Table of Contents
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-07142
HIGHLAND FUNDS II
(formerly Pyxis Funds II)
(Exact name of registrant as specified in charter)
200 Crescent Court
Suite 700
Dallas, Texas 75201
(Address of principal executive offices) (Zip code)
Highland Capital Management Fund Advisors, L.P.
200 Crescent Court
Suite 700
Dallas, Texas 75201
(Name and Address of Agent for Service)
Registrant’s telephone number, including area code: (877) 665-1287
Date of fiscal year end: September 30
Date of reporting period: March 31, 2013
Table of Contents
Item 1: Reports to Shareholders.
The Report to Shareholders is attached herewith.
Table of Contents
Highland Funds II
Highland Alpha Trend Strategies Fund
Highland Alternative Income Fund
Highland Trend Following Fund
Highland Global Allocation Fund
Highland Dividend Equity Fund
Highland Premier Growth Equity Fund
Highland Small-Cap Equity Fund
Highland Global Select Equity Fund
Highland International Equity Fund
Highland Total Return Fund
Highland Tax-Exempt Fund
Highland Fixed Income Fund
Semi-Annual Report
March 31, 2013
Table of Contents
Highland Funds II
Highland Alpha Trend Strategies Fund (Formerly Pyxis Alpha Trend Strategies Fund)
Highland Alternative Income Fund (Formerly Pyxis Alternative Income Fund)
Highland Trend Following Fund (Formerly Pyxis Trend Following Fund)
Highland Global Allocation Fund (Formerly Pyxis Core America Equity Fund)
Highland Dividend Equity Fund (Formerly Pyxis Dividend Equity Fund)
Highland Premier Growth Equity Fund (Formerly Pyxis Premier Growth Equity Fund)
Highland Small-Cap Equity Fund (Formerly Pyxis Small-Cap Equity Fund)
Highland Global Select Equity Fund (Formerly Pyxis Global Equity Fund)
Highland International Equity Fund (Formerly Pyxis International Equity Fund)
Highland Total Return Fund (Formerly Pyxis Total Return Fund)
Highland Tax-Exempt Fund (Formerly Pyxis Tax-Exempt Fund)
Highland Fixed Income Fund (Formerly Pyxis Fixed Income Fund)
TABLE OF CONTENTS
1 | ||||
13 | ||||
14 | ||||
54 | ||||
62 | ||||
66 | ||||
Statements of Changes in Net Assets - Capital Stock Activity - Shares | 72 | |||
78 | ||||
94 | ||||
111 | ||||
114 |
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.
Table of Contents
Highland Alpha Trend Strategies Fund |
Objective
Highland Alpha Trend Strategies Fund seeks to provide above average total return over a complete market cycle primarily through capital appreciation, while also attempting to preserve capital and mitigate risk through hedging activities.
Net Assets as of March 31, 2013
$3.8 million
Portfolio Data as of March 31, 2013
The information below provides a snapshot of Highland Alpha Trend Strategies Fund at the end of the reporting period. Highland Alpha Trend Strategies Fund is actively managed and the composition of its portfolio will change over time. Current and future holdings are subject to risk.
Industry Classifications as of 03/31/2013 (%)* | ||||
Diversified Financials | 79.0 | |||
Other Investments and Assets & Liabilities | 21.0 |
Top Holdings as of 03/31/2013 (%)* | ||||
Powershares QQQ Trust Series 1, ETF | 27.5 | |||
iShares MSCI Canada Index Fund, ETF | 26.5 | |||
SPDR S&P 500 ETF Trust | 25.0 |
* | Industries and holdings are calculated as a percentage of total net assets. |
Semi-Annual Report | 1 |
Table of Contents
FUND PROFILE (unaudited)
Highland Alternative Income Fund |
Objective
Highland Alternative Income Fund seeks to provide above-average total returns over a complete market cycle primarily through capital appreciation and income generation.
Net Assets as of March 31, 2013
$9.6 million
Portfolio Data as of March 31, 2013
The information below provides a snapshot of Highland Alternative Income Fund at the end of the reporting period. Highland Alternative Income Fund is actively managed and the composition of its portfolio will change over time. Current and future holdings are subject to risk.
Industry Classifications as of 03/31/2013 (%)* | ||||
Diversified Financials | 111.3 | |||
Other Investments and Assets & Liabilities | (11.3 | ) |
Top Holdings as of 03/31/2013 (%)* | ||||
SPDR Barclays High Yield Bond, ETF | 38.5 | |||
Vanguard High Yield Corporate Fund, ETF | 32.4 | |||
iShares iBoxx $ High Yield Corporate Bond Fund, ETF | 29.5 | |||
SPDR Barclays Short-Term High Yield Bond, ETF | 5.5 | |||
PIMCO 0-5 Year High Yield Corporate Bond Index Fund, ETF | 5.4 |
* | Industries and holdings are calculated as a percentage of total net assets. Top Holdings excludes the Fund’s investment in an investment company purchased with cash collateral from securities lending. |
2 | Semi-Annual Report |
Table of Contents
FUND PROFILE (unaudited)
Highland Trend Following Fund |
Objective
Highland Trend Following Fund seeks to provide long-term capital appreciation consistent with capital preservation.
Net Assets as of March 31, 2013
$2.7 million
Portfolio Data as of March 31, 2013
The information below provides a snapshot of Highland Trend Following Fund at the end of the reporting period. Highland Trend Following Fund is actively managed and the composition of its portfolio will change over time. Current and future holdings are subject to risk.
Industry Classifications as of 03/31/2013 (%)* | ||||
Materials | 16.3 | |||
Diversified Financials | 9.6 | |||
Other Investments and Assets & Liabilities | 74.1 |
Top Holdings as of 03/31/2013 (%)* | ||||
Market Vectors Steel Index Fund, ETF | 9.7 | |||
ProShares UltraShort QQQ, ETF | 9.6 | |||
ETRACS CMCI Long Platinum Total Return, ETF | 6.6 |
* | Industries and holdings are calculated as a percentage of total net assets. |
Semi-Annual Report | 3 |
Table of Contents
FUND PROFILE (unaudited)
Highland Global Allocation Fund |
Objective
Highland Global Allocation Fund seeks to provide long-term growth of capital and future income.
Net Assets as of March 31, 2013
$190.2 million
Portfolio Data as of March 31, 2013
The information below provides a snapshot of Highland Global Allocation Fund at the end of the reporting period. Highland Global Allocation Fund is actively managed and the composition of its portfolio will change over time. Current and future holdings are subject to risk.
Industry Classifications as of 03/31/2013 (%)* | ||||
Energy | 12.2 | |||
Pharmaceuticals, Biotechnology & Life Sciences | 9.8 | |||
Technology Hardware & Equipment | 7.8 | |||
Diversified Financials | 7.7 | |||
Food, Beverage & Tobacco | 7.2 | |||
Capital Goods | 7.1 | |||
Software & Services | 7.1 | |||
Media | 6.5 | |||
Healthcare Equipment & Services | 5.4 | |||
Insurance | 4.5 | |||
Other Investments and Assets & Liabilities | 24.7 |
Top 10 Holdings as of 03/31/2013 (%)* | ||||
Johnson & Johnson | 3.1 | |||
Wells Fargo & Co. | 2.7 | |||
Microsoft Corp. | 2.7 | |||
Pfizer, Inc. | 2.6 | |||
PepsiCo, Inc. | 2.5 | |||
Chevron Corp. | 2.4 | |||
Cisco Systems, Inc. | 2.4 | |||
QUALCOMM, Inc. | 2.2 | |||
Apple, Inc. | 2.1 | |||
Time Warner, Inc. | 2.1 |
* | Industries and holdings are calculated as a percentage of total net assets. Top Holdings excludes the Fund’s investment in an investment company purchased with cash collateral from securities lending. |
4 | Semi-Annual Report |
Table of Contents
FUND PROFILE (unaudited)
Highland Dividend Equity Fund |
Objective
Highland Dividend Equity Fund seeks to provide above average dividend yields with the potential for long-term capital appreciation.
Net Assets as of March 31, 2013
$12.9 million
Portfolio Data as of March 31, 2013
The information below provides a snapshot of Highland Dividend Equity Fund at the end of the reporting period. Highland Dividend Equity Fund is actively managed and the composition of its portfolio will change over time. Current and future holdings are subject to risk.
Industry Classifications as of 03/31/2013 (%)* | ||||
Food, Beverage & Tobacco | 14.0 | |||
Pharmaceuticals, Biotechnology & Life Sciences | 8.3 | |||
Materials | 7.8 | |||
Banks | 7.4 | |||
Utilities | 6.7 | |||
Energy | 6.5 | |||
Telecommunication Services | 6.2 | |||
Capital Goods | 5.3 | |||
Retailing | 3.2 | |||
Consumer Services | 3.1 | |||
Other Investments and Assets & Liabilities | 31.5 |
Top 10 Holdings as of 03/31/2013 (%)* | ||||
Kellogg Co. | 3.8 | |||
Johnson & Johnson | 3.7 | |||
AT&T, Inc. | 3.7 | |||
Chevron Corp. | 3.5 | |||
Packaging Corp. of America | 3.2 | |||
Home Depot, Inc. (The) | 3.2 | |||
McDonald’s Corp. | 3.1 | |||
Royal Dutch Shell PLC, ADR | 2.9 | |||
Diageo PLC, ADR | 2.8 | |||
Hubbell, Inc., Class B | 2.8 |
* | Industries and holdings are calculated as a percentage of total net assets. Top Holdings excludes the Fund’s investment in an investment company purchased with cash collateral from securities lending. |
Semi-Annual Report | 5 |
Table of Contents
FUND PROFILE (unaudited)
Highland Premier Growth Equity Fund |
Objective
Highland Premier Growth Equity Fund seeks long-term growth of capital and future income rather than current income.
Net Assets as of March 31, 2013
$164.3 million
Portfolio Data as of March 31, 2013
The information below provides a snapshot of Highland Premier Growth Equity Fund at the end of the reporting period. Highland Premier Growth Equity Fund is actively managed and the composition of its portfolio will change over time. Current and future holdings are subject to risk.
Industry Classifications as of 03/31/2013 (%)* | ||||
Software & Services | 20.6 | |||
Technology Hardware & Equipment | 11.8 | |||
Healthcare Equipment & Services | 9.5 | |||
Media | 8.8 | |||
Diversified Financials | 8.7 | |||
Retailing | 7.0 | |||
Pharmaceuticals, Biotechnology & Life Sciences | 5.8 | |||
Energy | 5.2 | |||
Capital Goods | 3.8 | |||
Food, Beverage & Tobacco | 3.4 | |||
Other Investments and Assets & Liabilities | 15.4 |
Top 10 Holdings as of 03/31/2013 (%)* | ||||
QUALCOMM, Inc. | 4.6 | |||
Apple, Inc. | 4.3 | |||
Covidien PLC | 4.1 | |||
Gilead Sciences, Inc. | 4.0 | |||
Express Scripts Holding Co. | 4.0 | |||
eBay, Inc. | 3.9 | |||
Dover Corp. | 3.8 | |||
Schlumberger, Ltd. | 3.8 | |||
Visa, Inc. | 3.8 | |||
Liberty Global, Inc. | 3.6 |
* | Industries and holdings are calculated as a percentage of total net assets. Top Holdings excludes the Fund’s investment in an investment company purchased with cash collateral from securities lending. |
6 | Semi-Annual Report |
Table of Contents
FUND PROFILE (unaudited)
Highland Small-Cap Equity Fund |
Objective
Highland Small-Cap Equity Fund seeks long-term growth of capital.
Net Assets as of March 31, 2013
$39.6 million
Portfolio Data as of March 31, 2013
The information below provides a snapshot of Highland Small-Cap Equity Fund at the end of the reporting period. Highland Small-Cap Equity Fund is actively managed and the composition of its portfolio will change over time. Current and future holdings are subject to risk.
Industry Classifications as of 03/31/2013 (%)* | ||||
Software & Services | 10.8 | |||
Healthcare Equipment & Services | 10.1 | |||
Capital Goods | 9.6 | |||
Real Estate | 7.3 | |||
Banks | 6.8 | |||
Materials | 6.4 | |||
Retailing | 6.4 | |||
Energy | 5.3 | |||
Transportation | 5.1 | |||
Semiconductors & Semiconductor Equipment | 4.6 | |||
Other Investments and Assets & Liabilities | 27.6 |
Top 10 Holdings as of 03/31/2013 (%)* | ||||
Genesee & Wyoming, Inc., Class A | 2.9 | |||
LKQ Corp. | 2.8 | |||
Omega Healthcare Investors, Inc., REIT | 2.4 | |||
Packaging Corp. of America | 2.4 | |||
Raymond James Financial, Inc. | 2.3 | |||
MEDNAX, Inc. | 2.3 | |||
Old Dominion Freight Line, Inc. | 2.2 | |||
Applied Industrial Technologies, Inc. | 2.2 | |||
BioMed Realty Trust, Inc., REIT | 2.0 | |||
Jarden Corp. | 2.0 |
* | Industries and holdings are calculated as a percentage of total net assets. Top Holdings excludes the Fund’s investment in an investment company purchased with cash collateral from securities lending. |
Semi-Annual Report | 7 |
Table of Contents
FUND PROFILE (unaudited)
Highland Global Select Equity Fund |
Objective
Highland Global Select Equity Fund seeks long-term growth of capital.
Net Assets as of March 31, 2013
$24.7 million
Portfolio Data as of March 31, 2013
The information below provides a snapshot of Highland Global Select Equity Fund at the end of the reporting period. Highland Global Select Equity Fund is actively managed and the composition of its portfolio will change over time. Current and future holdings are subject to risk.
Country Classifications as of 03/31/2013 (%)* | ||||
United States | 48.8 | |||
United Kingdom | 12.4 | |||
Sweden | 5.0 | |||
Hong Kong | 4.7 | |||
Switzerland | �� | 4.5 | ||
Italy | 4.1 | |||
Japan | 4.1 | |||
Germany | 3.3 | |||
South Korea | 2.7 | |||
Philippines | 2.4 | |||
Other Investments and Assets & Liabilities | 8.0 |
Top 10 Holdings as of 03/31/2013 (%)* | ||||
Johnson & Johnson | 5.1 | |||
AIA Group, Ltd. | 4.7 | |||
Nestle SA | 4.5 | |||
Standard Chartered PLC | 4.4 | |||
Luxottica Group SpA | 4.1 | |||
Diageo PLC | 3.8 | |||
QUALCOMM, Inc. | 3.7 | |||
Honeywell International, Inc. | 3.6 | |||
Google, Inc., Class A | 3.5 | |||
Adidas AG | 3.3 |
* | Countries and holdings are calculated as a percentage of total net assets. Top Holdings excludes the Fund’s investment in an investment company purchased with cash collateral from securities lending. |
8 | Semi-Annual Report |
Table of Contents
FUND PROFILE (unaudited)
Highland International Equity Fund |
Objective
Highland International Equity Fund seeks long-term growth of capital.
Net Assets as of March 31, 2013
$12.4 million
Portfolio Data as of March 31, 2013
The information below provides a snapshot of Highland International Equity Fund at the end of the reporting period. Highland International Equity Fund is actively managed and the composition of its portfolio will change over time. Current and future holdings are subject to risk.
Country Classifications as of 03/31/2013 (%)* | ||||
United Kingdom | 22.5 | |||
Japan | 20.7 | |||
Germany | 11.7 | |||
France | 8.9 | |||
Switzerland | 8.8 | |||
Sweden | 5.2 | |||
Netherlands | 2.4 | |||
Hong Kong | 2.4 | |||
Italy | 2.3 | |||
Australia | 2.3 | |||
Other Investments and Assets & Liabilities | 12.8 |
Top 10 Holdings as of 03/31/2013 (%)* | ||||
Toyota Motor Corp. | 3.1 | |||
Nestle SA | 2.6 | |||
HSBC Holdings PLC | 2.5 | |||
Linde AG | 2.4 | |||
AIA Group, Ltd. | 2.4 | |||
Diageo PLC | 2.3 | |||
SAP AG | 2.2 | |||
Bridgestone Corp. | 2.0 | |||
Safran SA | 2.0 | |||
Roche Holding AG | 1.9 |
* | Countries and holdings are calculated as a percentage of total net assets. Top Holdings excludes the Fund’s investment in an investment company purchased with cash collateral from securities lending. |
Semi-Annual Report | 9 |
Table of Contents
FUND PROFILE (unaudited)
Highland Total Return Fund |
Objective
Highland Total Return Fund seeks maximum total return, which includes both income and capital appreciation.
Net Assets as of March 31, 2013
$79.7 million
Portfolio Data as of March 31, 2013
The information below provides a snapshot of Highland Total Return Fund at the end of the reporting period. Highland Total Return 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 03/31/2013 (%)* | ||||
AAA | 2.0 | |||
AA | 57.7 | |||
A | 11.5 | |||
BBB | 13.6 | |||
BB | 7.0 | |||
B | 2.9 | |||
D | 0.0 | |||
Not Rated | 5.3 |
Sector Classifications as of 03/31/2013 (%)* | ||||
Common Stocks | 56.4 | |||
Agency Mortgage-Backed Securities | 8.4 | |||
Corporate Bonds & Notes | 7.4 | |||
U.S. Treasuries | 7.1 | |||
Foreign Corporate Bonds & Notes | 3.3 | |||
Non-Agency Collateralized Mortgage-Backed Securities | 1.6 | |||
Sovereign Bonds | 0.5 | |||
Agency Collateralized Mortgage Obligations | 0.4 | |||
Non-Agency Collateralized Mortgage Obligations | 0.2 | |||
Preferred Stocks | 0.2 | |||
U.S. Government Agencies | 0.2 | |||
Municipal Bonds & Notes | 0.2 | |||
Asset-Backed Securities | 0.1 | |||
Other Investments and Assets & Liabilities | 14.0 |
Top 10 Holdings as of 03/31/2013 (%)* | ||||
Vanguard FTSE Emerging Markets, ETF | 3.7 | |||
U.S. Treasury Notes 0.88%, 02/28/17 | 2.0 | |||
U.S. Treasury Notes 0.63%, 09/30/17 | 1.5 | |||
QUALCOMM, Inc. | 1.2 | |||
Federal National Mortgage Assoc. 3.00%, TBA | 1.3 | |||
Apple, Inc. | 1.2 | |||
U.S. Treasury Bonds 3.00%, 05/15/42 | 1.2 | |||
PepsiCo, Inc. | 1.2 | |||
Microsoft Corp. | 1.0 | |||
Covidien PLC | 1.0 |
* | Quality is calculated as a percentage of total bonds & notes. 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. Quality ratings are subject to change. Top Holdings excludes the Fund’s investment in an investment company purchased with cash collateral from securities lending. |
10 | Semi-Annual Report |
Table of Contents
FUND PROFILE (unaudited)
Highland Tax-Exempt Fund |
Objective
Highland Tax-Exempt Fund seeks as high a level of income exempt from federal income taxation as is consistent with preservation of capital.
Net Assets as of March 31, 2013
$35.4 million
Portfolio Data as of March 31, 2013
The information below provides a snapshot of Highland Tax-Exempt Fund at the end of the reporting period. Highland Tax-Exempt 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 03/31/2013 (%)* | ||||
AAA | 22.1 | |||
AA | 45.2 | |||
A | 19.9 | |||
BBB | 5.0 | |||
Not Rated | 7.8 |
Sector Classifications as of 03/31/2013 (%)* | ||||
Municipal Bonds & Notes | 96.1 | |||
Other Investments and Assets & Liabilities | 3.9 |
Top 10 Holdings as of 03/31/2013 (%)* | ||||
Missouri Highway & Transportation Commission 5.00%, 05/01/21 | 5.2 | |||
Los Angeles, CA Harbor Department 5.00%, 08/01/26 | 3.9 | |||
State of Hawaii Airports System 5.25%, 07/01/24 | 3.8 | |||
California State Department of Water Resources 5.00%, 12/01/21 | 3.6 | |||
Town of Fairfield, CT 5.00%, 01/01/21 | 3.5 | |||
New York State Urban Development Corp. 5.50%, 01/01/19 | 3.5 | |||
Municipal Electric Authority of Georgia 5.25%, 01/01/19 | 3.4 | |||
Georgetown County School District, SC 5.00%, 03/01/18 | 3.4 | |||
County of Montgomery, MD 5.00%, 07/01/21 | 2.7 | |||
State of Texas 5.00%, 04/01/28 | 2.4 |
* | Quality is calculated as a percentage of total bonds & notes. 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. Quality Ratings are subject to change. |
A portion of the Tax-Exempt Fund’s income may be subject to state, federal and/or alternative minimum tax. Capital gains, if any, are subject to capital gains tax. |
Semi-Annual Report | 11 |
Table of Contents
FUND PROFILE (unaudited)
Highland Fixed Income Fund |
Objective
Highland Fixed Income Fund seeks maximum income consistent with prudent investment management and the preservation of capital.
Net Assets as of March 31, 2013
$186.8 million
Portfolio Data as of March 31, 2013
The information below provides a snapshot of Highland Fixed Income Fund at the end of the reporting period. Highland Fixed Income 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 03/31/2013 (%)* | ||||
AAA | 2.3 | |||
AA | 58.3 | |||
A | 12.0 | |||
BBB | 14.7 | |||
BB | 5.4 | |||
B | 3.1 | |||
D | 0.0 | † | ||
Not Rated | 4.2 |
Sector Classifications as of 03/31/2013 (%)* | ||||
Agency Mortgage-Backed Securities | 28.5 | |||
Corporate Bonds & Notes | 24.3 | |||
U.S. Treasuries | 20.9 | |||
Foreign Corporate Bonds & Notes | 10.8 | |||
Non-Agency Collateralized Mortgage-Backed Securities | 4.6 | |||
U.S. Government Agencies | 3.5 | |||
Sovereign Bonds | 2.4 | |||
Agency Collateralized Mortgage Obligations | 1.5 | |||
Asset-Backed Securities | 1.3 | |||
Non-Agency Collateralized Mortgage Obligations | 0.6 | |||
Municipal Bonds & Notes | 0.4 | |||
Other Investments and Assets & Liabilities | 1.2 |
Top 10 Holdings as of 03/31/2013 (%)* | ||||
U.S. Treasury Notes 0.88%, 02/28/17 | 6.8 | |||
U.S. Treasury Notes 0.63%, 09/30/17 | 5.8 | |||
Federal National Mortgage Assoc. 3.00%, TBA | 4.2 | |||
Federal National Mortgage Assoc. 4.50%, TBA | 4.1 | |||
Federal National Mortgage Assoc. 3.50%, TBA | 3.2 | |||
Federal National Mortgage Assoc. 6.00%, TBA | 3.1 | |||
Federal Home Loan Mortgage Corp. 2.00%, 08/25/16 | 2.6 | |||
U.S. Treasury Bonds 3.00%, 05/15/42 | 2.6 | |||
U.S. Treasury Notes 0.88%, 01/31/18 | 2.5 | |||
Federal National Mortgage Assoc. 4.00%, TBA | 2.3 |
* | Quality is calculated as a percentage of total bonds & notes. 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. Quality ratings are subject to change. Top Holdings excludes the Fund’s investment in an investment company purchased with cash collateral from securities lending. |
† | Less than 0.05%. |
12 | Semi-Annual Report |
Table of Contents
March 31, 2013 |
A guide to understanding each Fund’s financial statements
Investment Portfolio | The Investment Portfolio details each of the Fund’s holdings and their fair value as of the last day of the reporting period. Portfolio holdings are organized by type of asset and industry to demonstrate areas of concentration and diversification. | |
Statement of Assets and Liabilities | This statement details each Fund’s assets, liabilities, net assets and share price for each share class as of the last day of the reporting period. Net assets are calculated by subtracting all of a Fund’s liabilities (including any unpaid expenses) from the total of the Fund’s investment and non-investment assets. The net asset value per share for each class is calculated by dividing net assets allocated to that share class by the number of shares outstanding in that class as of the last day of the reporting period. | |
Statement of Operations | This statement reports income earned by each Fund and the expenses accrued by each Fund during the reporting period. The Statement of Operations also shows any net gain or loss a Fund realized on the sales of its holdings during the period as well as any unrealized gains or losses recognized over the period. The total of these results represents a Fund’s net increase or decrease in net assets from operations. | |
Statement of Changes in Net Assets | This statement details how each Fund’s net assets were affected by its operating results, distributions to shareholders and shareholder transactions (e.g., subscriptions, redemptions and distribution reinvestments) during the reporting period. The Statement of Changes in Net Assets also details changes in the number of shares outstanding. | |
Financial Highlights | The Financial Highlights demonstrate how each Fund’s net asset value per share was affected by the Fund’s operating results. The Financial Highlights also disclose the classes’ performance and certain key ratios (e.g., net expenses and net investment income as a percentage of average net assets). | |
Notes to Financial Statements | These notes disclose the organizational background of the Funds, certain of their significant accounting policies (including those surrounding security valuation, income recognition and distributions to shareholders), federal tax information, fees and compensation paid to affiliates and significant risks and contingencies. |
Semi-Annual Report | 13 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited)
As of March 31, 2013 | Highland Alpha Trend Strategies Fund |
Shares | Value ($) | |||||||
| Exchange-Traded Funds - 79.0% | |||||||
DIVERSIFIED FINANCIALS - 79.0% | ||||||||
35,000 | iShares MSCI Canada Index Fund, ETF | 997,850 | ||||||
15,000 | Powershares QQQ Trust Series 1, ETF | 1,034,550 | ||||||
6,000 | SPDR S&P 500 ETF Trust | 939,300 | ||||||
|
| |||||||
2,971,700 | ||||||||
|
| |||||||
Total Exchange-Traded Funds (Cost $2,849,143) | 2,971,700 | |||||||
|
| |||||||
| Total Investments - 79.0% | 2,971,700 | ||||||
|
| |||||||
| (Cost $2,849,143) | |||||||
| Other Assets & Liabilities, Net - 21.0% | 788,711 | ||||||
|
| |||||||
| Net Assets - 100.0% | 3,760,411 | ||||||
|
|
Glossary:
ETF | Exchange-Traded Fund | |
MSCI | Morgan Stanley Capital International | |
SPDR | Standard & Poor’s Depositary Receipt |
14 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited)
As of March 31, 2013 | Highland Alternative Income Fund |
Shares | Value ($) | |||||||
| Exchange-Traded Funds - 111.3% |
| ||||||
DIVERSIFIED FINANCIALS - 111.3% | ||||||||
30,000 | iShares iBoxx $ High Yield Corporate Bond Fund, ETF | 2,830,500 | ||||||
5,000 | PIMCO 0-5 Year High Yield Corporate Bond Index Fund, ETF | 522,850 | ||||||
90,000 | SPDR Barclays High Yield Bond, ETF (a) | 3,699,900 | ||||||
17,000 | SPDR Barclays Short-Term High Yield Bond, ETF | 524,960 | ||||||
508,023 | Vanguard High Yield Corporate Fund, ETF | 3,114,184 | ||||||
|
| |||||||
10,692,394 | ||||||||
|
| |||||||
Total Exchange-Traded Funds | 10,692,394 | |||||||
|
| |||||||
INVESTMENT COMPANIES - 6.8% | ||||||||
652,806 | State Street Navigator Prime Securities Lending Portfolio (b) | 652,806 | ||||||
|
| |||||||
Total Investment Companies | 652,806 | |||||||
|
| |||||||
| Total Investments - 118.1% | 11,345,200 | ||||||
|
| |||||||
| (Cost $11,224,684) | |||||||
| Other Assets & Liabilities, Net - (18.1)% | (1,741,629 | ) | |||||
|
| |||||||
| Net Assets - 100.0% | 9,603,571 | ||||||
|
|
(a) | Securities (or a portion of securities) on loan. As of March 31, 2013, the market value of securities loaned was $641,974. The loaned securities were secured with cash and securities collateral of $655,872. Collateral is calculated based on prior day’s prices. See Note 5. |
(b) | Represents investments of cash collateral received in connection with securities lending. |
Glossary: | ||
ETF | Exchange-Traded Fund | |
SPDR | Standard & Poor’s Depositary Receipt |
See accompanying Notes to Financial Statements. | 15 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited)
As of March 31, 2013 | Highland Trend Following Fund |
Shares | Value ($) | |||||||
| Exchange-Traded Funds - 25.9% |
| ||||||
DIVERSIFIED FINANCIALS - 9.6% | ||||||||
10,000 | ProShares UltraShort QQQ, ETF (a) | 259,000 | ||||||
|
| |||||||
MATERIALS - 16.3% | ||||||||
10,000 | ETRACS CMCI Long Platinum Total Return, ETF (a) | 178,868 | ||||||
6,000 | Market Vectors Steel Index Fund, ETF | 261,240 | ||||||
|
| |||||||
440,108 | ||||||||
|
| |||||||
Total Exchange-Traded Funds | 699,108 | |||||||
|
| |||||||
| Total Investments - 25.9% | 699,108 | ||||||
|
| |||||||
| (Cost $755,244) | |||||||
| Other Assets & Liabilities, Net - 74.1% | 2,002,297 | ||||||
|
| |||||||
| Net Assets - 100.0% | 2,701,405 | ||||||
|
|
(a) | Non-income producing security. |
Glossary:
CMCI | Constant Maturity Commodity Index | |
ETF | Exchange-Traded Fund | |
ETRACS | Exchange-Traded Access Securities |
16 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited)
As of March 31, 2013 | Highland Global Allocation Fund |
Shares | Value ($) | |||||||
| Common Stocks - 94.9% |
| ||||||
AUTOMOBILES & COMPONENTS - 1.0% | ||||||||
145,609 | Ford Motor Co. | 1,914,758 | ||||||
|
| |||||||
BANKS - 4.4% | ||||||||
390,987 | Regions Financial Corp. | 3,202,183 | ||||||
140,216 | Wells Fargo & Co. | 5,186,590 | ||||||
|
| |||||||
8,388,773 | ||||||||
|
| |||||||
CAPITAL GOODS - 7.1% | ||||||||
53,120 | ABB, Ltd., ADR (a) | 1,209,011 | ||||||
26,965 | Boeing Co. (The) | 2,314,945 | ||||||
10,786 | Cummins, Inc. (a) | 1,249,127 | ||||||
35,324 | Deere & Co. (a) | 3,037,157 | ||||||
13,482 | Dover Corp. (a) | 982,568 | ||||||
21,571 | Eaton Corp. PLC | 1,321,224 | ||||||
45,840 | Honeywell International, Inc. | 3,454,044 | ||||||
|
| |||||||
13,568,076 | ||||||||
|
| |||||||
COMMERCIAL & PROFESSIONAL SERVICES - 0.4% | ||||||||
23,459 | Nielsen Holdings NV | 840,301 | ||||||
|
| |||||||
DIVERSIFIED FINANCIALS - 7.4% | ||||||||
56,086 | American Express Co. | 3,783,561 | ||||||
39,908 | Ameriprise Financial, Inc. | 2,939,224 | ||||||
66,603 | Citigroup, Inc. | 2,946,517 | ||||||
103,544 | Invesco, Ltd. | 2,998,634 | ||||||
28,043 | JPMorgan Chase & Co. | 1,330,921 | ||||||
|
| |||||||
13,998,857 | ||||||||
|
| |||||||
ENERGY - 12.2% | ||||||||
41,256 | Anadarko Petroleum Corp. | 3,607,837 | ||||||
38,290 | Chevron Corp. | 4,549,618 | ||||||
23,190 | Exxon Mobil Corp. (a) | 2,089,651 | ||||||
75,501 | Halliburton Co. | 3,050,995 | ||||||
23,998 | Hess Corp. | 1,718,497 | ||||||
88,983 | Marathon Oil Corp. | 3,000,507 | ||||||
29,661 | Occidental Petroleum Corp. | 2,324,533 | ||||||
39,368 | Schlumberger, Ltd. | 2,948,269 | ||||||
|
| |||||||
23,289,907 | ||||||||
|
| |||||||
FOOD & STAPLES RETAILING - 1.3% | ||||||||
44,222 | CVS Caremark Corp. | 2,431,768 | ||||||
|
| |||||||
FOOD, BEVERAGE & TOBACCO - 7.2% | ||||||||
71,456 | Archer-Daniels-Midland Co. | 2,410,211 | ||||||
75,501 | Coca-Cola Enterprises, Inc. | 2,787,497 | ||||||
123,228 | Mondelez International, Inc., Class A | 3,772,009 | ||||||
59,322 | PepsiCo, Inc. | 4,692,963 | ||||||
|
| |||||||
13,662,680 | ||||||||
|
| |||||||
HEALTHCARE EQUIPMENT & SERVICES - 5.4% | ||||||||
38,829 | Cardinal Health, Inc. | 1,616,063 | ||||||
40,447 | Covidien PLC | 2,743,924 | ||||||
7,280 | Express Scripts Holding Co. (b) | 419,692 | ||||||
72,804 | Medtronic, Inc. | 3,418,876 | ||||||
11,325 | Stryker Corp. (a) | 738,843 | ||||||
23,303 | UnitedHealth Group, Inc. | 1,333,165 | ||||||
|
| |||||||
10,270,563 | ||||||||
|
|
Shares | Value ($) | |||||||
INSURANCE - 4.5% | ||||||||
36,402 | ACE, Ltd. | 3,238,686 | ||||||
101,387 | American International Group, Inc. (a) (b) | 3,935,844 | ||||||
24,268 | Prudential Financial, Inc. | 1,431,569 | ||||||
|
| |||||||
8,606,099 | ||||||||
|
| |||||||
MATERIALS - 2.2% | ||||||||
41,795 | Allegheny Technologies, Inc. (a) | 1,325,319 | ||||||
25,347 | LyondellBasell Industries NV, Class A | 1,604,212 | ||||||
8,898 | PPG Industries, Inc. | 1,191,798 | ||||||
|
| |||||||
4,121,329 | ||||||||
|
| |||||||
MEDIA - 6.5% | ||||||||
26,965 | CBS Corp., Class B | 1,258,996 | ||||||
80,894 | Comcast Corp., Class A | 3,398,357 | ||||||
13,482 | Interpublic Group of Cos., Inc. (The) | 175,670 | ||||||
52,851 | Omnicom Group, Inc. (a) | 3,112,924 | ||||||
70,108 | Time Warner, Inc. (a) | 4,039,623 | ||||||
6,741 | Walt Disney Co. (The) | 382,889 | ||||||
|
| |||||||
12,368,459 | ||||||||
|
| |||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES - 9.8% | ||||||||
53,929 | Agilent Technologies, Inc. | 2,263,400 | ||||||
22,381 | Amgen, Inc. | 2,294,277 | ||||||
72,804 | Johnson & Johnson (a) | 5,935,710 | ||||||
21,572 | Novartis AG, ADR | 1,536,789 | ||||||
48,536 | PerkinElmer, Inc. | 1,632,751 | ||||||
172,573 | Pfizer, Inc. | 4,980,457 | ||||||
|
| |||||||
18,643,384 | ||||||||
|
| |||||||
RETAILING - 3.0% | ||||||||
2,697 | AutoZone, Inc. (a) (b) | 1,070,089 | ||||||
35,054 | Lowe’s Cos., Inc. | 1,329,248 | ||||||
40,447 | Macy’s, Inc. | 1,692,302 | ||||||
22,920 | Target Corp. (a) | 1,568,874 | ||||||
|
| |||||||
5,660,513 | ||||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 1.7% | ||||||||
35,054 | Altera Corp. | 1,243,366 | ||||||
20,223 | Analog Devices, Inc. | 940,167 | ||||||
26,965 | Texas Instruments, Inc. (a) | 956,718 | ||||||
|
| |||||||
3,140,251 | ||||||||
|
| |||||||
SOFTWARE & SERVICES - 7.1% | ||||||||
4,098 | Google, Inc., Class A (b) | 3,253,935 | ||||||
8,629 | International Business Machines Corp. | 1,840,566 | ||||||
177,966 | Microsoft Corp. | 5,091,607 | ||||||
103,814 | Oracle Corp. (a) | 3,357,345 | ||||||
|
| |||||||
13,543,453 | ||||||||
|
| |||||||
TECHNOLOGY HARDWARE & EQUIPMENT - 7.8% | ||||||||
9,168 | Apple, Inc. | 4,058,032 | ||||||
215,717 | Cisco Systems, Inc. | 4,510,642 | ||||||
86,285 | EMC Corp. (a) (b) | 2,061,349 | ||||||
61,696 | QUALCOMM, Inc. | 4,130,547 | ||||||
|
| |||||||
14,760,570 | ||||||||
|
| |||||||
TELECOMMUNICATION SERVICES - 0.4% | ||||||||
21,572 | AT&T, Inc. | 791,477 | ||||||
|
|
See accompanying Notes to Financial Statements. | 17 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Global Allocation Fund |
Shares | Value ($) | |||||||
| Common Stocks (continued) |
| ||||||
TRANSPORTATION - 3.1% | ||||||||
92,758 | CSX Corp. (a) | 2,284,630 | ||||||
42,065 | United Parcel Service, Inc., Class B (a) | 3,613,383 | ||||||
|
| |||||||
5,898,013 | ||||||||
|
| |||||||
UTILITIES - 2.4% | ||||||||
80,894 | AES Corp. | 1,016,838 | ||||||
84,130 | Calpine Corp. (b) | 1,733,078 | ||||||
24,268 | NextEra Energy, Inc. (a) | 1,885,138 | ||||||
|
| |||||||
4,635,054 | ||||||||
|
| |||||||
Total Common Stocks | 180,534,285 | |||||||
|
| |||||||
| Exchange-Traded Funds - 1.6% |
| ||||||
DIVERSIFIED FINANCIALS - 0.3% | ||||||||
34,889 | Financial Select Sector SPDR Fund, ETF | 634,631 | ||||||
|
| |||||||
INDUSTRIALS - 1.3% | ||||||||
59,934 | Industrial Select Sector SPDR Fund, ETF (a) | 2,501,046 | ||||||
|
| |||||||
Total Exchange-Traded Funds | 3,135,677 | |||||||
|
| |||||||
Investment Companies - 15.0% | ||||||||
28,498,949 | State Street Navigator Prime Securities Lending Portfolio (c) | 28,498,949 | ||||||
|
| |||||||
Total Investment Companies | 28,498,949 | |||||||
|
| |||||||
| Total Investments - 111.5% | 212,168,911 | ||||||
|
| |||||||
| (Cost $184,238,781) | |||||||
| Other Assets & Liabilities, Net - (11.5)% | (21,933,020 | ) | |||||
|
| |||||||
| Net Assets - 100.0% | 190,235,891 | ||||||
|
|
(a) | Securities (or a portion of securities) on loan. As of March 31, 2013, the market value of securities loaned was $28,494,556. The loaned securities were secured with cash and securities collateral of $29,013,845. Collateral is calculated based on prior day’s prices. See Note 5. |
(b) | Non-income producing security. |
(c) | Represents investments of cash collateral received in connection with securities lending. |
Glossary:
ADR | American Depositary Receipt | |
ETF | Exchange-Traded Fund | |
SPDR | Standard & Poor’s Depositary Receipt |
The Fund had the following futures contracts, brokered by Royal Bank of Scotland, for which $420,000 was pledged as collateral, open at March 31, 2013:
Description | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||
Long Futures: | ||||||||||||||||
S&P 500 Emini Index | June 2013 | 76 | $ | 5,938,260 | $ | 69,312 | ||||||||||
|
|
18 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited)
As of March 31, 2013 | Highland Dividend Equity Fund |
Shares | Value ($) | |||||||
| Common Stocks - 92.2% |
| ||||||
BANKS - 7.4% | ||||||||
4,495 | PNC Financial Services Group, Inc. (a) | 298,918 | ||||||
9,295 | U.S. Bancorp | 315,379 | ||||||
9,105 | Wells Fargo & Co. | 336,794 | ||||||
|
| |||||||
951,091 | ||||||||
|
| |||||||
CAPITAL GOODS - 5.3% | ||||||||
14,350 | General Electric Co. (a) | 331,772 | ||||||
3,680 | Hubbell, Inc., Class B (a) | 357,365 | ||||||
|
| |||||||
689,137 | ||||||||
|
| |||||||
COMMERCIAL & PROFESSIONAL SERVICES - 2.0% | ||||||||
17,090 | Ennis, Inc. (a) | 257,546 | ||||||
|
| |||||||
CONSUMER DURABLES & APPAREL - 2.7% | ||||||||
4,320 | Tupperware Brands Corp. (a) | 353,117 | ||||||
|
| |||||||
CONSUMER SERVICES - 3.1% | ||||||||
3,965 | McDonald’s Corp. (a) | 395,271 | ||||||
| �� | |||||||
DIVERSIFIED FINANCIALS - 2.7% | ||||||||
7,300 | JPMorgan Chase & Co. | 346,458 | ||||||
|
| |||||||
ENERGY - 6.5% | ||||||||
3,845 | Chevron Corp. | 456,863 | ||||||
5,670 | Royal Dutch Shell PLC, ADR (a) | 378,869 | ||||||
|
| |||||||
835,732 | ||||||||
|
| |||||||
FOOD, BEVERAGE & TOBACCO - 14.0% | ||||||||
2,880 | Diageo PLC, ADR | 362,419 | ||||||
4,815 | HJ Heinz Co. | 347,980 | ||||||
7,575 | Kellogg Co. (a) | 488,057 | ||||||
3,880 | PepsiCo, Inc. | 306,947 | ||||||
7,555 | Unilever NV | 309,755 | ||||||
|
| |||||||
1,815,158 | ||||||||
|
| |||||||
HEALTHCARE EQUIPMENT & SERVICES - 2.5% | ||||||||
9,195 | Abbott Laboratories | 324,768 | ||||||
|
| |||||||
HOUSEHOLD & PERSONAL PRODUCTS - 2.3% | ||||||||
3,935 | Procter & Gamble Co. (The) | 303,231 | ||||||
|
| |||||||
INSURANCE - 2.5% | ||||||||
7,765 | Arthur J. Gallagher & Co. | 320,772 | ||||||
|
| |||||||
MATERIALS - 7.8% | ||||||||
9,325 | Packaging Corp. of America | 418,413 | ||||||
7,985 | Sonoco Products Co. (a) | 279,395 | ||||||
10,150 | Worthington Industries, Inc. (a) | 314,447 | ||||||
|
| |||||||
1,012,255 | ||||||||
|
| |||||||
MEDIA - 2.4% | ||||||||
6,580 | CBS Corp., Class B (a) | 307,220 | ||||||
|
| |||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES - 8.3% | ||||||||
5,725 | GlaxoSmithKline PLC, ADR (a) | 268,560 | ||||||
5,860 | Johnson & Johnson (a) | 477,766 | ||||||
4,585 | Novartis AG, ADR | 326,635 | ||||||
|
| |||||||
1,072,961 | ||||||||
|
|
Shares | Value ($) | |||||||
RETAILING - 3.2% | ||||||||
5,840 | Home Depot, Inc. (The) | 407,515 | ||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 2.0% | ||||||||
7,140 | Microchip Technology, Inc. (a) | 262,466 | ||||||
|
| |||||||
SOFTWARE & SERVICES - 2.3% | ||||||||
8,385 | Paychex, Inc. (a) | 294,062 | ||||||
|
| |||||||
TELECOMMUNICATION SERVICES - 6.2% | ||||||||
12,910 | AT&T, Inc. | 473,668 | ||||||
6,695 | Verizon Communications, Inc. (a) | 329,059 | ||||||
|
| |||||||
802,727 | ||||||||
|
| |||||||
TRANSPORTATION - 2.3% | ||||||||
3,465 | United Parcel Service, Inc., Class B (a) | 297,644 | ||||||
|
| |||||||
UTILITIES - 6.7% | ||||||||
3,440 | ITC Holdings Corp. (a) | 307,054 | ||||||
4,730 | National Fuel Gas Co. (a) | 290,186 | ||||||
5,770 | Southern Co. (The) | 270,728 | ||||||
|
| |||||||
867,968 | ||||||||
|
| |||||||
Total Common Stocks | 11,917,099 | |||||||
|
| |||||||
| Exchange-Traded Funds - 2.4% |
| ||||||
REAL ESTATE - 2.4% | ||||||||
4,385 | iShares Dow Jones U.S. Real Estate Index Fund, ETF (a) | 304,670 | ||||||
|
| |||||||
Total Exchange-Traded Funds | 304,670 | |||||||
|
| |||||||
| Investment Companies - 25.6% |
| ||||||
3,306,806 | State Street Navigator Prime Securities Lending Portfolio (b) | 3,306,806 | ||||||
|
| |||||||
Total Investment Companies | 3,306,806 | |||||||
|
| |||||||
| Total Investments - 120.2% | 15,528,575 | ||||||
|
| |||||||
| (Cost $13,204,586) | |||||||
| Other Assets & Liabilities, Net - (20.2)% | (2,611,261 | ) | |||||
|
| |||||||
| Net Assets - 100.0% | 12,917,314 | ||||||
|
|
(a) | Securities (or a portion of securities) on loan. As of March 31, 2013, the market value of securities loaned was $3,257,052. The loaned securities were secured with cash collateral of $3,306,806. Collateral is calculated based on prior day’s prices. See Note 5. |
(b) | Represents investments of cash collateral received in connection with securities lending. |
Glossary:
ADR | American Depositary Receipt | |
ETF | Exchange-Traded Fund |
See accompanying Notes to Financial Statements. | 19 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited)
As of March 31, 2013 | Highland Premier Growth Equity Fund |
Shares | Value ($) | |||||||
| Common Stocks - 94.6% |
| ||||||
CAPITAL GOODS - 3.8% | ||||||||
85,613 | Dover Corp. (a) | 6,239,476 | ||||||
|
| |||||||
CONSUMER SERVICES - 1.6% | ||||||||
47,563 | Las Vegas Sands Corp. | 2,680,175 | ||||||
|
| |||||||
DIVERSIFIED FINANCIALS - 8.7% | ||||||||
28,539 | Charles Schwab Corp. (The) (a) | 504,855 | ||||||
91,955 | CME Group, Inc. (a) | 5,645,117 | ||||||
24,098 | Goldman Sachs Group, Inc. (The) | 3,546,021 | ||||||
77,369 | State Street Corp. | 4,571,734 | ||||||
|
| |||||||
14,267,727 | ||||||||
|
| |||||||
ENERGY - 5.2% | ||||||||
27,269 | Anadarko Petroleum Corp. | 2,384,674 | ||||||
82,442 | Schlumberger, Ltd. | 6,174,082 | ||||||
|
| |||||||
8,558,756 | ||||||||
|
| |||||||
FOOD, BEVERAGE & TOBACCO - 3.4% | ||||||||
70,393 | PepsiCo, Inc. | 5,568,790 | ||||||
|
| |||||||
HEALTHCARE EQUIPMENT & SERVICES - 9.5% | ||||||||
99,565 | Covidien PLC | 6,754,490 | ||||||
53,905 | DENTSPLY International, Inc. (a) | 2,286,650 | ||||||
112,248 | Express Scripts Holding Co. (b) | 6,471,097 | ||||||
|
| |||||||
15,512,237 | ||||||||
|
| |||||||
MATERIALS - 3.3% | ||||||||
50,734 | Monsanto Co. | 5,359,032 | ||||||
|
| |||||||
MEDIA - 8.8% | ||||||||
95,125 | Comcast Corp., Special Class A | 3,768,853 | ||||||
69,758 | Discovery Communications, Inc., Class C (b) | 4,850,971 | ||||||
85,613 | Liberty Global, Inc., Series C (a) (b) | 5,875,620 | ||||||
|
| |||||||
14,495,444 | ||||||||
|
| |||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES - 5.8% | ||||||||
28,537 | Amgen, Inc. | 2,925,328 | ||||||
135,712 | Gilead Sciences, Inc. (a) (b) | 6,640,388 | ||||||
|
| |||||||
9,565,716 | ||||||||
|
| |||||||
REAL ESTATE - 2.2% | ||||||||
47,563 | American Tower Corp., REIT | 3,658,546 | ||||||
|
| |||||||
RETAILING - 7.0% | ||||||||
8,878 | Amazon.com, Inc. (b) | 2,365,898 | ||||||
74,198 | Dick’s Sporting Goods, Inc. (a) | 3,509,566 | ||||||
148,396 | Lowe’s Cos., Inc. | 5,627,176 | ||||||
|
| |||||||
11,502,640 | ||||||||
|
| |||||||
SOFTWARE & SERVICES - 20.6% | ||||||||
44,392 | Baidu, Inc., ADR (b) | 3,893,178 | ||||||
117,955 | eBay, Inc. (b) | 6,395,520 | ||||||
3,171 | Google, Inc., Class A (b) | 2,517,869 | ||||||
50,734 | Intuit, Inc. (a) | 3,330,687 | ||||||
98,296 | Microsoft Corp. | 2,812,249 | ||||||
82,442 | Oracle Corp. (a) | 2,666,174 | ||||||
120,492 | Paychex, Inc. (a) | 4,225,654 |
Shares | Value ($) | |||||||
SOFTWARE & SERVICES (continued) | ||||||||
36,147 | Visa, Inc., Class A (a) | 6,139,207 | ||||||
120,491 | Western Union Co. (The) (a) | 1,812,185 | ||||||
|
| |||||||
33,792,723 | ||||||||
|
| |||||||
TECHNOLOGY HARDWARE & EQUIPMENT - 11.8% | ||||||||
15,854 | Apple, Inc. | 7,017,456 | ||||||
91,955 | Cisco Systems, Inc. | 1,922,779 | ||||||
123,666 | EMC Corp. (a) (b) | 2,954,381 | ||||||
112,248 | QUALCOMM, Inc. | 7,515,003 | ||||||
|
| |||||||
19,409,619 | ||||||||
|
| |||||||
TRANSPORTATION - 2.9% | ||||||||
55,173 | United Parcel Service, Inc., Class B | 4,739,361 | ||||||
|
| |||||||
Total Common Stocks (Cost $108,428,625) | 155,350,242 | |||||||
|
| |||||||
Investment Companies - 21.0% | ||||||||
34,511,528 | State Street Navigator Prime Securities Lending Portfolio (c) | 34,511,528 | ||||||
|
| |||||||
Total Investment Companies (Cost $34,511,528) | 34,511,528 | |||||||
|
| |||||||
| Total Investments - 115.6% | 189,861,770 | ||||||
|
| |||||||
| (Cost $142,940,153) | |||||||
| Other Assets & Liabilities, Net - (15.6)% | (25,607,799 | ) | |||||
|
| |||||||
| Net Assets - 100.0% | 164,253,971 | ||||||
|
|
(a) | Securities (or a portion of securities) on loan. As of March 31, 2013, the market value of securities loaned was $34,124,452. The loaned securities were secured with cash collateral of $34,511,528. Collateral is calculated based on prior day’s prices. See Note 5. |
(b) | Non-income producing security. |
(c) | Represents investments of cash collateral received in connection with securities lending. |
Glossary:
ADR | American Depositary Receipt | |
PLC | Public Limited Company | |
REIT | Real Estate Investment Trust |
The Fund had the following futures contracts, brokered by Royal Bank of Scotland, for which $350,000 was pledged as collateral, open at March 31, 2013:
Description | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||
Long Futures: | ||||||||||||||||
S&P 500 Emini Index | June 2013 | 58 | $ | 4,531,830 | $ | 52,896 | ||||||||||
|
|
20 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited)
As of March 31, 2013 | Highland Small-Cap Equity Fund |
Shares | Value ($) | |||||||
| Common Stocks - 96.7% |
| ||||||
BANKS - 6.8% | ||||||||
7,485 | Cullen/Frost Bankers, Inc. (a) | 468,037 | ||||||
31,242 | Fulton Financial Corp. (a) | 365,531 | ||||||
7,180 | Iberiabank Corp. | 359,144 | ||||||
13,200 | Prosperity Bancshares, Inc. (a) | 625,548 | ||||||
8,020 | SVB Financial Group (a) (b) | 568,939 | ||||||
6,530 | Westamerica Bancorp. (a) | 296,005 | ||||||
|
| |||||||
2,683,204 | ||||||||
|
| |||||||
CAPITAL GOODS - 9.6% | ||||||||
19,365 | Applied Industrial Technologies, Inc. | 871,425 | ||||||
6,745 | ESCO Technologies, Inc. (a) | 275,601 | ||||||
6,555 | Harsco Corp. | 162,367 | ||||||
7,305 | Mueller Industries, Inc. | 389,283 | ||||||
6,520 | Polypore International, Inc. (a) (b) | 261,974 | ||||||
5,990 | Primoris Services Corp. (a) | 132,439 | ||||||
19,300 | Quanta Services, Inc. (a) (b) | 551,594 | ||||||
8,220 | Teledyne Technologies, Inc. (a) (b) | 644,777 | ||||||
12,385 | Woodward, Inc. (a) | 492,427 | ||||||
|
| |||||||
3,781,887 | ||||||||
|
| |||||||
COMMERCIAL & PROFESSIONAL SERVICES - 2.7% | ||||||||
21,650 | Healthcare Services Group, Inc. (a) | 554,890 | ||||||
11,890 | Herman Miller, Inc. (a) | 328,996 | ||||||
14,000 | Resources Connection, Inc. (a) | 177,800 | ||||||
|
| |||||||
1,061,686 | ||||||||
|
| |||||||
CONSUMER DURABLES & APPAREL - 3.4% | ||||||||
8,490 | Deckers Outdoor Corp. (a) (b) | 472,808 | ||||||
18,853 | Jarden Corp. (b) | 807,830 | ||||||
4,125 | Maidenform Brands, Inc. (b) | 72,311 | ||||||
|
| |||||||
1,352,949 | ||||||||
|
| |||||||
CONSUMER SERVICES - 2.7% | ||||||||
9,660 | Cracker Barrel Old Country Store, Inc. (a) | 781,011 | ||||||
5,120 | Lincoln Educational Services Corp. (a) | 30,003 | ||||||
2,395 | Matthews International Corp., Class A (a) | 83,562 | ||||||
8,710 | Texas Roadhouse, Inc. | 175,855 | ||||||
|
| |||||||
1,070,431 | ||||||||
|
| |||||||
DIVERSIFIED FINANCIALS - 2.3% | ||||||||
19,820 | Raymond James Financial, Inc. (a) | 913,702 | ||||||
|
| |||||||
ENERGY - 5.3% | ||||||||
4,585 | Dril-Quip, Inc. (a) (b) | 399,674 | ||||||
1,785 | Gulfport Energy Corp. (a) (b) | 81,807 | ||||||
7,235 | Oil States International, Inc. (a) (b) | 590,159 | ||||||
52,120 | Pioneer Energy Services Corp. (a) (b) | 429,990 | ||||||
10,205 | SM Energy Co. (a) | 604,340 | ||||||
|
| |||||||
2,105,970 | ||||||||
|
| |||||||
FOOD & STAPLES RETAILING - 0.3% | ||||||||
6,850 | Spartan Stores, Inc. (a) | 120,218 | ||||||
|
| |||||||
FOOD, BEVERAGE & TOBACCO - 0.7% | ||||||||
11,165 | Smithfield Foods, Inc. (a) (b) | 295,649 | ||||||
|
|
Shares | Value ($) | |||||||
HEALTHCARE EQUIPMENT & SERVICES - 10.1% | ||||||||
2,640 | Analogic Corp. | 208,613 | ||||||
24,250 | Bio-Reference Labs, Inc. (a) (b) | 630,015 | ||||||
4,235 | Computer Programs & Systems, Inc. (a) | 229,156 | ||||||
20,970 | HMS Holdings Corp. (a) (b) | 569,335 | ||||||
9,930 | MEDNAX, Inc. (a) (b) | 890,026 | ||||||
17,780 | Molina Healthcare, Inc. (b) | 548,869 | ||||||
17,655 | Owens & Minor, Inc. (a) | 574,847 | ||||||
8,735 | Thoratec Corp. (b) | 327,562 | ||||||
|
| |||||||
3,978,423 | ||||||||
|
| |||||||
INSURANCE - 2.0% | ||||||||
18,915 | HCC Insurance Holdings, Inc. | 794,997 | ||||||
|
| |||||||
MATERIALS - 6.4% | ||||||||
30,765 | Commercial Metals Co. (a) | 487,625 | ||||||
5,950 | Compass Minerals International, Inc. (a) | 469,455 | ||||||
21,340 | Packaging Corp. of America | 957,526 | ||||||
6,000 | PolyOne Corp. | 146,460 | ||||||
12,560 | Sensient Technologies Corp. (a) | 490,970 | ||||||
|
| |||||||
2,552,036 | ||||||||
|
| |||||||
MEDIA - 1.6% | ||||||||
6,125 | Arbitron, Inc. | 287,079 | ||||||
8,495 | John Wiley & Sons, Inc., Class A (a) | 330,965 | ||||||
|
| |||||||
618,044 | ||||||||
|
| |||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES - 4.4% | ||||||||
40,850 | Bruker Corp. (b) | 780,235 | ||||||
9,190 | Cubist Pharmaceuticals, Inc. (a) (b) | 430,276 | ||||||
16,550 | ICON PLC (b) | 534,399 | ||||||
|
| |||||||
1,744,910 | ||||||||
|
| |||||||
REAL ESTATE - 7.3% | ||||||||
37,450 | BioMed Realty Trust, Inc., REIT (a) | 808,920 | ||||||
13,060 | Coresite Realty Corp., REIT (a) | 456,839 | ||||||
2,165 | Digital Realty Trust, Inc., REIT (a) | 144,860 | ||||||
31,770 | Omega Healthcare Investors, Inc., REIT | 964,537 | ||||||
17,340 | Sabra Health Care REIT, Inc. (a) | 503,034 | ||||||
|
| |||||||
2,878,190 | ||||||||
|
| |||||||
RETAILING - 6.4% | ||||||||
15,015 | Aaron’s, Inc. | 430,630 | ||||||
23,470 | Aeropostale, Inc. (a) (b) | 319,192 | ||||||
11,035 | American Eagle Outfitters, Inc. (a) | 206,355 | ||||||
10,380 | Buckle, Inc. (The) (a) | 484,227 | ||||||
50,350 | LKQ Corp. (b) | 1,095,616 | ||||||
|
| |||||||
2,536,020 | ||||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 4.6% | ||||||||
28,765 | Microsemi Corp. (a) (b) | 666,485 | ||||||
45,530 | Rudolph Technologies, Inc. (a) (b) | 536,343 | ||||||
17,960 | Semtech Corp. (a) (b) | 635,605 | ||||||
|
| |||||||
1,838,433 | ||||||||
|
| |||||||
SOFTWARE & SERVICES - 10.8% | ||||||||
11,480 | ACI Worldwide, Inc. (b) | 560,913 |
See accompanying Notes to Financial Statements. | 21 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Small-Cap Equity Fund |
Shares | Value ($) | |||||||
| Common Stocks (continued) |
| ||||||
SOFTWARE & SERVICES (continued) | ||||||||
18,715 | Active Network, Inc. (The) (a) (b) | 78,416 | ||||||
22,685 | Blackbaud, Inc. (a) | 672,156 | ||||||
60,560 | Global Cash Access Holdings, Inc. (b) | �� | 426,948 | |||||
12,155 | MICROS Systems, Inc. (a) (b) | 553,174 | ||||||
10,800 | NIC, Inc. (a) | 206,928 | ||||||
29,085 | PTC, Inc. (a) (b) | 741,377 | ||||||
4,160 | Solera Holdings, Inc. | 242,653 | ||||||
25,925 | SS&C Technologies Holdings, Inc. (a) (b) | 777,231 | ||||||
|
| |||||||
4,259,796 | ||||||||
|
| |||||||
TECHNOLOGY HARDWARE & EQUIPMENT - 1.7% | ||||||||
3,685 | ADTRAN, Inc. (a) | 72,410 | ||||||
12,630 | Zebra Technologies Corp., Class A (b) | 595,252 | ||||||
|
| |||||||
667,662 | ||||||||
|
| |||||||
TELECOMMUNICATION SERVICES - 0.7% | ||||||||
15,110 | West Corp. (b) | 289,961 | ||||||
|
| |||||||
TRANSPORTATION - 5.1% | ||||||||
12,195 | Genesee & Wyoming, Inc., Class A (b) | 1,135,476 | ||||||
22,900 | Old Dominion Freight Line, Inc. (b) | 874,780 | ||||||
|
| |||||||
2,010,256 | ||||||||
|
|
Shares | Value ($) | |||||||
UTILITIES - 1.8% | ||||||||
14,410 | IDACORP, Inc. (a) | 695,571 | ||||||
|
| |||||||
Total Common Stocks | 38,249,995 | |||||||
|
| |||||||
| Investment Companies – 28.6% |
| ||||||
11,307,745 | State Street Navigator Prime Securities Lending Portfolio (c) | 11,307,745 | ||||||
|
| |||||||
Total Investment Companies | 11,307,745 | |||||||
|
| |||||||
| Total Investments – 125.3% | 49,557,740 | ||||||
|
| |||||||
| (Cost $43,131,079) | |||||||
| Other Assets & Liabilities, Net – (25.3)% | (10,006,419 | ) | |||||
|
| |||||||
| Net Assets - 100.0% | 39,551,321 | ||||||
|
|
(a) | Securities (or a portion of securities) on loan. As of March 31, 2013, the market value of securities loaned was $11,076,894. The loaned securities were secured with cash collateral of $11,307,745. Collateral is calculated based on prior day’s prices. See Note 5. |
(b) | Non-income producing security. |
(c) | Represents investments of cash collateral received in connection with securities lending. |
