Highland Funds I - Highland Income Fund (HFRO) N-CSRS Certified semi-annual shareholder report (management investment company)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORMN-CSR

CERTIFIED SHAREHOLDER REPORT OF REGISTERED

MANAGEMENT INVESTMENT COMPANIES

Investment Company Act file number:811-23268

HIGHLAND FLOATING RATE OPPORTUNITIES FUND

(Exact name of registrant as specified in charter)

300 Crescent Court

Suite 700

Dallas, Texas 75201

(Address of principal executive offices)(Zip code)

Highland Capital Management Fund Advisors, L.P.

300 Crescent Court

Suite 700

Dallas, Texas 75201

(Name and Address of Agent for Service)

Registrant’s telephone number, including area code: (800)357-9167

Date of fiscal year end: June 30

Date of reporting period: December 31, 2018

Item 1. Reports to Stockholders.

A copy of the Semi-Annual Report transmitted to shareholders pursuant to Rule30e-1 under the Investment Company Act of 1940, as amended (the “1940 Act”), is attached herewith.

Highland Floating Rate Opportunities Fund

Semi-Annual Report

December 31, 2018

Highland Floating Rate Opportunities Fund

TABLE OF CONTENTS

Consolidated Fund Profile	1
Consolidated Financial Statements
Consolidated Investment Portfolio	2
Consolidated Statement of Assets and Liabilities	12
Consolidated Statement of Operations	13
Consolidated Statement of Changes in Net Assets	14
Consolidated Statement of Cash Flows	16
Consolidated Financial Highlights	17
Notes to Consolidated Financial Statements	18
Additional Information	33
Changes of Independent Registered Public Accounting Firms	34
Approval of Investment Advisory Agreement	34
Important Information About This Report	37

Economic and market conditions change frequently.

There is no assurance that the trends described in this report will continue or commence.

A prospectus must precede or accompany this report. Please read the prospectus carefully before you invest.

CONSOLIDATED FUND PROFILE (unaudited)

Highland Floating Rate Opportunities Fund

Objective

Highland Floating Rate Opportunities Fund seeks to provide a high level of current income, consistent with preservation of capital.

Net Assets as of December 31, 2018

$1,026.2 million

Portfolio Data as of December 31, 2018

The information below provides a snapshot of Highland Floating Rate Opportunities Fund at the end of the reporting period. Highland Floating Rate Opportunities Fund is actively managed and the composition of its portfolio will change over time. Current and future holdings are subject to risk.

Quality Breakdown as of  12/31/2018 (%)(1)(2)
AAA	1.0
BBB	2.2
BB	23.4
B	51.4
CCC	7.3
C	0.1
Not Rated	14.6

Sectors as of 12/31/2018 (%)(2)(3)
Financial	27.8
Real Estate	25.8
Healthcare	13.8
Information Technology	11.9
Service	9.7

Top 10 Holdings as of 12/31/2018 (%)(2)(3)
Creek Pine Holdings, LLC 10.25% (Preferred Stock)	18.4
EDS Legacy Partners, VAR LIBOR USD 3 Month+2.750%, 12/14/2023 (U.S. Senior Loans)	5.6
Metro-Goldwyn-Mayer, Inc (Common Stocks)	4.0
Ditech Holding Corporation (fka Walter Investment Management Corp.), Tranche B Term Loan, VAR LIBOR USD 3 Month+6.000%, 6/30/2022 (U.S. Senior Loans)	2.5
Jernigan Capital, Inc. 7.00% cash/7.00% PIK (Preferred Stock)	2.5
CCS Medical, Inc., Term Loan, 5/31/2019 (U.S. Senior Loans)	2.4
USS Ultimate Holdings, Inc., Initial Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.750%, 8/25/2024 (U.S. Senior Loans)	2.3
84 Lumber Company, Term LoanB-1, VAR LIBOR USD 3 Month+5.250%, 10/25/2023 (U.S. Senior Loans)	2.3
Envision Healthcare Corporation, Initial Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.750%, 10/10/2025 (U.S. Senior Loans)	2.3
Surgery Center Holdings, Inc. Term Loan B VAR, LIBOR USD 3 Month+3.250%, 9/2/2024 (U.S. Senior Loans)	2.2

⁽¹⁾   Quality is calculated as a percentage of total credit instruments held by the portfolio. Sectors and holdings are calculated as a percentage of total net assets. The quality ratings reflected were issued by Standard & Poors, a nationally recognized statistical rating organization. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). Quality ratings reflect the credit quality of the underlying bonds in the Fund’s portfolio and not that of the Fund itself. Credit quality ratings assigned by a rating agency are subjective opinions, not statements of fact, and are subject to change, including daily. The ratings assigned by credit rating agencies are but one of the considerations that the Fund’s investment adviser incorporates into its credit analysis process, along with such other issuer specific factors as cash flows, capital structure and leverage ratios, ability to deleverage through free cash flow, quality of management, market positioning and access to capital, as well as such security-specific factors as the terms of the security (e.g., interest rate, and time to maturity) and the amount of any collateral.

⁽²⁾  Sectors and holdings are calculated as a percentage of total net assets.

⁽³⁾  Excludes the Fund’s investment in an investment company purchased with cash collateral from securities lending and cash equivalent investments.

Semi-Annual Report 1

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited)

As of December 31, 2018 Highland Floating Rate Opportunities Fund

Principal Amount ($)			Value ($)
	U.S. Senior Loans (a) - 85.8%
	AEROSPACE - 1.4%
	10,384,365	Accudyne Industries Borrower S.C.A. / Accudyne Industries, LLC (fka Silver II US Holdings, LLC), Initial Term Loan, VAR LIBOR USD 3 Month+3.000%, 08/18/24		9,880,723
	4,815,943	Transdigm Inc.,Term Loan E, VAR LIBOR USD 3 Month+2.500%, 05/30/25		4,557,856
				14,438,579
	COMMERCIAL SERVICES - 3.7%
	10,178,974	American Traffic Solutions, Inc., VAR LIBOR USD 3 Month+3.750%, 02/28/25		9,949,947
	14,017,871	EmployBridge LLC, 2018 Refinancing Term Loan, VAR LIBOR USD 3 Month+4.500%, 04/18/25		13,784,193
	5,725,962	Filtration Group Corporation, Initial Dollar Term Loan, VAR LIBOR USD 3 Month+3.000%, 03/29/25		5,539,868
	8,608,583	Fort Dearborn Holding Company, Inc., Initial Term Loan, VAR LIBOR USD 3 Month+4.000%, 10/19/23		8,113,589
				37,387,597
	COMMUNICATION SERVICES - 2.4%
	28,571,429	iHeartCommunications, Inc. Tranche D Term Loan (b)		19,325,429
	5,478,307	TerreStar Corporation, Term Loan D, 11.000% PIK 02/27/20 (c)(e)		5,472,828
				24,798,257
	CONSUMER DISCRETIONARY - 6.0%
	9,528,000	Flexera Software LLC, Initial Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.250%, 02/26/25		9,213,576
	11,352,935	Laureate Education Inc, Term Loan B, VAR LIBOR USD 3 Month+3.500%, 04/26/24		11,159,935
	13,684,682	Truck Hero, Inc., Initial Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.750%, 04/22/24		13,277,015
	4,076,667	Truck Hero, Inc., Initial Term Loan, 2nd Lien, VAR LIBOR USD 3 Month+8.250%, 04/21/25		4,015,517
	24,474,366	USS Ultimate Holdings, Inc., Initial Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.750%, 08/25/24		23,882,820
				61,548,863

Principal Amount ($)			Value ($)
	CONSUMER PRODUCTS - 2.1%
	3,349,411	Dayco Products, LLC, Term Loan B, VAR LIBOR USD 3 Month+4.250%, 05/19/23		3,282,423
	19,068,966	KIK Custom Products, Inc., Initial Term Loan, VAR LIBOR USD 3 Month+4.000%, 05/15/23		18,044,104
				21,326,527
	ENERGY - 3.8%
	4,604,230	Fieldwood Energy LLC, Closing Date Loan, 1st Lien, VAR LIBOR USD 3 Month+5.250%, 04/11/22		4,333,755
	15,904,030	Fieldwood Energy LLC, Closing Date Loan, 2nd Lien, VAR LIBOR USD 3 Month+7.250%, 04/11/23		14,043,259
	21,005,505	Traverse Midstream Partners LLC, Term Loan, VAR LIBOR USD 3 Month+4.000%, 09/27/24		20,217,799
				38,594,813
	FINANCIAL - 5.8%
	9,950,000	BCP Renaissance Parent LLC, Term Loan B, VAR LIBOR USD 3 Month+3.500%, 10/31/24		9,709,956
	30,139,187	Ditech Holding Corporation (fka Walter Investment Management Corp.), Tranche B Term Loan, VAR LIBOR USD 3 Month+6.000%, 06/30/22 (b)		26,170,760
	1,304,348	Edelman Financial Group (The), Term Loan, 2nd Lien, VAR LIBOR USD 3 Month+6.750%, 07/20/26		1,245,652
	10,747,658	Hub International Limited, Initial Term Loan, VAR LIBOR USD 3 Month+2.750%, 04/25/25		10,178,408
	9,300,263	Ocwen Loan Servicing, LLC, Restatement Effective Date Term Loan, VAR LIBOR USD 3 Month+5.000%, 12/07/20		9,160,759
	2,979,542	Russell Investments, Term Loan B, VAR LIBOR USD 3 Month+3.250%, 06/01/23		2,917,820
				59,383,355
	GAMING/LEISURE (b)(c) - 1.0%
	22,925,890	Ginn-LA CS Borrower LLC, Tranche A Term Loan Credit-Linked Deposit, 1st Lien (e)		—
	49,138,954	Ginn-LA CS Borrower LLC, (e) Tranche B Term Loan, 1st Lien		—
	12,503,460	LLV Holdco, LLC, Revolving Exit Loan (e)		10,002,768
				10,002,768

2 See Glossary on page 11 for abbreviations along with accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited) (continued)

As of December 31, 2018 Highland Floating Rate Opportunities Fund

Principal Amount ($)			Value ($)
	U.S. Senior Loans (continued)
	HEALTHCARE - 11.8%
	2,722,362	American Renal Holdings Inc., Term Loan B, VAR LIBOR USD 3 Month+3.250%, 06/21/24		2,667,915
	13,819,444	BW NHHC Holdco Inc., Initial Term Loan, 1st Lien, VAR LIBOR USD 3 Month+5.000%, 05/15/25		13,543,056
	52,022,417	CCS Medical, Inc., Term Loan, 05/31/19 (c)(d)(e)		24,398,513
	25,000,000	Envision Healthcare Corporation, Initial Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.750%, 10/10/25		23,366,000
	9,233,654	Quorum Health Corporation, Term Loan, VAR LIBOR USD 3 Month+6.750%, 04/29/22		9,182,869
	9,200,154	Radnet Management, Inc.,Term Loan B-1, 1st Lien, VAR LIBOR USD 3 Month+3.750%, 06/30/23		9,108,152
	1,777,778	Sound Inpatient Physicians Holdings LLC, 2nd Lien, VAR LIBOR USD 3 Month+6.750%, 06/26/26		1,720,000
	23,366,145	Surgery Center Holdings, Inc. Term Loan B, VAR LIBOR USD 3 Month+3.250%, 09/02/24		22,329,389
	2,375,000	U.S. Renal Care, Inc., Term Loan, 2nd Lien, VAR LIBOR USD 3 Month+8.000%, 12/29/23		2,280,000
	12,612,676	Vyaire Medical, Inc., Term Loan, 1st Lien, VAR LIBOR USD 3 Month+4.750%, 04/16/25		11,918,979
				120,514,873
	HOUSING - 3.6%
	24,088,706	84 Lumber Company,Term Loan B-1, VAR LIBOR USD 3 Month+5.250%, 10/25/23		23,847,819
	14,366,022	Builders FirstSource, Inc., Refinancing Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.000%, 02/29/24		13,524,604
	1,743,503	Nevada Land Group LLC, Initial Term Loan, 1st Lien, (b)(c)(d)		—
				37,372,423
	INDUSTRIALS - 4.1%
		Hayward Industries, Inc., Initial Term Loan, 1st Lien,
	18,214,998	VAR LIBOR USD 3 Month+3.500%, 08/05/24		17,569,824
	8,378,651	Omnimax International, Inc., Unsecured Term Loan, 14.000% PIK, 02/06/21 (c)(e)		8,269,728

Principal Amount ($)			Value ($)
	INDUSTRIALS (continued)
	6,284,211	Pisces Midco, Inc., Initial Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.750%, 04/12/25		5,750,053
	4,000,000	PSC Industrial Holdings Corp., Initial Term Loan, 2nd Lien, VAR LIBOR USD 3 Month+8.500%, 10/11/25		3,930,000
	6,996,466	PSC Industrial Holdings Corp., Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.750%, 10/11/24		6,839,046
				42,358,651
	INFORMATION TECHNOLOGY - 11.9%
	12,268,310	Avaya Inc., Tranche B Term Loan, VAR LIBOR USD 3 Month+4.250%, 12/15/24		11,877,258
	57,000,000	EDS Legacy Partners, VAR LIBOR USD 3 Month+2.750%, 12/14/23 (c)(d) + TM E		57,000,000
	10,000,000	Intermedia Holdings, Inc., New Term Loan, 1st Lien, VAR LIBOR USD 3 Month+6.000%, 07/21/25		9,987,500
	3,557,938	Kronos Incorporated, Incremental Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.000%, 11/01/23		3,392,636
	4,800,000	Kronos Incorporated, Initial Term Loan, 2nd Lien, VAR LIBOR USD 3 Month+8.250%, 11/01/24		4,760,256
	16,510,336	Neustar, Inc., Term Loan B4, VAR LIBOR USD 3 Month+3.500%, 08/08/24		15,911,836
	19,956,548	Procera Networks, Inc., Initial Term Loan, VAR LIBOR USD 3 Month+4.500%, 10/31/25		19,557,417
				122,486,903
	MANUFACTURING - 1.6%
	8,617,074	VC GB Holdings, Inc., Refinancing Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.250%, 02/28/24		8,186,220
	8,654,248	VC GB Holdings, Inc., Term Loan, 2nd Lien, VAR LIBOR USD 3 Month+8.000%, 02/28/25		8,524,434
				16,710,654
	METALS/MINERALS - 1.5%
	15,297,054	MacDermid Inc. (Platform Specialty Products Corporation), TrancheB-6 Term Loan, VAR LIBOR USD 3 Month+3.000%, 06/07/23		15,211,008

See Glossary on page 11 for abbreviations along with accompanying Notes to Consolidated Financial Statements. 3

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited) (continued)

