Highland Income Fund

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Recent News: HFRO Announces Proposal to Convert Fund to Diversified Holding Company

On June 14, 2021, the Highland Income Fund announced the filing of a preliminary proxy statement in connection with its proposal to convert the Fund from a registered investment company to a diversified holding company. Follow the the link below for more information on the prosed conversion.

HFRO Conversion - More Information
  • A publicly listed closed-end fund offering high income potential in all markets
  • Yields that reset when short-term interest rates move, which may mitigate price declines in a rising short-term interest rate environment
  • Low correlation to other asset classes
  • Access to one of the largest and most experienced senior loan managers

Fund Materials

Fund Overview

Investment Objective

The investment objective of the closed-end Highland Income Fund is to provide a high level of current income, consistent with the preservation of capital.

Attractive Alternatives for Income-Oriented Investors
  • High income potential in all markets
  • Yields that reset when short-term interest rates move, which may mitigate price declines in a rising short-term interest rate environment
  • Low correlation to other asset classes
  • Access to one of the largest and most experienced senior loan managers
Fund NAV (As of Jun 17, 2021)
SymbolHFRO
Inception01/13/00
NAV$13.82

Update on Claymore Holdings LLC v. Credit Suisse AG Case | October 2, 2020

Update on the Claymore Holdings LLC v. Credit Suisse AG Case Related to the Highland Income Fund as of October 2, 2020

The following provides an update on the case against Credit Suisse, AG, Cayman Islands Branch, and Credit Suisse Securities (USA), LLC (“Credit Suisse”).

On October 2, 2020, the Texas Supreme Court (the “Court”) released an order denying the Motion for Rehearing (the “Motion”). The Motion was filed by Claymore Holdings LLC (“Claymore”), the Highland Capital Management and NexPoint affiliate (together “Highland”) that pursued the collective claims on behalf of the Highland Income Fund (NYSE:HFRO) and the NexPoint Strategic Opportunities Fund (NYSE:NHF) (together the “Funds”).

BACKGROUND ON THE CASE

The case was originally filed in 2013. Following a bench trial and jury trial, a trial court issued a judgment in favor of Claymore in 2015, which was confirmed by an appellate court in 2018. An appeal of that ruling sent the case to the Texas Supreme Court, which heard the case on January 8, 2020.

BACKGROUND ON THE TEXAS SUPREME COURT’S REVIEW OF THE CASE

The Court issued an order on April 24, 2020 that affirmed in part and reversed in part the 2018 ruling from the court of appeals. In the April 24 order, the Court upheld the $40 million fraud verdict that resulted from the jury trial; however, it did not uphold the $211 million in contract damages and equitable relief awarded to Claymore by the trial court following the bench trial. In its opinion, the Court noted procedural issues related to the calculation of damages among the reasons for reversing part of the appellate court ruling.

Highland was encouraged that the Court recognized the fraud that Credit Suisse committed against the Funds but believed the decision to reverse part of the appellate court ruling did not fully account for damages evidence presented to the lower courts. On June 12, 2020 (in response to the April 24 order) Claymore filed the Motion, formally raising these concerns to the Court.

INFORMATION ON THE TEXAS SUPREME COURT’S OCTOBER 2, 2020 ORDER

Highland is disappointed that the Court, in its decision not to rehear the case, did not recognize these concerns. As a result of today’s order, the April 24 order stands. The Court did not include a total award amount in the April 24 order, and instead remanded back to the trial court for a determination of damages.

The trial court has the ability to consider and resolve other matters as part of its decision, which may affect the final judgment amount. Once the matter is referred to the trial court, the trial court likely will give an indication of expected timing and next steps.

This represents the final opportunity to make arguments to the Texas Supreme Court that could affect the ultimate award amount. However, Highland currently does not know what specific matters the trial court may consider.

Highland therefore does not currently know the amount of a final judgment, as it will be determined by the trial court.

No award amount has been recorded in the Funds’ net asset values at this time.

