Form N-Q HIGHLAND FLOATING RATE For: Mar 31
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-Q
QUARTERLY SCHEDULE OF PORTFOLIO HOLDINGS
OF REGISTERED MANAGEMENT INVESTMENT COMPANY
Investment Company Act file number: 811-23268
Highland Floating Rate Opportunities Fund
(Exact name of registrant as specified in charter)
200 Crescent Court
Suite 700
Dallas, Texas 75201
(Address of principal executive offices)(Zip code)
Highland Capital Management Fund Advisors, L.P.
200 Crescent Court
Suite 700
Dallas, Texas 75201
(Name and Address of Agent for Service)
Registrants telephone number, including area code: (800) 357-9167
Date of fiscal year end: June 30
Date of reporting period: March 31, 2018
Item 1: | Schedule of Investments |
The Schedule of Investments are attached herewith.
INVESTMENT PORTFOLIO (unaudited)
| ||
As of March 31, 2018 |
Highland Floating Rate Opportunities Fund |
Principal Amount ($) |
Value ($) | |||||
U.S. Senior Loans (a) - 83.7% | ||||||
AEROSPACE - 4.2% |
||||||
11,631,268 |
Accudyne Industries, LLC 3-month LIBOR + 3.250% 08/18/2024 |
11,710,535 | ||||
14,959,150 |
Engility Corporation |
14,985,927 | ||||
1,965,125 |
TransDigm, Inc. |
1,972,956 | ||||
13,897,561 |
Term Loan E, 3-month LIBOR + 2.750% 05/14/2022 |
13,949,677 | ||||
2,985,000 |
Term Loan G, 3-month LIBOR + 2.500% 08/22/2024 |
2,998,060 | ||||
|
|
|||||
45,617,155 | ||||||
|
|
|||||
CHEMICALS - 0.5% |
||||||
1,375,000 |
Minerals Technologies, Inc. |
1,393,906 | ||||
1,381,579 |
WR Grace & Co. |
1,387,623 | ||||
2,368,421 |
Term Loan B-2, 3-month LIBOR + 1.750%, 04/03/2025 |
2,378,783 | ||||
|
|
|||||
5,160,312 | ||||||
|
|
|||||
CONSUMER DISCRETIONARY - 3.3% |
||||||
13,823,613 |
Truck Hero, Inc. |
13,920,378 | ||||
4,076,667 |
Second Lien Term Loan, 3-month LIBOR + 8.250% 04/21/2025 |
4,122,529 | ||||
17,491,949 |
USS Ultimate Holdings, Inc. |
17,612,206 | ||||
|
|
|||||
35,655,113 | ||||||
|
|
|||||
CONSUMER PRODUCTS - 2.2% |
||||||
3,393,956 |
Dayco Products, LLC |
3,432,138 | ||||
11,000,000 |
KIK Custom Products, Inc. |
11,122,925 | ||||
8,852,935 |
Laureate Education, Inc. |
8,911,364 | ||||
|
|
|||||
23,466,427 | ||||||
|
|
|||||
ENERGY - 8.7% |
||||||
16,744,010 |
Azure Midstream Energy LLC |
16,437,092 | ||||
6,150,592 |
BCP Renaissance Parent LLC 3-month LIBOR + 4.000% 10/31/2024 |
6,189,033 | ||||
21,946,657 |
Chief Exploration & Development LLC |
21,827,816 | ||||
10,000,000 |
Fairmount Santrol, Inc. |
10,133,350 | ||||
1,798,463 |
Fieldwood Energy LLC |
1,797,349 | ||||
2,805,767 |
First Lien Term Loan, 3-month LIBOR + 7.000% 08/31/2020 |
2,797,588 |
1
INVESTMENT PORTFOLIO (unaudited) (continued)
| ||
As of March 31, 2018 |
Highland Floating Rate Opportunities Fund |
10,349,097 |
First Lien Last Out Term Loan, 3-month LIBOR + 7.125% 09/30/2020 |
9,948,070 | ||||
8,185,000 |
Second Lien Term Loan, 3-month LIBOR + 7.125% 09/30/2020 |
1,718,850 | ||||
5,985,000 |
SolarWinds Holdings, Inc. |
6,018,666 | ||||
17,496,088 |
Traverse Midstream Partners LLC |
17,619,085 | ||||
|
|
|||||
94,486,899 | ||||||
|
|
|||||
FINANCIAL - 9.4% |
||||||
11,926,784 |
AssuredPartners, Inc. |
11,973,001 | ||||
19,621,816 |
GTCR Valor Companies, Inc. |
19,830,298 | ||||
6,547,100 |
LBM Borrower, LLC 3-month LIBOR + 3.750% 08/20/2022 |
6,624,029 | ||||
11,787,240 |
NFP Corp. 3-month LIBOR + 3.000% 01/08/2024 |
11,840,047 | ||||
11,981,872 |
Ocwen Loan Servicing LLC |
12,086,714 | ||||
16,081,648 |
Russell Investment Group |
16,198,963 | ||||
24,159,097 |
Walter Investment Management Co. |
23,565,267 | ||||
|
|
|||||
102,118,319 | ||||||
|
|
|||||
FOOD & DRUG - 0.9% |
||||||
6,185,589 |
Supervalu, Inc. |
6,146,404 | ||||
3,711,354 |
Delayed Draw Term Loan, 3-month LIBOR + 3.500% 06/08/2024 |
3,687,842 | ||||
|
|
|||||
9,834,246 | ||||||
|
|
|||||
GAMING & LEISURE - 1.4% |
||||||
49,138,954 |
Ginn-LA CS Borrower LLC |
| ||||
22,925,890 |
First Lien Tranche A Credit-Linked Deposit(b)(i)(o) |
| ||||
11,940,100 |
LLV Holdco LLC |
9,091,193 | ||||
6,229,546 |
Scientific Games International, Inc. |
6,259,261 | ||||
|
|
|||||
15,350,454 | ||||||
|
|
|||||
HEALTHCARE - 8.9% |
||||||
1,994,975 |
American Renal Holdings Inc., Term Loan B, |
1,999,334 | ||||
47,549,409 |
CCS Medical, Inc., PRIME + 7.000% 04/01/2019 (c)(o) |
26,009,527 | ||||
9,384,443 |
Quorum Health Corporation |
9,603,663 | ||||
9,718,472 |
RadNet, Inc. |
9,855,163 | ||||
18,007,969 |
Surgery Center Holdings, Inc. |
18,025,977 | ||||
18,363,483 |
U.S. Renal Care, Inc. |
18,470,542 |
INVESTMENT PORTFOLIO (unaudited) (continued)
| ||
As of March 31, 2018 |
Highland Floating Rate Opportunities Fund |
2,375,000 |
Second Lien, 3-month LIBOR + 8.000% 12/31/2023 |
2,389,844 | ||||
10,177,758 |
Valeant Pharmaceuticals International, Inc. |
10,296,634 | ||||
|
|
|||||
96,650,684 | ||||||
|
|
|||||
HOUSING - 3.5% |
||||||
5,663,298 |
84 Lumber Company |
5,741,168 | ||||
14,482,875 |
Builders FirstSource, Inc. |
14,564,342 | ||||
3,638,401 |
Capital Automotive LP |
3,655,082 | ||||
2,296,581 |
Second Lien Term Loan, 3-month LIBOR + 6.000% 03/24/2025 |
2,326,735 | ||||
7,127,746 |
HD Supply Waterworks, Ltd. |
7,176,749 | ||||
1,743,503 |
Nevada Land Group LLC |
| ||||
4,187,365 |
Quikrete Holdings, Inc. |
4,210,207 | ||||
|
|
|||||
37,674,283 | ||||||
|
|
|||||
INDUSTRIALS - 4.9% |
||||||
1,290,323 |
American Traffic Solutions, Inc. |
1,307,264 | ||||
7,049,470 |
Aquilex Holdings LLC |
7,124,406 | ||||
4,000,000 |
Second Lien Term Loan, 3-month LIBOR + 8.500% 10/03/2025 |
3,965,000 | ||||
9,477,612 |
ATS Consolidated, Inc. 3-month LIBOR + 3.750% 02/28/2025 |