Glossary:
REIT | Real Estate Investment Trust |
22 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited)
As of March 31, 2013 | Highland Global Select Equity Fund |
Shares | Value ($) | |||||||
| Common Stocks - 96.3% |
| ||||||
FRANCE - 2.3% | ||||||||
3,304 | LVMH Moet Hennessy Louis Vuitton SA | 568,093 | ||||||
|
| |||||||
GERMANY - 3.3% | ||||||||
7,866 | Adidas AG | 817,553 | ||||||
|
| |||||||
HONG KONG - 4.7% | ||||||||
262,988 | AIA Group, Ltd. | 1,148,486 | ||||||
|
| |||||||
ITALY - 4.1% | ||||||||
20,112 | Luxottica Group SpA | 1,010,047 | ||||||
|
| |||||||
JAPAN - 4.1% | ||||||||
9,800 | Astellas Pharma, Inc. (a) | 527,420 | ||||||
10,200 | Softbank Corp. (a) | 468,666 | ||||||
|
| |||||||
996,086 | ||||||||
|
| |||||||
PHILIPPINES - 2.4% | ||||||||
209,080 | Metropolitan Bank & Trust | 599,421 | ||||||
|
| |||||||
SOUTH KOREA - 2.7% | ||||||||
497 | Samsung Electronics Co., Ltd. | 674,519 | ||||||
|
| |||||||
SWEDEN - 5.0% | ||||||||
27,865 | Alfa Laval AB | 643,269 | ||||||
21,959 | Hexagon AB, Class B | 599,465 | ||||||
|
| |||||||
1,242,734 | ||||||||
|
| |||||||
SWITZERLAND - 4.5% | ||||||||
15,400 | Nestle SA | 1,116,437 | ||||||
|
| |||||||
THAILAND - 2.0% | ||||||||
65,700 | Bangkok Bank PCL, NVDR | 498,050 | ||||||
|
| |||||||
UNITED KINGDOM - 12.4% | ||||||||
29,910 | BG Group PLC | 512,756 | ||||||
18,058 | BHP Billiton PLC | 525,096 | ||||||
29,551 | Diageo PLC | 931,089 | ||||||
42,413 | Standard Chartered PLC | 1,097,089 | ||||||
|
| |||||||
3,066,030 | ||||||||
|
| |||||||
UNITED STATES - 48.8% | ||||||||
8,598 | American Tower Corp., REIT | 661,358 | ||||||
8,979 | CME Group, Inc. | 551,221 | ||||||
6,378 | Cummins, Inc. (a) | 738,636 | ||||||
9,781 | Dollar General Corp. (b) | 494,723 | ||||||
1,086 | Google, Inc., Class A (b) | 862,317 | ||||||
11,822 | Honeywell International, Inc. (a) | 890,788 | ||||||
15,409 | Johnson & Johnson (a) | 1,256,296 | ||||||
4,621 | Monsanto Co. | 488,116 | ||||||
6,214 | Occidental Petroleum Corp. | 486,991 | ||||||
6,220 | PepsiCo, Inc. (a) | 492,064 | ||||||
5,027 | Praxair, Inc. (a) | 560,712 | ||||||
13,790 | QUALCOMM, Inc. | 923,241 | ||||||
8,898 | Schlumberger, Ltd. | 666,371 | ||||||
9,707 | Thermo Fisher Scientific, Inc. | 742,488 | ||||||
22,073 | U.S. Bancorp | 748,937 |
Shares | Value ($) | |||||||
UNITED STATES (continued) | ||||||||
14,440 | Verizon Communications, Inc. (a) | 709,726 | ||||||
4,437 | Visa, Inc., Class A (a) | 753,580 | ||||||
|
| |||||||
12,027,565 | ||||||||
|
| |||||||
Total Common Stocks | 23,765,021 | |||||||
|
| |||||||
| Preferred Stocks - 2.0% |
| ||||||
BRAZIL - 2.0% | ||||||||
9,201 | Cia Brasileira de Distribuicao Grupo Pao de Acucar | 485,159 | ||||||
|
| |||||||
Total Preferred Stocks | 485,159 | |||||||
|
| |||||||
Investment Companies - 20.4% | ||||||||
5,026,220 | State Street Navigator Prime Securities Lending Portfolio (c) | 5,026,220 | ||||||
|
| |||||||
Total Investment Companies | 5,026,220 | |||||||
|
| |||||||
| Total Investments - 118.7% | 29,276,400 | ||||||
|
| |||||||
| (Cost $24,675,686) | |||||||
| Other Assets & Liabilities, Net - (18.7)% | (4,605,884 | ) | |||||
|
| |||||||
| Net Assets - 100.0% | 24,670,516 | ||||||
|
|
(a) | Securities (or a portion of securities) on loan. As of March 31, 2013, the market value of securities loaned was $4,908,889. The loaned securities were secured with cash collateral of $5,026,220. Collateral is calculated based on prior day’s prices. See Note 5. |
(b) | Non-income producing security. |
(c) | Represents investments of cash collateral received in connection with securities lending. |
Glossary:
NVDR | Non-Voting Depository Receipts | |
REIT | Real Estate Investment Trust |
The Fund had the following futures contracts, brokered by Royal Bank of Scotland, for which $50,000 was pledged as collateral, open at March 31, 2013:
Description | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||
Long Futures: | ||||||||||||||||
FTSE 100 Index | June 2013 | 1 | $ | 96,437 | $ | (1,234 | ) | |||||||||
S&P 500 Emini Index | June 2013 | 1 | 78,135 | 912 | ||||||||||||
|
| |||||||||||||||
$ | (322 | ) | ||||||||||||||
|
|
See accompanying Notes to Financial Statements. | 23 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Global Select Equity Fund |
Industry | Percentage (based on Total Investments)* | |||
Banks | 12.1% | |||
Food, Beverage & Tobacco | 10.5% | |||
Pharmaceuticals, Biotechnology & Life Sciences | 10.4% | |||
Consumer Durables & Apparel | 9.9% | |||
Capital Goods | 9.4% | |||
Energy | 6.9% | |||
Software & Services | 6.7% | |||
Materials | 6.5% | |||
Technology Hardware & Equipment | 6.3% | |||
Telecommunication Services | 4.8% | |||
Insurance | 4.7% | |||
Semiconductors & Semiconductor Equipment | 2.8% | |||
Real Estate | 2.7% | |||
Diversified Financials | 2.3% | |||
Retailing | 2.0% | |||
Food & Staples Retailing | 2.0% | |||
|
| |||
100.0% | ||||
|
|
* | Excludes the Fund’s investment in an investment company purchased with cash collateral from securities lending. |
24 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited)
As of March 31, 2013 | Highland International Equity Fund |
Shares | Value ($) | |||||||
| Common Stocks - 95.3% |
| ||||||
AUSTRALIA - 2.3% | ||||||||
16,842 | Brambles, Ltd. | 148,722 | ||||||
2,154 | CSL, Ltd. | 133,010 | ||||||
|
| |||||||
281,732 | ||||||||
|
| |||||||
BELGIUM - 1.0% | ||||||||
1,285 | Anheuser-Busch InBev NV | 127,468 | ||||||
|
| |||||||
CANADA - 1.2% | ||||||||
1,758 | Cenovus Energy, Inc. | 54,439 | ||||||
2,391 | Potash Corp. of Saskatchewan, Inc. | 93,903 | ||||||
|
| |||||||
148,342 | ||||||||
|
| |||||||
CHINA - 1.0% | ||||||||
1,366 | Baidu, Inc., ADR (a) (b) | 119,798 | ||||||
|
| |||||||
FRANCE - 8.9% | ||||||||
6,656 | AXA SA | 114,615 | ||||||
3,909 | BNP Paribas SA | 200,983 | ||||||
1,169 | Cap Gemini SA | 53,289 | ||||||
1,461 | Cie Generale d’Optique Essilor International SA | 162,749 | ||||||
636 | LVMH Moet Hennessy Louis Vuitton SA | 109,354 | ||||||
5,668 | Safran SA | 253,248 | ||||||
425 | Schneider Electric SA | 31,107 | ||||||
1,544 | Total SA | 74,062 | ||||||
2,287 | Vallourec SA | 110,128 | ||||||
|
| |||||||
1,109,535 | ||||||||
|
| |||||||
GERMANY - 10.4% | ||||||||
1,456 | Bayer AG | 150,451 | ||||||
3,079 | Deutsche Bank AG | 120,253 | ||||||
1,308 | Fresenius SE & Co. KGaA | 161,729 | ||||||
2,877 | HeidelbergCement AG | 207,105 | ||||||
1,618 | Linde AG | 301,366 | ||||||
3,389 | SAP AG | 271,988 | ||||||
695 | Siemens AG | 74,993 | ||||||
|
| |||||||
1,287,885 | ||||||||
|
| |||||||
HONG KONG - 2.4% | ||||||||
67,487 | AIA Group, Ltd. | 294,720 | ||||||
|
| |||||||
INDIA - 0.8% | ||||||||
1,560 | ICICI Bank, Ltd., ADR (a) | 66,924 | ||||||
1,294 | Larsen & Toubro, Ltd., GDR | 32,479 | ||||||
|
| |||||||
99,403 | ||||||||
|
| |||||||
IRELAND - 0.6% | ||||||||
4,515 | Experian PLC | 78,156 | ||||||
|
| |||||||
ITALY - 2.3% | ||||||||
2,894 | Eni SpA | 65,145 | ||||||
29,024 | Intesa Sanpaolo SpA | 42,562 | ||||||
3,646 | Luxottica Group SpA | 183,106 | ||||||
|
| |||||||
290,813 | ||||||||
|
| |||||||
JAPAN - 20.7% | ||||||||
2,300 | Astellas Pharma, Inc. (a) | 123,782 | ||||||
17,910 | Bank of Yokohama, Ltd. (The) | 103,627 |
Shares | Value ($) | |||||||
JAPAN (continued) | ||||||||
7,600 | Bridgestone Corp. (a) | 254,627 | ||||||
800 | Daito Trust Construction Co., Ltd. (a) | 68,581 | ||||||
900 | FANUC Corp. | 137,747 | ||||||
1,999 | JGC Corp. (a) | 51,155 | ||||||
10,000 | Kubota Corp. (a) | 144,437 | ||||||
7,000 | Mitsubishi Estate Co., Ltd. (a) | 197,373 | ||||||
13,000 | Mitsubishi Heavy Industries, Ltd. | 74,942 | ||||||
36,800 | Mitsubishi UFJ Financial Group, Inc. (a) | 220,753 | ||||||
3,700 | Mitsui & Co., Ltd. (a) | 51,868 | ||||||
600 | Murata Manufacturing Co., Ltd. | 45,182 | ||||||
5,100 | Softbank Corp. (a) | 234,333 | ||||||
4,600 | Sony Financial Holdings, Inc. (a) | 68,496 | ||||||
6,900 | Tokio Marine Holdings, Inc. (a) | 198,443 | ||||||
7,524 | Toyota Motor Corp. (a) | 386,123 | ||||||
3,794 | Unicharm Corp. (a) | 216,696 | ||||||
|
| |||||||
2,578,165 | ||||||||
|
| |||||||
LUXEMBOURG - 1.3% | ||||||||
6,714 | Subsea 7 SA | 157,130 | ||||||
|
| |||||||
NETHERLANDS - 2.4% | ||||||||
741 | European Aeronautic Defence and Space Co. NV | 37,775 | ||||||
20,787 | ING Groep NV (b) | 147,797 | ||||||
2,895 | Unilever NV | 118,792 | ||||||
|
| |||||||
304,364 | ||||||||
|
| |||||||
SOUTH KOREA - 1.5% | ||||||||
139 | Samsung Electronics Co., Ltd. | 188,648 | ||||||
|
| |||||||
SWEDEN - 5.2% | ||||||||
4,089 | Alfa Laval AB | 94,395 | ||||||
3,292 | Assa Abloy AB, Class B | 134,728 | ||||||
4,243 | Hexagon AB, Class B | 115,831 | ||||||
4,027 | Svenska Cellulosa AB, Class B | 104,050 | ||||||
15,382 | Telefonaktiebolaget LM Ericsson, Class B | 192,098 | ||||||
|
| |||||||
641,102 | ||||||||
|
| |||||||
SWITZERLAND - 8.8% | ||||||||
4,391 | Nestle SA | 318,330 | ||||||
1,324 | Novartis AG | 94,307 | ||||||
1,020 | Roche Holding AG | 238,048 | ||||||
169 | Swatch Group AG (The) | 98,514 | ||||||
494 | Syngenta AG | 206,583 | ||||||
494 | Zurich Insurance Group AG | 137,827 | ||||||
|
| |||||||
1,093,609 | ||||||||
|
| |||||||
TAIWAN - 1.7% | ||||||||
12,512 | Taiwan Semiconductor Manufacturing Co., Ltd., ADR | 215,081 | ||||||
|
| |||||||
THAILAND - 0.3% | ||||||||
4,900 | Bangkok Bank PCL, NVDR | 37,145 | ||||||
|
| |||||||
UNITED KINGDOM - 22.5% | ||||||||
2,701 | Aggreko PLC | 73,086 | ||||||
44,472 | Barclays PLC | 196,609 | ||||||
5,030 | BG Group PLC | 86,231 | ||||||
5,899 | BHP Billiton PLC | 171,533 |
See accompanying Notes to Financial Statements. | 25 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland International Equity Fund |
Shares | Value ($) | |||||||
| Common Stocks (continued) |
| ||||||
UNITED KINGDOM (continued) | ||||||||
9,654 | Capita PLC | 131,785 | ||||||
8,987 | Diageo PLC | 283,161 | ||||||
8,546 | GlaxoSmithKline PLC | 199,646 | ||||||
28,828 | HSBC Holdings PLC | 307,512 | ||||||
1,092 | Intertek Group PLC | 56,261 | ||||||
14,274 | National Grid PLC | 165,809 | ||||||
12,893 | Prudential PLC | 208,499 | ||||||
3,281 | Rio Tinto PLC | 153,696 | ||||||
5,994 | Royal Dutch Shell PLC, Class A | 193,773 | ||||||
8,366 | Standard Chartered PLC | 216,402 | ||||||
63,952 | Vodafone Group PLC | 181,203 | ||||||
10,358 | WPP PLC | 164,988 | ||||||
|
| |||||||
2,790,194 | ||||||||
|
| |||||||
Total Common Stocks | 11,843,290 | |||||||
|
| |||||||
| Preferred Stocks - 1.3% |
| ||||||
GERMANY - 1.3% | ||||||||
813 | Volkswagen AG | 161,816 | ||||||
|
| |||||||
Total Preferred Stocks | 161,816 | |||||||
|
| |||||||
Investment Companies - 12.8% | ||||||||
1,585,098 | State Street Navigator Prime Securities Lending Portfolio (c) | 1,585,098 | ||||||
|
| |||||||
Total Investment Companies | 1,585,098 | |||||||
|
| |||||||
| Total Investments - 109.4% | 13,590,204 | ||||||
|
| |||||||
| (Cost $11,950,904) | |||||||
| Other Assets & Liabilities, Net - (9.4)% | (1,165,706 | ) | |||||
|
| |||||||
| Net Assets - 100.0% | 12,424,498 | ||||||
|
|
(a) | Securities (or a portion of securities) on loan. As of March 31, 2013, the market value of securities loaned was $1,512,833. The loaned securities were secured with cash collateral of $1,585,098. Collateral is calculated based on prior day’s prices. See Note 5. |
(b) | Non-income producing security. |
(c) | Represents investments of cash collateral received in connection with securities lending. |
Glossary:
ADR | American Depositary Receipt | |
GDR | Global Depositary Receipts | |
NVDR | Non-Voting Depository Receipts |
The Fund had the following futures contracts, brokered by Royal Bank of Scotland, for which $20,000 was pledged as collateral, open at March 31, 2013:
Description | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||
Long Futures: | ||||||||||||||||
DJ Euro STOXX 50 Index | June 2013 | 1 | $ | 32,796 | $ | (1,289 | ) | |||||||||
|
|
Industry | Percentage (based on Total Investments)* | |||
Banks | 11.6 | % | ||
Capital Goods | 10.2 | % | ||
Materials | 9.4 | % | ||
Insurance | 8.5 | % | ||
Pharmaceuticals, Biotechnology & Life Sciences | 7.8 | % | ||
Food, Beverage & Tobacco | 7.1 | % | ||
Automobiles & Components | 6.7 | % | ||
Energy | 5.2 | % | ||
Commercial & Professional Services | 4.1 | % | ||
Software & Services | 3.7 | % | ||
Telecommunication Services | 3.5 | % | ||
Semiconductors & Semiconductor Equipment | 3.4 | % | ||
Consumer Durables & Apparel | 3.3 | % | ||
Technology Hardware & Equipment | 2.9 | % | ||
Healthcare Equipment & Services | 2.7 | % | ||
Household & Personal Products | 2.7 | % | ||
Diversified Financials | 2.2 | % | ||
Real Estate | 2.2 | % | ||
Utilities | 1.4 | % | ||
Media | 1.4 | % | ||
|
| |||
100.0 | % | |||
|
|
* | Excludes the Fund’s investment in an investment company purchased with cash collateral from securities lending. |
26 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited)
As of March 31, 2013 | Highland Total Return Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes - 29.4% |
| ||||||
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS - 0.4% | ||||||||
70,885 | Federal Home Loan Mortgage Corp. REMIC | 5,110 | ||||||
79,400 | Series 3983, Class EI | 8,123 | ||||||
108,063 | Series 4122, Class AI | 16,506 | ||||||
116,472 | Series 4122, Class CI | 16,926 | ||||||
6,214 | Series 2645, Class BI | 171 | ||||||
12,530 | Series 2643, Class IM | 635 | ||||||
1,041 | Series 2590, Class YQ | 4 | ||||||
1,474 | Series 2781, Class CI | 6 | ||||||
7,090 | Series 2781, Class IC | 215 | ||||||
11,544 | Series 2763, Class JI | 630 | ||||||
16,731 | Series 2631, Class DI | 2,369 | ||||||
87,068 | Series 3806, Class DS | 11,218 | ||||||
4,930 | Series 1980, Class IO | 818 | ||||||
156 | Series 33, Class D | 167 | ||||||
447 | Federal Home Loan Mortgage Corp. STRIPS | 394 | ||||||
818 | Series 147, Class IO | 153 | ||||||
965 | Series 171, Class IO | 201 | ||||||
212,370 | Federal Home Loan Mortgage Corp. Structured Pass-Through Securities | 1,831 | ||||||
636 | Federal National Mortgage Assoc. REMIC | 573 | ||||||
86,962 | Series 2003-89, Class IO | 2,363 | ||||||
209,917 | Series 2012-152, Class IP | 27,430 | ||||||
98,846 | Series 2013-14, Class IG | 13,153 | ||||||
58 | Series 2003-64, Class KI | — | ||||||
1,177 | Series 2003-41, Class BI | 14 |
Principal Amount ($) | Value ($) | |||||||
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (continued) | ||||||||
2,630 | Series 2003-79, Class HI | 49 | ||||||
13,785 | Series 2003-61, Class IJ | 463 | ||||||
131,854 | Series 2010-98, Class DI | 15,336 | ||||||
39,055 | Series 2008-61, Class SB | 4,815 | ||||||
260,246 | Series 2010-123, Class SK | 49,958 | ||||||
4 | Federal National Mortgage Assoc. STRIPS | 84 | ||||||
19,651 | Series 354, Class 1 | 18,775 | ||||||
22,265 | Series 362, Class 2 | 2,648 | ||||||
21,101 | Series 378, Class 1 | 2,603 | ||||||
18,615 | Series 387, Class 2 | 2,385 | ||||||
14,387 | Series 387, Class 1 | 1,841 | ||||||
5,728 | Series 346, Class 2 | 661 | ||||||
11,887 | Series 252, Class 2 | 2,275 | ||||||
636 | Series 237, Class 2 | 117 | ||||||
3,150 | Series 264, Class 2 | 668 | ||||||
111 | Series 12, Class 2 | 13 | ||||||
259 | Series 7, Class 2 | 30 | ||||||
42 | Series 28, Class 2 | 5 | ||||||
355 | Series 150, Class 2 | 71 | ||||||
387 | Series 163, Class 2 | 46 | ||||||
622 | Series 137, Class 2 | 111 | ||||||
75,933 | Government National Mortgage Assoc. | 7,304 | ||||||
77,720 | Series 2010-101, Class GI | 8,400 | ||||||
81,559 | Series 2010-130, Class PI | 9,209 | ||||||
58,678 | Series 2010-75, Class KI | 3,415 | ||||||
57,111 | Series 2010-42, Class IA | 5,633 | ||||||
77,261 | Series 2010-147, Class PS | 12,574 | ||||||
137,772 | Series 2010-147, Class SA | 23,240 |
See accompanying Notes to Financial Statements. | 27 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Total Return Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (continued) | ||||||||
133,239 | Series 2010-98, Class YS | 19,573 | ||||||
|
| |||||||
Total Agency Collateralized Mortgage Obligations | 301,312 | |||||||
|
| |||||||
AGENCY MORTGAGE-BACKED SECURITIES - 8.4% | ||||||||
6,347 | Federal Home Loan Mortgage Corp. | 6,809 | ||||||
182,348 | 5.00%, 07/01/35 - 06/01/41 (d) | 203,619 | ||||||
87,235 | 5.50%, 05/01/20 - 04/01/39 (d) | 96,469 | ||||||
176,681 | 6.00%, 04/01/17 - 11/01/37 (d) | 198,238 | ||||||
5,609 | 6.50%, 06/01/29 | 6,556 | ||||||
20,709 | 7.00%, 10/01/16 - 08/01/36 (d) | 24,093 | ||||||
841 | 7.50%, 09/01/33 | 911 | ||||||
2,402 | 8.00%, 04/01/30 - 11/01/30 (d) | 2,814 | ||||||
945 | 9.00%, 04/01/16 - 06/01/21 (d) | 1,033 | ||||||
306 | Federal National Mortgage Assoc. | 320 | ||||||
955,000 | 3.00%, TBA (e) | 985,291 | ||||||
485,000 | 3.50%, TBA (e) | 512,281 | ||||||
268,226 | 4.00%, 05/01/19 - 03/01/41 (d) | 286,330 | ||||||
220,000 | 4.00%, TBA (e) | 234,609 | ||||||
1,148,405 | 4.50%, 05/01/18 - 04/01/41 (d) | 1,238,793 | ||||||
360,748 | 5.00%, 07/01/20 - 06/01/41 (d) | 402,417 | ||||||
416,691 | 5.50%, 03/01/14 - 01/01/39 (d) | 458,176 | ||||||
273,515 | 6.00%, 07/01/14 - 08/01/35 (d) | 307,901 | ||||||
325,000 | 6.00%, TBA (e) | 356,027 | ||||||
37,070 | 6.50%, 01/01/15 - 08/01/34 (d) | 41,306 | ||||||
4,516 | 7.00%, 10/01/16 - 12/01/33 (d) | 4,911 | ||||||
18,688 | 7.50%, 09/01/13 - 03/01/34 (d) | 21,171 | ||||||
2,826 | 8.00%, 07/01/15 - 01/01/33 (d) | 3,267 | ||||||
3,431 | 9.00%, 12/01/17 - 12/01/22 (d) | 3,860 | ||||||
105,000 | Government National Mortgage Assoc. | 109,791 | ||||||
100,000 | 3.50%, TBA (e) | 106,953 | ||||||
405,000 | 4.00%, TBA (e) | 439,985 | ||||||
248,216 | 4.50%, 08/15/33 - 03/20/41 (d) | 274,323 | ||||||
13,987 | 5.00%, 08/15/33 | 15,232 | ||||||
240,000 | 5.00%, TBA (e) | 261,038 | ||||||
21,537 | 6.00%, 04/15/30 - 09/15/36 (d) | 24,525 | ||||||
35,014 | 6.50%, 02/15/24 - 07/15/36 (d) | 40,238 | ||||||
10,291 | 7.00%, 04/15/28 - 09/15/36 (d) | 12,071 | ||||||
200 | 8.00%, 09/15/29 - 06/15/30 (d) | 206 | ||||||
11,373 | 8.50%, 10/15/17 | 12,123 | ||||||
16,240 | 9.00%, 11/15/16 - 12/15/21 (d) | 17,733 | ||||||
|
| |||||||
Total Agency Mortgage-Backed Securities | 6,711,420 | |||||||
|
| |||||||
ASSET-BACKED SECURITIES - 0.1% | ||||||||
3 | Bear Stearns Asset-Backed Securities Trust | 2 |
Principal Amount ($) | Value ($) | |||||||
ASSET-BACKED SECURITIES (continued) | ||||||||
10,000 | Ford Credit Auto Lease Trust | 10,005 | ||||||
100,000 | Hertz Vehicle Financing LLC | 102,803 | ||||||
|
| |||||||
Total Asset-Backed Securities | 112,810 | |||||||
|
| |||||||
CORPORATE BONDS & NOTES - 7.4% | ||||||||
AUTOMOBILES & COMPONENTS - 0.1% | ||||||||
11,000 | American Axle & Manufacturing, Inc. | 11,330 | ||||||
11,000 | Delphi Corp. | 11,687 | ||||||
11,000 | Ford Motor Co. | 10,293 | ||||||
27,000 | Lear Corp. | 26,460 | ||||||
25,000 | Visteon Corp. | 26,875 | ||||||
|
| |||||||
86,645 | ||||||||
|
| |||||||
BANKS - 0.2% | ||||||||
28,000 | Bank of America Corp. | 30,149 | ||||||
32,000 | Bank of America Corp., MTN | 31,884 | ||||||
31,000 | 3.30%, 01/11/23 (g) | 30,631 | ||||||
44,000 | U.S. Bancorp | 46,862 | ||||||
34,000 | Wells Fargo & Co. | 34,300 | ||||||
|
| |||||||
173,826 | ||||||||
|
| |||||||
CAPITAL GOODS - 0.4% | ||||||||
26,000 | ABB Finance USA, Inc. | 26,388 | ||||||
22,000 | Amsted Industries, Inc. | 23,760 | ||||||
25,000 | Cargill, Inc. | 29,823 | ||||||
17,000 | Case New Holland, Inc. | 19,975 | ||||||
33,000 | Caterpillar, Inc. | 33,530 | ||||||
27,000 | DigitalGlobe, Inc. | 26,933 | ||||||
38,000 | Eaton Corp. | 38,151 | ||||||
41,000 | 2.75%, 11/02/22 (f) (g) | 40,849 | ||||||
47,000 | Kratos Defense & Security Solutions, Inc. | 51,935 | ||||||
23,000 | Textron, Inc. | 25,064 | ||||||
22,000 | United Technologies Corp. | 23,547 | ||||||
|
| |||||||
339,955 | ||||||||
|
|
28 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Total Return Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
CORPORATE BONDS & NOTES (continued) | ||||||||
COMMERCIAL & PROFESSIONAL SERVICES - 0.1% | ||||||||
14,000 | ADT Corp. (The) | 14,068 | ||||||
18,000 | 3.50%, 07/15/22 (f) (g) | 17,980 | ||||||
7,000 | 4.88%, 07/15/42 (f) | 6,675 | ||||||
14,000 | Catholic Health Initiatives | 14,169 | ||||||
9,000 | 4.35%, 11/01/42 | 9,106 | ||||||
27,000 | United Rentals North America, Inc. | 29,396 | ||||||
|
| |||||||
91,394 | ||||||||
|
| |||||||
CONSUMER DURABLES & APPAREL - 0.1% | ||||||||
8,000 | D.R. Horton, Inc. | 7,900 | ||||||
31,000 | Hanesbrands, Inc. | 33,906 | ||||||
27,000 | RSI Home Products, Inc. | 27,540 | ||||||
|
| |||||||
69,346 | ||||||||
|
| |||||||
CONSUMER SERVICES - 0.2% | ||||||||
11,000 | Cedar Fair LP | 10,973 | ||||||
34,000 | CityCenter Holdings LLC | 36,677 | ||||||
33,000 | Host Hotels & Resorts LP | 33,212 | ||||||
29,000 | McDonald’s Corp., MTN | 29,585 | ||||||
47,000 | Vail Resorts, Inc. | 50,672 | ||||||
|
| |||||||
161,119 | ||||||||
|
| |||||||
DIVERSIFIED FINANCIALS - 1.1% | ||||||||
18,000 | American Express Credit Corp., MTN | 18,402 | ||||||
18,000 | Caterpillar Financial Services Corp., MTN | 18,056 | ||||||
27,000 | Citigroup, Inc. | 26,986 | ||||||
26,000 | 4.05%, 07/30/22 (g) | 26,911 | ||||||
45,000 | 5.00%, 09/15/14 (g) | 47,268 | ||||||
16,000 | CNH Capital LLC | 16,480 | ||||||
200,000 | Ford Motor Credit Co. LLC | 205,318 | ||||||
22,000 | Goldman Sachs Capital I | 22,988 | ||||||
67,000 | Goldman Sachs Group, Inc. (The) | 67,990 | ||||||
32,000 | 3.63%, 01/22/23 | 32,291 | ||||||
28,000 | 6.75%, 10/01/37 | 31,476 | ||||||
24,000 | Goldman Sachs Group, Inc. (The), MTN | 24,235 | ||||||
26,000 | Hyundai Capital America | 26,194 |
Principal Amount ($) | Value ($) | |||||||
DIVERSIFIED FINANCIALS (continued) | ||||||||
13,000 | 2.13%, 10/02/17 (f) | 13,120 | ||||||
9,000 | Jefferies Group LLC | 9,547 | ||||||
10,000 | 6.50%, 01/20/43 | 10,696 | ||||||
21,000 | John Deere Capital Corp., MTN | 22,185 | ||||||
85,000 | JPMorgan Chase & Co. | 85,040 | ||||||
23,000 | Morgan Stanley | 23,296 | ||||||
19,000 | 4.75%, 03/22/17 (g) | 20,977 | ||||||
39,000 | 4.88%, 11/01/22 (g) | 41,424 | ||||||
25,000 | Morgan Stanley, MTN | 28,709 | ||||||
39,000 | NYSE Euronext | 39,915 | ||||||
|
| |||||||
859,504 | ||||||||
|
| |||||||
ENERGY - 0.9% | ||||||||
25,000 | Anadarko Petroleum Corp. | 30,412 | ||||||
16,000 | Chesapeake Energy Corp. | 16,220 | ||||||
14,000 | DCP Midstream Operating LP | 14,228 | ||||||
43,000 | 3.88%, 03/15/23 (g) | 43,321 | ||||||
27,000 | Denbury Resources, Inc. | 29,565 | ||||||
19,000 | 8.25%, 02/15/20 | 21,375 | ||||||
23,000 | Energy Transfer Equity LP | 26,623 | ||||||
40,000 | Energy Transfer Partners LP | 39,887 | ||||||
22,000 | 6.50%, 02/01/42 | 25,225 | ||||||
14,000 | Enterprise Products Operating LLC | 13,517 | ||||||
30,000 | Forest Oil Corp. | 30,150 | ||||||
20,000 | Kinder Morgan Energy Partners LP | 20,319 | ||||||
7,000 | 5.00%, 08/15/42 | 7,123 | ||||||
3,000 | Linn Energy LLC | 3,083 | ||||||
25,000 | 8.63%, 04/15/20 (g) | 27,688 | ||||||
28,000 | Marathon Oil Corp. | 27,390 | ||||||
14,000 | Murphy Oil Corp. | 14,073 | ||||||
25,000 | 3.70%, 12/01/22 | 24,336 | ||||||
10,000 | Newfield Exploration Co. | 10,350 | ||||||
30,000 | 5.75%, 01/30/22 | 32,250 | ||||||
18,000 | Peabody Energy Corp. | 18,810 | ||||||
14,000 | Plains Exploration & Production Co. | 15,540 | ||||||
18,000 | Pride International, Inc. | 22,600 | ||||||
30,000 | Range Resources Corp. | 32,325 |
See accompanying Notes to Financial Statements. | 29 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Total Return Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
CORPORATE BONDS & NOTES (continued) | ||||||||
ENERGY (continued) | ||||||||
14,000 | Rockies Express Pipeline LLC | 14,175 | ||||||
17,000 | Rowan Cos., Inc. | 17,036 | ||||||
27,000 | Unit Corp. | 28,417 | ||||||
14,000 | Weatherford International, Inc. 6.35%, 06/15/17 (g) | 16,069 | ||||||
41,000 | Williams Cos., Inc. (The) | 40,784 | ||||||
27,000 | WPX Energy, Inc. | 28,418 | ||||||
|
| |||||||
691,309 | ||||||||
|
| |||||||
FOOD, BEVERAGE & TOBACCO - 0.5% | ||||||||
56,000 | Alliance One International, Inc. | 59,430 | ||||||
32,000 | Anheuser-Busch InBev Finance, Inc. | 31,701 | ||||||
28,000 | Anheuser-Busch InBev Worldwide, Inc. | 27,579 | ||||||
19,000 | 5.38%, 11/15/14 | 20,422 | ||||||
17,000 | Archer-Daniels-Midland Co. | 16,342 | ||||||
13,000 | Coca-Cola Co. (The) | 14,109 | ||||||
28,000 | ConAgra Foods, Inc. | 28,309 | ||||||
27,000 | Constellation Brands, Inc. | 30,780 | ||||||
42,000 | Diageo Investment Corp. | 42,542 | ||||||
16,000 | Hawk Acquisition Sub, Inc. | 16,040 | ||||||
17,000 | Kraft Foods Group, Inc. | 17,271 | ||||||
29,000 | 2.25%, 06/05/17 (g) | 30,115 | ||||||
25,000 | 5.00%, 06/04/42 | 26,911 | ||||||
37,000 | Philip Morris International, Inc. | 38,970 | ||||||
13,000 | 3.88%, 08/21/42 | 12,114 | ||||||
14,000 | 4.13%, 03/04/43 (g) | 13,578 | ||||||
|
| |||||||
426,213 | ||||||||
|
| |||||||
HEALTHCARE EQUIPMENT & SERVICES - 0.6% | ||||||||
21,000 | Aetna, Inc. | 21,073 | ||||||
21,000 | Cardinal Health, Inc. | 20,960 | ||||||
10,000 | 4.60%, 03/15/43 | 9,847 | ||||||
27,000 | Cigna Corp. | 28,527 | ||||||
38,000 | 4.00%, 02/15/22 | 41,125 | ||||||
14,000 | 5.38%, 02/15/42 (g) | 15,890 | ||||||
10,000 | DaVita HealthCare Partners, Inc. | 10,437 | ||||||
30,000 | 6.38%, 11/01/18 (g) | 31,987 |
Principal Amount ($) | Value ($) | |||||||
HEALTHCARE EQUIPMENT & SERVICES (continued) | ||||||||
9,000 | DENTSPLY International, Inc. | 9,353 | ||||||
31,000 | 4.13%, 08/15/21 | 32,958 | ||||||
18,000 | Express Scripts Holding Co. | 18,872 | ||||||
46,000 | 3.13%, 05/15/16 (g) | 48,629 | ||||||
14,000 | Fresenius Medical Care U.S. Finance, Inc. | 15,505 | ||||||
38,000 | HCA, Inc. | 42,964 | ||||||
10,000 | Medtronic, Inc. | 10,012 | ||||||
5,000 | 4.00%, 04/01/43 | 4,885 | ||||||
10,000 | Memorial Sloan-Kettering Cancer Center | 9,665 | ||||||
55,000 | Roche Holdings, Inc. | 68,491 | ||||||
50,000 | UnitedHealth Group, Inc. | 50,046 | ||||||
12,000 | WellPoint, Inc. | 12,168 | ||||||
7,000 | 3.70%, 08/15/21 (g) | 7,406 | ||||||
|
| |||||||
510,800 | ||||||||
|
| |||||||
HOUSEHOLD & PERSONAL PRODUCTS - 0.1% | ||||||||
54,000 | Revlon Consumer Products Corp. | 54,405 | ||||||
|
| |||||||
INSURANCE - 0.3% | ||||||||
38,000 | American International Group, Inc. | 43,070 | ||||||
30,000 | Berkshire Hathaway Finance Corp. | 30,626 | ||||||
28,000 | Berkshire Hathaway, Inc. | 28,381 | ||||||
28,000 | 4.50%, 02/11/43 (g) | 28,345 | ||||||
21,000 | CNA Financial Corp. | 24,759 | ||||||
13,000 | Genworth Financial, Inc. | 15,437 | ||||||
18,000 | Hartford Financial Services Group, Inc. | 23,088 | ||||||
22,000 | ING U.S., Inc. | 22,340 | ||||||
14,000 | Liberty Mutual Group, Inc. | 16,008 | ||||||
10,000 | Prudential Financial, Inc. | 10,075 | ||||||
8,000 | 5.63%, 06/15/43 (b) (g) | 8,320 | ||||||
15,000 | Prudential Financial, Inc., MTN | 17,138 | ||||||
|
| |||||||
267,587 | ||||||||
|
| |||||||
MATERIALS - 0.3% | ||||||||
27,000 | Ashland, Inc. | 27,540 | ||||||
26,000 | 3.88%, 04/15/18 (f) (g) | 26,422 |
30 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Total Return Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
CORPORATE BONDS & NOTES (continued) | ||||||||
MATERIALS (continued) | ||||||||
13,000 | Dow Chemical Co. (The) | 12,519 | ||||||
23,000 | Eastman Chemical Co. | 23,898 | ||||||
14,000 | 3.60%, 08/15/22 (g) | 14,570 | ||||||
40,000 | Freeport-McMoRan Copper & Gold, Inc. | 40,214 | ||||||
28,000 | 5.45%, 03/15/43 (f) (g) | 27,774 | ||||||
32,000 | Hexion U.S. Finance Corp. | 32,240 | ||||||
16,000 | Huntsman International LLC | 16,180 | ||||||
|
| |||||||
221,357 | ||||||||
|
| |||||||
MEDIA - 0.4% | ||||||||
32,000 | CCO Holdings LLC | 35,920 | ||||||
26,000 | Comcast Corp. | 25,968 | ||||||
13,000 | 4.25%, 01/15/33 (g) | 13,130 | ||||||
13,000 | 4.50%, 01/15/43 (g) | 13,117 | ||||||
9,000 | COX Communications, Inc. | 9,162 | ||||||
6,000 | 4.70%, 12/15/42 (f) | 5,928 | ||||||
48,000 | DIRECTV Holdings LLC | 50,795 | ||||||
15,000 | 5.15%, 03/15/42 (g) | 14,550 | ||||||
14,000 | Discovery Communications LLC | 14,235 | ||||||
7,000 | 4.88%, 04/01/43 (g) | 7,190 | ||||||
8,000 | 4.95%, 05/15/42 (g) | 8,257 | ||||||
27,000 | McClatchy Co. (The) | 29,430 | ||||||
9,000 | News America, Inc. | 11,155 | ||||||
38,000 | Omnicom Group, Inc. | 38,919 | ||||||
18,000 | Time Warner Cable, Inc. | 16,426 | ||||||
34,000 | Viacom, Inc. | 35,458 | ||||||
|
| |||||||
329,640 | ||||||||
|
| |||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES - 0.3% | ||||||||
37,000 | AbbVie, Inc. | 37,311 | ||||||
25,000 | 1.75%, 11/06/17 (f) | 25,332 | ||||||
25,000 | 2.00%, 11/06/18 (f) | 25,331 | ||||||
14,000 | 2.90%, 11/06/22 (f) | 14,042 | ||||||
20,000 | Agilent Technologies, Inc. | 22,119 | ||||||
24,000 | Amgen, Inc. | 26,802 | ||||||
10,000 | Mylan, Inc. | 11,675 | ||||||
31,000 | Novartis Capital Corp. | 30,885 |
Principal Amount ($) | Value ($) | |||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES (continued) | ||||||||
14,000 | Zoetis, Inc. | 14,047 | ||||||
14,000 | 1.88%, 02/01/18 (f) (g) | 14,107 | ||||||
14,000 | 3.25%, 02/01/23 (f) (g) | 14,226 | ||||||
|
| |||||||
235,877 | ||||||||
|
| |||||||
REAL ESTATE - 0.1% | ||||||||
20,000 | American Tower Corp. | 19,877 | ||||||
33,000 | DDR Corp. | 35,763 | ||||||
28,000 | Ventas Realty LP | 28,136 | ||||||
17,000 | Weingarten Realty Investors | 16,951 | ||||||
|
| |||||||
100,727 | ||||||||
|
| |||||||
RETAILING - 0.1% | ||||||||
25,000 | Amazon.com, Inc. | 24,899 | ||||||
25,000 | 2.50%, 11/29/22 | 24,381 | ||||||
27,000 | Tops Holding Corp. | 29,767 | ||||||
|
| |||||||
79,047 | ||||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.1% | ||||||||
25,000 | Intel Corp. | 25,113 | ||||||
25,000 | 2.70%, 12/15/22 (g) | 24,822 | ||||||
13,000 | 4.25%, 12/15/42 (g) | 12,752 | ||||||
|
| |||||||
62,687 | ||||||||
|
| |||||||
SOFTWARE & SERVICES - 0.2% | ||||||||
30,000 | Autodesk, Inc. | 29,746 | ||||||
19,000 | eBay, Inc. | 19,230 | ||||||
13,000 | 2.60%, 07/15/22 | 13,017 | ||||||
16,000 | 4.00%, 07/15/42 (g) | 14,741 | ||||||
19,000 | GXS Worldwide, Inc. | 19,784 | ||||||
64,000 | Oracle Corp. | 64,141 | ||||||
|
| |||||||
160,659 | ||||||||
|
| |||||||
TECHNOLOGY HARDWARE & EQUIPMENT - 0.2% | ||||||||
27,000 | Hewlett-Packard Co. | 27,238 | ||||||
8,000 | 6.00%, 09/15/41 (g) | 8,171 | ||||||
27,000 | iGATE Corp. | 29,531 | ||||||
8,000 | Jabil Circuit, Inc. | 8,010 | ||||||
46,000 | Sanmina Corp. | 48,300 | ||||||
27,000 | Viasystems, Inc. | 28,350 | ||||||
|
| |||||||
149,600 | ||||||||
|
|
See accompanying Notes to Financial Statements. | 31 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Total Return Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
CORPORATE BONDS & NOTES (continued) | ||||||||
TELECOMMUNICATION SERVICES - 0.4% | ||||||||
27,000 | AT&T, Inc. | 27,067 | ||||||
31,000 | 2.95%, 05/15/16 (g) | 32,822 | ||||||
60,000 | 4.35%, 06/15/45 (f) (g) | 56,011 | ||||||
8,000 | 5.55%, 08/15/41 | 8,851 | ||||||
8,000 | Cincinnati Bell, Inc. | 8,520 | ||||||
32,000 | Crown Castle Towers LLC | 39,205 | ||||||
33,000 | Frontier Communications Corp. | 35,805 | ||||||
29,000 | Hughes Satellite Systems Corp. | 31,972 | ||||||
16,000 | MetroPCS Wireless, Inc. | 16,340 | ||||||
13,000 | Verizon Communications, Inc. | 12,321 | ||||||
20,000 | 3.85%, 11/01/42 (g) | 17,370 | ||||||
27,000 | Windstream Corp. | 26,932 | ||||||
|
| |||||||
313,216 | ||||||||
|
| |||||||
TRANSPORTATION - 0.1% | ||||||||
32,000 | CSX Corp. | 36,050 | ||||||
26,000 | United Parcel Service, Inc. | 25,904 | ||||||
|
| |||||||
61,954 | ||||||||
|
| |||||||
UTILITIES - 0.6% | ||||||||
15,000 | Arizona Public Service Co. | 17,555 | ||||||
24,000 | Dominion Resources, Inc. | 24,770 | ||||||
44,000 | DPL, Inc. | 46,860 | ||||||
27,000 | Duke Energy Corp. | 27,268 | ||||||
62,000 | 3.05%, 08/15/22 (g) | 63,247 | ||||||
34,000 | Exelon Corp. | 36,823 | ||||||
18,000 | Florida Power & Light Co. | 18,429 | ||||||
37,000 | Great Plains Energy, Inc. | 41,398 | ||||||
40,000 | MidAmerican Energy Holdings Co. | 49,884 | ||||||
43,000 | NextEra Energy Capital Holdings, Inc. | 44,665 | ||||||
24,000 | Nisource Finance Corp. | 24,812 | ||||||
15,000 | Oglethorpe Power Corp. | 17,230 | ||||||
14,000 | Pacific Gas & Electric Co. | 17,569 |
Principal Amount ($) | Value ($) | |||||||
UTILITIES (continued) | ||||||||
2,000 | PacifiCorp | 2,678 | ||||||
|
| |||||||
433,188 | ||||||||
|
| |||||||
Total Corporate Bonds & Notes | 5,880,055 | |||||||
|
| |||||||
FOREIGN CORPORATE BONDS & NOTES - 3.3% | ||||||||
BANKS - 1.2% | ||||||||
10,000 | Banco Mercantil del Norte SA | 10,700 | ||||||
150,000 | Caixa Economica Federal | 146,100 | ||||||
40,000 | Central American Bank for Economic Integration | 42,503 | ||||||
26,000 | Corp. Andina de Fomento | 28,355 | ||||||
100,000 | European Investment Bank | 100,892 | ||||||
100,000 | Industry & Construction Bank St. Petersburg OJSC Via Or-ICB for Industry | 102,750 | ||||||
65,000 | KFW | 64,201 | ||||||
15,000 | 4.50%, 07/16/18 | 17,615 | ||||||
100,000 | National Agricultural Cooperative Federation | 107,386 | ||||||
39,000 | Royal Bank of Canada | 39,169 | ||||||
100,000 | Russian Agricultural Bank OJSC Via RSHB Capital SA | 117,000 | ||||||
200,000 | Standard Chartered PLC | 199,589 | ||||||
|
| |||||||
976,260 | ||||||||
|
| |||||||
CAPITAL GOODS - 0.1% | ||||||||
11,000 | Bombardier, Inc. | 11,467 | ||||||
3,000 | 5.75%, 03/15/22 (f) (g) | 3,094 | ||||||
61,000 | 7.75%, 03/15/20 (f) | 70,455 | ||||||
|
| |||||||
85,016 | ||||||||
|
| |||||||
CONSUMER SERVICES - 0.1% | ||||||||
28,000 | Carnival Corp. | 28,056 | ||||||
15,000 | NCL Corp., Ltd. | 15,356 | ||||||
|
| |||||||
43,412 | ||||||||
|
| |||||||
DIVERSIFIED FINANCIALS - 0.4% | ||||||||
38,000 | Invesco Finance PLC | 38,863 | ||||||
43,000 | Nomura Holdings, Inc. | 42,930 |
32 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Total Return Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
FOREIGN CORPORATE BONDS & NOTES (continued) | ||||||||
DIVERSIFIED FINANCIALS (continued) | ||||||||
100,000 | Power Sector Assets & Liabilities Management Corp. | 135,250 | ||||||
63,000 | Woodside Finance, Ltd. | 66,516 | ||||||
|
| |||||||
283,559 | ||||||||
|
| |||||||
ENERGY - 0.8% | ||||||||
13,000 | BP Capital Markets PLC | 13,537 | ||||||
57,000 | 2.50%, 11/06/22 (g) | 55,598 | ||||||
6,000 | Ecopetrol SA | 7,545 | ||||||
100,000 | Korea National Oil Corp. | 104,346 | ||||||
31,000 | Nexen, Inc. | 40,184 | ||||||
95,000 | Odebrecht Drilling Norbe VIII/IX, Ltd. | 104,975 | ||||||
12,000 | Petrobras International Finance Co. | 12,279 | ||||||
38,000 | 3.50%, 02/06/17 (g) | 39,330 | ||||||
17,000 | 3.88%, 01/27/16 (g) | 17,875 | ||||||
41,000 | Schlumberger Investment SA | 40,512 | ||||||
14,000 | Talisman Energy, Inc. | 14,584 | ||||||
21,000 | 6.25%, 02/01/38 (g) | 23,807 | ||||||
27,000 | Total Capital Canada, Ltd. | 27,275 | ||||||
69,000 | Total Capital International SA | 70,195 | ||||||
7,000 | Transocean, Inc. | 6,909 | ||||||
7,000 | 6.50%, 11/15/20 | 8,102 | ||||||
23,000 | Weatherford International, Ltd. | 23,735 | ||||||
22,000 | 5.95%, 04/15/42 (g) | 22,755 | ||||||
7,000 | 6.75%, 09/15/40 | 7,737 | ||||||
|
| |||||||
641,280 | ||||||||
|
| |||||||
FOOD, BEVERAGE & TOBACCO - 0.3% | ||||||||
40,000 | Diageo Capital PLC | 40,592 | ||||||
26,000 | Heineken NV | 25,910 | ||||||
200,000 | Imperial Tobacco Finance PLC | 202,186 | ||||||
|
| |||||||
268,688 | ||||||||
|
| |||||||
MATERIALS - 0.2% | ||||||||
20,000 | Agrium, Inc. | 19,307 | ||||||
16,000 | Corp. Nacional del Cobre de Chile | 14,773 | ||||||
6,000 | 5.63%, 09/21/35 (f) | 6,763 | ||||||
18,000 | Kinross Gold Corp. | 18,614 |
Principal Amount ($) | Value ($) | |||||||
MATERIALS (continued) | ||||||||
25,000 | Xstrata Finance Canada, Ltd. | 25,368 | ||||||
14,000 | 4.00%, 10/25/22 (f) | 14,128 | ||||||
33,258 | 5.80%, 11/15/16 (f) | 37,896 | ||||||
|
| |||||||
136,849 | ||||||||
|
| |||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES - 0.0% | ||||||||
22,000 | Teva Pharmaceutical Finance Co. BV | 22,103 | ||||||
TECHNOLOGY HARDWARE & EQUIPMENT - 0.0% | ||||||||
11,000 | Flextronics International, Ltd. | 11,165 | ||||||
3,000 | Seagate HDD Cayman | 3,270 | ||||||
|
| |||||||
14,435 | ||||||||
|
| |||||||
UTILITIES - 0.2% | ||||||||
20,000 | AES Panama SA | 22,200 | ||||||
6,000 | Empresa de Energia de Bogota SA | 6,720 | ||||||
100,000 | Majapahit Holding BV | 116,500 | ||||||
25,000 | TransAlta Corp. | 25,421 | ||||||
|
| |||||||
170,841 | ||||||||
|
| |||||||
Total Foreign Corporate Bonds & Notes (Cost $2,572,754) | 2,642,443 | |||||||
|
| |||||||
MUNICIPAL BONDS & NOTES - 0.2% | ||||||||
15,000 | American Municipal Power, Inc. OH | 17,933 | ||||||
28,000 | Municipal Electric Authority of Georgia | 33,132 | ||||||
10,000 | New Jersey Transportation Trust Fund Authority | 11,505 | ||||||
35,000 | Port Authority of New York & New Jersey | 34,986 | ||||||
20,000 | South Carolina State Public Service Authority | 25,983 | ||||||
25,000 | State of California | 30,345 | ||||||
|
| |||||||
Total Municipal Bonds & Notes | 153,884 | |||||||
|
| |||||||
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS - 0.2% | ||||||||
43,000 | American Tower Trust I | 43,327 | ||||||
405 | Collateralized Mortgage Obligation Trust | 386 |
See accompanying Notes to Financial Statements. | 33 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Total Return Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (continued) | ||||||||
27,803 | Credit Suisse First Boston Mortgage Securities Corp. | 1,144 | ||||||
4,793 | CSMC Mortgage-Backed Trust | — | ||||||
30,000 | Greenwich Capital Commercial Funding Corp. | 32,730 | ||||||
10,000 | GS Mortgage Securities Corp. II | 10,090 | ||||||
16,902 | MASTR Alternative Loan Trust | 1,464 | ||||||
55,000 | Morgan Stanley Capital I Trust | 57,277 | ||||||
132,535 | Wells Fargo Mortgage-Backed Securities Trust | 1,730 | ||||||
|
| |||||||
Total Non-Agency Collateralized Mortgage Obligations | 148,148 | |||||||
|
| |||||||
| NON-AGENCY COLLATERALIZED MORTGAGE-BACKED SECURITIES - 1.6% | | ||||||
20,000 | Banc of America Commercial Mortgage Trust | 22,052 | ||||||
10,000 | Series 2006-4, Class AM | 11,348 | ||||||
20,000 | Series 2008-1, Class A4 | 24,054 | ||||||
40,000 | Banc of America Merrill Lynch Commercial Mortgage, Inc. | 43,995 | ||||||
30,000 | Series 2005-1, Class AJ | 32,208 | ||||||
34,823 | Bear Stearns Commercial Mortgage Securities Trust | 37,252 | ||||||
14,403 | Series 2006-PW11, Class A2 | 14,543 | ||||||
25,000 | Series 2006-T22, Class AJ | 27,550 | ||||||
40,000 | Series 2006-T22, Class AM | 44,475 | ||||||
25,000 | Series 2007-PW17, Class AM | 29,017 | ||||||
30,000 | Series 2007-PW18, Class AMA | 34,123 |
Principal Amount ($) | Value ($) | |||||||
| NON-AGENCY COLLATERALIZED MORTGAGE-BACKED SECURITIES (continued) | | ||||||
20,000 | Citigroup Commercial Mortgage Trust | 19,961 | ||||||
20,000 | Commercial Mortgage Pass-Through Certificates | 21,502 | ||||||
10,000 | Series 2006-C5, Class AM | 11,041 | ||||||
40,000 | Series 2006-C8, Class AM | 45,023 | ||||||
30,000 | GS Mortgage Securities Trust | 31,893 | ||||||
10,000 | Series 2011-GC5, Class B | 11,706 | ||||||
50,000 | Series 2006-GG8, Class AM | 56,557 | ||||||
10,000 | JP Morgan Chase Commercial Mortgage Securities Corp. | 9,844 | ||||||
30,000 | Series 2005-CB11, Class A4 | 32,213 | ||||||
45,000 | JP Morgan Chase Commercial Mortgage Securities Trust | 49,440 | ||||||
60,000 | Series 2007-CB18, Class A4 | 68,355 | ||||||
50,000 | Series 2007-LD11, Class A4 | 57,712 | ||||||
20,000 | JPMCC Commercial Mortgage Pass-Through Certificates | 21,298 | ||||||
30,000 | LB Commercial Mortgage Trust | 34,751 | ||||||
367,801 | LB-UBS Commercial Mortgage Trust | 3,572 | ||||||
30,000 | Series 2005-C5, Class A4 | 32,421 | ||||||
40,000 | Series 2006-C1, Class A4 | 44,104 | ||||||
10,000 | Series 2006-C4, Class A4 | 11,372 | ||||||
55,000 | ML-CFC Commercial Mortgage Trust | 61,979 | ||||||
20,000 | Morgan Stanley Capital I Trust | 22,003 | ||||||
25,000 | Series 2006-T21, Class AJ | 27,193 | ||||||
20,000 | Series 2006-IQ11, Class B | 17,898 |
34 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Total Return Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
| NON-AGENCY COLLATERALIZED MORTGAGE-BACKED SECURITIES (continued) | | ||||||
20,000 | Series 2006-T23, Class A4 | 22,881 | ||||||
30,000 | Series 2007-IQ16, Class AMA | 35,052 | ||||||
20,000 | Morgan Stanley, Bank of America, Merrill Lynch Trust | 18,186 | ||||||
30,000 | Wachovia Bank Commercial Mortgage Trust | 33,934 | ||||||
40,000 | Series 2006-C23, Class AM | 44,536 | ||||||
40,000 | Series 2006-C28, Class AM | 44,972 | ||||||
10,000 | Wells Fargo Commercial Mortgage Trust | 10,721 | ||||||
25,000 | WFRBS Commercial Mortgage Trust | 26,642 | ||||||
|
| |||||||
Total Non-Agency Collateralized Mortgage-Backed Securities | 1,249,379 | |||||||
|
| |||||||
SOVEREIGN BONDS - 0.5% | ||||||||
10,000 | Chile Government International Bond | 9,290 | ||||||
10,000 | El Salvador Government International Bond | 11,515 | ||||||
10,000 | Hungary Government International Bond | 9,600 | ||||||
14,000 | 6.25%, 01/29/20 | 14,368 | ||||||
2,000 | 7.63%, 03/29/41 | 2,050 | ||||||
2,000 | Lebanon Government International Bond, MTN | 2,000 | ||||||
7,000 | 5.15%, 11/12/18 | 6,983 | ||||||
7,000 | 6.10%, 10/04/22 | 7,088 | ||||||
6,000 | Mexico Government International Bond | 6,612 | ||||||
10,000 | Mexico Government International Bond, MTN | 10,400 | ||||||
6,000 | Panama Government International Bond | 8,025 | ||||||
11,000 | Peruvian Government International Bond | 14,960 | ||||||
100,000 | Philippine Government International Bond | 129,500 |
Principal Amount ($) | Value ($) | |||||||
SOVEREIGN BONDS (continued) | ||||||||
4,000 | Poland Government International Bond | 3,884 | ||||||
24,000 | 5.00%, 03/23/22 | 27,478 | ||||||
4,000 | 6.38%, 07/15/19 | 4,924 | ||||||
8,000 | Romanian Government International Bond | 7,873 | ||||||
12,000 | 6.75%, 02/07/22 (f) (g) | 14,010 | ||||||
4,614 | Russian Foreign Bond - Eurobond | 5,725 | ||||||
81,000 | Turkey Government International Bond | 100,136 | ||||||
15,558 | Uruguay Government International Bond | 20,692 | ||||||
2,087 | Vietnam Government International Bond | 1,931 | ||||||
|
| |||||||
Total Sovereign Bonds | 419,044 | |||||||
|
| |||||||
U.S. GOVERNMENT AGENCIES - 0.2% | ||||||||
155,000 | Federal Home Loan Mortgage Corp. | 161,644 | ||||||
|
| |||||||
Total U.S. Government Agencies | 161,644 | |||||||
|
| |||||||
U.S. TREASURIES - 7.1% | ||||||||
699,300 | U.S. Treasury Bonds | 648,273 | ||||||
994,600 | 3.00%, 05/15/42 (g) | 973,931 | ||||||
425,000 | 5.38%, 02/15/31 (g) | 591,281 | ||||||
11,800 | U.S. Treasury Notes | 11,782 | ||||||
1,228,700 | 0.63%, 09/30/17 | 1,226,492 | ||||||
1,547,000 | 0.88%, 02/28/17 | 1,567,063 | ||||||
507,200 | 0.88%, 01/31/18 (g) | 510,568 | ||||||
141,600 | 1.63%, 11/15/22 (g) | 139,111 | ||||||
|
| |||||||
Total U.S. Treasuries | 5,668,501 | |||||||
|
| |||||||
Total Bonds & Notes (Cost $23,103,055) | 23,448,640 | |||||||
|
| |||||||
Shares | ||||||||
| Domestic Equity - 34.9% |
| ||||||
COMMON STOCKS - 34.9% | ||||||||
AUTOMOBILES & COMPONENTS - 0.2% | ||||||||
9,643 | Ford Motor Co. | 126,805 | ||||||
|
| |||||||
BANKS - 1.0% | ||||||||
25,892 | Regions Financial Corp. | 212,056 | ||||||
15,764 | Wells Fargo & Co. | 583,110 | ||||||
|
| |||||||
795,166 | ||||||||
|
|
See accompanying Notes to Financial Statements. | 35 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Total Return Fund |
Shares | Value ($) | |||||||
| Domestic Equity (continued) |
| ||||||
COMMON STOCKS (continued) | ||||||||
CAPITAL GOODS - 1.8% | ||||||||
1,786 | Boeing Co. (The) | 153,328 | ||||||
714 | Cummins, Inc. (g) | 82,688 | ||||||
3,140 | Deere & Co. (g) | 269,977 | ||||||
6,693 | Dover Corp. (g) | 487,786 | ||||||
5,773 | Honeywell International, Inc. (g) | 434,996 | ||||||
|
| |||||||
1,428,775 | ||||||||
|
| |||||||
CONSUMER DURABLES & APPAREL - 0.0% | ||||||||
801 | MDC Holdings, Inc. (g) | 29,357 | ||||||
|
| |||||||
CONSUMER SERVICES - 0.5% | ||||||||
1,747 | Darden Restaurants, Inc. (g) | 90,285 | ||||||
3,222 | Las Vegas Sands Corp. | 181,560 | ||||||
1,337 | McDonald’s Corp. (g) | 133,285 | ||||||
|
| |||||||
405,130 | ||||||||
|
| |||||||
DIVERSIFIED FINANCIALS - 3.1% | ||||||||
5,195 | American Express Co. (g) | 350,455 | ||||||
4,390 | Ameriprise Financial, Inc. | 323,323 | ||||||
1,934 | Charles Schwab Corp. (The) (g) | 34,212 | ||||||
7,032 | Citigroup, Inc. | 311,096 | ||||||
8,560 | CME Group, Inc. (g) | 525,498 | ||||||
361 | Franklin Resources, Inc. (g) | 54,442 | ||||||
1,633 | Goldman Sachs Group, Inc. (The) | 240,296 | ||||||
6,225 | JPMorgan Chase & Co. | 295,439 | ||||||
5,242 | State Street Corp. | 309,750 | ||||||
|
| |||||||
2,444,511 | ||||||||
|
| |||||||
ENERGY - 2.4% | ||||||||
4,579 | Anadarko Petroleum Corp. | 400,434 | ||||||
4,924 | Chevron Corp. | 585,070 | ||||||
1,536 | Exxon Mobil Corp. | 138,409 | ||||||
4,999 | Halliburton Co. | 202,010 | ||||||
1,589 | Hess Corp. (g) | 113,788 | ||||||
7,785 | Marathon Oil Corp. | 262,510 | ||||||
2,690 | Occidental Petroleum Corp. | 210,815 | ||||||
|
| |||||||
1,913,036 | ||||||||
|
| |||||||
FOOD & STAPLES RETAILING - 0.2% | ||||||||
2,928 | CVS Caremark Corp. | 161,011 | ||||||
|
| |||||||
FOOD, BEVERAGE & TOBACCO - 2.6% | ||||||||
1,820 | Altria Group, Inc. | 62,590 | ||||||
5,638 | Archer-Daniels-Midland Co. (g) | 190,170 | ||||||
5,000 | Coca-Cola Enterprises, Inc. | 184,600 | ||||||
1,565 | Kraft Foods Group, Inc. (g) | 80,644 | ||||||
12,856 | Mondelez International, Inc., Class A (g) | 393,522 | ||||||
11,754 | PepsiCo, Inc. | 929,859 | ||||||
2,015 | Philip Morris International, Inc. (g) | 186,811 | ||||||
|
| |||||||
2,028,196 | ||||||||
|
| |||||||
HEALTHCARE EQUIPMENT & SERVICES - 1.4% | ||||||||
2,571 | Cardinal Health, Inc. | 107,005 | ||||||
3,653 | DENTSPLY International, Inc. (g) | 154,960 | ||||||
8,087 | Express Scripts Holding Co. (i) | 466,216 | ||||||
4,821 | Medtronic, Inc. | 226,394 | ||||||
750 | Stryker Corp. (g) | 48,930 |
Shares | Value ($) | |||||||
HEALTHCARE EQUIPMENT & SERVICES (continued) | ||||||||
1,543 | UnitedHealth Group, Inc. (g) | 88,275 | ||||||
|
| |||||||
1,091,780 | ||||||||
|
| |||||||
HOUSEHOLD & PERSONAL PRODUCTS - 0.4% | ||||||||
2,024 | Clorox Co. (The) (g) | 179,185 | ||||||
1,517 | Kimberly-Clark Corp. (g) | 148,635 | ||||||
|
| |||||||
327,820 | ||||||||
|
| |||||||
INSURANCE - 0.7% | ||||||||
6,714 | American International Group, Inc. (g) (i) | 260,637 | ||||||
2,699 | Prudential Financial, Inc. | 159,214 | ||||||
1,456 | Travelers Cos., Inc. (The) | 122,581 | ||||||
|
| |||||||
542,432 | ||||||||
|
| |||||||
MATERIALS - 0.9% | ||||||||
2,768 | Allegheny Technologies, Inc. (g) | 87,773 | ||||||
1,165 | E.I. du Pont de Nemours & Co. (g) | 57,272 | ||||||
3,437 | Monsanto Co. | 363,050 | ||||||
1,044 | PPG Industries, Inc. | 139,834 | ||||||
906 | Praxair, Inc. | 101,055 | ||||||
|
| |||||||
748,984 | ||||||||
|
| |||||||
MEDIA - 2.4% | ||||||||
1,786 | CBS Corp., Class B (g) | 83,388 | ||||||
5,357 | Comcast Corp., Class A | 225,048 | ||||||
6,446 | Comcast Corp., Special Class A (g) | 255,390 | ||||||
4,726 | Discovery Communications, Inc., Class C (i) | 328,646 | ||||||
932 | Interpublic Group of Cos., Inc. (The) (g) | 12,144 | ||||||
5,800 | Liberty Global, Inc., Series C (g) (i) | 398,054 | ||||||
3,500 | Omnicom Group, Inc. (g) | 206,150 | ||||||
6,609 | Time Warner, Inc. (g) | 380,811 | ||||||
446 | Walt Disney Co. (The) (g) | 25,333 | ||||||
|
| |||||||
1,914,964 | ||||||||
|
| |||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES - 3.4% | ||||||||
3,571 | Agilent Technologies, Inc. | 149,875 | ||||||
3,414 | Amgen, Inc. | 349,969 | ||||||
5,212 | Bristol-Myers Squibb Co. (g) | 214,682 | ||||||
9,194 | Gilead Sciences, Inc. (g) (i) | 449,862 | ||||||
9,101 | Johnson & Johnson (g) | 742,005 | ||||||
2,184 | Merck & Co., Inc. | 96,598 | ||||||
3,214 | PerkinElmer, Inc. | 108,119 | ||||||
21,911 | Pfizer, Inc. | 632,352 | ||||||
|
| |||||||
2,743,462 | ||||||||
|
| |||||||
REAL ESTATE - 0.7% | ||||||||
3,222 | American Tower Corp., REIT | 247,836 | ||||||
1,821 | HCP, Inc., REIT | 90,795 | ||||||
218 | Public Storage, REIT (g) | 33,206 | ||||||
1,301 | Rayonier, Inc., REIT | 77,631 | ||||||
668 | Simon Property Group, Inc., REIT | 105,918 | ||||||
|
| |||||||
555,386 | ||||||||
|
| |||||||
RETAILING - 1.8% | ||||||||
601 | Amazon.com, Inc. (i) | 160,160 | ||||||
179 | AutoZone, Inc. (g) (i) | 71,022 | ||||||
5,027 | Dick’s Sporting Goods, Inc. (g) | 237,777 | ||||||
1,173 | Genuine Parts Co. (g) | 91,494 | ||||||
1,893 | Home Depot, Inc. (The) | 132,094 |
36 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Total Return Fund |
Shares | Value ($) | |||||||
| Domestic Equity (continued) |
| ||||||
COMMON STOCKS (continued) | ||||||||
RETAILING (continued) | ||||||||
14,704 | Lowe’s Cos., Inc. | 557,576 | ||||||
2,678 | Macy’s, Inc. | 112,047 | ||||||
1,518 | Target Corp. (g) | 103,907 | ||||||
|
| |||||||
1,466,077 | ||||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.6% | ||||||||
2,322 | Altera Corp. (g) | 82,361 | ||||||
1,339 | Analog Devices, Inc. | 62,250 | ||||||
5,387 | Intel Corp. (g) | 117,706 | ||||||
2,111 | Microchip Technology, Inc. (g) | 77,600 | ||||||
3,897 | Texas Instruments, Inc. (g) | 138,266 | ||||||
|
| |||||||
478,183 | ||||||||
|
| |||||||
SOFTWARE & SERVICES - 4.4% | ||||||||
7,991 | eBay, Inc. (i) | 433,272 | ||||||
487 | Google, Inc., Class A (i) | 386,693 | ||||||
1,881 | International Business Machines Corp. | 401,217 | ||||||
3,438 | Intuit, Inc. (g) | 225,705 | ||||||
27,836 | Microsoft Corp. | 796,388 | ||||||
12,461 | Oracle Corp. | 402,989 | ||||||
10,129 | Paychex, Inc. (g) | 355,224 | ||||||
2,449 | Visa, Inc., Class A (g) | 415,938 | ||||||
8,165 | Western Union Co. (The) (g) | 122,801 | ||||||
|
| |||||||
3,540,227 | ||||||||
|
| |||||||
TECHNOLOGY HARDWARE & EQUIPMENT - 3.8% | ||||||||
2,206 | Apple, Inc. | 976,442 | ||||||
31,944 | Cisco Systems, Inc. | 667,949 | ||||||
