INVESTMENT PORTFOLIO (unaudited)
As of December 31, 2020 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
Corporate Bonds & Notes — 47.7% | ||||||||
COMMUNICATION SERVICES — 1.5% | ||||||||
336,000 | AT&T | 427,287 | ||||||
750,000 | Netflix | 846,997 | ||||||
T-Mobile USA | ||||||||
500,000 | 2.25%, 11/15/31 (a) | 514,108 | ||||||
1,000,000 | 3.30%, 02/15/51 (a) | 1,030,705 | ||||||
168,000 | Warner Media | 197,421 | ||||||
|
| |||||||
3,016,518 | ||||||||
|
| |||||||
CONSUMER DISCRETIONARY — 5.5% | ||||||||
Ford Motor Credit | ||||||||
750,000 | VAR ICE LIBOR USD 3 Month+1.080%, 1.30%, 08/03/22 | 731,521 | ||||||
500,000 | 5.88%, 08/02/21 | 512,375 | ||||||
Las Vegas Sands | ||||||||
1,500,000 | 3.20%, 08/08/24 | 1,589,819 | ||||||
4,410,000 | 3.90%, 08/08/29 | 4,746,094 | ||||||
3,250,000 | Marriott International | 3,599,568 | ||||||
|
| |||||||
11,179,377 | ||||||||
|
| |||||||
CONSUMER STAPLES — 2.1% | ||||||||
358,000 | Altria Group | 411,676 | ||||||
1,000,000 | Sysco | 1,042,645 | ||||||
Walgreens Boots Alliance | ||||||||
1,950,000 | 3.20%, 04/15/30 | 2,122,475 | ||||||
650,000 | 4.50%, 11/18/34 | 748,063 | ||||||
|
| |||||||
4,324,859 | ||||||||
|
| |||||||
ENERGY — 0.8% | ||||||||
225,000 | BP Capital Markets | 251,595 | ||||||
259,000 | Energy Transfer Operating | 316,942 | ||||||
90,000 | Occidental Petroleum | 89,325 | ||||||
1,150,000 | Plains All American Pipeline | 937,250 | ||||||
150,000 | Unit Corp | 19,313 | ||||||
|
| |||||||
1,614,425 | ||||||||
|
| |||||||
FINANCIALS — 13.2% | ||||||||
1,750,000 | Arbor Realty Trust | 1,638,369 | ||||||
2,000,000 | Athene Holding | 2,118,005 |
Principal Amount ($) | Value ($) | |||||||
Corporate Bonds & Notes (continued) | ||||||||
FINANCIALS (continued) | ||||||||
Bank of America | ||||||||
1,750,000 | VAR ICE LIBOR USD 3 Month+3.898%, 6.10%, (b) | 1,984,054 | ||||||
500,000 | VAR ICE LIBOR USD 3 Month+4.553%, 6.30%, (b) | 584,062 | ||||||
1,000,000 | Bank of New York Mellon | 1,105,300 | ||||||
1,400,000 | Charles Schwab | 1,562,750 | ||||||
505,000 | VAR ICE LIBOR USD 3 Month+4.820%, 7.00%, (b) | 534,669 | ||||||
925,000 | Citizens Financial Group | 1,040,810 | ||||||
1,500,000 | Everest Reinsurance Holdings | 1,369,315 | ||||||
103,000 | Genworth Holdings | 93,590 | ||||||
500,000 | Goldman Sachs Group, Inc. | 500,240 | ||||||
500,000 | Independent Bank Group | 496,288 | ||||||
245,000 | JPMorgan Chase & Co | 245,055 | ||||||
3,000,000 | VAR ICE LIBOR USD 3 Month+3.780%, 6.75%, (b) | 3,369,050 | ||||||
17,000 | MetLife | 16,958 | ||||||
850,000 | NTC Capital II | 807,774 | ||||||
2,750,000 | Oaktree Specialty Lending | 2,850,280 | ||||||
250,000 | People’s United Bank | 269,741 | ||||||
895,000 | Prudential Financial, Inc. | 960,379 | ||||||
750,000 | State Street | 645,122 |
INVESTMENT PORTFOLIO (unaudited)(continued)
As of December 31, 2020 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
Corporate Bonds & Notes (continued) | ||||||||
FINANCIALS (continued) | ||||||||
Truist Financial | ||||||||
1,650,000 | VAR US Treas Yield Curve Rate T Note Const Mat 5 Yr+4.605%, 4.95%, (b) | 1,819,142 | ||||||
2,000,000 | VAR US Treas Yield Curve Rate T Note Const Mat 10 Yr+4.349%, 5.10%, (b) | 2,290,020 | ||||||
795,000 | Wachovia Capital Trust II VAR ICE LIBOR USD 3 Month+0.500%, 0.74%, 01/15/27 | 743,681 | ||||||
|
| |||||||
27,044,654 | ||||||||
|
| |||||||
HEALTHCARE — 1.7% | ||||||||
2,000,000 | AmerisourceBergen 2.80%, 05/15/30 | 2,177,059 | ||||||
1,000,000 | Anthem 3.13%, 05/15/50 | 1,099,905 | ||||||
51,610 | CVS Pass-Through Trust | 59,987 | ||||||
187,000 | Endo Finance | 185,811 | ||||||
|
| |||||||
3,522,762 | ||||||||
|
| |||||||
INDUSTRIALS — 7.6% | ||||||||
1,554,000 | BNSF Funding Trust I VAR ICE LIBOR USD 3 Month+2.350%, 6.61%, 12/15/55 | 1,777,387 | ||||||
Boeing | ||||||||
2,125,000 | 3.25%, 03/01/28 | 2,231,028 | ||||||
2,150,000 | 3.45%, 11/01/28 | 2,308,906 | ||||||
750,000 | 3.60%, 05/01/34 | 791,774 | ||||||
1,500,000 | Carrier Global | 1,614,437 | ||||||
750,000 | General Electric Co VAR ICE LIBOR USD 3 Month+0.300%, 0.54%, 05/13/24 | 726,705 | ||||||
850,000 | VAR ICE LIBOR USD 3 Month+3.330%, 5.00%, (b) | 791,775 | ||||||
Southwest Airlines | ||||||||
1,390,000 | 2.63%, 02/10/30 | 1,420,380 | ||||||
3,100,000 | 7.38%, 03/01/27 | 3,898,470 | ||||||
|
| |||||||
15,560,862 | ||||||||
MATERIALS — 2.6% | ||||||||
Ball | ||||||||
2,250,000 | 2.88%, 08/15/30 | 2,247,188 | ||||||
1,750,000 | 4.88%, 03/15/26 | 1,979,547 | ||||||
1,000,000 | Sherwin-Williams 3.30%, 05/15/50 | 1,109,793 | ||||||
|
| |||||||
5,336,528 | ||||||||
|
| |||||||
REAL ESTATE — 6.0% | ||||||||
250,000 | Brookfield Property REIT | 246,719 | ||||||
Federal Realty Investment Trust | ||||||||
475,000 | 3.20%, 06/15/29 | 516,022 | ||||||
2,500,000 | 3.50%, 06/01/30 | 2,773,608 |
Principal Amount ($) | Value ($) | |||||||
Corporate Bonds & Notes (continued) | ||||||||
REAL ESTATE (continued) | ||||||||
National Retail Properties | ||||||||
328,000 | 4.00%, 11/15/25 | 370,235 | ||||||
900,000 | 4.30%, 10/15/28 | 1,044,686 | ||||||
750,000 | Regency Centers | 802,103 | ||||||
850,000 | Retail Opportunity Investments Partnership | 891,184 | ||||||
735,000 | Simon Property Group | 822,365 | ||||||
VEREIT Operating Partnership | ||||||||
2,500,000 | 3.10%, 12/15/29 | 2,701,376 | ||||||
1,000,000 | 3.40%, 01/15/28 | 1,105,305 | ||||||
100,000 | 3.95%, 08/15/27 | 113,513 | ||||||
500,000 | 4.60%, 02/06/24 | 550,407 | ||||||
200,000 | 4.63%, 11/01/25 | 230,348 | ||||||
|
| |||||||
12,167,871 | ||||||||
|
| |||||||
UTILITIES — 6.7% | ||||||||
1,925,000 | Duke Energy VAR US Treas Yield Curve Rate T Note Const Mat 5 Yr+3.388%, | 2,089,260 | ||||||
1,750,000 | Edison International 4.13%, 03/15/28 | 1,952,507 | ||||||
Pacific Gas and Electric | ||||||||
4,250,000 | 2.50%, 02/01/31 | 4,269,216 | ||||||
3,000,000 | 3.50%, 08/01/50 | 2,992,670 | ||||||
42,000 | PacifiCorp | 62,835 | ||||||
15,000 | Southern California Edison | 16,194 | ||||||
2,560,000 | WEC Energy Group, Inc. VAR ICE LIBOR USD 3 Month+2.113%, 2.33%, 05/15/67 | 2,200,997 | ||||||
|
| |||||||
13,583,679 | ||||||||
|
| |||||||
Total Corporate Bonds & Notes | 97,351,535 | |||||||
|
| |||||||
Agency Mortgage-Backed Securities — 22.7% | ||||||||
Federal Home Loan Mortgage Corp. | ||||||||
664,073 | 4.00%, 5/1/2044 | 733,558 | ||||||
114,998 | 5.00%, 6/1/2041 | 133,800 | ||||||
2,000,000 | Federal Home Loan Mortgage Corp. Multifamily Structured Pass-Through Certificates, Series K735, Class AM | 2,170,437 | ||||||
Federal National Mortgage Assoc. | ||||||||
2,470,152 | 3.00%, 2/1/2043 to 6/1/2043 (d) | 2,674,952 | ||||||
1,080,535 | 3.50%, 11/1/2042 to 2/1/2043 (d) | 1,188,012 | ||||||
964,740 | 4.00%, 1/1/2041 to 3/1/2044 (d) | 1,060,075 | ||||||
1,306,716 | 4.50%, 10/1/2039 to 4/1/2041 (d) | 1,463,212 | ||||||
151,363 | 5.00%, 6/1/2041 | 176,010 |
INVESTMENT PORTFOLIO (unaudited)(continued)
As of December 31, 2020 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
Agency Mortgage-Backed Securities (continued) | ||||||||
1,500,000 | Federal National Mortgage Assoc. | 1,698,368 | ||||||
1,837,871 | FRESB Mortgage Trust, Series 2018-SB53, Class A10F | 2,030,277 | ||||||
1,855,374 | FRESB Mortgage Trust, Series 2019-SB62, Class A10F | 2,001,440 | ||||||
1,916,080 | FRESB Mortgage Trust, Series 2019-SB60, Class A10F | 2,060,968 | ||||||
2,486,755 | FRESB Mortgage Trust, Series 2018-SB52, Class A10F | 2,667,558 | ||||||
904,189 | FRESB Mortgage Trust, Series 2019-SB63, Class A10H | 948,428 | ||||||
1,225,938 | FRESB Mortgage Trust, Series 2017-SB42, Class A10F | 1,308,324 | ||||||
397,717 | Government National Mortgage Assoc., Series 2018-3, Class AG | 417,494 | ||||||
1,841,643 | Government National Mortgage Assoc., Series 69, Class AS | 1,937,705 | ||||||
1,886,963 | Government National Mortgage Assoc., Series 8, Class AH | 1,991,182 | ||||||
1,421,795 | Government National Mortgage Assoc., Series 2012-83, Class AK | 1,535,738 | ||||||
1,473,912 | Government National Mortgage Assoc., Series 70, Class AE | 1,557,969 | ||||||
1,631,044 | Government National Mortgage Assoc., Series 3, Class AH | 1,717,455 | ||||||
2,500,000 | Government National Mortgage Assoc., Series 2012-100, Class BA | 2,661,488 | ||||||
1,236,865 | Government National Mortgage Assoc., Series 2017-106, Class AC | 1,301,634 | ||||||
428,835 | Government National Mortgage Assoc., Series 2018-123, Class AH | 448,701 | ||||||
1,000,000 | Government National Mortgage Assoc., Series 2018-68, Class B | 1,083,079 | ||||||
1,727,855 | Government National Mortgage Assoc., Series 2018-156, Class AD | 1,855,239 |
Principal Amount ($) | Value ($) | |||||||
Agency Mortgage-Backed Securities (continued) | ||||||||
1,764,825 | Government National Mortgage Assoc., Series 2019-2, Class AE | 1,870,480 | ||||||
Government National Mortgage Assoc. | ||||||||
785,894 | 3.50%, 5/20/2043 | 858,696 | ||||||
776,962 | 4.00%, 1/20/2041 to 4/20/2043 (d) | 858,352 | ||||||
