INVESTMENT PORTFOLIO (unaudited)

 

As of March 31, 2023    Highland Income Fund

 

Shares

   Value ($)  
 

Common Stocks — 62.2%

 
 

COMMUNICATION SERVICES — 1.2%

 
  194,300     

Telesat(a)(b)

     1,670,980  
  27,134     

TerreStar Corporation(b)(c)(d)(e)

     9,776,651  
     

 

 

 
        11,447,631  
     

 

 

 
 

CONSUMER DISCRETIONARY0.0%

 
  1,450     

Toys ‘R’ Us(b)(c)(d)

     13,895  
     

 

 

 
 

ENERGY0.0%

 
  1,118,286     

Value Creation, Inc.(b)(c)(d)

     —    
     

 

 

 
 

GAMING/LEISURE0.6%

 
  34,512     

LLV Holdco LLC - Series A, Membership Interest(b)(c)(d)(f)

     5,565,738  
  436     

LLV Holdco LLC - Series B, Membership Interest(b)(c)(d)(f)

     70,257  
     

 

 

 
        5,635,995  
     

 

 

 
 

HEALTHCARE2.4%

 
  12,026,660     

CCS Medical Inc.(b)(c)(d)(f)

     22,285,401  
     

 

 

 
 

MATERIALS0.1%

 
  299,032     

MPM Holdings, Inc.(b)

     1,495,160  
     

 

 

 
 

REAL ESTATE57.9%

 
  1,474,379     

Allenby(b)(c)(d)(f)

     —    
  10,359,801     

Claymore(b)(c)(d)(f)

     —    
  844,371     

Elme Communities(a)

     15,080,466  
  574,004     

Healthcare Realty Trust, Class A(a)

     11,095,497  
  68,862     

Independence Realty Trust, Inc.(a)(g)

     1,103,858  
  2,356,665     

IQHQ, Inc.(b)(c)(d)

     55,593,728  
  1,275,616     

NexPoint Diversified Real Estate Trust REIT(f)

     13,240,894  
  4,372,286     

NexPoint Real Estate Finance(a)(f)

     68,513,718  
  186,372     

NexPoint Residential Trust, Inc.(a)(f)

     8,138,865  
  32,203     

NexPoint Storage Partners, Inc.(b)(c)(d)(f)

     38,663,114  
  2,276,658     

NFRO Holdings, LLC(b)(c)(d)(f)

     56,916,455  
  90,436,434     

NFRO REIT SUB II, LLC(b)(c)(d)(f)

     122,114,509  
  46,794,245     

NFRO REIT SUB, LLC(b)(c)(d)(f)

     61,402,473  
  3,167,381     

NFRO SFR REIT, LLC(b)(c)(d)(f)

     89,851,789  
     

 

 

 
        541,715,366  
     

 

 

 
  

Total Common Stocks
(Cost $892,180,591)

     582,593,448  
  

 

 

 

 

Principal Amount ($)

      
 

U.S. Senior Loans (h) — 24.8%

 
 

COMMUNICATION SERVICES — 0.9%

 
  8,775,054     

TerreStar Corporation, Term Loan D, 1st Lien, 02/27/28 (c)(d)

     8,748,729  
  63,619     

TerreStar Corporation, Term Loan H, 1st Lien, 02/28/24 (c)(d)

     63,428  
  68,187     

TerreStar Corporation, Term Loan, 1st Lien, 02/28/24 (c)(d)

     67,983  
     

 

 

 
        8,880,140  
     

 

 

 

Principal Amount ($)

   Value ($)  

U.S. Senior Loans (continued)

 

ENERGY — 0.7%

 
6,403,998   

Quarternorth Energy Holding, Term Loan, 2nd Lien, 08/27/26

     6,391,990  
     

 

 

 

GAMING/LEISURE — 1.5%

 
15,473,255   

LLV Holdco LLC, Revolving Exit Loan, 12/31/23 (c)(d)(f)

     13,833,090  
     

 

