NPORT-EX 2 SOF.htm SCHEDULE F FOR VALIDATION PURPOSES ONLY - [190864.TX2]
INVESTMENT PORTFOLIO (unaudited)

    

     
As of March 31, 2021       NexPoint Strategic Opportunities Fund

 

Shares

 

 

Value ($)

 

 
 

Common Stock — 94.4%

 
 

COMMUNICATION SERVICES — 10.6%

 
  309,137     

Metro-Goldwyn-Mayer, Inc. (a)(b)

    31,709,728  
  132,801     

TerreStar Corporation (a)(b)(c)(d)(e)

    43,282,502  
    

 

 

 
       74,992,230  
    

 

 

 
 

ENERGY — 0.3%

 
  368,680     

Fieldwood Energy LLC (b)

     
  744,992     

NextDecade Corp. (b)(f)

    1,989,129  
  40     

Transocean (b)

    142  
    

 

 

 
       1,989,271  
    

 

 

 
 

FINANCIAL — 0.0%

 
  47,996     

American Banknote Corp. (c)(d)

    71,514  
    

 

 

 
 

HEALTHCARE — 1.6%

 
  309,400     

Aerie Pharmaceuticals, Inc. (b)(f)

    5,528,978  
  341,350     

Heron Therapeutics, Inc. (b)(f)

    5,533,283  
  50,000     

Paratek Pharmaceuticals, Inc. (b)(f)

    353,000  
    

 

 

 
       11,415,261  
    

 

 

 
 

INDUSTRIALS — 0.2%

 
  8     

Pendrell Corp. (b)

    1,280,000  
    

 

 

 
 

MATERIALS — 0.3%

 
  64,000     

Loma Negra Cia Industrial Argentina ADR (b)(f)

    405,120  
  356,875     

MPM Holdings, Inc. (b)

    1,784,375  
    

 

 

 
       2,189,495  
    

 

 

 
 

REAL ESTATE — 24.3%

 
  667,680     

Allenby (b)(c)(d)(e)

     
  2,232,172     

Claymore (b)(c)(d)(e)

     
  293,449     

Cresud SACIF y A ADR (b)

    1,531,805  
  13,571,131     

NexPoint Hospitality Trust (c)(d)(e)

    4,885,607  
      131,663,561     

NexPoint Real Estate Capital (c)(d)(e)

    63,580,334  
  84,919     

NexPoint Residential Trust , REIT(e)(f)

    3,885,672  
  86,369     

NexPoint Storage Partners, Inc. (c)(d)

    91,851,099  
  204,917     

Postal Realty Trust, Class A , REIT(f)

    3,520,474  
  1,763,581     

United Development Funding IV , REIT(b)(c)(d)(e)

    2,028,118  
    

 

 

 
       171,283,109  
    

 

 

 
 

REAL ESTATE INVESTMENT TRUST — 57.0%

 
  1,785,337     

IQHQ, Inc. (b)(c)(d)

    29,654,448  
  190,736,205     

NexPoint Real Estate Opportunities, LLC, REIT(c)(d)(e)

    196,286,628  
  1,235,369     

NHF TRS, LLC (c)(d)

    176,715,315  
    

 

 

 
       402,656,391  
    

 

 

 
 

UTILITIES — 0.1%

 
  327,750     

Central Puerto ADR (b)(f)

    740,715  
  6,477     

Vistra Energy Corp. (f)

    114,513  
    

 

 

 
       855,228  
    

 

 

 
  

Total Common Stock (Cost $854,805,553)

            666,732,499  
 

 

 

 

Shares

 

 

Value ($)

 

 
 

LLC Interest — 19.3%

 
  3,247,510     

NexPoint Real Estate Finance Operating Partnership, L.P.(e)

    60,338,730  
  397,240     

NREF OP I, L.P.(b)(e)

    7,380,714  
  40,322,605     

SFR WLIF I, LLC(c)(d)(e)

    36,923,410  
  26,968,904     

SFR WLIF II, LLC(c)(d)(e)

    24,843,754  
  7,708,491     

SFR WLIF III, LLC(c)(d)(e)

    7,108,770  
    

 

 

 
  

Total LLC Interest (Cost $147,818,509)

            136,595,378  
 

 

 

 
 

U.S. Senior Loans (g) — 3.8%

 
 

COMMUNICATION SERVICES — 3.8%

 
  488,331     

TerreStar Corporation, Term Loan, 02/28/22 (c)(d)(e)

    488,331  
        24,954,827     

TerreStar Corporation, Term Loan A, cash/0% PIK 02/25/22 (c)(d)(e)

    24,954,828  
  585,180     

TerreStar Corporation, Term Loan C, cash/0% PIK 02/25/30 (c)(d)(e)