747,625 | Government National Mortgage Assoc., Series 46, Class A | 789,610 | ||||||
546,931 | Government National Mortgage Assoc., Series 2017-24, Class A | 560,984 | ||||||
1,073,616 | Government National Mortgage Assoc., Series 2018-129, Class AG | 1,113,720 | ||||||
1,335,780 | Government National Mortgage Assoc., Series 2019-55, Class AH | 1,442,773 | ||||||
|
| |||||||
Total Agency Mortgage-Backed Securities | 46,317,718 | |||||||
|
| |||||||
Shares | ||||||||
Preferred Stock — 7.2% | ||||||||
COMMUNICATION SERVICES — 3.0% | ||||||||
166,426 | Qwest Corp. 6.50%, 09/01/2056 | 4,232,213 | ||||||
72,916 | Qwest Corp. 6.75%, 06/15/2057 | 1,878,316 | ||||||
|
| |||||||
6,110,529 | ||||||||
|
| |||||||
ENERGY — 1.6% | ||||||||
38,650 | Enbridge 6.38%, 04/15/2078(f) | 1,039,685 | ||||||
13,800 | Energy Transfer Operating | 311,190 | ||||||
32,862 | Energy Transfer Operating | 679,258 | ||||||
53,750 | Energy Transfer Operating | 1,144,875 | ||||||
|
| |||||||
3,175,008 | ||||||||
|
| |||||||
FINANCIALS — 1.2% | ||||||||
5,929 | Athene Holding 6.38%(b)(f) | 165,656 | ||||||
20,000 | B. Riley Financial 6.75%, 05/31/2024 | 516,200 | ||||||
12,488 | B. Riley Financial 6.88%, 09/30/2023 | 313,824 | ||||||
13,005 | GMAC Capital Trust I | 351,785 | ||||||
21,550 | Monroe Capital 5.75%, 10/31/2023 | 543,060 | ||||||
21,000 | RiverNorth DoubleLine Strategic Opportunity Fund I 4.38%(b) | 524,580 | ||||||
|
| |||||||
2,415,105 | ||||||||
|
| |||||||
REAL ESTATE — 0.2% | ||||||||
20,600 | Brookfield Property Partners 6.50%(b) | 482,246 | ||||||
|
|
INVESTMENT PORTFOLIO (unaudited)(continued)
As of December 31, 2020 | Highland Fixed Income Fund |
Shares | Value ($) | |||||||
Preferred Stock (continued) | ||||||||
UTILITIES — 1.2% | ||||||||
61,167 | SCE Trust III 5.75%(b)(f) | 1,498,592 | ||||||
8,785 | SCE Trust V 5.45%(b)(f) | 224,896 | ||||||
12,348 | SCE Trust VI 5.00%(b) | 298,081 | ||||||
18,241 | Southern 4.95%, 01/30/2080 | 499,803 | ||||||
|
| |||||||
2,521,372 | ||||||||
|
| |||||||
Total Preferred Stock | 14,704,260 | |||||||
Principal Amount ($) | ||||||||
U.S. Treasury Obligations — 5.8% | ||||||||
U.S. Treasury Bonds | ||||||||
6,400,000 | 1.13%, 5/15/2040 to 8/15/2040 (d) | 6,070,563 | ||||||
750,000 | 1.25%, 5/15/2050 | 680,566 | ||||||
1,000,000 | 2.00%, 2/15/2050 | 1,086,406 | ||||||
3,500,000 | 2.25%, 8/15/2046 | 3,996,289 | ||||||
|
| |||||||
Total U.S. Treasury Obligations | 11,833,824 | |||||||
Shares | ||||||||
Registered Investment Companies — 5.2% | ||||||||
132,942 | DoubleLine Income Solutions Fund | 2,204,178 | ||||||
61,511 | DoubleLine Opportunistic Credit Fund | 1,208,691 | ||||||
98,900 | PGIM High Yield Bond Fund | 1,483,500 | ||||||
117,510 | PIMCO Dynamic Credit and Mortgage Income Fund | 2,491,212 | ||||||
229,108 | RiverNorth DoubleLine Strategic Opportunity Fund | 3,280,827 | ||||||
|
| |||||||
Total Registered Investment Companies | 10,668,408 | |||||||
Principal Amount ($) | ||||||||
U.S. Government Agency - Asset-Backed Securities — 3.6% | ||||||||
1,848,565 | SBA Small Business Investment Company, Series 2018-10A, Class 1 | 1,976,221 | ||||||
1,908,117 | SBA Small Business Investment Company, Series 2018-10B, Class 1 | 2,083,111 | ||||||
1,756,019 | SBA Small Business Investment Company, Series 2019-10A, Class 1 | 1,870,666 | ||||||
1,303,424 | Small Business Administration, Series 2018-20H, Class 1 | 1,451,695 | ||||||
|
| |||||||
Total U.S. Government Agency - Asset-Backed Securities | 7,381,693 |
Principal Amount ($) | Value ($) | |||||||
Municipal Bonds — 3.3% | ||||||||
CALIFORNIA — 0.5% | ||||||||
200,000 | California State | 199,970 | ||||||
300,000 | San Francisco City & County Redevelopment Financing Authority | 427,167 | ||||||
470,000 | Stanton Redevelopment Agency | 505,137 | ||||||
|
| |||||||
1,132,274 | ||||||||
|
| |||||||
KENTUCKY — 0.4% | ||||||||
750,000 | Clark County School District Finance Corp Insured: ST INTERCEPT | 753,277 | ||||||
|
| |||||||
MARYLAND — 0.2% | ||||||||
500,000 | Maryland Economic Development | 530,910 | ||||||
|
| |||||||
MICHIGAN — 0.7% | ||||||||
750,000 | Belding Area Schools Insured: Q-SBLF | 753,165 | ||||||
635,000 | Comstock Park Public Schools Insured: Q-SBLF | 645,585 | ||||||
|
| |||||||
1,398,750 | ||||||||
|
| |||||||
NEW YORK — 0.6% | ||||||||
320,000 | New York & New Jersey Port Authority | 426,589 | ||||||
720,000 | New York State Dormitory Authority | 767,081 | ||||||
|
| |||||||
1,193,670 | ||||||||
|
| |||||||
NORTH DAKOTA — 0.5% | ||||||||
750,000 | Kindred Public School District No. 2 | 948,720 | ||||||
|
| |||||||
WASHINGTON — 0.4% | ||||||||
750,000 | Washington Higher Education Facilities Authority | 773,738 | ||||||
|
| |||||||
Total Municipal Bonds | 6,731,339 | |||||||
|
| |||||||
Asset-Backed Securities — 0.8% | ||||||||
410,000 | Avis Budget Rental Car Funding AESOP, Series 2016-1A, Class A | 412,360 | ||||||
1,000,000 | GMF Floorplan Owner Revolving Trust, Series 2018-2, Class A1 | 1,005,696 | ||||||
118,710 | Toyota Auto Receivables Owner Trust, Series 2017-D, Class A3 | 118,942 | ||||||
|
| |||||||
Total Asset-Backed Securities | 1,536,998 | |||||||
|
|
INVESTMENT PORTFOLIO (unaudited)(continued)
As of December 31, 2020 | Highland Fixed Income Fund |
Principal Amount ($) | Value ($) | |||||||
| Non-Agency Collateralized Mortgage-Backed | |||||||
120,000 | Commercial Mortgage Trust, Series 2014-CR14, Class AM | 131,554 | ||||||
100,000 | Commercial Mortgage Trust, Series 2013-LC13, Class AM | 108,626 | ||||||
105,000 | GS Mortgage Securities Trust, Series 2014-GC20, Class AS | 114,485 | ||||||
153,000 | JPMBB Commercial Mortgage Securities Trust, Series 2013-C17, Class C | 157,144 | ||||||
100,000 | JPMBB Commercial Mortgage Securities Trust, Series 2014-C18, Class C | 98,486 | ||||||
210,000 | Morgan Stanley Bank of America Merrill Lynch Trust, Series 2013-C10, Class AS | 224,136 | ||||||
191,000 | Morgan Stanley Bank of America Merrill Lynch Trust, Series 2013-C10, Class C | 146,085 | ||||||
100,000 | Morgan Stanley Capital I Trust, Series 2012-C4, Class B | 101,023 | ||||||
115,000 | WFRBS Commercial Mortgage Trust, Series 2013-C17, Class AS | 124,286 | ||||||
140,000 | WFRBS Commercial Mortgage Trust, Series 2014-C19, Class B | 152,346 | ||||||
263,000 | WFRBS Commercial Mortgage Trust, Series 2014-LC14, Class AS | 287,419 | ||||||
|
| |||||||
Total Non-Agency Collateralized Mortgage-Backed Securities | 1,645,590 | |||||||
Shares | ||||||||
Common Stocks — 0.7% | ||||||||
FINANCIALS — 0.1% | ||||||||
30,103 | Oaktree Strategic Income | 233,298 | ||||||
|
| |||||||
REAL ESTATE — 0.6% | ||||||||
738 | CIM Commercial Trust, REIT | 10,509 | ||||||
23,221 | Phillips Edison & Co, Inc., | 170,676 | ||||||
26,124 | VEREIT, REIT | 987,226 | ||||||
|
| |||||||
1,168,411 | ||||||||
|
| |||||||
Total Common Stocks | 1,401,709 |
Principal Amount ($) | Value ($) | |||||||
Agency Collateralized Mortgage Obligations — 0.5% | ||||||||
879,856 | Federal National Mortgage Assoc. REMIC, Series 2016-104, Class QA | 904,888 | ||||||
49,907 | Federal National Mortgage Assoc. REMIC, Series 2010-16, Class PA | 54,107 | ||||||
|
| |||||||
Total Agency Collateralized Mortgage Obligations | 958,995 | |||||||
Foreign Corporate Bonds & Notes — 0.3% | ||||||||
SWITZERLAND — 0.3% | ||||||||
500,000 | UBS AG (i) | 552,375 | ||||||
|
| |||||||
Total Foreign Corporate Bonds & Notes | 552,375 | |||||||
Shares | ||||||||
Cash Equivalent — 0.9% | ||||||||
MONEY MARKET FUND (j) — 0.9% | ||||||||
1,875,876 | Dreyfus Treasury & Agency Cash Management, Institutional Class | 1,875,876 | ||||||
|
| |||||||
Total Cash Equivalent | 1,875,876 | |||||||
| Total Investments - 99.5% | 202,960,320 | ||||||
|
| |||||||
Other Assets & Liabilities, Net - 0.5% | 1,105,280 | |||||||
|
| |||||||
Net Assets - 100.0% | 204,065,600 | |||||||
|
|
INVESTMENT PORTFOLIO (unaudited)(concluded)
As of December 31, 2020 | Highland Fixed Income Fund |
(a) | Securities exempt from registration under Rule 144A of the 1933 Act. These securities may only be resold in transaction exempt from registration to qualified institutional buyers. At December 31, 2020, these securities amounted to $3,605,048 or 1.8% of net assets. |
(b) | Perpetual security with no stated maturity date. |
(c) | The issuer is, or is in danger of being, in default of its payment obligation. |
(d) | Securities are grouped by coupon and represent a range of maturities. |
(e) | Variable or floating rate security, the interest rate of which adjusts periodically based on changes in current interest rates and prepayments on the underlying pool of assets. |
(f) | Variable or floating rate security. The base lending rates are generally the lending rate offered by one or more European banks such as the LIBOR. The interest rate shown reflects the rate in effect December 31, 2020. Current LIBOR rates include 1 month which is equal to 0.144% and 3 months equal to 0.238%. |
