Form N-CSRS
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED
SHAREHOLDER REPORT OF REGISTERED
MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-21869
NEXPOINT STRATEGIC OPPORTUNITIES FUND
(Exact name of registrant as specified in charter)
300 Crescent
Court
Suite 700
Dallas, Texas 75201
(Address of principal executive offices)(Zip code)
NexPoint
Advisors, L.P.
300 Crescent Court
Suite 700
Dallas, Texas
75201
(Name and Address of Agent for Service)
Registrants telephone number, including area code: (866) 351-4440
Date of fiscal year end: December 31
Date of reporting period: June 30, 2018
Item 1. Reports to Stockholders.
A copy of the Semi-Annual Report transmitted to shareholders pursuant to Rule 30e-1 under the Investment Company Act of
1940, as amended (the 1940 Act), is attached herewith.
NexPoint Strategic Opportunities
Fund
Semi-Annual Report
June 30, 2018
NexPoint Strategic Opportunities Fund
TABLE OF CONTENTS
Economic and market conditions change frequently.
There is no assurance that the trends described in this report will continue or commence.
Privacy Policy
We recognize and respect your privacy expectations, whether you are a visitor to our web site, a potential shareholder, a current shareholder or
even a former shareholder.
Collection of Information. We may collect nonpublic personal information about you from the following
sources:
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Account applications and other forms, which may include your name, address and social security number, written and electronic correspondence and telephone
contacts; |
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Web site information, including any information captured through the use of cookies; and |
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Account history, including information about the transactions and balances in your accounts with us or our affiliates. |
Disclosure of Information. We may share the information we collect with our affiliates. We may also disclose this information as otherwise
permitted by law. We do not sell your personal information to third parties for their independent use.
Confidentiality and Security
of Information. We restrict access to nonpublic personal information about you to our employees and agents who need to know such information to provide products or services to you. We maintain physical, electronic and procedural safeguards that
comply with federal standards to guard your nonpublic personal information, although you should be aware that data protection cannot be guaranteed.
FUND PROFILE (unaudited)
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NexPoint Strategic Opportunities Fund |
NexPoint Strategic Opportunities Fund seeks to provide both current income and capital appreciation.
Net Assets as of June 30, 2018
$790.1 million
Portfolio Data as of June 30, 2018
The information below provides a snapshot of NexPoint Strategic Opportunities Fund at the end of the reporting period. NexPoint Strategic
Opportunities Fund is actively managed and the composition of its portfolio will change over time. Current and future holdings are subject to risk.
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Quality Breakdown as of
06/30/2018 (%)(1)(2) |
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BB |
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7.4 |
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B |
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30.7 |
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CCC |
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8.7 |
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CC |
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3.4 |
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Not Rated |
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49.8 |
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Top 5 Sectors as of
06/30/2018 (%)(2) |
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Real Estate Investment Trust |
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30.3 |
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Financial |
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23.6 |
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Energy |
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8.3 |
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Telecommunications |
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6.8 |
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Money Market Fund |
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6.1 |
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Top 10 Holdings as of 06/30/2018 (%)(1)(2) |
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Jernigan Capital, Inc. (Preferred Stocks) |
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11.4 |
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NexPoint Real Estate Opportunities, LLC (Common Stocks) |
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11.1 |
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TerreStar Corporation (Common Stocks) |
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4.4 |
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NexPoint Real Estate Capital, LLC (Common Stocks) |
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6.4 |
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Specialty Financial Products, Ltd. (Common Stocks) |
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4.2 |
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Acis CLO, Ltd. (Asset-Backed Securities) |
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4.0 |
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Metro-Goldwyn-Mayer, Inc. (Common Stocks) |
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3.6 |
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Grayson CLO, Ltd. (Preferred Stocks) |
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3.2 |
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Greenbriar CLO, Ltd. (Preferred Stocks) |
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3.3 |
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Stratford CLO, Ltd. (Preferred Stocks) |
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2.9 |
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(1) |
Quality is calculated as a percentage of total bonds & notes. Sectors and holdings are calculated as a percentage of total net assets. The quality
ratings reflected were issued by Standard & Poors, a nationally recognized statistical rating organization. Ratings are measured on a scale that generally ranges from AAA (highest) to D (lowest). Quality ratings reflect the credit quality
of the underlying bonds in the Funds portfolio and not that of the Fund itself. Credit quality ratings assigned by a rating agency are subjective opinions, not statements of fact, and are subject to change, including daily. The ratings
assigned by credit rating agencies are but one of the considerations that the Funds investment adviser incorporates into its credit analysis process, along with such other issuer specific factors as cash flows, capital structure and leverage
ratios, ability to deleverage through free cash flow, quality of management, market positioning and access to capital, as well as such security-specific factors as the terms of the security (e.g., interest rate, and time to maturity) and the amount
of any collateral. |
(2) |
Sectors and holdings are calculated as a percentage of total net assets. |
FINANCIAL STATEMENTS
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June 30, 2018 |
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NexPoint Strategic Opportunities Fund |
A guide to understanding the Funds financial statements
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Investment Portfolio |
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The Investment Portfolio details all of the Funds holdings and its market value as of the last day of the reporting period. Portfolio holdings are organized by type of asset and
industry to demonstrate areas of concentration and diversification. |
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Statement of Assets and Liabilities |
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This statement details the Funds assets, liabilities, net assets and share price for each share class as of the last day of the reporting period. Net assets are calculated by
subtracting all of the Funds liabilities (including any unpaid expenses) from the total of the Funds investment and noninvestment assets. The net asset value per share for each class is calculated by dividing net assets allocated to that
share class by the number of shares outstanding in that class as of the last day of the reporting period. |
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Statement of Operations |
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This statement reports income earned by the Fund and the expenses incurred by the Fund during the reporting period. The Statement of Operations also shows any net gain or loss the Fund
realized on the sales of its holdings during the period as well as any unrealized gains or losses recognized over the period. The total of these results represents the Funds net increase or decrease in net assets from
operations. |
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Statement of Changes in Net Assets |
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This statement details how the Funds net assets were affected by its operating results, distributions to shareholders and shareholder transactions (e.g., subscriptions, redemptions and
distribution reinvestments) during the reporting period. The Statement of Changes in Net Assets also details changes in the number of shares outstanding. |
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Statement of Cash Flows |
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This statement reports net cash and foreign currency provided or used by operating, investing and financing activities and the net effect of those flows on cash and foreign currency during
the period. |
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Financial Highlights |
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The Financial Highlights demonstrate how the Funds net asset value per share was affected by the Funds operating results. The Financial Highlights also disclose the classes
performance and certain key ratios (e.g., net expenses and net investment income as a percentage of average net assets). |
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Notes to Financial Statements |
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These notes disclose the organizational background of the Fund, certain of its significant accounting policies (including those surrounding security valuation, income recognition and
distributions to shareholders), federal tax information, fees and compensation paid to affiliates and significant risks and contingencies. |
INVESTMENT PORTFOLIO (unaudited)
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As of June 30, 2018 |
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NexPoint Strategic Opportunities Fund |
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Principal Amount
($) |
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Value
($) |
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U.S. Senior Loans (a) - 4.6% |
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CHEMICALS (b) - 0.3% |
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826,662 |
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Vertellus Holdings LLC Second Lien Term Loan, 1-week LIBOR + 12.000%,
10/31/2021 |
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804,425 |
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1,366,050 |
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Vertellus Specialties, Inc. DIP Term Loan, 1-week LIBOR + 9.000%, 08/30/2018 |
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1,369,055 |
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2,173,480 |
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ENERGY - 0.2% |
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362,955 |
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Azure Midstream Energy LLC Term Loan B, 1-month LIBOR + 6.500%, 11/15/2018 |
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355,696 |
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499,831 |
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Fieldwood Energy LLC Exit 1st Lien Term Loan, 1-month LIBOR + 5.250%,
04/11/2022 |
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501,640 |
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861,558 |
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Exit 2nd Lien Term Loan, 1-month LIBOR + 7.250%, 04/11/2023 |
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838,580 |
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1,695,916 |
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GAMING & LEISURE (b)(c) - 0.9% |
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8,322,966 |
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Ginn-LA CS Borrower LLC First Lien Tranche B Term Loan |
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3,883,480 |
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Ginn-LA CS Borrower LLC First Lien Tranche A Credit-Linked Deposit |
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9,241,411 |
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LLV Holdco LLC Exit Revolver (d) |
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7,393,129 |
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7,393,129 |
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METALS & MINERALS (b) - 0.8% |
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5,972,091 |
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Omnimax International, Inc. Unsecured Term Loan, PIK 14.000%, Cash 2.000%, 02/06/2021 |
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5,900,426 |
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TELECOMMUNICATIONS (b)(d) - 2.4% |
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18,388,246 |
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TerreStar Corporation Term Loan A, 11.000% PIK, 02/27/2020 |
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18,351,469 |
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431,196 |
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Term Loan C, 11.000% PIK, 02/27/2020 |
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431,196 |
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18,782,665 |
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UTILITIES (e) - 0.0% |
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92,329,417 |
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Texas Competitive Electric Holdings Co., LLC Non Extended Escrow Loan |
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184,659 |
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Total U.S. Senior Loans (Cost $48,121,261) |
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36,130,275 |
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Asset-Backed Securities (f)(g) - 5.5% |
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14,000,000 |
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Acis CLO, Ltd. Series 2013-1A, Class SUB, VRN 0.00%, 04/18/2024 (h) |
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3,990,000 |
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7,500,000 |
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Series 2015-6A, Class SUB, VRN 0.00%, 05/01/2027 (h) |
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3,987,500 |
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6,000,000 |
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Series 2014-3A, Class E, 3M USD LIBOR + 4.750%, FRN, 02/01/2026 (h)(q) |
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5,672,400 |
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Principal Amount
($) |
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Value
($) |
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4,500,000 |
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Series 2013-1A, Class E, 3M USD LIBOR + 5.600%, FRN, 04/18/2024 (h)(q) |
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4,502,812 |
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5,000,000 |
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Series 2014-3A, Class F, 3M USD LIBOR + 5.600%, FRN, 02/01/2026 (h)(q) |
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4,409,500 |
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9,142,000 |
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Series 2013-1A, Class F, 3M USD LIBOR + 6.500%, FRN, 04/18/2024 (h)(q) |
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8,737,924 |
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2,250,000 |
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ALM VII R-2, Ltd. Series 2013-7R2A, Class SUBR, VRN 0.00%, 10/15/2116
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1,469,250 |
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1,925,000 |
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Betony CLO, Ltd. Series 2015-1A, Class SUB, VRN 0.00%, 04/15/2027 |
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747,092 |
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3,000,000 |
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CIFC Funding, Ltd. Series 2014-4A, Class SUB, VRN 0.00%, 10/17/2026 |
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1,305,000 |
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2,915,407 |
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Grayson CLO, Ltd. Series 2006-1A, Class D, 3M USD LIBOR + 3.600%, FRN, 11/01/2021
(h) |
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2,893,542 |
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670,810 |
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Highland Loan Funding V, Ltd. Series 1A Class 1 3.81%, 08/01/2018 (b)(h) |
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500,290 |
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5,039,229 |
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Highland Park CDO, Ltd. Series 2006-1A, Class A2, 3M LIBOR + 0.400%, FRN, 11/25/2051
(h) |
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4,888,052 |
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1,500,000 |
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Valhalla CLO, Ltd. Series 2004-1A, Class EIN 0.00%, 08/01/2020 (h) |
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300,000 |
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Total Asset-Backed Securities (Cost $49,652,088) |
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43,403,362 |
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Agency Collateralized Mortgage Obligations (g)(j) - 1.9% |
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45,871,176 |
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FREMF Trust Series 2018-KW04, Class C 0.00%, 12/25/2032 (i) |
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12,155,862 |
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549,957,487 |
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Series 2018-KW04, Class X2A 0.10%, 09/25/2028 (k) |
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2,777,285 |
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61,162,105 |
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Series 2018-KW04, Class X2B 0.10%, 12/25/2032 (k) |
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382,263 |
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Total Agency Collateralized Mortgage Obligations (Cost $15,568,864) |
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15,315,410 |
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Corporate Bonds & Notes - 2.3% |
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ENERGY (g) - 1.1% |
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681 |
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American Energy-Permian Basin LLC 7.38%, 11/01/2021 |
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419 |
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12,000,000 |
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Murray Energy Corp. 11.25%, 04/15/2021 |
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7,140,000 |
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18,439,000 |
