Purchased Option contracts outstanding as of September 30, 2019 were as follows:
Written Option contracts outstanding as of September 30, 2019 were as follows:
INVESTMENT PORTFOLIO (unaudited)
|
|
|
As of September 30, 2019
|
|
NexPoint Strategic Opportunities Fund
|
Reverse Repurchase Agreements outstanding as of September 30, 2019 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counterparty
|
|
Collateral Pledged
|
|
Interest Rate
|
|
|
Trade
Date
|
|
|
Maturity
Date
|
|
|
Repurchase
Amount
|
|
|
Principal Amount
|
|
|
Value
|
|
BNP
|
|
Acis CLO, Ltd., Series 2014-3A, Class E, VAR 3M USD LIBOR+4.750%, 7.33%, 2/1/2026
|
|
|
3.75
|
|
|
|
7/17/2019
|
|
|
|
10/15/2019
|
|
|
$
|
3,449,031
|
|
|
|
6,000,000
|
|
|
|
(3,417,000
|
)
|
BNP
|
|
Acis CLO, Ltd., Series 2014-3A, Class F, VAR ICE LIBOR USD 3 Month+5.600%, 8.18%, 2/1/2026
|
|
|
3.95
|
|
|
|
7/17/2019
|
|
|
|
10/15/2019
|
|
|
$
|
2,063,678
|
|
|
|
5,000,000
|
|
|
|
(2,043,500
|
)
|
BNP
|
|
Argentine Republic Government International Bond, 3.75%, 12/31/38
|
|
|
3.05
|
|
|
|
7/17/2015
|
|
|
|
10/15/2015
|
|
|
$
|
6,934,034
|
|
|
|
15,202,972
|
|
|
|
(6,881,563
|
)
|
BNP
|
|
Argentine Republic Government International Bond, 3.75%, 12/31/38
|
|
|
3.05
|
|
|
|
7/17/2015
|
|
|
|
10/15/2015
|
|
|
$
|
2,046,109
|
|
|
|
4,486,123
|
|
|
|
(2,030,625
|
)
|
BNP
|
|
Argentine Republic Government International Bond, 3.75%, 12/31/38
|
|
|
3.05
|
|
|
|
7/11/2019
|
|
|
|
10/9/2019
|
|
|
$
|
3,740,808
|
|
|
|
8,310,906
|
|
|
|
(3,712,500
|
)
|
BNP
|
|
Argentine Republic Government International Bond, 5.88%, 01/11/28
|
|
|
3.05
|
|
|
|
7/17/2019
|
|
|
|
10/15/2019
|
|
|
$
|
2,404,697
|
|
|
|
3,700,000
|
|
|
|
(2,386,500
|
)
|
BNP
|
|
Argentine Republic Government International Bond, 6.88%, 01/11/48
|
|
|
3.05
|
|
|
|
7/17/2019
|
|
|
|
10/15/2019
|
|
|
$
|
2,884,327
|
|
|
|
5,000,000
|
|
|
|
(2,862,500
|
)
|
Mizuho
|
|
FREMF Mortgage Trust, Series 2018- KC02, Class C, 0.00%, 8/25/2025
|
|
|
3.56
|
|
|
|
7/27/2019
|
|
|
|
10/25/2019
|
|
|
$
|
33,610,098
|
|
|
|
76,080,350
|
|
|
|
(33,313,607
|
)
|
Mizuho
|
|
FREMF Mortgage Trust, Series 2018-K80, Class D, 0.00%, 8/25/2028
|
|
|
3.56
|
|
|
|
7/27/2019
|
|
|
|
10/25/2019
|
|
|
$
|
32,129,648
|
|
|
|
96,460,500
|
|
|
|
(31,846,217
|
)
|
Mizuho
|
|
FREMF Mortgage Trust, Series 2018-K80, Class X2A, 0.10%, 8/25/2050
|
|
|
3.56
|
|
|
|
7/27/2019
|
|
|
|
10/25/2019
|
|
|
$
|
5,141,806
|
|
|
|
1,039,727,416
|
|
|
|
(5,096,448
|
)
|
Mizuho
|
|
FREMF Mortgage Trust, Series 2018- KC02, Class X2A, 0.10%, 7/25/2025
|
|
|
3.56
|
|
|
|
7/27/2019
|
|
|
|
10/25/2019
|
|
|
$
|
3,531,543
|
|
|
|
911,617,875
|
|
|
|
(3,500,390
|
)
|
Mizuho
|
|
FREMF Mortgage Trust, Series 2018-K80, Class X2B, 0.10%, 8/25/2050
|
|
|
3.56
|
|
|
|
7/27/2019
|
|
|
|
10/25/2019
|
|
|
$
|
1,240,444
|
|
|
|
244,366,905
|
|
|
|
(1,229,502
|
)
|
Mizuho
|
|