As of December 31, 2018 Highland Floating Rate Opportunities Fund

Principal Amount ($)			Value ($)
	U.S. Senior Loans (continued)
	REAL ESTATE - 2.1%
	1,200,000	Bridgeview Louetta LLC, Mezzanine Term Loan, VAR LIBOR USD 3 Month+8.000%, 08/04/21 (c)(e)		1,228,016
	9,230,769	Forest City Enterprises, L.P., Initial Term Loan, VAR LIBOR USD 3 Month+4.000%, 12/08/25		9,038,446
	12,000,000	Specialty Building Products Holdings, LLC, Initial Term Loan (2018), VAR LIBOR USD 3 Month+5.750%, 10/01/25		11,640,000
				21,906,462
	RETAIL - 8.1%
	18,781,315	Academy, Ltd., Initial Term Loan, VAR LIBOR USD 3 Month+4.000%, 07/01/22		12,622,641
	12,698,413	Dealer Tire, LLC, Initial Term Loan, VAR LIBOR USD 3 Month+5.500%, 12/12/25		12,126,984
	1,178,368	General Nutrition Centers, Inc., FILO Term Loan, VAR LIBOR USD 3 Month+7.000%, 12/31/22		1,171,492
	12,632,772	General Nutrition Centers, Inc.,Tranche B-2 Term Loan, VAR LIBOR USD 3 Month+9.250%, 03/04/21		11,780,059
	11,464,021	Jo-Ann Stores, LLC, Initial Loan, 1st Lien, VAR LIBOR USD 3 Month+5.000%, 10/20/23		10,962,470
	9,604,167	Jo-Ann Stores, LLC, Initial Loan, 2nd Lien, VAR LIBOR USD 3 Month+9.250%, 05/21/24		9,328,047
	14,888,990	Men’s Wearhouse, Inc. (The), TrancheB-2 Term Loan, VAR LIBOR USD 3 Month+3.250%, 04/09/25		14,386,487
	4,430,233	Neiman Marcus Group Ltd. LLC, Other Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.250%, 10/25/20		3,758,787
	14,501,733	Toys ‘R’Us-Delaware, Inc., Term LoanB-4 (b)		7,178,358
				83,315,325
	SERVICE - 9.6%
	6,720,688	Advantage Sales & Marketing Inc., Initial Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.250%, 07/23/21		5,970,189
	2,194,605	Advantage Sales & Marketing Inc., Term Loan B2, 1st Lien, VAR LIBOR USD 3 Month+3.250%, 07/23/21		1,951,366

Principal Amount ($)			Value ($)
	SERVICE (continued)
	13,710,000	Advantage Sales & Marketing Inc., Term Loan, 2nd Lien, VAR LIBOR USD 3 Month+6.500%, 07/25/22		10,859,485
	18,521,236	Canyon Valor Companies, Inc. (fka GTCR Valor Companies, Inc.), Initial Dollar Term Loan, VAR LIBOR USD 3 Month+2.750%, 06/16/23		17,868,363
	17,131,141	CSC SW Holdco, Inc. (fka CSC Serviceworks, Inc.),Term Loan B-1, 1st Lien, VAR LIBOR USD 3 Month+3.250%, 11/14/22		16,394,502
	6,020,590	EnergySolutions, LLC (aka Envirocare of Utah, LLC), Initial Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.750%, 05/09/25		5,599,149
	14,628,466	Parexel International, Term Loan B, 1st Lien, VAR LIBOR USD 3 Month+2.750%, 09/27/24		13,330,190
	12,613,201	USI, Inc. (fka Compass Investors Inc.), 2017 New Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.000%, 05/16/24		11,935,242
	14,630,000	Weight Watchers International, Inc., Initial Term Loan, 1st Lien, VAR LIBOR USD 3 Month+4.750%, 11/29/24		14,501,987
				98,410,473
	TRANSPORTATION - 1.3%
	2,182,139	Capital Automotive LP, Term Loan, 2nd Lien, VAR LIBOR USD 3 Month+6.000%, 03/24/25		2,161,692
	11,790,921	Gruden Acquisition, Inc., Incremental Term Loan, 1st Lien, VAR LIBOR USD 3 Month+5.500%, 08/18/22		11,574,735
				13,736,427
	UTILITIES - 4.0%
	10,159,152	Eastern Power, LLC (Eastern Covert Midco, LLC), Term Loan, VAR LIBOR USD 3 Month+3.750%, 10/02/23		9,959,118
	2,319,304	Granite Acquisition, Inc., Term Loan B, 2nd Lien, VAR LIBOR USD 3 Month+7.250%, 12/19/22		2,271,758
	17,340,832	Lightstone Holdco LLC, Refinancing Term Loan B, VAR LIBOR USD 3 Month+3.750%, 01/30/24		16,459,397
	931,364	Lightstone Holdco LLC, Refinancing Term Loan C, VAR LIBOR USD 3 Month+3.750%, 01/30/24		884,023

4 See Glossary on page 11 for abbreviations along with accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited) (continued)

As of December 31, 2018 Highland Floating Rate Opportunities Fund

Principal Amount ($)			Value ($)
	U.S. Senior Loans (continued)
	UTILITIES (continued)
	11,567,253	Pike Corporation, Initial Term Loan, VAR LIBOR USD 3 Month+3.500%, 03/23/25		11,357,596
	59,127,210	Texas Competitive Electric Holdings Co., LLC, Extended Escrow Loan, (f)		147,818
				41,079,710
		Total U.S. Senior Loans (Cost $1,022,249,471)		880,583,668
	Collateralized Loan Obligations (g) - 22.1%
	7,000,000	Acis CLO, Ltd.,Series 2014-5A, Class D VAR LIBOR USD 3 Month+4.340%, 7.15%, 11/1/2026 (h)(i)		6,662,833
	7,500,000	Acis CLO, Ltd.,Series 2015-6A, Class E VAR LIBOR USD 3 Month+5.490%, 8.30%, 5/1/2027 (h)(i)		6,572,367
	14,750,000	Acis CLO, Ltd.,Series 2014-4A, Class E VAR LIBOR USD 3 Month+4.800%, 7.61%, 5/1/2026 (h)(i)		12,353,125
	4,000,000	Acis CLO, Ltd.,Series 2014-3A, Class E VAR LIBOR USD 3 Month+4.750%, 7.56%, 2/1/2026 (h)(i)		3,408,400
	750,000	Acis CLO, Ltd., Series 2014-4A, Class D VAR LIBOR USD 3 Month+3.100%, 5.91%, 5/1/2026 (i)		695,119
	1,000,000	Acis CLO, Ltd.,Series 2015-6A, Class D VAR LIBOR USD 3 Month+3.770%, 6.58%, 5/1/2027 (h)(i)		945,000
	1,400,000	Apidos CLO XII,Series 2018-12A, Class ER VAR LIBOR USD 3 Month+5.400%, 8.21%, 4/15/2031 (i)		1,247,820
	4,250,000	Apidos CLO XVIII,Series 2018-18A, Class F VAR LIBOR USD 3 Month+8.080%, 10.89%, 10/22/2030 (i)		3,862,825
	2,000,000	Ares XXXIII CLO, Ltd.,Series 2015-1A, Class D VAR LIBOR USD 3 Month+6.230%, 9.04%, 12/5/2025 (i)		1,921,000
	5,000,000	Atlas Senior Loan Fund V, Ltd., Series 2017-1A, Class ER2 VAR LIBOR USD 3 Month+6.980%,9.79%, 7/16/2029 (i)		4,691,667
	6,500,000	BlueMountain CLO, Ltd., Series 2018-3A, Class ER VAR LIBOR USD 3 Month+8.080%, 10.89%, 4/20/2031 (i)		5,545,150

Principal Amount ($)			Value ($)
	3,000,000	BlueMountain CLO, Ltd.,Series 2018-2A, Class ER2 VAR LIBOR USD 3 Month+6.000%, 8.81%, 10/20/2030 (i)		2,670,000
	4,500,000	Carlyle Global Market Strategies CLO, Ltd.,Series 2018-4RA, Class D VAR LIBOR USD 3 Month+5.650%, 8.46%, 7/15/2030 (i)		3,988,800
	2,750,000	Catamaran CLO, Ltd.,Series 2015-1A, Class E VAR LIBOR USD 3 Month+5.150%, 7.96%, 4/22/2027 (i)		2,440,625
	3,000,000	Catamaran CLO, Ltd.,Series 2014-2A, Class D VAR LIBOR USD 3 Month+4.850%, 7.66%, 10/18/2026 (h)(i)		2,794,500
	8,029,000	Catamaran CLO, Ltd.,Series 2017-1A, Class DR VAR LIBOR USD 3 Month+6.780%, 9.59%, 4/22/2030 (i)		7,320,039
	7,250,000	Cathedral Lake CLO, Ltd.,Series 2013-1A, Class DR VAR LIBOR USD 3 Month+7.250%, 10.06%, 10/15/2029 (i)		6,927,375
	1,125,000	CENT CLO, Ltd.,Series 2018-28A, Class D VAR LIBOR USD 3 Month+6.170%, 8.98%, 11/7/2030 (i)		1,005,188
	1,825,000	CFIP CLO, Ltd.,Series 2017-1A, Class ER VAR LIBOR USD 3 Month+6.600%, 9.41%, 7/13/2029 (i)		1,735,393
	1,500,000	CFIP CLO, Ltd.,Series 2013-1A, Class ER VAR LIBOR USD 3 Month+6.650%, 9.46%, 4/20/2029 (i)		1,367,505
	3,000,000	CIFC Funding, Ltd.,Series 2018-4RA, Class E VAR LIBOR USD 3 Month+8.000%, 10.81%, 10/17/2030 (i)		2,751,000
	4,000,000	Covenant Credit Partners CLO III,Series 2017-1A, Class F VAR LIBOR USD 3 Month+7.950%, 10.39%, 10/15/2029 (i)		3,300,000
	4,000,000	CVP Cascade CLO, Ltd.,Series 2014-2A, Class D VAR LIBOR USD 3 Month+4.800%, 7.61%, 7/18/2026 (i)		3,697,500
	6,000,000	CVP Cascade CLO, Ltd.,Series 2014-2A, Class C VAR LIBOR USD 3 Month+3.800%, 6.61%, 7/18/2026 (h)(i)		5,685,000
	3,250,000	ECP CLO, Ltd.,Series 2018-7A, Class DR VAR LIBOR USD 3 Month+5.900%, 8.71%, 4/22/2030 (i)		2,901,600
	1,300,000	Flagship VII, Ltd.,Series 2014-7A, Class E VAR LIBOR USD 3 Month+4.750%, 7.56%, 1/20/2026 (i)		1,144,000
	5,500,000	Galaxy XV CLO, Ltd.,Series 2017-15A, Class ER VAR LIBOR USD 3 Month+6.645%, 9.46%, 10/15/2030 (i)		5,300,625

See Glossary on page 11 for abbreviations along with accompanying Notes to Consolidated Financial Statements. 5

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited) (continued)

As of December 31, 2018 Highland Floating Rate Opportunities Fund

Principal Amount ($)			Value ($)
	Collateralized Loan Obligations (continued)
	5,450,000	Galaxy XXVI CLO, Ltd.,Series 2018-26A, Class F VAR LIBOR USD 3 Month+8.000%, 10.81%, 11/22/2031 (i)		4,659,750
	1,000,000	Galaxy XXVI CLO, Ltd.,Series 2018-26A, Class E VAR LIBOR USD 3 Month+5.850%, 8.66%, 11/22/2031 (i)		990,000
	2,500,000	Galaxy XXVII CLO, Ltd.,Series 2018-27A, Class E VAR LIBOR USD 3 Month+5.780%, 8.59%, 5/16/2031 (i)		2,106,250
	10,500,000	GoldenTree Loan Opportunities IX, Ltd.,Series 2018-9A, Class FR2 VAR LIBOR USD 3 Month+7.640%, 10.45%, 10/29/2029 (i)		10,080,000
	9,000,000	Greywolf CLO II, Ltd.,Series 2017-1A, Class DR VAR LIBOR USD 3 Month+6.350%, 9.16%, 10/15/2029 (h)(i)		8,390,925
	1,000,000	Greywolf CLO IV, Ltd.,Series 2014-2A, Class E VAR LIBOR USD 3 Month+6.650%, 9.46%, 1/17/2027 (i)		904,225
	2,200,000	Harbourview CLO VII,Series 2018-7RA, Class E VAR LIBOR USD 3 Month+6.100%, 8.91%, 7/18/2031 (i)		1,951,400
	6,000,000	Jay Park CLO, Ltd.,Series 2018-1A, Class ER VAR LIBOR USD 3 Month+7.350%, 10.16%, 10/20/2027 (i)		5,580,000
	3,000,000	JFIN CLO, Ltd.,Series 2013-1I, Class E VAR LIBOR USD 3 Month+6.000%, 8.81%, 1/20/2025		2,497,500
	7,221,070	JMP Credit Advisors CLO, Ltd.,Series 2018-1A, Class SSUB VAR LIBOR USD 3 Month+6.900%, 9.71%, 7/17/2030 (h)(i)		6,715,595
	6,200,000	KVK CLO, Ltd.,Series 2018-1A, Class E VAR LIBOR USD 3 Month+5.850%, 8.66%, 5/20/2029 (i)		5,595,500
	1,750,000	Madison Park Funding XV, Ltd.,Series 2017-15A, Class DR VAR LIBOR USD 3 Month+5.440%, 8.25%, 1/27/2026 (i)		1,723,750

Principal Amount ($)			Value ($)
	490,000	Magnetite VII, Ltd.,Series 2018-7A, Class ER2 VAR LIBOR USD 3 Month+6.500%, 9.31%, 1/15/2028 (i)		392,000
	8,000,000	Marathon CLO, Ltd.,Series 2018-8A, Class CR VAR LIBOR USD 3 Month+3.600%, 6.41%, 10/18/2031 (i)		7,609,200
	2,000,000	MP CLO IV, Ltd.,Series 2017-2A, Class ERR VAR LIBOR USD 3 Month+7.000%, 9.81%, 7/25/2029 (i)		1,869,772
	4,075,000	Nassau, Ltd.,Series 2017-IA, Class D VAR LIBOR USD 3 Month+6.180%, 8.99%, 10/15/2029 (i)		3,896,161
	3,000,000	Neuberger Berman CLO XVIII, Ltd.,Series 2018-18A, Class DR2 VAR LIBOR USD 3 Month+5.920%, 8.73%, 10/21/2030 (i)		2,640,000
	3,000,000	Neuberger Berman CLO XX, Ltd.,Series 2017-20A, Class FR VAR LIBOR USD 3 Month+7.250%, 10.06%, 1/15/2028 (i)		2,737,300
	1,000,000	Palmer Square CLO, Ltd.,Series 2017-1A, Class DR VAR LIBOR USD 3 Month+6.200%, 9.01%, 5/21/2029 (i)		970,000
	5,150,000	Saranac CLO III, Ltd.,Series 2018-3A, Class ER VAR LIBOR USD 3 Month+7.500%, 10.31%, 6/22/2030 (i)		4,767,183
	7,000,000	TICP CLOI-2, Ltd.,Series 2018-IA, Class D VAR LIBOR USD 3 Month+5.770%, 8.58%, 4/26/2028 (i)		6,411,650
	4,150,000	TICP CLOIII-2, Ltd.,Series 2018-3R, Class F VAR LIBOR USD 3 Month+7.980%, 10.79%, 4/20/2028 (i)		3,742,885
	4,200,000	TICP CLO XII, Ltd.,Series 2018-12A, Class E VAR LIBOR USD 3 Month+5.500%, 8.31%, 1/15/2031 (i)		4,137,000
	2,000,000	Trinitas CLO III, Ltd.,Series 2015-3A, Class E VAR LIBOR USD 3 Month+5.250%, 8.06%, 7/15/2027 (i)		1,650,000
	2,000,000	Trinitas CLO IX, Ltd.,Series 2018-9A, Class E VAR LIBOR USD 3 Month+6.250%, 9.06%, 1/20/2032 (i)		1,770,000
	7,575,000	Venture XIII CLO, Ltd.,Series 2017-13A, Class ER VAR LIBOR USD 3 Month+6.750%, 9.56%, 9/10/2029 (i)		7,260,259
	3,600,000	Voya CLO, Ltd.,Series 2017-2A, Class DR VAR LIBOR USD 3 Month+6.300%, 9.11%, 4/17/2030 (i)		3,227,400