    585,180  
  246,732     

TerreStar Corporation, Term Loan H, 02/28/22 (c)(d)(e)

    246,732  
  264,448     

TerreStar Corporation, Term Loan, 1st Lien, 02/28/22 (c)(d)(e)

    264,448  
    

 

 

 
       26,539,519  
    

 

 

 
 

GAMING/LEISURE — 0.0%

 
  8,264,193     

Ginn-LA CS Borrower LLC, Term Loan B, 1st Lien, 05/30/19 (c)(d)(h)

     
  3,856,057     

Ginn-LA CS Borrower LLC, Tranche A, 1st Lien, 05/30/21 (c)(d)

    163,582  
    

 

 

 
       163,582  
    

 

 

 
 

UTILITIES — 0.0%

 
  92,329,417     

Texas Competitive Electric Holdings Co. LLC, Extended Escrow Loan, (i)

    151,244  
    

 

 

 
       151,244  
    

 

 

 
  

Total U.S. Senior Loans (Cost $37,217,172)

    26,854,345  
 

 

 

 
 

Preferred Stock — 3.7%

 
 

FINANCIAL — 0.1%

 
  1,200     

Brentwood CLO, Ltd. (c)(d)(j)

    588,000  
    

 

 

 
 

REAL ESTATE — 3.6%

 
  18,508     

Creek Pine Holdings, LLC, REIT 10.25%(b)(c)(d)(k)

    25,765,838  
    

 

 

 
 

REAL ESTATE INVESTMENT TRUST — 0.0%

 
  86,294     

RAIT Financial Trust, REIT 8.88%(c)(d) (k)

     
    

 

 

 
  

Total Preferred Stock (Cost $20,471,405)

    26,353,838  
 

 

 

 
 
INVESTMENT PORTFOLIO (unaudited) (continued)

    

     
As of September 30, 2020       NexPoint Strategic Opportunities Fund

 

Shares

 

 

Value ($)

 

 
 

Sovereign Bonds — 1.0%

 
        19,401,164     

Argentine Republic Government International Bond, 0.13%, 07/09/41

    6,736,860  
  75,736     

1.00%, 07/09/29

    27,392  
    

 

 

 
  

Total Sovereign Bonds (Cost $8,701,981)

    6,764,252  
 

 

 

 
 

Warrants — 0.5%

 
 

ENERGY — 0.0%

 
  4,071     

Arch Resources, Expires 10/08/2023(b)

    4  
    

 

 

 
 

INDUSTRIALS — 0.3%

 
  8,371,900     

American Airlines Group, Inc., Expires (b)

    1,883,678  
    

 

 

 
 

INFORMATION TECHNOLOGY — 0.2%

 
  179,322     

Avaya Holdings, Expires 12/18/2022(b)

    1,463,268  
    

 

 

 
  

Total Warrants (Cost $251,697)

    3,346,950  
 

 

 

 
 

Collateralized Loan Obligations — 0.4%

 
  635,386     

Highland Loan Funding, Series 1A 4.84%, 8/1/2021 (c)(d)

    585,699  
  3,642,616     

Highland Park CDO I, Series 2006-1A, Class B VAR LIBOR USD 3 Month+0.550%, 0.74%, 11/25/2051 (l)

    2,221,996  
    

 

 

 
  

Total Collateralized Loan Obligations (Cost $2,188,608)

    2,807,695  
 

 

 

 
 

Rights — 0.3%

 
 

Utilities — 0.3%

 
  1,624,994     

Texas Competitive Electric Holdings Co., LLC (b)

    1,863,868  
    

 

 

 
  

Total Rights (Cost $5,000,539)

    1,863,868  
 

 

 

 
 

Corporate Bonds & Notes — 0.2%

 
 

COMMUNICATION SERVICES — 0.0%

 
  26,446     

iHeartCommunications, Inc.
6.38%, 05/01/26

    28,115  
  49,013     

8.38%, 05/01/27

    52,689  
    

 

 

 
       80,804  
    

 

 

 
 

ENERGY — 0.0%

 
  18,439,000     

Ocean Rig UDW, Inc. 7.25%, 04/01/19 (c)(d)(h)(l)

     
  681     

Sable Permian Resources Land 7.38%, 11/01/21 (h)(l)

    7  
    

 

 

 
       7  
    

 

 

 
 

REAL ESTATE — 0.2%

 
  2,000,000     

CBL & Associates 5.95%, 12/15/26 (h)

                1,149,390  
    

 

 

 

Shares

 

 

Value ($)

 

 
 

Corporate Bonds & Notes (continued)

 
 

UTILITIES — 0.0%

 
  5,000,000     

Texas Competitive Electric Holdings Co., LLC 11.50%, 10/01/20 (h)(i)

    7,500  
    

 

 

 
  

Total Corporate Bonds & Notes (Cost $17,376,145)