FREMF Mortgage Trust, Series 2018- KC02, Class X2B, 0.10%, 8/25/2025
|
|
|
3.56
|
|
|
|
7/27/2019
|
|
|
|
10/25/2019
|
|
|
$
|
406,626
|
|
|
|
101,440,350
|
|
|
|
(403,039
|
)
|
Mizuho
|
|
FREMF Mortgage Trust, Series 2019-K97, Class D, 0.00%, 1/25/2030
|
|
|
3.45
|
|
|
|
9/21/2019
|
|
|
|
12/20/2019
|
|
|
$
|
18,537,871
|
|
|
|
55,096,698
|
|
|
|
(18,379,349
|
)
|
Mizuho
|
|
FREMF Mortgage Trust, Series 2019-K97, Class X2A, 0.01%, 7/25/2029
|
|
|
3.45
|
|
|
|
9/21/2019
|
|
|
|
12/20/2019
|
|
|
$
|
3,635,487
|
|
|
|
598,712,500
|
|
|
|
(3,604,399
|
)
|
Mizuho
|
|
FREMF Mortgage Trust, Series 2019-K97, Class X2B, 0.01%, 1/25/2030
|
|
|
3.45
|
|
|
|
9/21/2019
|
|
|
|
12/20/2019
|
|
|
$
|
806,215
|
|
|
|
135,904,200
|
|
|
|
(799,321
|
)
|
Mizuho
|
|
FREMF Trust Series 2018-KW04, Class C, 0.00%, 12/25/2032
|
|
|
3.56
|
|
|
|
7/27/2019
|
|
|
|
10/25/2019
|
|
|
$
|
9,005,641
|
|
|
|
45,871,176
|
|
|
|
(8,926,198
|
)
|
Mizuho
|
|
FREMF Trust Series 2018-KW04, Class X2A, 0.10%, 9/25/2028
|
|
|
3.56
|
|
|
|
7/27/2019
|
|
|
|
10/25/2019
|
|
|
$
|
2,271,812
|
|
|
|
547,212,591
|
|
|
|
(2,251,771
|
)
|
Mizuho
|
|
FREMF Trust Series 2018-KW04, Class X2B, 0.10%, 12/25/2032
|
|
|
3.56
|
|
|
|
7/27/2019
|
|
|
|
10/25/2019
|
|
|
$
|
295,291
|
|
|
|
61,162,105
|
|
|
|
(292,686
|
)
|
BNP
|
|
Jamestown CLO IX, Series 2019-9A, Class C2R, VAR ICE LIBOR USD 3 Month+4.100%, 6.38%, 10/20/2028
|
|
|
3.27
|
|
|
|
8/2/2019
|
|
|
|
10/31/2019
|
|
|
$
|
4,113,311
|
|
|
|
5,100,000
|
|
|
|
(4,080,000
|
)
|
BNP
|
|
Jamestown CLO IX, Series 2019-9A, Class DR, VAR ICE LIBOR USD 3 Month+6.940%, 9.22%, 10/20/2028
|
|
|
3.61
|
|
|
|
8/2/2019
|
|
|
|
10/31/2019
|
|
|
$
|
4,472,456
|
|
|
|
6,000,000
|
|
|
|
(4,432,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Reverse Repurchase Agreements
|
|
|
|
|
|
|
|
|
|
|
$
|
3,972,452,667
|
|
|
|
(141,489,615
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTES TO INVESTMENT PORTFOLIO (unaudited)
|
|
|
As of September 30, 2019
|
|
NexPoint Strategic Opportunities Fund
|
Organization
NexPoint Strategic Opportunities Fund (formerly known as NexPoint Credit Strategies) (the Fund) is a Delaware statutory trust and is registered
with the U.S. Securities and Exchange Commission (the SEC) under the Investment Company Act of 1940, as amended (the 1940 Act), as a non-diversified,
closed-end management investment company. This report includes information for the nine months ended September 30, 2019. The Fund trades on the New York Stock Exchange (NYSE) under the ticker
symbol NHF. The Fund may issue an unlimited number of common shares, par value $0.001 per share (Common Shares). The Fund commenced operations on June 29, 2006. NexPoint Advisors, L.P. (NexPoint or the Investment
Adviser), an affiliate of Highland Capital Management Fund Advisors, L.P. (Highland), is the investment adviser and administrator to the Fund.