14,090 | EMC Corp. (g) (i) | 336,610 | ||||||
15,502 | QUALCOMM, Inc. | 1,037,859 | ||||||
|
| |||||||
3,018,860 | ||||||||
|
| |||||||
TELECOMMUNICATION SERVICES - 0.5% | ||||||||
6,329 | AT&T, Inc. | 232,211 | ||||||
2,780 | Verizon Communications, Inc. (g) | 136,637 | ||||||
|
| |||||||
368,848 | ||||||||
|
| |||||||
TRANSPORTATION - 1.3% | ||||||||
6,143 | CSX Corp. (g) | 151,302 | ||||||
1,138 | Union Pacific Corp. (g) | 162,063 | ||||||
8,475 | United Parcel Service, Inc., Class B (g) | 728,002 | ||||||
|
| |||||||
1,041,367 | ||||||||
|
| |||||||
UTILITIES - 0.8% | ||||||||
5,357 | AES Corp. (g) | 67,337 | ||||||
1,590 | American Water Works Co., Inc. (g) | 65,890 | ||||||
5,571 | Calpine Corp. (g) (i) | 114,763 | ||||||
2,370 | Dominion Resources, Inc. (g) | 137,886 | ||||||
1,607 | NextEra Energy, Inc. (g) | 124,832 | ||||||
2,854 | Southern Co. (The) (g) | 133,910 | ||||||
|
| |||||||
644,618 | ||||||||
|
| |||||||
Total Common Stocks | 27,814,995 | |||||||
|
| |||||||
Total Domestic Equity | 27,814,995 | |||||||
|
|
Shares | Value ($) | |||||||
| Foreign Equity - 21.7% |
| ||||||
COMMON STOCKS - 21.5% | ||||||||
AUTOMOBILES & COMPONENTS - 0.9% | ||||||||
8,700 | Bridgestone Corp. (g) | 291,481 | ||||||
8,606 | Toyota Motor Corp. (g) | 441,650 | ||||||
|
| |||||||
733,131 | ||||||||
|
| |||||||
BANKS - 2.0% | ||||||||
5,500 | Bangkok Bank PCL, NVDR | 41,694 | ||||||
19,858 | Bank of Yokohama, Ltd. (The) | 114,898 | ||||||
50,631 | Barclays PLC | 223,838 | ||||||
4,452 | BNP Paribas SA | 228,901 | ||||||
32,839 | HSBC Holdings PLC | 350,297 | ||||||
1,803 | ICICI Bank, Ltd., ADR (g) | 77,349 | ||||||
33,068 | Intesa Sanpaolo SpA | 48,492 | ||||||
41,700 | Mitsubishi UFJ Financial Group, Inc. (g) | 250,147 | ||||||
9,530 | Standard Chartered PLC | 246,511 | ||||||
|
| |||||||
1,582,127 | ||||||||
|
| |||||||
CAPITAL GOODS - 2.2% | ||||||||
3,518 | ABB, Ltd., ADR | 80,070 | ||||||
4,659 | Alfa Laval AB | 107,554 | ||||||
3,749 | Assa Abloy AB, Class B | 153,431 | ||||||
4,050 | Eaton Corp. PLC | 248,063 | ||||||
828 | European Aeronautic Defence and Space Co. NV | 42,210 | ||||||
1,100 | FANUC Corp. | 168,358 | ||||||
2,999 | JGC Corp. (g) | 76,745 | ||||||
11,000 | Kubota Corp. (g) | 158,881 | ||||||
1,309 | Larsen & Toubro, Ltd., GDR | 32,856 | ||||||
15,000 | Mitsubishi Heavy Industries, Ltd. | 86,471 | ||||||
4,200 | Mitsui & Co., Ltd. (g) | 58,877 | ||||||
6,457 | Safran SA | 288,500 | ||||||
484 | Schneider Electric SA | 35,426 | ||||||
792 | Siemens AG | 85,459 | ||||||
2,654 | Vallourec SA | 127,800 | ||||||
|
| |||||||
1,750,701 | ||||||||
|
| |||||||
COMMERCIAL & PROFESSIONAL SERVICES - 0.8% | ||||||||
3,107 | Aggreko PLC | 84,072 | ||||||
19,185 | Brambles, Ltd. | 169,411 | ||||||
10,997 | Capita PLC | 150,119 | ||||||
5,141 | Experian PLC | 88,992 | ||||||
1,244 | Intertek Group PLC | 64,092 | ||||||
1,554 | Nielsen Holdings NV | 55,664 | ||||||
|
| |||||||
612,350 | ||||||||
|
| |||||||
CONSUMER DURABLES & APPAREL - 0.6% | ||||||||
4,154 | Luxottica Group SpA | 208,619 | ||||||
725 | LVMH Moet Hennessy Louis Vuitton SA | 124,657 | ||||||
192 | Swatch Group AG (The) | 111,921 | ||||||
|
| |||||||
445,197 | ||||||||
|
| |||||||
DIVERSIFIED FINANCIALS - 0.8% | ||||||||
3,508 | Deutsche Bank AG | 137,008 | ||||||
23,681 | ING Groep NV (i) | 168,373 |
See accompanying Notes to Financial Statements. | 37 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Total Return Fund |
Shares | Value ($) | |||||||
| Foreign Equity (continued) |
| ||||||
COMMON STOCKS (continued) | ||||||||
DIVERSIFIED FINANCIALS (continued) | ||||||||
12,091 | Invesco, Ltd. | 350,156 | ||||||
|
| |||||||
655,537 | ||||||||
|
| |||||||
ENERGY - 2.0% | ||||||||
5,731 | BG Group PLC | 98,248 | ||||||
1,974 | Cenovus Energy, Inc. | 61,127 | ||||||
3,298 | Eni SpA | 74,239 | ||||||
2,038 | Royal Dutch Shell PLC, ADR | 132,796 | ||||||
6,827 | Royal Dutch Shell PLC, Class A | 220,702 | ||||||
9,565 | Schlumberger, Ltd. | 716,323 | ||||||
7,753 | Subsea 7 SA | 181,446 | ||||||
1,759 | Total SA | 84,375 | ||||||
|
| |||||||
1,569,256 | ||||||||
|
| |||||||
FOOD, BEVERAGE & TOBACCO - 1.3% | ||||||||
1,464 | Anheuser-Busch InBev NV | 145,224 | ||||||
10,238 | Diageo PLC | 322,577 | ||||||
888 | Diageo PLC, ADR | 111,746 | ||||||
5,002 | Nestle SA | 362,625 | ||||||
3,297 | Unilever NV | 135,287 | ||||||
|
| |||||||
1,077,459 | ||||||||
|
| |||||||
HEALTHCARE EQUIPMENT & SERVICES - 1.4% | ||||||||
1,665 | Cie Generale d’Optique Essilor International SA | 185,474 | ||||||
11,389 | Covidien PLC | 772,630 | ||||||
1,498 | Fresenius SE & Co. KGaA | 185,221 | ||||||
|
| |||||||
1,143,325 | ||||||||
|
| |||||||
HOUSEHOLD & PERSONAL PRODUCTS - 0.5% | ||||||||
4,587 | Svenska Cellulosa AB, Class B | 118,520 | ||||||
4,448 | Unicharm Corp. (g) | 254,050 | ||||||
|
| |||||||
372,570 | ||||||||
|
| |||||||
INSURANCE - 1.9% | ||||||||
3,649 | ACE, Ltd. | 324,651 | ||||||
76,871 | AIA Group, Ltd. | 335,701 | ||||||
7,582 | AXA SA | 130,560 | ||||||
14,688 | Prudential PLC | 237,527 | ||||||
5,200 | Sony Financial Holdings, Inc. (g) | 77,430 | ||||||
7,900 | Tokio Marine Holdings, Inc. (g) | 227,203 | ||||||
563 | Zurich Insurance Group AG | 157,078 | ||||||
|
| |||||||
1,490,150 | ||||||||
|
| |||||||
MATERIALS - 1.9% | ||||||||
6,720 | BHP Billiton PLC | 195,406 | ||||||
3,278 | HeidelbergCement AG | 235,972 | ||||||
1,843 | Linde AG | 343,274 | ||||||
3,134 | LyondellBasell Industries NV, Class A | 198,351 | ||||||
2,726 | Potash Corp. of Saskatchewan, Inc. | 107,060 | ||||||
3,737 | Rio Tinto PLC | 175,057 | ||||||
563 | Syngenta AG | 235,438 | ||||||
|
| |||||||
1,490,558 | ||||||||
|
|
Shares | Value ($) | |||||||
MEDIA - 0.2% | ||||||||
11,800 | WPP PLC | 187,957 | ||||||
|
| |||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES - 1.8% | ||||||||
2,700 | Astellas Pharma, Inc. (g) | 145,309 | ||||||
1,659 | Bayer AG | 171,427 | ||||||
2,454 | CSL, Ltd. | 151,535 | ||||||
9,400 | GlaxoSmithKline PLC | 219,597 | ||||||
2,257 | GlaxoSmithKline PLC, ADR (g) | 105,876 | ||||||
1,510 | Novartis AG | 107,555 | ||||||
3,552 | Novartis AG, ADR | 253,044 | ||||||
1,162 | Roche Holding AG | 271,189 | ||||||
|
| |||||||
1,425,532 | ||||||||
|
| |||||||
REAL ESTATE - 0.3% | ||||||||
900 | Daito Trust Construction Co., Ltd. (g) | 77,154 | ||||||
7,000 | Mitsubishi Estate Co., Ltd. | 197,373 | ||||||
|
| |||||||
274,527 | ||||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.6% | ||||||||
166 | Samsung Electronics Co., Ltd. | 225,292 | ||||||
14,327 | Taiwan Semiconductor Manufacturing Co., Ltd., ADR (g) | 246,281 | ||||||
|
| |||||||
471,573 | ||||||||
|
| |||||||
SOFTWARE & SERVICES - 1.0% | ||||||||
4,563 | Baidu, Inc., ADR (g) (i) | 400,175 | ||||||
1,332 | Cap Gemini SA | 60,720 | ||||||
3,860 | SAP AG | 309,789 | ||||||
|
| |||||||
770,684 | ||||||||
|
| |||||||
TECHNOLOGY HARDWARE & EQUIPMENT - 0.5% | ||||||||
4,834 | Hexagon AB, Class B | 131,965 | ||||||
700 | Murata Manufacturing Co., Ltd. | 52,712 | ||||||
17,521 | Telefonaktiebolaget LM Ericsson, Class B | 218,810 | ||||||
|
| |||||||
403,487 | ||||||||
|
| |||||||
TELECOMMUNICATION SERVICES - 0.6% | ||||||||
5,700 | Softbank Corp. (g) | 261,902 | ||||||
72,857 | Vodafone Group PLC | 206,435 | ||||||
|
| |||||||
468,337 | ||||||||
|
| |||||||
UTILITIES - 0.2% | ||||||||
16,261 | National Grid PLC | 188,890 | ||||||
|
| |||||||
Total Common Stocks | 17,113,348 | |||||||
|
| |||||||
PREFERRED STOCKS - 0.2% | ||||||||
AUTOMOBILES & COMPONENTS - 0.2% | ||||||||
924 | Volkswagen AG | 183,909 | ||||||
|
| |||||||
Total Preferred Stocks | 183,909 | |||||||
|
| |||||||
Total Foreign Equity | 17,297,257 | |||||||
|
|
38 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Total Return Fund |
Shares | Value ($) | |||||||
| Exchange-Traded Funds - 4.2% |
| ||||||
DIVERSIFIED FINANCIALS - 3.8% | ||||||||
4,006 | Financial Select Sector SPDR Fund, ETF | 72,869 | ||||||
69,545 | Vanguard FTSE Emerging Markets, ETF | 2,982,785 | ||||||
|
| |||||||
3,055,654 | ||||||||
|
| |||||||
INDUSTRIALS - 0.4% | ||||||||
6,916 | Industrial Select Sector SPDR Fund, ETF (g) | 288,605 | ||||||
|
| |||||||
Total Exchange-Traded Funds | 3,344,259 | |||||||
|
| |||||||
Investment Companies - 24.5% | ||||||||
19,574,668 | State Street Navigator Prime Securities Lending Portfolio (j) | 19,574,668 | ||||||
|
| |||||||
Total Investment Companies | 19,574,668 | |||||||
|
| |||||||
| Total Investments - 114.7% | 91,479,819 | ||||||
|
| |||||||
| (Cost $83,810,799) | |||||||
| Other Assets & Liabilities, Net - (14.7)% | (11,750,649 | ) | |||||
|
| |||||||
| Net Assets - 100.0% | 79,729,170 | ||||||
|
|
(a) | Interest only security (“IO”). These types of securities represent the right to receive the monthly interest payments on an underlying pool of mortgages. Payments of principal on the pool reduce the value of the “interest only” holding. |
(b) | Variable or floating rate security. The interest rate shown reflects the rate in effect March 31, 2013. |
(c) | Principal only security (“PO”). These types of securities represent the right to receive the monthly principal payments on an underlying pool of mortgages. No payments of interest on the pool are passed through to the “principal only” holder. |
(d) | Securities are grouped by coupon and represent a range of maturities. |
(e) | Settlement is on a delayed delivery or when-issued basis with final maturity to be announced (TBA) in the future. |
(f) | 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 March 31, 2013, these securities amounted to $2,900,765 or 3.6% of net assets. |
(g) | Securities (or a portion of securities) on loan. As of March 31, 2013, the market value of securities loaned was $19,182,357. The loaned securities were secured with cash and securities collateral of $19,585,874. Collateral is calculated based on prior day’s prices. See Note 5. |
(h) | The actual maturity date of this security is 10/12/2110. |
(i) | Non-income producing security. |
(j) | Represents investments of cash collateral received in connection with securities lending. |
Glossary:
ADR | American Depositary Receipt | |
ARM | Adjustable Rate Mortgage | |
ETF | Exchange-Traded Fund | |
GDR | Global Depositary Receipts | |
MTN | Medium-Term Note | |
NVDR | Non-Voting Depository Receipts | |
REIT | Real Estate Investment Trust | |
REMIC | Real Estate Mortgage Investment Conduit | |
SPDR | Standard & Poor’s Depositary Receipt | |
STRIPS | Separate Trading of Registered Interest and Principal of Security |
The Fund had the following futures contracts, brokered by Royal Bank of Scotland, for which $350,000 was pledged as collateral, open at March 31, 2013:
Description | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||
Long Futures: | ||||||||||||||||
2 Yr. U.S. Treasury Notes | June 2013 | 17 | $ | 3,400,000 | $ | 94 | ||||||||||
5 Yr. U.S. Treasury Notes | June 2013 | 19 | 1,900,000 | 1,768 | ||||||||||||
DJ Euro STOXX 50 Index | June 2013 | 1 | 32,796 | (1,289 | ) | |||||||||||
FTSE 100 Index | June 2013 | 1 | 96,437 | (1,235 | ) | |||||||||||
S&P 500 Emini Index | June 2013 | 6 | 468,810 | 5,472 | ||||||||||||
S&P MidCap 400 Emini Index | June 2013 | 23 | 2,647,300 | 49,496 | ||||||||||||
|
| |||||||||||||||
54,306 | ||||||||||||||||
|
| |||||||||||||||
Short Futures: | ||||||||||||||||
10 Yr. U.S. Treasury Notes | June 2013 | 28 | 2,800,000 | (14,710 | ) | |||||||||||
30 Yr. U.S. Treasury Bonds | June 2013 | 4 | 400,000 | (6,886 | ) | |||||||||||
S&P 500 Emini Index | June 2013 | 1 | 78,135 | (600 | ) | |||||||||||
Ultra Long U.S. Treasury Bonds | June 2013 | 13 | 1,300,000 | 2,316 | ||||||||||||
|
| |||||||||||||||
(19,880 | ) | |||||||||||||||
|
| |||||||||||||||
$ | 34,426 | |||||||||||||||
|
|
The Fund invested in the following countries as of March 31, 2013:
Country | Percentage (based on Total Investments) | |||
United States | 79.0 | % | ||
United Kingdom | 4.3 | % | ||
Japan | 3.3 | % | ||
Switzerland | 2.1 | % | ||
Germany | 1.9 | % | ||
France | 1.5 | % | ||
Ireland | 1.2 | % | ||
Netherlands | 0.9 | % | ||
Sweden | 0.8 | % | ||
Canada | 0.6 | %�� |
See accompanying Notes to Financial Statements. | 39 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Total Return Fund |
Country | Percentage (based on Total Investments) | |||
Luxembourg | 0.5 | % | ||
South Korea | 0.5 | % | ||
China | 0.4 | % | ||
Australia | 0.4 | % | ||
Hong Kong | 0.4 | % | ||
Italy | 0.4 | % | ||
Philippines | 0.3 | % | ||
Taiwan | 0.3 | % | ||
Cayman Islands | 0.2 | % | ||
Supranational | 0.2 | % | ||
Brazil | 0.2 | % | ||
Belgium | 0.2 | % | ||
India | 0.1 | % | ||
Turkey | 0.1 | % | ||
Bermuda | 0.1 | % | ||
Panama | 0.1 | % | ||
Thailand | 0.0 | % | ||
Poland | 0.0 | % | ||
Chile | 0.0 | % | ||
Mexico | 0.0 | % | ||
Hungary | 0.0 | % | ||
Israel | 0.0 | % | ||
Romania | 0.0 | % | ||
Uruguay | 0.0 | % | ||
Lebanon | 0.0 | % | ||
Peru | 0.0 | % | ||
Colombia | 0.0 | % | ||
El Salvador | 0.0 | % | ||
Singapore | 0.0 | % | ||
Russia | 0.0 | % | ||
Vietnam | 0.0 | % | ||
|
| |||
100.0 | % | |||
|
|
Industry | Domestic | Foreign | Percentage (based on Total Investments) | |||||||||
Energy | 3.6 | % | 1.6 | % | 5.2 | % | ||||||
Software & Services | 4.0 | % | 0.8 | % | 4.8 | % | ||||||
Pharmaceuticals, Biotechnology & Life Sciences | 3.2 | % | 1.6 | % | 4.8 | % | ||||||
Diversified Financials | 4.0 | % | 0.6 | % | 4.6 | % | ||||||
Food, Beverage & Tobacco | 2.7 | % | 1.5 | % | 4.2 | % | ||||||
Capital Goods | 1.9 | % | 2.0 | % | 3.9 | % | ||||||
Technology Hardware & Equipment | 3.5 | % | 0.5 | % | 4.0 | % | ||||||
Banks | 1.1 | % | 2.8 | % | 3.9 | % | ||||||
Healthcare Equipment & Services | 1.7 | % | 1.3 | % | 3.0 | % | ||||||
Materials | 1.1 | % | 1.8 | % | 2.9 | % | ||||||
Media | 2.5 | % | 0.2 | % | 2.7 | % | ||||||
Insurance | 0.9 | % | 1.6 | % | 2.5 | % | ||||||
Retailing | 1.7 | % | 0.0 | % | 1.7 | % | ||||||
Utilities | 1.2 | % | 0.4 | % | 1.6 | % | ||||||
Telecommunication Services | 0.7 | % | 0.5 | % | 1.2 | % |
Industry | Domestic | Foreign | Percentage (based on Total Investments) | |||||||||
Automobiles & Components | 0.2 | % | 1.0 | % | 1.2 | % | ||||||
Transportation | 1.2 | % | 0.0 | % | 1.2 | % | ||||||
Semiconductors & Semiconductor Equipment | 0.6 | % | 0.5 | % | 1.1 | % | ||||||
Real Estate | 0.7 | % | 0.3 | % | 1.0 | % | ||||||
Household & Personal Products | 0.4 | % | 0.4 | % | 0.8 | % | ||||||
Commercial & Professional Services | 0.2 | % | 0.6 | % | 0.8 | % | ||||||
Consumer Services | 0.6 | % | 0.1 | % | 0.7 | % | ||||||
Consumer Durables & Apparel | 0.1 | % | 0.5 | % | 0.6 | % | ||||||
Food & Staples Retailing | 0.2 | % | 0.0 | % | 0.2 | % | ||||||
|
| |||||||||||
58.6 | % | |||||||||||
|
|
Sector | Percentage (based on Total Investments) | |||
Agency Mortgage-Backed | 7.3 | % | ||
U.S. Treasuries | 6.2 | % | ||
Non-Agency Collateralized Mortgage-Backed Securities | 1.4 | % | ||
Sovereign Bonds Total | 0.4 | % | ||
Agency Collateralized Mortgage Obligations | 0.3 | % | ||
Non-Agency Collateralized Mortgage Obligations | 0.2 | % | ||
U.S. Government Agency | 0.2 | % | ||
Municipal Bonds & Notes | 0.2 | % | ||
Asset-Backed Securities Total | 0.1 | % | ||
|
| |||
16.3 | % | |||
|
|
Other Instruments | Percentage (based on Total Investments) | |||
Exchange-Traded Funds | 3.7 | % | ||
Investment Companies | 21.4 | % | ||
|
| |||
25.1 | % | |||
|
| |||
100.0 | % | |||
|
|
40 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited)
As of March 31, 2013 | Highland Tax-Exempt Fund |
Principal Amount ($) | Value ($) | |||||||
| Municipal Bonds & Notes - 96.1% |
| ||||||
ALASKA - 1.6% | ||||||||
500,000 | Alaska Housing Finance Corp. | 580,430 | ||||||
|
| |||||||
ARIZONA - 1.7% | ||||||||
500,000 | Arizona Department of Transportation State Highway Fund | 616,515 | ||||||
|
| |||||||
CALIFORNIA - 9.5% | ||||||||
1,000,000 | California State Department of Water Resources | 1,268,390 | ||||||
1,160,000 | Los Angeles, CA Harbor Department | 1,364,334 | ||||||
33,000 | Sacramento, CA Municipal Utility District | 36,677 | ||||||
105,000 | 9.00%, 04/01/13 | 105,000 | ||||||
500,000 | State of California | 570,330 | ||||||
|
| |||||||
3,344,731 | ||||||||
|
| |||||||
COLORADO - 0.8% | ||||||||
230,000 | Metro Wastewater Reclamation | 275,446 | ||||||
|
| |||||||
CONNECTICUT - 6.9% | ||||||||
500,000 | South Central Connecticut Regional Water Authority Insured: GO OF AUTH | 576,860 | ||||||
500,000 | State of Connecticut | 613,545 | ||||||
1,000,000 | Town of Fairfield, CT | 1,247,530 | ||||||
|
| |||||||
2,437,935 | ||||||||
|
| |||||||
DISTRICT OF COLUMBIA - 3.2% | ||||||||
500,000 | District of Columbia | 582,585 | ||||||
500,000 | 5.00%, 10/01/30 | 537,540 | ||||||
|
| |||||||
1,120,125 | ||||||||
|
| |||||||
FLORIDA - 1.3% | ||||||||
55,000 | City of Gainesville, FL Utilities System | 59,020 | ||||||
250,000 | City of Tampa, FL | 295,675 | ||||||
105,000 | State of Florida | 111,980 | ||||||
|
| |||||||
466,675 | ||||||||
|
| |||||||
GEORGIA - 6.9% | ||||||||
500,000 | City of Atlanta, GA Water & Wastewater Insured: AGM | 682,620 | ||||||
1,000,000 | Municipal Electric Authority of Georgia | 1,208,700 |
Principal Amount ($) | Value ($) | |||||||
GEORGIA (continued) | ||||||||
500,000 | State of Georgia | 567,500 | ||||||
|
| |||||||
2,458,820 | ||||||||
|
| |||||||
HAWAII - 5.3% | ||||||||
500,000 | State of Hawaii Insured: AGM | 522,595 | ||||||
1,135,000 | State of Hawaii Airports System | 1,357,222 | ||||||
|
| |||||||
1,879,817 | ||||||||
|
| |||||||
INDIANA - 2.4% | ||||||||
500,000 | Indiana Municipal Power Agency | 585,620 | ||||||
240,000 | Indiana Toll Road Commission | 264,929 | ||||||
|
| |||||||
850,549 | ||||||||
|
| |||||||
KENTUCKY - 1.6% | ||||||||
500,000 | Kentucky State Property & Building Commission Insured: AGC | 568,310 | ||||||
|
| |||||||
MAINE - 1.7% | ||||||||
500,000 | Maine Health & Higher Educational Facilities Authority Insured: ST RES FD GTY | 587,320 | ||||||
|
| |||||||
MARYLAND - 4.4% | ||||||||
750,000 | County of Montgomery, MD | 948,855 | ||||||
500,000 | State of Maryland | 609,450 | ||||||
|
| |||||||
1,558,305 | ||||||||
|
| |||||||
MASSACHUSETTS - 0.2% | ||||||||
50,000 | Massachusetts Port Authority | 51,555 | ||||||
|
| |||||||
MICHIGAN - 1.6% | ||||||||
500,000 | Lansing Board of Water & Light, MI | 563,585 | ||||||
|
| |||||||
MINNESOTA - 0.2% | ||||||||
55,000 | Western Minnesota Municipal Power Agency | 60,536 | ||||||
|
| |||||||
MISSISSIPPI - 1.5% | ||||||||
500,000 | State of Mississippi | 536,360 | ||||||
|
| |||||||
MISSOURI - 6.7% | ||||||||
1,500,000 | Missouri Highway & Transportation Commission | 1,849,005 | ||||||
500,000 | Missouri Joint Municipal Electric Utility Commission | 536,485 | ||||||
|
| |||||||
2,385,490 | ||||||||
|
|
See accompanying Notes to Financial Statements. | 41 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Tax-Exempt Fund |
Principal Amount ($) | Value ($) | |||||||
| Municipal Bonds & Notes (continued) |
| ||||||
NEW JERSEY - 1.7% | ||||||||
125,000 | Atlantic County Improvement Authority Insured: NATL-RE | 139,475 | ||||||
250,000 | New Jersey Economic Development Authority | 260,813 | ||||||
20,000 | New Jersey State Turnpike Authority Insured: AMBAC-TCRS | 23,231 | ||||||
20,000 | Insured: AMBAC-TCRS | 22,952 | ||||||
15,000 | Insured: AMBAC-TCRS | 17,445 | ||||||
120,000 | Insured: AMBAC-TCRS-BNY | 130,402 | ||||||
|
| |||||||
594,318 | ||||||||
|
| |||||||
NEW MEXICO - 1.7% | ||||||||
500,000 | New Mexico Finance Authority | 602,215 | ||||||
|
| |||||||
NEW YORK - 11.0% | ||||||||
500,000 | Brooklyn Arena Local Development Corp., NY | 598,200 | ||||||
500,000 | New York City, NY Municipal Water Finance Authority | 575,895 | ||||||
500,000 | New York State Dormitory Authority | 579,460 | ||||||
325,000 | 7.38%, 07/01/16 | 363,044 | ||||||
1,000,000 | New York State Urban Development Corp. | 1,221,190 | ||||||
500,000 | Westchester County Healthcare Corp., NY | 555,930 | ||||||
|
| |||||||
3,893,719 | ||||||||
|
| |||||||
NORTH CAROLINA - 4.1% | ||||||||
500,000 | City of Charlotte, NC | 602,935 | ||||||
500,000 | North Carolina Turnpike Authority | 580,460 | ||||||
250,000 | Town of Cary, NC Combined Utility Systems | 267,572 | ||||||
|
| |||||||
1,450,967 | ||||||||
|
| |||||||
PENNSYLVANIA - 4.5% | ||||||||
280,000 | City of Philadelphia, PA Gas Works Insured: NATL-RE | 342,457 | ||||||
500,000 | Pennsylvania Turnpike Commission | 495,890 | ||||||
500,000 | 5.00%, 12/01/32 | 548,155 | ||||||
205,000 | Pittsburgh, PA Water & Sewer Authority Insured: FGIC | 217,060 | ||||||
|
| |||||||
1,603,562 | ||||||||
|
|
Principal Amount ($) | Value ($) | |||||||
RHODE ISLAND - 1.6% | ||||||||
500,000 | Rhode Island Health & Educational Building Corp. | 574,625 | ||||||
|
| |||||||
SOUTH CAROLINA - 6.6% | ||||||||
500,000 | Charleston Educational Excellence Finance Corp., SC | 553,985 | ||||||
1,000,000 | Georgetown County School District, SC Insured: SCSDE | 1,202,400 | ||||||
500,000 | Piedmont Municipal Power Agency, SC Insured: ACG | 591,330 | ||||||
|
| |||||||
2,347,715 | ||||||||
|
| |||||||
TENNESSEE - 3.4% | ||||||||
500,000 | County of Shelby, TN | 610,070 | ||||||
500,000 | State of Tennessee | 596,395 | ||||||
|
| |||||||
1,206,465 | ||||||||
|
| |||||||
TEXAS - 4.0% | ||||||||
500,000 | City of Houston, TX Utility System | 583,860 | ||||||
750,000 | State of Texas | 832,643 | ||||||
|
| |||||||
1,416,503 | ||||||||
|
| |||||||
Total Municipal Bonds & Notes | 34,032,593 | |||||||
|
| |||||||
| Total Investments - 96.1% | 34,032,593 | ||||||
|
| |||||||
| (Cost $30,912,783) |
| ||||||
| Other Assets & Liabilities, Net - 3.9% | 1,380,974 | ||||||
|
| |||||||
| Net Assets - 100.0% | 35,413,567 | ||||||
|
|
(a) | Variable or floating rate security. The interest rate shown reflects the rate in effect March 31, 2013. |
(b) | Convertible Capital Appreciation Bonds initially pay no interest but accrete in value from the date of issuance through the conversion date, at which time the bonds start to accrue and pay interest on a semi-annual basis until final maturity. |
Glossary:
AGC | Assured Guaranty Corp. | |
AGM | Assured Guaranty Municipal Corp. | |
AMBAC | American Municipal Bond Assurance Corp. | |
BNY | The Bank of New York Mellon Corp. | |
FGIC | Financial Guaranty Insurance Corp. | |
GO OF AUTH | General Obligation of Authority | |
NATL-RE | National Public Finance Guarantee Corp. | |
SCSDE | South Carolina School State Department of Education | |
ST RES FD GTY | State Resource Fund Guaranty | |
TCRS | Temporary Custodial Receipts |
42 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited)
As of March 31, 2013 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes - 98.8% |
| ||||||
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS - 1.5% | ||||||||
141,771 | Federal Home Loan Mortgage Corp. REMIC | 144,904 | ||||||
87,247 | Series 3862, Class MI | 5,956 | ||||||
231,987 | Series 3977, Class AI | 16,724 | ||||||
200,596 | Series 3983, Class EI | 20,521 | ||||||
879,239 | Series 4122, Class AI | 134,299 | ||||||
929,154 | Series 4122, Class CI | 135,027 | ||||||
5,998 | Series 2645, Class BI | 165 | ||||||
58,378 | Series 2643, Class IM | 2,958 | ||||||
1,357 | Series 2590, Class YQ | 6 | ||||||
2,668 | Series 2781, Class CI | 11 | ||||||
16,683 | Series 2781, Class IC | 505 | ||||||
44,704 | Series 2763, Class JI | 2,441 | ||||||
25,882 | Series 3536, Class IP | 1,735 | ||||||
79,369 | Series 2631, Class DI | 11,239 | ||||||
237,375 | Series 3806, Class DS | 30,585 | ||||||
20,320 | Series 2126, Class YI | 445 | ||||||
1,544 | Series 1980, Class IO | 256 | ||||||
411 | Series 33, Class D | 441 | ||||||
1,027 | Federal Home Loan Mortgage Corp. STRIPS | 906 | ||||||
1,810 | Series 147, Class IO | 338 | ||||||
2,132 | Series 171, Class IO | 444 | ||||||
940,975 | Federal Home Loan Mortgage Corp. Structured Pass-Through Securities | 8,114 | ||||||
1,324 | Federal National Mortgage Assoc. REMIC | 1,193 | ||||||
3,749,616 | Series 2003-35, Class QA | 5,604 | ||||||
196,444 | Series 2003-89, Class IO | 5,338 |
Principal Amount ($) | Value ($) | |||||||
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (continued) | ||||||||
1,675,985 | Series 2012-152, Class IP | 219,000 | ||||||
259,174 | Series 2012-145, Class JI | 26,528 | ||||||
578,248 | Series 2013-14, Class IG | 76,947 | ||||||
248 | Series 2003-64, Class KI | — | ||||||
489,723 | Series 2010-16, Class PA | 521,451 | ||||||
6,560 | Series 2003-41, Class BI | 80 | ||||||
10,234 | Series 2003-79, Class HI | 190 | ||||||
53,277 | Series 2003-61, Class IJ | 1,790 | ||||||
293,834 | Series 2010-16, Class PI | 34,500 | ||||||
34,968 | Series 2010-21, Class PI | 4,037 | ||||||
354,597 | Series 2010-98, Class DI | 41,244 | ||||||
107,867 | Series 2008-61, Class SB | 13,298 | ||||||
2,176,847 | Series 2010-123, Class SK | 417,877 | ||||||
6 | Federal National Mortgage Assoc. STRIPS | 142 | ||||||
98,603 | Series 354, Class 1 | 94,208 | ||||||
84,429 | Series 362, Class 2 | 10,042 | ||||||
80,785 | Series 378, Class 1 | 9,964 | ||||||
54,708 | Series 387, Class 2 | 7,010 | ||||||
44,312 | Series 387, Class 1 | 5,670 | ||||||
21,349 | Series 346, Class 2 | 2,466 | ||||||
25,692 | Series 356, Class 17 | 4,442 | ||||||
31,479 | Series 356, Class 21 | 5,403 | ||||||
14,094 | Series 252, Class 2 | 2,698 | ||||||
1,078 | Series 237, Class 2 | 198 | ||||||
6,987 | Series 264, Class 2 | 1,483 | ||||||
345 | Series 12, Class 2 | 39 | ||||||
807 | Series 7, Class 2 | 95 | ||||||
131 | Series 28, Class 2 | 16 | ||||||
1,010 | Series 150, Class 2 | 201 |
See accompanying Notes to Financial Statements. | 43 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (continued) | ||||||||
1,105 | Series 163, Class 2 | 130 | ||||||
1,296 | Series 137, Class 2 | 231 | ||||||
192,024 | Government National Mortgage Assoc. | 18,470 | ||||||
195,255 | Series 2010-101, Class GI | 21,103 | ||||||
580,176 | Series 2010-30, Class PI | 59,400 | ||||||
552,775 | Series 2010-44, Class BI | 61,761 | ||||||
93,302 | Series 2009-118, Class YI | 9,485 | ||||||
227,171 | Series 2010-130, Class PI | 25,650 | ||||||
149,629 | Series 2010-75, Class KI | 8,709 | ||||||
168,478 | Series 2010-42, Class IA | 16,617 | ||||||
126,909 | Series 2010-2, Class QI | 13,289 | ||||||
130,917 | Series 2009-103, Class IT | 11,543 | ||||||
699,211 | Series 2010-147, Class PS | 113,791 | ||||||
1,210,709 | Series 2010-147, Class SA | 204,228 | ||||||
1,170,889 | Series 2010-98, Class YS | 172,009 | ||||||
|
| |||||||
Total Agency Collateralized Mortgage Obligations | 2,767,590 | |||||||
|
| |||||||
AGENCY MORTGAGE-BACKED SECURITIES - 28.5% | ||||||||
21,879 | Federal Home Loan Mortgage Corp. 4.50%, 06/01/33 - 02/01/35 (d) | 23,469 | ||||||
620,261 | 5.00%, 07/01/35 - 06/01/41 (d) | 692,749 | ||||||
343,325 | 5.50%, 05/01/20 - 04/01/39 (d) | 379,425 | ||||||
675,264 | 6.00%, 04/01/17 - 11/01/37 (d) | 757,084 | ||||||
4,925 | 6.50%, 07/01/29 - 04/01/31 (d) | 5,665 | ||||||
146,109 | 7.00%, 10/01/16 - 08/01/36 (d) | 170,807 | ||||||
99,091 | 7.50%, 01/01/27 - 09/01/33 (d) | 106,052 | ||||||
13,649 | 8.00%, 11/01/30 | 15,930 | ||||||
53,464 | 8.50%, 05/01/20 - 04/01/30 (d) | 57,815 | ||||||
2,591 | 9.00%, 12/01/16 | 2,815 | ||||||
171 | 9.50%, 04/01/21 | 196 | ||||||
134,849 | Federal National Mortgage Assoc. | 140,112 | ||||||
10,482 | 2.01%, ARM (a) | 10,983 | ||||||
148,097 | 2.29%, ARM (a) | 156,951 | ||||||
32,965 | 2.38%, ARM (a) | 35,152 | ||||||
94,579 | 2.60%, ARM (a) | 101,731 | ||||||
20,226 | 2.65%, ARM (a) | 20,628 | ||||||
25,499 | 2.71%, ARM (a) | 27,013 | ||||||
1,163 | 2.72%, ARM (a) | 1,219 | ||||||
710 | 2.77%, ARM (a) | 719 |
Principal Amount ($) | Value ($) | |||||||
AGENCY MORTGAGE-BACKED SECURITIES (continued) | ||||||||
7,625,000 | 3.00%, TBA (e) | 7,866,855 | ||||||
5,650,000 | 3.50%, TBA (e) | 5,967,812 | ||||||
920,392 | 4.00%, 05/01/19 - 03/01/41 (d) | 982,571 | ||||||
3,980,000 | 4.00%, TBA (e) | 4,244,297 | ||||||
3,242,966 | 4.50%, 05/01/18 - 04/01/41 (d) | 3,498,570 | ||||||
7,055,000 | 4.50%, TBA (e) | 7,602,865 | ||||||
1,151,011 | 5.00%, 07/01/20 - 06/01/41 (d) | 1,286,049 | ||||||
1,353,170 | 5.50%, 03/01/14 - 01/01/39 (d) | 1,488,374 | ||||||
1,156,389 | 6.00%, 09/01/14 - 07/01/35 (d) | 1,301,023 | ||||||
5,300,000 | 6.00%, TBA (e) | 5,805,986 | ||||||
178,420 | 6.50%, 08/01/17 - 08/01/36 (d) | 201,463 | ||||||
516,553 | 7.00%, 03/01/15 - 04/01/36 (d) | 607,207 | ||||||
395,312 | 7.50%, 09/01/13 - 05/01/34 (d) | 446,104 | ||||||
152,732 | 8.00%, 07/01/15 - 11/01/33 (d) | 160,490 | ||||||
175,028 | 8.50%, 02/01/18 - 07/01/31 (d) | 190,934 | ||||||
36,718 | 9.00%, 12/01/17 - 12/01/24 (d) | 38,758 | ||||||
12,896 | 9.50%, 09/01/21 | 13,468 | ||||||
62,190 | 9.75%, 02/01/21 | 71,419 | ||||||
1,750,000 | Government National Mortgage Assoc. 3.50%, TBA (e) | 1,871,680 | ||||||
4,015,000 | 4.00%, TBA (e) | 4,350,403 | ||||||
906,589 | 4.50%, 08/15/33 - 03/20/41 (d) | 1,001,886 | ||||||
726,000 | 5.00%, TBA (e) | 789,639 | ||||||
138,454 | 6.00%, 04/15/27 - 09/15/36 (d) | 157,934 | ||||||
136,569 | 6.50%, 04/15/19 - 08/15/36 (d) | 155,836 | ||||||
168,152 | 7.00%, 12/15/18 - 10/15/36 (d) | 196,199 | ||||||
167,685 | 7.50%, 12/15/18 - 11/15/31 (d) | 176,684 | ||||||
55,892 | 8.00%, 07/15/17 - 02/15/30 (d) | 60,984 | ||||||
1,013 | 8.50%, 10/15/22 | 1,019 | ||||||
24,691 | 9.00%, 11/15/16 - 12/15/21 (d) | 26,931 | ||||||
|
| |||||||
Total Agency Mortgage-Backed Securities | 53,269,955 | |||||||
|
| |||||||
ASSET-BACKED SECURITIES - 1.3% | ||||||||
250,000 | Ally Master Owner Trust | 250,204 | ||||||
150,000 | Ford Credit Auto Lease Trust | 150,067 | ||||||
150,000 | Ford Credit Auto Owner Trust | 155,848 | ||||||
250,000 | Hertz Vehicle Financing LLC | 257,006 | ||||||
1,575,000 | Series 2009-2A, Class A | 1,701,096 | ||||||
|
| |||||||
Total Asset-Backed Securities | 2,514,221 | |||||||
|
| |||||||
CORPORATE BONDS & NOTES - 24.3% | ||||||||
AUTOMOBILES & COMPONENTS - 0.3% | ||||||||
85,000 | American Axle & Manufacturing, Inc. 6.25%, 03/15/21 (g) | 87,550 | ||||||
85,000 | Delphi Corp. | 90,312 |
44 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
CORPORATE BONDS & NOTES (continued) | ||||||||
AUTOMOBILES & COMPONENTS (continued) | ||||||||
91,000 | Ford Motor Co. | 85,149 | ||||||
214,000 | Lear Corp. | 209,720 | ||||||
86,000 | Visteon Corp. | 92,450 | ||||||
|
| |||||||
565,181 | ||||||||
|
| |||||||
BANKS - 1.2% | ||||||||
221,000 | Bank of America Corp. | 237,963 | ||||||
185,000 | 5.75%, 12/01/17 (g) | 214,204 | ||||||
383,000 | Bank of America Corp., MTN | 381,610 | ||||||
394,000 | 3.30%, 01/11/23 (g) | 389,312 | ||||||
428,000 | PNC Bank NA | 426,396 | ||||||
349,000 | U.S. Bancorp | 371,702 | ||||||
268,000 | Wells Fargo & Co. | 270,362 | ||||||
|
| |||||||
2,291,549 | ||||||||
|
| |||||||
CAPITAL GOODS - 1.3% | ||||||||
198,000 | ABB Finance USA, Inc. | 200,956 | ||||||
70,000 | Amsted Industries, Inc. | 75,600 | ||||||
96,000 | Cargill, Inc. | 114,521 | ||||||
58,000 | Case New Holland, Inc. | 68,150 | ||||||
263,000 | Caterpillar, Inc. | 267,226 | ||||||
213,000 | DigitalGlobe, Inc. | 212,467 | ||||||
303,000 | Eaton Corp. | 304,205 | ||||||
331,000 | 2.75%, 11/02/22 (f) (g) | 329,780 | ||||||
366,000 | Kratos Defense & Security Solutions, Inc. | 404,430 | ||||||
81,000 | Textron, Inc. | 88,270 | ||||||
325,000 | United Technologies Corp. | 347,848 | ||||||
|
| |||||||
2,413,453 | ||||||||
|
| |||||||
COMMERCIAL & PROFESSIONAL SERVICES - 0.4% | ||||||||
47,000 | ADT Corp. (The) | 47,229 | ||||||
241,000 | 3.50%, 07/15/22 (f) (g) | 240,726 | ||||||
25,000 | 4.88%, 07/15/42 (f) | 23,837 | ||||||
112,000 | Catholic Health Initiatives | 113,354 | ||||||
71,000 | 4.35%, 11/01/42 | 71,836 | ||||||
210,000 | United Rentals North America, Inc. | 228,637 | ||||||
|
| |||||||
725,619 | ||||||||
|
|
Principal Amount ($) | Value ($) | |||||||
CONSUMER DURABLES & APPAREL - 0.4% | ||||||||
271,000 | D.R. Horton, Inc. | 267,612 | ||||||
118,000 | Hanesbrands, Inc. | 129,063 | ||||||
200,000 | Levi Strauss & Co. | 221,000 | ||||||
211,000 | RSI Home Products, Inc. | 215,220 | ||||||
|
| |||||||
832,895 | ||||||||
|
| |||||||
CONSUMER SERVICES - 0.4% | ||||||||
84,000 | Cedar Fair LP | 83,790 | ||||||
184,000 | CityCenter Holdings LLC | 198,490 | ||||||
274,000 | Host Hotels & Resorts LP | 275,756 | ||||||
100,000 | McDonald’s Corp., MTN | 102,019 | ||||||
151,000 | Vail Resorts, Inc. | 162,797 | ||||||
|
| |||||||
822,852 | ||||||||
|
| |||||||
DIVERSIFIED FINANCIALS - 3.2% | ||||||||
63,000 | American Express Credit Corp., MTN | 64,407 | ||||||
213,000 | American Honda Finance Corp. | 215,803 | ||||||
142,000 | Caterpillar Financial Services Corp., MTN | 142,442 | ||||||
216,000 | Citigroup, Inc. | 215,887 | ||||||
406,000 | 4.05%, 07/30/22 (g) | 420,221 | ||||||
166,000 | 5.00%, 09/15/14 (g) | 174,366 | ||||||
128,000 | CNH Capital LLC | 131,840 | ||||||
214,000 | Daimler Finance North America LLC | 215,904 | ||||||
328,000 | Ford Motor Credit Co. LLC | 336,721 | ||||||
59,000 | Goldman Sachs Capital I | 61,651 | ||||||
535,000 | Goldman Sachs Group, Inc. (The) | 542,907 | ||||||
257,000 | 3.63%, 01/22/23 (g) | 259,339 | ||||||
153,000 | 6.75%, 10/01/37 | 171,991 | ||||||
193,000 | Goldman Sachs Group, Inc. (The), MTN | 194,893 | ||||||
92,000 | Hyundai Capital America | 92,685 | ||||||
219,000 | 2.13%, 10/02/17 (f) | 221,020 | ||||||
93,000 | Jefferies Group LLC | 98,656 | ||||||
75,000 | 6.50%, 01/20/43 (g) | 80,222 | ||||||
268,000 | John Deere Capital Corp., MTN | 283,128 | ||||||
670,000 | JPMorgan Chase & Co. | 670,316 | ||||||
178,000 | Morgan Stanley | 180,290 |
See accompanying Notes to Financial Statements. | 45 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
CORPORATE BONDS & NOTES (continued) | ||||||||
DIVERSIFIED FINANCIALS (continued) | ||||||||
147,000 | 4.75%, 03/22/17 (g) | 162,292 | ||||||
306,000 | 4.88%, 11/01/22 (g) | 325,017 | ||||||
333,000 | Morgan Stanley, MTN | 382,402 | ||||||
388,000 | NYSE Euronext | 397,104 | ||||||
|
| |||||||
6,041,504 | ||||||||
|
| |||||||
ENERGY - 2.8% | ||||||||
135,000 | Anadarko Petroleum Corp. | 164,224 | ||||||
126,000 | Chesapeake Energy Corp. | 127,732 | ||||||
110,000 | DCP Midstream Operating LP | 111,795 | ||||||
332,000 | 3.88%, 03/15/23 (g) | 334,480 | ||||||
83,000 | Denbury Resources, Inc. | 90,885 | ||||||
67,000 | 8.25%, 02/15/20 | 75,375 | ||||||
73,000 | Energy Transfer Equity LP | 84,498 | ||||||
321,000 | Energy Transfer Partners LP | 320,090 | ||||||
259,000 | 6.50%, 02/01/42 | 296,964 | ||||||
121,000 | Enterprise Products Operating LLC | 116,824 | ||||||
346,000 | Forest Oil Corp. | 347,730 | ||||||
155,000 | Kinder Morgan Energy Partners LP | 157,470 | ||||||
98,000 | 5.00%, 08/15/42 | 99,729 | ||||||
400,000 | Linn Energy LLC | 411,000 | ||||||
79,000 | 8.63%, 04/15/20 (g) | 87,493 | ||||||
221,000 | Marathon Oil Corp. | 216,186 | ||||||
110,000 | Murphy Oil Corp. | 110,577 | ||||||
201,000 | 3.70%, 12/01/22 | 195,664 | ||||||
10,000 | Newfield Exploration Co. | 10,350 | ||||||
96,000 | 5.75%, 01/30/22 (g) | 103,200 | ||||||
56,000 | Peabody Energy Corp. | 58,520 | ||||||
112,000 | Plains Exploration & Production Co. | 124,320 | ||||||
140,000 | Pride International, Inc. | 175,780 | ||||||
96,000 | Range Resources Corp. | 103,440 | ||||||
111,000 | Rockies Express Pipeline LLC | 112,387 | ||||||
134,000 | Rowan Cos., Inc. | 134,287 | ||||||
120,000 | Sabine Pass Liquefaction LLC | 124,650 | ||||||
214,000 | Unit Corp. | 225,235 |
Principal Amount ($) | Value ($) | |||||||
ENERGY (continued) | ||||||||
109,000 | Weatherford International, Inc. | 125,112 | ||||||
327,000 | Williams Cos., Inc. (The) | 325,277 | ||||||
211,000 | WPX Energy, Inc. | 222,077 | ||||||
|
| |||||||
5,193,351 | ||||||||
|
| |||||||
FOOD & STAPLES RETAILING - 0.1% | ||||||||
194,000 | Ingles Markets, Inc. | 203,700 | ||||||
|
| |||||||
FOOD, BEVERAGE & TOBACCO - 2.0% | ||||||||
434,000 | Alliance One International, Inc. | 460,583 | ||||||
407,000 | Anheuser-Busch InBev Finance, Inc. | 403,204 | ||||||
94,000 | Anheuser-Busch InBev Worldwide, Inc. | 92,585 | ||||||
72,000 | 5.38%, 11/15/14 | 77,388 | ||||||
64,000 | Archer-Daniels-Midland Co. | 61,524 | ||||||
119,000 | Coca-Cola Co. (The) | 129,152 | ||||||
220,000 | ConAgra Foods, Inc. | 222,430 | ||||||
210,000 | Constellation Brands, Inc. | 239,400 | ||||||
642,000 | Diageo Investment Corp. | 650,279 | ||||||
126,000 | Hawk Acquisition Sub, Inc. | 126,315 | ||||||
58,000 | Kraft Foods Group, Inc. | 58,925 | ||||||
350,000 | 2.25%, 06/05/17 (g) | 363,458 | ||||||
335,000 | 5.00%, 06/04/42 | 360,611 | ||||||
361,000 | Philip Morris International, Inc. | 380,223 | ||||||
46,000 | 3.88%, 08/21/42 | 42,863 | ||||||
111,000 | 4.13%, 03/04/43 (g) | 107,653 | ||||||
|
| |||||||
3,776,593 | ||||||||
|
| |||||||
HEALTHCARE EQUIPMENT & SERVICES - 2.1% | ||||||||
170,000 | Aetna, Inc. | 170,595 | ||||||
156,000 | Cardinal Health, Inc. | 155,703 | ||||||
78,000 | 4.60%, 03/15/43 | 76,808 | ||||||
92,000 | Cigna Corp. | 97,203 | ||||||
301,000 | 4.00%, 02/15/22 | 325,751 | ||||||
122,000 | 5.38%, 02/15/42 (g) | 138,470 | ||||||
284,000 | DaVita HealthCare Partners, Inc. | 296,425 | ||||||
96,000 | 6.38%, 11/01/18 (g) | 102,360 | ||||||
51,000 | DENTSPLY International, Inc. | 53,001 | ||||||
101,000 | 4.13%, 08/15/21 | 107,379 | ||||||
730,000 | Express Scripts Holding Co. | 765,348 |
46 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
CORPORATE BONDS & NOTES (continued) | ||||||||
HEALTHCARE EQUIPMENT & SERVICES (continued) | ||||||||
155,000 | 3.13%, 05/15/16 | 163,860 | ||||||
51,000 | Fresenius Medical Care U.S. Finance, Inc. | 56,483 | ||||||
114,000 | HCA, Inc. | 128,891 | ||||||
222,000 | Medtronic, Inc. | 222,267 | ||||||
222,000 | 4.00%, 04/01/43 | 216,873 | ||||||
90,000 | Memorial Sloan-Kettering Cancer Center 4.13%, 07/01/52 | 86,986 | ||||||
18,000 | Roche Holdings, Inc. | 22,415 | ||||||
387,000 | UnitedHealth Group, Inc. | 387,356 | ||||||
302,000 | WellPoint, Inc. | 306,217 | ||||||
54,000 | 3.70%, 08/15/21 (g) | 57,128 | ||||||
|
| |||||||
3,937,519 | ||||||||
|
| |||||||
INSURANCE - 1.1% | ||||||||
303,000 | American International Group, Inc. | 343,424 | ||||||
101,000 | Berkshire Hathaway Finance Corp. | 103,109 | ||||||
234,000 | 3.00%, 05/15/22 (g) | 238,988 | ||||||
224,000 | Berkshire Hathaway, Inc. | 227,046 | ||||||
224,000 | 4.50%, 02/11/43 (g) | 226,758 | ||||||
79,000 | CNA Financial Corp. | 93,142 | ||||||
101,000 | Genworth Financial, Inc. | 119,935 | ||||||
143,000 | Hartford Financial Services Group, Inc. | 183,419 | ||||||
178,000 | ING U.S., Inc. | 180,749 | ||||||
48,000 | Liberty Mutual Group, Inc. | 54,884 | ||||||
170,000 | Prudential Financial, Inc. | 171,275 | ||||||
72,000 | 5.63%, 06/15/43 (a) | 74,880 | ||||||
51,000 | Prudential Financial, Inc., MTN | 58,271 | ||||||
|
| |||||||
2,075,880 | ||||||||
|
| |||||||
MATERIALS - 1.3% | ||||||||
212,000 | Ashland, Inc. | 216,240 | ||||||
201,000 | 3.88%, 04/15/18 (f) (g) | 204,266 | ||||||
101,000 | Dow Chemical Co. (The) | 97,261 | ||||||
741,000 | Eastman Chemical Co. | 769,930 | ||||||
112,000 | 3.60%, 08/15/22 (g) | 116,562 | ||||||
316,000 | Freeport-McMoRan Copper & Gold, Inc. | 317,689 | ||||||
221,000 | 5.45%, 03/15/43 (f) (g) | 219,212 |
Principal Amount ($) | Value ($) | |||||||
MATERIALS (continued) | ||||||||
257,000 | Hexion U.S. Finance Corp. | 258,928 | ||||||
127,000 | Huntsman International LLC | 128,429 | ||||||
93,000 | Sealed Air Corp. | 93,581 | ||||||
|
| |||||||
2,422,098 | ||||||||
|
| |||||||
MEDIA - 1.1% | ||||||||
106,000 | CCO Holdings LLC | 118,985 | ||||||
204,000 | Comcast Corp. | 203,753 | ||||||
107,000 | 4.25%, 01/15/33 (g) | 108,068 | ||||||
132,000 | 4.50%, 01/15/43 (g) | 133,184 | ||||||
75,000 | COX Communications, Inc. | 76,350 | ||||||
50,000 | 4.70%, 12/15/42 (f) (g) | 49,404 | ||||||
50,000 | DIRECTV Holdings LLC | 52,912 | ||||||
304,000 | 5.15%, 03/15/42 (g) | 294,873 | ||||||
111,000 | Discovery Communications LLC | 112,860 | ||||||
55,000 | 4.88%, 04/01/43 (g) | 56,492 | ||||||
67,000 | 4.95%, 05/15/42 (g) | 69,152 | ||||||
128,000 | McClatchy Co. (The) | 139,520 | ||||||
43,000 | News America, Inc. | 53,297 | ||||||
382,000 | Omnicom Group, Inc. | 391,241 | ||||||
139,000 | Time Warner Cable, Inc. | 126,847 | ||||||
112,000 | Viacom, Inc. | 116,801 | ||||||
|
| |||||||
2,103,739 | ||||||||
|
| |||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES - 1.1% | ||||||||
303,000 | AbbVie, Inc. | 305,549 | ||||||
203,000 | 1.75%, 11/06/17 (f) | 205,695 | ||||||
200,000 | 2.00%, 11/06/18 (f) | 202,651 | ||||||
112,000 | 2.90%, 11/06/22 (f) | 112,334 | ||||||
76,000 | Agilent Technologies, Inc. | 84,050 | ||||||
279,000 | Amgen, Inc. | 311,577 | ||||||
124,000 | Mylan, Inc. | 144,775 | ||||||
360,000 | Novartis Capital Corp. | 358,667 | ||||||
112,000 | Zoetis, Inc. | 112,376 | ||||||
112,000 | 1.88%, 02/01/18 (f) (g) | 112,852 | ||||||
112,000 | 3.25%, 02/01/23 (f) (g) | 113,810 | ||||||
|
| |||||||
2,064,336 | ||||||||
|
|
See accompanying Notes to Financial Statements. | 47 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
CORPORATE BONDS & NOTES (continued) | ||||||||
REAL ESTATE - 0.4% | ||||||||
164,000 | American Tower Corp. | 162,992 | ||||||
177,000 | DDR Corp. | 191,820 | ||||||
221,000 | Ventas Realty LP | 222,074 | ||||||
132,000 | Weingarten Realty Investors | 131,620 | ||||||
|
| |||||||
708,506 | ||||||||
|
| |||||||
RETAILING - 0.3% | ||||||||
201,000 | Amazon.com, Inc. | 200,184 | ||||||
201,000 | 2.50%, 11/29/22 (g) | 196,026 | ||||||
210,000 | Tops Holding Corp. | 231,525 | ||||||
|
| |||||||
627,735 | ||||||||
|
| |||||||
SEMICONDUCTORS & SEMICONDUCTOR EQUIPMENT - 0.3% | ||||||||
200,000 | Intel Corp. | 200,909 | ||||||
200,000 | 2.70%, 12/15/22 (g) | 198,576 | ||||||
100,000 | 4.25%, 12/15/42 (g) | 98,090 | ||||||
|
| |||||||
497,575 | ||||||||
|
| |||||||
SOFTWARE & SERVICES - 0.9% | ||||||||
205,000 | Autodesk, Inc. | 203,264 | ||||||
315,000 | eBay, Inc. | 318,814 | ||||||
296,000 | 2.60%, 07/15/22 | 296,383 | ||||||
55,000 | 4.00%, 07/15/42 (g) | 50,672 | ||||||
49,000 | Equinix, Inc. | 49,613 | ||||||
49,000 | 5.38%, 04/01/23 (g) | 49,857 | ||||||
147,000 | GXS Worldwide, Inc. | 153,064 | ||||||
512,000 | Oracle Corp. | 513,127 | ||||||
|
| |||||||
1,634,794 | ||||||||
|
| |||||||
TECHNOLOGY HARDWARE & EQUIPMENT - 0.7% | ||||||||
220,000 | Hewlett-Packard Co. | 221,938 | ||||||
61,000 | 6.00%, 09/15/41 (g) | 62,301 | ||||||
211,000 | iGATE Corp. | 230,781 | ||||||
510,000 | Jabil Circuit, Inc. | 510,638 | ||||||
214,000 | Viasystems, Inc. | 224,700 | ||||||
|
| |||||||
1,250,358 | ||||||||
|
| |||||||
TELECOMMUNICATION SERVICES - 1.3% | ||||||||
93,000 | AT&T, Inc. | 93,230 |
Principal Amount ($) | Value ($) | |||||||
TELECOMMUNICATION SERVICES (continued) | ||||||||
263,000 | 2.95%, 05/15/16 (g) | 278,455 | ||||||
269,000 | 4.35%, 06/15/45 (f) (g) | 251,118 | ||||||
93,000 | 5.55%, 08/15/41 | 102,893 | ||||||
374,000 | Cincinnati Bell, Inc. | 398,310 | ||||||
10,000 | Crown Castle Towers LLC | 12,251 | ||||||
96,000 | Frontier Communications Corp. | 104,160 | ||||||
470,000 | Hughes Satellite Systems Corp. | 518,175 | ||||||
128,000 | MetroPCS Wireless, Inc. | 130,720 | ||||||
101,000 | Verizon Communications, Inc. | 95,724 | ||||||
156,000 | 3.85%, 11/01/42 (g) | 135,484 | ||||||
215,000 | Windstream Corp. | 214,462 | ||||||
|
| |||||||
2,334,982 | ||||||||
|
| |||||||
TRANSPORTATION - 0.4% | ||||||||
352,000 | CSX Corp. | 396,547 | ||||||
342,000 | United Parcel Service, Inc. | 340,734 | ||||||
|
| |||||||
737,281 | ||||||||
|
| |||||||
UTILITIES - 1.2% | ||||||||
70,000 | Arizona Public Service Co. | 81,925 | ||||||
13,000 | Calpine Corp. | 13,845 | ||||||
276,000 | Dominion Resources, Inc. | 284,853 | ||||||
38,000 | DPL, Inc. | 40,470 | ||||||
92,000 | Duke Energy Corp. | 92,912 | ||||||
608,000 | 3.05%, 08/15/22 (g) | 620,233 | ||||||
117,000 | Exelon Corp. | 126,713 | ||||||
58,000 | Florida Power & Light Co. | 59,382 | ||||||
111,000 | Great Plains Energy, Inc. | 124,194 | ||||||
9,000 | MidAmerican Energy Holdings Co. | 11,224 | ||||||
167,000 | NextEra Energy Capital Holdings, Inc. | 173,467 | ||||||
83,000 | Nisource Finance Corp. | 85,807 | ||||||
40,000 | Oglethorpe Power Corp. | 45,948 | ||||||
71,000 | Pacific Gas & Electric Co. | 89,100 | ||||||
142,000 | PacifiCorp | 190,155 |
48 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
CORPORATE BONDS & NOTES (continued) | ||||||||
UTILITIES (continued) | ||||||||
112,000 | Potomac Edison Co. (The) | 120,035 | ||||||
|
| |||||||
2,160,263 | ||||||||
|
| |||||||
Total Corporate Bonds & Notes | 45,421,763 | |||||||
|
| |||||||
FOREIGN CORPORATE BONDS & NOTES - 10.8% | ||||||||
BANKS - 3.3% | ||||||||
100,000 | Banco do Nordeste do Brasil SA 3.63%, 11/09/15 (f) | 103,000 | ||||||
150,000 | Banco Latinoamericano de Comercio Exterior SA | 154,950 | ||||||
110,000 | Banco Mercantil del Norte SA 6.86%, 10/13/21 (a) (f) | 117,700 | ||||||
548,000 | Barclays Bank PLC 2.25%, 05/10/17 (f) (g) | 572,112 | ||||||
200,000 | Caixa Economica Federal | 194,800 | ||||||
140,000 | Central American Bank for Economic Integration | 148,762 | ||||||
294,000 | Commonwealth Bank of Australia 0.75%, 01/15/16 (f) (g) | 293,908 | ||||||
342,000 | Corp. Andina de Fomento | 372,974 | ||||||
660,000 | European Investment Bank 0.88%, 12/15/14 | 665,885 | ||||||
200,000 | 4.88%, 01/17/17 (g) | 230,342 | ||||||
200,000 | Industry & Construction Bank St. Petersburg OJSC Via Or-ICB for Industry | 205,500 | ||||||
729,000 | KFW | 720,043 | ||||||
31,000 | 4.50%, 07/16/18 | 36,403 | ||||||
372,000 | Korea Development Bank (The) 3.25%, 03/09/16 | 394,493 | ||||||
38,000 | National Agricultural Cooperative Federation | 40,807 | ||||||
315,000 | National Australia Bank, Ltd. 3.00%, 01/20/23 | 313,023 | ||||||
387,000 | Royal Bank of Canada | 388,680 | ||||||
420,000 | Royal Bank of Scotland Group PLC 6.40%, 10/21/19 | 502,131 | ||||||
200,000 | Russian Agricultural Bank OJSC Via RSHB Capital SA | 234,000 | ||||||
200,000 | Sberbank of Russia Via SB Capital SA 4.95%, 02/07/17 (f) | 214,000 | ||||||
210,000 | Standard Chartered PLC | 209,568 | ||||||
|
| |||||||
6,113,081 | ||||||||
|
| |||||||
CAPITAL GOODS - 0.3% | ||||||||
86,000 | Bombardier, Inc. | 89,655 |
Principal Amount ($) | Value ($) | |||||||
CAPITAL GOODS (continued) | ||||||||
400,000 | 5.75%, 03/15/22 (f) (g) | 412,500 | ||||||
88,000 | 7.75%, 03/15/20 (f) | 101,640 | ||||||
|
| |||||||
603,795 | ||||||||
|
| |||||||
CONSUMER SERVICES - 0.2% | ||||||||
224,000 | Carnival Corp. | 224,442 | ||||||
117,000 | NCL Corp., Ltd. | 119,779 | ||||||
|
| |||||||
344,221 | ||||||||
|
| |||||||
DIVERSIFIED FINANCIALS - 0.9% | ||||||||
400,000 | Credit Suisse AG | 421,978 | ||||||
191,000 | GTL Trade Finance, Inc. | 220,032 | ||||||
304,000 | Invesco Finance PLC | 310,902 | ||||||
332,000 | Nomura Holdings, Inc. | 331,460 | ||||||
100,000 | Power Sector Assets & Liabilities Management Corp. | 135,250 | ||||||
189,000 | Woodside Finance, Ltd. | 199,549 | ||||||
|
| |||||||
1,619,171 | ||||||||
|
| |||||||
ENERGY - 3.2% | ||||||||
42,000 | BP Capital Markets PLC | 43,733 | ||||||
498,000 | 2.50%, 11/06/22 (g) | 485,749 | ||||||
74,000 | Ecopetrol SA | 93,055 | ||||||
212,000 | Gazprom OAO Via Gaz Capital SA | 236,656 | ||||||
137,000 | Korea National Oil Corp. | 142,954 | ||||||
500,000 | 3.13%, 04/03/17 (f) | 527,599 | ||||||
225,000 | National JSC Naftogaz of Ukraine | 232,020 | ||||||
299,000 | Nexen, Inc. | 387,578 | ||||||
209,000 | Odebrecht Drilling Norbe VIII/IX, Ltd. | 230,945 | ||||||
100,000 | Pacific Rubiales Energy Corp. | 101,400 | ||||||
41,000 | Petrobras International Finance Co. | 41,954 | ||||||
478,000 | 3.50%, 02/06/17 (g) | 494,727 | ||||||
45,000 | 3.88%, 01/27/16 (g) | 47,317 | ||||||
200,000 | Petroleos Mexicanos | 237,000 | ||||||
19,000 | 6.50%, 06/02/41 | 22,467 | ||||||
158,333 | Petroleum Co. of Trinidad & Tobago, Ltd. | 174,167 | ||||||
388,000 | Schlumberger Investment SA | 383,380 | ||||||
200,000 | State Oil Co. of the Azerbaijan Republic 5.45%, 02/09/17 | 214,000 |
See accompanying Notes to Financial Statements. | 49 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
FOREIGN CORPORATE BONDS & NOTES (continued) | ||||||||
ENERGY (continued) | ||||||||
111,000 | Talisman Energy, Inc. | 115,632 | ||||||
167,000 | 6.25%, 02/01/38 | 189,322 | ||||||
215,000 | Total Capital Canada, Ltd. | 217,189 | ||||||
734,000 | Total Capital International SA | 746,712 | ||||||
55,000 | Transocean, Inc. | 54,289 | ||||||
55,000 | 6.50%, 11/15/20 (g) | 63,659 | ||||||
273,000 | Weatherford International, Ltd. 4.50%, 04/15/22 | 281,726 | ||||||
77,000 | 5.95%, 04/15/42 (g) | 79,641 | ||||||
56,000 | 6.75%, 09/15/40 | 61,899 | ||||||
|
| |||||||
5,906,770 | ||||||||
|
| |||||||
FOOD, BEVERAGE & TOBACCO - 0.6% | ||||||||
134,000 | Diageo Capital PLC | 135,983 | ||||||
217,000 | Heineken NV | 216,248 | ||||||
279,000 | Imperial Tobacco Finance PLC | 281,076 | ||||||
400,000 | 3.50%, 02/11/23 (f) (g) | 404,373 | ||||||
|
| |||||||
1,037,680 | ||||||||
|
| |||||||
MATERIALS - 0.8% | ||||||||
155,000 | Agrium, Inc. | 149,626 | ||||||
55,000 | Corp. Nacional del Cobre de Chile | 50,783 | ||||||
22,000 | 5.63%, 09/21/35 (f) | 24,795 | ||||||
105,000 | Kinross Gold Corp. | 108,584 | ||||||
500,000 | LyondellBasell Industries NV | 567,500 | ||||||
305,000 | Xstrata Finance Canada, Ltd. | 309,485 | ||||||
112,000 | 4.00%, 10/25/22 (f) | 113,027 | ||||||
108,325 | 5.80%, 11/15/16 (f) | 123,433 | ||||||
|
| |||||||
1,447,233 | ||||||||
|
| |||||||
MEDIA - 0.1% | ||||||||
220,000 | Globo Comunicacao e Participacoes SA | 236,060 | ||||||
30,000 | WPP Finance 2010 | 29,639 | ||||||
|
| |||||||
265,699 | ||||||||
|
| |||||||
PHARMACEUTICALS, BIOTECHNOLOGY & LIFE SCIENCES - 0.1% | ||||||||
50,000 | Takeda Pharmaceutical Co., Ltd. | 50,719 | ||||||
174,000 | Teva Pharmaceutical Finance Co. BV | 174,815 | ||||||
|
| |||||||
225,534 | ||||||||
|
|
Principal Amount ($) | Value ($) | |||||||
TECHNOLOGY HARDWARE & EQUIPMENT - 0.3% | ||||||||
85,000 | Flextronics International, Ltd. | 86,275 | ||||||
400,000 | Seagate HDD Cayman | 436,000 | ||||||
|
