NPORT-EX 2 HighlandIncomeFund_Sch_F.htm SCHEDULE F HTML
CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)
As of September 30, 2020    Highland Income Fund

 

Shares

   Value ($)  
 

Preferred Stock — 35.7%

  
 

ENERGY — 1.2%

  
  1,790,983    

Crestwood Equity Partners 9.25%(a)

     10,548,890  
   

 

 

  
 

FINANCIALS — 6.6%

  
  34,500    

Eastland CLO, Ltd. (a)(b)

     11,316,000  
  3,980    

Eastland Ltd. 1.00%, 05/01/2022 (d)

     1,305,440  
  162,000    

Federal Home Loan Mortgage (a)(b)

     2,028,125  
  225,315    

Federal Home Loan Mortgage 5.90% (a)

     1,622,268  
  525,000    

Federal Home Loan Mortgage 5.30% (a)

     6,982,500  
  69,500    

Federal National Mortgage Association 7.63% (a)

     534,455  
  252,000    

Federal National Mortgage Association (a)(b)

     2,944,020  
  59,449    

Federal National Mortgage Association 5.38% (a)

     2,572,372  
  25,000    

Federal National Mortgage Association 8.25% (a)

     200,000  
  3,840    

Federal National Mortgage Association 4.75% (a)

     52,224  
  30,000    

Federal National Mortgage Association 5.13% (a)

     406,500  
  8,860    

Gleneagles CLO. Ltd.,
12/30/2049(b)(c)(d)

     2,223,860  
  62,600    

Grayson CLO, Ltd.,
11/01/2021(b)(d)(e)(f)

     18,623,500  
  12,553    

Rockwall CDO, 08/01/2024(b)(c)(d)

     8,002,219  
  4,800    

Rockwall CDO, Ltd. (a)(b)

     926,400  
   

 

 

  
      59,739,883  
   

 

 

  
 

REAL ESTATE — 27.9%

  
  645,161    

Braemar Hotels & Resorts, REIT 5.50%(a)(c)(g)

     7,774,190  
  180,008    

Creek Pine Holdings, LLC, REIT 10.25%(a)(c)(e)(f)

     224,788,646  
  249,514    

G-LA Resorts Holdings (a)(b)(c)(e)(f)

     249,514  
  18,025    

Jernigan Capital, Inc., REIT
7.00% (a)(c)(e)(f)

     18,184,402  
  97,992    

Wheeler Real Estate Investment Trust, REIT 9.00% (a)(c)

     942,683  
  74,600    

Wheeler Real Estate Investment Trust, REIT 8.75%, 10.75%, 09/21/2023 (a)(c)(h)

     1,137,650  
   

 

 

  
      253,077,085  
   

 

 

  
 

Total Preferred Stock
(Cost $299,251,219)

     323,365,858  
 

 

 

  

Principal $

      
 

U.S. Senior Loans (i) — 31.8%

  
 

BUSINESS EQUIPMENT & SERVICES — 1.1%

  
  9,777,840    

VM Consolidated Inc., Term Loan B1, 1st Lien,
02/28/25

     9,594,505  
   

 

 

  

Principal $

   Value ($)  
 

U.S. Senior Loans (continued)

  
 

COMMERCIAL SERVICES — 0.4%

  
  3,493,518    

Fort Dearborn Holding Company, Inc.,
Initial Term Loan,
VAR LIBOR USD 3 Month+4.000%, 10/19/23

     3,406,180  
   

 

 

  
      3,406,180  
   

 

 

  
 

COMMUNICATION SERVICES — 0.7%

  
  6,651,475    

TerreStar Corporation, Term Loan D,
11.000% PIK 02/27/28 (e)(f)

     6,644,823  
  51,686    

TerreStar Corporation, Term Loan, 1st Lien,
02/28/22 (e)(f)

     51,634  
   

 

 

  
      6,696,457  
   

 

 

  
 

CONSUMER DISCRETIONARY — 1.2%

  
  4,076,667    

Truck Hero, Inc., Initial Term Loan, 2nd Lien,
VAR LIBOR USD 3 Month+8.250%, 04/21/25

     3,947,579  
  6,767,549    

USS Ultimate Holdings, Inc., Initial Term Loan, 1st Lien,
VAR LIBOR USD 3 Month+3.750%, 08/09/24

     6,691,414  
   

 

 

  
      10,638,993  
   

 

 

  
 

CONSUMER PRODUCTS — 0.2%

  
  3,308,466    

Dayco Products, LLC, Term Loan B,
VAR LIBOR USD 3 Month+4.250%, 05/08/23

     2,121,554  
   

 

 

  
 

ENERGY — 1.1%

  
  15,904,030    

Fieldwood Energy LLC, Closing Date Loan, 2nd Lien,
VAR LIBOR USD 3 Month+7.250%, 04/11/23 (j)

     24,333  
  10,744,147    

Traverse Midstream Partners LLC, Term Loan,
VAR LIBOR USD 3 Month+4.000%, 09/27/24

     9,945,051  
   

 

 

  
      9,969,384  
   

 

 

  
 

FINANCIALS — 1.1%

  
  932,879    

Edelman Financial Center (The), Initial Term Loan,
VAR LIBOR USD 3 Month+3.250%, 07/21/25

     903,218  
  9,447,348    

Edelman Financial Group (The), Term Loan, 2nd Lien,
VAR LIBOR USD 3 Month+6.750%, 06/26/26

     9,078,334  
   

 

 

  
      9,981,552  
   

 

 

  
 

GAMING/LEISURE — 1.5%

  
  22,764,040    

Ginn-LA CS Borrower LLC, Tranche A Term Loan Credit-Linked Deposit, 1st Lien,
(e)(f)(j)

     724,306  
 

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)(continued)
As of September 30, 2020    Highland Income Fund

 

Principal $

   Value ($)  
 

U.S. Senior Loans (continued)

  
 

GAMING/LEISURE (continued)

  
  48,791,955    

Ginn-LA CS Borrower LLC, Tranche B
Term Loan, 1st Lien,
(e)(f)(j)

     —    
  563,359    

LLV Holdco, LLC, 1st Protective Advance,
12/31/20 (e)(f)(k)

     560,543  
  938,933    

LLV Holdco, LLC, 3rd Protective Advance,
12/31/20 (e)(f)(k)

     934,238  
  333,130    

LLV Holdco, LLC, 4th Protective Advance,
12/31/20 (e)(f)(k)

     331,464  
  11,940,100    

LLV Holdco, LLC, Revolving Exit Loan,
09/03/21 (e)(f)(k)

     10,925,192  
   

 

 

  
      13,475,743  
   

 

 