9,602,053 | ||||
7,301,510 |
Omnimax International, Inc. |
7,221,193 | ||||
14,942,456 |
Hayward Industries, Inc. |
15,020,904 | ||||
8,977,080 |
SRS Distribution Inc. |
9,050,019 | ||||
|
|
|||||
53,290,839 | ||||||
|
|
|||||
INFORMATION TECHNOLOGY - 5.5% |
||||||
9,361,252 |
Avaya, Inc., 3-month LIBOR + 4.750% 12/15/2024 |
9,439,839 | ||||
9,339,168 |
CCC Information Services, Inc. |
9,383,389 | ||||
18,660,201 |
Kronos Incorporated |
18,801,179 | ||||
4,800,000 |
Second Lien Term Loan, 3-month LIBOR + 8.250% 11/01/2024 |
4,989,984 | ||||
16,635,731 |
NeuStar, Inc. |
16,715,499 | ||||
|
|
|||||
59,329,890 | ||||||
|
|
|||||
MANUFACTURING - 2.7% |
||||||
5,131,471 |
Doncasters U.S. Finance LLC |
5,089,777 |
INVESTMENT PORTFOLIO (unaudited) (continued)
| ||
As of March 31, 2018 |
Highland Floating Rate Opportunities Fund |
1,440,290 |
Second Lien Term Loan, 3-month LIBOR + 8.250%10/09/2020 |
1,377,883 | ||||
905,660 |
SMG Stadium Management Group, First Lien Term Loan, 3.25%, 01/23/2025 |
914,717 | ||||
12,490,667 |
VC GB Holdings, Inc. |
12,678,027 | ||||
8,701,281 |
First Lien Term Loan, 3-month LIBOR + 3.250% 02/28/2024 |
8,733,911 | ||||
|
|
|||||
28,794,315 | ||||||
|
|
|||||
MATERIALS - 0.4% |
||||||
4,323,533 |
Kraton Polymers, LLC 3-month LIBOR + 2.500% 03/05/2025 |
4,356,501 | ||||
|
|
|||||
MEDIA & TELECOMMUNICATIONS - 3.9% |
||||||
13,392,857 |
Cineworld Group PLC, Term Loan 1-month LIBOR + 2.50%, 02/28/2025 |
13,391,049 | ||||
8,674,465 |
Fort Dearborn Company |
8,598,564 | ||||
18,571,429 |
iHeartCommunications, Inc. |
14,726,307 | ||||
4,956,601 |
Univision Communications, Inc. |
4,884,854 | ||||
|
|
|||||
41,600,774 | ||||||
|
|
|||||
METALS & MINERALS - 2.2% |
||||||
15,297,054 |
MacDermid, Inc. |
15,411,782 | ||||
8,272,782 |
Peabody Energy Corporation |
8,303,805 | ||||
|
|
|||||
23,715,587 | ||||||
|
|
|||||
RETAIL - 6.8% |
||||||
17,081,636 |
Academy, Ltd. |
13,673,849 | ||||
1,178,368 |
General Nutrition Centers, Inc. |
1,211,068 | ||||
2,939,279 |
Term Loan B-2, 3-month LIBOR + 8.750%, 03/04/2021 |
2,777,619 | ||||
10,913,961 |
Harbor Freight Tools USA, Inc. |
10,944,356 | ||||
14,043,245 |
Jo-Ann Stores,
Inc. |
13,999,430 | ||||
7,802,449 |
Leslies Poolmart, Inc. |
7,867,053 | ||||
9,001,502 |
Mens Wearhouse, Inc. (The) |
9,016,534 | ||||
4,465,116 |
Neiman Marcus Group, Inc. (The) |
3,870,318 | ||||
14,988,683 |
Toys R Us-Delaware, Inc. |
5,877,737 | ||||
4,329,245 |
Initial Loan, 3-month LIBOR + 9.750% 01/18/2019 |
4,340,068 | ||||
|
|
|||||
73,578,032 | ||||||
|
|
INVESTMENT PORTFOLIO (unaudited) (continued)
| ||
As of March 31, 2018 |
Highland Floating Rate Opportunities Fund |
SERVICE - 8.3% |
||||||
6,773,330 |
Advantage Sales & Marketing, Inc. |
6,649,954 | ||||
2,211,315 |
Second Lien Term Loan, 3-month LIBOR + 3.250% 07/25/2021 |
2,171,036 | ||||
13,710,000 |
Second Lien Term Loan, 3-month LIBOR + 6.500% 07/25/2022 |
13,205,678 | ||||
450,395 |
EnergySolutions LLC |
458,277 | ||||
11,739,568 |
Parexel International Corporation |
11,757,178 | ||||
14,170,800 |
Spin Holdco Inc. 3-month LIBOR + 3.250% 11/14/2022 |
14,274,176 | ||||
18,739,301 |
USI, Inc. |
18,794,019 | ||||
6,574,804 |
WASH Multifamily Laundry Systems LLC |
6,622,077 | ||||
1,428,031 |
First Lien Term Loan, 3-month LIBOR + 3.250% 05/14/2022 |
1,052,232 | ||||
15,207,500 |
Weight Watchers International, Inc. |
15,423,751 | ||||
|
|
|||||
90,408,378 | ||||||
|
|
|||||
TELECOMMUNICATIONS (b)(c)(o) - 0.4% |
||||||
5,063,285 |
TerreStar Corporation |
5,053,159 | ||||
|
|
|||||
TRANSPORTATION - 0.9% |
||||||
9,475,934 |
Gruden Acquisition, Inc. |
9,602,296 | ||||
|
|
|||||
UTILITIES - 4.7% |
||||||
10,711,609 |
Dynegy Inc. |
10,787,822 | ||||
2,319,304 |
Granite Acquisition Inc. |
2,351,924 | ||||
9,575,399 |
Term Loan B, 3-month LIBOR + 3.500%, 12/19/2021 |
9,719,030 | ||||
383,266 |
Term Loan C, 3-month LIBOR + 3.500%, 12/19/2021 |
389,015 | ||||
14,472,689 |
Lightstone Generation LLC |
14,569,511 | ||||
918,974 |
3-month LIBOR + 3.750%, 01/30/2024 |
925,122 | ||||
2,083,333 |
Pike Corporation, |
2,105,469 | ||||
59,127,210 |
Texas Competitive Electric Holdings Co., LLC |
177,382 | ||||
9,916,589 |
Vistra Operations Company LLC |
9,988,137 | ||||
|
|
|||||
51,013,412 | ||||||
|
|
|||||
Total U.S. Senior Loans (Cost $1,013,275,041) |
906,757,075 | |||||
|
|
|||||
Foreign Denominated or Domiciled Senior Loans (a) - 5.9% |
| |||||
CANADA - 1.7% |
||||||
14,942,456 |
Sandvine Corporation |
14,905,100 |
INVESTMENT PORTFOLIO (unaudited) (continued)
| ||
As of March 31, 2018 |
Highland Floating Rate Opportunities Fund |
3,819,000 |
Telesat Canada |
3,842,486 | ||||
|
|
|||||
18,747,586 | ||||||
|
|
|||||
LUXEMBOURG - 4.2% |
||||||
1,929,779 |
Auris Luxembourg III S.a.r.l. |
1,945,757 | ||||
17,545,526 | Evergreen Skills Lux S.a.r.l. |
16,989,947 | ||||
2,160,920 |
Second Lien Initial Term Loan, 1-month LIBOR + 8.250% 04/28/2022 |
1,880,681 | ||||
15,000,000 | Intelsat Jackson Holdings SA |
15,032,325 | ||||
9,204,545 | Travelport Finance (Luxembourg) S.a.r.l., 3-month LIBOR + 2.500% 03/17/2025 |
9,235,059 | ||||
|
|
|||||
45,083,769 | ||||||
|
|
|||||
Total Foreign Denominated or Domiciled Senior Loans (Cost $63,217,578) |
63,831,355 | |||||
|
|
|||||
Collateralized Loan Obligations (e)(f) - 20.6% |
| |||||
3,000,000 | Acis CLO, Ltd. |
3,001,875 | ||||
4,000,000 |
Series 2014-3A, Class E, 3-month LIBOR + 4.750%, FRN 02/01/2026 (g) |
3,856,400 | ||||
7,369,780 |
Series 2014-4A, Class A, 3-month LIBOR + 1.420%, FRN 05/01/2026 (g) |
7,381,638 | ||||
750,000 |