 

 

HEALTHCARE — 2.8%

 
16,657,339   

Carestream Health Inc., Term Loan, 1st Lien, 09/30/27

     9,940,267  
15,977,051   

CCS Medical Inc., Junior Credit Term Loan, 1st Lien, 01/04/27 (c)(d)(f)

     15,897,166  
     

 

 

 
        25,837,433  
     

 

 

 

INFORMATION TECHNOLOGY — 6.4%

 
61,411,237   

EDS Legacy Partners, LIBOR USD 3 Month + 2.750%, 12/14/23 (c)(d)(f)

     59,637,763  
     

 

 

 

REAL ESTATE — 12.2%

 
65,000,000   

NexPoint SFR Operating Partnership, LP, 05/24/27 (c)(d)(f)

     63,590,800  
6,400,000   

NHT Operating Partnership LLC Convertible Promissory Note, 09/30/42 (c)(d)(f)

     5,798,400  
42,777,343   

NHT Operating Partnership LLC Secured Promissory Note, 02/14/27 (c)(d)(f)

     38,756,273  
6,500,000   

NREF Operating IV REIT Sub, LLC, (c)(d)(f)

     6,500,000  
     

 

 

 
        114,645,473  
     

 

 

 

RETAIL — 0.3%

 
3,476,791   

GNC Holdings LLC, Term Loan, 2nd Lien, 10/07/26

     3,231,242  
     

 

 

 
  

Total U.S. Senior Loans
(Cost $271,461,086)

     232,457,131  
  

 

 

 

Collateralized Loan Obligations — 10.4%

 
5,800,000   

ACAS CLO, Series 2018-1A, Class FRR ICE LIBOR USD 3 Month + 7.910%, 12.70%, 10/18/2028 (i)(j)

     3,292,273  
2,000,000   

Apex Credit CLO, Series 2019-1A, Class D ICE LIBOR USD 3 Month + 7.100%, 11.89%, 4/18/2032 (i)(j)

     1,640,000  
1,500,000   

Atlas Senior Loan Fund, Series 2017-8A, Class F ICE LIBOR USD 3 Month + 7.150%, 11.94%, 1/16/2030 (i)(j)

     814,125  
 


INVESTMENT PORTFOLIO (unaudited) (continued)

 

As of March 31, 2023       Highland Income Fund

 

Principal Amount ($)

   Value ($)  
 

Collateralized Loan Obligations (continued)

 
  2,400,000     

Atlas Senior Loan Fund XII, Series 2018-12A, Class E ICE LIBOR USD 3 Month + 5.950%, 10.77%, 10/24/2031 (i)(j)

     1,569,600  
  1,250,000     

Cathedral Lake CLO, Series 2017-1A, Class DR ICE LIBOR USD 3 Month + 7.250%, 12.04%, 10/15/2029 (i)(j)

     888,875  
  2,000,000     

Cathedral Lake VII, Series 2021-7RA, Class E ICE LIBOR USD 3 Month + 7.770%, 12.56%, 1/15/2032 (i)(j)

     1,640,000  
  5,462,500     

CIFC Funding, Series 2013-2A, Class SUB 0.00%, 10/18/2030 (i)(j)(k)

     874,000  
  3,324,756     

CIFC Funding, Series 2014-4RA, Class SUB 0.00%, 1/17/2035 (i)(j)(k)(l)

     782,980  
  3,000,000     

CIFC Funding, Series 2015-1A, Class SUB 0.00%, 1/22/2031 (i)(j)(k)(l)

     592,500  
  1,000,000     

CIFC Funding, Series 2018-1A, Class ER2 ICE LIBOR USD 3 Month + 5.850%, 10.64%, 1/18/2031 (i)(j)

     840,000  
  2,500,000     

CIFC Funding, Series 2014-1A, Class SUB 0.00%, 1/18/2031 (i)(j)(k)