| |||||||
522,275 | ||||||||
|
| |||||||
TELECOMMUNICATION SERVICES - 0.2% | ||||||||
450,000 | America Movil SAB de CV | 465,153 | ||||||
|
| |||||||
TRANSPORTATION - 0.3% | ||||||||
175,000 | Russian Railways via RZD Capital PLC, MTN | 192,937 | ||||||
200,000 | SCF Capital, Ltd. | 207,750 | ||||||
200,000 | Transnet SOC, Ltd. | 210,233 | ||||||
|
| |||||||
610,920 | ||||||||
|
| |||||||
UTILITIES - 0.5% | ||||||||
96,000 | AES Panama SA | 106,560 | ||||||
19,000 | Empresa de Energia de Bogota SA | 21,280 | ||||||
200,000 | Majapahit Holding BV | 233,000 | ||||||
345,000 | 7.75%, 10/17/16 (f) | 401,494 | ||||||
203,000 | TransAlta Corp. | 206,417 | ||||||
|
| |||||||
968,751 | ||||||||
|
| |||||||
Total Foreign Corporate Bonds & Notes | 20,130,283 | |||||||
|
| |||||||
MUNICIPAL BONDS & NOTES - 0.4% | ||||||||
45,000 | American Municipal Power, Inc. OH | 53,800 | ||||||
111,000 | Municipal Electric Authority of Georgia | 131,346 | ||||||
50,000 | New Jersey Transportation Trust Fund Authority | 57,525 | ||||||
320,000 | Port Authority of New York & New Jersey | 319,875 | ||||||
55,000 | South Carolina State Public Service Authority | 71,452 | ||||||
75,000 | State of California | 91,035 | ||||||
|
| |||||||
Total Municipal Bonds & Notes | 725,033 | |||||||
|
| |||||||
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS - 0.6% | ||||||||
332,000 | American Tower Trust I | 334,523 |
50 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
NON-AGENCY COLLATERALIZED MORTGAGE OBLIGATIONS (continued) | ||||||||
1,259 | Collateralized Mortgage Obligation Trust | 1,200 | ||||||
72,968 | Credit Suisse First Boston Mortgage Securities Corp. | 3,003 | ||||||
16,295 | CSMC Mortgage-Backed Trust | — | ||||||
230,000 | Greenwich Capital Commercial Funding Corp. | 250,932 | ||||||
110,000 | GS Mortgage Securities Corp. II | 110,985 | ||||||
44,869 | MASTR Alternative Loan Trust | 3,885 | ||||||
320,000 | Morgan Stanley Capital I Trust | 333,250 | ||||||
123,733 | Wells Fargo Mortgage-Backed Securities Trust | 1,615 | ||||||
|
| |||||||
Total Non-Agency Collateralized Mortgage Obligations | 1,039,393 | |||||||
|
| |||||||
NON-AGENCY COLLATERALIZED MORTGAGE-BACKED SECURITIES - 4.6% | ||||||||
200,000 | Banc of America Commercial Mortgage Trust | 220,521 | ||||||
50,000 | Series 2006-4, Class AM | 56,740 | ||||||
50,000 | Series 2007-4, Class A4 | 58,260 | ||||||
50,000 | Series 2008-1, Class A4 | 60,136 | ||||||
110,000 | Banc of America Merrill Lynch Commercial Mortgage, Inc. | 120,985 | ||||||
200,000 | Series 2005-1, Class AJ | 214,719 | ||||||
114,420 | Bear Stearns Commercial Mortgage Securities Trust | 122,398 | ||||||
38,435 | Series 2006-PW11, Class A2 | 38,808 | ||||||
110,000 | Series 2006-T22, Class AJ | 121,219 |
Principal Amount ($) | Value ($) | |||||||
110,000 | Series 2006-T22, Class AM | 122,306 | ||||||
160,000 | Series 2007-PW17, Class AM | 185,711 | ||||||
230,000 | Series 2007-PW18, Class AMA | 261,610 | ||||||
50,000 | Citigroup Commercial Mortgage Trust | 49,903 | ||||||
60,000 | Commercial Mortgage Pass-Through Certificates | 64,505 | ||||||
110,000 | Series 2006-C5, Class AM | 121,454 | ||||||
280,000 | Series 2006-C8, Class AM | 315,164 | ||||||
110,000 | GS Mortgage Securities Trust | 116,941 | ||||||
30,000 | Series 2011-GC5, Class B | 35,119 | ||||||
400,000 | Series 2006-GG8, Class AM | 452,456 | ||||||
998,308 | JP Morgan Chase Commercial Mortgage Securities Corp. | 121,272 | ||||||
120,000 | Series 2012-LC9, Class D | 118,129 | ||||||
230,000 | Series 2005-CB11, Class A4 | 246,969 | ||||||
190,000 | JP Morgan Chase Commercial Mortgage Securities Trust | 208,746 | ||||||
100,000 | Series 2006-LDP8, Class AM | 111,998 | ||||||
220,000 | Series 2007-CB18, Class A4 | 250,636 | ||||||
990,000 | Series 2007-LD11, Class A4 | 1,142,700 | ||||||
50,000 | JPMCC Commercial Mortgage Pass-Through Certificates | 53,246 | ||||||
220,000 | LB Commercial Mortgage Trust | 254,840 | ||||||
270,000 | LB-UBS Commercial Mortgage Trust | 291,789 | ||||||
120,000 | Series 2006-C1, Class A4 | 132,312 | ||||||
50,000 | Series 2006-C4, Class A4 | 56,861 | ||||||
300,000 | ML-CFC Commercial Mortgage Trust | 338,064 | ||||||
50,000 | Series 2006-3, Class AJ | 47,238 |
See accompanying Notes to Financial Statements. | 51 |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
| NON-AGENCY COLLATERALIZED MORTGAGE-BACKED SECURITIES (continued) | | ||||||
198,302 | Morgan Stanley Capital I Trust | 201,446 | ||||||
300,000 | Series 2005-IQ9, Class A5 | 317,777 | ||||||
150,000 | Series 2006-T21, Class A4 | 165,023 | ||||||
100,000 | Series 2012-C4, Class B | 114,614 | ||||||
170,000 | Series 2006-T21, Class AJ | 184,911 | ||||||
100,000 | Series 2006-IQ11, Class B | 89,490 | ||||||
50,000 | Series 2006-T23, Class A4 | 57,203 | ||||||
230,000 | Series 2007-IQ16, Class AMA | 268,735 | ||||||
70,000 | Series 2008-T29, Class AM | 83,808 | ||||||
140,000 | Morgan Stanley, Bank of America, Merrill Lynch Trust | 127,298 | ||||||
260,000 | Wachovia Bank Commercial Mortgage Trust | 294,090 | ||||||
120,000 | Series 2006-C23, Class AM | 133,608 | ||||||
360,000 | Series 2006-C28, Class AM | 404,743 | ||||||
20,000 | Wells Fargo Commercial Mortgage Trust | 21,441 | ||||||
110,000 | WFRBS Commercial Mortgage Trust Series 2011-C4, Class D | 117,225 | ||||||
|
| |||||||
Total Non-Agency Collateralized Mortgage-Backed Securities | 8,695,167 | |||||||
|
| |||||||
SOVEREIGN BONDS - 2.4% | ||||||||
149,000 | Banco Nacional de Desenvolvimento Economico e Social | 172,840 | ||||||
582,000 | Chile Government International Bond | 540,678 | ||||||
40,000 | El Salvador Government International Bond | 46,060 | ||||||
150,000 | Gabonese Republic | 183,000 | ||||||
86,000 | Hungary Government International Bond | 82,560 | ||||||
13,000 | 4.75%, 02/03/15 | 13,084 |
Principal Amount ($) | Value ($) | |||||||
178,000 | 6.25%, 01/29/20 | 182,672 | ||||||
4,000 | 7.63%, 03/29/41 | 4,100 | ||||||
200,000 | Israel Government International Bond | 198,531 | ||||||
6,000 | Lebanon Government International Bond, MTN | 6,000 | ||||||
20,000 | 5.15%, 11/12/18 | 19,950 | ||||||
20,000 | 6.10%, 10/04/22 | 20,250 | ||||||
20,000 | Mexico Government International Bond | 22,040 | ||||||
38,000 | 6.05%, 01/11/40 | 47,215 | ||||||
156,000 | Mexico Government International Bond, MTN | 162,240 | ||||||
50,000 | Panama Government International Bond | 66,875 | ||||||
156,000 | Peruvian Government International Bond | 212,160 | ||||||
220,000 | Philippine Government International Bond | 284,900 | ||||||
15,000 | Poland Government International Bond | 14,565 | ||||||
201,000 | 5.00%, 03/23/22 | 230,131 | ||||||
13,000 | 6.38%, 07/15/19 | 16,004 | ||||||
250,000 | Republic of Angola Via Northern Lights III BV | 277,187 | ||||||
200,000 | Republic of Serbia | 207,000 | ||||||
440,000 | 7.25%, 09/28/21 (f) | 488,950 | ||||||
64,000 | Romanian Government International Bond | 62,988 | ||||||
38,000 | 6.75%, 02/07/22 (f) | 44,365 | ||||||
200,000 | Russian Foreign Bond - Eurobond | 209,750 | ||||||
32,554 | 7.50%, 03/31/30 | 40,391 | ||||||
39,000 | Turkey Government International Bond | 48,214 | ||||||
440,000 | Ukraine Government International Bond | 432,916 | ||||||
50,472 | Uruguay Government International Bond | 67,128 | ||||||
5,217 | Vietnam Government International Bond | 4,827 | ||||||
|
| |||||||
Total Sovereign Bonds | 4,409,571 | |||||||
|
| |||||||
U.S. GOVERNMENT AGENCIES - 3.5% | ||||||||
4,700,000 | Federal Home Loan Mortgage Corp. | 4,936,856 | ||||||
1,477,000 | 2.38%, 01/13/22 (g) | 1,540,309 | ||||||
|
| |||||||
Total U.S. Government Agencies | 6,477,165 | |||||||
|
|
52 | See accompanying Notes to Financial Statements. |
Table of Contents
INVESTMENT PORTFOLIO (unaudited) (continued)
As of March 31, 2013 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
| Bonds & Notes (continued) |
| ||||||
U.S. TREASURIES - 20.9% | ||||||||
3,058,900 | U.S. Treasury Bonds | 2,835,695 | ||||||
4,885,200 | 3.00%, 05/15/42 (g) | 4,783,681 | ||||||
491,100 | U.S. Treasury Notes | 490,333 | ||||||
1,893,000 | 0.25%, 10/31/14 (g) | 1,894,109 | ||||||
10,880,800 | 0.63%, 09/30/17 (g) | 10,861,247 | ||||||
12,455,200 | 0.88%, 02/28/17 | 12,616,732 | ||||||
4,569,200 | 0.88%, 01/31/18 (g) | 4,599,544 | ||||||
913,800 | 1.63%, 11/15/22 (g) | 897,737 | ||||||
145,000 | 2.13%, 08/15/21 | 151,548 | ||||||
|
| |||||||
Total U.S. Treasuries | 39,130,626 | |||||||
|
| |||||||
Total Bonds & Notes | 184,580,767 | |||||||
|
| |||||||
Shares | ||||||||
| Investment Companies - 25.1% |
| ||||||
46,831,678 | State Street Navigator Prime Securities Lending Portfolio (j) | 46,831,678 | ||||||
|
| |||||||
Total Investment Companies | 46,831,678 | |||||||
|
| |||||||
| Total Investments - 123.9% | 231,412,445 | ||||||
|
| |||||||
| (Cost $229,266,034) | |||||||
| Other Assets & Liabilities, Net - (23.9)% | (44,654,385 | ) | |||||
|
| |||||||
| Net Assets - 100.0% | 186,758,060 | ||||||
|
|
(a) | Variable or floating rate security. The interest rate shown reflects the rate in effect March 31, 2013. |
(b) | Interest only security (“IO”). These types of securities represent the right to receive the monthly interest payments on an underlying pool of mortgages. Payments of principal on the pool reduce the value of the “interest only” holding. |
(c) | Principal only security (“PO”). These types of securities represent the right to receive the monthly principal payments on an underlying pool of mortgages. No payments of interest on the pool are passed through to the “principal only” holder. |
(d) | Securities are grouped by coupon and represent a range of maturities. |
(e) | Settlement is on a delayed delivery or when-issued basis with final maturity to be announced (TBA) in the future. |
(f) | 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 March 31, 2013, these securities amounted to $20,710,583 or 11.1% of net assets. |
(g) | Securities (or a portion of securities) on loan. As of March 31, 2013, the market value of securities loaned was $45,975,667. The loaned securities were secured with cash and securities collateral of $46,981,434. Collateral is calculated based on prior day’s prices. See Note 5. |
(h) | Step coupon bond. |
(i) | The actual maturity date of this security is 10/12/2110. |
(j) | Represents investments of cash collateral received in connection with securities lending. |
Glossary:
ARM | Adjustable Rate Mortgage | |
MTN | Medium-Term Note | |
REMIC | Real Estate Mortgage Investment Conduit | |
STRIPS | Separate Trading of Registered Interest and Principal of Security |
The Fund had the following futures contracts, brokered by Royal Bank of Scotland, for which $450,000 was pledged as collateral, open at March 31, 2013:
Description | Expiration Date | Number of Contracts | Notional Value | Unrealized Appreciation (Depreciation) | ||||||||||||
Long Futures: | ||||||||||||||||
2 Yr. U.S. Treasury Notes | June 2013 | 152 | $ | 30,400,000 | $ | 426 | ||||||||||
5 Yr. U.S. Treasury Notes | June 2013 | 15 | 1,500,000 | 1,131 | ||||||||||||
|
| |||||||||||||||
1,557 | ||||||||||||||||
|
| |||||||||||||||
Short Futures: | ||||||||||||||||
10 Yr. U.S. Treasury Notes | June 2013 | 203 | 20,300,000 | (106,098 | ) | |||||||||||
30 Yr. U.S. Treasury Bonds | June 2013 | 32 | 3,200,000 | (32,666 | ) | |||||||||||
Ultra Long U.S. Treasury Bonds | June 2013 | 36 | 3,600,000 | 13,690 | ||||||||||||
|
| |||||||||||||||
(125,074 | ) | |||||||||||||||
|
| |||||||||||||||
$ | (123,517 | ) | ||||||||||||||
|
|
See accompanying Notes to Financial Statements. | 53 |
Table of Contents
STATEMENTS OF ASSETS AND LIABILITIES
As of March 31, 2013 (unaudited) |
Highland Alpha Trend Strategies Fund ($) | Highland Alternative Income Fund ($) | Highland Trend Following Fund ($) | ||||||||||||
Assets | ||||||||||||||
Investments, at value*(a) | 2,971,700 | 11,345,200 | 699,108 | |||||||||||
Cash | 181,730 | 3,425,391 | 1,983,858 | |||||||||||
Restricted Cash — Futures (Note 3) | — | — | — | |||||||||||
Restricted Cash — Securities sold short (Note 2) | 765,000 | — | — | |||||||||||
Receivable for: | ||||||||||||||
Investments sold | 1,418,604 | 2,737,626 | — | |||||||||||
Dividend and interest | 6,996 | 24,543 | 5 | |||||||||||
Investment advisory and administration fees (Note 7) | — | — | 2,753 | |||||||||||
Fund shares sold | — | — | — | |||||||||||
Prepaid expenses and other assets | 31,220 | 16,779 | 31,680 | |||||||||||
Variation margin | — | — | — | |||||||||||
|
|
|
|
|
| |||||||||
Total assets | 5,375,250 | 17,549,539 | 2,717,404 | |||||||||||
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||
Payable for: | ||||||||||||||
Upon receipt of securities loaned (Note 5) | — | 652,806 | — | |||||||||||
Distributions | — | 16,896 | — | |||||||||||
Investments purchased | 1,555,164 | 7,248,517 | — | |||||||||||
Fund shares redeemed | 9,626 | 9,720 | — | |||||||||||
Accrued dividends on securities sold short | 64 | 298 | — | |||||||||||
Investment advisory and administration fees (Note 7) | — | 9,406 | — | |||||||||||
Trustee fees | 285 | 1,138 | 1,810 | |||||||||||
Distribution and shareholder service fees (Note 7) | 140 | 304 | 59 | |||||||||||
Transfer agent fees | 2,308 | 1,322 | 4,979 | |||||||||||
Custody fees | 632 | 106 | — | |||||||||||
Accrued expenses and other liabilities | 46,620 | 5,455 | 9,151 | |||||||||||
|
|
|
|
|
| |||||||||
Total liabilities | 1,614,839 | 7,945,968 | 15,999 | |||||||||||
|
|
|
|
|
| |||||||||
Net Assets | 3,760,411 | 9,603,571 | 2,701,405 | |||||||||||
|
|
|
|
|
| |||||||||
Net Assets Consist of: | ||||||||||||||
Par value (Note 1) | 418 | 1,016 | 309 | |||||||||||
Paid-in capital | 3,997,387 | 10,237,114 | 3,254,186 | |||||||||||
Accumulated net investment income (loss) | (33,678 | ) | 2,411 | (87,169 | ) | |||||||||
Accumulated net realized gain (loss) from investments, securities sold short and futures contracts | (326,273 | ) | (757,486 | ) | (409,785 | ) | ||||||||
Net unrealized appreciation (depreciation) on investments, securities sold short and futures contracts | 122,557 | 120,516 | (56,136 | ) | ||||||||||
|
|
|
|
|
| |||||||||
Net Assets | 3,760,411 | 9,603,571 | 2,701,405 | |||||||||||
|
|
|
|
|
| |||||||||
* Investments, at cost | 2,849,143 | 11,224,684 | 755,244 | |||||||||||
(a) Includes market value of securities on loan of: | — | 641,974 | — |
54 | See accompanying Notes to Financial Statements. |
Table of Contents
Highland Funds II |
Highland Global Allocation Fund ($) | Highland Dividend Equity Fund ($) | Highland Premier Growth Equity Fund ($) | Highland Small-Cap Equity Fund ($) | |||||||||||
212,168,911 | 15,528,575 | 189,861,770 | 49,557,740 | |||||||||||
6,266,616 | 526,008 | 9,496,056 | 1,298,302 | |||||||||||
420,000 | — | 350,000 | — | |||||||||||
— | — | — | — | |||||||||||
— | — | 140,835 | 45,450 | |||||||||||
220,922 | 35,105 | 57,043 | 43,575 | |||||||||||
— | — | — | — | |||||||||||
4,566 | 94,052 | 120,241 | 10,721 | |||||||||||
118,835 | 58,480 | 67,025 | 52,730 | |||||||||||
22,420 | — | 16,875 | — | |||||||||||
|
|
|
|
|
|
|
| |||||||
219,222,270 | 16,242,220 | 200,109,845 | 51,008,518 | |||||||||||
|
|
|
|
|
|
|
| |||||||
28,498,949 | 3,306,806 | 34,511,528 | 11,307,745 | |||||||||||
— | 11,045 | — | — | |||||||||||
191,091 | — | 164,108 | 65,008 | |||||||||||
142,651 | — | 993,428 | 26,203 | |||||||||||
— | — | — | — | |||||||||||
64,252 | 1,925 | 82,759 | 31,413 | |||||||||||
3,892 | 273 | 4,811 | 1,149 | |||||||||||
9,399 | 368 | 8,231 | 2,307 | |||||||||||
— | 819 | 25,809 | 8,969 | |||||||||||
12,844 | 2,682 | 990 | — | |||||||||||
63,301 | 988 | 64,210 | 14,403 | |||||||||||
|
|
|
|
|
|
|
| |||||||
28,986,379 | 3,324,906 | 35,855,874 | 11,457,197 | |||||||||||
|
|
|
|
|
|
|
| |||||||
190,235,891 | 12,917,314 | 164,253,971 | 39,551,321 | |||||||||||
|
|
|
|
|
|
|
| |||||||
17,256 | 1,014 | 5,912 | 2,952 | |||||||||||
158,767,968 | 10,492,414 | 112,026,405 | 31,844,716 | |||||||||||
380,816 | (1,522 | ) | (60,431 | ) | (425,398 | ) | ||||||||
| 3,070,409 |
| 101,419 | 5,307,572 | 1,702,390 | |||||||||
| 27,999,442 |
| 2,323,989 | 46,974,513 | 6,426,661 | |||||||||
|
|
|
|
|
|
|
| |||||||
190,235,891 | 12,917,314 | 164,253,971 | 39,551,321 | |||||||||||
|
|
|
|
|
|
|
| |||||||
184,238,781 | 13,204,586 | 142,940,153 | 43,131,079 | |||||||||||
28,494,556 | 3,257,052 | 34,124,452 | 11,076,894 |
See accompanying Notes to Financial Statements. | 55 |
Table of Contents
STATEMENTS OF ASSETS AND LIABILITIES (continued)
As of March 31, 2013 (unaudited) |
Highland Alpha Trend Strategies Fund ($) | Highland Alternative Income Fund ($) | Highland Trend Following Fund ($) | ||||||||||||
Class A: | ||||||||||||||
Net assets | 1,503,158 | 2,131,718 | 737,079 | |||||||||||
Shares outstanding ($0.001 par value; unlimited shares authorized) | 167,417 | 225,661 | 84,208 | |||||||||||
|
|
|
|
|
| |||||||||
Net asset value per share(a)(b) | 8.98 | 9.45 | 8.75 | |||||||||||
|
|
|
|
|
| |||||||||
Maximum offering price per share(c) | 9.53 | 10.03 | 9.28 | |||||||||||
|
|
|
|
|
| |||||||||
Class B: | ||||||||||||||
Net assets | — | — | — | |||||||||||
Shares outstanding ($0.001 par value; unlimited shares authorized) | — | — | — | |||||||||||
|
|
|
|
|
| |||||||||
Net asset value and offering price per share(a) | — | — | — | |||||||||||
|
|
|
|
|
| |||||||||
Class C: | ||||||||||||||
Net assets | 39,780 | 72,769 | 24,681 | |||||||||||
Shares outstanding ($0.001 par value; unlimited shares authorized) | 4,456 | 7,699 | 2,838 | |||||||||||
|
|
|
|
|
| |||||||||
Net asset value and offering price per share(a) | 8.93 | 9.45 | 8.70 | |||||||||||
|
|
|
|
|
| |||||||||
Class R: | ||||||||||||||
Net assets | 285,859 | 1,512,464 | — | |||||||||||
Shares outstanding ($0.001 par value; unlimited shares authorized) | 31,789 | 160,026 | — | |||||||||||
|
|
|
|
|
| |||||||||
Net asset value, offering and redemption price per share | 8.99 | 9.45 | — | |||||||||||
|
|
|
|
|
| |||||||||
Class Y: | ||||||||||||||
Net assets | 1,931,614 | 5,886,620 | 1,939,645 | |||||||||||
Shares outstanding ($0.001 par value; unlimited shares authorized) | 213,970 | 622,814 | 221,484 | |||||||||||
|
|
|
|
|
| |||||||||
Net asset value, offering and redemption price per share | 9.03 | 9.45 | 8.76 | |||||||||||
|
|
|
|
|
|
(a) | Redemption price per share is equal to net asset value per share less any applicable contingent deferred sales charge (“CDSC”). |
(b) | Purchases of $1,000,000 or more are subject to a 0.50% CDSC if redeemed within one year of purchase. |
(c) | The sales charge is 5.75% for all Funds except for the Tax-Exempt Fund and Fixed Income Fund, which is 4.25%. On sales of $1,000,000 or more, there is no sales charge and therefore the offering will be lower. |
56 | See accompanying Notes to Financial Statements. |
Table of Contents
Highland Funds II |
Highland Global Allocation Fund ($) | Highland Dividend Equity Fund ($) | Highland Premier Growth Equity Fund ($) | Highland Small-Cap Equity Fund ($) | |||||||||||
183,341,852 | 1,031,252 | 128,761,367 | 34,674,811 | |||||||||||
16,639,904 | 77,341 | 4,603,233 | 2,547,638 | |||||||||||
|
|
|
|
|
|
|
| |||||||
11.02 | 13.33 | 27.97 | 13.61 | |||||||||||
|
|
|
|
|
|
|
| |||||||
11.69 | 14.14 | 29.68 | 14.44 | |||||||||||
|
|
|
|
|
|
|
| |||||||
4,044 | — | 79,404 | 115,550 | |||||||||||
387 | — | 3,296 | 10,156 | |||||||||||
|
|
|
|
|
|
|
| |||||||
10.44 | — | 24.09 | 11.38 | |||||||||||
|
|
|
|
|
|
|
| |||||||
3,318,362 | 1,500,838 | 10,322,239 | 3,311,939 | |||||||||||
324,642 | 118,304 | 427,892 | 292,870 | |||||||||||
|
|
|
|
|
|
|
| |||||||
10.22 | 12.69 | 24.12 | 11.31 | |||||||||||
|
|
|
|
|
|
|
| |||||||
2,346 | — | 305,307 | 1,242 | |||||||||||
211 | — | 11,027 | 92 | |||||||||||
|
|
|
|
|
|
|
| |||||||
11.14 | — | 27.69 | 13.49 | |||||||||||
|
|
|
|
|
|
|
| |||||||
3,569,287 | 10,385,224 | 24,785,654 | 1,447,779 | |||||||||||
290,405 | 818,300 | 866,659 | 101,144 | |||||||||||
|
|
|
|
|
|
|
| |||||||
12.29 | 12.69 | 28.60 | 14.31 | |||||||||||
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements. | 57 |
Table of Contents
STATEMENTS OF ASSETS AND LIABILITIES (continued)
As of March 31, 2013 (unaudited) |
Highland Global Select Equity Fund ($) | Highland International Equity Fund ($) | Highland Total Return Fund ($) | ||||||||||||
Assets | ||||||||||||||
Investments, at value*(a) | 29,276,400 | 13,590,204 | 91,479,819 | |||||||||||
Cash | 286,354 | 450,445 | 10,649,555 | |||||||||||
Restricted Cash — Futures (Note 3) | 50,000 | 20,000 | 350,000 | |||||||||||
Foreign currency** | 6,545 | 40,854 | 52,604 | |||||||||||
Receivable for: | ||||||||||||||
Investments sold | — | 187,945 | 852,929 | |||||||||||
Dividend and interest | 103,098 | 98,639 | 304,091 | |||||||||||
Fund shares sold | 1,422 | — | 5,713 | |||||||||||
Prepaid expenses and other assets | 40,722 | 27,374 | 42,848 | |||||||||||
Variation margin | 66 | — | 25,847 | |||||||||||
|
|
|
|
|
| |||||||||
Total assets | 29,764,607 | 14,415,461 | 103,763,406 | |||||||||||
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||
Payable for: | ||||||||||||||
Upon receipt of securities loaned (Note 5) | 5,026,220 | 1,585,098 | 19,574,668 | |||||||||||
Distributions | — | — | — | |||||||||||
Investments purchased | — | 306,812 | 4,044,207 | |||||||||||
Fund shares redeemed | 4,400 | 21,015 | 197,450 | |||||||||||
Variation margin | — | 294 | — | |||||||||||
Investment advisory and administration fees (Note 7) | 15,258 | 7,720 | 33,960 | |||||||||||
Trustee fees | 789 | 470 | 2,706 | |||||||||||
Distribution and shareholder service fees (Note 7) | 1,194 | 665 | 4,709 | |||||||||||
Transfer agent fees | 10,583 | 8,661 | 13,741 | |||||||||||
Custody fees | 16,079 | 45,025 | 82,959 | |||||||||||
Accrued expenses and other liabilities | 19,568 | 15,203 | 79,836 | |||||||||||
|
|
|
|
|
| |||||||||
Total liabilities | 5,094,091 | 1,990,963 | 24,034,236 | |||||||||||
|
|
|
|
|
| |||||||||
Net Assets | 24,670,516 | 12,424,498 | 79,729,170 | |||||||||||
|
|
|
|
|
| |||||||||
Net Assets Consist of: | ||||||||||||||
Par value (Note 1) | 1,080 | 961 | 3,677 | |||||||||||
Paid-in capital | 25,976,574 | 25,241,763 | 78,505,423 | |||||||||||
Accumulated net investment income (loss) | (46,328 | ) | (90,130 | ) | 160,666 | |||||||||
Accumulated net realized loss from investments, futures contracts and foreign currency transactions | (5,861,520 | ) | (14,367,717 | ) | (6,644,289 | ) | ||||||||
Net unrealized appreciation (depreciation) on investments, futures contracts and translation of assets and liabilities denominated in foreign currency | 4,600,710 | 1,639,621 | 7,703,693 | |||||||||||
|
|
|
|
|
| |||||||||
Net Assets | 24,670,516 | 12,424,498 | 79,729,170 | |||||||||||
|
|
|
|
|
| |||||||||
* Investments, at cost | 24,675,686 | 11,950,904 | 83,810,799 | |||||||||||
** Foreign currency, at cost | 6,513 | 40,702 | 52,431 | |||||||||||
(a) Includes market value of securities on loan of: | 4,908,889 | 1,512,833 | 19,182,357 |
58 | See accompanying Notes to Financial Statements. |
Table of Contents
Highland Funds II |
Highland Tax- Exempt Fund ($) | Highland Fixed Income Fund ($) | |||||
34,032,593 | 231,412,445 | |||||
981,690 | 39,407,131 | |||||
— | 450,000 | |||||
— | — | |||||
— | 4,805,067 | |||||
416,678 | 1,086,012 | |||||
12,539 | 17,152 | |||||
32,376 | 128,359 | |||||
— | 53,765 | |||||
|
|
|
| |||
35,475,876 | 277,359,931 | |||||
|
|
|
| |||
— | 46,831,678 | |||||
29,037 | 29,320 | |||||
— | 43,390,158 | |||||
— | 176,314 | |||||
— | — | |||||
10,587 | 47,943 | |||||
863 | 4,727 | |||||
1,918 | 9,446 | |||||
1,035 | 15,603 | |||||
518 | 8,003 | |||||
18,351 | 88,679 | |||||
|
|
|
| |||
62,309 | 90,601,871 | |||||
|
|
|
| |||
35,413,567 | 186,758,060 | |||||
|
|
|
| |||
2,891 | 14,416 | |||||
32,723,026 | 188,365,254 | |||||
50,734 | (846,212 | ) | ||||
| (482,894 | ) | (2,798,292 | ) | ||
| 3,119,810 |
| 2,022,894 | |||
|
|
|
| |||
35,413,567 | 186,758,060 | |||||
|
|
|
| |||
30,912,783 | 229,266,034 | |||||
— | — | |||||
— | 45,975,667 |
See accompanying Notes to Financial Statements. | 59 |
Table of Contents
STATEMENTS OF ASSETS AND LIABILITIES (continued)
As of March 31, 2013 (unaudited) |
Highland Global Select Equity Fund ($) | Highland International Equity Fund ($) | Highland Total Return Fund ($) | ||||||||||||
Class A: | ||||||||||||||
Net assets | 24,509,199 | 11,050,069 | 73,095,757 | |||||||||||
Shares outstanding ($0.001 par value; unlimited shares authorized) | 1,072,563 | 850,296 | 3,350,041 | |||||||||||
|
|
|
|
|
| |||||||||
Net asset value per share(a)(b) | 22.85 | 13.00 | 21.82 | |||||||||||
|
|
|
|
|
| |||||||||
Maximum offering price per share(c) | 24.24 | 13.79 | 23.15 | |||||||||||
|
|
|
|
|
| |||||||||
Class B: | ||||||||||||||
Net assets | 575 | 9,860 | 124,675 | |||||||||||
Shares outstanding ($0.001 par value; unlimited shares authorized) | 28 | 833 | 5,886 | |||||||||||
|
|
|
|
|
| |||||||||
Net asset value and offering price per share(a) | 20.22 | 11.84 | 21.18 | |||||||||||
|
|
|
|
|
| |||||||||
Class C: | ||||||||||||||
Net assets | 143,057 | 709,141 | 6,189,075 | |||||||||||
Shares outstanding ($0.001 par value; unlimited shares authorized) | 6,994 | 60,218 | 306,111 | |||||||||||
|
|
|
|
|
| |||||||||
Net asset value and offering price per share(a) | 20.45 | 11.78 | 20.22 | |||||||||||
|
|
|
|
|
| |||||||||
Class R: | ||||||||||||||
Net assets | 1,046 | 961 | 1,088 | |||||||||||
Shares outstanding ($0.001 par value; unlimited shares authorized) | 46 | 73 | 49 | |||||||||||
|
|
|
|
|
| |||||||||
Net asset value, offering and redemption price per share | 22.86 | 13.07 | 21.95 | |||||||||||
|
|
|
|
|
| |||||||||
Class Y: | ||||||||||||||
Net assets | 16,639 | 654,467 | 318,575 | |||||||||||
Shares outstanding ($0.001 par value; unlimited shares authorized) | 722 | 49,597 | 14,453 | |||||||||||
|
|
|
|
|
| |||||||||
Net asset value, offering and redemption price per share | 23.05 | 13.20 | 22.04 | |||||||||||
|
|
|
|
|
|
(a) | Redemption price per share is equal to net asset value per share less any applicable contingent deferred sales charge (“CDSC”). |
(b) | Purchases of $1,000,000 or more are subject to a 0.50% CDSC if redeemed within one year of purchase. |
(c) | The sales charge is 5.75% for all Funds except for the Tax-Exempt Fund and Fixed Income Fund, which is 4.25%. On sales of $1,000,000 or more, there is no sales charge and therefore the offering will be lower. |
60 | See accompanying Notes to Financial Statements. |
Table of Contents
Highland Funds II |
Highland Tax- Exempt Fund ($) | Highland Fixed Income Fund ($) | |||||
33,466,547 | 181,758,389 | |||||
| 2,733,774 |
| 14,029,889 | |||
|
|
|
| |||
12.24 | 12.96 | |||||
|
|
|
| |||
12.78 | 13.54 | |||||
|
|
|
| |||
— | 75,070 | |||||
| — |
| 5,796 | |||
|
|
|
| |||
— | 12.95 | |||||
|
|
|
| |||
1,652,750 | 3,670,072 | |||||
| 135,095 |
| 282,941 | |||
|
|
|
| |||
12.23 | 12.97 | |||||
|
|
|
| |||
— | 2,124 | |||||
| — |
| 164 | |||
|
|
|
| |||
— | 12.96 | |||||
|
|
|
| |||
294,270 | 1,252,405 | |||||
| 22,227 |
| 96,795 | |||
|
|
|
| |||
13.24 | 12.94 | |||||
|
|
|
|
See accompanying Notes to Financial Statements. | 61 |
Table of Contents
For the six months ended March 31, 2013 (unaudited) |
Highland Alpha Trend Strategies Fund ($) | Highland Alternative Income Fund ($) | Highland Trend Following Fund ($) | ||||||||||||
Investment Income | ||||||||||||||
Income: | ||||||||||||||
Dividends | 25,342 | 438,079 | 1,134 | |||||||||||
Interest | 42 | 55 | 525 | |||||||||||
Less: Foreign taxes withheld | — | — | — | |||||||||||
Securities lending income | 1 | 2,361 | 377 | |||||||||||
|
|
|
|
|
| |||||||||
Total Income | 25,385 | 440,495 | 2,036 | |||||||||||
|
|
|
|
|
| |||||||||
Expenses: | ||||||||||||||
Investment advisory and administration fees (Note 7) | 41,558 | 119,103 | 22,196 | |||||||||||
Distribution and shareholder service fees: (Note 7) | ||||||||||||||
Class A | 2,374 | 7,260 | 2,281 | |||||||||||
Class B | — | — | — | |||||||||||
Class C | 209 | 363 | 186 | |||||||||||
Class R | 768 | 3,431 | — | |||||||||||
Transfer agent fees | 9,542 | 13,794 | 11,384 | |||||||||||
Trustees fees (Note 7) | 136 | 395 | 9 | |||||||||||
Custody fees | 505 | 1,283 | 661 | |||||||||||
Accounting services fees | 7,693 | 9,146 | 7,599 | |||||||||||
Audit fees | 1,009 | 3,019 | 928 | |||||||||||
Legal fees | 1,798 | 5,314 | 1,502 | |||||||||||
Registration fees | 6,023 | 6,661 | 19,158 | |||||||||||
Reports to shareholders | 1,335 | 3,391 | 1,466 | |||||||||||
Offering costs (Note 2) | 59,318 | 16,002 | — | |||||||||||
Other | 2,863 | 5,571 | 1,594 | |||||||||||
|
|
|
|
|
| |||||||||
Total expenses before waiver and reimbursement (Note 7) | 135,131 | 194,733 | 68,964 | |||||||||||
Less: Expenses waived or borne by the adviser and administrator | (92,127 | ) | (48,721 | ) | (43,631 | ) | ||||||||
Less: Expenses waived by the sub-administrator, custodian and transfer agent | (4,156 | ) | (4,227 | ) | (2,220 | ) | ||||||||
|
|
|
|
|
| |||||||||
Net operating expenses | 38,848 | 141,785 | 23,113 | |||||||||||
Dividends and fees on securities sold short (Note 2) | 1,614 | 67,825 | — | |||||||||||
|
|
|
|
|
| |||||||||
Net expenses | 40,462 | 209,610 | 23,113 | |||||||||||
|
|
|
|
|
| |||||||||
Net investment income (loss) | (15,077 | ) | 230,885 | (21,077 | ) | |||||||||
|
|
|
|
|
| |||||||||
Net Realized and Unrealized Gain (Loss) on Investments | ||||||||||||||
Realized gain (loss) on: | ||||||||||||||
Investments | (141,574 | ) | (38,816 | ) | (6,603 | ) | ||||||||
Securities sold short | (59,688 | ) | (148,742 | ) | — | |||||||||
Futures contracts | — | — | — | |||||||||||
Increase (decrease) in unrealized appreciation (depreciation) on: | ||||||||||||||
Investments | 71,960 | (38,955 | ) | (121,538 | ) | |||||||||
Securities sold short | — | 20,897 | — | |||||||||||
Futures contracts | — | — | — | |||||||||||
|
|
|
|
|
| |||||||||
Net realized and unrealized gain (loss) on investments | (129,302 | ) | (205,616 | ) | (128,141 | ) | ||||||||
|
|
|
|
|
| |||||||||
Total increase (decrease) in net assets resulting from operations | (144,379 | ) | 25,269 | (149,218 | ) | |||||||||
|
|
|
|
|
|
62 | See accompanying Notes to Financial Statements. |
Table of Contents
Highland Funds II |
Highland Global Allocation Fund ($) | Highland Dividend Equity Fund ($) | Highland Premier Growth Equity Fund ($) | Highland Small-Cap Equity Fund ($) | |||||||||||
2,049,260 | 190,811 | 1,537,518 | 262,245 | |||||||||||
935 | 106 | 1,764 | 248 | |||||||||||
(13,507 | ) | (2,441 | ) | — | — | |||||||||
6,501 | 801 | 10,913 | 15,209 | |||||||||||
|
|
|
|
|
|
|
| |||||||
2,043,189 | 189,277 | 1,550,195 | 277,702 | |||||||||||
|
|
|
|
|
|
|
| |||||||
373,337 | 69,015 | 475,979 | 175,758 | |||||||||||
225,072 | 929 | 155,000 | 41,195 | |||||||||||
146 | — | 443 | 660 | |||||||||||
16,629 | 5,577 | 50,645 | 14,891 | |||||||||||
5 | — | 657 | 3 | |||||||||||
92,563 | 8,806 | 103,427 | 36,514 | |||||||||||
6,820 | 351 | 5,251 | 1,203 | |||||||||||
20,444 | 351 | 5,533 | 13,907 | |||||||||||
40,633 | 9,735 | 34,792 | 24,629 | |||||||||||
42,715 | 2,581 | 35,507 | 8,155 | |||||||||||
65,686 | 4,577 | 49,429 | 11,356 | |||||||||||
24,090 | 8,107 | 26,305 | 25,420 | |||||||||||
52,006 | 2,852 | 41,411 | 9,416 | |||||||||||
— | 1,491 | — | — | |||||||||||
39,712 | 2,799 | 33,940 | 8,792 | |||||||||||
|
|
|
|
|
|
|
| |||||||
999,858 | 117,171 | 1,018,319 | 371,899 | |||||||||||
— | (48,697 | ) | (39,685 | ) | — | |||||||||
| — | | (11,255 | ) | — | — | ||||||||
|
|
|
|
|
|
|
| |||||||
999,858 | 57,219 | 978,634 | 371,899 | |||||||||||
— | — | — | — | |||||||||||
|
|
|
|
|
|
|
| |||||||
999,858 | 57,219 | 978,634 | 371,899 | |||||||||||
|
|
|
|
|
|
|
| |||||||
1,043,331 | 132,058 | 571,561 | (94,197 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||
14,640,586 | 112,037 | 9,008,015 | 2,263,390 | |||||||||||
— | — | — | — | |||||||||||
345,482 | — | (135,237 | ) | — | ||||||||||
2,526,880 | 1,210,449 | 2,115,475 | 2,813,523 | |||||||||||
— | — | — | — | |||||||||||
75,527 | — | 114,581 | — | |||||||||||
|
|
|
|
|
|
|
| |||||||
17,588,475 | 1,322,486 | 11,102,834 | 5,076,913 | |||||||||||
|
|
|
|
|
|
|
| |||||||
18,631,806 | 1,454,544 | 11,674,395 | 4,982,716 | |||||||||||
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements. | 63 |
Table of Contents
STATEMENTS OF OPERATIONS (continued)
For the six months ended March 31, 2013 (unaudited) |
Highland Global Select Equity Fund ($) | Highland International Equity Fund ($) | Highland Total Return Fund ($) | ||||||||||||
Investment Income | ||||||||||||||
Income: | ||||||||||||||
Dividends | 194,434 | 94,584 | 543,936 | |||||||||||
Interest | 89 | 49 | 301,498 | |||||||||||
Less: Foreign taxes withheld | (7,137 | ) | (6,596 | ) | (5,284 | ) | ||||||||
Securities lending income | 1,805 | 593 | 4,624 | |||||||||||
|
|
|
|
|
| |||||||||
Total Income | 189,191 | 88,630 | 844,774 | |||||||||||
|
|
|
|
|
| |||||||||
Expenses: | ||||||||||||||
Investment advisory and administration fees (Note 7) | 89,071 | 50,355 | 199,933 | |||||||||||
Distribution and shareholder service fees: (Note 7) | ||||||||||||||
Class A | 29,508 | 14,071 | 91,315 | |||||||||||
Class B | 9 | 60 | 628 | |||||||||||
Class C | 666 | 3,461 | 32,609 | |||||||||||
Class R | 2 | 2 | 2 | |||||||||||
Transfer agent fees | 29,960 | 22,511 | 51,528 | |||||||||||
Trustees fees (Note 7) | 753 | 398 | 2,784 | |||||||||||
Custody fees | 27,932 | 71,014 | 73,115 | |||||||||||
Accounting services fees | 18,214 | 22,421 | 78,865 | |||||||||||
Audit fees | 6,949 | 8,090 | 26,192 | |||||||||||
Legal fees | 7,225 | 3,845 | 26,243 | |||||||||||
Registration fees | 22,896 | 23,495 | 24,140 | |||||||||||
Reports to shareholders | 6,117 | 3,278 | 21,715 | |||||||||||
Other | 5,957 | 3,771 | 18,584 | |||||||||||
|
|
|
|
|
| |||||||||
Total expenses before waiver and reimbursement (Note 7) | 245,259 | 226,772 | 647,653 | |||||||||||
Less: Expenses waived or borne by the adviser and administrator | (28,537 | ) | (51,888 | ) | (11,840 | ) | ||||||||
|
|
|
|
|
| |||||||||
Net expenses | 216,722 | 174,884 | 635,813 | |||||||||||
|
|
|
|
|
| |||||||||
Net investment income (loss) | (27,531 | ) | (86,254 | ) | 208,961 | |||||||||
|
|
|
|
|
| |||||||||
Net Realized and Unrealized Gain (Loss) on Investments | ||||||||||||||
Realized gain (loss) on: | ||||||||||||||
Investments | 603,922 | 334,149 | 1,352,592 | |||||||||||
Futures contracts | 28,162 | 27,202 | 414,385 | |||||||||||
Foreign currency related transactions | (2,460 | ) | (129 | ) | (2,995 | ) | ||||||||
Increase (decrease) in unrealized appreciation (depreciation) on: | ||||||||||||||
Investments | 2,264,621 | 726,333 | 2,277,422 | |||||||||||
Futures contracts | (322 | ) | 8,183 | 144,105 | ||||||||||
Foreign currency related translations | (381 | ) | (268 | ) | (781 | ) | ||||||||
|
|
|
|
|
| |||||||||
Net realized and unrealized gain (loss) on investments | 2,893,542 | 1,095,470 | 4,184,728 | |||||||||||
|
|
|
|
|
| |||||||||
Total increase (decrease) in net assets resulting from operations | 2,866,011 | 1,009,216 | 4,393,689 | |||||||||||
|
|
|
|
|
|
64 | See accompanying Notes to Financial Statements. |
Table of Contents
Highland Funds II |
Highland Tax-Exempt Fund ($) | Highland Fixed Income Fund ($) | |||||
241 | 17,710 | |||||
629,186 | 1,966,872 | |||||
— | — | |||||
— | 10,592 | |||||
|
|
|
| |||
629,427 | 1,995,174 | |||||
|
|
|
| |||
61,535 | 294,365 | |||||
41,496 | 238,301 | |||||
3 | 476 | |||||
8,604 | 20,371 | |||||
— | 6 | |||||
14,709 | 101,407 | |||||
1,207 | 7,122 | |||||
1,317 | 25,367 | |||||
18,406 | 89,062 | |||||
7,986 | 45,707 | |||||
11,134 | 69,694 | |||||
19,181 | 23,787 | |||||
9,042 | 54,986 | |||||
8,349 | 42,688 | |||||
|
|
|
| |||
202,969 | 1,013,339 | |||||
| (2,014 | ) | — | |||
|
|
|
| |||
200,955 | 1,013,339 | |||||
|
|
|
| |||
428,472 | 981,835 | |||||
|
|
|
| |||
74,200 | 147,175 | |||||
— | 249,416 | |||||
— | — | |||||
(358,042 | ) | (1,603,104 | ) | |||
— | (158,871 | ) | ||||
— | — | |||||
|
|
|
| |||
(283,842 | ) | (1,365,384 | ) | |||
|
|
|
| |||
| 144,630 |
| (383,549 | ) | ||
|
|
|
|
See accompanying Notes to Financial Statements. | 65 |
Table of Contents
STATEMENTS OF CHANGES IN NET ASSETS
Highland Alpha Trend Strategies Fund | Highland Alternative Income Fund | |||||||||||||||||
Six Months Ended March 31, 2013 (unaudited) ($) | Period Ended September 30, 2012(a) ($) | Six Months Ended March 31, 2013 (unaudited) ($) | Period Ended September 30, 2012(b) ($) | |||||||||||||||
Increase (Decrease) in Net Assets | ||||||||||||||||||
Operations: | ||||||||||||||||||
Net investment income (loss) | (15,077 | ) | (48,242 | ) | 230,885 | 431,738 | ||||||||||||
Net realized gain (loss) on investments, securities sold short and futures contracts | (201,262 | ) | (79,997 | ) | (187,558 | ) | (569,928 | ) | ||||||||||
Net increase (decrease) in unrealized appreciation (depreciation) on investments, securities sold short and futures contracts | 71,960 | 50,597 | (18,058 | ) | 138,574 | |||||||||||||
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|
|
|
|
| |||||||||||
Net increase (decrease) from operations | (144,379 | ) | (77,642 | ) | 25,269 | 384 | ||||||||||||
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| |||||||||||
Distributions to shareholders from: | ||||||||||||||||||
Net investment income | ||||||||||||||||||
Class A | — | — | (88,176 | ) | (130,347 | ) | ||||||||||||
Class C | — | — | (1,340 | ) | (1,553 | ) | ||||||||||||
Class R | — | — | (27,098 | ) | (42,281 | ) | ||||||||||||
Class Y | — | — | (145,434 | ) | (260,193 | ) | ||||||||||||
Net realized gains | ||||||||||||||||||
Class A | (13,843 | ) | — | — | — | |||||||||||||
Class B | — | — | — | — | ||||||||||||||
Class C | (362 | ) | — | — | — | |||||||||||||
Class R | (2,788 | ) | — | — | — | |||||||||||||
Class Y | (25,046 | ) | — | — | — | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total distributions | (42,039 | ) | — | (262,048 | ) | (434,374 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||||
Increase (decrease) in net assets from operations and distributions | (186,418 | ) | (77,642 | ) | (236,779 | ) | (433,990 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Share transactions: | ||||||||||||||||||
Proceeds from sale of shares | ||||||||||||||||||
Class A | 1,347,885 | 2,052,496 | 537,148 | 6,458,910 | ||||||||||||||
Class C | — | 51,800 | — | 73,200 | ||||||||||||||
Class R | — | 397,000 | 635,861 | 1,666,540 | ||||||||||||||
Class Y | 147,013 | 4,393,403 | 2,324,179 | 12,059,796 | ||||||||||||||
Value of distributions reinvested | ||||||||||||||||||
Class A | 4,912 | — | 68,141 | 100,396 | ||||||||||||||
Class B | — | — | — | — | ||||||||||||||
Class C | 362 | — | 1,340 | 1,553 | ||||||||||||||
Class R | 2,788 | — | 7,376 | 12,151 | ||||||||||||||
Class Y | 25,046 | — | 121,265 | 221,407 | ||||||||||||||
Cost of shares redeemed | ||||||||||||||||||
Class A | (887,058 | ) | (922,228 | ) | (3,967,655 | ) | (859,213 | ) | ||||||||||
Class B | — | — | — | — | ||||||||||||||
Class C | (9,801 | ) | — | — | — | |||||||||||||
Class R | (36,097 | ) | (46,170 | ) | (246,470 | ) | (489,742 | ) | ||||||||||
Class Y | (1,081,213 | ) | (1,425,120 | ) | (3,991,894 | ) | (4,467,524 | ) | ||||||||||
Reorganization (Note 11) | ||||||||||||||||||
Class A | — | — | — | — | ||||||||||||||
Class B | — | — | — | — | ||||||||||||||
Class C | — | — | — | — | ||||||||||||||
Class R | — | — | — | — | ||||||||||||||
Class Y | — | — | — | — | ||||||||||||||
Redemption fees (Note 2) | 89 | 9,364 | 4,043 | 3,532 | ||||||||||||||
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| |||||||||||
Net increase (decrease) from share transactions | (486,074 | ) | 4,510,545 | (4,506,666 | ) | 14,781,006 | ||||||||||||
|
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|
|
|
|
|
| |||||||||||
Total increase (decrease) in net assets | (672,492 | ) | 4,432,903 | (4,743,445 | ) | 14,347,016 | ||||||||||||
Net Assets | ||||||||||||||||||
Beginning of period | 4,432,903 | — | 14,347,016 | — | ||||||||||||||
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End of period | 3,760,411 | 4,432,903 | 9,603,571 | 14,347,016 | ||||||||||||||
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| |||||||||||
Accumulated net investment income (loss) | (33,678 | ) | (18,601 | ) | 2,411 | 33,574 | ||||||||||||
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(a) | Commenced operations on November 1, 2011. |
(b) | Commenced operations on January 13, 2012. |
(c) | Commenced operations on November 14, 2011. |
66 | See accompanying Notes to Financial Statements. |
Table of Contents
STATEMENTS OF CHANGES IN NET ASSETS (continued)
Highland Funds II |
Highland Trend Following Fund | Highland Global Allocation Fund | Highland Dividend Equity Fund | ||||||||||||||||||||
Six Months Ended March 31, 2013 (unaudited) ($) | Year Ended September 30, 2012 ($) | Six Months Ended March 31, 2013 (unaudited) ($) | Year Ended September 30, 2012 ($) | Six Months Ended March 31, 2013 (unaudited) ($) | Period Ended September 30, 2012(c) ($) | |||||||||||||||||
(21,077 | ) | (87,238 | ) | 1,043,331 | 245,161 | 132,058 | 104,617 | |||||||||||||||
| (6,603 | ) | (383,893 | ) | 14,986,068 | 2,210,038 | 112,037 | 2,789 | ||||||||||||||
| (121,538 | ) | (360,416 | ) | 2,602,407 | 5,382,956 | 1,210,449 | 1,113,540 | ||||||||||||||
|
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|
|
|
|
|
|
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| |||||||||||
(149,218 | ) | (831,547 | ) | 18,631,806 | 7,838,155 | 1,454,544 | 1,220,946 | |||||||||||||||
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|
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|
| |||||||||||
— | — | (867,697 | ) | (320,011 | ) | (5,812 | ) | (4,632 | ) | |||||||||||||
— | — | (1,994 | ) | (5,894 | ) | (9,318 | ) | (4,891 | ) | |||||||||||||
— | — | (6 | ) | (2 | ) | — | — | |||||||||||||||
— | — | (16,916 | ) | (1,014 | ) | (131,882 | ) | (146,302 | ) | |||||||||||||
— | (65,979 | ) | (4,343,824 | ) | — | (253 | ) | — | ||||||||||||||
— | — | (1,046 | ) | — | — | — | ||||||||||||||||
— | — | (88,487 | ) | — | (634 | ) | — | |||||||||||||||
— | — | (53 | ) | — | — | — | ||||||||||||||||
— | — | (70,456 | ) | — | (5,856 | ) | — | |||||||||||||||
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|
|
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|
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| |||||||||||
— | (65,979 | ) | (5,390,479 | ) | (326,921 | ) | (153,755 | ) | (155,825 | ) | ||||||||||||
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| |||||||||||
(149,218 | ) | (897,526 | ) | 13,241,327 | 7,511,234 | 1,300,789 | 1,065,121 | |||||||||||||||
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|
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| |||||||||||
100,094 | 336,158 | 1,151,948 | 949,375 | 557,175 | 394,384 | |||||||||||||||||
1,500 | 74,864 | 71,366 | 30,536 | 582,835 | 711,338 | |||||||||||||||||
— | — | — | — | — | — | |||||||||||||||||
2,000,000 | — | 153,343 | 831 | 577,073 | 9,769,318 | |||||||||||||||||
— | 59,666 | 4,914,071 | 299,324 | 4,499 | 3,333 | |||||||||||||||||
— | — | 961 | — | — | — | |||||||||||||||||
— | — | 80,945 | 4,680 | 9,644 | 4,675 | |||||||||||||||||
— | — | 59 | 2 | — | — | |||||||||||||||||
— | — | 83,032 | 103 | 26,608 | 25,101 | |||||||||||||||||
(1,420,674 | ) | (6,239,869 | ) | (30,225,668 | ) | (6,209,682 | ) | (22,245 | ) | (4,443 | ) | |||||||||||
— | — | (58,000 | ) | (106,756 | ) | — | — | |||||||||||||||
(23,646 | ) | (25,186 | ) | (524,357 | ) | (307,245 | ) | (6,621 | ) | (6,328 | ) | |||||||||||
— | — | — | — | — | — | |||||||||||||||||
— | — | (62,009 | ) | (45,985 | ) | (1,218,598 | ) | (857,192 | ) | |||||||||||||
— | — | — | 163,434,133 | — | — | |||||||||||||||||
— | — | — | 32,186 | — | — | |||||||||||||||||
— | — | — | 2,021,107 | — | — | |||||||||||||||||
— | — | — | 1,064 | — | — | |||||||||||||||||
— | — | — | 3,055,407 | — | — | |||||||||||||||||
7 | 20 | — | — | 54 | 794 | |||||||||||||||||
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| |||||||||||
657,281 | (5,794,347 | ) | (24,414,309 | ) | 163,159,080 | 510,424 | 10,040,980 | |||||||||||||||
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| |||||||||||
508,063 | (6,691,873 | ) | (11,172,982 | ) | 170,670,314 | 1,811,213 | 11,106,101 | |||||||||||||||
2,193,342 | 8,885,215 | 201,408,873 | 30,738,559 | 11,106,101 | — | |||||||||||||||||
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2,701,405 | 2,193,342 | 190,235,891 | 201,408,873 | 12,917,314 | 11,106,101 | |||||||||||||||||
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| |||||||||||
(87,169 | ) | (66,092 | ) | 380,816 | 224,098 | (1,522 | ) | 13,432 | ||||||||||||||
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See accompanying Notes to Financial Statements. | 67 |
Table of Contents
STATEMENTS OF CHANGES IN NET ASSETS (continued)
| Highland Premier Growth Equity Fund | Highland Small-Cap Equity Fund | ||||||||||||||||
| Six Months Ended March 31, 2013 (unaudited) ($) | Year Ended September 30, 2012 ($) | Six Months Ended March 31, 2013 (unaudited) ($) | Year Ended September 30, 2012 ($) | ||||||||||||||
Increase (Decrease) in Net Assets | ||||||||||||||||||
Operations: | ||||||||||||||||||
Net investment income (loss) | 571,561 | 199,967 | (94,197 | ) | (349,383 | ) | ||||||||||||
Net realized gain (loss) on investments, futures contracts and foreign currency transactions | 8,872,778 | 9,782,289 | 2,263,390 | 3,705,376 | ||||||||||||||
Net increase in unrealized appreciation (depreciation) on investments, futures contracts and foreign currency transactions | 2,230,056 | 36,327,521 | 2,813,523 | 5,754,801 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase from operations | 11,674,395 | 46,309,777 | 4,982,716 | 9,110,794 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Distributions to shareholders from: | ||||||||||||||||||
Net investment income | ||||||||||||||||||
Class A | (644,361 | ) | — | — | — | |||||||||||||
Class C | — | — | — | — | ||||||||||||||
Class R | (701 | ) | — | — | — | |||||||||||||
Class Y | (180,681 | ) | — | — | — | |||||||||||||
Net realized gains | ||||||||||||||||||
Class A | — | — | (2,434,686 | ) | — | |||||||||||||
Class B | — | — | (11,985 | ) | — | |||||||||||||
Class C | — | — | (252,014 | ) | — | |||||||||||||
Class R | — | — | (82 | ) | — | |||||||||||||
Class Y | — | — | (32,701 | ) | — | |||||||||||||
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|
|
|
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|
| |||||||||||
Total distributions | (825,743 | ) | — | (2,731,468 | ) | — | ||||||||||||
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|
|
|
|
|
|
| |||||||||||
Increase in net assets from operations and distributions | 10,848,652 | 46,309,777 | 2,251,248 | 9,110,794 | ||||||||||||||
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|
|
|
|
|
|
| |||||||||||
Share transactions: | ||||||||||||||||||
Proceeds from sale of shares | ||||||||||||||||||
Class A | 5,517,819 | 7,886,855 | 523,581 | 1,385,562 | ||||||||||||||
Class B | — | 518 | 718 | — | ||||||||||||||
Class C | 993,344 | 384,137 | 164,770 | 256,582 | ||||||||||||||
Class R | 98,861 | 25,457 | — | — | ||||||||||||||
Class Y | 2,223,390 | 2,859,803 | 863,097 | 187,440 | ||||||||||||||
Value of distributions reinvested | ||||||||||||||||||
Class A | 595,594 | — | 2,306,485 | — | ||||||||||||||
Class B | — | — | 7,196 | — | ||||||||||||||
Class C | — | — | 231,119 | — | ||||||||||||||
Class R | 701 | — | 82 | — | ||||||||||||||
Class Y | 144,768 | — | 32,700 | — | ||||||||||||||
Cost of shares redeemed | ||||||||||||||||||
Class A | (12,890,786 | ) | (25,639,343 | ) | (3,828,313 | ) | (7,150,865 | ) | ||||||||||
Class B | (35,665 | ) | (157,389 | ) | (50,213 | ) | (116,058 | ) | ||||||||||
Class C | (1,884,950 | ) | (3,185,420 | ) | (174,531 | ) | (574,531 | ) | ||||||||||
Class R | (47,474 | ) | (22,576 | ) | — | — | ||||||||||||
Class Y | (4,276,056 | ) | (10,151,043 | ) | (37,193 | ) | (5,862 | ) | ||||||||||
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|
|
|
|
|
| |||||||||||
Net increase (decrease) from share transactions | (9,560,454 | ) | (27,999,001 | ) | 39,498 | (6,017,732 | ) | |||||||||||
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|
|
|
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|
| |||||||||||
Total increase (decrease) in net assets | 1,288,198 | 18,310,776 | 2,290,746 | 3,093,062 | ||||||||||||||
Net Assets | ||||||||||||||||||
Beginning of period | 162,965,773 | 144,654,997 | 37,260,575 | 34,167,513 | ||||||||||||||
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| |||||||||||
End of period | 164,253,971 | 162,965,773 | 39,551,321 | 37,260,575 | ||||||||||||||
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| |||||||||||
Accumulated net investment income (loss) | (60,431 | ) | 193,751 | (425,398 | ) | (331,201 | ) | |||||||||||
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68 | See accompanying Notes to Financial Statements. |
Table of Contents
STATEMENTS OF CHANGES IN NET ASSETS (continued)
Highland Funds II |
Highland Global Select Equity Fund | Highland International Equity Fund | Highland Total Return Fund | ||||||||||||||||||||
Six Months Ended March 31, 2013 (unaudited) ($) | Year Ended September 30, 2012 ($) | Six Months Ended March 31, 2013 (unaudited) ($) | Year Ended September 30, 2012 ($) | Six Months Ended March 31, 2013 (unaudited) ($) | Year Ended September 30, 2012 ($) | |||||||||||||||||
(27,531 | ) | 847 | (86,254 | ) | 21,676 | 208,961 | 792,137 | |||||||||||||||
| 629,624 |
| 527,638 | 361,222 | (424,465 | ) | 1,763,982 | 3,615,545 | ||||||||||||||
| 2,263,918 |
| 3,859,367 | 734,248 | 2,397,790 | 2,420,746 | 9,505,899 | |||||||||||||||
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|
|
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| |||||||||||
2,866,011 | 4,387,852 | 1,009,216 | 1,995,001 | 4,393,689 | 13,913,581 | |||||||||||||||||
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|
|
|
|
|
|
| |||||||||||
— | — | — | (142,377 | ) | (729,626 | ) | (1,029,000 | ) | ||||||||||||||
