SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Pursuant to Sec. 240.14a-12
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NexPoint Strategic Opportunities Fund
(Name of Registrant as Specified in Its Charter)
(Name of Person(s) Filing Proxy
Statement, if other than Registrant)
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NEXPOINT STRATEGIC OPPORTUNITIES FUND
300 Crescent Court
Suite 700
Dallas, Texas
75201
(866) 351-4440
June 19, 2020
Dear Shareholder:
You are cordially invited to attend the 2020 Annual Meeting of Shareholders of NexPoint Strategic Opportunities Fund (the “Fund”) to be held at 200
Crescent Court, Crescent Club, Dallas, Texas 75201, on Tuesday, July 14, 2020, at 8:00 a.m. Central Time (the “Annual Meeting”). Details regarding the business to be conducted at the Annual Meeting are more fully described in the
accompanying Notice of Annual Meeting of Shareholders and Proxy Statement.
In addition to voting on the Proposal described in the Notice of Annual
Meeting of Shareholders and Proxy Statement, you will have an opportunity to hear a report on the Fund and to discuss other matters of interest to you as a shareholder.
It is very important that your shares be represented at the Annual Meeting. Whether or not you plan to attend, I urge you to please complete, date, sign and
mail the enclosed proxy card to assure that your shares are represented at the Annual Meeting.
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Sincerely,
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/s/ James Dondero
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James Dondero
President and Principal Executive
Officer
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NEXPOINT STRATEGIC OPPORTUNITIES FUND
300 Crescent Court
Suite 700
Dallas, Texas
75201
(866) 351-4440
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON JULY 14, 2020
The
Annual Meeting of Shareholders of NexPoint Strategic Opportunities Fund, a Delaware statutory trust (the “Fund”), will be held at 200 Crescent Court, Crescent Club, Dallas, Texas 75201, on Tuesday, July 14, 2020, at 8:00 a.m. Central
Time (the “Annual Meeting”), for the following purposes:
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1.
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To elect each of Dr. Bob Froehlich and Mr. Edward Constantino as a Class II Trustee of the Fund,
to serve for a three-year term expiring at the 2023 Annual Meeting or until his successor is duly elected and qualifies (the “Proposal”); and
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2.
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To transact such other business as may properly come before the Annual Meeting and any adjournment or
postponements thereof.
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The Board of Trustees recommends a vote for the Proposal. The close of business on June 19, 2020 has
been fixed as the record date for the determination of shareholders entitled to notice of, and to vote at, the Annual Meeting and any adjournment or postponements thereof. Please call (866) 351-4440 for
directions on how to attend the Annual Meeting and vote in person.
Important Notice Regarding Availability of Proxy Materials for the Shareholder
Meeting to be held on July 14, 2020: Copies of these proxy materials, including the Fund’s annual shareholder report, the Notice for the Annual Meeting, the Proxy Statement and the form of proxy, are available to you on the Internet at
https://vote.proxyonline.com/nexpointcap/docs/opportunities.pdf Copies of the proxy materials are available upon request, without charge, by writing to AST Fund Solutions, LLC at AST Fund Solutions, ATTN: NexPoint 14449 Fulfillment, 55 Challenger
Road, Suite 201, Ridgefield Park, New Jersey 07660, by calling (800) 870-0126, or by sending an e-mail to corporateservices@astfundsolutions.com, using subject line:
NexPoint 14449 Fulfillment.
Shareholders are encouraged to read all of the proxy materials before voting as the proxy materials contain important
information necessary to make an informed decision.
The Board of Trustees is requesting your vote. Your vote is important regardless of the number
of shares that you own. Whether or not you expect to be present at the Annual Meeting, please complete and sign the enclosed proxy card and return it promptly in the enclosed envelope, which needs no postage if mailed in the United States. If you
desire to vote in person at the Annual Meeting, you may revoke your proxy at any time before it is exercised.
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By Order of the Board of Trustees,
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/s/ Lauren Thedford
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Lauren Thedford
Secretary
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June 19, 2020
Dallas, Texas
TABLE OF CONTENTS
NEXPOINT STRATEGIC OPPORTUNITIES FUND
300 Crescent Court
Suite 700
Dallas, Texas
75201
(866) 351-4440
PROXY STATEMENT
ANNUAL
MEETING OF SHAREHOLDERS
JULY 14, 2020
This Proxy Statement is furnished in connection with the solicitation of proxies on behalf of the Board of Trustees of NexPoint Strategic Opportunities Fund,
a Delaware statutory trust (the “Fund” or “NHF”), for use at the Fund’s Annual Meeting of Shareholders to be held at 200 Crescent Court, Crescent Club, Dallas, Texas 75201, on Tuesday, July 14, 2020, at 8:00 a.m.
Central Time, and at any and all adjournments or postponements thereof (the “Annual Meeting”), for the purposes set forth in the accompanying Notice of Annual Meeting of Shareholders dated June 19, 2020. The Fund is a closed-end management investment company registered under the Investment Company Act of 1940, as amended (the “1940 Act”). NexPoint Advisors, L.P., a Delaware limited partnership (“NexPoint” or
the “Adviser”), with its principal office at 300 Crescent Court, Suite 700, Dallas, Texas 75201, serves as the investment adviser and the administrator to the Fund. The Fund’s principal executive office is located at 300 Crescent
Court, Suite 700, Dallas, Texas 75201.
This Proxy Statement and the accompanying Notice of Annual Meeting of Shareholders and form of proxy are being
provided to shareholders on or about June 19, 2020. The Board of Trustees (the “Board”) has fixed the close of business on June 19, 2020 as the record date (the “Record Date”) for the determination of shareholders
entitled to receive notice of, and to vote at, the Annual Meeting. As of June 15, 2020, 45,606,964 shares of the Fund’s common shares (“Common Shares”), par value $0.001 per share, were issued and outstanding, and the Fund had not
issued any preferred shares. Shareholders of the Fund are entitled to one vote for each Fund share held and fractional votes for each fractional Fund share held.
If the form of proxy is properly executed and returned in time to be voted at the Annual Meeting, the shares covered thereby will be voted at the Annual
Meeting in accordance with the instructions marked thereon. All properly executed proxies received by the Board that do not specify how shares should be voted will be voted “FOR” the election of both of the Trustee nominees listed
in the Proposal, and in the discretion of the persons named as proxies in connection with any other matter which may properly come before the Annual Meeting or any adjournment or postponements thereof.
The Board does not know of any matters to be considered at the Annual Meeting other than the election of the Trustees referred to in this Proxy Statement. A
shareholder may revoke his or her proxy by appearing at the Annual Meeting, revoking his or her proxy and voting in person, giving written notice of such revocation to the Secretary of the Fund or by returning a later-dated proxy before the Annual
Meeting.
The presence in person or by proxy of the holders of a majority of the shares of the Fund entitled to vote shall constitute a quorum
(“Quorum”) for the Fund’s Annual Meeting. If a Quorum is not present at the Annual Meeting, or if a Quorum is present but sufficient votes to approve the Proposal are not received, the persons named as proxies may propose one or more
adjournments or postponements of the Annual Meeting to permit further solicitation of proxies. Any adjournment or postponement will require the affirmative vote of a majority of those shares that are represented at the Annual Meeting in person or by
proxy, whether or not a Quorum is present.
Shares represented by properly executed proxies with respect to which (i) a vote is withheld,
(ii) the shareholder abstains, or (iii) a broker does not vote (i.e., “broker non-votes”) will be treated as shares that are present and entitled to vote for purposes of determining a
Quorum. Assuming the presence of a Quorum, abstentions and “broker non-votes” will have no effect on the outcome of the vote on the Proposal.
In addition to soliciting proxies by mail, the Fund’s officers and employees of the Adviser may solicit
proxies by the Internet or by telephone or in person. Copies of the Notice for the Annual Meeting, the Proxy Statement and the form of proxy are available at https://vote.proxyonline.com/nexpointcap/docs/opportunities.pdf. The Fund has engaged AST
Fund Solutions, LLC, at AST Fund Solutions, ATTN: NexPoint 14449 Fulfillment, 55 Challenger Road, Suite 201, Ridgefield Park, New Jersey 07660 for inquiries, to provide shareholder meeting services, including the distribution of this Proxy Statement
and related materials to shareholders as well as assisting the Fund in soliciting proxies for the Annual Meeting at an approximate cost of $48,000. The costs of proxy solicitation and expenses incurred in connection with preparing this Proxy
Statement and its enclosures will be paid by the Fund.