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Ocean Rig UDW, Inc. (b)(c) |
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1,272,291 |
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|
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|
|
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8,412,710 |
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FINANCIAL (g) - 0.6% |
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|
5,000,000 |
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Freedom Mortgage Corp. 8.25%, 04/15/2025 |
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4,912,500 |
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RETAIL (g)(l) - 0.6% |
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7,000,000 |
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PetSmart, Inc. 8.88%, 06/01/2025 |
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4,637,500 |
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See Glossary on page 11 for abbreviations along with accompanying Notes to Financial Statements. |
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5 |
INVESTMENT PORTFOLIO (unaudited) (continued)
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As of June 30, 2018 |
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NexPoint Strategic Opportunities Fund |
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Principal Amount
($) |
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Value
($) |
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Corporate Bonds & Notes (continued) |
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TELECOMMUNICATIONS (b)(c)(e) - 0.0% |
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43,971,250 |
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Avaya, Inc. |
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UTILITIES (e) - 0.0% |
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5,000,000 |
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Texas Competitive Electric Holdings Co., LLC |
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50,000 |
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24,000,000 |
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Texas Competitive Electric Holdings Co., LLC |
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78,000 |
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128,000 |
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Total Corporate Bonds & Notes (Cost $33,845,632) |
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18,090,710 |
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Principal Amount |
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Foreign Corporate Bonds & Notes - 0.0% |
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NETHERLANDS (b)(c) - 0.0% |
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USD |
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93,180,354 |
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Celtic Pharma Phinco BV, PIK |
|
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Total Foreign Corporate Bonds & Notes (Cost $62,254,526) |
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Principal Amount ($) |
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Sovereign Bonds - 2.9% |
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SOVEREIGN BONDS - 2.9% |
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Argentine Republic Government International Bond |
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24,000,000 |
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2.50%, 12/31/2038 (l)(m) |
|
|
13,698,000 |
|
|
3,700,000 |
|
|
5.88%, 01/11/2028 (l) |
|
|
3,017,813 |
|
|
5,000,000 |
|
|
6.88%, 01/11/2048 (l) |
|
|
3,767,550 |
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|
1,000,000 |
|
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7.13%, 06/28/2117 |
|
|
765,250 |
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40,000,000 |
|
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Provincia de Buenos AiresArgentina Deposit Rates Badlar Pvt Banks + 3.830%, FRN 35.19%, 05/31/2022 (f)(l) |
|
|
1,209,705 |
|
|
24,085,000 |
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Provincia de Mendoza ArgentinaArgentina Deposit Rates Badlar Pvt Banks + 4.375%, FRN 36.06%, 06/09/2021 (f)(l) |
|
|
738,829 |
|
|
|
|
|
|
|
|
|
|
|
|
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23,197,147 |
|
|
|
|
|
|
|
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Total Sovereign Bonds (Cost $29,815,382) |
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23,197,147 |
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Convertible Foreign Bonds (g)(l)(m) - 0.2% |
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|
1,000,000 |
|
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TGLT SA 8.00%, 08/03/2027 |
|
|
1,310,000 |
|
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|
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|
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Total Convertible Foreign Bonds (Cost $1,000,000) |
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1,310,000 |
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Shares |
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Common Stocks - 57.4% |
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CHEMICALS - 1.7% |
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356,875 |
|
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MPM Holdings, Inc. (l)(n) |
|
|
12,044,531 |
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|
25,250 |
|
|
Venator Materials PLC (l)(n) |
|
|
413,090 |
|
|
661,330 |
|
|
Vertellus Specialties, Inc. (b) |
|
|
1,190,394 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
13,648,015 |
|
|
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|
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Shares |
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Value
($) |
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COMMERCIAL SERVICES (l) - 1.1% |
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869,803 |
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Corp. America Airports SA (n) |
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7,341,137 |
|
|
2,260 |
|
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Pendrell Corp. |
|
|
1,548,100 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,889,237 |
|
|
|
|
|
|
|
|
|
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CONSUMER DISCRETIONARY (l)(n) - 0.0% |
|
|
2,000 |
|
|
Despegar.com Corp. |
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|
41,940 |
|
|
3,532 |
|
|
K12, Inc. |
|
|
57,819 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
99,759 |
|
|
|
|
|
|
|
|
|
|
|
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CONSUMER STAPLES (l) - 0.1% |
|
|
1,500 |
|
|
Costco Wholesale Corp. |
|
|
313,470 |
|
|
|
|
|
|
|
|
|
|
|
|
CONSUMER-CYCLICAL (l)(n) - 1.9% |
|
|
1,871,000 |
|
|
Air France-KLM |
|
|
15,286,878 |
|
|
|
|
|
|
|
|
|
|
|
|
ENERGY - 7.0% |
|
|
336 |
|
|
California Resources Corp. (l)(n) |
|
|
15,268 |
|
|
154,250 |
|
|
EOG Resources, Inc. (l) |
|
|
19,193,327 |
|
|
295,841 |
|
|
Fieldwood Energy, Inc. |
|
|
15,161,851 |
|
|
72,839 |
|
|
Fieldwood Energy, Inc. |
|
|
3,732,999 |
|
|
2,059,555 |
|
|
NextDecade Corp. (l)(n) |
|
|
14,087,356 |
|
|
25 |
|
|
Ocean Rig UDW, Inc. (n) |
|
|
737 |
|
|
23,150 |
|
|
Targa Resources Corp. (l) |
|
|
1,145,694 |
|
|
63,500 |
|
|
Transportadora de Gas del Sur SA, Class B ADR (l)(n) |
|
|
770,890 |
|
|
35,600 |
|
|
Williams Cos., Inc. (The) (l) |
|
|
965,116 |
|
|
23,800 |
|
|
YPF SA ADR (l) |
|
|
323,204 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,396,442 |
|
|
|
|
|
|
|
|
|
|
|
|
FINANCIAL - 5.4% |
|
|
47,354 |
|
|
American Banknote Corp. (b)(n) |
|
|
108,441 |
|
|
15,000 |
|
|
Banco Macro SA ADR (l) |
|
|
881,850 |
|
|
100,000 |
|
|
BBVA Banco Frances SA ADR (l) |
|
|
1,236,000 |
|
|
86,000 |
|
|
CIT Group, Inc. (l) |
|
|
4,335,260 |
|
|
2,102,020 |
|
|
Gambier Bay LLC (b)(d) |
|
|
270,635 |
|
|
105,360 |
|
|
Grupo Supervielle SA ADR |
|
|
1,114,709 |
|
|
97,696 |
|
|
Medley Capital Corp. |
|
|
339,005 |
|
|
271,758 |
|
|
Medley Management, Inc., Class A |
|
|
964,741 |
|
|
28,258,954 |
|
|
Specialty Financial Products, Ltd. (b)(d) |
|
|
33,512,293 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42,762,934 |
|
|
|
|
|
|
|
|
|
|
|
|
GAMING & LEISURE (b)(d) - 0.0% |
|
|
14 |
|
|
LLV Holdco LLC - Litigation Trust Units |
|
|
|
|
|
26,712 |
|
|
LLV Holdco LLC - Series A, Membership Interest |
|
|
|
|
|
144 |
|
|
LLV Holdco LLC - Series B, Membership Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
HEALTHCARE - 1.3% |
|
|
50,000 |
|
|
Paratek Pharmaceuticals, Inc. (n) |
|
|
510,000 |
|
|
49,500 |
|
|
Patterson Cos., Inc. (l) |
|
|
1,122,165 |
|
|
229,244 |
|
|
Portola Pharmaceuticals, Inc. (n) |
|
|
8,658,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,290,711 |
|
|
|
|
|
|
|
|
|
|
|
|
HOUSING (b) - 0.2% |
|
|
368,150 |
|
|
CCD Equity Partners LLC |
|
|
1,649,312 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6 |
|
|
|
|
|
See Glossary on page 11 for abbreviations along with accompanying Notes to Financial Statements. |
INVESTMENT PORTFOLIO (unaudited) (continued)
|
|
|
As of June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Value
($) |
|
|
|
Common Stocks (continued) |
|
|
|
INFORMATION TECHNOLOGY - 4.7% |
|
|
107,000 |
|
|
Applied Materials, Inc. |
|
|
4,942,330 |
|
|
7,500 |
|
|
Arista Networks, Inc. (n) |
|
|
1,931,175 |
|
|
78,271 |
|
|
Avaya Holdings Corp. (l)(n) |
|
|
1,571,682 |
|
|
833 |
|
|
CDK Global, Inc. |
|
|
54,187 |
|
|
430,650 |
|
|
Intel Corp. (l) |
|
|
21,407,611 |
|
|
1 |
|
|
Magnachip Semiconductor Corp. (n) |
|
|
10 |
|
|
27,500 |
|
|
NXP Semiconductor NV (n) |
|
|
3,004,925 |
|
|
71,000 |
|
|
QUALCOMM, Inc. (l) |
|
|
3,984,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,896,440 |
|
|
|
|
|
|
|
|
|
|
|
|
MATERIALS (l) - 0.0% |
|
|
5,750 |
|
|
Huntsman Corp. |
|
|
167,900 |
|
|
|
|
|
|
|
|
|
|
|
|
MEDIA & TELECOMMUNICATIONS - 3.9% |
|
|
10,436 |
|
|
Gray Television, Inc., Class A (n) |
|
|
152,366 |
|
|
13,722 |
|
|
Loral Space & Communications, Inc. (l)(n) |
|
|
515,947 |
|
|
308,875 |
|
|
Metro-Goldwyn-Mayer, Inc., Class A (j) |
|
|
28,821,898 |
|
|
29,500 |
|
|
Sinclair Broadcast Group, Inc., Class A (l) |
|
|
948,425 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,438,636 |
|
|
|
|
|
|
|
|
|
|
|
|
METALS & MINERALS - 0.9% |
|
|
290,500 |
|
|
Loma Negra Cia Industrial Argentina SA ADR (l)(n) |
|
|
2,980,530 |
|
|
11,164 |
|
|
Omnimax International, Inc. (b) |
|
|
3,766,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,747,004 |
|
|
|
|
|
|
|
|
|
|
|
|
PHARMACEUTICALS (l)(n) - 1.4% |
|
|
58,888 |
|
|
Collegium Pharmaceutical, Inc. |
|
|
1,404,479 |
|
|
184,541 |
|
|
Heron Therapeutics, Inc. |
|
|
7,169,418 |
|
|
210,000 |
|
|
TG Therapeutics, Inc. |
|
|
2,761,500 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,335,397 |
|
|
|
|
|
|
|
|
|
|
|
|
REAL ESTATE - 1.2% |
|
|
554,922 |
|
|
Allenby (b)(d) |
|
|
1 |
|
|
1,000,000 |
|
|
Bluerock Residential Growth REIT, Inc., REIT (l) |
|
|
8,920,000 |
|
|
1,779,602 |
|
|
Claymore (b)(d) |
|
|
2 |
|
|
27,800 |
|
|
Cresud SACIF y A ADR (l) |
|
|
411,996 |
|
|
5,810 |
|
|
IRSA Inversiones y Representaciones SA ADR (l) |
|
|
100,455 |
|
|
1,047 |
|
|
IRSA Propiedades Comerciales SA ADR (l) |
|
|
32,446 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,464,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
REAL ESTATE INVESTMENT TRUST - 18.9% |
|
|
|
|
|
47,000 |
|
|
Independence Realty Trust, Inc., REIT (l) |
|
|
484,570 |
|
|
344,803 |
|
|
Jernigan Capital, Inc., REIT (l) |
|
|
6,571,945 |
|
|
10,674,177 |
|
|
NexPoint Real Estate Capital, LLC, REIT (b)(d) |
|
|
50,901,948 |
|
|
50,168,360 |
|
|
NexPoint Real Estate Opportunities, LLC, REIT (b)(d) |
|
|
87,603,990 |
|
|
1,008,253 |
|
|
United Development Funding IV, REIT (n) |
|
|
3,357,483 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
148,919,936 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Value
($) |
|
|
|
|
RETAIL (l) - 0.2% |
|
|
|
|
|
294,500 |
|
|
Barnes & Noble, Inc. |
|
|
1,870,075 |
|
|
|
|
|
|
|
|
|
|
|
|
|
TELECOMMUNICATIONS (b)(d)(j) - 4.4% |
|
|
|
|
|
132,801 |
|
|
TerreStar Corporation |
|
|
34,771,286 |
|
|
|
|
|
|
|
|
|
|
|
|
|
UTILITIES - 3.1% |
|
|
|
|
|
327,750 |
|
|
Central Puerto SA ADR (l) |
|
|
3,244,725 |
|
|
26,220 |
|
|
Entegra TC LLC, Class A (b) |
|
|
212,906 |
|
|
58,250 |
|
|
Pampa Energia SA ADR (l)(n) |
|
|
2,083,603 |
|
|
801,028 |
|
|
Vistra Energy Corp. (l)(n) |
|
|
18,952,322 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,493,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Common Stocks (Cost $538,225,620) |
|
|
453,441,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stocks - 29.1% |
|
|
|
|
|
|
|
FINANCIAL (f)(g) - 17.6% |
|
|
|
|
|
14,500 |
|
|
Aberdeen Loan Funding, Ltd. (h) |
|
|
3,770,000 |
|
|
99,223 |
|
|
Bluerock Residential Growth REIT, Inc., Series C 7.625% (l) |
|
|
2,394,251 |
|
|
127,691 |
|
|
Bluerock Residential Growth REIT, Inc., Series D 7.125% (l) |
|
|
2,865,424 |
|
|
1,200 |
|
|
Brentwood CLO, Ltd. (h) |
|
|
552,000 |
|
|
13,800 |
|
|
Brentwood CLO, Ltd. (h) |
|
|
6,348,000 |
|
|
34,500 |
|
|
Eastland CLO, Ltd. (h) |
|
|
17,422,500 |
|
|
5,000 |
|
|
Eastland CLO, Ltd. (h) |
|
|
2,525,000 |
|
|
7,750 |
|
|
Gleneagles CLO, Ltd. (h) |
|
|
3,255,000 |
|
|
62,600 |
|
|
Grayson CLO, Ltd., Series II (h) |
|
|
25,196,500 |
|
|
4,000 |
|
|
Grayson Investors Corp. (h) |
|
|
1,610,000 |
|
|
39,000 |
|
|
Greenbriar CLO, Ltd. (h) |
|
|
23,595,000 |
|
|
3,750 |
|
|
Greenbriar CLO, Ltd. (h) |
|
|
2,268,750 |
|
|
2,500 |
|
|
Liberty CLO, Ltd. (h) |
|
|
1,062,500 |
|
|
8,500 |
|
|
Red River CLO, Ltd., Series PS-2 (h) |
|
|
2,063,846 |
|
|
10,500 |
|
|
Rockwall CDO, Ltd. (h) |
|
|
4,305,000 |
|
|
6,000 |
|
|
Southfork CLO, Ltd. (h) |
|
|
960,000 |
|
|
41,500 |
|
|
Stratford CLO, Ltd. (h) |
|
|
22,540,725 |
|
|
35,507 |
|
|
Westchester CLO, Ltd. (h) |
|
|
16,333,220 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
139,067,716 |
|
|
|
|
|
|
|
|
|
|
|
|
|
REAL ESTATE (l) - 0.1% |
|
|
|
|
|
53,794 |
|
|
RAIT Financial Trust, REIT, Series C 8.875% |
|
|
388,931 |
|
|
9,946 |
|
|
RAIT Financial Trust 7.125% |
|
|
227,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
616,197 |
|
|
|
|
|
|
|
|
|
|
|
|
|
REAL ESTATE INVESTMENT TRUST (b) - 11.4% |
|
|
|
|
|
90,000 |
|
|
Jernigan Capital, Inc. |
|
|
90,000,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Preferred Stocks (Cost $263,477,141) |
|
|
229,683,913 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Exchange-Traded Funds - 0.1% |
|
|
|
|
|
2,925 |
|
|
Direxion Daily Gold Miners Index Bull 3X Shares ETF |
|
|
71,165 |
|
|
80,100 |
|
|
Global X MLP & Energy Infrastructure ETF (l) |
|
|
1,066,932 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Exchange-Traded Funds (Cost $3,033,782) |
|
|
1,138,097 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Glossary on page 11 for abbreviations along with accompanying Notes to Financial Statements. |
|
|
|
|
|
7 |
INVESTMENT PORTFOLIO (unaudited) (continued)
|
|
|
As of June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
|
|
|
|
|
|
|
|
|
|
|
Units |
|
Value
($) |
|
|
|
|
Rights - 0.1% |
|
|
|
|
|
|
|
UTILITIES (e) - 0.1% |
|
|
|
|
|
1,618,542 |
|
|
Texas Competitive Electric Holdings Co., LLC |
|
|
942,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Rights (Cost $5,007,431) |
|
|
942,801 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants - 0.1% |
|
|
|
|
|
|
|
ENERGY (n) - 0.0% |
|
|
|
|
|
4,071 |
|
|
Arch Coal, Inc., expires 10/05/2023 |
|
|
126,201 |
|
|
|
|
|
|
|
|
|
|
|
|
|
GAMING & LEISURE (b)(d)(n) - 0.0% |
|
|
|
|
|
607 |
|
|
LLV Holdco LLC - Series C, Membership Interest |
|
|
|
|
|
834 |
|
|
LLV Holdco LLC - Series D, Membership Interest |
|
|
|
|
|
932 |
|
|
LLV Holdco LLC - Series E, Membership Interest |
|
|
|
|
|
1,049 |
|
|
LLV Holdco LLC - Series F, Membership Interest |
|
|
|
|
|
1,189 |
|
|
LLV Holdco LLC - Series G, Membership Interest |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY (b)(l)(n) - 0.1% |
|
|
|
|
|
179,322 |
|
|
Avaya Holdings Corp. |
|
|
641,973 |
|
|
|
|
|
|
|
|
|
|
|
|
|
METALS & MINERALS (b)(n) - 0.0% |
|
|
|
|
|
346 |
|
|
Omnimax Holdings, Inc. |
|
|
116,585 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Warrants (Cost $251,697) |
|
|
884,759 |
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
Master Limited Partnerships - 0.4% |
|
|
|
|
ENERGY - 0.4% |
|
|
|
|
|
131,400 |
|
|
EnLink Midstream Partners LP |
|
|
2,040,642 |
|
|
27,500 |
|
|
Williams Partners LP |
|
|
1,116,225 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,156,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Master Limited Partnerships (Cost $3,039,616) |
|
|
3,156,867 |
|
|
|
|
|
|
|
|
|
|
|
|
Registered Investment Companies - 0.3% |
|
|
230,968 |
|
|
Dividend and Income Fund, Common |
|
|
2,847,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Registered Investment Companies (Cost $3,279,746) |
|
|
2,847,836 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Equivalents - 6.1% |
|
|
|
|
|
|
|
MONEY MARKET FUND - 6.1% |
|
|
|
|
|
48,149,667 |
|
|
State Street Institutional U.S. Government Money Market Fund, Premier Class 1.78%, 12/31/2049 |
|
|
48,149,667 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Cash Equivalents (Cost $48,149,667) |
|
|
48,149,667 |
|
|
|
|
|
|
|
|
|
|
|
Total Investments - 111.1% |
|
|
877,692,732 |
|
|
|
|
|
|
|
|
|
|
|
(Cost $1,104,722,453) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
Value
($) |
|
|
|
|
Securities Sold Short (o) - (1.0)% |
|
|
|
|
|
|
|
Common Stocks - (1.0)% |
|
|
|
|
|
|
|
INFORMATION TECHNOLOGY (p) - (1.0)% |
|
|
|
|
|
(35,700) |
|
|
Zillow Group, Inc., Class A |
|
|
(2,133,075 |
) |
|
(99,900) |
|
|
Zillow Group, Inc., Class C |
|
|
(5,900,094 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(8,033,169 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
ENERGY (b)(e)(p) - 0.0% |
|
|
|
|
|
(8,451) |
|
|
Seventy Seven Energy, Inc. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Common Stocks (Proceeds $5,321,877) |
|
|
(8,033,169 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Securities Sold Short (Proceeds $5,321,877) |
|
|
(8,033,169 |
) |
|
|
|
|
|
|
|
|
|
|
Other Assets & Liabilities, Net - (10.1)% |
|
|
(79,519,404 |
) |
|
|
|
|
|
|
|
|
|
|
Net Assets - 100.0% |
|
|
790,140,159 |
|
|
|
|
|
|
|
|
|
|
(a) |
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. Rate shown represents the weighted average rate at
June 30, 2018. 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 may be substantially less than the stated maturity shown. |
(b) |
Represents fair value as determined by the Funds Board of Trustees (the Board), or its designee in good faith, pursuant to the
policies and procedures approved by the Board. Securities with a total aggregate value of $340,768,521, or 43.1% of net assets, were fair valued under the Funds valuation procedures as of June 30, 2018. Classified as Level 3 within the
three-tier fair value hierarchy. Please see Note 2 for an explanation of this hierarchy, as well as a list of unobservable inputs used in the valuation of these instruments. |
(c) |
The issuer is, or is in danger of being, in default of its payment obligation. |
(d) |
Affiliated issuer. Assets with a total aggregate market value of $233,235,949, or 29.5% of net assets, were affiliated with the Fund as of June 30,
2018. |
(e) |
Represents value held in escrow pending future events. No interest is being accrued. |
(f) |
Variable or floating rate security. The base lending rates are generally the lending rate offered by one or more European banks such as the LIBOR. The
interest rate shown reflects the rate in effect June 30, 2018. |
(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 June 30, 2018, these securities amounted to $217,059,198 or 27.5% of net assets. |
(h) |
Securities of collateralized loan obligations where an affiliate of the Investment Adviser serves as collateral manager. |
(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.
|
|
|
|
|
|
|
|
8 |
|
|
|
|
|
See Glossary on page 11 for abbreviations along with accompanying Notes to Financial Statements. |
INVESTMENT PORTFOLIO (unaudited) (continued)
|
|
|
As of June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
(j) |
Restricted Securities. These securities are not registered and may not be sold to the public. There are legal and/or contractual restrictions on resale.