— | — | — | (6,098 | ) | (17,913 | ) | (31,534 | ) | ||||||||||||||
— | — | — | (3 | ) | (8 | ) | (5 | ) | ||||||||||||||
— | — | — | (7,671 | ) | (4,116 | ) | (2,892 | ) | ||||||||||||||
— | — | — | — | — | — | |||||||||||||||||
— | — | — | — | — | — | |||||||||||||||||
— | — | — | — | — | — | |||||||||||||||||
— | — | — | — | — | — | |||||||||||||||||
— | — | — | — | — | — | |||||||||||||||||
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| |||||||||||
— | — | — | (156,149 | ) | (751,663 | ) | (1,063,431 | ) | ||||||||||||||
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| |||||||||||
| 2,866,011 |
| 4,387,852 | 1,009,216 | 1,838,852 | 3,642,026 | 12,850,150 | |||||||||||||||
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|
|
|
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| |||||||||||
229,284 | 540,862 | 234,215 | 319,568 | 402,535 | 1,353,810 | |||||||||||||||||
— | — | — | — | — | — | |||||||||||||||||
15,317 | 19,326 | 23,215 | 46,596 | 29,969 | 93,556 | |||||||||||||||||
— | — | — | — | — | — | |||||||||||||||||
17,808 | — | 15,383 | 60,084 | 111,488 | 1,177 | |||||||||||||||||
— | — | — | 132,726 | 647,468 | 910,322 | |||||||||||||||||
— | — | — | — | — | — | |||||||||||||||||
— | — | — | 5,921 | 11,221 | 19,953 | |||||||||||||||||
— | — | — | 3 | 8 | 5 | |||||||||||||||||
— | — | — | 7,587 | 2,668 | 1,373 | |||||||||||||||||
(1,917,662 | ) | (4,371,970 | ) | (1,410,603 | ) | (2,827,269 | ) | (6,482,702 | ) | (18,261,342 | ) | |||||||||||
(3,659 | ) | (18,957 | ) | (5,682 | ) | (40,603 | ) | (20,327 | ) | (252,797 | ) | |||||||||||
(14,349 | ) | (1,139 | ) | (32,923 | ) | (365,340 | ) | (1,127,329 | ) | (2,467,693 | ) | |||||||||||
— | — | — | — | — | — | |||||||||||||||||
(3,000 | ) | — | (4,937 | ) | — | (25,214 | ) | (55,719 | ) | |||||||||||||
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|
|
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| |||||||||||
| (1,676,261 | ) | (3,831,878 | ) | (1,181,332 | ) | (2,660,727 | ) | (6,450,215 | ) | (18,657,355 | ) | ||||||||||
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| |||||||||||
1,189,750 | 555,974 | (172,116 | ) | (821,875 | ) | (2,808,189 | ) | (5,807,205 | ) | |||||||||||||
23,480,766 | 22,924,792 | 12,596,614 | 13,418,489 | 82,537,359 | 88,344,564 | |||||||||||||||||
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|
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| |||||||||||
24,670,516 | 23,480,766 | 12,424,498 | 12,596,614 | 79,729,170 | 82,537,359 | |||||||||||||||||
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| |||||||||||
(46,328 | ) | (18,797 | ) | (90,130 | ) | (3,876 | ) | 160,666 | 703,368 | |||||||||||||
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|
See accompanying Notes to Financial Statements. | 69 |
Table of Contents
STATEMENTS OF CHANGES IN NET ASSETS (continued)
Highland Funds II |
| Highland Tax-Exempt Fund | Highland Fixed Income Fund | ||||||||||||||||
| Six Months Ended March 31, 2013 (unaudited) ($) | Year Ended September 30, 2012 ($) | Six Months Ended March 31, 2013 (unaudited) ($) | Year Ended September 30, 2012 ($) | ||||||||||||||
Increase (Decrease) in Net Assets | ||||||||||||||||||
Operations: | ||||||||||||||||||
Net investment income | 428,472 | 956,832 | 981,835 | 1,479,372 | ||||||||||||||
Net realized gain on investments and futures contracts | 74,200 | 210,014 | 396,591 | 2,106,412 | ||||||||||||||
Net increase (decrease) in unrealized appreciation (depreciation) on investments and futures contracts | (358,042 | ) | 1,235,560 | (1,761,975 | ) | 2,191,450 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) from operations | 144,630 | 2,402,406 | (383,549 | ) | 5,777,234 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Distributions to shareholders from: | ||||||||||||||||||
Net investment income | ||||||||||||||||||
Class A | (410,112 | ) | (919,180 | ) | (963,448 | ) | (1,884,566 | ) | ||||||||||
Class B | (6 | ) | (69 | ) | (118 | ) | (1,046 | ) | ||||||||||
Class C | (14,855 | ) | (32,604 | ) | (5,355 | ) | (16,294 | ) | ||||||||||
Class R | — | — | (9 | ) | (19 | ) | ||||||||||||
Class Y | (3,350 | ) | (4,979 | ) | (8,953 | ) | (22,285 | ) | ||||||||||
Return of Capital | ||||||||||||||||||
Class A | — | — | — | (176,683 | ) | |||||||||||||
Class B | — | — | — | (98 | ) | |||||||||||||
Class C | — | — | — | (1,528 | ) | |||||||||||||
Class R | — | — | — | (2 | ) | |||||||||||||
Class Y | — | — | — | (2,089 | ) | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total distributions | (428,323 | ) | (956,832 | ) | (977,883 | ) | (2,104,610 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Increase (decrease) in net assets from operations and distributions | (283,693 | ) | 1,445,574 | (1,361,432 | ) | 3,672,624 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Share transactions: | ||||||||||||||||||
Proceeds from sale of shares | ||||||||||||||||||
Class A | 2,627,583 | 1,018,836 | 1,426,361 | 4,171,071 | ||||||||||||||
Class B | — | — | 2,141 | — | ||||||||||||||
Class C | 17,321 | 116,122 | 62,944 | 926,358 | ||||||||||||||
Class Y | 116,315 | 54,152 | 45,425 | 102,877 | ||||||||||||||
Value of distributions reinvested | ||||||||||||||||||
Class A | 253,107 | 557,374 | 809,168 | 1,884,196 | ||||||||||||||
Class B | 5 | 69 | 28 | 429 | ||||||||||||||
Class C | 6,060 | 12,605 | 3,358 | 14,768 | ||||||||||||||
Class R | — | — | 8 | 21 | ||||||||||||||
Class Y | 659 | 148 | 6,940 | 23,353 | ||||||||||||||
Cost of shares redeemed | ||||||||||||||||||
Class A | (2,892,488 | ) | (5,225,265 | ) | (21,213,943 | ) | (14,121,804 | ) | ||||||||||
Class B | (1,725 | ) | (3,188 | ) | (46,190 | ) | (76,199 | ) | ||||||||||
Class C | (85,223 | ) | (142,953 | ) | (1,419,466 | ) | (251,996 | ) | ||||||||||
Class Y | (418 | ) | (60,156 | ) | (361,317 | ) | (230,364 | ) | ||||||||||
Reorganization (Note 11) | ||||||||||||||||||
Class A | — | — | — | 112,463,310 | ||||||||||||||
Class B | — | — | — | 107,499 | ||||||||||||||
Class C | — | — | — | 3,470,117 | ||||||||||||||
Class R | — | — | — | 1,008 | ||||||||||||||
Class Y | — | — | — | 564,429 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) from share transactions | 41,196 | (3,672,256 | ) | (20,684,543 | ) | 109,049,073 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Total increase (decrease) in net assets | (242,497 | ) | (2,226,682 | ) | (22,045,975 | ) | 112,721,697 | |||||||||||
Net Assets | ||||||||||||||||||
Beginning of period | 35,656,064 | 37,882,746 | 208,804,035 | 96,082,338 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
End of period | 35,413,567 | 35,656,064 | 186,758,060 | 208,804,035 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Accumulated net investment income (loss) | 50,734 | 50,585 | (846,212 | ) | (850,164 | ) | ||||||||||||
|
|
|
|
|
|
|
|
70 | See accompanying Notes to Financial Statements. |
Table of Contents
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Table of Contents
STATEMENTS OF CHANGES IN NET ASSETS (continued)
CAPITAL STOCK ACTIVITY - SHARES |
Highland Alpha Trend Strategies Fund | Highland Alternative Income Fund | |||||||||||||||||
Six Months Ended March 31, 2013 (unaudited) | Period Ended September 30, 2012(a) | Six Months Ended March 31, 2013 (unaudited) | Period Ended September 30, 2012(b) | |||||||||||||||
Class A: | ||||||||||||||||||
Shares sold | 146,441 | 215,510 | 56,084 | 655,736 | ||||||||||||||
Issued for distribution reinvested | 537 | — | 7,134 | 10,321 | ||||||||||||||
Shares redeemed | (96,413 | ) | (98,658 | ) | (415,212 | ) | (88,402 | ) | ||||||||||
Subscriptions from Reorganization (Note 11) | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in fund shares | 50,565 | 116,852 | (351,994 | ) | 577,655 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Class B: | ||||||||||||||||||
Issued for distribution reinvested | — | — | — | — | ||||||||||||||
Shares redeemed | — | — | — | — | ||||||||||||||
Subscriptions from Reorganization (Note 11) | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in fund shares | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Class C: | ||||||||||||||||||
Shares sold | — | 5,462 | — | 7,400 | ||||||||||||||
Issued for distribution reinvested | 40 | — | 140 | 159 | ||||||||||||||
Shares redeemed | (1,046 | ) | — | — | — | |||||||||||||
Subscriptions from Reorganization (Note 11) | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in fund shares | (1,006 | ) | 5,462 | 140 | 7,559 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Class R: | ||||||||||||||||||
Shares sold | — | 40,179 | 66,652 | 167,179 | ||||||||||||||
Issued for distribution reinvested | 304 | — | 774 | 1,241 | ||||||||||||||
Shares redeemed | (3,926 | ) | (4,768 | ) | (25,800 | ) | (50,020 | ) | ||||||||||
Subscriptions from Reorganization (Note 11) | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in fund shares | (3,622 | ) | 35,411 | 41,626 | 118,400 | |||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Class Y: | ||||||||||||||||||
Shares sold | 16,190 | 464,656 | 242,270 | 1,212,560 | ||||||||||||||
Issued for distribution reinvested | 2,725 | — | 12,717 | 22,620 | ||||||||||||||
Shares redeemed | (118,364 | ) | (151,237 | ) | (415,793 | ) | (451,560 | ) | ||||||||||
Subscriptions from Reorganization (Note 11) | — | — | — | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in fund shares | (99,449 | ) | 313,419 | (160,806 | ) | 783,620 | ||||||||||||
|
|
|
|
|
|
|
|
(a) | Commenced operations on November 1, 2011. |
(b) | Commenced operations on January 13, 2012. |
(c) | Commenced operations on November 14, 2011. |
72 | See accompanying Notes to Financial Statements. |
Table of Contents
Highland Funds II |
Highland Trend Following Fund | Highland Global Allocation Fund | Highland Dividend Equity Fund | ||||||||||||||||||||
Six Months Ended March 31, 2013 (unaudited) | Year Ended September 30, 2012 | Six Months Ended March 31, 2013 (unaudited) | Year Ended September 30, 2012 | Six Months Ended March 31, 2013 (unaudited) | Period Ended September 30, 2012(c) | |||||||||||||||||
11,191 | 35,080 | 112,892 | 99,121 | 43,303 | 35,579 | |||||||||||||||||
— | 6,222 | 502,976 | 34,287 | 366 | 292 | |||||||||||||||||
(156,790 | ) | (658,389 | ) | (3,006,577 | ) | (650,795 | ) | (1,801 | ) | (398 | ) | |||||||||||
— | — | — | 15,968,115 | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
(145,599 | ) | (617,087 | ) | (2,390,709 | ) | 15,450,728 | 41,868 | 35,473 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
— | — | 103 | — | — | — | |||||||||||||||||
— | — | (5,993 | ) | (11,574 | ) | — | — | |||||||||||||||
— | — | — | 3,319 | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
— | — | (5,890 | ) | (8,255 | ) | — | — | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
167 | 7,959 | 7,580 | 3,478 | 50,358 | 67,795 | |||||||||||||||||
— | — | 8,905 | 573 | 840 | 427 | |||||||||||||||||
(2,628 | ) | (2,660 | ) | (53,889 | ) | (34,105 | ) | (560 | ) | (556 | ) | |||||||||||
— | — | — | 212,545 | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
(2,461 | ) | 5,299 | (37,404 | ) | 182,491 | 50,638 | 67,666 | |||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
— | — | — | — | — | — | |||||||||||||||||
— | — | 7 | — | — | — | |||||||||||||||||
— | — | — | — | — | — | |||||||||||||||||
— | — | — | 103 | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
— | — | 7 | 103 | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
221,484 | — | 13,693 | 85 | 49,479 | 946,933 | |||||||||||||||||
— | — | 7,625 | 11 | 2,310 | 2,307 | |||||||||||||||||
— | — | (5,489 | ) | (4,467 | ) | (103,074 | ) | (79,655 | ) | |||||||||||||
— | — | — | 268,531 | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
221,484 | — | 15,829 | 264,160 | (51,285 | ) | 869,585 | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements. | 73 |
Table of Contents
STATEMENTS OF CHANGES IN NET ASSETS (continued)
CAPITAL STOCK ACTIVITY - SHARES |
Highland Premier Growth Equity Fund | Highland Small-Cap Equity Fund | |||||||||||||||||
Six Months Ended March 31, 2013 (unaudited) | Year Ended September 30, 2012 | Six Months Ended March 31, 2013 (unaudited) | Year Ended September 30, 2012 | |||||||||||||||
Class A: | ||||||||||||||||||
Shares sold | 209,527 | 332,718 | 40,747 | 112,653 | ||||||||||||||
Issued for distribution reinvested | 23,588 | — | 196,130 | — | ||||||||||||||
Shares redeemed | (491,319 | ) | (1,108,302 | ) | (305,190 | ) | (590,883 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net decrease in fund shares | (258,204 | ) | (775,584 | ) | (68,313 | ) | (478,230 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Class B: | ||||||||||||||||||
Shares sold | — | 25 | 73 | — | ||||||||||||||
Issued for distribution reinvested | — | (7,638 | ) | 731 | — | |||||||||||||
Shares redeemed | (1,608 | ) | — | (4,731 | ) | (10,947 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net decrease in fund shares | (1,608 | ) | (7,613 | ) | (3,927 | ) | (10,947 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Class C: | ||||||||||||||||||
Shares sold | 43,079 | 18,814 | 15,301 | 24,412 | ||||||||||||||
Issued for distribution reinvested | — | — | 23,703 | — | ||||||||||||||
Shares redeemed | (82,427 | ) | (160,742 | ) | (16,321 | ) | (55,459 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in fund shares | (39,348 | ) | (141,928 | ) | 22,683 | (31,047 | ) | |||||||||||
|
|
|
|
|
|
|
| |||||||||||
Class R: | ||||||||||||||||||
Shares sold | 3,720 | 1,092 | — | — | ||||||||||||||
Issued for distribution reinvested | 28 | — | 7 | — | ||||||||||||||
Shares redeemed | (1,757 | ) | (930 | ) | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase in fund shares | 1,991 | 162 | 7 | — | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Class Y: | ||||||||||||||||||
Shares sold | 82,056 | 119,672 | 67,085 | 14,791 | ||||||||||||||
Issued for distribution reinvested | 5,613 | — | 2,646 | — | ||||||||||||||
Shares redeemed | (158,964 | ) | (429,549 | ) | (2,721 | ) | (507 | ) | ||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in fund shares | (71,295 | ) | (309,877 | ) | 67,010 | 14,284 | ||||||||||||
|
|
|
|
|
|
|
|
74 | See accompanying Notes to Financial Statements. |
Table of Contents
Highland Funds II |
Highland Global Select Equity Fund | Highland International Equity Fund | Highland Total Return Fund | ||||||||||||||||||||
Six Months Ended March 31, 2013 (unaudited) | Year Ended September 30, 2012 | Six Months Ended March 31, 2013 (unaudited) | Year Ended September 30, 2012 | Six Months Ended March 31, 2013 (unaudited) | Year Ended September 30, 2012 | |||||||||||||||||
10,707 | 28,524 | 18,551 | 27,608 | 19,245 | 69,189 | |||||||||||||||||
— | — | — | 12,569 | 31,189 | 48,344 | |||||||||||||||||
(89,849 | ) | (226,521 | ) | (112,167 | ) | (248,031 | ) | (307,475 | ) | (922,719 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
(79,142 | ) | (197,997 | ) | (93,616 | ) | (207,854 | ) | (257,041 | ) | (805,186 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
— | — | — | — | — | — | |||||||||||||||||
— | — | — | — | — | — | |||||||||||||||||
(204 | ) | (1,117 | ) | (499 | ) | (3,811 | ) | (1,007 | ) | (13,284 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
(204 | ) | (1,117 | ) | (499 | ) | (3,811 | ) | (1,007 | ) | (13,284 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
784 | 1,101 | 1,988 | 4,526 | 1,547 | 5,191 | |||||||||||||||||
— | — | — | 613 | 582 | 1,141 | |||||||||||||||||
(732 | ) | (66 | ) | (2,828 | ) | (34,086 | ) | (57,792 | ) | (136,539 | ) | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
52 | 1,035 | (840 | ) | (28,947 | ) | (55,663 | ) | (130,207 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
— | — | — | — | — | — | |||||||||||||||||
— | — | — | — | — | — | |||||||||||||||||
— | — | — | — | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
— | — | — | — | — | — | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
838 | — | 1,198 | 5,440 | 5,217 | 62 | |||||||||||||||||
— | — | — | 710 | 127 | 73 | |||||||||||||||||
(135 | ) | — | (382 | ) | — | (1,171 | ) | (2,930 | ) | |||||||||||||
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
703 | — | 816 | 6,150 | 4,173 | (2,795 | ) | ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements. | 75 |
Table of Contents
STATEMENTS OF CHANGES IN NET ASSETS (continued)
CAPITAL STOCK ACTIVITY - SHARES | Highland Funds II |
Highland Tax-Exempt Fund | Highland Fixed Income Fund | |||||||||||||||||
Six Months Ended March 31, 2013 (unaudited) | Year Ended September 30, 2012 | Six Months Ended March 31, 2013 (unaudited) | Year Ended September 30, 2012 | |||||||||||||||
Class A: | ||||||||||||||||||
Shares sold | 212,124 | 83,896 | 109,862 | 326,852 | ||||||||||||||
Issued for distribution reinvested | 20,512 | 45,975 | 62,310 | 147,039 | ||||||||||||||
Shares redeemed | (234,681 | ) | (430,408 | ) | (1,632,130 | ) | (1,106,247 | ) | ||||||||||
Subscriptions from Reorganization (Note 11) | — | — | — | 8,619,582 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in fund shares | (2,045 | ) | (300,537 | ) | (1,459,958 | ) | 7,987,226 | |||||||||||
|
|
|
|
|
|
|
| |||||||||||
Class B: | ||||||||||||||||||
Shares sold | — | — | 164 | — | ||||||||||||||
Issued for distribution reinvested | — | 6 | 2 | 34 | ||||||||||||||
Shares redeemed | (139 | ) | (263 | ) | (3,550 | ) | (5,875 | ) | ||||||||||
Subscriptions from Reorganization (Note 11) | — | — | — | 8,241 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in fund shares | (139 | ) | (257 | ) | (3,384 | ) | 2,400 | |||||||||||
|
|
|
|
|
|
|
| |||||||||||
Class C: | ||||||||||||||||||
Shares sold | 1,399 | 9,667 | 4,836 | 72,314 | ||||||||||||||
Issued for distribution reinvested | 492 | 1,039 | 259 | 1,150 | ||||||||||||||
Shares redeemed | (6,940 | ) | (11,783 | ) | (108,851 | ) | (19,713 | ) | ||||||||||
Subscriptions from Reorganization (Note 11) | — | — | — | 265,608 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in fund shares | (5,049 | ) | (1,077 | ) | (103,756 | ) | 319,359 | |||||||||||
|
|
|
|
|
|
|
| |||||||||||
Class R: | ||||||||||||||||||
Issued for distribution reinvested | — | — | 1 | 2 | ||||||||||||||
Subscriptions from Reorganization (Note 11) | — | — | — | 77 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase in fund shares | — | — | 1 | 79 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Class Y: | ||||||||||||||||||
Shares sold | 8,725 | 4,110 | 3,505 | 8,169 | ||||||||||||||
Issued for distribution reinvested | 50 | 11 | 535 | 1,826 | ||||||||||||||
Shares redeemed | (32 | ) | (4,602 | ) | (27,838 | ) | (18,312 | ) | ||||||||||
Subscriptions from Reorganization (Note 11) | — | — | — | 43,318 | ||||||||||||||
|
|
|
|
|
|
|
| |||||||||||
Net increase (decrease) in fund shares | 8,743 | (481 | ) | (23,798 | ) | 35,001 | ||||||||||||
|
|
|
|
|
|
|
|
76 | See accompanying Notes to Financial Statements. |
Table of Contents
THIS PAGE LEFT BLANK INTENTIONALLY
Table of Contents
For the six month period ended March 31, 2013 (unaudited) and the years or periods ended September 30 |
Selected data for a share outstanding throughout each period is as follows:
Income (Loss) from Investment Operations | Less Distributions From | |||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(a) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Operations | Net Investment Income | Net Realized Gains | Total Distributions | ||||||||||||||||||||||
Highland Alpha Trend Strategies Fund |
| |||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
2013(d) | $ | 9.38 | $ | (0.04 | ) | $ | (0.28 | ) | $ | (0.32 | ) | $ | — | $ | (0.08 | ) | $ | (0.08 | ) | |||||||||
2012(i) | 10.00 | (0.13 | ) | (0.51 | ) | (0.64 | ) | — | — | — | ||||||||||||||||||
Class C | ||||||||||||||||||||||||||||
2013(d) | $ | 9.36 | $ | (0.06 | ) | $ | (0.29 | ) | $ | (0.35 | ) | $ | — | $ | (0.08 | ) | $ | (0.08 | ) | |||||||||
2012(i) | 9.56 | (0.12 | ) | (0.08 | ) | (0.20 | ) | — | — | — | ||||||||||||||||||
Class R | ||||||||||||||||||||||||||||
2013(d) | $ | 9.41 | $ | (0.05 | ) | $ | (0.29 | ) | $ | (0.34 | ) | $ | — | $ | (0.08 | ) | $ | (0.08 | ) | |||||||||
2012(i) | 10.00 | (0.14 | ) | (0.47 | ) | (0.61 | ) | — | — | — | ||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||
2013(d) | $ | 9.42 | $ | (0.03 | ) | $ | (0.28 | ) | $ | (0.31 | ) | $ | — | $ | (0.08 | ) | $ | (0.08 | ) | |||||||||
2012(i) | 10.00 | (0.10 | ) | (0.50 | ) | (0.60 | ) | — | — | — | ||||||||||||||||||
Highland Alternative Income Fund |
| |||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
2013(d) | $ | 9.64 | $ | 0.16 | $ | (0.15 | ) | $ | 0.01 | $ | (0.20 | ) | $ | — | $ | (0.20 | ) | |||||||||||
2012(j) | 10.00 | 0.36 | (0.37 | ) | (0.01 | ) | (0.35 | ) | — | (0.35 | ) | |||||||||||||||||
Class C | ||||||||||||||||||||||||||||
2013(d) | $ | 9.65 | $ | 0.15 | $ | (0.17 | ) | $ | (0.02 | ) | $ | (0.18 | ) | $ | — | $ | (0.18 | ) | ||||||||||
2012(j) | 10.00 | 0.33 | (0.35 | ) | (0.02 | ) | (0.33 | ) | — | (0.33 | ) | |||||||||||||||||
Class R | ||||||||||||||||||||||||||||
2013(d) | $ | 9.65 | $ | 0.17 | $ | (0.17 | ) | $ | — | (e) | $ | (0.20 | ) | $ | — | $ | (0.20 | ) | ||||||||||
2012(j) | 10.00 | 0.36 | (0.38 | ) | (0.02 | ) | (0.33 | ) | — | (0.33 | ) | |||||||||||||||||
Class Y | ||||||||||||||||||||||||||||
2013(d) | $ | 9.65 | $ | 0.20 | $ | (0.18 | ) | $ | 0.02 | $ | (0.22 | ) | $ | — | $ | (0.22 | ) | |||||||||||
2012(j) | 10.00 | 0.40 | (0.38 | ) | 0.02 | (0.37 | ) | — | (0.37 | ) | ||||||||||||||||||
Highland Trend Following Fund |
| |||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
2013(d) | $ | 9.33 | $ | (0.09 | ) | $ | (0.49 | ) | $ | (0.58 | ) | $ | — | $ | — | $ | — | |||||||||||
2012 | 10.49 | (0.14 | ) | (0.93 | ) | (1.07 | ) | — | (0.09 | ) | (0.09 | ) | ||||||||||||||||
2011(k) | 11.18 | (0.11 | ) | (0.58 | ) | (0.69 | ) | — | — | — | ||||||||||||||||||
2011(l) | 10.58 | (0.13 | ) | 0.78 | 0.65 | — | (0.05 | ) | (0.05 | ) | ||||||||||||||||||
2010(m) | 10.00 | (0.14 | ) | 0.76 | 0.62 | — | (0.04 | ) | (0.04 | ) | ||||||||||||||||||
Class C | ||||||||||||||||||||||||||||
2013(d) | $ | 9.30 | $ | (0.12 | ) | $ | (0.48 | ) | $ | (0.60 | ) | $ | — | $ | — | $ | — | |||||||||||
2012(n) | 9.47 | (0.12 | ) | (0.05 | ) | (0.17 | ) | — | — | — | ||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||
2013(d)(n) | $ | 10.00 | $ | (0.03 | ) | $ | (1.21 | ) | $ | (1.24 | ) | $ | — | $ | — | $ | — |
78 | See accompanying Notes to Financial Statements. |
Table of Contents
Ratios and Supplemental Data | ||||||||||||||||||||||||||||||
Redemption Fees | Net Asset Value, End of Period | Total Return(b) | Net Assets, End of Period (000) | Net Investment Income/ (Loss)(c) | Net Expenses(c) | Gross Expenses(c) | Portfolio Turnover Rate | |||||||||||||||||||||||
$ | — | (e) | $ | 8.98 | (3.41 | )%(f) | $ | 1,503 | (0.80 | )% | 1.99 | %(g)(h) | 6.51 | %(g)(h) | 1,574 | %(f) | ||||||||||||||
0.02 | 9.38 | (6.20 | )(f) | 1,097 | (1.55 | ) | 2.35 | (g)(h) | 6.72 | (g)(h) | 2,624 | (f) | ||||||||||||||||||
$ | — | (e) | $ | 8.93 | (3.74 | )%(f) | $ | 40 | (1.45 | )% | 2.64 | %(g)(h) | 7.16 | %(g)(h) | 1,574 | %(f) | ||||||||||||||
— | 9.36 | (2.09 | )(f) | 51 | (2.20 | ) | 3.00 | (g)(h) | 7.37 | (g)(h) | 2,624 | (f) | ||||||||||||||||||
$ | — | (e) | $ | 8.99 | (3.61 | )%(f) | $ | 286 | (0.95 | )% | 2.14 | %(g)(h) | 6.66 | %(g)(h) | 1,574 | %(f) | ||||||||||||||
0.02 | 9.41 | (5.90 | )(f) | 333 | (1.70 | ) | 2.50 | (g)(h) | 6.87 | (g)(h) | 2,624 | (f) | ||||||||||||||||||
$ | — | (e) | $ | 9.03 | (3.28 | )%(f) | $ | 1,931 | (0.45 | )% | 1.64 | %(g)(h) | 6.16 | %(g)(h) | 1,574 | %(f) | ||||||||||||||
0.02 | 9.42 | (5.80 | )(f) | 2,952 | (1.20 | ) | 2.00 | (g)(h) | 6.37 | (g)(h) | 2,624 | (f) | ||||||||||||||||||
$ | — | (e) | $ | 9.45 | 0.16 | %(f) | $ | 2,132 | 3.45 | % | 2.75 | %(g)(h) | 3.50 | %(g)(h) | 895 | %(f) | ||||||||||||||
— | (e) | 9.64 | (0.10 | )(f) | 5,570 | 5.29 | 1.94 | (g)(h) | 3.94 | (g)(h) | 1,081 | (f) | ||||||||||||||||||
$ | — | (e) | $ | 9.45 | (0.25 | )%(f) | $ | 73 | 2.80 | % | 3.40 | %(g)(h) | 4.15 | %(g)(h) | 895 | %(f) | ||||||||||||||
— | (e) | 9.65 | (0.15 | )(f) | 73 | 4.82 | 2.41 | (g)(h) | 4.59 | (g)(h) | 1,081 | (f) | ||||||||||||||||||
$ | — | (e) | $ | 9.45 | (0.01 | )%(f) | $ | 1,512 | 3.30 | % | 2.90 | %(g)(h) | 3.65 | %(g)(h) | 895 | %(f) | ||||||||||||||
— | (e) | 9.65 | (0.19 | )(f) | 1,142 | 5.14 | 2.09 | (g)(h) | 4.09 | (g)(h) | 1,081 | (f) | ||||||||||||||||||
$ | — | (e) | $ | 9.45 | 0.24 | %(f) | $ | 5,887 | 3.80 | % | 2.40 | %(g)(h) | 3.15 | %(g)(h) | 895 | %(f) | ||||||||||||||
— | (e) | 9.65 | 0.17 | (f) | 7,562 | 5.64 | 1.59 | (g)(h) | 3.59 | (g)(h) | 1,081 | (f) | ||||||||||||||||||
$ | — | (e) | $ | 8.75 | (6.22 | )%(f) | $ | 737 | (1.99 | )% | 2.23 | %(g) | 7.10 | %(g) | 477 | %(f) | ||||||||||||||
— | (e) | 9.33 | (10.19 | ) | 2,144 | (1.45 | ) | 2.25 | (g) | 5.18 | (g) | 848 | ||||||||||||||||||
— | 10.49 | (6.17 | )(f) | 8,885 | (1.57 | ) | 2.25 | (g) | 3.54 | (g) | 256 | (f) | ||||||||||||||||||
— | 11.18 | 6.13 | 24,471 | (1.24 | ) | 2.25 | (g) | 2.79 | (g) | 213 | ||||||||||||||||||||
— | 10.58 | 6.19 | (f) | 26,254 | (1.54 | ) | 2.25 | (g) | 3.72 | (g) | 626 | (f) | ||||||||||||||||||
$ | — | (e) | $ | 8.70 | (6.45 | )%(f) | $ | 25 | (2.64 | )% | 2.88 | %(g) | 7.75 | %(g) | 477 | %(f) | ||||||||||||||
— | (e) | 9.30 | (1.80 | )(f) | 49 | (2.10 | ) | 2.90 | (g) | 6.96 | (g) | 848 | ||||||||||||||||||
$ | — | $ | 8.76 | (2.99 | )%(f) | $ | 1,939 | (1.64 | )% | 1.88 | %(g) | 6.75 | %(g) | 477 | %(f) |
See accompanying Notes to Financial Statements. | 79 |
Table of Contents
FINANCIAL HIGHLIGHTS (continued)
For the six month period ended March 31, 2013 (unaudited) and the years or periods ended September 30 |
Selected data for a share outstanding throughout each period is as follows:
Income (Loss) from Investment Operations | Less Distributions From | |||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(a) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Operations | Net Investment Income | Net Realized Gains | Total Distributions | ||||||||||||||||||||||
Highland Global Allocation Fund |
| |||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
2013(d) | $ | 10.24 | $ | 0.06 | $ | 1.03 | $ | 1.09 | $ | (0.05 | ) | $ | (0.26 | ) | $ | (0.31 | ) | |||||||||||
2012 | 8.15 | 0.07 | 2.11 | 2.18 | (0.09 | ) | — | (0.09 | ) | |||||||||||||||||||
2011 | 8.45 | 0.08 | (0.31 | ) | (0.23 | ) | (0.07 | ) | — | (0.07 | ) | |||||||||||||||||
2010 | 8.07 | 0.08 | 0.38 | 0.46 | (0.08 | ) | — | (0.08 | ) | |||||||||||||||||||
2009 | 8.86 | 0.10 | (0.69 | ) | (0.59 | ) | (0.10 | ) | (0.10 | ) | (0.20 | ) | ||||||||||||||||
2008 | 12.82 | 0.08 | (1.80 | ) | (1.72 | ) | (0.08 | ) | (2.16 | ) | (2.24 | ) | ||||||||||||||||
Class B | ||||||||||||||||||||||||||||
2013(d) | $ | 9.70 | $ | 0.02 | $ | 0.98 | $ | 1.00 | $ | — | $ | (0.26 | ) | $ | (0.26 | ) | ||||||||||||
2012 | 7.70 | — | (e) | 2.00 | 2.00 | — | — | — | ||||||||||||||||||||
2011 | 7.99 | 0.01 | (0.30 | ) | (0.29 | ) | — | — | — | |||||||||||||||||||
2010 | 7.67 | 0.01 | 0.36 | 0.37 | (0.05 | ) | — | (0.05 | ) | |||||||||||||||||||
2009 | 8.36 | 0.04 | (0.63 | ) | (0.59 | ) | — | (0.10 | ) | (0.10 | ) | |||||||||||||||||
2008 | 12.21 | (— | )(e) | (1.69 | ) | (1.69 | ) | (— | )(e) | (2.16 | ) | (2.16 | ) | |||||||||||||||
Class C | ||||||||||||||||||||||||||||
2013(d) | $ | 9.51 | $ | 0.02 | $ | 0.95 | $ | 0.97 | $ | (— | )(e) | $ | (0.26 | ) | $ | (0.26 | ) | |||||||||||
2012 | 7.58 | — | (e) | 1.96 | 1.96 | (0.03 | ) | — | (0.03 | ) | ||||||||||||||||||
2011 | 7.86 | 0.01 | (0.29 | ) | (0.28 | ) | — | — | — | |||||||||||||||||||
2010 | 7.54 | 0.02 | 0.34 | 0.36 | (0.04 | ) | — | (0.04 | ) | |||||||||||||||||||
2009 | 8.28 | 0.04 | (0.64 | ) | (0.60 | ) | (0.04 | ) | (0.10 | ) | (0.14 | ) | ||||||||||||||||
2008 | 12.12 | (— | )(e) | (1.68 | ) | (1.68 | ) | (— | )(e) | (2.16 | ) | (2.16 | ) | |||||||||||||||
Class R | ||||||||||||||||||||||||||||
2013(d) | $ | 10.33 | $ | 0.05 | $ | 1.05 | $ | 1.10 | $ | (0.03 | ) | $ | (0.26 | ) | $ | (0.29 | ) | |||||||||||
2012 | 8.16 | 0.05 | 2.14 | 2.19 | (0.02 | ) | — | (0.02 | ) | |||||||||||||||||||
2011 | 8.44 | 0.06 | (0.29 | ) | (0.23 | ) | (0.05 | ) | — | (0.05 | ) | |||||||||||||||||
2010 | 8.06 | 0.06 | 0.37 | 0.43 | (0.05 | ) | — | (0.05 | ) | |||||||||||||||||||
2009 | 8.85 | 0.08 | (0.69 | ) | (0.61 | ) | (0.08 | ) | (0.10 | ) | (0.18 | ) | ||||||||||||||||
2008(p) | 9.66 | 0.04 | (0.85 | ) | (0.81 | ) | (— | )(e) | (— | )(e) | (— | )(e) | ||||||||||||||||
Class Y | ||||||||||||||||||||||||||||
2013(d) | $ | 11.38 | $ | 0.08 | $ | 1.15 | $ | 1.23 | $ | (0.06 | ) | $ | (0.26 | ) | $ | (0.32 | ) | |||||||||||
2012 | 9.04 | 0.08 | 2.37 | 2.45 | (0.11 | ) | — | (0.11 | ) | |||||||||||||||||||
2011 | 9.37 | 0.12 | (0.36 | ) | (0.24 | ) | (0.09 | ) | — | (0.09 | ) | |||||||||||||||||
2010 | 8.94 | 0.10 | 0.43 | 0.53 | (0.10 | ) | — | (0.10 | ) | |||||||||||||||||||
2009 | 9.79 | 0.12 | (0.75 | ) | (0.63 | ) | (0.12 | ) | (0.10 | ) | (0.22 | ) | ||||||||||||||||
2008 | 13.91 | 0.13 | (1.98 | ) | (1.85 | ) | (0.11 | ) | (2.16 | ) | (2.27 | ) | ||||||||||||||||
Highland Dividend Equity Fund |
| |||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
2013(d) | $ | 11.96 | $ | 0.13 | $ | 1.38 | $ | 1.51 | $ | (0.13 | ) | $ | (0.01 | ) | $ | (0.14 | ) | |||||||||||
2012(q) | 10.00 | 0.11 | 2.00 | 2.11 | (0.15 | ) | — | (0.15 | ) | |||||||||||||||||||
Class C | ||||||||||||||||||||||||||||
2013(d) | $ | 11.40 | $ | 0.08 | $ | 1.32 | $ | 1.40 | $ | (0.10 | ) | $ | (0.01 | ) | $ | (0.11 | ) | |||||||||||
2012(q) | 10.00 | 0.04 | 1.44 | 1.48 | (0.08 | ) | — | (0.08 | ) | |||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||
2013(d) | $ | 11.40 | $ | 0.14 | $ | 1.31 | $ | 1.45 | $ | (0.15 | ) | $ | (0.01 | ) | $ | (0.16 | ) | |||||||||||
2012(q) | 10.00 | 0.14 | 1.44 | 1.58 | (0.18 | ) | — | (0.18 | ) |
80 | See accompanying Notes to Financial Statements. |
Table of Contents
Ratios and Supplemental Data | ||||||||||||||||||||||||||||||
Redemption Fees | Net Asset Value, End of Period | Total Return(b) | Net Assets, End of Period (000) | Net Investment Income/ (Loss)(c) | Net Expenses(c) | Gross Expenses(c) | Portfolio Turnover Rate | |||||||||||||||||||||||
$— | $ | 11.02 | 11.02 | %(f) | $ | 183,342 | 1.13 | % | 1.07 | % | 1.07 | % | 40 | %(f) | ||||||||||||||||
— | 10.24 | 26.97 | 194,779 | 0.77 | 1.41 | 1.41 | 47 | |||||||||||||||||||||||
— | 8.15 | (2.85 | ) | 29,171 | 0.89 | 1.13 | (o) | 1.13 | 47 | |||||||||||||||||||||
— | 8.45 | 5.70 | 34,667 | 1.00 | 1.36 | (o) | 1.41 | 50 | ||||||||||||||||||||||
— | 8.07 | (6.11 | ) | 34,466 | 1.39 | 1.33 | (o) | 1.52 | 69 | |||||||||||||||||||||
— | 8.86 | (15.86 | ) | 42,078 | 0.76 | 1.17 | (o) | 1.35 | 67 | |||||||||||||||||||||
$— | $ | 10.44 | 10.61 | %(f) | $ | 4 | 0.38 | % | 1.82 | % | 1.82 | % | 40 | %(f) | ||||||||||||||||
— | 9.70 | 25.97 | 61 | 0.02 | 2.16 | 2.16 | 47 | |||||||||||||||||||||||
— | 7.70 | (3.63 | ) | 112 | 0.14 | 1.88 | (o) | 1.88 | 47 | |||||||||||||||||||||
— | 7.99 | 4.84 | 225 | 0.14 | 2.12 | (o) | 2.15 | 50 | ||||||||||||||||||||||
— | 7.67 | (6.75 | ) | 626 | 0.68 | 2.08 | (o) | 2.27 | 69 | |||||||||||||||||||||
— | 8.36 | (16.42 | ) | 1,509 | (0.01 | ) | 1.92 | (o) | 2.10 | 67 | ||||||||||||||||||||
$— | $ | 10.22 | 10.58 | %(f) | $ | 3,319 | 0.38 | % | 1.82 | % | 1.82 | % | 40 | %(f) | ||||||||||||||||
— | 9.51 | 25.97 | 3,443 | 0.02 | 2.16 | 2.16 | 47 | |||||||||||||||||||||||
— | 7.58 | (3.56 | ) | 1,361 | 0.14 | 1.88 | (o) | 1.88 | 47 | |||||||||||||||||||||
— | 7.86 | 4.83 | 1,907 | 0.25 | 2.12 | (o) | 2.16 | 50 | ||||||||||||||||||||||
— | 7.54 | (6.76 | ) | 1,852 | 0.60 | 2.08 | (o) | 2.27 | 69 | |||||||||||||||||||||
— | 8.28 | (16.45 | ) | 1,098 | (— | )(e) | 1.92 | (o) | 2.10 | 67 | ||||||||||||||||||||
$— | $ | 11.14 | 10.97 | %(f) | $ | 2 | 0.88 | % | 1.32 | % | 1.32 | % | 40 | %(f) | ||||||||||||||||
— | 10.33 | 26.87 | 2 | 0.52 | 1.66 | 1.66 | 47 | |||||||||||||||||||||||
— | 8.16 | (2.82 | ) | 1 | 0.64 | 1.38 | (o) | 1.38 | 47 | |||||||||||||||||||||
— | 8.44 | 5.34 | 9 | 0.75 | 1.61 | (o) | 1.66 | 50 | ||||||||||||||||||||||
— | 8.06 | (6.35 | ) | 9 | 1.11 | 1.58 | (o) | 1.77 | 69 | |||||||||||||||||||||
— | 8.85 | (8.39 | )(f)�� | 9 | 0.59 | 1.42 | (o) | 1.60 | 67 | |||||||||||||||||||||
$— | $ | 12.29 | 11.16 | %(f) | $ | 3,569 | 1.38 | % | 0.82 | % | 0.82 | % | 40 | %(f) | ||||||||||||||||
— | 11.38 | 27.34 | 3,124 | 1.02 | 1.16 | 1.16 | 47 | |||||||||||||||||||||||
— | 9.04 | (2.68 | ) | 94 | 1.14 | 0.88 | (o) | 0.88 | 47 | |||||||||||||||||||||
— | 9.37 | 5.88 | 149 | 1.19 | 1.11 | (o) | 1.14 | 50 | ||||||||||||||||||||||
— | 8.94 | (5.83 | ) | 294 | 1.48 | 1.01 | (o) | 1.07 | 69 | |||||||||||||||||||||
— | 9.79 | (15.56 | ) | 9 | 1.13 | 0.92 | (o) | 1.10 | 67 | |||||||||||||||||||||
$— | (e) | $ | 13.33 | 12.78 | %(f) | $ | 1,031 | 2.05 | % | 1.29 | % | 2.29 | % | 3 | %(f) | |||||||||||||||
— | (e) | 11.96 | 21.16 | (f) | 424 | 1.10 | 2.25 | 4.03 | 6 | (f) | ||||||||||||||||||||
$— | (e) | $ | 12.69 | 12.37 | %(f) | $ | 1,501 | 1.40 | % | 1.94 | % | 2.94 | % | 3 | %(f) | |||||||||||||||
— | (e) | 11.40 | 14.89 | (f) | 771 | 0.45 | 2.90 | 4.68 | 6 | (f) | ||||||||||||||||||||
$— | (e) | $ | 12.69 | 12.89 | %(f) | $ | 10,385 | 2.40 | % | 0.94 | % | 1.94 | % | 3 | %(f) | |||||||||||||||
— | (e) | 11.40 | 15.90 | (f) | 9,911 | 1.45 | 1.90 | 3.68 | 6 | (f) |
See accompanying Notes to Financial Statements. | 81 |
Table of Contents
FINANCIAL HIGHLIGHTS (continued)
For the six month period ended March 31, 2013 (unaudited) and the years or periods ended September 30 |
Selected data for a share outstanding throughout each period is as follows:
Income (Loss) from Investment Operations | Less Distributions From | |||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(a) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Operations | Net Investment Income | Net Realized Gains | Total Distributions | ||||||||||||||||||||||
Highland Premier Growth Equity Fund |
| |||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
2013(d) | $ | 26.13 | $ | 0.10 | $ | 1.88 | $ | 1.98 | $ | (0.14 | ) | $ | — | $ | (0.14 | ) | ||||||||||||
2012 | 19.39 | 0.03 | 6.71 | 6.74 | — | — | — | |||||||||||||||||||||
2011 | 19.45 | (— | )(e) | (0.06 | ) | (0.06 | ) | — | — | — | ||||||||||||||||||
2010 | 18.45 | (0.01 | ) | 1.06 | 1.05 | (0.05 | ) | — | (0.05 | ) | ||||||||||||||||||
2009 | 20.84 | 0.06 | (1.27 | ) | (1.21 | ) | (0.01 | ) | (1.17 | ) | (1.18 | ) | ||||||||||||||||
2008 | 27.15 | 0.01 | (3.76 | ) | (3.75 | ) | (— | )(e) | (2.56 | ) | (2.56 | ) | ||||||||||||||||
Class B | ||||||||||||||||||||||||||||
2013(d) | $ | 22.46 | $ | (— | )(e) | $ | 1.63 | $ | 1.63 | $ | — | $ | — | $ | — | |||||||||||||
2012 | 16.80 | (0.12 | ) | 5.78 | 5.66 | — | — | — | ||||||||||||||||||||
2011 | 16.97 | (0.15 | ) | (0.02 | ) | (0.17 | ) | — | — | — | ||||||||||||||||||
2010 | 16.20 | (0.14 | ) | 0.93 | 0.79 | (0.02 | ) | — | (0.02 | ) | ||||||||||||||||||
2009 | 18.62 | (0.06 | ) | (1.19 | ) | (1.25 | ) | — | (1.17 | ) | (1.17 | ) | ||||||||||||||||
2008 | 24.71 | (0.15 | ) | (3.38 | ) | (3.53 | ) | (— | )(e) | (2.56 | ) | (2.56 | ) | |||||||||||||||
Class C | ||||||||||||||||||||||||||||
2013(d) | $ | 22.50 | $ | (— | )(e) | $ | 1.62 | $ | 1.62 | $ | — | $ | — | $ | — | |||||||||||||
2012 | 16.82 | (0.12 | ) | 5.80 | 5.68 | — | — | — | ||||||||||||||||||||
2011 | 17.00 | (0.15 | ) | (0.03 | ) | (0.18 | ) | — | — | — | ||||||||||||||||||
2010 | 16.21 | (0.14 | ) | 0.93 | 0.79 | — | — | — | ||||||||||||||||||||
2009 | 18.62 | (0.06 | ) | (1.18 | ) | (1.24 | ) | — | (1.17 | ) | (1.17 | ) | ||||||||||||||||
2008 | 24.72 | (0.15 | ) | (3.39 | ) | (3.54 | ) | (— | )(e) | (2.56 | ) | (2.56 | ) | |||||||||||||||
Class R | ||||||||||||||||||||||||||||
2013(d) | $ | 25.84 | $ | 0.05 | $ | 1.88 | $ | 1.93 | $ | (0.08 | ) | $ | — | $ | (0.08 | ) | ||||||||||||
2012 | 19.22 | (0.03 | ) | 6.65 | 6.62 | — | — | — | ||||||||||||||||||||
2011 | 19.33 | (0.06 | ) | (0.05 | ) | (0.11 | ) | — | — | — | ||||||||||||||||||
2010 | 18.39 | (0.06 | ) | 1.05 | 0.99 | (0.05 | ) | — | (0.05 | ) | ||||||||||||||||||
2009 | 20.80 | 0.02 | (1.26 | ) | (1.24 | ) | — | (1.17 | ) | (1.17 | ) | |||||||||||||||||
2008(p) | 22.19 | (0.02 | ) | (1.37 | ) | (1.39 | ) | (— | )(e) | (— | )(e) | (— | )(e) | |||||||||||||||
Class Y | ||||||||||||||||||||||||||||
2013(d) | $ | 26.74 | $ | 0.13 | $ | 1.93 | $ | 2.06 | $ | (0.20 | ) | $ | — | $ | (0.20 | ) | ||||||||||||
2012 | 19.80 | 0.09 | 6.85 | 6.94 | — | — | — | |||||||||||||||||||||
2011 | 19.81 | 0.05 | (0.06 | ) | (0.01 | ) | — | — | — | |||||||||||||||||||
2010 | 18.78 | 0.04 | 1.08 | 1.12 | (0.09 | ) | — | (0.09 | ) | |||||||||||||||||||
2009 | 21.25 | 0.11 | (1.31 | ) | (1.20 | ) | (0.10 | ) | (1.17 | ) | (1.27 | ) | ||||||||||||||||
2008 | 27.57 | 0.07 | (3.83 | ) | (3.76 | ) | (— | )(e) | (2.56 | ) | (2.56 | ) | ||||||||||||||||
Highland Small-Cap Equity Fund |
| |||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
2013(d) | $ | 12.88 | $ | (0.03 | ) | $ | 1.72 | $ | 1.69 | $ | — | $ | (0.96 | ) | $ | (0.96 | ) | |||||||||||
2012 | 10.07 | (0.10 | ) | 2.91 | 2.81 | — | — | — | ||||||||||||||||||||
2011 | 9.64 | (0.07 | ) | 0.50 | 0.43 | — | — | — | ||||||||||||||||||||
2010 | 8.49 | (0.03 | ) | 1.18 | 1.15 | — | — | — | ||||||||||||||||||||
2009 | 10.73 | (0.04 | ) | (1.34 | ) | (1.38 | ) | — | (0.86 | ) | (0.86 | ) | ||||||||||||||||
2008 | 16.13 | — | (e) | (2.43 | ) | (2.43 | ) | (— | )(e) | (2.97 | ) | (2.97 | ) |
82 | See accompanying Notes to Financial Statements. |
Table of Contents
Ratios and Supplemental Data | ||||||||||||||||||||||||||
Net Asset Value, End of Period | Total Return(b) | Net Assets, End of Period (000) | Net Investment Income/ (Loss)(c) | Net Expenses(c) | Gross Expenses(c) | Portfolio Turnover Rate | ||||||||||||||||||||
$ | 27.97 | 7.62 | %(f) | $ | 128,761 | 0.73 | % | 1.22 | % | 1.27 | % | 11 | %(f) | |||||||||||||
26.13 | 34.76 | 127,028 | 0.14 | 1.22 | 1.31 | 16 | ||||||||||||||||||||
19.39 | (0.31 | ) | 109,321 | (0.02 | ) | 1.07 | (o) | 1.10 | 23 | |||||||||||||||||
19.45 | 5.69 | 140,095 | (0.08 | ) | 1.00 | (o) | 1.00 | 21 | ||||||||||||||||||
18.45 | (3.58 | ) | 149,681 | 0.36 | 1.10 | (o) | 1.10 | 27 | ||||||||||||||||||
20.84 | (14.92 | ) | 162,122 | 0.06 | 1.07 | (o) | 1.07 | 30 | ||||||||||||||||||
$ | 24.09 | 7.26 | %(f) | $ | 80 | (0.02 | )% | 1.97 | % | 2.02 | % | 11 | %(f) | |||||||||||||
22.46 | 33.69 | 110 | (0.61 | ) | 1.97 | 2.06 | 16 | |||||||||||||||||||
16.80 | (1.00 | ) | 210 | (0.77 | ) | 1.82 | (o) | 1.85 | 23 | |||||||||||||||||
16.97 | 4.88 | 577 | (0.89 | ) | 1.78 | (o) | 1.79 | 21 | ||||||||||||||||||
16.20 | (4.29 | ) | 2,474 | (0.46 | ) | 1.85 | (o) | 1.85 | 27 | |||||||||||||||||
18.62 | (15.55 | ) | 6,115 | (0.71 | ) | 1.82 | (o) | 1.82 | 30 | |||||||||||||||||
$ | 24.12 | 7.20 | %(f) | $ | 10,322 | (0.02 | )% | 1.97 | % | 2.02 | % | 11 | %(f) | |||||||||||||
22.50 | 33.77 | 10,512 | (0.61 | ) | 1.97 | 2.06 | 16 | |||||||||||||||||||
16.82 | (1.06 | ) | 10,248 | (0.77 | ) | 1.82 | (o) | 1.85 | 23 | |||||||||||||||||
17.00 | 4.87 | 13,770 | (0.83 | ) | 1.75 | (o) | 1.75 | 21 | ||||||||||||||||||
16.21 | (4.23 | ) | 14,378 | (0.41 | ) | 1.85 | (o) | 1.85 | 27 | |||||||||||||||||
18.62 | (15.59 | ) | 19,630 | (0.70 | ) | 1.82 | (o) | 1.82 | 30 | |||||||||||||||||
$ | 27.69 | 7.49 | %(f) | $ | 305 | 0.48 | % | 1.47 | % | 1.52 | % | 11 | %(f) | |||||||||||||
25.84 | 34.44 | 233 | (0.11 | ) | 1.47 | 1.56 | 16 | |||||||||||||||||||
19.22 | (0.57 | ) | 171 | (0.27 | ) | 1.32 | (o) | 1.35 | 23 | |||||||||||||||||
19.33 | 5.40 | 103 | (0.31 | ) | 1.23 | (o) | 1.24 | 21 | ||||||||||||||||||
18.39 | (3.76 | ) | 9 | 0.10 | 1.35 | (o) | 1.35 | 27 | ||||||||||||||||||
20.80 | (6.26 | )(f) | 9 | (0.16 | ) | 1.35 | (o) | 1.35 | 30 | |||||||||||||||||
$ | 28.60 | 7.79 | %(f) | $ | 24,786 | 0.98 | % | 0.97 | % | 1.02 | % | 11 | %(f) | |||||||||||||
26.74 | 35.05 | 25,083 | 0.39 | 0.97 | 1.06 | 16 | ||||||||||||||||||||
19.80 | (0.05 | ) | 24,705 | 0.23 | 0.82 | (o) | 0.85 | 23 | ||||||||||||||||||
19.81 | 5.94 | 36,848 | 0.19 | 0.74 | (o) | 0.74 | 21 | |||||||||||||||||||
18.78 | (3.30 | ) | 22,971 | 0.70 | 0.85 | (o) | 0.85 | 27 | ||||||||||||||||||
21.25 | (14.71 | ) | 5,531 | 0.29 | 0.82 | (o) | 0.82 | 30 | ||||||||||||||||||
$ | 13.61 | 14.28 | %(f) | $ | 34,675 | (0.45 | )% | 1.96 | % | 1.96 | % | 55 | %(f) | |||||||||||||
12.88 | 27.91 | 33,698 | (0.86 | ) | 2.00 | 2.00 | 24 | |||||||||||||||||||
10.07 | 4.46 | 31,155 | (0.65 | ) | 1.91 | (o) | 1.92 | 71 | ||||||||||||||||||
9.64 | 13.55 | 34,798 | (0.33 | ) | 1.81 | (o) | 1.97 | 42 | ||||||||||||||||||
8.49 | (10.17 | ) | 32,456 | (0.56 | ) | 2.14 | (o) | 2.20 | 51 | |||||||||||||||||
10.73 | (17.68 | ) | 42,271 | 0.03 | 1.37 | (o) | 1.38 | 60 |
See accompanying Notes to Financial Statements. | 83 |
Table of Contents
FINANCIAL HIGHLIGHTS (continued)
For the six month period ended March 31, 2013 (unaudited) and the years or periods ended September 30 |
Selected data for a share outstanding throughout each period is as follows:
Income (Loss) from Investment Operations | Less Distributions From | |||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(a) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Operations | Net Investment Income | Net Realized Gains | Total Distributions | ||||||||||||||||||||||
Highland Small-Cap Equity Fund (continued) |
| |||||||||||||||||||||||||||
Class B | ||||||||||||||||||||||||||||
2013(d) | $ | 10.97 | $ | (0.06 | ) | $ | 1.43 | $ | 1.37 | $ | — | $ | (0.96 | ) | $ | (0.96 | ) | |||||||||||
2012 | 8.64 | (0.17 | ) | 2.50 | 2.33 | — | — | — | ||||||||||||||||||||
2011 | 8.33 | (0.14 | ) | 0.45 | 0.31 | — | — | — | ||||||||||||||||||||
2010 | 7.39 | (0.07 | ) | 1.01 | 0.94 | — | — | — | ||||||||||||||||||||
2009 | 9.58 | (0.08 | ) | (1.25 | ) | (1.33 | ) | — | (0.86 | ) | (0.86 | ) | ||||||||||||||||
2008 | 14.82 | (0.08 | ) | (2.19 | ) | (2.27 | ) | (— | )(e) | (2.97 | ) | (2.97 | ) | |||||||||||||||
Class C | ||||||||||||||||||||||||||||
2013(d) | $ | 10.91 | $ | (0.06 | ) | $ | 1.42 | $ | 1.36 | $ | — | $ | (0.96 | ) | $ | (0.96 | ) | |||||||||||
2012 | 8.59 | (0.17 | ) | 2.49 | 2.32 | — | — | — | ||||||||||||||||||||
2011 | 8.29 | (0.14 | ) | 0.44 | 0.30 | — | — | — | ||||||||||||||||||||
2010 | 7.35 | (0.08 | ) | 1.02 | 0.94 | — | — | — | ||||||||||||||||||||
2009 | 9.53 | (0.08 | ) | (1.24 | ) | (1.32 | ) | — | (0.86 | ) | (0.86 | ) | ||||||||||||||||
2008 | 14.76 | (0.08 | ) | (2.18 | ) | (2.26 | ) | (— | )(e) | (2.97 | ) | (2.97 | ) | |||||||||||||||
Class R | ||||||||||||||||||||||||||||
2013(d) | $ | 12.79 | $ | (0.04 | ) | $ | 1.70 | $ | 1.66 | $ | — | $ | (0.96 | ) | $ | (0.96 | ) | |||||||||||
2012 | 9.99 | (0.13 | ) | 2.93 | 2.80 | — | — | — | ||||||||||||||||||||
2011 | 9.58 | (0.10 | ) | 0.51 | 0.41 | — | — | — | ||||||||||||||||||||
2010 | 8.46 | (0.05 | ) | 1.17 | 1.12 | — | — | — | ||||||||||||||||||||
2009 | 10.72 | (0.06 | ) | (1.34 | ) | (1.40 | ) | — | (0.86 | ) | (0.86 | ) | ||||||||||||||||
2008(p) | 11.58 | (0.03 | ) | (0.83 | ) | (0.86 | ) | (— | )(e) | — | (— | )(e) | ||||||||||||||||
Class Y | ||||||||||||||||||||||||||||
2013(d) | $ | 13.48 | $ | (0.02 | ) | $ | 1.81 | $ | 1.79 | $ | — | $ | (0.96 | ) | $ | (0.96 | ) | |||||||||||
2012 | 10.51 | (0.08 | ) | 3.05 | 2.97 | — | — | — | ||||||||||||||||||||
2011 | 10.04 | (0.05 | ) | 0.52 | 0.47 | — | — | — | ||||||||||||||||||||
2010 | 8.82 | — | 1.22 | 1.22 | — | — | — | |||||||||||||||||||||
2009 | 11.06 | (0.01 | ) | (1.37 | ) | (1.38 | ) | — | (0.86 | ) | (0.86 | ) | ||||||||||||||||
2008 | 16.50 | 0.04 | (2.51 | ) | (2.47 | ) | (— | )(e) | (2.97 | ) | (2.97 | ) | ||||||||||||||||
Highland Global Select Equity Fund |
| |||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
2013(d) | $ | 20.27 | $ | (0.02 | ) | $ | 2.60 | $ | 2.58 | $ | — | $ | — | $ | — | |||||||||||||
2012 | 16.90 | — | (e) | 3.37 | 3.37 | — | — | — | ||||||||||||||||||||
2011 | 19.18 | 0.01 | (2.26 | ) | (2.25 | ) | (0.03 | ) | — | (0.03 | ) | |||||||||||||||||
2010 | 18.26 | 0.04 | 1.08 | 1.12 | (0.20 | ) | — | (0.20 | ) | |||||||||||||||||||
2009 | 21.26 | 0.17 | (2.15 | ) | (1.98 | ) | (0.31 | ) | (0.71 | ) | (1.02 | ) | ||||||||||||||||
2008 | 32.08 | 0.28 | (7.54 | ) | (7.26 | ) | (0.12 | ) | (3.44 | ) | (3.56 | ) | ||||||||||||||||
Class B | ||||||||||||||||||||||||||||
2013(d) | $ | 18.01 | $ | (0.13 | ) | $ | 2.34 | $ | 2.21 | $ | — | $ | — | $ | — | |||||||||||||
2012 | 15.12 | (0.13 | ) | 3.02 | 2.89 | — | — | — | ||||||||||||||||||||
2011 | 17.25 | (0.13 | ) | (2.00 | ) | (2.13 | ) | — | — | — | ||||||||||||||||||
2010 | 16.57 | (0.11 | ) | 1.00 | 0.89 | (0.21 | ) | — | (0.21 | ) | ||||||||||||||||||
2009 | 19.25 | — | (1.89 | ) | (1.89 | ) | (0.08 | ) | (0.71 | ) | (0.79 | ) | ||||||||||||||||
2008 | 29.48 | 0.06 | (6.85 | ) | (6.79 | ) | (— | )(e) | (3.44 | ) | (3.44 | ) |
84 | See accompanying Notes to Financial Statements. |
Table of Contents
Ratios and Supplemental Data | ||||||||||||||||||||||||||
Net Asset Value, End of Period | Total Return(b) | Net Assets, End of Period (000) | Net Investment Income/ (Loss)(c) | Net Expenses(c) | Gross Expenses(c) | Portfolio Turnover Rate | ||||||||||||||||||||
$ | 11.38 | 13.83 | %(f) | $ | 115 | (1.48 | )% | 3.37 | % | 3.37 | % | 55 | %(f) | |||||||||||||
10.97 | 27.12 | 154 | (1.61 | ) | 2.75 | 2.75 | 24 | |||||||||||||||||||
8.64 | 3.60 | 216 | (1.40 | ) | 2.66 | (o) | 2.67 | 71 | ||||||||||||||||||
8.33 | 12.72 | 434 | (0.98 | ) | 2.59 | (o) | 2.70 | 42 | ||||||||||||||||||
7.39 | (10.95 | ) | 1,055 | (1.23 | ) | 2.89 | (o) | 2.95 | 51 | |||||||||||||||||
9.58 | (18.26 | ) | 2,957 | (0.69 | ) | 2.12 | (o) | 2.13 | 60 | |||||||||||||||||
$ | 11.31 | 13.92 | %(f) | $ | 3,312 | (1.41 | )% | 3.23 | % | 3.23 | % | 55 | %(f) | |||||||||||||
10.91 | 26.89 | 2,947 | (1.61 | ) | 2.75 | 2.75 | 24 | |||||||||||||||||||
8.59 | 3.62 | 2,587 | (1.40 | ) | 2.66 | (o) | 2.67 | 71 | ||||||||||||||||||
8.29 | 12.79 | 2,832 | (1.08 | ) | 2.56 | (o) | 2.71 | 42 | ||||||||||||||||||
7.35 | (10.90 | ) | 2,839 | (1.30 | ) | 2.89 | (o) | 2.95 | 51 | |||||||||||||||||
9.53 | (18.28 | ) | 4,797 | (0.72 | ) | 2.12 | (o) | 2.14 | 60 | |||||||||||||||||
$ | 13.49 | 14.23 | %(f) | $ | 1 | (0.69 | )% | 2.46 | % | 2.46 | % | 55 | %(f) | |||||||||||||
12.79 | 27.93 | 1 | (1.11 | ) | 2.25 | 2.25 | 24 | |||||||||||||||||||
9.99 | 4.28 | 1 | (0.90 | ) | 2.16 | (o) | 2.17 | 71 | ||||||||||||||||||
9.58 | 13.24 | 9 | (0.55 | ) | 2.03 | (o) | 2.19 | 42 | ||||||||||||||||||
8.46 | (10.37 | ) | 8 | (0.84 | ) | 2.39 | (o) | 2.45 | 51 | |||||||||||||||||
10.72 | (7.43 | )(f) | 9 | (0.34 | ) | 1.62 | (o) | 1.63 | 60 | |||||||||||||||||
$ | 14.31 | 14.39 | %(f) | $ | 1,448 | (0.32 | )% | 1.81 | % | 1.81 | % | 55 | %(f) | |||||||||||||
13.48 | 28.26 | 460 | (0.61 | ) | 1.75 | 1.75 | 24 | |||||||||||||||||||
10.51 | 4.68 | 209 | (0.40 | ) | 1.66 | (o) | 1.67 | 71 | ||||||||||||||||||
10.04 | 13.83 | 198 | (0.04 | ) | 1.58 | (o) | 1.72 | 42 | ||||||||||||||||||
8.82 | (9.83 | ) | 1,035 | (0.18 | ) | 1.89 | (o) | 1.95 | 51 | |||||||||||||||||
11.06 | (17.50 | ) | 3,694 | 0.36 | 1.12 | (o) | 1.12 | 60 | ||||||||||||||||||
$ | 22.85 | 12.73 | %(f) | $ | 24,509 | (0.23 | )% | 1.82 | % | 2.06 | % | 16 | %(f) | |||||||||||||
20.27 | 19.94 | 23,349 | 0.01 | 1.88 | 2.24 | 94 | ||||||||||||||||||||
16.90 | (11.75 | ) | 22,813 | 0.03 | 1.53 | (o) | 1.72 | 64 | ||||||||||||||||||
19.18 | 6.14 | 29,589 | 0.19 | 1.27 | (o) | 1.28 | 68 | |||||||||||||||||||
18.26 | (8.00 | ) | 30,544 | 1.12 | 1.70 | (o) | 1.70 | 60 | ||||||||||||||||||
21.26 | (25.19 | ) | 36,560 | 1.04 | 1.41 | (o) | 1.41 | 57 | ||||||||||||||||||
$ | 20.22 | 12.27 | %(f) | $ | 1 | (1.38 | )% | 2.57 | % | 2.81 | % | 16 | %(f) | |||||||||||||
18.01 | 19.12 | 4 | (0.74 | ) | 2.63 | 2.99 | 94 | |||||||||||||||||||
15.12 | (12.35 | ) | 20 | (0.72 | ) | 2.28 | (o) | 2.47 | 64 | |||||||||||||||||
17.25 | 5.37 | 47 | (0.67 | ) | 2.09 | (o) | 2.09 | 68 | ||||||||||||||||||
16.57 | (8.72 | ) | 86 | 0.05 | 2.45 | (o) | 2.45 | 60 | ||||||||||||||||||
19.25 | (25.79 | ) | 222 | 0.24 | 2.16 | (o) | 2.16 | 57 |
See accompanying Notes to Financial Statements. | 85 |
Table of Contents
FINANCIAL HIGHLIGHTS (continued)
For the six month period ended March 31, 2013 (unaudited) and the years or periods ended September 30 |
Selected data for a share outstanding throughout each period is as follows:
Income (Loss) from Investment Operations | Less Distributions From | |||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(a) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Operations | Net Investment Income | Net Realized Gains | Total Distributions | ||||||||||||||||||||||
Highland Global Select Equity Fund (continued) |
| |||||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||
2013(d) | $ | 18.21 | $ | (0.09 | ) | $ | 2.33 | $ | 2.24 | $ | — | $ | — | $ | — | |||||||||||||
2012 | 15.30 | (0.13 | ) | 3.04 | 2.91 | — | — | — | ||||||||||||||||||||
2011 | 17.45 | (0.13 | ) | (2.02 | ) | (2.15 | ) | — | — | — | ||||||||||||||||||
2010 | 16.58 | (0.09 | ) | 0.98 | 0.89 | (0.02 | ) | — | (0.02 | ) | ||||||||||||||||||
2009 | 19.38 | 0.01 | (1.93 | ) | (1.92 | ) | (0.17 | ) | (0.71 | ) | (0.88 | ) | ||||||||||||||||
2008 | 29.66 | 0.10 | (6.93 | ) | (6.83 | ) | (0.01 | ) | (3.44 | ) | (3.45 | ) | ||||||||||||||||
Class R | ||||||||||||||||||||||||||||
2013(d) | $ | 20.29 | $ | (0.04 | ) | $ | 2.61 | $ | 2.57 | $ | — | $ | — | $ | — | |||||||||||||
2012 | 16.93 | (0.05 | ) | 3.41 | 3.36 | — | — | — | ||||||||||||||||||||
2011 | 19.16 | (0.04 | ) | (2.19 | ) | (2.23 | ) | — | — | — | ||||||||||||||||||
2010 | 18.22 | (0.01 | ) | 1.08 | 1.07 | (0.13 | ) | — | (0.13 | ) | ||||||||||||||||||
2009 | 21.21 | 0.14 | (2.15 | ) | (2.01 | ) | (0.27 | ) | (0.71 | ) | (0.98 | ) | ||||||||||||||||
2008(p) | 25.98 | 0.28 | (5.05 | ) | (4.77 | ) | (— | )(e) | (— | )(e) | (— | )(e) | ||||||||||||||||
Class Y | ||||||||||||||||||||||||||||
2013(d) | $ | 20.41 | $ | 0.01 | $ | 2.63 | $ | 2.64 | $ | — | $ | — | $ | — | ||||||||||||||
2012 | 17.07 | 0.05 | 3.29 | 3.34 | — | — | — | |||||||||||||||||||||