THE PROPOSAL
ELECTION OF TRUSTEES
The Fund’s
Board is currently composed of four Trustees, three of whom are not “interested persons” of the Fund (as defined in the 1940 Act) (the “Independent Trustees”). The Independent Trustees of the Board are Bryan A. Ward, Ethan
Powell, and Dr. Bob Froehlich. John Honis is treated as an Interested Trustee of the Fund in light of certain relationships between Mr. Honis and certain affiliates of the Adviser, including Highland Capital Management, L.P.
(“HCMLP”), arising out of HCMLP’s pending Chapter 11 proceedings.
At the Annual Meeting, the holders of the Fund’s Common Shares are
being asked to (i) re-elect Dr. Bob Froehlich and (ii) elect Mr. Edward Constantino as Class II Trustees of the Fund, each to serve for a three-year term until the 2023 annual meeting
of shareholders or until his respective successor is duly elected and qualified. Dr. Froehlich is currently serving as a Class II Trustee of the Fund and has agreed to continue to serve as a Class II Trustee, if re-elected. If Dr. Froehlich is not available for re-election or if Mr. Constantino is not available for election at the time of the Annual Meeting, the persons
named as proxies will vote for such substitute nominee(s) as the Fund’s Governance and Compliance Committee may select.
The Fund’s Board is
divided into three classes with the term of office of one class expiring each year. Dr. Bob Froehlich is currently serving as a Class II Trustee. Dr. Froehlich was last elected to serve a three-year term at the annual meeting of
shareholders held on June 2, 2017. Ethan Powell and Bryan A. Ward are currently serving as Class I Trustees. Messrs. Powell and Ward were last elected to serve until the 2022 annual meeting of shareholders at the Fund’s annual meeting
of shareholders held on June 14, 2019. Mr. Honis is currently serving as a Class III Trustee and was last elected to serve until the 2021 annual meeting of shareholders at the annual meeting of shareholders held on June 22, 2018.
Dr. Froehlich will continue to serve as a Class II Trustee if re-elected at the Annual Meeting until the 2023 annual meeting of shareholders or until his respective successor is duly elected and
qualifies. The Fund’s Trustees are not required to attend the Fund’s annual shareholder meetings.
Mr. Constantino is nominated to serve as
a Class II Trustee of the Fund. Mr. Constantino, age 73, has served as a member of NexPoint Residential Trust, Inc. (“NXRT”) since NXRT was spun out of the Fund in March 2015. Mr. Constantino has also served as a member of
the board of NexPoint Real Estate Finance, Inc. (“NREF”), a mortgage real estate investment trust (“REIT”) advised by an affiliate of the Adviser, since February 2020. Mr. Constantino has over 40 years of audit, advisory and
tax experience working for two major accounting firms, Arthur Andersen LLP and KPMG. He retired from KPMG in late 2009, where he was an audit partner in charge of the firm’s real estate and asset management businesses. Mr. Constantino is,
and since 2010 has been, a member of the Board of Directors of Patriot Bank N.A. Mr. Constantino has also served as a consultant for the law firm Skadden, Arps, Slate, Meagher & Flom LLP. He is a licensed CPA, a member of the American
Institute of Certified Public Accountants and a member of the New York State Society of Public Accountants. He is currently a member of the Board of Trustees and the Audit Committee Chairman of St. Francis College in Brooklyn Heights, New York.
The Board and the Adviser believe that the Fund would benefit from the expertise that Mr. Constantino would
provide in overseeing the Fund’s real estate and real estate-related investments. Additionally, as discussed more fully below in the section of this Proxy Statement entitled “Proposed REIT Conversion,” the election of
Mr. Constantino would benefit the Fund in the event that the Fund’s proposed conversion from a closed-end investment management investment company to a diversified REIT is approved by the Fund’s
shareholders at the Special Meeting to be held on September 4, 2020 (“REIT Conversion”). The Board expects that full implementation of the REIT Conversion may take up to two years and would involve, among other things, the transition
of the Fund’s assets into real property and mortgage securing real estate; therefore, the Board believes that the Fund will benefit from Mr. Constantino’s knowledge, experience and oversight during the REIT Conversion process.
Vote Required for Election of Trustees
For a
Class II Trustee of the Fund, the election requires the affirmative vote of the holders of a majority of the Common Shares of the Fund, represented in person or by proxy at the Annual Meeting and entitled to vote for the election of a Trustee.
Abstentions and “broker non-votes” (i.e., shares held in “street name” by brokers or nominees that indicate on their proxies that they do not have discretionary authority to vote such
shares as to the election of a Trustee) are counted as present at the Annual Meeting but, assuming the presence of a Quorum, will have no effect on the outcome of the vote on the Proposal.
THE BOARD, INCLUDING ALL OF THE INDEPENDENT TRUSTEES, UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE “FOR” THE ELECTION OF THE NOMINEES AS
TRUSTEES.
Qualifications and Additional Information about the Nominees for Trustee and the Continuing Trustees
The following provides an overview of the considerations that led the Board to conclude that each individual nominee for Trustee or the individuals serving as
continuing Trustees of the Fund should be nominated or so serve, as well as each nominee’s and each Trustee’s name and certain biographical information as reported by them to the Fund. Among the factors the Board considered when concluding
that an individual should be a nominee for Trustee or serve on the Board were the following: the individual’s experience, skills, expertise, education, knowledge, diversity, personal and professional integrity, character, business judgment,
time availability in light of other commitments, dedication, the candidate’s ability to qualify as an Independent Trustee and the existence of any other relationships that might give rise to a conflict of interest and other relevant factors
that the Fund’s Governance and Compliance Committee considers appropriate in the context of the needs of the Board (e.g., whether a candidate is an “audit committee financial expert” under the federal securities laws).
In respect of each Trustee nominee and each continuing Trustee, the individual’s professional accomplishments and prior experience, including, in some
cases, in fields related to the operations of the Fund, were a significant factor in the determination that the individual should be a nominee for Trustee or serve as a Trustee of the Fund. Each Trustee nominee’s and each continuing
Trustee’s professional experience and additional considerations that contributed to the Board’s conclusion that an individual should serve on the Board are summarized in the table below.
The “Highland Funds Complex,” as referred to herein consists of: the Fund, each series of Highland Funds I (“HFI”), each series of
Highland Funds II (“HFII”), Highland Income Fund (“HFRO”), NexPoint Event-Driven Fund (“NEDF”), NexPoint Latin American Opportunities Fund (“NLAF”), NexPoint Real Estate Strategies Fund (“NRESF”),
NexPoint Strategic Income Fund (“NSIF”), NexPoint Energy and Materials Opportunities Fund (“NEMO”), NexPoint Discount Strategies Fund (“NDSF”), NexPoint Healthcare Opportunities Fund (“NHOF”, and together with
NEDF, NLAF, NRESF, NSIF, NEMO, and NDSF, the “Interval Funds”), and NexPoint Capital, Inc. (the “BDC”), a closed-end management investment company that has elected to be treated as a
business development company under the 1940 Act.
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Name, Date of Birth,
Position(s) with the Fund and
Length of
Time Served,
Term of Office1 and
Number of Portfolios in the
Highland Funds Complex
Overseen by the Trustee
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Principal Occupations(s)
and Other Directorships/Trusteeships
Held During the Past
Five Years
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Experience, Qualifications,
Attributes, Skills for
Board Membership During the Past
Five Years
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Independent Trustees
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Dr. Bob Froehlich
(4/28/1953)
Trustee since December 2013; 3 year term (expiring at 2020 annual meeting).
20 funds
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Retired.
