Note 1. Organization
Highland
Global Allocation Fund (the “Fund”) is organized as an unincorporated business trust under the laws of The Commonwealth of Massachusetts. The Fund is registered under the Investment Company Act of 1940, as amended (the “1940
Act”), as a diversified, closed-end management investment company. This report covers information for the year ended September 30, 2022.
On November 8, 2018, shareholders of the Fund approved a proposal authorizing the Board of Trustees (the “Board”) of the Fund to convert the Fund from an open-end fund to a closed-end fund at a special meeting of shareholders. The Board took action to convert the Fund to a closed-end fund
effective shortly after 4:00 p.m. Eastern Time on February 14, 2019 (the “Conversion Date”). The Fund also effected an approximately 1-for-1.4217 reverse
stock split of the Fund’s issued and outstanding shares on February 14, 2019, thereby reducing the number of shares outstanding. Shareholders were paid cash for any fractional shares resulting from the reverse stock split. The Fund began
listing its shares for trading on the New York Stock Exchange (the “NYSE”) on February 19, 2019 under the ticker symbol “HGLB”. The Fund may issue an unlimited number of common shares, par value $0.001 per share
(“Common Shares”). Prior to the Conversion Date, the Fund issued Class A, Class C, and Class Y shares.
Note 2. Significant Accounting
Policies
The following summarizes the significant accounting policies consistently followed by the Fund in the preparation of its financial statements.
Use of Estimates
The Fund is an investment company that follows the
investment company accounting and reporting guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946 Financial Services — Investment Companies applicable to investment
companies. The Fund’s financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which require NexPoint Asset Management, L.P. (formerly Highland
Capital Management Fund Advisors, L.P.) (“NexPoint” or the “Investment Adviser”) to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of increases or decreases in net assets from operations 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.
Valuation of Investments
Pursuant to Rule 2a-5 under the 1940 Act, the Board has designated NexPoint as the Fund’s valuation designee to
perform the fair valuation determination for securities and other assets held by the Fund. NexPoint acting through its “Valuation Committee,” is responsible for determining the fair
value of investments for which market quotations are not readily available. The Valuation Committee is comprised of officers of NexPoint and certain of NexPoint’s affiliated companies and determines fair value and oversees the calculation of
the NAV. The Valuation Committee is subject to Board oversight and certain reporting and other requirements intended to provide the Board the information it needs to oversee NexPoint’s fair value determinations.
The Fund’s investments are recorded at fair value. In computing the Fund’s net assets attributable to shares, securities with readily available market
quotations on the NYSE, National Association of Securities Dealers Automated Quotation (“NASDAQ”) or other nationally recognized exchange, use the closing quotations on the respective exchange for valuation of those securities. Securities
for which there are no readily available market quotations will be valued pursuant to policies adopted by NexPoint and approved by the Fund’s Board. Typically, such securities will be valued at the mean between the most recently quoted bid and
ask prices provided by the principal market makers. If there is more than one such principal market maker, the value shall be the average of such means. Securities without a sale price or quotations from principal market makers on the valuation day
may be priced by an independent pricing service. Generally, the Fund’s loan and bond positions are not traded on exchanges and consequently are valued based on a mean of the bid and ask price from the third-party pricing services or
broker-dealer sources that the Investment Adviser has determined to have the capability to provide appropriate pricing services.
Securities for which market
quotations are not readily available, or for which the Fund has determined that the price received from a pricing service or broker-dealer is “stale” or otherwise does not represent fair value (such as when events materially affecting the
value of securities occur between the time when market price is determined and calculation of the Fund’s net asset value (“NAV”), will be valued by the Fund at fair value, as determined by the Valuation Committee in good faith in
accordance with procedures established by NexPoint and approved by the Board, taking into account factors reasonably determined to be relevant, including, but not limited to: (i) the fundamental analytical data relating to the investment;
(ii) the nature and duration of restrictions on disposition of the securities; and (iii) an evaluation of the forces that influence the market in which these securities are purchased and sold. In these cases, the Fund’s NAV will
reflect the affected portfolio securities’ fair value as determined in the judgment of the Valuation Committee instead of being determined by the market. Using a fair value pricing methodology to value securities may result in a value that is
different from a security’s most recent sale price and from
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
the prices used by other investment companies to calculate their NAVs. Determination of fair value is uncertain because it involves subjective judgments and estimates.
There can be no assurance that the Fund’s valuation of a security will not differ from the amount that it realizes upon the sale of such security. Those differences
could have a material impact to the Fund. The NAV shown in the Fund’s financial statements may vary from the NAV published by the Fund as of its period end because portfolio securities transactions are accounted for on the trade date (rather
than the day following the trade date) for financial statement purposes.
Fair Value Measurements
The Fund has performed an analysis of all existing investments and derivative instruments to determine the significance and character of inputs to their fair value
determination. The levels of fair value inputs used to measure the Fund’s investments are characterized into a fair value hierarchy. Where inputs for an asset or liability fall into more than one level in the fair value hierarchy, the
investment is classified in its entirety based on the lowest level input that is significant to that investment’s valuation. The three levels of the fair value hierarchy are described below:
| Level 1 — |
Quoted unadjusted prices for identical instruments in active markets to which the Fund has access at the date of
measurement; |
| Level 2 — |
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in
markets that are not active, but are valued based on executed trades; broker quotations that constitute an executable price; and alternative pricing sources supported by observable inputs are classified within Level 2. Level 2 inputs are
either directly or indirectly observable for the asset in connection with market data at the measurement date; and |
| Level 3 — |
Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. In
certain cases, investments classified within Level 3 may include securities for which the Fund has obtained indicative quotes from broker-dealers that do not necessarily represent prices the broker may be willing to trade on, as such quotes can
be subject to material management judgment. Unobservable inputs are those inputs that reflect the Fund’s own assumptions that market participants would use to price the asset or liability based on the best available information.
|
The Investment Adviser has established policies and procedures, as described above and approved by the Board, to ensure that valuation
methodologies for investments and financial instruments that are categorized within all levels of the fair value hierarchy are fair and consistent. A Valuation
Committee has been established to provide oversight of the valuation policies, processes and procedures, and is comprised of personnel from the Investment Adviser and its affiliates. The Pricing
Committee meets monthly to review the proposed valuations for investments and financial instruments and is responsible for evaluating the overall fairness and consistent application of established policies.
As of September 30, 2022, the Fund’s investments consisted of senior loans, asset-backed securities, bonds and notes, common stocks, preferred stocks, LLC
interests, master limited partnerships, registered investment companies, cash equivalents, repurchase agreements, exchange-traded funds, rights, warrants, and securities sold short. The fair value of the Fund’s 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 Fund’s common stocks, registered
investment companies, rights and warrants that are not actively traded on national exchanges are generally priced using quotes derived from implied values, indicative bids, or a limited amount of actual trades and are classified as Level 3
assets because the inputs used by the brokers and pricing services to derive the values are not readily observable. Exchange-traded options are valued based on the last trade price on the primary exchange on which they trade. If an option does not
trade, the mid-price, which is the mean of the bid and ask price, is utilized to value the option. At the end of each calendar quarter, the Investment Adviser evaluates the Level 2 and 3 assets and
liabilities for changes in liquidity, including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from third party services, and the existence of contemporaneous, observable trades in
the market. Additionally, the Investment Adviser evaluates the Level 1 and 2 assets and liabilities on a quarterly basis for changes in listings or delistings on national exchanges.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Fund’s
investments may fluctuate from period to period. Additionally, the fair value of investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values
the Fund may ultimately realize. Further, such investments may be subject to legal and other restrictions on resale or otherwise be less liquid than publicly traded securities.
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
The
inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. A summary of the inputs used to value the Fund’s assets and liabilities as of September 30,
2022, is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total value at
September 30, 2022
($) |
|
|
Level 1
Quoted
Price
($) |
|
|
Level 2
Significant
Observable
Inputs
($) |
|
|
Level 3
Significant
Unobservable
Inputs
($) |
|
| Highland Global Allocation Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Communication Services |
|
|
62,692,637 |
|
|
|
1,483,470 |
|
|
|
— |
|
|
|
61,209,167 |
|
| Healthcare |
|
|
2,571,161 |
|
|
|
2,571,161 |
|
|
|
— |
|
|
|
— |
|
| Information Technology |
|
|
7,164,527 |
|
|
|
7,164,527 |
|
|
|
— |
|
|
|
— |
|
| Materials |
|
|
3,652,420 |
|
|
|
— |
|
|
|
3,652,420 |
|
|
|
— |
|
| Real Estate |
|
|
66,302,721 |
|
|
|
50,013,425 |
|
|
|
— |
|
|
|
16,289,296 |
|
| U.S. Senior Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Communication Services |
|
|
19,854,675 |
|
|
|
— |
|
|
|
— |
|
|
|
19,854,675 |
|
| Real Estate |
|
|
12,871,000 |
|
|
|
— |
|
|
|
— |
|
|
|
12,871,000 |
|
| U.S. Master Limited Partnerships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Energy |
|
|
22,465,909 |
|
|
|
22,465,909 |
|
|
|
— |
|
|
|
— |
|
| Non-U.S. Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Communication Services |
|
|
58,330 |
|
|
|
58,330 |
|
|
|
— |
|
|
|
— |
|
| Consumer Discretionary |
|
|
2,499,633 |
|
|
|
2,483,340 |
|
|
|
— |
|
|
|
16,293 |
|
| Energy |
|
|
7,941,043 |
|
|
|
7,941,043 |
|
|
|
— |
|
|
|
— |
|
| Financials |
|
|
42,525 |
|
|
|
42,525 |
|
|
|
— |
|
|
|
— |
|
| Healthcare |
|
|
68,937 |
|
|
|
68,937 |
|
|
|
— |
|
|
|
— |
|
| Industrials |
|
|
881,757 |
|
|
|
881,757 |
|
|
|
— |
|
|
|
— |
|
| Information Technology |
|
|
112,214 |
|
|
|
112,214 |
|
|
|
— |
|
|
|
— |
|
| Utilities |
|
|
5,224,429 |
|
|
|
5,224,429 |
|
|
|
— |
|
|
|
— |
|
| U.S. Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Energy |
|
|
15,612,477 |
|
|
|
— |
|
|
|
15,612,477 |
|
|
|
— |
|
| U.S. LLC Interest |
|
|
13,280,450 |
|
|
|
— |
|
|
|
— |
|
|
|
13,280,450 |
|
| U.S. Rights |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Utilities |
|
|
9,881,429 |
|
|
|
— |
|
|
|
9,881,429 |
|
|
|
— |
|
| U.S. Asset-Backed Securities |
|
|
7,687,158 |
|
|
|
— |
|
|
|
7,687,158 |
|
|
|
— |
|
| Non-U.S. Sovereign Bonds |
|
|
6,288,425 |
|
|
|
— |
|
|
|
6,288,425 |
|
|
|
— |
|
| U.S. Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Healthcare |
|
|
2,191,014 |
|
|
|
— |
|
|
|
— |
|
|
|
2,191,014 |
|
| Real Estate |
|
|
3,543,859 |
|
|
|
3,543,859 |
|
|
|
— |
|
|
|
— |
|
| U.S. Corporate Bonds & Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Communication Services |
|
|
792,495 |
|
|
|
— |
|
|
|
792,495 |
|
|
|
— |
|
| Energy |
|
|
2,027,140 |
|
|
|
— |
|
|
|
2,027,140 |
|
|
|
— |
|
| Non-U.S. Master Limited Partnerships |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Energy |
|
|
1,869,845 |
|
|
|
1,869,845 |
|
|
|
— |
|
|
|
— |
|
| Non-U.S. Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Communication Services |
|
|
9,149 |
|
|
|
— |
|
|
|
9,149 |
|
|
|
— |
|
| Industrials |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
(1) |
| Information Technology |
|
|
1,162 |
|
|
|
— |
|
|
|
1,162 |
|
|
|
— |
|
| Non-U.S. Asset-Backed Security |
|
|
19,005 |
|
|
|
— |
|
|
|
— |
|
|
|
19,005 |
|
| U.S. Exchange-Traded Funds |
|
|
7,727,228 |
|
|
|
7,727,228 |
|
|
|
— |
|
|
|
— |
|
| Non-U.S. Registered Investment Company |
|
|
3,395,347 |
|
|
|
— |
|
|
|
— |
|
|
|
3,395,347 |
|
| U.S. Registered Investment Companies |
|
|
21,673,132 |
|
|
|
21,673,132 |
|
|
|
— |
|
|
|
— |
|
| U.S. Repurchase Agreement |
|
|
96,117 |
|
|
|
96,117 |
|
|
|
— |
|
|
|
— |
|
| U.S. Cash Equivalent |
|
|
8,765,335 |
|
|
|
8,765,335 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Assets |
|
|
319,264,685 |
|
|
|
144,186,583 |
|
|
|
45,951,855 |
|
|
|
129,126,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Total value at
September 30, 2022
($) |
|
|
Level 1
Quoted
Price
($) |
|
|
Level 2
Significant
Observable
Inputs
($) |
|
|
Level 3
Significant
Unobservable
Inputs
($) |
|
| Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Securities Sold Short |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Communication Services |
|
|
(2,343,099 |
) |
|
|
(2,343,099 |
) |
|
|
— |
|
|
|
— |
|
| Consumer Staples |
|
|
(702,960 |
) |
|
|
(702,960 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total Liabilities |
|
|
(3,046,059 |
) |
|
|
(3,046,059 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
316,218,626 |
|
|
|
141,140,524 |
|
|
|
45,951,855 |
|
|
|
129,126,247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| (1) |
This category includes securities with a value of zero. |
The table below sets forth a summary of changes in the Fund’s assets measured at fair value using significant unobservable inputs (Level 3) for the year ended
September 30, 2022.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Balance
as of
September 30,
2021
$ |
|
|
Accrued
Discounts
(Premiums)
$ |
|
|
Distribution
to Return
Capital
$ |
|
|
Realized
Gain
(Loss)
$ |
|
|
Net Change in
Unrealized
Appreciation
(Depreciation)
$ |
|
|
Purchases
$ |
|
|
Sales
$ |
|
|
Balance
as of
September 30,
2022
$ |
|
|
Change in
Unrealized
Appreciation
(Depreciation)
from
Investments
held
at
September 30,
2022
$ |
|
| U.S. Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Communication Services |
|
|
57,255,705 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,953,462 |
|
|
|
— |
|
|
|
— |
|
|
|
61,209,167 |
|
|
|
3,953,462 |
|
| Real Estate |
|
|
13,260,162 |
|
|
|
— |
|
|
|
(2,513,419 |
) |
|
|
— |
|
|
|
3,227,553 |
|
|
|
2,315,000 |
|
|
|
— |
|
|
|
16,289,296 |
|
|
|
3,227,553 |
|
| U.S. Senior Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Communication Services |
|
|
17,895,565 |
|
|
|
859 |
|
|
|
— |
|
|
|
— |
|
|
|
(131,490 |
) |
|
|
2,089,741 |
|
|
|
— |
|
|
|
19,854,675 |
|
|
|
(131,490 |
) |
| Real Estate |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(629,000 |
) |
|
|
13,500,000 |
|
|
|
— |
|
|
|
12,871,000 |
|
|
|
(629,000 |
) |
| Utilities |
|
|
235,520 |
|
|
|
— |
|
|
|
— |
|
|
|
(11,753,099 |
) |
|
|
11,517,579 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Non-U.S. Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Consumer Discretionary |
|
|
52,141 |
|
|
|
— |
|
|
|
(40,799 |
) |
|
|
— |
|
|
|
4,951 |
|
|
|
— |
|
|
|
— |
|
|
|
16,293 |
|
|
|
4,951 |
|
| U.S. LLC Interest |
|
|
18,373,752 |
|
|
|
— |
|
|
|
(1,396,861 |
) |
|
|
(289,460 |
) |
|
|
541,879 |
|
|
|
6,972,671 |
|
|
|
(10,921,531 |
) |
|
|
13,280,450 |
|
|
|
119,462 |
|
| U.S. Preferred Stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Healthcare |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
391,015 |
|
|
|
1,799,999 |
|
|
|
— |
|
|
|
2,191,014 |
|
|
|
391,015 |
|
| Non-U.S. Asset-Backed Security |
|
|
74,799 |
|
|
|
— |
|
|
|
— |
|
|
|
21,014 |
|
|
|
(11,139 |
) |
|
|
— |
|
|
|
(65,669 |
) |
|
|
19,005 |
|
|
|
(11,139 |
) |
| Non-U.S. Registered Investment Company |
|
|
3,235,150 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
160,197 |
|
|
|
— |
|
|
|
— |
|
|
|
3,395,347 |
|
|
|
160,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
110,382,794 |
|
|
|
859 |
|
|
|
(3,951,079 |
) |
|
|
(12,021,545 |
) |
|
|
19,025,007 |
|
|
|
26,677,411 |
|
|
|
(10,987,200 |
) |
|
|
129,126,247 |
|
|
|
7,085,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
Investments designated as Level 3 may include assets valued using quotes or indications furnished by brokers which
are based on models or estimates without observable inputs and may not be executable prices. In light of the developing market conditions, the Investment Adviser continues to search for observable data points and evaluate broker quotes and
indications received for portfolio investments.