The Fund does not have the right to demand that such securities be registered. The values of these securities are determined by valuations provided by pricing services, brokers, dealers, market makers, or in good faith under the procedures
established by the Funds Board of Trustees. Additional Information regarding such securities follows: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Restricted Security |
|
Security Type |
|
|
Acquisition Date |
|
|
Cost of Security |
|
|
Market Value at Period End |
|
|
Percent of Net Assets |
|
Metro-Goldwyn-Mayer, Inc. |
|
|
Common Stocks |
|
|
|
12/20/2010 |
|
|
$ |
13,929,926 |
|
|
$ |
28,821,898 |
|
|
|
3.6 |
% |
TerreStar Corporation |
|
|
Common Stocks |
|
|
|
11/14/2014 |
|
|
$ |
34,089,464 |
|
|
$ |
34,771,286 |
|
|
|
4.4 |
% |
(k) |
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. |
(l) |
All or part of this security is pledged as collateral for short sales and written options contracts. The market value of the securities pledged as
collateral was $185,022,642. The market value of the securities pledged as collateral for the Committed Facility Agreement with BNP Paribas Prime Brokerage, Inc. was $144,195,568. |
(m) |
Step coupon bond. The interest rate shown reflects the rate in effect June 30, 2018 and will reset at a future date. |
(n) |
Non-income producing security. |
(o) |
As of June 30, 2018 $22,045,996 in cash was segregated or on deposit with the brokers to cover investments sold short and is included in
Other Assets & Liabilities. |
(p) |
No dividend payable on security sold short. |
(q) |
As of June 30, 2018, investments with a total aggregate value of $23,322,636 were fully or partially segregated with broker(s)/custodian as collateral
for reverse repurchase agreements. |
Purchased options contracts outstanding as of June 30, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
Exercise Price |
|
|
Counterparty |
|
|
Expiration Date |
|
|
Number of Contracts |
|
|
Notional Value |
|
|
Premium |
|
|
Value |
|
PURCHASED PUT OPTIONS: |
|
iShares Russell 2000 Index Fund ETF, Call |
|
|
$162.00 |
|
|
|
Jefferies & Co., Inc. |
|
|
|
September 2018 |
|
|
|
3,000 |
|
|
$ |
300,000 |
|
|
$ |
1,512,726 |
|
|
$ |
1,308,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Purchased Options Contracts |
|
|
|
|
|
|
$ |
1,512,726 |
|
|
$ |
1,308,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written options contracts outstanding as of June 30, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
Exercise Price |
|
|
Counterparty |
|
|
Expiration Date |
|
|
Number of Contracts |
|
|
Notional Value |
|
|
Premium |
|
|
Value |
|
WRITTEN CALL OPTIONS: |
|
iShares Russell 2000 Index Fund ETF, Call |
|
|
$165.00 |
|
|
|
Jefferies & Co., Inc. |
|
|
|
September 2018 |
|
|
|
2,500 |
|
|
$ |
41,250,000 |
|
|
$ |
(1,058,242 |
) |
|
$ |
(1,125,000 |
) |
Netflix, Inc., Call |
|
|
$402.50 |
|
|
|
Jefferies & Co., Inc. |
|
|
|
July 2018 |
|
|
|
525 |
|
|
|
21,131,250 |
|
|
|
(844,608 |
) |
|
|
(958,125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Written Options Contracts |
|
|
|
|
|
|
$ |
(1,902,850 |
) |
|
$ |
(2,083,125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Fund had the following futures contracts open at June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Description |
|
Expiration Date |
|
|
Number of Contracts |
|
|
Notional Value |
|
|
Unrealized Appreciation (Depreciation) |
|
Short Future: |
|
S&P 500 E-Mini Index |
|
|
September 2018 |
|
|
|
865 |
|
|
$ |
(117,709,200 |
) |
|
$ |
2,397,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The average amount of borrowing by the Fund on reverse repurchase agreements outstanding during the period ended June 30, 2018
was $16,655,690 at a weighted average interest rate of 3.42%.
Reverse Repurchase Agreements outstanding as of June 30, 2018 were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Counter- party |
|
Collateral Pledged |
|
Interest Rate |
|
|
Trade Date |
|
|
Maturity Date |
|
|
Repurchase Amount |
|
|
Principal Amount |
|
|
Value |
|
BNP |
|
Acis CLO, Ltd., Series 2014-3A, Class E, 3-month LIBOR + 4.750%, FRN 2/1/2026 |
|
|
3.6351 |
|
|
|
6/18/2018 |
|
|
|
7/18/2018 |
|
|
|
4,377,018 |
|
|
|
6,000,000 |
|
|
|
(4,363,800 |
) |
BNP |
|
Acis CLO, Ltd., Series 2014-3A, Class F, 3-month LIBOR + 5.60%, FRN 2/1/2026 |
|
|
3.8351 |
|
|
|
6/18/2018 |
|
|
|
7/18/2018 |
|
|
|
3,222,766 |
|
|
|
5,000,000 |
|
|
|
(3,212,500 |
) |
BNP |
|
Acis CLO, Ltd. Series 2013-1A, Class E, 3-month LIBOR + 5.600%, FRN 04/18/2024 |
|
|
3.6351 |
|
|
|
6/18/2018 |
|
|
|
7/18/2018 |
|
|
|
3,381,161 |
|
|
|
4,500,000 |
|
|
|
(3,370,950 |
) |
BNP |
|
Acis CLO, Ltd. Series 2013-1A, Class F, 3-month LIBOR + 6.500%, FRN 04/18/2024 |
|
|
3.8351 |
|
|
|
6/18/2018 |
|
|
|
7/18/2018 |
|
|
|
5,784,286 |
|
|
|
9,142,000 |
|
|
|
(5,765,859 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
24,642,000 |
|
|
$ |
(16,713,109 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Glossary on page 11 for abbreviations along with accompanying Notes to Financial Statements. |
|
|
|
|
|
9 |
INVESTMENT PORTFOLIO (unaudited) (concluded)
|
|
|
As of June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
|
|
|
|
|
Foreign Denominated or Domiciled Senior Loans and Foreign Corporate
Bonds & Notes Industry Concentration Table: (% of Net Assets) |
|
Utilities |
|
|
0.2 |
% |
Consumer, Non-cyclical |
|
|
0.1 |
% |
Healthcare |
|
|
0.0 |
% |
|
|
|
|
|
Total |
|
|
0.3 |
% |
|
|
|
|
|
Less than 0.05% |
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
See Glossary on page 11 for abbreviations along with accompanying Notes to Financial Statements. |
GLOSSARY: (abbreviations that may be used in the preceding
statements) (unaudited)
|
|
|
Currency Abbreviations |
USD |
|
United States Dollar |
|
|
|
Other Abbreviations: |
ADR |
|
American Depository Receipt |
CDO |
|
Collateralized Debt Obligation |
CLO |
|
Collateralized Loan Obligation |
ETF |
|
Exchange-Traded Fund |
MLP |
|
Master Limited Partnership |
PIK |
|
Payment-in-Kind |
REIT |
|
Real Estate Investment Trust |
STATEMENT OF ASSETS AND LIABILITIES
|
|
|
As of June 30, 2018 (unaudited) |
|
NexPoint Strategic Opportunities Fund |
|
|
|
|
|
|
|
($) |
|
Assets |
|
|
|
|
Unaffiliated investments, at value |
|
|
597,615,116 |
|
Affiliated investments, at value (Note 11) |
|
|
233,235,949 |
|
|
|
|
|
|
Total Investments, at value |
|
|
830,851,065 |
|
Cash equivalents (Note 2) |
|
|
48,149,667 |
|
Cash |
|
|
66,017 |
|
Restricted Cash Futures (Note 3) |
|
|
4,844,000 |
|
Restricted Cash Securities Sold Short and Options (Note 2) |
|
|
8,028,284 |
|
Receivable for: |
|
|
|
|
Investments sold |
|
|
11,702,292 |
|
Dividends and interest |
|
|
6,109,884 |
|
Variation margin on futures contracts |
|
|
2,716,232 |
|
Prepaid expenses and other assets |
|
|
4,793,533 |
|
|
|
|
|
|
Total assets |
|
|
917,260,974 |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
Notes payable (Note 6) |
|
|
73,352,183 |
|
Reverse repurchase agreements (Note 3) |
|
|
16,713,109 |
|
Securities sold short, at value (Notes 2 and 8) |
|
|
8,033,169 |
|
Written options contracts, at value (Note 3) |
|
|
2,083,125 |
|
Interest received in advance |
|
|
52,945 |
|
|
|
Payable for: |
|
|
|
|
Investments purchased |
|
|
24,734,669 |
|
Investment advisory and administration fees (Note 8) |
|
|
869,170 |
|
Interest expense and commitment fees (Note 6) |
|
|
474,750 |
|
Transfer agent fees |
|
|
16,358 |
|
Custody fees |
|
|
22 |
|
Accrued expenses and other liabilities |
|
|
791,315 |
|
|
|
|
|
|
Total liabilities |
|
|
127,120,815 |
|
|
|
|
|
|
Commitments and Contingencies (Note 7) |
|
|
|
|
Net Assets Applicable to Common Shares |
|
|
790,140,159 |
|
|
|
|
|
|
|
|
Net Assets Consist of: |
|
|
|
|
Par value (Note 1) |
|
|
32,293 |
|
Paid-in capital |
|
|
1,168,902,784 |
|
Accumulated (distributions in excess of) net investment income |
|
|
(18,684,677 |
) |
Accumulated realized gain |
|
|
(132,350,460 |
) |
Net unrealized depreciation on investments, securities sold short, written options contracts and translation of assets and liabilities
denominated in foreign currency |
|
|
(227,759,781 |
) |
|
|
|
|
|
Net Assets Applicable to Common Shares |
|
|
790,140,159 |
|
|
|
|
|
|
Investments, at cost |
|
|
753,006,884 |
|
Affiliated investments, at cost (Note 11) |
|
|
305,078,628 |
|
Cash equivalents, at cost (Note 2) |
|
|
48,149,667 |
|
Proceeds from securities sold short |
|
|
5,321,877 |
|
Written option premiums received |
|
|
1,902,850 |
|
|
|
Common Shares |
|
|
|
|
Shares outstanding (unlimited authorization) |
|
|
32,293,311 |
|
Net asset value per share (Net assets/shares outstanding) |
|
|
24.47 |
|
|
|
|
|
|
|
|
12 |
|
|
|
|
|
See accompanying Notes to Financial Statements. |
STATEMENT OF OPERATIONS
|
|
|
For the Six Months Ended June 30, 2018 (unaudited) |
|
NexPoint Strategic Opportunities Fund |
|
|
|
|
|
|
|
($) |
|
Investment Income |
|
|
|
|
Income: |
|
|
|
|
Dividends from unaffiliated issuers |
|
|
6,754,231 |
|
Dividends from affiliated issuers (Note 11) |
|
|
5,987,500 |
|
Interest from unaffiliated issuers |
|
|
5,860,432 |
|
Interest paid in kind from unaffiliated issuers |
|
|
397,080 |
|
Interest paid in kind from affiliated issuers (Note 11) |
|
|
1,017,280 |
|
Other income |
|
|
55,161 |
|
|
|
|
|
|
Total Income |
|
|
20,071,684 |
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
Investment advisory (Note 8) |
|
|
3,718,635 |
|
Administration fees (Note 8) |
|
|
744,097 |
|
Legal fees |
|
|
361,451 |
|
Reports to shareholders |
|
|
215,071 |
|
Audit and tax preparation fees |
|
|
153,428 |
|
Accounting services fees |
|
|
85,003 |
|
Trustees fees (Note 8) |
|
|
55,863 |
|
Transfer agent fees |
|
|
43,203 |
|
Insurance |
|
|
29,516 |
|
Registration fees |
|
|
19,132 |
|
Tax expense |
|
|
8,962 |
|
Interest expense and commitment fees (Note 6) |
|
|
2,059,501 |
|
Dividends and fees on securities sold short (Note 2) |
|
|
11,516 |
|
Other |
|
|
52,542 |
|
|
|
|
|
|
Total operating expenses |
|
|
7,557,920 |
|
|
|
|
|
|
Net investment income |
|
|
12,513,764 |
|
|
|
|
|
|
|
|
Net Realized and Unrealized Gain (Loss) on Investments |
|
|
|
|
Realized gain (loss) on: |
|
|
|
|
Investments from unaffiliated issuers |
|
|
14,990,364 |
|
Securities sold short (Note 2) |
|
|
495,984 |
|
Written options contracts (Note 3) |
|
|
5,906,698 |
|
Futures contracts (Note 3) |
|
|
2,212,566 |
|
Foreign currency related transactions |
|
|
(20,662 |
) |
|
|
Change unrealized appreciation (depreciation) on: |
|
|
|
|
Investments |
|
|
(6,226,661 |
) |
Investments in affiliated issuers (Note 11) |
|
|
862,402 |
|
Securities sold short (Note 2) |
|
|
(2,614,070 |
) |
Written options contracts (Note 3) |
|
|
(5,941,913 |
) |
Futures contracts (Note 3) |
|
|
2,397,892 |
|
Foreign currency related translations |
|
|
(29,482 |
) |
|
|
|
|
|
Net realized and unrealized gain (loss) on investments |
|
|
12,033,118 |
|
|
|
|
|
|
Total increase in net assets resulting from operations |
|
|
24,546,882 |
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements. |
|
|
|
|
|
13 |
STATEMENT OF CHANGES IN NET ASSETS
|
|
|
|
|
NexPoint Strategic Opportunities Fund |
|
|
|
|
|
|
|
|
|
|
|
NexPoint Strategic Opportunities Fund |
|
|
|
SixMonths Ended June 30, 2018 (unaudited) ($) |
|
|
Year Ended December 31, 2017 ($) |
|
Increase (Decrease) in Net Assets |
|
|
|
|
|
|
|
|
Operations: |
|
|
|
|
|
|
|
|
Net investment income |
|
|
12,513,764 |
|
|
|
18,501,375 |
|
Accumulated net realized gain/(loss) from investments, securities sold short, written options, futures contracts and foreign currency
transactions |
|
|
23,584,950 |
|
|
|
(61,493,949 |
) |
Net change in unrealized appreciation/(depreciation) on investments, securities sold short, written options contracts and translation of
assets and liabilities denominated in foreign currency |
|
|
(11,551,832 |
) |
|
|
127,119,049 |
|
|
|
|
|
|
|
|
|
|
Net increase from operations |
|
|
24,546,882 |
|
|
|
84,126,475 |
|
|
|
|
|
|
|
|
|
|
Distributions Declared to Common Shareholders |
|
|
|
|
|
|
|
|
From net investment income |
|
|
(29,240,723 |
) |
|
|
(47,702,500 |
) |
Return of capital |
|
|
|
|
|
|
(181,540 |
) |
|
|
|
|
|
|
|
|
|
Total distributions declared to common shareholders |
|
|
(29,240,723 |
) |
|
|
(47,884,040 |
) |
|
|
|
|
|
|
|
|
|
Total increase/(decrease) in net assets from common shares |
|
|
(4,693,841 |
) |
|
|
36,242,435 |
|
|
|
|
|
|
|
|
|
|
Share transactions: |
|
|
|
|
|
|
|
|
Proceeds from sale of shares |
|
|
201,766,602 |
|
|
|
139,872,720 |
|
Value of distributions reinvested |
|
|
758,404 |
|
|
|
1,394,133 |
|
|
|
|
|
|
|
|
|
|
Net increase from shares transactions |
|
|
202,525,006 |
|
|
|
141,266,853 |
|
|
|
|
|
|
|
|
|
|
Total increase in net assets |
|
|
197,831,165 |
|
|
|
177,509,288 |
|
Net Assets |
|
|
|
|
|
|
|
|
Beginning of period |
|
|
592,308,994 |
|
|
|
414,799,706 |
|
|
|
|
|
|
|
|
|
|
End of period (distributions in excess of net investment income of $(18,684,677) and $(1,957,718) respectively) |
|
|
790,140,159 |
|
|
|
592,308,994 |
|
|
|
|
|
|
|
|
|
|
Change in Common Shares |
|
|
|
|
|
|
|
|
Issued for distribution reinvested |
|
|
32,052 |
|
|
|
61,228 |
|
Shares issued in rights offering (Note 12) |
|
|
9,494,823 |
|
|
|
6,682,882 |
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in common shares |
|
|
9,526,875 |
|
|
|
6,744,110 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14 |
|
|
|
|
|
See accompanying Notes to Financial Statements. |
STATEMENT OF CASH FLOWS
|
|
|
For the Six Months Ended June 30, 2018 (unaudited) |
|
NexPoint Strategic Opportunities Fund |
|
|
|
|
|
|
|
($) |
|
Cash Flows Used In Operating Activities: |
|
|
|
|
Net increase in net assets resulting from operations |
|
|
24,546,882 |
|
|
|
Adjustments to Reconcile Net Investment Income to Net Cash Used In Operating Activities |
|
|
|
|
Operating Activities: |
|
|
|
|
Purchases of investment securities from unaffiliated issuers |
|
|
(442,363,839 |
) |
Purchases of investment securities from affiliated issuers |
|
|
(89,221,205 |
) |
Proceeds from disposition of investment securities from unaffiliated issuers |
|
|
291,082,171 |
|
Proceeds from disposition of investment securities from affiliated issuers |
|
|
95,295,748 |
|
Purchases of short-term portfolio investments, net |
|
|
(47,585,813 |
) |
Interest paid in kind from unaffiliated issuers |
|
|
(397,080 |
) |
Interest paid in kind from affiliated issuers |
|
|
(1,017,280 |
) |
Purchases of securities sold short |
|
|
(77,598,183 |
) |
Proceeds of securities sold short |
|
|
76,313,680 |
|
Purchased options transactions |
|
|
(1,512,726 |
) |
Proceeds from written options |
|
|
(850,090 |
) |
Paydowns at cost |
|
|
7,756,001 |
|
Net accretion of discount |
|
|
(1,281,142 |
) |
Net realized gain on investments from unaffiliated issuers |
|
|
(14,990,364 |
) |
Net realized gain on securities sold short, written options contracts and foreign currency transactions |
|
|
(6,382,020 |
) |
Net change in unrealized appreciation/ (depreciation) on investments, securities sold short, written options contracts and translation on
assets and liabilities denominated in foreign currency |
|
|
13,949,724 |
|
Increase in receivable for investments sold |
|
|
(7,784,851 |
) |
Increase in receivable for dividends and interest |
|
|
(4,462,522 |
) |
Increase in receivable for variation margin on futures contracts |
|
|
(2,716,232 |
) |
Increase in prepaid expenses and other assets |
|
|
(4,686,745 |
) |
Increase in interest received in advance |
|
|
52,945 |
|
Increase in payable for investments purchased |
|
|
20,732,016 |
|
Decrease in payable due to broker |
|
|
(52,144,906 |
) |
Increase in payables to investment advisory and administration fees |
|
|
239,300 |
|
Increase in payable to transfer agent fees |
|
|
12,014 |
|
Increase in payable to custody fees |
|
|
22 |
|
Increase in payable for interest expense and commitment fees |
|
|
342,290 |
|
Increase in accrued expenses and other liabilities |
|
|
107,270 |
|
|
|
|
|
|
Net cash flowused in operating activities |
|
|
(224,564,935 |
) |
|
|
Cash Flows Provided By Financing Activities: |
|
|
|
|
Increase in notes payable |
|
|
58,301,102 |
|
Proceeds from reverse repurchase agreements |
|
|
(169,304 |
) |
Distributions paid in cash |
|
|
(28,482,319 |
) |
Proceeds from shares sold |
|
|
201,766,602 |
|
|
|
|
|
|
Net cash flow provided by financing activities |
|
|
231,416,081 |
|
Effect of exchange rate changes on cash |
|
|
(50,144 |
) |
|
|
|
|
|
Net Increase in Cash |
|
|
6,801,002 |
|
|
|
Cash, Restricted Cash, and Foreign Currency: |
|
|
|
|
Beginning of period |
|
|
6,137,299 |
|
|
|
|
|
|
End of period |