Trustee of ARC Realty Finance Trust, Inc. (from January 2013 to May 2016); Director of KC Concessions, Inc. (since January 2013); Trustee of Realty Capital
Income Funds Trust (from January 2014 to December 2016); Director of American Realty Capital Healthcare Trust II (from January 2013 to June 2016); Director, American Realty Capital Daily Net Asset Value Trust, Inc. (from November 2012 to July 2016);
Director of American Sports Enterprise, Inc. (since January 2013); Director of Davidson Investment Advisors (from July 2009 to July 2016); Chairman and owner, Kane County Cougars Baseball Club (since January 2013); Advisory Board of Directors,
Internet Connectivity Group, Inc. (from January 2014 to April 2016); Director of AXAR Acquisition Corp. (formerly AR Capital Acquisition Corp.) (from October 2014 to October 2017); Director of The Midwest League of Professional Baseball Clubs, Inc.;
Director of Kane County Cougars Foundation, Inc.; Director of Galen Robotics, Inc.; Chairman and Director of FC Global Realty, Inc. (from May 2017 to June 2018); and Chairman and Director of First Capital Investment Corp. (from March 2017 to March
2018); and Director and Special Advisor to Vault Data, LLC (since February 2018).
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Significant experience in the financial industry; significant managerial and executive experience; significant experience on other boards of directors, including as a member of several audit committees.
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Ethan Powell
(6/20/1975)
Trustee since December 2013; Chairman of the Board since December 2013; 3 year term
(expiring at 2022 annual meeting).
20 funds
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CEO, Chairman and Founder of Impact Shares LLC since December 2015; Trustee/Director of the Highland Funds Complex from June 2012 until July
2013 and since December 2013; Chief Product Strategist of HCMFA from 2012 until December 2015; Senior Retail Fund Analyst of Highland Capital Management, L.P. (“HCMLP”) from 2007 until December 2015 and HCMFA from its inception until
December 2015; President and Principal Executive Officer of NHF from June 2012 until May 2015; Secretary of NHF from May 2015 until December 2015; Executive Vice President and Principal Executive Officer of HFI and HFII from June
2012 until December 2015; and Secretary of HFI and HFII from November 2010 to May 2015.
Trustee of Impact Shares Funds I Trust
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Significant experience in the financial industry; significant executive experience including past service as an officer of funds in the Highland Funds Complex; significant administrative and managerial
experience.
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Name, Date of Birth,
Position(s) with the Fund and
Length of
Time Served,
Term of Office1 and
Number of Portfolios in the
Highland Funds Complex
Overseen by the Trustee
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Principal Occupations(s)
and Other Directorships/Trusteeships
Held During the Past
Five Years
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Experience, Qualifications,
Attributes, Skills for
Board Membership During the Past
Five Years
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Bryan A. Ward
(2/4/1955)
Trustee since May 2006; 3 year term (expiring at 2022 annual meeting).
20 funds
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Senior Advisor, CrossFirst Bank since April 2019; Private Investor, BW Consulting, LLC since 2014; Senior Manager, Accenture, LLP (a
consulting firm) from 1991 until retirement in 2014.
Director of Equity Metrix,
LLC
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Significant experience on this and/or other boards of directors/trustees; significant managerial and executive experience; significant experience as a management consultant.
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Edward Constantino
(9/4/1946)
Trustee Nominee
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Director of NXRT since March 2015; Director of NREF since February 2020; Director of Patriot Bank N.A. since 2010; Trustee and Audit Committee Chairman of St. Francis College in Brooklyn Heights, New York.
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Significant experience with overseeing real estate-related and REIT investments, including NXRT and NREF; significant accounting experience, particularly in the real estate field.
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Interested Trustee
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John Honis2
(6/16/1958)
Trustee since July 2013; 3 year term (expiring at 2021 annual meeting).
20 funds
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President of Rand Advisors, LLC since August 2013; and Partner of HCMLP from February 2007 until his resignation in November 2014.
Manager of Turtle Bay Resort, LLC (August 2011 – December 2018); Manager
of American Home Patient (November 2011 to February 2016).
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Significant experience in the financial industry; significant managerial and executive experience, including experience as president, chief executive officer or chief restructuring officer of five telecommunication firms; experience
on other boards of directors.
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1
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On an annual basis, as a matter of Board policy, the Governance and Compliance Committee reviews each
Trustee’s performance and determines whether to extend each such Trustee’s service for another year. The Board adopted a retirement policy wherein the Governance and Compliance Committee shall not recommend the continued service as a
Trustee of a Board member who is older than 80 years of age at the time the Governance and Compliance Committee reports its findings to the Board.
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2
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Effective January 28, 2020, Mr. Honis is treated as an Interested Trustee of the Fund in light of
certain relationships between Mr. Honis and certain affiliates of the Adviser, including HCMLP, arising out of HCMLP’s pending Chapter 11 proceedings. From May 1, 2015 to January 28, 2020, Mr. Honis was treated as an
Independent Trustee of the Fund.
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Information about the Fund’s Executive Officers
Set forth below are the names and certain information regarding the Fund’s executive officers. Such officers serve at the pleasure of the Trustees or
until their successors have been duly elected and qualified. The Trustees may fill any vacancy in office or add any additional officers at any time.
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Name, Date of Birth, Position(s)
held with the Fund and Length of
Time Served, Term of Office
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Principal Occupations(s) During the Past Five Years
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James Dondero
(6/29/1962)
President and Principal Executive Officer since May 2015; Indefinite Term
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Co-founder of HCM; Chairman of the Board of NXRT since May 2015; President and a member of the investment committee of NREF since February 2020; Chief Executive Officer and director
of NHT since December 2018; Portfolio Manager of NHF; GAF; Highland Small-Cap Equity Fund and Highland Socially Responsible Equity Fund (each a series of HFII); the BDC; and the Interval Funds.
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Frank Waterhouse
(4/14/1971)
Treasurer since May 2015; Principal Financial Officer and Principal Accounting Officer
since October 2017; Indefinite Term
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Partner and Chief Financial Officer of HCM; Treasurer of the Highland Funds Complex since May 2015.
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David Klos, CPA
(5/6/1982)
Assistant Treasurer since April 2020; Indefinite Term
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Chief Accounting Officer at HCMLP since April 2020 and Financial Operations Principal for NexPoint Securities, Inc. since October 2016; Controller at HCMLP from March 2017 to March 2020; Assistant Controller at HCMLP from March 2015
until February 2017.
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Jason Post
(1/9/1979)
Chief Compliance Officer since September 2015; Indefinite Term
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Chief Compliance Officer for HCMFA and NexPoint since September 2015; Chief Compliance Officer and Anti-Money Laundering Officer of the Highland Funds Complex since September 2015. Prior to his current role at HCMFA and
NexPoint, Mr. Post served as Deputy Chief Compliance Officer and Director of Compliance for HCM.
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Dustin Norris
(1/6/1984)
Executive Vice President since April 2019; Indefinite Term
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Head of Distribution and Chief Product Strategist at NexPoint since March 2019; President of NexPoint Securities, Inc. since April 2018; Head of Distribution at HCMFA from November 2017 until March 2019; Chief Product Strategist at
HCMFA from September 2015 to March 2019; Director of Product Strategy at HCMFA from May 2014 to September 2015; Officer of the Highland Funds Complex since November 2012.
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Lauren Thedford
(1/7/1989)
Secretary since April 2019; Indefinite Term
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Associate General Counsel at HCM since September 2017; In-House Counsel at HCM from January 2015 until September 2017; Secretary of the Highland Funds Complex since April 2019.
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1
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The address for each officer is c/o NexPoint Advisors, L.P., 300 Crescent Court, Suite 700, Dallas, Texas
75201.
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Beneficial Ownership of Shares
Set forth in the table below is the dollar range of shares of the Fund and the aggregate dollar range of shares beneficially owned by each Trustee and the
Nominee of the Fund.
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Name of Trustee
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Dollar Range of
Shares of the Fund1
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Aggregate Dollar Range of Equity
Securities2 Owned in
All Registered
Investment Companies Overseen by
Trustee in the Highland Funds
Complex
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Independent Trustees
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Ethan Powell
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$
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1-$10,000
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$50,001-$100,000
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Dr. Bob Froehlich
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$
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1-$10,000
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Over $100,000
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Bryan A. Ward
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$
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1-$10,000
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Over $100,000
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Edward Constantino4
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None
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None
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Interested Trustee
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John Honis3
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None
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None
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1
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Based on market value as of February 28, 2020.
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2
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Based on market value as of February 28, 2020.
