The Highland Income Fund (NYSE: HFRO) (“HFRO” or the “Fund”), a
closed-end fund managed by Highland Capital Management Fund
Advisors, L.P. (the “Adviser”), today announced the filing of a
definitive proxy statement with the Securities and Exchange
Commission (the “SEC”) for a special meeting of shareholders
(“Special Meeting”) in connection with its proposal to covert the
Fund from a registered investment company to a diversified holding
company (the “Holding Company”). The Special Meeting will be held
on August 20, 2021 at 8:30 a.m. CDT to consider the proposal.
The proposal to change the Fund’s business from a registered
investment company to a diversified holding company and to amend
certain fundamental investment restrictions (the “Business Change
Proposal”) aims to increase shareholder value and better position
HFRO in the current and future market environment.
The Holding Company would primarily pursue controlling
interests—and, to a lesser extent, minority interests—in companies
and other assets in four core sectors/focus areas where the Adviser
has relevant expertise.1
At the Special Meeting, shareholders are being asked to vote
upon the Business Change Proposal and, if approved, to approve the
amendment and restatement of the Fund’s Agreement and Declaration
of Trust (the “Amendment Proposal” and, together with the Business
Change Proposal, the “Proposals”).
Additional details on the Proposals and voting information can
be found at www.hfroconversion.com.
The Fund’s Board of Trustees (the “Board”), a majority of the
members of which are not interested persons of the Fund (the
“Independent Trustees”), reviewed the Proposals at length, and
believes they are in the best interest of shareholders. As such,
the Board recommends shareholders vote “FOR” the Proposals at the
Special Meeting.
Adoption of the Business Change Proposal is expected to provide
several benefits, including the following:
- Potential to provide investors with a superior risk adjusted
return compared to public equity, fixed income, and distressed debt
markets2;
- Better positioning for HFRO in the current and future
environment, enabling HFRO to transition to assets away from
credit, where high yield spreads are at all-time lows, into those
with better growth potential and thus better potential for
shareholder returns; and
- Potential for HFRO to trade at a premium to book value in line
with comparable diversified holding companies, which historically
have traded at a premium, while closed-end funds have historically
traded at a discount to net asset value (“NAV”).3
Additionally, the Business Change Proposal would expand access
to the Adviser’s platform, enabling HFRO to pursue opportunities
where the Adviser has unique expertise and resources that it can
apply to unlock potential value.
As part of the Business Change Proposal, HFRO has committed to a
formulaic buyback program supplemented by additional share
purchases from management to support the conversion process. HFRO
and management will only purchase shares under the buyback programs
if the Proposals are approved The management purchase plan is
conditioned solely on shareholder approval of the Proposals;
however, the HFRO formulaic buyback program is subject to
additional terms and conditions. Accordingly, there can be no
assurance that HFRO will purchase any shares under the formulaic
buyback program or with respect to the timing or size of such
purchases, if any.4
HFRO also intends to maintain the current dividend for common
shares through January 31, 2022.
Additional information on the potential benefits of the Business
Change Proposal, as well as related risks, and the Adviser’s
relevant capabilities is available in the proxy statement.
Proxy Statement
A copy of the definitive proxy statement is available free of
charge at www.hfroconversion.com or at the SEC
website, www.sec.gov. Shareholders should read the proxy
statement carefully because it contains important information.
Shareholders should make no decision about the Proposals until
reviewing the definitive proxy statement sent to them.
HFRO and its trustees and officers, the Adviser’s and its
affiliates’ respective members, trustees, directors, shareholders,
officers and employees, Di Costa Partners LLC and other persons may
be deemed to be participants in the solicitation of proxies with
respect to the Proposals. Shareholders may obtain more
detailed information regarding the direct and indirect interests of
the foregoing persons by reading the definitive proxy statement
filed with the SEC regarding the Proposals.
About the Highland Income Fund
The Highland Income Fund (NYSE:HFRO) is a closed-end fund
managed by Highland Capital Management Fund Advisors, L.P. For more
information visit www.highlandfunds.com/income-fund/
About Highland Capital Management Fund Advisors, L.P.