For the year ended September 30, 2022, there were no transfers into or out of Level 3. Determination of fair
value is uncertain because it involves subjective judgments and estimates that are unobservable.
The following is a summary of significant
unobservable inputs used in the fair valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
| Category |
|
Fair Value at
9/30/2022
$ |
|
|
Valuation Technique |
|
Unobservable Inputs |
|
Input Value(s)
(Arithmetic Mean) |
| U.S. Equity/Non-U.S. Equity |
|
|
77,514,756 |
|
|
Multiples Analysis |
|
Unadjusted Price/MHz-PoP |
|
$0.09 - $0.95 ($0.515) |
|
|
|
|
|
|
Discounted Cash Flow |
|
Discount Rate |
|
13.50% - 15.50% (14.50%) |
|
|
|
|
|
|
Transaction Indication of Value |
|
Enterprise Value ($ mm) |
|
$905 |
|
|
|
|
|
|
|
|
Offer Price per Share |
|
$1.10 |
|
|
|
|
|
|
|
|
Cost price |
|
N/A |
|
|
|
|
|
|
Direct Capitalization Method |
|
Capitalization Rates |
|
6.0% |
|
|
|
|
|
|
Net Asset Value |
|
NAV |
|
$62.97 |
|
|
|
|
|
|
Liquidation Analysis |
|
Recovery Rate |
|
75% - 100.0% |
| U.S. Senior Loans |
|
|
32,725,675 |
|
|
Discounted Cash Flow |
|
Discount Rate |
|
11% -11.5% (11.25%) |
|
|
|
|
|
|
Transaction Indication of Value |
|
Cost price |
|
N/A |
|
|
|
|
|
|
Option Pricing Model |
|
Volatilty |
|
50% - 60% (55%) |
| U.S. LLC Interest |
|
|
13,280,450 |
|
|
Discounted Cash Flow |
|
Discount Rate |
|
4.73% - 8.93% (6.83%) |
|
|
|
|
|
|
Transaction Indication of Value |
|
Cost price |
|
N/A |
| U.S. Preferred Stock |
|
|
2,191,014 |
|
|
Transaction Indication of Value |
|
Enterprise Value ($ mm) |
|
$144.6 - $256.3 ($197.3) |
|
|
|
|
|
|
Option Pricing Model |
|
Volatilty |
|
70% - 90% (80%) |
| Non-U.S. Asset-Backed Security |
|
|
19,005 |
|
|
Discounted Cash Flow |
|
Discount Rate |
|
21.0% |
| Non-U.S. Registered Investment Company |
|
|
3,395,347 |
|
|
Net Asset Value |
|
NAV |
|
$339.54 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
129,126,247 |
|
|
|
|
|
|
|
The significant unobservable inputs used in the fair value measurement of the Fund’s bank loan and asset-backed
securities are: discount rate, volatility and broker quote indication of value. A Significant increase (decrease) in these inputs in isolation could result in a significantly lower (higher) fair value measurement.
The significant unobservable inputs used in the fair value measurement of the Fund’s LLC interests are: discount rate and capitalization rate. A significant
increase (decrease) in any of those inputs in isolation could result in a significantly higher (lower) fair value measurement.
The significant unobservable inputs
used in the fair value measurement of the Fund’s common equity securities are: unadjusted price/MHz-PoP multiple, discount rate, enterprise value, tender offer per share, and recovery rate. Significant
increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement.
In addition to the unobservable inputs utilized for various valuation methodologies, the Investment Adviser frequently
uses a combination of two or more valuation methodologies to determine fair value for a single holding. In such instances, the Investment Adviser assesses the methodologies and ascribes weightings to each methodology. The weightings ascribed to any
individual methodology ranged from as low as 25% to as high as 75% as of September 30, 2022. The selection of weightings is an inherently subjective process, dependent on professional judgement. These selections may have a material impact to
the concluded fair value for such holdings.
Certain Illiquid Positions Classified as Level 3
As of September 30, 2022, the Fund held an investment in the common shares of TerreStar Corporation (“TerreStar”) valued at $61,209,167, or 23.8% of net
assets, and U.S. Senior Loans valued at $19,854,675 or 7.7% of net assets. TerreStar does not currently generate revenue and primarily derives its value from holding licenses of two wireless
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
spectrum assets. The license with respect to one such spectrum asset was previously terminated by the FCC and subsequently restored on April 30, 2020 on a limited conditional basis. The
restoration of such license, in current form, requires TerreStar to meet certain deployment milestones for wireless medical telemetry service (“WMTS”) during a 39-month period. Upon satisfaction of
the deployment milestones, TerreStar, as it stands today, will be able use such spectrum for other services besides WMTS as long as those services do not interfere with WMTS and TerreStar continues to provide WMTS.
As of now, if TerreStar is unsuccessful in satisfying such deployment milestones, or if other services cannot be implemented in a manner that does not interfere with
WMTS, the value of the TerreStar equity would likely be materially negatively impacted. In determining the fair value of TerreStar, the Investment Adviser has assigned a high probability of success on both conditions based on consultation with the
company and its consultants.
The Fund may hold other illiquid positions that are classified as Level 3 that are not described here. Please see Note 8 for
additional disclosure of risks from investments in illiquid securities.
Security Transactions
Security transactions are accounted for on the trade date. Realized gains (losses) on investments sold are recorded on the basis of the specific identification method
for both financial statement and U.S. federal income tax purposes taking into account any foreign taxes withheld.
Income Recognition
Corporate actions (including cash dividends) are recorded on 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 and is verified. Interest income is recorded on the accrual basis.
Accretion of discount on taxable bonds and loans is computed to the maturity date, while amortization of premium on taxable bonds and loans is computed to the earliest
call date, both using the effective yield method. Withholding taxes on foreign dividends have been provided for in accordance with the Fund’s understanding of the applicable country’s tax rules and rates.
Return of Capital Reclassification
Adjustment to income associated with
return of capital from income received in prior period. Information related to these adjustments was not received until after the finalization of the prior period financial statements.
U.S. Federal Income Tax Status
The Fund is treated as a separate taxpayer for U.S. federal income tax purposes. The Fund intends to qualify each year as a “regulated investment company”
under Subchapter M of the Internal Revenue Code of 1986, as amended, and will distribute substantially all of their taxable income and gains, if any, for the tax year, and as such will not be subject to U.S. federal income taxes. In addition, the
Fund intends to distribute, in each calendar year, all of their net investment income, capital gains and certain other amounts, if any, such that the Fund should not be subject to U.S. federal excise tax. Therefore, no U.S. federal income or excise
tax provisions are recorded. The Fund recognizes interest and penalties, if any, related to unrecognized tax benefits as income tax expense in the Statement of Operations.
The Investment Adviser has analyzed the Fund’s tax positions taken on U.S. federal income tax returns for all open tax years (current and prior three tax years),
and has concluded that no provision for U.S. federal income tax is required in the Fund’s financial statements. The Fund’s U.S. federal and state income and U.S. federal excise tax returns for tax years for which the applicable statutes of
limitations have not expired are subject to examination by the Internal Revenue Service and state departments of revenue. Furthermore, the Investment Adviser of the Fund is also not aware of any tax positions for which it is reasonably possible that
the total amounts of unrecognized tax benefits will significantly change in the next 12 months.
Distributions to Shareholders
The Fund declares and pays investment income distributions quarterly. The Fund typically declares and pays distributions from net realized capital gains in excess of
capital loss carryforwards annually.
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/or sub-custodian bank(s), cash
equivalents, foreign currency and restricted cash held at broker(s).
Cash & Cash Equivalents
The Fund considers liquid assets deposited with a bank and certain short-term debt instruments of sufficient credit quality with original maturities of three months or
less to be cash equivalents. The Fund also considers money market instruments that invest in cash equivalents to be cash equivalents. These investments represent amounts held with financial
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
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 fair value. The value
of cash equivalents denominated in foreign currencies is determined by converting to U.S. dollars on the date of this financial report. These balances may exceed the federally insured limits under the Federal Deposit Insurance Corporation
(“FDIC”).
Foreign Currency
Accounting records of the Fund are
maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates using the current 4:00 PM London Time Spot Rate. Fluctuations in the
value of the foreign currencies and other assets and liabilities resulting from changes in exchange rates, between trade and settlement dates on securities transactions and between the accrual and payment dates on dividends, interest income and
foreign withholding taxes, are recorded as unrealized foreign currency gains (losses). Realized gains (losses) and unrealized appreciation (depreciation) on investment securities and income and expenses are translated on the respective dates of such
transactions. The effects of changes in foreign currency exchange rates on investments in securities are not segregated in the Statement of Operations from the effects of changes in market prices of those securities, but are included with the net
realized and unrealized gain or loss on investment securities.
Securities Sold Short
The Fund may sell securities short. A security sold short is a transaction in which the Fund sells a security it does not own in anticipation that the market price of
that security will decline. When the Fund sells a security short, it must borrow the security sold short from a broker-dealer and deliver it to the buyer upon conclusion of the transaction. 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. 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 Investment Portfolio. Cash held as collateral for securities sold short is classified as restricted cash on the
Statement of Assets and Liabilities, as applicable. Restricted cash in the amount of $3,102,234 was held with the broker for the Fund. Additionally, securities valued at $101,984,473 were posted in the Fund’s segregated account for collateral
for short sales. The Fund’s loss on a short sale could be unlimited in cases where the Fund is unable, for whatever reason, to close out its short position.
Other Fee Income
Fee income
may consist of origination/closing fees, amendment fees, administrative agent fees, transaction breakup fees and other miscellaneous fees. Origination fees, amendment fees, and other similar fees are nonrecurring fee sources. Such fees are received
on a transaction by transaction basis and do not constitute a regular stream of income and are recognized when incurred.
Note 3. Derivative Transactions
The Fund is subject to equity securities risk, interest rate risk and currency risk in the normal course of pursuing its investment objective. The Fund enters
into derivative transactions for the purpose of hedging against the effects of changes in the value of portfolio securities due to anticipated changes in market conditions, to gain market exposure for residual and accumulating cash positions and for
managing the duration of fixed income investments.
Options
The Fund may
utilize options on securities or indices to varying degrees as part of its principal investment strategy. An option on a security is a contract that gives the holder of the option, in return for a premium, the right to buy from (in the case of a
call) or sell to (in the case of a put) the writer of the option the security underlying the option at a specified exercise or “strike” price. The writer of an option on a security has the obligation upon exercise of the option to deliver
the underlying security upon payment of the exercise price or to pay the exercise price upon delivery of the underlying security. The Fund may hold options, write option contracts, or both.
