NPORT-EX 2 Highland_IF.htm SCHEDULE F N-PORT

INVESTMENT PORTFOLIO (unaudited)

 

As of September 30, 2019    Highland Income Fund

 

Principal Amount ($)

    Value ($)  
 

U.S. Senior Loans (a) — 57.4%

  
 

Commercial Services — 3.2%

   
 

American Traffic Solutions, Inc.,

   
  10,102,055    

VAR LIBOR USD
3 Month+3.750%, 02/21/25

      10,156,758  
 

EmployBridge LLC, 2018 Refinancing Term Loan,

   
  13,485,547    

VAR LIBOR USD
3 Month+4.500%, 04/18/25

      13,485,547  
 

Fort Dearborn Holding Company, Inc., Initial Term Loan,

   
  8,542,701    

VAR LIBOR USD
3 Month+4.000%, 10/19/23

      8,435,918  
    

 

 

  
       32,078,223  
    

 

 

  
 

Communication Services — 2.0%

   
  8,000,000    

Clear Channel Outdoor Holdings, Inc. Term Loan B, 08/21/26

      8,033,560  
  6,410,409    

iHeartCommunications Inc.,

      6,459,576  
  5,954,396    

TerreStar Corporation, Term Loan D,
11.000% PIK 02/27/20 (c)(d)

      5,954,396  
    

 

 

  
       20,447,532  
    

 

 

  
 

Consumer Discretionary — 2.9%

   
 

Truck Hero, Inc., Initial Term Loan, 1st Lien,

   
       13,580,484    

VAR LIBOR USD
3 Month+3.750%, 04/22/24

      12,743,043  
 

Truck Hero, Inc., Initial Term Loan, 2nd Lien,

   
  4,076,667    

VAR LIBOR USD
3 Month+8.250%, 04/21/25

      3,811,683  
 

USS Ultimate Holdings, Inc., Initial Term Loan, 1st Lien,

   
  11,875,878    

VAR LIBOR USD
3 Month+3.750%, 08/09/24

      11,904,083  
    

 

 

  
       28,458,809  
    

 

 

  
 

Consumer Products — 1.7%

   
 

Dayco Products, LLC, Term Loan B,

   
  3,342,662    

VAR LIBOR USD
3 Month+4.250%, 05/08/23

      3,033,466  
 

KIK Custom Products, Inc., Initial Term Loan,

   
  14,068,966    

VAR LIBOR USD
3 Month+4.000%, 05/15/23

      13,383,103  
    

 

 

  
       16,416,569  
    

 

 

  
 

Energy — 2.7%

   
 

Fieldwood Energy LLC, Closing Date Loan, 2nd Lien,

   
  15,904,030    

VAR LIBOR USD
3 Month+7.250%, 04/11/23

      12,016,370  

Principal Amount ($)

    Value ($)  
 

U.S. Senior Loans (continued)

   
 

Energy (continued)

   
 

Traverse Midstream Partners LLC, Term Loan,

   
  17,061,177    

VAR LIBOR USD
3 Month+4.000%, 09/27/24

      15,141,795  
    

 

 

  
       27,158,165  
    

 

 

  
 

Financial — 2.4%

   
 

BCP Renaissance Parent LLC, Term Loan B,

   
  9,900,000    

VAR LIBOR USD
3 Month+3.500%, 10/31/24

      9,479,299  
 

Edelman Financial Center (The), Initial Term Loan,

   
  5,955,000  

VAR LIBOR USD
3 Month+3.250%, 07/21/25

      5,971,466  
 

Edelman Financial Group (The), Term Loan, 2nd Lien,

   
  9,447,348    

VAR LIBOR USD
3 Month+6.750%, 06/26/26

      9,465,062  
    

 

 

  
       24,915,827  
    

 

 

  
 

Gaming/Leisure — 1.1%

   
  22,925,890    

Ginn-LA CS Borrower LLC, Tranche A Term Loan Credit-Linked Deposit, 1st Lien, (b)(c)(d)

      —    
       49,138,954    

Ginn-LA CS Borrower LLC, Tranche B Term Loan, 1st Lien, (b)(c)(d)

      —    
  13,677,126    

LLV Holdco, LLC, Revolving Exit Loan, 09/03/20 (b)(c)(d)(e)

      10,941,700  
    

 

 

  
       10,941,700  
    

 

 

  
 

Healthcare — 7.7%

   
 

American Renal Holdings Inc., Term Loan B,

   
  2,701,633    

VAR LIBOR USD
3 Month+3.250%, 06/21/24

      2,636,632  
 

BW NHHC Holdco Inc., Initial Term Loan, 1st Lien,

   
  13,715,278    

VAR LIBOR USD
3 Month+5.000%, 05/15/25

      11,520,833  
  55,260,321    

CCS Medical, Inc., Term Loan,
05/31/20 (c)(d)(e)

      34,316,660  
 

Envision Healthcare Corporation, Initial Term Loan, 1st Lien,

   
  7,905,088    

VAR LIBOR USD
3 Month+3.750%, 10/10/25

      6,474,741  
 

First Eagle Holdings, Inc. (fka Arnhold and S. Bleichroeder Holdings, Inc.), Refinancing Term Loan,

   
  248,125    

VAR LIBOR USD
3 Month+2.750%, 12/02/24

      248,642  
 

INVESTMENT PORTFOLIO (unaudited)

 

As of September 30, 2019    Highland Income Fund

 

Principal Amount ($)

    Value ($)  
 

U.S. Senior Loans (continued)

  
 

Healthcare (continued)

  
 

Radnet Management, Inc., Term Loan B-1, 1st Lien,

   
  10,062,357    

VAR LIBOR USD 3 Month+3.750%, 06/30/23

      10,112,668  
 

Sound Inpatient Physicians Holdings LLC, 2nd Lien,

   
  1,777,778    

VAR LIBOR USD 3 Month+6.750%, 06/19/26

      1,778,222  
 

Surgery Center Holdings, Inc. Term Loan B,

   
  10,267,077    

VAR LIBOR USD 3 Month+3.250%, 09/02/24

      10,059,169  
    

 

 

  
       77,147,567  
    

 

 

  
 

Housing — 1.2%

   
 

84 Lumber Company, Term Loan B-1,

   
  11,879,062    

VAR LIBOR USD 3 Month+5.250%, 10/25/23

      11,945,941  
    

 

 

  
 

Industrials — 3.4%

   
 

Hayward Industries, Inc., Initial Term Loan, 1st Lien,

   
  14,847,393    

VAR LIBOR USD 3 Month+3.500%, 08/05/24

      14,383,412  
 

Omnimax International, Inc., Unsecured Term Loan,

   
  8,975,420    

14.000% PIK 02/06/21 (c)(d)

      8,742,059  
 

PSC Industrial Holdings Corp., Initial Term Loan, 2nd Lien,

   
  4,000,000    

VAR LIBOR USD 3 Month+8.500%, 10/11/25

      3,850,000  
 

PSC Industrial Holdings Corp., Term Loan, 1st Lien,

   
  6,943,463    

VAR LIBOR USD 3 Month+3.750%, 10/11/24

      6,929,021  
    

 

 

  
       33,904,492  
    

 

 

  
 

Information Technology — 11.3%

   
 

Avaya Inc., Tranche B Term Loan,

   
  15,152,641    

VAR LIBOR USD 3 Month+4.250%, 12/15/24

      14,437,664  
 

EDS Legacy Partners,

   
       57,000,000    

VAR LIBOR USD 3 Month+2.750%, 12/14/23 (c)(d)(e)

      58,425,000  
 

Intermedia Holdings, Inc., New Term Loan, 1st Lien,

   
  9,925,000    

VAR LIBOR USD 3 Month+6.000%, 07/21/25

      9,941,128  
 

Kronos Incorporated, Initial Term Loan, 2nd Lien,

   
  4,800,000    

VAR LIBOR USD 3 Month+8.250%, 10/18/24

      4,891,992  

Principal Amount ($)

    Value ($)  
 

U.S. Senior Loans (continued)

   
 

Information Technology (continued)

   
 

Neustar, Inc., Term Loan B4,

   
  11,410,322    

VAR LIBOR USD 3 Month+3.500%, 08/08/24

      11,045,192  
 

Procera Networks, Inc., Initial Term Loan,

   
  14,831,937    

VAR LIBOR USD 3 Month+4.500%, 10/30/25

      14,813,397  
    

 

 

  
       113,554,373  
    

 

 

  
 

Manufacturing — 0.7%

   
 

VC GB Holdings, Inc., Refinancing Term Loan, 1st Lien,

   
  6,561,283    

VAR LIBOR USD 3 Month+3.250%, 02/28/24

      6,479,267  
    

 

 

  
 

Oil & Gas — 0.9%

   
  9,262,500    

Lower Cadence Holdings LLC, Initial Term Loan, 1st Lien, 05/08/26

      9,051,222  
    

 

 

  
 

Real Estate — 2.1%

   
 

Forest City Enterprises, L.P., Initial Term Loan,

   
  9,161,538    

VAR LIBOR USD 3 Month+4.000%, 12/08/25

      9,240,282  
 

Specialty Building Products Holdings, LLC, Initial Term Loan,

   
  11,940,000    

VAR LIBOR USD 3 Month+5.750%, 09/25/25

      11,969,910  
    

 

 

  
       21,210,192  
    

 

 

  
 

Retail — 5.0%

   
 