Series 2014-4A, Class D, 3-month LIBOR + 3.100%, FRN 05/01/2026 (g) |
751,153 | ||||
14,750,000 |
Series 2014-4A, Class E, 3-month LIBOR + 4.800%, FRN 05/01/2026 (g) |
14,602,500 | ||||
7,000,000 |
Series 2014-5A, Class D, 3-month LIBOR + 4.340%, FRN 11/01/2026 (g) |
7,027,066 | ||||
3,000,000 |
Series 2014-3A, Class D, 3-month LIBOR + 3.120%, FRN 02/01/2026 (g) |
3,004,913 | ||||
1,000,000 |
Series 2015-6A, Class D, 3-month LIBOR + 3.770%, FRN 05/01/2027 (g) |
1,001,875 | ||||
7,500,000 |
Series 2015-6A, Class E, 3-month LIBOR + 5.490%, FRN 05/01/2027 (g) |
7,368,750 | ||||
1,870,000 | AMMC CLO XII, Ltd. |
1,675,520 | ||||
9,500,000 | Apidos CLO XVII |
9,313,800 | ||||
3,125,000 | Ares XXIX CLO, Ltd. |
3,110,938 | ||||
6,500,000 | Ares XXVIII CLO, Ltd. |
6,484,400 | ||||
2,752,500 | Atlas Senior Loan Fund III, Ltd. |
2,759,381 | ||||
3,000,000 | Ballyrock CLO LLC |
3,007,500 | ||||
2,000,000 | Birchwood Park CLO, Ltd. |
1,980,000 | ||||
3,750,000 | BlueMountain CLO, Ltd. |
3,800,625 | ||||
3,000,000 | BlueMountain CLO, Ltd. |
2,977,500 |
INVESTMENT PORTFOLIO (unaudited) (continued)
| ||
As of March 31, 2018 |
Highland Floating Rate Opportunities Fund |
1,000,000 |
Cathedral Lake CLO, Ltd. |
1,016,250 | ||||
5,250,000 |
CIFC Funding, Ltd. |
5,203,800 | ||||
2,025,000 |
Series 2013-2A, Class B3LR, 3-month LIBOR + 7.880%, FRN 10/18/2030 |
1,928,813 | ||||
5,100,000 |
Series 2014-1A, Class FR2, 3-month LIBOR + 7.900%, FRN 01/18/2031 |
4,824,345 | ||||
3,250,000 |
Series 2014-3A, Class C1R, 3-month LIBOR + 1.900%, FRN 07/22/2026 |
3,254,062 | ||||
4,125,000 |
Series 2015-1A, Class ERR, 3-month LIBOR + 7.750%, FRN 01/22/2031 |
4,167,075 | ||||
4,000,000 |
Covenant Credit Partners CLO III, Ltd. |
3,680,000 | ||||
2,000,000 |
Dryden CLO, Ltd. |
1,980,000 | ||||
2,500,000 |
Dryden XXV Senior Loan Fund |
2,500,000 | ||||
3,100,000 |
Eaton Vance Clo 2015-1, Ltd. |
2,937,870 | ||||
4,350,000 |
Elevation CLO, Ltd. |
4,354,350 | ||||
7,500,000 |
Figueroa CLO, Ltd. |
7,476,844 | ||||
2,500,000 |
Halcyon Loan Advisors Funding 2015-2, Ltd. |
2,472,500 | ||||
2,000,000 |
Hildene CLO IV, Ltd. |
2,000,400 | ||||
5,000,000 |
Jamestown CLO VII, Ltd. |
5,000,000 | ||||
2,250,000 |
Jefferson Mill CLO, Ltd. |
2,247,187 | ||||
3,000,000 |
KVK CLO, Ltd. |
3,012,972 | ||||
5,294,000 |
Series 2015-1A, Class E, 3-month LIBOR + 4.450%, FRN 05/20/2027 |
5,300,617 | ||||
5,000,000 |
Lockwood Grove CLO, Ltd. |
4,987,500 | ||||
1,750,000 |
MidOcean Credit CLO II |
1,734,688 | ||||
1,000,000 |
Midocean Credit CLO VIII |
995,000 | ||||
1,250,000 |
Mountain View CLO, Ltd. |
1,220,500 | ||||
2,600,000 |
MP CLO VIII, Ltd. |
2,603,250 | ||||
7,400,000 |
Neuberger Berman CLO XX, Ltd. |
7,392,600 | ||||
750,000 |
Oaktree CLO 2015-1, Ltd. |
750,000 |
INVESTMENT PORTFOLIO (unaudited) (continued)
| ||
As of March 31, 2018 |
Highland Floating Rate Opportunities Fund |
5,000,000 |
Octagon Loan Funding, Ltd. |
4,999,500 | ||||
4,000,000 |
OHA Credit Partners VIII, Ltd. |
3,960,000 | ||||
1,000,000 |
Palmer Square CLO, Ltd. |
1,005,000 | ||||
1,000,000 |
Parallel, Ltd. |
990,000 | ||||
1,800,000 |
Silver Spring CLO, Ltd. |
1,350,000 | ||||
1,000,000 |
Sound Harbor Loan Fund, Ltd. |
1,001,500 | ||||
2,000,000 |
Symphony CLO XIV, Ltd. |
1,955,850 | ||||
5,000,000 |
Thacher Park CLO, Ltd. |
4,968,437 | ||||
5,500,000 |
TICP CLO I, Ltd. |
5,527,500 | ||||
3,250,000 |
TICP CLO II, Ltd. |
3,217,500 | ||||
3,000,000 |
TICP CLO III, Ltd. |
2,999,700 | ||||
3,250,000 |
TICP CLO II-2, Ltd. |
3,225,625 | ||||
2,000,000 |
Venture XVI CLO, Ltd. |
1,958,700 | ||||
3,625,000 |
Venture XVIII CLO, Ltd. |
3,661,250 | ||||
2,550,000 |
Voya CLO 2013-2, Ltd. |
2,524,500 | ||||
7,000,000 |
Wellfleet CLO, Ltd. |
6,755,000 | ||||
1,871,937 |
Westchester CLO, Ltd. |
1,870,190 | ||||
4,000,000 |
Z Capital Credit Partners CLO 2015-1, Ltd. |
4,008,400 | ||||
|
|
|||||
Total Collateralized Loan Obligations (Cost $221,948,980) |
222,125,109 | |||||
|
|
|||||
Corporate Bonds & Notes - 2.6% |
| |||||
HEALTHCARE (f)(h) - 0.6% |
||||||
3,364,000 |
Quorum Health Corp. |
3,582,660 | ||||
2,506,000 |
Surgery Center Holdings Co. |
2,443,350 | ||||
|
|
|||||
6,026,010 | ||||||
|
|
INVESTMENT PORTFOLIO (unaudited) (continued)
| ||
As of March 31, 2018 |
Highland Floating Rate Opportunities Fund |
INDUSTRIALS (i) - 0.4% |
||||||
15,000,000 |
FGI Operating Co. LLC / FGI Finance, Inc. |
3,975,000 | ||||
|
|
|||||
INFORMATION TECHNOLOGY - 0.5% |
||||||
4,571,000 |
Avaya, Inc. (b)(i)(o) |
| ||||
6,034,000 |
Intelsat Jackson Holdings SA |
5,649,333 | ||||
|
|
|||||
5,649,333 | ||||||
|
|
|||||
RETAIL (h) - 1.0% |
||||||
1,779,000 |
Guitar Center, Inc. |
1,780,779 | ||||
2,345,000 |
Home Depot, Inc. (The) |
2,123,673 | ||||
3,000,000 |
Neiman Marcus Group, Ltd. LLC |
1,912,500 | ||||
4,110,000 |
PetSmart, Inc. (f) |
2,352,975 | ||||
666,000 |
8.88%, 06/01/2025 |
382,950 | ||||
2,500,000 |
Walmart, Inc. |
2,413,261 | ||||
|
|
|||||
10,966,138 | ||||||
|
|
|||||
UTILITIES (i) - 0.1% |
||||||
15,600,000 |
Ocean Rig UDW, Inc. (b)(f)(i)(o) |
1,076,400 | ||||
20,000,000 |
Texas Competitive Electric Holdings Co., LLC (d) |
70,000 | ||||
8,000,000 |
Texas Competitive Electric Holdings Co., LLC (d) |
80,000 | ||||
|
|
|||||
1,226,400 | ||||||
|
|
|||||
Total Corporate Bonds & Notes (Cost $40,244,344) |
27,842,881 | |||||
|
|
|||||
Shares |
||||||
Claims - 0.0% |
| |||||
TELECOMMUNICATIONS (b)(m)(o) - 0.0% |
||||||
3,791,858 |
Lehman Brothers Commercial Paper LCPI Claim Facility |
52,138 | ||||
|
|
|||||
Total Claims (Cost $1,819,529) |
52,138 | |||||
|
|
|||||