  
 

HEALTHCARE — 6.9%

  
  13,576,389    

BW NHHC Holdco Inc., Initial Term Loan, 1st Lien,
VAR LIBOR USD 3 Month+5.000%, 05/15/25

     11,720,971  
  1,991,667    

Castle US Holding Corporation, Initial Dollar Term Loan, 1st Lien,
01/29/27

     1,920,186  
  63,516,843    

CCS Medical, Inc., Term Loan,
05/31/21 (e)(f)(k)

     47,523,362  
  1,777,778    

Sound Inpatient Physicians Holdings LLC, 2nd Lien,
VAR LIBOR USD 3 Month+6.750%, 06/19/26

     1,741,120  
   

 

 

  
      62,905,639  
   

 

 

  
 

INDUSTRIALS — 1.1%

  
  4,000,000    

PSC Industrial Holdings Corp., Initial Term Loan, 2nd Lien,
VAR LIBOR USD 3 Month+8.500%, 10/11/25

     3,520,000  
  6,872,792    

PSC Industrial Holdings Corp., Term Loan, 1st Lien,
VAR LIBOR USD 3 Month+3.750%, 10/11/24

     6,511,970  
   

 

 

  
      10,031,970  
   

 

 

  
 

INFORMATION TECHNOLOGY — 9.3%

  
  8,834,475    

Avaya Inc., Tranche B Term Loan,
VAR LIBOR USD 3 Month+4.250%, 12/15/24

     8,802,760  
  57,000,000    

EDS Legacy Partners,
VAR LIBOR USD 3 Month+2.750%, 12/14/23 (e)(f)(k)

     51,528,000  
  9,825,000    

Intermedia Holdings, Inc., New Term Loan, 1st Lien,
VAR LIBOR USD 3 Month+6.000%, 07/21/25

     9,792,774  

Principal $

    Value ($)  
 

U.S. Senior Loans (continued)

  
 

INFORMATION TECHNOLOGY (continued)

  
  14,251,549     

Procera Networks, Inc., Initial Term Loan,
VAR LIBOR USD 3 Month+4.500%, 10/30/25

      13,681,486  
     

 

 

  
        83,805,020  
     

 

 

  
 

REAL ESTATE — 1.0%

  
  9,069,231     

Forest City Enterprises, L.P., Replacement Term Loan, 1st Lien,
12/08/25

      8,889,297  
     

 

 

  
 

RETAIL — 2.5%

  
  2,207,616     

General Nutrition Centers, Inc.,
12/23/20

      2,216,811  
  2,207,616     

General Nutrition Centers, Inc., 1st Lien,
12/23/20

      2,216,811  
  1,178,368     

General Nutrition Centers, Inc., FILO Term Loan,
VAR LIBOR USD 3 Month+7.000%, 12/31/22

      1,148,178  
  6,862,018     

General Nutrition Centers, Inc., Tranche B-2 Term Loan, 1st Lien,
VAR LIBOR USD 3 Month+8.750%, 03/04/21

      4,913,205  
  5,073,808     

Jo-Ann Stores, LLC, Initial Loan, 1st Lien,
VAR LIBOR USD 3 Month+5.000%, 10/20/23

      4,384,100  
  9,554,955     

Jo-Ann Stores, LLC, Initial Loan, 2nd Lien,
VAR LIBOR USD 3 Month+9.250%, 05/21/24

      7,930,613  
     

 

 

  
        22,809,718  
     

 

 

  
 

SERVICE — 2.0%

  
  3,621,602     

Advantage Sales & Marketing Inc., Initial Term Loan, 1st Lien,
VAR LIBOR USD 3 Month+3.250%, 07/23/21

      3,571,805  
  8,710,000     

Advantage Sales & Marketing Inc., Term Loan, 2nd Lien,
VAR LIBOR USD 3 Month+6.500%, 07/25/22

      8,449,310  
  5,914,700     

EnergySolutions, LLC (aka Envirocare of Utah, LLC), Initial Term Loan, 1st Lien,
VAR LIBOR USD 3 Month+3.750%, 05/09/25

      5,678,112  
     

 

 

  
        17,699,227  
     

 

 

  
 

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)(continued)
As of September 30, 2020    Highland Income Fund

 

Principal $

   Value ($)  
 

U.S. Senior Loans (continued)

  
 

TRANSPORTATION — 1.2%

  
  11,578,198    

Gruden Acquisition, Inc., Incremental Term Loan, 1st Lien,
VAR LIBOR USD 3 Month+5.500%, 08/18/22

     11,124,738  
   

 

 

  
 

UTILITIES — 0.5%

  
  4,987,500    

PG&E Corp, Term Loan, 1st Lien,
06/23/25

     4,896,054  
  59,127,210    

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

     44,346  
   

 

 

  
      4,940,400  
   

 

 

  
 

Total U.S. Senior Loans
(Cost $420,476,234)

     288,090,377  
 

 

 

  

Shares

      
 

Common Stocks — 26.3%

  
 

COMMUNICATION SERVICES — 5.3%

  
  49,600    

Loral Space & Communications, Inc. (g)

     907,680  
  502,161    

Metro-Goldwyn-Mayer, Inc. (c)(m)

     38,264,668  
  27,134    

TerreStar Corporation (c)(e)(f)(m)

     9,096,131  
   

 

 

  
      48,268,479  
   

 

 

  
 

CONSUMER DISCRETIONARY — 0.2%

  
  1,450    

Toys ‘R’ Us (c)

     153,718  
  1,450    

Tru Kids, Inc. (c)

     1,383,462  
   

 

 

  
      1,537,180  
   

 

 

  
 

ENERGY — 0.0%

  
  167,419    

Fieldwood Energy LLC (c)

     21,765  
  1,118,286    

Value Creation, Inc. (c)(e)(f)

     1  
   

 

 

  
      21,766  
   

 

 

  
 

GAMING/LEISURE — 0.0%

  
  34,512    

LLV Holdco LLC - Series A, Membership Interest (c)(e)(f)(k)

     —    
  436    

LLV Holdco LLC - Series B, Membership Interest (c)(e)(f)(k)

     —    
   

 

 

  
      —    
   

 

 

  
 

HEALTHCARE — 0.0%

  
  207,031    

CCS Medical Inc. (c)(e)(f)(k)

     5,797  
   

 

 

  
 

HOUSING — 0.0%

  
  1,648,350    

Westgate Investments LLC (c)(e)(f)

     —    
   

 

 

  
 

INDUSTRIALS — 0.0%

  
  250,627    

Remington Outdoor Co., Inc. (c)

     —    
   

 

 

  
 