Academy, Ltd., Initial Term Loan,

   
       18,610,635    

VAR LIBOR USD 3 Month+4.000%, 07/01/22

      13,093,885  
 

Dealer Tire, LLC, Initial Term Loan,

   
  15,619,921    

VAR LIBOR USD 3 Month+5.500%, 12/04/25

      15,688,336  
 

General Nutrition Centers, Inc., FILO Term Loan,

   
  1,178,368    

VAR LIBOR USD 3 Month+7.000%, 12/31/22

      1,185,102  
 

General Nutrition Centers, Inc., Tranche B-2 Term Loan, 1st Lien,

   
  9,900,316    

VAR LIBOR USD 3 Month+8.750%, 03/04/21

      9,488,860  
 

Jo-Ann Stores, LLC, Initial Loan, 1st Lien,

   
  10,155,080    

VAR LIBOR USD 3 Month+5.000%, 10/20/23

      7,036,607  
 

Jo-Ann Stores, LLC, Initial Loan, 2nd Lien,

   
  9,554,955    

VAR LIBOR USD 3 Month+9.250%, 05/21/24

      3,172,245  
    

 

 

  
       49,665,035  
    

 

 

  
 

INVESTMENT PORTFOLIO (unaudited)

 

As of September 30, 2019    Highland Income Fund

 

Principal Amount ($)

    Value ($)  
 

U.S. Senior Loans (continued)

  
 

Service — 5.2%

   
 

Advantage Sales & Marketing Inc., Initial Term Loan, 1st Lien,

   
  6,668,045    

VAR LIBOR USD 3 Month+3.250%, 07/23/21

      6,243,891  
 

Advantage Sales & Marketing Inc., Term Loan B2, 1st Lien,

   
  2,177,895    

VAR LIBOR USD 3 Month+3.250%, 07/23/21

      2,026,804  
 

Advantage Sales & Marketing Inc., Term Loan, 2nd Lien,

   
  13,710,000    

VAR LIBOR USD 3 Month+6.500%, 07/25/22

      11,920,091  
 

CSC SW Holdco, Inc. (fka CSC Serviceworks, Inc.), Term Loan B-1, 1st Lien,

   
  10,041,374    

VAR LIBOR USD 3 Month+3.250%, 11/14/22

      9,890,753  
 

EnergySolutions, LLC (aka Envirocare of Utah, LLC), Initial Term Loan, 1st Lien,

   
  5,975,209    

VAR LIBOR USD 3 Month+3.750%, 05/09/25

      5,601,758  
 

Parexel International, Term Loan B, 1st Lien,

   
  9,505,322    

VAR LIBOR USD 3 Month+2.750%, 09/27/24

      9,048,734  
 

USI, Inc. (fka Compass Investors Inc.), 2017 New Term Loan, 1st Lien,

   
  7,542,785    

VAR LIBOR USD 3 Month+3.000%, 05/16/24

      7,428,097  
    

 

 

  
       52,160,128  
    

 

 

  
 

Transportation — 1.4%

   
 

Capital Automotive LP, Term Loan, 2nd Lien,

   
  1,676,175    

VAR LIBOR USD 3 Month+6.000%, 03/21/25

      1,688,754  
 

Gruden Acquisition, Inc., Incremental Term Loan, 1st Lien,

   
  11,699,754    

VAR LIBOR USD 3 Month+5.500%, 08/18/22

      11,670,505  
    

 

 

  
       13,359,259  
    

 

 

  
 

Utilities — 2.5%

   
 

Eastern Power, LLC (Eastern Covert Midco, LLC), Term Loan,

   
  11,397,995    

VAR LIBOR USD 3 Month+3.750%, 10/02/23

      11,450,995  
 

Granite Acquisition, Inc., Term Loan B, 2nd Lien,

   
  2,319,304    

VAR LIBOR USD 3 Month+7.250%, 12/19/22

      2,324,232  
 

Lightstone Holdco LLC, Refinancing Term
Loan B,

   
       11,780,034    

VAR LIBOR USD 3 Month+3.750%, 01/30/24

      11,327,209  

Principal Amount ($)

    Value ($)  
 

U.S. Senior Loans (continued)

   
 

Utilities (continued)

   
 

Lightstone Holdco LLC, Refinancing Term Loan C,

   
  664,412    

VAR LIBOR USD 3 Month+3.750%, 01/30/24

      638,872  
  59,127,210    

Texas Competitive Electric Holdings Co., LLC, Extended Escrow Loan, (f)

      59,127  
    

 

 

  
       25,800,435  
    

 

 

  
 

Total U.S. Senior Loans
(Cost $710,161,771)

      574,694,736  
    

 

 

  

Shares

             
 

Preferred Stock (g) — 29.2%

   
 

Energy — 1.7%

   
  1,790,983     Crestwood Equity Partners LP 9.25%      16,539,728  
    

 

 

  
 

Financial — 3.4%

   
  3,980     Eastland CLO, Ltd. 1.00%, 05/01/2022      1,795,975  
  997,315     Federal Home Loan Mortgage 5.30%      18,192,609  
  545,289     Federal National Mortgage Association 8.25%      13,230,347  
    

 

 

  
       33,218,931  
    

 

 

  
 

Real Estate — 24.1%

   
  645,161     Braemar Hotels & Resorts, Inc., REIT 5.50% (h)      13,458,058  
  180,008    

Creek Pine Holdings, LLC, REIT
10.25% (c)(d)(h)

      202,856,791  
  23,649    

Jernigan Capital, Inc., REIT
7.00% (c)(d)

      24,971,599  
  57,262    

Wheeler Real Estate Investment Trust, REIT 9.00% (g)

      743,432  
    

 

 

  
       242,029,880  
    

 

 

  
 

Total Preferred Stock
(Cost $264,095,606)

      291,788,539  
    

 

 

  
 

Collateralized Loan Obligations — 21.6%

   
  Acis CLO, Ltd., Series 2014-3A, Class E   
  4,000,000    

VAR ICE LIBOR USD 3 Month+4.750%, 7.00%, 2/1/2026 (i)(j)(k)

      3,000,000  
 

Acis CLO, Ltd., Series 2014-4A, Class E

   
       14,750,000    

VAR ICE LIBOR USD 3 Month+4.800%, 7.05%, 5/1/2026 (i)(j)(k)

      11,062,500  
 

Acis CLO, Ltd., Series 2015-6A, Class D

   
  1,000,000    

VAR ICE LIBOR USD 3 Month+3.770%, 6.02%, 5/1/2027 (i)(j)(k)

      973,125  
 

Acis CLO, Ltd., Series 2014-4A, Class D

   
  750,000    

VAR ICE LIBOR USD 3 Month+3.100%, 5.35%, 5/1/2026 (j)(k)

      722,897  
 

Acis CLO, Ltd., Series 2015-6A, Class E

   
  7,500,000    

VAR ICE LIBOR USD 3 Month+5.490%, 7.74%, 5/1/2027 (i)(j)(k)

      6,531,250  
 

INVESTMENT PORTFOLIO (unaudited)

 

As of September 30, 2019    Highland Income Fund

 

Principal Amount ($)

    Value ($)  
 

Collateralized Loan Obligations (continued)

  
 

Acis CLO, Ltd., Series 2014-5A, Class D

   
     7,000,000    

VAR ICE LIBOR USD 3 Month+4.340%, 6.59%, 11/1/2026 (i)(j)(k)

      6,790,000  
 

Apidos CLO XXII, Series 2015-22A, Class D

   
  3,000,000    

VAR ICE LIBOR USD 3 Month+6.000%, 8.28%, 10/20/2027 (j)(k)

      2,991,096  
 

Atrium IX, Series 2017-9A, Class ER

   
  2,300,000    

VAR ICE LIBOR USD 3 Month+6.450%, 8.59%, 5/28/2030 (j)(k)

      2,205,953  
 

BlueMountain CLO, Ltd., Series 2018-1A, Class E

   
  3,000,000    

VAR ICE LIBOR USD 3 Month+5.950%, 8.22%, 7/30/2030 (j)(k)

      2,731,830  
 

BlueMountain CLO, Ltd., Series 2015-3A, Class ER

   
  6,500,000    

VAR ICE LIBOR USD 3 Month+8.080%, 10.36%, 4/20/2031 (i)(j)(k)

      5,625,750  
 

Bristol Park CLO, Series 2016-1A, Class E

   
  1,500,000    

VAR ICE LIBOR USD 3 Month+7.250%, 9.55%, 4/15/2029 (j)(k)

      1,398,750  
 

California Street CLO IX, Series 2019-9A, Class FR2

   
  3,500,000    

VAR ICE LIBOR USD 3 Month+8.520%, 10.80%, 7/16/2032 (j)(k)

      3,290,000  
 

Carlyle Global Market Strategies CLO, Series 2018-1A, Class ER

   
  5,375,000    

VAR ICE LIBOR USD 3 Month+5.400%, 7.70%, 4/17/2031 (j)(k)

      4,415,025  
 

Carlyle Global Market Strategies CLO, Series 2019-1A, Class ER

   
  5,382,500    

VAR ICE LIBOR USD 3 Month+6.940%, 9.22%, 7/20/2031 (j)(k)

      5,095,074  
 

Catamaran CLO, Ltd., Series 2014-2A, Class D

   
  3,000,000    

VAR ICE LIBOR USD 3 Month+4.850%, 7.15%, 10/18/2026 (i)(j)(k)

      2,946,000  
 

Catamaran CLO, Ltd., Series 2015-1A, Class E

   
  2,250,000    

VAR ICE LIBOR USD 3 Month+5.150%, 7.43%, 4/22/2027 (j)(k)

      2,075,625  
 

Cathedral Lake CLO, Ltd., Series 2013-1A, Class DR

   
  1,250,000    

9.85%, 10/15/2029 (k)

      1,157,500  
 

VAR 3-month LIBOR+7.250%, 10.06%,
10/15/2029 (j)(k)