(g) | Securities with a total aggregate value of $170,676, or 0.1% of net assets, were classified as Level 3 within the three-tier fair value hierarchy. Please see Notes to Investment Portfolio for an explanation of this hierarchy, as well as a list of unobservable inputs used in the valuation of these instruments. |
(h) | Represents fair value as determined by the Fund’s Board of Trustees (the “Board”), or its designee in good faith, pursuant to the policies and procedures approved by the Board. The Board considers fair valued securities to be securities for which market quotations are not readily available and these securities may be valued using a combination of observable and unobservable inputs. Securities with a total aggregate value of $170,676, or 0.1% of net assets, were fair valued under the Fund’s valuation procedures as of December 31, 2020. Please see Notes to Investment Portfolio. |
(i) | As described in the Fund’s prospectus, a company is considered to be a non-U.S. issuer if the company’s securities principally trade on a market outside of the United States, the company derives a majority of its revenues or profits outside of the United States, the company is not organized in the United States, or the company is significantly exposed to the economic fortunes and risks of regions outside the United States. |
(j) | Rate shown is 7 day effective yield. |
INVESTMENT PORTFOLIO (unaudited)
As of December 31, 2020 | Highland Small-Cap Equity Fund |
Shares | Value ($) | |||||||
Common Stocks — 89.3% | ||||||||
COMMUNICATION SERVICES — 0.8% | ||||||||
3,488 | Sinclair Broadcast Group, Inc., Class A (a) | 111,093 | ||||||
|
| |||||||
CONSUMER DISCRETIONARY — 2.1% | ||||||||
4,545 | Genesco, Inc. (b) | 136,759 | ||||||
1,769 | LKQ Corp. (b) | 62,340 | ||||||
1,500 | Oxford Industries, Inc. | 98,265 | ||||||
|
| |||||||
297,364 | ||||||||
|
| |||||||
ENERGY — 1.4% | ||||||||
3,210 | Dril-Quip, Inc. (b) | 95,080 | ||||||
18,749 | NexTier Oilfield Solutions (b) | 64,496 | ||||||
7,164 | SM Energy | 43,844 | ||||||
|
| |||||||
203,420 | ||||||||
|
| |||||||
FINANCIALS — 20.3% | ||||||||
3,500,000 | Alpha Bank AE ADR (b) | 997,500 | ||||||
133 | Ashford (a)(b) | 1,141 | ||||||
4,775 | CIT Group, Inc. | 171,423 | ||||||
4,000,000 | Eurobank Ergasias Services and | 1,386,000 | ||||||
5,570 | First Horizon National | 71,075 | ||||||
7,013 | KKR & Co., Inc., Class A | 283,956 | ||||||
|
| |||||||
2,911,095 | ||||||||
|
| |||||||
HEALTHCARE — 22.6% | ||||||||
10,700 | Aerie Pharmaceuticals, Inc. (b) | 144,557 | ||||||
8,450 | Amicus Therapeutics, Inc. (b) | 195,110 | ||||||
557 | Charles River Laboratories International, Inc. (b) | 139,172 | ||||||
40,000 | Coherus Biosciences, Inc. (a)(b) | 695,200 | ||||||
7,995 | Collegium Pharmaceutical, Inc. (b) | 160,140 | ||||||
25,273 | Heron Therapeutics, Inc. (a)(b) | 534,903 | ||||||
2,993 | Intersect ENT, Inc. (b) | 68,540 | ||||||
4,123 | MEDNAX, Inc. (b) | 101,179 | ||||||
668 | Molina Healthcare, Inc. (b) | 142,070 | ||||||
1,225 | NuVasive, Inc. (b) | 69,004 | ||||||
1,138 | Pacira BioSciences, Inc. (b) | 68,098 | ||||||
70,020 | Paratek Pharmaceuticals, Inc. (a)(b) | 438,325 | ||||||
1,570 | PRA Health Sciences, Inc. (b) | 196,941 | ||||||
10,080 | Surgery Partners, Inc. (b) | 292,421 | ||||||
|
| |||||||
3,245,660 | ||||||||
|
| |||||||
INDUSTRIALS — 4.9% | ||||||||
2,310 | CoreLogic, Inc. | 178,609 | ||||||
7,000 | JetBlue Airways Corp. (a)(b) | 101,780 | ||||||
14,890 | Luxfer Holdings | 244,494 | ||||||
4,500 | Resources Connection, Inc. | 56,565 | ||||||
330 | Teledyne Technologies, Inc. (b) | 129,353 | ||||||
|
| |||||||
710,801 | ||||||||
|
| |||||||
INFORMATION TECHNOLOGY — 10.0% | ||||||||
6,000 | Alteryx, Class A (b) | 730,740 | ||||||
6,575 | Avaya Holdings Corp. (b) | 125,912 | ||||||
2,750 | Cornerstone OnDemand, Inc. (b) | 121,110 | ||||||
5,343 | Ebix, Inc. | 202,874 | ||||||
1,025 | Science Applications International | 97,006 | ||||||
1,588 | SS&C Technologies Holdings, Inc. | 115,527 |
Shares | Value ($) | |||||||
Common Stocks (continued) | ||||||||
INFORMATION TECHNOLOGY (continued) | ||||||||
1,748 | Teradata Corp. (b) | 39,277 | ||||||
|
| |||||||
1,432,446 | ||||||||
|
| |||||||
MATERIALS — 11.4% | ||||||||
13,050 | Loma Negra Cia Industrial Argentina | 80,257 | ||||||
250,000 | MPM Holdings, Inc. (b)(k) | 1,250,000 | ||||||
750 | Quaker Chemical Corp. | 190,042 | ||||||
1,650 | Sensient Technologies Corp. | 121,721 | ||||||
|
| |||||||
1,642,020 | ||||||||
|
| |||||||
REAL ESTATE — 13.1% | ||||||||
7,943 | Ashford Hospitality Trust, REIT(a) | 20,572 | ||||||
24,250 | Independence Realty Trust, Inc., REIT | 325,678 | ||||||
27,556 | NexPoint Residential Trust, REIT(f) | 1,165,894 | ||||||
12,277 | RAIT Financial Trust, REIT(b)(c)(d) | — | ||||||
7,150 | RLJ Lodging Trust, REIT | 101,173 | ||||||
10,266 | Spirit MTA, REIT(b) | 7,880 | ||||||
6,525 | Spirit Realty Capital, Inc., REIT | 262,109 | ||||||
|
| |||||||
1,883,306 | ||||||||
|
| |||||||
UTILITIES — 2.7% | ||||||||
54,900 | Central Puerto ADR (b) | 148,230 | ||||||
2,725 | NRG Energy, Inc. | 102,324 | ||||||
6,788 | Vistra Energy Corp. | 133,452 | ||||||
|
| |||||||
384,006 | ||||||||
|
| |||||||
Total Common Stocks | 12,821,211 | |||||||
Preferred Stock — 10.5% | ||||||||
REAL ESTATE — 10.5% | ||||||||
92,826 | Braemar Hotels & Resorts, REIT | 1,508,163 | ||||||
|
| |||||||
Total Preferred Stock | 1,508,163 | |||||||
Registered Investment Companies — 10.5% | ||||||||
39,647 | Highland Global Allocation Fund (f) | 258,895 | ||||||
118,673 | NexPoint Strategic Opportunities Fund (f) | 1,248,440 | ||||||
|
| |||||||
Total Registered Investment Companies | 1,507,335 | |||||||
Master Limited Partnerships — 2.8% | ||||||||
ENERGY — 2.8% | ||||||||
35,645 | Energy Transfer LP | 220,286 | ||||||
3,575 | Plains All American Pipeline LP | 29,458 | ||||||
11,238 | Western Midstream Partners LP | 155,309 | ||||||
|
| |||||||
Total Master Limited Partnerships | 405,053 |
INVESTMENT PORTFOLIO (unaudited) (concluded)
As of December 31, 2020 | Highland Small-Cap Equity Fund |
Shares | Value ($) | |||||||
Repurchase Agreements(g)(h) — 3.1% | ||||||||
249,000 | RBC Dominion Securities 0.080%, dated 12/31/2020 to be repurchased on 01/04/2021, repurchase price $249,002 (collateralized by U.S. Government obligations, ranging in par value $0 - $61,842, 0.000% - 6.000%, 01/05/2021 – 12/20/2050; with total market value $253,980) | 249,000 | ||||||
191,660 | Citigroup Global Markets 0.070%, dated 12/31/2020 to be repurchased on 01/04/2021, repurchase price $191,662 (collateralized by U.S. Government obligations, ranging in par value $352 - $25,368, 0.000% - 4.000%, 09/15/2021 – 01/01/2051; with total market value $195,493) | 191,660 | ||||||
|
| |||||||
Total Repurchase Agreements | 440,660 | |||||||
Cash Equivalents — 2.8% | ||||||||
MONEY MARKET FUND(i) — 2.8% | ||||||||
408,198 | Dreyfus Treasury & Agency Cash Management, Institutional Class | 408,198 | ||||||
|
| |||||||
Total Cash Equivalents | 408,198 | |||||||
| Total Investments – 119.0% | 17,090,620 | ||||||
|
| |||||||
Securities Sold Short— (26.2)% | ||||||||
Common Stocks — (26.2)% | ||||||||
INFORMATION TECHNOLOGY — (26.2)% | ||||||||
(3,460) | Coupa Software (j) | (1,172,629 | ) | |||||
(17,000) | Sailpoint Technologies Holdings (j) | (905,080 | ) | |||||
(5,000) | Zoom Video Communications, Class A (j) | (1,686,600 | ) | |||||
|
| |||||||
Total Common Stocks | (3,764,309 | ) | ||||||
|
| |||||||
Total Securities Sold Short - (26.2)% | (3,764,309 | ) | ||||||
|
| |||||||
Other Assets & Liabilities, Net - 7.3% | 1,034,434 | |||||||
|
| |||||||
Net Assets - 100.0% | 14,360,745 | |||||||
|
|
(a) | Securities (or a portion of securities) on loan. As of December 31, 2020, the fair value of securities loaned was $1,284,556. The loaned securities were secured with cash and securities collateral of $1,317,559. Collateral is calculated based on prior day’s prices. |
(b) | Non-income producing security. |
(c) | Securities with a total aggregate value of $0, or 0.0% of net assets, were classified as Level 3 within the three-tier fair value hierarchy. Please see Notes to Investment Portfolio for an explanation of this hierarchy, as well as a list of unobservable inputs used in the valuation of these instruments. |
(d) | Represents fair value as determined by the Fund’s Board of Trustees (the “Board”), or its designee in good faith, pursuant to the policies and procedures approved by the Board. The Board considers fair valued securities to be securities for which market quotations are not readily available and these securities may be valued using a combination of observable and unobservable inputs. Securities with a total aggregate value of $0, or 0.0% of net assets, were fair valued under the Fund’s valuation procedures as of December 31, 2020. Please see Notes to Investment Portfolio. |
(e) | Perpetual security with no stated maturity date. |
