INVESTMENT PORTFOLIO (unaudited)

 

As of September 30, 2019    NexPoint Strategic Opportunities Fund

 

Shares

   Value ($)  
 

Common Stock — 69.9%

 
 

Chemicals (a) — 0.1%

 
  25,250     

Venator Materials

     61,610  
  661,330     

Vertellus Specialties Inc. (b)(c)

     548,904  
     

 

 

 
        610,514  
     

 

 

 
 

Communication Services — 6.2%

 
  25,000     

Facebook, Inc., Class A (a)

     4,452,000  
  5,917     

Gray Television, Class A (a)

     98,600  
  309,137     

Metro-Goldwyn-Mayer, Inc. (c)

     18,702,788  
  132,801     

TerreStar Corporation (a)(b)(c)(e)

     36,922,662  
     

 

 

 
        60,176,050  
     

 

 

 
 

Consumer Discretionary (a) — 0.9%

 
  56,682     

Afya, Class A (d)

     1,453,326  
  2,500     

Amazon.com, Inc.

     4,339,775  
  4,900     

MercadoLibre, Inc. (d)

     2,701,027  
     

 

 

 
        8,494,128  
     

 

 

 
 

Energy — 5.1%

 
  336     

California Resources (a)

     3,427  
  67,200     

Continental Resources, Inc. (d)

     2,069,088  
  368,680     

Fieldwood Energy LLC (a)

     9,816,105  
  1,540,533     

NextDecade Corp. (a)

     8,873,470  
  326,000     

Petroleo Brasileiro ADR

     4,717,220  
  173,800     

Pioneer Natural Resources (d)

     21,858,826  
  40     

Transocean

     179  
  30,885     

Williams Cos., Inc.

     743,093  
  159,800     

YPF ADR (d)

     1,478,150  
     

 

 

 
        49,559,558  
     

 

 

 
 

Financial — 4.4%

 
  47,354     

American Banknote Corp. (a)(b)

     144,903  
  123,000     

Banco Bradesco SA ADR

     1,001,220  
  18,100     

CIT Group, Inc.

     820,111  
  70,240     

Grupo Supervielle SA ADR (d)

     225,470  
  207,000     

Itau Unibanco Holding ADR

     1,740,870  
  38,939,947     

Specialty Financial Products, Ltd. (a)(b)(e)

     39,111,283  
     

 

 

 
        43,043,857  
     

 

 

 
 

Gaming/Leisure (b)(c)(e) — 0.0%

 
  26,712     

LLV Holdco LLC - Series A, Membership Interest

     —    
  144     

LLV Holdco LLC - Series B, Membership Interest

     —    
     

 

 

 
        —    
     

 

 

 
 

Healthcare — 3.3%

 
  318,200     

Bristol-Myers Squibb

     16,135,922  
  50,000     

Paratek Pharmaceuticals, Inc. (a)(d)

     216,000  
  20,400     

Patterson Cos. Inc.

     363,528  
  583,594     

Portola Pharmaceuticals, Inc. (a)(d)

     15,651,991  
     

 

 

 
        32,367,441  
     

 

 

 
 

Housing — 0.0%

 
  368,150     

Westgate Investments LLC (b)(c)

     —    
     

 

 

 
 

Industrials — 1.9%

 
  540,093     

America Airports (a)

     2,446,621  
  98,044     

American Airlines Group, Inc.

     2,644,247  
  8     

Pendrell Corp. (a)(d)

     1,411,996  
  60,500     

Raytheon

     11,869,495  
     

 

 

 
        18,372,359  
     

 

 

 

Shares

   Value ($)  
 

Common Stock (continued)

 
 

Information Technology — 5.4%

 
  60,200     

Applied Materials

     3,003,980  
  271,271     

Avaya Holdings Corp. (a)

     2,775,103  
  94,433     

CDK Global, Inc.

     4,541,283  
  30,000     

Enphase Energy (a)

     666,900  
  397,800     

Fortinet, Inc. (a)(d)

     30,535,128  
  8,426     

Globant (a)(d)

     771,653  
  74,000     

Intel Corp.

