Highland Income Fund

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  • 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 Oct 22, 2020)
SymbolHFRO
Inception01/13/00
NAV$12.59

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 the Regular Monthly Distribution

DALLAS, Oct. 1, 2020 — 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 be payable on October…

Highland Capital Management Fund Advisors Announces Updates to Highland Income Fund Portfolio Management Team

DALLAS, Sept. 25, 2020  — Highland Capital Management Fund Advisors, L.P. (“HCMFA”) today announced recent updates to the portfolio management team for the Highland Income Fund (NYSE: HFRO) (“HFRO” or the…

Highland Income Fund Announces the Regular Monthly Distribution

DALLAS, Sept. 1, 2020 — 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…

Market Commentary

Income Fund Market Commentary Q2-2020

Other Forms, Filings, and Literature

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. 

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.

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 our website www.highlandfunds.com.

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

Closed-End Fund Risk. The Fund is a closed-end investment company designed primarily for long-term investors and not as a trading vehicle. No assurance can be given that a shareholder will be able to sell his or her shares on the NYSE when he or she chooses to do so, and no assurance can be given as to the price at which any such sale may be effected.

Non-Payment Risk. Senior Loans, like other corporate debt obligations, are subject to the risk of non-payment of scheduled interest and/or principal. Non-payment would result in a reduction of income to the Fund, a reduction in the value of the Senior Loan experiencing non-payment and a potential decrease in the NAV of the Fund.

Credit Risk. The Fund may invest all or substantially all of its assets in Senior Loans or other securities that are rated below investment grade and unrated Senior Loans deemed by Highland to be of comparable quality. Securities rated below investment grade are commonly referred to as “high yield securities” or “junk securities.” They are regarded as predominantly speculative with respect to the issuing company’s continuing ability to meet principal and interest payments. Non-payment of scheduled interest and/or principal would result in a reduction of income to the Fund, a reduction in the value of the Senior Loan experiencing non-payment and a potential decrease in the NAV of the Fund. Investments in high yield Senior Loans and other securities may result in greater NAV fluctuation than if the Fund did not make such investments.

Senior Loans Risk. The risks associated with senior loans are similar to the risks of below investment grade securities in that they are considered speculative. In addition, as with any debt instrument, senior loans are also generally subject to the risk of price declines and to increases in prevailing interest rates. Senior loans are also subject to the risk that, as interest rates rise, the cost of borrowing increases, which may also increase the risk and rate 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 rising long-term interest rate environment.

Illiquidity of Investment 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.

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.

Glossary: Click for important terms and definitions

Source: SEI Investments Global Funds Services