Common Stocks - 12.4% |
| |||||
ENERGY - 1.8% |
||||||
20,317 |
Arch Coal, Inc., Class A (h) |
1,866,726 | ||||
112,142 |
Fieldwood Energy LLC (k) |
2,616,273 | ||||
441,000 |
Kinder Morgan, Inc. (h) |
6,641,460 | ||||
137,025 |
Targa Resources Corp. (h) |
6,029,100 | ||||
1,118,286 |
Value Creation, Inc. (b)(o) |
1 | ||||
88,000 |
Williams Cos., Inc. (The) (h) |
2,187,680 | ||||
|
|
|||||
19,341,240 | ||||||
|
|
|||||
FINANCIAL (k) - 0.0% |
||||||
3,143 |
Venoco LLA Unit |
| ||||
220 |
Venoco LLC Units |
| ||||
|
|
|||||
| ||||||
|
|
|||||
GAMING & LEISURE (b)(c)(k)(o) - 0.0% |
||||||
44 |
LLV Holdco LLC - Litigation Trust Units |
| ||||
34,512 |
LLV Holdco LLC - Series A, Membership Interest |
| ||||
436 |
LLV Holdco LLC - Series B, Membership Interest |
| ||||
|
|
|||||
| ||||||
|
|
|||||
HEALTHCARE (b)(c)(k)(o) - 0.0% |
||||||
207,031 |
CCS Medical, Inc. |
| ||||
|
|
|||||
HOUSING (b)(k)(o) - 0.3% |
||||||
1,648,350 |
Westgate Investments LLC |
3,247,250 | ||||
|
|
INVESTMENT PORTFOLIO (unaudited) (continued)
| ||
As of March 31, 2018 |
Highland Floating Rate Opportunities Fund |
INFORMATION TECHNOLOGY (h)(k) - 0.2% |
||||||
80,141 |
Avaya Holdings Corp. |
1,795,158 | ||||
|
|
|||||
MATERIALS - 1.5% |
||||||
227,000 |
United States Steel Corp. (h) |
7,988,130 | ||||
299,032 |
MPM Holdings, Inc. (k) |
7,969,203 | ||||
|
|
|||||
15,957,333 | ||||||
|
|
|||||
MEDIA & TELECOMMUNICATIONS (k) - 4.7% |
||||||
10,939,879 |
Gambier Bay LLC (c) |
1,723,031 | ||||
501,736 |
Metro-Goldwyn-Mayer, Inc., Class A (l) |
49,170,128 | ||||
|
|
|||||
50,893,159 | ||||||
|
|
|||||
METALS & MINERALS (b)(k) - 0.4% |
||||||
14,621 |
Omnimax International, Inc. |
4,478,043 | ||||
|
|
|||||
REAL ESTATE - 0.1% |
||||||
1,125,433 |
Allenby (b)(c)(k)(o) |
1 | ||||
7,591,418 |
Claymore (b)(c)(k)(o) |
8 | ||||
16,920 |
Macerich Co. (The), REIT (h) |
947,858 | ||||
|
|
|||||
947,867 | ||||||
|
|
|||||
TELECOMMUNICATIONS (b)(c)(k)(l)(o) - 0.7% |
||||||
27,134 |
TerreStar Corporation |
7,563,331 | ||||
|
|
|||||
TRANSPORTATION (h)(k) - 0.4% |
||||||
342,199 |
Corp. America Airports SA |
4,222,736 | ||||
|
|
|||||
UTILITIES (k) - 2.3% |
||||||
96,250 |
Central Puerto SA ADR (h) |
1,636,250 | ||||
10,378 |
Entegra TC LLC, Class A (b) |
81,986 | ||||
1,117,865 |
Vistra Energy Corp. (h)(j) |
23,285,128 | ||||
|
|
|||||
25,003,364 | ||||||
|
|
|||||
Total Common Stocks (Cost $425,185,310) |
133,449,481 | |||||
|
|
|||||
Units |
||||||
Rights - 0.1% |
| |||||
UTILITIES (k) - 0.1% |
||||||
1,117,866 |
Texas Competitive Electric Holdings Co., LLC |
623,210 | ||||
|
|
|||||
Total Rights (Cost $3,925,049) |
623,210 | |||||
|
|
|||||
Warrants - 0.0% |
| |||||
ENERGY (k) - 0.0% |
||||||
5,801 |
Arch Coal, Inc., expires 10/05/2023 |
277,114 | ||||
|
|
|||||
GAMING & LEISURE (b)(c)(k)(o) - 0.0% |
||||||
1,834 |
LLV Holdco LLC - Series C, Membership Interest |
| ||||
2,522 |
LLV Holdco LLC - Series D, Membership Interest |
| ||||
2,819 |
LLV Holdco LLC - Series E, Membership Interest |
| ||||
3,172 |
LLV Holdco LLC - Series F, Membership Interest |
| ||||
3,594 |
LLV Holdco LLC - Series G, Membership Interest |
| ||||
|
|
|||||
| ||||||
|
|
|||||
INDUSTRIALS (b)(k)(o) - 0.0% |
||||||
453 |
Omnimax Holdings, Inc. |
138,610 | ||||
|
|
|||||
INFORMATION TECHNOLOGY (k) - 0.0% |
||||||
18,641 |
Avaya Holdings Corp. |
102,525 | ||||
|
|
|||||
Total Warrants (Cost $26,165) |
518,249 | |||||
|
|
INVESTMENT PORTFOLIO (unaudited) (continued)
| ||
As of March 31, 2018 |
Highland Floating Rate Opportunities Fund |
Shares |
||||||
Master Limited Partnerships - 3.3% |
| |||||
ENERGY (h) - 3.3% |
||||||
26,729 |
Andeavor Logistics LP |
1,197,727 | ||||
378,000 |
Boardwalk Pipeline Partners LP |
3,836,700 | ||||
762,000 |
Enterprise Products Partners LP |
18,653,760 | ||||
215,233 |
MPLX LP |
7,111,298 | ||||
21,000 |
Phillips 66 Partners LP |
1,003,380 | ||||
112,000 |
Williams Partners LP |
3,856,160 | ||||
|
|
|||||
35,659,025 | ||||||
|
|
|||||
Total Master Limited Partnerships (Cost $37,946,799) |
35,659,025 | |||||
|
|
|||||
Registered Investment Companies - 0.1% |
| |||||
1,119,150 |
State Street Navigator Prime Securities Lending Portfolio (n) |
1,119,150 | ||||
|
|
|||||
Total Registered Investment Companies (Cost $1,119,150) |
1,119,150 | |||||
|
|
|||||
Cash Equivalents - 7.0% |
| |||||
MONEY MARKET FUND - 7.0% |
||||||
75,213,154 |
State Street Institutional U.S. Government Money Market Fund, Premier Class |
75,213,154 | ||||
|
|
|||||
Total Cash Equivalents (Cost $75,213,154) |
75,213,154 | |||||
|
|
|||||
Total Investments - 135.7% |
1,467,190,827 | |||||
|
|
|||||
Securities Sold Short - (0.5)% |
| |||||
Corporate Bonds - (0.5)% |
| |||||
INDUSTRIALS - (0.5)% |
||||||
(5,000,000) |
Western Digital Corp. |
(4,998,375 | ) | |||
|
|
|||||
Total Corporate Bonds (Cost $5,009,370) |
(4,998,375 | ) | ||||
|
|
|||||
Total Securities Sold Short (Proceeds $5,009,370) |
(4,998,375 | ) | ||||
|
|
|||||
Other Assets & Liabilities, Net - (35.2)% |
(381,170,774 | ) | ||||
|
|
|||||
Net Assets - 100.0% |
1,081,021,678 | |||||
|
|
(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 March 31, 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. Current LIBOR rates include 1 month which is equal to 1.88% and 3 months equal to 2.31%. |
(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 $64,012,840, or 5.9% of net assets, were fair valued under the Funds valuation procedures as of March 31, 2018. |
(c) | Affiliated issuer. Assets with a total aggregate market value of $49,440,250, or 4.6% of net assets, were affiliated with the Fund as of March 31, 2018. |