6 See Glossary on page 11 for abbreviations along with accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited) (continued)

As of December 31, 2018 Highland Floating Rate Opportunities Fund

Principal Amount ($)			Value ($)
	Collateralized Loan Obligations (continued)
	2,850,000	Voya CLO, Ltd.,Series 2018-2A, Class ER VAR LIBOR USD 3 Month+7.850%, 10.66%, 4/25/2031 (i)		2,508,000
	3,950,000	Wellfleet CLO, Ltd.,Series 2018-2A, Class DR VAR LIBOR USD 3 Month+5.500%, 8.31%, 10/20/2028 (i)		3,871,000
	6,000,000	Z Capital Credit Partners CLO, Ltd.,Series 2015-1A, Class E VAR LIBOR USD 3 Month+5.970%, 8.78%, 7/16/2027 (h)(i)		5,455,980
	2,000,000	Zais CLO 3, Ltd.,Series 2018-3A, Class DR VAR LIBOR USD 1 Month+6.910%, 9.41%, 7/15/2031 (i)		1,590,000
	4,250,000	Zais CLO 7, Ltd.,Series 2017-2A, Class E VAR LIBOR USD 3 Month+7.150%, 9.96%, 4/15/2030 (i)		3,850,571
	2,000,000	Zais CLO 8, Ltd.,Series 2018-1A, Class E VAR LIBOR USD 3 Month+5.250%, 8.06%, 4/15/2029 (i)		1,780,000
		Total Collateralized Loan Obligations (Cost $245,215,303)		226,265,712
	Preferred Stock - 22.0%
	REAL ESTATE - 22.0%
	645,161	Braemar Hotels & Resorts, Inc., REIT 5.50% (j)		11,198,834
	180,008	Creek Pine Holdings, LLC REIT 10.25% (c)(e)		189,057,352
	22,500	Jernigan Capital, Inc., REIT 7.00% cash/7.00% PIK (c)(e)		25,248,211
		Total Preferred Stock (Cost $212,508,333)		225,504,397
	Common Stocks - 8.6%
	COMMUNICATION SERVICES - 0.7%
	27,134	TerreStar Corporation (c)(e)(k)		7,566,587
	ENERGY - 0.6%
	167,419	Fieldwood Energy LLC		6,361,922
	1,118,286	Value Creation, Inc. (c)		1
				6,361,923
	GAMING/LEISURE - 0.0%
	44	LLV Holdco LLC - Litigation Trust Units (c)(d)(e)		—
	34,512	LLV Holdco LLC - Series A, Membership Interest (c)(d)(e)		—
	436	LLV Holdco LLC - Series B, Membership Interest (c)(d)(e)		—
				—

Shares/Principal Amount ($)			Value ($)
	Common Stocks (continued)
	HEALTHCARE - 0.0%
	207,031	CCS Medical Inc. (c)(d)		—
	HOUSING - 0.0%
	1,648,350	Westgate Investments LLC (c)(e)		—
	INDUSTRIALS - 0.3%
	250,627	Remington Outdoor Co., Inc. (l)		2,443,613
	INFORMATION TECHNOLOGY - 0.0%
	117	Avaya Holdings Corp. (l)(m)		1,704
	MATERIALS - 1.2%
	299,032	MPM Holdings, Inc. (l)		9,419,508
	14,621	Omnimax International, Inc. (c)(e)		2,844,759
				12,264,267
	MEDIA - 4.1%
	10,939,879	Gambier Bay LLC (c)(d)(e)		1,258,086
	502,161	Metro-Goldwyn-Mayer, Inc (k)		41,009,983
				42,268,069
	REAL ESTATE - 1.7%
	1,291,881	Allenby (c)(d)(e)		1
	8,698,220	Claymore (c)(d)(e)		9
	31,232	Jernigan Capital, Inc. REIT		619,018
	802,563	NFRO REIT SUB, LLC (c)(d)(e)		17,207,025
				17,826,053
	UTILITIES - 0.0%
	10,378	Entegra TC LLC (c)(e)		—
		Total Common Stocks (Cost $360,607,997)		88,732,216
	Foreign Denominated or Domiciled Senior Loans (a) - 5.4%
	CANADA - 2.8%
	14,437,500	Bausch Health Companies Inc. (fka Valeant Pharmaceuticals International, Inc.), Initial Term Loan, VAR LIBOR USD 3 Month+3.000%, 06/02/25		13,829,970
	12,468,750	NorthRiver Midstream Finance LP, Initial Term Loan B, 1st Lien, VAR LIBOR USD 3 Month+3.250%, 10/01/25		12,203,789
	2,559,232	Titan Acquisition Limited, Initial Term Loan, 1st Lien, VAR LIBOR USD 3 Month+3.000%, 03/28/25		2,354,494
				28,388,253
	LUXEMBOURG - 2.6%
	7,758,621	Auris LuxCo (aka Sivantos Group), Term Loan B, 1st Lien, VAR LIBOR USD 3 Month+3.750%, 07/24/25		7,579,241

See Glossary on page 11 for abbreviations along with accompanying Notes to Consolidated Financial Statements. 7

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited) (continued)

As of December 31, 2018 Highland Floating Rate Opportunities Fund

Principal Amount ($)/Shares			Value ($)
	Foreign Denominated or Domiciled Senior Loans (continued)
	LUXEMBOURG (continued)
	20,000,000	Intelsat Jackson Holdings S.A., TrancheB-3 Term Loan, VAR LIBOR USD 3 Month+3.750%, 11/27/23		19,451,800
				27,031,041
		Total Foreign Denominated or Domiciled Senior Loans (Cost $57,008,555)		55,419,294
	Corporate Bonds & Notes - 1.2%
	ENERGY - 0.1%
	15,600,000	Ocean Rig UDW, Inc. (b)(c)(e)(i)		1,076,400
	5,000,000	Rex Energy Corp. (b)		73,500
				1,149,900
	INDUSTRIALS - 0.1%
	7,500,000	American Airlines		1,273,849
	INFORMATION TECHNOLOGY - 0.0%
	4,571,000	Avaya, Inc. (b)(e)		—
	UTILITIES - 1.0%
	13,753,863	Bruce Mansfield Unit 1 2007 Pass Through Trust (b)		10,040,320
	20,000,000	Texas Competitive Electric Holdings Co., LLC (f)		80,000
	8,000,000	Texas Competitive Electric Holdings Co., LLC (f)		32,000
				10,152,320
		Total Corporate Bonds & Notes (Cost $23,417,062)		12,576,069
	Registered Investment Company - 0.8%
	427,345	NexPoint Strategic Opportunities Fund (d)(j)		8,516,986
		Total Registered Investment Companies (Cost $9,692,243)		8,516,986
	Warrants - 0.1%
	ENERGY - 0.0%
	5,801	Arch Coal, Inc., Expires 10/09/2023 (l)		214,637
	GAMING/LEISURE - 0.0%
	1,834	LLV Holdco LLC - Series C, Membership Interest (c)(d)(e)		—
	2,522	LLV Holdco LLC - Series D, Membership Interest (c)(d)(e)		—
	2,819	LLV Holdco LLC - Series E, Membership Interest (c)(d)(e)		—
	3,172	LLV Holdco LLC - Series F, Membership Interest (c)(d)(e)		—
	3,594	LLV Holdco LLC - Series G, Membership Interest, Expires (c)(d)(e)		—
				—

Units/Shares			Value ($)
	INDUSTRIALS - 0.1%
	453	Omnimax Holdings, Inc., Expires 12/31/2049 (c)(e)(l)		88,054
	178,140	Remington Outdoor Co., Inc. (l)		155,873
				243,927
	INFORMATION TECHNOLOGY - 0.0%
	18,641	Avaya, Inc. (c)(e)(l)		51,729
		Total Warrants (Cost $290,959)		510,293
	Rights - 0.1%
	UTILITIES - 0.1%
	1,117,866	Texas Competitive Electric Holdings Co., LLC (l)		827,221
		Total Rights (Cost $3,882,035)		827,221
	Claims(n) - 0.0%
	COMMUNICATION SERVICES - 0.0%
	3,791,858	Lehman Brothers Commercial Paper LCPI Claim Facility (b)(c)(l)		52,138
		Total Claims (Cost $1,814,883)		52,138
	Cash Equivalents - 1.7%
	MONEY MARKET FUND (o) - 1.7%
	17,305,100	State Street Institutional U.S. Government Money Market Fund, Premier Class 2.170%		17,305,100
		Total Cash Equivalents (Cost $17,305,100)		17,305,100
	Total Investments - 147.8%			1,516,293,094
	(Cost $1,953,991,941)
	Other Assets & Liabilities, Net - (47.8)%			(490,068,463	)
	Net Assets - 100.0%			1,026,224,631

(a) Senior loans (also called bank loans, leveraged loans, or floating rate loans) in which the Fund invests generally pay interest at rates which are periodically determined by reference to a base lending rate plus a spread (unless otherwise identified, all senior loans carry a variable rate of interest). These base lending rates are generally (i) the Prime Rate offered by one or more major United States banks, (ii) the lending rate offered by one or more European banks such as the London Interbank Offered Rate (“LIBOR”) or (iii) the Certificate of Deposit rate. As of December 31, 2018, the LIBOR USD 1 Month, LIBOR USD 3 Month and LIBOR USD 6 Month rates were 2.50%, 2.81% and 2.88%, respectively. Senior loans, while exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”), contain certain restrictions on resale and cannot be sold publicly. Senior secured floating rate loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual remaining maturity maybe substantially less than the stated maturity shown.

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

8 See Glossary on page 11 for abbreviations along with accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited) (continued)

As of December 31, 2018 Highland Floating Rate Opportunities Fund

(c) Securities with a total aggregate value of $350,822,205, or 34.2% 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) Affiliated issuer. Assets with a total aggregate market value of $118,383,388, or 11.5% of net assets, were affiliated with the Fund as of December 31, 2018.

(e) 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 $350,770,066, or 34.2% of net assets, were fair valued under the Fund’s valuation procedures as of December 31, 2018. Please see Notes to Investment Portfolio.

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

(g) 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 December 31, 2018. LIBOR, otherwise known as London Interbank Offered Rate, is the benchmark interest rate that banks charge each other for short-term loans. Current LIBOR rates include 1 month which is equal to 2.50% and 3 months equal to 2.81%.

(h) As of December 31, 2018, investments with a total aggregate value of $58,983,725 were fully or partially segregated with broker(s)/custodian as collateral for reverse repurchase agreements.

(i) 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 December 31, 2018, these securities amounted to $224,844,612 or 21.9% of net assets.

(j) All or part of this security is pledged as collateral for short sales. The market value of the securities pledged as collateral was $19,584,723.

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

Restricted Security	Security Type		Acquisition Date		Cost of Security		Market Value at Period End		Percent of Net Assets
Metro-Goldwyn- Mayer, Inc.		Common Stocks		12/20/2010	$	21,845,688	$	41,009,983		4.0	%
TerreStar Corporation		Common Stocks		3/16/2018	$	3,093,276	$	7,566,587		0.7	%

(l) Non-income producing security.

(m) Securities (or a portion of securities) on loan. As of December 31, 2018, the market value of securities loaned was $1,704. The loaned securities were secured with cash and securities collateral of $1,755. Collateral is calculated based on prior day’s prices.

(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) Rate shown is 7 day effective yield.

Foreign Domiciled Senior Loans Industry Concentration Table: (% of Net Assets)
Healthcare	2.1	%
Communication Services	1.9	%
Oil & Gas	1.2	%
Service	0.2	%
	5.4	%

See Glossary on page 11 for abbreviations along with accompanying Notes to Consolidated Financial Statements. 9

CONSOLIDATED INVESTMENT PORTFOLIO (unaudited) (concluded)

As of December 31, 2018 Highland Floating Rate Opportunities Fund

The average amount of borrowing by the Fund on reverse repurchase agreements outstanding during the period ended December 31, 2018 was $46,341,328 at a weighted average interest rate of 3.99%. The Fund had $3,768 of cash pledged as collateral as of December 31, 2018.

Reverse Repurchase Agreements outstanding as of December 31, 2018 were as follows:

Counterparty	Collateral Pledged	Interest Rate		Trade Date		Maturity Date		Repurchase Amount			Principal Amount			Value
BNP	Acis CLO, Ltd., Series2014-3A, Class E, VAR LIBOR USD 3 Month+4.750%, 7.56%, 2/1/2026		3.92975		10/26/2018		1/24/2019	$	(2,936,973	)	$	(4,000,000	)	$	(2,908,400	)
BNP	Acis CLO, Ltd., Series2014-4A, Class E, VAR LIBOR USD 3 Month+4.800%, 7.61%, 5/1/2026		3.92975		10/26/2018		1/24/2019		(2,582,222	)		(3,500,000	)		(2,557,100	)
BNP	Acis CLO, Ltd., Series2014-4A, Class E, VAR LIBOR USD 3 Month+4.800%, 7.61%, 5/1/2026		3.92975		10/26/2018		1/24/2019		(8,302,271	)		(11,250,000	)		(8,221,500	)
BNP	Acis CLO, Ltd., Series2014-5A, Class D, VAR LIBOR USD 3 Month+4.340%, 7.15%, 11/1/2026		3.62975		10/26/2018		1/24/2019		(5,741,230	)		(7,000,000	)		(5,689,600	)
BNP	Acis CLO, Ltd., Series2015-6A, Class E, VAR LIBOR USD 3 Month+5.490%, 8.30%, 5/1/2027		3.92975		10/26/2018		1/24/2019		(5,629,518	)		(7,500,000	)		(5,574,750	)
BNP	Acis CLO, Ltd., Series2015-6A, Class D, VAR LIBOR USD 3 Month+3.770%, 6.58%, 5/1/2027		3.62975		10/26/2018		1/24/2019		(818,864	)		(1,000,000	)		(811,500	)
BNP	CVP Cascade CLO, Ltd., Series2014-2A, Class C, VAR LIBOR USD 3 Month+3.800%, 6.61%, 7/18/2026		3.5585		11/1/2018		1/30/2019		(4,825,753	)		(6,000,000	)		(4,783,200	)
BNP	Catamaran CLO, Ltd., Series2014-2A, Class D, VAR LIBOR USD 3 Month+4.850%, 7.66%, 10/18/2026		4.03738		10/23/2018		1/18/2019		(2,249,840	)		(3,000,000	)		(2,228,100	)
BNP	Greywolf CLO II, Ltd., Series2017-1A, Class DR, VAR LIBOR USD 3 Month+6.350%, 9.16%, 10/15/2029		3.99719		10/22/2018		1/18/2019		(6,885,022	)		(9,000,000	)		(6,818,400	)
BNP	JMP Credit Advisors CLO, Ltd., Series2018-1A, Class SSUB, VAR LIBOR USD 3 Month+6.900%, 9.71%, 7/17/2030		5.00125		12/6/2018		3/6/2019		(3,648,808	)		(7,500,000	)		(3,603,750	)
BNP	Z Capital Credit Partners CLO, Ltd., Series2015-1A, Class E, VAR LIBOR USD 3 Month+5.970%, 8.78%, 7/16/2027		3.92975		10/26/2018		1/24/2019		(2,973,731	)		(4,000,000	)		(2,944,800	)
Total Reverse Repurchase Agreements											$	(63,750,000	)	$	(46,141,100	)