MATERIALS — 0.2%

  
  299,032    

MPM Holdings, Inc. (c)

     1,495,160  
  14,621    

Omnimax International,
Inc. (c)(e)(f)(k)

     —    
   

 

 

  
      1,495,160  
   

 

 

  
 

REAL ESTATE — 20.6%

  
  1,438,666    

Allenby (c)(e)(f)(k)

     1  
  10,131,274    

Claymore (c)(e)(f)(k)

     10  
  2,356,665    

Creative Science Properties,
Inc. (c)(e)(f)

     39,144,206  

Shares

   Value ($)  
 

Common Stocks (continued)

  
 

REAL ESTATE (continued)

  
  331,800    

Independence Realty Trust, Inc., REIT

     3,845,562  
  31,232    

Jernigan Capital, Inc., REIT

     535,317  
  17,630    

NexPoint Real Estate Finance (k)

     258,808  
  148,521    

NexPoint Residential Trust, REIT (k)

     6,586,906  
  7,287,130    

NFRO REIT SUB, LLC (c)(e)(f)(k)

     136,251,115  
   

 

 

  
      186,621,925  
   

 

 

  
 

Total Common Stocks
(Cost $528,118,835)

     237,950,307  
 

 

 

  

Principal $

      
 

Collateralized Loan Obligations — 17.6%

  
  7,500,000    

Acis CLO, Ltd., Series 2015-6A, Class E
VAR ICE LIBOR USD 3 Month+5.490%, 5.74%, 5/1/2027 (d)

     5,137,500  
  10,500,000    

Acis CLO, Ltd., Series 2017-7A, Class E
VAR ICE LIBOR USD 3 Month+6.000%, 6.25%, 5/1/2027 (d)

     8,767,500  
  14,750,000    

Acis CLO, Ltd., Series 2014-4A, Class E
VAR ICE LIBOR USD 3 Month+4.800%, 5.05%, 5/1/2026 (d)

     11,357,500  
  1,000,000    

Acis CLO, Ltd., Series 2015-6A, Class D
VAR ICE LIBOR USD 3 Month+3.770%, 4.02%, 5/1/2027 (d)

     905,000  
  750,000    

Acis CLO, Ltd., Series 2014-4A, Class D
VAR ICE LIBOR USD 3 Month+3.100%, 3.35%, 5/1/2026 (d)

     679,750  
  4,000,000    

Acis CLO, Ltd., Series 2014-3A, Class E
VAR ICE LIBOR USD 3 Month+4.750%, 5.00%, 2/1/2026 (d)

     2,763,600  
  2,000,000    

Apex Credit CLO, Series 2019-1A, Class D
VAR ICE LIBOR USD 3 Month+7.100%, 7.37%, 4/18/2032 (d)

     1,600,000  
  250,000    

Ares XXIX CLO, Series 2014-1A, Class E
VAR ICE LIBOR USD 3 Month+5.750%, 6.02%, 4/17/2026 (d)

     198,575  
  1,000,000    

Ares XXVIIIR CLO, Series 2018-28RA, Class F
VAR ICE LIBOR USD 3 Month+7.785%, 8.06%, 10/17/2030 (d)

     750,000  
  1,500,000    

Atlas Senior Loan Fund, Series 2017-8A, Class F
VAR ICE LIBOR USD 3 Month+7.150%, 7.42%, 1/16/2030 (d)

     915,000  
  2,400,000    

Atlas Senior Loan Fund XII, Series 2018-12A, Class E
VAR ICE LIBOR USD 3 Month+5.950%, 6.21%, 10/24/2031 (d)

     1,788,000  
  2,500,000    

Ballyrock CLO, Ltd., Series 2019-1A, Class ER
VAR ICE LIBOR USD 3 Month+6.950%, 7.23%, 10/15/2028 (d)

     2,257,000  
 

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)(continued)
As of September 30, 2020    Highland Income Fund

 

Principal $

   Value ($)  
 

Collateralized Loan Obligations (continued)

  
  1,000,000    

Benefit Street Partners CLO VII, Series 2015-VIIA, Class D
VAR ICE LIBOR USD 3 Month+5.350%, 5.62%, 7/18/2027 (d)

     910,000  
  2,000,000    

Benefit Street Partners CLO XI, Series 2017-11A, Class E
VAR ICE LIBOR USD 3 Month+7.200%, 7.48%, 4/15/2029 (d)

     1,320,000  
  3,500,000    

BlueMountain CLO, Ltd., Series 2018-3A, Class ER
VAR ICE LIBOR USD 3 Month+8.080%, 8.35%, 4/20/2031 (d)

     2,190,650  
  2,000,000    

California Street CLO IX, Series 2019-9A, Class FR2
VAR ICE LIBOR USD 3 Month+8.520%, 8.79%, 7/16/2032 (d)

     1,515,000  
  2,000,000    

Canyon Capital CLO, Series 2018-1A, Class ER
VAR ICE LIBOR USD 3 Month+5.750%, 6.03%, 7/15/2031 (d)

     1,700,000  
  1,875,000    

Carlyle Global Market Strategies CLO, Series 2018-1A, Class ER
VAR ICE LIBOR USD 3 Month+5.400%, 5.67%, 4/17/2031 (d)

     1,331,953  
  500,000    

Carlyle US CLO, Series 2020-4A, Class D
VAR ICE LIBOR USD 3 Month+7.650%, 7.93%, 1/15/2033 (d)

     465,250  
  2,250,000    

Catamaran CLO, Ltd., Series 2015-1A, Class E
VAR ICE LIBOR USD 3 Month+5.150%, 5.41%, 4/22/2027 (d)

     1,721,250  
  2,500,000    

Catamaran CLO, Ltd., Series 2016-1A, Class D
VAR ICE LIBOR USD 3 Month+6.650%, 6.92%, 1/18/2029 (d)

     2,115,000  
  3,000,000    

Catamaran CLO, Ltd., Series 2014-2A, Class D
VAR ICE LIBOR USD 3 Month+4.850%, 5.12%, 10/18/2026 (d)

     1,908,600  
  4,000,000    

Cathedral Lake CLO, Series 2019-4A, Class E2R
VAR ICE LIBOR USD 3 Month+7.830%, 8.10%, 10/20/2028 (d)

     2,960,000  
  1,250,000    

Cathedral Lake CLO, Series 2017-1A, Class DR
VAR ICE LIBOR USD 3 Month+7.250%, 7.53%, 10/15/2029 (d)

     932,125  
  2,000,000    

Cedar Funding VI CLO, Series 2018-6A, Class ER
VAR ICE LIBOR USD 3 Month+5.900%, 6.17%, 10/20/2028 (d)