     475,000  
  3,000,000     

Covenant Credit Partners CLO III, Series 2017-1A, Class F ICE LIBOR USD 3 Month + 7.950%, 12.74%, 10/15/2029 (i)(j)

     1,815,000  
  1,537,000     

Dryden 36 Senior Loan Fund, Series 2019-36A, Class ER2 ICE LIBOR USD 3 Month + 6.880%, 11.67%, 4/15/2029 (i)(j)

     1,374,846  
  4,000,000     

Eaton Vance CLO, Series 2019-1A, Class F ICE LIBOR USD 3 Month + 8.250%, 13.04%, 4/15/2031 (i)(j)

     3,200,000  
  32,017,613     

FREMF Mortgage Trust, Series 2021-KF112, Class CS SOFR30A + 6.250%, 10.78%, 1/25/2031 (i)(j)

     31,557,360  
  5,450,000     

Galaxy XXVI CLO, Series 2018-26A, Class F ICE LIBOR USD 3 Month + 8.000%, 12.91%, 11/22/2031 (i)(j)

     4,305,500  
  1,000,000     

GoldenTree Loan Management US CLO 3, Series 2018-3A, Class F ICE LIBOR USD 3 Month + 6.500%, 11.31%, 4/20/2030 (i)(j)

     768,750  

Principal Amount ($)

   Value ($)  
 

Collateralized Loan Obligations (continued)

 
  2,500,000     

GoldenTree Loan Opportunities IX, Series 2018-9A, Class FR2 ICE LIBOR USD 3 Month + 7.640%, 12.44%, 10/29/2029 (i)(j)

     2,005,000  
  2,125,000     

ICG US CLO, Series 2022-1A, Class DJ TSFR3M + 5.730%, 10.37%, 7/20/2035 (i)(j)

     2,014,819  
  4,000,000     

Jay Park CLO, Ltd., Series 2018-1A, Class ER ICE LIBOR USD 3 Month + 7.350%, 12.16%, 10/20/2027 (i)(j)

     3,590,000  
  3,000,000     

KKR CLO 18, Series 2017-18, Class E ICE LIBOR USD 3 Month + 6.450%, 11.24%, 7/18/2030 (i)(j)

     2,677,500  
  1,400,000     

Madison Park Funding XX, Series 2018-20A, Class ER ICE LIBOR USD 3 Month + 5.300%, 10.11%, 7/27/2030 (i)(j)

     1,206,240  
  2,350,000     

Madison Park Funding XXIV, Series 2019-24A, Class ER TSFR3M + 7.462%, 12.10%, 10/20/2029 (i)(j)

     2,237,905  
  2,000,000     

Madison Park Funding XXIX, Series 2018-29A, Class F ICE LIBOR USD 3 Month + 7.570%, 12.36%, 10/18/2030 (i)(j)

     1,660,000  
  1,000,000     

Madison Park Funding XXX, Series 2018-30A, Class F ICE LIBOR USD 3 Month + 6.850%, 11.64%, 4/15/2029 (i)(j)

     865,000  
  490,000     

Magnetite VII, Ltd., Series 2018-7A, Class ER2 ICE LIBOR USD 3 Month + 6.500%, 11.29%, 1/15/2028 (i)(j)

     426,300  
  2,500,000     

Man GLG US CLO, Series 2018-1A, Class DR ICE LIBOR USD 3 Month + 5.900%, 10.71%, 4/22/2030 (i)(j)

     1,901,875  
  4,000,000     

Northwoods Capital XII-B, Ltd., Series 2018-12BA, Class F ICE LIBOR USD 3 Month + 8.170%, 13.04%, 6/15/2031 (i)(j)

     2,600,000  
  2,900,000     

OHA Credit Partners XII, Series 2018-12A, Class FR ICE LIBOR USD 3 Month + 7.680%, 12.50%, 7/23/2030 (i)(j)

     2,391,340  
  3,110,000     

OZLM XXII, Ltd., Series 2018-22A, Class E ICE LIBOR USD 3 Month + 7.390%, 12.18%, 1/17/2031 (i)(j)