10 See Glossary on page 11 for abbreviations along with accompanying Notes to Consolidated Financial Statements.

GLOSSARY: (abbreviations that may be used in the preceding statements)(unaudited)

Other Abbreviations:
CLO	Collateralized Loan Obligation
LIBOR	London Interbank Offered Rate
PIK	Payment-in-Kind
VAR	Variable

Semi-Annual Report 11

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

As of December 31, 2018 (unaudited) Highland Floating Rate Opportunities Fund

	($)
Assets
Investments from unaffiliated issuers, at value (a)		1,380,604,606
Affiliated investments, at value (Note 10)		118,383,388
Total Investments, at value		1,498,987,994
Cash equivalents (Note 2)		17,305,100
Cash		8,269
Receivable for:
Investments sold and principal paydowns		5,566,902
Dividends and interest		6,464,634
Due from broker		15,870,822
Prepaid expenses and other assets		165,934
Total assets		1,544,369,655
Liabilities:
Notes payable		450,000,000
Reverse repurchase agreements (Note 3)		46,141,100
Due to broker		1,974,879
Payable for:
Investments purchased		16,061,461
Interest expense and commitment fee payable (Note 6)		1,517,499
Investment advisory and administration fees (Note 7)		1,483,450
Accrued expenses and other liabilities		966,635
Total liabilities		518,145,024
Commitments and Contingencies (Note 8)
Net Assets		1,026,224,631
Net Assets Consist of:
Paid-in capital		1,630,233,977
Total distributable loss		(604,009,346	)
Net Assets		1,026,224,631
Investments, at cost		1,497,319,521
Affiliated investments, at cost (Note 10)		439,367,320
Cash equivalents, at cost (Note 2)		17,305,100
Foreign currency, at cost		(11,369	)
(a) Includes market value of securities on loan		1,704
Common Shares
Shares outstanding (unlimited authorization)		71,858,877
Net asset value per share (Net assets/shares outstanding)		14.28

12 See accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENT OF OPERATIONS

For the Six Months Ended December 31, 2018 (unaudited) Highland Floating Rate Opportunities Fund

	($)
Investment Income
Income:
Dividends from unaffiliated issuers		22,872
Dividends from affiliated issuers (Note 10).		256,407
Securities lending income (Note 4)		50,335
Interest from unaffiliated issuers		41,748,413
Interest paid in kind from unaffiliated issuers		1,285,809
Interest paid in kind from affiliated issuers (Note 10)		1,643,870
Total income		45,007,706
Expenses:
Investment advisory (Note 7)		4,956,766
Administration fees (Note 7)		665,399
Interest expense, commitment fees, and financing costs (Note 6)		8,549,135
Accounting services fees		1,080,774
Legal fees		455,072
Audit fees		251,390
Trustees fees (Note 6)		110,536
Reports to shareholders		78,826
Transfer agent fees		34,153
Custodian/wire agent fees		29,318
Registration fees		26,396
Insurance		12,534
Dividends and fees on securities sold short (Note 2)		3,298
Other		335,299
Total operating expenses		16,588,896
Net investment income		28,418,810
Net Realized and Unrealized Gain (Loss) on Investments
Realized gain (loss) on:
Investments from unaffiliated issuers		(1,773,560	)
Securities sold short (Note 2)		1,385,301
Foreign currency related transactions		(593	)
Net Change in Unrealized Appreciation (Depreciation) on:
Investments in unaffiliated issuers		(50,981,141	)
Investments in affiliated issuers		(4,041,717	)
Securities sold short (Note 2)		(69,643	)
Foreign currency related translations		(4,694	)
Net realized and unrealized gain (loss) on investments		(55,486,047	)
Total decrease in net assets resulting from operations		(27,067,237	)

See accompanying Notes to Consolidated Financial Statements. 13

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

Highland Floating Rate Opportunities Fund

	Six Months Ended December 31,  2018 (unaudited) ($)			Year Ended June 30, 2018 ($)
Increase (Decrease) in Net Assets
Operations:
Net investment income		28,418,810			50,700,522
Net realized loss on investments, securities sold short and foreign currency transactions		(388,852	)		(28,313,816	)
Net increase (decrease) in unrealized appreciation (depreciation) on investments, securities sold short and foreign currency transactions		(55,097,195	)		41,408,816
Net increase (decrease) from operations		(27,067,237	)		63,795,522
Distributions*(1)
Class A		—			(3,380,302	)
Class C		—			(2,697,014	)
Class Z		—			(6,360,145	)
Shares ofclosed-end fund		(33,189,202	)		(37,207,965	)
Return of capital:
Shares ofclosed-end fund		—			(6,936,337	)
Total distributions		(33,189,202	)		(56,581,763	)
Increase (decrease) in net assets from operations and distributions		(60,256,439	)		7,213,759
Share transactions*:
Proceeds from sale of shares
Class A		—			75,507,963
Class C		—			49,282,371
Class Z		—			252,257,435
Value of distributions reinvested
Class A		—			3,008,894
Class C		—			2,470,570
Class Z		—			5,841,184
Shares ofclosed-end fund		934,162			1,244,740
Cost of shares redeemed
Class A		—			(61,916,334	)
Class C		—			(26,700,962	)
Class Z		—			(109,971,065	)
Net increase from shares transactions		934,162			191,024,796
Total increase (decrease) in net assets		(59,322,277	)		198,238,555
Net Assets
Beginning of period		1,085,546,908			887,308,353
End of period(2)		1,026,224,631			1,085,546,908

(1) Current year presentation of distributions conforms withS-X Disclosure Simplification. Prior year distributions have been consolidated to conform withS-X Disclosure Simplification.

(2) Includes accumulated net investment loss of $(15,206,882) as of the year ended June 30, 2018. The SEC eliminated the requirement to disclose undistributed net investment income in November 2018.

14 See accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (continued)

Highland Floating Rate Opportunities Fund

	Six Months Ended December 31, 2018 (unaudited)		Year Ended June 30, 2018
CAPITAL STOCK ACTIVITY - SHARES*
Class A:
Shares sold		—		5,028,824
Issued for distribution reinvested		—		200,393
Shares redeemed		—		(4,126,129	)
Shares converted in conversion (Note 1)		—		(19,014,516	)
Net decrease in fund shares		—		(17,911,428	)
Class C:
Shares sold		—		3,282,455
Issued for distribution reinvested		—		164,623
Shares redeemed		—		(1,779,278	)
Shares converted in conversion (Note 1)		—		(16,925,308	)
Net decrease in fund shares		—		(15,257,508	)
Class Z:
Shares sold		—		16,798,932
Issued for distribution reinvested		—		389,052
Shares redeemed		—		(7,323,136	)
Shares converted in conversion (Note 1)		—		(35,789,642	)
Net decrease in fund shares		—		(25,924,794	)
Shares ofclosed-end fund:
Shares sold		—		—
Shares converted in conversion (Note 1)		—		71,729,466
Issued for distribution reinvested		61,657		67,754
Net increase in fund shares		61,657		71,797,220

* Capital stock activity prior to November 3, 2017 has been adjusted to give effect to an approximately 2 to 1 reverse stock split as part of the conversion to aclosed-end fund. (Note 1) Distribution activity related to the A, C, and Z share classes relates to the period from July 1, 2017 through November 3, 2017.

See accompanying Notes to Consolidated Financial Statements. 15

CONSOLIDATED STATEMENT OF CASH FLOWS

For the Six Month Period Ended December 31, 2018 (unaudited) Highland Floating Rate Opportunities Fund

	($)
Cash Flows Provided by Operating Activities:
Net decrease in net assets resulting from operations		(27,067,237	)
Adjustments to Reconcile Net Investment Gain to Net Cash Used in Operating Activities Operating Activities:
Purchases of investment securities from unaffiliated issuers		(841,511,918	)
Purchases of investment securities from affiliated issuers		(69,814,313	)
Interest paid in kind from unaffiliated issuers		(1,285,809	)
Interest paid in kind from affiliated issuers		(1,643,870	)
Proceeds from disposition of investment securities from unaffiliated issues		658,900,818
Proceeds of short-term portfolio investments, net		196,473,066
Purchases of securities sold short		(79,443,467	)
Proceeds of securities sold short		70,988,730
Paydowns at cost		68,463,097
Net accretion of discount		(628,879	)
Net realized loss on investments from unaffiliated issuers		1,773,560
Net realized gain on securities sold short and foreign currency transactions		(1,384,708	)
Net change in unrealized appreciation/(depreciation) on investments, securities sold short, and foreign currency related translations		55,097,195
Decrease in restricted cash		19,672,674
Decrease in receivable for deferred financing cost		1,665,000
Decrease in receivable for investments sold and principal paydowns		36,416,835
Decrease in dividends and interest receivable		2,991,360
Increase in due from broker		(15,870,822	)
Decrease in prepaid expenses and other assets		497,947
Decrease in payable for investments purchased		(46,935,780	)
Increase in payables to investment advisory		413,401
Decrease in payable upon receipt of securities on loan		(132,000	)
Decrease in payable for prepaid interest income		(250,000	)
Decrease in payable for dividends on securities sold short		(9,459	)
Increase in payable for interest expense and commitment fees		1,218,866
Increase in due to broker		1,974,879
Increase in accrued expenses and other liabilities		259,848
Net cash flow provided by operating activities		30,829,014
Cash Flows Used In Financing Activities:
Distributions paid in cash, net of payable		(32,255,040	)
Proceeds from reverse repurchase agreements, net		(2,422,323	)
Net cash flow used in financing activities		(34,677,363	)
Effect of exchange rate changes on cash		(5,287	)
Net Decrease in Cash		(3,853,636	)
Cash and Foreign Currency:
Beginning of period		3,861,905
End of period		8,269
Supplemental disclosure of cash flow information:
Reinvestment of distributions		934,162
Cash paid during the period for interest expense and commitment fees		8,549,135
Interest paid in kind from affiliated and unaffiliated issuers		2,929,679

16 See accompanying Notes to Consolidated Financial Statements.

CONSOLIDATED FINANCIAL HIGHLIGHTS

Highland Floating Rate Opportunities Fund

Selected data for a share outstanding throughout each period is as follows:

	For the Six Months Ended December 31, 2018 (unaudited)			For the Years Ended June 30,
				2018*‡			2017*‡			2016*‡			2015*‡			2014*‡
Net Asset Value, Beginning of Period	$	15.12		$	15.01		$	14.33		$	16.17		$	16.91		$	15.98
Income from Investment Operations:(a)
Net investment income		0.40			0.75			0.68			0.89			0.74			0.74
Redemption fees added topaid-in capital		—			—			—			—			—			—	(b)
Net realized and unrealized gain (loss)		(0.78	)		0.18			0.74			(1.84	)		(0.74	)		0.93
Total from Investment Operations		(0.38	)		0.93			1.42			(0.95	)		—	(b)		1.67
Less Distributions Declared to Shareholders:
From net investment income		(0.46	)		(0.72	)		(0.74	)		(0.89	)		(0.74	)		(0.72	)
From return of capital		—			(0.10	)		—			—			—			(0.02	)
Total distributions declared to shareholders		(0.46	)		(0.82	)		(0.74	)		(0.89	)		(0.74	)		(0.74	)
Net Asset Value, End of Period(c)	$	14.28		$	15.12		$	15.01		$	14.33		$	16.17		$	16.91
Market Value, End of Period	$	12.80		$	15.62		$	—		$	—		$	—		$	—
Total Return(d)		(2.60	)%(j)		9.77	%		10.05	%		(5.77	)%		0.11	%		10.68	%
Ratios to Average Net Assets / Supplemental Data:(e)(f)
Net Assets, End of Period (000’s)	$	1,026,225		$	1,085,547		$	389,278		$	241,197		$	283,673		$	340,089
Gross operating expenses(g)(h)		3.04	%		1.79	%		1.20	%(i)		1.38	%		1.03	%		1.25	%
Net investment income(h)		5.22	%		4.98	%		4.61	%		5.65	%		4.55	%		4.49	%
Portfolio turnover rate		27	%(j)		177	%		63	%		53	%		55	%		69	%

* Per share data prior to November 3, 2017 has been adjusted to give effect to an approximately 2 to 1 reverse stock split as part of the conversion to aclosed-end fund. (Note 1)

‡ Reflects the financial highlights of Class Z of theopen-end fund prior to the conversion.

(a) Per share data was calculated using average shares outstanding during the period.

(b) Represents less than $0.005 per share.

(c) The Net Asset Value per share and total return have been calculated based on net assets which include adjustments made in accordance with U.S. Generally Accepted Accounting Principles required at period end for financial reporting purposes. These figures do not necessarily reflect the Net Asset Value per share or total return experienced by the shareholder at period end

(d) Total return is based on market value per share for periods after November 3, 2017. Distributions are assumed for purposes of this calculation to be reinvested at prices obtained under the Fund’s Dividend Reinvestment Plan. Prior to November 3, 2017, total return is at net asset value assuming all distributions are reinvested. For periods with waivers/reimbursements, had the Fund’s investment adviser not waived or reimbursed a portion of expenses, total return would have been lower.

(e) All ratios for the period have been annualized, unless otherwise indicated.

(f) Supplemental expense ratios are shown below:

(g) Includes dividends and fees on securities sold short.

(h) Excludes12b-1 fees from partial period operating as anopen-end fund. Following the conversion on November 3, 2017, the Fund is no longer subject to12b-1fees.

(i) Refer to Note 7 in the Notes to the Financial Statements for discussion of prior period custodianout-of-pocket expenses that were communicated to the Fund in the current period. The amount of the reimbursement was immaterial on a per share basis and did not impact the total return of the Fund. The Ratios of Gross Operating Expenses and Net Operating Expenses to Average Net Assets would be unchanged as the reimbursement of custodian fees was offset against current period expense waivers/ reimbursements with no impact to net expenses or net investment income.

(j) Not annualized.

	For the Six Months Ended December 31, 2018 (unaudited)			For the Years Ended June 30,
				2018			2017			2016			2015			2014
Net operating expenses (net of waiver/reimbursement, if applicable, but gross of all other operating expenses)		3.04	%		1.79	%		1.12	%		1.11	%		1.04	%		0.99	%
Interest expense and commitment fees		1.57	%		0.49	%		0.01	%		0.15	%		0.04	%		0.08	%
Dividends and fees on securities sold short		—	%(k)		—	%(k)		0.01	%		0.01	%		0.05	%		0.04	%

(k) Represents less than 0.005%.

See accompanying Notes to Consolidated Financial Statements. 17

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited)

December 31, 2018 Highland Floating Rate Opportunities Fund

Note 1. Organization

Highland Floating Rate Opportunities Fund (the “Fund”) is organized as an unincorporated business trust under the laws of The Commonwealth of Massachusetts. The Fund is registered with the U.S. Securities and Exchange Commission (the “SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), as anon-diversified,closed-end management investment company. On September 25, 2017, the Fund acquired the assets of Highland Floating Rate Opportunities Fund (the “Predecessor Fund”), a series of Highland Funds I, a Delaware statutory trust. The Fund is the successor to the accounting and performance information of the Predecessor Fund. This report includes information for the six months ended December 31, 2018.