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3
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Effective January 28, 2020, Mr. Honis is treated as an Interested Trustee of the Fund.
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4
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Information provided as of May 31, 2020 .
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As of February 28, 2020, the Trustees and officers of the Fund as a group owned 12.24% of the Fund’s outstanding Common Shares, including shares of
the Common Stock directly owned by the Adviser over which Mr. Dondero controls through his control of NexPoint Advisors GP, LLC, the general partner of the Adviser.
As of February 28, 2020, none of the Independent Trustees or their immediate family members owned beneficially or of record any securities issued by the
Adviser, the principal underwriter, or any person controlling, controlled by, or under common control with the Adviser or principal underwriter.
Role
of the Board of Trustees, Leadership Structure and Risk Oversight
The Role of the Board
The Board oversees the management and operations of the Fund. Like most registered investment companies, the day-to-day management and operation of the Fund is performed by various service providers to the Fund, such as the Adviser, and the distributor, administrator, custodian, and transfer agent. The Board has
appointed senior employees of certain of these service providers as officers of the Fund, with responsibility to monitor and report to the Board on the Fund’s operations. The Board receives regular reports from these officers and service
providers regarding the Fund’s operations. For example, the Treasurer provides reports as to financial reporting matters and investment personnel report on the performance of the Fund. The Board has appointed a Chief Compliance Officer who
administers the Fund’s compliance program and regularly reports to the Board as to compliance matters. Some of these reports are provided as part of formal in-person Board meetings, which are typically
held quarterly, in person, and involve the Board’s review of, among other items, recent Fund operations. The Board also periodically holds telephonic meetings as part of its review of the Fund’s activities. From time to time one or more
members of the Board may also meet with management in less formal settings, between scheduled Board meetings, to discuss various topics. In all cases, however, the role of the Board and of any individual Trustee is one of oversight and not of
management of the day-to-day affairs of the Fund and its oversight role does not make the Board a guarantor of the Fund’s investments, operations or activities.
Board Structure and Leadership
The Board has
structured itself in a manner that it believes allows it to perform its oversight function effectively. The Board currently consists of four Trustees, three of whom are not “interested persons,” as defined in the 1940 Act and are
“independent” as defined in Rule 303A.02 of the New York Stock Exchange Listed Company
Manual. The remaining Trustee, Mr. Honis, is currently treated as an “interested person” of the Fund (an “Interested Trustee”). Mr. Powell serves as Chairman of the
Board. The Trustees meet periodically throughout the year in person and by telephone to oversee the Fund’s activities, review contractual arrangements with service providers for the Fund and review the Fund’s performance. During the fiscal
year ended December 31, 2019, the Board convened fourteen times. Each Trustee attended at least 75% of the aggregate of the total number of meetings of the Board and Committees on which he served during the periods that he served. The Fund
encourages, but does not require, Trustees to attend the Annual Meeting.
The Board periodically reviews its leadership structure, including the role of
the Chairman. The Board also completes an annual self-assessment during which it reviews its leadership and Committee structure and considers whether its structure remains appropriate in light of the Fund’s current operations. The Board
believes that its leadership structure, including the current percentage of the Board who are Independent Trustees is appropriate given its specific characteristics. These characteristics include: (i) the extent to which the work of the Board
is conducted through the standing committees, and that the Audit and Qualified Legal Compliance Committee (the “Audit Committee”) and the Governance and Compliance Committee meetings are chaired by an Independent Trustee; (ii) the
extent to which the Independent Trustees meet as needed, together with their independent legal counsel, in the absence of members of management and any member of the Board who is considered an “interested person” of the Fund; and
(iii) Mr. Powell’s and Mr. Honis’ previous positions with affiliates of the Adviser, which enhances the Board’s understanding of the operations of the Adviser.
Board Oversight of Risk Management. The Board’s role is one of oversight, rather than active management. This oversight extends to the
Fund’s risk management processes. These processes are embedded in the responsibilities of officers of, and service providers to, the Fund. For example, the Adviser and other service providers to the Fund are primarily responsible for the
management of the Fund’s investment risks. The Board has not established a formal risk oversight committee; however, much of the regular work of the Board and its standing Committees addresses aspects of risk oversight. For example, the
Trustees seek to understand the key risks facing the Fund, including those involving conflicts of interest; how management identifies and monitors these risks on an ongoing basis; how management develops and implements controls to mitigate these
risks; and how management tests the effectiveness of those controls.
In the course of providing that oversight, the Board receives a wide range of
reports on the Fund’s activities from the Adviser and other service providers, including reports regarding the Fund’s investment portfolio, the compliance of the Fund with applicable laws, and the Fund’s financial accounting and
reporting. The Board also meets periodically with the Fund’s Chief Compliance Officer to receive reports regarding the compliance of the Fund with the federal securities laws and the Fund’s internal compliance policies and procedures and
meets with the Fund’s Chief Compliance Officer periodically, including at least annually, to review the Chief Compliance Officer’s annual report, including the Chief Compliance Officer’s risk-based analysis for the Fund. The
Board’s Audit Committee also meets regularly with the Treasurer and the Fund’s independent registered public accounting firm to discuss, among other things, the internal control structure of the Fund’s financial reporting function.
The Board also meets periodically with the portfolio managers of the Fund to receive reports regarding the management of the Fund, including its investment risks.
The Board recognizes that not all risks that may affect the Fund can be identified, that it may not be practical or cost-effective to eliminate or mitigate
certain risks, that it may be necessary to bear certain risks (such as investment-related risks) to achieve the Fund’s goals, that reports received by the Trustees with respect to risk management matters are typically summaries of the relevant
information, and that the processes, procedures and controls employed to address risks may be limited in their effectiveness. As a result of the foregoing and other factors, risk management oversight by the Board and by the Committees is subject to
substantial limitations.
Committees of the Board
The Board conducts much of its work through certain standing Committees. The Board has three Committees, the Audit Committee, the Governance and Compliance
Committee, and the Distribution and Alternatives Oversight Committee, which are discussed in greater detail below. The Board has adopted charters for each of these committees.
The Audit and Qualified Legal Compliance Committee. The members of the Audit Committee are
Dr. Froehlich and Messrs. Ward and Powell, each of whom is independent for purposes of the 1940 Act. The Audit Committee is responsible for (i) approving the Fund’s independent accountants, (ii) reviewing with the Fund’s
independent accountants the plans and results of the audit engagement and the adequacy of the Fund’s internal accounting controls and (iii) approving professional services provided by the Fund’s independent accountants. The Audit
Committee is charged with compliance with Rules 205.2(k) and 205.3(c) of Title 17 of the Code of Federal Regulations regarding alternative reporting procedures for attorneys representing the Fund who appear and practice before the SEC on behalf of
the Fund. The Audit Committee is also responsible for reviewing and overseeing the valuation of debt and equity securities that are not publicly traded or for which current market values are not readily available pursuant to policies and procedures
adopted by the Board. The Board and Audit Committee will use the services of one or more independent valuation firms to help them determine the fair value of these securities. In addition, each member of the Audit Committee meets the current
independence and experience requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended (the “1934 Act”).
The Audit Committee met eight times during the fiscal year ended December 31, 2019. Mr. Ward acts as the Chairman of the Audit Committee and as the
audit committee financial expert.