     1,959,300  
  2,000,000     

Park Avenue Institutional Advisers CLO, Series 2021-2A, Class E ICE LIBOR USD 3 Month + 7.010%, 11.80%, 7/15/2034 (i)(j)

     1,760,000  
 


INVESTMENT PORTFOLIO (unaudited) (continued)

 

As of March 31, 2023       Highland Income Fund

 

Principal Amount ($)

   Value ($)  
 

Collateralized Loan Obligations (continued)

 
  3,150,000     

Saranac CLO III, Ltd., Series 2018-3A, Class ER ICE LIBOR USD 3 Month + 7.500%, 12.45%, 6/22/2030 (i)(j)

     1,759,275  
  2,000,000     

Symphony CLO XXVI, Series 2021-26A, Class ER ICE LIBOR USD 3 Month + 7.500%, 12.31%, 4/20/2033 (i)(j)

     1,830,000  
  5,955,627     

THL Credit Wind River, Series 2014-2A, Class SUB 0.00%, 1/15/2031 (i)(j)(k)(m)

     1,074,991  
  2,269,304     

TICP CLO I-2, Series 2018-IA, Class E ICE LIBOR USD 3 Month + 8.000%, 12.82%, 4/26/2028 (i)(j)

     2,011,284  
  1,000,000     

Vibrant CLO 1X, Series 2018-9A, Class D ICE LIBOR USD 3 Month + 6.250%, 11.06%, 7/20/2031 (i)(j)

     740,000  
  1,275,000     

Voya CLO, Series 2018-2A, Class DR TSFR3M + 5.862%, 10.52%, 4/25/2031 (i)(j)

     976,268  
  1,000,000     

Webster Park CLO, Series 2018-1A, Class ER ICE LIBOR USD 3 Month + 7.750%, 12.56%, 7/20/2030 (i)(j)

     787,500  
  3,000,000     

Zais CLO 3, Ltd., Series 2018-3A, Class DR ICE LIBOR USD 3 Month + 6.910%, 11.70%, 7/15/2031 (i)(j)

     2,002,500  
  3,300,000     

Zais CLO 8, Ltd., Series 2018-1A, Class E ICE LIBOR USD 3 Month + 5.250%, 10.04%, 4/15/2029 (i)(j)

     2,392,500  
     

 

 

 
  

Total Collateralized Loan Obligations (Cost $115,374,051)

     97,300,406  
     

 

 

 

 

Shares

      
 

LLC Interest — 6.7%

 
  957     

NEXLS LLC(c)(d)(f)

     53,550,516  
  10,000,000     

SFR WLIF III, LLC(c)(d)(f)

     9,408,770  
     

 

 

 
  

Total LLC Interest
(Cost $47,084,362)

     62,959,286  
  

 

 

 

 

Units

      
 

Warrants — 4.2%

 
 

ENERGY — 4.2%

 
  5,801     

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

     476,958  
  85,465     

Quarternorth Energy Holding Inc. Tranche 1, Expires 08/27/2029(b)

     876,016  
  164,598     

Quarternorth Energy Holding Inc. Tranche 2, Expires 08/27/2029(b)

     1,399,083  

Units

   Value ($)  
 

Warrants (continued)

 
 

ENERGY (continued)

 
  257,538     

Quarternorth Energy Holding Inc. Tranche 3, Expires 08/27/2029(b)

     36,377,243  
     

 

 

 
  

Total Warrants
(Cost $31,433,055)

     39,129,300  
  

 

 

 

 

Shares

      
 

Preferred Stock — 3.5%

 
 

FINANCIALS — 0.5%

 
  3,980     

Eastland CLO 1.00%, 05/01/2022(c)(d)

     33,299  
  34,500     

Eastland CLO II (b)(c)(d)(n)(o)

     288,648  
  8,860     

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

     90,998  
  40,000     

Granite Point Mortgage Trust REIT 7.00%(o)(p)