      1,125  
 

CIFC Funding, Ltd., Series 2014-1A, Class ER2

   
  1,000,000    

VAR ICE LIBOR USD 3 Month+5.850%, 8.15%, 1/18/2031 (j)(k)

      905,000  
 

CIFC Funding, Ltd., Series 2017-3A, Class D

   
  1,225,000    

VAR ICE LIBOR USD 3 Month+6.000%, 8.28%, 7/20/2030 (j)(k)

      1,139,862  

Principal Amount ($)

    Value ($)  
 

Collateralized Loan Obligations (continued)

   
 

CIFC Funding, Ltd., Series 2017-4A, Class D

   
  3,000,000    

VAR ICE LIBOR USD 3 Month+6.100%, 8.38%, 10/24/2030 (j)(k)

      2,850,000  
 

CIFC Funding, Ltd., Series 2014-3A, Class FR2

   
  5,000,000    

VAR ICE LIBOR USD 3 Month+8.250%, 10.53%, 10/22/2031 (i)(j)(k)

      3,825,000  
 

Covenant Credit Partners CLO III, Series 2017-1A, Class F

   
  4,000,000    

VAR ICE LIBOR USD 3 Month+7.950%, 10.25%, 10/15/2029 (j)(k)

      3,370,000  
 

Denali Capital CLO XI, Series 2015-1A, Class ER

   
  4,600,000    

VAR ICE LIBOR USD 3 Month+8.250%, 10.53%, 10/20/2028 (i)(j)(k)

      4,201,778  
 

Dryden 36 Senior Loan Fund, Series 2019-36A, Class ER2

   
     2,050,000    

VAR ICE LIBOR USD 3 Month+6.880%, 9.18%, 4/15/2029 (j)(k)

      1,994,958  
 

Dryden 42 Senior Loan Fund, Series 2018-42A, Class FR

   
  1,000,000    

VAR ICE LIBOR USD 3 Month+7.200%, 9.50%, 7/15/2030 (j)(k)

      815,000  
 

Dryden 64 CLO, Series 2018-64A, Class F

   
  3,500,000    

VAR ICE LIBOR USD 3 Month+7.150%, 9.45%, 4/18/2031 (i)(j)(k)

      2,835,000  
 

Eaton Vance CLO, Series 2019-1A, Class F

   
  8,000,000    

VAR ICE LIBOR USD 3 Month+8.250%, 10.75%, 4/15/2031 (j)(k)

      7,520,000  
 

Eaton Vance CLO, Series 2013-1A, Class DRR

   
  2,000,000    

VAR ICE LIBOR USD 3 Month+7.100%, 9.32%, 1/15/2028 (j)(k)

      1,990,000  
 

ECP CLO, Ltd., Series 2018-7A, Class DR

   
  6,000,000    

VAR ICE LIBOR USD 3 Month+5.900%, 8.18%, 4/22/2030 (j)(k)

      4,740,000  
 

Galaxy XXVI CLO, Ltd., Series 2018-26A, Class F

   
  5,450,000    

VAR ICE LIBOR USD 3 Month+8.000%, 10.15%, 11/22/2031 (j)(k)

      4,687,000  
 

Goldentree Loan Management US CLO 3, Series 2018-3A, Class F

   
  3,000,000    

VAR ICE LIBOR USD 3 Month+6.500%, 8.78%, 4/20/2030 (j)(k)

      2,558,370  
 

Goldentree Loan Management US CLO 4, Series 2019-4A, Class F

   
  3,500,000    

VAR ICE LIBOR USD 3 Month+6.400%, 8.68%, 4/24/2031 (j)(k)

      2,730,000  
 

INVESTMENT PORTFOLIO (unaudited)

 

As of September 30, 2019    Highland Income Fund

 

Principal Amount ($)

    Value ($)  
 

Collateralized Loan Obligations (continued)

  
 

GoldenTree Loan Opportunities IX, Ltd., Series 2018-9A, Class FR2

   
  3,500,000    

VAR ICE LIBOR USD 3 Month+7.640%, 9.90%, 10/29/2029 (i)(j)(k)

      3,045,000  
 

Jamestown CLO IX, Series 2019-9A, Class DR

   
  5,500,000    

VAR ICE LIBOR USD 3 Month+6.940%, 9.22%, 10/20/2028 (i)(j)(k)

      5,467,364  
 

Jay Park CLO, Ltd., Series 2018-1A, Class ER

   
  6,000,000    

VAR ICE LIBOR USD 3 Month+7.350%, 9.63%, 10/20/2027 (i)(j)(k)

      5,220,000  
 

JFIN CLO, Ltd., Series 2013-1I, Class E

   
  3,000,000    

VAR ICE LIBOR USD 3 Month+6.000%, 8.28%, 1/20/2025 (j)

      2,280,000  
 

KKR CLO 21, Series 2018-21, Class F

   
  1,500,000    

VAR ICE LIBOR USD 3 Month+7.250%, 9.55%, 4/15/2031 (j)(k)

      1,230,000  
 

LCM XIII, Ltd., Series 2016-13A, Class ER

   
  3,000,000    

VAR ICE LIBOR USD 3 Month+7.300%, 9.60%, 7/19/2027 (i)(j)(k)

      2,895,000  
 

LCM XIV, Ltd., Series 2018-14A, Class FR

   
  3,000,000    

VAR ICE LIBOR USD 3 Month+7.610%, 9.89%, 7/20/2031 (j)(k)

      2,520,000  
 

LCM XXIII, Ltd., Series 2016-23A, Class D

   
  1,000,000    

VAR ICE LIBOR USD 3 Month+7.050%, 9.33%, 10/20/2029 (i)(j)(k)

      885,000  
 

Madison Park Funding XXIV, Series 2019-24A, Class ER

   
  5,000,000    

VAR ICE LIBOR USD 3 Month+7.200%, 9.38%, 10/20/2029 (j)(k)

      5,000,000  
 

Madison Park Funding XXX, Series 2018-30A, Class F

   
  1,000,000    

VAR ICE LIBOR USD 3 Month+6.850%, 9.15%, 4/15/2029 (j)(k)

      900,000  
 

Magnetite VII, Ltd., Series 2018-7A, Class ER2

   
  490,000    

VAR ICE LIBOR USD 3 Month+6.500%, 8.80%, 1/15/2028 (j)(k)

      441,000  
 

Mountain View Clo XIV, Series 2019-1A, Class F

   
  500,000    

VAR ICE LIBOR USD 3 Month+8.700%, 11.32%, 4/15/2029 (j)(k)

      463,650  
 

MP CLO VII, Series 2018-1A, Class FRR

   
     5,800,000    

VAR ICE LIBOR USD 3 Month+7.910%, 10.21%, 10/18/2028 (j)(k)

      5,142,473  
 

Nassau, Ltd., Series 2017-IA, Class D

   
  1,575,000    

VAR ICE LIBOR USD 3 Month+6.180%, 8.48%, 10/15/2029 (j)(k)

      1,449,000  
 

Neuberger Berman CLO XX, Ltd., Series 2017-20A, Class FR

   
  3,000,000    

VAR ICE LIBOR USD 3 Month+7.450%, 9.75%, 1/15/2028 (i)(j)(k)

      2,759,800  

Principal Amount ($)

    Value ($)  
 

Collateralized Loan Obligations (continued)

  
 

Northwoods Capital XII-B, Ltd., Series 2018-12BA, Class F

   
  4,000,000    

VAR ICE LIBOR USD 3 Month+8.170%, 10.29%, 6/15/2031 (j)(k)

      3,300,000  
 

OZLM Funding III, Ltd., Series 2016-3A, Class DR

   
  1,000,000    

VAR ICE LIBOR USD 3 Month+7.770%, 10.05%, 1/22/2029 (j)(k)

      985,000  
 

OZLM XXII, Ltd., Series 2018-22A, Class E

   
  3,110,000    

VAR ICE LIBOR USD 3 Month+7.390%, 9.69%, 1/17/2031 (j)(k)

      2,581,300  
 

Palmer Square CLO, Ltd., Series 2019-1A, Class DR2

   
     3,750,000    

VAR ICE LIBOR USD 3 Month+6.250%, 8.40%, 5/21/2029 (i)(j)(k)

      3,535,875  
 

Saranac CLO III, Ltd., Series 2018-3A, Class ER

   
  3,150,000    

VAR ICE LIBOR USD 3 Month+7.500%, 9.66%, 6/22/2030 (j)(k)

      2,956,905  
 

Saranac CLO VI, Ltd., Series 2018-6A, Class E

   
  5,000,000    

VAR ICE LIBOR USD 3 Month+6.400%, 8.53%, 8/13/2031 (j)(k)

      4,379,000  
 

Shackleton CLO IX, Ltd., Series 2016-9A, Class E

   
  1,500,000    

VAR ICE LIBOR USD 3 Month+6.760%, 9.04%, 10/20/2028 (i)(j)(k)

      1,323,900  
 

Steele Creek CLO, Series 2018-1A, Class FR

   
  500,000    

VAR ICE LIBOR USD 3 Month+6.900%, 9.02%, 6/15/2031 (j)(k)

      412,500  
 

Symphony CLO XXI, Series 2019-21A, Class E

   
  1,500,000    

VAR ICE LIBOR USD 3 Month+6.750%, 9.11%, 7/15/2032 (j)(k)

      1,449,300  
 

TCW CLO, Series 2019-1A, Class F

   
  1,000,000    

VAR ICE LIBOR USD 3 Month+8.670%, 10.83%, 2/15/2029 (j)(k)

      945,000  
 

TICP CLO I-2, Series 2018-IA, Class E

   
  2,200,000    

VAR ICE LIBOR USD 3 Month+8.000%, 10.27%, 4/26/2028 (j)(k)

