Thomas J. Herzfeld Advisors, Inc. (the “TJH”) today announced that
it has submitted written materials pursuant to Rule 14a-6(g)(1)
promulgated under the Securities Exchange Act of 1934. Those
written materials consist of an open letter to shareholders of The
Highland Income Fund (NYSE: HFRO) urging shareholders of HFRO to
vote AGAINST a management proposal to convert the closed end fund
into an unregulated holding company.
HFRO is a closed-end fund managed by Highland Capital Management
Fund Advisors, L.P. On June 14, 2021, Highland Capital announced
its proposal to convert the HFRO from a registered investment
company to a diversified holding company.
The full text of TJH’s letter to HFRO shareholders is presented
here:
Dear Fellow Stockholders of Highland Income Fund (HFRO):
Thomas J. Herzfeld Advisors, Inc. (“TJH”) is the second largest
shareholder of Highland Income Fund (HFRO) with 2,502,335 shares.
We have held shares in HFRO since February, 2018 and have been a
staunch advocate for the closed-end fund (CEF) industry since 1984.
One of the principal reasons our firm invests in CEFs is the fact
that CEFs are regulated by the US Securities and Exchange
Commission under the Investment Company Act of 1940 (the “1940
Act”). The 1940 Act provides investors with a high degree of
protection including accurate and timely financial disclosure
requirements, limits on use of leverage and corresponding adherence
to important financial ratios, important disclosure obligations for
CEF management and board of directors members, and other key
investor friendly protections.
We are dismayed by the current proposal by HFRO management and
its Board of Directors to change the legal structure of the company
from CEF regulated under the 1940 Act to a holding company outside
the scope of those important 1940 Act protections. In addition,
management desires to change the investment strategy of the
company, from a focus on income production and capital preservation
to a non-income producing growth strategy. This is contrary to the
original investment rationale for most long-term holders.
We agree with many of the concerns that have been brought to
light by Phil Goldstein of Bulldog Investors, Mike Taggart of
Taggart Fund Intelligence (and former head of closed-end fund
research at Morningstar), and Institutional Shareholder Services
(ISS), a respected independent industry watchdog. All have
recommended voting against the proposal to convert the fund into a
holding company.
We disagree with HFRO’s attempt to paint Phil Goldstein as an
activist solely out for his own gain and without the interest of
long-term shareholders at heart. Throughout our long history, we
have often disagreed with many activist campaigns, including
campaigns brought by Mr. Goldstein, particularly when those
campaigns seek change benefiting short-term investors at the
expense of long-term holders. However, this is not one of those
situations. Shareholders of HFRO are predominantly individuals that
purchased shares based on HFRO’s stated investment objectives and
the protections afforded investors under the 1940 Act. Our firm
holds the second largest position in HFRO on behalf of our clients
as long-term investors. It is our clients and the many individual
investors who will lose important shareholder protections if the
proposal by HFRO management and its Board is approved.
We urge shareholders to listen to the AICA Podcast from August
13th in which Mike Taggart discusses why he believes that this
proposal is “… a deal that’s great for the managers and bad for
shareholders.” See
https://aicalliance.org/taggart-says-investors-can-find-the-devil-is-in-merger-details/.
We note that since management introduced its proposal, the
Price/NAV discount in HFRO has widened from -13.97% to -23.08%
ahead of the August 20th Special Meeting, further reducing options
for any shareholders who would like to exit this security.
Management claims that they have instituted measures to reduce
this discount. In our opinion, these efforts have been woefully
inadequate. For example, the Board approved a buyback of 10% of
outstanding shares in April of 2020, but then repurchased only
544,508 shares which is less than 1% of the outstanding issue all
while the discount averaged -26.40% over the buyback period.
We also take issue with several statements in the proxy
materials, including statements regarding increasing shareholder
transparency with holding company quarterly earnings calls and
“other…periodic reports”. The company currently strikes a daily
NAV, the ultimate transparency for investors. The company can
institute a quarterly investor call now, without changing its
corporate structure and removing the 1940 Act investor protections.
Why not just implement those transparency measures now?
We strongly urge shareholders to vote AGAINST the proposal. If
you have already voted FOR the proposal, we encourage you to revoke
your proxy and vote AGAINST the proposal.
In our opinion, the proposal takes away important shareholder
protections while offering absolutely no positive rewards for
shareholders. We believe that it is only management alone that
benefits from this proposal, allowing them to control our money
with less oversight from regulators and investors. As shareholders
standing alongside all of you, we do not see any benefits to the
proposal.
About Thomas J. Herzfeld Advisors, Inc.
Thomas J. Herzfeld Advisors, Inc., founded in 1984, is an SEC
registered investment advisor, specializing in investment analysis
and account management in closed-end funds. More information about
the advisor can be found at www.herzfeld.com.
Forward-Looking Statements
This press release, and other statements that TJH may make, may
contain forward looking statements within the meaning of the
Private Securities Litigation Reform Act, with respect to the TJH’s
future financial or business performance, strategies or
expectations. Forward-looking statements are typically identified
by words or phrases such as “trend,” “potential,” “opportunity,”
“pipeline,” “believe,” “comfortable,” “expect,” “anticipate,”
“current,” “intention,” “estimate,” “position,” “assume,”
“outlook,” “continue,” “remain,” “maintain,” “sustain,” “seek,”
“achieve,” and similar expressions, or future or conditional verbs
such as “will,” “would,” “should,” “could,” “may” or similar
expressions. TJH cautions that forward-looking statements are
subject to numerous assumptions, risks and uncertainties, which
change over time. Forward-looking statements speak only as of the
date they are made, and TJH assumes no duty to and does not
undertake to update forward-looking statements. Actual results
could differ materially from those anticipated in forward-looking
statements and future results could differ materially from
historical performance. The information contained on TJH’s website
is not a part of this press release.
_________________
This is not a solicitation of authority to vote your proxy.
Proxy cards will not be accepted by Thomas J. Herzfeld Advisors,
Inc. TJH is not able to vote your proxies, nor does this
communication contemplate such an event.
Contact:Tom MorganChief Compliance OfficerThomas J. Herzfeld
Advisors, Inc.1-305-777-1660
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