    1,237,701  
 

 

 

 
 

Foreign Corporate Bonds & Notes — 0.0%

 
 

NETHERLANDS — 0.0%

 
        93,180,354     

Celtic Pharma Phinco BV, 17.00%, (c)(d)(h)

     
    

 

 

 
  

Total Foreign Corporate Bonds & Notes (Cost $62,254,526)

     
 

 

 

 
 

Convertible Bond — 0.0%

 
 

HEALTH CARE — 0.0%

 
  350,000     

Paratek Pharmaceuticals 4.75%, 05/01/24

    316,532  
    

 

 

 
  

Total Convertible Bonds (Cost $275,584)

    316,532  
 

 

 

 
 

Cash Equivalents — 0.5%

 
 

MONEY MARKET FUND(m) — 0.5%

 
  3,895,290     

Dreyfus Treasury & Agency Cash Management, Institutional Class 0.020%

    3,895,290  
    

 

 

 
  

Total Cash Equivalents (Cost $3,895,290)

    3,895,290  
 

 

 

 
 

Total Investments—124.1%

    876,768,348  
 

 

 

 
 

(Cost $1,160,257,009)

 
 

Securities Sold Short— (0.2)%

 
 

Common Stock — (0.2)%

 
 

INFORMATION TECHNOLOGY — (0.2)%

 
  (5,440)     

Coupa Software (n)

    (1,384,371)  
    

 

 

 
  

Total Common Stock
(Proceeds $1,530,648)

    (1,384,371)  
    

 

 

 
  

Total Securities Sold Short - (0.2)%
(Proceeds $1,530,648)

    (1,384,371
    

 

 

 
 

Other Assets & Liabilities, Net - (23.9)%(o)

    (168,993,801)  
 

 

 

 
 

Net Assets - 100.0%

            706,390,176   
 

 

 

 
 
INVESTMENT PORTFOLIO (unaudited)(concluded)

    

     
As of September 30, 2020       NexPoint Strategic Opportunities Fund

 

(a)

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 Board. 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
Stock
     12/20/2021      $ 13,929,926      $ 31,709,728        4.49%  
TerreStar Corporation    Common
Stock
     3/16/2018        34,089,464        43,282,502        6.13    

 

(b)

Non-income producing security.

 

(c)

Securities with a total aggregate value of $730,874,137, or 103.5% of net assets, were classified as Level 3 within the three-tier fair value hierarchy. Please see Notes to Financial Statements for an explanation of this hierarchy, as well as a list of unobservable inputs used in the valuation of these instruments.

 

(d)

Represents fair value as determined by the Fund’s Board of Trustees (the “Board”), or its designee in good faith, pursuant to the policies and procedures approved by the Board. The Board considers fair valued securities to be securities for which market quotations are not readily available and these securities may be valued using a combination of observable and unobservable inputs. Securities with a total aggregate value of $730,874,137, or 103.5% of net assets, were fair valued under the Fund’s valuation procedures as of March 31, 2021. Please see Notes to Financial Statements.

 

(e)

Affiliated issuer. Assets with a total aggregate fair value of $477,083,757, or 67.5% of net assets, were affiliated with the Fund as of March 31, 2021.

 

(f)

All or part of this security is pledged as collateral for short sales. The fair value of the securities pledged as collateral was $28,807,745.

 

(g)

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. As of March 31, 2021, the LIBOR USD 1 Month and LIBOR USD 3 Month rates were 2.49% and 2.60%, respectively. 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 maybe substantially less than the stated maturity shown.

 

(h)

The issuer is, or is in danger of being, in default of its payment obligation.

(i)

Represents value held in escrow pending future events. No interest is being accrued.

 

(j)

There is currently no rate available.

 

(k)

Perpetual security with no stated maturity date.

 

(l)

Securities exempt from registration under Rule 144A of the 1933 Act. These securities may only be resold in transactions exempt from registration to qualified institutional buyers. The Board has determined these investments to be liquid. At March 31, 2021, these securities amounted to $2,222,003 or 0.3% of net assets.

 

(m)

Rate shown is 7 day effective yield.

 

(n)

No dividend payable on security sold short.

 

(o)

As of March 31, 2021, $1,384,371 in cash was segregated or on deposit with the brokers to cover investments sold short and is included in “Other Assets & Liabilities, Net”.