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Update on Claymore Holdings LLC v. Credit Suisse AG Case | June 12, 2020

Update on the Claymore Holdings LLC v. Credit Suisse AG Case Related to the Highland Income Fund as of June 12, 2020

The following provides additional information on the order from the Texas Supreme Court (the “Court”) in the Claymore Holdings LLC (“Claymore”) case against Credit Suisse, AG, Cayman Islands Branch, and Credit Suisse Securities (USA), LLC (“Credit Suisse”).

Claymore is the Highland Capital Management and NexPoint affiliate (together “Highland”) that pursued the collective claims on behalf of the Highland Income Fund (NYSE:HFRO) and the NexPoint Strategic Opportunities Fund (NYSE:NHF) (together the “Funds”).

The Texas Supreme Court (the “Court”) release an order on April 24, 2020. A party may file a motion for rehearing with the Court within a 15-day window following the issuance of an order or request an extension to move for rehearing.

Claymore requested an extension from the Court to move for rehearing, which has been granted.

On June 12, 2020, Claymore filed a motion for rehearing. Once a motion for rehearing has been filed, the Court has 90 days to respond with a decision on whether or not it will grant a rehearing.

No award amount has been recorded in the Funds’ net asset values at this time.

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Update on Claymore Holdings LLC v. Credit Suisse AG Case | May 15, 2020

Update on the Claymore Holdings LLC v. Credit Suisse AG Case Related to the Highland Income Fund as of May 15, 2020

The following provides additional information on the order from the Texas Supreme Court (the “Court”) in the Claymore Holdings LLC (“Claymore”) case against Credit Suisse, AG, Cayman Islands Branch, and Credit Suisse Securities (USA), LLC (“Credit Suisse”).

Claymore is the Highland Capital Management and NexPoint affiliate (together “Highland”) that pursued the collective claims on behalf of the Highland Income Fund (NYSE:HFRO) and the NexPoint Strategic Opportunities Fund (NYSE:NHF) (together the “Funds”).

The Texas Supreme Court (the “Court”) release an order on April 24, 2020. A party may file a motion for rehearing with the Court within a 15-day window following the issuance of an order or request an extension to move for rehearing.

Claymore requested an extension from the Court to move for rehearing, which has been granted.

Claymore now has until June 12, 2020 to file a motion for rehearing. Once a motion for rehearing has been filed, the Court has 90 days to respond with a decision on whether or not it will grant a rehearing.

No award amount has been recorded in the Funds’ net asset values at this time.

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Update on Claymore Holdings LLC v. Credit Suisse AG Case | April 29, 2020

Update on the Claymore Holdings LLC v. Credit Suisse AG Case Related to the Highland Income Fund as of April 29, 2020

The following provides additional information on the order released on April 24, 2020 from the Texas Supreme Court (the “Court”) in the case against Credit Suisse, AG, Cayman Islands Branch, and Credit Suisse Securities (USA), LLC (“Credit Suisse”).

Background on the Case

The case was filed in 2013 by Claymore Holdings LLC (“Claymore”), the Highland Capital Management and NexPoint affiliate (together “Highland”) that pursued the collective claims on behalf of the Highland Income Fund (NYSE:HFRO) and the NexPoint Strategic Opportunities Fund (NYSE:NHF) (together the “Funds”).

Following a bench trial and jury trial, a trial court issued a judgment in favor of Claymore in 2015, which was confirmed by an appellate court in 2018. An appeal of that ruling sent the case to the Texas Supreme Court, which heard the case on January 8, 2020. The Court issued an order on the case on April 24, 2020.

Information on the Texas Supreme Court’s April 24, 2020 Order

The Court’s April 24 order affirmed in part and reversed in part the 2018 ruling from the court of appeals. The Court upheld the $40 million fraud verdict that resulted from the jury trial; however, it did not uphold the $211 million in equitable relief awarded to Claymore by the trial court following the bench trial. In its opinion, the Court noted procedural issues related to the calculation of damages among the reasons for reversing part of the appellate court ruling.

The Court did not include a total award amount in its order, and instead remanded back to the trial court for a determination of damages.

Information on the Subsequent Legal Process with the Texas Supreme Court

A party may file a motion for rehearing with the Court within a 15-day window following the issuance of an order. Once a motion for rehearing has been filed, the Court has 90 days to respond with a decision on whether or not it will grant a rehearing.