|
|
12,938,301 |
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information: |
|
|
|
|
Cash paid during the period for interest |
|
|
1,717,211 |
|
|
|
|
|
|
Reinvestment of distributions |
|
|
758,404 |
|
|
|
|
|
|
Interest paid in kind from unaffiliated and affiliated issuers |
|
|
1,414,360 |
|
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements. |
|
|
|
|
|
15 |
FINANCIAL HIGHLIGHTS
|
|
|
|
|
NexPoint Strategic Opportunities Fund |
Selected data for a share outstanding throughout each period is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For
the Six Months Ended June 30, 2018 (unaudited) |
|
|
For the Years Ended December 31, |
|
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|
2015* |
|
|
2014 |
|
|
2013 |
|
|
|
|
|
|
|
|
Net Asset Value, Beginning of Period |
|
$ |
26.02 |
|
|
$ |
25.89 |
|
|
$ |
22.92 |
|
|
$ |
53.92 |
|
|
$ |
11.34 |
|
|
$ |
7.46 |
|
Income from Investment Operations: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment
income(a) |
|
|
0.52 |
|
|
|
0.93 |
|
|
|
4.08 |
|
|
|
8.75 |
(b) |
|
|
0.82 |
|
|
|
0.63 |
|
Net realized and unrealized gain/(loss) |
|
|
0.59 |
|
|
|
2.88 |
|
|
|
1.69 |
|
|
|
(16.08 |
) |
|
|
2.02 |
|
|
|
3.80 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total from investment operations |
|
|
1.11 |
|
|
|
3.81 |
|
|
|
5.77 |
|
|
|
(7.33 |
) |
|
|
2.84 |
|
|
|
4.43 |
|
Less Distributions Declared to Common Shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From net investment income |
|
|
(1.20 |
) |
|
|
(2.39 |
) |
|
|
(2.80 |
) |
|
|
(2.88 |
) |
|
|
(0.70 |
) |
|
|
(0.55 |
) |
From return of capital |
|
|
|
|
|
|
(0.01 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From spin-off(l) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20.79 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total distributions declared to common shareholders |
|
|
(1.20 |
) |
|
|
(2.40 |
) |
|
|
(2.80 |
) |
|
|
(23.67 |
) |
|
|
(0.70 |
) |
|
|
(0.55 |
) |
Issuance of Common
Shares(e) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued |
|
|
(1.46 |
) |
|
|
(1.28 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, End of Period |
|
$ |
24.47 |
|
|
$ |
26.02 |
|
|
$ |
25.89 |
|
|
$ |
22.92 |
|
|
$ |
13.48 |
|
|
$ |
11.34 |
|
Market Value, End of Period |
|
$ |
21.95 |
|
|
$ |
25.29 |
|
|
$ |
22.77 |
|
|
$ |
20.44 |
|
|
$ |
11.23 |
|
|
$ |
9.42 |
|
Market Value Total Return(c) |
|
|
(5.06 |
)%(d) |
|
|
27.31 |
% |
|
|
27.69 |
% |
|
|
(18.09 |
)% |
|
|
26.77 |
% |
|
|
52.03 |
% |
Ratios to Average Net Assets/Supplemental Data: |
|
|
|
|
|
|
|
|
|
Net assets, end of period (in 000s) |
|
$ |
790,140 |
|
|
$ |
592,309 |
|
|
$ |
414,800 |
|
|
$ |
366,078 |
|
|
$ |
860,877 |
|
|
$ |
724,485 |
|
Common Share Information at End of Period: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ratios based on average net assets of common shares: |
|
|
|
|
|
|
|
|
|
Gross operating
expenses(f) |
|
|
2.44 |
%(g)
|
|
|
2.58 |
% |
|
|
3.12 |
% |
|
|
3.43 |
% |
|
|
2.48 |
% |
|
|
2.82 |
% |
Net investment income |
|
|
4.04 |
%(g)
|
|
|
3.69 |
% |
|
|
17.34 |
% |
|
|
24.23 |
%(h)
|
|
|
6.45 |
% |
|
|
7.01 |
% |
Ratios based on average Managed Assets (as defined in Note 8) of common shares: |
|
Gross operating
expenses(f) |
|
|
2.07 |
%(g)
|
|
|
2.21 |
% |
|
|
2.17 |
% |
|
|
2.23 |
% |
|
|
1.68 |
% |
|
|
1.98 |
% |
Net investment income |
|
|
3.43 |
%(g)
|
|
|
3.16 |
% |
|
|
12.05 |
% |
|
|
15.79 |
%(i)
|
|
|
4.38 |
% |
|
|
4.91 |
% |
Portfolio turnover
rate(j) |
|
|
37 |
%(d)
|
|
|
36 |
% |
|
|
41 |
% |
|
|
31 |
% |
|
|
59 |
% |
|
|
74 |
% |
Average commission rate paid(m) |
|
$ |
0.0249 |
|
|
$ |
0.0286 |
|
|
$ |
0.0294 |
|
|
$ |
0.0223 |
|
|
$ |
0.0266 |
|
|
$ |
0.0208 |
|
* |
Per share data prior to October 6, 2015 has been adjusted to give effect to a 4 to 1 reverse stock split. |
(a) |
Net investment income (loss) per share was calculated using average shares outstanding during the period. |
(b) |
Includes non-recurring dividend from Freedom REIT. |
(c) |
Based on market value per share. Distributions, if any, are assumed for purposes of this calculation to be reinvested at prices obtained under the
Funds Dividend Reinvestment Plan. |
(e) |
Shares issued at a discount to NAV. The per share impact was derived by computing (A) the number of shares issued times (B) the difference
between the net proceeds per share and NAV divided by (C) the total shares outstanding following the share issuance. |
(f) |
Supplemental expense ratios are shown below: |
|
|
|
|
|
|
|
16 |
|
|
|
|
|
See accompanying Notes to Financial Statements. |
FINANCIAL HIGHLIGHTS (continued)
|
|
|
|
|
NexPoint Strategic Opportunities Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
Months Ended June 30, 2018 (unaudited) |
|
|
For the Years Ended December 31, |
|
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
Ratios based on average net assets of common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating expenses (net of waiver/reimbursement, if applicable, but gross of all other operating expenses) |
|
|
2.44 |
% |
|
|
2.58 |
% |
|
|
3.12 |
% |
|
|
3.43 |
% |
|
|
2.48 |
% |
|
|
2.82 |
% |
Interest expense and commitment fees |
|
|
0.66 |
% |
|
|
0.69 |
% |
|
|
0.93 |
% |
|
|
0.71 |
% |
|
|
0.50 |
% |
|
|
0.60 |
% |
Dividends and fees on securities sold short |
|
|
|
%(k)
|
|
|
|
%(k)
|
|
|
0.07 |
% |
|
|
0.24 |
% |
|
|
0.07 |
% |
|
|
0.05 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Six
Months Ended June 30, 2018 (unaudited) |
|
|
For the Years Ended December 31, |
|
|
|
2018 |
|
|
2017 |
|
|
2016 |
|
|
2015 |
|
|
2014 |
|
|
2013 |
|
Ratios based on average Managed Assets of common shares: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net operating expenses (net of waiver/reimbursement, if applicable, but gross of all other operating expenses) |
|
|
2.07 |
% |
|
|
2.21 |
% |
|
|
2.17 |
% |
|
|
2.23 |
% |
|
|
1.68 |
% |
|
|
1.98 |
% |
Interest expense and commitment fees |
|
|
0.56 |
% |
|
|
0.59 |
% |
|
|
0.65 |
% |
|
|
0.46 |
% |
|
|
0.34 |
% |
|
|
0.42 |
% |
Dividends and fees on securities sold short |
|
|
|
%(k)
|
|
|
|
%(k)
|
|
|
0.05 |
% |
|
|
0.15 |
% |
|
|
0.04 |
% |
|
|
0.03 |
% |
(h) |
Net investment income (excluding non-recurring dividend from Freedom REIT) was 9.76%.
|
(i) |
Net investment income (excluding non-recurring dividend from Freedom REIT) was 6.36%.
|
(j) |
Excludes in-kind activity. |
(l) |
On April 1, 2015, the Fund completed a spinoff transaction whereby shares of NexPoint Residential Trust, Inc. were distributed to shareholders in a
pro-rata taxable distribution. |
(m) |
Represents the total dollar amount of commissions paid on portfolio transactions divided by total number of portfolio shares purchased and sold for
which commissions were charged. |
|
|
|
|
|
|
|
See accompanying Notes to Financial Statements. |
|
|
|
|
|
17 |
NOTES TO FINANCIAL STATEMENTS (unaudited)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
Note 1. Organization
NexPoint Strategic Opportunities Fund (formerly known as NexPoint Credit Strategies Fund) (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 six months ended June 30, 2018. 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.
Note 2. Significant Accounting Policies
The following summarizes the significant accounting policies consistently followed by the Fund in the preparation of its financial statements.
Use of Estimates
The Fund is an investment company
that applies the accounting and reporting guidance of Accounting Standards Codification Topic 946 applicable to investment companies. The Funds financial statements have been prepared in conformity with accounting principles generally
accepted in the United States of America (GAAP), which require the Investment Adviser to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Changes in the economic environment, financial markets and any other parameters used in determining these estimates could cause actual
results to differ materially.
Fund Valuation
The net asset value (NAV) of the Funds common shares is calculated daily on each day that the NYSE is open for business as of the close of the
regular trading session on the NYSE, usually 4:00 PM, Eastern Time. The NAV is calculated by dividing the value of the Funds net assets attributable to common shares by the numbers of common shares outstanding.
Valuation of Investments
In computing the Funds net
assets attributable to its common shares, securities with readily available market quotations on the NYSE, National Association of Securities Dealers Automated Quotation (NASDAQ) or other nationally recognized exchange, use the closing
quotations on
the respective exchange for valuation of those securities. Securities for which there are no readily available market quotations will be valued pursuant to policies adopted by the Funds
Board of Trustees (the Board). Typically, such securities will be valued at the mean between the most recently quoted bid and ask prices provided by the principal market makers. If there is more than one such principal market maker, the
value shall be the average of such means. Securities without a sale price or quotations from principal market makers on the valuation day may be priced by an independent pricing service. Generally, the Funds loan and bond positions are not
traded on exchanges and consequently are valued based on a mean of the bid and ask price from the third-party pricing services or broker-dealer sources that the Investment Adviser has determined to have the capability to provide appropriate pricing
services which have been approved by the Board.
Securities for which market quotations are not readily available, or for which the Fund has determined
that the price received from a pricing service or broker-dealer is stale or otherwise does not represent fair value (such as when events materially affecting the value of securities occur between the time when market price is determined
and calculation of the Funds NAV), will be valued by the Fund at fair value, as determined by the Board or its designee in good faith in accordance with procedures approved by the Board, taking into account factors reasonably determined to be
relevant, including, but not limited to: (i) the fundamental analytical data relating to the investment; (ii) the nature and duration of restrictions on disposition of the securities; and (iii) an evaluation of the forces that
influence the market in which these securities are purchased and sold. In these cases, the Funds NAV will reflect the affected portfolio securities fair value as determined in the judgment of the Board or its designee instead of being
determined by the market. Using a fair value pricing methodology to value securities may result in a value that is different from a securitys most recent sale price and from the prices used by other investment companies to calculate their
NAVs. Determination of fair value is uncertain because it involves subjective judgments and estimates.
There can be no assurance that the Funds
valuation of a security will not differ from the amount that it realizes upon the sale of such security. Those differences could have a material impact to the Fund. The NAV shown in the Funds financial statements may vary from the NAV
published by the Fund as of its period end because portfolio securities transactions are accounted for on the trade date (rather than the day following the trade date) for financial statement purposes.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
Fair Value Measurements
The Fund has performed an analysis of all existing investments and derivative instruments to determine the significance and character of inputs to their fair value determination. The levels of fair value inputs
used to measure the Funds investments are characterized into a fair value hierarchy. Where inputs for an asset or liability fall into more than one level in the fair value hierarchy, the investment is classified in its entirety based on the
lowest level input that is significant to that investments valuation. The three levels of the fair value hierarchy are described below:
Level 1 |
Quoted unadjusted prices for identical instruments in active markets to which the Fund has access at the date of measurement;
|
Level 2 |
Quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active, but are
valued based on executed trades; broker quotations that constitute an executable price; and alternative pricing sources supported by observable inputs are classified within Level 2. Level 2 inputs are either directly or indirectly
observable for the asset in connection with market data at the measurement date; and |
Level 3 |
Model derived valuations in which one or more significant inputs or significant value drivers are unobservable. In certain cases, investments classified
within Level 3 may include securities for which the Fund has obtained indicative quotes from broker-dealers that do not necessarily represent prices the broker may be willing to trade on, as such quotes can be subject to material management
judgment. Unobservable inputs are those inputs that reflect the Funds own assumptions that market participants would use to price the asset or liability based on the best available information. |
The Investment Adviser has established policies and procedures, as described above and approved by the Board, to ensure that valuation methodologies for investments
and financial instruments that are categorized within all levels of the fair value hierarchy are fair and consistent. A Pricing Committee has been established to provide oversight of the valuation policies, processes and procedures, and is comprised
of personnel from the Investment Adviser and its affiliates. The Pricing Committee meets monthly to review the proposed valuations for investments and financial instruments and is responsible for evaluating the overall fairness and consistent
application of established policies.
As of June 30, 2018, the Funds investments consisted of senior loans, asset-backed securities, corporate
bonds and notes, foreign bonds, sovereign bonds, common stocks, preferred stocks, exchange-traded funds, warrants, and securities sold short. The fair value of the Funds loans, bonds and asset-backed securities are generally based on quotes
received from brokers or independent pricing services. Loans, bonds, and asset-backed securities with quotes that are based on actual trades with a sufficient level of activity on or near the measurement date are classified as Level 2 assets.
Senior loans, bonds and asset-backed securities that are priced using quotes derived from implied values, indicative bids, or a limited number of actual trades are classified as Level 3 assets because the inputs used by the brokers and pricing
services to derive the values are not readily observable.
The fair value of the Funds common stocks, preferred stocks, exchange-traded funds, and
warrants that are not actively traded on national exchanges are generally priced using quotes derived from implied values, indicative bids, or a limited amount of actual trades and are classified as Level 3 assets because the inputs used by the
brokers and pricing services to derive the values are not readily observable. The Funds real estate investments include equity interests in limited liability companies and equity issued by Real Estate Investment Trusts (REITs) that
invest in commercial real estate. The fair value of real estate investments that are not actively traded on national exchanges are based on internal models developed by the Investment Adviser. The significant inputs to the models include cash flow
projections for the underlying properties, capitalization rates and appraisals performed by independent valuation firms. These inputs are not readily observable, and the Fund has classified the investments as Level 3 assets. Exchange-traded
options are valued based on the last trade price on the primary exchange on which they trade. If an option does not trade, the mid-price, which is the mean of the bid and ask price, is utilized to value the
option.
At the end of each calendar quarter, the Investment Adviser evaluates the Level 2 and 3 assets and liabilities for changes in liquidity,
including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from third party services, and the existence of contemporaneous, observable trades in the market. Additionally, the
Investment Adviser evaluates the Level 1 and 2 assets and liabilities on a quarterly basis for changes in listings or delistings on national exchanges.
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Funds investments may fluctuate from period to period.