      1,933,250  
 

TICP CLO III-2, Ltd., Series 2018-3R, Class F

   
  4,150,000    

VAR ICE LIBOR USD 3 Month+7.980%, 10.26%, 4/20/2028 (j)(k)

      3,587,053  
 

Trinitas CLO III, Ltd., Series 2015-3A, Class E

   
  2,000,000    

VAR ICE LIBOR USD 3 Month+5.250%, 7.55%, 7/15/2027 (j)(k)

      1,540,000  
 

Trinitas CLO X, Series 2019-10A, Class F

   
  9,000,000    

VAR ICE LIBOR USD 3 Month+7.785%, 10.09%, 4/15/2032 (j)(k)

      8,010,000  
 

INVESTMENT PORTFOLIO (unaudited)

 

As of September 30, 2019    Highland Income Fund

 

Principal Amount ($)

    Value ($)  
 

Collateralized Loan Obligations (continued)

  
 

Venture XIII CLO, Ltd., Series 2017-13A, Class ER

   
  575,000    

VAR ICE LIBOR USD 3 Month+6.750%, 8.88%, 9/10/2029 (j)(k)

      541,420  
 

Voya CLO, Ltd., Series 2018-4A, Class ER

   
  3,200,000    

VAR ICE LIBOR USD 3 Month+9.050%, 11.35%, 7/14/2031 (j)(k)

      3,104,000  
 

Voya CLO, Ltd., Series 2019-2A, Class DR

   
     7,580,000    

VAR ICE LIBOR USD 3 Month+7.110%, 9.29%, 7/19/2028 (j)(k)

      7,390,500  
 

Voya, Ltd., Series 2016-4A, Class DR

   
  3,650,000    

VAR ICE LIBOR USD 3 Month+7.650%, 9.95%, 10/15/2028 (j)(k)

      3,607,218  
 

Wellfleet CLO, Ltd., Series 2018-2A, Class DR

   
  3,950,000    

VAR ICE LIBOR USD 3 Month+5.500%, 7.78%, 10/20/2028 (j)(k)

      3,708,063  
 

Z Capital Credit Partners CLO, Ltd., Series 2015-1A, Class E

   
  7,250,000    

VAR ICE LIBOR USD 3 Month+5.970%, 8.29%, 7/16/2027 (i)(j)(k)

      6,159,600  
 

Zais CLO 3, Ltd., Series 2018-3A, Class DR

   
  3,000,000    

VAR ICE LIBOR USD 3 Month+6.910%, 9.21%, 7/15/2031 (j)(k)

      2,542,500  
 

Zais CLO 7, Ltd., Series 2017-2A, Class E

   
  1,250,000    

VAR ICE LIBOR USD 3 Month+7.150%, 9.45%, 4/15/2030 (j)(k)

      1,107,083  
 

Zais CLO 8, Ltd., Series 2018-1A, Class E

   
  3,300,000    

VAR ICE LIBOR USD 3 Month+5.250%, 7.55%, 4/15/2029 (j)(k)

      2,541,000  
    

 

 

  
 

Total Collateralized Loan Obligations
(Cost $235,976,541)

      216,514,222  
    

 

 

  

Shares

             
 

Common Stocks — 13.0%

   
 

Communication Services — 4.7%

   
  714,204    

Clear Channel Outdoor Holdings, Inc., Class A (h)

      1,799,794  
  339,558    

iHeartMedia, Inc. (h)

      5,093,370  
  49,600    

Loral Space & Communications, Inc. (h)

      2,053,440  
  502,161    

Metro-Goldwyn-Mayer, Inc. (l)

      30,380,741  
  27,134    

TerreStar Corporation (c)(d)(l)

      7,544,066  
    

 

 

  
       46,871,411  
    

 

 

  
 

Consumer Discretionary (h) — 0.8%

   
  1,450    

Toys ‘R’ Us

      382,497  
  1,450    

Tru Kids, Inc.

      7,267,324  
    

 

 

  
       7,649,821  
    

 

 

  
 

Energy — 0.9%

   
  167,419    

Fieldwood Energy LLC (h)

      4,457,531  
  39,000    

Pioneer Natural Resources

      4,905,030  

Principal Amount ($)

    Value ($)  
 

Common Stocks (continued)

   

Shares

             
 

Energy — continued

   
  1,118,286    

Value Creation, Inc. (c)(d)

      1  
    

 

 

  
       9,362,562  
    

 

 

  
 

Gaming/Leisure (c)(d)(e) — 0.0%

   
  34,512    

LLV Holdco LLC — Series A, Membership Interest

      —    
  436    

LLV Holdco LLC — Series B, Membership Interest

      —    
    

 

 

  
       —    
    

 

 

  
 

Healthcare — 0.0%

   
  207,031    

CCS Medical Inc. (c)(d)(e)

      —    
  18,750    

Portola Pharmaceuticals, Inc. (h)

      502,875  
    

 

 

  
       502,875  
    

 

 

  
 

Housing (c)(d) — 0.0%

   
  1,648,350    

Westgate Investments LLC

      —    
    

 

 

  
 

Industrials (h) — 0.1%

   
  250,627    

Remington Outdoor Co., Inc.

      563,911  
    

 

 

  
 

Information Technology (h) — 0.2%

   
  190,617    

Avaya Holdings Corp.

      1,950,012  
    

 

 

  
 

Materials (h) — 0.2%

   
  299,032    

MPM Holdings, Inc.

      1,495,160  
  14,621    

Omnimax International, Inc. (c)(d)

      713,200  
    

 

 

  
       2,208,360  
    

 

 

  
 

Real Estate — 6.1%

   
  1,393,678    

Allenby (c)(d)(e)

      1  
  9,370,190    

Claymore (c)(d)(e)

      9  
  31,232    

Jernigan Capital, Inc., REIT

      601,216  
  2,918,931    

NFRO REIT SUB, LLC (c)(d)(e)

      60,702,826  
    

 

 

  
       61,304,052  
    

 

 

  
 

Total Common Stocks
(Cost $425,814,420)

      130,413,004  
    

 

 

  
 

LLC Interest — (c)(d) 9.1%

   
  11,854,987    

SFR WLIF I, LLC

      12,108,683  
  52,666,031    

SFR WLIF II, LLC

      53,851,017  
  25,478,982    

SFR WLIF III, LLC

      25,229,288  
    

 

 

  
 

Total LLC Interest
(Cost $90,000,000)

      91,188,988  
    

 

 

  
 

Agency Collateralized Mortgage Obligations (k) — 9.0%

  
 

FREMF Mortgage Trust, Series 2019-KF60, Class C

   
  60,630,654    

VAR LIBOR USD 1 Month+6.000%, 8.09%, 2/25/2026 (i)

      60,479,078  
  54,160,055    

FREMF Mortgage Trust, Series 2019-K97, Class D
0.00%, 1/25/2030

      24,089,201  
     588,534,388    

FREMF Mortgage Trust, Series 2019-K97, Class X2A
0.10%, 7/25/2029

      4,722,524  
 

INVESTMENT PORTFOLIO (unaudited)

 

As of September 30, 2019    Highland Income Fund

 

Principal Amount ($)

    Value ($)  
 

Agency Collateralized Mortgage Obligations — continued

  
  133,593,827    

FREMF Mortgage Trust, Series 2019-K97, Class X2B 0.10%, 1/25/2030

      819,451  
    

 

 

  
 

Total Agency Collateralized Mortgage Obligations
(Cost $90,384,917)

      90,110,254  
    

 

 

  
 

Corporate Bonds & Notes — 4.0%

  
 

Energy (b) — 0.1%

  
       15,600,000    

Ocean Rig UDW, Inc.
7.25%, 04/01/19 (c)(d)(k)

      1,076,400  
  5,000,000    

Rex Energy Corp.
8.00%, 10/03/19

      25,000  
    

 

 

  
       1,101,400  
    

 

 

  
 

Industrials (b) — 0.0%

  
  7,500,000    

American Airlines

      189,000  
    

 

 

  
 

Information Technology (b) — 0.0%

  
  4,571,000    

Avaya, Inc., (c)(d)

      —    
    

 

 

  
 

Real Estate — 0.1%

  
  2,000,000    

CBL & Associates
5.95%, 12/15/26

      1,415,000  
    

 

 

  
 

Utilities (b) — 3.8%

  
  13,753,863    

Bruce Mansfield Unit 1 2007 Pass-Through Trust 6.85%,

      10,812,009  
 

Pacific Gas & Electric

   
  1,500,000    

5.80%, 03/01/37

      1,696,875  
  12,000,000    

6.05%, 03/01/34

      13,680,000  
  4,000,000    

6.25%, 03/01/39

      4,640,000  
  5,000,000    

6.35%, 02/15/38

      5,850,000  
  20,000,000    

Texas Competitive Electric Holdings Co., LLC (f)

      101,000  
  8,000,000    

Texas Competitive Electric Holdings Co., LLC

      36,000  
    

 

 

  
       36,815,884  
    

 

 

  
 

Total Corporate Bonds & Notes (Cost $49,778,658)

      39,521,284  
    

 

 

  
 

Foreign Denominated or Domiciled Senior Loans (a) — 2.3%

  
 

Canada — 0.8%

  
 

Bausch Health Companies Inc. (fka Valeant Pharmaceuticals International, Inc.), Initial Term Loan,

   
  8,263,910    

VAR LIBOR USD 3 Month+3.000%, 06/02/25

      8,306,965  
    

 

 

  
 

Luxembourg — 1.5%

  
 

Intelsat Jackson Holdings S.A., Tranche B-3 Term Loan,

   
  15,000,000    

VAR LIBOR USD 3 Month+3.750%, 11/27/23

      15,063,300  
    

 