(f) | Affiliated issuer. Assets with a total aggregate market value of $2,673,229, or 18.6% of net assets, were affiliated with the Fund as of December 31, 2020. |
(g) | Tri-Party Repurchase Agreement. |
(h) | This security was purchased with cash collateral held from securities on loan. The total value of such securities as of December 31, 2020 was $440,660. |
(i) | Rate shown is 7 day effective yield. |
(j) | No dividend payable on security sold short. |
(k) | Restricted Securities. These securities are not registered and may not be sold to the public. There are legal and/or contractual restrictions on resale. The Fund does not have the right to demand that such securities be registered. The values of these securities are determined by valuations provided by pricing services, brokers, dealers, market makers, or in good faith under the procedures established by the Fund’s Board of Trustees (the “Board”). Additional information regarding such securities follows: |
Restricted Security | Security Type | Acquisition Date | Cost of Security | Fair Value at Period End | Percent of Net Assets | |||||||||||||||
MPM Holdings, Inc. | | Common Stock | | 5/15/2019 | $ | — | $ | 1,250,000 | 8.7 | % |
INVESTMENT PORTFOLIO (unaudited)
As of December 31, 2020 | Highland Socially Responsible Equity Fund |
Shares | Value ($) | |||||||
Common Stocks — 90.7% | ||||||||
COMMUNICATION SERVICES — 13.9% | ||||||||
3,000 | Alphabet, Inc., Class A (a) | 5,257,920 | ||||||
10,000 | Facebook, Inc., Class A (a) | 2,731,600 | ||||||
10,000 | Verizon Communications, Inc. | 587,500 | ||||||
7,000 | Walt Disney Co. | 1,268,260 | ||||||
|
| |||||||
9,845,280 | ||||||||
|
| |||||||
CONSUMER DISCRETIONARY — 12.0% | ||||||||
19,980 | Acreage Holdings, Class D (a) | 40,959 | ||||||
46,620 | Acreage Holdings, Class E (a) | 146,853 | ||||||
5,000 | Home Depot | 1,328,100 | ||||||
13,000 | Meritage Homes Corp. (a) | 1,076,660 | ||||||
13,000 | Starbucks Corp. | 1,390,740 | ||||||
3,000 | Tesla, Inc. (a) | 2,117,010 | ||||||
13,000 | Tractor Supply | 1,827,540 | ||||||
2,000 | Ulta Beauty (a) | 574,320 | ||||||
|
| |||||||
8,502,182 | ||||||||
|
| |||||||
CONSUMER STAPLES — 5.1% | ||||||||
17,000 | Coca-Cola | 932,280 | ||||||
12,000 | McCormick | 1,147,200 | ||||||
11,000 | Procter & Gamble | 1,530,540 | ||||||
|
| |||||||
3,610,020 | ||||||||
|
| |||||||
ENERGY — 1.3% | ||||||||
25,000 | ONEOK, Inc. | 959,500 | ||||||
|
| |||||||
FINANCIALS — 5.7% | ||||||||
3,000 | BlackRock, Inc., Class A | 2,164,620 | ||||||
13,000 | First Republic Bank | 1,910,090 | ||||||
|
| |||||||
4,074,710 | ||||||||
|
| |||||||
HEALTHCARE — 7.7% | ||||||||
4,000 | AbbVie, Inc. | 428,600 | ||||||
35,000 | Bristol-Myers Squibb | 2,171,050 | ||||||
11,000 | Merck & Co., Inc. | 899,800 | ||||||
7,000 | West Pharmaceutical Services | 1,983,170 | ||||||
|
| |||||||
5,482,620 | ||||||||
|
| |||||||
INDUSTRIALS — 4.9% | ||||||||
5,000 | Cummins | 1,135,500 | ||||||
30,000 | Masco | 1,647,900 | ||||||
3,000 | United Rentals (a) | 695,730 | ||||||
|
| |||||||
3,479,130 | ||||||||
|
| |||||||
INFORMATION TECHNOLOGY — 35.8% | ||||||||
2,000 | Adobe, Inc. (a) | 1,000,240 | ||||||
25,000 | Advanced Micro Devices (a) | 2,292,750 | ||||||
20,000 | Cisco Systems | 895,000 | ||||||
30,000 | Cognizant Technology Solutions, Class A | 2,458,500 | ||||||
10,000 | Intel Corp. | 498,200 | ||||||
5,000 | Intuit, Inc. | 1,899,250 | ||||||
4,000 | Mastercard, Class A | 1,427,760 | ||||||
30,000 | Microsoft Corp. | 6,672,600 | ||||||
3,000 | NVIDIA Corp. | 1,566,600 | ||||||
5,000 | PayPal Holdings, Inc. (a) | 1,171,000 | ||||||
10,000 | Skyworks Solutions | 1,528,800 | ||||||
15,000 | Texas Instruments, Inc. | 2,461,950 | ||||||
7,000 | Visa, Inc., Class A | 1,531,110 | ||||||
|
| |||||||
25,403,760 | ||||||||
|
|
Shares | Value ($) | |||||||
Common Stocks (continued) | ||||||||
MATERIALS — 2.0% | ||||||||
2,000 | Linde | 527,020 | ||||||
15,000 | Newmont Goldcorp Corp. | 898,350 | ||||||
|
| |||||||
1,425,370 | ||||||||
|
| |||||||
REAL ESTATE — 0.6% | ||||||||
2,000 | American Tower, REIT | 448,920 | ||||||
|
| |||||||
UTILITIES — 1.7% | ||||||||
13,000 | Ormat Technologies, Inc. | 1,173,640 | ||||||
|
| |||||||
Total Common Stocks (Cost $55,783,209) | 64,405,132 | |||||||
Registered Investment Companies — 8.3% | ||||||||
234,676 | NexPoint Merger Arbitrage Fund, Class Z (d) | 4,681,784 | ||||||
113,732 | NexPoint Strategic Opportunities Fund (d) | 1,196,461 | ||||||
|
| |||||||
Total Registered Investment Companies | 5,878,245 | |||||||
Preferred Stock — 0.0% | ||||||||
HEALTHCARE — 0.0% | ||||||||
434,783 | AMINO, Inc., Series C (a)(b)(c)(e)(f) | — | ||||||
|
| |||||||
Total Preferred Stock | — | |||||||
Cash Equivalent — 2.2% | ||||||||
MONEY MARKET FUND (g) — 2.2% | ||||||||
1,581,306 | Dreyfus Treasury & Agency Cash Management, Institutional Class | 1,581,306 | ||||||
|
| |||||||
Total Cash Equivalent (Cost $1,581,306) | 1,581,306 | |||||||
| Total Investments - 101.2% | 71,864,683 | ||||||
|
| |||||||
Other Assets & Liabilities, Net - (1.2)% | (857,376 | ) | ||||||
|
| |||||||
Net Assets - 100.0% | 71,007,307 | |||||||
|
|
(a) | Non-income producing security. |
(b) | Securities with a total aggregate value of $0, or 0.00% of net assets, were classified as Level 3 within the three-tier fair value hierarchy. Please see Notes to Investment Portfolio for an explanation of this hierarchy, as well as a list of unobservable inputs used in the valuation of these instruments. |
(c) | Represents fair value as determined by the Fund’s Board of Trustees (the “Board”), or its designee in good faith, pursuant to the policies and procedures approved by the Board. The Board considers fair valued securities to be securities for which market quotations are not readily available and these securities may be valued using a combination of observable and unobservable inputs. Securities with a total aggregate value of $0, or 0.00% of net assets, were fair valued under the Fund’s valuation procedures as of December 31, 2020. Please see Notes to Investment Portfolio. |
INVESTMENT PORTFOLIO (unaudited)(concluded)
As of December 31, 2020 | Highland Socially Responsible Equity Fund |
(d) | Affiliated issuer. Assets with a total aggregate market value of $5,878,245, or 8.3% of net assets, were affiliated with the Fund as of December 31, 2020. |
(e) | There is currently no rate available. |
(f) | Restricted Securities. These securities are not registered and may not be sold to the public. There are legal and/or contractual restrictions on resale. The Fund does not have the right to demand that such securities be registered. The values of these securities are determined by valuations provided by pricing services, brokers, dealers, market makers, or in good faith under the procedures established by the Board. Additional Information regarding such securities follows: |
Restricted | Security Type | Acquisition Date | Cost of Security | Fair Value at Period End | Percent of Net Assets | |||||||||||
AMINO, Inc. | Preferred Stock | 11/18/2016 | $ | 2,500,002 | $ | — | 0.0 | % |
(g) | Rate shown is 7 day effective yield. |
INVESTMENT PORTFOLIO (unaudited)
As of December 31, 2020 | Highland Total Return Fund |
Shares | Value ($) | |||||||
Common Stocks — 62.9% | ||||||||
COMMUNICATION SERVICES — 18.5% | ||||||||
581 | Alphabet, Inc., Class A (a) | 1,018,284 | ||||||
1,051 | Alphabet, Inc., Class C (a) | 1,841,226 | ||||||
301,279 | CenturyLink, Inc. | 2,937,470 | ||||||
14,165 | Comcast, Class A | 742,246 | ||||||
20,116 | Liberty Broadband, Class C (a) | 3,185,701 | ||||||
32,600 | Liberty Global, Class A (a) | 789,572 | ||||||
74,136 | Liberty Media Corp.-Liberty Formula One, | 2,816,427 | ||||||
|
| |||||||
13,330,926 | ||||||||
|
| |||||||
CONSUMER DISCRETIONARY — 3.7% | ||||||||
730 | Amazon.com, Inc. (a) | 2,377,559 | ||||||
25 | JG Boswell Co | 14,720 | ||||||
28,548 | Tandy Leather Factory (a) | 91,354 | ||||||
3,340 | TJX | 228,088 | ||||||
|
| |||||||
2,711,721 | ||||||||
|
| |||||||
CONSUMER STAPLES — 3.7% | ||||||||
14,800 | British American Tobacco ADR | 554,852 | ||||||
4,950 | Diageo ADR | 786,109 | ||||||
15,815 | Philip Morris International, Inc. | 1,309,324 | ||||||
|
| |||||||
2,650,285 | ||||||||
|
| |||||||
ENERGY — 4.7% | ||||||||
4,660 | Texas Pacific Land Trust | 3,387,820 | ||||||
|
| |||||||
FINANCIALS — 10.5% | ||||||||
5,835 | Aon, Class A | 1,232,760 | ||||||
11,470 | Berkshire Hathaway, Inc., Class B (a) | 2,659,549 | ||||||
46,018 | Brookfield Asset Management, Inc., Class A | 1,899,163 | ||||||
17,400 | Charles Schwab | 922,896 | ||||||
22,000 | KKR & Co., Inc., Class A | 890,780 | ||||||
|
| |||||||
7,605,148 | ||||||||
|
| |||||||
HEALTHCARE — 4.6% | ||||||||
8,250 | Medtronic | 966,405 | ||||||
7,600 | Novartis ADR | 717,668 | ||||||
1,115 | Regeneron Pharmaceuticals (a) | 538,668 | ||||||
15,000 | Roche Holding AG, Inc. ADR | 657,600 | ||||||
9,550 | Sanofi ADR | 464,034 | ||||||
|
| |||||||