Additionally, the fair value
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
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 the Funds
assets as of June 30, 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value at June 30, 2018 |
|
|
Level 1 Quoted Price |
|
|
Level 2 Significant Observable Inputs |
|
|
Level 3 Significant Unobservable Inputs |
|
NexPoint Strategic Opportunities Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
U.S. Senior Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals |
|
$ |
2,173,480 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
2,173,480 |
|
Energy |
|
|
1,695,916 |
|
|
|
|
|
|
|
1,695,916 |
|
|
|
|
|
Gaming & Leisure |
|
|
7,393,129 |
|
|
|
|
|
|
|
|
|
|
|
7,393,129 |
|
Metals & Minerals |
|
|
5,900,426 |
|
|
|
|
|
|
|
|
|
|
|
5,900,426 |
|
Telecommunications |
|
|
18,782,665 |
|
|
|
|
|
|
|
|
|
|
|
18,782,665 |
|
Utilities |
|
|
184,659 |
|
|
|
|
|
|
|
184,659 |
|
|
|
|
|
Asset-Backed Securities |
|
|
43,403,362 |
|
|
|
|
|
|
|
42,903,072 |
|
|
|
500,290 |
|
Agency Collateralized Mortgage Obligations |
|
|
15,315,410 |
|
|
|
|
|
|
|
15,315,410 |
|
|
|
|
|
Corporate Bonds & Notes(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy |
|
|
8,412,710 |
|
|
|
|
|
|
|
7,140,419 |
|
|
|
1,272,291 |
|
Financial |
|
|
4,912,500 |
|
|
|
|
|
|
|
4,912,500 |
|
|
|
|
|
Retail |
|
|
4,637,500 |
|
|
|
|
|
|
|
4,637,500 |
|
|
|
|
|
Telecommunications |
|
|
|
(3) |
|
|
|
|
|
|
|
(3) |
|
|
|
|
Utilities |
|
|
128,000 |
|
|
|
|
|
|
|
128,000 |
|
|
|
|
|
Foreign Corporate Bonds & Notes(1) |
|
|
|
(3) |
|
|
|
|
|
|
|
|
|
|
|
(3) |
Sovereign Bonds |
|
|
23,197,147 |
|
|
|
|
|
|
|
23,197,147 |
|
|
|
|
|
Convertible Foreign Bonds |
|
|
1,310,000 |
|
|
|
|
|
|
|
1,310,000 |
|
|
|
|
|
Common Stocks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals |
|
|
13,648,015 |
|
|
|
12,457,621 |
|
|
|
|
|
|
|
1,190,394 |
|
Commercial Services |
|
|
8,889,237 |
|
|
|
8,889,237 |
|
|
|
|
|
|
|
|
|
Consumer Discretionary |
|
|
99,759 |
|
|
|
99,759 |
|
|
|
|
|
|
|
|
|
Consumer Staples |
|
|
313,470 |
|
|
|
313,470 |
|
|
|
|
|
|
|
|
|
Consumer-Cyclical |
|
|
15,286,878 |
|
|
|
15,286,878 |
|
|
|
|
|
|
|
|
|
Energy |
|
|
55,396,442 |
|
|
|
55,396,442 |
|
|
|
|
|
|
|
|
|
Financial |
|
|
42,762,934 |
|
|
|
8,871,565 |
|
|
|
|
|
|
|
33,891,369 |
|
Gaming & Leisure |
|
|
|
(3) |
|
|
|
|
|
|
|
|
|
|
|
(3) |
Healthcare |
|
|
10,290,711 |
|
|
|
10,290,711 |
|
|
|
|
|
|
|
|
|
Housing |
|
|
1,649,312 |
|
|
|
|
|
|
|
|
|
|
|
1,649,312 |
|
Information Technology |
|
|
36,896,440 |
|
|
|
36,896,440 |
|
|
|
|
|
|
|
|
|
Materials |
|
|
167,900 |
|
|
|
167,900 |
|
|
|
|
|
|
|
|
|
Media & Telecommunications |
|
|
30,438,636 |
|
|
|
1,616,738 |
|
|
|
28,821,898 |
|
|
|
|
|
Metals & Minerals |
|
|
6,747,004 |
|
|
|
2,980,530 |
|
|
|
|
|
|
|
3,766,474 |
|
Pharmaceuticals |
|
|
11,335,397 |
|
|
|
11,335,397 |
|
|
|
|
|
|
|
|
|
Real Estate |
|
|
9,464,900 |
|
|
|
9,464,897 |
|
|
|
|
|
|
|
3 |
|
Real Estate Investment Trust |
|
|
148,919,936 |
|
|
|
10,413,998 |
|
|
|
|
|
|
|
138,505,938 |
|
Retail |
|
|
1,870,075 |
|
|
|
1,870,075 |
|
|
|
|
|
|
|
|
|
Telecommunications |
|
|
34,771,286 |
|
|
|
|
|
|
|
|
|
|
|
34,771,286 |
|
Utilities |
|
|
24,493,556 |
|
|
|
24,280,650 |
|
|
|
|
|
|
|
212,906 |
|
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total value at June 30, 2018 |
|
|
Level 1 Quoted Price |
|
|
Level 2 Significant Observable Inputs |
|
|
Level 3 Significant Unobservable Inputs |
|
Preferred Stocks(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial |
|
$ |
139,067,716 |
|
|
$ |
5,259,675 |
|
|
$ |
133,808,041 |
|
|
$ |
|
|
Real Estate |
|
|
616,197 |
|
|
|
616,197 |
|
|
|
|
|
|
|
|
|
Real Estate Investment Trust |
|
|
90,000,000 |
|
|
|
|
|
|
|
|
|
|
|
90,000,000 |
|
Exchange-Traded Funds |
|
|
1,138,097 |
|
|
|
1,138,097 |
|
|
|
|
|
|
|
|
|
Rights |
|
|
942,801 |
|
|
|
|
|
|
|
942,801 |
|
|
|
|
|
Warrants(1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy |
|
|
126,201 |
|
|
|
126,201 |
|
|
|
|
|
|
|
|
|
Gaming & Leisure |
|
|
|
(3) |
|
|
|
|
|
|
|
|
|
|
|
(3) |
Information Technology |
|
|
641,973 |
|
|
|
|
|
|
|
|
|
|
|
641,973 |
|
Metals & Minerals |
|
|
116,585 |
|
|
|
|
|
|
|
|
|
|
|
116,585 |
|
Master Limited Partnerships(1) |
|
|
3,156,867 |
|
|
|
3,156,867 |
|
|
|
|
|
|
|
|
|
Registered Investment Companies |
|
|
2,847,836 |
|
|
|
2,847,836 |
|
|
|
|
|
|
|
|
|
Cash Equivalents |
|
|
48,149,667 |
|
|
|
48,149,667 |
|
|
|
|
|
|
|
|
|
Other Financial Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchased Put Options |
|
|
1,308,000 |
|
|
|
1,308,000 |
|
|
|
|
|
|
|
|
|
Short Futures(2) |
|
|
2,397,892 |
|
|
|
2,397,892 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
881,398,624 |
|
|
|
275,632,740 |
|
|
|
264,997,363 |
|
|
|
340,768,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
Securities Sold Short(1) |
|
|
(8,033,169 |
) |
|
|
(8,033,169 |
) |
|
|
|
|
|
|
|
|
Other Financial Instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Written Options Contracts |
|
|
(2,083,125 |
) |
|
|
(2,083,125 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
(10,116,294 |
) |
|
|
(10,116,294 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
871,282,330 |
|
|
$ |
265,516,446 |
|
|
$ |
264,997,363 |
|
|
$ |
340,768,521 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
See Investment Portfolio detail for industry breakout. |
(2) |
Includes cumulative appreciation/(depreciation) of future contacts reported in the Investment Portfolio. |
(3) |
This category includes securities with a value of zero. |
The table below sets forth a summary of changes in the Funds assets measured at fair value using significant unobservable inputs (Level 3) for the six months ended June 30, 2018.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017 |
|
|
Transfers into Level 3 |
|
|
Transfers Out of Level 3 |
|
|
Net Amortization (Accretion) of Premium/ Discount |
|
|
Net Realized Gain/ (Loss) |
|
|
Net Unrealized Appreciation/ (Depreciation) |
|
|
Net Purchases |
|
|
Net (Sales) |
|
|
Balance as of June 30, 2018 |
|
|
Change in Unrealized Appreciation (Depreciation) from Investments Held
at June 30, 2018 |
|
U.S. Senior Loans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals |
|
$ |
2,183,394 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
17,237 |
|
|
$ |
|
|
|
$ |
(27,151 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
2,173,480 |
|
|
$ |
(27,151 |
) |
Gaming & Leisure |
|
|
7,071,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
321,601 |
|
|
|
|
|
|
|
|
|
|
|
7,393,129 |
|
|
|
321,601 |
|
Metals & Minerals |
|
|
5,543,643 |
|
|
|
|
|
|
|
|
|
|
|
131,993 |
|
|
|
344 |
|
|
|
(170,539 |
) |
|
|
397,080 |
|
|
|
(2,095 |
) |
|
|
5,900,426 |
|
|
|
(170,539 |
) |
Telecommunications |
|
|
17,771,215 |
|
|
|
|
|
|
|
|
|
|
|
(1,159 |
) |
|
|
|
|
|
|
(822 |
) |
|
|
1,013,431 |
|
|
|
|
|
|
|
18,782,665 |
|
|
|
(822 |
) |
Asset-Backed Securities |
|
|
461,182 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,108 |
|
|
|
|
|
|
|
|
|
|
|
500,290 |
|
|
|
39,108 |
|
Corporate Bonds & Notes |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy |
|
|
1,272,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,272,291 |
|
|
|
|
|
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2017 |
|
|
Transfers into Level 3 |
|
|
Transfers Out of Level 3 |
|
|
Net Amortization (Accretion) of Premium/ Discount |
|
|
Net Realized Gain/ (Loss) |
|
|
Net Unrealized Appreciation/ (Depreciation) |
|
|
Net Purchases |
|
|
Net (Sales) |
|
|
Balance as of June 30, 2018 |
|
|
Change in Unrealized Appreciation (Depreciation) from Investments Held
at June 30, 2018 |
|
Common Stocks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chemicals |
|
$ |
1,355,726 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
(165,332 |
) |
|
$ |
|
|
|
$ |
|
|
|
$ |
1,190,394 |
|
|
$ |
(165,332 |
) |
Financial |
|
|
21,390,070 |
|
|
|
270,635 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,629,613 |
|
|
|
9,601,051 |
|
|
|
|
|
|
|
33,891,369 |
|
|
|
2,629,613 |
|
Housing |
|
|
765,752 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
883,560 |
|
|
|
|
|
|
|
|
|
|
|
1,649,312 |
|
|
|
883,560 |
|
Metals & Minerals |
|
|
4,276,983 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(510,509 |
) |
|
|
|
|
|
|
|
|
|
|
3,766,474 |
|
|
|
(510,509 |
) |
Real Estate |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(188,839 |
) |
|
|
188,839 |
|
|
|
|
|
|
|
3 |
|
|
|
(188,839 |
) |
Real Estate Investment Trust |
|
|
156,715,028 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,000,510 |
|
|
|
75,125,000 |
|
|
|
(100,334,600 |
) |
|
|
138,505,938 |
|
|
|
7,000,510 |
|
Telecommunications |
|
|
34,612,021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,340,641 |
) |
|
|
2,499,906 |
|
|
|
|
|
|
|
34,771,286 |
|
|
|
(2,340,641 |
) |
Utilities |
|
|
410,867 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
31,520 |
|
|
|
|
|
|
|
(229,481 |
) |
|
|
212,906 |
|
|
|
31,520 |
|
Preferred Stocks |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,347,100 |
) |
|
|
93,347,100 |
|
|
|
|
|
|
|
90,000,000 |
|
|
|
(3,347,100 |
) |
Warrants |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Information Technology |
|
|
432,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
209,807 |
|
|
|
|
|
|
|
|
|
|
|
641,973 |
|
|
|
209,807 |
|
Metals & Minerals |
|
|
132,387 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(15,802 |
) |
|
|
|
|
|
|
|
|
|
|
116,585 |
|
|
|
(15,802 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
254,394,256 |
|
|
$ |
270,635 |
|
|
$ |
|
|
|
$ |
148,071 |
|
|
$ |
344 |
|
|
$ |
4,348,984 |
|
|
$ |
182,172,407 |
|
|
$ |
(100,566,176 |
) |
|
$ |
340,768,521 |
|
|
$ |
4,348,984 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
For the six months ended June 30, 2018, $270,635 of the Funds portfolio investments was transferred from
Level 2 to Level 3. Determination of fair values is uncertain because it involves subjective judgments and estimates that are unobservable. Transfers from Level 2 to 3 were due to a decline in market activity (e.g. frequency of trades), which
resulted in a reduction of available market inputs to determine price.
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 6/30/2018 |
|
|
Valuation Technique |
|
Unobservable Inputs |
|
Input Value(s) |
U.S. Senior Loans |
|
$ |
34,249,700 |
|
|
Discounted Cash Flow |
|
Discount Rate |
|
11.1% -16.5% |
|
|
|
|
|
|
|
|
Spread Adjustment |
|
0.1% - 0.5% |
|
|
|
|
|
|
Adjusted Appraisal |
|
Liquidity Discount |
|
10% |
|
|
|
|
|
|
|
|
Asset Specific Adjustment |
|
10% |
|
|
|
|
|
|
Debt-Loan Spread |
|
Adjusted Yield |
|
9.88% - 10.45% |
|
|
|
|
|
|
|
|
Swap Rate |
|
2.34% -2.88% |
|
|
|
|
|
|
Cost Price |
|
N/A |
|
N/A |
Asset-Backed Securities |
|
|
500,290 |
|
|
Discounted Cash Flow |
|
Discount Rate |
|
9.1% |
Corporate Bonds & Notes |
|
|
1,272,291 |
|
|
Liquidation Analysis |
|
Claim Amount: Percent of Par |
|
6.9% |
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
|
|
|
|
|
|
|
|
|
|
|
Category |
|
Market Value at 6/30/2018 |
|
|
Valuation Technique |
|
Unobservable Inputs |
|
Input Value(s) |
Common Stocks |
|
|
213,987,682 |
|
|
Multiples Analysis |
|
Price/MHz-PoP |
|
$0.087 - $0.550 |
|
|
|
|
|
|
|
|
Risk Discount |
|
27.5% |
|
|
|
|
|
|
|
|
Multiple of EBITDA |
|
5.0x - 9.0x |
|
|
|
|
|
|
|
|
Liquidity Discount |
|
10% - 25% |
|
|
|
|
|
|
|
|
Weightings |
|
25% - 50% |
|
|
|
|
|
|
|
|
Size Adjustment |
|
10% |
|
|
|
|
|
|
Discounted Cash Flow |
|
Discount Rate |
|
11% - 12% |
|
|
|
|
|
|
|
|
Terminal Multiple |
|
6.75x |
|
|
|
|
|
|
|
|
Scenario Probabilities |
|
15% - 70% |
|
|
|
|
|
|
|
|
Illiquidity Discount |
|
10% |
|
|
|
|
|
|
Net Asset Value |
|
N/A |
|
N/A |
|
|
|
|
|
|
Third-Party Valuation |
|
Capitalization Rates |
|
5.50% - 8.75% |
Preferred Stocks |
|
|
90,000,000 |
|
|
Net Asset Value |
|
N/A |
|
N/A |
Warrants |
|
|
758,558 |
|
|
Multiples Analysis |
|
Multiple of EBITDA |
|
6.75x - 8.0x |
|
|
|
|
|
|
Discounted Cash Flow |
|
Discount Rate |
|
12% |
|
|
|
|
|
|
|
|
Terminal Multiple |
|
6.75x |
|
|
|
|
|
|
Black-Scholes |
|
Volatility |
|
29.4% |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
340,768,521 |
|
|
|
|
|
|
|
The significant unobservable inputs used in the fair value measurement of the Funds bank loans securities are:
discount rate, spread adjustment, liquidity discount, asset specific discount, adjusted yield and swap rate. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement.
The significant unobservable inputs used in the fair value measurement of the Funds common equity securities are: capitalization rate, price /
MHz-PoP multiple, risk discount, multiple of EBITDA, scenario probabilities, illiquidity discount, size adjustment, discount rate, terminal multiple and weightings. 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.
Income Recognition
Corporate actions (including
cash dividends) are recorded on the ex-dividend date, net of applicable withholding taxes, except for certain foreign corporate actions, which are recorded as soon after
ex-dividend date as such information becomes available and is verified. Interest income is recorded on the accrual basis.
Accretion of discount and amortization of premium on taxable bonds and loans are computed to the call or maturity
date, whichever is shorter, using the effective yield method. Withholding taxes on foreign dividends have been provided for in accordance with the Funds understanding of the applicable countrys tax rules and rates.
U.S. Federal Income Tax Status
The Fund is treated as a
separate taxpayer for U.S. federal income tax purposes. The Fund intends to qualify each year as a regulated investment company under Subchapter M of the Internal Revenue Code of 1986, as amended, and will distribute substantially all of
its taxable income and gains, if any, for the tax year, and as such will not be subject to U.S. federal income taxes. In addition, the Fund intends to distribute, in each calendar year, all of its net investment income, capital gains and certain
other amounts, if any, such that the Fund should not be subject to U.S. federal excise tax. Therefore, no U.S. federal income or excise tax provisions are recorded.
The Investment Adviser has analyzed the Funds tax positions taken on U.S. federal income tax returns for all open tax years (current and prior three tax years), and has concluded that no provision for U.S.
federal income tax is required in the Funds financial statements. The Funds U.S. federal and state income and U.S. federal excise tax returns for tax years for which the applicable statutes of limitations have not expired are subject to
examination by the Internal Revenue Service and state departments of revenue. Furthermore, the Investment Adviser of the Funds is also not aware of any tax positions for which it is reasonably possible that the total
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
amounts of unrecognized tax benefits will significantly change in the next 12 months.
Distributions to Shareholders
The Fund plans to pay
distributions from net investment income monthly and net realized capital gains annually to common shareholders. To permit the Fund to maintain more stable monthly distributions and annual distributions, the Fund may from time to time distribute
less than the entire amount of income and gains earned in the relevant month or year, respectively. The undistributed income and gains would be available to supplement future distributions. In certain years, this practice may result in the Fund
distributing, during a particular taxable year, amounts in excess of the amount of income and gains earned therein. Such distributions would result in a portion of each distribution occurring in that year to be treated as a return of capital to
shareholders. Shareholders of the Fund will automatically have all distributions reinvested in Common Shares of the Fund issued by the Fund in accordance with the Funds Dividend Reinvestment Plan (the Plan) unless an election is
made to receive cash. The number of newly issued Common Shares to be credited to each participants account will be determined by dividing the dollar amount of the dividend by the lesser of (i) the NAV per Common Share determined on the
Declaration Date and (ii) the market price per Common Share as of the close of regular trading on the NYSE on the Declaration Date. Participants in the Plan requesting a sale of securities through the plan agent of the Plan are subject to a
sales fee and a brokerage commission.