Valuation of Investments
In computing the Funds
net assets attributable to its common shares, securities with readily available market quotations on the NYSE, National Association of Securities Dealers Automated Quotation (NASDAQ) or other nationally recognized exchange, use the
closing quotations on the respective exchange for valuation of those securities. Securities for which there are no readily available market quotations will be valued pursuant to policies adopted by the Funds Board of Trustees (the
Board). Typically, such securities will be valued at the mean between the most recently quoted bid and ask prices provided by the principal market makers. If there is more than one such principal market maker, the value shall be the
average of such means. Securities without a sale price or quotations from principal market makers on the valuation day may be priced by an independent pricing service. Generally, the Funds loan and bond positions are not traded on exchanges
and consequently are valued based on a mean of the bid and ask price from the third-party pricing services or broker-dealer sources that the Investment Adviser has determined to have the capability to provide appropriate pricing services which have
been approved by the Board.
Securities for which market quotations are not readily available, or for which the Fund has determined that the price
received from a pricing service or broker-dealer is stale or otherwise does not represent fair value (such as when events materially affecting the value of securities occur between the time when market price is determined and calculation
of the Funds NAV, will be valued by the Fund at fair value, as determined by the Board or its designee in good faith in accordance with procedures approved by the Board, taking into account factors reasonably determined to be relevant,
including, 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 Funds NAV will reflect the affected portfolio securities fair value as determined in the judgment of the Board or its designee instead of being determined by
the market. Using a fair value pricing methodology to value securities may result in a value that is different from a securitys most recent sale price and from the prices used by other investment companies to calculate their NAVs.
Determination of fair value is uncertain because it involves subjective judgments and estimates.
There can be no assurance that the Funds valuation
of a security will not differ from the amount that it realizes upon the sale of such security. Those differences could have a material impact to the Fund. The NAV shown in the Funds 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 Funds investments are characterized
into a fair value hierarchy. Where inputs for an asset or liability fall into more than one level in the fair value hierarchy, the investment is classified in its entirety based on the lowest level input that is significant to that investments
valuation. The three levels of the fair value hierarchy are described below:
NOTES TO INVESTMENT PORTFOLIO (unaudited)
|
|
|
As of September 30, 2019
|
|
NexPoint Strategic Opportunities Fund
|
|
|
|
|
|
Level 1
|
|
|
|
Quoted unadjusted prices for identical instruments in active markets to which the Fund has access at the date of measurement;
|
|
|
|
Level 2
|
|
|
|
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active, but are valued based on executed trades; broker quotations that constitute an executable
price; and alternative pricing sources supported by observable inputs are classified within Level 2. Level 2 inputs are either directly or indirectly observable for the asset in connection with market data at the measurement date;
and
|
|
|
|
Level 3
|
|
|
|
Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. In certain cases, investments classified within Level 3 may include securities for which the Fund has obtained
indicative quotes from broker-dealers that do not necessarily represent prices the broker may be willing to trade on, as such quotes can be subject to material management judgment. Unobservable inputs are those inputs that reflect the Funds
own assumptions that market participants would use to price the asset or liability based on the best available information.
|
The Investment Adviser has established policies and procedures, as described above and approved by the Board, to ensure that
valuation methodologies for investments and financial instruments that are categorized within all levels of the fair value hierarchy are fair and consistent. A Pricing Committee has been established to provide oversight of the valuation policies,
processes and procedures, and is comprised of personnel from the Investment Adviser and its affiliates. The Pricing Committee meets monthly to review the proposed valuations for investments and financial instruments and is responsible for evaluating
the overall fairness and consistent application of established policies.
As of September 30, 2019, the Funds investments consisted of senior
loans, asset-backed securities, corporate bonds and notes, foreign bonds, sovereign bonds, common stocks, preferred stocks, exchange-traded funds, warrants, and securities sold short. The fair value of the Funds loans, bonds and asset-backed
securities are generally based on quotes received from brokers or independent pricing services. Loans, bonds, and asset-backed securities with quotes that are based on actual trades with a sufficient level of activity on or near the measurement date
are classified as Level 2 assets. Senior loans, bonds and asset-backed securities that are priced using quotes derived from implied values, indicative bids, or a limited number of actual trades are classified as Level 3 assets because the
inputs used by the brokers and pricing services to derive the values are not readily observable.
The fair value of the Funds common stocks,
preferred stocks, exchange-traded funds, 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. The Funds real estate investments include equity interests in limited liability companies and equity issued by
Real Estate Investment Trusts (REITs) that invest in commercial real estate. The fair value of real estate investments that are not actively traded on national exchanges are based on internal models developed by the Investment Adviser.