3,344,375 | ||||||||
|
| |||||||
INDUSTRIALS — 8.5% | ||||||||
3,200 | AMREP Corp. (a) | 27,328 | ||||||
652,122 | PICO Holdings, Inc. (a) | 6,097,341 | ||||||
|
| |||||||
6,124,669 | ||||||||
|
| |||||||
MATERIALS — 2.4% | ||||||||
24,055 | Keweenaw Land Association Ltd. (a) | 1,721,737 | ||||||
|
| |||||||
REAL ESTATE — 4.5% | ||||||||
131,500 | Colony Capital, REIT(a) | 632,515 | ||||||
60,000 | Colony Credit Real Estate (a) | 450,000 | ||||||
30,675 | Equity Commonwealth, REIT(a) | 836,814 | ||||||
13,425 | Equity LifeStyle Properties, REIT | 850,608 | ||||||
1,295 | Phillips Edison & Co, Inc., REIT(b)(c) | 9,520 | ||||||
12,600 | VEREIT, REIT | 476,154 | ||||||
|
| |||||||
3,255,611 | ||||||||
|
| |||||||
UTILITIES — 1.8% | ||||||||
89,850 | PG&E (a) | 1,119,531 |
Shares | Value ($) | |||||||
Common Stocks (continued) | ||||||||
UTILITIES (continued) | ||||||||
16,500 | Pure Cycle (a) | 185,295 | ||||||
|
| |||||||
1,304,826 | ||||||||
|
| |||||||
Total Common Stocks | 45,437,118 | |||||||
Foreign Common Stock — 17.0% | ||||||||
FRANCE — 13.6% | ||||||||
1,239,539 | Bollore SA | 5,139,883 | ||||||
1 | Cie du Cambodge | 6,424 | ||||||
2,025 | Financiere de L’Odet SA | 1,944,560 | ||||||
1 | Financiere Moncey | 5,408 | ||||||
1 | Societe Industrielle et Financiere de l’Artois | 4,917 | ||||||
42,310 | Vivendi SA | 1,366,815 | ||||||
42,025 | Vivendi SA ADR | 1,349,003 | ||||||
|
| |||||||
9,817,010 | ||||||||
|
| |||||||
ITALY — 3.4% | ||||||||
29,900 | EXOR | 2,432,480 | ||||||
|
| |||||||
Total Foreign Common Stock | 12,249,490 | |||||||
Registered Investment Companies — 6.5% | ||||||||
46,950 | BlackRock Core Bond Trust | 765,285 | ||||||
17,938 | DoubleLine Income Solutions Fund | 297,412 | ||||||
47,266 | DoubleLine Opportunistic Credit Fund | 928,777 | ||||||
82 | Guggenheim Taxable Municipal Managed Duration Trust | 2,090 | ||||||
10,725 | JPMorgan Ultra-Short Income Fund | 544,723 | ||||||
30,500 | Pershing Square Holdings | 1,069,698 | ||||||
60,660 | RiverNorth DoubleLine Strategic Opportunity Fund | 868,651 | ||||||
39,710 | TCW Strategic Income Fund | 225,950 | ||||||
|
| |||||||
Total Registered Investment Companies (Cost $4,468,839) | 4,702,586 | |||||||
Preferred Stock — 5.7% | ||||||||
ENERGY — 0.3% | ||||||||
9,850 | Energy Transfer Operating 7.38%(d)(e) | 203,600 | ||||||
|
| |||||||
FINANCIALS — 4.0% | ||||||||
635 | Bank of America 7.25%(a)(e) | 964,298 | ||||||
8,000 | Bank of America 6.20%(e) | 199,920 | ||||||
5,000 | Gabelli Dividend & Income Trust 5.25%(e) | 129,408 | ||||||
3,000 | JPMorgan Chase 6.10%(e) | 77,250 | ||||||
10,000 | JPMorgan Chase 5.75%(e) | 281,000 | ||||||
20,000 | PNC Financial Services Group 6.13%(d)(e) | 535,600 | ||||||
4,000 | RiverNorth DoubleLine Strategic Opportunity Fund I 4.38%(e) | 99,920 | ||||||
19,275 | US Bancorp 6.50%(d)(e) | 513,872 | ||||||
3,200 | Wells Fargo 5.85%(d)(e) | 85,920 | ||||||
|
| |||||||
2,887,188 | ||||||||
|
|
INVESTMENT PORTFOLIO (unaudited)(continued)
As of December 31, 2020 | Highland Total Return Fund |
Shares | Value ($) | |||||||
Preferred Stock (continued) | ||||||||
HEALTHCARE — 0.6% | ||||||||
8,650 | Becton Dickinson 6.00%, 06/01/2023 | 476,874 | ||||||
|
| |||||||
REAL ESTATE — 0.3% | ||||||||
5,000 | Equity Commonwealth, REIT 6.50%(e) | 149,400 | ||||||
900 | Rexford Industrial Realty, REIT 5.88%(e) | 23,616 | ||||||
1,166 | VEREIT, REIT 6.70%(e) | 29,325 | ||||||
|
| |||||||
202,341 | ||||||||
|
| |||||||
UTILITIES — 0.5% | ||||||||
8,317 | Duke Energy 5.63%, 09/15/2078 | 239,280 | ||||||
3,200 | NextEra Energy Capital Holdings 5.65%, 03/01/2079 | 90,912 | ||||||
1,332 | Southern 5.25%, 12/01/2077 | 36,377 | ||||||
|
| |||||||
366,569 | ||||||||
|
| |||||||
Total Preferred Stock | 4,136,572 | |||||||
Principal Amount ($) | ||||||||
Corporate Bonds & Notes — 2.9% | ||||||||
COMMUNICATION SERVICES — 0.0% | ||||||||
iHeartCommunications, Inc. | ||||||||
6,545 | 6.38%, 05/01/26 | 7,015 | ||||||
12,132 | 8.38%, 05/01/27 | 12,973 | ||||||
|
| |||||||
19,988 | ||||||||
|
| |||||||
ENERGY — 0.0% | ||||||||
42,000 | Kinder Morgan, Inc. | 47,424 | ||||||
|
| |||||||
FINANCIALS — 1.7% | ||||||||
340,000 | Bank of America | 389,300 | ||||||
100,000 | Charles Schwab | 105,875 | ||||||
181,000 | JPMorgan Chase & Co | 181,040 | ||||||
500,000 | Prudential Financial, Inc. | 536,525 | ||||||
|
| |||||||
1,212,740 | ||||||||
|
| |||||||
INDUSTRIALS — 0.9% | ||||||||
26,000 | General Electric MTN | 26,121 | ||||||
645,000 | General Electric Co | 600,818 | ||||||
|
| |||||||
626,939 | ||||||||
|
|
Principal Amount ($) | Value ($) | |||||||
Corporate Bonds & Notes (continued) | ||||||||
UTILITIES — 0.3% | ||||||||
250,000 | WEC Energy Group, Inc. | 214,941 | ||||||
|
| |||||||
Total Corporate Bonds & Notes | 2,122,032 | |||||||
Agency Mortgage-Backed Securities — 1.4% | ||||||||
36,365 | Federal Home Loan Mortgage Corp. | 42,310 | ||||||
319,708 | Federal National Mortgage Assoc. | 346,042 | ||||||
146,654 | 3.50%, 11/1/2042 to 2/1/2043 (g) | 161,138 | ||||||
46,969 | 4.00%, 2/1/2044 | 51,475 | ||||||
91,780 | 4.50%, 2/1/2040 to 1/1/2041 (g) | 102,841 | ||||||
47,865 | 5.00%, 6/1/2041 | 55,659 | ||||||
Government National Mortgage Assoc. | ||||||||
68,859 | 3.00%, 4/20/2043 to 6/20/2043 (g) | 73,616 | ||||||
70,016 | 3.50%, 5/20/2043 | 76,502 | ||||||
80,379 | 4.00%, 1/20/2041 to 4/20/2043 (g) | 88,919 | ||||||
27,979 | 4.50%, 5/20/2040 to 3/20/2041 (g) | 31,180 | ||||||
|
| |||||||
Total Agency Mortgage-Backed | 1,029,682 | |||||||
Shares | ||||||||
Master Limited Partnership — 0.6% | ||||||||
ENERGY — 0.6% | ||||||||
20,500 | Enterprise Products Partners | 401,595 | ||||||
|
| |||||||
Total Master Limited Partnerships | 401,595 | |||||||
Special Purpose Acquisition Company — 0.3% | ||||||||
8,455 | Pershing Square Tontine Holdings, Class A (a) | 234,373 | ||||||
|
| |||||||
Total Special Purpose Acquisition | 234,373 | |||||||
Principal Amount ($) |
| |||||||
Non-Agency Collateralized Mortgage-Backed Security — 0.2% | ||||||||
60,000 | JPMBB Commercial Mortgage Securities Trust, Series 2013-C17, Class C | 61,625 |
INVESTMENT PORTFOLIO (unaudited)(continued)
As of December 31, 2020 | Highland Total Return Fund |
Principal Amount ($) | Value ($) | |||||||
| Non-Agency Collateralized Mortgage-Backed Security | | ||||||
40,000 | WFRBS Commercial Mortgage Trust, Series 2014-LC14, Class AS 4.35%, 3/15/2047 (h) | 43,714 | ||||||
|
| |||||||
Total Non-Agency Collateralized Mortgage-Backed Security | 105,339 | |||||||
Asset-Backed Security — 0.0% | ||||||||
1 | Bear Stearns Asset Backed Securities Trust, Series 2003-ABF1, Class A | 1 | ||||||
|
| |||||||
Total Asset-Backed Securities | 1 | |||||||
| Agency Collateralized Mortgage Obligations — 0.0% |
| ||||||
33,313 | Federal National Mortgage Assoc. REMIC, Series 2012-93, Class SW | 5,795 | ||||||
2,666 | Federal National Mortgage Assoc. STRIPS, Series 2004-354, Class | 2,646 | ||||||
|
| |||||||
Total Agency Collateralized Mortgage Obligations | 8,441 | |||||||
Units | ||||||||
Warrants — 0.0% | ||||||||
1 | Pershing Square Tontine Holdings, Expires 07/27/2025(a) | 5 | ||||||
|
| |||||||
Total Warrants | 5 | |||||||
Shares | ||||||||
Cash Equivalents — 2.4% | ||||||||
MONEY MARKET FUND(k) — 2.4% | ||||||||
1,716,354 | Dreyfus Treasury & Agency Cash Management, Institutional Class 0.030% | 1,716,354 | ||||||
Total Cash Equivalents (Cost $1,716,354) | 1,716,354 | |||||||
| Total Investments - 99.9% | 72,143,588 | ||||||
|
| |||||||
Other Assets & Liabilities, Net - 0.1% | 46,170 | |||||||
|
| |||||||
Net Assets - 100.0% | 72,189,758 | |||||||
|
|
(a) | Non-income producing security. |
(b) | Securities with a total aggregate value of $9,520, or 0.0% of net assets, were classified as Level 3 within the three-tier fair value hierarchy. Please see Notes to Investment Portfolio for an explanation of this hierarchy, as well as a list of unobservable inputs used in the valuation of these instruments. |
(c) | Represents fair value as determined by the Fund’s Board of Trustees (the “Board”), or its designee in good faith, pursuant to the policies and procedures approved by the Board. The Board considers fair valued securities to be securities for which market quotations are not readily available and these securities may be valued using a combination of observable and unobservable inputs. Securities with a total aggregate value of $9,520, or 0.0% of net assets, were fair valued under the Fund’s valuation procedures as of December 31, 2020. Please see Notes to Investment Portfolio. |
(d) | Variable or floating rate security. The base lending rates are generally the lending rate offered by one or more European banks such as the LIBOR. The interest rate shown reflects the rate in effect December 31, 2020. Current LIBOR rates include 1 month which is equal to 0.144% and 3 months equal to 0.238%. |
(e) | Perpetual security with no stated maturity date. |