     660,000  
  62,600     

Grayson CLO, 11/01/2021(b)(c)(d)(n)

     567,987  
  150,977     

NexPoint Real Estate Finance REIT 8.50%(f)(g)(o)

     3,049,735  
  12,553     

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

     75,155  
  4,800     

Rockwall CDO (b)(c)(d)(n)(o)

     10,055  
     

 

 

 
        4,775,877  
     

 

 

 
 

HEALTHCARE2.4%

 
  414,378     

Apnimed (b)(c)(d)(n)(o)

     4,600,010  
  2,361,111     

Sapience Therapeutics Inc 8.00%(b)(c)(d)(o)

     7,862,500  
  3,440,476     

Sapience Therapeutics Inc, Class B 8.00%(b)(c)(d)(o)

     9,736,547  
     

 

 

 
        22,199,057  
     

 

 

 
 

REAL ESTATE0.6%

 
  325,976     

Braemar Hotels & Resorts, Inc. 5.50%(a)(b)(o)

     5,222,135  
  47,300     

Wheeler Real Estate Investment Trust 8.75%(b)(o)(q)

     591,250  
  82,301     

Wheeler Real Estate Investment Trust 9.00%(b)(o)

     137,443  
     

 

 

 
        5,950,828  
     

 

 

 
  

Total Preferred Stock
(Cost $75,904,189)

     32,925,762  
  

 

 

 
 

Exchange-Traded Funds — 1.8%

 
  109,265     

Direxion Daily S&P 500 Bull 3X

     7,996,013  
  293,675     

ProShares UltraPro QQQ (g)

     8,299,255  
     

 

 

 
        16,295,268  
     

 

 

 
  

Total Exchange-Traded Funds
(Cost $13,863,380)

     16,295,268  
  

 

 

 

 

Principal Amount ($)

      

Corporate Bonds & Notes — 0.4%

 

COMMUNICATION SERVICES — 0.0%

 
3,100    iHeartCommunications, Inc. 6.38%, 05/01/26      2,739  
     

 

 

 
 


INVESTMENT PORTFOLIO (unaudited) (continued)

 

As of March 31, 2023       Highland Income Fund

 

Principal Amount ($)

   Value ($)  

Corporate Bonds & Notes (continued)

 

FINANCIALS — 0.4%

 
4,000,000   

South Street Securities Funding LLC 6.25%, 12/30/26 (j)

     3,480,000  
     

 

 

 

INDUSTRIALS — 0.0%

 
7,500,000   

American Airlines 12/31/49 (c)(d)(k)(m)(r)

     —    
     

 

 

 

UTILITIES — 0.0%

 
15,222,107   

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

     —    
     

 

 

 
  

Total Corporate Bonds & Notes
(Cost $4,078,767)

     3,482,739  
     

 

 

 

 

Shares

      
 

Master Limited Partnership — 0.2%

 
 

ENERGY — 0.2%

 
  179,200     

Energy Transfer L.P. (a)

     2,234,624  
     

 

 

 
  

Total Master Limited Partnership
(Cost $1,869,174)

     2,234,624  
     

 

 

 
 

Registered Investment Company — 0.1%

 
  86,246     

Highland Global Allocation Fund (a)(f)

     779,664  
     

 

 

 
  

Total Registered Investment Company
(Cost $525,447)

     779,664  
     

 

 

 
 

Rights — 0.0%

 
 

UTILITIES — 0.0%

 
  4,933     

Texas Competitive Electric Holdings Co., LLC (b)

     6,104  
     

 

 

 
  

Total Rights
(Cost $–)

     6,104  
     

 

 

 

 

Principal Amount ($)

      

Repurchase Agreements(s)(t) — 0.9%

 
1,939,420   

BofA
4.820%, dated 03/31/2023 to be repurchased on 04/03/2023, repurchase price $1,940,199 (collateralized by U.S. Government and Treasury obligations, ranging in par value $39,297 - $932,282, 1.500% - 3.000%, 11/01/2049 – 02/01/2051; with total market value $1,978,208)