ADR — American Depositary Receipt

CDO — Collateralized Debt Obligation

CLO — Collateralized Loan Obligation

LLC — Limited Liability Company

L.P. — Limited Partnership

Ltd. — Limited

PIK — Payment-in-Kind

REIT — Real Estate Investment Trust

USD — U.S. Dollar

 
NOTES TO INVESTMENT PORTFOLIO (unaudited)

    

     
As of March 31, 2021       NexPoint Strategic Opportunities Fund

 

Organization

NexPoint Strategic Opportunities Fund (the “Company”) is a Delaware statutory trust and is registered with the U.S. Securities and Exchange Commission (the “SEC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), as a non-diversified, closed-end management investment company. This report includes information for the year ended December 31, 2020. The Company trades on the New York Stock Exchange (“NYSE”) under the ticker symbol NHF. The Company may issue an unlimited number of common shares, par value $0.001 per share (“Common Shares”). The Company commenced operations on June 29, 2006. NexPoint Advisors, L.P. (“NexPoint” or the “Investment Adviser”), an affiliate of Highland Capital Management Company Advisors, L.P. (“Highland”), is the investment adviser and administrator to the Company.

On October 25, 2019, the Board of the Fund authorized the repurchase of up to $25 million of the Fund’s shares over a six-month period. Under this program, the Fund repurchased 414,604 shares through April 2020, at an average price of $8.67, for a total investment of $3.6 million. Upon retirement of the repurchased shares, the net asset value was $6.8 million, or $16.61 per share.

On April 24, 2020, the Company’s Board of Trustees (the “Board”) authorized the repurchase of up to 10% of the Company’s shares over a twelve-month period. Under this program, the Company repurchased 98,600 shares through December 31, 2020, at an average price of $10.18, for a total investment of $1.0 million. Upon retirement of the repurchased shares, the net asset value was $1.8 million, or $17.51 per share. The Company’s share repurchase program was superseded as of October 13, 2020, when the Board approved the Exchange Offer (defined below).

On August 28, 2020, shareholders of the Company approved a proposal to convert the Company into a real estate investment trust (a “REIT”) and amended the Company’s fundamental investment policies and restrictions to permit the Company to pursue its new business. The Company is in the process of realigning its portfolio so that it is no longer an investment company under the 1940 Act and continues to expect the Company to be able to transition its investment portfolio sufficient to qualify as a REIT for tax purposes by the first quarter of 2021. NexPoint expects to apply to the SEC for an order under the 1940 Act declaring that the Company has ceased to be an investment company in the first quarter of 2021.

On October 30, 2020, the Company announced the commencement of a tender offer to purchase the Company’s common shares (“Common Shares”) in exchange for consideration consisting of approximately 20% cash and 80% newly-issued 5.50% Series A Cumulative Preferred Shares, liquidation preference $25.00 per share (“Series A Preferred Shares”) (collectively, the “Exchange Offer”). The Exchange Offer expired on January 4, 2021.

Valuation of Investments

In computing the Company’s net assets attributable to its common shares, securities with readily available market quotations on the NYSE, National Association of Securities Dealers Automated Quotation (“NASDAQ”) or other nationally recognized exchange, use the closing quotations on the respective exchange for valuation of those securities. Securities for which there are no readily available market quotations will be valued pursuant to policies adopted by the Company’s 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 Company’s 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 Company 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 Company’s NAV, will be valued by the Company 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

NOTES TO INVESTMENT PORTFOLIO (unaudited)

    

     
As of March 31, 2021       NexPoint Strategic Opportunities Fund

 

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 Company’s 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 security’s 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 Company’s 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 Company. The NAV shown in the Company’s financial statements may vary from the NAV published by the Company 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.

Fair Value Measurements

The Company 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 Company’s 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 investment’s 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 Fund’s own assumptions that market participants would use to price the asset or liability based on the best available information.

The Investment Adviser has established policies and procedures, as described above and approved by the Board, to ensure that valuation methodologies for investments and financial instruments that are categorized within all levels of the fair value hierarchy are fair and consistent. A Pricing Committee has been established to provide oversight of the valuation policies, processes and procedures, and is comprised of personnel from the Investment Adviser and its affiliates. The Pricing Committee meets monthly to review the proposed valuations for investments and financial instruments and is responsible for evaluating the overall fairness and consistent application of established policies.

As of March 31, 2021, the Company’s investments consisted of senior loans, asset-backed securities, corporate bonds and notes, foreign bonds, sovereign bonds, common stocks, preferred stocks, exchange-traded funds, warrants, and securities sold short. The fair value of the Company’s loans, bonds and asset-backed securities are generally based on quotes received from brokers or independent pricing services. Loans, bonds, and asset-backed securities with quotes that are based on actual trades with a sufficient level of activity on or near the measurement date are classified as Level 2 assets. Senior loans, bonds and asset-backed securities that are priced using quotes derived from implied values, indicative bids, or a limited number of actual trades are classified as

NOTES TO INVESTMENT PORTFOLIO (unaudited)

    

     
As of March 31, 2021    NexPoint Strategic Opportunities Fund

 