2011 | 19.26 | 0.06 | (2.17 | ) | (2.11 | ) | (0.08 | ) | — | (0.08 | ) | |||||||||||||||||
2010 | 18.32 | 0.08 | 1.09 | 1.17 | (0.23 | ) | — | (0.23 | ) | |||||||||||||||||||
2009 | 21.35 | 0.21 | (2.16 | ) | (1.95 | ) | (0.37 | ) | (0.71 | ) | (1.08 | ) | ||||||||||||||||
2008 | 32.23 | 0.35 | (7.59 | ) | (7.24 | ) | (0.20 | ) | (3.44 | ) | (3.64 | ) | ||||||||||||||||
Highland International Equity Fund |
| |||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
2013(d) | $ | 11.99 | $ | (0.08 | ) | $ | 1.09 | $ | 1.01 | $ | — | $ | — | $ | — | |||||||||||||
2012 | 10.47 | 0.02 | 1.63 | 1.65 | (0.13 | ) | — | (0.13 | ) | |||||||||||||||||||
2011 | 12.48 | 0.08 | (1.97 | ) | (1.89 | ) | (0.12 | ) | — | (0.12 | ) | |||||||||||||||||
2010 | 12.71 | 0.12 | 0.02 | 0.14 | (0.37 | ) | — | (0.37 | ) | |||||||||||||||||||
2009 | 16.20 | 0.23 | (1.47 | ) | (1.24 | ) | (0.39 | ) | (1.86 | ) | (2.25 | ) | ||||||||||||||||
2008 | 25.05 | 0.43 | (6.59 | ) | (6.16 | ) | (0.23 | ) | (2.46 | ) | (2.69 | ) | ||||||||||||||||
Class B | ||||||||||||||||||||||||||||
2013(d) | $ | 10.97 | $ | (0.12 | ) | $ | 0.99 | $ | 0.87 | $ | — | $ | — | $ | — | |||||||||||||
2012 | 9.53 | (0.06 | ) | 1.50 | 1.44 | — | — | — | ||||||||||||||||||||
2011 | 11.34 | (0.02 | ) | (1.79 | ) | (1.81 | ) | — | — | — | ||||||||||||||||||
2010 | 11.65 | 0.03 | 0.01 | 0.04 | (0.35 | ) | — | (0.35 | ) | |||||||||||||||||||
2009 | 14.97 | 0.13 | (1.37 | ) | (1.24 | ) | (0.22 | ) | (1.86 | ) | (2.08 | ) | ||||||||||||||||
2008 | 23.29 | 0.19 | (6.03 | ) | (5.84 | ) | (0.02 | ) | (2.46 | ) | (2.48 | ) | ||||||||||||||||
Class C | ||||||||||||||||||||||||||||
2013(d) | $ | 10.91 | $ | (0.12 | ) | $ | 0.99 | $ | 0.87 | $ | — | $ | — | $ | — | |||||||||||||
2012 | 9.54 | (0.06 | ) | 1.50 | 1.44 | (0.07 | ) | — | (0.07 | ) | ||||||||||||||||||
2011 | 11.40 | (0.02 | ) | (1.80 | ) | (1.82 | ) | (0.04 | ) | — | (0.04 | ) | ||||||||||||||||
2010 | 11.62 | 0.04 | 0.03 | 0.07 | (0.29 | ) | — | (0.29 | ) | |||||||||||||||||||
2009 | 15.04 | 0.14 | (1.40 | ) | (1.26 | ) | (0.30 | ) | (1.86 | ) | (2.16 | ) | ||||||||||||||||
2008 | 23.44 | 0.22 | (6.09 | ) | (5.87 | ) | (0.07 | ) | (2.46 | ) | (2.53 | ) |
86 | See accompanying Notes to Financial Statements. |
Table of Contents
Ratios and Supplemental Data | ||||||||||||||||||||||||||
Net Asset Value, End of Period | Total Return(b) | Net Assets, End of Period (000) | Net Investment Income/ (Loss)(c) | Net Expenses(c) | Gross Expenses(c) | Portfolio Turnover Rate | ||||||||||||||||||||
$ | 20.45 | 12.30 | %(f) | $ | 143 | (0.98 | )% | 2.57 | % | 2.81 | % | 16 | %(f) | |||||||||||||
18.21 | 19.02 | 126 | (0.74 | ) | 2.63 | 2.99 | 94 | |||||||||||||||||||
15.30 | (12.32 | ) | 90 | (0.72 | ) | 2.28 | (o) | 2.47 | 64 | |||||||||||||||||
17.45 | 5.39 | 127 | (0.58 | ) | 2.02 | (o) | 2.03 | 68 | ||||||||||||||||||
16.58 | (8.74 | ) | 195 | 0.05 | 2.45 | (o) | 2.45 | 60 | ||||||||||||||||||
19.38 | (25.78 | ) | 489 | 0.39 | 2.16 | (o) | 2.16 | 57 | ||||||||||||||||||
$ | 22.86 | 12.67 | %(f) | $ | 1 | (0.48 | )% | 2.07 | % | 2.31 | % | 16 | %(f) | |||||||||||||
20.29 | 19.85 | 1 | (0.24 | ) | 2.13 | 2.49 | 94 | |||||||||||||||||||
16.93 | (11.64 | ) | 1 | (0.22 | ) | 1.78 | (o) | 1.97 | 64 | |||||||||||||||||
19.16 | 5.88 | 8 | (0.05 | ) | 1.52 | (o) | 1.52 | 68 | ||||||||||||||||||
18.22 | (8.24 | ) | 7 | 0.92 | 1.95 | (o) | 1.95 | 60 | ||||||||||||||||||
21.21 | (18.36 | )(f) | 8 | 1.65 | 1.66 | (o) | 1.66 | 57 | ||||||||||||||||||
$ | 23.05 | 12.93 | %(f) | $ | 17 | 0.02 | % | 1.57 | % | 1.81 | % | 16 | %(f) | |||||||||||||
20.41 | 19.57 | — | (r) | 0.26 | 1.63 | 1.99 | 94 | |||||||||||||||||||
17.07 | (11.02 | ) | — | (r) | 0.28 | 1.28 | (o) | 1.47 | 64 | |||||||||||||||||
19.26 | 6.42 | 15,722 | 0.45 | 1.01 | (o) | 1.02 | 68 | |||||||||||||||||||
18.32 | (7.73 | ) | 15,435 | 1.38 | 1.45 | (o) | 1.45 | 60 | ||||||||||||||||||
21.35 | (25.07 | ) | 18,339 | 1.28 | 1.16 | (o) | 1.16 | 57 | ||||||||||||||||||
$ | 13.00 | 8.42 | %(f) | $ | 11,050 | (1.34 | )% | 2.75 | % | 3.57 | % | 28 | %(f) | |||||||||||||
11.99 | 16.37 | 11,322 | 0.20 | 2.46 | 3.57 | 48 | ||||||||||||||||||||
10.47 | (15.67 | ) | 12,057 | 0.59 | 1.68 | (o) | 1.68 | 41 | ||||||||||||||||||
12.48 | 1.12 | 24,762 | 1.04 | 1.94 | (o) | 2.04 | 44 | |||||||||||||||||||
12.71 | (3.55 | ) | 33,160 | 2.17 | 1.53 | (o) | 1.77 | 60 | ||||||||||||||||||
16.20 | (27.35 | ) | 48,250 | 2.02 | 1.37 | (o) | 1.51 | 39 | ||||||||||||||||||
$ | 11.84 | 8.03 | %(f) | $ | 10 | (2.09 | )% | 3.50 | % | 4.32 | % | 28 | %(f) | |||||||||||||
10.97 | 15.49 | 15 | (0.55 | ) | 3.21 | 4.32 | 48 | |||||||||||||||||||
9.53 | (16.31 | ) | 49 | (0.15 | ) | 2.43 | (o) | 2.43 | 41 | |||||||||||||||||
11.34 | 0.34 | 126 | 0.28 | 2.67 | (o) | 2.72 | 44 | |||||||||||||||||||
11.65 | (4.28 | ) | 399 | 1.27 | 2.28 | (o) | 2.52 | 60 | ||||||||||||||||||
14.97 | (27.86 | ) | 651 | 0.95 | 2.12 | (o) | 2.25 | 39 | ||||||||||||||||||
$ | 11.78 | 7.97 | %(f) | $ | 709 | (2.09 | )% | 3.50 | % | 4.32 | % | 28 | %(f) | |||||||||||||
10.91 | 15.66 | 666 | (0.55 | ) | 3.21 | 4.32 | 48 | |||||||||||||||||||
9.54 | (16.40 | ) | 859 | (0.15 | ) | 2.43 | (o) | 2.43 | 41 | |||||||||||||||||
11.40 | 0.61 | 1,208 | 0.39 | 2.70 | (o) | 2.80 | 44 | |||||||||||||||||||
11.62 | (4.29 | ) | 1,194 | 1.41 | 2.28 | (o) | 2.52 | 60 | ||||||||||||||||||
15.04 | (27.86 | ) | 1,462 | 1.10 | 2.12 | (o) | 2.27 | 39 |
See accompanying Notes to Financial Statements. | 87 |
Table of Contents
FINANCIAL HIGHLIGHTS (continued)
For the six month period ended March 31, 2013 (unaudited) and the years or periods ended September 30 |
Selected data for a share outstanding throughout each period is as follows:
Income (Loss) from Investment Operations | Less Distributions From | |||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income (Loss)(a) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Operations | Net Investment Income | Net Realized Gains | Total Distributions | ||||||||||||||||||||||
Highland International Equity Fund (continued) |
| |||||||||||||||||||||||||||
Class R | ||||||||||||||||||||||||||||
2013(d) | $ | 12.06 | $ | (0.08 | ) | $ | 1.09 | $ | 1.01 | $ | — | $ | — | $ | — | |||||||||||||
2012 | 10.46 | — | (e) | 1.65 | 1.65 | (0.05 | ) | — | (0.05 | ) | ||||||||||||||||||
2011 | 12.46 | 0.05 | (1.96 | ) | (1.91 | ) | (0.09 | ) | — | (0.09 | ) | |||||||||||||||||
2010 | 12.68 | 0.10 | 0.02 | 0.12 | (0.34 | ) | — | (0.34 | ) | |||||||||||||||||||
2009 | 16.17 | 0.21 | (1.47 | ) | (1.26 | ) | (0.37 | ) | (1.86 | ) | (2.23 | ) | ||||||||||||||||
2008(p) | 20.63 | 0.38 | (4.84 | ) | (4.46 | ) | (— | )(e) | — | (— | )(e) | |||||||||||||||||
Class Y | ||||||||||||||||||||||||||||
2013(d) | $ | 12.16 | $ | (0.07 | ) | $ | 1.11 | $ | 1.04 | $ | — | $ | — | $ | — | |||||||||||||
2012 | 10.62 | 0.05 | 1.65 | 1.70 | (0.16 | ) | — | (0.16 | ) | |||||||||||||||||||
2011 | 12.65 | 0.11 | (1.99 | ) | (1.88 | ) | (0.15 | ) | — | (0.15 | ) | |||||||||||||||||
2010 | 12.88 | 0.15 | 0.02 | 0.17 | (0.40 | ) | — | (0.40 | ) | |||||||||||||||||||
2009 | 16.40 | 0.34 | (1.56 | ) | (1.22 | ) | (0.44 | ) | (1.86 | ) | (2.30 | ) | ||||||||||||||||
2008 | 25.33 | 0.46 | (6.64 | ) | (6.18 | ) | (0.29 | ) | (2.46 | ) | (2.75 | ) | ||||||||||||||||
Highland Total Return Fund |
| |||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||
2013(d) | $ | 20.85 | $ | 0.06 | $ | 1.12 | $ | 1.18 | $ | (0.21 | ) | $ | — | $ | (0.21 | ) | ||||||||||||
2012 | 18.03 | 0.19 | 2.87 | 3.06 | (0.24 | ) | — | (0.24 | ) | |||||||||||||||||||
2011 | 18.80 | 0.21 | (0.87 | ) | (0.66 | ) | (0.11 | ) | — | (0.11 | ) | |||||||||||||||||
2010 | 17.90 | 0.17 | 0.99 | 1.16 | (0.26 | ) | — | (0.26 | ) | |||||||||||||||||||
2009 | 20.16 | 0.26 | (1.08 | ) | (0.82 | ) | (0.39 | ) | (1.05 | ) | (1.44 | ) | ||||||||||||||||
2008 | 27.03 | 0.40 | (4.54 | ) | (4.14 | ) | (0.44 | ) | (2.29 | ) | (2.73 | ) | ||||||||||||||||
Class B | ||||||||||||||||||||||||||||
2013(d) | $ | 20.11 | $ | (0.02 | ) | $ | 1.09 | $ | 1.07 | $ | — | $ | — | $ | — | |||||||||||||
2012 | 17.30 | 0.04 | 2.77 | 2.81 | — | — | — | |||||||||||||||||||||
2011 | 18.07 | 0.06 | (0.83 | ) | (0.77 | ) | — | — | — | |||||||||||||||||||
2010 | 17.23 | 0.02 | 0.96 | 0.98 | (0.14 | ) | — | (0.14 | ) | |||||||||||||||||||
2009 | 19.36 | 0.14 | (1.03 | ) | (0.89 | ) | (0.19 | ) | (1.05 | ) | (1.24 | ) | ||||||||||||||||
2008 | 26.02 | 0.21 | (4.36 | ) | (4.15 | ) | (0.22 | ) | (2.29 | ) | (2.51 | ) | ||||||||||||||||
Class C | ||||||||||||||||||||||||||||
2013(d) | $ | 19.25 | $ | (0.02 | ) | $ | 1.05 | $ | 1.03 | $ | (0.06 | ) | $ | — | $ | (0.06 | ) | |||||||||||
2012 | 16.63 | 0.04 | 2.65 | 2.69 | (0.07 | ) | — | (0.07 | ) | |||||||||||||||||||
2011 | 17.37 | 0.06 | (0.80 | ) | (0.74 | ) | — | — | — | |||||||||||||||||||
2010 | 16.59 | 0.03 | 0.91 | 0.94 | (0.16 | ) | — | (0.16 | ) | |||||||||||||||||||
2009 | 18.76 | 0.13 | (1.01 | ) | (0.88 | ) | (0.24 | ) | (1.05 | ) | (1.29 | ) | ||||||||||||||||
2008 | 25.36 | 0.21 | (4.24 | ) | (4.03 | ) | (0.28 | ) | (2.29 | ) | (2.57 | ) | ||||||||||||||||
Class R | ||||||||||||||||||||||||||||
2013(d) | $ | 20.94 | $ | 0.16 | $ | 1.02 | $ | 1.18 | $ | (0.17 | ) | $ | — | $ | (0.17 | ) | ||||||||||||
2012 | 18.02 | 0.14 | 2.88 | 3.02 | (0.10 | ) | — | (0.10 | ) | |||||||||||||||||||
2011 | 18.79 | 0.16 | (0.86 | ) | (0.70 | ) | (0.07 | ) | — | (0.07 | ) | |||||||||||||||||
2010 | 17.87 | 0.12 | 0.99 | 1.11 | (0.19 | ) | — | (0.19 | ) | |||||||||||||||||||
2009 | 20.13 | 0.23 | (1.09 | ) | (0.86 | ) | (0.35 | ) | (1.05 | ) | (1.40 | ) | ||||||||||||||||
2008(p) | 22.72 | 0.25 | (2.84 | ) | (2.59 | ) | (— | )(e) | (— | )(e) | (— | )(e) |
88 | See accompanying Notes to Financial Statements. |
Table of Contents
Ratios and Supplemental Data | ||||||||||||||||||||||||||
Net Asset Value, End of Period | Total Return(b) | Net Assets, End of Period (000) | Net Investment Income/ (Loss)(c) | Net Expenses(c) | Gross Expenses(c) | Portfolio Turnover Rate | ||||||||||||||||||||
$ | 13.07 | 8.37 | %(f) | $ | 1 | (1.59 | )% | 3.00 | % | 3.82 | % | 28 | %(f) | |||||||||||||
12.06 | 16.24 | 1 | (0.05 | ) | 2.71 | 3.82 | 48 | |||||||||||||||||||
10.46 | (15.80 | ) | 1 | 0.35 | 1.93 | (o) | 1.93 | 41 | ||||||||||||||||||
12.46 | 0.82 | 8 | 0.82 | 2.19 | (o) | 2.30 | 44 | |||||||||||||||||||
12.68 | (3.75 | ) | 8 | 2.00 | 1.78 | (o) | 2.02 | 60 | ||||||||||||||||||
16.17 | (21.62 | )(f) | 8 | 2.79 | 1.62 | (o) | 1.77 | 39 | ||||||||||||||||||
$ | 13.20 | 8.55 | %(f) | $ | 654 | (1.09 | )% | 2.50 | % | 3.32 | % | 28 | %(f) | |||||||||||||
12.16 | 16.76 | 593 | 0.45 | 2.21 | 3.32 | 48 | ||||||||||||||||||||
10.62 | (15.49 | ) | 453 | 0.84 | 1.43 | (o) | 1.43 | 41 | ||||||||||||||||||
12.65 | 1.34 | 4,849 | 1.27 | 1.69 | (o) | 1.78 | 44 | |||||||||||||||||||
12.88 | (3.27 | ) | 8,220 | 3.10 | 1.38 | (o) | 1.52 | 60 | ||||||||||||||||||
16.40 | (27.19 | ) | 8,872 | 2.13 | 1.12 | (o) | 1.26 | 39 | ||||||||||||||||||
$ | 21.82 | 5.77 | %(f) | $ | 73,096 | 0.58 | % | 1.53 | % | 1.56 | % | 69 | %(f) | |||||||||||||
20.85 | 17.01 | 75,216 | 0.97 | 1.60 | 1.82 | 169 | ||||||||||||||||||||
18.03 | (3.51 | ) | 79,574 | 1.07 | 1.42 | (o) | 1.46 | 177 | ||||||||||||||||||
18.80 | 6.51 | 104,835 | 0.92 | 1.15 | (o) | 1.26 | 137 | |||||||||||||||||||
17.90 | (2.60 | ) | 105,256 | 1.66 | 1.08 | (o) | 1.13 | 144 | ||||||||||||||||||
20.16 | (16.87 | ) | 116,282 | 1.68 | 0.90 | (o) | 0.90 | 156 | ||||||||||||||||||
$ | 21.18 | 5.37 | %(f) | $ | 125 | (0.17 | )% | 2.28 | % | 2.31 | % | 69 | %(f) | |||||||||||||
20.11 | 16.12 | 139 | 0.22 | 2.35 | 2.57 | 169 | ||||||||||||||||||||
17.30 | (4.21 | ) | 349 | 0.32 | 2.17 | (o) | 2.21 | 177 | ||||||||||||||||||
18.07 | 5.73 | 1,077 | 0.14 | 1.90 | (o) | 1.97 | 137 | |||||||||||||||||||
17.23 | (3.37 | ) | 4,772 | 0.91 | 1.83 | (o) | 1.88 | 144 | ||||||||||||||||||
19.36 | (17.47 | ) | 8,222 | 0.91 | 1.65 | (o) | 1.66 | 156 | ||||||||||||||||||
$ | 20.22 | 5.33 | %(f) | $ | 6,189 | (0.17 | )% | 2.28 | % | 2.31 | % | 69 | %(f) | |||||||||||||
19.25 | 16.17 | 6,965 | 0.22 | 2.35 | 2.57 | 169 | ||||||||||||||||||||
16.63 | (4.20 | ) | 8,183 | 0.32 | 2.17 | (o) | 2.21 | 177 | ||||||||||||||||||
17.37 | 5.71 | 11,714 | 0.19 | 1.90 | (o) | 2.01 | 137 | |||||||||||||||||||
16.59 | (3.33 | ) | 10,841 | 0.90 | 1.83 | (o) | 1.88 | 144 | ||||||||||||||||||
18.76 | (17.48 | ) | 13,674 | 0.93 | 1.65 | (o) | 1.66 | 156 | ||||||||||||||||||
$ | 21.95 | 5.74 | %(f) | $ | 1 | 1.51 | % | 1.78 | % | 1.81 | % | 69 | %(f) | |||||||||||||
20.94 | 16.68 | 1 | 0.72 | 1.85 | 2.07 | 169 | ||||||||||||||||||||
18.02 | (3.70 | ) | 1 | 0.82 | 1.67 | (o) | 1.71 | 177 | ||||||||||||||||||
18.79 | 6.25 | 9 | 0.66 | 1.41 | (o) | 1.52 | 137 | |||||||||||||||||||
17.87 | (2.88 | ) | 9 | 1.40 | 1.33 | (o) | 1.38 | 144 | ||||||||||||||||||
20.13 | (11.40 | )(f) | 9 | 1.67 | 1.15 | (o) | 1.15 | 156 |
See accompanying Notes to Financial Statements. | 89 |
Table of Contents
FINANCIAL HIGHLIGHTS (continued)
For the six month period ended March 31, 2013 (unaudited) and the years or periods ended September 30 |
Selected data for a share outstanding throughout each period is as follows:
Income (Loss) from Investment Operations | Less Distributions From | |||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income(a) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Operations | Net Investment Income | Net Realized Gains | Return of Capital | Total Distributions | |||||||||||||||||||||||||
Highland Total Return Fund (continued) |
| |||||||||||||||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||||||
2013(d) | $ | 21.09 | $ | 0.09 | $ | 1.13 | $ | 1.22 | $ | (0.27 | ) | $ | — | $ | — | $ | (0.27 | ) | ||||||||||||||
2012 | 18.24 | 0.24 | 2.90 | 3.14 | (0.29 | ) | — | — | (0.29 | ) | ||||||||||||||||||||||
2011 | 19.03 | 0.27 | (0.89 | ) | (0.62 | ) | (0.17 | ) | — | — | (0.17 | ) | ||||||||||||||||||||
2010 | 18.10 | 0.21 | 1.01 | 1.22 | (0.29 | ) | — | — | (0.29 | ) | ||||||||||||||||||||||
2009 | 20.39 | 0.31 | (1.10 | ) | (0.79 | ) | (0.45 | ) | (1.05 | ) | — | (1.50 | ) | |||||||||||||||||||
2008 | 27.31 | 0.47 | (4.59 | ) | (4.12 | ) | (0.51 | ) | (2.29 | ) | — | (2.80 | ) | |||||||||||||||||||
Highland Tax-Exempt Fund |
| |||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||
2013(d) | $ | 12.34 | $ | 0.15 | $ | (0.11 | ) | $ | 0.05 | $ | (0.15 | ) | $ | — | $ | — | $ | (0.15 | ) | |||||||||||||
2012 | 11.86 | 0.32 | 0.48 | 0.80 | (0.32 | ) | — | — | (0.32 | ) | ||||||||||||||||||||||
2011 | 11.97 | 0.34 | (0.11 | ) | 0.23 | (0.34 | ) | — | — | (0.34 | ) | |||||||||||||||||||||
2010 | 11.79 | 0.41 | 0.18 | 0.59 | (0.41 | ) | — | — | (0.41 | ) | ||||||||||||||||||||||
2009 | 10.90 | 0.41 | 0.88 | 1.29 | (0.40 | ) | — | — | (0.40 | ) | ||||||||||||||||||||||
2008 | 11.41 | 0.43 | (0.52 | ) | (0.09 | ) | (0.42 | ) | (— | )(e) | — | (0.42 | ) | |||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||
2013(d) | $ | 12.33 | $ | 0.11 | $ | (0.10 | ) | $ | 0.01 | $ | (0.11 | ) | $ | — | $ | — | $ | (0.11 | ) | |||||||||||||
2012 | 11.86 | 0.23 | 0.47 | 0.70 | (0.23 | ) | — | — | (0.23 | ) | ||||||||||||||||||||||
2011 | 11.96 | 0.26 | (0.10 | ) | 0.16 | (0.26 | ) | — | — | (0.26 | ) | |||||||||||||||||||||
2010 | 11.78 | 0.33 | 0.17 | 0.50 | (0.32 | ) | — | — | (0.32 | ) | ||||||||||||||||||||||
2009 | 10.89 | 0.31 | 0.90 | 1.21 | (0.32 | ) | — | — | (0.32 | ) | ||||||||||||||||||||||
2008 | 11.41 | 0.34 | (0.52 | ) | (0.18 | ) | (0.34 | ) | (— | )(e) | — | (0.34 | ) | |||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||||||
2013(d) | $ | 13.34 | $ | 0.18 | $ | 0.04 | $ | 0.08 | $ | (0.18 | ) | $ | — | $ | — | $ | (0.18 | ) | ||||||||||||||
2012 | 12.83 | 0.37 | 0.51 | 0.88 | (0.37 | ) | — | — | (0.37 | ) | ||||||||||||||||||||||
2011 | 12.93 | 0.40 | (0.11 | ) | 0.29 | (0.39 | ) | — | — | (0.39 | ) | |||||||||||||||||||||
2010 | 12.74 | 0.48 | 0.19 | 0.67 | (0.48 | ) | — | — | (0.48 | ) | ||||||||||||||||||||||
2009 | 11.78 | 0.45 | 0.97 | 1.42 | (0.46 | ) | — | — | (0.46 | ) | ||||||||||||||||||||||
2008 | 12.34 | 0.49 | (0.56 | ) | (0.07 | ) | (0.49 | ) | (— | )(e) | — | (0.49 | ) | |||||||||||||||||||
Highland Fixed Income Fund |
| |||||||||||||||||||||||||||||||
Class A | ||||||||||||||||||||||||||||||||
2013(d) | $ | 13.04 | $ | 0.07 | $ | (0.08 | ) | $ | (0.01 | ) | $ | (0.07 | ) | $ | — | $ | — | $ | (0.07 | ) | ||||||||||||
2012 | 12.54 | 0.20 | 0.59 | 0.79 | (0.27 | ) | — | (0.02 | ) | (0.29 | ) | |||||||||||||||||||||
2011 | 12.26 | 0.37 | 0.31 | 0.68 | (0.40 | ) | — | — | (0.40 | ) | ||||||||||||||||||||||
2010 | 11.71 | 0.36 | 0.63 | 0.99 | (0.44 | ) | — | — | (0.44 | ) | ||||||||||||||||||||||
2009 | 11.44 | 0.44 | 0.26 | 0.70 | (0.43 | ) | — | — | (0.43 | ) | ||||||||||||||||||||||
2008 | 11.84 | 0.50 | (0.40 | ) | 0.10 | (0.50 | ) | (— | )(e) | — | (0.50 | ) | ||||||||||||||||||||
Class B | ||||||||||||||||||||||||||||||||
2013(d) | $ | 13.04 | $ | 0.02 | $ | (0.09 | ) | $ | (0.07 | ) | $ | (0.02 | ) | $ | — | $ | — | $ | (0.02 | ) | ||||||||||||
2012 | 12.54 | 0.11 | 0.58 | 0.69 | (0.17 | ) | — | (0.02 | ) | (0.19 | ) | |||||||||||||||||||||
2011 | 12.26 | 0.27 | 0.32 | 0.59 | (0.31 | ) | — | — | (0.31 | ) | ||||||||||||||||||||||
2010 | 11.71 | 0.31 | 0.59 | 0.90 | (0.35 | ) | — | — | (0.35 | ) | ||||||||||||||||||||||
2009 | 11.44 | 0.35 | 0.27 | 0.62 | (0.35 | ) | — | — | (0.35 | ) | ||||||||||||||||||||||
2008 | 11.84 | 0.41 | (0.40 | ) | 0.01 | (0.41 | ) | (— | )(e) | — | (0.41 | ) |
90 | See accompanying Notes to Financial Statements. |
Table of Contents
Ratios and Supplemental Data | ||||||||||||||||||||||||||
Net Asset Value, End of Period | Total Return(b) | Net Assets, End of Period (000) | Net Investment Income(c) | Net Expenses(c) | Gross Expenses(c) | Portfolio Turnover Rate | ||||||||||||||||||||
$ | 22.04 | 5.84 | %(f) | $ | 318 | 0.83 | % | 1.28 | % | 1.31 | % | 69 | %(f) | |||||||||||||
21.09 | 17.36 | 217 | 1.22 | 1.35 | 1.57 | 169 | ||||||||||||||||||||
18.24 | (3.36 | ) | 238 | 1.32 | 1.17 | (o) | 1.21 | 177 | ||||||||||||||||||
19.03 | 6.81 | 5,070 | 1.16 | 0.90 | (o) | 1.00 | 137 | |||||||||||||||||||
18.10 | (2.39 | ) | 7,788 | 1.90 | �� | 0.83 | (o) | 0.88 | 144 | |||||||||||||||||
20.39 | (16.65 | ) | 5,571 | 1.96 | 0.65 | (o) | 0.65 | 156 | ||||||||||||||||||
$ | 12.24 | 0.42 | %(f) | $ | 33,467 | 2.47 | % | 1.38 | % | 1.40 | % | 8 | %(f) | |||||||||||||
12.34 | 6.79 | 33,747 | 2.62 | 1.14 | 1.18 | 26 | ||||||||||||||||||||
11.86 | 2.06 | 36,024 | 2.97 | 1.15 | (o) | 1.18 | 40 | |||||||||||||||||||
11.97 | 5.14 | 40,049 | 3.49 | 0.86 | (o) | 0.63 | 28 | |||||||||||||||||||
11.79 | 12.09 | 36,260 | 3.58 | 0.86 | (o) | 1.14 | 24 | |||||||||||||||||||
10.90 | (0.84 | ) | 30,972 | 3.72 | 0.87 | (o) | 1.12 | 28 | ||||||||||||||||||
$ | 12.23 | 0.05 | %(f) | $ | 1,653 | 1.73 | % | 2.03 | % | 2.05 | % | 8 | %(f) | |||||||||||||
12.33 | 5.93 | 1,728 | 1.87 | 1.89 | 1.93 | 26 | ||||||||||||||||||||
11.86 | 1.39 | 1,675 | 2.22 | 1.90 | (o) | 1.93 | 40 | |||||||||||||||||||
11.96 | 4.33 | 2,699 | 2.68 | 1.60 | (o) | 1.24 | 28 | |||||||||||||||||||
11.78 | 11.24 | 945 | 2.72 | 1.61 | (o) | 1.89 | 24 | |||||||||||||||||||
10.89 | (1.68 | ) | 208 | 2.96 | 1.62 | (o) | 1.88 | 28 | ||||||||||||||||||
$ | 13.24 | 0.61 | %(f) | $ | 294 | 2.73 | % | 1.03 | % | 1.05 | % | 8 | %(f) | |||||||||||||
13.34 | 6.97 | 180 | 2.87 | 0.89 | 0.93 | 26 | ||||||||||||||||||||
12.83 | 2.39 | 179 | 3.22 | 0.90 | (o) | 0.93 | 40 | |||||||||||||||||||
12.93 | 5.36 | 700 | 3.73 | 0.61 | (o) | 0.30 | 28 | |||||||||||||||||||
12.74 | 12.34 | 507 | 3.63 | 0.61 | (o) | 0.71 | 24 | |||||||||||||||||||
11.78 | (0.65 | ) | 36 | 3.99 | 0.62 | (o) | 0.86 | 28 | ||||||||||||||||||
$ | 12.96 | (0.26 | )%(f) | $ | 181,758 | 1.02 | % | 1.02 | % | 1.02 | % | 246 | %(f) | |||||||||||||
13.04 | 6.35 | 202,060 | 1.59 | 1.13 | 1.14 | 350 | ||||||||||||||||||||
12.54 | 5.78 | 94,079 | 2.97 | 0.90 | (o) | 0.91 | 392 | |||||||||||||||||||
12.26 | 8.65 | 98,741 | 3.02 | 0.91 | (o) | 0.99 | 342 | |||||||||||||||||||
11.71 | 6.36 | 103,525 | 3.90 | 0.85 | (o) | 0.88 | 341 | |||||||||||||||||||
11.44 | 0.73 | 115,933 | 4.19 | 0.84 | (o) | 0.85 | 467 | |||||||||||||||||||
$ | 12.95 | (0.55 | )%(f) | $ | 75 | 0.24 | % | 1.78 | % | 1.78 | % | 246 | %(f) | |||||||||||||
13.04 | 5.49 | 120 | 0.84 | 1.88 | 1.89 | 350 | ||||||||||||||||||||
12.54 | 5.00 | 85 | 2.22 | 1.65 | (o) | 1.66 | 392 | |||||||||||||||||||
12.26 | 7.84 | 131 | 2.69 | 1.67 | (o) | 1.72 | 342 | |||||||||||||||||||
11.71 | 5.57 | 375 | 3.21 | 1.60 | (o) | 1.63 | 341 | |||||||||||||||||||
11.44 | (0.11 | ) | 803 | 3.50 | 1.59 | (o) | 1.60 | 467 |
See accompanying Notes to Financial Statements. | 91 |
Table of Contents
FINANCIAL HIGHLIGHTS (continued)
For the six month period ended March 31, 2013 (unaudited) and the years or periods ended September 30 |
Selected data for a share outstanding throughout each period is as follows:
Income (Loss) from Investment Operations | Less Distributions From | |||||||||||||||||||||||||||||||
Net Asset Value, Beginning of Period | Net Investment Income(a) | Net Realized and Unrealized Gain (Loss) on Investments | Total from Operations | Net Investment Income | Net Realized Gains | Return of Capital | Total Distributions | |||||||||||||||||||||||||
Highland Fixed Income Fund (continued) |
| |||||||||||||||||||||||||||||||
Class C | ||||||||||||||||||||||||||||||||
2013(d) | $ | 13.06 | $ | 0.02 | $ | (0.09 | ) | $ | (0.07 | ) | $ | (0.02 | ) | $ | — | $ | — | $ | (0.02 | ) | ||||||||||||
2012 | 12.56 | 0.10 | 0.59 | 0.69 | (0.17 | ) | — | (0.02 | ) | (0.19 | ) | |||||||||||||||||||||
2011 | 12.27 | 0.27 | 0.33 | 0.60 | (0.31 | ) | — | — | (0.31 | ) | ||||||||||||||||||||||
2010 | 11.72 | 0.27 | 0.63 | 0.90 | (0.35 | ) | — | — | (0.35 | ) | ||||||||||||||||||||||
2009 | 11.46 | 0.35 | 0.26 | 0.61 | (0.35 | ) | — | — | (0.35 | ) | ||||||||||||||||||||||
2008 | 11.86 | 0.41 | (0.40 | ) | 0.01 | (0.41 | ) | (— | )(e) | — | (0.41 | ) | ||||||||||||||||||||
Class R | ||||||||||||||||||||||||||||||||
2013(d) | $ | 13.05 | $ | 0.05 | $ | (0.09 | ) | $ | (0.04 | ) | $ | (0.05 | ) | $ | — | $ | — | $ | (0.05 | ) | ||||||||||||
2012 | 12.55 | 0.16 | 0.59 | 0.75 | (0.23 | ) | — | (0.02 | ) | (0.25 | ) | |||||||||||||||||||||
2011 | 12.26 | 0.33 | 0.34 | 0.67 | (0.38 | ) | — | — | (0.38 | ) | ||||||||||||||||||||||
2010 | 11.71 | 0.33 | 0.63 | 0.96 | (0.41 | ) | — | — | (0.41 | ) | ||||||||||||||||||||||
2009 | 11.45 | 0.41 | 0.25 | 0.66 | (0.40 | ) | — | — | (0.40 | ) | ||||||||||||||||||||||
2008(p) | 12.15 | 0.29 | (0.70 | ) | (0.41 | ) | (0.29 | ) | (— | )(e) | — | (0.29 | ) | |||||||||||||||||||
Class Y | ||||||||||||||||||||||||||||||||
2013(d) | $ | 13.03 | $ | 0.08 | $ | (0.09 | ) | $ | (0.01 | ) | $ | (0.08 | ) | $ | — | $ | — | $ | (0.08 | ) | ||||||||||||
2012 | 12.52 | 0.23 | 0.60 | 0.83 | (0.29 | ) | — | (0.03 | ) | (0.32 | ) | |||||||||||||||||||||
2011 | 12.24 | 0.40 | 0.31 | 0.71 | (0.43 | ) | — | — | (0.43 | ) | ||||||||||||||||||||||
2010 | 11.70 | 0.33 | 0.68 | 1.01 | (0.47 | ) | — | — | (0.47 | ) | ||||||||||||||||||||||
2009 | 11.43 | 0.46 | 0.27 | 0.73 | (0.46 | ) | — | — | (0.46 | ) | ||||||||||||||||||||||
2008 | 11.84 | 0.53 | (0.41 | ) | 0.12 | (0.53 | ) | (— | )(e) | — | (0.53 | ) |
(a) | Net investment income per share is based on average shares outstanding during the period. |
(b) | Total returns are historical and assume changes in share price, reinvestment of dividends and capital gains distributions, and assume no sales charge. Had the adviser not absorbed a portion of expenses, total returns would have been lower. |
(c) | Annualized. |
(d) | Unaudited. |
(e) | Less than $0.005 per share or less than 0.005%. |
(f) | Not annualized. |
(g) | Does not include expenses of investment companies in which the Fund invests. |
(h) | Ratios of expenses to average net assets excludes dividends and fees on securities sold short. Gross and net expense ratios would have been as follows: |
Class A | Class C | Class R | Class Y | |||||||||||||||||||||||||||||
Fund/Year or Period | Net | Gross | Net | Gross | Net | Gross | Net | Gross | ||||||||||||||||||||||||
Highland Alpha Trend Strategies Fund | ||||||||||||||||||||||||||||||||
2013 | 2.08 | % | 6.61 | % | 2.73 | % | 7.26 | % | 2.23 | % | 6.76 | % | 1.73 | % | 6.26 | % | ||||||||||||||||
2012 | 2.43 | % | 6.80 | % | 3.08 | % | 7.45 | % | 2.58 | % | 6.95 | % | 2.08 | % | 6.45 | % | ||||||||||||||||
Highland Alternative Income Fund | ||||||||||||||||||||||||||||||||
2013 | 3.79 | % | 4.54 | % | 4.44 | % | 5.19 | % | 3.94 | % | 4.69 | % | 3.44 | % | 4.19 | % | ||||||||||||||||
2012 | 2.01 | % | 4.01 | % | 2.48 | % | 4.66 | % | 2.16 | % | 4.16 | % | 1.66 | % | 3.66 | % |
92 | See accompanying Notes to Financial Statements. |
Table of Contents
Ratios and Supplemental Data | ||||||||||||||||||||||||||
Net Asset Value, End of Period | Total Return(b) | Net Assets, End of Period (000) | Net Investment Income(c) | Net Expenses(c) | Gross Expenses(c) | Portfolio Turnover Rate | ||||||||||||||||||||
$ | 12.97 | (0.55 | )%(f) | $ | 3,670 | 0.26 | % | 1.77 | % | 1.77 | % | 246 | %(f) | |||||||||||||
13.06 | 5.48 | 5,051 | 0.84 | 1.88 | 1.89 | 350 | ||||||||||||||||||||
12.56 | 4.99 | 846 | 2.22 | 1.65 | (o) | 1.66 | 392 | |||||||||||||||||||
12.27 | 7.93 | 933 | 2.25 | 1.66 | (o) | 1.74 | 342 | |||||||||||||||||||
11.72 | 5.47 | 915 | 3.12 | 1.60 | (o) | 1.63 | 341 | |||||||||||||||||||
11.46 | (0.02 | ) | 922 | 3.44 | 1.59 | (o) | 1.60 | 467 | ||||||||||||||||||
$ | 12.96 | (0.30 | )%(f) | $ | 2 | 0.78 | % | 1.21 | % | 1.21 | % | 246 | %(f) | |||||||||||||
13.05 | 6.05 | 2 | 1.34 | 1.38 | 1.39 | 350 | ||||||||||||||||||||
12.55 | 5.60 | 1 | 2.72 | 1.15 | (o) | 1.16 | 392 | |||||||||||||||||||
12.26 | 8.37 | 11 | 2.73 | 1.17 | (o) | 1.25 | 342 | |||||||||||||||||||
11.71 | 5.99 | 10 | 3.61 | 1.10 | (o) | 1.13 | 341 | |||||||||||||||||||
11.45 | (3.43 | )(f) | 10 | 3.70 | 1.09 | (o) | 1.11 | 467 | ||||||||||||||||||
$ | 12.94 | (0.06 | )%(f) | $ | 1,253 | 1.26 | % | 0.77 | % | 0.77 | % | 246 | %(f) | |||||||||||||
13.03 | 6.62 | 1,571 | 1.84 | 0.88 | 0.89 | 350 | ||||||||||||||||||||
12.52 | 6.04 | 1,072 | 3.22 | 0.65 | (o) | 0.66 | 392 | |||||||||||||||||||
12.24 | 8.81 | 2,686 | 3.36 | 0.67 | (o) | 0.75 | 342 | |||||||||||||||||||
11.70 | 6.63 | 8,545 | 4.15 | 0.60 | (o) | 0.63 | 341 | |||||||||||||||||||
11.43 | 0.89 | 12,944 | 4.45 | 0.59 | (o) | 0.60 | 467 |
(i) | Class A commenced operations on November 2, 2011, Class C commenced operations on February 27, 2012, Class R commenced operations on November 9, 2011 and Class Y commended operations on November 1, 2011. |
(j) | Class commenced operations on January 13, 2012. |
(k) | For the eight months ended September 30, 2011. |
(l) | For the year ended January 31, 2011. (See Note 11.) |
(m) | For period ended January 31, 2010. Fund commenced operations on March 31, 2009. |
(n) | Class C commenced operations on February 24, 2012 and Class Y commenced operations on January 9, 2013. |
(o) | Includes waiver of management fee with respect to the Fund’s investment in the Pyxis Money Market Fund II. |
(p) | Class commenced operations on January 29, 2008. |
(q) | Class A commenced operations on November 23, 2011, Class C commenced operations on November 15, 2011 and Class Y commenced operations on November 14, 2011. |
(r) | Net Assets of less than $1,000 in share class. |
See accompanying Notes to Financial Statements. | 93 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited)
March 31, 2013 | Highland Funds II |
Note 1. Organization
Highland Funds II (formerly known as Pyxis Funds II) (the “Trust”) is a Massachusetts business trust organized on August 10, 1992. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. It comprises eighteen portfolios (each a “Fund” and collectively the “Funds”), although only the following thirteen are currently being offered: Highland Alpha Trend Strategies Fund (formerly Pyxis Alpha Trend Strategies Fund) (the “Alpha Trend Strategies Fund”), Highland Alternative Income Fund (formerly Pyxis Alternative Income Fund) (the “Alternative Income Fund”), Highland Trend Following Fund (formerly Pyxis Trend Following Fund) (the “Trend Following Fund”), Highland Global Allocation Fund (formerly Pyxis Core America Equity Fund) (the “Global Allocation Fund”), Highland Dividend Equity Fund (formerly Pyxis Dividend Equity Fund) (the “Dividend Equity Fund”), Highland Premier Growth Equity Fund (formerly Pyxis Premier Growth Equity Fund) (the “Premier Growth Equity Fund”), Highland Small-Cap Equity Fund (formerly Pyxis Small-Cap Equity Fund) (the “Small-Cap Equity Fund”), Highland Global Select Equity Fund (formerly Pyxis Global Equity Fund) (the “Global Select Equity Fund”), Highland International Equity Fund (formerly Pyxis International Equity Fund) (the “International Equity Fund”), Highland Total Return Fund (formerly Pyxis Total Return Fund) (the “Total Return Fund”), Highland Tax-Exempt Fund (formerly Pyxis Tax-Exempt Fund) (the “Tax-Exempt Fund”), and Highland Fixed Income Fund (formerly Pyxis Fixed Income Fund) (the “Fixed Income Fund”). The Highland Energy MLP (Master Limited Partnership) Fund (formerly Pyxis Energy and Materials Fund) is reported separately. The Pyxis Money Market Fund II liquidated on December 24, 2012.
Fund Shares
Each fund is authorized to issue an unlimited number of shares of beneficial interest with a par value of $0.001 per share (each a “Share” and collectively, the “Shares”). Each Fund (other than the Trend Following Fund, Dividend Equity Fund, and Tax-Exempt Fund) currently offers four share classes to investors, namely Class A, Class C, Class R and Class Y Shares. The Trend Following Fund and the Dividend Equity Fund currently offer four share classes to investors but have only sold three, namely Class A, Class C and Class Y shares. The Tax-Exempt Fund currently offers three share classes to investors, namely Class A, Class C and Class Y Shares. As of January 29, 2007, Class B Shares were closed to new investments for all Funds that offered Class B Shares.
Class A Shares are sold with a front-end sales charge. Maximum sales load imposed on purchases of Class A Shares (as a percentage of offering price) is as follows:
Fund | % | |||
Alpha Trend Strategies Fund | 5.75 | |||
Alternative Income Fund | 5.75 | |||
Trend Following Fund | 5.75 | |||
Global Allocation Fund | 5.75 | |||
Dividend Equity Fund | 5.75 | |||
Premier Growth Equity Fund | 5.75 | |||
Small-Cap Equity Fund | 5.75 | |||
Global Select Equity Fund | 5.75 | |||
International Equity Fund | 5.75 | |||
Total Return Fund | 5.75 | |||
Tax-Exempt Fund | 4.25 | |||
Fixed Income Fund | 4.25 |
There is no front-end sales charge imposed on individual purchases of Class A Shares of $1 million or more. The front-end sales charge is also waived in other instances as described in the Funds’ prospectuses. Purchases of $1 million or more of Class A Shares at net asset value are subject to a 0.50% contingent deferred sales charge (“CDSC”) if redeemed within one year of purchase.
Class B and Class C Shares may be subject to a CDSC. Maximum CDSC imposed on redemptions of Class B Shares (as a percentage of redemption proceeds) within the first year are follows:
Fund | % | |||
Global Allocation Fund | 4.00 | |||
Premier Growth Equity Fund | 4.00 | |||
Small-Cap Equity Fund | 4.00 | |||
Global Select Equity Fund | 4.00 | |||
International Equity Fund | 4.00 | |||
Total Return Fund | 4.00 | |||
Fixed Income Fund | 3.00 |
The CDSC for redemptions of Funds that offer Class B Shares are as follows: within the second year: 3.00%; within the third year: 2.00%; within the fourth year: 1.00% and within the fifth year and thereafter: 0.00%.
The maximum CDSC imposed on redemptions of Class C Shares for all Funds is 1.00% within the first year of purchase and 0.00% thereafter.
No front-end or CDSCs are assessed by the Trust with respect to Class R and Class Y Shares of all Funds.
Note 2. Significant Accounting Policies
The following summarizes the significant accounting policies consistently followed by the Funds in the preparation of their financial statements.
94 | Semi-Annual Report |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
Offering Costs
Certain costs were incurred in connection with the offering of the following Funds as disclosed in the table below. The costs associated were capitalized and amortized on a straight-line basis over twelve months based on the commencement date of the Funds, stated below.
Fund | Commencement Date | Original Offering Costs | ||||||
Alpha Trend Strategies Fund | November 01, 2011 | $ | 100,733 | |||||
Alternative Income Fund | January 13, 2012 | 56,705 | ||||||
Dividend Equity Fund | November 14, 2011 | 109,695 |
Use of Estimates
The Funds’ financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require management 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 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.
Securities Valuation
The Funds utilize various methods to measure the fair value of most of its investments on a recurring basis. GAAP establishes a framework for measuring fair value and providing related disclosures. Broadly, the framework requires fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. It also establishes a three-level valuation hierarchy based upon observable and non-observable inputs.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
Level 1 — | Quoted prices for identical investments in active markets. |
Level 2 — | Quoted prices for similar investments in active markets; quoted prices for identical or similar investments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. |
Level 3 — | Significant inputs to the valuation model are unobservable. |
Policies and procedures are maintained to value investments using the best and most relevant data available. In addition, pricing vendors are utilized to assist in valuing investments. Highland Capital Management Fund Advisors, L.P., (formerly Pyxis Capital, L.P.) (the “Investment Adviser” or “Highland”) performs periodic reviews of the methodologies used by independent pricing services including price validation of individual securities.
Fair Value Measurement
The following section describes the valuation methodologies the Funds use to measure different financial investments at fair value.
A Fund’s portfolio securities are valued generally on the basis of market quotations. Equity securities generally are valued at the last reported sales price on the primary market in which they are traded. Portfolio securities listed on National Association of Securities Dealers Automated Quotation (‘NASDAQ”) are valued using the NASDAQ Official Closing Price; Level 1 securities primarily include publicly-traded equity securities which may not necessarily represent the last sale price. If no sales occurred on the exchange or NASDAQ that day, the portfolio security will be valued at the mean between the most recently quoted bid and asked prices produced by the principal market makers. In those circumstances the Fund classifies the investment securities in Level 2.
Debt securities (other than short-term securities described below) generally are valued at an evaluated bid as reported by an independent pricing service. Municipal obligations are valued at the quoted bid prices when available. The pricing vendor uses various pricing models for each asset class that are consistent with what other market participants would use. The inputs and assumptions to the model of the pricing vendor are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and other market related data. Since many fixed income securities do not trade on a daily basis, the methodology of the pricing vendor uses available information as applicable such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. The pricing vendor considers
Semi-Annual Report | 95 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
all available market observable inputs in determining the evaluation for a security. Thus, certain securities may not be priced using quoted prices, but rather determined from market observable information. These investments are included in Level 2 and primarily comprise our portfolio of corporate fixed income, government, mortgage and asset-backed securities.
In the absence of a reliable price from such a pricing service, debt securities may be valued based on dealer supplied valuations or quotations. In these infrequent circumstances, pricing vendors may provide the Funds with valuations that are based on significant unobservable inputs, and in those circumstances we classify the investment securities in Level 3.
The Funds use non-binding broker quotes as the primary basis for valuation when there is limited, or no, relevant market activity for a specific investment or for other investments that share similar characteristics. The Funds have not adjusted the prices obtained. Investment securities priced using non-binding broker quotes are included in Level 3. As is the case with the primary pricing vendor, third-party brokers do not provide access to their proprietary valuation models, inputs and assumptions. Accordingly, Highland conducts internal reviews of pricing for all such investment securities periodically to ensure reasonableness of valuations used in the Funds’ financial statements. These reviews are designed to identify prices that appear stale, those that have changed significantly from prior valuations, and other anomalies that may indicate that a price may not be accurate. Based on the information available, Highland believes that the fair values provided by the brokers are representative of prices that would be received to sell the assets at the measurement date (exit prices).
Short-term securities of sufficient credit quality with remaining maturities of sixty days or less at the time of purchase are valued on the basis of amortized cost which approximates market value and these are included in Level 2.
Written or purchased options are valued at the last sales price, or if no sales occurred that day, at the last reported bid price and those are also included in Level 2.
If prices are not readily available for a portfolio security, or if it is believed that a price for a portfolio security does not represent its fair value, the security may be valued using procedures approved by the Funds’ Board of Trustees that are designed to establish its “fair” value. These securities would be classified in Level 3. Those procedures require that the fair value of a security be established by the fair valuation committee. The fair valuation committee follows
different protocols for different types of investments and circumstances. The fair value procedures may be used to value any investment of any Fund in the appropriate circumstances.
Foreign securities may be valued with the assistance of an independent fair value pricing service in circumstances where it is believed that they have been or would be materially affected by events occurring after the close of the portfolio security’s primary market and before the close of regular trading on the New York Stock Exchange (“NYSE”). In these circumstances the Fund classifies the investment securities in Level 2. This independent fair value pricing service uses a model to identify affected securities and portfolios taking into consideration various factors and the fair value of such securities may be something other than the last available quotation or other market price.
Portfolio securities may be valued using techniques other than market quotations, under the circumstances described above. The value established for a portfolio security may be different than what would be produced through the use of another methodology or if it had been priced using market quotations. Portfolio securities that are valued using techniques other than market quotations, including “fair valued” securities, may be subject to greater fluctuation in their value from one day to the next than would be the case if market quotations were used. In addition, there is no assurance that the Funds could sell a portfolio security for the value established for it at any time and it is possible that the Funds would incur a loss because a portfolio security is sold at a discount to its established value.
Other financial investments are derivative instruments that are not reflected in Total Investments, such as futures, forwards, swaps, and written options contracts, which are valued based on fair value as discussed above.
The Funds use closing prices for derivatives included in Level 1, which are traded either on exchanges or liquid over-the-counter markets. Derivative assets and liabilities included in Level 2 primarily represent interest rate swaps, cross-currency swaps and foreign currency and commodity forward and option contracts. Derivative assets and liabilities included in Level 3 primarily represent interest rate products that contain embedded optionality or prepayment features.
Fair value determinations are required for securities whose value is affected by a significant event that will materially affect the value of a domestic or foreign security and which occurs subsequent to the time of the close of the principal market on which such domestic or foreign security trades but prior to the calculation of the Fund’s net asset value (“NAV”).
96 | Semi-Annual Report |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
At the end of each calendar quarter, management 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, management 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 an indication of the risk associated with investing in those securities. Transfers in and out of levels are recognized at the value at the beginning of the period. The following tables present the Funds’ investments measured at fair value on a recurring basis at March 31, 2013:
Total value at March 31, 2013 | Level 1 Quoted Price | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |||||||||||||
Alpha Trend Strategies Fund | ||||||||||||||||
Assets | ||||||||||||||||
Exchange-Traded Funds* | $ | 2,971,700 | $ | 2,971,700 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 2,971,700 | $ | 2,971,700 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Alternative Income Fund | ||||||||||||||||
Assets | ||||||||||||||||
Exchange-Traded Funds* | $ | 10,692,394 | $ | 10,692,394 | $ | — | $ | — | ||||||||
Investment Companies | 652,806 | 652,806 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 11,345,200 | $ | 11,345,200 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Trend Following Fund | ||||||||||||||||
Assets | ||||||||||||||||
Exchange-Traded Funds* | $ | 699,108 | $ | 699,108 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 699,108 | $ | 699,108 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Global Allocation Fund | ||||||||||||||||
Assets | ||||||||||||||||
Common Stocks* | $ | 180,534,285 | $ | 180,534,285 | $ | — | $ | — | ||||||||
Exchange-Traded Funds* | 3,135,677 | 3,135,677 | — | — | ||||||||||||
Investment Companies | 28,498,949 | 28,498,949 | — | — | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Equity Contracts — Futures** | 69,312 | 69,312 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 212,238,223 | $ | 212,238,223 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Dividend Equity Fund | ||||||||||||||||
Assets | ||||||||||||||||
Common Stocks* | $ | 11,917,099 | $ | 11,917,099 | $ | — | $ | — | ||||||||
Exchange-Traded Funds* | 304,670 | 304,670 | — | — | ||||||||||||
Investment Companies | 3,306,806 | 3,306,806 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 15,528,575 | $ | 15,528,575 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Premier Growth Equity Fund | ||||||||||||||||
Assets | ||||||||||||||||
Common Stocks* | $ | 155,350,242 | $ | 155,350,242 | $ | — | $ | — | ||||||||
Investment Companies | 34,511,528 | 34,511,528 | — | — | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Equity Contracts — Futures** | 52,896 | 52,896 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 189,914,666 | $ | 189,914,666 | $ | — | $ | — | �� | |||||||
|
|
|
|
|
|
|
|
Semi-Annual Report | 97 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
Total value at March 31, 2013 | Level 1 Quoted Price | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |||||||||||||
Small-Cap Equity Fund | ||||||||||||||||
Assets | ||||||||||||||||
Common Stocks* | $ | 38,249,995 | $ | 38,249,995 | $ | — | $ | — | ||||||||
Investment Companies | 11,307,745 | 11,307,745 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 49,557,740 | $ | 49,557,740 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Global Select Equity Fund | ||||||||||||||||
Assets | ||||||||||||||||
Common Stocks* | $ | 23,765,021 | $ | 23,765,021 | $ | — | $ | — | ||||||||
Preferred Stocks* | 485,159 | 485,159 | — | — | ||||||||||||
Investment Companies | 5,026,220 | 5,026,220 | — | — | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Equity Contracts — Futures** | 912 | 912 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets | 29,277,312 | 29,277,312 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Other Financial Instruments | ||||||||||||||||
Equity Contracts — Futures** | (1,234 | ) | (1,234 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Liabilities | (1,234 | ) | (1,234 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 29,276,078 | $ | 29,276,078 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
International Equity Fund | ||||||||||||||||
Assets | ||||||||||||||||
Common Stocks* | $ | 11,843,290 | $ | 11,843,290 | $ | — | $ | — | ||||||||
Preferred Stocks* | 161,816 | 161,816 | — | — | ||||||||||||
Investment Companies | 1,585,098 | 1,585,098 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets | 13,590,204 | 13,590,204 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Other Financial Instruments | ||||||||||||||||
Equity Contracts — Futures** | (1,289 | ) | (1,289 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Liabilities | (1,289 | ) | (1,289 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 13,588,915 | $ | 13,588,915 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total Return Fund | ||||||||||||||||
Assets | ||||||||||||||||
Agency Collateralized Mortgage Obligations | $ | 301,312 | $ | — | $ | 301,312 | $ | — | ||||||||
Agency Mortgage-Backed Securities | 6,711,420 | — | 6,711,420 | — | ||||||||||||
Asset-Backed Securities | 112,810 | — | 112,810 | — | ||||||||||||
Corporate Bonds & Notes | 5,880,055 | — | 5,880,055 | — | ||||||||||||
Foreign Corporate Bonds & Notes | 2,642,443 | — | 2,642,443 | — | ||||||||||||
Municipal Bonds & Notes | 153,884 | — | 153,884 | — | ||||||||||||
Non-Agency Collateralized Mortgage Obligations | 148,148 | — | 148,148 | — | ||||||||||||
Non-Agency Collateralized Mortgage-Backed Securities | 1,249,379 | — | 1,249,379 | — | ||||||||||||
Sovereign Bonds | 419,044 | — | 419,044 | — | ||||||||||||
U.S. Government Agencies | 161,644 | — | 161,644 | — | ||||||||||||
U.S. Treasuries | 5,668,501 | — | 5,668,501 | — | ||||||||||||
Domestic Equity* | 27,814,995 | 27,814,995 | — | — | ||||||||||||
Foreign Equity* | 17,297,257 | 17,297,257 | — | — | ||||||||||||
Exchange-Traded Funds* | 3,344,259 | 3,344,259 | — | — | ||||||||||||
Investment Companies | 19,574,668 | 19,574,668 | — | — | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Equity Contracts — Futures** | 54,968 | 54,968 | — | — | ||||||||||||
Interest Rate Contracts — Futures** | 4,178 | 4,178 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets | 91,538,965 | 68,090,325 | 23,448,640 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Other Financial Instruments | ||||||||||||||||
Equity Contracts — Futures** | (3,124 | ) | (3,124 | ) | — | — | ||||||||||
Interest Rate Contracts — Futures** | (21,596 | ) | (21,596 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Liabilities | (24,720 | ) | (24,720 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 91,514,245 | $ | 68,065,605 | $ | 23,448,640 | $ | — | ||||||||
|
|
|
|
|
|
|
|
98 | Semi-Annual Report |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
Total value at | Level 1 Quoted Price | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |||||||||||||
Tax-Exempt Fund | ||||||||||||||||
Assets | ||||||||||||||||
Municipal Bonds & Notes | $ | 34,032,593 | $ | — | $ | 34,032,593 | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 34,032,593 | $ | — | $ | 34,032,593 | $ | — | ||||||||
|
|
|
|
|
|
|
| |||||||||
Fixed Income Fund | ||||||||||||||||
Assets | ||||||||||||||||
Agency Collateralized Mortgage Obligations | $ | 2,767,590 | $ | — | $ | 2,767,590 | $ | — | ||||||||
Agency Mortgage-Backed Securities | 53,269,955 | — | 53,269,955 | — | ||||||||||||
Asset-Backed Securities | 2,514,221 | — | 2,514,221 | — | ||||||||||||
Corporate Bonds & Notes | 45,421,763 | — | 45,421,763 | — | ||||||||||||
Foreign Corporate Bonds & Notes | 20,130,283 | — | 20,130,283 | — | ||||||||||||
Municipal Bonds & Notes | 725,033 | — | 725,033 | — | ||||||||||||
Non-Agency Collateralized Mortgage Obligations | 1,039,393 | — | 1,039,393 | — | ||||||||||||
Non-Agency Collateralized Mortgage-Backed Securities | 8,695,167 | — | 8,695,167 | — | ||||||||||||
Sovereign Bonds | 4,409,571 | — | 4,409,571 | — | ||||||||||||
U.S. Government Agencies | 6,477,165 | — | 6,477,165 | — | ||||||||||||
U.S. Treasuries | 39,130,626 | — | 39,130,626 | — | ||||||||||||
Investment Companies | 46,831,678 | 46,831,678 | — | — | ||||||||||||
Other Financial Instruments | ||||||||||||||||
Interest Rate Contracts — Futures** | 15,247 | 15,247 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets | 231,427,692 | 46,846,925 | 184,580,767 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Other Financial Instruments | ||||||||||||||||
Interest Rate Contracts — Futures** | (138,764 | ) | (138,764 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Liabilities | (138,764 | ) | (138,764 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 231,288,928 | $ | 46,708,161 | $ | 184,580,767 | $ | — | ||||||||
|
|
|
|
|
|
|
|
* See Investment Portfolio detail for industry breakout.