The Governance and Compliance Committee. The Fund’s Governance and Compliance Committee’s
function is to oversee and make recommendations to the full Board or the Independent Trustees, as applicable, with respect to the governance of the Fund, selection and nomination of Trustees, compensation of Trustees, and related matters, as well as
to oversee and assist Board oversight of the Fund’s compliance with legal and regulatory requirements and to seek to address any potential conflicts of interest between the Fund and NexPoint in connection with any potential or existing
litigation or other legal proceeding related to securities held by the Fund and the Adviser or another client of the Adviser. The Governance and Compliance Committee is also responsible for at least annually evaluating each Trustee and determining
whether to recommend each Trustee’s continued service in that capacity. The Governance and Compliance Committee will consider recommendations for Trustee nominees from shareholders sent to the Secretary of the Fund, 300 Crescent Court, Suite
700, Dallas, Texas 75201. A nomination submission must include all information relating to the recommended nominee that is required to be disclosed in solicitations or proxy statements for the election of Trustees, as well as information sufficient
to evaluate the recommended nominee’s ability to meet the responsibilities of a Trustee of the Fund. Nomination submissions must be accompanied by a written consent of the individual to stand for election if nominated by the Board and to serve
if elected by the shareholders, and such additional information must be provided regarding the recommended nominee as reasonably requested by the Governance and Compliance Committee. The Governance and Compliance Committee is currently comprised of
Dr. Froehlich and Messrs. Ward and Powell, each of whom is independent for purposes of the 1940 Act. Mr. Honis serves as an ex officio non-voting Governance and Compliance Committee member. Dr. Froehlich serves as the Chairman of the
Governance and Compliance Committee. Prior to the February 28, 2019-March 1, 2019 Board Meeting, the Governance and Compliance Committee was divided into the Governance Committee and the Compliance Committee, each of which met one time and one
time respectively, during the fiscal year ended December 31, 2019. The Governance and Compliance Committee met three times during the fiscal year ended December 31, 2019.
The Distribution and Alternatives Oversight Committee. The members of the Distribution and Alternatives Oversight Committee are
Dr. Froehlich and Messrs. Honis, Ward, and Powell. The Distribution and Alternatives Oversight Committee is responsible for reviewing arrangements with financial intermediaries who provide service to the Fund, including Fund payments to
financial intermediaries, and for overseeing any funds that, in the Board’s determination, employ alternative investment strategies. Mr. Honis serves as Chairman of the Distribution and Alternatives Oversight Committee. Prior to the
February 28, 2019-March 1, 2019 Board Meeting, the Distribution and Alternatives Oversight Committee was divided into the Distribution Oversight Committee and the Alternatives Oversight Committee, which met one time and one time, respectively,
during the fiscal year ended December 31, 2019. The Distribution and Alternatives Oversight Committee met three times during the fiscal year ended December 31, 2019.
Remuneration of Trustees and Executive Officers
The executive officers of the Fund receive no direct remuneration from the Fund. Each Trustee receives an annual retainer of $150,000 payable in quarterly
installments and allocated among each portfolio in the Highland Funds Complex based upon relative net assets. Because he does not serve on the board of any other portfolio in the Highland Funds Complex, if elected, Mr. Constantino’s annual
retainer will equal the portion of the $150,000 annual retainer for each other Trustee that is allocated to the Fund. The Trustees are reimbursed for actual
out-of-pocket expenses relating to attendance at meetings. The Trustees do not receive any separate compensation in connection with service on Committees or for
attending Board or Committee Meetings; however, the Chairman of the Board and the Chairman of the Audit Committee each receive an additional payment of $10,000 payable in quarterly installments and allocated among each portfolio in the Highland
Funds Complex based on relative net assets. The Trustees do not have any pension or retirement plan.
The following table summarizes the compensation paid
by the Fund to its Trustees and the aggregate compensation paid by the Highland Funds Complex to the Trustees for services rendered in the fiscal year ended December 31, 2019.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Name of Trustee
|
|
Aggregate
Compensation
From the Fund
|
|
|
Pension or
Retirement
Benefits Accrued as
Part of the Fund’s
Expense
|
|
|
Estimated Annual
Benefits Upon
Retirement
|
|
|
Aggregate
Compensation
from the
Highland Funds
Complex
|
|
|
Independent Trustees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy K. Hui1
|
|
$
|
8,313.16
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
37,500
|
|
|
Bryan A. Ward
|
|
$
|
43,158.20
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
160,000
|
|
|
Dr. Bob Froehlich
|
|
$
|
40,460.81
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
150,000
|
|
|
Ethan Powell
|
|
$
|
43,158.20
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
160,000
|
|
|
|
|
|
|
|
|
Interested Trustee
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John Honis2
|
|
$
|
40,460.81
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
150,000
|
|
|
Dustin Norris3
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
|
N/A
|
|
|
1
|
Effective March 31, 2019, Mr. Hui resigned as an Independent Trustee of the Fund. Mr. Hui’s
resignation was related to a reduction in the size of the Board to five members. There were no material conflicts, disagreements or other issues between Mr. Hui, the Board of Trustees or the Fund.
|
|
2
|
Effective January 28, 2020, Mr. Honis is treated as an Interested Trustee of the Fund.
|
|
3
|
Effective February 28, 2020, Mr. Norris resigned as an Interested Trustee of the Fund.
Mr. Norris’ resignation was related to a reduction in the size of the Board to four members and the Governance Committee’s decision to maintain the independence of at least 75% of the Board in connection with industry best practice.
There were no material conflicts, disagreements or other issues between Mr. Norris, the Board or the Fund.
|
Share Ownership and
Certain Beneficial Owners
To the knowledge of management of the Fund and the Board, the following shareholder(s) or “groups,” as the term is
defined in Section 13(d) of the 1934 Act, beneficially owned, or were owners of record of, more than 5% of the Fund’s outstanding shares as of February 28, 2020:
|
|
|
|
|
|
|
|
|
Title of Class
|
|
Name and Address of
Beneficial Owner
|
|
Amount and Nature of
Beneficial
Ownership*
|
|
Percentage
of Class
|
|
Common Shares
|
|
Morgan Stanley Smith Barney LLC
P.O. Box
703
New York, NY 10014
|
|
7,052,600 shares
|
|
15.42%
|
|
|
|
|
|
|
Common Shares
|
|
National Financial Services LLC
For exclusive
benefit of our customers
499 Washington Boulevard
Attn.
Mutual Funds Dept. 4th Floor
Jersey City, NJ 07310
|
|
4,805,789 shares
|
|
10.51%
|
|
|
|
|
|
|
|
|
|
Title of Class
|
|
Name and Address of
Beneficial Owner
|
|
Amount and Nature of
Beneficial
Ownership*
|
|
Percentage
of Class
|
|
Common Shares
|
|
Wells Fargo Clearing Services LLC
P.O. Box
5268
Sioux Falls, SD 57117
|
|
4,441,517 shares
|
|
9.71%
|
|
|
|
|
|
|
Common Shares
|
|
Pershing LLC
1 Pershing Plaza, 7th Floor
Jersey City, NJ 07399
|
|
3,844,346 shares
|
|
8.41%
|
|
|
|
|
|
|
Common Shares
|
|
Bank of New York Mellon
240 Greenwich
Street
New York, NY 10286
|
|
3,126,740 shares
|
|
6.84%
|
|
|
|
|
|
|
Common Shares
|
|
Charles Schwab
211 Main St
San Francisco, CA
|
|
3,038,706 shares
|
|
6.65%
|
|
*
|
Each owner owned shares as a nominee.
|
Certain Relationships and Related Party Transactions
Members of senior management also serve as officers of other investment managers affiliated with the Adviser that do and may in the future manage investment
funds, accounts or other investment vehicles with investment objectives similar to those of the Fund. In addition, the Fund’s executive officers and directors and the members of the Adviser serve or may serve as officers, directors or
principals of entities that operate in the same, or related, lines of business as the Fund does or of investment funds, accounts or other investment vehicles managed by the Fund’s affiliates. These investment funds, accounts or other investment
vehicles may have investment objectives similar to the Fund’s investment objective.
As a result, the Fund may not be given the opportunity to
participate in certain investments made by investment funds, accounts or other investment vehicles managed by the Adviser or its affiliates. However, in order to fulfill its fiduciary duties to each of its clients, the Adviser intends to allocate
investment opportunities in a manner that is fair and equitable over time and is consistent with the Adviser’s allocation policy, investment objective and strategies so that the Fund is not disadvantaged in relation to any other client. Where
the Fund is able to co-invest consistent with the requirements of the 1940 Act, if sufficient securities or loan amounts are available to satisfy the Fund’s and each such account’s proposed demand,
the opportunity will be allocated in accordance with the Adviser’s pre-transaction determination. If there is an insufficient amount of an investment opportunity to satisfy the Fund’s demand and that
of other accounts sponsored or managed by the Adviser or its affiliates, the allocation policy provides that allocations among the Fund and such other accounts will generally be made pro rata based on the amount that each such party would have
invested if sufficient securities or loan amounts were available. Where the Fund is unable to co-invest consistent with the requirements of the 1940 Act, the Adviser’s allocation policy further provides
for investments to be allocated on a random or rotational basis to assure that all clients have fair and equitable access to such investment opportunities.