If an option written by 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.
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
During the year ended September 30, 2022, the Fund entered into options transactions. The Fund may invest in written
options to provide leveraged short exposure, and purchased options to provide leveraged long exposure, to the underlying equity, which is consistent with the investment strategies of the Fund.
Additional Derivative Information
The Fund is required to disclose; a) how
and why an entity uses derivative instruments; b) how derivative instruments and related hedged items are accounted for; c) how derivative instruments and related hedged items affect an entity’s financial position, financial performance and
cash flows; and d) how the netting of derivatives subject to master netting arrangements (if applicable) affects the net exposure of the Fund related to the derivatives.
To reduce counterparty credit risk with respect to over-the-counter (“OTC”)
transactions, the Fund has entered into master netting arrangements, established within the Fund’s International Swap and Derivatives Association, Inc. (“ISDA”) master agreements, which allows the Fund to make (or to have an
entitlement to receive) a single net payment in the event of default (close-out netting) for outstanding payables and receivables with respect to certain OTC derivative positions in forward currency exchange
contracts for each individual counterparty. In addition, the Fund may require that certain counterparties post cash and/or securities in collateral accounts to cover its net payment obligations for those derivative contracts subject to ISDA master
agreements. If the counterparty fails to perform under these contracts and agreements, the cash and/or securities will be made available to the Fund.
Certain ISDA
master agreements include credit related contingent features which allow counterparties to OTC derivatives to terminate derivative contracts prior to maturity in the event the Fund’s net assets decline by a stated percentage or the Fund fails
to meet the terms of its ISDA master agreements, which would cause the Fund to accelerate payment of any net liability owed to the counterparty.
For financial
reporting purposes, the Fund does not offset derivative assets and derivative liabilities that are subject to netting arrangements in the Statement of Assets and Liabilities. Bankruptcy or insolvency laws of a particular jurisdiction may impose
restrictions on or prohibitions against the right of offset in bankruptcy, insolvency or other events.
Collateral terms are contract specific for OTC derivatives.
For derivatives traded under an ISDA master agreement, the collateral requirements are typically calculated by netting the mark to market amount for each transaction under such agreement and comparing that to the value of any collateral currently
pledged by the Fund or the counterparty.
For financial reporting purposes, cash collateral that has been pledged to cover obligations of the Fund, if any, is
reported in restricted cash on the Statement of Assets and Liabilities. Generally, the amount of collateral due from or to a party must exceed a minimum transfer amount threshold before a transfer has to be made. To the extent amounts due to the
Fund from its counterparties are not fully collateralized, contractually or otherwise, the Fund bears the risk of loss from counterparty non-performance.
There were no derivative instruments held as of September 30, 2022.
Note 4.
Securities Lending
The Fund has a securities lending agreement with The Bank of New York Mellon (“BNY” or the “Lending Agent”).
Securities lending transactions are entered into by the Fund under the Securities Lending Agreement, (“SLA”) which permits the Fund, under certain
circumstances such as an event of default, to offset amounts payable by the Fund to the same counterparty against amounts receivable from the counterparty to create a net payment due to or from the Fund.
The following is a summary of securities lending agreements held by the Fund, with cash collateral of overnight maturities which would be subject to offset as of
September 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
of Recognized
Assets (Value
of Securities on
Loan) |
|
Value of Cash
Collateral
Received(1) |
|
|
Value of
Non-Cash
Collateral
Received(1) |
|
|
Net
Amount |
|
| $88,096 |
|
$ |
88,096 |
|
|
$ |
— |
|
|
$ |
— |
|
| (1) |
Collateral received in excess of fair value of securities on loan is not presented in this table. The total cash
collateral received by the Fund is disclosed in the Statement of Assets and Liabilities. |
The value of loaned securities and related collateral
outstanding at September 30, 2022 are shown in the Investment Portfolio. The value of the collateral held may be temporarily less than that required under the lending contract. As of September 30, 2022, the cash collateral was invested in
repurchase agreements with the following maturities:
Remaining Contractual Maturity of the Underlying Collateral, as of September 30, 2022
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Overnight and
Continuous |
|
|
<30 Days |
|
|
Between
30 & 90
Days |
|
|
>90 Days |
|
|
Total |
|
| Repurchase Agreements |
|
$ |
95,920 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
95,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
$ |
95,920 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
95,920 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
The Fund could seek additional income by making secured loans of its portfolio securities through its custodian. Such
loans would be in an amount not greater than one-third of the value of the Fund’s total assets. BNY would charge a fund fees based on a percentage of the securities lending income.
The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or
excess collateral is returned by the Fund, on the next business day.
The Fund would receive collateral consisting of cash (U.S. and foreign currency), securities
issued or guaranteed by the U.S. government or its agencies or instrumentalities, sovereign debt, convertible bonds, irrevocable bank letters of credit or such other collateral as may be agreed on by the parties to a securities lending arrangement,
initially with a value of 102% or 105% of the market value of the loaned securities and thereafter maintained at a value of 100% of the market value of the loaned securities. If the collateral consists of
non-cash collateral, the borrower would pay the Fund a loan premium fee. If the collateral consists of cash, BNY would reinvest the cash. Although voting rights, or rights to consent, with respect to the
loaned securities pass to the borrower, the Fund would recall the loaned securities upon reasonable notice in order that the securities could be voted by the Fund if the holders of such securities are asked to vote upon or consent to matters
materially affecting the investment. The Fund also could call such loans in order to sell the securities involved.
Securities lending transactions were entered into
pursuant to SLAs, which would provide the right, in the event of default (including bankruptcy or insolvency) for the non-defaulting party to liquidate the collateral and calculate a net exposure to the
defaulting party or request additional collateral. In the event that a borrower defaulted, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. The value of the collateral
is typically greater than that of the market value of the securities loaned, leaving the lender with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may
impose restrictions on or prohibitions against such a right of offset in the event of an SLA counterparty’s bankruptcy or insolvency. Under the SLA, the Fund can reinvest cash collateral,
or, upon an event of default, resell or repledge the collateral, and the borrower can resell or repledge the loaned securities. The risks of securities lending also include the risk that the borrower may not provide additional collateral when
required or may not return the securities when due. To mitigate this risk, each Fund benefits from a borrower default indemnity provided by BNY. BNY’s indemnity generally provides for replacement of securities lent or the approximate value
thereof.
Note 5. U.S. Federal Income Tax Information
The character of
income and gains to be distributed is determined in accordance with income tax regulations which may differ from 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 NAV of the
Fund. The calculation of net investment income per share in the Financial Highlights table excludes these adjustments.
As of September 30, 2022, permanent
differences chiefly resulting from non-deductible expenses from partnerships and return of capital were identified and reclassified among the components of the Fund’s net assets as follows:
|
|
|
|
|
Distributable
Earnings
(Accumulated
Loss) |
|
Paid-in-Capital |
|
| $(2,530,674) |
|
$ |
2,530,674 |
|
At September 30, 2022, the most recent tax year-end, components of distributable earnings on a tax basis is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Undistributed
Income |
|
Undistributed
Long-Term
Capital Gains |
|
|
Other
Temporary
Differences |
|
|
Accumulated
Capital and
Other Losses |
|
|
Net Tax
Appreciation
(Depreciation) |
|
| $— |
|
$ |
— |
|
|
$ |
(2 |
) |
|
$ |
(412,689,554 |
) |
|
$ |
(43,084,377 |
) |
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
As of
September 30, 2022, the Fund has capital loss carryovers as indicated below. The capital loss carryovers are available to offset future realized capital gains.
|
|
|
|
|
|
|
|
|
| No
Expiration
Short-
Term |
|
No
Expiration
Long- Term |
|
|
Total |
|
| $122,955,636 |
|
$ |
289,733,918 |
|
|
$ |
412,689,554 |
|
The tax character of distributions paid during the years ended September 30, 2022 and September 30, 2021 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Distributions Paid
From: |
|
| |
|
Ordinary
Income(1)
|
|
|
Long-
Term
Capital
Gains |
|
|
Return of
Capital(2)
|
|
| 2022 |
|
$ |
7,285,771 |
|
|
$ |
— |
|
|
$ |
13,622,562 |
|
| 2021 |
|
|
6,169,443 |
|
|
|
— |
|
|
|
13,376,686 |
|
| (1) |
For tax purposes, short-term capital gains distributions, if any, are considered ordinary income distributions.
|
| (2) |
Additional Information will be distributed on Form 1099 at the end of the calendar year. |
The Federal tax cost and gross unrealized appreciation and depreciation on investments (including foreign currency and derivatives, if applicable) held by the Fund at
September 30, 2022 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Appreciation |
|
Gross
Depreciation |
|
|
Net
Appreciation/
(Depreciation) |
|
|
Federal Tax
Cost |
|
| $26,653,080 |
|
$ |
(69,737,457 |
) |
|
$ |
(43,084,377 |
) |
|
$ |
360,909,400 |
|
For Federal income tax purposes, the cost of investments owned at September 30, 2022 were different from amounts
reported for financial reporting purposes primarily due to investments in partnerships, defaulted bonds, other securities and deferred wash sale losses.
Note 6.
Credit Agreement
The Fund has an agreement with Mizuho Securities USA, LLC (“Mizuho Securities”) under which it may from time to time enter into
reverse repurchase transactions pursuant to the terms of a master repurchase agreement and related annexes (collectively the “Repurchase Agreement”). A reverse repurchase transaction is a repurchase transaction in which the Fund is the
seller of securities or other assets and agrees to repurchase them at a date certain or on demand. Pursuant to the Repurchase Agreement, the Fund may agree to sell securities or other assets to Mizuho Securities for an agreed upon price (the
“Purchase Price”), with a simultaneous agreement to repurchase such securities or other assets from Mizuho Securities for the Purchase Price plus a price differential that is economically similar to interest. The price differential is
negotiated for each transaction. This creates leverage for the Fund because the cash received can be used to purchase other securities.
At September 30, 2022,
the Fund’s outstanding balance on the agreement with Mizuho Securities was $0. For the year ended September 30, 2022, the Fund had no open
repurchase agreement transactions under the master repurchase agreement with Mizuho Securities.
Note 7.
Advisory, Administration, Service and Distribution, Trustee, and Other Fees
Investment Advisory Fees and Administration Fees
For its investment advisory services, the Fund pays the Investment Adviser a monthly fee, computed and accrued daily, based on an annual rate of the Fund’s Average
Daily Managed Assets. Average Daily Managed Assets of the Fund means the average daily value of the total assets of the Fund less all accrued liabilities of a Fund (other than the aggregate amount of any outstanding borrowings constituting financial
leverage). The Fund’s contractual advisory fee with NexPoint for the year ended September 30, 2022 was 0.40%.
The Fund has entered into an administration
agreement with SEI Investments Global Funds Services (“SEI”), a wholly owned subsidiary of SEI Investments Company, and pays SEI a fee for administration services. The Investment Adviser generally assists in all aspects of the Fund’s
administration and operations and furnishes offices, necessary facilities, equipment and personnel.
Additionally, the Fund may invest in securities issued by other
investment companies, including investment companies that are advised by the Investment Adviser or its
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
affiliates, to the extent permitted by applicable law and/or pursuant to exemptive relief from the SEC, and exchange-traded funds (“ETFs”). Fees and expenses of such investments will be
borne by shareholders of the investing Fund, and the Investment Adviser voluntarily waives the higher of the two fees for the portion of the Fund’s investment advisory fee attributable to its investment in the affiliated investment company.
Voluntary amounts waived are reflected in the statement of operations.
Fees Paid to Officers and Trustees
Each Trustee, who oversees all of the funds in the NexPoint Fund Complex, receives an annual retainer of $150,000 payable in quarterly installments and allocated among
each portfolio in the NexPoint Fund Complex overseen by such Trustee based on relative net assets. The annual retainer for a Trustee who does not oversee all of the funds in the NexPoint Fund Complex is prorated based on the portion of the $150,000
annual retainer allocable to the funds overseen by such Trustee. The Chairman of the Audit Committee and the Chairman of the Board each receive an additional annual payment of $10,000 payable in quarterly installments and allocated among each
portfolio in the NexPoint Fund Complex based on relative net assets. Trustees are reimbursed for actual out-of-pocket expenses relating to attendance at meetings. The
“NexPoint Fund Complex” consists of all of the registered investment companies advised by the Investment Adviser or its affiliated advisers as of the date of this report and NexPoint Capital, Inc., a
closed-end management investment company that has elected to be treated as a business development company under the 1940 Act.
The Fund pays no compensation to its officers, all of whom are employees of the Investment Adviser or one of its affiliates.
The Trustees do not receive any separate compensation in connection with service on Committees or for attending Board or Committee Meetings. The Trustees do not have any
pension or retirement plan.
Other Matters
NexPoint has entered into a
Services Agreement (the “Services Agreement”) with Skyview Group (“Skyview”), effective February 25, 2021, pursuant to which NexPoint will receive administrative and operational support services to enable it to provide the
required advisory services to the Fund. The Investment Adviser, and not the Fund, will compensate all Investment Adviser and Skyview personnel who provide services to the Fund.
Effective July 12, 2022, certain Skyview personnel became dual-employees of NexPoint Services, Inc., a wholly-owned subsidiary of the Investment Adviser. The same
services are being performed by the dual-employees. The Investment
Adviser, and not the Fund, will compensate all Investment Adviser, Skyview, and dual-employee personnel who provide services to the Fund.
Note 8. Disclosure of Significant Risks and Contingencies
The Fund’s
risks include, but are not limited to, some or all of the risks discussed below. For further information on the Fund’s risks, please refer to the Fund’s Prospectus and Statement of Additional Information.
Asset-Backed Securities Risk
The risk of investing in asset-backed
securities, and includes interest rate risk, prepayment risk and the risk that the Fund could lose money if there are defaults on the loans underlying these securities. Investments in asset-backed securities may also be subject to valuation risk.