     3,813,220  
  1     

MagnaChip Semiconductor (a)

     10  
  19,200     

NXP Semiconductors

     2,095,104  
  108,000     

StoneCo, Class A (a)(d)

     3,756,240  
     

 

 

 
        51,958,621  
     

 

 

 
 

Materials — 0.3%

 
  5,750     

Huntsman

     133,745  
  356,875     

MPM Holdings, Inc. (a)

     1,784,375  
  11,164     

Omnimax International, Inc. (a)(b)(c)

     544,558  
     

 

 

 
        2,462,678  
     

 

 

 
 

Media and Telecommunications (a) — 0.1%

 
  13,722     

Loral Space & Communications, Inc.

     568,091  
     

 

 

 
 

Metals & Minerals (a)(d) — 0.2%

 
  272,400     

Loma Negra Cia Industrial Argentina ADR

     1,566,300  
     

 

 

 
 

Pharmaceuticals (a) — 1.9%

 
  330,000     

Aerie Pharmaceuticals, Inc. (d)

     6,342,600  
  612,991     

Heron Therapeutics, Inc. (d)

     11,340,333  
  210,000     

TG Therapeutics, Inc.

     1,179,150  
     

 

 

 
        18,862,083  
     

 

 

 
 

Real Estate — 5.0%

 
  631,135     

Allenby (b)(c)(e)

     1  
  2,019,369     

Claymore (b)(c)(e)

     2  
  285,843     

Cresud SACIF y A ADR (a)(d)

     1,689,332  
  11,389,726     

Highland Real Estate Capital (b)

     37,198,844  
  80,196     

NexPoint Residential Trust , REIT(e)

     3,749,965  
  357,117     

Postal Realty Trust, Class A , REIT

     5,656,733  
     

 

 

 
        48,294,877  
     

 

 

 
 

Real Estate Investment Trust — 32.0%

 
  233,732     

Bluerock Residential Growth, Class A , REIT

     2,751,026  
  47,000     

Independence Realty Trust, Inc. , REIT

     672,570  
  439,183     

Jernigan Capital, Inc. , REIT

     8,454,273  
  143,578,638     

NexPoint Real Estate Opportunities, LLC , REIT(b)(e)

     292,110,739  
  1,763,581     

United Development Funding IV , REIT(d)

     6,437,071  
     

 

 

 
        310,425,679  
     

 

 

 
 

Utilities — 3.2%

 
  427,750     

Central Puerto ADR (a)

     1,261,863  
  26,220     

Entegra TC LLC (b)(c)

     —    
  203,750     

Pampa Energia ADR (a)(d)

     3,537,100  
  983,620     

Vistra Energy Corp. (d)

     26,292,163  
     

 

 

 
        31,091,126  
     

 

 

 
  

Total Common Stock
(Cost $781,722,635)

     677,853,362  
     

 

 

 
 

INVESTMENT PORTFOLIO (unaudited) (continued)

 

As of September 30, 2019    NexPoint Strategic Opportunities Fund

 

Shares/Principal Amount ($)

   Value ($)  
 

Preferred Stock — 31.0%

 
 

Financial (q) — 16.1%

 
  14,500     

Aberdeen Loan Funding, Ltd. (f)(g)

     2,045,225  
  15,000     

Brentwood CLO, Ltd. (f)

     6,750,000  
  13,600     

Brentwood Investors, 02/01/2022(f)(g)

     6,120,000  
  47,506     

Eastland CLO, Ltd. , 05/01/2022(f)(g)

     21,437,083  
  373,220     

Federal National Mortgage Association 8.25% (h)

     7,158,871  
  7,750     

Gleneagles CLO. Ltd. , 12/30/2049(f)(g)

     2,790,000  
  62,600     

Grayson CLO, Ltd. , 11/01/2021(f)(g)

     25,305,424  
  13,700     

Grayson Investors , 11/01/2021(f)(g)

     5,538,088  
  42,750     

Greenbriar CLO, Ltd. , 11/01/2021(f)(g)

     24,937,500  
  125,000     

Jasper CLO, Ltd. (f)

     4,500,000  
  10,000     

Liberty CLO, Ltd. , 11/01/2017(f)(g)

     3,750,000  
  8,500     

Red River CLO, Ltd. , 07/27/2018(f)