The Board, in consultation with the Fund’s Chief Executive Officer, Chief Compliance Officer and legal counsel, may review potential related party
transactions and, during these reviews, it may also consider any conflicts of interest brought to its attention pursuant to the Fund’s Code of Conduct or the Fund’s or the Adviser’s Rule 17j-1
Code of Ethics.
The Fund has entered into an investment advisory agreement with the Adviser pursuant to which the Adviser has agreed to provide
investment advisory services to the Fund. In exchange for these services, the Fund will pay the Adviser a fee for investment management services. The Fund’s contractual advisory fee for the year ended December 31, 2019 was 1.00%.
The Fund has entered into an administration agreement with SEI Investments Global Funds Services (“SEI”) and pays SEI a fee for administration
services. The Adviser generally assists in all aspects of the Fund’s administration and operations and furnishes offices, necessary facilities, equipment and personnel.
The Adviser has been historically affiliated through common control with HCMLP, an
SEC-registered investment adviser. On October 16, 2019, HCMLP filed for Chapter 11 bankruptcy protection with the United States Bankruptcy Court for the District of Delaware. The case was subsequently
transferred to the United States Bankruptcy Court for the Northern District of Texas. On January 9, 2020, the bankruptcy court approved a change of control of HCMLP, which involved the resignation of James Dondero as the sole director of, and
the appointment of an independent board to, HCMLP’s general partner. Mr. Dondero will, however, remain as an employee of HCMLP and as portfolio manager for all funds and vehicles for which he currently holds such titles. Nevertheless,
given Mr. Dondero’s historic role with HCMLP and his continued ownership interest and roles with respect to the Highland platform as a whole, as well as the shared services agreements between HCMLP and the Adviser, the Fund will still
treat HCMLP and its affiliates as the Fund’s affiliates for purposes hereof.
The Adviser is not a party to HCMLP’s bankruptcy filing. The
Adviser is a party to a shared services arrangement with HCMLP. Under this arrangement the Adviser may utilize employees from HCMLP in connection with various services such as human resources, accounting, tax, valuation, information technology
services, office space, employees, compliance and legal. The Fund does not expect HCMLP’s bankruptcy filings to impact its provision of services to the Adviser at this time.
In the future, the Fund may engage the Adviser or certain of its affiliates to provide services other than those discussed above. Any arrangements would
be subject to approval by the Board prior to the Adviser or its affiliates being engaged to provide services to the Fund.
Section 16(a)
Beneficial Ownership Reporting Compliance
Section 16(a) of the 1934 Act and Section 30(h) of the 1940 Act, and the rules thereunder, require
that the Fund’s Trustees and officers, the Adviser, certain persons affiliated with the Adviser, and persons who own beneficially, directly or indirectly, more than 10% of the Fund’s outstanding interests (collectively,
“Section 16 reporting persons”), file initial reports of beneficial ownership and reports of changes in beneficial ownership of Fund interests with the SEC and the New York Stock Exchange. Section 16 reporting persons are
required by SEC regulations to furnish to the Fund copies of all Section 16(a) forms they file with respect to shares of the Fund. The Fund believes that during the past fiscal year, the Officers, Trustees and greater than 10% beneficial
holders of the Fund complied with all applicable filing requirements.
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
PricewaterhouseCoopers LLP (“PwC”), an independent registered public accounting firm located at 2121 N. Pearl Street,
Suite 2000, Dallas, TX 75201, serves as the Fund’s independent registered public accounting firm. Representatives of PwC will not be present at the Annual Meeting, but PwC has been given the opportunity to make a statement if they desire to do
so and will be available should any matter arise requiring their presence. After reviewing the Fund’s audited financial statements for the fiscal year ended December 31, 2019, the Fund’s Audit Committee recommended to the Fund’s
Board that such statements be included in the Fund’s Annual Report to Shareholders for the fiscal year ended December 31, 2019. A copy of the Audit Committee’s report appears below.
On June 8, 2020, the Fund’s Audit Committee informed PwC that it has been dismissed, effective June 8, 2020, as the Fund’s independent registered
public accounting firm. PwC’s report on the Fund’s financial statements for the fiscal years ended December 31, 2018 and 2019 did not contain any adverse opinion or disclaimer of opinion, nor were the reports qualified or modified as to
uncertainty, audit scope, or accounting principles.
During the fiscal years ended December 31, 2018 and 2019 and the subsequent interim period through
June 8, 2020, the Fund had (i) no disagreements within the meaning of Item 304(a)(1)(iv) of Regulation S-K and the instructions thereto with PwC on any matter of accounting principles or practices, financial statement disclosure, or auditing scope
or procedure, any of which that, if not resolved to PwC’s satisfaction, would have caused it to make reference to the subject matter of any such disagreement in connection with its reports for such years and interim period and (ii) no
reportable events within the meaning of Item 304(a)(1)(v) of Regulation S-K, except
for the material weakness related to controls over the application of fair value accounting with respect to the validation of fair value methodologies for Level 3 real estate-related holdings.
On June 19, 2020, the Audit Committee recommended, and the Board approved, the appointment of Cohen & Company as the Fund’s independent
registered public accounting firm. During the fiscal years ended December 31, 2018 and 2019 and the subsequent interim period through June 8, 2020, neither the Fund nor anyone on its behalf has consulted with Cohen & Company regarding (i) the
application of accounting principles to a specific transaction, either completed or proposed, (ii) the type of audit opinion that might be rendered on the Fund’s financial statements, (iii) any matter that was the subject of a disagreement
within the meaning of Item 304(a)(1)(iv) of Regulation S-K and the instructions thereto, or (iv) any reportable event within the meaning of Item 304(a)(1)(v) of Regulation S-K.
Independent Registered Public Accounting Firm Fees and Services
The following chart reflects fees paid to PwC in the Fund’s last two fiscal years. One hundred percent (100%) of all services provided by PwC to the
Fund in each year were pre-approved and no fees were subject to pre-approval by the Audit Committee pursuant to Rule
2-01(c)(7)(i)(C) of Regulation S-X. The audit services are approved by the Audit Committee pursuant to an audit engagement letter, and, in accordance with the
Fund’s pre-approval policies and procedures, the Audit Committee of the Fund must pre-approve all non-audit services
provided by PwC, and all non-audit services provided by PwC to the Adviser, or any entity controlling, controlled by, or under common control with the Adviser that provides ongoing services to the Fund that
are related to the operations and financial reporting of the Fund. In some circumstances, when certain services were not recognized at the time of the engagement to be non-audit services, the pre-approval requirement may be waived if the aggregate amount of the fees for such non-audit services constitutes less than five percent of the total amount of revenues paid
to PwC by the Fund during the fiscal year in which the non-audit services are provided. PwC provided non-audit services to the Adviser during the Fund’s last two
fiscal years, but these services did not relate directly to the operations and financial reporting of the Fund, and therefore were not subject to pre-approval pursuant to Rule
2-01(c)(7)(ii) of Regulation S-X. PwC did not provide any non-audit services to any entity controlling, controlled by or under
common control with the Adviser that provides ongoing services to the Fund. The Audit Committee has considered whether the provision of non-audit services that were rendered to the Adviser was compatible with
maintaining PwC’s independence.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal year Ended
December 31, 2018
|
|
|
Fiscal year Ended
December 31, 2019
|
|
|
Audit Fees paid by Fund
|
|
$
|
320,500
|
|
|
$
|
365,000
|
|
|
Audit-Related Fees paid by Fund1
|
|
$
|
24,000
|
|
|
$
|
28,000
|
|
|
Tax Fees paid by Fund2
|
|
$
|
15,280
|
|
|
$
|
21,600
|
|
|
All Other Fees paid by Fund
|
|
$
|
0
|
|
|
$
|
0
|
|
|
Aggregate Non-Audit Fees paid by Fund and Adviser
|
|
$
|
375,500
|
|
|
$
|
575,000
|
|
|
1
|
The nature of the services related to agreed-upon procedures, performed on the Fund’s semi-annual
financial statements.
|
|
2
|
The nature of the services related to assistance on the Fund’s tax returns and excise tax calculations.
|
Audit Fees. Audit fees consist of fees billed for professional services rendered for the audit of the Fund’s year-end consolidated financial statements and reviews of the interim consolidated financial statements included in quarterly reports and services that are normally provided by PwC in connection with statutory and
regulatory filings. These services also include the required audits of the Fund’s internal controls over financial reporting.
