term Loan, 1,734,687 6.71%, 08/10/11 1,752,034 5,500,000 TE/TOUSA Mezzanine LLC Senior Mezzanine Loan, 9.69%, 08/01/09 5,513,750 PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ BUILDING & DEVELOPMENT (CONTINUED) 5,000,000 TWLDC Holdings LP Mezzanine Loan, 8.34%, 11/30/07 5,059,400 4,000,000 Woodlands Commercial Property Co. Bridge Loan, 7.19%, 12/30/05 4,047,520 --------------- 60,457,265 --------------- BUSINESS EQUIPMENT & SERVICES - 3.6% 995,000 ACI Billing Services, Inc. Second Lien Term Loan, 11.81%, 04/18/11 1,019,875 700,000 American Reprographics Co. Second Lien Term Loan, 10.64%, 12/18/09 719,250 3,580,000 Audio Visual Services Corp. Term Loan, 6.78%, 05/18/11 3,615,800 4,277,778 Brickman Group Holdings, Inc. Term Loan, 9.80%, 11/15/09 4,267,083 3,765,101 Carey International, Inc. Second Lien Term Loan, 16.30%, 05/10/12 3,576,846 962,742 Data Transmissions Network Corp. Tranche B Term Loan, 7.19%, 03/17/12 972,369 10,588,235 Eastman Kodak Co. Term B-1 Advance, 6.51%, 10/18/12 10,580,294 3,002,515 Ferrell Cos., Inc. Term Loan, 7.39%, 12/17/11 3,062,566 418,150 Fidelity National Information Services, Inc. Term Loan B, 5.86%, 03/09/13 419,739 1,000,000 FleetCor Technologies, Inc. Term Loan, 7.63%, 06/30/11 998,750 1,723,750 Hillman Group, Inc. Term Loan B, 7.69%, 03/30/11 1,750,675 2,000,000 IPC Acquisition Corp. First Lien Tranche B Term Loan, 6.59%, 08/05/11 2,015,000 2,000,000 Survey Sampling International LLC Second Lien Term Loan, 11.28%, 05/06/12 2,016,240 8,000,000 Washington Group International Tranche B Term Loan, 5.15%, 10/03/07 8,040,000 2,000,000 WestCom Corp. Tranche B Term Loan, 6.99%, 12/17/10 2,011,240 --------------- 45,065,727 --------------- CABLE & SATELLITE TELEVISION - 9.4% 4,991,626 Adelphia Communications Corp. Tranche B DIP Term Loan, 6.31%, 03/31/06 5,016,585 14 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) NOVEMBER 30, 2005 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ SENIOR LOAN NOTES (CONTINUED) CABLE & SATELLITE TELEVISION (CONTINUED) 1,875,253 Bragg Communications, Inc. Term Loan B, 6.24%, 08/31/11 1,902,218 Century Cable Holdings LLC Discretionary Term Loan, 7,500,000 9.00%, 12/31/09 7,387,500 2,500,000 Revolver, 8.00%, 03/31/09 2,451,050 15,000,000 Term Loan, 9.00%, 06/30/09 14,825,700 Charter Communications Operating LLC Tranche A Term Loan, 1,997,517 7.25%, 04/27/10 1,994,061 Tranche B Term Loan, 13,817,746 7.50%, 04/27/11 13,850,079 14,087,500 Hilton Head Communications LP Revolver, 7.00%, 09/30/07 13,732,354 5,025,858 Knology, Inc. Second Lien Term Loan, 15.74%, 06/29/11 5,176,634 Mediacom Communications Corp. Term Loan A, 5.35%, 3,620,000 03/31/10 3,618,480 Term Loan B, 6.38%, 992,500 03/31/13 1,006,355 Term Loan C, 6.11%, 1,975,075 09/30/10 1,998,302 Millennium Digital Media Systems LLC Facility A Revolver, 973,562 9.32%, 10/31/08 983,298 Facility B Term Loan, 3,089,672 9.35%, 10/31/08 3,120,568 Facility C Term Loan, 3,443,224 9.14%, 10/31/08 3,477,657 Olympus Cable Holdings LLC Term Loan A, 8.25%, 9,500,000 06/30/10 9,357,500 Term Loan B, 9.00%, 1,000,000 09/30/10 986,430 3,000,000 Puerto Rico Cable Acquisition Co., Inc. First Lien Term Loan, 7.25%, 07/28/11 3,050,640 San Juan Cable, LLC First Lien Term Loan, 2,500,000 6.07%, 10/31/12 2,528,150 Second Lien Term Loan, 2,500,000 9.57%, 10/31/13 2,498,450 11,442,500 UPC Broadband Holding BV Term Loan F2, 7.19%, 03/31/09 11,608,416 WideOpenWest LLC Incremental Term Loan B, 2,962,500 7.03%, 06/22/11 2,977,313 Term Loan B, 7.04%, 1,969,975 06/22/11 1,987,213 --------------- 115,534,953 --------------- CHEMICALS/PLASTICS - 2.6% 2,500,000 Brenntag AG Faciltiy B2, 6.81%, 02/27/12 2,515,625 7,454,142 Celenese Dollar Term Loan B, 6.31%, 04/06/11 7,523,241 PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ CHEMICALS/PLASTICS (CONTINUED) 80,636 Huntsman International LLC Term B Dollar Loan, 5.89%, 08/16/12 81,062 1,895,000 Innophos, Inc. Tranche B Term Loan, 6.38%, 08/13/10 1,917,891 1,349,466 INVISTA Canada Co. Tranche B2 Term Loan, 6.31%, 04/29/11 1,369,708 3,140,309 INVISTA S.A.R.L. Tranche B1 Term Loan, 6.31%, 04/29/11 3,187,413 4,023,140 Kraton Polymers Group of Cos. Term Loan, 6.44%, 12/23/10 4,080,993 Nalco Co. Tranche A-1 Term Loan, 643,782 6.66%, 11/04/09 649,718 Tranche B Term Loan, 1,997,656 5.81%, 11/04/10 2,026,542 1,773,784 Polypore, Inc. U S Term Loan, 6.47%, 11/12/11 1,776,746 1,990,000 Rockwood Specialties Group, Inc. Tranche B Term Loan, 6.47%, 07/30/12 2,018,059 4,947,425 Supresta U.S. LLC Term Loan, 7.03%, 07/20/11 4,984,530 --------------- 32,131,528 --------------- CLOTHING/TEXTILES - 0.2% 1,905,493 Levi Strauss & Co. Tranche A Term Loan, 11.18%, 09/29/09 1,983,085 --------------- CONGLOMERATE - 0.6% 3,246,551 Appleton Papers, Inc. Term Loan, 6.58%, 06/11/10 3,283,074 2,000,504 Jason, Inc. Term Loan B, 9.75%, 06/30/07 1,970,497 2,676,846 Youth & Family Centered Services, Inc. Term Loan B, 7.73%, 05/28/11 2,676,846 --------------- 7,930,417 --------------- CONTAINER/GLASS PRODUCTS - 1.4% 4,793,327 Berry Plastics Corp. Term Loan, 5.86%, 12/02/11 4,852,046 7,443,750 Graham Packaging Co. Term Loan B, 6.56%, 10/07/11 7,544,836 2,718,732 Graphic Packaging International, Inc. Tranche C Term Loan, 6.58%, 08/09/10 2,754,402 1,743,692 Precise Technology, Inc. First Lien Term Loan, 7.06%, 03/31/11 1,750,231 15 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) NOVEMBER 30, 2005 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ SENIOR LOAN NOTES (CONTINUED) CONTAINER/GLASS PRODUCTS (CONTINUED) 877,767 Solo Cup, Inc. Term B1 Loan, 6.62%, 02/27/11 884,253 --------------- 17,785,768 --------------- COSMETICS/TOILETRIES - 0.3% 1,000,000 MD Beauty, Inc. Second Lien Term Loan, 11.25%, 02/18/13 1,005,000 2,875,000 Revlon Consumer Products Corp. Term Loan, 10.10%, 07/09/10 2,965,448 --------------- 3,970,448 --------------- ECOLOGICAL SERVICE & EQUIPMENT - 0.5% Allied Waste North America, Inc. 1,447,504 Term Loan, 6.18%, 01/15/12 1,456,102 Tranche A Credit Linked 546,971 Deposit, 3.86%, 01/15/12 550,050 4,500,000 Environmental Systems Products Holdings, Second Lien, 14.21%, 12/12/10 4,567,500 --------------- 6,573,652 --------------- ELECTRONIC/ELECTRIC - 3.9% 995,000 AIS Acquisition Corp./ Sensor Systems, Inc. Term Loan, 7.19%, 04/01/11 1,006,204 2,337,500 Alliance Laundry Systems LLC Term Loan, 6.34%, 01/27/12 2,372,563 484,353 Bridge Information Systems, Inc. Multidraw Term Loan, 07/07/13 (d) (e) 7,265 3,000,000 Comsys Information Technology Services, Inc. Second Lien Term Loan, 11.91%, 04/30/10 3,007,500 Corel Corp. First Lien Term Loan, 975,000 8.56%, 02/22/10 979,875 Second Lien Term Loan, 2,000,000 13.19%, 08/15/10 2,010,000 2,000,000 GXS Corp. Second Lien Term Loan, 13.68%, 12/20/11 2,010,000 Infor Global Solutions European Finance S.A.R.L. Euro Revolving Credit, 855,000 7.47%, 04/18/10 (i) 825,075 Second Lien Lux Term Loan, 1,875,000 11.00%, 04/18/12 1,924,219 3,125,000 Magellan Holdings, Inc. Second Lien US Term Loan, 11.00%, 04/18/12 3,207,031 PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ ELECTRONIC/ELECTRIC (CONTINUED) 6,957,475 ON Semiconductor Corp. Tranche G Term Loan, 7.06%, 12/15/11 7,033,590 2,400,000 RedPrairie Corp. Second Lien Term Loan, 13.25%, 05/23/09 2,406,000 12,468,750 SunGard Data Systems, Inc. U S Term Loan, 6.81%, 02/11/13 12,570,744 2,250,000 Transfirst Holdings, Inc. Second Lien Term Loan, 11.56%, 03/31/11 2,283,750 1,387,510 UGS Corp. Term Loan, 6.22%, 05/27/11 1,404,854 4,962,500 Viasystems, Inc. Tranche B Term Loan, 8.38%, 09/30/09 5,024,531 --------------- 48,073,201 --------------- EQUIPMENT LEASING - 1.2% 4,454,943 NES Rentals Holdings, Inc. Second Lien Term Loan, 10.45%, 08/17/10 4,557,051 3,000,000 Penhall International Corp. Second Lien Term Loan, 10.84%, 11/01/10 2,992,500 United Rentals, Inc. Initial Term Loan, 7,404,781 6.45%, 02/14/11 7,489,047 Tranche B Credit-Linked Deposit, 336,842 3.86%, 02/14/11 340,632 --------------- 15,379,230 --------------- FINANCIAL INTERMEDIARIES - 0.4% 3,000,000 Arias Acquisitions, Inc. Term Loan, 7.70%, 07/26/11 2,996,250 Stile Acquisition Corp. Canadian Term Loan, 995,000 6.20%, 04/06/13 990,861 U S Dollar Term Loan, 995,000 6.20%, 04/06/13 989,348 --------------- 4,976,459 --------------- FOOD PRODUCTS - 2.0% 4,000,000 CTI Food Holdings Co. LLC Second Lien Secured Term Loan, 10.31%, 06/02/12 4,080,000 Interstate Brands Corp. Tranche A Term Loan, 1,875,000 8.29%, 07/19/06 1,889,063 Tranche C Term Loan, 1,959,596 8.32%, 07/19/07 1,962,045 3,969,643 Luigino's, Inc. Term Loan, 6.96%, 04/02/11 4,004,377 16 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) NOVEMBER 30, 2005 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ SENIOR LOAN NOTES (CONTINUED) FOOD PRODUCTS (CONTINUED) 7,903,217 Merisant Co. Tranche B Term Loan, 7.49%, 01/11/10 (b) 7,787,198 1,688,333 Pierre Foods, Inc. Term Loan B, 6.55%, 06/30/10 1,710,484 3,013,829 Pinnacle Foods Holding Corp. Term Loan, 7.31%, 11/25/10 3,057,168 --------------- 24,490,335 --------------- FOOD SERVICES - 0.4% 997,500 AFC Enterprises, Inc. Tranche B Term Loan, 6.31%, 05/09/11 1,009,969 2,927,853 Buffets, Inc. Term Loan, 7.16%, 06/28/09 2,957,131 947,500 Captain D's Inc., LLC First Lien Term Loan, 7.97%, 12/27/10 961,713 --------------- 4,928,813 --------------- FOOD/DRUG RETAIL - 1.9% 1,000,000 Bi-Lo LLC Term Loan, 8.01%, 07/01/11 993,750 8,485,971 Jean Coutu Group, Inc. Term