Credit Risk
The value of debt securities owned by the Fund may be
affected by the ability of issuers to make principal and interest payments and by the issuer’s or counterparty’s credit quality. If an issuer cannot meet its payment obligations or if its credit rating is lowered, the value of its debt
securities may decline. Lower quality bonds are generally more sensitive to these changes than higher quality bonds. Nonpayment would result in a reduction of income to the Fund, a reduction in the value of the obligation experiencing nonpayment and
a potential decrease in the Fund’s net asset value and the market price of the Fund’s shares.
Derivatives Risk
Derivatives Risk is a combination of several risks, including the risks that: (1) an investment in a derivative instrument may not correlate well with the
performance of the securities or asset class to which the Fund seeks exposure, (2) derivative contracts, including options, may expire worthless and the use of derivatives may result in losses to the Fund, (3) a derivative instrument
entailing leverage may result in a loss greater than the principal amount invested, (4) derivatives not traded on an exchange may be subject to credit risk, for example, if the counterparty does not meet its obligations (see also
“Counterparty Risk”), and (5) derivatives not traded on an exchange may be subject to liquidity risk and the related risk that the instrument is difficult or impossible to value accurately.
Effective August 19, 2022 (the “Compliance Date”), Rule 18f-4 under the 1940 Act (the “Derivatives
Rule”) replaced the asset segregation regime of Investment Company Act Release No. 10666 (Release 10666) with a new framework for the use of derivatives by registered funds. As of the Compliance Date, the SEC rescinded Release 10666 and
withdrew no-action letters and similar guidance addressing a
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
fund’s use of derivatives and began requiring funds to satisfy the requirements of the Derivatives Rule. As a result, on or after the Compliance Date, the Fund will no longer engage in
“segregation” or “coverage” techniques with respect to derivatives transactions and will instead comply with the applicable requirements of the Derivatives Rule.
The Derivatives Rule mandates that a fund adopt and/or implement: (i) value-at-risk
limitations (VaR); (ii) a written derivatives risk management program; (iii) new Board oversight responsibilities; and (iv) new reporting and recordkeeping requirements. In the event that a fund’s derivative exposure is 10% or less of
its net assets, excluding certain currency and interest rate hedging transactions, it can elect to be classified as a limited derivatives user (Limited Derivatives User) under the Derivatives Rule, in which case the fund is not subject to the full
requirements of the Derivatives Rule. Limited Derivatives Users are excepted from VaR testing, implementing a derivatives risk management program, and certain Board oversight and reporting requirements mandated by the Derivatives Rule. However, a
Limited Derivatives User is still required to implement written compliance policies and procedures reasonably designed to manage its derivatives risks.
Equity
Securities Risk
The risk that stock prices will fall over short or long periods of time. In addition, common stocks represent a share of ownership in a company,
and rank after bonds and preferred stock in their claim on the company’s assets in the event of bankruptcy. In addition to these risks, preferred stock and convertible securities are also subject to the risk that issuers will not make payments
on securities held by the Fund, which could result in losses to the Fund. The credit quality of preferred stock and convertible securities held by the Fund may be lowered if an issuer’s financial condition changes, leading to greater volatility
in the price of the security.
High Yield Debt Securities Risk
The risk that below investment grade securities or unrated securities of similar credit quality (commonly known as “high yield securities” or “junk
securities”) are more likely to default than higher rated securities. The Fund’s ability to invest in high-yield debt securities generally subjects the Fund to greater risk than securities with higher ratings. Such securities are regarded
by the rating organizations as predominantly speculative with respect to capacity to pay interest and repay principal in accordance with the terms of the obligation. The market value of these securities is generally more sensitive to corporate
developments and economic conditions and can be volatile. Market conditions can diminish liquidity and make accurate valuations difficult to obtain.
Illiquid and Restricted Securities Risk
The investments made by the Fund may be illiquid, and consequently the Fund may not be able to sell such investments at prices that reflect the Investment Adviser’s
assessment of their value or the amount originally paid for such investments by the Fund. Illiquidity may result from the absence of an established market for the investments as well as legal, contractual or other restrictions on their resale and
other factors. Furthermore, the nature of the Fund’s investments, especially those in financially distressed companies, may require a long holding period prior to profitability. Restricted securities (i.e., securities acquired in private
placement transactions) and illiquid securities may offer higher yields than comparable publicly traded securities. The Fund, however, may not be able to sell these securities when the Investment Adviser considers it desirable to do so or, to the
extent they are sold privately, may have to sell them at less than the price of otherwise comparable securities. Restricted securities are subject to limitations on resale which can have an adverse effect on the price obtainable for such securities.
Also, if in order to permit resale the securities are registered under the Securities Act at the Fund’s expense, the Fund’s expenses would be increased.
Industry Focus Risk
As the Fund may invest a significant portion of its
assets in particular sectors or industries, the performance of the Fund may be closely tied to the performance of companies in a limited number of sectors or industries. Currently, the Fund focuses its investments in the energy, telecommunications
and utilities sectors and, in certain instances, in a limited number of issuers within each of those sectors. Companies in a single sector often share common characteristics, are faced with the same obstacles, issues and regulatory burdens and their
securities may react similarly to adverse market conditions. To the extent a Fund focuses its investments in particular issuers, countries, geographic regions, industries or sectors, the Fund may be subject to greater risks of adverse developments
in such areas of focus than a fund that invests in a wider variety of issuers, countries, geographic regions, industries, sectors or investments. The price movements of investments in a particular sector or industry may be more volatile than the
price movements of more broadly diversified investments.
Interest Rate Risk
The risk that fixed income securities will decline in value because of changes in interest rates. When interest rates decline, the value of fixed rate securities already
held by the Fund can be expected to rise. Conversely, when interest rates rise, the value of existing fixed rate portfolio securities can be expected to decline. A fund with a longer average
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
portfolio duration will be more sensitive to changes in interest rates than a fund with a shorter average portfolio duration.
Leverage Risk
The Fund may use leverage in its investment program, including
the use of borrowed funds and investments in certain types of options, such as puts, calls and warrants, which may be purchased for a fraction of the price of the underlying securities. While such strategies and techniques increase the opportunity
to achieve higher returns on the amounts invested, they also increase the risk of loss. To the extent the Fund purchases securities with borrowed funds, its net assets will tend to increase or decrease at a greater rate than if borrowed funds are
not used. If the interest expense on borrowings were to exceed the net return on the portfolio securities purchased with borrowed funds, the Fund’s use of leverage would result in a lower rate of return than if the Fund was not leveraged.
LIBOR Transition and Associated Risk
On July 27, 2017, the head of the
United Kingdom’s Financial Conduct Authority announced that it will stop encouraging banks to provide the quotations needed to sustain LIBOR. The ICE Benchmark Administration Limited, the administrator of LIBOR, ceased publishing certain LIBOR
maturities, including some US LIBOR maturities, on December 31, 2021, and is expected to cease publishing the remaining and most liquid US LIBOR maturities on June 30, 2023. It is expected that market participants will transition to the
use of alternative reference or benchmark rates prior to the applicable LIBOR cessation date. Additionally, although regulators have encouraged the development and adoption of alternative rates, such as the Secured Overnight Financing Rate
(“SOFR”), the future utilization of LIBOR or of any particular replacement rate remains uncertain.
Although the transition process away from LIBOR has
become increasingly well-defined in advance of the anticipated discontinuation dates, the impact on certain debt securities, derivatives and other financial instruments remains uncertain. It is expected that market participants will adopt
alternative rates such as SOFR or otherwise amend financial instruments referencing LIBOR to include fallback provisions and other measures that contemplate the discontinuation of LIBOR or other similar market disruption events, but neither the
effect of the transition process nor the viability of such measures is known. Further, uncertainty and risk remain regarding the willingness and ability of issuers and lenders to include alternative rates and revised provisions in new and existing
contracts or instruments. To facilitate the transition of legacy derivatives contracts referencing LIBOR, the International Swaps and Derivatives Association, Inc. launched a protocol to incorporate fallback
provisions. While the transition process away from LIBOR has become increasingly well-defined in advance of the expected LIBOR cessation dates, there are obstacles to converting certain longer
term securities and transactions to a new benchmark or benchmarks and the effectiveness of one alternative reference rate versus multiple alternative reference rates in new or existing financial instruments and products has not been determined.
Furthermore, the risks associated with the cessation of LIBOR and transition to replacement rates may be exacerbated if an orderly transition to alternative reference rates is not completed in a timely manner. Certain proposed replacement rates to
LIBOR, such as SOFR, which is a broad measure of secured overnight US Treasury repo rates, are materially different from LIBOR, and changes in the applicable spread for financial instruments transitioning away from LIBOR will need to be made to
accommodate the differences. Furthermore, the risks associated with the expected discontinuation of LIBOR and transition to replacement rates may be exacerbated if an orderly transition to an alternative reference rate is not completed in a timely
manner. As market participants transition away from LIBOR, LIBOR’s usefulness may deteriorate and these effects could be experienced until the permanent cessation of the majority of U.S. LIBOR rates in 2023. The transition process may lead to
increased volatility and illiquidity in markets that currently rely on LIBOR to determine interest rates. LIBOR’s deterioration may adversely affect the liquidity and/or market value of securities that use LIBOR as a benchmark interest rate.
Alteration of the terms of a debt instrument or a modification of the terms of other types of contracts to replace LIBOR or another interbank offered rate
(“IBOR”) with a new reference rate could result in a taxable exchange and the realization of income and gain/loss for U.S. federal income tax purposes. The Internal Revenue Service (“IRS”) has issued final regulations regarding
the tax consequences of the transition from IBOR to a new reference rate in debt instruments and non-debt contracts. Under the final regulations, alteration or modification of the terms of a debt instrument to
replace an operative rate that uses a discontinued IBOR with a qualified rate (as defined in the final regulations) including true up payments equalizing the fair market value of contracts before and after such IBOR transition, to add a qualified
rate as a fallback rate to a contract whose operative rate uses a discontinued IBOR or to replace a fallback rate that uses a discontinued IBOR with a qualified rate would not be taxable. The IRS may provide additional guidance, with potential
retroactive effect.
Management Risk
The risk associated with the fact
that the Fund relies on the Investment Adviser’s ability to achieve its investment
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
objective. The Investment Adviser may be incorrect in its assessment of the intrinsic value of the companies whose securities the Fund holds, which may result in a decline in the value of fund
shares and failure to achieve its investment objective.
Mid-Cap Company Risk
The risk that investing in securities of mid-cap companies may entail greater risks than investments in larger, more established
companies. Mid-cap companies tend to have more narrow product lines, more limited financial resources and a more limited trading market for their stocks, as compared with larger companies. As a result, their
stock prices may decline significantly as market conditions change.
MLP Risk
The risk that the MLPs in which the Fund invests will fail to be treated as partnerships for U.S. federal income tax purposes. If an MLP does not meet current legal
requirements to maintain its partnership status, or if it is unable to do so because of tax or other law changes, it would be treated as a corporation for U.S. federal income tax purposes. The classification of an MLP as a corporation for U.S.
federal income tax purposes could have the effect of reducing the amount of cash available for distribution by the MLP and the value of the Fund’s investment in any such MLP. As a result, the value of the Fund’s shares and the cash
available for distribution to Fund shareholders could be materially reduced.
MLP Tax Risk
The risk that the MLPs in which the Fund invests will fail to be treated as partnerships for U.S. federal income tax purposes. If an MLP does not meet current legal
requirements to maintain its partnership status, or if it is unable to do so because of tax or other law changes, it would be treated as a corporation for U.S. federal income tax purposes. In that case, the MLP would be obligated to pay U.S. federal
income tax (as well as state and local taxes) at the entity level on its taxable income and distributions received by the Fund would be characterized as dividend income to the extent of the MLP’s current and accumulated earnings and profits for
federal tax purposes. The classification of an MLP as a corporation for U.S. federal income tax purposes could have the effect of reducing the amount of cash available for distribution by the MLP and the value of the Fund’s investment in any
such MLP. As a result, the value of the Fund’s shares and the cash available for distribution to Fund shareholders could be reduced.
Non-U.S. Securities Risk
The risk associated with investing in non-U.S. issuers.
Investments in securities of non-U.S. issuers involve certain risks not involved in domestic investments (for example,
fluctuations in foreign exchange rates (for non-U.S. securities not denominated in U.S. dollars); future foreign economic, financial, political and social
developments; nationalization; exploration or confiscatory taxation; smaller markets; different trading and settlement practices; less governmental supervision; and different accounting, auditing and financial recordkeeping standards and
requirements) that may result in the Fund experiencing more rapid and extreme changes in value than a fund that invests exclusively in securities of U.S. companies. These risks are magnified for investments in issuers tied economically to emerging
markets, the economies of which tend to be more volatile than the economies of developed markets. In addition, certain investments in non-U.S. securities may be subject to foreign withholding and other taxes
on interest, dividends, capital gains or other income or proceeds. Those taxes will reduce the Fund’s yield on any such securities.
Non-Payment Risk
Debt instruments are subject to the risk of non-payment of scheduled
interest and/or principal. Non-payment would result in a reduction of income to the Fund, a reduction in the value of the security experiencing non-payment and a
potential decrease in the NAV of the Fund. There can be no assurance that the liquidation of any collateral would satisfy the borrower’s obligation in the event of non-payment of scheduled interest or
principal payments, or that such collateral could be readily liquidated. Moreover, as a practical matter, most borrowers cannot satisfy their debts by selling their assets. Borrowers pay their debts from the cash flow they generate.