** Includes cumulative unrealized appreciation/(depreciation) of future contracts as reported in the Investment Portfolio.
Certain foreign securities are fair valued by utilizing an external pricing service in the event of any significant market movements between the time the series valued such foreign securities and the earlier closing of foreign markets. Such fair valuations are categorized as Level 2 in the hierarchy. There were no transfers between levels 1, 2, or 3 during the six months ended March 31, 2013.
Security Transactions
Security transactions are accounted for on the trade date. Realized gains/(losses) on investments sold are recorded on the basis of identified cost for both financial statement and U.S. federal income tax purposes.
Each fund’s income, expenses (other than distribution fees and shareholder service fees) and realized and unrealized gains and losses are allocated proportionally each day among each Fund’s respective share classes based upon the relative net assets of each class share.
Income Recognition
Corporate actions (including cash dividends) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis.
Accretion of discount and amortization of premium on taxable bonds are computed to the call or maturity date, whichever is shorter, using the effective yield method. Withholding taxes on foreign dividends have been provided for in accordance with the Funds’ understanding of the applicable country’s tax rules and rates.
Expenses
Fund specific expenses are allocated to the Fund that incurs such expense and pro rata across share classes. Expenses, other than those incurred by a specific Fund, are
Semi-Annual Report | 99 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
allocated pro rata among Funds and share classes. Such expenses may include custodial fees, legal and accounting fees, printing costs and registration fees. Certain class specific expenses (such as distribution fees and shareholder service fees) are allocated to the class that incurs such expense.
Short-Term Trading (Redemption) Fees
Shares held in the Global Select Equity Fund and International Equity Fund less than 90 days and in the Alpha Trend Strategies Fund, Alternative Income Fund, Dividend Equity Fund, and Trend Following Fund less than 60 days are subject to a short-term trading fee equal to 2.00% of the proceeds of the redeemed shares. These fees, which are retained by the respective Fund, are accounted for as an addition to paid-in capital. The redemption fee has currently been suspended for the Global Select Equity Fund and International Equity Fund. It may be reinstated at any time without prior notice.
Redemption Fee Amount | ||||||||||||||||
Fund | Class A | Class C | Class R | Class Y | ||||||||||||
Alpha Trend Strategies Fund | $ | 34 | $ | 1 | $ | 6 | $ | 48 | ||||||||
Alternative Income Fund | 1,427 | 24 | 482 | 2,110 | ||||||||||||
Trend Following Fund | 7 | — | — | — | ||||||||||||
Dividend Equity Fund | 2 | 5 | — | 47 |
U.S. Federal Income Tax Status
Each fund is treated as a separate taxpayer for U.S. federal income tax purposes. The funds intend 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 Funds intend to distribute, in each calendar year, all of their net investment income, capital gains and certain other amounts, if any, such that the Funds should not be subject to U.S. federal excise tax. Therefore, no U.S. federal income or excise tax provisions are recorded.
Management has analyzed the Funds’ 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 Funds’ financial statements. The Funds’ 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.
Distributions to Shareholders
The Tax-Exempt Fund and Fixed Income Fund declare investment income dividends daily and pay them monthly.
The Dividend Equity Fund and Alternative Income Fund declare and pay investment income dividends monthly. All other Funds declare and pay dividends from investment income annually. All Funds declare and pay distributions from net realized capital gains in excess of capital loss carryforwards annually.
Cash & Cash Equivalents
The Funds consider liquid assets deposited with a bank, money market funds, and certain short term debt instruments of sufficient credit quality with original maturities of 3 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 Statement of Assets and Liabilities.
Foreign Currency
Accounting records of the Funds 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 the WM/Reuter exchange rate computed at 11:00 A.M., Eastern time. 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 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.
Investments in Foreign Markets
Investments in foreign markets involve special risks and considerations not typically associated with investing in the United States. These risks include revaluation of currencies, high rates of inflation, restrictions on repatriation of income and capital, and adverse political and economic developments. Moreover, securities issued in these markets may be less liquid, subject to government ownership controls, tariffs and taxes, subject to delays in settlements, and their prices may be more volatile.
100 | Semi-Annual Report |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
The Funds may be subject to capital gains and repatriation taxes imposed by certain countries in which they invest. Such taxes are generally based on income and/or capital gains earned or repatriated. Taxes are accrued based upon net investment income, net realized gains and net unrealized appreciation as income and/or capital gains are earned.
Repurchase Agreements
Certain funds engage in repurchase agreement transactions with respect to instruments that are consistent with the Fund’s investment objective or policies. The Funds’ custodian takes possession of the collateral pledged for investments in repurchase agreements on behalf of the Funds. The Funds value the underlying collateral daily on a mark-to-market basis to determine that the value, including accrued interest, is at least equal to 102% for domestic securities and 105% for international securities of the repurchase price. In the event the seller defaults and the value of the security declines, or if the seller enters an insolvency proceeding, realization of the collateral by the Funds may be delayed or limited.
Securities Sold Short
The Funds may sell securities short. A short sale is a transaction in which a Fund sells a security it does not own in anticipation that the market price of that security will decline. When a Fund makes a short sale, it must borrow the security sold short from a broker-dealer and deliver it to the buyer upon conclusion of the transaction. A Fund may have to pay a fee to borrow particular securities and is often obligated to pay over any dividends or other payments received on such borrowed securities. Cash held as collateral for short sales is classified as “Restricted Cash — Securities sold short” on the Statement of Assets and Liabilities for the Alpha Trend Strategies Fund. At March 31, 2013, none of the funds held securities sold short.
When-Issued Securities & Forward Commitments
The Funds may purchase or sell securities on a when-issued or forward commitment basis. These transactions are arrangements in which the Funds purchase and sell securities with payment and delivery scheduled a month or more after entering into the transactions. The price of the underlying securities and the date when these securities will be delivered and paid for are fixed at the time the transaction is negotiated. Losses may arise due to changes in the market value of the underlying securities or if the counterparty does not perform under the contract. In connection with such purchases, the Funds maintain cash or liquid assets in an amount equal to purchase
commitments for such underlying securities until settlement date. For sales commitments, the Funds maintain equivalent deliverable securities as “cover” for the transaction. Unsettled commitments are valued at current market value of the underlying security. Daily fluctuations in the value of such contracts are recorded as unrealized gains or losses. The Funds will not enter into such commitments for the purpose of investment leverage. As of March 31, 2013, the Total Return Fund and the Fixed Income Fund each held securities on a when-issued basis. These securities are detailed in each Fund’s Investment Portfolio.
Note 3. Derivative Transactions
The Funds are subject to equity price risk, interest rate risk, and foreign currency exchange rate risk in the normal course of pursuing their investment objectives. The Funds enter 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.
Forward Foreign Currency Exchange Contracts
Certain funds enter into forward foreign currency exchange contracts to facilitate transactions in foreign denominated securities and to manage the Funds’ currency exposure. Forward foreign currency exchange contracts are valued at the mean between the bid and the offered forward rates as last quoted by a recognized dealer. The aggregate principal amounts of the contracts are not recorded in the Funds’ financial statements. Such amounts appear under the caption Forward Foreign Currency Exchange Contracts in the Investment Portfolio. Fluctuations in the value of the contracts are recorded in the Statement of Assets and Liabilities as an asset (or liability) and in the Statement of Operations as unrealized appreciation (depreciation) until the contracts are closed, when they are recorded as realized gains or losses on foreign currency related transactions. The Funds’ risks in using these contracts include changes in the value of foreign currency or the possibility that the counterparties do not perform under the contracts’ terms. When a Fund enters into a forward foreign currency exchange contract, it is required to segregate cash or liquid securities with its custodian in an amount equal to the value of the Fund’s total assets committed to the consummation of the forward contract. If the value of the segregated securities declines, additional cash or securities is segregated so that the value of the account will equal the amount of the Fund’s commitment with respect to the contract. For the
Semi-Annual Report | 101 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
six months ended March 31, 2013, none of the funds invested in forward foreign currency exchange contracts.
Futures Contracts
A futures contract represents a commitment for the future purchase or sale of an asset at a specified price on a specified date. Certain funds invest in interest rate, financial and stock or bond index futures contracts subject to certain limitations. The Funds invest in futures contracts to manage their exposure to the stock and bond markets and fluctuations in currency values. Buying futures tends to increase a Fund’s exposure to the underlying instrument while selling futures tends to decrease a Fund’s exposure to the underlying instrument, or economically hedge other Fund investments. With futures contracts, there is minimal counterparty credit risk to the Funds since futures contracts are exchange-traded and the exchange’s clearinghouse, as counterparty to all traded futures, guarantees the futures against default. A Fund will not enter into a transaction involving futures for speculative purposes. A Fund’s risks in using these contracts include changes in the value of the underlying instruments, non-performance of the counterparties under the contracts’ terms and changes in the liquidity of the secondary market for the contracts. Futures contracts are valued at the settlement price established each day by the board of trade or exchange on which they principally trade.
Upon entering into a financial futures contract, the Funds are required to pledge to the broker an amount of cash and/or other assets equal to a certain percentage of the contract amount, known as initial margin deposit. Subsequent payments, known as variation margins, are made or received by the Funds each day, depending on the daily fluctuation in the fair value of the underlying security. The Funds record an unrealized gain/(loss) equal to the daily variation margin. Should market conditions move unexpectedly, the Funds may not achieve the anticipated benefits of the futures contracts and may incur a loss. The Funds recognize a realized gain/(loss) on the expiration or closing of a futures contract. For the six months ended March 31, 2013, the Global Allocation Fund, Premier Growth Equity Fund, Global Select Equity Fund, International Equity Fund, Total Return Fund and Fixed Income Fund held futures contracts as detailed in each fund’s Investment Portfolio. The Funds entered into futures 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. Cash held as collateral for futures contracts is shown on the Statement of Assets and Liabilities as
“Restricted Cash – Futures”. Securities held as collateral for futures contracts can be found on the Investment Portfolio. No funds held securities collateral as of March 31, 2013.
Options
Certain funds purchase and write options, subject to certain limitations. The Funds may invest in options contracts to manage their exposure to the stock and bond markets and fluctuations in foreign currency values. Writing puts and buying calls tend to increase a Fund’s exposure to the underlying instrument while buying puts and writing calls tend to decrease a Fund’s exposure to the underlying instrument, or economically hedge other Fund investments. A Fund will not enter into a transaction involving options for speculative purposes. A Fund’s risks in using these contracts include changes in the value of the underlying instruments, nonperformance of the counterparties under the contracts’ terms and changes in the liquidity of the secondary market for the contracts. Options are valued at the last sale price, or if no sales occurred on that day, at the last quoted bid price.
When a Fund writes an option, the amount of the premium received is recorded as a liability and is subsequently adjusted to the current fair value of the option written. Premiums received from writing options that expire unexercised are treated by the Funds on the expiration date as realized gains from investments. The difference between the premium and the amount paid on effecting a closing purchase transaction, including brokerage commissions, is also treated as a realized gain, or if the premium is less than the amount paid for the closing purchase, as a realized loss. When an option is exercised, the proceeds from the sale of the underlying security or the cost basis of the securities purchased are adjusted by the original premium received or paid. For the six months ended March 31, 2013, none of the Funds invested in options.
Additional Derivative Information
The Funds adopted amendments to authoritative guidance on disclosures about derivative instruments and hedging activities which require that the Funds disclose: a) how and why an entity uses derivative instruments, b) how derivative instruments and related hedged items are accounted for and c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and cash flows.
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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
The fair value of derivative instruments on the Statement of Assets and Liabilities have the following risk exposure at March 31, 2013.
Fund | Asset Derivative Fair Value(1)* | Liability Derivative Fair Value* | ||||||
Global Allocation Fund | ||||||||
Equity Contracts | $ | 69,312 | $ | — | ||||
Premier Growth Equity Fund | ||||||||
Equity Contracts | 52,896 | — | ||||||
Global Select Equity Fund | ||||||||
Equity Contracts | 912 | 1,234 | ||||||
International Equity Fund | ||||||||
Equity Contracts | — | 1,289 | ||||||
Total Return Fund | ||||||||
Equity Contracts | 54,968 | 21,596 | ||||||
Interest Rate Contracts | 4,178 | 3,124 | ||||||
Fixed Income Fund | ||||||||
Interest Rate Contracts | 15,247 | 138,764 |
(1) | Statement of Assets and Liabilities location: Variation margin receivable. |
* | Includes cumulative unrealized appreciation/(depreciation) of futures contracts as reported in the Investment Portfolio and within the components of the net assets section of the Statement of Assets and Liabilities. Only the current day’s variation margin is reported within the receivables and/or payables of the Statements of Assets and Liabilities. |
The effect of derivative instruments on the Statement of Operations for the six months ended March 31, 2013, is as follows:
Fund | Net Realized Gain( Loss) | Net Change in Unrealized (Depreciation) on | ||||||
Global Allocation Fund | ||||||||
Equity Contracts | $ | 345,482 | $ | 75,527 | ||||
Premier Growth Equity Fund | ||||||||
Equity Contracts | (135,237 | ) | 114,581 | |||||
Global Select Equity Fund | ||||||||
Equity Contracts | 28,162 | (322 | ) | |||||
International Equity Fund | ||||||||
Equity Contracts | 27,202 | 8,183 | ||||||
Total Return Fund | ||||||||
Equity Contracts | 347,839 | 171,910 | ||||||
Interest Rate Contracts | 66,546 | (27,805 | ) | |||||
Fixed Income Fund | ||||||||
Interest Rate Contracts | 249,416 | (158,871 | ) |
(1) | Statement of Operations location: Realized gain (loss) on future contracts. |
(2) | Statement of Operations location: Net increase (decrease) in unrealized appreciation (depreciation) on future contracts. |
The average notional volume of derivative activity for the six months ended March 31, 2013, is as follows:
Fund | Average Notional Volume Six Months Ended 03/31/2013 | Notional Volume as of 03/31/2013 | ||||||
Long Futures: | ||||||||
Global Allocation Fund | $ | 3,826,608 | $ | 5,938,260 | ||||
Premier Growth Equity Fund | 2,705,818 | 4,531,830 | ||||||
Global Select Equity Fund | 160,877 | 174,572 | ||||||
International Equity Fund | 233,058 | 32,796 | ||||||
Total Return Fund | 9,285,675 | 8,545,343 | ||||||
Fixed Income Fund | 27,472,917 | 31,900,000 | ||||||
Short Futures: | ||||||||
Premier Growth Equity Fund | 828,333 | — | ||||||
Total Return Fund | 5,986,104 | 4,578,135 | ||||||
Fixed Income Fund | 24,624,323 | 27,100,000 |
Note 4. 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 to off-setting positions, tax treatment of organizational start-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 net asset value of the Funds. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments.
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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
The reclassifications for the year or period ended September 30, 2012, were as follows:
Fund | Undistributed Net Investment Income | Accumulated Net Realized Loss | Paid-In- Capital | |||||||||
Alpha Trend Strategies Fund | $ | 29,641 | $ | (2,975 | ) | $ | (26,666 | ) | ||||
Alternative Income Fund | 36,210 | — | (36,210 | ) | ||||||||
Trend Following Fund | 21,146 | (1,012,946 | ) | 991,800 | ||||||||
Global Allocation Fund | (17,219 | ) | (3,829,984 | ) | 3,847,203 | |||||||
Dividend Equity Fund | 64,640 | (6,664 | ) | (57,976 | ) | |||||||
Small-Cap Equity Fund | 19,699 | — | (19,699 | ) | ||||||||
Global Select Equity Fund | (11,433 | ) | 24,053 | (12,620 | ) | |||||||
International Equity Fund | 788 | 17,404 | (18,192 | ) | ||||||||
Total Return Fund | (28,470 | ) | 28,470 | — | ||||||||
Fixed Income Fund | (135,683 | ) | (2,605,596 | ) | 2,741,279 |
At September 30, 2012, the most recent tax year end, components of distributable earnings on a tax basis is as follows:
Fund | Undistributed Income | Undistributed Long-Term Capital Gains | Undistributed Tax-Exempt Income | Accumulated Capital and Other Losses | Net Tax Appreciation/ (Depreciation)* | |||||||||||||||
Alpha Trend Strategies Fund | $ | 41,598 | $ | — | $ | — | $ | — | $ | (73,973 | ) | |||||||||
Alternative Income Fund | — | — | — | (263,148 | ) | (168,206 | ) | |||||||||||||
Trend Following Fund | — | — | — | (465,016 | ) | 61,144 | ||||||||||||||
Global Allocation Fund | 244,231 | — | — | (6,016,696 | ) | 23,986,077 | ||||||||||||||
Dividend Equity Fund | 50,665 | — | — | — | 1,109,665 | |||||||||||||||
Premier Growth Equity Fund | 200,843 | — | — | (515,265 | ) | 41,687,424 | ||||||||||||||
Small-Cap Equity Fund | — | — | — | (329,192 | ) | 3,252,984 | ||||||||||||||
Global Select Equity Fund | — | 2,528,613 | — | (6,467,395 | ) | 2,294,246 | ||||||||||||||
International Equity Fund | — | — | — | (14,386,114 | ) | 553,981 | ||||||||||||||
Total Return Fund | 751,625 | — | — | (7,528,760 | ) | 4,355,179 | ||||||||||||||
Tax-Exempt Fund | — | — | 78,151 | (557,646 | ) | 3,477,459 | ||||||||||||||
Fixed Income Fund | — | — | — | (2,356,170 | ) | 2,153,516 |
* | Any differences between book-basis and tax-basis net unrealized appreciation/(depreciation) are primarily due to deferral of losses from wash sales and other adjustments. |
As of September 30, 2012, the most recent tax year end, the following Funds have capital loss carryovers as indicated below. The capital loss carryover is available to offset future realized capital gains to the extent provided in the Code and regulations promulgated thereunder. To the extent that these carryover losses are used to offset future capital gains, it is probable that the gains so offset will not be distributed to shareholders because they would be taxable as ordinary income.
Fund | 2016 | 2017 | 2018 | 2019 | No Short-Term* | No Expiration Long-Term* | Total | |||||||||||||||||||||
Trend Following Fund | $ | — | $ | — | $ | — | $ | — | $ | 169,921 | $ | — | $ | 169,921 | ||||||||||||||
Global Allocation Fund | — | — | 6,016,696 | ** | — | — | — | 6,016,696 | ||||||||||||||||||||
Premier Growth Equity Fund | — | — | 435,857 | — | — | — | 435,857 | |||||||||||||||||||||
Global Select Equity Fund | — | — | 5,960,966 | — | — | — | 5,960,966 | |||||||||||||||||||||
International Equity Fund | — | 1,249,332 | 11,097,436 | 1,384,765 | — | — | 13,731,533 | |||||||||||||||||||||
Total Return Fund | — | — | 7,528,760 | — | — | — | 7,528,760 | |||||||||||||||||||||
Tax-Exempt Fund | 168,126 | 291,901 | 97,619 | — | — | — | 557,646 | |||||||||||||||||||||
Fixed Income Fund | — | — | — | — | — | 2,356,170 | *** | 2,356,170 |
* | Under the recently enacted Regulated Investment Company Modernization Act of 2010, the Fund will be permitted to carry forward capital losses incurred in taxable years beginning after December 22, 2010 for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital losses that are carried forward will retain their character as either short-term or long-term capital losses rather than being considered all short-term as under previous law. |
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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
** | Includes capital loss acquired due to Global Allocation Fund’s merger with U.S. Equity Fund on September 28, 2012 (See Note 11). |
*** | Capital loss acquired due to Fixed Income Fund’s merger with Short Term Government Fund and Government Securities Fund on September 28, 2012 (See Note 11). |
During the year ended September 30, 2012, the Global Allocation Fund, the Premier Growth Equity Fund, the Small-Cap Equity Fund, the Global Select Equity Fund, the International Equity Fund, the Total Return Fund, the Tax-Exempt Fund and the Fixed Income Fund utilized capital carryforwards in the amount of $1,920,522, $7,602,791, $1,039,571, $944,768, $72,047, $3,066,036, $209,858 and $2,618,640, respectively.
The tax composition of distributions paid during the years or periods ended September 30, 2012 and September 30, 2011 (unless otherwise indicated) were as follows:
Distributions Paid From: | ||||||||||||||||
Fund | Exempt Interest | Ordinary Income* | Long-Term Capital Gains | Return of Capital** | ||||||||||||
Alpha Trend Strategies Fund | ||||||||||||||||
2012 | $ | — | $ | — | $ | — | $ | — | ||||||||
Alternative Income Fund | ||||||||||||||||
2012 | — | 434,374 | — | — | ||||||||||||
Trend Following Fund | ||||||||||||||||
2012 | — | 17,796 | 48,183 | — | ||||||||||||
2011*** | — | — | — | — | ||||||||||||
1/31/11 | — | 76,655 | 29,835 | — | ||||||||||||
Global Allocation Fund | ||||||||||||||||
2012 | — | 326,921 | — | — | ||||||||||||
2011 | — | 269,463 | — | — | ||||||||||||
Dividend Equity Fund | ||||||||||||||||
2012 | — | 155,825 | — | — | ||||||||||||
Premier Growth Equity Fund | ||||||||||||||||
2012 | — | — | — | — | ||||||||||||
2011 | — | — | — | — | ||||||||||||
Small-Cap Equity Fund | ||||||||||||||||
2012 | — | — | — | — | ||||||||||||
2011 | — | — | — | — | ||||||||||||
Global Select Equity Fund | ||||||||||||||||
2012 | — | — | — | — | ||||||||||||
2011 | — | 122,799 | — | — | ||||||||||||
International Equity Fund | ||||||||||||||||
2012 | — | 156,149 | — | — | ||||||||||||
2011 | — | 286,130 | — | — | ||||||||||||
Total Return Fund | ||||||||||||||||
2012 | — | 1,063,431 | — | — | ||||||||||||
2011 | — | 628,676 | — | — | ||||||||||||
Tax-Exempt Fund | ||||||||||||||||
2012 | 954,950 | 1,882 | — | — | ||||||||||||
2011 | 1,134,855 | 12,378 | — | — | ||||||||||||
Fixed Income Fund | ||||||||||||||||
2012 | — | 1,915,462 | 8,748 | 180,400 | ||||||||||||
2011 | — | 3,246,163 | — | — |
* | For tax purposes, short-term capital gains distributions, if any, are considered ordinary income distributions. |
** | Additional Information was distributed on Form 1099 as of December 31, 2012. |
*** | For the eight month period ended September 30, 2011. |
Unrealized appreciation and depreciation at March 31, 2013, based on cost of investments for U.S. federal income tax purposes was:
Fund | Gross Appreciation | Gross (Depreciation) | Net Appreciation/ (Depreciation) | Cost | ||||||||||||
Alpha Trend Strategies Fund | $ | 122,557 | $ | (124,570 | ) | $ | (2,013 | ) | $ | 2,973,713 | ||||||
Alternative Income Fund | 122,184 | (308,448 | ) | (186,264 | ) | 11,531,464 | ||||||||||
Trend Following Fund | — | (60,394 | ) | (60,394 | ) | 759,502 | ||||||||||
Global Allocation Fund | 28,578,730 | (2,065,773 | ) | 26,512,957 | 185,655,954 | |||||||||||
Dividend Equity Fund | 2,340,607 | (20,493 | ) | 2,320,114 | 13,208,461 | |||||||||||
Premier Growth Equity Fund | 47,374,024 | (3,571,125 | ) | 43,802,899 | 146,058,871 | |||||||||||
Small-Cap Equity Fund | 6,737,241 | (670,734 | ) | 6,066,507 | 43,491,233 | |||||||||||
Global Select Equity Fund | 4,727,827 | (169,659 | ) | 4,558,168 | 24,718,232 | |||||||||||
International Equity Fund | 1,995,794 | (707,886 | ) | 1,287,908 | 12,302,296 | |||||||||||
Total Return Fund | 8,586,841 | (1,952,435 | ) | 6,634,406 | 84,845,413 | |||||||||||
Tax-Exempt Fund | 3,145,590 | (26,173 | ) | 3,119,417 | 30,913,176 | |||||||||||
Fixed Income Fund | 2,937,983 | (2,387,570 | ) | 550,413 | 230,862,032 |
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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
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 occurring on the first day of the following fiscal year. For the fiscal year ended September 30, 2012, the Funds elected to defer the following losses incurred from November 1, 2011 through September 30, 2012:
Fund | Long-Term Realized Capital Losses | Short-Term Realized Capital Losses | Ordinary Losses | |||||||||
Alternative Income Fund | $ | — | $ | 263,148 | $ | — | ||||||
Trend Following Fund | 18,192 | 210,811 | 66,092 | |||||||||
Premier Growth Equity Fund | — | 79,408 | — | |||||||||
Small-Cap Equity Fund | — | — | 329,192 | |||||||||
Global Select Equity Fund | — | 493,570 | 12,859 | |||||||||
International Equity Fund | 294,023 | 360,558 | — |
Note 5. Securities Lending
Each fund may make secured loans of its portfolio securities amounting to not more than one-third of the value of its total assets, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delays in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially and possible investment losses in the investment of collateral. Pursuant to the Funds’ securities lending policies, securities loans are made to unaffiliated broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities subject to the loan. The borrower pays to a Fund an amount equal to any interest or dividends received on securities subject to the loan. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower.
Fund | Security Lending Market Value | Security Lending Cash Collateral | Security Lending Non-Cash Collateral* | |||||||||
Alternative Income Fund | $ | 641,974 | $ | 652,806 | $ | 3,066 | ||||||
Global Allocation Fund | 28,494,556 | 28,498,949 | 514,897 | |||||||||
Dividend Equity Fund | 3,257,052 | 3,306,806 | — | |||||||||
Premier Growth Equity Fund | 34,124,452 | 34,511,528 | — | |||||||||
Small-Cap Equity Fund | 11,076,894 | 11,307,745 | — | |||||||||
Global Select Equity Fund | 4,908,889 | 5,026,220 | — | |||||||||
International Equity Fund | 1,512,833 | 1,585,098 | — | |||||||||
Total Return Fund | 19,182,357 | 19,574,668 | 11,206 | |||||||||
Fixed Income Fund | 45,975,667 | 46,831,678 | 149,756 |
* | Security lending non-cash collateral consists of U.S. Government Treasury & Agency debt and Sovereign debt. |
Note 6. Credit Agreement
The Funds entered into a $25,000,000 unsecured credit agreement with The Bank of New York Mellon (the “Credit Agreement”) to be used for temporary purposes to facilitate portfolio liquidity. The Funds did not utilize the line of credit before its expiration on February 25, 2013. Each of the Funds, with the exception of the Trend Following Fund, had access to the facility, but aggregate borrowings could not exceed $25,000,000. Interest was charged to the Funds based on their borrowings at a rate equal to the greater of the (a) Federal Funds Effective Rate; (b) Overnight London Interbank Offered Rate (“LIBOR”); (c) or one-month LIBOR, plus 1.25%. In addition, the Funds agreed to pay commitment fee expenses of 0.12% on the undrawn amounts, which are included in “Other” on the Statement of Operations.
Note 7. Transactions with Affiliates & Expenses Incurred by the Fund
Investment Advisory Fees and Administration Fees
Highland serves as the investment adviser to each fund. For its investment advisory and administrative services, each Fund pays Highland a monthly fee, computed and accrued daily, based on an annual rate of the Funds’ Average Daily Managed Assets. Average Daily Managed Assets of the Fund means the average daily value of the total assets of the Fund less all accrued liabilities of the Fund (other than the aggregate amount of any outstanding borrowings constituting financial leverage).
The table below shows each fund’s contractual advisory fee with Highland for the six months ended March 31, 2013:
Fund | Annual Fee Rate to Highland | |||
Alpha Trend Strategies Fund | 1.80 | %* | ||
Alternative Income Fund | 1.80 | %* | ||
Trend Following Fund | 1.80 | %** | ||
Global Allocation Fund | 0.40 | % | ||
Dividend Equity Fund | 1.00 | %*** | ||
Premier Growth Equity Fund | 0.60 | % | ||
Small-Cap Equity Fund | 0.95 | % | ||
Global Select Equity Fund | 0.75 | % | ||
International Equity Fund | 0.80 | % | ||
Total Return Fund | 0.50 | % | ||
Tax-Exempt Fund | 0.35 | % | ||
Fixed Income Fund | 0.35 | % |
* | Highland has voluntarily undertaken to reduce its advisory fee and/or subsidize certain expenses. This voluntary management fee reduction and/or expense subsidy may be modified or discontinued by Highland at any time with 14 days’ notice. |
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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
** | Highland has contractually agreed to reduce its advisory fee and/or subsidize certain expenses of the Fund through May 31, 2013 to the extent that the Fund’s annual operating expenses exceed 2.25% with respect to Class A shares, 2.90% with respect to Class C shares, 2.40% with respect to Class R shares and 1.90% with respect to Class Y shares. After May 31, 2013, this management fee reduction and/or expense subsidy may be modified or discontinued by Highland with 14 days’ notice to the Fund. |
*** | Highland has contractually agreed to reduce its advisory fee and/or subsidize certain expenses of the Fund through January 31, 2014 to the extent that the Fund’s annual operating expenses exceed 1.35% with respect to Class A shares, 2.00% with respect to Class C shares, 1.50% with respect to Class R shares and 1.00% with respect to Class Y shares. |
To the extent Highland waives its fee or reimburses expenses to satisfy the contractual limitation set forth above (the “cap”), it may seek repayment of a portion or all of such amounts at any time within 36 months after the date which such amounts were waived or reimbursed, subject to the cap. There can be no assurance that this fee reduction will be sufficient to avoid any loss. On March 31, 2013, the amounts subject to possible future recoupment under the contractual expense limitation are as follows:
Fund | 2014 | 2015 | 2016 | |||||||||
Trend Following Fund | $ | 98,009 | $ | 169,482 | $ | 43,631 | ||||||
Dividend Equity Fund | — | 119,384 | 48,697 |
For the Alpha Trend Strategies Fund, Alternative Income Fund, Trend Following Fund and Dividend Equity Fund, Highland provides administrative services for a monthly administration fee, computed and accrued daily, at an annual rate of 0.20% of each fund’s Average Daily Managed Assets. During the six months ended March 31, 2013, Highland waived $4,156, $4,227, $2,220 and $11,255 in administrative fees for the Alpha Trend Strategies Fund, Alternative Income Fund, Trend Following Fund and Dividend Equity Fund, respectively. This administration fee waiver is voluntary and is subject to termination at any time by Highland without notice.
Sub-Advisory Fees
The Premier Growth Equity Fund, Global Select Equity Fund, International Equity Fund, Total Return Fund, Tax-Exempt Fund and Fixed Income Fund are sub-advised by GEAM. The Global Allocation Fund was sub-advised by GEAM until April 8, 2013. The Alpha Trend Strategies Fund and Alternative Income Fund are sub-advised by Anchor Capital Management Group, Inc. The Dividend Equity Fund is sub-advised by Brookmont Capital Management, LLC. The Trend Following Fund is sub-advised by Incline Analytics, LLC. The Small-Cap Equity Fund is sub-advised by Palisade Capital Management, LLC. Highland pays each sub-adviser an investment sub-advisory fee out of the advisory fee that it receives from the respective Fund.
Fees Paid to Officers and Trustees
Each Trustee who is not an “interested person” of the Funds 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 based on relative net assets. The “Highland Fund Complex” consists of all of the registered investment companies advised by the Investment Adviser and its affiliated advisors as of the date of this report.
The Funds pay no compensation to their one interested Trustee or any of their officers, all of whom are employees of the Investment Adviser.
Distribution and Shareholder Service Fees
Each fund has a distribution and shareholder service plan (each a “Plan” and collectively the “Plans”) pursuant to Rule12b-1 under the 1940 Act. The Plans require the payment of a monthly service fee to Foreside Funds Distributors LLC (the “Underwriter”) at an annual rate of 0.25% of the average daily net assets attributable to Class A, Class B, Class C and Class R shares of the Funds. In addition, the Plans also require the payment of a monthly distribution fee to the Underwriter at an annual rate of 0.10% of the average daily net assets attributable to Class A shares for the Alpha Trend Strategies Fund, Alternative Income Fund, Trend Following Fund, Dividend Equity Fund and Tax-Exempt Fund. The Plans also require the payment of a monthly distribution fee to the Underwriter at an annual rate of 0.75% of the average daily net assets attributable to Class B and Class C shares and 0.25% of the average daily net assets attributable to Class R shares. Currently Class Y shares are not subject to a 12b-1 fee.
The Underwriter received $1,557 of front end sales charges from the sale of Class A shares and $1,162 in contingent deferred sales charges from the redemption of Class B and Class C shares of the Funds.
Note 8. Disclosure of Significant Risks and Contingencies
The primary risks of investing in the Funds are described below in alphabetical order:
Counterparty Credit Risk
Counterparty credit risk is the potential loss a 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 credit risk is measured as the loss a Fund would record if its counterparties failed to perform pursuant to the terms of their obligations to the Fund. Because a Fund may enter into over-the-counter forwards, options, swaps and other derivative financial instruments,
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NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
a Fund may be exposed to the credit risk of its counterparties. To limit the counterparty credit risk associated with such transactions, a 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 net asset value fluctuation than if the Fund did not make such investments.
Currency Risk
A portion of the Fund’s assets may be quoted or denominated in non-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.
Indemnification Risk
The Funds have a variety of indemnification obligations under contracts with their service providers. The Funds’ maximum exposure under these arrangements is unknown. However, the Funds have not had prior claims or losses pursuant to these contracts and expect the risk of loss to be remote.
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 paydowns, for the six months ended March 31, 2013, were as follows:
U.S. Government Securities | Other Securities | |||||||||||||||
Fund | Purchases | Sales | Purchases | Sales | ||||||||||||
Alpha Trend Strategies Fund | $ | — | $ | — | $ | 42,275,260 | $ | 42,509,326 | ||||||||
Alternative Income Fund | — | — | 91,778,856 | 93,796,615 | ||||||||||||
Trend Following Fund | — | — | 4,201,120 | 5,172,319 | ||||||||||||
Global Allocation Fund | — | — | 72,814,192 | 103,454,783 | ||||||||||||
Dividend Equity Fund | — | — | 925,353 | 363,460 | ||||||||||||
Premier Growth Equity Fund | — | — | 16,261,699 | 26,034,881 | ||||||||||||
Small-Cap Equity Fund | — | — | 19,754,929 | 22,046,335 | ||||||||||||
Global Select Equity Fund | — | — | 3,717,901 | 5,046,891 | ||||||||||||
International Equity Fund | — | — | 3,429,383 | 4,350,627 | ||||||||||||
Total Return Fund | 32,706,146 | 35,323,153 | 16,293,597 | 18,269,747 | ||||||||||||
Tax-Exempt Fund | — | — | 2,879,440 | 3,814,417 | ||||||||||||
Fixed Income Fund | 375,977,247 | 430,848,660 | 86,514,585 | 39,655,660 |
Note 10. Significant Shareholders
The number of shareholders each owning 5% or more of a Fund are listed below. The total percentage of a Fund held by such shareholders as well as percentage of a Fund held by certain directly and indirectly wholly-owned subsidiaries of the Investment Adviser and their affiliates (“Highland Affiliates”) at March 31, 2013 were:
Fund | 5% or Greater Number | Shareholders % of Fund Held | ||||||
Alpha Trend Strategies Fund | 3 | 42 | % | |||||
Alternative Income Fund | 2 | 46 | % | |||||
Trend Following Fund | 2 | 79 | % | |||||
Dividend Equity Fund | 2 | 71 | % | |||||
Premier Growth Equity Fund | 1 | 10 | % | |||||
International Equity Fund | 1 | 5 | % | |||||
Total Return Fund | 1 | 6 | % | |||||
Tax-Exempt Fund | 3 | 41 | % |
Investment activities of these shareholders could have a material impact on the Funds.
108 | Semi-Annual Report |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
Note 11. Reorganization
On July 7, 2011, the Board of Trustees approved an agreement and plan of reorganization which provided for the transfer of all of the assets and liabilities of the Incline Capital Trend Following Fund (“Predecessor Fund”) into the Trend Following Fund (the “Reorganization”). The Trend Following Fund was created in anticipation of the Reorganization. Shareholders of the Predecessor Fund approved the Reorganization at a joint meeting held on September 23, 2011. The tax-free Reorganization was completed on September 26, 2011. The financial statements and historical information contained in the Financial Highlights and footnotes for the Trend Following Fund reflect the Predecessor Fund’s information.
Trend Following Fund | Net Assets | Shares Outstanding | Conversion Ratio | |||||||||
Class A | $ | 8,937,978 | 850,495 | 1.0000 |
In June 2012, the Adviser undertook a comprehensive evaluation of the fund lineup as part of a broader evaluation of the Adviser’s business. Factors taken into consideration for each fund included, but were not limited to: performance relative to peers, benchmark and investment objective, market demand for the strategy, the Adviser’s ability to grow the portfolio in order to realize economies of scale and the Adviser’s ability to provide the strategy in a manner that is sufficiently differentiated from peers to provide a sustainable advantage.
Based on this review, the Adviser recommended the reorganization of funds that were not achieving the desired results with respect to the primary factors described above. The Adviser decided to consolidate these funds into other funds currently within the fund lineup to take advantage of lower costs (through economies of scale and lowered management fee) and more compelling strategies, portfolio managers, and performance.
On September 14, 2012, the Board of Trustees approved an agreement and plan of reorganization which provided for (i) the transfer of all of the assets and liabilities of the Pyxis U.S. Equity Fund into the Highland Global Allocation Fund, and (ii) the transfer of all of the assets and liabilities of the Pyxis Government Securities Fund and Pyxis Short-Term Government Fund into the Highland Fixed Income Fund. The tax-free reorganization was completed on September 28, 2012.
Class A | Class B | Class C | Class R | Class Y | ||||||||||||||||
U.S. Equity Fund (before reorganization)* | ||||||||||||||||||||
Shares | 6,132,623 | 1,263 | 81,350 | 39 | 114,864 | |||||||||||||||
Net Assets | $ | 163,434,133 | $ | 32,186 | $ | 2,021,107 | $ | 1,064 | $ | 3,055,407 | ||||||||||
Net Asset Value | $ | 26.65 | $ | 25.48 | $ | 24.84 | $ | 26.97 | $ | 26.60 | ||||||||||
Global Allocation Fund (before reorganization) | ||||||||||||||||||||
Shares | 3,062,498 | 2,958 | 149,501 | 101 | 6,045 | |||||||||||||||
Net Assets | $ | 31,344,823 | $ | 28,686 | $ | 1,421,629 | $ | 1,050 | $ | 68,788 | ||||||||||
Net Asset Value | $ | 10.24 | $ | 9.70 | $ | 9.51 | $ | 10.33 | $ | 11.38 | ||||||||||
Global Allocation Fund (after reorganization) | ||||||||||||||||||||
Shares issued (U.S. Equity Fund) | 15,968,115 | 3,319 | 212,545 | 103 | 268,531 | |||||||||||||||
Net Asset Value | $ | 10.24 | $ | 9.70 | $ | 9.51 | $ | 10.33 | $ | 11.38 | ||||||||||
Shares Outstanding | 19,030,613 | 6,277 | 362,046 | 204 | 274,576 | |||||||||||||||
Net Assets | $ | 194,778,956 | $ | 60,872 | $ | 3,442,736 | $ | 2,114 | $ | 3,124,195 | ||||||||||
Conversion Ratios | ||||||||||||||||||||
U.S. Equity Fund | 2.6038 | 2.6275 | 2.6127 | 2.6110 | 2.3378 |
* | Unrealized appreciation before the reorganization was $21,075,031. |
Semi-Annual Report | 109 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Funds II |
Class A | Class B | Class C | Class R | Class Y | ||||||||||||||||
Government Securities Fund (before reorganization)* | ||||||||||||||||||||
Shares | 9,222,757 | 4,168 | 47,242 | — | — | |||||||||||||||
Net Assets | $ | 82,280,456 | $ | 37,307 | $ | 425,448 | — | — | ||||||||||||
Net Asset Value | $ | 8.92 | $ | 8.95 | $ | 9.01 | — | — | ||||||||||||
Short-Term Government Fund (before reorganization)* | ||||||||||||||||||||
Shares | 2,622,924 | 6,114 | 265,143 | 88 | 49,175 | |||||||||||||||
Net Assets | $ | 30,182,854 | $ | 70,192 | $ | 3,044,669 | $ | 1,008 | $ | 564,429 | ||||||||||
Net Asset Value | $ | 11.51 | $ | 11.48 | $ | 11.48 | $ | 11.51 | $ | 11.48 | ||||||||||
Fixed Income Fund (before reorganization) | ||||||||||||||||||||
Shares | 6,870,265 | 939 | 121,089 | 86 | 77,275 | |||||||||||||||
Net Assets | $ | 89,596,842 | $ | 12,229 | $ | 1,580,935 | $ | 1,123 | $ | 1,006,543 | ||||||||||
Net Asset Value | $ | 13.04 | $ | 13.04 | $ | 13.06 | $ | 13.05 | $ | 13.03 | ||||||||||
Fixed Income Fund (after reorganization) | ||||||||||||||||||||
Shares issued (Government Securities Fund) | 6,306,262 | 2,860 | 32,564 | 77 | 43,318 | |||||||||||||||
Shares issued (Short-Term Government Fund) | 2,313,320 | 5,381 | 233,044 | — | — | |||||||||||||||
Net Asset Value | $ | 13.04 | $ | 13.04 | $ | 13.06 | $ | 13.05 | $ | 13.03 | ||||||||||
Shares Outstanding | 15,489,847 | 9,180 | 386,697 | 163 | 120,593 | |||||||||||||||
Net Assets | $ | 202,060,152 | $ | 119,728 | $ | 5,051,052 | $ | 2,131 | $ | 1,570,972 | ||||||||||
Conversion Ratios | ||||||||||||||||||||
Government Securities Fund | 0.6838 | 0.6862 | 0.6893 | — | — | |||||||||||||||
Short-Term Government Fund | 0.8820 | 0.8801 | 0.8789 | 0.8817 | 0.8809 |
* | Unrealized appreciation before the reorganization was $525,402 and $449,057, respectively. |
Assuming the acquisition had been completed on October 1, 2011, the Funds’ results of operations for the year ended September 30, 2012 would have been as follows:
Global Allocation Fund | Fixed Income Fund | |||||||
Net investment income (loss) | $ | 1,759,268 | $ | 2,031,829 | ||||
Net realized and unrealized gain (loss) on investments | 48,171,414 | 5,377,448 | ||||||
Net increase in net assets from operations | 49,930,682 | 7,409,277 |
Note 12. New Accounting Pronouncements
In December 2011, FASB issued ASU No. 2011-11,“Dosclosures about Offsetting Assets and Liabilities”. ASU No. 2011-11 requires disclosures to make financial statements that are prepared under U.S. GAAP more comparable to those prepared under International Financial Reporting Standards (“IFRS”). The new disclosure requirements mandate that entities disclose both gross and net information about instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, ASU No. 2011-11 requires dis-
closure of collateral received and posted in connection with master netting agreements or similar arrangements. New disclosures are required for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Management is evaluating the impact of ASU No. 2011-11 on the financial statements and disclosures.
Note 13. Subsequent Events
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there was the following event:
As of May 24, 2013, the Funds became a party to an amended and reinstated $25,000,000 unsecured credit agreement with State Street Bank and Trust Company to be used for temporary purposes to facilitate portfolio liquidity. Each of the Funds, with the exception of the Global Select Equity Fund and International Equity Fund, has access to the facility, but aggregate borrowings may not exceed $25,000,000.
110 | Semi-Annual Report |
Table of Contents
ADDITIONAL INFORMATION (unaudited)
March 31, 2013 | Highland Funds II |
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 Funds 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 Funds, including investments in different levels of the capital structure of a company, such as equity versus senior loans, or that take contrary provisions 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 Funds and one or more of such other accounts are prepared to invest in, or desires 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 Funds and such other accounts. The Investment Adviser also may aggregate orders to purchase and sell securities for the Funds 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 Funds, in some cases these activities may adversely affect the price paid or received by the Funds or the size of the position obtained or disposed of by the Funds.
Disclosure of Fund Expenses
As a shareholder of the Fund you incur transaction and ongoing expenses. Transaction expenses including sales charges on purchase payments, reinvested dividends (or other distributions), and redemption fees directly reduce the investment return of the Fund. Ongoing costs include portfolio management fees, distribution and service fees, professional fees, administrative fees and other Fund expenses. The following example is intended to help you understand your ongoing costs (in U.S. dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in each share class of the Fund during the period. The information in the following table is based on an investment of $1,000, which is invested at the beginning of the period and held for the entire six-month period ended September 30, 2012.
Actual Expenses: The first section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your class under the heading “Expenses paid during the period.”
Hypothetical Example for Comparison Purposes: The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholders reports of other funds.
Semi-Annual Report | 111 |
Table of Contents
ADDITIONAL INFORMATION (unaudited) (continued)
March 31, 2013 | Highland Funds II |
Please note that the expenses shown in the table do not reflect any transaction costs, such as sales charges or redemption fees.
Beginning Account Value 10/01/12 | Ending Account Value 03/31/13 | Annualized Expense Ratio(1) | Expenses Paid During the Period (1) | Actual Returns for Period | ||||||||||||||||
Alpha Trend Strategies Fund |
| |||||||||||||||||||
Actual Fund Return |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 965.90 | 1.99 | %* | $ | 9.75 | -3.41 | % | ||||||||||
Class C | 1,000.00 | 962.60 | 2.64 | %* | 12.92 | -3.74 | % | |||||||||||||
Class R | 1,000.00 | 963.90 | 2.14 | %* | 10.48 | -3.61 | % | |||||||||||||
Class Y | 1,000.00 | 967.20 | 1.64 | %* | 8.04 | -3.28 | % | |||||||||||||
Hypothetical 5% Return (before expenses) |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,015.01 | 1.99 | % | $ | 10.00 | 5.00 | % | ||||||||||
Class C | 1,000.00 | 1,011.77 | 2.64 | % | 13.24 | 5.00 | % | |||||||||||||
Class R | 1,000.00 | 1,014.26 | 2.14 | % | 10.75 | 5.00 | % | |||||||||||||
Class Y | 1,000.00 | 1,016.75 | 1.64 | % | 8.25 | 5.00 | % | |||||||||||||
Alternative Income Fund |
| |||||||||||||||||||
Actual Fund Return |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,001.60 | 2.75 | %* | $ | 13.72 | 0.16 | % | ||||||||||
Class C | 1,000.00 | 997.50 | 3.40 | %* | 16.93 | -0.25 | % | |||||||||||||
Class R | 1,000.00 | 999.90 | 2.90 | %* | 14.46 | -0.01 | % | |||||||||||||
Class Y | 1,000.00 | 1,002.40 | 2.40 | %* | 11.98 | 0.24 | % | |||||||||||||
Hypothetical 5% Return (before expenses) |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,011.22 | 2.75 | % | $ | 13.79 | 5.00 | % | ||||||||||
Class C | 1,000.00 | 1,007.98 | 3.40 | % | 17.02 | 5.00 | % | |||||||||||||
Class R | 1,000.00 | 1,010.47 | 2.90 | % | 14.54 | 5.00 | % | |||||||||||||
Class Y | 1,000.00 | 1,012.96 | 2.40 | % | 12.04 | 5.00 | % | |||||||||||||
Trend Following Fund |
| |||||||||||||||||||
Actual Fund Return |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 937.80 | 2.23 | % | $ | 10.77 | -6.22 | % | ||||||||||
Class C | 1,000.00 | 935.50 | 2.88 | % | 13.90 | -6.45 | % | |||||||||||||
Class Y | 1,000.00 | 970.10 | 1.88 | % | 4.11 | -2.99 | % | |||||||||||||
Hypothetical 5% Return (before expenses) |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,013.81 | 2.23 | % | $ | 11.20 | 5.00 | % | ||||||||||
Class C | 1,000.00 | 1,010.57 | 2.88 | % | 14.44 | 5.00 | % | |||||||||||||
Class Y | 1,000.00 | 1,006.92 | 1.88 | % | 4.19 | 5.00 | % | |||||||||||||
Global Allocation Fund |
| |||||||||||||||||||
Actual Fund Return |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,110.20 | 1.07 | % | $ | 5.63 | 11.02 | % | ||||||||||
Class B | 1,000.00 | 1,106.10 | 1.82 | % | 9.56 | 10.61 | % | |||||||||||||
Class C | 1,000.00 | 1,105.80 | 1.82 | % | 9.56 | 10.58 | % | |||||||||||||
Class R | 1,000.00 | 1,109.70 | 1.32 | % | 6.94 | 10.97 | % | |||||||||||||
Class Y | 1,000.00 | 1,111.60 | 0.82 | % | 4.32 | 11.16 | % | |||||||||||||
Hypothetical 5% Return (before expenses) |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,019.60 | 1.07 | % | $ | 5.39 | 5.00 | % | ||||||||||
Class B | 1,000.00 | 1,015.86 | 1.82 | % | 9.15 | 5.00 | % | |||||||||||||
Class C | 1,000.00 | 1,015.86 | 1.82 | % | 9.15 | 5.00 | % | |||||||||||||
Class R | 1,000.00 | 1,018.35 | 1.32 | % | 6.64 | 5.00 | % | |||||||||||||
Class Y | 1,000.00 | 1,020.84 | 0.82 | % | 4.13 | 5.00 | % |
Beginning Account Value 10/01/12 | Ending Account Value 03/31/13 | Annualized Expense Ratio(1) | Expenses Paid During the Period (1) | Actual Returns for Period | ||||||||||||||||
Dividend Equity Fund |
| |||||||||||||||||||
Actual Fund Return |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,127.80 | 1.29 | % | $ | 6.84 | 12.78 | % | ||||||||||
Class C | 1,000.00 | 1,123.70 | 1.94 | % | 10.27 | 12.37 | % | |||||||||||||
Class Y | 1,000.00 | 1,128.90 | 0.94 | % | 4.99 | 12.89 | % | |||||||||||||
Hypothetical 5% Return (before expenses) |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,018.50 | 1.29 | % | $ | 6.49 | 5.00 | % | ||||||||||
Class C | 1,000.00 | 1,015.26 | 1.94 | % | 9.75 | 5.00 | % | |||||||||||||
Class Y | 1,000.00 | 1,020.24 | 0.94 | % | 4.73 | 5.00 | % | |||||||||||||
Premier Growth Equity Fund |
| |||||||||||||||||||
Actual Fund Return |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,076.20 | 1.22 | % | $ | 6.32 | 7.62 | % | ||||||||||
Class B | 1,000.00 | 1,072.60 | 1.97 | % | 10.18 | 7.26 | % | |||||||||||||
Class C | 1,000.00 | 1,072.00 | 1.97 | % | 10.18 | 7.20 | % | |||||||||||||
Class R | 1,000.00 | 1,074.90 | 1.47 | % | 7.60 | 7.49 | % | |||||||||||||
Class Y | 1,000.00 | 1,077.90 | 0.97 | % | 5.03 | 7.79 | % | |||||||||||||
Hypothetical 5% Return (before expenses) |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,018.85 | 1.22 | % | $ | 6.14 | 5.00 | % | ||||||||||
Class B | 1,000.00 | 1,015.11 | 1.97 | % | 9.90 | 5.00 | % | |||||||||||||
Class C | 1,000.00 | 1,015.11 | 1.97 | % | 9.90 | 5.00 | % | |||||||||||||
Class R | 1,000.00 | 1,017.60 | 1.47 | % | 7.39 | 5.00 | % | |||||||||||||
Class Y | 1,000.00 | 1,020.09 | 0.97 | % | 4.89 | 5.00 | % | |||||||||||||
Small-Cap Equity Fund |
| |||||||||||||||||||
Actual Fund Return |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,142.80 | 2.38 | % | $ | 12.71 | 14.28 | % | ||||||||||
Class B | 1,000.00 | 1,138.30 | 3.13 | % | 16.69 | 13.83 | % | |||||||||||||
Class C | 1,000.00 | 1,139.20 | 3.13 | % | 16.69 | 13.92 | % | |||||||||||||
Class R | 1,000.00 | 1,142.30 | 2.63 | % | 14.05 | 14.23 | % | |||||||||||||
Class Y | 1,000.00 | 1,143.90 | 2.13 | % | 11.38 | 14.39 | % | |||||||||||||
Hypothetical 5% Return (before expenses) |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,013.06 | 2.38 | % | $ | 11.94 | 5.00 | % | ||||||||||
Class B | 1,000.00 | 1,009.32 | 3.13 | % | 15.68 | 5.00 | % | |||||||||||||
Class C | 1,000.00 | 1,009.32 | 3.13 | % | 15.68 | 5.00 | % | |||||||||||||
Class R | 1,000.00 | 1,011.82 | 2.63 | % | 13.19 | 5.00 | % | |||||||||||||
Class Y | 1,000.00 | 1,014.31 | 2.13 | % | 10.70 | 5.00 | % | |||||||||||||
Global Select Equity Fund |
| |||||||||||||||||||
Actual Fund Return |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,127.30 | 1.82 | % | $ | 9.65 | 12.73 | % | ||||||||||
Class B | 1,000.00 | 1,122.70 | 2.57 | % | 13.60 | 12.27 | % | |||||||||||||
Class C | 1,000.00 | 1,123.00 | 2.57 | % | 13.60 | 12.30 | % | |||||||||||||
Class R | 1,000.00 | 1,126.70 | 2.07 | % | 10.98 | 12.67 | % | |||||||||||||
Class Y | 1,000.00 | 1,129.30 | 1.57 | % | 8.33 | 12.93 | % | |||||||||||||
Hypothetical 5% Return (before expenses) |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,015.86 | 1.82 | % | $ | 9.15 | 5.00 | % | ||||||||||
Class B | 1,000.00 | 1,012.12 | 2.57 | % | 12.89 | 5.00 | % | |||||||||||||
Class C | 1,000.00 | 1,012.12 | 2.57 | % | 12.89 | 5.00 | % | |||||||||||||
Class R | 1,000.00 | 1,014.61 | 2.07 | % | 10.40 | 5.00 | % | |||||||||||||
Class Y | 1,000.00 | 1,017.10 | 1.57 | % | 7.90 | 5.00 | % |
112 | Semi-Annual Report |
Table of Contents
ADDITIONAL INFORMATION (unaudited) (continued)
March 31, 2013 | Highland Funds II |
Beginning Account Value 10/01/12 | Ending Account Value 03/31/13 | Annualized Expense Ratio(1) | Expenses Paid During the Period (1) | Actual Returns for Period | ||||||||||||||||
International Equity Fund |
| |||||||||||||||||||
Actual Fund Return |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,084.20 | 2.75 | % | $ | 14.29 | 8.42 | % | ||||||||||
Class B | 1,000.00 | 1,080.30 | 3.50 | % | 18.15 | 8.03 | % | |||||||||||||
Class C | 1,000.00 | 1,079.70 | 3.50 | % | 18.15 | 7.97 | % | |||||||||||||
Class R | 1,000.00 | 1,083.70 | 3.00 | % | 15.58 | 8.37 | % | |||||||||||||
Class Y | 1,000.00 | 1,085.50 | 2.50 | % | 13.00 | 8.55 | % | |||||||||||||
Hypothetical 5% Return (before expenses) |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,011.22 | 2.75 | % | $ | 13.79 | 5.00 | % | ||||||||||
Class B | 1,000.00 | 1,007.48 | 3.50 | % | 17.52 | 5.00 | % | |||||||||||||
Class C | 1,000.00 | 1,007.48 | 3.50 | % | 17.52 | 5.00 | % | |||||||||||||
Class R | 1,000.00 | 1,009.97 | 3.00 | % | 15.03 | 5.00 | % | |||||||||||||
Class Y | 1,000.00 | 1,012.47 | 2.50 | % | 12.54 | 5.00 | % | |||||||||||||
Total Return Fund |
| |||||||||||||||||||
Actual Fund Return |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,057.70 | 1.53 | % | $ | 7.85 | 5.77 | % | ||||||||||
Class B | 1,000.00 | 1,053.70 | 2.28 | % | 11.67 | 5.37 | % | |||||||||||||
Class C | 1,000.00 | 1,053.30 | 2.28 | % | 11.67 | 5.33 | % | |||||||||||||
Class R | 1,000.00 | 1,057.40 | 1.78 | % | 9.13 | 5.74 | % | |||||||||||||
Class Y | 1,000.00 | 1,058.40 | 1.28 | % | 6.57 | 5.84 | % | |||||||||||||
Hypothetical 5% Return (before expenses) |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,017.30 | 1.53 | % | $ | 7.70 | 5.00 | % | ||||||||||
Class B | 1,000.00 | 1,013.56 | 2.28 | % | 11.45 | 5.00 | % | |||||||||||||
Class C | 1,000.00 | 1,013.56 | 2.28 | % | 11.45 | 5.00 | % | |||||||||||||
Class R | 1,000.00 | 1,016.06 | 1.78 | % | 8.95 | 5.00 | % | |||||||||||||
Class Y | 1,000.00 | 1,018.55 | 1.28 | % | 6.44 | 5.00 | % | |||||||||||||
Tax-Exempt Fund |
| |||||||||||||||||||
Actual Fund Return |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,004.20 | 1.38 | % | $ | 6.90 | 0.42 | % | ||||||||||
Class C | 1,000.00 | 1,000.50 | 2.03 | % | 10.12 | 0.05 | % | |||||||||||||
Class Y | 1,000.00 | 1,006.10 | 1.03 | % | 5.15 | 0.61 | % | |||||||||||||
Hypothetical 5% Return (before expenses) |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,018.05 | 1.38 | % | $ | 6.94 | 5.00 | % | ||||||||||
Class C | 1,000.00 | 1,014.81 | 2.03 | % | 10.20 | 5.00 | % | |||||||||||||
Class Y | 1,000.00 | 1,019.80 | 1.03 | % | 5.19 | 5.00 | % | |||||||||||||
Fixed Income Fund |
| |||||||||||||||||||
Actual Fund Return |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 997.40 | 1.25 | % | $ | 6.22 | -0.26 | % | ||||||||||
Class B | 1,000.00 | 994.50 | 2.00 | % | 9.95 | -0.55 | % | |||||||||||||
Class C | 1,000.00 | 994.50 | 2.00 | % | 9.95 | -0.55 | % | |||||||||||||
Class R | 1,000.00 | 997.00 | 1.50 | % | 7.47 | -0.30 | % | |||||||||||||
Class Y | 1,000.00 | 999.40 | 1.00 | % | 4.98 | -0.06 | % | |||||||||||||
Hypothetical 5% Return (before expenses) |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,018.70 | 1.25 | % | $ | 6.29 | 5.00 | % | ||||||||||
Class B | 1,000.00 | 1,014.96 | 2.00 | % | 10.05 | 5.00 | % | |||||||||||||
Class C | 1,000.00 | 1,014.96 | 2.00 | % | 10.05 | 5.00 | % | |||||||||||||
Class R | 1,000.00 | 1,017.45 | 1.50 | % | 7.54 | 5.00 | % | |||||||||||||
Class Y | 1,000.00 | 1,019.95 | 1.00 | % | 5.04 | 5.00 | % |
* | Expenses exclude dividends and fees on securities sold short. Net expense ratio including dividends and fees on securities sold short is 2.08% for Class A, 2.73% for Class C, 2.23% for Class R and 1.73% for Class Y for the Alpha Trend Strategies Fund. Net expense ratio is 3.79% for Class A, 4.44% for Class C, 3.94% for Class R and 3.44% for Class Y for the Alternative Income Fund. |
(1) | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, divided by the number of days in the full fiscal year (182/365), except for Class Y of the Trend Following Fund, which has 81 days in the most recent fiscal period due to its inception date of January 9, 2013. |
Semi-Annual Report | 113 |
Table of Contents
IMPORTANT INFORMATION ABOUT THIS REPORT
Investment Adviser
Highland Capital Management Fund Advisors, L.P.
200 Crescent Court, Suite 700
Dallas, TX 75201
Sub-Advisers
Anchor Capital Management Group, Inc.
15 Enterprise, Suite 450
Aliso Viejo, California 92656
Brookmont Capital Management, LLC
2000 McKinney Avenue, Suite 1230
Dallas, Texas 75201
GE Asset Management Incorporated
3001 Summer Street
P.O. Box 7900
Stamford, CT 06904
Palisade Capital Management, LLC
One Bridge Plaza
Fort Lee, NJ 07024
Incline Analytics, LLC
4790 Caughlin Parkway, Suite 214
Reno, NV 89519
Transfer Agent
Boston Financial Data Services, Inc.
30 Dan Road
Canton, Massachusetts 02021
Underwriter
Foreside Funds Distributors LLC
400 Berwyn Park
899 Cassatt Road, 1st Floor
Berwyn, PA 19312
Custodian
State Street Bank and Trust Company
801 Pennsylvania Avenue
Kansas City, Missouri 64105
Independent Registered Public Accounting Firm
KPMG LLP
Two Financial Center
60 South Street
Boston, MA 02111
Fund Counsel
Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, MA 02199-3600
This report has been prepared for shareholders of Highland Alpha Trend Strategies Fund, Highland Alternative Income Fund, Highland Trend Following Fund, Highland Global Allocation Fund, Highland Dividend Equity Fund, Highland Premier Growth Equity Fund, Highland Small-Cap Equity Fund, Highland Global Select Equity Fund, Highland International Equity Fund, Highland Total Return Fund, Highland Tax-Exempt Fund, and Highland Fixed Income Fund (collectively, the “Funds”). The Funds mail one shareholder report to each shareholder address. If you would like more than one report, please call shareholder services at 1-877-665-1287 to request that additional reports be sent to you.
A description of the policies and procedures that the Funds use to determine how to vote proxies relating to their portfolio securities, and the Funds’ proxy voting records for the most recent 12-month period ended June 30, are available (i) without charge, upon request, by calling 1-877-665-1287 and (ii) on the Securities and Exchange Commission’s website at http://www.sec.gov.
The Funds file their complete schedules of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Funds’ Forms N-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 calling 1-800-SEC-0330. Shareholders may also obtain the Form N-Q by visiting the Funds’ website at www.highlandfunds.com.
The Statements of Additional Information include additional information about the Funds’ Trustees and are available upon request without charge by calling 1-877-665-1287.
114 | Semi-Annual Report |
Table of Contents
200 Crescent Court, Suite 700
Dallas, TX 75201
Highland Funds II | Semi-Annual Report, March 31, 2013 |
www.highlandfunds.com | HLC-HFII-SEMI-03/13 |
Table of Contents
Highland Energy MLP Fund
Semi-Annual Report
March 31, 2013
Table of Contents
Highland Energy MLP Fund
(Formerly Pyxis Energy and Materials Fund)
1 | ||||
2 | ||||
3 | ||||
4 | ||||
6 | ||||
7 | ||||
Statement of Changes in Net Assets — Capital Stock Activity — Shares | 8 | |||
9 | ||||
10 | ||||
14 | ||||
24 |
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.
Table of Contents
Highland Energy MLP Fund |
Objective
Highland Energy MLP Fund (the “Fund”) seeks to provide current income and capital appreciation.
Net Assets as of March 31, 2013
$3.1 million
Portfolio Data as of March 31, 2013
The information below provides a snapshot of the Fund at the end of the reporting period. The Fund is actively managed and the composition of its portfolio will change over time. Current and future holdings are subject to risk.