     1,723,000  
  1,000,000    

CIFC Funding, Series 2019-1A, Class D2R
VAR ICE LIBOR USD 3 Month+4.430%, 4.70%, 10/21/2031 (d)

     980,000  

Principal $

   Value ($)  
 

Collateralized Loan Obligations (continued)

  
  1,000,000    

CIFC Funding, Series 2018-1A, Class ER2
VAR ICE LIBOR USD 3 Month+5.850%, 6.12%, 1/18/2031 (d)

     815,000  
  1,350,000    

CIFC Funding, Series 2018-5A, Class DR
VAR ICE LIBOR USD 3 Month+5.550%, 5.79%, 10/25/2027 (d)

     1,198,125  
  4,000,000    

Covenant Credit Partners CLO III, Series 2017-1A, Class F
VAR ICE LIBOR USD 3 Month+7.950%, 8.23%, 10/15/2029 (d)

     2,340,000  
  1,500,000    

Dryden 41 Senior Loan Fund, Series 2018-41A, Class FR
VAR ICE LIBOR USD 3 Month+7.200%, 7.48%, 4/15/2031 (d)

     1,096,875  
  2,000,000    

Dryden 45 Senior Loan Fund, Series 2018-45A, Class FR
VAR ICE LIBOR USD 3 Month+8.120%, 8.40%, 10/15/2030 (d)

     1,545,000  
  1,500,000    

Dryden 49 Senior Loan Fund, Series 2017-49A, Class F
VAR ICE LIBOR USD 3 Month+7.550%, 7.82%, 7/18/2030 (d)

     1,140,000  
  8,000,000    

Eaton Vance CLO, Series 2019-1A, Class F
VAR ICE LIBOR USD 3 Month+8.250%, 8.53%, 4/15/2031 (d)

     6,000,000  
  2,000,000    

Flatiron CLO, Series 2015-1A, Class F
VAR ICE LIBOR USD 3 Month+5.500%, 5.78%, 4/15/2027 (d)

     1,580,000  
  750,000    

Galaxy XXII CLO, Series 2018-22A, Class ER
VAR ICE LIBOR USD 3 Month+5.750%, 6.02%, 7/16/2028 (d)

     651,600  
  1,000,000    

Galaxy XXIV CLO, Series 2017-24A, Class E
VAR ICE LIBOR USD 3 Month+5.500%, 5.78%, 1/15/2031 (d)

     780,000  
  2,500,000    

Galaxy XXV CLO, Series 2018-25A, Class E
VAR ICE LIBOR USD 3 Month+5.950%, 6.19%, 10/25/2031 (d)

     2,170,750  
  5,450,000    

Galaxy XXVI CLO, Series 2018-26A, Class F
VAR ICE LIBOR USD 3 Month+8.000%, 8.26%, 11/22/2031 (d)

     4,033,000  
  3,000,000    

GoldenTree Loan Management US CLO 3, Series 2018-3A, Class F
VAR ICE LIBOR USD 3 Month+6.500%, 6.77%, 4/20/2030 (d)

     2,100,000  
  3,500,000    

Goldentree Loan Management US CLO 4, Series 2019-4A, Class E
VAR ICE LIBOR USD 3 Month+4.750%, 5.01%, 4/24/2031 (d)

     2,922,500  
 

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)(continued)
As of September 30, 2020    Highland Income Fund

 

Principal $

   Value ($)  
 

Collateralized Loan Obligations (continued)

  
  3,500,000    

GoldenTree Loan Management US CLO 4, Series 2019-4A, Class F
VAR ICE LIBOR USD 3 Month+6.400%, 6.66%, 4/24/2031 (d)

     2,590,000  
  3,500,000    

GoldenTree Loan Opportunities IX, Series 2018-9A, Class FR2
VAR ICE LIBOR USD 3 Month+7.640%, 7.91%, 10/29/2029 (d)

     2,677,500  
  2,000,000    

Grippen Park CLO, Series 2017-1A, Class E
VAR ICE LIBOR USD 3 Month+5.700%, 5.97%, 1/20/2030 (d)

     1,765,000  
  3,500,000    

Jamestown CLO IX, Series 2019-9A, Class DR
VAR ICE LIBOR USD 3 Month+6.940%, 7.21%, 10/20/2028 (d)

     2,992,500  
  4,000,000    

Jay Park CLO, Ltd., Series 2018-1A, Class ER
VAR ICE LIBOR USD 3 Month+7.350%, 7.62%, 10/20/2027 (d)

     3,180,000  
  3,000,000    

KKR CLO 18, Series 2017-18, Class E
VAR ICE LIBOR USD 3 Month+6.450%, 6.72%, 7/18/2030 (d)

     2,535,000  
  1,300,000    

Madison Park Funding X, Series 2019-10A, Class ER2
VAR ICE LIBOR USD 3 Month+6.400%, 6.67%, 1/20/2029 (d)

     1,161,875  
  5,350,000    

Madison Park Funding XV, Series 2017-15A, Class DR
VAR 3-month LIBOR+5.440%, 5.68%, 1/27/2026 (d)

     4,774,875  
  2,000,000    

Madison Park Funding XVII, Series 2017-17A, Class FR
VAR ICE LIBOR USD 3 Month+7.480%, 7.75%, 7/21/2030 (d)

     1,550,000  
  1,400,000    

Madison Park Funding XX, Series 2018-20A, Class ER
VAR ICE LIBOR USD 3 Month+5.300%, 5.54%, 7/27/2030 (d)

     1,179,500  
  2,000,000    

Madison Park Funding XXIV, Series 2019-24A, Class ER
VAR ICE LIBOR USD 3 Month+7.200%, 7.47%, 10/20/2029 (d)

     1,860,000  
  1,000,000    

Madison Park Funding XXIX, Series 2018-29A, Class F
VAR ICE LIBOR USD 3 Month+7.570%, 7.84%, 10/18/2030 (d)

     822,500  
  1,000,000    

Madison Park Funding XXX, Series 2018-30A, Class F
VAR ICE LIBOR USD 3 Month+6.850%, 7.13%, 4/15/2029 (d)

     740,000  
  490,000    

Magnetite VII, Ltd., Series 2018-7A, Class ER2
VAR ICE LIBOR USD 3 Month+6.500%, 6.78%, 1/15/2028 (d)

     401,800  

Principal $

   Value ($)  
 

Collateralized Loan Obligations (continued)

  
  4,500,000    

Man GLG US CLO, Series 2018-1A, Class DR
VAR ICE LIBOR USD 3 Month+5.900%, 6.17%, 4/22/2030 (d)