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 Company’s common stocks, preferred stocks, exchange-traded funds, other registered investment companies and warrants that are not actively traded on national exchanges are generally priced using quotes derived from implied values, indicative bids, or a limited amount of actual trades and are classified as Level 3 assets because the inputs used by the brokers and pricing services to derive the values are not readily observable. The Company’s real estate investments include equity interests in limited liability companies and equity issued by REITs that invest in commercial real estate. The fair value of real estate invest- ments that are not actively traded on national exchanges are based on internal models developed by the Investment Adviser. The significant inputs to the models include cash flow projections for the underlying properties, capitalization rates and appraisals performed by independent valuation firms. These inputs are not readily observable, and the Company has classified the investments as Level 3 assets. Exchange-traded options are valued based on the last trade price on the primary exchange on which they trade. If an option does not trade, the mid-price, which is the mean of the bid and ask price, is utilized to value the option.

At the end of each calendar quarter, the Investment Adviser evaluates the Level 2 and 3 assets and liabilities for changes in liquidity, including but not limited to: whether a broker is willing to execute at the quoted price, the depth and consistency of prices from third party services, and the existence of contemporaneous, observable trades in the market. Additionally, the Investment Adviser evaluates the Level 1 and 2 assets and liabilities on a quarterly basis for changes in listings or delistings on national exchanges.

Reverse repurchase agreements are prices at their acquisition cost, and assess for credit adjustments, which represent fair value. These investments will generally be categorized as Level 2 liabilities.

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 Company’s 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 Company may ultimately realize. Further, such investments may be subject to legal and other restrictions on resale or otherwise be 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 Company’s assets as of September 30, 2020 is as follows:

 

      Total value at
March 31, 2021
   Level 1 Quoted
Price
   Level 2 Significant
Observable Inputs
   Level 3 Significant
Unobservable
Inputs

NexPoint Strategic Opportunities Fund

 

Assets

                                   

Common Stock

                                   

Communication Services

     $74,992,230        $–        $31,709,728        $43,282,502  

Energy

     1,989,271        1,989,271                

Financial

     71,514                      71,514  

Healthcare

     11,415,261        11,415,261                

Industrials

     1,280,000               1,280,000         

Materials

     2,189,495        405,120        1,784,375         

Real Estate

     171,283,109        8,937,951               162,345,158  

Real Estate Investment Trust

     402,656,391                      402,656,391  

Utilities

     855,228        855,228                
NOTES TO INVESTMENT PORTFOLIO (unaudited)

    

     
As of March 31, 2021    NexPoint Strategic Opportunities Fund

 

      Total value at
March 31, 2021
   Level 1 Quoted
Price
   Level 2 Significant
Observable Inputs
   Level 3 Significant
Unobservable
Inputs

LLC Interest

     $136,595,378        $–        $67,719,444        $68,875,934  

U.S. Senior Loans

                                   

Communication Services

     26,539,519                      26,539,519  

Gaming/Leisure

     163,582                      163,582  

Utilities

     151,244               151,244         

Preferred Stock

                                   

Financial

     588,000                      588,000  

Real Estate

     25,765,838                      25,765,838  

Real Estate Investment Trust

                           

Sovereign Bonds

     6,764,252               6,764,252         

Warrants

                                   

Energy

     4               4         

Industrials

     1,883,678               1,883,678         

Information Technology

     1,463,268               1,463,268         

Collateralized Loan Obligations

     2,807,695               2,221,996        585,699  

Rights

                                   

Utilities

     1,863,868               1,863,868         

Corporate Bonds & Notes

                                   

Communication Services

     80,804               80,804         

Energy

     7               7         

Real Estate

     1,149,390               1,149,390         

Utilities

     7,500               7,500         

Foreign Corporate Bonds & Notes

                                   

Netherlands

                           

Convertible Bonds

     316,532               316,532         

Cash Equivalents

     3,895,290        3,895,290                
  

 

 

 

    

 

 

 

Total Assets

     876,768,348        27,498,121        118,396,090        730,874,137  
  

 

 

 

    

 

 

 

Liabilities

                                   

Securities Sold Short

                                   

Common Stock

                                   

Information Technology

     (1,384,371)        (1,384,371)                
  

 

 

 

    

 

 

 

Total Liabilities

     (1,384,371)        (1,384,371)                
  

 

 

 

    

 

 

 

Total

     $875,383,977        $26,113,750        $118,396,090        $730,874,137  
  

 

 

 

    

 

 

 

 

(1)

Security with zero value.

The table below sets forth a summary of changes in the Fund’s Level 3 assets (assets measured at fair value using significant unobservable inputs) for the period ended March 31, 2021.