Statement of Cash Flows
Information on financial transactions which have been settled through the receipt or disbursement of cash is presented in the Statement of Cash Flows. The cash amount shown in the Statement of Cash Flows is the
amount included within each Funds Statement of Assets and Liabilities and includes cash on hand at its custodian bank and/or sub-custodian bank(s) and investments in money market funds deemed to be cash
equivalents, and does not include cash posted as collateral in a segregated account or with broker-dealers.
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.
Foreign Currency
Accounting records of the Fund are
maintained in U.S. dollars. Foreign currencies, investments and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars at exchange rates using the current 4:00 PM London Time Spot Rate. Fluctuations in the
value of the foreign currencies and other assets and liabilities resulting from changes in exchange rates, between trade and settlement dates on securities transactions and between the accrual and payment dates on dividends, interest income and
foreign withholding taxes, are recorded as unrealized foreign currency gains/(losses). Realized gains/(losses) and unrealized appreciation/(depreciation) on investment securities and income and expenses are translated on the respective dates of such
transactions. The effects of changes in foreign currency exchange rates on investments in securities are not segregated in the Statement of Operations from the effects of changes in market prices of those securities, but are included with the net
realized and unrealized gain or loss on investment securities.
Securities Sold Short
The Funds may sell securities short. A security sold short is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that security will decline. When the Fund
sells a security short, it must borrow the security sold short from a broker-dealer and deliver it to the buyer upon conclusion of the transaction. A Fund may have to pay a fee to borrow particular securities and is often obligated to pay over any
dividends or other payments received on such borrowed securities. In some circumstances, a Fund may be allowed by its prime broker to utilize proceeds from securities sold short to purchase additional investments, resulting in leverage. Securities
and cash held as collateral for securities sold short are shown on the Investments Portfolios for each of the Funds. Cash held as collateral for securities sold short is classified as restricted cash on the Statement of Assets and Liabilities, as
applicable. Restricted cash in the amount of $8,028,284 was held with the broker for the Fund. Additionally, securities valued at $123,073,446 were posted in the Funds segregated account as collateral.
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
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
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.
Other Fee Income
Fee income may consist of origination/closing fees, amendment fees, administrative agent fees, transaction
break-up fees and other miscellaneous fees. Origination fees, amendment fees, and other similar fees are non-recurring fee sources. Such fees are received on a transaction by transaction basis and do not
constitute a regular stream of income and are recognized when incurred.
Note 3. Derivative Transactions
The Fund is subject to 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.
Options
The Fund may utilize
options on securities or indices to varying degrees as part of their principal investment strategy. An option on a security is a contract that gives the holder of the option, in return for a premium, the right to buy from (in the case of a call) or
sell to (in the case of a put) the writer of the option the security underlying the option at a specified exercise or strike price. The writer of an option on a security has the obligation upon exercise of the option to deliver the
underlying security upon payment of the exercise price or to pay the exercise price upon delivery of the underlying security. The Fund may hold options, write option contracts, or both.
If an option written by the Fund expires unexercised, the Fund realizes on the expiration date a capital gain equal to the premium received by the Fund at the time the option was written. If an option purchased by
the Fund expires unexercised, the Fund realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, an exchange-traded option may be closed out by an offsetting purchase or sale of an option of the same series
(type, underlying security, exercise price and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when the Fund desires. The Fund will realize a capital gain from a closing purchase
transaction if the cost of the closing option is less than the premium received from writing the option, or, if the cost of the closing option is more than the premium
received from writing the option, a capital loss. The Fund will realize a capital gain from a closing sale transaction if the premium received from the sale is more than the original premium paid
when the option position was opened, or a capital loss, if the premium received from a sale is less than the original premium paid.
Reverse
Repurchase Agreements
The Fund may engage in reverse repurchase agreement transactions with respect to instruments that are consistent with the
Funds investment objective or policies.
Additional Derivative Information
The Funds follow adopted amendments to authoritative guidance on disclosures about derivative instruments and hedging activities which require that the Fund disclose; a) how and why an entity uses derivative
instruments; b) how derivative instruments and related hedged items are accounted for; c) how derivative instruments and related hedged items affect an entitys financial position, financial performance and cash flows; and d) how the netting of
derivatives subject to master netting arrangements (if applicable) affects the net exposure of the Fund related to the derivatives.
The fair value of
derivative instruments on the Statement of Assets and Liabilities have the following risk exposure at June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
Risk Exposure |
|
Asset Derivative |
|
|
Liability Derivative |
|
Equity Price Risk |
|
$ |
3,705,892 |
|
|
$ |
(2,083,125 |
) |
The effect of derivative instruments on the Statement of Operations for the six months ended June 30, 2018, is as follows:
|
|
|
|
|
|
|
|
|
Risk Exposure |
|
Net Realized Gain(Loss) on Derivatives |
|
|
Net Change in Unrealized Appreciation/ (Depreciation) on Derivatives |
|
Equity Price Risk |
|
$ |
7,078,454 |
(1)(2)(3) |
|
$ |
(5,778,276 |
)(4)(5)(6) |
Commodity Risk |
|
$ |
430,497 |
(3) |
|
$ |
|
|
Foreign Exchange Risk |
|
$ |
610,313 |
(3) |
|
$ |
|
|
(1) |
Statement of Operations location: Realized gain (loss) on investments from unaffiliated issuers. |
(2) |
Statement of Operations location: Realized gain (loss) on written options contracts. |
(3) |
Statement of Operations location: Realized gain (loss) on futures contracts. |
(4) |
Statement of Operations location: Net change in unrealized appreciation/(depreciation) on investments. |
(5) |
Statement of Operations location: Net change in unrealized appreciation/(depreciation) on written options contracts. |
(6) |
Statement of Operations location: Net change in unrealized appreciation/(depreciation) on futures contracts.
|
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
The average monthly volume of derivative activity for the six months ended June 30, 2018, is as follows:
|
|
|
|
|
|
|
|
|
|
|
Units/ Contracts |
|
|
Appreciation/ (Depreciation) |
|
Purchased Options Contracts |
|
|
500 |
|
|
$ |
|
|
Futures Contracts(1) |
|
|
|
|
|
|
374,300 |
|
Written Options Contracts |
|
|
1,171 |
|
|
|
|
|
(1) |
Futures Contracts average monthly volume is calculated using Appreciation/(Depreciation). |
Note 4. Securities Lending
The Fund may make secured loans
of its portfolio securities amounting to not more than 33 1/3% of its portfolio securities, thereby realizing additional income. The risks in lending portfolio securities, as with other extensions of credit, consist of possible delays in recovery of
the securities or possible loss of rights in the collateral should the borrower fail financially and possible investment losses in the investment of collateral. Pursuant to the Funds securities lending policy, securities loans are made to
borrowers pursuant to agreements requiring that loans be continuously secured by collateral in cash, securities issued or guaranteed by the U.S. government or its agencies or instrumentalities, sovereign debt, convertible bonds, irrevocable letters
of credit issued by a bank as acceptable under the Funds securities lending agreement, initially with a value of 102% or 105% of the market value of the loaned securities and thereafter maintained at a value of 100% of the market value of the
loaned securities. The borrower pays to the Fund an amount equal to any interest or dividends received on securities subject to the loan. The Fund retains all or a portion of the interest received on investment of the cash collateral and receives a
fee from the borrower.
Securities lending transactions are entered into pursuant to Securities Loan Agreements (SLA), which provide the
right, in the event of default (including bankruptcy or insolvency) for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional
collateral. In the event that a borrower defaults, the Fund, as lender, would offset the market value of the collateral received against the market value of the securities loaned. The value of the collateral is typically greater than that of the
market value of the securities loaned, leaving the lender with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of
offset in the event of a SLA counterpartys bankruptcy or insolvency. Under the SLA, the Fund can reinvest cash collateral, or, upon an event of default, resell or repledge the collateral, and the borrower can resell or repledge the loaned
securities. The risks of securities lending also include the risk that the borrower may not provide additional collateral when
required or may not return the securities when due. To mitigate this risk, the Fund benefits from a borrower default indemnity provided by State Street Bank and Trust Company (State
Street). State Streets indemnity generally provides for replacement of securities lent or the approximate value thereof.
During the six
months ended June 30, 2018, the Fund did not participate in securities lending.
Note 5. U.S. Federal Income Tax Information
The character of income and gains to be distributed is determined in accordance with income tax regulations which may differ from U.S. GAAP. These
differences include (but are not limited to) investments organized as partnerships for tax purposes, foreign taxes, investments in futures, losses deferred to off-setting positions, tax treatment of
organizational start-up costs, losses deferred due to wash sale transactions, dividends deemed paid upon shareholder redemption of Fund shares and tax attributes from Fund reorganizations. Reclassifications
are made to the Funds capital accounts to reflect income and gains available for distribution (or available capital loss carryovers) under income tax regulations. These reclassifications have no impact on the NAV of the Fund. The calculation
of net investment income per share in the Financial Highlights table excludes these adjustments.
For the year ended December 31, 2017, permanent
differences chiefly resulting from foreign currency gains and losses, defaulted bonds, partnership basis adjustments, return of capital distributions from real estate investment trusts, passive foreign investment companies, expired capital loss
carry-overs and non-deductible excise taxes paid were identified and reclassified among the components of the Funds net assets as follows:
|
|
|
|
|
|
|
|
|
Undistributed Net Investment Income |
|
Accumulated Net Realized Gain/(Loss) |
|
|
Paid-in-Capital |
|
$(2,263,730) |
|
$ |
38,808,008 |
|
|
$ |
(36,544,278 |
) |
For the year ended December 31, 2017, the Funds most recent tax year end, components of distributable earnings on a tax
basis are as follows:
|
|
|
|
|
Accumulated Capital and Other Losses |
|
Net Tax Appreciation/ (Depreciation) |
|
$(167,636,682) |
|
$ |
(206,464,395 |
) |
For the year ended December 31, 2017, the Fund had capital loss carryovers as indicated below. The capital loss carryovers are
available to offset future realized capital gains to the extent provided in the Code and regulations
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
promulgated thereunder. To the extent that these carryover losses are used to offset future capital gains, it is probable that the gains so offset will not be distributed to shareholders because
they would be taxable as ordinary income.
|
|
|
|
|
|
|
|
|
2018 |
|
No Expiration Long-Term(1) |
|
|
Total |
|
$43,701,044(2) |
|
$ |
123,935,638 |
(2) |
|
$ |
167,636,682 |
|
(1) |
On December 22, 2010, the Regulated Investment Company Modernization Act of 2010 (the Modernization Act) was signed into law. The Modernization
Act modifies several of the Federal income and excise tax provisions related to RICs. Under the Modernization Act, new capital losses may now be carried forward indefinitely, and retain the character of the original loss as compared with pre-enactment law where capital losses could be carried forward for eight years, and carried forward as short-term capital losses, irrespective of the character of the original loss. |
(2) |
The Funds ability to utilize the capital loss carryforward may be limited. |
The tax character of distributions paid during the years ended December 31, 2017 and December 31, 2016 (unless otherwise indicated) is as follows:
|
|
|
|
|
|
|
|
|
Distributions Paid From: |
|
2017 |
|
|
2016 |
|
Ordinary Income(1) |
|
$ |
47,702,500 |
|
|
$ |
44,778,032 |
|
Return of Capital |
|
|
181,540 |
|
|
|
|
|
(1) |
For tax purposes, short-term capital gains distributions, if any, are considered ordinary income distributions. |
The above mentioned distributions are reflected on a tax basis. The tax basis distributions are less than the book basis distributions reflected on the Statement of
Changes in Net Assets.
Unrealized appreciation and depreciation at June 30, 2018, based on cost of investments for U.S. federal income tax purposes
is:
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Appreciation |
|
Gross Depreciation |
|
|
Net Appreciation/ (Depreciation
(1) |
|
|
Cost |
|
$69,838,933 |
|
$ |
(293,396,484 |
) |
|
$ |
(223,557,551 |
) |
|
$ |
1,084,427,091 |
|
(1) |
Any differences between book-basis and tax-basis net unrealized appreciation/(depreciation) are primarily due to wash
sales, non-taxable dividends, partnership, Controlled Foreign Corporation and Passive Foreign Investment Company (Qualifying Electing Fund) basis adjustments and defaulted bonds. |
Qualified Late Year Ordinary and Post October Losses
Under
current laws, certain capital losses realized after October 31 may be deferred (and certain ordinary losses after January 1st may be deferred) and treated as occurring on the first day of the following fiscal year. For the fiscal year
ended June 30, 2018, the Fund did not elect to defer net realized capital losses incurred from November 1, 2015 through June 30, 2018.
Note 6. Credit Agreements and Reverse Repurchase Agreement
On May 16, 2013, the Fund entered into a Committed Facility Agreement with BNP Paribas Prime Brokerage, Inc. (BNPP PB, Inc.) (the Committed
Facility Agreement). The current facility size of the Committed Facility Agreement is $135,000,000 and the Fund is required to pay 0.55% on the uncommitted balance and LIBOR + a spread on amounts borrowed. The spread ranges from 0.60% to 1.30%
depending on the quality of the holdings pledged to collateralize the loan. The Fund has the right to terminate the Committed Facility Agreement on 90 days notice, and BNPP PB, Inc. has the right to terminate the Committed Facility Agreement
immediately. As of June 30, 2018, the carrying value of the Committed Facility Agreement was $73,352,183. The fair value of the outstanding Committed Facility Agreement was estimated to be $74,399,338, and would be categorized as Level 3
within the fair value hierarchy. The fair value was estimated based on discounting the cash flows owed using a discount rate of 0.50% over the 90-day risk free rate.
For the six months ended June 30, 2018, the average daily note balance was $65,947,515 at a weighted average interest rate of 2.60%, excluding any commitment fee. With respect to the note balance, interest
expense of $862,877 and uncommitted balance fee of $25,033 are included in interest expense in the Statement of Operations.
On November 16, 2017,
the Fund entered into an agreement with BNP Paribas Securities Corporation (BNP Securities) under which it may from time to time enter into reverse repurchase transactions pursuant to the terms of a master repurchase agreement and
related annexes (collectively the Repurchase Agreement). A reverse repurchase transaction is a repurchase transaction in which the Fund is the seller of securities or other assets and agrees to repurchase them at a date certain or on
demand. Pursuant to the Repurchase Agreement, the Fund may agree to sell securities or other assets to BNP Securities for an agreed-upon price (the Purchase Price), with a simultaneous agreement to repurchase such securities or other
assets from BNP Securities for the Purchase Price plus a price differential that is economically similar to interest. The price differential is negotiated for each transaction.
On February 16, 2018, the Fund entered into a bridge credit agreement (the Bridge Agreement) with KeyBank, NA (KeyBank) whereby KeyBank agreed to loan the fund up to $36,500,000. The
interest is paid at a rate of LIBOR + 2.00%. The Fund paid an upfront fee of $182,500 to KeyBank as a condition to closing. On February 16, 2018, KeyBank loaned $20 million to the Fund as part of the Bridge Agreement. On May 29, 2018, the Fund
amended the Bridge Agreement
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
with KeyBank whereby KeyBank agreed to loan the fund up to $71,500,000 with a refinancing date of August 31, 2018, subject to extensions. The Fund paid an upfront fee of $52,500 to KeyBank as a
condition to add the new maturity and updated commitment. As of June 30, 2018, the carrying value of the Bridge Agreement was $9,250,000. The fair value of the outstanding Committed Facility Agreement was estimated to be $9,370,797, and would be
categorized as Level 3 within the fair value hierarchy. The fair value was estimated based on discounting the cash flows owed using a discount rate of 0.50% over the 90-day risk free rate.
For the six months ended June 30, 2018, the average daily note balance was $65,947,515 at a weighted average interest rate of 2.60%, excluding any commitment fee. With respect to the note balance, interest expense
of $453,473 is included in interest expense in the Statement of Operations.
Note 7. Asset Coverage
The Fund is required to maintain 300% asset coverage with respect to amounts outstanding (excluding short-term borrowings) under its various leverage facilities.
Asset coverage is calculated by subtracting the Funds total liabilities, not including any amount representing bank loans and senior securities, from the Funds total assets and dividing the result by the principal amount of the
borrowings outstanding. As of the dates indicated below, the Funds debt outstanding and asset coverage was as follows:
|
|
|
|
|
|
|
|
|
Date |
|
Total Amount Outstanding |
|
|
% of Asset Coverage of Indebtedness |
|
6/30/2018 |
|
$ |
90,065,292 |
|
|
|
977.3 |
% |
12/31/2017 |
|
|
31,933,494 |
|
|
|
1,954.8 |
|
12/31/2016 |
|
|
124,983,081 |
|
|
|
431.9 |
|
12/31/2015 |
|
|
186,625,315 |
(1) |
|
|
296.2 |
(1)(2) |
12/31/2014 |
|
|
385,336,455 |
|
|
|
323.0 |
|
12/31/2013 |
|
|
318,500,000 |
|
|
|
327.5 |
|
12/31/2012 |
|
|
225,000,000 |
|
|
|
311.7 |
|
12/31/2011 |
|
|
173,000,000 |
|
|
|
356.1 |
|
12/31/2010 |
|
|
120,000,000 |
|
|
|
510.6 |
|
12/31/2009 |
|
|
112,000,000 |
|
|
|
509.6 |
|
12/31/2008 |
|
|
141,000,000 |
|
|
|
356.2 |
|
12/31/2007 |
|
|
248,000,000 |
|
|
|
350.4 |
|
(1)
|
Excludes borrowings of $29,300,000 deemed to be short-term in nature. |
(2)
|
The Fund closes its net asset value daily, and using asset prices available at the time of the December 31, 2015 NAV close, the Fund calculated asset coverage of
greater than 300%. The Fund received updated prices for certain instruments in January that were used for financial reporting purposes as part of this report. These updated prices pushed the percentage of asset coverage down to 296.2%. As of
February 4, 2016, the date that the Fund declared the February monthly dividend, the percentage of asset coverage was over 300%.
|
Note 8. Investment Advisory, Administration and Trustee Fees
Investment Advisory Fee
The Investment Adviser to the Fund
receives an annual fee, paid monthly, in an amount equal to 1.00% of the average weekly value of the Funds Managed Assets. The Funds Managed Assets is an amount equal to the total assets of the Fund, including any form of
leverage, minus all accrued expenses incurred in the normal course of operations, but not excluding any liabilities or obligations attributable to investment leverage obtained through (i) indebtedness of any type (including, without limitation,
borrowing through a credit facility or the issuance of debt securities), (ii) the issuance of preferred stock or other preference securities, (iii) the reinvestment of collateral received for securities loaned in accordance with the Funds
investment objectives and policies, and/or (iv) any other means.