     3,433,500  
  500,000    

Mountain View Clo XIV, Series 2019-1A, Class F
VAR ICE LIBOR USD 3 Month+8.700%, 8.98%, 4/15/2029 (d)

     361,500  
  5,800,000    

MP CLO VII, Series 2018-1A, Class FRR
VAR ICE LIBOR USD 3 Month+7.910%, 8.18%, 10/18/2028 (d)

     2,867,907  
  4,250,000    

Neuberger Berman CLO XX, Ltd., Series 2017-20A, Class FR
VAR ICE LIBOR USD 3 Month+7.450%, 7.73%, 1/15/2028 (d)

     2,650,725  
  4,000,000    

Northwoods Capital XII-B, Ltd., Series 2018-12BA, Class F
VAR ICE LIBOR USD 3 Month+8.170%, 8.42%, 6/15/2031 (d)

     2,000,000  
  1,000,000    

OCP CLO, Series 2015-9A, Class E
VAR ICE LIBOR USD 3 Month+6.400%, 6.68%, 7/15/2027 (d)

     830,000  
  2,900,000    

OHA Credit Partners XII, Series 2018-12A, Class FR
VAR ICE LIBOR USD 3 Month+7.680%, 7.94%, 7/23/2030 (d)

     2,122,365  
  1,000,000    

OZLM Funding III, Series 2016-3A, Class DR
VAR ICE LIBOR USD 3 Month+7.770%, 8.03%, 1/22/2029 (d)

     885,000  
  3,110,000    

OZLM XXII, Ltd., Series 2018-22A, Class E
VAR ICE LIBOR USD 3 Month+7.390%, 7.66%, 1/17/2031 (d)

     1,928,200  
  3,283,458    

Saranac CLO III, Ltd., Series 2018-3A, Class ER
VAR ICE LIBOR USD 3 Month+7.500%, 7.73%, 6/22/2030 (d)

     1,510,390  
  5,000,000    

Saranac CLO VI, Ltd., Series 2018-6A, Class E
VAR ICE LIBOR USD 3 Month+6.400%, 6.65%, 8/13/2031 (d)

     3,442,500  
  2,160,000    

SCOF-2, Series 2018-2A, Class ER
VAR ICE LIBOR USD 3 Month+5.710%, 5.99%, 7/15/2028 (d)

     1,836,000  
  1,500,000    

Symphony CLO XXI, Series 2019-21A, Class E
VAR ICE LIBOR USD 3 Month+6.750%, 7.03%, 7/15/2032 (d)

     1,426,950  
  1,750,000    

TCW CLO, Series 2019-2A, Class D2A
VAR ICE LIBOR USD 3 Month+4.890%, 5.16%, 10/20/2032 (d)

     1,750,000  
  1,000,000    

TCW CLO, Series 2019-1A, Class F
VAR ICE LIBOR USD 3 Month+8.670%, 8.95%, 2/15/2029 (d)

     860,000  
 

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)(continued)
As of September 30, 2020    Highland Income Fund

 

Principal $

   Value ($)  
 

Collateralized Loan Obligations (continued)

  
  2,200,000    

TICP CLO I-2, Series 2018-IA, Class E
VAR ICE LIBOR USD 3 Month+8.000%, 8.24%, 4/26/2028 (d)

     1,700,600  
  4,150,000    

TICP CLO III-2, Ltd., Series 2018-3R, Class F
VAR ICE LIBOR USD 3 Month+7.980%, 8.25%, 4/20/2028 (d)

     3,197,783  
  2,069,089    

Trinitas CLO III, Series 2015-3A, Class E
VAR ICE LIBOR USD 3 Month+5.250%, 5.53%, 7/15/2027 (d)

     1,086,272  
  5,000,000    

Trinitas CLO X, Series 2019-10A, Class F
VAR ICE LIBOR USD 3 Month+7.785%, 8.06%, 4/15/2032 (d)

     3,816,667  
  1,000,000    

Vibrant ClO 1X, Series 2018-9A, Class D
VAR ICE LIBOR USD 3 Month+6.250%, 6.52%, 7/20/2031 (d)

     775,600  
  3,200,000    

Voya CLO, Ltd., Series 2018-4A, Class ER
VAR ICE LIBOR USD 3 Month+9.050%, 9.32%, 7/14/2031 (d)

     1,664,000  
  1,000,000    

Webster Park CLO, Series 2018-1A, Class ER
VAR ICE LIBOR USD 3 Month+7.750%, 8.02%, 7/20/2030 (d)

     837,500  
  3,061,644    

Zais CLO 3, Ltd., Series 2018-3A, Class DR
VAR ICE LIBOR USD 3 Month+6.910%, 7.19%, 7/15/2031 (d)

     1,002,688  
  3,413,997    

Zais CLO 8, Ltd., Series 2018-1A, Class E
VAR ICE LIBOR USD 3 Month+5.250%, 5.53%, 4/15/2029 (d)

     1,553,368  
   

 

 

  
 

Total Collateralized Loan Obligations
(Cost $195,119,778)

     159,035,168  
 

 

 

  
 

LLC Interest — 9.6%

  
  534,905    

NexPoint Real Estate Finance Operating Partnership, L.P.(k)

     7,852,404  
  624,311    

NREF OP II, L.P.(k)

     9,164,881  
  11,854,986    

SFR WLIF I, LLC(e)(f)(k)

     8,576,727  
  52,666,032    

SFR WLIF II, LLC(e)(f)(k)

     38,332,445  
  25,478,982    

SFR WLIF III, LLC(e)(f)(k)

     23,011,852  
   

 

 

  
 

Total LLC Interest
(Cost $113,107,833)

     86,938,309  
 

 

 

  

Shares

      
 

Registered Investment Companies — 1.1%

  
  48,649    

Highland Global Allocation Fund (k)

     301,624  
  1,156,943    

NexPoint Strategic Opportunities Fund (k)

     10,019,126  
   

 

 

  
 

Total Registered Investment Companies
(Cost $19,726,415)

     10,320,750  
 

 

 

  

Principal $

   Value ($)  
 

Corporate Bonds & Notes — 0.1%

  
 

COMMUNICATION SERVICES — 0.0%

  
  1,550    

iHeartCommunications, Inc.
6.38%, 05/01/26

     1,617  
   

 

 

  
 

ENERGY — 0.0%

  
  15,600,000    

Ocean Rig UDW, Inc.
7.25%, 04/01/19 (d)(e)(f)(j)

     —    
   

 

 

  
 

INDUSTRIALS — 0.0%

  
  7,500,000    

American Airlines (j)(l)

     123,276  
   

 

 

  
 

REAL ESTATE — 0.1%

  
  2,000,000    

CBL & Associates
5.95%, 12/15/26

     755,610  
   

 