Loan B, 6.50% 07/30/11 (b) 8,550,125 4,563,758 Michael Foods, Inc. Term Loan B, 6.17%, 11/21/10 4,629,385 3,000,000 Nellson Nutraceutical, Inc. Second Lien Term Loan, 13.50%, 04/02/10 2,043,750 2,487,500 Reliant Pharmaceuticals, Inc. First Lien Term Loan, 13.62%, 06/30/08 2,462,625 Sturm Foods, Inc. First Lien Term Loan, 997,500 6.81%, 05/26/11 1,004,981 Second Lien Term Loan, 2,000,000 10.69%, 05/26/12 2,030,000 1,990,000 Vitaquest International, Inc. First Lien Term Loan, 7.63%, 03/07/11 1,966,359 --------------- 23,680,975 --------------- FOREST PRODUCTS - 0.3% 2,992,500 NewPage Corp. Term Loan, 7.13%, 05/02/11 3,026,166 SP Newsprint Co. 513,096 Tranche B-1 Credit Linked Deposit, 4.19%, 01/09/10 520,793 Tranche B-1 Term Loan, 208,998 6.46%, 01/09/10 212,133 --------------- 3,759,092 --------------- PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ HEALTH CARE - 6.0% 3,566,195 Alliance Imaging, Inc. Tranche C1 Term Loan, 6.49%, 12/29/11 3,602,570 American HomePatient, Inc. Secured Promissory Note, 1,442,482 6.79%, 08/01/09 (h) 1,442,482 Unsecured Claim, 662 8.57%, 08/01/09 (c) (h) 655 3,043,667 American Medical Response, Inc. Term Loan, 6.61%, 02/10/12 3,076,964 2,773,358 Ameripath, Inc. Term Loan, 7.47%, 03/27/10 2,801,092 2,000,000 Capella Healthcare, Inc. First Lien Term Loan, 11/30/12 (b) 2,000,000 Carl Zeiss Vision Term B U S Dollar Loan, 1,000,000 6.95%, 05/04/13 1,005,000 Term C U S Dollar Loan, 1,000,000 7.45%, 05/04/14 1,007,500 CCS Medical, Inc. First Lien Term Loan, 3,500,000 7.50%, 09/30/12 3,440,920 Second Lien Term Loan, 1,250,000 12.25%, 03/30/13 1,192,188 1,990,000 Chemed Corp. Term Loan, 6.02%, 08/24/10 2,009,900 Cornerstone Healthcare Group Holding, Inc. Senior Subordinated Unsecured 1,003,611 Notes, 14.00%, 07/15/12 (h) 1,013,647 2,000,000 Term Loan, 8.36%, 07/15/11 2,007,500 1,995,000 CRC Health Corp. Term Loan, 6.81%, 05/11/11 1,999,988 4,039,216 DaVita, Inc. Tranche B Term Loan, 6.41%, 10/05/12 4,101,500 2,000,000 Duloxetine Royalty Sub Term Loan, 8.69%, 10/18/13 2,000,000 1,155,957 Encore Medical IHC, Inc. Term Loan, 7.36%, 10/04/10 1,168,962 FHC Health Systems, Inc. Delayed Draw Term Loan, 1,300,000 11.87%, 10/31/06 1,355,250 Initial Term Loan, 1,857,143 9.87%, 10/31/06 1,936,071 Third Lien Additional Term 1,500,000 Loan, 12.87%, 02/09/11 1,563,750 Third Lien Term Loan, 5,000,000 12.87%, 02/09/11 5,212,500 1,000,000 Genoa Healthcare Group LLC Second Lien Term Loan, 11.61%, 02/10/13 1,017,500 2,530,595 Hanger Orthopedic Group, Inc. Tranche B Term Loan, 7.75%, 09/30/09 2,563,796 17 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) NOVEMBER 30, 2005 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ SENIOR LOAN NOTES (CONTINUED) HEALTH CARE (CONTINUED) HealthSouth Corp. Fixed Rate Loan, 2,600,000 10.38%, 01/16/11 (h) 2,567,500 3,927,656 Term Loan, 6.53%, 06/14/07 3,952,204 Tranche B Term Loan, 1,062,500 3.86%, 03/08/10 1,067,154 577,881 Kinetic Concepts, Inc. Tranche B2 Term Loan, 5.78%, 08/11/10 584,018 1,000,000 LifeCare Holdings, Inc. Term Loan, 6.34%, 08/11/12 955,880 3,000,000 MultiPlan, Inc. Term Loan, 6.53%, 03/04/09 3,037,500 4,500,000 Renal Advantage, Inc. Tranche B Term Loan, 6.61%, 10/06/12 4,550,625 766,667 Select Medical Corp. Revolver, 6.62%, 02/24/11 (i) 761,959 Skilled Healthcare LLC First Lien Term Loan, 1,995,000 6.82%, 06/15/12 2,016,825 Second Lien Term Loan, 3,000,000 11.53%, 12/15/12 3,080,010 474,603 Sunrise Medical Holdings, Inc. Term Loan B-1, 7.39%, 05/13/10 475,196 2,000,000 Triumph Healthcare Second Holdings LLC Second Lien Term Loan, 08/31/12 (b) 2,000,840 915,333 VWR International, Inc. Tranche B Dollar Term Loan, 6.69%, 04/07/11 928,148 --------------- 73,497,594 --------------- HOME FURNISHINGS - 2.0% 24,688,086 Home Interiors & Gifts, Inc. Initial Term Loan, 9.22%, 03/31/11 (b) 24,686,479 --------------- INDUSTRIAL EQUIPMENT - 0.5% 1,460,469 AIRXCEL, Inc. First Lien Term Loan, 6.93%, 08/31/12 1,478,724 1,587,119 Blount International, Inc. U S Term Loan B, 6.64%, 08/09/10 1,603,657 1,098,325 Dresser, Inc. Term Loan C, 6.72%, 04/10/09 1,111,373 1,000,000 Penn Engineering & Manufacturing Corp. Second Lien Term Loan, 10.02%, 05/25/12 1,015,000 1,276,231 Terex Corp. Term Loan, 6.41%, 07/03/09 1,292,184 --------------- 6,500,938 --------------- PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ INSURANCE - 0.6% 2,000,000 American Wholesale Insurance Group, Inc. Second Lien Term Loan B, 11.99%, 04/27/12 2,010,000 1,750,000 ARG Holdings, Inc. Second Lien Term Loan, 11.47%, 11/30/12 1,776,250 1,877,486 Conseco, Inc. Term Loan, 6.14%, 06/22/10 1,893,914 1,975,000 WellCare Health Plans, Inc. Term Loan, 6.13%, 05/13/09 1,997,219 --------------- 7,677,383 --------------- LEISURE GOODS/ACTIVITIES/MOVIES - 5.0% 3,192,639 AMF Bowling Worldwide, Inc. Term Loan B, 7.19%, 08/27/09 3,226,545 2,962,500 Amscan Holdings, Inc. Term Loan B, 6.78%, 04/30/12 2,981,016 1,500,000 BLB Investors LLC Second Priority Senior Secured Credit Facility, 7.83%, 07/18/12 1,522,500 19,204,375 Blockbuster Entertainment Corp. Tranche B Term Loan, 8.04%, 08/20/11 (b) 18,703,141 2,000,000 Camelbak Products, Inc. Second Lien Term Loan, 10.54%, 02/04/12 1,980,000 5,000,000 CNL Hospitality Properties LP First Mezzanine Loan, 6.87%, 09/09/06 5,012,500 3,000,000 Fender Musical Instruments Corp. Second Lien Term Loan, 8.72%, 09/30/12 3,022,500 9,505,000 Metro-Goldwyn-Mayer Holdings, Inc./LOC Acquisition Co. Tranche B Term Loan, 6.27%, 04/08/12 9,579,994 5,985,000 Movie Gallery, Inc. Term Loan B, 7.83%, 04/27/11 5,745,600 3,000,000 Oriental Trading Co., Inc. Second Lien Term Loan, 8.81%, 01/08/11 3,007,500 1,000,000 Pine Tree Holdings/Pine Tree Country Club Second Lien Tranche B Term Loan, 11.64%, 07/15/13 1,017,500 1,975,800 Polaroid Corp. Second Lien Term Loan, 11.34%, 04/27/11 1,980,740 1,564,718 Six Flags Theme Parks, Inc. Tranche B Term Loan, 6.67%, 06/30/09 1,584,089 18 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) NOVEMBER 30, 2005 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ SENIOR LOAN NOTES (CONTINUED) LEISURE GOODS/ACTIVITIES/MOVIES (CONTINUED) 1,975,000 Wallace Theaters First Lien Term Loan, 7.28%, 07/31/09 1,989,813 --------------- 61,353,438 --------------- LODGING & CASINOS - 5.1% 2,325,000 BRE/ESA Mezz5 LLC Mezzanine D Loan, 7.37%, 07/11/08 2,330,812 12,675,000 BRE/Homestead MEZZ 4 LLC Mezzanine D Loan, 7.37%, 07/11/08 12,706,687 2,993,625 CCM Merger, Inc./MotorCity Casino Term Loan B, 6.05%, 04/25/12 3,018,322 3,000,000 CNL Hotel Del Partners LP First Mezzanine Loan, 6.37%, 02/09/07 3,007,500 Fontainebleu Florida Hotel LLC Tranche A Term Loan, 3,000,000 7.09%, 05/11/08 3,000,000 Tranche B Term Loan, 2,000,000 7.09%, 05/11/08 2,000,000 3,940,225 Green Valley Ranch Gaming LLC Term Loan, 6.02%, 12/22/10 3,989,478 OpBiz LLC 12,941,177 Term Loan A, 5.30%, 08/31/10 12,961,365 15,045 Term Loan B, 8.05%, 08/31/10 15,086 2,000,000 Penn National Gaming, Inc. Term Loan B, 6.29%, 10/03/12 2,026,780 Resorts International Holdings Ltd. Second Lien Term Loan, 11,000,000 10.27%, 04/26/13 10,780,000 1,990,000 Term Loan B, 6.53%, 04/26/12 2,009,502 1,745,625 Trump Entertainment Resorts, Inc. Term Loan B-1, 6.14%, 05/20/12 1,763,081 3,000,000 Washington County Casino Tranche B Term Loan, 11/01/11 (b) 3,000,000 --------------- 62,608,613 --------------- NONFERROUS METALS/MINING - 1.7% 2,500,000 Alpha Natural Resources LLC Tranche B Term Loan, 6.32%, 10/26/12 2,519,550 1,995,000 CII Carbon LLC Term Loan B, 6.19%, 08/23/12 2,001,224 3,000,000 Mueller Group LLC Term Loan, 6.51%, 10/03/12 3,044,250 8,197,264 Murray Energy Corp. Tranche B Term Loan, 7.22%, 01/28/10 8,243,333 Novelis, Inc. Canadian Term Loan, 791,811 6.01%, 01/07/12 800,719 PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ NONFERROUS METALS/MINING (CONTINUED) Novelis, Inc. (continued) 1,375,249 U S Term Loan, 6.01%, 01/07/12 1,390,816 2,985,000 Trout Coal Holdings LLC First Lien Term Loan, 7.32%, 03/23/11 2,980,045 --------------- 20,979,937 --------------- OIL/GAS - 5.1% 5,000,000 ALON USA Term Loan, 10.64%, 01/15/09 5,150,000 3,275,702 Basic Energy Services, Inc. Term Loan B, 6.96%, 10/03/09 3,283,891 4,488,750 Carizzo Oil & Gas, Inc. Second Lien Term Loan, 9.87%, 07/21/10 (b) 4,645,856 4,500,000 Cheniere LNG Holdings LLC Term Loan, 6.95%, 08/30/12 4,541,220 Coffeyville Resources LLC First Lien Tranche B Term 598,500 Loan, 6.57%, 06/24/12 608,148 Funded Letter of Credit, 400,000 3.86%, 06/24/12 406,668 Second Lien Term Loan, 8,000,000 10.81%, 06/24/13 8,282,560 El Paso Corp. 2,500,000 Deposit Accounts, 3.50%, 11/23/09 2,511,900 4,931,903 Term Loan, 6.81%, 11/23/09 4,962,728 4,000,000 Energy Transfer Partners LP Term Loan, 6.81%, 06/16/08 4,021,000 6,750,000 Exco Holdings II, Inc. Term Loan, 10.00%, 07/03/06 (h) 6,699,376 3,000,000 Nordic Biofuels of Ravenna, LLC First Lien Term Loan, 8.50%, 04/30/13 3,007,500 2,000,000 Primary Energy Holdings LLC Term Loan, 7.16%, 08/24/09 2,024,380 371,911 SemCrude LP U S Term Loan, 6.04%, 03/16/11 376,560 Targa Resources, Inc. Asset Bridge Term Loan, 2,000,000 6.83%, 10/31/07 2,000,000 Synthetic Term Loan, 967,742 4.08%, 10/31/12 975,000 4,032,258 Term Loan, 6.34%, 10/31/12 4,054,919 3,000,000 Trident Exploration Corp. Second Lien Term Loan, 11.19%, 04/26/11 3,052,500 2,000,000 TXOK Acquisition, Inc. Term Loan B, 8.88%, 09/27/10 2,025,000 --------------- 62,629,206 --------------- PUBLISHING - 2.1% 2,946,632 Adams Outdoor Advertising LP Term Loan, 6.20%, 10/15/11 2,990,212 19 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) NOVEMBER 30, 2005 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ SENIOR LOAN NOTES (CONTINUED) PUBLISHING (CONTINUED) 8,329,073 American Lawyer Media Holdings, Inc. First Lien Term Loan, 6.52%, 03/05/10 8,329,072 3,000,000 Cygnus Business Media Term Loan B, 8.65%, 07/13/09 2,985,000 North American Membership Group, Inc. First Lien Tranche B Term Loan, 995,000 7.27%, 05/19/11 999,975 Second Lien Term Loan, 3,000,000 11.52%, 11/18/11 3,015,000 2,000,000 PBI Media, Inc. First Lien Term Loan, 6.49%, 09/30/12 2,011,880 3,000,000 PRIMEDIA, Inc. Term Loan B, 09/30/13 (b) 2,964,750 2,850,000 VISANT Corp. Tranche C Term Loan, 5.94%, 12/21/11 2,892,038 --------------- 26,187,927 --------------- REAL ESTATE INVESTMENT TRUST - 1.2% 14,892,697 General Growth Properties, Inc. Tranche B Term Loan, 6.22%, 11/12/08 14,996,350 --------------- RETAILERS - 1.1% 2,977,500 Dollarama Group LP Term Loan B, 6.49%, 11/18/11 3,022,163 3,960,171 Harbor Freight Tools USA Term Loan, 6.62%, 07/15/10 4,002,228 4,000,000 Neiman Marcus Group, Inc.(The) Term Loan, 6.48%, 04/06/13 4,020,800 Prestige Brands Holdings, Inc. Term Loan B Add-On, 107,349 5.18%, 04/06/11 108,423 Tranche B Term Loan, 1,970,000 6.31%, 04/06/11 1,990,527 --------------- 13,144,141 --------------- STEEL - 0.5% 828,947 Euramax International Holdings B.V. Second Lien European Term Loan, 11.09%, 06/29/13 826,875 Euramax International, Inc. First Lien Domestic Term 1,246,875 Loan, 6.63%, 06/28/13 1,247,399 Second Lien Domestic Term 1,671,053 Loan, 11.09%, 06/29/13 1,618,832 2,775,000 The Techs Industries, Inc. Term Loan, 7.03%, 01/14/10 2,778,469 --------------- 6,471,575 --------------- PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ SURFACE TRANSPORT - 0.7% Quality Distribution, Inc. Synthetic Letters of Credit, 954,198 3.92%, 11/13/09 958,969 5,496,169 Term Loan, 7.16%, 11/13/09 (b) 5,544,260 2,143,017 Term Loan, 7.16%, 11/13/09 (e) 2,161,769 --------------- 8,664,998 --------------- TELECOMMUNICATIONS/CELLULAR - 2.3% 2,962,500 Cellular South, Inc. Term Loan, 5.97%, 05/04/11 2,997,695 MetroPCS, Inc. First Lien Tranche B Term Loan, 8,500,000 8.25%, 05/27/11 Second Lien Term Loan, 8,747,945 6,000,000 10.75%, 05/27/12 6,240,000 10,000,000 Qwest Corp. Tranche B Term Loan, 6.95%, 06/30/10 (h) 10,100,000 --------------- 28,085,640 --------------- TELECOMMUNICATIONS/COMBINATION - 1.9% 2,000,000 Alaska Communications Systems Holdings, Inc. Term Loan, 6.02%, 02/01/12 2,022,920 4,097,025 Centennial Cellular Operating Co. Term Loan, 6.40%, 02/09/11 4,124,885 NTELOS, Inc. First Lien Term Loan B, 1,245,600 6.53%, 08/24/11 1,257,471 Second Lien Term Loan, 1,500,000 9.03%, 02/24/12 1,506,240 5,000,000 NTL, Inc. B2 Sub-Tranche, 7.14%, 04/14/12 5,021,250 4,950,000 PanAmSat Corp. Tranche B-1 Term Loan, 5.86%, 08/20/11 5,014,944 3,943,002 RCN Corp. Term Loan, 8.21%, 12/21/11 3,972,575 --------------- 22,920,285 --------------- TELECOMMUNICATIONS/WIRELESS - 2.7% 1,150,000 Bresnan Communications LLC Tranche B Term Loan, 7.72%, 09/30/10 1,166,353 4,937,500 Consolidated Communications, Inc. Term Loan D, 6.42%, 10/14/11 4,962,188 14,887,500 Cricket Communications, Inc. Term Loan B, 6.52%, 01/10/11 15,064,364 5,000,000 FairPoint Communications, Inc. Initial B Term Loan, 5.81%, 02/08/12 5,021,900 20 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) NOVEMBER 30, 2005 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ SENIOR LOAN NOTES (CONTINUED) TELECOMMUNICATIONS/WIRELESS (CONTINUED) 2,000,000 Maritime Telecommunications Network, Inc. First Lien Term Loan, 6.85%, 04/07/11 2,010,000 2,000,000 Nextel Partners Operating Corp. Tranche D Term Loan, 5.37%, 05/31/12 2,009,580 2,985,000 Telcordia Technologies, Inc. Term Loan, 6.91%, 09/15/12 2,952,344 --------------- 33,186,729 --------------- TELECOMMUNICATIONS/WIRELINE - 0.4% Sorenson Communications, Inc. First Lien Term Loan B, 3,000,000 7.13%, 11/15/12 3,035,640 Second Lien Term Loan, 2,000,000 11.13%, 05/15/12 2,044,590 --------------- 5,080,230 --------------- UTILITIES - 5.5% 3,690,038 Allegheny Energy, Inc. Term Advances, 5.79%, 03/08/11 3,736,164 1,960,000 Calpine Construction Finance Co., LP First Lien Term Loan, 10.09%, 08/26/09 2,053,100 9,983,749 Calpine Corp. Second Lien Term Loan B, 9.90%, 07/16/07 (b) 7,592,641 CenterPoint Energy, Inc. 7,201,222 Term Loan, 6.12%, 04/30/10 7,214,760 6,000,000 Term Loan, 6.91%, 04/30/10 6,011,280 1,939,168 Infrasource, Inc. Term Loan, 6.78%, 09/30/10 1,948,863 KGen, LLC Tranche A Term Loan, 1,990,000 6.65%, 08/05/11 1,980,050 Tranche B Term Loan, 