(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 December 31, 2020, these securities amounted to $47,424 or 0.1% of net assets. |
(g) | Securities are grouped by coupon and represent a range of maturities. |
(h) | Variable or floating rate security, the interest rate of which adjusts periodically based on changes in current interest rates and prepayments on the underlying pool of assets. |
(i) | 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. |
(j) | 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. |
(k) | Rate shown is 7 day effective yield. |
The Fund invested in the following countries as of December 31, 2020:
Country | Percentage (based on Total Investments)* | |||
United States | 80.5 | % | ||
France | 13.6 | % | ||
Italy | 3.4 | % | ||
United Kingdom | 1.5 | % | ||
Switzerland | 1.0 | % | ||
|
| |||
100.0 | % | |||
|
|
INVESTMENT PORTFOLIO (unaudited)(continued)
As of December 31, 2020 | Highland Total Return Fund |
Industry1 | Domestic | Foreign | Percentage (based on Total Investments)* | |||||||||
Media & Entertainment | 13.3 | % | 10.9 | % | 24.2 | % | ||||||
Diversified Financials | 9.4 | % | 3.4 | % | 12.8 | % | ||||||
Commercial Services & Supplies | 8.5 | % | 0.0 | % | 8.5 | % | ||||||
Telecommunication Services | 5.2 | % | 0.0 | % | 5.2 | % | ||||||
Energy | 4.7 | % | 0.0 | % | 4.7 | % | ||||||
Real Estate | 3.9 | % | 0.0 | % | 3.9 | % | ||||||
Retailing | 3.8 | % | 0.0 | % | 3.8 | % | ||||||
Food, Beverage & Tobacco | 3.7 | % | 0.0 | % | 3.7 | % | ||||||
Pharmaceuticals, Biotechnology & Life Sciences | 2.3 | % | 1.0 | % | 3.3 | % | ||||||
Transportation | 0.0 | % | 2.7 | % | 2.7 | % | ||||||
Materials | 2.4 | % | 0.0 | % | 2.4 | % | ||||||
Utilities | 1.8 | % | 0.0 | % | 1.8 | % | ||||||
Insurance | 1.7 | % | 0.0 | % | 1.7 | % | ||||||
Health Care Equipment & Services | 1.3 | % | 0.0 | % | 1.3 | % | ||||||
Consumer Durables & Apparel | 0.0 | % | 0.0 | % | 0.0 | % | ||||||
Technology Hardware & Equipment | 0.0 | % | 0.0 | % | 0.0 | % | ||||||
|
| |||||||||||
80.0 | % | |||||||||||
|
|
Sector | Percentage (based on Total Investments)* | |||
Preferred Stock | 5.7 | % | ||
Corporate Bonds & Notes | 2.9 | % | ||
Agency Mortgage-Backed Security | 1.4 | % | ||
Other (each less than 1.0%) | 1.1 | % | ||
|
| |||
11.1 | % | |||
|
|
Other Instruments | Percentage (based on Total Investments)* | |||
Registered Investment Companies | 6.5 | % | ||
Cash Equivalents | 2.4 | % | ||
|
| |||
8.9 | % | |||
|
| |||
100.0 | % | |||
|
|
1 | Includes domestic and foreign equity securities |
* | The calculated percentages are based on total investments. The other assets & liabilities, net line has been excluded from the calculation |
��
NOTES TO INVESTMENT PORTFOLIOS (unaudited)
As of December 31, 2020 | Highland Funds II |
Organization
Highland 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 five portfolios (each a “Fund” and collectively the “Funds”) that are currently being offered. This report covers information for the period ended December 31, 2020 for four of the Funds: Highland Socially Responsible Equity Fund (the “Socially Responsible Equity Fund”), Highland Small-Cap Equity Fund (the “Small-Cap Equity Fund”), Highland Total Return Fund (the “Total Return Fund”), and Highland Fixed Income Fund (the “Fixed Income Fund”). The Highland Global Allocation Fund is reported separately.
Valuation of Investments
In computing the Funds’ net assets attributable to shares, securities with readily available market quotations on the New York Stock Exchange (NYSE), National Association of Securities Dealers Automated Quotation (NASDAQ) or other nationally recognized exchange, use the closing quotations on the respective exchange for valuation of those securities. Securities for which there are no readily available market quotations will be valued pursuant to policies adopted by the Funds’ Board of Trustees (the “Board”). Typically, such securities will be valued at the mean between the most recently quoted bid and ask prices provided by the principal market makers. If there is more than one such principal market maker, the value shall be the average of such means. Securities without a sale price or quotations from principal market makers on the valuation day may be priced by an independent pricing service. Generally, the Funds’ loan and bond positions are not traded on exchanges and consequently are valued based on a mean of the bid and ask price from the third-party pricing services or broker-dealer sources that the Investment Adviser has determined to have the capability which provide appropriate pricing services and which have been approved by the Board.
Securities for which market quotations are not readily available, or for which the Funds have determined that the price received from a pricing service or broker-dealer is “stale” or otherwise does not represent fair value (such as when events materially affecting the value of securities occur between the time when market price is determined and calculation of the Funds’ NAV) will be valued by the Funds at fair value, as determined by the Board or its designee in good faith in accordance with procedures approved by the Board, taking into account factors reasonably determined to be relevant, including: (i) the fundamental analytical data relating to the investment; (ii) the nature and duration of restrictions on disposition of the securities; and (iii) an evaluation of the forces that influence the market in which these securities are purchased and sold. In these cases, the Funds’ NAV will reflect the affected portfolio securities’ fair value as determined in the judgment of the Board or its designee instead of being determined by the market. Using a fair value pricing methodology to value securities may result in a value that is different from a security’s most recent sale price and from the prices used by other investment companies to calculate their NAVs. Determination of fair value is uncertain because it involves subjective judgments and estimates.
There can be no assurance that the Funds’ valuation of a security will not differ from the amount that it realizes upon the sale of such security. Those differences could have a material impact to the Funds.
The NAV shown in the Funds’ financial statements may vary from the NAV published by each Fund as of its period end because portfolio securities transactions are accounted for on the trade date (rather than the day following the trade date) for financial statement purposes.
Fair Value Measurements
The Funds have performed an analysis of all existing investments and derivative instruments to determine the significance and character of inputs to their fair value determination. The levels of fair value inputs used to measure the Funds’ investments are characterized into a fair value hierarchy. Where inputs for an asset or liability fall into more than one level in the fair value hierarchy, the investment is classified in its entirety based on the
NOTES TO INVESTMENT PORTFOLIOS (unaudited) (continued)
As of December 31, 2020 | Highland Funds II |
lowest level input that is significant to that investment’s valuation. The three levels of the fair value hierarchy are described below:
Level 1 | — | Quoted unadjusted prices for identical instruments in active markets to which the Fund has access at the date of measurement; | ||
Level 2 | — | Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active, but are valued based on executed trades; broker quotations that constitute an executable price; and alternative pricing sources supported by observable inputs are classified within Level 2. Level 2 inputs are either directly or indirectly observable for the asset in connection with market data at the measurement date; and | ||
Level 3 | — | Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. In certain cases, investments classified within Level 3 may include securities for which the Fund has obtained indicative quotes from broker-dealers that do not necessarily represent prices the broker may be willing to trade on, as such quotes can be subject to material management judgment. Unobservable inputs are those inputs that reflect the Fund’s own assumptions that market participants would use to price the asset or liability based on the best available information. |
The Investment Adviser has established policies and procedures, as described above and approved by the Board, to ensure that valuation methodologies for investments and financial instruments that are categorized within all levels of the fair value hierarchy are fair and consistent. A Pricing Committee has been established to provide oversight of the valuation policies, processes and procedures, and is comprised of personnel from the Investment Adviser and its affiliates. The Pricing Committee meets monthly to review the proposed valuations for investments and financial instruments and is responsible for evaluating the overall fairness and consistent application of established policies.