 

  
 

UTILITIES — 0.0%

  
  15,222,107    

Bruce Mansfield Pass-Through Trust
6.85%, 06/01/34 (j)

     —    
  8,000,000    

Texas Competitive Electric Holdings Co., LLC
11.50%, 10/01/20 (j)(l)

     12,000  
   

 

 

  
      12,000  
   

 

 

  
 

Total Corporate Bonds & Notes
(Cost $15,027,642)

     892,503  
 

 

 

  

Units

      
 

Warrants — 0.0%

  
 

ENERGY — 0.0%

  
  5,801    

Arch Resources, Expires 10/08/2023(c)

     46,408  
   

 

 

  
 

INDUSTRIALS — 0.0%

  
  453    

Omnimax International, Inc., Expires 12/31/2049(c)(e)(f)(k)

     —    
  178,140    

Remington Outdoor Co., Inc. (c)(e)(f)

     —    
   

 

 

  
      —    
   

 

 

  
 

Total Warrants
(Cost $264,794)

     46,408  
 

 

 

  

Principal $

      
 

Claims — 0.0%

  
 

Communication Services — 0.0%

  
  3,791,858    

Lehman Brothers Commercial Paper LCPI Claim Facility (e)(f)(j)(n)

   $ 52,138  
   

 

 

  
 

Total Claims
(Cost $1,814,883)

     52,138  
 

 

 

  

Contracts

      
 

Purchased Call Options (c) — 0.0%

  
 

Total Purchased Call Options
(Cost $1,300,000)

     400  
 

 

 

  
 

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)(continued)
As of September 30, 2020    Highland Income Fund

 

Principal $

   Value ($)  
 

Repurchase Agreement (o)(p) — 0.0%

  
  40,008    

Deutsche Bank Securities
0.050%, dated 09/30/2020 to be repurchased on 10/01/2020, repurchase price $40,008 (collateralized by U.S. Government obligations, ranging in par value $6,745 - $8,737, 0.000% - 2.500%, 11/10/2020 – 02/15/2023; with total market value $40,808)

     40,008  
   

 

 

  
 

Total Repurchase Agreement
(Cost $40,008)

     40,008  
 

 

 

  

Shares

      
 

Cash Equivalent — 22.4%

  
 

MONEY MARKET FUND (q) — 22.4%

  
  202,449,213    

Dreyfus Treasury & Agency Cash Management, Institutional Class 0.010%

     202,449,213  
   

 

 

  
 

Total Cash Equivalent
(Cost $202,449,213)

     202,449,213  
 

 

 

  
 

Total Investments - 144.6%

     1,309,181,439  
 

 

 

  
 

    (Cost $1,796,696,854)

  
 

Securities Sold Short— (0.8)%

  
 

Common Stock — (0.8)%

  
 

INFORMATION TECHNOLOGY — (0.8)%

  
  (53,300 )   

Texas Instruments, Inc.

     (7,610,707 ) 
   

 

 

  
 

Total Common Stocks
(Proceeds $6,381,954)

     (7,610,707 ) 
   

 

 

  
 

Total Securities Sold Short - (0.8)%
(Proceeds $6,381,954)

     (7,610,707 ) 
   

 

 

  
 

Other Assets & Liabilities, Net - (43.8)% (r)

     (396,212,338 ) 
 

 

 

  
 

Net Assets - 100.0%

     905,358,394  
 

 

 

  

 

(a)

Perpetual security with no stated maturity date.

(b)

There is currently no rate available.

(c)

Non-income producing security.

(d)

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, 2020, these securities amounted to $189,190,187 or 20.9% of net assets.

(e)

Securities with a total aggregate value of $635,540,047, or 70.2% of net assets, were classified as Level 3 within the three-tier fair value hierarchy. Please see Notes to Financial Statements for an explanation of this hierarchy, as well as a list of unobservable inputs used in the valuation of these instruments.

(f)

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 $635,540,047, or 70.2% of net assets, were fair valued under the Fund’s valuation procedures as of September 30, 2020. Please see Notes to Investment Portfolio.

(g)

Securities (or a portion of securities) on loan. As of September 30, 2020, the fair value of securities loaned was $38,543. The loaned securities were secured with cash and securities collateral of $40,000. Collateral is calculated based on prior day’s prices.

(h)

Step Bonds - Represents the current rate, the step rate, the step date and the final maturity date.

(i)

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, 2020, the LIBOR USD 1 Month and LIBOR USD 3 Month rates were 0.149% and 0.234%, 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.

(j)

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

(k)

Affiliated issuer. Assets with a total aggregate market value of $352,164,495, or 38.9% of net assets, were affiliated with the Fund as of September 30, 2020.

(l)

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

(m)

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		     Fair Value
at Period
End		      Percent
of Net
Assets		  

Metro-Goldwyn- Mayer, Inc.

   Common
Stocks		     12/20/2010     $ 21,845,688     $ 38,264,668        4.2 % 

TerreStar Corporation

   Common
Stocks		     3/16/2018     $ 3,093,276     $ 9,096,131        1.0 % 

 

(n)

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.

(o)

Tri-Party Repurchase Agreement.

 

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)(continued)
As of September 30, 2020    Highland Income Fund

 

(p)

This security was purchased with cash collateral held from securities on loan. The total value of such securities as of September 30, 2020 was $40,008.

(q)

Rate shown is 7 day effective yield.

(r)

As of September 30, 2020, $21,683,978 in cash was segregated or on deposit with the brokers to cover investments sold short and is included in “Other Assets & Liabilities, Net”.

        

 

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)(concluded)
As of September 30, 2020    Highland Income Fund

 

Purchased options contracts outstanding as of September 30, 2020 were as follows:

 

Description

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

PURCHASED CALL OPTIONS:

                     

USD Call/CNH Put

    $ 7.70        BNP        October 2020        200,000,000      $ 1,358,000,000      $ 1,300,000      $ 400  

Futures contracts outstanding as of September 30, 2020 were as follows:

 

Description

    Expiration
Date		      Number of
Contracts		     Notional Value     Unrealized
Depreciation		     Value  

Short Futures:

            

Russell 2000 Index E-MINI

      June 2020        (631 )    $ (47,311,878 )    $ (151,942 )    $ (47,463,820 ) 

S&P 500 Index E-MINI

      June 2020        (760 )      (127,027,706 )      (348,294 )      (127,376,000 ) 
         

 

 

    

 

 

  
          $ (500,236 )    $ (174,839,820 ) 
         

 

 

    

 

 

  

NOTES TO CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)
As of September 30, 2020    Highland Income Fund

 

Organization

Highland Income 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.