(d) | Represents value held in escrow pending future events. No interest is being accrued. |
(e) | 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 March 31, 2018. Current LIBOR rates include 1 month which is equal to 1.88% and 3 months equal to 2.31%. |
(f) | 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 March 31, 2018, these securities amounted to $241,306,056 or 22.3% of net assets. |
(g) | Securities of collateralized loan obligations where an affiliate of the Investment Adviser serves as collateral manager. |
(h) | 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 $105,331,692. |
(i) | The issuer is, or is in danger of being, in default of its payment obligation. |
(j) | Securities (or a portion of securities) on loan. As of March 31, 2018, the market value of securities loaned was $2,121,260. The loaned securities were secured with cash and securities collateral of $2,151,709. Collateral is calculated based on prior days prices. |
(k) | Non-income producing security. |
INVESTMENT PORTFOLIO (unaudited) (continued)
| ||
As of March 31, 2018 |
Highland Floating Rate Opportunities Fund |
(l) | 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 | $ | 21,845,688 | $ | 49,170,128 | 4.5 | % | ||||||||||||
TerreStar Corporation |
Common Stocks | 03/16/2018 | 3,093,276 | 7,563,331 | 0.7 | % |
(m) | These positions represent claims that have been filed with the United States Bankruptcy Court Southern District of New York against Lehman Commercial Paper, Inc. UK Branch. |
(n) | Represents investments of cash collateral received in connection with securities lending. |
(o) | 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. |
Reverse Repurchase Agreements outstanding as of March 31, 2018 were as follows:
Counter- party |
Collateral Pledged |
Interest Rate | Trade Date | Maturity Date |
Repurchase Amount |
Principal Amount |
Value | |||||||||||||
BNP |
Acis CLO, Ltd., Series 2014-4A, Class E, 3-month LIBOR + 4.800%, FRN 05/01/2026 |
3.42 | 03/26/2018 | 04/26/2018 | $ | 8,286,186 | $ | 11,250,000 | $ | (8,282,250 | ) | |||||||||
BNP |
Acis CLO, Ltd., Series 2015-6A, Class E, 3-month LIBOR + 5.490%, FRN 05/01/2027 |
3.42 | 03/26/2018 | 04/26/2018 | 5,600,660 | 7,500,000 | (5,598,000 | ) | ||||||||||||
BNP |
Ares XXVIII CLO, Ltd., Series 2013-3A, Class E, 3-month LIBOR + 4.900%, FRN 10/17/2024 |
3.43 | 03/27/2018 | 04/26/2018 | 4,891,812 | 6,500,000 | (4,889,950 | ) | ||||||||||||
BNP |
Figueroa CLO, Ltd. Series 2014-1A, Class E, 3-month LIBOR + 5.700%, FRN 01/15/2027 |
3.42 | 03/26/2018 | 04/26/2018 | 5,709,462 | 7,500,000 | (5,706,750 | ) | ||||||||||||
BNP |
Jamestown CLO VII, Ltd., Series 2015-7A, Class DR, FRN 07/25/2027 |
3.42 | 03/26/2018 | 04/26/2018 | 3,751,782 | 5,000,000 | (3,750,000 | ) | ||||||||||||
BNP |
KVK CLO, Ltd., Series 2015-1A, Class E, 3-month LIBOR + 5.750%, FRN 05/20/2027 |
3.43 | 03/27/2018 | 04/26/2018 | 3,972,012 | 5,294,000 | (3,970,500 | ) | ||||||||||||
BNP |
TICP CLO I, Ltd., Series 2015-1A, Class E, 3-month LIBOR + 5.500%, FRN 07/20/2027 |
3.43 | 03/27/2018 | 04/26/2018 | 4,170,037 | 5,500,000 | (4,168,450 | ) | ||||||||||||
|
|
|
|
|||||||||||||||||
Total Reverse Repurchase Agreements |
$ | 48,544,000 | $ | (36,365,900 | ) | |||||||||||||||
|
|
|
|
GLOSSARY: (abbreviations that may be used in the preceding statements)(unaudited)
Other Abbreviations:
| ||
ADR | American Depositary Receipt | |
CLO | Collateralized Loan Obligation | |
PIK |
Payment-in-Kind |
NOTES TO FINANCIAL STATEMENTS (unaudited)
| ||
March 31, 2018 |
Highland Floating Rate Opportunities Fund |
Organization
Highland Floating Rate Opportunities Fund (the Fund) is organized as an unincorporated business trust under the laws of The Commonwealth of Massachusetts. The Fund 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. On September 25, 2017, the Fund acquired the assets of Highland Floating Rate Opportunities Fund (the Predecessor Fund), a series of Highland Funds I, a Delaware statutory trust. The Fund is the successor to the accounting and performance information of the Predecessor Fund. This report includes information for the period ended March 31, 2018.
On November 3, 2017, shareholders of the Fund approved a proposal authorizing the Board of Trustees (the Board) of the Fund to convert the fund from an open-end fund to a closed-end fund at a special meeting of shareholders. The Board took action to convert the Fund to a closed-end fund effective shortly after 4:00 p.m. Eastern Time on November 3, 2017 (the Conversion Date). The Fund also effected an approximately 1-for-2 reverse stock split of the Funds issued and outstanding shares on November 3, 2017, thereby reducing the number of shares outstanding. Shareholders were paid cash for any fractional shares resulting from the reverse stock split. The Fund began listing its shares for trading on the New York Stock Exchange (the NYSE) on November 6, 2017 under the ticker symbol HFRO. The Fund may issue an unlimited number of common shares, par value $0.001 per share (Common Shares). Prior to the Conversion Date, the Fund issued Class A, Class C, and Class Z shares. The Fund incurred $1,076,274 in Conversion costs related to the fund conversion to a closed-end fund.
The Fund consolidates HFRO Sub, LLC, a wholly owned subsidiary, for financial reporting, and the holdings of HFRO Sub, LLC are included within the Investment Portfolio for the Fund.
Valuation of Investments