As of December 31, 2020, the Funds’ investments consisted of asset-backed securities, bonds and notes, common stocks, master limited partnerships, registered investment companies, cash equivalents, preferred stocks, warrants, securities sold short, special purpose acquisition companies, mortgage-backed securities, collateralized mortgage obligations, U.S. Treasury obligations, municipal bonds and repurchase agreements. The fair value of the Funds’ loans, bonds and asset-backed securities are generally based on quotes received from brokers or independent pricing services. Loans, bonds and asset-backed securities with quotes that are based on actual trades with a sufficient level of activity on or near the measurement date are classified as Level 2 assets. Senior loans, bonds and asset-backed securities that are priced using quotes derived from implied values, indicative bids, or a limited number of actual trades are classified as Level 3 assets because the inputs used by the brokers and pricing services to derive the values are not readily observable.
The fair value of the Funds’ common stocks, preferred stocks, exchange-traded funds, rights, warrants and options that are not actively traded on national exchanges are generally priced using quotes derived from implied values, indicative bids, or a limited amount of actual trades and are classified as Level 3 assets because the inputs used by the brokers and pricing services to derive the values are not readily observable. Exchange-traded options are valued based on the last trade price on the primary exchange on which they trade. If an option does not trade, the mid-price, which is the mean of the bid and ask price, is utilized to value the option.
At the end of each calendar quarter, the Investment Adviser evaluates the Level 2 and 3 assets and liabilities for changes in liquidity, including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from third party services, and the existence of contemporaneous, observable trades in the market. Additionally, the Investment Adviser evaluates the Level 1 and 2 assets and liabilities on a quarterly basis for changes in listings or delistings on national exchanges.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Funds’ 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 Funds may ultimately realize. Further, such investments may be subject to legal and other restrictions on resale or otherwise less liquid than publicly traded securities.
NOTES TO INVESTMENT PORTFOLIOS (unaudited) (continued)
As of December 31, 2020 | Highland Funds II |
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. A summary of the inputs used to value each Fund’s assets as of December 31, 2020 is as follows:
Total value at December 31, 2020 ($) | Level 1 Quoted Price ($) | Level 2 Significant Observable Inputs ($) | Level 3 Significant Unobservable Inputs ($) | |||||||||||||
Highland Socially Responsible Equity Fund |
| |||||||||||||||
Assets | ||||||||||||||||
Common Stocks | ||||||||||||||||
Communication Services | 9,845,280 | 9,845,280 | — | — | ||||||||||||
Consumer Discretionary | 8,502,182 | 8,502,182 | — | — | ||||||||||||
Consumer Staples | 3,610,020 | 3,610,020 | — | — | ||||||||||||
Energy | 959,500 | 959,500 | — | — | ||||||||||||
Financials | 4,074,710 | 4,074,710 | — | — | ||||||||||||
Healthcare | 5,482,620 | 5,482,620 | — | — | ||||||||||||
Industrials | 3,479,130 | 3,479,130 | — | — | ||||||||||||
Information Technology | 25,403,760 | 25,403,760 | — | — | ||||||||||||
Materials | 1,425,370 | 1,425,370 | — | — | ||||||||||||
Real Estate | 448,920 | 448,920 | — | — | ||||||||||||
Utilities | 1,173,640 | 1,173,640 | — | — | ||||||||||||
Registered Investment Companies | 5,878,245 | 5,878,245 | — | — | ||||||||||||
Preferred Stock | ||||||||||||||||
Healthcare | — | — | — | — | (1) | |||||||||||
Cash Equivalent | 1,581,306 | 1,581,306 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets | 71,864,683 | 71,864,683 | — | — | ||||||||||||
|
|
|
|
|
|
|
|
(1) | This Category includes securities with a value of zero. |
NOTES TO INVESTMENT PORTFOLIOS (unaudited) (continued)
As of December 31, 2020 | Highland Funds II |
Total value at December 31, 2020 ($) | Level 1 Quoted Price ($) | Level 2 Significant Observable Inputs ($) | Level 3 Significant Unobservable Inputs ($) | |||||||||||||
Highland Small-Cap Equity Fund |
| |||||||||||||||
Assets | ||||||||||||||||
Common Stocks | ||||||||||||||||
Communication Services | 111,093 | 111,093 | — | — | ||||||||||||
Consumer Discretionary | 297,364 | 297,364 | — | — | ||||||||||||
Energy | 203,420 | 203,420 | — | — | ||||||||||||
Financials | 2,911,095 | 2,911,095 | — | — | ||||||||||||
Healthcare | 3,245,660 | 3,245,660 | — | — | ||||||||||||
Industrials | 710,801 | 710,801 | — | — | ||||||||||||
Information Technology | 1,432,446 | 1,432,446 | — | — | ||||||||||||
Materials | 1,642,020 | 392,020 | 1,250,000 | — | ||||||||||||
Real Estate | 1,883,306 | 1,883,306 | — | — | (1) | |||||||||||
Utilities | 384,006 | 384,006 | — | — | ||||||||||||
Preferred Stock | ||||||||||||||||
Real Estate | 1,508,163 | — | 1,508,163 | — | ||||||||||||
Registered Investment Companies | 1,507,335 | 1,507,335 | — | — | ||||||||||||
Master Limited Partnerships | ||||||||||||||||
Energy | 405,053 | 405,053 | — | — | ||||||||||||
Repurchase Agreements | 440,660 | — | 440,660 | — | ||||||||||||
Cash Equivalents | 408,198 | 408,198 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets | 17,090,620 | 13,891,797 | 3,198,823 | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Liabilities | ||||||||||||||||
Securities Sold Short | ||||||||||||||||
Common Stocks | ||||||||||||||||
Information Technology | (3,764,309 | ) | (3,764,309 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Liabilities | (3,764,309 | ) | (3,764,309 | ) | — | — | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 13,326,311 | 10,127,488 | 3,198,823 | — | ||||||||||||
|
|
|
|
|
|
|
|
(1) | This Category includes securities with a value of zero. |
NOTES TO INVESTMENT PORTFOLIOS (unaudited) (continued)
As of December 31, 2020 | Highland Funds II |
Total value at December 31, 2020 ($) | Level 1 Quoted Price ($) | Level 2 Significant Observable Inputs ($) | Level 3 Significant Unobservable Inputs ($) | |||||||||||||
Highland Total Return Fund |
| |||||||||||||||
Assets | ||||||||||||||||
Common Stocks | ||||||||||||||||
Communication Services | 13,330,926 | 13,330,926 | — | — | ||||||||||||
Consumer Discretionary | 2,711,721 | 2,711,721 | — | — | ||||||||||||
Consumer Staples | 2,650,285 | 2,650,285 | — | — | ||||||||||||
Energy | 3,387,820 | 3,387,820 | — | — | ||||||||||||
Financials | 7,605,148 | 7,605,148 | — | — | ||||||||||||
Healthcare | 3,344,375 | 3,344,375 | — | — | ||||||||||||
Industrials | 6,124,669 | 6,124,669 | — | — | ||||||||||||
Materials | 1,721,737 | 1,721,737 | — | — | ||||||||||||
Real Estate | 3,255,611 | 3,246,091 | — | 9,520 | ||||||||||||
Utilities | 1,304,826 | 1,304,826 | — | — | ||||||||||||
Foreign Common Stock | ||||||||||||||||
France | 9,817,010 | 9,817,010 | — | — | ||||||||||||
Italy | 2,432,480 | 2,432,480 | — | — | ||||||||||||
Registered Investment Companies | 4,702,586 | 4,702,586 | — | — | ||||||||||||
Preferred Stock | ||||||||||||||||
Energy | 203,600 | 203,600 | — | — | ||||||||||||
Financials | 2,887,188 | 2,657,860 | 229,328 | — | ||||||||||||
Healthcare | 476,874 | — | 476,874 | — | ||||||||||||
Real Estate | 202,341 | 29,325 | 173,016 | — | ||||||||||||
Utilities | 366,569 | 366,569 | — | — | ||||||||||||
Corporate Bonds & Notes | ||||||||||||||||
Communication Services | 19,988 | — | 19,988 | — | ||||||||||||
Energy | 47,424 | — | 47,424 | — | ||||||||||||
Financials | 1,212,740 | — | 1,212,740 | — | ||||||||||||
Industrials | 626,939 | — | 626,939 | — | ||||||||||||
Utilities | 214,941 | — | 214,941 | — | ||||||||||||
Agency Mortgage-Backed Securities | 1,029,682 | — | 1,029,682 | — | ||||||||||||
Master Limited Partnerships | ||||||||||||||||
Energy | 401,595 | 401,595 | — | — | ||||||||||||
Special Purpose Acquisition Companies | 234,373 | 234,373 | — | — | ||||||||||||
Non-Agency Collateralized Mortgage-Backed Security | 105,339 | — | 105,339 | — | ||||||||||||
Agency Collateralized Mortgage Obligations | 8,441 | — | 8,441 | — | ||||||||||||
Asset-Backed Securities | 1 | — | 1 | — | ||||||||||||
Warrants | ||||||||||||||||
5 | — | 5 | — | |||||||||||||
Cash Equivalents | 1,716,354 | 1,716,354 | — | — | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total Assets | 72,143,588 | 67,989,350 | 4,144,718 | 9,520 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
Total | 72,143,588 | 67,989,350 | 4,144,718 | 9,520 | ||||||||||||
|
|
|
|
|
|
|
|
NOTES TO INVESTMENT PORTFOLIOS (unaudited) (continued)
As of December 31, 2020 | Highland Funds II |
Total value at December 31, 2020 ($) | Level 1 Quoted Price ($) | Level 2 Significant Observable Inputs ($) | Level 3 Significant Unobservable Inputs ($) | |||||||||||||
Highland Fixed Income Fund |
| |||||||||||||||
Assets | ||||||||||||||||
Corporate Bonds & Notes | ||||||||||||||||
Communication Services | 3,016,518 | — | 3,016,518 | — | ||||||||||||
Consumer Discretionary | 11,179,377 | — | 11,179,377 | — | ||||||||||||
Consumer Staples | 4,324,859 | — | 4,324,859 | — | ||||||||||||
Energy | 1,614,425 | — | 1,614,425 | — | ||||||||||||
Financials | 27,044,654 | — | 27,044,654 | — | ||||||||||||
Healthcare | 3,522,762 | — | 3,522,762 | — | ||||||||||||
Industrials | 15,560,862 | — | 15,560,862 | — | ||||||||||||
Materials | 5,336,528 | — | 5,336,528 | — | ||||||||||||
Real Estate | 12,167,871 | — | 12,167,871 | — | ||||||||||||
Utilities | 13,583,679 | — | 13,583,679 | — | ||||||||||||
Agency Mortgage-Backed Securities | 46,317,718 | — | 46,317,718 | — | ||||||||||||
Preferred Stock | ||||||||||||||||
Communication Services | 6,110,529 | 6,110,529 | — | — | ||||||||||||
Energy | 3,175,008 | 3,175,008 | — | — | ||||||||||||
Financials | 2,415,105 | 894,845 | 1,520,260 | — | ||||||||||||
Real Estate | 482,246 | 482,246 | — | — | ||||||||||||
Utilities | 2,521,372 | 2,021,569 | 499,803 | — | ||||||||||||
U.S. Treasury Obligations | 11,833,824 | — | 11,833,824 | — | ||||||||||||
Registered Investment Companies | 10,668,408 | 10,668,408 | — | — | ||||||||||||
U.S. Government Agency - Asset-Backed Securities | 7,381,693 | — | 7,381,693 | — | ||||||||||||
Municipal Bonds | ||||||||||||||||
California | 1,132,274 | — | 1,132,274 | — | ||||||||||||
Kentucky | 753,277 | — | 753,277 | — | ||||||||||||
Maryland | 530,910 | — | 530,910 | — | ||||||||||||
Michigan | 1,398,750 | — | 1,398,750 | — | ||||||||||||
New York | 1,193,670 | — | 1,193,670 | — | ||||||||||||
North Dakota | 948,720 | — | 948,720 | — | ||||||||||||
Washington | 773,738 | — | 773,738 | — | ||||||||||||
Asset-Backed Securities | 1,536,998 | — | 1,536,998 | — | ||||||||||||
Non-Agency Collateralized Mortgage-Backed Securities | 1,645,590 | — | 1,645,590 | — | ||||||||||||
Common Stocks | ||||||||||||||||
Financials | 233,298 | 233,298 | — | — | ||||||||||||
Real Estate | 1,168,411 | 997,735 | — | 170,676 | ||||||||||||
Agency Collateralized Mortgage Obligations | 958,995 | — | 958,995 | — | ||||||||||||
Foreign Corporate Bonds & Notes | ||||||||||||||||
Switzerland | 552,375 | — | 552,375 | — | ||||||||||||
Cash Equivalent | 1,875,876 | 1,875,876 | — | — | ||||||||||||
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Total Assets | 202,960,320 | 26,459,514 | 176,330,130 | 170,676 | ||||||||||||
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NOTES TO INVESTMENT PORTFOLIOS (unaudited) (continued)
As of December 31, 2020 | Highland Funds II |
The tables below set forth a summary of changes in the Total Return Fund and the Fixed Income Fund assets measured at fair value using significant unobservable inputs (Level 3) for the period ended December 31, 2020.
