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ROPES & GRAY LLP
PRUDENTIAL TOWER
800 BOYLSTON STREET
BOSTON, MA 02199-3600
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January 9, 2012
VIA EDGAR
Securities and Exchange Commission
Division of Investment Management
100 F Street, N.E.
Washington, D.C. 20549
Attn: Dominic Minore, Esq.
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Re: |
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Highland Funds II (the Registrant)
1940 Act File No. 811-07142
1933 Act File No. 033-51308 |
Dear Mr. Minore:
As requested, in connection with Alternative Income Fund (the Fund), set forth below is the
past performance information of other accounts managed by Anchor Capital Management Group, Inc.
(Anchor or the Sub-Adviser) with investment objectives, policies, and strategies
substantially similar to those of the Fund. Also provided are responses to the comments you
provided on December 30, 2011 and January 6, 2012 with respect to such performance information.
The below information relates to Post-Effective Amendment No. 71 under the Securities Act of
1933, as amended (the 1933 Act), and Amendment No. 73 under the Investment Company Act of 1940,
as amended (the 1940 Act), to the Registrants Registration Statement filed on Form N-1A and will
be included in the next post-effective to the Registrants Registration Statement on Form N-1A that
relates to the Fund.
Sub-Advisers Related Performance
The bar chart and table below set forth the investment performance for the periods indicated of all
accounts (the Accounts) with investment objectives, policies, and strategies substantially
similar to those of the Fund, managed by the Anchor (the Composite). The performance information
shows changes in the Composites performance from year to year and how the Composites performance
compares over the same periods to the performance of the Barclays High Yield Credit Bond Index.
The Composite reflects all fees and expenses actually incurred by the Accounts (including account
transaction and/or custodial charges and any placement fees or sales loads) and assumes the
reinvestment of dividends and other Account earnings. Such fees and expenses vary from those of
the Fund and, if the performance of the Composite were adjusted to give effect to the Funds fees
and expenses, the
performance would be lower than the performance shown below. The inception date
of the Composite is January 1, 2008.
The table illustrates how the performance of the Composite has varied since inception. The
investment results of the Composite presented below are unaudited. In addition, none of the
Accounts are subject to certain investment limitations, diversification requirements and other
restrictions imposed by the Investment Company Act of 1940 (the 1940 Act) and the Internal
Revenue Code of 1986 (the Code), each as amended. Consequently, the performance results for the
Composite could have been adversely affected if all of the accounts included in the Composite had
been regulated as investment companies under the federal securities laws or the Code. Anchor has
calculated returns for the Composite based on Global Investment Performance Standards (GIPS), which
is different than the manner required for mutual funds by the SEC.
The performance shown below is provided solely to illustrate Anchors performance in managing the
Accounts, is not the performance of the Fund, and is not indicative of the Funds future
performance. Had the Fund been in operation during periods for which Composite performance
information is shown, the Funds performance may have differed due to factors such as investment
limitations, diversification requirements and other restrictions imposed by the 1940 Act and the
Code, differences in cash flows into and out of the Fund, differences in fees and expenses, and
differences in portfolio size and investments. Prior performance of the Accounts is not indicative
of future rates of return and is no indication of future performance of the Fund.
The following performance is not the performance of the Fund.
Calendar Year Total Returns
Years Ending December 31
Average Annual Total Returns
Years Ending December 31, 2011
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Inception |
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1 Year |
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3 Years |
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01/01/08 |
Composite
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-3.1 |
% |
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4.3 |
% |
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6.7 |
% |
Barclays High Yield Credit Bond Index
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5.0 |
% |
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24.1 |
% |
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9.0 |
% |
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Comments Related to Sub-Advisers Related Performance
1. |
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In the first paragraph under Sub-Advisers Related Performance, please delete the words
discretionary institutional before the word accounts in the first sentence and provide
any minimum size requirements for an accounts inclusion in the Composite. |
Response: The requested change has been made. The Registrant has deleted
the words discretionary institutional before the word account in the first
sentence of the first paragraph under Sub-Advisers Related Performance. The
Registrant notes that there is no minimum size requirement for an accounts
inclusion in the Composite.
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Please confirm in the comment response letter that the Sub-Adviser did not manage any
registered investment companies for any meaningful period of time during the period for which
the Composite returns information is shown. |
Response: The Registrant confirms that the Sub-Adviser did not manage any
registered investment companies for any meaningful period of time during the period
for which the Composite returns information is shown. The Sub-Adviser currently
manages Pyxis Alpha Trend Strategies Fund, another series of the Registrant, but
such Fund commenced operations on October 31, 2011 and does not yet have a
meaningful track record.
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In the second paragraph under Sub-Advisers Related Performance, please revise the last
sentence to state that Anchor has calculated returns for the Composite based on Global
Investment Performance Standards (GIPS), which is different than the manner required for
mutual funds by the SEC. |
Response: The requested change has been made.
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Please provide the inception date of the Composite. |
Response: The requested change has been made.
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Please include September 30, 2011 year-to-date performance information for the Composite or
include performance information as of December 31, 2011. |
Response: The Registrant has included performance information for the
Composite through December 31, 2011.
6. |
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In the Average Annual Total Returns table, please delete the word Anchor before the word
Composite. |
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Response: The requested change has been made. |
7. |
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Please confirm whether the Composite performance reflects any account transaction fees or
other custodial charges, placement fees, or sales loads. |
Response: The Registrant confirms that the Composite performance reflects
all fees and expenses actually incurred by the Accounts, including account
transaction fees and other custodial charges and any placement fees and sales
loads.
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8. |
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Please explain why the HFRX Absolute Return Index is an appropriate broad-based securities
index or select a different index. |
Response: The Registrant has revised the performance information to
include Barclays High Yield Credit Bond Fund as the Funds comparative index.
Please direct any questions or comments concerning this letter to the undersigned at 617-951-7375.
Very truly yours,
/s/ Sarah Clinton
Sarah Clinton
cc: Ethan Powell, Highland Funds Asset Management, L.P.
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