On November 3, 2017, shareholders of the Fund approved a proposal authorizing the Board of Trustees (the “Board”) of the Fund to convert the fund from anopen-end fund to aclosed-end fund at a special meeting of shareholders. The Board took action to convert the Fund to aclosed-end fund effective shortly after 4:00 p.m. Eastern Time on November 3, 2017 (the “Conversion Date”). The Fund also effected an approximately1-for-2 reverse stock split of the Fund’s issued and outstanding shares on November 3, 2017, thereby reducing the number of shares outstanding. Shareholders were paid cash for any fractional shares resulting from the reverse stock split. The Fund began listing its shares for trading on the New York Stock Exchange (the “NYSE”) on November 6, 2017 under the ticker symbol “HFRO”. The Fund may issue an unlimited number of common shares, par value $0.001 per share (“Common Shares”). Prior to the Conversion Date, the Fund issued Class A, Class C, and Class Z shares. The Fund incurred $1,076,274 in Conversion costs related to the fund conversion to aclosed-end fund.

Note 2. Significant Accounting Policies

The following summarizes the significant accounting policies consistently followed by the Funds in the preparation of their financial statements.

Use of Estimates

The Fund is an investment company that applies the accounting and reporting guidance of Accounting Standards Codification Topic 946 applicable to investment companies. The Fund’s consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require the Investment Adviser to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue and expenses during the reporting period. Changes in the economic environment,

financial markets and any other parameters used in determining these estimates could cause actual results to differ materially.

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 Financial Statements 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.

Fund Valuation

The net asset value (“NAV”) of the Fund’s common shares is calculated daily on each day that the NYSE is open for business as of the close of the regular trading session on the NYSE, usually 4:00 PM, Eastern Time. The NAV is calculated by dividing the value of the Fund’s net assets attributable to common shares by the numbers of common shares outstanding.

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 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

18 Semi-Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities Fund

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 consolidated 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;

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 December 31, 2018, 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, themid-price, which is the mean of the bid and ask price, is utilized to value the option.

Semi-Annual Report 19

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities Fund

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.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Transfers in and out of the levels are recognized at the value at the end of the period. A summary of the inputs used to value the Fund’s assets as of December 31, 2018 is as follows:

	Total value at December 31, 2018		Level 1 Quoted Price		Level 2 Significant Observable Inputs		Level 3 Significant Unobservable Inputs
Floating Rate Opportunities Fund
Assets
U.S. Senior Loans
Aerospace	$	14,438,579	$	—	$	14,438,579	$	—
Commercial Services		37,387,597		—		37,387,597		—
Communication Services		24,798,257		—		19,325,429		5,472,828
Consumer Discretionary		61,548,863		—		61,548,863		—
Consumer Products		21,326,527		—		21,326,527		—
Energy		38,594,813		—		38,594,813		—
Financial		59,383,355		—		59,383,355		—
Gaming/Leisure		10,002,768		—		—		10,002,768
Healthcare		120,514,873		—		96,116,360		24,398,513
Housing		37,372,423		—		37,372,423		—	(1)
Industrials		42,358,651		—		34,088,923		8,269,728
Information Technology		122,486,903		—		65,486,903		57,000,000
Manufacturing		16,710,654		—		16,710,654		—
Metals/Minerals		15,211,008		—		15,211,008		—
Real Estate		21,906,462		—		20,678,446		1,228,016
Retail		83,315,325		—		83,315,325		—
Service		98,410,473		—		98,410,473		—
Transportation		13,736,427		—		13,736,427		—
Utilities		41,079,710		—		41,079,710		—
Collateralized Loan Obligations		226,265,712		—		226,265,712		—
Preferred Stock
Real Estate		225,504,397		11,198,834		—		214,305,563
Common Stocks
Communication Services		7,566,587		—		—		7,566,587
Energy		6,361,923		6,361,922		—		1
Gaming/Leisure		—		—		—		—	(1)
Healthcare		—		—		—		—	(1)
Housing		—		—		—		—	(1)
Industrials		2,443,613		—		2,443,613		—
Information Technology		1,704		1,704		—		—
Materials		12,264,267		9,419,508		—		2,844,759
Media		42,268,069		41,009,983		—		1,258,086
Real Estate		17,826,053		619,018		—		17,207,035
Utilities		—		—		—		—	(1)

20 Semi-Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities Fund

	Total value at December 31, 2018		Level 1 Quoted Price		Level 2 Significant Observable Inputs		Level 3 Significant Unobservable Inputs
Foreign Denominated or Domiciled Senior Loans
Canada	$	28,388,253	$	—	$	28,388,253	$	—
Luxembourg		27,031,041		—		27,031,041		—
Corporate Bonds & Notes
Energy		1,149,900		—		73,500		1,076,400
Industrials		1,273,849		—		1,273,849		—
Information Technology		—		—		—		—
Utilities		10,152,320		—		10,152,320		—
Registered Investment Companies		8,516,986		8,516,986		—		—
Warrants
Energy		214,637		—		214,637		—
Gaming/Leisure		—		—		—		—	(1)
Industrials		243,927		—		155,873		88,054
Information Technology		51,729		—		—		51,729
Rights
Utilities		827,221		827,221		—		—
Claims		52,138		—		—		52,138
Cash Equivalents		17,305,100		17,305,100		—		—
Total	$	1,516,293,094	$	95,260,276	$	1,070,210,613	$	350,822,205

⁽¹⁾   This category includes securities with a value of zero.

Semi-Annual Report 21

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities Fund

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 six months ended December 31, 2018.

	Balance as of June 30, 2018		Transfers into Level 3		Transfers Out of Level 3		Net Amortization (Accretion) of Premium/ (Discount)			Net Realized Gains/ (Losses)		Net Unrealized Gains/ (Losses)			Net Purchase		Net (Sales)			Balance as of December 31, 2018		Change in Unrealized Appreciation (Depreciation) from Investments at December 31, 2018
Floating Rate Opportunities Fund
U.S. Senior Loan
Communication Services	$	5,168,238	$	—	$	—	$	—		$	—	$	4,878		$	299,712	$	—		$	5,472,828	$	4,878
Gaming/Leisure		9,552,081		—		—		—			—		(112,673	)		563,360		—			10,002,768		(112,673	)
Healthcare		25,656,370		—		—		—			—		(2,901,727	)		1,643,870		—			24,398,513		(2,901,727	)
Housing		—		—		—		—			—		—			—		—			—		—
Industrials		7,727,701		—		—		182,911			—		(245,647	)		604,763		—			8,269,728		(245,647	)
Information Technology		—		—		—		—			—		—			57,000,000		—			57,000,000		—
Real Estate		1,277,998		—		—		(12,742	)		—		(37,240	)		—		—			1,228,016		(37,240	)
Preferred Stock
Real Estate		20,000,000		—		—		—			—		11,797,230			182,508,333		—			214,305,563		11,797,230
Common Stocks
Communication Services		7,104,495		—		—		—			—		462,092			—		—			7,566,587		462,092
Energy		1		—		—		—			—		—			—		—			1		—
Gaming/Leisure		—		—		—		—			—		—			—		—			—		—
Healthcare		—		—		—		—			—		—			—		—			—		—
Housing		7,384,608		—		—		—			—		323,754			—		(7,708,362	)		—		323,754
Materials		4,932,895		—		—		—			—		(2,088,136	)		—		—			2,844,759		(2,088,136	)
Media		1,408,509		—		—		—			—		(150,423	)		—		—			1,258,086		(150,423	)
Real Estate		6,613,610		—		—		—			—		(13,658	)		10,607,083		—			17,207,035		(13,658	)
Utilities		84,269		—		—		—			—		25,945			—		(110,214	)		—		25,945
Corporate Bonds & Notes
Energy		1,076,400		—		—		—			—		—			—		—			1,076,400		—
Warrants
Gaming/Leisure		—		—		—		—			—		—			—		—			—		—
Industrials		152,689		—		—		—			—		(64,635	)		—		—			88,054		(64,635	)
Information Technology		66,735		—		—		—			—		(15,006	)		—		—			51,729		(15,006	)
Claims		52,138		—		—		—			—		—			—		—			52,138		—
Total	$	98,258,737	$	—	$	—	$	170,169		$	—	$	6,984,754		$	253,227,121	$	(7,818,576	)	$	350,822,205	$	6,984,754

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 six months ended December 31, 2018, there were no transfers between Levels.

22 Semi-Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities 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:

Category	Market Value at 12/31/2018		Valuation Technique	Unobservable Inputs	Input Value(s)
Preferred Stock	$	214,305,563	Net Asset Value	N/A		N/A
			Discounted Cash Flow	Discount Rate		8.5%
				Internal Rate of Return		14.0%
U.S. Senior Loans		106,371,853	Adjusted Appraisal	Liquidity Discount		10%
				Asset Specific Discount		10%
			Multiples Analysis	Multiple of Revenue		0.35x - 0.50x
				Multiple of EBITDA		2.0x - 5.0x
			Discounted Cash Flow	Discount Rate		11.1% - 16.0%
				Spread Adjustment		0.0% - 0.1%
			Cost	N/A		N/A
Common Stocks		28,876,468	Multiples Analysis	Multiple of Revenue		0.35x - 0.50x
				Multiple of EBITDA		2.0x - 7.0x
				UnadjustedPrice/MHz-PoP		$0.12 - $0.80
				Risk Discount		33.0% - 35.8%
			Discounted Cash Flow	Discount Rate		11.0% - 15.0%
				Terminal Multiple		6.5x
			Transaction Analysis	Multiple of EBITDA		7.25x - 7.75x
			Bid Indication of Value	Enterprise Value ($mm)		$720.0 - $765.0
			Net Asset Value	N/A		N/A
Corporate Bonds & Notes		1,076,400	Liquidation Analysis	Claim Amount: Percent of Par		6.9%
Warrants		139,783	Multiples Analysis	Multiple of EBITDA		6.0x - 7.0x
			Discounted Cash Flow	Discount Rate		11.0%
				Terminal Multiple		6.5x
			Transaction Analysis	Multiple of EBITDA		7.25x - 7.75x
			Bid Indication of Value	Enterprise Value ($mm)		$720.0 - $765.0
Claims		52,138	N/A	N/A		N/A
Total	$	350,822,205

The significant unobservable inputs used in the fair value measurement of the Fund’s bank loan securities are: liquidity discount, asset specific discount, multiple of revenue, multiple of EBITDA, 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 revenue, multiple of EBITDA,price/MHz-PoP multiple, risk discount, scenario probabilities, illiquidity discount, discount rate and terminal multiple. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the risk discount is accompanied by a directionally opposite change in the assumption for theprice/MHz-PoP multiple.

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.

Income Recognition

Corporate actions (including cash dividends) are recorded on theex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon afterex-dividend date as such information becomes available and is verified. Interest income is recorded on the accrual basis.

Accretion of discount on taxable bonds and loans is computed to the call date, while amortization of premium on taxable bonds and loans is computed to the call or maturity date, whichever is shorter, both using the effective yield

Semi-Annual Report 23

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities Fund

method. Withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.

U.S. Federal Income Tax Status

The Fund is treated as a separate taxpayer for U.S. federal income tax purposes. The Fund intends to qualify each year as a “regulated investment company” under Subchapter M of the Internal Revenue Code of 1986, as amended, and will distribute substantially all of its taxable income and gains, if any, for the tax year, and as such will not be subject to U.S. federal income taxes. In addition, the Fund intends to distribute, in each calendar year, all of its net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to U.S. federal excise tax. Therefore, no U.S. federal income or excise tax provisions are recorded.

The Investment Adviser has analyzed the Fund’s tax positions taken on U.S. federal income tax returns for all open tax years (current and prior three tax years), and has concluded that no provision for U.S. federal income tax is required in the Fund’s consolidated financial statements. The Fund’s U.S. federal and state income and U.S. federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue. Furthermore, the Investment Adviser of the Fund is also not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognized tax benefits will significantly change in the next 12 months.

Distributions to Shareholders

The Fund plans to pay distributions from net investment income monthly and net realized capital gains annually to common shareholders. To permit the Fund to maintain more stable monthly distributions and annual distributions, the Fund may from time to time distribute less than the entire amount of income and gains earned in the relevant month or year, respectively. The undistributed income and gains would be available to supplement future distributions. In certain years, this practice may result in the Fund distributing, during a particular taxable year, amounts in excess of the amount of income and gains earned therein. Such distributions would result in a portion of each distribution occurring in that year to be treated as a return of capital to shareholders. Shareholders of the Fund will automatically have all distributions reinvested in Common Shares of the Fund issued by the Fund in accordance with the Fund’s Dividend Reinvestment Plan (the “Plan”) unless an election is made to receive cash. The number of newly issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend by

the lesser of (i) the NAV per Common Share determined on the Declaration Date and (ii) the market price per Common Share as of the close of regular trading on the NYSE on the Declaration Date. Participants in the Plan requesting a sale of securities through the plan agent of the Plan are subject to a sales fee and a brokerage commission.

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 the Consolidated Statement of Assets and Liabilities.

Foreign Currency

Accounting records of the Fund are maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates using the current 4:00 PM London Time Spot Rate. Fluctuations in the value of the foreign currencies and other assets and liabilities resulting from changes in exchange rates, between trade and settlement dates on securities transactions and between the accrual and payment dates on dividends, interest income and foreign withholding taxes, are recorded as unrealized foreign currency gains/(losses). Realized gains/(losses) and unrealized appreciation/(depreciation) on investment securities and income and expenses are translated on the respective dates of such transactions. The effects of changes in foreign currency exchange rates on investments in securities are not segregated in the Consolidated Statement of Operations from the effects of changes in market prices of those securities, but are included with the net realized and unrealized gain or loss on investment securities.

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 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,

24 Semi-Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities Fund

resulting in leverage. Cash held as collateral for securities sold short is classified as restricted cash on the Consolidated Statement of Assets and Liabilities, as applicable. Securities valued at $19,584,723 were posted in the Fund’s segregated account as collateral.

Other Fee Income

Fee income may consist of origination/closing fees, amendment fees, administrative agent fees, transactionbreak-up fees and other miscellaneous fees. Origination fees, amendment fees, and other similar fees arenon-recurring fee sources. Such fees are received on a transaction by transaction basis and do not constitute a regular stream of income and are recognized when incurred.

Note 3. 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.

Options

The Fund may utilize options on securities or indices to varying degrees as part of their principal investment strategy. An option on a security is a contract that gives the holder of the option, in return for a premium, the right to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option the security underlying the option at a specified exercise or “strike” price. The writer of an option on a security has the obligation upon exercise of the option to deliver the underlying security upon payment of the exercise price or to pay the exercise price upon delivery of the underlying security. The Fund may hold options, write option contracts, or both.

If an option written by the Fund expires unexercised, the Fund realizes on the expiration date a capital gain equal to the premium received by the Fund at the time the option was written. If an option purchased by the Fund expires unexercised, the Fund realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, an exchange-traded option may be closed out by an offsetting purchase or sale of an option of the same series (type, underlying security, exercise price and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when the Fund desires. The Fund will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if the cost of the closing option is more than the premium received from

writing the option, a capital loss. The Fund will realize a capital gain from a closing sale transaction if the premium received from the sale is more than the original premium paid when the option position was opened, or a capital loss, if the premium received from a sale is less than the original premium paid. For the six months ended December 31, 2018, the Fund did not invest or write in options.

Reverse Repurchase Agreements

The Fund engages in reverse repurchase agreement transactions with respect to instruments that are consistent with the Fund’s investment objective or policies. This creates leverage for the Fund because the cash received can be used to purchase other securities. See Note 6 for additional information on the Fund’s reverse repurchase agreement.

Note 4. Securities Lending

The Fund may seek additional income by making secured loans of its portfolio securities through its custodian, State Street Bank and Trust Company (“State Street”). Such loans will be in an amount not greater thanone-third of the value of the Fund’s total assets. State Street will charge a Fund fees based on a percentage of the securities lending income.