Balance as of September 30, 2020 | Transfers into Level 3 | Transfers Out of Level 3 | Net Amortization (Accretion) of Premium/ (Discount) | Net Realized Gains/ (Losses) | Net Change in Unrealized Appreciation (Depreciation) | Net Purchases | Net (Sales) | Balance as of December 30, 2020 | Change in Unrealized Appreciation (Depreciation) from Investments held at December 31, 2020 | |||||||||||||||||||||||||||||||
Highland Total Return Fund |
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Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Real Estate | $ | 12,434 | $ | — | $ | — | $ | — | $ | — | $ | (2,914 | ) | $ | — | $ | — | $ | 9,520 | $ | (2,914 | ) | ||||||||||||||||||
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Total | $ | 12,434 | $ | — | $ | — | $ | — | $ | — | $ | (2,914 | ) | $ | — | $ | — | $ | 9,520 | $ | (2,914 | ) | ||||||||||||||||||
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Balance as of September 30, 2020 | Transfers into Level 3 | Transfers Out of Level 3 | Net Amortization (Accretion) of Premium/ (Discount) | Net Realized Gains/ (Losses) | Net Change in Unrealized Appreciation (Depreciation) | Net Purchases | Net (Sales) | Balance as of December 31, 2020 | Change in Unrealized Appreciation (Depreciation) from Investments held at December 31, 2020 | |||||||||||||||||||||||||||||||
Highland Fixed Income Fund |
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Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Real Estate | $ | 222,924 | $ | — | $ | — | $ | — | $ | — | $ | (52,248 | ) | $ | — | $ | — | $ | 170,676 | $ | (52,248 | ) | ||||||||||||||||||
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Total | $ | 222,924 | $ | — | $ | — | $ | — | $ | — | $ | (52,248 | ) | $ | — | $ | — | $ | 170,676 | $ | (52,248 | ) | ||||||||||||||||||
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Investments designated as Level 3 may include assets valued using quotes or indications furnished by brokers which are based on models or estimates and may not be executable prices. In light of the developing market conditions, the Investment Adviser continues to search for observable data points and evaluate broker quotes and indications received for portfolio investments.
The following is a summary of significant unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy:
Highland Total Return Fund
Category | Fair Value at 12/31/2020 ($) | Valuation Technique | Unobservable Inputs | Input Value(s) | ||||||||
REIT | 9,520 | Market Approach | Market Index Adjustment |
| 6.4 | % | ||||||
NAV | Third Party Value Indication | $ | 8.75 | |||||||||
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Total | 9,520 |
Highland Fixed Income Fund
Category | Fair Value at 12/31/2020 ($) | Valuation Technique | Unobservable Inputs | Input Value(s) | ||||||||
REIT | 170,676 | Market Approach | Market Index Adjustment |
| 6.4 | % | ||||||
NAV | Third Party Value Indication | $ | 8.75 | |||||||||
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Total | 170,676 |
NOTES TO INVESTMENT PORTFOLIOS (unaudited) (continued)
As of December 31, 2020 | Highland Funds II |
Security Transactions
Security transactions are accounted for on the trade date. Realized gains/(losses) on investments sold are recorded on the basis of the specific identification method for both financial statement and U.S. federal income tax purposes taking into account any foreign taxes withheld.
Cash & Cash Equivalents
The Funds consider liquid assets deposited with a bank and certain short-term debt instruments of sufficient credit quality with original maturities of three months or less to be cash equivalents. The Fund also considers money market instruments that invest in cash equivalents 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.
Securities Sold Short
The Funds may sell securities short. A security sold short is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that security will decline. When the Fund sells a security short, it must borrow the security sold short from a broker-dealer and deliver it to the buyer upon conclusion of the transaction. A Fund may have to pay a fee to borrow particular securities and is obligated to pay over any dividends or other payments received on such borrowed securities. In some circumstances, a Fund may be allowed by its prime broker to utilize proceeds from securities sold short to purchase additional investments, resulting in leverage. Securities and cash held as collateral for securities sold short are shown on the Investments Portfolios for each of the Funds.
Derivative Transactions
The Funds are subject to equity securities risk, interest rate risk and currency 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.
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. The Funds may 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’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.
NOTES TO INVESTMENT PORTFOLIOS (unaudited) (continued)
As of December 31, 2020 | Highland Funds II |
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 can be 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 period ended December 31, 2020, the Funds did not invest in futures contracts.
Options
The Funds may utilize options on securities or indices to varying degrees as part of their principal investment strategy. An option on a security is a contract that gives the holder of the option, in return for a premium, the right to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option the security underlying the option at a specified exercise or “strike” price. The writer of an option on a security has the obligation upon exercise of the option to deliver the underlying security upon payment of the exercise price or to pay the exercise price upon delivery of the underlying security. The Funds may hold options, write option contracts, or both.
If an option written by a Fund expires unexercised, a Fund realizes on the expiration date a capital gain equal to the premium received by a Fund at the time the option was written. If an option purchased by a Fund expires unexercised, a Fund realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, an exchange-traded option may be closed out by an offsetting purchase or sale of an option of the same series (type, underlying security, exercise price and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when a Fund desires. A Fund will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if the cost of the closing option is more than the premium received from writing the option, a capital loss. A Fund will realize a capital gain from a closing sale transaction if the premium received from the sale is more than the original premium paid when the option position was opened, or a capital loss, if the premium received from a sale is less than the original premium paid.
Affiliated Issuers
Under Section 2(a)(3) of the Investment Company Act of 1940, as amended, a portfolio company is defined as “affiliated” if a fund owns five percent or more of its outstanding voting securities or if the portfolio company is under common control. The table below shows affiliated issuers of each Fund as of December 31, 2020:
Socially Responsible Equity Fund | Shares at September 30, 2020 | Beginning Value as of September 30, 2020 | Purchases at Cost | Proceeds from Sales | Net Realized Gain/(Loss) on Sales of Affiliated Issuers | Change in Unrealized Appreciation/ (Depreciation) | Ending Value as of December 31, 2020 | Shares at December 31, 2020 | Affiliated Income | Cap Gain Distributions | ||||||||||||||||||||||||||||||
Issuer | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Majority Owned, Not Consolidated | ||||||||||||||||||||||||||||||||||||||||
None | ||||||||||||||||||||||||||||||||||||||||
Other Affiliates | ||||||||||||||||||||||||||||||||||||||||
NexPoint Merger Arbitrage Fund (Registered Investment Company) | 221,701 | 4,538,227 | 259,361 | — | — | (115,804 | ) | 4,681,784 | 234,676 | 250,837 | — | |||||||||||||||||||||||||||||
NexPoint Strategic Opportunities Fund (Registered Investment Company) | 113,732 | 984,919 | — | — | — | 211,542 | 1,196,461 | 113,732 | 17,060 | — | ||||||||||||||||||||||||||||||
Other Controlled | ||||||||||||||||||||||||||||||||||||||||
None | ||||||||||||||||||||||||||||||||||||||||
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Total | 335,433 | 5,523,146 | 259,361 | — | — | 95,738 | 5,878,245 | 348,408 | 267,897 | — |
NOTES TO INVESTMENT PORTFOLIOS (unaudited) (concluded)
As of December 31, 2020 | Highland Funds II |
Small-Cap Equity Fund | Shares at September 30, 2020 | Beginning Value as of September 30, 2020 | Purchases at Cost | Proceeds from Sales | Net Realized Gain/(Loss) on Sales of Affiliated Issuers | Change in Unrealized Appreciation/ (Depreciation) | Ending Value as of December 31, 2020 | Shares at December 31, 2020 | Affiliated Income | Cap Gain Distributions | ||||||||||||||||||||||||||||||
Issuer | $ | $ | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||||
Majority Owned, Not Consolidated | ||||||||||||||||||||||||||||||||||||||||
None | ||||||||||||||||||||||||||||||||||||||||
Other Affiliates | ||||||||||||||||||||||||||||||||||||||||
NexPoint Residential Trust, Inc., REIT | 27,333 | 1,212,218 | 17,966 | (7,768 | ) | — | (56,522 | ) | 1,165,894 | 27,556 | 1,610 | — | ||||||||||||||||||||||||||||
Highland Global Allocation Fund (Registered Investment Company) | 39,647 | 245,812 | — | — | — | 13,083 | 258,895 | 39,647 | 9,991 | — | ||||||||||||||||||||||||||||||
NexPoint Strategic Opportunities Fund (Registered Investment Company) | 118,673 | 1,027,708 | — | — | — | 220,732 | 1,248,440 | 118,673 | 17,801 | — | ||||||||||||||||||||||||||||||
Other Controlled | ||||||||||||||||||||||||||||||||||||||||
None | ||||||||||||||||||||||||||||||||||||||||
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Total | 185,653 | 2,485,738 | 17,966 | (7,768 | ) | — | 177,293 | 2,673,229 | 185,876 | 29,402 | — |