     2,358,148  
  4,871     

Rockwall CDO , 08/01/2024(f)(g)

     2,484,210  
  15,300     

Rockwall CDO, Ltd. , 08/01/2021(f)(g)

     4,590,000  
  6,000     

Southfork CLO, Ltd. , 05/01/2017(f)(g)

     720,000  
  2,000     

Stratford CLO , 11/01/2021(f)(g)

     980,000  
  41,500     

Stratford CLO, Ltd. , 11/01/2021(f)(g)

     18,610,882  
  35,507     

Westchester CLO, Ltd. , 08/01/2022(f)(g)

     16,190,719  
     

 

 

 
        156,266,150  
     

 

 

 
 

Real Estate Investment Trust — 14.9%

 
  99,223     

Bluerock Residential Growth, Inc., REIT 7.63%(h)

     2,596,666  
  126,816     

Bluerock Residential Growth, Inc., REIT, Series D 7.13%(h)

     3,186,328  
  18,508     

Creek Pine Holdings, LLC, REIT 10.25%(b)(c)

     20,857,220  
  105,100     

Jernigan Capital, Inc., REIT 7.00%(b)

     114,557,970  
  207,195     

RAIT Financial Trust, REIT 7.13%, 08/30/2019(d)(h)

     2,821,627  
     

 

 

 
        144,019,811  
     

 

 

 
  

Total Preferred Stock
(Cost $330,745,413)

     300,285,961  
     

 

 

 
 

Agency Collateralized Mortgage Obligations — 16.6%

 
  

FREMF Mortgage Trust,

  
  76,080,350     

Series 2018-KC02, Class C 0.00%, 8/25/2025 (i)

     54,039,873  
  96,460,500     

Series 2018-K80, Class D 0.00%, 8/25/2028 (g)(i)

     47,477,858  
  55,096,698     

Series 2019-K97, Class D 0.00%, 1/25/2030 (g)(i)

     24,505,800  
  1,039,727,416     

Series 2018-K80, Class X2A 0.10%, 8/25/2050 (g)(j)

     7,174,128  
  911,617,875     

Series 2018-KC02, Class X2A 0.10%, 7/25/2025 (g)(j)

     3,190,663  
  598,712,500     

Series 2019-K97, Class X2A 0.10%, 7/25/2029 (g)(j)

     4,805,865  
  101,440,350     

Series 2018-KC02, Class X2B 0.10%, 8/25/2025 (g)(j)

     456,481  

Principal Amount ($)

   Value ($)  
 

Agency Collateralized Mortgage Obligations (continued)

 
  135,904,199     

Series 2019-K97, Class X2B
0.10%, 1/25/2030 (g)(j)

     1,065,765  
  244,366,905     

Series 2018-K80, Class X2B
0.10%, 8/25/2050 (g)(j)

     1,661,697  
  

FREMF Trust,

  
  45,871,176     

Series 2018-KW04, Class C 0.00%, 12/25/2032 (g)(i)

     12,774,664  
  547,212,591     

Series 2018-KW04, Class X2A 0.10%, 9/25/2028 (g)(j)

     2,954,948  
  61,162,105     

Series 2018-KW04, Class X2B 0.10%, 12/25/2032 (g)(j)

     409,786  
     

 

 

 
  

Total Agency Collateralized Mortgage Obligations
(Cost $146,648,475)

     160,517,528  
     

 

 

 
 

U.S. LLC Interest — 7.9%

 
 

Real Estate — 7.9%

 
  40,322,605     

SFR WLIF I, LLC (b)(c)

     41,185,509  
  26,968,904     

SFR WLIF II, LLC (b)(c)

     27,575,704  
  7,708,491     

SFR WLIF III, LLC (b)(c)

     7,632,948  
     

 

 

 
  

Total U.S. LLC Interest
(Cost $67,291,509)

     76,394,161  
     

 

 

 
 

U.S. Senior Loans (k) — 4.1%

 
 

Chemicals — 0.1%

 
  826,662     

Vertellus Holdings LLC Second Lien Term Loan, 10/31/21 (b)(c)

     816,081  
     

 

 

 
 