The Fund will receive collateral consisting of cash (U.S. and foreign currency), securities issued or guaranteed by the U.S. government or its agencies or instrumentalities, sovereign debt, convertible bonds, irrevocable bank letters of credit or such other collateral as may be agreed on by the parties to a securities lending arrangement, initially with a value of 102% or 105% of the market value of the loaned securities and thereafter maintained at a value of 100% of the market value of the loaned securities. If the collateral consists ofnon-cash collateral, the borrower will pay the Fund a loan premium fee. If the collateral consists of cash, State Street will reinvest the cash. Although voting rights, or rights to consent, with respect to the loaned securities pass to the borrower, the Fund will recall the loaned securities upon reasonable notice in order that the securities may be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters materially affecting the investment. The Fund also may call such loans in order to sell the securities involved.

Securities lending transactions are entered into pursuant to Securities Loan Agreements (“SLA”), which provide the right, in the event of default (including bankruptcy or insolvency) for thenon-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Funds, as lenders, would offset the market value of the collateral received against the market value of the securities loaned. The value of the collateral is typically greater than that of the market value of the securities loaned, leaving the lender with a net amount payable to the defaulting party.

Semi-Annual Report 25

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities Fund

However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of a SLA counterparty’s bankruptcy or insolvency. Under the SLA, the Funds can reinvest cash collateral, or, upon an event of default, resell or repledge the collateral, and the borrower can resell or repledge the loaned securities. The risks of securities lending also include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate this risk, each Fund benefits from a borrower default indemnity provided by State Street Bank and Trust Company (“State Street”). State Street’s indemnity generally provides for replacement of securities lent or the approximate value thereof.

The following table presents financial instruments that are subject to enforceable netting arrangements as of December 31, 2018:

Gross Amounts Not Offset in the Consolidated Statement of Assets and Liabilities
Gross Amounts of Liabilities Presented in the Consolidated Statement of Assets & Liabilities	Financial Instrument			Collateral Received		Net Amount (not less than 0)
$1,704(1)	$	—	(2)	$	—	$	—

⁽¹⁾   In some instances, the actual collateral received and/or pledged may be more than the amount shown here due to overcollateralization.

⁽²⁾  Represents market value of securities on loan at six months ended.

For the six months ended December 31, 2018, the market value of securities loaned and the amounts secured with cash and securities collateral, which are included on the Fund’s Consolidated Investment Portfolio were as follows:

Security Lending Market Value	Security Lending Collateral Cash Collateral(1)		Security Lending Collateral Non-Cash Collateral(2)
$1,704	$	—	$	1,704

⁽¹⁾   The loaned securities were secured with cash collateral which was invested in the State Street Navigator Securities Lending Government Money Market Portfolio.

⁽²⁾  Security lendingnon-cash collateral consists of Common Stock.

Note 5. U.S. Federal Income Tax Information

The character of income and gains to be distributed is determined in accordance with income tax regulations which may differ from U.S. GAAP. These differences include (but are not limited to) investments organized as partnerships for tax purposes, foreign taxes, investments in futures, losses

deferred tooff-setting positions, tax treatment of organizationalstart-up costs, losses deferred due to wash sale transactions, tax treatment of net investment loss and distributions in excess of net investment income, dividends deemed paid upon shareholder redemption of Fund shares and tax attributes from Fund reorganizations. Reclassifications are made to the Funds’ capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. These reclassifications have no impact on net investment income, realized gains or losses, or NAV of the Funds. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments.

For the year ended June 30, 2018 permanent differences chiefly resulting from net investment losses,non-deductible excise taxes paid, partnership-basis adjustments, return of capital distributions, dividends on short sales, foreign currency gains and losses, equalization, short sale holding period reclass, capital loss carryover write-offs and REITs were identified and reclassified among the components of the Fund’s net assets as follows:

Distributable Earnings	Paid-in- Capital
$144,006,738	$	(144,006,738	)

At June 30, 2018, the Funds’ most recent tax year end, components of distributable earnings on a tax basis is as follows:

Undistributed Income	Other Temporary Differences(1)			Accumulated Capital and Other Losses			Unrealized Appreciation (Depreciation)(2)
$—	$	(59,988	)	$	(149,242,239	)	$	(394,450,680	)

⁽¹⁾  Other temporary differences are comprised of dividends payable, organizational expenses, partnership adjustments and default loan market discounts.

⁽²⁾  Any differences between book-basis andtax-basis net unrealized appreciation/(depreciation) are primarily due to deferral of losses from wash sales and other adjustments.

As of June 30, 2018, the Fund has capital loss carryovers as indicated below. The capital loss carryovers are available to offset future realized capital gains to the extent provided in the Code and regulations promulgated there-under. To the extent that these carryover losses are used to offset future capital gains, it is probable that the gains offset will not be distributed to shareholders because they would be taxable as ordinary income.

26 Semi-Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities Fund

2018	No Expiration Short- Term(1)		No Expiration Long- Term(1)		Total
$—	$	—	$	123,546,433	$	123,546,433

⁽¹⁾   On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the “Modernization Act”) was signed into law. The Modernization Act modifies several of the Federal income and excise tax provisions related to RICs. Under the Modernization Act, new capital losses may now be carried forward indefinitely, and retain the character of the original loss as compared with pre-

enactment law where capital losses could be carried forward for eight years, and carried forward as short-term capital losses, irrespective of the character of the original loss.

During the year ended June 30, 2018, $143,999,490 in capital loss carryforwards expired.

The tax character of distributions paid during the years ended June 30, 2018 and June 30, 2017 (unless otherwise indicated) is as follows

	Ordinary Income(1)		Long-Term Capital Gains		Return of Capital
2018	$	49,645,426	$	—	$	6,936,337
2017		31,812,190		—		2,014,621

⁽¹⁾   For tax purposes, short-term capital gains distributions, if any, are considered ordinary income distributions.

Unrealized appreciation and depreciation at December 31, 2018, based on cost of investments for U.S. federal income tax purposes was:

Gross Appreciation	Gross Depreciation			Net Appreciation/ (Depreciation)			Cost
$48,674,542	$	(486,373,389	)	$	(437,698,847	)	$	1,953,991,941

Qualified Late Year Ordinary and Post October Losses

Under current laws, certain capital losses realized after October 31 may be deferred (and certain ordinary losses after January 1st may be deferred) and treated as occur- ring on the first day of the following fiscal year. For the fiscal year ended June 30, the Funds elected to defer the following losses incurred from November 1, 2017 through June 30, 2018:

Realized Capital Losses	Ordinary Losses
$(25,693,560)	$	(2,246	)

Note 6.Credit Agreement and Reverse Repurchase Agreement

On February 2, 2018, HFRO Sub, LLC a wholly-owned subsidiary of the Fund entered into a financing arrangement (the “Financing Arrangement”) with Bank of America Merrill Lynch and Bank of America, N.A.

Pursuant to the terms of the Financing Arrangement, and subject to certain customary conditions, HFRO Sub, LLC may borrow on a revolving basis a maximum of $500 million, with a maturity date of February 2, 2020. In connection with the Financing Arrangement, HFRO Sub, LLC and the Fund have made representations and warranties regarding the loans and underlying collateral and are required to comply with various covenants, reporting requirements and other customary requirements. The Facility also limits the recourse of the lender to the assets of HFRO Sub, LLC and includes usual and customary events of default for senior secured revolving facilities of this nature. At December 31, 2018, current outstanding and fair value amounts were $450,000,000 and $454,170,068, respectively, and would be categorized as Level 3 within the fair value hierarchy. The Fund’s average daily balance was $450,000,000 at a weighted average interest rate of 3.44% for the days outstanding.

On March 21, 2017, the Fund entered into a leverage facility agreement (the “BNP Agreement”) with BNP Paribas Prime Brokerage International, Ltd., BNP Prime Brokerage, Inc., acting through its New York Branch, and BNP Paribas (together, the “BNPP Entities”). Under the BNP Agreement, the BNPP Entities may make margin loans to Fund at a rate ofone-month LIBOR + 0.50%. The BNP Agreement may be terminated by either the Fund or the BNPP Entities with 30 days’ notice.

At December 31, 2018, the Fund did not have an outstanding balance on the BNP Agreement. The Fund’s average daily balance was $46,341,328 at a weighted average interest rate of 3.99% for the days outstanding.

On February 9, 2018, the Fund entered into an agreement with BNP Paribas Securities Corporation (“BNP Securities”) under which it may from time to time enter into reverse repurchase transactions pursuant to the terms of a master repurchase agreement and related annexes (collectively the “Repurchase Agreement”). A reverse repurchase transaction is a repurchase transaction in which the Fund is the seller of securities or other assets and agrees to repurchase them at a date certain or on demand. Pursuant to the Repurchase Agreement, the Fund may agree to sell securities or other assets to BNP Securities for an agreed upon price (the “Purchase Price”), with a simultaneous agreement to repurchase such securities or other assets from BNP Securities for the Purchase Price plus a price differential that is economically similar to interest. The price differential is negotiated for each transaction. This creates leverage for the Fund because the cash received can be used to purchase other securities.

Semi-Annual Report 27

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities Fund

Note 7. Investment Advisory, Administration and Trustee Fees

For its investment advisory services, the Fund pays the Investment Adviser a monthly fee, computed and accrued daily, based on an annual rate of the Fund’s Average Daily Managed Assets. Average Daily Managed Assets of a Fund means the average daily value of the total assets of a Fund less all accrued liabilities of a Fund (other than the aggregate amount of any outstanding borrowings constituting financial leverage).

The table below shows the Fund’s contractual advisory fee with the Investment Adviser for the six months ended December 31, 2018:

Annual Fee Rate to the Investment Advisor	> 1 Billion			> 2 Billion
0.65%		0.60	%		0.55	%

Administration Fee

The Investment Adviser provides administrative services to the Fund. For its services, the Investment Adviser receives an annual fee, payable monthly, in an amount equal to 0.20% of the average weekly value of the Fund’s Managed Assets. Under a separatesub-administration agreement, the Investment Adviser delegates certain administrative functions and pays thesub-administrator directly for thesesub-administration services. Effective October 1, 2018, the Investment Adviser entered into an administrative services agreement with SEI Investments Global Funds Services, a wholly owned subsidiary of SEI Investments Company. Prior to October 1, 2018, State Street Bank and Trust Company served assub-administrator to the Fund.

Expense Limits and Fee Reimbursements

The Investment Adviser had contractually agreed to limit the total annual operating expenses (exclusive of fees paid by the Fund pursuant to its Plan, taxes, dividend expenses on short sales, interest payments, brokerage commissions and other transaction costs, acquired fund fees and expenses, and extraordinary expenses) of the Fund to 0.95% of average daily net assets of the Fund (the “FRO Expense Cap”). The FRO Expense Cap expired on October 31, 2016. Under the expense limitation agreement, the Investment Adviser may recoup waived and/or reimbursed amounts with respect to the Fund withinthirty-six months of the date such amounts were waived or reimbursed, provided the Fund’s total annual operating expenses, including such recoupment, do not exceed the FRO Expense Cap in effect at the time of such waiver/reimbursement.

There can be no assurance that these fee reductions will be sufficient to avoid any loss. On December 31, 2018, the amounts subject to possible future recoupment under the Funds’ expense limitations were as follows:

Fiscal Years Ended June 30
2019	2020
$751,520	$	169,993

During the six months ended December 31, 2018, the Investment Adviser did not recoup any amounts previously waived or reimbursed and $1,002,899 of fees of the Fund previously waived and or reimbursed by the Investment Adviser that were eligible for recoupment expired.

Fees Paid to Officers and Trustees

Each Trustee who is not an “interested person” of the Fund as defined in the 1940 Act (the “Independent Trustees”) receives an annual retainer of $150,000 payable in quarterly installments and allocated among each portfolio in the Highland Fund Complex overseen by such Trustee based on relative net assets. The “Highland Fund Complex” consists of all of the registered investment companies advised by the Investment Adviser or its affiliated advisers and NexPoint Capital, Inc., aclosed-end management investment company that has elected to be treated as a business development company under the 1940 Act as of the date of this report.

The Fund pays no compensation to its officers, all of whom are employees of the Investment Adviser or one of its affiliates.

Indemnification

Under the Fund’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of business, the Fund may enter into contracts with service providers that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and, therefore, cannot be estimated.

Note 8. Disclosure of Significant Risks and Contingencies

The primary risks of investing in the Fund are described below in alphabetical order:

Counterparty Risk

Counterparty risk is the potential loss the Fund may incur as a result of the failure of a counterparty or an issuer to make payments according to the terms of a contract. Counterparty risk is measured as the loss the Fund would record if its counterparties failed to perform pursuant to the terms of

28 Semi-Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities Fund

their obligations to the Fund. Because the Fund may enter intoover-the-counter forwards, options, swaps and other derivative financial instruments, the Fund may be exposed to the credit risk of its counterparties. To limit the counterparty risk associated with such transactions, the Fund conducts business only with financial institutions judged by the Investment Adviser to present acceptable credit risk.

Credit Risk

Investments rated below investment grade are commonly referred to as high-yield, high risk or “junk debt.” They are regarded as predominantly speculative with respect to the issuing company’s continuing ability to meet principal and/ or interest payments. Investments in high yield debt and high yield Senior Loans may result in greater NAV fluctuation than if the Fund did not make such investments.

Corporate debt obligations, including Senior Loans, are subject to the risk ofnon-payment of scheduled interest and/or principal.Non-payment would result in a reduction of income to the Fund, a reduction in the value of the corporate debt obligation experiencingnon-payment and a potential decrease in the NAV of the Fund.

Currency Risk

A portion of the Fund’s assets may be quoted or denominated innon-U.S. currencies. These securities may be adversely affected by fluctuations in relative currency exchange rates and by exchange control regulations. The Fund’s investment performance may be negatively affected by a devaluation of a currency in which the Fund’s investments are quoted or denominated. Further, the Fund’s investment performance may be significantly affected, either positively or negatively, by currency exchange rates because the U.S. dollar value of securities quoted or denominated in another currency will increase or decrease in response to changes in the value of such currency in relation to the U.S. dollar.

Derivatives Risk

Derivatives risk is a combination of several risks, including the risks that: (1) an investment in a derivative instrument may not correlate well with the performance of the securities or asset class to which the Fund seeks exposure, (2) derivative contracts, including options, may expire worthless and the use of derivatives may result in losses to the Fund, (3) a derivative instrument entailing leverage may result in a loss greater than the principal amount invested, (4) derivatives not traded on an exchange may be subject to credit risk, for example, if the counterparty does not meet its obligations (see also “Counterparty Risk”), and (5) derivatives not traded on an exchange may be subject to liquidity risk and the related risk that the instrument is difficult or impossible to value accurately. As a general matter, when the Fund

establishes certain derivative instrument positions, such as certain futures, options and forward contract positions, it will segregate liquid assets (such as cash, U.S. Treasury bonds or commercial paper) equivalent to the Fund’s outstanding obligations under the contract or in connection with the position. In addition, changes in laws or regulations may make the use of derivatives more costly, may limit the availability of derivatives, or may otherwise adversely affect the use, value or performance of derivatives. A Fund’s ability to pursue its investment strategy, including its strategy of investing in certain derivative instruments, may be limited to or adversely affected by the Fund’s intention to qualify as a regulated investment company, and its strategy may bear adversely on its ability to so qualify.