34,683 13.02%, 08/05/11 34,683 2,000,000 La Paloma Generating Co. LLC Second Lien Term Loan, 7.52%, 08/16/13 2,031,240 1,361,868 Midwest Generation LLC Term Loan, 6.15%, 04/27/11 1,377,829 Mirant Corp. 2,500,000 Perryville Claim, 07/17/06 (d) (f) 2,412,500 3,000,000 Revolver, 12/31/05 (b)(d)(f) 3,248,460 6,000,000 Revolver, 07/15/08 (d) (f) 6,439,980 4,565,367 Riverside Energy Center LLC Term Loan, 8.49%, 06/24/11 4,725,155 Rocky Mountain Energy Center LLC 361,073 Credit Linked Certificate of Deposit, 4.14%, 06/24/11 368,295 3,159,350 Term Loan, 8.49%, 06/24/11 3,269,927 PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ UTILITIES (CONTINUED) Texas Genco LLC Delayed Draw Term Loan, 1,454,231 5.89%, 12/14/11 1,457,314 Initial Term Loan, 9,797,756 5.90%, 12/14/11 9,818,528 Thermal North America, Inc. 1,000,000 Credit Linked Certificate of Deposit, 5.84%, 10/12/13 1,009,380 1,000,000 Term Loan, 5.88%, 10/12/13 1,010,000 --------------- 67,740,149 --------------- TOTAL SENIOR LOAN NOTES (COST $1,080,680,944) 1,086,157,881 --------------- FOREIGN VARIABLE RATE SENIOR LOAN NOTES (A) - 6.6% FRANCE - 0.8% EUR 2,500,000 Novalis S.A.S. Second Lien Term Loan, 7.90%, 12/31/13 2,991,594 Vivarte (Financiere PAI) 2,900,000 Term Loan B, 4.88%, 08/05/13 3,444,607 2,700,000 Term Loan C, 4.63%, 08/05/14 3,222,964 --------------- 9,659,165 --------------- GERMANY - 0.8% EUR 3,625,000 debitel (Netherlands) Holding BV Second Lien Term Loan, 9.15%, 06/11/14 4,379,224 debitel Konzemfinanzierungs GmbH 1,125,000 Term Facility B, 4.90%, 06/11/13 1,338,259 803,571 Term Facility C1, 5.40%, 06/11/14 956,250 321,429 Term Facility C2, 5.40%, 06/11/14 382,026 iesy Hessen GmbH & Co. Facility B, 5.21%, 1,500,000 02/14/13 1,774,902 Facility C, 5.71%, 1,500,000 02/14/14 1,780,809 --------------- 10,611,470 --------------- ITALY - 0.6% EUR Prysmian Cables & Systems, Inc. Second Lien Term Loan, 3,461,538 9.00%, 01/20/15 4,151,145 Euro Term Loan B, 875,000 4.75%, 08/04/12 1,038,547 Euro Term Loan C, 875,000 4.75%, 08/04/12 1,038,888 Second Lien Tranche C Term 1,038,462 Loan, 9.00%, 01/20/15 1,245,343 --------------- 7,473,923 --------------- 21 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) NOVEMBER 30, 2005 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ FOREIGN VARIABLE RATE SENIOR LOAN NOTES (CONTINUED) NETHERLANDS - 0.4% EUR YBR Acquisition B.V. Facility B Term Loan, 1,250,000 4.68%, 06/30/13 1,492,997 Facility C Term Loan, 1,250,000 5.18%, 06/30/14 1,497,271 Facility D Term Loan, 1,250,000 6.68%, 12/30/14 1,514,218 --------------- 4,504,486 --------------- SWITZERLAND - 0.2% EUR 2,193,144 Merisant Co. Tranche A (Euro) Term Loan, 5.49%, 01/11/09 2,504,814 --------------- UNITED KINGDOM - 3.8% GBP Debenhams Finance Holdings PLC Sterling Tranche B, 2,500,000 7.38%, 03/31/13 4,202,305 Sterling Tranche C, 2,500,000 7.88%, 03/31/14 4,206,285 Inpower 2 Ltd. 200,000 Facility A2, 12/30/20 (b)(d) 0 1,060,000 Facility A2, 06/30/15 (b)(d) 7,215,391 3,125,000 PlayPower, Inc. Add-on Term Loan, 7.59%, 12/18/09 5,481,863 Red Football Ltd. Facility B Term Loan, 1,250,000 7.85%, 05/11/13 2,200,856 Facility C Term Loan, 1,250,000 8.35%, 05/11/14 2,195,449 2,000,000 Term Loan D, 11.10%, 05/11/14 3,543,000 1,402,875 SunGard UK Holdings Ltd. U.K. Term Loan, 7.09%, 02/11/13 2,447,250 4,000,000 Teesside Power Ltd. Term Loan, 04/01/08 (b) 6,904,308 Trinitybrook PLC 2,500,000 Term Loan B1, 7.34%, 07/31/13 4,297,153 2,500,000 Term Loan C, 7.84%, 07/31/14 4,297,369 --------------- 46,991,229 --------------- TOTAL FOREIGN VARIABLE RATE SENIOR LOAN NOTES (COST $82,481,336) 81,745,087 --------------- PRINCIPAL AMOUNT ($) VALUE ($) ----------------- ------------ CORPORATE NOTES AND BONDS - 0.0% AUTOMOTIVE - 0.0% Key Plastics Holdings, Inc. 63,642 Junior Secured Subordinated Notes 18.32%, 04/26/07 (c) 52,186 101,433 Senior Secured Subordinated Notes 7.00%, 04/26/07 (c) 93,825 --------------- 146,011 --------------- TOTAL CORPORATE NOTES AND BONDS (COST $156,226) 146,011 --------------- SHARES --------- COMMON STOCKS (G) - 0.3% AUTOMOTIVE - 0.0% 13 Key Plastics Holdings, Inc. (c) 0 --------------- BUSINESS SERVICES - 0.0% 322,876 NATG Holdings LLC (c) 0 --------------- ECOLOGICAL SERVICE & EQUIPMENT - 0.0% 3,445 Environmental Systems Products Holdings (c) 0 --------------- TELECOMMUNICATIONS/COMBINATION - 0.0% 1,756 Eningen Realty (c) 0 51,171 SAVVIS Communications Corp. 35,308 --------------- 35,308 --------------- TELECOMMUNICATIONS/WIRELESS - 0.3% 76,137 Leap Wireless International, Inc. 2,897,774 --------------- TOTAL COMMON STOCKS (COST $2,066,131) 2,933,082 --------------- PREFERRED STOCK - 0.0% DIVERSIFIED MANUFACTURING - 0.0% 14,382 Superior Telecom, Inc., Series