Pandemics and Associated Economic Disruption
An outbreak of respiratory
disease caused by a novel coronavirus was first detected in China in late 2019 and subsequently spread globally (“COVID-19”). This coronavirus has resulted in and may continue to result in the
closing of borders, enhanced health screenings, disruptions to healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general anxiety and economic uncertainty. The
impact of this coronavirus may be short-term or may last for an extended period of time and has resulted in a substantial economic downturn. Health crises caused by outbreaks of disease, such as the coronavirus, may exacerbate other preexisting
political, social and economic risks. The impact of this outbreak, and other epidemics and pandemics that may arise in the future, could continue to negatively affect the global economy, as well as the economies of individual countries, individual
companies and the market in general in significant and unforeseen ways. For example, a widespread health crisis such as a global pandemic could cause substantial market volatility, exchange trading suspensions and closures, and
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
impact the Fund’s ability to complete repurchase requests. Any such impact could adversely affect the Fund’s performance, the performance of the securities in which the Fund invests,
lines of credit available to the Fund and may lead to losses on your investment in the Fund. In addition, the increasing interconnectedness of markets around the world may result in many markets being affected by events or conditions in a single
country or region or events affecting a single or small number of issuers.
The United States responded to the coronavirus pandemic and resulting economic distress
with fiscal and monetary stimulus packages, including the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”) passed in late March 2020. The CARES Act provides for over $2.2 trillion in resources to small businesses, state
and local governments, and individuals adversely impacted by the COVID-19 pandemic. In late December 2020, the government also passed a spending bill that included $900 billion in stimulus relief for the
COVID-19 pandemic. Further, in March 2021, the government passed the American Rescue Plan Act of 2021, a $1.9 trillion stimulus bill to accelerate the United States’ recovery from the economic and health
effects of the COVID-19 pandemic. In addition, in mid-March 2020, the U.S. Federal Reserve (the “Fed”) cut interest rates to historically low levels and announced a new round of quantitative easing,
including purchases of corporate and municipal government bonds. The Fed also enacted various programs to support liquidity operations and funding in the financial markets, including expanding its reverse repurchase agreement operations, which added
$1.5 trillion of liquidity to the banking system; establishing swap lines with other major central banks to provide dollar funding; establishing a program to support money market funds; easing various bank capital buffers; providing funding
backstops for businesses to provide bridging loans for up to four years; and providing funding to help credit flow in asset-backed securities markets. In addition, the Fed extended credit to small- and medium-sized businesses. As the Fed
“tapers” or reduces the amount of securities it purchases pursuant to quantitative easing, and/or if the Fed raises the federal funds rate, there is a risk that interest rates will rise, which could expose fixed-income and related markets
to heightened volatility and could cause the value of a fund’s investments, and the fund’s NAV, to decline, potentially suddenly and significantly. As a result, the fund may experience high redemptions and, as a result, increased portfolio
turnover, which could increase the costs that the Fund incurs and may negatively impact the Fund’s performance. There is no assurance that the U.S. government’s support in response to COVID-19 economic distress will offset the adverse
impact to securities in which the Fund may invest and future governmental support is not guaranteed.
Real Estate Securities Risk
The securities of issuers that own, construct, manage or sell residential, commercial or industrial real estate are subject to risks in addition to those of other
issuers. Such risks include: changes in real estate values and property taxes, overbuilding, variations in rental income, interest rates and changes in tax and regulatory requirements, such as those relating to the environment. Performance of a
particular real estate security depends on the structure, cash flow and management skill of the particular company.
Regulatory Risk
The risk that to the extent that legislation or state or federal regulators impose additional requirements or restrictions with respect to the ability of financial
institutions to make loans in connection with highly leveraged transactions, the availability of loan interests for investment by the Fund may be adversely affected.
REIT-Specific Risk
Equity REITs may be affected by changes in the value of
the underlying property owned by the trusts, while mortgage REITs may be affected by the quality of any credit extended. Further, equity and mortgage REITs are dependent upon management skill and are not diversified. Such trusts are also subject to
heavy cash flow dependency, defaults by borrowers, self-liquidation, and the possibility of failing to qualify for special tax treatment under Subchapter M of the Code and to maintain an exemption under the 1940 Act. Any rental income or income from
the disposition of such real estate could adversely affect its ability to retain its tax status, which would have adverse tax consequences on its shareholders. Finally, certain REITs may be self-liquidating at the end of a specified term, and run
the risk of liquidating at an economically inopportune time.
REIT Tax Risk for REIT Subsidiaries
In addition to the REIT Subsidiary, the Fund may form one or more subsidiaries that will elect to be taxed as REITs beginning with the first year in which they commence
material operations. In order for each subsidiary to qualify and maintain its qualification as a REIT, it must satisfy certain requirements set forth in the Code and Treasury Regulations that depend on various factual matters and circumstances. The
Fund and the Investment Adviser intend to structure each REIT subsidiary and its activities in a manner designed to satisfy all of these requirements. However, the application of such requirements is not entirely clear, and it is possible that the
IRS may interpret or apply those requirements in a manner that jeopardizes the ability of such REIT subsidiary to satisfy all of the requirements for qualification as a REIT.
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
Restrictions on Resale Risk
Senior Loans may not be readily marketable and may be subject to restrictions on resale. Interests in Senior Loans generally are not listed on any national securities
exchange or automated quotation system and no active market may exist for many of the Senior Loans in which the Fund may invest. To the extent that a secondary market may exist for certain of the Senior Loans in which the Fund invests, such market
may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods.
Securities Lending Risk
The Fund will continue to receive interest on any securities loaned while simultaneously earning interest on the investment of the cash collateral in short-term money
market instruments. However, the Fund will normally pay lending fees to broker-dealers and related expenses from the interest earned on such invested collateral. Any decline in the value of a portfolio security that occurs while the security is out
on loan is borne by the Fund, and will adversely affect performance. There may be risks of delay in receiving additional collateral or risks of delay in recovery of the securities, loss of rights in the collateral should the borrower of the
securities fail financially and possible investment losses in the investment of collateral. Any loan may be terminated by either party upon reasonable notice to the other party.
Senior Loans Risk
The risk that the issuer of a senior may fail to pay
interest or principal when due, and changes in market interest rates may reduce the value of the senior loan or reduce the Fund’s returns. The risks associated with senior loans are similar to the risks of high yield debt securities. Senior
loans and other debt securities are also subject to the risk of price declines and to increases in interest rates, particularly long-term rates. Senior loans are also subject to the risk that, as interest rates rise, the cost of borrowing increases,
which may increase the risk of default. In addition, the interest rates of floating rate loans typically only adjust to changes in short-term interest rates; long- term interest rates can vary dramatically from short-term interest rates. Therefore,
senior loans may not mitigate price declines in a long-term interest rate environment. The Fund’s investments in senior loans are typically below investment grade and are considered speculative because of the credit risk of their issuers.
Short Sales Risk
The risk of loss associated with any appreciation on the
price of a security borrowed in connection with a short sale. The Fund may engage in short sales that are not made “against-the-box,” which means that the Fund
may sell short securities even when they are not actually owned or otherwise covered at all times during the period the short position
is open. Short sales that are not made “against-the-box” involve unlimited loss potential since the
market price of securities sold short may continuously increase.
Small-Cap Company Risk
The risk that investing in the securities of small-cap companies either directly or indirectly through investments in ETFs, closed-end funds or mutual funds (“Underlying Funds”) may pose greater market and liquidity risks than larger, more established companies, because of limited product lines and/or operating history, limited
financial resources, limited trading markets, and the potential lack of management depth. In addition, the securities of such companies are typically more volatile than securities of larger capitalization companies.
Underlying Funds Risk
The risk associated with investing in Underlying
Funds. The Fund may invest in Underlying Funds subject to the limitations set forth in the 1940 Act. Underlying Funds typically incur fees that are separate from those fees incurred directly by the Fund; therefore, the Fund’s purchase of
Underlying Funds’ securities results in the layering of expenses. The Fund’s shareholders indirectly bear a proportionate share of the operating expenses of Underlying Funds (including advisory fees) in addition to bearing the Fund’s
expenses.
Value Investing Risk
The risk of investing in undervalued
stocks that may not realize their perceived value for extended periods of time or may never realize their perceived value. Value stocks may respond differently to market and other developments than other types of stocks. Value-oriented funds will
typically underperform when growth investing is in favor.
Note 9. Investment Transactions
Purchases & Sales of Securities
The cost of purchases and the
proceeds from sales of investments, other than short-term securities and short-term options, for the year ended September 30, 2022, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
| U.S. Government
Securities(1) |
|
|
Other
Securities |
|
| Purchases |
|
Sales |
|
|
Purchases |
|
|
Sales |
|
| $— |
|
$ |
— |
|
|
$ |
138,873,961 |
|
|
$ |
95,264,418 |
|
| (1) |
The Fund did not have any purchases or sales of U.S. Government Securities for the year ended September 30, 2022.
|
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
Note
10. Affiliated Issuers
Under Section 2 (a)(3) of the 1940 Act, as amended, a portfolio company is defined as “affiliated” if a fund owns five
percent or more of its outstanding voting securities or if the portfolio company is under common control. The table below shows affiliated issuers of the Fund as of September 30, 2022:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuer |
|
Shares/
Principal
Amount ($)
at September 30,
2021 |
|
|
Beginning
Value as of
September 30,
2021
$ |
|
|
Purchases at
Cost
$ |
|
|
Proceeds
from Sales
$ |
|
|
Distribution
to Return of
Capital
$ |
|
|
Net
Amortization
(Accretion)
of Premium/
(Discount)
$ |
|
|
Net
Realized
Gain (Loss)
on Sales of
Affiliated
Issuers
$ |
|
|
Change in
Unrealized
Appreciation
(Depreciation)
$ |
|
|
Ending Value
as of
September 30,
2022
$ |
|
|
Shares/
Principal
Amount ($)
at September 30,
2022 |
|
|
Affiliated
Income
$ |
|
|
Cap Gain
Distributions
$ |
|
| Majority Owned, Not Consolidated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Other Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Terrestar Corporation (U.S. Equity) |
|
|
169,531 |
|
|
|
57,255,705 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
3,953,462 |
|
|
|
61,209,167 |
|
|
|
169,531 |
|
|
|
— |
|
|
|
— |
|
| GAF REIT (U.S. Equity) |
|
|
963,568 |
|
|
|
12,963,362 |
|
|
|
2,315,000 |
|
|
|
— |
|
|
|
(2,513,419 |
) |
|
|
— |
|
|
|
— |
|
|
|
3,263,953 |
|
|
|
16,028,896 |
|
|
|
1,146,313 |
|
|
|
— |
|
|
|
— |
|
| NexPoint Real Estate Finance (U.S. Equity) |
|
|
644,511 |
|
|
|
12,555,074 |
|
|
|
13,367,682 |
|
|
|
— |
|
|
|
(12,295 |
) |
|
|
— |
|
|
|
— |
|
|
|
(6,101,128 |
) |
|
|
19,809,333 |
|
|
|
1,322,385 |
|
|
|
2,198,122 |
|
|
|
— |
|
| NexPoint Residential Trust, Inc. (U.S. Equity) |
|
|
164,942 |
|
|
|
10,206,611 |
|
|
|
246,651 |
|
|
|
— |
|
|
|
(215,112 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,439,750 |
) |
|
|
7,798,400 |
|
|
|
168,760 |
|
|
|
13,798 |
|
|
|
— |
|
| United Development Funding IV (U.S. Equity)† |
|
|
280,000 |
|
|
|
1,012,218 |
††† |
|
|
— |
|
|
|
— |
|
|
|
(91,000 |
) |
|
|
— |
|
|
|
— |
|
|
|
(660,818 |
) |
|
|
260,400 |
|
|
|
280,000 |
|
|
|
(23,403 |
) †† |
|
|
— |
|
| Terrestar Corporation (U.S. Senior Loan) |
|
|
17,895,565 |
|
|
|
17,895,565 |
|
|
|
2,089,742 |
|
|
|
— |
|
|
|
— |
|
|
|
859 |
|
|
|
— |
|
|
|
(131,491 |
) |
|
|
19,854,675 |
|
|
|
19,996,652 |
|
|
|
2,108,764 |
|
|
|
— |
|
| NexPoint SFR Operating Partnership, LP (U.S. Senior Loan) |
|
|
— |
|
|
|
— |
|
|
|
5,000,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
5,000,000 |
|
|
|
5,000,000 |
|
|
|
112,500 |
|
|
|
— |
|
| NHT Operating Partnership LLC Secured Promissary Note (U.S. Senior Loan) |
|
|
— |
|
|
|
— |
|
|
|
8,500,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(629,000 |
) |
|
|
7,871,000 |
|
|
|
8,500,000 |
|
|
|
284,396 |
|
|
|
— |
|
| GAF REIT Sub II, LLC (U.S. LLC Interest) |
|
|
100 |
|
|
|
4,049,578 |
|
|
|
6,972,692 |
|
|
|
— |
|
|
|
(1,396,881 |
) |
|
|
— |
|
|
|
— |
|
|
|
89,835 |
|
|
|
9,715,224 |
|
|
|
349 |
|
|
|
360 |
|
|
|
— |
|
| NREF OP I, L.P. (U.S. LLC Interest) |
|
|
124,046 |
|
|
|
2,416,416 |
|
|
|
10,921,495 |
|
|
|
(13,367,682 |
) |
|
|
— |
|
|
|
— |
|
|
|
(34,733 |
) |
|
|
64,504 |
|
|
|
— |
|
|
|
— |
|
|
|
49,618 |
|
|
|
— |
|
| SFR WLIF I, LLC (U.S. LLC Interest) |
|
|
6,773,494 |
|
|
|
6,502,737 |
|
|
|
— |
|
|
|
(6,582,888 |
) |
|
|
— |
|
|
|
— |
|
|
|
(190,606 |
) |
|
|
270,757 |
|
|
|
— |
|
|
|
— |
|
|
|
133,526 |
|
|
|
— |
|
| SFR WLIF II, LLC (U.S. LLC Interest) |
|
|
4,437,497 |
|
|
|
4,285,837 |
|
|
|
— |
|
|
|
(4,338,643 |
) |
|
|
— |
|
|
|
— |
|
|
|
(98,854 |
) |
|
|
151,660 |
|
|
|
— |
|
|
|
— |
|
|
|
88,005 |
|
|
|
— |
|
NOTES TO FINANCIAL STATEMENTS (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Issuer |
|
Shares/
Principal
Amount ($)
at September 30,
2021 |
|
|
Beginning
Value as of
September 30,
2021
$ |
|
|
Purchases at
Cost
$ |
|
|
Proceeds
from Sales
$ |
|
|
Distribution
to Return of
Capital
$ |
|
|
Net
Amortization
(Accretion)
of Premium/
(Discount)
$ |
|
|
Net
Realized
Gain (Loss)
on Sales of
Affiliated
Issuers
$ |
|
|
Change in
Unrealized
Appreciation
(Depreciation)
$ |
|
|
Ending Value
as of
September 30,
2022
$ |
|
|
Shares/
Principal
Amount ($)
at September 30,
2022 |
|
|
Affiliated
Income
$ |
|
|
Cap Gain
Distributions
$ |
|
| SFR WLIF III, LLC (U.S. LLC Interest) |
|
|
3,789,008 |
|
|
|
3,535,600 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
29,626 |
|
|
|
3,565,226 |
|
|
|
3,789,008 |
|
|
|
128,449 |
|
|
|
— |
|
| NexPoint Event Driven Fund (U.S. Registered Investment Company) |
|
|
— |
|
|
|
— |
|
|
|
11,011,080 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(565,843 |
) |
|
|
10,445,237 |
|
|
|
706,236 |
|
|
|
— |
|
|
|
— |
|
| BB Votorantim Highland Infrastructure LLC (Non-U.S. Registered
Investment Company) |
|
|
10,000 |
|
|
|
3,235,150 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
160,197 |
|
|
|
3,395,347 |
|
|
|
10,000 |
|
|
|
— |
|
|
|
— |
|
| Highland Income Fund (U.S. Registered Investment Company) |
|
|
334,005 |
|
|
|
3,597,234 |
|
|
|
— |
|
|
|
— |
|
|
|
(116,653 |
) |
|
|
— |
|
|
|
— |
|
|
|
(234,052 |
) |
|
|
3,246,529 |
|
|
|
334,005 |
|
|
|
191,968 |
|
|
|
— |
|
| NexPoint Diversified Real Estate Trust (U.S. Registered Investment Company) |
|
|
549,863 |
|
|
|
7,648,594 |
|
|
|
— |
|
|
|
— |
|
|
|
(267,653 |
) |
|
|
— |
|
|
|
— |
|
|
|
(480,160 |
) |
|
|
6,900,781 |
|
|
|
549,863 |
|
|
|
62,265 |
|
|
|
— |
|
| NexPoint Merger Arbitrage Fund (U.S. Registered Investment Company) |
|
|
585,733 |
|
|
|
12,030,966 |
|
|
|
65,216 |
|
|
|
(11,011,080 |
) |
|
|
— |
|
|
|
— |
|
|
|
353,124 |
|
|
|
(357,641 |
) |
|
|
1,080,585 |
|
|
|
54,992 |
|
|
|
56,968 |
|
|
|
50,997 |
|
| Other Controlled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| None |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Total |
|
|
36,721,863 |
|
|
|
159,190,647 |
|
|
|
60,489,558 |
|
|
|
(35,300,293 |
) |
|
|
(4,613,013 |
) |
|
|
859 |
|
|
|
28,931 |
|
|
|
(3,615,889 |
) |
|
|
176,180,800 |
|
|
|
42,028,094 |
|
|
|
5,405,336 |
|
|
|
50,997 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| † |
Determined to be affiliated during the year ended September 30, 2022. |
| †† |
The Fund’s reported affiliated income from United Development Funding IV includes a prior year return of capital
adjustment of $(91,000), resulting in the Fund reporting a negative value for income received from United Development Funding IV. Excluding the prior year adjustment, the Fund received $67,597 in dividend income from United Development Funding IV.