Communication Services — 2.3%

 
  90,732     

iHeartCommunications, 05/01/26

     91,263  
  413,738     

TerreStar Corporation Term Loan, 02/28/22 (b)(e)

     413,738  
  495,794     

TerreStar Corporation Term Loan C, cash/0% PIK 02/27/20 (b)(c)(e)

     495,794  
  21,142,972     

TerreStar Corporation, Term Loan A, cash/0% PIK 02/27/20 (b)(c)(e)

     21,142,972  
     

 

 

 
        22,143,767  
     

 

 

 
 

Gaming/Leisure — 1.0%

 
  3,883,480     

Ginn-LA CS Borrower LLC, Tranche A, 1st Lien, 05/30/20 (b)(c)

     —    
  8,322,966     

Ginn-LA CS Borrower LLC, Tranche B Term Loan, 1st Lien, 05/30/19 (b)(c)(l)

     —    
  12,251,482     

LLV Holdco, LLC, Revolving Exit Loan, 09/03/20 (b)(c)(e)

     9,801,186  
     

 

 

 
        9,801,186  
     

 

 

 
 

Metals & Minerals — 0.7%

 
  6,853,112     

Omnimax International, Inc., Unsecured Term Loan, cash/0% PIK 02/06/21 (b)(c)

     6,674,931  
     

 

 

 
 

INVESTMENT PORTFOLIO (unaudited) (continued)

 

As of September 30, 2019    NexPoint Strategic Opportunities Fund

 

Principal Amount ($)

   Value ($)  
 

U.S. Senior Loans (continued)

 
 

Utilities — 0.0%

 
  92,329,417     

Texas Competitive Electric Holdings Co., LLC, Extended Escrow Loan, (m)

     92,329  
     

 

 

 
  

Total U.S. Senior Loans
(Cost $52,405,801)

     39,528,294  
     

 

 

 
 

Collateralized Loan Obligations — 4.0%

 
  

Acis CLO, Ltd., Series 2015-6A, Class SUB

  
  7,500,000     

0.00%, 5/1/2027 (g)(n)

     1,912,500  
  

Acis CLO, Ltd., Series 2014-3A, Class F

  
  5,000,000     

VAR ICE LIBOR USD 3 Month+5.600%, 7.85%, 2/1/2026 (g)(n)

     3,900,000  
  

Acis CLO, Ltd., Series 2014-3A, Class E

  
  6,000,000     

VAR ICE LIBOR USD 3 Month+4.750%, 7.00%, 2/1/2026 (g)(n)

     4,500,000  
  

Acis CLO, Ltd., Series 2013-1A, Class SUB

  
  14,000,000     

0.00%, 4/18/2024 (g)(n)

     210,000  
  

ALM VII R-2, Series 2016-7R2A, Class SUBR

  
  2,250,000     

0.00%, 10/15/2116 (g)(n)

     1,163,925  
  

CIFC Funding 2013-II, Series 2013-2A, Class SUB

  
  5,462,500     

0.00%, 10/18/2030 (g)(n)

     2,185,000  
  

CIFC Funding 2014, Series 2014-1A, Class SUB

  
  2,500,000     

0.00%, 1/18/2031 (g)(n)

     1,237,500  
  

CIFC Funding 2014, Series 2014-4RA, Class SUB

  
  3,214,500     

0.00%, 10/17/2030 (g)(n)

     1,221,510  
  

CIFC Funding, Ltd., Series 2015-1A, Class SUB

  
  3,000,000     

0.00%, 1/22/2031 (g)(n)

     1,905,000  
  

Highland Loan Funding, Series 1A

  
  635,386     

4.84%, 8/1/2020 (b)(g)

     487,405  
  

Highland Park CDO I, Series 2006-1A, Class B

  
  4,000,000     

VAR LIBOR USD 3 Month+0.550%, 3.20%, 11/25/2051 (g)(n)(q)

     1,680,000  
  

Highland Park CDO I, Ltd., Series 2006- 1A, Class A2

  
  2,437,150     

VAR LIBOR USD 3 Month+0.400%, 3.05%, 11/25/2051 (g)(n)(q)