 

     Balance as of
December 31,
2020
  Transfers
into
Level 3
  Transfers
out of
Level 3
  Net
Amortization
(Accretion)
of Premium/
(Discount)
  Net
Realized
Gains/
Losses
  Change in
Unrealized
Gains/(Losses)
  Net
Purchases
  Net (Sales)   Distribution
to Return
of Capital
  Balance as
of March 31,
2021
  Change in
Unrealized
Appreciation
(Depreciation)
from
Investments at
March 31,
2021

NexPoint Strategic Opportunities Fund

 

U.S. Senior Loan

                                                                                       

Communication Services

    $25,824,939       $-       $-       $-       $-       $714,580       $-       $-       $-       $26,539,519       $671,040  

Gaming/Leisure

    13,884,722       -       -       -       -       (13,721,140)       -       -       -       163,582       (17,814,693)  

Metals & Materials

    -       -       -       -       -       -       -       -       -       -       (1,118,873)  

Real Estate

    34,721,607       -       -       -       -       (34,721,607)       -       -       -       -       (34,721,607)  
NOTES TO INVESTMENT PORTFOLIO (unaudited)

    

     
As of March 31, 2021    NexPoint Strategic Opportunities Fund

 

     Balance as of
December 31,
2020
  Transfers
into
Level 3
  Transfers
out of
Level 3
  Net
Amortization
(Accretion)
of Premium/
(Discount)
  Net
Realized
Gains/
Losses
  Change in
Unrealized
Gains/(Losses)
  Net
Purchases
  Net (Sales)   Distribution
to Return
of Capital
  Balance as
of March 31,
2021
  Change in
Unrealized
Appreciation
(Depreciation)
from
Investments at
March 31,
2021
Corporate Bonds & Notes                                                                                        

Energy

    $-(1)       $-       $-       $-       $-       $-       $-       $-       $-       $-(1)       $1,272,291  
Warrant                                                                                        

Industrials

    -       -       -       -       -       -       -       -       -       -       1,078  
Preferred Stock                                                                                        

Financial

    41,304,066       -       -       -       -       (40,716,066)       -       -       -       588,000       (34,112,379)  

Real Estate

    25,149,799       -       -       -       -       616,039       -       -       -       25,765,838       (3,141,124)  

Real Estate Investment Trust

    -(1)       -       -       -       -       -       -       -       -       -(1)       (2,566,724)  
LLC Interest                                                                                        

Real Estate

    153,742,923       -       -       -       6,332,096       652,514       -       (91,851,599)       -       68,875,934       6,415,991  
Collateralized Loan Obligations     4,623,353       -       -       -       -       (4,037,654)       -       -       -       585,699       (3,090,261)  

Common Stock

                                                                                       

Communication Services

    43,813,706       -       -       -       -       (531,204)       -       -       -       43,282,502       (7,536,457)  

Financial

    51,366,085       -       -       -       -       (51,294,571)       -       -       -       71,514       (58,576,220)  

Gaming/Leisure

    2,259,265       -       -       -       -       (2,259,265)       -       -       -       -       (4,518,530)  

Materials

    -       -       -       -       -       -       -       -       -       -       (1,070,363)  

Real Estate

    70,541,460       -       -       -       -       (79,946)       91,883,644       -       -       162,345,158       84,285,742  

Real Estate Investment Trust

    185,772,302       -       -       -       -       (140,700,151)       357,584,240       -       -       402,656,391       (129,094,762)  

Utilities

    -(1)       -       -       -       -       -       -       -       -       -(1)       -  
Foreign Corporate Bonds & Notes                                                                                        

Netherlands

    -(1)       -       -       -       -       -       -       -       -       -(1)       -  
 

 

 

 

   

 

 

 

Total     $653,004,227       $-       $-       $-       $6,332,096       $(286,078,471)       $449,467,884       $(91,851,599)       $-       $730,874,137       $(204,715,851)  
 

 

 

 

   

 

 

 

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.

The following is a summary of significant unobservable inputs used in the fair valuation of assets and liabilities categorized within Level 3 of the fair value hierarchy:

 

Category   

Market Value at

March 31, 2021

  

Valuation

Technique

  

Unobservable

Inputs

   Input Value(s)
         

Common Stock

   $608,355,565    Multiples Analysis    Unadjusted Price/MHz-PoP    $0.09 - $0.95
               Multiple of EBITDA    3.00x-8.00x
          Discounted Cash Flow    Discount Rate    7.25% - 22.0%
          Transaction Indication of Value    Enterprise Value ($mm)    $771.0
               Subscription Price per Share    $16.61
NOTES TO INVESTMENT PORTFOLIO (unaudited)

    

     
As of March 31, 2021    NexPoint Strategic Opportunities Fund

 

Category   

Market Value at

March 31, 2021

  

Valuation

Technique

  

Unobservable

Inputs

   Input Value(s)
               Cost Price Per Share    $1,063.47
               Tender Offer    $1.10
          Direct Capitalization Method    Capitalization Rates    5.75% - 9.5%
          Net Asset Value    N/A    N/A