 

  
 

Total Foreign Denominated or Domiciled Senior Loans
(Cost $23,193,950)

      23,370,265  
    

 

 

  

Principal Amount ($)

    Value ($)  

Shares

             
 

Registered Investment Company (e) — 1.8%

  
  989,143    

NexPoint Strategic Opportunities Fund

      17,735,334  
    

 

 

  
 

Total Registered Investment Company
(Cost $19,336,833)

      17,735,334  
    

 

 

  

Contracts

             
 

Purchased Options (h) — 0.6%

  
 

Total Purchased Call Options
(Cost $9,463,643)

      6,135,499  
    

 

 

  
    
 

Non-U.S. Government Bond — 0.2%

  
 

Argentine Republic Government International Bond,

   
  2,000,000    

6.88%, 04/22/21

      992,520  
  2,000,000    

8.00%, 10/08/20

      846,851  
    

 

 

  
 

Total Non-U.S. Government Bond
(Cost $2,597,931)

      1,839,371  
    

 

 

  

Units

             
 

Rights — 0.1%

   
 

Utilities (h) — 0.1%

   
       1,117,866    

Texas Competitive Electric Holdings Co., LLC

      989,311  
    

 

 

  
 

Total Rights
(Cost $3,882,778)

      989,311  
    

 

 

  
 

Warrants (h) — 0.0%

   
 

Energy — 0.0%

   
  5,801    

Arch Coal, Inc., Expires 10/08/2023

      174,030  
    

 

 

  
 

Industrials — 0.0%

   
  453    

Omnimax Holdings, Inc., Expires
12/31/2049 (c)(d)

      22,076  
  178,140    

Remington Outdoor Co., Inc.

      —    
    

 

 

  
       22,076  
    

 

 

  
 

Total Warrants
(Cost $264,794)

      196,106  
    

 

 

  
 

Claims (b)(c)(d)(h)(m) — 0.0%

  
 

Communication Services — 0.0%

  
  3,791,858    

Lehman Brothers Commercial Paper LCPI Claim Facility

    $ 52,138  
    

 

 

  
 

Total Claims
(Cost $1,814,883)

      52,138  
    

 

 

  
 

INVESTMENT PORTFOLIO (unaudited)

 

As of September 30, 2019    Highland Income Fund

 

Principal Amount ($)

    Value ($)  
 

Cash Equivalents — 0.0%

  
 

Money Market Fund(n) — 0.0%

  
    73,970    

State Street Institutional U.S. Government Money Market Fund, Premier Class 2.390%

      73,970  
    

 

 

  
 

Total Cash Equivalents
(Cost $73,970)

      73,970  
    

 

 

  
 

Total Investments — 148.3%

      1,484,623,021  
    

 

 

  
 

  (Cost $1,926,840,695)

  
 

Securities Sold Short — (1.1)%

  
 

Common Stock — (1.1)%

  
 

Information Technology — (1.1)%

  
    (83,500 )   

Texas Instruments, Inc.

      (10,791,540 ) 
    

 

 

  
 

Total Common Stocks
(Proceeds $10,000,190)

      (10,791,540 ) 
    

 

 

  
 

Total Securities Sold Short- (1.1)%
(Proceeds $10,000,190)

      (10,791,540 ) 
    

 

 

  
 

Other Assets & Liabilities, Net - (47.2)%

      (472,595,001 ) 
    

 

 

  
 

Net Assets — 100.0%

      1,001,236,480  
    

 

 

  
 

INVESTMENT PORTFOLIO (unaudited)

 

As of September 30, 2019    Highland Income Fund

 

(a)   Senior loans (also called bank loans, leveraged loans, or floating rate loans) in which the Fund invests generally pay interest at rates which are periodically determined by reference to a base lending rate plus a spread (unless otherwise identified, all senior loans carry a variable rate of 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 Interbank Offered Rate (“LIBOR”) or (iii) the Certificate of Deposit rate. As of September 30, 2019, the LIBOR USD 1 Month and LIBOR USD 3 Month rates were 2.02% and 2.09%, respectively. Senior loans, while exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”), 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 maybe substantially less than the stated maturity shown.

(b)   The issuer is, or is in danger of being, in default of its payment obligation.

(c)   Securities with a total aggregate value of $507,507,910, or 50.7% of net assets, were classified as Level 3 within the three-tier fair value hierarchy. Please see Notes to Investment Portfolio for an explanation of this hierarchy, as well as a list of unobservable inputs used in the valuation of these instruments.

(d)   Represents fair value as determined by the Fund’s Board of Trustees (the “Board”), or its designee in good faith, pursuant to the policies and procedures approved by the Board. The Board considers fair valued securities to be securities for which market quotations are not readily available and these securities may be valued using a combination of observable and unobservable inputs. Securities with a total aggregate value of $507,507,910, or 50.7% of net assets, were fair valued under the Fund’s valuation procedures as of September 30, 2019. Please see Notes to Investment Portfolio.

(e)   Affiliated issuer. Assets with a total aggregate market value of $182,121,530, or 18.2% of net assets, were affiliated with the Fund as of September 30, 2019.

(f)   Represents value held in escrow pending future events. No interest is being accrued.

(g)   Perpetual security with no stated maturity date.

(h)   Non-income producing security.

(i) As of September 30, 2019, investments with a total aggregate value of $139,561,019 were fully or partially segregated with broker(s)/custodian as collateral for reverse repurchase agreements.

(j) Variable or floating rate security. The base lending rates are generally the lending rate offered by one or more European banks such as the LIBOR. The interest rate shown reflects the rate in effect September 30, 2019. LIBOR, otherwise known as London Interbank Offered Rate, is the benchmark interest rate that banks charge each other for short-term loans. Current LIBOR rates include 1 month which is equal to 2.02% and 3 months equal to 2.09%.

(k)   Securities exempt from registration under Rule 144A of the 1933 Act. These securities may only be resold in transaction exempt from registration to qualified institutional buyers. At September 30, 2019, these securities amounted to $305,420,876 or 30.5% of net assets.

 

INVESTMENT PORTFOLIO (unaudited)

 

As of September 30, 2019    Highland Income Fund

 

(l) Restricted Securities. These securities are not registered and may not be sold to the public. There are legal and/or contractual restrictions on resale. The Fund does not have the right to demand that such securities be registered. The values of these securities are determined by valuations provided by pricing services, brokers, dealers, market makers, or in good faith under the procedures established by the Fund’s Board of Trustees. Additional Information regarding such securities follows:

 

Restricted Security

   Security
Type		     Acquisition
Date		     Cost of
Security		     Market
Value at
Period End		     Percent
of Net
Assets		  

Metro-Goldwyn- Mayer, Inc.

    
 Common
Stocks		  
 		     12/20/2010     $ 21,845,688     $ 30,380,741       3.0 % 

TerreStar Corporation

    
 Common
Stocks		  
 		     3/16/2018     $ 3,093,276     $ 7,544,066       0.8 % 

 

(m)

These positions represent claims that have been filed with the United States Bankruptcy Court Southern District of New York against Lehman Commercial Paper, Inc. UK Branch.

(n)

Rate shown is 7 day effective yield.

 

Foreign Domiciled Senior Loans

Industry Concentration Table:

(% of Net Assets)

  

Healthcare

      0.8 % 

Information Technology

      1.5 % 
  

 

 

  
     2.3 % 
  

 

 

  
 

INVESTMENT PORTFOLIO (unaudited)

 

As of September 30, 2019    Highland Income Fund

 

Purchased options contracts outstanding as of September 30, 2019 were as follows:

 

Description

    Exercise price      Counterparty      Expiration Date      Number of
Contracts		      Notional
Value		      Premium      Value  

PURCHASED CALL OPTIONS:

                     

October 2019 Calls on VIX

    $ 19.00           October 2019        10,000      $ 16,240,000      $ 1,642,881      $ 1,070,000  

October 2019 Calls on VIX

      22.00           October 2019        10,000        16,240,000        892,881        700,000  

November 2019 Calls on VIX

      18.00           November 2019        10,000        16,240,000        2,727,881        2,500,000  

USD Call/HKD Put

      7.85           May 2020        143,000,000        1,121,005,600        1,000,000        525,655  

USD Call/HKD Put

      7.85           May 2020        65,750,000        515,427,400        500,000        248,752  

USD Call/HKD Put

      7.85           June 2020        91,000,000        713,367,200        600,000        355,819  

USD Call/HKD Put

      7.85           November 2019        300,000,000        2,351,760,000        1,000,000        287,136  

USD Call/HKD Put

      7.85           November 2019        138,500,000        1,085,729,200        500,000        159,642  

USD Call/HKD Put

      7.85           December 2019        225,000,000        1,763,820,000        600,000        288,495  
                 

 

 

     

 

 

  
                  $ 9,463,643      $ 6,135,499  
                 

 

 

     

 

 

  

Written options contracts outstanding as of September 30, 2019 were as follows:

 

Description

    Exercise price      Counterparty      Expiration Date      Number of
Contracts		     Notional
Value		      Premium     Value  

WRITTEN CALL OPTIONS:

                   

October 19 Calls on VIX

    $ 23.00           October 2019        (10,000 )    $ 16,240,000      $ (747,119 )    $ (520,000 ) 

November 19 Calls on VIX

      28.00           November 2019        (10,000)       16,240,000        (832,369)       (790,000)  
                 $ (1,579,488 )    $ (1,310,000 ) 
                

 

 

    

 

 

  

Futures contracts outstanding as of September 30, 2019 were as follows:

 

Description

    Expiration
Date		      Number of
Contracts		     Notional
Value		     Value     Unrealized
Appreciation		  

Long Futures:

            

Russell 2000 Index E-MINI

      December 2019        (1,350 )    $ (106,727,410 )    $ (102,937,500 )    $ 3,789,910  
         

 

 

    

 

 

  

The average amount of borrowing by the Fund on reverse repurchase agreements outstanding during the period ended September 30, 2019 was $82,034,479 at a weighted average interest rate of 3.85%.