Highland Capital Management Fund Advisors, L.P. is an
SEC-registered investment adviser. It is the adviser to a suite of
registered funds, including open-end mutual funds, closed-end
funds, and an exchange-traded fund. For more information visit
www.highlandfunds.com.
Investors should consider the investment objectives, risks,
charges and expenses of the Highland Income Fund carefully before
investing. This and other information can be found in the Fund's
prospectus, which may be obtained by calling 1-800-357-9167 or
visiting www.highlandfunds.com. Please read the
prospectus carefully before you invest.
No assurance can be given that the Fund will achieve its
investment objectives.
This press release contains forward-looking statements. These
statements reflect the current views of management with respect to
future events and financial performance. Forward-looking statements
can be identified by words such as “anticipate”, “expect”, “could,”
“may”, “potential”, “will”, “ability,” “targets,” “believe,”
“likely,” “assumes,” “ensuring,” “available,” “optionality,”
“viability,” “maintain,” “consistent,” “pace,” “should,”
“emerging,” “driving,” “looking to,” and similar statements of a
future or forward-looking nature. Forward-looking statements
address matters that involve risks and uncertainties. Past
performance does not guarantee future results. Performance during
time periods shown is limited and may not reflect the performance
in difference economic and market cycles. There can be no assurance
that similar performance will be experienced.
The proposed conversion of HFRO to a diversified holding company
is contingent upon an affirmative shareholder vote, regulatory
approval, and the ability to reconfigure HFRO’s portfolio such that
it is no longer an investment company for purposes of the
Investment Company Act of 1940 (the “1940 Act”). The conversion
process could take approximately 24 months; and there can be no
assurance that conversion of HFRO to a diversified holding company
will be completed, improve HFRO’s performance or reduce the common
share discount to net asset value (“NAV”).
In addition, actions taken in connection with the proposed
conversion may adversely affect the financial condition, yield on
investment, results of operations, cash flow, per share trading
price of our securities, ability to satisfy debt service
obligations, if any, and to make cash distributions to
shareholders. Whether HFRO remains a registered investment company
or converts to a diversified holding company, an investment in
HFRO’s securities, like an investment in any other public company,
is subject to investment risk, including the possible loss of
investment. For a discussion of certain other risks relating to our
conversion to a holding company, see “Implementation of the
Business Change Proposal and Related Risks” and “Appendix B: Risks
Associated with the Business Change Proposal” in the proxy
statement.
If the Proposals are approved by shareholders, HFRO will apply
to the SEC for a Deregistration Order, but the timing for receiving
the Deregistration Order is uncertain. Until the SEC issues a
Deregistration Order, HFRO will continue to be registered as an
investment company and will continue to be regulated under the 1940
Act. Pending the SEC’s issuance of the Deregistration Order, the
Adviser intends to begin realigning HFRO’s portfolio consistent
with its new business as a diversified holding company. The
implementation period may last approximately two years, with full
implementation not projected until approximately the middle of
2023. The foregoing time period is an estimate and may vary
depending upon the length of the deregistration process with the
SEC, tax considerations and the pace at which we will be able to
transition certain of the Company’s assets such that we will no
longer be deemed an investment company under the 1940 Act. Any
delay in receiving the Deregistration Order beyond the projected
two-year implementation period may delay HFRO’s ability to operate
like a typical diversified holding company not subject to the 1940
Act and would delay the ability to realize the benefits the
Adviser’s anticipate to realize from becoming a diversified holding
company.
For additional risks and disclosures, please visit
www.hfroconversion.com/disclosures.
###
Contacts
Shareholders: (800) 357-9167
Financial Professionals: (833) 697-7253
Media: (214) 550-4572
1 The Holding Company would pursue minority interests consistent
with maintaining exclusion from investment company status.
2 Risk adjusted return is a calculation of the potential profit
from an investment that takes into account the degree of risk
associated with such investment. Please refer to the “Questions
& Answers” section of this Proxy Statement for more information
on how risk adjusted return is calculated.
3 Past performance is not a guarantee of future results and
there can be no assurance that the Fund will
not continue to trade at a discount to NAV after converting to a
diversified holding company.
4 See the proxy statement for information on the buyback program
and additional share purchase commitments.
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