     1,939,420  

Principal Amount ($)

   Value ($)  
 

Repurchase Agreements(s)(t) (continued)

 
  1,939,420     

Citigroup
4.810%, dated 03/31/2023 to be repurchased on 04/03/2023, repurchase price $1,940,197 (collateralized by U.S. Government and Treasury obligations, ranging in par value $16 - $566,394, 1.500% - 7.000%, 12/26/2024 – 03/20/2053; with total market value $1,978,208)

     1,939,420  
  1,939,420     

HSBC
4.800%, dated 03/31/2023 to be repurchased on 04/03/2023, repurchase price $1,940,196 (collateralized by U.S. Government and Treasury obligations, ranging in par value $5,181 - $1,231,045, 0.000% - 6.500%, 06/15/2024 – 02/15/2053; with total market value $1,978,208)

     1,939,420  
  1,939,420     

RBC
4.820%, dated 03/31/2023 to be repurchased on 04/03/2023, repurchase price $1,940,199 (collateralized by U.S. Government and Treasury obligations, ranging in par value $0 - $399,944, 0.000% - 6.375%, 04/06/2023 – 02/20/2053; with total market value $1,978,208)

     1,939,420  
  355,973     

Deutsche
4.820%, dated 03/31/2023 to be repurchased on 04/03/2023, repurchase price $356,116 (collateralized by U.S. Government and Treasury obligations, ranging in par value $0 - $17,393, 1.500% - 7.000%, 02/01/2026 – 04/01/2053; with total market value $363,093)

     355,973  
     

 

 

 
  

Total Repurchase Agreements
(Cost $8,113,653)

     8,113,653  
     

 

 

 
 

Total Investments - 115.2%

     1,078,277,385  
     

 

 

 
 

(Cost $1,461,887,755)

  
 


INVESTMENT PORTFOLIO (unaudited) (continued)

 

As of March 31, 2023       Highland Income Fund

 

Shares

   Value ($)  
 

Securities Sold Short— (0.8)%

 
 

Common Stock — (0.8)%

 
 

INFORMATION TECHNOLOGY — (0.8)%

 
  (41,100)     

Texas Instruments, Inc. (a)

     (7,645,011
     

 

 

 
  

Total Common Stocks (Proceeds $4,920,256)

     (7,645,011
     

 

 

 
  

Total Securities Sold Short - (0.8)% (Proceeds $4,920,256)

     (7,645,011
     

 

 

 
 

Other Assets & Liabilities, Net - (14.4)%

     (134,664,244
  

 

 

 
 

Net Assets - 100.0%

     935,968,130  
  

 

 

 

 

(a)

All or part of this security is pledged as collateral for short sales. The fair value of the securities pledged as collateral was $40,352,444.

(b)

Non-income producing security.

(c)

Securities with a total aggregate value of $761,372,127, or 81.3% 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 Investment Adviser pursuant to the policies and procedures approved by the Board of Trustees (the “Board”). The Board has designated the Investment Adviser as “valuation designee” for the Fund pursuant to Rule 2a-5 of the Investment Company Act of 1940, as amended. The Investment Adviser 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 $761,372,127, or 81.3% of net assets, were fair valued under the Fund’s valuation procedures as of March 31, 2023. Please see Notes to Investment Portfolio.

(e)

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 policies and procedures established by the Board. Additional Information regarding such securities follows:

 

Restricted

Security

  

Security Type

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

TerreStar Corporation

  

Common Stock

     3/16/2018      $ 3,093,276      $ 9,776,651        1.0

 

(f)

Affiliated issuer. Assets with a total aggregate fair value of $757,565,390, or 80.9% of net assets, were affiliated with the Fund as of March 31, 2023.

(g)

Securities (or a portion of securities) on loan. As of March 31, 2023, the fair value of securities loaned was $8,025,338. The loaned securities were secured with cash and/or securities collateral of $8,199,268. Collateral is calculated based on prior day’s prices.