Audit-Related
Fees. Audit-related fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Fund’s consolidated financial statements and are not reported under
“Audit Fees.” These services include attestation services that are not required by statute or regulation, consultations concerning financial accounting and reporting standards, and fees related to requests for documentation and information
from regulatory and other government agencies.
Tax Fees. Tax fees consist of fees billed for professional services for tax compliance. These
services include assistance regarding federal, state, and local tax compliance.
All Other Fees. All other fees include fees for
products and services other than the services reported above.
Report of the Audit Committee
The Audit Committee oversees the Fund’s accounting and financial reporting processes and the audits of the Fund’s financial statements. Management is
responsible for the preparation, presentation and integrity of the Fund’s financial statements, the Fund’s accounting and financial and reporting principles, and internal controls and procedures designed to assure compliance with
accounting standards and applicable laws and regulations. The Audit Committee reviewed the audited financial statements in the Annual Report dated December 31, 2019 with management and discussed the quality of the accounting principles, the
reasonableness of significant judgments and the clarity of disclosures in the financial statements.
The Audit Committee has considered and discussed the
above described December 31, 2019 audited financial statements with management and with PwC. The Audit Committee has also discussed with PwC the matters required to be discussed by the statement on Auditing Standards No. 1301, as amended
(AICPA, Professional Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting Oversight Board (“PCAOB”) in Rule 3200T, The Auditor’s Communication With Those Charged With Governance. The Audit Committee
reviewed with PwC, who is responsible for expressing an opinion on the conformity of those audited financial statements with generally accepted accounting principles, their judgment as to the quality, not just the acceptability, of the Fund’s
accounting principles and such other matters as are required to be discussed with the Audit Committee under generally accepted auditing standards. Finally, the Audit Committee reviewed the written disclosures and the letters from PwC required by
PCAOB Rule 3526, Communication with Audit Committees Concerning Independence, as currently in effect, has considered whether the provision of other non-audit services by PwC to the Fund are compatible
with maintaining PwC’s independence, and has discussed with PwC its independence of the Fund.
The Audit Committee discussed with PwC the overall
scope and plans for the audit. The Audit Committee met with PwC to discuss the results of their audit, their evaluations of the Fund’s internal controls and the overall quality of the Fund’s financial reporting.
Based upon the reports and discussions described in this report, and subject to the limitations on the role and responsibilities of the Audit Committee
referred to in this proxy statement and in the Audit Committee’s Charter, the Audit Committee recommended to the Board (and the Board has approved) that the Fund’s audited financial statements be included in the Annual Report to
Shareholders for the fiscal year ended December 31, 2019 and filed with the SEC.
Shareholders are reminded, however, that the members of the Audit
Committee are not professionally engaged in the practice of auditing or accounting. Members of the Audit Committee rely, without independent verification, on the information provided to them and on the representations made by management and PwC.
Accordingly, the Audit Committee’s oversight does not provide an independent basis to determine that management has maintained appropriate accounting and financial reporting principles or appropriate internal controls and procedures designed to
assure compliance with accounting standards and applicable laws and regulations. Furthermore, the Audit Committee’s considerations and discussions, referred to above, do not assure that the audit of the Fund’s financial statements has been
carried out in accordance with the standards of the PCAOB, that the financial statements are presented in conformity with accounting principles generally accepted in the United States of America or that the Fund’s independent registered public
accounting firm is, in fact, “independent.”
Bryan A. Ward, Audit Committee Chair
Dr. Bob Froehlich, Audit Committee Member
Ethan Powell,
Audit Committee Member
OTHER MATTERS TO COME BEFORE THE ANNUAL MEETING
The Trustees do not intend to present any other business at the Annual Meeting nor are they aware that any shareholder intends to do so. If, however, any
other matters are properly brought before the Annual Meeting, the persons named in the accompanying proxy will vote thereon in accordance with their judgment.
PROPOSED REIT CONVERSION
On June 16, 2020, the Adviser presented proposals to the Board to (i) change the Fund’s business from a
closed-end registered investment company that invests primarily in debt and equity securities to a diversified REIT and to amend the Fund’s fundamental investment objectives and restrictions to permit the
Fund to engage in its new business as a diversified REIT (the “REIT Conversion Proposal”), and (ii) amend the Fund’s Agreement and Declaration of Trust (the “Declaration of Trust”) in order to implement the REIT
Conversion Proposal, operate as a REIT and impose certain limits and restrictions on ownership and transferability relating to the Fund’s capital stock in order to comply with certain federal tax requirements applicable to REITs (the
“Amendment Proposal,” and together with the REIT Conversion Proposal, the “Special Meeting Proposals”). The Declaration of Trust will also be amended to allow the Fund to operate more efficiently and enhance its ability to
achieve the full benefit of the REIT Conversion Proposal, as well as to update the Declaration of Trust to more modern provisions for investment vehicles organized as Delaware statutory trusts.
The Fund intends to hold a special meeting of shareholders on or about September 4, 2020 (the “2020 Special Meeting”) at which shareholders
will be asked to vote on the Special Meeting Proposals. Approval of each of the REIT Conversion Proposal and the Amendment Proposal is contingent on approval of both Special Meeting Proposals. Accordingly, the Amendment Proposal will be
implemented only if the REIT Conversion Proposal is also approved, and the REIT Conversion Proposal will be implemented only if the Amendment Proposal is also approved. A proxy statement providing further information on these proposals, as well as
the Board’s recommendation thereon, will be sent to shareholders of record entitled to vote on the Special Meeting Proposals prior to the 2020 Special Meeting.
ADDITIONAL INFORMATION
Shareholder Proposals
Pursuant to our Declaration of
Trust and our Bylaws, shareholders may make nominations and propose other business only in connection with annual meetings of shareholders. Our Bylaws require compliance with certain procedures for a shareholder to properly make a nomination for
election to the Board or to propose other Fund business at an annual meeting. In order for a shareholder to properly propose a nominee for election to the Board or propose business outside of Rule 14a-8 under
the 1934 Act, the shareholder must comply, in all respects, with the advance notice and other provisions set forth in our Bylaws, which currently include, among other things, requirements as to the shareholder’s timely delivery of advance
notice, ownership of at least a specified minimum amount of our common or preferred shares, as applicable, for a specified minimum period of time, record ownership and submission of specified information. If a shareholder who is eligible to do so
under our Bylaws wishes to nominate a person or persons for election to the Board or propose other Fund business at an annual meeting, notice of such proposal must be timely received at our principal executive offices. The notice must set forth
detailed specified information about any proposed nominee, the shareholder making the nomination and affiliates and associates of that shareholder. As to any other Fund business that the shareholder proposes to bring before the meeting, our Bylaws
provide that the notice must set forth a description of such business, the reasons for proposing such business at the meeting and any material interest in such business of the shareholder, a description of all agreements, arrangements and
understandings involving the shareholder in connection with the proposal of such business and a representation that the shareholder intends to appear in person or by proxy at the meeting to bring the business before the meeting.
2021 Annual Meeting. Shareholder proposals intended to be presented pursuant to Rule 14a-8 under the 1934 Act at our 2021 annual meeting of shareholders must be received at our principal executive offices not later than February 19, 2021 in order to be considered for inclusion in our proxy
statement for our 2021 annual meeting of shareholders; provided that if we hold our 2021 annual meeting on a date that is more than 30 days before or after the first anniversary of the date of our 2020 annual meeting, shareholders must submit
proposals for inclusion in our 2021 proxy statement within a reasonable time before we begin to print and send proxy materials. Under Rule 14a-8, we are not required to include shareholder proposals in the
proxy materials unless conditions specified in the rule are met.