The significant inputs to the models include cash flow projections for the underlying properties, capitalization rates and appraisals performed by independent valuation firms. These inputs are not readily observable, and the Fund has classified the
investments as Level 3 assets. 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.
NOTES TO INVESTMENT PORTFOLIO (unaudited)
|
|
|
As of September 30, 2019
|
|
NexPoint Strategic Opportunities Fund
|
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily
available market value, the fair value of the Funds investments may fluctuate from period to period. Additionally, the fair value of investments may differ significantly from the values that would have been used had a ready market existed for
such investments and may differ materially from the values the Fund may ultimately realize. Further, such investments may be subject to legal and other restrictions on resale or otherwise less liquid than publicly traded securities.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Transfers
in and out of the levels are recognized at the value at the end of the period. A summary of the inputs used to value each Funds assets as of September 30, 2019 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value at
September
30, 2019
|
|
|
Level 1 Quoted
Price
|
|
|
Level 2 Significant
Observable Inputs
|
|
|
Level 3 Significant
Unobservable Inputs
|
|
NexPoint Strategic Opportunities Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
$
|
610,514
|
|
|
$
|
61,610
|
|
|
$
|
|
|
|
$
|
548,904
|
|
Communication Services
|
|
|
60,176,050
|
|
|
|
23,253,388
|
|
|
|
|
|
|
|
36,922,662
|
|
Consumer Discretionary
|
|
|
8,494,128
|
|
|
|
8,494,128
|
|
|
|
|
|
|
|
|
|
Energy
|
|
|
49,559,558
|
|
|
|
49,559,558
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
43,043,857
|
|
|
|
3,787,671
|
|
|
|
|
|
|
|
39,256,186
|
|
Gaming/Leisure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Healthcare
|
|
|
32,367,441
|
|
|
|
32,367,441
|
|
|
|
|
|
|
|
|
|
Housing
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Industrials
|
|
|
18,372,359
|
|
|
|
18,372,359
|
|
|
|
|
|
|
|
|
|
Information Technology
|
|
|
51,958,621
|
|
|
|
51,958,621
|
|
|
|
|
|
|
|
|
|
Materials
|
|
|
2,462,678
|
|
|
|
1,918,120
|
|
|
|
|
|
|
|
544,558
|
|
Media and Telecommunications
|
|
|
568,091
|
|
|
|
568,091
|
|
|
|
|
|
|
|
|
|
Metals & Minerals
|
|
|
1,566,300
|
|
|
|
1,566,300
|
|
|
|
|
|
|
|
|
|
Pharmaceuticals
|
|
|
18,862,083
|
|
|
|
18,862,083
|
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
48,294,877
|
|
|
|
11,096,030
|
|
|
|
|
|
|
|
37,198,847
|
|
Real Estate Investment Trust
|
|
|
310,425,679
|
|
|
|
18,314,940
|
|
|
|
|
|
|
|
292,110,739
|
|
Utilities
|
|
|
31,091,126
|
|
|
|
31,091,126
|
|
|
|
|
|
|
|
|
(1)
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial
|
|
|
156,266,150
|
|
|
|
2,953,857
|
|
|
|
153,312,293
|
|
|
|
|
(1)
|
Real Estate Investment Trust
|
|
|
144,019,811
|
|
|
|
|
|
|
|
8,604,621
|
|
|
|
135,415,190
|
|
Agency Collateralized Mortgage Obligations
|
|
|
160,517,528
|
|
|
|
|
|
|
|
160,517,528
|
|
|
|
|
|
U.S. LLC Interest
|
|
|
76,394,161
|
|
|
|
|
|
|
|
|
|
|
|
76,394,161
|
|
U.S. Senior Loans
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals
|
|
|
816,081
|
|
|
|
|
|
|
|
|
|
|
|
816,081
|
|
Communication Services
|
|
|
22,143,767
|
|
|
|
|
|
|
|
91,263
|
|
|
|
22,052,504
|
|
Gaming/Leisure
|
|
|
9,801,186
|
|
|
|
|
|
|
|
|
|
|
|
9,801,186
|
(1)
|
Metals & Minerals
|
|
|
6,674,931
|
|
|
|
|
|
|
|
|
|
|
|
6,674,931
|
|
Utilities
|
|
|
92,329
|
|
|
|
92,329
|
|
|
|
|
|
|
|
|
|
Collateralized Loan Obligations
|
|
|
38,410,304
|
|
|
|
|
|
|
|
37,922,899
|
|
|
|
487,405
|
|
Sovereign Bonds
|
|
|
15,311,752
|
|
|
|
|
|
|
|
15,311,752
|
|
|
|
|
|
Master Limited Partnerships
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
|
13,995,600
|
|
|
|
13,995,600
|
|
|
|
|
|
|
|
|
|
Corporate Bonds & Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Communication Services
|
|
|
81,565
|
|
|
|
|
|
|
|
81,565
|
|
|
|
|
|
Energy
|
|
|
1,272,396
|
|
|
|
|
|
|
|
105
|
|
|
|
1,272,291
|
|
Information Technology
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