Distressed and Defaulted Securities Risk

The Fund may invest in companies that are troubled, in distress or bankrupt. As such, they are subject to a multitude of legal, industry, market, environmental and governmental forces that make analysis of these companies inherently difficult. Further, the Investment Adviser relies on company management, outside experts, market participants and personal experience to analyze potential investments for the Fund. There can be no assurance that any of these sources will prove credible, or that the resulting analysis will produce accurate conclusions.

Hedging Risk

The Fund may engage in “hedging,” the practice of attempting to offset a potential loss in one position by establishing an opposite position in another investment. Hedging strategies in general are usually intended to limit or reduce investment risk, but can also be expected to limit or reduce the potential for profit. For example, if the Fund has taken a defensive posture by hedging its portfolio, and stock prices advance, the return to investors will be lower than if the portfolio had not been hedged. No assurance can be given that any particular hedging strategy will be successful, or that the Investment Adviser will elect to use a hedging strategy at a time when it is advisable.

Illiquid and Restricted Securities Risk

Certain investments made by the Fund are, and others may be, illiquid, and consequently the Fund may not be able to sell such investments at prices that reflect the Investment Adviser’s assessment of their value or the amount originally paid for such investments by the Fund. Illiquidity may result from the absence of an established market for the investments as well as legal, contractual or other restrictions on their resale and other factors. Furthermore, the nature of the Fund’s investments, especially those in financially distressed companies, may require a long holding period prior to profitability.

Semi-Annual Report 29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities Fund

Restricted securities (i.e., securities acquired in private placement transactions) and illiquid securities may offer higher yields than comparable publicly traded securities. The Fund, however, may not be able to sell these securities when the Investment Adviser considers it desirable to do so or, to the extent they are sold privately, may have to sell them at less than the price of otherwise comparable securities. Restricted securities are subject to limitations on resale which can have an adverse effect on the price obtainable for such securities. Also, if in order to permit resale the securities are registered under the Securities Act at a Fund’s expense, the Fund’s expenses would be increased. A high percentage of illiquid securities in a Fund creates a risk that such a Fund may not be able to redeem its shares without causing significant dilution to remaining shareholders.

Leverage Risk

The Fund may use leverage in its investment program, including the use of borrowed funds and investments in certain types of options, such as puts, calls and warrants, which may be purchased for a fraction of the price of the underlying securities. While such strategies and techniques increase the opportunity to achieve higher returns on the amounts invested, they also increase the risk of loss. To the extent the Fund purchases securities with borrowed funds, its net assets will tend to increase or decrease at a greater rate than if borrowed funds are not used. If the interest expense on borrowings were to exceed the net return on the portfolio securities purchased with borrowed funds, the Fund’s use of leverage would result in a lower rate of return than if the Fund were not leveraged.

Non-U.S. Securities Risk

The Fund may invest innon-U.S. securities. Investing innon-U.S. securities involves certain risks not involved in domestic investments, including, but not limited to: fluctuations in foreign exchange rates; future foreign economic, financial, political and social developments; different legal systems; the possible imposition of exchange controls or other foreign governmental laws or restrictions; lower trading volume; much greater price volatility and illiquidity of certainnon-U.S. securities markets; different trading and settlement practices; less governmental supervision; changes in currency exchange rates; high and volatile rates of inflation; fluctuating interest rates; less publicly available information; and different accounting, auditing and financial recordkeeping standards and requirements.

Options Risk

There are several risks associated with transactions in options on securities. For example, there are significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A transaction in

options or securities may be unsuccessful to some degree because of market behavior or unexpected events.

When the Fund writes a covered call option, the Fund forgoes, during the option’s life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but retains the risk of loss should the price of the underlying security decline. The writer of an option has no control over the time when it may be required to fulfill its obligation and once an option writer has received an exercise notice, it must deliver the underlying security in exchange for the strike price.

When the Fund writes a covered put option, the Fund bears the risk of loss if the value of the underlying stock declines below the exercise price minus the put premium. If the option is exercised, the Fund could incur a loss if it is required to purchase the stock underlying the put option at a price greater than the market price of the stock at the time of exercise plus the put premium the Fund received when it wrote the option. While the Fund’s potential gain in writing a covered put option is limited to distributions earned on the liquid assets securing the put option plus the premium received from the purchaser of the put option, the Fund risksa loss equal to the entire exercise price of the option minus the put premium.

Senior Loans Risk

The risk that the issuer of a senior may fail to pay interest or principal when due, and changes in market interest rates may reduce the value of the senior loan or reduce the Fund’s returns. The risks associated with senior loans are similar to the risks of high yield debt securities. Senior loans and other debt securities are also subject to the risk of price declines and to increases in interest rates, particularly long-term rates. Senior loans are also subject to the risk that, as interest rates rise, the cost of borrowing increases, which may increase the risk of default. In addition, the interest rates of floating rate loans typically only adjust to changes in short-term interest rates; long-term interest rates can vary dramatically from short-term interest rates. Therefore, senior loans may not mitigate price declines in a long-term interest rate environment. The Fund’s investments in senior loans are typically below investment grade and are considered speculative because of the credit risk of their issuers.

Short Sales Risk

Short sales by the Fund that are not made where there is an offsetting long position in the asset that it is being sold short theoretically involve unlimited loss potential since the market price of securities sold short may continuously increase. Short selling allows the Fund to profit from declines in market prices to the extent such decline exceeds the transaction costs and costs of borrowing the securities. However, since the borrowed

30 Semi-Annual Report

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities Fund

securities must be replaced by purchases at market prices in order to close out the short position, any appreciation in the price of the borrowed securities would result in a loss. Purchasing securities to close out the short position can itself cause the price of securities to rise further, thereby exacerbating the loss. The Fund may mitigate such losses by replacing the securities sold short before the market price has increased significantly. Under adverse market conditions, the Fund might have difficulty purchasing securities to meet margin calls on its short sale delivery obligations, and might have to sell portfolio securities to raise the capital necessary to meet its short sale obligations at a time when fundamental investment considerations would not favor such sales.

Valuation Risk

Certain of the Fund’s assets are fair valued, including the Fund’s primary illiquid asset, TerreStar. TerreStar is anon-operating company that does not currently generate revenue and which primarily derives its value from two spectrum frequencies, the license with respect to one of which was terminated by the FCC and is being contested by TerreStar on technical and public policy grounds. TerreStar currently anticipates such contest may take between 12 to 30 months and expects deployment of its other spectrum asset to require a similar period of time. If TerreStar is ultimately unsuccessful in its efforts, the terminated

license would not be reinstated and the value of the TerreStar equity would likely be materially negatively impacted. The fair valuation of TerreStar involves uncertainty as it is materially dependent on these estimates. With regard to the likelihood of TerreStar regaining the terminated license, the Investment Adviser assigned a high probability of success, based in part in consultation with outside experts.

Gain Contingency

Claymore Holdings, LLC, a partially-owned affiliate of the Fund, is engaged in ongoing litigation that could result in a possible gain contingency to the Fund. The probability, timing, and potential amount of recovery, if any, are unknown.

Note 9. Investment Transactions

Purchases & Sales of Securities

The cost of purchases and the proceeds from sales of investments, other than short-term securities and short-term options, for the six months ended December 31, 2018, were as follows:

U.S Government Securities			Other Securities
Purchases	Sales		Purchases		Sales
$4,864,454	$	4,842,148	$	574,303,378	$	388,296,238

Note 10. 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 as of December 31, 2018:

Floating Rate Opportunities Fund Issuer	Shares at June 30, 2018		Beginning Value as of June 30, 2018		Purchases at Cost		Proceeds from Sales		Net Realized Gain/(Loss) on Sales of Affiliated Issuers		Change in Unrealized Appreciation/ Depreciation			Ending Value as of December 31, 2018		Shares at December 31, 2018		Affiliated Income
Majority Owned, Not Consolidated
Allenby (Common Stocks)		1,225,384	$	1$ 66,496	$	66,496	$	—	$	—	$	(66,496	)	$	1		1,291,881	$	—
Claymore (Common Stocks)		8,257,632		8		440,587		—		—		(440,586	)		9		8,698,220		—
Other Affiliates
CCS Medical, Inc. (U.S. Senior Loans & Common Stocks)		49,169,570		25,656,370		1,643,870		—		—		(2,901,727	)		24,398,513		52,022,417		1,643,870
EDS Legacy Partners (U.S. Senior Loans)		—		—		57,000,000		—		—		—			57,000,000		57,000,000		—
Gambier Bay LLC (Common Stocks)		10,939,879		1,408,509		—		—		—		(150,423	)		1,258,086		10,939,879		—
LLV Holdco LLC (U.S. Senior Loans, Common Stocks and Warrants)		11,989,033		9,552,080		563,360		—		—		(112,672	)		10,002,768		12,503,400		—
Nevada Land Group LLC (U.S. Senior Loans)		1,743,503		—		—		—		—		—			—		1,743,503		—
NexPoint Strategic Opportunities Fund (Registered Investment Company)		427,345		9,380,223		—		—		—		(863,237	)		8,516,986		427,345		256,407
NFRO REIT SUB, LLC (Common Stocks)		325,472		6,613,601		10,100,000		—		—		493,424			17,207,025		802,563		—
Total		84,077,818	$	52,610,792	$	69,814,313	$	—	$	—	$	(4,041,717	)	$	118,383,388		145,429,208	$	1,900,277

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (concluded)

December 31, 2018 Highland Floating Rate Opportunities Fund

Note 11. Regulatory Matters

RegulationS-X. These changes are effective for periods after November 5, 2018. The updates to Registered Investment Companies were mainly focused on simplifying the presentation of distributable earnings by eliminating the need to present the components of distributable earnings on a book basis in the Statements of Assets and Liabilities. The update also impacted the presentation of undistributed net investment income and distribution to shareholders on the Statements of Changes in Net Assets. The amounts presented in the current Statements of Changes in Net Assets represent the aggregated total distributions of net investment income and realized capital gains, except for distributions classified as return of capital which are still presented separately. The disaggregated amounts from the prior fiscal year are broken out below if there were both distributions from net investment income and realized capital gains. Otherwise, the amount on the current Statement of Changes for the prior fiscal year end represents distributions of net investment income.

Note 12. New Accounting Pronouncements

In March 2017, the FASB issued Accounting Standards Update2017-08, Receivables — Nonrefundable Fees and Other Costs (Subtopic310-20). The amendments in this update shorten the amortization period for certain callable debt securities held at premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. For public entities this update will be effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The Investment Adviser is currently evaluating the impact of this new guidance on the Funds’ consolidated financial statements. In February 2018, the FASB issued Accounting Standards Update2018-03, Technical Corrections and Improvements to Financial Instruments — Overall (Subtopic825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update provide a variety of technical corrections and improvements to how entities should account for financial instruments. shorten the amortization period for certain callable debt securities held at premium. For public entities this update will be effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years beginning after June 15, 2018. The Fund is currently evaluating the impact of this new guidance on its financial statement presentation and disclosures.

In August 2018, the FASB issued Accounting Standards Update2018-13, Fair Value Measurement (Topic 820). The new guidance includes additions and modifications to disclosures

requirements for fair value measurements. For public entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years. At this time, management is currently evaluating the impact of this new guidance on the financial statements and disclosures.

Note 13. Asset Coverage

[Placeholder for table]

Note 14. Subsequent Events

The Investment Adviser has evaluated the impact of all subsequent events on the Fund through the date the consolidated financial statements were issued. Other than the matter below, no such subsequent events were identified.

As discussed in the annual report for the period ended June 30, 2018, a settlement was reached and approved by the court on January 12, 2018 regarding the action entitled In re Tousa Inc., et al. where the Fund was named as a defendant, among others. As part of this action, the Fund had previously posted $10,620,958 with the court, which had accrued $200,416 in interest prior to settlement. Upon settlement, the Fund paid $6,312,767, representing its pro rata share of the total $160,000,000 settlement amount. As a result, the Fund received back $4,508,607 on February 22, 2019.

32 Semi-Annual Report

ADDITIONAL INFORMATION (unaudited)

December 31, 2018 Highland Floating Rate Opportunities Fund

Additional Portfolio Information

The Investment Adviser and its affiliates manage other accounts, including registered and private funds and individual accounts. Although investment decisions for the Fund are made independently from those of such other accounts, the Investment Adviser may, consistent with applicable law, make investment recommendations to other clients or accounts that may be the same or different from those made to the Fund, including investments in different levels of the capital structure of a company, such as equity versus senior loans, or that involve taking contradictory positions in multiple levels of the capital structure. The Investment Adviser has adopted policies and procedures that address the allocation of investment opportunities, execution of portfolio transactions, personal trading by employees and other potential conflicts of interest that are designed to ensure that all client accounts are treated equitably over time. Nevertheless, this may create situations where a client could be disadvantaged because of the investment activities conducted by the Investment Adviser for other client accounts. When the Fund and one or more of such other accounts is prepared to invest in, or desire to dispose of, the same security, available investments or opportunities for each will be allocated in a manner believed by the Investment Adviser to be equitable to the Fund and such other accounts. The Investment Adviser also may aggregate orders to purchase and sell securities for the Fund and such other accounts. Although the Investment Adviser believes that, over time, the potential benefits of participating in volume transactions and negotiating lower transaction costs should benefit all accounts including the Fund, in some cases these activities may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund.

Dividend Reinvestment Plan

Unless the registered owner of Common Shares elects to receive cash by contacting American Stock Transfer & Trust Company, LLC (“AST” or the “Plan Agent”), as agent for shareholders in administering the Plan, a registered owner will receive newly issued Common Shares for all dividends declared for Common Shares of the Fund. If a registered owner of Common Shares elects not to participate in the Plan, they will receive all dividends in cash paid by check mailed directly to them (or, if the shares are held in street or other nominee name, then to such nominee) by AST, as dividend disbursing agent. Shareholders may elect not to participate in the Plan and to receive all dividends in cash by sending written instructions or by contacting AST, as dividend disbursing agent, at the address set forth below.

Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by contacting the Plan Agent before the dividend record date;

otherwise such termination or resumption will be effective with respect to any subsequently declared dividend. Some brokers may automatically elect to receive cash on the shareholders’ behalf and may reinvest that cash in additional Common Shares of the Fund for them. The Plan Agent will open an account for each shareholder under the Plan in the same name in which such shareholder’s Common Shares are registered.

Whenever the Fund declares a dividend payable in cash,non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Agent through receipt of additional unissued but authorized Common Shares from the Fund (“newly issued Common Shares”). The number of newly issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend by the lesser of (i) the net asset value per Common Share determined on the Declaration Date and (ii) the market price per Common Share as of the close of regular trading on the New York Stock Exchange (the “NYSE”) on the Declaration Date. The Plan Agent maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders for tax records. Common Shares in the account of each Plan participant will be held by the Plan Agent on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Agent will forward all proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instructions of the participants. In the case of shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder’s name and held for the account of beneficial owners who participate in the Plan. There will be no brokerage charges with respect to Common Shares issued directly by the Fund.

The automatic reinvestment of dividends will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on such dividends. Accordingly, any taxable dividend received by a participant that is reinvested in additional Common Shares will be subject to federal (and possibly state and local) income tax even though such participant will not receive a corresponding amount of cash with which to pay such taxes. Participants who request a sale of shares through the Plan Agent are subject to a $2.50 sales fee and pay a brokerage commission of $0.05 per share sold. The Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, the Fund

Semi-Annual Report 33

ADDITIONAL INFORMATION (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities Fund

reserves the right to amend the Plan to include a service charge payable by the participants. All correspondence concerning the Plan should be directed to the Plan Agent at American Stock Transfer  & Trust Company, LLC 6201 15th Avenue Brooklyn, NY 11219; telephone (718)921-8200.