     2,428,843  
  

Jamestown CLO IX, Series 2019-9A, Class C2R

  
  5,100,000     

VAR ICE LIBOR USD 3 Month+4.100%, 6.38%, 10/20/2028 (g)(n)

     5,100,199  

Principal Amount ($)/Shares

   Value ($)  
 

Collateralized Loan Obligations (continued)

 
  

Jamestown CLO IX, Series 2019-9A, Class DR

  
  6,000,000     

VAR ICE LIBOR USD 3 Month+6.940%, 9.22%, 10/20/2028 (g)(n)

     5,964,396  
  

Madison Park Funding, Series 2018- 30A, Class F

  
  2,300,000     

VAR ICE LIBOR USD 3 Month+6.850%, 9.15%, 4/15/2029 (g)(n)

     2,070,000  
  

THL Credit Wind River 2014-2 CLO, Series 2014-2A, Class SUB

  
  5,955,627     

0.00%, 1/15/2031 (g)(n)

     2,144,026  
  

Valhalla CLO, Ltd., Series 2004-1A

  
  1,500,000     

0.000%, 8/1/2020 (g)(q)

     300,000  
     

 

 

 
  

Total Collateralized Loan Obligations
(Cost $53,722,413)

     38,410,304  
     

 

 

 
 

Sovereign Bonds — 1.6%

 
  

Argentine Republic Government International Bond,

  
  28,000,000     

3.75%, 12/31/38

     11,235,280  
  3,700,000     

5.88%, 01/11/28

     1,512,412  
  5,000,000     

6.88%, 01/11/48

     2,125,050  
  1,000,000     

7.13%, 06/28/17

     439,010  
     

 

 

 
  

Total Sovereign Bonds
(Cost $28,264,415)

     15,311,752  
     

 

 

 
 

Master Limited Partnership — 1.4%

 
 

Energy — 1.4%

 
  1,070,000     

Energy Transfer LP

     13,995,600  
     

 

 

 
  

Total Master Limited Partnerships
(Cost $15,095,795)

     13,995,600  
     

 

 

 
 

Corporate Bonds & Notes — 0.8%

 
 

Communication Services — 0.0%

 
  

iHeartCommunications, Inc.

  
  26,148     

6.38%, 05/01/26

     28,371  
  49,013     

8.38%, 05/01/27

     53,194  
     

 

 

 
        81,565  
     

 

 

 
 

Energy (g) — 0.1%

 
  

Ocean Rig UDW, Inc.

  
  18,439,000     

7.25%, 04/01/19 (b)(c)(l)

     1,272,291  
  

Sable Permian Resources Land

  
  681     

7.38%, 11/01/21

     105  
     

 

 

 
        1,272,396  
     

 

 

 
 

Information Technology (c)(i) — 0.0%

 
  

Avaya, Inc.

  
  43,971,250     

10.50%, 03/01/21

     —    
     

 

 

 
 

Real Estate — 0.2%

 
  

CBL & Associates

  
  2,000,000     

5.95%, 12/15/26

     1,415,000  
     

 

 

 
 

INVESTMENT PORTFOLIO (unaudited) (continued)

 

As of September 30, 2019    NexPoint Strategic Opportunities Fund

 

Principal Amount ($)/Shares

   Value ($)  
 

Corporate Bonds & Notes (continued)

 
 

Utilities — 0.5%

 
  

Pacific Gas & Electric

  
  2,006,000     

6.05%, 03/01/34 (l)

     2,286,840  
  981,000     

6.25%, 03/01/39 (l)

     1,137,960  
  981,000     

6.35%, 02/15/38 (l)

     1,147,770  
  

Texas Competitive Electric Holdings Co., LLC

  
  24,000,000     

10.25%, 11/01/49 (l)(m)

     121,200  
  5,000,000     

11.50%, 10/01/20 (l)(m)

     22,500  
     

 

 

 
        4,716,270  
     

 

 

 
  

Total Corporate Bonds & Notes
(Cost $22,160,484)

     7,485,231  
     

 

 

 
 

Exchange-Traded Funds — 0.3%

 
  41,300     

Direxion Daily Financial Bull 3X Shares

     3,206,532  
  2,925     

Direxion Daily Gold Miners Index Bull 3X Shares

     81,490  
     

 

 

 
  