Preferred Stock

   $26,353,838    Discounted Cash Flow    Discount Rate    11.0%
          Third Party Indication of Value    Broker Quote    Various

U.S. LLC Interest

   68,875,934    Discounted Cash Flow    Discount Rate    1.81% - 5.93%
          Net Asset Value    N/A    N/A

U.S. Senior Loans

   26,703,101    Discounted Cash Flow    Discount Rate    11.0%
          Transaction Indication of Value    Net purchase price ($mm)    $7.00

Collateralized Loan Obligation

   585,699    Discounted Cash Flow    Discount Rate    9.1%
  

 

        
    

 

              

Total

   $ 730,874,137               
  

 

        
    

 

              

In addition to the unobservable inputs utilized for various valuation methodologies, the Fund frequently uses a combination of two or more valuation methodologies to determine fair value for a single holding. In such instances, the Company assesses the methodologies and ascribes weightings to each methodology. The weightings ascribed to any individual methodology ranged from as low as 5% to as high as 95% as of March 31, 2021. The selection of weightings is an inherently subjective process, dependent on professional judgement. These selections may have a material impact to the concluded fair value for such holdings.

The significant unobservable inputs used in the fair value measurement of the Company’s common equity securities are: multiple of EBITDA, price/MHz-PoP multiple, illiquidity discount, discount rate, capitalization rate, and transaction price. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement. The significant unobservable input uses in the fair value measurement of the Company’s preferred stock assets are the discount rate and broker quotes. Significant decreases (increases) in any of those inputs in isolation could result in a significantly higher (lower) fair value measurement. The significant unobservable input used in the fair value measurement of the Company’s LLC interests is the discount rate. A significant decrease (increase) in this input in isolation could result in a significantly higher (lower) fair value measurement. The significant unobservable inputs used in the fair value measurement of the Company’s bank loan securities are: discount rate and spread adjustment. Significant increases (decreases) in any of those inputs in isolation could result in a significantly lower (higher) fair value measurement.

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 Company considers liquid assets deposited with a bank and certain short-term debt instruments of sufficient credit quality with original maturities of three months or less to be cash equivalents. The Company also considers money market instruments that invest in cash equivalents to be cash equivalents. These investments represent amounts held with financial institutions that are readily accessible to pay Company expenses or purchase investments. Cash and cash equivalents are valued at cost plus accrued interest, which approximates fair value.

NOTES TO INVESTMENT PORTFOLIO (unaudited)

    

     
As of March 31, 2021    NexPoint Strategic Opportunities Fund

 

The value of cash equivalents denominated in foreign currencies is determined by converting to U.S. dollars on the date of this financial report. These balances may exceed the federally insures limits under the Federal Deposit Insurance Corporation (“FDIC”).

Securities Sold Short

The Company may sell securities short. A security sold short is a transaction in which the Company sells a security it does not own in anticipation that the market price of that security will decline. When the Company sells a security short, it must borrow the security sold short from a broker-dealer and deliver it to the buyer upon conclusion of the transaction. A Company may have to pay a fee to borrow particular securities and is often obligated to pay over any dividends or other payments received on such borrowed securities. In some circumstances, a Company 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 Investment Portfolio for the Company.

When securities are sold short, the Company intends to limit exposure to a possible market decline in the value of its portfolio securities through short sales of securities that the Investment Adviser believes possess volatility characteristics similar to those being hedged. In addition, the Company may use short sales for non-hedging purposes to pursue its investment objective. Subject to the requirements of the 1940 Act and the Internal Revenue Code of 1986, as amended (the “Code”), the Company will not make a short sale if, after giving effect to such sale, the market value of all securities sold short by the Company exceeds 25% of the value of its total assets. The Company may make short sales “against the box” without respect to such limitations.

Derivative Transactions

The Company is subject to interest rate risk in the normal course of pursuing its investment objectives. The Company enters into derivative transactions for the purpose of hedging against the effects of changes in the value of portfolio securities due to anticipated changes in market conditions, to gain market exposure for residual and accumulating cash positions and for managing the duration of fixed income investments.

Options

The Company may utilize options on securities or indices to varying degrees as part of their principal investment strategy. An option on a security is a contract that gives the holder of the option, in return for a premium, the right to buy from (in the case of a call) or sell to (in the case of a put) the writer of the option the security underlying the option at a specified exercise or “strike” price. The writer of an option on a security has the obligation upon exercise of the option to deliver the underlying security upon payment of the exercise price or to pay the exercise price upon delivery of the underlying security. The Company may hold options, write option contracts, or both.