(h)

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 March 31, 2023, the LIBOR USD 3 Month rate was 5.19%. 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.

(i)

Variable or floating rate security. The rate shown is the effective interest rate as of period end. The rates on certain securities are not based on published reference rates and spreads and are either determined by the issuer or agent based on current market conditions; by using a formula based on the rates of underlying loans; or by adjusting periodically based on prevailing interest rates.

(j)

Securities exempt from registration under Rule 144A of the 1933 Act. These securities may only be resold in transactions exempt from registration to qualified institutional buyers. The Board has determined these investments to be liquid. At March 31, 2023, these securities amounted to $100,780,406 or 10.8% of net assets.

(k)

No interest rate available.

(l)

Interest only security (“IO”). These types of securities represent the right to receive the monthly interest payments on an underlying pool of mortgages. Payments of principal on the pool reduce the value of the “interest only” holding.

(m)

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

(n)

There is currently no rate available.

(o)

Perpetual security with no stated maturity date.

(p)

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 March 31, 2023.

(q)

Step Coupon Security. Coupon rate will either increase (step-up bond) or decrease (step-down bond) at regular intervals until maturity. Interest rate shown reflects the rate currently in effect.

(r)

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

(s)

Tri-Party Repurchase Agreement.

(t)

This security was purchased with cash collateral held from securities on loan. The total value of such securities as of March 31, 2023 was $8,113,653.

(u)

As of March 31, 2023, $7,572,264 in cash was segregated or on deposit with the brokers to cover investments sold short and is included in “Other Assets & Liabilities, Net”.

 


INVESTMENT PORTFOLIO (unaudited) (concluded)

 

As of March 31, 2023       Highland Income Fund

 

Reverse Repurchase Agreement outstanding as of March 31, 2023 were as follows:

 

Counterparty

  

Collateral Pledged

   Interest
Rate %
     Trade
Date
     Repurchase
Amount
     Principal
Amount
     Value  

Mizuho Securities

  

FREMF Mortgage Trust, Series 2021- KF103, Class CS, 11/02/2022

     6.8        3/23/2023      $ (19,259,000    $ (19,259,000    $ (19,259,000
              

 

 

    

 

 

 

Total Reverse Repurchase Agreement

            $ (19,259,000    $ (19,259,000
           

 

 

    

 

 

 


NOTES TO INVESTMENT PORTFOLIO (unaudited)

 

As of March 31, 2023    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.

Valuation of Investments

Pursuant to Rule 2a-5 under the 1940 Act, the Fund’s Board of Trustees (the “Board”) has designated NexPoint Asset Management, L.P. (formerly Highland Capital Management Fund Advisors, L.P.) (“NexPoint” or the “Investment Adviser”) as the Fund’s valuation designee to perform the fair valuation determination for securities and other assets held by the Fund. NexPoint acting through its “Valuation Committee,” is responsible for determining the fair value of investments for which market quotations are not readily available. The Valuation Committee is comprised of officers of NexPoint and certain of NexPoint’s affiliated companies and determines fair value and oversees the calculation of the NAV. The Valuation Committee is subject to Board oversight and certain reporting and other requirements intended to provide the Board the information it needs to oversee NexPoint’s fair value determinations.

The Fund’s investments are recorded at fair value. 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 NexPoint and approved by 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 the Investment Adviser has determined to have the capability to provide appropriate pricing services.

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 Valuation Committee in good faith in accordance with policies and procedures established by NexPoint and 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 Valuation Committee 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.

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:


NOTES TO INVESTMENT PORTFOLIO (unaudited) (continued)

 

As of March 31, 2023       Highland Income Fund

 

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 Valuation 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 Valuation 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.