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.

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;

NOTES TO CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)(continued)
As of September 30, 2020    Highland Income Fund

 

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, 2020, 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.

NOTES TO CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)(continued)
As of September 30, 2020    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. A summary of the inputs used to value the Fund’s assets as of September 30, 2020 is as follows:

 

     Total value at
September 30,
2020
$		      Level 1 Quoted
Price
$		      Level 2 Significant
Observable Inputs
$		      Level 3 Significant
Unobservable
Inputs
$		  

Highland Floating Rate Opportunities Fund

 

Assets

            

Preferred Stock

            

Energy

      10,548,890        —          10,548,890        —    

Financials

      59,739,883        —          41,116,383        18,623,500  

Real Estate

      253,077,085        —          9,854,523        243,222,562  

U.S. Senior Loans

            

Business Equipment & Services

      9,594,505        —          9,594,505        —    

Commercial Services

      3,406,180        —          3,406,180        —    

Communication Services

      6,696,457        —          —          6,696,457  

Consumer Discretionary

      10,638,993        —          10,638,993        —    

Consumer Products

      2,121,554        —          2,121,554        —    

Energy

      9,969,384        —          9,969,384        —    

Financials

      9,981,552        —          9,981,552        —    

Gaming/Leisure

      13,475,743        —          —          13,475,743  

Healthcare

      62,905,639        —          15,382,277        47,523,362  

Industrials

      10,031,970        —          10,031,970        —    

Information Technology

      83,805,020        —          32,277,020        51,528,000  

Real Estate

      8,889,297        —          8,889,297        —    

Retail

      22,809,718        —          22,809,718        —    

Service

      17,699,227        —          17,699,227        —    

Transportation

      11,124,738        —          11,124,738        —    

Utilities

      4,940,400        —          4,940,400        —    

Common Stocks

            

Communication Services

      48,268,479        907,680        38,264,668        9,096,131  

Consumer Discretionary

      1,537,180        —          1,537,180        —    

Energy

      21,766        —          21,765        1  

Gaming/Leisure(1)

      —          —          —          —    

Healthcare

      5,797        —          —          5,797  

Housing(1)

      —          —          —          —    

Industrials(1)

      —          —          —          —    

Materials

      1,495,160        —          1,495,160        —    

Real Estate

      186,621,925        11,226,593        —          175,395,332  

Collateralized Loan Obligations

      159,035,168        —          159,035,168        —    

LLC Interest

      86,938,309        —          17,017,285        69,921,024  

Registered Investment Companies

      10,320,750        10,320,750        —             —    

Corporate Bonds & Notes

            

Communication Services

      1,617        —          1,617        —    

Energy(1)

      —          —          —          —    

Industrials

      123,276        —          123,276        —    

Real Estate

      755,610        —          755,610        —    

Utilities

      12,000        —          12,000        —    

Warrants

            

Energy

      46,408        46,408        —          —    

Industrials(1)

      —          —          —          —    

Claims

      52,138        —          —          52,138  

Purchased Call Options

      400        —          400        —    

Repurchase Agreement

      40,008        —          40,008        —    

Cash Equivalent

      202,449,213        202,449,213        —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total Assets

      1,309,181,439        224,950,644        448,690,748        635,540,047  
  

 

 

     

 

 

     

 

 

     

 

 

  

NOTES TO CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)(continued)
As of September 30, 2020    Highland Income Fund

 

     Total value at
September 30,
2020
$		      Level 1 Quoted
Price
$		      Level 2 Significant
Observable Inputs
$		      Level 3 Significant
Unobservable
Inputs
$		  

Liabilities

            

Securities Sold Short

            

Common Stocks

            

Information Technology

      (7,610,707 )       (7,610,707 )       —          —    

Futures(2)

      (500,236 )       (500,236 )       —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total Liabilities

      (8,110,943 )       (8,110,943 )       —          —    
  

 

 

     

 

 

     

 

 

     

 

 

  

Total

      1,301,070,496        216,839,701        448,690,748        635,540,047  
  

 

 

     

 

 

     

 

 

     

 

 

  

 

(1)

This category includes securities with a value of zero.

(2)

Futures are valued at the unrealized depreciation on the instrument.

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, 2020.

 

Category

    Fair Value at
9/30/2020
$		     

Valuation Technique

   

Unobservable Inputs

    Input Values  

Preferred Stock

      261,846,062      Discounted Cash Flow    Discount Rate      11% - 13%  
      Third Party Indication of Value    Broker Quote      Various  

U.S. Senior Loans

      119,223,562      Multiple Analysis    Multitple of EBITDA less CAPEX      7.00x - 10.00x  
      Transaction Analysis    Multitple of EBITDA less CAPEX      7.00x - 9.00x  
      Black-Scholes Model    Volatility Assumption      25%  
      Discounted Cash Flow    Discount Rate      9.00% - 15.00%  
         Spread Adjustment      0.10%  
      Transaction Indication of Value    Enterprise Value ($mm)      $13.25  

Common Stocks

      184,497,261      Multiple Analysis    Multitple of EBITDA less CAPEX      7.00x - 10.00x  
         Unadjusted Price/Mhz-PoP      $0.10 - $0.95  
      Discounted Cash Flow    Discount Rate      11.00% - 16.50%  
         Capitalization Rate      6.75% - 7.75%  
      Transaction Analysis    Multitple of EBITDA less CAPEX      7.00x - 9.00x  
      Transaction Indication of Value    Enterprise Value ($mm)      $771.0  
         Transaction Price per Share      $16.61  
      Black-Scholes Model    Volatility Assumption      25%  
      Net Asset Value    N/A      N/A  

LLC Interest

      69,921,024      Discounted Cash Flow    Discount Rate      1.28% - 5.93%  
      Net Asset Value    N/A      N/A  

Claims

      52,138      Pricing Feed    Indication of Value      1.375  
  

 

 

           
     635,540,047           

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, 2020, there were no transfers in or out of Level 3.