If an option written by the Company expires unexercised, the Company realizes on the expiration date a capital gain equal to the premium received by the Company at the time the option was written. If an option purchased by the Company expires unexercised, the Company realizes a capital loss equal to the premium paid. Prior to the earlier of exercise or expiration, an exchange-traded option may be closed out by an offsetting purchase or sale of an option of the same series (type, underlying security, exercise price and expiration). There can be no assurance, however, that a closing purchase or sale transaction can be effected when the Company desires. The Company will realize a capital gain from a closing purchase transaction if the cost of the closing option is less than the premium received from writing the option, or, if the cost of the closing option is more than the premium received from writing the option, a capital loss. The Company will realize a capital gain from a closing sale transaction if the premium received from the sale is more than the original premium paid when the option position was opened, or a capital loss, if the premium received from a sale is less than the original premium paid.

Reverse Repurchase Agreements

The Company may engage in reverse repurchase agreement transactions with respect to instruments that are consistent with the Fund’s investment objective or policies.

NOTES TO INVESTMENT PORTFOLIO (unaudited)

    

     
As of March 31, 2021    NexPoint Strategic Opportunities Fund

 

Affiliated Issuers

Under Section 2 (a)(3) of the Investment Company Act of 1940, as amended, a portfolio company is defined as “affiliated” if a fund owns five percent or more of its outstanding voting securities or if the portfolio company is under common control. The table below shows affiliated issuers of the Fund as of September 30, 2020.

 

Issuer  

Shares at
December
31, 2020

 

Beginning
Value as of
December 31,
2020

 

Purchases
at Cost

 

Proceeds
from Sales

 

Distribution
to Return
of Capital

  Net
Realized
Gain/Loss
on the
Sales of
Affiliated
Issuers
 

Change
Unrealized
Appreciation/

Depreciation

 

Ending
Value as of
March 31,
2021

 

Shares at
March 31,
2021

 

Affiliated
Income

Majority Owned, Not Consolidated

                                                                               
NexPoint Real Estate Opportunities, LLC, REIT (Common Stocks)     147,179,635       $156,117,854       $45,445,108       $(45,445,108)       $-       $-       $40,168,774       $196,286,628       190,736,205       $-  
NexPoint Real Estate Capital     131,663,561       63,627,732       -       -       -       -       (47,398)       63,580,334       131,663,561       -  
Specialty Financial Products, Ltd. (Common Stocks)     48,258,624       51,294,091       1,468,845       (48,965,203)       -       -       (3,797,733)       -       -       -  

Other Affiliates

                    -       -       -       -                                  
SFR WLIF I, LLC     40,322,605       32,828,649       -       -       -       -       4,094,761       36,923,410       40,322,605       794,883  
SFR WLIF II, LLC     26,968,904       22,089,420       -       -       -       -       2,754,334       24,843,754       26,968,904       534,850  
SFR WLIF III, LLC     7,708,491       6,973,255       -       -       -       -       135,515       7,108,770       7,708,491       100,706  
LLV Holdco LLC (U.S. Senior Loans, Common Stocks & Warrants)     11,763,530       16,021,295       -       (85,518,664)       -       -       69,497,369       -       -       -  
NexPoint Residential Trust, Inc.     84,300       3,566,733       28,948       (4,991)       -       -       294,982       3,885,672       84,919       5,259  
NexPoint Hospitality Trust     13,571,131       4,885,607       -       -       -       -       -       4,885,607       13,571,131       -  
NREF OP I REIT     397,240       6,562,400       -       -       -       -       818,314       7,380,714       397,240       -  
JCAP Holdco, LLC     86,369       91,851,599       -       (91,851,599)       -       6,332,096       (6,332,096)       -       -       -  
NexPoint Real Estate Finance Operating Partnership, L.P.     3,247,510       53,648,860       -       -       -       -       6,689,870       60,338,730       3,247,510       1,701,463  
TerreStar Corp. (U.S. Senior Loans & Common Stocks)     25,957,740       69,638,645       714,580       (714,580)       -       -       183,375       69,822,020       26,672,319       714,580  
United Development Funding IV     1,763,581       2,028,118       -       -       -       -       -       2,028,118       1,763,581       -  

Other Controlled

                    -       -       -                                          
Allenby (Common Stocks)     663,296       1       8,768       (4,384)       -       -       (4,385)       -       667,680       -  
Claymore (Common Stocks)     2,204,511       2       55,322       (27,661)       -       -       (27,663)       -       2,232,172       -  
NREO Special Purpose LLC, Tranche A Term Loan, 1st Lien (U.S. Senior Loan)     34,721,607       34,721,607       4,000,000       (34,721,607)       -       -       (4,000,000)       -       -       602,326  
 

 

 

 

   

 

 

 

Total     496,562,635       $615,855,868       $51,721,571       $(307,253,797)       $-       $6,332,096       $110,428,019       $477,083,757       446,036,318       $4,454,066  
 

 

 

 

   

 

 

 

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.