Administration Fee
The Investment Adviser provides administrative services to the Fund. For its services, the Investment Adviser receives an annual fee, payable monthly, in an amount
equal to 0.20% of the average weekly value of the Funds Managed Assets. Under a separate sub-administration agreement, the Investment Adviser has delegated certain administrative functions to State
Street Bank and Trust Company. The Investment Adviser pays State Street Bank and Trust Company directly for these sub-administration services.
Fees Paid to Officers and Trustees
Each Trustee who is not an interested person of the Fund as
defined in the 1940 Act (the Independent Trustees) receives an annual retainer of $150,000 payable in quarterly installments and allocated among each portfolio in the Highland Fund Complex overseen by such Trustee based on relative net
assets. The Highland Fund Complex consists of all of the registered investment companies advised by the Investment Adviser or its affiliated advisers and NexPoint Capital, Inc., a closed-end
management investment company that has elected to be treated as a business development company under the 1940 Act as of the date of this report. Effective December 4, 2015, Mr. Powell resigned from his position with the Investment Adviser.
Prior to December 8, 2017, Mr. Powell was treated as an Interested Trustee of the Trust for all purposes other than compensation and the Trusts code of ethics.
The Fund pays no compensation to its officers, all of whom are employees of the Investment Adviser or one of its affiliates.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
Note 9. Disclosure of Significant Risks and Contingencies
The primary risks of investing in the Fund are described below in alphabetical order:
Counterparty Risk
Counterparty risk is the potential loss the Funds may incur as a result of the failure of a
counterparty or an issuer to make payments according to the terms of a contract. Counterparty risk is measured as the loss the Funds would record if its counterparties failed to perform pursuant to the terms of their obligations to the Funds.
Because the Funds may enter into over-the-counter forwards, options, swaps and other derivative financial instruments, the Funds may be exposed to the credit risk of
their counterparties. To limit the counterparty risk associated with such transactions, the Funds conduct business only with financial institutions judged by the Investment Adviser to present acceptable credit risk.
Emerging Markets Risk
Any investments in Emerging Market
Countries (countries in which the capital markets are developing) may involve greater risks than investments in more developed markets and the prices of such investments may be more volatile. The consequences of political, social or economic changes
in these markets may have disruptive effects on the market prices of the Funds investments and the income they generate, as well as the Funds ability to repatriate such amounts.
Illiquidity of Investments Risk
The investments made by the Fund may be illiquid, and consequently the Fund
may not be able to sell such investments at prices that reflect the Investment Advisers assessment of their value or the amount originally paid for such investments by the Fund. Illiquidity may result from the absence of an established market
for the investments as well as legal, contractual or other restrictions on their resale and other factors. Furthermore, the nature of the Funds investments, especially those in financially distressed companies, may require a long holding
period prior to profitability.
Leverage Risk
The Fund may use leverage in its investment program, including the use of borrowed funds and investments in certain types of options, such as puts, calls and
warrants, which may be purchased for a fraction of the price of the underlying securities. While such strategies and techniques increase the opportunity to achieve higher returns on the amounts invested, they also increase the risk of loss. To the
extent the Fund purchases securities with borrowed funds, its net assets will tend to increase or decrease at a greater
rate than if borrowed funds are not used. If the interest expense on borrowings were to exceed the net return on the portfolio securities purchased with borrowed funds, the Funds use of
leverage would result in a lower rate of return than if the Fund were not leveraged.
REIT-Specific Risk
Real estate investments are subject to various risk factors. Generally, real estate investments could be adversely affected by a recession or general economic
downturn where the properties are located. Real estate investment performance is also subject to the success that a particular property manager has in managing the property.
Risks Associated with Options on Securities
There are several risks associated with transactions in options on
securities. For example, there are significant differences between the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction not to achieve its objectives. A transaction in
options or securities may be unsuccessful to some degree because of market behavior or unexpected events.
When the Fund writes a covered call option,
the Fund forgoes, during the options life, the opportunity to profit from increases in the market value of the security covering the call option above the sum of the premium and the strike price of the call, but retains the risk of loss should
the price of the underlying security decline. The writer of an option has no control over the time when it may be required to fulfill its obligation and once an option writer has received an exercise notice, it must deliver the underlying security
in exchange for the strike price.
When the Fund writes a covered put option, the Fund bears the risk of loss if the value of the underlying stock
declines below the exercise price minus the put premium. If the option is exercised, the Fund could incur a loss if it is required to purchase the stock underlying the put option at a price greater than the market price of the stock at the time of
exercise plus the put premium the Fund received when it wrote the option. While the Funds potential gain in writing a covered put option is limited to distributions earned on the liquid assets securing the put option plus the premium received
from the purchaser of the put option, the Fund risks a loss equal to the entire exercise price of the option minus the put premium.
Risks of
Investing in Obligations of Stressed, Distressed and Bankrupt Issuers
The Fund may invest in companies that are troubled, in distress or bankrupt.
As such, they are subject to a multitude of legal, industry, market, environmental and governmental
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
forces that make analysis of these companies inherently difficult. Further, the Investment Adviser relies on company management, outside experts, market participants and personal experience to
analyze potential investments for the Fund. There can be no assurance that any of these sources will prove credible, or that the resulting analysis will produce accurate conclusions.
Risks of Investing in Senior Loans
The risk that the issuer of a senior may fail to pay interest or principal
when due, and changes in market interest rates may reduce the value of the senior loan or reduce the Funds returns. The risks associated with senior loans are similar to the risks of high yield debt securities. Senior loans and other debt
securities are also subject to the risk of price declines and to increases in interest rates, particularly long-term rates. Senior loans are also subject to the risk that, as interest rates rise, the cost of borrowing increases, which may increase
the risk of default. In addition, the interest rates of floating rate loans typically only adjust to changes in short-term interest rates; long-term interest rates can vary dramatically from short-term interest rates. Therefore, senior loans may not
mitigate price declines in a long-term interest rate environment. The Funds investments in senior loans are typically below investment grade and are considered speculative because of the credit risk of their issuers.
Risks of Non-Diversification and Other Focused Strategies
While the Investment Adviser invests in a number of fixed income and equity instruments issued by different issuers and employs multiple investment strategies with respect to the Trusts investment portfolio,
it is possible that a significant amount of the Trusts investments could be invested in the instruments of only a few companies or other issuers or that at any particular point in time one investment strategy could be more heavily weighted
than the others. The focus of the Trusts investment portfolio in any one issuer would subject the Trust to a greater degree of risk with respect to defaults by such issuer or other adverse events affecting that issuer, and the focus of the
portfolio in any one industry or group of industries would subject the Trust to a greater degree of risk with respect to economic downturns relating to such industry or industries. The focus of
the Trusts investment portfolio in any one investment strategy would subject the Trust to a greater degree of risk than if the Trusts investment portfolio were varied in its investments with respect to several investment strategies.
Short Sales Risk
Short sales by the Fund that
are not made where there is an offsetting long position in the asset that it is being sold short theoretically involve unlimited loss potential since the market price of securities sold short may continuously increase. Short selling allows the Fund
to profit from declines in market prices to the extent such decline exceeds the transaction costs and costs of borrowing the securities. However, since the borrowed securities must be replaced by purchases at market prices in order to close out the
short position, any appreciation in the price of the borrowed securities would result in a loss. Purchasing securities to close out the short position can itself cause the price of securities to rise further, thereby exacerbating the loss. The Fund
may mitigate such losses by replacing the securities sold short before the market price has increased significantly. Under adverse market conditions, the Fund might have difficulty purchasing securities to meet margin calls on its short sale
delivery obligations, and might have to sell portfolio securities to raise the capital necessary to meet its short sale obligations at a time when fundamental investment considerations would not favor such sales.
Note 10. Investment Transactions
Purchases &
Sales of Securities
The cost of purchases and the proceeds from sales of investments, other than short-term securities, for the six months ended
June 30, 2018, were as follows:
|
|
|
|
|
Other
Securities |
|
Purchases |
|
Sales |
|
$518,949,684 |
|
$ |
273,402,298 |
|
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
Note 11. 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 June 30, 2018:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuer |
|
Shares at December 31, 2017 |
|
|
Beginning Value as of December 31, 2017 |
|
|
Purchases at Cost |
|
|
Proceeds from Sales |
|
|
Net Realized
Gain/(Loss) on Sales of Affiliated Issuers |
|
|
Change in
Unrealized Appreciation/ Depreciation |
|
|
Ending
Value as of June 30, 2018 |
|
|
Shares at
June 30, 2018 |
|
|
Affiliated
Income |
|
Majority Owned, Not Consolidated |
|
|
|
|
|
|
|
|
|
NexPoint Real Estate Capital, REIT (Common Stocks) |
|
|
8,271,300 |
|
|
$ |
78,119,949 |
|
|
$ |
21,550,000 |
|
|
$ |
(50,386,050 |
) |
|
$ |
|
|
|
$ |
1,618,049 |
|
|
$ |
50,901,948 |
|
|
|
10,674,177 |
|
|
$ |
2,712,500 |
|
NexPoint Real Estate Opportunities, LLC, REIT (Common Stocks) |
|
|
29,869,296 |
|
|
|
78,595,079 |
|
|
|
53,575,000 |
|
|
|
(49,948,550 |
) |
|
|
|
|
|
|
5,382,461 |
|
|
|
87,603,990 |
|
|
|
50,168,360 |
|
|
|
3,275,000 |
|
Specialty Financial Products, Ltd. (Common Stocks) |
|
|
19,450,201 |
|
|
|
21,261,015 |
|
|
|
9,601,051 |
|
|
|
|
|
|
|
|
|
|
|
2,650,227 |
|
|
|
33,512,293 |
|
|
|
28,258,954 |
|
|
|
|
|
Other Affiliates |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gambier Bay LLC(1) |
|
|
2,102,020 |
|
|
|
183,927 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
86,708 |
|
|
|
270,635 |
|
|
|
2,102,020 |
|
|
|
|
|
LLV Holdco, LLC (U.S. Senior Loans, Common Stocks & Warrants) |
|
|
9,272,856 |
|
|
|
7,071,528 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
321,601 |
|
|
|
7,393,129 |
|
|
|
9,272,893 |
|
|
|
|
|
TerreStar Corp. (U.S. Senior Loans & Common Stocks) |
|
|
17,916,883 |
|
|
|
52,383,236 |
|
|
|
3,513,337 |
|
|
|
(1,159 |
) |
|
|
|
|
|
|
(2,341,463 |
) |
|
|
53,553,951 |
|
|
|
18,952,243 |
|
|
|
1,017,280 |
|
Other Controlled |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allenby (Common Stocks) |
|
|
509,658 |
|
|
|
1 |
|
|
|
45,263 |
|
|
|
|
|
|
|
|
|
|
|
(45,263 |
) |
|
|
1 |
|
|
|
554,922 |
|
|
|
|
|
Claymore (Common Stocks) |
|
|
1,636,026 |
|
|
|
2 |
|
|
|
143,576 |
|
|
|
|
|
|
|
|
|
|
|
(143,576 |
) |
|
|
2 |
|
|
|
1,779,602 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
89,028,240 |
|
|
$ |
237,614,737 |
|
|
$ |
88,428,227 |
|
|
$ |
(100,335,759 |
) |
|
$ |
|
|
|
$ |
7,528,744 |
|
|
$ |
233,235,949 |
|
|
|
121,763,171 |
|
|
$ |
7,004,780 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
Includes the value of iHeart Communications, Inc. bonds as of December 31, 2017 and subsequent activity.
|
Note 12. Rights Offering and Stock Repurchase Plan
On April 19, 2017, the Fund announced a non-transferable rights offering (the 2017 Offering) to purchase additional shares of common stock of the Fund. Each
shareholder of record on May 5, 2017 received one right for each common share held. Holders were entitled to purchase one new share of common stock for every three rights held at a subscription price of $20.93 per share, which was calculated as
the lesser of (1) 95% of the reported net asset value on May 24, 2017 (the 2017 Expiration Date), or (2) 95% of the average of the last reported sales price of the Funds common shares on NYSE on the 2017 Expiration Date and on
each of the four trading days preceding the 2017 Expiration Date. The 2017 Offering was oversubscribed, with total subscriptions equal to 233% of the primary offering. As a result of the 2017 Offering and the
Funds exercise of an over-allotment option, 6,682,882 additional shares were issued.
On
April 20, 2018, the Fund announced a non-transferable rights offering (the 2018 Offering) to purchase additional shares of common stock of the Fund. Each shareholder of record on May 9,
2018 received one right for each common shareheld. Holders were entitled to purchase one new share of common stock for every three rights held at a subscription price of $21.30 per share, which was calculated as the lesser of (1) 5% of the reported
net asset value on May 24, 2017 (the 2018 Expiration Date), or (2) 95% of the average of the last reported sales price of the Funds common shares on NYSE on the 2018 Expiration Date and on each of the four trading days
preceding the 2018 Expiration Date. The 2018 Offering was oversubscribed, with total subscriptions equal to 177% of the primary
NOTES TO FINANCIAL STATEMENTS (unaudited) (concluded)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
offering. As a result of the 2018 Offering and the Funds exercise of an over-allotment option, 9,494,823 additional shares were issued.
On November 2, 2016, the Fund announced a stock repurchase plan initially sized at $10 million as approved by the Board. The repurchase plan was scheduled
to begin in December 2016 and continue for approximately six months. In connection with the Offering, the Board approved the extension of the Funds stock repurchase plan for a period of one year from the Expiration Date. As of June 30,
2018, no actual repurchases had occurred.
Note 13. New Accounting Pronouncements
In November, 2016, the FASB issued Accounting Standards Update 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash. The amendments in this update require the
statement of cash flows explain the change during the period in the total of cash, cash equivalents. Amounts generally described as restricted cash or restricted cash equivalents should be included with cash and cash equivalents when reconciling the
beginning-of-period and end-of-period total amounts shown on the statement of cash flows.
For public entities this update will be effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal years. For all other entities, this update is effective for fiscal years beginning after
December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Investment Adviser is currently evaluating the impact of this new guidance on the Funds financial statements.
In December 2016, the FASB issued Accounting Standards Update 2016-19, Technical Corrections and Improvements. The
amendments in this update include an amendment to FASB ASC Topic 820, Fair Value Measurement and Disclosures to clarify the difference between a valuation approach and a valuation technique. The amendment also requires an entity to disclose when
there has been a change in either or both a valuation approach and/or a valuation technique. For public entities, this update will be effective for fiscal years beginning after December 15, 2017, and for interim periods within those fiscal
years. For all other entities, this update is effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. The Investment Adviser is currently evaluating the
impact of this new guidance on the Funds financial statements.
In March 2017, the FASB issued Accounting Standards Update 2017-08, Receivables Nonrefundable Fees and Other Costs (Subtopic 310-20). The amendments in this update shorten the amortization period for certain callable debt
securities held at premium. Specifically, the
amend-
ments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized
to maturity. For public entities this update will be effective for fiscal years beginning after December 15, 2018, and for interim periods within those fiscal years. The Investment Adviser is currently evaluating the impact of this new guidance
on the Funds financial statements.
In February 2018, the FASB issued Accounting Standards Update 2018-03, Technical Corrections and Improvements
to Financial Instruments Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments in this update provide a variety of technical corrections and improvements to how entities should
account for financial instruments. shorten the amortization period for certain callable debt securities held at premium. For public entities this update will be effective for fiscal years beginning after December 15, 2017, and for interim
periods within those fiscal years beginning after June 15, 2018. The Investment Adviser is currently evaluating the impact of this new guidance on its financial statement presentation and disclosures.
Note 14. Subsequent Events
Management has evaluated the
impact of all subsequent events on the Fund through the date the financial statements were issued. Other than the matters below, no such subsequent events were identified.
On August 14, 2018, the Fund amended and restated the Bridge Agreement with KeyBank whereby KeyBank agreed to loan the fund up to $75,000,000. The Fund paid an upfront fee of $375,000 to KeyBank as a condition to
closing. The maturity date is August 29, 2020, subject to extensions, and interest is paid at a rate of LIBOR + 2.00%.
ADDITIONAL INFORMATION (unaudited)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
Additional Portfolio Information
The Investment Adviser and its affiliates manage other accounts, including registered and private funds and individual accounts. Although investment decisions for the Fund are made independently from those of such
other accounts, the Investment Adviser may, consistent with applicable law, make investment recommendations to other clients or accounts that may be the same or different from those made to the Fund, including investments in different levels of the
capital structure of a company, such as equity versus senior loans, or that involve taking contradictory positions in multiple levels of the capital structure. The Investment Adviser has adopted policies and procedures that address the allocation of
investment opportunities, execution of portfolio transactions, personal trading by employees and other potential conflicts of interest that are designed to ensure that all client accounts are treated equitably over time. Nevertheless, this may
create situations where a client could be disadvantaged because of the investment activities conducted by the Investment Adviser for other client accounts. When the Fund and one or more of such other accounts is prepared to invest in, or desires to
dispose of, the same security, available investments or opportunities for each will be allocated in a manner believed by the Investment Adviser to be equitable to the Fund and such other accounts. The Investment Adviser also may aggregate orders to
purchase and sell securities for the Fund and such other accounts. Although the Investment Adviser believes that, over time, the potential benefits of participating in volume transactions and negotiating lower transaction costs should benefit all
accounts including the Fund, in some cases these activities may adversely affect the price paid or received by the Fund or the size of the position obtained or disposed of by the Fund.