Industry Classifications as of 03/31/2013 (%)* | ||||
Energy | 101.5 | |||
Other Investments and Assets & Liabilities | (1.5 | ) |
Top 10 Holdings as of 03/31/2013 (%)* | ||||
Enterprise Products Partners LP | 7.2 | |||
Plains All American Pipeline LP | 7.1 | |||
Kinder Morgan, Inc. | 6.1 | |||
MarkWest Energy Partners LP | 6.0 | |||
Magellan Midstream Partners LP | 5.2 | |||
Williams Cos., Inc. (The) | 5.2 | |||
Targa Resources Partners LP | 5.1 | |||
Energy Transfer Equity LP | 5.0 | |||
Energy Transfer Partners LP | 4.2 | |||
Kinder Morgan Management LLC | 4.2 |
* | Industries and holdings are calculated as a percentage of total net assets. |
Semi-Annual Report | 1 |
Table of Contents
March 31, 2013 | Highland Energy MLP Fund |
A guide to understanding the Fund’s financial statements
Investment Portfolio | The Investment Portfolio details all of the Fund’s holdings and their market value as of the last day of the reporting period. Portfolio holdings are organized by type of asset and industry to demonstrate areas of concentration and diversification. | |
Statement of Assets and Liabilities | This statement details the Fund’s assets, liabilities, net assets and share price for each share class as of the last day of the reporting period. Net assets are calculated by subtracting all of the Fund’s liabilities (including any unpaid expenses) from the total of the Fund’s investment and non-investment assets. The net asset value per share for each class is calculated by dividing net assets allocated to that share class by the number of shares outstanding in that class as of the last day of the reporting period. | |
Statement of Operations | This statement reports income earned by the Fund and the expenses incurred by the Fund during the reporting period. The Statement of Operations also shows any net gain or loss the Fund realized on the sales of its holdings during the period as well as any unrealized gains or losses recognized over the period. The total of these results represents the Fund’s net increase or decrease in net assets from operations. | |
Statement of Changes in Net Assets | This statement details how the Fund’s net assets were affected by its operating results, distributions to shareholders and shareholder transactions (e.g., subscriptions, redemptions and distribution reinvestments) during the reporting period. The Statement of Changes in Net Assets also details changes in the number of shares outstanding. | |
Statement of Cash Flows | This statement reports net cash and foreign currency provided or used by operating, investing and financing activities and the net effect of those flows on cash and foreign currency during the period. | |
Financial Highlights | The Financial Highlights demonstrate how the Fund’s net asset value per share was affected by the Fund’s operating results. The Financial Highlights also disclose the classes’ performance and certain key ratios (e.g., net expenses and net investment income as a percentage of average net assets). | |
Notes to Financial Statements | These notes disclose the organizational background of the Fund, certain of its significant accounting policies (including those surrounding security valuation, income recognition and distributions to shareholders), federal tax information, fees and compensation paid to affiliates and significant risks and contingencies. |
2 | Semi-Annual Report |
Table of Contents
INVESTMENT PORTFOLIO (unaudited)
As of March 31, 2013 | Highland Energy MLP Fund |
Shares | Value ($) | |||||||
| Common Stocks - 17.6% |
| ||||||
ENERGY - 17.6% | ||||||||
1,495 | Kinder Morgan Management LLC (a) | 131,336 | ||||||
4,949 | Kinder Morgan, Inc. | 191,427 | ||||||
987 | Targa Resources Corp. (b) | 67,076 | ||||||
4,384 | Williams Cos., Inc. (The) | 164,225 | ||||||
|
| |||||||
554,064 | ||||||||
|
| |||||||
Total Common Stocks | 554,064 | |||||||
|
| |||||||
| Master Limited Partnerships - 83.9% |
| ||||||
ENERGY - 83.9% | ||||||||
1,458 | Atlas Energy LP | 64,210 | ||||||
1,834 | Atlas Pipeline Partners LP | 63,420 | ||||||
2,242 | Boardwalk Pipeline Partners LP | 65,713 | ||||||
2,084 | Buckeye Partners LP | 127,458 | ||||||
6,991 | Crosstex Energy LP | 128,634 | ||||||
1,458 | El Paso Pipeline Partners LP | 63,948 | ||||||
4,268 | Enbridge Energy Partners LP | 128,638 | ||||||
2,672 | Energy Transfer Equity LP | 156,259 | ||||||
2,610 | Energy Transfer Partners LP | 132,301 | ||||||
3,737 | Enterprise Products Partners LP | 225,304 | ||||||
1,603 | EQT Midstream Partners LP | 62,196 | ||||||
1,301 | Genesis Energy LP | 62,734 | ||||||
2,832 | Holly Energy Partners LP | 113,563 | ||||||
4,554 | Inergy LP | 93,038 | ||||||
3,080 | Magellan Midstream Partners LP | 164,564 | ||||||
3,124 | MarkWest Energy Partners LP | 189,783 | ||||||
1,152 | ONEOK Partners LP | 66,125 | ||||||
3,945 | Plains All American Pipeline LP | 222,814 | ||||||
2,564 | Regency Energy Partners LP | 64,305 | ||||||
3,509 | Targa Resources Partners LP | 161,484 | ||||||
2,190 | Tesoro Logistics LP | 118,194 | ||||||
537 | Western Gas Partners LP | 31,903 | ||||||
2,510 | Williams Partners LP | 130,018 | ||||||
|
| |||||||
2,636,606 | ||||||||
|
| |||||||
Total Master Limited Partnerships | 2,636,606 | |||||||
|
|
Shares | Value ($) | |||||||
| Investment Companies - 2.2% |
| ||||||
67,856 | State Street Navigator Prime Securities Lending Portfolio (c) | 67,856 | ||||||
|
| |||||||
Total Investment Companies | 67,856 | |||||||
|
| |||||||
| Total Investments - 103.7% | 3,258,526 | ||||||
|
| |||||||
| (Cost $3,134,557) | |||||||
| Other Assets & Liabilities, Net - (3.7)% | (116,119 | ) | |||||
|
| |||||||
| Net Assets - 100.0% | 3,142,407 | ||||||
|
|
(a) | Non-income producing security. |
(b) | Securities (or a portion of securities) on loan. As of March 31, 2013, the market value of securities loaned was $67,076. The loaned securities were secured with cash collateral of $67,856. Collateral is calculated based on prior day’s prices. See Note 4. |
(c) | Represents investments of cash collateral received in connection with securities lending. |
See accompanying Notes to Financial Statements. | 3 |
Table of Contents
STATEMENT OF ASSETS AND LIABILITIES (unaudited)
As of March 31, 2013 | Highland Energy MLP Fund |
($) | ||||
Assets | ||||
Investments, at value*(a) | 3,258,526 | |||
Receivable for: | ||||
Investment advisory and administration fees (Note 6) | 1,008 | |||
Prepaid expenses and other assets | 103,725 | |||
|
| |||
Total assets | 3,363,259 | |||
|
| |||
Liabilities | ||||
Due to Custodian | 346 | |||
Payable for: | ||||
Upon receipt of securities loaned (Note 4) | 67,856 | |||
Trustee fees | 239 | |||
Transfer agent fees | 2,440 | |||
Custody fees | 1,042 | |||
Net deferred tax liability (Note 3) | 93,079 | |||
Accrued expenses and other liabilities | 55,850 | |||
|
| |||
Total liabilities | 220,852 | |||
|
| |||
Net Assets | 3,142,407 | |||
|
| |||
Net Assets Consist of: | ||||
Par value (Note 1) | 302 | |||
Paid-in capital | 2,977,189 | |||
Accumulated net investment loss, net of income taxes | (17,209 | ) | ||
Accumulated net realized gain from investments, net of income taxes | 103,033 | |||
Net unrealized appreciation (depreciation) on investments, net of income taxes | 79,092 | |||
|
| |||
Net Assets | 3,142,407 | |||
|
| |||
* Investments, at cost | 3,134,557 | |||
(a) Includes market value of securities on loan of: | 67,076 |
4 | See accompanying Notes to Financial Statements. |
Table of Contents
STATEMENT OF ASSETS AND LIABILITIES (unaudited) (continued)
As of March 31, 2013 | Highland Energy MLP Fund |
($) | ||||
Class A: | ||||
Net assets | 10,423 | |||
Shares outstanding ($0.001 par value; unlimited shares authorized) | 1,005 | |||
|
| |||
Net asset value per share(a)(b) | 10.38 | |||
|
| |||
Maximum offering price per share(c) | 11.01 | |||
|
| |||
Class C: | ||||
Net assets | 10,365 | |||
Shares outstanding ($0.001 par value; unlimited shares authorized) | 1,001 | |||
|
| |||
Net asset value and offering price per share(a) | 10.36 | |||
|
| |||
Class R: | ||||
Net assets | 10,408 | |||
Shares outstanding ($0.001 par value; unlimited shares authorized) | 1,003 | |||
|
| |||
Net asset value, offering and redemption price per share | 10.37 | |||
|
| |||
Class Y: | ||||
Net assets | 3,111,211 | |||
Shares outstanding ($0.001 par value; unlimited shares authorized) | 299,219 | |||
|
| |||
Net asset value, offering and redemption price per share | 10.40 | |||
|
|
(a) | Redemption price per share is equal to net asset value per share less any applicable contingent deferred sales charge (“CDSC”). |
(b) | Purchases of $1,000,000 or more are subject to a 0.50% CDSC if redeemed within one year of purchase. |
(c) | The sales charge is 5.75%. On sales of $1,000,000 or more, there is no sales charge and therefore the offering will be lower. |
See accompanying Notes to Financial Statements. | 5 |
Table of Contents
STATEMENT OF OPERATIONS (unaudited)
For the six months ended March 31, 2013 | Highland Energy MLP Fund |
($) | ||||
Investment Income | ||||
Income: | ||||
Dividends and distributions | 46,957 | |||
Interest | 37 | |||
Return of capital (Note 2) | (41,612 | ) | ||
Less: Foreign taxes withheld | (227 | ) | ||
Securities lending income | 4 | |||
|
| |||
Total Income | 5,159 | |||
|
| |||
Expenses: | ||||
Investment advisory and administration fees (Note 6) | 14,493 | |||
Distribution and shareholder service fees: (Note 6) | ||||
Class A | 19 | |||
Class C | 52 | |||
Class R | 26 | |||
Transfer agent fees | 8,384 | |||
Trustees fees (Note 6) | 117 | |||
Custody fees | 1,228 | |||
Accounting services fees | 8,058 | |||
Audit fees | 891 | |||
Legal fees | 6,627 | |||
Registration fees | 5,520 | |||
Reports to shareholders | 1,097 | |||
Offering costs (Note 2) | 69,736 | |||
Other | 1,902 | |||
|
| |||
Total expenses before waiver and reimbursement (Note 6) | 118,150 | |||
Less: Expenses waived or borne by the adviser and administrator | (95,613 | ) | ||
Less: Expenses waived by the sub-administrator, custodian and transfer agent | (2,416 | ) | ||
|
| |||
Net operating expenses | 20,121 | |||
Dividends and fees on securities sold short (Note 2) | 4 | |||
|
| |||
Net expenses | 20,125 | |||
|
| |||
Net investment loss, before income taxes | (14,966 | ) | ||
|
| |||
Deferred tax benefit (Note 3) | 5,420 | |||
|
| |||
Net investment loss, net of income tax benefit | (9,546 | ) | ||
|
| |||
Net Realized and Unrealized Gain (Loss) on Investments | ||||
Investments | 157,712 | |||
Deferred tax expense (Note 3) | (53,622 | ) | ||
Increase (decrease) in unrealized appreciation (depreciation) on: | ||||
Investments | 123,969 | |||
Current tax expense (Note 3) | (44,877 | ) | ||
|
| |||
Net realized and unrealized gain on investments | 183,182 | |||
|
| |||
Total increase in net assets resulting from operations | 173,636 | |||
|
|
6 | See accompanying Notes to Financial Statements. |
Table of Contents
STATEMENT OF CHANGES IN NET ASSETS
Highland Energy MLP Fund |
Six Months Ended March 31, 2013 (unaudited) ($) | Period Ended September 30, 2012(a) ($) | |||||||||
Increase (Decrease) in Net Assets | ||||||||||
Operations: | ||||||||||
Net investment income (loss), net of income taxes | (9,546 | ) | 11,279 | |||||||
Net realized gain on investments, net of income taxes | 104,090 | 328,372 | ||||||||
Net increase in unrealized appreciation (depreciation) on investments, net of income taxes | 79,092 | — | ||||||||
|
|
|
| |||||||
Net increase from operations | 173,636 | 339,651 | ||||||||
|
|
|
| |||||||
Distributions to shareholders from: | ||||||||||
Net investment income | ||||||||||
Class A | (50 | ) | (47 | ) | ||||||
Class C | (15 | ) | (9 | ) | ||||||
Class R | (42 | ) | (38 | ) | ||||||
Class Y | (20,706 | ) | (21,254 | ) | ||||||
Net realized gains | ||||||||||
Class A | (1,095 | ) | — | |||||||
Class C | (1,091 | ) | — | |||||||
Class R | (1,094 | ) | — | |||||||
Class Y | (326,149 | ) | — | |||||||
|
|
|
| |||||||
Total distributions | (350,242 | ) | (21,348 | ) | ||||||
|
|
|
| |||||||
Increase (decrease) in net assets from operations and distributions | (176,606 | ) | 318,303 | |||||||
|
|
|
| |||||||
Share transactions: | ||||||||||
Proceeds from sale of shares | ||||||||||
Class A | — | 10,000 | ||||||||
Class C | — | 10,000 | ||||||||
Class R | — | 10,000 | ||||||||
Class Y | 3,000,000 | 3,856,700 | ||||||||
Value of distributions reinvested | ||||||||||
Class A | — | 47 | ||||||||
Class C | — | 9 | ||||||||
Class R | — | 38 | ||||||||
Class Y | — | 21,254 | ||||||||
Cost of shares redeemed | ||||||||||
Class Y | (3,907,338 | ) | — | |||||||
|
|
|
| |||||||
Net increase (decrease) from shares transactions | (907,338 | ) | 3,908,048 | |||||||
|
|
|
| |||||||
Total increase (decrease) in net assets | (1,083,944 | ) | 4,226,351 | |||||||
|
|
|
| |||||||
Net Assets | ||||||||||
Beginning of period | 4,226,351 | — | ||||||||
|
|
|
| |||||||
End of period | 3,142,407 | 4,226,351 | ||||||||
|
|
|
|
| ||||||
Accumulated net investment income (loss), net of income taxes | (17,209 | ) | 13,150 | |||||||
|
|
|
|
|
(a) | Commenced operations on December 1, 2011. |
See accompanying Notes to Financial Statements. | 7 |
Table of Contents
STATEMENT OF CHANGES IN NET ASSETS (continued)
CAPITAL STOCK ACTIVITY — SHARES
Highland Energy MLP Fund |
Six Months Ended March 31, 2013 (unaudited) | Period Ended September 30, 2012(a) | |||||||||
Class A: | ||||||||||
Shares sold | — | 1,000 | ||||||||
Issued for distribution reinvested | — | 5 | ||||||||
|
|
|
| |||||||
Net increase in fund shares | — | 1,005 | ||||||||
|
|
|
| |||||||
Class C: | ||||||||||
Shares sold | — | 1,000 | ||||||||
Issued for distribution reinvested | — | 1 | ||||||||
|
|
|
| |||||||
Net increase in fund shares | — | 1,001 | ||||||||
|
|
|
| |||||||
Class R: | ||||||||||
Shares sold | — | 1,000 | ||||||||
Issued for distribution reinvested | — | 3 | ||||||||
|
|
|
| |||||||
Net increase in fund shares | — | 1,003 | ||||||||
|
|
|
| |||||||
Class Y: | ||||||||||
Shares sold | 273,723 | 379,524 | ||||||||
Issued for distribution reinvested | — | 2,082 | ||||||||
Shares redeemed | (356,110 | ) | — | |||||||
|
|
|
| |||||||
Net increase (decrease) in fund shares | (82,387 | ) | 381,606 | |||||||
|
|
|
|
(a) | Commenced operations on December 1, 2011. |
8 | See accompanying Notes to Financial Statements. |
Table of Contents
STATEMENT OF CASH FLOWS (unaudited)
For the six months ended March 31, 2013 | Highland Energy MLP Fund |
($) | ||||
Cash Flows Provided by Operating Activities | ||||
Net increase from operations | 173,636 | |||
Adjustments to Reconcile Net Investment Loss to Net Cash used in Operating Activities | ||||
Net realized gain on investments | (157,712 | ) | ||
Net change in unrealized appreciation on investments | (123,969 | ) | ||
Purchases of investment securities | (13,167,639 | ) | ||
Proceeds from disposition of investment securities | 10,482,035 | |||
Decrease in due from broker | 208,369 | |||
Decrease in receivable for investments sold | 3,971,855 | |||
Decrease in receivable for investment advisory and administration fees | 24,153 | |||
Decrease in receivable for dividends and interest | 4,709 | |||
Decrease in offering costs | 15,473 | |||
Increase in prepaid expenses and other assets | (103,723 | ) | ||
Increase in due from Custodian | 346 | |||
Decrease in payable for investments purchased | (215,638 | ) | ||
Increase in payable for trustee fees | 78 | |||
Decrease in payable for distribution and shareholder service fees | (7 | ) | ||
Decrease in custody fees | (376 | ) | ||
Decrease in transfer agent fees | (199 | ) | ||
Increase in net deferred tax liability | 93,079 | |||
Increase in accrued expenses and other liabilities | 53,110 | |||
|
| |||
Net cash flow provided by operating activities | 1,257,580 | |||
|
| |||
Cash Flows Used in Financing Activities | ||||
Proceeds from shares sold | 3,000,000 | |||
Payment of shares redeemed | (3,907,338 | ) | ||
Distributions paid in cash | (350,242 | ) | ||
|
| |||
Net cash flow used in financing activities | (1,257,580 | ) | ||
Net decrease in cash | — | |||
Cash/Due to Custodian | ||||
Beginning of the year | — | |||
|
| |||
End of the year | — | |||
|
|
During the period ended March 31, 2013, federal and state taxes paid were $0.
See accompanying Notes to Financial Statements. | 9 |
Table of Contents
Highland Energy MLP Fund, Class A |
Selected data for a share outstanding throughout each period is as follows:
For the Six Months Ended March 31, 2013 (unaudited) | For the Period Ended September 30, 2012(a) | |||||||
Net Asset Value, Beginning of Period | $ | 10.98 | $ | 10.00 | ||||
Income from Investment Operations: | ||||||||
Net investment income (loss)(b) | (0.08 | ) | 0.01 | |||||
Net realized and unrealized gain | 0.62 | 1.02 | ||||||
|
|
|
| |||||
Total from investment operations | 0.54 | 1.03 | ||||||
Less Distributions Declared to Shareholders: | ||||||||
From net investment income | (0.05 | ) | (0.05 | ) | ||||
From net realized gains | (1.09 | ) | — | |||||
|
|
|
| |||||
Total distributions declared to shareholders | (1.14 | ) | (0.05 | ) | ||||
Net Asset Value, End of Period | $ | 10.38 | $ | 10.98 | ||||
Total return(c) | 5.55 | %(d) | 10.31 | %(d) | ||||
Ratios to Average Net Assets(e)/Supplemental Data: | ||||||||
Net assets, end of period (in 000’s) | $ | 11 | $ | 11 | ||||
Total operating expenses | 24.67 | % | 6.88 | % | ||||
Waiver/reimbursement | (22.30 | )% | (4.63 | )% | ||||
Net operating expenses(f) | 2.37 | % | 2.25 | % | ||||
Dividends for short positions | — | %(g) | 0.02 | % | ||||
Net expenses(f) | 2.37 | % | 2.27 | % | ||||
Income tax expense | 7.70 | % | — | |||||
Total expenses | 10.07 | % | — | |||||
Net investment income (loss) | (1.58 | )% | 0.07 | % | ||||
Portfolio turnover rate(d) | 228 | % | 254 | % |
(a) | Commenced operations on December 1, 2011. |
(b) | Per share data was calculated using average shares outstanding during the period. |
(c) | Total returns are historical and assume changes in share price, reinvestment of dividends and capital gains distributions, and assume no sales charge. Had the adviser not absorbed a portion of expenses, total returns would have been lower. |
(d) | Not annualized. |
(e) | All ratios for the period have been annualized, unless otherwise indicated. |
(f) | Net expense ratio has been calculated after applying any waiver/reimbursement, if applicable. |
(g) | Less than 0.005% |
10 | See accompanying Notes to Financial Statements. |
Table of Contents
FINANCIAL HIGHLIGHTS
Highland Energy MLP Fund, Class C |
Selected data for a share outstanding throughout each period is as follows:
For the Six Months Ended March 31, 2013 (unaudited) | For the Period Ended September 30, 2012(a) | |||||||
Net Asset Value, Beginning of Period | $ | 10.96 | $ | 10.00 | ||||
Income from Investment Operations: | ||||||||
Net investment loss(b) | (0.12 | ) | (0.05 | ) | ||||
Net realized and unrealized gain | 0.63 | 1.02 | ||||||
|
|
|
| |||||
Total from investment operations | 0.51 | 0.97 | ||||||
Less Distributions Declared to Shareholders: | ||||||||
From net investment income | (0.02 | ) | (0.01 | ) | ||||
From net realized gains | (1.09 | ) | — | |||||
|
|
|
| |||||
Total distributions declared to shareholders | (1.11 | ) | (0.01 | ) | ||||
Net Asset Value, End of Period | $ | 10.36 | $ | 10.96 | ||||
Total return(c) | 5.21 | %(d) | 9.69 | %(d) | ||||
Ratios to Average Net Assets(e)/Supplemental Data: | ||||||||
Net assets, end of period (in 000’s) | $ | 10 | $ | 11 | ||||
Total operating expenses | 25.31 | % | 7.53 | % | ||||
Waiver/reimbursement | (22.29 | )% | (4.63 | )% | ||||
Net operating expenses(f) | 3.02 | % | 2.90 | % | ||||
Dividends for short positions | — | %(g) | 0.02 | % | ||||
Net expenses(f) | 3.02 | % | 2.92 | % | ||||
Income tax expense | 7.70 | % | — | |||||
Total expenses | 10.72 | % | — | |||||
Net investment loss | (2.23 | )% | (0.58 | )% | ||||
Portfolio turnover rate(d) | 228 | % | 254 | % |
(a) | Commenced operations on December 1, 2011. |
(b) | Per share data was calculated using average shares outstanding during the period. |
(c) | Total returns are historical and assume changes in share price, reinvestment of dividends and capital gains distributions, and assume no sales charge. Had the adviser not absorbed a portion of expenses, total returns would have been lower. |
(d) | Not annualized. |
(e) | All ratios for the period have been annualized, unless otherwise indicated. |
(f) | Net expense ratio has been calculated after applying any waiver/reimbursement, if applicable. |
(g) | Less than 0.005% |
See accompanying Notes to Financial Statements. | 11 |
Table of Contents
FINANCIAL HIGHLIGHTS
Highland Energy MLP Fund, Class R |
Selected data for a share outstanding throughout each period is as follows:
For the Six Months Ended March 31, 2013 (unaudited) | For the Period Ended September 30, 2012(a) | |||||||
Net Asset Value, Beginning of Period | $ | 10.98 | $ | 10.00 | ||||
Income from Investment Operations: | ||||||||
Net investment loss(b) | (0.09 | ) | (0.01 | ) | ||||
Net realized and unrealized gain | 0.61 | 1.03 | ||||||
|
|
|
| |||||
Total from investment operations | 0.52 | 1.02 | ||||||
Less Distributions Declared to Shareholders: | ||||||||
From net investment income | (0.04 | ) | (0.04 | ) | ||||
From net realized gains | (1.09 | ) | — | |||||
|
|
|
| |||||
Total distributions declared to shareholders | (1.13 | ) | (0.04 | ) | ||||
Net Asset Value, End of Period | $ | 10.37 | $ | 10.98 | ||||
Total return(c) | 5.47 | %(d) | 10.11 | %(d) | ||||
Ratios to Average Net Assets(e)/Supplemental Data: | ||||||||
Net assets, end of period (in 000’s) | $ | 10 | $ | 11 | ||||
Total operating expenses | 24.82 | % | 7.03 | % | ||||
Waiver/reimbursement | (22.30 | )% | (4.63 | )% | ||||
Net operating expenses(f) | 2.52 | % | 2.40 | % | ||||
Dividends for short positions | — | %(g) | 0.02 | % | ||||
Net expenses(f) | 2.52 | % | 2.42 | % | ||||
Income tax expense | 7.70 | % | — | |||||
Total expenses | 10.22 | % | — | |||||
Net investment loss | (1.73 | )% | (0.08 | )% | ||||
Portfolio turnover rate(d) | 228 | % | 254 | % |
(a) | Commenced operations on December 1, 2011. |
(b) | Per share data was calculated using average shares outstanding during the period. |
(c) | Total returns are historical and assume changes in share price, reinvestment of dividends and capital gains distributions, and assume no sales charge. Had the adviser not absorbed a portion of expenses, total returns would have been lower. |
(d) | Not annualized. |
(e) | All ratios for the period have been annualized, unless otherwise indicated. |
(f) | Net expense ratio has been calculated after applying any waiver/reimbursement, if applicable. |
(g) | Less than 0.005% |
12 | See accompanying Notes to Financial Statements. |
Table of Contents
FINANCIAL HIGHLIGHTS
Highland Energy MLP Fund, Class Y |
Selected data for a share outstanding throughout each period is as follows:
For the Six Months Ended March 31, 2013 (unaudited) | For the Period Ended September 30, 2012(a) | |||||||
Net Asset Value, Beginning of Period | $ | 10.99 | $ | 10.00 | ||||
Income from Investment Operations: | ||||||||
Net investment income (loss)(b) | (0.04 | ) | 0.04 | |||||
Net realized and unrealized gain | 0.61 | 1.02 | ||||||
|
|
|
| |||||
Total from investment operations | 0.57 | 1.06 | ||||||
Less Distributions Declared to Shareholders: | ||||||||
From net investment income | (0.07 | ) | (0.07 | ) | ||||
From net realized gains | (1.09 | ) | — | |||||
|
|
|
| |||||
Total distributions declared to shareholders | (1.16 | ) | (0.07 | ) | ||||
Net Asset Value, End of Period | $ | 10.40 | $ | 10.99 | ||||
Total return(c) | 5.84 | %(d) | 10.63 | %(d) | ||||
Ratios to Average Net Assets(e)/Supplemental Data: | ||||||||
Net assets, end of period (in 000’s) | $ | 3,111 | $ | 4,193 | ||||
Total operating expenses | 9.94 | % | 6.53 | % | ||||
Waiver/reimbursement | (7.92 | )% | (4.63 | )% | ||||
Net operating expenses(f) | 2.02 | % | 1.90 | % | ||||
Dividends for short position | — | %(g) | 0.02 | % | ||||
Net expenses(f) | 2.02 | % | 1.92 | % | ||||
Income tax expense | 7.70 | % | — | |||||
Total expenses | 9.72 | % | — | |||||
Net investment income (loss) | (0.77 | )% | 0.42 | % | ||||
Portfolio turnover rate(d) | 228 | % | 254 | % |
(a) | Commenced operations on December 1, 2011. |
(b) | Per share data was calculated using average shares outstanding during the period. |
(c) | Total returns are historical and assume changes in share price, reinvestment of dividends and capital gains distributions, and assume no sales charge. Had the adviser not absorbed a portion of expenses, total returns would have been lower. |
(d) | Not annualized. |
(e) | All ratios for the period have been annualized, unless otherwise indicated. |
(f) | Net expense ratio has been calculated after applying any waiver/reimbursement, if applicable. |
(g) | Less than 0.005% |
See accompanying Notes to Financial Statements. | 13 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited)
March 31, 2013 | Highland Energy MLP Fund |
Note 1. Organization
Highland Funds II (formerly known as Pyxis Funds II) (the “Trust”) is a Massachusetts business trust organized on August 10, 1992. The Trust is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. It comprises eighteen portfolios although only thirteen are currently being offered including the Highland Energy MLP Fund (formerly Pyxis Energy and Materials Fund) (“the Fund”). The following portfolios are reported separately: Highland Alpha Trend Strategies Fund (formerly Pyxis Alpha Trend Strategies Fund), Highland Alternative Income Fund (formerly Pyxis Alternative Income Fund), Highland Trend Following Fund (formerly Pyxis Trend Following Fund), Highland Global Allocation Fund (formerly Pyxis Core America Equity Fund), Highland Dividend Equity Fund (formerly Pyxis Dividend Equity Fund), Highland Premier Growth Equity Fund (formerly Pyxis Premier Growth Equity Fund), Highland Small-Cap Equity Fund (formerly Pyxis Small-Cap Equity Fund), Highland Global Select Equity Fund (formerly Pyxis Global Equity Fund), Highland International Equity Fund (formerly Pyxis International Equity Fund), Highland Total Return Fund (formerly Pyxis Total Return Fund), Highland Tax-Exempt Fund (formerly Pyxis Tax-Exempt Fund), and Highland Fixed Income Fund (formerly Pyxis Fixed Income Fund). The Pyxis Money Market Fund II liquidated on December 24, 2012.
Effective February 1, 2013, the Fund revised its investment strategy to focus on master limited partnership (“MLP”) investments. Under normal market conditions, the Fund seeks to achieve its objective of providing investors with current income and capital appreciation by investing at least 80% of its net assets (plus any borrowings for investment purposes) in a portfolio of MLP investments. MLPs typically are characterized as “publicly traded partnerships” that qualify to be treated as partnerships for U.S. federal income tax purposes and are principally engaged in one or more aspects of the exploration, production, processing, transmission, marketing, storage or delivery of energy-related commodities, such as natural gas, natural gas liquids, coal, crude oil or refined petroleum products (collectively, the energy industry). The Fund’s MLP investments include investments that offer economic exposure to public MLPs in the form of common or subordinated units issued by MLPs, securities of entities holding primarily general partner or managing member interests in MLPs, debt securities of MLPs, and securities that are derivatives of interests in MLPs, including I-Shares, and derivative instruments in which the Fund may invest that have economic characteristics of MLP securities.
Fund Shares
The Fund is authorized to issue an unlimited number of shares of beneficial interest with a par value of $0.001 per share (each a “Share” and collectively, the “Shares”). The Fund currently offers four share classes to investors, namely Class A, Class C, Class R and Class Y Shares.
Class A Shares are sold with a front-end sales charge. Maximum sales load imposed on purchases of Class A Shares (as a percentage of offering price) is 5.75%.
There is no front-end sales charge imposed on individual purchases of Class A Shares of $1 million or more. The front-end sales charge is also waived in other instances as described in the Fund’s prospectus. Purchases of $1 million or more of Class A Shares at net asset value are subject to a 0.50% contingent deferred sales charge (“CDSC”) if redeemed within one year of purchase.
Class C Shares may be subject to a CDSC. The maximum CDSC imposed on redemptions of Class C Shares is 1.00% within the first year of purchase and 0.00% thereafter.
No front-end or CDSCs are assessed by the Trust with respect to Class R and Class Y Shares of the Fund.
Note 2. Significant Accounting Policies
The following summarizes the significant accounting policies consistently followed by the Fund in the preparation of its financial statements.
Offering Costs
Costs of $94,126 incurred in connection with the offering of the Fund were capitalized and amortized on a straight-line basis over twelve months beginning on the commencement date of the Fund, December 1, 2011.
Use of Estimates
The Fund’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require management 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 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.
Securities Valuation
The Fund utilizes various methods to measure the fair value of most of its investments on a recurring basis. GAAP establishes a framework for measuring fair value and providing related disclosures. Broadly, the framework requires
14 | Semi-Annual Report |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Energy MLP Fund |
fair value to be determined based on the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. In the absence of active markets for the identical assets or liabilities, such measurements involve developing assumptions based on market observable data and, in the absence of such data, internal information that is consistent with what market participants would use in a hypothetical transaction that occurs at the measurement date. It also establishes a three-level valuation hierarchy based upon observable and non-observable inputs.
Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect our market assumptions. Preference is given to observable inputs. These two types of inputs create the following fair value hierarchy:
Level 1 — | Quoted prices for identical investments in active markets. |
Level 2 — | Quoted prices for similar investments in active markets; quoted prices for identical or similar investments in markets that are not active; and model-derived valuations whose inputs are observable or whose significant value drivers are observable. |
Level 3 — | Significant inputs to the valuation model are unobservable. |
Policies and procedures are maintained to value investments using the best and most relevant data available. In addition, pricing vendors are utilized to assist in valuing investments. Highland Capital Management Fund Advisors, L.P., (formerly Pyxis Capital, L.P.) (the “Investment Adviser” or “Highland”) performs periodic reviews of the methodologies used by independent pricing services including price validation of individual securities.
Fair Value Measurement
The following section describes the valuation methodologies the Fund uses to measure different financial investments at fair value.
The Fund’s portfolio securities are valued generally on the basis of market quotations. Equity securities generally are valued at the last reported sales price on the primary market in which they are traded. Portfolio securities listed on National Association of Securities Dealers Automated Quotation (“NASDAQ”) are valued using the NASDAQ Official Closing Price; Level 1 securities primarily include publicly-traded equity securities which may not necessarily represent the last sale price. If no sales occurred on the
exchange or NASDAQ that day, the portfolio security will be valued at the mean between the most recently quoted bid and asked prices produced by the principal market makers. In those circumstances the Fund classifies the investment securities in Level 2.
Debt securities (other than short-term securities described below) generally are valued at an evaluated bid as reported by an independent pricing service. Municipal obligations are valued at the quoted bid prices when available. The pricing vendor uses various pricing models for each asset class that are consistent with what other market participants would use. The inputs and assumptions to the model of the pricing vendor are derived from market observable sources including: benchmark yields, reported trades, broker/dealer quotes, issuer spreads, benchmark securities, bids, offers, and other market related data. Since many fixed income securities do not trade on a daily basis, the methodology of the pricing vendor uses available information as applicable such as benchmark curves, benchmarking of like securities, sector groupings, and matrix pricing. The pricing vendor considers all available market observable inputs in determining the evaluation for a security. Thus, certain securities may not be priced using quoted prices, but rather determined from market observable information. These investments are included in Level 2 and primarily comprise our portfolio of corporate fixed income, government, mortgage and asset-backed securities.
In the absence of a reliable price from such a pricing service, debt securities may be valued based on dealer supplied valuations or quotations. In these infrequent circumstances, pricing vendors may provide the Fund with valuations that are based on significant unobservable inputs, and in those circumstances we classify the investment securities in Level 3.
The Fund uses non-binding broker quotes as the primary basis for valuation when there is limited, or no, relevant market activity for a specific investment or for other investments that share similar characteristics. The Fund has not adjusted the prices obtained. Investment securities priced using non-binding broker quotes are included in Level 3. As is the case with the primary pricing vendor, third-party brokers do not provide access to their proprietary valuation models, inputs and assumptions. Accordingly, Highland conducts internal reviews of pricing for all such investment securities periodically to ensure reasonableness of valuations used in the Fund’s financial statements. These reviews are designed to identify prices that appear stale, those that have changed significantly from prior valuations, and other anomalies that may indicate that a price may not be accurate. Based on the
Semi-Annual Report | 15 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Energy MLP Fund |
information available, Highland believes that the fair values provided by the brokers are representative of prices that would be received to sell the assets at the measurement date (exit prices).
Short-term securities of sufficient credit quality with remaining maturities of sixty days or less at the time of purchase are valued on the basis of amortized cost which approximates market value and these are included in Level 2.
Written or purchased options are valued at the last sales price, or if no sales occurred that day, at the last reported bid price and those are also included in Level 2.
If prices are not readily available for a portfolio security, or if it is believed that a price for a portfolio security does not represent its fair value, the security may be valued using procedures approved by the Fund’s Board of Trustees that are designed to establish its “fair” value. These securities would be classified in Level 3. Those procedures require that the fair value of a security be established by the fair valuation committee. The fair valuation committee follows different protocols for different types of investments and circumstances. The fair value procedures may be used to value any investment of any Fund in the appropriate circumstances.
Foreign securities may be valued with the assistance of an independent fair value pricing service in circumstances where it is believed that they have been or would be materially affected by events occurring after the close of the portfolio security’s primary market and before the close of regular trading on the New York Stock Exchange (“NYSE”). In these circumstances the Fund classifies the investment securities in Level 2. This independent fair value pricing service uses a model to identify affected securities and portfolios taking into consideration various factors and the fair value of such securities may be something other than the last available quotation or other market price.
Portfolio securities may be valued using techniques other than market quotations, under the circumstances described above. The value established for a portfolio security may be different than what would be produced through the use of another methodology or if it had been priced using market quotations. Portfolio securities that are valued using techniques other than market quotations, including “fair valued” securities, may be subject to greater fluctuation in their value from one day to the next than would be the case if market quotations were used. In addition, there is no assurance that the Fund could sell a portfolio security for the value established for it at any time and it is possible that the Fund would incur a loss because a portfolio security is sold at a discount to its established value.
Other financial investments are derivative instruments that are not reflected in Total Investments, such as futures, forwards, swaps, and written options contracts, which are valued based on fair value as discussed above.
The Fund uses closing prices for derivatives included in Level 1, which are traded either on exchanges or liquid over-the-counter markets. Derivative assets and liabilities included in Level 2 primarily represent interest rate swaps, cross-currency swaps and foreign currency and commodity forward and option contracts. Derivative assets and liabilities included in Level 3 primarily represent interest rate products that contain embedded optionality or prepayment features.
Fair value determinations are required for securities whose value is affected by a significant event that will materially affect the value of a domestic or foreign security and which occurs subsequent to the time of the close of the principal market on which such domestic or foreign security trades but prior to the calculation of the Fund’s net asset value (“NAV”).
At the end of each calendar quarter, management 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, management 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 an indication of the risk associated with investing in those securities. Transfers in and out of levels are recognized at the value at the beginning of the period. The
16 | Semi-Annual Report |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Energy MLP Fund |
following tables present the Fund’s investments measured at fair value on a recurring basis at March 31, 2013:
Total value at March 31, 2013 | Level 1 Quoted Price | Level 2 Significant Observable Inputs | Level 3 Significant Unobservable Inputs | |||||||||||||
Energy MLP Fund | ||||||||||||||||
Assets | ||||||||||||||||
Common Stocks* | $ | 554,064 | $ | 554,064 | $ | — | $ | — | ||||||||
Master Limited Partnerships* | 2,636,606 | 2,636,606 | — | — | ||||||||||||
Investment Companies | 67,856 | 67,856 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | $ | 3,258,526 | $ | 3,258,526 | $ | — | $ | — | ||||||||
|
|
|
|
|
|
|
|
* | See Investment Portfolio detail for industry breakout. |
Certain foreign securities are fair valued by utilizing an external pricing service in the event of any significant market movements between the time the series valued such foreign securities and the earlier closing of foreign markets. Such fair valuations are categorized as Level 2 in the hierarchy. There were no transfers into or out of levels 1, 2, or 3 during the six months ended March 31, 2013.
Security Transactions
Security transactions are accounted for on the trade date. Realized gains/(losses) on investments sold are recorded on the basis of identified cost for both financial statement and U.S. federal income tax purposes.
The Fund’s income, expenses (other than distribution fees and shareholder service fees) and realized and unrealized gains and losses are allocated proportionally each day among the Fund’s respective share classes based upon the relative net assets of each class share.
Income Recognition
Corporate actions (including cash dividends) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after ex-dividend date as such information becomes available. Interest income is recorded on the accrual basis.
Partnership Accounting Policy
The Fund records its pro rata share of the income (loss) and capital gains (losses), to the extent of distributions it has received, allocated from the underlying partnerships and accordingly adjusts the cost basis of the underlying partnerships for return of capital. These amounts are included in the Fund’s Statement of Operations as “Dividends and distributions” and “Return of capital.”
Expenses
Expenses are allocated pro rata among the Fund’s share classes. Such expenses may include custodial fees, legal and accounting fees, printing costs and registration fees. Certain class specific expenses (such as distribution fees and shareholder service fees) are allocated to the class that incurs such expense.
Short-Term Trading (Redemption) Fees
Shares held less than two months are subject to a short-term trading fee equal to 2.00% of the proceeds of the redeemed shares. These fees, which are retained by the Fund, are accounted for as an addition to paid-in capital. No redemption fees were recorded during the six months ended, March 31, 2013.
U.S. Federal Income Tax Status
The Fund will be taxable as a regular corporation, or a “C” corporation, for U.S. federal income tax purposes and thus will pay entity-level taxes as described below. The Internal Revenue Code of 1986, as amended (the “Code”), generally provides that an investment company registered under the 1940 Act that elects to be treated and qualifies each taxable year as a regulated investment company (“RIC”) under Subchapter M of the Code, including by complying with applicable qualifying income, diversification and distribution requirements, does not pay any entity-level U.S. federal income tax on any income or gains that the investment company distributes to its shareholders. The Fund has previously elected to be treated as a RIC under the Code and, prior to the current taxable year ending September 30, 2013, has annually so qualified for the special treatment accorded RICs and their shareholders under the Code.
Upon implementation of the Fund’s revised strategy to concentrate in MLP investments, retroactive to the beginning of the Fund’s current taxable year, which began on October 1, 2012 and ends on September 30, 2013, and continuing for future taxable years, the Fund will no longer be eligible for treatment as a regulated investment company under the Code. Accordingly, the Fund will be treated as a regular corporation, or “C” corporation, for U.S. federal income tax purposes. As a result, the Fund will be subject to U.S. federal income tax on its taxable income at the graduated rates applicable to corporations (currently at a maximum rate of 35%) as well as state and local income taxes. The Fund’s major tax jurisdictions are Louisiana and Oklahoma.
The Fund invests its assets primarily in MLPs, which generally are treated as partnerships for federal income tax purposes. As a limited partner in the MLPs, the Fund includes its allocable share of the MLP’s taxable income in
Semi-Annual Report | 17 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Energy MLP Fund |
computing its own taxable income. Deferred income taxes reflect (i) taxes on unrealized gains (losses), which are attributable to the temporary difference between fair market value and tax basis, (ii) the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and (iii) the net tax benefit of accumulated net operating and capital losses.
In calculating the Fund’s daily net asset value the Fund will account for its deferred tax liability and/or asset balances. The Fund will accrue, in accordance with GAAP, a deferred income tax liability balance, at the currently effective statutory U.S. federal income tax rate plus an estimated state and local income tax rate, for its future tax liability associated with the capital appreciation of its investments and the distributions received by the Fund on equity securities of MLPs considered to be return of capital and for any net operating gains. Any deferred tax liability balance will reduce the Fund’s net asset value. Upon the Fund’s sale of a portfolio security, the Fund may be liable for previously deferred taxes. If the Fund is required to sell portfolio securities to meet redemption requests, the Fund may recognize income and gains for U.S. federal, state and local income tax purposes, which will result in corporate income taxes imposed on the Fund.
The Fund also will accrue in accordance with GAAP, a deferred tax asset balance, which reflects an estimate of the Fund’s future tax benefit associated with net operating losses, capital loss carryforwards and unrealized losses. To the extent the Fund has a net deferred tax asset balance, the Fund will record a valuation allowance, which would offset the value of some or all of the Fund’s deferred tax asset balance. The Fund then will assess whether such valuation allowance is needed, considering all positive and negative evidence related to the realization of the Fund’s deferred tax asset. The Fund intends to assess whether a valuation allowance is required to offset some or all of any deferred tax asset balance in connection with the calculation of the Fund’s daily net asset value; however, to the extent the final valuation allowance differs from the estimates of the Fund used in calculating the Fund’s daily net asset value, the application of such final valuation allowance could have a material impact on the Fund’s net asset value. In the assessment for a valuation allowance, consideration is given to all positive and negative evidence related to the realization of the deferred tax asset. This assessment considers, among other matters, the nature, frequency and severity of current and cumulative losses, forecasts of future profitability (which are highly dependent on future cash distributions from the Fund’s MLP holdings), the duration of statutory carryforward periods
and the associated risk that operating and capital loss carryforwards may expire unused. From time to time, the Fund may modify its estimates or assumptions regarding its deferred tax liability and/or asset balances as new information becomes available. Such modifications, changes in generally accepted accounting principles or related guidance or interpretations thereof, limitations imposed on net operating and capital losses (if any) and changes in applicable tax law could result in increases or decreases in the Fund’s net asset value per share, which could be material.
For all open tax years and for all major jurisdictions, management of the Fund has concluded that there are no significant uncertain tax positions that would require recognition in the financial statements. Furthermore, management 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 twelve months.
The Fund may rely to some extent on information provided by the MLPs, which may not necessarily be timely, to estimate taxable income allocable to the MLP units held in the portfolio and to estimate the associated deferred tax liability. Such estimates are made in good faith. From time to time, as new information becomes available, the Fund modifies its estimates or assumptions regarding the deferred tax liability.
The Fund’s policy is to classify interest and penalties associated with underpayment of federal and state income taxes, if any, as income tax expense on its Statement of Operations. The current tax year remains open and subject to examination by tax jurisdictions.
Return of Capital Estimates
Distributions received from the Fund’s investments in MLPs generally are comprised of income and return of capital. The Fund records investment income and return of capital based on estimates made at the time such distributions are received. Such estimates are based on historical information available from each MLP and other industry sources. These estimates may subsequently be revised based on information received from MLPs after their tax reporting periods are concluded. For the six months ended March 31, 2013 the Fund estimated that approximately 90% of the MLP distributions received would be treated as a return of capital. The Fund recorded as return of capital the amount of $41,612 of dividends and distributions received from its investments.
Distributions to Shareholders
The Fund intends to make quarterly cash distributions of all or a portion of its net income (after taxes) to its shareholders.
18 | Semi-Annual Report |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Energy MLP Fund |
Due to the tax treatment of the Fund’s allocations and distributions from MLPs, HCM expects that a significant portion of the Fund’s distributions to shareholders will typically be treated as a return of capital in the hands of shareholders for U.S. federal income tax purposes (i.e., as distributions in excess of the Fund’s current and accumulated earnings and profits as described below). However, no assurance can be given in this regard; just as the Fund’s corporate income tax liability can fluctuate materially from year to year, the extent to which the Fund is able to make return-of-capital distributions also can vary materially from year to year depending on a number of different factors, including the composition of the Fund’s portfolio, the level of allocations of net income and other tax items for the Fund from its underlying MLP investments during a particular taxable year, the length of time the Fund has owned the MLP equity securities in its portfolio, and the extent to which the Fund disposes of MLP equity securities during a particular year, including, if necessary, to meet Fund shareholder redemption requests.
In general, a distribution will constitute a return of capital to a shareholder, rather than a dividend, to the extent such distribution exceeds the Fund’s current and accumulated earnings and profits. The portion of any distribution treated as a return of capital will constitute a tax-free return of capital to the extent of the shareholder’s basis in its Fund shares and thereafter generally will be taxable to the shareholder as capital gain. Any such distribution, in turn, will result in a reduction in a shareholder’s basis in the Fund’s shares (but not below zero) to the extent of the return of capital and in the shareholder’s recognizing more gain or less loss (that is, will result in an increase of a shareholder’s tax liability) when the shareholder later sells shares of the Fund. To permit the Fund to maintain a more stable distribution rate, the Fund may distribute less or more than the entire amount of cash it receives from its investments in a particular period. Any undistributed cash would be available to supplement future distributions, and until distributed would add to the Fund’s net asset value. Correspondingly, such amounts, once distributed, will be deducted from the Fund’s net asset value. In addition, in the discretion of the Fund, the Fund may determine not to make distributions in quarters in which the Fund believes that a distribution could cause adverse tax consequences to shareholders, including when the Fund believes that a distribution may not constitute a tax-free return of capital as described above.
Statement of Cash Flows
Information on financial transactions which have been settled through the receipt or disbursement of cash is presented in the Statement of Cash Flows. The cash
amount shown in the Statement of Cash Flows is the amount included within the Fund’s Statement of Assets and Liabilities and includes cash on hand at its custodian bank and sub-custodian bank, respectively, and does not include cash posted as collateral in the segregated account or with the broker-dealers.
Cash & Cash Equivalents
The Fund considers liquid assets deposited with a bank, money market funds, and certain short term debt instruments of sufficient credit quality with original maturities of 3 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 amortized 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 Statement of Assets and Liabilities.
Master Limited Partnerships
Entities commonly referred to as “MLPs” are generally organized under state law as limited partnerships or limited liability companies. The Fund intends to primarily invest in MLPs receiving partnership taxation treatment under the Code, and whose interests or “units” are traded on securities exchanges like shares of corporate stock. To be treated as a partnership for U.S. federal income tax purposes, an MLP whose units are traded on a securities exchange must receive at least 90% of its income from qualifying sources such as interest, dividends, real estate rents, gain from the sale or disposition of real property, income and gain from mineral or natural resources activities, income and gain from the transportation or storage of certain fuels, and, in certain circumstances, income and gain from commodities or futures, forwards and options with respect to commodities. Mineral or natural resources activities include exploration, development, production, processing, mining, refining, marketing and transportation (including pipelines), of oil and gas, minerals, geothermal energy, fertilizer, timber or industrial source carbon dioxide. An MLP consists of a general partner and limited partners (or in the case of MLPs organized as limited liability companies, a managing member and members). The general partner or managing member typically controls the operations and management of the MLP and has an ownership stake in the partnership. The limited partners or members, through their ownership of limited partner or member interests, provide capital to the entity, are intended to have no role in the operation and management of the entity and receive cash distributions. The MLPs themselves generally do not pay U.S. federal income taxes. Thus, unlike investors in corporate securities, direct MLP
Semi-Annual Report | 19 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Energy MLP Fund |
investors are generally not subject to double taxation (i.e., corporate level tax and tax on corporate dividends). Currently, most MLPs operate in the energy and/or natural resources sector.
Note 3. 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 to off-setting positions, tax treatment of organizational start-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 Fund’s 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 net asset value of the Fund. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments.
Undistributed Net Investment Income | Accumulated Net Realized Loss | Paid In Capital | ||||||||||
2012 | $ | 23,219 | $ | — | $ | (23,219 | ) |
The Fund’s income tax provision consists of the following:
Current | Deferred | Total | ||||||||||
Federal Tax (Expense)/Benefit | $ | (48,384 | ) | $ | (42,149 | ) | $ | (90,533 | ) | |||
State Tax (Expense)/Benefit | — | (2,285 | ) | (2,285 | ) | |||||||
International Tax (Expense)/Benefit | (227 | ) | — | (227 | ) | |||||||
|
|
|
|
|
| |||||||
Total Tax (Expense)/Benefit | $ | (48,611 | ) | $ | (44,434 | ) | $ | (93,045 | ) | |||
|
|
|
|
|
|
Deferred income taxes reflect (i) taxes on unrealized gains/(losses), which are attributable to the difference between fair market value and tax basis and (ii) the net tax effects of temporary differences between the carrying amounts of assets and liability for financial reporting purposes and the amounts used for income tax purposes and (iii) the net tax benefit of net operating losses.
At March 31, 2013, components of the Fund’s net deferred tax liability are as follows:
Total | ||||
Deferred Tax Assets: | ||||
Net Operating Loss Carryforwards | $ | — | ||
Deferred Tax Liabilities: | ||||
Unrealized Gains on Investment Securities | $ | 44,435 | ||
Basis Reduction resulting from Book v. Taxable Income Received from MLPs) | — | |||
|
| |||
Total Net Deferred Tax Liability | $ | 44,435 | ||
|
|
Total income taxes have been computed by applying the federal statutory income tax rate of 34% plus a blended state income tax rate of 2.2%. The Fund applied this effective rate to net investment income, realized and unrealized gains on investments before taxes in computing its total income taxes.
Although the Fund currently has a net deferred tax liability, it periodically reviews the recoverability of its deferred tax assets based on the weight of available evidence. As referenced in Note 2, when assessing the recoverability of its deferred tax assets, significant weight is given to the effects of potential future realized and unrealized gains on investments and the period over which these deferred tax assets can be realized, as the expiration date for the federal net operating loss carryforward is 20 years.
At September 30, 2012, the most recent tax year end, components of distributable earnings on a tax basis were as follows:
Undistributed Income | Undistributed Long-Term Capital Gains | Undistributed Tax-Exempt Income | Accumulated Capital and Other Losses | Net Tax Appreciation/ (Depreciation)* | ||||
$349,163 | $— | $— | $— | $— |
* | Any differences between book-basis and tax-basis net unrealized appreciation/(depreciation) are primarily due to deferral of losses from wash sale, and other adjustments. |
To the extent the Fund has a net capital loss in any tax year, the net capital loss generally can be carried back three years and forward five years to offset any capital gains realized during those other years. To the extent the Fund has a net operating loss in any tax year, the net operating loss generally can be carried back two years or forward twenty years to reduce the Fund’s net income realized during those other years. In the event a capital loss carryover or net operating loss carryover cannot be utilized in the carryover periods, the Fund’s U.S. federal income tax liability may be higher than expected, which will result in less cash available to distribute to shareholders. As of September 30, 2012, the most recent tax year end, the Fund did not have any capital loss carryovers.
20 | Semi-Annual Report |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Energy MLP Fund |
The tax composition of distributions paid during the year ended September 30, 2012 was as follows:
Year | Ordinary Income* | Long-Term Capital Gains | ||||||
2012 | 21,348 | N/A |
* | For tax purposes, short-term capital gains distributions, if any, are considered ordinary income distributions. |
Unrealized appreciation and depreciation at March 31, 2013, based on cost of investments for U.S. federal income tax purposes was:
Gross Appreciation | Gross Depreciation | Net Appreciation/ (Depreciation) Before Tax | Net Appreciation/ (Depreciation) After Tax | Cost | ||||||||||||
$133,068 | $ | (9,099 | ) | $ | 123,969 | $ | 79,534 | $ | 3,066,701 |
Note 4. Securities Lending
The Fund may make secured loans of its portfolio securities amounting to not more than one-third of the value of its total assets, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delays in recovery of the securities or possible loss of rights in the collateral should the borrower fail financially and possible investment losses in the investment of collateral. Pursuant to the Fund’s securities lending policies, securities loans are made to unaffiliated broker-dealers pursuant to agreements requiring that loans be continuously secured by collateral in cash or short-term debt obligations at least equal at all times to the value of the securities subject to the loan. The borrower pays to the Fund an amount equal to any interest or dividends received on securities subject to the loan. The Fund retains all or a portion of the interest received on investment of the cash collateral or receives a fee from the borrower. As of March 31, 2013 cash collateral received for the Fund was invested in the State Street Navigator Prime Securities Lending Portfolio. Additionally, non-cash collateral received by the Fund may not be sold or re-pledged. As of March 31, 2013, the Fund did not receive non-cash collateral.
Security Lending Market Value | Cash Collateral | |||
$67,076 | $ | 67,856 |
Note 5. Credit Agreement
The Fund entered into a $25,000,000 unsecured credit agreement with The Bank of New York Mellon (the “Credit Agreement”) to be used for temporary purposes to facilitate portfolio liquidity. The Fund did not utilize the line of credit before its expiration on February 25, 2013. The Fund had access to the facility, but aggregate borrowings could
not exceed $25,000,000. Interest was charged to the Fund based on their borrowings at a rate equal to the greater of the (a) Federal Funds Effective Rate; (b) Overnight London Interbank Offered Rate (“LIBOR”); (c) or one-month LIBOR, plus 1.25%. In addition, the Fund agreed to pay commitment fee expenses of 0.12% on the undrawn amounts, which are included in “Other” on the Statement of Operations.
Note 6. Transactions with Affiliates & Expenses Incurred by the Fund
Investment Advisory and Administration Fees
Highland serves as the investment adviser to the Fund. For its investment advisory and administrative services, the Fund pays Highland 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 the Fund means the average daily value of the total assets of the Fund less all accrued liabilities of the Fund (other than the aggregate amount of any outstanding borrowings constituting financial leverage). The Fund’s contractual advisory fee with Highland for the six months ended March 31, 2013 was 1.00%.
Highland has contractually agreed to limit the total annual operating expenses of the Fund (exclusive of fees paid by the Fund pursuant to its distribution plan under Rule 12b-1 under the Investment Company Act of 1940, taxes, such as deferred tax expenses, brokerage commissions and other transaction costs, acquired fund fees and expenses, and extraordinary expenses) of the Fund to 1.10% of average daily net assets of the Fund (the “Expense Cap”). The Expense Cap will continue through at least January 31, 2014, and may not be terminated prior to this date without the action or consent of the Board of Trustees.
To the extent Highland waives its fee or reimburses expenses to satisfy the contractual limitation set forth above (the “cap”), it may seek repayment of a portion or all of such amounts at any time within 36 months after the date which such amounts were waived or reimbursed, subject to the cap. There can be no assurance that this fee reduction will be sufficient to avoid any loss. On March 31, 2013, the amount subject to possible future recoupment under the Fund’s expense limitation agreement is $95,613 expiring in 2016.
Highland provides administrative services for a monthly administration fee, computed and accrued daily, at an annual rate of 0.20% of the Fund’s Average Daily Managed Assets. During the six months ended March 31, 2013, Highland waived $2,297 in administrative fees for the Fund. This administration fee waiver is voluntary and is subject to termination at any time by Highland without notice.
Semi-Annual Report | 21 |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Energy MLP Fund |
Sub-Advisory Fees
Highland Capital Management, L.P. (“HCM”) is the investment sub-adviser to the Fund. Highland pays the sub-adviser an investment sub-advisory fee out of the advisory fee that it receives from the Fund.
Fees Paid to Officers and Trustees
Each Trustee who is not an “interested person” of the Funds 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 based on relative net assets. The “Highland Fund Complex” consists of all of the registered investment companies advised by the Investment Adviser and its affiliated advisors as of the date of this report.
The Funds pay no compensation to their one interested Trustee or any of their officers, all of whom are employees of the Investment Adviser.
Distribution and Shareholder Service Fees
The Fund has a distribution and shareholder service plan (the “Plan”) pursuant to Rule12b-1 under the 1940 Act. The Plan requires the payment of a monthly service fee to Foreside Funds Distributors LLC (the “Underwriter”) at an annual rate of 0.25% of the average daily net assets attributable to Class A, Class C and Class R shares of the Fund. In addition, the Plan also requires the payment of a monthly distribution fee to the Underwriter at an annual rate of 0.10% of the average daily net assets attributable to Class A shares. The Plan also requires the payment of a monthly distribution fee to the Underwriter at an annual rate of 0.75% of the average daily net assets attributable to Class C shares and 0.25% of the average daily net assets attributable to Class R shares. Currently Class Y shares are not subject to a 12b-1 fee.
Note 7. Disclosure of Significant Risks and Contingencies
The primary risks of investing in the Fund are described below in alphabetical order:
Counterparty Credit Risk
Counterparty credit 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 credit risk is measured as the loss the Fund would record if its counterparties failed to perform pursuant to the terms of their obligations to the Fund. Because the Fund may enter into over-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 credit risk
associated with such transactions, a Fund conducts business only with financial institutions judged by the Investment Adviser to present acceptable credit risk.
Indemnification Risk
The Fund has a variety of indemnification obligations under contracts with their service providers. The Fund’s maximum exposure under these arrangements is unknown. However, the Fund has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.
Note 8. Investment Transactions
Purchases & Sales of Securities
The cost of purchases and the proceeds from sales of investments for the six months ended March 31, 2013, were as follows:
Other Securities | ||||||
Purchases | Sales | |||||
$5,996,460 | $ | 3,045,859 |
Note 9. Significant Shareholders
The number of shareholders each owning 5% or more of the Fund is listed below. The total percentage of the Fund held by such shareholders as well as percentage of the Fund held by certain directly and indirectly wholly-owned subsidiaries of the Investment Adviser and their affiliates (“Highland Affiliates”) at March 31, 2013 were:
Number | % of Fund Held | |||||
1 | 99% |
Investment activities of these shareholders could have a material impact on the Fund.
Note 10. New Accounting Pronouncements
In December 2011, FASB issued ASU No. 2011-11, “Dosclosures about Offsetting Assets and Liabilities”. ASU No. 2011-11 requires disclosures to make financial statements that are prepared under U.S. GAAP more comparable to those prepared under International Financial Reporting Standards (“IFRS”). The new disclosure requirements mandate that entities disclose both gross and net information about instruments and transactions subject to an agreement similar to a master netting arrangement. In addition, ASU No. 2011-11 requires disclosure of collateral received and posted in connection with master netting agreements or similar arrangements. New disclosures are required for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. Management is evaluating the impact of ASU No. 2011-11 on the financial statements and disclosures.
22 | Semi-Annual Report |
Table of Contents
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
March 31, 2013 | Highland Energy MLP Fund |
Note 11. Subsequent Events
Management has evaluated the impact of all subsequent events for the Fund through the date the financial statements were issued, and has determined that there was the following event:
As of May 24, 2013, the Fund became a party to an amended and reinstated $25,000,000 unsecured credit agreement with State Street Bank and Trust Company to be used for temporary purposes to facilitate portfolio liquidity. The Fund has access to the facility, but aggregate borrowings may not exceed $25,000,000.
Semi-Annual Report | 23 |
Table of Contents
ADDITIONAL INFORMATION (unaudited)
March 31, 2013 | Highland Energy MLP 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 take contrary provisions 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 desires 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.
As a shareholder of the Fund you incur transaction and ongoing expenses. Transaction expenses including sales charges on purchase payments, reinvested dividends (or other distributions), and redemption fees directly reduce the investment return of the Fund. Ongoing costs include portfolio management fees, distribution and service fees, professional fees, administrative fees and other Fund expenses. The following example is intended to help you understand your ongoing costs (in U.S. dollars) of investing in the Fund and to compare these costs with the ongoing costs of investing in other mutual funds.
To illustrate these ongoing costs, we have provided an example and calculated the expenses paid by investors in each share class of the Fund during the period. The information in the following table is based on an
investment of $1,000, which is invested at the beginning of the period and held for the entire six-month period ended March 31, 2013.
Actual Expenses: The first section of the table provides information about actual account values and actual expenses. You may use the information in this section, together with the amount you invested, to estimate the expenses that you paid over the period. To do so, simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number given for your class under the heading “Expenses Paid During the Period.”
Hypothetical Example for Comparison Purposes: The second section of the table provides information about hypothetical account values and hypothetical expenses based on the Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses, which is not the Fund’s actual return. You may use this information to compare the ongoing costs of investing in the Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholders reports of other funds.
Please note that the expenses shown in the table do not reflect any transaction costs, such as sales charges or redemption fees.
Beginning Account Value 10/01/12 | Ending Account Value 03/31/13 | Annualized Expense Ratio(1) | Expenses Paid During the Period (1) | Actual Returns for Period | ||||||||||||||||
Energy MLP Fund |
| |||||||||||||||||||
Actual Fund Return |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,055.50 | 2.37 | % | $ | 12.15 | 5.55 | % | ||||||||||
Class C | 1,000.00 | 1,052.10 | 3.02 | % | 15.45 | 5.21 | % | |||||||||||||
Class R | 1,000.00 | 1,054.70 | 2.52 | % | 12.91 | 5.47 | % | |||||||||||||
Class Y | 1,000.00 | 1,058.40 | 2.02 | % | 10.37 | 5.84 | % | |||||||||||||
Hypothetical 5% Return (before expenses) |
| |||||||||||||||||||
Class A | $ | 1,000.00 | $ | 1,013.11 | 2.37 | % | $ | 11.90 | 5.00 | % | ||||||||||
Class C | 1,000.00 | 1,009.87 | 3.02 | % | 15.13 | 5.00 | % | |||||||||||||
Class R | 1,000.00 | 1,012.37 | 2.52 | % | 12.64 | 5.00 | % | |||||||||||||
Class Y | 1,000.00 | 1,014.86 | 2.02 | % | 10.15 | 5.00 | % |
(1) | Expenses are equal to the Fund’s annualized expense ratio multiplied by the average account value over the period, multiplied by the number of days in the most recent fiscal half-year, divided by the number of days in the full fiscal year (182/365). |
24 | Semi-Annual Report |
Table of Contents
IMPORTANT INFORMATION ABOUT THIS REPORT
Investment Adviser
Highland Capital Management Fund Advisors, L.P.
200 Crescent Court, Suite 700
Dallas, TX 75201
Sub-Adviser
Highland Capital Management, L.P.
300 Crescent Court, Suite 700
Dallas, TX 75201
Transfer Agent
Boston Financial Data Services, Inc.
30 Dan Road
Canton, Massachusetts 02021
Underwriter
Foreside Funds Distributors LLC
400 Berwyn Park
899 Cassatt Road, 1st Floor
Berwyn, PA 19312
Custodian
State Street Bank and Trust Company
801 Pennsylvania Avenue
Kansas City, Missouri 64105
Independent Registered Public
Accounting Firm
KPMG LLP
Two Financial Center
60 South Street
Boston, MA 02111
Fund Counsel
Ropes & Gray LLP
Prudential Tower
800 Boylston Street
Boston, MA 02199-3600
This report has been prepared for shareholders of Highland Energy MLP Fund. The Fund mails one shareholder report to each shareholder address. If you would like more than one report, please call shareholder services at 1-877-665-1287 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 recent 12-month period ended June 30, are available (i) without charge, upon request, by calling 1-877-665-1287 and (ii) on the Securities and Exchange Commission’s website at http://www.sec.gov.
The Fund files its complete schedule of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year on Form N-Q. The Fund’s Forms N-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 calling 1-800-SEC-0330. Shareholders may also obtain the Form N-Q by visiting the Fund’s website at www.highlandfunds.com.
The Statement of Additional Information includes additional information about the Fund’s Trustees and is available upon request without charge by calling 1-877-665-1287.
Semi-Annual Report | 25 |
Table of Contents
200 Crescent Court, Suite 700
Dallas, TX 75201
Highland Energy MLP Fund | Semi-Annual Report, March 31, 2013 |
www.highlandfunds.com | HLC-MLP-SEMI-03/13 |
Table of Contents
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. Schedule of Investments.
(a) | Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is included as part of the report to shareholders filed under Item 1 of this form. |
(b) | Not applicable. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of Closed-End Investment Companies.
Not applicable.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
Not applicable.
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 directors.
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 Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”) (17 CFR 270.30a-3 (c))) are effective, as of a date within 90 days of the filing date of the report that includes the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as amended (17 CFR 240.13a-15(b) or 240.15d-15(b)).
(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the registrant’s 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.
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Item 12. Exhibits.
(a)(1) Not applicable.
(a)(2) Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
(a)(3) Not applicable.
(c) Certifications pursuant to Rule 30a-2(b) under the 1940 Act and Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
HIGHLAND FUNDS II | ||
By: | /s/ Ethan Powell | |
Ethan Powell | ||
Executive Vice President and Principal Executive Officer (principal executive officer) | ||
Date: | June 7, 2013 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ Ethan Powell | |
Ethan Powell | ||
Executive Vice President and Principal Executive Officer (principal executive officer) | ||
Date: | June 7, 2013 |
By: | /s/ Brian Mitts | |
Brian Mitts | ||
Chief Financial Officer and Treasurer (principal financial officer) | ||
Date: | June 7, 2013 |