Information on Highland’s Response to the Order

While Highland is encouraged that the Court recognized the fraud that Credit Suisse committed against the Funds, we believe the decision to reverse part of the appellate court ruling does not fully account for information on damages that Claymore presented to the lower courts.

Highland’s focus is on protecting our investors’ interests, so while the Court’s order further extends the legal process, it does not change our ultimate objective of recovering monies for our investors.  We remain committed to holding Credit Suisse accountable for the fraud, contract breaches, and other violations, and the damages caused to the Funds as a result of those actions.

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Portfolio Managers

James Dondero, CFA

President, Co-Founder

Bio

Joe Sowin, CMT, CAIA

Co-Chief Investment Officer

Bio

Press Releases

Highland Income Fund Announces Proposal to Convert Fund to Diversified Holding Company

Business Change Intended to Increase Shareholder Value, Provide Potential to Reduce Discount to NAV Fund’s Board and Independent Trustees Unanimously Approve Proposal, Recommend Shareholders Vote “FOR” Business Change DALLAS, June…

Highland Income Fund Announces the Regular Monthly Distribution

DALLAS – June 1, 2021 – Highland Income Fund (NYSE: HFRO) (“HFRO” or the “Fund”) today announced its regular monthly distribution on its common stock of $0.0770 per share. The distribution…

Highland Income Fund Announces the Regular Monthly Distribution

DALLAS, May 03, 2021 — Highland Income Fund (NYSE: HFRO) (“HFRO” or the “Fund”) today announced its regular monthly distribution on its common stock of $0.0770 per share. The distribution will…

Market Commentary

HFRO-2020-Commentary

Other Forms, Filings, and Literature

Disclosures


Investment returns and principal value will fluctuate so that an investor’s shares when redeemed may be worth more or less than their original cost. 

Closed-end funds, unlike open-end funds, are not continuously offered. There is a one-time public offering and once issued, shares of closed-end funds are sold in the open market through a stock exchange and frequently trade at prices lower than their net asset value, which may increase an investor's risk of loss. Net asset value (“NAV”) is total assets less total liabilities, which includes preferred shares, divided by the number of common shares outstanding. At the time of sale, your shares may have a market price that is above or below NAV and may be worth more or less than your original investment. For additional information, please contact your investment adviser or visit www.highlandfunds.com.

Please consider the investment objectives, risks, charges, and expenses of the Highland Income Fund carefully before investing. A prospectus with this and other information about the Highland Income Fund can be found on the Literature tab above.

Registered investment companies like HFRO are subject to certain risks.