Unconsolidated Significant Subsidiaries
In accordance with Regulation
S-X and GAAP, the Fund is not permitted to consolidate any subsidiary or other entity that is not an investment company, including those in which the Fund has a controlling interest unless the business of the
controlled subsidiary consists of providing services to the Fund. In accordance with Regulation S-X Rules 3-09 and
4-08(g), the Fund evaluates its unconsolidated controlled subsidiaries as significant subsidiaries under the respective rules. As of December 31, 2017, both NexPoint Real Estate Opportunities, LLC and
NexPoint Real Estate Capital, LLC were considered significant unconsolidated subsidiaries under Regulation S-X Rule 4-08(g). Both subsidiaries are wholly owned by the
Fund. Based on the requirements under Regulation S-X Rule 4-08(g), the
summarized consolidated financial information of these significant unconsolidated subsidiaries is presented below:
|
|
|
|
|
|
|
|
|
|
|
NexPoint Real Estate Capital, LLC June 30, 2018 (unaudited) |
|
|
NexPoint Real Estate Opportunities, LLC June 30,
2018 (unaudited) |
|
Balance Sheet: |
|
|
|
|
|
|
|
|
Current Assets |
|
$ |
5,320,000 |
|
|
$ |
16,157,000 |
|
Noncurrent Assets |
|
|
47,422,000 |
|
|
|
54,228,000 |
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
|
52,742,000 |
|
|
|
70,385,000 |
|
Current Liabilities |
|
|
191,000 |
|
|
|
5,344,000 |
|
Noncurrent Liabilities |
|
|
703,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities |
|
|
894,000 |
|
|
|
5,344,000 |
|
Preferred Stock |
|
|
100,000 |
|
|
|
125,000 |
|
Non-controlling interest (in consolidated investments) |
|
|
|
|
|
|
(3,076,000 |
) |
Invested Equity |
|
|
51,748,000 |
|
|
|
67,992,000 |
|
|
|
|
|
|
|
|
|
|
Total Equity |
|
|
51,848,000 |
|
|
|
65,041,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NexPoint Real Estate Capital, LLC For the Six Months
Ended June 30, 2018 (unaudited) |
|
|
NexPoint Real Estate Opportunities, LLC For the Six Months
Ended June 30, 2018 (unaudited) |
|
Summary of Operations: |
|
Net Sales |
|
$ |
6,126,000 |
|
|
$ |
16,988,000 |
|
Gross Profit |
|
|
6,008,000 |
|
|
|
5,090,000 |
|
Net Income |
|
|
6,000,000 |
|
|
|
4,944,000 |
|
Net Income attributable to non-controlling interest (in consolidated investments), preferred
shares, and other comprehensive income |
|
|
8,000 |
|
|
|
146,000 |
|
Tax Information
For
shareholders that do not have a December 31, 2017 tax year end, this notice is for informational purposes only. For shareholders with a December 31, 2017 tax year end, please consult your tax adviser as to the pertinence of this notice. For the
fiscal year ended December 31, 2017, the Fund hereby designates the following items with regard to distributions paid during the year.
|
|
|
|
|
|
|
|
|
Qualified Dividends and Corporate Dividends Received Deduction |
|
Qualified Dividend Income (15% tax rate for QDI) |
|
|
Qualifying Interest Income |
|
1.63% |
|
|
1.85 |
% |
|
|
36.68 |
% |
ADDITIONAL INFORMATION (unaudited) (continued)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
Dividend Reinvestment Plan
Unless the registered owner of Common Shares elects to receive cash by contacting American Stock Transfer & Trust Company, LLC (AST or the Plan Agent), as agent for shareholders in
administering the Plan, a registered owner will receive newly issued Common Shares for all dividends declared for Common Shares of the Fund. If a registered owner of Common Shares elects not to participate in the Plan, they will receive all
dividends in cash paid by check mailed directly to them (or, if the shares are held in street or other nominee name, then to such nominee) by AST, as dividend disbursing agent. Shareholders may elect not to participate in the Plan and to receive all
dividends in cash by sending written instructions or by contacting AST, as dividend disbursing agent, at the address set forth below.
Participation in
the Plan is completely voluntary and may be terminated or resumed at any time without penalty by contacting the Plan Agent before the dividend record date; otherwise such termination or resumption will be effective with respect to any subsequently
declared dividend. Some brokers may automatically elect to receive cash on the shareholders behalf and may reinvest that cash in additional Common Shares of the Fund for them. The Plan Agent will open an account for each shareholder under the
Plan in the same name in which such shareholders Common Shares are registered.
Whenever the Fund declares a dividend payable in cash, non-participants in the Plan will receive cash and participants in the Plan will receive the equivalent in Common Shares. The Common Shares will be acquired by the Plan Agent through receipt of additional unissued
but authorized Common Shares from the Fund (newly issued Common Shares). The number of newly issued Common Shares to be credited to each participants account will be determined by dividing the dollar amount of the dividend by the
lesser of (i) the net asset value per Common Share determined on the Declaration Date and (ii) the market price per Common Share as of the close of regular trading on the New York Stock Exchange (the NYSE) on the Declaration
Date.
The Plan Agent maintains all shareholders accounts in the Plan and furnishes written confirmation of all transactions in the accounts,
including information needed by shareholders for tax records. Common Shares in the account of each Plan participant will be held by the Plan Agent on behalf of the Plan participant, and each shareholder proxy will include those shares purchased or
received pursuant to the Plan. The Plan Agent will forward all proxy solicitation materials to participants and vote proxies for shares held under the Plan in accordance with the instructions of the participants. In the case of shareholders such as
banks,
brokers or nominees which hold shares for others who are the beneficial owners, the Plan Agent will administer the Plan on the basis of the number of Common Shares certified from time to time by
the record shareholders name and held for the account of beneficial owners who participate in the Plan. There will be no brokerage charges with respect to Common Shares issued directly by the Fund.
The automatic reinvestment of dividends will not relieve participants of any federal, state or local income tax that may be payable (or required to be withheld) on
such dividends. Accordingly, any taxable dividend received by a participant that is reinvested in additional Common Shares will be subject to federal (and possibly state and local) income tax even though such participant will not receive a
corresponding amount of cash with which to pay such taxes. Participants who request a sale of shares through the Plan Agent are subject to a $2.50 sales fee and pay a brokerage commission of $0.05 per share sold. The Fund reserves the right to amend
or terminate the Plan. There is no direct service charge to participants in the Plan; however, the Fund reserves the right to amend the Plan to include a service charge payable by the participants. All correspondence concerning the Plan should be
directed to the Plan Agent at American Stock Transfer & Trust Company, LLC 6201 15th Avenue Brooklyn, NY 11219; telephone (718) 921-8200.
Shareholder Loyalty Program
To promote loyalty and long-term alignment of interests among the Funds
shareholders, the Investment Adviser offers an incentive to shareholders that buy and hold the Funds common shares for a period of at least twelve months through its Shareholder Loyalty Program (the Program). To participate in the
Program, existing shareholders must open an account (the Account) with the Programs administrator, American Stock Transfer & Trust Company (AST). Subsequently, if a participant makes contributions to the
Account during a defined trading period to purchase shares, the Investment Adviser will make a corresponding contribution equal to 2% of the participants contributions. For example, if a participant contributes $10,000 to the Account during a
defined trading period to purchase shares, the Adviser will make a corresponding contribution of $200, to purchase additional shares for the participant (the Bonus Shares). In addition, Program participants will not be required to pay
any customary selling commissions or distribution fees on the purchase of shares under the Program. The Investment Adviser will bear the costs of brokerage fees in connection with the Program. While the portion of the Funds common shares that
are acquired through the participants contribution will vest immediately, Bonus Shares will not vest
ADDITIONAL INFORMATION (unaudited) (concluded)
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
until the first anniversary of the date that the Bonus Shares were purchased. Vested shares will be held in the Account and Bonus Shares will be held in an account at AST for the conditional
benefit of the shareholder. Under the Program, participants must purchase a minimum of $10,000 worth of shares in the initial subscription and $5,000 in each subsequent subscription, unless the Investment Adviser, in its sole discretion, decides to
permit subscriptions for a lesser amount. If the Funds common shares are trading at a discount, AST will purchase common shares on behalf of participants in open-market purchases. If the Funds common shares are trading at a premium, AST
may purchase common shares on behalf of participants in open market purchases or the Fund may sell common shares to the Shareholder Loyalty Program by means of a prospectus or otherwise. All dividends received on shares that are purchased under the
Program will be automatically reinvested through the Program. A participants interest in a dividend paid to the holder of a vested share will vest immediately. A participants interest in a dividend paid to the holder of a Bonus Share
will vest at the same time that the Bonus Shares vesting requirements are met. In addition, for dividends paid to holders of shares that were purchased with a participants contributions, the Investment Adviser will make a corresponding
contribution to the amount of the reinvested dividend equal to 2% of the dividend amount. AST maintains all shareholders accounts in the Program and furnishes written confirmation of all transactions in the accounts, including information
needed by shareholders for tax records. Shares in the account of each Program participant will be held by AST on behalf of the Program participant, and each shareholder proxy will include those shares purchased or received pursuant to a Program. AST
will forward all proxy solicitation materials to participants and vote proxies for shares held under the Program in accordance with the instructions of the participants. In the case of
shareholders such as banks, brokers or nominees which hold shares for others who are the beneficial owners, AST will administer the Program on the basis of the number of common shares certified
from time to time by the record shareholders name and held for the account of beneficial owners who participate in the Program. The Fund and the Investment Adviser reserve the right to amend or terminate the Program. To help align the
interests of the Investment Advisers employees with the interests of the Funds shareholders, the Investment Adviser offers a similar program to its employees. Participants in the Program should be aware that their receipt of Bonus Shares
under the Program constitutes taxable income to them. In addition, such participants owe taxes on that portion of any distribution that constitutes taxable income in respect of shares of our common stock held in their Program accounts, whether or
not such shares of common stock have vested in the hands of the participants. To the extent any payments or distributions under the Program are subject to U.S. federal, state or local taxes, the Fund, any participating affiliate of the Fund or the
agent for the Program may satisfy its tax withholding obligation by (1) withholding shares of Stock allocated to the participants account, (2) deducting cash from the participants account or (3) deducting cash from any
other compensation the participant may receive. Program participants should consult their tax advisers regarding the tax consequences to them of participating in the Program. The Program may create an incentive for shareholders to invest additional
amounts in the Fund. Because the Investment Advisers management fee is based on a percentage of the assets of the Fund, the Program will result in increased net revenues to the Investment Adviser if the increase in the management fee due to
the increased asset base offsets the costs associated with establishing and maintaining the Program.
Proxy Vote Information
|
|
|
June 30, 2018 |
|
NexPoint Strategic Opportunities Fund |
Submission of Proposal to a Vote of Shareholders
The annual meeting of shareholders of the Fund was held on June 22, 2018. The following is a summary of the proposal submitted to shareholders for a vote at the meeting and the votes cast.
|
|
|
|
|
|
|
|
|
Proposal |
|
Votes For |
|
|
Votes Withheld |
|
To elect John Honis as a Class III Trustee of the Fund, to serve for a three-year term expiring at the 2021 Annual
Meeting. |
|
|
19,604,202 |
|
|
|
672,866 |
|
To elect Dustin Norris as a Class III Trustee of the Fund, to serve for a three-year term expiring at the 2021 Annual
Meeting. |
|
|
19,755,210 |
|
|
|
521,858 |
|
In addition to the two Trustees who were elected at the annual meeting, as noted above, the following other Trustees continued in
office after the Funds annual meeting: Dr. Bob Froehlich, Timothy K. Hui, Ethan Powell and Bryan A. Ward.
IMPORTANT INFORMATION ABOUT THIS REPORT
Investment Adviser
NexPoint Advisors, L.P.
200 Crescent Court, Suite 700
Dallas, TX 75201
Transfer Agent
American Stock Transfer & Trust Company, LLC
6201 15th Avenue
Brooklyn, NY 11219
Custodian
State Street Bank and Trust Company
One Lincoln Street
Boston, Massachusetts 02111
Independent Registered Public
Accounting Firm
PricewaterhouseCoopers LLP
2001
Ross Avenue, Suite 1800
Dallas, TX 75201
Fund
Counsel
Stradley Ronon Stevens & Young, LLP
1250 Connecticut Avenue, N.W.
Washington, DC 20036-2652
This report has been prepared for shareholders of NexPoint Strategic Opportunities Fund (the Fund). The
Fund mails one shareholder report to each shareholder address. If you would like more than one report, please call shareholder services at
1-866-351-4440 to request that additional reports be sent to you.
A description of the policies and procedures that the Fund uses to determine how to vote proxies relating to its portfolio securities, and the Funds proxy voting records for the most recent 12-month period ended June 30, are available (i) without charge, upon request, by calling
1-866-351-4440 and (ii) on the Securities and Exchange Commissions website at http://www.sec.gov.
The Fund files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form
N-Q. The Funds Forms N-Q are available on the SECs website at http://www.sec.gov and also may be reviewed and copied at the SECs Public Reference Room
in Washington, DC. Information on the Public Reference Room may be obtained by calling 1-800-SEC-0330. Shareholders may also
obtain the Form N-Q by visiting the Funds website at www.NexPointAdvisors.com.
On June 28, 2018, the
Fund submitted a CEO annual certification to the New York Stock Exchange (NYSE) on which the Funds principal executive officer certified that he was not aware, as of the date, of any violation by the Fund of the NYSEs
Corporate Governance listing standards. In addition, as required by Section 302 of the Sarbanes-Oxley Act of 2002 and related SEC rules, the Funds principal executive officer and principal financial officer made quarterly certifications,
included in filings with the SEC on Forms N-CSR and N-Q relating to, among other things, the Funds disclosure controls and procedures and internal controls over
financial reporting, as applicable.
The Statement of Additional Information includes additional information about the Funds Trustees and is
available upon request without charge by calling 1-866-351-4440.
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6201 15th Avenue
Brooklyn, NY 11219
|
|
|
NexPoint Strategic Opportunities Fund |
|
Semi-Annual Report, June 30, 2018 |
|
|
|
www.nexpointadvisors.com |
|
NHF-SAR-0618 |
Item 2. Code of Ethics.
Not applicable.
Item 3. Audit Committee Financial
Expert.
Not applicable.
Item 4. Principal
Accountant Fees and Services.
Not applicable.
Item 5. Audit Committee of Listed Registrants.
Not
applicable.
Item 6. Investments.
(a) |
Schedule of Investments in securities of unaffiliated issuers as of the close of the reporting period is
included as part of the Semi-Annual Report to Shareholders filed under Item 1 of this form. |
Item 7. Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies.
Not applicable.
Item 8. Portfolio Managers of
Closed-End Management Investment Companies.
There has been no change, as of the date of this filing, in any of the portfolio managers identified in
response to paragraph (a)(1) of this Item in NexPoint Strategic Opportunities Funds (the Registrant) most recently filed annual report on Form N-CSR.
Item 9. Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers.
No such purchases were made by or on behalf of the Registrant or any affiliated purchaser during the period covered by this report.
Item 10. Submission of Matters to a Vote of Security Holders.
There have been no material changes to the procedures by which the shareholders may recommend nominees to the Registrants Board.
Item 11. Controls and Procedures.
(a) |
The Registrants principal executive and principal financial officers, or persons performing similar
functions, have concluded that the Registrants disclosure controls and procedures (as defined in Rule 30a-3(c) under the 1940 Act (17 CFR 270.30a-3 (c)) are effective, as of a date within 90 days of the filing date of the report that includes
the disclosure required by this paragraph, based on their evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act (17 CFR 270.30a-3(b)) and Rules 13a-15(b) or 15d-15(b) under the Securities Exchange Act of 1934, as
amended (17 CFR 240.13a-15(b) or 240.15d-15(b)). |
(b) |
There were no changes in the Registrants internal control over financial reporting (as defined in Rule
30a-3(d) under the 1940 Act (17 CFR 270.30a-3(d)) that occurred during the Registrants second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the Registrants
internal control over financial reporting. |
Item 12. Disclosure of Securities Lending Activities for Closed-End Management Investment Companies.
(a) Not applicable.
(b) Not applicable.
Item 13. Exhibits.
(a)(2) |
Certifications pursuant to Rule 30a-2(a) under the 1940 Act and
Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
(b) |
Certifications pursuant to Rule 30a-2(b) under the 1940 Act and
Section 906 of the Sarbanes-Oxley Act of 2002 are attached hereto. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as amended, the Registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
NEXPOINT STRATEGIC OPPORTUNITIES FUND
|
|
|
By (Signature and Title): |
|
/s/ James Dondero |
|
|
James Dondero |
|
|
President and Principal Executive Officer |
|
|
Date: September 5, 2018 |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, and the Investment Company Act of 1940, as
amended, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
|
|
|
By (Signature and Title): |
|
/s/ James Dondero |
|
|
James Dondero |
|
|
President and Principal Executive Officer |
|
|
Date: September 5, 2018 |
|
|
|
|
By (Signature and Title): |
|
/s/ Frank Waterhouse |
|
|
Frank Waterhouse |
|
|
Treasurer, Principal Accounting Officer and Principal Financial Officer |
|
|
Date: September 5, 2018 |
|
|