Reverse Repurchase Agreements outstanding as of September 30, 2019 were as follows:

 

Counterparty

   

Collateral Pledged

    Interest Rate      Trade Date      Maturity Date      Repurchase
Amount		     Principal
Amount		     Value  
   Acis CLO, Ltd., Series 2014-3A, Class E, VAR ICE LIBOR USD 3 Month+4.750%, 02/01/26      3.733        7/23/2019        10/23/2019      $ (2,302,962 )    $ (4,000,000 )    $ (2,281,200 ) 
   Acis CLO, Ltd., Series 2014-4A, Class E, VAR ICE LIBOR USD 3 Month+4.800%, 05/01/26      3.733        7/23/2019        10/23/2019        (9,996,136 )      (14,750,000 )      (9,901,675 ) 
   Acis CLO, Ltd., Series 2014-5A, Class D, VAR ICE LIBOR USD 3 Month+4.340%, 11/01/26      3.283        7/23/2019        10/23/2019        (5,694,983 )      (7,000,000 )      (5,647,600 ) 

INVESTMENT PORTFOLIO (unaudited)

 

As of September 30, 2019    Highland Income Fund

 

Counterparty

   

Collateral Pledged

    Interest Rate      Trade Date      Maturity Date      Repurchase
Amount		     Principal
Amount		     Value  
   Acis CLO, Ltd., Series 2015-6A, Class E, VAR ICE LIBOR USD 3 Month+5.490%, 05/01/27      3.733        7/23/2019        10/23/2019      $ (5,212,254 )    $ (7,500,000 )    $ (5,163,000 ) 
   Acis CLO, Ltd., Series 2015-6A, Class D, VAR ICE LIBOR USD 3 Month+3.770%, 05/01/27      3.283        7/23/2019        10/23/2019        (804,090 )      (1,000,000 )      (797,400 ) 
   BlueMountain CLO, Ltd., Series 2015-3A, Class ER, VAR ICE LIBOR USD 3 Month+8.080%, 04/20/31      4.038        7/9/2019        10/7/2019        (3,962,350 )      (6,500,000 )      (3,922,750 ) 
   Catamaran CLO, Ltd., Series 2014-2A, Class D, VAR ICE LIBOR USD 3 Month+4.850%, 10/18/26      3.750        7/19/2019        10/15/2019        (2,176,773 )      (3,000,000 )      (2,157,000 ) 
   CIFC Funding, Ltd., Series 2014-3A, Class FR2, VAR ICE LIBOR USD 3 Month+8.250%, 10/22/31      4.038        7/9/2019        10/7/2019        (3,081,800 )      (5,000,000 )      (3,051,000 ) 
   Denali Capital CLO XI, Series 2015-1A, Class ER, VAR ICE LIBOR USD 3 Month+8.250%, 10/20/28      4.038        7/9/2019        10/7/2019        (3,076,871 )      (4,600,000 )      (3,046,120 ) 
   Dryden 64 CLO, Series 2018-64A, Class F, VAR ICE LIBOR USD 3 Month+7.150%, 04/18/31      4.038        7/9/2019        10/7/2019        (2,039,533 )      (3,500,000 )      (2,019,150 ) 
   FREMF Mortgage Trust, Series 2019-KF60, Class C, VAR LIBOR USD 1 Month+6.000%, 02/25/26      3.530        7/30/2019        10/30/2019        (45,819,528 )      (60,669,313 )      (45,409,880 ) 
   GoldenTree Loan Opportunities IX, Ltd., Series 2018-9A, Class FR2, VAR ICE LIBOR USD 3 Month+7.640%, 10/29/29      4.020        9/30/2019        12/27/2019        (2,087,059 )      (3,500,000 )      (2,066,750 ) 
   Jamestown CLO IX, Series 2019-9A, Class DR, VAR ICE LIBOR USD 3 Month+6.940%, 10/20/28      3.606        8/2/2019        10/31/2019        (4,099,754 )      (5,500,000 )      (4,063,125 ) 
   Jay Park CLO, Ltd., Series 2018-1A, Class ER, VAR ICE LIBOR USD 3 Month+7.350%, 10/20/27      4.020        9/30/2019        12/27/2019        (3,585,693 )      (6,000,000 )      (3,550,800 ) 
   LCM XIII, Ltd., Series 2016-13A, Class ER, VAR ICE LIBOR USD 3 Month+7.300%, 07/19/27      3.770        9/30/2019        12/27/2019        (2,261,047 )      (3,000,000 )      (2,240,400 ) 
   LCM XXIII, Ltd., Series 2016-23A, Class D, VAR ICE LIBOR USD 3 Month+7.050%, 10/20/29      3.770        9/30/2019        12/27/2019        (741,673 )      (1,000,000 )      (734,900 ) 
   Neuberger Berman CLO XX, Ltd., Series 2017-20A, Class FR, VAR ICE LIBOR USD 3 Month+7.450%, 01/15/28      4.020        9/30/2019        12/27/2019        (1,783,455 )      (3,000,000 )      (1,766,100 ) 
   Palmer Square CLO, Ltd., Series 2019-1A, Class DR2, VAR ICE LIBOR USD 3 Month+6.250%, 05/21/29      3.770        9/30/2019        12/27/2019        (2,753,645 )      (3,750,000 )      (2,728,500 ) 
   Shackleton CLO IX, Ltd., Series 2016-9A, Class E, VAR ICE LIBOR USD 3 Month+6.760%, 10/20/28      3.788        7/9/2019        10/7/2019        (1,139,136 )      (1,500,000 )      (1,128,450 ) 
   Z Capital Credit Partners CLO, Ltd., Series 2015-1A, Class E, VAR ICE LIBOR USD 3 Month+5.970%, 07/16/27      3.733        7/23/2019        10/23/2019        (2,880,015 )      (4,000,000 )      (2,852,800 ) 
   Z Capital Credit Partners CLO, Ltd., Series 2015-1A, Class E, VAR ICE LIBOR USD 3 Month+5.970%, 8.29%, 07/16/27      3.770        9/30/2019        12/27/2019        (2,209,703 )      (3,250,000 )      (2,189,525 ) 
                

 

 

    

 

 

  

Total Reverse Repurchase Agreements

               $ (152,019,313 )    $ (106,718,125 ) 
                

 

 

    

 

 

  

INVESTMENT PORTFOLIO (unaudited)

 

As of September 30, 2019    Highland Income Fund

 

Organization

Highland Floating Rate Opportunities Fund (the “Fund”) is organized as an unincorporated business trust under the laws of The

Commonwealth of Massachusetts. The Fund is registered with the U.S. Securities and Exchange Commission (the “SEC”) under the

Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management investment company.

On September 25, 2017, the Fund acquired the assets of Highland Floating Rate Opportunities Fund (the “Predecessor Fund”), a series of Highland Funds I, a Delaware statutory trust. The Fund is the successor to the accounting and performance information of the Predecessor Fund. This report includes information for the nine months ended September 30, 2019.

On November 3, 2017, shareholders of the Fund approved a proposal authorizing the Board of Trustees (the “Board”) of the Fund to

convert the fund from an open-end fund to a closed-end fund at a special meeting of shareholders. The Board took action to convert the Fund to a closed-end fund effective shortly after 4:00 p.m. Eastern Time on November 3, 2017 (the “Conversion Date”). The Fund also effected an approximately 1-for-2 reverse stock split of the Fund’s issued and outstanding shares on November 3, 2017, thereby reducing the number of shares outstanding. Shareholders were paid cash for any fractional shares resulting from the reverse stock split. The Fund began listing its shares for trading on the New York Stock Exchange (the “NYSE”) on November 6, 2017 under the ticker symbol “HFRO”. The Fund may issue an unlimited number of common shares, par value $0.001 per share (“Common Shares”). Prior to the Conversion Date, the Fund issued Class A, Class C, and Class Z shares. On May 20, 2019, the Fund changed its name to Highland Income Fund.

Basis of Consolidation

The Fund consolidates HFRO Sub, LLC (“HFRO Sub”), a Delaware wholly owned subsidiary, for financial reporting, and the holdings of HFRO Sub, LLC are included within the Consolidated Investment Portfolio for the Fund. HFRO Sub is a bankruptcy remote financing vehicle used to obtain leverage with the portfolio of bank loans serving as collateral. All inter-company accounts and transactions have been eliminated in the consolidation.

Valuation of Investments

In computing the Fund’s net assets attributable to shares, securities with readily available market quotations on the NYSE, National

Association of Securities Dealers Automated Quotation (“NASDAQ”) or other nationally recognized exchange, use the closing

quotations on the respective exchange for valuation of those securities. Securities for which there are no readily available market

quotations will be valued pursuant to policies adopted by the Fund’s Board of Trustees (the “Board”). Typically, such securities will be valued at the mean between the most recently quoted bid and ask prices provided by the principal market makers. If there is more than one such principal market maker, the value shall be the average of such means. Securities without a sale price or quotations from principal market makers on the valuation day may be priced by an independent pricing service. Generally, the Fund’s loan and bond positions are not traded on exchanges and consequently are valued based on a mean of the bid and ask price from the third-party pricing services or broker-dealer sources that Highland Capital Management Fund Advisors, L.P. (“the Investment Adviser”) has determined to have the capability to provide appropriate pricing services which have been approved by the Board.