  • Credit Risk. The risk that HFRO could lose money if the issuer or guarantor of a fixed income security, or the counterparty of a derivatives contract or repurchase agreement, is unable or unwilling (or is perceived to be unable or unwilling) to make a timely payment of principal and/or interest, or to otherwise honor its obligations.
  • 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 Adviser’s assessment of their value or the amount originally paid for such investments by the Fund.
  • Industry Concentration Risk. HFRO must invest at least 25% of the value of its total assets at the time of purchase in securities of issuers conducting their principal business activities in the real estate industry. HFRO may be subject to greater market fluctuations than a fund that does not concentrate its investments in a particular industry. Financial, economic, business, and other developments affecting issuers in the real estate industry will have a greater effect on HFRO, and if securities of the real estate industry fall out of favor, HFRO could underperform, or its NAV may be more volatile than, funds that have greater industry diversification.
  • Interest Rate Risk. The risk that debt securities, and HFRO’s net assets, may decline in value because of changes in interest rates. Generally, debt securities will decrease in value when interest rates rise and increase in value when interest rates decline.
  • Leverage Risk. Leverage may increase the risk of loss, cause fluctuations in the market value of HFRO’s portfolio to have disproportionately large effects or cause our NAV to decline faster than it would otherwise.
  • Ongoing Monitoring Risk. On behalf of the several Lenders, the Agent generally will be required to administer and manage the Senior Loans and, with respect to collateralized Senior Loans, to service or monitor the collateral. Financial difficulties of Agents can pose a risk to the Fund.
  • Pandemics and Associated Economic Disruption. An outbreak of respiratory disease caused by a novel coronavirus was first detected in China in December 2019 and subsequently spread internationally. This coronavirus has resulted in the closing of borders, enhanced health screenings, healthcare service preparation and delivery, quarantines, cancellations, disruptions to supply chains and customer activity, as well as general anxiety and economic uncertainty. It is not known how long any negative impacts, or any future impacts of other significant events such as a substantial economic downturn, will last. Health crises caused by outbreaks of disease, such as the coronavirus, may exacerbate other preexisting political, social, and economic risks. This outbreak, and other epidemics and pandemics that may arise in the future, could negatively affect the global economy, as well as the economies of individual countries, individual companies, and the market in general in significant and unforeseen ways. For example, a widespread health crisis such as a global pandemic could cause substantial market volatility, exchange trading suspensions and closures, which could adversely affect HFRO’s performance, the performance of the securities in which HFRO invests, lines of credit available to HFRO and may lead to losses on your investment in HFRO. In addition, the increasing interconnectedness of markets around the world may result in many markets being affected by events or conditions in a single country or region or events affecting a single or small number of issuers.
  • Real Estate Market Risk. HFRO is exposed to economic, market and regulatory changes that impact the real estate market generally and through its investment in NFRO REIT Sub, LLC (the “REIT Subsidiary”), which may cause HFRO’s operating results to suffer. Several factors may prevent the REIT Subsidiary’s properties and other real estate-related investments from generating sufficient net cash flow or may adversely affect their value, or both, resulting in less cash available for distribution, or a loss, to us. These factors include: national, regional and local economic conditions; changing demographics; the ability of property managers to provide capable management and adequate maintenance; the quality of a property’s construction and design; increases in costs of maintenance, insurance, and operations (including energy costs and real estate taxes); potential environmental and other legal liabilities; the level of financing used by the REIT Subsidiary and the availability and cost of refinancing; potential instability, default or bankruptcy of tenants in the properties owned by the REIT Subsidiary; the relative illiquidity of real estate investments in general, which may make it difficult to sell a property at an attractive price or within a reasonable time frame. The full extent of the impact and effects of the recent outbreak of COVID-19 on the future financial performance of HFRO, and specifically, on its investments and tenants to properties held by its REIT Subsidiary, are uncertain at this time. The outbreak could have a continued adverse impact on economic and market conditions and trigger a period of global economic slowdown.
  • Senior Loans Risk. The risk that the issuer of a senior may fail to pay interest or principal when due, and changes in market interest rates may reduce the value of the senior loan or reduce HFRO’s returns. The risks associated with senior loans are similar to the risks of high yield debt securities. Senior loans and other debt securities are also subject to the risk of price declines and to increases in interest rates, particularly long-term rates. Senior loans are also subject to the risk that, as interest rates rise, the cost of borrowing increases, which may increase the risk of default. In addition, the interest rates of floating rate loans typically only adjust to changes in short-term interest rates; long-term interest rates can vary dramatically from short-term interest rates. Therefore, senior loans may not mitigate price declines in a long-term interest rate environment. HFRO’s investments in senior loans are typically below investment grade and are considered speculative because of the credit risk of their issuers.

Effective May 20, 2019, the Fund changed its name to Highland Income Fund and expanded its investment strategy by removing the Fund’s policy of, under normal market circumstances, investing at least 80% of its net assets in floating-rate loans and other securities deemed to be floating-rate instruments. See the March 20, 2019 press release for further details regarding the Fund’s name change and expanded investment strategy: “Highland Floating Rate Opportunities Fund Announces Name Change to Highland Income Fund

Effective shortly after close of business on November 3, 2017, the Highland Floating Rate Opportunities Fund converted from an open-end fund to a closed-end fund, and began trading on the NYSE under the symbol HFRO on November 6, 2017. The performance data presented above reflects that of Class Z shares of the Fund when it was an open-end fund, HFRZX. The closed-end Fund pursues the same investment objective and strategy as it did before its conversion.

Glossary: Click here for important terms and definitions

Source: SEI Investments Global Funds Services