A 11,506 --------------- TOTAL PREFERRED STOCK (COST $14,382) 11,506 --------------- UNITS --------- WARRANTS - 0.0% DIVERSIFIED MANUFACTURING - 0.0% 4 GenTek, Inc., Class A expires 10/31/06 25 --------------- LODGING & CASINOS - 0.0% 9 OpBiz LLC, expires 08/11/09 (c) 0 4,023 OpBiz LLC, expires 08/11/09 (c) 0 --------------- UTILITIES - 0.0% 8,508 CenterPoint Energy, Inc., expires 08/15/08 (c) 0 --------------- TOTAL WARRANTS (COST $20) 25 --------------- 22 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) NOVEMBER 30, 2005 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY TOTAL INVESTMENTS - 94.9% 1,170,993,592 --------------- (cost of $1,165,399,039) (j) OTHER ASSETS & LIABILITIES, NET - 5.1% 63,206,715 --------------- NET ASSETS - 100.0% 1,234,200,307 =============== --------------------- Notes to Investment Portfolio: Highland Floating Rate Fund and Highland Institutional Floating Rate Fund (the "Funds") invest all of their investable assets in Highland Floating Rate Limited Liability Company (the "Portfolio"). (a) Senior loans in which the Portfolio invests generally pay interest at rates which are periodically predetermined by reference to a base lending rate plus a premium. (Unless otherwise identified by (h), all senior loans carry a variable rate interest.)These base lending rates are generally (i) the prime rate offered by one or more major United States banks, (ii) the lending rate offered by one or more European banks such as the London Inter-Bank Offered Rate ("LIBOR") or (iii) the certificate of deposit rate. Rate shown represents the weighted average rate at November 30, 2005. Senior loans, while exempt from registration under the Security Act of 1933, as amended, contain certain restrictions on resale and cannot be sold publicly. Senior secured floating rate loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual remaining maturity may be substantially less than the stated maturities shown. (b) All or a portion of this position has not settled. Contract rates do not take effect until settlement date. (c) Represents fair value as determined in good faith under the direction of the Board of Trustees. (d) The issuer is in default of certain debt covenants. Income is not being accrued. (e) Loans held on participation. (f) This issue is under the protection of the Federal bankruptcy court. (g) Non-income producing security. (h) Fixed rate senior loan Senior Loan Note has additional unfunded loan commitments. As of November 30, 2005, the Portfolio had unfunded loan commitments of $26,883,229, which could be extended at the option of the Borrower, pursuant to the following loan agreements: UNFUNDED LOAN BORROWER COMMITMENT -------- ---------- Centennial Cellular Operating Co. $ 2,250,000 Covanta Energy Corp. 1,000,000 Cricket Communications, Inc. 5,000,000 DeCrane Aircraft Holdings, Inc. 1,000,000 Dobson Cellular Systems, Inc. 625,000 Eastman Kodak Co. 4,411,765 Federal-Mogul Corp. 102,746 Infor Global Solutions European Finance S.A.R.L. 1,395,000 Interstate Bakeries Corp. 7,500,000 NextMedia Operating, Inc 615,385 Select Medical Corp. 1,233,333 Trump Entertainment Resorts, Inc. 1,750,000 ----------- $26,883,229 =========== (j) Cost for Federal income tax purposes is $1,165,013,005. Gross unrealized appreciation $ 16,317,978 Gross unrealized depreciation (10,337,391) ------------- Net unrealized appreciation $ 5,980,587 ============= DIP Debtor in Possession EUR Euro Currency GBP Great Britain Pound FOREIGN VARIABLE SENIOR LOAN NOTES INDUSTRY CONCENTRATION TABLE: (% of Total Net Assets) Retail .............................. 1.2% Utilities ........................... 1.1% Leisure Goods/Activities/Movies ..... 1.1% Electronic/Electric ................. 0.8% Financial Intermediaries ............ 0.7% Cable & Satellite Television ........ 0.6% Publishing .......................... 0.4% Telecommunications/Cellular ......... 0.3% Clothing/Textiles ................... 0.2% Food Products ....................... 0.2% ---- Total ............................... 