|
| ††† |
Beginning Value as of 9/30/2021 represents the cost at the transfer date. |
Note 11. Legal Matters
The
Fund received a shareholder demand letter dated March 1, 2018, from an individual purporting to be a shareholder of the Fund (the “Demand Letter”). The Demand Letter alleged that the current and former Board breached their fiduciary
duties, and the Investment Adviser breached its advisory agreement, in relation to the Fund’s investment in shares of an affiliated mutual fund, the Highland Energy MLP Fund (previously a series of the Trust). The Fund held $15.5 million
(or 61.5%) of the Highland Energy MLP Fund, which has now been liquidated. Upon receipt of the Demand Letter, the Board formed a Demand Review Committee (“DRC”) comprised entirely of independent trustees to investigate these claims and to
make a recommendation to the Board regarding whether pursuit of these claims is in the
best interests of the Fund. Aided by independent counsel to the committee, the DRC engaged in a thorough and detailed review of the allegations contained in the Demand Letter. Upon completion of
its evaluation, the DRC recommended that the Fund’s independent trustees, who represent a majority of the Board, reject the demand specified in the shareholder Demand Letter.
After considering the report of the DRC, the independent trustees unanimously agreed and rejected the demand, noting that the Demand Letter contained material factual
errors and incorrect assumptions, and the proposed suit was meritless and should not be pursued. A copy of the report was provided to the purported shareholder and her counsel.
NOTES TO FINANCIAL STATEMENTS (concluded)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
Notwithstanding the foregoing, the purported shareholder (the “Plaintiff”) filed a shareholder derivative and
class action lawsuit against certain members of the Board and the Investment Adviser on September 5, 2018 (the “Shareholder Litigation”). The Fund is a nominal defendant in the litigation, which is brought on behalf of the Fund. On
May 26, 2020, the Court granted a motion to dismiss for all defendants on all claims. The Court concluded that the contract and fiduciary duty claims are barred by the Board’s independent and good-faith investigation of those claims, and
that the purported class action claims can only be filed derivatively. The case is Lanotte v. Highland Global Allocation Fund et al, 3:18-cv-02360 (N.D. Tex.). The
shareholder appealed the dismissal to the United States Court of Appeals for the Fifth Circuit. Oral argument was heard on March 2, 2021. The parties are awaiting a ruling by the Fifth Circuit.
Note 12. Asset Coverage
The Fund is required to maintain 300% asset coverage
with respect to amounts outstanding (excluding short-term borrowings). Asset coverage is calculated by subtracting the Fund’s total liabilities, not including any amount representing bank loans and senior securities, from the Fund’s total
assets and dividing the result by the principal amount of the borrowings outstanding. As of the dates indicated below, the Fund’s debt outstanding and asset coverage was as follows:
|
|
|
|
|
|
|
|
|
| Date |
|
Total
Amount
Outstanding
($) |
|
|
% of Asset
Coverage of
Indebtedness |
|
| 9/30/2022 |
|
|
— |
|
|
|
— |
|
| 9/30/2021 |
|
|
— |
|
|
|
— |
|
| 9/30/2020 |
|
|
— |
|
|
|
— |
|
| 9/30/2019 |
|
|
120,295,348 |
|
|
|
346.2 |
|
| 9/30/2018 |
|
|
138,725,439 |
|
|
|
395.2 |
|
| 9/30/2017 |
|
|
— |
|
|
|
— |
|
| 9/30/2016 |
|
|
40,000,000 |
|
|
|
2,414.9 |
|
| 9/30/2015 |
|
|
— |
|
|
|
— |
|
| 9/30/2014 |
|
|
— |
|
|
|
— |
|
| 9/30/2013 |
|
|
— |
|
|
|
— |
|
Note 13. Indemnification
Under
the Fund’s organizational documents, the officers and Trustees have been granted certain indemnification rights against certain liabilities that may arise out of performance of their duties to the Fund. Additionally, in the normal course of
business, the Fund may enter into contracts with service providers that contain a variety of indemnification clauses. The Fund’s maximum exposure under these arrangements is dependent on future claims that may be made against the Fund and,
therefore, cannot be estimated.
Note 14. Subsequent Events
Management
has evaluated the impact of all subsequent events on the Fund through the date the financial statements were issued, and has determined that there was one subsequent event.
On October 21, 2022, the Board, including the Independent Trustees, approved the continuation of the investment advisory agreements between the Investment Adviser
and the Fund (the “Advisory Agreements”) for an additional one-year period commencing on November 1, 2022. A discussion regarding the factors considered by the Board in approving the Agreements
will be included in the Fund’s semi-annual report for the period ended March 31, 2023.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Shareholders and Board of Trustees of
Highland Global Allocation Fund
Opinion on the Financial Statements
We have audited the accompanying
statement of assets and liabilities, including the investment portfolio, of Highland Global Allocation Fund (the “Fund”) as of September 30, 2022, the related statements of operations and cash flows for the year then ended, the
statements of changes in net assets for each of the two years in the period then ended, the related notes, and the financial highlights for each of the three years in the period then ended (collectively referred to as the
“financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Fund as of September 30, 2022, the results of its operations and its cash flows for
the year then ended, the changes in net assets for each of the two years in the period then ended, and the financial highlights for each of the three years in the period then ended, in conformity with accounting principles generally
accepted in the United States of America.
The Fund’s financial highlights for the years ended September 30, 2019, and prior, were audited by
other auditors whose report dated November 27, 2019, expressed an unqualified opinion on those financial highlights.
Basis for Opinion
These financial statements are the responsibility of the Fund’s management. Our responsibility is to express an opinion on the Fund’s financial statements
based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Fund in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with
the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement whether due to error or fraud.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing
procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our procedures included confirmation of securities owned as of September 30,
2022, by correspondence with the custodian, transfer agent, issuer, agent banks, and brokers. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
We have served as the Fund’s auditor since
2020.
COHEN & COMPANY , LTD .
Cleveland, Ohio
November 29, 2022
ADDITIONAL INFORMATION (unaudited)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
Investment Objective and Strategy Overview
The Fund’s investment objective is to seek long-term growth of capital and future income (future income means the ability to pay dividends in the future). Please
refer to Note 8 for a discussion of the Fund’s current investment risks.
The Fund seeks to achieve its investment objectives by investing in a portfolio of
U.S. and foreign equity, debt and money market securities. Under normal market conditions, the Fund intends to invest at least 50% of its net assets in equity securities and at least 40% (plus any borrowings for investment purposes) of its net
assets in securities of non-U.S. issuers. The Fund intends to invest approximately 40% or more of its net assets in securities of non-U.S. issuers at all times, however,
in the event of unfavorable market conditions the Fund may invest less than 40% (but not less than 30%) of its assets in securities of non-U.S. issuers. For purposes of determining whether securities held by
the Fund are securities of a non-U.S. issuer, 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.
Equity securities in which the Fund may invest include common stock, preferred stock, securities convertible into common stock, rights
and warrants or securities or other instruments whose price is linked to the value of common stock. The equity securities in which the Fund invests may be of any capitalization, may be denominated in any currency and may be located in emerging
markets.
The Fund may also invest in debt securities of any kind, including debt securities of varying maturities, debt securities paying a fixed or fluctuating
rate of interest, inflation-indexed bonds, structured notes, loan assignments, loan participations, asset-backed securities, debt securities convertible into equity securities, and securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities, by foreign governments or international agencies or supranational entities or by domestic or foreign private issuers. The Fund may invest in debt securities of any credit quality, including below investment grade
securities (also known as “high yield securities” or “junk securities”). Such securities are rated below investment grade by a nationally recognized statistical rating organization (“NRSRO”) or are unrated but deemed by
the Investment Adviser to be of comparable quality. The Fund may invest without limitation in below investment grade or unrated securities, including in insolvent borrowers or borrowers in default.
The Fund may also invest in senior loans to domestic or foreign corporations, partnerships and other entities that
operate in a variety of industries and geographic regions (“Borrowers”) (“Senior Loans”). Senior Loans are business loans that have a right to payment senior to most other
debts of the Borrower.
The Fund invests primarily in companies that the portfolio manager believes have solid growth prospectus and/or attractive valuations. The
portfolio manager’s value management style employs a relative approach to identify companies across all economic sectors and geographic regions that are undervalued relative to the market, their peers, their historical valuation or their growth
rate. In addition, the Fund’s portfolio manager may employ event-driven investment strategies that analyze transactions in order to predict a likely outcome and invest the Fund’s assets in a way that seeks to benefit from that outcome.
When choosing investment markets, Fund management considers various factors, including economic and political conditions, potential for economic growth and possible
changes in currency exchange rates. In addition to investing in securities of non-U.S. issuers, the Fund actively manages its exposure to foreign currencies through the use of forward currency contracts and
other currency derivatives. The Fund may own foreign cash equivalents or foreign bank deposits as part of the Fund’s investment strategy. The Fund may also invest in non-U.S. currencies for hedging and
speculative purposes.
The Fund’s portfolio may include pooled investment vehicles, including exchange-traded funds (“ETFs”), that provide exposure to
foreign equity securities and that invest in both developed and emerging markets, including ETFs that seek to track the performance of securities of a single country. The Fund may invest up to 5% of its net assets in warrants and may also use
derivatives, primarily swaps (including equity, variance and volatility swaps), options and futures contracts on securities, interest rates, commodities and/or currencies, as substitutes for direct investments the Fund can make and, to the extent
permitted by the 1940 Act, to hedge various investments for risk management and speculative purposes.
The Fund will limit its investments in pooled investment
vehicles that are excluded from the definition of “investment company” under the 1940 Act by Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, such as private equity funds and hedge funds, to no more than 15% of its net assets.
This limitation does not apply to any collateralized loan obligations, collateralized debt obligations and/or collateralized mortgage obligations, certain of which may rely on Section 3(c)(1) or 3(c)(7) of the 1940 Act.
The Fund seeks to provide exposure to the investment returns of real assets that trade in the commodity markets, including through investment in certain commodity-linked
ADDITIONAL INFORMATION (unaudited) (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
instruments and pooled investment vehicles, such as master limited partnership (“MLP”) investments that 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, in addition to exchange-traded notes and ETFs that generate returns tied
to a particular commodity or commodity market index.