In computing the Funds net assets attributable to 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 net asset value (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) | ||
March 31, 2018 |
Highland Floating Rate 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. |
Highland Capital Management Fund Advisors, L.P. (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 March 31, 2018, the Funds investments consisted of senior loans, collateralized loan obligations, corporate bonds and notes, U.S. asset-backed securities, non-U.S. asset-backed securities, claims, common stocks, registered investment companies, cash equivalents, rights, and warrants. The fair value of the Funds loans and bonds 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. Loans and bonds 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, registered investment companies, rights 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. Exchange-traded options are valued based on the last trade price on the primary exchange on which they trade. If an option does not trade, the mid-price, which is the mean of the bid and ask price, is utilized to value the option.
At the end of each calendar quarter, the Investment Adviser evaluates the Level 2 and 3 assets and liabilities for changes in liquidity, including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from third party services, and the existence of contemporaneous, observable trades in the market. Additionally, the Investment Adviser evaluates the Level 1 and 2 assets and liabilities on a quarterly basis for changes in listings or delistings on national exchanges.
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) | ||
March 31, 2018 |
Highland Floating Rate Opportunities Fund |
Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Funds investments may fluctuate from period to period. Additionally, the fair value of investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values the Fund may ultimately realize. Further, such investments may be subject to legal and other restrictions on resale or otherwise less liquid than publicly traded securities.
The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities. Transfers in and out of the levels are recognized at the value at the end of the period. A summary of the inputs used to value the Funds assets as of March 31, 2018 is as follows:
Total value at March 31, 2018 |
Level 1 Quoted Price |
Level 2 Significant Observable Inputs |
Level 3 Significant Unobservable Inputs |
|||||||||||||
Floating Rate Opportunities Fund |
| |||||||||||||||
Assets |
| |||||||||||||||
U.S. Senior Loans |
||||||||||||||||
Aerospace |
$ | 45,617,155 | $ | | $ | 45,617,155 | $ | | ||||||||
Chemicals |
5,160,312 | | 5,160,312 | | ||||||||||||
Consumer Discretionary |
35,655,113 | | 35,655,113 | | ||||||||||||
Consumer Products |
23,466,427 | | 23,466,427 | | ||||||||||||
Energy |
94,486,899 | | 94,486,899 | | ||||||||||||
Financial |
102,118,319 | | 102,118,319 | | ||||||||||||
Food & Drug |
9,834,246 | | 9,834,246 | | ||||||||||||
Gaming & Leisure |
15,350,454 | | 6,259,261 | 9,091,193 | ||||||||||||
Healthcare |
96,650,684 | | 70,641,157 | 26,009,527 | ||||||||||||
Housing |
37,674,283 | | 37,674,283 | | (2) | |||||||||||
Industrials |
53,290,839 | | 46,069,646 | 7,221,193 | ||||||||||||
Information Technology |
59,329,890 | | 59,329,890 | | ||||||||||||
Manufacturing |
28,794,315 | | 28,794,315 | | ||||||||||||
Materials |
4,356,501 | | 4,356,501 | | ||||||||||||
Media & Telecommunications |
41,600,774 | | 41,600,774 | | ||||||||||||
Metals & Minerals |
23,715,587 | | 23,715,587 | | ||||||||||||
Retail |
73,578,032 | | 73,578,032 | | ||||||||||||
Service |
90,408,378 | | 90,408,378 | | ||||||||||||
Telecommunications |
5,053,159 | | | 5,053,159 | ||||||||||||
Transportation |
9,602,296 | | 9,602,296 | | ||||||||||||
Utilities |
51,013,412 | | 51,013,412 | | ||||||||||||
Foreign Denominated or Domiciled Senior Loans |
63,831,355 | | 63,831,355 | | ||||||||||||
Collateralized Loan Obligations |
222,125,109 | | 222,125,109 | | ||||||||||||
Corporate Bonds & Notes |
||||||||||||||||
Healthcare |
6,026,010 | | 6,026,010 | | ||||||||||||
Industrials |
3,975,000 | | 3,975,000 | | ||||||||||||
Information Technology |
5,649,333 | | 5,649,333 | | ||||||||||||
Retail |
10,966,138 | | 10,966,138 | | ||||||||||||
Utilities |
1,226,400 | | 150,000 | 1,076,400 | ||||||||||||
Claims |
52,138 | | | 52,138 | ||||||||||||
Common Stocks |
||||||||||||||||
Energy |
19,341,240 | 16,724,966 | 2,616,273 | 1 | ||||||||||||
Financial |
| (2) | | | | (2) | ||||||||||
Gaming & Leisure |
| (2) | | | | (2) | ||||||||||
Healthcare |
| (2) | | | | (2) | ||||||||||
Housing |
3,247,250 | | | 3,247,250 | ||||||||||||
Information Technology |
1,795,158 | 1,795,158 | | | ||||||||||||
Materials |
15,957,333 | 15,957,333 | | | ||||||||||||
Media & Telecommunications |
50,893,159 | | 50,893,159 | | ||||||||||||
Metals & Minerals |
4,478,043 | | | 4,478,043 | ||||||||||||
Real Estate |
947,867 | 947,858 | | 9 | ||||||||||||
Telecommunications |
7,563,331 | | | 7,563,331 | ||||||||||||
Transportation |
4,222,736 | 4,222,736 | | | ||||||||||||
Utilities |
25,003,364 | 24,921,378 | | 81,986 | ||||||||||||
Rights |
623,210 | | 623,210 | | ||||||||||||
Warrants |
||||||||||||||||
Energy |
277,114 | 277,114 | | | ||||||||||||
Gaming & Leisure |
| (2) | | | | (2) | ||||||||||
Industrials |
138,610 | | | 138,610 | ||||||||||||
Information Technology |
102,525 | 102,525 | | | ||||||||||||
Master Limited Partnerships(1) |
35,659,025 | 35,659,025 | | | ||||||||||||
Registered Investment Companies |
1,119,150 | 1,119,150 | | | ||||||||||||