Securities for which market quotations are not readily available, or for which the Fund has determined that the price received from a

pricing service or broker-dealer is “stale” or otherwise does not represent fair value (such as when events materially affecting the value of securities occur between the time when market price is determined and calculation of the Fund’s net asset value (“NAV”)), will be valued by the Fund at fair value, as determined by the Board or its designee in good faith in accordance with procedures approved by the Board, taking into account factors reasonably determined to be relevant, including, but not limited to: (i) the fundamental analytical data relating to the investment; (ii) the nature and duration of restrictions on disposition of the securities; and (iii) an evaluation of the forces that influence the market in which these securities are purchased and sold. In these cases, the Fund’s NAV will reflect the affected portfolio securities’ fair value as determined in the judgment of the Board or its designee instead of being determined by the market. Using a fair value pricing methodology to value 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 NAVs. Determination of fair value is uncertain because it involves subjective judgments and estimates.

There can be no assurance that the Fund’s valuation of a security will not differ from the amount that it realizes upon the sale of such security. Those differences could have a material impact to the Fund. The NAV shown in the Fund’s financial statements may vary from the NAV published by the Fund as of its period end because portfolio securities transactions are accounted for on the trade date (rather than the day following the trade date) for financial statement purposes.

INVESTMENT PORTFOLIO (unaudited)(continued)

 

As of September 30, 2019    Highland Income Fund

 

Fair Value Measurements

The Fund has performed an analysis of all existing investments and derivative instruments to determine the significance and character of inputs to their fair value determination. The levels of fair value inputs used to measure the Fund’s investments are characterized into a fair value hierarchy. Where inputs for an asset or liability fall into more than one level in the fair value hierarchy, the investment is classified in its entirety based on the lowest level input that is significant to that investment’s valuation. The three levels of the fair value hierarchy are described below:

 

Level 1 —   Quoted unadjusted prices for identical instruments in active markets to which the Fund has access at the date of measurement;
Level 2 —   Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active, but are valued based on executed trades; broker quotations that constitute an executable price; and alternative pricing sources supported by observable inputs are classified within Level 2. Level 2 inputs are either directly or indirectly observable for the asset in connection with market data at the measurement date; and
Level 3 —   Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. In certain cases, investments classified within Level 3 may include securities for which the Fund has obtained indicative quotes from broker-dealers that do not necessarily represent prices the broker may be willing to trade on, as such quotes can be subject to material management judgment. Unobservable inputs are those inputs that reflect the Fund’s own assumptions that market participants would use to price the asset or liability based on the best available information.

The Investment Adviser has established policies and procedures, as described above and approved by the Board, to ensure that

valuation methodologies for investments and financial instruments that are categorized within all levels of the fair value hierarchy are fair and consistent. A Pricing Committee has been established to provide oversight of the valuation policies, processes and procedures, and is comprised of personnel from the Investment Adviser and its affiliates. The Pricing Committee meets monthly to review the proposed valuations for investments and financial instruments and is responsible for evaluating the overall fairness and consistent application of established policies.

As of September 30, 2019, the Fund’s investments consisted of senior loans, foreign denominated or domiciled senior loans,

collateralized loan obligations, corporate bonds and notes, U.S. asset-backed securities, non-U.S. asset-backed securities, claims,

common stocks, registered investment companies, cash equivalents, rights and warrants. The fair value of the Fund’s senior loans and bonds are generally based on quotes received from brokers or independent pricing services. Loans, bonds and asset-backed securities with quotes that are based on actual trades with a sufficient level of activity on or near the measurement date are classified as Level 2 assets. Loans and bonds that are priced using quotes derived from implied values, indicative bids, or a limited number of actual trades are classified as Level 3 assets because the inputs used by the brokers and pricing services to derive the values are not readily observable.

The fair value of the Fund’s common stocks, registered investment companies, rights and warrants that are not actively traded on

national exchanges are generally priced using quotes derived from implied values, indicative bids, or a limited amount of actual trades and are classified as Level 3 assets because the inputs used by the brokers and pricing services to derive the values are not readily observable. Exchange-traded options are valued based on the last trade price on the primary exchange on which they trade. If an option does not trade, the mid-price, which is the mean of the bid and ask price, is utilized to value the option.

At the end of each calendar quarter, the Investment Adviser evaluates the Level 2 and 3 assets and liabilities for changes in liquidity,

including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from third party services, and the existence of contemporaneous, observable trades in the market. Additionally, the Investment Adviser evaluates the Level 1 and 2 assets and liabilities on a quarterly basis for changes in listings or delistings on national exchanges.

Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Fund’s investments may fluctuate from period to period. Additionally, the fair value of investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values the Fund may ultimately realize. Further, such investments may be subject to legal and other restrictions on resale or otherwise less liquid than publicly traded securities.

INVESTMENT PORTFOLIO (unaudited)(continued)

 

As of September 30, 2019    Highland Income Fund

 

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those

securities. Transfers in and out of the levels are recognized at the value at the end of the period. A summary of the inputs used to value the Fund’s assets as of September 30, 2019 is as follows:

 

     Total value at
September 30,
2019		     Level 1 Quoted
Price		      Level 2 Significant
Observable Inputs		      Level 3 Significant
Unobservable
Inputs		  

Highland Income Fund

 

Assets

           

U.S. Senior Loans

           

Commercial Services

    $ 32,078,223     $ —        $ 32,078,223      $ —  

Communication Services

      20,447,532       —          14,493,136        5,954,396  

Consumer Discretionary

      28,458,809       —          28,458,809        —  

Consumer Products

      16,416,569       —          16,416,569        —  

Energy

      27,158,165       —          27,158,165        —  

Financial

      24,915,827       —          24,915,827        —  

Gaming/Leisure

      10,941,700       —          —          10,941,700  

Healthcare

      77,147,567       —          42,830,907        34,316,660  

Housing

      11,945,941       —          11,945,941        —  

Industrials

      33,904,492       —          25,162,433        8,742,059  

Information Technology

      113,554,373       —          55,129,373        58,425,000  

Manufacturing

      6,479,267       —          6,479,267        —  

Oil & Gas

      9,051,222       —          9,051,222        —  

Real Estate

      21,210,192       —          21,210,192        —  

Retail

      49,665,035       —          49,665,035        —  

Service

      52,160,128       —          52,160,128        —  

Transportation

      13,359,259       —          13,359,259        —  

Utilities

      25,800,435       —          25,800,435        —  

Preferred Stock

           

Energy

      16,539,728       —          16,539,728        —  

Financial

      33,218,931       —          33,218,931        —  

Real Estate

      242,029,880       —          14,201,490        227,828,390  

Collateralized Loan Obligations

      216,514,222       —          216,514,222        —  

Common Stocks

           

Communication Services

      46,871,411       8,946,604        30,380,741        7,544,066  

Consumer Discretionary

      7,649,821       —          7,649,821        —  

Energy

      9,362,562       4,905,030        4,457,531        1  

Gaming/Leisure

      — (1)      —          —          — (1) 

Healthcare

      502,875       502,875        —          —  

Housing

      — (1)      —          —          — (1) 

Industrials

      563,911       —          563,911        —  

Information Technology

      1,950,012       1,950,012        —          —  

Materials

      2,208,360       —          1,495,160        713,200  

Real Estate

      61,304,052       601,216        —          60,702,836  

LLC Interest

      91,188,988       —          —          91,188,988  

Agency Collateralized Mortgage Obligations

      90,110,254       —          90,110,254        —  

Corporate Bonds & Notes

           

Energy

      1,101,400       —          25,000        1,076,400  

Industrials

      189,000       —          189,000        —  

Information Technology

      — (1)      —          —          — (1) 

Real Estate

      1,415,000       —          1,415,000        —  

Utilities

      36,815,884       —          36,815,884        —  

Foreign Denominated or Domiciled Senior Loans

           

Canada

      8,306,965       —          8,306,965        —  

Luxembourg

      15,063,300       —          15,063,300        —  

Registered Investment Companies

      17,735,334       17,735,334        —          —  

Purchased Call Options

      6,135,499       6,135,499        —          —  

Non-U.S. Government Bonds

           

INVESTMENT PORTFOLIO (unaudited)(continued)

 

As of September 30, 2019    Highland Income Fund

 

Sovereign

      1,839,371        —          1,839,371        —    

Rights

            

Utilities

      989,311        —          989,311        —    

Warrants

            

Energy

      174,030        —          174,030        —    

Industrials

      22,076        —          —          22,076  

Claims

      52,138        —          —          52,138  

Cash Equivalents

      73,970        73,970        —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total Assets

      1,484,623,021        40,850,540      $ 936,264,571        507,507,910  
  

 

 

     

 

 

     

 

 

     

 

 

  

Liabilities

            

Securities Sold Short

            

Common Stocks

            

Information Technology

      (10,791,540 )       (10,791,540 )       —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total Liabilities

      (10,791,540 )       (10,791,540 )       —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

    $ 1,473,831,481      $ 30,059,000      $ 936,264,571      $ 507,507,910  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)

This category includes securities with a value of zero.

The table below sets forth a summary of changes in the Fund’s assets measured at fair value using significant unobservable inputs (Level 3) for the period ended September 30, 2019.