Except as otherwise expressly noted in the Statement of Additional Information (“SAI”), all
percentage limitations and ratings criteria apply at the time of purchase of securities, except that the limit on borrowing described herein is applied on a continual basis.
The Fund may borrow an amount up to 33 1/3% of its total assets (including the amount borrowed). The Fund may borrow for investment purposes and for temporary,
extraordinary or emergency purposes. To the extent the Fund borrows more money than it has cash or short-term cash equivalents and invests the proceeds, the Fund will create financial leverage. The use of borrowing for investment purposes increases
both investment opportunity and investment risk.
The Fund’s portfolio manager may sell a security for a variety of reasons, such as to invest in a company
offering or superior investment opportunities.
The portfolio manager may sell short securities of a company that it believes: (i) is overvalued relative to
normalized business and industry fundamentals or to the expected growth that the portfolio manager believes the company will achieve; (ii) has a weak competitive position relative to peers; (iii) engages in questionable accounting
practices; (iv) shows declining cash flow and/or liquidity; (v) has distribution estimates that the portfolio manager believes are too high; (vi) has weak competitive barriers to entry; (vii) suffers from deteriorating industry
and/or business fundamentals; (viii) has a weak management team; (ix) will see multiple contraction; (x) is not adapting to changes in technological, regulatory or competitive environments; or (xi) provides a hedge against the
Fund’s long exposure, such as a broad based market ETF. Technical analysis may be used to help in the decision making process. The Fund may engage in short sales that are not made
“against-the-box,” which means that the Fund may sell short securities even when they are not actually owned or offset at all times during the period the short
position is open and could result in unlimited loss.
Tax Information
For shareholders that do not have a September 30, 2022 tax year end, this notice is for informational purposes only. For shareholders with a September 30, 2022
tax year end, please
consult your tax adviser as to the pertinence of this notice. For the fiscal year ended September 30, 2022, the Fund is designating the following items with regard to earnings for the year.
|
|
|
|
|
|
|
Return of
Capital |
|
Long-Term
Capital Gain
Distribution |
|
Ordinary
Income
Distribution |
|
Total
Distribution |
| 65.15% |
|
0.00% |
|
34.85% |
|
100.00% |
|
|
|
|
|
|
|
|
|
Dividends
Received
Deduction(1) |
|
Qualified
Dividend
Income(2) |
|
Interest
Related
Dividends(3) |
|
Short-Term
Capital
Gain
Dividends(4) |
|
Qualifying
Business
Income(5)
|
| 30.15% |
|
32.31% |
|
20.95% |
|
0.00% |
|
12.11% |
| (1) |
Qualifying dividends represent dividends which qualify for the corporate dividends received deduction and is reflected as
a percentage of ordinary income distributions (the total of short-term capital gain and net investment income distributions). |
| (2) |
The percentage in this column represents the amount of “Qualifying Dividend Income” as created by the Jobs and
Growth Tax Relief Reconciliation Act of 2003 and is reflected as a percentage of ordinary income distributions (the total of short-term capital gain and net investment income distributions). It is the intention of the Fund to designate the maximum
amount permitted by law. |
| (3) |
The percentage in this column represents the amount of “Interest Related Dividends” as created by the American
Jobs Creation Act of 2004 and is reflected as a percentage of net investment distributions that is exempt from U.S. withholding tax when paid to foreign investors. |
| (4) |
The percentage in this column represents the amount of “Short-Term Capital Gain Dividend” as created by the
American Jobs Creation Act of 2004 and is reflected as a percentage of short-term capital gain distributions that is exempt from U.S. withholding tax when paid to foreign investors. |
| (5) |
The percentage of this column represents that amount of ordinary dividend income that qualified for 20% Business Income
Deduction. |
Additional Portfolio Information
The
Investment Adviser and its affiliates manage other accounts, including registered and private funds and individual accounts. Although investment decisions for the Fund are made independently from those of such other accounts, the Investment Adviser
may, consistent with applicable law, make investment recommendations to other clients or accounts that may be the same or different from those made to the Fund, including investments in different levels of the capital structure of a company, such as
equity versus senior loans, or that involve taking contradictory positions in multiple levels of the capital structure. The Investment Adviser has adopted policies and procedures that address the allocation of investment opportunities, execution of
portfolio transactions, personal trading by employees and other potential conflicts of interest that are designed to ensure that all client accounts are treated equitably over time. Nevertheless, this may create situations where a client could be
disadvantaged because of the investment activities conducted by the Investment Adviser for other client accounts. When the Fund and one or more of such other accounts is prepared to invest in, or desire to dispose of, the same security, available
investments or opportunities for each will be allocated in a manner believed
ADDITIONAL INFORMATION (unaudited) (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
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.
Disclosure of Fund Expenses
As a shareholder of a Fund, you incur two types of costs: (1) transaction costs, including sales charges (loads) on purchases and redemption fees; and
(2) ongoing costs, including management fees; distribution (12b-1) and service fees; and other Fund expenses. This example is intended to help you understand the ongoing costs (in dollars) of investing in
your Fund and to compare these costs with the ongoing costs of investing in other mutual funds. The example is based on an investment of $1,000 invested at the beginning of the period and held for the
six-month period April 1, 2022 through September 30, 2022, unless otherwise indicated. This table illustrates your Fund’s costs in two ways:
Actual Expenses: The first part of the table provides information about actual account values and actual expenses. You may use the information in this line,
together with the amount you invested, to estimate the expenses that you paid over the period. Simply divide your account value by $1,000 (for example, an $8,600 account value divided by $1,000 = 8.6), then multiply the result by the number in the
first line under the heading entitled “Expenses Paid During Period” to estimate the expenses you paid on your account during this period.
Hypothetical
Example for Comparison Purposes: The second part of the table provides information about hypothetical account values and hypothetical expenses based on your Fund’s actual expense ratio and an assumed rate of return of 5% per year before
expenses, which is not your Fund’s actual return. The actual expense ratio includes voluntary fee waivers or expense reimbursements by the Fund’s investment adviser. The expense ratio would be higher had the fee waivers or expense
reimbursements not been in effect. The hypothetical account values and expenses may not be used to estimate the actual ending account balance or expenses you paid for the period. You may use this information to compare the ongoing costs of investing
in your Fund and other funds. To do so, compare this 5% hypothetical example with the 5% hypothetical examples that appear in the shareholder reports of the other funds. Please note that the expenses shown in the table are meant to highlight your
ongoing costs only and do not reflect any transactional costs,
such as sales charges (loads) or redemption fees. Therefore, the second part of the table is useful in comparing ongoing costs only, and will not help you determine the relative total costs of
owning different funds. In addition, if these transactional costs were included, your costs would have been higher.
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Beginning
Account
Value
04/1/22
($) |
|
Ending
Account
Value
09/30/22
($) |
|
Annualized
Expense
Ratios |
|
|
Expenses
Paid
During
Period(1)
($) |
|
| Actual Fund Return |
|
|
|
|
|
|
|
|
|
|
1,000.00 |
|
945.50 |
|
|
1.08% |
|
|
|
5.27 |
|
| Hypothetical 5% Return (before expenses) |
|
|
|
1,000.00 |
|
1,019.65 |
|
|
1.08% |
|
|
|
5.47 |
|
| (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 (183/365). |
Dividend Reinvestment Plan
Unless the registered owner of Common Shares
elects to receive cash by contacting Global Shares (“Global Shares” or the “Plan Agent”), as agent for shareholders in administering the Plan, a registered owner will receive newly issued Common Shares for all dividends declared
for Common Shares of the Fund. If a registered owner of Common Shares elects not to participate in the Plan, they will receive all dividends in cash paid by check mailed directly to them (or, if the shares are held in street or other nominee name,
then to such nominee) by Global Shares, as dividend disbursing agent. Shareholders may elect not to participate in the Plan and to receive all dividends in cash by sending written instructions or by contacting Global Shares, as dividend disbursing
agent, at the address set forth below. Participation in the Plan is completely voluntary and may be terminated or resumed at any time without penalty by contacting the Plan Agent before the dividend record date; otherwise such termination or
resumption will be effective with respect to any subsequently declared dividend. Some brokers may automatically elect to receive cash on the shareholders’ behalf and may reinvest that cash in additional Common Shares of the Fund for them. The
Plan Agent will open an account for each shareholder under the Plan in the same name in which such shareholder’s Common Shares are registered. Whenever the Fund declares a dividend payable in cash,
non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Agent through receipt of additional
unissued but authorized Common Shares from the Fund (“newly issued Common Shares”). The number of newly issued Common Shares to be credited to each participant’s account will be determined by dividing the dollar amount of the dividend
by
ADDITIONAL INFORMATION (unaudited) (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
the lesser of (i) the net asset value per Common Share determined on the Declaration Date and (ii) the market price per Common Share as of the close of regular trading on the New York
Stock Exchange (the “NYSE”) on the Declaration Date. The Plan Agent maintains all shareholders’ accounts in the Plan and furnishes written confirmation of all transactions in the accounts, including information needed by shareholders
for tax records. Common Shares in the account of each Plan participant will be held by the Plan Agent on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or received pursuant to the Plan. The Plan Agent
will forward all proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instructions of the participants. In the case of shareholders such as banks, brokers or nominees which hold shares
for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of Common Shares certified from time to time by the record shareholder’s name and held for the account of beneficial owners who
participate in the Plan. There will be no brokerage charges with respect to Common Shares issued directly by the Fund. The automatic reinvestment of dividends will not relieve participants of any federal, state or local income tax that may be
payable (or required to be withheld) on such dividends. Accordingly, any taxable dividend received by a participant that is reinvested in additional Common Shares will be subject to federal (and possibly state and local) income tax even though such
participant will not receive a corresponding amount of cash with which to pay such taxes. Participants who request a sale of shares through the Plan Agent are subject to a $2.50 sales fee and pay a brokerage commission of $0.05 per share sold. The
Fund reserves the right to amend or terminate the Plan. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. All correspondence
concerning the Plan should be directed to the Plan Agent.
Amendments to the Fund’s Declaration of Trust
On October 15, 2019, the Board of Trustees of the Fund adopted “supermajority” amendments to the Fund’s Declaration of Trust to give Fund
shareholders added protections against unwanted transactions and other actions by and with activist investors. Under the terms of these amendments, certain actions undertaken by “principal shareholders” (i.e., shareholders owning more than
5% of the Fund’s shares) would require the affirmative vote or consent of 75% of each Class of the Fund’s outstanding shares. Actions covered by these supermajority requirements include: (a) the merger or consolidation of the
Fund or any subsidiary of the Fund with or into any principal shareholder; (b) the issuance of any Fund shares to any principal
shareholder for cash; (c) the sale, lease or exchange of all or any substantial part of the assets of the Fund to any principal shareholder; (d) the sale, lease or exchange to or with
the Fund or any subsidiary thereof, in exchange for shares of the Fund, of any assets of any principal shareholder; and (e) the conversion of the Fund from a “closed-end company” to an “open-end company” as those terms are defined in the Investment Company Act of 1940.
On August 13, 2020, the Board
of Trustees of the Fund adopted “control shares” amendments to the Fund’s Declaration of Trust to give Fund shareholders additional protections against unwanted takeover and other actions by activist investors. Under the terms of
these amendments, holders of “control shares” of the Fund have no voting rights with respect to such control shares except to the extent approved by two-thirds of the Fund’s other shareholders.
“Control shares” are defined as Fund shares that would, if aggregated with the other Fund shares held by the same shareholder, enable the shareholder to exercise voting power within any of the following ranges of voting power: (a) one-tenth or more, but less than one-third of all voting power; (b) one-third or more, but less than a majority of all
voting power; or (c) a majority of all voting power.
Control Persons and Principal Shareholders
As of September 30, 2022, the Trustees and officers of the Fund as a group owned less than 1% of the then outstanding shares of each class of shares of the Fund.
Control persons are presumed to control a Fund for purposes of voting on matters submitted to a vote of shareholders due to their beneficial ownership of 25% or
more of a Fund’s outstanding voting securities. Unless otherwise noted, as of September 30, 2022, no persons known by the Fund owned 25% or more of Fund’s outstanding shares.
A person who beneficially owns, either directly or indirectly, more than 25% of the voting securities of the Fund or acknowledges the existence of such control may be
presumed to control the Fund. A control person could potentially control the outcome of any proposal submitted to the shareholders for approval, including changes to the Fund’s fundamental policies or terms of the investment advisory agreement
with the Investment Adviser.
Submission of Proposal to a Vote of Shareholders
The annual meeting of shareholders of the Fund was held on June 14, 2022. The following is a summary of the proposal submitted to shareholders for a vote at the
meeting and the votes cast.
ADDITIONAL INFORMATION (unaudited) (continued)
|
|
|
|
|
| September 30, 2022 |
|
Highland Global Allocation Fund |
Proposal
To elect each of Ethan
Powell and Bryan A. Ward as a Class I Trustee of the Trust, to serve for a three-year term expiring at the 2025 Annual Meeting or until his successor is duly elected and qualifies, by the holders of the Fund’s Common Shares.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Nominee/Trustee |
|
Number of
Common
Shares
Votes |
|
Percentage of
Outstanding
Common
Shares |
|
Percentage of
Common
Shares
Voted |
| Ethan Powell |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For |
|
|
|
14,345,530.707 |
|
|
|
|
64.652 |
% |
|
|
|
96.443 |
% |
| Withheld |
|
|
|
529,051.736 |
|
|
|
|
2.384 |
% |
|
|
|
3.557 |
% |
|
|
|
|
| Bryan A. Ward |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For |
|
|
|
14,359,276.464 |
|
|
|
|
64.714 |
% |
|
|
|
96.536 |
% |
| Withheld |
|
|
|
515,305.979 |
|
|
|
|
2.322 |
% |
|
|
|
3.464 |
% |
ADDITIONAL INFORMATION (unaudited) (continued)
|
|
|
|
|
| September 30, 2022 Trustees
and Officers |
|
Highland Global Allocation Fund |
The Board provides broad oversight of the operations and affairs of the Funds and protects the interests of shareholders. The Board has overall responsibility to manage
and control the business affairs of the Funds, including the complete and exclusive authority to establish policies regarding the management, conduct and operation of the Funds’ business. The names and birth dates of the Trustees and officers
of the Funds, the year each was first elected or appointed to office, their principal business occupations during the last five years, the number of funds overseen by each Trustee and other directorships they hold are shown below. The business
address for each Trustee and officer of the Funds is c/o NexPoint Asset Management, L.P., 300 Crescent Court, Suite 700, Dallas, Texas 75201.