Delivery Requirements
The SEC has adopted rules that permit companies and intermediaries such as brokers to satisfy delivery requirements for proxy statements with respect to two or
more shareholders sharing the same address by delivering a single proxy statement or Notice of Internet Availability of Proxy Materials (“Notice”) addressed to those shareholders or by sending separate Notices for each household account in
a single envelope. This process, which is commonly referred to as “householding,” potentially provides extra convenience for shareholders and cost savings for companies. The Fund and some brokers household proxy materials or Notices,
delivering a single proxy statement or Notice to multiple shareholders sharing an address unless contrary instructions have been received from the affected shareholders. Once a shareholder has received notice from a broker or the Fund that they will
be householding materials to the shareholder’s address, householding will continue until the shareholder is notified otherwise or until the shareholder revokes consent.
We will deliver promptly, upon request, a separate copy of any of these documents to shareholders at a shared address to which a single copy of such
document(s) was delivered. Shareholders who wish to receive a separate copy of any of these documents, or to receive a single copy of such documents if multiple copies were delivered, now or in the future, should submit their request by writing to
the Fund c/o NexPoint Advisors, L.P., 300 Crescent Court, Suite 700, Dallas, Texas 75201 or calling the Fund at (866) 351-4440.
Communications with Trustees
Shareholders of the Fund
who wish to communicate with Trustees (or to the Independent Trustees as a group) should send communications to the attention of the Secretary of the Fund, c/o NexPoint Advisors, L.P., 300 Crescent Court, Suite 700, Dallas, Texas 75201, and all
communications will be directed to the Trustee or Trustees indicated in the communication or, if no Trustee or Trustees are indicated, to all Trustees.
COPIES OF THE FUND’S ANNUAL REPORT DATED DECEMBER 31, 2019 AND SEMI-ANNUAL REPORT DATED JUNE 30, 2019 TO SHAREHOLDERS ARE AVAILABLE UPON
REQUEST, WITHOUT CHARGE, BY WRITING THE FUND AT 6201 15TH AVENUE, BROOKLYN, NEW YORK 11219, OR BY CALLING TOLL-FREE (866) 351-4440.
It is important that proxies be returned promptly. Therefore, whether or not you expect to attend the Annual Meeting in person, you are urged to fill in, sign
and return the proxy in the enclosed stamped, self-addressed envelope.
Dallas, Texas
June 19, 2020
BYLAW AMENDMENTS
At a meeting of the Board on June 18, 2020, pursuant to the Board’s authority to adopt, amend or repeal the Fund’s bylaws (the
“Bylaws”), the Board amended the Bylaws to clarify that:
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1.
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With respect to an annual meeting of shareholders, the notice of annual meeting shall state the purpose or
purposes for which such meeting is to be held and shall include a statement that such purposes include: “The transaction of such other proper business as may properly come before the annual meeting”;
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2.
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With respect to a special meeting of shareholders called by a majority of the Trustees, the President or
shareholders pursuant to the Declaration of Trust, the notice of special meeting provided to shareholders shall state the purpose or purposes for which such meeting is to be held and shall not provide for the transaction of any business other than
the particular purpose specified in the notice of the special meeting. Only the business stated in the notice of a special meeting may be conducted at such special meeting;
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3.
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Shareholders making nominations or proposals for any annual meeting of shareholder must comply with certain
notice, holding and informational requirements in order to properly make such nomination or proposal; and
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4.
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The chairman of any meeting of the shareholders may adjourn the meeting from time to time to reconvene at the
same or some other place, and notice need not be given of any such adjourned meeting if the time and place, if any, thereof and the means of remote communications, if any, by which shareholders and proxyholders may be deemed to be present in person
and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken.
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The foregoing summary is qualified
in its entirety by reference to the Bylaws, a copy of which is available upon request.
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NEXPOINT STRATEGIC OPPORTUNITIES FUND
Annual Meeting of Shareholders – July 14, 2020
Proxy Solicited on Behalf of the Board of Trustees
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The undersigned holder of shares of NexPoint Strategic Opportunities Fund, a Delaware statutory trust (the
“Fund”), hereby appoints Frank Waterhouse and Jason Post, and each of them separately, with full power of substitution, as proxies to represent the undersigned at the Annual Meeting of Shareholders to be held at 200 Crescent Court,
Crescent Club, Dallas, TX 75201, on July 14, 2020, at 8:00 a.m., Central Time and at any and all adjournments and postponements thereof (the “Annual Meeting”), and thereat to vote all shares of the Fund which the undersigned
would be entitled to vote, with all powers the undersigned would possess if personally present, in accordance with the instructions of this proxy. The undersigned holder hereby acknowledges receipt of the accompanying Notice of Annual Meeting and
Proxy Statement.
The execution of this proxy is not intended to, and does not, revoke any prior proxies or powers of attorney other than the
revocation, in accordance with the law of the State of Delaware and applicable federal securities laws, of any proxy previously granted specifically in connection with the voting of the shares subject hereto.
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Please sign exactly as names appear on this proxy. If shares are held jointly, each holder should sign. If signing as an attorney,
trustee, executor, administrator, custodian, guardian or corporate officer, please give full title.
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SIGNATURE
DATE
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QUESTIONS ABOUT THIS PROXY?
Should you have any questions about the proxy materials or regarding how to vote your shares, please contact our proxy information line toll-free at (800) 870-0126. Representatives are available Monday through Friday 9:00 a.m. to 10:00 p.m.
Eastern Time.
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SIGNATURE (if held
jointly)
DATE
Title – if a corporation, partnership or other entity
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IF YOU SIGN, DATE AND RETURN THIS PROXY, IT WILL BE VOTED AS DIRECTED, OR IF NO DIRECTION IS INDICATED, WILL BE VOTED “FOR”
THE PROPOSAL.
THREE OPTIONS FOR VOTING YOUR PROXY
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1.
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Internet
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Log on to vote.proxyonline.com. Make sure to have this proxy card available when you plan to vote your shares. You will need the
control number found in the box at the right at the time you execute your vote.
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2.
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Telephone
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Simply dial toll-free (800) 870-0126 and have this proxy card available at the time of the
call. You will need the control number found in the box at the right at the time you execute your vote.
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3.
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Mail
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Simply sign, date, and complete the reverse side of this proxy card and return it in the postage paid envelope
provided.
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IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THIS ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON JULY 14,
2020.
The proxy statement for this meeting is available at:
https://vote.proxyonline.com/nexpointcap/docs/opportunities.pdf
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TAG ID:
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BAR CODE
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CUSIP: 65340G205
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NEXPOINT STRATEGIC OPPORTUNITIES FUND
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IF THIS PROXY IS PROPERLY EXECUTED, THE VOTES ENTITLED TO BE CAST BY THE UNDERSIGNED HOLDER WILL BE CAST IN THE
MANNER DIRECTED BY THE BOARD OF TRUSTEES BELOW, AND WILL BE VOTED IN THE DISCRETION OF THE PROXY HOLDER(S) ON ANY OTHER MATTERS THAT MAY PROPERLY COME BEFORE THE ANNUAL MEETING OR ANY ADJOURNMENTS OR POSTPONEMENTS THEREOF. THIS PROXY WILL BE VOTED
FOR THE PROPOSAL UNLESS OTHERWISE INDICATED. THIS PROXY WILL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE AND APPLICABLE FEDERAL SECURITIES LAWS.
PLEASE VOTE, DATE AND SIGN ON REVERSE AND RETURN PROMPTLY IN THE ENCLOSED ENVELOPE
TO VOTE, MARK ONE BOX FOR EACH ITEM IN BLUE OR BLACK INK. Example:
THE BOARD OF TRUSTEES RECOMMENDS A VOTE FOR THE BELOW PROPOSAL.
PROPOSAL:
1. To elect each of Dr. Bob Froehlich and Edward Constantino as a Class II Trustee of the Fund, to serve
for a three-year term expiring at the 2023 Annual Meeting or until his successor is duly elected and qualifies (the “Proposal”); and
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FOR
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WITHHOLD
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1a. Dr. Bob Froehlich
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○
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○
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1b. Edward Constantino
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○
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○
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2. To transact such other business as may properly come before the Annual Meeting and any adjournment thereof.
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TAG ID:
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BAR CODE
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CUSIP: 65340G205
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THANK YOU FOR VOTING
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TAG ID:
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BAR CODE
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CUSIP: 65340G205
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