NOTES TO CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)(continued)
As of September 30, 2020    Highland Income Fund

 

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:

 

    Balance as of
December 31,
2019		     Transfers
Into
Level 3		     Transfers
Out of
Level 3		     Accrued
Discounts
(Premiums)		     Realized
Gain
(Loss)		     Change in Net
Unrealized
Appreciation
(Depreciation)		     Net Purchases     Net Sales     Distribution
to Return
Capital		     Balance as of
September 30,
2020		     Change in
Unrealized
Appreciation
(Depreciation)
from
Investments
held at
September 30,
2020		  
    $     $     $     $     $     $     $     $     $     $     $  

Preferred Stock

                      

Financials

     —         —         —         —         —         (1,095,500 )      19,719,000       —         —         18,623,500       (1,095,500 ) 

Real Estate

     233,025,297       —         —         —         351,780       15,838,844       1,825,244       (7,314,604 )      (503,999 )      243,222,562       15,838,844  

U.S. Senior Loans

                      

Communication Services

     6,107,407       —         —         (207 )      —         (101,086 )      690,343       —         —         6,696,457       (101,086 ) 

Gaming/Leisure

     10,753,914       —         —         —         32,687       3,257,160       —         (568,018 )      —         13,475,743       3,257,160  

Healthcare

     47,733,657       —         —         —         —         (6,714,762 )      6,504,467       —         —         47,523,362       (6,714,762 ) 

Industrials

     8,105,187       —         —         347,422       —         (8,452,609 )      —         —         —         —         (8,452,609 ) 

Information Technology

     56,829,000       —         —         —         —         (5,301,000 )      —         —         —         51,528,000       (5,301,000 ) 

Common Stocks

                      

Communication Services

     7,520,731       —         —         —         —         1,575,400       —         —         —         9,096,131       1,575,400  

Energy

     1       —         —         —         —         —         —         —         —         1       —    

Healthcare

     72,254       —         —         —         —         (66,457 )      —         —         —         5,797       (66,457 ) 

Materials

     45,617       —         —         —         —         (45,617 )      —         —         —         —         (45,617 ) 

Real Estate

     95,747,531       —         —         —         —         (34,463,261 )      123,711,047       —         (9,599,985 )      175,395,332       (34,463,261 ) 

Collateralized Loan Obligations

     —         —         —         —         —         —         —         —         —         —         —    

LLC Interest

     88,777,470       —         —         —         —         (18,856,446 )      —         —         —         69,921,024       (18,856,446 ) 

Corporate Bonds & Notes

                      

Energy

     1,076,400       —         —         —         —         (1,076,400 )      —         —         —         —         (1,076,400 ) 

Warrants

                      

Industrials

     1,412       —         —         —         —         (1,412 )      —         —         —         —         (1,412 ) 

Claims

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

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

     555,848,016       —         —         347,215       384,467       (55,503,146 )      152,450,101       (7,882,622 )      (10,103,984 )      635,540,047       (55,503,146 ) 

The significant unobservable inputs used in the fair value measurement of the Fund’s preferred stock assets are the discount rate and broker quotes. Significant decreases (increases) in any of those inputs in isolation could result in a significantly higher (lower) fair value measurement. The significant unobservable inputs used in the fair value measurement of the Fund’s bank loan securities are: multiple of adjusted EBITDA, volatility assumption, transaction indication of value, discount rate and spread adjustment. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. The significant unobservable inputs used in the fair value measurement of the Fund’s common equity securities are: multiple of adjusted EBITDA, price/MHz-PoP multiple, capitalization rate, discount rate, volatility assumption and transaction indication of value. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. The significant unobservable input used in the fair value measurement of the Fund’s LLC interests is the discount rate. A significant increase (decrease) in this input in isolation could result in a significantly lower (higher) fair value measurement.

In addition to the unobservable inputs utilized for various valuation methodologies, the Investment Advisor frequently uses a combination of two or more valuation methodologies to determine fair value for a single holding. In such instances, the Investment Advisor assesses the methodologies and ascribes weightings to each methodology. The weightings ascribed to any individual methodology ranged from as low as 5% to as high as 95% as of September 30, 2020. 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.

NOTES TO CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)(continued)
As of September 30, 2020    Highland Income Fund

 

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.

NOTES TO CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)(concluded)
As of September 30, 2020    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, 2020:

 

Issuer

   Shares at
December 31,
2019		     Beginning
Value as of
December 31,
2019
$		     Purchases
at Cost
$		     Proceeds
from Sales
$		     Net
Amortization
(Accretion)
of Premium/
(Discount)
$		     Net
Realized
Gain/
(Loss) on
Sales of
Affiliated
Issuers
$		     Change in
Unrealized
Appreciation/
(Depreciation)
$		     Ending Value
as of
September 30,
2020
$		     Shares at
September 30,
2020		     Affiliated
Income
$		  

Majority Owned, Not Consolidated

                    

Allenby (Common Stocks)

     1,393,678       1       44,988       —         —         —         (44,988 )      1       1,438,666       —    

Claymore (Common Stocks)

     9,370,190       9       761,084       —         —         —         (761,083 )      10       10,131,274       —    

Other Affiliates

                    

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

     58,920,016       47,805,911       4,803,858       —         —         —         (5,080,610 )      47,529,159       63,723,874       4,835,942  

EDS Legacy Partners (U.S. Senior Loans)

     57,000,000       56,829,000       —         —         —         —         (5,301,000 )      51,528,000       57,000,000       3,253,750  

Highland Global Allocation Fund (Registered Investment Company)

     —         —         197,609       —         —         —         104,015       301,624       48,649       28,606  

LLV Holdco LLC (U.S. Senior Loans & Common Stocks)

     13,442,392       10,753,914       333,130       —         (58,674 )      —         1,723,067       12,751,437       13,810,470       147,258  

NexPoint Real Estate Finance (Common Stocks)

     —         —         218,170       —         —         —         40,638       258,808       17,630       —    

NexPoint Residential Trust (Common Stocks)

     —         —         5,371,315       (76,433 )      —         —         1,292,024       6,586,906       148,521       15,296  

NexPoint Strategic Opportunities Fund (Registered Investment Company)

     989,143       17,517,723       1,740,631       (1,548,659 )      —         —         (7,690,569 )      10,019,126       1,156,943       —    

NFRO REIT SUB, LLC (Common Stocks)

     4,328,483       95,747,521       56,625,000       (9,599,985 )      —         —         (6,521,421 )      136,251,115       7,287,130       —    

NexPoint Real Estate Finance Operating Partnership, L.P., NREF OP II (LLC Interest)

     —         —         23,107,833       —         —         —         (6,090,548 )      17,017,285       1,159,216       —    

Omnimax International, Inc. (U.S. Senior Loans, Common Stocks & Warrants)

     9,629,768       8,152,216       684,807       (4,118,050 )      254,449       (6,010,799 )      1,037,377       —         15,074       1,264,067  

SFR WLIF I, II, III, LLC (LLC Interest)

     90,000,000       88,777,470       —         —         —         —         (18,856,446 )      69,921,024       90,000,000       4,933,747  
 

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

    

 

 

  

Total

     245,073,670       325,583,765       93,888,425       (15,343,127 )      195,775       (6,010,799 )      (46,149,544 )      352,164,495       245,937,447       14,478,666