The “NexPoint
Fund Complex,” as referred to herein consists of: each series of NexPoint Funds I (“NFI”), each series of NexPoint Funds II (“NFII”), Highland Global Allocation Fund (“GAF”), Highland Income Fund
(“HFRO”), NexPoint Real Estate Strategies Fund (“NRESF”) and NexPoint Capital, Inc. (the “BDC”), a closed-end management investment company that has elected to be treated as a
business development company under the 1940 Act.
ADDITIONAL INFORMATION (unaudited) (continued)
|
|
|
|
|
| September 30, 2022 Trustees and Officers |
|
Highland Global Allocation Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and
Date of Birth |
|
Position(s)
with the
Fund |
|
Term of
Office1
and
Length of
Time Served |
|
Principal Occupation(s)
During Past Five Years |
|
Number of
Portfolios in the
NexPoint
Fund
Complex
Overseen
by
the
Trustee |
|
Other
Directorships/
Trusteeships
Held During the Past
Five Years |
|
Experience,
Qualifications,
Attributes, Skills for
Board Membership |
|
| Independent Trustees |
|
|
|
|
|
|
|
| Dr. Bob Froehlich (4/28/1953) |
|
Trustee |
|
Trustee since December 2013; 3 year term (expiring at 2023 annual meeting). |
|
Retired. |
|
8 |
|
Director of KC Concessions, Inc. (since January 2013); Director of American Sports Enterprise, Inc. (since January 2013); Chairman and owner, Kane County Cougars Baseball Club (since January 2013);
Director of AXAR Acquisition Corp. (formerly AR Capital Acquisition Corp.) (from October 2014 to October 2017); Director of The Midwest League of Professional Baseball Clubs, Inc.; Director of
Kane County Cougars Foundation, Inc.; Director of Galen Robotics, Inc.; Chairman and Director of FC Global Realty, Inc. (from May 2017 to June 2018); Chairman; Director of First Capital Investment Corp. (from March 2017 to March 2018); and Director
and Special Advisor to Vault Data, LLC (since February 2018). |
|
Significant experience in the financial industry; significant managerial and executive experience; significant experience on other boards of directors, including as a member of several audit
committees. |
ADDITIONAL INFORMATION (unaudited) (continued)
|
|
|
|
|
| September 30, 2022 Trustees and Officers |
|
Highland Global Allocation Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and
Date of Birth |
|
Position(s)
with the
Fund |
|
Term of
Office1
and
Length of
Time Served |
|
Principal Occupation(s)
During Past Five Years |
|
Number of
Portfolios in the
NexPoint
Fund
Complex
Overseen
by
the
Trustee |
|
Other
Directorships/
Trusteeships
Held During the Past
Five Years |
|
Experience,
Qualifications,
Attributes, Skills for
Board Membership |
|
| Independent Trustees |
|
|
|
|
|
|
|
| Ethan Powell (6/20/1975) |
|
Trustee; Chairman of the Board |
|
Trustee since December 2013; Chairman of the Board since December 2013; 3 year term (expiring at 2025 annual meeting). |
|
Principal and CIO of Brookmont Capital Management, LLCsince May 2020; CEO, Chairman and Founder of Impact Shares LLC since December 2015; Trustee/ Director of the NexPoint Fund Complex from June 2012 until July
2013 and since December 2013; and Director of Kelly Strategic Management since August 2021. |
|
8 |
|
Trustee of Impact Shares Funds I Trust |
|
Significant experience in the financial industry; significant executive experience including past service as an officer of funds in the NexPoint Fund Complex; significant administrative and
managerial experience. |
|
|
|
|
|
|
|
| Bryan A. Ward (2/4/1955) |
|
Trustee |
|
Trustee since inception in 2006; 3 year term (expiring at 2025 annual meeting). |
|
President, CrossFirst Bank Dallas since March 2021; Senior Advisor, CrossFirst Bank (from April 2019 to March 2021); Private Investor since 2015. |
|
8 |
|
Director of Equity Metrix, LLC |
|
Significant experience on this and/or other boards of directors/trustees; significant managerial and executive experience; significant experience as a management
consultant. |
ADDITIONAL INFORMATION (unaudited) (continued)
|
|
|
|
|
| September 30, 2022 Trustees and Officers |
|
Highland Global Allocation Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and
Date of Birth |
|
Position(s)
with the
Fund |
|
Term of
Office1
and
Length of
Time Served |
|
Principal Occupation(s)
During Past Five Years |
|
Number of
Portfolios in the
NexPoint
Fund
Complex
Overseen
by
the
Trustee |
|
Other
Directorships/
Trusteeships
Held During the Past
Five Years |
|
Experience,
Qualifications,
Attributes, Skills for
Board Membership |
|
| Independent Trustees |
|
|
|
|
|
|
|
| Pamela Corrie (1/1/1958) |
|
Trustee |
|
Trustee since January 2022; 3 year term (expiring at 2024 annual meeting). |
|
Managing Director of Carl Marks Advisors since February 2018; Vice President of Strategic Planning of BVS Acquisition Co.LLC (from September 2020 to December 2021); Independent Manager of YouFit Health Clubs (from
May 2020 to October 2021); Chief Restructuring Officer of ABC Carpet and Home (from June 2017 to May 2019). |
|
8 |
|
Director of Prescient Co Inc. since November 2021; Director of AM Castle since February 2021; Director of Katerra, Inc. (from September 2020 to October 2021); Director of Le Tote/Lord &
Taylor (from March 2020 to March 2021); Director of Tempel Steel Company (from June 2020 to February 2021); Director of Pier 1 Imports, Inc. (from January 2020 to October 2020); Director of Sustainable Restaurant Group (from April 2020 to September
2020); and Director of Tristrata Group (from May 2019 to July 2019). |
|
Significant experience on other boards of directors; significant managerial and executive experience; significant legal and restructuring experience. |
|
|
|
|
|
|
|
| Dorri McWhorter (6/30/1973) |
|
Trustee |
|
Trustee since May 2022; 3 year term (expiring at 2023 annual meeting). |
|
President & CEO, YMCA of Metropolitan Chicago (2021-Present); Chief Executive Officer, YWCA Metropolitan Chicago (2013- 2021). |
|
8 |
|
Board Director of William Blair Funds (since 2019); Board Director of Skyway Concession Company, LLC (since 2018); Board Director of Illinois CPA Society (2017-2022); Board Director of Lifeway Foods,
Inc. (since 2020); Board Director of Green Thumb Industries, Inc. since 2022); Member of Financial Accounting Standards Advisory Council (since 2021). |
|
Significant managerial and executive experience, including experience as president and chief executive officer; significant background and experience in financial accounting; significant experience
on other boards of directors, including for other registered investment companies. |
ADDITIONAL INFORMATION (unaudited) (continued)
|
|
|
|
|
| September 30, 2022 Trustees and Officers |
|
Highland Global Allocation Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
Name and
Date of Birth |
|
Position(s)
with the
Fund |
|
Term of
Office1
and
Length of
Time Served |
|
Principal Occupation(s)
During Past Five Years |
|
Number of
Portfolios in the
NexPoint
Fund
Complex
Overseen
by
the
Trustee |
|
Other
Directorships/
Trusteeships
Held During the Past
Five Years |
|
Experience,
Qualifications,
Attributes, Skills for
Board Membership |
|
| Interested Trustee |
|
|
|
|
|
|
|
| John Honis (6/16/1958) |
|
Trustee |
|
Trustee since July 2013; 3 year term (expiring at 2024 annual meeting). |
|
President of Rand Advisors, LLC since August 2013. |
|
8 |
|
Manager of Turtle Bay Resort, LLC (August 2011 -December 2018) |
|
Significant experience in the financial industry; significant managerial and executive experience, including experience as president, chief executive officer or chief restructuring officer of five
telecommunication firms; experience on other boards of directors. |
| 1 |
On an annual basis, as a matter of Board policy, the Governance and Compliance Committee reviews each Trustee’s
performance and determines whether to extend each such Trustee’s service for another year. The Board adopted a retirement policy wherein the Governance and Compliance Committee shall not recommend the continued service as a Trustee of a Board
member who is older than 80 years of age at the time the Governance and Compliance Committee reports its findings to the Board. |
|
|
|
|
|
|
|
Name and
Date of Birth |
|
Position(s)
with the Fund |
|
Term of
Office and
Length of
Time Served |
|
Principal Occupation(s) During Past Five Years |
|
| Officers |
|
|
|
|
| Dustin Norris (1/6/1984) |
|
Executive Vice President |
|
Indefinite Term; Executive Vice President since April 2019. |
|
Head of Distribution and Chief Product Strategist at NexPoint since March 2019; President of NexPoint Securities, Inc. since April 2018; Head of Distribution at NexPoint from November 2017 until March 2019; Chief
Product Strategist at NexPoint from September 2015 to March 2019; Officer of the NexPoint Fund Complex since November 2012. |
ADDITIONAL INFORMATION (unaudited) (concluded)
|
|
|
|
|
| September 30, 2022 Trustees and Officers |
|
Highland Global Allocation Fund |
|
|
|
|
|
|
|
Name and
Date of Birth |
|
Position(s)
with the Fund |
|
Term of
Office and
Length of
Time Served |
|
Principal Occupation(s) During Past Five Years |
|
| Officers |
|
|
|
|
| Frank Waterhouse (4/14/1971) |
|
Treasurer, Principal Accounting Officer, Principal Financial Officer and Principal Executive Officer |
|
Indefinite Term; Treasurer since May 2015; Principal Accounting Officer since October 2017; Principal Executive Officer and Principal Financial Officer since April 2021. |
|
Chief Financial Officer of Skyview Group since February 2021; Chief Financial Officer and Partner of Highland Capital Management, L.P. (“HCMLP”) from December 2011 and March 2015, respectively, to
February 2021; Treasurer of the NexPoint Fund Complex since May 2015; Principal Financial Officer October 2017 to February 2021; Principal Executive Officer February 2018 to February 2021. |
|
|
|
|
| Will Mabry (7/2/1986) |
|
Assistant Treasurer |
|
Indefinite Term; Assistant Treasurer since April 2021. |
|
Director, Fund Analysis of Skyview Group since February 2021. Prior to his current role at Skyview Group, Mr. Mabry served as Senior Manager – Fund Analysis, Manager – Fund Analysis, and Senior Fund
Analyst for HCMLP. |
|
|
|
|
| Stephanie Vitiello (6/21/1983) |
|
Secretary |
|
Indefinite Term; Secretary since November 2021. |
|
Chief Compliance Officer, Anti-Money Laundering Officer and Counsel of Skyview Group since February 2021. Prior to her current role at Skyview Group, Ms. Vitiello served as Managing Director – Distressed,
Assistant General Counsel, Associate General Counsel and In- House Counsel for HCMLP. |
|
|
|
|
| Rahim Ibraham (8/17/1989) |
|
Assistant Secretary |
|
Indefinite Term; Assistant Secretary since November 2021. |
|
Counsel and Compliance Manager at Skyview Group since March 2022. Prior to his current role at Skyview Group, Mr. Ibrahim served as a Compliance Analyst for Skyview Group from May 2021 to March 2022;
Compliance Associate for Loring, Wolcott & Coolidge Trust, LLC from October 2019 until May 2021; Corporate Paralegal at Maples Group from April 2018 to October 2019; Associate Engagement Specialist-Compliance at Eze Software Group from June
2017 to April 2018. |
IMPORTANT INFORMATION ABOUT THIS REPORT
Investment Adviser
NexPoint
Asset Management, L.P.
300 Crescent Court, Suite 700
Dallas, TX 75201
Transfer Agent
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Underwriter
NexPoint Securities, Inc.
200 Crescent Court, Suite 700
Dallas, TX 75201
Custodian
Bank of New York Mellon
240 Greenwich Street
New York, NY 10286
Independent Registered Public Accounting Firm
Cohen & Company, Ltd.
1350 Euclid Ave., Suite 800
Cleveland, OH 44115
Fund Counsel
K&L Gates LLP
1 Lincoln Street
Boston, MA 02111
This report has been prepared for shareholders of Highland Global Allocation Fund (the “Fund”). As of
January 1, 2021, paper copies of the Fund’s shareholder reports will no longer be sent by mail. Instead, the reports will be made available on https://www.nexpointassetmgmt.com/resources/#forms, and you will be notified and provided with a
link each time a report is posted to the website. You may request to receive paper reports from the Fund or from your financial intermediary free of charge at any time. For additional information regarding how to access the Fund’s shareholder
reports, or to request paper copies by mail, please call shareholder services at 1-877-665-1287.
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 schedules of portfolio holdings with the Securities and Exchange Commission for the first and third quarters of each fiscal year as an exhibit to its report on Form N-PORT within sixty
days after the end of the period. The Fund’s Form N-PORT 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-PORT by visiting the Fund’s website at www. nexpointassetmgmt.com.
The Statement of Additional
Information includes additional information about the Fund’s Trustees and are available upon request without charge by calling
1-877-665-1287.
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
|
|
|
| Highland Global Allocation Fund |
|
Annual Report, September 30, 2022 |
|
|
|
| www.nexpointassetmgmt.com |
|
GAF-AR-09/22 |