Changes of Independent Registered Public Accounting Firms

On September 28, 2018, Highland Floating Rate Opportunities Fund (the “Trust”), dismissed KPMG LLP (“KPMG”) as the Trust’s independent registered public accounting firm, effective on such date. The decision to dismiss KPMG was approved by the audit committee and by the full board of trustees of the Trust (the “Board”). On September 27, 2018, the Trust approved the appointment of PricewaterhouseCoopers LLP (“PwC”) as the Trust’s independent registered public accounting firm.

KPMG’s audit reports on the Trust’s financial statements as of and for the years ended June 30, 2018 and 2017 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.

During its audits of the Trust as of June 30, 2018, KPMG concluded management’s review control over a certainhard-to-value security held by the Trust was not designed at an appropriate level of precision to assess the orderly nature of transactions involving the security and reasonableness and reliability of certain inputs to the fair value model for the security. In connection with this audit, KPMG advised the Trust of the need to expand significantly the scope of its audits. Although Management of the Trust initially disagreed with KPMG’s position, subsequent to KPMG’s dismissal Management ultimately took the position that the transactions were orderly and revised certainnon-observable inputs to the fair value model for the security.

Other than the disagreements and reportable events disclosed above, during the Trust’s years ended June 30, 2018 and 2017 and the subsequent interim period through September 28, 2018, there were no: (1) disagreements (as defined in Item 304(a)(1)(iv) of RegulationS-K and the related instructions) with KPMG on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedures, which disagreements if not resolved to their satisfaction would have caused them to make reference in connection with their opinion to the subject matter of the disagreement, or (2) reportable events (as described in Item 304(a)(1)(v) of RegulationS-K). The audit committee of the Trust discussed the subject matter of these disagreements and reportable events with KPMG. The Trust has authorized KPMG to respond fully to the inquiries of PwC concerning the subject matter of these disagreements and reportable events.

During the years ended June 30, 2018 and 2017 and the subsequent interim period through September 28, 2018, neither Management, the Trust, nor anyone on its behalf, consulted PwC regarding either (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the financial statements of the Trust, and no written report or oral advice was provided to the Trust by PwC that PwC concluded was an important factor considered by the Trust in reaching a decision as to any accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of RegulationS-K and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of RegulationS-K).

Approval of Highland Floating Rate Opportunities Fund Advisory Agreement

The Fund has retained the Investment Adviser to manage the assets of the Fund pursuant to an investment advisory agreement between the Investment Adviser and the Fund (the “Advisory Agreement”). The Advisory Agreement has been approved by the Fund’s Board of Trustees, including a majority of the Independent Trustees. The Advisory Agreement continues in effect fromyear-to-year, provided that such continuance is specifically approved at least annually by the vote of holders of at least a majority of the outstanding shares of the Fund or by the Board of Trustees and, in either event, by a majority of the Independent Trustees of the Fund casting votes in person at a meeting called for such purpose.

During telephonic meetings held on August 16, 2018 and August 28, 2018, the Board of Trustees gave preliminary consideration to information bearing on the continuation of the Agreement for aone-year period commencing November 1, 2018 with respect to the Fund. The primary objective of the meetings was to ensure that the Trustees had the opportunity to consider matters they deemed relevant in evaluating the continuation of the Agreement, and to request any additional information they considered reasonably necessary for their deliberations.

At anin-person meeting held on September16-17, 2018, the Board of Trustees, including the Independent Trustees, approved the continuance of the Agreement for aone-year period commencing on November 1, 2018. As part of its review process, the Board requested, through its independent legal counsel, and received from the Investment Adviser, various information and written materials, including: (1) information regarding the financial soundness of the Investment Adviser and on the anticipated profitability of the Advisory Agreement to the Investment Adviser; (2) information on the advisory and compliance personnel of the Investment Adviser, including compensation

34 Semi-Annual Report

ADDITIONAL INFORMATION (unaudited) (continued)

December 31, 2018 Highland Floating Rate Opportunities Fund

arrangements for portfolio managers; (3) information on internal compliance procedures of the Investment Adviser; (4) comparative information showing how the Fund’s proposed fees and anticipated operating expenses compare to those of other registered investment companies and comparable funds that follow investment strategies similar to those of the Fund; (5) information regarding the investment performance of other accounts managed by the Investment Adviser that follow investment strategies similar to the Fund; and (6) information on any legal proceedings or regulatory audits or investigations affecting the Investment Adviser or its respective affiliates. The Trustees reviewed various factors that were discussed in independent counsel’s legal memoranda regarding their responsibilities in considering the Advisory Agreement, the detailed information provided by the Investment Adviser and other relevant information and factors. The Trustees’ conclusions as to the approval of the Advisory Agreement were based on a comprehensive consideration of all information provided to the Trustees without any single factor being dispositive in and of itself. Some of the factors that figured particularly in the Trustees’ deliberations are described below, although individual Trustees may have evaluated the information presented differently from one another, giving different weights to various factors.

The nature, extent, and quality of the services to be provided by the Investment Adviser. The Board considered the portfolio management services to be provided by the Investment Adviser under the Advisory Agreement and the activities related to portfolio management, including use of technology, research capabilities and investment management staff. The Board discussed the relevant experience and qualifications of the personnel who would provide advisory services, including the background and experience of the members of the Fund’s portfolio management team. The Trustees reviewed the management structure, assets under management and investment philosophies and processes of the Investment Adviser. The Board also reviewed and discussed information regarding the Investment Adviser’s compliance policies, procedures and personnel, including compensation arrangements. The Board took into account the Investment Adviser’s risk assessment, monitoring process and regulatory history. The Board concluded that the Investment Adviser had the quality and depth of personnel and investment methods essential to performing its duties under the Advisory Agreement, and that the nature and the quality of such advisory services supported the approval of the Advisory Agreement.

The Investment Adviser’s historical performance. The Board of Trustees reviewed the historical performance of the Fund over various time periods and reflected on previous discussions regarding matters bearing on the Investment

Adviser’s performance at its meetings throughout the year. Among other data relating specifically to the Fund’s performance, the Board took note of Morningstar’s explanatory note concerning the Fund’s conversion from anopen-end to aclosed-end structure and that the peer group now includes onlyclosed-end funds from the Bank Loan category. The Board further noted that given the lower number of potential peers available, the peer group is somewhat smaller than typical. The Board then considered that the Fund had outperformed the Morningstar peer group median and classification median for the three-,six- and nine-month periods ended June 30, 2018. The Board also took into account management’s discussion of the Fund’s performance.

The costs of the services to be provided by the Investment Adviser and the profits to be realized by the Investment Adviser and its affiliates from the relationship with the Fund. The Board of Trustees also gave consideration to the fees payable under the Agreement, the expenses the Investment Adviser incur in providing advisory services and the profitability to the Investment Adviser from managing the Fund, including: (1) information regarding the financial condition of the Investment Adviser; (2) information regarding the total fees and payments received by the Investment Adviser for its services and, with respect to the Investment Adviser, whether such fees are appropriate given economies of scale and other considerations; (3) comparative information showing (a) the fees payable under the Agreement versus the investment advisory fees of certain registered investment companies and comparable funds that follow investment strategies similar to those of the Fund and (b) the expense ratios of the Fund versus the expense ratios of certain registered investment companies and comparable funds that follow investment strategies similar to those of the Fund; and (4) information regarding the total fees and payments received and the related amounts waived and/or reimbursed by the Investment Adviser for providing administrative services with respect to the Fund under separate agreements and whether such fees are appropriate. The Trustees also considered theso-called“fall-out benefits” to the Investment Adviser with respect to the Fund, such as the reputational value of serving as Investment Adviser to the Fund, potential fees paid to the Investment Adviser’s affiliates by the Fund or portfolio companies for services provided, including administrative services provided to the Fund by the Investment Adviser pursuant to separate agreements, the benefits of scale from investment by the Fund in affiliated funds, and the benefits of research made available to the Investment Adviser by reason of brokerage commissions (if any) generated by the Fund’s securities transactions. After such review, the Trustees determined that the anticipated profitability rates to the Investment Adviser with respect to the Agreement were fair and reasonable. The Trustees also

Semi-Annual Report 35

ADDITIONAL INFORMATION (unaudited) (concluded)

December 31, 2018 Highland Floating Rate Opportunities Fund

took into consideration the amounts waived and/or reimbursed, if any, where expense caps or advisory fee waivers had been implemented.

The extent to which economies of scale would be realized as the Fund grows and whether fee levels reflect these economies of scale for the benefit of shareholders. The Board considered the effective fee under the Advisory Agreement for the Fund as a percentage of assets at different asset levels and possible economies of scale that may be realized if the assets of the Fund grow. The Board determined to continue to review ways, and the extent to which, economies of scale might be shared between the Investment Adviser on the one hand and shareholders of the Fund on the other.

Conclusion.

Following a further discussion of the factors above and the merits of the Advisory Agreement and its various provisions, it was noted that in considering the approval of the Advisory Agreement, no single factor was determinative to the decision of the Board. Rather, after weighing all of the factors and reasons discussed above, the Trustees, including the Independent Trustees, unanimously agreed that the Advisory Agreement, including the advisory fee to be paid to the Investment Adviser, is fair and reasonable to the Fund in light of the services that the Investment Adviser proposes to provide, the expenses that it incurs and the reasonably foreseeable asset levels of the Fund.

36 Semi-Annual Report

IMPORTANT INFORMATION ABOUT THIS REPORT

Investment Adviser

Highland Capital Management Fund Advisors, L.P.

200 Crescent Court, Suite 700

Dallas, TX 75201

Transfer Agent

American Stock Transfer & Trust Company, LLC 6201 15th Avenue

Brooklyn, NY 11219

Underwriter

Highland Capital Funds Distributor, Inc.

200 Crescent Court, Suite 700

Dallas, TX 75201

Custodian

State Street Bank and Trust Company

One Lincoln Street

Boston, Massachusetts 02111

Independent Registered Public Accounting Firm

PricewaterhouseCoopers LLP

2121 N. Pearl Street, Suite 2000

Dallas, TX 75201

Fund Counsel

K&L Gates LLP

1 Lincoln Street

Boston, MA 02111

This report has been prepared for shareholders of Highland Floating Rate Opportunistic Fund (the “Fund”). The Fund mails one shareholder report to each shareholder address. If you would like more than one report, please call shareholder services at1-800-357-9167 to request that additional reports be sent to you.

A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to their portfolio securities, and the Fund’s proxy voting records for the most recent12-month period ended June 30, are available (i) without charge, upon request, by calling1-800-357-9167 and (ii) on the Securities and Exchange Commission’s website at http://www.sec.gov.

The Fund file its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on FormN-Q. The Fund’s FormN-Q are available on the Commission’s website at http://www.sec.gov and also may be reviewed and copied at the Commission’s Public Reference Room in Washington, DC. Information on the Public Reference Room may be obtained by calling1-800-SEC-0330. Shareholders may also obtain the FormN-Q by visiting the Fund’s website at www.highlandfunds.com.

The Statement of Additional Information include additional information about the Fund’s Trustees and is available upon request without charge by calling1-800-357-9167.

Beginning on January 1, 2021, as permitted by regulations adopted by the U.S. Securities and Exchange Commission, paper copies of the Funds’ annual and semi-annual shareholder reports will no longer be sent by mail, unless you specifically request paper copies of the reports. Instead, the reports will be made available on the Funds’ website (highlandfunds.com), and you will be notified by mail each time a report is posted and provided with a website link to access the report.

If you already elected to receive shareholder reports electronically, you will not be affected by this change and you need not take any action. You may elect to receive shareholder reports and other communications from a Fund electronically by contacting your financial intermediary (such as a broker-dealer or bank) or, if you are a direct investor, by contacting the Funds’ transfer agent at1-800-357-9167.

Beginning on January 1, 2019, you may elect to receive all future reports in paper free of charge. If you invest through a financial intermediary, you can contact your financial intermediary to request that you continue to receive paper copies of your shareholder reports. If you invest directly with a Fund, you can call1-800-357-9167 to let the Fund know you wish to continue receiving paper copies of your shareholder reports. Your election to receive reports in paper will apply to all funds held in your account if you invest through your financial intermediary or all funds held with the fund complex if you invest directly with a Fund.

Semi-Annual Report 37

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Highland Funds

c/o American Stock Transfer & Trust Company, LLC

6201 15th Avenue

Brooklyn, NY 11219

Highland Floating Rate Opportunities Fund Semi-Annual Report, December 31, 2018

www.highlandfunds.com FRO-SAR-12/18

Item 2. Code of Ethics.

Not applicable.

Item 3. Audit Committee Financial Expert.

Not applicable.

Item 4. Principal Accountant Fees and Services.

Not applicable.

Item 5. Audit Committee of Listed Registrants.

Not applicable.

Item 6. Investments.

(a) Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the Semi-Annual Report to Shareholders filed under Item 1 of this form.

(b) Not applicable.

Item 7. Disclosure of Proxy Voting Policies and Procedures forClosed-End Management Investment Companies.

Not applicable.

Item 8. Portfolio Managers ofClosed-End Management Investment Companies.

There have been no changes in any of the Portfolio Managers identified in response to paragraph (a) of this Item in Highland Floating Rate Opportunities Fund’s (the “Registrant”) most recent annual report on FormN-CSR.

Item 9. Purchases of Equity Securities byClosed-End Management Investment Company and Affiliated Purchasers.

No such purchases were made by or on behalf of the Registrant or any “affiliated purchaser” during the period covered by this report.

Item 10. Submission of Matters to a Vote of Security Holders.

There have been no material changes to the procedures by which the shareholders may recommend nominees to the Registrant’s Board of Trustees.

Item 11. Controls and Procedures.

(a) The Registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the Registrant’s disclosure controls and procedures (as defined in Rule30a-3(c) under the 1940 Act (17 CFR270.30a-3(c)) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule30a-3(b) under the 1940 Act (17 CFR270.30a-3(b)) and Rules13a-15(b) or15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR240.13a-15(b) or240.15d-15(b)).

(b) There were no changes in the Registrant’s internal control over financial reporting (as defined in Rule30a-3(d) under the 1940 Act (17 CFR270.30a-3(d)) that occurred during the Registrant’s second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting.

Item 12. Disclosure of Securities Lending Activities forClosed-End Management Investment Companies.

Not applicable.

Item 13. Exhibits.

(a)(1) Not applicable.

(a)(2) Certification pursuant to Rule30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 is attached hereto.

(a)(3) Not applicable.

(a)(4)(i) Certification pursuant to Item 4.01 of Form8-K under the Exchange Act (17 CFR 249.308) is attached hereto.

(a)(4)(ii) Letter from former accountant pursuant to Item 304(a) under Regulation S-K is attached hereto.

(b) Certification pursuant to Rule30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 is attached hereto.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

HIGHLAND FLOATING RATE OPPORTUNITIES FUND

By (Signature and Title):	/s/ Frank Waterhouse
	Frank Waterhouse
	Treasurer, Principal Accounting Officer, Principal Financial Officer, and Principal Executive Officer

Date: March 8, 2019

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

By (Signature and Title):	/s/ Frank Waterhouse
	Frank Waterhouse
	Treasurer, Principal Accounting Officer, Principal Financial Officer, and Principal Executive Officer

Date: March 8, 2019