NOTES TO INVESTMENT PORTFOLIO (unaudited)
|
|
|
As of September 30, 2019
|
|
NexPoint Strategic Opportunities Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value at
September
30, 2019
|
|
|
Level 1 Quoted
Price
|
|
|
Level 2 Significant
Observable Inputs
|
|
|
Level 3 Significant
Unobservable Inputs
|
|
Real Estate
|
|
|
1,415,000
|
|
|
|
|
|
|
|
1,415,000
|
|
|
|
|
|
Utilities
|
|
|
4,716,270
|
|
|
|
|
|
|
|
4,716,270
|
|
|
|
|
|
Exchange Traded Funds
|
|
|
3,288,022
|
|
|
|
3,288,022
|
|
|
|
|
|
|
|
|
|
Registered Investment Companies Warrants
|
|
|
2,255,778
|
|
|
|
2,255,778
|
|
|
|
|
|
|
|
|
|
Energy
|
|
|
122,130
|
|
|
|
|
|
|
|
122,130
|
|
|
|
|
|
Industrials
|
|
|
1,942,393
|
|
|
|
1,925,537
|
|
|
|
|
|
|
|
16,856
|
|
Information Technology
|
|
|
188,288
|
|
|
|
|
|
|
|
188,288
|
|
|
|
|
|
Purchased Call Options Rights
|
|
|
1,876,430
|
|
|
|
1,876,430
|
|
|
|
|
|
|
|
|
|
Utilities
|
|
|
1,432,410
|
|
|
|
1,432,410
|
|
|
|
|
|
|
|
|
|
Convertible Bonds
|
|
|
256,539
|
|
|
|
|
|
|
|
256,539
|
|
|
|
|
|
Foreign Corporate Bonds & Notes
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Netherlands
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Cash Equivalents
|
|
|
22,436,632
|
|
|
|
22,436,632
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
|
1,363,580,815
|
|
|
|
321,528,061
|
|
|
|
382,540,253
|
|
|
|
659,512,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Securities Sold Short
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Information Technology
|
|
|
(11,733,805
|
)
|
|
|
(11,733,805
|
)
|
|
|
|
|
|
|
|
|
Real Estate
|
|
|
(2,798,811
|
)
|
|
|
(2,798,811
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
|
(14,532,616
|
)
|
|
|
(14,532,616
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,349,048,199
|
|
|
$
|
306,995,445
|
|
|
$
|
382,540,252
|
|
|
$
|
659,512,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Security with zero value.
|
The table below sets forth a summary of changes in the Funds Level 3 assets (assets measured at fair value using significant unobservable inputs)
for the period ended September 30, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of
December 30,
2018
|
|
|
Transfers
into
Level 3
|
|
|
Transfers
Out
of Level 3
|
|
|
Net
Amortization
(Accretion)
of Premium/
(Discount)
|
|
|
Net
Realized
Gains/
(Losses)
|
|
|
Net
Unrealized
Gains/
(Losses)
|
|
|
Net
Purchase
|
|
|
Net
(Sales)
|
|
|
Balance
as of
September 30,
2019
|
|
NexPoint Strategic Opportunities Fund
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Senior Loan
|
|
$
|
34,722,914
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
123,896
|
|
|
$
|
|
|
|
$
|
2,625,244
|
|
|
$
|
1,872,648
|
|
|
$
|
|
|
|
$
|
39,344,702
|
|
Corporate Bonds & Notes
|
|
|
1,272,291
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,272,291
|
|
Warrant
|
|
|
74,290
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(57,434
|
)
|
|
|
|
|
|
|
|
|
|
|
16,856
|
|
Preferred Stock
|
|
|
131,634,714
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,319,524
|
)
|
|
|
5,100,000
|
|
|
|
|
|
|
|
135,415,190
|
|
Collateralized Loan Obligation
|
|
|
494,320
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,915
|
)
|
|
|
|
|
|
|
|
|
|
|
487,405
|
|
Common Stock
|
|
|
342,711,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,780,403
|
|
|
|
47,139,988
|
|
|
|
(1,050,000
|
)
|
|
|
406,581,896
|
|
U.S. LLC Interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,394,161
|
|
|
|
75,000,000
|
|
|
|
|
|
|
|
76,394,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
510,910,034
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
123,896
|
|
|
$
|
|
|
|
$
|
20,415,935
|
|
|
$
|
129,112,636
|
|
|
$
|
(1,050,000
|
)
|
|
$
|
659,512,501
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments designated as Level 3 may include assets valued using quotes or indications furnished by brokers which are
based on models or estimates and may not be executable prices. In light of the developing market conditions, the Investment Adviser continues to search for observable data points and evaluate broker quotes and indications received for portfolio
investments.