Total Exchange-Traded Funds
(Cost $5,003,872)

     3,288,022  
     

 

 

 
 

Registered Investment Company — 0.2%

 
  188,768     

Dividend and Income Fund, Class Common (d)

     2,255,778  
     

 

 

 
  

Total Registered Investment Companies
(Cost $2,680,506)

     2,255,778  
     

 

 

 
 

Warrants — 0.2%

 
 

Energy — 0.0%

 
  4,071     

Arch Coal, Inc., Expires 10/08/2023(a)

     122,130  
     

 

 

 
 

Industrials — 0.2%

 
  8,371,900     

American Airlines, Expires (a)

     1,925,537  
  346     

Omnimax Holdings, Inc., Expires 12/31/2049(a)(b)(c)

     16,856  
     

 

 

 
        1,942,393  
     

 

 

 
 

Information Technology — 0.0%

 
  179,322     

Avaya Holdings, Expires 12/18/2022(a)

     188,288  
     

 

 

 
  

Total Warrants
(Cost $251,697)

     2,252,811  
     

 

 

 

Contracts

      
 

Purchased Call Options(a) — 0.2%

 
  

Total Purchased Call Options
(Cost $4,200,000)

     1,876,430  
     

 

 

 

Units/Principal Amount ($)/Shares

   Value ($)  
 

Rights — 0.1%

 
 

Utilities — 0.1%

 
  1,618,542     

Texas Competitive Electric Holdings Co., LLC

     1,432,410  
     

 

 

 
  

Total Rights
(Cost $5,007,431)

     1,432,410  
     

 

 

 
 

Foreign Corporate Bonds & Notes — 0.0%

 
 

Netherlands — 0.0%

 
  93,180,354     

Celtic Pharma Phinco BV, 17.00%, (a)(b)(c)(l)

     —    
     

 

 

 
  

Total Foreign Corporate Bonds & Notes
(Cost $62,254,526)

     —    
     

 

 

 
 

Convertible Bond — 0.0%

 
 

Healthcare — 0.0%

 
  350,000     

Paratek Pharmaceuticals 4.75%, 05/01/24

     256,539  
     

 

 

 
  

Total Convertible Bonds
(Cost $248,832)

     256,539  
     

 

 

 
 

Cash Equivalents — 2.3%

 
 

Money Market Fund(o) — 2.3%

 
  22,436,632     

Dreyfus Treasury Obligations Cash Management, Institutional Class 1.810%

     22,436,632  
     

 

 

 
  

Total Cash Equivalents
(Cost $22,436,632)

     22,436,632  
     

 

 

 
 

Total Investments — 140.6%
(Cost $1,600,140,436)

     1,363,580,815  
     

 

 

 
 

Securities Sold Short — (1.5)%

 
 

Common Stock — (1.5)%

 
 

Energy — -%

 
  (8,451)     

ESC Seventy Seven (a)

     —    
     

 

 

 
 

Information Technology — (1.2)%

 
  (83,500)     

Texas Instruments, Inc.

     (10,791,540
  (13,725)     

Zillow Group, Class A (d)(p)

     (405,505
  (18,000)     

Zillow Group, Inc., Class C (d)(p)

     (536,760
     

 

 

 
        (11,733,805
     

 

 

 
 

Real Estate — (0.3)%

 
  (30,300)     

Innovative Industrial Properties, Class A

     (2,798,811
     

 

 

 
  

Total Common Stock
(Proceeds $14,920,876)

     (14,532,616
     

 

 

 
 

Other Assets & Liabilities, Net (r) - (39.1)%

     (379,290,815
     

 

 

 
 

Net Assets - 100.0%

     969,757,384  
     

 

 

 

 

(a)

Non-income producing security.

 

INVESTMENT PORTFOLIO (unaudited) (continued)

 

As of September 30, 2019    NexPoint Strategic Opportunities Fund

 

(b)

Securities with a total aggregate value of $659,512,501, or 68.0% of net assets, were classified as Level 3 within the three-tier fair value hierarchy. Please see Notes to Investment Portfolio for an explanation of this hierarchy, as well as a list of unobservable inputs used in the valuation of these instruments.