Cash Equivalents |
75,213,154 | 75,213,154 | | | ||||||||||||
|
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|
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|
|
|||||||||
Total Assets |
1,467,190,827 | 176,940,397 | 1,226,237,590 | 64,012,840 | ||||||||||||
|
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|
|
|
|
|
|
|||||||||
Liabilities |
||||||||||||||||
Securities Sold Short(1) |
(4,998,375 | ) | | (4,998,375 | ) | | ||||||||||
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|
|||||||||
Total Liabilities |
(4,998,375 | ) | | (4,998,375 | ) | | ||||||||||
|
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|
|
|
|
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Total |
$ | 1,462,192,452 | $ | 176,940,397 | $ | 1,221,239,215 | $ | 64,012,840 | ||||||||
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(1) | See Investment Portfolio detail for industry breakout. |
(2) | This category includes securities with a value of zero. |
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) | ||
March 31, 2018 |
Highland Floating Rate Opportunities Fund |
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 period ended March 31, 2018.
Balance as of June 30, 2017 |
Transfers into Level 3 |
Transfers Out of Level 3 |
Net Amortization (Accretion) of Premium/ (Discount) |
Net Realized Gain/ (Losses) |
Net Unrealized Gains/ (Losses) |
Net Purchases |
Net (Sales) |
Balance as of March 31, 2018 |
Change in Unrealized Gain/ (Loss) on Level 3 securities still held at period end |
|||||||||||||||||||||||||||||||
Highland Floating Rate Opportunities Fund |
||||||||||||||||||||||||||||||||||||||||
U.S. Senior Loans | ||||||||||||||||||||||||||||||||||||||||
Gaming & Leisure |
$ | 9,552,080 | $ | | $ | | $ | | $ | | $ | (460,887 | ) | $ | | $ | | $ | 9,091,193 | $ | (460,887 | ) | ||||||||||||||||||
Healthcare |
24,146,282 | | | | | (1,942,900 | ) | 3,806,145 | | 26,009,527 | (1,942,900 | ) | ||||||||||||||||||||||||||||
Housing |
4,000,000 | | | | (3,491,393 | ) | 4,000,000 | | (4,508,607 | ) | | | ||||||||||||||||||||||||||||
Industrials |
| | | 129,010 | 464 | 1,026,568 | 6,067,895 | (2,744 | ) | 7,221,193 | 1,026,568 | |||||||||||||||||||||||||||||
Telecommunications |
| | | | | (10,126 | ) | 5,063,285 | | 5,053,159 | (10,126 | ) | ||||||||||||||||||||||||||||
Corporate Bonds & Notes | ||||||||||||||||||||||||||||||||||||||||
Utilities |
| 1,076,400 | | | | | | | 1,076,400 | | ||||||||||||||||||||||||||||||
Claims |
52,138 | | | | | 115,221 | | (115,221 | ) | 52,138 | 115,221 | |||||||||||||||||||||||||||||
Common Stocks | ||||||||||||||||||||||||||||||||||||||||
Energy |
1 | | | | | | | | 1 | | ||||||||||||||||||||||||||||||
Housing |
3,675,821 | | | | | (428,571 | ) | | | 3,247,250 | (428,571 | ) | ||||||||||||||||||||||||||||
Metals & Minerals |
| | | | | 3,030,589 | 1,447,454 | | 4,478,043 | 3,030,589 | ||||||||||||||||||||||||||||||
Real Estate |
10 | | | | | 1,591,220 | 876,356 | (2,467,577 | ) | 9 | 1,591,220 | |||||||||||||||||||||||||||||
Telecommunications |
| | | | | 4,470,055 | 3,093,276 | | 7,563,331 | 4,470,055 | ||||||||||||||||||||||||||||||
Utilities |
242,015 | | | | (14,308 | ) | 59,633 | | (205,354 | ) | 81,986 | 59,633 | ||||||||||||||||||||||||||||
Warrants | ||||||||||||||||||||||||||||||||||||||||
Industrials |
| | | | | 138,610 | | | 138,610 | 138,610 | ||||||||||||||||||||||||||||||
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|||||||||||||||||||||
Total |
$ | 41,668,347 | $ | 1,076,400 | $ | | $ | 129,010 | $ | (3,505,237 | ) | $ | 11,589,412 | $ | 20,354,411 | $ | (7,299,503 | ) | $ | 64,012,840 | $ | 7,589,412 | ||||||||||||||||||
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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. As a result, for the period ended March 31, 2018, a net amount of $1,076,400 of the Funds portfolio investments were 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 valuations of assets and liabilities categorized within Level 3 of the fair value hierarchy:
Category |
Market Value at 3/31/2018 |
Valuation Technique |
Unobservable Inputs |
Input Value(s) | ||||||
U.S. Senior Loans |
$ | 47,375,072 | Adjusted Appraisal | Liquidity Discount | 10% | |||||
Asset Specific Discount | 10% | |||||||||
Multiples Analysis | Multiple of Revenue | 0.4x - 0.5x | ||||||||
Multiple of EBITDA | 3.0x - 5.0x | |||||||||
Discounted Cash Flow | Discount Rate | 11.1% - 16.4% | ||||||||
Spread Adjustment | 0.1% - 0.4% | |||||||||
Corporate Bonds |
1,076,400 | Liquidation Analysis | Claim Amount: Percent of Par |
6.9% | ||||||
Claims |
52,138 | N/A | N/A | N/A | ||||||
Common Stocks |
15,509,230 | Multiples Analysis | Multiple of Revenue | 0.4x - 0.5x | ||||||
Multiple of EBITDA | 3.0x - 8.25x | |||||||||
Price/MHz-PoP | $0.120 - $0.550 | |||||||||
Risk Discount | 25.0% | |||||||||
Capitalization Rate | 6.4% - 7.0% | |||||||||
Discount | 37.0% | |||||||||
Discounted Cash Flow | Scenario Probabilities | 15.0% - 70.0% | ||||||||
Illiquidity Discount | 10.0% | |||||||||
Discount Rate | 11.0 - 12.0% | |||||||||
Minority Discount | 20.0% | |||||||||
Terminal Multiple | 7.0x | |||||||||
Discount for Lack of Marketability |
15.0% | |||||||||
|
|
|||||||||
Total |
$ | 64,012,840 |
Security Transactions
Security transactions are accounted for on the trade date. Realized gains/(losses) on investments sold are recorded on the basis of the specific identification method for both financial statement and U.S. federal income tax purposes taking into account any foreign taxes withheld.