6.6% ==== 23 INVESTMENT PORTFOLIO (UNAUDITED) (CONTINUED) NOVEMBER 30, 2005 HIGHLAND FLOATING RATE LIMITED LIABILITY COMPANY SECURITY VALUATION The value of the Funds' assets is based on its proportionate shares of the current market value of the Portfolio's net assets. For securities with readily available market quotations, the Portfolio uses those quotations for pricing. When portfolio securities are traded on the relevant day of valuation, the valuation will be the last reported sale price on that day. If there are no such sales on that day, the security will be valued at the mean between the most recently quoted bid and asked prices from principal market makers. Securities without a sale price or bid and ask quotations on the valuation day will be priced by an independent pricing service. If securities do not have readily available market quotations or pricing service prices, including circumstances under which such are determined not to be accurate or current (including when events materially affect the value of securities occurring between the time when market price is determined and calculation of the Portfolio's net asset value), such securities are valued at their fair value, as determined in good faith in accordance with procedures established by the Portfolio's Board of Trustees. In these cases, the Portfolio's net asset value will reflect the affected portfolio securities' value as determined in the judgment of the Board of Trustees or its designee instead of being determined by the market. Using a fair value pricing methodology to price securities may result in a value that is different from a security's most recent sale price and from the prices used by other investment companies to calculate their net asset values. There can be no assurance that the Portfolio's valuation of a security will not differ from the amount that it realizes upon the sale of such security. For more information with regard to significant accounting policies, see the most recent annual report filed with the Securities and Exchange Commission. 24 ITEM 2. CONTROLS AND PROCEDURES. (a) The registrant's principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant's disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the "1940 Act") (17 CFR 270.30a-3(c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). (b) There were no changes in the registrant's internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant's last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant's internal control over financial reporting. ITEM 3. EXHIBITS. Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. (Registrant) HIGHLAND FLOATING RATE FUND By (Signature and Title)* /S/ JAMES D. DONDERO ------------------------------------------------------- James D. Dondero, Chief Executive Officer (principal executive officer) Date JANUARY 17, 2006 ---------------------------------------------------------------------------- Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. By (Signature and Title)* /S/ JAMES D. DONDERO ------------------------------------------------------- James D. Dondero, Chief Executive Officer (principal executive officer) Date JANUARY 17, 2006 ---------------------------------------------------------------------------- By (Signature and Title)* /S/ M. JASON BLACKBURN ------------------------------------------------------- M. Jason Blackburn, Chief Financial Officer (principal financial officer) Date JANUARY 17, 2006 ---------------------------------------------------------------------------- * Print the name and title of each signing officer under his or her signature. EX-99.CERT 2 cert302.txt 302 CERTIFICATION CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT I, James D. Dondero, certify that: 1. I have reviewed this report on Form N-Q of Highland Floating Rate Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the schedules of investments included in this report fairly present in all material respects the investments of the registrant as of the end of the fiscal quarter for which the report is filed; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: JANUARY 17, 2006 /S/ JAMES D. DONDERO ----------------- ----------------------------------------- James D. Dondero, Chief Executive Officer (principal executive officer) CERTIFICATION PURSUANT TO RULE 30A-2(A) UNDER THE 1940 ACT AND SECTION 302 OF THE SARBANES-OXLEY ACT I, M. Jason Blackburn, certify that: 1. I have reviewed this report on Form N-Q of Highland Floating Rate Fund; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the schedules of investments included in this report fairly present in all material respects the investments of the registrant as of the end of the fiscal quarter for which the report is filed; 4. The registrant's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; (c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report, based on such evaluation; and (d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer(s) and I have disclosed to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize, and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. Date: JANUARY 17, 2006 /S/ M. JASON BLACKBURN ----------------- --------------------------------------------- M. Jason Blackburn, Chief Financial Officer (principal financial officer) -----END PRIVACY-ENHANCED MESSAGE-----