 

     Balance
as of
December 31,
2018		      Transfers
into
Level 3		      Transfers
Out
of Level 3		     Net
Amortization
(Accretion) of
Premium/
(Discount)		     Net
Realized
Gains/
(Losses)		      Net
Unrealized
Gains/
(Losses)		     Net
Purchase		      Net
(Sales)		     Balance
as of September
30, 2019		      Change in
Unrealized
Appreciation
(Depreciation)
from
Investments at
September
30, 2019		  

U.S. Senior Loans

                          

Communication Services

    $ 5,472,828      $ —        $ —       $ —       $ —        $ 16,859     $ 464,709      $ —       $ 5,954,396      $ 16,859  

Gaming/Leisure

      10,002,768        —          —         —         —          —         938,932        —         10,941,700        —    

Healthcare

      24,398,513        —          —         —         —          3,571,185       6,346,962        —         34,316,660        3,571,185  

Industrials

      8,269,728        —          —         397,939       —          (218,861 )      293,253        —         8,742,059        (218,861 ) 

Information Technology

      57,000,000        —          —         —         —          1,425,000       —          —         58,425,000        1,425,000  

Real Estate

      1,228,016        —          —         (6,343 )      —          42,159       —          (1,263,832 )      —          42,159  

Preferred Stock

                          

Real Estate

      214,305,563        —          —         —         —          12,373,827       1,149,000        —         227,828,390        12,373,827  

Common Stocks

                          

Communication Services

      7,566,587        —          —         —         —          (22,521 )      —          —         7,544,066        (22,521 ) 

Energy

      1        —          —         —         —          —         —          —         1        —    

Materials

      2,844,759        —          —         —         —          (2,131,559 )      —          —         713,200        (2,131,559 ) 

Media

      1,258,086        —          —         —         —          6,598,465       —          (7,856,551 )      —          6,598,465  

Real Estate

      17,207,035        —          —         —         —          158,985       43,336,816        —         60,702,836        158,985  

LLC Interest

      —          —          —         —         —          —         91,188,988        —         91,188,988        —    

Corporate Bonds & Notes

                          

Energy

      1,076,400        —          —         —         —          —         —          —         1,076,400        —    

Warrants

                         

Industrials

      88,054        —          —         —         —          (65,978 )      —          —         22,076        (65,978 ) 

Information Technology

      51,729        —          (18,641 )      —         —          (33,088 )      —          —         —          (33,088 ) 

Claims

      52,138        —          —         —         —          —         —          —         52,138        —    

Total

    $ 350,822,205      $ —        $ (18,641 )    $ 391,596     $ —        $ 21,714,473     $ 143,718,660      $ (9,120,383 )    $ 507,507,910      $ 21,714,473  
  

 

 

     

 

 

     

 

 

    

 

 

    

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

  

INVESTMENT PORTFOLIO (unaudited)(continued)

 

As of September 30, 2019    Highland Income Fund

 

Investments designated as Level 3 may include assets valued using quotes or indications furnished by brokers which are based on models or estimates and may not be executable prices. In light of the developing market conditions, the Investment Adviser continues to search for observable data points and evaluate broker quotes and indications received for portfolio investments. For the period ended September 30, 2019, there were no transfers between Levels.

The following is a summary of significant unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy:

 

Category

    Market
Value at
9/30/2019		      Valuation Technique      Unobservable Inputs      Input Value(s)  

Preferred Stock

    $ 227,828,390        Net Asset Value        N/A        N/A  
        Discounted Cash Flow        Discount Rate        8.5%  
           Internal Rate of Return        14.0%  

U.S. Senior Loans

      118,379,815        Adjusted Appraisal        Liquidity Discount        10%  
           Asset Specific Discount        10%  
        Multiples Analysis        Multiple of EBITDA less CAPEX        6.00x - 11.75x  
        Transaction Analysis        Multiple of EBITDA less CAPEX        10.0x - 12.0x  
        Transaction Indication of Value        % of Par        30.0% - 35.0%  
        Black-Scholes Model        Volatility Assumption        25%  
        Discounted Cash Flow        Discount Rate        8.9% - 17.75%  
           Spread Adjustment        0.1% - 1.75%  

Common Stocks

      68,960,103        Multiples Analysis        Multiple of EBITDA less CAPEX        6.00x - 11.75x  
           Multiple of EBITDA        7.50x - 9.25x  
           Unadjusted Price/MHz-PoP      $ 0.12 - $0.95  
           Risk Discount        55.2% - 59.8%  
        Discounted Cash Flow        Discount Rate        11.5 - 15.0%  
           Terminal Multiple        7.0x  
        Transaction Analysis        Multiple of EBITDA        3.5x - 9.0x  
           Multiple of EBITDA less CAPEX        10.0x - 12.0x  
        Transaction Indication of Value        % of Par        30.0% - 35.0%  
        Black-Scholes Model        Volatility Assumption        25%  
        Net Asset Value        N/A        N/A  

LLC Interest

      91,188,988        Discounted Cash Flow        Discount Rate        2.46% - 4.54%  

Corporate Bonds

      1,076,400        Liquidation Analysis        Claim Amount: Percent of Par        6.9%  

Claims

      52,138        N/A        N/A        N/A  

Warrants

      22,076        Discounted Cash Flow        Discount Rate        11.5% - 14.0%  
           Terminal Multiple        7.0x  
        Multiples Analysis        Multiple of EBITDA        7.50x - 9.25x  
        Transaction Analysis        Multiple of EBITDA        8.5x - 9.0x  

Total

    $ 507,507,910           

INVESTMENT PORTFOLIO (unaudited)(continued)

 

As of September 30, 2019    Highland Income Fund

 

In addition to the unobservable inputs utilized for various valuation methodologies, the Investment Adviser frequently uses a combination of two or more valuation methodologies to determine fair value for a single holding. In such instances, the Investment Adviser assesses the methodologies and ascribes weightings to each methodology. The selection of weightings is an inherently subjective process, dependent on professional judgement. These selections may have a material impact to the concluded fair value for such holdings.

Security Transactions

Security transactions are accounted for on the trade date. Realized gains/(losses) on investments sold are recorded on the basis of the specific identification method for both financial statement and U.S. federal income tax purposes taking into account any foreign taxes withheld.

Cash & Cash Equivalents

The Fund considers liquid assets deposited with a bank and certain short-term debt instruments of sufficient credit quality with original maturities of three months or less to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay Fund expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates market value. The value of cash equivalents denominated in foreign currencies is determined by converting to U.S. dollars on the date of this financial report.

Securities Sold Short

The Fund may sell securities short. A security sold short is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that security will decline. When the Fund sells a security short, it must borrow the security sold short from a broker-dealer and deliver it to the buyer upon conclusion of the transaction. The Fund may have to pay a fee to borrow particular securities and is often obligated to pay over any dividends or other payments received on such borrowed securities. In some circumstances, the Fund may be allowed by its prime broker to utilize proceeds from securities sold short to purchase additional investments, resulting in leverage. Securities and cash held as collateral for securities sold short are shown on the Investments Portfolio for the Fund.

Derivative Transactions

The Fund is subject to equity securities risk, interest rate risk and currency risk in the normal course of pursuing its investment objectives. The Fund enters into derivative transactions for the purpose of hedging against the effects of changes in the value of portfolio securities due to anticipated changes in market conditions, to gain market exposure for residual and accumulating cash positions and for managing the duration of fixed income investments.

Reverse Repurchase Agreements

The Fund may engage in reverse repurchase agreement transactions with respect to instruments that are consistent with the Fund’s investment objective or policies.

INVESTMENT PORTFOLIO (unaudited)(continued)

 

As of September 30, 2019    Highland Income Fund

 

Affiliated Issuers

Under Section 2 (a)(3) of the Investment Company Act of 1940, as amended, a portfolio company is defined as “affiliated” if a fund owns five percent or more of its outstanding voting securities or if the portfolio company is under common control. The table below shows affiliated issuers of the Fund for the period ended September 30, 2019:

 

Issuer

    Shares at
December 31,
2018		      Beginning
Value as of
December 31,
2018		      Purchases at
Cost		      Proceeds
from Sales		     Net Realized
Gain/(Loss)
on Sales of
Affiliated
Issuers		      Change in
Unrealized
Appreciation/
Depreciation		     Ending Value
as of
September 30,
2019		      Shares at
September 30,
2019		      Affiliated
Income		  

Majority Owned, Not Consolidated

 

                

Allenby (Common Stocks)

      1,291,881      $ 1      $ 101,797      $ —       $ —        $ (101,797 )      1        1,393,678      $ 19,896  

Claymore (Common Stocks)

      8,698,220        9        671,970        —         —          (671,970 )      9        9,370,190        5,082,401  

Other Affiliates

                   

CCS Medical, Inc. (U.S. Senior Loans & Common Stocks)

      52,229,448        24,398,513        6,633,831        —         —          3,284,316       34,316,660        55,260,321        —    

EDS Legacy Partners (U.S. Senior Loans)

      57,000,000        57,000,000        —          —         —          1,425,000       58,425,000        57,000,000        3,579,125  

Gambier Bay LLC (Common Stocks)

      10,939,879        1,258,086        —          (7,856,551 )      —          6,598,465       —          —          —    

LLV Holdco LLC (U.S. Senior Loans, Common Stocks and Warrants)

      12,552,393        10,002,768        938,932        —         —          —         10,941,700        13,677,126        27,382  

Nevada Land Group (U.S. Senior Loans)

      1,743,503        —          —          —         1,743,503        (1,743,503 )      —          —          49,304  

NexPoint Strategic Opportunities Fund (Registered Investment Company)

      427,345        8,516,986        9,983,151        (338,560 )      —          (426,243 )      17,735,334        989,143        880,100  

NFRO REIT SUB, LLC (Common Stocks)

      802,563        17,207,025        49,780,000        —         —          (6,284,199 )      60,702,826        2,918,931        —    
  

 

 

     

 

 

     

 

 

     

 

 

    

 

 

     

 

 

    

 

 

     

 

 

     

 

 

  

Total

    $ 145,685,232      $ 118,383,388      $ 68,109,681      $ (8,195,111 )    $ 1,743,503      $ 2,080,069     $ 182,121,530      $ 140,609,389      $ 9,638,208