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 INVESTMENT PORTFOLIO (unaudited) (concluded)

 

As of March 31, 2023       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 March 31, 2023:

 

Issuer

   Shares at
December
31,
2022
     Beginning
Value as of
December
31, 2022
$
     Purchases at
Cost
$
     Proceeds
from Sales
$
     Distribution
to
Return of
Capital
$
    Net
Realized
Gain/(Loss)
on Sales
$
     Change in
Unrealized
Appreciation/
(Depreciation)
$
    Ending Value
as of
March 31,
2023
$
     Shares at
March 31,
2023
     Affiliated
Income
$
 

Majority Owned, Not Consolidated

                           

Allenby (Common Stocks)

     1,474,379        —          —          —          —         —          —         —          1,474,379        —    

Claymore (Common Stocks)

     10,359,801        —          —          —          —         —          —         —          10,359,801        —    

Other Affiliates

                           

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

     27,528,327        37,670,005        475,385        —          —         —          37,177       38,182,567        28,003,711        454,290  

EDS Legacy Partners (U.S. Senior Loans)

     61,411,237        59,271,980        —          —          —         —          365,783       59,637,763        61,411,237        1,573,663  

Highland Global Allocation Fund (Registered Investment Company)

     48,649        458,274        375,218        —          —         —          (53,828     779,664        86,246        18,576  

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

     15,508,203        19,469,085        —          —          —         —          —         19,469,085        15,508,203        193,415  

NEXLS LLC (LLC Interest)

     882        49,601,366        3,790,000        —          —         —          159,150       53,550,516        957        —    

NexPoint Diversified Real Estate Trust REIT (Common Stocks)

     1,275,616        14,299,655        —          —          —         —          (1,058,761     13,240,894        1,275,616        191,342  

NexPoint Real Estate Finance REIT (Common Stocks & Preferred Stock)

     4,523,263        72,294,165        —          —          —         —          (730,712     71,563,453        4,523,263        3,075,223  

NexPoint Residential Trust, Inc. (Common Stocks)

     186,372        8,110,910        —          —          (52,279     —          80,234       8,138,865        186,372        27,469  

NexPoint SFR Operating Partnership, LP (U.S. Senior Loans)

     65,000,000        63,590,800        —          —          —         —          —         63,590,800        65,000,000        1,218,750  

NexPoint Storage Partners, Inc. (Common Stocks)

     32,203        38,663,114        —          —          —         —          —         38,663,114        32,203        —    

NFRO Holdings, LLC (Common Stocks)

     —          —          56,916,455        —          —         —          —         56,916,455        2,276,658        —    

NFRO REIT SUB II, LLC, NFRO REIT SUB, LLC, NFRO SFR REIT, LLC (Common Stocks)

     139,114,085        333,165,821        10,987,738        —          (52,304,709     —          (18,480,079     273,368,771        140,398,060        11,211,955  

NHT Operating Partnership LLC Convertible Promissory Note (U.S. Senior Loans)

     6,400,000        5,798,400        —          —          —         —          —         5,798,400        6,400,000        13,974  

NHT Operating Partnership LLC Secured Promissory Note (U.S. Senior Loans)

     42,777,343        38,769,231        —          —          —         —          (12,958     38,756,273        42,777,343        1,261  

NREF Operating IV REIT Sub, LLC (U.S. Senior Loans)

     —          —          6,500,000        —          —         —          —         6,500,000        6,500,000        21,666  

SFR WLIF I, III, LLC (LLC Interest)

     10,000,000        9,408,770        —          —          —         —          —         9,408,770        10,000,000        469,739  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Total

     385,640,360        750,571,576        79,044,796        —          (52,356,988     —          (19,693,994     757,565,390        396,214,049        18,471,323  
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

   

 

 

    

 

 

   

 

 

    

 

 

    

 

 

 

Highland Opportunities a... (NYSE:HFRO)
Historical Stock Chart
From Mar 2024 to Apr 2024 Click Here for more Highland Opportunities a... Charts.
Highland Opportunities a... (NYSE:HFRO)
Historical Stock Chart
From Apr 2023 to Apr 2024 Click Here for more Highland Opportunities a... Charts.