Cash & Cash Equivalents
The Fund considers liquid assets deposited with a bank and certain short-term debt instruments of sufficient credit quality with original maturities of 3 months or less to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay Fund expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates market value. The value of cash equivalents denominated in foreign currencies is determined by converting to U.S. dollars on the date of this financial report.
Securities Sold Short
The Fund may sell securities short. A security sold short is a transaction in which the Fund sells a security it does not own in anticipation that the market price of that security will decline. When the Fund sells a security short, it must borrow the security sold short from a broker-dealer and deliver it to the buyer upon conclusion of the transaction. The Fund may have to pay a fee to borrow particular securities and is often obligated to pay over any dividends or other payments received on such borrowed securities. In some circumstances, the Fund may be allowed by its prime broker to utilize proceeds from securities sold short to purchase additional investments, resulting in leverage. Securities and cash held as collateral for securities sold short are shown on the Investments Portfolio for the Fund
NOTES TO FINANCIAL STATEMENTS (unaudited) (continued) | ||
March 31, 2018 |
Highland Floating Rate Opportunities Fund |
Derivative Transactions
The Fund is subject to equity securities risk, interest rate risk and currency 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.
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.
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 for the period ended March 31, 2018:
Issuer |
Shares at June 30, 2017 |
Beginning Value as of June 30, 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 March 31, 2018 |
Shares at March 31, 2018 |
Affiliated Income |
|||||||||||||||||||||||||||
Majority Owned Not Consolidated |
||||||||||||||||||||||||||||||||||||
Allenby (Common Stocks) |
1,323,961 | $ | 1 | $ | 115,110 | $ | (313,638 | ) | $ | | $ | 198,529 | $ | 1 | 1,125,433 | $ | | |||||||||||||||||||
Claymore (Common Stocks) |
8,984,111 | 9 | 761,246 | (2,153,939 | ) | | 1,392,701 | 8 | 7,591,418 | | ||||||||||||||||||||||||||
Other Affiliates |
||||||||||||||||||||||||||||||||||||
CCS Medical, Inc. (U.S. Senior Loans & Common Stocks) |
46,240,843 | 24,146,282 | 3,806,145 | | | (1,942,900 | ) | 26,009,527 | 47,756,440 | $ | 3,806,145 | |||||||||||||||||||||||||
LLV Holdco, LLC (U.S. Senior Loans, Common Stocks and Warrants |
11,989,033 | 9,552,080 | | | | (460,887 | ) | 9,091,193 | 11,989,033 | | ||||||||||||||||||||||||||
Nevada Land Group LLC (U.S. Senior Loans & Common Stocks) |
1,743,503 | | | | | | | 1,743,503 | | |||||||||||||||||||||||||||
Gambier Bay LLC (Common Stocks)(1) |
6,831,564 | 1,502,944 | 970,000 | | | (749,913 | ) | 1,723,031 | 10,939,879 | | ||||||||||||||||||||||||||
Terrestar Corporation (U.S. Senior Loans & Common Stocks) |
| | 8,156,561 | | | 4,459,929 | 12,616,490 | 5,090,419 | | |||||||||||||||||||||||||||
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Total |
77,113,015 | $ | 35,201,316 | $ | 13,809,062 | $ | (2,467,577 | ) | $ | | $ | 4,203,688 | $ | 49,440,250 | 86,236,125 | $ | 3,806,145 | |||||||||||||||||||
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(1) | Includes the value of iHeart Communications, Inc. bonds as of June 30, 2017 and subsequent activity. |
U.S. Federal Income Tax Information
Unrealized appreciation and depreciation at March 31, 2018, based on cost of investments, derivatives and cash equivalents for U.S. federal income tax purposes was:
Gross Appreciation |
Gross Depreciation | Net Appreciation/ (Depreciation) |
Cost | |||
$49,534,098 | $(455,260,277) | $(405,726,179) | $1,569,167,509 |
For more information with regard to significant accounting policies, see the most recent semi-annual report filed with the U.S. Securities and Exchange Commission.
Item 2. | 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 Investment Company Act of 1940, as amended (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 last fiscal quarter that have materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting.
Item 3. | Exhibits. |
Certifications pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the Sarbanes-Oxley Act of 2002 are attached hereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Highland Floating Rate Opportunities Fund | ||
By: | /s/ Frank Waterhouse | |
Frank Waterhouse | ||
Treasurer, Principal Accounting Officer, Principal Financial Officer, and Principal Executive Officer |
Date: May 25, 2018
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, 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: | /s/ Frank Waterhouse | |
Frank Waterhouse | ||
Treasurer, Principal Accounting Officer, Principal Financial Officer, and Principal Executive Officer |
Date: May 25, 2018
EX99.CERT
Certification Pursuant to Rule 30a-2(a) under the 1940 Act and Section 302 of the
Sarbanes-Oxley Act
I, Frank Waterhouse, certify that:
1. | I have reviewed this report on Form N-Q Highland Floating Rate Opportunities Fund; |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the schedules of investments included in this report fairly present in all material respects the investments of the registrant as of the end of the fiscal quarter for which the report is filed; |
4. | The registrants other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940) and internal control over financial reporting (as defined in Rule 30a-3(d) under the Investment Company Act of 1940) for the registrant and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the registrants disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of a date within 90 days prior to the filing date of this report based on such evaluation; and |
(d) | Disclosed in this report any change in the registrants internal control over financial reporting that occurred during the registrants most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrants internal control over financial reporting; and |
5. | The registrants other certifying officer(s) and I have disclosed to the registrants auditors and the audit committee of the registrants board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrants ability to record, process, summarize, and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrants internal control over financial reporting. |
By: | /s/ Frank Waterhouse | |
Frank Waterhouse | ||
Treasurer, Principal Accounting Officer, Principal Financial Officer, and Principal Executive Officer |
Date: May 25, 2018
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