(c)

Represents fair value as determined by the Fund’s Board of Trustees (the “Board”), or its designee in good faith, pursuant to the policies and procedures approved by the Board. The Board considers fair valued securities to be securities for which market quotations are not readily available and these securities may be valued using a combination of observable and unobservable inputs. Securities with a total aggregate value of $195,879, 739, or 20.2% of net assets, were fair valued under the Fund’s valuation procedures as of September 30, 2019.

(d)

All or part of this security is pledged as collateral for short sales. The market value of the securities pledged as collateral was $—.

(e)

Affiliated issuer. Assets with a total aggregate market value of $403,748,342, or 41.6% of net assets, were affiliated with the Fund as of September 30, 2019.

(f)

There is currently no rate available.

(g)

Securities exempt from registration under Rule 144A of the 1933 Act. These securities may only be resold in transaction exempt from registration to qualified institutional buyers. At September 30, 2019, these securities amounted to $266,091,361 or 27.4% of net assets.

(h)

Perpetual security with no stated maturity date.

(i)

Principal only security (“PO”). These types of securities represent the right to receive the monthly principal payments on an underlying pool of mortgages. No payments of interest on the pool are passed through to the “principal only” holder.

(j)

Interest only security (“IO”). These types of securities represent the right to receive the monthly interest payments on an underlying pool of mortgages. Payments of principal on the pool reduce the value of the “interest only” holding.

(k)

Senior loans (also called bank loans, leveraged loans, or floating rate loans) in which the Fund invests generally pay interest at rates which are periodically determined by reference to a base lending rate plus a spread (unless otherwise identified, all senior loans carry a variable rate of interest). These base lending rates are generally (i) the Prime Rate offered by one or more major United States banks, (ii) the lending rate offered by one or more European banks such as the London Interbank Offered Rate (“LIBOR”) or (iii) the Certificate of Deposit rate. As of September 30, 2019, the LIBOR USD 1 Month and LIBOR USD 3 Month rates were 2.49% and 2.60%, respectively. Senior loans, while exempt from registration under the Securities Act of 1933, as amended (the “1933 Act”), contain certain restrictions on resale and cannot be sold publicly. Senior secured floating rate loans often require prepayments from excess cash flow or permit the borrower to repay at its election. The degree to which borrowers repay, whether as a contractual requirement or at their election, cannot be predicted with accuracy. As a result, the actual remaining maturity maybe substantially less than the stated maturity shown.

(l)

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

(m)

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

(n)

Variable or floating rate security. The base lending rates are generally the lending rate offered by one or more European banks such as the LIBOR. The interest rate shown reflects the rate in effect September 30, 2019. LIBOR, otherwise known as London Interbank Offered Rate, is the benchmark interest rate that banks charge each other for short-term loans. Current LIBOR rates include 1 month which is equal to 2.49% and 3 months equal to 2.60%.

(o)

Rate shown is 7 day effective yield.

(p)

No dividend payable on security sold short.

(q)

Securities of collateralized loan obligations where an affiliate of the Investment Adviser serves as collateral manager.

(r)

As of September 30, 2019, $18,910,947 in cash was segregated or on deposit with the brokers to cover investments sold short and or written option contracts and is included in “Other Assets & Liabilities, Net”.

Glossary:

ADR — American Depositary Receipt

CDO — Collateralized Debt Obligation

CLO — Collateralized Loan Obligation

PIK — Payment-in-Kind

REIT — Real Estate Investment Trust

Currency Abbreviations:

USD — U.S. Dollar

 

INVESTMENT PORTFOLIO (unaudited) (continued)

 

As of September 30, 2019    NexPoint Strategic Opportunities Fund

 

Future contracts outstanding as of September 30, 2019 were as follows:

 

 

Description

   Expiration
Date
     Number of
Contracts
    Notional Value     Unrealized
Appreciation
     Value  

Long Futures:

            

Russell 2000 Index E-MINI

     December 2019        (650   $ (51,387,470   $ 1,824,970      $ (49,562,500

Purchased Option contracts outstanding as of September 30, 2019 were as follows:

 

Description

   Exercise price      Expiration Date      Number of
Contracts
     Notional Value      Cost      Value  

PURCHASED CALL OPTIONS:

                 

Hong Kong Dollar

   $ 7.85        May 2020        143,000,000      $ 1,121,034,200      $ 1,000,000      $ 528,276  

Hong Kong Dollar

     7.85        May 2020        65,750,000      $ 515,440,550        500,000        248,752  

Hong Kong Dollar

     7.85        June 2020        91,000,000      $ 713,385,400        600,000        355,819  

Hong Kong Dollar

     7.85        November 2019        300,000,000      $ 2,351,820,000        1,000,000        295,446  

Hong Kong Dollar

     7.85        November 2019        138,500,000      $ 1,085,756,900        500,000        159,642  

Hong Kong Dollar

     7.85        December 2019        225,000,000      $ 1,763,865,000        600,000        288,495  
              

 

 

    

 

 

 
               $ 4,200,000      $ 1,876,430  
              

 

 

    

 

 

 

Written Option contracts outstanding as of September 30, 2019 were as follows:

 

Description

   Exercise price      Expiration Date      Number of
Contracts
    Notional Value     Premium     Value  

WRITTEN PUT OPTIONS:

              

Fortinet

   $ 75.00        December 2019        (630   $ (4,835,880   $ (214,324   $ (270,900

Fortinet

     80.00        December 2019        (750   $ (5,757,000     (391,706     (517,500

Fortinet

     80.00        October 2019        (1,215   $ (9,326,340     (423,296     (473,850
            

 

 

   

 

 

 
             $ (1,029,326   $ (1,262,250
            

 

 

   

 

 

 

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 Fund’s 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 Fund’s Board of Trustees (the “Board”). Typically, such securities will be valued at the mean between the most recently quoted bid and ask prices provided by the principal market makers. If there is more than one such principal market maker, the value shall be the average of such means. Securities without a sale price or quotations from principal market makers on the valuation day may be priced by an independent pricing service. Generally, the Fund’s loan and bond positions are not traded on exchanges and consequently are valued based on a mean of the bid and ask price from the third-party pricing services or broker-dealer sources that the Investment Adviser has determined to have the capability to provide appropriate pricing services which have been approved by the Board.

Securities for which market quotations are not readily available, or for which the Fund has determined that the price received from a pricing service or broker-dealer is “stale” or otherwise does not represent fair value (such as when events materially affecting the value of securities occur between the time when market price is determined and calculation of the Fund’s 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 Fund’s NAV will reflect the affected portfolio securities’ fair value as determined in the judgment of the Board or its designee instead of being determined by the market. Using a fair value pricing methodology to value securities may result in a value that is different from a security’s most recent sale price and from the prices used by other investment companies to calculate their NAVs. Determination of fair value is uncertain because it involves subjective judgments and estimates.

There can be no assurance that the Fund’s valuation of a security will not differ from the amount that it realizes upon the sale of such security. Those differences could have a material impact to the Fund. The NAV shown in the Fund’s 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:

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 Fund’s own assumptions that market participants would use to price the asset or liability based on the best available information.

The Investment Adviser has established policies and procedures, as described above and approved by the Board, to ensure that valuation methodologies for investments and financial instruments that are categorized within all levels of the fair value hierarchy are fair and consistent. A Pricing Committee has been established to provide oversight of the valuation policies, processes and procedures, and is comprised of personnel from the Investment Adviser and its affiliates. The Pricing Committee meets monthly to review the proposed valuations for investments and financial instruments and is responsible for evaluating the overall fairness and consistent application of established policies.

As of September 30, 2019, the Fund’s 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 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, 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 Fund’s 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 Fund’s investments may fluctuate from period to period. Additionally, the fair value of investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values the Fund may ultimately realize. Further, such investments may be subject to legal and other restrictions on resale or otherwise less liquid than publicly traded securities.

The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Transfers in and out of the levels are recognized at the value at the end of the period. A summary of the inputs used to value each Fund’s 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 Fund’s 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 Fund’s 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 Fund’s 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 Fund’s 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 Fund’s 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 Fund’s 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.

 

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
    Shares at
September

30, 2019
    Affiliated
Income
 

Majority Owned, Not Consolidated

                 

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     $ 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

                               

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

                        

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       —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

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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