NOTES TO INVESTMENT PORTFOLIO (unaudited)
|
|
|
As of September 30, 2019
|
|
NexPoint Strategic Opportunities Fund
|
The following is a summary of significant unobservable inputs used in the fair valuation of assets and
liabilities categorized within Level 3 of the fair value hierarchy:
|
|
|
|
|
|
|
|
|
|
|
|
|
Category
|
|
Market Value at
September 30, 2019
|
|
|
Valuation
Technique
|
|
Unobservable
Inputs
|
|
Input Value(s)
|
|
Common Stock
|
|
$
|
406,581,897
|
|
|
Multiples Analysis
|
|
Unadjusted Price/MHz-PoP
|
|
|
$0.12 - $0.95
|
|
|
|
|
|
|
|
|
|
Risk Discount
|
|
|
55.2% - 59.8%
|
|
|
|
|
|
|
|
|
|
Multiple of EBITDA
|
|
|
5.0x - 9.25x
|
|
|
|
|
|
|
|
|
|
Liquidity Discount
|
|
|
10% - 25%
|
|
|
|
|
|
|
|
|
|
Size Adjustment
|
|
|
10%
|
|
|
|
|
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
10.0% - 15.0%
|
|
|
|
|
|
|
|
|
|
Terminal Multiple
|
|
|
7.0x
|
|
|
|
|
|
|
|
Transaction Analysis
|
|
Multiple of EBITDA
|
|
|
8.5x - 9.0x
|
|
|
|
|
|
|
|
Transaction Indication of Value
|
|
Enterprise Value ($mm)
|
|
|
$365.0 - $771.0
|
|
|
|
|
|
|
|
|
|
Transaction Price per Share
|
|
|
$2.75
|
|
|
|
|
|
|
|
Third-Party Valuation
|
|
Capitalization Rates
|
|
|
5.7% - 7.5%
|
|
|
|
|
|
|
|
|
|
Indication of Value
|
|
|
$4.87
|
|
|
|
|
|
|
|
Net Asset Value
|
|
N/A
|
|
|
N/A
|
|
Preferred Stock
|
|
|
135,415,190
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
8.5%
|
|
|
|
|
|
|
|
|
|
Internal Rate of Return
|
|
|
14.0%
|
|
|
|
|
|
|
|
Net Asset Value
|
|
N/A
|
|
|
N/A
|
|
U.S. LLC Interest
|
|
|
76,394,161
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
2.46% - 4.54%
|
|
U.S. Senior Loans
|
|
|
39,344,701
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
11.1% - 17.75%
|
|
|
|
|
|
|
|
|
|
Spread Adjustment
|
|
|
0.1% - 1.75%
|
|
|
|
|
|
|
|
Adjusted Appraisal
|
|
Liquidity Discount
|
|
|
10%
|
|
|
|
|
|
|
|
|
|
Asset Specific Adjustment
|
|
|
10%
|
|
|
|
|
|
|
|
Debt-Loan Spread
|
|
Adjusted Yield
|
|
|
9.56% - 14.83%
|
|
|
|
|
|
|
|
|
|
Swap Rate
|
|
|
1.50% - 1.64%
|
|
Corporate Bonds
|
|
|
1,272,291
|
|
|
Liquidation Analysis
|
|
Claim Amount: Percent of Par
|
|
|
6.9%
|
|
Asset-Backed Securities
|
|
|
487,405
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
9.1%
|
|
Warrants
|
|
|
16,856
|
|
|
Discounted Cash Flow
|
|
Discount Rate
|
|
|
11.5% - 14.0%
|
|
|
|
|
|
|
|
|
|
Terminal Multiple
|
|
|
7.0x
|
|
|
|
|
|
|
|
Multiples Analysis
|
|
Multiple of EBITDA
|
|
|
7.50x - 9.25x
|
|
|
|
|
|
|
|
Transaction Analysis
|
|
Multiple of EBITDA
|
|
|
8.5x - 9.0x
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
659,512,501
|
|
|
|
|
|
|
|
|
|
In addition to the unobservable inputs utilized for various valuation methodologies, the Fund frequently uses a combination of
two or more valuation methodologies to determine fair value for a single holding. In such instances, the Fund assesses the methodologies and ascribes weightings to each methodology. The weightings ascribed to any individual methodology ranged from
as low as 1.5% to as high as 59.8% as of September 30, 2019.
NOTES TO INVESTMENT PORTFOLIO (unaudited)
|
|
|
As of September 30, 2019
|
|
NexPoint Strategic Opportunities Fund
|
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.
The significant unobservable inputs used in the fair value
measurement of the Funds REIT assets are the discount rates and capitalization rates. Significant decreases (increases) in any of those inputs in isolation could result in a significantly higher (lower) fair value measurement. The significant
unobservable input used in the fair value measurement of the Funds preferred stock asset is the discount rate. Significant decreases (increases) 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 Funds bank loan securities are: liquidity discount, asset specific discount, discount rate, spread adjustment, adjusted yield and swap rate. Significant
increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. The significant unobservable inputs used in the fair value measurement of the Funds common equity securities are:
multiple of EBITDA, price/MHz-PoP multiple, risk discount, illiquidity discount, size adjustment, discount rate and terminal multiple. Significant increases (decreases) in any of those inputs in isolation
could result in a significantly lower (higher) fair value measurement. Generally, a change in the assumption used for the risk discount is accompanied by a directionally opposite change in the assumption for the
price/MHz-PoP multiple.
Security Transactions
Security transactions are accounted for on the trade date. Realized gains/(losses) on investments sold are recorded on the basis of the specific identification
method for both financial statement and U.S. federal income tax purposes taking into account any foreign taxes withheld.
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 institutions that are readily
accessible to pay Fund expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates market value. The value of cash equivalents denominated in foreign currencies is determined by converting
to U.S. dollars on the date of this financial report.
Securities Sold Short
The Fund may sell securities short. A security sold short is a transaction in which the Fund sells a security it does not own in anticipation that the market
price of that security will decline. When the Fund sells a security short, it must borrow the security sold short from a broker-dealer and deliver it to the buyer upon conclusion of the transaction. The Fund may have to pay a fee to borrow
particular securities and is often obligated to pay over any dividends or other payments received on such borrowed securities. In some circumstances, the Fund may be allowed by its prime broker to utilize proceeds from securities sold short to
purchase additional investments, resulting in leverage. Securities and cash held as collateral for securities sold short are shown on the Investment Portfolio for the Fund.
When securities are sold short, the Fund intends to limit exposure to a possible market decline in the value of its portfolio securities through short sales
of securities that the Investment Adviser believes possess volatility characteristics similar to those being hedged. In addition, the Fund may use short sales for non-hedging purposes to pursue its investment
objective. Subject to the requirements of the 1940 Act and the Internal Revenue Code of 1986, as amended (the Code), the Fund will not make a short sale if, after giving effect to such sale, the market value of all securities sold short
by the Fund exceeds 25% of the value of its total assets. The Fund may make short sales against the box without respect to such limitations.
Derivative Transactions
The Fund is subject to interest
rate risk in the normal course of pursuing its investment objectives. The Fund enters into derivative transactions for the purpose of hedging against the effects of changes in the value of portfolio securities due to anticipated changes in market
conditions, to gain market exposure for residual and accumulating cash positions and for managing the duration of fixed income investments.
NOTES TO INVESTMENT PORTFOLIO (unaudited)
|
|
|
As of September 30, 2019
|
|
NexPoint Strategic Opportunities Fund
|
Options
The Fund may utilize options on securities or indices to varying degrees as part of their principal investment strategy. An option on a security is a contract
that gives the holder of the option, in return for a premium, the right to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option the security underlying the option at a specified exercise or strike
price. The writer of an option on a security has the obligation upon exercise of the option to deliver the underlying security upon payment of the exercise price or to pay the exercise price upon delivery of the underlying security. The Fund may
hold options, write option contracts, or both.
If an option written by the Fund expires unexercised, the Fund realizes on the expiration date a capital
gain equal to the premium received by the Fund at the time the option was written. If an option purchased by the Fund expires unexercised, the Fund realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, an
exchange-traded option may be closed out by an offsetting purchase or sale of an option of the same series (type, underlying security, exercise price and expiration). There can be no assurance, however, that a closing purchase or sale transaction
can be effected when the Fund desires. The Fund will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if the cost of the closing option is
more than the premium received from writing the option, a capital loss. The Fund will realize a capital gain from a closing sale transaction if the premium received from the sale is more than the original premium paid when the option position was
opened, or a capital loss, if the premium received from a sale is less than the original premium paid.
Reverse Repurchase Agreements
The Fund may engage in reverse repurchase agreement transactions with respect to instruments that are consistent with the Funds investment objective or
policies.
Affiliated Issuers
Under Section 2
(a)(3) of the Investment Company Act of 1940, as amended, a portfolio company is defined as affiliated if a fund owns five percent or more of its outstanding voting securities or if the portfolio company is under common control. The
table below shows affiliated issuers of the Fund as of September 30, 2019.
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Issuer
|
|
Shares at
December 31,
2018
|
|
|
Beginning
Value as of
December 31,
2018
|
|
|
Purchases
at Cost
|
|
|
Proceeds
from Sales
|
|
|
Net
Realized
Gain/(Loss)
on Sales
of
Affiliated
Issuers
|
|
|
Change
Unrealized
Appreciation/
Depreciation
|
|
|
Ending
Value as of
September 30,
2019
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|
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Shares at
September
30, 2019
|
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Affiliated
Income
|
|
Majority Owned, Not Consolidated
|
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|
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NexPoint Real Estate Opportunities, LLC, REIT (Common Stocks)
|
|
|
123,002,415
|
|
|
$
|
231,921,053
|
|
|
$
|
40,271,450
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,918,236
|
|
|
$
|
292,110,739
|
|
|
|
143,578,638
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|
|
$
|
4,300,770
|
|
Specialty Financial Products, Ltd. (Common Stocks)
|
|
|
33,685,010
|
|
|
|
36,821,085
|
|
|
|
5,413,184
|
|
|
|
(1,500,000
|
)
|
|
|
|
|
|
|
(1,622,986
|
)
|
|
|
39,111,283
|
|
|
|
38,939,947
|
|
|
|
|
|
Other Affiliates
|
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|
|
|
|
|
|
|
|
|
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|
|
|
|
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Gambier Bay LLC(1)
|
|
|
2,102,020
|
|
|
|
241,732
|
|
|
|
|
|
|
|
(1,810,258
|
)
|
|
|
|
|
|
|
1,568,526
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LLV Holdco LLC (U.S. Senior Loans & Common Stocks)
|
|
|
9,708,922
|
|
|
|
7,741,953
|
|
|
|
2,059,233
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,801,186
|
|
|
|
12,278,338
|
|
|
|
|
|
Nexpoint Residential Trust, Inc.
|
|
|
39,394
|
|
|
|
1,380,760
|
|
|
|
1,557,669
|
|
|
|
(38,774
|
)
|
|
|
45
|
|
|
|
850,265
|
|
|
|
3,749,965
|
|
|
|
80,196
|
|
|
|
16,110
|
|
TerreStar Corp. (U.S. Senior Loans & Common Stocks)
|
|
|
20,041,413
|
|
|
|
56,921,521
|
|
|
|
2,144,168
|
|
|
|
|
|
|
|
|
|
|
|
(90,523
|
)
|
|
|
58,975,166
|
|
|
|
22,185,305
|
|
|
|
1,745,628
|
|
Other Controlled
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
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|
|
Allenby (Common Stocks)
|
|
|
585,035
|
|
|
|
1
|
|
|
|
46,100
|
|
|
|
|
|
|
|
|
|
|
|
(46,100
|
)
|
|
|
1
|
|
|
|
631,135
|
|
|
|
|
|
Claymore (Common Stocks)
|
|
|
1,874,553
|
|
|
|
2
|
|
|
|
144,816
|
|
|
|
|
|
|
|
|
|
|
|
(144,816
|
)
|
|
|
2
|
|
|
|
2,019,369
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
191,038,762
|
|
|
$
|
335,028,107
|
|
|
$
|
51,636,620
|
|
|
$
|
(3,349,032
|
)
|
|
$
|
45
|
|
|
$
|
20,432,602
|
|
|
$
|
403,748,342
|
|
|
|
219,712,928
|
|
|
$
|
6,062,508
|
|
(1)
|
Includes the value of iHeart Communications, Inc. bonds as of December 31, 2017 and subsequent activity.
|
For more information with regard to significant accounting policies, see the most recent semi-annual report filed with the U.S.
Securities and Exchange Commission.
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